Producers Bank of the Philippines vs. NLRC

An employer suffering continuing net losses and placed under conservatorship cannot be compelled to pay bonuses at prior levels, as bonuses are acts of generosity dependent on the employer's profits and financial capacity; however, bonuses already granted may be credited as the equivalent of the 13th month pay under P.D. 851, CBA wage increases are creditable against statutory wage orders where the CBA expressly contemplates such adjustments, and the use of a 314-day divisor in computing daily rates includes holiday pay.

Producers Bank of the Philippines is a banking institution that commenced operations in 1971 and had historically granted its employees a mid-year bonus equivalent to one month's basic pay and a Christmas bonus equivalent to one month's salary (basic pay plus allowance). The Producers Bank Employees Association is the collective bargaining representative of the bank's rank-and-file employees. The parties' collective bargaining agreement, signed on 16 November 1984, contained provisions on salary adjustments and an "Acts of Grace" clause stating that benefits not expressly provided in the agreement were deemed purely acts of grace dependent on the bank's sole discretion. In early 1984, the bank was placed under conservatorship by the Monetary Board pursuant to Section 28-A of Republic Act No. 265, as amended by Presidential Decree No. 72, due to a bank run that began in 1983 and continuing inability to maintain solvency and liquidity. The conservatorship was upheld in Central Bank of the Philippines vs. Court of Appeals, where the Court found the bank had over-drawings reaching P1.233 billion as of 13 February 1990.

Producers Bank of the Philippines, a banking institution that began operations in 1971, had from its early years regularly granted its employees a mid-year bonus equivalent to one month's basic pay and a Christmas bonus equivalent to one month's salary (basic pay plus allowance). When Presidential Decree No. 851, the 13th month pay law, took effect, the bank applied the basic pay portion of the Christmas bonus as compliance with the 13th month pay requirement, with the allowance remaining as the Christmas bonus. From 1981 to 1983, the bank continued giving one month basic pay as mid-year bonus, one month basic pay as 13th month pay, and a Christmas bonus based on basic pay, which was higher than the allowance-based amount previously given.

In early 1984, the bank was placed under conservatorship by the Monetary Board pursuant to Section 28-A of Republic Act No. 265, as amended by Presidential Decree No. 72, after a bank run triggered by news items in August 1983 resulted in continuous over-drawings on the bank's demand deposit account with the Central Bank. The conservatorship was subsequently upheld by the Supreme Court in Central Bank of the Philippines vs. Court of Appeals, which found that as of 13 February 1990, the bank had over-drawings of up to P1.233 billion, evidencing a continuing inability to maintain solvency and liquidity. Despite the conservatorship, the bank continued providing the traditional mid-year bonus in 1984. By virtue of an alleged Monetary Board Resolution No. 1566, however, the bank reduced its bonus payments: in 1984, it gave one month basic pay as mid-year bonus, one-half month basic pay as 13th month pay, and nothing for Christmas bonus; in 1985, one-half month basic pay as mid-year bonus, one-half month basic pay as 13th month pay, and no Christmas bonus; in 1986 and 1987, one-half month basic pay as mid-year bonus, one month basic pay as 13th month pay, and one-half month basic pay as Christmas bonus. The bank sustained net losses of P144.418 million in 1984, P144.940 million in 1985, P132.940 million in 1986, P84.182 million in 1987, and P9.271 million in January and February 1988, figures that did not include interest expenses on the overdraft loan amounting to P610.065 million as of 31 July 1987, and penalties on reserve deficiencies of P89.029 million.

On 16 November 1984, the bank and the union entered into a collective bargaining agreement providing for salary and allowance increases effective 1 March 1984, 1 March 1985, and 1 March 1986, with a provision that the first-year increases were chargeable against adjustments under Wage Order No. 5 and that the chargeability of subsequent increases against future government-ordered adjustments would be determined based on the provisions of such orders. The CBA also contained an "Acts of Grace" clause stating that benefits not expressly provided in the agreement were deemed purely acts of grace dependent on the bank's sole judgment and discretion. On 13 August 1986, the Acting Conservator approved the use of 303 days as divisor for computing overtime pay, while expressly retaining the 314-day divisor for cash conversion and determination of daily rate, with Saturdays remaining as paid rest days.

On 11 February 1988, the Producers Bank Employees Association filed a complaint with the NLRC Arbitration Branch, NCR, charging the bank with diminution of benefits, non-compliance with Wage Order No. 6, and non-payment of holiday pay, and praying for damages. The Labor Arbiter dismissed the complaint on 31 March 1989, finding the union's claims unmeritorious and affirming the bank's assertions of financial distress. The NLRC reversed the Labor Arbiter on 30 April 1991, granting all claims except damages. The bank's motion for partial reconsideration was denied on 18 June 1991, prompting the present petition.

• Diminution of Benefits: Petitioner argued that the NLRC gravely abused its discretion in ruling that the reduction of bonuses constituted diminution of benefits, contravening the Supreme Court decision in Traders Royal Bank vs. NLRC, which held that an employer cannot be forced to distribute bonuses it can no longer afford. Petitioner maintained that its depressed financial condition, evidenced by conservatorship and sustained losses from 1984 to 1988, justified the reduction, and that the CBA's "Acts of Grace" clause expressly made bonus payments discretionary on the bank.
• 13th Month Pay: Petitioner argued that it was not covered by P.D. 851 because the mid-year and Christmas bonuses it had been giving from 1984 to 1988 exceeded one month's basic salary (except in 1985 when the total equaled one month), and that these amounts should be credited toward satisfaction of the 13th month pay pursuant to Section 2 of P.D. 851.
• Wage Order No. 6 Compliance: Petitioner asserted that it complied with Wage Order No. 6 because the first-year salary and allowance increase under the CBA, made retroactively effective from 1 March 1984, fell within the period of creditability (17 June 1984 to 1 November 1984) and that the balance remaining after applying the increase to Wage Order No. 5 should be charged against Wage Order No. 6, with petitioner willing to pay any remaining difference. Petitioner also contended that as a bank under conservatorship and in distressed condition, it was exempt under Wage Order No. 6, and that the claim for wage differentials had prescribed.
• Holiday Pay: Petitioner argued that the NLRC erred in adopting the union's position without refuting the Labor Arbiter's correct finding that the 314-day divisor included holiday pay and that the reduction to 303 days was solely for overtime pay computation purposes.

• Diminution of Benefits: Respondent argued that the mid-year and Christmas bonuses, having been given for thirteen consecutive years, had ripened into a vested right and could no longer be unilaterally withdrawn without violating Article 100 of the Labor Code, which prohibits diminution or elimination of benefits already being enjoyed by employees. Respondent conceded that the grant of a bonus is discretionary but argued that by reason of long and regular concession, it may become part of regular compensation.
• 13th Month Pay: Respondent contended that the conservator was not justified in diminishing or not paying the 13th month pay and that the bank should have applied for an exemption under Section 7 of P.D. 851, as amended, which it failed to do.
• Wage Order No. 6 Compliance: Respondent argued that the first-year salary and allowance increases under the CBA could not be credited against Wage Order No. 6 because none of the significant dates—the MOLE Resolution of 9 November 1984, the CBA signing on 16 November 1984, or the retroactive effectivity date of 1 March 1984—fell within the period of creditability from 17 June 1984 to 1 November 1984.
• Holiday Pay: Respondent admitted that the divisor was 314 prior to 18 August 1986 and was changed to 303 for overtime pay only, but argued that by using 303 as the divisor, the bank was not actually paying its employees the regular holiday pay mandated by law, since 303 days deducted from 365 left only 52 rest days, and the ten legal holidays were not accounted for.

• Diminution of Benefits: Whether the NLRC committed grave abuse of discretion in ordering the bank to pay bonus differentials despite its placement under conservatorship and sustained net losses.
• 13th Month Pay: Whether the bank was obligated to pay the 13th month pay in addition to the mid-year and Christmas bonuses already granted, or whether those bonuses could be credited as the equivalent of the 13th month pay under P.D. 851.
• Wage Order No. 6 Creditability: Whether the first-year salary and allowance increases under the CBA were creditable against the increases mandated by Wage Order No. 6.
• Holiday Pay: Whether the bank's use of a 314-day divisor in computing daily rates satisfied the holiday pay requirement under Article 94 of the Labor Code.

• Diminution of Benefits: Yes, the NLRC committed grave abuse of discretion. An employer suffering continuing net losses and placed under conservatorship cannot be compelled to pay bonuses it can no longer afford; to hold otherwise would penalize the employer for its past generosity.
• 13th Month Pay: No, the bank was not obligated to pay additional 13th month pay. The mid-year and Christmas bonuses already granted equaled or exceeded one month's basic salary each year and thus constituted the "equivalent" of the 13th month pay under P.D. 851 and its Revised Implementing Guidelines.
• Wage Order No. 6 Creditability: Yes, the CBA increases were creditable. The CBA expressly contemplated statutory wage adjustments during its term, and the creditability provision of Wage Order No. 6 was designed to encourage employers who grant wage increases above the statutory minimum.
• Holiday Pay: Yes, the bank complied with Article 94. The 314-day divisor, arrived at by subtracting all Sundays from 365 calendar days with Saturdays treated as paid rest days, necessarily included the ten legal holidays, and the reduction to 303 was solely for overtime pay computation.

• Diminution of Benefits: A bonus is an act of generosity granted by an enlightened employer to spur employees to greater efforts, dependent on the success of the business and realization of profits. While the granting of a bonus is a management prerogative and not a demandable obligation, it may become enforceable when made part of wages or compensation. However, an employer cannot be forced to distribute bonuses it can no longer afford. In Traders Royal Bank vs. NLRC, the Court held that bonuses are entirely dependent on profits realized, and a bank weakened by political developments and placed under sequestration could not be forced to maintain prior bonus levels. This doctrine was reiterated in Manila Banking Corporation vs. NLRC, where the Court found that a bank operating on net losses from 1984 to 1986, eventually placed under receivership and liquidated, could not be compelled to confer additional benefits when there was no success in business or realization of profits to speak of. In the present case, the bank was placed under conservatorship in 1984 and sustained net losses of P144.418 million in 1984, P144.940 million in 1985, P132.940 million in 1986, P84.182 million in 1987, and P9.271 million in January-February 1988, exclusive of massive interest expenses and penalty charges. The conservatorship was valid and final, upheld in Central Bank of the Philippines vs. Court of Appeals. In such a depressed financial condition, the conservator was justified in reducing the bonuses, as to hold otherwise would defeat the purpose of conservatorship—to preserve assets and restore viability—and would ultimately be disadvantageous to employees, whose jobs would be lost if the bank closed.

• 13th Month Pay: P.D. 851 requires employers to pay a 13th month pay not later than December 24 of every year, but employers already paying a 13th month pay or its equivalent are not covered. Under the Revised Guidelines, "equivalent" includes Christmas bonus, mid-year bonus, cash bonuses, and other payments amounting to not less than 1/12 of the basic salary. The law's intention was to grant relief only to workers not already receiving a 13th month salary or its equivalent, not to impose a double burden on employers already providing such benefits. Even assuming the truth of the union's revised claims in its Memorandum, the total amount given by the bank each year—in the form of 13th month pay, mid-year bonus, and Christmas bonus—equaled or exceeded one month's basic salary. The bank was therefore justified in crediting the mid-year and Christmas bonuses as part of the 13th month pay.

• Wage Order No. 6 Creditability: Section 4 of Wage Order No. 6 provides that all wage and/or allowance increases granted by employers between 17 June 1984 and the effectivity of the Order shall be credited as compliance, with the employer paying the difference if the increases are less than the prescribed amount. The creditability provision serves an important public policy: encouraging employers to grant wage increases higher than the statutory minimum, as held in Apex Mining Company, Inc. vs. NLRC, where the Court stated that obliterating creditability provisions would penalize industry leaders who pay more than what the law requires. Section 1 of Article VIII of the CBA expressly stated that the parties agreed on packaged increases "which take into account and cover (a) any deflation in income of employees because of such price increases and inflation and (b) the expected governmental response thereto in the form of statutory adjustments in wages, allowances and benefits, during the next three (3) years of this Agreement." This unequivocal wording manifested the parties' clear intent to apply the CBA increases to any statutory wage adjustments during the period from 1 March 1984 to 28 February 1987. Section 2 of Article VIII, which addressed chargeability against Wage Order No. 5 and future government orders, did not prevent crediting against Wage Order No. 6. It would be inconsistent with the rationale of the creditability provision if, after applying the first-year increase to Wage Order No. 5, the balance was not made chargeable to Wage Order No. 6, since the bank actually granted increases sufficient to cover both.

• Holiday Pay: Article 94 of the Labor Code requires that every worker be paid his regular daily wage during regular holidays. The divisor used in computing daily rates assumes a critical role in determining whether holiday pay is already included in a monthly-salaried employee's compensation, as held in Union of Filipro Employees vs. Vivar, Jr. and Chartered Bank Employees Association vs. Ople. In the latter case, the Court held that a divisor of 251—arrived at by subtracting all Saturdays, Sundays, and ten legal holidays—indicated that employees were not being paid for holidays, whereas a divisor of 365 would indicate that all non-working days were paid. In the present case, the 314-day divisor was arrived at by subtracting all Sundays from 365 calendar days, with Saturdays treated as paid rest days, as expressly stated in the inter-office memorandum. The use of 314 as a divisor thus necessarily included the ten legal holidays. The reduction to 303 was done solely for the purpose of increasing overtime pay, as the memorandum expressly stated that the 314-day divisor would still be used for cash conversion and determination of daily rate. Both the Labor Arbiter and private respondent acknowledged this. Based on the records and the parties' own admissions, the bank complied with Article 94.

• Bonus as Management Prerogative — A bonus is an amount granted to an employee for industry and loyalty contributing to the employer's success and realization of profits. It is an act of generosity and a management prerogative, not a demandable and enforceable obligation, except when made part of wages, salary, or compensation. An employer cannot be forced to distribute bonuses it can no longer afford; to hold otherwise would penalize the employer for its past generosity. The Court applied this doctrine to a bank under conservatorship sustaining hundreds of millions in net losses, holding the conservator justified in reducing bonus payments.

• Diminution of Benefits Under Article 100 — Article 100 of the Labor Code prohibits the diminution or elimination of benefits already being enjoyed by employees. However, bonuses are not part of labor standards in the same class as salaries, cost-of-living allowances, holiday pay, and leave benefits provided by the Labor Code. Long and regular concession of a bonus may ripen it into a vested right, but this is subject to the employer's financial capacity; a distressed employer may reduce or withdraw bonuses without violating Article 100.

• 13th Month Pay Equivalence — Under P.D. 851 and its Revised Implementing Guidelines, employers already paying a 13th month pay or its equivalent are not covered by the law. "Equivalent" includes Christmas bonus, mid-year bonus, cash bonuses, and other payments amounting to not less than 1/12 of the basic salary. The law's intention was to grant relief only to workers not already receiving a 13th month salary or its equivalent, not to impose a double burden on generous employers. The Court applied this by finding that the bank's combined bonus payments each year equaled or exceeded one month's basic salary, satisfying the equivalence requirement.

• Creditability of CBA Increases Against Wage Orders — The creditability provisions in wage orders serve the public policy of encouraging employers to grant wage increases above statutory minimums. CBA wage increases may be credited against statutory wage order increases where the CBA expressly contemplates statutory adjustments during its term. The Court found that the CBA's Article VIII, Section 1, expressly covered "the expected governmental response thereto in the form of statutory adjustments in wages, allowances and benefits, during the next three (3) years of this Agreement," manifesting clear intent to credit CBA increases against future wage orders.

• Divisor Method for Holiday Pay Computation — The divisor used in computing the daily rate of monthly-salaried employees determines whether holiday pay is already included in the monthly salary. A divisor of 314—arrived at by subtracting all Sundays from 365 with Saturdays as paid rest days—necessarily includes the ten legal holidays. A reduction of the divisor solely for overtime pay computation, while expressly retaining the original divisor for daily rate determination, does not constitute non-payment of holiday pay.

• "Its fiscal condition having declined, the Bank may not be forced to distribute bonuses which it can no longer afford to pay and, in effect, be penalized for its past generosity to its employees." — This passage, quoted from Traders Royal Bank vs. NLRC, articulates the controlling doctrine that a financially distressed employer cannot be compelled to maintain bonus levels, forming the ratio decidendi for the bonus issue.

• "No company should be compelled to act liberally and confer upon its employees additional benefits over and above those mandated by law when it is plagued by economic difficulties and financial losses. No act of enlightened generosity and self-interest can be exacted from near empty, if not empty coffers." — This quotation from Manila Banking Corporation vs. NLRC reinforces the principle that bonus obligations are contingent on the employer's financial capacity and cannot be imposed on an employer operating at a loss.

• "To obliterate the creditability provisions in the Wage Orders through interpretation or otherwise, and to compel employers simply to add on legislated increases in salaries or allowances without regard to what is already being paid, would be to penalize employers who grant their workers more than the statutorily prescribed minimum rates of increases." — This passage from Apex Mining Company, Inc. vs. NLRC states the public policy rationale underlying wage order creditability provisions, which the Court applied to uphold the crediting of CBA increases against Wage Order No. 6.

• "The divisor assumes an important role in determining whether or not holiday pay is already included in the monthly paid employee's salary and in the computation of his daily rate." — This quotation from Union of Filipro Employees vs. Vivar, Jr. defines the legal significance of the divisor in holiday pay computation, which the Court applied in concluding that the 314-day divisor included the ten legal holidays.

• Traders Royal Bank vs. NLRC, 189 SCRA 274 (1990) — Controlling precedent on the bonus issue. The Court applied its holding that a bank weakened by political developments and placed under sequestration cannot be forced to distribute bonuses it can no longer afford, directly to Producers Bank's conservatorship situation.

• Manila Banking Corporation vs. NLRC, 201 SCRA 515 (1991) — Followed as reinforcing precedent. The Court reiterated the doctrine that a bank operating on net losses and eventually placed under receivership and liquidation could not be compelled to confer additional bonus benefits absent success in business or realization of profits.

• Central Bank of the Philippines vs. Court of Appeals, 208 SCRA 652 (1992) — Followed on the validity of conservatorship. The Court relied on its prior finding that the conservatorship order had become final and that the bank's over-drawings evidenced continuing inability to maintain solvency and liquidity, justifying the conservatorship and the conservator's reduction of bonuses.

• Apex Mining Company, Inc. vs. NLRC, 206 SCRA 497 (1992) — Controlling precedent on wage order creditability. The Court applied its holding that creditability provisions prevent penalizing employers who grant more than statutorily prescribed minimum increases, supporting the crediting of CBA increases against Wage Order No. 6.

• Union of Filipro Employees vs. Vivar, Jr., 205 SCRA 200 (1992) — Followed on the role of the divisor in holiday pay computation. The Court applied the principle that the divisor determines whether holiday pay is included in a monthly-salaried employee's compensation.

• Chartered Bank Employees Association vs. Ople, 138 SCRA 273 (1985) — Followed on divisor methodology. The Court relied on the reasoning that a divisor subtracting only Sundays (with Saturdays as paid rest days) indicates that holidays are included in the monthly salary, while a divisor subtracting all non-working days including holidays indicates the contrary.

• National Federation of Sugar Workers vs. Ovejera, 114 SCRA 354 (1982) — Cited on the legislative intent of P.D. 851, that the 13th month pay law was intended to benefit only workers not already receiving its equivalent, not to penalize employers already providing such benefits.

• Article 100, Labor Code (P.D. 442) — Prohibits diminution or elimination of benefits already being enjoyed by employees. The Court held that this provision does not apply to bonuses, which are not labor standards in the same class as salaries, allowances, holiday pay, and leave benefits, and that a distressed employer may reduce bonuses without violating Article 100.

• Article 94, Labor Code (P.D. 442) — Requires payment of regular daily wage during regular holidays. The Court held that the bank's use of a 314-day divisor satisfied this requirement, as the divisor necessarily included the ten legal holidays.

• Section 28-A, Republic Act No. 265 (Central Bank Act), as amended by P.D. No. 72 — Authorizes the Monetary Board to appoint a conservator when a bank is in a state of continuing inability or unwillingness to maintain solvency and liquidity. The Court found that the bank's conservatorship was valid and final, justifying the conservator's reduction of bonus payments to preserve the bank's assets and restore viability.

• P.D. No. 851 (13th Month Pay Law), as amended by P.D. No. 1364 — Requires employers to pay a 13th month pay. Section 1 mandates payment to employees receiving a basic salary of not more than P1,000 per month (later removed by Memorandum Order No. 28). The Court held that employers already paying the equivalent of a 13th month pay are not covered, and that the bank's combined bonus payments satisfied the equivalence requirement under the Revised Implementing Guidelines.

• Section 4, Wage Order No. 6 — Provides that wage and/or allowance increases granted by employers between 17 June 1984 and the effectivity of the Order shall be credited as compliance with prescribed adjustments. The Court held that the CBA's first-year salary and allowance increases were creditable against Wage Order No. 6, the CBA having expressly contemplated statutory wage adjustments during its term.

Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concurred.