Republic Planters Bank vs. NLRC

A quitclaim signed by an employee under protest for a consideration substantially less than the amount claimed does not bar recovery of the full measure of retirement benefits; and a consistent and deliberate grant of gratuity based on the salary rate of the next higher rank, even after expiration of the CBA, ripens into a company practice or policy that cannot be peremptorily withdrawn.

Republic Planters Bank, later known as PNB-Republic Bank, employed Antonio G. Santos as a managerial employee for over three decades. The bank and its supervisor employees had a 1971-1973 Collective Bargaining Agreement that provided retirement gratuity and leave benefits; the CBA expired in 1976, and no new CBA was entered into with managerial employees. A later 1982-1985 CBA covered only rank-and-file employees. The Labor Code and its implementing rules recognize company practice or policy as a labor standard for retirement benefits, while Article 100 and related rules prohibit diminution of existing benefits.

Antonio G. Santos was employed by Republic Planters Bank, now known as PNB-Republic Bank, for thirty-one years and fifteen days, occupying various positions. At the time of his retirement on 31 May 1990, he was a Department Manager with a monthly salary of P8,965.00 and accumulated leave credits of two hundred seventy-two days. He received a gratuity pay of P434,468.52, out of which P20,615.62 was deducted for taxes.

Santos filed suit for underpayment of gratuity pay, non-payment of accumulated sick and vacation leaves, mid-year and year-end bonuses, financial assistance, damages, and attorney’s fees. His total claim was P908,022.65. When he received the gratuity pay, he signed a Release, Waiver and Quitclaim. The Labor Arbiter and the NLRC found that he signed it under protest. The difference between the amount claimed and the amount paid was P473,554.13, which was even more than what he had received.

The 1971-1973 CBA between the bank and its supervisor employees provided that upon retirement, resignation, or separation without cause, a regular supervisor employee with at least five years of continuous service was entitled to gratuity pay equivalent to one month salary plus the corresponding living allowance of the rank next higher than his rank at retirement for every year of service, and to the cash equivalent of accumulated sick and vacation leaves since initial employment. The CBA expired in 1976. The bank continued to grant gratuity based on the salary rate of the next higher rank after expiration. It admitted granting such gratuity to Simplicio Manalo; other instances, it explained, were in compliance with court orders. A 1982-1985 CBA covered rank-and-file employees, not managerial employees like Santos. The bank had an Executive Compensation Salary Structure effective 1 May 1987, under which an officer’s salary was pegged to a minimum or maximum depending on performance appraisal. Santos’s latest performance rating was satisfactory, and the bank argued his gratuity should be based on the minimum, not maximum, of the next higher rank. The Labor Arbiter computed his gratuity at P661,210.63 based on the salary rate of the next higher rank, on the theory that he acquired a vested right under the 1971-1973 CBA.

As to bonuses, the record showed claims for 1985, 1986, and mid-year 1987 bonuses. The bank argued these had prescribed. For 1987 year-end, 1988, 1989, and 1990 mid-year bonuses, the bank argued they should be based on the existing salary rate at the time of accrual. In 1988, Santos was found guilty of an administrative charge; under existing company policy, the 1988 mid-year and year-end bonuses were forfeited in favor of the bank.

The Labor Arbiter found for Santos, and the NLRC affirmed. The Labor Arbiter and the NLRC found that Santos signed the quitclaim under protest and that the bank had adopted the next-higher-rank policy. The awards included moral and exemplary damages and attorney’s fees, based on the bank’s refusal to pay despite final Supreme Court rulings in similar cases.

• Validity of Quitclaim: Petitioner argued that Santos was not entitled to the award because he signed a Release, Waiver and Quitclaim when he received his gratuity pay of P434,468.52.
• Grave Abuse of Discretion: Petitioner alleged that the NLRC gravely abused its discretion when it upheld the Labor Arbiter’s order awarding P661,210.63 to Santos, and that the resolution was contrary to the evidence and existing jurisprudence.
• Lack of Legal Basis for Awards: Petitioner maintained that the award to Santos of mid-year and year-end bonuses, moral and exemplary damages, and attorney’s fees had no legal basis.
• Expired CBA as Basis: Petitioner posited that the 1971-1973 CBA had long expired and could no longer be used as basis in computing the gratuity pay of its retiring officers; instead, the computation should be based on the practice and policy of the bank effective at the time of the employee’s retirement.
• Salary Structure and Performance Rating: Petitioner averred that under the Executive Compensation Salary Structure effective 1 May 1987, an officer’s salary was pegged to a minimum or maximum depending on performance appraisal; since Santos’s latest performance rating was only satisfactory, his gratuity pay should be based on the minimum and not the maximum amount of the rate of the salary of the rank next higher.
• Prescription of Bonus Claims: Petitioner argued that Santos’s claim for bonuses corresponding to 1985, 1986, and mid-year 1987 had already prescribed.

• Quitclaim Ineffective: Respondent argued that quitclaims are ineffective to bar recovery for the full measure of the worker’s rights, and that acceptance thereof does not amount to estoppel; quitclaims by laborers are frowned upon as contrary to public policy, and the fact that the consideration given was very much less than the amount claimed renders the quitclaim null and void.
• Company Practice and Vested Right: Respondent maintained that the 1971-1973 CBA and the bank’s continued practice governed the computation of benefits; the bank continued to grant gratuity based on the salary rate of the next higher rank even after the CBA expired, and this ripened into a company practice or policy that could not be withdrawn.
• Leave Credits Based on Upgraded Salary: Respondent argued that leave credits should likewise be computed based on the upgraded salary rate, that is, the salary rate of the next higher rank, in conformity with the 1971-1973 CBA.
• Gratuity Distinguished from Salary: Respondent contended that nothing in the 1971 CBA indicated a minimum or maximum range of the next higher rank; the one-rank-higher policy was unqualified, and any ambiguity should be construed in favor of labor under Article 1702 of the Civil Code. Gratuity is a bounty for past services, not salary based on actual work or performance.
• Damages and Attorney’s Fees: Respondent argued that moral and exemplary damages and attorney’s fees were proper because the bank was guilty of bad faith in its continued refusal to pay his claims despite final Supreme Court rulings in similar cases; the bank’s defiance of stare decisis compelled Santos to litigate.

• Quitclaim: Whether the Release, Waiver and Quitclaim signed by Santos bars recovery of the full amount of retirement benefits claimed.
• Computation of Gratuity and Leave Credits: Whether the gratuity pay and leave credits should be computed based on the salary rate of the next higher rank under the 1971-1973 CBA and company practice, or based on the salary structure and performance rating at retirement.
• Company Practice and Expired CBA: Whether the expired 1971-1973 CBA and the bank’s continued grant of benefits ripened into a company practice or policy that cannot be withdrawn.
• Prescription of Bonus Claims: Whether Santos’s claims for 1985, 1986, and mid-year 1987 bonuses have prescribed.
• Forfeiture of 1988 Bonuses: Whether the 1988 mid-year and year-end bonuses should be forfeited due to Santos’s administrative conviction.
• Moral and Exemplary Damages and Attorney’s Fees: Whether the awards of moral and exemplary damages and attorney’s fees are proper.

• Quitclaim: No. A quitclaim signed under protest for consideration substantially less than the amount claimed does not bar recovery; it is ineffective to bar the full measure of the worker’s rights and may be null and void where the consideration is very much less than the claim. The difference of P473,554.13 was substantial.
• Computation of Gratuity and Leave Credits: Yes, based on the salary rate of the next higher rank. The 1971-1973 CBA provided for the one-rank-higher computation, the bank’s continued grant ripened into company practice, and leave credits should also be computed on the upgraded salary. The salary structure and performance rating were not applicable.
• Company Practice and Expired CBA: Yes. A consistent and deliberate grant of benefits after CBA expiration ripens into a company practice or policy that cannot be peremptorily withdrawn; Article 100 of the Labor Code and Section 10 of the Rules Implementing P.D. No. 851 prohibit diminution of existing benefits.
• Prescription of Bonus Claims: Yes. The claims for 1985, 1986, and mid-year 1987 bonuses prescribed under Article 291 of the Labor Code, which requires money claims to be filed within three years from accrual; Santos filed his complaint only on 12 July 1990.
• Forfeiture of 1988 Bonuses: Yes. The 1988 mid-year and year-end bonuses were forfeited in favor of the bank because Santos was found guilty of an administrative charge in 1988, in consonance with existing company policy.
• Moral and Exemplary Damages and Attorney’s Fees: Yes. The awards were proper due to the bank’s bad faith in refusing to pay despite final Supreme Court rulings; moral damages of P50,000.00, exemplary damages of P50,000.00, and attorney’s fees of P38,515.00 were included in the final award.

• Quitclaim: The Court acknowledged the general rule that a quitclaim by an employee in favor of the employer amounts to a valid and binding compromise agreement, and that an agreement voluntarily entered into which represents a reasonable settlement is binding on the parties. However, quitclaims are ineffective to bar recovery for the full measure of the worker’s rights, and acceptance thereof does not amount to estoppel. Quitclaims by laborers are generally frowned upon as contrary to public policy, and where the consideration given is very much less than the amount claimed, the quitclaim is null and void. In this case, Santos claimed P908,022.65 but received only P434,468.52, leaving a difference of P473,554.13, which was even more than what he had received. The Labor Arbiter and NLRC found that he signed the Release, Waiver and Quitclaim under protest. The difference was not negligible, and the waiver dangerously encroached on public policy. Periquet vs. National Labor Relations Commission was distinguished because there the consideration for the quitclaim was credible and reasonable, unlike here.
• Computation of Gratuity and Leave Credits: The Court relied on Republic Planters Bank vs. National Labor Relations Commission, which resolved the same issues on similar facts. In that case, other managerial employees who resigned or retired received gratuity benefits and the cash value of accumulated leave credits under the 1971-1973 CBA despite its expiration in 1976. Under Section 14(a), Rule 1 of the Rules and Regulations Implementing Book VI of the Labor Code, an employee retired pursuant to a bona fide retirement plan or in accordance with the applicable individual or collective agreement or established employer policy is entitled to all retirement benefits provided therein. The provision explicitly states that a company practice or policy is a labor standard in determining retirement benefits. The 1982-1985 CBA was entered into with rank-and-file employees; Santos was a managerial employee, not a party thereto, and could not be bound by it. Since no new CBA had been entered into between the managerial employees and the bank upon the expiration of the 1971-1973 CBA, Santos acquired a vested right to the established policy of applying the 1971-1973 CBA to retiring or resigning managerial employees. The bank admitted granting gratuity based on the salary rate of the next higher rank to Simplicio Manalo; other instances were allegedly in compliance with court orders. The bank adopted the policy, continued it after the CBA expired, and the grant was consistent and deliberate although the bank knew it was not required to give the benefits. The granting of gratuity based on the next higher rank ripened into company practice or policy that could no longer be peremptorily withdrawn. Article 100 of the Labor Code and Section 10 of the Rules Implementing P.D. No. 851 prohibit the diminution or elimination of existing benefits. Leave credits should likewise be computed based on the upgraded salary rate, the salary rate of the next higher rank, in conformity with the 1971-1973 CBA. Although only gratuity pay is expressly entitled to be computed based on the salary rate of the rank next higher, the provision should not be interpreted in isolation; the conversion of leave credits into cash equivalent is aimed at encouraging workers to work continuously and with dedication, and leave credits are normally converted based on the last prevailing salary received by the employee. Thus, accumulated leave credits should be converted based on the upgraded salary of the retiree.
• Company Practice and Expired CBA: The Court found that PNB-RB had adopted the policy of granting gratuity benefits to its retiring officers based on the salary rate of the next higher rank. It continued this practice even after the expiration of the 1971-1973 CBA. The grant was consistent and deliberate although the bank knew fully well that it was not required to give the benefits after the expiration of the CBA. Under these circumstances, the granting of gratuity pay on the basis of the salary rate of the rank next higher may be deemed to have ripened into company practice or policy which can no longer be peremptorily withdrawn. Any benefit and supplement being enjoyed by the employees cannot be reduced, diminished, discontinued, or eliminated by the employer by virtue of Section 10 of the Rules and Regulations Implementing P.D. No. 851 and Article 100 of the Labor Code.
• Prescription of Bonus Claims: Article 291 of the Labor Code provides that all money claims arising from employer-employee relations accruing during the effectivity of the Code shall be filed within three years from the time the cause of action accrued; otherwise they shall be forever barred. Santos filed his complaint only on 12 July 1990. His claims for 1985 mid-year and year-end, 1986 mid-year and year-end, and 1987 mid-year bonuses had already prescribed. As regards bonuses for 1987 year-end, 1988 mid-year and year-end, 1989 mid-year and year-end, and 1990 mid-year, these should be based on the existing salary rate at the time of their accrual.
• Forfeiture of 1988 Bonuses: The record showed that in 1988 Santos was found guilty of an administrative charge. In consonance with existing company policy, the 1988 mid-year and year-end bonus should be forfeited in favor of the bank.
• Moral and Exemplary Damages and Attorney’s Fees: The Court quoted with approval the comment of private respondent that moral and exemplary damages were proper because the bank was guilty of bad faith by its continued refusal to pay Santos’s claims despite final rulings of the Supreme Court in similar cases. By refusing to abide by the doctrinal pronouncements of the Highest Tribunal, the bank showed itself to be anti-labor; this attitude was contrary to morals, good customs, and public policy. Regardless of its own thinking on the issues, the bank was duty-bound to respect Supreme Court decisions which have become part of the law of the land. Santos suffered mental anguish and sleepless nights, entitling him to moral damages, and exemplary damages were proper to serve as an example for the public good. Attorney’s fees were also proper because Santos was dragged into the case by the bank’s refusal and arrogant defiance of the doctrine of stare decisis, compelling him to litigate.

• Quitclaim in labor cases — A quitclaim by an employee in favor of the employer amounts to a valid and binding compromise agreement if voluntarily entered into and represents a reasonable settlement. However, quitclaims are ineffective to bar recovery for the full measure of the worker’s rights, and acceptance thereof does not amount to estoppel. Quitclaims by laborers are generally frowned upon as contrary to public policy, and where the consideration given is very much less than the amount claimed, the quitclaim is null and void. Applied because Santos signed the quitclaim under protest and received P434,468.52 against a claim of P908,022.65, leaving a substantial difference of P473,554.13.
• Company practice or policy as labor standard — A consistent and deliberate grant of benefits by an employer, even after the expiration of a CBA, may ripen into a company practice or policy that cannot be peremptorily withdrawn. Section 14(a), Rule 1 of the Rules and Regulations Implementing Book VI of the Labor Code explicitly states that a company practice or policy is a labor standard in determining retirement benefits. Applied because the bank continued to grant gratuity based on the salary rate of the next higher rank after the 1971-1973 CBA expired, and the grant was consistent and deliberate although the bank knew it was not required.
• Non-diminution of benefits — Article 100 of the Labor Code and Section 10 of the Rules and Regulations Implementing P.D. No. 851 prohibit the employer from reducing, diminishing, discontinuing, or eliminating benefits enjoyed by employees. Applied because the bank’s attempt to withdraw the next-higher-rank computation would diminish an existing benefit.
• Gratuity distinguished from salary — Gratuity pay is a money benefit or bounty given to the worker for past services or favor rendered purely out of the generosity of the giver or grantor; it is not intended to pay a worker for actual services rendered or for actual performance. Salary, on the other hand, is part of labor standard law based on the actual amount of work rendered or the number of days worked. Applied to reject the bank’s attempt to use the salary structure and performance rating to determine gratuity.
• Prescription of money claims — Article 291 of the Labor Code requires all money claims arising from employer-employee relations accruing during the effectivity of the Code to be filed within three years from the time the cause of action accrued; otherwise they are forever barred. Applied to bar Santos’s claims for 1985, 1986, and mid-year 1987 bonuses because he filed his complaint only on 12 July 1990.
• Liberal construction in favor of labor — Article 1702 of the Civil Code provides that in case of doubt, labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer. Applied to the one-rank-higher policy because the 1971 CBA did not indicate a minimum or maximum range of the next higher rank; the policy was unqualified and should be construed liberally in favor of the person intended to be benefited.
• Stare decisis and respect for Supreme Court decisions — The bank was duty-bound to respect Supreme Court decisions which have become part of the law of the land. Its continued refusal to abide by final rulings in similar cases supported the awards of moral and exemplary damages and attorney’s fees.

• "Generally, quitclaims by laborers are frowned upon as contrary to public policy. And the fact that the consideration given in exchange thereof was very much less than the amount claimed renders the quitclaim null and void." — This passage states the controlling rule on quitclaims in labor cases and supports the nullification of Santos’s waiver because the consideration he received was substantially less than his claim.
• "The foregoing provision explicitly states that a company practice or policy is a labor standard in determining the retirement benefits of its employees." — This passage, quoted from Republic Planters Bank vs. National Labor Relations Commission, defines company practice or policy as a labor standard and is central to the holding that the bank’s next-higher-rank computation could not be withdrawn.
• "Under these circumstances, the granting of the gratuity pay on the basis of the salary rate of the rank next higher may be deemed to have ripened into company practice or policy which can no longer be peremptorily withdrawn." — This is the ratio decidendi on company practice, applying the doctrine to the bank’s consistent and deliberate grant of gratuity based on the next higher rank.
• "Gratuity pay, unlike salary, is paid to the beneficiary for the past services or favor rendered purely out of the generosity of the giver or grantor. Gratuity, therefore, is not intended to pay a worker for actual services rendered or for actual performance." — This passage distinguishes gratuity from salary and supports the rejection of the bank’s attempt to use the salary structure and performance rating to compute gratuity.

• Republic Planters Bank vs. National Labor Relations Commission, G.R. No. 79488, 30 September 1988, 166 SCRA 197 — Controlling precedent; the Court resolved the same issues on similar facts and held that company practice or policy is a labor standard, that a managerial employee is not bound by a rank-and-file CBA, and that the employee acquired a vested right to the established policy of applying the 1971-1973 CBA to retiring or resigning managerial employees.
• Periquet vs. National Labor Relations Commission, G.R. No. 91298, 22 June 1990, 186 SCRA 724 — Invoked by petitioner but distinguished; in Periquet the consideration for the quitclaim was found credible and reasonable, unlike in this case where the difference between the claim and the amount paid was considerably big and substantial.
• Davao Integrated Port Stevedoring Services vs. Abarquez, G.R. No. 102132, 19 March 1993, 196 SCRA 197 — Cited for the principle that a company practice or policy may ripen into a benefit that can no longer be peremptorily withdrawn.
• Davao Fruits Corporation vs. Associated Labor Union, G.R. No. 85073, 24 August 1993, 225 SCRA 567 — Cited for the non-diminution rule under Article 100 of the Labor Code and Section 10 of the Rules Implementing P.D. No. 851.
• Wyeth-Suaco Laboratories, Inc. vs. National Labor Relations Commission, G.R. No. 100658, 2 March 1993, 219 SCRA 356 — Cited for the general rule that a quitclaim by an employee in favor of the employer amounts to a valid and binding compromise agreement.
• Cruz vs. National Labor Relations Commission, G.R. No. 98273, 28 October 1991, 203 SCRA 286 — Cited for the rule that the fact that the consideration given in exchange for a quitclaim was very much less than the amount claimed renders the quitclaim null and void.

• Section 14(a), Rule 1, Rules and Regulations Implementing Book VI, Labor Code — Provides that an employee retired pursuant to a bona fide retirement plan or in accordance with the applicable individual or collective agreement or established employer policy shall be entitled to all the retirement benefits provided therein. The Court used this provision to hold that a company practice or policy is a labor standard in determining retirement benefits.
• Article 100, Labor Code — Prohibits the diminution or elimination by the employer of the employees’ existing benefits. Applied to prevent the bank from withdrawing the next-higher-rank computation for gratuity and leave credits.
• Section 10, Rules and Regulations Implementing P.D. No. 851 — Prohibits the reduction, diminution, discontinuance, or elimination of benefits enjoyed by employees. Applied together with Article 100 of the Labor Code.
• Article 291, Labor Code — Requires all money claims arising from employer-employee relations accruing during the effectivity of the Code to be filed within three years from the time the cause of action accrued; otherwise they are forever barred. Applied to bar Santos’s claims for 1985, 1986, and mid-year 1987 bonuses.
• Article 1702, Civil Code — Provides that in case of doubt, labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer. Applied to the one-rank-higher policy because the 1971 CBA did not indicate a minimum or maximum range of the next higher rank.
• Section 14, 1971-1973 CBA — Provided that the bank would grant to each regular supervisor employee upon retirement, resignation, or separation without cause after 1 July 1969: (a) gratuity pay equivalent to one month salary plus the corresponding living allowance of the rank next higher than the rank of such supervisor at the time of retirement, resignation, or separation without cause, for every year of service, provided the supervisor has at least five years of continuous service; and (b) the cash equivalent of accumulated sick and vacation leaves since initial employment. This was the basis for computing Santos’s gratuity and leave credits.

Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.