Reyes vs. NLRC

Overriding commissions received by a managerial employee who does not personally effect sales, but whose commissions are contingent on collections made by subordinate salesmen, are profit-sharing payments excluded from "basic salary" for purposes of computing retirement benefits and 13th month pay. Whether a commission forms part of basic salary depends on the circumstances or conditions for its payment, which are factual in nature and determined on a case-to-case basis.

Petitioner Rogelio Reyes was employed by Universal Robina Corporation (URC) Grocery Division in Davao City beginning August 12, 1977, initially as a salesman and eventually as unit manager of the Sales Department–South Mindanao District. As unit manager, he supervised salesmen under his control but did not personally enter into sale transactions. He retired on November 30, 1997, at age 60, under optional retirement. The dispute arose from the parties' disagreement over whether his overriding commissions — paid only when the salesmen under him successfully collected from their sale transactions — should be included in the computation of his retirement benefits and 13th month pay, with URC computing his benefits based solely on his basic salary of ₱10,919.22 and petitioner insisting on an average monthly salary of ₱42,766.19 that included ₱31,846.97 in average monthly commissions.

Rogelio Reyes was employed as a salesman at Universal Robina Corporation's (URC) Grocery Division in Davao City on August 12, 1977. He was eventually appointed unit manager of the Sales Department–South Mindanao District, a position he held until his optional retirement on November 30, 1997, upon reaching the age of 60. As unit manager, petitioner supervised the salesmen under his control but did not personally enter into actual sale transactions.

After his retirement, URC sent petitioner a letter dated September 10, 1998, computing his separation pay at ₱200,322.21. This amount comprised retirement benefit (computed at 50% pay for every year of service based on his basic salary of ₱10,919.22), vacation leave cash conversion, sick leave cash conversion, financial assistance of ₱30,000, tax refund, 13th month pay, and withheld commission, less deductions for salary overpayment and a lost pager. URC stated that the computation was pursuant to company policy and practice and rejected petitioner's suggested basis of computation as without legal basis.

Petitioner refused to accept the check, insisting that his retirement benefits and 13th month pay must be based on an average monthly salary of ₱42,766.19, consisting of ₱10,919.22 basic salary and ₱31,846.97 average monthly commission. He thereafter filed a complaint before the arbitration branch of the NLRC for retirement benefits, 13th month pay, tax refund, earned sick and vacation leaves, financial assistance, service incentive leave pay, damages, and attorney's fees.

The Labor Arbiter ruled in petitioner's favor, holding that sales commission is part of the basic salary of a unit manager, and ordered URC to pay ₱911,699.92 plus 5% attorney's fees. On appeal, the NLRC modified the decision by excluding the overriding commission from the computation of retirement benefits and 13th month pay, basing the computation on the ₱10,919.22 basic salary, and deleted the award of attorney's fees. Both parties moved for reconsideration but were denied. Petitioner then filed a petition for certiorari before the Court of Appeals, which was dismissed for lack of merit; his motion for reconsideration was likewise denied.

The critical factual findings established by the NLRC and affirmed by the Court of Appeals were that petitioner, as unit manager, did not personally effect any sale of articles but merely supervised the salesmen under his control, and that his overriding commissions were not regularly received — they were paid only when the salesmen were able to collect from their sale transactions. If no collections were made by the salesmen, petitioner received no commissions at all.

• Commissions as Part of Basic Salary: Petitioner contended that his commissions form part of his basic salary, citing Philippine Duplicators, Inc. vs. National Labor Relations Commission, wherein the Court held that commissions earned by salesmen form part of their basic salary.
• Basis of Computation: Petitioner maintained that his retirement benefits and 13th month pay must be computed based on his average monthly salary of ₱42,766.19, which includes ₱10,919.22 basic salary and ₱31,846.97 average monthly commission.

• Company Practice and Estoppel: Private respondent countered that petitioner knew the overriding commission was not included in basic salary because it had not been so considered for a long time in the computation of 13th month pay, leave commissions, absences, and tardiness. Petitioner himself stated in the complaint that his basic salary is ₱10,919.22, thus he is estopped from claiming otherwise.
• Commissions as Profit-Sharing: Respondent argued, citing Boie-Takeda Chemicals, Inc. vs. De la Serna, that the fixed or guaranteed wage is patently "the basic salary" as it is what the employee receives for a standard work period, while commissions are given for extra efforts exerted in consummating sales or other transactions.
• Nature of Overriding Commission: Respondent further argued, citing Soriano vs. National Labor Relations Commission, that overriding commission is not properly includible in basic salary as it must be earned by actual market transactions attributable to the claimant. As a unit manager who supervised salesmen and did not enter into actual sale transactions, petitioner's overriding commissions must not be considered in the computation of retirement benefits and 13th month pay.

• Inclusion of Commissions in Retirement Benefits and 13th Month Pay: Whether the average monthly sales commission of ₱31,846.97 should be included in the computation of petitioner's retirement benefits and 13th month pay.

• Inclusion of Commissions in Retirement Benefits and 13th Month Pay: No. The overriding commissions received by petitioner were profit-sharing payments excluded from "basic salary" because, as unit manager, he did not personally effect sales and his commissions were contingent on collections made by subordinate salesmen, not on his own work.

• Inclusion of Commissions in Retirement Benefits and 13th Month Pay: The Court first clarified the apparent inconsistency between Philippine Duplicators and Boie-Takeda by reference to the February 15, 1995 Resolution in the Philippine Duplicators case. In Philippine Duplicators, the salesmen's commissions — a pre-determined percentage of the selling price of goods sold by each salesman — were properly included in basic salary because they were not overtime payments, profit-sharing payments, or fringe benefits, but a portion of the salary structure representing an automatic increment to the monetary value assigned to each unit of work rendered by a salesman. In Boie-Takeda, by contrast, the commissions paid to medical representatives and rank-and-file employees were excluded because they were productivity bonuses akin to profit-sharing payments with no clear direct or necessary relation to the amount of work done by each individual employee, and medical representatives do not effect any sale at all.

The Court then held that whether a commission forms part of basic salary depends on the circumstances or conditions for its payment, which are factual in nature. As a general rule, findings of fact of quasi-judicial bodies like the NLRC, when affirmed by the Court of Appeals, are conclusive on the Supreme Court. Nevertheless, the Court addressed the merits and ruled in the negative.

Under Article 287 of the Labor Code, as amended by Republic Act No. 7641, and Section 5 of Rule II of the Implementing Rules, "one-half month salary" for retirement pay purposes includes 15 days' salary based on the latest salary rate, cash equivalent of 5 days of service incentive leave, 1/12 of the 13th month pay, and other agreed benefits — but excludes cost of living allowance, profit-sharing payments, and other monetary benefits not considered part of or integrated into the regular salary. The Implementing Rules define "salary" as all remunerations paid for services rendered during normal working days and hours, whether fixed or ascertained on a time, task, piece, or commission basis, but explicitly exclude profit-sharing payments.

Applying these provisions, the Court found that petitioner's commissions were profit-sharing payments. As unit manager, petitioner did not enter into actual sale transactions but merely supervised salesmen. His overriding commissions were not regularly received — they were paid only when the salesmen under him collected from sale transactions, and if no collections were made, he received no commissions. The collections made by the salesmen constituted URC's profit, from which petitioner had a share in the form of commission. These commissions had no clear, direct, or necessary relation to the amount of work petitioner actually performed. The same reasoning applies to the computation of 13th month pay, pursuant to San Miguel Corporation vs. Inciong, which held that profit-sharing payments are excluded from basic salary under the Rules Implementing Presidential Decree 851.

Finally, the Court declined to disturb the factual findings of the NLRC as affirmed by the Court of Appeals, reiterating that findings of fact of administrative agencies and quasi-judicial bodies with expertise in their specific fields are generally accorded finality when affirmed by the Court of Appeals.

• Distinction Between Sales Commissions and Profit-Sharing Payments — Whether a commission forms part of "basic salary" depends on the circumstances or conditions for its payment, which are factual in nature and determined on a case-to-case basis. Commissions that are an integral portion of the salary structure, representing an automatic increment to the monetary value assigned to each unit of work rendered by an employee (as in Philippine Duplicators, where salesmen received a pre-determined percentage of the selling price of goods they personally sold), are included in basic salary. Commissions that closely resemble profit-sharing payments, productivity bonuses, or fringe benefits with no clear, direct, or necessary relation to the amount of work actually done by the individual employee (as in Boie-Takeda, where medical representatives who did not effect sales received productivity bonuses), are excluded. In this case, the unit manager's overriding commissions were excluded because he did not personally effect sales, his commissions were contingent on collections by subordinate salesmen, and they partook of the nature of profit-sharing.

• Finality of Factual Findings of Quasi-Judicial Bodies — Findings of fact of administrative agencies and quasi-judicial bodies like the NLRC, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect but finality when affirmed by the Court of Appeals. Without justifiable reason, such findings ought not to be altered, modified, or reversed by the Supreme Court, which is not a trier of facts.

• Components of "One-Half Month Salary" for Retirement Pay — Under Article 287 of the Labor Code (as amended by R.A. No. 7641) and Section 5 of Rule II of the Implementing Rules, "one-half month salary" includes: (a) 15 days' salary based on the latest salary rate; (b) cash equivalent of not more than 5 days of service incentive leave; (c) 1/12 of the 13th month pay; and (d) other benefits agreed upon by employer and employee. It excludes: (a) cost of living allowance; (b) profit-sharing payments; and (c) other monetary benefits not considered part of or integrated into the regular salary.

• "In fine, whether or not a commission forms part of the basic salary depends upon the circumstances or conditions for its payment, which indubitably are factual in nature for they will require a re-examination and calibration of the evidence on record." — This passage articulates the controlling test for determining whether commissions are includible in basic salary, establishing that the inquiry is fundamentally factual and case-specific.

• "Unit Managers are not salesmen; they do not effect any sale of article at all. Therefore, any commission which they receive is certainly not the basic salary which measures the standard or amount of work of complainant as Unit Manager." — This passage applies the distinguishing principle from Boie-Takeda to the facts of the case, establishing that commissions received by a managerial employee who does not personally effect sales cannot be considered basic salary.

• "The collection made by the salesmen from the sale transactions was the profit of private respondent from which petitioner had a share in the form of a commission." — This passage defines the nature of the petitioner's overriding commissions as profit-sharing, providing the factual basis for their exclusion from the computation of retirement benefits and 13th month pay.

• Philippine Duplicators, Inc. vs. National Labor Relations Commission, G.R. No. 110068, November 11, 1993, 227 SCRA 747 — Cited by petitioner for the proposition that commissions earned by salesmen form part of basic salary. The Court clarified this case via its February 15, 1995 Resolution (311 Phil. 407), explaining that the salesmen's commissions in that case were properly included because they were a pre-determined percentage of the selling price of goods sold by each salesman — an automatic increment to the monetary value of each unit of work — not overtime, profit-sharing, or fringe benefits.
• Boie-Takeda Chemicals, Inc. vs. De la Serna, G.R. Nos. 92174 and 102552, December 10, 1993, 228 SCRA 329 — Cited by respondent and applied by the Court as controlling. Commissions paid to medical representatives who did not effect sales were excluded from basic salary because they were productivity bonuses akin to profit-sharing with no clear, direct, or necessary relation to the amount of work done by each individual employee. The Court found this doctrine applicable to petitioner's case.
• Soriano vs. National Labor Relations Commission, G.R. No. L-75510, October 27, 1987, 155 SCRA 124 — Cited by respondent for the principle that overriding commission is not properly includible in basic salary as it must be earned by actual market transactions attributable to the claimant.
• San Miguel Corporation vs. Inciong, G.R. No. L-49774, February 24, 1981, 103 SCRA 139 — Cited for the rule that profit-sharing payments are excluded from basic salary under the Rules Implementing Presidential Decree 851 governing 13th month pay, and that the same analysis of what constitutes "basic salary" applies to both retirement pay and 13th month pay computations.
• Acevedo vs. Advanstar Company Inc., G.R. No. 157656, November 11, 2005, 474 SCRA 656 — Cited for the doctrine that findings of fact of quasi-judicial bodies like the NLRC, when affirmed by the Court of Appeals, are conclusive on the Supreme Court.
• Ramos Vda. de Brigino vs. Ramos, G.R. No. 130260, February 6, 2006, 481 SCRA 546 — Cited for the principle that findings of fact of administrative agencies and quasi-judicial bodies are accorded respect and finality when affirmed by the Court of Appeals.

• Article 287, Labor Code (as amended by Republic Act No. 7641, "The New Retirement Law") — Governs retirement pay entitlement. Defines "one-half month salary" as 15 days plus 1/12 of the 13th month pay and cash equivalent of not more than 5 days of service incentive leave, unless the parties provide for broader inclusions. Applied to determine the components of petitioner's retirement pay.
• Section 5, Rule II, Rules Implementing the New Retirement Law — Defines the components of "one-half month salary" for retirement pay purposes, specifying that "salary" includes all remunerations paid for services rendered during normal working days and hours, whether fixed or ascertained on a time, task, piece, or commission basis, but excludes cost of living allowance, profit-sharing payments, and other monetary benefits not integrated into regular salary. Applied to exclude petitioner's overriding commissions as profit-sharing payments.
• Presidential Decree No. 851 and its Implementing Rules — Governs 13th month pay. The Implementing Rules exclude profit-sharing payments from basic salary for purposes of computing the mandatory 13th month pay. Applied by analogy to exclude petitioner's commissions from the 13th month pay computation.

Ma. Alicia Austria-Martinez, Minita V. Chico-Nazario, and Antonio Eduardo B. Nachura concurred. No separate concurring opinions were written.