San Miguel Corporation vs. Inciong

Payments for sick, vacation, or maternity leaves, premium for work performed on rest days and special holidays, pay for regular holidays, and night differentials are not part of the "basic salary" and shall not be considered in the computation of the 13th-month pay under Presidential Decree 851, which uses basic salary as the sole basis for the mandatory bonus.

Presidential Decree 851 requires all employers to pay employees receiving a basic salary of not more than ₱1,000 a month a 13th-month pay not later than December 24 of every year. The implementing rules define "basic salary" as the basis for the computation, but the scope of that definition — specifically whether leave payments, premiums, holiday pay, and night differentials are included — became the central dispute between the employer and the labor union.

On January 3, 1977, Cagayan Coca-Cola Free Workers Union, the private respondent, filed a complaint against San Miguel Corporation (Cagayan Coca-Cola Plant), the petitioner, alleging the latter's failure or refusal to include in the computation of the 13th-month pay such items as sick, vacation or maternity leaves, premium for work done on rest days and special holidays, including pay for regular holidays and night differentials. On February 15, 1977, Regional Office No. X, where the complaint was filed, issued an Order requiring the petitioner to pay the difference of whatever earnings and the amount actually received as 13th-month pay, excluding overtime premium and emergency cost of living allowance.

Petitioner appealed to the Minister of Labor, in whose behalf Deputy Minister of Labor Amado G. Inciong issued an Order dated June 7, 1978 affirming the Order of Regional Office No. X and dismissing the appeal for lack of merit. Petitioner's motion for reconsideration was denied in an Order dated December 19, 1978, which also ordered the immediate execution of the prior Order. Petitioner then filed the instant petition for certiorari and prohibition with preliminary injunction, and on February 14, 1979, this Court issued a Temporary Restraining Order enjoining respondents from enforcing the Order dated December 19, 1978.

The public respondent's consistent stand since the effectivity of PD 851 was that payments for sick leave, vacation leave, and maternity benefits, as well as salaries paid to employees for work performed on rest days, special and regular holidays, are included in the computation of the 13th-month pay. The private respondent, for its part, cited past rulings, opinions, and decisions rendered by then Acting Labor Secretary Amado G. Inciong to the effect that the gross basic salary includes regular salary, payments for sick, vacation and maternity leaves, premium for work performed on rest days or holidays, holiday pay for worked or unworked regular holiday, and emergency allowance if given in the form of a wage adjustment. Petitioner, on the other hand, assailed these rulings as erroneous, contending that PD 851 speaks only of basic salary as the basis for the 13th-month pay, and that the payments in question do not form part of the basic salary.

• Basic Salary as Sole Basis: Petitioner contended that Presidential Decree 851 speaks only of "basic salary" as the basis for the determination of the 13th-month pay, and that the inclusion of the disputed payments is clearly not sanctioned by the Decree.
• Exclusion of Leave Payments and Premiums: Petitioner submitted that payments for sick, vacation, or maternity leaves, night differential pay, and premium paid for work performed on rest days, special and regular holidays do not form part of the basic salary.

• Inclusion of Leave Payments and Premiums: Public respondent maintained that payments for sick leave, vacation leave, and maternity benefits, as well as salaries paid to employees for work performed on rest days, special and regular holidays, are included in the computation of the 13th-month pay.
• Gross Basic Salary Definition: Private respondent cited past rulings, opinions, and decisions rendered by then Acting Labor Secretary Amado G. Inciong to the effect that the gross basic salary includes regular salary, payments for sick, vacation and maternity leaves, premium for work performed on rest days or holidays, holiday pay for worked or unworked regular holiday, and emergency allowance if given in the form of a wage adjustment.

• Computation of 13th-Month Pay: Whether payments for sick, vacation, or maternity leaves, premium for work done on rest days and special holidays, including pay for regular holidays and night differentials, should be considered in the computation of the 13th-month pay under Presidential Decree 851.

• Computation of 13th-Month Pay: No. These payments are not part of the "basic salary" and shall not be considered in the computation of the 13th-month pay. Presidential Decree 851 and its implementing rules use basic salary as the sole basis, and the Supplementary Rules and Regulations exclude "earnings and other remunerations" from the definition of basic salary.

• Computation of 13th-Month Pay: The Court reasoned that Section 1 of PD 851 requires employers to pay employees receiving a basic salary of not more than ₱1,000 a month a 13th-month pay, and Section 2 of the implementing rules defines 13th-month pay as one-twelfth (1/12) of the basic salary within a calendar year. The Rules and Regulations Implementing PD 851 define basic salary to include all remunerations or earnings paid by an employer to an employee for services rendered, but exclude cost-of-living allowances granted pursuant to PD 525 or Letter of Instructions No. 174, profit sharing payments, and all allowances and monetary benefits not considered or integrated as part of the regular or basic salary at the time of the Decree's promulgation on December 16, 1975. The Supplementary Rules and Regulations issued by then Labor Secretary Blas Ople further exclude overtime pay, earnings and other remunerations from the definition of basic salary. The exclusion of cost-of-living allowances and profit sharing payments indicates the intention to strip basic salary of other payments properly considered as "fringe" benefits, and the catch-all exclusionary phrase shows the same intention with respect to allowances or fringe benefits. The all-embracing phrase "earnings and other remunerations" includes within its meaning payments for sick, vacation, or maternity leaves, premium for work performed on rest days and special holidays, pay for regular holidays, and night differentials; if these were not excluded, the exclusionary provision would be idle and purposeless. The Labor Code supports this conclusion: Article 87 provides that overtime work is paid additional compensation equivalent to the regular wage plus at least 25% thereof, showing that overtime pay is an additional compensation other than and added to the regular wage or basic salary; Article 93(c) provides that work performed on any special holiday shall be paid an additional compensation of at least 30% of the regular wage, showing that premium for special holiday is likewise an additional compensation. For similar reasons, these items shall not be considered in the computation of the 13th-month pay.

• Basic Salary under Presidential Decree 851 — The 13th-month pay is computed as one-twelfth (1/12) of the employee's basic salary within a calendar year. Basic salary excludes cost-of-living allowances granted pursuant to PD 525 or LOI 174, profit sharing payments, and all allowances and monetary benefits not considered or integrated as part of the regular or basic salary, as well as overtime pay, earnings, and other remunerations under the Supplementary Rules and Regulations. The Court applied this doctrine to hold that payments for sick, vacation, or maternity leaves, premium for work on rest days and special holidays, pay for regular holidays, and night differentials are not part of the basic salary and shall not be considered in the 13th-month pay computation.
• Supplementary Rules Control over Prior Rules — Where a later set of implementing rules categorically excludes from the definition of basic salary what a prior set broadly included, the later and more controlling rules prevail. The Court applied this principle to hold that the Supplementary Rules and Regulations cure the seeming tendency of the former rules to include all remunerations and earnings within the definition of basic salary.

• "Under Presidential Decree 851 and its implementing rules, the basic salary of an employee is used as the basis in the determination of his 13th-month pay. Any compensations or remunerations which are deemed not part of the basic pay is excluded as basis in the computation of the mandatory bonus." — This states the controlling rule that basic salary is the sole basis for the 13th-month pay computation.
• "The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter of Instructions No. 174, and profit sharing payments indicate the intention to strip basic salary of other payments which are properly considered as 'fringe' benefits." — This articulates the legislative intent behind the exclusions from basic salary.
• "It is clear that overtime pay is an additional compensation other than and added to the regular wage or basic salary, for reason of which such is categorically excluded from the definition of basic salary under the Supplementary Rules and Regulations Implementing Presidential Decree 851." — This explains why overtime pay, as additional compensation, is excluded from basic salary.
• "It is likewise clear that premium for special holiday which is at least 30% of the regular wage is an additional compensation other than and added to the regular wage or basic salary. For similar reason it shall not be considered in the computation of the 13th-month pay." — This extends the exclusion to premium for special holidays, applying the same reasoning as for overtime pay.

• L/q Rizal Rubber Company, Inc., February 4, 1976 — Cited by the private respondent as an administrative ruling supporting inclusion of leave payments and premiums in the 13th-month pay computation; not controlling, as the Court resolved the issue based on the text of PD 851 and its implementing rules.
• L/q Makati Supermarket, January 12, 1976 — Cited by the private respondent for the same proposition; likewise not controlling.

• Section 1, Presidential Decree 851 — Requires all employers to pay employees receiving a basic salary of not more than ₱1,000 a month a 13th-month pay not later than December 24 of every year. The Court interpreted "basic salary" as the sole basis for the computation.
• Section 2, Rules and Regulations Implementing PD 851 — Defines 13th-month pay as one-twelfth of the basic salary and defines basic salary to include all remunerations or earnings but excludes cost-of-living allowances, profit sharing payments, and all allowances and monetary benefits not considered part of the regular or basic salary. The Court applied this provision to identify the exclusions from basic salary.
• Supplementary Rules and Regulations Implementing PD 851 — Excludes overtime pay, earnings and other remunerations from the definition of basic salary. The Court held this later set of rules controls over the earlier broad definition and includes the disputed payments within the exclusion.
• Article 87, Labor Code — Provides for overtime pay as additional compensation equivalent to the regular wage plus at least 25% thereof. The Court cited this to show overtime pay is additional compensation, not part of basic salary.
• Article 93, Labor Code — Provides that work performed on any special holiday shall be paid an additional compensation of at least 30% of the regular wage. The Court cited this to show premium for special holiday is additional compensation, not part of basic salary.

Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and Melencio-Herrera.