Sevilla Trading Company vs. Semana

An employer's consistent inclusion of non-basic benefits in the 13th-month pay computation for at least two years constitutes voluntary employer practice that cannot be unilaterally withdrawn without violating Article 100 of the Labor Code, which prohibits the elimination or diminution of benefits being enjoyed by employees, provided the law and jurisprudence governing the proper computation were already clear at the time the practice was maintained.

Sevilla Trading Company is a domestic corporation engaged in the trading business, organized and existing under Philippine laws. Its employees are represented by the Sevilla Trading Workers Union – SUPER, a duly organized and registered labor union. The parties are bound by a Collective Bargaining Agreement covering the period 1997–2002, which provides for a Grievance Machinery for resolving disputes. The dispute arises under Presidential Decree No. 851 (the 13th-Month Pay Law) and its implementing rules, which define "basic salary" for purposes of computing the mandatory 13th-month pay and exclude certain allowances and monetary benefits from that definition.

For two to three years prior to 1999, Sevilla Trading Company included in the base figure for computing its employees' 13th-month pay the amounts of various non-basic benefits received by the employees beyond their basic pay. These benefits comprised overtime premium for regular overtime, legal and special holidays; legal holiday pay; premium pay for special holidays; night premium; bereavement leave pay; union leave pay; maternity leave pay; paternity leave pay; company vacation and sick leave pay; and cash conversion of unused company vacation and sick leave. The company entrusted the preparation of its payroll, including the computation and payment of the 13th-month pay and other benefits, to its office staff.

In the process of computerizing its payroll and after changing the person in charge, petitioner conducted an audit and allegedly discovered the error of including non-basic pay or other benefits in the base figure used in the 13th-month pay computation. Petitioner cited Section 2(b) of the Rules and Regulations Implementing P.D. No. 851, which defined "basic salary" as including all remunerations or earnings paid by an employer for services rendered but excluding cost-of-living allowances, profit-sharing payments, and all allowances and monetary benefits not integrated as part of the regular or basic salary. Petitioner then adopted a new formula: 13th-month pay equals net basic pay divided by 12 months, where net basic pay equals gross pay minus non-basic pay or other benefits. The same categories of benefits previously included were now excluded, thereby reducing the employees' 13th-month pay.

The daily piece-rate workers, represented by the Sevilla Trading Workers Union – SUPER, contested the new computation and the resulting reduction of their 13th-month pay through the Grievance Machinery provided in the Collective Bargaining Agreement. The parties failed to resolve the issue and, on March 24, 2000, submitted to Accredited Voluntary Arbitrator Tomas E. Semana of the National Conciliation and Mediation Board the question of whether the exclusion of leaves and other related benefits from the 13th-month pay computation was valid. The Union alleged that petitioner violated Article 100 of the Labor Code, which prohibits the elimination or diminution of employees' benefits, and claimed that paid leaves and other leave benefits in the CBA should be included in the base figure. Petitioner, for its part, maintained that the 13th-month pay computation was based on basic salary excluding benefits such as leaves with pay, pursuant to P.D. No. 851, as amended, and asserted that it was merely rectifying the mistake its personnel had committed in prior years.

A.V.A. Semana decided in favor of the Union, declaring that the company was ordered to include sick leave, vacation leave, paternity leave, union leave, bereavement leave, and other leave with pay in the CBA, premium for work on rest days and special holidays, and pay for regular holidays in the 13th-month pay computation, and to pay corresponding backwages to all covered and entitled employees arising from the exclusion of those benefits for the year 1999. Petitioner received a copy of the Decision on December 20, 2000, but instead of filing a petition for review under Rule 43 within the 15-day reglementary period, it filed a "Manifestation and Motion for Time to File Petition for Certiorari" on January 19, 2001, and a Petition for Certiorari under Rule 65 on February 19, 2001. The Court of Appeals denied due course to and dismissed the petition, and subsequently denied petitioner's Motion for Reconsideration.

• Ripening into Practice Without Legal Basis: Petitioner argued that the Court of Appeals' decision to revert to the old computation of the 13th-month pay on the basis that the old computation had ripened into practice was without legal basis.
• Inability to Correct Errors: Petitioner maintained that if the CA ruling stood, companies would have no means to correct errors in computation, which would cause grave and irreparable damage to employers.
• Limited Reversal Scope: Petitioner claimed that assuming the old computation would be upheld, the reversal to the old computation could only extend to including non-basic benefits actually included in the base figure in prior years, and must exclude those non-basic benefits which were not included in the original computation.
• Mistake or Error: Petitioner insisted that its inclusion of non-basic benefits in the 13th-month pay computation was a mistake committed by its payroll personnel, and that in adjusting the computation it was merely rectifying that error pursuant to P.D. No. 851 and its implementing rules.

• Non-Diminution of Benefits: Respondent Union alleged that petitioner violated Article 100 of the Labor Code, which prohibits the elimination or diminution of employees' benefits, by excluding paid leaves and other related benefits from the 13th-month pay computation.
• Inclusion of Paid Leaves: Respondent argued that paid leaves such as sick leave, vacation leave, paternity leave, union leave, bereavement leave, holiday pay, and other leaves with pay in the CBA should be included in the base figure in the computation of their 13th-month pay.

• Proper Remedy: Whether the proper remedy from the adverse decision of a voluntary arbitrator is a petition for certiorari under Rule 65 or a petition for review under Rule 43 of the 1997 Rules of Civil Procedure.
• Grave Abuse of Discretion: Whether the voluntary arbitrator committed grave abuse of discretion amounting to lack or excess of jurisdiction in ruling in favor of the Union.
• Voluntary Employer Practice: Whether the employer's inclusion of non-basic benefits in the 13th-month pay computation for at least two years constitutes voluntary employer practice that cannot be unilaterally withdrawn under Article 100 of the Labor Code.

• Proper Remedy: No. The proper remedy from the adverse decision of a voluntary arbitrator is a petition for review under Rule 43, not a petition for certiorari under Rule 65. Petitioner's failure to file the correct remedy within the 15-day reglementary period rendered the arbitrator's decision final and executory on January 5, 2001.
• Grave Abuse of Discretion: No. The voluntary arbitrator committed no grave abuse of discretion; his decision was found to be sound, valid, and in accord with law and jurisprudence.
• Voluntary Employer Practice: Yes. The employer's inclusion of non-basic benefits in the 13th-month pay computation for at least two years constituted voluntary employer practice that could not be unilaterally withdrawn without violating Article 100 of the Labor Code.

• Proper Remedy: Section 1 of Rule 43 expressly includes voluntary arbitrators authorized by law among the quasi-judicial agencies whose decisions are appealable to the Court of Appeals via petition for review. The special civil action of certiorari under Rule 65 is not a substitute for an appeal where the latter is available. Petitioner received the arbitrator's decision on December 20, 2000, and had until January 4, 2001 to file a petition for review under Rule 43. Instead, it filed a "Manifestation and Motion for Time to File Petition for Certiorari" on January 19, 2001, and a petition for certiorari under Rule 65 on February 19, 2001. Because the reglementary period had lapsed, the arbitrator's decision became final and executory on January 5, 2001, depriving the Court of Appeals of appellate jurisdiction to alter or nullify it. Rule 65 cannot cure the loss of the remedy of ordinary appeal occasioned by one's own neglect or error in the choice of remedies.

• Grave Abuse of Discretion: Grave abuse of discretion has been defined as capricious and whimsical exercise of judgment equivalent to lack of jurisdiction, where power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, so patent and gross as to amount to an evasion of positive duty. Nothing of that sort was found in the arbitrator's decision. On the contrary, the arbitrator correctly rejected petitioner's claim of mistake or error. Petitioner's submission of financial statements every year requires the services of a certified public accountant to audit its finances, making it implausible that the alleged error was discovered only in 1999. Petitioner failed to adduce any relevant evidence explaining why the inclusion of non-basic benefits in prior years was made by mistake, given the clarity of statute and jurisprudence at the time.

• Voluntary Employer Practice: The case was distinguished from Globe Mackay Cable and Radio Corp. vs. NLRC, where the employer's grant of benefits through erroneous application of law was excused due to the absence of clear administrative guidelines. In the present case, as early as 1981, the Court had already held in San Miguel Corporation vs. Inciong that under P.D. No. 851 and its implementing rules, the basic salary is used as the basis for 13th-month pay, and that the Supplementary Rules and Regulations categorically exclude earnings and other remunerations not part of the basic salary—including payments for sick, vacation, or maternity leaves, premium for work on rest days and special holidays, pay for regular holidays, and night differentials. Because the law and jurisprudence were clear, there was no reason for any mistake in the construction or application of the law. The employer's continued inclusion of non-basic benefits over the years could only be construed as a voluntary act. In Davao Fruits Corporation vs. Associated Labor Unions, the Court held that a company practice lasting six years ripened into a benefit protected by Article 100. In Davao Integrated Port Stevedoring Services vs. Abarquez, three years and nine months sufficed; in Tiangco vs. Leogardo, Jr., three years and four months sufficed. Jurisprudence has not laid down any rule requiring a specific minimum number of years. The employer's practice of at least two years likewise constituted voluntary employer practice that could not be peremptorily withdrawn without violating Article 100 of the Labor Code.

• Voluntary Employer Practice — When an employer consistently and deliberately grants benefits to employees over a period of time, the practice ripens into a company policy or practice that cannot be unilaterally withdrawn or discontinued. Jurisprudence has not laid down any rule requiring a specific minimum number of years for a practice to constitute voluntary employer practice; periods ranging from two years to six years have been held sufficient. The grant of benefits through an erroneous application of law due to the absence of clear administrative guidelines is not considered a voluntary act and may be corrected, but where the law and jurisprudence are clear, continued grant of benefits over time is deemed voluntary. In this case, the employer's inclusion of non-basic benefits in the 13th-month pay computation for at least two years was held to constitute voluntary employer practice, because the governing law and jurisprudence on the proper computation had been clear since 1981.

• Non-Diminution of Benefits (Article 100, Labor Code) — Nothing in the Labor Code shall be construed to eliminate or in any way diminish supplements or other employee benefits being enjoyed at the time of promulgation of the Code. Once a benefit has ripened into company practice, the employer cannot reduce, diminish, discontinue, or eliminate it. The Court applied this provision to hold that Sevilla Trading could not exclude from the 13th-month pay computation the non-basic benefits it had been including for at least two years.

• Proper Remedy from Voluntary Arbitrator Decisions — The proper remedy from the adverse decision of a voluntary arbitrator is a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, not a petition for certiorari under Rule 65. Rule 65 is an independent action that cannot serve as a substitute for a lost remedy of ordinary appeal, especially where the loss was occasioned by one's own neglect or error in the choice of remedies.

• "A special civil action under Rule 65 of the Rules of Court will not be a cure for failure to timely file a petition for review on certiorari under Rule 45 (Rule 43, in the case at bar) of the Rules of Court." — This passage articulates the principle that certiorari under Rule 65 cannot substitute for a lost appeal, a procedural doctrine frequently invoked in labor and administrative cases.

• "The all-embracing phrase 'earnings and other remunerations' which are deemed not part of the basic salary includes within its meaning payments for sick, vacation, or maternity leaves, premium for works performed on rest days and special holidays, pay for regular holidays and night differentials. As such they are deemed not part of the basic salary and shall not be considered in the computation of the 13th-month pay." — This passage, drawn from San Miguel Corporation vs. Inciong as quoted in the decision, defines the scope of excluded items from the 13th-month pay base figure and is central to the distinction between what the law requires and what the employer voluntarily did.

• "A company practice favorable to the employees had indeed been established and the payments made pursuant thereto, ripened into benefits enjoyed by them. And any benefit and supplement being enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated by the employer, by virtue of Sec. 10 of the Rules and Regulations Implementing P.D. No. 851, and Art. 100 of the Labor Code of the Philippines which prohibit the diminution or elimination by the employer of the employees' existing benefits." — This passage, quoted from Davao Fruits Corporation vs. Associated Labor Unions, states the ratio decidendi connecting voluntary employer practice to the non-diminution principle.

• "With regard to the length of time the company practice should have been exercised to constitute voluntary employer practice which cannot be unilaterally withdrawn by the employer, we hold that jurisprudence has not laid down any rule requiring a specific minimum number of years." — This passage establishes that no fixed minimum duration is required for a practice to ripen into a protected benefit, a point of significant practical importance for employers and employees alike.

• Globe Mackay Cable and Radio Corp. vs. NLRC, 163 SCRA 71 (1988) — Distinguished. In that case, the employer's erroneous grant of benefits was excused because of the absence of clear administrative guidelines for implementing wage orders. The Court distinguished it from the present case because, here, the law and jurisprudence on 13th-month pay computation were already clear, precluding any claim of mistake.

• San Miguel Corporation vs. Inciong, 103 SCRA 139 (1981) — Followed. The Court relied on this decision's holding that basic salary is the basis for 13th-month pay computation and that the Supplementary Rules and Regulations Implementing P.D. No. 851 categorically exclude earnings and other remunerations not part of basic salary, including payments for sick, vacation, and maternity leaves, premium for rest day and special holiday work, regular holiday pay, and night differentials.

• Davao Fruits Corporation vs. Associated Labor Unions, 225 SCRA 562 (1993) — Followed. The Court relied on this decision's holding that the employer's inclusion of non-basic benefits in the 13th-month pay computation for six years constituted voluntary employer practice that ripened into a protected benefit under Article 100 of the Labor Code, and that the clarity of the law negated any claim of mistake.

• Davao Integrated Port Stevedoring Services vs. Abarquez, 220 SCRA 197 (1993) — Cited as supporting precedent. The employer's practice of approving commutation to cash of unenjoyed sick leave benefits for three years and nine months was held to constitute voluntary employer practice that could not be peremptorily withdrawn.

• Tiangco vs. Leogardo, Jr., 122 SCRA 267 (1983) — Cited as supporting precedent. The employer's practice of giving a fixed monthly emergency allowance for three years and four months was held to have ripened into company practice or policy that could not be unilaterally withdrawn.

• P.D. No. 851 (13th-Month Pay Law) and its Rules and Regulations Implementing P.D. No. 851 — Section 2(b) defines "basic salary" as including all remunerations or earnings paid by an employer for services rendered but excluding cost-of-living allowances, profit-sharing payments, and all allowances and monetary benefits not integrated as part of the regular or basic salary. The Supplementary Rules and Regulations further exclude overtime pay, earnings, and other remunerations from the definition of basic salary. The Court applied these provisions to establish that the law was clear as to which benefits should be excluded from the 13th-month pay base figure, thereby negating petitioner's claim of mistake.

• Article 100, Labor Code of the Philippines — Prohibits the elimination or diminution of supplements and other employee benefits being enjoyed at the time of promulgation of the Code. The Court applied this provision to hold that the employer's practice of including non-basic benefits in the 13th-month pay computation for at least two years had ripened into a benefit that could not be reduced, diminished, discontinued, or eliminated.

• Rule 43, 1997 Rules of Civil Procedure — Governs appeals from judgments or final orders of quasi-judicial agencies, including voluntary arbitrators authorized by law, to the Court of Appeals. The Court held that this was the proper remedy from the adverse decision of the voluntary arbitrator, and that petitioner's failure to file under Rule 43 within the 15-day reglementary period rendered the arbitrator's decision final and executory.

• Rule 65, 1997 Rules of Civil Procedure — Governs the special civil action of certiorari. The Court held that Rule 65 is not a substitute for a lost appeal and cannot cure the failure to timely file a petition for review under Rule 43.

Justices Quisumbing, Austria-Martinez, and Tinga concurred. Justice Callejo, Sr. was listed in the concur line but a footnote indicated "No part," signifying non-participation in the decision.