Songco vs. NLRC

In the computation of separation pay under Article 284 of the Labor Code, earned sales commissions and allowances form part of the employee's "salary" or "pay" because the terms "wages," "salary," and "pay" are essentially synonymous; therefore, separation pay must be computed based on the employee's total earnings including these components, not merely the basic salary, with the average commissions earned during the last year of employment used as the basis.

The case arose from the retrenchment of sales employees of F.E. Zuellig (M), Inc., a company that sought clearance from the Department of Labor to terminate the services of petitioners due to alleged financial losses. The employees, who received substantial fixed monthly salaries plus sales commissions, initially contested the dismissal alleging union membership as the true motive, but later limited the dispute to the proper basis for computing their separation pay. The controversy centered on whether the computation should include the employees' regular commissions and allowances or be limited to basic salary alone.

• Petitioners Jose Songco, Romeo Cipres, and Amancio Manuel were sales employees of F.E. Zuellig (M), Inc., receiving monthly salaries of at least P40,000 plus commissions for every sale made.
• Private respondent filed an application with the Department of Labor seeking clearance to terminate petitioners allegedly due to retrenchment from financial losses.
• Petitioners initially opposed the application claiming they were being dismissed because of union membership, but at the last hearing, manifested they were no longer contesting their dismissal.
• The parties agreed that the sole issue to be resolved was the basis of the separation pay due to petitioners.
• The Collective Bargaining Agreement between Zuellig and the F.E. Zuellig Employees Association provided in Article XIV that retirement gratuity for separation due to permanent lay-off shall be one month's salary per year of service, with "one month of salary" deemed equivalent to the salary at date of retirement.
• Article 284 of the Labor Code (then prevailing) provided that in case of retrenchment to prevent losses, separation pay shall be equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher.
• The Labor Arbiter computed separation pay based on basic salary alone, excluding commissions and allowances.
• The NLRC affirmed the Labor Arbiter's decision, expressing fear that including commissions would lead to absurd results where employees might demand inclusion of 13th month pay, overtime, premium pay, and other fringe benefits in separation pay computation.

• Petitioners argued that their basic salary, earned sales commissions, and allowances should be added together in arriving at the correct amount of separation pay due them, whether under the Labor Code or the Collective Bargaining Agreement.
• They cited Article 97(f) of the Labor Code which defines "wage" as remuneration capable of being expressed in terms of money, whether fixed or ascertained on a commission basis, and includes the fair and reasonable value of board, lodging, or other facilities.
• They contended that commission is part of one's salary and therefore should be included in the computation of separation pay, emphasizing that the nature of sales work makes commissions an integral part of their total compensation.

• Zuellig argued that if the Labor Code intended to include commission in the computation of separation pay, it would have explicitly said so in clear and unequivocal terms rather than using the general definition of wage.
• It contended that in the definition of "wage," "commission" is used only as one of the features or designations attached to remuneration, not as an integral component of "salary" for separation pay purposes.
• The NLRC argued that "wage" is used in its generic sense referring only to basic wage rate, and that including commissions, allowances, or analogous income would lead to absurd constructions where employees might insist on including 13th month pay, overtime, premium pay, and other fringe benefits in separation pay computation.

• Procedural: N/A
• Substantive Issues:
  • Whether earned sales commissions should be included in the monthly salary of petitioners for the purpose of computing separation pay.
  • Whether allowances should be included in the monthly salary for the purpose of computing separation pay.

• Procedural: N/A
• Substantive:
  • The Court ruled that allowances should be included in the computation of separation pay, citing the established precedent in Santos v. NLRC, Soriano v. NLRC, and Planters Products, Inc. v. NLRC which held that transportation and emergency living allowances must be considered in computing backwages and separation pay.
  • The Court held that earned sales commissions should also be included in the monthly salary base for computing separation pay, rejecting the "absurdity" argument raised by the NLRC.
  • The Court ruled that Article 97(f) of the Labor Code explicitly includes commission in the definition of "wage," and since the terms "wages," "salary," and "pay" are synonymous and interchangeable, commissions must form part of the basis for separation pay.
  • The Court held that commissions are direct remuneration for services rendered which contributed to the increase of the employer's income, and the nature of a salesman's work demonstrates that commissions are part of wage or salary.
  • The Court ruled that in computing separation pay, the average commissions earned during the last year of employment should be taken into account, applying by analogy the principle from Soriano v. NLRC regarding commissions earned by actual market transactions.
  • The Court applied the principle that in carrying out and interpreting the Labor Code, the workingman's welfare should be the primordial consideration, and all doubts should be resolved in favor of labor pursuant to Article 4 of the Labor Code and Article 1702 of the Civil Code.

• Liberal Construction of Labor Laws — In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living of the laborer (Article 1702, Civil Code) and all doubts in the implementation and interpretation of the Labor Code shall be resolved in favor of labor (Article 4, Labor Code). The Court applied this doctrine to include commissions and allowances within the definition of salary for separation pay purposes, emphasizing the purpose of separation pay to alleviate the difficulties of dismissed employees.
• Synonymity of Wage, Salary, and Pay — The terms "wages," "salary," and "pay" are essentially synonymous and interchangeable in labor law. "Salary" means a recompense or consideration for services rendered, while "pay" is a synonym of wages and salary. Since commission is included in the definition of "wage," it logically follows that it forms part of salary and pay for separation pay computation.
• Inclusion of Commissions in Separation Pay and Backwages — Commissions earned by actual market transactions attributable to the employee form part of the wage base for separation pay and backwages computation, and must be averaged over the last year of employment to determine the proper basis.

• "Where the law speaks in clear and categorical language, there is no room for interpretation or construction; there is only room for application."
• "The ambiguity between Article 97(f)... and Article XIV of the Collective Bargaining Agreement, Article 284 of the Labor Code and Sections 9(b) and 10 of the Implementing Rules... is more apparent than real."
• "Broadly, the word 'salary' means a recompense or consideration made to a person for his pains or industry in another man's business."
• "There is eminent authority for holding that the words 'wages' and 'salary' are in essence synonymous."
• "Inasmuch as the words 'wages', 'pay' and 'salary' have the same meaning, and commission is included in the definition of 'wage', the logical conclusion, therefore, is, in the computation of the separation pay of petitioners, their salary base should include also their earned sales commissions."
• "This narrow interpretation is not in accord with the liberal spirit of our labor laws and considering the purpose of separation pay which is, to alleviate the difficulties which confront a dismissed employee thrown to the streets to face the harsh necessities of life."
• "In carrying out and interpreting the Labor Code's provisions and its implementing regulations, the workingman's welfare should be the primordial and paramount consideration."

• Santos v. NLRC, G.R. No. 76721, September 21, 1987 — Established that in the computation of backwages and separation pay, account must be taken not only of the basic salary but also of transportation and emergency living allowances.
• Soriano v. NLRC, G.R. No. 75510, October 27, 1987 — Reiterated the principle regarding inclusion of allowances in separation pay computation; applied by analogy regarding the treatment of commissions earned by actual market transactions.
• Planters Products, Inc. v. NLRC, G.R. No. 78524, January 20, 1989 — Reiterated the ruling in Santos regarding inclusion of allowances in backwages and separation pay.
• Cebu Portland Cement Co. v. Municipality of Naga, G.R. Nos. 24116-17, August 22, 1968 — Cited for the principle that where the law speaks in clear and categorical language, there is no room for interpretation.
• Gonzaga v. Court of Appeals, G.R. No. L-27455, June 28, 1973 — Cited for the principle that a plain and unambiguous statute speaks for itself.
• Abella v. NLRC, G.R. No. 71812, July 30, 1987 — Cited for the principle that doubts in the implementation and interpretation of the Labor Code shall be resolved in favor of labor.
• Manila Electric Company v. NLRC, G.R. No. 78763, July 12, 1989 — Cited for the same principle regarding resolution of doubts in favor of labor.

• Article 97(f), Labor Code — Defines "wage" as remuneration including that ascertained on a commission basis; basis for holding that commissions form part of wages.
• Article 284, Labor Code — Provides for separation pay in cases of retrenchment to prevent losses; uses the term "pay" which the Court held synonymous with wages and salary.
• Article 4, Labor Code — Provides that all doubts in the implementation and interpretation of the Labor Code shall be resolved in favor of labor.
• Article 1702, Civil Code — Provides that in case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer.
• Sections 9(b) and 10, Rule 1, Book VI, Rules Implementing the Labor Code — Provide for the computation of termination pay in case of retrenchment and specify that the basis shall be the latest salary rate.