G.R. No.

156367 May 16, 2005

AUTO BUS TRANSPORT SYSTEMS, INC., petitioner,

vs.
ANTONIO BAUTISTA, respondent.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari assailing the Decision1 and Resolution2 of the Court of
Appeals affirming the Decision3 of the National Labor Relations Commission (NLRC). The NLRC
ruling modified the Decision of the Labor Arbiter (finding respondent entitled to the award of
13th month pay and service incentive leave pay) by deleting the award of 13th month pay to
respondent.

THE FACTS

Since 24 May 1995, respondent Antonio Bautista has been employed by petitioner Auto Bus
Transport Systems, Inc. (Autobus), as driver-conductor with travel routes Manila-Tuguegarao via
Baguio, Baguio- Tuguegarao via Manila and Manila-Tabuk via Baguio. Respondent was paid on
commission basis, seven percent (7%) of the total gross income per travel, on a twice a month basis.

On 03 January 2000, while respondent was driving Autobus No. 114 along Sta. Fe, Nueva Vizcaya,
the bus he was driving accidentally bumped the rear portion of Autobus No. 124, as the latter vehicle
suddenly stopped at a sharp curve without giving any warning.

Respondent averred that the accident happened because he was compelled by the management to
go back to Roxas, Isabela, although he had not slept for almost twenty-four (24) hours, as he had just
arrived in Manila from Roxas, Isabela. Respondent further alleged that he was not allowed to work
until he fully paid the amount of P75,551.50, representing thirty percent (30%) of the cost of repair of
the damaged buses and that despite respondent’s pleas for reconsideration, the same was ignored
by management. After a month, management sent him a letter of termination.

Thus, on 02 February 2000, respondent instituted a Complaint for Illegal Dismissal with Money
Claims for nonpayment of 13th month pay and service incentive leave pay against Autobus.

Petitioner, on the other hand, maintained that respondent’s employment was replete with offenses
involving reckless imprudence, gross negligence, and dishonesty. To support its claim, petitioner
presented copies of letters, memos, irregularity reports, and warrants of arrest pertaining to several
incidents wherein respondent was involved.

Furthermore, petitioner avers that in the exercise of its management prerogative, respondent’s
employment was terminated only after the latter was provided with an opportunity to explain his side
regarding the accident on 03 January 2000.

On 29 September 2000, based on the pleadings and supporting evidence presented by the parties,
Labor Arbiter Monroe C. Tabingan promulgated a Decision,4 the dispositive portion of which reads:

WHEREFORE, all premises considered, it is hereby found that the complaint for Illegal
Dismissal has no leg to stand on. It is hereby ordered DISMISSED, as it is hereby
DISMISSED.

However, still based on the above-discussed premises, the respondent must pay to the
complainant the following:

a. his 13th month pay from the date of his hiring to the date of his dismissal, presently
computed at P78,117.87;

b. his service incentive leave pay for all the years he had been in service with the
respondent, presently computed at P13,788.05.

All other claims of both complainant and respondent are hereby dismissed for lack of merit. 5

Not satisfied with the decision of the Labor Arbiter, petitioner appealed the decision to the NLRC
which rendered its decision on 28 September 2001, the decretal portion of which reads:
 [T]he Rules and Regulations Implementing Presidential Decree No. 851, particularly Sec. 3
provides:

"Section 3. Employers covered. – The Decree shall apply to all employers except to:

xxx xxx xxx

e) employers of those who are paid on purely commission, boundary, or task basis,
performing a specific work, irrespective of the time consumed in the performance
thereof. xxx."

Records show that complainant, in his position paper, admitted that he was paid on a
commission basis.

In view of the foregoing, we deem it just and equitable to modify the assailed Decision by
deleting the award of 13th month pay to the complainant.

WHEREFORE, the Decision dated 29 September 2000 is MODIFIED by deleting the award of
13th month pay. The other findings are AFFIRMED.6

In other words, the award of service incentive leave pay was maintained. Petitioner thus sought a
reconsideration of this aspect, which was subsequently denied in a Resolution by the NLRC dated 31
October 2001.

Displeased with only the partial grant of its appeal to the NLRC, petitioner sought the review of said
decision with the Court of Appeals which was subsequently denied by the appellate court in a
Decision dated 06 May 2002, the dispositive portion of which reads:

WHEREFORE, premises considered, the Petition is DISMISSED for lack of merit; and the
assailed Decision of respondent Commission in NLRC NCR CA No. 026584-2000 is hereby
AFFIRMED in toto. No costs.7

Hence, the instant petition.

ISSUES

1. Whether or not respondent is entitled to service incentive leave;

2. Whether or not the three (3)-year prescriptive period provided under Article 291 of the Labor Code,
as amended, is applicable to respondent’s claim of service incentive leave pay.

RULING OF THE COURT

The disposition of the first issue revolves around the proper interpretation of Article 95 of the Labor
Code vis-à-visSection 1(D), Rule V, Book III of the Implementing Rules and Regulations of the Labor
Code which provides:

Art. 95. RIGHT TO SERVICE INCENTIVE LEAVE

(a) Every employee who has rendered at least one year of service shall be entitled to a
yearly service incentive leave of five days with pay.

Book III, Rule V: SERVICE INCENTIVE LEAVE

SECTION 1. Coverage. – This rule shall apply to all employees except:

(d) Field personnel and other employees whose performance is unsupervised by the
employer including those who are engaged on task or contract basis, purely
commission basis, or those who are paid in a fixed amount for performing work
irrespective of the time consumed in the performance thereof; . . .

A careful perusal of said provisions of law will result in the conclusion that the grant of service
incentive leave has been delimited by the Implementing Rules and Regulations of the Labor Code to
apply only to those employees not explicitly excluded by Section 1 of Rule V. According to the
Implementing Rules, Service Incentive Leave shall not apply to employees classified as "field
personnel." The phrase "other employees whose performance is unsupervised by the employer" must
not be understood as a separate classification of employees to which service incentive leave shall not
be granted. Rather, it serves as an amplification of the interpretation of the definition of field
personnel under the Labor Code as those "whose actual hours of work in the field cannot be
determined with reasonable certainty."8

The same is true with respect to the phrase "those who are engaged on task or contract basis, purely
commission basis." Said phrase should be related with "field personnel," applying the rule on ejusdem
generis that general and unlimited terms are restrained and limited by the particular terms that they
follow.9 Hence, employees engaged on task or contract basis or paid on purely commission basis are
not automatically exempted from the grant of service incentive leave, unless, they fall under the
classification of field personnel.

Therefore, petitioner’s contention that respondent is not entitled to the grant of service incentive leave
just because he was paid on purely commission basis is misplaced. What must be ascertained in
order to resolve the issue of propriety of the grant of service incentive leave to respondent is whether
or not he is a field personnel.

According to Article 82 of the Labor Code, "field personnel" shall refer to non-agricultural employees
who regularly perform their duties away from the principal place of business or branch office of the
employer and whose actual hours of work in the field cannot be determined with reasonable certainty.
This definition is further elaborated in the Bureau of Working Conditions (BWC), Advisory Opinion to
Philippine Technical-Clerical Commercial Employees Association10 which states that:

As a general rule, [field personnel] are those whose performance of their job/service is not
supervised by the employer or his representative, the workplace being away from the principal
office and whose hours and days of work cannot be determined with reasonable certainty;
hence, they are paid specific amount for rendering specific service or performing specific
work. If required to be at specific places at specific times, employees including drivers cannot
be said to be field personnel despite the fact that they are performing work away from the
principal office of the employee. [Emphasis ours]

To this discussion by the BWC, the petitioner differs and postulates that under said advisory opinion,
no employee would ever be considered a field personnel because every employer, in one way or
another, exercises control over his employees. Petitioner further argues that the only criterion that
should be considered is the nature of work of the employee in that, if the employee’s job requires that
he works away from the principal office like that of a messenger or a bus driver, then he is inevitably a
field personnel.

We are not persuaded. At this point, it is necessary to stress that the definition of a "field personnel" is
not merely concerned with the location where the employee regularly performs his duties but also
with the fact that the employee’s performance is unsupervised by the employer. As discussed above,
field personnel are those who regularly perform their duties away from the principal place of business
of the employer and whose actual hours of work in the field cannot be determined with reasonable
certainty. Thus, in order to conclude whether an employee is a field employee, it is also necessary to
ascertain if actual hours of work in the field can be determined with reasonable certainty by the
employer. In so doing, an inquiry must be made as to whether or not the employee’s time and
performance are constantly supervised by the employer.

As observed by the Labor Arbiter and concurred in by the Court of Appeals:

It is of judicial notice that along the routes that are plied by these bus companies, there are its
inspectors assigned at strategic places who board the bus and inspect the passengers, the
punched tickets, and the conductor’s reports. There is also the mandatory once-a-week car
barn or shop day, where the bus is regularly checked as to its mechanical, electrical, and
hydraulic aspects, whether or not there are problems thereon as reported by the driver and/or
conductor. They too, must be at specific place as [sic] specified time, as they generally
observe prompt departure and arrival from their point of origin to their point of destination. In
each and every depot, there is always the Dispatcher whose function is precisely to see to it
that the bus and its crew leave the premises at specific times and arrive at the estimated
proper time. These, are present in the case at bar. The driver, the complainant herein, was
therefore under constant supervision while in the performance of this work. He cannot be
considered a field personnel.11
We agree in the above disquisition. Therefore, as correctly concluded by the appellate court,
respondent is not a field personnel but a regular employee who performs tasks usually necessary and
desirable to the usual trade of petitioner’s business. Accordingly, respondent is entitled to the grant of
service incentive leave.

The question now that must be addressed is up to what amount of service incentive leave pay
respondent is entitled to.

The response to this query inevitably leads us to the correlative issue of whether or not the three (3)-
year prescriptive period under Article 291 of the Labor Code is applicable to respondent’s claim of
service incentive leave pay.

Article 291 of the Labor Code states that all money claims arising from employer-employee
relationship shall be filed within three (3) years from the time the cause of action accrued; otherwise,
they shall be forever barred.

In the application of this section of the Labor Code, the pivotal question to be answered is when does
the cause of action for money claims accrue in order to determine the reckoning date of the three-
year prescriptive period.

It is settled jurisprudence that a cause of action has three elements, to wit, (1) a right in favor of the
plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the
part of the named defendant to respect or not to violate such right; and (3) an act or omission on the
part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of
the defendant to the plaintiff.12

To properly construe Article 291 of the Labor Code, it is essential to ascertain the time when the third
element of a cause of action transpired. Stated differently, in the computation of the three-year
prescriptive period, a determination must be made as to the period when the act constituting a
violation of the workers’ right to the benefits being claimed was committed. For if the cause of action
accrued more than three (3) years before the filing of the money claim, said cause of action has
already prescribed in accordance with Article 291.13

Consequently, in cases of nonpayment of allowances and other monetary benefits, if it is established

that the benefits being claimed have been withheld from the employee for a period longer than three
(3) years, the amount pertaining to the period beyond the three-year prescriptive period is therefore
barred by prescription. The amount that can only be demanded by the aggrieved employee shall be
limited to the amount of the benefits withheld within three (3) years before the filing of the complaint. 14

It is essential at this point, however, to recognize that the service incentive leave is a curious animal
in relation to other benefits granted by the law to every employee. In the case of service incentive
leave, the employee may choose to either use his leave credits or commute it to its monetary
equivalent if not exhausted at the end of the year.15 Furthermore, if the employee entitled to service
incentive leave does not use or commute the same, he is entitled upon his resignation or separation
from work to the commutation of his accrued service incentive leave. As enunciated by the Court
in Fernandez v. NLRC:16

The clear policy of the Labor Code is to grant service incentive leave pay to workers in all
establishments, subject to a few exceptions. Section 2, Rule V, Book III of the Implementing
Rules and Regulations provides that "[e]very employee who has rendered at least one year of
service shall be entitled to a yearly service incentive leave of five days with pay." Service
incentive leave is a right which accrues to every employee who has served "within 12 months,
whether continuous or broken reckoned from the date the employee started working, including
authorized absences and paid regular holidays unless the working days in the establishment
as a matter of practice or policy, or that provided in the employment contracts, is less than 12
months, in which case said period shall be considered as one year." It is also "commutable to
its money equivalent if not used or exhausted at the end of the year." In other words, an
employee who has served for one year is entitled to it. He may use it as leave days or he may
collect its monetary value. To limit the award to three years, as the solicitor general
recommends, is to unduly restrict such right.17 [Italics supplied]

Correspondingly, it can be conscientiously deduced that the cause of action of an entitled employee
to claim his service incentive leave pay accrues from the moment the employer refuses to remunerate
its monetary equivalent if the employee did not make use of said leave credits but instead chose to
avail of its commutation. Accordingly, if the employee wishes to accumulate his leave credits and opts
for its commutation upon his resignation or separation from employment, his cause of action to claim
the whole amount of his accumulated service incentive leave shall arise when the employer fails to
pay such amount at the time of his resignation or separation from employment.

Applying Article 291 of the Labor Code in light of this peculiarity of the service incentive leave, we can
conclude that the three (3)-year prescriptive period commences, not at the end of the year when the
employee becomes entitled to the commutation of his service incentive leave, but from the time when
the employer refuses to pay its monetary equivalent after demand of commutation or upon
termination of the employee’s services, as the case may be.

The above construal of Art. 291, vis-à-vis the rules on service incentive leave, is in keeping with the
rudimentary principle that in the implementation and interpretation of the provisions of the Labor Code
and its implementing regulations, the workingman’s welfare should be the primordial and paramount
consideration.18 The policy is to extend the applicability of the decree to a greater number of
employees who can avail of the benefits under the law, which is in consonance with the avowed
policy of the State to give maximum aid and protection to labor.19

In the case at bar, respondent had not made use of his service incentive leave nor demanded for its
commutation until his employment was terminated by petitioner. Neither did petitioner compensate his
accumulated service incentive leave pay at the time of his dismissal. It was only upon his filing of a
complaint for illegal dismissal, one month from the time of his dismissal, that respondent demanded
from his former employer commutation of his accumulated leave credits. His cause of action to claim
the payment of his accumulated service incentive leave thus accrued from the time when his
employer dismissed him and failed to pay his accumulated leave credits.

Therefore, the prescriptive period with respect to his claim for service incentive leave pay only
commenced from the time the employer failed to compensate his accumulated service incentive leave
pay at the time of his dismissal. Since respondent had filed his money claim after only one month
from the time of his dismissal, necessarily, his money claim was filed within the prescriptive period
provided for by Article 291 of the Labor Code.

WHEREFORE, premises considered, the instant petition is hereby DENIED. The assailed Decision of
the Court of Appeals in CA-G.R. SP. No. 68395 is hereby AFFIRMED. No Costs.

SO ORDERED.
G.R. No. 107994 August 14, 1995

PHILIPPINE AGRICULTURAL COMMERCIAL AND INDUSTRIAL WORKERS UNION (PACIWU)-

TUCP, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION AND VALLACAR TRANSIT, INC., respondents.

KAPUNAN, J.:

This is a petition for certiorari seeking to reverse the decision of the National Labor Relations
Commission (NLRC) in NLRC Case No. V-0159-92 which dismissed the appeal of petitioner union
and in effect, affirmed the decision of the Labor Arbiter ordering the dismissal of the complaint of
petitioner for payment of 13th month pay to the drivers and conductors of respondent company.

Petitioner Philippine Agricultural Commercial and Agricultural Workers Union — TUCP is the
exclusive bargaining agent of the rank and file employees of respondent Vallacar Transit, Inc.
Petitioner union instituted a complaint with NLRC Regional Arbitration Branch No. VI, Bacolod City,
for payment of 13th month pay in behalf of the drivers and conductors of respondent company's
Visayan operation on the ground that although said drivers and conductors are compensated on a
"purely commission" basis as described in their Collective Bargaining Agreement (CBA), they are
automatically entitled to the basic minimum pay mandated by law should said commission be less
than their basic minimum for eight (8) hours work.1

In its position paper, respondent Vallacar Transit, Inc. contended that since said drivers and
conductors are compensated on a purely commission basis, they are not entitled to 13th month pay
pursuant to the exempting provisions enumerated in paragraph 2 of the Revised Guidelines on the
Implementation of the Thirteenth Month Pay Law.2 It further contended that Section 2 of Article XIV of
the Collective Bargaining Agreement (CBA) concluded on October 17, 1988 expressly provided that
"drivers and conductors paid on a purely commission are not legally entitled to 13th month pay." Said
CBA, being the law between the parties, must be respected, respondent opined.

On May 22, 1992, Labor Arbiter Reynaldo Gulmatico rendered a decision dismissing the complaint. 3

The appeal of the petitioner to the National Labor Relations Commission was likewise dismissed 4 so
was the motion for reconsideration of the said decision.5

Hence, the present petition.

The principal issue posed for consideration is whether or not the bus drivers and conductors of
respondent Vallacar Transit, Inc. are entitled to 13th month pay.

We rule in the affirmative.

It may be recalled that on December 16, 1975, P.D. 851, otherwise known as the "13th Month Pay"
Law, was promulgated. The same prescribed payment of 13th month pay in the following terms:

Sec. 1. All employers are hereby required to pay all their employees receiving a basic salary of
not more than P1,000.00 a month, regardless of the nature of the employment, a 13th month
pay not later than December 24 of every year.

Sec. 2. Employers already paying their employees a 13th month pay or its equivalent are not
covered by this Decree.

The Rules and Regulations Implementing P.D. No. 851, issued by the then Secretary of Labor and
Employment on December 22, 1975, defined the following basic terms:

xxx xxx xxx

(a) 13th month pay shall mean one-twelfth (1/12) of the basic salary of an employee within a
calendar year;

(b) basic salary shall include all remunerations or earnings paid by an employer to an employer
for services rendered, but may not include cost of living allowances granted pursuant to
Presidential Decree No. 525 or Letter of Instructions No. 174, profitsharing payments, and all
allowances and monetary benefits which are not considered or integrated as part of the regular
 or basic salary of the employee at the time of the promulgation of the Decree on December 16,
1975.

xxx xxx xxx

On August 13, 1986, President Corazon C. Aquino, exercising both executive and legislative
authority, issued Memorandum Order No. 28 which provided as follows:

xxx xxx xxx

Sec.1. of Presidential Decree No. 851 is hereby modified to the extent that all employers are
hereby required to pay all their rank-and-file employees a 13th month pay not later than
December 24 of every year.

xxx xxx xxx

In connection with and in implementation of Memorandum Order No. 28, the then Minister of Labor
and Employment issued MOLE Explanatory Bulletin No. 86-12 on November 24, 1986. Item No. 5 (a)
of the said issuance read:

xxx xxx xxx

Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the
mandated 13th month pay, based on their total earning(s) during the calendar year, i.e., on
both their fixed and guaranteed wage and commission.

xxx xxx xxx

(emphasis ours)

From the foregoing legal milieu, it is clear that every employee receiving a commission in addition to a
fixed or guaranteed wage or salary, is entitled to a 13th month pay. For purposes of entitling rank and
file employees a 13th month pay, it is immaterial whether the employees concerned are paid a
guaranteed wage plus commission or a commission with guaranteed wage inasmuch as the botton
line is that they receive a guaranteed wage. This is correctly construed in the MOLE Explanatory
Bulletin No. 86-12.

In the case at bench, while the bus drivers and conductors of respondent company are considered by
the latter as being compensated on a commission basis, they are not paid purely by what they
receive as commission. As admitted by respondent company, the said bus drivers and conductors are
automatically entitled to the basic minimum pay mandated by law in case the commissions they
earned be less than their basic minimum for eight (8) hours work.6 Evidently therefore, the
commissions form part of the wage or salary of the bus drivers and conductors. A contrary
interpretation would allow an employer to skirt the law and would result in an absurd situation where
an employee who receives a guaranteed minimum basic pay cannot be entitled to a 13th month pay
simply because he is technically referred to by his employer per the CBA as an employee
compensated on a purely commission basis. Such would be a narrow interpretation of the law,
certainly not in accord with the liberal spirit of our labor laws. Moreover, what is controlling is not the
label attached to the remuneration that the employee receives but the nature of the
remuneration7 and the purpose for which the 13th month pay was given to alleviate the plight of the
working masses who are receiving low wages. This is extant from the "WHEREASES" of PD 851, to
wit:

WHEREAS, it is necessary to further protect the level of real wages from the ravage of world-
wide inflation.

WHEREAS, there has been no increase in the legal minimum wage since 1970.

WHEREAS, the Christmas season is an opportune time for society to show its concern for the
plight of the working masses so they may properly celebrate Christmas and New Year.

Misplaced legal hermeneutics cannot be countenanced to evade paying the rank and file what is due
to them under the law.

Commission is the recompense, compensation, reward of an employee, agent, salesman, executor,

trustee, receiver, factor, broker or bailee, when the same is calculated as a percentage on the amount
of his transactions or on the profit of the principal.8 While said commissions may be in the form of
incentives or encouragement to inspire said bus drivers and conductors to put a little more zeal and
industry on their jobs, still, it is safe to say that the same are direct remunerations for services
rendered, given the small remuneration they receive for the services they render, 9 which is precisely
the reason why private respondent allowed the drivers and conductors a guaranteed minimum wage.
The conclusion is ineluctable that said commissions are part of their salary. In Philippine Duplicators,
Inc. v. National Labor Relations Commission,10 we had the occasion to estate that:

. . . Article 97 (f) of the Labor Code defines the term "wage" (which is equivalent to "salary," as
used in P.D. No. 851 and Memorandum Order No. 28) in the following terms:

(f) "Wage" paid to any employee shall mean the remuneration or earnings,
however designated, capable of being expressed in term of money, money,
whether fixed or ascertained on a time, task, piece, or commission basis, or other
method of calculating the same, which is payable by an employer to employee
under a written or unwritten contract of employment for work done or to be done,
or for services rendered or to be rendered, and includes the fair and reasonable
value, as determined by the Secretary of Labor, of board, lodging, or other
facilities customarily furnished by the employer to the employee. "Fair and
reasonable value" shall not include any profit to the employer or to any person
affiliated with the employer.

In the instant case, there is no question that the sales commissions earned by salesmen who
make or close a sale of duplicating machines distributed by petitioner corporation, constitute
part of the compensation or remuneration paid to salesmen for serving as salesmen, and
hence as part of the "wage" or "salary" of petitioner's salesmen. Indeed, it appears that
petitioner pays its salesmen a small fixed or guaranteed wage; the greater part of the
salesmen's wages or salaries being composed of the sales or incentive commissions earned
on actual sales closed by them. No doubt this particular salary structure was intended for the
benefit of petitioner corporation, on the apparent assumption that thereby its salesmen would
be moved to greater enterprise and diligence and close more sales in the expectation of
increasing their sales commissions. This, however, does not detract from the character of such
commissions as part of the salary or wage paid to each or its salesmen for rendering services
to petitioner corporation. 11

In sum, the 13th month pay of the bus drivers and conductors who are paid a fixed or guaranteed
minimum wage in case their commissions be less than the statutory minimum, and commissions only
in case where the same is over and above the statutory minimum, must be equivalent to one-twelfth
(1/12) of their total earnings during the calendar year.

WHEREFORE, the petition is hereby GRANTED. The decision of respondent National Labor
Relations Commission is hereby REVERSED and SET ASIDE. The case is remanded to the labor
Arbiter for the proper computation of 13th month pay.

SO ORDERED.
G.R. No. 145561 June 15, 2005

HONDA PHILS., INC., petitioner,

vs.
SAMAHAN NG MALAYANG MANGGAGAWA SA HONDA, respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review under Rule 45 seeks the reversal of the Court of Appeals’ decision 1 dated
September 14, 20002 and its resolution3 dated October 18, 2000, in CA-G.R. SP No. 59052. The
appellate court affirmed the decision dated May 2, 2000 rendered by the Voluntary Arbitrator who
ruled that petitioner Honda Philippines, Inc.’s (Honda) pro-rated payment of the 13th and 14th month
pay and financial assistance to its employees was invalid.

As found by the Court of Appeals, the case stems from the Collective Bargaining Agreement (CBA)
forged between petitioner Honda and respondent union Samahan ng Malayang Manggagawa sa
Honda (respondent union) which contained the following provisions:

Section 3. 13th Month Pay

The COMPANY shall maintain the present practice in the implementation [of] the 13th month pay.

Section 6. 14th Month Pay

The COMPANY shall grant a 14th Month Pay, computed on the same basis as computation of 13th
Month Pay.

Section 7. The COMPANY agrees to continue the practice of granting, in its discretion, financial
assistance to covered employees in December of each year, of not less than 100% of basic pay.

This CBA is effective until year 2000. In the latter part of 1998, the parties started re-negotiations for
the fourth and fifth years of their CBA. When the talks between the parties bogged down, respondent
union filed a Notice of Strike on the ground of bargaining deadlock. Thereafter, Honda filed a Notice
of Lockout. On March 31, 1999, then Department of Labor and Employment (DOLE) Secretary
Laguesma assumed jurisdiction over the labor dispute and ordered the parties to cease and desist
from committing acts that would aggravate the situation. Both parties complied accordingly.

On May 11, 1999, however, respondent union filed a second Notice of Strike on the ground of unfair
labor practice alleging that Honda illegally contracted out work to the detriment of the workers.
Respondent union went on strike and picketed the premises of Honda on May 19, 1999. On June 16,
1999, DOLE Acting Secretary Felicisimo Joson, Jr. assumed jurisdiction over the case and certified
the same to the National Labor Relations Commission (NLRC) for compulsory arbitration. The striking
employees were ordered to return to work and the management accepted them back under the same
terms prior to the strike staged.

On November 22, 1999, the management of Honda issued a memorandum 4 announcing its new
computation of the 13th and 14th month pay to be granted to all its employees whereby the thirty-one
(31)-day long strike shall be considered unworked days for purposes of computing said benefits. As
per the company’s new formula, the amount equivalent to 1/12 of the employees’ basic salary shall
be deducted from these bonuses, with a commitment however that in the event that the strike is
declared legal, Honda shall pay the amount deducted.

Respondent union opposed the pro-rated computation of the bonuses in a letter dated November 25,
1999. Honda sought the opinion of the Bureau of Working Conditions (BWC) on the issue. In a letter
dated January 4, 2000,5 the BWC agreed with the pro-rata payment of the 13th month pay as
proposed by Honda.

The matter was brought before the Grievance Machinery in accordance with the parties’ existing CBA
but when the issue remained unresolved, it was submitted for voluntary arbitration. In his
decision6 dated May 2, 2000, Voluntary Arbitrator Herminigildo C. Javen invalidated Honda’s
computation, to wit:

WHEREFORE, in view of all foregoing premises being duly considered and evaluated, it is hereby
ruled that the Company’s implementation of pro-rated 13th Month pay, 14th Month pay and Financial
Assistance [is] invalid. The Company is thus ordered to compute each provision in full month basic
pay and pay the amounts in question within ten (10) days after this Decision shall have become final
and executory.

The three (3) days Suspension of the twenty one (21) employees is hereby affirmed.

SO ORDERED.7

Honda’s Motion for Partial Reconsideration was denied in a resolution dated May 22, 2000. Thus, a
petition was filed with the Court of Appeals, however, the petition was dismissed for lack of merit.

Hence, the instant petition for review on the sole issue of whether the pro-rated computation of the
13th month pay and the other bonuses in question is valid and lawful.

The petition lacks merit.

A collective bargaining agreement refers to the negotiated contract between a legitimate labor
organization and the employer concerning wages, hours of work and all other terms and conditions of
employment in a bargaining unit.8 As in all contracts, the parties in a CBA may establish such
stipulations, clauses, terms and conditions as they may deem convenient provided these are not
contrary to law, morals, good customs, public order or public policy.9 Thus, where the CBA is clear
and unambiguous, it becomes the law between the parties and compliance therewith is mandated by
the express policy of the law.10

In some instances, however, the provisions of a CBA may become contentious, as in this case.
Honda wanted to implement a pro-rated computation of the benefits based on the "no work, no pay"
rule. According to the company, the phrase "present practice" as mentioned in the CBA refers to the
manner and requisites with respect to the payment of the bonuses, i.e., 50% to be given in May and
the other 50% in December of each year. Respondent union, however, insists that the CBA
provisions relating to the implementation of the 13th month pay necessarily relate to the computation
of the same.

We agree with the findings of the arbitrator that the assailed CBA provisions are far from being
unequivocal. A cursory reading of the provisions will show that they did not state categorically
whether the computation of the 13th month pay, 14th month pay and the financial assistance would
be based on one full month’s basic salary of the employees, or pro-rated based on the compensation
actually received. The arbitrator thus properly resolved the ambiguity in favor of labor as mandated by
Article 1702 of the Civil Code.11 The Court of Appeals affirmed the arbitrator’s finding and added that
the computation of the 13th month pay should be based on the length of service and not on the actual
wage earned by the worker.

We uphold the rulings of the arbitrator and the Court of Appeals. Factual findings of labor officials,
who are deemed to have acquired expertise in matters within their respective jurisdiction, are
generally accorded not only respect but even finality, and bind us when supported by substantial
evidence. It is not our function to assess and evaluate the evidence all over again, particularly where
the findings of both the arbiter and the Court of Appeals coincide. 12

Presidential Decree No. 851, otherwise known as the 13th Month Pay Law, which required all
employers to pay their employees a 13th month pay, was issued to protect the level of real wages
from the ravages of worldwide inflation. It was enacted on December 16, 1975 after it was noted that
there had been no increase in the minimum wage since 1970 and the Christmas season was an
opportune time for society to show its concern for the plight of the working masses so that they may
properly celebrate Christmas and New Year.13

Under the Revised Guidelines on the Implementation of the 13th month pay issued on November 16,
1987, the salary ceiling of P1,000.00 under P.D. No. 851 was removed. It further provided that the
minimum 13th month pay required by law shall not be less than one-twelfth (1/12) of the total basic
salary earned by an employee within a calendar year. The guidelines pertinently provides:

The "basic salary" of an employee for the purpose of computing the 13 th month pay shall include
all remunerations or earnings paid by his employer for services rendered but does not include
allowances and monetary benefits which are not considered or integrated as part of the regular or
basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime
premium, night differential and holiday pay, and cost-of-living allowances.14 (Emphasis supplied)

For employees receiving regular wage, we have interpreted "basic salary" to mean, not the
amount actually received by an employee, but 1/12 of their standard monthly wage multiplied by their
length of service within a given calendar year. Thus, we exclude from the computation of "basic
salary" payments for sick, vacation and maternity leaves, night differentials, regular holiday pay and
premiums for work done on rest days and special holidays.15 In Hagonoy Rural Bank v. NLRC,16 St.
Michael Academy v. NLRC,17 Consolidated Food Corporation v. NLRC,18 and similar cases, the
13th month pay due an employee was computed based on the employee’s basic monthly wage
multiplied by the number of months worked in a calendar year prior to separation from employment.

The revised guidelines also provided for a pro-ration of this benefit only in cases of resignation or
separation from work. As the rules state, under these circumstances, an employee is entitled to a pay
in proportion to the length of time he worked during the year, reckoned from the time he started
working during the calendar year.19 The Court of Appeals thus held that:

Considering the foregoing, the computation of the 13th month pay should be based on the length of
service and not on the actual wage earned by the worker. In the present case, there being no gap in
the service of the workers during the calendar year in question, the computation of the 13th month
pay should not be pro-rated but should be given in full.20 (Emphasis supplied)

More importantly, it has not been refuted that Honda has not implemented any pro-rating of the
13th month pay before the instant case. Honda did not adduce evidence to show that the 13 th month,
14th month and financial assistance benefits were previously subject to deductions or pro-rating or
that these were dependent upon the company’s financial standing. As held by the Voluntary
Arbitrator:

The Company (Honda) explicitly accepted that it was the strike held that prompt[ed] them to adopt a
pro-rata computation, aside [from] being in [a] state of rehabilitation due to 227M substantial losses in
1997, 114M in 1998 and 215M lost of sales in 1999 due to strike. This is an implicit acceptance that
prior to the strike, a full month basic pay computation was the "present practice" intended to be
maintained in the CBA.21

The memorandum dated November 22, 1999 which Honda issued shows that it was the first time a
pro-rating scheme was to be implemented in the company. It was a convenient coincidence for the
company that the work stoppage held by the employees lasted for thirty-one (31) days or exactly one
month. This enabled them to devise a formula using 11/12 of the total annual salary as base amount
for computation instead of the entire amount for a 12-month period.

That a full month payment of the 13th month pay is the established practice at Honda is further
bolstered by the affidavits executed by Feliteo Bautista and Edgardo Cruzada. Both attested that
when they were absent from work due to motorcycle accidents, and after they have exhausted all
their leave credits and were no longer receiving their monthly salary from Honda, they still received
the full amount of their 13th month, 14th month and financial assistance pay.22

The case of Davao Fruits Corporation v. Associated Labor Unions, et al.23 presented an example of a
voluntary act of the employer that has ripened into a company practice. In that case, the employer,
from 1975 to 1981, freely and continuously included in the computation of the 13 th month pay those
items that were expressly excluded by the law. We have held that this act, which was favorable to the
employees though not conforming to law, has ripened into a practice and therefore can no longer be
withdrawn, reduced, diminished, discontinued or eliminated. Furthermore, in Sevilla Trading
Company v. Semana,24 we stated:

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. In the above
quoted case of Davao Fruits Corporation vs. Associated Labor Unions, the company practice lasted
for six (6) years. In another case, Davao Integrated Port Stevedoring Services vs. Abarquez, the
employer, for three (3) years and nine (9) months, approved the commutation to cash of the
unenjoyed portion of the sick leave with pay benefits of its intermittent workers. While in Tiangco vs.
Leogardo, Jr. the employer carried on the practice of giving a fixed monthly emergency allowance
from November 1976 to February 1980, or three (3) years and four (4) months. In all these cases,
this Court held that the grant of these benefits has ripened into company practice or policy
which cannot be peremptorily withdrawn. In the case at bar, petitioner Sevilla Trading kept the
practice of including non-basic benefits such as paid leaves for unused sick leave and vacation leave
in the computation of their 13th-month pay for at least two (2) years. This, we rule likewise
constitutes voluntary employer practice which cannot be unilaterally withdrawn by the
employer without violating Art. 100 of the Labor Code.25 (Emphasis supplied)

Lastly, the foregoing interpretation of law and jurisprudence is more in keeping with the underlying
principle for the grant of this benefit. It is primarily given to alleviate the plight of workers and to help
them cope with the exorbitant increases in the cost of living. To allow the pro-ration of the 13th month
pay in this case is to undermine the wisdom behind the law and the mandate that the workingman’s
welfare should be the primordial and paramount consideration. 26 What is more, the factual milieu of
this case is such that to rule otherwise inevitably results to dissuasion, if not a deterrent, for workers
from the free exercise of their constitutional rights to self-organization and to strike in accordance with
law.27

WHEREFORE, the instant petition is DENIED. The decision and the resolution of the Court of
Appeals dated September 14, 2000 and October 18, 2000, respectively, in CA-G.R. SP No. 59052,
affirming the decision rendered by the Voluntary Arbitrator on May 2, 2000, are hereby AFFIRMED in
toto.

SO ORDERED.
G.R. No. 188949 July 26, 2010

CENTRAL AZUCARERA DE TARLAC, Petitioner,

vs.
CENTRAL AZUCARERA DE TARLAC LABOR UNION-NLU, Respondent.

DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the
Decision1dated May 28, 2009, and the Resolution2 dated July 28, 2009 of the Court of Appeals (CA)
in CA-G.R. SP No. 106657.

The factual antecedents of the case are as follows:

Petitioner is a domestic corporation engaged in the business of sugar manufacturing, while

respondent is a legitimate labor organization which serves as the exclusive bargaining representative
of petitioner’s rank-and-file employees. The controversy stems from the interpretation of the term
"basic pay," essential in the computation of the 13th-month pay.

The facts of this case are not in dispute. In compliance with Presidential Decree (P.D.) No. 851,
petitioner granted its employees the mandatory thirteenth (13th) - month pay since 1975. The formula
used by petitioner in computing the 13th-month pay was: Total Basic Annual Salary divided by twelve
(12). Included in petitioner’s computation of the Total Basic Annual Salary were the following: basic
monthly salary; first eight (8) hours overtime pay on Sunday and legal/special holiday; night premium
pay; and vacation and sick leaves for each year. Throughout the years, petitioner used this
computation until 2006.3

On November 6, 2004, respondent staged a strike. During the pendency of the strike, petitioner
declared a temporary cessation of operations. In December 2005, all the striking union members
were allowed to return to work. Subsequently, petitioner declared another temporary cessation of
operations for the months of April and May 2006. The suspension of operation was lifted on June
2006, but the rank-and-file employees were allowed to report for work on a fifteen (15) day-per-month
rotation basis that lasted until September 2006. In December 2006, petitioner gave the employees
their 13th-month pay based on the employee’s total earnings during the year divided by 12. 4

Respondent objected to this computation. It averred that petitioner did not adhere to the usual
computation of the 13th-month pay. It claimed that the divisor should have been eight (8) instead of
12, because the employees worked for only 8 months in 2006. It likewise asserted that petitioner did
not observe the company practice of giving its employees the guaranteed amount equivalent to their
one month pay, in instances where the computed 13th-month pay was less than their basic monthly
pay.5

Petitioner and respondent tried to thresh out their differences in accordance with the grievance
procedure as provided in their collective bargaining agreement. During the grievance meeting, the
representative of petitioner explained that the change in the computation of the 13th-month pay was
intended to rectify an error in the computation, particularly the concept of basic pay which should
have included only the basic monthly pay of the employees. 6

For failure of the parties to arrive at a settlement, respondent applied for preventive mediation before
the National Conciliation and Mediation Board. However, despite four (4) conciliatory meetings, the
parties still failed to settle the dispute. On March 29, 2007, respondent filed a complaint against
petitioner for money claims based on the alleged diminution of benefits/erroneous computation of
13th-month pay before the Regional Arbitration Branch of the National Labor Relations Commission
(NLRC).7

On October 31, 2007, the Labor Arbiter rendered a Decision 8 dismissing the complaint and declaring
that the petitioner had the right to rectify the error in the computation of the 13th-month pay of its
employees.9 The fallo of the Decision reads:

WHEREFORE, premises considered, the complaint filed by the complainants against the
respondents should be DISMISSED with prejudice for utter lack of merit.

SO ORDERED.10
Respondents filed an appeal. On August 14, 2008, the NLRC rendered a Decision 11 reversing the
Labor Arbiter. The dispositive portion of the Decision reads:

WHEREFORE, the decision appealed is reversed and set aside and respondent-appellee Central
Azucarera de Tarlac is hereby ordered to adhere to its established practice of granting 13th[-] month
pay on the basis of gross annual basic which includes basic pay, premium pay for work in rest days
and special holidays, night shift differential and paid vacation and sick leaves for each year.

Additionally, respondent-appellee is ordered to observe the guaranteed one[-]month pay by way of

13th month pay.

SO ORDERED. 12

Petitioner filed a motion for reconsideration. However, the same was denied in a Resolution dated
November 27, 2008. Petitioner then filed a petition for certiorari under Rule 65 of the Rules of Court
before the CA.13

On May 28, 2009, the CA rendered a Decision14 dismissing the petition, and affirming the decision
and resolution of the NLRC, viz.:

WHEREFORE, the foregoing considered, the petition is hereby DISMISSED and the assailed August
14, 2008 Decision and November 27, 2008 Resolution of the NLRC, are hereby AFFIRMED. No
costs.

SO ORDERED.15

Aggrieved, petitioner filed the instant petition, alleging that the CA committed a reversible error in
affirming the Decision of the NLRC, and praying that the Decision of the Labor Arbiter be reinstated.

The petition is denied for lack of merit.

The 13th-month pay mandated by Presidential Decree (P.D.) No. 851 represents an additional
income based on wage but not part of the wage. It is equivalent to one-twelfth (1/12) of the total basic
salary earned by an employee within a calendar year. All rank-and-file employees, regardless of their
designation or employment status and irrespective of the method by which their wages are paid, are
entitled to this benefit, provided that they have worked for at least one month during the calendar
year. If the employee worked for only a portion of the year, the 13th-month pay is computed pro
rata.16

Petitioner argues that there was an error in the computation of the 13th-month pay of its employees
as a result of its mistake in implementing P.D. No. 851, an error that was discovered by the
management only when respondent raised a question concerning the computation of the employees’

13th-month pay for 2006. Admittedly, it was an error that was repeatedly committed for almost thirty
(30) years. Petitioner insists that the length of time during which an employer has performed a certain
act beneficial to the employees, does not prove that such an act was not done in error. It maintains
that for the claim of mistake to be negated, there must be a clear showing that the employer had
freely, voluntarily, and continuously performed the act, knowing that he is under no obligation to do
so. Petitioner asserts that such voluntariness was absent in this case.17

The Rules and Regulations Implementing P.D. No. 851, promulgated on December 22, 1975, defines
13th-month pay and basic salary as follows:

Sec. 2. Definition of certain terms. - As used in this issuance:

(a) "Thirteenth-month pay" shall mean one twelfth (1/12) of the basic salary of an employee
within a calendar year; (b) "Basic salary" shall include all remunerations or earnings paid by an
employer to an employee for services rendered but may not include cost-of-living allowances
granted pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174, profit-
sharing payments, and all allowances and monetary benefits which are not considered or
integrated as part of the regular or basic salary of the employee at the time of the promulgation
of the Decree on December 16, 1975.

On January 16, 1976, the Supplementary Rules and Regulations Implementing P.D. No. 851 was
issued. The Supplementary Rules clarifies that overtime pay, earnings, and other remuneration that
are not part of the basic salary shall not be included in the computation of the 13th-month pay.
On November 16, 1987, the Revised Guidelines on the Implementation of the 13th-Month Pay Law
was issued. Significantly, under this Revised Guidelines, it was specifically stated that the minimum
13th-month pay required by law shall not be less than one-twelfth (1/12) of the total basic salary
earned by an employee within a calendar year.1avvphi1

Furthermore, the term "basic salary" of an employee for the purpose of computing the 13th-month
pay was interpreted to include all remuneration or earnings paid by the employer for services
rendered, but does not include allowances and monetary benefits which are not integrated as part of
the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits,
overtime, premium, night differential and holiday pay, and cost-of-living allowances. However, these
salary-related benefits should be included as part of the basic salary in the computation of the 13th-
month pay if, by individual or collective agreement, company practice or policy, the same are treated
as part of the basic salary of the employees.

Based on the foregoing, it is clear that there could have no erroneous interpretation or application of
what is included in the term "basic salary" for purposes of computing the 13th-month pay of
employees. From the inception of P.D. No. 851 on December 16, 1975, clear-cut administrative
guidelines have been issued to insure uniformity in the interpretation, application, and enforcement of
the provisions of P.D. No. 851 and its implementing regulations.

As correctly ruled by the CA, the practice of petitioner in giving 13th-month pay based on the
employees’ gross annual earnings which included the basic monthly salary, premium pay for work on
rest days and special holidays, night shift differential pay and holiday pay continued for almost thirty
(30) years and has ripened into a company policy or practice which cannot be unilaterally withdrawn.

Article 100 of the Labor Code, otherwise known as the Non-Diminution Rule, mandates that benefits
given to employees cannot be taken back or reduced unilaterally by the employer because the benefit
has become part of the employment contract, written or unwritten. 18 The rule against diminution of
benefits applies if it is shown that the grant of the benefit is based on an express policy or has ripened
into a practice over a long period of time and that the practice is consistent and deliberate.
Nevertheless, the rule will not apply if the practice is due to error in the construction or application of a
doubtful or difficult question of law. But even in cases of error, it should be shown that the correction
is done soon after discovery of the error.19

The argument of petitioner that the grant of the benefit was not voluntary and was due to error in the
interpretation of what is included in the basic salary deserves scant consideration. No doubtful or
difficult question of law is involved in this case. The guidelines set by the law are not difficult to
decipher. The voluntariness of the grant of the benefit was manifested by the number of years the
employer had paid the benefit to its employees. Petitioner only changed the formula in the
computation of the 13th-month pay after almost 30 years and only after the dispute between the
management and employees erupted. This act of petitioner in changing the formula at this time
cannot be sanctioned, as it indicates a badge of bad faith.

Furthermore, petitioner cannot use the argument that it is suffering from financial losses to claim
exemption from the coverage of the law on 13th-month pay, or to spare it from its erroneous unilateral
computation of the 13th-month pay of its employees. Under Section 7 of the Rules and Regulations
Implementing P.D. No. 851, distressed employers shall qualify for exemption from the requirement of
the Decree only upon prior authorization by the Secretary of Labor.20 In this case, no such prior
authorization has been obtained by petitioner; thus, it is not entitled to claim such exemption.

WHEREFORE, the Decision dated May 28, 2009 and the Resolution dated July 28, 2009 of the Court
of Appeals in CA-G.R. SP No. 106657 are hereby AFFIRMED. Costs against petitioner.

SO ORDERED.
G.R. No. 166208 June 29, 2007

KING OF KINGS TRANSPORT INC., CLAIRE DELA FUENTE and MELISSA LIM, petitioners,
vs.
SANTIAGO O. MAMAC, respondent.

DECISION

VELASCO, JR., J.:

Is a verbal appraisal of the charges against the employee a breach of the procedural due process?
This is the main issue to be resolved in this plea for review under Rule 45 of the September 16, 2004
Decision1 of the Court of Appeals (CA) in CA-GR SP No. 81961. Said judgment affirmed the
dismissal of bus conductor Santiago O. Mamac from petitioner King of Kings Transport, Inc. (KKTI),
but ordered the bus company to pay full backwages for violation of the twin-notice requirement and
13th-month pay. Likewise assailed is the December 2, 2004 CA Resolution 2 rejecting KKTI’s Motion
for Reconsideration.

The Facts

Petitioner KKTI is a corporation engaged in public transportation and managed by Claire Dela Fuente
and Melissa Lim.

Respondent Mamac was hired as bus conductor of Don Mariano Transit Corporation (DMTC) on April
29, 1999. The DMTC employees including respondent formed the Damayan ng mga Manggagawa,
Tsuper at Conductor-Transport Workers Union and registered it with the Department of Labor and
Employment. Pending the holding of a certification election in DMTC, petitioner KKTI was
incorporated with the Securities and Exchange Commission which acquired new buses. Many DMTC
employees were subsequently transferred to KKTI and excluded from the election.

The KKTI employees later organized the Kaisahan ng mga Kawani sa King of Kings (KKKK) which
was registered with DOLE. Respondent was elected KKKK president.

Respondent was required to accomplish a "Conductor’s Trip Report" and submit it to the company
after each trip. As a background, this report indicates the ticket opening and closing for the particular
day of duty. After submission, the company audits the reports. Once an irregularity is discovered, the
company issues an "Irregularity Report" against the employee, indicating the nature and details of the
irregularity. Thereafter, the concerned employee is asked to explain the incident by making a written
statement or counter-affidavit at the back of the same Irregularity Report. After considering the
explanation of the employee, the company then makes a determination of whether to accept the
explanation or impose upon the employee a penalty for committing an infraction. That decision shall
be stated on said Irregularity Report and will be furnished to the employee.

Upon audit of the October 28, 2001 Conductor’s Report of respondent, KKTI noted an irregularity. It
discovered that respondent declared several sold tickets as returned tickets causing KKTI to lose an
income of eight hundred and ninety pesos. While no irregularity report was prepared on the October
28, 2001 incident, KKTI nevertheless asked respondent to explain the discrepancy. In his
letter,3 respondent said that the erroneous declaration in his October 28, 2001 Trip Report was
unintentional. He explained that during that day’s trip, the windshield of the bus assigned to them was
smashed; and they had to cut short the trip in order to immediately report the matter to the police. As
a result of the incident, he got confused in making the trip report.

On November 26, 2001, respondent received a letter4 terminating his employment effective
November 29, 2001. The dismissal letter alleged that the October 28, 2001 irregularity was an act of
fraud against the company. KKTI also cited as basis for respondent’s dismissal the other offenses he
allegedly committed since 1999.

On December 11, 2001, respondent filed a Complaint for illegal dismissal, illegal deductions,
nonpayment of 13th-month pay, service incentive leave, and separation pay. He denied committing
any infraction and alleged that his dismissal was intended to bust union activities. Moreover, he
claimed that his dismissal was effected without due process.

In its April 3, 2002 Position Paper,5 KKTI contended that respondent was legally dismissed after his
commission of a series of misconducts and misdeeds. It claimed that respondent had violated the
trust and confidence reposed upon him by KKTI. Also, it averred that it had observed due process in
dismissing respondent and maintained that respondent was not entitled to his money claims such as
service incentive leave and 13th-month pay because he was paid on commission or percentage
basis.

On September 16, 2002, Labor Arbiter Ramon Valentin C. Reyes rendered judgment dismissing
respondent’s Complaint for lack of merit.6

Aggrieved, respondent appealed to the National Labor Relations Commission (NLRC). On August 29,
2003, the NLRC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, the decision dated 16 September 2002 is MODIFIED in that respondent King of Kings
Transport Inc. is hereby ordered to indemnify complainant in the amount of ten thousand pesos
(P10,000) for failure to comply with due process prior to termination.

The other findings are AFFIRMED.

SO ORDERED.7

Respondent moved for reconsideration but it was denied through the November 14, 2003
Resolution8 of the NLRC.

Thereafter, respondent filed a Petition for Certiorari before the CA urging the nullification of the NLRC
Decision and Resolution.

The Ruling of the Court of Appeals

Affirming the NLRC, the CA held that there was just cause for respondent’s dismissal. It ruled that
respondent’s act in "declaring sold tickets as returned tickets x x x constituted fraud or acts of
dishonesty justifying his dismissal."9

Also, the appellate court sustained the finding that petitioners failed to comply with the required
procedural due process prior to respondent’s termination. However, following the doctrine in Serrano
v. NLRC,10 it modified the award of PhP 10,000 as indemnification by awarding full backwages from
the time respondent’s employment was terminated until finality of the decision.

Moreover, the CA held that respondent is entitled to the 13th-month pay benefit.

Hence, we have this petition.

The Issues

Petitioner raises the following assignment of errors for our consideration:

Whether the Honorable Court of Appeals erred in awarding in favor of the complainant/private
respondent, full back wages, despite the denial of his petition for certiorari.

Whether the Honorable Court of Appeals erred in ruling that KKTI did not comply with the
requirements of procedural due process before dismissing the services of the complainant/private
respondent.

Whether the Honorable Court of Appeals rendered an incorrect decision in that [sic] it awarded in
favor of the complaint/private respondent, 13th month pay benefits contrary to PD 851. 11

The Court’s Ruling

The petition is partly meritorious.

The disposition of the first assigned error depends on whether petitioner KKTI complied with the due
process requirements in terminating respondent’s employment; thus, it shall be discussed secondly.

Non-compliance with the Due Process Requirements

Due process under the Labor Code involves two aspects: first, substantive––the valid and authorized
causes of termination of employment under the Labor Code; and second, procedural––the manner of
dismissal.12 In the present case, the CA affirmed the findings of the labor arbiter and the NLRC that
the termination of employment of respondent was based on a "just cause." This ruling is not at issue
in this case. The question to be determined is whether the procedural requirements were complied
with.
Art. 277 of the Labor Code provides the manner of termination of employment, thus:

Art. 277. Miscellaneous Provisions.––x x x

(b) Subject to the constitutional right of workers to security of tenure and their right to be protected
against dismissal except for a just and authorized cause without prejudice to the requirement of
notice under Article 283 of this Code, the employer shall furnish the worker whose employment is
sought to be terminated a written notice containing a statement of the causes for termination and
shall afford the latter ample opportunity to be heard and to defend himself with the assistance of his
representative if he so desires in accordance with company rules and regulations promulgated
pursuant to guidelines set by the Department of Labor and Employment. Any decision taken by the
employer shall be without prejudice to the right of the worker to contest the validity or legality of his
dismissal by filing a complaint with the regional branch of the National Labor Relations Commission.
The burden of proving that the termination was for a valid or authorized cause shall rest on the
employer.

Accordingly, the implementing rule of the aforesaid provision states:

SEC. 2. Standards of due process; requirements of notice.––In all cases of termination of

employment, the following standards of due process shall be substantially observed:

I. For termination of employment based on just causes as defined in Article 282 of the Code:

(a) A written notice served on the employee specifying the ground or grounds for termination, and
giving said employee reasonable opportunity within which to explain his side.

(b) A hearing or conference during which the employee concerned, with the assistance of counsel if
he so desires is given opportunity to respond to the charge, present his evidence, or rebut the
evidence presented against him.

(c) A written notice of termination served on the employee, indicating that upon due consideration of
all the circumstances, grounds have been established to justify his termination. 13

In case of termination, the foregoing notices shall be served on the employee’s last known address.14

To clarify, the following should be considered in terminating the services of employees:

(1) The first written notice to be served on the employees should contain the specific causes or
grounds for termination against them, and a directive that the employees are given the opportunity to
submit their written explanation within a reasonable period. "Reasonable opportunity" under the
Omnibus Rules means every kind of assistance that management must accord to the employees to
enable them to prepare adequately for their defense.15 This should be construed as a period of at
least five (5) calendar days from receipt of the notice to give the employees an opportunity to study
the accusation against them, consult a union official or lawyer, gather data and evidence, and decide
on the defenses they will raise against the complaint. Moreover, in order to enable the employees to
intelligently prepare their explanation and defenses, the notice should contain a detailed narration of
the facts and circumstances that will serve as basis for the charge against the employees. A general
description of the charge will not suffice. Lastly, the notice should specifically mention which company
rules, if any, are violated and/or which among the grounds under Art. 282 is being charged against
the employees.

(2) After serving the first notice, the employers should schedule and conduct a hearing or conference
wherein the employees will be given the opportunity to: (1) explain and clarify their defenses to the
charge against them; (2) present evidence in support of their defenses; and (3) rebut the evidence
presented against them by the management. During the hearing or conference, the employees are
given the chance to defend themselves personally, with the assistance of a representative or counsel
of their choice. Moreover, this conference or hearing could be used by the parties as an opportunity to
come to an amicable settlement.

(3) After determining that termination of employment is justified, the employers shall serve the
employees a written notice of termination indicating that: (1) all circumstances involving the charge
against the employees have been considered; and (2) grounds have been established to justify the
severance of their employment.

In the instant case, KKTI admits that it had failed to provide respondent with a "charge
sheet."16 However, it maintains that it had substantially complied with the rules, claiming that
"respondent would not have issued a written explanation had he not been informed of the charges
against him."17

We are not convinced.

First, respondent was not issued a written notice charging him of committing an infraction. The law is
clear on the matter. A verbal appraisal of the charges against an employee does not comply with the
first notice requirement. In Pepsi Cola Bottling Co. v. NLRC,18 the Court held that consultations or
conferences are not a substitute for the actual observance of notice and hearing. Also, in Loadstar
Shipping Co., Inc. v. Mesano,19 the Court, sanctioning the employer for disregarding the due process
requirements, held that the employee’s written explanation did not excuse the fact that there was a
complete absence of the first notice.

Second, even assuming that petitioner KKTI was able to furnish respondent an Irregularity Report
notifying him of his offense, such would not comply with the requirements of the law. We observe
from the irregularity reports against respondent for his other offenses that such contained merely a
general description of the charges against him. The reports did not even state a company rule or
policy that the employee had allegedly violated. Likewise, there is no mention of any of the grounds
for termination of employment under Art. 282 of the Labor Code. Thus, KKTI’s "standard" charge
sheet is not sufficient notice to the employee.

Third, no hearing was conducted. Regardless of respondent’s written explanation, a hearing was still
necessary in order for him to clarify and present evidence in support of his defense. Moreover,
respondent made the letter merely to explain the circumstances relating to the irregularity in his
October 28, 2001 Conductor’s Trip Report. He was unaware that a dismissal proceeding was already
being effected. Thus, he was surprised to receive the November 26, 2001 termination letter indicating
as grounds, not only his October 28, 2001 infraction, but also his previous infractions.

Sanction for Non-compliance with Due Process Requirements

As stated earlier, after a finding that petitioners failed to comply with the due process requirements,
the CA awarded full backwages in favor of respondent in accordance with the doctrine in Serrano v.
NLRC.20 However, the doctrine in Serrano had already been abandoned in Agabon v. NLRC by ruling
that if the dismissal is done without due process, the employer should indemnify the employee with
nominal damages.21

Thus, for non-compliance with the due process requirements in the termination of respondent’s
employment, petitioner KKTI is sanctioned to pay respondent the amount of thirty thousand pesos
(PhP 30,000) as damages.

Thirteenth (13th)-Month Pay

Section 3 of the Rules Implementing Presidential Decree No. 851 22 provides the exceptions in the
coverage of the payment of the 13th-month benefit. The provision states:

SEC. 3. Employers covered.––The Decree shall apply to all employers except to:

xxxx

e) Employers of those who are paid on purely commission, boundary, or task basis, and those who
are paid a fixed amount for performing a specific work, irrespective of the time consumed in the
performance thereof, except where the workers are paid on piece-rate basis in which case the
employer shall be covered by this issuance insofar as such workers are concerned.

Petitioner KKTI maintains that respondent was paid on purely commission basis; thus, the latter is not
entitled to receive the 13th-month pay benefit. However, applying the ruling in Philippine Agricultural
Commercial and Industrial Workers Union v. NLRC,23 the CA held that respondent is entitled to the
said benefit.

It was erroneous for the CA to apply the case of Philippine Agricultural Commercial and Industrial
Workers Union. Notably in the said case, it was established that the drivers and conductors praying
for 13th- month pay were not paid purely on commission. Instead, they were receiving a commission
in addition to a fixed or guaranteed wage or salary. Thus, the Court held that bus drivers and
conductors who are paid a fixed or guaranteed minimum wage in case their commission be less than
the statutory minimum, and commissions only in case where they are over and above the statutory
minimum, are entitled to a 13th-month pay equivalent to one-twelfth of their total earnings during the
calendar year.
On the other hand, in his Complaint,24 respondent admitted that he was paid on commission only.
Moreover, this fact is supported by his pay slips25 which indicated the varying amount of commissions
he was receiving each trip. Thus, he was excluded from receiving the 13th-month pay benefit.

WHEREFORE, the petition is PARTLY GRANTED and the September 16, 2004 Decision of the CA is
MODIFIED by deleting the award of backwages and 13th-month pay. Instead, petitioner KKTI is
ordered to indemnify respondent the amount of thirty thousand pesos (PhP 30,000) as nominal
damages for failure to comply with the due process requirements in terminating the employment of
respondent.

No costs.

SO ORDERED.
G.R. No. 85985 August 13, 1993

PHILIPPINE AIRLINES, INC. (PAL), petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER ISABEL P. ORTIGUERRA and
PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA), respondents.

Solon Garcia for petitioner.

Adolpho M. Guerzon for respondent PALEA.

MELO, J.:

In the instant petition for certiorari, the Court is presented the issue of whether or not the formulation
of a Code of Discipline among employees is a shared responsibility of the employer and the
employees.

On March 15, 1985, the Philippine Airlines, Inc. (PAL) completely revised its 1966 Code of Discipline.
The Code was circulated among the employees and was immediately implemented, and some
employees were forthwith subjected to the disciplinary measures embodied therein.

Thus, on August 20, 1985, the Philippine Airlines Employees Association (PALEA) filed a complaint
before the National Labor Relations Commission (NLRC) for unfair labor practice (Case No. NCR-7-
2051-85) with the following remarks: "ULP with arbitrary implementation of PAL's Code of Discipline
without notice and prior discussion with Union by Management" (Rollo, p. 41). In its position paper,
PALEA contended that PAL, by its unilateral implementation of the Code, was guilty of unfair labor
practice, specifically Paragraphs E and G of Article 249 and Article 253 of the Labor Code. PALEA
alleged that copies of the Code had been circulated in limited numbers; that being penal in nature the
Code must conform with the requirements of sufficient publication, and that the Code was arbitrary,
oppressive, and prejudicial to the rights of the employees. It prayed that implementation of the Code
be held in abeyance; that PAL should discuss the substance of the Code with PALEA; that
employees dismissed under the Code be reinstated and their cases subjected to further hearing; and
that PAL be declared guilty of unfair labor practice and be ordered to pay damages (pp. 7-14,
Record.)

PAL filed a motion to dismiss the complaint, asserting its prerogative as an employer to prescibe rules
and regulations regarding employess' conduct in carrying out their duties and functions, and alleging
that by implementing the Code, it had not violated the collective bargaining agreement (CBA) or any
provision of the Labor Code. Assailing the complaint as unsupported by evidence, PAL maintained
that Article 253 of the Labor Code cited by PALEA reffered to the requirements for negotiating a CBA
which was inapplicable as indeed the current CBA had been negotiated.

In its reply to PAL's position paper, PALEA maintained that Article 249 (E) of the Labor Code was
violated when PAL unilaterally implemented the Code, and cited provisions of Articles IV and I of
Chapter II of the Code as defective for, respectively, running counter to the construction of penal laws
and making punishable any offense within PAL's contemplation. These provisions are the following:

Sec. 2. Non-exclusivity. — This Code does not contain the entirety of the rules and
regulations of the company. Every employee is bound to comply with all applicable
rules, regulations, policies, procedures and standards, including standards of quality,
productivity and behaviour, as issued and promulgated by the company through its duly
authorized officials. Any violations thereof shall be punishable with a penalty to be
determined by the gravity and/or frequency of the offense.

Sec. 7. Cumulative Record. — An employee's record of offenses shall be cumulative.

The penalty for an offense shall be determined on the basis of his past record of
offenses of any nature or the absence thereof. The more habitual an offender has been,
the greater shall be the penalty for the latest offense. Thus, an employee may be
dismissed if the number of his past offenses warrants such penalty in the judgment of
management even if each offense considered separately may not warrant dismissal.
Habitual offenders or recidivists have no place in PAL. On the other hand, due regard
shall be given to the length of time between commission of individual offenses to
determine whether the employee's conduct may indicate occasional lapses (which may
nevertheless require sterner disciplinary action) or a pattern of incorrigibility.
Labor Arbiter Isabel P. Ortiguerra handling the case called the parties to a conference but they failed
to appear at the scheduled date. Interpreting such failure as a waiver of the parties' right to present
evidence, the labor arbiter considered the case submitted for decision. On November 7, 1986, a
decision was rendered finding no bad faith on the part of PAL in adopting the Code and ruling that no
unfair labor practice had been committed. However, the arbiter held that PAL was "not totally fault
free" considering that while the issuance of rules and regulations governing the conduct of employees
is a "legitimate management prerogative" such rules and regulations must meet the test of
"reasonableness, propriety and fairness." She found Section 1 of the Code aforequoted as "an all
embracing and all encompassing provision that makes punishable any offense one can think of in the
company"; while Section 7, likewise quoted above, is "objectionable for it violates the rule against
double jeopardy thereby ushering in two or more punishment for the same misdemeanor." (pp. 38-
39, Rollo.)

The labor arbiter also found that PAL "failed to prove that the new Code was amply circulated."
Noting that PAL's assertion that it had furnished all its employees copies of the Code is unsupported
by documentary evidence, she stated that such "failure" on the part of PAL resulted in the imposition
of penalties on employees who thought all the while that the 1966 Code was still being followed.
Thus, the arbiter concluded that "(t)he phrase ignorance of the law excuses no one from compliance .
. . finds application only after it has been conclusively shown that the law was circulated to all the
parties concerned and efforts to disseminate information regarding the new law have been exerted.
(p. 39, Rollo.) She thereupon disposed:

WHEREFORE, premises considered, respondent PAL is hereby ordered as follows:

1. Furnish all employees with the new Code of Discipline;

2. Reconsider the cases of employees meted with penalties under the New Code of
Discipline and remand the same for further hearing; and

3. Discuss with PALEA the objectionable provisions specifically tackled in the body of
the decision.

All other claims of the complainant union (is) [are] hereby, dismissed for lack of merit.

SO ORDERED. (p. 40, Rollo.)

PAL appealed to the NLRC. On August 19, 1988, the NLRC through Commissioner Encarnacion, with
Presiding Commissioner Bonto-Perez and Commissioner Maglaya concurring, found no evidence of
unfair labor practice committed by PAL and affirmed the dismissal of PALEA's charge. Nonetheless,
the NLRC made the following observations:

Indeed, failure of management to discuss the provisions of a contemplated code of

discipline which shall govern the conduct of its employees would result in the erosion
and deterioration of an otherwise harmonious and smooth relationship between them as
did happen in the instant case. There is no dispute that adoption of rules of conduct or
discipline is a prerogative of management and is imperative and essential if an industry,
has to survive in a competitive world. But labor climate has progressed, too. In the
Philippine scene, at no time in our contemporary history is the need for a cooperative,
supportive and smooth relationship between labor and management more keenly felt if
we are to survive economically. Management can no longer exclude labor in the
deliberation and adoption of rules and regulations that will affect them.

The complainant union in this case has the right to feel isolated in the adoption of the
New Code of Discipline. The Code of Discipline involves security of tenure and loss of
employment — a property right! It is time that management realizes that to attain
effectiveness in its conduct rules, there should be candidness and openness by
Management and participation by the union, representing its members. In fact, our
Constitution has recognized the principle of "shared responsibility" between employers
and workers and has likewise recognized the right of workers to participate in "policy
and decision-making process affecting their rights . . ." The latter provision was
interpreted by the Constitutional Commissioners to mean participation in "management"'
(Record of the Constitutional Commission, Vol. II).

In a sense, participation by the union in the adoption of the code if conduct could have
accelerated and enhanced their feelings of belonging and would have resulted in
cooperation rather than resistance to the Code. In fact, labor-management cooperation
is now "the thing." (pp. 3-4, NLRC Decision ff. p. 149, Original Record.)
Respondent Commission thereupon disposed:

WHEREFORE, premises considered, we modify the appealed decision in the sense that
the New Code of Discipline should be reviewed and discussed with complainant union,
particularly the disputed provisions [.] (T)hereafter, respondent is directed to furnish
each employee with a copy of the appealed Code of Discipline. The pending cases
adverted to in the appealed decision if still in the arbitral level, should be reconsidered
by the respondent Philippine Air Lines. Other dispositions of the Labor Arbiter are
sustained.

SO ORDERED. (p. 5, NLRC Decision.)

PAL then filed the instant petition for certiorari charging public respondents with grave abuse of
discretion in: (a) directing PAL "to share its management prerogative of formulating a Code of
Discipline"; (b) engaging in quasi-judicial legislation in ordering PAL to share said prerogative with the
union; (c) deciding beyond the issue of unfair labor practice, and (d) requiring PAL to reconsider
pending cases still in the arbitral level (p. 7, Petition; p. 8, Rollo.)

As stated above, the Principal issue submitted for resolution in the instant petition is whether
management may be compelled to share with the union or its employees its prerogative of
formulating a code of discipline.

PAL asserts that when it revised its Code on March 15, 1985, there was no law which mandated the
sharing of responsibility therefor between employer and employee.

Indeed, it was only on March 2, 1989, with the approval of Republic Act No. 6715, amending Article
211 of the Labor Code, that the law explicitly considered it a State policy "(t)o ensure the participation
of workers in decision and policy-making processes affecting the rights, duties and welfare."
However, even in the absence of said clear provision of law, the exercise of management
prerogatives was never considered boundless. Thus, in Cruz vs. Medina (177 SCRA 565 [1989]) it
was held that management's prerogatives must be without abuse of discretion.

In San Miguel Brewery Sales Force Union (PTGWO) vs. Ople (170 SCRA 25 [1989]), we upheld the
company's right to implement a new system of distributing its products, but gave the following caveat:

So long as a company's management prerogatives are exercised in good faith for the
advancement of the employer's interest and not for the purpose of defeating or
circumventing the rights of the employees under special laws or under valid
agreements, this Court will uphold them.
(at p. 28.)

All this points to the conclusion that the exercise of managerial prerogatives is not unlimited. It is
circumscribed by limitations found in law, a collective bargaining agreement, or the general principles
of fair play and justice (University of Sto. Tomas vs. NLRC, 190 SCRA 758 [1990]). Moreover, as
enunciated in Abbott Laboratories (Phil.), vs. NLRC (154 713 [1987]), it must be duly established that
the prerogative being invoked is clearly a managerial one.

A close scrutiny of the objectionable provisions of the Code reveals that they are not purely business-
oriented nor do they concern the management aspect of the business of the company as in the San
Miguel case. The provisions of the Code clearly have repercusions on the employee's right to security
of tenure. The implementation of the provisions may result in the deprivation of an employee's means
of livelihood which, as correctly pointed out by the NLRC, is a property right (Callanta, vs Carnation
Philippines, Inc., 145 SCRA 268 [1986]). In view of these aspects of the case which border on
infringement of constitutional rights, we must uphold the constitutional requirements for the protection
of labor and the promotion of social justice, for these factors, according to Justice Isagani Cruz, tilt
"the scales of justice when there is doubt, in favor of the worker" (Employees Association of the
Philippine American Life Insurance Company vs. NLRC, 199 SCRA 628 [1991] 635).

Verily, a line must be drawn between management prerogatives regarding business operations per
se and those which affect the rights of the employees. In treating the latter, management should see
to it that its employees are at least properly informed of its decisions or modes action. PAL asserts
that all its employees have been furnished copies of the Code. Public respondents found to the
contrary, which finding, to say the least is entitled to great respect.

PAL posits the view that by signing the 1989-1991 collective bargaining agreement, on June 27,
1990, PALEA in effect, recognized PAL's "exclusive right to make and enforce company rules and
regulations to carry out the functions of management without having to discuss the same with PALEA
and much less, obtain the latter's conformity thereto" (pp. 11-12, Petitioner's Memorandum; pp 180-
181, Rollo.) Petitioner's view is based on the following provision of the agreement:

The Association recognizes the right of the Company to determine matters of

management it policy and Company operations and to direct its manpower.
Management of the Company includes the right to organize, plan, direct and control
operations, to hire, assign employees to work, transfer employees from one department,
to another, to promote, demote, discipline, suspend or discharge employees for just
cause; to lay-off employees for valid and legal causes, to introduce new or improved
methods or facilities or to change existing methods or facilities and the right to make
and enforce Company rules and regulations to carry out the functions of management.

The exercise by management of its prerogative shall be done in a just reasonable,

humane and/or lawful manner.

Such provision in the collective bargaining agreement may not be interpreted as cession of
employees' rights to participate in the deliberation of matters which may affect their rights and the
formulation of policies relative thereto. And one such mater is the formulation of a code of discipline.

Indeed, industrial peace cannot be achieved if the employees are denied their just participation in the
discussion of matters affecting their rights. Thus, even before Article 211 of the labor Code (P.D. 442)
was amended by Republic Act No. 6715, it was already declared a policy of the State, "(d) To
promote the enlightenment of workers concerning their rights and obligations . . . as employees." This
was, of course, amplified by Republic Act No 6715 when it decreed the "participation of workers in
decision and policy making processes affecting their rights, duties and welfare." PAL's position that it
cannot be saddled with the "obligation" of sharing management prerogatives as during the
formulation of the Code, Republic Act No. 6715 had not yet been enacted (Petitioner's Memorandum,
p. 44; Rollo, p. 212), cannot thus be sustained. While such "obligation" was not yet founded in law
when the Code was formulated, the attainment of a harmonious labor-management relationship and
the then already existing state policy of enlightening workers concerning their rights as employees
demand no less than the observance of transparency in managerial moves affecting employees'
rights.

Petitioner's assertion that it needed the implementation of a new Code of Discipline considering the
nature of its business cannot be overemphasized. In fact, its being a local monopoly in the business
demands the most stringent of measures to attain safe travel for its patrons. Nonetheless, whatever
disciplinary measures are adopted cannot be properly implemented in the absence of full cooperation
of the employees. Such cooperation cannot be attained if the employees are restive on account, of
their being left out in the determination of cardinal and fundamental matters affecting their
employment.

WHEREFORE, the petition is DISMISSED and the questioned decision AFFIRMED. No special
pronouncement is made as to costs.

SO ORDERED.
G.R. No. 197492

CHATEAU ROYALE SPORTS and COUNTRY CLUB, INC., Petitioner,

vs.
RACHELLE G. BALBA and MARINEL N. CONSTANTE, Respondents.

DECISION

BERSAMIN, J.:

The petitioner appeals the decision promulgated on January 10, 2011, 1 whereby the Court of
Appeals (CA) annulled and set aside the December 14, 2009 decision 2 and February 26, 2010
resolution3 of the National Labor Relations Commission (NLRC) dismissing the respondents'
complaint for constructive dismissal.

Antecedents

On August 28, 2004, the petitioner, a domestic corporation operating a resort complex in Nasugbu,
Batangas, hired the respondents as Account Executives on probationary status. 4 On June 28, 2005,
the respondents were promoted to Account Managers effective July 1, 2005, with the monthly salary
rate of ₱9,000.00 plus allowances totaling to ₱5,500.5 As part of their duties as Account Managers,
they were instructed by the Director of Sales and Marketing to forward all proposals, event orders and
contracts for an orderly and systematic bookings in the operation of the petitioner' s business.
However, they failed to comply with the directive. Accordingly, a notice to explain was served on
them,6 to which they promptly responded. 7

On October 4, 2005, the management served notices of administrative hearing8 on the respondents.
Thereupon, they sent a letter of said date asking for a postponement of the hearing. 9 Their request
was, however, denied by the letter dated October 7, 2005, and at the same time informed them that
the petitioner's Corporate Infractions Committee had found them to have committed acts of
insubordination, and that they were being suspended for seven days from October 10 to 17, 2005,
inclusive. 10

The suspension order was lifted even before its implementation on October 10, 2005. 11

On October 10, 2005, the respondents filed a complaint for illegal suspension and non-payment of
allowances and commissions. 12

On December 1, 2005, the respondents amended their complaint to include constructive dismissal as
one of their causes of action based on their information from the Chief Financial Officer of the
petitioner on the latter's plan to transfer them to the Manila Office. 13 The proposed transfer was
prompted by the shortage of personnel at the Manila Office as a result of the resignation of three
account managers and the director of sales and marketing. Despite attempts to convince them to
accept the transfer to Manila, they declined because their families were living in Nasugbu, Batangas.

The respondents received the notice of transfer14 dated December 13, 2005 on December 28,
2005 15 directing them to report to work at the Manila Office effective January 9, 2006. They
responded by letter addressed to Mr. Rowell David, the Human Resource Consultant of the
petitioner, 16 explaining their reasons for declining the order of transfer. Consequently, another
request for incident report17 was served on them regarding their failure to comply with the directive to
report at the Manila office. Following respondents' respective responses, 18 the petitioner sent a
notice imposing on them the sanction of written reprimand for their failure to abide by the order of
transfer. 19

Ruling of the Labor Arbiter

On February 14, 2008, Labor Arbiter Arthur L. Amansec rendered his decision declaring that the
respondents had been constructively dismissed, and disposing thusly: 20

WHEREFORE, judgment is hereby made finding respondent Chateau Royale Sports and Country
Club, Inc. to have constructively dismissed the complainants Rachelle G. Balba and Marinel N.
Constante from employment. Concomitantly, the respondent company is hereby ordered to pay each
complainant one (1) year backwages plus a separation pay, computed at a full month's pay for every
year of service.

The respondent company is also ordered to pay each complainant ₱50,000.00 moral damages and
₱10,000.00 exemplary damages.
Ten (10%) attorney's fees are also awarded.

Other claims are dismissed for lack of merit.

SO ORDERED.21

Labor Arbiter Amansec opined that the respondents' transfer to Manila would not only be physically
and financially inconvenient, but would also deprive them of the psychological comfort that their
families provided; that being the top sales performers in Nasugbu, they should not be punished with
the transfer; and that their earnings would considerably diminish inasmuch as sales in Manila were
not as lively as those in Nasugbu.22

Ruling of the NLRC

On appeal,23 the NLRC reversed the ruling of the Labor Arbiter, and dismissed the complaint for lack
of merit, to wit:

WHEREFORE, the appeal of respondents Chateau Royale Sports and Country Club, Inc. is Granted.
Accordingly, the assailed February 14, 2008 decision is Set-Aside dismissing the complaint for lack of
merit.

SO ORDERED.24

The NLRC found that the respondents had been informed through their respective letters of
appointment of the possibility of transfer in the exigency of the service; that the transfer was justified
due to the shortage of personnel at the Manila office; that the transfer of the respondents, being
bereft of improper motive, was a valid exercise of management prerogative; and that they could not
as employees validly decline a lawful transfer order on the ground of parental obligations, additional
expenses, and the anxiety of being away from his family.

The respondents filed their motion for reconsideration,25 but the NLRC denied their motion on
February 26, 2010.26

Decision of the CA

On January 10, 2011, the CA promulgated its decision granting the respondents' petition
for certiorari, and setting aside the decision of the NLRC, viz.:

WHEREFORE, premises considered, the assailed Decision dated December 14, 2009 and
Resolution dated February 26, 2010 of the NLRC, Second Division in NLRC LAC No. 07-002551-08
(NLRC-RAB-IV Case No. 10-21558-058) (NLRC-RAB-IV Case No. 02-22153-068) are
hereby REVERSED and SET ASIDE. Private respondent Chateau Royale is hereby ordered
to REINSTATE petitioners Balba and Constante to their former positions without loss of seniority
rights and other privileges, and to pay said petitioners full BACKWAGES inclusive of allowances and
other benefits from the time their employment was severed up to the time of actual reinstatement.

SO ORDERED.27

The CA ruled that the transfer of the respondents from the office in Nasugbu, Batangas to the Manila
office was not a legitimate exercise of management prerogative and constituted constructive
dismissal; that the transfer to the Manila office was not crucial as to cause serious disruption in the
operation of the business if the respondents were not transferred thereat; that the directive failed to
indicate that the transfer was merely temporary; that the directive did not mention the shortage of
personnel that would necessitate such transfer; and that the transfer would be inconvenient and
prejudicial to the respondents.28

On June 22, 2011,29 the CA denied the petitioner's motion for reconsideration.

Issues

Hence, this appeal by the petitioner via petition for review on certiorari,30citing the following grounds:

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT TI-IE

SHORTAGE OF PERSONNEL IN THE MANILA OFFICE IS A MERE SUBTERFUGE RATHER
THAN AN EXIGENCY JN THE BUSINESS THEREBY TREATING THE TRANSFER OF
RESPONDENTS AS UNREASONABLE

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT THE

INTENDED TRANSFER OF THE RESPONDENTS FROM NASUGBU, BATANGAS TO MANILA
OFFICE CONSTITUTES CONSTRUCTIVE DISMISSAL.31

The petitioner argues that the resignations of the Account Managers and the Director of Sales and
Marketing caused serious disruptions in the operations of the Manila office, thereby making the
immediate transfer of the respondents crucial and indispensable; that through their respective letters
of appointment, the possibility of their transfer to the Manila office had been made known to them
even prior to their regularization; that if its intention had been to expel them from the company, it
would not have rehired them as regular employees after the expiration of their probationary contract
and even promoted them as Account Managers; that there was no diminution of income and benefits
as a result of the transfer; and that their immediate rejection of the transfer directive prevented the
parties from negotiating for additional allowances beyond their regular salaries.

The respondents counter that there was no valid cause for their transfer; that they were forced to
transfer to the Manila office without consideration of the proximity of the place and without
improvements in the employment package; that the alleged shortage of personnel in the Manila office
due to the resignation of the account managers was merely used to conceal the petitioner's illegal
acts; and that notwithstanding their negative response upon being informed of their impending
transfer to Manila by Chief Finance Officer Marquez, the petitioner still issued the transfer order
directing them to report to the Manila office effective January 9, 2006.

The sole issue for resolution is whether or not the respondents were constructively dismissed.

Ruling of the Court

We find merit in the appeal.

In the resolution of whether the transfer of the respondents from one area of operation to another was
valid, finding a balance between the scope and limitation of the exercise of management prerogative
and the employees' right to security of tenure is necessary.32 We have to weigh and consider, on the
one hand, that management has a wide discretion to regulate all aspects of employment, including
the transfer and re-assignment of employees according to the exigencies of the business; 33 and, on
the other, that the transfer constitutes constructive dismissal when it is unreasonable, inconvenient or
prejudicial to the employee, or involves a demotion in rank or diminution of salaries, benefits and
other privileges, or when the acts of discrimination, insensibility or disdain on the part of the employer
become unbearable for the employee, forcing him to forego her employment. 34

In this case of constructive dismissal, the burden of proof lies in the petitioner as the employer to
prove that the transfer of the employee from one area of operation to another was for a valid and
legitimate ground, like genuine business necessity.35 We are satisfied that the petitioner duly
discharged its burden, and thus established that, contrary to the claim of the respondents that they
had been constructively dismissed, their transfer had been an exercise of the petitioner's legitimate
management prerogative.

To start with, the resignations of the account managers and the director of sales and marketing in the
Manila office brought about the immediate need for their replacements with personnel having
commensurate experiences and skills. With the positions held by the resigned sales personnel being
undoubtedly crucial to the operations and business of the petitioner, the resignations gave rise to an
urgent and genuine business necessity that fully warranted the transfer from the Nasugbu, Batangas
office to the main office in Manila of the respondents, undoubtedly the best suited to perform the
tasks assigned to the resigned employees because of their being themselves account managers who
had recently attended seminars and trainings as such. The transfer could not be validly assailed as a
form of constructive dismissal, for, as held in Benguet Electric Cooperative v.Fianza,36management
had the prerogative to determine the place where the employee is best qualified to serve the interests
of the business given the qualifications, training and performance of the affected employee.

Secondly, although the respondents' transfer to Manila might be potentially inconvenient for them
because it would entail additional expenses on their part aside from their being forced to be away
from their families, it was neither unreasonable nor oppressive. The petitioner rightly points out that
the transfer would be without demotion in rank, or without diminution of benefits and salaries. Instead,
the transfer would open the way for their eventual career growth, with the corresponding increases in
pay. It is noted that their prompt and repeated opposition to the transfer effectively stalled the
possibility of any agreement between the parties regarding benefits or salary adjustments.

Thirdly, the respondents did not show by substantial evidence that the petitioner was acting in bad
faith or had ill-motive in ordering their transfer.1avvphi1 In contrast, the urgency and genuine
business necessity justifying the transfer negated bad faith on the part of the petitioner.

Lastly, the respondents, by having voluntarily affixed their signatures on their respective letters of
appointment, acceded to the terms and conditions of employment incorporated therein. One of the
terms and conditions thus incorporated was the prerogative of management to transfer and re-assign
its employees from one job to another "as it may deem necessary or advisable," to wit:

The company reserves the right to transfer you to any assignment from one job to another, or from
one department/section to another, as it may deem necessary or advisable.

Having expressly consented to the foregoing, the respondents had no basis for objecting to their
transfer. According to Abbot Laboratories(Phils.), Inc. v. National Labor Relations Commission, 37the
employee who has consented to the company's policy of hiring sales staff willing to be assigned
anywhere in the Philippines as demanded by the employer's business has no reason to disobey the
transfer order of management. Verily, the right of the employee to security of tenure does not give her
a vested right to her position as to deprive management of its authority to transfer or re-assign her
where she will be most useful. 38

In view of the foregoing, the NLRC properly appreciated the evidence and merits of the case in
reversing the decision of the Labor Arbiter. As such, the CA gravely erred in declaring that the NLRC
had gravely abused its discretion amounting to lack or excess of jurisdiction.

WHEREFORE, the Court REVERSES AND SETS ASIDE the decision of the Court of Appeals
promulgated on January 10, 2011; REINSTATES the decision issued on December 14, 2009 by the
National Labor Relations Commission; and ORDERS the respondents to pay the costs of suit.

SO ORDERED.
G.R. No. 76959 October 12, 1987

ABBOTT LABORATORIES (PHILIPPINES), INC., and JAIME C. VICTA petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISISON and ALBERT BOBADILLA respondents.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the decision of respondent National Labor Relations
Commission (NLRC) which set aside the Labor Arbiter's decision dismissing the complaint and
instead entered a new decision ordering the complainant's reinstatement with full backwages from the
date of his termination until his actual reinstatement.

The antecedent facts as found by the labor Arbiter and reiterated in the NLRC decision are
undisputed:

Complainant Bobadilla started his employment with respondent company sometime in

May 1982. After undergoing training, in September, 1982, competent was designated
professional medical representative (PMR) and was assigned to cover the sales territory
comprising of Sta. Cruz, Binondo and a part of Quiapo and Divisoria, of the Metro
Manila district. In connection with the respondent company's marketing and sales
operations, it has been its policy and established practice of undertaking employment
movements and/or reassignments from one territorial area to another as the exigencies
of its operations require and to hire only applicant salesmen, including professional
medical representatives (PMRs) who are willing to take provincial assignments, at least
insofar as male applicants were concerned. Likewise, respondent company had made
reassignments or transfers of sales personnel which included PMRs from one territorial
area of responsibility to another on a more or less regular basis.

In complainant's application for employment with respondent company, he agreed to the

following: 1) that if employed he win accept assignment in the provinces and/or cities
anywhere in the Philippines; 2) he is willing and can move into and live in the territory
assigned to him; and (3) that should any answer or statement in his application for
employment be found false or incorrect, he will be subject to immediate dismissal, if
then employed.

On 22 July 1983, respondent Victa called competent to his office and informed the latter
that he was being transferred effective 1 August 1983 to the newly opened Cagayan
territory comprising the provinces of Cagayan, Nueva Vizcaya and Isabela. The transfer
order was made formal in a memorandum dated 29 July 1983. Among the reasons
given for complainant's selection as PMR for the Cagayan territory were: The territory
required a veteran and seasoned PMR who can operate immediately with minimum
training and supervision. Likewise, a PMR who can immediately exploit the vast
business potential of the area.

In a letter dated 1 August 1983, which was received by Abbott on 4 August 1983,
competent, thru his lawyer, objected to the transfer on the grounds that it was not only a
demotion but also personal and punitive in nature without basis legally and factually.

On 8 August 1983, Victa issued another inter-office correspondence to competent,

giving the latter up to 15 August 1983 within which to comply with the transfer order,
otherwise his would be dropped from the payroll for having abandoned his job. When
competent failed to report to his new assignment, Abbott assigned thereat Fausto
Antonio T. Tibi another PED PMR who was priorly covering the provinces of Nueva
Ecija and Tarlac.

Meanwhile, complainant filed applications for vacation leave from 2 to 9 August 1983,
and then from 10 to 13 August 1983. And on 18 August 1983, he filed the present
complaint.

After due consideration of the evidence adduced by the parties, the Arbiter below ruled
for the respondent on the ground that the complainant is guilty of gross insubordination.
(pp. 17-19, Rollo; pp. 1-3, NLRC decision)
On appeal, the respondent National Labor Relations Commission reversed the Arbiter's decision and
held that herein petitioners had no valid and justifiable reason to dismiss the complainant. The
National Labor Relations Commission ordered the latter's reinstatement with backwages.

A motion for reconsideration subsequently filed by the petitioners was denied.

On September 8, 1986, the petitioners filed their second motion for reconsideration which was not
favorably acted upon by respondent National Labor Relations Commission as the record of the case
had already been transmitted to the labor arbiter for the execution of its decision.

On December 16, 1986, the petitioners and the private respondent agreed before the labor arbiter
that the former would bring the case before this Court.

Hence, this present petition.

Petitioners assigned as errors the following:

... [R]espondent NLRC acted in excess of jurisdiction and/or grave abuse of discretion in
that —

a] Respondent NLRC disregarded settled law and altered the parties' contract when it
stated that private respondent's prior consent was necessary for the validity of his
transfer, rendering his consequent dismissal for insubordination illegal.

b] Granting arguendo that prior consent of an employee is required for the validity of his
transfer to another territory, private respondent had explicitly given such prior consent
as a condition for his hiring and continued employment by petitioner Abbott,

c] Respondent NLRC abused its discretion when it declared private respondent's

dismissal illegal despite his clear and willfull insubordination. (pp. 7, 10 and 11, Rollo).

When asked to comment on the petition as counsel for NLRC, the Solicitor General, assisted by
Assistant Solicitor General Zoilo A. Andin and Trial Attorney Alexander Q. Gesmundo, agreed with
the petitioners' stand that the dismissal of the private respondent from his employment was for valid
reasons.

The main issue in this case is whether or not Albert Bobadilla could be validly dismissed from his
employment on the ground of insubordination for refusing to accept his new assignment.

We are constrained to answer in the affirmative.

The hiring, firing, transfer, demotion, and promotion of employees has been traditionally Identified as
a management prerogative subject to limitations found in law, a collective bargaining agreement, or
general principles of fair play and justice. This is a function associated with the employer's inherent
right to control and manage effectively its enterprise. Even as the law is solicitous of the welfare of
employees, it must also protect the right of an employer to exercise what are clearly management
prerogatives. The free who of management to conduct its own business affairs to achieve its purpose
cannot be denied. (See Dangan vs. National Labor Relations Commission, 127 SCRA 706).

As a general rule, the right to transfer or reassign an employee is recognized as an employer's

exclusive right and the prerogative of management.

We agree with the Labor Arbiter's conclusions that:

Settled is the rule in this regard that an employer, except when cited by special laws,
has the right to regulate, according to his own discretion and judgment, all aspects of
employment, which includes, among others, hiring, work assignments, place and
manner of work, working regulations and transfer of employees in accordance with his
operational demands and requirements. This right flows from ownership and from the
established rule that labor law does not authorize the substitution of judgment of the
employer in the conduct of his business, unless it is shown to be contrary to law, morals
or public policy (NLU vs. Insular-Yebana Tobacco Corp., 2 SCRA 924, 931; and
Republic Savings Bank vs. Court of Industrial Relations, 21 SCRA 226, 235).

... Abbott, in accordance with the demands and requirements of its marketing and sales
operations, adopted a policy to hire only sales applicants who are willing to accept
 assignments in the provinces anywhere in the Philippines, and to move into and live in
the territory assigned to them.

The existence and implementation of this policy are clearly discernible from the
questions appearing in the application form under the heading:"TO BE FILLED BY
SALES APPLICANTS ONLY," and the fact that Abbott, depending upon the needs of its
marketing and sales operations, periodically made transfers or reassignment of its sales
people.

Complainant was precisely hired because he manifested at the outset as a job applicant
his willingness to follow the conditions of his employment. In line with the policy, as
practiced, Abbott, thru Jaime Victa, issued an inter-office correspondence transferring
complainant to a newly opened sales territory-the Cagayan Region, comprising the
provinces of Cagayan, Nueva Vizcaya and Isabela. According to respondents,
complainant was selected as PMR for the region primarily because he was a veteran
and seasoned PMR who can operate immediately with minimum training and
supervision.

That complainant is a veteran and seasoned PMR is admitted. In fact, it is even

conceded by respondents that complainant was the leader of his peers in PED as
indicated in the letter dated 20 December 1982 of Jaime Victa to complainant. That the
Cagayan Region is relatively inaccessible cannot be debated. That the territory needed
a responsible PMR who could work under the least supervision is a judgment of
respondents. And that this judgment was arrived at upon consultations among the PED
Marketing Manager Jaime Victa, the Director for Administration Francisco Lim, and the
General Manager A. C. Bout has been proven by respondents.

It appearing, therefore, that the order to transfer complainant is based upon a judgment
of his employer Abbott, which judgment to transfer is in the with a company practice
which is not contrary to law, morals or public policy, hence, beyond the competence of
this office to question, the refusal of complainant to obey the lawful order of Abbott is
gross insubordination — a valid cause for dismissal.

Complainant asserted that the true reason for his transfer was the personal ill motives
on the part of respondent Victa who resented the derogatory remarks attributed to him,
as purportedly shown in Victa's memoranda dated 20 December 1982 and 26 April
1983. However, a cursory reading of said memoranda in question who show that the
same were legitimately issued by Victa in the exercise of his functions as PED
Manager. And the fact that complainant never lifted a finger to formally question said
memoranda is a mute admission on his part that the allegations therein are true.

Complainant also alleged that his transfer was a demotion. However, no explanation
was given much less any evidence presented in support of the allegation. On the other
hand, it is clear that there was no change in complainant's position and salary,
privileges and benefits he was receiving while in Manila. With respect to the sales
commission, Abbott claimed that had complainant accepted the assignment, he could
have earned more because the sales prospects in the Cagayan Territory, which
comprises Nueva Vizcaya, Isabela and Cagayan Province were much higher than the
territory assigned to him in Manila. Besides, the assignment offered an important
avenue for future promotion, respondent concluded. (pp. 6-9, Labor Arbiter's decision).

Therefore, Bobadilla had no valid reason to disobey the order of transfer. He had tacitly given his
consent thereto when he acceded to the petitioners' policy of hiring sales staff who are willing to be
assigned anywhere in the Philippines which is demanded by the petitioners' business.

By the very nature of his employment, a drug salesman or medical representative is expected to
travel. He should anticipate reassignment according to the demands of their business. It would be a
poor drug corporation which cannot even assign its representatives or detail men to new markets
calling for opening or expansion or to areas where the need for pushing its products is great. More so
if such reassignments are part of the employment contract.

WHEREFORE, the petition is hereby GRANTED. The questioned decision of the National Labor
Relations Commission is SET ASIDE. The decision of the labor Arbiter dated April 16,1985 is
REINSTATED.

SO ORDERED.
G.R. No. 171764 June 8, 2007

ALBERT O. TINIO, petitioner,

vs.
COURT OF APPEALS, SMART COMMUNICATIONS, INC., ALEX O. CAEG and ANASTACIO
MARTIREZ,respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari seeks to annul and set aside the Decision and Resolution of the
Court of Appeals dated October 25, 20051 and March 2, 2006,2 respectively, in CA-G.R. SP No.
90677 which reversed and set aside the Decision of the National Labor Relations Commission
(NLRC) dated July 30, 2004,3 and its Resolution dated April 20, 2005,4 for having been issued with
grave abuse of discretion amounting to lack or excess of jurisdiction. The appellate court reinstated
the Decision of the Labor Arbiter dated December 9, 20035which dismissed petitioner’s complaint for
lack of merit.

On December 1, 2002, Smart Communications, Inc. (SMART) employed petitioner Albert O. Tinio as
its General Manager for Visayas/Mindanao (VISMIN) Sales and Operations based in Cebu.6

On May 14, 2003, private respondent Alex O. Caeg, Group Head, Sales and Distribution of SMART,
under the supervision of co-respondent Anastacio Martirez, informed petitioner of his new assignment
as Sales Manager for Corporate Sales in SMART’s Head Office in Makati City, effective June 1,
2003. However, petitioner deferred action on his assignment until he had been apprised of the duties
and responsibilities of his new position and the terms and conditions of his relocation. In a
memorandum dated May 26, 2003, Caeg informed petitioner that his transfer was for the greater
business interest of the company; that petitioner is expected to meet at least 80% of his sales and
collection targets; and that financial assistance shall be provided for his physical transfer to Manila.

On June 2, 2003, petitioner reported to SMART’s Head Office in Makati and discussed with Ann
Margaret V. Santiago, HRD Group Head, his job description, functions, responsibilities, salary and
benefits, as well as options for relocation/transfer of his family to Manila. The Department Head for
Corporate Business Group, VIP Accounts Management and Marketing PR, Julie C. Carceller,
likewise explained to him details of his new assignment such as job description, scope of the position,
objectives and goals of the department, key responsibilities as well as targets and expectations of
SMART from the Corporate Business Group. The next day, June 3, 2003, petitioner and Caeg met to
discuss further details of petitioner’s new position.7

Thereafter, petitioner did not report for work. He instead filed a complaint for constructive dismissal
with claims for moral and exemplary damages and attorney’s fees against SMART and private
respondents Caeg and Martirez. On June 16, 2003, Caeg required petitioner to explain his continuing
refusal to transfer to his new assignment, but instead of giving an explanation, petitioner referred
Caeg to his complaint for constructive dismissal.8 Private respondents also scheduled a hearing on
June 23, 2003 but petitioner failed to attend. Thus, private respondents terminated petitioner’s
employment effective June 25, 2003 for insubordination.9

On December 9, 2003, the Labor Arbiter rendered judgment finding that petitioner was not
constructively or illegally dismissed; hence, the complaint was ordered dismissed. But the Labor
Arbiter awarded financial assistance to petitioner in the amount of P235,400.00. 10

On appeal, the NLRC reversed the Labor Arbiter’s decision and declared that petitioner was illegally
dismissed, awarded him full backwages, including the corresponding 13th month pay, moral and
exemplary damages, as well as attorney’s fees. Private respondents’ motion for reconsideration was
denied.11

On a petition for certiorari under Rule 65 to the Court of Appeals, private respondents alleged that the
NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction in ruling that:
(1) the transfer of Tinio resulted in a demotion in rank; (2) the transfer was not a valid exercise of
management prerogative; (3) SMART did not comply with the procedural requirements of due
process, and Tinio’s termination was made with malice and in bad faith; and (4) Tinio is entitled to
reinstatement and full backwages.12

On October 25, 2005, the Court of Appeals reversed and set aside the Decision of the NLRC and
reinstated the Decision of the Labor Arbiter dismissing the complaint for lack of merit.13 Petitioner’s
motion for reconsideration was denied; hence, this appeal.14
The twin issues for resolution are: (1) whether private respondents’ act of transferring petitioner to its
Head Office in Makati was a valid exercise of management prerogative; and (2) whether petitioner
was constructively dismissed.

This Court has consistently recognized and upheld the prerogative of management to transfer an
employee from one office to another within the business establishment, provided there is no demotion
in rank or a diminution of salary, benefits and other privileges.15 As a rule, the Court will not interfere
with an employer’s prerogative to regulate all aspects of employment which include among others,
work assignment, working methods and place and manner of work. Labor laws discourage
interference with an employer’s judgment in the conduct of his business. 16

The doctrine is well-settled that it is the employer’s prerogative, based on its assessment and
perception of its employees’ qualifications, aptitudes and competence, to move them around in the
various areas of its business operations in order to ascertain where they will function with maximum
benefit to the company.17 This is a privilege inherent in the employer’s right to control and manage his
enterprise effectively. The freedom of management to conduct its business operations to achieve its
purpose cannot be denied.18

An employee’s right to security of tenure does not give him a vested right to his position as would
deprive the company of its prerogative to change his assignment or transfer him where he will be
most useful. When his transfer is not unreasonable, or inconvenient, or prejudicial to him, and it does
not involve a demotion in rank or a diminution of his salaries, benefits and other privileges, the
employee may not complain that it amounts to a constructive dismissal. 19

But, like other rights, there are limits thereto. The managerial prerogative to transfer personnel must
be exercised without grave abuse of discretion, bearing in mind the basic elements of justice and fair
play. Having the right should not be confused with the manner in which the right is exercised. Thus, it
cannot be used as a subterfuge by the employer to rid himself of an undesirable worker. The
employer must be able to show that the transfer is not unreasonable, inconvenient, or prejudicial to
the employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges, and
other benefits. Should the employer fail to overcome this burden of proof, the employee’s transfer
shall be tantamount to constructive dismissal, which has been defined as a quitting because
continued employment is rendered impossible, unreasonable or unlikely; as an offer involving a
demotion in rank and diminution of pay. Likewise, constructive dismissal exists when an act of clear
discrimination, insensibility or disdain by an employer has become so unbearable to the employee
leaving him with no option but to forego his continued employment. 20

A transfer is a "movement from one position to another which is of equivalent rank, level or salary,
without break in service." Promotion, on the other hand, is the "advancement from one position to
another with an increase in duties and responsibilities as authorized by law, and usually accompanied
by an increase in salary."21 Conversely, demotion involves a situation where an employee is
relegated to a subordinate or less important position constituting a reduction to a lower grade or rank,
with a corresponding decrease in duties and responsibilities, and usually accompanied by a decrease
in salary.

The burden of proof in constructive dismissal cases is on the employer to establish that the transfer of
an employee is for valid and legitimate grounds, i.e., that the transfer is not unreasonable,
inconvenient or prejudicial to the employee; nor does it involve a demotion in rank or a diminution of
salaries, privileges and other benefits.

Hence, it may be gleaned from the foregoing discourse that a transfer is deemed to be constructive
dismissal when three conditions concur: first, when the transfer
is unreasonable, inconvenient or prejudicial to the employee; second, when the transfer involves a
demotion in rank or diminution of salaries, benefits and other privileges; and third, when the employer
performs a clear act of discrimination, insensibility, or disdain towards the employee, which forecloses
any choice by the latter except to forego his continued employment.

In the instant case, the transfer from Cebu to Makati was not unreasonable, inconvenient or
prejudicial to the petitioner considering that it was a transfer from the provincial office to the main
office of SMART. The position would entail greater responsibilities because it would involve corporate
accounts of top establishments in Makati which are significantly greater in value than the individual
accounts in Visayas and Mindanao. In terms of career advancement, the transfer was even beneficial
and advantageous since he was being assigned the corporate accounts of the choice clients of
SMART. Moreover, the transfer was not economically inconvenient because all expenses relative
thereto were to be borne by SMART.
Also, the transfer from Cebu to Makati does not represent a demotion in rank or diminution of
salaries, benefits and other privileges. It was a lateral transfer with the same salaries, benefits and
privileges. The title of Corporate Sales Manager, as correctly pointed out by the appellate court, is not
derogatory to the petitioner considering that he will still receive the same benefits and salary he
received as Senior Manager.22 The position is deemed in the level of Senior Manager considering
that the skills and competencies required involve handling the accounts of top corporate clients of the
company, representing some of the largest corporations in the Philippines.

Mere title or position held by an employee in a company does not determine whether a transfer
constitutes a demotion. Rather, it is the totality of the following circumstances, to wit: economic
significance of the work, the duties and responsibilities conferred, as well as the same rank and
salary of the employee, among others, that establishes whether a transfer is a demotion.

We find that petitioner was not demoted since his transfer from Cebu to Makati was being
implemented due to a valid corporate reorganization to streamline management operations. The act
of management in reorganizing as well as transferring its employees to achieve its stated objectives
is a legitimate exercise of their management prerogatives, barring any showing of bad faith which is
absent in the instant case. Despite the change of petitioner’s title from "Senior Manager" to
"Corporate Sales Manager," he still enjoyed the same rank and salary. Although Cebu operations of
SMART constitute a large individual client base representing both Visayas and Mindanao, the Makati
operations deal with higher corporate or business sales due to the larger concentration of top
Philippine and multinational corporations. In other words, petitioner will be managing the select client
base that produces the bulk of the corporate sales income of SMART. We ruled in Philippine Wireless
Inc. v. National Labor Relations Commission23 that there is no demotion where there is no reduction
in position, rank or salary as a result of the transfer.24

Moreover, private respondents did not act with discrimination, insensibility, or disdain towards
petitioner, which foreclosed any choice by the latter except to forego his continued employment.
SMART, through its representatives, attempted to address petitioner’s grievances by meeting with the
latter on several occasions thus addressing this internal problem utilizing the proper corporate
channels. Several meetings were held between petitioner and private respondents with a view to
clarifying the details of petitioner’s new assignment, such as job description, relation to corporate
structure, functions, responsibilities, salary and benefits. Meetings were on-going when petitioner
opted to file a complaint for constructive dismissal.

We agree with the Court of Appeals’ ruling that private respondent SMART exercised its management
prerogative in transferring petitioner from Cebu to Makati as the person in charge of the post-paid
sales accounts. SMART management has the prerogative to transfer or re-assign its employees to a
position where they can contribute significantly to the company objectives in line with its corporate
reorganization. Petitioner’s argument that the transfer was hastily arrived at, considering that he was
being ordered to transfer within 15 days from notice and that the Makati head office personnel were
unaware thereof is untenable. Moreover, petitioner knew of the management prerogative to re-assign
its employees as expressly stipulated in petitioner’s employment contract.

No evidence was presented to substantiate petitioner’s claim that the transfer was punitive or that
private respondents were in bad faith. The failure of private respondent Caeg to directly address the
supposed "punitive" nature of the transfer cannot establish bad faith, without independent evidence to
prove this allegation.

We held in Abbott Laboratories (Phils.), Inc. v. National Labor Relations Commission,25 that an
employee has no valid reason to disobey the order of transfer given by management, especially if he
has tacitly given his consent thereto when he acceded to the company’s policy of hiring sales staff
who are willing to be assigned anywhere in the Philippines which is demanded by the employer’s
business.26

By the very nature of their employment, sales executives are expected to travel. They should
anticipate re-assignment according to the demands of the employer’s business. Companies which
rely heavily on sales such as private respondent SMART are expected to assign their employees to
areas where markets may be expanded or places where their sales could be improved. The right to
transfer or reassign an employee is thus a reasonable exercise of management prerogatives and is
recognized as an employer’s exclusive right in running its company. 27

In the instant case, petitioner premised his deliberate and unjustified refusal to return to work on the
belief that he had been constructively dismissed, despite attempts by SMART to accommodate his
demands. Petitioner’s deliberate and unjustified refusal to resume his employment, a form of neglect
of duty, despite attempts by the company to hear out his grievances, constitutes abandonment.
Petitioner’s failure to report for work, or absence without valid or justifiable reason, coupled with a
clear intention to sever employer-employee relationship, leads us to no other conclusion than that he
abandoned his work. As such, the award of financial assistance in the amount of P235,400 given by
the Labor Arbiter and affirmed by the appellate court must be deleted for lack of basis.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated
October 25, 2005 and March 2, 2006, respectively, in CA-G.R. SP No. 90677, dismissing the
complaint for constructive dismissal against private respondents Smart Communications, Inc., Alex O.
Caeg and Anastacio Martirez are AFFIRMED with the MODIFICATION that the award of financial
assistance be DELETED for lack of basis. No pronouncement as to costs.

SO ORDERED.
G.R. No. 172601 April 16, 2009

AILEEN G. HERIDA, Petitioner,

vs.
F & C PAWNSHOP and JEWELRY STORE/MARCELINO FLORETE, JR., Respondents.

DECISION

QUISUMBING, J.:

Petitioner seeks the reversal of the Decision1 dated September 16, 2005 and the Resolution2 dated
April 21, 2006 of the Court of Appeals in CA-G.R. SP No. 82553 which affirmed the Resolution3 dated
October 23, 2003 of the National Labor Relations Commission (NLRC) in NLRC Case No. V-000177-
2000.

The antecedent facts of the case are as follows:

Petitioner Aileen G. Herida was an employee of respondent F & C Pawnshop and Jewelry Store
owned by respondent Marcelino Florete, Jr. She was hired as a sales clerk and eventually promoted
as an appraiser in the Bacolod City Branch.

On August 1, 1998, management issued an office memorandum 4 directing petitioner to report to the
Guanco Branch in Iloilo City. As petitioner refused to follow the directive, she was preventively
suspended from work on August 10, 1998 for a period of 15 days effective August 7, 1998. She was
also directed to report to her new assignment on August 24, 1998. 5

On August 10, 1998, petitioner filed a complaint6 for illegal dismissal, underpayment of wages, non-
payment of separation pay, 13th month pay, as well as for payment of moral and exemplary damages
and attorney’s fees.

On August 26, 1998, management informed petitioner that it will conduct an investigation on
September 7, 19987which petitioner failed to attend. In a letter dated September 7, 1998,
management terminated her services on the grounds of willful disobedience, insubordination and
abandonment of work as well as gross violation of company policy. 8

In a Decision9 dated July 19, 1999 in RAB Case No. 06-08-10525-98, the Labor Arbiter dismissed
petitioner’s complaint for lack of merit. The Labor Arbiter ruled that petitioner was not dismissed from
her job and that she deliberately refused to obey management’s directive for her to report to the Iloilo
City Branch. The Labor Arbiter noted that petitioner filed the complaint as a retaliatory act to secure
an award of separation pay.

On September 20, 2001, the NLRC affirmed the Labor Arbiter’s finding that there was no illegal
dismissal. However, due to petitioner’s long service with respondents, the NLRC awarded her
separation pay as well as service incentive leave pay. The decretal portion of the decision reads:

WHEREFORE, the assailed decision is SET ASIDE and a new one ENTERED declaring that there
was no illegal dismissal. Conformably with the preceding discussion however, complainant is entitled
to separation pay computed on the basis of her one-half month salary per year of service for nine (9)
years, or the amount of SEVENTEEN THOUSAND ONE HUNDRED PESOS (₱17,100.00).

Complainant is likewise entitled to service incentive leave pay for a total of fifteen (15) days, or the
amount of TWO THOUSAND ONE HUNDRED NINETY PESOS (₱2,190.00).

No pronouncements as to damages and attorney’s fees.

SO ORDERED.10

Both petitioner and respondents moved for reconsideration. On October 23, 2003, the NLRC issued a
resolution partially reconsidering its decision, in this wise:

WHEREFORE, we reconsider Our Decision of September 20, 2001 by declaring that there was no
illegal dismissal; affirming Our award for separation pay, and deleting Our award for service incentive
leave pay.

SO ORDERED.11
Aggrieved, petitioner filed a petition for certiorari with the Court of Appeals. In dismissing the petition,
the appellate court upheld management’s prerogative to transfer an employee from one office to
another within the business establishment provided there is no demotion in rank or diminution in
salary, benefits and other privileges. It ruled that as long as management’s exercise of such
prerogative is in good faith to advance its interest and not for the purpose of defeating or
circumventing the rights of the employee under the laws or valid agreements, such exercise will be
upheld. The appellate court noted that there was no proof that respondents were motivated by bad
faith in transferring petitioner. Petitioner never alleged anything that would defeat her rights as an
employee by reason of the transfer. Hence, her transfer cannot be deemed a constructive dismissal
since it is not unreasonable, discriminatory nor attended by a demotion in rank or diminution in pay.
Petitioner’s refusal to obey the transfer therefore constituted willful disobedience of a lawful order of
her employer which was a just cause for her dismissal. Thus:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us DISMISSING

the petition filed in this case and AFFIRMING the Resolution dated October 23, 2003 of the public
respondent NLRC in NLRC Case No. V-000177-2000.

SO ORDERED.12

In this petition before us, petitioner alleges that the Court of Appeals erred in:

I.

… HOLDING THAT THERE WAS NO ILLEGAL SUSPENSION AND DISMISSAL.

II.

… HOLDING THAT PETITIONER’S TRANSFER FROM BACOLOD CITY TO ILOILO CITY WAS A
MANAGEMENT PREROGATIVE AND THAT IT WAS A PROMOTION.

III.

… NOT GRANTING THE RELIEF FOR REINSTATEMENT, BACKWAGES, MORAL AND

EXEMPLARY DAMAGES AND ATTORNEY’S FEES.13

The basic issue to be resolved is whether petitioner’s transfer from the Bacolod City Branch to the
Iloilo City Branch was valid.

Petitioner contends that her transfer was never discussed by the parties at the start of her
employment. Thus, it should only be done with her consent. She adds that the transfer was
unnecessary, inconvenient and prejudicial.

Respondents counter that petitioner’s transfer was made in good faith and in compliance with
management’s policy to reshuffle or transfer its employees. They also argue that petitioner will be
given transportation and lodging allowance, hence, she will not incur any additional expense.1avvphi1

As it is, the question raised in this recourse is basically one of fact. Hornbook is the rule that in a
petition for review, only errors of law may be raised.14 Furthermore, factual findings of administrative
agencies that are affirmed by the Court of Appeals are conclusive on the parties and not reviewable
by this Court. This is so because of the specialized knowledge and expertise gained by these quasi-
judicial agencies from presiding over matters falling within their jurisdiction. So long as these factual
findings are supported by substantial evidence, this Court will not disturb the same. 15

In this case, the Labor Arbiter, the NLRC, and the Court of Appeals were unanimous in their factual
conclusions that petitioner’s transfer from the Bacolod City Branch to the Iloilo City Branch was valid
and that she was not illegally dismissed. We sustain such findings.

Jurisprudence recognizes the exercise of management prerogative to transfer or assign employees

from one office or area of operation to another, provided there is no demotion in rank or diminution of
salary, benefits, and other privileges, and the action is not motivated by discrimination, made in bad
faith, or effected as a form of punishment or demotion without sufficient cause. 16

To determine the validity of the transfer of employees, the employer must show that the transfer is not
unreasonable, inconvenient, or prejudicial to the employee; nor does it involve a demotion in rank or a
diminution of his salaries, privileges and other benefits. Should the employer fail to overcome this
burden of proof, the employee's transfer shall be tantamount to constructive dismissal. 17
As respondents creditably explained, and as admitted by petitioner herself, respondents have
standing policies that an employee must be single at the time of employment and must be willing to
be assigned to any of its branches in the country. Petitioner’s contention that upon getting married,
she no longer bound herself to be assigned to any of respondents’ branches in the country is
preposterous. Just because an employee gets married does not mean she can already renege on a
commitment she willingly made at the time of her employment particularly if such commitment does
not appear to be unreasonable, inconvenient, or prejudicial to her. Respondents claimed that travel
time from the Bacolod City Branch to the Iloilo City Branch will only take about an hour by boat and
that they were even willing to defray petitioner’s transportation and lodging expenses. Petitioner never
disputed these matters. There is no showing either that petitioner’s transfer was only being used by
respondents to camouflage a sinister scheme of management to rid itself of an undesirable worker in
the person of petitioner.18

We have long stated that the objection to the transfer being grounded solely upon the personal
inconvenience or hardship that will be caused to the employee by reason of the transfer is not a valid
reason to disobey an order of transfer.19 Such being the case, petitioner cannot adamantly refuse to
abide by the order of transfer without exposing herself to the risk of being dismissed. Hence, her
dismissal was for just cause in accordance with Article 282(a)20 of the Labor Code. Consequently,
petitioner is not entitled to reinstatement or separation pay and backwages. 21

WHEREFORE, the petition is DENIED. The Decision dated September 16, 2005 and the Resolution
dated April 21, 2006 of the Court of Appeals in CA-G.R. SP No. 82553 which affirmed the Resolution
dated October 23, 2003 of the National Labor Relations Commission (NLRC) in NLRC Case No. V-
000177-2000, are AFFIRMED with the MODIFICATION that the award of separation pay is deleted.

SO ORDERED.