G.R. No. 85073 August 24, 1993
DAVAO FRUITS CORPORATION, petitioner, vs. ASSOCIATED LABOR UNIONS (ALU) for in behalf of all the rank-and-file workers/employees of DAVAO FRUITS CORPORATION and NATIONAL LABOR RELATIONS COMMISSION, respondents.

FACTS

On December 28, 1982, respondent Associated Labor Unions (ALU), on behalf of the rank-and-file employees of petitioner Davao Fruits Corporation, filed a complaint before the Ministry of Labor and Employment for “Payment of the Thirteenth-Month Pay Differentials.” The union sought to recover the 1982 thirteenth-month pay differential, equivalent to payments for sick, vacation, and maternity leaves, premiums for work on rest days and special holidays, and pay for regular holidays. The union alleged that the petitioner, disregarding company practice since 1975, excluded these items from the 1982 thirteenth-month pay computation. Petitioner claimed it had erroneously included these items in previous years due to a doubtful question of law, discovering the mistake only in 1981 after the Supreme Court’s decision in San Miguel Corporation v. Inciong. The Labor Arbiter ruled in favor of the union, ordering payment of the differential. The NLRC affirmed the decision. Petitioner elevated the case to the Supreme Court via a petition for review, which the Court treated as a special civil action for certiorari.

ISSUE

Whether, in the computation of the thirteenth-month pay under P.D. No. 851, payments for sick, vacation, and maternity leaves, premiums for work on rest days and special holidays, and pay for regular holidays may be excluded, regardless of a long-standing company practice of including them.

RULING

The Supreme Court dismissed the petition and affirmed the NLRC decision. The Court held that under P.D. No. 851 and its implementing rules, specifically the Supplementary Rules and Regulations issued on January 16, 1976, “basic salary” for thirteenth-month pay computation excludes payments such as those for leaves, holiday premiums, and similar remunerations, as these are considered fringe benefits. However, the Court ruled that from 1975 to 1981, petitioner had voluntarily and continuously included these items in computing the thirteenth-month pay, thereby establishing a company practice favorable to employees. This practice ripened into benefits enjoyed by the employees. Citing Section 10 of the Rules Implementing P.D. No. 851 and Article 100 of the Labor Code, the Court emphasized that existing benefits cannot be unilaterally reduced, diminished, discontinued, or eliminated by the employer. Thus, petitioner could not exclude these items in 1982 despite the legal interpretation that they are ordinarily excludable. The principle of solutio indebiti was deemed inapplicable.