XYZ Law Offices

MEMORANDUM

To:

MR. X
Vice President, General Counsel, and Corporate Secretary
ABC (Philippines), Incorporated.

From:

Atty. Z

Re:

COMPANY LOANS & CAR PLANS

Date:

31 JULY 2013

We refer to your e-mail of 16 July 2013 where you seek our opinion on whether
certain company loans granted to the employees are considered benefits, the withdrawal
of which will violate the non-diminution of benefits principle.
You represented to us that the employment contracts of some employees of ABC
(Philippines), Incorporated (the Company) have a stipulation entitling them to avail of
a car loan and a housing loan (collectively, the Loans), with the following interest rates
and payment terms:
Car loan

12.5% interest rate

Maximum repayment
period
Housing loan

10 years
9.8% interest rate

Maximum repayment period

25 years

We understand from you that, for some other employees, their employment
contracts have stipulations entitling them to avail of a Car Plan, where 60% of the amount
is for the account of the Company and 40% for the employee. However, the sample
employment contract that you provided to us does not mention anything about the Car
Plan.
You also furnished us with copies of the following: (1) sample Employment
Contract, (2) the Employee Benefits Package, (3) the Car Plan Program, and (4) the Car
Plan Agreement. For purposes of this Memorandum, we assume that both the Car Plan

Agreement and Employment Contract are the standard documents you use for employees
to whom the Loans and the Car Plan are given; and, the Employee Benefits Package is
the same as the Annex B referred in the Employment Contract.
According to you, there is an directive to eliminate company loans.
You now seek our opinion on the following:
1. Whether the Loans are considered benefits;
2. Whether the Car Plan is a benefit;

We reply as follows.
On the non-elimination and non-diminution
of supplements or benefits principle under
Article 100 of the Labor Code.
In this jurisdiction, there is no clear demarcation line between a supplement and a
benefit.
The benefit or privilege given to the employee that constitutes an extra
remuneration over and above his basic or ordinary earning or wage is properly
denominated as a supplement.1
Meanwhile, a benefit is in essence, a pecuniary entitlement or any material thing
"gratuitously" granted and paid on account of an employer-employee relationship, but
certainly not on account of the sufferance of an employee or of his being required or
permitted to work, because in the latter case, the pecuniary entitlement or material grant
will be better or correctly denominated to be within the statutory purview of
compensation or remuneration.2
From their respective definitions, a supplement and a benefit share a common
characteristic in that both are paid over and above and separate from the salary, wage, or
compensation. As shown below, this similarity has led the Supreme Court to use the
terms interchangeably.

SLL International v. National Labor Relations Commission, G.R. No. 172161, March 2, 2011; States
Marine and Royal Line Inc. v. Cebu Seamens Association Inc., G.R. No. L-12444, February 28, 1963;
Atok Big Wedge Mining Co. v. Atok Big Wedge Mutual Benefit Association, G.R. No. L-5276, March 3,
1953.
2

United Lumber and General Workers of the Philippines v. Davao Fruits Corporation, National
Conciliation and Mediation Board Case No. VA-0001-91, July 5, 1991.

Whatever distinction one may put between a supplement and a benefit is

irrelevant for purposes of the application of the principle of non-elimination or nondiminution of supplements or benefits, as the principle of non-elimination or nondiminution of supplements or benefits prohibits the withdrawal or reduction by employers
of any such benefits, supplements or payments as provided under existing laws,
individual agreements, or collective bargaining agreements between workers and
employers or voluntary employer practice or policy.3 The Supreme Court has
traditionally anchored this principle on Article 100 of the Labor Code, which reads:
Article 100. Prohibition against elimination or diminution
of benefits. - Nothing in this Book shall be construed to
eliminate or in any way diminish supplements, or other
employee benefits being enjoyed at the time of
promulgation of this Code. [Underscoring supplied]
Thus, because the protection against elimination or diminution of the foregoing
provision covers both supplements and benefits, one is not distinguishable from the
other.
The Supreme Court has interpreted Article 100 beyond its literal meaning and has
repeatedly extended its protection beyond its express provision.
A close reading of the article would seem to suggest that its twin principles of
non-elimination and non-diminution of supplements or benefits apply only to those being
enjoyed at the time of the promulgation of the Labor Code, which was in 1974, and,
does not purport to apply to those given after 1974.4 As such, it would seem that
supplements and benefits given after 1974 do not come under the articles mantle of
protection.
This notwithstanding, the Supreme Court, in a long succession of cases, has
pushed the articles efficacy beyond its clear frontiers and has consistently upheld its
applicability to supplements or benefits granted after 1974. In all its ruling on the article,
the Supreme Court did not distinguish a supplement from a benefit, and used them rather
interchangeably.
As mentioned earlier, the article has been utilized as the legal anchor for the
declaration of the invalidity of employers acts deemed to have eliminated or diminished
the employees supplements or benefits, to wit:

Republic Planters Bank v. National Labor Relations Commission, G.R. No. 117460, January 6, 1997;
Davao Fruit Corporation v. Associated Labor Union, G.R No. 85073, August 24, 1993.
4

See Apex Mining Company v. National Labor Relations Commission, G.R. No. 86200, February 25,
1992.

Article 100 of the Labor Code 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. 5 [Underscoring
supplied]
According to the Supreme Courts pronouncements, the rule against diminution of
supplements or benefits applies if it is shown that (1) the grant of the benefit is based on
an express policy or has ripened into a practice over a long period of time; (2) that the
practice is consistent and deliberate; and (3) the practice is not due to error in the
construction or application of a doubtful or difficult question of law.6
Company practice is a custom or habit shown by an employers repeated,
habitual, customary or succession of acts of similar kind by reason of which such gains
the status of a company policy that can no longer be disturbed or withhold.7 Neither the
Labor Code nor the rulings of the Supreme Court provide a hard and fast rule which may
be used and applied in determining whether a certain act of the employer may be
considered as having ripened into a practice which, having elevated to such status, may
this be accorded the protection of Article 100.
As regards the length of time a certain act should have been done in order for it to
constitute voluntary employer practice which cannot be unilaterally withdrawn by the
employer, jurisprudence has likewise not laid down a definitive rule on a specific
minimum number of years. A quick survey of the pertinent decisions of the Supreme
Court would more or less give us an idea on the criteria used to ascertain the existence of
a binding and enforceable company practice:

In the case of Philippine Appliance Corporation v.

Court of Appeals,8 the Supreme Court ruled that to
constitute company practice, the act referred to as such
must have been done by the employer for a considerable
period of time. Where the CBA signing bonus was granted
only once during the 1997 CBA negotiation, the same
cannot be considered as having ripened into a company
practice.
5

Central Azucarera de Tarlac v. Cetnral Azucarera de Tarlac Labor Union, G.R. No. 188949, July 26,
2010; Davao Fruit Corporation v. Associated Labor Union, G.R No. 85073, August 24, 1993; Liberty Flour
Mills Employees v. Liberty Flour Mills, G.R. Nos. 58768-70, December 29, 1989; Tiangco v. Leogardo,
G.R. No. L-57636, May 16, 1983.
6

Id.

Joselito G. Chan, The Labor Code of the Philippines Annotated 507 (2009 Revised Edition).

G.R. No. 149434, June 3, 2004.

In the case of Sevilla Trading Company v. AVA

Semana,9 the Supreme Court considered the petitioners
practice of including non-basic benefits such as paid leaves
for unused sick leave and vacation leave in the computation
of the employees 13th-month pay for at least 2 years as a
voluntary act which had ripened into a company practice
that cannot be peremptorily withdrawn.
In the case of Davao Fruits Corporation v.
Associated Labor Union,10 the company practice of freely
and continuously including in the computation of the 13thmonth pay those items that were expressly excluded by the
law lasted for 6 years. The Supreme Court ruled that such
act was favorable to the employees and has ripened into a
practice that could not be reduced, diminished,
discontinued or eliminated.
In the case of Davao Integrated Port Stevedoring
Services v. Abarquez,11 the employer has for 3 years and 9
months approved the commutation to cash of the unenjoyed portion of the sick leave with pay benefits of its
intermittent workers. The Supreme Court ruled that such
act has already ripened into a company practice which can
no longer be withdrawn.
In the case of Tiangco v. Leogardo,12 the employer
carried on the practice of giving a fixed monthly
emergency allowance from November 1976 to February
1980, or a period of 3 years and 4 months. The Supreme
Court ruled that the same has already ripened into a
company practice which cannot be peremptorily and
unilaterally withdrawn by the employer without violating
Article 100 of the Labor Code.
The foregoing jurisprudence seems to suggest that the shortest period of time,
within which an employee benefit was continuously given, is two (2) years.

G.R. No. 152456, April 28, 2004.

10

G.R. No. 85073, August 24, 1993.

11

G.R. No. 102132, March 19, 1993.

G.R. No. L-57636, May 16, 1983.

12

Whether a company practice was intentional or deliberate on the part of the

employer may be logically inferred from the peculiar circumstance obtaining in each
case. By way of example, in Republic Planter Bank v. National Labor Relations
Commission,13 the Supreme Court ruled that employers continued policy of granting
gratuity benefits to its retiring officers even after the expiration of the collective
bargaining agreement is indicative that the policy was consistent and deliberate . Thus,
under such circumstances, the granting of the gratuity pay may be deemed to have
ripened into a company practice or policy which can no longer be peremptorily
withdrawn.
The non-elimination and non-diminution of benefits principle will, however, not
apply if the practice is due to error in the construction or application of a doubtful or
difficult question of law, following the general rule that if a past error is being corrected,
no vested right may be said to have arisen therefrom nor any diminution of supplements
or benefits may have resulted by virtue of the correction thereof.14
However, in Asis v. Minister of Labor15 and in Lexal Laboratories v. Court of
Industrial Relations,16 the Supreme Court ruled that no company practice could ripen in
situations where certain benefits are granted only under certain specified circumstances.
Consequently, even if the employee has been enjoying certain benefits for quite a long
period of time, if the circumstance have changed which no longer justify the continuation
of the grant of said benefits, the removal thereof does not certainly constitute a violation
of the non-elimination or non-diminution of supplements or benefits principle.
On whether the Loans and the Car Plan are
protected by Article 100 against
elimination or diminution.
The fine line between a supplement and a benefit and the close similarities in their
characteristics make it increasingly difficult for us to make a definitive categorization of
the Loans and the Car Plan to either of the two. One may safely take the position that the
Loans and the Car Plan qualify as supplements because they are given to the employee
over and above his basic or ordinary earning or wage and constitute extra remuneration.
Meanwhile, one can take the equally sound position that they qualify as benefits because
they are material things "gratuitously" granted and paid on account of an employeremployee relationship, but separate from the salary, wage, or remuneration.

13

Supra note 2, at 2.

14

Globe Mackay Cable and Radio Corporation v. National Labor Relations Commission, G.R. No. 74156,
June 29, 1988.
15

G.R Nos. 58094-95, March 15, 1989.

16

G.R. No. L-24632, October 26, 1968.

Be that as it may, whether the Loans and the Car Plan are supplements or benefits
does not make much difference and is decidedly insignificant, because in either case they
would still be protected by Article 100 against elimination or diminution.
On the basis of the documents you furnished us, we are of the view that the Loans
and the Car Plan, whether they are supplements or benefits, are protected by Article 100
of the Labor Code.
First, the labeling of the Employment Contracts Annex B, which enumerates the
loans available to the employees, as Benefit Practice is an express admission on the
Companys part that it considers the grant of the Loans as a company practice and as an
employee benefit.17
The date stated in Annex B As of January 2010 means that the Loans has
been in place for at least three (3) years, to this date. This period of time, within which
they have been made available to the employees, is sufficiently long for purposes of the
protection of Article 100, since the shortest period for a company practice to warrant the
articles protective mantle, according to the rulings of the Supreme Court above, is two
(2) years.
As regards the Car Plan, the Car Plan Program indicates that the same took effect
in 1 December 2010. Thus, to this date, the Car Plan has been available to the employees
for at least three (3) years, a period long enough to merit Article 100s prohibition on its
elimination and diminution.
Second, from our reading of the Employment Contract and the Car Plan Program,
we see that the grant of these Loans and Car Plan is intentional and deliberate on the part
of the Company. Otherwise stated, there is nothing in the Employment Contract and the
Car Plan Program that indicates that the grant was unintentional or not deliberate.
Third, no doubtful or difficult question of law is involved in this case. Thus, there
is no showing that the Loans and the Car Plan were given because of an erroneous
interpretation of a doubtful or difficult question of law.
Finally, we found no indication that the Loans and the Car Plan were granted only
under certain specified circumstances, the cessation of which will no longer justify the
continuation of their grant, in accordance with the rulings in Axis18 and Lexal
Laboratories.19

17
18

19

See CTOM IT Division Employee Benefits Package.

Supra note 13, at 5.
Supra note 14, at 5.

For these reasons, it is our considered opinion that the Loans and the Car Plan are
protected by Article 100 of the Labor Code, whether they are supplements or benefits.