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LIDUVINO M. MILLARES v. NLRC

FACTS:

Respondent Paper Industries Corporation of the Philippines (PICOP) suffered financial losses in 1992 due to government regulations on logging and the economic crisis. As a result, they implemented a retrenchment program and terminated the services of petitioners, who held various positions in the company. Petitioners received separation pay, but they believed that the allowances they regularly received during their employment should have been included in the computation of their separation pay. The allowances in question were the Staff/Manager's Allowance, Transportation Allowance, and Bislig Allowance. Petitioners claimed that these allowances should be considered part of their wages and therefore included in the computation of their separation pay. The Executive Labor Arbiter agreed with petitioners and ordered PICOP to pay separation pay differentials. However, the National Labor Relations Commission (NLRC) reversed the decision, stating that the allowances did not form part of the salary base used in computing separation pay. Petitioners filed a petition for certiorari, arguing that their allowances were necessary and indispensable for their existence and subsistence and should be included in the computation of their separation pay.

ISSUES:

  1. Whether the allowances received by petitioners should be included in the computation of their separation pay.

  2. Whether the allowances fall under the definition of "wages" as provided in the Labor Code.

RULING:

  1. The Supreme Court held that the allowances should not be included in the computation of petitioners' separation pay. The Court agreed with the National Labor Relations Commission (NLRC) that the allowances did not form part of the salary base used in computing separation pay. The NLRC's ruling was based on the finding that the allowances were contingency-based and not included in the employees' salaries. The Court also noted that the cases cited by the Executive Labor Arbiter, which were applicable to illegal dismissal cases where separation pay was granted in lieu of reinstatement, were not applicable to the present case. The Court concluded that the allowances should be excluded in the computation of separation pay.

PRINCIPLES:

  • In case of retrenchment to prevent losses, the employer has an obligation to grant affected employees separation pay equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher. (Art. 283, Labor Code)

  • The term "pay" as used in Art. 283 is correlated with the definition of "wage" provided in Art. 97 of the Labor Code.

  • "Wage" refers to the remuneration or earnings, whether fixed or ascertained on a time, task, piece, or commission basis, which is payable by an employer to an employee under a contract of employment for work done or services rendered. (Art. 97, Labor Code)

  • Allowances may be excluded in the computation of separation pay if they are contingency-based and not included in the employees' salaries.

  • Cases applicable to illegal dismissal where separation pay is granted in lieu of reinstatement may not be applicable to cases involving retrenchment and computation of separation pay.