Subject: BUSINESS LAW – 146

LABOR LAWS and SOCIAL LEGISLATION

Module 1. Topic 1: General Provisions

Introduction: This topic introduces the Labor Code of the

Philippines, Declaration of Basic Policy, the
constitutional Provisions on labor and the
construction in favor of labor.

Objectives: The students get introduce to basic

principle of labor laws and social legislation,
constitutional provisions of labor, the
declaration of basic policy and the interpretation
or construction in favor of labor.

Discussion:

Article 1: NAME OF DECREE. – This Decree shall be known as the

“Labor Code of the Philippines.”

This Labor Code is the principal labor law of the country. It

contains most of our labor laws, such as those illegal recruitment,
wages of workers, rights of union members, collective bargaining, and
employment termination, it also deals with the rights of employers,
such as the right to make and enforce reasonable regulations, to
reorganize and economize, and to lay off lazy and undisciplined
employees.

The Labor Code has gathered in one volume some 60 pieces of

law which were in force when the codification began in 1968, such as
the Eight-hour Labor law, the Minimum Wage law, and the Termination
Pay Law. But even now there are labor laws that are not found in the
Labor Code. Examples are the laws on the thirteenth month pay, on
paternity leave, and on sexual harassment.

This code is a piece of social legislation which is a broad

category of laws that protect or promote the welfare of society or
segments of it in furtherance of social justice. Examples are the social
security law, the agrarian reform law, and the law on migrant workers.

Labor legislation is broadly classified into labor standards and

labor relations. Labor standards law sets out the minimum terms,
conditions and benefits of employment that employers must provide or
comply with and to which employees are entitled as a matter of legal
right. The laws on wages and work hours, on safety and health of
employees, on employment benefits such as paid leaves and medical
services for work-connected injuries – these are examples of labor
standards laws. Labor relations law, on the other hand, defines the
status, rights, and duties, as well as the institutional mechanisms that
govern the individual and collective interactions between employers,
employees and their representatives. Unionization, negotiation, and
dispute settlements fall in the area of labor relations.

The aim and the reason and therefore the justification of labor
laws is social justice. Defined by Mr. Justice Laurel, “social justice is
the humanization of laws and the equalization of social and economic
forces by the State so that justice in its rational and objectively
secular conception may at least be approximated.” The present
Constitution says that “the State shall promote social justice in all
phases of national development.” Furthermore, “the State affirms labor
as a primary social economic force.” Therefore, “it shall protect the
rights of workers and promote their welfare.”

While social justice is the reason for existence of labor laws,

their basis or foundation is the police power of the state. It is the
power inherent in a Government to make laws, within constitutional
limits, to promote the order, safety, health, morals, and general
welfare of society.

Article 2. DATE OF EFFECTIVITY.– This code shall take effect six (6)
months after its promulgation.

On Labor Day, May 1, 1974, a draft labor code was signed into
law, with much funfare, by the martial law President as his
Presidential Decree No. 442. But because further revisions were
desired, the effectivity date was deferred to November 1, 1974. When
that day came, Ferdinand E. Marcos, the dictatorial President, issued
his Decree No. 570-A to change numerous significant provisions of the
Code. The decree was signed, dated and issued on that day of
November 1. The changes it made also took effect on that same day –
a glaring example of dictatorial law making under the Marcos regime.

When the dictator was toppled in 1986, President Corazon C.

Aquino did not repeal the Code but made necessary changes,
especially through R.A. No. 6715 (March 21, 1989). But amendments
have not stopped. By mid-1999, the Labor Code has been expressly
amended by eighteen Presidential Decrees, eleven Executive Orders,
four Batas Pambansa, and thirteen Republic Acts.

Proposals to amend the Code still await at the legislative mill but
they are not milled so easily as before. While labor laws cannot be
static, neither should they alwaysbe in a state of flux. The “rules of the
game,” especially as viewed by investors, must somehow settle down.
Stability is a necessity.

ART. 3. DECLARATION OF BASIC POLICY. – The State shall afford

protection to labor promote full employment, ensure equal work
opportunities regardless of sex, race or creed and regulate the
relations between workers and employers. The State shall assure the
rights of workers to self-organization, collective bargaining, security of
tenure, and just humane conditions of work.

The two-sentence declaration of basic policy in Article 3 hardly

mentions the employers except in the phrase “regulate the relations
between workers and employers. “All other phrases pertain to rights of
workers. But it should not be deduced that the basic policy is to favor
labor to prejudice capital. The plain reality is that both sectors need
each other. They are interdependent. Hence the better understanding
is that the basic policy is to balance or to coordinate the rights and
interests of both workers and employers. Article 3 of the Code, written
in the early 1970s, should be viewed in the light of the 1987
Constitution which specifically recognizes “shared responsibility”. It
states:

The State shall promote the principle of shared

responsibilities between workers and employers and the
preferential use of voluntary modes in settling disputes, including
conciliation, and shall enforce their mutual compliance therewith
to foster industrial peace.

The State shall regulate the relations between workers and

employers, recognizing the right of labor to its just share in the
fruits of production and the right of enterprises to reasonable
returns on investments, and to expansion and growth. (Art. XIII,
Sec. 3)

Like other laws initiated by Congress (called “statutes”), the

Labor Code is an instrument to carry out constitutional mandates. If
there should be conflict between constitutional provisions and those
of the Labor Code, the Constitution shall prevail as it is the highest law
of the land.

The basic policy declared in Art. 3 of the Code is in line with the
constitutional commands. The 1987 Constitution has at least 19
separate clusters of provisions that guarantee the rights of workers,
protect their special interest, or promote their general welfare.

The seven basic rights of workers specifically guaranteed by the

Constitution are:

 the right to organize;

 to conduct collective bargaining or negotiation with
management;
 to engage in peaceful concerted activities including strike in
accordance with law;
 to enjoy security of tenure;
 to work under humane conditions;
 to receive a living wage;
 and to participate in policy and decision-making processes
affecting their rights and benefits as may be provided by law.
(Sec. 3, Art. XIII.)
ART. 4. CONSTRUCTION IN FAVOR OF LABOR. – All doubts in the
implementation and interpretation of the provisions of this Code,
including its implementing rules and regulations, shall be resolved in
favor of labor.

The policy is to apply the Code to a greater number of employees

to enable them to avail of the benefits under the law, in line with the
State’s desire to give maximum aid and protections to labor.

Court decisions adopt a liberal approach that favors the exercise

of labor rights.

But it is not correct to think that the aim of the law is always to
favor labor. The mandate under Art. 4 is simply to resolve doubt, if any,
in favor of labor. If there is no doubt in implementing and interpreting
the law, labor will enjoy no built-in advantage and the law will have to
be applied as it is.

MANAGEMENT RIGHTS
It is a fundamental state policy, according to the Constitution, to
encourage private enterprise. The private sector plays an
indispensable role in nation-building, hence the State provides
incentives to needed investments. Apart from those under the Bill of
Rights, the rights which private enterprise enjoys under the
Constitution are the right to reasonable return on investments and the
right to expansion and growth. The Supreme Court declared: “Except
as limited by special laws, an employer is free to regulate, according
to his own discretion and judgment, all aspects of employment,
including hiring, work assignments, working methods, time, place and
manner of work, working regulations, transfer of employees, work
supervision, layoff of workers and the discipline, dismissal ad recall of
workers”. (San Miguel Brewery Sales vs. Ople, G.R. No. 53615,
February 8, 1989.)

Management rights, like those of labor, deserve protection. If

protection to labor means oppression of capital, this clearly will
violate the very first guarantee under the Bill of Rights which states:

No Person shall be deprived of life, liberty, or property

without due process of law, nor shall any person be denied the
equal protection of the laws.

But caution is needed. In the field of labor-management relations

the words “management prerogative” may be used, but should be used
advisedly. Management “prerogative: is liable to be misunderstood and
to mislead because a prerogative mean “exclusive right or privilege…;
exclusive right and power to command, decide, rule, or judge”.
Prerogative connotes power or privilege enjoyed exclusively, so
exclusive that it excludes sharing and scrutiny. It is noteworthy that
the Philippine Constitution nowhere uses the word “prerogative” since
its exclusive character contradicts the principle of “shared
responsibility” of employers and workers. “Prerogative” is used in the
Labor Code, but it is in a definition crafted long before the 1987
Constitution.

Courts may look into the employer’s exercise of a management

prerogative if it is clearly shown to be tainted with grave abuse of
discretion.

ART. 5. RULES AND REGULATIONS. – The Department of Labor and

Employment, other government agencies charged with the
administration and enforcement of this Code or any of its parts shall
promulgate the necessary implementing rules and regulations. Such
rules and regulations shall become effective fifteen (15) days after
announcement of their adoption in newspapers of general circulation.

The Department of Labor and Employment is the lead agency in

enforcing labor laws and it possesses rule-making power in the
enforcement of the Code.

But a rule or regulation that exceeds the department’s rule-

making authority is void. The rule-making power is exceeded when the
implementing rule changes, wittingly or unwittingly, the content or
meaning of the law which the rule aims to implement. The
implementing rule, in other words, must be subordinate to the law
itself.

For instance, in the Rules and Regulations implementing Art. 94

of the Labor Code, and Policy Instructions No. 9, the Labor Secretary
excluded monthly-paid employees from entitlement to holiday pay,
although the law gives it to “every worker”. The Court ruled that those
rules and regulations as well as the policy instructions are null and
void. They were promulgated by the Labor Secretary in excess of his
rule-making authority or ultra vires (beyond one’s power). An
implementing rule cannot change the law.

ART. 6. APPLICABILITY. – All rights and benefits granted to workers

under this Code shall, except as may otherwise be provided herein,
apply alike to all workers, whether agricultural or non-agricultural.

The question has arisen whether the Code applies, and the
jurisdiction of the Department of Labor extends, to government
corporations. The ruling is that the Labor Code applies to a
government corporation which has been incorporated under the
Corporation Code. The 1985 ruling in National Housing Corporation vs.
Juco no longer stands. This is because the present (1987) Constitution
provides that “the Civil Service embraces all branches, subdivisions,
instrumentalities, and agencies of the Government, including
government-owned or –controlled corporations with original charters.”
The “corporations with original charters” mean the government
corporations not organized under our general incorporation statute,
the Corporation Code.

Furthermore, Art. 276 of the Labor Code provides that the “the
terms and conditions of employment of all government employees,
including employees of government-owned and controlled
corporations, shall be governed by the Civil Service Law, rules and
regulations…”

Accordingly, when the employees of a government agency, such

as the SSS, declare a strike, the employer may invoke the jurisdiction
of regular court, (instead of the National Labor Relations Commission)
to secure an order to stop the strike.

Even when a government agency enters into contract with a

private entity, the money claims against the agency must be pursued
or enforced through the Commission on Audit instead of the NLRC.

But it should be pointed out that Title II, Book IV of this Code
does apply to government employees compulsorily covered by the
GSIS. (see Art. 167).

Assessment:

1. What are the objectives of Philippine Labor Laws?

2. Are our labor laws biased in favor of labor and against capital?
3. Does the Labor Code apply to Government employees or only
those in the private sector?
4. Give at least 5 constitutional provisions in relation to labor.

Module 2 Topic 2: Hours of Work, Weekly Rest Periods, Holidays,

Service
IncentiveLeaves and Service charge and Wages

Introduction: This topic introduces the concept of

employer-employee relationship, the working
conditions and rest periods, including hours
work, Weekly Rest Period, Holidays, Service
Incentive Leave, Service charge and Wages.

Objectives: The students get introduced to the concept

of employer-employee relationship, how to
compute hours worked, right to weekly rest day,
holidays and minimum wage.

Discussion:

ART. 82 COVERAGE. – The provisions of this Title shall apply to

employees in all establishments and undertakings whether for profit or
not, but not to government employees, managerial employees, field
personnel, members of the family of the employer who are dependent
on him for support, domestic helpers, persons in the personal service
of another, and workers who are paid by results as determined by the
Secretary of Labor in appropriate regulations.
 As used herein, “managerial employees” refer to those whose
primary duty consists of the management of the establishment in
which they are employed or of a department or subdivision thereof,
and to other officers or members of the managerial staff.

“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.

EMPLOYER-EMPLOYEE RELATIONSHIP
The present Book III of the Code deals with conditions or
standards of employment. Quite obviously, those standards apply only
if there exists between the parties the relationship of employer and
employee. Unfortunately, some businessmen, the Supreme Court
noted, try to avoid creating employer-employee relationship in their
enterprises because it creates obligations related to social security,
workmen’s compensation, security of tenure, and unionization, and, of
course, the benefits under Title I of this Book III. The Code itself is not
of much help in clarifying the terms. Art. 97 says “employee includes
any individual employed by an employer,” and an “employer includes
any person acting directly or indirectly in the interest of an
employer…” Obviously, these are not definitions; they are merely
circular semantics clarifying nothing.

It is court decisions that give some guides in determining the

existence of employer-employee relationship by considering the
following elements:

(a)The selection and engagement of the employee;

(b)The payment of wages;
(c)The power of dismissal; and
(d)The employer’s power to control the employee with respect to
the means and methods by which the work is to be
accomplished. The so-called “control test” is the most
important element.

Considering these elements, we may define an “employee” as a

natural person who is hired, directly or indirectly, by a natural or
juridical person to perform activities related to the business of the
“hirer” who, directly or through an agent, supervises or controls the
work performance and pays the salary or wage of the “hiree”.

Appointment letters or employment contracts, payrolls,

organization charts, SSS registration, personnel lists, as well as
testimony of co-employees, may serve as evidence of employee status.

The existence of an employer-employee relationship cannot be

avoided simply by repudiating it in the employment contract. It cannot
say that the employee is an “independent contractor” when the terms
of the agreement clearly show otherwise. The employment status of a
person is defined and prescribed by law and not by what the parties
say it should be. In determining the status of the worker, the “four-fold
test” on employment, mentioned above, has to be applied.

The taxi or jeepney drivers under the “boundary” system are

employees of the taxi or jeepney owners/operators; so also are the
passenger bus drivers and conductors.

Contractor

A contractor is not an employee. He is a businessman, with

capital of his own, who operates independently from his principal, i.e.,
the person with whom he enters into a contract, to accomplish a job,
work, or service. If he hires workers to do the project, they are his
employees and not those of the principal.

But if the so-called contractor is not bona fidebecause he merely

recruits and supplies workers to do a job, work or service for and
under the control of the principal, then he is not a job contractor.
Since he only supplies labor to the principal, his business or his
commitment is not to accomplish jobs or projects but to gather people
and send them to the job owner. Correctly, therefore, he is called a
labor-only contractor. He makes business out of joblessness of people.
It is even wrong to call him a “contractor” because he does not
undertake to perform or complete a job, work, or service within a
definite or predetermined period. And he is not an independent
contractor because the people he hires do not work for and under the
supervision and control of the principal. The principal, therefore, is the
employer and the so-called contractor is considered merely as an
agent, a representative, of the businessman-principal.

The effect of principal-contractor arrangement, regarding

payment of wages, is taken up under Arts. 106 and 107.

Where it is shown that the relationship between the parties is

that of employer-and-employee, the next question that usually arises is
about employment status? The kinds of employment are explained in
Articles 280 and 281.

EXCLUDED EMPLOYEES

Art. 82 mentions the persons who are not entitled to the

employment benefits under Title I, covering Art. 82 through 96. Among
the employee excluded from coverage are managers and members of
the managerial staff. They are enumerated in the Implementing Rules
of the Code.

A supervisor is part of the managerial staff and therefore not

entitled to overtime pay and other benefits under Art. 83 through 96.

Another definition of “managerial employee” is found in Art. 212

(m) in connection with labor relations. That definition does not include
members of managerial staff; hence, a supervisor is not barred from
union activities (see Art. 245), but the same supervisor is denied the
benefits under Art. 83 through 96. The exclusion in this Art. 82 is
therefore broader than the scope of disqualification from union
membership under Book V of the Code. In effect, more people are
excluded by law from economic benefits than from unionization right.

Another excluded group, the field personnel, are employees

whose work or service hours are not or cannot be effectively
monitored by the employer.

Also excluded are workers paid by result. Their pay is dependent

on unit or product finished or work completed and not on time spent in
working. Piece-rate method is preferred where the work process is
repetitive and output is standardized and easily countable. In the task
or pakyawmethod the payment is calculated to match the difficulty
and time requirement of the job, as in plowing a given area of land or
painting a building.

Payment by result is a method of computing compensation. It is

not a basis for determining the existence or absence of employer-
employee relationship. One may be paid on result-basis or time-basis
and acquire or not acquire an employee status, depending on whether
the elements of employer-employee relationship are present or not.

Still on exclusion from coverage of Title I, it should be noted that

“government employees” belong to the excluded groups but this
exclusion must refer only to employees of government agencies,
instrumentalities or political subdivisions of government corporations
that are not incorporated under the Corporation Code. By
jurisprudence, employees of government corporations incorporated
under the Corporation Code are covered by the Labor Code. But even
as regards the excluded government employees, it must be noted that,
as a whole, GSIS-covered employees are not excluded from the
employee’s compensation program under Title II, Book IV of the Labor
Code.

MANAGEMENT, GENERALLY, DECIDES EMPLOYMENT CONDITIONS

It should be noted, finally, that this Title I of the Code refers to

“working conditions and rest periods”. What are working conditions
and who determines them? Working conditions refer to the terms and
circumstances affecting the employment of an employee, including
policies, programs, and regulations governing his employment status,
work, and work relationships. The working conditions, as a rule, are
determined by the employer. This authority of management is also
called, quite loosely, “management prerogative”.

It has been ruled that generally, and except as limited by special

laws, an employer is free to regulate, according to his own discretion,
all aspects of employment. These include hiring, work assignments,
working methods, time, place and manner of work, etc. so long as a
company’s 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, the prerogatives will be upheld.
 But, as commented in Art. 4, management “prerogatives” are
subject to restrictions.

ART. 83. NORMAL HOURS OF WORK. – The normal hours of work of any
employee shall not exceed eight (8) hours a day.

Health personnel in cities and municipalities with a population of

at least one million (1,000,000) or in hospitals and clinics with a bed
capacity of at least one hundred (100) shall hold regular office hours
for eight (8) hours a day, for five (5) days a week, exclusive of time for
meals, except where the exigencies of the service require that such
personnel work for six (6) days or forty (48) hours, in which case they
shall be entitled to an additional compensation of at least thirty
percent (30%) of their regular wage for work on the sixth day. For
purposes of this Article, “health personnel” shall include resident
physicians, nurses, nutritionists, dietitians, pharmacists, social
workers, laboratory technicians, paramedical technicians,
psychologists, midwives, attendants and all other hospital or clinic
personnel.

Art. 83 does not say that the normal hours of work is or should be
eight hours but that it shall not exceed eight. Therefore, part-time
work, or a day’s work of less than eight hours, is not prohibited.

Health Personnel

The customary practice of requiring resident physicians to work

for 24 hours a day violates the limitations prescribed by Art. 83 and
would not be permissible even if the resident physicians were paid
additional compensation. It cannot override the purpose of the
limitation which is to safeguard the health and interest of hospital
workers. However, the forty-hour work week will not apply if there is a
training agreement between accredited or approved by appropriate
government agency. In such case there is not employer-employee
relation on account of the approved training program. (Book III, Rule X,
Section 15, of the Rules and Regulations Implementing the Labor
Code.)

The second paragraph applies to health workers in organizations

covered by the Code. Health personnel in government service are
excluded from the coverage of Articles 82 to 96. Their work hours,
night shift differential, and other employment benefits are defined in
R.A. No. 7305, approved on March 26, 1992.

Republic Act No. 5901 Already Repealed

Hospital personnel are no longer entitled to seven days’ pau for a

work week of five days.

Rep. Act No. 5901, known as “An Act Prescribing Forty Hours a
Week of Labor for Government and Private Hospitals or Clinic
Personnel”, enacted on June 21, 1969, has been repealed with the
passage of the Labor Code on May 1, 1974. Policy Instruction No. 54
dated April 12, 1988, proceeds from a wrong interpretation of Rep. Act
No. 5901 and Article 83 of the Labor Code. There is nothing in Art. 83
that supports the assertion that “personnel in subject hospitals and
clinics are entitled to a full weekly wage for seven (7) days if they
have completed the 40-hour/5-day workweek in any given workweek”.
The Secretary of Labor exceeded his authority by including [in P.I. No.
54] two days off with pay in contravention of the clear mandate of the
statute… Police Instructions Np. 54 being inconsistent with and
repugnant to the provision of Articles 83 of the Labor Code, as well as
to Republic Act No. 5901, should be, as it is hereby, declared void.

ART. 84. HOURS WORKED. – Hours worked shall include

(a)all time during which an employee is required to be on duty or

to be ar a prescribed workplace, and
(b)all time during which an employee is suffered or permitted to
work.

Rest periods of short duration during working hours shall be

counted as hours worked.

The implementing Rules in Book III, Rule I provide the guidelines

to determine time worked (therefore, should be paid) or unworked.

Waiting time spent by an employee is considered working time of

waiting is an integral part of his work or if the employee is required or
engaged by an employer to wait. Whether waiting time constitutes
working time depends upon the circumstances of each particular case
and is a question of fact.

ART. 85. MEAL PERIODS. – Subject to such regulations as the

Secretary of Labor may prescribe, it shall be the duty of every
employer to give his employees not less than sixty (60) minutes time-
off for their regular meals.

Under this article the meal period should not be less than 60
minutes, in which case it is time-off or non-compensable time. The
Implementing Rules (Book III, Rule I, Sec. 7) allows the mealtime to be
less than 60 minutes, under specified cases. But such shortened meal
time (say 30 minutes) should be with full pay, and, of course, the time
when the employee cannot eat, because he is still working, should
also be paid.

To shorten meal time to less than 20 minutes is not allowed. If

the so-called “meal time” is less than 20 minutes, it becomes only a
rest period, and, under the same Section 7, is considered work time.

ART. 86. NIGHT SHIFT DIFFERENTIAL. – Every employee shall be

paid a night shift differential of not less than ten percent (10%) of his
regular wage for each hour of work performed between then o’clock in
the evening and six o’clock in the morning.

The night shift differential is attached by law to every work done

between 10:00 PM and 6:00 AM, whether or not this period is part of
the worker’s regular shift.
 If the work done between 10 PM and 6 AM is overtime work for
the employee, then the 10% night shift differential should be based on
his overtime rate.

ART. 87. OVERTIME WORK. – Work may be performed beyond

eight (8) hours a day provided that the employee is paid for the
overtime work an additional compensation equivalent to his regular
wage plus at least twenty-five percent (25%) thereof. Work performed
beyond eight hours on a holiday or rest day shall be paid an additional
compensation equivalent to the rate of the first eight hours on a
holiday or rest day plus at least thirty percent (30%) thereof.

Overtime work is work exceeding eight hours within the worker’s

24-hour workday. And the workday covers a 24-hour period starting
time. Hence, the start and end of a workday are not necessarily the
same as those of a calendar day. If Mr. A, for instance, usually reports
to work at 8:00 am, his workday starts at that time and, 24 hours
thereafter, ends at that time too. Eight am to five pm is his workshift;
eight am to eight am of the next day is his workday. Work on his shift
is not overtime.

Overtime work is extra labor taxing the endurance of the worker,

so it is reckoned eight hours after start of the body’s “work clock”.

The overtime pay is 25%of the regular wage if the work is done
on a regular workday and 30% if on a holiday or rest day. “Wage” is
defined in Art. 97 and “regular wage” in Art. 90. “Regular Base Pay”
excludes money received in different concepts such as Christmas
bonus and other fringe benefits.

Since the overtime work is considered hourly, the pay rate is

computed also on per hour basis. The daily wage is simply divided by
eight to get the hourly base rate. To this will be added the 25% or 30%
extra pay and the result will be multiplied by the number of overtime
hours. If the employee is paid on a monthly salary basis, the daily rate
is obtained by this formula: “monthly salary times 12 divided by the
total number of days considered paid in the year.” The divisor,
incidentally, indicates whether the monthly salary includes or not the
holiday pay required under Art. 94.

ART. 88. UNDERTIME NOT OFFSET BY OVERTIME. – Undertime

work on any particular day shall not be offset by overtime work on any
other day. Permission given to the employee to go on leave on some
other day of the week shall not exempt the employer from paying the
additional compensation required in this Chapter.

An employee’s regular pay rate is lower than the overtime rate.

Offsetting the undertime hours against the overtime hours would result
in undue deprivation of the employee’s extra pay for overtime work.
The situation is even more unacceptable where the undertime hours
are not only offset against the overtime but are also charged against
the accrued leave of the employee. Under this scheme, the employee
is made to pay twice for his undertime hours because the leave is
reduced to that extent while he is made to pay for the undertime hours
with work beyond the regular working hours.

The proper method should be to deduct the undertime hours from

the accrued leave but to pay the employee the overtime compensation
to which he is entitled. Where the employee has exhausted his leave
credits, his undertime hors may simply be deducted from his day’s
wage, but he should still be paid his overtime compensation for work
in excess of eight hours of his workday.

As a rule, the right to overtime pay cannot be waived. The right is

intended for the benefit of the laborers and employees. Any stipulation
that the laborer shall work beyond the regular eight hours without
additional compensation is contrary to law, hence, null and void. But
when the alleged waiver of overtime pay is in consideration of benefits
and privileges which may even exceed the overtime pay, the waiver
may be permitted.

Compressed Work Week

An example of a valid waiver of overtime pay is the compressed

work week. Instead of working six days a week, the employees will
regularly be working only for, say, five days, but each workday
exceeds eight hours because of the workhours taken from the sixth
day. For the hours exceeding eight, the employees waive their
overtime pay because, in return, they will no longer incur transport and
other expenses on a sixth day. Also, the saved time they can use for
their family or other endeavors. Such arrangement is legally allowed
on condition that it is freely agreed upon between the employer and
the employees. Further, the arrangement should not diminish the
employees’ monthly or daily pay or their established employment
benefits.

ART. 89. EMERGENCY OVERTIME WORK. – Any employee may be

required by the employer to perform overtime work in any of the
following cases:

(a)When the country is at war or when any other national or local

emergency has been declared by the National Assembly or the
Chief Executive;
(b)When it is necessary to prevent loss of life or property or in
case of imminent danger to public safety due to an actual or
impending emergency in the locality caused by serious
accidents, fire, flood, typhoon, earthquake, epidemic, or other
disaster or calamity;
(c)When there is urgent work to be performed on machines,
installations, or equipment, in order to avoid serious loss or
damage to the employer or some other cause of similar nature;
(d)When the work is necessary to prevent loss or damage to
perishable goods; and
(e)Where the completion or continuation of the work started
before the eight hour is necessary to prevent serious
 obstruction or prejudice to the business or operations of the
employer.

Any employee required to render overtime work under this Article

shall be paid the additional compensation required in this
Chapter.

ART. 90. – COPUTATION OF ADDITIONAL COMPENSATION. – For

purposes of computing overtime and other additional
remuneration as required by this Chapter, the “regular wage” of
an employee shall include the cash wage only, without deduction
on account of facilities provided by the employer.

ART. 91. RIGHT TO WEEKLY REST DAY. –

(a)It shall be the duty of every employer, whether operating for

profit or not, to provide each of his employees a rest period of
not less than twenty-four (24) consecutive hours after every
six (6) consecutive normal work days.
(b)The employer shall determine and schedule the weekly rest
day of his employees subject to collective bargaining
agreement and to such rules and regulations as the Secretary
of Labor may provide. However, the employer shall respect the
preference of employees as to their weekly rest day when
such preference is based on religious grounds.

If an employee, for religious reasons, prefers a particular day

of the week as his rest day, he should make it known to the
employer in writing at least seven days before the day
preferred. Where, however, the choice of the employee will
prejudice the operations of the undertaking and the employer
cannot normally be expected to resort to other remedial
measures, the employer may so schedule the weekly rest day
that it meets the employee’s choice for at least two days in a
month.

ART. 92. WHEN EMPLOYER MAY REQUIRE WORK ON A REST

DAY. – The employer may require his employees to work on any day:

(a)In caseof actual or impending emergencies caused by serious

accident, fire, flood, typhoon, earthquake, epidemic or disaster
or calamity to prevent loss of life and property, or imminent
danger to public safety;
(b)In cases of urgent work to be performed on the machinery,
equipment, or installation, to avoid serious loss which the
employer would otherwise suffer;
(c)In the event of abnormal pressure of work due to special
circumstances, where the employer cannot be expected to
resort to other measures;
(d)To prevent loss or damage to perishable goods;
(e)Where the nature of the work requires continuous operations
and the stoppage of work may result in irreparable injury or
loss to the employer; and
 (f) Under other circumstances analogous or similar to the
foregoing as determined by the Secretary of Labor.

ART. 93. COMPENSATION FOR REST DAY, SUNDAY OR HOLIDAY

WORK. –

(a)Where an employee is made or permit-ted to work on his

scheduled rest day, he shall be paid an additional
compensation of at least thirty percent (30%) of his regular
wage. An employee shall be entitled to such additional
compensation for work performed on Sunday only when it is
his established rest day.
(b)When the nature of work of the employee is such that he has
no regular work days and no regular rest days can be
scheduled, he shall be paid an additional compensation of at
least thirty percent (30%) of his regular wage for work
performed on Sundays and holidays.
(c)Work performed on any special holiday shall be paid an
additional compensation of at least thirty percent (30%) of the
regular wage of the employee. Where such holiday work falls
on the employee’s scheduled rest day he shall be entitled to
an additional compensation of at least fifty percent (50%) of
his regular wage.
(d)Where the collective bargainingagreement or other applicable
employment contract stipulates the payment of a higher
premium pay than that prescribed under this Article, the
employer shall pay such higher rate.

For work done on rest day, and special holidays or special day,
the employer must pay the employee (1) his regular remuneration, or
100%, and (2) an additional sum (called “premium pay”) of at least 30%
of the regular remuneration.

For employees paid on monthly basis, the first 100% (of the 130)
corresponding to the regular remuneration may or may not be included
in the monthly salary. If it is, then the employee is entitled to collect
only the premium of 30%. If it is not, then the employee has a right to
receive the entire 130%.

An employee’s rest day can be any day of the week. Work on

Sunday, if it is not the employee’s rest day, does not give any extra
pay, unless the law on holiday pay (Art. 94) is applicable.

Under Art. 93 the premium pay for work on a special day is thirty
percent in contrast to the one hundred percent to be paid for a legal
holiday, although unworked, under Article 94.
ART. 94. RIGHT TO HOLIDAY PAY. –

(a)Every worker shall be paid his regular daily wage during

regular holidays except in retail and service establishments
regularly employing less than ten (10) workers;
 (b)The employer may require an employee to work on any holiday
but such employee shall be paid a compensation equivalent to
twice his regular rate; and
(c)As used in this Article, “holiday” includes: New year’s Day,
Maundy Thursday, Good Friday, the ninth of April, the first of
May, the twelfth of June, the fourth of July, the thirtieth of
November, the twenty-fifth of December and the day
designated by law for holding a general election.

Holiday pay is a day’s pay given by law to an employee even if he

does not work on a regular holiday. This gift of a day’s pay is limited to
each of the ten regular holidays listed by law. It is not demandable for
any other kind of nonworking day.

But to receive the holiday pay, the employee should not meet
certain conditions. They are explained in Book III, Rule IV of the
Implementing Rules.

The list of holidays in this article has been changed by E.O. No.
203 (June 20, 1987). The list is as follows:

A. Regular holidays
New Year’s Day - January 1
Maundy Thursday - Movable date
Good Friday - Movable date
Araw ng Kagitingan
(Bataan and Corregidor Day) - April 9
Labor Day - May 1
Independence Day - June 12
National Heroes Day - Last Sunday of
August
Bonifacio day - November 30
Christmas Day - December 25
Rizal Day - December 30
B. Nationwide Special Days
All Saints Day - November 1
Last Day of the year - December 31

Muslim Holidays

Presidential Decree No. 1083, in its Book V, Title I, recognizes

the five (5) Muslim holidays.

These official holidays shall be officially observed in the

provinces of Basilan, Lanao del Norte, Lanao del Sur, Maguindanao,
North Cotabato, Sultan Kudarat, Sulu, Tawi-tawi, Zamboanga del Norte
and Zamboanga del Sur and in the cities of Cotabato, Iligan, Marawi,
Pagadian and Zamboanga, and in such other Muslim provinces and
cities as may be created. Upon proclamation by the President of the
Philippines, Muslim holidays may also be officially observed in other
provinces and cities.
 The dates of Muslims holidays shall be determined by the Office
of the President of the Philippines in accordance with the Muslim
LunarCalendar (Hijra).

Both Muslims and Christians working within the Muslim areas

may not report for work on the days designated by law as Muslim
holidays.

Monthly-salaried Employees

Are monthly-salaries employees entitled to holiday pay? The fact

that an employee is monthly-salaried does not by itself exclude him
from entitlement to the holiday pay, subject of course to the
exclusions under Article 82, as already discussed.

The Supreme Court has ruled that Section 2, Rule IV, Book III of
the Implementing Rules and Policy Instruction No. 9 issued by the
Secretary of Labor are null and void since in the guise of clarifying the
Labor Code’s provision on holiday pay, they in effect amended them by
enlarging the scope of their exclusion. Such act of the Secretary, said
the Court, is ultra vires (beyond one’s power).

In determining whether or not holiday pay is already included in

the month salary, the divisor is significant. If the formula to get the
daily rate is “monthly rate times 12 divided by 251,” the 251 divisor
indicates that all Saturdays, Sundays and 10 legal holidays are
subtracted from the total number of calendar days in a year. Hence, it
is logical to argue that if the employees are already paid for all those
non-working days, the divisor should have been 365 and not 251.

A legal holiday falling on a Sunday does not create an additional

workday and creates no legal obligation for the employer to pay extra,
aside from the usual holiday pay, to its monthly-paid employees.

Hourly-paid Teachers

When a special public holiday is declared, a faculty member paid

by the hour is deprived of expected income. Similarly, when classes
are called off or shortened on account of typhoons, floods, rallies, and
the like, these faculty members must likewise be paid, whether or not
extensions are ordered. The school should pay the faculty members
their regular hourly rate on days declared as special holidays or for
some reason classes are called off or shortened for the hours they are
supposed to have taught, whether extensions of class days be ordered
or not; in case of extensions the faculty members shall likewise be
paid their hourly rates should they teach during the extensions.

Double Holiday

On a double regular holiday (ex. April 9, 1998: Araw ng

Kagitingan and Maundy Thursday), an employee who is entitled to
holiday pay should receive at least 200% of his basic wage even if he
did not work on that day, provided, he was present or on leave with
pay on the preceding Wednesday. If he worked, he is entitled to 300%
of his basic wage. The 100%, in addition to 200%, represents his basic
pay for eight-hour work. (See DOLE Explanatory Bulletin). As already
explained, monthly salary may include holiday pay.

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.

(b) This provision shall not apply to those who are already
enjoying the benefit therein provided those enjoying vacation leave
with pay of at least five days and those employed in establishments
regularly employing less than ten employees or in establisments
exempted from granting this benefit by the Secretary of Labor after
considering the viability or financial condition of such establishment.

(c) The grant of benefit in excess of that provided herein shall not
be made a subject of arbitration or any court or administrative action.

No law requires the grant of vacation leave (VL) or sick leave

(SL) to private sector employees. What are required are service
incentive leave (SIL) by the above article and paternity leave (PL) by
R.A.No. 8187, approvedon June 11, 1996. Since VL or SL is not legally
required its grant depends on voluntary employer policy or collective
bargaining. Thus, SL/VL is considereda voluntary benefit while SIL and
PL are statutory or mandatory benefits. For maternity leave, see Art.
133 with Notes.

Unused SIL at the end of the year should be converted to cash,

according to the Implementing Rules.

The paternity leave is noted further under Art. 133.

The entitlement of piece-rate employees to holiday pay, service

incentive leave and other specific benefits is explained under Art. 101.

ART. 96. SERVICE CHARGES. – All service charges collected by

hotels, restaurants and similiar establishments shall be distributed at
the rate of eighty-five percent (85%) for all covered employees and
fifteen percent (15%) for management. The share of the employees
shall be equally distributed among them. In case the service charge is
abolished, the share of the coverred employees shall be considered
integrated in their wages.

Under the Implementing Rules all employess shall share in te

service charges collected regardless of position or employment status.
Distribution should be equal and done twice a month.

The 15% management share may answer for losses and

breakages. At managements discretion, it may also be distributed to
the managers.
 ART. 97. DEFINITION – As used in this Title:

(a) “Person” means an individual,aprtnership, association,

corporation, business trust, legal representative, or any organized
group of persons.

(b) “Employer” includes any person acting directly or indirectly in

the interst of an employer in relation to an employee and shall include
the Government and all its branches, subdivision and
instrumentalities, all government-owned or – controlled corporations
and institutions, or organizations.

(c) “Employee includes any individual employed by an employer.

(d) “Agriculture” includes farming in all its branches and among

other things, includes the cultivation and tillage of soil dairying the
production, cultivation growing and harvesting of any agricultural and
horticultural commodities, the raising of livestock or poultry, and any
practices performed by a farmer on a farm as an incident to or in
conjunction with such farming operations, but does not include the
manufacturing or processing of sugar, coconuts, abaca, tobacco,
pineapple or other farm products.

(e) “Employ” includes to suffer or permit to work.

(f) “Wage” paid to any employee shall mean the remuneration or

earnings, however designated, capable of being expressed in terms of
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 an 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.

FAIR WAGE FOR FAIR WORK

A fair day’s labor governs the relation between labor and capital
and remains a basic factor in determining employee’s wages. If there
is no work performed by the employee, there can be no wage or pay
unless the laborer was able, willing and ready to work, but was
prevented by management or as illegally locked out, suspended or
dismissed.

Where the failure of workers to work was not due to the

employer’s fault, the burden of economic loss suffered by the
employees should not be shifted to the employer. Each party must
bear his own loss.

Equal Pay for Equal Work

 Persons who work with substantially equal qualifications, skill,
effort and responsibility, under similar conditions, should be paid
similar salaries. If an employer accords employees same position and
rank, the presumption is that these employees perform equal work.
The fact that some teachers are “foreign hires” and the others are
“local hires” does not serve as a valid classification to justify the
unequal salary of the two groups. The principle of “equal pay for equal
work,” which is institutionalized in this jurisdiction, must be observed.

Wage Includes Facilities or Commodities

Art. 97 (f) says that “wage” includes the fair and reasonable
value of board lodging, or other facilities customarily furnished by the
employer to the employee. This means that an employer may provide,
for instance, food and housing to his employees but he may deduct
their values from the employees’ wages.

“Facilities” Distinguished from “Supplements”

Sometimes the issue is not the value of the facility but whether
or not something is “facility” that may be charged to the wage.

In other words, what exactly are “facilities”? According to the

Rules Implementing the Code, (Book III, Rule VII) “facilities” include
articles or services such as board and lodging] for the benefit of the
employee or his family. But the term does not include tools of the
trade or articles or services primarily for the benefit of the employer or
necessary to the conduct of the employer’s business. The same Rule
authorizes the Secretary of Labor and Employment to fix through
regulations the fair and reasonable value of facilities furnished to
employees. It is required, however, that the facilities cannot be
charged against his wages.

“Facilities” should be distinguished from “supplements”.

Facilities are wage-deductible, supplements are not.

“Supplements” constitute extra remuneration or special

privileges or benefits given to or received by the laborers over and
above their ordinary earnings or wages. “Facilities”, on the other hand,
are items of expense necessary for the laborers’ and his family’s
existence and subsistence, so that by express provision of law, they
form part of the wage and when furnished by the employer are
deductible therefrom, since if they are not so furnished, the laborer
would spend and pay for them just the same.

In short, the benefit or privilege given to the employee which

constitutes an extra remuneration over and above his basic or ordinary
earning or wage, is supplement; and when said benefit or privilege is
part of the laborer’s basic wages, it is a facility. The criterion is not so
much with the kind of the benefit or item (food, lodging, bonus or sick
leave) given, but its purpose.

An employer must observe certain legal requirements before

deducting the value of facilities from the employee’s wages: first,
proof must be shown that such facilities are customarily furnished by
the trade; second, the provision of deductible facilities must be
voluntarily accepted in writing by the employee; finally, facilities must
be charged at fair and reasonable value.

ART. 98. APPLICATION OF TITLE. – This title shall not apply to

farm tenancy or leasehold, domestic service and persons working in
their respective homes in needle work or in any cottage industry duly
registered in accordance with law.

ART. 99. REGINAL MINIMUM WAGES. – The minimum wage rates

for agricultural and nonagricultural employees and workers in each
and every region of the country shall be those prescribed by the
Regional Tripartite Wages and Productivity Boards.

“Minimum wage” means the lowest wage rate fixed by law that
an employer can pay his employees. Paying less than the minimum
wage is illegal. The complaint may be brought before the DOLE
regional office (Art. 129) or a Labor Arbiter (Art. 217).

Agricultural wage rates are generally lower than the industrial. It

is the nature of the work which classifies a worker as agricultural or
industrial. “Agriculture” is defined as farming in all its branches and,
among others, includes the cultivation and tillage of the soil,
production, cultivation, growing and harvesting of any agricultural or
horticultural commodities, dairying, raising of livestock or poultry, the
culture of fish and other aquatic products in farms or ponds, and any
activities performed by a farmer or on a farm as incident to or in
conjunction with such farming operations, but does not include the
manufacturing and/or processing of sugar, coconut, tobacco,
pineapple, aquatic or other farm products”.

Where the enterprise is highly mechanized and carries on

processing activities not merely incidental to purely farming
operations, employees employed in operations other than purely
agricultural work are deemed industrial employees. Thus, on a
hacienda where milling is carried out, the following are deemed
industrial workers: mill laborers, chemists, fuelmen, oilers, tractor and
truck drivers, etc. (Del Rosario vs. CIR, 20 SCRA 650, 653.) it is legally
permissible for a company to ay agricultural rate to its agricultural
employees and the industrial rate to the others.

The employer cannot exempt himself from liability to pay

minimum wages because of poor financial condition of the company;
the payment of minimum wages is not dependent on the employer’s
ability to pay. (De Racho vs. Municipality of Ilagan, G.R. No. L-23542,
January 2, 1968.) Wage orders, however, usually allow petitions for
exemption from prescribed wage rates.

ART. 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 promulgations of this Code.

This provision is often called the non-diminution rule. Cited in a

number of court rulings, it essentially means that benefits being 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.

The rule against diminution of supplements or benefits is

applicable 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. But it 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 being done soon after discovery
of the error.

Bonus is a supplement or employment benefit given under certain

conditions. As a rule, a bonus is an amount granted voluntarily to an
employee for his industry and loyalty which contributed to the success
and realization of profits of the employer’s business. It is an act of
generosity. It is also granted by an enlightened employer to spur the
employee to greater efforts for the continued success of the
enterprise. From the legal point of view, a bonus is not a demandable
and enforceable obligation. But it becomes so when it is made a part
of the wage or compensation. In such a case, the later would be a
fixed amount and the former would be a contingent one dependent
upon the realization of profit.

Whether or not bonus forms part of wage depends upon the

circumstances and conditions for its payment. If it is an additional
compensation which the employer promised and agreed to give
without any conditions imposed for its payment, such as success of
business or greater production or output, then it is part of the wage.
But if it is paid only if profits are realized or a certain amount of
productivity achieved, it cannot be considered part of the wage. (Atok-
Big Wedge Mining Co., Inc. vs. Atok-Big Wedge Mutual Benefit
Association, G.R. No. L5276, March 3, 1853.)

Thirteenth Month Pay

The thirteenth-month pay required by P.D. No. 851 is additional

income based on wage but not part of the wage. It is one-twelfth of the
total basic salary earned by an employee within a calendar year. All
rank-and-file employee 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.

Even piece-rate employees are entitled to service incentive lease

as well as to night shift differential, holiday pay, premium pay and 13-
month pay. As to overtime pay they are entitled to it if their output pay
rate is not shown to be in accordance with the standards prescribed
under the Implementing Rules (Book III, Rule VII, sec. 8) or by the
Secretary of Labor. (Labor Congress of the Phil. vs. NLRC, G.R. No.
123938, May 21, 1998.)

The Supplementary Rules and Regulations Implementing

Presidential Decree No. 851 is emphatic in declaring that “earnings
and other remunerations which are not part of the basic salary shall
not be included in the computation of the 13th-month pay.”

An employee who has resigned or whose services were

terminated at any time before the time for payment of the 13 th-month is
entitled to this monetary benefit in proportion to the length of time he
worked during the year. Thus, if he worked only from January up to
September, his proportionate 13th-month pay should be equivalent to
1/12 of the total basic salary he earned during that period. (See
International School of Speech vs. NLRC and M.C. Mamuyac, G.R. No.
112658, March 18, 1995.)

P.D. 851 and its implementing guidelines are appended to this

book.

Tax Exemption

Republic Act No. 7833 (approved on December 8, 1994) exempts

from income tax and, consequently, from the withholding tax the 13 th
month pay and other benefits received by governmental and private
sector employees. The exemption, of course, covers only a limited
amount. Implementing the law, BIR Memo Circular No. 36-94 (issued on
December 14, 1994) states:

“Under subparagraph (f) of Section 28 (b) (8) of the NIRC, as

amended by R.A. No. 7833, the 13th-month pay and other benefits
aforestated, received by officials and employees of the National
Government, Local Government Units and agencies, including
government-owned and controlled corporations, as well as by
officials and employees of private corporations and entities, are
exempt from income tax, and consequently from the withholding
tax on wages: Provided, That the exclusions/exemptions from
gross compensation income shall cover the 13th-month pay and
“other benefits” in the aggregate amount not exceeding P30,000
received by the officials and employees paid or accrued
beginning January 1, 1994. The aforesaid “other benefits” as
contemplated under Section 1 (F) (iv) of R.A. No. 7833 shall not
exceed P12,000, which amount shall be integrated in the 13 th-
month pay. Accordingly, benefits in excess of P30,000.00 shall be
taxable and subject to the withholding tax only insofar as the
amount in excess of P30,000.00.”

The BIR circular gives helpful examples of computation.

ART. 101. PAYMENT BY RESULTS. – The Secretary of Labor shall

regulate the payment of wages by results, including pakyaw, piece-
work and other nontime work, in order to ensure the payment of fair
and reasonable wage rates, preferably through time and motion
studies or in consultation with representatives of workers and
employer’s organizations.

The Bureau of Working Conditions explains that in the application

of labor legislations, piece-rate workers may be subdivided into two
categories. They are:

1. Those who are paid piece rates which are prescribed in Piece
Rate Orders issued by DOLE.
2. Those who are paid piece rates which are prescribed by the
employer and are not yet approved by the DOLE.

Under the first category wages or earnings are determined by

simply multiplying the number of pieces produced by the pay rate per
piece. The Rule on Hours of Work which provides for premium and
overtime payments does not cover these workers. Whatever they earn
after working for a certain number of hours in a particular day shall be
their actual earnings even if the work time exceeds eight hours.

Under the second category the number of pieces produced is

multiplied by the rate per piece as determined by the employer. If the
resulting amount is equal to or greater than the applicable legal daily
rate in proportion to the number of hours worked, the worker receives
such equal or greater amount. But if that amount is lower than the
legal daily rate, the employer must make up the difference. (See Book
III, Rule VII, Sec. 8 of the Implementing Rules.)

The entitlement of piece-rate employees to holiday pay, premium

pay, 13th month pay, service incentive leave, as well as overtime pay,
is analyzed and upheld by the Supreme Court (through the Chief
Justice) in Labor Congress of the Philippines vs. NLRC, Empire Food
Products, G.R. No. 123938, May 21, 1998.

According to Sec. 8, Rule IV of Book III of the Implementing

Rules, employees paid by results or output are entitled to holiday pay
(Art. 94). It shall not be less than his average daily earnings for the last
seven actual working days immediately preceding the regular holiday.
Such holiday pay shall not be less than the applicable statutory
minimum wage rate.

On the basis of existing labor regulations, piece-rate employees

are entitles to the following minimum wage and benefits:

1. The applicable statutory minimum daily rate;

2. Yearly service incentive leave of five (5) days with pay;
3. Night shift differential pay;
4. Holiday pay;
5. Meal and rest periods;
6. Overtime pay (conditional);
7. Premium pay (conditional);
8. 13th month pay;
9. Other benefits granted by law, individual or collective
agreement or company policy or practice.
 It is beneficial to secure DOLE’s approval of a piece-rate pay
policy. It is a win/win scheme: the worker gets the worth of his
effort or output, and the employer gets work output in proportion
to the pay.

Assessments:

1. What facts make a person an employee? An employer?

2. What are the working conditions or employment benefits
compulsorily required by law?
3. Who are entitled to those benefits and who are not?
4. Is a supervisor entitled to overtime pay? To holiday pay? What
about a manager’s secretary?
5. Is travel time considered work time?
Module 3. Topic 3: Termination of Employment

Introduction: This topic introduces the concept of

security of tenure, the just and authorized
causes of termination of employees.

Objectives: The students get introduce to

concept of security
of tenure, the different classification of
employment, the valid grounds of
termination by
employer and the authorized causes of
terminations of employee by employer.
Discussion:

ART. 279. SECURITY OF TENURE. – In cases of regular

employment, the employer shall not terminate the service of an
employee except for a just cause or when authorized by this Title. An
employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other privileges and
to his full backwages, inclusive of allowances, and to his other
benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual
reinstatement. (As amended by Sec. 34, R.A. 6715).

SECURITY OF TENURE
Security of tenure is one of the rights of workers that the
Constitution guarantees in Section 3, Article XIII. In plain language,
security of tenure means the right not to be removed from one’s job
except for a valid reason and through proper procedure. The Civil Code
(Art. 1719) states that “dismissal of laborers shall be subject to the
supervision of the Government, under special laws.” The valid reasons
and the proper procedure are detailed in the Labor Code and court
decisions.

When a person has no property, his job may possibly be his only
possession or means of livelihood. Therefore, he should be protected
against any arbitrary deprivation of his job. Article 280 of the Labor
Code has construed security of tenure as meaning that “the employer
shall not terminate the services of an employee except for a just
cause or when authorized by” the Code. (Rance, et.al. vs. National
Labor Relations Commission, G.R. No. 68147, June 30, 1988.)

Even managerial employees are entitled to security of tenure.

While an employer has its own interests to protect, and pursuant
thereto, it may terminate a managerial employee for a just cause, such
prerogative to dismiss or lay off an employee must be exercised
without abuse or discretion. Its implementation should be tempered
with compassion and understanding. The employer should bear in mind
that in the execution of said prerogative, what is at stake is not only
the employee’s position but his livelihood. The fact that one is a
managerial employee does not by itself exclude him from the
protection of the constitutional guarantee of security of tenure.
(Maglutac vs. NLRC, Commart [Phil.], Inc., G.R. No. 78345, Sept. 21,
1990.)

Art. 279 tells an employer not to terminate the services of an

employee except for a just cause or as authorized by law. But the
Article specifies “regular employment”. In cases of non-regular
employment it seems that the Article allows the employer to terminate
the employment even without just cause. This is not true because
even in case of non-regular employment, such as fixed-period
employment, the employer cannot lawfully terminate it before the end
of the agreed period unless there is just cause to do so. Similarly, if
the agreed project employment, for instance, is six months, it cannot
be terminated, say, on the fourth month without a just and valid
reason. Even a probationary employee cannot be discharged without
valid cause.

Since Art. 279 speaks of “regular employment” it is of first

importance to ask what is regular employment and what is not. The
answer is found in Art. 280 and court rulings.

ART. 280. REGULAR AND CASUAL EMPLOYMENT. – The

provisions of written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties, an employment shall
be deemed to be regular where the employee has been engaged to
perform activities which are usually necessary or desirable in the
usual business or trade of the employer, except where the employment
has been fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the
engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration
of the season.

An employment shall be casual if it is not covered by the

preceding paragraph: Provided, That, any employee who has rendered
at least one year or service, whether such service is continuous or
broken, shall be considered a regular employee with respect to the
activity in which he is employed and his employment shall continue
while such activity exists.

REGULAR EMPLOYMENT
The law provides for two kinds of regular employees, namely:

(1)Those who are engaged to perform activities which are usually

necessary or desirable in the usual business or trade of the
employer; and
 (2)Those who have rendered at least one year of service,
whether continuous or broken, with respect to the activity in
which they are employed. In other words, regular status arises
from either the nature of work of the employee or the duration
of his employment.

Under the Labor Code, an employment may only be said to be

“temporary” where it has been fixed for a specific undertaking the
completion or termination of which has been determined at the time of
the engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration
of the season.

What determines regularity or casualness is not the employment

contract, written or otherwise, but the nature of the job. If the job is
usually necessary or desirable to the main business of the employer,
then employment is regular. x xx” (A.M. Oreta and Co., inc. vs. National
Labor Relations Commission, et.al., G.R. no. 74004, Aug. 10, 1989.)

The primary standard, therefore, of determining a regular

employment is the reasonable connection between the particular
activity performed by the employee in relation to the usual business or
trade of the employer. Also, it the employee has been performing the
job for at least one year, even if the performance is not continuous or
merely intermittent, the law deems the repeated and continuing need
for its performance as sufficient evidence of the necessity if not
indispensability of that activity to the business. Hence, the
employment is also considered regular, but only with respect to such
activity and while such activity exists.

Even handicapped persons, employed for humanitarian reasons,

may become regular employees if they are doing necessary or
desirable jobs (ex. Counting and sorting money in a bank) and their
employment has exceeded six months through renewals of the initial
appointment. The renewals show that they are qualified for their
positions and therefore should be treated like other qualified able-
bodied employees.

PROJECT EMPLOYMENT
A project employee is one whose employment has been fixed for
a specific project or undertaking, the completion or termination of
which has been determined at the time of the engagement of the
employee.

The principal test for determining whether particular employees

are “project employees” as distinguished from “regular employees”, is
whether or not the “project employees were assigned to carry out a
“specific project or undertaking”, the duration (and scope) of which
were specified at the time the employees were engaged for that
project.

The services of project employees are coterminous with the

project. They may be terminated upon the end or completion of that
project or phase thereof for which they were hired. The employer has
no obligation to pay them separation pay.

The Court stresses the rule in Cartagenas vs. Romago Electric

Co. that contract workers are not considered regular employees, their
services being needed only when there are projects to be undertaken
because it would be unjust to employer to keep them in payroll while
waiting for next project.

A project employee or a member of a work pool may acquire the

status of a regular employee when the following occur:

1) There is a continuous rehiring of project employees even after

cessation of a project; and

2) The tasks performed by the alleged “project employee” are

vital, necessary and indispensable to the usual business or trade of
the employer.

SEASONAL EMPLOYMENT
Court decisions exist which consider seasonal employees. A
1963 ruling said:

Regular seasonal employees are those called to work from

time to time. The nature of their relationship with the employer is such
that during off season they are temporarily laid off but during summer
season they are reemployed, or when their services may be needed.
They are separated from service but are merely considered as on leave
of absence without pay until they are reemployed. Seasonal employees
are in regular employment because of the nature of their job schedule
and not because of the length of time they have worked.

CASUAL EMPLOYMENT
Under present law, a casual employee is casual only for one year.
His work is neither regular, nor project or seasonal, but if he has
worked for at least one year- whether continuously or not – he
becomes a regular employee. It is not his nature of work but the
passage of time that gives him a regular status.

FIXED PERIOD EMPLOYMENT

Employment that will last only for a definite period as agreed by
the parties, is not per se illegal or against public policy even if this
kind of employment is not mentioned in Art. 280 of the Code. As
justified by Civil Code, it refers to fixed-term employment contracts or
those to which the parties by free choice, knowingly and voluntarily
agreed, have assigned a specific date of termination.

Art. 281. Probationary employment. Probationary employment shall

not exceed six (6) months from the date the employee started working,
unless it is covered by an apprenticeship agreement stipulating a
longer period. The services of an employee who has been engaged on
a probationary basis may be terminated for a just cause or when he
fails to qualify as a regular employee in accordance with reasonable
standards made known by the employer to the employee at the time of
his engagement. An employee who is allowed to work after a
probationary period shall be considered a regular employee.

Art. 282. Termination by employer. An employer may terminate an

employment for any of the following causes:

a. Serious misconduct or willful disobedience by the employee of

the lawful orders of his employer or representative in connection
with his work;

b. Gross and habitual neglect by the employee of his duties;

c. Fraud or willful breach by the employee of the trust reposed in

him by his employer or duly authorized representative;

d. Commission of a crime or offense by the employee against the

person of his employer or any immediate member of his family or
his duly authorized representatives; and

e. Other causes analogous to the foregoing.

Art. 283. Closure of establishment and reduction of personnel. The

employer may also terminate the employment of any employee due to
the installation of labor-saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a written notice
on the workers and the Ministry of Labor and Employment at least one
(1) month before the intended date thereof. In case of termination due
to the installation of labor-saving devices or redundancy, the worker
affected thereby shall be entitled to a separation pay equivalent to at
least his one (1) month pay or to at least one (1) month pay for every
year of service, whichever is higher. In case of retrenchment to
prevent losses and in cases of closures or cessation of operations of
establishment or undertaking not due to serious business losses or
financial reverses, the separation pay shall be equivalent to one (1)
month pay or at least one-half (1/2) month pay for every year of
service, whichever is higher. A fraction of at least six (6) months shall
be considered one (1) whole year.

Art. 284. Disease as ground for termination. An employer may

terminate the services of an employee who has been found to be
suffering from any disease and whose continued employment is
prohibited by law or is prejudicial to his health as well as to the health
of his co-employees: Provided, That he is paid separation pay
equivalent to at least one (1) month salary or to one-half (1/2) month
salary for every year of service, whichever is greater, a fraction of at
least six (6) months being considered as one (1) whole year.

Art. 285. Termination by employee.

a. An employee may terminate without just cause the employee-

employer relationship by serving a written notice on the
employer at least one (1) month in advance. The employer upon
 whom no such notice was served may hold the employee liable
for damages.

b. An employee may put an end to the relationship without serving

any notice on the employer for any of the following just causes:

1. Serious insult by the employer or his representative on the

honor and person of the employee;

2. Inhuman and unbearable treatment accorded the employee

by the employer or his representative;

3. Commission of a crime or offense by the employer or his

representative against the person of the employee or any of
the immediate members of his family; and

4. Other causes analogous to any of the foregoing.

Art. 286. When employment not deemed terminated. The bona-fide

suspension of the operation of a business or undertaking for a period
not exceeding six (6) months, or the fulfillment by the employee of a
military or civic duty shall not terminate employment. In all such
cases, the employer shall reinstate the employee to his former
position without loss of seniority rights if he indicates his desire to
resume his work not later than one (1) month from the resumption of
operations of his employer or from his relief from the military or civic
duty.

Assessments:

1. What employees are entitled to security of tenure?

2. What is project employment?
3. Is the probationary period necessarily six months?
4. What kind of misconduct is sufficient reason to dismiss an
employee?
5. May a clerical employee be dismissed on ground of loss of
confidence?

Submitted by;

ATTY. LOUIE A. RASTICA

Instructor
For reference: Everyone’s LABOR CODE by AZUCENA or search LABOR
CODE OF THE PHILIPPINES on web