Monthly paid employees are entitled to holiday pay. Do you know whether your company pays you the law-mandated holiday pay?

If you are paid your holiday pay, the discussion in the case below gives insight on its possible implications on overtime pay, and service incentive leave pay.

In the case below, one of the issues raised is:

2) Whether or not, concomitant with the award of holiday pay, the divisor should be changed from 251 to 261 days and whether or not the previous use of 251 as divisor resulted in overpayment for overtime, night differential, vacation and sick leave pay.

The Court also discussed the “divisor test,” and the operative fact doctrine as a bonus.

The Court held:

The petitioner union also assails the respondent arbitrator's ruling that, concomitant with the award of holiday pay, the divisor should be changed from 251 to 261 days to include the additional 10 holidays and the employees should reimburse the amounts overpaid by Filipro due to the use of 251 days' divisor.

Arbitrator Vivar's rationale for his decision is as follows:

. . . The new doctrinal policy established which ordered payment of ten holidays certainly adds to or accelerates the basis of conversion and computation by ten days. With the inclusion of ten holidays as paid days, the divisor is no longer 251 but 261 or 262 if election day is counted. This is indeed an extremely difficult legal question of interpretation which accounts for what is claimed as falling within the concept of "solutio indebti."

When the claim of the Union for payment of ten holidays was granted, there was a consequent need to abandon that 251 divisor. To maintain it would create an impossible situation where the employees would benefit with additional ten days with pay but would simultaneously enjoy higher benefits by discarding the same ten days for purposes of computing overtime and night time services and considering sick and vacation leave credits. Therefore, reimbursement of such overpayment with the use of 251 as divisor arises concomitant with the award of ten holidays with pay. (Rollo, p. 34)

The divisor assumes an important role in determining whether or not holiday pay is already included in the monthly paid employee's salary and in the computation of his daily rate. This is the thrust of our pronouncement in Chartered Bank Employees Association v. Ople (supra). In that case, We held:

xxx It is argued that even without the presumption found in the rules and in the policy instruction, the company practice indicates that the monthly salaries of the employees are so computed as to include the holiday pay provided by law. The petitioner contends otherwise.

One strong argument in favor of the petitioner's stand is the fact that the Chartered Bank, in computing overtime compensation for its employees, employs a "divisor" of 251 days. The 251 working days divisor is the result of subtracting all Saturdays, Sundays and the ten (10) legal holidays from the total number of calendar days in a year. If the employees are already paid for all non-working days, the divisor should be 365 and not 251. xxx

In the petitioner’s case, its computation of daily ratio since September 1, 1980, is as follows:

monthly rate x 12 months

—————————————

251 days

Following the criterion laid down in the Chartered Bank case, the use of 251 days' divisor by respondent Filipro indicates that holiday pay is not yet included in the employee's salary, otherwise the divisor should have been 261.

It must be stressed that the daily rate, assuming there are no intervening salary increases, is a constant figure for the purpose of computing overtime and night differential pay and commutation of sick and vacation leave credits. Necessarily, the daily rate should also be the same basis for computing the 10 unpaid holidays.

The respondent arbitrator's order to change the divisor from 251 to 261 days would result in a lower daily rate which is violative of the prohibition on non-diminution of benefits found in Article 100 of the Labor Code. To maintain the same daily rate if the divisor is adjusted to 261 days, then the dividend, which represents the employee's annual salary, should correspondingly be increased to incorporate the holiday pay. To illustrate, if prior to the grant of holiday pay, the employee's annual salary is P25,100, then dividing such figure by 251 days, his daily rate is P100.00 After the payment of 10 days' holiday pay, his annual salary already includes holiday pay and totals P26,100 (P25,100 + 1,000). Dividing this by 261 days, the daily rate is still P100.00. There is thus no merit in respondent Nestle's claim of overpayment of overtime and night differential pay and sick and vacation leave benefits, the computation of which are all based on the daily rate, since the daily rate is still the same before and after the grant of holiday pay.

Respondent Nestle's invocation of solutio indebiti, or payment by mistake, due to its use of 251 days as divisor must fail in light of the Labor Code mandate that "all doubts in the implementation and interpretation of this Code, including its implementing rules and regulations, shall be resolved in favor of labor." (Article 4). Moreover, prior to September 1, 1980, when the company was on a 6-day working schedule, the divisor used by the company was 303, indicating that the 10 holidays were likewise not paid. When Filipro shifted to a 5-day working schebule on September 1, 1980, it had the chance to rectify its error, if ever there was one but did not do so. It is now too late to allege payment by mistake.

Nestle also questions the voluntary arbitrator's ruling that holiday pay should be computed from November 1, 1974. This ruling was not questioned by the petitioner union as obviously said decision was favorable to it. Technically, therefore, respondent Nestle should have filed a separate petition raising the issue of effectivity of the holiday pay award. This Court has ruled that an appellee who is not an appellant may assign errors in his brief where his purpose is to maintain the judgment on other grounds, but he cannot seek modification or reversal of the judgment or affirmative relief unless he has also appealed. (Franco v. Intermediate Appellate Court, 178 SCRA 331 [1989], citing La Campana Food Products, Inc. v. Philippine Commercial and Industrial Bank, 142 SCRA 394 [1986]). Nevertheless, in order to fully settle the issues so that the execution of the Court's decision in this case may not be needlessly delayed by another petition, the Court resolved to take up the matter of effectivity of the holiday pay award raised by Nestle.

Nestle insists that the reckoning period for the application of the holiday pay award is 1985 when the Chartered Bank decision, promulgated on August 28, 1985, became final and executory, and not from the date of effectivity of the Labor Code. Although the Court does not entirely agree with Nestle, we find its claim meritorious.

In Insular Bank of Asia and America Employees' Union (IBAAEU) v. Inciong, 132 SCRA 663 [1984], hereinafter referred to as the IBAA case, the Court declared that Section 2, Rule IV, Book III of the implementing rules and Policy Instruction No. 9, issued by the then Secretary of Labor on February 16, 1976 and April 23, 1976, respectively, and which excluded monthly paid employees from holiday pay benefits, are null and void. The Court therein reasoned that, in the guise of clarifying the Labor Code's provisions on holiday pay, the aforementioned implementing rule and policy instruction amended them by enlarging the scope of their exclusion. The Chartered Bank case reiterated the above ruling and added the "divisor" test.

However, prior to their being declared null and void, the implementing rule and policy instruction enjoyed the presumption of validity and hence, Nestle's non-payment of the holiday benefit up to the promulgation of the IBAA case on October 23, 1984 was in compliance with these presumably valid rule and policy instruction.

In the case of De Agbayani v. Philippine National Bank, 38 SCRA 429 [1971], the Court discussed the effect to be given to a legislative or executive act subsequently declared invalid:

xxx xxx xxx

. . . It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have changed their positions. What could be more fitting than that in a subsequent litigation regard be had to what has been done while such legislative or executive act was in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that precisely because the judiciary is the government organ which has the final say on whether or not a legislative or executive measure is valid, a period of time may have elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had transpired prior to such adjudication.

In the language of an American Supreme Court decision: "The actual existence of a statute, prior to such a determination of [unconstitutionality], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects, — with respect to particular relations, individual and corporate, and particular conduct, private and official." (Chicot County Drainage Dist. v. Baxter States Bank, 308 US 371, 374 [1940]). This language has been quoted with approval in a resolution in Araneta v. Hill (93 Phil. 1002 [1952]) and the decision in Manila Motor Co., Inc. v. Flores (99 Phil. 738 [1956]). An even more recent instance is the opinion of Justice Zaldivar speaking for the Court in Fernandez v. Cuerva and Co. (21 SCRA 1095 [1967]. (At pp. 434-435)

The "operative fact" doctrine realizes that in declaring a law or rule null and void, undue harshness and resulting unfairness must be avoided. It is now almost the end of 1991. To require various companies to reach back to 1975 now and nullify acts done in good faith is unduly harsh. 1984 is a fairer reckoning period under the facts of this case.

Applying the aforementioned doctrine to the case at bar, it is not far-fetched that Nestle, relying on the implicit validity of the implementing rule and policy instruction before this Court nullified them, and thinking that it was not obliged to give holiday pay benefits to its monthly paid employees, may have been moved to grant other concessions to its employees, especially in the collective bargaining agreement. This possibility is bolstered by the fact that respondent Nestle's employees are among the highest paid in the industry. With this consideration, it would be unfair to impose additional burdens on Nestle when the non-payment of the holiday benefits up to 1984 was not in any way attributed to Nestle's fault.

The Court thereby resolves that the grant of holiday pay be effective, not from the date of promulgation of the Chartered Bank case nor from the date of effectivity of the Labor Code, but from October 23, 1984, the date of promulgation of the IBAA case.

Union of Filipro Employees vs. Benigno Vivar, Jr., et al. G.R. No. 79255 January 20, 1992 

Read the full text of the case here.