On the diminution of employee benefits

More and more employers now ask: "Business conditions are now very much different from when we had the luxury of being too generous to our employees. Can we now stop giving benefits which we can no longer afford to continue paying?"

Unfortunately for employers, the answer is not as easy as a simple yes or no.

The pertinent provision of the Labor Code reads:

"Article 100. Prohibition against elimination or diminution of benefits.- Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code."

The basic principle under this provision is that where the employer practice or usage confers greater benefits than what the law actually provides, its validity is not affected by law and, more importantly, the employer may not cite the law as an excuse or justification for reducing the benefits under such contract or practice.

Jurisprudence, however, has expanded the scope of Article 100. In a long line of cases, the Supreme Court has liberally interpreted said article to be a general prohibition on employers against the elimination of employee supplements and benefits. The essence of the rule, as developed by the Supreme Court, is that when the grant to employees of certain benefits has evolved into company practice, said benefits cannot unilaterally be withdrawn or reduced by the employer. The employees have a vested and demandable right over them (Nestle Phils., Inc. v. NLRC, 193 SCRA 504).

To be considered as a company practice which cannot subsequently be withdrawn by the employer, the grant of the benefit must be shown to have been:

a. Practised over a long period of time (Davao Integrated Ports Stevedoring Services vs. Abarquez, et. al., 220 SCRA 197);

b. Done consistently and deliberately (Globe Mackay Cable v. NLRC, 163 SCRA 71); and

c. Not a product of erroneous interpretation or construction of a doubtful or difficult question of law (Globe Mackay Cable v. NLRC, et al., supra).

It must be mentioned, however, that the rule against the non-diminution of benefits is not an absolute one. There are also Supreme Court decisions that have carved out exceptions to this principle, to wit:

a. The elimination of an existing benefit in exchange for an equal or better one is not in violation of Article 100 (Asis v. v Minister of Labor, 171 SCRA 237).

b. The rule does not apply where the grant of the benefit is conditional (Lexal Laboratories, Inc. vs. Court of Industrial Relations, et al., 25 SCRA 668; Asis vs. Minister of Labor, et al., supra). Note that there are certain benefits that are granted only under certain specified circumstances. Examples of these would be per diems, relocation allowances, dislocation pay, gasoline allowances, and similar supplements.

c. There is also no violation of the rule against non-diminution of benefits where the benefits had been granted by the employer because of an erroneous application of the law, and were subsequently withdrawn to correct the mistake (Globe Mackay Cable, ibid).

It follows then that under the above rules, employers have the option of substituting an existing benefit with another of substantially the same value. Thus, an employee’s loss of his monthly ration of fuel may be compensated by his employer’s reimbursement of his actual monthly fuel consumption. But from the typical employer’s view, substitution may not be a solution to his economic woes. The answer may be in securing the consent of the employees to a revision of the terms and conditions of his employment such that the subject benefit will no longer be part of his benefit package. Since the rule is that there cannot be a unilateral withdrawal or reduction by the employer, it follows that the employer and the employee can agree on the same. If an employer can effectively communicate to his employees his economic difficulties, such that as part of a comprehensive cost cutting program to save the business and as many jobs as possible, the employer may have to reduce or withdraw certain benefits, the employees might just be willing to listen to him.

The author is a Senior Partner of Angara Concepcion Regala & Cruz Law Offices (ACCRALAW). He may be contacted at telephone number 830-8000; Fax No: 894-4697; e-mail: [email protected]