Whether sales commissions should be included in the computation of employees' thirteenth month pay under Presidential Decree No. 851
Summary
Two consolidated cases challenging Department of Labor orders requiring companies to include sales commissions in computing 13th month pay. Boie-Takeda Chemicals and Philippine Fuji Xerox argued that commissions are not part of 'basic salary' under Presidential Decree No. 851. Labor officials relied on revised guidelines issued by Secretary Drilon mandating inclusion of total earnings including commissions. The Supreme Court ruled for the companies, holding that 'basic salary' means standard work period pay exclusive of additional compensation like commissions. The Court declared the relevant portion of the revised guidelines null and void for exceeding statutory authority, emphasizing that implementing rules cannot expand the scope of the law they implement. The decision clarified that commissions are additional pay for extra efforts, distinct from basic salary for standard work periods.
Focus of dispute
Whether sales commissions should be included in the computation of employees' thirteenth month pay under Presidential Decree No. 851
Legal facts
Labor inspections conducted in 1989 at Boie-Takeda Chemicals and Philippine Fuji Xerox found that both companies were not including sales commissions earned by their medical representatives and salesmen in computing 13th month pay. Boie-Takeda owed P558,810.89 for years 1986-1988, while Philippine Fuji Xerox had underpayments affecting 62 employees for the same period. Both companies argued commissions are not part of 'basic salary' under PD 851, while labor officials relied on revised guidelines requiring inclusion of commissions in total earnings for 13th month pay computation.
Judgement and reasoning
{"Acting Labor Secretary/Undersecretary": "Affirmed the Regional Director's orders with modification that commissions earned before August 13, 1989 (effectivity of Memorandum Order No. 28) be excluded for Boie-Takeda; denied Philippine Fuji Xerox's appeal for lack of merit", "Department of Labor Regional Director": "Ordered both companies to pay underpayments of 13th month pay based on inclusion of commissions, following the Revised Guidelines on Implementation of 13th Month Pay Law issued by Secretary Drilon", "Supreme Court (SC)": "Granted both petitions and ruled that commissions should NOT be included in 'basic salary' for 13th month pay computation. The Court held that 'basic salary' under PD 851 means standard work period pay exclusive of additional payments like bonuses, overtime, and commissions. The revised guidelines exceeded statutory authority by expanding the concept of basic salary beyond what PD 851 intended. Memorandum Order No. 28 only removed salary ceiling but did not alter the basic salary concept. Declared Section 5(a) second paragraph of revised guidelines null and void."}