Non-diminution of benefits

“Principle of non-diminution of benefits” refers to the prohibition against employers from eliminating or reducing the benefits received by their employees.

1. Concepts

“Principle of non-diminution of benefits” – refers to the prohibition against employers from eliminating or reducing the benefits received by their employees. (See Wesleyan University-Philippines v. WUPF, G.R. No. 181806, 12 March 2014)

a. Legal basis

1) 1987 Constitution

Generally, employees have a vested right over existing benefits voluntarily granted to them by their employer. Thus, any benefit and supplement being enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated by the employer. The principle of non-diminution of benefits is actually founded on the Constitutional mandate to protect the rights of workers, to promote their welfare, and to afford them full protection. In turn, said mandate is the basis of Article 4 of the Labor Code which states that “all doubts in the implementation and interpretation of this Code, including its implementing rules and regulations, shall be rendered in favor of labor.” (Vergara, Jr. v. Coca-Cola Bottlers Philippines, Inc., G.R. No. 176985, 01 April 2013)

2) Not Article 100 of the Labor Code

In Arco Metal Products, Co., Inc. v. Samahan ng mga Manggagawa sa Arco Metal-NAFLU (SAMARM-NAFLU, et al.), … the principle of non-diminution of benefits is founded on the constitutional mandate to “protect the rights of workers and promote their welfare” and “to afford labor full protection.” In his separate concurring opinion, Justice Arturo Brion clarified that the basis for non-diminution rule is not Article 100 which refers solely to “benefits enjoyed at the time of the promulgation of the Labor Code…” (Home Credit Mutual Building and Loan Association v. Prudente, G.R. No. 200010, 27 August 2020)

Article 100 refers solely to the non-diminution of benefits enjoyed at the time of the promulgation of the Labor Code. Employer-employee relationship is contractual and is based on the express terms of the employment contract as well as on its implied terms, among them, those not expressly agreed upon but which the employer has freely, voluntarily and consistently extended to its employees. Under the principle of mutuality of contracts embodied in Article 1308 of the Civil Code, the terms of a contract – both express and implied – cannot be withdrawn except by mutual consent or agreement of the contracting parties… (J. Arturo Biron, Concurring Opinion in Arco Metal Products, Co., Inc. v. Samahan ng mga Manggagawa sa Arco Metal-NAFLU (SAMARM-NAFLU, et al.), G.R. No. 170734, 14 May 2008)

Clearly, the non-diminution rule applies only if the benefit is based on an express policy, a written contract, or has ripened into a practice. (Home Credit Mutual Building and Loan Association v. Prudente, G.R. No. 200010, 27 August 2020)

2. Requisites

There is diminution of benefits when the following requisites are present:

1) The grant or benefit is founded on a policy or has ripened into a practice over a long period of time;

2) The practice is consistent and deliberate;

3) The practice is not due to error in the construction or application of a doubtful or difficult question of law; and

4) The diminution or discontinuance is done unilaterally by the employer. (Vergara, Jr. v. Coca-Cola Bottlers Philippines, Inc., G.R. No. 176985, 01 April 2013)

[The rule on non-diminution of benefits] applies only if the benefit is based on an express policy, a written contract, or has ripened into a practice. (Wesleyan University-Philippines v. WUPF, G.R. No. 181806, 12 March 2014)

a. Company practice

To be considered as a regular company practice, the employee must prove by substantial evidence that the giving of the benefit is done over a long period of time, and that it has been made consistently and deliberately. Jurisprudence has not laid down any hard-and-fast rule as to the length of time that company practice should have been exercised in order to constitute voluntary employer practice. The common denominator in previously decided cases appears to be the regularity and deliberateness of the grant of benefits over a significant period of time. It requires an indubitable showing that the employer agreed to continue giving the benefit knowing fully well that the employees are not covered by any provision of the law or agreement requiring payment thereof. In sum, the benefit must be characterized by regularity, voluntary and deliberate intent of the employer to grant the benefit over a considerable period of time. (Vergara, Jr. v. Coca-Cola Bottlers Philippines, Inc., G.R. No. 176985, 01 April 2013)

Home Credit Mutual Building and Loan Association v. Prudente
G.R. No. 200010, 27 August 2020)
… In this case, Rollette’s claim that the car plan was part of her hiring package was unsubstantiated. Admittedly, Home Credit has no existing car plan at the time Rollette was hired. Rollette’s employment contract does not even contain any express provision on her entitlement to a service vehicle at full company cost.16 Therefore, it is incongruous for the CA to conclude that the grant of a service vehicle was part of Rollette’s hiring package.
Similarly, we find that the car plan has not ripened into a company practice. As a rule, “practice” or “custom” is not a source of a legally demandable or enforceable right. In labor cases, however, benefits which were voluntarily given by the employer, and which have ripened into company practice, are considered as rights and are subject to the non-diminution rule. To be considered a company practice, the benefit must be consistently and deliberately granted by the employer over a long period of time. It requires an indubitable showing that the employer agreed to continue giving the benefit knowing fully well that the employee is not covered by any provision of law or agreement for its payment. The burden to establish that the benefit has ripened into a company practice rests with the employee.
Similarly, we find that the car plan has not ripened into a company practice. As a rule, “practice” or “custom” is not a source of a legally demandable or enforceable right. In labor cases, however, benefits which were voluntarily given by the employer, and which have ripened into company practice, are considered as rights and are subject to the non-diminution rule. To be considered a company practice, the benefit must be consistently and deliberately granted by the employer over a long period of time. It requires an indubitable showing that the employer agreed to continue giving the benefit knowing fully well that the employee is not covered by any provision of law or agreement for its payment. The burden to establish that the benefit has ripened into a company practice rests with the employee.
Here, the labor tribunals correctly held that Home Credit’s act of giving service vehicles to Rollette has been a company practice – but not as to the non-participation aspect. There was no substantial evidence to prove that the car plan at full company cost had ripened into company practice. Notably, the only time Rollette was given a service vehicle fully paid for by the company was for her first car. For the second vehicle, the company already imposed a maximum limit of P660,000.00 but Rollette never questioned this. She willingly paid for the equity in excess of said limit. Thus, the elements of consistency and deliberateness are not present.
At this point, we emphasize that any employee benefit enjoyed cannot be reduced and discontinued. Otherwise, the constitutional mandate to afford full protection to labor is offended. But, even as the law is solicitous of the welfare of employees, it must also protect the right of an employer to exercise what are clearly management prerogatives, like the adoption of a new car plan at a new cost sharing scheme, with a reduced maximum limit. The free will of management to conduct its own business affairs to achieve its purpose cannot be denied, especially in this case wherein Home Credit is willing to give one hand by giving a service vehicle to Rollette but she wanted to grab the entire arm.

1) Exception

An exception to the rule [on non-diminution of benefits] is when “the practice is due to error in the construction or application of a doubtful or difficult question of law.” The error, however, must be corrected immediately after its discovery;43 otherwise, the rule on Non-Diminution of Benefits would still apply. (Wesleyan University-Philippines v. WUPF, G.R. No. 181806, 12 March 2014)

Wesleyan University-Philippines v. WUPF
G.R. No. 181806, 12 March 2014)
In this case, [the employee] was able to present substantial evidence in the form of affidavits to support its claim that there are two retirement plans. Based on the affidavits, [the Company] has been giving two retirement benefits as early as 1997. [The Company], on the other hand, failed to present any evidence to refute the veracity of these affidavits. [the Company’s] contention that these affidavits are self-serving holds no water. The retired employees of [the Company] have nothing to lose or gain in this case as they have already received their retirement benefits. Thus, they have no reason to perjure themselves. Obviously, the only reason they executed those affidavits is to bring out the truth. As we see it then, their affidavits, corroborated by the affidavits of incumbent employees, are more than sufficient to show that the granting of two retirement benefits to retiring employees had already ripened into a consistent and deliberate practice.
Moreover, [the Company’s] assertion that there is only one retirement plan as the CBA Retirement Plan and the PERAA Plan are one and the same is not supported by any evidence. There is nothing in Article XVI of the CBA to indicate or even suggest that the “Plan” referred to in the CBA is the PERAA Plan. Besides, any doubt in the interpretation of the provisions of the CBA should be resolved in favor of [the employee]. In fact, [the Company’s] assertion is negated by the announcement it made during the LMC Meeting on February 8, 2006 regarding its plan of implementing a “one-retirement plan.” For if it were true that [the Company] was already implementing a one-retirement policy, there would have been no need for such announcement. Equally damaging is the letter-memorandum45 dated May 11, 2006, entitled “Suggestions on the defenses we can introduce to justify the abolition of double retirement policy,” prepared by the [the Company’s] legal counsel.
These circumstances, taken together, bolster the finding that the two-retirement policy is a practice. Thus, [the Company] cannot, without the consent of [the employee], eliminate the two-retirement policy and implement a one-retirement policy as this would violate the rule on non-diminution of benefits.
As a last ditch effort to abolish the two-retirement policy, [the Company] contends that such practice is illegal or unauthorized and that the benefits were erroneously given by the previous administration. No evidence, however, was presented by [the Company] to substantiate its allegations.
Considering the foregoing disquisition, we agree with the findings of the Voluntary Arbitrator, as affirmed by the CA, that there is substantial evidence to prove that there is an existing practice of giving two retirement benefits, one under the PERAA Plan and another under the CBA Retirement Plan.

Disclaimer: All information is for educational and general information only. These should not be taken as professional legal advice or opinion. Please consult a competent lawyer to address your specific concerns. Any statements or opinions of the author are solely his own and do not reflect that of any organization he may be connected.

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