Principle of Non-Diminution of Benefits

Dear PAO,

I heard that our company is going to implement some changes. There are rumors that the company would be reorganized and that there may be some sort of financial changes as well. I remember reading somewhere that although changes in the company are primarily considered within the ambit of “management prerogative,” the employees are still protected by the Principle of Non-Diminution of Benefits. What exactly is the Principle of Non-Diminution of Benefits, and how does it apply?

Emily

Dear Emily,

Please be informed that the Principle of Non-Diminution of Benefits is established in Article 100 of the Labor Code of the Philippines, which states:

“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 promulgation of this Code.”

The principle is actually founded on the constitutional mandate to protect the rights of workers, promote their welfare, and afford them full protection. Thus, in the case of Nippon Paint Philippines, Inc. vs. Nippon Paint Philippines Employees Association (NIPPEA), GR 229396, June 30, 2021, penned by Associate Justice Henri Jean Paul Inting, the Supreme Court had the opportunity to define the Principle of Non-Diminution of Benefits, and lay down the requisites for its application. According to the Supreme Court:

“As a rule, employees have a vested right over existing benefits voluntarily granted to them by their employer. 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 under Article 100 of the Labor Code is actually founded on the constitutional mandate to protect the rights of workers, promote their welfare, and afford them full protection. In turn, Article 4 of the Labor Code states that ‘[a]ll doubts in the implementation and interpretation of this Code, including its implementing rules and regulations, shall be rendered in favor of labor.’

“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.” (Emphasis and underscoring supplied)

According to the Supreme Court, four requisites must concur to say that a benefit may not be diminished: (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. Moreover, the Supreme Court, citing the case of Vergara, Jr. vs. Coca-Cola Bottlers Philippines, Inc., GR 176985, April 1, 2013, Ponente: Associate Justice and later Chief Justice Diosdado Peralta, stated that the employee has the burden to prove by substantial evidence that the giving of the benefit is done over a long period of time, viz.:

“In Vergara, Jr. v. Coca-Cola Bottlers Philippines, Inc., the Court ruled that to establish the existence of 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, i.e., despite the employer’s knowledge that the payment of a benefit is not required by any law or agreement. The Court ruled:

“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.” (Emphasis and underscoring supplied)

Thus, a particular benefit enjoyed by an employee which falls within the requisites stated above may not be unilaterally withdrawn or diminished by the employer. Otherwise, the employer may be held liable for violating the Principle of Non-Diminution of Benefits.

We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated on.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]