Non-diminution of Benefits Rule (Labor Code)

The law prescribed the benefits which an employee should receive, however, some companies give benefits more than the law provides. The question now is what happens if these companies reduced or took back the additional benefits their employees are receiving. I will try to answer this question in this opinion.

The labor laws and their implementing rules prescribe only the minimum salary[1] and benefits (13th month pay[2], service incentive leave[3] and meal and rest periods[4]) which the employer should grant to the employees. There is no requirement under the law and the rules and regulations on labor standards of the grant of 14th month pay, yearly salary increase, performance bonus and number of leaves which are above the minimum prescribed by the law. The State gives freedom to the parties (employer-employee) to reach a compromise which will serve and benefit their mutual interest. These additional benefits are either written in the employment contract or if not stated in the contract, are parts of company policies.

However, if it is specified in the contract that out of the P90,000.00 salary, the P25,000.00 shall be granted as allowances  which shall be considered as a tax shield (i.e. not forming part of the taxable portion). Hence, when the employee commences working, the employee is receiving the net of P65,000.00 (after tax) and the whole P25,000.00. If the employer will migrate the P25,000.00 into part of the taxable portion, the compensation previously being received by the employee will be reduced.

Obligations arising from contracts have the force of law between the contracting parties and should be complied with good faith.[5] The contract of employment is the primary law between the employer and the employee, which will govern the parties’ respective rights and obligations.

With regard to the other benefits, there is no law prescribing the manner or basis for the computation of salary adjustments, 14th month pay, performance bonus, retirement package and such other benefits provided by an employer to its employees over and above the minimum amounts discussed above. These benefits are considered as gratuitous, founded on the generosity of the employer, hence, the law allows the employers to prescribe its own rules on the computation. However, if the employer has been implementing a certain manner or basis for the computation of these benefits for a time, such manner or basis for computation may be considered as having ripened into a company practice, and as such, the employer cannot unilaterally revise or withdraw such manner or practice of the computation without violating the prohibition on non-diminution of benefits.

The Labor Code provides:

“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 the promulgation of this Code.”   

                In TSPIC Corp v. TSPIC Employees Union[6], the Supreme Court laid down the elements of diminution of benefits: (1) the grant or benefit is founded on a policy or has ripened into a practice over a long period; (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.

Jurisprudence has not laid down any rule requiring a specific number of years on what constitutes “long period”. But in a 2004 case[7] decided by the Supreme Court, it was held that two (2) years is considered as a long period of time.

In Sevilla Trading Company vs. A.V.A. Tomas E. Semana[8], for almost three (3) years, petitioner Sevilla Trading Company (“Sevilla Trading”) included the following benefits in the computation of the 13th month pay:

  1. the overtime premium for regular overtime, legal and special holidays,
  2. legal holiday pay, premium pay for special holidays
  3. night premium
  4. bereavement leave pay
  5. union leave pay
  6. maternity leave pay
  7. paternity leave pay
  8. company vacation and sick leave pay
  9. cash conversion of unused company vacation and sick leave.

This computation is beyond what is prescribed under the 13th Month Pay Law[9]. Under the same law and its implementing rules, only the basic salary, i.e. excluding what is provided as fringe benefits or allowances, of an employee is used as a basis in the determination of his 13th month pay and any compensation or remuneration which is deemed not part of the basic pay is excluded as basis in the computation of the mandatory bonus.

Sevilla Trading, upon discovery of the mistake of its payroll officer, applied the provisions of the law on 13th month pay and excluded the above-mentioned benefits from the computation. Hence, this reduced the 13th month pay received by its employees, causing the employees’ union to contest the matter. The Supreme Court ruled that the inclusion of Sevilla Trading over the years of non-basic benefits of its employees in the computation of the 13th month pay may only be construed as a voluntary act on its part and putting the blame on its personnel is inexcusable. The High Court proceeded to declare that such practice of Sevilla Trading constitutes a voluntary practice which cannot be unilaterally withdrawn by the employer without violating Art. 100 of the Labor Code.

Similarly, in the recent case of Central Azucarera De Tarlac vs. Central Azucarera De Tarlac Labor Union-NLU[10], petitioner Central Azucarera de Tarlac had been giving the 13th month pay to its employees on the basis of their basic monthly salary together with their overtime pay, night premium pay and vacation and sick leaves. However, in 2006, after almost thirty (30) years, the petitioner Company changed the basis of the computation to only the basic monthly pay. The labor union questioned the change in the computation. The High Court held that the practice of Central Azucarera de Tarlac in giving 13th-month pay based on the employees’ gross annual earnings which included the basic monthly salary, premium pay for work on rest days and special holidays, night shift differential pay and holiday pay continued for almost thirty (30) years and has ripened into a company policy or practice which cannot be unilaterally withdrawn.  

[1] Wage Order No. NCR-16

[2] Presidential Decree No. 851

[3] Book III, Chapter III of the Labor Code of the Philippines covers the employee’s benefit for Service Incentive Leaves. According to Article 95, an employee who has rendered at least one year of service is entitled to a yearly five days service incentive leave with pay.

[4] Under Article 83 of the Labor Code, the employee is provided a one-hour employee benefit for regular meals, when working on an eight (8 hour) stretch. Employees are also provided adequate rest periods in the morning and afternoon which shall be counted as hours worked.

[5] Article 1159 of the Civil Code

[6] G.R. No. 163419.  February 13, 2008

[7] Sevilla Trading vs. A.V.A Tomas E. Samana, G.R. No. 152456. April 28, 2004

[8] See note 9

[9] Presidential Decree No. 851

[10] G.R. 188949, July 26, 2010

[11] G.R. No. 163505.  August 14, 2009

[12] TSPIC Corp v. TSPIC Employees Union, G.R. No. 163419.  February 13, 2008, Globe-Mackay Cable and Radio Corp. v. NLRC, G.R. No. 74156 June 29, 1988

[13] Globe-Mackay Cable and Radio Corp. v. NLRC, see note 17

[14] TSPIC Corp v. TSPIC Employees Union, G.R. No. 163419.  February 13, 2008


21 thoughts on “Non-diminution of Benefits Rule (Labor Code)

  1. Hi! Just want to know if removing of CPA allowance is a violation to ‘Non Diminution of Benefits’. Said allowance was enjoyed by me upon regularization as stated in my placement offer. However, the allowance was later on removed to my payroll due to the following reasons: 1) I was transferred from Internal Audit to Administration Division thus, our HRMD told me that they will remove my allowance because CPA eligibility is not required in my position in the Administration (well in fact, my transfer includes duties and responsibilities coming from Internal Audit) 2) Also, HRMD told me that they are currently revising the previously issued MEMO/policies regarding the said CPA Allowance. Accordingly, revision will include that CPA Allowance will be given to those eligible employees only. However, until now( almost a year), the said revision was still in the air and not yet implemented thus, I supposed enjoying it until this moment. Is it right for me to claim those allowances back, since no revision or policies was approved and implemented?. What should I do for this? Your response would be much appreciated. Thank you! 🙂

    • Hi! It depends on your contract of employment. If there’s no qualification on your contract of employment regarding your CPA allowance, meaning your contract does not provide that you will be receiving your CPA allowance because of your position, duties and responsibilities and that the same may be taken away if you were assigned on different department or division, you are entitled to your CPA allowance even if there will be a change in your assignment. Also, if it was not stated on your contract that your CPA allowance or any benefits granted to you is subject to the Memorandum or rules and regulations issued by your company, you can demand payment of your CPA allowance. As I stated, the contract of employment governs your relationship. Hence, the said Memo or any company’s memo or rules must be referenced or incorporated in the contract if the company wanted the provisions in your contract to be subject to it.

  2. Hi, I am employed on a newly founded regional headquarters of our company in the Philippines and had been operation for over a year now. We have 10 VLs and 15 SLs originally which were convertible to cash at the end of the year. However, the company recently release a new policy that instead of 10, we are now allowed of only 5 days to be converted to cash. Is this a violation of ‘Non Diminution of Benefits’?

    • how long have you been enjoying the 10 VLs and 15 SLs which are convertible to cash. One of the requirements of “non-diminution” rule is that the practice has been going on for a long time. The Supreme Court held that 2 years is a long time. Hence, if in your company, the practice has been going on for 2 years, eliminating or decreasing the said benefit may be considered as violation of the rule.

  3. Hi! I would like to know if it is legal to take away earned leave credits?
    our company has a policy in which all employees hired jan2013 onwards will need to earn leave credits. it will be given every month and can be utilized the next month. that policy also states that all unused credits after our second year of employment, will be converted into cash provided that we have at least 10 days left to use but only half of it will be converted.
    all my unused credits have expired due to i was not able qualify for the cash conversion even though all those points were just earned this year.

    i have been researching and i would like to know if this is againts non-diminution of benefits?
    based on what i have read about this principle (if i understand it correctly) i thought an employee has the right to choose either to use it or convert it into cash.

    please help me understand this.
    i would really appreciate a response.


    • Hi! In accordance with the law, an employee who have been employed for one year is mandatorily entitled to 5 days Service Incentive Leave (combination of VL & SL). If the company will give more than 5 days, the rule on the said leaves will be governed by the company policy. Hence, as long as the company is not giving less than the 5 days SIL, the company policy will govern your leaves as well as your leave credits. The rule on non-diminution of benefits is applicable only if the company suddenly changed a company policy which has been implemented for a long time resulting into the elimination or decrease in the benefits presently enjoyed by the employees.

  4. Hello! I would just like to ask whether our situation falls under the rule of non-diminution of benefits. In our company, we are given 6 VL and 12 SL every year which we could use any month of the year without any conditions. This year, they have change the “conditions”. Such conditions is that we can only use 1 VL every 2 months and 1 SL every month. IF an employee has filed a VL for 4 days in January but the said employee is only entitled to 1 VL for that month, the company will only pay in full 1 day of the leave but the rest (3 days) will be paid in half. The same goes for SL. If an employee files 5 days SL in March, 3 of these SL will be paid in full the rest (2 days) will be paid half.
    Are they allowed to make such conditions?

    Thank you.

    • I don’t think there’s a diminution of benefit since you still receive the same benefit in a year. There just have been changes in how you can use them which I believe is part of management prerogative.

  5. Hi I would like to ask for advice or maybe more clarification about my situation right now. I was in the casino career. Our function is to supervise the operation on the floor. Settle disputes. Go around or walk around the pit for change cards. Check all staff rotation for their break. Making sure they will have a break. . A regular employee. We are given a 25 leave credits in a year including all leave except of the maternal leave. Managerial position. Salary ranging to 64,000 after tax which is 32%.we are given a CTO (compensatory time-off) in every holidays we work they give us 1day CTO. We are not paid for night differential.
    We have 2days off in a week. Before it was freely given on our 8hrs duty 3 years ago. But recently we started to work for 10hrs now for us to continue to have the 2days off in a week.
    My question is :
    1.) About the CTO, now they emplemented that we can only have 3 days CTO in a year. They have given it for 3 years and now they change it. Is it reasonable?
    2.) 10 hrs work is not healthy. Most of us easily get sick. Is it reasonable for them to let us work for such long period of time? Operation is different from office work. Even we are manager we cannot have what office manager receive.

    • As regards to your CTO, if the practice has been going on for three years, then, the changes maybe considered as violation of non-diminution of benefit rule.

      On the 10 hours of work, the two hour is considered as overtime. Under the Labor Code, an employee may only be required to render overtime on the following instances:

      (a) When the country is at war or when any other national or local emergency has been declared by Congress or the Chief Executive;
      (b) When overtime work is necessary to prevent loss of life or property, or in case of imminent danger to public safety due to actual or impending emergency in the locality caused by serious accident, fire, floods, typhoons, earthquake, epidemic or other disaster or calamities;
      (c) When there is urgent work to be performed on machines, installations, or equipment, in order to avoid serious loss or damage to the employer or some other causes of similar nature;
      (d) When the work is necessary to prevent loss or damage to perishable goods;
      (e) When the completion or continuation of work started before the 8th hour is necessary to prevent serious obstruction or prejudice to the business or operations of the employer; or
      (f) When overtime work is necessary to avail of favorable weather or environmental conditions where performance or quality of work is dependent thereon.

      In case your situation does not fall to any of the above, there is a violation of the Labor Code as well as the Constitution.

  6. Hi. I’am searching the net and was led here. Just want to ask, how about non-monetary benefit? It was expressly communicated to me during signing of my contract of employment (although it was not written) that my work schedule is flexible. I don’t have to go to work on time as long as I complete the 8hrs working period. Its been like this for seven years until the company decided to remove it. Is this included in the Non-diminution of Benefits Rule?

    Thank you.

    • If there is no diminution in your current benefits, then, there is no violation. There will be diminution only if you were working for 40 hours a week and you were required to work for 48 hours a week on the same salary. However, if you can prove that one of the conditions in your employment contract is working on a flexible time, then, your employer violated the provisions of your employment contract. However, if its not one of the conditions in your employment contract but a company policy which is subject to management prerogative, then, there is no violation.

  7. Good day!
    Sir,asking advice if its legal to deduct my monthly benifits .?? Working as pharmacist have contract for 3yrs .. my contract expired last oct. This nov they deducted 3k its because i didnt sgn a new contract.. is. This legal??

  8. Hi! Just want to verify if reduction of allowance when employee was demoted is a violation of Art.100. This allowance is being given to employee guided by company policy according to position.

  9. Hi,
    The company that employed me was acquired by another company but recent changes were made to our transportation allowance which was included on my initial contract with the acquired company. This practice has been ongoing for more than 2 years already. The change was made when they had an outsourced agency do our payroll. The agency said that the transpo allowance should be taxed as per the law but I wanted to contest. Does this violate Article 100 of the Labor Code? I hope you can provide me with details so we can proceed with any legal action with the acquiring company.

    • It depends if the two company are separate and distinct from each other. When you say acquired, did you mean to say that there has been no change in your employer and that you did not execute a new employment contract? If you continue to have the same employer, as I stated in my article, as long as the grant of benefits ripened into a company practice or it has been going on for two years, the employer cannot unilaterally withdraw the benefit without violating the “non-diminution of benefit rule”. Hence, if you can prove that the grant of transportation allowance has been going on for two years at the minimum and this grant is not subject to any condition in your employment contract or company policy, the changes made in the allowance is not proper. Your employer cannot justify that there has been a mistake in the percentage of the transpo allowance that you should receive.

  10. Hi Carpe Diem,

    The current company that I am with took out the management team’s (which I am part of) 5% annual increase but have left it for the agents to enjoy. They later on brought it back as 1.5% and after several months, they made it 2% which we are currently eligible of. The company did take/reduce the 5% increase due to the financial deficits they say we have been accruing. This practice of 5% annual increase, although not stipulated on my contract but was discussed verbally by the person who hired me had been consistently given to all employees in the past 6 years (year 2004) by the time I got hired (year 2010). But when I assumed a role that is part of the management team (year 2010) I got affected when they rolled out this change (2012). We consulted our HR through a group petition but we were informed that the company has no legal obligation to bring it back and pay the percentages we’ve missed all these years. And this didn’t fall under the “Non-Diminution of Benefits Law.” Too bad that this have led to salary distortion–demoralizing majority of our managers. The result of taking away the 5% from us and retaining it for the agents, made many of the agents earn way higher than many of us officers.

    Recently, in an effort to still bridge the company’s deficit, they took out our Team Leaders’ Perfect Attendance Bonus (implemented since 2004) and replaced it into something that is performance based. According to our TLs, the chances of acquiring the same amount (3250) can be bleak with the new metrics they’ve rolled out. But just to give you a brief background, all employees are eligible of a Perfect Attendance Bonus of 3250 if an employee had been present for an entire month, regardless of the number of Vacation Leaves (VL) filed and 2 Emergency Leaves. If you did qualify for the Perfect Attendance for 3 consecutive months, then you get an additional 2000 as a quarterly attendance bonus. They have changed this and will be effective come March 1, 2017–and only 1 VL filed will entitle you of a Perfect Attendance Bonus yet you will now lose your Quarterly Bonus. Have these acts violated the said law? Your insights will be very much appreciated. Thank you in advance.

    • What was the reason of HR why it was not considered as violation of the “non-diminution of benefit rule”

      As long as you can prove the following requirements: (a) the practice has been done for a long period of time (minimum of two years); (b) the practice has been done consistently; and (3) the grant of benefits has been unilaterally withdrawn, then, there is a violation.

      With regard to the Bonus based on the attendance, I believe there is a diminution of benefit since the above-requirements for “non-diminution of benefit rule” are present.

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