Labor Laws: What are the limitations to Management Prerogative?


The concept of management prerogative is not absolute.  What are the limitations on the exercise of management prerogative?

1. It must be exercised in good faith.
2. It must not be tainted with unfair labor practice.
3. The exercise of management prerogative must be within the limitations set by law.
4. It must be within the limitations set by the Collective Bargaining Agreement.
5. The exercise must be consistent with the principles of fair play and justice.


RA8042 as amended by RA10022: Migrant Workers and Overseas Filipinos Act


Migrant Workers and Overseas Filipinos Act RA8042 as amended by RA 10022

(Click to download full text of the law)


I included both the provisions of RA8042 and RA10022 for comparison.  Nonetheless, the old provisions are shown in strikethrough format so as to distinguish it from the new ones.

Case Brief: Abad v NLRC

G.R. No. 108996 February 20, 1998

Domingo Abad, et. al., petitioners
Hon. National Labor Relations Commission, Third Division, and Atlantic Gulf and Pacific Co., respondents.


Private respondent Atlantic Gulf and Pacific Co. is a construction company engaged, among other things, in building offshore marine structures for third parties. Petitioners were hired by private respondent. Private respondent treated petitioners as project workers, claiming that the hiring of workers was based on the availability of project contracts and was thus done on and off. Workers were hired for definite periods of time, with tenure depending on the need for each worker’s particular skills.
Petitioners had been in the service of private respondent for a period of three to ten years until their termination on different dates during the period 1973-1976. They instituted two separate complaints before the NLRC praying for reinstatement. They alleged that they were non-project employees who should have become regular employees after completing one year of service and that, as regular employees, they would have been entitled to benefits extended to regular employees under the company’s CBA as well as to other benefits enjoyed by regular employees.

In 1977, both complaints were archived upon motion of petitioners to hold hearings on the cases in abeyance. They filed the motion because at that time an “identical and analogous” case (Jose Abuan, et al. v. AG&P, docketed as NLRC Case No. RBIV-1746-75) was pending appeal in the Office of the Secretary of Labor. The Abuan case was elevated to the Supreme Court and was finally decided on July 11, 1980 when this Court denied for lack of merit the motion filed by petitioners in that case for reconsideration of the Court’s earlier resolution denying their petition for certiorari.

Petitioners moved for the revival of the cases, and the Labor Arbiter ruled in favor of the petitioners. He held that petitioners were non-project employees. In addition, the Labor Arbiter found that petitioners continued working for private respondent even when there were no major projects to work on. Accordingly, the Labor Arbiter ordered private respondent to reinstate petitioners.

Private respondent appealed to the NLRC which reversed the decision of the Labor Arbiter in a ruling dated November 17, 1992. The NLRC cited the case of Abuan, et al. v. AG&P which it said presented substantially the same facts as these cases. It pointed out that petitioners, like the complainants in the Abuan case, also worked in private respondent’s Poro Point Project with contracts of employment with durations ranging from 15 to 30 days. The contracts specified the projects to which the complainants were assigned. The complainants in Abuan were separated from employment due to the expiration of their employment contracts. The workers in that case were held to be project employees, and so should it be for the workers in these cases.

Petitioners assert that the NLRC should have ruled on the issue of whether or not the workers were regular employees based on the available evidence instead of merely invoking stare decisis.


Whether NLRC is correct in invoking stare decisis and reversing the decision of the Labor Arbiter.



Stare decisis declares that, for the sake of certainty, a conclusion reached in one case should be applied to those which follow, if the facts are substantially the same, even though the parties may be different.

Indeed, the facts and the questions involved in Abuan and the present case are the same. Petitioners themselves did admit as much when they filed their motion to hold hearings in abeyance pending the final determination of the issues in Abuan, to avoid any conflict in the decisions in the two cases.

The workers in Abuan and the petitioners were all hired to work in private respondent’s Poro Point Project, and were attached to private respondent’s Offshore and Marine Services Division. Therein, ¾ the workers in the Abuan case had essentially the same nature of employment as petitioners.

Like the workers in Abuan, petitioners in this case also had contracts with periods ranging from 15 days to 30 days. The contracts of both sets of workers were renewed several times such that the workers spent more than a year working for private respondent. The workers in Abuan as well as the petitioners were separated from the service upon the completion of the projects to which they were assigned. After such separation, they filed separate complaints seeking the same relief: recognition of their regular status, their reinstatement and payment of salaries and benefits due regular workers. Thus the workers in Abuan and petitioners in the present case were similarly situated.

Petitioners herein, like the workers in Abuan, are project employees, assigned to work in a particular construction project. They are workers whose employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of their engagement.

WHEREFORE, the petition is DENIED and the decision of the NLRC is AFFIRMED.

Case Brief: Plastic Town Center Corporation v NLRC, et al.

G.R. No. 81176  April 19, 1989





On September 1984, respondent Nagkakaisang Lakas ng Manggagawa (NLM)-Katipunan filed a complaint against petitioner Plastic Town Center Corporation with:

– violation of CBA by crediting the P1 per day increase in gratuity pay to resigning employees instead of 30 days equivalent to one month
– unfair labor practice by giving only 26 days pay instead of 30 days equivalent to one month as gratuity pay to resigning employees.

In the CBA, it was provided that:

Company agreed to grant regular workers who rendered at least one year of continuous service of P1 per worked day.
Company to grant gratuity pay to a resigning employee or laborer amounting to, among others, one month salary for those who rendered two to five years of service.

Plastic Town Center Corporation maintained that under the principle of “fair day’s wage for fair day’s labor”, gratuity pay should be computed on the basis of 26 days for one month salary considering that the employees are daily paid.

Labor Arbiter:  Ruled in favor of NLM Union. As daily wage earner, there would be no instance that the worker would work for 30 days a month since work does not include Sunday or rest days.

NLRC:  Reversed the decision of Labor Arbiter and held that PTC should grant gratuity pay equivalent of thirty days salary.


Whether the PTC’s contention that the gratuity pay should be computed on the basis of 26 days for one month salary instead of 30 days is valid.


No, PTC’s contention does not hold merit in this case.

Gratuity pay is not intended to pay a worker for actual services rendered. It is a money benefit given to the workers whose purpose is “to reward employees or laborers who have rendered satisfactory and efficient service to the company.”

While it may be enforced once it forms part of a contractual undertaking, the grant of such benefit is not mandatory so as to be considered a part of labor standard law unlike salary, which are covered in Labor Code. Nowhere has it ever been stated that gratuity pay should be based on actual number of days worked over the period of years forming its basis. Court saw no point in counting the number of days worked over a ten-year period to determine the meaning of “two and one- half months’ gratuity.”

Moreover any doubts or ambiguity in the contract between management and the union members should be resolved in favor of the laborer. When months are not designated by name, a month is understood to be 30 days.

As such, NLRC did not act with grave abuse of discretion when it decided that the gratuity pay should be equivalent to 30 days.

WHEREFORE, the petition is hereby DISMISSED for lack of merit.

Case Brief: Trans-Asia Phils. Employees Association (TAPEA) v. NLRC, et al.

G.R. No. 118289 December 13, 1999



On 7 July 1988, Trans-Asia Philippines Employees Association (TAPEA) entered into a Collective Bargaining Agreement (“CBA”) with their employer. The CBA provided for, among others, the payment of holiday pay with a stipulation that if an employee is permitted to work on a legal holiday, the said employee will receive a salary equivalent to 200% of the regular daily wage plus a 60% premium pay.

Despite the conclusion of the CBA, however, an issue was still left unresolved with regard to the claim of TAPEA for payment of holiday pay. Since the parties were not able to arrive at an amicable settlement despite the conciliation meetings, TAPEA, led by its President, petitioner Arnie Galvez, filed a complaint for the payment of their holiday pay in arrears. On 18 September 1988, petitioners amended their complaint to include the payment of holiday pay for the duration of the recently concluded CBA (from 1988 to 1991), unfair labor practice, damages and attorney’s fees.

In their Position Paper, TAPEA contended that their claim for holiday pay in arrears is based on the non-inclusion of the same in their monthly pay.

In response, Trans-Asia contended that it has always honored the labor law provisions on holiday pay by incorporating the same in the payment of the monthly salaries of its employees. In support of this claim, Trans-Asia pointed out that it has long been the standing practice of the company to use the divisor of “286” days in computing for its employees’ overtime pay and daily rate deductions for absences.

52 x 44 / 8 = 286 days

Where: 52 = number of weeks in a year

44 = number of work hours per week

8 = number of work hours per day

Trans-Asia further clarified that the “286” days divisor already takes into account the ten (10) regular holidays in a year since it only subtracts from the 365 calendar days the unworked and unpaid 52 Sundays and 26 Saturdays (employees are required to work half-day during Saturdays). Trans-Asia claimed that if the ten (10) regular holidays were not included in the computation of their employees’ monthly salary, the divisor which they would have used would only be 277 days which is arrived at by subtracting 52 Sundays, 26 Saturdays and the 10 legal holidays from 365 calendar days.

Labor Arbiter and NLRC: Dismissed the complaint for lack of merit.

Issue: Whether the Trans-Asia’s use of 286 days as divisor is invalid.


No, it is not in such a way that the Supreme Court adjusted the divisor.

Trans-Asia’s inclusion of holiday pay in petitioners’ monthly salary is clearly established by its consistent use of the divisor of “286” days in the computation of its employees’ benefits and deductions. The use by Trans-Asia of the “286” days divisor was never disputed by petitioners. A simple application of mathematics would reveal that the ten (10) legal holidays in a year are already accounted for with the use of the said divisor. As explained by Trans-Asia, if one is to deduct the unworked 52 Sundays and 26 Saturdays (derived by dividing 52 Saturdays in half since petitioners are required to work half-day on Saturdays) from the 365 calendar days in a year, the resulting divisor would be 286 days (should actually be 287 days). Since the ten (10) legal holidays were never included in subtracting the unworked and unpaid days in a calendar year, the only logical conclusion would be that the payment for holiday pay is already incorporated into the said divisor.

However, SC held that that there is a need to adjust the divisor used by Trans-Asia to 287 days, instead of only 286 days, in order to properly account for the entirety of regular holidays and special days in a year as prescribed by Executive Order No. 203 in relation to Section 6 of the Rules Implementing Republic Act 6727.

Sec. 1 of Executive Order No. 203 provides:

Sec. 1. Unless otherwise modified by law, order or proclamation, the following regular holidays and special days shall be observed in the country:

A. Regular Holidays

New Year’s Day — January 1

Maundy Thursday — Movable Date

Good Friday — Movable Date

Araw ng Kagitingan — April 9

(Bataan and Corregidor Day)

Labor Day — May 1

Independence Day — June 12

National Heroes Day — Last Sunday of August

Bonifacio Day — November 30

Christmas Day — December 25

Rizal Day — December 30

B. Nationwide Special Days

All Saints Day — November 1

Last Day of the Year — December 31

On the other hand, Section 6 of the Implementing Rules and Regulations of Republic Act No. 6727 provides:

Sec. 6. Suggested Formula in Determining the Equivalent Monthly Statutory Minimum Wage Rates. — Without prejudice from existing company practices, agreements or policies, the following formulas may be used as guides in determining the equivalent monthly statutory minimum wage rates:

xxx xxx xxx

d) For those who do not work and are not considered paid on Saturdays and Sundays or rest days:

Equivalent Monthly = Average Daily Wage Rate x 262 days / 12 months

Where 262 days =

250 days — Ordinary working days

10 days — Regular holidays

2 days — Special days (If considered paid; if actually worked, this is equivalent to 2.6

Based on the above, the proper divisor that should be used for a situation wherein the employees do not work and are not considered paid on Saturdays and Sundays or rest days is 262 days. In the present case, since the employees of Trans-Asia are required to work half-day on Saturdays, 26 days should be added to the divisor of 262 days, thus, resulting to 288 days. However, due to the fact that the rest days of petitioners fall on a Sunday, the number of unworked but paid legal holidays should be reduced to nine (9), instead of ten (10), since one legal holiday under E.O. No. 203 always falls on the last Sunday of August, National Heroes Day. Thus, the divisor that should be used in the present case should be 287 days.

However, the Court notes that if the divisor is increased to 287 days, the resulting daily rate for purposes of overtime pay, holiday pay and conversions of accumulated leaves would be diminished. To illustrate, if an employee receives P8,000.00 as his monthly salary, his daily rate would be P334.49, computed as follows:

P8,000.00 x 12 months / 287 days = P334.49/day

Whereas if the divisor used is only 286 days, the employee’s daily rate would be P335.66, computed as follows:

P8,000.00 x 12 months / 286 days = P335.66/day

Clearly, this muddled situation would be violative of the proscription on the non-diminution of benefits under Section 100 of the Labor Code. On the other hand, the use of the divisor of 287 days would be to the advantage of petitioners if it is used for purposes of computing for deductions due to the employee’s absences. In view of this situation, the Court rules that the adjusted divisor of 287 days should only be used by Trans-Asia for computations which would be advantageous to petitioners (i.e., deductions for absences), and not for computations which would diminish the existing benefits of the employees (i.e., overtime pay, holiday pay and leave conversions.)

SC Decision:

WHEREFORE, the Resolutions of the NLRC, dated 23 November 1993 and 13 September 1994, are hereby AFFIRMED with the MODIFICATION that Trans-Asia is hereby ordered to adjust its divisor to 287 days and pay the resulting holiday pay in arrears brought about by this adjustment starting from 30 June 1987, the date of effectivity of E.O. No. 203.

Case Brief: Union of Filipro Employees v. Benigno Vivar, Jr, et al.

G.R. No. 79255 January 20, 1992


We used to have ten (10) regular holidays. This is the reason for the 251 divisor, used by some companies in computing the daily wage, which represents the 365 days of the year, less 52 Saturdays, 52 Sundays and the 10 legal holidays. The new law added one more regular holiday – the Eid’l Fitr. We thus have eleven (11) regular holidays under R.A. 9492:

  • New Year’s Day (January 1)
  • Maundy Thursday (Movable date)
  • Good Friday (Movable date)
  • Eid’l Fitr (Movable date)
  • Araw ng Kagitingan – Bataaan and Corregidor Day (Monday nearest April 9)
  • Labor Day (Monday nearest May 1)
  • Independence Day (Monday nearest June 12)
  • National Heroes Day (Last Monday of August)
  • Bonifacio Day (Monday nearest November 30)
  • Christmas Day (December 25)
  • Rizal Day (Monday nearest December 30)

The Labor Code provides that every worker shall be paid his daily wage during regular holidays. Employers are now required to pay for an extra regular holiday.


On November 8, 1985, respondent Filipro, Inc. (now Nestle Philippines, Inc.) filed with the National Labor Relations Commission (NLRC) a petition for claims of its monthly paid employees for holiday pay.

Abitrator Vivar: Filipro to pay its monthly paid employees holiday pay pursuant to Art 94 of Labor Code, subject to exclusions and limitations in Art 82.

Filipro filed a motion for clarification seeking (1) the limitation of the award to three years, (2) the exclusion of salesmen, sales representatives, truck drivers, merchandisers and medical representatives (hereinafter referred to as sales personnel) from the award of the holiday pay, and (3) deduction from the holiday pay award of overpayment for overtime, night differential, vacation and sick leave benefits due to the use of 251 divisor.

Petitioner UFE answered that the award should be made effective from the date of effectivity of the Labor Code, that their sales personnel are not field personnel and are therefore entitled to holiday pay, and that the use of 251 as divisor is an established employee benefit which cannot be diminished.

Arbitrator Vivar: On January 14, 1986, the respondent arbitrator issued an order declaring that the effectivity of the holiday pay award shall retroact to November 1, 1974, the date of effectivity of the Labor Code. He adjudged, however, that the company’s sales personnel are field personnel and, as such, are not entitled to holiday pay. He likewise ruled that with the grant of 10 days’ holiday pay, the divisor should be changed from 251 to 261 and ordered the reimbursement of overpayment for overtime, night differential, vacation and sick leave pay due to the use of 251 days as divisor.


1) Whether or not Nestle’s sales personnel are entitled to holiday pay; and

2) Whether or not, concomitant with the award of holiday pay, the divisor should be changed from 251 to 261 days and whether or not the previous use of 251 as divisor resulted in overpayment for overtime, night differential, vacation and sick leave pay.


1.  Sales personnel are not entitled to holiday pay.

Under Article 82, field personnel are not entitled to holiday pay. Said article defines field personnel as “non-agritultural employees who regularly perform their duties away from the principal place of business or branch office of the employer and whose actual hours of work in the field cannot be determined with reasonable certainty.”

The law requires that the actual hours of work in the field be reasonably ascertained. The company has no way of determining whether or not these sales personnel, even if they report to the office before 8:00 a.m. prior to field work and come back at 4:30 p.m, really spend the hours in between in actual field work.

Moreover, the requirement that “actual hours of work in the field cannot be determined with reasonable certainty” must be read in conjunction with Rule IV, Book III of the Implementing Rules which provides:

Rule IV Holidays with Pay

Sec. 1. Coverage — This rule shall apply to all employees except:

xxx xxx xxx

(e) Field personnel and other employees whose time and performance is unsupervised by the employer . . . (Emphasis supplied)

Hence, in deciding whether or not an employee’s actual working hours in the field can be determined with reasonable certainty, query must be made as to whether or not such employee’s time and performance is constantly supervised by the employer.

2. The divisor in computing the award of holiday pay should still be 251 days.

While in that case the issue was whether or not salesmen were entitled to overtime pay, the same rationale for their exclusion as field personnel from holiday pay benefits also applies.

The petitioner union also assails the respondent arbitrator’s ruling that, concomitant with the award of holiday pay, the divisor should be changed from 251 to 261 days to include the additional 10 holidays and the employees should reimburse the amounts overpaid by Filipro due to the use of 251 days’ divisor.

The 251 working days divisor is the result of subtracting all Saturdays, Sundays and the ten (10) legal holidays from the total number of calendar days in a year. If the employees are already paid for all non-working days, the divisor should be 365 and not 251.

In the petitioner’s case, its computation of daily ratio since September 1, 1980, is as follows:

monthly rate x 12 months / 251 days

The use of 251 days’ divisor by respondent Filipro indicates that holiday pay is not yet included in the employee’s salary, otherwise the divisor should have been 261.

It must be stressed that the daily rate, assuming there are no intervening salary increases, is a constant figure for the purpose of computing overtime and night differential pay and commutation of sick and vacation leave credits. Necessarily, the daily rate should also be the same basis for computing the 10 unpaid holidays.

The respondent arbitrator’s order to change the divisor from 251 to 261 days would result in a lower daily rate which is violative of the prohibition on non-diminution of benefits found in Article 100 of the Labor Code. To maintain the same daily rate if the divisor is adjusted to 261 days, then the dividend, which represents the employee’s annual salary, should correspondingly be increased to incorporate the holiday pay.

To illustrate, if prior to the grant of holiday pay, the employee’s annual salary is P25,100, then dividing such figure by 251 days, his daily rate is P100.00 After the payment of 10 days’ holiday pay, his annual salary already includes holiday pay and totals P26,100 (P25,100 + 1,000). Dividing this by 261 days, the daily rate is still P100.00. There is thus no merit in respondent Nestle’s claim of overpayment of overtime and night differential pay and sick and vacation leave benefits, the computation of which are all based on the daily rate, since the daily rate is still the same before and after the grant of holiday pay.

SC Decision:

The Court thereby resolves that the grant of holiday pay be effective, not from the date of promulgation of the Chartered Bank case nor from the date of effectivity of the Labor Code, but from October 23, 1984, the date of promulgation of the IBAA case (Insular Bank of Asia and America Employees’ Union (IBAAEU) v. Inciong, where the court declared that Sec 2, Rule IV, Book III of IRR which excluded monthly paid employees from holiday pay benefits, are null and void).

WHEREFORE, the order of the voluntary arbitrator in hereby MODIFIED. The divisor to be used in computing holiday pay shall be 251 days. The holiday pay as above directed shall be computed from October 23, 1984. In all other respects, the order of the respondent arbitrator is hereby AFFIRMED.

Case Brief: Jose Rizal College v National Labor Relations Commission and National Alliance of Teachers/Office Workers

G.R. No. L-65482 December 1, 1987



Petitioner is a non-stock, non-profit educational institution duly organized and existing under the laws of the Philippines.

Private respondent National Alliance of Teachers and Office Workers (NATOW) in behalf of the faculty and personnel of Jose Rizal College filed a complaint against the college for said alleged non-payment of holiday pay from 1975 to 1977.

Labor Arbiter:

  1. The faculty and personnel of the respondent Jose Rizal College who are paid their salary by the month uniformly in a school year, irrespective of the number of working days in a month, without deduction for holidays, are presumed to be already paid the 10 paid legal holidays and are no longer entitled to separate payment for the said regular holidays;
  2. The personnel of the respondent Jose Rizal College who are paid their wages daily are entitled to be paid the 10 unworked regular holidays according to the pertinent provisions of the Rules and Regulations Implementing the Labor Code;
  3. Collegiate faculty of the respondent Jose Rizal College who by contract are paid compensation per student contract hour are not entitled to unworked regular holiday pay considering that these regular holidays have been excluded in the programming of the student contact hours.

NLRC: Teaching personnel paid by the hour are entitled to holiday pay


Whether or not the school faculty who according to their contracts are paid per lecture hour are entitled to unworked holiday pay.


No. The provisions in the Labor Code as to holiday pay do not apply in this case.

Subject holiday pay is provided for in the Labor Code (Presidential Decree No. 442, as amended), which reads:

Art. 94. Right to holiday pay — (a) Every worker shall be paid his regular daily wage during regular holidays, except in retail and service establishments regularly employing less than ten (10) workers;

(b) The employer may require an employee to work on any holiday but such employee shall be paid a compensation equivalent to twice his regular rate; … “

and in the Implementing Rules and Regulations, Rule IV, Book III, which reads:

SEC. 8. Holiday pay of certain employees. — (a) Private school teachers, including faculty members of colleges and universities, may not be paid for the regular holidays during semestral vacations. They shall, however, be paid for the regular holidays during Christmas vacations. …

The aforementioned implementing rule is not justified by the provisions of the law which after all is silent with respect to faculty members paid by the hour. Regular holidays specified as such by law are known to both school and faculty members as no class days;” certainly the latter do not expect payment for said unworked days, and this was clearly in their minds when they entered into the teaching contracts.

On the other hand, both the law and the Implementing Rules governing holiday pay are silent as to payment on Special Public Holidays.

It is readily apparent that the declared purpose of the holiday pay which is the prevention of diminution of the monthly income of the employees on account of work interruptions is defeated when a regular class day is cancelled on account of a special public holiday and class hours are held on another working day to make up for time lost in the school calendar. Otherwise stated, the faculty member, although forced to take a rest, does not earn what he should earn on that day. Be it noted that when a special public holiday is declared, the faculty member paid by the hour is deprived of expected income, and it does not matter that the school calendar is extended in view of the days or hours lost, for their income that could be earned from other sources is lost during the extended days. Similarly, when classes are called off or shortened on account of typhoons, floods, rallies, and the like, these faculty members must likewise be paid, whether or not extensions are ordered.

SC Decision:

(a) exempting petitioner from paying hourly paid faculty members their pay for regular holidays, whether the same be during the regular semesters of the school year or during semestral, Christmas, or Holy Week vacations;

(b) but ordering petitioner to pay said faculty members their regular hourly rate on days declared as special holidays or for some reason classes are called off or shortened for the hours they are supposed to have taught, whether extensions of class days be ordered or not; in case of extensions said faculty members shall likewise be paid their hourly rates should they teach during said extensions.