The Supreme Court ruled that Cost of Living Allowances (COLA) and Bank Equity Pay (BEP) are integrated into the standardized salary rates under the Salary Standardization Law (SSL), effectively denying Land Bank of the Philippines (LBP) employees additional payments on top of their basic salaries. This decision clarifies the scope of the SSL, emphasizing that allowances not explicitly excluded are deemed part of the standardized pay, impacting how government-owned and controlled corporations (GOCCs) compensate their employees. The ruling underscores that subsequent laws and compensation plans can modify employee benefits, ensuring that GOCCs adhere to prevailing legal standards while managing their financial responsibilities.

Navigating Compensation: Are COLA and BEP Separate from Basic Pay?

This case revolves around a dispute between Land Bank of the Philippines (LBP) and its employees concerning Cost of Living Allowances (COLA) and Bank Equity Pay (BEP). The employees sought to receive these allowances on top of their basic salaries, arguing that these were mandated by existing Letters of Implementation (LOIs) and that the nullification of Corporate Compensation Circular No. 10 (DBM-CCC No. 10) invalidated LBP’s integration of these allowances into their basic pay. LBP, however, contended that the Salary Standardization Law (SSL) had effectively integrated these allowances and that subsequent legislation granted it autonomy in designing its compensation plan.

The core issue is whether the employees are entitled to receive COLA and BEP in addition to their basic salaries from 1989 onwards. After careful consideration, the Supreme Court ruled against the employees, holding that COLA and BEP are deemed integrated into the standardized salary rates under the SSL. The court emphasized that the validity of the SSL remained despite the nullification of DBM-CCC No. 10. The nullification of the implementing rules does not invalidate the law itself.

The Supreme Court referenced Napocor Employees Consolidated Union (NECU) v. National Power Corporation, clarifying that Republic Act No. 6758, the Compensation and Classification Act of 1989, could still be implemented regardless of the decision in De Jesus v. Commission on Audit. The court underscored that the nullity of DBM-CCC No. 10 does not affect the validity of R.A. No. 6758, and that statutory provisions control the rules and regulations issued pursuant thereto.

To determine whether COLA and BEP should be paid separately from the basic salary, the Court examined Section 12 of the SSL. Section 12 states:

Section 12. Consolidation of Allowances and Compensation. – All allowances, except for representation and transportation allowances; clothing and laundry allowances; subsistence allowance of marine officers and crew on board government vessels and hospital personnel; hazard pay; allowances of foreign service personnel stationed abroad; and such other additional compensation not otherwise specified herein as may be determined by the DBM, shall be deemed included in the standardized salary rates herein prescribed. Such other additional compensation, whether in cash or in kind, being received by incumbents only as of July 1, 1989 not integrated into the standardized salary rates shall continue to be authorized.

This provision mandates the integration of all allowances except those specifically listed. Since COLA and BEP are not among the exceptions, they are deemed integrated into the standardized salaries of LBP employees.

The court cited Abellanosa v. Commission on Audit, which addressed a similar issue regarding the Incentive Allowance of National Housing Authority employees. The court held that “all allowances not specifically mentioned in [Section 12 of the SSL], or as may be determined by the DBM, shall be deemed included in the standardized salary rates prescribed.” This precedent reinforced the principle that allowances not explicitly excluded are integrated into the standardized salary rates.

The Supreme Court also referenced Gutierrez v. DBM, which declared that COLA is one of those allowances deemed integrated under Sec. 12 of the SSL. It is (1) not expressly excluded and (2) intended to reimburse employees for expenses incurred in the performance of their official functions. Therefore, COLA falls under the general rule of integration. The Court held that:

Clearly, COLA is not in the nature of an allowance intended to reimburse expenses incurred by officials and employees of the government in the performance of their official functions.  It is not payment in consideration of the fulfillment of official duty.  As defined, cost of living refers to “the level of prices relating to a range of everyday items” or “the cost of purchasing those goods and services which are  included in an accepted standard level of consumption.”  Based on this premise, COLA is a benefit intended to cover increases in the cost of living.  Thus, it is and should be integrated into the standardized salary rates.

Applying the doctrine of stare decisis et non quieta movere, the Court denied the payment of COLA on top of the LBP employees’ basic salary from July 1, 1989. COLA is not excluded from the general rule on integration and is not meant to reimburse employees for official duty expenses.

The Court determined that the BEP, extended by LBP under LOI 116, is also an additional COLA. LOI 116 was specifically designed to grant a “cost of living allowance”. The LOI states:

Letter of Instruction No. 116

GRANTING A COST OF LIVING ALLOWANCE
TO GOVERNMENT EMPLOYEES
WHEREAS, the energy crisis has brought about world-wide inflation and tremendously increased cost of living in the country;

WHEREAS, it is the policy of government to help augment government personnel income in times of economic crisis and inflation;

WHEREAS, P.D. No. 985 empowered the President to determine the compensation of government employees;

NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the power vested in me by law, do hereby Direct and Order:

1. Each and every official/employee of the National Government, including state universities and colleges, whether permanent, temporary, emergency, contractual or casual, shall be granted a cost of living allowance of P3.35 a day or P100 per month in the case of daily or monthly employees, respectively.

The BEP, similar to COLA, is integrated into the basic salary from July 1, 1989, because it is not expressly excluded and is not granted to reimburse employees for expenses incurred in the performance of their official duties.

Furthermore, the Court noted that the LOIs extending COLA and BEP do not prohibit integration. The LOIs do not mandate that these allowances can only be paid on top of and separate from the basic pay of GFI employees. These LOIs do not control the manner of payment of these allowances.

Even assuming the LOIs prohibited integration, the SSL effectively repealed this proscription. Section 16 of the SSL states:

Section 16. Repeal of Special Salary Laws and Regulations.—All laws, decrees, executive orders, corporate charters, and other issuances or parts thereof, that exempt agencies from the coverage of the System, or that authorize and fix position classification, salaries, pay rates or allowances of specified positions, or groups of officials and employees or of agencies, which are consistent with the System, including the proviso under Section 2, and Section 16 of Presidential Decree No. 985 are hereby repealed.

The SSL specifically repealed the proviso under Sec. 2 of PD 985, which allowed government corporations and financial institutions to establish additional financial incentives for their employees. Since both LOI Nos. 104 and 116 were promulgated under the authority of Sec. 2, PD 985, any mandate regarding the manner of payment of COLA and/or BEP was effectively revoked by the SSL.

Furthermore, even before the effectivity of the SSL, MO No. 177, Series of 1998, issued by then President Corazon Aquino, tempered the allowances given to GOCCs. This order stipulated that incumbents receiving additional monthly compensation/fringe benefits would continue to receive such excess allowance as a “transition allowance,” which would be reduced by any future salary increases or adjustments. Thus, the employees’ claim that they have a vested right over the payment of COLA and BEP on top of the monthly basic salary is unfounded.

The Court also clarified that RA 7907, which exempted LBP from the coverage of the SSL, does not retroactively obliterate the integration rule. Neither did RA 7907 order the separation of COLA and BEP from the basic monthly pay. Instead, RA 7907 granted LBP the autonomy to design its compensation plan, deciding whether to integrate COLA and BEP into the basic pay. It is at once apparent from the quoted provision that, by RA 7907, petitioner LBP had been given sufficient independence and autonomy to design its own compensation plan, i.e., to decide whether to integrate the COLA and the BEP into the basic pay.

Importantly, the employees did not question the fact of integration. The appellate court had found that the subject allowances were integrated into the basic pay, albeit supposedly insufficiently. The actual integration of these allowances defeats the allegation of total deprivation or withholding. The Supreme Court reiterates the established rule that under Section 12 of RA 6758 (the SSL), additional compensation already being received by the employees of petitioner, but not integrated in the standardized salary rates shall continue to be given. The Court has previously reasoned that if an allowance has already been integrated, there is nothing to be back paid.

Finally, the argument that Galang v. Land Bank of the Philippines supports the claim for back payment of COLA was dismissed. The Supreme Court clarified that the ruling in Galang did not mandate the payment of COLA as a separate item from the basic salary. The portion regarding the payment of COLA from 1990 to 1995 was merely to emphasize that the employee was entitled to the allowance he was totally deprived of. The Court noted that COLA had long been replaced by PERA, further disproving the entitlement of LBP employees to COLA until the final resolution of the case. The Court concludes, WHEREFORE, the instant petition is GRANTED and the decision to make back payments of allowances is reversed.

FAQs

What was the central issue in this case?	The central issue was whether Land Bank of the Philippines (LBP) employees were entitled to receive Cost of Living Allowance (COLA) and Bank Equity Pay (BEP) separately from their basic salaries from 1989 onwards. This hinged on the interpretation and application of the Salary Standardization Law (SSL).
What is the Salary Standardization Law (SSL)?	The SSL, or Republic Act No. 6758, is a law prescribing a revised compensation and position classification system in the government. It aims to standardize salary rates and integrate various allowances into the basic pay of government employees.
What is DBM-CCC No. 10, and why was it mentioned?	DBM-CCC No. 10, or Corporate Compensation Circular No. 10, was issued by the Department of Budget and Management (DBM) to implement the SSL for government-owned and/or controlled corporations (GOCCs) and government financial institutions (GFIs). It was initially nullified due to non-publication, leading to questions about its effect on the integration of allowances.
How did the court address the argument that the nullification of DBM-CCC No. 10 invalidated the integration of allowances?	The court clarified that the nullification of DBM-CCC No. 10 did not affect the validity of the SSL itself. The SSL’s provisions remained in effect, mandating the integration of allowances not specifically exempted, regardless of the status of its implementing rules.
What allowances were not included in the standardization of salary rates as per the SSL?	The allowances not included were representation and transportation allowances, clothing and laundry allowances, subsistence allowance of marine officers and crew on board government vessels and hospital personnel, hazard pay, allowances of foreign service personnel stationed abroad, and other additional compensation as determined by the DBM.
How did the court justify the integration of COLA and BEP into the basic salary?	The court reasoned that COLA and BEP were not among the allowances specifically excluded by the SSL. Moreover, COLA is intended to cover increases in the cost of living rather than to reimburse expenses incurred in the performance of official duties.
What was the impact of RA 7907 on LBP’s compensation system?	RA 7907 exempted LBP from the coverage of the SSL, granting the bank autonomy to design its own compensation plan. This meant LBP could decide whether to integrate COLA and BEP into the basic pay, subject to the approval of its Board of Directors.
What did the court mean by the phrase “the fact of integration has not been questioned?”	This meant that the employees did not dispute that LBP had, in fact, integrated COLA and BEP into their basic salaries. The employees only argued that they were entitled to those benefits as a separate payment on top of their salaries.
How did the court address the prior ruling in Galang v. Land Bank of the Philippines?	The court clarified that the Galang case did not resolve the issue of the validity of integrating COLA and BEP into basic salaries. The order to pay COLA in Galang was specific to the facts of that case and did not establish a precedent for paying COLA separately from basic salaries in all instances.

In conclusion, the Supreme Court’s decision in Land Bank of the Philippines vs. Naval underscores the primacy of the SSL in standardizing government employee compensation. This ruling clarifies that allowances not explicitly excluded are deemed integrated into the basic salary, promoting consistency and preventing double compensation. The autonomy granted to GOCCs like LBP to design their compensation plans must align with prevailing legal standards, ensuring fair and sustainable compensation practices.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Land Bank of the Philippines vs. David G. Naval, Jr., G.R. No. 195687, April 14, 2014