Employee Benefits and Company Practices: The Importance of Consistency and Clarity

Home Credit Mutual Building and Loan Association and/or Ronnie B. Alcantara v. Ma. Rollette G. Prudente, G.R. No. 200010, August 27, 2020

Imagine starting your job with a promise of a fully-funded company car, only to find out years later that you’re expected to contribute to its cost. This was the reality faced by Ma. Rollette G. Prudente, an employee of Home Credit Mutual Building and Loan Association, who found herself at the center of a legal battle over the company’s car plan. The core issue in this case was whether Home Credit violated the rule on non-diminution of benefits by changing its car plan to include a cost-sharing scheme.

Ma. Rollette Prudente received her first service vehicle from Home Credit in 1997, which she later purchased at its depreciated value. In 2003, she received a second vehicle, but this time, she had to pay an additional equity beyond a set limit. By 2009, when she applied for a third vehicle, Home Credit introduced a new 60%-40% cost-sharing scheme, prompting Prudente to file a complaint for violation of Article 100 of the Labor Code, which prohibits the diminution of employee benefits.

Understanding the Legal Context: Non-Diminution of Benefits

The principle of non-diminution of benefits is enshrined in Article 100 of the Philippine Labor Code, which states: “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.” This provision aims to protect employees from having their benefits reduced or withdrawn without their consent.

In the context of employment, a “benefit” can be any supplement or additional advantage provided by the employer, such as health insurance, bonuses, or, in this case, a service vehicle. For a benefit to be protected under the non-diminution rule, it must be based on an express policy, a written contract, or have ripened into a company practice.

A company practice is established when a benefit is consistently and deliberately granted over a long period of time, with the employer fully aware that the benefit is not legally required. The burden of proof lies with the employee to show that such a practice exists.

Consider a scenario where an employee has been receiving a monthly transportation allowance for ten years without any written agreement. If the employer suddenly decides to stop this benefit, the employee could argue that it has become a company practice and is protected under the non-diminution rule.

The Journey of Ma. Rollette Prudente’s Case

Ma. Rollette Prudente’s legal journey began with the Labor Arbiter (LA), who dismissed her complaint, reasoning that the specifics of the car plan were subject to management prerogative. The National Labor Relations Commission (NLRC) upheld this decision, affirming that the car plan’s details could vary.

However, the Court of Appeals (CA) reversed these findings, ruling that the car plan at full company cost had become a company practice and could not be diminished. The CA ordered Home Credit to provide Prudente with a car at full company cost and awarded her damages.

Home Credit then appealed to the Supreme Court, arguing that the CA erred in its ruling. The Supreme Court’s decision hinged on whether the car plan at full company cost had indeed ripened into a company practice.

The Court noted that Prudente’s employment contract did not contain any express provision for a service vehicle at full company cost. Furthermore, the only time Prudente received a fully-funded vehicle was for her first car. For the second vehicle, she accepted a maximum limit and paid additional equity without objection.

The Supreme Court emphasized that for a benefit to be considered a company practice, it must be consistently and deliberately granted over time. In this case, the elements of consistency and deliberateness were not present, as Prudente had accepted different terms for her second vehicle.

The Court quoted from the case of Arco Metal Products, Co., Inc. v. Samahan ng mga Manggagawa sa Arco Metal-NAFLU (SAMARM-NAFLU, et al.), stating that “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.’”

Ultimately, the Supreme Court reversed the CA’s decision and reinstated the NLRC’s ruling, affirming that Home Credit did not violate the non-diminution rule by introducing the cost-sharing scheme.

Practical Implications and Key Lessons

This ruling underscores the importance of clarity and consistency in employee benefits. Employers must be cautious when introducing changes to benefits, ensuring that such changes do not violate established practices. Employees, on the other hand, should be aware of the terms of their benefits and any changes that may affect them.

For businesses, this case highlights the need for clear communication regarding benefits and the importance of documenting any changes in writing. It also emphasizes the right of employers to exercise management prerogatives, provided they do not infringe on established employee rights.

Key Lessons:

• Employee benefits must be clearly defined in employment contracts or company policies to avoid disputes.
• Changes to benefits should be communicated transparently and, where possible, agreed upon by both parties.
• Employees should document their benefits and any changes to them to protect their rights.

Frequently Asked Questions

What is the non-diminution of benefits rule?

The non-diminution of benefits rule, found in Article 100 of the Labor Code, prohibits employers from reducing, discontinuing, or eliminating benefits that employees are already enjoying.

How can a benefit become a company practice?

A benefit becomes a company practice when it is consistently and deliberately granted by the employer over a long period of time, with the employer fully aware that the benefit is not legally required.

Can an employer change a benefit that has become a company practice?

An employer cannot unilaterally change a benefit that has become a company practice without the consent of the employees, as this would violate the non-diminution rule.

What should employees do if they believe their benefits have been diminished?

Employees should gather evidence of the benefit and any changes made to it, then file a complaint with the appropriate labor tribunal, such as the Labor Arbiter or NLRC.

How can employers protect their rights while ensuring fair treatment of employees?

Employers should clearly document benefits in employment contracts and policies, communicate any changes transparently, and ensure that changes do not violate established practices or legal protections.

ASG Law specializes in labor and employment law. Contact us or email hello@asglawpartners.com to schedule a consultation.