Key Takeaway: Employers Must Honor Established Company Practices on Holiday Pay

Nippon Paint Philippines, Inc. v. Nippon Paint Philippines Employees Association, G.R. No. 229396, June 30, 2021

Imagine receiving a holiday bonus every year, only to have it suddenly taken away. This is the reality that employees of Nippon Paint Philippines, Inc. faced when the company decided to stop paying holiday premiums for Eidul Adha in 2012. The case that followed not only resolved their dispute but also set a significant precedent for how companies handle holiday pay and established practices. At the heart of this legal battle was a question of fairness: Can a company retract a benefit it had been giving for years, claiming it was a mere error?

The case stemmed from a Collective Bargaining Agreement (CBA) between Nippon Paint and its employees’ union, which promised additional holiday pay for listed regular holidays. When the law declared Eidul Adha a regular holiday in 2009, Nippon Paint paid its employees the premium for 2010 and 2011. However, in 2012, the company ceased this payment, arguing it was due to a payroll system error.

Legal Context: Understanding Holiday Pay and Company Practices

Holiday pay is a fundamental right under the Philippine Labor Code, designed to ensure workers are compensated even when they take mandatory days off for national celebrations. Article 94 of the Labor Code states that every worker shall be paid their regular daily wage during regular holidays, with additional compensation for working on these days.

However, the concept of company practice adds another layer to this right. A company practice is established when a benefit is consistently and deliberately given over a significant period, even if not required by law or contract. The principle of non-diminution of benefits, enshrined in Article 100 of the Labor Code, prohibits employers from reducing or eliminating benefits that have become customary.

For example, if a company has been giving employees a Christmas bonus for ten years, it cannot suddenly stop without violating this principle. The Supreme Court has ruled that even benefits given for as short as two years can be considered company practice if they are consistent and deliberate.

Case Breakdown: The Journey to the Supreme Court

The dispute began when Nippon Paint stopped paying the Eidul Adha holiday premium in 2012, after having done so for two years. The employees, represented by the Nippon Paint Philippines Employees Association (NIPPEA), argued that this payment had become a company practice that could not be unilaterally withdrawn.

The case first went to a Voluntary Arbitrator (VA), who ruled in favor of Nippon Paint, stating that the payments were due to a system error and thus did not constitute a company practice. Dissatisfied, NIPPEA appealed to the Court of Appeals (CA), which reversed the VA’s decision. The CA held that the payments had indeed ripened into a company practice, entitling employees to continue receiving the holiday premium.

Nippon Paint then appealed to the Supreme Court, arguing that the payments were never voluntary and intentional but rather a result of a payroll glitch. The Supreme Court, however, upheld the CA’s decision, emphasizing the importance of company practices in labor law.

Justice Inting, writing for the majority, stated, “The Court finds that petitioner’s grant of additional holiday pay for Eidul Adha to its employees for a period of two years ripened into a company practice. Thus, petitioner can no longer withdraw the grant of such additional holiday pay without violating the principle of non-diminution of benefits.”

Justice Leonen, in his concurring opinion, added, “No definite period is prescribed for when the payment of benefits is deemed a company practice. Indeed, it can be as short as two years, so long as this practice is consistent, deliberate, and customary.”

The procedural journey involved:

• Negotiation and signing of the 2007 CBA, which included holiday pay provisions.
• Enactment of Republic Act No. 9849 in 2009, declaring Eidul Adha a regular holiday.
• Payment of holiday premiums for Eidul Adha in 2010 and 2011.
• Discontinuation of these payments in 2012, leading to the dispute.
• Hearing before the Voluntary Arbitrator.
• Appeal to the Court of Appeals.
• Final appeal to the Supreme Court.

Practical Implications: What This Means for Employers and Employees

This ruling reinforces the importance of company practices in labor law. Employers must be cautious when granting benefits, as consistent and deliberate payments can become customary and legally binding. Employees, on the other hand, have a vested right to benefits that have ripened into company practices.

For businesses, this case serves as a reminder to review their payroll practices and ensure that any benefits given are intentional and documented. If a benefit is mistakenly given, it should be addressed promptly to avoid it becoming a customary practice.

Key Lessons:

• Employers should document any changes to benefits and communicate them clearly to employees.
• Employees should be aware of their rights regarding customary benefits and seek legal advice if they believe these rights are being violated.
• Both parties should understand the significance of company practices and the legal implications of discontinuing established benefits.

Frequently Asked Questions

What is a company practice?
A company practice is a benefit or supplement that an employer voluntarily and consistently provides to employees over a significant period, even if not required by law or contract.

How long does a benefit need to be given to become a company practice?
There is no fixed period, but the Supreme Court has ruled that benefits given for as short as two years can be considered a company practice if they are consistent and deliberate.

Can an employer stop a company practice?
An employer cannot unilaterally stop a company practice without violating the principle of non-diminution of benefits. Any change must be negotiated with employees or their representatives.

What should employees do if their employer stops a customary benefit?
Employees should document the history of the benefit and seek legal advice to determine if it has become a company practice. They may file a complaint with the appropriate labor authorities.

How can employers avoid unintended company practices?
Employers should regularly review their payroll and benefits policies, ensure clear communication about any changes, and address any errors promptly to prevent them from becoming customary.

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