Key Takeaway: Government Agencies Must Adhere to Legal Frameworks When Granting Employee Incentives

Social Security System v. Commission on Audit, G.R. No. 231391, June 22, 2021

Imagine a scenario where government employees are granted additional incentives, only to find out years later that these were not legally sanctioned. This was the reality for officials and employees of the Social Security System (SSS) who received what were termed as “Counterpart CNA Incentives.” The case of Social Security System v. Commission on Audit delves into the complexities of employee compensation within government agencies, highlighting the necessity for strict adherence to legal frameworks.

The crux of the case revolved around the SSS’s decision to grant incentives to non-rank and file employees, which were later disallowed by the Commission on Audit (COA). The central legal question was whether the SSS had the authority to provide such incentives without prior executive approval, and if these incentives could be classified as Collective Negotiation Agreement (CNA) incentives.

Legal Context

In the Philippines, the compensation of government employees is governed by various laws and regulations. The Salary Standardization Law (SSL) sets the standard for salaries and benefits across government agencies. However, certain agencies, like the SSS, are exempt from the SSL but must still comply with other guidelines and policies set by the President.

Administrative Order No. 103 (AO 103) is particularly relevant to this case. It directs all government agencies to suspend the grant of new or additional benefits, with exceptions for CNA incentives and those expressly provided by presidential issuance. CNA incentives are benefits agreed upon in a collective negotiation agreement between the employer and the employees’ organization.

“All NGAs, SUCs, GOCCs, GFIs and OGCEs, whether exempt from the Salary Standardization Law or not, are hereby directed to… Suspend the grant of new or additional benefits to full-time officials and employees and officials, except for (i) Collective Negotiation Agreement (CNA) Incentives which are agreed to be given in strict compliance with the provisions of the Public Sector Labor-Management Council Resolutions No. 04, s. 2002 and No. 2, s. 2003; and (ii) those expressly provided by presidential issuance.”

Furthermore, Presidential Decree No. 1597 requires that any compensation plan, including allowances and benefits, must be reported to and approved by the President. This applies even to agencies exempt from the SSL, ensuring a uniform standard of governance.

These legal frameworks are designed to maintain fiscal discipline and ensure that government resources are used responsibly. For example, if a local government unit wanted to provide a special allowance to its employees, it would need to ensure that this allowance is either part of a CNA or has been approved by the President.

Case Breakdown

The saga began when the Social Security Commission (SSC) passed Resolution No. 259 in 2005, granting CNA incentives to members of the Alert and Concerned Employees for Better SSS (ACCESS), and “Counterpart CNA Incentives” to other SSS personnel. These “Counterpart” incentives were paid from 2006 to 2009, amounting to P2,108,213.36.

In 2010, the COA issued a Notice of Disallowance, arguing that these payments contravened AO 103. The SSS appealed, asserting that the payments were made under its authority to fix compensation as per Section 3(c) of Republic Act No. 1161, and were not CNA incentives per se.

The COA Director upheld the disallowance, emphasizing that the payments were not CNA incentives and lacked presidential approval. The COA Proper affirmed this ruling, leading to the SSS’s petition to the Supreme Court.

The Supreme Court’s decision focused on two main points:

• The “Counterpart CNA Incentives” were not CNA incentives as defined by AO 103 because they were not the result of a valid CNA.
• The SSC’s power to fix compensation was not absolute and required presidential approval for such benefits.

The Court quoted, “It must be stressed that the Board’s discretion on the matter of personnel compensation is not absolute as the same must be exercised in accordance with the standard laid down by law… To ensure such compliance, the resolutions of the Board affecting such matters should first be reviewed and approved by the Department of Budget and Management pursuant to Section 6 of PD. No. 1597.”

Another significant quote was, “The SSS cannot rely on Sections 3(c) and 25 of the SS Law either. A harmonious reading of the said provisions discloses that the SSC may merely fix the compensation, benefits and allowances of SSS appointive employees within the limits prescribed by the SS Law.”

The Court ultimately dismissed the petition, affirming the COA’s decision and ordering the recipients to return the disallowed amount.

Practical Implications

This ruling underscores the importance of adhering to legal frameworks when granting employee incentives. Government agencies must ensure that any new benefits are either part of a valid CNA or have presidential approval. This decision may prompt agencies to review their compensation policies and ensure compliance with existing laws.

For businesses and organizations, this case serves as a reminder to carefully navigate the legal landscape when offering incentives to employees, especially if they are part of government or quasi-government entities.

Key Lessons:

• Understand the legal basis for any incentives or benefits offered to employees.
• Ensure that any new benefits comply with relevant laws and regulations, particularly those requiring executive approval.
• Be prepared to justify and document the legal basis for any compensation decisions to avoid future disallowances.

Frequently Asked Questions

What are CNA incentives?

CNA incentives are benefits agreed upon in a collective negotiation agreement between an employer and an employees’ organization, typically applicable to rank and file employees.

Can government agencies grant additional benefits without presidential approval?

No, government agencies must seek presidential approval for any additional benefits not covered by a valid CNA or specific presidential issuance.

What happens if a disallowed benefit has already been received by employees?

Employees who received disallowed benefits are generally required to return the amount received, unless they can prove the benefits were genuinely given in consideration of services rendered.

How can an organization ensure compliance with compensation laws?

Organizations should regularly review their compensation policies, consult with legal experts, and ensure all benefits are legally sanctioned.

What are the potential consequences of non-compliance with compensation laws?

Non-compliance can lead to disallowances, financial penalties, and potential legal action against the officials responsible for the illegal disbursement.

ASG Law specializes in employment and labor law. Contact us or email hello@asglawpartners.com to schedule a consultation and ensure your organization’s compensation practices are legally sound.