Separation Pay of Retrenched Employees Should Include Basic Salary and Regular AllowancesAtty Elvin
Under Article 298 of the Labor Code, in case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.
In case of retrenchment to prevent losses, Art. 298 of the Labor Code imposes on the employer an obligation to grant to the affected employees separation pay equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher.
Since the law speaks of “pay,” the question arises, “What exactly does the term connote?” In the case Millares vs. NRLC (G.R. No. 122827 March 29, 1999), the Supreme Court (SC) correlated Art. 298 with Art. 97 of the same Code on definition of terms.
“Pay” is not defined in Art. 97 (f) but “wage.” Citing Songco vs. NLRC [G.R. No. L-50999 March 23, 1990] the SC explained that both words (as well as salary) generally refer to one and the same meaning, i.e., a reward or recompense for services performed.
Specifically, “wage” is defined in letter (f) of Article 97 as the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered and includes the fair and reasonable value, as determined by the Secretary of
Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee.
When an employer customarily furnishes his employee board, lodging or other facilities, the fair and reasonable value thereof, as determined by the Secretary of Labor and Employment, is included in “wage.” In order to ascertain whether the subject allowances form part of petitioner’s “wages,” the SC divided the discussion on the following — “customarily furnished;” “board, lodging or other facilities;” and, “fair reasonable value as determined by the Secretary of Labor.”
“Customary” is founded on long-established and constant practice [SC citing Webster’s Third New International Dictionary, 1993 Ed., p. 559.] connoting regularity. [SC citing Black’s Law Dictionary, Sixth Ed., p. 385.]
The receipt of an allowance on a monthly basis does not ipso facto characterize it as regular and forming part of salary because the nature of the grant is a factor worth considering. [Millares vs. NLRC]
In Santos vs. NLRC [G.R. No. 76721, 21 September 1987, 154 SCRA 166.] the SC decreed that in the computation of separation pay awarded in lieu of reinstatement, account must be taken not only of the basic salary but also of transportation and emergency living allowances.
Later, in Soriano vs. NLRC [G.R. No. 75510, 27 October 1987, 155 SCRA 124.], citing Santos, the SC generally held that the salary base properly used in computing separation pay where reinstatement was no longer feasible should include not just the basic salary but also the regular allowances that the employee had been receiving.
The rationale is not difficult to discern. It is the obligation of the employer to pay an illegally dismissed employee the whole amount of his salaries plus all other benefits, bonuses and general increases to which he would have been normally entitled had he not been dismissed and had not stopped working. The same holds true in case of retrenched employees.
And thus the SC applied the cases of Insular and Soriano in Planters in the computation of separation pay of retrenched employees. Songco likewise involved retrenchment and was relied upon in Planters, Soriano and Santos in determining the proper amount of separation pay.
As culled from the foregoing jurisprudence, separation pay when awarded to an illegally dismissed employee in lieu of reinstatement or to a retrenched employee should be computed based not only on the basic salary but also on the regular allowances that the employee had been receiving.
Where the disputed allowances were not regularly received by employees herein, there is no reason at all for employees to resort to the above cases in support of the claim for payment separation pay computed based on allowances which are not regularly given.
While it is correct that in computing the separation pay of the retrenched employees the basis should be the pay which includes the basic wage and the regular allowances, emphasis must be made on the regularity of such allowance.
As held by the SC in the Millares case, The receipt of an allowance on a monthly basis does not ipso facto characterize it as regular and forming part of salary because the nature of the grant is a factor worth considering.