Non-Diminution of Benefits
The principle of non-diminution of benefits is enshrined in Article 100 of the Labor Code provides that:
“No employer shall reduce any benefit or compensation of an employee in any manner.”
This ensures that benefits enjoyed by employees under existing employment contracts, company policies, or practices cannot be reduced, discontinued, or diminished unilaterally by the employer. This principle protects workers’ entitlements such as bonuses, allowances, and other monetary and non-monetary benefits, providing stability in the employer-employee relationship.
The doctrine aims to prevent arbitrary actions that could undermine the workers’ compensation package and maintain the mutual trust between employers and employees.
1. Legal Definition and Scope
Article 100 of the Labor Code explicitly prohibits the elimination or reduction of existing employee benefits. These benefits include, but are not limited to, holiday pay, overtime pay, night shift differentials, allowances, bonuses, and other benefits provided either by law, employment contracts, company policies, or collective bargaining agreements.
Companies are required to ensure that once a benefit has been granted, it becomes part of the compensation package unless a valid cause to revoke it exists, such as bankruptcy or financial distress.
Leading Case: TSPIC Corporation v. TSPIC Employees Union-NFL (G.R. No. 163419, 2007)
Facts: The employer sought to reduce certain employee benefits due to operational cost-cutting measures. The employees resisted, invoking the principle of non-diminution of benefits.
Ratio Decidendi: The Supreme Court ruled that once benefits are enjoyed by employees over time, they cannot be reduced or withdrawn unless mutually agreed upon by both parties. This case reaffirmed that cost-cutting is not a valid ground for diminishing long-standing employee benefits.
2. Exceptions to the Rule
The rule on non-diminution is not absolute. Some exceptions are:
• Waiver or Collective Bargaining Agreement (CBA): Employees may agree to reduce benefits through collective negotiations if this is done voluntarily and is beneficial to the group. However, any waiver must be done consciously and with the consent of the majority.
Employers facing legitimate financial losses may seek to renegotiate benefits under a CBA.
Leading Case: Philtranco Service Enterprises, Inc. v. Philtranco Workers Union-Association of Labor Unions (G.R. No. 180962, 2009)
Facts: Due to financial difficulties, the company proposed to reduce benefits provided under the existing CBA.
Ratio Decidendi: The Supreme Court ruled that if a benefit reduction is approved through a valid CBA negotiation, it is lawful, provided that such waiver is expressed clearly and the reduction is necessary for the survival of the business.
3. Company Practice
• The principle of non-diminution also extends to company practices that are not explicitly part of written contracts but are considered a norm in the workplace. If a benefit has been consistently granted over time, it becomes an entitlement that the employer cannot reduce or discontinue.
Leading Case: Davao Fruits Corporation v. Associated Labor Unions (G.R. No. 85073, 1993)
Facts: Davao Fruits Corporation argued that a certain allowance it had been providing for several years was a voluntary company practice, which it could discontinue at any time.
Ratio Decidendi: The Supreme Court ruled that benefits given regularly for an extended period become part of an implied company policy and cannot be unilaterally withdrawn or reduced by the employer.
4. Benefits Arising from Employment Contracts
Benefits explicitly provided in employment contracts are strictly enforceable. An employer’s unilateral action to reduce such benefits is considered a breach of contract and a violation of the non-diminution principle.
If a company agrees to pay a bonus as part of the employee’s contract, it cannot retract this later without facing legal consequences.
Leading Case: Metro Transit Organization, Inc. v. NLRC (G.R. No. 139749, 2004)
Facts: The employer reduced benefits stipulated in the employment contracts of their employees, citing changes in management and company policy.
Ratio Decidendi: The Court upheld that reducing or eliminating benefits explicitly stated in contracts is a violation of the law. Contractual obligations must be upheld unless the change is mutually agreed upon.
5. Impact of Financial Losses or Restructuring
Employers may argue financial loss or operational restructuring as grounds for reducing benefits. However, the courts have generally rejected this unless the reduction is agreed upon by the employees through proper channels like a CBA.
Leading Case: Tanduay Distillers, Inc. v. NLRC (G.R. No. 177336, 2008)
Facts: The company attempted to revoke an existing transportation allowance due to alleged financial difficulties.
Ratio Decidendi: The Court emphasized that financial difficulty alone does not justify the diminution of benefits that employees have long enjoyed unless such financial status genuinely threatens the viability of the company and is demonstrated clearly.