What is the divisor used to compute the daily wage of monthly paid employees for the purpose of computing the undertime pay?

April 12, 2010

                       

            The divisor used in arriving at an employee’s daily rate for the purpose of computing salary-related benefits is 261.   From the 365 days in a year, we deduct 104 rest days which gives a total of 261 days. Now, if 261 days is the number of working days of the employees then, there is a disputable presumption that the employees are paid their holiday pay.[1]

 

            In Union of Filipro Employees v. Vivar, Jr.[2] the Court held that “[t]he divisor assumes an important role in determining whether or not holiday pay is already included in the monthly paid employee’s salary and in the computation of his daily rate.” This was also the Supreme Court’s ruling in Chartered Bank Employees Association v. Ople[3] as follows –

It is argued that even without the presumption found in the rules and in the policy instruction, the company practice indicates that the monthly salaries of the employees are so computed as to include the holiday pay provided by law. The petitioner contends otherwise.

One strong argument in favor of the petitioner’s stand is the fact that the Chartered Bank, in computing overtime compensation for its employees, employs a “divisor” of 251 days. The 251 working days divisor is the result of subtracting all Saturdays, Sundays and the ten (10) legal holidays form the total number of calendar days in a year. If the employees are already paid for all non-working days, the divisor should be 365 and not 251.

x              x              x

Any remaining doubts which may arise from the conflicting or different divisors used in the computation of overtime pay and employees’ absences are resolved by the manner in which work actually rendered on holidays is paid. Thus, whenever monthly paid employees work on a holiday, they are given an additional 100% base pay on top of a premium pay of 50%. If the employees’ monthly pay already includes their salaries for holidays, they should be paid only premium pay but not both base pay and premium pay.

 

            If the employer will use 261 as divisor in determining daily rate to compute overtime pay, the daily rate would be lower but an additional premium pay should still be paid to the employee for the eleven (11) holidays.  If 250 is used as divisor, the basic rate used for computing the overtime pay will be higher and the employer will have to pay both the base pay and premium pay for the eleven (11) holidays. 

May an employee who was arrested fro illegal possession of firearms be dismissed? On what ground?

 

            Article 282 of the Labor Code states that an employer may terminate an employee for these causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;

(d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representatives; and

(e) Other causes analogous to the foregoing.

 

           

            When an employee is arrested for the commission of a crime, the employee is prevented from reporting for work by reason of the detention. If his detention turns out to be without basis, as the criminal charge upon which said detention was ordered was later dismissed for lack of evidence, the absences incurred by the employee as a consequence thereof is not only involuntary but also excusable.  It is certainly not the employee’s intention to absent, nor is the detention on an erroneous charge be considered the employee’s fault.  In no way may the absences he incurred under such circumstances be likened to abandonment.  If dismissed on such ground, the dismissal would be illegal.  However, if the employee is convicted and the charge is proven to have basis, the employee may be dismissed for abandonment or neglect of duty.

 

 

            The Supreme Court, in Asian Terminals, Inc., et al.  vs. NLRC[1], held that absences incurred by an employee who is prevented from reporting for work due to his detention to answer some criminal charge is excusable if his detention is baseless, in that the criminal charge against him is not at all supported by sufficient evidence. In Magtoto vs. NLRC[2] as well as Pedroso vs. Castro[3], the High Court declared such absences as not constitutive of abandonment, and held the dismissal of the employee-detainee invalid.

 

           

            The commission of a crime or offense by the employee as a ground for termination of employment refers to an offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representative.  The conviction of an employee in a criminal case is not necessary to warrant dismissal by the employer.  In this case, the employee CANNOT be dismissed on this ground. Neither can this be treated as an analogous cause given that the element of relation to his work or to his employer is absent. 

           

           

            Foregoing premises considered, the fact of being arrested for illegal possession of firearms CANNOT be a ground for dismissal of the employee. However, there may be circumstances peculiar to each case which could cause the situation to properly fall into one of the just causes for termination by the employer particularly in other causes analogous to the specified causes in Article 282 of the Labor Code.

 

 

 

 

Can a probationary employee be terminated even before the expiration of the six(6)-month probationary period?

           Yes.

 

            A probationary employee may be terminated any time before the expiration of the six (6)-month period for just cause or when the employee fails to qualify as a regular employee in accordance with the reasonable standards made known to him by the employer at the start of the employment. Nonetheless, the power of the employer to terminate an employee on probation is not without limitations. First, this power must be exercised in accordance with the specific requirements of the contract. Second, the dissatisfaction on the part of the employer must be real and in good faith, not feigned so as to circumvent the contract or the law; and third, there must be no unlawful discrimination in the dismissal. In termination cases, the burden of proving just or valid cause for dismissing an employee rests on the employer.

           

            The Labor Code provides:

 

ART. 281. Probationary Employment. — Probationary employment shall not exceed six (6) months from the date the employee started working, unless it is covered by an apprenticeship agreement stipulating a longer period. The services of an employee who has been engaged on a probationary basis may be terminated for a just cause or when he fails to qualify as a regular employee in accordance with reasonable standards made known by the employer to the employee at the time of his engagement. An employee who is allowed to work after a probationary period shall be considered a regular employee.

            In MANILA ELECTRIC COMPANY vs. NATIONAL LABOR RELATIONS COMMISSION and MERIS[1], the Supreme Court held that the provision of Article 281 that “probationary employment shall not exceed six 6) months” means that the probationary employee may be dismissed for cause at any time before the expiration of six (6) months after hiring. If after working for less than six (6) months, he is found to be unfit for the job, he can be dismissed. But if he continues to be employed longer than six (6) months, he ceases to be a probationary employee and becomes a regular or permanent employee.

            In the foregoing case, the records showed that private respondent’s superiors did exert reasonable efforts to instruct him and apprise him of “the standard of performance required and explained to him” but “he frequently did not follow what was instructed for him to accomplish.” “Notwithstanding efforts and instructions, his performance was very below what was required of him.” He was also uncooperative toward his co-employees; and disrespectful to his superiors. Under the circumstances, the High Court found  sufficient cause for terminating private respondent’s probationary employment after only four (4)months.

            In EURO-LINEA, PHILS., INC., vs. NLRC and PASCUAL[2], the Supreme Court did not dispute the Petitioner’s claims that the dismissal of the employee in this case was with cause, since Respondent during his period of employment failed to meet the performance standards set by the company; that employers should be given leeway in the application of his right to choose efficient workers and that the determination of compliance with the standards is the prerogative of the employer as long as it is not whimsical; and that it had terminated for cause the respondent before the expiration of the probationary employment. However, the dismissal in this case was not upheld given that the records reveal the contrary fact that the employee was not able to meet the standards of the company.

            A probationary employee must be terminated anytime before the expiration of the six-month probationary period of employment for just cause or for failure to meet the performance standards set by the company.  After the six(6)-month period, the employee becomes a regular employee and may then be terminated only for just or authorized causes. 

            One of the just causes for terminating a probationary employee is the failure to meet the performance standards.  The power of the employer to terminate for this cause, should, however, be exercised without abuse of discretion.  It should be clearly shown that the probationary employee was subject to an evaluation any time within six months from the time of hiring and that such evaluation confirms the incompetence of the probationary employee to continue with the employment.

unconscionable interest

leana Macalinao v. Bank of the Philippine Islands

G.R. No. 175490, 17 September 2009.

 

The Supreme Court ruled in this case that the interest rate and penalty charge of 3% per month or 36% per annum should be reduced as this rate is unconscionable for being clearly excessive.  This is, notwithstanding the fact that said interest rate and penalty charge are reasonable as the same are based on the Terms and Conditions Governing the Issuance and Use of the credit card.  It should be noted that this is not the first time that the Court has considered the interest rate of 36% per annum as excessive and unconscionable. The principle has been affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets.

 

Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand.  The same is true with respect to the penalty charge. Pertinently, Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

 

In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.

 

 

 

Rodelo G. Polotan, Sr. vs CA

G.R. No. 119379, 25 September 1998.

Petitioner’s contract with private respondent in this case, provides for an expressly provides for an escalation clause but not a de-escalation clause.  The Supreme Court ruled that notwithstanding this, the contract provides a leeway for the interest rate to be reduced in case the prevailing market rates dictate its reduction and that said provision on the increase of interest rates is not dependent solely on the will of private respondent as it is also dependent on the prevailing market rates.

It is the Court’s discussion on contracts of adhesion that deserves attention:

A contract of adhesion is one in which one of the contracting parties imposes a ready-made form of contract which the other party may accept or reject, but cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his “adhesion” thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.

Admittedly, the contract containing standard stipulations imposed upon those who seek to avail of its credit services was prepared by the Company. There is no way a prospective credit card holder can object to any onerous provision as it is offered on a take-it-or-leave-it basis. Being a contract of adhesion, any ambiguity in its provisions trust be construed against the Company. Nevertheless, these types of contracts have been declared as binding ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.

The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from a contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid. It is important to stress that the Court is not precluded from ruling out blind adherence to their terms if the attendant facts and circumstances show that they should be ignored for being obviously too one-sided.

 

 

 

Trade & Investment Development Corporation of the Philippines vs. Roblett Industrial Construction Corporation, et al.

G.R. No. 139290, 19 May 2006.

 

            The resulting interest charge in this case has turned out to be excessive in the context of its base computation period, and hence, unwarranted in fact and in operation.

            While the Court recognizes the right of the parties to enter into contracts and who are expected to comply with their terms and obligations, this rule is not absolute. Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the circumstances of each case should be considered. What may be iniquitous and unconscionable in one case, may be just in another. In a number of cases, the Supreme Court equitably reduced the interest rate agreed upon by the parties for being iniquitous, unconscionable, and/or exhorbitant.

 

Development Bank of the Philippines v. Court of Appeals

G.R. No. 137557, October 30, 2000.

            The Supreme Court held in this case that respondents were liable for the stipulated interest rate of 18% per annum but equitably reduced the same to 10% per annum after finding that the interests and penalty charges alone exceeded the amount of the principal debt. As such, the interests were found to be excessive. It was further held that the additional penalty charge of 8% per annum would sufficiently cover whatever else damages petitioner may have incurred such as attorney’s fees and litigation expenses.

 

Leticia Medel vs. CA

G.R. No. 131622, 27 November 1998.

            In this case, the Supreme Court found the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties iniquitous or unconscionable, and, hence, contrary to morals (”contra bonos mores”), if not against the law.  The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.

Adhesion

Rizal Commercial Banking Corp. vs. CA

 G.R. No. 133107, 25 March 1999.

 

            A contract of adhesion is just as binding as ordinary contracts. It is true that on occasion, such contracts had been struck down as void when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not invalid per se; they are not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. While ambiguities in a contract of adhesion are to be construed against the party that prepared the same, this rule applies only if the stipulations in such contract are obscure or ambiguous. If the terms thereof are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. ¹¹ In the latter case, there would be no need for construction.

 

 

 

 

Angeles vs. Calasanz 

G.R. No. L-42283, 18 March 1985.

 

            The contract of adhesion, must be construed against the party causing it. The terms of a contract must be interpreted against the party who drafted the same, especially where such interpretation will help effect justice to persons who would be deprived of their rights thru the application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is most unfair to the other party.

 

 

 

 

Philippine Airlines vs. CA

G.R. No. 119706, 14 March 1996.

 

            The peculiar nature of contracts of adhesion behooves the Supreme Court to closely scrutinize the factual milieu to which the provisions are intended to apply. Thus, just as consistently and unhesitatingly, but without categorically invalidating such contracts, the Court has construed obscurities and ambiguities in the restrictive provisions of contracts of adhesion strictly albeit not unreasonably against the drafter thereof when justified in light of the operative facts and surrounding circumstances.

 

 

 

 

South Pachem Development, Inc. vs. CA

G.R. No. 126260, 16 December 2004.

 

            A contract of adhesion is defined as one where one of the parties imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his “adhesion” thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. These types of contracts have nonetheless been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. Thus, such agreement is not per se inefficacious. Corollarily, should there be any ambiguity in a contract of adhesion, such ambiguity is to be construed against the party who prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations must be held controlling. To reiterate, contracts of adhesion are not prohibited even as the courts remain careful in scrutinizing the factual circumstances and the situation of the parties concerned in the case to determine the respective claims of contending parties on their efficacy and enforceability.

 

 

 

Orient Air Services & Hotel Representatives vs. CA

G.R. No. 76931, 29 May 1991.

 

            Any ambiguity in a “contract of adhesion” is to be taken “contra proferentem“, i.e., construed against the party who caused the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. To put it differently, when several interpretations of a provision are otherwise equally proper, that interpretation or construction is to be adopted which is most favorable to the party in whose favor the provision was made.

 

 

 

Avon Cosmetics, Inc. vs. Luna

G.R. No. 153674, 20 December 2006.

 

            It is true that the Supreme Court has, on occasion, struck down contracts of adhesion as void when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not invalid per se and they are not entirely prohibited.

 

Philippine Commercial International Bank vs. CA

G.R. No. 97785, March 29, 1996.

 

            On previous occasions, it has been declared that a contract of adhesion may be struck down as void and unenforceable, for being subversive to public policy, only when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing.  And when it has been shown that the complainant is knowledgeable enough to have understood the terms and conditions of the contract, or one whose stature is such that he is expected to be more prudent and cautious with respect to his transactions, such party cannot later on be heard to complain for being ignorant or having been forced into merely consenting to the contract.

 

 

 

 

Arquero vs. Flojo

G.R. No. L-68111, 20 December 1988.

 

            The Supreme Court held that contracts of adhesion, where the provisions have been drafted only by one party and the only participation of the other party is the signing of his signature or his adhesion thereto, are contrary to public policy as they are injurious to the public or public good.