Honda Phils. v. Samahan (2005): 13th Month Pay Proration

Honda Philippines and the workers' union, Samahan ng Malayang Manggagawa sa Honda, had a collective bargaining agreement (CBA). It said the company "shall maintain the present practice in the implementation [of] the 13th month pay", would grant a 14th month pay computed the same way, and would continue to give financial assistance in December of not less than 100% of basic pay.

In 1999, after a bargaining deadlock, the union filed a second notice of strike citing unfair labor practice and went on strike for 31 days. The Acting Secretary of Labor assumed jurisdiction and certified the dispute to the NLRC, and the strikers were ordered back to work and accepted back.

On November 22, 1999, Honda announced a new computation: the 31-day strike would be treated as unworked days, and an amount equal to one-twelfth of each worker's basic salary would be deducted from the 13th month pay, 14th month pay and financial assistance. Honda committed to pay back the deduction if the strike was later declared legal. The union objected. The matter went to voluntary arbitration. The voluntary arbitrator ruled the prorated computation invalid and ordered the company to pay each benefit on a full month's basic pay. The Court of Appeals dismissed Honda's petition.

Was Honda's prorated computation of the 13th month pay and the other bonuses valid?

The Supreme Court denied Honda's petition and affirmed the arbitrator's decision in full.

The CBA clause was unclear, so labor gets the benefit of the doubt. The CBA did not say whether the benefits would be based on one full month's basic salary or prorated on the pay actually received. The Court agreed with the arbitrator that this ambiguity had to be resolved in favor of labor, as Article 1702 of the Civil Code requires.

What the 13th month pay rules say. Presidential Decree No. 851, the 13th Month Pay Law, was issued in 1975 to protect the level of real wages. The Court explained that the Revised Guidelines issued on November 16, 1987 removed the decree's ₱1,000 salary ceiling and provided "that the minimum 13th month pay required by law shall not be less than one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year." It added: "The revised guidelines also provided for a pro-ration of this benefit only in cases of resignation or separation from work."

Length of service, not actual pay. The Court quoted the Court of Appeals: "the computation of the 13th month pay should be based on the length of service and not on the actual wage earned by the worker." The workers had no gap in service during that year, so the 13th month pay should be given in full.

Full payment was the company's practice. Honda had never prorated these benefits before; the November 1999 memorandum was the first time. Two workers stated in affidavits that they had received the full benefits even when they were absent after using up their leave. The Court cited earlier rulings that a benefit given freely and continuously ripens into a company practice that the employer cannot withdraw or reduce on its own.

Purpose of the benefit. The Court said the 13th month pay is meant to help workers cope with the rising cost of living. Allowing proration here would also discourage workers from exercising their constitutional rights to self-organization and to strike in accordance with law.

Under the 1987 Revised Guidelines on the 13th month pay as applied in Honda, the 13th month pay is computed on length of service within the calendar year and is prorated only in cases of resignation or separation from work; an employer may not prorate it, or bonuses computed the same way, by treating days of a strike as unworked when there was no gap in service and full payment was the established practice.

Honda is often cited for two points: 13th month pay is prorated only when an employee resigns or is separated, and a benefit that has become company practice cannot simply be cut. The decision also shows that an unclear CBA clause on benefits is read in favor of the workers. For the employer's duty not to reduce benefits already given, see Article 100 of the Labor Code.

This page explains the 2005 decision and the rules it quoted. It does not compute anyone's 13th month pay. For how to compute it, use the 13th month pay guide and the 13th month pay calculator.

Here is a made-up illustration, with invented names. Jun works the whole year for a factory that has always paid 13th month pay in full. In November, the company announces it will deduct the days workers spent on a lawful strike. Under the reasoning in Honda, if Jun had no gap in his service that year and full payment was the company's practice, the deduction may not be allowed. If Jun had resigned in June, a prorated 13th month pay for the months he worked would be the rule.

For a case of your own, see where to find legal help.