Republic of the
RICARDO G. PALOMA, G.R. No. 148415
- versus - Present:
QUISUMBING, J., Chairperson,
PHILIPPINE AIRLINES, INC. CARPIO MORALES,
and THE NATIONAL LABOR TINGA,
RELATIONS COMMISSION, VELASCO, JR., and
Respondents. BRION, JJ.
PHILIPPINE AIRLINES, INC., G.R. No. 156764
- versus - Promulgated:
RICARDO G. PALOMA,
Respondent. July 14, 2008
D E C I S I O N
VELASCO, JR., J.:
us are these two consolidated petitions for review under Rule 45 separately
interposed by Ricardo G. Paloma and Philippine Airlines, Inc. (PAL) to nullify
and set aside the Amended Decision
Paloma worked with PAL from September 1957, rising from the
ranks to retire, after 35 years of continuous service, as senior vice president
for finance. In March 1992, or some nine (9) months before Paloma retired on
By way of post-employment benefits, PAL paid Paloma the total amount of PhP 5,163,325.64 which represented his separation/retirement gratuity and accrued vacation leave pay. For the benefits thus received, Paloma signed a document denominated Release and Quitclaim but inscribed the following reservation therein: “Without prejudice to my claim for further leave benefits embodied in my aide memoire transmitted to Mr. Roberto Anonas covered by my 27 Nov. 1992 letter x x x.”
The leave benefits
Paloma claimed being entitled to refer to his 450-day accrued sick leave
credits which PAL allegedly only paid the equivalent of 18 days. He anchored his entitlement on Executive Order
No. (EO) 1077
At your request, we are pleased to confirm herewith the balance of your sick leave credits as they appear in our records: 230 days.
According to our existing policy, an employee is entitled to accumulate sick leave with pay only up to a maximum of 230 days.
Had there been no ceiling as mandated by Company policy, your sick leave credits would have totaled 450 days to date.
Answering Paloma’s written demands for conversion to cash of his accrued sick leave credits, PAL asserted having paid all of Paloma’s commutable sick leave credits due him pursuant to company policy made applicable to PAL officers starting 1990.
The company leave policy adverted to grants PAL’s regular ground personnel a graduated sick leave benefits, those having rendered at least 25 years of service being entitled to 20 days of sick leave for every year of service. An employee, under the policy, may accumulate sick leaves with pay up to 230 days. Subject to defined qualifications, sick leave credits in excess of 230 days shall be commutable to cash at the employee’s option and shall be paid in lump sum on or before May 31st of the following year they were earned. Per PAL’s records, Paloma appears to have, for the period from 1990 to 1992, commuted 58 days of his sick leave credits, broken down as follows: 20 days each in 1990 and 1991 and 18 days in 1992.
Subsequently, Paloma filed before the Arbitration Branch of the National Labor Relations Commission (NLRC) a Complaint for Commutation of Accrued Sick Leaves Totaling 392 days. In the complaint, docketed as NLRC-NCR-Case No. 00-08-05792-94, Paloma alleged having accrued sick leave credits of 450 days commutable upon his retirement pursuant to EO 1077 which allows retiring government employees to commute, without limit, all his accrued vacation and sick leave credits. And of the 450-day credit, Paloma added, he had commuted only 58 days, leaving him a balance of 392 days of accrued sick leave credits for commutation.
Ruling of the Labor Arbiter
WHEREFORE, premises considered, respondent PHILIPPINE AIRLINE[S], INC. is hereby ordered to pay within ten (10) days from receipt hereof herein complainant Ricardo G. Paloma, the sum of Six Hundred Seventy Five Thousand Pesos (P675,000.00) representing his one Hundred sixty two days  accumulated sick leave credits, plus ten (10%) percent attorney’s fees of P67,500.00, or a total sum of P742,500.00.
The labor arbiter held that PAL is not covered by the civil service system and, accordingly, its employees, like Paloma, cannot avail themselves of the beneficent provision of EO 1077. This executive issuance, per the labor arbiter’s decision, applies only to government officers and employees covered by the civil service, exclusive of the members of the judiciary whose leave and retirement system is covered by a special law.
However, the labor arbiter ruled that Paloma is entitled to a commutation of his alternative claim for 202 accrued sick leave credits less 40 days for 1990 and 1991. Thus, the grant of commutation for 162 accrued leave credits.
Both parties appealed the decision of the labor arbiter to the NLRC.
Ruling of the NLRC in NLRC NCR CA No. 009652-95
(NLRC-NCR-Case No. 00-08-05792-94)
WHEREFORE, as recommended, both
appeals are DISMISSED. The decision of
Labor Arbiter Felipe T. Garduque II dated
Both parties moved for reconsideration. In its Resolution of
In view of all the foregoing, our decision dated November 26, 1997, be modified by increasing the sick leave benefits of complainant to be commuted to cash from 162 days to 230 days.
From the above modificatory resolution of the NLRC, PAL went to the CA on a petition for certiorari under Rule 65, the recourse docketed as CA-G.R. SP No. 56429.
Ruling of the CA in its
By a Decision dated
the petition is granted. Public
In time, Paloma sought reconsideration.
WHEREFORE, premises considered, our Judgment, dated 28 April 2000 is hereby vacated and, set aside, and another one entered reinstating the Resolution, dated 10 November 1999, issued by the public respondent National Labor Relations Commission in NLRC NCR Case No. 00-08-05792-94 [NLRC NCR CA No. 009652-95], entitled Ricardo G. Paloma v. Philippine Airlines, Incorporated, with the only modification that the total sums granted by Labor Arbiter Felipe T. Garduque II (P742,500.00, inclusive of the ten percent (10%) attorney’s fees), as affirmed by public respondent National Labor Relations Commission, First Division, in said NLRC Case No. 00-08-05792-94, shall earn legal interest from the date of the institution of the complaint until fully paid/discharged. (Art. 2212, New Civil Code).
Justifying its amendatory action, the CA stated that EO 1077 applies to PAL and necessarily to Paloma on the following rationale: Section 2(1) of Article IX(B) of the 1987 Constitution applies prospectively and, thus, the expressed limitation therein on the applicability of the civil service law only to government-owned and controlled corporations (GOCCs) with original charters does not preclude the applicability of EO 1077 to PAL and its then employees. This conclusion, the CA added, becomes all the more pressing considering that PAL, at the time of the issuance of EO 1077, was still a GOCC and that Paloma had already 29 years of service at that time. The appellate court also stated that since PAL had then no existing retirement program, the provisions of EO 1077 shall serve as a retirement program for Paloma who had meanwhile acquired vested rights under the EO pursuant to Arts. 100 and 287 of the Labor Code.
affirmatively positing the applicability of EO 1077, the Amended Decision still
deferred to PAL’s existing policy on the 230-day limit for accrued sick leave
with pay that may be credited to its employees. Incongruously, while the CA
reinstated the November 10, 1999 Resolution of the NLRC, it decreed the
implementation of the labor arbiter’s Decision dated
Paloma immediately appealed the CA’s Amended Decision
via a Petition for Review on Certiorari under Rule 45, docketed as G.R. No.
148415. On the other hand, PAL first
sought reconsideration of the Amended Decision, coming to us after the CA, per
In G.R. No. 148415, Paloma raises the sole issue of:
WHETHER OR NOT THE [CA], IN HOLDING THAT E.O. NO. 1077 IS APPLICABLE TO PETITIONER AND YET APPLYING COMPANY POLICY BY AWARDING THE CASH EQUIVALENT OF ONLY 162 DAYS SICK LEAVE CREDITS INSTEAD OF THE 450 DAYS SICK LEAVE CREDITS PETITIONER IS ENTITLED TO UNDER E.O. NO. 1077, DECIDED A QUESTION OF SUBSTANCE IN A MANNER CONTRARY TO LAW AND APPLICABLE JURISPRUDENCE.
In G.R. No. 156764, PAL raises the following issues for our consideration:
1. May an employee of a non-government corporation [invoke EO] 1077 which the then President Ferdinand E. Marcos issued on January 9, 1986, solely for the benefit of government officers and employees covered by the civil service?
2. Can a judicial body modify or alter a company policy by ordering the commutation of sick leave credits which, under company policy is non-commutable?
The issues submitted boil down to the question of whether or not EO 1077, before PAL’s privatization, applies to its employees, and corollarily, whether or not Paloma is entitled to a commutation of his accrued sick leave credits. Subsumed to the main issue because EO 1077 applies only to government employees subject to civil service law is the question of whether or not PAL—which, as early as 1960 until its privatization, had been considered as a government-controlled corporation—is covered by and subject to the limitations peculiar under the civil service system.
There can be no quibbling, as a preliminary consideration, about PAL having been incorporated as a private corporation whose controlling stocks were later acquired by the GSIS, which is wholly owned by the government. Through the years before GSIS divested itself of its controlling interests over the airline, PAL was considered a government-controlled corporation, as we said as much in Phil. Air Lines Employees’ Assn. v. Phil. Air Lines, Inc., a case commenced in August 1958 and finally resolved by the Court in 1964. The late Blas Ople, former Labor Secretary and a member of the 1986 Constitutional Commission, described PAL and other like entities spun off from the GSIS as “second generation corporations functioning as private subsidiaries.” Before the coming into force of the 1973 Constitution, a subsidiary of a wholly government-owned corporation or a government corporation with original charter was covered by the Labor Code. Following the ratification of the 1973 Constitution, these subsidiaries theoretically came within the pale of the civil service on the strength of this provision: “[T]he civil service embraces every branch, agency, subdivision and instrumentality of the Government, including every [GOCC] x x x.” Then came the 1987 Constitution which contextually delimited the coverage of the civil service only to a GOCC “with original charter.”
The Court’s Ruling
Considering the applicable law and jurisprudence in the light of the undisputed factual milieu of the instant case, the setting aside of the assailed amended decision and resolution of the CA is indicated.
Core Issue: Applicability of EO 1077
Insofar as relevant, EO 1077 dated
WHEREAS, under existing law and civil service regulations, the number of days of vacation and sick leaves creditable to a government officer or employee is limited to 300 days;
WHEREAS, by special law, members of the judiciary are not subject to such restriction;
WHEREAS, it is the continuing policy of the government to institute to the extent possible a uniform and equitable system of compensation and benefits and to enhance the morale and performance in the civil service.
x x x x
NOW, THEREFORE, I, FERDINAND E.
MARCOS, President of the
Section 1. Any officer [or] employee of the government who retires or voluntary resigns or is separated from the service through no fault of his own and whose leave benefits are not covered by special law, shall be entitled to the commutation of all the accumulated vacation and/or sick leaves to his credit, exclusive of Saturdays, Sundays, and holidays, without limitation as to the number of days of vacation and sick leaves that he may accumulate. (Emphasis supplied.)
Paloma maintains that he comes within the coverage of EO 1077, the same having been issued in 1986, before he severed official relations with PAL, and at a time when the applicable constitutional provision on the coverage of the civil service made no distinction between GOCCs with original charters and those without, like PAL which was incorporated under the Corporation Code. Implicit in Paloma’s contention is the submission that he earned the bulk of his sick leave credits under the aegis of the 1973 Constitution when PAL, being then a government-controlled corporation, was under civil service coverage.
The contention is without merit.
PAL never ceased to be operated as a private corporation, and was not subjected to the Civil Service Law
The Court can allow that PAL, during the period material, was
a government-controlled corporation in the sense that the GSIS owned a
controlling interest over its stocks.
One stubborn fact, however, remains:
Through the years, PAL functioned as a private corporation and managed
as such for profit. Their personnel were never considered government
employees. It may perhaps not be amiss
for the Court to take judicial notice of the fact that the civil service law
and rules and regulations have not actually been made to apply to PAL and its
employees. Of governing application to them was the Labor Code. Consider: (a) Even during the
effectivity of the 1973 Constitution but prior to the promulgation on
Not to be overlooked of course is the 1964 case of Phil. Air Lines Employees’ Assn., wherein the Court stated that “the Civil Service Law has not been actually applied to PAL.”
Given the foregoing considerations, Paloma cannot plausibly be accorded the benefits of EO 1077 which, to stress, was issued to narrow the gap between the leave privileges between the members of the judiciary, on one hand, and other government officers and employees in the civil service, on the other. That PAL and Paloma may have, at a time, come within the embrace of the civil service by virtue of the 1973 Constitution is of little moment at this juncture. As held in National Service Corporation v. National Labor Relations Commission (NASECO), the issue of whether or not a given GOCC falls within the ambit of the civil service subject, vis-à-vis disputes respecting terms and conditions of employment, to the jurisdiction of the Civil Service Commission or the NLRC, as the case may be, resolves itself into the question of which between the 1973 Constitution, which does not distinguish between a GOCC with or without an original charter, and the 1987 Constitution, which does, is in place. To borrow from the 1988 NASECO ruling, it is the 1987 Constitution, which delimits the coverage of the civil service, that should govern this case because it is the Constitution in place at the time the case was decided, even if, incidentally, the cause of action accrued during the effectivity of the 1973 Constitution. This has been the consistent holding of the Court in subsequent cases involving GOCCs without original charters.
It cannot be overemphasized that when Paloma filed his complaint for commutation of sick leave credits, private interests already controlled, if not owned, PAL. Be this as it may, Paloma, when he filed said complaint, cannot even assert being covered by the civil service and, hence, entitled to the benefits attached to civil service employment, such as the right under EO 1077 to accumulate and commute leave credits without limit. In all, then, Paloma, while with PAL, was never a government employee covered by the civil service law. As such, he did not acquire any vested rights on the retirement benefits accorded by EO 1077.
Paloma not entitled to the benefits granted in EO 1077; existing company policy on the matter applies
What governs Paloma’s entitlement to sick leave benefits and the computation and commutation of creditable benefits is not EO 1077, as the labor arbiter and originally the NLRC correctly held, but PAL’s company policy on the matter which, as found below, took effect in 1990. The text of the policy is reproduced in the CA’s April 28, 2000 Decision and sets out the following pertinent rules:
Regular employees shall be entitled to a yearly period of sick leave with pay, the exact number of days to be determined on the basis of the employee’s category and length of service in the company.
A. For ground personnel
2. Sick leave shall be granted only upon certification by a company physician that an employee is incapable of discharging his duties due to illness or injury x x x.
x x x x
3. Sick leave entitlement accrues from the date of an employee’s regular employment x x x.
In case of direct conversion from temporary/daily/project/contract to regular status, regular employment shall be deemed to have begun on the date of the employee’s conversion as a regular employee.
x x x x
4. An employee may accumulate sick leave with pay up to Two Hundred Thirty (230) days;
An employee who has accumulated seventy-five (75) days sick leave credit at the end of each year may, at his option, commute seventy-five percent (75%) of his current sick leave entitlement to cash and the other twenty-five percent (25%) to be added to his accrued sick leave credits up to two hundred thirty (230) calendar days.
The seventy-five percent (75%) commutable to cash as above provided, shall be paid up in lump sum on or before May 31st of the following year.
Sick leave credits in excess of two hundred thirty (230) days shall be commutable to cash at the employee’s option, and shall be paid in lump sum on or before May 31st of the following year it was earned. (Emphasis ours.)
As may be gathered from the records, accrued sick leave credits in excess of 230 days were not, if earned before 1990 when the above policy took effect, commutable to cash; they were simply forfeited. Those earned after 1990, but still subject to the 230-day threshold rule, were commutable to cash to the extent of 75% of the employee’s current entitlement, and payable on or before May 31st of the following year, necessarily implying that the privilege to commute is time-bound.
It appears that Paloma had, as of 1990, more than 230 days of accrued sick leave credits. Following company policy, Paloma was deemed to have forfeited the monetary value of his leave credits in excess of the 230-day ceiling. Now, then, it is undisputed that he earned additional accrued sick leave credits of 20 days in 1990 and 1991 and 18 days in 1992, which he duly commuted pursuant to company policy and received with the corresponding cash value. Therefore, PAL is correct in contending that Paloma had received whatever was due on the commutation of his accrued sick leave credits in excess of the 230 days limit, specifically the 58 days commutation for 1990, 1991, and 1992.
No commutation of 230 days accrued sick leave credits
The query that comes next is how the 230 days accrued sick leave credits Paloma undoubtedly had when he retired are to be treated. Is this otherwise earned credits commutable to cash? These should be answered in the negative.
The labor arbiter granted 162 days commutation, while the NLRC allowed the commutation of the maximum 230 days. The CA, while seemingly affirming the NLRC’s grant of 230 days commutation, actually decreed a 162-day commutation. We cannot sustain any of the dispositions thus reached for lack of legal basis, for PAL’s company policy upon which either disposition was predicated did not provide for a commutation of the first 230 days accrued sick leave credits employees may have upon their retirement. Hence, the NLRC and the CA, by their act of allowing commutation to cash, erred as they virtually read in the policy something not written or intended therein. Indeed, no law provides for commutation of unused or accrued sick leave credits in the private sector. Commutation is allowed by way of voluntary endowment by an employer through a company policy or by a CBA. None of such medium presently obtains and it would be incongruous if the Court fills up the vacuum.
Confronted with a similar situation as depicted above, the Court, in Baltazar v. San Miguel Brewery, Inc., declared as follows:
In connection with the question of whether or not appellee is entitled to the cash value of six months accumulated sick leave, it appears that while under the last paragraph of Article 5 of appellant’s Rules and Regulations of the Health, Welfare and Retirement Plan (Exhibit 3), unused sick leave may be accumulated up to a maximum of six months, the same is not commutable or payable in cash upon the employee’s option.
In our view, the only meaning and import of said rule and regulation is that if an employee does not choose to enjoy his yearly sick leave of thirty days, he may accumulate such sick leave up to a maximum of six months and enjoy this six months sick leave at the end of the sixth year but may not commute it to cash.
In fine, absent any provision in the applicable company policy authorizing the commutation of the 230 days accrued sick leave credits existing upon retirement, Paloma may not, as a matter of enforceable right, insist on the commutation of his sick leave credits to cash.
As PAL’s senior vice-president for finance upon his retirement, Paloma knew or at least ought to have known the company policy on accrued sick leave credits and how it was being implemented. Had he acted on that knowledge in utmost good faith, these proceedings would have not come to pass.
WHEREFORE, the petition under G.R. No. 148415 is hereby DISMISSED for lack of merit, while the petition under G.R. No. 156764 is hereby GIVEN DUE COURSE. The Amended Decision dated May 31, 2001 of the CA in CA-G.R. SP No. 56429 and its Resolution of January 14, 2003 are hereby ANNULLED and SET ASIDE, and the CA Decision dated April 28, 2000 is accordingly REINSTATED.
Costs against Ricardo G. Paloma.
PRESBITERO J. VELASCO, JR.
Associate Justice Associate Justice
ARTURO D. BRION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
 Rollo (G.R. No. 148415), pp. 55-65. Penned by Associate Justice Renato C. Dacudao
(now retired) and concurred in by Associate Justices Bennie A. Adefuin-de la
Cruz and Eliezer R. de los
 Rollo (G.R. No. 156764), pp. 56-57.
 “Revising the Computation of Creditable Vacation and Sick Leaves of Government Officers and Employees.”
 Rollo (G.R. No. 148415), pp. 63-64.
 Rollo (G.R. No. 156764), pp. 61-73,
Position Paper for Complainant, dated
 Art. 100. PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF BENEFITS. Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code.
 Art. 287. RETIREMENT.
x x x x
In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining or other agreements x x x.
 Rollo (G.R. No. 156764), p. 13.
 National Service Corporation v. NLRC, Nos. L-69870 & L-70295, November 29, 1988, 168 SCRA 122, 135.
 Art. II-B, Sec I(1) of the 1973 Constitution.
 Art. IX-B, Sec. 2(1) of the 1987 Constitution.
 National Service Corporation, supra note 21, at 133; citing Philippine Airlines, Inc. v. NLRC, No. L-62961, September 2, 1983, 124 SCRA 583.
 Record of the Constitutional Commission, Vol. I, pp. 583-585; cited in National Service Corporation, supra.
 Phil. Air Lines Employees’ Assn., supra note 20.
 Supra at 397.
 Supra note 21.
 See Postigo v. Philippine Tuberculosis Society, Inc., G.R. No. 155146, January 24, 2006, 479 SCRA 628; Juco v. NLRC, G.R. No. 98107, August 18, 1997, 277 SCRA 528; Davao City Water District v. Civil Service Commission, G.R. Nos. 95237-38, September 13, 1991, 201 SCRA 593; PNOC-Energy Development Corporation v. NLRC, G.R. No. 79182, September 11, 1991, 201 SCRA 487; PNOC-Energy Development Corporation v. Leogardo, G.R. No. 58494, July 5, 1989, 175 SCRA 26; Trade Union of the Philippines and Allied Services (TUPAS) v. National Housing Corporation, G.R. No. 49677, May 4, 1989, 173 SCRA 33; Lumanta v. NLRC, G.R. No. 82819, February 8, 1989, 170 SCRA 79.
 Rollo (G.R. No. 148415), pp. 45-46.
 No. L-23076, February 27, 1969, 27 SCRA 71, 74-75.