In the absence of a formal, written agreement stipulating the currency for sales commissions, an employee is entitled to receive payment in a foreign currency, specifically United States Dollars (USD), if the employer has established a consistent practice of doing so. Furthermore, the exchange rate applicable is that prevailing at the time of payment, not at the time the sales were generated. This ruling protects employees from potential losses due to currency devaluation and ensures that established company practices regarding compensation are maintained, preventing employers from unilaterally diminishing benefits.
From Peso to Dollar: Enforcing Consistent Commission Payments
The case of Netlink Computer Incorporated v. Eric Delmo, G.R. No. 160827, decided on June 18, 2014, revolves around a dispute over the currency in which an employee’s sales commissions should be paid. Eric Delmo, an account manager at Netlink, successfully generated substantial sales, earning commissions in both Philippine pesos and US dollars. When Netlink refused to pay these commissions as expected, citing various issues, Delmo filed a complaint for illegal dismissal. The central legal question is whether an employer can unilaterally change the currency of commission payments from US dollars to Philippine pesos, especially when the practice of paying in US dollars has been consistently followed.
Delmo’s employment with Netlink began on November 3, 1991, and his role was to secure clients for the company’s products and services. He operated primarily in the field and was not subject to strict timekeeping requirements. Over time, Delmo generated approximately P35,000,000.00 in sales, entitling him to commissions of P993,558.89 and US$7,588.30. Upon requesting payment, Netlink denied his claims, offering only partial cash advances. Subsequently, Netlink began to scrutinize Delmo’s performance, citing alleged absences and tardiness, eventually culminating in his being barred from the company premises on November 28, 1996, which led to his filing for illegal dismissal.
Netlink defended its actions by claiming that Delmo had become unproductive and that his largest client had not yet paid the full amount owed. They also argued that disciplinary measures were necessary to enforce company rules. The Labor Arbiter initially ruled in favor of Delmo, declaring his dismissal illegal and ordering Netlink to reinstate him with full backwages and benefits. However, the National Labor Relations Commission (NLRC) modified this decision, finding just cause for Delmo’s termination but still requiring Netlink to pay unpaid commissions, 13th-month pay, and attorney’s fees. The Court of Appeals (CA) largely affirmed the NLRC’s ruling, subject to certain modifications regarding the amounts owed and the applicability of 13th-month pay.
The Supreme Court, in its decision, addressed two key issues: whether the commissions should be paid in US dollars and whether the award of attorney’s fees was warranted. The Court began by referencing Republic Act No. 8183, which states that monetary obligations should be settled in Philippine currency unless the parties agree to settle in another currency at the time of payment. The Court also cited C.F. Sharp & Co. v. Northwest Airlines, Inc., clarifying that the repeal of Republic Act No. 529 removed the prohibition on stipulating payment in foreign currency.
Even though there was no written agreement specifying that Delmo’s commissions would be paid in US dollars, the Court found that Netlink’s established practice of paying sales agents in US dollars for US dollar-denominated sales constituted a company policy. This practice was implicitly admitted by Netlink, which did not deny the payments were made in US dollars but instead argued for using the exchange rate at the time of sale. According to the Court, the principle of non-diminution of benefits, as enshrined in Article 100 of the Labor Code, prevented Netlink from unilaterally altering this practice. Article 100 of the Labor Code states:
Article 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.
The Court emphasized that the phrase “supplements, or other employee benefits” includes any compensation and privileges employees receive beyond their regular salaries or wages. This protection extends to practices that have been consistently observed over a period of time.
The Supreme Court considered several cases to determine the length of time a company practice must be observed to qualify as a voluntary employer practice that cannot be unilaterally reduced or eliminated. For example, in Davao Fruits Corporation v. Associated Labor Unions, the company practice had lasted for six years. Similarly, in Davao Integrated Port Stevedoring Services v. Abarquez, the employer had approved the commutation to cash of unused sick leave benefits for three years and nine months. Other cases, such as Tiangco v. Leogardo, Jr. and Sevilla Trading Company v. Semana, involved practices lasting three years and four months and at least two years, respectively. Although no specific minimum number of years is required, the consistent and established nature of the practice is crucial.
In the case of Delmo, the consistent payment of US dollar commissions constituted such an established practice. Therefore, the Court concluded that the commissions due to Delmo must be paid in US dollars or their equivalent in Philippine currency at the time of payment. To rule otherwise would unjustly diminish the commissions owed to Delmo.
Finally, the Supreme Court affirmed the Court of Appeals’ decision to grant attorney’s fees to Delmo. The CA justified this award by citing Consolidated Rural Bank (Cagayan Valley), Inc. vs. National Labor Relations Commission, which held that attorney’s fees are justified in cases where an employee is forced to litigate to protect their rights and interests. The Supreme Court agreed that Delmo had incurred expenses to enforce his right to commissions, making the award of attorney’s fees appropriate.
FAQs
| What was the key issue in this case? | The key issue was whether an employer could unilaterally change the currency of commission payments from US dollars to Philippine pesos when the practice of paying in US dollars had been consistently followed. |
| What did the Supreme Court rule regarding the currency of payment? | The Supreme Court ruled that if an employer had an established practice of paying commissions in US dollars, the employee was entitled to be paid in US dollars, even without a written agreement. The exchange rate at the time of payment should be used. |
| What is the principle of non-diminution of benefits? | The principle of non-diminution of benefits, as per Article 100 of the Labor Code, prevents employers from unilaterally reducing, diminishing, or eliminating benefits that employees are already receiving. This includes established practices like paying commissions in a specific currency. |
| How long must a company practice be observed to be considered an established practice? | While there is no specific minimum number of years, the practice must be consistent and established. The Supreme Court has considered practices lasting from two to six years as established company practices. |
| Why was attorney’s fees awarded in this case? | Attorney’s fees were awarded because the employee was forced to litigate to protect and enforce his right to his commissions. This falls under the legal justification for awarding attorney’s fees in labor disputes. |
| What is the significance of Republic Act No. 8183 in this case? | Republic Act No. 8183 allows parties to agree on settling obligations in a currency other than Philippine currency at the time of payment, which is relevant to determining whether commissions could be paid in US dollars. |
| What happens if the biggest client of the employee has not paid the company? | The Court of Appeals held, in this case, that when the payment of the commission is made to depend on the future and uncertain event – which is the payment of the accounts by the persons who have transacted business with the petitioner, without payment by the former to the latter, the obligation to pay the commission has not yet arisen. |
| What was the basis of the employer for dismissing Delmo? | Netlink claimed that Delmo had become unproductive and that his largest client had not yet paid the full amount owed. They also argued that disciplinary measures were necessary to enforce company rules. |
In conclusion, the Netlink v. Delmo case underscores the importance of maintaining established company practices, particularly concerning employee compensation. Employers must adhere to consistent payment methods and cannot unilaterally diminish benefits without risking legal repercussions. The ruling serves as a reminder that the principle of non-diminution of benefits is a cornerstone of Philippine labor law, protecting employees from arbitrary changes in their compensation and working conditions.
For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.
Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Netlink Computer Incorporated, vs. Eric Delmo, G.R. No. 160827, June 18, 2014