Principle on Non-Diminution of Benefits under the Labor Code

Can your employer unilaterally change its existing policy on the use of Vacation Leave and Sick Leave stated in the original Employment Contract through a mere addendum without your consent?

In answering this question, the applicable rule is the Principle on Non-Diminution of Benefits under Article 100 of the Labor Code. Said provision explicitly prohibits employers from eliminating or reducing the benefits received by their employees. This rule, however, applies only if the benefit is based on an express policy, a written contract, or has ripened into a practice. To be considered a practice, it must be consistently and deliberately made by the employer over a long period of time. (Wesleyan University – Phils. v. Wesleyan University – Faculty and Staff Association, G.R. No. 181806, [March 12, 2014], 729 PHIL 240-252).

In our Labor Code, there is no provision requiring employers in a private enterprise to provide Vacation Leave or Sick Leave. In fact, Article 95 of the Labor Code only grants Five (5) day Service incentive leave for employees who have worked at least one year. As such, if an employer provides more than what is required by the Labor Code, the same shall be considered gratuitous which allows them to prescribe its own rules. In the same vein however, if an employer gives benefit that is more than what is required by the Labor Code, such employer cannot take this back or reduce it unilaterally. This is, again, pursuant to Article 100 of the Labor Code on prohibition against elimination or diminution of benefits which provides that:

“nothing in this Book (Book III, Labor Code of the Philippines) 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 (Labor Code of the Philippines).”

Note that these additional benefits may either be written in the employment contract or as part of company policies. In Central Azucarara De Tarlac v. Central Azucarera De Tarlac labor Union-NLU[1] the Supreme Court clarified that the rule against diminution of benefits apply if it is shown that the grant of the benefits is based on an express policy or has ripened into a practice over a long period of time and that the practice is consistent and deliberate.

In our given scenario, the original employment contract explicitly states that all unused Vacation Leave may be converted into cash. While in the subsequent addendum, it states there that vacation leave must actually be used by the employee, otherwise the same shall be forfeited. Also, sick leave credits may now only be used by employees for actual sick leave. This, in effect, limits the available options on how an employee could utilize her available vacation or sick leave credits. As such, if the Addendum imposes a limitation not agreed upon by the concerned employee, unilateral change of the previous policy would violate the Principle on Non-Diminution of Benefits.

Moreover, it may not be amiss to mention that when the provision of the Original Employment Contract is clear, leaving no doubt on the intention of the Employer to grant such previous beneficial option to the employee, the literal meaning of the contract provision shall govern. In fact, even if there is doubt in its interpretation, the Supreme Court has consistently ruled that employment contracts should be resolved in favor of labor or employee, as this is mandated by no less than the Constitution. Note that the contract of employment is the primary law between the employer and the employee, which will govern the parties’ respective rights and obligations. Hence, both employer and employee should complied with their contract in good faith.

Applying now the foregoing with our query, the employee may continue to assert the provisions of the original employment contract. The employer, on the other hand, cannot unilaterally impose the change in policy against its employee who refuses to sign an addendum to that effect. To do otherwise, may constitute violation of the Principle on Non-diminution of Benefits under the Labor Code.


[1]               G.R. No. 188949, 26 July 2010.