13th month pay in the midst of COVID-19

May an employer be exempt from paying 13th month pay on the ground of financial losses brought about by the COVID-19 pandemic?

It is provided under the 13th Month Pay Law that employers are required to pay covered employees their 13th month pay which is equivalent to 1/12 of the basic salary earned by the employee within the calendar year.  Note, however, that in the Rules Implementing the Law, which is as old as the Law itself, it is provided that distressed employers, or those suffering from financial losses, may apply with the Department of Labor and Employment for exemption.

The Supreme Court itself recognized the existence, if not the legality, of the exemption being extended to distressed employers.  In Central Azucarera de Tarlac vs. Labor Union G.R. No. 188949, 26 July 2010, the Supreme Court denied the employer’s claim of exemption from the payment of 13th month pay on the ground that it did not get any authorization from the Secretary of Labor.  In so ruling, the Court, citing the 1989 case of Dentech Manufacturing vs. NLRC, G.R. No. 81477, 19 April 1989, declared that under Section 7 of the Rules and Regulations Implementing P.D. No. 851, distressed employers shall qualify for exemption from the requirement of the Decree only upon prior authorization by the Secretary of Labor.

In the end, any application for exemption on account of financial losses brought about by the pandemic shall depend on the discretion of the Secretary of Labor who shall evaluate the supporting documents such as the audited financial statements, subject to the final determination by the Court in case the legality of the exemption is questioned.

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In a recent development, however, the Secretary of Labor issued Labor Advisory No. 28 dated 16 October 2020 disallowing any exemption from or deferment of the payment of 13th month pay for 2020. 

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