Rice Allowance and the Salary Standardization Law: The LWUA-COA Ruling Explained

The Supreme Court's 2005 ruling in De Jesus v. Commission on Audit settled an important question for government employees: when may an allowance given before the Salary Standardization Law continue to be paid afterward? The case involved rice allowances granted to officials and employees of the Local Water Utilities Administration (LWUA), a government-owned and controlled corporation. The decision clarifies the limits of the Commission on Audit's (COA) power to disallow such benefits and reaffirms the principle of non-diminution of pay.

The Facts of the Case

Since 1982, LWUA officials and employees received a rice subsidy, initially P200.00 every two months, later increased to P350.00, and eventually to P600.00 per month by 1991. These grants were made through LWUA Board resolutions.

In 1989, Congress passed Republic Act No. 6758, the Salary Standardization Law, which consolidated most allowances into standardized salary rates. The law, however, contained an important exception: additional compensation being received by incumbents as of July 1, 1989, that was not integrated into the standardized rates "shall continue to be authorized."

The Department of Budget and Management (DBM) issued Corporate Compensation Circular No. 10 (DBM-CCC No. 10) to implement the law for government-owned corporations. This circular imposed conditions on the continued grant of allowances like the rice subsidy, requiring appropriate authorization from the DBM, the Office of the President, or legislative issuances.

The LWUA Corporate Auditor disallowed the rice allowance payrolls for 1991 to 1994, citing Section 12 of R.A. No. 6758 and DBM-CCC No. 10. The COA sustained the disallowance, and the LWUA officials and employees appealed to the Supreme Court.

The Issue

The central question was whether the rice allowance granted to LWUA officials and employees after the effectivity of R.A. No. 6758 could still be given separately, or whether it was already included in the standardized salary rates and therefore subject to disallowance.

The Ruling

The Supreme Court granted the petitions and set aside the COA decision. The Court ruled that the rice allowance could continue to be paid to incumbents as of July 1, 1989.

First, the Court noted that DBM-CCC No. 10 was already declared ineffective in an earlier case, De Jesus v. COA, because it was never published in the Official Gazette or a newspaper of general circulation. Following the doctrine in Tañada v. Tuvera, an administrative circular that implements a law must be published to be effective and enforceable.

Second, the Court rejected the COA's interpretation of Section 12 of R.A. No. 6758. The COA argued that the phrase "shall continue to be authorized" meant the grant was not automatic and required prior approval from the DBM, the Office of the President, or a legislative issuance. The Court disagreed, stating that the second sentence of Section 12 does not qualify as to the source of the benefit. It is enough that the benefit existed prior to the effectivity of R.A. No. 6758 and that it was not included in the standardized salary rates.

Third, the Court found that Memorandum Order No. 177, which governed transition allowances for government-owned corporations, expressly directed the continuous grant of allowances, including those authorized solely by governing boards, without qualification. The procedural requirements under DBM-CBC No. 15 could not override this clear directive.

The Two Requirements for Continued Allowances

The Court clarified that under Section 12 of R.A. No. 6758, only two requirements must be met for the continued grant of allowances and fringe benefits on top of standardized salary rates:

1. The employee must be an incumbent as of July 1, 1989.
2. The allowance or benefit was not consolidated into the standardized salary rate prescribed by R.A. No. 6758.

The Court emphasized that this interpretation protects the principle of non-diminution of pay, consistent with earlier rulings in Philippine Ports Authority v. COA and Philippine International Trading Corporation v. COA.

Practical Takeaways

• Incumbents are protected. Government employees who were already receiving an allowance as of July 1, 1989, and whose allowance was not integrated into standardized salaries, may continue receiving it.
• Publication matters. Administrative circulars that implement laws must be published in the Official Gazette or a newspaper of general circulation. Unpublished circulars are ineffective and cannot be used to disallow employee benefits.
• Board-authorized benefits count. Allowances authorized solely by a governing board, without prior DBM or presidential approval, may still qualify for continued grant under the law.
• COA's disallowance power has limits. While COA may disallow unauthorized disbursements of public funds, it cannot impose conditions not found in the law itself.
• Non-diminution of pay is a guiding principle. Both Sections 12 and 17 of R.A. No. 6758 are intended to protect incumbents receiving salaries and allowances when the law took effect.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.