Presidential Approval for GOCC Employee Benefits: Lessons from the PMDC Case

The Supreme Court recently clarified an important rule for government-owned and controlled corporations (GOCCs): when granting allowances, benefits, and other perks to employees, securing the President's approval is not optional—even for GOCCs without original charters. In Philippine Mining Development Corporation v. Commission on Audit (G.R. No. 245273, July 27, 2021), the Court upheld a disallowance of over half a million pesos in medical insurance payments because the GOCC failed to obtain the required executive approval.

The Facts of the Case

In 2012, the Philippine Mining Development Corporation (PMDC), a GOCC without an original charter, entered into a contract with Fortune Medicare, Inc. to provide health care coverage for its officers and employees. The contract amounted to P602,810.00, of which P582,617.10 was later disallowed by Commission on Audit (COA) auditors.

The COA issued a Notice of Disallowance against PMDC and several of its officers, holding them personally liable for the amount. The ground: the medical benefits were granted without prior approval from the Office of the President, as required by Presidential Decree No. 1597 (PD 1597).

PMDC appealed, arguing that as a GOCC without an original charter, its employees were governed by the Labor Code rather than civil service rules. The company also claimed that the disallowance violated the non-diminution of benefits rule and that it was denied due process when the COA raised a new ground on appeal.

The Issue

The central question was whether the COA gravely abused its discretion in disallowing PMDC's payment for the health care program. Specifically, the Court examined whether PD 1597's presidential approval requirement applies to GOCCs without original charters.

The Ruling

The Supreme Court dismissed PMDC's petition and upheld the COA's disallowance. The Court ruled that PD 1597 applies to all GOCCs, whether created with or without an original charter.

PD 1597 Remains in Full Force

The Court traced the history of compensation laws for government employees. PD 1597, signed in 1978, standardized compensation and position classification in the national government. Its coverage extends to positions in the national government, including government-owned or controlled corporations and financial institutions.

The Court rejected PMDC's argument that the 1987 Constitution limited salary standardization laws to GOCCs with original charters. While Article IX-B, Sections 2 and 5 of the Constitution refer to GOCCs with original charters, this does not mean GOCCs without original charters are exempt from requirements imposed by Congress.

Significantly, PD 1597 was not repealed by later laws. Republic Act No. 6758 (the Compensation and Classification Act of 1989) expressly retained PD 1597's provisions that are not inconsistent with it. Likewise, Joint Resolution No. 4 (Salary Standardization Law III) continued PD 1597's effectivity.

Presidential Approval Is Mandatory

Under Section 5 of PD 1597, allowances, honoraria, and other fringe benefits granted to government employees must be approved by the President upon recommendation of the Budget Commissioner (now the Department of Budget and Management). The Court found that PMDC admitted it never secured such approval.

Even if PMDC were exempt from the compensation classification system, Section 6 of PD 1597 still requires exempt entities to observe presidential guidelines and report their compensation plans to the President. PMDC failed on both counts.

No Violation of Non-Diminution of Benefits

The Court also rejected PMDC's argument that stopping the medical benefits would violate the Labor Code's prohibition on diminution of benefits. Citing Boncodin v. National Power Corporation Employees Consolidated Union, the Court held that non-diminution of benefits does not protect unauthorized or irregular compensation.

Additionally, the Court noted that PMDC's single, isolated act of providing medical insurance could not be considered a "company practice" that ripened into an enforceable obligation. To claim non-diminution, an employee must prove consistent and deliberate grant of the benefit over a long period.

Due Process Was Observed

Finally, the Court found no denial of due process. PMDC had multiple opportunities to be heard: it appealed the ND to the COA's Corporate Government Sector, filed a petition for review with the COA Commission Proper, and moved for reconsideration before the COA En Banc. The COA is not limited to the auditors' findings and may conduct its own independent assessment of government disbursements.

Practical Takeaways

• GOCCs must secure presidential approval before granting allowances, honoraria, or fringe benefits to employees, regardless of whether the GOCC has an original charter.
• PD 1597 remains in effect despite the passage of later salary standardization laws. It was neither expressly nor impliedly repealed.
• Non-diminution of benefits has limits. The rule protects only benefits that are authorized, regularly granted, and based on express policy, contract, or long-standing practice.
• COA has broad audit powers. It may raise grounds not initially cited by its auditors, and its decisions are entitled to great respect by the courts.
• Officers may be personally liable for disallowed amounts, so compliance with compensation rules is critical for GOCC directors and officers.

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