Labor Law: Title II Wages; Chapter I Preliminary Considerations

Title II

WAGES

Chapter I

PRELIMINARY MATTERS

Q: May an employer pay some of its employees the agricultural rate and the others, the industrial rate?

Q: What are the different bases of wage calculations?

Q: What are ''facilities"? Are their values deductible from the employee's wage?

Art. 97. Definitions. As used in this Title:

a. “Person” 

means an 

    individual, 

    partnership, 

    association, 

    corporation, 

    business trust, 

    legal representatives, 

    or any organized group of persons.

b. “Employer” 

includes any person 

acting directly or indirectly 

in the interest of an employer 

in relation to an employee

and shall include the government and all its branches, subdivisions and instrumentalities, 

all government-owned or controlled corporations and institutions, 

as well as non-profit private institutions, or organizations.

c. “Employee” 

includes any individual employed by an employer.

d. “Agriculture” 

includes farming in all its branches 

and, among other things,

includes cultivation and tillage of soil, 

dairying, 

the production, cultivation, growing and harvesting 

of any agricultural and horticultural commodities, 

the raising of livestock or poultry, 

and any practices performed by a farmer on a farm 

as an incident to or in conjunction with such farming operations, 

but does not include the manufacturing or processing of 

sugar, coconuts, abaca, tobacco, pineapples or other farm products.

e. “Employ” 

includes to suffer or permit to work.

f. “Wage” 

paid to any employee shall mean 

the remuneration or earnings, 

however designated, 

capable of being expressed in terms of money, 

whether fixed or ascertained on a time, 

task, piece, or commission basis, 

or other method of calculating the same, 

which is payable by an employer to an employee 

under a written or unwritten contract of employment 

for work done or to be done, 

or for services rendered or to be rendered 

and includes the fair and reasonable value, 

as determined by the Secretary of Labor and Employment, 

of board, lodging, or other facilities 

customarily furnished by the employer to the employee. 

“Fair and reasonable value” 

shall not include any profit to the employer, 

or to any person affiliated with the employer.

Notes 

Fair Wage for Fair Work; No Work - No Pay Principle

• A fair day's wage for a fair day's labor governs the relation between labor  and capital and remains a basic factor in determining employees' wages.
• If there is no work performed by the employee, there can be no wage or unless the laborer was able, willing and ready to work but was prevented by management or was illegally locked out, suspended or dismissed. (Philippine Airlines, June 22, 1989) 
• Where the failure of workers to work was not due lo the employer's fault the burden of economic loss suffered by the employees should not be shifted to the employer. Each party must bear his own loss. (SSS, October 23, 1982) 

Philippine Airlines v. NLRC, G.R. No. 55159 December 22, 1989

• Armando Dolina, a trainee pilot with Philippine Airlines, Inc. was terminated due to insufficient flying hours and medical examination results. In 1976, he filed a complaint for illegal dismissal after being put on preventive suspension. In 1977, the Department of Labor Regional OIC lifted the suspension and ordered Dolina's reinstatement with full back wages. The termination issue was referred to the Executive Labor Arbiter. 
• PAL and Dolina agreed to keep him on the payroll pending final resolution of the case by arbitration. In 1979, the Labor Arbiter upheld Dolina's termination, and PAL removed Dolina from the payroll starting April 1, 1979, based on this decision.
• Dolina appealed to the NLRC, which affirmed the termination but ordered PAL to continue paying his salaries until the final resolution of the case.

Issue: WoN the NLRC committed grave abuse of discretion in holding that private respondent Dolina was entitled to his salaries from 1 April 1979 "until this case is finally resolved." YES

In lieu of reinstatement and the payment of his backwages, private respondent was included in petitioner’s payroll, effective from the time he was preventively suspended until final resolution of the case by arbitration, without having to perform any work for the petitioner. In entering into the agreement, the parties could not have intended to include in the clause "final resolution of the case by arbitration" the whole adjudicatory process, including appeal. When the Labor Arbiter renders his decision, compulsory arbitration is deemed terminated because by then the hearing and determination of the controversy has ended.

It is our considered view that the respondent’s application for clearance to dismiss the complainant has sufficiently surmounted the test of validity. In view of the above finding of valid dismissal, the NLRC had no authority to order the continued payment of Dolina’s salaries from 1 April 1979 until the case is finally resolved. The NLRC’s order would result in compensating Dolina for services no longer rendered and when he is no longer in PAL’s employ. This is contrary to the age-old rule of "a fair day’s wage for a fair day’s labor" which continues to govern the relation between labor and capital and remains a basic factor in determining employees’ wage. So that, if there is no work performed by the employee there can be no wage or pay unless the laborer was able, willing and ready to work but was prevented by management or was illegally locked out, suspended or dismissed.

SSS v. SSS Supervisors' Union and CIR, G.R. No. L-31832 October 23, 1982

• PAFLU, a rank and file union, declared a 17-day strike, defying a Court of Industrial Relations (CIR) order to maintain the status quo. Social Security System filed an Urgent Petition to declare the strike illegal.
• SSS Supervisors' Union, filed a Motion for Intervention claiming that they did not join the strike and that the members wanted to report for work but were prevented by the picketers from entering the work premises. They demand their salaries corresponding to the duration of the strike.

WoN the SSS may be held liable for the payment of wages of members of SSS Supervisors' Union who admittedly did not work during the 17-day strike declared in 1968 by the rank and file PAFLU. NO

In this case, the failure to work on the part of the members of respondent Union was due to circumstances not attributable to themselves. But neither should the burden of the economic loss suffered by them be shifted to their employer, the SSS, which was equally faultless, considering that the situation was not a direct consequence of the employer's lockout or unfair labor practice. Under the circumstances, it is but fair that each party must bear his own loss.

Equal Pay for Equal Loss

• Persons who work with substantially equal qualifications, skill, effort and responsibility, under similar conditions, should be paid similar salaries. 
• If an employer accords employees same position and rank, the presumption is that these employees perform equal work. 
• The fact that some teachers are "foreign hires" and the others are "local hires" does not serve as a valid classification to justify the unequal salary of the two groups. The principle of "equal pay for equal work," which is institutionalized in this jurisdiction, must be observed. (International School Alliance of Educators v. Quisumbing, G.R. No. 128845 June 1, 2000)

International School Alliance of Educators v. Quisumbing, G.R. No. 128845 June 1, 2000

• International School, Inc. employs both foreign and local teachers, categorizing them as foreign-hires and local-hires respectively. Foreign-hires receive additional benefits, including housing, transportation, and a 25% higher salary than local-hires. The School justifies the salary difference based on the "dislocation factor" and limited tenure experienced by foreign-hires. 
• The International School Alliance of Educators challenges this distinction, alleging discrimination against Filipinos and racial discrimination in favor of foreign-hires.

WoN the point-of-hire classification employed by the School is discriminatory to Filipinos. YES

Institutionalized in this jurisdiction the long honored legal truism of "equal pay for equal work." Persons who work with substantially equal qualifications, skill, effort and responsibility, under similar conditions, should be paid similar salaries. This rule applies to the School, its "international character" notwithstanding.

If an employer accords employees the same position and rank, the presumption is that these employees perform equal work. This presumption is borne by logic and human experience. If the employer pays one employee less than the rest, it is not for that employee to explain why he receives less or why the others receive more. That would be adding insult to injury. The employer has discriminated against that employee; it is for the employer to explain why the employee is treated unfairly.

The employer in this case has failed to discharge this burden. There is no evidence here that foreign-hires perform 25% more efficiently or effectively than the local-hires. Both groups have similar functions and responsibilities, which they perform under similar working conditions.

Wage Includes Facilities or Commodities

• Article 97 (f) says that "wage" includes the fair and reasonable value of board, lodging, or other facilities customarily furnished by the employer to the employee. 
• This means that an employer may provide, for instance, food and housing to his employees and he may deduct their values from the employee's wages. 
• If, for example, the legal rate for the employee is P 350.00 a day but his paid P 200.00 only, the employee might complain of "underpayment" which is a violation of the wage law. 
• But the employer may argue that the "missing" P 150.00 is the value of food and lodging he provides to the complainant. 
• Then the question shifts to value: Is the P 150.00 too much or too little? Valuation guidelines are given in DOLE Memo Circular No. 2, Series of 1992, (Rule VII-A of the Rules Implementing Book III).

"Facilities" Distinguished From "Supplements"

Facilities

• Include articles or services (such as board and lodging) for the benefit of the employee or his family. (Implementing Rules, Book III, Rule VII)
• But the term does not include tools of the trade or articles or services primarily for the benefit of the employer or necessary to the conduct of the employer's business. 
• The same Rule authorizes the Secretary of Labor and Employment to fix through regulations the fair and reasonable value of facilities furnished to employees. 
• It is required, however, that the facilities be accepted voluntarily by the employee. Otherwise, the cost of the facilities cannot be charged against his wages. 
• Facilities are items of expense necessary for the laborers and his family's existence and subsistence, so that by express provision of the law, they form part of the wage and when furnished by the employer are deductible therefrom, since if they are not so furnished the laborer would spend and pay for them just the same. (Atok-Big Wedge Mutual Benefit Association v. Atok-Big Wedge Mining Co., Inc., GR L-734, July 19, 1955)

Facilities v. Supplements

• Facilities are wage-deductible.
• When a benefit or privilege is part of the laborer's basic wages, it is a facility.
• Supplements are not wage-deductible.
• The criterion lies not so much on the kind of the benefit or item (food, lodging, bonus or sick leave) given, but its purpose. 

Supplements

• It constitutes extra renumeration, or special privileges or benefits given to or received by the laborers over and above their ordinary earnings or wages. 
• The benefit or privilege given to the employee which constitutes an extended renumeration over and above his or ordinary earning or wage, is supplement. 

Requirements for Deduction of Facilities

In any case, an employer must observe certain legal requirements before deducting the value of facilities from the employee's wages:

1. Proof must be shown that the such facilities are customarily furnished by the trade. 
2. The provision of deductible facilities must be voluntarily accepted in writing by the employee.
3. Facilities must be charged at fair and reasonable value. (Mabeza v. NLRC, GR 118506, April 18, 1997)

See IRR Book III, Rule VII-A.

Atok-Big Wedge Mutual Benefit Association v. Atok-Big Wedge Mining Co., Inc., GR L-734, July 19, 1955

• Atok-Big Wedge Mutual Benefit Association submitted demands, including a wage increase, to Atok-Big Wedge Mining Co., Inc. 
• In 1951, the Court of Industrial Relations set the minimum wage at P 2.65 with rice ration or P 3.20 without rice ration. In 1952, the mining company petitioned to stop operations due to financial issues. Instead, parties reached an agreement to allow facilities (rice ration, housing, etc.) to be deducted from the minimum wage effective from 1952 to 1954. It was approved by the Court.
• In 1953, the Supreme Court affirmed the decision of the Court of Industrial Relations fixing the minimum wage. The labor union petitioned for enforcement of the agreement, seeking P 3.45 with rice ration or P 4 without rice ration, and retroactive differential pay as allegedly modified by the decision of the Court and the provisions of the Minimum Wage Law.
• The mining company opposed, claiming the agreement intended to supersede the court decision and Minimum Wage Law, preventing increased production costs.

Issue: WoN the agreement is effective. YES

An agreement to deduct certain facilities received by the laborers from their employer is not a waiver of the minimum wage fixed by the law. Wage, as defined by section 2 of Republic Act No. 602, "includes the fair and reasonable value as determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee." Thus, the law permits the deduction of such facilities from the laborer’s minimum wage of P4, as long as their value is "fair and reasonable." 

Facilities are items of expense necessary for the laborer’s and his family’s existence and subsistence, so that by express provision of the law they form part of the wage and when furnished by the employer are deductible therefrom since if they are not so furnished, the laborer would spend and pay for them just the same. 

Mabeza v. NLRC, GR 118506, April 18, 1997

• Norma Mabeza was an employee of Hotel Supreme in Baguio City. 
• She and her co-employees were allegedly asked to sign an affidavit attesting to the hotel's compliance with minimum wage and other labor standard provisions of law.
• Petitioner signed the affidavit but refused to swear to its contents. She was subsequently ordered to turn over the keys to her living quarters and to remove her belongings from the hotel premises. She was also prevented from returning to work.
• Mabeza filed a complaint for illegal dismissal and underpayment before the NLRC - CAR Baguio City.
• The hotel claimed that she actually abandoned her work. The hotel also raised loss of confidence as reason for termination, supported by a criminal complaint for Qualified Theft filed against the petitioner.

WoN there was an underpayment of wages. YES

Granting that meals and lodging were provided and indeed constituted facilities, such facilities could not be deducted without the employer complying first with certain legal requirements. Without satisfying these requirements, the employer simply cannot deduct the value from the employee’s wages. First, proof must be shown that such facilities are customarily furnished by the trade. Second, the provision of deductible facilities must be voluntarily accepted in writing by the employee. Finally, facilities must be charged at fair and reasonable value. These requirements were not met in the instant case. Private respondent "failed to present any company policy or guideline to show that the meal and lodging . . . (are) part of the salary;" he failed to provide proof of the employee’s written authorization; and, he failed to show how he arrived at the valuations. 

More significantly, the food and lodging, or the electricity and water consumed by the petitioner were not facilities but supplements. A benefit or privilege granted to an employee for the convenience of the employer is not a facility. The criterion in making a distinction between the two not so much lies in the kind (food, lodging) but the purpose.  Considering, therefore, that hotel workers are required to work different shifts and are expected to be available at various odd hours, their ready availability is a necessary matter in the operations of a small hotel, such as the private respondent’s hotel.

Mayon Hotel & Restaurant v. Adana, G.R. No. 157634, May 16, 2005

• Mayon Hotel & Restaurant employed sixteen employees.
• Due to lease contract expiration, the hotel operations were suspended. When operations continued in its new location, only nine employees were retained.
• The 16 employees filed complaints for underpayment of wages and other money claims against the owners.
• Petitioners argued that the cost of food and snacks provided to respondents as facilities should have been included in calculating their wages. They invoked Sections 5 and 6, Rule VII-A, which allow the deduction of facilities provided by the employer through Facility Evaluation Orders by the DOLE Regional Director.

WoN the cost of food and snacks provided to respondents as facilities should have been included in calculating their wages. NO

Even granting that meals and snacks were provided and indeed constituted facilities, such facilities could not be deducted without compliance with certain legal requirements. As stated in Mabeza v. NLRC, the employer simply cannot deduct the value from the employee's wages without satisfying the following: (a) proof that such facilities are customarily furnished by the trade; (b) the provision of deductible facilities is voluntarily accepted in writing by the employee; and (c) the facilities are charged at fair and reasonable value. The records are clear that petitioners failed to comply with these requirements. There was no proof of respondents' written authorization. Indeed, the Labor Arbiter found that while the respondents admitted that they were given meals and merienda, the quality of food served to them was not what was provided for in the Facility Evaluation Orders and it was only when they filed the cases that they came to know of this supposed Facility Evaluation Orders. Petitioner Josefa Po Lam herself admitted that she did not inform the respondents of the facilities she had applied for.

Considering the failure to comply with the above-mentioned legal requirements, the Labor Arbiter therefore erred when he ruled that the cost of the meals actually provided to respondents should be deducted as part of their salaries, on the ground that respondents have availed themselves of the food given by petitioners. The law is clear that mere availment is not sufficient to allow deductions from employees' wages.

The criterion in making a distinction between a supplement and a facility does not so much lie in the kind (food, lodging) but the purpose. Considering, therefore, that hotel workers are required to work different shifts and are expected to be available at various odd hours, their ready availability is a necessary matter in the operations of a small hotel, such as petitioners' business. The deduction of the cost of meals from respondents' wages, therefore, should be removed.

Art. 98. Application of Title. 
This Title shall not apply 

to farm tenancy or leasehold, 

domestic service 

and persons working in their respective homes 

in needle work or in any cottage industry 

duly registered in accordance with law.

Notes

• The intention of this article is to exclude from coverage of Articles 97 through 129 those small businesses that probably cannot afford to pay the wage rates set by law. 
• But this is a general statement. 
• The more specific guides as to who are not covered by minimum wage rates are stated in wage orders, issued from time to time by regional wage boards are stated in Articles 99, 122 and 123. 
• Related to the subject is the BMBE Law. 
• Seeking to spur the growth of small businesses, R.A. No. 9178, approved on November 13, 2002, exempts from the minimum wage law a "barangay micro business enterprise."
• A BMBE is defined as any business entity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading, and services, whose assets including those arising from loans but exclusive of the land on which the particular business entity's office, plant, and equipment are situated, shall not be more than three million pesos (P 3,000,000.00). 
• The wage of domestic workers was the subject of Article 143, which, however, has been repealed by the Kasambahay Law (R.A. No. 10361).