Labor Law: Title II Wages; Chapter V Wage Studies, Wage Agreements and Wage Determination; Arts. 120 - 127

Title II

WAGES

Chapter V

Wage Studies, Wage Agreements and Wage Determination

Arts. 120 - 127


Q: If I cannot afford to pay the legal minimum wage to my employee, what help can I ask from the government 

Q: If the salaries of some of my employees are distorted because I complied with a wage order, is it my obligation as the employer to correct the distortion?

Art. 120. Creation of National Wages and Productivity Commission. 
There is hereby created a National Wages and Productivity Commission, hereinafter referred to as the Commission, which shall be attached to the Department of Labor and Employment (DOLE) for policy and program coordination. (As amended by Republic Act No. 6727, June 9, 1989).


Art. 121. Powers and functions of the Commission.
The Commission shall have the following powers and functions:
  1. To act as the national consultative and advisory body to the President of the Philippines and Congress on matters relating to wages, incomes and productivity;
  2. To formulate policies and guidelines on wages, incomes and productivity improvement at the enterprise, industry and national levels;
  3. To prescribe rules and guidelines for the determination of appropriate minimum wage and productivity measures at the regional, provincial, or industry levels;
  4. To review regional wage levels set by the Regional Tripartite Wages and Productivity Boards to determine if these are in accordance with prescribed guidelines and national development plans;
  5. To undertake studies, researches and surveys necessary for the attainment of its functions and objectives, and to collect and compile data and periodically disseminate information on wages and productivity and other related information, including, but not limited to, employment, cost-of-living, labor costs, investments and returns;
  6. To review plans and programs of the Regional Tripartite Wages and Productivity Boards to determine whether these are consistent with national development plans;
  7. To exercise technical and administrative supervision over the Regional Tripartite Wages and Productivity Boards;
  8. To call, from time to time, a national tripartite conference of representatives of government, workers and employers for the consideration of measures to promote wage rationalization and productivity; and
  9. To exercise such powers and functions as may be necessary to implement this Act.
The Commission shall be composed of 
the Secretary of Labor and Employment as ex-officio chairman, 
the Director-General of the National Economic and Development Authority (NEDA) as ex-officio vice-chairman, 
and two (2) members each from workers’ and employers’ sectors 
who shall be appointed by the President of the Philippines 
upon recommendation of the Secretary of Labor and Employment 
to be made on the basis of the list of nominees 
submitted by the workers’ and employers’ sectors, respectively,
 and who shall serve for a term of five (5) years. 
The Executive Director of the Commission shall also be a member of the Commission.

The Commission shall be assisted by a Secretariat 
to be headed by an Executive Director and two (2) Deputy Directors, 
who shall be appointed by the President of the Philippines, 
upon the recommendation of the Secretary of Labor and Employment.

The Executive Director shall have
the same rank, salary, benefits and other emoluments 
as that of a Department Assistant Secretary, 
while the Deputy Directors shall have 
the same rank, salary, benefits and other emoluments 
as that of a Bureau Director. 
The members of the Commission 
representing labor and management shall have 
the same rank, emoluments, allowances and other benefits 
as those prescribed by law for labor and management representatives 
in the Employees’ Compensation Commission. 
(As amended by Republic Act No. 6727, June 9, 1989)

Own Notes:

Powers and Functions of the National Wages and Productivity Commission
  1. National Consultative and Advisory Role:
  2. Policy Formulation:
  3. Minimum Wage and Productivity Measures:
  4. Review of Regional Wage Levels:
  5. Research and Data Collection:
  6. Review of Regional Boards' Plans:
  7. Technical and Administrative Supervision:
  8. Tripartite Conferences:
  9. Implementation of the Act
Members:
  1. Ex-officio Chairman —  Secretary of Labor and Employment
  2. Ex-officio Vice Chairman — Director-General of the National Economic and Development Authority (NEDA) 
  3. Member — Executive Director of the Commission 
  4. Appointed Members — Two (2) members each from workers’ and employers’ sectors, appointed by the President of the Philippines based on the recommendation of the Secretary of Labor and Employment. They serve for a term of five (5) years.
Secretariat:
  • Headed by an Executive Director and two (2) Deputy Directors, appointed by the President upon the recommendation of the Secretary of Labor and Employment.
Rank, salary, benefits, and emoluments:
  1. Executive Director — same rank, salary, benefits, and emoluments as a Department Assistant Secretary.
  2. Deputy Directors — same rank, salary, benefits, and emoluments as a Bureau Director.
  3. Members representing labor and management — same rank, emoluments, allowances, and benefits as prescribed by law for their counterparts in the Employees’ Compensation Commission, as per the amendment introduced by Republic Act No. 6727 on June 9, 1989.

Art. 122. Creation of Regional Tripartite Wages and Productivity Boards.
There is hereby created Regional Tripartite Wages and Productivity Boards, hereinafter referred to as Regional Boards, in all regions, including autonomous regions as may be established by law. The Commission shall determine the offices/headquarters of the respective Regional Boards.

The Regional Boards shall have the following powers and functions in their respective territorial jurisdictions:
  1. To develop plans, programs and projects relative to wages, incomes and productivity improvement for their respective regions;
  2. To determine and fix minimum wage rates applicable in their regions, provinces or industries therein and to issue the corresponding wage orders, subject to guidelines issued by the Commission;
  3. To undertake studies, researches, and surveys necessary for the attainment of their functions, objectives and programs, and to collect and compile data on wages, incomes, productivity and other related information and periodically disseminate the same;
  4. To coordinate with the other Regional Boards as may be necessary to attain the policy and intention of this Code;
  5. To receive, process and act on applications for exemption from prescribed wage rates as may be provided by law or any Wage Order; and
  6. To exercise such other powers and functions as may be necessary to carry out their mandate under this Code.
Implementation of the plans, programs, and projects of the Regional Boards referred to in the second paragraph, letter (a) of this Article, shall be through the respective regional offices of the Department of Labor and Employment within their territorial jurisdiction; Provided, however, That the Regional Boards shall have technical supervision over the regional office of the Department of Labor and Employment with respect to the implementation of said plans, programs and projects.

Each Regional Board shall be composed of 
the Regional Director of the Department of Labor and Employment as chairman, 
the Regional Directors of the National Economic and Development Authority and 
the Department of Trade and Industry as vice-chairmen 
and two (2) members each from workers’ and employers’ sectors 
who shall be appointed by the President of the Philippines, 
upon the recommendation of the Secretary of Labor and Employment, 
to be made on the basis of the list of nominees 
submitted by the workers’ and employers’ sectors, respectively, 
and who shall serve for a term of five (5) years.

Each Regional Board to be headed by its chairman shall be assisted by a Secretariat. (As amended by Republic Act No. 6727, June 9, 1989)

Own Notes:

Establishment of Regional Boards
  • Creation of Regional Tripartite Wages and Productivity Boards (Regional Boards) in all regions, including autonomous regions, as determined by the Commission.
Powers and Functions
  1. Planning and Development
  2. Minimum Wage Determination:
  3. Research and Data Collection:
  4. Coordination with other Regional Boards
  5. Exemption Processing:
  6. Other Powers and Functions 
Implementation and Technical Supervision

  1. Implementation — regional offices of the Department of Labor and Employment within their jurisdiction.
  2. Technical supervision — Regional Boards
Composition of Regional Boards:
  1. Chairman — Regional Director of the Department of Labor and Employment.
  2. Vice-Chairmen — Regional Directors of the National Economic and Development Authority and the Department of Trade and Industry.
  3. Appointed Members — Two (2) members each from workers’ and employers’ sectors, appointed by the President of the Philippines based on the Secretary of Labor and Employment’s recommendation, serving for a term of five (5) years.
Secretariat
  • Each Regional Board, led by its chairman, is supported by a Secretariat to carry out its functions effectively.
Tripartite
  • The Regional Tripartite Wages and Productivity Boards (Regional Boards) are called tripartite because they are composed of representatives from three different sectors: labor, employers, and government. This tripartite structure is designed to ensure that the interests of all three sectors are considered when making decisions about minimum wages and productivity.

Art. 123. Wage Order. 
Whenever conditions in the region so warrant, the Regional Board shall investigate and study all pertinent facts; and based on the standards and criteria herein prescribed, shall proceed to determine whether a Wage Order should be issued. Any such Wage Order shall take effect after fifteen (15) days from its complete publication in at least one (1) newspaper of general circulation in the region.

In the performance of its wage-determining functions, the Regional Board shall conduct public hearings/consultations, giving notices to employees’ and employers’ groups, provincial, city and municipal officials and other interested parties.

Any party aggrieved by the Wage Order issued by the Regional Board may appeal such order to the Commission within ten (10) calendar days from the publication of such order. It shall be mandatory for the Commission to decide such appeal within sixty (60) calendar days from the filing thereof.

The filing of the appeal does not stay the order unless the person appealing such order shall file with the Commission, an undertaking with a surety or sureties satisfactory to the Commission for the payment to the employees affected by the order of the corresponding increase, in the event such order is affirmed. (As amended by Republic Act No. 6727, June 9, 1989)

Own Notes:

Investigation and Determination
  1. Investigation — Regional Board investigates relevant facts if regional conditions warrant it.
  2. Determination — Based on prescribed standards and criteria, the Regional Board decides whether to issue a Wage Order.
Effectivity
  • Wage Order takes effect 15 days after complete publication in at least one newspaper of general circulation in the region.
Public Hearings and Consultations
  • Regional Board conducts public hearings/consultations.
  • Notices are given to employees’ and employers’ groups, provincial, city, and municipal officials, and other interested parties.
Appeals
  • Parties aggrieved by the Wage Order may appeal to the Commission within ten (10) calendar days from the order's publication.
Decision
  • The Commission must decide the appeal within sixty (60) calendar days from its filing.
Stay of the Order
  • Filing an appeal does not automatically halt the Wage Order's execution.
  • The appellant must provide an undertaking with satisfactory surety to the Commission for the payment of the corresponding increase to affected employees if the order is affirmed.

Notes:

  • The National Wages and Productivity Commission (NWPC) has the power to prescribe rules and guidelines for the determination of appropriate wages in the country. Hence, "guidelines" issued by the Regional Tripartite Wages and Productivity Boards (RTWPB) without the approval of or, worse, contrary to those promulgated by the NWPC, are ineffectual , void and cannot be the source of rights and privileges. (Nasipit Lumber v. NWPC, April 27, 1998)
  • A wage order issued without the required public consultation and newspaper publication is null and void. (Cagayan Sugar, January 15, 1998) 
  • Refusal or failure to comply with a wage order is punishable with fine ranging from P25,000 to Pl 00,000 or imprisonment from two to four years, or both fine and imprisonment. The employer shall further be ordered to pay an amount double the unpaid benefits owing to the employee. (RA. No. 8188, approved on June II, 1996)
  • On October 20, 1990, Region X Tripartite Wages and Productivity Board issued Wage Order No. RX-01, increasing minimum wage rates in Northern Mindanao. The order specified different wage increases for various provinces and cities in the region.
  • On November 6, 1990, a supplementary Wage Order No. RX-01-A was issued providing additional increases for certain workers already earning above the minimum wage rates.
  • Nasipit Lumber Company, Inc. (NALCO), Philippine Wallboard Corporation (PWC), and Anakan Lumber Company (ALCO) jointly applied for exemption from the wage orders as distressed establishments.
  • Opposing unions argued that these companies were not distressed since their capitalization had not been impaired by 25%.
  • RTWPB: Approved the exemption applications, citing liquidity problems and business decline in the wood-processing industry.
  • NWPC: Affirmed ALCO's exemption but reversed NALCO and PWC's applications.
    • The NWPC argued that:
      • The guideline used by RTWPB had no operative force and effect because it had not been approved by the NWPC.
      • NWPC guidelines that require a 25% impairment of capital for exemption.
      • The NWPC, not the RTWPB, had the authority to set exemption criteria.
WoN the guideline issued by an RTWPB without the approval of or, worse, contrary to the guidelines promulgated by the NWPC valid? NO.
    1. Power to Prescribe Guidelines Lodged in the NWPC, Not in the RTWPB
      • The NWPC, not the RTWPB, the power to "prescribe the rules and guidelines" for the determination of minimum wage and productivity measures. 
      • While the RTWPB has the power to issue wage orders under Article 122 (b) of the Labor Code.
      • The NWPC authorized the RTWPB to issue exemptions from wage orders, but subject to its review and approval. 
      • An application for exemption from wage orders should be processed by the RTWPB, subject specifically to the guidelines issued by the NWPC. 
    2. The Insertion in Guideline No. 3 of "Distressed Industry" as a Criterion for Exemption Void
      • RX-O1, Section 3 (4), must not be construed to automatically include all establishments belonging to a distressed industry.
      • By exempting all establishments belonging to a distressed industry, Guideline No. 3 surreptitiously and irregularly takes away the mandated increase in the minimum wage awarded to the affected workers. 
      • Guideline No. 3 is void not only because it lacks NWPC approval and contains an arbitrarily inserted exemption, but also because it is inconsistent with the avowed State policies protective of labor.
    • On November 16, 1993, Regional Wage Order No. RO2-02 was issued specifying minimum wage rates in Region II, including a daily rate of P14.00 for Cagayan.
    • On January 6, 1995, Regional Wage Board issued Wage Order No. RO2-02-A, amending the previous order to mandate an across-the-board wage increase,.
    • Labor inspectors examine Cagayan Sugar Milling Company (CARSUMCO)'s books to check compliance with RO2-02 and found that CARSUMCO did not implement an across-the-board increase in employees' salaries.
    • CARSUMCO argued that RO2-02 clearly indicated a statutory minimum wage increase, not an across-the-board raise.
    • Regional Director Ricardo S. Martinez, Sr.: Rules that CARSUMCO violated RO2-02 by not implementing the across-the-board increase, ordering CARSUMCO to pay a deficiency of P555,133.41 in employees' salaries.
    • Secretary of Labor: Dismisses CARSUMCO's appeal and upholds the Regional Director's order. 
    Issue:
    WoN Wage Order RO2-02-A is null and void on the ground that it was passed without the required public consultation and newspaper publication. YES

    Held:
    In passing RO2-02-A without going through the process of public consultation and hearings, the Regional Board deprived petitioner and other employers of due process as they were not given the opportunity to ventilate their positions regarding the proposed wage increase. 

    It is indisputable that there was no public consultation or hearing conducted prior to the passage of RO2-02-A. Neither was it published in a newspaper of general circulation as attested in the February 3, 1995 minutes of the meeting of the Regional Wage Board that the non-publication was by consensus of all the board members. Hence, RO2-02-A must be struck down for violation of Article 123 of the Labor Code.


    Art. 124. Standards/Criteria for minimum wage fixing. 
    The regional minimum wages to be established by the Regional Board 
    shall be as nearly adequate as is economically feasible 
    to maintain the minimum standards of living necessary 
    for the health, efficiency and general well-being of the employees 
    within the framework of the national economic and social development program. 
    In the determination of such regional minimum wages, the Regional Board shall, among other relevant factors, consider the following:
    1. The demand for living wages;
    2. Wage adjustment vis-Γ -vis the consumer price index;
    3. The cost of living and changes or increases therein;
    4. The needs of workers and their families;
    5. The need to induce industries to invest in the countryside;
    6. Improvements in standards of living;
    7. The prevailing wage levels;
    8. Fair return of the capital invested and capacity to pay of employers;
    9. Effects on employment generation and family income; and
    10. The equitable distribution of income and wealth along the imperatives of economic and social development.
    The wages prescribed in accordance with the provisions of this Title shall be the standard prevailing minimum wages in every region. These wages shall include wages varying with industries, provinces or localities if in the judgment of the Regional Board, conditions make such local differentiation proper and necessary to effectuate the purpose of this Title.

    Any person, company, corporation, partnership or any other entity engaged in business shall file and register annually with the appropriate Regional Board, Commission and the National Statistics Office, an itemized listing of their labor component, specifying the names of their workers and employees below the managerial level, including learners, apprentices and disabled/handicapped workers who were hired under the terms prescribed in the employment contracts, and their corresponding salaries and wages.

    Where the application of any prescribed wage increase by virtue of a law or wage order issued by any Regional Board results in distortions of the wage structure within an establishment, the employer and the union shall negotiate to correct the distortions. Any dispute arising from wage distortions shall be resolved through the grievance procedure under their collective bargaining agreement and, if it remains unresolved, through voluntary arbitration. Unless otherwise agreed by the parties in writing, such dispute shall be decided by the voluntary arbitrators within ten (10) calendar days from the time said dispute was referred to voluntary arbitration.

    In cases where there are no collective agreements or recognized labor unions, the employers and workers shall endeavor to correct such distortions. Any dispute arising therefrom shall be settled through the National Conciliation and Mediation Board and, if it remains unresolved after ten (10) calendar days of conciliation, shall be referred to the appropriate branch of the National Labor Relations Commission (NLRC). It shall be mandatory for the NLRC to conduct continuous hearings and decide the dispute within twenty (20) calendar days from the time said dispute is submitted for compulsory arbitration.

    The pendency of a dispute arising from a wage distortion shall not in any way delay the applicability of any increase in prescribed wage rates pursuant to the provisions of law or wage order.

    As used herein, a wage distortion shall mean a situation where an increase in prescribed wage rates results in the elimination or severe contraction of intentional quantitative differences in wage or salary rates between and among employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage structure based on skills, length of service, or other logical bases of differentiation.

    All workers paid by result, including those who are paid on piecework, takay, pakyaw or task basis, shall receive not less than the prescribed wage rates per eight (8) hours of work a day, or a proportion thereof for working less than eight (8) hours.

    All recognized learnership and apprenticeship agreements shall be considered automatically modified insofar as their wage clauses are concerned to reflect the prescribed wage rates. (As amended by Republic Act No. 6727, June 9, 1989)

    Own Notes:

    Relevant Factors for Determination
    1. Living Wage Demand
    2. Wage Adjustment and Consumer Price Index
    3. Cost of Living
    4. Workers' and Families' Needs
    5. Industrial Investment
    6. Standard of Living Improvements
    7. Prevailing Wage Levels
    8. Fair Return of Capital
    9. Employment and Family Income Effects
    10. Equitable Income Distribution
    Standardization and Local Differentiation
    • Regional minimum wages set the standard.
    • Variation allowed based on industries, provinces, or localities if conditions justify differentiation, aligning with the law's intent.
    Annual Labor Component Reporting
    • Businesses must annually register labor components, including employee names, salaries, and wages with appropriate Regional Board, Commission and the National Statistics Office.
    Resolution of Wage Distortions:
    1. Negotiation and Arbitration: Employers and unions resolve distortions through collective bargaining agreement negotiations, voluntary arbitration, and, if needed, the National Labor Relations Commission (NLRC).
    2. No Collective Agreements: In cases without agreements or recognized unions, disputes are addressed through the National Conciliation and Mediation Board, then compulsory arbitration via NLRC.
    Wage Distortion:
    • Occurs when a wage increase erases intentional differences in wage structures based on skills, service length, or logical distinctions within an establishment.
    Payment for Output-Based Workers:
    • Minimum Rates: Workers paid per result (e.g., piecework, task basis) receive at least prescribed wage rates per eight-hour workday or proportionate pay for shorter hours.
    Learnership and Apprenticeship Agreements:
    • Wage clauses automatically adjust to reflect prescribed wage rates in recognized learnership and apprenticeship agreements.

    Notes:

    Wage Distortion
    • The seventh paragraph of this Article gives a breathlessly long and noun-loaded definition of salary distortion. 
    • It simply means this: If the pay advantage of a position over another is removed or significantly reduced by a pay adjustment required by a wage order, such pay advantage should somehow be restored.
    • In enterprises where professional human resource management exists, it is customary to determine different job levels with corresponding pay grades. 
      • A number of job evaluation methods exist from the impressionistic ranking method to the quantitative point rating system.
      • Through any of these accepted methods, the "job levels" are determined by using such grading factors as skills requirements, degrees of responsibility, knowledge required, working conditions, or some similar factors. 
      • The job grades aims to approximate the relative importance of jobs and to pay them accordingly. 
        • The higher the job level, the higher the pay grade. 
        • Thus, within the company, a technician is generally classified and paid higher than the messenger, an accountant higher than an accounting clerk, a supervisor higher than an assembly worker. 
        • Different job levels should mean different pay rates. 
        • Such differentiation should not be erased by a wage order increase because that will be unfair to the senior employees or the holders of the harder jobs. 
    • If the duly established pay level differentiations in the company are obliterated or severely contracted, such that the previous pay gaps are gone or almost gone then there is salary distortion. 
      • An employee has reason to complain whose pay level advantage is equaled or almost equaled or overtaken through a mandated wage increase. 
      • For instance, if a wage order raised a messenger's daily pay from ₱350 to ₱400, almost equaling a technicians' pay of ₱450, the technician may complain of salary distortion because his pay advantage due to the nature of job has been significantly reduced from ₱100 to ₱50 pesos.
    • For salary distortion to exist as defined in Article 124, the law does not require full elimination of salary differences.
      • A severe contraction is enough. 
      • "Severe" of course is relative to be assessed justly and fairly in the light of differing circumstances. 

    Effort to Rectify 
    Q: Is an employer legally obliged to correct the wage distortion?
    • It appears so, Article 124 says that "the employer and the union shall negotiate to correct the distortions."
    • If there is no union, "the employer and worker shall endeavor to correct such distortions."
    • The word shall in the wording of the law stresses an obligation, the Supreme Court citing Agpalo, says in an administrative case that as a rule, "that term 'shall' is a word of command that must be given a compulsory meaning." (Pimentel, July 19 2000).
    • When the law says "you shall" it means "you must."
    Pimentel v. Aguirre, G.R. No. 132988, July 19 2000
    • Administrative Order No. 372, issued by President Fidel V. Ramos, aimed to adopt economy measures in the government for FY 1998 due to economic difficulties caused by peso depreciation.
    • Section 1 of AO 372 directed government agencies, including LGUs, to reduce total expenditures by at least 25% of authorized regular appropriations for non-personal services. This section, while authoritative, is considered advisory and does not interfere with local autonomy since it does not impose legal sanctions on non-compliance.
    • However, Section 4 of AO 372, which ordered the withholding of 10% of LGUs' internal revenue allotments, violated the Constitution and the Local Government Code. The automatic release of LGUs' shares in national internal revenue is mandated by the Constitution and cannot be subject to any holdback or lien imposed by the national government.
    • Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is the automatic release of the shares of LGUs in the national internal revenue.
    • The Local Government Code specifies further that the release shall be made directly to the LGU concerned within five (5) days after every quarter of the year and "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose."
    • As a rule, the term "shall" is a word of command that must be given a compulsory meaning. The provision is, therefore, imperative.

    Amount of Distortion Adjustment
    Q: Must the previous pay advantage be restored?
    Yes. That indeed is the aim but not necessarily to the last peso. 
    • Restoration of appreciable differential, a significant pay gap, should suffice as correction of the distortion.
    • Correcting a salary distortion is easier said than done especially if a big number of employees hands a big amount of money is involved. 
      • Compelling full compliance with the wage order and upward adjustment of the distorted salaries may lead to personnel reduction or retrenchment or even closure if the employer's income cannot afford the cost. 
      • Evidently, issuance of a wage order can have unpleasant consequences because a wage order, ironically, may mean more people becoming jobless. 
    • Thus, wisely, the wage order adjusts the minimum level but not the levels above the minimum.
      • It does not mandate across the board salary increase. 
      • Neither does a wage order dictate the mode to correct a salary distortion.
      • Negotiated rectification as allowed. 
      • The court has pointed out that through Article 124, the law recognizes the validity of negotiated wage increases to correct wage distortions. T-
      • The legislative intent is to encourage the parties to seek a solution to the problem of wage distortions through voluntary negotiation or arbitration. , rather than strikes, lock outs or other concerted activities. 
      • Corrective wage increases given by employee employers, either unilaterally or as a result of collective bargaining negotiations are in keeping with the public policy. 
      • The policy is to encourage employers to grant wages and allowance increases higher than the minimum increase as prescribed by statute or administrative regulation. (Associated Labor, August 16 1994)
    • On July 1, 1989, Republic Act No. 6727, also known as the Wage Rationalization Act, took effect, granting a ₱25.00/day increase in the statutory minimum wage of all workers in the private sector, subject to certain conditions.
    • Del Monte Philippines, Inc. implemented the law by granting a ₱25.00/day increase to its temporary employees or "broilers" who were initially receiving ₱54.00/day wages. Regular employees who were receiving ₱100.80/day, were not granted a similar increase, leading to complaints from the union.
    • A Memorandum Agreement was executed granting the members of the petitioner union a ₱10.00/day wage increase, subject to their right to claim ₱15.00/day as a balance through compulsory arbitration.
    • Petitioners filed a complaint against Del Monte Philippines, Inc. alleging a wage distortion due to the disparity in salary increases between regular employees and temporary employees.
    • Labor Arbiter & NLRC: Found no wage distortion, as demonstrated by the salary increases granted to both groups.
    WoN the increases mandated by the parties’ Collective Bargaining Agreement and the voluntary agreement dated should not be considered as having corrected the wage distortion. NO

    Held:
    The law recognizes the validity of negotiated wage increases to correct wage distortions. The legislative intent is to encourage the parties to seek solution to the problem of wage distortions through voluntary negotiation or arbitration, rather than strikes, lockouts, or other concerted activities of the employees or management. Recognition and validation of wage increases given by employers either unilaterally or as a result of collective bargaining negotiations for the purpose of correcting wage distortions are in keeping with the public policy of encouraging employers to grant wage and allowance increases to their employees which are higher than the minimum rates of increase prescribed by statute or administrative regulation.

    No effective obliteration of the distinction embodied in private respondent’s wage structure based on skills, length of service, or other logical basis of differentiation" in this case. For it is undisputed that the difference in wages between petitioners and the temporary employees is now even greater than it used to be prior to the grant of the P25.00/day increase to the latter pay pursuant to Republic Act No. 6727.

    • In Metropolitan Bank, September 10, 1993, the Court adopted the following formula as "just and equitable" to correct a salary distortion. 
    Distortion Adjustment = (Minimum Wage  ÷ Actual Salary)  Ρ…  Prescribed Increase 

    Example:
    Existing Minimum Wage = ₱ 500 per day
    Employee's Daily Wage = ₱ 550 per day
    Mandated Wage Increase = ₱ 35 per day

    Distortion Adjustment  = (500 ÷ 550)  x 35  
    Distortion Adjustment  = (0.909) x 35  
    Distortion Adjustment  =  ₱ 31.81

    New Daily Rate  = ₱ 550 + ₱ 31.81
    New Daily Rate  = ₱ 581.81


    • Metropolitan Bank and Trust Company (MBTC) agreed to a collective bargaining agreement with MBTC Employees Union (MBTCEU), granting a P900 monthly wage increase effective from January 1, 1989, with subsequent increases in the following years (P600 from January 1, 1990, and P200 from January 1, 1991).
    • MBTCEU requested the inclusion of probationary employees in the P900 increase, but MBTC refused, implementing the increase only for regular employees as of January 1, 1989, excluding probationary staff.
    • Republic Act 6727, effective from January 1, 1989, mandated a P25 per day increase in statutory minimum wage rates for private sector employees. The act allowed crediting recent increases, excluding specific types, and outlined procedures for resolving disputes arising from wage distortions.
    • MBTC implemented the P25 increase for probationary employees and those promoted to regular status before July 1, 1989, excluding regular employees earning more than P100 per day and recipients of the P900 CBA increase.
    • MBTCEU claimed a wage distortion, citing a reduced salary gap between employee groups due to the uneven implementation of the P25 increase.
    • Labor Arbiter Eduardo J. Carpio: Ruled in favor of MBTCEU, directing MBTC to restore the P900 wage gap through a P750 monthly increase for affected employees.
    • NLRC Second Division: Reversed the decision, stating that the wage gaps between employee levels were maintained and the reduction was not significant enough to warrant correction.
    WoN the implementation by the Metropolitan Bank and Trust Company of Republic Act No. 6727 created wage distortion. YES

    Held: 

    In this case, the majority of the members of the NLRC, as well as its dissenting member, agree that there is a wage distortion arising from the bank's implementation of the P25 wage increase; they do differ, however, on the extent of the distortion that can warrant the adoption of corrective measures required by law.

    In mandating an adjustment, the law did not require that there be an elimination or total abrogation of quantitative wage or salary differences; a severe contraction thereof is enough. As has been aptly observed by Presiding Commissioner Edna Bonto-Perez in her dissenting opinion, the contraction between personnel groupings comes close to eighty-three (83%), which cannot, by any stretch of imagination, be considered less than severe.

    The formula suggested by Commissioner Bonto-Perez, also considered by the regional Tripartite Wages and Productivity Commission, is deemed appropriate for correcting wage distortion.

    • Neither the Labor Code nor the Wage Rationalization Act (R.A. No. 6727) prescribes a particular formula to estimate the amount that will rectify or minimize the salary distortion. 
    • The employer and the union or the employees' representative may devise an equitable formula varying from the one adopted in the Metropolitan Bank case.
    •  A "Handbook on Wage Distortion" issued by the National Wage and Productivity Commission illustrates seven formulas to adjust salary distortions.
    • Rectification of salary distortion is one of the situations where interparty negotiation is most preferred and greatly encouraged, as indicated in Article 124, pursuing the basic policy under Article 218(a).
    • In the same Metropolitan Bank case, the Court said also that the Court must approximate an acceptable quantitative difference between job or position levels, but an across-the-board pay adjustment is not required by law.
    • Any issue involving wage distortion is not a valid ground for a strike or lockout. (Sec. 16, Chap. I, Rules Implementing RA. No. 6727; Ilaw at Buklod ng Manggagawa, June 27, 1999)
    • The union "Ilaw at Buklod Ng Manggagawa (IBM)" representing 4,500 employees of San Miguel Corporation (SMC) demanded correction of wage distortions as per Section 4(d) of RA 6727.
    • SMC ignored the demand, offering a minimal wage increase which the union rejected. Workers, in response, refused to work overtime.
    • The workers implemented an eight-hour work shift, deviating from the previous ten to fourteen-hour shifts, causing substantial losses for SMC.
    • SMC filed a complaint against the union in the Arbitration Branch of the National Labor Relations Commission (NLRC) to declare the strike illegal and terminate union officers' employment. SMC also filed a complaint directly with the NLRC for an injunction against the slowdown and damages.
    • NLRC: Issued a Temporary Restraining Order, directing the union to cease the slowdown and adhere to the previous work schedule.
    WoN wage distortion is not a valid ground for a strike or lockout. NO

    The legislative intent emphasized that wage distortions should be resolved through voluntary negotiation or arbitration, not strikes or lockouts, as stated in the rules implementing RA 6727. Section 16, Chapter I of the implementing rules explicitly stated that any issue involving wage distortion cannot be a ground for a strike or lockout.

    The collective bargaining agreement between SMC and the Union also prohibited strikes or similar activities, mandating the resolution of disputes through the stipulated grievance procedure and arbitration. The workers' actions were considered illegal as they violated both the law and their contractual commitment, constituting a slowdown, which is inherently illicit and unjustifiable.



    Salary Distortion View Regionally
    • Wage-fixing has been regionalized by R.A. No. 6727, the Wage Regionalization Act. 
    • Each region has a regional wage board, which in fixing the wage level, consider a criteria or standards existing in the region. 
    • Since those criteria vary from one region to another, the pay levels of comparable jobs also tend to vary among regions.
      • But pay disparity of same or comparable jobs in different regions cannot be considered a wage distortion. 
    • Wage distortion, in other words involves comparison of jobs located in the same region.
      • Examination of alleged salary distortion is limited to jobs or positions in the same employer in the same region; that is, a comparison of salaries has to be intra-region, not inter-region. (Prubankers Association, January 23, 1999)
    • In 1993, Region V and Region VII issued separate wage orders (RB 05-03 and RB VII-03) with varying COLA rates and minimum wage increases for different regions in the Philippines.
    • Prudential Bank implemented these orders in different branches, resulting in varied COLA rates and salary hikes for employees.
    • Prubankers Association raised concerns about wage distortion, leading to discussions and arbitration.
    • Court of Appeals: Ruled that the regional variances were justified by RA 6727, addressing unique economic needs, preserving distinctions among employee groups, and maintaining minimum wage increases within each region.
    WoN the Court of Appeals committed grave error in law when it ruled that wage distortion exists only within a region and not nationwide. NO

    The Court ruled that no wage distortion occurred when the respondent implemented the Wage Orders in the covered branches. Salary rates increased for all pay classes in the affected branches, preserving the hierarchy of positions based on skills, length of service, and other factors.

    The Court stated that wage distortion involves parity in salary rates between different pay classes within the same region, not between different regions.  A disparity in wages between employees holding similar positions but in different regions does not constitute wage distortion as contemplated by law.

    Republic Act No. 6727 recognizes regional disparities in the cost of living, allowing varying wages between employees in similar positions in different regions. The law aims to address unique economic situations and needs in each region and prevent migration to specific areas, justifying regionalized wage rates.

    Wage distortion involves four elements:
    1. An existing hierarchy of positions with corresponding salary rates;
    2. A significant change in the salary rate of a lower pay class without a concomitant increase in the salary rate of a higher one;
    3. The elimination of the distinction between the two levels;
    4. The existence of the distortion in the same region of the country.

    Employer-Initiated Salary Restructuring,
    • The distortion that should be rectified as explained above refers to the distortion arising from compliance with a government wage order. 
      • If does not refer to distortion caused by salary revisions voluntarily initiated by the employer. 
    • An employer, to make it salary rates competitive, may lawfully devise and implement a new salary scale applicable only to future employees. 
      • The employer may also determine the effectivity date of the new scale, even retroacts its affectivity. 
      • Existing employees falling within the covered period may have their salary adjusted to new rates according to their new job level if their rates are below the new hiring rate.
      • But those outside effectivity date have no right to demand upward adjustment of the rates, nor can they demand the restoration of previous pay gaps. 
      • Because this is not salary distortion brought about my compliance with a government wage order. 
      • The employer has no legal obligation to rectify the resulting distortion consisting of reduced pay gaps between the old and the new hires. 
    • The legal duty to rectify a distortion applies to government mandated wage increases (Article 124, Labor Code) but not to increases voluntarily initiated by the employer, unless such a duty exist because of a CBA stipulation or a binding company practice. (Bankard Employees Union-Workers Alliance Trade Union, February 17, 2004)
    • Bankard, Inc. classified its employees into levels (I to V) and approved a new salary scale in 1993, retroactive to April 1, 1993, increasing hiring rates for new employees in specific levels.
    • The Bankard Employees Union-WATU pressed for an increase in the salary of old employees, claiming wage distortion.
    • Bankard argued that there was no obligation to grant an across-the-board increase to all employees.
    • NLRC: Found no wage distortion.
    • CA: Affirmed the NLRC.
    WoN the obligation to rectify wage distortion is not confined to wage distortion resulting from government decreed law or wage order. NO

    Petitioner cites Metro Transit Organization, Inc. v. NLRC, but misinterprets its applicability. Metro Transit's obligation to rectify wage distortion was due to an existing company practice, not Article 124 of the Labor Code.

    Mere existence of wage distortion does not mandate rectification without legal obligation. Bankard is not obligated to provide an across-the-board increase to regular employees, as no such management practice exists. Bankard has the right to adjust hiring rates, establish minimum salaries, and adjust employee rates as per the Collective Bargaining Agreement (CBA).



    Liability of Contractor's Principle in Certain Industries, 
    • R.A. No. 6727 also a specified provision on the liability of the principal for wage rate increases for construction and similar workers.
    Section 6. In the case of contracts for construction projects and for security, janitorial and similar services, the prescribed increases in the wage rates of the workers shall be borne by the principals or clients of the construction/service contractors and the contract shall be deemed amended accordingly. In the event, however, that the principal or client fails to pay the prescribed wage rates, the construction/service contractor shall be jointly and severally liable with his principal or client.


    Inspection
    • The inspection procedure to verify compliance with minimum wage law is described R.A. No. 6727 as follows: 
    Section 9. The Department of Labor and Employment shall conduct inspections as often as possible within its manpower constraint of the payroll and other financial records kept by the company or business to determine whether the workers are paid the prescribed minimum wage rates and other benefits granted by law or any Wage Order. In unionized companies, the Department of Labor and Employment inspectors shall always be accompanied by the president or any responsible officer of the recognized bargaining unit or of any interested union in the conduct of the inspection. In non-unionized companies, establishments or businesses, the inspection should be carried out in the presence of a worker representing the workers in the said company. The workers' representative shall have the right to submit his own findings to the Department of Labor and Employment and to testify on the same if he cannot concur with the findings of the labor inspector.

    Art. 125. Freedom to bargain. 
    No wage order shall be construed to prevent workers in particular firms or enterprises or industries from bargaining for higher wages with their respective employers. 
    (As amended by Republic Act No. 6727, June 9, 1989)

    Art. 126. Prohibition against injunction. 
    No preliminary or permanent injunction or temporary restraining order may be issued by any court, tribunal or other entity against any proceedings before the Commission or the Regional Boards. (As amended by Republic Act No. 6727, June 9, 1989)

    Art. 127. Non-diminution of benefits.
    No wage order issued by any regional board shall provide for wage rates lower than the statutory minimum wage rates prescribed by Congress.
    (As amended by Republic Act No. 6727, June 9, 1989)

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