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RESOLVING A WAGE DISTORTION DISPUTE increase for a period of one year from 16 December 1993 to 15 December 1994.

Diego P. Atienza* Effective on 16 December 1994, the Company paid to its covered employees,
What appears after this introductory portion is the text of a decision rendered by the numbering 133, out of a total of 1,598 represented by the Union, the P27 wage
author, as voluntary arbitrator, in a case involving wage distortion in a manufacturing increase per day.
enterprise. The term "wage distortion" refers to a serious disturbance of the wage
structure of an employer establishment resulting from an increase in the prescribed Claiming the existence of a wage distortion owing to the fact that the remaining
wage rates. A more complete definition is found later herein. Where there is a collective 1,465 of its members did not benefit from the implementation of the Wage Order, the
bargaining agreement in the establishment, the Labor Code provides that the employer Union demanded that a similar wage increase of P27 per day be paid across-the-board
and the union shall negotiate to correct the distortion. If a dispute arises due to failure to the latter, by way of correcting the distortion. The demand was rejected by the
of the negotiations, they shall resolve the same by means of the grievance procedure Company.
under the CBA, and then through voluntary arbitration if the dispute remains
The subject decision was assailed by the respondent company in a petition for The parties, in the early part of 1995, held our grievance conferences for the
certiorari filed in the Supreme Court. The petition, however, was dismissed by the purpose of resolving their dispute. The Company offered four different approaches
Court. toward adjustment, as will be described later herein. The Union did not accept any of
the proffered solutions and presented a new proposal of its own, which was to add to
the existing wages of their 1,465 members such adjustment rates as would result from
In order to protect their privacy, the parties are not identified by their real names. the application of the following formula, as presented by it:

The dispute in this case revolves around the issue of how to correct the wage Minimum Wage = % x Prescribed Increase = Distortion
distortion at respondent ABC Corporation. Adjustment
Actual Salary
The respondent entity, hereinafter referred to as the "Company," is a corporation
which is engaged in the business of manufacturing women's undergarments for export. This formula did not meet with the Company's approval.
The complainant organization, hereinafter re-ferred to as the "Union," is a legitimate
labor organization which is the exclusive bargaining representative of the rank and file
The bilateral negotiations having proved fruitless, the parties availed themselves of
employees of the Company, and has a collective bargaining agreement with the latter.
the services of the National Conciliation and Mediation Board, but the latter's
conciliation efforts were also unsuccessful. Finally, the parties agreed to submit the
The existence of a wage distortion is not at issue. The respondent company admits dispute to voluntary arbitration and chose this author as their Voluntary Arbitrator.
it. Thus, in a Position Paper it described the situation in this manner:
The arbitration process started with a meeting of the parties before the voluntary
"With the Implementation of the wage Increases man-dated by NCR-03, the existing arbitrator on 15 May 1995. Thereafter, they submitted their respective position papers
differences between the wage of ABC employees affected by NCR-03 and those who and replies thereto. During the final meeting on 22 June 1995, the parties, after
were not changed significantly, with some gaps dis-appearing completely and others clarifying certain points of fact for the benefit of the Voluntary Arbitrator, agreed to
narrowing greatly." submit their dispute for decision on the basis of the said documents and the additional
The attendant facts are not in dispute either. facts orally presented by them in unison. It was thus made clear that no employee was
receiving exactly P154 per day as of 16 December 1993; that the highest daily wage
rate below P154 at that time was P151; and that the next level was at P158.50 per day.
On 29 November 1993, the National Capital Region Tripartite Wages and
The next levels, culminating in the final figure of P220.76 per day, are shown in Annex
Productivity Board issued Wage Order No. NCR-03 which required the employers
"A" of the Union's Position Paper and Annexes "M", "N", "0" and "P' of the Company's
within the said Region to pay their employees receiving P154 per day or less a wage
Position Paper.
increase of P27 per day, P17 of which was payable fifteen days after the publication of
the Wage Order (or on 16 December 1993 per the rules implementing the same), and
the remaining PlO on 01 April 1994. The Union's adjustment proposal, as above formulated, can be simpli-fied as
Being an exporting firm within the meaning of the said Wage Order, the Company
was able to obtain from the said Board an exemption from paying the mandated wage P118 x P27 = rate of adjustment
Actual Salary doing it is guided by principles applicable to collective bargaining negotiations in
P118 represents the prevailing minimum wage before Wage Order No. NCR-03. general, not by any particular formula.
P27 represents the wage increase under Wage Order No. NCR-03. The resulting figure
(rate of adjustment) shall be added to the actual salary to produce the new or adjusted The Company also invokes management prerogative, saying that its proposals for
rate. correcting the wage distortion are "in the nature of business decisions in
implementation of a business plan," and, as such, "are entitled to deference as
It appears that this formula was originally a part of Wage Order No. IV-02, issued by products of management doing what it is supposed to do --- running the business to
Regional Tripartite Wages and Productivity Board No. IV on 21 May 1991, intended to turn a profit."
correct distortions in the wage structure that might result from the implementation of the
said Wage Order. It was invoked by Commissioner Edna Bonto Perez of the National In support of its arguments, the Company has presented evidence to show that it is
Labor Rela-tions Commission in her dissenting opinion in an NLRC case involving the in a state of severe business decline, brought on by previous wage increases granted
Metropolitan Bank and Trust Company. The Supreme Court, to which the case was to its employees as a result of several collective bargaining agreements, coupled with
elevated, quoted with approval a portion of the said dissenting opinion, thus: tax increases, high interest rates and high cost of energy. More graphically, the
Company cites, among other things, the pre-tax loss amounting to P2,574,431 that it
"We find the formula suggested then by Commis-sioner Edna Bonto Perez, which has suffered in 1993, and the fact of its inability to meet its financial obligations to its
also been the stand-ard considered by the Regional Tripartite Wages and Productivity suppliers and other creditors, as well as its commitments to its own employees. The
Commission for the correction of pay scale structures in cases of wage distortion, to company also avers that it has had to resort to certain cost cutting meas-ures, including
well be the appropriate measure to balance the respective conten-tions of the parties in shortening the work week and laying off workers, but in spite of these, its business
this instance. We also view it as being just and equitable."1 performance has not turned around so that the business decline that started in May,
1993 continues up to the present.
It is the Union's submission that the said formula "has the force of law," having been
adopted by the Supreme Court, and that there is no reason why it should not be These asseverations of fact have not been refuted by the Union.
applied to this case. That is the burden of the Union's argument. The Company's proposals for resolving the wage distortion issue are as follows:

In answer to that argument, the Company denies that the formula adopted in the 1. Plan 1. This is described as "84% contraction from the previous wage level
Metropolitan Bank case has the force of law. It contends that "no principle of law differences applied to those earning P180.50/day and above; those earning
commands adoption of the formula used in the resolution of the wage distortion less divided into brackets with each bracket being given standard increase;
disputed in that case to resolve subsequent wage distortion disputed between the incremental cost: P5,928.75/day."
same or other parties." The Metro-politan case, according to the Company, "is 2. Plan 2. This is described as "75% contraction from previous wage level
precedent only where the case in which it is cited as authority is one the factual context differences for those wage levels to which more employ-ees belong; 80%
of which so closely resembles, in general or in some material particular, that of the contraction from previous wage level differ-ences for those wage levels to
Metropolitan case as to make it fair and consistent to decide it in the same way the which fewer employees belong; incremental cost: P5,786.59/day."
Metropolitan case was." Its application, says the Company, is restricted to the 3. Plan 3. This is described as "80% contraction from previous wage level
resolution of the wage distortion "in this instance", meaning the particu-lar controversy differences applied to all wage levels: incremental cost: P5,422.45/day."
at Metropolitan Bank, as the Supreme Court itself stated in the said case. It cites as 4. Plan 4. This is described as "80% contraction from previous wage level
"one fundamental difference" between the Metropolitan case and the instant one the differences applied tot hose earning P180.50/day and below; 85% contraction
fact that the Metropolitan Bank and Trust Company was not distressed financially nor from previous wage level differences applied to those earning P181 .00/day
suffering from "severe competitive pressures" while ABC Corporation is on the verge of and above; incremental cost: P5,306.68/day."
business collapse and is struggling to survive.
It can thus be seen that the above proposal ~ are so designed as to limit the daily
The Company stresses that neither the Labor Code nor the Rules Implementing incremental cost of wage increases to correct the distortion to less than P6,000.00. The
Wage Order No. NCR-03 "imposes upon ABC the duty of adopting any particular Company justifies the said proposals by saying that it "simply cannot hazard paying
formula, even one fashioned by one or another RTWPB or followed by the Honorable more than it has offered while nursing hope of survival as a business." Under Plan
Supreme Court, in correcting a wage distortion." Its primary duty in this situation, as 1, out of the 116 wage levels (P158.50 to P220.76) above P154.00/day, only 12 (from
viewed by the Company, is merely to negotiate to correct the wage distortion and in so P158.50 to P180.50) will get an increment of more than P2.00 per day (ranging from
P2.42 to P20.75); the rest (from P181.50 to P220.76) will get P1.50 per day and below, cease to be a measure for increasing the minimum wage but would instead be an
with the last level getting only P0.15 per day. instrument for uniformly increasing all wages without any discrimina-tion. If this were
so, there would be no occasion for a wage distortion to arise, in the first place.
Under Plan 2, only 22 wage levels (from P1 58.50 to P184.96) will get increments
ranging from P0.27 to P21.00 per day; the remaining 92 levels (from P185.41 to But re-establishing the differentials to some just reasonable extent by readjusting
P220.76) will get nothing. the wage rate to the different classes of groups of employees in case wage distortion is
called for; otherwise the distortion would remain, and that is precisely the anomaly that
Under Plan 3, only 21 wage levels (from P158.50 to P184.73) will get increments the law intends to prevent by providing for its correction. The objective, in other words,
ranging from P0.20 to P21 .00 per day; the remaining 95 levels (from P184.73 to is to at least approximate the historical differences in the wage levels.
P220.78) will get nothing.
In this case, by applying any of the Company's proposals, the old wage level of P1
Under Plan 4, only 19 wage levels (from P1 58.50 to P1 84.21) will get increments 58.50 (the next higher level in the wage structure after P154.00) would be increased to
ranging from P0.20 to P21.00); the remaining 97 levels (from P184.48 to P220.76) will P179.50 (by adding P21.00 as proposed), which would barely top the new rate for the
get nothing. old level of P.151 (the highest level below P154.00) which is P178.00 (P151.00 +
P27.00 under W.0. NCR-03). The new gap would only be P1.50, as against the old gap
of P7.50 (P158.00 - P151.00).
Between the Union's formula and the Company's proposals (or any of the latter),
which will better serve the ends of justice, in general, and a purpose of correcting a
distortion in the wage structure, in particular? That is the question in this case. Under Plan 1, the majority of those getting a wage above P154.00 would be getting
an increase of less than P1 .00 per day, with practically one-half of all of them getting
only P0.50 or less, and with 12 levels getting as low as only P0.15 per day. Under
Article 124 of the Labor Code defines wage distortion as a "situation where an
Plans 2, 3 and 4, only 22, 21 and 19 levels, respectively, would get any increase as
increase in prescribed wage rates results in the elimination or severe contraction of
against a little less than 100 levels getting none at all, and, at that, the increase could
intentional quantitative differences in wage and salary rates between and among be as low as P0.20 per day.
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." Thus under the Company's proposals, it is only the "complete disap-pearance" of
the old gaps resulting from the implementation of the wage order that would be
prevented, but barely so, as has earlier been demon-strated; the other gaps which
As stated at the outset, the existence of wage distortion in the respon-dent have 'narrowed greatly" would continue to be so narrowed. The percentage figures
establishment is acknowledged by it. To paraphrase the Company's statement in its (75%, 80%, 84%, 84%) cited by the Company in describing its Plans represent the
Position Paper, there have been significant changes in the existing differences among extent of the contraction of the old gaps as readjusted according to those Plans.
the different levels in the wage structure therein; some gaps have "completely
disappeared" while others have "greatly narrowed."
The undersigned Voluntary Arbitrator cannot believe that this is the kind of
correction that the existing wage distortion calls for. Our sympathies go to the
The Company is correct in saying that the law and its implementing rules do not Company, of course, because of the dismal condition of its business. It could be that
prescribe a specific formula for correcting such situation. The law, however, provides the increases proposed in its Plans are all that it could afford to give at present. But
that where it exists the parties shall negotiate to correct it, and if bilateral negotiations then, justified as this maybe from a purely business standpoint, the proposals are not
fail, the controversy shall be resolved through the grievance procedure in the CBA and sufficient to effect a reasonable rectifica-tion of the wage distortion brought about by
then through voluntary arbitration if it remains unresolved.
the implementation of Wage Order No. NCR-03. They cannot be seen even remotely
as producing an approximation of the former wage structure.
It is also correct to say that the law does not require that the gaps that existed
before the applicable wage order was implemented be restored, by way of adjustment
Shortchanging the employees by an inadequate approach to correcting the existing
of distortion, "in precisely the same form or amount." That was the ruling of the
wage distortion is not the only way by which the Company responds to its business
Supreme Court in the case of NFL vs. NLRC.2 Indeed, to require rectification in this
misfortunes. It cannot be justified in the name of management prerogative, which is not
manner would be tantamount to decreeing that the minimum wage increase prescribed absolute after all.
by the wage order be granted across-the-board to all the employees of a particular
employer who is mandated to implement the wage order. A wage order would then
The Company's argument, to the effect that in carrying out its primary duty under adjusting rates descend. It is really fair and equitable, as the Supreme Court has
the law in case of a wage distortion, which is to negotiate with the Union to correct the described it.
same, it is not bound by any principle other than those applicable to collective
bargaining in general -- one of which is that, in the process of bargaining, it is not In view of the foregoing, the Voluntary Arbitrator holds that the members of the
compelled to agree to a proposal or to make any concession 3 -- is correct only in so Union who did not directly benefit from the implementation of Wage Order No. NCR-03
far as negotiations are concerned. It has no relevance in a situation where the are entitled, by way of correction of wage distortion, to wage increases computed on
negotiations have failed to produce a settlement and an authorized person like a the basis of the formula:
voluntary arbitrator has to determine the controversy. In the latter situation, the burden
is upon the arbitrator; he has to decide the dispute on the basis of the facts and the
P118 ÷ actual salary x P27.
applicable law -- in fact, even when the law is silent, for "no judge or court shall decline
to render judgement by reason of the silence, obscurity or insufficiency of the
laws."4 His judgment should be in consonance with the purpose of the correction WHEREFORE, respondent ABC Corporation is hereby ordered to pay its
exercise, which, as earlier mentioned, is to re-establish the former wage differentials in employees, members of complainant XYZ Union, who were not directly benefited by
the pay scale to some just and reasonable extent. the implementation of Wage Order No. NCR-03, their daily wage increases based on
the formula stated above.
The Company, as earlier adverted to, rejects the formula insisted upon by the Union
because the "factual context" in which the latter was adopted by the Supreme Court in
the Metropolitan Bank case is different from what is present in this case. The said
formula, in the Company's view, is applicable only to a case where the factual context
closely resembles that of the Metropolitan Bank case. We do not share this view. While
the Supreme Court indeed stated in the said case that this was "the appropriate
measure to balance the respective contentions of the parties in this in-stance,"
meaning in relation to the dispute before it, it also recognized that the formula had "also
been the standard considered by the Regional Tripartite Wages and Productivity
Commission for correction of pay scale structures in cases of wage distortion." In other
words, the Court took note with favor of the use of the formula as a standard for
rectifying wage distortion in other cases.5 Moreover, and more importantly, it referred
to the formula as also "just equitable." The latter observation, to our mind, is a
characterization of the formula per se. and not only in relation to the factual context" of
the Metrobank case.

A formula for correcting a wage distortion that earned that kind of accolade from no
less than the Supreme Court cannot be treated lightly.

The formula in question takes into account the relationship between the former
minimum wage and an employee's actual salary. By dividing the former by the latter, a
figure results which reflects that the relationship in terms of percentage, i.e., the former
minimum wage was an amount that was a certain percent of the actual salary.
Multiplying that certain percent by the amount of the wage increase prescribed by the
new wage order produces an amount that is equivalent to what should be the new rate
of the same employee as adjusted to correct the distortion. The relationship is thus

The formula is so devised that, as the actual salary goes higher, the percent
relationship gets lower, so that on an upward scale of salaries, the corresponding
Republic of the Philippines After W.O. No. 4 1 May 1984 32.64 31.00 1.64
SUPREME COURT After W.O. No. 5 16 June 1984 34.00 34.00 0.001
Upon the effectivity of Wage Order No. 5, grievance meetings were held by petitioner
THIRD DIVISION National Federation of Labor ("NFL") and private respondent Company sometime in
June 1984, addressing the impact which implementation of the various Wage Orders
had on the wage structure of the Company.

G.R. No. 103586 July 21, 1994 On 21 June 1984, all the casual or non-regular employees of private respondent
Company (at least in its Davao Plant) were "regularized," or converted into regular
employees, pursuant to the request of petitioner NFL.
NATIONAL LABOR RELATIONS COMMISSION and FRANKLIN BAKER COMPANY On 1 July 1984, the effectivity date of the 1984 Collective Bargaining Agreement
OF THE PHILIPPINES (DAVAO PLANT), respondents. between NFL and the Company, all regular employees of the Company received an
increase of P1.84 in their daily wage; the regular daily wage of the regular employees
thus became P35.84 as against P34.00 per day for non-regular employees.
Jose Espinas for petitioner.
As a result of the implementation of Wage Order No. 6, casual employees received an
Siguion-Reyna, Montecillo & Ongsiako for private respondent.
increase of their daily wage from P34.00 to P36.00. At the same time, the Company
unilaterally granted an across-the-board increase of P2.00 in the daily rate of all regular
employees, thus increasing their daily wage from P35.84 to P37.84. Further, on 1 July
1985, the anniversary date of the increases under the CBA, all regular employees who
FELICIANO, J.: were members of the collective bargaining unit got a raise of P1.76 in their basic daily
wage, which pushed that daily wage from P37.84 to P39.60, as against the non-
Between 1 November 1983 and 1 November 1984, Wage Orders Nos. 3, 4, 5 and 6 regular's basic wage of P36.00 per day. Finally, by November 1987, the lowest paid
were promulgated by the then President Ferdinand E. Marcos. Wage Order No. 3 regular employee had a basic daily rate of P64.64, or P10.64 more than the statutory
became effective as of 1 November 1983; Wage Order No. 4, as of 1 May 1984; Wage minimum wage paid to a non-regular employee.
Order No. 5, as of 16 June 1984; and Wage Order No. 6 went into effect on 1
November 1984. All these Wage Orders increased the statutory minimum wages of The development of the wage scales of the Company's employees after the effectivity
workers with differing increases being specified for agricultural plantation and non- date of Wage Order No. 5 is presented in the following table:
agricultural workers.
Effectivity Wage of Wage of Gap
Before the effectivity of Wage Order No. 3, the wage rates of regular employees and of
casual (or non-regular) employees of private respondent Franklin Baker Company of Date Regulars Casuals
the Philippines (Davao Plant) ("Company") were such that there was a positive
differential between the two (2) in the amount of P4.56. The effect of the
After W.O. No. 5 16 June 1984 34.00 34.00 0.00
implementation of the successive Wage Orders upon the daily wage rates of these two CBA Increase 1 July 1984 35.84 34.00 1.84
(2) groups of employees was summarized by petitioner in the following table:
After W.O. No. 6 1 Nov. 1984 37.84 36.00 1.84
CBA Anniversary 1 July 1985 39.60 36.00 3.60
Effectivity Wage of Wage of Gap
Date Regulars Casuals
Meantime, while the above wage developments were unfolding, the Company
Before W.O. No. 3 P22.56 P18.00 P4.56 experienced a work output slow down. The Company directed some 205 workers to
After W.O. No. 3 1 Nov. 1983 22.56 20.00 2.56 explain the reduction in their work output. The workers failed to comply and they were
accordingly issued notices of dismissal by the Company. As a response to its . . . At the time Wage Order No. 4 was implemented on May 1, 1984,
decreasing productivity levels, the Company suspended operations on 16 August 1984. casual employees were increased to P34.00 per day, placing them on
Operations were resumed on 14 September 1984; the Company, however, refused to equal salary footing with the regular employees who were likewise
take back the 205 dismissed employees. Petitioner Union then went on strike alleging a receiving P34.00 per day. But effective July 1, 1984 when the 1984
lock-out on the part of the Company and demanding rectification of the wage distortion. CBA took effect, the regular employees of the company admittedly
The case was certified by the Secretary of Labor to the National Labor Relations received the basic wage of P35.84 or an increase of P1.84 as against
Commission ("NLRC") for compulsory conciliation. the daily wage of P34.00 of the casual employees.

On 19 June 1985, the Union and the Company reached an agreement with respect to Thus, the apparent wage distortion did not last long but only for 15
the lock-out issue. The agreement, which was approved by the NLRC En Banc, days, that is from June 16, 1984 when Wage Order No. 5 took effect
granted the 205 employees "financial assistance" equivalent to thirty (30) days' and lasted only up to June 30, 1984. From July 1, 1984, the regular
separation pay. This left unresolved only the wage distortion issue. employees received an increase of P1.84 making their daily wage
P35.84 as against the wage of casual employees of P34.00 per day.
On 11 November 1987, the NLRC En Banc rendered a decision which in effect found And as rightly pointed out respondent-movant, the difference in the
the existence of wage distortion and required the Company to pay a P1.00 wage wage scale between the two (2) groups of employees was maintained
increase effective 1 May 1984: even after the implementation of Wage Order No. 6 which took effect
on November 1, 1984. 5 (Emphasis supplied)
In the computation submitted by the Union, there is a need to restore
the P2.56 gap between non-regulars or "casuals" and "regular The bottom line issue presented to the Court is thus whether or not, under the facts as
workers." This difference in the basic wage of these workers was summarized above, the NLRC (Fifth Division) committed a grave abuse of discretion
existing at the time of the conclusion of the collective bargaining amounting to lack or excess of jurisdiction, when it concluded that the wage distortion
agreement and before the implementation of Wage Orders No. 4 & had ceased to exist, after 1 July 1984.
5. The imprecise claim of respondent that there is P3.60 gap between
non-regular and regulars may not be sustained because as The principal contention of petitioner NFL is that a wage distortion in the wage structure
aforestated, this amount represents negotiated wage increase which of private respondent Company continued to exist although a gap of P1.84 between the
should not be considered covered and in compliance with the wage daily wage rate of regular employees and that of casual employees had been re-
orders. Considering, however, the present economic conditions and established upon the effectivity of the CBA increase on 1 July 1984. The original claim
the outlay involved in correcting the distortion in the wages of of NFL was that the initial — prior to effectivity of Wage Order No. 3 — differential of
respondent's workers, this Commission, in the exercise of its arbitral P4.56 in the wage rate of regular employees and that of casual employees, should be
powers, feels that an increase of P1.00 on the present basic wage of re-created this time between the wage rates of the newly "regularized" employees (i.e.,
regular workers would significantly rectify or minimize the distortion in the casual employees regularized by the Company on 21 June 1984) and
the wage structure of respondent company caused by the the "old" regular employees (employees who, allegedly, had been regular employees
implementation of the various wage orders. Respondent is, therefore, for at least three [3] years before the "regularization" of the casuals). 6 NFL stresses
required to implement the P1.00 wage increase effective May 1, that seniority is a valid basis of distinction between differing groups of employees,
1984 when Wage Order 4 took effect. 2 (Emphasis supplied) under the Labor Code.

On motion for partial reconsideration filed by the Company, the above quoted portion of We note that neither the Wage Orders noted above, nor the Implementing Rules
the NLRC En Banc'sdecision was reconsidered and set aside by the NLRC Fifth promulgated by the Department of Labor and Employment, set forth a clear and
Division. 3 The Fifth Division of the NLRC in effect found that while a wage distortion specific notion of "wage distortion." What the Wage Orders and the Implementing
did exist commencing 16 June 1984, the distortion persisted only for a total of fifteen Rules did was simply to recognize that implementation of the Wage Orders could result
(15) days and accordingly required private respondent company to pay "a wage in a "distortion of the wage structure" of an employer, and to direct the employer and
increase of P2.00 per day to all regular workers effective June 16, 1984 up to June 30, the union to negotiate with each other to correct the distortion. Thus, Section 6 of Wage
1984 or a total of fifteen (15) days." 4 The rest of the decision of 11 November 1987 Order No. 3, dated 7 November 1983, provided as follows:
was left untouched.
Sec. 6. Where the application of the minimum wage rate prescribed
In its decision dated 16 December 1991, the NLRC (Fifth Division) said: herein results in distortions of the wage structure of an
establishment, the employer and the union shall negotiate to correct such wage structure based on skills, length of service, or other logical
the distortions. Any dispute arising from wage distortions shall bases of differentiation. 9 (Emphasis supplied)
be resolved through the grievance procedure under their collective
bargaining agreement or through conciliation. From the above quoted material, it will be seen that the concept of wage distortion
assumes an existing grouping or classification of employees which
In case where there is no collective bargaining agreement or establishes distinctions among such employees on some relevant or legitimate basis.
recognized labor organization, the employer shall endeavor to correct This classification is reflected in a differing wage rate for each of the existing classes of
such distortions in consultation with their workers. Any dispute shall employees. The wage distortion anticipated in Wage Orders Nos. 3, 4, 5 and 6 was a
be resolved through conciliation by the appropriate Regional Office of "distortion" (or "compression") which ensued from the impact of those Wage Orders
the Ministry of Labor and Employment or through arbitration by the upon the different wage rates of the several classes of employees. Thus distortion
NLRC Arbitration Branch having jurisdiction over the work- ensued where the result of implementation of one or another of the several Wage
place. 7 (Emphasis supplied) Orders was the total elimination or the severe reduction of the differential or gap
existing between the wage rates of the differing classes of employees. 10
In its Resolution dated 11 November 1987, the NLRC En Banc provided some
elaboration of the notion of wage distortion, in the following terms: It is important to note that the remedy contemplated in the Wage Orders, and now in
Article 124 of the Labor Code, for a wage distortion consisted of negotiations between
Wage distortion presupposes a classification of positions and ranking employer and employees for the rectification of the distortion by re-adjusting the wage
of these positions at various levels. One visualizes a hierarchy of rates of the differing classes of employees. As a practical matter, this ordinarily meant
positions with corresponding ranks basically in terms of wages and a wage increase for one or more of the affected classes of employees so that some
other emoluments. Where a significant change occurs at the lowest gap or differential would be
level of positions in terms of basic wage without a corresponding re-established. There was no legal requirement that the historical gap which existed
change in the other level in the hierarchy of positions, negating as a before the implementation of the Wage Orders be restored in precisely the same form
result thereof the distinction between one level of position from the or amount.
next higher level, and resulting in a disparity [should be "parity"]
between the lowest level [and] the next higher level or rank, between Applying the above concept to the case at bar, we note that there did exist a two-fold
new entrants and old hires, there exists a wage distortion. classification of employees within the private respondent Company: regular employees
on the one hand and casual (or non-regular) employees on the other. As can be seen
The various issuances on wages anticipated this occurrence so that it from the figures referred to earlier, the differential between these two (2) classes of
had been commonly provided for in these issuances that negotiations employees existing before Wage Order No. 3 was reduced to zero upon the effectivity
may be initiated for the purposes of correcting the resulting of Wage Order No. 5 on 16 June 1984. Obviously, distortion — consisting of complete
distortion. 8 (Emphases and brackets supplied) elimination of the wage rate differential — had occurred. It is equally clear, however,
that fifteen (15) days later, on 1 July 1984, upon effectivity of the wage increase
stipulated in the collective bargaining agreement between the parties, a gap or
A statutory definition of "wage distortion" is now found in Article 124 of the Labor Code
differential of P1.84 was re-created. This restored differential persisted after the
as amended by Republic Act. No. 6727 (dated 9 June 1989) which reads as follows:
effectivity of Wage Order No. 6 on 1 November 1984. By operation of the same CBA,
by 1 July 1985, the wage differential had grown to P3.60.
Article 124. Standards/Criteria for Minimum Wage Fixing — . . .
We believe and so hold that the re-establishment of a significant gap or differential
xxx xxx xxx between regular employees and casual employees by operation of the CBA was more
than substantial compliance with the requirements of the several Wage Orders (and of
As used herein, a wage distortion shall mean a situation where an Article 124 of the Labor Code). That this re-establishment of a significant differential
increase in prescribed wage rates results in the elimination or was the result of collective bargaining negotiations, rather than of a special grievance
severe contraction of intentional quantitative differences in wage or procedure, is not a legal basis for ignoring it. The NLRC En Banc was in serious error
salary rates between and among employee groups in an when it disregarded the differential of P3.60 which had been restored by 1 July 1985
establishment as to effectively obliterate the distinctions embodied in upon the ground that such differential "represent[ed] negotiated wage increase[s] which
should not be considered covered and in compliance with the Wage Orders." 11 The
Wage Orders referred to above had provided for the crediting of increases in wages or Company. It follows that, as pointed out by the Solicitor-General, 15 no wage distortion
allowances granted or paid by employers within a specified time against the statutorily within the meaning of Wage Orders Nos. 3 through 6 (and of Article 124 of the Labor
prescribed increases in minimum wages. 12 A similar provision recognizing crediting of Code) continued beyond the "regularization" of the casual employees on
increases in daily basic wage rates granted by employers pursuant to collective 21 June 1984. It may be — though here again the record is silent — that the Company
bargaining agreements, is set out in Section 4(d) of R.A. No. 6727, a statute which had some other sub-grouping of regular employees on the basis, for instance, of the
sought to "rationalize wage policy determination by establishing the mechanism and kind of functions discharged by employees (e.g., rank and file; supervisory; middle
proper standards therefor —." In Apex Mining Company, Inc. v. National Labor management; senior management; highly technical, etc.).
Relations Commission, 13 the Supreme Court said:
The basic point which needs to be stressed is that whether or not a new or additional
It is important to note that the creditability provisions in Wage Orders scheme of classification of employees for compensation purposes should be
Nos. 5 and 6 (as well as the parallel provisions in Wage Orders Nos. established by the Company (and the legitimacy or viability of the bases of distinction
2, 3 and 4) are grounded in an important public policy. That public there embodied) is properly a matter for management judgment and discretion, and
policy may be seen to be the encouragement of employers to grant ultimately, perhaps, a subject matter for bargaining negotiations between employer and
wage and allowance increases to their employees higher than the employees. It is assuredly something that falls outside the concept of "wage distortion."
minimum rates of increases prescribed by statute or administrative The Wage Orders and Article 124 as amended do not require the establishment of new
regulation. classifications or sub-classifications by the employer. The NLRC is not authorized
To obliterate the creditability provisions in the Wage Orders through unilaterally to impose, directly or indirectly, under the guise of rectifying a "wage
interpretation or otherwise, and to compel employers simply to add distortion," upon an employer a new scheme of classification of employees where none
legislated increases in salaries or allowances without regard to what is has been established either by management decision or by collective bargaining.
already being paid, would be to penalize employers who grant their
workers more than the statutorily prescribed minimum rates of We conclude that petitioner NFL has not shown any grave abuse of discretion
increases. Clearly, this would be counter-productive so far as securing amounting to lack of excess of jurisdiction on the part of the NLRC in rendering its
the interests of labor is concerned. The creditability provisions in the decision (through its Fifth Division) dated 16 December 1991.
Wage Orders prevent the penalizing of employers who are industry
leaders and who do not wait for statutorily prescribed increases in
salary or allowances and pay their workers more than what the law or WHEREFORE, the Petition for Certiorari is hereby DISMISSED for lack of merit. No
pronouncement as to costs.
regulations require. 14 (Emphases in the original)

We believe that the same public policy requires recognition and validation, as it were,
of wage increases given by employers either unilaterally or as a result of collective
bargaining negotiations, in the effort to correct wage distortions.

We consider, still further, that the "regularization" of the casual or non-regular

employees on 21 June 1984 which was unilaterally effected by the Company (albeit
upon the request of petitioner NFL), in conjunction with the coming into effect of the
increases in daily wage stipulated in the CBA, had the effect of rendering the whole
problem of wage distortion academic. The act of "regularization" eliminated the
classification scheme in respect of which the wage distortion had existed.

Petitioner NFL's principal contention that the wage distortion persisted with respect to
the "old" regular employees and the "newly regularized" employees, is realistically a
claim or demand that the classification of "regular" employees be broken down into a
sub-classification of "new regulars" and "old regulars." A basic problem with this
contention is that, per the record of this case and during the period of time here
relevant, there was in fact no pre-existing sub-classification of regular employees into
"new regulars" and "old regulars" (i.e., on the basis of seniority or longevity) in the
National Federation of Labor v. NLRC Republic of the Philippines
1. Wage orders 3, 4, 5 & 6 were implemented for a year which effectively icnreased the FIRST DIVISION
statutory minimum wages of workers. In the private respondent's company (Franklin
Baker Corp.) the wage rates of the regular employees and casuals were such that there
G.R. No. 85934 January 30, 1990
wasa positive differential between 2 in the amount of P4.56. After Wage Order No. 5,
this differential is not zero. As a result, grievance meetings were held between the
parties. It resulted to the following action on the part of the employer: a) regularization of SSK PARTS CORPORATION, petitioner,
casual employees, b) increase in the wages of the regular employees, and the c) grant vs.
of across the board increase of P2 to all the regular employees. TEODORICO CAMAS and SECRETARY OF LABOR &
EMPLOYMENT, respondents.
2. The company experienced output slowdown resulting to the dismissal of 205
employees. The petitioner union went on strike and demand the rectification of the wage G.R. No. 85935 January 30, 1990
distortion. The NLRC in its decision found the existence of a wage distortion and ordered
the respondent company to increase wage by P1.00. However, the NLRC Fifth division SSK PARTS CORPORATION, petitioner,
held (after an MR) that the wage distortion only existed for 15 days and has ceased. vs.
Issue: W/N it is within management prerogative or discretion to implement a new EMPLOYMENT, respondents.
classification of its employees

RULING: G.R. No. 85936 January 30, 1990

Yes. It is a decision that lies outside the concept of 'wage distortion.' It is a decision that IN RE: ROUTINE INSPECTION AT SSK PARTS CORP., BGY. PULO CABUYAO,
the company must make either in conjuction with employee negotiation. It is not therefore LAGUNA.
within the power of the NLRC to impose unilaterally a new scheme for the classification
of employees under the guise of rectifying a wage distortion when none has been Emiliano S. Samson, R. Balderrama-Samson and Mary Anne B. Sam for petitioner.
established either by CBA or by management decision. Armamento & Cabana for SSK employees' union.

The court held that wage increases given by employers either unilaterally or as a result
of collective bargaining negotiations should be validated as an action on the part of the
employer to correct the wage distortion caused by the implementation of the wage
Moreover, the regularization of the casual employees with the increases in the wages of
the regulars made the issue on wage distortion academic This is a petition for review on certiorari of the decision dated November 16, 1988 of
the Department of Labor and Employment, affirming the Order of the Regional Director
dated January 11, 1988 in three consolidated cases filed against the petitioner: (1) by
Teodorico Camas for illegal deductions; (2) for underpayment of wages, non-payment
of legal holiday pay and service incentive leave filed by the union in behalf of its
members; and (3) for non-payment of employees' service incentive leave,
underpayment of allowance, overtime pay, premium pay, and non-payment of two (2)
regular holidays in December which were discovered upon routine inspection
conducted by the labor regulation officers.
After the parties had submitted their position papers and evidence, the Regional Art. 129. Recovery of wages, simple money claims and other benefits. —
Director issued an order on January 11, 1988, the dispositve portion of which reads Upon complaint of any interested party, the Regional Director of the
thus: Department of Labor and Employment or any of the duly authorized hearing
officers of the Department is empowered, through summary proceeding and
WHEREFORE, premises considered, an Order is hereby entered: after due notice, to hear and decide any matter involving the recovery of
wages and other monetary claims and benefits, including legal interest, owing
to an employee or person employed in domestic or household service or
a) Ordering respondent [herein petitioner] to refund to complainant Teodorico
househelper under this Code, arising from employer-employee relations:
Camas the amount of Seven Hundred and Seventy Five Pesos (P775.00) Provided, that such complaint does not include a claim
having been illegally deducted from his salaries; and
for reinstatement: Provided, further, That the aggregate money claims of each
employee or househelper do not exceed five thousand pesos (P5,000.00). The
b) Ordering respondent to pay individual claimants in the second case their Regional Director or hearing officer shall decide or resolve the complaint within
unpaid overtime pay, legal holiday pay, living allowance and service incentive thirty (30) calendar days from the date of the filing of the same.
leave within ten (10) days from receipt hereof, otherwise a writ of execution
shall be issued for the enforcement of this Order. (p. 92, Rollo.)
Being a curative statute, Republic Act No. 6715 may be given retroactive effect if, as in
this case, no vested rights would be impaired (DBP vs. Court of Appeals, 96 SCRA
Petitioner's appeal to the Secretary of Labor was dismissed by the latter. Hence, this 342; Santos vs. Duata, 14 SCRA 1041; Briad-Agro Dev. Corp. vs. De la Serna, et al.,
petition for certiorari in which the petitioner alleges: G.R. No. 82805, Nov. 9,1989).

1. that the Regional Director has no jurisdiction over its employees' claims; Under the exception clause in Article 128 (b) of the Labor Code, the Regional Director
and may not be divested of his jurisdiction over these claims, unless three (3) elements
concur, namely: (a) that the petitioner (employer) contests the findings of the labor
2. that it (petitioner) was denied due process. regulation officer and raises issues thereon; (b) that in order to resolve such issues,
there is a need to examine evidentiary matters; and (c) that such matters are not
The petition is devoid of merit. The jurisdiction of the Regional Director over claims for verifiable in the normal course of inspection.
violation of labor standards is conferred by Article 128-B of the Labor Code, as
amended by Executive Order No. 111 of March 26,1987 which provides that: In this case, although the petitioner contested the Regional Director's finding of
violations of labor standards committed by the petitioner, that issue was resolved by an
(b) The Provisions of Article 217 of this Code to the contrary notwithstanding examination of evidentiary matters which were verifiable in the ordinary course of
and in cases where the relationship of employer-employee still exists, the inspection. Hence, there was no need to indorse the case to the appropriate arbitration
Minister of Labor and Employment or his duly authorized representatives shall branch of the National Labor Relations Commission (NLRC) for adjudication (Sec. 2,
have the power to order and administer, after due notice and hearing, Rules Implementing Executive Order 111).
compliance with the labor standards provisions of this Code and other labor
legislation based on the findings of labor regulation officers or industrial safety The petitioner's allegation that it was denied due process is not well taken. The
engineers made in the course of inspection, and to issue writs of execution to petitioner actively participated in the proceedings a quo by filing its answer to the
the appropriate authority for the enforcement of their orders, except in cases complaint, presenting a position paper to the Regional Director, submitting evidence in
where the employer contests the findings of the labor regulation officer and support of its claim, and appealing the decision of the Regional Director to the
raises issues which cannot be resolved without considering evidentiary Secretary of Labor. Each of those steps was a part and parcel of its right to due
matters that are not verifiable in the normal course of inspections. (Emphasis process.1âwphi1 As the petitioner had all those opportunities to be heard, it may not
supplied.) complain that it was denied due process (People vs. Retamia, 95 SCRA 201; Divine
Word High School vs. NLRC, 143 SCRA 346; Municipality of Daet vs. Hidalgo
The jurisdiction of the Regional Director over employees' claims for wages and other Enterprises, Inc., 138 SCRA 265).
monetary benefits not exceeding P5,000 has been affirmed by Republic Act No. 6715,
amending Article 129 of the Labor Code as follows: WHEREFORE, the petition for certiorari is dismissed for lack of merit.