WHAT IS WAGE DISTORTION?

After reading “What is wage distortion?”, read also “What are Bylaws?“

• Wage “distortion” occurs when the usual differentials in wage rates between groups of employees in an establishment are drastically reduced or eliminated due to mandated wage increases.

• Wage distortion can only exist where the wage adjustment is brought about by a wage order, not by management prerogative.

• In determining an employee’s regular wage, the pertinent stipulations in the Collective Bargaining Agreement are controlling, provided that the result is not less than the statutory requirement.

Upon the enactment of R.A. No. 6727 (WAGE RATIONALIZATION ACT, amending, among others, Article 124 of the Labor Code) on June 9, 1989, the term “wage distortion” was explicitly defined as:

… 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. (Article 124 “Standards/Criteria for Minimum Wage Fixing,” P.D. 442 otherwise known as the “Labor Code of the Philippines.”)

Jurisprudence says:

Wage “distortion” occurs when the usual differentials in wage rates between groups of employees in an establishment are drastically reduced or eliminated due to mandated wage increases.

This means that the differences in wage structure based on skills, length of service, or other logical bases of differentiation may be eliminated if the other employees already receiving more than the minimum wage will not also have a corresponding increase in their salaries.  Restoring a substantial or significant gap, as against the historical wage differentials, is allowed under existing jurisprudence.

In the case of Prubankers Association v. Prudential Bank and Trust Company (G.R. No. 131247, 25 January 1999), the Supreme Court laid down the four elements of wage distortion, to wit:

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; and
4. The existence of the distortion in the same region of the country.

How can wage distortion be resolved?

For organized establishments, the employer and the union shall negotiate to correct the distortions. In case of disputes, it shall be resolved through the grievance procedure under the Collective Bargaining Agreement. If still unresolved, the case shall go through voluntary arbitration. (Article 124 “Standards/Criteria for Minimum Wage Fixing,” P.D. 442 otherwise known as the “Labor Code of the Philippines.”)

For unorganized establishments, the employer and the employees shall endeavor to correct such distortions. Disputes shall be settled through the National Conciliation and Mediation Board. If still unresolved after 10 calendar days of conciliation, it shall be referred to the appropriate branch of the NLRC for compulsory arbitration.

Both the employer and the employee cannot use economic weapons. Employer cannot declare a lock-out. Employee cannot declare a strike because the law has provided for a procedure for settling the dispute.

The salary or wage differential does not need to be maintained. (National Federation of Labor v. NLRC, G.R. No. 103586, 21 July 1994)

The Department of Labor and Employment has cautioned that if the “distortion” in the salary rates of workers is not corrected, it could lead to demoralization that, in turn, could disrupt the harmonious work relationships between and among workers and employers in the establishments.

Wage distortion can only exist where the wage adjustment is brought about by a wage order, not by management prerogative. (Bankards Employees’ Union v. NLRC, G.R. No. 140689, 17 February 2004)

Does the factual existence of wage distortion ipso facto result to an obligation to rectify it?

No, the mere factual existence of wage distortion does not ipso facto result to an obligation to rectify it, absent a law or other source of obligation which requires its rectification, such as a company practice or Collective Bargaining Agreement between the company and its employees. (Prubankers Association v. Prudential Bank and Trust Company, G.R. No. 131247, 25 January 1999)

In case there is a discrepancy regarding an employee’s regular wage between the stipulations in the Collective Bargaining Agreement and a wage order issued by the Department of Labor and Employment, what should prevail?

In determining an employee’s regular wage, the pertinent stipulations in the Collective Bargaining Agreement are controlling, provided that the result is not less than the statutory requirement. (PNB v. PNB Employees’ Association, G.R. No. L-30279, 30 July 1982)

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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