Bankard Employees Union-WATU vs. NLRC

The obligation to correct wage distortion under Article 124 of the Labor Code arises only when the wage increase is prescribed by law or Wage Order issued by a Regional Board, not when an employer voluntarily and unilaterally adjusts hiring rates as an exercise of management prerogative.

Bankard, Inc. classifies its employees into five levels (I to V), each with corresponding salary ranges. The Bankard Employees Union-WATU is the duly certified exclusive bargaining agent of Bankard's regular rank-and-file employees. The parties are bound by a Collective Bargaining Agreement (CBA) containing provisions on salary and cost of living allowance, including a clause recognizing the company's right to establish minimum salaries for specific jobs and to adjust the rates of employees thereby affected. Article 124 of the Labor Code, as amended by R.A. No. 6727 (Wage Rationalization Act), defines "wage distortion" and prescribes the mechanism for correcting distortions resulting from prescribed wage increases.

Bankard, Inc. classifies its employees into five levels — Level I through Level V — each with corresponding salary ranges. The Bankard Employees Union-WATU is the duly certified exclusive bargaining agent of Bankard's regular rank-and-file employees, and the parties are bound by a Collective Bargaining Agreement governing the terms and conditions of employment.

On May 28, 1993, Bankard's Board of Directors approved a "New Salary Scale," made retroactive to April 1, 1993, for the purpose of making its hiring rate competitive in the industry's labor market. The new scale increased hiring rates of new employees: Levels I and V by ₱1,000.00, and Levels II, III, and IV by ₱900.00. Salaries of employees who fell below the new minimum rates were also adjusted upward to reach such rates under their respective levels. The adjustment, however, did not include a corresponding increase in the salary rates of old, regular employees who were already earning above the new minimum rates.

The union pressed for an increase in the salaries of old, regular employees, but Bankard refused, maintaining that there was no management obligation to grant all employees the same increase in an across-the-board manner. As the union's requests remained unheeded, it filed a Notice of Strike on August 26, 1993 on the ground of discrimination and other acts of unfair labor practice. A director of the National Conciliation and Mediation Board treated the Notice of Strike as a "Preventive Mediation Case," finding the issues therein "not strikeable." Petitioner filed another Notice of Strike on October 8, 1993 on grounds of refusal to bargain, discrimination, and ULP — union busting. The strike was averted when the Secretary of Labor and Employment certified the dispute for compulsory arbitration.

The NLRC Second Division, by Order of May 31, 1995, dismissed the case for lack of merit, finding no wage distortion. Petitioner's motion for reconsideration was denied by Resolution of July 28, 1995. Petitioner then filed a petition for certiorari before the Supreme Court, docketed as G.R. 121970, which was referred to the Court of Appeals in accordance with the ruling in St. Martin Funeral Homes vs. NLRC. The Court of Appeals, by October 28, 1999, denied the petition for lack of merit, finding that the old salary gaps between the different classification levels were still reflected by the adjusted salary rates and that wage distortion did not appear to exist. The NLRC and the Court of Appeals both found that the classification under Bankard's wage structure was based on the rank or level of an employee, not on seniority, and that the wage gap between old and newly hired employees was not significant enough to obliterate or severely contract intentional quantitative differences in salary rates.

• Classification for Wage Distortion: Petitioner maintained that for purposes of wage distortion, the relevant classification is not one based on "levels" or "ranks" but on two groups of employees — the newly hired and the old — within each and every level, rather than between and among the different levels or ranks in the salary structure.
• Existence of Wage Distortion: Petitioner argued that the Court of Appeals erred in concluding that "wage distortion does not appear to exist," characterizing that conclusion as manifestly contrary to law and jurisprudence.
• Misapprehension of Issues: Petitioner faulted the appellate court for misapprehending the basic issues when it concluded that under Bankard's new wage structure, the old salary gaps between the different classification levels were "still reflected" by the adjusted salary rates.
• Obligation Not Limited to Wage Orders: Petitioner cited Metro Transit Organization, Inc. vs. NLRC to support the claim that the obligation to rectify wage distortion is not confined to wage distortions resulting from government-decreed law or wage order.

• Historical Classification by Level: Respondent NLRC, through the Office of the Solicitor General, argued that to determine the existence of wage distortion, the "historical" classification of employees prior to the wage increase must be established, and that Bankard's employees were historically classified into Levels I to V, not on the basis of length of service. The entry of new employees ipso facto places them under any of the levels mentioned in the new salary scale.
• Management Prerogative: Respondent argued that petitioner cannot make a contrary classification of Bankard's employees without encroaching upon the recognized management prerogative of formulating a wage structure based on level.
• Finality of Factual Findings: Respondent relied on the NLRC's findings of fact, which are accorded respect and even finality when supported by substantial evidence, the issue of wage distortion being a question of fact within the jurisdiction of quasi-judicial tribunals.

• Existence of Wage Distortion: Whether the unilateral adoption by an employer of an upgraded salary scale that increased the hiring rates of new employees without increasing the salary rates of old employees resulted in wage distortion within the contemplation of Article 124 of the Labor Code.
• Scope of Article 124: Whether the obligation to correct wage distortion under Article 124 applies to voluntary and unilateral wage adjustments by the employer, or only to wage increases prescribed by law or Wage Order issued by a Regional Board.

• Existence of Wage Distortion: No. No wage distortion existed because the first element — an existing hierarchy of positions between newly hired and regular employees — was absent, the classification being by level or rank and not by seniority; and the third element — elimination of the distinction between levels — was not satisfied, the wage gap not being significant enough to obliterate intentional quantitative differences.
• Scope of Article 124: No. The compulsory mandate under Article 124 to correct wage distortion applies only to prescribed wage increases by virtue of a law or Wage Order issued by a Regional Board, not to voluntary and unilateral adjustments by the employer in fixing hiring rates.

• Existence of Wage Distortion: The four elements of wage distortion, as laid down in Prubankers Association vs. Prudential Bank and Trust Company, are: (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. The classification of Bankard's employees was by level or rank, not by length of service. There was thus no hierarchy of positions between the newly hired and regular employees within the same level, so the first element was wanting. The Court of Appeals likewise found the third element absent, because even assuming a decrease in the wage gap between old and newly hired employees, said gap was not significant as to obliterate or result in severe contraction of intentional quantitative differences in salary rates between employee groups. The NLRC's factual findings, supported by substantial evidence and within its expertise, are accorded respect and even finality. Employees cannot create their own independent classification and use it as a basis to demand an across-the-board increase; the formulation of a wage structure through classification of employees is a matter of management judgment and discretion.

• Scope of Article 124: The language of Article 124 is restrictive: it applies only when "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 provision is found in Chapter V on "Wage Studies, Wage Agreements and Wage Determination," which principally deals with the fixing of minimum wage. If the compulsory mandate to correct wage distortion were applied to voluntary and unilateral increases by the employer in fixing hiring rates — inherently a business judgment prerogative — the employer's hands would be completely tied, discouraging justified adjustments such as those needed to increase the competitiveness of hiring rates. Metro Transit Organization, Inc. vs. NLRC was distinguished: the obligation to rectify wage distortion there arose from an existing "company practice" of unilaterally correcting distortion effects whenever rank-and-file employees received statutorily mandated increases, not from Article 124 itself. No such management practice was alleged against Bankard. The CBA between the parties expressly recognized Bankard's right to establish minimum salaries for specific jobs and adjust the rates of employees thereby affected. Absent any indication that the voluntary increase was done arbitrarily and illegally to circumvent the laws or discriminate against regular employees, the Court will not interfere with this management prerogative. The mere factual existence of wage distortion does not ipso facto result in an obligation to rectify it, absent a law or other source of obligation requiring its rectification.

• Four Elements of Wage Distortion — From Prubankers Association vs. Prudential Bank and Trust Company: (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. The Court found the first and third elements absent in this case because the classification was by level or rank, not by seniority, and the wage gap was not significant enough to obliterate intentional quantitative differences.

• Management Prerogative in Wage Structure Formulation — The formulation of a wage structure through the classification of employees is a matter of management judgment and discretion. Employees cannot create their own independent classification and use it as a basis to demand an across-the-board increase in salary. Whether a new additional scheme of classification for compensation purposes should be established is properly a matter of management judgment, and ultimately a subject for bargaining negotiations — it falls outside the concept of "wage distortion."

• Scope of the Obligation to Correct Wage Distortion — The compulsory mandate under Article 124 to correct wage distortion applies only to prescribed wage increases by virtue of a law or Wage Order issued by a Regional Board. The mere factual existence of wage distortion does not ipso facto result in an obligation to rectify it, absent a law or other source of obligation which requires its rectification. Absent any indication that a voluntary increase of salary rates was done arbitrarily and illegally for the purpose of circumventing the laws or was devoid of any legitimate purpose other than to discriminate against regular employees, the Court will not interfere with this management prerogative.

• "The mere factual existence of wage distortion does not, however, ipso facto result to an obligation to rectify it, absent a law or other source of obligation which requires its rectification." — This passage states the ratio decidendi that wage distortion as a factual and economic condition does not automatically trigger a legal obligation to correct it unless a law or other source of obligation so requires, distinguishing the case from Metro Transit where a company practice supplied the source of obligation.

• "[W]hether or not a new additional scheme of classification of employees for compensation purposes should be established by the Company (and the legitimacy or viability of the bases of distinction there embodied) is properly a matter of management judgment and discretion, and ultimately, perhaps, a subject matter for bargaining negotiations between employer and employees. It is assuredly something that falls outside the concept of 'wage distortion.'" — This quotation from National Federation of Labor vs. NLRC, adopted by the Court, defines the boundary between management prerogative and the legal concept of wage distortion, precluding employees from fashioning their own classification to invoke Article 124.

• "If the compulsory mandate under Article 124 to correct 'wage distortion' is applied to voluntary and unilateral increases by the employer in fixing hiring rates which is inherently a business judgment prerogative, then the hands of the employer would be completely tied even in cases where an increase in wages of a particular group is justified." — This passage articulates the policy rationale for confining Article 124's compulsory mandate to legally prescribed wage increases, warning against the chilling effect on legitimate management prerogatives if the provision were construed more broadly.

• Prubankers Association vs. Prudential Bank and Trust Company, 302 SCRA 74 (1999) — Controlling precedent laying down the four elements of wage distortion; applied to determine that the first and third elements were absent.
• National Federation of Labor vs. NLRC, et al., 234 SCRA 311 (1994) — Established that formulation of a wage structure through classification of employees is a matter of management judgment and discretion, falling outside the concept of wage distortion; followed and quoted.
• Metro Transit Organization, Inc. vs. NLRC, 245 SCRA 767 (1995) — Distinguished; the obligation to rectify wage distortion there arose from an existing "company practice" of giving supervisory employees corresponding increases plus a premium whenever rank-and-file received statutory increases, not from Article 124.
• St. Martin Funeral Homes vs. NLRC, 295 SCRA 494 (1998) — Procedural precedent; petitions for certiorari from NLRC decisions must be referred to the Court of Appeals rather than filed directly with the Supreme Court.

• Article 124, Labor Code (P.D. 442), as amended by R.A. No. 6727 (Wage Rationalization Act) — Defines "wage distortion" 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. The Court construed its language restrictively, confining the obligation to correct wage distortion to increases prescribed by law or Wage Order issued by a Regional Board, not to voluntary unilateral employer adjustments.
• Section 2, Article V (Salary and Cost of Living Allowance) of the CBA between Bankard and the Union — Recognizes the company's right to establish minimum salaries for specific jobs and to adjust the rates of employees thereby affected. The Court upheld this provision as a valid and legally enforceable source of rights based on legitimate business-judgment prerogatives of the employer.

Vitug (Chairman), Sandoval-Gutierrez, and Corona, JJ., concur.