Marcopper Mining Corporation vs. NLRC

Where a wage order or executive order mandatorily integrates the cost-of-living allowance into the basic wage effective on the same date a CBA-mandated wage increase becomes due, the CBA increase must be computed on the integrated basic wage, because compliance with the law is mandatory and beyond contractual stipulation, and the CBA must conform to the law as of the date of its effectivity.

Marcopper Mining Corporation is a Philippine corporation engaged in mineral prospecting, exploration, and extraction. National Mines and Allied Workers' Union (NAMAWU-MIF) is a duly registered labor federation to which the Marcopper Employees Union — the exclusive bargaining agent of all rank-and-file workers of petitioner — is affiliated. The parties entered into a Collective Bargaining Agreement effective 1 May 1984 to 30 April 1987, which was subsequently amended by a Memorandum of Agreement on 25 July 1986. The statutory backdrop includes E.O. No. 178, promulgated on 1 June 1987, which mandated the integration of cost-of-living allowances under Wage Orders Nos. 1, 2, 3, 5, and 6 into the basic wage of workers, with effectivity retroactive to 1 May 1987 — the same date the second 5% CBA wage increase became due.

On 23 August 1984, Marcopper Mining Corporation and NAMAWU-MIF entered into a Collective Bargaining Agreement effective from 1 May 1984 until 30 April 1987. Section 1, Article V of the CBA granted general wage increases of 5% effective 1 May 1985 and another 5% effective 1 May 1986, with an express stipulation that the wage increase "shall be exclusive of any increase in the minimum wage and/or mandatory living allowance that may be promulgated during the life of this Agreement."

Prior to the CBA's expiration, on 25 July 1986, the parties executed a Memorandum of Agreement modifying the wage increase and facilities allowance provisions. Under the MOA, the company granted a 10% wage increase on the basic rate, divided into two tranches: 5% effective 1 May 1986 and 5% effective 1 May 1987. The MOA also increased the facilities allowance from ₱50.00 to ₱100.00 per month effective 1 May 1986. Petitioner implemented the initial 5% wage increase due on 1 May 1986.

On 1 June 1987, Executive Order No. 178 was promulgated, mandating the integration of cost-of-living allowances under Wage Orders Nos. 1, 2, 3, 5, and 6 into the basic wage of workers, with effectivity retroactive to 1 May 1987. Consequently, effective 1 May 1987, the basic wage rate of petitioner's laborers, categorized as non-agricultural workers, was increased by ₱9.00 per day. Petitioner implemented the second 5% wage increase due on 1 May 1987 and thereafter added the integrated COLA.

Private respondent, however, assailed the manner in which the second wage increase was effected. It argued that the COLA should first be integrated into the basic wage before the 5% wage increase is computed, so that the percentage increase would apply to the higher, integrated base. Petitioner, for its part, maintained that it computed the 5% increase on the unintegrated basic wage and then separately added the integrated COLA, thus complying with both the CBA and E.O. No. 178 without any underpayment.

On 15 December 1988, the union filed a complaint for underpayment of wages. The Labor Arbiter ruled in favor of the union on 24 July 1989, directing Marcopper to pay wage differentials retroactive to 1 May 1987, relying on the CBA's "non-chargeability" clause and invoking the principle that doubts should be resolved in favor of labor. The NLRC affirmed the Labor Arbiter's decision on 18 November 1991 and denied reconsideration on 20 December 1991, prompting the present petition.

• Meaning of "Basic Wage": Petitioner contended that the "basic wage" referred to in the CBA pertained to the "unintegrated" basic wage, as the MOA was executed a year before E.O. No. 178 was enacted, and the contemporaneous situation at the time of execution was that no law yet required integration of COLA into the basic wage. Petitioner invoked Article 1371 of the New Civil Code, arguing that the contemporaneous and subsequent acts of the parties should be principally considered in judging their intention.
• Non-Chargeability Clause Misapplied: Petitioner argued that the Labor Arbiter and NLRC's reliance on the last paragraph of Section 1, Article V of the CBA — the "non-chargeability" clause — was misplaced, because said provision did not define or hint at what "basic wage" the parties had in mind at the time of execution.
• Full Compliance with CBA and E.O. No. 178: Petitioner maintained that it computed the 5% wage increase based on the unintegrated basic wage in accordance with the intent and terms of the CBA as amended by the MOA, and thereafter added the integrated COLA, thereby complying with both its contractual obligations and the legal mandate, resulting in no underpayment.
• Inapplicability of Liberal Interpretation: Petitioner insisted that the doctrine of liberal interpretation in favor of labor in case of doubt was not applicable, because what was involved was the amended CBA, essentially a contract between private persons, not the Labor Code.

• Purpose of CBA Negotiations: Private respondent asserted that the purpose, nature, and essence of CBA negotiation is to obtain wage increases and benefits over and above what the law provides, and that the principle of non-diminution of benefits should prevail.
• Integration as Legislative Purpose: The NLRC, filing its own comment, argued that to state outright that the parties intended the basic wage to remain invariable even after E.O. No. 178 was unfounded and presumptuous, as it would work to the utmost disadvantage of the workers and run counter to the constitutional guarantee of protection to labor. The NLRC emphasized that the rationale for integrating the COLA into the basic wage was primarily to increase the base wage for purposes of computing overtime, premium pay, fringe benefits, and similar items, and that adopting petitioner's claim would deprive workers of the full benefits the law intended.

• Basis of Computation: Whether the 5% CBA-mandated wage increase effective 1 May 1987 should be computed on the unintegrated basic wage or on the "integrated" basic wage which, by mandate of E.O. No. 178, includes the COLA.
• Effect of E.O. No. 178 on CBA Terms: Whether E.O. No. 178, which took effect retroactively on 1 May 1987 — the same date the CBA increase became effective — altered the meaning of "basic wage" in the CBA such that the parties' original intent became immaterial.
• Applicability of Liberal Interpretation: Whether the doctrine of liberal interpretation in favor of labor applies to the interpretation of a collective bargaining agreement.

• Basis of Computation: Yes. The 5% wage increase must be computed on the integrated basic wage, because E.O. No. 178 mandatorily integrated the COLA into the basic wage effective 1 May 1987, the same date the CBA increase became due.
• Effect of E.O. No. 178 on CBA Terms: Yes. Compliance with the law is mandatory and beyond contractual stipulation; as of 1 May 1987, the term "basic wage" includes the COLA by operation of law, rendering the parties' intent at the time of execution immaterial.
• Applicability of Liberal Interpretation: Yes. The doctrine of liberal interpretation in favor of labor applies, because a CBA is not an ordinary contract but one impressed with public interest that must yield to the common good and to the constitutional policy of according utmost protection and justice to labor.

• Basis of Computation: The central question was whether the CBA increase should be computed on the basic wage before or after COLA integration. The Court found it unnecessary to delve into the parties' intent at the time of execution, because as of 1 May 1987 — the date both the CBA increase and E.O. No. 178 took effect — the basic wage of workers was increased by operation of law through the integration of the COLA. The Rules Implementing E.O. No. 178, specifically Section 2 of Chapter II, expressly stated that "as a result of the integration, the basic rate of covered workers shall be increased." The law was clear and unambiguous, and the CBA must conform to it. Computing the CBA increase on the integrated wage therefore did not constitute a violation of the CBA.

• Effect of E.O. No. 178 on CBA Terms: Petitioner's argument that the definition of "basic wage" under the implementing rules remained unchanged was rejected, because the same definition expressly allowed integration of monetary benefits into the regular pay of employees. E.O. No. 178 did exactly that — integrated the COLA into the basic pay to increase the statutory daily minimum wage. The Court noted that integration of monetary benefits into the basic pay was not a new method of increasing the minimum wage, citing P.D. No. 1751. Because compliance with the law is mandatory and beyond contractual stipulation, whether or not petitioner intended the basic wage to include the COLA became immaterial. The "non-chargeability" clause in the CBA, which provided that the wage increase shall be exclusive of any increase in the minimum wage and/or mandatory living allowance, did not alter this result, because the integration was not a separate increase but a redefinition of the basic wage itself by operation of law.

• Applicability of Liberal Interpretation: The Court rejected petitioner's contention that the CBA was an ordinary contract between private persons to which labor-friendly interpretive rules should not apply. Relying on Davao Integrated Port Stevedoring Services vs. Abarquez, the Court reiterated that while the terms and conditions of the CBA constitute the law between the parties, a CBA is not an ordinary contract; it is a labor contract within the contemplation of Article 1700 of the Civil Code, impressed with public interest, and must yield to the common good. It must be construed liberally rather than narrowly and technically, with due consideration to the context in which it was negotiated and the purpose it is intended to serve. The Court further invoked the constitutional policy of according utmost protection and justice to labor, citing Philippine Telegraph & Telephone Corporation vs. NLRC and Terminal Facilities and Services Corporation vs. NLRC, and held that any doubt concerning the rights of labor should be resolved in its favor pursuant to the social justice policy.

• CBA as Law Between the Parties — The terms and conditions of a CBA constitute the law between the contracting parties. However, a CBA is not an ordinary contract governed solely by the principles of ordinary contracts; it is a labor contract impressed with public interest under Article 1700 of the Civil Code, and must yield to the common good. It must be construed liberally rather than narrowly and technically, with practical and realistic construction giving due consideration to the context of negotiation and the purpose intended to be served. The Court applied this doctrine to hold that the CBA must conform to mandatory provisions of law, particularly E.O. No. 178.

• Mandatory Nature of Wage Orders over CBA Stipulations — Compliance with wage orders and executive orders mandating integration of allowances into the basic wage is mandatory and beyond contractual stipulation by and between the parties. Where the law clearly and unambiguously redefines the basic wage to include previously separate allowances, the parties' intent at the time of contract execution becomes immaterial. The Court applied this principle to hold that the term "basic wage" in the CBA necessarily included the COLA as of 1 May 1987 by operation of E.O. No. 178, regardless of the parties' original intent.

• Liberal Interpretation in Favor of Labor — All doubts in the implementation and interpretation of labor laws, including CBAs impressed with public interest, shall be resolved in favor of labor. This doctrine is rooted in the constitutional policy of according utmost protection and justice to labor, enshrined in Article XIII, Section 3 of the 1987 Constitution. The Court applied this principle to resolve the ambiguity in favor of computing the CBA increase on the integrated wage, thereby ensuring workers received the full benefits intended by E.O. No. 178.

• "Compliance with the law is mandatory and beyond contractual stipulation by and between the parties; consequently, whether or not petitioner intended the basic wage to include the COLA becomes immaterial." — This passage articulates the ratio decidendi: that mandatory wage legislation overrides contractual intent, and the CBA must conform to the law as of the date of effectivity.

• "While the terms and conditions of the CBA constitute the law between the parties, it is not, however, an ordinary contract to which is applied the principles of law governing ordinary contracts. A CBA, as a labor contract within the contemplation of Article 1700 of the Civil Code of the Philippines which governs the relations between labor and capital, is not merely contractual in nature but impressed with public interest, thus, it must yield to the common good." — This passage defines the canonical formulation of the nature of a CBA as a contract impressed with public interest, frequently cited in subsequent labor jurisprudence.

• "When conflicting interests of labor and capital are to be weighed on the scales of social justice, the heavier influence of the latter should be counter-balanced by sympathy and compassion the law must accord the underprivileged worker." — This quotation, drawn from Philippine Telegraph & Telephone Corporation vs. NLRC and reiterated in this decision, articulates the constitutional policy of social justice that animates the ruling.

• Davao Integrated Port Stevedoring Services vs. Abarquez, 220 SCRA 197 (1993) — Followed and reiterated. Established that a CBA is not an ordinary contract but one impressed with public interest, must yield to the common good, and must be construed liberally in favor of labor.
• Meycauayan College vs. Drilon, 185 SCRA 50 (1990) — Cited for the proposition that employee benefits derived from law are exclusive of benefits arrived at through negotiation unless otherwise provided by the agreement or by law, and that integration of monetary benefits into basic pay is not a new method of increasing the minimum wage.
• Philippine Telegraph & Telephone Corporation vs. NLRC, 183 SCRA 451 (1990) — Cited for the principle that when conflicting interests of labor and capital are weighed on the scales of social justice, the heavier influence of capital should be counter-balanced by sympathy and compassion for the underprivileged worker.
• Terminal Facilities and Services Corporation vs. NLRC, 199 SCRA 269 (1991) — Cited for the doctrine that any doubt concerning the rights of labor should be resolved in its favor pursuant to the social justice policy.
• Kimberly Clark Phils. vs. Lorredo, 226 SCRA 639 (1993) — Cited for the principle that the CBA is the law between the contracting parties.
• Plastic Town Center Corporation vs. NLRC, 172 SCRA 580 (1989) — Cited for the same principle that the CBA is the law between the contracting parties.

• Article XIII, Section 3, 1987 Constitution — The constitutional guarantee of social justice and full protection to labor, including the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments. The Court relied on this provision to justify resolving the dispute in favor of labor.
• Executive Order No. 178 — Mandated the integration of cost-of-living allowances under Wage Orders Nos. 1, 2, 3, 5, and 6 into the basic wage of all covered workers, effective 1 May 1987 for COLAs under Wage Orders Nos. 1, 2, and 3. The Court held that this executive order redefined the basic wage by operation of law as of 1 May 1987, the same date the CBA increase became due, thereby requiring the CBA increase to be computed on the integrated wage.
• Article 1371, New Civil Code — Provides that the contemporaneous and subsequent acts of the contracting parties shall be principally considered in judging their intention. Petitioner invoked this provision, but the Court found it unnecessary to delve into the parties' intent because the law was clear and mandatory.
• Article 1700, New Civil Code — Governs the relations between labor and capital and provides that labor contracts are impressed with public interest. The Court relied on this provision to distinguish a CBA from an ordinary contract and to justify liberal construction in favor of labor.
• Article 4, Labor Code — Provides that all doubts in the implementation and interpretation of the provisions of the Labor Code, including its implementing rules and regulations, shall be resolved in favor of labor. The Court applied this principle, extended to CBA interpretation, to resolve the ambiguity in favor of the workers.
• Rules Implementing E.O. No. 178, Chapter I, Section 1(j) and Chapter II, Section 2 — Defined "basic wage" and specified the amounts to be integrated into the basic rate of covered workers. The Court relied on these provisions to show that the law expressly mandated integration of COLA into the basic wage, thereby redefining the term "basic wage" as of 1 May 1987.

Padilla, Bellosillo, Vitug, and Hermosisima, Jr., JJ., concurred.