Pag-Asa Steel Works, Inc. vs. Court of Appeals

A CBA provision stating that wage orders "shall be in addition to" CBA-mandated wage increases does not obligate the employer to grant across-the-board increases to employees already receiving above the minimum wage prescribed by the wage order, where the wage order itself limits the increase to minimum wage earners; and a company practice demandable as a matter of right cannot arise from increases granted pursuant to strict legal or contractual obligation rather than employer liberality.

Pag-Asa Steel Works, Inc. is a corporation engaged in the manufacture of steel bars and wire rods, with Pag-Asa Steel Workers Union as the duly authorized bargaining agent of its rank-and-file employees. The parties had a history of negotiating wage adjustments in response to wage orders issued by the Regional Tripartite Wages and Productivity Board of the National Capital Region. They entered into a Collective Bargaining Agreement effective July 1, 1999 to July 1, 2004, which contained provisions on scheduled wage increases and the treatment of future wage orders, as well as an integration clause stipulating that all agreements arrived at during negotiations were set forth in the CBA. The dispute arose when Wage Order No. NCR-08 took effect on November 1, 2000, and the Union demanded its implementation across-the-board despite all employees already earning above the new ₱250.00 minimum wage.

Pag-Asa Steel Works, Inc. is a corporation engaged in the manufacture of steel bars and wire rods, and Pag-Asa Steel Workers Union is the duly authorized bargaining agent of its rank-and-file employees. On January 8, 1998, the Regional Tripartite Wages and Productivity Board of the National Capital Region issued Wage Order No. NCR-06, providing a ₱13.00 per day increase for minimum wage earners and setting the minimum wage at ₱198.00 per day. The parties negotiated adjustments, and petitioner implemented varying increases ranging from ₱10.00 to ₱13.00 based on a formula designed to prevent wage distortion, as reflected in a letter dated March 10, 1998 listing the salary adjustments of each rank-and-file employee.

On September 23, 1999, the parties entered into a Collective Bargaining Agreement effective July 1, 1999 to July 1, 2004. Section 1, Article VI (Salaries and Wage) provided for general wage increases of ₱15.00 per day effective July 1, 1999, ₱25.00 per day effective July 1, 2000, and ₱30.00 per day effective July 1, 2001, to be implemented across-the-board. It further stated: "Any Wage Order to be implemented by the Regional Tripartite Wages and Productivity Board shall be in addition to the wage increase adverted to above." However, if no wage increase was given by the Wage Board within six months from signing, management would instead give alternative increases of ₱20.00, ₱25.00, and ₱30.00 for the respective years. The CBA also contained an integration clause in Article XXVII, stipulating that all agreements arrived at during negotiations were set forth in the CBA and that each party waived the right to bargain on matters not specifically covered. During negotiations, the Union's counsel, Atty. Florente Yambot, proposed language mandating across-the-board implementation of wage orders as additional salary increases, but petitioner rejected this proposal, and it was not included in the final CBA.

On October 14, 1999, Wage Order No. NCR-07 was issued — within six months of the CBA's signing — providing a ₱25.50 per day increase and raising the minimum wage to ₱223.50. Petitioner paid this increase to all rank-and-file employees, consistent with its understanding that the CBA required implementation of any wage order issued within six months. On July 1, 2000, the second year CBA increase of ₱25.00 per day was granted. On November 1, 2000, Wage Order No. NCR-08 took effect, providing a ₱26.50 per day increase to employees receiving the prescribed minimum wage of ₱223.50, thereby setting the new minimum wage at ₱250.00 per day.

Union president Lucenio Brin requested implementation of Wage Order No. NCR-08, but petitioner refused, asserting that none of its employees received less than ₱250.00 per day and there was no wage distortion. The parties agreed to submit to voluntary arbitration, confining the sole issue to whether management was obliged to grant the wage increase under Wage Order No. NCR-08 as a matter of practice. The Union claimed a company practice of paying wage order increases across-the-board regardless of salary levels, citing previous wage orders and alleging a collateral agreement, and invoked Article 100 of the Labor Code on non-diminution of benefits. Petitioner countered that previous implementations were due to legal obligation — some employees had been below minimum wage — or to the CBA's six-month clause, not to any established practice. The Voluntary Arbitrator dismissed the case on June 6, 2001, finding no company practice and no CBA obligation. The Union elevated the matter to the Court of Appeals, which reversed on September 23, 2004, holding the CBA was clear that wage orders would be in addition to CBA increases regardless of salary levels. The CA denied reconsideration on January 11, 2005.

• Issue Not Raised Below: Petitioner argued that the Union's claim before the Voluntary Arbitrator was anchored on company practice, not on the CBA, and that the issue of CBA ambiguity was raised for the first time on appeal, which is prohibited by well-settled rules applicable in labor cases.
• CBA Interpretation: Petitioner contended that Section 1, Article VI of the CBA should be read in its entirety, and that it contemplated only the implementation of a wage order issued within six months from the CBA's signing — not every wage order issued during its effectivity. It complied with Wage Order No. NCR-07 because it was issued 28 days after the CBA, pursuant to the CBA's six-month clause, not as a matter of practice.
• Rejection of Yambot Proposals: Petitioner asserted that the Union's counsel proposed explicit across-the-board implementation language during negotiations, which petitioner rejected; the omission of this proposal from the final CBA demonstrated the parties never agreed to it.
• No Company Practice: Petitioner maintained that previous wage orders were implemented only after request and negotiations, and because some employees were receiving salaries below the minimum wage or because wage distortion resulted. These implementations were not acts of liberality and could not constitute a company practice demandable as of right.

• CBA Interpretation: Respondent Union argued that the CBA provision stating that wage orders "shall be in addition to" CBA-mandated increases referred to a company practice of paying wage order increases even when employees earned above the minimum wage and there was no wage distortion, and that the CBA contemplated all future wage order increases as effectively CBA-mandated.
• Parol Evidence: Respondent contended that the CBA did not include all agreements of the parties, and that parol evidence — specifically Atty. Yambot's version of the wage adjustment provision — should be resorted to in order to determine the true intention of the parties.
• Non-Diminution of Benefits: Respondent invoked Article 100 of the Labor Code, asserting that an established practice of granting wage order increases across-the-board could not be discontinued without violating the non-diminution principle.

• Procedural Issue: Whether the issue of CBA ambiguity and the resort to parol evidence could be raised before the Court of Appeals when the submission agreement before the Voluntary Arbitrator confined the issue to company practice.
• CBA Interpretation: Whether the CBA obligates the employer to grant the wage increase under Wage Order No. NCR-08 to employees already receiving above the ₱250.00 minimum wage prescribed by the wage order.
• Company Practice: Whether a company practice existed requiring the employer to grant wage order increases across-the-board regardless of employees' salary levels, demandable as a matter of right.

• Procedural Issue: The issue was properly before the CA. Despite the submission agreement's limited scope, the Union raised the CBA-based claim and the need for parol evidence in its pleadings before the VA, and petitioner delved into these issues in its comment, thereby agreeing to the CA's cognizance.
• CBA Interpretation: No. The CBA provision must be read in harmony with Wage Order No. NCR-08, which limited the ₱26.50 increase to those receiving ₱223.50 per day; since all employees earned above ₱250.00, the employer was not obliged to grant the increase.
• Company Practice: No. The Union failed to prove specific, repetitive conduct constituting a company practice; previous implementations were driven by legal obligation or contractual commitment, not by employer liberality, which is the requisite for a practice to ripen into an enforceable obligation.

• Procedural Issue: While the submission agreement confined the issue to whether petitioner was obliged to grant the increase as a matter of practice, the Union's Position Paper before the VA asserted the existence of a collateral agreement in the CBA to pay wage order equivalents across-the-board, and its Reply claimed the CBA provision clearly provided for additional increases apart from the CBA. These assertions indicated reliance on the CBA. Petitioner, in its Comment before the CA, delved into the CBA interpretation and parol evidence issues, thereby agreeing to the CA's cognizance. The rule against raising issues for the first time on appeal was thus not violated, as the issues were in fact ventilated below.

• CBA Interpretation: The error of the CA lay in interpreting the CBA provision in isolation, without considering Wage Order No. NCR-08 and the fact that all Union members were already receiving above ₱250.00 per day. The CBA cannot be considered independently of the wage order on which the Union relied. Wage Order No. NCR-08 clearly limited the ₱26.50 increase to private sector workers receiving the prescribed minimum wage of ₱223.50. Following Capitol Wireless, Inc. vs. Bate, CBA provisions regarding wage orders must be read in harmony with the wage orders themselves, whose benefits should be given only to employees covered thereby. The rejection of the Union's proposed across-the-board implementation language during negotiations further confirmed that the parties never intended across-the-board application. Since none of the Union members received less than ₱250.00, petitioner was not obliged to grant the increase.

• Company Practice: While the parol evidence rule does not preclude admission of extrinsic evidence to show prior or contemporaneous collateral agreements, habits, customs, or patterns of conduct must be proved like any other fact, with adequate sampling and uniformity of response. The records showed that before Wage Order No. NCR-06, some employees were in fact receiving below the ₱198.00 minimum wage, and the resulting wage distortion necessitated upward adjustments — not a matter of company practice. The only instance where petitioner implemented a wage order despite all employees earning above minimum was Wage Order No. NCR-07, which it did based on its belief that the CBA's six-month clause required it. An isolated act does not constitute company practice. Critically, to ripen into a practice demandable as a matter of right, the giving of the increase must be by reason of liberality, not by strict legal or contractual obligation. Because petitioner granted previous increases pursuant to legal or contractual duty, those grants could not ripen into an enforceable company practice.

• Non-Diminution of Benefits — Under Article 100 of the Labor Code, an established practice or benefit cannot be discontinued or reduced by the employer. However, for a practice to ripen into an enforceable obligation demandable as a matter of right, the benefit must have been granted by reason of the employer's liberality, not by strict legal or contractual obligation. Increases granted pursuant to wage orders or CBA provisions do not automatically constitute company practice.

• CBA Interpretation in Harmony with Wage Orders — A CBA provision stating that wage orders shall be in addition to CBA-mandated increases must be read in harmony with the wage order itself. The wage order specifies who is entitled to the increase; the CBA provision cannot expand coverage beyond what the wage order prescribes. Benefits under the wage order should be given only to employees covered thereby.

• Parol Evidence in CBA Interpretation — The parol evidence rule does not preclude admission of extrinsic evidence to show prior or contemporaneous collateral agreements, even if the written agreement contains no reference to them. When a CBA may be expected to speak on a matter but does not, its silence imports ambiguity, and the arbitrator may resort to extrinsic evidence, including negotiating history and past practices, to ascertain the parties' intention. However, habits, customs, or patterns of conduct must be proved with adequate sampling and uniformity of response — mere similarity of contracts is insufficient.

• Company Practice Requisites — To constitute an enforceable company practice, the employer's conduct must be (a) specific and repetitive, numerous enough to support an inference of systematic conduct, (b) characterized by uniformity of response, and (c) undertaken by reason of liberality rather than legal or contractual obligation. An isolated act does not suffice.

• "The CBA cannot be considered independently of the wage order which respondent Union relied on for its claim." — This passage articulates the ratio decidendi that CBA provisions regarding wage orders must be construed in harmony with the wage orders themselves, not in isolation.

• "To ripen into a company practice that is demandable as a matter of right, the giving of the increase should not be by reason of a strict legal or contractual obligation, but by reason of an act of liberality on the part of the employer. Hence, even if the company continuously grants a wage increase as mandated by a wage order or pursuant to a CBA, the same would not automatically ripen into a company practice." — This defines the controlling doctrine on when employer conduct constitutes an enforceable company practice under the non-diminution principle.

• "Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must contend with the caveat that, before they admit evidence of usage, of habit or pattern of conduct, the offering party must establish the degree of specificity and frequency of uniform response that ensures more than a mere tendency to act in a given manner but rather, conduct that is semi-automatic in nature." — This sets the evidentiary standard for proving company practice, requiring adequacy of sampling and uniformity of response.

• "The provisions of the CBA should be read in harmony with the wage orders, whose benefits should be given only to those employees covered thereby." — This is the formulation from Capitol Wireless, Inc. vs. Bate adopted as controlling precedent, establishing that CBA wage-order clauses cannot expand coverage beyond the wage order's own terms.

• Capitol Wireless, Inc. vs. Bate, 316 Phil. 355 (1995) — Controlling precedent followed. The Court applied its holding that CBA provisions regarding government-mandated wage increases must be read in harmony with the wage orders, whose benefits should be given only to employees covered thereby, rejecting the Union's argument for across-the-board implementation.

• United Kimberly-Clark Employees Union vs. Kimberly-Clark Philippines, Inc., G.R. No. 162957, March 6, 2006 — Followed for the principle that a CBA is more than a contract and that extrinsic evidence, including negotiating history and past practices, may be considered when CBA provisions are ambiguous or silent on a matter, though the Court ultimately found no ambiguity requiring such resort.

• Bank of Commerce vs. Manalo, G.R. No. 158149, February 9, 2006 — Followed for the evidentiary standard that habit, custom, usage, or pattern of conduct must be proved like any other fact, requiring adequacy of sampling and uniformity of response to establish systematic conduct.

• Article 100, Labor Code (Non-Diminution of Benefits) — Invoked by the Union to argue that an established practice of granting wage order increases could not be discontinued. The Court applied the provision but clarified that it applies only to benefits granted by liberality, not those given pursuant to legal or contractual obligation.

• Section 1, Wage Order No. NCR-08 — The wage order limited the ₱26.50 daily increase to private sector workers in the NCR receiving the prescribed minimum wage of ₱223.50, setting the new minimum at ₱250.00. The Court held that since all employees earned above ₱250.00, none were entitled to the increase.

• Section 1, Article VI, 1999 CBA — The wage adjustment provision stating that any wage order implemented by the Wage Board "shall be in addition to" CBA-mandated increases. The Court interpreted this provision in harmony with the wage order, limiting its application to employees covered by the wage order.

• Article XXVII, 1999 CBA — The integration clause stipulating that all agreements arrived at during negotiations were set forth in the CBA and waiving further bargaining on matters not covered. The VA relied on this provision to reject the Union's claim of a collateral agreement.

• Articles 1370 and 1374, Civil Code — Cited by petitioner on statutory construction, requiring that a contract be read in its entirety and stipulations read together to give effect to all.

Chief Justice Artemio V. Panganiban (Chairperson), Associate Justice Consuelo Ynares-Santiago, Associate Justice Ma. Alicia Austria-Martinez, and Associate Justice Minita V. Chico-Nazario.