RESOLVING A WAGE DISTORTION DISPUTE
Diego P. Atienza*

     What appears after this introductory portion is the text of a decision rendered by the author, as voluntary arbitrator, in a case involving wage distortion in a manufacturing 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 wage rates. A more complete definition is found later herein. Where there is a collective bargaining agreement in the establishment, the Labor Code provides that the employer and the union shall negotiate to correct the distortion. If a dispute arises due to failure of the negotiations, they shall resolve the same by means of the grievance procedure under the CBA, and then through voluntary arbitration if the dispute remains unresolved.

     The subject decision was assailed by the respondent company in a petition for certiorari filed in the Supreme Court. The petition, however, was dismissed by the Court.

     In order to protect their privacy, the parties are not identified by their real names.

     The dispute in this case revolves around the issue of how to correct the wage distortion at respondent ABC Corporation.

     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. 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 employees of the Company, and has a collective bargaining agreement with the latter.

     The existence of a wage distortion is not at issue. The respondent company admits it. Thus, in a Position Paper it described the situation in this manner:

"With the Implementation of the wage Increases man-dated by NCR-03, the existing differences between the wage of ABC employees affected by NCR-03 and those who were not changed significantly, with some gaps dis-appearing completely and others narrowing greatly."
     The attendant facts are not in dispute either.

     On 29 November 1993, the National Capital Region Tripartite Wages and Productivity Board issued Wage Order No. NCR-03 which required the employers within the said Region to pay their employees receiving P154 per day or less a wage 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.

     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 increase for a period of one year from 16 December 1993 to 15 December 1994. Effective on 16 December 1994, the Company paid to its covered employees, numbering 133, out of a total of 1,598 represented by the Union, the P27 wage increase per day.

     Claiming the existence of a wage distortion owing to the fact that the remaining 1,465 of its members did not benefit from the implementation of the Wage Order, the Union demanded that a similar wage increase of P27 per day be paid across-the-board to the latter, by way of correcting the distortion. The demand was rejected by the Company.

     The parties, in the early part of 1995, held our grievance conferences for the purpose of resolving their dispute. The Company offered four different approaches 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 the application of the following formula, as presented by it:

   Minimum Wage    = % x Prescribed Increase = Distortion Adjustment
   Actual Salary

     This formula did not meet with the Company's approval.

     The bilateral negotiations having proved fruitless, the parties availed themselves of 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 dispute to voluntary arbitration and chose this author as their Voluntary Arbitrator.

     The arbitration process started with a meeting of the parties before the voluntary arbitrator on 15 May 1995. Thereafter, they submitted their respective position papers and replies thereto. During the final meeting on 22 June 1995, the parties, after clarifying certain points of fact for the benefit of the Voluntary Arbitrator, agreed to submit their dispute for decision on the basis of the said documents and the additional 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. The next levels, culminating in the final figure of P220.76 per day, are shown in Annex "A" of the Union's Position Paper and Annexes "M", "N", "0" and "P' of the Company's Position Paper.

     The Union's adjustment proposal, as above formulated, can be simpli-fied as follows:

      P118          x P27 = rate of adjustment
  Actual Salary
     P118 represents the prevailing minimum wage before Wage Order No. NCR-03. 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 rate.

     It appears that this formula was originally a part of Wage Order No. IV-02, issued by Regional Tripartite Wages and Productivity Board No. IV on 21 May 1991, intended to 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 Labor Rela-tions Commission in her dissenting opinion in an NLRC case involving the Metropolitan Bank and Trust Company. The Supreme Court, to which the case was elevated, quoted with approval a portion of the said dissenting opinion, thus:

"We find the formula suggested then by Commis-sioner Edna Bonto Perez, which has also been the stand-ard considered by the Regional Tripartite Wages and Productivity Commission for the correction of pay scale structures in cases of wage distortion, to well be the appropriate measure to balance the respective conten-tions of the parties in this instance. We also view it as being just and equitable."1

     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 applied to this case. That is the burden of the Union's argument.

     In answer to that argument, the Company denies that the formula adopted in the Metropolitan Bank case has the force of law. It contends that "no principle of law commands adoption of the formula used in the resolution of the wage distortion disputed in that case to resolve subsequent wage distortion disputed between the same or other parties." The Metro-politan case, according to the Company, "is precedent only where the case in which it is cited as authority is one the factual context of which so closely resembles, in general or in some material particular, that of the Metropolitan case as to make it fair and consistent to decide it in the same way the Metropolitan case was." Its application, says the Company, is restricted to the resolution of the wage distortion "in this instance", meaning the particu-lar controversy at Metropolitan Bank, as the Supreme Court itself stated in the said case. It cites as "one fundamental difference" between the Metropolitan case and the instant one the fact that the Metropolitan Bank and Trust Company was not distressed financially nor suffering from "severe competitive pressures" while ABC Corporation is on the verge of business collapse and is struggling to survive.

     The Company stresses that neither the Labor Code nor the Rules Implementing Wage Order No. NCR-03 "imposes upon ABC the duty of adopting any particular formula, even one fashioned by one or another RTWPB or followed by the Honorable Supreme Court, in correcting a wage distortion." Its primary duty in this situation, as viewed by the Company, is merely to negotiate to correct the wage distortion and in so doing it is guided by principles applicable to collective bargaining negotiations in general, not by any particular formula.

     The Company also invokes management prerogative, saying that its proposals for 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 products of management doing what it is supposed to do --- running the business to turn a profit."

     In support of its arguments, the Company has presented evidence to show that it is in a state of severe business decline, brought on by previous wage increases granted to its employees as a result of several collective bargaining agreements, coupled with 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 suffered in 1993, and the fact of its inability to meet its financial obligations to its suppliers and other creditors, as well as its commitments to its own employees. The company also avers that it has had to resort to certain cost cutting meas-ures, including shortening the work week and laying off workers, but in spite of these, its business performance has not turned around so that the business decline that started in May, 1993 continues up to the present.

These asseverations of fact have not been refuted by the Union.
The Company's proposals for resolving the wage distortion issue are as follows:

  1. Plan 1. This is described as "84% contraction from the previous wage level differences applied to those earning P180.50/day and above; those earning less divided into brackets with each bracket being given standard increase; incremental cost: P5,928.75/day."
  2. Plan 2. This is described as "75% contraction from previous wage level differences for those wage levels to which more employ-ees belong; 80% contraction from previous wage level differ-ences for those wage levels to which fewer employees belong; incremental cost: P5,786.59/day."
  3. Plan 3. This is described as "80% contraction from previous wage level differences applied to all wage levels: incremental cost: P5,422.45/day."
  4. Plan 4. This is described as "80% contraction from previous wage level differences applied tot hose earning P180.50/day and below; 85% contraction from previous wage level differences applied to those earning P181 .00/day and above; incremental cost: P5,306.68/day."

     It can thus be seen that the above proposal ~ are so designed as to limit the daily incremental cost of wage increases to correct the distortion to less than P6,000.00. The Company justifies the said proposals by saying that it "simply cannot hazard paying more than it has offered while nursing hope of survival as a business."      Under Plan 1, out of the 116 wage levels (P158.50 to P220.76) above P154.00/day, only 12 (from 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, with the last level getting only P0.15 per day.

     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 P220.76) will get nothing.

     Under Plan 3, only 21 wage levels (from P158.50 to P184.73) will get increments ranging from P0.20 to P21 .00 per day; the remaining 95 levels (from P184.73 to P220.78) will get nothing.

     Under Plan 4, only 19 wage levels (from P1 58.50 to P1 84.21) will get increments ranging from P0.20 to P21.00); the remaining 97 levels (from P184.48 to P220.76) will get nothing.

     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.

     Article 124 of the Labor Code 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 and 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."

     As stated at the outset, the existence of wage distortion in the respon-dent establishment is acknowledged by it. To paraphrase the Company's statement in its Position Paper, there have been significant changes in the existing differences among the different levels in the wage structure therein; some gaps have "completely disappeared" while others have "greatly narrowed."

     The Company is correct in saying that the law and its implementing rules do not prescribe a specific formula for correcting such situation. The law, however, provides that where it exists the parties shall negotiate to correct it, and if bilateral negotiations fail, the controversy shall be resolved through the grievance procedure in the CBA and then through voluntary arbitration if it remains unresolved.

     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 of distortion, "in precisely the same form or amount." That was the ruling of the Supreme Court in the case of NFL vs. NLRC.2 Indeed, to require rectification in this manner would be tantamount to decreeing that the minimum wage increase prescribed 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 cease to be a measure for increasing the minimum wage but would instead be an 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.

     But re-establishing the differentials to some just reasonable extent by readjusting 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 the law intends to prevent by providing for its correction. The objective, in other words, is to at least approximate the historical differences in the wage levels.

     In this case, by applying any of the Company's proposals, the old wage level of P1 58.50 (the next higher level in the wage structure after P154.00) would be increased to P179.50 (by adding P21.00 as proposed), which would barely top the new rate for the 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).

     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 Plans 2, 3 and 4, only 22, 21 and 19 levels, respectively, would get any increase as against a little less than 100 levels getting none at all, and, at that, the increase could be as low as P0.20 per day.

     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 have 'narrowed greatly" would continue to be so narrowed. The percentage figures (75%, 80%, 84%, 84%) cited by the Company in describing its Plans represent the extent of the contraction of the old gaps as readjusted according to those Plans.

     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 Company, of course, because of the dismal condition of its business. It could be that the increases proposed in its Plans are all that it could afford to give at present. But then, justified as this maybe from a purely business standpoint, the proposals are not sufficient to effect a reasonable rectifica-tion of the wage distortion brought about by the implementation of Wage Order No. NCR-03. They cannot be seen even remotely as producing an approximation of the former wage structure.

     Shortchanging the employees by an inadequate approach to correcting the existing wage distortion is not the only way by which the Company responds to its business misfortunes. It cannot be justified in the name of management prerogative, which is not absolute after all.

     The Company's argument, to the effect that in carrying out its primary duty under the law in case of a wage distortion, which is to negotiate with the Union to correct the 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 compelled to agree to a proposal or to make any concession 3 -- is correct only in so far as negotiations are concerned. It has no relevance in a situation where the negotiations have failed to produce a settlement and an authorized person like a 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 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 exercise, which, as earlier mentioned, is to re-establish the former wage differentials in the pay scale to some just and reasonable extent.

     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 preserved.

     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 adjusting rates descend. It is really fair and equitable, as the Supreme Court has described it.

     In view of the foregoing, the Voluntary Arbitrator holds that the members of the Union who did not directly benefit from the implementation of Wage Order No. NCR-03 are entitled, by way of correction of wage distortion, to wage increases computed on the basis of the formula:

P118  actual salary x P27.

     WHEREFORE, respondent ABC Corporation is hereby ordered to pay its employees, members of complainant XYZ Union, who were not directly benefited by the implementation of Wage Order No. NCR-03, their daily wage increases based on the formula stated above.
 


* AB, LLB (Cum Laude.MLQU); Lecturer-Asean Labor Education Center and UP Law Center; Special Studies: Career Executive Service Development Program and Labor Law Administration; Retired Vice-Chairman on the National Labor Relations Commission; Professor of Labor Law, University of Batangas.
1 Metropolitan Bank and Trust Company vs. NLRC, 226 SCRA 268.
2 234 SCRA 311
3 Art. 252, Labor Code.
4 Art. 9, Civil Code.
5 Metropolitan Bank and Trust Co. vs. NLRC, supra; emphasis supplied.