Held
Yes, BDMI is correct in denying the claim to restore the original differentials because it has no legal obligation to correct wage distortion arising from a voluntary increase in hiring rates, under the ruling in Unions v. National Labor Relations Commission, G.R. No. 140689 (2004-02-17).
Explanation
The law distinguishes between wage increases mandated by law or wage orders and voluntary wage increases made by employers. When a wage increase results from a wage order, and it causes wage distortion—meaning the intentional differences in wages between employee groups based on rank, skills, or length of service are severely reduced—the law requires the employer and union to negotiate to correct the distortion, and if unresolved, to settle it through arbitration or the National Labor Relations Commission (NLRC). However, this obligation to correct wage distortion applies only to wage increases prescribed by law or wage orders.
Wage distortion is 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.
The Supreme Court clarified in Unions v. NLRC that voluntary and unilateral wage increases by an employer, such as raising hiring rates to remain competitive, are a business judgment prerogative and do not legally obligate the employer to correct resulting wage distortion. The Court emphasized that the law's language is restrictive and does not cover all kinds of wage adjustments, only those mandated by law or wage orders. Therefore, the employer may adjust salary rates for specific jobs without extending the increase to all employees, provided the action is not arbitrary or discriminatory.
Application to the facts
In this case, BDMI increased the entry-level hiring salary rates voluntarily to remain competitive, effective January 1, 2026. The incumbent employees earning below the new minimum rates were adjusted only up to the new minimum, while those already above it received no increase. This adjustment resulted in a reduction of the wage differentials between certain salary levels by 70%, which NU-BDMI claims is wage distortion.
However, since the wage increase was a voluntary adjustment by BDMI and not a wage increase mandated by a wage order or law, BDMI is not legally required to correct the wage distortion that resulted from this voluntary increase. The Supreme Court ruling in Unions v. NLRC supports BDMI's position that voluntary increases in hiring rates are a business judgment prerogative and do not impose an obligation to restore original wage differentials.
Moreover, there is no indication that BDMI acted arbitrarily or with the intent to discriminate against employees. The adjustment was made to remain competitive and to set minimum salaries for specific jobs, which is within the employer's rights. Therefore, BDMI's refusal to restore the original differentials is legally justified.
- a constitutional provision is among the sources and controls over any conflicting statute
"Where the application of any wage increase resulting from a Wage Order issued by any Board results in distortions in the wage structure within an establishment, the employer and the union shall negotiate to correct the distortions using the grievance procedure under their collective bargaining agreement. If it remains unresolved, it shall be decided through voluntary arbitration ten calendar days from the time the dispute was referred for voluntary arbitration, unless otherwise agreed by the parties in writing. Where there are no collective agreements or recognized labor unions, the employer and workers shall en…
"Where the application of the wage increase prescribed herein results in distortions in the wage structure within an establishment which gives rise to a dispute therein, such dispute shall first be settled voluntarily between the parties. In the event of a deadlock, such dispute shall be finally resolved through compulsory arbitration by the regional arbitration branch of the National Labor Relations Commission (NLRC) having jurisdiction over the workplace. The NLRC shall conduct continuous hearings and decide any dispute arising from wage distortions within twenty calendar days from the time said dispute is form…
"Nothing in this rule shall be construed to justify the reduction or diminution of any benefit being enjoyed by any employee at the time of effectivity of this rule."
Laws retrieved
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- Section 8, Barangay Micro Business Enterprises (BMBE's) Act of 2002
- Section 7, Issuances of the Department of Labor and Employment and its Attached Agencies
- Section 5, The 1987 Constitution of the Republic of the Philippines
- Section 10, Barangay Micro Business Enterprises (BMBE's) Act of 2002
- Section 16, Issuances of the Department of Labor and Employment and its Attached Agencies
"As already stated, the classification under the wage structure_ is _based on therank_ _employee, not on seniority._ For this reason, ,wage distortion does not appear to exist.12 (Emphasis and underscoring supplied) Apart from the findings of fact of the NLRC and the Court of Appeals that some of the elements of wage distortion are absent, petitioner cannot legally obligate Bankard to correct the alleged "wage distortion" as the increase in the wages and salaries of the newly-hired was _not due to a prescribed law or wage order._ The wordings of Article 124 are clear. If it was the intention of the legislators to…
The Supreme Court in Unions v. National Labor Relations Commission, G.R. No. 140689 (2004-02-17) held that an employer cannot be legally obligated to correct an alleged wage distortion when the increase in the wages and salaries of the newly-hired was not due to a prescribed law or wage order. The Court explained that the law on wage distortion should be construed in relation to minimum wage fixing, and that the obligation to correct wage distortion does not apply to voluntary and unilateral increases by the employer in fixing hiring rates, which is a business judgment prerogative. The mere factual existence of wage distortion does not, by itself, result in an obligation to rectify it, absent a law or other source of obligation which requires its rectification. The Court further stated that, absent any indication that the voluntary increase of salary rates by an employer was done arbitrarily or illegally, it will not interfere with this management prerogative.
Cases retrieved
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