BANKARD EMPLOYEES UNION-WORKERS ALLIANCE TRADE UNIONS, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION AND BANKARD, INC., RESPONDENTS.

Bankard Employees Union versus Bankard

The Case

This is a petition for review on certiorari brought by the Bankard Employees Union, the certified exclusive bargaining agent of the regular rank and file employees of Bankard, against the National Labor Relations Commission and Bankard, Incorporated. The Union asks the Supreme Court to reverse the finding that no wage distortion arose when Bankard unilaterally adopted an upgraded salary scale that raised the hiring rates of new employees without raising the salaries of old employees. The case matters because it fixes the meaning of wage distortion under Article 124 of the Labor Code, identifies its four elements, and settles that the duty to correct a distortion is not triggered by a voluntary, unilateral increase made as a business judgment.

Procedural History

The dispute was certified by the Secretary of Labor and Employment for compulsory arbitration. The Second Division of the National Labor Relations Commission, by Order of May 31, 1995, found no wage distortion and dismissed the case for lack of merit. The Union's motion for reconsideration was denied by Resolution of July 28, 1995. The Union then filed a petition for certiorari before the Supreme Court, which, following its ruling in St. Martin Funeral Homes versus NLRC, referred the petition to the Court of Appeals. The Court of Appeals denied the petition for lack of merit on October 28, 1999. Hence the present petition for review on certiorari under Rule 45, faulting the appellate court for misapprehending the basic issues and for concluding that wage distortion does not exist.

Facts

Bankard classifies its employees into five levels, from Level I to Level V. On May 28, 1993, its 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 the hiring rates of new employees by one thousand pesos for Levels I and V, and by nine hundred pesos for Levels II, III and IV. Employees whose salaries fell below the new minimum rates were adjusted to reach those rates under their levels.

The Union pressed for a corresponding increase in the salaries of the old, regular employees. Bankard took the position that management had no obligation to grant the same increase to all employees in an across-the-board manner. The Union filed a Notice of Strike on August 26, 1993 on the ground of discrimination and other acts of unfair labor practice, which a director of the National Conciliation and Mediation Board treated as a preventive mediation case upon a finding that the issues were not strikeable. The Union filed another Notice of Strike on October 8, 1993 on the grounds of refusal to bargain, discrimination, and union busting. The strike was averted when the Secretary of Labor and Employment certified the dispute for compulsory arbitration.

Before the labor tribunals, the Union argued that for purposes of wage distortion the relevant classification is not the levels or ranks, but two groups of employees, the newly hired and the old, within each level. The National Labor Relations Commission, through the Office of the Solicitor General, countered that the employees were historically classified into levels, not by length of service, and that the Union could not create its own classification without encroaching on management's prerogative to formulate a wage structure.

Issues

• Whether or not the unilateral adoption by Bankard 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.
• Whether or not the Union may, for purposes of determining wage distortion, create its own independent classification of employees based on seniority rather than on the employer's levels.
• Whether or not Bankard may be legally compelled to correct the alleged wage distortion when the increase in the wages of the newly hired was not due to a prescribed law or wage order.

Applicable Provisions

Article 124 of the Labor Code, as amended by the Wage Rationalization Act, defines wage distortion in this wise:

... 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 definition confines wage distortion to distortions caused by an increase in prescribed wage rates, which frames the whole dispute.

Article 124 further provides on the correction of distortions:

Where 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 employer and the union shall negotiate to correct the distortions. Any dispute arising from the wage distortions shall be resolved through the grievance procedure under their collective bargaining agreement and, if it remains unresolved, through voluntary arbitration.

This is the compulsory mandate the Union invokes, and its text limits the duty to correct distortions arising from a law or Wage Order.

Section 2, Article V of the parties' Collective Bargaining Agreement provides:

Any salary increase granted under this Article shall be without prejudice to the right of the Company to establish such minimum salaries as it may hereafter find appropriate for specific jobs, and to adjust the rates of the employees thereby affected to such minimum salaries thus established.

This provision is the contractual source of Bankard's right to raise hiring rates and adjust affected employees.

Ruling

On the first issue, the Court held that no wage distortion exists. In Prubankers Association versus Prudential Bank and Trust Company, the Court laid down four elements: an existing hierarchy of positions with corresponding salary rates; a significant change in the salary rate of a lower pay class without a concomitant increase in the salary rate of a higher one; the elimination of the distinction between the two levels; and the existence of the distortion in the same region of the country. The first element is wanting, because there is no hierarchy of positions between the newly hired and the regular employees of Bankard. The third element is also wanting, because even assuming a decrease in the wage gap between old and new employees, the gap is not significant enough to obliterate or severely contract the intentional quantitative differences in salary rates. The Court further held that the existence of wage distortion is a question of fact within the jurisdiction of quasi-judicial tribunals, whose findings, when supported by substantial evidence, are accorded respect and even finality.

On the second issue, the Court held that 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 the classification of employees is a matter of management judgment and discretion. While seniority may be a factor in determining wages, it cannot be made the sole basis where the nature of the work differs.

On the third issue, the Court held that Bankard cannot be legally obligated to correct the alleged distortion, because the increase in the wages of the newly hired was not due to a prescribed law or wage order. The wording of Article 124 is clear and restrictive, and it must be construed in relation to minimum wage fixing, its intention being that in the event of an increase in minimum wage, the distinctions embodied in the wage structure will be preserved. The Court distinguished Metro Transit Organization versus NLRC, where the obligation to rectify the distortion rested not on Article 124 but on an existing company practice, which is not alleged here. The Court also stressed that 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 rectification. Absent any indication that the voluntary increase was done arbitrarily and illegally to circumvent the laws or was devoid of any legitimate purpose other than to discriminate against the regular employees, the Court will not interfere with this management prerogative.

Doctrine

• Wage distortion is 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 four elements of wage distortion are: an existing hierarchy of positions with corresponding salary rates; a significant change in the salary rate of a lower pay class without a concomitant increase in the salary rate of a higher one; the elimination of the distinction between the two levels; and the existence of the distortion in the same region of the country.
• The duty under Article 124 to correct wage distortion arises only where the distortion results from the application of a prescribed wage increase by virtue of a law or a Wage Order issued by a Regional Board. A voluntary, unilateral increase by the employer in fixing hiring rates does not trigger that duty.
• The mere factual existence of wage distortion does not ipso facto create an obligation to rectify it, absent a law or other source of obligation, such as a company practice, requiring rectification.
• The formulation of a wage structure through the classification of employees is a matter of management judgment and discretion, and employees cannot create their own independent classification to demand an across-the-board increase.

Disposition

The petition was denied, and the findings of the National Labor Relations Commission and the Court of Appeals that no wage distortion exists were upheld, leaving Bankard's New Salary Scale undisturbed.

Remember This

Memorize the rule that the duty to correct wage distortion under Article 124 arises only from a prescribed wage increase by law or Wage Order, not from a voluntary increase made as a business judgment. Examiners use this case to test the four elements of wage distortion and the limits of management prerogative in fixing hiring rates.