b. Wage Distortion

Definition of Wage Distortion

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 basis of differentiation. (Labor Code, Art. 124)

Simply, if the pay advantage of a position over another is removed or significantly reduced by a pay adjustment required by a wage order, such pay advantage should be restored. Manila Mandarin Employees Union v. NLRC, (G.R. No. 108556, 1996)

For a distortion to exist, the law does not require an elimination or total abrogation of quantitative wage or salary difference; a severe contraction thereof is enough. (MBTC Employees Union-ALU-TUCP v. NLRC, G.R. No. 102636, 1993)

Wage distortion involves comparison of jobs located in the same region. Examination of alleged salary distortion is limited to jobs or positions in the same employer in the same region; thus, the comparison of salaries has to be intra-region, not inter-region. (Prubankers Association v. Prudential Bank and Trust Co., G.R. No. 131247, 1999)

Elements of Wage Distortion:

• 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 or severe contraction of the intentional wage differential between the two levels.
• The existence of the distortion in the same region of the country. (Alliance Trade unions v. NLRC, G.R. No. 140689, 2004)

In case of an ORGANIZED establishment

• Employer and union shall negotiate to correct the distortion
• Any dispute arising should be resolved through grievance procedure under CBA
• If dispute remains unresolved, through voluntary arbitration (Labor Code, Art. 124)

In case of an UNORGANIZED establishment

• The employer and employees shall endeavor to correct the distortion
• Any dispute shall be settled through National Conciliation and Mediation Board (NCMB)
• If remains unresolved after 10 days of conciliation, it shall be referred to the NLRC (Labor Code, Art. 124)

Note: Any issue involving wage distortion is not a valid ground for a strike or a lockout. (Ilaw at Buklod ng Manggagawa, G.R. No. 91980, 1991)

Amount of Distortion Adjustment

The restoration of the previous pay advantage is the aim but not necessarily to the last peso. Restoration of appreciable differential, a significant pay gap, should suffice as correction.

Suggested Formula to Correct a Salary Distortion

The adjustment must restore a substantial or significant wage differential, but need not reproduce the exact historical gap. Philippine law does not prescribe a universal formula for computing the adjustment. (Labor Code, Art. 124; NFL v. NLRC, G.R. No. 103586)

The distortion that should be rectified refers to distortion arising from compliance with a government wage order. It does not refer to distortion caused by salary revisions voluntarily initiated by the employer unless such a duty exists because of a CBA stipulation or company practice. (Bankard Employees Union – WATU v. NLRC, G.R. No. 140689, 2004)

CBA vis-à-vis Wage Orders – CBA Creditability

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. (P.I. Manufacturing, Inc., v. P.I. Manufacturing Supervisors and Foreman Ass’n and the NLRC, G.R. No. 167217, 2008).

Summary of Principles on Wage Distortion (NFL v. NLRC, G.R. No. 103586, 1994)

The concept of wage distortion assumes an existing grouping or classification of employees which establishes distinctions among such employees on some relevant or legitimate basis. This classification is reflected in a differing wage rate for each of the existing classes of employees. Wage distortions have often been the result of government-decreed increases in minimum wages. There are, however, other causes of wage distortions (such as merger).

Should a wage distortion exist, there is no legal requirement that the gap which had been previously existed be restored in precisely the same amount. Correction of a wage distortion may be done by reestablishing a substantial or significant gap (as distinguished from the historical gap) between the wage rates of the differing classes of employees.

The re-establishment of a significant wage difference may be done through the grievance procedure or collective bargaining negotiations.