Wage Distortion (Art.

124)
Elements
P.I. Manufacturing Inc. v. P.I. Manufacturing Supervisors, G.R. No. 167217, February 4,
2008
FACTS:
- Respondent PIMASUFA is an organization of Petitioners supervisors and foremen.
- On December 10, 1987, the President signed into law Republic Act (R.A.) No. 6640[2] providing, among others, an
increase in the statutory minimum wage and salary rates of employees and workers in the private sector.
- On December 18, 1987, petitioner and respondent PIMASUFA entered into a new Collective Bargaining Agreement
(1987 CBA) whereby the supervisors were granted an increase of P625.00 per month and the foremen, P475.00 per
month. The increases were made retroactive to May 12, 1987, or prior to the passage of R.A. No. 6640, and every
year thereafter until July 26, 1989.

- On January 26, 1989, respondents PIMASUFA and NLU filed a complaint with the Arbitration Branch of the National
Labor Relations Commission (NLRC), charging petitioner with violation of R.A. No. 6640.[3] Respondents attached to
their complaint a numerical illustration of wage distortion resulting from the implementation of R.A. No. 6640.
- On March 19, 1990, the Labor Arbiter rendered his Decision in favor of respondents.
- On appeal by petitioner, the NLRC, in its Resolution dated January 8, 1991, affirmed the Labor Arbiters judgment.
- On July 21, 2004, the appellate court rendered its Decision affirming the Decision of the NLRC with
modification by raising the 13.5% wage increase to 18.5%.
- Petitioner filed a motion for reconsideration but it was denied by the appellate court in its Resolution dated February 18,
2005.
- Hence, this motion for reconsideration.
ISSUE:

- Whether the implementation of R.A. No. 6640 resulted in a wage distortion and whether such distortion was cured
or remedied by the 1987 CBA.

RULING:

- R.A. No. 6727, otherwise known as the Wage Rationalization Act, explicitly defines wage distortion as:

x x x 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.

- Otherwise stated, wage distortion means the disappearance or virtual disappearance of pay differentials between
lower and higher positions in an enterprise because of compliance with a wage order.[6]

- In this case, the Court of Appeals correctly ruled that a wage distortion occurred due to the implementation of R.A.
No. 6640.

- However, while we find the presence of wage distortions, we are convinced that the same were cured or
remedied when respondent PIMASUFA entered into the 1987 CBA with petitioner after the effectivity of R.A. No.
6640. The 1987 CBA increased the monthly salaries of the supervisors by P625.00 and
the foremen, by P475.00, effective May 12, 1987. These increases re-established and broadened the gap, not
only between the supervisors and the foremen, but also between them and the rank-and-file employees.

- Interestingly, such gap as re-established by virtue of the CBA is more than a substantial compliance with R.A. No. 6640.

- NOTE:

A wage distortion happens when a wage order increasing the rates of wages removes or significantly
reduces the pay advantage of one position of employees over another. This change has to be
corrected. The following are the essential elements of a wage distortion:

1. The company has a hierarchy of positions with corresponding salary rates.

2. A wage order significantly changes or increases the salaries of the employees in the
lower level but doesn't have a corresponding increase for the salaries of the employees
in the higher level.
3. The distinction between the positions/groups of employees is eliminated.
4. The distortion exists in the same region of the country.
 Corrections of Wage Distortion
National Federation of Labor v. NLRC, 234 SCRA

FACTS:

- Between 1 November 1983 and 1 November 1984, Wage Orders Nos. 3, 4, 5 and 6 were promulgated by the then
President Ferdinand E. Marcos.
- All these Wage Orders increased the statutory minimum wages of workers with differing increases being specified for
agricultural plantation and non-agricultural workers.
- A salary increase was given to all regular and casual employees.
- Meantime, while the wage developments were unfolding, the Company experienced a work output slow down. The
Company directed some 205 workers to explain the reduction in their work output. The workers failed to comply and
they were accordingly issued notices of dismissal by the Company. As a response to its decreasing productivity levels, the
Company suspended operations on 16 August 1984. Operations were resumed on 14 September 1984; the Company,
however, refused to take back the 205 dismissed employees. Petitioner Union then went on strike alleging a lock-
out on the part of the Company and demanding rectification of the wage distortion.

- On 11 November 1987, the NLRC En Banc rendered a decision which in effect found the existence of wage
distortion and required the Company to pay a P1.00 wage increase effective 1 May 1984.
- The Fifth Division of the NLRC in effect found that while a wage distortion did exist commencing 16 June 1984, the
distortion persisted only for a total of fifteen (15) days and accordingly required private respondent company to pay "a
wage increase of P2.00 per day to all regular workers effective June 16, 1984 up to June 30, 1984 or a total of fifteen (15)
days." 4

RULING:

- What the Wage Orders and the Implementing Rules did was simply to recognize that implementation of the Wage
Orders could result in a "distortion of the wage structure" of an employer, and to direct the employer and the union
to negotiate with each other to correct the distortion.
- A statutory definition of "wage distortion" is now found in Article 124 of the Labor Code as amended by Republic
Act. No. 6727 (dated 9 June 1989) which reads as follows:

Article 124. Standards/Criteria for Minimum Wage Fixing . . .

xxx xxx xxx

As used herein, a wage distortion shall mean 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. 9 (Emphasis supplied)

- It is important to note that the remedy contemplated in the Wage Orders, and now in Article 124 of the Labor Code, for a
wage distortion consisted of negotiations between employer and employees for the rectification of the distortion
by re-adjusting the wage rates of the differing classes of employees. As a practical matter, this ordinarily meant a
wage increase for one or more of the affected classes of employees so that some gap or differential would be re-
established.
- We believe and so hold that the re-establishment of a significant gap or differential between regular employees and
casual employees by operation of the CBA was more than substantial compliance with the requirements of the several
Wage Orders (and of Article 124 of the Labor Code). That this re-establishment of a significant differential was the result
of collective bargaining negotiations, rather than of a special grievance procedure, is not a legal basis for ignoring it.

Administration and Enforcement

DOLE Regional Directors Jurisdiction
Peoples Broadcasting Service (Bombo Radyo) v. Secretary of Labor, G.R. No. 179652,
March 6, 2012

FACTS:

- Private respondent Jandeleon Juezan filed a complaint against petitioner with the Department of Labor and
Employment (DOLE) Regional Office No. VII, Cebu City, for illegal deduction, nonpayment of service incentive leave,
 13th month pay, premium pay for holiday and rest day and illegal diminution of benefits, delayed payment of wages and
noncoverage of SSS, PAG-IBIG and Philhealth.[1]
- The DOLE Regional Director found that private respondent was an employee of petitioner, and was entitled to his
money claims.[2]
- When the matter was brought before the CA, where petitioner claimed that it had been denied due process, it was held
that petitioner was accorded due process as it had been given the opportunity to be heard, and that the DOLE Secretary
had jurisdiction over the matter, as the jurisdictional limitation imposed by Article 129 of the Labor Code on the
power of the DOLE Secretary under Art. 128(b) of the Code had been repealed by Republic Act No. (RA) 7730.[3]
- In the Decision of this Court, the CA Decision was reversed and set aside, and the complaint against petitioner was
dismissed.
- The Court found that there was no employer-employee relationship between petitioner and private respondent. It
was held that while the DOLE may make a determination of the existence of an employer-employee relationship,
this function could not be co-extensive with the visitorial and enforcement power provided in Art. 128(b) of the
Labor Code, as amended by RA 7730. The National Labor Relations Commission (NLRC) was held to be the
primary agency in determining the existence of an employer-employee relationship. This was the interpretation of the
Court of the clause in cases where the relationship of employer-employee still exists in Art. 128(b).[5]
- It is conceded that if there is no employer-employee relationship, whether it has been terminated or it has not existed
from the start, the DOLE has no jurisdiction. Under Art. 128(b) of the Labor Code, as amended by RA 7730, the first
sentence reads, Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in cases where
the relationship of employer-employee still exists, the Secretary of Labor and Employment or his duly authorized
representatives shall have the power to issue compliance orders to give effect to the labor standards provisions of this
Code and other labor legislation based on the findings of labor employment and enforcement officers or industrial safety
engineers made in the course of inspection. It is clear and beyond debate that an employer-employee relationship must
exist for the exercise of the visitorial and enforcement power of the DOLE.

ISSUE:

- May the DOLE make a determination of whether or not an employer-employee relationship exists, and if so, to
what extent?

RULING:

- First question must be answered in the affirmative.

- No limitation in the law was placed upon the power of the DOLE to determine the existence of an employer-employee
relationship. No procedure was laid down where the DOLE would only make a preliminary finding, that the power was
primarily held by the NLRC. The law did not say that the DOLE would first seek the NLRCs determination of the existence
of an employer-employee relationship, or that should the existence of the employer-employee relationship be disputed,
the DOLE would refer the matter to the NLRC. The DOLE must have the power to determine whether or not an
employer-employee relationship exists, and from there to decide whether or not to issue compliance orders in
accordance with Art. 128(b) of the Labor Code, as amended by RA 7730.
- The determination of the existence of an employer-employee relationship by the DOLE must be respected.
- If the DOLE makes a finding that there is an existing employer-employee relationship, it takes cognizance of the
matter, to the exclusion of the NLRC. The DOLE would have no jurisdiction only if the employer-employee
relationship has already been terminated, or it appears, upon review, that no employer-employee relationship
existed in the first place.
- It must also be remembered that the power of the DOLE to determine the existence of an employer-employee relationship
need not necessarily result in an affirmative finding. The DOLE may well make the determination that no employer-
employee relationship exists, thus divesting itself of jurisdiction over the case.
- Under Art. 128(b) of the Labor Code, as amended by RA 7730, the DOLE is fully empowered to make a determination
as to the existence of an employer-employee relationship in the exercise of its visitorial and enforcement power,
subject to judicial review, not review by the NLRC.

NOTE:

- To recapitulate, if a complaint is brought before the DOLE to give effect to the labor standards provisions of the Labor
Code or other labor legislation, and there is a finding by the DOLE that there is an existing employer-employee
relationship, the DOLE exercises jurisdiction to the exclusion of the NLRC. If the DOLE finds that there is no
employer-employee relationship, the jurisdiction is properly with the NLRC. If a complaint is filed with the DOLE,
and it is accompanied by a claim for reinstatement, the jurisdiction is properly with the Labor Arbiter, under Art.
217(3) of the Labor Code, which provides that the Labor Arbiter has original and exclusive jurisdiction over those cases
involving wages, rates of pay, hours of work, and other terms and conditions of employment, if accompanied by a claim
 for reinstatement. If a complaint is filed with the NLRC, and there is still an existing employer-employee
relationship, the jurisdiction is properly with the DOLE. The findings of the DOLE, however, may still be questioned
through a petition for certiorari under Rule 65 of the Rules of Court.

Visitorial and Enforcement Power

Meteoro v. Creative Creatures, G.R. No. 171275, July 13, 2009

FACTS:

- Respondent is a domestic corporation engaged in the business of producing, providing, or procuring the
production of set designs and set construction services for television exhibitions, concerts, theatrical
performances, motion pictures and the like.
- On the other hand, petitioners were hired by respondent on various dates as artists, carpenters and welders. They
were tasked to design, create, assemble, set-up and dismantle props, and provide sound effects to respondents
various TV programs and movies.[4]
- Sometime in February and March 1999, petitioners filed their respective complaints for non-payment of night shift
differential pay, overtime pay, holiday pay, 13th month pay, premium pay for Sundays and/or rest days, service incentive
leave pay, paternity leave pay, educational assistance, rice benefits, and illegal and/or unauthorized deductions from
salaries against respondent, before the Department of Labor and Employment (DOLE), National Capital Region (NCR).
- In its position paper, respondent argued that the DOLE-NCR had no jurisdiction over the complaint of the petitioners
because of the absence of an employer-employee relationship.
- Petitioners, on the other hand, averred that they were employees of respondent, as the elements of an employer-
employee relationship existed.
- The Regional Director sustained petitioners claim on the existence of an employer-employee relationship xxx. Lastly, he
upheld the DOLE-NCRs jurisdiction to hear and determine cases in violation of labor standards law. [11]
- On appeal, then DOLE Secretary Patricia A. Sto. Tomas affirmed the findings of the DOLE Regional Director. [12]

ISSUES:

- Which body/tribunal has jurisdiction over petitioners money claims --- the DOLE Secretary or his duly authorized
representative, or the NLRC.

RULING:

- We sustain the appellate courts conclusion that the instant case falls within the exclusive jurisdiction of the NLRC.
- The DOLE Secretary and her authorized representatives, such as the DOLE-NCR Regional Director, have
jurisdiction to enforce compliance with labor standards laws under the broad visitorial and enforcement powers
conferred by Article 128 of the Labor Code, and expanded by Republic Act (R.A.) No. 7730,[15]
- The visitorial and enforcement powers of the Secretary, exercised through his representatives, encompass
compliance with all labor standards laws and other labor legislation, regardless of the amount of the claims filed
by workers.
- This notwithstanding, the power of the Regional Director to hear and decide the monetary claims of employees are not
absolute. The last sentence of Article 128 (b) of the Labor Code, otherwise known as the exception clause, provides
an instance when the Regional Director or his representatives may be divested of jurisdiction over a labor standards case.
- Under prevailing jurisprudence, the so-called exception clause has the following elements, all of which must concur:
(a) that the employer contests the findings of the labor regulations officer and raises issues thereon;
(b) that in order to resolve such issues, there is a need to examine evidentiary matters; and
(c) that such matters are not verifiable in the normal course of inspection. [24]
- Hence, the Regional Director was divested of jurisdiction and should have endorsed the case to the appropriate
Arbitration Branch of the NLRC.[33]