Wage Orders Are Not Always Across-the-Board: Understanding Employer Obligations in the Philippines

Wage orders in the Philippines are designed to protect minimum wage earners, but do they automatically translate to pay raises for all employees, regardless of their salary level? This Supreme Court case clarifies that employers are not always obligated to grant blanket wage increases based on wage orders alone. The decision emphasizes the importance of clearly defined Collective Bargaining Agreements (CBAs) and the strict requirements for establishing a binding ‘company practice’ of granting wage increases beyond legal mandates. This case serves as a crucial guide for employers and employees alike, highlighting the nuances of wage law and the significance of explicit agreements in labor relations.

PAG-ASA STEEL WORKS, INC. VS. PAG-ASA STEEL WORKERS UNION (PSWU), G.R. NO. 166647, March 31, 2006

INTRODUCTION

Imagine a scenario where a new wage order is issued, and employees excitedly anticipate a corresponding increase in their paychecks. However, the employer hesitates, arguing that the wage order primarily targets minimum wage earners and their current pay already exceeds the mandated minimum. This situation encapsulates the core issue in the 2006 Supreme Court case of Pag-Asa Steel Works, Inc. v. Pag-Asa Steel Workers Union. At the heart of the dispute was whether Pag-Asa Steel Works, Inc. was legally bound to grant a wage increase under Wage Order No. NCR-08 to its employees, even though none of them were receiving below the minimum wage. The employees, represented by their union, argued they were entitled to the increase based on both their Collective Bargaining Agreement (CBA) and a claimed ‘company practice’ of consistently granting wage order increases in the past. The Supreme Court, however, sided with the company, providing crucial clarification on the scope of wage orders and the establishment of company practice in Philippine labor law.

LEGAL CONTEXT: WAGE ORDERS, CBAS, AND COMPANY PRACTICE

In the Philippines, wage orders are issued by Regional Tripartite Wages and Productivity Boards to set the minimum wage rates in different regions. These orders are primarily intended to protect vulnerable workers and ensure they receive a basic living wage. Wage orders are rooted in the State’s power to regulate wages, as enshrined in the Labor Code of the Philippines.

Article 120 of the Labor Code empowers the Regional Tripartite Wages and Productivity Boards to determine and fix minimum wage rates. However, it’s crucial to understand that wage orders generally target employees receiving *below* the prescribed minimum wage. They are not automatically designed to trigger across-the-board increases for all employees, especially those already earning above the minimum.

Collective Bargaining Agreements (CBAs), on the other hand, are negotiated contracts between employers and unions representing their employees. CBAs can provide for benefits and terms of employment that go beyond the minimum standards set by law, including wage increases. The interpretation of a CBA is paramount in labor disputes, as it represents the mutually agreed-upon terms between the employer and employees. Article 1702 of the Civil Code, applicable to contracts generally and by extension to CBAs, states that contracts are the law between the parties.

Beyond legal mandates and contractual obligations, ‘company practice’ or ‘established practice’ can also create enforceable employee benefits. This principle, based on Article 100 of the Labor Code (Non-diminution of benefits), prevents employers from unilaterally withdrawing benefits that have ripened into established practice. For a benefit to qualify as an established company practice, it must be shown to be consistently and deliberately granted over a significant period, not merely through isolated instances or due to legal compulsion. The key element is voluntariness and regularity, demonstrating a clear pattern of employer behavior that employees have come to reasonably expect and rely upon.

CASE BREAKDOWN: PAG-ASA STEEL WORKS, INC. VS. PAG-ASA STEEL WORKERS UNION

The dispute began when Wage Order No. NCR-08, mandating a P26.50 per day increase for minimum wage earners in Metro Manila, took effect in November 2000. Pag-Asa Steel Workers Union (PSWU) demanded that Pag-Asa Steel Works, Inc. implement this increase for all its rank-and-file employees. However, the company refused, pointing out that all employees were already earning above the new minimum wage of P250.00 per day and there was no wage distortion to rectify.

Unsatisfied, the Union elevated the matter to the National Conciliation and Mediation Board, and eventually to voluntary arbitration. The core issue submitted for arbitration was narrow: “Whether or not the management is obliged to grant wage increase under Wage Order No. NCR #8 as a matter of practice.” The Union argued that Pag-Asa Steel had a consistent company practice of granting wage order increases across the board, regardless of whether employees were already above the minimum wage. They claimed this practice was evident in the implementation of previous wage orders.

The Voluntary Arbitrator (VA) ruled in favor of Pag-Asa Steel. The VA found no established company practice of granting automatic wage order increases. The VA emphasized that previous wage increases were often subject to negotiation and were implemented to address wage distortions, not as a matter of consistent, voluntary practice. The VA also interpreted the CBA provision regarding wage orders as not mandating an automatic across-the-board increase for every wage order issued.

The Union appealed to the Court of Appeals (CA), which reversed the VA’s decision. The CA interpreted the CBA provision, stating “Any Wage Order to be implemented by the Regional Tripartite Wage and Productivity Board shall be in addition to the wage increase adverted to above,” as a clear intention to grant wage order increases on top of CBA-mandated increases, regardless of current wage levels. The CA also gave weight to the Union’s claim of past practice.

Pag-Asa Steel then brought the case to the Supreme Court. The Supreme Court meticulously reviewed the evidence and reversed the CA’s decision, reinstating the Voluntary Arbitrator’s ruling. The Supreme Court made several key points:

• Limited Scope of Wage Order No. NCR-08: The Court emphasized that Wage Order No. NCR-08 was explicitly for employees receiving *below* the minimum wage. Since Pag-Asa Steel’s employees were already earning above the minimum, the wage order itself did not legally compel the company to grant an increase.
• CBA Interpretation: The Supreme Court disagreed with the CA’s interpretation of the CBA provision. It held that the CBA should not be read in isolation but in conjunction with the purpose and scope of wage orders. The Court stated that the CBA provision did not automatically obligate the company to grant increases for every wage order, especially when employees were already above the minimum wage. The Court highlighted that the Union’s initial proposal for an explicit across-the-board wage order implementation was rejected during CBA negotiations, indicating a lack of mutual agreement on this point.
• Lack of Established Company Practice: The Supreme Court found insufficient evidence to prove a consistent and voluntary company practice of granting wage order increases across the board. While the Union pointed to past instances, the Court noted that these instances were often linked to negotiations and addressing wage distortions, not to a purely voluntary and consistent practice. The Court stressed that for a practice to be binding, it must be “by reason of an act of liberality on the part of the employer,” not due to legal or contractual obligation. As the Supreme Court reasoned, “To ripen into a company practice that is demandable as a matter of right, the giving of the increase should not be by reason of a strict legal or contractual obligation, but by reason of an act of liberality on the part of the employer.”
• Parol Evidence Rule: The Court also addressed the Union’s attempt to introduce parol evidence (Atty. Yambot’s proposal) to interpret the CBA. While acknowledging that parol evidence can sometimes clarify ambiguities, the Court found the CBA provision reasonably clear and declined to rely on extrinsic evidence to contradict its plain terms.

Ultimately, the Supreme Court concluded that Pag-Asa Steel was not legally obligated to grant the wage increase under Wage Order No. NCR-08, neither through the CBA nor due to an established company practice.

PRACTICAL IMPLICATIONS: LESSONS FOR EMPLOYERS AND EMPLOYEES

The Pag-Asa Steel case offers valuable lessons for both employers and employees in the Philippines regarding wage orders, CBAs, and company practice.

For **employers**, the case underscores the importance of:

• Clear CBA Drafting: Ensure CBA provisions regarding wage increases are precisely worded and unambiguous. If there’s no intention to grant automatic wage order increases to employees already above the minimum wage, the CBA should clearly reflect this. Rejecting specific proposals during negotiation and keeping records of negotiation history can be crucial evidence.
• Understanding Wage Order Scope: Recognize that wage orders are primarily designed for minimum wage earners. Automatic across-the-board increases for all employees are not legally mandated unless explicitly stated in the wage order itself (which is rarely the case) or in a CBA.
• Managing Company Practice: Be mindful of actions that could be construed as creating a binding company practice. Voluntary benefits consistently and deliberately granted over time can become enforceable. If wage increases beyond legal requirements are granted, clearly document the basis and intention to avoid future disputes about established practice.
• Seeking Legal Counsel: Consult with labor law experts when drafting CBAs and making decisions about wage adjustments to ensure compliance and minimize legal risks.

For **employees and unions**, the case highlights:

• Importance of Clear CBA Language: Advocate for clear and explicit language in CBAs regarding wage increases, including how future wage orders will be handled. Vague or ambiguous clauses can be interpreted against employee interests.
• Proving Company Practice: If relying on company practice, gather substantial evidence of consistent and voluntary acts by the employer over a significant period. Isolated instances or actions taken due to legal obligations are insufficient.
• Understanding Wage Order Limitations: Wage orders are vital for minimum wage earners, but they don’t automatically guarantee pay raises for everyone. Focus on negotiating for better terms in CBAs to secure benefits beyond minimum legal requirements.

KEY LESSONS FROM PAG-ASA STEEL CASE

• Wage orders primarily target minimum wage earners and do not automatically mandate across-the-board increases.
• CBAs should be clearly and precisely drafted, especially regarding wage adjustments and the impact of future wage orders.
• ‘Company practice’ requires consistent, voluntary, and deliberate acts of the employer over time to be considered a binding obligation. Actions taken due to legal or contractual duty do not establish company practice.
• Parol evidence may not be admissible to contradict the clear terms of a CBA unless ambiguity is clearly demonstrated.
• Both employers and employees should seek legal counsel to ensure compliance with labor laws and to protect their respective rights and obligations in wage-related matters.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q: What is a wage order in the Philippines?

A: A wage order is an issuance by the Regional Tripartite Wages and Productivity Board that sets the minimum wage rate for a specific region in the Philippines. It is a mechanism to ensure that workers receive a basic living wage.

Q: Are all employees entitled to a wage increase whenever a new wage order is issued?

A: Not necessarily. Wage orders primarily target employees earning below the minimum wage. Employees already earning above the minimum wage are not automatically entitled to an increase solely due to a wage order, unless mandated by a CBA or established company practice.

Q: What is a Collective Bargaining Agreement (CBA) and how does it relate to wage increases?

A: A CBA is a contract between an employer and a union representing employees, outlining terms and conditions of employment, including wages. CBAs can provide for wage increases and benefits that go beyond the minimum requirements of wage orders and labor laws.

Q: What constitutes ‘company practice’ in Philippine labor law?

A: Company practice refers to benefits consistently and voluntarily granted by an employer over a considerable period, which employees reasonably expect and rely upon. It must be a deliberate and recurring act of generosity, not just isolated instances or actions required by law or contract.

Q: Can a company stop a ‘company practice’ of giving wage increases?

A: Generally, no. Under Article 100 of the Labor Code (Non-diminution of benefits), employers cannot unilaterally withdraw benefits that have become established company practice. However, the existence of a genuine ‘company practice’ must be clearly proven.

Q: If a CBA states that ‘wage orders shall be in addition to CBA increases,’ does this automatically mean across-the-board increases for every wage order?

A: Not necessarily. The interpretation depends on the specific wording of the CBA and the context. As illustrated in Pag-Asa Steel, such clauses are not always interpreted as mandating automatic across-the-board increases, especially when employees are already above the minimum wage targeted by the wage order.

Q: What kind of evidence is needed to prove ‘company practice’?

A: To prove company practice, evidence should demonstrate a consistent pattern of voluntary and deliberate acts by the employer over a significant period. This might include payroll records, company memos, employee testimonials, and evidence showing the regularity and voluntariness of the benefit.

Q: What is the parol evidence rule and how does it apply to CBAs?

A: The parol evidence rule generally prevents parties from introducing evidence of prior or contemporaneous agreements to contradict or vary the terms of a clear and unambiguous written contract. While there are exceptions, courts generally prioritize the plain meaning of a CBA’s written terms.

Q: How can employers avoid disputes related to wage orders and company practice?

A: Employers can avoid disputes by: (1) drafting clear and unambiguous CBAs, (2) documenting the basis for any wage increases granted, (3) being mindful of actions that could create unintended company practices, and (4) seeking legal counsel for guidance on labor law compliance.

Q: Where can I get expert legal advice on wage orders, CBAs, and labor disputes in the Philippines?

A: ASG Law specializes in Labor Law and Employment Law in the Philippines. We can provide expert legal advice and representation on wage-related matters, CBAs, and labor disputes.

ASG Law specializes in Labor Law and Employment Law. Contact us or email hello@asglawpartners.com to schedule a consultation.