Local Governments Must Adhere to National Salary Standardization Laws Despite Local Autonomy

TLDR: This case clarifies that while local government units in the Philippines have some autonomy in determining employee compensation, they must still comply with national laws like the Compensation and Position Classification Act of 1989 (RA 6758) and related budget circulars issued by the Department of Budget and Management (DBM). Local ordinances regarding salary adjustments must align with national guidelines to ensure consistency and prevent disparities.

G.R. NO. 127301, March 14, 2007

Introduction

Imagine a city government, eager to reward its hardworking employees with well-deserved salary increases. However, national guidelines and budget circulars dictate the permissible limits and conditions for such increases. This is the tightrope that local governments in the Philippines must walk: balancing local autonomy with adherence to national laws. This case, Department of Budget and Management vs. City Government of Cebu, delves into this very issue, providing a clear framework for understanding the boundaries of local government powers in compensation matters.

The City Government of Cebu sought to implement salary adjustments and grant additional allowances to its employees. However, the Department of Budget and Management (DBM) questioned the legality of these actions, citing violations of national budget circulars and memorandum circulars. The central legal question revolved around the extent to which the DBM could regulate local government compensation decisions.

Legal Context

The legal landscape governing local government compensation in the Philippines is shaped by the interplay of several key laws and regulations. The most prominent is Republic Act No. 7160, also known as the Local Government Code of 1991, which grants local government units (LGUs) the power to determine the compensation of their officials and employees. However, this power is not absolute.

Crucially, Section 81 of RA 7160 states that any increases in compensation must be based upon the pertinent provisions of Republic Act Numbered Sixty-seven fifty-eight (R.A. No. 6758), otherwise known as the ‘Compensation and Position Classification Act of 1989.’ This act mandates a unified compensation and position classification system for all government entities, including LGUs. The DBM is tasked with establishing and administering this system.

Furthermore, R.A. No. 6758, Section 13 states:
“Sec. 13. Pay Adjustments.-Paragraphs (b) and (c), Section 15 of Presidential Decree No. 985 are here amended to read as follows:

x x x

(c) Step Increments – Effective January 1, 1990 step increments shall be granted based on merit and/or length of service in accordance with rules and regulations that will be promulgated jointly by the DBM and the Civil Service Commission.”

The DBM issues circulars and memoranda to provide guidance on the implementation of the compensation system. These issuances carry significant weight, as they ensure uniformity and compliance with national policies. Local governments must carefully consider these guidelines when enacting ordinances related to compensation.

Case Breakdown

The seeds of this legal battle were sown when the City Government of Cebu, acting through appropriation ordinances, decided to grant additional allowances to judges and fiscals, exceeding P1,000 per month. The City Auditor disallowed this in a post-audit, citing a violation of DBM Local Budget Circular No. 55. The city also passed Ordinance No. 1468, which covered salary adjustments for department heads and assistant department heads. Furthermore, Ordinance No. 1450 was passed, abolishing certain legal officer positions and creating Assistant City Attorney positions with upgraded salaries.

DBM Secretary Salvador M. Enriquez, Jr., impliedly disallowed Ordinance No. 1450, stating that the proposed salary grade assignment would result in an overlap with that of the City Government Assistant Department Head. This prompted the City Government of Cebu to file a petition for certiorari, challenging the legality of DBM issuances and the disallowance of its ordinances.

The case journeyed through the courts:

• The City Government of Cebu filed a petition for certiorari with the Supreme Court.
• The Supreme Court referred the case to the Court of Appeals (CA).
• The CA denied the petition for lack of merit.
• The DBM filed a motion for clarification, which the CA also denied.
• The DBM then elevated the case to the Supreme Court via a petition for review on certiorari.

The Supreme Court, in its decision, emphasized the need for LGUs to adhere to national compensation standards. “The compensation of local officials and personnel shall be determined by the sanggunian concerned: Provided, That such compensation may be based upon the pertinent provisions of Republic Act Numbered Sixty-seven fifty-eight, (R.A. No. 6758), otherwise known as the ‘Compensation and Position Classification Act of 1989’.”

The Court further clarified that while Ordinance No. 1468 was valid as an appropriation ordinance, the actual salary grades of the positions in question must still align with the guidelines provided by Joint Commission Circular Nos. 37 and 39, as well as Bulletin No. 10. The Court stated, “Considering that Ordinance No. 1468 is only an appropriation ordinance, petitioners erred in asserting that the ordinance upgrades the position of Cebu City Government Department Head from Salary Grade 26 to Salary Grade 27, and the position of Cebu City Government Assistant Department Head from Salary Grade 24 to Salary Grade 25.”

Practical Implications

This ruling serves as a reminder to local government units that their power to determine employee compensation is not unfettered. While they have the authority to enact appropriation ordinances and adjust salaries, they must do so within the framework established by national laws and DBM circulars. Failure to comply can lead to disallowances in audit and legal challenges.

For businesses and individuals dealing with local governments, this case highlights the importance of verifying the legality of local ordinances, especially those related to compensation and benefits. Ensure that local regulations align with national laws to avoid potential disputes or liabilities.

Key Lessons

• Local autonomy in compensation matters is subject to national laws and regulations.
• DBM circulars and memoranda provide crucial guidance on implementing the national compensation system.
• Local ordinances must be carefully drafted to ensure compliance with national standards.
• Salary grades and position classifications must align with the guidelines provided by relevant circulars and bulletins.

Frequently Asked Questions

Q: Can a local government unit set salaries completely independently of national guidelines?

A: No. While LGUs have the power to determine compensation, they must base their decisions on the provisions of RA 6758 and related DBM issuances.

Q: What happens if a local ordinance violates a DBM circular?

A: The ordinance may be subject to disallowance in audit and legal challenges. The DBM circulars are generally upheld to maintain a unified compensation system.

Q: How do I know if a local government is following the correct salary grades for its employees?

A: You can refer to Joint Commission Circular Nos. 37 and 39, as well as Bulletin No. 10, which provide the guidelines for position classification and salary grades.

Q: What is the role of the DBM in local government compensation?

A: The DBM is responsible for establishing and administering a unified compensation and position classification system for all government entities, including LGUs. It issues circulars and memoranda to guide LGUs in implementing this system.

Q: What should I do if I suspect that a local government is violating compensation laws?

A: You can file a complaint with the Commission on Audit (COA) or seek legal advice from a qualified attorney.

ASG Law specializes in government regulations and compliance in the Philippines. Contact us or email hello@asglawpartners.com to schedule a consultation.