Wage Orders and Employer Obligations: Upholding Employee Rights Even After Financial Rehabilitation

Navigating financial difficulties can be challenging for businesses, but it’s crucial to remember that employee rights, especially concerning wages, remain paramount. This case underscores that even during financial rehabilitation, employers must adhere to wage orders and cannot diminish employee benefits. Failing to comply can lead to costly legal battles and damage employee morale. This landmark decision clarifies that rehabilitation does not erase prior obligations, ensuring employees receive the wages they are legally entitled to.

[G.R. No. 130439, October 26, 1999] PHILIPPINE VETERANS BANK, PETITIONER, VS. HONORABLE NATIONAL LABOR RELATIONS COMMISSION, HON. POTENCIANO CAÑIZARES, JR., AND DR. TEODORICO V. MOLINA, RESPONDENTS.

Introduction

Imagine working diligently for years, only to find your legally mandated wage increase denied due to your company’s financial restructuring. This was the predicament faced by Dr. Teodorico V. Molina, an employee of the Philippine Veterans Bank (PVB). This Supreme Court case, Philippine Veterans Bank vs. NLRC and Dr. Teodorico V. Molina, revolves around a fundamental question: Does a company undergoing financial rehabilitation still need to comply with wage orders? The answer, as the Supreme Court firmly declared, is a resounding yes. This case serves as a critical reminder to employers in the Philippines about their continuous obligations to their employees, even amidst financial challenges and corporate restructuring.

Understanding Wage Orders in the Philippines

Wage orders in the Philippines are issuances by the Regional Tripartite Wages and Productivity Boards (RTWPBs) that prescribe the minimum wage rates for employees in different regions and industries. These orders are crucial instruments in protecting workers’ rights and ensuring they receive a fair wage that can meet their basic needs. Wage orders are typically issued in response to economic changes, such as inflation, and aim to maintain the purchasing power of workers.

In this case, Wage Order No. NCR-01 (W.O. 1) and Wage Order No. NCR-02 (W.O. 2) are central. W.O. 1, effective November 10, 1990, mandated a P17 daily wage increase for employees earning a monthly salary not exceeding P3,802.08. W.O. 2, effective January 8, 1991, further increased the daily wage by P12 for employees earning up to P4,319.16 monthly. The core issue in this case was whether these wage orders applied to Dr. Molina, an employee of PVB, particularly given the bank’s financial status and subsequent rehabilitation.

Another crucial aspect highlighted in this case is the computation of daily wage from a monthly salary. Philippine labor practices often use a factor to convert monthly salaries into daily rates. The standard practice, and what the National Wages Council affirmed in this case, is to use a 365-day factor, representing the number of days in a year. Some employers, however, attempt to use a 261.6-day factor (or similar variations based on working days), which effectively reduces the daily wage and can impact compliance with wage orders. The Supreme Court emphasized the importance of adhering to established practices and not diminishing employee benefits through such changes in computation methods, referencing Article 100 of the Labor Code which prohibits the diminution of benefits.

Article 100 of the Labor Code explicitly states: “Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code.” This provision is a cornerstone of Philippine labor law, ensuring that employers cannot unilaterally reduce benefits that employees are already receiving.

The Case of Philippine Veterans Bank: A Fight for Fair Wages

Dr. Teodorico V. Molina had been working for Philippine Veterans Bank since 1974. When PVB faced financial turmoil and was placed under receivership by the Central Bank in 1983, followed by liquidation in 1985, Molina, like other employees, was terminated and received separation pay. However, to assist with the liquidation process, PVB rehired some former employees, including Molina, starting June 15, 1985. Molina continued working as Manager II in the Legal Department, earning a basic monthly salary of P3,754.60.

In 1991, feeling that he was not receiving the wage increases mandated by W.O. 1 and W.O. 2, Molina filed a complaint with the National Labor Relations Commission (NLRC) against the bank’s liquidation team. He argued that his salary should have been adjusted to reflect the wage orders. The liquidation team countered that Molina’s total monthly compensation, including allowances, exceeded the threshold for wage order applicability. They also used a 26.16 factor to compute his daily wage, arguing it was above the minimum wage even with the increases.

The case went through the following procedural steps:

1. Labor Arbiter Level: Labor Arbiter Potenciano S. Cañizares, Jr. ruled in favor of Molina. He rejected the 26.16 factor, applied the 365-day factor, and found that Molina was indeed entitled to wage differentials under W.O. 1 and W.O. 2. The Labor Arbiter also awarded moral damages and attorney’s fees.
2. National Labor Relations Commission (NLRC): PVB appealed to the NLRC, but the NLRC upheld the Labor Arbiter’s decision, affirming Molina’s entitlement to wage increases. However, the NLRC did not differentiate between moral damages and attorney’s fees in its award.
3. Supreme Court: PVB then elevated the case to the Supreme Court via a petition for certiorari. PVB raised several arguments, including improper substitution as a party, estoppel on Molina’s part, and the incorrect application of the 365-day factor.

The Supreme Court, in its decision penned by Chief Justice Davide, Jr., sided with Molina and affirmed the NLRC’s resolution with modifications. The Court highlighted several key points:

• Applicability of Wage Orders: The Court unequivocally stated that Molina’s basic monthly salary of P3,754.60 fell squarely within the coverage of both W.O. 1 and W.O. 2. The Court emphasized that the wage orders explicitly applied to employees with monthly salaries below the specified ceilings. “W.O. 1 expressly states that employees having a monthly salary of not more than P3,802.08 are entitled to receive the mandated wage increase. Undeniably, MOLINA was receiving a monthly salary of P3,754.60. This fact alone leaves no doubt that he should benefit from said wage order.”
• 365-Day Factor: The Supreme Court upheld the use of the 365-day factor in computing Molina’s daily wage. It cited the National Wages Council’s opinion supporting this factor and emphasized PVB’s prior practice of using it. The Court ruled that changing to the 26.16 factor constituted a prohibited diminution of benefits. “Evidently, the use of the 365 factor is binding and conclusive, forming as it did part of the employment contract. Petitioner can no longer invoke the 26.16 factor after it voluntarily adopted the 365 factor as a policy even prior to its receivership. To abandon such policy and revert to its old practice of using the 26.16 factor would be a diminution of a labor benefit, which is prohibited by the Labor Code.”
• Moral Damages and Attorney’s Fees: While acknowledging Molina’s right to attorney’s fees (reducing it to 10% of the wage differential as per the Labor Code), the Supreme Court deleted the award for moral damages due to lack of sufficient evidence.
• Liability of Rehabilitated Bank: Crucially, the Court ruled that PVB, upon rehabilitation, assumed all liabilities of the liquidation team, including the obligation to pay Molina’s wage differentials. The Court clarified that rehabilitation means the bank continues its corporate life and activities, inheriting the obligations incurred during receivership and liquidation.

Practical Implications for Employers and Employees

This case offers significant practical implications for businesses and employees alike, particularly in the context of financial distress and rehabilitation.

For employers, especially those undergoing or anticipating financial rehabilitation, the key takeaway is that financial difficulties do not suspend labor law compliance, particularly concerning wage orders. Companies must continue to implement mandated wage increases and cannot unilaterally diminish existing employee benefits. Attempting to circumvent wage orders through altered wage computation methods or by claiming financial incapacity will likely be unsuccessful in legal proceedings. Rehabilitation is seen as a continuation of corporate life, not an escape from prior obligations.

For employees, this case reinforces the strength of wage orders as protective instruments. It assures employees that their right to fair wages is upheld even when their employers face financial challenges and undergo restructuring. Employees should be vigilant about ensuring their wages comply with prevailing wage orders and should not hesitate to seek legal recourse if they believe their rights are being violated. The case also highlights the importance of proper wage computation using the 365-day factor and the prohibition against benefit diminution.

Key Lessons from the Philippine Veterans Bank Case:

• Wage Order Compliance is Mandatory: Employers must strictly adhere to wage orders, regardless of their financial status, including during rehabilitation.
• No Diminution of Benefits: Established practices like using the 365-day factor for wage computation cannot be unilaterally changed to reduce employee pay.
• Rehabilitation Assumes Liabilities: A rehabilitated company inherits the legal obligations incurred during receivership and liquidation, including labor liabilities.
• Employee Rights are Paramount: Philippine labor law prioritizes employee rights to fair wages and benefits, even amidst corporate restructuring.
• Seek Legal Advice: Both employers and employees should seek legal counsel to ensure compliance and understand their rights and obligations under labor laws and wage orders.

Frequently Asked Questions (FAQs) about Wage Orders and Employer Obligations

Q1: What are wage orders and who issues them in the Philippines?

A: Wage orders are issuances by the Regional Tripartite Wages and Productivity Boards (RTWPBs) that set the minimum wage rates for employees in different regions and industries in the Philippines. They are designed to protect workers’ wages and ensure they keep pace with economic changes.

Q2: How is daily wage calculated from a monthly salary in the Philippines?

A: The standard practice is to use a 365-day factor, meaning the monthly salary is divided by 365 and then multiplied by the number of working days in a month (or simply divided by 12 to get an average monthly daily rate). Some employers incorrectly use a 261.6-day factor, which reduces the daily wage.

Q3: Can an employer reduce employee benefits if the company is facing financial difficulties?

A: No, generally, employers cannot unilaterally reduce or diminish existing employee benefits, as prohibited by Article 100 of the Labor Code. This includes benefits that have become established company practice.

Q4: What happens to wage obligations when a company undergoes financial rehabilitation?

A: As illustrated in the Philippine Veterans Bank case, a company undergoing rehabilitation remains responsible for its wage obligations, including compliance with wage orders and payment of wage differentials. Rehabilitation does not erase pre-existing labor liabilities.

Q5: What legal recourse does an employee have if their employer fails to comply with wage orders?

A: Employees can file a complaint with the National Labor Relations Commission (NLRC) for non-compliance with wage orders and for recovery of unpaid wage differentials, damages, and attorney’s fees.

Q6: Are moral damages always awarded in labor cases involving wage order violations?

A: Not automatically. Moral damages are awarded based on evidence of bad faith, fraud, or oppressive conduct by the employer. In the Philippine Veterans Bank case, moral damages were initially awarded but later removed by the Supreme Court due to lack of sufficient proof.

Q7: What is the role of attorney’s fees in labor cases?

A: In cases of unlawful withholding of wages, attorney’s fees, typically limited to 10% of the recovered wages, may be awarded to the employee. This is to compensate the employee for the costs of litigation.

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