Prubankers Association v. Prudential Bank (1999): Wage Distortion

In November 1993, two regional wage boards issued wage orders. The order for Region V (Bicol) gave a cost of living allowance to private sector workers. The order for Region VII (Central Visayas) folded an earlier allowance into basic pay and raised minimum wage rates in listed cities and towns.

Prudential Bank applied the Region V order to its Naga branch, the only branch covered, and the Region VII order to its three branches in Cebu. Its employees in other regions did not get the increases.

The employees' union, Prubankers Association, said this regional implementation created a wage distortion nationwide, and asked the bank to extend the increases to all its employees. The matter went to a voluntary arbitration committee, which ruled that a wage distortion existed in the bank nationwide and should be resolved under Article 124 of the Labor Code. The Court of Appeals reversed and found no wage distortion. The union went to the Supreme Court.

Did the bank's separate, regional implementation of the wage orders create a wage distortion?

The Supreme Court denied the petition and affirmed the Court of Appeals.

Forum shopping. The Court first found that forum shopping existed, because a pending voluntary arbitration case between the same bank and union raised the same core issue: the validity of the bank's regionalization of its wage structure. It said this warranted the summary dismissal of both actions. Because of the importance of the question, the Court still decided the main issue on its merits.

What wage distortion is. The Court quoted the definition in Article 124 of the Labor Code, as amended by Republic Act No. 6727: a situation where an increase in prescribed wage rates results in the elimination or severe contraction of intentional differences in pay between employee groups in an establishment, so that the distinctions based on skills, length of service or other logical bases are effectively wiped out.

The four elements. The Court said wage distortion involves four elements:

1. An existing hierarchy of positions with corresponding salary rates.
2. A significant change in the salary rate of a lower pay class without a concomitant increase in the salary rate of a higher one.
3. The elimination of the distinction between the two levels.
4. The existence of the distortion in the same region of the country.

No distortion here. In the covered branches, the pay of all classes went up, and the hierarchy of positions was preserved. The gap between, for example, Pay Class 1 and Pay Class 2 stayed the same. The union's complaint was different: employees in the covered regions now earned more than employees of the same pay class in other regions. The Court said "a disparity in wages between employees holding similar positions but in different regions does not constitute wage distortion as contemplated by law."

Regional wages are what the law intends. Republic Act No. 6727, the Wage Rationalization Act, recognizes "existing regional disparities in the cost of living" and has regional boards set minimum wages for each region. The Court said "a uniform national wage structure is antithetical to the purpose of RA 6727." For the same reason, equal pay for equal work does not require the same wage across regions.

Establishment and company practice. The Court rejected the argument that the whole bank was one "establishment" for this purpose, citing a wage commission guideline defining an establishment as an economic unit with a single fixed location. It also held that one earlier instance of applying wage orders nationwide, when the bank was still unsure how to follow the new law, was not an established management practice.

Wage distortion requires an existing hierarchy of positions with corresponding salary rates, a significant raise in a lower pay class without a matching raise in a higher one, the elimination of the distinction between the two levels, and the existence of the distortion in the same region; a difference in pay between employees of the same rank in different regions, resulting from regional wage orders, is not wage distortion.

Prubankers gives the four elements that the Supreme Court and labor tribunals still use to decide wage distortion claims. In Bankard Employees Union v. NLRC (2004), the Court restated them and added that an employer cannot be obliged to correct an alleged distortion that did not come from a law or wage order, for example higher starting pay set by the employer for new hires. Article 124 itself sets out how a distortion is corrected: through the grievance procedure and voluntary arbitration where there is a union, and through the National Conciliation and Mediation Board and the NLRC where there is none.

This page does not state any minimum wage or wage order amount. Current rates are set by the wage order of each region.

Here is a made-up illustration, with invented names. Nina, a senior clerk in a store chain, earns a little more each day than the junior clerks below her. A new regional wage order raises the junior clerks' pay so that both ranks now earn the same. Under the reasoning in Prubankers, that may be a wage distortion in the same region. If Nina's complaint were only that clerks in another region earn more than she does, there would be no wage distortion under this ruling.

See also the meaning of wage distortion.

For a case of your own, see where to find legal help.