Article 124 of the Labor Code: Minimum wage standards and wage distortion
Status: Amended
Amended
This provision has been amended. The text below is the current version.
- Amended by: Republic Act No. 6727
What does Article 124 say?
The regional minimum wages to be established by the Regional Board shall be as nearly adequate as is economically feasible to maintain the minimum standards of living necessary for the health, efficiency and general well-being of the employees within the framework of the national economic and social development program. In the determination of such regional minimum wages, the Regional Board shall, among other relevant factors, consider the following:
(a) The demand for living wages;
(b) Wage adjustment vis-à-vis the consumer price index;
(c) The cost of living and changes or increases therein;
(d) The needs of workers and their families;
(e) The need to induce industries to invest in the countryside;
(f) Improvements in standards of living;
(g) The prevailing wage levels;
(h) Fair return of the capital invested and capacity to pay of employers;
(i) Effects on employment generation and family income; and
(j) The equitable distribution of income and wealth along the imperatives of economic and social development.
The wages prescribed in accordance with the provisions of this Title shall be the standard prevailing minimum wages in every region. These wages shall include wages varying with industries, provinces or localities if in the judgment of the Regional Board, conditions make such local differentiation proper and necessary to effectuate the purpose of this Title.
Any person, company, corporation, partnership or any other entity engaged in business shall file and register annually with the appropriate Regional Board, Commission and the National Statistics Office, an itemized listing of their labor component, specifying the names of their workers and employees below the managerial level, including learners, apprentices and disabled/handicapped workers who were hired under the terms prescribed in the employment contracts, and their corresponding salaries and wages.
Where the application of any prescribed wage increase by virtue of a law or wage order issued by any Regional Board results in distortions of the wage structure within an establishment, the employer and the union shall negotiate to correct the distortions. Any dispute arising from wage distortions shall be resolved through the grievance procedure under their collective bargaining agreement and, if it remains unresolved, through voluntary arbitration. Unless otherwise agreed by the parties in writing, such dispute shall be decided by the voluntary arbitrators within ten (10) calendar days from the time said dispute was referred to voluntary arbitration.
In cases where there are no collective agreements or recognized labor unions, the employers and workers shall endeavor to correct such distortions. Any dispute arising therefrom shall be settled through the National Conciliation and Mediation Board and, if it remains unresolved after ten (10) calendar days of conciliation, shall be referred to the appropriate branch of the National Labor Relations Commission (NLRC). It shall be mandatory for the NLRC to conduct continuous hearings and decide the dispute within twenty (20) calendar days from the time said dispute is submitted for compulsory arbitration.
The pendency of a dispute arising from a wage distortion shall not in any way delay the applicability of any increase in prescribed wage rates pursuant to the provisions of law or wage order.
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.
All workers paid by result, including those who are paid on piecework, takay, pakyaw or task basis, shall receive not less than the prescribed wage rates per eight (8) hours of work a day, or a proportion thereof for working less than eight (8) hours.
All recognized learnership and apprenticeship agreements shall be considered automatically modified insofar as their wage clauses are concerned to reflect the prescribed wage rates.
Read the Labor Code on the DOLE website (it uses the article numbers before 2015)
What does it mean in plain language?
Article 124 of the Labor Code does two jobs. It tells the Regional Tripartite Wages and Productivity Boards what to consider when they set regional minimum wages. And it deals with wage distortion: when a minimum wage increase closes the pay gap between lower and higher positions in a company, the employer and the workers must work out a correction, through negotiation, grievance machinery and arbitration if needed.
The article keeps the same number after the 2015 renumbering of the Labor Code. Its text comes from Republic Act No. 6727 (1989), the Wage Rationalization Act. This page gives no minimum wage amounts: those are set by regional wage orders.
How does it work in real life?
Rhea and Paolo: the gap that disappears
Rhea, a junior clerk, earns the minimum wage. Paolo, a senior clerk with ten years of service, earns a little more. A new wage order raises Rhea's pay to almost the same level as Paolo's, and Paolo gets nothing. The distinction between the two positions is nearly wiped out by a wage order. That is the situation Article 124 calls a wage distortion, to be corrected through the process above.
Cora: a raise in another region
Cora works at her company's office in one region. A wage order in a different region raises the pay of her counterparts there. Under Prubankers, a wage order applied in one region but not in another does not by itself create a wage distortion.
Leo: new hires paid more by company policy
Leo's employer decides on its own to offer new hires a higher starting rate, close to what Leo earns after years of work. No law or wage order caused it. Under Bankard, this is not a wage distortion the employer can be forced to correct under Article 124, though the matter may still be raised in bargaining.
What does this mean in practice?
- Wage distortion is about the structure of pay inside one establishment after a law or wage order. It is not a claim that a worker is simply underpaid.
- Unionized workplaces go through the grievance procedure and voluntary arbitration. Others go through the National Conciliation and Mediation Board, then the NLRC.
- For pay computations, see the take-home pay calculator. For other pay rules, see Wages and hours and Article 100 on non-diminution of benefits.
- A lawyer, a union or the Public Attorney's Office can review a specific case. See Free legal help in the Philippines.
What must wage boards consider?
The first paragraph sets the standard: regional minimum wages "shall be as nearly adequate as is economically feasible to maintain the minimum standards of living necessary for the health, efficiency and general well-being of the employees." The Regional Board then considers, among other factors:
- the demand for living wages, wage adjustment against the consumer price index, and the cost of living and its increases;
- the needs of workers and their families, and improvements in standards of living;
- the need to induce industries to invest in the countryside, and the prevailing wage levels;
- fair return of the capital invested and the capacity to pay of employers;
- effects on employment generation and family income, and the equitable distribution of income and wealth.
The wages prescribed are "the standard prevailing minimum wages in every region," and may vary by industry, province or locality if the Regional Board finds this proper. Who sets the rates comes from Article 99: the Regional Tripartite Wages and Productivity Boards.
What is a wage distortion?
The article defines it:
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.
In Prubankers Association v. Prudential Bank (1999), the Supreme Court broke this down into four elements:
- an existing hierarchy of positions with corresponding salary rates;
- a significant change in the salary rate of a lower pay class without a matching increase for a higher one;
- the elimination of the distinction between the two levels;
- the existence of the distortion in the same region of the country.
What does not count as a wage distortion?
Two rulings mark the limits.
- Different regions. In Prubankers, a wage order raised pay at a bank's branches in one region but not in others. The Court said "the implementation of wage orders in one region but not in others does not in itself necessarily result in wage distortion," and noted that a uniform national wage structure is "antithetical to the purpose of RA 6727."
- Raises not from a law or wage order. In Bankard Employees Union v. NLRC (2004), the employer raised the hiring rate of new employees on its own. The Court held it could not be obliged to correct the alleged distortion because the increase "was not due to a prescribed law or wage order." It said Article 124 should be read in relation to minimum wage fixing.
How is a wage distortion dispute resolved?
Where there is a union and a collective bargaining agreement:
Where the application of any prescribed wage increase by virtue of a law or wage order issued by any Regional Board results in distortions of the wage structure within an establishment, the employer and the union shall negotiate to correct the distortions. Any dispute arising from wage distortions shall be resolved through the grievance procedure under their collective bargaining agreement and, if it remains unresolved, through voluntary arbitration.
Unless the parties agree otherwise in writing, the dispute is decided in voluntary arbitration within ten calendar days from the time it was referred there.
Where there is no collective agreement or recognized union:
In cases where there are no collective agreements or recognized labor unions, the employers and workers shall endeavor to correct such distortions. Any dispute arising therefrom shall be settled through the National Conciliation and Mediation Board and, if it remains unresolved after ten (10) calendar days of conciliation, shall be referred to the appropriate branch of the National Labor Relations Commission (NLRC).
The NLRC must then hold continuous hearings and decide within twenty calendar days from submission for compulsory arbitration. In every case, the dispute "shall not in any way delay the applicability of any increase in prescribed wage rates."
What else does Article 124 say?
- Workers paid by results. Workers paid by piece, takay, pakyaw or task basis must receive not less than the prescribed wage rates for eight hours of work a day, or a proportion for fewer hours.
- Learners and apprentices. Their agreements are automatically modified to reflect the prescribed wage rates.
- Annual listing. Businesses must file with the Regional Board, the Commission and the National Statistics Office a yearly itemized listing of their labor component below the managerial level, with salaries and wages.
Which Supreme Court rulings are relevant?
Frequently asked questions
What is a wage distortion under Article 124?
It is a situation where an increase in prescribed wage rates eliminates or severely contracts the intended 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.
What are the elements of wage distortion?
In Prubankers Association v. Prudential Bank (1999), the Supreme Court listed four: an existing hierarchy of positions with matching pay rates; a significant raise for a lower pay class without a matching raise for a higher one; the elimination of the distinction between the two levels; and the distortion existing in the same region of the country.
Is it a wage distortion if a new hire earns as much as an older employee?
Not under Article 124 if the change did not come from a law or wage order. In Bankard Employees Union v. NLRC (2004), the Court said the employer could not be obliged to correct an alleged distortion caused by a higher hiring rate it set itself, since it was not due to a prescribed law or wage order.
How is a wage distortion dispute settled?
With a union and a collective bargaining agreement: negotiation, then the grievance procedure, then voluntary arbitration. Without them: the employer and workers try to correct it, then conciliation at the National Conciliation and Mediation Board, then the NLRC.
Does a wage distortion dispute delay a minimum wage increase?
No. Article 124 says the pendency of a wage distortion dispute shall not in any way delay the applicability of any increase in prescribed wage rates under a law or wage order.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
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