POLYFOAM-RGC INTERNATIONAL, CORPORATION and PRECILLA A. GRAMAJE, Petitioners, v.

EDGARDO CONCEPCION,
Respondent.

PERALTA, J.:

FACTS:

In his February 08, 2000 complaint for illegal dismissal against Polyfoam and Natividad Cheng, Edgardo Concepcion alleged that he was hired
by Polyfoam as an "all-around" factory worker and served as such for almost six years. On January 14, 2000, he allegedly discovered that his
time card was not in the rack and was later informed by the security guard that he could no longer punch his time card. When he protested to his
supervisor, the latter allegedly told him that the management decided to dismiss him due to an infraction of a company rule. Cheng, the company
manager, also refused to face him. Respondent counsel later wrote a letter to Polyfoam manager requesting that respondent be re-admitted to
work, but the request remained unheeded prompting the latter to file the complaint for illegal dismissal.

On April 28, 2000, Gramaje filed a Motion for Intervention claiming to be the real employer of respondent. On the other hand, Polyfoam and
Cheng filed a Motion to Dismiss on the grounds that the NLRC has no jurisdiction over the case, because of the absence of employer-employee
relationship between Polyfoam and respondent and that the money claims had already prescribed.

On May 24, 2000, Labor Arbiter Adolfo Babiano issued an Order granting Gramaje motion for intervention, it appearing that she is an
indispensable party and denying Polyfoam and Cheng motion to dismiss as the lack of employer-employee relationship is only a matter of
defense.

In their Position Paper, Polyfoam and Cheng insisted that the NLRC has no jurisdiction over the case, because respondent was not their
employee. They likewise contended that respondent money claims had already prescribed. Finally, they fault respondent for including Cheng as a
party-defendant, considering that she is not even a director of the company.

In her Position Paper,Gramaje claimed that P.A. Gramaje Employment Services (PAGES) is a legitimate job contractor who provided some
manpower needs of Polyfoam. It was alleged that respondent was hired as "packer" and assigned to Polyfoam, charged with packing the latter
finished foam products. She argued, however, that respondent was not dismissed from employment, rather, he simply stopped reporting for work.

On December 14, 2001, Labor Arbiter rendered a Decision finding respondent to have been illegally dismissed from employment and holding
Polyfoam and Gramaje/PAGES solidarily liable for respondent money claims.

On appeal by petitioners, the NLRC modified the LA decision by exonerating Polyfoam from liability for respondent claim for separation pay
and deleting the awards of backwages, 13th month pay, damages, and attorney fees.

Aggrieved, respondent elevated the case to the CA in a special civil action for certiorari under Rule 65 of the Rules of Court. On December 19,
2005, the appellate court granted the petition. The CA agreed with the LA conclusion that Gramaje is not a legitimate job contractor but only a
"labor-only" contractor. The appellate court affirmed the LA findings of illegal dismissal as respondent was dismissed from the service without
cause and due process.Consequently, separation pay in lieu of reinstatement was awarded. The CA quoted with approval the LA conclusions on
the award of respondent other money claims.

ISSUES:

1. Whether or not Gramaje is an independent job contractor?

2. Whether or not respondent was illegally dismissed from employment?

HELD: The decision of the Court of Appeals is affirmed.

Gramaje is a Labor-Only Contractor - Article 106 of the Labor Code explains the relations which may arise between an employer, a contractor,
and the contractor employees, thus:

ART. 106. Contractor or subcontracting. − Whenever an employer enters into a contract with another person for the performance of the former
work, the employees of the contractor and of the latter subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be
jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the
same manner and extent that he is liable to employees directly employed by him.

The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of
workers established under the Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job
contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code.

There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities
which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
The test of independent contractorship is "whether one claiming to be an independent contractor has contracted to do the work according to his
own methods and without being subject to the control of the employer, except only as to the results of the work." In San Miguel Corporation v.
Semillano, the Court laid down the criteria in determining the existence of an independent and permissible contractor relationship, to wit:

x x x [W]hether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and
duration of the relationship; the right to assign the performance of a specified piece of work; the control and supervision of the work to another;
the employer power with respect to the hiring, firing and payment of the contractor workers; the control of the premises; the duty to supply the
premises, tools, appliances, materials, and labor; and the mode, manner and terms of payment.

Simply put, the totality of the facts and the surrounding circumstances of the case are to be considered. Each case must be determined by its own
facts and all the features of the relationship are to be considered.

Applying the foregoing tests, we agree with the CA conclusion that Gramaje is not an independent job contractor, but a "labor-only" contractor.

First, Gramaje has no substantial capital or investment. The presumption is that a contractor is a labor-only contractor unless he overcomes the
burden of proving that it has substantial capital, investment, tools, and the like. The employee should not be expected to prove the negative fact
that the contractor does not have substantial capital, investment and tools to engage in job-contracting.

Gramaje claimed that it has substantial capital of its own as well as investment in its office, equipment and tools. She pointed out that she
furnished the plastic containers and carton boxes used in carrying out the function of packing the mattresses of Polyfoam. She added that she had
placed in Polyfoam workplace ten (10) sealing machines, twenty (20) hand trucks, and two (2) forklifts to enable respondent and the other
employees of Gramaje assigned at Polyfoam to perform their job. Finally, she explained that she had her own office with her own staff. However,
aside from her own bare statement, neither Gramaje nor Polyfoampresented evidence showing Gramaje ownership of the equipment and
machineries used in the performance of the alleged contracted job. Considering that these machineries are found in Polyfoam premises, there can
be no other logical conclusion but that the tools and equipment utilized by Gramaje and her "employees" are owned by Polyfoam. Neither did
Polyfoam nor Gramaje show that the latter had clients other than the former. Since petitioners failed to adduce evidence that Gramaje had any
substantial capital, investment or assets to perform the work contracted for, the presumption that Gramaje is a labor-only contractor stands.

Second, Gramaje did not carry on an independent business or undertake the performance of its service contract according to its own manner and
method, free from the control and supervision of its principal,Polyfoam, its apparent role having been merely to recruit persons to work for
Polyfoam.It is undisputed that respondent had performed his task of packing Polyfoam foam products in Polyfoam premises. As to the
recruitment of respondent, petitioners were able to establish only that respondent application was referred toGramaje, but that is all. Prior to his
termination, respondent had been performing the same job in Polyfoambusiness for almost six (6) years. He was even furnished a copy of
Polyfoam "Mga Alituntunin at KarampatangParusa,"which embodied Polyfoam rules on attendance, the manner of performing the employee
duties, ethical standards, cleanliness, health, safety, peace and order. These rules carried with them the corresponding penalties in case of
violation.

While it is true that petitioners submitted the Affidavit of Polyfoam supervisor Victor Abadia, claiming that the latter did not exercise supervision
over respondent because the latter was not Polyfoam but Gramajeemployee, said Affidavit is insufficient to prove such claim. Petitioners should
have presented the person who they claim to have exercised supervision over respondent and their alleged other employees assigned toPolyfoam.
It was never established that Gramaje took entire charge, control and supervision of the work and service agreed upon. And as aptly observed by
the CA, "it is likewise highly unusual and suspect as to the absence of a written contract specifying the performance of a specified service, the
nature and extent of the service or work to be done and the term and duration of the relationship."

A finding that a contractor is a "labor-only" contractor, as opposed to permissible job contracting, is equivalent to declaring that there is an
employer-employee relationship between the principal and the employees of the supposed contractor, and the "labor-only" contractor is
considered as a mere agent of the principal, the real employer.In this case, Polyfoam is the principal employer and Gramaje is the labor-only
contractor. Polyfoam and Gramaje are, therefore, solidarily liable for the rightful claims of respondent.

Respondent was Illegally DismissedFrom Employment - Respondent stated that on January 14, 2000, his time card was suddenly taken off the
rack. His supervisor later informed him that Polyfoam management decided to dismiss him due to infraction of company rule. In short,
respondent insisted that he was dismissed from employment without just or lawful cause and without due process. Polyfoam did not offer any
explanation of such dismissal. It, instead, explained that respondent real employer is Gramaje. Gramaje, on the other hand, denied the claim of
illegal dismissal. She shifted the blame on respondent claiming that the latter in fact abandoned his work.

The LA gave credence to respondent narration of the circumstances of the case. Said conclusion was affirmed by the CA. We find no reason to
depart from such findings.

Abandonment cannot be inferred from the actuations of respondent. When he discovered that his time card was off the rack, he immediately
inquired from his supervisor. He later sought the assistance of his counsel, who wrote a letter addressed to Polyfoam requesting that he be re-
admitted to work. When said request was not acted upon, he filed the instant illegal dismissal case. These circumstances clearly negate the
intention to abandon his work.

Petitioners failed to show any valid or authorized cause under the Labor Code which allowed it to terminate the services of respondent. Neither
was it shown that respondent was given ample opportunity to contest the legality of his dismissal. No notice of termination was given to him.
Clearly, respondent was not afforded due process. Having failed to establish compliance with the requirements of termination of employment
under the Labor Code, the dismissal of respondent was tainted with illegality. Consequently, respondent is entitled to reinstatement without loss
of seniority rights, and other privileges and to his full backwages inclusive of allowances and to his other benefits or their monetary equivalent
computed from the time his compensation was withheld up to the time of his actual reinstatement. However, if reinstatement is no longer feasible
as in this case, separation pay equivalent to one-month salary for every year of service shall be awarded as an alternative. Thus, the CA is correct
in affirming the LA award of separation pay with full backwages and other monetary benefits

G.R. No. 182018 October 10, 2012

NORKIS TRADING CORPORATION, Petitioner,
vs.
JOAQUIN BUENA VISTA, HENRY FABROA, RICARDO CAPE, BERTULDO TULOD, WILLY DONDOY ANO
and GLEN VILLARASA, Respondents.
Facts:
The petition stems from an amended complaint for illegal suspension, illegal dismissal, unfair labor practice and
other monetary claims filed with the National Labor Relations Commission (NLRC) by herein respondents Joaquin
Buenavista (Buenavista), Henry Fabroa (Fabroa), Ricardo Cape (Cape), Bertuldo Tulod (Tulod), Willy Dondoyano
(Dondoyano) and Glen Villariasa (Villariasa) against Norkis Trading and Panaghiusa sa Kauswagan Multi-Purpose
Cooperative (PASAKA).
The respondents were hired by Norkis Trading.
Although they worked for Norkis Trading as skilled workers assigned in the operation of industrial and welding
machines owned and used by Norkis Trading for its business, they were not treated as regular employees by Norkis Trading.
Instead, they were regarded by Norkis Trading as members of PASAKA, a cooperative organized under the Cooperative Code
of the Philippines, and which was deemed an independent contractor that merely deployed the respondents to render services
for Norkis Trading.
4
The respondents nonetheless believed that they were regular employees of Norkis Trading.
Despite having served respondent Norkis Trading for many years and performing the same functions as regular
employees, complainants were not accorded regular status. It was made to appear that complainants are not employees of said
company but that of respondent PASAKA.
6
The respondents filed on June 9, 1999 with the Department of Labor and Employment (DOLE) a complaint against
Norkis Trading and PASAKA for labor-only contracting and non-payment of minimum wage and overtime pay.
On August 26, 1999, PASAKA informed the respondents of the cooperative’s decision to suspend them for fifteen
(15) working days.
On October 13, 1999, the respondents were to report back to work but during the hearing in their NLRC case, they
were informed by PASAKA that they would be transferred to Norkis Tradings’ sister company, Porta Coeli Industrial
Corporation (Porta Coeli), as washers of Multicab vehicles.
The respondents opposed the transfer as it would allegedly result in a change of employers, from Norkis Trading to
Porta Coeli. The respondents also believed that the transfer would result in a demotion since from being skilled workers in
Norkis Trading, they would be reduced to being utility workers.These circumstances made the respondents amend their
complaint for illegal suspension, to include the charges of unfair labor practice, illegal dismissal, damages and attorney’s fees.
The Ruling of the Labor Arbiter: Dismissed the complaint via a Decision. The allegation of unfair labor practice and claim
for monetary awards were likewise rejected by the LA. Feeling aggrieved, the respondents appealed from the decision of the
LA to the NLRC.
The Ruling of the NLRC: Affirmed with modification the decision of LA. It held that the respondents were not illegally
suspended from work, as it was their membership in the cooperative that was suspended after they were found to have violated
the cooperative’s rules and regulations. It also declared that the respondents’ dismissal was not established by substantial
evidence. The NLRC however declared that the LA had no jurisdiction over the dispute because the respondents were not
employees, but members of PASAKA.
The Ruling of the CA: Reversed and set aside the decision and resolution of the NLRC. In ruling that the respondents were
illegally dismissed, the CA held that Norkis Trading’s refusal to accept the respondents back to their former positions, offering
them instead to accept a new assignment as washers of vehicles in its sister company, was a demotion that amounted to a
constructive dismissal.
Issue: Whether or not the respondents shall be regarded as employees (or whether or not PASAKA is a labor-only contractor).
Ruling:
Norkis Trading is the principal employer of the respondents, considering that PASAKA is a mere labor-only
contractor.
Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits,
supplies, or places workers to perform a job, work, or service for a principal. In labor-only contracting, the following elements
are present: (a) the contractor or subcontractor does not have substantial capital or investment to actually perform the job,
work, or service under its own account and responsibility; and (b) the employees recruited, supplied or placed by such
contractor or subcontractor perform activities which are directly related to the main business of the principal. These
differentiate it from permissible or legitimate job contracting or subcontracting, which refers to an arrangement whereby a
principal agrees to put out or farm out with the contractor or subcontractor the performance or completion of a specific job,
work, or service within a definite or predetermined period, regardless of whether such job, work, or service is to be performed
or completed within or outside the premises of the principal. A person is considered engaged in legitimate job contracting or
subcontracting if the following conditions concur: (a) the contractor carries on a distinct and independent business and
partakes the contract work on his account under his own responsibility according to his own manner and method, free from the
control and direction of his employer or principal in all matters connected with the performance of his work except as to the
results thereof; (b) the contractor has substantial capital or investment; and (c) the agreement between the principal and the
contractor or subcontractor assures the contractual employees’ entitlement to all labor and occupational safety and health
standards, free exercise of the right to self-organization, security of tenure, and social welfare benefits.
49
PASAKA as a mere labor-only contractor, and Norkis Trading as the true employer of herein respondents.
The respondents’ claim that the machinery, equipment and supplies they used to perform their duties were owned by Norkis
Trading, and not by PASAKA, was undisputed. Herein petitioner failed to prove that their sub-contracting arrangements fall
under any of the conditions set forth in Sec. 6 of D.O. # 10 S. 1997 to qualify as permissible contracting or subcontracting as
provided for as follows:
Sec. 6. Permissible contracting or subcontracting. Subject to conditions set forth in Sec. 4 (d) and (e) and Section 5 hereof, the
principal may engage the services of a contractor or subcontractor for the performance of any of the following:
a.) Works or services temporarily or occasionally needed to meet abnormal increase in the demand of products or services...
b) Works or services temporarily or occasionally needed by the principal for undertakings requiring expert or highly technical
personnel to improve the management or operations of an enterprise;
c) Services temporarily needed for the introduction or promotion of new products...;
d) Works or services not directly related or not integral to main business or operation of the principal including casual work,
janitorial, security, landscaping and messengerial services and work not related to manufacturing processes in manufacturing
establishments.
e) Services involving the public display of manufacturers’ products...;
f) Specialized works involving the use of some particular, unusual or peculiar skills... and
g) Unless a reliever system is in place among the regular workforce, substitute services for absent regular employees...
It is therefore evident that herein respondents are engaged in "labor-only" contracting as defined in Art. 106 of the Labor
Code. Furthermore, such contracting/sub-contracting arrangement not only falls under labor-only contracting but also fails to
qualify as legitimate subcontracting as defined under Sec. 4 par. e of D.O. #10 S. 1997, to wit:
"Sec. 4. Definition of terms. …
d) …
Subject to the provisions of Sections 6, 7 and 8 of this Rule, contracting or subcontracting shall be legitimate if the following
circumstances concur:
i) The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work or
service on its own account and under its own responsibility, according to its own manner and method, and free from the
control and direction of the principal in all matters connected with the performance of the work except to the results thereof;
ii) The contractor or subcontractor has substantial capital or investment; and
iii) The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all
labor and occupational and safety and health standards, free exercise of the right to self-organization, security of tenure and
social and welfare benefits."
52
(Emphasis supplied)
This Court agrees with the finding of the DOLE Regional Director, as affirmed by the Secretary of Labor in her
assailed Order, that petitioners among them, herein petitioner were engaged in labor-only contracting.
First. PASAKA failed to prove that it has substantial capitalization or investment in the form of tools, equipment,
machineries, work premises, among others, to qualify as an independent contractor. Private respondents were using
machineries and equipment owned by and located at the premises of NORKIS TRADING.
Second. PASAKA likewise did not carry out an independent business from NORKIS TRADING. Based on facts. The
Project Contract dated December 18, 1998 with NORKIS INTERNATIONAL is nothing more than an afterthought by the
petitioners to confuse its workers and defeat their rightful claims.
Third. Private respondents performed activities directly related to the principal business of NORKIS TRADING. They
worked as welders and machine operators engaged in the production of steel crates which were sent to Japan for use as
containers of motorcycles that are then sent back to NORKIS TRADING. Private respondents‘ functions therefore are directly
related and vital to NORKIS TRADING’s business of manufacturing of Yamaha motorcycles.
All the foregoing considerations affirm by more than substantial evidence that NORKIS TRADING and PASAKA engaged in
labor-only contracting.
53
Termination of an employment for no just or authorized cause amounts to an illegal dismissal.
As to the issue of whether the respondents were illegally dismissed by Norkis Trading, we answer in the affirmative, although
not by constructive dismissal as declared by the CA, but by actual dismissal.
Where an entity is declared to be a labor-only contractor, the employees supplied by said contractor to the principal employer
become regular employees of the latter. Having gained regular status, the employees are entitled to security of tenure and can
only be dismissed for just or authorized causes and after they had been afforded due process.
66
Termination of employment
without just or authorized cause and without observing procedural due process is illegal.1âwphi1
In claiming that they were illegally dismissed from their employment, the respondents alleged having been informed by
PASAKA that they would be transferred, upon the behest of Norkis Trading, as Multicab washers or utility workers to Porta
Coeli, a sister company of Norkis Trading. Norkis Trading does not dispute that such job transfer was relayed by PASAKA
unto the respondents, although the company contends that the transfer was merely an "offer" that did not constitute a
dismissal. It bears mentioning, however, that the respondents were not given any other option by PASAKA and Norkis
Trading but to accede to said transfer. In fact, there is no showing that Norkis Trading would still willingly accept the
respondents to work for the company. Worse, it still vehemently denies that the respondents had ever worked for it.
Respondents’ transfer to Porta Coeli, although relayed to the respondents by PASAKA was effectively an act of Norkis
Trading. Where labor-only contracting exists, the Labor Code itself establishes an employer-employee relationship between
the employer and the employees of the labor-only contractor. The statute establishes this relationship for a comprehensive
purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and
the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the
principal employer

Res judicata
has two aspects: bar by prior judgment and
conclusiveness of judgment as provided
under Section 47(b) and (c), Rule
39, respectively, of the Rules of Court.Under the doctrine of
conclusiveness of judgment,facts and issues actually and directly resolved in a former suit cannot be raised in any future case between the same
parties, even if the latter suit may invol
ve a different cause of action.Clearly, res judicatain the concept of conclusiveness of judgment has set in. In the proceedings before the Regional
Director and the LA, there were identity ofpartiesand identity of issues, although the causes of action
in the two actions were different. First, herein respondent
s on the one hand, and Norkis Trading on the other hand,
were all parties in the two cases, being therein complainants and respondent, respectively. As to the second requisite, the issue of whether
PASAKAwas a labor-only contractor which
would make Norkis Trading the true employer of the respondents was the main issue in the two cases, especially since Norkis Trading had been
arguing in both proceedings that it could not be regarded as the herein respondents’ employer, harping on
the defense that PASAKA was a legitimate job contractor

OEB M. ALIVIADO, et al., Petitioners, v. PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents.

DEL CASTILLO, J.:

FACTS:
Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982 or as late as June 1991, to either May 5,
1992orMarch 11, 1993.

They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time.They were
assigned at different outlets, supermarkets and stores where they handled all the products of P&G.They received their wages from Promm-Gem
or SAPS.

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual absenteeism, dishonesty or changing
day-off without prior notice.

P&G is principally engaged in the manufacture and production of different consumer and health products, which it sells on a wholesale basis to
various supermarkets and distributors. To enhance consumer awareness and acceptance of the products, P&G entered into contracts with Promm-
Gem and SAPS for the promotion and merchandising of its products.

In December 1991, petitioners filed a complaint against P&G for regularization, service incentive leave pay and other benefits with damages.The
complaint was later amendedto include the matter of their subsequent dismissal.

OnNovember 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled that there was no employer-employee relationship
between petitioners and P&G.He found that the selection and engagement of the petitioners, the payment of their wages, the power of dismissal
and control with respect to the means and methods by which their work was accomplished, were all done and exercised by Promm-
Gem/SAPS.He further found that Promm-Gem and SAPS were legitimate independent job contractors. On appeal, the NLRC dismissed the same.
Petitioners filed a motion for reconsideration but the motion was denied in theNovember 19, 1998Resolution.

Petitioners likewise failed to have a favrable decision in the CA hence, this petition.

ISSUE:

Whether or not Promm-Gem and SAPS are labor-only contractors or legitimate job contractors?

HELD:

The petition is granted.

LABOR LAW

Article 106 of the Labor Code and its implementing rules allow contracting arrangements for the performance of specific jobs, works or
services.Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in
nature.However, in order for such outsourcing to be valid, it must be made to anindependent contractorbecause the current labor rules expressly
prohibit labor-only contracting.

To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places workers to perform a job,
work or service for a principalandanyof the following elements are present: (i) The contractor or subcontractor does not have substantial capital
or investment which relates to the job, work or service to be performedandthe employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to the main business of the principal;or (ii) The contractor does not exercise the
right to control over the performance of the work of thecontractualemployee.

In the instant case,thefinancialstatementsof Promm-Gem show that it

has authorized capital stock ofP1 million and a paid-in capital, or capital available for operations, ofP500,000.00 as of 1990. It also has long term
assets worthP432,895.28 and current assets ofP719,042.32.Promm-Gem has also proven that it maintained its own warehouse and office space
with a floor area of 870 square meters. It also had under its name three registered vehicles which were used for its promotional/merchandising
business.Promm-Gem also has other clientsaside from P&G. Under the circumstances, Promm-Gem has substantial investment which relates to
the work to be performed.These factors negate the existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers, tapes, liners and cutters,
necessary for them to perform their work.Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already
considered the complainants working under it as its regular, not merely contractual or project, employees.This circumstance negates the existence
of element (ii) as stated in Section 5 of DOLE Department Order No. 18-02, which speaks ofcontractualemployees. This, furthermore, negates on
the part of Promm-Gem bad faith and intent to circumvent labor laws which factors have often been tipping points that lead the Court to strike
down the employment practice or agreement concerned as contrary to public policy, morals, good customs or public order.

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. Thus, it is a legitimate independent contractor.

On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of onlyP31,250.00.There is no other evidence
presented to show how much its working capital and assets are.Furthermore, there is no showing of substantial investment in tools, equipment or
other assets.

It is clear that SAPS having a paid-in capital of onlyP31,250 - has no substantial capital.SAPS lack of substantial capital is underlined by the
records which show that its payroll for its merchandisers alone for one month would already totalP44,561.00.It had 6-month contracts
withP&G.Yet SAPS failed to show that it could complete the 6-month contracts using its own capital and investment.Its capital is not even
sufficient for one months payroll. SAPS failed to show that its paid-in capital ofP31,250.00 is sufficient for the period required for it to generate
its needed revenue to sustain its operations independently.Substantial capital refers to capitalization used in theperformance or completionof the
job, work or service contracted out.In the present case, SAPS has failed to show substantial capital.

Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity that has already been
considered by the Court as doubtlessly directly related to the manufacturing business, which is the principal business of P&G.Considering that
SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal
business of P&G, we find that the former is engaged in labor-only contracting.

Where labor-only contracting exists, the Labor Code itself establishes an employer-employee relationship between the employer and the
employees of the labor-only contractor. The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor
laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only
contractor as if such employees had been directly employed by the principal employer.

LABOR LAW

In cases of regular employment, the employer shall not terminate the services of an employee except for a justor authorized cause.

In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified the cause of dismissal as grave misconduct
and breach of trust.

Misconduct has been defined as improper or wrong conduct; the transgression of some established and definite rule of action, a forbidden act, a
dereliction of duty, unlawful in character implying wrongful intent and not mere error of judgment.The misconduct to be serious must be of such
grave and aggravated character and not merely trivial and unimportant.To be a just cause for dismissal, such misconduct (a) must be serious; (b)
must relate to the performance of the employees duties; and (c) must show that the employee has become unfit to continue working for the
employer.

In the instant case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be employees of P&G, but it
cannot be said that they were motivated by any wrongful intent in doing so.As such, they are only found them guilty of only simple misconduct
for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm.A misconduct which is not serious or grave, as that
existing in the instant case, cannot be a valid basis for dismissing an employee.

Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the trust reposed in the employee by his
employer.Ordinary breach will not suffice.A breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable
excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.

Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that the employee concerned holds a position of
responsibility or of trust and confidence.As such, he must be invested with confidence on delicate matters, such as custody, handling or care and
protection of the property and assets of the employer.And, in order to constitute a just cause for dismissal, the act complained of must be work-
related and must show that the employee is unfit to continue to work for the employer. In the instant case, the petitioners-employees of Promm-
Gem have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is there any evidence to show that they
are unfit to continue to work as merchandisers for Promm-Gem. Thus, there was no valid cause for the dismissal of petitioners-employees of
Promm-Gem.

While Promm-Gem had complied with the procedural aspect of due process in terminating the employment of petitioners-employees,i.e., giving
two notices and in between such notices, an opportunity for the employees to answer and rebut the charges against them, it failed to comply with
the substantive aspect of due process as the acts complained of neither constitute serious misconduct nor breach of trust.Hence, the dismissal is
illegal.

With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal.The records show that upon receipt by
SAPS of P&Gs letter terminating their Merchandising Services Contact effective March 11, 1993, they in turn verbally informed the concerned
petitioners not to report for work anymore.

Neither SAPS nor P&G dispute the existence of these circumstances.Parenthetically, unlike Promm-Gem which dismissed its employees for
grave misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon the initiation of P&G.It is evident that SAPS does not
carry on its own business because the termination of its contract with P&G automatically meant for it also the termination of its employees
services.It is obvious from its act that SAPS had no other clients and had no intention of seeking other clients in order to further its merchandising
business.From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in the latters merchandising concerns
only.Under the circumstances prevailing in the instant case, we cannot consider SAPS as anindependent contractor.

In termination cases, the burden of proof rests upon the employer to show that the dismissal is for just and valid cause. In the instant case, P&G
failed to discharge the burden of proving the legality and validity of the dismissals of those petitioners who are considered its employees. Hence,
the dismissals necessarily were not justified and are therefore illegal.

CIVIL LAW

Moral and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or fraud or constituted an act
oppressive to labor or were done in a manner contrary to morals, good customs or public policy.

With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any oppressive act on the part of the latter, we find
no support for the award of damages.

As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor. The sudden and peremptory barring
of the concerned petitioners from work, and from admission to the work place, after just a one-day verbal notice,andfor no valid cause bellows
oppression and utter disregard of the right to due process of the concerned petitioners.Hence, an award of moral damages is called for.

Attorneys fees may likewise be awarded to the concerned petitioners who wereillegallydismissedinbadfaithandwerecompelledtolitigateorincur
expenses to protect their rights by reason of the oppressive act of P&G.

LABOR LAW

Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of
seniority rights and other privileges, inclusive of allowances, and other benefits or their monetary equivalent from the time the compensation was
withheld up to the time of actual reinstatement. Hence, all the petitioners, having been illegally dismissed are entitled to reinstatement without
loss of seniority rights and with full back wages and other benefits from the time of their illegal dismissal up to the time of their actual
reinstatement.

The decision and resolution of the Court of Appeals are reversed and set aside. The case is remanded to the NLRC.

ASSOCIATED LABOR UNIONS-TUCP representing its members, DMPIEU-ALU-TUCP, LOCAL 302 and/or GERONIMO DE LOS
SANTOS, petitioners,
vs.
THE HON. NATIONAL LABOR RELATIONS COMMISSION (FIFTH DIVISION), ATTY. NOEL AUGUSTO S. MAGBANUA in his
capacity as Labor Arbiter, and DEL MONTE PHILIPPINES, INC., respondents.
Seno, Mendoza & Associates for petitioners.
Nuevas & Nuevas Law Offices for private respondent.

MENDOZA, J.:
This is a special civil action of certiorari to set aside the decision and resolution dated June 22, 1992 and September 14, 1992 respectively of the
National Labor Relations Commission (Fifth Division). 1
The antecedent facts are as follows:
On July 1, 1989, Republic Act No. 6727, otherwise known as the Wage Rationalization Act, took effect, granting a P25.00/day increase in the
statutory minimum wage of all workers and employees in the private sector, subject to certain conditions.
In implementation of the law, private respondent Del Monte Philippines, Inc. gave a P25.00/day increase to the P54.00/day wages of its
temporary employees or "broilers." Because the regular employees, members of petitioner union, who were then receiving P100.80 a day were
not granted a similar increase, they complained to the management of private respondent.
On February 14, 1990, the parties executed a Memorandum Agreement wherein private respondent, "in positive response to the union's
representations and notwithstanding that it has no legal or contractual obligation," granted the members of petitioner union a P10.00/day wage
increase effective January 1, 1990, subject to the latter's right to claim P15.00/day as balance, through compulsory arbitration. 2
On June 5, 1990, petitioners (Associated Labor Union-TUCP, representing its members, DMPIEU-ALU-TUCP, Local 302 and Geronimo de los
Santos) filed a complaint against private respondent in the National Labor Relations Commission (NLRC) Regional Arbitration Branch X in
Cagayan de Oro City. They alleged that a wage distortion 3 had been created by the grant to its temporary employees of a P25.00/day salary
increase under Republic Act No. 6727, thereby reducing to P21.80 from the previous P46.80, the difference in salaries between the regular
employees (herein petitioners) and the temporary employees.
On November 27, 1990, the Labor Arbiter, Noel Augusto S. Miranda, dismissed the complaint for lack of merit. He found no wage distortion in
view of a series of salary increases which respondent had granted to petitioners
vis-a-vis the temporary employees, as shown by the following table:
Pay of Union Pay of Temporary Difference
Members Employees
A. Prior to July 1, 1989 P100.80/day P54.00/day P46.80
B. Effective July 1, 1989 P100.80/day P79.00/day P21.80 (Under R.A. No. 6727
giving P25.00/day
increase to the tempo-
rary employees)
C. Effective Sept. 1, 1989 P115.80/day P79.00/day P36.80
(Under CBA giving
P15.00/day increase to
the union members)
D. Effective Jan. 1, 1990 P125.80/day P79.00/day P46.80
(Under Agreement on
Feb. 14, 1990 giving
P10.00/day increase
to the union members)
E. Effective Sept. 1, 1990 P140.80/day P79.00/day P61.80
(Under CBA giving
P15.00/day increase
to the union members)
On appeal the NLRC affirmed the Labor Arbiter's findings and denied petitioners' motion for reconsideration. Hence this petition.
Petitioners contend that the increases mandated by the parties' Collective Bargaining Agreement and the voluntary agreement dated February 14,
1990 should not be considered as having corrected the wage distortion, since employee benefits derived from law are exclusive, distinct, and
separate from those obtained through negotiation and agreement.
The contention has no merit.
Art. 124 of the Labor Code, as amended by Republic Act No. 6727, expressly provides that 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. The law recognizes, therefore, the validity of negotiated wage increases to
correct wage distortions. The legislative intent is to encourage the parties to seek solution to the problem of wage distortions through voluntary
negotiation or arbitration, rather than strikes, lockouts, or other concerted activities of the employees or management. 4 Recognition and
validation of wage increases given by employers either unilaterally or as a result of collective bargaining negotiations for the purpose of
correcting wage distortions are in keeping with the public policy of encouraging employers to grant wage and allowance increases to their
employees which are higher than the minimum rates of increases prescribed by statute or administrative regulation. 5 As this Court stated in Apex
Mining, Inc. v. NLRC: 6
To compel employers simply to add on legislated increases in salary or allowances without regard to what is already paid,
would be to penalize employers who grant their workers more than the statutorily prescribed minimum rates of increases.
Clearly, this would be counterproductive so far as securing the interest of labor is concerned.
Thus in Cardona v. NLRC, 7 it was held that there was no wage distortion where the employer made salary adjustments in terms of restructing of
benefits and allowances and there was an increase pursuant to the CBA.
There is thus, to use the language of the law, no "effective obliterat[ion of] the distinction embodied in [private respondent's] wage structure
based on skills, length of service, or other logical basis of differentiation" in this case. For it is undisputed that the difference in wages between
petitioners and the temporary employees is now even greater than it used to be prior to the grant of the P25.00/day increase to the latter pay
pursuant to Republic Act No. 6727.
Finally, whether or not a wage distortion exists by reason of the grant of a wage increase to certain employees is essentially a question of fact. In
this case, the findings of the Labor Arbiter, affirmed by the NLRC, that no wage distortion exists being based on substantial evidence, are entitled
to respect and finality. 8
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.
#Footnotes

1 Per Commissioner Leon G. Gonzaga, Jr., Commissioners Musib M. Buat and Oscar N. Bella, concurring.
2 Exhibit G, Rollo, p. 38.
3 Under Art. 124 of the Labor Code, as amended by Republic Act No. 6727, a "wage distortion" is defined as "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 differention."

G.R. No. 102636 September 10, 1993

METROPOLITAN BANK & TRUST COMPANY EMPLOYEES UNION-ALU-TUCP and ANTONIO V. BALINANG, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (2nd Division) and METROPOLITAN BANK and TRUST COMPANY,
respondents.

Gilbert P. Lorenzo for petitioners.

Marcial G. dela Fuente for private respondents.

VITUG, J.:

In this petition for certiorari, the Metropolitan Bank & Trust Company Employees Union-ALU-TUCP (MBTCEU) and its president, Antonio V.
Balinang, raise the issue of whether or not the implementation by the Metropolitan Bank and Trust Company of Republic Act No. 6727,
mandating an increase in pay of P25 per day for certain employees in the private sector, created a distortion that would require an adjustment
under said law in the wages of the latter's other various groups of employees.

On 25 May 1989, the bank entered into a collective bargaining agreement with the MBTCEU, granting a monthly P900 wage increase effective
01 January 1989, P600 wage increase 01 January 1990, and P200 wage increase effective 01 January 1991. The MBTCEU had also bargained for
the inclusion of probationary employees in the list of employees who would benefit from the first P900 increase but the bank had adamantly
refused to accede thereto. Consequently, only regular employees as of 01 January 1989 were given the increase to the exclusion of probationary
employees.

Barely a month later, or on 01 January 1989, Republic Act 6727, "an act to rationalize wage policy determination be establishing the mechanism
and proper standards thereof, . . . fixing new wage rates, providing wage incentives for industrial dispersal to the countryside, and for other
purposes," took effect. Its provisions, pertinent to this case, state:

Sec. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates of all workers and employees in the private
sector, whether agricultural or non-agricultural, shall be increased by twenty-five pesos (P25) per day, . . .: Provided, That
those already receiving above the minimum wage rates up to one hundred pesos(P100.00) shall also receive an increase of
twenty-five pesos (P25.00) per day, . . .

xxx xxx xxx

(d) If expressly provided for and agreed upon in the collective bargaining agreements, all increase in the daily basic wage
rates granted by the employers three (3) months before the effectivity of this Act shall be credited as compliance with the
increases in the wage rates prescribed herein, provided that, where such increases are less than the prescribed increases in
the wage rates under this Act, the employer shall pay the difference. Such increase shall not include anniversary wage
increases, merit wage increase and those resulting from the regularization or promotion of employees.

Where the application of the increases in the wage rates under this Section results in distortions as defined under existing
laws in the wage structure within an establishment and gives rise to a dispute therein, such dispute shall first be settled
voluntarily between the parties and in the event of a deadlock, the same shall be finally resolved through compulsory
arbitration by the regional branches of the National Labor Relations Commission (NLRC) having jurisdiction over the
workplace.

It shall be mandatory for the NLRC to conduct continous hearings and decide any dispute arising under this Section within
twenty (20) calendar days from the time said dispute is formally submitted to it for arbitration. The pendency of a dispute
arising from a wage distortion shall not in any way delay the applicability of the increase in the wage rates prescribed
under this Section.

Pursuant to the above provisions, the bank gave the P25 increase per day, or P750 a month, to its probationary employees and to those who had
been promoted to regular or permanent status before 01 July 1989 but whose daily rate was P100 and below. The bank refused to give the same
increase to its regular employees who were receiving more than P100 per day and recipients of the P900 CBA increase.

Contending that the bank's implementation of Republic Act 6727 resulted in the categorization of the employees into (a) the probationary
employees as of 30 June 1989 and regular employees receiving P100 or less a day who had been promoted to permanent or regular status before
01 July 1989, and (b) the regular employees as of 01 July 1989, whose pay was over P100 a day, and that, between the two groups, there emerged
a substantially reduced salary gap, the MBTCEU sought from the bank the correction of the alleged distortion in pay. In order to avert an
impeding strike, the bank petitioned the Secretary of Labor to assume jurisdiction over the case or to certify the same to the National Labor
Relations Commission (NLRC) under Article 263 (g) of the Labor Code. 1 The parties ultimately agreed to refer the issue for compulsory
arbitration to the NLRC.
The case was assigned to Labor Arbiter Eduardo J. Carpio. In his decision of 05 February 1991, the labor arbiter disregard with the bank's
contention that the increase in its implementation of Republic Act 6727 did not constitute a distortion because "only 143 employees or 6.8% of
the bank's population of a total of 2,108 regular employees" benefited. He stressed that "it is not necessary that a big number of wage earners
within a company be benefited by the mandatory increase before a wage distortion may be considered to have taken place," it being enough, he
said, that such increase "result(s) in the severe contraction of an intentional quantitative difference in wage between employee groups."

The labor arbiter concluded that since the "intentional quantitative difference" in wage or salary rates between and among groups of employees is
not based purely on skills or length of service but also on "other logical bases of differentiation, a P900.00 wage gap intentionally provided in a
collective bargaining agreement as a quantitative difference in wage between those who WERE regular employees as of January 1, 1989 and
those who WERE NOT as of that date, is definitely a logical basis of differentiation (that) deserves protection from any distorting statutory wage
increase." Otherwise, he added, "a minimum wage statute that seek to uplift the economic condition of labor would itself destroy the mechanism
of collective bargaining which, with perceived stability, has been labor's constitutional and regular source of wage increase for so long a time
now." Thus, since the "subjective quantitative difference" between wage rates had been reduced from P900.00 to barely P150.00, correction of
the wage distortion pursuant to Section 4(c) of the Rules Implementing Republic Act 6727 should be made.

The labor arbiter disposed of the case, thus:

WHEREFORE, premises considered, the respondent is hereby directed to restore to complainants and their members the
Nine Hundred (P900.00) Pesos CBA wage gap they used to enjoy over non-regular employees as of January 1, 1989 by
granting them a Seven Hundred Fifty (P750.00) Pesos monthly increase effective July 1, 1989.

SO ORDERED. 2

The bank appealed to the NLRC. On 31 May 1991, the NLRC Second Division, by a vote of 2 to 1, reversed the decision of the Labor Arbiter.
Speaking, through Commissioners Rustico L. Diokno and Domingo H. Zapanta, the NLRC said:

. . . a wage distortion can arise only in a situation where the salary structure is characterized by intentional quantitative
differences among employee groups determined or fixed on the basis of skills, length of service, or other logical basis of
differentiation and such differences or distinction are obliterated (In Re: Labor Dispute at the Bank of the Philippine
Islands, NCMB-RB-7-11-096-89, Secretary of Labor and Employment, February 18, 1991).

As applied in this case, We noted that in the new wage salary structure, the wage gaps between Level 6 and 7 levels 5 and
6, and levels 6 and 7 (sic) were maintained. While there is a noticeable decrease in the wage gap between levels 2 and 3,
Levels 3 and 4, and Levels 4 and 5, the reduction in the wage gaps between said levels is not significant as to obliterate or
result in severe contraction of the intentional quantitative differences in salary rates between the employees groups. For this
reason, the basis requirement for a wage in this case. Moreover, there is nothing in the law which would justify an across-
the-board adjustment of P750.00 as ordered by the labor Arbiter.

WHEREFORE, premises considered, the appealed decision is hereby set aside and a new judgment is hereby entered,
dismissing the complaint for lack of merit.

SO ORDERED. 3

In her dissent, Presiding Commissioner Edna Bonto-Perez opined:

There may not be an obliteration nor elimination of said quantitative distinction/difference aforecited but clearly there is a
contraction. Would such contraction be severe as to warrant the necessary correction sanctioned by the law in point, RA
6727? It is may considered view that the quantitative intended distinction in pay between the two groups of workers in
respondent company was contracted by more than fifty (50%) per cent or in particular by more or less eighty-three (83%)
per cent hence, there is no doubt that there is an evident severe contraction resulting in the complained of wage distortion.

Nonetheless, the award of P750.00 per month to all of herein individual complainants as ordered by the Labor Arbiter
below, to my mind is not the most equitable remedy at bar, for the same would be an across the board increase which is not
the intention of RA 6727. For that matter, herein complainants cannot by right claim for the whole amount of P750.00 a
month or P25.00 per day granted to the workers covered by the said law in the sense that they are not covered by the said
increase mandated by RA 6727. They are only entitled to the relief granted by said law by way of correction of the pay
scale in case of distortion in wages by reason thereof.

Hence, the formula offered and incorporated in Wage Order No. IV-02 issued on 21 May 1991 by the Regional Tripartite
Wages and Productivity Commission for correction of pay scale structures in case of wage distortion as in the case at bar
which is:

Minimum Wage = % x Prescribed = Distortion

 —————— Increased Adjustment
Actual Salary

would be the most equitable and fair under the circumstances obtaining in this case.

For this very reason, I register my dissent from the majority opinion and opt for the modification of the Labor Arbiter's
decision as afore-discussed. 4

The MBTCEU filed a motion for reconsideration of the decision of the NLRC; having been denied, the MBTCEU and its president filed the
instant petition for certiorari, charging the NLRC with gave abuse of discretion by its refusal (a) "to acknowledge the existence of a wage
distortion in the wage or salary rates between and among the employee groups of the respondent bank as a result of the bank's partial
implementation" of Republic Act 6727 and (b) to give due course to its claim for an across-the-board P25 increase under Republic Act No. 6727.
5

We agree with the Solicitor General that the petition is impressed with merit. 6

The term "wage distortion", under the Rules Implementing Republic Act 6727, is defined, thus:

(p) Wage Distortion means a situation where an increase in prescribed wage rates results in the elimination or severe
contradiction 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.

The issue of whether or not a wage distortion exists as a consequence of the grant of a wage increase to certain employees, we agree, is, by and
large, a question of fact the determination of which is the statutory function of the NLRC. 7 Judicial review of labor cases, we may add, does not
go beyond the evaluation of the sufficiency of the evidence upon which the labor official's findings rest. 8 As such, factual findings of the NLRC
are generally accorded not only respect but also finality provided that its decision are supported by substantial evidence and devoid of any taint of
unfairness of arbitrariness. 9 When, however, the members of the same labor tribunal are not in accord on those aspects of a case, as in this case,
this Court is well cautioned not to be as so conscious in passing upon the sufficiency of the evidence, let alone the conclusions derived therefrom.

In this case, the majority of the members of the NLRC, as well as its dissenting member, agree that there is a wage distortion arising from the
bank's implementation of the P25 wage increase; they do differ, however, on the extent of the distortion that can warrant the adoption of
corrective measures required by law.

The definition of "wage distortion," 10 aforequoted, shows that such distortion can so exist when, as a result of an increase in the prescribed wage
rate, an "elimination or severe contraction of intentional quantitative differences in wage or salary rates" would occur "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 mandating an adjustment, the law did not require that there be an elimination or total
abrogation of quantitative wage or salary differences; a severe contraction thereof is enough. As has been aptly observed by Presiding
Commissioner Edna Bonto-Perez in her dissenting opinion, the contraction between personnel groupings comes close to eighty-three (83%),
which cannot, by any stretch of imagination, be considered less than severe.

The "intentional quantitative differences" in wage among employees of the bank has been set by the CBA to about P900 per month as of 01
January 1989. It is intentional as it has been arrived at through the collective bargaining process to which the parties are thereby concluded. 11 The
Solicitor General, in recommending the grant of due course to the petition, has correctly emphasized that the intention of the parties, whether the
benefits under a collective bargaining agreement should be equated with those granted by law or not, unless there are compelling reasons
otherwise, must prevail and be given effect. 12

In keeping then with the intendment of the law and the agreement of the parties themselves, along with the often repeated rule that all doubts in
the interpretation and implementation of labor laws should be resolved in favor of labor, 13 we must approximate an acceptable quantitative
difference between and among the CBA agreed work levels. We, however, do not subscribe to the labor arbiter's exacting prescription in
correcting the wage distortion. Like the majority of the members of the NLRC, we are also of the view that giving the employees an across-the-
board increase of P750 may not be conducive to the policy of encouraging "employers to grant wage and allowance increases to their employees
higher than the minimum rates of increases prescribed by statute or administrative regulation," particularly in this case where both Republic Act
6727 and the CBA allow a credit for voluntary compliance. As the Court, through Associate Justice Florentino Feliciano, also pointed out in Apex
Mining Company, Inc. v. NLRC: 14

. . . . (T)o compel employers simply to add on legislated increases in salaries or allowances without regard to what is
already being paid, would be to penalize employers who grant their workers more than the statutorily prescribed minimum
rates of increases. Clearly, this would be counter-productive so far as securing the interests of labor is concerned. . . .
We find the formula suggested then by Commissioner Bonto-Perez, which has also been the standard considered by the regional Tripartite Wages
and Productivity Commission for the correction of pay scale structures in cases of wage distortion, 15 to well be the appropriate measure to
balance the respective contentions of the parties in this instance. We also view it as being just and equitable.

WHEREFORE, finding merit in the instant petition for certiorari, the same is GRANTED DUE PROCESS, the questioned NLRC decision is
hereby SET ASIDE and the decision of the labor arbiter is REINSTATED subject to the MODIFICATION that the wage distortion in question be
corrected in accordance with the formula expressed in the dissenting opinion of Presiding Commissioner Edna Bonto-Perez. This decision is
immediately executory.

SO ORDERED.

Bidin, Romero and Melo, JJ., concur.

Feliciano, J., is on leave.

# Footnotes

1 This provision states:

(g) When, in his opinion, there exists a labor dispute causing or likely to cause a strike or lockout in an industry
indispensable to the national interests, the Secretary of Labor and Employment may assume jurisdiction over the dispute
and decide it or certify the same to the Commission for compulsory arbitration. Such assumption or certification shall have
the effect of automatically enjoining the intended or impending strike or lockout as specified in the assumption or
certification order. . . .

MANILA MANDARIN EMPLOYEES UNION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, Second Division, and the
MANILA MANDARIN HOTEL, respondents.

DECISION

NARVASA, C.J.:

The petitioner in this special civil action of certiorari seeks nullification of the September 11, 1992 Decision of the Second Division of the
National Labor Relations Commission reversing the judgment of the Labor Arbiter in NLRC NCR Case No. 10-4336-86 and dismissing the case
for lack of merit, as well as of the Commissions November 24, 1992 Resolution denying reconsideration of said decision.

On October 30, 1986, the Manila Mandarin Employees Union (hereafter UNION), as exclusive bargaining agent of the rank-and-file employees
of the Manila Mandarin Hotel, Inc. (hereafter MANDARIN), filed with the NLRC Arbitration Branch a complaint in its members behalf to
compel MANDARIN to pay the salary differentials of the individual employees concerned because of wage distortions in their salary structure
allegedly created by the upward revisions of the minimum wage pursuant to various Presidential Decrees and Wage Orders, and the failure of
MANDARIN to implement the corresponding increases in the basic salary rate of newly-hired employees.

The relevant Presidential Decrees and Wage Orders were specified by the UNION as follows:

a. PD 1389, amending PD 928, mandating an increase in the statutory minimum wage by P3.00 spread out over a period of three
years, as follows: P1.00 starting July 1, 1978; P1.00 starting May 1, 1979; and P1.00 starting May 1, 1980.

b. PD 1614, providing that workers covered by PD 1389, whether agricultural or non-agricultural, should receive an increase of
P2.00 in their statutory minimum wage effective April 1, 1979, the same representing an acceleration of the remaining increases
under PD 1389; and that all non-agricultural workers in Metro Manila shall receive a minimum wage of P12.00;

c. PD 1713, issued on august 18, 1980 providing an increase in the minimum daily wage rates and for additional allowance;
increasing the minimum daily wage rates by P1.00 and providing that all private employers shall pay their employees with wages or
salaries not exceeding P1,500.00 a month, an additional mandatory living allowance of P60.00 a month for non-agricultural
workers, P45.00 for plantation workers and P30.00 a month for agricultural non-plantation workers;

d. PD 1751, issued on December 14, 1980, increasing the statutory daily minimum wages by integrating the P4.00 mandatory
allowance under PD 525 and PD 1123 into the basic pay of all covered workers;
 e. Wage Order No. 1, issued on March 26, 1981, increasing the mandatory emergency living allowance of all workers with salaries
or wages of P1,500.00 a month by P2.00 a day for non-agricultural workers, P1.50 a day for agricultural plantation workers, P1.00 a
day for agricultural non-plantation workers, effective March 22, 1981;

f. Wage Order No. 2 issued on July 6, 1983 increasing the mandatory basic minimum wage and living allowance for non-
agricultural and agricultural workers in the following manner:

1) For non-agricultural employees, receiving not more than P1,800.00 monthly, P1.00 a day as minimum wage and
P1.50 a day as cost of living allowance;

2) For plantation agricultural employees, P1.00 a day as minimum wage and P0.50 a day as cost of living allowance
subject to the same salary ceiling provided in the immediately preceding section; and

3) For non-plantation agricultural employees, P1.00 a day as minimum wage; and

also, providing that effective October 1, 1983, the living allowances rates as adjusted in the preceding section shall be further
increased subject to the same salary ceiling, for non-agricultural employees, by P1.00.

g. Wage Order No. 3 issued November 7, 1983 increasing the statutory minimum wage rates for workers in the private sector by
P1.00 per day effective November 1, 1983, and also increasing the statutory wage rates by P1.00 per day, effective December 1,
1983;

h. Wage Order No. 4 issued on May 1, 1984 increasing the statutory daily minimum wages, after integrating the mandatory living
allowance under PDs 1614, 1634, 1678 and 1713 into the basic pay of all covered employees, effective May 1, 1984; -- after the
integration, the minimum daily wage rate was increased by P11.00 for non-agricultural workers.

i. Wage Order No. 5 issued on June 11, 1984 increasing the statutory daily minimum wage rates and living allowances of workers in
the private sector by P3.00 effective June 16, 1984 -- the minimum daily wage rates became P35.00 for Metro Manila and P34.00
for outside Metro Manila; and

j. Wage Order No. 6, effective November 1, 1984, increasing the statutory minimum wage rate by P2.00 per day.

On January 15, 1987, the UNION filed its Position Paper amplifying the allegations of its complaint and setting forth the legal bases of its
demands against MANDARIN; and on March 25, 1987, it filed an Amended Complaint presenting an additional claim for payment of salary
differentials to the union members affected, allegedly resulting from underpayment of wages.

The Labor Arbiter eventually ruled in favor of the UNION, holding that there were in fact wage distortions entitling its members to salary
adjustments totalling P26,173,601.25 -- for 541 employees -- as well as underpayments amounting to P1,978,296.18 -- 182 employees. The
dispositive portion of his decision reads:i[1]

WHEREFORE, judgment is hereby rendered ordering the respondent Hotel to pay the individual complainants who are members of
the respondent Union whose names appear on the respective computations embodied in this Decision, the aggregate amount of
P26,173,601.25 representing their salary adjustments by way of correcting the wage distortions in their respective salary structure,
for the period from October 30, 1983 up to October 31, 1990, and continuously thereafter to pay the corresponding amounts due
them as such salary adjustments until the same are properly and finally restored in their basic monthly rates; to pay the aggregate
amount of P1,978,296.18 representing their salary differentials resulting from underpayment of wages in violation of the minimum
wage laws, Presidential Decrees and Wage Orders for the period from March 25, 1984 up to October 31, 1990, and continuously
thereafter to pay the corresponding amounts due them as such salary differentials until the same are properly and finally restored
into their basic monthly rates.

Likewise, the respondent Hotel is ordered to pay an amount equivalent to ten percent (10%) of the total awards granted to individual
complainants, by way of and as attorneys fees.

On appeal, the Second Division of respondent Commission (composed of Commissioner Domingo H. Zapanta, ponente, and Presiding
Commissioner Edna Bonto-Perez) rendered the dispositions already referred to and now assailed -- setting aside the Labor Arbiters judgment and
dismissing the UNIONs complainant, and later denying the UNIONs motion for reconsideration.ii[2]

The principal issues raised in this Court are: (1) Whether or not the NLRC had jurisdiction to take cognizance of MANDARINS appeal from the
Labor Arbiters decision; and (2) if so, whether or not it gravely abused its discretion in setting aside the Labor Arbiters judgment and dismissing
the UNIONS complaint.

The issue of jurisdiction is grounded on the posited tardiness of private respondents appeal from the Labor Arbiters judgment to the NLRC, and
fatal defect in their supersedeas bond.
The UNION contendsiii[3] that the records indubitably show that MANDARIN received on January 22, 1991 its copy of the Labor Arbiters
Decision (of January 15, 1991), but filed its appeal and paid the appeal fee only on February 4, 1991, three (3) days beyond the reglementary ten-
day period for doing so. It also condemns as anomalous the certification of Deputy Executive Clerk Gaudencio P. Demaisip, Jr., NLRC, to the
effect that MANDARINs lawyer had approached Hon. Domingo H. Zapanta, a member of the Second Division, NLRC, for assistance to have the
appeal including the appeal fee in said case duly received and acknowledged on February 1, 1991, at 4:40 P.M; and claims that the anomally was
aggravated when it was Commissioner Zapanta who wrote the Decision for the Second Divisioniv[4]-- reversing the Labor Arbiters judgment, as
aforesaid -- despite the UNIONS motion for his disqualification and/or inhibition. The UNION finally argues that MANDARINS appeal was not
only tardy but also fatally flawed in that its supersedeas bond had been issued by a surety company -- Plaridel Surety & Insurance Company --
which had pending obligations and liabilities at the time, the Insurance Commissioner having in fact issued a Cease-and-Desist Order against said
company for issuing bonds of no little magnitude without authority; and that moreover, the replacement bond of the Commonwealth Insurance
Company -- subsequently filed by order of the NLRC -- was just as defective because the latter company had an authorized maximum net
retention level in the amount of only P686,582.80, way below the monetary award subject of MANDARINS appeal to the Commission.

The Court rules that respondent Commission acted correctly in accepting and acting on MANDARINs appeal. The circumstances attendant upon
the filing of the appeal and supersedeas bond are clearly set forth in the Certification of Deputy Executive Clerk Demaisip, Jr.v[5] above
mentioned, viz.:

This is to certify that when Atty. Godofredo Labay filed the appeal in NLRC NCR Case No. 10-4335-86 entitled Manila Mandarin
Employees Union vs. Manila Mandarin on Friday, February 1, 1991, the Cashier and the Docket Section, NCR, were not around,
that no one would receive the pleadings and the appeal fee. He therefore approached Commissioner Domingo H. Zapanta for
assistance and to have the appeal including the appeal bond in said case duly received on February 1, 1991 at 4:50 p.m.

with respect to the appeal fee, since no one was authorized to act as substitute for the Cashier of the NCR for purposes of receiving
the appeal fee and issuing a temporary receipt and/or official receipt therefor, Commissioner Zapanta requested Atty. Gaudencio P.
Demaisip, Jr. to receive said pleadings and allowed Atty. Labay to pay the appeal fee on Monday, February 4, 1991.

This certification is issued upon request of Atty. Labay for whatever purpose it may serve him.

(SGD.) GAUDENCIO P. DEMAISIP, JR.

Deputy Executive Clerk

Second Division

MANDARIN cannot be faulted for paying the appeal fee only on February 4, 1991. The fact is that on February 1, 1991, its lawyer was in the
NLRC premises, ready to pay said fee, but was unable to do so because the NLRC Cashier or any other employee authorized to receive payment
in his stead, was no longer around. This is why Commissioner Zapanta allowed payment of the appeal fee to be made on the next business day, as
in fact the appeal fee was paid on, February 4, 1991. This Court has ruled that the failure to pay the appeal docketing fee within the reglementary
period confers a directory, not mandatory, power to dismiss an appeal, to be exercised with circumspection in light of all the relevant facts.vi[6]
In view of these considerations, and the meritoriousness of MANDARINs appeal -- as later pronounced by respondent NLRC -- the interest of
justice was quite evidently served when MANDARINs appeal was given due course despite delayed payment of the docketing fee.

The contention concerning MANDARINs ostensibly defective appeal bond, issued by Plaridel Surety and Insurance Company, deserves short
shrift, too. The issuance of the bond antedated this Courts resolution of January 15, 1992 -- to which the attention of respondent NLRC had been
invited by the UNION -- declaring said surety company to be of doubtful solvency. More important, the issue was mooted when MANDARIN
posted a new surety bond, through Commonwealth Insurance Company, in compliance with the Order of the respondent Commission dated
December 10, 1991. The UNIONs contention that this new bond was equally defective because the bonding company had an authorized
maximum net retention level lower than the sum of P30,967,087.17 involved in this dispute, is inconsequential, the new bonding company being
duly accredited by this Court and licensed by the Insurance Commission.

At any rate, this Court has invariably ruled that Article 223 of the Labor Code, requiring a bond in appeals involving monetary awards, must be
liberally construed, in line with the desired objective of resolving controversies on their merits.vii[7] The circumstance under which the bond was
filed in this case adequately justify such liberal application of the provision.

As to the alleged partiality of Commissioner Domingo Zapanta, the Court finds that his intervention on February 1, 1991 in the matter of payment
of the appeal docketing fee did not, in the circumstances already related, constitute impropriety or pre-judgment of the case and a ground for his
disqualification as a member of the Second Division to which the case was thereafter raffled. Significantly, in its motion to inhibit, the UNION
mentioned that the case was assigned particularly to the late Commissioner Rustico Diokno ** (but) that upon the latters demise, the case was
reassigned to Commissioner Domingo Zapanta as the new ponente.viii[8] As Commissioner Zapanta had always been a member of the Second
Division, the UNIONs motion for his inhibition, filed more than a year after the occurrence of the incident on which it was based, becomes
suspect as a mere afterthought. In any case, Commissioner Zapanta did inhibit himself from taking part in the resolution of the UNIONS motion
for reconsideration of the assailed decision of September 11, 1992, thus dispelling what doubts might linger about his impartiality.

Coming now to the issue of wage distortion, prior to the effectivity on June 9, 1989 of Republic Act No. 6727 which, among others, amended
Article 124 (Standards/Criteria for Minimum Wage Fixing) of the Labor Code, the concept to wage distortion was relatively obscure. So it was
observed by this Court in National Federation of Labor vs. NLRC,ix[9] a case involving the same subject Wage Orders:
 We note that neither the Wage Orders noted above, nor the Implementing Rules promulgated by the Department of Labor and
Employment, set forth a clear and specific notion of wage distortion. What the Wage Orders and the Implementing Rules did was
simply to recognize that implementation of the Wage Orders could result in a distortion of the wage structure of an employer, and to
direct the employer and the union to negotiate with each other to correct the distortion. Thus, Section 6 of Wage Order No. 3, dated
7 November 1983, provided as follows:

Section 6. Where the application of the minimum wage rate prescribed herein results in distortions of the wage structure
of 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 of through
conciliation.

In case where there is no collective bargaining agreement or recognized labor organization, the employer shall endeavor
to correct such distortions in consultation with their workers. Any dispute arising from wage distortions shall be
resolved through conciliation by the appropriate Regional Office of the Ministry of Labor and Employment or through
arbitration by the NLRC Arbitration Branch having jurisdiction over the work-place. (Underscoring supplied)

It is therefore opportune to re-state the general principles enunciated in that case, summarized in Metro Transit Organization, Inc. vs. NLRC, et
al.x[10] as follows:

(a) The concept of wage distortion assumes an existing grouping or classification of employees which establishes distinctions
among such employees on some relevant or legitimate basis. This classification is reflected in a differing wage rate for each of the
existing classes of employees.

(b) Wage distortions have often been the result of government-decreed increases in minimum wages. There are, however, other
causes of wage distortions, like the merger of two (2) companies (with differing classification of employees and different wage
rates) where the surviving company absorbs all the employees of the dissolved corporation. (In the present Metro case, as already
noted, the wage distortion arose because the effectivity dates of wage increases given to each of the two (2) classes of employees
(rank-in-file and supervisory) had not been synchronized in their respective CBAs.)

(c) Should a wage distortion exist, there is no legal requirement that, in the rectification of that distortion by re-adjustment of the
wage rates of the differing classes of employees, the gap which had previously or historically existed be restored in precisely the
same amount. In other words, correction of a wage distortion may be done by re-establishing a substantial or significant gap (as
distinguished from the historical gap) between the wage rates of the differing classes of employees.

(d) The re-establishment of a significant difference in wage rates may be the result of resort to grievance procedures or collective
bargaining negotiations.

It was only on June 9, 1989, upon the enactment of R.A. No. 6727 (Wage Rationalization Act, amending, among others, Article 124 of the Labor
Code),xi[11] that the term wage distortion came to be explicitly defined as:

** 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.

The same provision lays down the procedure to be followed where wage distortion arises from the implementation of a wage increase prescribed
by law or ordered by a Regional Wage Board, viz.:

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 the 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 arbitrator or panel of 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 pusurant to the provisions of law or Wage Order.

The issue of whether or not a wage distortion exists as a consequence of the grant of a wage increase to certain employees, is a question of
fact;xii[12] and as a rule, factual findings in labor cases, where grounded on substantial evidence, are not reviewed.xiii[13] However, a
disharmony such as exists here, between the factual findings of the Labor Arbiter and those of the NLRC, opens the door to a review thereof by
this Court.xiv[14]

The Labor Arbiter ruled that a wage distortion existed, and that the only and logical way to correct ** (it) in the salary structure of the employees
of respondent Hotel is to apply the corresponding increase made by way of revising upward the minimum wage or integration of the ECOLA into
the basic wage as embodied in the various Presidential Decrees and Wage Orders, across-the-board, so that employees whose salaries are above
the minimum set by law who have already been long in the service will not be discriminated against.xv[15]

On the other hand, respondent Commission declared in its decisionxvi[16] that there was no wage distortion arising from the implementation of
said Presidential Decrees and Wage Orders such as warranted across-the-board increases to all employees:

On the issue of wage distortion, we have examined the various presidential decrees and wage orders referred to by the complainant
and in the Labor Arbiters decision and we found nothing therein that would justify the award of across-the-board increases to all
employees. The apparent intention of the law is only to upgrade the salaries or wages of the employees receiving lower than the
minimum daily wage set therein. For example, Section 1 of Wage Order No. 6 provides that effective November 1, 1984, the
statutory minimum daily wage rates workers in the private sector shall be increased by P2.00. Also, Section 1 of Presidential Decree
1389 provides that Presidential Decree 928 is hereby amended by increasing all existing statutory minimum wages in the country by
Three Pesos (P3.00) spread equally over a period of three years, as follows: 1)One Peso (P1.00) starting July 1, 1978; 2)One
Peso(P1.00) starting May 1, 1979; and One Peso (P1.00) starting May 1, 1980. Thus, it is clear that the presidential decrees and
wage orders merely provide for a floor wage to be observed by the employers in the private sector.

It indeed appears that the clear mandate of those issuances was merely to increase the prevailing minimum wages of particular employee groups.
There were no across-the-board increases to all employees; increases were required only as regards those specified therein.xvii[17] It was
therefore incorrect for the UNION to claim that all its members became automatically entitled to across-the-board increases upon the effectivity
of the Decrees and Wage Orders in question. And even if there were wage distortions, which is not the case here, the appropriate remedy
thereunder prescribed is for the employer and the union to negotiate to correct them; or, if the dispute be not thereby resolved, to thresh out the
controversy through the grievance procedure in the collective bargaining agreement, or through conciliation or arbitration.

A review of the records convinces this Court that respondent NLRC committed no grave abuse of discretion in holding that no wage distortion
was demonstrated by the UNION. It was, to be sure, incumbent on the UNION to prove by substantial evidence its assertion of the existence of a
wage distortion. This it failed to do. It presented no such evidence to establish, as required by the law, what, if any, were the designed quantitative
differences in wage or salary rates between employee groups, and if there were any severe contractions or elimination of these quantitative
differences.

The UNIONs effort to prove wage distortion consisted only of the presentation of an unverified list of thirteen (13) employees denominated a
Sample Comparison of Salary Rates Affected by Wage Distortion,xviii[18] viz.:

SAMPLE COMPARISON OF SALARY RATES OF COMPLAINANTS

AFFECTED BY WAGE DISTORTION

F & B DEPT.

Name Position Date Hired Basic Rate

(12/30/85)

1. Pablo Trinidad -- Waiter -- 9/1/78 P1,300

2. Eduardo Vito -- Waiter -- 10/16/80 P1,375

3. Camilo Sanchez -- Busboy -- 8/1/83 P 954

4. Renato Solomon -- Busboy -- 7/19/84 P1,096

5. Buenconsejo Monico -- Busboy -- 4/15/85 P 968

HOUSEKEEPING DEPT.

1. Ruben A. Rillo -- Linen Uniform Att. -- 6/19/76 P 984

2. Hubert Malolot -- Linen Uniform Att. -- 1/16/80 P1,238

3. Aurella Kilat -- Linen Uniform Att. -- 5/2/79 P1,272

 4. Rogelio Molaco -- Cloakroom Attn. -- 9/1/80 P 946

5. David Pineda -- Cloakroom Attn. -- 9/14/81 P1,194

6. Nemesio Matro -- Houseman Attn. -- 6/10/76 P1,142

7. Domgo Sabando -- Houseman Attn. -- 3/8/82 P1,194

8. Renato Guina -- Houseman Attn. -- 8/24/81 P1,194

SUBMITTED:

(SGD.) ATTY. R. E. ESPINOSA

9/17/87.

The UNIONs Internal Vice-President, Arnulfo Castro, deposed that the employees named in this list were the more or less (13) persons found to
have suffered wage distortion,xix[19] and the UNION pointed out that while these thirteen employees occupied similar positions, they were
receiving different rates of salary.

Respondent Commission however found that as explained by respondents, such disparity was due simply to the fact that the employees
mentioned had been hired on different dates and were thus receiving different salaries; or that an employee was hired initially at a position level
carrying a hiring rate than the others; or that an employee failed to meet the cut-off date in the grant of yearly CBA increase; or that the union did
not get the correct data on salaries. The Commission accepted as more accurate the data presented by MANDARIN respecting the same
employees, to wit:xx[20]

ANNEX2

F & B Dept.

NAME Position Date Hired Basic Rate

per Hotel Records as of 12/30/85

1. Pablo Trinidad Waiter 09/01/78 P1,302.00*

2. Eduardo Vito Waiter 10/16/80 1,375.00*

3. Camilo Sanchez Busboy 08/01/83 1,194.00

4. Renato Solomon Busboy 07/19/84 1,096.00

5. Buenconsejo Monico Busboy 14/15/85 968.00

Housekeeping Dept.

1. Ruben A. Rillo Linen Uniform Att. 06/19/76 1,417.00

2. Hubert Malolot Linen Uniform Att. 01/16/80 1.238.00

3. Aurella Kilat Linen Uniform Att. 05/02/79 1,272.00

4. Rogelio Molaco Cloakroom Attn. 09/01/80 1,272.00

5. David Pineda Cloakroom Attn. 09/14/81 1,213.00

6. Nemesio Matro Houseman Attn. 06/10/77 1,342.00

7. Domingo Sabando Houseman Attn. 03/08/82 1,194.00

8. Renato Guina Houseman Attn. 08/24/81 1,194.00

* Vito was hired at a higher position with a higher hiring rate than that given to Trinidad, i.e. Vito was hired at P366/mo. While Trinidad at
P301/mo. Prior to hiring, Vito already worked as a waiter at the Metropolitan Club.

The Court agrees that the claimed wage distortion was actually a result of the UNIONS failure to appreciate various circumstances relating to the
employment of the thirteen employees. For instance, while some of these employees mentioned by UNION Vice-President Arnulfo Castro
occupied the same or similar positions, they were hired by the Hotel on different dates and at different salaries. As explained in part by
MANDARIN:

With respect to the case of Pablo Trinidad and Eduardo Vito, while they were both occupying the position of waiter in 1987, with
monthly salaries of P2,044.00 and P2,217.00, respectively, a comparative study of the records of these employees shows one of
them was initially hired at a higher position level which naturally carried a higher hiring rate. Trinidad was originally hired in 1978
as a mere Houseman at the Banquet Department with a basic starting rate of P301.00 a month. On the other hand, Vito was
originally hired in 1980 already a Busboy at the Food and Beverage Department with a starting salary of P366.00 a month. Before
he was hired at the Mandarin Hotel, Vito had already been working as Waiter at the Metropolitan Club. Rrecords also show that it
was only after some time that Trinidad was promoted to Busboy but still with the smaller Banquet Department. The headway in rate
was carried by Vito although at some point in their careers, these two employees achieved the same position as Waiter. Not long
after, Vito was promoted to Captain Waiter while Trinidad remained Waiter. There is therefore no reason to compare the
remuneration of these two employees as the circumstances attendant to their employment are different.xxi[21]

Respondent Commission correctly concluded that these did not represent cases of wage distortion contemplated by the law (Article 124, Labor
Code, as amended), i.e., 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 employees groups in an establishment as to effectively obliterate the
distinctions embodied in such wage structure based on skills, length of service, or other logical basis of differentation.

Moreover, even assuming arguendo that there was really a wage distortion, it was wrong for the Labor Arbiter, after first acknowledging that
some of the money claims had prescribed under Article 291 of the Labor Code,xxii[22] to nevertheless order the computation of salary
differentials retroactive to the effective dates of PDs 1389,1614,1713, 1751 and Wage Orders Nos. 2,3,4,5,and 6: in 1978, 1979, 1980, 1980, July
1983, November 1983, May 1984, June 1981 and November 1984, respectively. Clearly, five of these Decrees and Wage Orders took effect after
the lapse of the three-year prescriptive period for litigating claims for wage distortion differentials, the original complaint for wage distortion
having been filed on October 30, 1986 and the amended complaint for underpayment of wages, on March 25, 1987. Consequently, the applicable
cut-off dates, for purposes of prescription, were October 30, 1983 and March 25, 1984, respectively.

Finally, the records show that the matter of wage distortion, actual or imputed under the various issuances up to Wage Order No. 6, had been
settled by the parties as early as July 30, 1985. On that day they executed a Compromise Agreement with the assistance of the then Regional
Director of the National Capital Region, Severo M. Pucan in which they affirmed that with the implementation by MANDARIN of Wage Order
Nos. 4 and 6 as well as P.D. 1634, the latter was deemed for all legal and purposes to have fully satisfied all its legal and contractual obligations
to its employees under all presidential issuances on wages,xxiii[23]

The Compromise Agreement pertinently states:

1. That the respondent shall implement Wage Order No. 6 effective July 1, 1985, without prejudice to the outcome of the
application for exemption as distressed employer filed by said respodent with the National Wage Council as regards benefits that
might be due between November 1, 1985 and June 30, inclusive;

2. The the respondent shall also implement effective August 1, 1985 the integration of the P90.00 a month cost of living allowance
under P.D. 1634 into the basic wages of its employees as called for under Wage Order No. 4 in accordance with the Guidelines
contained in the Explanatory Bulletin issued by the Bureau of Working Conditions on August 8, 1985;

3. That as soon as the respondent shall have complied with the above terms of this Compromise Agreement, said respondent shall
be deemed for all legal intents and puposes to have fully satisfied all the legal and contractual obligations to its employees under all
presidential issuances on wages, including Wage Orders No. 4 and 6, and Article XI of the collective bargaining agreement,

The Labor Code recognizes the conclusiveness of compromises as a means to settle and end labor disputes. Article 227 provides that (a)ny
compromise settlement, including those involving labor standard laws, voluntary agreed upon by the parties with the assistance of the Bureau or
the regional office of the Department of Labor, shall be final and binding upon the parties. The National Labor Relations Commission or any
court shall not assume jurisdiction over issues involved therein except in case of non-compliance thereof or if there is prima facie evidence that
the settlement was obtained through fraud, misrepresentation or coercion. In Olaybar vs. NLRC,xxiv[24] this Court had occasion, in a labor
dispute, to apply the rule that compromises and settlements have the effect and conclusiveness of res judicata upon the parties.

Thus, and again assuming arguendo the existence of a wage distortion, this was corrected under the fully implemented Compromise
Agreement;xxv[25] and such correction having been explicitly acknowledge by the UNION, it is now estopped from claiming that a distortion
still subsists. In the same manner, when the UNION entered into a new collective agreement with MANDARIN, providing for wage increases in
1987, it is deemed to have thereby settled any remaining question of wage distortion, since the subject of wages and wage distortions were plainly
and unavoidably an economic issue and the proper subject of collective bargaining.xxvi[26]

Neither did respondent Commission gravely abuse its discretion in ruling against the UNION on the issue of underpayment of wages.
The UNIONs theory was that since the employees of MANDARIN are paid on a monthly basis under the Group III category, the applicable
increase in daily wage must be multiplied by 365 and then divided by 12 to determine the equivalent monthly rate. MANDARINs position, on the
other hand, was that it had consistently been using the multiplier 313, and not 365, for the purpose of deriving salary related benefits of its
employees who are paid by the month, excluding from 365, the 52 unpaid rest days in a year. This appears to have been the consistent practice of
MANDARIN, following the formula for daily paid employees under Group II category as prepared by the Bureau of Labor Standards:xxvii[27]

AR x 313 days = EMR

____________

12

Where: 313 days = 303 actual working days a year

plus the paid 10 unworked regular

holidays.

Actual working days . 303

10 legal holidays 10

_____

Total No. of Days 313.

MANDARIN presented evidence of its practice regarding the use of the factor 313 in computing the monthly equivalent of the minimum daily
wages and other related benefits of its employees; i.e., Annexes 3 and 4 of its Supplemental Appeal dated November 12, 1991. This was
corroborated by the UNIONs Internal Vice President, Arnulfo Castro, who admitted during cross-examination that in his research and study, he
found that the divisor used in arriving at the daily rate of the hotel employees was 313 days, which meant that the days-off or rest days are not
paid.xxviii[28] The admission confirms that the hotel employees pertain to Group II category under the Bureau of Labor Standards Guidelines for
computing the equivalent monthly minimum wage rates.xxix[29] Thus, instead of multiplying the applicable minimum daily wage by 365 and
dividing the result by 12 to derive the applicable minimum monthly salary, the factor used is 313, composed of 303 actual working days and the
10 unworked but paid regular holidays in a year.

In his explanatory Bulletin on the payment of Holiday Pay -- Ref. No. 85-08 dated 6 November 1985 -- then Secretary Augusto Sanchez of the
Department of Labor and Employment, expatiating on the implications of the Chartered Bank case,xxx[30] stated:

6. Monthly Paid Employees

Oftentime confusion arises from the different interpretations as to who is a monthly-paid employee. A monthly-paid employee is
one whose monthly salary includes payments for everyday of the month although he does not regularly work on his rest days or
Sundays and on regular and special holidays. Group III in the above illustration covers monthly paid employees. Employees falling
under Group I, II and IV are in reality daily paid employees but whose daily rate is translated into its monthly equivalent. The fact,
therefore, that an employee is regularly paid a fixed monthly rate does not necessarily mean that he is a monthly-paid employee as
defined above. (Italics supplied)

As applied to the UNION, the monthly equivalent of the minimum wage under the various Presidential Decrees and Wage Orders based on the
above formula should be as follows:

PD/WO NO. Effectivity Minimum Daily Equivalent

Wage Rate Monthly Rate

PD 1389 01 July 1978 P 11.00 P 286.96

PD 1614 1 March 1979 13.00 339.00

PD 1813 18 Aug. 1980 14.00 365.17

WO # 2 06 July 1983 19.00 495.58

WO # 3 01 Nov. 1983 20.00 521.67

 WO # 4 01 May 1984 32.00 834.67

WO # 5 01 Nov. 1984 35.00 912.92

WO # 6 01 Nov. 1984 37.00 965.08

On the other hand, the monthly pay of the Hotel employees and their hiring rate may be illustrated as follows:

PD/WO NO. Effectivity Equivalent Lowest Salary

Monthly Rate in the Hotel

PD 1389 01 July 1978 P 286.92 P 350.00

PD 1614 01 March 1979 339.08 411.00

PD 1813 18 Aug. 1980 365.17 562.00

WO # 2 06 July 1983 495.58 960.00

WO # 3 01 Nov. 1983 521.67 960.00

WO # 4 01 May 1984 834.67 960.00

WO # 5 16 May 1984 912.92 960.00

WO # 6 01 Nov. 1984 965.08 1,015.00.

A comparative analysis of the wages of the Hotels employees from 1978 to 1984 vis a vis the minimum wages fixed by law for the same period
reveals that at no time during the said period was there any underpayment of wages by the respondent Hotel. On the contrary, the prevailing
monthly salaries of the subject hotel employees appear to be and above the minimum amounts required under the applicable Presidential Decrees
and Wage Orders.

WHEREFORE, the assailed Decision of respondent Commission promulgated on September 11, 1992 -- reversing the judgment of the Labor
Arbiter and dismissing the UNIONS complaint - - being based on substantial evidence and in accord with applicable laws and jurisprudence, as
well as said Commissions Resolution dated November 24, 1992 -- denying reconsideration -- are hereby AFFIRMED in toto.

SO ORDERED.

Davide, Jr., Melo, Francisco, and Panganiban, JJ., concur.