Fair day’s wage – employer’s labor

Alexander B. Cabrera Chairman Emeritus, PwC Philippines 12 Apr 2020


We know it to be so, but how exposed MSMEs have become, is like never before. MSMEs have short business cycles and an even shorter runway, cash-wise. As about 90 percent of business entities fall in this category in our country, the government is hard-pressed not to underestimate their importance.

Now we know that the government is supposed to jump in to save MSMEs. So why be stubborn about providing them a separate low tax regime in the first place when we know that they can’t keep up? This would probably be one of the first legislations that should happen post-quarantine, perhaps through virtual sessions of Congress.

This Sunday though, allow me to focus on the question of how flexible wages and work arrangements can be, and what really are employers’ legal liabilities vs simple humanitarian acts.

Central to many of the issues is the play between “non-diminution of benefits” vs management discretion. Non-diminution of benefits is a huge refuge for labor, but management discretion, exercised judiciously, is a strong exception.

Is reduction of work days diminution of benefits?

No. Jurisprudence explains that non-diminution refers to reducing benefits that are discretionarily given to employees, which cannot be withdrawn as they are given based on contract or practice that ripened over time into a policy (Coca-Cola Bottlers Philippines, Inc. vs. Iloilo Coca-Cola Plant Employees Labor Union, GR No. 195297, 5 December 2018). So when due to legitimate business reasons, management reduces work via rotation, four- or three-day work weeks, or shortened work hours, such is not invalid diminution. The rule of fair day’s labor is that fair day’s wage is not violated. To pay employees without leave credits, even if they are not working, is not a legal obligation, even prior to the COVID-19 situation.

If work days can be reduced on valid grounds, I also believe that in the same vein, benefits can be suspended under these special circumstances, provided that these are consistent principles of justice and fair play.

Can employers stop paying or delay payment of salaries?

There couldn’t be a moratorium on paying salaries as this could amount to slavery. If you promise to pay them so they will work but you don’t keep your word, that can be deceit. However, delay in payment of salaries due to lack of cash flow can be valid if employees who work agree to it (Article 116 of the Labor Code). Agreements to pay interest on delayed salaries is also in order. However, there can be no demandable interest if this is not part of the contract (Article 1956 of the New Civil Code).

Can employers decrease the salaries of their employees?

Since salaries are based on contracts, employers cannot decrease the salaries unilaterally. As mentioned above, you can reduce work to reduce wages (Labor Advisory 09 Series of 2020). However, for full work to be compensated with less pay, the employees must agree. Those who do not agree can be excused from work without pay.

There is an issue with breaching the minimum wage though as they are set by the Regional Tripartite Wages and Productivity Boards. So unless the latter relaxes minimum wages in this time of COVID-19, wages cannot be renegotiated to go lower than the minimum. Recourse should be made towards flexible work arrangements or mutual agreement on delayed salaries with interest.

On flexible work arrangements giving minimal work: Can employees complain that they are constructively dismissed and hence entitled to separation pay?

They can only claim they are constructively dismissed in flexible work arrangements, like reduced work days, if they are singled out (Unicorn Safety Glass Inc., et al vs. Rodrigo Basarte, et al. G.R. No. 154689, November 2004). However, if the rules apply to everyone, then it is easier to show that it is based on good faith and a legitimate exercise of management discretion.

Can employers separate employees without paying separation pay?

Separation pay is not legally due if employers closed their business because of serious losses (Article 283 of the Labor Code). However, if it is only to save on labor costs or to make operations efficient, separation pay shall be due at one month for every year of service, or at least half-month for every year of service if done to stop the bleeding from losses. While separation is an exercise of management discretion, labor guidelines encourage using flexible work arrangements to prevent separation of employees at this time.

How about flexible work arrangements or reduced pay for managerial employees?

Managerial employees are not subject to labor standards and hence a lot of their rights are based on their employment contracts (Article 82 of the Labor Code). So before changing their terms of employment, there should be mutual agreement. There seems however no reason for them to block the employer’s valid exercise of discretion. If ordinary employees protected by labor standards can be subjected to alternative arrangements, there is more reason for managerial employees to be subjected to the same as their tenure is based on the employer’s trust and confidence.

Speaking of trust, there is no more opportune time than today for the employer’s humanitarian care for employees to surface, but that should be matched with the employee’s selfless loyalty. More than the legal effects, it’s the Together Effect that will give us the best chances of surviving this most difficult time.

Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the Chairman of the Integrity Initiative, Inc. (II, Inc.), a non-profit organization that promotes common ethical and acceptable integrity standards. Email your comments and questions to aseasyasABC@ph.pwc.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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Alexander B. Cabrera

Alexander B. Cabrera

Chairman Emeritus, PwC Philippines

Tel: +63 (2) 8845 2728