Reducing Wages/Salaries during the Lockdown or Community Quarantine Period

Termination of employees should be the last course of action, this much is clear from the series of Labor Advisories issued by the Department of Labor and Employment (DOLE). Businesses and other establishments are strongly encouraged to explore alternative work schemes or flexible work arrangements for employees. The message is clear (and admirable) – it is better for employees to receive reduced wages and salaries, rather than receive nothing at all. 

While the law is protective of the labor sector, as consistently noted in jurisprudence, the law is equally mindful of management rights and prerogatives. You do not kill the goose that lays the golden egg. In this time of lockdown or community quarantine brought about by the coronavirus disease (Covid-19), businesses are struggling to survive. This is particularly true for micro and small enterprises

The alternative work schemes or flexible work arrangements are consistent with these principles, as well as the equitable principle that employees should get a fair day’s wage for a fair day’s labor. The alternative or flexible work arrangement may require reduced work hours or work days, but the wage for the hours worked must still be consistent with minimum legal requirements.

Under the Wage Rationalization Act, which amended the Labor Code of the Philippines, the power to prescribe minimum wages is with the Regional Tripartite Wages and Productivity Boards, not the DOLE (see System of Fixing the Minimum Wage in the Philippines). Any person, corporation, trust, firm, partnership, association or entity which refuses or fails to pay any of the wage adjustments are liable for imprisonment between 1 to 2 years, increased to 2 to 4 years under Republic Act No. 8188. The law is, therefore, clear: wages cannot be brought down below the minimum wage. 

In Labor Advisory No. 17, series of 2020, the DOLE states that “[e]mployers and employees may agree voluntarily and in writing to temporarily adjust employees’ wages and wage-related benefits as provided under existing company contract, company policy or collective bargaining agreement (CBA).”

There are three ways of looking at this provision. First, companies and their employees may agree, in writing, to reduce wages below the minimum wage. Bringing the contracted wage below the prescribed minimum wage cannot be legally done, as noted above. A Labor Advisory, as discussed in the previous post on extension of the probationary period, is not issued by the DOLE pursuant to its rule-making power. Even when the DOLE decides to issue a Department Order on the matter, the regulations cannot go against the law. Only the Regional Boards can prescribe minimum wages and other entities, the DOLE included, cannot legally order the reduction of wages below the minimum rate. 

Second, the provision may be interpreted to mean that companies and their employees may agree, in writing, to reduce wages, but not below the minimum wage rate. The Labor Code, however, prohibits the diminution of benefits. For instance, benefits given during better times, if the release of these benefits has become company practice or policy, cannot be withdrawn in troubled times. If the employee is allowed to work, he/she must receive the benefits to which he/she is entitled to. 

This appears to be perfectly fine, so long as no one complains. Case law is replete with pronouncements that even notarized written agreements, in which employees “waive” the benefits provided by law, are void for being contrary to law and public policy. Under the general principle of autonomy of contracts, employers and employees are free to agree on the terms of employment, but labor laws and standards are deemed written in these labor contracts. Employees, especially rank-and-file employees who need their daily wages to support their respective families, will most likely sign the “agreement”. This does not necessarily mean that the “agreement” is voluntary. Neither does it mean that the employees will not subsequently run to labor courts to assail the “agreement.” After all, while the Labor Advisory is entitled to great respect, it is not binding on courts. 

The third way of interpreting the above-quoted provision is to read it together with the principle that an employee is entitled to the prescribed benefits if they are allowed to work. Otherwise stated, no work, no pay. This is the essence of the alternative work schemes or flexible work arrangements. To save the company, or the goose that lays the golden egg, the employees will receive wages less than the amount to which they are normally entitled to. This is just and equitable in the context of the Covid-19 and the government-imposed lockdown. There is no violation of the principle on the fair day’s wage for a fair day’s labor, as covered employees are not working on certain days pursuant to the alternative work schemes or flexible work arrangements. If employees are allowed to work, however, they are entitled to their full wages corresponding to the actual work performed. 

[Note: This is purely for discussion purposes and must not be interpreted as a legal advice.] 


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