Minimum Salary Rates as a Management Prerogative

2020 January 27

An exclusive bargaining representative of the supervisory employees claimed for “accrued differentials and salary adjustments due to underpayment of salary” for its recently regularized members, on the basis of the employer’s Local Policy on minimum salary rates. Record showed that several supervisory employees were regularized by the employer, but the latter provided them with salary rates lower than those prescribed under the Local Policy.

The employer refused to pay the claims and denied that the Local Policy was binding. It argued that the decision to implement any company policy is a prerogative of management.

Can the employer refuse to implement its Local Policy relating to the minimum salary rates for regularized employees?

No.

The Supreme Court acknowledged that employers enjoy management prerogative when it comes to the formulation of business policies, including those that affect their employees.1Lagatic v. National Labor Relations Commission, G.R. No. 121004, January 28, 1998, 349 PHIL 172-186 and Pantoja v. SCA Hygiene Products Corporation, G.R. No. 163554, April 23, 2010, 633 PHIL 235-243 However, the Court also clarified that company policies resulting from an exercise of management prerogative can implicate the rights and obligations of employees. The Court added that they become part of the employment contract to that extent.2Duncan Association of Detailman-PTGWO v. Glaxo Wellcome Philippines, Inc., G.R. No. 162994, September 17, 2004, 481 PHIL 687-705

In the present case, the Court interpreted the Local Policy and found that:

  • The employer has the discretion to pay newly-hired employees a salary rate lower than the minimum rate during the probationary period;
  • However, once the probationary period ends and the employee is regularized, the employer must pay the minimum rate.
  • Entitlement to the minimum rate requires mere regularization based solely on performance review, without need of merit promotion.

The Court ruled that the employer had no discretion over the payment of the minimum rate upon regularization of an employee. Once the employee is regularized, management prerogative must give way and be subject to the limitations composed by law, the collective bargaining agreement and general principles of fair play and justice.

For the Court, the employer should implement its Local Policy. The employees should accordingly be granted their claim for salary differentials.

Further reading:

  • Del Monte Fresh Produce (Philippines), Inc. v. Del Monte Fresh Supervisors Union, G.R. No. 225115, January 27, 2020.