DISCLAIMER: This article does not create an attorney-client relationship between the author and the reader.  The answer of the author on the issue is just an expression of his general opinion based on Philippine law and hence does not constitute legal advice.

One of the exciting parts in applying for a job is compensation bargaining. This is the stage where the applicant and the employer negotiate pay for the position.  Usually, the applicant is not aware of the equivalent pay of the job in the compensation structure of the company.  If the applicant is happy with the offer, he accepts the job and signs employment contract. There may be instances that the agreed pay, though above the minimum wage mandated by law, is lower than the amount set in the compensation structure.  Take this case to discuss the issue.  

A company has a compensation structure approved by the management.  Each job has a minimum to maximum salary ranging from step 1 to step 8.  The step 1 being the minimum salary for the job while step 8 is the maximum salary for the job.   The compensation structure of the company is above the minimum pay mandated by the government.

Although agreed by the employee in the contract of employment, is it lawful for the company to give salary below the minimum amount prescribed in the compensation structure?   

Article 19 of the Civil Code is worth mentioning as it sets standards in human relations.  Article 19 is my favorite provision of the Civil Code.

“Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.”

Because compensation structure partakes of a company policy that must be complied with in good faith no less than by the company, giving then compensation or salary that is below the minimum amount prescribed in the compensation structure is frowned upon and may be unlawful.  Hence, this should not be practiced at all times.

The following provisions of law support on why the minimum compensation prescribed in the compensation structure of a company should prevail over the lower amount of salary agreed by the employee in the contract of employment:

1) The decision of the Supreme Court in Abott Laboratories vs Alcaraz, G.R. No. 192571, July 23, 2013 which provides that “a company policy partakes of the nature of an implied contract between the employer and employee”. “The principle is akin to estoppel. Once an employer establishes an express personnel policy and the employee continues to work while the policy remains in effect, the policy is deemed an implied contract for so long as it remains in effect. If the employer unilaterally changes the policy, the terms of the implied contract are also thereby changed.”

2) Article 1702 of the Civil Code which provides that “In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer.”

Since the compensation structure is an implied contract between the employer and the employee and is more favorable than the express contract of employment, the minimum compensation prescribed in the compensation structure of the company should prevail.  Following Article 1702 of the Civil Code that when doubt exists as to what contract applies between the employer and the employee, the doubt is always resolved in favor of the contract that provides greater benefit to the employee.

The company might want to revisit its compensation structure if it really intends to give compensation to a job above the minimum mandated by law but below the minimum prescribed in its compensation structure.  If this is not resolved and this has come to the attention of the employee, the company might be compelled not only to correct but might also be compelled to pay the differential amount for the previous periods.

(March 30, 2024)