KAISAHAN AT KAPATIRAN NG MGA MANGGAGAWA AT KAWANI SA MWC-EAST ZONE UNION AND EDUARDO BORELA, REPRESENTING ITS MEMBERS, PETITIONERS, VS. MANILA WATER COMPANY, INC., RESPONDENT.

Kaisahan at Kapatiran ng mga Manggagawa at Kawani sa MWC-East Zone Union versus Manila Water Company

The Case

This is a labor case about attorney's fees. The Kaisahan at Kapatiran ng mga Manggagawa at Kawani sa MWC-East Zone Union, joined by its president Eduardo Borela, sued the Manila Water Company, Incorporated for the payment of the amelioration allowance and the cost-of-living allowance promised to the former employees of the Metropolitan Waterworks and Sewerage System when the waterworks was privatized. The labor tribunals ordered the Company to pay the amelioration allowance and also awarded ten percent attorney's fees. The Company questioned the attorney's fees before the Court of Appeals, which deleted them. The case matters because the Supreme Court draws a sharp line between two kinds of attorney's fees: the extraordinary indemnity that a losing employer pays under Article 111 of the Labor Code, and the ordinary compensation that a client pays counsel under a contract. Confusing the two is the error this case corrects.

Procedural History

The Union and Borela filed a complaint before the National Labor Relations Commission for payment of the amelioration allowance, the cost-of-living allowance, damages, interest, and attorney's fees. Labor Arbiter Aliman Mangandog ruled for the petitioners, ordering payment of both allowances, six percent interest, and ten percent attorney's fees. On the Company's appeal, the National Labor Relations Commission affirmed with modification: it set aside the cost-of-living allowance for lack of proof, but ordered the Company to pay the accrued amelioration allowance in lump sum, to continue paying it, and upheld the ten percent attorney's fees. Both sides moved for partial reconsideration, and both motions were denied.

The Company then went to the Court of Appeals by a petition for certiorari under Rule 65, charging grave abuse of discretion. The Court of Appeals modified the labor rulings by deleting the award of attorney's fees, holding that the Memorandum of Agreement between the parties already ensured ten percent attorney's fees deductible from the amelioration allowance and collective bargaining agreement receivables, and that no unlawful withholding of wages or bad faith was shown. The Union's motion for reconsideration was denied. The Union and Borela then came to the Supreme Court by a petition for review on certiorari under Rule 45.

Facts

On February 21, 1997, the Metropolitan Waterworks and Sewerage System entered into a Concession Agreement with the Manila Water Company to privatize its operations. The Agreement bound the concessionaire to grant its employees benefits no less favorable than those granted to the waterworks employees at the time of their separation. Among those benefits were the amelioration allowance and the cost-of-living allowance, granted in August 1979 under a Letter of Implementation. Their payment was later discontinued when the Salary Standardization Law integrated the allowances into standardized salary.

In 2001, during collective bargaining agreement renegotiation, the Union demanded payment of both allowances. The Company first refused, then agreed to amend the collective bargaining agreement: the Company would pay the amelioration allowance and the cost-of-living allowance retroactive to August 1, 1997, should the waterworks system decide to pay its employees, or upon a favorable order by the regulatory office, or upon a final court judgment. The Company then integrated the amelioration allowance into its monthly payroll beginning August 1, 2002, but did not include the cost-of-living allowance because the Commission on Audit disapproved its payment for lack of funds.

In 2003, the Union filed a notice of strike, and the parties settled it through a Memorandum of Agreement dated December 19, 2003. That Agreement provided that attorney's fees of ten percent would be deducted from the amelioration allowance and collective bargaining agreement receivables, and that all other issues were considered withdrawn. Borela later executed an affidavit stating that the ten percent paid by the members was separate and distinct from the ten percent awarded by the labor tribunal, which the Union had also given to counsel under a contingent fee agreement.

Issues

• Whether or not the Court of Appeals may review the factual findings of the National Labor Relations Commission in a petition for certiorari under Rule 65.
• Whether or not the National Labor Relations Commission gravely abused its discretion in awarding ten percent attorney's fees to the petitioners.

Applicable Provisions

Article 111 of the Labor Code, as amended, governs the grant of attorney's fees in labor cases:

Article 111. Attorney's fees. (a) In cases of unlawful withholding of wages, the culpable party may be assessed attorney's fees equivalent to ten percent of the amount of wages recovered. (b) It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings for the recovery of wages, attorney's fees which exceed ten percent of the amount of wages recovered.

This is the provision the Court of Appeals read as requiring unlawful withholding or bad faith, and the provision the Supreme Court reinterprets as fixing a ceiling rather than a precondition.

Section 8, Rule VIII, Book III of the Implementing Rules provides:

Section 8. Attorney's fees. Attorney's fees in any judicial or administrative proceedings for the recovery of wages shall not exceed 10% of the amount awarded. The fees may be deducted from the total amount due the winning party.

This confirms that ten percent is a maximum, and that the fees may be deducted from what is due the winning party.

Ruling

On the first issue, the Court held that as a general rule the Court of Appeals does not reassess the evidence in certiorari proceedings, but it may examine the factual findings of the labor tribunal to determine whether they are supported by substantial evidence, whose absence points to grave abuse of discretion. The Court also reminded the Court of Appeals that in a Rule 45 review of a Rule 65 ruling in a labor case, the question is whether the Court of Appeals correctly determined the presence or absence of grave abuse of discretion, not whether the labor tribunal was correct on the merits.

On the second issue, the Court held that the Court of Appeals erred in requiring malice or bad faith before attorney's fees may be awarded. Under Article 111, a plain showing that lawful wages were not paid without justification is sufficient. The union members were undisputed to be entitled to the amelioration allowance, and it was not paid; lack of funds was not an insuperable cause properly invoked. Having been compelled to litigate, they were entitled to the ten percent award.

On the Memorandum of Agreement, the Court held that the ten percent awarded under Article 111 accrues to the union members as indemnity for damages, not to counsel as compensation, unless they agreed to give it to counsel. Here the Union bound itself to pay counsel ten percent under the Agreement and also gave up the awarded fees in favor of counsel, as Borela's affidavit confirmed. The two obligations rest on entirely different legal bases, so the award is not an additional grant violating the ceiling. The Court quoted its earlier ruling:

In the second place, the ten percent (10%) attorney's fees provided for in Article 111 of the Labor Code and Section 11, Rule VIII, Book III of the Implementing Rules is the maximum of the award that may thus be granted.

The claim that the fees were unconscionable at twenty percent was therefore more apparent than real, since beyond the statutory limit, as between lawyer and client, fees may exceed ten percent on the basis of quantum meruit, meaning the reasonable value of the services rendered.

Doctrine

First, in certiorari under Rule 65, the Court of Appeals does not weigh evidence, but it may examine the labor tribunal's factual findings to see whether substantial evidence supports them; if not, grave abuse of discretion lies.

Second, Article 111 of the Labor Code embodies the extraordinary concept of attorney's fees, an indemnity for damages payable to the winning client, and it fixes ten percent as the maximum, not a minimum. No showing of malice or bad faith is required; it is enough that lawful wages were not paid without justification and the employee was forced to litigate.

Third, the contractual attorney's fees under a Memorandum of Agreement and the statutory award under Article 111 rest on different legal obligations; the client may waive the award in favor of counsel, and as between lawyer and client the fees may exceed ten percent on quantum meruit.

Disposition

The petition was granted; the Court of Appeals decision and resolution were reversed and set aside, and the Labor Arbiter's award of attorney's fees equivalent to ten percent of the total judgment award was reinstated, with no pronouncement as to costs.

Remember This

Memorize this line: Article 111 fixes ten percent as the ceiling of the extraordinary attorney's fees, and no bad faith is needed, only unpaid lawful wages that forced the worker to litigate. Examiners use this case to test the distinction between ordinary and extraordinary attorney's fees, and whether a contractual deduction under a Memorandum of Agreement bars the statutory award.