PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION, AND ODIN SECURITY AGENCY, AS REPRESENTATIVE OF ITS SECURITY GUARDS, RESPONDENTS.

Philippine Fisheries Development Authority versus National Labor Relations Commission

The Case

This is a petition for certiorari brought by the Philippine Fisheries Development Authority, a government-owned or controlled corporation with a special charter, against the National Labor Relations Commission and the Odin Security Agency, acting as representative of its security guards. The Authority asks the Supreme Court to annul two resolutions of the Commission — one setting aside the Labor Arbiter's order of dismissal, and one denying reconsideration — and to declare void the security services contract it had entered into. The case matters because it fixes two rules every labor lawyer must carry: that a principal in a job contracting arrangement is a statutory indirect employer, jointly and severally liable with the contractor for unpaid wage differentials, and that the principal's ultimate liability for wage increases does not relieve the contractor, who is the direct employer, of its own fault and its own share.

Procedural History

The Odin Security Agency filed a complaint with the Office of the Sub-Regional Arbitrator in Region Six in Iloilo City for unpaid re-adjustment rates under Wage Order Number 6, wage differentials, attorney's fees, and costs. The Authority moved to dismiss on three grounds: lack of jurisdiction, lack of legal personality of the guards, and want of authority to interpret the contract. The Labor Arbiter granted the motion and dismissed the complaint, reasoning that the Authority, being a government-owned or controlled corporation, fell under the Civil Service Commission and not within the ambit of the National Labor Relations Commission. The Agency appealed, and the Commission issued a resolution setting aside the dismissal and granting relief to the Agency. The Authority's motion for reconsideration was denied. The Authority then came to the Supreme Court, reiterating substantially the same grounds: denial of due process, absence of legal basis for the reliefs granted, and failure to declare the contract void.

Facts

The Authority, created by presidential decree, entered into a contract for security services with the Odin Security Agency for its Iloilo Fishing Port Complex in November 1985. The contract fixed monthly rates per guard, supervisor, and detachment commander, and expressly stated that the schedule of compensation included, among others, the minimum wage under Wage Order Number 5, rest day pay, night differential, incentive leave pay, thirteenth month pay, emergency cost of living allowance, contractor's tax, operational expenses, and overhead. The contract was for a renewable one-year period and provided that its terms would be modified by subsequent laws, especially those on minimum wage increases.

Wage Order Number 6 had taken effect on November 1, 1984 — one year before the contract was signed. Its Section 9 provided that in contracts for security and similar services, the increases in minimum wage and allowance rates shall be borne by the principal or client, and the contracts shall be deemed amended accordingly. In October 1987, and again in January and February 1988, the Agency asked the Authority to adjust the contract rate in view of Wage Order Number 6. The Authority ignored the requests.

On June 7, 1988, the Agency filed its complaint for the unpaid re-adjustment rate under Wage Order Number 6, plus wage differentials and attorney's fees. The Labor Arbiter dismissed on jurisdictional grounds; the Commission reversed; and the Authority elevated the matter to the Supreme Court.

Issues

• Whether or not the National Labor Relations Commission has jurisdiction over the Authority, a government-owned or controlled corporation with a special charter, notwithstanding that the security guards are not its employees.
• Whether or not the Authority, as principal in a job contracting arrangement, is jointly and severally liable with the Agency for the unpaid wage differentials under Wage Order Number 6.
• Whether or not the Authority was deprived of due process because no hearing was conducted before the Commission rendered its resolution.
• Whether or not the security services contract is void ab initio for failure to comply with bidding requirements.

Applicable Provisions

Section 9 of Wage Order Number 6 provides:

In the case of contracts for construction projects and for security, janitorial and similar services, the increases in the minimum wage and allowance rates of the workers shall be borne by the principal or client of the construction/service contractor and the contracts shall be deemed amended accordingly, subject to the provisions of Section 3(c) of this Order.

This is the core mandate the Court enforces: the wage increase is borne by the principal, and the service contract is deemed amended to reflect it.

Paragraph b of Article 97 of the Labor Code provides:

The term employer includes any person acting directly or indirectly in the interest of an employer in relation to an employee and shall include the Government and all its branches, subdivisions and instrumentalities, all government-owned or controlled corporation and institutions as well as non-profit private institutions, or organizations.

This definition defeats the Authority's claim that its charter places it beyond the labor tribunals.

Article 106 of the Labor Code, as the Court invokes it, provides:

Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.

This is the source of the indirect employer relationship that the Court applies to the Authority.

Article 107 of the Labor Code provides:

The contractor or subcontractor shall be liable as the direct employer of the employees of the contractor or subcontractor in the same manner and to the same extent as if the work were performed directly by the employer, and the employer shall be jointly and severally liable with the contractor or subcontractor for the payment of the wages of the employees.

This fixes the solidary liability of principal and contractor.

Article 109 of the Labor Code provides:

The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code.

This extends the principal's responsibility to violations of the wage laws, including the statutory minimum wage.

Ruling

On the first issue, the Court held that the Commission did not commit grave abuse of discretion in assuming jurisdiction. The Authority is indeed a government-owned or controlled corporation with a special charter, which places it under the civil service. But the guards are not its employees; the contract of services expressly states so. There being no employer-employee relationship between the Authority and the guards, the jurisdiction of the Civil Service Commission may not be invoked. The contract is merely job contracting, which makes the Authority an indirect employer, and its liabilities, joint and solidary with the contractor, are provided in Articles 106, 107, and 109 of the Labor Code. The term employer under Article 97 includes the Government and all its instrumentalities and government-owned or controlled corporations.

On the second issue, the Court held that the Authority is jointly and severally liable with the Agency for the unpaid wage differentials. The Wage Orders are statutory and mandatory and cannot be waived. The Court quoted its ruling in the Eagle Security case: the security guards' immediate recourse is with their direct employer, the Agency; but the Wage Orders require the amendment of the contract as to the consideration paid by the principal, and in the end the ultimate liability for the payment of the increases rests with the principal. The Court stressed, however, that the Agency entered into the contract one year after Wage Order Number 6 took effect, without considering the mandated increases, and that the Agency was the first to deprive the guards of their rightful wage. The Agency is the employer, charged with knowledge of labor laws, and the adequacy of the compensation it demands is its principal concern. The Court therefore held both liable, but allowed reimbursement of only one-half of the amount paid, because the Agency is also at fault.

On the third issue, the Court held that there was no denial of due process. A decision on the merits is proper where the issues raised do not involve intricate questions of law, and the computation of the amount due each guard can be made during execution, where hearings can be held.

On the fourth issue, the Court held that the Authority cannot assail the contract as void ab initio for non-compliance with bidding requirements. Services were already rendered and the Authority benefited from the contract for two years; it is estopped from assailing it.

Doctrine

A government-owned or controlled corporation with a special charter is under the civil service as to its own employees, but when it contracts for security services, the guards are not its employees, and the Civil Service Commission has no jurisdiction over their wage claims. In job contracting, the principal is an indirect employer and is jointly and severally liable with the contractor for unpaid wages under Articles 106, 107, and 109 of the Labor Code, and the term employer under Article 97 includes the Government and all its instrumentalities and government-owned or controlled corporations. Wage Orders are statutory and mandatory and cannot be waived; the increases are borne by the principal, and the service contract is deemed amended accordingly. The guards' immediate recourse is with their direct employer, the contractor, but the ultimate liability for the increases rests with the principal. Where the contractor itself entered into the contract without considering the wage order, it shares the fault, and the principal's solidary liability is without prejudice to reimbursement of only one-half of the amount paid.

Disposition

The Court affirmed the resolutions of the National Labor Relations Commission with the modification that the Authority and the Agency are ordered to pay jointly and severally the unpaid wage differentials under Wage Order Number 6, without prejudice to reimbursement of one-half of the amount either may pay, with costs against the Authority.

Remember This

Memorize the line: the principal is solidarily liable with the contractor, but the ultimate liability for wage increases rests with the principal, and where the contractor is equally at fault, reimbursement is limited to one-half. Examiners use this case to test the indirect employer concept under Articles 106, 107, and 109, the coverage of the term employer under Article 97, and the jurisdiction of the National Labor Relations Commission over government-owned corporations in job contracting arrangements.