Alpha Investigation and Security Agency, Inc. vs. NLRC

A security service contractor as direct employer and its principal-client as indirect employer are jointly and severally liable to security guards for mandated wage increases, the service contract being deemed amended to have such increases borne by the principal without extinguishing the contractor's liability to the workers.

Alpha Investigation and Security Agency, Inc. (AISA) is a private corporation engaged in providing security services to clients, including Don Mariano Marcos State University (DMMSU), a government corporation bound by budgetary constraints. Private respondents were security guards hired by AISA and assigned to DMMSU under a security service agreement. The governing framework for such arrangements is Section 6 of Republic Act 6727 on the burden of prescribed wage increases in security contracts, together with Articles 106, 107 and 109 of the Labor Code on contractor liability and solidary liability of employers and indirect employers.

Private respondents were hired as security guards by AISA on February 16, 1990 and assigned to guard the premises of DMMSU pursuant to the security service agreement between AISA and DMMSU dated January 1, 1990, whose contract-price clause was modified after one year and again in July 1991. The agreement provided a monthly pay of P1,200.00 for each security guard, but private respondents received only P900.00 monthly. Five months after hiring, 43 security guards filed before the Regional Office of the Department of Labor and Employment a complaint against AISA for non-compliance with the current minimum wage order.

Thereafter, 24 of the original complainants filed a motion for exclusion, leaving the remaining 19 security guards who filed individual amended complaints impleading DMMSU as party-respondent. AISA had made representations with DMMSU for an increase in the contract rates to enable payment of mandated minimum wage rates without compromising administrative and operational expenses. DMMSU replied that, being a government corporation, it could not grant the request due to budgetary constraints.

The Labor Arbiter found salary differentials due for the period from February 16 to September 30, 1991 in the amount of P41,459.51 per complainant, or P787,730.69 in total, and dismissed the 13th month pay claims for failure of substantiation. On appeal, the NLRC sustained the solidary liability of AISA and DMMSU and remanded for computation of the differentials awarded.

• Exclusive Liability of Principal under RA 6727: Petitioner argued that payment of wage increases under the current minimum wage order should be borne exclusively by DMMSU pursuant to Section 6 of Republic Act 6727, which states that prescribed increases in wage rates of workers in security services shall be borne by the principals or clients and the contract shall be deemed amended accordingly.
• Wage Differentials vs. Wages: Petitioner maintained that Articles 106, 107 and 109 of the Labor Code refer generally to failure of the contractor to pay wages in accordance with the Labor Code, while the case hinges on wage differentials or wage increases as prescribed in Section 6 of RA 6727, not wages in general, so joint and several liability under the Labor Code does not apply.

• Joint and Several Liability: Whether the principal of a security service agreement may be held jointly and severally liable with the contractor for non-payment of the minimum wage and mandated increases.
• Construction of Section 6 of RA 6727: Whether Section 6 of RA 6727 imposes exclusive liability on the principal-client for wage increases, precluding solidary liability of the security contractor under Articles 106, 107 and 109 of the Labor Code.

• Joint and Several Liability: Yes. The contractor as direct employer and the principal as indirect employer are jointly and severally liable for wages and wage increases to ensure compliance with the statutory minimum wage.
• Construction of Section 6 of RA 6727: No. Section 6 merely deems the contract amended to have increases borne by the principal and expressly preserves joint and several liability if the principal fails to pay, consistent with Articles 106, 107 and 109.

• Joint and Several Liability: Liability was imposed by Articles 106, 107 and 109 of the Labor Code, under which employees of a contractor shall be paid in accordance with the Code and, upon failure of the contractor to pay, the employer or any person contracting with an independent contractor becomes jointly and severally liable to the extent of work performed, with both treated as direct employers for civil liability. Applied here, private respondents were undisputedly AISA's employees assigned to DMMSU under its security agreement with AISA, and the wage increases were unpaid. Because wage orders are statutory and mandatory and cannot be waived, AISA could not escape liability, the solidary obligation being designed to give workers ample protection consonant with labor and social justice.
• Construction of Section 6 of RA 6727: The statute as a whole, not an isolated phrase, controls interpretation. Section 6 provides that increases shall be borne by principals or clients and the contract deemed amended accordingly, but adds that if the principal fails to pay prescribed rates, the contractor shall be jointly and severally liable with the principal. Thus the same solidary liability attaches under the Labor Code for the prevailing minimum wage and under RA 6727 for resulting differentials. Reliance on Eagle Security vs. NLRC confirms that "to be borne" requires amendment of consideration paid by the principal to enable the contractor to pay, the guards' immediate recourse being against their direct employer, with ultimate liability resting on the principal subject to reimbursement under Article 1217 of the Civil Code. No grave abuse of discretion was therefore committed by the NLRC.

• Joint and solidary liability of employer, indirect employer, contractor and subcontractor — Whenever an employer contracts work out, the contractor's employees shall be paid under the Labor Code; if the contractor fails to pay wages accordingly, the employer is jointly and severally liable to the extent of work performed, a rule extended to any person contracting with an independent contractor, with every employer or indirect employer held responsible with the contractor for Code violations as direct employers. Applied here to hold AISA as direct employer and DMMSU as indirect employer solidarily liable for salary differentials.
• Statutory construction as a whole — Legislative intent must be ascertained from consideration of the statute as a whole, not an isolated part or particular provision alone, requiring review of the entire law and its intendment. Applied to reject reading the "to be borne by principals" clause in isolation from the succeeding clause imposing joint and several liability and from Labor Code provisions.
• Mandatory nature of wage orders and deemed amendment of security contracts — Wage orders are statutory and mandatory and cannot be waived; in security, janitorial and construction contracts, prescribed increases are borne by principals or clients and contracts are deemed amended to adjust consideration, but failure to pay triggers solidary liability, with ultimate economic burden on the principal without depriving the paying co-debtor of reimbursement. Applied to sustain workers' direct claim against AISA while recognizing adjustment and reimbursement as between AISA and DMMSU.

• "The joint and several liability of the contractor and the principal is mandated by the Labor Code to ensure compliance with its provisions, including the statutory minimum wage." — States the controlling basis for solidary liability and its protective purpose under labor standards.
• "The contractor is made liable by virtue of his status as direct employer, while the principal becomes the indirect employer of the former's employees for the purpose of paying their wages in the event of failure of the contractor to pay them." — Defines the respective capacities giving rise to solidary obligation for wages.
• "In the end, therefore, ultimate liability for the payment of the increases rests with the principal." — Clarifies the allocation of ultimate economic burden as between principal and contractor after affirming solidary liability to workers.
• "In fact, legislative intent must be ascertained from a consideration of the statute as a whole, and not of an isolated part or a particular provision alone." — Articulates the interpretive rule used to reject petitioner's isolated reading of Section 6.

• Eagle Security Agency, Inc. vs. NLRC, 173 SCRA 479 (1989) — Followed as controlling on solidary liability, deemed amendment of security contracts, workers' recourse against direct employer, ultimate liability of principal, and reimbursement between co-debtors.
• Philippine Fisheries Development Authority vs. NLRC, 213 SCRA 621 (1992) — Cited to support non-waivability of wage orders and joint and solidary liability of principal and contractor to protect laborers.
• Cruz vs. Court of Appeals, 252 SCRA 599 (1996) — Cited for the rule that a petition for certiorari must be filed within a reasonable time, defined as three months, to explain finality of judgment against DMMSU.
• Chang Rung Fa vs. Gianzon, 97 Phil. 913 (1955) — Cited for the cardinal rule requiring review of the whole law and its intendment in interpreting a term's meaning and scope.
• Aboitiz Shipping Corporation, et al. vs. City of Cebu, et al., 13 SCRA 449 (1965) — Cited for the rule that legislative intent is ascertained from the statute as a whole rather than an isolated provision.

• Section 6, Republic Act 6727 (Wage Rationalization Act) — Provides that in contracts for construction and for security, janitorial and similar services, prescribed wage increases shall be borne by principals or clients with contracts deemed amended, but failure by the principal to pay renders contractor jointly and severally liable; applied to hold AISA solidarily liable while recognizing DMMSU's ultimate burden.
• Article 106, Labor Code — Requires payment of contractor's employees under the Code and imposes joint and several liability on the employer with contractor upon non-payment to extent of work performed; applied as basis for AISA-DMMSU solidary liability.
• Article 107, Labor Code — Extends Article 106 to any person contracting with an independent contractor; applied to treat DMMSU as indirect employer.
• Article 109, Labor Code — Holds every employer or indirect employer responsible with contractor for Code violations as direct employers for civil liability; applied to sustain solidary award for minimum-wage differentials.
• Article 1217, Civil Code — Recognizes reimbursement from co-debtor by one who paid a solidary obligation; invoked to preserve adjustment between principal and contractor despite solidary liability to workers.

Regalado, J., Puno, J., Mendoza, J., Torres, Jr., J. — concurred; no separate concurring reasoning detailed in the text.