Kaisahan at Kapatiran ng mga Manggagawa at Kawani sa MWC-East Zone Union vs. Manila Water Company, Inc.

In actions for recovery of wages under Article 111 of the Labor Code, attorney’s fees may be awarded upon a plain showing that lawful wages were not paid without justification, without need to prove that the employer acted maliciously or in bad faith. The extraordinary attorney’s fees awarded by the labor tribunal as indemnity for damages are separate and distinct from the ordinary attorney’s fees contracted between the union and its counsel in a compromise agreement.

The petitioners are the duly-recognized bargaining agent of the rank-and-file employees of Manila Water Company, Inc. and its union president. The respondent company entered into a Concession Agreement with the Metropolitan Waterworks and Sewerage System (MWSS) in 1997 to privatize MWSS operations, under which the company undertook to grant its employees benefits no less favorable than those enjoyed by MWSS employees at the time of their separation. Among these benefits were the amelioration allowance and cost-of-living allowance granted in 1979 pursuant to Letter of Implementation No. 97, the payment of which was later discontinued upon the effectivity of Republic Act No. 6758, the Salary Standardization Law.

During the renegotiation of their Collective Bargaining Agreement in 2001, the Union demanded from the Company the payment of the amelioration allowance (AA) and cost-of-living allowance (COLA). The Company initially refused but subsequently agreed to a CBA amendment stipulating that it would implement the payment of the AA and COLA retroactive August 1, 1997, should the MWSS decide to pay its employees or upon award of a favorable order by the MWSS Regulatory Office or upon receipt of a final court judgment. Thereafter, the Company integrated the AA into the monthly payroll of all its employees beginning August 1, 2002, after an appropriation was approved by the MWSS Board of Trustees. The Company, however, did not include the COLA because the Commission on Audit disapproved its payment due to the Company's lack of funds.

As a result, the Union and its president filed a complaint against the Company for payment of the AA, COLA, moral and exemplary damages, legal interest, and attorney’s fees before the National Labor Relations Commission. The Labor Arbiter ruled in favor of the petitioners, ordering the payment of the AA and COLA, 6% interest, and 10% attorney’s fees. On appeal, the NLRC affirmed with modification, setting aside the COLA award for lack of proof but ordering the Company to pay the accrued AA in lump sum and to continue paying the AA. The NLRC also upheld the award of 10% attorney’s fees.

In its Motion for Partial Reconsideration, the Company pointed out that the award of 10% attorney’s fees was already provided for in a December 19, 2003 Memorandum of Agreement (MOA) concluded by the parties in settlement of a notice of strike, which mandated that 10% attorney’s fees be deducted from the AA and CBA receivables. The Union opposed the motion, arguing through its president’s affidavit that the MOA only covered the employees' share of the contracted attorney’s fees and did not waive the attorney’s fees awarded by the NLRC, which were given to their counsel as part of a contingent fee agreement. The NLRC denied both motions, prompting the Company to elevate the case to the Court of Appeals via a petition for certiorari under Rule 65. The CA deleted the award of attorney’s fees, finding no unlawful withholding of wages or bad faith on the part of the Company and holding that the MOA already ensured the payment of 10% attorney’s fees. The Union's motion for reconsideration was denied, leading to the present petition.

• Scope of Rule 65 Review: Petitioners argued that the CA committed reversible error by reviewing the factual findings of the NLRC and substituting its own findings, an action not allowed under Rule 65 of the Rules of Court. They maintained that whether the NLRC was correct in giving credence to Borela’s affidavit is a question the CA cannot resolve in a certiorari proceeding absent grave abuse of discretion.
• Separate and Distinct Attorney's Fees: Petitioners contended that the 10% attorney’s fees paid by the Union’s members under the MOA are separate and distinct from the 10% attorney’s fees awarded by the NLRC, as supported by Borela’s affidavit.

• Questions of Law: Respondent argued that the correctness of the NLRC’s interpretation of the MOA, the reasonableness of the attorney’s fees, and the application of the Labor Code are questions of law which the CA validly inquired into in the certiorari proceedings.
• Absence of Bad Faith: Respondent contended that the CA correctly ruled that the NLRC acted with grave abuse of discretion in awarding attorney’s fees despite the absence of any finding of unlawful withholding of wages or bad faith.
• Unconscionable Amount: Respondent asserted that the Union’s demand, together with the NLRC award, is unconscionable as it represents 20% of the amount due or about ₱21.4 million.

• Review of Factual Findings: Whether the CA can review the factual findings of the NLRC in a Rule 65 petition.
• Award of Attorney's Fees: Whether the NLRC gravely abused its discretion in awarding ten percent (10%) attorney’s fees to the petitioners.

• Review of Factual Findings: Yes, as an exception. The CA may examine the factual findings of the NLRC to determine whether its conclusions are supported by substantial evidence, whose absence justifies a finding of grave abuse of discretion.
• Award of Attorney's Fees: No. The NLRC did not gravely abuse its discretion. A plain showing that lawful wages were not paid without justification suffices for an award of attorney’s fees under Article 111 of the Labor Code, and the extraordinary attorney’s fees awarded by the NLRC are distinct from the contractual attorney’s fees under the MOA.

• Review of Factual Findings: While the general rule in Rule 65 certiorari proceedings is that the CA does not assess and weigh evidence, an exception allows the appellate court to examine the factual findings of the NLRC if they are not supported by substantial evidence. The absence of substantial evidence points to grave abuse of discretion. However, in a Rule 45 review by the Supreme Court, the inquiry is limited to whether the CA correctly determined the presence or absence of grave abuse of discretion in the NLRC decision. Applying this framework, the Court found that the CA erred in ruling that the NLRC gravely abused its discretion in awarding attorney’s fees.
• Award of Attorney's Fees: Article 111 of the Labor Code governs the grant of attorney’s fees in labor cases, contemplating the extraordinary concept where fees are deemed indemnity for damages ordered by the court to be paid by the losing party to the winning party. While an express finding of facts and law is necessary, there need not be any showing that the employer acted maliciously or in bad faith when it withheld wages; a plain showing that lawful wages were not paid without justification is sufficient. In this case, it was undisputed that the union members were entitled to their AA benefits and that these were not paid by the Company, compelling the union members to litigate and incur legal expenses. Regarding the MOA, the attorney’s fees contracted under it refer to the ordinary concept—compensation paid by the client to the lawyer—while the NLRC award pertains to the extraordinary concept payable to the client as indemnity. The MOA provision does not bear on the attorney’s fees awarded under Article 111. Since the award pertained to the union members as indemnity, it was within their right to waive it and give it to their counsel as part of their contingent fee agreement, without violating the 10% statutory ceiling imposed on the employer.

• Extraordinary Concept of Attorney's Fees in Labor Cases — Under Article 111 of the Labor Code, attorney's fees represent indemnity for damages ordered by the court to be paid by the losing party to the winning party. The instances when these may be awarded are enumerated in Article 2208 of the Civil Code. In actions for recovery of wages, the award of attorney's fees is proper upon a plain showing that the lawful wages were not paid without justification; there need not be any showing that the employer acted maliciously or in bad faith when it withheld the wages. The ten percent (10%) provided in Article 111 is the maximum award that may be granted against the losing party.
• Exception to the Rule Against Factual Review in Rule 65 — As a general rule in certiorari proceedings under Rule 65, the CA does not assess and weigh evidence. However, as an exception, the appellate court may examine and measure the factual findings of the NLRC if the same are not supported by substantial evidence, whose absence points to grave abuse of discretion amounting to lack or excess of jurisdiction.

• "Although an express finding of facts and law is still necessary to prove the merit of the award, there need not be any showing that the employer acted maliciously or in bad faith when it withheld the wages." — This passage articulates the standard for awarding extraordinary attorney's fees under Article 111 of the Labor Code, dispensing with the requirement of proving the employer's malice or bad faith.
• "Simply stated, the attorney’s fees contracted under the MOA do not refer to the amount of attorney’s fees awarded by the NLRC; the MOA provision on attorney’s fees does not have any bearing at all to the attorney’s fees awarded by the NLRC under Article 111 of the Labor Code." — This clarifies the distinction between the ordinary and extraordinary concepts of attorney's fees, establishing that a contractual fee arrangement between a union and its counsel does not negate or double the statutory award imposed on the employer.

• Mercado vs. AMA Computer College-Parañaque City, Inc. — Followed. Cited for the exception to the rule that the CA cannot review factual findings in a Rule 65 petition, allowing examination of NLRC findings to determine if they are supported by substantial evidence.
• Montoya vs. Transmed Manila Corporation — Followed. Cited for the basic approach in a Rule 45 review of Rule 65 decisions of the CA in labor cases, emphasizing that the Supreme Court examines whether the CA correctly determined the presence or absence of grave abuse of discretion in the NLRC decision.
• PCL Shipping Philippines, Inc. vs. National Labor Relations Commission — Followed. Cited for the distinction between the ordinary and extraordinary concepts of attorney's fees and for the ruling that bad faith is not required for an award under Article 111 of the Labor Code.
• RTG Construction, Inc. vs. Facto — Followed. Cited to reiterate that in actions for recovery of wages, a monetary award by way of attorney’s fees is justifiable under Article 111 of the Labor Code without need for showing that the employer acted maliciously or in bad faith.
• Traders Royal Bank Employees Union-Independent vs. NLRC — Followed. Cited for the proposition that the ten percent attorney's fees in Article 111 of the Labor Code is the maximum award that may be granted to the victorious party, and it does not prevent the NLRC from fixing a lower amount.

• Article 111, Labor Code — Governs the grant of attorney's fees in labor cases, providing that 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. The Court applied this provision to uphold the NLRC's award, clarifying that "unlawful withholding" does not require malice or bad faith, only that lawful wages were not paid without justification.
• Article 2208, Civil Code — Enumerates the instances when attorney's fees may be awarded, specifically paragraph 7 on actions for recovery of wages. The Court noted that extraordinary attorney's fees under Article 111 of the Labor Code are payable to the client, not the lawyer, unless agreed otherwise.
• Article 4, Labor Code — Provides that all doubts in the implementation and interpretation of the provisions of the Labor Code shall be resolved in favor of labor. The Court relied on this provision to support the liberal interpretation favoring the award of attorney's fees to the employees.
• Section 8, Rule VIII, Book III, Implementing Rules of the Labor Code — Provides that attorney's fees in any judicial or administrative proceedings for the recovery of wages shall not exceed 10% of the amount awarded and may be deducted from the total amount due the winning party. The Court applied this to confirm the statutory ceiling on the award against the employer.

Carpio, A.T. (Chairperson), Perez, J.P., Sereno, M.L.P.A., and Reyes, B.L.