Meralco Industrial Engineering Services Corporation vs. National Labor Relations Commission

An indirect employer is solidarily liable with an independent contractor only for unpaid wages, and not for separation pay or other monetary awards arising from illegal dismissal, absent proof that the principal conspired with the contractor in the illegal dismissal. The concept of indirect employer relates only to liability for unpaid wages, as Article 106 of the Labor Code speaks of wages, and the term "wage" is defined in Article 97(f) of the Labor Code.

Petitioner Meralco Industrial Engineering Services Corporation (MIESCOR) is a corporation organized under Philippine law and a client of private respondents. Private respondent Ofelia P. Landrito General Services (OPLGS) is a business firm engaged in providing janitorial and maintenance services to its clients, with Ofelia P. Landrito as its Proprietor and General Manager. On 7 November 1984, the parties executed Contract Order No. 166-84, whereby OPLGS would supply janitorial services—including labor, materials, tools, equipment, and supervision—at MIESCOR's Rockwell Thermal Plant in Makati City. The contract was amended for the 10th time on 3 November 1989 to comply with Republic Act No. 6727 (the Wage Rationalization Act), increasing the minimum daily wage per employee from ₱63.55 to ₱89.00.

On 7 November 1984, Meralco Industrial Engineering Services Corporation (MIESCOR) and Ofelia P. Landrito General Services (OPLGS) executed Contract Order No. 166-84, whereby OPLGS would supply janitorial services—including labor, materials, tools, equipment, and supervision—at MIESCOR's Rockwell Thermal Plant in Makati City. Pursuant to the contract, OPLGS assigned 49 employees as janitors to the plant with a daily wage of ₱51.50 per employee.

On 20 September 1989, the 49 employees lodged a Complaint for illegal deduction, underpayment, non-payment of overtime pay, legal holiday pay, premium pay for holiday and rest day, and night differentials against OPLGS before the Labor Arbiter, docketed as NLRC NCR Case No. 00-09-04432-89. Following the enactment of Republic Act No. 6727, the contract was amended for the 10th time on 3 November 1989 to increase the minimum daily wage per employee from ₱63.55 to ₱89.00. On 2 January 1990, MIESCOR sent a letter to OPLGS terminating Contract Order No. 166-84 effective at the close of business hours on 31 January 1990. At the end of business hours on that date, the complainants were pulled out from their work at the plant. On 27 February 1990, the complainants amended their Complaint to include the charge of illegal dismissal and to implead MIESCOR as a party respondent.

The parties failed to settle amicably before the Labor Arbiter and submitted their respective position papers. The Labor Arbiter rendered a Decision on 26 March 1991 dismissing the Complaint against MIESCOR for lack of merit but ordering OPLGS to pay the complainants ₱487,287.07 representing unpaid wages, separation pay, and overtime pay, plus attorney's fees of ₱48,728.70. OPLGS appealed to the NLRC, alleging that 48 of the 49 complainants had executed affidavits of desistance, that the Labor Arbiter erred in not conducting a full-blown hearing, that the complainants had abandoned their jobs, and that MIESCOR, as principal, was solidarily liable.

The NLRC issued a Resolution on 28 May 1993 affirming the Labor Arbiter's Decision with modification, holding MIESCOR solidarily liable with OPLGS under Articles 107 and 109 of the Labor Code. Both parties moved for reconsideration. On 30 July 1993, the NLRC noted that the judgment award was secured by a surety bond posted by OPLGS and directed the Labor Arbiter to enforce the monetary award against the bond and determine who should finally shoulder the liability. OPLGS filed a Petition for Certiorari with the Supreme Court (G.R. No. 111506), which was dismissed on 23 May 1994 for failure to show grave abuse of discretion, becoming final and executory on 25 July 1994.

Proceedings before the Labor Arbiter resumed. On 5 October 1994, the Labor Arbiter issued an Order clarifying that MIESCOR was solidarily liable with OPLGS for the judgment awards on underpayment and non-payment of overtime pay, but that the judgment award on separation pay was the sole liability of OPLGS. Both parties appealed. The NLRC initially dismissed both appeals on 25 April 1995 but later granted reconsideration on 27 July 1995, directing both parties to post appeal bonds. On 30 January 1996, the NLRC rendered a Decision modifying the Labor Arbiter's Order, directing that the labor-standards award and separation pay be satisfied exclusively through the surety bond posted by OPLGS. OPLGS's Motion for Reconsideration was denied on 30 October 1996.

OPLGS filed a Petition for Certiorari before the Supreme Court on 4 December 1996, which was referred to the Court of Appeals on 9 December 1998 pursuant to St. Martin Funeral Home vs. National Labor Relations Commission, docketed as CA-G.R. SP No. 50806. The Court of Appeals rendered its Decision on 24 April 2000, modifying the NLRC Decision and holding MIESCOR solidarily liable with OPLGS for the separation pay, reasoning that Article 109 of the Labor Code speaks of "any violation of any provision of this Code" without distinction. MIESCOR's Motion for Reconsideration was denied on 27 September 2000.

• Law of the Case: Petitioner argued that the Court of Appeals palpably erred when it went beyond the issues of the case, as it modified factual findings of the Labor Arbiter that had attained finality after being affirmed by the NLRC and the Supreme Court, which constituted the law of the case.
• Scope of Review: Petitioner maintained that the appellate court should have limited itself to determining the right of OPLGS to seek reimbursement from MIESCOR for the monetary awards on unpaid wages and overtime pay, not the issue of separation pay liability.
• Separation Pay Liability: Petitioner asserted that the payment of separation pay should be the sole responsibility of OPLGS because there was no employer-employee relationship between MIESCOR and the complainants, and the payment of separation pay is not a labor standards benefit.
• Compliance with Wage Obligations: Petitioner invoked the NLRC Resolution dated 28 May 1993, which found that MIESCOR had fully complied with its salary obligations to the complainants, to support its claim that it was not liable to share in the payment of separation pay.

• Solidary Liability under Article 109: Private respondents argued that under Article 109 of the Labor Code, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of the Code, and that the existence or non-existence of employer-employee relationship and whether the violation is one of labor standards is immaterial because the provision does not make any distinction.
• Reimbursement from Petitioner: Private respondents contended that the ultimate liability should not fall on them alone without reimbursement from MIESCOR, as the latter should be jointly and severally liable for the monetary awards of the complainants, including separation pay.

• Law of the Case: Whether the Court of Appeals erred in going beyond the issues of the case by modifying factual findings of the Labor Arbiter that had attained finality and constituted the law of the case.
• Solidary Liability for Separation Pay: Whether the Court of Appeals erred in holding MIESCOR jointly and solidarily liable with OPLGS for the payment of separation pay to the complainants.

• Law of the Case: No. The application of the law of the case principle was misplaced because the only matters settled in the 23 May 1994 Resolution of the Supreme Court in G.R. No. 111506 were that both parties were jointly and solidarily liable for the judgment awards and that the awards shall be enforced against the surety bond. The issue of MIESCOR's liability for separation pay was yet to be resolved, as the NLRC had directed the Labor Arbiter to determine who should finally shoulder the monetary awards.
• Solidary Liability for Separation Pay: No. An indirect employer can only be held solidarily liable with the independent contractor for unpaid wages, not for separation pay, absent proof of conspiracy in the illegal dismissal. The Court of Appeals erred in using Article 109 of the Labor Code in isolation, without reading it in conjunction with Articles 106 and 107.

• Law of the Case: The Court defined law of the case as the opinion delivered on a former appeal, where the question there settled becomes the law of the case upon subsequent appeal. However, the only matters settled in the 23 May 1994 Resolution were (1) both parties were jointly and solidarily liable for the judgment awards due the complainants, and (2) the awards shall be enforced against the surety bond posted by OPLGS. The issue of MIESCOR's liability for separation pay was yet to be resolved because the NLRC, in its Order dated 30 July 1993, still directed the Labor Arbiter to determine who should finally shoulder the monetary awards. It was only after G.R. No. 111506 was dismissed that the Labor Arbiter promulgated his Decision dated 5 October 1994, clarifying the respective liabilities. Thus, the Court of Appeals did not violate the law of the case principle in taking cognizance of the separation pay issue.

• Solidary Liability for Separation Pay: The Court held that Article 109 of the Labor Code must be read in conjunction with Articles 106 and 107. Article 107 defines an indirect employer as any person, partnership, association, or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job, or project. Article 106 provides that in the event the contractor or subcontractor fails to pay the wages of his employees, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract. Taken together, an indirect employer can only be held solidarily liable with the independent contractor in the event that the latter fails to pay the wages of its employees. The Court cited Philippine Airlines, Inc. vs. National Labor Relations Commission, which explained that the concept of indirect employer only relates or refers to the liability for unpaid wages. The term "wage" is defined in Article 97(f) of the Labor Code as remuneration of earnings capable of being expressed in terms of money. Since there was no employer-employee relationship between MIESCOR and the complainants, MIESCOR could not have dismissed them from employment. The only instance when the principal can be held liable for backwages and separation pay is when there is proof that the principal conspired with the independent contractor in the illegal dismissal, citing Rosewood Processing, Inc. vs. National Labor Relations Commission. In this case, there was no allegation or proof of conspiracy. Neither could liability be extended based on contract, as Contract Order No. 166-84 contained no provision for separation pay. The Court also noted that OPLGS limited its arguments before the Court of Appeals to the monetary awards for underpayment and non-payment of overtime pay, and was silent on separation pay, so the sole liability of OPLGS for separation pay should have been deemed settled.

• Solidary Liability for Underpayment and Overtime Pay: The Court conformed to the consistent findings below that MIESCOR was solidarily liable with OPLGS for the judgment awards for underpayment of wages and non-payment of overtime pay. However, since OPLGS had already posted a surety bond sufficient to cover all the judgment awards, the purpose of the Labor Code provision on solidary liability was already accomplished. The Court held that the ruling allowing an indirect employer to recover from the contractor cannot be applied in reverse to allow the contractor to recover from the indirect employer. MIESCOR had already handed over to OPLGS the wages and other benefits of the complainants, having complied with salary increases in accordance with Republic Act No. 6727 by adjusting the contract price. This finding of fact by the Labor Arbiter, untouched by the NLRC and affirmed by the Court of Appeals, bound the Supreme Court, which is not a trier of facts.

• Indirect Employer Liability — An indirect employer, as defined in Article 107 of the Labor Code, is a person, partnership, association, or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job, or project. The concept of indirect employer only relates to liability for unpaid wages, as Article 106 speaks of wages. Read together, Articles 106 and 109 mean that the party with whom an independent contractor deals is solidarily liable with the latter for unpaid wages, and only to that extent and for that purpose is the latter considered a direct employer. The Court applied this doctrine to hold that MIESCOR could not be held liable for separation pay, as the liability of an indirect employer does not extend to all aspects of employment.

• Conspiracy Requirement for Illegal Dismissal Liability — The only instance when a principal or indirect employer can be held liable with the independent contractor for backwages and separation pay of the latter's employees is when there is proof that the principal conspired with the independent contractor in the illegal dismissal of the employees. The established fact of conspiracy ties the principal to the illegal dismissal. In this case, there was no allegation or proof that MIESCOR conspired with OPLGS in the illegal dismissal, so it could not be held liable for separation pay.

• Law of the Case — Law of the case is the opinion delivered on a former appeal, where the question there settled becomes the law of the case upon subsequent appeal. Whatever is once irrevocably established as the controlling legal rule or decision between the same parties in the same case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case. Courts must adhere thereto because public policy, judicial orderliness, and economy require stability in final judgments. The Court applied this doctrine to determine that the only matters settled in the earlier Resolution were the solidary liability for judgment awards and enforcement against the surety bond, not the separation pay liability.

• "While USSI is an independent contractor under the security service agreement and PAL may be considered an indirect employer, that status did not make PAL the employer of the security guards in every respect. As correctly posited by the Office of the Solicitor General, PAL may be considered an indirect employer only for purposes of unpaid wages since Article 106, which is applicable to the situation contemplated in Section 107, speaks of wages." — This passage from Philippine Airlines, Inc. vs. National Labor Relations Commission articulates the controlling doctrine that an indirect employer's status is limited to liability for unpaid wages, which the Court adopted as the ratio decidendi for reversing the Court of Appeals.

• "The liability arising from an illegal dismissal is unlike an order to pay the statutory minimum wage, because the workers' right to such wage is derived from law. The proposition that payment of back wages and separation pay should be covered by Article 109, which holds an indirect employer solidarily responsible with his contractor or subcontractor for 'any violation of any provision of this Code,' would have been tenable if there were proof - there was none in this case - that the principal/employer had conspired with the contractor in the acts giving rise to the illegal dismissal." — This passage from Rosewood Processing, Inc. vs. National Labor Relations Commission establishes the conspiracy requirement for holding an indirect employer liable for illegal dismissal, which the Court applied to absolve MIESCOR of separation pay liability.

• "Taken together, an indirect employer (as defined by Article 107) can only be held solidarily liable with the independent contractor or subcontractor (as provided under Article 109) in the event that the latter fails to pay the wages of its employees (as described in Article 106)." — This passage states the Court's synthesis of Articles 106, 107, and 109 of the Labor Code, defining the scope of an indirect employer's solidary liability as limited to unpaid wages.

• Philippine Airlines, Inc. vs. National Labor Relations Commission, G.R. No. 120506, 28 October 1996, 263 SCRA 638 — Controlling precedent cited for the proposition that an indirect employer may be considered such only for purposes of unpaid wages, since Article 106 speaks of wages. The Court relied on this case to limit MIESCOR's solidary liability to unpaid wages and overtime pay, excluding separation pay.

• Rosewood Processing, Inc. vs. National Labor Relations Commission, G.R. No. 116476-84, 21 May 1998, 290 SCRA 408 — Controlling precedent cited for the rule that an indirect employer can only be held liable for backwages and separation pay of a contractor's employees when there is proof of conspiracy in the illegal dismissal. The Court applied this to hold that MIESCOR could not be liable for separation pay absent conspiracy.

• St. Martin Funeral Home vs. National Labor Relations Commission, G.R. No. 130866, 16 September 1998, 295 SCRA 494 — Cited as the basis for the Supreme Court's referral of the case to the Court of Appeals, establishing the procedure for petitions for certiorari assailing NLRC decisions.

• Pelayo vs. Perez, G.R. No. 141323, 8 June 2005, 459 SCRA 475 — Cited for the definition of law of the case, which the Court applied to determine the scope of matters settled in the earlier Resolution in G.R. No. 111506.

• Bañes vs. Lutheran Church in the Philippines, G.R. No. 142308, 15 November 2005, 475 SCRA 13 — Cited for the principle that courts must adhere to the law of the case because public policy, judicial orderliness, and economy require stability in final judgments.

• Roxas vs. De Zuzuarregui, Jr., G.R. No. 152072, 31 January 2006, 481 SCRA 258 — Cited for the principle that a contract is the law between the parties, and stipulations therein, provided they are not contrary to law, morals, good customs, public order, or public policy, shall be binding.

• Ramos vs. Court of Appeals, G.R. No. 145405, 29 June 2004, 433 SCRA 177 — Cited for the rule that factual findings of quasi-judicial agencies like the NLRC, when affirmed by the Court of Appeals, are conclusive upon the parties and binding on the Supreme Court.

• Article 106, Labor Code — Provides that in the event the contractor or subcontractor fails to pay the wages of his employees in accordance with the Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Court applied this provision to limit the indirect employer's solidary liability to unpaid wages.

• Article 107, Labor Code — Defines an indirect employer as any person, partnership, association, or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job, or project. The Court applied this provision to establish MIESCOR's status as an indirect employer of the complainants.

• Article 109, Labor Code — Provides that every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of the Code, and for purposes of determining the extent of their civil liability, they shall be considered as direct employers. The Court read this provision in conjunction with Articles 106 and 107 to hold that the solidary liability of an indirect employer is limited to unpaid wages.

• Article 97(f), Labor Code — Defines "wage" as the remuneration of earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the unwritten contract of employment for work done or to be done, or for services rendered or to be rendered. The Court used this definition to determine the scope of the indirect employer's liability.

• Article 99, Labor Code (as amended by Republic Act No. 6727) — Provides that the minimum wage rates for agricultural and non-agricultural employees and workers in each region shall be those prescribed by the Regional Tripartite Wages and Productivity Boards. The Court noted that MIESCOR had adjusted its contract price in compliance with this provision.

• Republic Act No. 6727 (Wage Rationalization Act) — An Act to rationalize wage policy determination by establishing the mechanism and proper standards therefor, amending Article 99 of the Labor Code, fixing new wage rates, and providing wage incentives for industrial dispersal to the countryside. The Court noted that the contract between MIESCOR and OPLGS was amended to comply with this law, and that MIESCOR had faithfully adjusted the contract price accordingly.

Ynares-Santiago, J. (Chairperson), Austria-Martinez, J., Nachura, J., and Reyes, J. concurred in the decision.