NFA vs. Masada Security Agency, Inc.

The liability of principals in service contracts under Section 6 of Republic Act No. 6727 is limited solely to the prescribed increase in the statutory minimum wage rate and does not encompass corresponding adjustments in wage-related benefits, overtime pay, or administrative costs and margin.

On September 17, 1996, respondent Masada Security Agency, Inc. and petitioner National Food Authority (NFA) entered into a one-year security service contract for NFA Region I, later extended on a monthly basis under the same terms. The Regional Tripartite Wages and Productivity Board (RTWPB) subsequently issued several wage orders mandating increases in the daily minimum wage. Masada requested NFA adjust the contract price to cover not only the daily wage increase but also the corresponding increases in wage-related benefits (overtime, holiday, 13th month pay, SSS, Pag-ibig premiums) and administrative costs and margin. NFA granted the adjustment only for the daily wage increment multiplied by 30 days, denying the rest. Despite advisory opinions from the DOLE Secretary and the NWPC Executive Director sustaining Masada's broader interpretation of the wage orders, NFA maintained its position.

• The Service Contract: NFA and Masada entered into a one-year security service contract on September 17, 1996, for NFA Region I offices. Upon expiration, the contract was extended monthly under the same terms.
• Wage Orders and Demands: The RTWPB issued Wage Order Nos. RB 1-05, RB CAR-04, RB 1-06, RB CAR-05, RB 1-07, and RB CAR-06, mandating increases in the daily minimum wage. Masada requested corresponding upward adjustments in the monthly contract rate covering the daily wage increase, wage-related benefits, and administrative costs and margin.
• NFA's Partial Adjustment: NFA granted the request only with respect to the increase in the daily wage (multiplied by 30 days) and denied adjustments for all other wage-related benefits and remunerations.
• Administrative Intervention: Masada sought intervention from the DOLE Secretary and NWPC Executive Director, who issued advisories sustaining Masada's claim that the mandated increase is not limited to daily pay. NFA disregarded these advisories.
• The Complaint: Masada filed Civil Case No. Q-01-43988 for recovery of sum of money, claiming P2,949,302.84 for unpaid wage-related benefits and P975,493.04 for additional cost and margin, plus interest and damages.

• Statutory Limitation: Petitioner argued that Section 6 of RA 6727 expressly limits the additional liability of principals in service contracts to the prescribed increase in the wage rates, which pertains solely to the statutory minimum wage for a regular eight-hour workday.
• Contractual Stipulation: Petitioner maintained that Article IV.4 of the service contract and NFA Memorandum AO-98-03 expressly limited wage adjustments to the increment in the legislated minimum wage based on published rates, precluding adjustments for other benefits.

• Statutory Expansion: Respondent countered that the mandated wage increase necessarily includes wage-related benefits because the computation of overtime pay, holiday pay, SSS, and Pag-ibig premiums is based on the minimum wage; thus, an increase in the minimum wage proportionately increases these benefits.
• Administrative Interpretation: Respondent argued that the advisory opinions issued by the DOLE Secretary and the NWPC Executive Director sustained its position that the increase mandated by RA 6727 and the wage orders is not limited to the daily pay.

• Liability under RA 6727: Whether the liability of principals in service contracts under Section 6 of RA 6727 and the RTWPB wage orders is limited only to the increment in the minimum wage.

• Liability under RA 6727: The liability of principals is limited strictly to the increment in the statutory minimum wage. The term "wage" in Section 6 of RA 6727, read in conjunction with Section 4(a) of the same Act and its Implementing Rules, pertains to no other than the "statutory minimum wage"—the lowest wage rate fixed by law for normal working hours not exceeding eight hours a day. Applying expresio unius est exclusio alterius, the statute cannot be extended to include wage-related benefits not expressly stated. Administrative interpretations expanding the statute cannot bind the Court when the law is clear and unambiguous under the principle of verba legis. Workers' welfare remains protected because the service contractor is solidarily liable for the other benefits under the Labor Code. Because the contract and NFA internal memorandum limited adjustments to the minimum wage increment, and NFA had already paid this, the obligation was extinguished under Article 1231 of the Civil Code, leaving no cause of action for the remaining claims.

• Expresio unius est exclusio alterius — Where a statute is expressly limited to certain matters, it may not, by interpretation or construction, be extended to others. Applied to Section 6 of RA 6727, limiting the term "wage" to the statutory minimum wage and excluding wage-related benefits.
• Verba legis (Plain meaning rule) — If a statute is clear, plain, and free from ambiguity, it must be given its literal meaning and applied without interpretation. Applied to the clear wording of Section 6 of RA 6727, precluding judicial expansion of the principal's liability.
• Administrative Construction — While generally entitled to great weight, administrative interpretations cannot bind the Court when clearly erroneous or when the law interpreted is clear and plain. Applied to reject the DOLE/NWPC advisories that expanded the principal's liability beyond the statutory minimum wage increment.

• "Since the increase in wage referred to in Section 6 pertains to the 'statutory minimum wage' as defined herein, principals in service contracts cannot be made to pay the corresponding wage increase in the overtime pay, night shift differential, holiday and rest day pay, premium pay and other benefits granted to workers."
• "The general rule is that construction of a statute by an administrative agency charged with the task of interpreting or applying the same is entitled to great weight and respect. The Court, however, is not bound to apply said rule where such executive interpretation, is clearly erroneous, or when there is no ambiguity in the law interpreted, or when the language of the words used is clear and plain..."

• Commissioner of Customs v. Court of Tax Appeals, G.R. Nos. 48886-88 — Cited as controlling precedent for the application of expresio unius est exclusio alterius in statutory construction.
• Enjay, Inc. v. National Labor Relations Commission, 315 Phil. 648 — Cited as controlling precedent for the application of verba legis and the presumption that the legislature used words advisedly.
• Energy Regulatory Board v. Court of Appeals, G.R. No. 113079 — Cited as controlling precedent for the principle that administrative interpretations cannot bind the Court when the law is clear.

• Section 6, Republic Act No. 6727 (Wage Rationalization Act) — Provides that prescribed increases in the wage rates of workers in security and similar services shall be borne by the principals or clients. Applied to limit the principal's liability strictly to the increment in the statutory minimum wage.
• Section 4(a), Republic Act No. 6727 — Defines statutory minimum wage rates as increased by twenty-five pesos per day. Used as a cross-reference to determine the meaning of "wage" in Section 6.
• Articles 106, 107, and 109, Labor Code — Establish the joint and solidary liability of indirect employers and contractors. Cited to show that workers' welfare is protected even if the principal's liability is limited, as the contractor remains liable for unpaid wage-related benefits.
• Article 1231, Civil Code — Identifies payment as a mode of extinguishing obligations. Applied to dismiss the complaint because NFA had already paid the increased statutory minimum wage, thereby extinguishing its obligation.

Davide Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna, JJ.