AMID THE continuing development of our Philippine labor and employment system, job/service contracting or subcontracting arrangements continue to prevail as an established practice. In the Department of Labor’s Statistics on Employment Facilitation Services from 2011 up to the second quarter of 2013, job and service contractors or subcontractors placement had the second highest rate in job applicants’ placement, after private recruitment and placement agencies.
Complexities, however, arise when a contractor evades liabilities, causing its employees to go after the principal.
By reason of such chaos brought about by the employees’ misunderstanding of the law, courts are, at some point, easily swayed by the employees’ disposition. Thus, the manner by which a principal is held liable in a legitimate contracting arrangement should be reexamined.
In legitimate contracting, the principal is merely an indirect employer of his contractor’s employees. The law creates an employer-employee relationship only for a limited purpose, which is to ensure that the employees are paid their wages.
Being so, the principal becomes solidarily liable with the contractor if the latter fails to pay the employees’ wages even if he has paid the worker’s wage rates stipulated in the contract with the contractor.
The Labor Code provides that the liability of the principal will only be “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.”
This was interpreted in the case of Rosewood Processing, Inc. v. NLRC to mean that the principal’s liability to the contractor’s employees extends only to the period during which they were working for the principal. Likewise, in a GSIS v. NLRC et al. case, the Supreme Court ruled that the liability covers the payment of the employees’ salary differential and 13th-month pay during the time they worked for the principal.
Under Article 109 of the Labor Code, the principal can also be held liable for any violation of any provision of the Labor Code. This liability is qualified or limited liability. That is, if the liability involves an award for back wages and separation pay because of an illegal dismissal of the contractor’s employees, the liability should be solely that of the contractor, in the absence of proof that the principal conspired with the contractor in the commission of the illegal dismissal.
In two other cases, it was held that the solidary liability of a principal extends not only to wages but also to other violations of the Labor Code. These cases, however, were modified such that the contractor’s employees can no longer insist their claims of back wages and separation pay from the principal.
As an example, in Meralco Industrial Engineering Services Corporation v. NLRC, the Supreme Court ruled that Article 109 of the Labor Code must be read in relation to Articles 106 and 107 and, therefore, the principal is only solidarily liable with the contractor if the latter fails to pay the wages of its employees.
This principle is also applied in Vigilla et al. v. Philippine College of Criminology, Inc., which established that, in legitimate contracting arrangement, the principal becomes jointly and severally liable with the contractor only for the payment of the employees’ wages whenever the contractor fails to pay them, and is not responsible for any claim made by the contractor’s employees.
It follows then that the liability of the principal under Article 109 of the Labor Code is limited by Article106, which limits the liability of a principal to the wages of the contractor’s employees. As such, it is on good authority that the current rule pronounced in the Rosewood case and cases thereafter remains good law.
Other than the obligation of the contractors and principals to strictly comply with the requisites for legitimate contracting arrangements, courts also have the duty to observe legal precedents laid down by the Supreme Court in order not to make the principals liable for claims that are beyond the principal’s responsibility.
Mayette H. Tapia is an associate of the Labor and Employment Department of the Angara Abello Concepcion Regala & Cruz Law Offices.
mhtapia@accralaw.com
source: Businessworld
