GSIS vs.

NLRC, LANTING SECURITY and WATCHMAN AGENCY, TOMAS

LANTING, DANIEL FANILA,* HECTOR MORENO, ISAURO FERRER,** RUBIN
WILFREDO, JESUS DELIMA, JR., MARIA LEGASPI, SANTIAGO NOTO, JR., and
VIRGILIO SORIANO.

G. R. NO. 157647 : October 15, 2007

Digested by: Mary Bessadel B. Dulay

FACTS: LSWA entered into a Security Service Contract to provide security guards to the
properties of the GSIS at the contract rate of P3,000.00 per guard per month. During the
effectivity of the contract, LSWA requested the GSIS for an upward adjustment of the
contract rate in view of Wage Orders No. 1 and 2 issued by the RTWPB-NCR pursuant to the
Wage Rationalization Act. GSIS issued a Board Resolution No. 207, dated May 24, 1991,
approving the upward adjustments of the contract price from P3,000.00 to P3,716.07 per
guard, per month effective November 1, 1990 to January 7, 1991, and P4,200.00 effective
January 8, 1991 to May 31, 1991.

On March 15, 1993, GSIS terminated the Security Service Contract with LSWA. All the
complainants, except Virgilio Soriano, were absorbed by the incoming security agency.

The complainants filed separate complaints against LSWA for underpayment of wages and
non-payment of labor standard benefits from March 1991 to March 15, 1993. Virgilio Soriano
also complained of illegal dismissal.

LSWA alleged that complainants were estopped from claiming that they were underpaid
because they were informed that the pay and benefits given to them were based on the
contract rate of P103.00 per eight hours of work or about P3,100.00 per month. LSWA filed a
Third-Party Complaint against GSIS for underpayment of complainants' wages.

The GSIS avers that it cannot twice be held liable for complainants' salary differentials since
it fully paid complainants' salaries by incorporating in the Security Service Contract the salary
rate increases mandated by Wage Order Nos. 1 and 2; otherwise, it would be unjust
enrichment on the part of complainants and/or LSWA at its expense. It submits that Articles
106 and 107 of the Labor Code were not contemplated by its framers to cover principals or
clients of service contractors who had already paid for the wages of the contractor or
subcontractor.

ISSUE: Is GSIS and LSWA jointly and severally liable for the payment of
complainants' salary differentials?

RULING: Yes. The joint and solidary liability of LSWA and the GSIS to pay
complainants' salary differentials shall be without prejudice to the GSIS's right of
reimbursement from LSWA.

Articles 106 and 107 of the Labor Code provide:

ART. 106. Contractor or subcontractor. - Whenever an employer enters

into contract with another person for the performance of the former's
work, the employees of the contractor and of the latter's
subcontractor, if any, shall be paid in accordance with the provisions
of this Code.
 In the event that the contractor or subcontractor fails to pay the wage
of his employees in accordance with this 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.

x x x

ART. 107 Indirect employer. - The provisions of the immediately

preceding Article shall likewise apply to 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. (Emphasis supplied.)

In this case, the GSIS cannot evade liability by claiming that it had fully paid complainants'
salaries by incorporating in the Security Service Contract the salary rate increases mandated
by Wage Order Nos. 1 and 2 by increasing the contract price from P3,000.00 to P3,176.07 per
guard per month effective November 1, 1990 to January 7, 1991, and P4,200.00 effective
January 8, 1991 to May 31, 1991.

In Rosewood Processing, Inc. v. National Labor Relations Commission, the Court explained
the rationale for the joint and several liability of the employer, thus:

The joint and several liability of the employer or principal was enacted to ensure
compliance with the provisions of the Code, principally those on statutory minimum
wage. The contractor or subcontractor is made liable by virtue of his or her status as a direct
employer, and the principal as the indirect employer of the contractor's employees. This
liability facilitates, if not guarantees, payment of the workers' compensation, thus,
giving the workers ample protection as mandated by the 1987 Constitution. This is not
unduly burdensome to the employer. Should the indirect employer be constrained to
pay the workers, it can recover whatever amount it had paid in accordance with the
terms of the service contract between itself and the contractor.(Emphasis supplied)

Thus, the Court does not agree with the GSIS's claim that a double burden would be imposed
upon the latter because it would be paying twice for complainants' services. Such fears are
unfounded. Under Article 1217 of the Civil Code, if the GSIS should pay the money claims of
complainants, it has the right to recover from LSWA whatever amount it has paid in
accordance with the terms of the service contract between the LSWA and the GSIS. ςηαñrοblεš  Î½Î¹r† Ï…αl  lαω  lιbrαrÿ

Joint and solidary liability is simply meant to assure aggrieved workers of immediate and
sufficient payment of what is due them. This is in line with the policy of the State to protect
and alleviate the plight of the working class.