G.R. No. 122791 ; February 19, 2003
PLACIDO O. URBANES, JR., doing business under the name & style of CATALINA SECURITY AGENCY, petitioner, vs. THE HONORABLE SECRETARY OF LABOR AND EMPLOYMENT and SOCIAL SECURITY SYSTEM, respondents.

FACTS

Petitioner Placido O. Urbanes, Jr., owner of Catalina Security Agency, had a contract to provide security services to respondent Social Security System (SSS). Citing Wage Order No. NCR-03 issued under Republic Act 6727, which mandates that principals or clients bear the cost of wage increases for workers of service contractors, petitioner requested the SSS for a contract rate adjustment. After the SSS failed to heed his requests, petitioner pulled out his security services and filed a complaint with the DOLE Regional Director to compel the SSS to pay the wage differentials for his security guards.
The Regional Director ruled in favor of petitioner, ordering the SSS to pay him the amount representing the wage differentials. The SSS appealed to the Secretary of Labor, arguing that the Regional Director had no jurisdiction and that petitioner was not the real party in interest. The Secretary of Labor set aside the Regional Director’s order, holding that the security agency is jointly and severally liable with the SSS for the wage differentials, which should be paid directly to the guards. The Secretary also remanded the case for recomputation. Petitioner’s motion for reconsideration was denied, prompting this petition for certiorari.

ISSUE

Whether the Secretary of Labor committed grave abuse of discretion in ruling that the petitioner security agency must first pay the wage increases to its guards before it can claim reimbursement from the principal, the SSS.

RULING

No, the Secretary of Labor did not commit grave abuse of discretion. The Supreme Court dismissed the petition, affirming the Secretary’s order. The legal logic is anchored on the solidary liability framework established under the Labor Code and relevant jurisprudence. While Wage Order No. NCR-03 makes the principal (SSS) ultimately liable for mandated wage increases, the service contractor (petitioner) is primarily responsible for paying its employees. The right of the contractor to seek reimbursement from the principal arises only after the contractor has actually paid the wage differentials to the employees. This is consistent with Article 1217 of the Civil Code on solidary obligations, which provides that payment by one solidary debtor extinguishes the obligation and gives rise to a right of reimbursement.
The Court cited its ruling in Eagle Security Agency, Inc. v. NLRC and Lapanday Agricultural and Development Corporation v. Court of Appeals, which clarified that the contractor’s claim for an adjustment in the contract consideration from the principal is contingent upon the contractor having first paid the increases to the workers. Since the records showed that petitioner had not paid the mandated increases to his security guards—who had, in fact, filed a separate complaint for underpayment—petitioner had no cause of action against the SSS for reimbursement at that time. Consequently, the Regional Director also lacked jurisdiction over the complaint.