G.R. No. 150402; November 28, 2006
EPARWA SECURITY AND JANITORIAL SERVICES, INC., Petitioner, vs. LICEO DE CAGAYAN UNIVERSITY, Respondent.

FACTS

Eparwa Security and Janitorial Services, Inc. (Eparwa) and Liceo de Cagayan University (LDCU) entered into a Contract for Security Services, stipulating a rate of ₱5,000 per guard per month. Eparwa allocated this amount to cover the guard’s statutory benefits and its own agency share and VAT. Subsequently, 11 security guards filed a complaint for monetary claims against both Eparwa and LDCU. The Labor Arbiter found the claims valid and held both respondents solidarily liable under Article 109 of the Labor Code, but also ordered Eparwa to reimburse LDCU for any amount the latter pays.
The NLRC, in its resolutions, affirmed the solidary liability but modified the reimbursement scheme. It initially deleted the reimbursement order. Upon motions for reconsideration, the NLRC clarified that while both are solidarily liable to the guards, LDCU is ultimately liable and must reimburse Eparwa for any payment Eparwa makes. The Court of Appeals reversed the NLRC, reinstating the Labor Arbiter’s decision and ordering a remand for computation, effectively making Eparwa the ultimately liable party. Eparwa elevated the case to the Supreme Court via a petition for certiorari.

ISSUE

Whether the Court of Appeals erred in reversing the NLRC’s ruling that LDCU, as the principal, is ultimately liable to reimburse Eparwa, the contractor, for the wage differentials paid to the security guards.

RULING

The Supreme Court granted Eparwa’s petition, reinstating the NLRC resolutions. The legal logic is anchored on the statutory scheme of solidary liability under Articles 106, 107, and 109 of the Labor Code, which governs job contracting. The law imposes solidary liability upon the contractor and the principal to ensure workers can recover their rightful wages from either entity. However, this solidary obligation to the workers is distinct from the internal liability between the contractor and principal.
The Court explained that solidary liability to the creditors (the guards) does not dictate the ultimate liability between the debtors. Between Eparwa and LDCU, the principal (LDCU) bears the ultimate responsibility. The contract price of ₱5,000 was insufficient to cover the guards’ statutory minimum wages. Since the contract had expired, Eparwa could no longer demand a price adjustment from LDCU. Therefore, to prevent unjust enrichment, equity demands that LDCU, which benefited from the services, must reimburse Eparwa for any wage differentials Eparwa pays. Conversely, LDCU cannot claim reimbursement from Eparwa, as the contractor’s failure to pay proper wages stemmed from the principal’s failure to provide a contract rate sufficient for compliance. The NLRC correctly allocated the ultimate financial burden to LDCU.