G.R. No. 163448 . March 08, 2005. NATIONAL FOOD AUTHORITY (NFA), and JUANITO M. DAVID, in his capacity as Regional Director, NFA Regional Office No. 1, San Juan, La Union, Petitioners, vs. MASADA SECURITY AGENCY, INC., represented by its Acting President & General Manager, COL. EDWIN S. ESPEJO (RET.), Respondents.
FACTS

The National Food Authority (NFA) engaged MASADA Security Agency to provide security services for its Region I offices under a one-year contract, later extended monthly. During the contract period, the Regional Tripartite Wages and Productivity Board issued several wage orders increasing the daily minimum wage. MASADA requested a corresponding upward adjustment in the monthly contract rate to cover not only the increased daily wage but also the consequential increases in overtime pay, holiday pay, 13th month pay, and premiums for SSS and Pag-ibig, as well as administrative costs and margin. NFA granted only the adjustment for the daily wage increase, computed by multiplying the mandated increase by 30 days, and refused to cover the other wage-related benefits and costs.
MASADA sought intervention from labor authorities, which issued advisories sustaining its position that the mandated increase under Republic Act No. 6727 (the Wage Rationalization Act) and the wage orders encompassed adjustments to all wage-based benefits. NFA maintained its refusal, leading MASADA to file a complaint for sum of money before the Regional Trial Court. The trial court ruled in favor of MASADA, ordering NFA to pay the adjustments. NFA appealed to the Court of Appeals, which dismissed the appeal on procedural grounds but sustained the trial court’s ruling on the merits.

ISSUE

Whether the liability of a principal under a service contract, pursuant to Section 6 of R.A. No. 6727 and the implementing wage orders, is limited only to the increment in the minimum daily wage, excluding consequential adjustments to other wage-related benefits and the contractor’s administrative costs and margin.

RULING

The Supreme Court ruled in favor of MASADA, affirming the lower courts. The legal logic is anchored on the statutory mandate and the nature of wage orders. R.A. No. 6727 and the wage orders issued pursuant thereto mandate an increase in the “wage rates.” The law defines “wage” broadly to include remuneration capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis. The wage orders specifically provide that the increase prescribed therein shall be integrated into the computation of all wage-related benefits. Therefore, the statutory increase necessarily elevates the entire wage structure, which serves as the base for calculating overtime, holiday pay, and other statutory benefits.
The Court rejected NFA’s argument that its contractual obligation was limited. While the contract provided for adjustments due to wage orders, it did not expressly restrict the adjustment to the bare daily wage increment. More importantly, the provisions of the labor law and the wage orders are deemed written into the contract. These laws are mandatory and constitute public policy designed to protect labor. A contractual stipulation that seeks to circumvent this statutory obligation by limiting the adjustment solely to the daily wage, thereby preventing security guards from receiving the full benefit of the law-mandated increase in their overall compensation package, is void. Consequently, NFA, as the principal, is liable for the full cost adjustment, including the proportional increase in the contractor’s administrative costs and margin, as these are legitimate components of the contract price directly affected by the wage increase.