G.R. No. 90933 -61 May 29, 1997
NATIONAL POWER CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER OSWALDO B. LORENZO, et al., respondents.

FACTS

The National Power Corporation (NAPOCOR) entered into a contract with Westinghouse International Projects Company as principal contractor for the construction of the Bataan Nuclear Power Plant. Westinghouse subcontracted the civil works to Power Contractors, Inc. (PCI). Upon completion of specific project phases, PCI terminated the employment of over six thousand workers without providing separation pay. Consequently, the workers filed twenty-seven consolidated complaints for illegal dismissal and monetary claims against PCI before the Labor Arbiter.
During the pendency of these cases, NAPOCOR, Westinghouse, and PCI executed a Memorandum of Understanding (MOU). This agreement stipulated that PCI would defend against the claims but that NAPOCOR, through Westinghouse, would ultimately indemnify and reimburse PCI for all liabilities arising from the termination pay claims. The Labor Arbiter later impleaded NAPOCOR and Westinghouse as additional parties. Labor Arbiter Oswald B. Lorenzo eventually rendered a decision holding NAPOCOR, Westinghouse, and PCI jointly and severally liable for the payment of separation pay and other benefits to the workers. NAPOCOR challenged this decision and the subsequent orders of execution via certiorari.

ISSUE

The primary issue is whether the National Power Corporation can be held jointly and severally liable with the direct employer, Power Contractors, Inc., for the separation pay claims of the project workers.

RULING

The Supreme Court ruled in the affirmative, upholding the joint and several liability of NAPOCOR. The legal logic rests on the established principle of solidary liability under Article 106 of the Labor Code, in relation to Article 107. These provisions state that the principal (or indirect employer) is jointly and severally liable with the contractor or subcontractor for the wages and other monetary claims of the contractor’s employees. This statutory scheme is designed to ensure that employees are not left without recourse due to the contractor’s insolvency or inability to pay.
The Court found this principle directly applicable. NAPOCOR was the project owner and ultimate beneficiary of the work performed. The MOU it executed expressly acknowledged its obligation to indemnify PCI for all liabilities from the termination pay claims, thereby unequivocally admitting its role as the principal obligated to answer for the claims. This contractual undertaking merely reinforced the statutory obligation. The law does not require proof of direct employer-employee relationship between the principal and the workers to impose this liability; it is sufficient that a contractual relationship exists between the principal and the contractor, and that the claims arose from the execution of the contracted work. Therefore, NAPOCOR, as the statutory principal, was correctly held solidarily liable with PCI to guarantee the workers’ rightful claims.