The Supreme Court clarified that clients hiring security agencies, like the Commission on Human Rights (CHR), are ultimately responsible for ensuring security guards receive mandated wage increases. Even if the security agency is the direct employer, the client must cover the costs of these increases, as stipulated by law. This means the CHR was liable to reimburse Security and Credit Investigation, Inc. for the wage differentials of security guards Feliciano Mercado, Edgar Somosot, and Dante Oliver, reinforcing the principle that principals must bear the financial burden of legally mandated wage hikes for contracted services. This protects the rights of security guards to receive fair wages as intended by labor laws.

Security Services & Wage Hikes: Who Pays the Piper?

This case revolves around a dispute over wage increases owed to security guards employed by Security and Credit Investigation, Inc. (SCI) and assigned to the Commission on Human Rights (CHR). The central legal question is whether SCI or CHR should bear the financial responsibility for wage increases mandated by Republic Act No. 6727 (R.A. 6727). Private respondents, Mercado, Somosot, and Oliver, filed complaints for illegal dismissal and underpayment of wages after disagreements arose regarding their compensation.

The security guards initially filed a complaint for money claims against SCI. Tensions escalated when the guards refused to sign a Release and Quitclaim, leading to what they perceived as suspensions and eventual termination. Simultaneously, SCI filed a third-party complaint against the CHR, asserting that the CHR should be responsible for covering the wage increases of the security guards. This claim was based on Section 6 of R.A. 6727, which stipulates that in contracts for security services, the client should bear the prescribed wage increases.

The Labor Arbiter initially ruled that SCI should reinstate the complainants and pay wage differentials. The Labor Arbiter also held the CHR responsible for reimbursing SCI for a portion of these costs. Dissatisfied, all parties appealed to the National Labor Relations Commission (NLRC). The NLRC affirmed the Labor Arbiter’s decision but modified the ruling, setting aside the order for the CHR to reimburse SCI. This led SCI to file a petition for certiorari with the Supreme Court, questioning the NLRC’s decision.

The Supreme Court addressed several key issues, including whether the security guards had been illegally dismissed or had abandoned their employment. The Court found no conclusive evidence of illegal dismissal. The Court noted the guards failed to confirm their employment status with the company. It also found no clear intention on the part of the guards to abandon their positions, negating the claim of abandonment by SCI.

A significant aspect of the case involved the proper computation of wage underpayments. The Labor Arbiter initially included a period for which it had found no wage underpayment. Therefore, the Court agreed with SCI that the computation of overtime pay, 13th-month pay, and service incentive leave benefits needed correction to exclude the period from September 1, 1988, to June 30, 1989. This was to align the computation with the actual periods of wage underpayment.

Crucially, the Supreme Court addressed the issue of financial responsibility for the wage increases. The Court emphasized that Section 6 of R.A. 6727 explicitly places the obligation on the principal, in this case, the CHR. The relevant provision states:

In case of contracts for construction projects and for security, janitorial and similar services, the prescribed increases in the wage rates of the workers shall be borne by the principals or clients of the construction/service contractors and the contract shall be deemed amended accordingly.

Building on this statutory foundation, the Court reiterated the principle that the ultimate liability for wage increases rests with the principal. While SCI, as the direct employer, is initially responsible for paying the wages, the CHR is legally obligated to provide the funds for these increases. The Court cited previous cases, such as Eagle Security Agency, Inc. vs. NLRC, to reinforce the precedent that wage orders effectively amend existing contracts to ensure the principal bears the cost.

The Supreme Court acknowledged that SCI notified the CHR of the mandated wage increases. SCI stated in its letter dated August 7, 1989, the CHR had approved the wage increase effective April 16, 1990. Despite the CHR’s argument that they were already paying above the minimum wage, the Court underscored that the legally mandated increases under R.A. 6727 still applied. The initial agreement was that principals in service contracts should bear the burden of said wage increases.

In summary, the Supreme Court’s decision affirmed the principle that clients hiring security agencies must bear the financial responsibility for mandated wage increases. While employers are still responsible, principals must take accountability. The Court also reinstated the Labor Arbiter’s order, requiring the CHR to reimburse SCI for the unpaid wage increases of the security guards from July 1, 1989, to April 15, 1990.

FAQs

What was the key issue in this case?	The key issue was determining who should bear the cost of wage increases for security guards provided to the Commission on Human Rights (CHR) by Security and Credit Investigation, Inc. (SCI). The question centered on whether the principal client, CHR, or the direct employer, SCI, was ultimately responsible for funding the mandated wage hikes.
What did the Labor Arbiter initially rule?	The Labor Arbiter ruled that SCI should reinstate the security guards and pay wage differentials. The Arbiter also ordered the CHR to reimburse SCI for Twenty Eight Thousand Five Hundred Pesos (P28,500.00).
How did the NLRC modify the Labor Arbiter’s decision?	The NLRC affirmed the Labor Arbiter’s decision, but set aside the order requiring the CHR to reimburse SCI. This was the key point of contention that led SCI to elevate the case to the Supreme Court.
What was the basis for SCI’s claim against the CHR?	SCI based its claim on Section 6 of Republic Act No. 6727 (R.A. 6727). This provision stipulates that the principals or clients of service contractors should bear the prescribed increases in wage rates of the workers.
What was the CHR’s defense against this claim?	The CHR argued that R.A. 6727 did not apply because the security guards were already receiving more than P100.00 daily. The CHR cited a proviso in Section 4 of R.A. 6727, exempting employees already receiving above this threshold.
What did the Supreme Court decide regarding the responsibility for wage increases?	The Supreme Court ruled that the CHR was ultimately responsible for the wage increases. The Court cited Section 6 of R.A. 6727, emphasizing that this provision mandates that principals or clients bear the burden of wage increases in service contracts.
Did the Court find that the security guards were illegally dismissed?	No, the Court found no conclusive evidence of illegal dismissal. It noted the guards’ failure to confirm their employment status and that they lacked a clear intent to sever their employer-employee relationship.
What was the effect of the Supreme Court’s decision?	The Supreme Court affirmed the NLRC’s decision but with modifications. It ordered that amounts corresponding to the underpayment of overtime, 13th month, and service incentive leave benefits be recomputed. Additionally, it reinstated the Labor Arbiter’s order that the CHR reimburse SCI for the unpaid wage increases.
What is the practical implication of this ruling?	The practical implication is that companies hiring security agencies must budget for and bear the financial responsibility for legally mandated wage increases. This protects the rights of security guards to fair wages, as was always intended under the labor code.

In conclusion, this case provides critical clarity on the financial responsibilities inherent in service contracts, especially those involving security services. It affirms that wage mandates under the Labor Code are to be passed to the principal, in order to protect those employed under service contract agreements.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Security and Credit Investigation, Inc. vs. NLRC, G.R. No. 114316, January 26, 2001