The Supreme Court affirmed the right of Metropolitan Waterworks and Sewerage System (MWSS) employees to receive their Cost of Living Allowance (COLA) from 1989 to 1999, a period during which a Department of Budget and Management circular unlawfully suspended such benefits. The Court underscored that MWSS had a ministerial duty to pay this allowance, making mandamus—a court order compelling the performance of a duty—an appropriate legal remedy. Furthermore, the Court validated agreements between employees and their representatives regarding attorney’s fees, ensuring that these contracts, when reasonable, are honored.

From Circular Confusion to COLA Clarity: Can Government Employees Demand Fair Compensation?

This case revisits the long-standing issue of government employees’ entitlement to COLA, specifically focusing on the period when Department of Budget and Management (DBM) Corporate Circular No. 10 (DBM Circular No. 10) was deemed ineffective due to lack of proper publication. This circular had suspended the payment of allowances and fringe benefits, including COLA. At the heart of the matter lies the question: Can employees compel MWSS to pay the balance of their COLA from 1989 to 1999, and are the agreements regarding attorney’s fees valid and enforceable?

The factual backdrop reveals that prior to November 1, 1989, MWSS employees received allowances, fringe benefits, and COLA. DBM Circular No. 10, aimed at implementing the Salary Standardization Law (Republic Act No. 6758), sought to discontinue these benefits. However, in De Jesus v. Commission on Audit, the Supreme Court declared DBM Circular No. 10 ineffective due to lack of publication, setting the stage for a legal battle over the unpaid COLA. After persistent demands, the Office of the Government Corporate Counsel (OGCC) opined that government-owned and controlled corporations’ employees were indeed entitled to the payment of COLA during the suspension period.

Despite the OGCC’s opinion and the Supreme Court’s ruling in De Jesus, MWSS only granted a 5% COLA to its employees. This led the employees to demand the 95% balance, a request MWSS denied, citing a similar case’s dismissal and lack of funds. Consequently, the employees filed a petition for mandamus to compel MWSS to pay the balance.

The Regional Trial Court (RTC) granted the petition, ordering MWSS to pay the balance of the COLA. The Court of Appeals (CA) affirmed the RTC’s decision, with modifications concerning attorney’s fees. The Supreme Court, in this case, addressed the core issues of the employees’ entitlement to COLA and the validity of agreements regarding attorney’s fees.

The Supreme Court’s analysis hinged on the principle established in De Jesus v. Court of Appeals, which invalidated DBM Circular No. 10 for lack of publication.

On the need for publication of subject DBM CCC No. 10, we rule in the affirmative. Following the doctrine enunciated in Tanada, publication in the Official Gazette or in a newspaper of general circulation in the Philippines is required since DBM CCC No. 10 is in the nature of an administrative circular the purpose of which is to enforce or implement an existing law.

Because the circular was ineffective, it could not legally justify the denial of COLA to government employees during the period in question. Moreover, the Court referenced its earlier ruling in Philippine Ports Authority (PPA) Employees Hired After July 1, 1989 v. Commission on Audit (COA), reinforcing the entitlement to COLA from 1989 to 1999, stating:

In other words, during the period that DBM CCC No. 10 was in legal limbo, the COLA and the amelioration allowance were not effectively integrated into the standardized salaries.

Building on this principle, the Court emphasized that MWSS had a ministerial duty to pay the COLA balance. Mandamus, therefore, was an appropriate remedy to compel MWSS to fulfill this duty. A ministerial duty is one where an official or tribunal performs a task in a prescribed manner, based on a given set of facts, without exercising judgment or discretion. The Court held that the payment of COLA, under the circumstances, was such a duty.

Regarding attorney’s fees, the Court addressed the agreement between respondent Bautista and other employees, which stipulated that 10% of their COLA claims would cover litigation expenses and attorney’s fees. The Court acknowledged its power to reduce unconscionable attorney’s fees, but found nothing inherently unjust or inequitable in the 10% agreement. Citing Section 24, Rule 138 of the Rules of Court, the Court affirmed that attorneys are entitled to reasonable compensation for their services.

SEC. 24. Compensation of attorneys, agreement as to fees. – An attorney shall be entitled to have and recover from his client no more than a reasonable compensation for his services, with a view to the importance of the subject matter of the controversy, the extent of the services rendered, and the professional standing of the attorney.

However, the Court clarified that this agreement was binding only on the employees who signed it, based on the principle of relativity of contracts. It cannot favor or prejudice third persons. As such, other MWSS employees who had separate agreements with their own agents or lawyers would be bound by those respective agreements.

The practical implications of this decision are significant. It reaffirms the right of government employees to receive COLA during the period when DBM Circular No. 10 was ineffective. It underscores the enforceability of contracts between employees and their representatives regarding attorney’s fees, provided they are reasonable. It emphasizes the importance of proper publication of administrative circulars to ensure their validity and enforceability.

FAQs

What was the key issue in this case?	The central issue was whether MWSS employees were entitled to the balance of their COLA from 1989 to 1999, and whether agreements regarding attorney’s fees were valid.
Why was DBM Circular No. 10 deemed ineffective?	DBM Circular No. 10 was declared ineffective due to lack of proper publication, as required by law.
What is a ministerial duty?	A ministerial duty is a task performed by an official in a prescribed manner, without exercising judgment or discretion.
What is mandamus, and why was it relevant in this case?	Mandamus is a court order compelling a government body to perform a specific act. It was relevant because the court deemed the MWSS had a ministerial duty to perform and the court used this remedy to compel them to do so.
What did the Court say about attorney’s fees agreements?	The Court upheld the validity of reasonable attorney’s fees agreements, subject to the Court’s power to reduce unconscionable fees.
Who is bound by the 10% agreement for attorney’s fees in this case?	Only the MWSS employees who signed the agreement with respondent Bautista are bound by its terms.
What is the principle of relativity of contracts?	The principle of relativity of contracts states that contracts take effect only between the parties, their assigns, and heirs.
What period does this COLA entitlement cover?	The COLA entitlement covers the period from November 1989, when the benefit was discontinued, up to March 16, 1999, when DBM Circular No. 10 became effective.

In conclusion, the Supreme Court’s decision in this case reinforces the legal rights of government employees to receive fair compensation and benefits, particularly during periods when administrative actions may have unlawfully curtailed those rights. It also reaffirms the importance of honoring contractual agreements, while ensuring that such agreements remain fair and reasonable.

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: Metropolitan Waterworks and Sewerage System vs. Genaro C. Bautista, G.R. No. 171351, March 14, 2008