G.R. No. 228373 - People vs. Sullano

The petitioner is the Philippine Fisheries Development Authority, a government-owned or controlled corporation created under P.D. No. 977.
The respondents include the National Labor Relations Commission (NLRC) and the Odin Security Agency, the latter acting as representative of its security guards.

On November 11, 1985, the petitioner entered into a security services contract with the Odin Security Agency for the protection of its Iloilo Fishing Port Complex.
The contract stipulated the monthly compensation for various security personnel (e.g., security guards, supervisors, detachment commanders) and implicitly included benefits such as minimum wage, rest day pay, night differential, incentive leave, 13th month pay, emergency cost of living allowance, and applicable taxes and operational expenses.
A key contractual provision provided for an automatic escalation of rates in the event of wage increases, thereby adjusting the compensation in accordance with subsequent laws and decrees, specifically reflecting changes mandated by wage orders.

On October 24, 1987, during the contract’s term, the private respondent requested an adjustment of the contract rate based on Wage Order No. 6, which took effect on November 1, 1984, asserting that increases in minimum wage and applicable allowances should be borne by the principal.
The request was reiterated on January 14 and February 19, 1988, but the petitioner did not act on these requests.
On June 7, 1988, the private respondent filed a complaint for unpaid re-adjustment amounts under Wage Order No. 6, including wage differentials based on integrated cost of living allowances and attorney’s fees.

On July 29, 1988, the petitioner filed a Motion to Dismiss the complaint on three main grounds:

Lack of jurisdiction of the Commission;
The contention that the security guards lacked legal personality to sue or be sued;
The argument that any employer-employee relationship was absent, hence the action involved a contractual interpretation beyond the Commission’s authority.

On August 19, 1988, the Labor Arbiter dismissed the complaint, positing that as a government-controlled entity, the petitioner fell under the Civil Service Commission’s jurisdiction, not the NLRC.
The dismissal was challenged on appeal, and on January 17, 1989, the NLRC reversed the dismissal, granting relief to the private respondent.
A motion for reconsideration was subsequently filed by the petitioner on several grounds—including alleged due process violations, contention over the legal basis of the relief granted, and a claim that the contract was void ab initio—and was eventually denied on June 25, 1990.
The petitioner, appealing to the Supreme Court, reiterated its arguments regarding due process and the improper application of NLRC jurisdiction, emphasizing its status as a government-controlled entity and challenging the automatic adjustment stipulation in the contract.

The contract explicitly stated that security guards were not direct employees of the petitioner, thereby framing their relationship as that of job contracting.
Despite the petitioner’s government status and its special charter (placing it under the purview of the Civil Service Commission in certain contexts), the nature of the job contracting arrangement rendered it an indirect employer with joint and solidary responsibilities under Articles 106, 107, and 109 of the Labor Code.
The Wage Orders, being statutory and mandatory, required that adjustments in the contract price to cover increased wage and allowance rates be made, ultimately creating joint liability between the principal (petitioner) and the contractor (private respondent).

Whether the NLRC had jurisdiction to set aside the dismissal order by the Labor Arbiter and decide on the security guards’ claim despite the petitioner’s status as a government-owned or controlled corporation.
Whether the petitioner’s alleged deprivation of due process—particularly the claim that no hearing was conducted—warrants reversal of the NLRC’s ruling.

Whether the petitioner, as an indirect employer, is bound by the NLRC’s ruling to pay the adjusted wage differentials mandated by Wage Order No. 6.
Who ultimately bears the burden of paying the wage increases: the principal (petitioner) or the contractor (private respondent), given the contractual stipulations and the legal framework governing job contracting.

Whether the contractual stipulation for automatic rate escalation in the event of wage increases is enforceable, particularly in light of the provisions of Wage Order No. 6 and other relevant labor laws.
Whether the petitioner, having benefited from the contract over a period of two years, may be estopped from challenging the validity of the contract on procedural or substantive grounds.