5. Solidary Liability

Solidary Liability in Legitimate Contracting: Violations of the Labor Code and Social Legislation

In the event of violation of any provision of the Labor Code, including the failure to pay wages, there exists a solidary liability on the part of the principal and the contractor for purposes of enforcing the provisions of the Labor Code and other social legislations, to the extent of the work performed under the employment contract. (D.O. No. 174-17, Sec. 9)

Every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers. (Labor Code, Art. 109)

Note: Principal’s Liability under Art. 109

If the liability is for failure to pay the minimum wage, or the service incentive leave or other benefits derived from or provided for by law, the principal is equally liable with the contractor

If the liability is invested with punitive character, such as an award for backwages and separation pay because of an illegal dismissal, the liability should be solely with the contractor in the absence of proof that the principal conspired with the contractor in the commission of the illegal dismissal (see Meralco v. NLRC, G.R. No. 145402, 2008)

Solidary Liability for Wages and Money Claims for Performed Under The Contract

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him (Labor Code, Art. 106)

Should the indirect employer be constrained to pay the workers, it can recover whatever amount it paid, in accordance with the terms of the service contract between itself and the contractor (Rosewood Processing v. NLRC, G.R. Nos. 116476-84, 1998).

The joint and several liability of the contractor and the principal is mandated by the Labor Code to assure compliance with the provisions therein including the minimum wage. The contractor is made liable by virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer of the contractor's employees to secure payment of their wages should the contractor be unable to pay them. Even in the absence of an EER, the law itself establishes one between the principal and the employees of the agency for a limited purpose i.e. in order to ensure that the employees are paid the wages due them. (Lapanday Agricultural Dev’t Corp. v. CA, G.R. No. 112139, 2000)

Solidary Liability of Principal and Employer in cases of Illegal Dismissal

Joint and several with the employer, but with the right to reimbursement from the employer-contractor.

Wage differentials only to the extent where the employee performed the work under the principal.

Rule: Principal and contractor are solidarily liable.