I.

Eduardo Santiago, a project worker, was being assigned by his employer, Bagsak Builders, to Laoag,
Ilocos Norte. Santiago refused to comply with the transfer claiming that it, in effect, constituted a
constructive dismissal because it would take him away from his family and his usual work assignments in
Metro Manila. The Labor Arbiter found that there was no constructive dismissal but ordered the
payment of separation pay due to strained relations between Santiago and Bagsak Builders plus
attorney's fees equivalent to ten percent (10%) of the value of Santiago's separation pay. Is the award of
attorney's fees valid? State the reasons for your answer.

No, the award of attorney's fees is not valid.

In the case at bar, the worker refused to comply with a lawful transfer order, and hence, a refusal to
work. The Labor Code provides that attorney's fees may be assessed in cases of unlawful withholding of
wages.

Hence, payment of attorney’s fees will not be given since the is not of unlawful withholding of wages.

(b) Could the labor arbiter have validly awarded moral and exemplary damages to Santiago instead of
attorney's fees? Why?

No, moral and exemplary damages can be awarded only if the worker was illegally terminated in an
arbitrary or capricious manner

II.
Upon a review of the wage rate and structure pertaining to its regular rank and file
employees, K Corporation found it necessary to increase its hiring rates for employees
belonging to the different job classification levels to make their salary rates more
competitive in the labor market.
After the implementation of the new hiring salary, Union X, the exclusive bargaining agent
of the rank and file employees, demanded a similar salary adjustment for the old
employees. It argued that the increase in hiring rates resulted in wage distortion since it
erased the wage gap between the new and old employees. In other words, new employees
would enjoy almost the same salary rates as K Corporation’s old employees.
(a) What is wage distortion?
A wage distortion is the elimination or serious contraction of the wage gap advantage
enjoyed by one wage group over another of same wage region; provided, such
elimination or compression is caused by a wage law, or wage order.

(b) Did a wage distortion arise under the circumstances which legally obligated K
Corporation to rectify the wages of its old employees? Explain.
No. Since the cause of the alleged elimination is not one of the recognized causes, as
it was an adjustment of the hiring rate for new hires joining other wage groups, the
elimination of the wage gap is not a wage distortion. It is rather clear that the
increased rate would only be given to new hires and not to all the members of the
wage group/s they would be joining. Hence, the company has nothing to adjust or
rectify.

III.a

Wages; Unpaid Wages; Preference of Credit in favor of Employees (1995) 1. Under the Labor Code, is the
right of first preference a lien on the property of the insolvent debtor in favor of the workers? Explain.
SUGGESTED ANSWER: The right of first preference in favor of workers is not a lien on the property of the
insolvent debtor. The preference could be exercised only in the event of bankruptcy or liquidation of an
employer's business.

Q: The Independence Bank of the Philippines (IBP) is the mortgage creditor of San Juan Trading
Company (SJTC). For failure of SJTC to pay its obligations, IBP foreclosed the former’s mortgaged
properties and in the bidding acquired the properties as the highest bidder. SJTC’s workers, whose
claims for separation pay, unpaid wages and other benefits could not be satisfied, filed an action against
IBP to enforce their claims, contending that they enjoyed preference in respect of separation pay, wages
and other benefits due them prior to the cessation of SJTC's operations. Will the action of the workers
against IBP prosper? Explain.

Suggested Answer: The action of the workers against IBP will not prosper. It is true that the Labor Code
provides: In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy
first preference as regards their wages and other monetary claims, any provisions of law to the contrary
notwithstanding. Such unpaid wages and monetary claim shall be paid in full before claims of the
government and other creditors may be paid. But, here, the mortgaged property is no longer owned by
SJTC. The first preference of the workers can only be enforced against the judgement debtor, meaning
SJTC, and not against IBC who now owns the mortgaged property which has been fore-closed.
(Development Dank of the Philippines vs. Minister of Labor and Employment, et al. G.R. No. 75801,
March 20,1991)

Q: XYZ Company filed a petition for bankruptcy before a Regional Trial Court. Among the list of creditors
are the Philippine National Bank (PNB), various suppliers, the Bureau of Internal Revenue (BIR) for
payment of back taxes and the Union in representation of the employees for unpaid wages, leaves and
bonuses. a. With regards to the other creditors, particularly the PNB and BIR, what is the Page 9 of 307
Labor Law standing of the employees claims? b. Would it make any difference if there is no judicial
declaration of bankruptcy?

SUGGESTED ANSWER: a. In Republic v. Peralta, the claims of the 'Government, like the taxes that should
be paid to the BIR, should first be paid before the money claims of the workers. But if, the question is
now resolved under Rep. Act No. 6715, it is now provided that “unpaid wages and monetary claims (of
workers) shall be paid in full before the claims of the Government and the other creditors may be paid.
b. If there is no judicial declaration of bankruptcy, the claim of the Union in representation of the
employees for unpaid wages, leaves and bonuses will be given preference after there is a finding by a
Labor Arbiter, hearing the case as a money claim, that an employer is bankrupt.

Can the issue of wage distortion be raised in a notice of strike? Explain.

(10%) SUGGESTED ANSWER: NO. Section 16, Chapter I of Rules Implementing RA 6727 provides that
"Any dispute involving wage distortions shall not be a ground for strike/lockout." Article 124 of the
Labor Code, as amended by Republic Act 6727 prescribes a procedure for the correction of a wage
distortion, implicitly excluding strikes or lockouts or other concerted activities as modes of settlement of
the issue. The legislative intent that wage distortion shall be solved by voluntary negotiation or
arbitration is made clear in the rules (Ilaiv at Buklod ng Manggagawa v. NLRC, G.R. No. 91980, June 27,
1991).

Antonio Antuquin, a security guard, was caught sleeping on the job while on duty at the Yosi Cigarette
Factory. As a result, he was dismissed from employment by the Wagan Security Agency, an independent
contractor. At the time of his dismissal, Antonio had been serving as a watchman in the factory for many
years, often at stretches of up to 12 hours, even on Sundays and holidays, without overtime, nighttime
and rest day benefits. He thereafter filed a complaint for illegal dismissal and non-payment of benefits
against Yosi Cigarette Factory, which he claimed was his actual and direct employer. As the Labor Arbiter
assigned to hear the case, how would you correctly resolve the following:

(6%) (a) Antonio's charge of illegal dismissal;

As the Labor Arbiter, I will dismiss the illegal dismissal against Yosi Cigarette Factory.

Here, Wagan Security Agency, an independent contractor, is Antonio's direct employer. Yosi is only
Antonio's indirect employer. By force of law, there is in reality no employer-employee relationship
between Yosi and Antonio. (Baguio v. NLRC, G.R. Nos. 79004-08, October 4, 1991)

(b) Antonio's claim for overtime and other benefits.

I will dismiss Antonio's claim for overtime and other benefits for lack of merit as against Yosi. In
legitimate job contracting, the principal employer (Yosi) becomes jointly and severally liable with the job
contractor (Wagan) only for the payment of the employee's (Antonio) wages whenever the contractor
fails to pay the same. Other than that, the principal employer (Yosi) is not responsible for any other
claim such as backwages, separation pay and damages made by the employee (Antonio). (San Miguel
Corp. v. MAERC Integrated Services, Inc., G.R. No. 144672, July 10, 2003)