Tuesday, November 29, 2011

Attorney's fees; ordinary vs. extraordinary - G.R. No. 174179

G.R. No. 174179

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On the Award of Attorney’s Fees

Article 111 of the Labor Code, as amended, governs the grant of attorney’s fees in labor cases:

Art. 111. Attorney’s fees.- (a) In cases of unlawful withholding of wages, the culpable party may be assessed attorney’s fees equivalent to ten percent of the amount of wages recovered.

(b) It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings for the recovery of wages, attorney’s fees which exceed ten percent of the amount of wages recovered.

Section 8, Rule VIII, Book III of its Implementing Rules also provides, viz.:

Section 8. Attorney’s fees. – Attorney’s fees in any judicial or administrative proceedings for the recovery of wages shall not exceed 10% of the amount awarded. The fees may be deducted from the total amount due the winning party.

We explained in PCL Shipping Philippines, Inc. v. National Labor Relations Commission[34]that there are two commonly accepted concepts of attorney’s fees – the ordinary and extraordinary. In its ordinary concept, an attorney’s fee is the reasonable compensation paid to a lawyer by his client for the legal services the former renders; compensation is paid for the cost and/or results of legal services per agreement or as may be assessed. In its extraordinary concept, attorney’s fees are deemed indemnity for damages ordered by the court to be paid by the losing party to the winning party. The instances when these may be awarded are enumerated in Article 2208 of the Civil Code, specifically in its paragraph 7 on actions for recovery of wages, and is payable not to the lawyer but to the client, unless the client and his lawyer have agreed that the award shall accrue to the lawyer as additional or part of compensation.[35]

We also held in PCL Shipping that Article 111 of the Labor Code, as amended, contemplates theextraordinary concept of attorney’s fees and that Article 111 is an exception to the declared policy of strict construction in the award of attorney’s fees. Although an express finding of facts and law is still necessary to prove the merit of the award, there need not be any showing that the employer acted maliciously or in bad faith when it withheld the wages. In carrying out and interpreting the Labor Code's provisions and implementing regulations, the employee's welfare should be the primary and paramount consideration. This kind of interpretation gives meaning and substance to the liberal and compassionate spirit of the law as embodied in Article 4 of the Labor Code (which provides that "[a]ll doubts in the implementation and interpretation of the provisions of [the Labor Code], including its implementing rules and regulations, shall be resolved in favor of labor") and Article 1702 of the Civil Code (which provides that "[i]n case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer”).[36]

We similarly so ruled in RTG Construction, Inc. v. Facto[37]and in Ortiz v. San Miguel Corporation.[38] In RTG Construction, we specifically stated:

Settled is the rule that in actions for recovery of wages, or where an employee was forced to litigate and, thus, incur expenses to protect his rights and interests, a monetary award by way of attorney’s fees is justifiable under Article 111 of the Labor Code; Section 8, Rule VIII, Book III of its Implementing Rules; and paragraph 7, Article 2208 of the Civil Code. The award of attorney’s fees is proper, and there need not be any showing that the employer acted maliciously or in bad faith when it withheld the wages. There need only be a showing that the lawful wages were not paid accordingly.[39] (emphasis ours)

In PCL Shipping, we found the award of attorney’s fees due and appropriate since the respondent therein incurred legal expenses after he was forced to file an action for recovery of his lawful wages and other benefits to protect his rights.[40] From this perspective and the above precedents, we conclude that the CA erred in ruling that a finding of the employer’s malice or bad faith in withholding wages must precede an award of attorney’s fees under Article 111 of the Labor Code. To reiterate, a plain showing that the lawful wages were not paid without justification is sufficient.

In the present case, we find it undisputed that the union members are entitled to their AA benefits and that these benefits were not paid by the Company. That the Company had no funds is not a defense as this was not an insuperable cause that was cited and properly invoked. As a consequence, the union members represented by the Union were compelled to litigate and incur legal expenses. On these bases, we find no difficulty in upholding the NLRC’s award of ten percent (10%) attorney’s fees.

The more significant issue in this case is the effect of the MOA provision that attorney’s fees shall be deducted from the AA and CBA receivables. In this regard, the CA held that the additional grant of 10% attorney’s fees by the NLRC violates Article 111 of the Labor Code, considering that the MOA between the parties already ensured the payment of 10% attorney’s fees deductible from the AA and CBA receivables of theUnion’s members. In addition, the Company also argues that the Union’s demand, together with the NLRC award, is unconscionable as it represents 20% of the amount due or about P21.4 million.

In Traders Royal Bank Employees Union-Independent v. NLRC,[41] we expounded on the concept of attorney’s fees in the context of Article 111 of the Labor Code, as follows:

In the first place, the fees mentioned here are the extraordinary attorney’s fees recoverable as indemnity for damages sustained by and payable to the prevailing part[y]. In the second place, the ten percent (10%) attorney’s fees provided for in Article 111 of the Labor Code and Section 11, Rule VIII, Book III of the Implementing Rules is the maximum of the award that may thus be granted. Article 111 thus fixes only the limit on the amount of attorney’s fees the victorious party may recover in any judicial or administrative proceedings and it does not even prevent the NLRC from fixing an amount lower than the ten percent (10%) ceiling prescribed by the article when circumstances warrant it.[42] (emphases ours; citation omitted)

In the present case, the ten percent (10%) attorney’s fees awarded by the NLRC on the basis of Article 111 of the Labor Code accrue to the Union’s members as indemnity for damages and not to the Union’s counsel as compensation for his legal services, unless, they agreed that the award shall be given to their counsel as additional or part of his compensation; in this case the Union bound itself to pay 10% attorney’s fees to its counsel under the MOA and also gave up the attorney’s fees awarded to the Union’s members in favor of their counsel. This is supported by Borela’s affidavit which stated that “[t]he 10% attorney’s fees paid by the members/employees is separate and distinct from the obligation of the company to pay the 10% awarded attorney’s fees which we also gave to our counsel as part of our contingent fee agreement.”[43] The limit to this agreement is that the indemnity for damages imposed by the NLRC on the losing party (i.e., the Company) cannot exceed ten percent (10%).

Properly viewed from this perspective, the award cannot be taken to mean an additional grant of attorney’s fees, in violation of the ten percent (10%) limit under Article 111 of the Labor Code since it rests on an entirely different legal obligation than the one contracted under the MOA. Simply stated, the attorney’s fees contracted under the MOA do not refer to the amount of attorney’s fees awarded by the NLRC; the MOA provision on attorney’s fees does not have any bearing at all to the attorney’s fees awarded by the NLRC under Article 111 of the Labor Code. Based on these considerations, it is clear that the CA erred in ruling that the LA’s award of attorney’s fees violated the maximum limit of ten percent (10%) fixed by Article 111 of the Labor Code.

Under this interpretation, the Company’s argument that the attorney’s fees are unconscionable as they represent 20% of the amount due or about P21.4 million is more apparent than real. Since the attorney’s fees awarded by the LA pertained to the Union’s members as indemnity for damages, it was totally within their right to waive the amount and give it to their counsel as part of their contingent fee agreement. Beyond the limit fixed by Article 111 of the Labor Code, such as between the lawyer and the client, the attorney’s fees may exceed ten percent (10%) on the basis of quantum meruit, as in the present case.[44]

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