Article 110 of the Labor Code: Workers first when a business goes bankrupt
Status: Amended
Amended
This provision has been amended. The text below is the current version.
- Amended by: Republic Act No. 6715
What does Article 110 say?
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 claims shall be paid in full before claims of the government and other creditors may be paid.
Read the Labor Code on the DOLE website (it uses the article numbers before 2015)
What does it mean in plain language?
Article 110 of the Labor Code gives workers first preference for their unpaid wages and other money claims when their employer's business goes through bankruptcy or liquidation. The Supreme Court reads it narrowly: it is a rule on the order of payment inside bankruptcy or judicial liquidation proceedings, and it does not beat a bank's mortgage over a specific property. It does not promise that workers will be paid in full.
The article keeps the same number after the 2015 renumbering of the Labor Code. Its text comes from Republic Act No. 6715 (1989).
How does it work in real life?
Mila: a factory in judicial liquidation
Mila's employer, a garment factory, is placed under judicial liquidation. She has three months of unpaid wages. Under Article 110, her claim is among those with first preference in the liquidation. If a bank holds a mortgage over the factory building, the Barayoga ruling means her preference does not defeat the bank's special preferred credit over that building.
Ramon: a shop that just shut its doors
Ramon's employer closes its shop and stops answering calls. No bankruptcy or liquidation case is filed. Article 110 does not yet come into play. Ramon's unpaid wages are claimed through the usual labor process, starting with conciliation at DOLE.
Liza: enough assets, or not?
Liza and forty co-workers have claims in a liquidation. The company's free assets are small. Article 110 puts their claims first among ordinary creditors, but they share what is left. The preference cannot create money that is not there.
What does this mean in practice?
- In a liquidation, claims are listed and checked before payment. Payslips, payroll records and written computations of unpaid amounts are the usual proof of a claim.
- Money claims have a deadline. See labor money claims prescription.
- A labor complaint usually starts with conciliation through DOLE's Single Entry Approach. See how to file a labor complaint and late or unpaid salary.
- Bankruptcy and liquidation cases involve courts, many creditors and fixed procedures. A lawyer, a union or the Public Attorney's Office can help. See Free legal help in the Philippines.
What does Article 110 say?
The article opens with the situation it covers:
In the event of bankruptcy or liquidation of an employer’s business, his workers shall enjoy first preference
As printed in Section 1 of Republic Act No. 6715 on the Supreme Court E-Library, the preference covers "their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding." The second sentence says these claims "shall be paid in full before the claims of the Government and other creditors may be paid."
In plain words:
- When it applies. Bankruptcy or liquidation of the employer's business.
- What it covers. Unpaid wages and other monetary claims of the workers.
- What it does. It places those claims first in line, ahead of the government and other creditors, in the sense explained by the Court below.
Does it put workers ahead of a bank with a mortgage?
No, not over the mortgaged property. In Barayoga v. Asset Privatization Trust (2005), the Supreme Court explained the Civil Code system of preferred credits:
- A mortgage credit is a special preferred credit under Articles 2241 and 2242 of the Civil Code. It enjoys preference over a specific property of the debtor.
- The worker's preference under Article 110 is an ordinary preferred credit. It raises the workers' money claims to first priority in the order of preference under Article 2244 of the Civil Code, but "the claim has no preference over special preferred credits."
The Court also quoted the rule that the first preference "does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application."
Does Article 110 apply when a company just closes?
The Court said in Barayoga that workers' claims for unpaid wages and monetary benefits "cannot be paid outside of a bankruptcy or judicial liquidation proceedings against the employer," and that the application of Article 110 "is contingent upon the institution of those proceedings, during which all creditors are convened, their claims ascertained and inventoried, and their preferences determined."
So when a business closes without such proceedings, the worker's route is the usual labor claim: separation pay where the law grants it (see Article 298), unpaid wages and other money claims through a labor complaint. Article 110 matters once a court handles the employer's assets among all its creditors.
This page does not cover later laws on corporate rehabilitation and insolvency, or rulings after 2005.
Frequently asked questions
What does Article 110 of the Labor Code say?
In the event of bankruptcy or liquidation of an employer's business, the workers enjoy first preference as regards their unpaid wages and other monetary claims. These are to be paid in full before the claims of the government and other creditors may be paid.
Does Article 110 put workers ahead of a bank with a mortgage?
Not over the mortgaged property. In Barayoga v. Asset Privatization Trust (2005), the Supreme Court said a mortgage credit is a special preferred credit over a specific property, while the workers' preference under Article 110 is an ordinary preferred credit with no preference over special preferred credits.
Can workers use Article 110 if the company simply stops operating?
The Supreme Court has said Article 110 applies only when bankruptcy or judicial liquidation proceedings have been started against the employer. Outside those proceedings, unpaid wages are claimed in the usual way, through a labor complaint.
Is a worker sure to be paid in full in a bankruptcy?
No. Article 110 decides the order of payment among creditors. How much each worker receives depends on the assets left and on the special preferred credits over specific property.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
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