Agency Worker Not Paid: Is the Client Company Liable?
Quick answer
Yes. If an agency or contractor fails to pay its workers' wages, the client company that contracted the work is jointly and severally liable with the contractor for those wages, to the extent of the work done under the contract. This is the rule of Articles 106, 107 and 109 of the Labor Code. It applies even when the contractor is legitimate, and the company cannot escape it by saying it already paid the agency. The company can then seek reimbursement from the contractor.
What does the Labor Code say?
The basic rule is the second paragraph of Article 106. The number did not change in the 2015 renumbering:
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.
Article 107 extends the rule to clients that are not the workers' employer:
The provisions of the immediately preceding article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project.
The law calls such a client an "indirect employer." Article 109 then states the liability broadly:
The provisions of existing laws to the contrary notwithstanding, 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.
The implementing rules (Book III, Rule VIII, Section 7, in the 1989 text on the Supreme Court E-Library) say the same: every employer or indirect employer "shall be jointly and severally liable with his contractor or sub-contractor for the unpaid wages of the employees of the latter."
What does "jointly and severally liable" mean for the worker?
It means each of them can be made to pay the whole amount covered by the law. The worker does not have to collect first from the agency and only then from the client. A claim may name both.
The liability is limited "to the extent of the work performed under the contract." So it covers the wages earned while the worker did the work contracted by that client.
What did the Court decide in Mariveles Shipyard?
In Mariveles Shipyard Corp. v. Court of Appeals (2003), a shipyard hired a security agency, which assigned guards to the shipyard. The agency underpaid the guards. The Supreme Court said the shipyard "became an indirect employer" under Article 107, and when the agency failed to pay the guards, "the corporation as principal becomes jointly and severally liable for the guards' wages." The Court said this is required by the Labor Code "to ensure compliance with its provisions, including payment of statutory minimum wage."
The shipyard was held liable together with the agency for the underpayment of wages and overtime pay. The Court added that this liability does not prevent the shipyard from claiming reimbursement from the agency under the Civil Code, since the one who pays a common debt may recover from the co-debtor.
Is this the same as labor-only contracting?
No, and the difference matters:
- Legitimate contracting. The contractor is the employer. The client is jointly and severally liable for unpaid wages under the rules on this page, but it does not become the workers' employer.
- [Labor-only contracting](/law/glossary/labor-only-contracting). Under the last paragraph of Article 106, the agency has no substantial capital or investment and its workers do work directly related to the client's main business. The agency is then treated as a mere agent, and the client is responsible to the workers as if it had hired them directly.
See endo and labor-only contracting and labor-only contracting.
How does this work in real life?
These are made-up examples to show how the rules work. They are not advice for any real case.
Jun is a security guard employed by an agency and assigned to a mall. For three months, the agency pays him less than what the law requires and then stops answering calls. Under Article 106 and the Mariveles ruling, the mall, as the client that contracted the security work, is jointly and severally liable with the agency for the unpaid wages for the work Jun did at the mall.
Lorna is a janitor employed by a cleaning contractor. She worked at a hospital for one year and then at an office building for another year. Her unpaid wages for the hospital assignment are covered by the hospital's liability, because the law limits it to the work performed under the hospital's contract.
Mike's client company says it has paid every invoice of the agency on time. As in Mariveles, that does not remove its liability to the workers. The company can recover from the agency what it pays.
When do you need a lawyer?
Claims against an agency and its client often involve several companies, contracts and pay periods. Talk to a lawyer, your union or the Public Attorney's Office, especially if many workers are affected or if the agency has closed. A claim usually starts with conciliation at DOLE; see how to file a labor complaint. Money claims must be filed within three years; see labor money claims: how long do you have? If you cannot afford a lawyer, see Free legal help in the Philippines.
Which provisions does this answer rest on?
Frequently asked questions
Is the client company liable if the agency does not pay my salary?
Yes, under Article 106 of the Labor Code. If the contractor or subcontractor fails to pay the wages of its employees, the employer that contracted the work is jointly and severally liable with the contractor to those employees, to the extent of the work performed under the contract.
What does jointly and severally liable mean?
It means each of them can be made to pay the whole amount owed. The worker may claim from the agency, from the client company, or from both, for the wages covered by the law.
What if the client company is not my employer at all?
Article 107 applies the same rule to any person, partnership, association or corporation that, not being an employer, contracts with an independent contractor for any work, task, job or project. The law calls it an indirect employer.
The company says it already paid the agency. Is that a defense?
In Mariveles Shipyard Corp. v. Court of Appeals (2003), the Supreme Court held the shipyard jointly and severally liable for the security guards' underpaid wages and overtime pay even though it had dealt with the agency. Its remedy was to seek reimbursement from the agency.
Does the company's liability cover only wages?
Article 109 says every employer or indirect employer is responsible with its contractor for any violation of any provision of the Labor Code, and that for civil liability under that chapter they are considered direct employers.
Is this the same as labor-only contracting?
No. In labor-only contracting, the agency is treated as a mere agent and the company is the real employer. The rules on this page apply even when the contractor is legitimate.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
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