G.R. Nos.

92777-78 March 13, 1991

ISAGANI ECAL, CRISOLOGO ECAL, NELSON BUENAOBRA, NARDING BANDOGELIO,
WILMER ECAGUE, ROGELIO CAS!ILLO, AL"REDO "ERNANDO, OLIGARIO BIGA!A,
ROBER!O "ERRER AND ONES!O !ANAEL, R#$r#s#%&#' () ISAGANI ECAL, petitioners,
vs.
NA!IONAL LABOR RELA!IONS COMMISSION *!IRD DI+ISION,, -IMM. MA!CU/A AND I-
LINE !IMBER, INC., respondents.
Armando A. San Antonio for petitioners.
Chicote Abad & Macaisip Law Offices for private respondents.

GANCA.CO, J.:p
Is there an employer-employee relationship between petitioners and private respondent Hi-Line
Timber, Inc. or merely an employer-independent contractor relationship between said private
respondent and petitioner Isagani Ecal with the other petitioners being mere contract workers of
Ecal? In the case of the latter, is Ecal engaged in !ob contracting or labor-only contracting? "hat
then is the e#tent of the liability of private respondent? These are the $%estions raised in this
petition.
This case traces its origin from two consolidated complaints for illegal dismissal and money claims
filed by petitioners Isagani Ecal, &risologo Ecal, 'elson (%enaobra, 'arding (andogelio, "ilmer
Echag%e, )ogelio &astillo, *lfredo +ernando, ,ligario (igata, )oberto +errer and Honesto Tanael
against private respondents Hi-Line Timber, Inc. -hereinafter referred to as Hi-Line. and /immy
0atch%ka, the company foreman, with the 1epartment of Labor and Employment docketed as 'L)&
case 'o. )*(-23-24-2526-76 and 'o. )*( III-24-2558-76.
In their complaints9position papers, petitioners alleged, among others, that they have been employed
by Hi-Line as follows: Isagani Ecal, from +ebr%ary, 5478; &risologo Ecal, (%enaobra, (andogelio,
+ernando, (igata, +errer and Tanael, from 0arch 3, 5478; and &astillo and Echag%e, from 0ay 5,
5478; that e#cept for Isagani Ecal, they were all receiving a salary of < 3=.22 a day; that they were
re$%ired to report for work 6 days a week incl%ding rest days, legal holidays, e#cept &hristmas and
>ood +riday from 6:22 *.0. to 6:22 <.0.; that they were not given living allowance, overtime pay,
premi%m pay for rest days and legal holidays, 53th month pay and service incentive leave pay; and,
that on /%ne 8, 5476, they were not allowed to work and instead were informed that their services
were no longer needed.
<rivate respondents, on the other hand, denied the e#istence of an employer-employee relationship
between the company and the petitioners claiming that the latter are %nder the employ of an
independent contractor, petitioner Isagani Ecal, an employee of the company %ntil his resignation on
+ebr%ary ?, 5476.
*fter s%bmission of the s%pplemental position papers and other evidence by the parties, the labor
arbiter rendered his decision dated /%ne 52, 5477 finding no employer-employee relationship
between the parties. Th%s, he dismissed the two cases for lack of merit.
1
,n appeal, p%blic respondent 'ational Labor )elations &ommission -'L)&. affirmed the aforesaid
decision of the labor arbiter in a resol%tion dated ,ctober @, 5474.
2
The motion for reconsideration of petitioners was denied in a resol%tion dated 0arch 5@, 5442.
3
In this petition for certiorari, petitioners primarily $%estion the finding of the p%blic respondent 'L)&
that no employer-employee relationship e#isted between them and Hi-Line Timber, Inc. They
contend that petitioner Isagani Ecal is not an independent contractor b%t a mere employee of Hi-Line
Line.
In response, the Aolicitor >eneral points o%t that the iss%e of whether or not an employer-employee
relationship e#ists between the parties is a $%estion of fact and the findings of the labor arbiter and
the 'L)& on this iss%e are concl%sive %pon this &o%rt if they are s%pported by s%bstantial
evidence
0
as in this case.
The 'L)& r%led B
"e have caref%lly e#amined and eval%ated the basis of the decision of the Labor
*rbiter and to ,%r mind his fact%al findings are indeed s%pported by s%bstantial
evidence. Th%s, we cite a few of the clear and convincing evidence and record which
compelled the Labor *rbiter to disregard the claim of the complainants that there was
-an. employer-employee relationship between the contending parties. +irstly, the
affidavit of respondentsC personnel officer, EliDabeth 'atividad, dated @@ *pril 5477,
clearly attesting to the fact that complainants, e#cept Isagani Ecal, who worked at
their plant at (oca%e, (%lacan, from @? *pril 5478 %p to ? +ebr%ary 5476 and who
tendered his resignation on the latter date, were not at all employees of respondents;
secondly, the payrolls of the respondents do not indicate that said complainants were
employees of the respondents; thirdly, the Ain%mpaang Aalaysay of /ose 0endoDa,
the Aecretary-Treas%rer of the Hi-Line "orkers Enion-&onfederation of +ree
Laborers -&+L., a registered labor Enion %nder )eg. &ert. 'o. -+E1-?@=.-86=8-55,
iss%ed 0arch, 5476, to the effect that none of the complainants, e#cept Isagani Ecal,
were listed as members of the %nion and9or employees of respondents; and lastly,
two -@. Ain%mpaang Aalaysay dated @@ *pril 5477 e#ec%ted by respondentsC
company g%ard Honorio T. (att%ng and +oreman &lemente A. Aales, respectively,
attesting that it was only Isagani Ecal who worked with respondents b%t resigned on
? +ebr%ary 5476 to work as -an. independent contractor.
1
<etitioners claim that the 'L)& based its decision solely on the evidence aforestated and
completely ignored the evidence they presented th%s denying them d%e process. The &o%rt caref%lly
e#amined the records of the case and finds that the 'L)& limited itself to a s%perficial eval%ation of
the relationship of the parties based mainly on the aforestated doc%ments with emphasis on the
company payrolls witho%t regard to the partic%lar circ%mstances of the case.
The finding of the 'L)& that Isagani Ecal is no longer an employee of Hi-Line line is amply
s%pported by the evidence on record. His resignation letter dated +ebr%ary ?, 5476 stating ako po
ay magreresign na sa aking trabaho bilang laborer sapagkaCt nakita ko na mas malaki ang kikitain
k%ng mangongontrata na lamang
2
speaks for itself. This was %ns%ccessf%lly reb%tted by petitioners.
To determine whether there e#ists an employer-employee relationship, the fo%r-way test sho%ld be
applied, namely: -5. selection and engagement of the employee; -@. the payment of wages; -3. the
power of dismissal; and -?. the power to control the employeeCs cond%ctBthe last being the most
important element.
7
'either the 'L)& nor the labor arbiter %tiliDed these g%ides in their disposition of
the complaint.
The records show that Hi-Line does not choose the workers b%t merely accepts whoever may be
selected by petitioner Isagani Ecal. <etitioners are not incl%ded in the payroll. Instead a l%mp s%m of
<5,?22.22 is given to Isagani Ecal or his representative Aolomon de los Aantos, every fo%r days, to
cover their wages for the period which the petitioners divide among themselves.
<rivate respondents allege that Isagani Ecal c%stomarily removes some of his laborers at the Hi-Line
sawmill and assigns them to other sawmills; however, there was no evidence add%ced to show that
indeed Ecal reg%larly or even once transferred some of his workers to other sawmills. <etitioners
worked at the company compo%nd at "akas, (oca%e, (%lacan, at least eight ho%rs a day, for seven
days a week so that it wo%ld be impossible for them to find time to work in some other sawmill. ,n
/%ne 8, 5476, the company %nilaterally terminated the services of petitioners witho%t notice allegedly
on the gro%nd that its contract with Isagani Ecal has already e#pired.
*s to the matter of control, it wo%ld seem that petitioners were mostly left on their own to devise the
most e#peditio%s way of segregating l%mber materials as to siDes and of loading and %nloading the
same in the chamber for drying. However, their task is performed within the work premises of Hi-
Line, specifically at its Filn 1rying Aection, so it cannot be said that no amo%nt of control and
s%pervision is e#erted %pon them by the company thro%gh their foremen, private respondent
0atch%ka and &lemente A. Aales. 0oreover, the very nat%re of the task performed by petitioners
re$%ires very limited s%pervision as there are only so many ways of segregating l%mber according to
their siDes and of loading and %nloading them in the dryer so that all that the company has to do is to
check on the res%lts of their work.
The foregoing observation s%ggests that there is a certain relationship e#isting between the parties
altho%gh a clear-c%t characteriDation of s%ch relationship B whether it is an employer-employee
relationship or an employer-independent contractor relationship B is %navailing. Hence, a closer
scr%tiny of said relationship is in order.
<etitioners %rge that even ass%ming arguendo that Isagani Ecal is an independent contractor, he
sho%ld be considered only a labor s%pplier who is deemed an agent of the company so that
petitioners sho%ld en!oy the stat%s of being its employees; therefore, Hi-Line sho%ld be held liable for
illegally dismissing petitioners and for the non-payment of benefits d%e them. <rivate respondents,
however, maintain that Isagani Ecal is an independent contractor or a !ob contractor.
The Aolicitor >eneral adopts the theory that Ecal is an independent contractor. However, he fa%lts
the labor arbiter for his fail%re to determine the benefits d%e petitioners, an iss%e raised by the latter,
on the gro%nd that Hi-Line, being an indirect employer, is !ointly and severally liable with Isagani Ecal
to the e#tent of the work performed by the employees as if they were directly employed by it. He,
therefore, seeks the remand of the case to the labor arbiter for determination of the %npaid benefits
of petitioners.
The pertinent provisions of the Labor &ode, as amended, are:
*rt. 528. Contractor or subcontractor. B "henever an employer enters into a
contract with another person for the performance of the formerCs work, the
employees of the contractor and of the latterCs s%bcontractor, if any, shall be paid in
accordance with the provisions of this &ode.
In the event that the contractor or s%bcontractor fails to pay the wages of his
employees in accordance with this &ode, the employer shall be !ointly and severally
liable with his contractor or s%bcontractor to s%ch employees to the e#tent of the
work performed %nder the contract, in the same manner and e#tent that he is liable to
employees directly employed by him.
The Aecretary of Labor may, by appropriate reg%lations, restrict or prohibit the
contracting o%t of labor to protect the rights of workers established %nder this &ode.
In so prohibiting or restricting, he may make appropriate distinctions between labor-
only contracting and !ob contracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the
employer for p%rposes of this &ode, to prevent any violation or circ%mvention of any
provision of this &ode.
There is labor-only contracting where the person s%pplying workers to an employer
does not have s%bstantial capital or investment in the form of tools, e$%ipment,
machineries, work premises, among others, and the workers recr%ited and placed by
s%ch person are performing activities which are directly related to the principal
b%siness of s%ch employer. In s%ch cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and e#tent as if the latter were directly employed.
*rt. 526. Indirect Emploer. B The provisions of the immediately preceding *rticle
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, !ob or pro!ect.
Ender the provisions of *rticle 528, paragraphs 5 and @, an employer who enters into a contract with
a contractor for the performance of work for the employer does not thereby establish an employer-
employee relationship between himself and the employees of the contractor. The law itself, however,
creates s%ch a relationship when a contractor fails to pay the wages of his employees in accordance
with the Labor &ode, and only for this limited p%rpose, i.e. to ens%re that the latter will be paid the
wages d%e them.
8
,n the other hand, the legal effect of a finding that a contractor is merely a labor only contractor
was e#plained in !hilippine "an# of Communications vs. $ational Labor %elations Commission, et
al.,
9
B
. . . The labor-only contractor B i.e., the person or intermediary B is considered
merely as an agent of the employer. The employer is made by the stat%te
responsible to the employees of the labor only contractor as if s%ch employee had
been directly employed by the employer. Th%s, where labor-only contracting e#ists
in a given case, the stat%te itself implies or establishes an employer-employee
relationship between the employer -the owner of the pro!ect. and the employees of
the labor-only contractor, this time for a comprehensive p%rpose: employer for
p%rposes of this &ode, to prevent any violation or circ%mvention of any provision of
this &ode. The law in effect holds both the employer and the Clabor-onlyC contractor
responsible to the latterCs employees for the more effective safeg%arding of the
employeesC rights %nder the Labor &ode.
Aections 7 and 4, )%le GIII, (ook III of the ,mnib%s )%les implementing the Labor &ode set forth
the distinctions between !ob contracting and labor-only contracting B
Aec. 7. &ob contracting. B There is !ob contracting permissible %nder the &ode if the
following conditions are met:
-5. The contractor carries on an independent b%siness and %ndertakes the contract
work on his own acco%nt %nder his own responsibility according to his own manner
and method, free from control and direction of his employer or principal in all matters
connected with the performance of the work e#cept as to the res%lts thereof, and
-@. The contractor has s%bstantial capital or investment in the form of tools,
e$%ipments, machineries, work premises, and other materials which are necessary in
the cond%ct of his b%siness.
Aec. 4. Labor'onl contracting B -a. *ny person who %ndertakes to s%pply workers
to an employer shall be deemed to be engaged in labor-only contracting where s%ch
person:
-5. 1oes not have s%bstantial capital or investment in the form of
tools, e$%ipments, machineries, work premises and other materials;
and
-@. The workers recr%ited and placed by s%ch person are performing
activities which are directly related to the principal b%siness or
operations of the employer in which workers are habit%ally employed.
-b. Labor-only contracting as defined herein is hereby prohibited and the person
acting as contractor shall be considered merely as an agent or intermediary of the
employer who shall be responsible to the workers in the same manner and e#tent as
if the latter were directly employed by him.
### ### ###
*pplying the foregoing provisions, the &o%rt finds petitioner Isagani Ecal to be a labor-only
contractor, a mere s%pplier of manpower to Hi-Line. Isagani Ecal was only poor laborer at the time of
his resignation on +ebr%ary ?, 5476 who cannot even afford to have his da%ghter treated for
maln%trition. He resigned and became a s%pplier of laborers for Hi-Line, beca%se he saw an
opport%nity for him to earn more than what he was earning while still in the payroll of the company.
*t the same time, he contin%ed working for the company as a laborer at the kiln drying section. He
definitely does not have s%fficient capital to invest in tools and machineries. <rivate respondents,
however, claim that the b%siness contracted by Ecal did not re$%ire the %se of tools, e$%ipment and
machineries and the contracted task had to be e#ec%ted in the premises of Hi-Line. <recisely, the !ob
assigned to petitioners has to be e#ec%ted within the work premises of Hi-Line where they %se the
machineries and e$%ipment of the company for the drying of l%mber materials. Even the companyCs
personnel officer EliDabeth 'atividad admitted that Ecal resigned in order to s%pply manpower to the
company on a task basis.
13
(y the very allegations of private respondents, it is $%ite clear that Isagani
Ecal only s%pplies manpower to Hi-Line within the conte#t of labor-only contracting as defined by law.
There is also no $%estion that the task performed by petitioners is directly related to the b%siness of
Hi-Line. <etitioners were assigned to sort o%t the l%mber materials whether wet or fresh kiln as to
siDes and to carry them from the stockpile to the dryer where they are loaded for drying after which
they are %nloaded. The work of petitioners is an integral part of the operation of the sawmill of Hi-
Line witho%t which prod%ction and company sales will s%ffer.
* finding that Isagani Ecal is a labor-only contractor is e$%ivalent to a finding that an employer-
employee relationship e#ists between the company and Ecal incl%ding the latterCs contract workers
herein petitioners, the relationship being s%ch as provided by the law itself.
11
Indeed, the law prohibits labor-only contracting and creates an employer- employee relationship for
the protection of the laborers. The &o%rt had in fact observed that b%sinessmen, with the aid of
lawyers, have tried to avoid the bringing abo%t of an employer-employee relationship in some of their
enterprises beca%se that !%ridical relation spawns obligations connected with workmenCs
compensation, social sec%rity, medicare, minim%m wage, termination pay and %nionism.
12
This %nscr%p%lo%s practice is $%ite evident in the case at bar. It is company policy that once an
employee is assigned to the kiln drying section, he is no longer incl%ded in the payroll and is then
paid on a task basis, even if he had long been employed with the company. Aince the employee will
no longer be incl%ded in the payroll, it becomes easy for the company to deny the reg%lar
employment of s%ch a worker and is able to avoid whatever obligations it may have %nder an
employer-employee relationship. 0oreover, Hi-Line limits the period of %ndertaking to only fo%r days
pres%mably to make termination of the services of petitioners easier and to prevent them from
attaining reg%lar stat%s. The company had no do%bt taken advantage of these laborers in order to
escape liability for benefits and privileges accr%ing to one holding a reg%lar employment. "itho%t a
law prohibiting labor-only contracting to protect the rights of labor, these poor workers will always
be at the mercy of the employer.
Aince petitioners perform tasks which are %s%ally necessary or desirable in the main b%siness of Hi-
Line, they sho%ld be deemed reg%lar employees of the latter
13
and as s%ch are entitled to all the
benefits and rights app%rtenant to reg%lar employment.
(eing reg%lar employees, they sho%ld have been afforded d%e process prior to their
dismissal.
10
Instead they were %nceremonio%sly dismissed on /%ne 8, 5476 when they were not allowed
to enter the companyCs premises by the sec%rity g%ards. The arg%ment of private respondents that the
contract of Ecal with the company e#pired cannot be s%stained. <etitioners may only be dismissed for an
a%thoriDed or !%st ca%se and after d%e process.
*t this !%nct%re, "e note that petitioners and private respondents allege conflicting dates of
employment of the former. <etitioners claim that as early as 0arch or 0ay, 5478, they have already
been working with Hi-Line Line, while private respondents contend that it was only in *pril, 5476 that
they had been engaged by the company. This &o%rt is not a trier of facts and there is not eno%gh
basis in the records to enable Es to come %p with definite dates of employment. However, whatever
be the date of their employment, petitioners will still be considered employees of the company. If
petitioners had started their employment in 5478, they wo%ld have rendered more than 5 year of
service at the time of their dismissal and, therefore, sho%ld be considered reg%lar employees. Even if
they have been engaged only in *pril of 5476, they will still be deemed reg%lar employees for as
earlier indicated, Isagani Ecal is a labor-only contractor and petitioners perform activities directly
related to the principal b%siness of Hi-Line Line.
<etitioners, having been illegally dismissed on /%ne 8, 5476, are entitled to backwages e$%ivalent to
three years witho%t $%alifications and ded%ctions in line with prevailing !%rispr%dence.
"HE)E+,)E, the decision of p%blic respondent 'L)& is hereby )EGE)AE1 and AET *AI1E.
<rivate respondent Hi-Line Timber, Inc. is hereby ordered to reinstate petitioners to their former
positions with backwages e$%ivalent to three -3. years witho%t ded%ctions and $%alifications. The
records of the case are remanded to the labor arbiter for determination of the %npaid benefits d%e
petitioners. 'o costs.
A, ,)1E)E1.