Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 179546

February 13, 2009

COCA-COLA BOTTLERS PHILS., INC., Petitioner,

vs.
ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR., ALFONSO PAA, JR.,
DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO, and EDWIN M.
GOLEZ, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the Decision1 dated
19 February 2007, promulgated by the Court of Appeals in CA-G.R. SP No. 85320, reversing the
Resolution2rendered on 30 October 2003 by the National Labor Relations Commission (NLRC) in NLRC NCR
CA No. 036494-03. The Court of Appeals, in its assailed Decision, declared that respondents Alan M. Agito,
Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso Paa, Jr., Dempster P. Ong, Urriquia T. Arvin, Gil H.
Francisco, and Edwin M. Golez were regular employees of petitioner Coca-Cola Bottlers Phils., Inc; and that
Interserve Management & Manpower Resources, Inc. (Interserve) was a labor-only contractor, whose presence
was intended merely to preclude respondents from acquiring tenurial security.
Petitioner is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) and
engaged in manufacturing, bottling and distributing soft drink beverages and other allied products.
On 15 April 2002, respondents filed before the NLRC two complaints against petitioner, Interserve, Peerless
Integrated Services, Inc., Better Builders, Inc., and Excellent Partners, Inc. for reinstatement with backwages,
regularization, nonpayment of 13th month pay, and damages. The two cases, docketed as NLRC NCR Case
No. 04-02345-2002 and NLRC NCR Case No. 05-03137-02, were consolidated.
Respondents alleged in their Position Paper that they were salesmen assigned at the Lagro Sales Office of
petitioner. They had been in the employ of petitioner for years, but were not regularized. Their employment
was terminated on 8 April 2002 without just cause and due process. However, they failed to state the reason/s
for filing a complaint against Interserve; Peerless Integrated Services, Inc.; Better Builders, Inc.; and Excellent
Partners, Inc.3
Petitioner filed its Position Paper (with Motion to Dismiss),4 where it averred that respondents were employees
of Interserve who were tasked to perform contracted services in accordance with the provisions of the Contract
of Services5 executed between petitioner and Interserve on 23 March 2002. Said Contract between petitioner
and Interserve, covering the period of 1 April 2002 to 30 September 2002, constituted legitimate job
contracting, given that the latter was a bona fide independent contractor with substantial capital or investment
in the form of tools, equipment, and machinery necessary in the conduct of its business.
To prove the status of Interserve as an independent contractor, petitioner presented the following pieces of
evidence: (1) the Articles of Incorporation of Interserve;6 (2) the Certificate of Registration of Interserve with
the Bureau of Internal Revenue;7 (3) the Income Tax Return, with Audited Financial Statements, of Interserve

for 2001;8 and (4) the Certificate of Registration of Interserve as an independent job contractor, issued by the
Department of Labor and Employment (DOLE).9
As a result, petitioner asserted that respondents were employees of Interserve, since it was the latter which
hired them, paid their wages, and supervised their work, as proven by: (1) respondents Personal Data Files in
the records of Interserve;10 (2) respondents Contract of Temporary Employment with Interserve;11 and (3) the
payroll records of Interserve.12
Petitioner, thus, sought the dismissal of respondents complaint against it on the ground that the Labor Arbiter
did not acquire jurisdiction over the same in the absence of an employer-employee relationship between
petitioner and the respondents.13
In a Decision dated 28 May 2003, the Labor Arbiter found that respondents were employees of Interserve and
not of petitioner. She reasoned that the standard put forth in Article 280 of the Labor Code for determining
regular employment (i.e., that the employee is performing activities that are necessary and desirable in the
usual business of the employer) was not determinative of the issue of whether an employer-employee
relationship existed between petitioner and respondents. While respondents performed activities that were
necessary and desirable in the usual business or trade of petitioner, the Labor Arbiter underscored that
respondents functions were not indispensable to the principal business of petitioner, which was manufacturing
and bottling soft drink beverages and similar products.
The Labor Arbiter placed considerable weight on the fact that Interserve was registered with the DOLE as an
independent job contractor, with total assets amounting to P1,439,785.00 as of 31 December 2001. It was
Interserve that kept and maintained respondents employee records, including their Personal Data Sheets;
Contracts of Employment; and remittances to the Social Securities System (SSS), Medicare and Pag-ibig Fund,
thus, further supporting the Labor Arbiters finding that respondents were employees of Interserve. She ruled
that the circulars, rules and regulations which petitioner issued from time to time to respondents were not
indicative of control as to make the latter its employees.
Nevertheless, the Labor Arbiter directed Interserve to pay respondents their pro-rated 13th month benefits for
the period of January 2002 until April 2002.14
In the end, the Labor Arbiter decreed:
WHEREFORE, judgment is hereby rendered finding that [herein respondents] are employees of [herein
petitioner] INTERSERVE MANAGEMENT & MANPOWER RESOURCES, INC. Concomitantly,
respondent Interserve is further ordered to pay [respondents] their pro-rated 13th month pay.
The complaints against COCA-COLA BOTTLERS PHILS., INC. is DISMISMMED for lack of merit.
In like manner the complaints against PEERLESS INTEGRATED SERVICES, INC., BETTER BUILDING
INC. and EXCELLENT PARTNERS COOPERATIVE are DISMISSED for failure of complainants to pursue
against them.
Other claims are dismissed for lack of merit.
The computation of the Computation and Examination Unit, this Commission if (sic) made part of this
Decision. 15
Unsatisfied with the foregoing Decision of the Labor Arbiter, respondents filed an appeal with the NLRC,
docketed as NLRC NCR CA No. 036494-03.

In their Memorandum of Appeal,16 respondents maintained that contrary to the finding of the Labor Arbiter,
their work was indispensable to the principal business of petitioner. Respondents supported their claim with
copies of the Delivery Agreement17 between petitioner and TRMD Incorporated, stating that petitioner was
"engaged in the manufacture, distribution and sale of soft drinks and other related products with various plants
and sales offices and warehouses located all over the Philippines." Moreover, petitioner supplied the tools and
equipment used by respondents in their jobs such as forklifts, pallet, etc. Respondents were also required to
work in the warehouses, sales offices, and plants of petitioner. Respondents pointed out that, in contrast,
Interserve did not own trucks, pallets cartillas, or any other equipment necessary in the sale of Coca-Cola
products.
Respondents further averred in their Memorandum of Appeal that petitioner exercised control over workers
supplied by various contractors. Respondents cited as an example the case of Raul Arenajo (Arenajo), who,
just like them, worked for petitioner, but was made to appear as an employee of the contractor Peerless
Integrated Services, Inc. As proof of control by petitioner, respondents submitted copies of: (1) a
Memorandum18 dated 11 August 1998 issued by Vicente Dy (Dy), a supervisor of petitioner, addressed to
Arenajo, suspending the latter from work until he explained his disrespectful acts toward the supervisor who
caught him sleeping during work hours; (2) a Memorandum19 dated 12 August 1998 again issued by Dy to
Arenajo, informing the latter that the company had taken a more lenient and tolerant position regarding his
offense despite having found cause for his dismissal; (3) Memorandum20 issued by Dy to the personnel of
Peerless Integrated Services, Inc., requiring the latter to present their timely request for leave or medical
certificates for their absences; (4) Personnel Workers Schedules, 21 prepared by RB Chua, another supervisor
of petitioner; (5) Daily Sales Monitoring Report prepared by petitioner;22 and (6) the Conventional Route
System Proposed Set-up of petitioner. 23
The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor Arbiters Decision dated 28 May 2003
and pronounced that no employer-employee relationship existed between petitioner and respondents. It
reiterated the findings of the Labor Arbiter that Interserve was an independent contractor as evidenced by its
substantial assets and registration with the DOLE. In addition, it was Interserve which hired and paid
respondents wages, as well as paid and remitted their SSS, Medicare, and Pag-ibig contributions. Respondents
likewise failed to convince the NLRC that the instructions issued and trainings conducted by petitioner proved
that petitioner exercised control over respondents as their employer.24 The dispositive part of the NLRC
Resolution states:25
WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit. However, respondent Interserve
Management & Manpower Resources, Inc., is hereby ordered to pay the [herein respondents] their pro-rated
13th month pay.
Aggrieved once more, respondents sought recourse with the Court of Appeals by filing a Petition
for Certiorariunder Rule 65, docketed as CA-G.R. SP No. 85320.
The Court of Appeals promulgated its Decision on 9 February 2007, reversing the NLRC Resolution dated 30
October 2003. The appellate court ruled that Interserve was a labor-only contractor, with insufficient capital
and investments for the services which it was contracted to perform. With only P510,000.00 invested in its
service vehicles and P200,000.00 in its machineries and equipment, Interserve would be hard-pressed to meet
the demands of daily soft drink deliveries of petitioner in the Lagro area. The Court Appeals concluded that the
respondents used the equipment, tools, and facilities of petitioner in the day-to-day sales operations.
Additionally, the Court of Appeals determined that petitioner had effective control over the means and method
of respondents work as evidenced by the Daily Sales Monitoring Report, the Conventional Route System
Proposed Set-up, and the memoranda issued by the supervisor of petitioner addressed to workers, who, like
respondents, were supposedly supplied by contractors. The appellate court deemed that the respondents, who
were tasked to deliver, distribute, and sell Coca-Cola products, carried out functions directly related and

necessary to the main business of petitioner. The appellate court finally noted that certain provisions of the
Contract of Service between petitioner and Interserve suggested that the latters undertaking did not involve a
specific job, but rather the supply of manpower.
The decretal portion of the Decision of the Court of Appeals reads:26
WHEREFORE, the petition is GRANTED. The assailed Resolutions of public respondent NLRC are
REVERSED and SET ASIDE. The case is remanded to the NLRC for further proceedings.
Petitioner filed a Motion for Reconsideration, which the Court of Appeals denied in a Resolution, dated 31
August 2007.27
Hence, the present Petition, in which the following issues are raised28:
I
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH EVIDENCE ON
RECORD, APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT RULED THAT
INTERSERVE IS A LABOR-ONLY CONTRACTOR;
II
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH APPLICABLE
LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT CONCLUDED THAT RESPONDENTS
PERFORMED WORK NECESSARY AND DESIRABLE TO THE BUSINESS OF [PETITIONER];
III
WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT
DECLARED THAT RESPONDENTS WERE EMPLOYEES OF [PETITIONER], EVEN ABSENT THE
FOUR ELEMENTS INDICATIVE OF AN EMPLOYMENT RELATIONSHIP; AND
IV
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT CONCLUDED THAT
INTERSERVE WAS ENGAGED BY [PETITIONER] TO SUPPLY MANPOWER ONLY.
The Court ascertains that the fundamental issue in this case is whether Interserve is a legitimate job contractor.
Only by resolving such issue will the Court be able to determine whether an employer-employee relationship
exists between petitioner and the respondents. To settle the same issue, however, the Court must necessarily
review the factual findings of the Court of Appeals and look into the evidence presented by the parties on
record.
As a general rule, factual findings of the Court of Appeals are binding upon the Supreme Court. One exception
to this rule is when the factual findings of the former are contrary to those of the trial court, or the lower
administrative body, as the case may be. This Court is obliged to resolve an issue of fact herein due to the
incongruent findings of the Labor Arbiter and the NLRC and those of the Court of Appeals. 29
The relations which may arise in a situation, where there is an employer, a contractor, and employees of the
contractor, are identified and distinguished under Article 106 of the Labor Code:

Article 106. Contractor or subcontractor. - Whenever an employer enters into a contract with another person
for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if
any, shall be paid in accordance with the provisions of this Code.
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.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to
protect the rights of workers established under this Code. In so prohibiting or restriction, he may make
appropriate distinctions between labor-only contracting and job contracting as well as differentiations within
these types of contracting and determine who among the parties involved shall be considered the employer for
purposes of this Code, to prevent any violation or circumvention of any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an employee does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among others,
and the workers recruited and placed by such persons are performing activities which are directly related to the
principal business of such employer. In such 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 extent as if the latter
were directly employed by him.
The afore-quoted provision recognizes two possible relations among the parties: (1) the permitted legitimate
job contract, or (2) the prohibited labor-only contracting.
A legitimate job contract, wherein an employer enters into a contract with a job contractor for the performance
of the formers work, is permitted by law. Thus, the employer-employee relationship between the job
contractor and his employees is maintained. In legitimate job contracting, the law creates an employeremployee relationship between the employer and the contractors employees only for a limited purpose, i.e., to
ensure that the employees are paid their wages. The employer becomes jointly and severally liable with the job
contractor only for the payment of the employees wages whenever the contractor fails to pay the same. Other
than that, the employer is not responsible for any claim made by the contractors employees.30
On the other hand, labor-only contracting is an arrangement wherein the contractor merely acts as an agent in
recruiting and supplying the principal employer with workers for the purpose of circumventing labor law
provisions setting down the rights of employees. It is not condoned by law. A finding by the appropriate
authorities that a contractor is a "labor-only" contractor establishes an employer-employee relationship
between the principal employer and the contractors employees and the former becomes solidarily liable for all
the rightful claims of the employees. 31
Section 5 of the Rules Implementing Articles 106-109 of the Labor Code, as amended, provides the guidelines
in determining whether labor-only contracting exists:
Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For
this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely
recruits, supplies, or places workers to perform a job, work or service for a principal, and any of the following
elements are [is] present:
i) The contractor or subcontractor does not have substantial capital or investment which relates to the
job, work, or service to be performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are directly related to the main business of
the principal; or

ii) The contractor does not exercise the right to control the performance of the work of the contractual
employee.
The foregoing provisions shall be without prejudice to the application of Article 248(C) of the Labor Code, as
amended.
"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the
contractor or subcontractor in the performance or completion of the job, work, or service contracted out.
The "right to control" shall refer to the right reversed to the person for whom the services of the contractual
workers are performed, to determine not only the end to be achieved, but also the manner and means to be used
in reaching that end. (Emphasis supplied.)
When there is labor-only contracting, Section 7 of the same implementing rules, describes the consequences
thereof:
Section 7. Existence of an employer-employee relationship.The contractor or subcontractor shall be
considered the employer of the contractual employee for purposes of enforcing the provisions of the Labor
Code and other social legislation. The principal, however, shall be solidarily liable with the contractor in the
event of any violation of any provision of the Labor Code, including the failure to pay wages.
The principal shall be deemed the employer of the contractual employee in any of the following case, as
declared by a competent authority:
a. where there is labor-only contracting; or
b. where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions)
hereof.
According to the foregoing provision, labor-only contracting would give rise to: (1) the creation of an
employer-employee relationship between the principal and the employees of the contractor or sub-contractor;
and (2) the solidary liability of the principal and the contractor to the employees in the event of any violation
of the Labor Code.
Petitioner argues that there could not have been labor-only contracting, since respondents did not perform
activities that were indispensable to petitioners principal business. And, even assuming that they did, such fact
alone does not establish an employer-employee relationship between petitioner and the respondents, since
respondents were unable to show that petitioner exercised the power to select and hire them, pay their wages,
dismiss them, and control their conduct.
The argument of petitioner is untenable.
The law clearly establishes an employer-employee relationship between the principal employer and the
contractors employee upon a finding that the contractor is engaged in "labor-only" contracting. Article 106 of
the Labor Code categorically states: "There is labor-only contracting where the person supplying workers to
an employee does not have substantial capital or investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and placed by such persons are performing activities
which are directly related to the principal business of such employer." Thus, performing activities directly
related to the principal business of the employer is only one of the two indicators that "labor-only" contracting

exists; the other is lack of substantial capital or investment. The Court finds that both indicators exist in the
case at bar.
Respondents worked for petitioner as salesmen, with the exception of respondent Gil Francisco whose job was
designated as leadman. In the Delivery Agreement32 between petitioner and TRMD Incorporated, it is stated
that petitioner is engaged in the manufacture, distribution and sale of softdrinks and other related products.
The work of respondents, constituting distribution and sale of Coca-Cola products, is clearly indispensable to
the principal business of petitioner. The repeated re-hiring of some of the respondents supports this
finding.33Petitioner also does not contradict respondents allegations that the former has Sales Departments and
Sales Offices in its various offices, plants, and warehouses; and that petitioner hires Regional Sales
Supervisors and District Sales Supervisors who supervise and control the salesmen and sales route helpers.34
As to the supposed substantial capital and investment required of an independent job contractor, petitioner
calls the attention of the Court to the authorized capital stock of Interserve amounting to P2,000,000.00.35 It
cites as authority Filipinas Synthetic Fiber Corp. v. National Labor Relations Commission36 and Frondozo v.
National Labor Relations Commission,37 where the contractors authorized capital stock of P1,600,000.00
andP2,000,000.00, respectively, were considered substantial for the purpose of concluding that they were
legitimate job contractors. Petitioner also refers to Neri v. National Labor Relations Commission38 where it
was held that a contractor ceases to be a labor-only contractor by having substantial capital alone, without
investment in tools and equipment.
This Court is unconvinced.
At the outset, the Court clarifies that although Interserve has an authorized capital stock amounting
toP2,000,000.00, only P625,000.00 thereof was paid up as of 31 December 2001. The Court does not set an
absolute figure for what it considers substantial capital for an independent job contractor, but it measures the
same against the type of work which the contractor is obligated to perform for the principal. However, this is
rendered impossible in this case since the Contract between petitioner and Interserve does not even specify the
work or the project that needs to be performed or completed by the latters employees, and uses the dubious
phrase "tasks and activities that are considered contractible under existing laws and regulations." Even in its
pleadings, petitioner carefully sidesteps identifying or describing the exact nature of the services that Interserve
was obligated to render to petitioner. The importance of identifying with particularity the work or task which
Interserve was supposed to accomplish for petitioner becomes even more evident, considering that the Articles
of Incorporation of Interserve states that its primary purpose is to operate, conduct, and maintain the business
of janitorial and allied services.39 But respondents were hired as salesmen and leadman for petitioner. The
Court cannot, under such ambiguous circumstances, make a reasonable determination if Interserve had
substantial capital or investment to undertake the job it was contracting with petitioner.
Petitioner cannot seek refuge in Neri v. National Labor Relations Commission. Unlike in Neri, petitioner was
unable to prove in the instant case that Interserve had substantial capitalization to be an independent job
contractor. In San Miguel Corporation v. MAERC Integrated Services, Inc.,40 therein petitioner San Miguel
Corporation similarly invoked Neri, but was rebuffed by the Court based on the following ratiocination41 :
Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling in Neri v. NLRC. In that
case, it was held that the law did not require one to possess both substantial capital and investment in the form
of tools, equipment, machinery, work premises, among others, to be considered a job contractor. The second
condition to establish permissible job contracting was sufficiently met if one possessed either attribute.
Accordingly, petitioner alleged that the appellate court and the NLRC erred when they declared MAERC a
labor-only contractor despite the finding that MAERC had investments amounting to P4,608,080.00 consisting
of buildings, machinery and equipment.

However, in Vinoya v. NLRC, we clarified that it was not enough to show substantial capitalization or
investment in the form of tools, equipment, machinery and work premises, etc., to be considered an
independent contractor. In fact, jurisprudential holdings were to the effect that in determining the existence of
an independent contractor relationship, several factors may be considered, such as, but not necessarily confined
to, whether the contractor was carrying on an independent business; the nature and extent of the work; the skill
required; the term and duration of the relationship; the right to assign the performance of specified pieces of
work; the control and supervision of the workers; the power of the employer with respect to the hiring, firing
and payment of the workers of the contractor; the control of the premises; the duty to supply premises, tools,
appliances, materials and labor; and the mode, manner and terms of payment.
In Neri, the Court considered not only the fact that respondent Building Care Corporation (BCC) had
substantial capitalization but noted that BBC carried on an independent business and performed its contract
according to its own manner and method, free from the control and supervision of its principal in all matters
except as to the results thereof. The Court likewise mentioned that the employees of BCC were engaged to
perform specific special services for their principal. The status of BCC had also been passed upon by the Court
in a previous case where it was found to be a qualified job contractor because it was a "big firm which services
among others, a university, an international bank, a big local bank, a hospital center, government agencies,
etc." Furthermore, there were only two (2) complainants in that case who were not only selected and hired by
the contractor before being assigned to work in the Cagayan de Oro branch of FEBTC but the Court also found
that the contractor maintained effective supervision and control over them.
Thus, in San Miguel Corporation, the investment of MAERC, the contractor therein, in the form of buildings,
tools, and equipment of more than P4,000,000.00 did not impress the Court, which still declared MAERC to be
a labor-only contractor. In another case, Dole Philippines, Inc. v. Esteva,42 the Court did not recognize the
contractor therein as a legitimate job contractor, despite its paid-up capital of over P4,000,000.00, in the
absence of substantial investment in tools and equipment used in the services it was rendering.
Insisting that Interserve had substantial investment, petitioner assails, for being purely speculative, the finding
of the Court of Appeals that the service vehicles and equipment of Interserve, with the values of P510,000.00
andP200,000.00, respectively, could not have met the demands of the Coca-Cola deliveries in the Lagro area.
Yet again, petitioner fails to persuade.
The contractor, not the employee, has the burden of proof that it has the substantial capital, investment, and
tool to engage in job contracting.43 Although not the contractor itself (since Interserve no longer appealed the
judgment against it by the Labor Arbiter), said burden of proof herein falls upon petitioner who is invoking the
supposed status of Interserve as an independent job contractor. Noticeably, petitioner failed to submit evidence
to establish that the service vehicles and equipment of Interserve, valued at P510,000.00 and P200,000.00,
respectively, were sufficient to carry out its service contract with petitioner. Certainly, petitioner could have
simply provided the courts with records showing the deliveries that were undertaken by Interserve for the
Lagro area, the type and number of equipment necessary for such task, and the valuation of such equipment.
Absent evidence which a legally compliant company could have easily provided, the Court will not presume
that Interserve had sufficient investment in service vehicles and equipment, especially since respondents
allegation that they were using equipment, such as forklifts and pallets belonging to petitioner, to carry out
their jobs was uncontroverted.
In sum, Interserve did not have substantial capital or investment in the form of tools, equipment, machineries,
and work premises; and respondents, its supposed employees, performed work which was directly related to
the principal business of petitioner. It is, thus, evident that Interserve falls under the definition of a "laboronly" contractor, under Article 106 of the Labor Code; as well as Section 5(i) of the Rules Implementing
Articles 106-109 of the Labor Code, as amended.

The Court, however, does not stop at this finding. It is also apparent that Interserve is a labor-only contractor
under Section 5(ii)44 of the Rules Implementing Articles 106-109 of the Labor Code, as amended, since it did
not exercise the right to control the performance of the work of respondents.
The lack of control of Interserve over the respondents can be gleaned from the Contract of Services between
Interserve (as the CONTRACTOR) and petitioner (as the CLIENT), pertinent portions of which are
reproduced below:
WHEREAS, the CONTRACTOR is engaged in the business, among others, of performing and/or undertaking,
managing for consideration, varied projects, jobs and other related management-oriented services;
WHEREAS, the CONTRACTOR warrants that it has the necessary capital, expertise, technical know-how and
a team of professional management group and personnel to undertake and assume the responsibility to carry
out the above mentioned project and services;
WHEREAS, the CLIENT is desirous of utilizing the services and facilities of the CONTRACTOR for
emergency needs, rush jobs, peak product loads, temporary, seasonal and other special project requirements
the extent that the available work of the CLIENT can properly be done by an independent CONTRACTOR
permissible under existing laws and regulations;
WHEREAS, the CONTRACTOR has offered to perform specific jobs/works at the CLIENT as stated
heretofore, under the terms and conditions herein stated, and the CLIENT has accepted the offer.
NOW THEREFORE, for and in consideration of the foregoing premises and of the mutual covenants and
stipulations hereinafter set forth, the parties have hereto have stated and the CLIENT has accepted the offer:
1. The CONTRACTOR agrees and undertakes to perform and/or provide for the CLIENT, on a nonexclusive basis for tasks or activities that are considered contractible under existing laws and
regulations, as may be needed by the CLIENT from time to time.
2. To carry out the undertakings specified in the immediately preceding paragraph, the
CONTRACTOR shall employ the necessary personnel like Route Helpers, Salesmen, Drivers,
Clericals, Encoders & PD who are at least Technical/Vocational courses graduates provided with
adequate uniforms and appropriate identification cards, who are warranted by the CONTRACTOR to
be so trained as to efficiently, fully and speedily accomplish the work and services undertaken herein
by the CONTRACTOR. The CONTRACTOR represents that its personnel shall be in such number as
will be sufficient to cope with the requirements of the services and work herein undertaken and that
such personnel shall be physically fit, of good moral character and has not been convicted of any
crime. The CLIENT, however, may request for the replacement of the CONTRACTORS personnel if
from its judgment, the jobs or the projects being done could not be completed within the time
specified or that the quality of the desired result is not being achieved.
3. It is agreed and understood that the CONTRACTORS personnel will comply with CLIENT,
CLIENTS policies, rules and regulations and will be subjected on-the-spot search by CLIENT,
CLIENTS duly authorized guards or security men on duty every time the assigned personnel enter
and leave the premises during the entire duration of this agreement.
4. The CONTRACTOR further warrants to make available at times relievers and/or replacements to
ensure continuous and uninterrupted service as in the case of absences of any personnel above
mentioned, and to exercise the necessary and due supervision over the work of its personnel.45

Paragraph 3 of the Contract specified that the personnel of contractor Interserve, which included the
respondents, would comply with "CLIENT" as well as "CLIENTs policies, rules and regulations." It even
required Interserve personnel to subject themselves to on-the-spot searches by petitioner or its duly authorized
guards or security men on duty every time the said personnel entered and left the premises of petitioner. Said
paragraph explicitly established the control of petitioner over the conduct of respondents. Although under
paragraph 4 of the same Contract, Interserve warranted that it would exercise the necessary and due
supervision of the work of its personnel, there is a dearth of evidence to demonstrate the extent or degree of
supervision exercised by Interserve over respondents or the manner in which it was actually exercised. There is
even no showing that Interserve had representatives who supervised respondents work while they were in the
premises of petitioner.
Also significant was the right of petitioner under paragraph 2 of the Contract to "request the replacement of the
CONTRACTORS personnel." True, this right was conveniently qualified by the phrase "if from its judgment,
the jobs or the projects being done could not be completed within the time specified or that the quality of the
desired result is not being achieved," but such qualification was rendered meaningless by the fact that the
Contract did not stipulate what work or job the personnel needed to complete, the time for its completion, or
the results desired. The said provision left a gap which could enable petitioner to demand the removal or
replacement of any employee in the guise of his or her inability to complete a project in time or to deliver the
desired result. The power to recommend penalties or dismiss workers is the strongest indication of a
companys right of control as direct employer.46
1avvphil.z w+

Paragraph 4 of the same Contract, in which Interserve warranted to petitioner that the former would provide
relievers and replacements in case of absences of its personnel, raises another red flag. An independent job
contractor, who is answerable to the principal only for the results of a certain work, job, or service need not
guarantee to said principal the daily attendance of the workers assigned to the latter. An independent job
contractor would surely have the discretion over the pace at which the work is performed, the number of
employees required to complete the same, and the work schedule which its employees need to follow.
As the Court previously observed, the Contract of Services between Interserve and petitioner did not identify
the work needed to be performed and the final result required to be accomplished. Instead, the Contract
specified the type of workers Interserve must provide petitioner ("Route Helpers, Salesmen, Drivers, Clericals,
Encoders & PD") and their qualifications (technical/vocational course graduates, physically fit, of good moral
character, and have not been convicted of any crime). The Contract also states that, "to carry out the
undertakings specified in the immediately preceding paragraph, the CONTRACTOR shall employ the
necessary personnel," thus, acknowledging that Interserve did not yet have in its employ the personnel needed
by petitioner and would still pick out such personnel based on the criteria provided by petitioner. In other
words, Interserve did not obligate itself to perform an identifiable job, work, or service for petitioner, but
merely bound itself to provide the latter with specific types of employees. These contractual provisions
strongly indicated that Interserve was merely a recruiting and manpower agency providing petitioner with
workers performing tasks directly related to the latters principal business.
The certification issued by the DOLE stating that Interserve is an independent job contractor does not sway
this Court to take it at face value, since the primary purpose stated in the Articles of Incorporation47 of
Interserve is misleading. According to its Articles of Incorporation, the principal business of Interserve is to
provide janitorial and allied services. The delivery and distribution of Coca-Cola products, the work for which
respondents were employed and assigned to petitioner, were in no way allied to janitorial services. While the
DOLE may have found that the capital and/or investments in tools and equipment of Interserve were sufficient
for an independent contractor for janitorial services, this does not mean that such capital and/or investments
were likewise sufficient to maintain an independent contracting business for the delivery and distribution of
Coca-Cola products.

With the finding that Interserve was engaged in prohibited labor-only contracting, petitioner shall be deemed
the true employer of respondents. As regular employees of petitioner, respondents cannot be dismissed except
for just or authorized causes, none of which were alleged or proven to exist in this case, the only defense of
petitioner against the charge of illegal dismissal being that respondents were not its employees. Records also
failed to show that petitioner afforded respondents the twin requirements of procedural due process, i.e., notice
and hearing, prior to their dismissal. Respondents were not served notices informing them of the particular acts
for which their dismissal was sought. Nor were they required to give their side regarding the charges made
against them. Certainly, the respondents dismissal was not carried out in accordance with law and, therefore,
illegal.48
Given that respondents were illegally dismissed by petitioner, they are entitled to reinstatement, full
backwages, inclusive of allowances, and to their other benefits or the monetary equivalents thereof computed
from the time their compensations were withheld from them up to the time of their actual reinstatement, as
mandated under Article 279 of the Labor Code,.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Court AFFIRMS WITH
MODIFICATION the Decision dated 19 February 2007 of the Court of Appeals in CA-G.R. SP No. 85320.
The Court DECLARES that respondents were illegally dismissed and, accordingly, ORDERS petitioner to
reinstate them without loss of seniority rights, and to pay them full back wages computed from the time their
compensation was withheld up to their actual reinstatement. Costs against the petitioner.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice