LABOR DIGESTS ART.
106-109 designated overall supervisor) it was further revealed
GR No. 182255, 15 June 2015
PETRON CORPORATION V. ARMZ CABERTE, ANTONIO
CABERTE, JR., MICHAEL DEVELOS, ADOLFO GESTUPA,
ARCHIE PONTERAS, ARNOLD BLANCO, DANTE
MARIANO, VIRGILIO GALAROSA, AND CAMILO TE
J. DEL CASTILLO
Definition: Labor-only contracting and permissible job
contracting: A contractor is presumed by law to be a
labor-only contractor; anyone claiming the supposed
status of an independent contractor bears the burden
of proving he same. Article 106 of the LC, prohibits this
type of employment practice it is an agreement where
the contractor who does not have substantial capital or
investment in the form of tools, equipment,
machineries, work premises, among others, supplies
workers to an employer and the workers recruited are
performing activities which are directly related to the
principal business of such employer.
Permissible or legitimate job contracting or
subcontracting: refers to an arrangement whereby a
principal agrees to put out or farm out with the
contractor or subcontractor the performance or
completion of a specific job, work, or service within a
definite or predetermined period, regardless of
whether such job, work, or service is to be performed
or completed within or outside the premises of the
principal.
Petron (engaged in manufacture and distribution of petroleum
products), owns and operates several bulk plants in the
country for receiving, storing, and distributing its products.
Respondents were hired from 1979 to 1998 to work at Bacolod
Bulk Plant as LPG / Gasul fillers, maintenance crew,
warehousemen, utility workers and tanker receiving crew.
Petron and ABC (a labor contracting business owned and
operated by Caberte Sr.) entered into a Contract for Services
and a Contract for LPG Assistance Services on 1 March 1996
28 February 1999 and 1 November 1996 30 June 1999.
Under said contract, ABC undertook to provide utility and
maintenance services to Petron in its Bacolod Plant.
According to the respondents, they have been employed by
Petron before it engaged ABC as contractor in 1996. Every
time Petron engages a new contractor, it would designate
such new contractor as their employer however, despite this
arrangement; Petron exercised control and supervision over
their work, the performance of which is necessary and
desirable in the usual trade and business. Respondents
added that ABC is a mere labor-only contractor which
had no substantial capital and investment, and had no
control over the manner and method on how they
accomplished their work, thus Petron is their new
employer. On 1 July 1999, Petron no longer allowed them to
enter and work in the premises of its Bacolod Plant.
On the other side, Petron asserted that ABC is an independent
contractor which supplied the needed manpower for the
maintenance of its bulk handling premises and offices, as well
as for tanker assistance in the receiving and re-filling of its
LPG products that among the respondents who were
supplied by ABC, it is only Caberte Jr., who does not appear to
be one of those assigned by ABC to work for it, that it has no
direct control and supervision over respondents who were
tasked to perform work required by the continuous
employment of respondents beyond the expiration of the
contract with ABC. In addition, Petron states that
respondent do not perform activities related to their to
its business operation but only tasks which are
intermittent and which can be contracted out. It was
further attested by 3 former employees of ABC that during
their work with Petron, they used materials such as floor
polisher, floor wax, broom, dustpan, cleaning rags, etc.
owned by ABC to accomplish their task and that they
worked under the supervision of Caberte Sr.(as the
that ABC/Cabate has the power to hire and fire
respondents and was the one paying their wages.
Herein respondents filed before the Labor Arbiter (LA) a
complaint for illegal dismissal, underpayment of wages and
non-payment of allowances, 13th month pay, moral and
exemplary damages and attorneys fees against Petron, ABC,
and Cabete Sr.
LABOR ARBITER: held that ABC is an independent contractor
that has substantial capital and that respondents were its
employees. It was likes held that ABCs cessation of operation
is a force majeure that justifies respondents dismissal. ABC
to pay each complainant for separation pay of 1 month for
every year of service and claims against Petron are dismissed.
NLRC: Respondents insisted that they were regular employees
of Petron since ABC is a labor-only contractor. Thereby
affirming the LA decision taking into account that (1) ABC has
the power to control over respondents and it was Caberte Sr.,
was the one controlling and supervising respondents in their
work. While Petron intervened at times, the same was limited
to safety precautions due to the hazardous nature of the
products the workers were dealing with; (2) ABC posses
sufficient capital and equipment per the various documents
that Petron submitted showing the formers financial
capability to maintain its status as an accredited contractor;
and (3) ABC / Caberte has the power to hire and dismiss
respondents.
COURT OF APPEALS: the CA found merit in the respondents
petition that ABC is engaged in labor-only contracting
because it did not have substantial capital or
investment in the form of tools, equipment,
implements, machineries and work premises, actually
and directly used in the performance or completion of
the job it contracted out from Petron. Also, the work
assigned to respondents was directly related to
Petrons business. Lastly, the nature of Petrons
business requires it to exercise control over the
performance of respondents work.
It declared that respondents are Petrons regular
employees. And since Petron did not comply with the Labor
Code, respondents were thereby illegally dismissed thus
entitled to reinstatement without loss of seniority rights and
other privileges, with the alternative relief of separation pay
and to full back wages inclusive of allowance and other
monetary benefits.
ISSUE: Whether or not ABC is a labor-only contractor
and whether respondents are employees of ABC as an
independent business.
SC: Petition has no merit.
A person is considered engaged in legitimate job contracting
or subcontracting if: (a) the contractor carries on a distinct
and independent business and partakes the contract work on
his account under his own responsibility according to his own
manner and method, free from the control and direction of his
employer or principal in all matters connected with the
performance of his work except as to the result; (b) the
contractor has substantial capital or investment; and (c) the
agreement between the principal and the contractor or
subcontractor assures the contractual employees entitlement
to all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure,
and social welfare benefits.
In determining whether a contractor is engaged in labor-only
contracting or permissible job contracting, the totality of the
fact and the surrounding circumstances of the case are
to be considered.
It is Petron which bears the burden of establishing that ABC is
not a labor-only contractor but a legitimate independent
contractor however Petron failed to overcome the
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.1
presumption that ABC is a labor-only contractor. The
character of the business whether a labor-only contractor or
as a job contractor, should be determined by the criteria set
by statute and the parties cannot dictate by the mere
expedience of a unilateral declaration in a contract the
character of their business1.
In proving that ABC is not a labor-only contractor, it is
incumbent upon Petron to show that ABC has substantial
capital or investment and those respondents were performing
activities which were not directly related to Petrons principal
business. As for the financial statement, ABC only submitted
audited financial statements for 3 years (1992-1994) and it
cannot be given much credence considering that the contract
between ABC and Petron commenced in 1996 and ended in
1999. In addition, as a status retention as an accredited
contractor of Petron, ABC is required to submit audited
financial statements once every two years, however no
documents were submitted from 1996-1999. Further, the
performance bond submitted by ABC fails to show that ABC
has substantial capital or investment inasmuch as it was not
shown that the performance bond in the amount of PhP
595,799.51 enough to cover not only payrolls, rentals and
equipment but also possible damages to the equipment and
to third parties and other contingent liabilities. The posted
bond was a convenient smoke screen to disguise the real
nature of ABCs employment as an agent of Petron as it
failed also to show that ABC had such resources needed by
the employees in the performance of their job.
With regard to the activities performed by respondents
whether it is not necessary or desirable to its principal
business, as LPG fillers and maintenance crew, LPG
operator supervisor, warehouseman and utility worker,
and tanker receiving crew, are jobs rendered that are
directly related to Petrons main business, vital as they
are in the manufacture and distribution of petroleum
products.
Taking note that some of the workers were already working for
Petron even before it engaged ABC as contractor in 1996. It
was only made to appear that they were under the different
contractor that Petron engaged over the years, respondents
have been regularly performing the same tasks within the
premises of Petron. The repeated and continuing need for the
performance of the job is sufficient evidence of the necessity,
if not indispensability of the activity to the business.
Petron admitted in its position paper that the supervision of a
Petron employee is required over LPG and tanker assistance
jobs for inventory control and safety checking purposes. Also,
Petron is the one supplying the needed materials and
equipment in discharging these functions to better insure the
integrity, quality and safety of its products. It bears
stressing that the power of control merely calls for the
existence of the right to control and not necessary the
exercise thereof.
Further, Petron fails to discharge its burden of proving that
ABC is not a labor-only contractor. Thus, the SC declares that
ABC is a labor-only contractor is an equivalent to declaring
that there is an employee-employer relationship between the
principal and the employees of the supposed contractor and
the labor only contractor is considered as a mere agent of
the principal, the real employer. Therefore, Petron is declared
to be the true employer of respondents who are considered as
regular employees in view of the fact that they have been
regularly performing activities which are necessary and
desirable to the usual business of Petron for a number of
years.
On Mr. Caberte Jr., complaint for illegal dismissal, he must first
establish that there is an employee-employer relationship for
said complaint to prosper, unfortunately nowhere in the
record does it show that he indeed worked for Petron.
1 Babas v. Lorenzo Shippine Corporation
Petition is denied and the CA decision is modified ordering
Petron to reinstate all the respondents except for Caberte Jr., if
no longer feasible, to separation pay equivalent to one month
salary for every year of service and to pay them their full back
wages from 1 July 1999 until actual reinstatement or upon
finality of this decision.
GR No. 201494, 29 July 2015
MARITES R. CUSAP v. ADIDAS PHILIPPINES, INC.
(ADIDAS), PROMOTION RESOURCES & INTER-
MARKETING EXPONENTS, INC. (PRIME) AND JC
ATHLETES, INC. (JCA)
J. Brion
Petitioner and 27 other employees filed a complaint for illegal
dismissal against respondents, alleging that they were regular
employees of Adidas after having worked as promo girls and
stockmen at the companys various rented outlets for years
(ranging from 1 7 years).
Adidas is engaged in the manufacture and marketing of
different lines of shoes and other sporting goods and apparel
in the Philippines. After its contract with its distributor, World
Sports Inc. allegedly expired; it contracted JCA to be its
exclusive distributor nationwide for one year (2002). In turn,
JCA entered into a promotional contract with PRIME to
meet the promotional requirements in the distribution
of Adidas products. PRIME supposedly assigned the
complainants to JCA for the purpose.
Complainant claimed that they were dismissed from
employment on 9 December 2002, when the service contract
between PRIME and JCA was terminated. Thus, they argued
that Adidas was their real employer, not PRIME which,
they believed, was merely a recruitment agency
supplying Adidas with manpower. PRIME was being
used to conceal (as dummy office) the actual
employment relationship between them and Adidas.
Respondents further concluded that the products they were
selling at various outlets remained the property and under the
control of Adidas it was Adidas that provided the warehouse
where the products were stored, that leased the outlets from
stores and that provided them training. Also the proceeds of
the sales were directly deposited to the bank account of
Adidas. Moreover, their salaries and other monetary
benefit supposedly paid by PRIME were charged to the
account of Adidas, as indicated in their pay slips. They
argued that if JCA purchased the products being sold
and were already its property, there was no point to
still charge complainants wages and benefits to the
Adidas account.
To substantiate, respondents even submitted documentary
proof that PRIME is not even a registered corporation, labor
recruiter, or agency when it supposedly entered into a
contract with JCA. It was registered as a job contractor /
subcontractor only.
In defense, Adidas argued that in 2002, its Articles of
Incorporation was amended to enable it to engage in the retail
business without the need to contract the services of
distributors such as JCA to operate as a foreign retailer so it
could no longer renew its Distribution Agreement with JCA
when it expired on December 2002. It maintained that
promotional contract with JCA and PRIME was
terminated resulting in the complainants dismissal. In
addition, Adidas turned sown the complainants
demand for regularization as they were employees of
PRIME. It claimed that it was PRIME who exercised
control over their work. The supervision Adidas only
provide is to aid in their marketing work. It averred
that it was PRIME who exercised the power to select,
engage, and dismiss the complainants, and who
assumed the obligation to pay their wages (JCA
presented a quitclaim and release papers executed by
some employees in favor of PRIME as support).
Prime however denied on the liability to JCA with regard to
unpaid wages. It maintained that their employment was
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.2
terminated when its contract with JCA expired and was not
renewed thus there were no illegal dismissal and
respondents are not entitled to reinstatement of back wages.
LABOR ARBITER: dismissed the case for lack of merit. It held
that PRIME was the complainants employer as it was
PRIME who hired them to work under its Promotions
Contract with JCA. The dismissal was valid in view of the
termination and nonrenewal of the contract. Money claims
was also denied showing that PRIME paid their 13 month pay
and service incentive leave. Petitioner is the only who
appealed and the other 15 withdraw.
NLRC: denied the appeal and sustained the LA decision.
CA: denied the petition. That the NLRC ruling was supported
by evidence that PRIME is a legitimate job contractor as it
possessed substantial capital to finance its promotions
undertaking with JCA. The four-fold employee-employer
relationship test was used: that PRIME (1) hired the
complainants, (2) paid their wages, (3) dismissed them upon
the expiration of the contract for which they were hired, (4)
exercised control over them with respect to the conduct of the
work to be performed. On seminars attended conducted by
Adidas, it was contended that the certificates only establish
the fact that complainants attended the seminar for product
knowledge, service quality, and retail service.
ISSUE: Whether or not PRIME is a labor-only contractor and
the respondent can be categorized as a regular employee.
SC: The Court found merit in the petition. Evidence points to
Adidas as the petitioners and the complainants real
employer thus, PRIME is a labor-only contractor; JCA an
agent/intermediary of Adidas.
Art. 106 of the LC provides that: There is labor-only
contracting where the person supplying workers to an
employer 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
person are performing activities which are directly related to
the principal business of the employer. In such cases, the
person or intermediary shall be considered merely an
agent of the employer who shall be responsible to the
workers in the same manner and extent as the latter
were directly employed by him.
Sec. 5 Department Order No. 18-02 s. of 2002, implementing
Articles of 106 to 109 of the LC, prohibits labor-only
contracting and defines it as an arrangement where
the contractor or sub-contractor merely recruits,
supplies or places workers to perform a job, work or
service for a principal, and any of the following is
present: (1) the contractor or subcontractor does not
have substantial capital or investment which relates to
the job, work or service to be performed and the
workers recruited, supplied or placed by such
contractor or subcontractor are performing activities
which are directly related to the principal business of
the employer; (2) the contractor does not exercise the
right to control over the performance of the work of
the contractual employee, xxx 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.
In this case, PRIME offered no proof how or in what manner its
purported substantial capital financed its promotional and
inter-marketing business. JCA relied principally on its
promotional contract with PRIME to avoid liability, saying that
the terms of their service agreement demonstrate the
earmarks of an employer under the four-fold employee-
employer relationship test. It also presented no proof of
how or in what manner PRIME carried out its
undertaking under the contract.
While the payment of wages and workers benefits is one of
the determinants of an employee-employer relationship, the
SC does not find it a reliable basis. Pay slips of supposed
employees revealed that the complainant salaries and
benefits were under the account of Adidas. It shows that
Adidas avoided being identified as the complainants
direct employer so that it would not have to bear the
consequences of the complainants and the
petitioners regularization. In fact, the complainants and
petitioner were engaged not only in 2002, but much earlier,
some were even hired in 1995, including the petitioner, who
started selling Adidas products on 28 October 1995.
It was believed that PRIME, supposed JCA subcontractor, just
assumed the act of paying the complainants wages and
benefits on behalf of Adidas, indicating that it was a mere
agent of Adidas or a labor-only contractor. The complete
absence of proof that PRIME applied its substantial
capital or investment in performing the promotional
job it contracted with JCA, the SC find credence in the
petitioners submission that the products she was
selling remained to be the property and under the
control of Adidas, that it was Adidas who owned the
warehouse where they stored, that leased the sales
outlets from Department Stores, and the provided
regular training to her and to the complainants.
Although Adidas claim that by virtue of the agreement, JCA
did not purchase but rather had in its custody and
safekeeping different Adidas products, for distribution to
different sales outlets in the country, nowhere in the record
does it appear that the agreement had been amended to
allow such agreement. It was not shown who managed and
provided the storage places and the places and the sales
outlets for the products - SC find merit in the petitioners
contention that Adidas and JCA, at a time, held office in
the same address, and that Adidas provided the
storage places and the outlets for the distribution of
its products, not PRIME or JCA.
The petitioner performed activities necessary to the
principal business of Adidas as they were performing
activities necessary to market the products that Adidas itself
manufactured, that they sold this product for several years
starting June 1995 December 2000. It cannot be denied
that in 1995, Adidas was already in the retail business
through its agents WOSI and JCA and labor-only
contractor PRIME. Thus, the petitioner had become an
Adidas regular employee a long time before she was
supposedly made a contractual employee of PRIME.
SC found also that Adidas exercised control and supervision
over the performance of the petitioners work, through the
supervision of Adidas supervisors, sales managers, president,
and head of WOSI concession. It was held that PRIME
failed to satisfy the four-fold employee-employer
relationship test, making it a labor-only contractor
under the law and the rules. Adidas therefore is the
real employer of the petitioner who shall be
responsible to hre in the same manner and extent as if
she were directly employed by the company.
SC found that petitioner was illegally dismissed, there
being obviously no valid cause to and absent due
process in her dismissal.
Petitioner was entitled for reinstatement without loss of
seniority rights and other privileges and with full back wages.
If no long feasible, shall be entitled to full back wages and
separation pay. It was also shown that Adidas have
shown bad faith in the petitioners dismissal as it
resulted from the prohibited labor-only contracting
agreement imposed on her since 28 October 1995
(entitled to damages moral and exemplary).
Petition is granted. Adidas is ordered to reinstate the
petitioner and if should not be feasible, the above alternative
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.3
must be followed. PRIME and JCA shall likewise jointly and
solidarity liable with Adidas to pay damages for the
respondent.
FIRST PHILIPPINE INDUSTRIAL CORPORATION, PETITIONER, vs.
RAQUEL M. CALIMBAS AND LUISA P. MAHILOM, RESPONDENTS.
G.R. No. 179256 July 10, 2013
Labor-only contracting - the test to determine the
existence of independent contractorship is whether
one claiming to be an independent contractor has
contracted to do the work according to his own
methods and without being subjected to the control of
the employer, except only to the results of the work.
Facts: First Philippine Industrial Corporation (FPIC) is a
domestic corporation primarily engaged in the transportation
of petroleum products by pipeline. Upon the other hand,
Calimbas and Mahilom were engaged by De Guzman
Manpower Services ("DGMS") to perform secretarial and
clerical jobs for FPIC. DGMS is engaged in the business of
supplying manpower to render general clerical, building and
grounds maintenance, and janitorial and utility services.
On March 29, 1993, FPIC entered into a Contract of Special
Services with DGMS, wherein DGMS agreed to undertake
some aspects of building and grounds maintenance at FPICs
premises, offices and facilities, as well as to provide clerical
and other utility services as may be required from time to
time by FPIC. The pertinent portions of the said Contract,
which took effect on April 1, 1993, reads:
B. Terms of Payment
FPIC shall pay the DGMS a contract price for
services rendered based on individual
timesheets prepared and submitted by
DGMS and duly authenticated by the FPICs
representative. DGMS shall bill the FPIC on a
semi-monthly basis.
xxx
C. Other Terms and Conditions
DGMS shall undertake FPICs projects only if
covered by an approved Project Contract
(Appendix-B) which FPIC will issue to DGMS
when the need arises. The Project Contract
shall indicate the scope of work to be done,
duration and the manpower required to
undertake the work. The composition of the
workers to be assigned to a specific
undertaking shall be agreed upon between
FPIC and DGMS;
DGMS shall assign to FPIC competent
personnel to do what is required in
accordance with the Project Contract. FPIC
shall have the right to request for
replacement of an assigned personnel who
is observed to be non-productive or unsafe,
and if confirmed by its own investigation
and findings, DGMS shall replace such
personnel;
DGMS shall provide the maintenance
equipment and tools necessary to complete
assigned works. Parties hereto shall agree
on the equipment, tools and supplies to be
provided by DGMS prior to the start of
assigned work;
DGMS shall be liable for loss and/or damage
to FPICs property, found caused by willful
act or negligence of DGMSs personnel; and
There shall be no employer-employee
relationship between FPIC, on the one hand,
and DGMS, and the person who DGMS may
assign to perform the services called for, on
the other. DGMS hereby acknowledges that
no authority has been conferred upon it by
FPIC to hire any person in behalf of FPIC.
The persons who (sic) DGMS which hereby
warrants full and faithful compliance with
the provisions of the Labor Code of the
Philippines, as well as with all Presidential
Decrees, Executive Orders, General Orders,
Letter of Instructions, Law Rules and
Regulations pertaining to the employment
of labor now existing. DGMS shall assist and
defend FPIC in any suit or proceedings and
shall hold FPIC free and harmless from any
claims which DGMSs employees may lodge
against FPIC.
xxxx
Pursuant to the said Contract, Calimbas and Mahilom were
engaged by DGMS to render services to FPIC. Thereat,
Calimbas was assigned as a department secretary at the
Technical Services Department beginning June 3, 1996, while
Mahilom served as a clerk at the Money Movement Section of
the Finance Division starting February 13, 1996.
On June 21, 2001, FPIC, through its Human Resources
Manager, Lorna Young, informed Calimbas and Mahilom that
their services to the company would no longer be needed by
July 31, 2001 as a result of the "Pace-Setting" Study
conducted by an outside consultant. Accordingly, on July 9,
2001, Priscilla de Leon, Treasurer of DGMS, formally notified
both Calimbas and Mahilom that their respective work
assignments in FPIC were no longer available to them
effective July 31, 2001, citing the termination of the Project
Contract with FPIC as the main reason thereof. On August 3,
2001, Calimbas and Mahilom signed quitclaims, releasing and
discharging DGMS from whatever claims that they might have
against it by virtue of their past employment, upon receipt of
the sums of P17,343.10 and P23,459.14, respectively.
Despite having executed the said quitclaims, Calimbas and
Mahilom still filed on August 16, 2001 a Complaint against
FPIC for illegal dismissal and for the collection of monetary
benefits, damages and attorneys fees, alleging that they
were regular employees of FPIC after serving almost five (5)
years, and that they were dismissed without cause. Calimbas
and Mahilom posited that they were regular employees of
FPIC for having served the same for almost five (5) years,
rendering services which were usually necessary or desirable
in the usual business or trade of FPIC. They claimed that they
were illegally dismissed when they were relieved from their
work assignments on July 31, 2001 without valid and serious
reasons therefor. Calimbas and Mahilom maintained that their
real employer was FPIC, and that DGMS was merely its agent
for having been engaged in prohibited labor-only contracting.
They averred that DGMS did not have substantial capital or
investment by way of tools, equipment, machines, work
places and other materials. They claimed that they only used
office equipment and materials owned by FPIC at its offices in
Ortigas Center, Pasig City. DGMS never exercised control over
them in all matters related to the performance of their work.
In fact, DGMS never maintained any representative at the
FPICs office to supervise or oversee their work. They insisted
that their direct superiors, who were managerial employees of
FPIC, had control over them since the latter made sure that
they always complied with the policies of FPIC.
Upon the other hand, FPIC insisted that the Complaint should
be dismissed considering that the Labor Arbiter had no
jurisdiction over the case because there was absolutely no
employer-employee relationship between it and the
petitioners. FPIC claimed that the petitioners had never been
its employees. FPIC insisted that their true employer was
DGMS considering that the petitioners were hired by DGMS
and assigned them to the Company to render services based
on their Contract; that they received their wages and other
benefits from DGMS; and that they executed quitclaims in
favor of DGMS. Also, FPIC submitted that the termination of
the petitioners employment with their employer, DGMS, was
valid and lawful since they executed quitclaims with their
employer.
LA Ruling/Ratio: Held that Calimbas and Mahilom were
regular employees of FPIC, and that they were illegally
dismissed when their employment was terminated without
just or authorized cause.
Award: Reinstatement, backwages, attorneys fees.
NLRC Ruling/Ratio: In its Decision, it affirmed the ruling of
the LA. However, upon MR by FPIC, the NLRC reversed its own
ruling and held that after a second look, the LAs assumption
that complainants were regular employees of PDIC (sic) is
erroneous. It ruled that FPIC was not the employer of
Calimbas and Mahilom and that it was the DGMS which was
their employer. Thus, it set aside the decision of LA,
reconsidered its own Decision, and declared that FPIC is free
from any liability. It reasoned that:
First, the Contract of Special Services was signed by FPIC and
DGMS on March 29, 1993 which shows that complainants
employment in February and June 1996 was pursuant to said
contract which belies their submission that their working
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.4
paper were forwarded by FPIC after directly employing them
in February and June 1996. Second, undisputed in FPICs
statement that, capitalized at P75,000.00, DGMS serviced the
manpower requirements of other clients like the Makati
Commercial Estate Association and the Philippine Transmarine
Carrier which reinforces its being an independent contractor.
Third, complainants realization that DGMS and not
respondent FPIC, was their employer is shown by the fact that
after they were disengaged, they went to DGMS, which paid
them the amount of P17,343 for Calimbas and P23,454.14 for
Mahilom.
Calimbas and Mahilom sought reconsideration of the above
resolution, but the same was denied by NLRC reasoning that it
found no legal basis to deem DGMS a "labor-only contracting"
entity as maintained by Calimbas and Mahilom. The fact that
DGMS had only a capitalization of P75,000.00, without an
investment in tools, equipment, etc., does not necessarily
constitute the latter as labor-only contractor since it has
shown its adequacy of resources, directly or indirectly, in the
performance of completion of the job, work or service
contracted out, including operating costs, administrative costs
such as training, overhead and other costs as are necessary
to enable DGMS to exercise control, supervision, or direction
over its employees in all aspects in performing or completing
the job, work or services contracted out. In the case of New
Golden City Builders and Development Corp. et. al. vs. CA, et.
al. (G.R. No. 154715), December 11, 2003), the Supreme
Court reiterated its ruling in Neri that not having investment
in the form of tools or machineries does not automatically
reduce the independent contractor to be a labor-only
contractor. Moreover, the court has taken judicial notice of the
general practice adopted in several government and private
institution and industries of hiring independent contractors to
perform special services.
Furthermore, the copy of payroll adduced on record persuaded
NLRC that Calimbas and Mahilom received their wages from
DGMS contrary to their allegations that the contract
consideration is by reimbursement of wages. The execution
likewise by Calimbas and Mahilom of their respective
quitclaim and release fortifies the fact of their belief that their
actual employer is DGMS and not respondent FPIC.
Calimbas and Mahilom appealed to the CA.
CA Ruling: Granted their appeal and reversed NLRC. FPIC
filed MR but was denied. Hence, the petition.
Issue/s: (1) Whether Calimbas and Mahilom are employees of
FPIC.
(2) Whether they were lawfully dismissed from their
employment.
SC Ruling/Ratio: Anent the first issue, Article 106 of the
Labor Code pertinently provides:
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 the Code. In so prohibiting
or restricting, 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 employer 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 person 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.
In the same manner, Sections 8 and 9 of DOLE Department
Order No. 10, Series of 1997, state:
Sec. 8. Job contracting. There is job contracting permissible
under the Code if the following conditions are met:
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
own responsibility according to his own manner and method,
free from the control and direction of his employer or principal
in all matters connected with the performance of the work
except as to the results thereof; and
(2) The contractor has substantial capital or investment in the
form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his
business.
Sec. 9. Labor-only contracting.
(a) Any person who undertakes to supply workers to an
employer shall be deemed to be engaged in labor-only
contracting where such person:
(1) Does not have substantial capital or investment
in the form of tools, equipment, machineries, work
premises and other materials; and
(2) The workers recruited and placed by such
persons are performing activities which are directly
related to the principal or operations of the employer
in which workers are habitually 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 extent as if the latter were directly employed by
him.
(c) For cases not falling under this Article, the Secretary of
Labor shall determine through appropriate orders whether or
not the contracting out of labor is permissible in the light of
the circumstances of each case and after considering the
operating needs of the employer and the rights of the workers
involved. In such case, he may prescribe conditions and
restrictions to insure the protection and welfare of the
workers.
Given the foregoing standards, SC sustains the findings of the
CA that Calimbas and Mahilom are FPICs employees and that
DGMS is engaged in labor-only contracting.
First, in Vinoya v. National Labor Relations Commission, the
Court categorically stated that the actual paid-in capital of
P75,000.00 could not be considered as substantial capital.
Thus, DGMSs actual paid-in capital in the amount of
P75,000.00 does not constitute substantial capital essential to
carry out its business as an independent job contractor. In
spite of its bare assertion that the Vinoya case does not apply
in the present case, DGMS has not shown any serious and
cogent reason to disregard the ruling in the aforementioned
case. Records likewise reveal that DGMS has no substantial
equipment in the form of tools, equipment and machinery. As
a matter of fact, Calimbas and Mahilom were using office
equipment and materials owned by FPIC while they were
rendering their services at its offices.
Second, FPIC exercised the power of control and supervision
over Calimbas and Mahilom. As aptly observed by the CA, the
daily time records of Calimbas and Mahilom even had to be
countersigned by the officials of FPIC to check whether they
had worked during the hours declared therein. Furthermore,
the fact that DGMS did not assign representatives to supervise
over Calimbas and Mahiloms work in FPIC tends to disprove
the independence of DGMS. It is axiomatic that the test to
determine the existence of independent contractorship
is whether one claiming to be an independent
contractor has contracted to do the work according to
his own methods and without being subjected to the
control of the employer, except only to the results of
the work. Obviously, on this score alone, FPIC cannot rightly
claim that DGMS was an independent job contractor inasmuch
as Calimbas and Mahilom were subjected to the control and
supervision of FPIC while they were performing their jobs.
Third, also worth stressing are the points highlighted by
Calimbas and Mahilom: (1) They worked only at FPICs offices
for an uninterrupted period of five years, occupying the same
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.5
position at the same department under the supervision of
company officials; (2) Three weeks ahead of the termination
letters issued by DGMS, FPICs HR Manager Lorna Young
notified them, in a closed-door meeting, that their services to
the company would be terminated by July 31, 2001; (3) In the
termination letters prepared by DGMS, it was even stressed
that the said termination letters will formalize the verbal
notice given by FPICs HR Administration personnel; (4) The
direct superiors of Calimbas and Mahilom were managerial
employees of FPIC, and had direct control over all the work-
related activities of the latter. This control included the
supervision of their performance of their work and their
compliance with FPICs company policies and procedures.
DGMS, on the other hand, never maintained any
representative at the FPICs office to oversee the work of
Calimbas and Mahilom.
All told, an employer-employee relationship exists between
FPIC and Calimbas and Mahilom. And having served for almost
five years at FPICs company, they had already attained the
status of regular employees.
As to the second issue, i.e., whether respondents were
lawfully dismissed from their employment, this Court rules in
the negative as there was no compliance in both procedural
and substantive due process. FPIC failed to show any valid or
just cause under the Labor Code on which it may justify the
termination of services of Calimbas and Mahilom. Also, apart
from notifying that their services had already been
terminated, FPIC failed to comply with the rudimentary
requirement of notifying them regarding the acts or omissions
which led to the termination of their services as well as giving
them an ample opportunity to contest the legality of their
dismissal. Having failed to establish compliance with the
requirements of termination of employment under the Labor
Code, their dismissal is tainted with illegality.
Resultantly, the CA correctly held that Calimbas and Mahilom
are entitled to reinstatement without loss of seniority rights,
and other privileges and to their full backwages, inclusive of
allowances and other benefits or their monetary equivalent,
computed from the time their compensation was withheld up
to the time of their actual reinstatement. Considering that
reinstatement is no longer feasible, they are entitled instead
to separation pay equivalent to one month salary for every
year of service.
Dispositive Portion: WHEREFORE, premises considered, the
Petition for Review on Certiorari is DENIED. The Decision
dated March 6, 2007 and Resolution dated August 16, 2007 of
the Court of Appeals in CA-G.R. SP No. 90527 are hereby
AFFIRMED with MODIFICATION that respondents shall be
entitled to separation pay equivalent to one month salary for
every year of service.
VIGILLA et. al v. PCCr
In LABOR ONLY CONTRACTOR, the principal employer
becomes jointly and severally liable (solidary liability) with the
job contractor ONLY for the payment of the employees wages
whenever the contractor fails to pay the same. Other than
that, the principal employer is not responsible for any claim
made by the employees.
FACTS:
PCCr is an educational institution while Vigilla et. al were the
janitors, janitress and supervisor in the Maintenance Dept. of
PCCR under the supervision of Atty. Seril who is PCCrs Senior
Vice Pres. For Admin. But Vigilla et. al were made to
understand upon their application that they are under MBMSI
(a corp engaged in providing janitorial svcs) whereas Atty.
Seril is the president and gen. manager of MBMSI.
In 2008, PCCr discovered that the Certificate of
Incorporation of MBMSI had been revoked therefore, in 2009,
citing the revocation of the certificate, President Bautista of
PCCr terminated the schools relationship with MBMSI
resulting in the dismissal of the employees/maintenance
personnel under MBMSI.
Dismissed employees filed a complaint for illegal
dismissal against MBMSI, Atty. Seril, PCCr and Bautista. Their
allegations was that the school was their real employer and
not the MBMSI because a)PCCr had direct control over
MBMSIs operations b)there was no contract between MBMSI
and PCCr and c)the selection and hiring of employees were
undertaken by PCCr.
On the other hand, PCCr and Bautista contended
that: a)PCCr was not the direct employer b) MBMSI had
complete and direct control over the dismissed employees
and c)PCCr had a contractual relationship with MBMSI. They
also submitted notarized documents before LA Hernandez
including releases, waivers and quitclaims in favor of MBMSI
executed by Virgilla et.al to prove that they were employees
of MBMSI .
LA: in favor of Virgilla et.al
La said that PCCr was the real employer of Virgilla et.
al, MBMSI was a labor-only contractor, Virgilla et.al were
regular employees of PCCr and PCCr/ Bautista were in bad
faith in dismissing the complaints. Further explained that PCCr
was the one which exercised control over the means and
methods of the work of Virgilla et. al thru Atty. Seril who is the
Senior VP for Administration of PCCr.
NLRC: Affirmed LA but release PCCr/Bautista from their
liability by virtue of the releases, waivers and quitclaims.
MBMSI and Atty. Seril were found to be labor-only
contractor and are solidarily liable with the PCCr and Bautista
for the valid claims and complaints pursuant to Art 109 on the
solidary liability of the employer and indirect employer but
this liability is effectively expunged by the acts of Virgilla et al.
(17 complainants) of executing releases, waivers and
quitclaims in favor of MBMSI.
CA: affirmed NLRC
Based on solidary liability and the NCC, Virgilla et.al
respective releases, waivers and quitclaims in favor of MBMSI
and Atty. Seril redounded to the benefit of PCCr and Bautista.
SC: affirmed CA.
The executed releases, waivers and quitclaims are
valid and binding notwithstanding the revocation of MBMSIs
Cert of Incorporation. The revocation does not result in the
termination of its liabilities.
A labor-only contractor is solidarily liable with
the employer.
If a labor-only contractor is solidarily liable with the
employer then the releases, waivers and quitclaims in favor of
MBMSI(labor-only contractor) will redound to the benefit of
PCCr (employer). On the other hand, if a labor-only contractor
is not solidarily liable with the employer, the labor-only
contractor being direct liable, then the releases, waivers and
quitclaims in favor of MBMSI will not extinguish the liability of
PCCr which is the employer.
The reason why MBMSI is solidarily liable with PCCr
for the valid claims of Virgilla et. al is pursuant to Art 109 of
LC.
Under the general rule set out in the first and second
paragraphs of Article 106, an employer who enters into a
contract with a contractor for the performance of work for the
employer, does not thereby create an employer-employees
relationship between himself and the employees of the
contractor. Thus, the employees of the contractor remain the
contractor's employees and his alone. Nonetheless when a
contractor fails to pay the wages of his employees in
accordance with the Labor Code, the employer who
contracted out the job to the contractor becomes jointly and
severally liable with his contractor to the employees of the
latter "to the extent of the work performed under the
contract" as such employer were the employer of the
contractor's employees.
The principal 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 principal employer is not
responsible for any claim made by the employees.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.6
 Principal employer is solidarily liable with the labor-
only contractor for the rightful claims of the employees.
In light of these conclusions, the Court holds that the
releases, waivers and quitclaims executed by petitioners in
favor of MBMSI redounded to the respondents' benefit. The
liabilities of the respondents to petitioners are now deemed
extinguished. The Court cannot allow petitioners to reap the
benefits given to them by MBMSI in exchange for the releases,
waivers and quitclaims and, again, claim the same benefits
from PCCr.
Aliviado v P&G
G.R. No. 160506 March 9, 2010
Principle:
Labor laws expressly prohibit labor-only contracting. To
prevent its circumvention, the Labor Code establishes an
employer-employee relationship between the employer and
the employees of the labor-only contractor.
Facts:
Petitioners worked as merchandisers of P&G from various
dates, allegedly starting as early as 1982 or as late as June
1991, to either May 5, 1992 or March 11, 1993.
They all individually signed employment contracts with either
Promm-Gem or SAPS for periods of more or less five months
at a time. They were assigned at different outlets,
supermarkets and stores where they handled all the products
of P&G. They received their wages from Promm-Gem or SAPS.
SAPS and Promm-Gem imposed disciplinary measures on
erring merchandisers for reasons such as habitual
absenteeism, dishonesty or changing day-off without prior
notice.
P&G is principally engaged in the manufacture and production
of different consumer and health products, which it sells on a
wholesale basis to various supermarkets and distributors. To
enhance consumer awareness and acceptance of the
products, P&G entered into contracts with Promm-Gem and
SAPS for the promotion and merchandising of its products.
In December 1991, petitioners filed a complaint against P&G
for regularization, service incentive leave pay and other
benefits with damages. The complaint was later amended to
include the matter of their subsequent dismissal.
Ruling of the Labor Arbiter:
On November 29, 1996, the Labor Arbiter dismissed the
complaint for lack of merit and ruled that there was no
employer-employee relationship between petitioners and P&G.
He found that the selection and engagement of the
petitioners, the payment of their wages, the power of
dismissal and control with respect to the means and methods
by which their work was accomplished, were all done and
exercised by Promm-Gem/SAPS. He further found that Promm-
Gem and SAPS were legitimate independent job contractors.
Ruling of the NLRC:
Appealing to the NLRC, petitioners disputed the Labor Arbiters
findings. On July 27, 1998, the NLRC rendered a Decision
disposing as follows:
WHEREFORE, premises considered, the appeal of
complainants is hereby DISMISSED and the decision appealed
from AFFIRMED. SO ORDERED.
Petitioners filed a motion for reconsideration but the motion
was denied in the November 19, 1998 Resolution.
Ruling of the Court of Appeals:
Petitioners then filed a petition for certiorari with the CA,
alleging grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of the Labor Arbiter and the NLRC.
However, said petition was also denied by the CA which
disposed as follows:
WHEREFORE, the decision of the National Labor Relations
Commission dated July 27, 1998 is AFFIRMED with the
MODIFICATION that respondent Procter & Gamble Phils., Inc. is
ordered to pay service incentive leave pay to petitioners.
SO ORDERED.
Petitioners filed a motion for reconsideration but the motion
was also denied. Hence, this petition.
Issues:
(1) whether P&G is the employer of petitioners;
(2) whether petitioners were illegally dismissed; and
(3) whether petitioners are entitled for payment of actual,
moral and exemplary damages as well as litigation costs and
attorneys fees.
Petitioners Arguments:
Petitioners insist that they are employees of P&G. They claim
that they were recruited by the salesmen of P&G and were
engaged to undertake merchandising chores for P&G long
before the existence of Promm-Gem and/or SAPS. They further
claim that when the latter had its so-called re-alignment
program, petitioners were instructed to fill up application
forms and report to the agencies which P&G created.
Petitioners further claim that P&G instigated their dismissal
from work as can be gleaned from its letter to SAPS dated
February 24, 1993, informing the latter that their
Merchandising Services Contract will no longer be renewed.
Petitioners further assert that Promm-Gem and SAPS are
labor-only contractors providing services of manpower to their
client. They claim that the contractors have neither
substantial capital nor tools and equipment to undertake
independent labor contracting. Petitioners insist that since
they had been engaged to perform activities which are
necessary or desirable in the usual business or trade of P&G,
then they are its regular employees.
Respondents Arguments:
On the other hand, P&G points out that the instant petition
raises only questions of fact and should thus be thrown out as
the Court is not a trier of facts. It argues that findings of facts
of the NLRC, particularly where the NLRC and the Labor
Arbiter are in agreement, are deemed binding and conclusive
on the Supreme Court.
P&G further argues that there is no employment relationship
between it and petitioners. It was Promm-Gem or SAPS that
(1) selected petitioners and engaged their services; (2) paid
their salaries; (3) wielded the power of dismissal; and (4) had
the power of control over their conduct of work.
P&G also contends that the Labor Code neither defines nor
limits which services or activities may be validly outsourced.
Thus, an employer can farm out any of its activities to an
independent contractor, regardless of whether such activity is
peripheral or core in nature. It insists that the determination
of whether to engage the services of a job contractor or to
engage in direct hiring is within the ambit of management
prerogative.
At this juncture, it is worth mentioning that on January 29,
2007, we deemed as waived the filing of the Comment of
Promm-Gem on the petition. Also, although SAPS was
impleaded as a party in the proceedings before the Labor
Arbiter and the NLRC, it was no longer impleaded as a party in
the proceedings before the CA. Hence, our pronouncements
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.7
with regard to SAPS are only for the purpose of determining
the obligations of P&G, if any.
Ruling of the Court:
The petition has merit.
Labor-only contracting and job contracting
In order to resolve the issue of whether P&G is the employer
of petitioners, it is necessary to first determine whether
Promm-Gem and SAPS are labor-only contractors or legitimate
job contractors.
The pertinent Labor Code provision on the matter states:
ART. 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 restricting, 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 employer 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
person 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. (Emphasis and underscoring
supplied.)
Rule VIII-A, Book III of the Omnibus Rules Implementing the
Labor Code, as amended by Department Order No. 18-02,
distinguishes between legitimate and labor-only contracting:
xxxx
Section 3. Trilateral Relationship in Contracting Arrangements.
In legitimate contracting, there exists a trilateral relationship
under which there is a contract for a specific job, work or
service between the principal and the contractor or
subcontractor, and a contract of employment between the
contractor or subcontractor and its workers. Hence, there are
three parties involved in these arrangements, the principal
which decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the
capacity to independently undertake the performance of the
job, work or service, and the contractual workers engaged by
the contractor or subcontractor to accomplish the job[,] work
or service.
xxxx
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 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) [T]he contractor does not exercise the right to control over
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 reserved 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.
x x x x (Underscoring supplied.)
Clearly, the law and its implementing rules allow contracting
arrangements for the performance of specific jobs, works or
services. Indeed, it is management prerogative to farm out
any of its activities, regardless of whether such activity is
peripheral or core in nature. However, in order for such
outsourcing to be valid, it must be made to an independent
contractor because the current labor rules expressly prohibit
labor-only contracting.
To emphasize, there is labor-only contracting when the
contractor or sub-contractor merely recruits, supplies or
places workers to perform a job, work or service for a principal
and any of the following elements are 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 over
the performance of the work of the contractual employee.
(Underscoring supplied)
In the instant case, the financial statements of Promm-Gem
show that it has authorized capital stock of P1 million and a
paid-in capital, or capital available for operations, of
P500,000.00 as of 1990. It also has long term assets worth
P432,895.28 and current assets of P719,042.32. Promm-Gem
has also proven that it maintained its own warehouse and
office space with a floor area of 870 square meters. It also had
under its name three registered vehicles which were used for
its promotional/merchandising business. Promm-Gem also has
other clients aside from P&G. Under the circumstances, we
find that Promm-Gem has substantial investment which
relates to the work to be performed. These factors negate the
existence of the element specified in Section 5(i) of DOLE
Department Order No. 18-02.
The records also show that Promm-Gem supplied its
complainant-workers with the relevant materials, such as
markers, tapes, liners and cutters, necessary for them to
perform their work. Promm-Gem also issued uniforms to them.
It is also relevant to mention that Promm-Gem already
considered the complainants working under it as its regular,
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.8
not merely contractual or project, employees. This
circumstance negates the existence of element (ii) as stated
in Section 5 of DOLE Department Order No. 18-02, which
speaks of contractual employees. This, furthermore, negates
on the part of Promm-Gem bad faith and intent to circumvent
labor laws which factors have often been tipping points that
lead the Court to strike down the employment practice or
agreement concerned as contrary to public policy, morals,
good customs or public order.
Under the circumstances, Promm-Gem cannot be considered
as a labor-only contractor. We find that it is a legitimate
independent contractor.
On the other hand, the Articles of Incorporation of SAPS shows
that it has a paid-in capital of only P31,250.00. There is no
other evidence presented to show how much its working
capital and assets are. Furthermore, there is no showing of
substantial investment in tools, equipment or other assets.
Furthermore, the petitioners have been charged with the
merchandising and promotion of the products of P&G, an
activity that has already been considered by the Court as
doubtlessly directly related to the manufacturing business,
which is the principal business of P&G. Considering that SAPS
has no substantial capital or investment and the workers it
recruited are performing activities which are directly related
to the principal business of P&G, we find that the former is
engaged in labor-only contracting.
Where labor-only contracting exists, the Labor Code itself
establishes an employer-employee relationship between the
employer and the employees of the labor-only contractor.[39]
The statute establishes this relationship for a comprehensive
purpose: to prevent a circumvention of labor laws. The
contractor is considered merely an agent of the principal
employer and the latter is responsible to the employees of the
labor-only contractor as if such employees had been directly
employed by the principal employer.
Consequently, the following petitioners, having been recruited
and supplied by SAPS -- which engaged in labor-only
contracting -- are considered as the employees of P&G: Arthur
Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham
Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao
Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr.,
Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio
Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo
Quiambao, Santos Bacalso, Samson Basco, Alstando Montos,
Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique
F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry
Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo,
Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon,
Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr.,
Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz,
Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente
J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela
Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin.
The following petitioners, having worked under, and been
dismissed by Promm-Gem, are considered the employees of
Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido,
Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo,
Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa,
Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr.,
Maximino Pascual, Willie Ortiz, Armando Villar, Jose Fernando
Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila,
Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales,
Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion,
Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb
Aliviado.
Termination of services
We now discuss the issue of whether petitioners were illegally
dismissed. In cases of regular employment, the employer shall
not terminate the services of an employee except for a just or
authorized cause.
In the instant case, the termination letters given by Promm-
Gem to its employees uniformly specified the cause of
dismissal as grave misconduct and breach of trust, as follows:
xxxx
This informs you that effective May 5, 1992, your employment
with our company, Promm-Gem, Inc. has been terminated. We
find your expressed admission, that you considered yourself
as an employee of Procter & Gamble Phils., Inc. and assailing
the integrity of the Company as legitimate and independent
promotion firm, is deemed as an act of disloyalty prejudicial to
the interests of our Company: serious misconduct and breach
of trust reposed upon you as employee of our Company which
[co]nstitute just cause for the termination of your
employment.
xxxx
Misconduct has been defined as improper or wrong conduct;
the transgression of some established and definite rule of
action, a forbidden act, a dereliction of duty, unlawful in
character implying wrongful intent and not mere error of
judgment. The misconduct to be serious must be of such
grave and aggravated character and not merely trivial and
unimportant. To be a just cause for dismissal, such misconduct
(a) must be serious; (b) must relate to the performance of the
employees duties; and (c) must show that the employee has
become unfit to continue working for the employer.
In other words, in order to constitute serious misconduct
which will warrant the dismissal of an employee under
paragraph (a) of Article 282 of the Labor Code, it is not
sufficient that the act or conduct complained of has violated
some established rules or policies. It is equally important and
required that the act or conduct must have been performed
with wrongful intent.[48] In the instant case, petitioners-
employees of Promm-Gem may have committed an error of
judgment in claiming to be employees of P&G, but it cannot
be said that they were motivated by any wrongful intent in
doing so. As such, we find them guilty of only simple
misconduct for assailing the integrity of Promm-Gem as a
legitimate and independent promotion firm. A misconduct
which is not serious or grave, as that existing in the instant
case, cannot be a valid basis for dismissing an employee.
Meanwhile, loss of trust and confidence, as a ground for
dismissal, must be based on the willful breach of the trust
reposed in the employee by his employer. Ordinary breach will
not suffice. A breach of trust is willful if it is done intentionally,
knowingly and purposely, without justifiable excuse, as
distinguished from an act done carelessly, thoughtlessly,
heedlessly or inadvertently.
Loss of trust and confidence, as a cause for termination of
employment, is premised on the fact that the employee
concerned holds a position of responsibility or of trust and
confidence. As such, he must be invested with confidence on
delicate matters, such as custody, handling or care and
protection of the property and assets of the employer. And, in
order to constitute a just cause for dismissal, the act
complained of must be work-related and must show that the
employee is unfit to continue to work for the employer. In the
instant case, the petitioners-employees of Promm-Gem have
not been shown to be occupying positions of responsibility or
of trust and confidence. Neither is there any evidence to show
that they are unfit to continue to work as merchandisers for
Promm-Gem.
All told, we find no valid cause for the dismissal of petitioners-
employees of Promm-Gem.
While Promm-Gem had complied with the procedural aspect
of due process in terminating the employment of petitioners-
employees, i.e., giving two notices and in between such
notices, an opportunity for the employees to answer and rebut
the charges against them, it failed to comply with the
substantive aspect of due process as the acts complained of
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.9
neither constitute serious misconduct nor breach of trust.
Hence, the dismissal is illegal.
With regard to the petitioners placed with P&G by SAPS, they
were given no written notice of dismissal. The records show
that upon receipt by SAPS of P&Gs letter terminating their
Merchandising Services Contact effective March 11, 1993,
they in turn verbally informed the concerned petitioners not to
report for work anymore. The concerned petitioners related
their dismissal as follows:
xxxx
5. On March 11, 1993, we were called to a meeting at SAPS
office. We were told by Mr. Saturnino A. Ponce that we should
already stop working immediately because that was the order
of Procter and Gamble. According to him he could not do
otherwise because Procter and Gamble was the one paying
us. To prove that Procter and Gamble was the one responsible
in our dismissal, he showed to us the letter dated February 24,
1993, x x x
February 24, 1993
Sales and Promotions Services
Armons Bldg., 142 Kamias Road,
Quezon City
Attention: Mr. Saturnino A. Ponce
President & General Manager
Gentlemen:
Based on our discussions last 5 and 19 February 1993, this
formally informs you that we will not be renewing our
Merchandising Services Contract with your agency.
Please immediately undertake efforts to ensure that your
services to the Company will terminate effective close of
business hours of 11 March 1993.
This is without prejudice to whatever obligations you may
have to the company under the abovementioned contract.
Very truly yours,
(Sgd.)
EMMANUEL M. NON
Sales Merchandising III
6. On March 12, 1993, we reported to our respective outlet
assignments. But, we were no longer allowed to work and we
were refused entrance by the security guards posted.
According to the security guards, all merchandisers of Procter
and Gamble under S[APS] who filed a case in the Dept. of
Labor are already dismissed as per letter of Procter and
Gamble dated February 25, 1993. x x x
Neither SAPS nor P&G dispute the existence of these
circumstances. Parenthetically, unlike Promm-Gem which
dismissed its employees for grave misconduct and breach of
trust due to disloyalty, SAPS dismissed its employees upon
the initiation of P&G. It is evident that SAPS does not carry on
its own business because the termination of its contract with
P&G automatically meant for it also the termination of its
employees services. It is obvious from its act that SAPS had
no other clients and had no intention of seeking other clients
in order to further its merchandising business. From all
indications SAPS, existed to cater solely to the need of P&G
for the supply of employees in the latters merchandising
concerns only. Under the circumstances prevailing in the
instant case, we cannot consider SAPS as an independent
contractor.
Going back to the matter of dismissal, it must be emphasized
that the onus probandi to prove the lawfulness of the
dismissal rests with the employer. In termination cases, the
burden of proof rests upon the employer to show that the
dismissal is for just and valid cause. In the instant case, P&G
failed to discharge the burden of proving the legality and
validity of the dismissals of those petitioners who are
considered its employees. Hence, the dismissals necessarily
were not justified and are therefore illegal.
Damages
We now go to the issue of whether petitioners are entitled to
damages. Moral and exemplary damages are recoverable
where the dismissal of an employee was attended by bad
faith or fraud or constituted an act oppressive to labor or was
done in a manner contrary to morals, good customs or public
policy.
With regard to the employees of Promm-Gem, there being no
evidence of bad faith, fraud or any oppressive act on the part
of the latter, we find no support for the award of damages.
As for P&G, the records show that it dismissed its employees
through SAPS in a manner oppressive to labor. The sudden
and peremptory barring of the concerned petitioners from
work, and from admission to the work place, after just a one-
day verbal notice, and for no valid cause bellows oppression
and utter disregard of the right to due process of the
concerned petitioners. Hence, an award of moral damages is
called for.
Attorneys fees may likewise be awarded to the concerned
petitioners who were illegally dismissed in bad faith and were
compelled to litigate or incur expenses to protect their rights
by reason of the oppressive acts of P&G.
Lastly, under Article 279 of the Labor Code, an employee who
is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other
privileges, inclusive of allowances, and other benefits or their
monetary equivalent from the time the compensation was
withheld up to the time of actual reinstatement. Hence, all the
petitioners, having been illegally dismissed are entitled to
reinstatement without loss of seniority rights and with full
back wages and other benefits from the time of their illegal
dismissal up to the time of their actual reinstatement.
WHEREFORE, the petition is GRANTED. The Decision dated
March 21, 2003 of the Court of Appeals in CA-G.R. SP No.
52082 and the Resolution dated October 20, 2003 are
REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and
Promm-Gem, Inc. are ORDERED to reinstate their respective
employees immediately without loss of seniority rights and
with full backwages and other benefits from the time of their
illegal dismissal up to the time of their actual reinstatement.
Procter & Gamble Phils., Inc. is further ORDERED to pay each
of those petitioners considered as its employees, namely
Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham
Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao
Buenaventura, Lope Salonga, Franz David, Nestor Ignacio,
Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio
Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo
Quiambao, Santos Bacalso, Samson Basco, Alstando Montos,
Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique
F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry
Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo,
Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon,
Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr.,
Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz,
Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente
J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela
Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin,
P25,000.00 as moral damages plus ten percent of the total
sum as and for attorneys fees.
Let this case be REMANDED to the Labor Arbiter for the
computation, within 30 days from receipt of this Decision, of
petitioners backwages and other benefits; and ten percent of
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.10
the total sum as and for attorneys fees as stated above; and
for immediate execution.
PHILIPPINE AIRLINES, INC (PAL) vs. ENRIQUE LIGAN,
(LIGAN)
G.R. No. 146408, February 29, 2008
PRINCIPLES
From the records of the case, it is gathered that the
work performed by almost all of the
respondents - loading and unloading of baggage
and cargo of passengers - is directly related to
the main business of petitioner. And the
equipment used by respondents as station
loaders, such as trailers and conveyors, are owned
by petitioner. (element i)
PAL steadfastly asserted before the Labor Arbiter and
the NLRC that Synergy has a substantial capital to
engage in legitimate contracting, it failed to present
evidence thereon. (element i)
PAL also claimed that it was Synergy's supervisors
who actually supervised respondents, it failed to
present evidence thereon. It did not even identify
who were the Synergy supervisors assigned at the
workplace. (element ii)
PAL in fact admitted that it fixes the work
schedule of respondents as their work was
dependent on the frequency of plane arrivals. And as
the NLRC found, petitioner's managers and
supervisors approved respondents' weekly work
assignments and respondents and other regular PAL
employees were all referred to as "station
attendants" of the cargo operation and airfreight
services of petitioner. (element ii)
Therefore, Respondents having performed tasks which
are usually necessary and desirable in the air
transportation business of petitioner, they should be
deemed its regular employees and Synergy as a labor-
only contractor
Legitimate contracting and labor-only contracting are
defined in Department Order (D.O.) No. 18-02, Series of 2002
(Rules Implementing Articles 106 to 109 of the Labor Code, as
amended) as follows:
Section 3. Trilateral relationship in contracting
arrangements. In legitimate contracting, there
exists a trilateral relationship under which there is a
contract for a specific job, work or service between
the principal and the contractor or subcontractor,
and a contract of employment between the
contractor or subcontractor and its workers. Hence,
there are three parties involved in these
arrangements, the principal which decides to farm
out a job or service to a contractor or
subcontractor, the contractor or subcontractor which
has the capacity to independently undertake the
performance of the job, work or service, and the
contractual workers engaged by the contractor or
subcontractor to accomplish the job, work or service.
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 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 over the performance of the work of the
contractual employee.
"Substantial capital or investment" and the "right to control"
are defined in the same Section 5 of the Department Order as
follows:
"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
reserved 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.
FACTS:
Petitioner Philippine Airlines as Owner, and Synergy
Services Corporation (Synergy) as Contractor,
entered into an Agreement whereby Synergy
undertook to "provide loading, unloading,
delivery of baggage and cargo and other
related services to and from PAL's aircraft at
the Mactan Station."
The Agreement specified the following "Scope of Services" of
Contractor Synergy:
1.2 CONTRACTOR shall furnish all the necessary
capital, workers, loading, unloading and
deliverymaterials, facilities, supplies, equipment and
tools for the satisfactory performance and execution of
the following services (the Work):
a. Loading and unloading of baggage and cargo to
and from the aircraft;
b. Delivering of baggage from the ramp to the
baggage claim area;
c. Picking up of baggage from the baggage sorting
area to the designated parked aircraft;
d. Delivering of cargo unloaded from the flight to
cargo terminal;
e. Other related jobs (but not janitorial functions) as
may be required and necessary;
CONTRACTOR shall perform and execute the aforementioned
Work at some areas located at Mactan Station.
And it expressly provided that Synergy was "an
independent contractor and . . . that there w[ould] be
no employer-employee relationship between
CONTRACTOR and/or its employees on the one hand,
and OWNER, on the other."
On the duration of the Agreement, Section 10 thereof
provided:
10. 1 Should at any time OWNER find the services herein
undertaken by CONTRACTOR to be unsatisfactory, it shall
notify CONTRACTOR who shall have fifteen (15) days from
such notice within which to improve the services. If
CONTRACTOR fails to improve the services under this
Agreement according to OWNER'S specifications and
standards, OWNER shall have the right to terminate this
Agreement immediately and without advance notice.
10.2 Should CONTRACTOR fail to improve the services within
the period stated above or should CONTRACTOR breach the
terms of this Agreement and fail or refuse to perform the
Work in such a manner as will be consistent with the
achievement of the result therein contracted for or in any
other way fail to comply strictly with any terms of this
Agreement, OWNER at its option, shall have the right to
terminate this Agreement and to make other arrangements
for having said Work performed and pursuant thereto shall
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.11
retain so much of the money held on the Agreement as is
necessary to cover the OWNER's costs and damages, without
prejudice to the right of OWNER to seek resort to the bond
furnished by CONTRACTOR should the money in OWNER's
possession be insufficient.x x x x (Underscoring supplied)
Except for respondent Auxtero, the rest of the
respondents, who appear to have been assigned by
Synergy to PAL following the execution of the
Agreement, filed against PAL, Synergy and their
respective officials for underpayment, non-
payment of premium pay for holidays, premium
pay for rest days, service incentiveleave
pay, 13th month pay and allowances, and
for regularization of employment status with
petitioner, they claiming to be "performing duties for
the benefit of PAL since their job is directly connected
with its business x x x."
Respondent Auxtero had initially filed a complaint
against PAL and Synergy and their respective officials
for regularization of his employment status.
Later alleging that he was, without valid
ground, verbally dismissed, he filed a
complaint against petitioner and Synergy and
their respective officials for illegal dismissal
and reinstatement with full backwages.
LA RULING DISMISSED RESPONDENTS
COMPLAINTS
Labor Arbiter Dominador Almirante found Synergy an
independent contractor and dismissed respondents'
complaint for regularization against petitioner, but
granted their money claims.
(1) Ordering respondents PAL and Synergy jointly and
severally to pay all the complainants herein their 13 thmonth
pay and service incentive leave benefits;
(3) Ordering respondent Synergy to pay complainant
Benedicto Auxtero a financial assistance.
The rest of the claims are hereby ordered
dismissed for lack of merit.
NLRC RULING- SET ASIDE LA RULING
1. Declaring respondent Synergy Services
Corporation to be a 'labor-only' contractor;
2. Ordering respondent Philippine Airlines to
accept, as its regular employees, all the complainants
and to give each of them the salaries, allowances and
other employment benefits and privileges of a regular
employee under the CBA subsisting during the period of their
employment;
4. Declaring the dismissal of
complainant Benedicto Auxtero to be illegal and
ordering his reinstatement as helper or utility man with
respondent Philippine Airlines, with full backwages,
allowances and other benefits and privileges from the time of
his dismissal up to his actual reinstatement; and
5. Dismissing the appeal of respondent Synergy
Services Corporation, for lack of merit.
CA RULING AFFIRMED NLRC
Only PAL assailed the NLRC decision via petition for
certiorari before this Court.
ISSUE
W/N Synergy is a mere job-only contractor or a legitimate
contractor.
SC RULING AFFIRMED CA with MODIFICATION
Petitioner PHILIPPINE AIRLINES, INC. is ordered to:
(a) accept respondents as its regular employees in
their same or substantially equivalent positions, and pay
the wages and benefits due them as regular
employees plus salary differential corresponding to the
difference between the wages and benefits given them and
those granted to petitioner's other regular employees of the
same rank; and
(b) pay respondent BENEDICTO AUXTERO salary
differential; backwages from the time of his dismissal until
the finality of this decision; and separation pay, in
lieu of reinstatement, equivalent to one (1) month pay for
every year of service until the finality of this decision.
RATIO
If Synergy is found to be a mere job-only contractor,
respondents could be considered as regular employees
of petitioner as Synergy would then be a mere agent of
petitioner in which case respondents would be entitled to all
the benefits granted to petitioner's regular employees;
otherwise, if Synergy is found to be a legitimate contractor,
respondents' claims against petitioner must fail as they
would then be considered employees of Synergy.
Article 106 of the Labor Code:
ART. 106. CONTRACTOR OR SUBCONTRACTOR. -
Whenever an employer enters into a contract with another
person for the performance of the former's work, the
employees of the contractor and of the latter's 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 the Code. In so
prohibiting or restricting, 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.
Legitimate contracting and labor-only contracting are
defined in Department Order (D.O.) No. 18-02, Series of 2002
(Rules Implementing Articles 106 to 109 of the Labor Code, as
amended) as follows (SEE PRINCIPLES):
From the records of the case, it is gathered that the
work performed by almost all of the
respondents - loading and unloading of baggage
and cargo of passengers - is directly related to
the main business of petitioner. And the
equipment used by respondents as station
loaders, such as trailers and conveyors, are owned
by petitioner.
PAL steadfastly asserted before the Labor Arbiter and
the NLRC that Synergy has a substantial capital to
engage in legitimate contracting, it failed to present
evidence thereon. Neither had respondents shown
that SYNERGY has such substantial capital.
It was only after the appellate court rendered its
challenged Decision when petitioner, in its Motion for
Reconsideration of the decision, sought to prove, for
the first time, Synergy's substantial capitalization by
attaching photocopies of Synergy's financial
statements, e.g., balance sheets, statements of
income and retained earnings, marked as "Annexes
'A' - 'A-4.'"
The control test element under the immediately-quoted
paragraph (ii), which was not present in the old Implementing
Rules (Department Order No. 10, Series of 1997), echoes the
prevailing jurisprudential trend elevating such element
as a primary determinant of employer-employee
relationship in job contracting agreements.
One who claims to be an independent contractor has to
prove that he contracted to do the work according to
his own methods and without being subject to the
employer's control except only as to the results.
While petitioner claimed that it was Synergy's
supervisors who actually supervised respondents, it
failed to present evidence thereon. It did not even
identify who were the Synergy supervisors assigned
at the workplace.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.12
Even the parties' Agreement does not lend support to
petitioner's claim, thus:
Section
6. Qualified and Experienced Worker: Owner's Right t
o Dismiss Workers.
CONTRACTOR shall employ capable and experienced
workers and foremen to carry out the loading,
unloading and delivery Work as well as provide all
equipment, loading, unloading and delivery
equipment, materials, supplies and tools necessary
for the performance of the Work. CONTRACTOR shall
upon OWNER'S request furnish the latter with
information regarding the qualifications of the
former's workers, to prove their capability and
experience. Contractor shall require all its
workers, employees, suppliers and visitors to
comply with OWNER'S rules, regulations,
procedures and directives relative to the
safety and security of OWNER'S premises,
properties and operations. For this purpose,
CONTRACTOR shall furnish its employees and
workers identification cards to be
countersigned by OWNER and uniforms to be
approved by OWNER. OWNER may require
CONTRACTOR to dismiss immediately and
prohibit entry into OWNER'S premises of any
person employed therein by CONTRACTOR who
in OWNER'S opinion is incompetent or
misconducts himself or does not comply with
OWNER'S reasonable instructions and requests
regarding security, safety and other matters and
such person shall not again be employed to perform
the services hereunder without OWNER'S permission.
Petitioner in fact admitted that it fixes the work
schedule of respondents as their work was
dependent on the frequency of plane arrivals. And as
the NLRC found, petitioner's managers and
supervisors approved respondents' weekly work
assignments and respondents and other regular PAL
employees were all referred to as "station
attendants" of the cargo operation and airfreight
services of petitioner.
Respondents having performed tasks which are
usually necessary and desirable in the air
transportation business of petitioner, they should be
deemed its regular employees and Synergy as a
labor-only contractor.
The express provision in the Agreement that Synergy
was an independent contractor and there would be "no
employer-employee relationship between [Synergy]
and/or its employees on one hand, and [petitioner] on
the other hand" is not legally binding and conclusive as
contractual provisions are not valid determinants of
the existence of such relationship. For it is the totality of
the facts and surrounding circumstances of the case
which is determinative of the parties' relationship.
Dismissal of Auxtero
Dismissal of Auxtero, a regular employee of petitioner who
had been working as utility man/helper, it is not legally
justified for want of just or authorized cause therefor and for
non-compliance with procedural due process. Petitioner's
claim that he abandoned his work does not persuade.
The elements of abandonment being
(1) the failure to report for work or absence without valid or
justifiable reason, and
(2) a clear intention to sever the employer-employee
relationship manifested by some overt acts,the onus
probandi lies with petitioner which, however, failed to
discharge the same.
Auxtero, having been declared to be a regular employee of
petitioner, and found to be illegally dismissed from
employment.
As regards the remaining respondents
The Court affirms the ruling of both the NLRC and the
appellate court. Petitioner claims, however, that it has
become impossible for it to comply with the orders of the
NLRC and the Court of Appeals, for during the pendency of
this case, it was forced to reduce its personnel due to
heavy losses caused by economic crisis and the pilots'
strike. Hence, there are no available positions where
respondents could be placed.
And petitioner informs that "the employment contracts of all if
not most of the respondents . . . were terminated by when
petitioner terminated its contract with Synergy."Other than its
bare allegations, petitioner presented nothing to substantiate
its impossibility of compliance. In fact, petitioner waived this
defense by failing to raise it in its Memorandum before the
Court of Appeals.
Finally, it must be stressed that respondents, having
been declared to be regular employees of petitioner,
Synergy being a mere agent of the latter, had acquired
security of tenure. As such, they could only be
dismissed by petitioner, the real employer, on the basis
of just or authorized cause, and with observance of
procedural due process.
RODOLFO D. GARCIA vs. PHILIPPINE AIRLINES and/or
CRISTINA W. TRINIDAD
Principle:
PAL is not Garcias employer and cannot thus be held
solidarily liable with Stellar for illegal dismissal.
The workers of Stellar Industrial Services, Inc. (Stellar) have
no contractual tie to PAL because Stellar, as a legitimate
independent contractor, is their true employer. (Stellar
Employees Association v. Philippine Airlines and Stellar
Industrial Services, Inc.-applicable case based on res judicata)
Issue: (as guide)
Whether PAL is Garcias employer and solidarily liable with
Stellar for illegal dismissal.
Facts:
Stellar Industrial Services, Inc. (Stellar) had a
standing agreement to supply PAL with workers for janitorial
and sanitation functions. On August 2, 1976, Garcia was
assigned by Stellar to PAL, where he was tasked to perform
janitorial services at the companys in-flight kitchen
until January 24, 1990.
During the course of his employment, Garcia
received a warning from Stellar for absences incurred. The
Memorandum, dated April 28, 1987, pertinently reads:
TO : GARCIA, Rodolfo
NUEDA, Ferdinand
FROM : Vice President Comptroller
SUBJECT : LAST WARNING
DATED : 28 April 1987
Our attention was called by our client
Philippine Airlines Inflight Kitchen regarding
your failure to report for work last April 17,
1987.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.13
 Your absences has (sic) caused These are my answers to the
inconvenience in the operation of our charges against me as inscribed in a letter
client. Let this serve as our last warning, any of MS. Cristina W. Trinidad dated March 21,
repetition or violation of any company rules 1990.
and regulations will constrain us to
terminate your services with us. As to the allegation that I was
always late in completing assigned task, this
(SGD.) CARLOS P. CALLANGA was not true because works in the Catering
Service has (sic) no ending due to the
On January 25, 1990, Garcia was transferred to PALs nature of PALs business.
Catering Operations as a kitchen busboy in the sanitizing
section. As to the allegation that I must constantly
(be) prodded to meet deadlines, (this) was
In a Memorandum dated March 21, 1990, PAL, not correct because of the above reasons.
through Cristina Trinidad (then Manager of PALs Catering
Operations), requested Stellar for a replacement for Garcia. As to the allegation that I was not
able to identify and carry out work priorities
TO : Mr. Oscar Lluz and needs assistance from co-workers was
not also (sic) correct because I always have
Operations Manager Stellar Industrial Services a companion in the performance of my job
because the nature of the work calls for it.
FROM : Manager-Catering Operations
And as to the last allegation that I
SUBJECT : MR. RODOLFO GARCIA was caught selling cigarettes while on duty
was not also tru (sic) because how can I sell
We would like to request for the immediate cigarettes when I was surrounded by heavy
replacement of Mr. Rodolfo Garcia. works and the mess in my hands while on
duty will make them spoiled. The cigarettes
He has failed to meet the performance inside my pocket was (sic) only for my
requirement of a helper at Catering personal consumptions (sic).
Operations.
I hope these answers will enlighten
Hereunder are the observations of his my case and I am looking forward that I will
superiors from January 8 to the present. be given merit considering that I am
connected with the service for a period of
01. Always late in
fourteen (14) years without being
completing assigned
apprehended/complained of misconduct
tasks.
unbecoming.

02. Must be consistently

Yours truly,
prodded to meet
deadlines. (Sgd.) RODOLFO GARCIA

03. Unable to identify and Dissatisfied with Garcias explanation, Stellar

carry out work subsequently terminated his employment. In 1992, Garcia
priorities and needs filed a complaint for illegal dismissal against Stellar and Lluz,
assistance from co- as well as PAL and Trinidad.
workers.
It appears that sometime in 1988, Stellar employees
Worst of all, he was caught selling cigarettes while on assigned at PAL filed complaints for regularization against the
duty. air carrier. One of the complainants against PAL was Garcia.

We hope you will act on our request immediately. NLRC:

(SGD.) CRISTINA W. TRINIDAD LA Tumanon: Favored Garcia. Dismissal is illegal and

Consequently, in a letter dated March 28, 1990,
Carlos Callanga (VP-Operations/Comptroller of Stellar),
demanded from Garcia a written explanation why no
disciplinary action should be taken against him, in view of the
following charges: (1) poor performance/negligence of duty;
and (2) selling of cigarettes while on duty.
Garcia, in a letter-reply dated April 2, 1990, rendered
an explanation in the following tenor:
APRIL 2, 1990
Mr. Cesar Lluz
Operation Manager
Stellar Industrial Services
Cibeles Bldg., Ayala
unauthorized.
Third Division (on appeal): Reversed Tumanon, holding that
Garcia was guilty of gross and habitual neglect and was
consequently terminated for cause and with due process.
Stellar appears to be an independent job contractor and not
merely a labor only contractor. Apart from the fact that it has
sufficient capitalization to the tune of more than a million
pesos, its workers perform work that are not necessary and
desirable to the business of PAL. Hence, its employees are not
of PAL.
CA:
On certiorari, the CA modified both the NLRC and the LA
rulings. In reality, however, the CA merely sustained the NLRC
ruling that Stellar is an independent contractor. It is only
Stellar who is responsible to Garcia as the former is
an independent contractor.

Makati, Metro Manila

Ruling:
Dear Sir:

eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.14
(The instant petition was filed beyond the requested extension
period. But SC chose to still decide on this case the greater
interest of justice would be served if this petition is
adjudicated on its merits.)
No, on its merits, SC resolved to deny the petition.
The CA correctly found that PAL is not Garcias employer and
cannot thus be held solidarily liable with Stellar for illegal
dismissal.
No employer-employee relationship between PAL and Garcia
The issue on the existence of an employer-employee
relationship between Garcia and PAL has long been resolved
in the case entitled Stellar Employees Association v. Philippine
Airlines and Stellar Industrial Services, Inc. In that case, Garcia
joined other Stellar employees in filing complaints for
regularization, money claims and damages against PAL before
the NLRC. The NLRC declared, on September 25, 1996, that no
employer-employee relationship exists between PAL and the
Stellar employees.
Stellar assigned supervisors and
timekeepers at PALs premises where Stellar
Employees Association (SEA) members
performed their work. On the issue
of Stellars capitalization, it has an
authorized capital stock
of P1,000,000.00. Stellar has a collective
bargaining agreement (CBA) with its
employees, including SEA members, under
which complainants obtained substantial
benefits.
Stellar is a legitimate independent contractor
One such gauge in determining
whether one is a labor-only contractor is the
absence of substantial capital (Art. 106 of
the Labor Code and Sec. 9, Rule VIII of its
Implementing Rules). In view of Stellars
possession of substantial capital, it cannot
be considered a labor-only contractor.
Stellar is a legitimate independent
contractor. It provides its employees with
soap, cleansers, mops, lawn mowers,
brooms, and dustpans. It also maintains an
independent business as admittedly shown
by its diversified clientele and the
supervision and control as to the means of
work as provided by its own timekeepers.
No contractual tie between PAL and Stellar
Employees
The workers have no contractual
tie to PAL because Stellar, as a legitimate
independent contractor, is their true
employer. They applied and executed
employment contracts with Stellar, not PAL.
What cannot be denied, however, is the
brazen and undisputed fact that Stellar has
a CBA with its employees, including SEA
members. Stellars employees derived
benefits under said CBA for the number of
years it had been in force. The CBA is a
clear admission of an employment
relationship with Stellar. It is now too late in
the day for them to deny such relationship.
Due to the failure to seasonably appeal or question
the NLRC ruling, its factual and legal findings have attained
finality. Consequently, the holding that PAL is not Garcias
employer constitutes res judicata on the same issue in this
petition.
Res Judicata
Res judicata literally means a matter adjudged; a
thing judicially acted upon or decided; a thing or matter
settled by judgment. It has 2 concepts. The first is bar by
prior judgment. This rule dictates that the judgment or
decree of a court of competent jurisdiction on the merits
concludes the parties and their privies to the litigation and
constitutes a bar to a new action or suit involving the same
cause of action either before the same or any other tribunal.
The judgment rendered in the first case is an absolute
bar to the subsequent action since said judgment is
conclusive not only as to the matters offered and
received to sustain that judgment but also as to any other
matter which might have been offered for that
purpose.
The second rule of res judicata is known
as conclusiveness of judgment. It provides that any right,
fact, or matter in issue directly adjudicated or necessarily
involved in the determination of an action before a competent
court in which a judgment or decree is rendered on the merits
is conclusively settled by the judgment therein and cannot
again be litigated between the parties and their privies
whether or not the claim or demand, purpose, or subject
matter of the two suits is the same. It refers to a situation
where the judgment in the prior action operates as an
estoppel only as to the matters actually determined or
which were necessarily included therein.
The fundamental difference between the rule of res
judicata as a bar by former judgment and as merely a rule on
the conclusiveness of judgment is that, in the first, there is an
identity in the cause of action in both cases involved whereas,
in the second, the cause of action in the first case is different
from that in the second case.
In this petition, res judicata in the concept of
conclusiveness of judgment obtains. The concept is applicable
here as there is identity of parties and subject matter but not
of causes of action.
First, there is identity of parties between the 2
cases. Garcia was one of the complainants in the consolidated
regularization cases and he is also the same party who
initiated this action. Second, there is identity of subject
matter, defined as the matter or thing with respect to which
the controversy has arisen, concerning which a wrong has
been done. It is quite clear that the issue and subject matter
resolved in the consolidated regularization cases is the
existence of an employer-employee relationship between
petitioner and PAL. It is also the primordial issue for resolution
in the instant petition.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.15

However, identity of causes of action is absent
between the 2 cases. Under the rules, a cause of action is
defined as an act or omission by which a party violates a right
of another. In the regularization cases, the cause of action is
the deprivation of the status of a regular employee, while in
this petition, the cause of action is the dismissal of an
employee without just cause under our labor laws.
Applying the rule on conclusiveness of judgment to
this case, the parties are now precluded from re-litigating
the same issue of the existence of an employment
relationship between PAL and Garcia. Res judicata now
bars Garcia from reopening, by way of this petition, the
issue of the existence of an employer-employee
relationship between him and PAL.
Res judicata requires that stability be accorded to
judgments. Controversies once decided on the merits shall
remain in repose for there should be an end to litigation,
which, without the doctrine, would be endless.
There is the failure of Garcia to attach to the
petition and subsequent pleadings, proof of these alleged
facts of employment relationship. There is a patent lack of
evidence in the records to convince SC that the following
material allegations exist, namely: that Garcias duties were
necessary and desirable to the business of PAL;
that PAL exercised control over the means and methods of his
performance at the in-flight kitchen; and that it was PALs
responsibility to issue rules and regulations regarding
discipline to be followed by Garcia at that department.
Instead, Garcia merely offered factual assertions, which are
unfortunately not supported by proof or documentary.
SC did not accept the claim that Garcia was PALs
employee based on the pleadings and evidence before
it. Garcia does not deny that he was selected and engaged by
Stellar when he was assigned to PAL. Moreover, while Garcia
claims that the funds for his salary came from PAL, he did not
adduce proof to support his allegation. In any event, he
admits that it was Stellar that paid his wages. The evidence
further shows that it was Stellar, not PAL, which disciplined
Garcia. It was Stellar that issued to Garcia various memoranda
asking for an explanation about his infractions and Garcia
explained himself to that company, not PAL. In fine, Garcia
recognized the disciplinary authority of Stellar over him, and
not that of the air carrier. Petition denied for lack of merit.
GSIS v. NLRC & LANTING
FACTS:
Tomas Lanting, doing business under the name and
style of Lanting Security and Watchman Agency (LSWA)
entered into a Security Service Contract to provide security
guards to the properties of the Government Service Insurance
System (GSIS) at the contract rate of P3,000.00 per guard per
month. During the effectivity of the contract, LSWA requested
the GSIS for an upward adjustment of the contract rate in
view of Section 7 of Wage Order No. 1 and Section 3 of Wage
Order No. 2, which were issued by the Regional Tripartite
Wages and Productivity Board-NCR pursuant to Republic Act
No. 6727 (wage rationalization act). Acting on the request of
LSWA, the GSIS, through its Board of Trustees and under
Board Resolution No. 207 approved the upward adjustments
of the contract price from P3,000.00 to P3,716.07 per guard,
per month effective November 1, 1990 to January 7, 1991,
and P4,200.00 effective January 8, 1991 to May 31, 1991.
LSWA assigned security guards Daniel Fanila, Hector
Moreno, Isauro Ferrer, Rubin Wilfredo, Jesus Delima, Jr., Maria
Legaspi, Santiago Noto, Jr., and Virgilio Soriano (complainants)
to guard one of GSIS's properties. The complainants have the
following dates of employment and compensation package
with LSWA:
1. Daniel Fanila 3/28/91-3/15/93 P3,100/month
2. Virgilio Soriano 10/0/91-3/15/93 P3,100/month
3. Hector Moreno 1/04/89-3/15/93 P3,100/month
4. Isauro Torres 11/ /88-3/15/93 P3,100/month
5. Rubin Wilfredo 3/08/91-3/15/93 P3,100/month
6. Jesus Delima, Jr. 3/28/91-3/15/93 P3,100/month
7. Maria Legaspi 3/13/91-3/15/93 P3,100/month
When the GSIS terminated the Security Service
Contract with the LSWA, all complainants, except Virgilio
Soriano, were absorbed by the incoming security agency. They
filed separate complaints against LSWA for underpayment of
wages and non-payment of labor standard benefits, while
Virgilio Soriano filed complaint for illegal dismissal. In its
Position Paper, LSWA alleged that complainants were
estopped from claiming that they were underpaid because
they were informed that the pay and benefits given to them
were based on the contract rate of P103.00 per eight hours of
work or about P3,100.00 per month. LSWA, on the other hand,
filed a third-party complaint against GSIS for underpayment of
complainants wages.
GSIS alleged that the Third-Party Complaint states no
cause of action against it; that LSWA obligated itself in the
Security Service Contract to be solely liable for the
enforcement of and compliance with all existing labor laws,
rules and regulations; that the GSIS Board of Trustees
approved the upward adjustment on a month-to-month basis,
at P4,200 per guard per month, effective January 8, 1991 to
May 31, 1991 which was incorporated in the Security Service
Contract; that GSIS fully paid the services of the security
guards as agreed upon in the Security Service Contract.
LA RULING:
LA Renato Bugarin ruled in favor of the complainants
holding that LSWA and GSIS were jointly and severally liable
for the payment of complainants' money claims, pursuant to
Articles 106 and 107 of the Labor Code. Further, ordered
LSWA to reinstate Virgilio Soriano without loss seniority rights
and benefits and to pay his backwages.
NLRC RULING:
NLRC modified LA ruling stating that Virgilio Soriano
was not illegally dismissed and is not entitled to reinstatement
and payment of any backwages; that the award of salary
differentials to other complainants should be deducted from
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.16
their awarded total salary differentials in the sum of P10,
917.00 each; and that GSIS is alone liable for payment of
complainants money claims.
CA RULING:
CA modified NLRC ruling and held LA ruling, stating
that LSWA and GSIS were jointly and severally liable for the
payment of the complainants money claims in accordance
with Articles 106 and 107 of the Labor Code.
ISSUES:
Whether or not GSIS is solidarily liable for payment of
complainants money claims.
SC RULING:
The court affirmed with modification the CA ruling,
stating that the joint and solidary liability of LSWA and the
GSIS to pay complainants' salary differentials shall be without
prejudice to the GSIS's right of reimbursement from LSWA.
The GSIS avers that Articles 106 and 107 of the
Labor Code were not contemplated by its framers to cover
principals or clients of service contractors who had already
paid for the wages of the contractor or subcontractor. Hence,
it cannot twice be held liable for complainants' salary
differentials since it would be unjust enrichment on the part of
complainants and/or LSWA at its expense.
LSWA on the other hand, maintains that the GSIS is
jointly and severally liable because Articles 106 and 107 of
the Labor Code provide so and these provisions were intended
to ensure that employees are paid the wages due them in
case of violation of the Labor Code of either the contractor or
the principal. Moreover, GSIS cannot claim that holding it
jointly and severally liable with LSWA would result in grave
injustice since the law did not leave it without recourse as the
GSIS has the right of reimbursement from its co-debtor under
Article 1217 of the Civil Code.
ART. 106. Contractor or subcontractor. Whenever an
employer enters into 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 wage 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.
ART. 107 Indirect 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.
In this case, the GSIS cannot evade liability by
claiming that it had fully paid complainants' salaries by
incorporating in the Security Service Contract the salary rate
increases. The joint and several liability of the employer or
principal were enacted to ensure compliance with the
provisions of the Code, principally those on statutory
minimum wage. The contractor or subcontractor is made
liable by virtue of his or her status as a direct employer, and
the principal as the indirect employer of the contractors
employees. This liability facilitates, if not guarantees,
payment of the workers compensation, thus, giving the
workers ample protection as mandated by the 1987
Constitution. Hence, the Court does not agree with the GSIS's
claim that a double burden would be imposed upon the latter
since it has the right to recover from LSWA whatever amount
it has paid in accordance with the terms of the service
contract between the LSWA and the GSIS.
MERALCO INDUSTRIAL ENGINEERING SERVICES
CORPORATION, Petitioner,
vs. NATIONAL LABOR RELATIONS COMMISSION, OFELIA P.
LANDRITO GENERAL SERVICES and/or OFELIA P. LANDRITO,
Respondents.
Principle:
An indirect employer (as defined by Article 107) can only be
held solidarily liable with the independent contractor or
subcontractor (as provided under Article 109) in the event
that the latter fails to pay the wages of its employees (as
described in Article 106).
Facts:
Petitioner Meralco Industrial Engineering Services Corporation
(MIESCOR) is a corporation duly organized and existing under
the laws of the Republic of the Philippines and a client of
private respondents. Private respondent Ofelia P. Landrito
General Services (OPLGS) is a business firm engaged in
providing and rendering general services, such as janitorial
and maintenance work to its clients, while private respondent
Ofelia P. Landrito is the Proprietor and General Manager of
OPLGS.
On 7 November 1984, petitioner and private respondents
executed Contract Order No. 166-84,4 whereby the latter
would supply the petitioner janitorial services, which include
labor, materials, tools and equipment, as well as supervision
of its assigned employees, at petitioners Rockwell Thermal
Plant in Makati City. Pursuant thereto, private respondents
assigned their 49 employees as janitors to petitioners
Rockwell Thermal Plant with a daily wage of P51.50 per
employee.
On 20 September 1989, however, the aforesaid 49 employees
(complainants) lodged a Complaint for illegal deduction,
underpayment, non-payment of overtime pay, legal holiday
pay, premium pay for holiday and rest day and night
differentials5 against the private respondents before the
Labor Arbiter. The case was docketed as NLRC NCR Case No.
00-09-04432-89.
The enactment of Republic Act No. 6727,6 the contract
between the petitioner and the private respondents was
amended7 for the 10th time on 3 November 1989 to increase
the minimum daily wage per employee from P63.55 to P89.00
or P2,670.00 per month. Two months thereafter, or on 2
January 1990, petitioner sent a letter to private respondents
informing them that effective at the close of business hours
on 31 January 1990, petitioner was terminating Contract
Order No. 166-84. Accordingly, at the end of the business
hours on 31 January 1990, the complainants were pulled out
from their work at the petitioners Rockwell Thermal Plant.
Thus, on 27 February 1990, complainants amended their
Complaint to include the charge of illegal dismissal and to
implead the petitioner as a party respondent therein.
LA
Since the parties failed to settle amicably before the Labor
Arbiter, they submitted their respective position papers and
other pleadings together with their documentary evidence.
Thereafter, a Decision was rendered by the Labor Arbiter on
26 March 1991, dismissing the Complaint against the
petitioner for lack of merit, but ordering the private
respondents to pay the complainants the total amount of
P487,287.07 representing unpaid wages, separation pay and
overtime pay; as well as attorneys fees in an amount
equivalent to 10% of the award or P48,728.70. All other
claims of the complainants against the private respondents
were dismissed.
NLRC
On 28 May 1993, the NLRC issued a Resolution11 affirming
the Decision of the Labor Arbiter dated 26 March 1991 with
the modification that the petitioner was solidarily liable with
the private respondents, ratiocinating thus:
We, however, disagree with the dismissal of the case against
[herein petitioner]. Under Art. 107 of the Labor Code of the
Philippines, [herein petitioner] is considered an indirect
employer and can be held solidarily liable with [private
respondents] as an independent contractor. Under Art. 109,
for purposes of determining the extent of its liability, [herein
petitioner] is considered a direct employer, hence, it is
solidarily liable for complainants (sic) wage differentials and
unpaid overtime. We find this situation obtaining in this case
in view of the failure of [private respondents] to pay in full the
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.17
labor standard benefits of complainants, in which case liability
is limited thereto and does not extend to the establishment of
employer-employee relations.
On 30 July 1993, the NLRC issued an Order noting that based
on the records of the case, the judgment award in the amount
of P487,287.07 was secured by a surety bond posted by the
private respondents; hence, there was no longer any
impediment to the satisfaction of the complainants claims.
Resultantly, the NLRC denied the private respondents Motion
for Reconsideration. The NLRC likewise directed the Labor
Arbiter to enforce the monetary award against the private
respondents surety bond and to determine who should finally
shoulder the liability therefor.
On 5 October 1994, the Labor Arbiter issued an Order, which
reads: As can be gleaned from the Resolution dated [28 May
1993], there is that necessity of clarifying the respective
liabilities of [herein petitioner] and [herein private
respondents] insofar as the judgment award in the total sum
of P487,287.07 is concerned. The judgment award in the total
sum of P487,287.07 as contained in the Decision dated [26
March 1991] consists of three (3) parts, as follows: First, the
judgment award on the underpayment; Second, the judgment
award on separation pay; and Third, the judgment award on
the overtime pay. The question now is: Which of these awards
is [petitioner] solidarily liable with [private respondents]?
NLRC: The complainants may enforce the judgment award on
underpayment and the non-payment of overtime pay against
either [private respondents] and/or [petitioner].
However, in view of the finding in the Decision that
[petitioner] had adjusted its contract price for the janitorial
services it contracted with [private respondents] conforming
to the provisions of Republic Act No. 6727, should the
complainants enforce the judgment on the underpayment and
on the non-payment of the overtime pay aginst [petitioner],
the latter can seek reimbursement from the former [meaning
(private respondents)], but should the judgment award on the
underpayment and on the non-payment of the overtime pay
be enforced against [private respondents], the latter cannot
seek reimbursement against [petitioner].
The judgment award on separation pay is the sole liability of
[private respondents].
CA
Court of Appeals conformably with its ruling in St. Martin
Funeral Home v. National Labor Relations Commission. the
Court of Appeals rendered the assailed Decision on 24 April
2000, modifying the Decision of the NLRC dated 30 January
1996 and holding the petitioner solidarily liable with the
private respondents for the satisfaction of the laborers
separation pay. According to the Court of Appeals: The [NLRC]
adjudged the payment of separation pay to be the sole
responsibility of [herein private respondents] because (1)
there is no employer-employee relationship between [herein
petitioner] and the forty-nine (49) [therein complainants]; (2)
the payment of separation pay is not a labor standard benefit.
We disagree. Art. 109 of LC speaks of "any violation of any
provision of this Code." Thus, the existence or non-existence
of employer-employee relationship and whether or not the
violation is one of labor standards is immaterial because said
provision of law does not make any distinction at all and,
therefore, this Court should also refrain from making any
distinction. Concomitantly, [herein petitioner] should be jointly
and severally liable with [private respondents] for the
payment of wage differentials, overtime pay and separation
pay of the [therein complainants]. The joint and several
liability imposed to [petitioner] is, again, without prejudice to
a claim for reimbursement by [petitioner] against [private
respondents] for reasons already discusses.
Issue:
1. WON the petitioner should be solidary liable with
respondent for separation pay.
2. WON there was conspiracy between petitioner and
Respondent for illegal dismissal of the complainant
3. WON the respondent can reimburse from the
petitioner monetary claim and separation pay
4. WON the respondent can recover from the petitioner
the amount of surety bond.
Ruling
1. NO, the appellate court used as basis Article 109 of the
Labor Code, as amended, in holding the petitioner solidarily
liable with the private respondents for the payment of
separation pay:
ART. 109. Solidary Liability. - 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. [Emphasis supplied].1avvphi1
However, the afore-quoted provision must be read in
conjunction with Articles 106 and 107 of the Labor Code, as
amended.
Article 107 of the Labor Code, as amended, defines an indirect
employer as "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." To ensure that the contractors employees are
paid their appropriate wages, Article 106 of the Labor Code,
as amended, provides:
ART. 106. CONTRACTOR OR SUBCONTRACTOR. x x x.
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. [Emphasis supplied].
Taken together, an indirect employer (as defined by Article
107) can only be held solidarily liable with the independent
contractor or subcontractor (as provided under Article 109) in
the event that the latter fails to pay the wages of its
employees (as described in Article 106).
Hence, while it is true that the petitioner was the indirect
employer of the complainants, it cannot be held liable in the
same way as the employer in every respect. The petitioner
may be considered an indirect employer only for purposes of
unpaid wages.
2. No, There is no question that private respondents are
operating as an independent contractor and that the
complainants were their employees. There was no employer-
employee relationship that existed between the petitioner and
the complainants and, thus, the former could not have
dismissed the latter from employment. Only private
respondents, as the complainants employer, can terminate
their services, and should it be done illegally, be held liable
therefor. The only instance when the principal can also be
held liable with the independent contractor or subcontractor
for the backwages and separation pay of the latters
employees is when there is proof that the principal
conspired with the independent contractor or subcontractor
in the illegal dismissal of the employees, thus:
The proposition that payment of back wages and separation
pay should be covered by Article 109, which holds an indirect
employer solidarily responsible with his contractor or
subcontractor for "any violation of any provision of this Code,"
would have been tenable if there were proof - there was
none in this case - that the principal/employer had
conspired with the contractor in the acts giving rise to
the illegal dismissal.
It is the established fact of conspiracy that will tie the
principal or indirect employer to the illegal dismissal of the
contractor or subcontractors employees. In the present
case, there is no allegation, much less proof
presented, that the petitioner conspired with private
respondents in the illegal dismissal of the latters
employees; hence, it cannot be held liable for the
same.
3. No, although the issue in CA-G.R. SP No. 50806 pertains to
private respondents right to reimbursement from petitioner
for the "monetary awards" in favor of the complainants, they
limited their arguments to the monetary awards for
underpayment of wages and non-payment of overtime
pay, and were conspicuously silent on the monetary
award for separation pay. Thus, private respondents sole
liability for the separation pay of their employees should have
been deemed settled and already beyond the power of the
Court of Appeals to resolve, since it was an issue never raised
before it.
Although petitioner is not liable for complainants separation
pay, the Court conforms to the consistent findings in the
proceedings below that the petitioner is solidarily liable
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.18
with the private respondents for the judgment awards
for underpayment of wages and non-payment of
overtime pay.
4. No, private respondents had already posted a surety bond
in an amount sufficient to cover all the judgment awards due
the complainants, including those for underpayment of wages
and non-payment of overtime pay. The joint and several
liability of the principal with the contractor and subcontractor
were enacted to ensure compliance with the provisions of the
Labor Code, principally those on statutory minimum wage.
This liability facilitates, if not guarantees, payment of the
workers compensation, thus, giving the workers ample
protection as mandated by the 1987 Constitution. With
private respondents surety bond, it can therefore be
said that the purpose of the Labor Code provision on
the solidary liability of the indirect employer is already
accomplished since the interest of the complainants
are already adequately protected. Consequently, it will be
futile to continuously hold the petitioner jointly and solidarily
liable with the private respondents for the judgment awards
for underpayment of wages and non-payment of overtime
pay.
But while this Court had previously ruled that the indirect
employer can recover whatever amount it had paid to the
employees in accordance with the terms of the service
contract between itself and the contractor, the said ruling
cannot be applied in reverse to this case as to allow
the private respondents (the independent contractor),
who paid for the judgment awards in full, to recover
from the petitioner (the indirect employer).
JEROMIE D. ESCASINAS and EVAN RIGOR SINGCO,
Petitioners,
vs.
SHANGRI-LA'S MACTAN ISLAND RESORT and DR.
JESSICA J.R. PEPITO, Respondents
PRINCIPLE:
The existence of an independent and permissible contractor
relationship is generally established by considering the
following determinants: whether the contractor is 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 a specified piece of
work; the control and supervision of the work to another; the
employer's power with respect to the hiring, firing and
payment of the contractor's workers; the control of the
premises; the duty to supply the premises, tools, appliances,
materials and labor; and the mode, manner and terms of
payment.
On the other hand, existence of an employer- employee
relationship is established by the presence of the following
determinants: (1) the selection and engagement of the
workers; (2) power of dismissal; (3) the payment of wages by
whatever means; and (4) the power to control the worker's
conduct, with the latter assuming primacy in the overall
consideration.
FACTS:
Registered nurses Jeromie D. Escasinas and Evan Rigor Singco
(petitioners) were engaged in 1999 and 1996, respectively, by
Dr. Jessica Joyce R. Pepito (respondent doctor) to work in her
clinic at respondent Shangri-las Mactan Island Resort
(Shangri-la) in Cebu of which she was a retained physician.
In late 2002, petitioners filed with the National Labor Relations
Commission (NLRC) Regional Arbitration Branch No. VII (NLRC-
RAB No. VII) a complaint1 for regularization, underpayment of
wages, non-payment of holiday pay, night shift differential
and 13th month pay differential against respondents, claiming
that they are regular employees of Shangri-la. The case was
docketed as RAB Case No. 07-11-2089-02.
Shangri-la claimed, however, that petitioners were not its
employees but of respondent doctor whom it retained via
Memorandum of Agreement (MOA)2 pursuant to Article 157 of
the Labor Code, as amended.
Respondent doctor for her part claimed that petitioners were
already working for the previous retained physicians of
Shangri-la before she was retained by Shangri-la; and that she
maintained petitioners services upon their request.
LA Ruling:
Labor Arbiter Ernesto F. Carreon declared petitioners to be
regular employees of Shangri-la. The Arbiter thus ordered
Shangri-la to grant them the wages and benefits due them as
regular employees from the time their services were engaged.
NLRC Ruling:
NLRC granted Shangri-las and respondent doctors appeal
and dismissed petitioners complaint for lack of merit, it
finding that no employer-employee relationship exists
between petitioner and Shangri-la. In so deciding, the NLRC
held that the Arbiter erred in interpreting Article 157 in
relation to Article 280 of the Labor Code, as what is required
under Article 157 is that the employer should provide the
services of medical personnel to its employees, but nowhere
in said article is a provision that nurses are required to be
employed.
CA Ruling:
Court of Appeals affirmed the NLRC Decision that no
employer-employee relationship exists between Shangri-la
and petitioners. The appellate court concluded that all aspects
of the employment of petitioners being under the supervision
and control of respondent doctor and since Shangri-la is not
principally engaged in the business of providing medical or
healthcare services, petitioners could not be regarded as
regular employees of Shangri-la.
ISSUES:
1. Whether or not Article 157 of the Labor Code make it
mandatory for covered establishment to employ health
personnel; and
2. Whether or not there exists an employer-employee
relationship between Shangri-la and petitioners.
SC Ruling:
The Court holds that, contrary to petitioners postulation, Art.
157 does not require the engagement of full-time nurses as
regular employees of a company employing not less than 50
workers. Thus, the Article provides:
ART. 157. Emergency medical and dental services. It shall be
the duty of every employer to furnish his employees in any
locality with free medical and dental attendance and facilities
consisting of:
(a) The services of a full-time registered nurse when the
number of employees exceeds fifty (50) but not more than
two hundred (200) except when the employer does not
maintain hazardous workplaces, in which case the services of
a graduate first-aider shall be provided for the protection of
the workers, where no registered nurse is available. The
Secretary of Labor shall provide by appropriate regulations
the services that shall be required where the number of
employees does not exceed fifty (50) and shall determine by
appropriate order hazardous workplaces for purposes of this
Article;
(b) The services of a full-time registered nurse, a part-time
physician and dentist, and an emergency clinic, when the
number of employees exceeds two hundred (200) but not
more than three hundred (300); and
(c) The services of a full-time physician, dentist and full-time
registered nurse as well as a dental clinic, and an infirmary or
emergency hospital with one bed capacity for every one
hundred (100) employees when the number of employees
exceeds three hundred (300).
Under the foregoing provision, Shangri-la, which employs
more than 200 workers, is mandated to "furnish" its
employees with the services of a full-time registered nurse, a
part-time physician and dentist, and an emergency clinic
which means that it should provide or make available such
medical and allied services to its employees, not necessarily
to hire or employ a service provider. As held in Philippine
Global Communications vs. De Vera:
x x x while it is true that the provision requires employers to
engage the services of medical practitioners in certain
establishments depending on the number of their employees,
nothing is there in the law which says that medical
practitioners so engaged be actually hired as employees,
adding that the law, as written, only requires the employer "to
retain", not employ, a part-time physician who needed to stay
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.19
in the premises of the non-hazardous workplace for two (2)
hours.
The term "full-time" in Art. 157 cannot be construed as
referring to the type of employment of the person engaged to
provide the services, for Article 157 must not be read
alongside Art. 280 in order to vest employer-employee
relationship on the employer and the person so engaged. So
De Vera teaches:
x x x For, we take it that any agreement may provide that one
party shall render services for and in behalf of another, no
matter how necessary for the latters business, even without
being hired as an employee. This set-up is precisely true in
the case of an independent contractorship as well as in an
agency agreement. Indeed, Article 280 of the Labor Code,
quoted by the appellate court, is not the yardstick for
determining the existence of an employment relationship. As
it is, the provision merely distinguishes between two (2) kinds
of employees, i.e., regular and casual.
The phrase "services of a full-time registered nurse" should
thus be taken to refer to the kind of services that the nurse
will render in the companys premises and to its employees,
not the manner of his engagement.
As to whether respondent doctor can be considered a
legitimate independent contractor, the pertinent sections of
DOLE Department Order No. 10, series of 1997, illuminate:
Sec. 8. Job contracting. There is job contracting permissible
under the Code if the following conditions are met:
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
own responsibility according to his own manner and method,
free from the control and direction of his employer or principal
in all matters connected with the performance of the work
except as to the results thereof; and
(2) The contractor has substantial capital or investment in the
form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his
business.
Sec. 9. Labor-only contracting. (a) Any person who
undertakes to supply workers to an employer shall be deemed
to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises and
other materials; and
(2) The workers recruited and placed by such persons are
performing activities which are directly related to the principal
business or operations of the employer in which workers are
habitually 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 extent as if the latter were directly employed by
him.
(c) For cases not falling under this Article, the Secretary of
Labor shall determine through appropriate orders whether or
not the contracting out of labor is permissible in the light of
the circumstances of each case and after considering the
operating needs of the employer and the rights of the workers
involved. In such case, he may prescribe conditions and
restrictions to insure the protection and welfare of the
workers. (Emphasis supplied)
The existence of an independent and permissible contractor
relationship is generally established by considering the
following determinants: whether the contractor is 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 a specified piece of
work; the control and supervision of the work to another; the
employer's power with respect to the hiring, firing and
payment of the contractor's workers; the control of the
premises; the duty to supply the premises, tools, appliances,
materials and labor; and the mode, manner and terms of
payment.
On the other hand, existence of an employer- employee
relationship is established by the presence of the following
determinants: (1) the selection and engagement of the
workers; (2) power of dismissal; (3) the payment of wages by
whatever means; and (4) the power to control the worker's
conduct, with the latter assuming primacy in the overall
consideration.
Against the above-listed determinants, the Court holds that
respondent doctor is a legitimate independent contractor.
That Shangri-la provides the clinic premises and medical
supplies for use of its employees and guests does not
necessarily prove that respondent doctor lacks substantial
capital and investment. Besides, the maintenance of a clinic
and provision of medical services to its employees is required
under Art. 157, which are not directly related to Shangri-las
principal business operation of hotels and restaurants.
As to payment of wages, respondent doctor is the one who
underwrites the following: salaries, SSS contributions and
other benefits of the staff13; group life, group personal
accident insurance and life/death insurance14 for the staff
with minimum benefit payable at 12 times the employees
last drawn salary, as well as value added taxes and
withholding taxes, sourced from her P60,000.00 monthly
retainer fee and 70% share of the service charges from
Shangri-las guests who avail of the clinic services. It is
unlikely that respondent doctor would report petitioners as
workers, pay their SSS premium as well as their wages if they
were not indeed her employees.
With respect to the supervision and control of the nurses and
clinic staff, it is not disputed that a document, "Clinic Policies
and Employee Manual" claimed to have been prepared by
respondent doctor exists, to which petitioners gave their
conformity and in which they acknowledged their co-terminus
employment status. It is thus presumed that said document,
and not the employee manual being followed by Shangri-las
regular workers, governs how they perform their respective
tasks and responsibilities.
WHEREFORE, the petition is hereby DENIED.
ILIGAN CEMENT CORPORATION V. ILIASCOR EMPLOYEES
AND WORKERS UNION SOUTHERN PHILIPPINES
FEDERATION OF LABOR (IEWU-SPFL)
G.R. No. 158956 | April 24, 2009 | J. Leonardo-De Castro
Facts:
Petitioner Iligant Cement Corp. (ICC) is a Philippine
corporation with plant offices at Kiwalan, Iligan City. It filed a
petition for review on certiorari under Rule 45 of the ROC,
assailing the twin resolutions of CA, which dismissed the
petition for certiorari and denied petitioners MR respectively.
ILIASCOR is ICCs accredited job contractor which provided
stevedoring and arrastre services since the 1970s at its
private pier.
Respondent ILIASCOR Employees and Workers Union (IEWU-
SPFL) is the certified bargaining representative of ILIASCORs
arrastre and stevedoring workers, including herein individual
respondents.
Vedali is an accredited service agency, which provided
general services to petitioners various departments.
On November 11, 1999, Blue Circle took over the
management of ICCs business and decided to bid out the
services at the latters private pier. IEWU-SPFL asked that the
employment of ILIASCOR workers be continued however, VP
for Operations Peter Brinkley denied the request as the
ILIASCOR contract had already expired.
ILIASCOR lost the bidding to LVMASI, which prompted the
former to pay the individual respondents their separation pay
of month for every year of service, contrary to the CBA,
which provided for 1 month pay for every year.
The LVMASI contract did not push through, so ICC issued a
service order to Vedali, which supplied the company with
stevedores, including herein respondents. ICCs Packhouse
Mananager Alex Sagario readily engaged the stevedores.
The individual respondents filed a complaint with NLRC
against ICC and demanded for the declaration of their status
as regular employees and payment of the half of their
separation pay which ILIASCOR withheld.
ICC entered into a stevedoring and arrastre contract with
NMIPSC, which took over the stevedoring duties of the
individual respondents, prompting the individual respondents
to file a Supplemental Complaint for illegal dismissal.
The Labor Arbiter dismissed the complaint for lack of merit,
claiming that ICC is not liable to pay the unpaid portion of
separation pay because it is not the employer of the workers.
ICC is merely the principal; ILIASCOR, the independent
contractor, is the employer of the individual complainants.
On appeal, NLRC reversed the Labor Arbiters decision and
declared, among others, that respondents are regular
employees of ICC.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.20
CA dismissed ICCs petition for certiorari and MR, hence the
present case.
Issue:
W/N the petitioner is the employer of the individual
respondents
W/N the individual respondents were illegally dismissed
Held:
1. Yes. In determining the true status of Vedali viz-a-viz the
petitioner, it is important to ascertain first whether Vedali is a
labor-only contractor or an independent contractor.
Labor-only contracting, which is prohibited, is an arrangement
where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service
for a principal. In labor-only contracting, the following
elements are present:
(a) The contractor or subcontractor does not have substantial
capital or investment to actually perform the job, work or
service under its own account and responsibility; and
(b) 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.
On the other hand, permissible job contracting or
subcontracting refers to an arrangement whereby a principal
agrees to put out or farm out with a contractor or
subcontractor the performance or completion of a specific job,
work or service within a definite or predetermined period,
regardless of whether such job, work or service is to be
performed or completed within or outside the premises of the
principal. A person is considered engaged in legitimate job
contracting or subcontracting if the following conditions
concur:
(a) The contractor or subcontractor carries on a distinct and
independent business and undertakes to perform the job,
work or service on its own account and under its own
responsibility according to its own manner and method, and
free from the control and direction of the principal in all
matters connected with the performance of the work except
as to the results thereof;
(b) The contractor or subcontractor has substantial capital or
investment; and
(c) The agreement between the principal and contractor or
subcontractor assures the contractual employees entitlement
to all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure,
and social and welfare benefits.
Petitioner failed to present any service contract with Vedali in
the proceedings with the Labor Arbiter. There is nothing on
record that Vedali has a substantial capital or investment to
actually perform the service under its own account and
responsibility. Petitioner only attached to its petition with the
CA Vedalis Certificate of Registration and Business permit,
which merely pertain to the registration of Vedali with the SEC
as engaged in Construction and General Services.
In a labor-only contract, there are three parties involved: (1)
the labor-only contractor; (2) the employee who is
ostensibly under the employ of the labor-only contractor;
and (3) the principal who is deemed the real employer. Under
this scheme, the labor-only contractor is the agent of the
principal. Here, Vedali is the labor-only contractor; individual
respondents are the employees and petitioner is the principal.
The law makes the principal responsible to the employees of
the labor-only contractor as if the principal itself directly
hired or employed the employees.
Taking into consideration the factual milieu of this case, the
Court agrees with the conclusion of the NLRC that petitioner
and not Vedali, is the employer of individual respondents and
the latter are employees of petitioner. Individual respondents
work as stock-pilers, arrastre and stevedores were
undoubtedly directly related to and in pursuit of the cement
manufacturing and sales business of petitioner. Petitioners
packing plant operations would have been hampered were it
not for the work rendered by individual respondents.
2. Yes. Under the Labor Code, as amended, the requirements
for the lawful dismissal of an employee are two-fold, the
substantive and the procedural.
As the employer, petitioner has the burden of proving that the
dismissal of petitioner was for a cause allowed under the law
and that petitioner was afforded procedural due process.
Petitioner failed to discharge this burden. Indeed, it failed to
show any valid or authorized cause under the Labor Code
which allowed it to terminate the services of individual
respondents. Neither did petitioner show that individual
respondents were given ample opportunity to contest the
legality of their dismissal. No notice of such impending
termination was ever given to them. Individual respondents
were definitely denied due process. Having failed to establish
compliance with the requirements on termination of
employment under the Labor Code, the dismissal of individual
respondents was tainted with illegality.
VALLUM SECURITY SERVICES and BAGUIO LEISURE
CORPORATION (HYATT TERRACES BAGUIO),petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION,
et.al(private respondents security guards)respondents.
Principle: Labor contracting establishment of
employer-employee relationship
On 1 September 1986, petitioner Baguio Leisure Corporation
(Hyatt Terraces Baguio) ("Hyatt Baguio") and petitioner Vallum
Security Services ("Vallum") entered into a contract for
security services under the terms of which Vallum agreed to
protect the properties and premises of Hyatt Baguio by
providing fifty (50) security guards, on a 24-hour basis, a day.
On 1 June 1988, Heinrich L. Maulbecker, Hyatt Baguio's
General Manager, wrote to Domingo A. Inocentes, President of
Vallum advising that effective 1 July 1988, the contract of
security services would be terminated.
Vallum informed Mr. Maulbecker, on 22 June 1988, that it was
agreeable to the termination of the contract.
On 30 June 1988, private respondents, who were security
guards provided by Vallum to Hyatt Baguio, were informed by
Vallum's Personnel Officer that the contract between the two
(2) had already expired. Private respondents were directed to
report to Vallum's head office at Sucat Road, in Muntinlupa,
Metropolitan Manila, not later than 15 July 1988 for re-
assignment. They were also told that failure to report at Sucat
would be taken to mean that they were no longer interested in
being re-assigned to some other client of Vallum.
None of the private respondents reported at Sucat for re-
assignment. Instead, between July and September 1988,
private respondents filed several complaints against
petitioners in the National Labor Relations Commission's
Office ("NLRC") in Baguio City for illegal dismissal and unfair
labor practices; for violation of labor standards relating to
underpayment of wages, premium holiday and restday pay,
uniform allowances and meal allowances. They prayed for
reinstatement with full backwages. The several cases were
consolidated together.
LA Ruling:
Dismissed the complaints. LA found Vallum to be an
independent contractor and, consequently, declined to hold
Hyatt Baguio liable for dismissal of private respondents. He
also held that the termination of services of private
respondents by Vallum did not constitute an unfair labor
practice, considering that such termination had been brought
about by lack of work. Furthermore, the Labor Arbiter held
that private respondents were not entitled to backwages or
separation pay, in line with the "no work, no pay" principle.
Lastly, he found no violation of the labor standard provisions
on payment of wages and other employee benefits. 1
NLRC Ruling:
On appeal, NLRC reversed LA decision. Reinstate to their
former positions with full backwages limited to one (1) year.
Otherwise to pay jointly and severally to pay complainants, in
lieu of reinstatement, separation pay equal to one (1) month
per year of service. Service of six month shall be considered a
year for the purpose of the same.Vallum and Hyatt moved for
reconsideration, without success.
Issue: Whether or not private respondent security guards are
indeed employees of petitioner Hyatt Baguio.
SC Ruling:
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.21
In determining E-E relationship:
1. the selection and engagement of the employee;.
2. the payment of wages;
3. the power of dismissal; and
4. the power to control the employees' conduct.
Control of the employees' conduct is commonly
regarded as the most crucial and determinative
indicator of the presence or absence of an employer-
employee relationship.
1st Element: the records here show that private respondents
filled up Hyatt employment application forms and submitted
the executed forms directly to the Security Department of
Hyatt Baguio. It appears that these executed application forms
were returned to the respective applicants; nonetheless,
however, a few days after the applications to Hyatt Baguio
were submitted, Vallum sent letters of acceptance to private
respondents. Petitioners do not deny that private respondent
had applied for employment at Hyatt's Security Department
and that Security Department was used to process the
applications. Vallum reasoned that it more advantageous to
recruit security guards from the Baguio area since they will
also be assigned in Baguio. Petitioners' argument here, while
understandable, does not negate the fact that the process of
selection and engagement of private respondents had been
carried out in Hyatt Baguio and subject to the scrutiny of
officers and employees of Hyatt Baguio.
2nd element: private respondents submitted in evidence four
hundred twenty-three (423) pay slips which bore Hyatt
Baguio's logo, it showed that it was Hyatt Baguio which paid
their wages directly and that Hyatt Baguio deducted
therefrom the necessary amounts for SSS premiums, internal
revenue withholding taxes, and medicare contributions. The
Labor Arbiter had found that a separate payroll was
maintained for Vallum by Hyatt Baguio; the NLRC, however,
held that this finding had no factual basis, and we are
compelled to agree with this finding. It is true that a
subsequent agreement (10 September 1986) between Vallum
and Hyatt Baguio had provided that Vallum authorizes Hyatt
to pay the guards directly. But it doesnt dissolve the
relevance of such direct payment as an indicator of an
employer-employee relationship between Hyatt Baguio and
private respondents. Vallum did not even provide Hyatt
Baguio with Vallum's own pay slips or payroll vouchers for
such direct payments. What clearly emerges is that Hyatt
Baguio discharged a function which was properly a
function of the employer.
3rd element: the contract provided that upon loss of
confidence on the part of Hyatt Baguio vis-a-vis any security
guard furnished by Vallum, such security guard "maybe
changed immediately upon the request to [Vallum] by [Hyatt
Baguio]." Notwithstanding the terms of the formal contract
between petitioners, the NLRC found that, in operative fact, it
was Hyatt Baguio's Chief Security Officer
who exercised the power of enforcing disciplinary measures
over the security guards. In the matter of termination of
services of particular security guards, Hyatt Baguio had
merely used Vallum as a channel to implement its decisions,
much as it had done in the process of selection and
recruitment of the guards.
Coming then to the location of the power of control over the
activities of the security guards, the following factors lead us
to the conclusion that power was effectively located in Hyatt
Baguio rather than in Vallum: assignment, promotions,
disciplinary actions and recognition of the guards were subject
to Hyatts Chief Security.
4th element: orders received by private respondent security
guards were set forth on paper bearing the letterheads
of both Hyatt Baguio and Vallum. It appears to us, therefore,
that Hyatt Baguio explicitly purported, at the very least,
to share with Vallum the exercise of the power of control and
supervision with Vallum over the security guards, if indeed
Vallum was not functioning merely as an alter ego of Hyatt
Baguio in respect of the operations of the security guards. In
the ordinary course of business, security guard agencies are
engaged because of their specialized capabilities in the
matter of physical security. It is a security agency's business
to know the most efficacious manner of protecting and
securing a particular place at a particular time. In the case at
bar, the functions performed by Hyatt Baguio's Chief Security
Officer were precisely the duties which the head
The thrust of the foregoing discussion, however, is that the
relationship between Vallum and Hyatt Baguio as actually
conducted departed significantly from the formal written
terms of their agreement. It is to us self-evident that the
characterization in law of such relationship cannot
conclusively be made in terms alone of the written
agreement which constitutes but one factor out of
many that the Court must take into account but
must rest upon an examination of the detailed facts of
such relationship in the world of time and space.
We find no basis for overturning the conclusions reached by
the NLRC that Vallum, in the specific circumstances of this
case, was not an independent contractor but was, rather, a
"labor-only" contracor. Section 9 of Rule VII of Book III entitled
"Conditions of Employment" of the Omnibus Rules
Implementing the Labor Code provides as follows:
Sec. 9. Labor-only contracting. (a) Any person who
undertakes to supply workers to an employer
shall be deemed to be engaged in labor-only
contracting where such person:
(1) Does not have substantial capital or investment
in the form of tools, equipment, machineries,
work premises and other materials; and
(2) The workers recruited and placed by such person
are performing activities which are directly
related to the principal business or operations
of the employer in which workers are habitually
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 extent as if the latter were directly
employed by him.
xxx xxx xxx
Sec. 8. Job contracting. There is job contracting
permissible under the Code if the following
conditions are met:
(1) The contractor carries on an independent
business and undertakes the contract work on
his own account under his own responsibility
according his own manner and method, free
from the control and direction of his employer or
principal in all matters connected with the
performance of the work except as to results
thereof; and
(2) The contractor has substantial capital or
investment in the form of tools, equipment,
machineries, work premises, and other materials
which are necessary in the conduct of his
business.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.22
In the case at bar, we noted that Vallum did not have a branch
office in Baguio City and that Hyatt Baguio provided Vallum
with offices at Hyatt's own premises and allowed Vallum to
use its Security Department in the processing of applications.
That was the reason too why Vallum had stipulated that Hyatt
Baguio was to distribute the salaries of the security guards
directly to them and that Hyatt had used its own corporate
forms and pay slips in doing so. The security guards were
clearly performing activities directly related to the business
operations of Hyatt Baguio, since the undertaking to
safeguard the person and belongings of hotel guests is one of
the obligations of a hotel vis-a-vis its guests and the general
public.
Where labor-only contracting exists in a given case, the law
itself implies or establishes an employer-employee
relationship between the employer (the owner of the project
or establishment) (here, Hyatt Baguio) and the employees of
the labor-only contractor (here, Vallum) to prevent any
violation or circumvention of provisions of the Labor Code.
The issue of illegal dismissal need not detain us for long. It
has not been alleged by petitioners that a just or authorized
cause for terminating private respondents' services had
existed. And even if such lawful cause existed, it is not alleged
that private respondents' rights to procedural due process in
that connection had been appropriately observed.
We conclude that petitioners have not shown any grave abuse
of discretion or any act without or any in excess of jurisdiction
on the part of the National Labor Relations Commission in
rendering its Resolutions dated 31 July 1990 and 31 January
1991.
WHEREFORE, premises considered, the Petition
for Certiorari is hereby DISMISSED for lack of merit. Costs
against petitioners.
COCA-COLA BOTTLERS PHILS., INC., Coke, v. 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.
G.R. No. 179546 February 13, 2009
Justice Chico-Nazario
Facts: Coke is a domestic corporation duly registered with the
SEC and engaged in manufacturing, bottling and distributing
soft drink beverages and other allied products. On 15 April
2002, Agito et al. filed before the NLRC two complaints
against Coke, Interserve, Peerless Integrated Services, Inc.
(Interserve), Better Builders, Inc., and Excellent Partners, Inc.
for reinstatement with backwages, regularization,
nonpayment of 13th month pay, and damages. The two cases
were consolidated. Agito et al. alleged that they were
salesmen assigned at the Lagro Sales Office of Coke. They
had been in the employ of Coke 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.
Coke averred that Agito et al. were employees of Interserve
who were tasked to perform contracted services in
accordance with the provisions of the Contract of Services
executed between Coke and Interserve on 23 March 2002.
Said Contract between Coke and Interserve, covering the
period of 1 April 2002 to 30 September 2002, constituted
legitimate job contracting, given that the Interserve 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, Coke presented
the following pieces of evidence: (1) the Articles of
Incorporation of Interserve; (2) the Certificate of Registration
of Interserve with the Bureau of Internal Revenue; (3) the
Income Tax Return, with Audited Financial Statements, of
Interserve for 2001; and (4) the Certificate of Registration of
Interserve as an independent job contractor, issued by DOLE.
As a result, Coke asserted that Agito et al. were employees of
Interserve, since it was the latter which hired them, paid their
wages, and supervised their work, as proven by: (1) their
Personal Data Files in the records of Interserve; (2) their
Contract of Temporary Employment with Interserve; and (3)
the payroll records of Interserve.
Coke, thus, sought the dismissal of the 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 Coke and Agito et al.
LA Ruling/Ratio: The Labor Arbiter found that Agito et al.
were employees of Interserve and not of Coke. 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 the parties. While Agito et al. performed activities
that were necessary and desirable in the usual business or
trade of Coke, the LA underscored that their functions were
not indispensable to the principal business of Coke, which was
manufacturing and bottling soft drink beverages and similar
products. The LA 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 Agito et al.s employee records, including their
Personal Data Sheets; Contracts of Employment; and
remittances to the SSS, Medicare and Pag-ibig Fund, thus,
further supporting the LAs finding that Agito et al. were
employees of Interserve. She ruled that the circulars, rules
and regulations which Coke issued from time to time to Agito
et al. were not indicative of control as to make the latter its
employees. Nevertheless, the LA directed Interserve to pay
Agito et al. their pro-rated 13th month benefits for the period
of January 2002 until April 2002.
Aggrieved, Agito et al. filed an appeal with the NLRC. They
maintained that contrary to the finding of the LA, their work
was indispensable to the principal business of Coke. They
supported their claim with copies of the Delivery Agreement
between Coke and TRMD Incorporated, stating that Coke 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, Coke supplied the tools and equipment used by
Agito et al. in their jobs such as forklifts, pallet, etc. They were
also required to work in the warehouses, sales offices, and
plants of Coke. They pointed out that, in contrast, Interserve
did not own trucks, pallets cartillas, or any other equipment
necessary in the sale of Coca-Cola products.
They further averred that Coke exercised control over workers
supplied by various contractors. They cited as an example the
case of Raul Arenajo (Arenajo), who, just like them, worked for
Coke, but was made to appear as an employee of the
contractor Peerless Integrated Services, Inc. As proof of
control by Coke, Agito et al. submitted copies of: (1) a
Memorandum dated 11 August 1998 issued by Vicente Dy
(Dy), a supervisor of Coke, 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 Memorandum 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)
Memorandum 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, prepared by RB
Chua, another supervisor of Coke; (5) Daily Sales Monitoring
Report prepared by Coke; and (6) the Conventional Route
System Proposed Set-up of Coke.
NLRC Ruling/Ratio: The NLRC affirmed the LAs Decision and
pronounced that no employer-employee relationship existed
between Coke and Agito et al. It reiterated the findings of the
LA 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 Agito
et al. wages, as well as paid and remitted their SSS, Medicare,
and Pag-ibig contributions. They likewise failed to convince
the NLRC that the instructions issued and trainings conducted
by Coke proved that Coke exercised control over Agito et al.
as their employer.
Aggrieved once more, Agito et al. sought recourse with the
Court of Appeals.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.23
CA Ruling: CA reversed the NLRC Resolution and 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 Coke in the Lagro area. The Court
Appeals concluded that the respondents used the equipment,
tools, and facilities of Coke in the day-to-day sales operations.
Additionally, the CA determined that Coke had effective
control over the means and method of Agito et al. work as
evidenced by the Daily Sales Monitoring Report, the
Conventional Route System Proposed Set-up, and the
memoranda issued by the supervisor of Coke addressed to
workers, who, like Agito et al., were supposedly supplied by
contractors. The appellate court deemed that Agito et al., who
were tasked to deliver, distribute, and sell Coca-Cola products,
carried out functions directly related and necessary to the
main business of Coke. The appellate court finally noted that
certain provisions of the Contract of Service between Coke
and Interserve suggested that the latters undertaking did not
involve a specific job, but rather the supply of manpower.
Issue/s: Whether Interserve is a legitimate job contractor
SC Ruling/Ratio: 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 employer-employee 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.
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.
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.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.24

Coke argues that there could not have been labor-only
contracting, since Agito et al. did not perform activities that
were indispensable to its principal business. And, even
assuming that they did, such fact alone does not establish an
employer-employee relationship between Coke and Agito et
al., since they were unable to show that Coke exercised the
power to select and hire them, pay their wages, dismiss them,
and control their conduct. But the SC is not convinced. 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.
Agito et al. worked for Coke as salesmen, with the exception
of respondent Gil Francisco whose job was designated as
leadman. In the Delivery Agreement between Coke and TRMD
Incorporated, it is stated that Coke is engaged in the
manufacture, distribution and sale of softdrinks and other
related products. The work of Agito et al., constituting
distribution and sale of Coca-Cola products, is clearly
indispensable to the principal business of Coke. The repeated
re-hiring of some of the Agito et al. supports this finding. Coke
also does not contradict Agito et al.s allegations that the
former has Sales Departments and Sales Offices in its various
offices, plants, and warehouses; and that Coke hires Regional
Sales Supervisors and District Sales Supervisors who
supervise and control the salesmen and sales route helpers.
As to the supposed substantial capital and investment
required of an independent job contractor, Coke calls the
attention of the Court to the authorized capital stock of
Interserve amounting to P2,000,000.00. It cites as authority
Filipinas Synthetic Fiber Corp. v. NLRC and Frondozo v. NLRC,
where the contractors authorized capital stock of
P1,600,000.00 and P2,000,000.00, respectively, were
considered substantial for the purpose of concluding that they
were legitimate job contractors. Coke also refers to Neri v.
NLRC 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 to P2,000,000.00, 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 Coke 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, Coke carefully sidesteps identifying or describing
the exact nature of the services that Interserve was obligated
to render to Coke. The importance of identifying with
particularity the work or task which Interserve was supposed
to accomplish for Coke 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. But
Agito et al. were hired as salesmen and leadman for Coke. 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
Coke.
In Vinoya v. NLRC, the Court 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.
Insisting that Interserve had substantial investment, Coke
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 and P200,000.00,
respectively, could not have met the demands of the Coca-
Cola deliveries in the Lagro area.
Coke fails to persuade the Court.
The contractor, not the employee, has the burden of
proof that it has the substantial capital, investment,
and tool to engage in job contracting. 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 Coke who is invoking the supposed status of
Interserve as an independent job contractor. Noticeably, Coke
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 Coke. Certainly, Coke 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 Coke, 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 Coke. It is,
thus, evident that Interserve falls under the definition
of a labor-only 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 Agito et al. can be
gleaned from the Contract of Services between Interserve (as
the CONTRACTOR) and Coke (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
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.25
 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 non-
exclusive 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.
Paragraph 3 of the Contract specified that the personnel of
contractor Interserve, which included Agito, et al., 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 Coke or its duly
authorized guards or security men on duty every time the said
personnel entered and left the premises of Coke. Said
paragraph explicitly established the control of Coke over the
conduct of Agito et al. 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
Agito et al. or the manner in which it was actually exercised.
There is even no showing that Interserve had representatives
who supervised their work while they were in the premises of
Coke.
Also significant was the right of Coke 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 Coke
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.
Paragraph 4 of the same Contract, in which Interserve
warranted to Coke 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 Coke 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 Coke (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 Coke and
would still pick out such personnel based on the criteria
provided by Coke. In other words, Interserve did not obligate
itself to perform an identifiable job, work, or service for Coke,
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 Coke 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 Incorporation 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 Agito et al. were employed and assigned to Coke, 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, Coke shall be deemed the true
employer of Agito et al. As regular employees of Coke, they
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 Coke against the charge of illegal dismissal
being that they were not its employees. Records also failed to
show that Coke afforded Agito et al. the twin requirements of
procedural due process, i.e., notice and hearing, prior to their
dismissal. They 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, their dismissal was not carried out in
accordance with law and, therefore, illegal.
Given that they were illegally dismissed by Coke, 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,.
Dispositive Portion: 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.
Title: Almeda v. Asahi Glass Phil., Inc.
Principle: Labor-Only v. Job Contracting
Facts:
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.26
In their Complaint filed before the Labor Arbiter, petitioners
alleged that respondent (a domestic corporation engaged in
the business of glass manufacturing) and SSASI (a labor-only
contractor) entered into a service contract on 5 March 2002
whereby the latter undertook to provide the former with the
necessary manpower for its operations. Pursuant to such a
contract, SSASI employed petitioners Randy Almeda, Edwin
Audencial, Nolie Ramirez and Ernesto Calicagan as glass
cutters, and petitioner Reynaldo Calicagan as Quality
Controller, all assigned to work for respondent. Petitioners
worked for respondent for periods ranging from three to 11
years. On 1 December 2002, respondent terminated its
service contract with SSASI, which in turn, terminated the
employment of petitioners on the same date. Believing that
SSASI was a labor-only contractor, and having continuously
worked as glass cutters and quality controllers for the
respondent functions which are directly related to its main line
of business as glass manufacturer for three to 11 years,
petitioners asserted that they should be considered regular
employees of the respondent; and that their dismissal from
employment without the benefit of due process of law was
unlawful. In support of their complaint, petitioners submitted
a copy of their work schedule to show that they were under
the direct control of the respondent which dictated the time
and manner of performing their jobs.
Respondent, on the other hand, refuted petitioners
allegations that they were its regular employees. Instead,
respondent claimed that petitioners were employees of SSASI
and were merely assigned by SSASI to work for respondent to
perform intermittent services pursuant to an Accreditation
Agreement, dated 5 March 2002, the validity of which was
never assailed by the petitioners. Respondent contested
petitioners contention that they were performing functions
that were directly related to respondents main business since
petitioners were simply tasked to do mirror cutting, an activity
occasionally performed upon a customers order. Respondent
likewise denied exercising control over petitioners and
asserted that such was wielded by SSASI. Finally, respondent
maintained that SSASI was engaged in legitimate job
contracting and was licensed by the Department of Labor and
Employment (DOLE) to engage in such activity as shown in its
Certificate of Registration. Respondent presented before the
Labor Arbiter copies of the Opinion dated 18 February 2003 of
DOLE Secretary Patricia Sto. Tomas authorizing respondent to
contract out certain activities not necessary or desirable to
the business of the company; and the Opinion dated 10 July
2003 of DOLE Bureau of Labor Relations (DOLE-BLR) Director
Hans Leo Cacdac allowing respondent to contract out even
services that were not directly related to its main line of
business.
SSASI, for its part, claimed that it was a duly registered
independent contractor as evidenced by the Certificate of
Registration issued by the DOLE on 3 January 2003. SSASI
averred that it was the one who hired petitioners and
assigned them to work for respondent on occasions that the
latters work force could not meet the demands of its
customers. Eventually, however, respondent ceased to give
job orders to SSASI, constraining the latter to terminate
petitioners employment.
Ruling of the Labor Arbiter:
The Labor Arbiter promulgated his Decision finding that
respondent submitted overwhelming documentary evidence
to refute the bare allegations of the petitioners and
accordingly dismissing the complaint for lack of merit.
However, he also ordered the payment of separation benefits
to petitioners.
Ruling of the NLRC:
On appeal, the NLRC reversed the Decision of the Labor
Arbiter, giving more evidentiary weight to petitioners
testimonies.
Ruling of the CA:
The Court of Appeals rendered a Decision granting
respondents Petition for Certiorari and reversing the NLRC
Decision dated 25 June 2005.
Issues:
(1) whether petitioners were employees of respondent; and
(2) if they were, whether they were illegally dismissed.
Ruling of the Court:
The Court would only be able to deem petitioners as
employees of respondent if it is established that SSASI was a
labor-only contractor, and not a legitimate job contractor or
subcontractor.
Permissible job contracting or subcontracting refers to an
arrangement whereby a principal agrees to put out or farm
out to a contractor or subcontractor the performance or
completion of a specific job, work or service within a definite
or predetermined period, regardless of whether such job, work
or service is to be performed or completed within or outside
the premises of the principal. A person is considered engaged
in legitimate job contracting or subcontracting if the following
conditions concur:
(a) The contractor or subcontractor carries on a distinct and
independent business and undertakes to perform the job,
work or service on its own account and under its own
responsibility according to its own manner and method, and
free from the control and direction of the principal in all
matters connected with the performance of the work except
as to the results thereof;
(b) The contractor or subcontractor has substantial capital or
investment; and
(c) The agreement between the principal and contractor or
subcontractor assures the contractual employees entitlement
to all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure,
and social and welfare benefits.
On the other hand, labor-only contracting, a prohibited act, is
an arrangement in which the contractor or subcontractor
merely recruits, supplies or places workers to perform a job,
work or service for a principal. In labor-only contracting, the
following elements are present:
(a) The contractor or subcontractor does not have substantial
capital or investment to actually perform the job, work or
service under its own account and responsibility;
(b) 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.
In labor-only contracting, the statutes create an employer-
employee relationship for a comprehensive purpose: to
prevent circumvention of labor laws. The contractor is
considered as merely the agent of the principal employer and
the latter is responsible to the employees of the labor-only
contractor as if such employees are directly employed by the
principal employer. Therefore, if SSASI was a labor-only
contractor, then respondent shall be considered as the
employer of petitioners who must bear the liability for the
dismissal of the latter, if any.
An important element of legitimate job contracting is that the
contractor has substantial capital or investment, which
respondent failed to prove. There is a dearth of evidence to
prove that SSASI possessed substantial capital or investment
when respondent began contractual relations with it more
than a decade before 2003. Respondents bare allegations,
without supporting proof that SSASI had substantial capital or
investment, do not sway this Court. The Court did not find a
single financial statement or record to attest to the economic
status and financial capacity of SSASI to venture into and
sustain its own business independent from petitioner.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.27
Furthermore, the Court is unconvinced by respondents
argument that petitioners were performing jobs that were not
directly related to respondents main line of business.
Respondent is engaged in glass manufacturing. One of the
petitioners served as a quality controller, while the rest were
glass cutters. The only excuse offered by respondent that
petitioners services were required only when there was an
increase in the markets demand with which respondent could
not cope only prove even more that the services rendered by
petitioners were indeed part of the main business of
respondent. It would mean that petitioners supplemented the
regular workforce when the latter could not comply with the
markets demand; necessarily, therefore, petitioners
performed the same functions as the regular workforce. Even
respondents claim that petitioners services were required
only intermittently, depending on the market, deserves scant
credit. The indispensability of petitioners services was
fortified by the length and continuity of their performance,
lasting for periods ranging from three to 11 years.
More importantly, the Court finds that the crucial element of
control over petitioners rested in respondent. The power of
control refers to the authority of the employer to control the
employee not only with regard to the result of work to be
done, but also to the means and methods by which the work
is to be accomplished. It should be borne in mind that the
power of control refers merely to the existence of the power
and not to the actual exercise thereof. It is not essential for
the employer to actually supervise the performance of duties
of the employee; it is enough that the former has a right to
wield the power.
In the instant case, petitioners worked at the respondents
premises, and nowhere else. Petitioners followed the work
schedule prepared by respondent. They were required to
observe all rules and regulations of the respondent pertaining
to, among other things, the quality of job performance,
regularity of job output, and the manner and method of
accomplishing the jobs. Obscurity hounds respondents
argument that even if petitioners were working under its roof,
it was still SSASI which exercised control over the manner in
which they accomplished their work. There was no showing
that it was SSASI who established petitioners working
procedure and methods, or who supervised petitioners in their
work, or who evaluated the same. Other than being the one
who hired petitioners, there was absolute lack of evidence
that SSASI exercised control over them or their work.
The fact that it was SSASI which dismissed petitioners from
employment is irrelevant. It is hardly proof of control, since it
was demonstrated only at the end of petitioners employment.
What is more, the dismissal of petitioners by SSASI was a
mere result of the termination by respondent of its contractual
relations with SSASI.
Equally unavailing is respondents stance that its relationship
with petitioners should be governed by the Accreditation
Agreement stipulating that petitioners were to remain
employees of SSASI and shall not become regular employees
of the respondent. To permit respondent to disguise the true
nature of its transactions with SSASI by the terms of its
contract, for the purpose of evading its liabilities under the
law, would seriously impair the administration of justice. A
party cannot dictate, by the mere expedient of a unilateral
declaration in a contract, the character of its business, i.e.,
whether as labor-only contractor or as job contractor, it being
crucial that its character be measured in terms of and
determined by the criteria set by statute.
Having established that respondent was petitioners
employer, the Court now proceeds to determining whether
petitioners were dismissed in accordance with law.
Article 280 of the Labor Code, as amended, reads
ART. 280. Regular and Casual Employment. The provisions of
written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties, an
employment shall be deemed to be regular where the
employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade
of the employer, except where the employment has been
fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the
engagement of the employee or where the work or services to
be performed is seasonal in nature and the employment is for
the duration of the season.
An employment shall be deemed to be casual if it is not
covered by the preceding paragraph: Provided, That, any
employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in
which he is employed and his employment shall continue
while such activity exists.
This Court expounded on the afore-quoted provision, thus
The primary standard, therefore, of determining a regular
employment is the reasonable connection between the
particular activity performed by the employee in relation to
the usual business or trade of the employer. x x x The
connection can be determined by considering the nature of
the work performed and its relation to the scheme of the
particular business or trade in its entirety. Also, if the
employee has been performing the job for at least one year,
even if the performance is not continuous or merely
intermittent, the law deems the repeated and continuing need
for its performance as sufficient evidence of the necessity if
not indispensability of that activity to the business. Hence, the
employment is also considered regular, but only with respect
to such activity and while such activity exists.
In the instant Petition, the Court has already declared that
petitioners employment as quality controllers and glass
cutters are directly related to the usual business or trade of
respondent as a glass manufacturer. Respondent would have
wanted this Court to believe that petitioners employment was
dependent on the increased market demand. However,
bearing in mind that petitioners have worked for respondent
for not less than three years and as much as 11 years, which
respondent did not refute, then petitioners continued
employment clearly demonstrates its continuing necessity
and indispensability to the business of respondent, raising
their employment to regular status. Thus, having gained
regular status, petitioners were entitled to security of tenure
and could only be dismissed on just or authorized causes and
after they had been accorded due process.
As petitioners employer, respondent has the burden of
proving that the dismissal was for a cause allowed under the
law, and that they were afforded procedural due process.
However, respondent failed to discharge this burden with
substantial evidence as it noticeably narrowed its defense to
the denial of any employer-employee relationship between it
and petitioners.
The sole reason given for the dismissal of petitioners by SSASI
was the termination of its service contract with respondent.
But since SSASI was a labor-only contractor, and petitioners
were to be deemed the employees of respondent, then the
said reason would not constitute a just or authorized cause for
petitioners dismissal. It would then appear that petitioners
were summarily dismissed based on the afore-cited reason,
without compliance with the procedural due process for notice
and hearing.
Herein petitioners, having been unjustly dismissed from work,
are entitled to reinstatement without loss of seniority rights
and other privileges and to full back wages, inclusive of
allowances, and to other benefits or their monetary
equivalents computed from the time compensation was
withheld up to the time of actual reinstatement. Their
earnings elsewhere during the periods of their illegal dismissal
shall not be deducted therefrom.
DAMIAN AKLAN et al. vs. SAN MIGUEL CORPORATION,
BMA PHILASIA, INC., and ARLENE EUSEBIO
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.28
G.R. No. 168537 SMC argued that BMA is a legitimate and
independent contractor, duly registered with the Securities
PRINCIPLES and Exchange Commission (SEC) as a separate and distinct
corporation with substantial capitalization, investment,
A finding that a contractor is a labor- equipment, and tools. It submitted documentary evidence
proving that BMA engaged the services of petitioners, paid for
only contractor, as opposed to permissible job their wages and benefits, and exercised exclusive control and
supervision over them.
contracting, is equivalent to declaring that there
SMC showed that under their contract, BMA provided
is an employer-employee relationship between delivery trucks, drivers, and helpers in the storage and
distribution of SMC products. On a day-to-day basis, after the
the principal and the employees of the routes were made by SMC salesmen, they would book the
orders they obtained. In turn, BMAs Schedular Planner,
supposed contractor, and the labor-only
detailed at the Pasig Warehouse, downloaded these booked
orders from the computer and processed the necessary
contractor is considered as a mere agent of the
documents to be forwarded to the Warehouse Checker, also
principal, the real employer. an employee of BMA.

BMA is the true employer of petitioners who LA RULING- PETITIONERS WERE ILLEGALLY DISMISSED

should be held directly liable for their claims Labor Arbiter and NLRC Dispositions

Labor Arbiter Veneranda C. Guerrero found

FACTS
respondent BMA liable for illegal dismissal and ordered the
BMA is a domestic corporation engaged in the
business of transporting and hauling of reinstatement of petitioners. She ruled that the evidence
cargoes, goods, and commodities of all kinds.
Respondent Arlene Eusebio is the president of presented duly established that BMA was a legitimate
BMA.
independent contractor and the actual employer of
Petitioners, numbering forty-seven (47) in all, are
the former employees of respondent BMA at petitioners. Its failure, however, to comply with the
respondent San Miguel Corporations (SMC)
warehouse in Pasig City. They were hired under registration and reportorial requirements of the DOLE
fixed-term contracts.
rendered SMC, its principal, directly liable to the
A number of petitioners went to the Department of
Labor and Employment (DOLE) District Office to file claims of petitioners. Thus, BMA and SMC were found
a complaint against BMA and Eusebio for
underpayment of wages and non-payment of jointly and severally liable for the payment of
premium pay for rest day, 13th month pay,
and service incentive leave pay. petitioners backwages and money claims.

NLRC RULING REVERSED LA RULINGS

Petitioner Elmer Caboteja was charged with
insubordination and disrespect to superior, The NLRC ruled that there was no illegal dismissal.
failure to properly perform his job
assignment, and unauthorized change of The NLRC found that petitioners Caboteja, Dumalagan,
schedule and was terminated for the offenses of
disregard of company rules and regulations and and Salvador were separated from their jobs for just and valid
rude attitude to supervisors. He filed a complaint
for illegal dismissal against BMA. causes. They were given the opportunity to explain their

On various dates thereafter, BMA agreed to a sides. As for the quitclaims previously executed by the
settlement with some of the complainants in
the case for underpayment of wages. Eleven of other petitioners, the NLRC ruled that these were
the present petitioners executed quitclaims
and releases in favor of BMA and Eusebio in the sufficient basis to release respondent BMA from
presence of DOLE district officers. BMA refused to
settle the claim of other complainants. liability.

Petitioners Joan Erico Dumalagan and Ronaldo Copies of memoranda were served upon them
Salvador were also terminated for failure to
advising their violation of company rules and regulations
perform their job responsibilities and they filed
complaints for illegal dismissal against BMA.
and rude attitude and disrespect to superiors and disrespect
Petitioners held a picket at the warehouse to superiors in the case of Caboteja and failure to perform
premises to protest BMAs refusal to pay the claim
for underpayment of the rest of the workers. This duties and responsibilities in the case of Dumalagan and
picket disrupted the business operations of
private respondents, prompting BMA to Salvador. They were asked to explain and finding their
terminate their services. Subsequently,
petitioners filed separate complaints against BMA, explanations unacceptable, respondents dismissed
Eusebio, and SMC for illegal dismissal.
them. Hence, they are not entitled to separation pay.
According to the petitioners, BMA is a labor-only
contractor. SMC was not only the owner of the As regards the other complainants, there is no
warehouse and equipment used by BMA, it was their
true employer. The manner and means by which they showing that they were illegally dismissed from their
performed their work were controlled by SMC through its Sales
Logistic Coordinator who was overseeing their performance jobs by BMA. They have not given details on how they were
everyday.
told that they were already dismissed. The only evident fact
Private respondent SMC maintained that it had
no employer-employee relationship with petitioners is that they just stopped reporting for work without
who were hired and supervised exclusively by BMA
pursuant to a warehousing and delivery agreement in informing BMA why there were doing so.
consideration of a fixed monthly fee.

eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.29
 Why should the respondents terminate In its ruling, the NLRC considered the following

simultaneously the services of the complainants and elements to determine the existence of an employer-

completely paralyze respondents business operation, employee relationship: (1) the selection and

particularly their service contract with SMC? Complainants engagement of the workers; (2) power of dismissal;

have not shown any reason which would compel the (3) the payment of wages by whatever means; and

respondents to resort to mass dismissal. On the other hand, (4) the power to control the workers conduct. All four

complainants have strong reason to paralyze respondents elements were found by the NLRC to be vested in

operation in order to force compliance to their demands. BMA. This NLRC finding was affirmed by the CA:
x x x It is the BMA which actually
In fact, the records of this case also disclose that conducts the hauling, storage,
handling, transporting, and delivery
during the mandatory conciliation proceedings, BMA urged operations of SMCs products pursuant
to their warehousing and Delivery
these complainants to go back to work, Agreement. BMA itself hires and
supervises its own workers to carry
but may refused to do so. Considering this refusal, it is not out the aforesaid business
activities. Apart from the fact that it
hard to believe that complainants were not dismissed but was BMA which paid for the wages
and benefits, as well as
rather they refused to work in order to paralyze respondents
SSS contributions of petitioners, it
was also the management of BMA
operations and force them to give in to complainants
which directly supervised and
demands. imposed disciplinary actions on the
basis of established rules and
CA RULINGS-AFFIRMED NLRC DECISION regulations of the company. The
documentary evidence consisting of
In ruling against petitioners, the CA found that the numerous memos throughout the
period of petitioners employment
NLRC committed no reversible error or grave abuse of leaves no doubt in the mind of this
Court that petitioners are only too
discretion in ruling that petitioners were not illegally aware of who is their true
employer. Petitioners received daily
dismissed but actually refused to report back to work after instructions on their tasks form BMA
management, particularly, private
staging a surprise stoppage that paralyzed respondent BMAs respondent Arlene C. Eusebio, and
whenever they committed lapses or
business operations at the Pasig warehouse. offenses in connection with their
work, it was to said officer that they
ISSUES submitted compliance such as written
explanations, and brought matters
1. W/N BMA is a Labor only Contractor and SMC was the connected with their specific
responsibilities.
petitioners true employer.
The employer-employee relationship between
2. W/N Petitioners were illegally dismissed.
BMA and petitioners is not tarnished by the
SC RULING - AFFIRMED CA DECISION absence of registration with DOLE as an
Petitioners argue mainly that their employer is, independent job contractor on the part of
in fact, respondent SMC, not respondent BMA. The absence of registration only gives rise to
BMA. They contend that BMA is a labor-only the presumption that the contractor is engaged in
contractor and SMC, as their true employer, labor-only contracting, a presumption that
should be held directly liable for their money claims. respondent BMA ably refuted.
A finding that a contractor is a labor- Thus, We find no grave abuse of discretion in the CA

only contractor, as opposed to permissible job observation that respondent BMA is the true
contracting, is equivalent to declaring that there employer of petitioners who should be held
is an employer-employee relationship between directly liable for their claims. Likewise, no grave
the principal and the employees of the abuse of discretion can be ascribed to the CA when it
supposed contractor, and the labor-only ruled that illegal dismissal was absent.
contractor is considered as a mere agent of the The records fully disclose that petitioners

principal, the real employer. Caboteja, Dumalagan, and Salvador were

Both the Labor Arbiter and the NLRC found that the separated from their jobs for just and valid
employment contracts of petitioners duly causes. As for the other petitioners, they contend
prove that an employer-employee relationship that they were illegally dismissed when respondent
existed between petitioners and BMA. BMA barred them from entering the work premises

and from performing their work. Both the NLRC and

eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.30
 the CA found that petitioners failed to substantiate against the said respondent and/or

this contention. Rather, what was shown in the its officers.

records was that they simply stopped reporting for As correctly observed by the NLRC, the language

work when they staged a picket. employed by the above quitclaims and releases

The CA observation along this line is worth restating: indicates in no uncertain terms that petitioners

voluntarily and freely acknowledged receipt of

Under the factual circumstances, it
clearly appears that petitioners refused to full satisfaction of all claims against
report back to their work in order to force
their employer BMA to give in to their respondents. Thus, the quitclaims effectively
immediate demand for the salary
differentials and unpaid benefits subject of barred petitioners from questioning their dismissal.
their complaint with the DOLE. Hence, BMA
cannot be held liable for illegal dismissal. Social justice must be founded on the recognition

Moreover, eleven of petitioners contend that of the necessity of interdependence among diverse

their quitclaims should not be considered as a units of a society and of the protection that should be

bar to their complaint for illegal dismissal equally and evenly extended to all groups as a

because that complaint was not yet in combined force in our social and economic life. While

existence at the time the quitclaims were labor should be protected at all times, this protection

executed. Petitioners contend that the quitclaims must not be at the expense of capital.

should be construed as limited to the money MANDAUE GALLEON TRADE, INC. and/or

claims in connection with the first labor GAMALLOSONS TRADERS, INC. vs. VICENTE

standards complaint they had filed before the ANDALES, RESTITUTA SOLITANA,* ELPIDIO SUELTO,

DOLE district office. ET AL.

Unless there is a showing that the employee

signed involuntarily or under duress, Principle:

quitclaims and releases are upheld by this MGTI, the principal employer, is solidarily liable with

Court as the law between the parties. If the the labor-only contractors, for the rightful claims of

agreement was voluntarily entered into by the the employees. Under this set-up, labor-only

employee, with full understanding of what he contractors are deemed agents of the principal,

was doing, and represents a reasonable MGTI, and the law makes the principal responsible to

settlement of the claims of the employee, it is the employees of the labor-only contractor as if the

binding on the parties and may not be later principal itself directly hired or employed the

disowned simply because of a change of mind. employees.

In the case under review, the quitclaims and

releases signed by petitioners stated: Facts:

xxxx. in settlement of my/our claim/s as Mandaue Galleon Trade, Inc. (MGTI) and Gamallosons

financial assistance and/or gratuitously Traders, Inc. (GTI) are business entities engaged in

given by my/our employer receipt of rattan furniture manufacturing for export, with

which is hereby acknowledge to my/our principal place of business at Cabangcalan, Mandaue

complete and full satisfaction, I/we hereby City.

release and discharge the above Vicente Andales (Andales) filed a complaint with the

respondent and/or its officers from any LA against both MGTI and GTI for illegal dismissal and

and all claims by way of wages, overtime non-payment of 13th month pay and service

pay, differential pay, or incentive leave pay. His other co-workers numbering

otherwise as may be due me/us incident 260 filed a similar complaint against petitioner MGTI

to my/our past employment with said only.

establishment. I/we hereby state Andales and the other employees (employees)

further that I/we have no more claim, alleged that MGTI hired them on various dates as

right or action of whatsoever nature weavers, grinders, sanders and finishers; sometime

whether past, present or contingent in August 1998, workers in the Finishing Department

eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.31
were told that they would be transferred to a Ordered MGTI and GTI to take back complainants and

contractor and they were given Visitor Identification directed it to pay their 13th month pay in the total

Cards (IDs), while workers in the Weaving sum of P545,386.43.

Department were told to look for work elsewhere as NLRC:

the company had no work for them; sometime in Affirmed LA's finding of employer-employee

September 1998, workers in the Grinding relationship. Labor-only contracting and not job-

Department were not allowed to enter the company contracting was present since the alleged contractors

premises, while workers in the Sanding Department did not have substantial capital in the form of

were told that they could no longer work since there equipment, machineries and work premises. Did not

was no work available; workers who were issued IDs agree with the LA's finding that there was no

were allowed to go inside the premises; and they dismissal. It held that the employees were

were dismissed without notice and just cause. constructively dismissed when they were unilaterally

Employees: transferred to a contractor to evade payment of

(a) they performed their work inside the company separation pay as a result of the retrenchment. Thus,

premises in Cabangcalan, Mandaue City; (b) they it directed MGTI to pay the employees separation pay

were issued uniforms by MGTI and were told to of one month for every year of service based on the

strictly follow company rules and regulations; (c) prevailing minimum wage at the time of their

they were under the supervision of MGTI's foremen, dismissal, in addition to payment of 13th month pay.

quality control personnel and checkers; (d) MGTI Subsequent MR of both parties denied.

supplied the materials, designs, tools and equipment CA:

in the production of furniture; (e) MGTI conducts Dismissed the petition and affirmed NLRC. MGTI is

orientations on how the work was to be done and the liable to the employees because the alleged

safe and efficient use of tools and equipment; (f) contractors are not independent contractors but

MGTI issues memoranda regarding absences and labor-only contractors; that the employees were

waste of materials; and (g) MGTI exercises the power constructively dismissed when they were unilaterally

to discipline them. transferred to another contractor; and that the

MGTI: allegation of retrenchment was not proven. After

Denied the existence of employer-employee MGTI and GTI filed their MR, CA partially granted it

relationship with complainants, claiming that they and ordered MGTI and GTI to pay the 183 employees

are workers of independent contractors whose their separation pay computed at one-half month

services were engaged temporarily and seasonally salary per year of service up to the promulgation of

when the demands for its products are high and this amended decision.

could not be met by its regular workforce; the MGTI and GTI submit that the employees are

independent contractors recruited and hired the employees of independent contractors who have

complainants, prepared the payroll and paid their their own manpower, tools, equipment and capital;

wages, supervised and directed their work, and had they did not have a hand in employees' recruitment

authority to dismiss them. It averred that due to the and hiring, payment of wages, control and

economic crisis and internal squabble in the supervision, and dismissal; and the employees did

company, the volume of orders from foreign buyers not have time cards or uniforms, nor were they

dived; as a survival measure, management decided subjected to MGTI and GTIs company policies.

to retrench its employees; and the substantial On the other hand, the employees, in their comment

separation pay paid to retrenched employees caught and memorandum, assail the CA's amended decision

the jealous eyes of complainants who caused the which reduced the separation pay from one month to

filing of the complaint for illegal dismissal. one-half month, claiming there was no justification to

LA: support such order. Moreover, they contend that they

Employees are regular piece-rate employees of MGTI. were denied their day in court when the CA did not

No dismissal but only a claim for separation pay. resolve their motion for reconsideration of the

eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.32
amended decision. They aver that since they were with this Code, the employer shall be jointly and

illegally dismissed, they are entitled to backwages severally liable with his contractor or subcontractor

and not only separation pay. to such employees to the extent of the work

performed under the contract, in the same manner

Issue: and extent that he is liable to employees directly

Whether or not MGTI is solidarily liable for the claims employed by him.

of the employees. The Secretary of Labor may, by appropriate

regulations, restrict or prohibit the contracting out of

Ruling: labor to protect the rights of workers established

The existence of an employer-employee relationship under this Code. In so prohibiting or restricting, he

is a factual matter that will not be delved into by the may make appropriate distinctions between labor-

SC, since only questions of law may be raised in only contracting and job contracting as well as

petitions for review. SC has recognized several differentiations within these types of contracting and

exceptions to this rule, such as: (1) when the findings determine who among the parties involved shall be

are grounded entirely on speculation, surmises or considered the employer for purposes of this Code,

conjectures; (2) when the inference made is to prevent any violation or circumvention of any

manifestly mistaken, absurd or impossible; (3) when provision of this Code.

there is grave abuse of discretion; (4) when the There is labor-only contracting where the person

judgment is based on a misapprehension of facts; (5) supplying workers to an employer does not have

when the findings of fact are conflicting; (6) when in substantial capital or investment in the form of tools,

making its findings, the CA went beyond the issues of equipment, machineries, work premises, among

the case, or its findings are contrary to the others, and the workers recruited and placed by such

admissions of both the appellant and the appellee; persons are performing activities which directly

(7) when the findings are contrary to the trial court; related to the principal business of such employer. In

(8) when the findings are conclusions without citation such cases, the person or intermediary shall be

of specific evidence on which they are based; (9) considered merely as an agent of the employer who

when the facts set forth in the petition as well as in shall be responsible to the workers in the same

the petitioners main and reply briefs are not disputed manner and extent as if the latter were directly

by the respondent; (10) when the findings of fact are employed by him.

premised on the supposed absence of evidence and

contradicted by the evidence on record; and (11) The first two paragraphs of Article 106 set

when the CA manifestly overlooked certain relevant the general rule that a principal is permitted by law

facts not disputed by the parties, which, if properly to engage the services of a contractor for the

considered, would justify a different conclusion. None performance of a particular job, but the principal,

of these exceptions, however, has been convincingly nevertheless, becomes solidarily liable with the

shown by MGTI and GTI to apply in the present case. contractor for the wages of the contractors

Article 106 of the Labor Code explains the relations, employees. The third paragraph of Article 106,

which may arise between an employer, a contractor however, empowers the Secretary of Labor to make

and the contractors employees thus: distinctions between permissible job contracting and

ART. 106. Contractor or subcontractor. Whenever an labor-only contracting, which is a prohibited act

employer enters into a contract with another person further defined under the last paragraph. A finding

for the performance of the formers work, the that a contractor is a labor-only contractor is

employees of the contractor and of the latters equivalent to declaring that there is an employer-

subcontractor, if any, shall be paid in accordance employee relationship between the principal and the

with the provisions of this Code. employees of the supposed contractor, and the labor-

In the event that the contractor or subcontractor fails only contractor is considered as a mere agent of the

to pay the wages of his employees in accordance principal, the real employer.

eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.33
Sections 5 and 7 of the Rules Implementing Articles Section 7. Existence of an employer-employee

106 to 109 of the Labor Code, as amended[26] relationship. The contractor or subcontractor shall be

(Implementing Rules), reinforce the rules in considered the employer of the contractual employee

determining the existence of employer-employee for purposes of enforcing the provisions of the Labor

relationship between employer, contractor or Code and other social legislation. The principal,

subcontractor, and the contractors or subcontractors however, shall be solidarily liable with the contractor

employee, to wit: in the event of any violation of any provision of the

Labor Code, including the failure to pay wages.

Section 5. Prohibition against labor-only contracting.

Labor-only contracting is hereby declared prohibited. The principal shall be deemed the employer of the

For this purpose, labor-only contracting shall refer to contractual employee in any of the following cases,

an arrangement where the contractor or as declared by a competent authority:

subcontractor merely recruits, supplies or places

workers to perform a job, work or service for a a. where there is a labor-only contracting; or

principal, and any of the following elements are [is]

present: b. where the contracting arrangement falls within the

i) The contractor or prohibitions provided in Section 6 (Prohibitions)

subcontractor does not have substantial capital or hereof.

investment which relates to the job, work or service

to be performed and the employees recruited, Thus, based on Article 106 of the Labor Code and

supplied or placed by such contractor or Sections 5 and 7 of the Implementing Rules, labor-

subcontractor are performing activities which are only contracting exists when the following criteria are

directly related to the main business of the principal; present: (1) where the contractor or subcontractor

or supplying workers to an employer does not have

ii) The contractor does not exercise the right to substantial capital or investment in the form of tools,

control over the performance of the work of the equipment, machineries, work premises, among

contractual employee. other things; and the workers recruited and placed

by the contractor or subcontractor are performing

The forgoing provisions shall be without prejudice to activities which are directly related to the principal

the application of Article 248 (C) of the Labor Code, business of such employer; or (2) where the

as amended. contractor does not exercise the right to control the

performance of the work of the contractual

Substantial capital or investment refers to capital employee.

stocks and subscribed capitalization in the case of In the present case, MGTI and GTI claim that their

corporations, tools, equipment, implements, contractors are independent contractors, and,

machineries and work premises, actually and directly therefore, this case is one of permissible job

used by the contractor or subcontractor in the contracting, is without basis.

performance or completion of the job, work or First, the employees work as weavers, grinders,

service contracted out. sanders and finishers is directly related to MGTI's

principal business of rattan furniture manufacturing.

The right to control shall refer to the right reserved to Where the employees are tasked to undertake

the person for whom the services of the contractual activities usually desirable or necessary in the usual

workers are performed, to determine not only the business of the employer, the contractor is

end to be achieved, but also the manner and means considered as a labor-only contractor and such

to be used in reaching that end. employees are considered as regular employees of

the employer.

eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.34

Second, MGTI was unable to present any proof that
its contractors had substantial capital. There was no
evidence pertaining to the contractors' capitalization;
nor to their investment in tools, equipment or
implements actually used in the performance or
completion of the job, work, or service that they were
contracted to render. The law casts the burden on
the contractor to prove that it has substantial capital,
investment, tools, etc.
Thus, the contractors are
contractors since they do not have substantial capital
or investment, which relates to the
performed and respondents performed activities
which were directly related to MGTI's main business.
MGTI, the principal employer, is solidarily liable with
the labor-only contractors, for the rightful claims of
the employees. Under this set-up,
contractors are deemed agents of the principal,
MGTI, and the law makes the principal responsible to
the employees of the labor-only contractor as if the
principal itself directly hired or employed
employees.
The employees' contention that the CA
erred in lowering the award of separation pay from
one month to one-half month for every year of
service cannot prosper in the present petition.
Whether right or wrong, the decision of the CA on
that matter had long become final and executory
with the dismissal of the employees' petition for
certiorari.
Neither can they complain that they were
denied due process of law since they had the
opportunity to be heard when they assailed the
reduction of separation pay in their petition for
certiorari, but bungled the same when they failed to
comply with the basic procedural requirements in
filing the petition.
Petition denied for lack of merit.
WACK WACK GOLF v. NLRC
FACTS:
On November 29, 1996, a fire destroyed a large
portion of the main clubhouse of the Wack Wack Golf and
Country Club (petitioner), including its kitchen. In view of the
reconstruction of the whole clubhouse complex, Wack Wack
filed a notice with the DOLE on that it was going to suspend
the operations of the Food and Beverage (F & B) Department.
An Agreement was forged whereby a special
separation benefit/retirement package for interested Wack
Wack employees. Respondents Carmencita F. Dominguez and
Martina B. Cagasan avail of the special separation package
and signed a Release and Quitclaim in favor of Wack
Wack.Respondent. The last one to avail of the separation
package was Crisanto Baluyot, Sr.
On October 15, 1997, Wack Wack entered into a Management
Contract with Business Staffing and Management, Inc. (BSMI),
a corporation engaged in the business as Management
Service Consultant undertaking and managing for a fee
projects which are specialized and technical in character like
marketing, promotions, merchandising, financial
management, operation management and the like.
Pursuant to the Agreement, the retired employees of Wack
Wack by reason of their experience were given priority by
BSMI in hiring. On October 21, 1997, respondents Cagasan
and Dominguez filed their respective applications for
labor-only employment with BSMI. They were eventually hired by BSMI to
their former positions in Wack Wack as project employees and
were issued probationary contracts.
service
Due to these various management service contracts, BSMI
undertook an organizational analysis and manpower
evaluation to determine its efficacy, and to streamline its
operations. In the course of its assessment, BSMI saw that the
positions of Cagasan and Dominguez were redundant. In the
case of respondent Cagasan, her tasks as personnel officer
were likewise being taken care of by the different
management service contractors; on the other hand,
labor-only Dominguezs work as telephone operator was taken over by
the personnel of the accounting department. Thus, in
separate Letters dated February 27, 1998, the services of
Dominguez and Cagasan were terminated. With respect to
Baluyot, he applied for the position of Chief Porter on May 12,
1998. The position, however, was among those recommended
to be abolished by the BSMI, so he was offered the position of
the
Caddie Master Aide with a starting salary of P5,500.00 a
month. Baluyot declined the offer. Pending Wack Wacks
approval of the proposed abolition of the position of Chief
Porter, Baluyot was temporarily accepted to the position with
a monthly salary of P12,000.00. In July 1998, Baluyot decided
not to accept the position of Caddie Master Aide; thus, BSMI
continued with its plan to abolish the said position of Chief
Porter and Baluyot was dismissed from the service.
LA RULING:
The Labor Arbiter found that the dismissal of
Dominguez and Cagasan was for a valid and authorized cause
and dismissed their complaints.
The position of personnel manager occupied by
Martina Cagasan was redundated as it is allegedly not
necessary because her functions will be taken over by the
field superintendent and the companys personnel and
operations manager. The work of Carmencita Dominguez on
the other hand as telephone operator will be taken over by
the accounting department personnel. Such move really is
intended to streamline operations. While admittedly, they are
still necessary in the operations of Wack Wack, their jobs can
be assigned to some other personnel who will be performing
dual functions and does save Wack Wack money. This is
feasible on account of the fact that they are functions
pertaining to administrative work
NLRC RULING:
NLRC reversed the Labor Arbiters decision and
ordered Wack Wack to reinstate Carmencita F. Dominguez and
Martina Cagasan.
ISSUE: Whether or not BSMI is an independent contractor or a
labor-only contractor.
HELD:
BSMI is an INDEPENDENT CONTRACTOR. An
independent contractor is one who undertakes job
contracting, i.e., a person who: (a) carries on an independent
business and undertakes the contract work on his own
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.35
account under his own responsibility according to his own
manner and method, free from the control and direction of his
employer or principal in all matters connected with the
performance of the work except as to the results thereof; and
(b) has substantial capital or investment in the form of tools,
equipments, machineries, work premises and other materials
which are necessary in the conduct of the business.
Jurisprudential holdings are to the effect that in
determining the existence of an independent contractor
relationship, several factors may be considered, such as
whether or not the contractor is 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 work to another; the employers power with
respect to the hiring, firing, and payment of the contractors
workers; the control of the premises; the duty to supply
premises, tools, appliances, materials and labor; and the
mode, manner and terms of payment.
There is indubitable evidence showing that BSMI is an
independent contractor, engaged in the management of
projects, business operations, functions, jobs and other kinds
of business ventures, and has sufficient capital and resources
to undertake its principal business. It had provided
management services to various industrial and commercial
business establishments.
BSMI admitted that it employed the respondents, giving the
said retired employees some degree of priority merely
because of their work experience with the petitioner, and in
order to have a smooth transition of operations. In accordance
with its own recruitment policies, the respondents were made
to sign applications for employment, accepting the condition
that they were hired by BSMI as probationary employees only.
Not being contrary to law, morals, good custom, public policy
and public order, these employment contracts, which the
parties are bound, are considered valid. Unfortunately, after a
study and evaluation of its personnel organization, BSMI was
impelled to terminate the services of the respondents on the
ground of redundancy. This right to hire and fire is another
element of the employer-employee relationship which actually
existed between the respondents and BSMI, and not with
Wack Wack.
There being no employer-employee relationship
between the petitioner and respondents Cagasan and
Dominguez, the latter have no cause of action for illegal
dismissal and damages against the petitioner. Consequently,
the petitioner cannot be validly ordered to reinstate the
respondents and pay them their claims for backwages.
G.R. No. 145271 July 14, 2005
MANILA ELECTRIC COMPANY, Petitioner,
vs. ROGELIO BENAMIRA, ERNIE DE SAGUN1, DIOSDADO
YOGARE, FRANCISCO MORO2, OSCAR LAGONOY3, Rolando
Beni, Alex Beni, Raul4 Guia, Armed Security & Detective
Agency, Inc., (ASDAI) and Advance FORCES Security &
INVESTIGATION Services, Inc., (AFSISI), Respondents.
Facts:
The individual respondents are licensed security guards
formerly employed by Peoples Security, Inc. (PSI) and
deployed as such at MERALCOs head office in Ortigas Avenue,
Pasig, Metro Manila.
On November 30, 1990, the security service agreement
between PSI and MERALCO was terminated.
Immediately thereafter, fifty-six of PSIs security guards,
including herein eight individual respondents, filed a
complaint for unpaid monetary benefits against PSI and
MERALCO, docketed as NLRC-NCR Case No. 05-02746-90.
Meanwhile, the security service agreement between
respondent Armed Security & Detective Agency, Inc., (ASDAI)
and MERALCO took effect on December 1, 1990.
Subsequently, the individual respondents were absorbed by
ASDAI and retained at MERALCOs head office.
On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered
a decision in NLRC-NCR Case No. 05-02746-90 in favor of the
former PSI security guards, including the individual
respondents.
Less than a month later, or on July 21, 1992, the individual
respondents filed another complaint for unpaid monetary
benefits, this
time against ASDAI and MERALCO
On July 25, 1992, the security service agreement between
respondent Advance Forces Security & Investigation Services,
Inc. (AFSISI) and MERALCO took effect, terminating the
previous security service agreement with ASDAI. Except as to
the number of security guards, the amount to be paid the
agency, and the effectivity of the agreement, the terms and
conditions were substantially identical with the security
service agreement with ASDAI.
On July 29, 1992, the individual respondents amended their
complaint to implead AFSISI as party respondent. On August
11, 1992 they again amended their complaint to allege that
AFSISI terminated their services on August 6, 1992 without
notice and just cause and therefore guilty of illegal dismissal.
The individual respondents alleged that: MERALCO and ASDAI
never paid their overtime pay, service incentive leave pay,
premium pay for Sundays and Holidays, P50.00 monthly
uniform allowance and underpaid their 13th month pay; on
July 24, 1992, when the security service agreement of ASDAI
was terminated and AFSISI took over the security functions of
the former on July 25, 1992, respondent security guard
Benamira was no longer given any work assignment when
AFSISI learned that the former has a pending case against PSI,
in effect, dismissing him from the service without just cause;
and, the rest of the individual respondents were absorbed by
AFSISI but were not given any assignments, thereby
dismissing them from the service without just cause.
LA
Rendered a Decision holding ASDAI and MERALCO jointly and
solidarily liable to the monetary claims of individual
respondents and dismissing the complaint against AFSISI. All
other claims of the complainants are hereby DISMISSED for
lack of merit. The counter-claim of respondent AFSISI for
damages is hereby dismissed for want of substantial evidence
to justify the grant of damages.
NLRC
All the parties, except AFSISI, appealed to the National Labor
Relations Commission (NLRC). On April 10, 1995, the NLRC
affirmed in toto the decision of the Labor Arbiter.12 On April
19, 1995
CA
On August 11, 1995, the individual respondents filed a
petition for certiorari before us, docketed as G.R. No. 121232.
They insisted that they were absorbed by AFSISI and the latter
effected their termination without notice and just cause. CA
on September 27, 2000, modified the decision of the NLRC by
declaring MERALCO as the direct employer of the individual
respondents.
The CA held that: MERALCO changed the security agency
manning its premises three times while engaging the services
of the same people, the individual respondents; MERALCO
employed a scheme of hiring guards through an agency and
periodically entering into service contract with one agency
after another in order to evade the security of tenure of
individual respondents; individual respondents are regular
employees of MERALCO since their services as security guards
are usually necessary or desirable in the usual business or
trade of MERALCO and they have been in the service of
MERALCO for no less than six years; an employer-employee
relationship exists between MERALCO and the individual
respondents because: (a) MERALCO had the final say in the
selection and hiring of the guards, as when its advice was
proved to have carried weight in AFSISIs decision not to
absorb the individual respondents into its workforce; (b)
MERALCO paid the wages of individual respondents through
ASDAI and AFSISI; (c) MERALCOs discretion on matters of
dismissal of guards was given great weight and even finality
since the record shows that the individual respondents were
replaced upon the advice of MERALCO; and, (d) MERALCO has
the right, at any time, to inspect the guards, to require
without explanation the replacement of any guard whose
behavior, conduct or appearance is not satisfactory and ASDAI
and AFSISI cannot pull out any security guard from MERALCO
without the latters consent; and, a labor-only contract existed
between ASDAI and AFSISI and MERALCO, such that MERALCO
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.36
is guilty of illegal dismissal without just cause and liable for
reinstatement of individual respondents to its workforce.
CA found that all elements of employee employer relationship
exist
Issue:
1. WON there was Employee-Employer Relationship between
complainant and Meralco
2. WON ASDIA and AFSISI are Labor-only contractors or Job
Independent Contractor
3. WON the independent respondents were absorbed by
AFSISI
4. WON there was an illegal dismissal
5. WON ASDAI and Meralco were direct employer and indirect
employer respectively, of complainants.
6. WON ASDAI may seek exculpation to Meralco
SC/Ruling:
1. NO Employee-employer relationship, complainant first
alleged the theory of Meralco being their employer first time
in their memorandum on CA and not on LA nor NLRC, The
individual respondents are bound by their submissions that
AFSISI is their employer and they should not be permitted to
change their theory. Second, Meralco did not satisfy the four
fold test (see full case for full discussion on E-E relationship)
2. No, they are not Labor-only contractors, There is "labor
only" contract when the person acting as contractor is
considered merely as an agent or intermediary of the principal
who is responsible to the workers in the same manner and to
the same extent as if they had been directly employed by
him. On the other hand, "job (independent) contracting" is
present if the following conditions are met: (a) the contractor
carries on an independent business and undertakes the
contract work on his own account under his own responsibility
according to his own manner and method, free from the
control and direction of his employer or principal in all matters
connected with the performance of the work except to the
result thereof; and (b) the contractor has substantial capital or
investments in the form of tools, equipment, machineries,
work premises and other materials which are necessary in the
conduct of his business.29 Given the above distinction and
the provisions of the security service agreements entered into
by petitioner with ASDAI and AFSISI, we are convinced that
ASDAI and AFSISI were engaged in job contracting.
3.No, the cannot give credence to individual respondents
insistence that they were absorbed by AFSISI when
MERALCOs security service agreement with ASDAI was
terminated. The individual respondents failed to present any
evidence to confirm that AFSISI absorbed them into its
workforce. Thus, respondent Benamira was not retained in his
post at MERALCO since July 25, 1992 due to the termination of
the security service agreement of MERALCO with ASDAI. As for
the rest of the individual respondents, they retained their post
only as "hold-over" guards until the security guards of AFSISI
took over their post on August 6, 1992.
4. No illegal dismissal, respondent Benamira has been "off-
detail" for seventeen days while the rest of the individual
respondents have only been "off- detail" for five days when
they amended their complaint on August 11, 1992 to include
the charge of illegal dismissal. The inclusion of the charge of
illegal dismissal then was premature. Nonetheless, bearing in
mind that ASDAI simply stopped giving the individual
respondents any assignment and their inactivity clearly
persisted beyond the six-month period allowed by Article 286
of the Labor Code, the individual respondents were, in effect,
constructively dismissed by ASDAI from employment, hence,
they should be reinstated.
5. Yes, The fact that there is no actual and direct employer-
employee relationship between MERALCO and the individual
respondents does not exonerate MERALCO from liability as to
the monetary claims of the individual respondents. When
MERALCO contracted for security services with ASDAI as the
security agency that hired individual respondents to work as
guards for it, MERALCO became an indirect employer of
individual respondents pursuant to Article 107 of the Labor
Code, which reads:
ART. 107. Indirect 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.
When ASDAI as contractor failed to pay the individual
respondents, MERALCO as principal becomes jointly and
severally liable for the individual respondents wages, under
Articles 106 and 109 of the Labor Code, which provide:
ART. 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.
ART. 109. Solidary liability - 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 purpose of determining the extent of their civil liability
under this Chapter, they shall be considered as direct
employers.
ASDAI is held liable by virtue of its status as direct employer,
while MERALCO is deemed the indirect employer of the
individual respondents for the purpose of paying their wages
in the event of failure of ASDAI to pay them. This statutory
scheme gives the workers the ample protection consonant
with labor and social justice provisions of the 1987
Constitution.
6. No, ASDAI may not seek exculpation by claiming that
MERALCOs payments to it were inadequate for the individual
respondents lawful compensation. As an employer, ASDAI is
charged with knowledge of labor laws and the adequacy of
the compensation that it demands for contractual services is
its principal concern and not any others.
SOUTH DAVAO DEVELOPMENT COMPANY, INC.,
Petitioners,
vs.
SERGIO L. GAMO, et al., Respondents
PRINCIPLE:
To establish the existence of an independent contractor, we
apply the following conditions: first, the contractor carries on
an independent business and undertakes the contract work on
his own account under his own responsibility according to his
own manner and method, free from the control and direction
of his employer or principal in all matters connected with the
performance of the work except to the result thereof; and
second, the contractor has substantial capital or investments
in the form of tools, equipment, machineries, work premises
and other materials which are necessary in the conduct of his
business.
FACTS:
Petitioner South Davao Development Company is the operator
of a coconut and mango farm in San Isidro, Davao Oriental
and Inawayan/Baracatan, Davao del Sur. On August 1963
petitioner hired respondent Sergio L. Gamo (Gamo) as a
foreman. Sometime in 1987, petitioner appointed Gamo as a
copra maker contractor. Respondents Ernesto Belleza, Carlos
Rojas, Maximo Malinao were all employees in petitioners
coconut farm, while respondents Felix Terona, Virgilio Cosep,
Maximo Tolda, and Nelson Bagaan were assigned to
petitioners mango farm. All of the abovenamed respondents
(copra workers) were later transferred by petitioner to Gamo
as the latters copraceros. From 1987 to 1999, Gamo and
petitioner entered into a profit-sharing agreement wherein
70% of the net proceeds of the sale of copra went to
petitioner and 30% to Gamo. The copra workers were paid by
Gamo from his 30% share.
Petitioner wanted to standardize payments to its "contractors"
in its coconut farms. On 2 October 1999, petitioner proposed a
new payment scheme to Gamo. The new scheme provided a
specific price for each copra making activity. Gamo submitted
his counter proposal. Petitioner did not accept Gamos counter
proposal since it was higher by at least fifty percent (50%)
from its original offer. Without agreeing to the new payment
scheme, Gamo and his copra workers started to do harvesting
work. Petitioner told them to stop. Eventually, petitioner and
Gamo agreed that the latter may continue with the harvest
provided that it would be his last "contract" with petitioner.
Gamo suggested to petitioner to look for a new "contractor"
since he was not amenable to the new payment scheme.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.37

Gamo and petitioner failed to agree on a payment scheme,
thus, petitioner did not renew the "contract" of Gamo. Gamo
and the copra workers alleged that they were illegally
dismissed.
On the other hand, respondent Eleonor Cosep (Eleonor) was
employed as a mango classifier in the packing house of
petitioners mango farm in San Isidro, Davao Oriental.
Sometime in October 1999, she did not report for work as she
had wanted to raise and sell pigs instead. Petitioner, through
Malone Pacquiao, tried to convince Eleonor to report for work
but to no avail.
On 22 March 2000, respondents filed a complaint for illegal
dismissal against petitioner. They alleged that sometime in
December 1999, petitioner verbally terminated them en
masse.
LA Ruling:
The labor arbiter dismissed the complaint. He ruled that there
was no employee-employer relationship between petitioner
and respondents. As to Eleonor, he ruled that she had
voluntarily stopped working.
NLRC Ruling:
The NLRCs Resolution reversed the arbiters decision and
ruled that respondents were petitioners employees. Petitioner
moved for reconsideration. The NLRC granted the motion for
reconsideration and ruled that the nature of the job of the
respondents could not result in an employer-employee
relationship. Respondents moved for reconsideration which
was denied.
CA Ruling:
The Court of Appeals ruled that there existed an employer-
employee relationship. It declared that respondents were
regular seasonal employees who can be dismissed by the
petitioner at the end of the season provided due process is
observed.
ISSUE:
Whether or not there is a valid job contracting between
petitioner and Gamo.
SC Ruling:
In Escario v. NLRC, we ruled that there is permissible job
contracting when a principal agrees to put out or farm out
with a contractor or a subcontractor the performance or
completion of a specific job, work or service within a definite
or predetermined period, regardless of whether such job or
work service is to be performed within or outside the premises
of the principal. To establish the existence of an independent
contractor, we apply the following conditions: first, the
contractor carries on an independent business and undertakes
the contract work on his own account under his own
responsibility according to his own manner and method, free
from the control and direction of his employer or principal in
all matters connected with the performance of the work
except to the result thereof; and second, the contractor has
substantial capital or investments in the form of tools,
equipment, machineries, work premises and other materials
which are necessary in the conduct of his business.
The Implementing Rules and Regulation of the Labor Code
defines investmentas 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
investment must be sufficient to carry out the job at hand.
In the case at bar, Gamo and the copra workers did not
exercise independent judgment in the performance of their
tasks. The tools used by Gamo and his copra workers like the
karit, bolo, pangbunot, panglugit and pangtapok are not
sufficient to enable them to complete the job. Reliance on
these primitive tools is not enough. In fact, the
accomplishment of their task required more expensive
machineries and equipment, like the trucks to haul the
harvests and the drying facility, which petitioner corporation
owns.
In order to determine the existence of an employer-employee
relationship, the Court has frequently applied the four-fold
test: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the
power to control the employees conduct, or the so called
"control test," which is considered the most important
element. From the time they were hired by petitioner
Corporation up to the time that they were reassigned to work
under Gamos supervision, their status as petitioner
corporations employees did not cease. Likewise, payment of
their wages was merely coursed through Gamo. As to the
most determinative testthe power of control, it is sufficient
that the power to control the manner of doing the work exists,
it does not require the actual exercise of such power. In this
case, it was in the exercise of its power of control when
petitioner Corporation transferred the copra workers from
their previous assignments to work as copraceros. It was also
in the exercise of the same power that petitioner corporation
put Gamo in charge of the copra workers although under a
different payment scheme. Thus, it is clear that an employer-
employee relationship has existed between petitioner
Corporation and respondents since the beginning and such
relationship did not cease despite their reassignments and the
change of payment scheme.
As to Eleonor Cosep, to constitute abandonment, there must
be clear proof of deliberate and unjustified intent to sever the
employer-employee relationship. When Eleonor filed the
illegal dismissal complaint, it totally negated petitioners
theory of abandonment. Also, to effectively dismiss an
employee for abandonment, the employer must comply with
the due process requirement of sending notices to the
employee. Petitioner was not able to send the necessary
notice requirement to Eleonor. Petitioners belated claim that
it was not able to send the notice of infraction prior to the
filing of the illegal dismissal case cannot simply unacceptable.
Based on the foregoing, Eleonor did not abandon her work.
WHEREFORE, the petition is DENIED.
****ANSAN****
RAUL G. LOCSIN and EDDIE B. TOMAQUIN, Petitioners,
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
Respondent.
G.R. No. 185251 October 2, 2009
VELASCO, JR., J.:
Principle: independent contractor distinguished from
labor-only contractor.
Facts
On November 1, 1990, respondent Philippine Long Distance
Telephone Company (PLDT) and the Security and Safety
Corporation of the Philippines (SSCP) entered into a Security
Services Agreement[3] (Agreement) whereby SSCP would
provide armed security guards to PLDT to be assigned to its
various offices.
Pursuant to such agreement, petitioners Raul Locsin and Eddie
Tomaquin, among other security guards, were posted at a
PLDT office.
On August 30, 2001, respondent issued a Letter dated August
30, 2001 terminating the Agreement effective October 1,
2001. Despite the termination of the Agreement, however,
petitioners continued to secure the premises of their assigned
office. They were allegedly directed to remain at their post by
representatives of respondent. In support of their contention,
petitioners provided the Labor Arbiter with copies of petitioner
Locsins pay slips for the period of January to September 2002.
Then, on September 30, 2002, petitioners services were
terminated.
Thus, petitioners filed a complaint before the Labor Arbiter for
illegal dismissal and recovery of money claims such as
overtime pay, holiday pay, premium pay for holiday and rest
day, service incentive leave pay, Emergency Cost of Living
Allowance, and moral and exemplary damages against PLDT.
LA Ruling:
LA held PLDT liable for illegal dismissal. Petitioners were found
to be employees of PLDT and not of SSCP. Such conclusion
was arrived at with the factual finding that petitioners
continued to serve as guards of PLDTs offices. As such
employees, petitioners were entitled to substantive and
procedural due process before termination of employment.
The Labor Arbiter held that respondent failed to observe such
due process requirements. PLDT to pay complainants Raul E.
Locsin and Eddie Tomaquin their separation pay and back
wages computed as follows:
NAME SEPARATION PAY BACKWAGES
1. Raul E. Locsin P127,500.00
P240,954.67
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.38
2. Eddie B. Tomaquin P127,500.00
P240,954.67
P736,909.34
All other claims are DISMISSED for want of
factual basis.
NLRC Ruling:
PLDT appealed the above Decision to the NLRC which
rendered a Resolution affirming in toto the Arbiters Decision.
Thus, PDLT filed a Motion for Reconsideration of the NLRCs
Resolution which was also denied.
CA Ruling:
CA granted PLDTs petition and dismissing Locsins complaint.
The Resolutions dated October 28, 2005 and August 28,
2006 of the National Labor Relations Commission are
ANNULLED and SET ASIDE. Private respondents complaint
against Philippine Long Distance Telephone Company is
DISMISSED. CA applied the four-fold test in order to determine
the existence of an employer-employee relationship between
the parties but did not find such relationship. It determined
that SSCP was not a labor-only contractor and was an
independent contractor having substantial capital to operate
and conduct its own business. The CA further bolstered its
decision by citing the Agreement whereby it was stipulated
that there shall be no employer-employee relationship
between the security guards and PLDT.
Issue:
whether petitioners became employees of respondent after
the Agreement between SSCP and respondent was
terminated;
whether complainants extended services to the respondent
for another one (1) year without a contract be considered as
contractual employment.
SC Ruling:
This petition is granted. No employer-employee relationship
between the parties from the time of petitioners first
assignment to respondent by SSCP in 1988 until the alleged
termination of the Agreement between respondent and SSCP.
In fact, this was the conclusion that was reached by this Court
in Abella v. Philippine Long Distance Telephone
Company, where we ruled that petitioners therein, including
herein petitioners, cannot be considered as employees of
PLDT. It bears pointing out that petitioners were among those
declared to be employees of their respective security
agencies and not of PLDT. Notably, respondent does not deny
the fact that petitioners remained in the premises of their
offices even after the Agreement was terminated. And it is
this fact that must be explained.
To recapitulate, the CA, in rendering a decision in favor of
respondent, found that: (1) petitioners failed to prove that
SSCP was a labor-only contractor; and (2) petitioners are
employees of SSCP and not of PLDT.
In arriving at such conclusions, the CA relied on the provisions
of the Agreement, wherein SSCP undertook to supply PLDT
with the required security guards, while furnishing PLDT with a
performance bond in the amount of PhP 707,000. Moreover,
the CA gave weight to the provision in the Agreement that
SSCP warranted that it carry on an independent business and
has substantial capital or investment in the form of
equipment, work premises, and other materials which are
necessary in the conduct of its business. Further, in
determining that no employer-employee relationship existed
between the parties, the CA quoted the express provision of
the Agreement, stating that no employer-employee
relationship existed between the parties herein. The CA
disregarded the pay slips of Locsin considering that they were
in fact issued by SSCP and not by PLDT.
From the foregoing explanation of the CA, the fact remains
that petitioners remained at their post after the termination of
the Agreement. Notably, in its Comment dated March 10,
2009, respondent never denied that petitioners remained at
their post until September 30, 2002. While respondent denies
the alleged circumstances stated by petitioners, that they
were told to remain at their post by respondents Security
Department and that they were informed by SSCP Operations
Officer Eduardo Juliano that their salaries would be coursed
through SSCP as per arrangement with PLDT, it does not state
why they were not made to vacate their posts. Respondent
said that it did not know why petitioners remained at their
posts.
In the ordinary course of things, responsible business owners
or managers would not allow security guards of an agency
with whom the owners or managers have severed ties with to
continue to stay within the business premises. This is because
upon the termination of the owners or managers agreement
with the security agency, the agencys undertaking of liability
for any damage that the security guard would cause has
already been terminated. Thus, in the event of an accident or
otherwise damage caused by such security guards, it would
be the business owners and/or managers who would be liable
and not the agency. The business owners or managers would,
therefore, be opening themselves up to liability for acts of
security guards over whom the owners or managers allegedly
have no control.
At the very least, responsible business owners or managers
would inquire or learn why such security guards were
remaining at their posts, and would have a clear
understanding of the circumstances of the guards stay. It is
but logical that responsible business owners or managers
would be aware of the situation in their premises.
We point out that with respondents hypothesis, it would seem
that SSCP was paying petitioners salaries while securing
respondents premises despite the termination of their
Agreement. Obviously, it would only be respondent that would
benefit from such a situation. And it is seriously doubtful that
a security agency that was established for profit would allow
its security guards to secure respondents premises when the
Agreement was already terminated.
From the foregoing circumstances, reason dictates that we
conclude that petitioners remained at their post under the
instructions of respondent. We can further conclude that
respondent dictated upon petitioners that the latter perform
their regular duties to secure the premises during operating
hours. This, to our mind and under the circumstances, is
sufficient to establish the existence of an employer-employee
relationship.
To reiterate, while respondent and SSCP no longer had any
legal relationship with the termination of the Agreement,
petitioners remained at their post securing the premises of
respondent while receiving their salaries, allegedly from SSCP.
Clearly, such a situation makes no sense, and the denials
proffered by respondent do not shed any light to the situation.
It is but reasonable to conclude that, with the behest and,
presumably, directive of respondent, petitioners continued
with their services. Evidently, such are indicia of control that
respondent exercised over petitioners.
Such power of control has been explained as the right to
control not only the end to be achieved but also the means to
be used in reaching such end. With the conclusion that
respondent directed petitioners to remain at their posts and
continue with their duties, it is clear that respondent exercised
the power of control over them; thus, the existence of an
employer-employee relationship.
Furthermore, Article 106 of the Labor Code contains
a provision on contractors, to wit:
Art. 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 and
Employment 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
restricting, 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
employer 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 person are performing
activities which are directly related to the
principal business of such employer. In such
cases, the person or intermediary shall be
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.39
 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.
(Emphasis supplied.)
Thus, the Secretary of Labor issued Department
Order No. 18-2002, Series of 2002, implementing Art. 106 as
follows:
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 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 over
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 reserved 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.
On the other hand, Sec. 7 of the department order
contains the consequence of such labor-only contracting:
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 cases 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.
Evidently, respondent having the power of control
over petitioners must be considered as petitioners employer
from the termination of the Agreement onwards as this was
the only time that any evidence of control was exhibited by
respondent over petitioners and in light of our ruling
in Abella. Thus, as aptly declared by the NLRC, petitioners
were entitled to the rights and benefits of employees of
respondent, including due process requirements in the
termination of their services.
Both the Labor Arbiter and NLRC found that
respondent did not observe such due process requirements.
Having failed to do so, respondent is guilty of illegal dismissal.
WHEREFORE, we SET ASIDE the CAs May 6,
2008 Decision and November 4, 2008 Resolution in CA-G.R. SP
No. 97398. We hereby REINSTATE the Labor Arbiters Decision
dated February 13, 2004 and the NLRCs Resolutions
dated October 28, 2005 and August 28, 2006. No costs.
Case Title: OLDARICO S. TRAVEO, ROVEL A. GENELSA, RUEL
U. VILLARMENTE, ALFREDO A. PANILAGAO, CARMEN P. DANILA,
ELIZABETH B. MACALINO, RAMIL P. ALBITO, REYNALDO A.
LADRILLO, LUCAS G. TAMAYO, DIOSDADO A. AMORIN, RODINO
C. VASQUEZ, GLORIA A. FELICANO, NOLE E. FERMILAN,
JOSELITO B. RENDON, CRISTETA D. CAA, EVELYN D. ARCENAL
and JEORGE M. NONO, Petitioners vs.BOBONGON BANANA
GROWERS MULTI-PURPOSE COOPERATIVE, TIMOG
AGRICULTURAL CORPORATION, DIAMOND FARMS, INC., and
DOLE ASIA PHILIPPINES, Respondents. G.R. No. 164205
September 3, 2009
Facts: By the account of petitioner Oldarico Traveo and his 16
co-Traveno et al., in 1992, Timog Agricultural Corporation
(TACOR) and Diamond Farms, Inc. (DFI) hired them to work at
a banana plantation at Bobongon, Santo Tomas, Davao Del
Norte which covered lands previously planted with rice and
corn but whose owners had agreed to convert into a banana
plantation upon being convinced that TACOR and DFI could
provide the needed capital, expertise, and equipment.
Traveno et al. helped prepare the lands for the planting of
banana suckers and eventually carried out the planting as
well.
Traveno et al. asseverated that while they worked under the
direct control of supervisors assigned by TACOR and DFI,
these companies used different schemes to make it appear
that they were hired through independent contractors,
including individuals, unregistered associations, and
cooperatives; that the successive changes in the names of
their employers notwithstanding, they continued to perform
the same work under the direct control of TACOR and DFI
supervisors; and that under the last scheme adopted by these
companies, the nominal individual contractors were required
to, as they did, join a cooperative and thus became members
of Bobongon Banana Growers Multi-purpose Cooperative (the
Cooperative). Sometime in 2000, above-named respondents
began utilizing harassment tactics to ease them out of their
jobs. Without first seeking the approval of the DOLE, they
changed their compensation package from being based on a
daily rate to a pakyawan rate that depended on the combined
productivity of the "gangs" they had been grouped into. Soon
thereafter, they stopped paying their salaries, prompting
them to stop working.
One after another, three separate complaints for illegal
dismissal were filed by Traveno et al., individually and
collectively, with the NLRC against said respondents including
respondent Dole Asia Philippines as it then supposedly owned
TACOR, for unpaid salaries, overtime pay, 13th month pay,
service incentive leave pay, damages, and attorneys fees.
DFI answered for itself and TACOR, which it claimed had been
merged with it and ceased to exist as a corporation. Denying
that it had engaged the services of Traveno, et al., DFI alleged
that during the corporate lifetime of TACOR, it had an
arrangement with several landowners in Santo Tomas, Davao
Del Norte whereby TACOR was to extend financial and
technical assistance to them for the development of their
lands into a banana plantation on the condition that the
bananas produced therein would be sold exclusively to
TACOR; that the landowners worked on their own farms and
hired laborers to assist them; that the landowners themselves
decided to form a cooperative in order to better attain their
business objectives; and that it was not in a position to state
whether Traveno et al. were working on the banana plantation
of the landowners who had contracted with TACOR.
The Cooperative failed to file a position paper despite due
notice, prompting the Labor Arbiter to consider it to have
waived its right to adduce evidence in its defense. Nothing
was heard from respondent Dole Asia Philippines.
LA Ruling/Ratio: The LA found respondent Cooperative guilty
of illegal dismissal. It dropped the complaints against DFI,
TACOR and Dole Asia Philippines. It disposed:
1. Declaring respondent Bobongon Banana Growers Multi-
purpose Cooperative guilty of illegal dismissal;
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.40
2. Ordering respondent Bobongon Banana Growers Multi-
purpose Cooperative to pay complainants full backwages from
the time of their illegal dismissal up to this promulgation, to
be determined during the execution stage;
3. Ordering respondent Bobongon Banana Growers Multi-
purpose Cooperative to reinstate complainants to their former
positions without loss of seniority rights and if not possible, to
pay them separation pay equivalent to 1/2 month pay for
every year of service;
4. Ordering respondent Bobongon Banana Grower Cooperative
[sic] to pay 10% of the total award as Attorneys fees;
5. All other respondents are hereby dropped as party-
respondents for lack of merit.
In finding for Traveno et al., the LA relied heavily on the
following Orders submitted by DFI which were issued in an
earlier case filed with the DOLE, viz: (1) Order dated July 11,
1995 of the Director of DOLE Regional Office No. XI declaring
the Cooperative as the employer of the 341 workers in the
farms of its several members; (2) Order dated December 17,
1997 of the DOLE Secretary affirming the Order dated July 11,
1995 of the Director of DOLE Regional Office No. XI; and (3)
Order dated June 23, 1998 of the DOLE Secretary denying the
Cooperatives Motion for Reconsideration.
NLRC Ruling/Ratio: On partial appeal to the NLRC, Traveno et
al. questioned the LAs denial of their money claims and the
dropping of their complaints against TACOR, DFI, and Dole
Asia Philippines. By a Resolution, the NLRC sustained the LAs
ruling that the employer of Traveno et al. is the Cooperative,
there being no showing that the earlier mentioned Orders of
the DOLE Secretary had been set aside by a court of
competent jurisdiction. It partially granted their appeal,
however, by ordering the Cooperative to pay them their
unpaid wages, wage differentials, service incentive leave pay,
and 13th month pay. It thus remanded the case to the LA for
computation of those awards.
Their MR having been denied by Resolution of Ca, Traveno et
al. appealed to the Court of Appeals via certiorari.
CA Ruling: By Resolution, CA dismissed the petition for
certiorari on the ground that the accompanying verification
and certification against forum shopping was defective, it
having been signed by only 19 of the 22 therein named
Traveno et al.. Their MR being denied, Traveno et al. lodged
the petition before the SC.
Issue/s: whether DFI (with which TACOR had been merged)
and DPI should be held solidarily liable with the Cooperative
for Traveno et als illegal dismissal and money claims.
SC Ruling/Ratio: SC dismissed the petition.
Dwelling on the merits of the case, Traveno et al. posit that
the LA and the NLRC disregarded evidence on record showing
that while the Cooperative was their employer on paper, the
other respondents exercised control and supervision over
them; that the Cooperative was a labor-only contractor; and
that the Orders of the DOLE Secretary relied upon by the
Labor Arbiter and the NLRC are not applicable to them as the
same pertained to a certification election case involving
different parties and issues. DFI, commenting for itself and
TACOR, maintains that, among other things, it was not the
employer of Traveno et al.; and that it cannot comment on
their money claims because no evidence was submitted in
support thereof. It appears that respondent Cooperative had
been dissolved. As respondent Dole Asia Philippines failed to
file a comment, the Court, by Resolution of November 29,
2006, required it to (1) show cause why it should not be held
in contempt for its failure to heed the Courts directive, and
(2) file the required comment, within 10 days from notice.
Dole Philippines, Inc. (DPI) promptly filed an Urgent
Manifestation stating that, among other things, while its
division located in Davao City received the Courts Resolution
directing Dole Asia Philippines to file a comment on the
present petition, DPI did not file a comment as the directive
was addressed to "Dole Asia Philippines", an entity which is
not registered at the Securities and Exchange Commission.
Commenting on DPIs Urgent Manifestation, Traveno et al.
contend that DPI cannot be allowed to take advantage of their
lack of knowledge as to its exact corporate name, DPI having
raised the matter for the first time before this Court
notwithstanding its receipt of all pleadings and court
processes from the inception of this case.
Upon review of the records, the Court finds that DPI never
ever participated in the proceedings despite due notice. Its
posturing, therefore, that the court processes it received were
addressed to "Dole Asia Philippines," a non-existent entity,
does not lie. That DPI is the intended respondent, there is no
doubt.
The Labor Code and its Implementing Rules empower the LA
to be the trier of facts in labor cases. Much reliance is thus
placed on the Arbiters findings of fact, having had the
opportunity to discuss with the parties and their witnesses the
factual matters of the case during the conciliation phase. Just
the same, a review of the records of the present case does not
warrant a conclusion different from the Arbiters, as affirmed
by the NLRC, that the Cooperative is the employer of Traveno
et al.
To be sure, the matter of whether the Cooperative is an
independent contractor or a labor-only contractor may not be
used to predicate a ruling in this case. Job contracting or
subcontracting refers to an arrangement whereby a principal
agrees to farm out with a contractor or subcontractor the
performance of a specific job, work or service within a definite
or predetermined period, regardless of whether such job, work
or service is to be performed or completed within or outside
the premises of the principal. The present case does not
involve such an arrangement.
DFI did not farm out to the Cooperative the performance of a
specific job, work, or service. Instead, it entered into a Banana
Production and Purchase Agreement (Contract) with the
Cooperative, under which the Cooperative would handle and
fund the production of bananas and operation of the
plantation covering lands owned by its members in
consideration of DFIs commitment to provide financial and
technical assistance as needed, including the supply of
information and equipment in growing, packing, and shipping
bananas. The Cooperative would hire its own workers and pay
their wages and benefits, and sell exclusively to DFI all export
quality bananas produced that meet the specifications agreed
upon.
To the Court, the Contract between the Cooperative and DFI,
far from being a job contracting arrangement, is in essence a
business partnership that partakes of the nature of a joint
venture. The rules on job contracting are, therefore,
inapposite. The Court may not alter the intention of the
contracting parties as gleaned from their stipulations without
violating the autonomy of contracts principle under Article
1306 of the Civil Code which gives the contracting parties the
utmost liberality and freedom to establish such stipulations,
clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good custom,
public order or public policy.
Traveno et al.s claim of employment relationship with the
Cooperatives herein co-respondents must be assessed on the
basis of four standards, viz: (a) the manner of their selection
and engagement; (b) the mode of payment of their wages; (c)
the presence or absence of the power of dismissal; and (d) the
presence or absence of control over their conduct. Most
determinative among these factors is the so-called "control
test."
There is nothing in the records which indicates the presence
of any of the foregoing elements of an employer-employee
relationship.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.41
The absence of the first requisite, which refers to selection
and engagement, is shown by DFIs total lack of knowledge on
who actually were engaged by the Cooperative to work in the
banana plantation. This is borne out by the Contract between
the Cooperative and DFI, under which the Cooperative was to
hire its own workers. As TACOR had been merged with DFI,
and DPI is merely alleged to have previously owned TACOR,
this applies to them as well. Traveno et al. failed to prove the
contrary. No employment contract whatsoever was submitted
to substantiate how Traveno et al. were hired and by whom.
On the second requisite, which refers to the payment of
wages, it was likewise the Cooperative that paid the same. As
reflected earlier, under the Contract, the Cooperative was to
handle and fund the production of bananas and operation of
the plantation. The Cooperative was also to be responsible for
the proper conduct, safety, benefits, and general welfare of its
members and workers in the plantation.
As to the third requisite, which refers to the power of
dismissal, and the fourth requisite, which refers to the power
of control, both were retained by the Cooperative. Again, the
Contract stipulated that the Cooperative was to be
responsible for the proper conduct and general welfare of its
members and workers in the plantation.
The crucial element of control refers to the authority of the
employer to control the employee not only with regard to the
result of the work to be done, but also to the means and
methods by which the work is to be accomplished.30 While it
suffices that the power of control exists, albeit not actually
exercised, there must be some evidence of such power. In the
present case, Traveno et al. did not present any.
There being no employer-employee relationship between
Traveno et al. and the Cooperatives co-respondents, the
latter are not solidarily liable with the Cooperative for Traveno
et al. illegal dismissal and money claims.
While the Court commiserates with Traveno et al. on their loss
of employment, especially now that the Cooperative is no
longer a going concern, it cannot simply, by default, hold the
Cooperatives co-respondents liable for their claims without
any factual and legal justification therefor. The social justice
policy of labor laws and the Constitution is not meant to be
oppressive of capital.
En passant, Traveno et al. are not precluded from pursuing
any available remedies against the former members of the
defunct Cooperative as their individual circumstances may
warrant.
Dispositive Portion: WHEREFORE, the petition is DISMISSED.
(TECHNICALITY ISSUE) Respecting the appellate courts
dismissal of Traveno et al. appeal due to the failure of some
of them to sign the therein accompanying verification and
certification against forum-shopping, the Courts guidelines
for the bench and bar in Altres v. Empleo, which were culled
"from jurisprudential pronouncements," are instructive:
For the guidance of the bench and bar, the Court restates in
capsule form the jurisprudential pronouncements already
reflected above respecting non-compliance with the
requirements on, or submission of defective, verification and
certification against forum shopping:
1) A distinction must be made between non-compliance with
the requirement on or submission of defective verification,
and non-compliance with the requirement on or submission of
defective certification against forum shopping.
2) As to verification, non-compliance therewith or a defect
therein does not necessarily render the pleading fatally
defective. The court may order its submission or correction or
act on the pleading if the attending circumstances are such
that strict compliance with the Rule may be dispensed with in
order that the ends of justice may be served thereby.
3) Verification is deemed substantially complied with when
one who has ample knowledge to swear to the truth of the
allegations in the complaint or petition signs the verification,
and when matters alleged in the petition have been made in
good faith or are true and correct.
4) As to certification against forum shopping, non-compliance
therewith or a defect therein, unlike in verification, is
generally not curable by its subsequent submission or
correction thereof, unless there is a need to relax the Rule on
the ground of "substantial compliance" or presence of "special
circumstances or compelling reasons."
5) The certification against forum shopping must be signed by
all the plaintiffs or Traveno et al. in a case; otherwise, those
who did not sign will be dropped as parties to the case. Under
reasonable or justifiable circumstances, however, as when all
the plaintiffs or Traveno et al. share a common interest and
invoke a common cause of action or defense, the signature of
only one of them in the certification against forum shopping
substantially complies with the Rule.
6) Finally, the certification against forum shopping must be
executed by the party-pleader, not by his counsel. If, however,
for reasonable or justifiable reasons, the party-pleader is
unable to sign, he must execute a Special Power of Attorney
designating his counsel of record to sign on his behalf.
(Emphasis and underscoring supplied)
The foregoing restated pronouncements were lost in the
challenged Resolutions of the appellate court. Traveno et al.s
contention that the appellate court should have dismissed the
petition only as to the non-signing Traveno et al. or merely
dropped them as parties to the case is thus in order.
Instead of remanding the case to the appellate court,
however, the Court deems it more practical to decide the
substantive issue raised in this petition so as not to further
delay the disposition of this case. And it thus resolves to
deviate as well from the general rule that factual questions
are not entertained in petitions for review on certiorari of the
appellate courts decisions in order to write finis to this
protracted litigation.
POLYFOAM v. CONCEPCION
Elements of labor-only contracting:
1. The contractor or subcontractor does not have
substantial capital or investment to actually perform
the job, work or service under its own account and
responsibility; and 2.
2. 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.
FACTS:
Concepcion alleged that he was hired by Polyfoam as
a factory worker and served for almost 6 yrs. On Jan 14, 2000,
Concepcion allegedly discovered that his time card was not in
the rack and was later informed by the security guard that he
could no longer punch his time card. He protested to his
supervisor and he was told that the management decided to
dismiss him due to an infraction of a company rule.
Concepcion filed a complaint for illegal dismissal, non-
payment of wages, premium pay for rest day, separation pay,
SIL, 13th month pay damages and attys fees against Polyfoam
and Natividad Cheng (Companys manager)
Gramaje file a Motion for intervention which was
granted by LA Babiano, claiming to be the real employer of
Concepcion. Polyfoam filed motion to dismiss on the ground
that NLRC does not have jurisdiction over the case because
there was no employer-employee relationship between
polyfoam and Concepcion.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.42
 Gramaje claims that P.A Gramaje Employment
Services (PAGES) is a legitimate job contractor who provided
some manpower needs of Polyfoam. It was alleged that
Concepcion was hired as packer and assigned to polyfoam.
Concepcion was not dismissed from employment, he was
simply stopped reporting from work.
LA: Concepcion was illegally dismissed and Polyfoam and
Gramaje solidary liable for Concepcions money claims.
Polyfoam and Gramaje are solidarily liable to Concepcion for
the his money claims, considering that Gramaje (the
contractor) was not enrolled as private employment agency in
the registry of the Regional Office of the Department of Labor
and Employment (DOLE) and considering further that
respondent performed a job directly related to the main
business of Polyfoam.
NLRC:
NLRC found Gramaje to be an independent
contractor who contracted the packaging aspect of the
finished foam products of Polyfoam. Pursuant to said contract,
Gramajes employees, including respondent, were assigned to
Polyfoam but remained under the control and supervision of
Gramaje. It likewise concluded that Gramaje had its own office
equipment, tools, and substantial capital and, in fact, supplied
the plastic containers and carton boxes used by her
employees in performing their duties. The Commission also
found sufficient evidence to prove that Gramaje paid
respondents wages and benefits and reported the latter to the
Social Security System (SSS) as a covered employee. As to
whether there was illegal dismissal, the NLRC answered in the
negative, since respondent was not notified that he had been
dismissed nor was he prevented from returning to his work.
The NLRC found Gramaje liable for claiming that respondent
abandoned his job.
CA: agreed that Gramaje is only a labor-contractor.
Concepcion was indeed Polyfoams employee. This
relationship was specifically shown by Polyfoams exercise of
supervision over the work of respondent; the furnishing of a
copy of Polyfoams Mga Alituntunin at Karampatang Parusa to
serve as respondents guide in the performance of his
duty; the length of time that respondent had performed
activities necessary for Polyfoams business; and Polyfoams
act of directly firing respondent. Finally, the appellate court
affirmed the LAs findings of illegal dismissal as respondent
was dismissed from the service without cause and due
process.
SC: affirmed CA.
Gramaje is labor-only Contractor.
Elements of labor-only contracting:
1. The contractor or subcontractor does not have
substantial capital or investment to actually perform
the job, work or service under its own account and
responsibility; and 2.
2. 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.
The test of independent contractorship is whether one
claiming to be an independent contractor has contracted to
do the work according to his own methods and without being
subject to the control of the employer, except only as to the
results of the work.
First: Gramaje has no substantial capital/ investment.
Polyfoam failed to adduce evidence that Gramaje had any
substantial capital, investment or assets to perform the work
contracted for, the presumption that Gramaje is a labor-only
contractor stands.
Second: Gramaje did not carry on an independent
business or undertake the performance of its service contract
according to its own manner and method, free from the
control and supervision of its principal.
There is an employer-employee relationship. A finding
that a contractor is a labor-only contractor, as opposed to
permissible job contracting, is equivalent to declaring that
there is an employer-employee relationship between the
principal and the employees of the supposed contractor, and
the labor-only contractor is considered as a mere agent of the
principal, the real employer. In this case, Polyfoam is the
principal employer and Gramaje is the labor-only
contractor. Polyfoam and Gramaje are, therefore, solidarily
liable for the rightful claims of respondent.
Concepcion was illegally dismissed without just cause.
Title: Garden of Memoirs v. NLRC
Principle: Labor-Only v. Job Contracting
Facts:
Petitioner Garden of Memories is engaged in the business of
operating a memorial park situated at Calsadang Bago,
Pateros, Metro-Manila and selling memorial Plan and services.
Respondent Cruz, on the other hand, worked at the Garden of
Memories Memorial Park as a utility worker from August 1991
until her termination in February 1998.
On March 13, 1998, Cruz filed a complaint for illegal dismissal,
underpayment of wages, non-inclusion in the Social Security
Services, and non-payment of legal/special holiday, premium
pay for rest day, 13th month pay and service incentive leave
pay against Garden of Memories before the Department of
Labor and Employment (DOLE).
Upon motion of Garden of Memories, Requio was impleaded
as respondent on the alleged ground that she was its service
contractor and the employer of Cruz.
In her position paper, Cruz averred that she worked as a utility
worker of Garden of Memories with a salary of P115.00 per
day. As a utility worker, she was in charge, among others, of
the cleaning and maintenance of the ground facilities of the
memorial park. Sometime in February 1998, she had a
misunderstanding with a co-worker named Adoracion Requio
regarding the use of a garden water hose. When the
misunderstanding came to the knowledge of Requio, the latter
instructed them to go home and not to return anymore. After
three (3) days, Cruz reported for work but she was told that
she had been replaced by another worker. She immediately
reported the matter of her replacement to the personnel
manager of Garden of Memories and manifested her protest.
Cruz argued that as a regular employee of the Garden of
Memories, she could not be terminated without just or valid
cause. Also, her dismissal was violative of due process as she
was not afforded the opportunity to explain her side before
her employment was terminated.
Cruz further claimed that as a result of her illegal dismissal,
she suffered sleepless nights, serious anxiety and mental
anguish.
In its Answer, Garden of Memories denied liability for the
claims of Cruz and asserted that she was not its employee but
that of Requio, its independent service contractor, who
maintained the park for a contract price. It insisted that there
was no employer-employee relationship between them
because she was employed by its service contractor,
Victoriana Requio (Victoriana), who was later succeeded by
her daughter, Paulina, when she (Victoriana) got sick. Garden
of Memories claimed that Requio was a service contractor who
carried an independent business and undertook the contract
of work on her own account, under her own responsibility and
according to her own manner and method, except as to the
results thereof.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.43
In her defense, Requio prayed for the dismissal of the
complaint stating that it was Victoriana, her mother, who
hired Cruz, and she merely took over the supervision and
management of the workers of the memorial park when her
mother got ill. She claimed that the ownership of the business
was never transferred to her.
Requio further stated that Cruz was not dismissed from her
employment but that she abandoned her work.
Ruling of the Labor Arbiter:
The LA ruled that Requio was not an independent contractor
but a labor-only contractor and that her defense that Cruz
abandoned her work was negated by the filing of the present
case.
Ruling of the NLRC:
The NLRC affirmed the ruling of the LA, stating that Requio
had no substantial capital or investments in the form of tools,
equipment, machineries, and work premises, among others,
for her to qualify as an independent contractor.
Ruling of the CA:
The CA dismissed the petition and affirmed the NLRC decision.
Issue:
Whether an employer-employee relationship exists between
respondent Cruz and petitioner garden of memories.
Ruling of the Court:
The Court finds no merit in the petition.
In the present case, the LA, the NLRC, and the CA are one in
declaring that petitioner Requio was not a legitimate
contractor. Echoing the decision of the LA and the NLRC, the
CA reasoned out that Requio was not a licensed contractor
and had no substantial capital or investment in the form of
tool, equipment and work premises, among others.
Section 106 of the Labor Code on contracting and
subcontracting provides:
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 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 restricting, 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 employer 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.[Underscoring provided]
In the same vein, Sections 8 and 9, DOLE Department Order
No. 10, Series of 1997, state that:
Sec. 8. Job contracting. There is job contracting permissible
under the Code if the following conditions are met:
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
own responsibility according to his own manner and method,
free from the control and direction of his employer or principal
in all matters connected with the performance of the work
except as to the results thereof; and
(2) The contractor has substantial capital or investment in the
form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his
business.
Sec. 9. Labor-only contracting. (a) Any person who undertakes
to supply workers to an employer shall be deemed to be
engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises and
other materials; and
(2) The workers recruited and placed by such persons are
performing activities which are directly related to the principal
business or operations of the employer in which workers are
habitually 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 extent as if the latter were directly employed by
him.
(c) For cases not falling under this Article, the Secretary of
Labor shall determine through appropriate orders whether or
not the contracting out of labor is permissible in the light of
the circumstances of each case and after considering the
operating needs of the employer and the rights of the workers
involved. In such case, he may prescribe conditions and
restrictions to insure the protection and welfare of the
workers.
On the matter of labor-only contracting, Section 5 of Rule VIII-
A of the Omnibus Rules Implementing the Labor Code,
provides:
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 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 related to the main business of the
principal, or
ii) The contractor does not exercise the right to control
over the performance of the work of the contractual
employee.
Thus, in determining the existence of an independent
contractor relationship, several factors may be considered,
such as, but not necessarily confined to, whether or not the
contractor is 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
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.44
supervision of the work to another; the employers power with
respect to the hiring, firing and payment of the contractors
workers; the control of the premises; the duty to supply
premises, tools, appliances, materials and labor; and the
mode, manner and terms of payment.
On the other hand, there is labor-only contracting where: (a)
the person supplying workers to an employer does not have
substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others; and
(b) the workers recruited and placed by such person are
performing activities which are directly related to the principal
business of the employer.
The Court finds no compelling reason to deviate from the
findings of the tribunals below. Both the capitalization
requirement and the power of control on the part of Requio
are wanting.
Generally, the presumption is that the contractor is a labor-
only contracting unless such contractor overcomes the burden
of proving that it has the substantial capital, investment, tools
and the like. In the present case, though Garden of Memories
is not the contractor, it has the burden of proving that Requio
has sufficient capital or investment since it is claiming the
supposed status of Requio as independent contractor. Garden
of Memories, however, failed to adduce evidence purporting
to show that Requio had sufficient capitalization. Neither did it
show that she invested in the form of tools, equipment,
machineries, work premises and other materials which are
necessary in the completion of the service contract.
Furthermore, Requio was not a licensed contractor. Her
explanation that her business was a mere livelihood program
akin to a cottage industry provided by Garden of Memories as
part of its contribution to the upliftment of the underprivileged
residing near the memorial park proves that her capital
investment was not substantial. 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. Obviously, Requio is a labor-only contractor.
Another determinant factor that classifies petitioner Requio as
a labor-only contractor was her failure to exercise the right to
control the performance of the work of Cruz. This can be
gleaned from the Service Contract Agreement between
Garden of Memories and Requio, to wit:
NOW THEREFORE, premises considered, the parties hereto
have hereunto agreed on the following terms and conditions:
1. That the Contractor shall undertake the maintenance of the
above-mentioned works in strict compliance with and subject
to all the requirements and standards of GMMPLPI.
2. Likewise, the Contractor shall perform all other works that
may from time to time be designated by GMMPLPI thru its
authorized representatives, which work is similar in nature to
the responsibilities of a regular employee with a similar
function.
3. The contract price for the labor to be furnished or the
service to be rendered shall be THIRTY-FIVE THOUSAND
(35,000.00) PESOS per calendar month, payable as follows:
(a) Eight Thousand Seven Hundred Fifty Thousand
(8,750.00) Pesos payable on every 7th, 15th, 23rd and 30th
of the month.
4. The period of this Contract shall be for Three (3) months
from Feb 1, April 30, 1998 and renewable at the option of the
Management.
5. It is expressly recognized that this contract was forged for
the purpose of supplying the necessary maintenance work
and in no way shall the same be interpreted to have created
an employer-employee relationship. [Underscoring supplied]
The requirement of the law in determining the existence of
independent contractorship is that the contractor should
undertake the work on his own account, under his own
responsibility, according to his own manner and method, free
from the control and direction of the employer except as to
the results thereof. In this case, however, the Service Contract
Agreement clearly indicates that Requio has no discretion to
determine the means and manner by which the work is
performed. Rather, the work should be in strict compliance
with, and subject to, all requirements and standards of Garden
of Memories.
Under these circumstances, there is no doubt that Requio is
engaged in labor-only contracting, and is considered merely
an agent of Garden of Memories. As such, the workers she
supplies should be considered as employees of Garden of
Memories. Consequently, the latter, as principal employer, is
responsible to the employees of the labor-only contractor as if
such employees have been directly employed by it.
Notably, Cruz was hired as a utility worker tasked to clean,
sweep and water the lawn of the memorial park. She
performed activities which were necessary or desirable to its
principal trade or business. Thus, she was a regular employee
of Garden of Memories and cannot be dismissed except for
just and authorized causes.
Moreover, the Court agrees with the findings of the tribunals
below that respondent Cruz did not abandon her work but was
illegally dismissed.
As the employer, Garden of Memories has the burden of proof
to show the employee's deliberate and unjustified refusal to
resume his employment without any intention of returning.
For abandonment to exist, two factors must be present: (1)
the failure to report for work or absence without valid or
justifiable reason; and (2) a clear intention to sever employer-
employee relationship, with the second element as the more
determinative factor being manifested by some overt acts. It
has been said that abandonment of position cannot be lightly
inferred, much less legally presumed from certain equivocal
acts. Mere absence is not sufficient.
In this case, no such intention to abandon her work can be
discerned from the actuations of Cruz. Neither were there
overt acts which could be considered manifestations of her
desire to truly abandon her work. On the contrary, her
reporting to the personnel manager that she had been
replaced and the immediate filing of the complaint before the
DOLE demonstrated a desire on her part to continue her
employment with Garden of Memories. As correctly pointed
out by the CA, the filing of the case for illegal dismissal
negated the allegation of abandonment.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.45