CaseDigest:Aliviadov.

P&GPhils&PG
G.R.No.160506:March9,2010

JOEBM.ALIVIADO,etal.,Petitioners,v.PROCTER&GAMBLEPHILS.,INC.,andPROMM
GEMINC.,Respondents.

DELCASTILLO,J.:

FACTS:
PetitionersworkedasmerchandisersofP&Gfromvariousdates,allegedlystartingasearlyas1982
oraslateasJune1991,toeitherMay5,1992orMarch11,1993.

TheyallindividuallysignedemploymentcontractswitheitherPrommGemorSAPSforperiodsof
moreorlessfivemonthsatatime.Theywereassignedatdifferentoutlets,supermarketsandstores
wheretheyhandledalltheproductsofP&G.TheyreceivedtheirwagesfromPrommGemorSAPS.

SAPSandPrommGemimposeddisciplinarymeasuresonerringmerchandisersforreasonssuchas
habitualabsenteeism,dishonestyorchangingdayoffwithoutpriornotice.

P&Gisprincipallyengagedinthemanufactureandproductionofdifferentconsumerandhealth
products,whichitsellsonawholesalebasistovarioussupermarketsanddistributors.Toenhance
consumerawarenessandacceptanceoftheproducts,P&GenteredintocontractswithPrommGem
andSAPSforthepromotionandmerchandisingofitsproducts.

InDecember1991,petitionersfiledacomplaintagainstP&Gforregularization,serviceincentive
leavepayandotherbenefitswithdamages.Thecomplaintwaslateramendedtoincludethematterof
theirsubsequentdismissal.

OnNovember29,1996,theLaborArbiterdismissedthecomplaintforlackofmeritandruledthat
therewasnoemployeremployeerelationshipbetweenpetitionersandP&G.Hefoundthatthe
selectionandengagementofthepetitioners,thepaymentoftheirwages,thepowerofdismissaland
controlwithrespecttothemeansandmethodsbywhichtheirworkwasaccomplished,werealldone
andexercisedbyPrommGem/SAPS.HefurtherfoundthatPrommGemandSAPSwerelegitimate
independentjobcontractors.Onappeal,theNLRCdismissedthesame.Petitionersfiledamotionfor
reconsiderationbutthemotionwasdeniedintheNovember19,1998Resolution.

PetitionerslikewisefailedtohaveafavrabledecisionintheCAhence,thispetition.

ISSUE:

WhetherornotPrommGemandSAPSarelaboronlycontractorsorlegitimatejobcontractors?

HELD:

Thepetitionisgranted.

LABORLAW

Article106oftheLaborCodeanditsimplementingrulesallowcontractingarrangementsforthe
performanceofspecificjobs,worksorservices.Indeed,itismanagementprerogativetofarmoutany
ofitsactivities,regardlessofwhethersuchactivityisperipheralorcoreinnature.However,inorder
forsuchoutsourcingtobevalid,itmustbemadetoanindependentcontractorbecausethecurrent
laborrulesexpresslyprohibitlaboronlycontracting.

Toemphasize,thereislaboronlycontractingwhenthecontractororsubcontractormerelyrecruits,
suppliesorplacesworkerstoperformajob,workorserviceforaprincipalandanyofthefollowing
elementsarepresent:(i)Thecontractororsubcontractordoesnothavesubstantialcapitalor
investmentwhichrelatestothejob,workorservicetobeperformedandtheemployeesrecruited,
suppliedorplacedbysuchcontractororsubcontractorareperformingactivitieswhicharedirectly
relatedtothemainbusinessoftheprincipalor(ii)Thecontractordoesnotexercisetherightto
controlovertheperformanceoftheworkofthecontractualemployee.

Intheinstantcase,thefinancialstatementsofPrommGemshowthatit

hasauthorizedcapitalstockofP1millionandapaidincapital,orcapitalavailableforoperations,
ofP500,000.00asof1990.ItalsohaslongtermassetsworthP432,895.28andcurrentassets
ofP719,042.32.PrommGemhasalsoproventhatitmaintaineditsownwarehouseandofficespace
withafloorareaof870squaremeters.Italsohadunderitsnamethreeregisteredvehicleswhich
wereusedforitspromotional/merchandisingbusiness.PrommGemalsohasotherclientsasidefrom
P&G.Underthecircumstances,PrommGemhassubstantialinvestmentwhichrelatestotheworkto
beperformed.ThesefactorsnegatetheexistenceoftheelementspecifiedinSection5(i)ofDOLE
DepartmentOrderNo.1802.

TherecordsalsoshowthatPrommGemsupplieditscomplainantworkerswiththerelevant
materials,suchasmarkers,tapes,linersandcutters,necessaryforthemtoperformtheir
work.PrommGemalsoissueduniformstothem.ItisalsorelevanttomentionthatPrommGem
alreadyconsideredthecomplainantsworkingunderitasitsregular,notmerelycontractualorproject,
employees.Thiscircumstancenegatestheexistenceofelement(ii)asstatedinSection5ofDOLE
DepartmentOrderNo.1802,whichspeaksofcontractualemployees.This,furthermore,negateson
thepartofPrommGembadfaithandintenttocircumventlaborlawswhichfactorshaveoftenbeen
tippingpointsthatleadtheCourttostrikedowntheemploymentpracticeoragreementconcernedas
contrarytopublicpolicy,morals,goodcustomsorpublicorder.

Underthecircumstances,PrommGemcannotbeconsideredasalaboronlycontractor.Thus,itisa
legitimateindependentcontractor.

Ontheotherhand,theArticlesofIncorporationofSAPSshowsthatithasapaidincapitalof
onlyP31,250.00.Thereisnootherevidencepresentedtoshowhowmuchitsworkingcapitaland
assetsare.Furthermore,thereisnoshowingofsubstantialinvestmentintools,equipmentorother
assets.

ItisclearthatSAPShavingapaidincapitalofonlyP31,250hasnosubstantialcapital.SAPSlack
ofsubstantialcapitalisunderlinedbytherecordswhichshowthatitspayrollforitsmerchandisers
aloneforonemonthwouldalreadytotalP44,561.00.Ithad6monthcontractswithP&G.YetSAPS
failedtoshowthatitcouldcompletethe6monthcontractsusingitsowncapitalandinvestment.Its
capitalisnotevensufficientforonemonthspayroll.SAPSfailedtoshowthatitspaidincapital
ofP31,250.00issufficientfortheperiodrequiredforittogenerateitsneededrevenuetosustainits
operationsindependently.Substantialcapitalreferstocapitalizationusedintheperformanceor
completionofthejob,workorservicecontractedout.Inthepresentcase,SAPShasfailedtoshow
substantialcapital.

Furthermore,thepetitionershavebeenchargedwiththemerchandisingandpromotionofthe
productsofP&G,anactivitythathasalreadybeenconsideredbytheCourtasdoubtlesslydirectly
relatedtothemanufacturingbusiness,whichistheprincipalbusinessofP&G.Consideringthat
SAPShasnosubstantialcapitalorinvestmentandtheworkersitrecruitedareperformingactivities
whicharedirectlyrelatedtotheprincipalbusinessofP&G,wefindthattheformerisengagedin
laboronlycontracting.

Wherelaboronlycontractingexists,theLaborCodeitselfestablishesanemployeremployee
relationshipbetweentheemployerandtheemployeesofthelaboronlycontractor.Thestatute
establishesthisrelationshipforacomprehensivepurpose:topreventacircumventionoflaborlaws.
Thecontractorisconsideredmerelyanagentoftheprincipalemployerandthelatterisresponsible
totheemployeesofthelaboronlycontractorasifsuchemployeeshadbeendirectlyemployedby
theprincipalemployer.

LABORLAW

Incasesofregularemployment,theemployershallnotterminatetheservicesofanemployee
exceptforajustorauthorizedcause.

Intheinstantcase,theterminationlettersgivenbyPrommGemtoitsemployeesuniformlyspecified
thecauseofdismissalasgravemisconductandbreachoftrust.

Misconducthasbeendefinedasimproperorwrongconductthetransgressionofsomeestablished
anddefiniteruleofaction,aforbiddenact,aderelictionofduty,unlawfulincharacterimplying
wrongfulintentandnotmereerrorofjudgment.Themisconducttobeseriousmustbeofsuchgrave
andaggravatedcharacterandnotmerelytrivialandunimportant.Tobeajustcausefordismissal,
suchmisconduct(a)mustbeserious(b)mustrelatetotheperformanceoftheemployeesduties
and(c)mustshowthattheemployeehasbecomeunfittocontinueworkingfortheemployer.

Intheinstantcase,petitionersemployeesofPrommGemmayhavecommittedanerrorofjudgment
inclaimingtobeemployeesofP&G,butitcannotbesaidthattheyweremotivatedbyanywrongful
intentindoingso.Assuch,theyareonlyfoundthemguiltyofonlysimplemisconductforassailing
theintegrityofPrommGemasalegitimateandindependentpromotionfirm.Amisconductwhichis
notseriousorgrave,asthatexistingintheinstantcase,cannotbeavalidbasisfordismissingan
employee.

Meanwhile,lossoftrustandconfidence,asagroundfordismissal,mustbebasedonthewillful
breachofthetrustreposedintheemployeebyhisemployer.Ordinarybreachwillnotsuffice.A
breachoftrustiswillfulifitisdoneintentionally,knowinglyandpurposely,withoutjustifiableexcuse,
asdistinguishedfromanactdonecarelessly,thoughtlessly,heedlesslyorinadvertently.

Lossoftrustandconfidence,asacauseforterminationofemployment,ispremisedonthefactthat
theemployeeconcernedholdsapositionofresponsibilityoroftrustandconfidence.Assuch,he
mustbeinvestedwithconfidenceondelicatematters,suchascustody,handlingorcareand
protectionofthepropertyandassetsoftheemployer.And,inordertoconstituteajustcausefor
dismissal,theactcomplainedofmustbeworkrelatedandmustshowthattheemployeeisunfitto
continuetoworkfortheemployer.Intheinstantcase,thepetitionersemployeesofPrommGem
havenotbeenshowntobeoccupyingpositionsofresponsibilityoroftrustandconfidence.Neitheris
thereanyevidencetoshowthattheyareunfittocontinuetoworkasmerchandisersforPromm
Gem.Thus,therewasnovalidcauseforthedismissalofpetitionersemployeesofPrommGem.

WhilePrommGemhadcompliedwiththeproceduralaspectofdueprocessinterminatingthe
employmentofpetitionersemployees,i.e.,givingtwonoticesandinbetweensuchnotices,an
opportunityfortheemployeestoanswerandrebutthechargesagainstthem,itfailedtocomplywith
thesubstantiveaspectofdueprocessastheactscomplainedofneitherconstituteserious
misconductnorbreachoftrust.Hence,thedismissalisillegal.

WithregardtothepetitionersplacedwithP&GbySAPS,theyweregivennowrittennoticeof
dismissal.TherecordsshowthatuponreceiptbySAPSofP&Gsletterterminatingtheir
MerchandisingServicesContacteffectiveMarch11,1993,theyinturnverballyinformedthe
concernedpetitionersnottoreportforworkanymore.

NeitherSAPSnorP&Gdisputetheexistenceofthesecircumstances.Parenthetically,unlikePromm
Gemwhichdismisseditsemployeesforgravemisconductandbreachoftrustduetodisloyalty,
SAPSdismisseditsemployeesupontheinitiationofP&G.ItisevidentthatSAPSdoesnotcarryon
itsownbusinessbecausetheterminationofitscontractwithP&Gautomaticallymeantforitalsothe
terminationofitsemployeesservices.ItisobviousfromitsactthatSAPShadnootherclientsand
hadnointentionofseekingotherclientsinordertofurtheritsmerchandisingbusiness.Fromall
indicationsSAPS,existedtocatersolelytotheneedofP&Gforthesupplyofemployeesinthe
lattersmerchandisingconcernsonly.Underthecircumstancesprevailingintheinstantcase,we
cannotconsiderSAPSasanindependentcontractor.

Interminationcases,theburdenofproofrestsupontheemployertoshowthatthedismissalisfor
justandvalidcause.Intheinstantcase,P&Gfailedtodischargetheburdenofprovingthelegality
andvalidityofthedismissalsofthosepetitionerswhoareconsidereditsemployees.Hence,the
dismissalsnecessarilywerenotjustifiedandarethereforeillegal.

CIVILLAW

Moralandexemplarydamagesarerecoverablewherethedismissalofanemployeewasattendedby
badfaithorfraudorconstitutedanactoppressivetolabororweredoneinamannercontraryto
morals,goodcustomsorpublicpolicy.

WithregardtotheemployeesofPrommGem,therebeingnoevidenceofbadfaith,fraudorany
oppressiveactonthepartofthelatter,wefindnosupportfortheawardofdamages.

AsforP&G,therecordsshowthatitdismisseditsemployeesthroughSAPSinamanneroppressive
tolabor.Thesuddenandperemptorybarringoftheconcernedpetitionersfromwork,andfrom
admissiontotheworkplace,afterjustaonedayverbalnotice,andfornovalidcausebellows
oppressionandutterdisregardoftherighttodueprocessoftheconcernedpetitioners.Hence,an
awardofmoraldamagesiscalledfor.

Attorneysfeesmaylikewisebeawardedtotheconcernedpetitionerswho
wereillegallydismissedinbadfaithandwerecompelledtolitigateorincurexpensestoprotecttheirrightsby
reasonoftheoppressiveactofP&G.

LABORLAW
Lastly,underArticle279oftheLaborCode,anemployeewhoisunjustlydismissedfromworkshall
beentitledtoreinstatementwithoutlossofseniorityrightsandotherprivileges,inclusiveof
allowances,andotherbenefitsortheirmonetaryequivalentfromthetimethecompensationwas
withhelduptothetimeofactualreinstatement.Hence,allthepetitioners,havingbeenillegally
dismissedareentitledtoreinstatementwithoutlossofseniorityrightsandwithfullbackwagesand
otherbenefitsfromthetimeoftheirillegaldismissaluptothetimeoftheiractualreinstatement.

ThedecisionandresolutionoftheCourtofAppealsarereversedandsetaside.Thecaseis
remandedtotheNLRC.