COCA-COLA BOTTLERS, INC vs ALAN M. AGITO, et.al, GR No. 179546, Feb.

13, 2009:
Section 5 of the Rules Implemednting 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.

Virginia B. Neri vs NLRC (G.R. Nos. 97008-09 July 23, 1993)

Article 106 of the Labor Code defines "labor-only" contracting thus —

Art. 106. Contractor or subcontractor. — . . . . 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 by such
persons are performing activities which are directly related to the principal business of such employer
. . . . (emphasis supplied).

Based on the foregoing, BCC cannot be considered a "labor-only" contractor because it has
substantial capital. While there may be no evidence that it has investment in the form of tools,
equipment, machineries, work premises, among others, it is enough that it has substantial capital, as
was established before the Labor Arbiter as well as the NLRC. In other words, the law does not
require both substantial capital and investment in the form of tools, equipment, machineries, etc.
This is clear from the use of the conjunction "or". If the intention was to require the contractor to
prove that he has both capital and the requisite investment, then the conjunction "and" should have
been used. But, having established that it has substantial capital, it was no longer necessary for BCC
to further adduce evidence to prove that it does not fall within the purview of "labor-only"
contracting. There is even no need for it to refute petitioners' contention that the activities they
perform are directly related to the principal business of respondent bank.

POLYFOAM-RGC INTERNATIONAL, CORPORATION and PRECILLA A. GRAMAJE, vs

EDGARDO CONCEPCION, G.R. No. 172349, June 13, 2012

In Sasan, Sr. v. National Labor Relations Commission 4th Division,[41] the Court distinguished
permissible job contracting or subcontracting from labor-only contracting, to wit:
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.

In contrast, labor-only contracting, a prohibited act, 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.[42]

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.[43] In San Miguel Corporation v.
Semillano,[44] the Court laid down the criteria in determining the existence of an independent and
permissible contractor relationship, to wit:

x x x [W]hether 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 a specified piece 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 the premises, tools, appliances, materials, and labor; and the mode,
manner and terms of payment.[45]

Simply put, the totality of the facts and the surrounding circumstances of the case are to be
considered. Each case must be determined by its own facts and all the features of the relationship
are to be considered.[46]