Labor Digests Art 106-109
Labor Digests Art 106-109
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.1
presumption that ABC is a labor-only contractor. The Petition is denied and the CA decision is modified ordering
character of the business whether a labor-only contractor or Petron to reinstate all the respondents except for Caberte Jr., if
as a job contractor, should be determined by the criteria set no longer feasible, to separation pay equivalent to one month
by statute and the parties cannot dictate by the mere salary for every year of service and to pay them their full back
expedience of a unilateral declaration in a contract the wages from 1 July 1999 until actual reinstatement or upon
character of their business1. finality of this decision.
GR No. 201494, 29 July 2015
In proving that ABC is not a labor-only contractor, it is MARITES R. CUSAP v. ADIDAS PHILIPPINES, INC.
incumbent upon Petron to show that ABC has substantial (ADIDAS), PROMOTION RESOURCES & INTER-
capital or investment and those respondents were performing MARKETING EXPONENTS, INC. (PRIME) AND JC
activities which were not directly related to Petrons principal ATHLETES, INC. (JCA)
business. As for the financial statement, ABC only submitted J. Brion
audited financial statements for 3 years (1992-1994) and it
cannot be given much credence considering that the contract Petitioner and 27 other employees filed a complaint for illegal
between ABC and Petron commenced in 1996 and ended in dismissal against respondents, alleging that they were regular
1999. In addition, as a status retention as an accredited employees of Adidas after having worked as promo girls and
contractor of Petron, ABC is required to submit audited stockmen at the companys various rented outlets for years
financial statements once every two years, however no (ranging from 1 7 years).
documents were submitted from 1996-1999. Further, the
performance bond submitted by ABC fails to show that ABC Adidas is engaged in the manufacture and marketing of
has substantial capital or investment inasmuch as it was not different lines of shoes and other sporting goods and apparel
shown that the performance bond in the amount of PhP in the Philippines. After its contract with its distributor, World
595,799.51 enough to cover not only payrolls, rentals and Sports Inc. allegedly expired; it contracted JCA to be its
equipment but also possible damages to the equipment and exclusive distributor nationwide for one year (2002). In turn,
to third parties and other contingent liabilities. The posted JCA entered into a promotional contract with PRIME to
bond was a convenient smoke screen to disguise the real meet the promotional requirements in the distribution
nature of ABCs employment as an agent of Petron as it of Adidas products. PRIME supposedly assigned the
failed also to show that ABC had such resources needed by complainants to JCA for the purpose.
the employees in the performance of their job.
Complainant claimed that they were dismissed from
With regard to the activities performed by respondents employment on 9 December 2002, when the service contract
whether it is not necessary or desirable to its principal between PRIME and JCA was terminated. Thus, they argued
business, as LPG fillers and maintenance crew, LPG that Adidas was their real employer, not PRIME which,
operator supervisor, warehouseman and utility worker, they believed, was merely a recruitment agency
and tanker receiving crew, are jobs rendered that are supplying Adidas with manpower. PRIME was being
directly related to Petrons main business, vital as they used to conceal (as dummy office) the actual
are in the manufacture and distribution of petroleum employment relationship between them and Adidas.
products. Respondents further concluded that the products they were
selling at various outlets remained the property and under the
Taking note that some of the workers were already working for control of Adidas it was Adidas that provided the warehouse
Petron even before it engaged ABC as contractor in 1996. It where the products were stored, that leased the outlets from
was only made to appear that they were under the different stores and that provided them training. Also the proceeds of
contractor that Petron engaged over the years, respondents the sales were directly deposited to the bank account of
have been regularly performing the same tasks within the Adidas. Moreover, their salaries and other monetary
premises of Petron. The repeated and continuing need for the benefit supposedly paid by PRIME were charged to the
performance of the job is sufficient evidence of the necessity, account of Adidas, as indicated in their pay slips. They
if not indispensability of the activity to the business. argued that if JCA purchased the products being sold
and were already its property, there was no point to
Petron admitted in its position paper that the supervision of a still charge complainants wages and benefits to the
Petron employee is required over LPG and tanker assistance Adidas account.
jobs for inventory control and safety checking purposes. Also,
Petron is the one supplying the needed materials and To substantiate, respondents even submitted documentary
equipment in discharging these functions to better insure the proof that PRIME is not even a registered corporation, labor
integrity, quality and safety of its products. It bears recruiter, or agency when it supposedly entered into a
stressing that the power of control merely calls for the contract with JCA. It was registered as a job contractor /
existence of the right to control and not necessary the subcontractor only.
exercise thereof.
In defense, Adidas argued that in 2002, its Articles of
Further, Petron fails to discharge its burden of proving that Incorporation was amended to enable it to engage in the retail
ABC is not a labor-only contractor. Thus, the SC declares that business without the need to contract the services of
ABC is a labor-only contractor is an equivalent to declaring distributors such as JCA to operate as a foreign retailer so it
that there is an employee-employer relationship between the could no longer renew its Distribution Agreement with JCA
principal and the employees of the supposed contractor and when it expired on December 2002. It maintained that
the labor only contractor is considered as a mere agent of promotional contract with JCA and PRIME was
the principal, the real employer. Therefore, Petron is declared terminated resulting in the complainants dismissal. In
to be the true employer of respondents who are considered as addition, Adidas turned sown the complainants
regular employees in view of the fact that they have been demand for regularization as they were employees of
regularly performing activities which are necessary and PRIME. It claimed that it was PRIME who exercised
desirable to the usual business of Petron for a number of control over their work. The supervision Adidas only
years. provide is to aid in their marketing work. It averred
that it was PRIME who exercised the power to select,
On Mr. Caberte Jr., complaint for illegal dismissal, he must first engage, and dismiss the complainants, and who
establish that there is an employee-employer relationship for assumed the obligation to pay their wages (JCA
said complaint to prosper, unfortunately nowhere in the presented a quitclaim and release papers executed by
record does it show that he indeed worked for Petron. some employees in favor of PRIME as support).
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 While the payment of wages and workers benefits is one of
respondents are not entitled to reinstatement of back wages. the determinants of an employee-employer relationship, the
SC does not find it a reliable basis. Pay slips of supposed
LABOR ARBITER: dismissed the case for lack of merit. It held employees revealed that the complainant salaries and
that PRIME was the complainants employer as it was benefits were under the account of Adidas. It shows that
PRIME who hired them to work under its Promotions Adidas avoided being identified as the complainants
Contract with JCA. The dismissal was valid in view of the direct employer so that it would not have to bear the
termination and nonrenewal of the contract. Money claims consequences of the complainants and the
was also denied showing that PRIME paid their 13 month pay petitioners regularization. In fact, the complainants and
and service incentive leave. Petitioner is the only who petitioner were engaged not only in 2002, but much earlier,
appealed and the other 15 withdraw. some were even hired in 1995, including the petitioner, who
started selling Adidas products on 28 October 1995.
NLRC: denied the appeal and sustained the LA decision.
It was believed that PRIME, supposed JCA subcontractor, just
CA: denied the petition. That the NLRC ruling was supported assumed the act of paying the complainants wages and
by evidence that PRIME is a legitimate job contractor as it benefits on behalf of Adidas, indicating that it was a mere
possessed substantial capital to finance its promotions agent of Adidas or a labor-only contractor. The complete
undertaking with JCA. The four-fold employee-employer absence of proof that PRIME applied its substantial
relationship test was used: that PRIME (1) hired the capital or investment in performing the promotional
complainants, (2) paid their wages, (3) dismissed them upon job it contracted with JCA, the SC find credence in the
the expiration of the contract for which they were hired, (4) petitioners submission that the products she was
exercised control over them with respect to the conduct of the selling remained to be the property and under the
work to be performed. On seminars attended conducted by control of Adidas, that it was Adidas who owned the
Adidas, it was contended that the certificates only establish warehouse where they stored, that leased the sales
the fact that complainants attended the seminar for product outlets from Department Stores, and the provided
knowledge, service quality, and retail service. regular training to her and to the complainants.
ISSUE: Whether or not PRIME is a labor-only contractor and Although Adidas claim that by virtue of the agreement, JCA
the respondent can be categorized as a regular employee. did not purchase but rather had in its custody and
safekeeping different Adidas products, for distribution to
SC: The Court found merit in the petition. Evidence points to different sales outlets in the country, nowhere in the record
Adidas as the petitioners and the complainants real does it appear that the agreement had been amended to
employer thus, PRIME is a labor-only contractor; JCA an allow such agreement. It was not shown who managed and
agent/intermediary of Adidas. provided the storage places and the places and the sales
outlets for the products - SC find merit in the petitioners
Art. 106 of the LC provides that: There is labor-only contention that Adidas and JCA, at a time, held office in
contracting where the person supplying workers to an the same address, and that Adidas provided the
employer does not have substantial capital or investment in storage places and the outlets for the distribution of
the form of tools, equipment, machineries, work premises, its products, not PRIME or JCA.
among others, and the workers recruited and placed by such
person are performing activities which are directly related to The petitioner performed activities necessary to the
the principal business of the employer. In such cases, the principal business of Adidas as they were performing
person or intermediary shall be considered merely an activities necessary to market the products that Adidas itself
agent of the employer who shall be responsible to the manufactured, that they sold this product for several years
workers in the same manner and extent as the latter starting June 1995 December 2000. It cannot be denied
were directly employed by him. that in 1995, Adidas was already in the retail business
through its agents WOSI and JCA and labor-only
Sec. 5 Department Order No. 18-02 s. of 2002, implementing contractor PRIME. Thus, the petitioner had become an
Articles of 106 to 109 of the LC, prohibits labor-only Adidas regular employee a long time before she was
contracting and defines it as an arrangement where supposedly made a contractual employee of PRIME.
the contractor or sub-contractor merely recruits,
supplies or places workers to perform a job, work or SC found also that Adidas exercised control and supervision
service for a principal, and any of the following is over the performance of the petitioners work, through the
present: (1) the contractor or subcontractor does not supervision of Adidas supervisors, sales managers, president,
have substantial capital or investment which relates to and head of WOSI concession. It was held that PRIME
the job, work or service to be performed and the failed to satisfy the four-fold employee-employer
workers recruited, supplied or placed by such relationship test, making it a labor-only contractor
contractor or subcontractor are performing activities under the law and the rules. Adidas therefore is the
which are directly related to the principal business of real employer of the petitioner who shall be
the employer; (2) the contractor does not exercise the responsible to hre in the same manner and extent as if
right to control over the performance of the work of she were directly employed by the company.
the contractual employee, xxx substantial capital or
investment refers to capital stocks and subscribed SC found that petitioner was illegally dismissed, there
capitalization in the case of corporations, tools, being obviously no valid cause to and absent due
equipment, implements, machineries and work process in her dismissal.
premises, actually and directly used by the contractor
or subcontractor in the performance or completion of Petitioner was entitled for reinstatement without loss of
the job, work or service contracted out. seniority rights and other privileges and with full back wages.
If no long feasible, shall be entitled to full back wages and
In this case, PRIME offered no proof how or in what manner its separation pay. It was also shown that Adidas have
purported substantial capital financed its promotional and shown bad faith in the petitioners dismissal as it
inter-marketing business. JCA relied principally on its resulted from the prohibited labor-only contracting
promotional contract with PRIME to avoid liability, saying that agreement imposed on her since 28 October 1995
the terms of their service agreement demonstrate the (entitled to damages moral and exemplary).
earmarks of an employer under the four-fold employee-
employer relationship test. It also presented no proof of Petition is granted. Adidas is ordered to reinstate the
how or in what manner PRIME carried out its petitioner and if should not be feasible, the above alternative
undertaking under the contract.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.3
must be followed. PRIME and JCA shall likewise jointly and shall hold FPIC free and harmless from any
solidarity liable with Adidas to pay damages for the claims which DGMSs employees may lodge
respondent. against FPIC.
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 In the same manner, Sections 8 and 9 of DOLE Department
statement that, capitalized at P75,000.00, DGMS serviced the Order No. 10, Series of 1997, state:
manpower requirements of other clients like the Makati
Commercial Estate Association and the Philippine Transmarine Sec. 8. Job contracting. There is job contracting permissible
Carrier which reinforces its being an independent contractor. under the Code if the following conditions are met:
Third, complainants realization that DGMS and not
respondent FPIC, was their employer is shown by the fact that (1) The contractor carries on an independent business and
after they were disengaged, they went to DGMS, which paid undertakes the contract work on his own account under his
them the amount of P17,343 for Calimbas and P23,454.14 for own responsibility according to his own manner and method,
Mahilom. free from the control and direction of his employer or principal
in all matters connected with the performance of the work
Calimbas and Mahilom sought reconsideration of the above except as to the results thereof; and
resolution, but the same was denied by NLRC reasoning that it
found no legal basis to deem DGMS a "labor-only contracting" (2) The contractor has substantial capital or investment in the
entity as maintained by Calimbas and Mahilom. The fact that form of tools, equipment, machineries, work premises, and
DGMS had only a capitalization of P75,000.00, without an other materials which are necessary in the conduct of his
investment in tools, equipment, etc., does not necessarily business.
constitute the latter as labor-only contractor since it has
shown its adequacy of resources, directly or indirectly, in the Sec. 9. Labor-only contracting.
performance of completion of the job, work or service
contracted out, including operating costs, administrative costs (a) Any person who undertakes to supply workers to an
such as training, overhead and other costs as are necessary employer shall be deemed to be engaged in labor-only
to enable DGMS to exercise control, supervision, or direction contracting where such person:
over its employees in all aspects in performing or completing
the job, work or services contracted out. In the case of New (1) Does not have substantial capital or investment
Golden City Builders and Development Corp. et. al. vs. CA, et. in the form of tools, equipment, machineries, work
al. (G.R. No. 154715), December 11, 2003), the Supreme premises and other materials; and
Court reiterated its ruling in Neri that not having investment
in the form of tools or machineries does not automatically (2) The workers recruited and placed by such
reduce the independent contractor to be a labor-only persons are performing activities which are directly
contractor. Moreover, the court has taken judicial notice of the related to the principal or operations of the employer
general practice adopted in several government and private in which workers are habitually employed.
institution and industries of hiring independent contractors to
perform special services. (b) Labor-only contracting as defined herein is hereby
prohibited and the person acting as contractor shall be
Furthermore, the copy of payroll adduced on record persuaded considered merely as an agent or intermediary of the
NLRC that Calimbas and Mahilom received their wages from employer who shall be responsible to the workers in the same
DGMS contrary to their allegations that the contract manner and extent as if the latter were directly employed by
consideration is by reimbursement of wages. The execution him.
likewise by Calimbas and Mahilom of their respective
quitclaim and release fortifies the fact of their belief that their (c) For cases not falling under this Article, the Secretary of
actual employer is DGMS and not respondent FPIC. Labor shall determine through appropriate orders whether or
not the contracting out of labor is permissible in the light of
Calimbas and Mahilom appealed to the CA. the circumstances of each case and after considering the
operating needs of the employer and the rights of the workers
CA Ruling: Granted their appeal and reversed NLRC. FPIC involved. In such case, he may prescribe conditions and
filed MR but was denied. Hence, the petition. restrictions to insure the protection and welfare of the
workers.
Issue/s: (1) Whether Calimbas and Mahilom are employees of
FPIC. Given the foregoing standards, SC sustains the findings of the
(2) Whether they were lawfully dismissed from their CA that Calimbas and Mahilom are FPICs employees and that
employment. DGMS is engaged in labor-only contracting.
SC Ruling/Ratio: Anent the first issue, Article 106 of the First, in Vinoya v. National Labor Relations Commission, the
Labor Code pertinently provides: Court categorically stated that the actual paid-in capital of
Article 106. Contractor or subcontractor. Whenever an P75,000.00 could not be considered as substantial capital.
employer enters into a contract with another person for the Thus, DGMSs actual paid-in capital in the amount of
performance of the formers work, the employees of the P75,000.00 does not constitute substantial capital essential to
contractor and of the latters subcontractor, if any, shall be carry out its business as an independent job contractor. In
paid in accordance with the provisions of this Code. spite of its bare assertion that the Vinoya case does not apply
in the present case, DGMS has not shown any serious and
In the event that the contractor or subcontractor fails to pay cogent reason to disregard the ruling in the aforementioned
the wages of his employees in accordance with this Code, the case. Records likewise reveal that DGMS has no substantial
employer shall be jointly and severally liable with his equipment in the form of tools, equipment and machinery. As
contractor or subcontractor to such employees to the extent a matter of fact, Calimbas and Mahilom were using office
of the work performed under the contract, in the same equipment and materials owned by FPIC while they were
manner and extent that he is liable to employees directly rendering their services at its offices.
employed by him.
Second, FPIC exercised the power of control and supervision
The Secretary of Labor may, by appropriate regulations, over Calimbas and Mahilom. As aptly observed by the CA, the
restrict or prohibit the contracting-out of labor to protect the daily time records of Calimbas and Mahilom even had to be
rights of workers established under the Code. In so prohibiting countersigned by the officials of FPIC to check whether they
or restricting, he may make appropriate distinctions between had worked during the hours declared therein. Furthermore,
labor-only contracting and job-contracting as well as the fact that DGMS did not assign representatives to supervise
differentiations within these types of contracting and over Calimbas and Mahiloms work in FPIC tends to disprove
determine who among the parties involved shall be the independence of DGMS. It is axiomatic that the test to
considered the employer for purposes of this Code, to prevent determine the existence of independent contractorship
any violation or circumvention of any provision of this Code. is whether one claiming to be an independent
contractor has contracted to do the work according to
There is "labor-only" contracting where the person supplying his own methods and without being subjected to the
workers to an employer does not have substantial capital or control of the employer, except only to the results of
investment in the form of tools, equipment, machineries, work the work. Obviously, on this score alone, FPIC cannot rightly
premises, among others, and the workers recruited and claim that DGMS was an independent job contractor inasmuch
placed by such person are performing activities which are as Calimbas and Mahilom were subjected to the control and
directly related to the principal business of such employer. In supervision of FPIC while they were performing their jobs.
such cases, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible Third, also worth stressing are the points highlighted by
to the workers in the same manner and extent as if the latter Calimbas and Mahilom: (1) They worked only at FPICs offices
were directly employed by him. 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 On the other hand, PCCr and Bautista contended
company officials; (2) Three weeks ahead of the termination that: a)PCCr was not the direct employer b) MBMSI had
letters issued by DGMS, FPICs HR Manager Lorna Young complete and direct control over the dismissed employees
notified them, in a closed-door meeting, that their services to
and c)PCCr had a contractual relationship with MBMSI. They
the company would be terminated by July 31, 2001; (3) In the
termination letters prepared by DGMS, it was even stressed also submitted notarized documents before LA Hernandez
that the said termination letters will formalize the verbal including releases, waivers and quitclaims in favor of MBMSI
notice given by FPICs HR Administration personnel; (4) The executed by Virgilla et.al to prove that they were employees
direct superiors of Calimbas and Mahilom were managerial of MBMSI .
employees of FPIC, and had direct control over all the work-
related activities of the latter. This control included the LA: in favor of Virgilla et.al
supervision of their performance of their work and their
compliance with FPICs company policies and procedures.
La said that PCCr was the real employer of Virgilla et.
DGMS, on the other hand, never maintained any
representative at the FPICs office to oversee the work of al, MBMSI was a labor-only contractor, Virgilla et.al were
Calimbas and Mahilom. regular employees of PCCr and PCCr/ Bautista were in bad
faith in dismissing the complaints. Further explained that PCCr
All told, an employer-employee relationship exists between was the one which exercised control over the means and
FPIC and Calimbas and Mahilom. And having served for almost methods of the work of Virgilla et. al thru Atty. Seril who is the
five years at FPICs company, they had already attained the Senior VP for Administration of PCCr.
status of regular employees.
As to the second issue, i.e., whether respondents were
lawfully dismissed from their employment, this Court rules in NLRC: Affirmed LA but release PCCr/Bautista from their
the negative as there was no compliance in both procedural liability by virtue of the releases, waivers and quitclaims.
and substantive due process. FPIC failed to show any valid or
just cause under the Labor Code on which it may justify the MBMSI and Atty. Seril were found to be labor-only
termination of services of Calimbas and Mahilom. Also, apart contractor and are solidarily liable with the PCCr and Bautista
from notifying that their services had already been for the valid claims and complaints pursuant to Art 109 on the
terminated, FPIC failed to comply with the rudimentary solidary liability of the employer and indirect employer but
requirement of notifying them regarding the acts or omissions
this liability is effectively expunged by the acts of Virgilla et al.
which led to the termination of their services as well as giving
them an ample opportunity to contest the legality of their (17 complainants) of executing releases, waivers and
dismissal. Having failed to establish compliance with the quitclaims in favor of MBMSI.
requirements of termination of employment under the Labor
Code, their dismissal is tainted with illegality. CA: affirmed NLRC
Resultantly, the CA correctly held that Calimbas and Mahilom Based on solidary liability and the NCC, Virgilla et.al
are entitled to reinstatement without loss of seniority rights,
respective releases, waivers and quitclaims in favor of MBMSI
and other privileges and to their full backwages, inclusive of
allowances and other benefits or their monetary equivalent, and Atty. Seril redounded to the benefit of PCCr and Bautista.
computed from the time their compensation was withheld up
to the time of their actual reinstatement. Considering that SC: affirmed CA.
reinstatement is no longer feasible, they are entitled instead
to separation pay equivalent to one month salary for every The executed releases, waivers and quitclaims are
year of service. valid and binding notwithstanding the revocation of MBMSIs
Cert of Incorporation. The revocation does not result in the
Dispositive Portion: WHEREFORE, premises considered, the
termination of its liabilities.
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 A labor-only contractor is solidarily liable with
AFFIRMED with MODIFICATION that respondents shall be the employer.
entitled to separation pay equivalent to one month salary for
every year of service. If a labor-only contractor is solidarily liable with the
VIGILLA et. al v. PCCr employer then the releases, waivers and quitclaims in favor of
MBMSI(labor-only contractor) will redound to the benefit of
In LABOR ONLY CONTRACTOR, the principal employer PCCr (employer). On the other hand, if a labor-only contractor
becomes jointly and severally liable (solidary liability) with the is not solidarily liable with the employer, the labor-only
job contractor ONLY for the payment of the employees wages contractor being direct liable, then the releases, waivers and
whenever the contractor fails to pay the same. Other than quitclaims in favor of MBMSI will not extinguish the liability of
that, the principal employer is not responsible for any claim PCCr which is the employer.
made by the employees.
The reason why MBMSI is solidarily liable with PCCr
FACTS: for the valid claims of Virgilla et. al is pursuant to Art 109 of
LC.
PCCr is an educational institution while Vigilla et. al were the
janitors, janitress and supervisor in the Maintenance Dept. of Under the general rule set out in the first and second
PCCR under the supervision of Atty. Seril who is PCCrs Senior paragraphs of Article 106, an employer who enters into a
Vice Pres. For Admin. But Vigilla et. al were made to contract with a contractor for the performance of work for the
understand upon their application that they are under MBMSI employer, does not thereby create an employer-employees
(a corp engaged in providing janitorial svcs) whereas Atty. relationship between himself and the employees of the
Seril is the president and gen. manager of MBMSI. contractor. Thus, the employees of the contractor remain the
contractor's employees and his alone. Nonetheless when a
In 2008, PCCr discovered that the Certificate of contractor fails to pay the wages of his employees in
Incorporation of MBMSI had been revoked therefore, in 2009, accordance with the Labor Code, the employer who
citing the revocation of the certificate, President Bautista of contracted out the job to the contractor becomes jointly and
PCCr terminated the schools relationship with MBMSI severally liable with his contractor to the employees of the
resulting in the dismissal of the employees/maintenance latter "to the extent of the work performed under the
personnel under MBMSI. contract" as such employer were the employer of the
contractor's employees.
Dismissed employees filed a complaint for illegal
dismissal against MBMSI, Atty. Seril, PCCr and Bautista. Their The principal employer becomes jointly and severally
allegations was that the school was their real employer and liable with the job contractor only for the payment of the
not the MBMSI because a)PCCr had direct control over employees' wages whenever the contractor fails to pay the
MBMSIs operations b)there was no contract between MBMSI same. Other than that, the principal employer is not
and PCCr and c)the selection and hiring of employees were responsible for any claim made by the employees.
undertaken by PCCr.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.6
Principal employer is solidarily liable with the labor- Petitioners then filed a petition for certiorari with the CA,
only contractor for the rightful claims of the employees. alleging grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of the Labor Arbiter and the NLRC.
In light of these conclusions, the Court holds that the However, said petition was also denied by the CA which
releases, waivers and quitclaims executed by petitioners in disposed as follows:
favor of MBMSI redounded to the respondents' benefit. The
liabilities of the respondents to petitioners are now deemed WHEREFORE, the decision of the National Labor Relations
extinguished. The Court cannot allow petitioners to reap the Commission dated July 27, 1998 is AFFIRMED with the
benefits given to them by MBMSI in exchange for the releases, MODIFICATION that respondent Procter & Gamble Phils., Inc. is
waivers and quitclaims and, again, claim the same benefits ordered to pay service incentive leave pay to petitioners.
from PCCr.
SO ORDERED.
Aliviado v P&G
Petitioners filed a motion for reconsideration but the motion
G.R. No. 160506 March 9, 2010 was also denied. Hence, this petition.
Principle: Issues:
Labor laws expressly prohibit labor-only contracting. To (1) whether P&G is the employer of petitioners;
prevent its circumvention, the Labor Code establishes an
employer-employee relationship between the employer and (2) whether petitioners were illegally dismissed; and
the employees of the labor-only contractor.
(3) whether petitioners are entitled for payment of actual,
Facts: moral and exemplary damages as well as litigation costs and
attorneys fees.
Petitioners worked as merchandisers of P&G from various
dates, allegedly starting as early as 1982 or as late as June Petitioners Arguments:
1991, to either May 5, 1992 or March 11, 1993.
Petitioners insist that they are employees of P&G. They claim
They all individually signed employment contracts with either that they were recruited by the salesmen of P&G and were
Promm-Gem or SAPS for periods of more or less five months engaged to undertake merchandising chores for P&G long
at a time. They were assigned at different outlets, before the existence of Promm-Gem and/or SAPS. They further
supermarkets and stores where they handled all the products claim that when the latter had its so-called re-alignment
of P&G. They received their wages from Promm-Gem or SAPS. program, petitioners were instructed to fill up application
forms and report to the agencies which P&G created.
SAPS and Promm-Gem imposed disciplinary measures on
erring merchandisers for reasons such as habitual Petitioners further claim that P&G instigated their dismissal
absenteeism, dishonesty or changing day-off without prior from work as can be gleaned from its letter to SAPS dated
notice. February 24, 1993, informing the latter that their
Merchandising Services Contract will no longer be renewed.
P&G is principally engaged in the manufacture and production
of different consumer and health products, which it sells on a Petitioners further assert that Promm-Gem and SAPS are
wholesale basis to various supermarkets and distributors. To labor-only contractors providing services of manpower to their
enhance consumer awareness and acceptance of the client. They claim that the contractors have neither
products, P&G entered into contracts with Promm-Gem and substantial capital nor tools and equipment to undertake
SAPS for the promotion and merchandising of its products. independent labor contracting. Petitioners insist that since
they had been engaged to perform activities which are
In December 1991, petitioners filed a complaint against P&G necessary or desirable in the usual business or trade of P&G,
for regularization, service incentive leave pay and other then they are its regular employees.
benefits with damages. The complaint was later amended to
include the matter of their subsequent dismissal. Respondents Arguments:
Ruling of the Labor Arbiter: On the other hand, P&G points out that the instant petition
raises only questions of fact and should thus be thrown out as
On November 29, 1996, the Labor Arbiter dismissed the the Court is not a trier of facts. It argues that findings of facts
complaint for lack of merit and ruled that there was no of the NLRC, particularly where the NLRC and the Labor
employer-employee relationship between petitioners and P&G. Arbiter are in agreement, are deemed binding and conclusive
He found that the selection and engagement of the on the Supreme Court.
petitioners, the payment of their wages, the power of
dismissal and control with respect to the means and methods P&G further argues that there is no employment relationship
by which their work was accomplished, were all done and between it and petitioners. It was Promm-Gem or SAPS that
exercised by Promm-Gem/SAPS. He further found that Promm- (1) selected petitioners and engaged their services; (2) paid
Gem and SAPS were legitimate independent job contractors. their salaries; (3) wielded the power of dismissal; and (4) had
the power of control over their conduct of work.
Ruling of the NLRC:
P&G also contends that the Labor Code neither defines nor
Appealing to the NLRC, petitioners disputed the Labor Arbiters limits which services or activities may be validly outsourced.
findings. On July 27, 1998, the NLRC rendered a Decision Thus, an employer can farm out any of its activities to an
disposing as follows: independent contractor, regardless of whether such activity is
peripheral or core in nature. It insists that the determination
WHEREFORE, premises considered, the appeal of of whether to engage the services of a job contractor or to
complainants is hereby DISMISSED and the decision appealed engage in direct hiring is within the ambit of management
from AFFIRMED. SO ORDERED. prerogative.
Petitioners filed a motion for reconsideration but the motion At this juncture, it is worth mentioning that on January 29,
was denied in the November 19, 1998 Resolution. 2007, we deemed as waived the filing of the Comment of
Promm-Gem on the petition. Also, although SAPS was
Ruling of the Court of Appeals: 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 Section 5. Prohibition against labor-only contracting. Labor-
the obligations of P&G, if any. only contracting is hereby declared prohibited. For this
purpose, labor-only contracting shall refer to an arrangement
Ruling of the Court: where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service
The petition has merit. for a principal, and any of the following elements are present:
Labor-only contracting and job contracting i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service
In order to resolve the issue of whether P&G is the employer to be performed and the employees recruited, supplied or
of petitioners, it is necessary to first determine whether placed by such contractor or subcontractor are performing
Promm-Gem and SAPS are labor-only contractors or legitimate activities which are directly related to the main business of
job contractors. the principal; or
The pertinent Labor Code provision on the matter states: ii) [T]he contractor does not exercise the right to control over
the performance of the work of the contractual employee.
ART. 106. Contractor or subcontractor. Whenever an
employer enters into a contract with another person The foregoing provisions shall be without prejudice to the
for the performance of the formers work, the application of Article 248 (c) of the Labor Code, as amended.
employees of the contractor and of the latters
subcontractor, if any, shall be paid in accordance with Substantial capital or investment refers to capital stocks and
the provisions of this Code. subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises,
In the event that the contractor or subcontractor fails actually and directly used by the contractor or subcontractor
to pay the wages of his employees in accordance with in the performance or completion of the job, work or service
this Code, the employer shall be jointly and severally contracted out.
liable with his contractor or subcontractor to such
employees to the extent of the work performed under The right to control shall refer to the right reserved to the
the contract, in the same manner and extent that he is person for whom the services of the contractual workers are
liable to employees directly employed by him. performed, to determine not only the end to be achieved, but
also the manner and means to be used in reaching that end.
The Secretary of Labor may, by appropriate
regulations, restrict or prohibit the contracting out of x x x x (Underscoring supplied.)
labor to protect the rights of workers established
under this Code. In so prohibiting or restricting, he Clearly, the law and its implementing rules allow contracting
may make appropriate distinctions between labor-only arrangements for the performance of specific jobs, works or
contracting and job contracting as well as services. Indeed, it is management prerogative to farm out
differentiations within these types of contracting and any of its activities, regardless of whether such activity is
determine who among the parties involved shall be peripheral or core in nature. However, in order for such
considered the employer for purposes of this Code, to outsourcing to be valid, it must be made to an independent
prevent any violation or circumvention of any provision contractor because the current labor rules expressly prohibit
of this Code. labor-only contracting.
There is labor-only contracting where the person To emphasize, there is labor-only contracting when the
supplying workers to an employer does not have contractor or sub-contractor merely recruits, supplies or
substantial capital or investment in the form of tools, places workers to perform a job, work or service for a principal
equipment, machineries, work premises, among and any of the following elements are present:
others, and the workers recruited and placed by such
person are performing activities which are directly i) The contractor or subcontractor does not have substantial
related to the principal business of such employer. In capital or investment which relates to the job, work or service
such cases, the person or intermediary shall be to be performed and the employees recruited, supplied or
considered merely as an agent of the employer who placed by such contractor or subcontractor are performing
shall be responsible to the workers in the same activities which are directly related to the main business of
manner and extent as if the latter were directly the principal; or
employed by him. (Emphasis and underscoring
supplied.) ii) The contractor does not exercise the right to control over
the performance of the work of the contractual employee.
Rule VIII-A, Book III of the Omnibus Rules Implementing the (Underscoring supplied)
Labor Code, as amended by Department Order No. 18-02,
distinguishes between legitimate and labor-only contracting: In the instant case, the financial statements of Promm-Gem
show that it has authorized capital stock of P1 million and a
xxxx paid-in capital, or capital available for operations, of
P500,000.00 as of 1990. It also has long term assets worth
Section 3. Trilateral Relationship in Contracting Arrangements. P432,895.28 and current assets of P719,042.32. Promm-Gem
In legitimate contracting, there exists a trilateral relationship has also proven that it maintained its own warehouse and
under which there is a contract for a specific job, work or office space with a floor area of 870 square meters. It also had
service between the principal and the contractor or under its name three registered vehicles which were used for
subcontractor, and a contract of employment between the its promotional/merchandising business. Promm-Gem also has
contractor or subcontractor and its workers. Hence, there are other clients aside from P&G. Under the circumstances, we
three parties involved in these arrangements, the principal find that Promm-Gem has substantial investment which
which decides to farm out a job or service to a contractor or relates to the work to be performed. These factors negate the
subcontractor, the contractor or subcontractor which has the existence of the element specified in Section 5(i) of DOLE
capacity to independently undertake the performance of the Department Order No. 18-02.
job, work or service, and the contractual workers engaged by
the contractor or subcontractor to accomplish the job[,] work The records also show that Promm-Gem supplied its
or service. complainant-workers with the relevant materials, such as
markers, tapes, liners and cutters, necessary for them to
xxxx 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 In the instant case, the termination letters given by Promm-
circumstance negates the existence of element (ii) as stated Gem to its employees uniformly specified the cause of
in Section 5 of DOLE Department Order No. 18-02, which dismissal as grave misconduct and breach of trust, as follows:
speaks of contractual employees. This, furthermore, negates
on the part of Promm-Gem bad faith and intent to circumvent xxxx
labor laws which factors have often been tipping points that
lead the Court to strike down the employment practice or This informs you that effective May 5, 1992, your employment
agreement concerned as contrary to public policy, morals, with our company, Promm-Gem, Inc. has been terminated. We
good customs or public order. find your expressed admission, that you considered yourself
as an employee of Procter & Gamble Phils., Inc. and assailing
Under the circumstances, Promm-Gem cannot be considered the integrity of the Company as legitimate and independent
as a labor-only contractor. We find that it is a legitimate promotion firm, is deemed as an act of disloyalty prejudicial to
independent contractor. the interests of our Company: serious misconduct and breach
of trust reposed upon you as employee of our Company which
On the other hand, the Articles of Incorporation of SAPS shows [co]nstitute just cause for the termination of your
that it has a paid-in capital of only P31,250.00. There is no employment.
other evidence presented to show how much its working
capital and assets are. Furthermore, there is no showing of xxxx
substantial investment in tools, equipment or other assets.
Misconduct has been defined as improper or wrong conduct;
Furthermore, the petitioners have been charged with the the transgression of some established and definite rule of
merchandising and promotion of the products of P&G, an action, a forbidden act, a dereliction of duty, unlawful in
activity that has already been considered by the Court as character implying wrongful intent and not mere error of
doubtlessly directly related to the manufacturing business, judgment. The misconduct to be serious must be of such
which is the principal business of P&G. Considering that SAPS grave and aggravated character and not merely trivial and
has no substantial capital or investment and the workers it unimportant. To be a just cause for dismissal, such misconduct
recruited are performing activities which are directly related (a) must be serious; (b) must relate to the performance of the
to the principal business of P&G, we find that the former is employees duties; and (c) must show that the employee has
engaged in labor-only contracting. become unfit to continue working for the employer.
Where labor-only contracting exists, the Labor Code itself In other words, in order to constitute serious misconduct
establishes an employer-employee relationship between the which will warrant the dismissal of an employee under
employer and the employees of the labor-only contractor.[39] paragraph (a) of Article 282 of the Labor Code, it is not
The statute establishes this relationship for a comprehensive sufficient that the act or conduct complained of has violated
purpose: to prevent a circumvention of labor laws. The some established rules or policies. It is equally important and
contractor is considered merely an agent of the principal required that the act or conduct must have been performed
employer and the latter is responsible to the employees of the with wrongful intent.[48] In the instant case, petitioners-
labor-only contractor as if such employees had been directly employees of Promm-Gem may have committed an error of
employed by the principal employer. judgment in claiming to be employees of P&G, but it cannot
be said that they were motivated by any wrongful intent in
Consequently, the following petitioners, having been recruited doing so. As such, we find them guilty of only simple
and supplied by SAPS -- which engaged in labor-only misconduct for assailing the integrity of Promm-Gem as a
contracting -- are considered as the employees of P&G: Arthur legitimate and independent promotion firm. A misconduct
Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham which is not serious or grave, as that existing in the instant
Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao case, cannot be a valid basis for dismissing an employee.
Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr.,
Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Meanwhile, loss of trust and confidence, as a ground for
Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo dismissal, must be based on the willful breach of the trust
Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, reposed in the employee by his employer. Ordinary breach will
Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique not suffice. A breach of trust is willful if it is done intentionally,
F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry knowingly and purposely, without justifiable excuse, as
Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, distinguished from an act done carelessly, thoughtlessly,
Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, heedlessly or inadvertently.
Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr.,
Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Loss of trust and confidence, as a cause for termination of
Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente employment, is premised on the fact that the employee
J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela concerned holds a position of responsibility or of trust and
Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin. confidence. As such, he must be invested with confidence on
delicate matters, such as custody, handling or care and
The following petitioners, having worked under, and been protection of the property and assets of the employer. And, in
dismissed by Promm-Gem, are considered the employees of order to constitute a just cause for dismissal, the act
Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, complained of must be work-related and must show that the
Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, employee is unfit to continue to work for the employer. In the
Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa, instant case, the petitioners-employees of Promm-Gem have
Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., not been shown to be occupying positions of responsibility or
Maximino Pascual, Willie Ortiz, Armando Villar, Jose Fernando of trust and confidence. Neither is there any evidence to show
Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, that they are unfit to continue to work as merchandisers for
Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Promm-Gem.
Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion,
Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb All told, we find no valid cause for the dismissal of petitioners-
Aliviado. employees of Promm-Gem.
Termination of services While Promm-Gem had complied with the procedural aspect
of due process in terminating the employment of petitioners-
We now discuss the issue of whether petitioners were illegally employees, i.e., giving two notices and in between such
dismissed. In cases of regular employment, the employer shall notices, an opportunity for the employees to answer and rebut
not terminate the services of an employee except for a just or the charges against them, it failed to comply with the
authorized cause. 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. Going back to the matter of dismissal, it must be emphasized
Hence, the dismissal is illegal. that the onus probandi to prove the lawfulness of the
dismissal rests with the employer. In termination cases, the
With regard to the petitioners placed with P&G by SAPS, they burden of proof rests upon the employer to show that the
were given no written notice of dismissal. The records show dismissal is for just and valid cause. In the instant case, P&G
that upon receipt by SAPS of P&Gs letter terminating their failed to discharge the burden of proving the legality and
Merchandising Services Contact effective March 11, 1993, validity of the dismissals of those petitioners who are
they in turn verbally informed the concerned petitioners not to considered its employees. Hence, the dismissals necessarily
report for work anymore. The concerned petitioners related were not justified and are therefore illegal.
their dismissal as follows:
Damages
xxxx
We now go to the issue of whether petitioners are entitled to
5. On March 11, 1993, we were called to a meeting at SAPS damages. Moral and exemplary damages are recoverable
office. We were told by Mr. Saturnino A. Ponce that we should where the dismissal of an employee was attended by bad
already stop working immediately because that was the order faith or fraud or constituted an act oppressive to labor or was
of Procter and Gamble. According to him he could not do done in a manner contrary to morals, good customs or public
otherwise because Procter and Gamble was the one paying policy.
us. To prove that Procter and Gamble was the one responsible
in our dismissal, he showed to us the letter dated February 24, With regard to the employees of Promm-Gem, there being no
1993, x x x evidence of bad faith, fraud or any oppressive act on the part
of the latter, we find no support for the award of damages.
February 24, 1993
As for P&G, the records show that it dismissed its employees
Sales and Promotions Services through SAPS in a manner oppressive to labor. The sudden
and peremptory barring of the concerned petitioners from
Armons Bldg., 142 Kamias Road, work, and from admission to the work place, after just a one-
day verbal notice, and for no valid cause bellows oppression
Quezon City and utter disregard of the right to due process of the
concerned petitioners. Hence, an award of moral damages is
Attention: Mr. Saturnino A. Ponce called for.
President & General Manager Attorneys fees may likewise be awarded to the concerned
petitioners who were illegally dismissed in bad faith and were
Gentlemen: compelled to litigate or incur expenses to protect their rights
by reason of the oppressive acts of P&G.
Based on our discussions last 5 and 19 February 1993, this
formally informs you that we will not be renewing our Lastly, under Article 279 of the Labor Code, an employee who
Merchandising Services Contract with your agency. is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other
Please immediately undertake efforts to ensure that your
privileges, inclusive of allowances, and other benefits or their
services to the Company will terminate effective close of
monetary equivalent from the time the compensation was
business hours of 11 March 1993.
withheld up to the time of actual reinstatement. Hence, all the
petitioners, having been illegally dismissed are entitled to
This is without prejudice to whatever obligations you may
reinstatement without loss of seniority rights and with full
have to the company under the abovementioned contract.
back wages and other benefits from the time of their illegal
dismissal up to the time of their actual reinstatement.
Very truly yours,
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.10
the total sum as and for attorneys fees as stated above; and employees recruited, supplied or placed by such
for immediate execution. contractor or subcontractor are performing activities
which are directly related to the main business
PHILIPPINE AIRLINES, INC (PAL) vs. ENRIQUE LIGAN, of the principal;OR
(LIGAN)
G.R. No. 146408, February 29, 2008
(ii) The contractor does not exercise the right to
PRINCIPLES
From the records of the case, it is gathered that the control over the performance of the work of the
contractual employee.
work performed by almost all of the
respondents - loading and unloading of baggage
and cargo of passengers - is directly related to "Substantial capital or investment" and the "right to control"
the main business of petitioner. And the are defined in the same Section 5 of the Department Order as
equipment used by respondents as station follows:
loaders, such as trailers and conveyors, are owned
by petitioner. (element i) "Substantial capital or investment" refers to
capital stocks and subscribed capitalization in the
PAL steadfastly asserted before the Labor Arbiter and case of corporations, tools, equipment, implements,
the NLRC that Synergy has a substantial capital to machineries and work premises, actually and directly
engage in legitimate contracting, it failed to present used by the contractor or subcontractor in the
evidence thereon. (element i) performance or completion of the job, work or
service contracted out.
PAL also claimed that it was Synergy's supervisors
who actually supervised respondents, it failed to The "right to control" shall refer to the right
present evidence thereon. It did not even identify reserved to the person for whom the services of the
who were the Synergy supervisors assigned at the contractual workers are performed, to determine not
workplace. (element ii) only the end to be achieved, but also the manner
and means to be used in reaching that end.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.11
retain so much of the money held on the Agreement as is of petitioner as Synergy would then be a mere agent of
necessary to cover the OWNER's costs and damages, without petitioner in which case respondents would be entitled to all
prejudice to the right of OWNER to seek resort to the bond the benefits granted to petitioner's regular employees;
furnished by CONTRACTOR should the money in OWNER's
otherwise, if Synergy is found to be a legitimate contractor,
possession be insufficient.x x x x (Underscoring supplied)
respondents' claims against petitioner must fail as they
Except for respondent Auxtero, the rest of the would then be considered employees of Synergy.
respondents, who appear to have been assigned by
Synergy to PAL following the execution of the Article 106 of the Labor Code:
Agreement, filed against PAL, Synergy and their
respective officials for underpayment, non-
payment of premium pay for holidays, premium ART. 106. CONTRACTOR OR SUBCONTRACTOR. -
pay for rest days, service incentiveleave Whenever an employer enters into a contract with another
pay, 13th month pay and allowances, and person for the performance of the former's work, the
for regularization of employment status with employees of the contractor and of the latter's subcontractor,
petitioner, they claiming to be "performing duties for if any, shall be paid in accordance with the provisions of this
the benefit of PAL since their job is directly connected Code.
with its business x x x." In the event that the contractor or subcontractor fails
to pay the wages of his employees in accordance with this
Respondent Auxtero had initially filed a complaint Code, the employer shall be jointly and severally liable with
against PAL and Synergy and their respective officials his contractor or subcontractor to such employees to the
for regularization of his employment status. extent of the work performed under the contract, in the same
Later alleging that he was, without valid manner and extent that he is liable to employees directly
ground, verbally dismissed, he filed a employed by him.
complaint against petitioner and Synergy and The Secretary of Labor may, by appropriate
their respective officials for illegal dismissal regulations, restrict or prohibit the contracting out of labor to
and reinstatement with full backwages. protect the rights of workers established under the Code. In so
prohibiting or restricting, he may make appropriate
LA RULING DISMISSED RESPONDENTS distinctions between labor-only contracting and job
COMPLAINTS 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
Labor Arbiter Dominador Almirante found Synergy an
prevent any violation or circumvention of any provision of this
independent contractor and dismissed respondents'
Code.
complaint for regularization against petitioner, but
Legitimate contracting and labor-only contracting are
granted their money claims.
(1) Ordering respondents PAL and Synergy jointly and defined in Department Order (D.O.) No. 18-02, Series of 2002
severally to pay all the complainants herein their 13 thmonth (Rules Implementing Articles 106 to 109 of the Labor Code, as
pay and service incentive leave benefits; amended) as follows (SEE PRINCIPLES):
(3) Ordering respondent Synergy to pay complainant
Benedicto Auxtero a financial assistance.
The rest of the claims are hereby ordered From the records of the case, it is gathered that the
dismissed for lack of merit. work performed by almost all of the
NLRC RULING- SET ASIDE LA RULING respondents - loading and unloading of baggage
and cargo of passengers - is directly related to
the main business of petitioner. And the
1. Declaring respondent Synergy Services
Corporation to be a 'labor-only' contractor; equipment used by respondents as station
2. Ordering respondent Philippine Airlines to loaders, such as trailers and conveyors, are owned
accept, as its regular employees, all the complainants by petitioner.
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 PAL steadfastly asserted before the Labor Arbiter and
employment; the NLRC that Synergy has a substantial capital to
4. Declaring the dismissal of engage in legitimate contracting, it failed to present
complainant Benedicto Auxtero to be illegal and evidence thereon. Neither had respondents shown
ordering his reinstatement as helper or utility man with that SYNERGY has such substantial capital.
respondent Philippine Airlines, with full backwages,
allowances and other benefits and privileges from the time of
his dismissal up to his actual reinstatement; and It was only after the appellate court rendered its
5. Dismissing the appeal of respondent Synergy challenged Decision when petitioner, in its Motion for
Services Corporation, for lack of merit. Reconsideration of the decision, sought to prove, for
the first time, Synergy's substantial capitalization by
CA RULING AFFIRMED NLRC
Only PAL assailed the NLRC decision via petition for attaching photocopies of Synergy's financial
statements, e.g., balance sheets, statements of
certiorari before this Court.
income and retained earnings, marked as "Annexes
'A' - 'A-4.'"
ISSUE
W/N Synergy is a mere job-only contractor or a legitimate
contractor. The control test element under the immediately-quoted
paragraph (ii), which was not present in the old Implementing
SC RULING AFFIRMED CA with MODIFICATION Rules (Department Order No. 10, Series of 1997), echoes the
prevailing jurisprudential trend elevating such element
Petitioner PHILIPPINE AIRLINES, INC. is ordered to: as a primary determinant of employer-employee
(a) accept respondents as its regular employees in
relationship in job contracting agreements.
their same or substantially equivalent positions, and pay
the wages and benefits due them as regular
employees plus salary differential corresponding to the One who claims to be an independent contractor has to
difference between the wages and benefits given them and prove that he contracted to do the work according to
those granted to petitioner's other regular employees of the
his own methods and without being subject to the
same rank; and
(b) pay respondent BENEDICTO AUXTERO salary employer's control except only as to the results.
differential; backwages from the time of his dismissal until
the finality of this decision; and separation pay, in While petitioner claimed that it was Synergy's
lieu of reinstatement, equivalent to one (1) month pay for
supervisors who actually supervised respondents, it
every year of service until the finality of this decision.
failed to present evidence thereon. It did not even
RATIO identify who were the Synergy supervisors assigned
If Synergy is found to be a mere job-only contractor, at the workplace.
respondents could be considered as regular employees
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.12
Even the parties' Agreement does not lend support to Auxtero, having been declared to be a regular employee of
petitioner's claim, thus: petitioner, and found to be illegally dismissed from
employment.
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.
Ruling:
Dear Sir:
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.14
(The instant petition was filed beyond the requested extension employer constitutes res judicata on the same issue in this
period. But SC chose to still decide on this case the greater petition.
interest of justice would be served if this petition is
adjudicated on its merits.) Res Judicata
No, on its merits, SC resolved to deny the petition. Res judicata literally means a matter adjudged; a
The CA correctly found that PAL is not Garcias employer and thing judicially acted upon or decided; a thing or matter
cannot thus be held solidarily liable with Stellar for illegal settled by judgment. It has 2 concepts. The first is bar by
dismissal. prior judgment. This rule dictates that the judgment or
decree of a court of competent jurisdiction on the merits
No employer-employee relationship between PAL and Garcia 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 issue on the existence of an employer-employee The judgment rendered in the first case is an absolute
bar to the subsequent action since said judgment is
relationship between Garcia and PAL has long been resolved
conclusive not only as to the matters offered and
in the case entitled Stellar Employees Association v. Philippine received to sustain that judgment but also as to any other
matter which might have been offered for that
Airlines and Stellar Industrial Services, Inc. In that case, Garcia purpose.
joined other Stellar employees in filing complaints for
The second rule of res judicata is known
regularization, money claims and damages against PAL before
as conclusiveness of judgment. It provides that any right,
the NLRC. The NLRC declared, on September 25, 1996, that no
fact, or matter in issue directly adjudicated or necessarily
employer-employee relationship exists between PAL and the
involved in the determination of an action before a competent
Stellar employees.
court in which a judgment or decree is rendered on the merits
Stellar assigned supervisors and
timekeepers at PALs premises where Stellar is conclusively settled by the judgment therein and cannot
Employees Association (SEA) members
performed their work. On the issue again be litigated between the parties and their privies
of Stellars capitalization, it has an
whether or not the claim or demand, purpose, or subject
authorized capital stock
of P1,000,000.00. Stellar has a collective matter of the two suits is the same. It refers to a situation
bargaining agreement (CBA) with its
employees, including SEA members, under where the judgment in the prior action operates as an
which complainants obtained substantial
estoppel only as to the matters actually determined or
benefits.
which were necessarily included therein.
Stellar is a legitimate independent contractor
One such gauge in determining The fundamental difference between the rule of res
whether one is a labor-only contractor is the
absence of substantial capital (Art. 106 of judicata as a bar by former judgment and as merely a rule on
the Labor Code and Sec. 9, Rule VIII of its the conclusiveness of judgment is that, in the first, there is an
Implementing Rules). In view of Stellars
possession of substantial capital, it cannot identity in the cause of action in both cases involved whereas,
be considered a labor-only contractor.
Stellar is a legitimate independent in the second, the cause of action in the first case is different
contractor. It provides its employees with from that in the second case.
soap, cleansers, mops, lawn mowers,
brooms, and dustpans. It also maintains an
independent business as admittedly shown In this petition, res judicata in the concept of
by its diversified clientele and the
conclusiveness of judgment obtains. The concept is applicable
supervision and control as to the means of
work as provided by its own timekeepers. here as there is identity of parties and subject matter but not
The workers have no contractual First, there is identity of parties between the 2
tie to PAL because Stellar, as a legitimate
cases. Garcia was one of the complainants in the consolidated
independent contractor, is their true
employer. They applied and executed regularization cases and he is also the same party who
employment contracts with Stellar, not PAL.
What cannot be denied, however, is the initiated this action. Second, there is identity of subject
brazen and undisputed fact that Stellar has
matter, defined as the matter or thing with respect to which
a CBA with its employees, including SEA
members. Stellars employees derived the controversy has arisen, concerning which a wrong has
benefits under said CBA for the number of
years it had been in force. The CBA is a been done. It is quite clear that the issue and subject matter
clear admission of an employment
resolved in the consolidated regularization cases is the
relationship with Stellar. It is now too late in
the day for them to deny such relationship. existence of an employer-employee relationship between
Due to the failure to seasonably appeal or question petitioner and PAL. It is also the primordial issue for resolution
the NLRC ruling, its factual and legal findings have attained
in the instant petition.
finality. Consequently, the holding that PAL is not Garcias
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.15
FACTS:
However, identity of causes of action is absent
Tomas Lanting, doing business under the name and
between the 2 cases. Under the rules, a cause of action is
style of Lanting Security and Watchman Agency (LSWA)
defined as an act or omission by which a party violates a right entered into a Security Service Contract to provide security
guards to the properties of the Government Service Insurance
of another. In the regularization cases, the cause of action is System (GSIS) at the contract rate of P3,000.00 per guard per
month. During the effectivity of the contract, LSWA requested
the deprivation of the status of a regular employee, while in
the GSIS for an upward adjustment of the contract rate in
this petition, the cause of action is the dismissal of an view of Section 7 of Wage Order No. 1 and Section 3 of Wage
Order No. 2, which were issued by the Regional Tripartite
employee without just cause under our labor laws. 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
Applying the rule on conclusiveness of judgment to
Board Resolution No. 207 approved the upward adjustments
this case, the parties are now precluded from re-litigating of the contract price from P3,000.00 to P3,716.07 per guard,
per month effective November 1, 1990 to January 7, 1991,
the same issue of the existence of an employment and P4,200.00 effective January 8, 1991 to May 31, 1991.
Res judicata requires that stability be accorded to 1. Daniel Fanila 3/28/91-3/15/93 P3,100/month
judgments. Controversies once decided on the merits shall 2. Virgilio Soriano 10/0/91-3/15/93 P3,100/month
remain in repose for there should be an end to litigation, 3. Hector Moreno 1/04/89-3/15/93 P3,100/month
which, without the doctrine, would be endless.
4. Isauro Torres 11/ /88-3/15/93 P3,100/month
There is the failure of Garcia to attach to the 5. Rubin Wilfredo 3/08/91-3/15/93 P3,100/month
petition and subsequent pleadings, proof of these alleged 6. Jesus Delima, Jr. 3/28/91-3/15/93 P3,100/month
facts of employment relationship. There is a patent lack of 7. Maria Legaspi 3/13/91-3/15/93 P3,100/month
evidence in the records to convince SC that the following
When the GSIS terminated the Security Service
material allegations exist, namely: that Garcias duties were Contract with the LSWA, all complainants, except Virgilio
Soriano, were absorbed by the incoming security agency. They
necessary and desirable to the business of PAL; filed separate complaints against LSWA for underpayment of
wages and non-payment of labor standard benefits, while
that PAL exercised control over the means and methods of his
Virgilio Soriano filed complaint for illegal dismissal. In its
performance at the in-flight kitchen; and that it was PALs Position Paper, LSWA alleged that complainants were
estopped from claiming that they were underpaid because
responsibility to issue rules and regulations regarding they were informed that the pay and benefits given to them
were based on the contract rate of P103.00 per eight hours of
discipline to be followed by Garcia at that department.
work or about P3,100.00 per month. LSWA, on the other hand,
Instead, Garcia merely offered factual assertions, which are filed a third-party complaint against GSIS for underpayment of
complainants wages.
unfortunately not supported by proof or documentary.
GSIS alleged that the Third-Party Complaint states no
cause of action against it; that LSWA obligated itself in the
SC did not accept the claim that Garcia was PALs
Security Service Contract to be solely liable for the
employee based on the pleadings and evidence before enforcement of and compliance with all existing labor laws,
rules and regulations; that the GSIS Board of Trustees
it. Garcia does not deny that he was selected and engaged by approved the upward adjustment on a month-to-month basis,
at P4,200 per guard per month, effective January 8, 1991 to
Stellar when he was assigned to PAL. Moreover, while Garcia
May 31, 1991 which was incorporated in the Security Service
claims that the funds for his salary came from PAL, he did not Contract; that GSIS fully paid the services of the security
guards as agreed upon in the Security Service Contract.
adduce proof to support his allegation. In any event, he
LA RULING:
admits that it was Stellar that paid his wages. The evidence
LA Renato Bugarin ruled in favor of the complainants
further shows that it was Stellar, not PAL, which disciplined
holding that LSWA and GSIS were jointly and severally liable
Garcia. It was Stellar that issued to Garcia various memoranda for the payment of complainants' money claims, pursuant to
Articles 106 and 107 of the Labor Code. Further, ordered
asking for an explanation about his infractions and Garcia LSWA to reinstate Virgilio Soriano without loss seniority rights
and benefits and to pay his backwages.
explained himself to that company, not PAL. In fine, Garcia
recognized the disciplinary authority of Stellar over him, and NLRC RULING:
not that of the air carrier. Petition denied for lack of merit. NLRC modified LA ruling stating that Virgilio Soriano
was not illegally dismissed and is not entitled to reinstatement
GSIS v. NLRC & LANTING 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, it has paid in accordance with the terms of the service
917.00 each; and that GSIS is alone liable for payment of contract between the LSWA and the GSIS.
complainants money claims.
MERALCO INDUSTRIAL ENGINEERING SERVICES
CA RULING: CORPORATION, Petitioner,
vs. NATIONAL LABOR RELATIONS COMMISSION, OFELIA P.
CA modified NLRC ruling and held LA ruling, stating LANDRITO GENERAL SERVICES and/or OFELIA P. LANDRITO,
that LSWA and GSIS were jointly and severally liable for the Respondents.
payment of the complainants money claims in accordance
Principle:
with Articles 106 and 107 of the Labor Code.
An indirect employer (as defined by Article 107) can only be
held solidarily liable with the independent contractor or
ISSUES: subcontractor (as provided under Article 109) in the event
that the latter fails to pay the wages of its employees (as
Whether or not GSIS is solidarily liable for payment of described in Article 106).
complainants money claims.
Facts:
SC RULING: 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
The court affirmed with modification the CA ruling, private respondents. Private respondent Ofelia P. Landrito
stating that the joint and solidary liability of LSWA and the General Services (OPLGS) is a business firm engaged in
GSIS to pay complainants' salary differentials shall be without providing and rendering general services, such as janitorial
prejudice to the GSIS's right of reimbursement from LSWA. and maintenance work to its clients, while private respondent
Ofelia P. Landrito is the Proprietor and General Manager of
The GSIS avers that Articles 106 and 107 of the OPLGS.
Labor Code were not contemplated by its framers to cover
On 7 November 1984, petitioner and private respondents
principals or clients of service contractors who had already
executed Contract Order No. 166-84,4 whereby the latter
paid for the wages of the contractor or subcontractor. Hence, would supply the petitioner janitorial services, which include
it cannot twice be held liable for complainants' salary labor, materials, tools and equipment, as well as supervision
differentials since it would be unjust enrichment on the part of of its assigned employees, at petitioners Rockwell Thermal
complainants and/or LSWA at its expense. Plant in Makati City. Pursuant thereto, private respondents
assigned their 49 employees as janitors to petitioners
LSWA on the other hand, maintains that the GSIS is Rockwell Thermal Plant with a daily wage of P51.50 per
employee.
jointly and severally liable because Articles 106 and 107 of
the Labor Code provide so and these provisions were intended On 20 September 1989, however, the aforesaid 49 employees
to ensure that employees are paid the wages due them in (complainants) lodged a Complaint for illegal deduction,
case of violation of the Labor Code of either the contractor or underpayment, non-payment of overtime pay, legal holiday
the principal. Moreover, GSIS cannot claim that holding it pay, premium pay for holiday and rest day and night
jointly and severally liable with LSWA would result in grave differentials5 against the private respondents before the
injustice since the law did not leave it without recourse as the Labor Arbiter. The case was docketed as NLRC NCR Case No.
00-09-04432-89.
GSIS has the right of reimbursement from its co-debtor under
Article 1217 of the Civil Code. 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
ART. 106. Contractor or subcontractor. Whenever an
January 1990, petitioner sent a letter to private respondents
employer enters into contract with another person for the informing them that effective at the close of business hours
performance of the formers work, the employees of the on 31 January 1990, petitioner was terminating Contract
contractor and of the latters subcontractor, if any, shall be Order No. 166-84. Accordingly, at the end of the business
paid in accordance with the provisions of this Code. hours on 31 January 1990, the complainants were pulled out
from their work at the petitioners Rockwell Thermal Plant.
In the event that the contractor or subcontractor fails Thus, on 27 February 1990, complainants amended their
Complaint to include the charge of illegal dismissal and to
to pay the wage of his employees in accordance with this
implead the petitioner as a party respondent therein.
Code, the employer shall be jointly and severally liable with
his contractor or subcontractor to such employees to the LA
extent of the work performed under the contract, in the same Since the parties failed to settle amicably before the Labor
manner and extent that he is liable to employees directly Arbiter, they submitted their respective position papers and
employed by him. 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
ART. 107 Indirect employer. The provisions of the
petitioner for lack of merit, but ordering the private
immediately preceding Article shall likewise apply to any respondents to pay the complainants the total amount of
person, partnership, association or corporation which, not P487,287.07 representing unpaid wages, separation pay and
being an employer, contracts with an independent contractor overtime pay; as well as attorneys fees in an amount
for the performance of any work, task, job or project. equivalent to 10% of the award or P48,728.70. All other
claims of the complainants against the private respondents
In this case, the GSIS cannot evade liability by were dismissed.
claiming that it had fully paid complainants' salaries by
NLRC
incorporating in the Security Service Contract the salary rate On 28 May 1993, the NLRC issued a Resolution11 affirming
increases. The joint and several liability of the employer or the Decision of the Labor Arbiter dated 26 March 1991 with
principal were enacted to ensure compliance with the the modification that the petitioner was solidarily liable with
provisions of the Code, principally those on statutory the private respondents, ratiocinating thus:
minimum wage. The contractor or subcontractor is made
liable by virtue of his or her status as a direct employer, and We, however, disagree with the dismissal of the case against
[herein petitioner]. Under Art. 107 of the Labor Code of the
the principal as the indirect employer of the contractors
Philippines, [herein petitioner] is considered an indirect
employees. This liability facilitates, if not guarantees, employer and can be held solidarily liable with [private
payment of the workers compensation, thus, giving the respondents] as an independent contractor. Under Art. 109,
workers ample protection as mandated by the 1987 for purposes of determining the extent of its liability, [herein
Constitution. Hence, the Court does not agree with the GSIS's petitioner] is considered a direct employer, hence, it is
claim that a double burden would be imposed upon the latter solidarily liable for complainants (sic) wage differentials and
since it has the right to recover from LSWA whatever amount 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 ART. 109. Solidary Liability. - The provisions of existing laws to
is limited thereto and does not extend to the establishment of the contrary notwithstanding, every employer or indirect
employer-employee relations. employer shall be held responsible with his contractor or
subcontractor for any violation of any provision of this Code.
On 30 July 1993, the NLRC issued an Order noting that based For purposes of determining the extent of their civil liability
on the records of the case, the judgment award in the amount under this Chapter, they shall be considered as direct
of P487,287.07 was secured by a surety bond posted by the employers. [Emphasis supplied].1avvphi1
private respondents; hence, there was no longer any
However, the afore-quoted provision must be read in
impediment to the satisfaction of the complainants claims. conjunction with Articles 106 and 107 of the Labor Code, as
Resultantly, the NLRC denied the private respondents Motion amended.
for Reconsideration. The NLRC likewise directed the Labor
Arbiter to enforce the monetary award against the private Article 107 of the Labor Code, as amended, defines an indirect
respondents surety bond and to determine who should finally employer as "any person, partnership, association or
shoulder the liability therefor. 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
On 5 October 1994, the Labor Arbiter issued an Order, which paid their appropriate wages, Article 106 of the Labor Code,
reads: As can be gleaned from the Resolution dated [28 May as amended, provides:
1993], there is that necessity of clarifying the respective
liabilities of [herein petitioner] and [herein private ART. 106. CONTRACTOR OR SUBCONTRACTOR. x x x.
respondents] insofar as the judgment award in the total sum
of P487,287.07 is concerned. The judgment award in the total In the event that the contractor or subcontractor fails to pay
sum of P487,287.07 as contained in the Decision dated [26 the wages of his employees in accordance with this Code, the
March 1991] consists of three (3) parts, as follows: First, the employer shall be jointly and severally liable with his
judgment award on the underpayment; Second, the judgment contractor or subcontractor to such employees to the extent
award on separation pay; and Third, the judgment award on of the work performed under the contract, in the same
the overtime pay. The question now is: Which of these awards manner and extent that he is liable to employees directly
is [petitioner] solidarily liable with [private respondents]? employed by him. [Emphasis supplied].
NLRC: The complainants may enforce the judgment award on
underpayment and the non-payment of overtime pay against Taken together, an indirect employer (as defined by Article
either [private respondents] and/or [petitioner]. 107) can only be held solidarily liable with the independent
contractor or subcontractor (as provided under Article 109) in
However, in view of the finding in the Decision that the event that the latter fails to pay the wages of its
[petitioner] had adjusted its contract price for the janitorial employees (as described in Article 106).
services it contracted with [private respondents] conforming
to the provisions of Republic Act No. 6727, should the Hence, while it is true that the petitioner was the indirect
complainants enforce the judgment on the underpayment and employer of the complainants, it cannot be held liable in the
on the non-payment of the overtime pay aginst [petitioner], same way as the employer in every respect. The petitioner
the latter can seek reimbursement from the former [meaning may be considered an indirect employer only for purposes of
(private respondents)], but should the judgment award on the unpaid wages.
underpayment and on the non-payment of the overtime pay
be enforced against [private respondents], the latter cannot 2. No, There is no question that private respondents are
seek reimbursement against [petitioner]. operating as an independent contractor and that the
complainants were their employees. There was no employer-
The judgment award on separation pay is the sole liability of employee relationship that existed between the petitioner and
[private respondents]. the complainants and, thus, the former could not have
dismissed the latter from employment. Only private
CA respondents, as the complainants employer, can terminate
Court of Appeals conformably with its ruling in St. Martin their services, and should it be done illegally, be held liable
Funeral Home v. National Labor Relations Commission. the therefor. The only instance when the principal can also be
Court of Appeals rendered the assailed Decision on 24 April held liable with the independent contractor or subcontractor
2000, modifying the Decision of the NLRC dated 30 January for the backwages and separation pay of the latters
1996 and holding the petitioner solidarily liable with the employees is when there is proof that the principal
private respondents for the satisfaction of the laborers conspired with the independent contractor or subcontractor
separation pay. According to the Court of Appeals: The [NLRC] in the illegal dismissal of the employees, thus:
adjudged the payment of separation pay to be the sole
responsibility of [herein private respondents] because (1) The proposition that payment of back wages and separation
there is no employer-employee relationship between [herein pay should be covered by Article 109, which holds an indirect
petitioner] and the forty-nine (49) [therein complainants]; (2) employer solidarily responsible with his contractor or
the payment of separation pay is not a labor standard benefit. subcontractor for "any violation of any provision of this Code,"
We disagree. Art. 109 of LC speaks of "any violation of any would have been tenable if there were proof - there was
provision of this Code." Thus, the existence or non-existence none in this case - that the principal/employer had
of employer-employee relationship and whether or not the conspired with the contractor in the acts giving rise to
violation is one of labor standards is immaterial because said the illegal dismissal.
provision of law does not make any distinction at all and,
therefore, this Court should also refrain from making any It is the established fact of conspiracy that will tie the
distinction. Concomitantly, [herein petitioner] should be jointly principal or indirect employer to the illegal dismissal of the
and severally liable with [private respondents] for the contractor or subcontractors employees. In the present
payment of wage differentials, overtime pay and separation case, there is no allegation, much less proof
pay of the [therein complainants]. The joint and several presented, that the petitioner conspired with private
liability imposed to [petitioner] is, again, without prejudice to respondents in the illegal dismissal of the latters
a claim for reimbursement by [petitioner] against [private employees; hence, it cannot be held liable for the
respondents] for reasons already discusses. same.
Issue: 3. No, although the issue in CA-G.R. SP No. 50806 pertains to
1. WON the petitioner should be solidary liable with private respondents right to reimbursement from petitioner
respondent for separation pay. for the "monetary awards" in favor of the complainants, they
2. WON there was conspiracy between petitioner and limited their arguments to the monetary awards for
Respondent for illegal dismissal of the complainant underpayment of wages and non-payment of overtime
3. WON the respondent can reimburse from the pay, and were conspicuously silent on the monetary
petitioner monetary claim and separation pay award for separation pay. Thus, private respondents sole
4. WON the respondent can recover from the petitioner liability for the separation pay of their employees should have
the amount of surety bond. been deemed settled and already beyond the power of the
Court of Appeals to resolve, since it was an issue never raised
Ruling before it.
1. NO, the appellate court used as basis Article 109 of the
Labor Code, as amended, in holding the petitioner solidarily Although petitioner is not liable for complainants separation
liable with the private respondents for the payment of pay, the Court conforms to the consistent findings in the
separation pay: 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 Labor Arbiter Ernesto F. Carreon declared petitioners to be
for underpayment of wages and non-payment of regular employees of Shangri-la. The Arbiter thus ordered
overtime pay. Shangri-la to grant them the wages and benefits due them as
regular employees from the time their services were engaged.
4. No, private respondents had already posted a surety bond
in an amount sufficient to cover all the judgment awards due NLRC Ruling:
the complainants, including those for underpayment of wages
and non-payment of overtime pay. The joint and several NLRC granted Shangri-las and respondent doctors appeal
liability of the principal with the contractor and subcontractor and dismissed petitioners complaint for lack of merit, it
were enacted to ensure compliance with the provisions of the finding that no employer-employee relationship exists
Labor Code, principally those on statutory minimum wage. between petitioner and Shangri-la. In so deciding, the NLRC
This liability facilitates, if not guarantees, payment of the held that the Arbiter erred in interpreting Article 157 in
workers compensation, thus, giving the workers ample relation to Article 280 of the Labor Code, as what is required
protection as mandated by the 1987 Constitution. With under Article 157 is that the employer should provide the
private respondents surety bond, it can therefore be services of medical personnel to its employees, but nowhere
said that the purpose of the Labor Code provision on in said article is a provision that nurses are required to be
the solidary liability of the indirect employer is already employed.
accomplished since the interest of the complainants
are already adequately protected. Consequently, it will be CA Ruling:
futile to continuously hold the petitioner jointly and solidarily
liable with the private respondents for the judgment awards Court of Appeals affirmed the NLRC Decision that no
for underpayment of wages and non-payment of overtime employer-employee relationship exists between Shangri-la
pay. and petitioners. The appellate court concluded that all aspects
of the employment of petitioners being under the supervision
But while this Court had previously ruled that the indirect and control of respondent doctor and since Shangri-la is not
employer can recover whatever amount it had paid to the principally engaged in the business of providing medical or
employees in accordance with the terms of the service healthcare services, petitioners could not be regarded as
contract between itself and the contractor, the said ruling regular employees of Shangri-la.
cannot be applied in reverse to this case as to allow
the private respondents (the independent contractor), ISSUES:
who paid for the judgment awards in full, to recover
from the petitioner (the indirect employer). 1. Whether or not Article 157 of the Labor Code make it
JEROMIE D. ESCASINAS and EVAN RIGOR SINGCO, mandatory for covered establishment to employ health
Petitioners, personnel; and
vs.
SHANGRI-LA'S MACTAN ISLAND RESORT and DR. 2. Whether or not there exists an employer-employee
JESSICA J.R. PEPITO, Respondents relationship between Shangri-la and petitioners.
PRINCIPLE: SC Ruling:
The existence of an independent and permissible contractor The Court holds that, contrary to petitioners postulation, Art.
relationship is generally established by considering the 157 does not require the engagement of full-time nurses as
following determinants: whether the contractor is carrying on regular employees of a company employing not less than 50
an independent business; the nature and extent of the work; workers. Thus, the Article provides:
the skill required; the term and duration of the relationship;
the right to assign the performance of a specified piece of ART. 157. Emergency medical and dental services. It shall be
work; the control and supervision of the work to another; the the duty of every employer to furnish his employees in any
employer's power with respect to the hiring, firing and locality with free medical and dental attendance and facilities
payment of the contractor's workers; the control of the consisting of:
premises; the duty to supply the premises, tools, appliances,
materials and labor; and the mode, manner and terms of (a) The services of a full-time registered nurse when the
payment. number of employees exceeds fifty (50) but not more than
two hundred (200) except when the employer does not
On the other hand, existence of an employer- employee maintain hazardous workplaces, in which case the services of
relationship is established by the presence of the following a graduate first-aider shall be provided for the protection of
determinants: (1) the selection and engagement of the the workers, where no registered nurse is available. The
workers; (2) power of dismissal; (3) the payment of wages by Secretary of Labor shall provide by appropriate regulations
whatever means; and (4) the power to control the worker's the services that shall be required where the number of
conduct, with the latter assuming primacy in the overall employees does not exceed fifty (50) and shall determine by
consideration. appropriate order hazardous workplaces for purposes of this
Article;
FACTS:
(b) The services of a full-time registered nurse, a part-time
Registered nurses Jeromie D. Escasinas and Evan Rigor Singco physician and dentist, and an emergency clinic, when the
(petitioners) were engaged in 1999 and 1996, respectively, by number of employees exceeds two hundred (200) but not
Dr. Jessica Joyce R. Pepito (respondent doctor) to work in her more than three hundred (300); and
clinic at respondent Shangri-las Mactan Island Resort
(Shangri-la) in Cebu of which she was a retained physician. (c) The services of a full-time physician, dentist and full-time
registered nurse as well as a dental clinic, and an infirmary or
In late 2002, petitioners filed with the National Labor Relations emergency hospital with one bed capacity for every one
Commission (NLRC) Regional Arbitration Branch No. VII (NLRC- hundred (100) employees when the number of employees
RAB No. VII) a complaint1 for regularization, underpayment of exceeds three hundred (300).
wages, non-payment of holiday pay, night shift differential
and 13th month pay differential against respondents, claiming Under the foregoing provision, Shangri-la, which employs
that they are regular employees of Shangri-la. The case was more than 200 workers, is mandated to "furnish" its
docketed as RAB Case No. 07-11-2089-02. employees with the services of a full-time registered nurse, a
part-time physician and dentist, and an emergency clinic
Shangri-la claimed, however, that petitioners were not its which means that it should provide or make available such
employees but of respondent doctor whom it retained via medical and allied services to its employees, not necessarily
Memorandum of Agreement (MOA)2 pursuant to Article 157 of to hire or employ a service provider. As held in Philippine
the Labor Code, as amended. Global Communications vs. De Vera:
Respondent doctor for her part claimed that petitioners were x x x while it is true that the provision requires employers to
already working for the previous retained physicians of engage the services of medical practitioners in certain
Shangri-la before she was retained by Shangri-la; and that she establishments depending on the number of their employees,
maintained petitioners services upon their request. nothing is there in the law which says that medical
practitioners so engaged be actually hired as employees,
LA Ruling: 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) workers; (2) power of dismissal; (3) the payment of wages by
hours. whatever means; and (4) the power to control the worker's
conduct, with the latter assuming primacy in the overall
The term "full-time" in Art. 157 cannot be construed as consideration.
referring to the type of employment of the person engaged to
provide the services, for Article 157 must not be read Against the above-listed determinants, the Court holds that
alongside Art. 280 in order to vest employer-employee respondent doctor is a legitimate independent contractor.
relationship on the employer and the person so engaged. So That Shangri-la provides the clinic premises and medical
De Vera teaches: supplies for use of its employees and guests does not
necessarily prove that respondent doctor lacks substantial
x x x For, we take it that any agreement may provide that one capital and investment. Besides, the maintenance of a clinic
party shall render services for and in behalf of another, no and provision of medical services to its employees is required
matter how necessary for the latters business, even without under Art. 157, which are not directly related to Shangri-las
being hired as an employee. This set-up is precisely true in principal business operation of hotels and restaurants.
the case of an independent contractorship as well as in an
agency agreement. Indeed, Article 280 of the Labor Code, As to payment of wages, respondent doctor is the one who
quoted by the appellate court, is not the yardstick for underwrites the following: salaries, SSS contributions and
determining the existence of an employment relationship. As other benefits of the staff13; group life, group personal
it is, the provision merely distinguishes between two (2) kinds accident insurance and life/death insurance14 for the staff
of employees, i.e., regular and casual. with minimum benefit payable at 12 times the employees
last drawn salary, as well as value added taxes and
The phrase "services of a full-time registered nurse" should withholding taxes, sourced from her P60,000.00 monthly
thus be taken to refer to the kind of services that the nurse retainer fee and 70% share of the service charges from
will render in the companys premises and to its employees, Shangri-las guests who avail of the clinic services. It is
not the manner of his engagement. unlikely that respondent doctor would report petitioners as
workers, pay their SSS premium as well as their wages if they
As to whether respondent doctor can be considered a were not indeed her employees.
legitimate independent contractor, the pertinent sections of
DOLE Department Order No. 10, series of 1997, illuminate: With respect to the supervision and control of the nurses and
clinic staff, it is not disputed that a document, "Clinic Policies
Sec. 8. Job contracting. There is job contracting permissible and Employee Manual" claimed to have been prepared by
under the Code if the following conditions are met: respondent doctor exists, to which petitioners gave their
conformity and in which they acknowledged their co-terminus
(1) The contractor carries on an independent business and employment status. It is thus presumed that said document,
undertakes the contract work on his own account under his and not the employee manual being followed by Shangri-las
own responsibility according to his own manner and method, regular workers, governs how they perform their respective
free from the control and direction of his employer or principal tasks and responsibilities.
in all matters connected with the performance of the work
except as to the results thereof; and WHEREFORE, the petition is hereby DENIED.
ILIGAN CEMENT CORPORATION V. ILIASCOR EMPLOYEES
(2) The contractor has substantial capital or investment in the AND WORKERS UNION SOUTHERN PHILIPPINES
form of tools, equipment, machineries, work premises, and FEDERATION OF LABOR (IEWU-SPFL)
other materials which are necessary in the conduct of his G.R. No. 158956 | April 24, 2009 | J. Leonardo-De Castro
business.
Facts:
Sec. 9. Labor-only contracting. (a) Any person who
undertakes to supply workers to an employer shall be deemed Petitioner Iligant Cement Corp. (ICC) is a Philippine
to be engaged in labor-only contracting where such person: corporation with plant offices at Kiwalan, Iligan City. It filed a
petition for review on certiorari under Rule 45 of the ROC,
(1) Does not have substantial capital or investment in the assailing the twin resolutions of CA, which dismissed the
form of tools, equipment, machineries, work premises and petition for certiorari and denied petitioners MR respectively.
other materials; and ILIASCOR is ICCs accredited job contractor which provided
stevedoring and arrastre services since the 1970s at its
(2) The workers recruited and placed by such persons are private pier.
performing activities which are directly related to the principal Respondent ILIASCOR Employees and Workers Union (IEWU-
business or operations of the employer in which workers are SPFL) is the certified bargaining representative of ILIASCORs
habitually employed. arrastre and stevedoring workers, including herein individual
respondents.
(b) Labor-only contracting as defined herein is hereby Vedali is an accredited service agency, which provided
prohibited and the person acting as contractor shall be general services to petitioners various departments.
considered merely as an agent or intermediary of the On November 11, 1999, Blue Circle took over the
employer who shall be responsible to the workers in the same management of ICCs business and decided to bid out the
manner and extent as if the latter were directly employed by services at the latters private pier. IEWU-SPFL asked that the
him. employment of ILIASCOR workers be continued however, VP
for Operations Peter Brinkley denied the request as the
(c) For cases not falling under this Article, the Secretary of ILIASCOR contract had already expired.
Labor shall determine through appropriate orders whether or ILIASCOR lost the bidding to LVMASI, which prompted the
not the contracting out of labor is permissible in the light of former to pay the individual respondents their separation pay
the circumstances of each case and after considering the of month for every year of service, contrary to the CBA,
operating needs of the employer and the rights of the workers which provided for 1 month pay for every year.
involved. In such case, he may prescribe conditions and The LVMASI contract did not push through, so ICC issued a
restrictions to insure the protection and welfare of the service order to Vedali, which supplied the company with
workers. (Emphasis supplied) stevedores, including herein respondents. ICCs Packhouse
Mananager Alex Sagario readily engaged the stevedores.
The existence of an independent and permissible contractor The individual respondents filed a complaint with NLRC
relationship is generally established by considering the against ICC and demanded for the declaration of their status
following determinants: whether the contractor is carrying on as regular employees and payment of the half of their
an independent business; the nature and extent of the work; separation pay which ILIASCOR withheld.
the skill required; the term and duration of the relationship; ICC entered into a stevedoring and arrastre contract with
the right to assign the performance of a specified piece of NMIPSC, which took over the stevedoring duties of the
work; the control and supervision of the work to another; the individual respondents, prompting the individual respondents
employer's power with respect to the hiring, firing and to file a Supplemental Complaint for illegal dismissal.
payment of the contractor's workers; the control of the The Labor Arbiter dismissed the complaint for lack of merit,
premises; the duty to supply the premises, tools, appliances, claiming that ICC is not liable to pay the unpaid portion of
materials and labor; and the mode, manner and terms of separation pay because it is not the employer of the workers.
payment. ICC is merely the principal; ILIASCOR, the independent
contractor, is the employer of the individual complainants.
On the other hand, existence of an employer- employee On appeal, NLRC reversed the Labor Arbiters decision and
relationship is established by the presence of the following declared, among others, that respondents are regular
determinants: (1) the selection and engagement of the 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:
VALLUM SECURITY SERVICES and BAGUIO LEISURE
W/N the petitioner is the employer of the individual
respondents CORPORATION (HYATT TERRACES BAGUIO),petitioners,
W/N the individual respondents were illegally dismissed vs.
Held: THE NATIONAL LABOR RELATIONS COMMISSION,
1. Yes. In determining the true status of Vedali viz-a-viz the et.al(private respondents security guards)respondents.
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 Principle: Labor contracting establishment of
where the contractor or subcontractor merely recruits, employer-employee relationship
supplies or places workers to perform a job, work or service
for a principal. In labor-only contracting, the following
On 1 September 1986, petitioner Baguio Leisure Corporation
elements are present:
(a) The contractor or subcontractor does not have substantial (Hyatt Terraces Baguio) ("Hyatt Baguio") and petitioner Vallum
capital or investment to actually perform the job, work or Security Services ("Vallum") entered into a contract for
service under its own account and responsibility; and security services under the terms of which Vallum agreed to
(b) The employees recruited, supplied or placed by such protect the properties and premises of Hyatt Baguio by
contractor or subcontractor are performing activities which providing fifty (50) security guards, on a 24-hour basis, a day.
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 On 1 June 1988, Heinrich L. Maulbecker, Hyatt Baguio's
agrees to put out or farm out with a contractor or General Manager, wrote to Domingo A. Inocentes, President of
subcontractor the performance or completion of a specific job, Vallum advising that effective 1 July 1988, the contract of
work or service within a definite or predetermined period, security services would be terminated.
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 Vallum informed Mr. Maulbecker, on 22 June 1988, that it was
contracting or subcontracting if the following conditions agreeable to the termination of the contract.
concur:
(a) The contractor or subcontractor carries on a distinct and
independent business and undertakes to perform the job, On 30 June 1988, private respondents, who were security
work or service on its own account and under its own guards provided by Vallum to Hyatt Baguio, were informed by
responsibility according to its own manner and method, and Vallum's Personnel Officer that the contract between the two
free from the control and direction of the principal in all (2) had already expired. Private respondents were directed to
matters connected with the performance of the work except report to Vallum's head office at Sucat Road, in Muntinlupa,
as to the results thereof;
Metropolitan Manila, not later than 15 July 1988 for re-
(b) The contractor or subcontractor has substantial capital or
investment; and assignment. They were also told that failure to report at Sucat
would be taken to mean that they were no longer interested in
(c) The agreement between the principal and contractor or being re-assigned to some other client of Vallum.
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, None of the private respondents reported at Sucat for re-
and social and welfare benefits. assignment. Instead, between July and September 1988,
Petitioner failed to present any service contract with Vedali in private respondents filed several complaints against
the proceedings with the Labor Arbiter. There is nothing on petitioners in the National Labor Relations Commission's
record that Vedali has a substantial capital or investment to Office ("NLRC") in Baguio City for illegal dismissal and unfair
actually perform the service under its own account and labor practices; for violation of labor standards relating to
responsibility. Petitioner only attached to its petition with the
underpayment of wages, premium holiday and restday pay,
CA Vedalis Certificate of Registration and Business permit,
which merely pertain to the registration of Vedali with the SEC uniform allowances and meal allowances. They prayed for
as engaged in Construction and General Services. reinstatement with full backwages. The several cases were
In a labor-only contract, there are three parties involved: (1) consolidated together.
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 LA Ruling:
this scheme, the labor-only contractor is the agent of the
principal. Here, Vedali is the labor-only contractor; individual Dismissed the complaints. LA found Vallum to be an
respondents are the employees and petitioner is the principal.
independent contractor and, consequently, declined to hold
The law makes the principal responsible to the employees of
the labor-only contractor as if the principal itself directly Hyatt Baguio liable for dismissal of private respondents. He
hired or employed the employees. also held that the termination of services of private
Taking into consideration the factual milieu of this case, the respondents by Vallum did not constitute an unfair labor
Court agrees with the conclusion of the NLRC that petitioner practice, considering that such termination had been brought
and not Vedali, is the employer of individual respondents and about by lack of work. Furthermore, the Labor Arbiter held
the latter are employees of petitioner. Individual respondents that private respondents were not entitled to backwages or
work as stock-pilers, arrastre and stevedores were
separation pay, in line with the "no work, no pay" principle.
undoubtedly directly related to and in pursuit of the cement
manufacturing and sales business of petitioner. Petitioners Lastly, he found no violation of the labor standard provisions
packing plant operations would have been hampered were it on payment of wages and other employee benefits. 1
not for the work rendered by individual respondents.
2. Yes. Under the Labor Code, as amended, the requirements
NLRC Ruling:
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 On appeal, NLRC reversed LA decision. Reinstate to their
dismissal of petitioner was for a cause allowed under the law former positions with full backwages limited to one (1) year.
and that petitioner was afforded procedural due process. Otherwise to pay jointly and severally to pay complainants, in
Petitioner failed to discharge this burden. Indeed, it failed to
lieu of reinstatement, separation pay equal to one (1) month
show any valid or authorized cause under the Labor Code
which allowed it to terminate the services of individual per year of service. Service of six month shall be considered a
respondents. Neither did petitioner show that individual year for the purpose of the same.Vallum and Hyatt moved for
respondents were given ample opportunity to contest the reconsideration, without success.
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 Issue: Whether or not private respondent security guards are
compliance with the requirements on termination of indeed employees of petitioner Hyatt Baguio.
employment under the Labor Code, the dismissal of individual
respondents was tainted with illegality.
SC Ruling:
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.21
In determining E-E relationship: supervision with Vallum over the security guards, if indeed
Vallum was not functioning merely as an alter ego of Hyatt
1. the selection and engagement of the employee;. Baguio in respect of the operations of the security guards. In
2. the payment of wages; the ordinary course of business, security guard agencies are
3. the power of dismissal; and engaged because of their specialized capabilities in the
4. the power to control the employees' conduct. 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
Control of the employees' conduct is commonly
bar, the functions performed by Hyatt Baguio's Chief Security
regarded as the most crucial and determinative
Officer were precisely the duties which the head
indicator of the presence or absence of an employer-
employee relationship.
The thrust of the foregoing discussion, however, is that the
relationship between Vallum and Hyatt Baguio as actually
1st Element: the records here show that private respondents
conducted departed significantly from the formal written
filled up Hyatt employment application forms and submitted
terms of their agreement. It is to us self-evident that the
the executed forms directly to the Security Department of
characterization in law of such relationship cannot
Hyatt Baguio. It appears that these executed application forms
conclusively be made in terms alone of the written
were returned to the respective applicants; nonetheless,
agreement which constitutes but one factor out of
however, a few days after the applications to Hyatt Baguio
many that the Court must take into account but
were submitted, Vallum sent letters of acceptance to private
must rest upon an examination of the detailed facts of
respondents. Petitioners do not deny that private respondent
such relationship in the world of time and space.
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 We find no basis for overturning the conclusions reached by
understandable, does not negate the fact that the process of the NLRC that Vallum, in the specific circumstances of this
selection and engagement of private respondents had been case, was not an independent contractor but was, rather, a
carried out in Hyatt Baguio and subject to the scrutiny of "labor-only" contracor. Section 9 of Rule VII of Book III entitled
officers and employees of Hyatt Baguio. "Conditions of Employment" of the Omnibus Rules
Implementing the Labor Code provides as follows:
2nd element: private respondents submitted in evidence four
hundred twenty-three (423) pay slips which bore Hyatt Sec. 9. Labor-only contracting. (a) Any person who
Baguio's logo, it showed that it was Hyatt Baguio which paid undertakes to supply workers to an employer
their wages directly and that Hyatt Baguio deducted shall be deemed to be engaged in labor-only
therefrom the necessary amounts for SSS premiums, internal contracting where such person:
revenue withholding taxes, and medicare contributions. The
Labor Arbiter had found that a separate payroll was (1) Does not have substantial capital or investment
maintained for Vallum by Hyatt Baguio; the NLRC, however, in the form of tools, equipment, machineries,
held that this finding had no factual basis, and we are work premises and other materials; and
compelled to agree with this finding. It is true that a
subsequent agreement (10 September 1986) between Vallum
(2) The workers recruited and placed by such person
and Hyatt Baguio had provided that Vallum authorizes Hyatt
are performing activities which are directly
to pay the guards directly. But it doesnt dissolve the
related to the principal business or operations
relevance of such direct payment as an indicator of an
of the employer in which workers are habitually
employer-employee relationship between Hyatt Baguio and
employed.
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 (b) Labor-only contracting as defined herein is hereby
Baguio discharged a function which was properly a prohibited and the person acting as contractor
function of the employer. shall be considered merely as an agent or
intermediary of the employer who shall be
responsible to the workers in the same manner
3rd element: the contract provided that upon loss of
and extent as if the latter were directly
confidence on the part of Hyatt Baguio vis-a-vis any security
employed by him.
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 xxx xxx xxx
between petitioners, the NLRC found that, in operative fact, it
was Hyatt Baguio's Chief Security Officer Sec. 8. Job contracting. There is job contracting
who exercised the power of enforcing disciplinary measures permissible under the Code if the following
over the security guards. In the matter of termination of conditions are met:
services of particular security guards, Hyatt Baguio had
merely used Vallum as a channel to implement its decisions,
(1) The contractor carries on an independent
much as it had done in the process of selection and
business and undertakes the contract work on
recruitment of the guards.
his own account under his own responsibility
according his own manner and method, free
Coming then to the location of the power of control over the from the control and direction of his employer or
activities of the security guards, the following factors lead us principal in all matters connected with the
to the conclusion that power was effectively located in Hyatt performance of the work except as to results
Baguio rather than in Vallum: assignment, promotions, thereof; and
disciplinary actions and recognition of the guards were subject
to Hyatts Chief Security.
(2) The contractor has substantial capital or
investment in the form of tools, equipment,
4th element: orders received by private respondent security machineries, work premises, and other materials
guards were set forth on paper bearing the letterheads which are necessary in the conduct of his
of both Hyatt Baguio and Vallum. It appears to us, therefore, business.
that Hyatt Baguio explicitly purported, at the very least,
to share with Vallum the exercise of the power of control and
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 wages, and supervised their work, as proven by: (1) their
office in Baguio City and that Hyatt Baguio provided Vallum Personal Data Files in the records of Interserve; (2) their
with offices at Hyatt's own premises and allowed Vallum to Contract of Temporary Employment with Interserve; and (3)
the payroll records of Interserve.
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 Coke, thus, sought the dismissal of the complaint against it on
the ground that the Labor Arbiter did not acquire jurisdiction
directly to them and that Hyatt had used its own corporate
over the same in the absence of an employer-employee
forms and pay slips in doing so. The security guards were relationship between Coke and Agito et al.
clearly performing activities directly related to the business
operations of Hyatt Baguio, since the undertaking to LA Ruling/Ratio: The Labor Arbiter found that Agito et al.
safeguard the person and belongings of hotel guests is one of were employees of Interserve and not of Coke. She reasoned
the obligations of a hotel vis-a-vis its guests and the general that the standard put forth in Article 280 of the Labor Code for
determining regular employment (i.e., that the employee is
public.
performing activities that are necessary and desirable in the
usual business of the employer) was not determinative of the
Where labor-only contracting exists in a given case, the law issue of whether an employer-employee relationship existed
itself implies or establishes an employer-employee between the parties. While Agito et al. performed activities
relationship between the employer (the owner of the project that were necessary and desirable in the usual business or
trade of Coke, the LA underscored that their functions were
or establishment) (here, Hyatt Baguio) and the employees of
not indispensable to the principal business of Coke, which was
the labor-only contractor (here, Vallum) to prevent any manufacturing and bottling soft drink beverages and similar
violation or circumvention of provisions of the Labor Code. 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
The issue of illegal dismissal need not detain us for long. It
as of 31 December 2001. It was Interserve that kept and
has not been alleged by petitioners that a just or authorized maintained Agito et al.s employee records, including their
cause for terminating private respondents' services had Personal Data Sheets; Contracts of Employment; and
existed. And even if such lawful cause existed, it is not alleged remittances to the SSS, Medicare and Pag-ibig Fund, thus,
that private respondents' rights to procedural due process in further supporting the LAs finding that Agito et al. were
that connection had been appropriately observed. 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
We conclude that petitioners have not shown any grave abuse employees. Nevertheless, the LA directed Interserve to pay
of discretion or any act without or any in excess of jurisdiction Agito et al. their pro-rated 13th month benefits for the period
on the part of the National Labor Relations Commission in of January 2002 until April 2002.
rendering its Resolutions dated 31 July 1990 and 31 January
Aggrieved, Agito et al. filed an appeal with the NLRC. They
1991.
maintained that contrary to the finding of the LA, their work
was indispensable to the principal business of Coke. They
WHEREFORE, premises considered, the Petition supported their claim with copies of the Delivery Agreement
for Certiorari is hereby DISMISSED for lack of merit. Costs between Coke and TRMD Incorporated, stating that Coke was
against petitioners. 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.
COCA-COLA BOTTLERS PHILS., INC., Coke, v. ALAN M. AGITO, Moreover, Coke supplied the tools and equipment used by
REGOLO S. OCA III, ERNESTO G. ALARIAO, JR., ALFONSO PAA, Agito et al. in their jobs such as forklifts, pallet, etc. They were
JR., DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO, also required to work in the warehouses, sales offices, and
and EDWIN M. GOLEZ, Respondents. plants of Coke. They pointed out that, in contrast, Interserve
G.R. No. 179546 February 13, 2009 did not own trucks, pallets cartillas, or any other equipment
Justice Chico-Nazario necessary in the sale of Coca-Cola products.
Facts: Coke is a domestic corporation duly registered with the They further averred that Coke exercised control over workers
SEC and engaged in manufacturing, bottling and distributing supplied by various contractors. They cited as an example the
soft drink beverages and other allied products. On 15 April case of Raul Arenajo (Arenajo), who, just like them, worked for
2002, Agito et al. filed before the NLRC two complaints Coke, but was made to appear as an employee of the
against Coke, Interserve, Peerless Integrated Services, Inc. contractor Peerless Integrated Services, Inc. As proof of
(Interserve), Better Builders, Inc., and Excellent Partners, Inc. control by Coke, Agito et al. submitted copies of: (1) a
for reinstatement with backwages, regularization, Memorandum dated 11 August 1998 issued by Vicente Dy
nonpayment of 13th month pay, and damages. The two cases (Dy), a supervisor of Coke, addressed to Arenajo, suspending
were consolidated. Agito et al. alleged that they were the latter from work until he explained his disrespectful acts
salesmen assigned at the Lagro Sales Office of Coke. They toward the supervisor who caught him sleeping during work
had been in the employ of Coke for years, but were not hours; (2) a Memorandum dated 12 August 1998 again issued
regularized. Their employment was terminated on 8 April by Dy to Arenajo, informing the latter that the company had
2002 without just cause and due process. However, they taken a more lenient and tolerant position regarding his
failed to state the reason/s for filing a complaint against offense despite having found cause for his dismissal; (3)
Interserve; Peerless Integrated Services, Inc.; Better Builders, Memorandum issued by Dy to the personnel of Peerless
Inc.; and Excellent Partners, Inc. Integrated Services, Inc., requiring the latter to present their
timely request for leave or medical certificates for their
Coke averred that Agito et al. were employees of Interserve absences; (4) Personnel Workers Schedules, prepared by RB
who were tasked to perform contracted services in Chua, another supervisor of Coke; (5) Daily Sales Monitoring
accordance with the provisions of the Contract of Services Report prepared by Coke; and (6) the Conventional Route
executed between Coke and Interserve on 23 March 2002. System Proposed Set-up of Coke.
Said Contract between Coke and Interserve, covering the
period of 1 April 2002 to 30 September 2002, constituted NLRC Ruling/Ratio: The NLRC affirmed the LAs Decision and
legitimate job contracting, given that the Interserve was a pronounced that no employer-employee relationship existed
bona fide independent contractor with substantial capital or between Coke and Agito et al. It reiterated the findings of the
investment in the form of tools, equipment, and machinery LA that Interserve was an independent contractor as
necessary in the conduct of its business. To prove the status evidenced by its substantial assets and registration with the
of Interserve as an independent contractor, Coke presented DOLE. In addition, it was Interserve which hired and paid Agito
the following pieces of evidence: (1) the Articles of et al. wages, as well as paid and remitted their SSS, Medicare,
Incorporation of Interserve; (2) the Certificate of Registration and Pag-ibig contributions. They likewise failed to convince
of Interserve with the Bureau of Internal Revenue; (3) the the NLRC that the instructions issued and trainings conducted
Income Tax Return, with Audited Financial Statements, of by Coke proved that Coke exercised control over Agito et al.
Interserve for 2001; and (4) the Certificate of Registration of as their employer.
Interserve as an independent job contractor, issued by DOLE.
Aggrieved once more, Agito et al. sought recourse with the
Court of Appeals.
As a result, Coke asserted that Agito et al. were employees of
Interserve, since it was the latter which hired them, paid their
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.23
CA Ruling: CA reversed the NLRC Resolution and ruled that On the other hand, labor-only contracting is an arrangement
Interserve was a labor-only contractor, with insufficient capital wherein the contractor merely acts as an agent in recruiting
and investments for the services which it was contracted to and supplying the principal employer with workers for the
perform. With only P510,000.00 invested in its service purpose of circumventing labor law provisions setting down
vehicles and P200,000.00 in its machineries and equipment, the rights of employees. It is not condoned by law. A finding
Interserve would be hard-pressed to meet the demands of by the appropriate authorities that a contractor is a labor-only
daily soft drink deliveries of Coke in the Lagro area. The Court contractor establishes an employer-employee relationship
Appeals concluded that the respondents used the equipment, between the principal employer and the contractors
tools, and facilities of Coke in the day-to-day sales operations. employees and the former becomes solidarily liable for all the
Additionally, the CA determined that Coke had effective rightful claims of the employees.
control over the means and method of Agito et al. work as
evidenced by the Daily Sales Monitoring Report, the Section 5 of the Rules Implementing Articles 106-109 of the
Conventional Route System Proposed Set-up, and the Labor Code, as amended, provides the guidelines in
memoranda issued by the supervisor of Coke addressed to determining whether labor-only contracting exists:
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, Section 5. Prohibition against labor-only contracting.
carried out functions directly related and necessary to the Labor-only contracting is hereby declared prohibited.
main business of Coke. The appellate court finally noted that For this purpose, labor-only contracting shall refer to
certain provisions of the Contract of Service between Coke an arrangement where the contractor or
and Interserve suggested that the latters undertaking did not subcontractor merely recruits, supplies, or places
involve a specific job, but rather the supply of manpower. workers to perform a job, work or service for a
principal, and any of the following elements are
Issue/s: Whether Interserve is a legitimate job contractor [is] present:
SC Ruling/Ratio: The relations which may arise in a i) The contractor or subcontractor does
situation, where there is an employer, a contractor, and not have substantial capital or investment which
employees of the contractor, are identified and distinguished relates to the job, work, or service to be performed
under Article 106 of the Labor Code: and the employees recruited, supplied or placed by
Article 106. Contractor or subcontractor. - Whenever such contractor or subcontractor are performing
an employer enters into a contract with another activities which are directly related to the main
person for the performance of the formers work, the business of the principal; or
employees of the contractor and of the latters
subcontractor, if any, shall be paid in accordance
ii) The contractor does not exercise the
with the provisions of this Code.
right to control the performance of the work of the
contractual employee.
In the event that the contractor or subcontractor fails
to pay the wages of his employees in accordance
The foregoing provisions shall be without prejudice
with this Code, the employer shall be jointly and
to the application of Article 248(C) of the Labor Code,
severally liable with his contractor or subcontractor
as amended.
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 Substantial capital or investment refers to capital
employed by him. stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements,
machineries and work premises, actually and directly
The Secretary of Labor may, by appropriate
used by the contractor or subcontractor in the
regulations, restrict or prohibit the contracting out of
performance or completion of the job, work, or
labor to protect the rights of workers established
service contracted out.
under this Code. In so prohibiting or restriction, he
may make appropriate distinctions between labor-
only contracting and job contracting as well as The right to control shall refer to the right reversed
differentiations within these types of contracting and to the person for whom the services of the
determine who among the parties involved shall be contractual workers are performed, to determine not
considered the employer for purposes of this Code, only the end to be achieved, but also the manner
to prevent any violation or circumvention of any and means to be used in reaching that end.
provision of this Code. (Emphasis supplied.)
The afore-quoted provision recognizes two possible relations The principal shall be deemed the employer of the
among the parties: (1) the permitted legitimate job contract, contractual employee in any of the following case, as
or (2) the prohibited labor-only contracting. declared by a competent authority:
A legitimate job contract, wherein an employer enters into a a. where there is labor-only contracting;
contract with a job contractor for the performance of the or
formers work, is permitted by law. Thus, the employer- b. where the contracting arrangement
employee relationship between the job contractor and his falls within the prohibitions provided in Section 6
employees is maintained. In legitimate job contracting, the (Prohibitions) hereof.
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 According to the foregoing provision, labor-only
the job contractor only for the payment of the employees contracting would give rise to: (1) the creation of an
wages whenever the contractor fails to pay the same. Other employer-employee relationship between the principal
than that, the employer is not responsible for any claim made and the employees of the contractor or sub-contractor;
by the contractors employees. 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
be considered, such as, but not necessarily confined to,
Coke argues that there could not have been labor-only whether the contractor was carrying on an independent
contracting, since Agito et al. did not perform activities that business; the nature and extent of the work; the skill required;
were indispensable to its principal business. And, even the term and duration of the relationship; the right to assign
assuming that they did, such fact alone does not establish an the performance of specified pieces of work; the control and
employer-employee relationship between Coke and Agito et supervision of the workers; the power of the employer with
al., since they were unable to show that Coke exercised the respect to the hiring, firing and payment of the workers of the
power to select and hire them, pay their wages, dismiss them, contractor; the control of the premises; the duty to supply
and control their conduct. But the SC is not convinced. The premises, tools, appliances, materials and labor; and the
law clearly establishes an employer-employee relationship mode, manner and terms of payment.
between the principal employer and the contractors employee
upon a finding that the contractor is engaged in labor-only Insisting that Interserve had substantial investment, Coke
contracting. Article 106 of the Labor Code categorically states: assails, for being purely speculative, the finding of the Court
There is labor-only contracting where the person supplying of Appeals that the service vehicles and equipment of
workers to an employee does not have substantial capital or Interserve, with the values of P510,000.00 and P200,000.00,
investment in the form of tools, equipment, machineries, work respectively, could not have met the demands of the Coca-
premises, among others, and the workers recruited and Cola deliveries in the Lagro area.
placed by such persons are performing activities which are Coke fails to persuade the Court.
directly related to the principal business of such employer.
Thus, performing activities directly related to the principal The contractor, not the employee, has the burden of
business of the employer is only one of the two indicators that proof that it has the substantial capital, investment,
labor-only contracting exists; the other is lack of substantial and tool to engage in job contracting. Although not the
capital or investment. The Court finds that both indicators contractor itself (since Interserve no longer appealed the
exist in the case at bar. judgment against it by the Labor Arbiter), said burden of proof
herein falls upon Coke who is invoking the supposed status of
Agito et al. worked for Coke as salesmen, with the exception Interserve as an independent job contractor. Noticeably, Coke
of respondent Gil Francisco whose job was designated as failed to submit evidence to establish that the service vehicles
leadman. In the Delivery Agreement between Coke and TRMD and equipment of Interserve, valued at P510,000.00 and
Incorporated, it is stated that Coke is engaged in the P200,000.00, respectively, were sufficient to carry out its
manufacture, distribution and sale of softdrinks and other service contract with Coke. Certainly, Coke could have simply
related products. The work of Agito et al., constituting provided the courts with records showing the deliveries that
distribution and sale of Coca-Cola products, is clearly were undertaken by Interserve for the Lagro area, the type
indispensable to the principal business of Coke. The repeated and number of equipment necessary for such task, and the
re-hiring of some of the Agito et al. supports this finding. Coke valuation of such equipment. Absent evidence which a legally
also does not contradict Agito et al.s allegations that the compliant company could have easily provided, the Court will
former has Sales Departments and Sales Offices in its various not presume that Interserve had sufficient investment in
offices, plants, and warehouses; and that Coke hires Regional service vehicles and equipment, especially since respondents
Sales Supervisors and District Sales Supervisors who allegation that they were using equipment, such as forklifts
supervise and control the salesmen and sales route helpers. and pallets belonging to Coke, to carry out their jobs was
uncontroverted.
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. Paragraph 4 of the same Contract, in which Interserve
warranted to Coke that the former would provide relievers and
NOW THEREFORE, for and in consideration of the replacements in case of absences of its personnel, raises
foregoing premises and of the mutual covenants and another red flag. An independent job contractor, who is
stipulations hereinafter set forth, the parties have answerable to the principal only for the results of a certain
hereto have stated and the CLIENT has accepted the work, job, or service need not guarantee to said principal the
offer: daily attendance of the workers assigned to the latter. An
independent job contractor would surely have the discretion
1. The CONTRACTOR agrees and undertakes to over the pace at which the work is performed, the number of
perform and/or provide for the CLIENT, on a non- employees required to complete the same, and the work
exclusive basis for tasks or activities that are schedule which its employees need to follow.
considered contractible under existing laws and
regulations, as may be needed by the CLIENT from As the Court previously observed, the Contract of Services
time to time. between Interserve and Coke did not identify the work needed
to be performed and the final result required to be
2. To carry out the undertakings specified in the accomplished. Instead, the Contract specified the type of
immediately preceding paragraph, the CONTRACTOR workers Interserve must provide Coke (Route Helpers,
shall employ the necessary personnel like Route Salesmen, Drivers, Clericals, Encoders & PD) and their
Helpers, Salesmen, Drivers, Clericals, Encoders & PD qualifications (technical/vocational course graduates,
who are at least Technical/Vocational courses physically fit, of good moral character, and have not been
graduates provided with adequate uniforms and convicted of any crime). The Contract also states that, to
appropriate identification cards, who are warranted carry out the undertakings specified in the immediately
by the CONTRACTOR to be so trained as to preceding paragraph, the CONTRACTOR shall employ the
efficiently, fully and speedily accomplish the work necessary personnel, thus, acknowledging that Interserve did
and services undertaken herein by the not yet have in its employ the personnel needed by Coke and
CONTRACTOR. The CONTRACTOR represents that its would still pick out such personnel based on the criteria
personnel shall be in such number as will be provided by Coke. In other words, Interserve did not obligate
sufficient to cope with the requirements of the itself to perform an identifiable job, work, or service for Coke,
services and work herein undertaken and that such but merely bound itself to provide the latter with specific
personnel shall be physically fit, of good moral types of employees. These contractual provisions strongly
character and has not been convicted of any crime. indicated that Interserve was merely a recruiting and
The CLIENT, however, may request for the manpower agency providing Coke with workers performing
replacement of the CONTRACTORS personnel if from tasks directly related to the latters principal business.
its judgment, the jobs or the projects being done
could not be completed within the time specified or The certification issued by the DOLE stating that Interserve is
that the quality of the desired result is not being an independent job contractor does not sway this Court to
achieved. take it at face value, since the primary purpose stated in the
Articles of Incorporation of Interserve is misleading. According
3. It is agreed and understood that the to its Articles of Incorporation, the principal business of
CONTRACTORS personnel will comply with CLIENT, Interserve is to provide janitorial and allied services. The
CLIENTS policies, rules and regulations and will be delivery and distribution of Coca-Cola products, the work for
subjected on-the-spot search by CLIENT, CLIENTS which Agito et al. were employed and assigned to Coke, were
duly authorized guards or security men on duty in no way allied to janitorial services. While the DOLE may
every time the assigned personnel enter and leave have found that the capital and/or investments in tools and
the premises during the entire duration of this equipment of Interserve were sufficient for an independent
agreement. 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
4. The CONTRACTOR further warrants to make distribution of Coca-Cola products.
available at times relievers and/or replacements to
ensure continuous and uninterrupted service as in
the case of absences of any personnel above With the finding that Interserve was engaged in prohibited
mentioned, and to exercise the necessary and due labor-only contracting, Coke shall be deemed the true
supervision over the work of its personnel. 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
Paragraph 3 of the Contract specified that the personnel of only defense of Coke against the charge of illegal dismissal
contractor Interserve, which included Agito, et al., would being that they were not its employees. Records also failed to
comply with CLIENT as well as CLIENTs policies, rules and show that Coke afforded Agito et al. the twin requirements of
regulations. It even required Interserve personnel to subject procedural due process, i.e., notice and hearing, prior to their
themselves to on-the-spot searches by Coke or its duly dismissal. They were not served notices informing them of the
authorized guards or security men on duty every time the said particular acts for which their dismissal was sought. Nor were
personnel entered and left the premises of Coke. Said they required to give their side regarding the charges made
paragraph explicitly established the control of Coke over the against them. Certainly, their dismissal was not carried out in
conduct of Agito et al. Although under paragraph 4 of the accordance with law and, therefore, illegal.
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 Given that they were illegally dismissed by Coke, they are
extent or degree of supervision exercised by Interserve over entitled to reinstatement, full backwages, inclusive of
Agito et al. or the manner in which it was actually exercised. allowances, and to their other benefits or the monetary
There is even no showing that Interserve had representatives equivalents thereof computed from the time their
who supervised their work while they were in the premises of compensations were withheld from them up to the time of
Coke. their actual reinstatement, as mandated under Article 279 of
the Labor Code,.
Also significant was the right of Coke under paragraph 2 of the Dispositive Portion: IN VIEW OF THE FOREGOING, the
Contract to request the replacement of the CONTRACTORS instant Petition is DENIED. The Court AFFIRMS WITH
personnel. True, this right was conveniently qualified by the MODIFICATION the Decision dated 19 February 2007 of the
phrase if from its judgment, the jobs or the projects being Court of Appeals in CA-G.R. SP No. 85320. The Court
done could not be completed within the time specified or that DECLARES that respondents were illegally dismissed and,
the quality of the desired result is not being achieved, but accordingly, ORDERS petitioner to reinstate them without loss
such qualification was rendered meaningless by the fact that of seniority rights, and to pay them full back wages computed
the Contract did not stipulate what work or job the personnel from the time their compensation was withheld up to their
needed to complete, the time for its completion, or the results actual reinstatement.
desired. The said provision left a gap which could enable Coke
Title: Almeda v. Asahi Glass Phil., Inc.
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 Principle: Labor-Only v. Job Contracting
penalties or dismiss workers is the strongest indication of a
companys right of control as direct employer. Facts:
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.26
In their Complaint filed before the Labor Arbiter, petitioners The Court of Appeals rendered a Decision granting
alleged that respondent (a domestic corporation engaged in respondents Petition for Certiorari and reversing the NLRC
the business of glass manufacturing) and SSASI (a labor-only Decision dated 25 June 2005.
contractor) entered into a service contract on 5 March 2002
whereby the latter undertook to provide the former with the Issues:
necessary manpower for its operations. Pursuant to such a
contract, SSASI employed petitioners Randy Almeda, Edwin (1) whether petitioners were employees of respondent; and
Audencial, Nolie Ramirez and Ernesto Calicagan as glass
cutters, and petitioner Reynaldo Calicagan as Quality (2) if they were, whether they were illegally dismissed.
Controller, all assigned to work for respondent. Petitioners
worked for respondent for periods ranging from three to 11 Ruling of the Court:
years. On 1 December 2002, respondent terminated its
service contract with SSASI, which in turn, terminated the The Court would only be able to deem petitioners as
employment of petitioners on the same date. Believing that employees of respondent if it is established that SSASI was a
SSASI was a labor-only contractor, and having continuously labor-only contractor, and not a legitimate job contractor or
worked as glass cutters and quality controllers for the subcontractor.
respondent functions which are directly related to its main line
Permissible job contracting or subcontracting refers to an
of business as glass manufacturer for three to 11 years,
arrangement whereby a principal agrees to put out or farm
petitioners asserted that they should be considered regular
out to a contractor or subcontractor the performance or
employees of the respondent; and that their dismissal from
completion of a specific job, work or service within a definite
employment without the benefit of due process of law was
or predetermined period, regardless of whether such job, work
unlawful. In support of their complaint, petitioners submitted
or service is to be performed or completed within or outside
a copy of their work schedule to show that they were under
the premises of the principal. A person is considered engaged
the direct control of the respondent which dictated the time
in legitimate job contracting or subcontracting if the following
and manner of performing their jobs.
conditions concur:
Respondent, on the other hand, refuted petitioners
(a) The contractor or subcontractor carries on a distinct and
allegations that they were its regular employees. Instead,
independent business and undertakes to perform the job,
respondent claimed that petitioners were employees of SSASI
work or service on its own account and under its own
and were merely assigned by SSASI to work for respondent to
responsibility according to its own manner and method, and
perform intermittent services pursuant to an Accreditation
free from the control and direction of the principal in all
Agreement, dated 5 March 2002, the validity of which was
matters connected with the performance of the work except
never assailed by the petitioners. Respondent contested
as to the results thereof;
petitioners contention that they were performing functions
that were directly related to respondents main business since
(b) The contractor or subcontractor has substantial capital or
petitioners were simply tasked to do mirror cutting, an activity
investment; and
occasionally performed upon a customers order. Respondent
likewise denied exercising control over petitioners and
(c) The agreement between the principal and contractor or
asserted that such was wielded by SSASI. Finally, respondent
subcontractor assures the contractual employees entitlement
maintained that SSASI was engaged in legitimate job
to all labor and occupational safety and health standards, free
contracting and was licensed by the Department of Labor and
exercise of the right to self-organization, security of tenure,
Employment (DOLE) to engage in such activity as shown in its
and social and welfare benefits.
Certificate of Registration. Respondent presented before the
Labor Arbiter copies of the Opinion dated 18 February 2003 of On the other hand, labor-only contracting, a prohibited act, is
DOLE Secretary Patricia Sto. Tomas authorizing respondent to an arrangement in which the contractor or subcontractor
contract out certain activities not necessary or desirable to merely recruits, supplies or places workers to perform a job,
the business of the company; and the Opinion dated 10 July work or service for a principal. In labor-only contracting, the
2003 of DOLE Bureau of Labor Relations (DOLE-BLR) Director following elements are present:
Hans Leo Cacdac allowing respondent to contract out even
services that were not directly related to its main line of (a) The contractor or subcontractor does not have substantial
business. capital or investment to actually perform the job, work or
service under its own account and responsibility;
SSASI, for its part, claimed that it was a duly registered
independent contractor as evidenced by the Certificate of (b) The employees recruited, supplied or placed by such
Registration issued by the DOLE on 3 January 2003. SSASI contractor or subcontractor are performing activities which
averred that it was the one who hired petitioners and are directly related to the main business of the principal.
assigned them to work for respondent on occasions that the
latters work force could not meet the demands of its In labor-only contracting, the statutes create an employer-
customers. Eventually, however, respondent ceased to give employee relationship for a comprehensive purpose: to
job orders to SSASI, constraining the latter to terminate prevent circumvention of labor laws. The contractor is
petitioners employment. considered as merely the agent of the principal employer and
the latter is responsible to the employees of the labor-only
Ruling of the Labor Arbiter: contractor as if such employees are directly employed by the
principal employer. Therefore, if SSASI was a labor-only
The Labor Arbiter promulgated his Decision finding that contractor, then respondent shall be considered as the
respondent submitted overwhelming documentary evidence employer of petitioners who must bear the liability for the
to refute the bare allegations of the petitioners and dismissal of the latter, if any.
accordingly dismissing the complaint for lack of merit.
However, he also ordered the payment of separation benefits An important element of legitimate job contracting is that the
to petitioners. contractor has substantial capital or investment, which
respondent failed to prove. There is a dearth of evidence to
Ruling of the NLRC: prove that SSASI possessed substantial capital or investment
when respondent began contractual relations with it more
On appeal, the NLRC reversed the Decision of the Labor
than a decade before 2003. Respondents bare allegations,
Arbiter, giving more evidentiary weight to petitioners
without supporting proof that SSASI had substantial capital or
testimonies.
investment, do not sway this Court. The Court did not find a
single financial statement or record to attest to the economic
Ruling of the CA:
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 employee has been engaged to perform activities which are
argument that petitioners were performing jobs that were not usually necessary or desirable in the usual business or trade
directly related to respondents main line of business. of the employer, except where the employment has been
Respondent is engaged in glass manufacturing. One of the fixed for a specific project or undertaking the completion or
petitioners served as a quality controller, while the rest were termination of which has been determined at the time of the
glass cutters. The only excuse offered by respondent that engagement of the employee or where the work or services to
petitioners services were required only when there was an be performed is seasonal in nature and the employment is for
increase in the markets demand with which respondent could the duration of the season.
not cope only prove even more that the services rendered by
petitioners were indeed part of the main business of An employment shall be deemed to be casual if it is not
respondent. It would mean that petitioners supplemented the covered by the preceding paragraph: Provided, That, any
regular workforce when the latter could not comply with the employee who has rendered at least one year of service,
markets demand; necessarily, therefore, petitioners whether such service is continuous or broken, shall be
performed the same functions as the regular workforce. Even considered a regular employee with respect to the activity in
respondents claim that petitioners services were required which he is employed and his employment shall continue
only intermittently, depending on the market, deserves scant while such activity exists.
credit. The indispensability of petitioners services was
fortified by the length and continuity of their performance, This Court expounded on the afore-quoted provision, thus
lasting for periods ranging from three to 11 years.
The primary standard, therefore, of determining a regular
More importantly, the Court finds that the crucial element of employment is the reasonable connection between the
control over petitioners rested in respondent. The power of particular activity performed by the employee in relation to
control refers to the authority of the employer to control the the usual business or trade of the employer. x x x The
employee not only with regard to the result of work to be connection can be determined by considering the nature of
done, but also to the means and methods by which the work the work performed and its relation to the scheme of the
is to be accomplished. It should be borne in mind that the particular business or trade in its entirety. Also, if the
power of control refers merely to the existence of the power employee has been performing the job for at least one year,
and not to the actual exercise thereof. It is not essential for even if the performance is not continuous or merely
the employer to actually supervise the performance of duties intermittent, the law deems the repeated and continuing need
of the employee; it is enough that the former has a right to for its performance as sufficient evidence of the necessity if
wield the power. not indispensability of that activity to the business. Hence, the
employment is also considered regular, but only with respect
In the instant case, petitioners worked at the respondents to such activity and while such activity exists.
premises, and nowhere else. Petitioners followed the work
schedule prepared by respondent. They were required to In the instant Petition, the Court has already declared that
observe all rules and regulations of the respondent pertaining petitioners employment as quality controllers and glass
to, among other things, the quality of job performance, cutters are directly related to the usual business or trade of
regularity of job output, and the manner and method of respondent as a glass manufacturer. Respondent would have
accomplishing the jobs. Obscurity hounds respondents wanted this Court to believe that petitioners employment was
argument that even if petitioners were working under its roof, dependent on the increased market demand. However,
it was still SSASI which exercised control over the manner in bearing in mind that petitioners have worked for respondent
which they accomplished their work. There was no showing for not less than three years and as much as 11 years, which
that it was SSASI who established petitioners working respondent did not refute, then petitioners continued
procedure and methods, or who supervised petitioners in their employment clearly demonstrates its continuing necessity
work, or who evaluated the same. Other than being the one and indispensability to the business of respondent, raising
who hired petitioners, there was absolute lack of evidence their employment to regular status. Thus, having gained
that SSASI exercised control over them or their work. regular status, petitioners were entitled to security of tenure
and could only be dismissed on just or authorized causes and
The fact that it was SSASI which dismissed petitioners from after they had been accorded due process.
employment is irrelevant. It is hardly proof of control, since it
was demonstrated only at the end of petitioners employment. As petitioners employer, respondent has the burden of
What is more, the dismissal of petitioners by SSASI was a proving that the dismissal was for a cause allowed under the
mere result of the termination by respondent of its contractual law, and that they were afforded procedural due process.
relations with SSASI. However, respondent failed to discharge this burden with
substantial evidence as it noticeably narrowed its defense to
Equally unavailing is respondents stance that its relationship the denial of any employer-employee relationship between it
with petitioners should be governed by the Accreditation and petitioners.
Agreement stipulating that petitioners were to remain
employees of SSASI and shall not become regular employees The sole reason given for the dismissal of petitioners by SSASI
of the respondent. To permit respondent to disguise the true was the termination of its service contract with respondent.
nature of its transactions with SSASI by the terms of its But since SSASI was a labor-only contractor, and petitioners
contract, for the purpose of evading its liabilities under the were to be deemed the employees of respondent, then the
law, would seriously impair the administration of justice. A said reason would not constitute a just or authorized cause for
party cannot dictate, by the mere expedient of a unilateral petitioners dismissal. It would then appear that petitioners
declaration in a contract, the character of its business, i.e., were summarily dismissed based on the afore-cited reason,
whether as labor-only contractor or as job contractor, it being without compliance with the procedural due process for notice
crucial that its character be measured in terms of and and hearing.
determined by the criteria set by statute.
Herein petitioners, having been unjustly dismissed from work,
Having established that respondent was petitioners are entitled to reinstatement without loss of seniority rights
employer, the Court now proceeds to determining whether and other privileges and to full back wages, inclusive of
petitioners were dismissed in accordance with law. allowances, and to other benefits or their monetary
equivalents computed from the time compensation was
Article 280 of the Labor Code, as amended, reads withheld up to the time of actual reinstatement. Their
earnings elsewhere during the periods of their illegal dismissal
ART. 280. Regular and Casual Employment. The provisions of shall not be deducted therefrom.
written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties, an DAMIAN AKLAN et al. vs. SAN MIGUEL CORPORATION,
employment shall be deemed to be regular where the 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
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
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
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
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,
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
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
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
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
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
(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.
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
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
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
Whether or not MGTI is solidarily liable for the claims employed by him.
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
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.
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
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,
workers to perform a job, work or service for a a. where there is a labor-only contracting; or
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
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
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
stocks and subscribed capitalization in the case of In the present case, MGTI and GTI claim that their
machineries and work premises, actually and directly therefore, this case is one of permissible job
performance or completion of the job, work or First, the employees work as weavers, grinders,
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
the employer.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.34
and signed a Release and Quitclaim in favor of Wack
Second, MGTI was unable to present any proof that Wack.Respondent. The last one to avail of the separation
package was Crisanto Baluyot, Sr.
its contractors had substantial capital. There was no
evidence pertaining to the contractors' capitalization; On October 15, 1997, Wack Wack entered into a Management
Contract with Business Staffing and Management, Inc. (BSMI),
nor to their investment in tools, equipment or a corporation engaged in the business as Management
Service Consultant undertaking and managing for a fee
implements actually used in the performance or
projects which are specialized and technical in character like
completion of the job, work, or service that they were marketing, promotions, merchandising, financial
management, operation management and the like.
contracted to render. The law casts the burden on
Pursuant to the Agreement, the retired employees of Wack
the contractor to prove that it has substantial capital, Wack by reason of their experience were given priority by
investment, tools, etc. BSMI in hiring. On October 21, 1997, respondents Cagasan
and Dominguez filed their respective applications for
Thus, the contractors are labor-only employment with BSMI. They were eventually hired by BSMI to
their former positions in Wack Wack as project employees and
contractors since they do not have substantial capital were issued probationary contracts.
or investment, which relates to the service
Due to these various management service contracts, BSMI
performed and respondents performed activities undertook an organizational analysis and manpower
evaluation to determine its efficacy, and to streamline its
which were directly related to MGTI's main business. operations. In the course of its assessment, BSMI saw that the
positions of Cagasan and Dominguez were redundant. In the
MGTI, the principal employer, is solidarily liable with
case of respondent Cagasan, her tasks as personnel officer
the labor-only contractors, for the rightful claims of were likewise being taken care of by the different
management service contractors; on the other hand,
the employees. Under this set-up, labor-only Dominguezs work as telephone operator was taken over by
the personnel of the accounting department. Thus, in
contractors are deemed agents of the principal,
separate Letters dated February 27, 1998, the services of
MGTI, and the law makes the principal responsible to Dominguez and Cagasan were terminated. With respect to
Baluyot, he applied for the position of Chief Porter on May 12,
the employees of the labor-only contractor as if the 1998. The position, however, was among those recommended
to be abolished by the BSMI, so he was offered the position of
principal itself directly hired or employed the
Caddie Master Aide with a starting salary of P5,500.00 a
employees. month. Baluyot declined the offer. Pending Wack Wacks
approval of the proposed abolition of the position of Chief
The employees' contention that the CA Porter, Baluyot was temporarily accepted to the position with
a monthly salary of P12,000.00. In July 1998, Baluyot decided
erred in lowering the award of separation pay from
not to accept the position of Caddie Master Aide; thus, BSMI
one month to one-half month for every year of continued with its plan to abolish the said position of Chief
Porter and Baluyot was dismissed from the service.
service cannot prosper in the present petition.
LA RULING:
Whether right or wrong, the decision of the CA on
that matter had long become final and executory The Labor Arbiter found that the dismissal of
Dominguez and Cagasan was for a valid and authorized cause
with the dismissal of the employees' petition for and dismissed their complaints.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.35
account under his own responsibility according to his own On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered
manner and method, free from the control and direction of his a decision in NLRC-NCR Case No. 05-02746-90 in favor of the
employer or principal in all matters connected with the former PSI security guards, including the individual
respondents.
performance of the work except as to the results thereof; and
(b) has substantial capital or investment in the form of tools, Less than a month later, or on July 21, 1992, the individual
equipments, machineries, work premises and other materials respondents filed another complaint for unpaid monetary
which are necessary in the conduct of the business. benefits, this
time against ASDAI and MERALCO
Jurisprudential holdings are to the effect that in
determining the existence of an independent contractor On July 25, 1992, the security service agreement between
relationship, several factors may be considered, such as respondent Advance Forces Security & Investigation Services,
Inc. (AFSISI) and MERALCO took effect, terminating the
whether or not the contractor is carrying on an independent previous security service agreement with ASDAI. Except as to
business; the nature and extent of the work; the skill required; the number of security guards, the amount to be paid the
the term and duration of the relationship; the right to assign agency, and the effectivity of the agreement, the terms and
the performance of specified pieces of work; the control and conditions were substantially identical with the security
supervision of the work to another; the employers power with service agreement with ASDAI.
respect to the hiring, firing, and payment of the contractors
On July 29, 1992, the individual respondents amended their
workers; the control of the premises; the duty to supply
complaint to implead AFSISI as party respondent. On August
premises, tools, appliances, materials and labor; and the 11, 1992 they again amended their complaint to allege that
mode, manner and terms of payment. AFSISI terminated their services on August 6, 1992 without
notice and just cause and therefore guilty of illegal dismissal.
There is indubitable evidence showing that BSMI is an
independent contractor, engaged in the management of The individual respondents alleged that: MERALCO and ASDAI
projects, business operations, functions, jobs and other kinds never paid their overtime pay, service incentive leave pay,
premium pay for Sundays and Holidays, P50.00 monthly
of business ventures, and has sufficient capital and resources
uniform allowance and underpaid their 13th month pay; on
to undertake its principal business. It had provided July 24, 1992, when the security service agreement of ASDAI
management services to various industrial and commercial was terminated and AFSISI took over the security functions of
business establishments. the former on July 25, 1992, respondent security guard
Benamira was no longer given any work assignment when
BSMI admitted that it employed the respondents, giving the AFSISI learned that the former has a pending case against PSI,
said retired employees some degree of priority merely in effect, dismissing him from the service without just cause;
because of their work experience with the petitioner, and in and, the rest of the individual respondents were absorbed by
AFSISI but were not given any assignments, thereby
order to have a smooth transition of operations. In accordance
dismissing them from the service without just cause.
with its own recruitment policies, the respondents were made
to sign applications for employment, accepting the condition LA
that they were hired by BSMI as probationary employees only. Rendered a Decision holding ASDAI and MERALCO jointly and
Not being contrary to law, morals, good custom, public policy solidarily liable to the monetary claims of individual
and public order, these employment contracts, which the respondents and dismissing the complaint against AFSISI. All
other claims of the complainants are hereby DISMISSED for
parties are bound, are considered valid. Unfortunately, after a
lack of merit. The counter-claim of respondent AFSISI for
study and evaluation of its personnel organization, BSMI was damages is hereby dismissed for want of substantial evidence
impelled to terminate the services of the respondents on the to justify the grant of damages.
ground of redundancy. This right to hire and fire is another
element of the employer-employee relationship which actually NLRC
existed between the respondents and BSMI, and not with All the parties, except AFSISI, appealed to the National Labor
Wack Wack. Relations Commission (NLRC). On April 10, 1995, the NLRC
affirmed in toto the decision of the Labor Arbiter.12 On April
19, 1995
There being no employer-employee relationship
between the petitioner and respondents Cagasan and CA
Dominguez, the latter have no cause of action for illegal On August 11, 1995, the individual respondents filed a
dismissal and damages against the petitioner. Consequently, petition for certiorari before us, docketed as G.R. No. 121232.
the petitioner cannot be validly ordered to reinstate the They insisted that they were absorbed by AFSISI and the latter
respondents and pay them their claims for backwages. 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
G.R. No. 145271 July 14, 2005 respondents.
MANILA ELECTRIC COMPANY, Petitioner,
vs. ROGELIO BENAMIRA, ERNIE DE SAGUN1, DIOSDADO The CA held that: MERALCO changed the security agency
YOGARE, FRANCISCO MORO2, OSCAR LAGONOY3, Rolando manning its premises three times while engaging the services
Beni, Alex Beni, Raul4 Guia, Armed Security & Detective of the same people, the individual respondents; MERALCO
Agency, Inc., (ASDAI) and Advance FORCES Security & employed a scheme of hiring guards through an agency and
INVESTIGATION Services, Inc., (AFSISI), Respondents. periodically entering into service contract with one agency
after another in order to evade the security of tenure of
Facts: individual respondents; individual respondents are regular
The individual respondents are licensed security guards employees of MERALCO since their services as security guards
formerly employed by Peoples Security, Inc. (PSI) and are usually necessary or desirable in the usual business or
deployed as such at MERALCOs head office in Ortigas Avenue, trade of MERALCO and they have been in the service of
Pasig, Metro Manila. MERALCO for no less than six years; an employer-employee
relationship exists between MERALCO and the individual
On November 30, 1990, the security service agreement respondents because: (a) MERALCO had the final say in the
between PSI and MERALCO was terminated. selection and hiring of the guards, as when its advice was
proved to have carried weight in AFSISIs decision not to
Immediately thereafter, fifty-six of PSIs security guards, absorb the individual respondents into its workforce; (b)
including herein eight individual respondents, filed a MERALCO paid the wages of individual respondents through
complaint for unpaid monetary benefits against PSI and ASDAI and AFSISI; (c) MERALCOs discretion on matters of
MERALCO, docketed as NLRC-NCR Case No. 05-02746-90. dismissal of guards was given great weight and even finality
since the record shows that the individual respondents were
Meanwhile, the security service agreement between replaced upon the advice of MERALCO; and, (d) MERALCO has
respondent Armed Security & Detective Agency, Inc., (ASDAI) the right, at any time, to inspect the guards, to require
and MERALCO took effect on December 1, 1990. without explanation the replacement of any guard whose
behavior, conduct or appearance is not satisfactory and ASDAI
Subsequently, the individual respondents were absorbed by and AFSISI cannot pull out any security guard from MERALCO
ASDAI and retained at MERALCOs head office. 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 severally liable for the individual respondents wages, under
reinstatement of individual respondents to its workforce. Articles 106 and 109 of the Labor Code, which provide:
CA found that all elements of employee employer relationship ART. 106. Contractor or subcontractor. - Whenever an
exist employer enters into a contract with another person for the
performance of the formers work, the employees of the
Issue: contractor and of the latters subcontractor, if any, shall be
1. WON there was Employee-Employer Relationship between paid in accordance with the provisions of this Code.
complainant and Meralco
2. WON ASDIA and AFSISI are Labor-only contractors or Job In the event that the contractor or subcontractor fails to pay
Independent Contractor the wages of his employees in accordance with this Code, the
3. WON the independent respondents were absorbed by employer shall be jointly and severally liable with his
AFSISI contractor or subcontractor to such employees to the extent
4. WON there was an illegal dismissal of the work performed under the contract, in the same
5. WON ASDAI and Meralco were direct employer and indirect manner and extent that he is liable to employees directly
employer respectively, of complainants. employed by him.
6. WON ASDAI may seek exculpation to Meralco
ART. 109. Solidary liability - The provisions of existing laws to
SC/Ruling: the contrary notwithstanding, every employer or indirect
1. NO Employee-employer relationship, complainant first employer shall be held responsible with his contractor or
alleged the theory of Meralco being their employer first time subcontractor for any violation of any provision of this Code.
in their memorandum on CA and not on LA nor NLRC, The For purpose of determining the extent of their civil liability
individual respondents are bound by their submissions that under this Chapter, they shall be considered as direct
AFSISI is their employer and they should not be permitted to employers.
change their theory. Second, Meralco did not satisfy the four
fold test (see full case for full discussion on E-E relationship) ASDAI is held liable by virtue of its status as direct employer,
while MERALCO is deemed the indirect employer of the
2. No, they are not Labor-only contractors, There is "labor individual respondents for the purpose of paying their wages
only" contract when the person acting as contractor is in the event of failure of ASDAI to pay them. This statutory
considered merely as an agent or intermediary of the principal scheme gives the workers the ample protection consonant
who is responsible to the workers in the same manner and to with labor and social justice provisions of the 1987
the same extent as if they had been directly employed by Constitution.
him. On the other hand, "job (independent) contracting" is
present if the following conditions are met: (a) the contractor 6. No, ASDAI may not seek exculpation by claiming that
carries on an independent business and undertakes the MERALCOs payments to it were inadequate for the individual
contract work on his own account under his own responsibility respondents lawful compensation. As an employer, ASDAI is
according to his own manner and method, free from the charged with knowledge of labor laws and the adequacy of
control and direction of his employer or principal in all matters the compensation that it demands for contractual services is
connected with the performance of the work except to the its principal concern and not any others.
result thereof; and (b) the contractor has substantial capital or SOUTH DAVAO DEVELOPMENT COMPANY, INC.,
investments in the form of tools, equipment, machineries, Petitioners,
work premises and other materials which are necessary in the vs.
conduct of his business.29 Given the above distinction and SERGIO L. GAMO, et al., Respondents
the provisions of the security service agreements entered into
by petitioner with ASDAI and AFSISI, we are convinced that PRINCIPLE:
ASDAI and AFSISI were engaged in job contracting.
To establish the existence of an independent contractor, we
3.No, the cannot give credence to individual respondents apply the following conditions: first, the contractor carries on
insistence that they were absorbed by AFSISI when an independent business and undertakes the contract work on
MERALCOs security service agreement with ASDAI was his own account under his own responsibility according to his
terminated. The individual respondents failed to present any own manner and method, free from the control and direction
evidence to confirm that AFSISI absorbed them into its of his employer or principal in all matters connected with the
workforce. Thus, respondent Benamira was not retained in his performance of the work except to the result thereof; and
post at MERALCO since July 25, 1992 due to the termination of second, the contractor has substantial capital or investments
the security service agreement of MERALCO with ASDAI. As for in the form of tools, equipment, machineries, work premises
the rest of the individual respondents, they retained their post and other materials which are necessary in the conduct of his
only as "hold-over" guards until the security guards of AFSISI business.
took over their post on August 6, 1992.
FACTS:
4. No illegal dismissal, respondent Benamira has been "off-
detail" for seventeen days while the rest of the individual Petitioner South Davao Development Company is the operator
respondents have only been "off- detail" for five days when of a coconut and mango farm in San Isidro, Davao Oriental
they amended their complaint on August 11, 1992 to include and Inawayan/Baracatan, Davao del Sur. On August 1963
the charge of illegal dismissal. The inclusion of the charge of petitioner hired respondent Sergio L. Gamo (Gamo) as a
illegal dismissal then was premature. Nonetheless, bearing in foreman. Sometime in 1987, petitioner appointed Gamo as a
mind that ASDAI simply stopped giving the individual copra maker contractor. Respondents Ernesto Belleza, Carlos
respondents any assignment and their inactivity clearly Rojas, Maximo Malinao were all employees in petitioners
persisted beyond the six-month period allowed by Article 286 coconut farm, while respondents Felix Terona, Virgilio Cosep,
of the Labor Code, the individual respondents were, in effect, Maximo Tolda, and Nelson Bagaan were assigned to
constructively dismissed by ASDAI from employment, hence, petitioners mango farm. All of the abovenamed respondents
they should be reinstated. (copra workers) were later transferred by petitioner to Gamo
as the latters copraceros. From 1987 to 1999, Gamo and
5. Yes, The fact that there is no actual and direct employer- petitioner entered into a profit-sharing agreement wherein
employee relationship between MERALCO and the individual 70% of the net proceeds of the sale of copra went to
respondents does not exonerate MERALCO from liability as to petitioner and 30% to Gamo. The copra workers were paid by
the monetary claims of the individual respondents. When Gamo from his 30% share.
MERALCO contracted for security services with ASDAI as the
security agency that hired individual respondents to work as Petitioner wanted to standardize payments to its "contractors"
guards for it, MERALCO became an indirect employer of in its coconut farms. On 2 October 1999, petitioner proposed a
individual respondents pursuant to Article 107 of the Labor new payment scheme to Gamo. The new scheme provided a
Code, which reads: specific price for each copra making activity. Gamo submitted
his counter proposal. Petitioner did not accept Gamos counter
ART. 107. Indirect employer - The provisions of the proposal since it was higher by at least fifty percent (50%)
immediately preceding Article shall likewise apply to any from its original offer. Without agreeing to the new payment
person, partnership, association or corporation which, not scheme, Gamo and his copra workers started to do harvesting
being an employer, contracts with an independent contractor work. Petitioner told them to stop. Eventually, petitioner and
for the performance of any work, task, job or project. Gamo agreed that the latter may continue with the harvest
provided that it would be his last "contract" with petitioner.
When ASDAI as contractor failed to pay the individual Gamo suggested to petitioner to look for a new "contractor"
respondents, MERALCO as principal becomes jointly and since he was not amenable to the new payment scheme.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.37
the payment of wages; (3) the power of dismissal; and (4) the
Gamo and petitioner failed to agree on a payment scheme, power to control the employees conduct, or the so called
thus, petitioner did not renew the "contract" of Gamo. Gamo "control test," which is considered the most important
and the copra workers alleged that they were illegally element. From the time they were hired by petitioner
dismissed. Corporation up to the time that they were reassigned to work
under Gamos supervision, their status as petitioner
On the other hand, respondent Eleonor Cosep (Eleonor) was corporations employees did not cease. Likewise, payment of
employed as a mango classifier in the packing house of their wages was merely coursed through Gamo. As to the
petitioners mango farm in San Isidro, Davao Oriental. most determinative testthe power of control, it is sufficient
Sometime in October 1999, she did not report for work as she that the power to control the manner of doing the work exists,
had wanted to raise and sell pigs instead. Petitioner, through it does not require the actual exercise of such power. In this
Malone Pacquiao, tried to convince Eleonor to report for work case, it was in the exercise of its power of control when
but to no avail. petitioner Corporation transferred the copra workers from
their previous assignments to work as copraceros. It was also
On 22 March 2000, respondents filed a complaint for illegal in the exercise of the same power that petitioner corporation
dismissal against petitioner. They alleged that sometime in put Gamo in charge of the copra workers although under a
December 1999, petitioner verbally terminated them en different payment scheme. Thus, it is clear that an employer-
masse. employee relationship has existed between petitioner
Corporation and respondents since the beginning and such
LA Ruling: relationship did not cease despite their reassignments and the
change of payment scheme.
The labor arbiter dismissed the complaint. He ruled that there
was no employee-employer relationship between petitioner As to Eleonor Cosep, to constitute abandonment, there must
and respondents. As to Eleonor, he ruled that she had be clear proof of deliberate and unjustified intent to sever the
voluntarily stopped working. employer-employee relationship. When Eleonor filed the
illegal dismissal complaint, it totally negated petitioners
NLRC Ruling: theory of abandonment. Also, to effectively dismiss an
employee for abandonment, the employer must comply with
The NLRCs Resolution reversed the arbiters decision and the due process requirement of sending notices to the
ruled that respondents were petitioners employees. Petitioner employee. Petitioner was not able to send the necessary
moved for reconsideration. The NLRC granted the motion for notice requirement to Eleonor. Petitioners belated claim that
reconsideration and ruled that the nature of the job of the it was not able to send the notice of infraction prior to the
respondents could not result in an employer-employee filing of the illegal dismissal case cannot simply unacceptable.
relationship. Respondents moved for reconsideration which Based on the foregoing, Eleonor did not abandon her work.
was denied.
WHEREFORE, the petition is DENIED.
CA Ruling:
****ANSAN****
The Court of Appeals ruled that there existed an employer-
RAUL G. LOCSIN and EDDIE B. TOMAQUIN, Petitioners,
employee relationship. It declared that respondents were
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
regular seasonal employees who can be dismissed by the
Respondent.
petitioner at the end of the season provided due process is
G.R. No. 185251 October 2, 2009
observed.
VELASCO, JR., J.:
Principle: independent contractor distinguished from
ISSUE:
labor-only contractor.
Facts
Whether or not there is a valid job contracting between
petitioner and Gamo.
On November 1, 1990, respondent Philippine Long Distance
Telephone Company (PLDT) and the Security and Safety
SC Ruling:
Corporation of the Philippines (SSCP) entered into a Security
Services Agreement[3] (Agreement) whereby SSCP would
In Escario v. NLRC, we ruled that there is permissible job
provide armed security guards to PLDT to be assigned to its
contracting when a principal agrees to put out or farm out
various offices.
with a contractor or a subcontractor the performance or
completion of a specific job, work or service within a definite
Pursuant to such agreement, petitioners Raul Locsin and Eddie
or predetermined period, regardless of whether such job or
Tomaquin, among other security guards, were posted at a
work service is to be performed within or outside the premises
PLDT office.
of the principal. To establish the existence of an independent
contractor, we apply the following conditions: first, the
On August 30, 2001, respondent issued a Letter dated August
contractor carries on an independent business and undertakes
30, 2001 terminating the Agreement effective October 1,
the contract work on his own account under his own
2001. Despite the termination of the Agreement, however,
responsibility according to his own manner and method, free
petitioners continued to secure the premises of their assigned
from the control and direction of his employer or principal in
office. They were allegedly directed to remain at their post by
all matters connected with the performance of the work
representatives of respondent. In support of their contention,
except to the result thereof; and second, the contractor has
petitioners provided the Labor Arbiter with copies of petitioner
substantial capital or investments in the form of tools,
Locsins pay slips for the period of January to September 2002.
equipment, machineries, work premises and other materials
Then, on September 30, 2002, petitioners services were
which are necessary in the conduct of his business.
terminated.
The Implementing Rules and Regulation of the Labor Code
Thus, petitioners filed a complaint before the Labor Arbiter for
defines investmentas tools, equipment, implements,
illegal dismissal and recovery of money claims such as
machineries and work premises, actually and directly used by
overtime pay, holiday pay, premium pay for holiday and rest
the contractor or subcontractor in the performance or
day, service incentive leave pay, Emergency Cost of Living
completion of the job, work, or service contracted out. The
Allowance, and moral and exemplary damages against PLDT.
investment must be sufficient to carry out the job at hand.
LA Ruling:
LA held PLDT liable for illegal dismissal. Petitioners were found
In the case at bar, Gamo and the copra workers did not
to be employees of PLDT and not of SSCP. Such conclusion
exercise independent judgment in the performance of their
was arrived at with the factual finding that petitioners
tasks. The tools used by Gamo and his copra workers like the
continued to serve as guards of PLDTs offices. As such
karit, bolo, pangbunot, panglugit and pangtapok are not
employees, petitioners were entitled to substantive and
sufficient to enable them to complete the job. Reliance on
procedural due process before termination of employment.
these primitive tools is not enough. In fact, the
The Labor Arbiter held that respondent failed to observe such
accomplishment of their task required more expensive
due process requirements. PLDT to pay complainants Raul E.
machineries and equipment, like the trucks to haul the
Locsin and Eddie Tomaquin their separation pay and back
harvests and the drying facility, which petitioner corporation
wages computed as follows:
owns.
NAME SEPARATION PAY BACKWAGES
In order to determine the existence of an employer-employee
1. Raul E. Locsin P127,500.00
relationship, the Court has frequently applied the four-fold
P240,954.67
test: (1) the selection and engagement of the employee; (2)
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.38
2. Eddie B. Tomaquin P127,500.00 already been terminated. Thus, in the event of an accident or
P240,954.67 otherwise damage caused by such security guards, it would
P736,909.34 be the business owners and/or managers who would be liable
and not the agency. The business owners or managers would,
All other claims are DISMISSED for want of therefore, be opening themselves up to liability for acts of
factual basis. security guards over whom the owners or managers allegedly
have no control.
NLRC Ruling: At the very least, responsible business owners or managers
PLDT appealed the above Decision to the NLRC which would inquire or learn why such security guards were
rendered a Resolution affirming in toto the Arbiters Decision. remaining at their posts, and would have a clear
Thus, PDLT filed a Motion for Reconsideration of the NLRCs understanding of the circumstances of the guards stay. It is
Resolution which was also denied. but logical that responsible business owners or managers
CA Ruling: would be aware of the situation in their premises.
CA granted PLDTs petition and dismissing Locsins complaint. We point out that with respondents hypothesis, it would seem
The Resolutions dated October 28, 2005 and August 28, that SSCP was paying petitioners salaries while securing
2006 of the National Labor Relations Commission are respondents premises despite the termination of their
ANNULLED and SET ASIDE. Private respondents complaint Agreement. Obviously, it would only be respondent that would
against Philippine Long Distance Telephone Company is benefit from such a situation. And it is seriously doubtful that
DISMISSED. CA applied the four-fold test in order to determine a security agency that was established for profit would allow
the existence of an employer-employee relationship between its security guards to secure respondents premises when the
the parties but did not find such relationship. It determined Agreement was already terminated.
that SSCP was not a labor-only contractor and was an From the foregoing circumstances, reason dictates that we
independent contractor having substantial capital to operate conclude that petitioners remained at their post under the
and conduct its own business. The CA further bolstered its instructions of respondent. We can further conclude that
decision by citing the Agreement whereby it was stipulated respondent dictated upon petitioners that the latter perform
that there shall be no employer-employee relationship their regular duties to secure the premises during operating
between the security guards and PLDT. hours. This, to our mind and under the circumstances, is
sufficient to establish the existence of an employer-employee
Issue: relationship.
whether petitioners became employees of respondent after To reiterate, while respondent and SSCP no longer had any
the Agreement between SSCP and respondent was legal relationship with the termination of the Agreement,
terminated; petitioners remained at their post securing the premises of
whether complainants extended services to the respondent respondent while receiving their salaries, allegedly from SSCP.
for another one (1) year without a contract be considered as Clearly, such a situation makes no sense, and the denials
contractual employment. proffered by respondent do not shed any light to the situation.
SC Ruling: It is but reasonable to conclude that, with the behest and,
presumably, directive of respondent, petitioners continued
This petition is granted. No employer-employee relationship with their services. Evidently, such are indicia of control that
between the parties from the time of petitioners first respondent exercised over petitioners.
assignment to respondent by SSCP in 1988 until the alleged Such power of control has been explained as the right to
termination of the Agreement between respondent and SSCP. control not only the end to be achieved but also the means to
In fact, this was the conclusion that was reached by this Court be used in reaching such end. With the conclusion that
in Abella v. Philippine Long Distance Telephone respondent directed petitioners to remain at their posts and
Company, where we ruled that petitioners therein, including continue with their duties, it is clear that respondent exercised
herein petitioners, cannot be considered as employees of the power of control over them; thus, the existence of an
PLDT. It bears pointing out that petitioners were among those employer-employee relationship.
declared to be employees of their respective security Furthermore, Article 106 of the Labor Code contains
agencies and not of PLDT. Notably, respondent does not deny a provision on contractors, to wit:
the fact that petitioners remained in the premises of their Art. 106. Contractor or
offices even after the Agreement was terminated. And it is subcontractor. Whenever an employer
this fact that must be explained. enters into a contract with another person
To recapitulate, the CA, in rendering a decision in favor of for the performance of the formers work,
respondent, found that: (1) petitioners failed to prove that the employees of the contractor and of the
SSCP was a labor-only contractor; and (2) petitioners are latters subcontractor, if any, shall be paid in
employees of SSCP and not of PLDT. accordance with the provisions of this Code.
In arriving at such conclusions, the CA relied on the provisions In the event that the contractor or
of the Agreement, wherein SSCP undertook to supply PLDT subcontractor fails to pay the wages of his
with the required security guards, while furnishing PLDT with a employees in accordance with this Code,
performance bond in the amount of PhP 707,000. Moreover, the employer shall be jointly and severally
the CA gave weight to the provision in the Agreement that liable with his contractor or subcontractor to
SSCP warranted that it carry on an independent business and such employees to the extent of the work
has substantial capital or investment in the form of performed under the contract, in the same
equipment, work premises, and other materials which are manner and extent that he is liable to
necessary in the conduct of its business. Further, in employees directly employed by him.
determining that no employer-employee relationship existed The Secretary of Labor and
between the parties, the CA quoted the express provision of Employment may, by appropriate
the Agreement, stating that no employer-employee regulations, restrict or prohibit the
relationship existed between the parties herein. The CA contracting-out of labor to protect the
disregarded the pay slips of Locsin considering that they were rights of workers established under
in fact issued by SSCP and not by PLDT. this Code. In so prohibiting or
From the foregoing explanation of the CA, the fact remains restricting, he may make appropriate
that petitioners remained at their post after the termination of distinctions between labor-only
the Agreement. Notably, in its Comment dated March 10, contracting and job contracting as well
2009, respondent never denied that petitioners remained at as differentiations within these types
their post until September 30, 2002. While respondent denies of contracting and determine who
the alleged circumstances stated by petitioners, that they among the parties involved shall be
were told to remain at their post by respondents Security considered the employer for purposes
Department and that they were informed by SSCP Operations of this Code, to prevent any violation
Officer Eduardo Juliano that their salaries would be coursed or circumvention of any provision of
through SSCP as per arrangement with PLDT, it does not state this Code.
why they were not made to vacate their posts. Respondent There is labor-only contracting
said that it did not know why petitioners remained at their where the person supplying workers to an
posts. employer does not have substantial capital
In the ordinary course of things, responsible business owners or investment in the form of tools,
or managers would not allow security guards of an agency equipment, machineries, work premises,
with whom the owners or managers have severed ties with to among others, and the workers recruited
continue to stay within the business premises. This is because and placed by such person are performing
upon the termination of the owners or managers agreement activities which are directly related to the
with the security agency, the agencys undertaking of liability principal business of such employer. In such
for any damage that the security guard would cause has 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 ELIZABETH B. MACALINO, RAMIL P. ALBITO, REYNALDO A.
employer who shall be responsible to the LADRILLO, LUCAS G. TAMAYO, DIOSDADO A. AMORIN, RODINO
workers in the same manner and extent as if C. VASQUEZ, GLORIA A. FELICANO, NOLE E. FERMILAN,
the latter were directly employed by him.
JOSELITO B. RENDON, CRISTETA D. CAA, EVELYN D. ARCENAL
(Emphasis supplied.)
Thus, the Secretary of Labor issued Department and JEORGE M. NONO, Petitioners vs.BOBONGON BANANA
Order No. 18-2002, Series of 2002, implementing Art. 106 as GROWERS MULTI-PURPOSE COOPERATIVE, TIMOG
follows: AGRICULTURAL CORPORATION, DIAMOND FARMS, INC., and
Section 5. Prohibition against DOLE ASIA PHILIPPINES, Respondents. G.R. No. 164205
labor-only contracting.Labor-only September 3, 2009
contracting is hereby declared prohibited.
For this purpose, labor-only contracting shall Facts: By the account of petitioner Oldarico Traveo and his 16
refer to an arrangement where the
co-Traveno et al., in 1992, Timog Agricultural Corporation
contractor or subcontractor merely recruits,
supplies or places workers to perform a job, (TACOR) and Diamond Farms, Inc. (DFI) hired them to work at
work or service for a principal, and any of a banana plantation at Bobongon, Santo Tomas, Davao Del
the following elements are present: Norte which covered lands previously planted with rice and
(i) The contractor or subcontractor corn but whose owners had agreed to convert into a banana
does not have substantial capital or plantation upon being convinced that TACOR and DFI could
investment which relates to the job, work or
provide the needed capital, expertise, and equipment.
service to be performed and the employees
recruited, supplied or placed by such Traveno et al. helped prepare the lands for the planting of
contractor or subcontractor are performing banana suckers and eventually carried out the planting as
activities which are directly related to the well.
main business of the principal; or
(ii) the contractor does not Traveno et al. asseverated that while they worked under the
exercise the right to control over direct control of supervisors assigned by TACOR and DFI,
the performance of the work of the
these companies used different schemes to make it appear
contractual employee.
The foregoing provisions shall be that they were hired through independent contractors,
without prejudice to the application of including individuals, unregistered associations, and
Article 248 (C) of the Labor Code, as cooperatives; that the successive changes in the names of
amended. their employers notwithstanding, they continued to perform
Substantial capital or investment the same work under the direct control of TACOR and DFI
refers to capital stocks and subscribed supervisors; and that under the last scheme adopted by these
capitalization in the case of corporations,
companies, the nominal individual contractors were required
tools, equipment, implements, machineries
and work premises, actually and directly to, as they did, join a cooperative and thus became members
used by the contractor or subcontractor in of Bobongon Banana Growers Multi-purpose Cooperative (the
the performance or completion of the job, Cooperative). Sometime in 2000, above-named respondents
work or service contracted out. began utilizing harassment tactics to ease them out of their
The right to control shall refer to jobs. Without first seeking the approval of the DOLE, they
the right reserved to the person for whom changed their compensation package from being based on a
the services of the contractual workers are
daily rate to a pakyawan rate that depended on the combined
performed, to determine not only the end to
be achieved, but also the manner and productivity of the "gangs" they had been grouped into. Soon
means to be used in reaching that end. thereafter, they stopped paying their salaries, prompting
On the other hand, Sec. 7 of the department order them to stop working.
contains the consequence of such labor-only contracting:
Section 7. Existence of an One after another, three separate complaints for illegal
employer-employee relationship.The dismissal were filed by Traveno et al., individually and
contractor or subcontractor shall be
collectively, with the NLRC against said respondents including
considered the employer of the contractual
employee for purposes of enforcing the respondent Dole Asia Philippines as it then supposedly owned
provisions of the Labor Code and other TACOR, for unpaid salaries, overtime pay, 13th month pay,
social legislation. The principal, however, service incentive leave pay, damages, and attorneys fees.
shall be solidarily liable with the contractor
in the event of any violation of any provision DFI answered for itself and TACOR, which it claimed had been
of the Labor Code, including the failure to merged with it and ceased to exist as a corporation. Denying
pay wages.
that it had engaged the services of Traveno, et al., DFI alleged
The principal shall be deemed the
employer of the contractual employee in that during the corporate lifetime of TACOR, it had an
any of the following cases as declared by a arrangement with several landowners in Santo Tomas, Davao
competent authority: Del Norte whereby TACOR was to extend financial and
(a) where there is labor-only technical assistance to them for the development of their
contracting; or lands into a banana plantation on the condition that the
(b) where the contracting bananas produced therein would be sold exclusively to
arrangement falls within the prohibitions
TACOR; that the landowners worked on their own farms and
provided in Section 6.
Evidently, respondent having the power of control hired laborers to assist them; that the landowners themselves
over petitioners must be considered as petitioners employer decided to form a cooperative in order to better attain their
from the termination of the Agreement onwards as this was business objectives; and that it was not in a position to state
the only time that any evidence of control was exhibited by whether Traveno et al. were working on the banana plantation
respondent over petitioners and in light of our ruling of the landowners who had contracted with TACOR.
in Abella. Thus, as aptly declared by the NLRC, petitioners
were entitled to the rights and benefits of employees of
The Cooperative failed to file a position paper despite due
respondent, including due process requirements in the
termination of their services. notice, prompting the Labor Arbiter to consider it to have
waived its right to adduce evidence in its defense. Nothing
Both the Labor Arbiter and NLRC found that was heard from respondent Dole Asia Philippines.
respondent did not observe such due process requirements.
Having failed to do so, respondent is guilty of illegal dismissal. LA Ruling/Ratio: The LA found respondent Cooperative guilty
of illegal dismissal. It dropped the complaints against DFI,
WHEREFORE, we SET ASIDE the CAs May 6,
TACOR and Dole Asia Philippines. It disposed:
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 1. Declaring respondent Bobongon Banana Growers Multi-
dated October 28, 2005 and August 28, 2006. No costs. purpose Cooperative guilty of illegal dismissal;
Case Title: OLDARICO S. TRAVEO, ROVEL A. GENELSA, RUEL
U. VILLARMENTE, ALFREDO A. PANILAGAO, CARMEN P. DANILA,
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.40
2. Ordering respondent Bobongon Banana Growers Multi- present petition, DPI did not file a comment as the directive
purpose Cooperative to pay complainants full backwages from was addressed to "Dole Asia Philippines", an entity which is
the time of their illegal dismissal up to this promulgation, to not registered at the Securities and Exchange Commission.
be determined during the execution stage; Commenting on DPIs Urgent Manifestation, Traveno et al.
contend that DPI cannot be allowed to take advantage of their
3. Ordering respondent Bobongon Banana Growers Multi- lack of knowledge as to its exact corporate name, DPI having
purpose Cooperative to reinstate complainants to their former raised the matter for the first time before this Court
positions without loss of seniority rights and if not possible, to notwithstanding its receipt of all pleadings and court
pay them separation pay equivalent to 1/2 month pay for processes from the inception of this case.
every year of service;
Upon review of the records, the Court finds that DPI never
4. Ordering respondent Bobongon Banana Grower Cooperative ever participated in the proceedings despite due notice. Its
[sic] to pay 10% of the total award as Attorneys fees; posturing, therefore, that the court processes it received were
addressed to "Dole Asia Philippines," a non-existent entity,
5. All other respondents are hereby dropped as party- does not lie. That DPI is the intended respondent, there is no
respondents for lack of merit. doubt.
In finding for Traveno et al., the LA relied heavily on the The Labor Code and its Implementing Rules empower the LA
following Orders submitted by DFI which were issued in an to be the trier of facts in labor cases. Much reliance is thus
earlier case filed with the DOLE, viz: (1) Order dated July 11, placed on the Arbiters findings of fact, having had the
1995 of the Director of DOLE Regional Office No. XI declaring opportunity to discuss with the parties and their witnesses the
the Cooperative as the employer of the 341 workers in the factual matters of the case during the conciliation phase. Just
farms of its several members; (2) Order dated December 17, the same, a review of the records of the present case does not
1997 of the DOLE Secretary affirming the Order dated July 11, warrant a conclusion different from the Arbiters, as affirmed
1995 of the Director of DOLE Regional Office No. XI; and (3) by the NLRC, that the Cooperative is the employer of Traveno
Order dated June 23, 1998 of the DOLE Secretary denying the et al.
Cooperatives Motion for Reconsideration.
To be sure, the matter of whether the Cooperative is an
NLRC Ruling/Ratio: On partial appeal to the NLRC, Traveno et independent contractor or a labor-only contractor may not be
al. questioned the LAs denial of their money claims and the used to predicate a ruling in this case. Job contracting or
dropping of their complaints against TACOR, DFI, and Dole subcontracting refers to an arrangement whereby a principal
Asia Philippines. By a Resolution, the NLRC sustained the LAs agrees to farm out with a contractor or subcontractor the
ruling that the employer of Traveno et al. is the Cooperative, performance of a specific job, work or service within a definite
there being no showing that the earlier mentioned Orders of or predetermined period, regardless of whether such job, work
the DOLE Secretary had been set aside by a court of or service is to be performed or completed within or outside
competent jurisdiction. It partially granted their appeal, the premises of the principal. The present case does not
however, by ordering the Cooperative to pay them their involve such an arrangement.
unpaid wages, wage differentials, service incentive leave pay,
and 13th month pay. It thus remanded the case to the LA for DFI did not farm out to the Cooperative the performance of a
computation of those awards. specific job, work, or service. Instead, it entered into a Banana
Production and Purchase Agreement (Contract) with the
Their MR having been denied by Resolution of Ca, Traveno et Cooperative, under which the Cooperative would handle and
al. appealed to the Court of Appeals via certiorari. fund the production of bananas and operation of the
plantation covering lands owned by its members in
CA Ruling: By Resolution, CA dismissed the petition for consideration of DFIs commitment to provide financial and
certiorari on the ground that the accompanying verification technical assistance as needed, including the supply of
and certification against forum shopping was defective, it information and equipment in growing, packing, and shipping
having been signed by only 19 of the 22 therein named bananas. The Cooperative would hire its own workers and pay
Traveno et al.. Their MR being denied, Traveno et al. lodged their wages and benefits, and sell exclusively to DFI all export
the petition before the SC. quality bananas produced that meet the specifications agreed
upon.
Issue/s: whether DFI (with which TACOR had been merged)
and DPI should be held solidarily liable with the Cooperative To the Court, the Contract between the Cooperative and DFI,
for Traveno et als illegal dismissal and money claims. far from being a job contracting arrangement, is in essence a
business partnership that partakes of the nature of a joint
SC Ruling/Ratio: SC dismissed the petition. venture. The rules on job contracting are, therefore,
inapposite. The Court may not alter the intention of the
Dwelling on the merits of the case, Traveno et al. posit that contracting parties as gleaned from their stipulations without
the LA and the NLRC disregarded evidence on record showing violating the autonomy of contracts principle under Article
that while the Cooperative was their employer on paper, the 1306 of the Civil Code which gives the contracting parties the
other respondents exercised control and supervision over utmost liberality and freedom to establish such stipulations,
them; that the Cooperative was a labor-only contractor; and clauses, terms and conditions as they may deem convenient,
that the Orders of the DOLE Secretary relied upon by the provided they are not contrary to law, morals, good custom,
Labor Arbiter and the NLRC are not applicable to them as the public order or public policy.
same pertained to a certification election case involving
different parties and issues. DFI, commenting for itself and Traveno et al.s claim of employment relationship with the
TACOR, maintains that, among other things, it was not the Cooperatives herein co-respondents must be assessed on the
employer of Traveno et al.; and that it cannot comment on basis of four standards, viz: (a) the manner of their selection
their money claims because no evidence was submitted in and engagement; (b) the mode of payment of their wages; (c)
support thereof. It appears that respondent Cooperative had the presence or absence of the power of dismissal; and (d) the
been dissolved. As respondent Dole Asia Philippines failed to presence or absence of control over their conduct. Most
file a comment, the Court, by Resolution of November 29, determinative among these factors is the so-called "control
2006, required it to (1) show cause why it should not be held test."
in contempt for its failure to heed the Courts directive, and
(2) file the required comment, within 10 days from notice. There is nothing in the records which indicates the presence
Dole Philippines, Inc. (DPI) promptly filed an Urgent of any of the foregoing elements of an employer-employee
Manifestation stating that, among other things, while its relationship.
division located in Davao City received the Courts Resolution
directing Dole Asia Philippines to file a comment on the
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.41
The absence of the first requisite, which refers to selection 3) Verification is deemed substantially complied with when
and engagement, is shown by DFIs total lack of knowledge on one who has ample knowledge to swear to the truth of the
who actually were engaged by the Cooperative to work in the allegations in the complaint or petition signs the verification,
banana plantation. This is borne out by the Contract between and when matters alleged in the petition have been made in
the Cooperative and DFI, under which the Cooperative was to good faith or are true and correct.
hire its own workers. As TACOR had been merged with DFI,
and DPI is merely alleged to have previously owned TACOR, 4) As to certification against forum shopping, non-compliance
this applies to them as well. Traveno et al. failed to prove the therewith or a defect therein, unlike in verification, is
contrary. No employment contract whatsoever was submitted generally not curable by its subsequent submission or
to substantiate how Traveno et al. were hired and by whom. correction thereof, unless there is a need to relax the Rule on
the ground of "substantial compliance" or presence of "special
On the second requisite, which refers to the payment of circumstances or compelling reasons."
wages, it was likewise the Cooperative that paid the same. As
reflected earlier, under the Contract, the Cooperative was to 5) The certification against forum shopping must be signed by
handle and fund the production of bananas and operation of all the plaintiffs or Traveno et al. in a case; otherwise, those
the plantation. The Cooperative was also to be responsible for who did not sign will be dropped as parties to the case. Under
the proper conduct, safety, benefits, and general welfare of its reasonable or justifiable circumstances, however, as when all
members and workers in the plantation. the plaintiffs or Traveno et al. share a common interest and
invoke a common cause of action or defense, the signature of
As to the third requisite, which refers to the power of only one of them in the certification against forum shopping
dismissal, and the fourth requisite, which refers to the power substantially complies with the Rule.
of control, both were retained by the Cooperative. Again, the
Contract stipulated that the Cooperative was to be 6) Finally, the certification against forum shopping must be
responsible for the proper conduct and general welfare of its executed by the party-pleader, not by his counsel. If, however,
members and workers in the plantation. for reasonable or justifiable reasons, the party-pleader is
unable to sign, he must execute a Special Power of Attorney
The crucial element of control refers to the authority of the designating his counsel of record to sign on his behalf.
employer to control the employee not only with regard to the (Emphasis and underscoring supplied)
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 The foregoing restated pronouncements were lost in the
suffices that the power of control exists, albeit not actually challenged Resolutions of the appellate court. Traveno et al.s
exercised, there must be some evidence of such power. In the contention that the appellate court should have dismissed the
present case, Traveno et al. did not present any. petition only as to the non-signing Traveno et al. or merely
dropped them as parties to the case is thus in order.
There being no employer-employee relationship between
Traveno et al. and the Cooperatives co-respondents, the Instead of remanding the case to the appellate court,
latter are not solidarily liable with the Cooperative for Traveno however, the Court deems it more practical to decide the
et al. illegal dismissal and money claims. substantive issue raised in this petition so as not to further
delay the disposition of this case. And it thus resolves to
While the Court commiserates with Traveno et al. on their loss deviate as well from the general rule that factual questions
of employment, especially now that the Cooperative is no are not entertained in petitions for review on certiorari of the
longer a going concern, it cannot simply, by default, hold the appellate courts decisions in order to write finis to this
Cooperatives co-respondents liable for their claims without protracted litigation.
any factual and legal justification therefor. The social justice
policy of labor laws and the Constitution is not meant to be POLYFOAM v. CONCEPCION
oppressive of capital.
Elements of labor-only contracting:
En passant, Traveno et al. are not precluded from pursuing
any available remedies against the former members of the 1. The contractor or subcontractor does not have
defunct Cooperative as their individual circumstances may substantial capital or investment to actually perform
warrant. the job, work or service under its own account and
responsibility; and 2.
Dispositive Portion: WHEREFORE, the petition is DISMISSED. 2. The employees recruited, supplied or placed by such
contractor or subcontractor are performing activities
(TECHNICALITY ISSUE) Respecting the appellate courts which are directly related to the main business of the
dismissal of Traveno et al. appeal due to the failure of some principal.
of them to sign the therein accompanying verification and
certification against forum-shopping, the Courts guidelines FACTS:
for the bench and bar in Altres v. Empleo, which were culled
"from jurisprudential pronouncements," are instructive: Concepcion alleged that he was hired by Polyfoam as
a factory worker and served for almost 6 yrs. On Jan 14, 2000,
For the guidance of the bench and bar, the Court restates in Concepcion allegedly discovered that his time card was not in
capsule form the jurisprudential pronouncements already the rack and was later informed by the security guard that he
reflected above respecting non-compliance with the could no longer punch his time card. He protested to his
requirements on, or submission of defective, verification and supervisor and he was told that the management decided to
certification against forum shopping: dismiss him due to an infraction of a company rule.
Concepcion filed a complaint for illegal dismissal, non-
1) A distinction must be made between non-compliance with payment of wages, premium pay for rest day, separation pay,
the requirement on or submission of defective verification, SIL, 13th month pay damages and attys fees against Polyfoam
and non-compliance with the requirement on or submission of and Natividad Cheng (Companys manager)
defective certification against forum shopping.
Gramaje file a Motion for intervention which was
2) As to verification, non-compliance therewith or a defect granted by LA Babiano, claiming to be the real employer of
therein does not necessarily render the pleading fatally Concepcion. Polyfoam filed motion to dismiss on the ground
defective. The court may order its submission or correction or that NLRC does not have jurisdiction over the case because
act on the pleading if the attending circumstances are such there was no employer-employee relationship between
that strict compliance with the Rule may be dispensed with in polyfoam and Concepcion.
order that the ends of justice may be served thereby.
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.42
Gramaje claims that P.A Gramaje Employment according to its own manner and method, free from the
Services (PAGES) is a legitimate job contractor who provided control and supervision of its principal.
some manpower needs of Polyfoam. It was alleged that
Concepcion was hired as packer and assigned to polyfoam. There is an employer-employee relationship. A finding
Concepcion was not dismissed from employment, he was that a contractor is a labor-only contractor, as opposed to
simply stopped reporting from work. permissible job contracting, is equivalent to declaring that
there is an employer-employee relationship between the
LA: Concepcion was illegally dismissed and Polyfoam and principal and the employees of the supposed contractor, and
Gramaje solidary liable for Concepcions money claims. the labor-only contractor is considered as a mere agent of the
Polyfoam and Gramaje are solidarily liable to Concepcion for principal, the real employer. In this case, Polyfoam is the
the his money claims, considering that Gramaje (the principal employer and Gramaje is the labor-only
contractor) was not enrolled as private employment agency in contractor. Polyfoam and Gramaje are, therefore, solidarily
the registry of the Regional Office of the Department of Labor liable for the rightful claims of respondent.
and Employment (DOLE) and considering further that
respondent performed a job directly related to the main Concepcion was illegally dismissed without just cause.
business of Polyfoam.
Title: Garden of Memoirs v. NLRC
NLRC:
Principle: Labor-Only v. Job Contracting
NLRC found Gramaje to be an independent
contractor who contracted the packaging aspect of the Facts:
finished foam products of Polyfoam. Pursuant to said contract,
Gramajes employees, including respondent, were assigned to Petitioner Garden of Memories is engaged in the business of
Polyfoam but remained under the control and supervision of operating a memorial park situated at Calsadang Bago,
Gramaje. It likewise concluded that Gramaje had its own office Pateros, Metro-Manila and selling memorial Plan and services.
equipment, tools, and substantial capital and, in fact, supplied
the plastic containers and carton boxes used by her Respondent Cruz, on the other hand, worked at the Garden of
employees in performing their duties. The Commission also Memories Memorial Park as a utility worker from August 1991
found sufficient evidence to prove that Gramaje paid until her termination in February 1998.
respondents wages and benefits and reported the latter to the
Social Security System (SSS) as a covered employee. As to On March 13, 1998, Cruz filed a complaint for illegal dismissal,
whether there was illegal dismissal, the NLRC answered in the underpayment of wages, non-inclusion in the Social Security
negative, since respondent was not notified that he had been Services, and non-payment of legal/special holiday, premium
dismissed nor was he prevented from returning to his work. pay for rest day, 13th month pay and service incentive leave
The NLRC found Gramaje liable for claiming that respondent pay against Garden of Memories before the Department of
abandoned his job. Labor and Employment (DOLE).
CA: agreed that Gramaje is only a labor-contractor. Upon motion of Garden of Memories, Requio was impleaded
as respondent on the alleged ground that she was its service
Concepcion was indeed Polyfoams employee. This contractor and the employer of Cruz.
relationship was specifically shown by Polyfoams exercise of
supervision over the work of respondent; the furnishing of a In her position paper, Cruz averred that she worked as a utility
copy of Polyfoams Mga Alituntunin at Karampatang Parusa to worker of Garden of Memories with a salary of P115.00 per
serve as respondents guide in the performance of his day. As a utility worker, she was in charge, among others, of
duty; the length of time that respondent had performed the cleaning and maintenance of the ground facilities of the
activities necessary for Polyfoams business; and Polyfoams memorial park. Sometime in February 1998, she had a
act of directly firing respondent. Finally, the appellate court misunderstanding with a co-worker named Adoracion Requio
affirmed the LAs findings of illegal dismissal as respondent regarding the use of a garden water hose. When the
was dismissed from the service without cause and due misunderstanding came to the knowledge of Requio, the latter
process. instructed them to go home and not to return anymore. After
three (3) days, Cruz reported for work but she was told that
SC: affirmed CA. she had been replaced by another worker. She immediately
reported the matter of her replacement to the personnel
Gramaje is labor-only Contractor. manager of Garden of Memories and manifested her protest.
Elements of labor-only contracting: Cruz argued that as a regular employee of the Garden of
Memories, she could not be terminated without just or valid
1. The contractor or subcontractor does not have cause. Also, her dismissal was violative of due process as she
substantial capital or investment to actually perform was not afforded the opportunity to explain her side before
the job, work or service under its own account and her employment was terminated.
responsibility; and 2.
2. The employees recruited, supplied or placed by such Cruz further claimed that as a result of her illegal dismissal,
contractor or subcontractor are performing activities she suffered sleepless nights, serious anxiety and mental
which are directly related to the main business of the anguish.
principal.
In its Answer, Garden of Memories denied liability for the
The test of independent contractorship is whether one claims of Cruz and asserted that she was not its employee but
claiming to be an independent contractor has contracted to that of Requio, its independent service contractor, who
do the work according to his own methods and without being maintained the park for a contract price. It insisted that there
subject to the control of the employer, except only as to the was no employer-employee relationship between them
results of the work. because she was employed by its service contractor,
Victoriana Requio (Victoriana), who was later succeeded by
First: Gramaje has no substantial capital/ investment. her daughter, Paulina, when she (Victoriana) got sick. Garden
Polyfoam failed to adduce evidence that Gramaje had any of Memories claimed that Requio was a service contractor who
substantial capital, investment or assets to perform the work carried an independent business and undertook the contract
contracted for, the presumption that Gramaje is a labor-only of work on her own account, under her own responsibility and
contractor stands. according to her own manner and method, except as to the
results thereof.
Second: Gramaje did not carry on an independent
business or undertake the performance of its service contract
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.43
In her defense, Requio prayed for the dismissal of the merely as an agent of the employer who shall be responsible
complaint stating that it was Victoriana, her mother, who to the workers in the same manner and extent as if the latter
hired Cruz, and she merely took over the supervision and were directly employed by him.[Underscoring provided]
management of the workers of the memorial park when her
mother got ill. She claimed that the ownership of the business In the same vein, Sections 8 and 9, DOLE Department Order
was never transferred to her. No. 10, Series of 1997, state that:
Requio further stated that Cruz was not dismissed from her Sec. 8. Job contracting. There is job contracting permissible
employment but that she abandoned her work. under the Code if the following conditions are met:
Ruling of the Labor Arbiter: (1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
The LA ruled that Requio was not an independent contractor own responsibility according to his own manner and method,
but a labor-only contractor and that her defense that Cruz free from the control and direction of his employer or principal
abandoned her work was negated by the filing of the present in all matters connected with the performance of the work
case. except as to the results thereof; and
Ruling of the NLRC: (2) The contractor has substantial capital or investment in the
form of tools, equipment, machineries, work premises, and
The NLRC affirmed the ruling of the LA, stating that Requio other materials which are necessary in the conduct of his
had no substantial capital or investments in the form of tools, business.
equipment, machineries, and work premises, among others,
for her to qualify as an independent contractor. Sec. 9. Labor-only contracting. (a) Any person who undertakes
to supply workers to an employer shall be deemed to be
Ruling of the CA: engaged in labor-only contracting where such person:
The CA dismissed the petition and affirmed the NLRC decision. (1) Does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises and
Issue: other materials; and
Whether an employer-employee relationship exists between (2) The workers recruited and placed by such persons are
respondent Cruz and petitioner garden of memories. performing activities which are directly related to the principal
business or operations of the employer in which workers are
Ruling of the Court: habitually employed.
The Court finds no merit in the petition. (b) Labor-only contracting as defined herein is hereby
prohibited and the person acting as contractor shall be
In the present case, the LA, the NLRC, and the CA are one in considered merely as an agent or intermediary of the
declaring that petitioner Requio was not a legitimate employer who shall be responsible to the workers in the same
contractor. Echoing the decision of the LA and the NLRC, the manner and extent as if the latter were directly employed by
CA reasoned out that Requio was not a licensed contractor him.
and had no substantial capital or investment in the form of
tool, equipment and work premises, among others. (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
Section 106 of the Labor Code on contracting and operating needs of the employer and the rights of the workers
subcontracting provides: involved. In such case, he may prescribe conditions and
restrictions to insure the protection and welfare of the
Article 106. Contractor or subcontractor. - Whenever, an workers.
employer enters into a contract with another person for the
performance of the formers work, the employees of the On the matter of labor-only contracting, Section 5 of Rule VIII-
contractor and of the latters subcontractor shall be paid in A of the Omnibus Rules Implementing the Labor Code,
accordance with the provisions of this Code. provides:
In the event that the contractor or subcontractor fails to pay Section 5. Prohibition against labor-only contracting. Labor-
the wages of his employees in accordance with this Code, the only contracting is hereby declared prohibited. For this
employer shall be jointly and severally liable with his purpose, labor-only contracting shall refer to an arrangement
contractor or subcontractor to such employees to the extent where the contractor or subcontractor merely recruits,
of the work performed under the contract, in the same supplies or places workers to perform a job, work or service
manner and extent that he is liable to employees directly for a principal, and any of the following elements are present:
employed by him.
i) The contractor or subcontractor does not have
The Secretary of Labor may, by appropriate regulations, substantial capital or investment which relates to the job,
restrict or prohibit the contracting out of labor to protect the work or service to be performed and the employees recruited,
rights of workers established under this Code. In so prohibiting supplied or placed by such contractor or subcontractor are
or restricting, he may make appropriate distinctions between performing activities related to the main business of the
labor-only contracting and job contracting as well as principal, or
differentiations within these types of contracting and
determine who among the parties involved shall be ii) The contractor does not exercise the right to control
considered the employer for purposes of this Code, to prevent over the performance of the work of the contractual
any violation or circumvention of any provision of this Code. employee.
There is labor-only contracting where the person supplying Thus, in determining the existence of an independent
workers to an employer does not have substantial capital or contractor relationship, several factors may be considered,
investment in the form of tools, equipment, machineries, work such as, but not necessarily confined to, whether or not the
premises, among others, and the workers recruited and contractor is carrying on an independent business; the nature
placed by such persons are performing activities which are and extent of the work; the skill required; the term and
directly related to the principal business of such employer. In duration of the relationship; the right to assign the
such cases, the person or intermediary shall be considered 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 (a) Eight Thousand Seven Hundred Fifty Thousand
respect to the hiring, firing and payment of the contractors (8,750.00) Pesos payable on every 7th, 15th, 23rd and 30th
workers; the control of the premises; the duty to supply of the month.
premises, tools, appliances, materials and labor; and the
mode, manner and terms of payment. 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
On the other hand, there is labor-only contracting where: (a) Management.
the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, 5. It is expressly recognized that this contract was forged for
equipment, machineries, work premises, among others; and the purpose of supplying the necessary maintenance work
(b) the workers recruited and placed by such person are and in no way shall the same be interpreted to have created
performing activities which are directly related to the principal an employer-employee relationship. [Underscoring supplied]
business of the employer.
The requirement of the law in determining the existence of
The Court finds no compelling reason to deviate from the independent contractorship is that the contractor should
findings of the tribunals below. Both the capitalization undertake the work on his own account, under his own
requirement and the power of control on the part of Requio responsibility, according to his own manner and method, free
are wanting. from the control and direction of the employer except as to
the results thereof. In this case, however, the Service Contract
Generally, the presumption is that the contractor is a labor- Agreement clearly indicates that Requio has no discretion to
only contracting unless such contractor overcomes the burden determine the means and manner by which the work is
of proving that it has the substantial capital, investment, tools performed. Rather, the work should be in strict compliance
and the like. In the present case, though Garden of Memories with, and subject to, all requirements and standards of Garden
is not the contractor, it has the burden of proving that Requio of Memories.
has sufficient capital or investment since it is claiming the
supposed status of Requio as independent contractor. Garden Under these circumstances, there is no doubt that Requio is
of Memories, however, failed to adduce evidence purporting engaged in labor-only contracting, and is considered merely
to show that Requio had sufficient capitalization. Neither did it an agent of Garden of Memories. As such, the workers she
show that she invested in the form of tools, equipment, supplies should be considered as employees of Garden of
machineries, work premises and other materials which are Memories. Consequently, the latter, as principal employer, is
necessary in the completion of the service contract. responsible to the employees of the labor-only contractor as if
such employees have been directly employed by it.
Furthermore, Requio was not a licensed contractor. Her
explanation that her business was a mere livelihood program Notably, Cruz was hired as a utility worker tasked to clean,
akin to a cottage industry provided by Garden of Memories as sweep and water the lawn of the memorial park. She
part of its contribution to the upliftment of the underprivileged performed activities which were necessary or desirable to its
residing near the memorial park proves that her capital principal trade or business. Thus, she was a regular employee
investment was not substantial. Substantial capital or of Garden of Memories and cannot be dismissed except for
investment refers to capital stocks and subscribed just and authorized causes.
capitalization in the case of corporations, tools, equipment,
implements, machineries, and work premises, actually and Moreover, the Court agrees with the findings of the tribunals
directly used by the contractor or subcontractor in the below that respondent Cruz did not abandon her work but was
performance or completion of the job, work or service illegally dismissed.
contracted out. Obviously, Requio is a labor-only contractor.
As the employer, Garden of Memories has the burden of proof
Another determinant factor that classifies petitioner Requio as to show the employee's deliberate and unjustified refusal to
a labor-only contractor was her failure to exercise the right to resume his employment without any intention of returning.
control the performance of the work of Cruz. This can be For abandonment to exist, two factors must be present: (1)
gleaned from the Service Contract Agreement between the failure to report for work or absence without valid or
Garden of Memories and Requio, to wit: justifiable reason; and (2) a clear intention to sever employer-
employee relationship, with the second element as the more
NOW THEREFORE, premises considered, the parties hereto determinative factor being manifested by some overt acts. It
have hereunto agreed on the following terms and conditions: has been said that abandonment of position cannot be lightly
inferred, much less legally presumed from certain equivocal
1. That the Contractor shall undertake the maintenance of the acts. Mere absence is not sufficient.
above-mentioned works in strict compliance with and subject
to all the requirements and standards of GMMPLPI. In this case, no such intention to abandon her work can be
discerned from the actuations of Cruz. Neither were there
2. Likewise, the Contractor shall perform all other works that overt acts which could be considered manifestations of her
may from time to time be designated by GMMPLPI thru its desire to truly abandon her work. On the contrary, her
authorized representatives, which work is similar in nature to reporting to the personnel manager that she had been
the responsibilities of a regular employee with a similar replaced and the immediate filing of the complaint before the
function. DOLE demonstrated a desire on her part to continue her
employment with Garden of Memories. As correctly pointed
3. The contract price for the labor to be furnished or the out by the CA, the filing of the case for illegal dismissal
service to be rendered shall be THIRTY-FIVE THOUSAND negated the allegation of abandonment.
(35,000.00) PESOS per calendar month, payable as follows:
eurice.juvy.janeth.em.zarah.narika.mae.zhel.izo.wenji.nuel.45