DIAMOND FARMS, INC.

vs SOUTHERN PHILIPPINES FEDERATION OF

LABOR FACTS:

DFI owns an 800 ha banana plantation in Alejal, Carmen, Davao.

RA 6657 or the Comprehensive Agrarian Reform Law (CARL) of 1988 requires the DFI farm, which is
commercial in nature, to submit to compulsary acquisition and distribution
DAR granted DFI deferment priviege to continue agricultural operations until 1998
Due to marketing problems and lay-follow, DFI closed some areas of operation and layed-off its
employees
Layed off employees petitioned DAR to cancel deferment privilege, DAR granted.
DFI gave up rights and interest in favor of the government by way of Voluntary Offer to Sell; DAR
accepted offer.
DAR approved 689.88 out of the 800 ha, remaining land retained by DFI
Jan 1, 1996 > Awarded plantation was turned over to qualified agrarian reform beneficiaries (ARBs) under the
CARL. ARBs were farmers in original plantation.
ARBs organized themselves into DARBMUPCO
March 26, 1996 > DARBMUPCO and DFI entered in to a Banana Production and Purchase Agreement (BPAA)
Agreed to grow and cultivate high grade quality, exportable banana sold exclusively to DFI.
BPPA effective for 10 years
April 20, 1996 > DARBMUPCO and DFI executed a Supplemental Memorandum Agreement (SMA)
DFI shall take care of the labor costs arising from packaging operation, cable maintenance, irrigation
pump and irrigation maintenance that the workers of DARBMUPCO shall conduct for DFI's account
under BPPA
DARBMUPCO did not have manpower to undertake agricultural operation under BPPA because some members
were unwilling to work
To help DARBMUPCO, DFI engaged the services of contractors who recruited workers
February 10, 1997 > Southern Philippines Federation of Labor (SPFL) filed a petition for CERTIFICATION
ELECTION in the Office of the Med-Arbiter in Davao City, on behalf of the 400 workers jointly employed by DFI
and DARBMUPCO
Certification election is a method by which laborers can freely determine their union that shall act as
their representative in dealing with their employers
DFI and DARBMUPCO denied that the workers were under their employ, but of the contractors
MED-ARBITER RULING [May 14, 1997]
Approved petition for certification election
Declared DARBMUPCO as employer because workers were purposely hired to service the 689.88 ha
owned by DARBMUPCO
DARBMUPCO appealed to the Secretary of Labor and Employment (SOLE)
SOLE declared DFI as the employer because it, through its manager and personnel, supervised and
directed the performance of workers
SOLE denied DFI's MR
DFI elevated the case to CA
June 20, 1997 > SPFL and more than 300 workers filed complaints with the NLRC against DFI, DARBMUPCO and
contractors for underpayment of wages, non-payment of 13 th month pay and service incentive leaves (SILs)
DARBMUPCO asserted that they were not the employers, neither was DFI
LABOR ARBITER RULING
Respondent-contractors were labor-only contractors
LA gave credence to affidavits of other contractors that DFI supervised and paid their workers and
had no dealings with DARBMUPCO
Deemed DFI as the statutory employer
NLRC RULING
Declared DFI and DARBMUPCO as statutory employers and held solidarily liable with contractors for the
monetary claims of workers
CA RULING
Agreed with SOLE that DFI is the principal employer
The fact that workers were working on the land owned by DARBMUPCO is immaterial

ISSUE:
Who among DFI, DARBMUPCO and respondent-contractors is the employer of the respondent-workers?

SC RULING
Basing on the provisions of Article 106 of the Labor Code and as expressed by the respondent-contractor in his
testimony, they were only engaged in labor-only contracting and had no control over the performance of the
employees.
OMNIBUS RULES IMPLEMENTING THE LABOR CODE distinguishes job contracting from labor-only contracting.

It is job contracting when:

a) The contractor:
Carries on an independent business
undertakes the contract work on his own account under his own manner and method
 free from control and direction of the employer or principal in all manners connected with the
performance of the work except the result thereof
b) The contractor has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are necessary in
the conduct of his business

It is labor-only contracting when:

a) There is no substantial capital or investment
b) Workers recruited are performing duties which are directly related to the
principal business or operations of the employer in which workers are habitually
employed

DFI is the principal employer

Even though DARBMUPCO stipulated in the BPPA that DFI is not the employer of respondent-workers
is not controlling.
ER-EE relationship is determined by law, not by agreements.
DFI and respondent-contractors are solidariliy liable for the rightful claims of respondent-workers