LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug.
14, 2019) DEADPOOL
Philippine Airlines v. Ligan
February 29, 2008 – Buenaventura
Petitioner: Philippine Airlines Inc. (PAL)
Respondents: ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO
OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE
SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL
BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE
PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS,
ROLANDO TUNACAO, CHERRIE ALEGRES, BENEDICTO AUXTERO, EDUARDO
MAGDADARAUG, NELSON M. DULCE, and ALLAN BENTUZAL (workers assigned
by Synergy to PAL)
Employer PAL
Employees Respondents
Contractor/subcontractor Synergy (but found out as Labor Only Contractor)
Labor Issue Labor-only contracting
DOCTRINES:
• 2 elements of Labor-only Contracting:
a. The contractor or subcontractor does NOT have substantial capital OR
investment which relates to the job, work or service to be performed
AND
the employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to
the main business of the principal.
OR
b. The contractor does NOT exercise the right to control over the
performance of the work of the contractual employee.
- even if only one of the 2 elements is present, then there is labor-only
contracting.
• One who claims to be an independent contractor has to prove that he
contracted to do work according to his own methods and without being
subject to the employer’s control except only as to the result.
FACTS:
• PAL as owner and Synergy Service Corp (Synergy) as Contractor, entered
into an agreement whereby Synergy undertook to ““provide loading,
unloading, delivery of baggage and cargo and other related services to
and from petitioner’s aircraft at the Mactan Station.
• It was specified in the Agreement the following “Scope of Services” of
contractor Synergy:
1.2. CONTRACTOR shall furnish all the necessary capital, workers,
loading, unloading and delivery materials, facilities, supplies,
equipment and tools for the satisfactory performance and
execution of the following services:
And it expressly provided that Synergy was “an independent
contractor and . . . that there w[ould] be no employer-
employee relationship between CONTRACTOR and/or its
employees on the one hand, and OWNER, on the other.
• Except for respondent Auxtero, the respondents, who appear to have been
assigned by Synergy to PAL following the execution of the Agreement, filed
complaints against PAL and Synergy for regularization of employment
status with petitioner PAL.
• Auxtero had initially filed a complaint against petitioner PAL and Synergy
for regularization of his employment status. Later, he was verbally dismissed
without valid ground. Hence, he filed a complaint against petitioner PAL
and Synergy for illegal dismissal.
• Complaints were consolidated.
RULING OF THE COURTS:
LA – found Synergy an independent contractor and dismissed respondent’s
complaint for regularization against petitioner, but granted their money claims.
NLRC – set aside the decision of LA. It declared Synergy to be a labor-only
contractor and ordered PAL to accept respondents as its regular employees.
CA – affirmed the decision of NLRC.
PETITIONER’S CONTENTION:
- the law does not prohibit an employer from engaging an independent
contractor, like Synergy, which has substantial capital in carrying on an
independent business of contracting, to perform specific jobs.
- its contracting out to Synergy various services like janitorial, aircraft
cleaning, baggage handling etc., which are directly related to its business,
does not make respondents its employees.
- No EER between PAL and respondents.
RESPONDENTS’ CONTENTION: They are regular employees of Petitioner PAL since
their job is directly connected with its business.
ISSUE: Whether Synergy is merely labor-only contractor or a legitimate
contractor. – LABOR ONLY CONTRACTOR
RULING:
Legitimate contracting and labor only contracting are defined in D.O. No. 18-
02 Series of 2002. It was stated that:
Sec.3. Trilateral relationship in contracting arrangements -
legitimate contracting, there exists a trilateral relationship under
which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and
a contract of employment between the contractor or
subcontractor and its workers. Hence, there are three parties
involved in these arrangements, the principal which decides to
farm out a job or service to a contractor or subcontractor, the
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
contractor or subcontractor which has the capacity to
independently undertake the performance of the job, work or
service, and the contractual workers engaged by the contractor
or subcontractor to accomplish the job, work or service.
Sec.5. prohibition against labor-only contracting - Labor-only
contractor is hereby declared prohibited. For this purpose, labor-
only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal, and any
of the following elements are [sic] present:
(i) The contractor or subcontractor does not have
substantial capital or investment which relates to the job,
work or service to be performed and the employees
recruited, supplied or placed by such contractor or
subcontractor are performing activities which are
directly related to the main business of the principal; OR
(ii) The contractor does not exercise the right to control over
the performance of the work of the contractual
employee.
“Substantial capital or investment” refers to capital stocks and subscribed
capitalization in the case of corporations, tools, equipment, implements,
machineries and work premises, actually and directly used by the contractor or
subcontractor in the performance or completion of the job, work or service
contracted out.
The “right to control” shall refer to the right reserved to the person for whom the
services of the contractual workers are performed, to determine not only the
end to be achieved, but also the manner and means to be used in reaching
that end.”
From the records of the case, it is gathered that the work performed by almost
all of the respondents—loading and unloading of baggage and cargo of
passengers—is directly related to the main business of petitioner. And the
equipment used by respondents as station loaders, such as trailers and
conveyors, are owned by petitioner.
Petitioner asserts, however, that mere compliance with substantial capital
requirement suffices for Synergy to be considered a legitimate contractor, citing
Neri v. National Labor Relations Commission. Petitioner’s reliance on said case is
misplaced. In stark contrast to the case at bar, while petitioner steadfastly
asserted before the Labor Arbiter and the NLRC that Synergy has a substantial
capital to engage in legitimate contracting, it failed to present evidence
thereon.
DEADPOOL
More significantly, however, is that respondents worked alongside petitioner’s
regular employees who were performing identical work.
Even if only one of the 2 elements is present then, there is labor-only contracting.
One who claims to be an independent contractor has to prove that he
contracted to do the work according to his own methods and without being
subject to the employer’s control except only as to the results. While petitioner
claimed that it was Synergy’s supervisors who actually supervised respondents,
it failed to present evidence thereon. It did not even identify who were the
Synergy supervisors assigned at the workplace. Petitioner in fact admitted that
it fixes the work schedule of respondents as their work was dependent on the
frequency of plane arrivals. And as the NLRC found, petitioner’s managers and
supervisors approved respondents’ weekly work assignments and respondents
and other regular PAL employees were all referred to as “station attendants” of
the cargo operation and airfreight services of petitioner.
Respondents having performed tasks which are usually necessary and desirable
in the air transportation business of petitioner, they should be deemed its regular
employees and Synergy as a labor-only contractor.
The express provision in the Agreement that Synergy was an independent
contractor and there would be “no employer employee relationship between
[Synergy] and/or its employees on one hand, and [petitioner] on the other
hand” is not legally binding and conclusive as contractual provisions are not
valid determinants of the existence of such relationship. For it is the totality of the
facts and surrounding circumstances of the case which is determinative of the
parties’ relationship.
DISPOSITION: WHEREFORE, the Court of Appeals Decision of September 29, 2000
is AFFIRMED with MODIFICATION. Petitioner PHILIPPINE AIRLINES, INC. is ordered
to:
a. Accept respondents as its regular employees in their same or
substantially equivalent positions.
San Miguel Corporation v. Aballa
June 28, 2005 – Buño
Petitioner: SAN MIGUEL CORPORATION (SMC)
Respondents: PROSPERO ABELLA, et. al.
Employer San Miguel Corporation
Employee/Union Prospero Abella, et. al.
Is Sunflower Multi-Purpose Cooperative an
Labor Issue Independent Contractor or a Labor-only Contractor?
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
DOCTRINE: The test to determine the existence of independent contractorship is
whether one claiming to be an independent contractor has contracted to do
the work according to his own methods and without being subject to the control
of the employer, except only as to the results of the work
FACTS:
! Petitioner San Miguel Corporation (SMC) and Sunflower Multi-Purpose
Cooperative (Sunflower) entered into a one-year Contract of Services
commencing on January 1, 1993, to be renewed on a month to month
basis
! Pursuant to the contract, Sunflower engaged private respondents to, as
they did, render services at SMC’s Bacolod Shrimp Processing Plant.
! The contract was deemed renewed by the parties every month after its
expiration on January 1, 1994 and private respondents continued to
perform their tasks until September 11, 1995.
! 7/95 - respondents filed a complaint for regularization. 9/25/95 - they
ammended the complaint to include illegal dismissal.
! 9/30/96 - SMC filed before the RO at Iloilo City of the DOLE a Notice of
Closure of its aquaculture operations effective on even date, citing serious
business losses.
! LA: Dismissed. The law allows job contracting. The decision to close down
the plant is well-within management prerogative.
! NLRC: Appeal Dismissed. Sunflower was an independent contractor.
(Ruling was subsequently reversed by the CA)
! PETITIONER’s CONTENTION: Private respondents are the employees of
Sunflower, an independent contractor. It could not have been issued a
certificate of registration as a cooperative if it had no substantial capital.
! RESPONDENT’s CONTENTION: Sunflower is a labor- only contractor.
ISSUE: WoN Sunflower is an Independent Contractor – NO; labor-only contractor.
RULING:
! The test to determine the existence of independent contractorship is
whether one claiming to be an independent contractor has contracted
to do the work according to his own methods and without being subject
to the control of the employer, except only as to the results of the work.
! In legitimate labor contracting, the law creates an employer-employee
relationship for a limited purpose, i.e., to ensure that the employees are
paid their wages. The principal employer becomes jointly and severally
liable with the job contractor, only for the payment of the employeesE
wages whenever the contractor fails to pay the same. Other than that, the
principal employer is not responsible for any claim made by the
employees.
! In labor-only contracting, the statute creates an employer-employee
relationship for a comprehensive purpose: to prevent a circumvention of
labor laws. The contractor is considered merely an agent of the principal
DEADPOOL
employer and the latter is responsible to the employees of the labor-only
contractor as if such employees had been directly employed by the
principal employer.
! There is labor-only contracting where the person supplying workers to an
employer: (1) does not have substantial capital or investment in the form
of tools, equipment, machineries, work premises, among others, and (2)
the workers recruited and placed by such person are performing activities
which are directly related to the principal business of such employer.
! “Substantial capital or investment” refers to capital stocks and subscribed
capitalization in the case of corporations, tools, equipment, implements,
machineries and work premises, actually and directly used by the
contractor or subcontractor in the performance or completion of the job,
work or service contracted out.
! Here, (1) No substantial capital and (2) No independent business.
! NO SUBSTANTIAL CAPITAL. While indeed Sunflower was issued Certificate of
Registration by the Cooperative Development Authority, this merely shows
that it had at least P2,000.00 in paid-up share capital which amount
cannot be considered substanntial capitalizatio.
! The lot, building, machineries and all other working tools utilized by private
respondents in carrying out their tasks were owned and provided by SMC.
! NO INDEPENDENT BUSSINESS. Sunflower did not carry on an independent
business or undertake the performance of its service contract according
to its own manner and method, free from the control and supervision of its
principal, SMC, its apparent role having been merely to recruit persons to
work for SMC.
! The DTRs were signed by SMC supervisors. Private respondents had been
working in the aqua processing plant inside the SMC compound alongside
regular SMC shrimp processing workers performing identical jobs under the
same SMC supervisors. This circumstance is another indicium of the
existence of a labor-only contractorship.
! Sunflower did not cater to clients other than SMC, and with the closure of
SMC’s Bacolod Shrimp Processing Plant, Sunflower likewise ceased to exist.
Regarding SMC’s Aquaculture Operations’ Closure.
! Grounds for retrenchement: (a) the losses expected should be substantial
and not merely de minimis in extent; (b) the substantial losses
apprehended must be reasonably imminent such as can be perceived
objectively and in good faith by the employer; (c) the retrenchment must
be reasonably necessary and likely to effectively prevent the expected
losses; and (d) the alleged losses, if already incurred, and the expected
imminent losses sought to be forestalled, must be proved by sufficient and
convincing evidence. Here, company losses were duly established
! For termination due to retrenchment to be valid, however, the law requires
that written notices of the intended retrenchment be served by the
employer on the worker and on the DOLE at least one (1) month before
the actual date of the retrenchment
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! Here, Private respondents, however, were merely verbally informed on
September 10, 1995 by SMC Prawn Manager Ponciano Capay that
effective the following day or on September 11, 1995, they were no longer
to report for work as SMC would be closing its operations. Thus, they are
entitled to nominal damages of 50k.
DISPOSITION: WHEREFORE, the petition is DENIED. The assailed Decision dated
February 7, 2001 and Resolution dated July 11, 2001 of the Court of Appeals are
AFFIRMED with MODIFICATION.
Meralco Industrial Engineering Services v. NLRC
March 14, 2008 – Cartagena
Petitioner: MERALCO INDUSTRIAL ENGINEERING SERVICES CORPORATION
Respondents: NATIONAL LABOR RELATIONS COMMISSION (NLRC), OFELIA P.
LANDRITO GENERAL SERVICES and/or OFELIA P. LANDRITO
Employer Ofelia P. Landrito General Services [contractor]
Employee/
Union 49 complainants [no mention of names]
Labor Issue Solidary liability
DOCTRINE: Once the job contractor fails to pay the wages of its employees
supplied to the principal, the principal would no longer be considered merely
as an indirect employer, but as direct employer, and becomes solidarily liable
with the contractor for the payment of unpaid wages.
FACTS:
l Ofelia P. Landrito General Services (OPLGS) is a business engaged in
providing and rendering general services, such as janitorial and
maintenance work to its clients.
l On November 7, 1984, Meralco Industrial Engineering Services Corporation
(Meralco) executed a contract order with OPLGS.
l The contract order provides that OPLGS would supply janitorial services to
Meralco, which include labor, materials, tools and equipment, as well
supervision of its assigned employees, at Meralco’s Rockwell Thermal
Powerplant in Makati City.
l OPLGS assigned 49 employees as janitors to Meralco.
l On September 20, 1989, 49 employees filed a complaint for illegal
deduction, underpayment, non - payment of overtime pay, legal holiday
pay, premium holiday and rest day, and night differentials against OPLGS
with the LA.
l On November 3, 1989, in view of the enactment of RA 6727, the contract
between Meralco was amended to increase the minimum daily wage per
employee from P63.55 to P 89.00.
DEADPOOL
l On January 2, 1990, Meralco informed OPLGS that it was terminating the
order order effectively on January 31, 1990.
l On February 27, 1990, the employees amended their complaint to include
the charge of illegal dismissal and to implead Meralco.
RULING OF THE LOWER COURTS:
LA: dismissed the complaint but ordered only OPLGS to pay the unpaid
wages, separation pay and overtime pay.
NLRC: Meralco solidarily liable with OPLGS.
CA: Meralco solidarily liable with OPLS for the satisfaction of the laborer’s
separation pay.
PETITIONER’s CONTENTION: Meralco [petitioner] is not liable to share in the
payment of separation pay since it had complied with its salary obligations and
there was no employer - employee relationship between it and the
complainants.
RESPONDENT’s CONTENTION: Meralco, being the principal, is solidarily liable with
OPLGS for failure to make an adjustment on the wages.
ISSUE: Whether Meralco is solidarily liable with OPLGS for the payment of the
laborer’s separation pay? – NO.
RULING:
Article 107 of the Labor Code defines an indirect employer as “any person,
partnership, association or corporation which, not being an employer, contracts
with an independent contractor for the performance of any work, task, job or
project.”
To ensure that the contractor’s employees are paid their appropriate wages,
Article 106 provides that in the event the contractor or subcontractor fails to pay
the wages of his employees, the employer shall be jointly and severally liable
with his contractor or subcontractor to the extend of the work performed under
the contract.
Taken together, and indirect employer can only be held solidarily liable with the
independent contractor or subcontractor [IC] in the event that the IC fails to
pay the wages of its employees, but only to the extent of the work performed
under the contract.
Meralco, as an indirect employer, is liable only for purposes of unpaid wages.
Meralco has no employer - employee relationship with the laborers; they were
the employees of OPLGS.
The only instance when Meralco, as an indirect employer, can be held liable
with OPLS, and independent contractor for the payment of backwages and
separation pay s when there is proof that they conspired for the illegal dismissal
of the laborers, however, in this case, no allegation was presented.
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Neither can the liability for separation pay be extended to Meralco based on
contract. The contract order contains no provision for the payment of
separation pay in the event that Meralco terminates the laborers.
OPLGS bears the sole responsibility of paying the liabilities.
DISPOSITION: WHEREFORE, premises considered, the instant petition is hereby
GRANTED. No special pronouncement is made as to costs.
Manila Electric Company v. Benamira
July 14, 2005 – Diño
Petitioner: Manila Electric Co.
Respondents: Rogelio Benamira, Ernie De Sagun1, Diosdado Yogare, Francisco
Moro2, OSCAR LAGONOY3, Rolando Beni, Alex Beni, Raul4 Guia, Armed Security
& Detective Agency, Inc., (ASDAI) And Advance FORCES Security &
INVESTIGATION Services, Inc., (AFSISI)
PRINCIPAL Manila Electric Co.
AGENCY / CONTRACTOR Armed Security & Detective Agency, Inc.,
(ASDAI) and Advance FORCES Security &
INVESTIGATION Services, Inc., (AFSISI)
EMPLOYEE Rogelio Benamira, Ernie De Sagun1, Diosdado
Yogare, Francisco Moro2, Oscar Lagonoy3,
Rolando Beni, Alex Beni, Raul4 Guia,
DOCTRINE: When an agency is considered to be “independent contractors”, no
employer – employee relationship exist between the principal and employees.
In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and
severally liable with his contractor or subcontractor to such employees to the
extent of the work performed under the contract, in the same manner and
extent that he is liable to employees directly employed by him.
FACTS:
• The individual respondents are licensed security guards formerly employed
by People’s Security, Inc. (PSI) and deployed as such at MERALCO’s head
office in Ortigas Avenue, Pasig, Metro Manila.
• On 1990, the security service agreement between PSI and MERALCO was
terminated. Immediately thereafter, fifty-six of PSI’s security guards,
including herein eight individual respondents, filed a complaint for unpaid
monetary benefits against PSI and MERALCO,
• Meanwhile, the security service agreement between respondent Armed
Security & Detective Agency, Inc., (ASDAI) and MERALCO took effect on
December 1, 1990. Subsequently, the individual respondents were
absorbed by ASDAI and retained at MERALCO’s head office. Labor Arbiter
DEADPOOL
Manuel P. Asuncion rendered a decision in favor of the former PSI security
guards, including the individual respondents.
• Less than a month later, the individual respondents filed another complaint
for unpaid monetary benefits, this time against ASDAI and MERALCO.
• On July 25, 1992, the security service agreement between respondent
Advance Forces Security & Investigation Services, Inc. (AFSISI) and
MERALCO took effect, terminating the previous security service agreement
with ASDAI.7 Except as to the number of security guards,8 the amount to be
paid the agency,9 and the effectivity of the agreement,10 the terms and
conditions were substantially identical with the security service agreement
with ASDAI.
RULING OF THE LOWER COURTS
LA: ASDAI and MERALCO jointly and solidarily liable to the monetary claims of
individual respondents and dismissing the complaint against AFSISI.
NLRC : affirmed in toto the decision of the Labor Arbiter.
CA: MERALCO changed the security agency manning its premises three times
while engaging the services of the same people, the individual respondents;
MERALCO employed a scheme of hiring guards through an agency and
periodically entering into service contract with one agency after another in
order to evade the security of tenure of individual respondents; individual
respondents are regular employees of MERALCO since their services as security
guards are usually necessary or desirable in the usual business or trade of
MERALCO and they have been in the service of MERALCO for no less than six
years; an employer-employee relationship exists between MERALCO and the
individual respondents because: (a) MERALCO had the final say in the selection
and hiring of the guards, as when its advice was proved to have carried weight
in AFSISI’s decision not to absorb the individual respondents into its workforce;
(b) MERALCO paid the wages of individual respondents through ASDAI and
AFSISI; (c) MERALCO’s discretion on matters of dismissal of guards was given
great weight and even finality since the record shows that the individual
respondents were replaced upon the advice of MERALCO; and, (d) MERALCO
has the right, at any time, to inspect the guards, to require without explanation
the replacement of any guard whose behavior, conduct or appearance is not
satisfactory and ASDAI and AFSISI cannot pull out any security guard from
MERALCO without the latter’s consent; and, a labor-only contract existed
between ASDAI and AFSISI and MERALCO, such that MERALCO is guilty of illegal
dismissal without just cause and liable for reinstatement of individual
respondents to its workforce.
ISSUE:
1.) WON the Respondents were employees of Meralco or ASDAI
2.) WON the Meralco shall be held jointly and severally liable as regards
to the monetary claims of the individual respondents.
RULING:
1. The individual respondents were employees of ASDAI.
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
ASDAI and AFSISI are not "labor-only" contractors. There is "labor only"
contract when the person acting as contractor is considered merely as an
agent or intermediary of the principal who is responsible to the workers in the
same manner and to the same extent as if they had been directly employed by
him. On the other hand, "job (independent) contracting" is present if the
following conditions are met: (a) the contractor carries on an independent
business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control
and direction of his employer or principal in all matters connected with the
performance of the work except to the result thereof; and (b) the contractor
has substantial capital or investments in the form of tools, equipment,
machineries, work premises and other materials which are necessary in the
conduct of his business.29 Given the above distinction and the provisions of the
security service agreements entered into by petitioner with ASDAI and AFSISI, we
are convinced that ASDAI and AFSISI were engaged in job contracting.
The individual respondents can not be considered as regular employees of
the MERALCO for, although security services are necessary and desirable to the
business of MERALCO, it is not directly related to its principal business and may
even be considered unnecessary in the conduct of MERALCO’s principal
business, which is the distribution of electricity.
Furthermore, the fact that the individual respondents filed their claim for
unpaid monetary benefits against ASDAI is a clear indication that the individual
respondents acknowledge that ASDAI is their employer.
NOTE:
In this case, the terms and conditions embodied in the security service
agreement between MERALCO and ASDAI expressly recognized ASDAI as the
employer of individual respondents.
Under the security service agreement, it was ASDAI which (a) selected,
engaged or hired and discharged the security guards; (b) assigned them to
MERALCO according to the number agreed upon; (c) provided the uniform,
firearms and ammunition, nightsticks, flashlights, raincoats and other
paraphernalia of the security guards; (d) paid them salaries or wages; and, (e)
disciplined and supervised them or principally controlled their conduct. The
agreement even explicitly provided that "[n]othing herein contained shall be
understood to make the security guards under this Agreement, employees of
the COMPANY, it being clearly understood that such security guards shall be
considered as they are, employees of the AGENCY alone." Clearly, the
individual respondents are the employees of ASDAI.
2. YES, Meralco shall be held jointly and severally liable as regards to the
monetary claims of the individual respondents.
The fact that there is no actual and direct employer-employee relationship
between MERALCO and the individual respondents does not exonerate
DEADPOOL
MERALCO from liability as to the monetary claims of the individual respondents.
When MERALCO contracted for security services with ASDAI as the security
agency that hired individual respondents to work as guards for it, MERALCO
became an indirect employer of individual respondents pursuant to Article 107
of the Labor Code, which reads:
ART. 107. Indirect employer - The provisions of the immediately
preceding Article shall likewise apply to any person, partnership,
association or corporation which, not being an employer,
contracts with an independent contractor for the performance of
any work, task, job or project.
When ASDAI as contractor failed to pay the individual respondents,
MERALCO as principal becomes jointly and severally liable for the individual
respondents’ wages, under Articles 106 and 109 of the Labor Code, which
provide:
ART. 106. Contractor or subcontractor. - Whenever an employer
enters into a contract with another person for the performance of
the former[‘s] work, the employees of the contractor and of the
latter[‘s] subcontractor, if any, shall be paid in accordance with
the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him. Xxx
ART. 109. Solidary liability - The provisions of existing laws to the
contrary notwithstanding, every employer or indirect employer
shall be held responsible with his contractor or subcontractor for
any violation of any provision of this Code. For purpose of
determining the extent of their civil liability under this Chapter,
they shall be considered as direct employers.
ASDAI is held liable by virtue of its status as direct employer, while
MERALCO is deemed the indirect employer of the individual respondents for the
purpose of paying their wages in the event of failure of ASDAI to pay them. This
statutory scheme gives the workers the ample protection
DISPOSITION: WHEREFORE, the present petition is GRANTED. The assailed
Decision, dated September 27, 2000, of the CA is REVERSED and SET ASIDE. The
Decision of the Labor Arbiter dated January 3, 1994 and the Resolution of the
NLRC dated April 10, 1995 are AFFIRMED with the MODIFICATION that the joint
and solidary liability of ASDAI and MERALCO to pay individual respondents’
monetary claims for underpayment of actual regular hours and overtime hours
rendered, and premium pay for holiday and rest day, as well as attorney’s fees,
shall be without prejudice to MERALCO’s right of reimbursement from ASDAI.
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Dole Phils. v. Esteva
November 30, 2006 – Landicho
Petitioner: DOLE “the company”
Respondent: Esteva et al
Contractor: CAMPCO “the contractor”
DOCTRINES:
- A basic rule observed in this jurisdiction is that no statute, decree,
ordinance, rule or regulation shall be given retrospective effect unless
explicitly stated THUS should apply orders prospectively.
- The DO No. 10 is not applicable to this case. First because it was effective
only in 1997, and second because DO No. 3, s2001 already revoked DO No.
10.
FACTS:
• Before this Court is a Petition for Review on Certiorari under Rule 45 …
declaring herein petitioner Dole Philippines, Inc. as the employer of herein
respondents, Medel Esteva and 86 others; found petitioner guilty of illegal
dismissal; and ordered petitioner to reinstate respondents to their former
positions and to pay the latter backwages.
• Petitioner is a corporation engaged in the production and processing of
pineapple for the export market.3 Its plantation is located in Polomolok,
South Cotabato.4
• Respondents are members of the Cannery Multi-Purpose Cooperative
(CAMPCO). CAMPCO was organized in accordance with Republic Act No.
6938, otherwise known as the Cooperative Code of the
Philippines.5 Members of CAMPCO live in communities surrounding
petitioner's plantation and are relatives of petitioner's employees.
• On 17 August 1993, DOLE and CAMPCO entered into a Service Contract
for a period of contract of six months was extended or renewed the same
for the succeeding years without executing another written contract.
• Sangguniang Bayan of Polomolok, South Cotabato, passed Resolution No.
64, on 5 May 1993, addressed to then Secretary Ma. Nieves R. Confessor of
the Department of Labor and Employment (DOLE), calling her attention to
the worsening working conditions of the petitioner's workers and the
organization of contractual workers into several cooperatives to replace
the individual labor-only contractors that used to supply workers to the
petitioner.
• Acting on the said Resolution, a Task Force was formed to investigate the
alleged labor-only contracting activities of the cooperatives in Polomolok.7
• DOLE’S FINDINGS: … THREE (3) Cooperatives engaged in labor-only
contracting – One of those three is CAMPCO. They were ordered to cease
and desist from engaging labor only contracting with DOLEFIL.
• Dolefil brought this case before the LA and NLRC which both ruled in favor
of Dolefil. Upon appeal, CA ruled in favor of the respondents.
DEADPOOL
• Respondent's Position Paper:
• Sometime in 1993 and 1994, [herein petitioner] Dolefil engaged the services
of the [herein respondents] through Cannery Multi-purpose Cooperative. A
cooperative which was organized through the initiative of Dolefil in order to
fill in the vacuum created as a result of the dismissal of the regular
employees of Dolefil sometime in 1990 to 1993.
• The [respondents] were assigned at the Industrial Department of
respondent Dolefil. All tools, implements and machineries used in
performing their task such as: can processing attendant, feeder of canned
pineapple at pineapple processing, nata de coco processing attendant,
fruit cocktail processing attendant, and etc. were provided by Dolefil.
• The cooperative does not have substantial capital and does not provide
the [respondents] with the necessary tools to effectively perform their
assigned task as the same are being provided by Dolefil.
• The [respondents] perform their assigned task inside the premises of Dolefil.
At the job site, they were given specific task and assignment by Dolefil's
supervisors assigned to supervise the works and efficiency of the
complainants.
• Just like the regular employees of Dolefil, [respondents] were subjected to
the same rules and regulations observe [sic] inside company premises and
to some extent the rules applied to the [respondents] by the company
through its officers are even stricter.
• The functions performed by the [respondents] are the same functions
discharged by the regular employees of Dolefil. In fact, at the job site, the
[respondents] were mixed with the regular workers of Dolefil.
Respondents thus argued that they should be considered regular
employees of petitioner given that: (1) they were performing jobs that were
usually necessary and desirable in the usual business of petitioner; (2)
petitioner exercised control over respondents, not only as to the results, but
also as to the manner by which they performed their assigned tasks; and
(3) CAMPCO, a labor-only contractor, was merely a conduit of petitioner.
PETITIONER’S DEFENSE:
- respondents were owners-members of CAMPCO; that CAMPCO was
engaged in legitimate job-contracting with its own owners-members
rendering the contract work; that under the express terms and
conditions of the Service Contract executed between petitioner (the
principal) and CAMPCO (the contractor), the latter shall undertake
the contract work on its own account, under its own responsibility, and
according to its own manner and method free from the control and
direction of the petitioner in all matters connected with the
performance of the work, except as to the result thereof;
- According to petitioner, the services rendered by CAMPCO
constituted permissible job contracting under the afore-quoted
paragraphs (a), (c), and (g), Section 6 of DOLE Department Order No.
10, series of 1997.
Section 6. Permissible contracting and subcontracting. –
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
(a) Works or services temporarily or occasionally needed to
meet abnormal increase in the demand of products or services,
provided that the normal production capacity or regular
workforce of the principal cannot reasonably cope with such
demands;
xxx
(c) Services temporarily needed for the introduction or
promotion of new products, only for the duration of the
introductory or promotional period;
xxx
(g) Unless a reliever system is in place among the regular
workforce, substitute services for absent regular employees,
provided that the period of service shall be coextensive with the
period of absence and the same is made clear to the substitute
employee at the time of engagement. The phrase "absent
regular employees" includes those who are serving suspensions or
other disciplinary measures not amounting to termination of
employment meted out by the principal, but excludes those on
strike where all the formal requisites for the legality of the strike
have been prima facie complied with based on the records filed
with the National Conciliation and Mediation Board.
LA: FAVORED PETITIONER
NLRC: FAVORED PETITIONER
CA: RULED IN FAVOR OF THE RESPONDENTS
ISSUE: WON CAMPCO WAS LABOR ONLY CONTRACTOR
HELD: YES.
Department Order No. 10, series of 1997, amended the implementing rules of
Books III and VI of the Labor Code, as amended. Under this particular DOLE
department order, the arrangement between petitioner and CAMPCO would
qualify as permissible contracting. Department Order No. 3, series of 2001,
revoked Department Order No. 10, series of 1997, and reiterated the prohibition
on labor-only contracting.
Attention is called to the fact that the acts complained of by the respondents
occurred well before the issuance of the two DOLE department orders in 1997
and 2001.
A basic rule observed in this jurisdiction is that no statute, decree, ordinance,
rule or regulation shall be given retrospective effect unless explicitly stated THUS
should apply orders prospectively.
Which now brings this Court to the question as to what was the prevailing rule
on labor-only contracting from 1993 to 1996, the period when the occurrences
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subject of the Complaint before the NLRC took place. (Ans.: the law prior DO
No. 10)
Article 106 of the Labor Code, as amended, permits legitimate job contracting,
but prohibits labor-only contracting. The said provision reads'
ART. 106. Contractor or subcontractor. - Whenever an employer
enters into a contract with another person for the performance of
the former's work, the employees of the contractor and of the
latter's subcontractor, if any, shall be paid in accordance with the
provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor …
The Secretary of Labor may, by appropriate regulations,
restrict or prohibit the contracting out of labor to protect the rights
of workers established under this Code...
IRR of Art. 106
Sec. 8. Job contracting. - There is job contracting permissible
under the Code if the following conditions are met;
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
own responsibility according to his own manner and method,
free from the control and direction of his employer or
principal in all matters connected with the performance of
the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the
form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his
business.
Sec. 9. Labor-only contracting. - (a) Any person who undertakes
to supply workers to an employer shall be deemed to be
engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises and
other materials; andcralawlibrary
(2) The workers recruited and placed by such persons are
performing activities which are directly related to the
principal business or operations of the employer in which
workers are habitually employed.
(b) Labor-only contracting as defined herein is hereby prohibited
and the person acting as contractor shall be considered merely
as an agent or intermediary of the employer who shall be
responsible to the workers in the same manner and extent as if the
latter were directly employed by him.
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
(c) For cases not falling under this Article, the Secretary of Labor
shall determine through appropriate orders whether or not the
contracting out of labor is permissible in the light of the
circumstances of each case and after considering the operating
needs of the employer and the rights of the workers involved. In
such case, he may prescribe conditions and restrictions to insure
the protection and welfare of the workers.
Since these statutory and regulatory provisions were the ones in force during the
years in question, then CAMPCO was engaged in labor-only contracting.
In summary, this Court finds that CAMPCO was a labor-only contractor and,
thus, petitioner is the real employer of the respondents, with CAMPCO acting
only as the agent or intermediary of petitioner. Due to the nature of their work
and length of their service, respondents should be considered as regular
employees of petitioner. Petitioner constructively dismissed a number of the
respondents by placing them on "stay home status" for over six months, and was
therefore guilty of illegal dismissal. Petitioner must accord respondents the status
of regular employees, and reinstate the respondents who it constructively and
illegally dismissed, to their previous positions, without loss of seniority rights and
other benefits, and pay these respondents' backwages from the date of filing
of the Complaint with the NLRC on 19 December 1996 up to actual
reinstatement.
WHEREFORE, in view of the foregoing, the instant Petition is DENIED.
SO ORDERED.
Aliviado v. Procter and Gamble
March 9, 2010 – Lucion
Principal/Employer P&G, Promm-Gem
Employee Petitioners, merchandisers
Contractor engaged in labor- SAPS
only contracting
DOCTRINE: Where labor-only contracting exists, the Labor Code itself establishes
an employer-employee relationship between the employer and the employees
of the labor-only contractor.
FACTS:
• Petitioners worked as merchandisers of P&G from various dates. They all
individual signed employment contracts with either Promm-Gem or SAPS
for more or less five months at a time. Petitioners were assigned at different
outlets, supermarkets and stores where they handled all the products of
P&G. They received their wages from Promm-Gem or SAPS.
DEADPOOL
• SAPS and Promm-Gem imposed disciplinary measures on erring
merchandisers for reasons such as habitual absenteeism, dishonesty or
changing day-off without prior notice.
• P&G is principally engaged in the manufacture and production of different
consumer and health products, which it sells on a wholesale basis to various
supermarkets and distributors. To enhance consumer awareness and
acceptance of the products, P&G entered into contracts with Promm-Gem
and SAPS for the promotion and merchandising of its products
• In December 1991, petitioners filed a complaint against P&G for
regularization, service incentive leave pay and other benefits with
damages. The complaint was later amended to include the matter of their
subsequent dismissal.
LA - dismissed the complaint. Ruled that there was no Er-Ee relationship
between petitioners and P&G.
NLRC – AFFIRMED
CA – AFFIRMED with modification. P&G ordered to pay service incentive leave
pay to petitioners.
ISSUE: WON P&G is the employer of petitioners
HELD:
In order to resolve the issue of whether P&G is the employer of petitioners, it is
necessary to first determine whether Promm-Gem and SAPS are labor-only
contractors or legitimate job contractors.
There is labor-only contracting when the contractor or sub-contractor merely
recruits, supplies or places workers to perform a job, work or service for a
principalcЃa and any of the following elements are present:
i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to
be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities
which are directly related to the main business of the principal; or
ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.
The law and its implementing rules allow contracting arrangements for the
performance of specific jobs, works or services. Indeed, it is management
prerogative to farm out any of its activities, regardless of whether such activity is
peripheral or core in nature. However, in order for such outsourcing to be valid,
it must be made to an independent contractor because the current labor rules
expressly prohibit labor-only contracting.
1. In the case of Promm-Gem
Promm-Gem cannot be considered as a labor-only contractor. The
Court found that it is a legitimate independent contractor based on
the ff. circumstances:
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
a. It has authorized capital stock of P1 million and a paid-in capital,
or capital available for operations, of P500,000.00 as of
1990.27cЃa It also has long term assets worth P432,895.28 and
current assets of P719,042.32
b. Promm-Gem has also proven that it maintained its own
warehouse and office space with a floor area of 870 square
meters.28cЃa It also had under its name three registered vehicles
which were used for its promotional/merchandising business;
c. Promm-Gem also has other clients aside from P&G;
d. It supplied its complainant-workers with the relevant materials,
such as markers, tapes, liners and cutters, necessary for them to
perform their work. Promm-Gem also issued uniforms to them;
e. It is also relevant to mention that Promm-Gem already considered
the complainants working under it as its regular, not merely
contractual or project, employees.
Thus, the respondents who have been recruited by Promm-Gem were
its employees.
2. In case of SAPS
SAPS is engaged in “labor-only contracting”
a. The Articles of Incorporation of SAPS shows that it has a paid-in
capital of only P31,250.00. There is no other evidence presented
to show how much its working capital and assets are.
b. there is no showing of substantial investment in tools, equipment
or other assets.
Substantial capital refers to capitalization used in the performance or
completion of the job, work or service contracted out.
Considering that SAPS has no substantial capital or investment and the workers
it recruited are performing activities which are directly related to the principal
business of P&G, the Court found that the former is engaged in "labor-only
contracting"
"Where labor-only contracting exists, the Labor Code itself establishes an
employer-employee relationship between the employer and the employees of
the labor-only contractor."cЃa The statute establishes this relationship for a
comprehensive purpose: to prevent a circumvention of labor laws. The
contractor is considered merely an agent of the principal employer and the
latter is responsible to the employees of the labor-only contractor as if such
employees had been directly employed by the principal employer.
Consequently, the following petitioners, having been recruited and supplied by
SAPS -- which engaged in labor-only contracting -- are considered as the
employees of P&G.
DEADPOOL
Temic Automotive v. Temic Automotive Phils. Employees Union
December 23, 2009 – Miguel
Petitioner: TEMIC AUTOMOTIVE PHILIPPINES, INC.
Respondents: TEMIC AUTOMOTIVE PHILIPPINES, INC. EMPLOYEES UNION-FFW
Employer TEMIC AUTOMOTIVE PHILIPPINES, INC
TEMIC AUTOMOTIVE PHILIPPINES, INC.
Employee/Union EMPLOYEES UNION-FFW,
Labor Issue Employer-Employee Relationship; Job Contracting
DOCTRINE: Outsourcing is a legitimate activity, a company can determine in its
best judgment whether it should contract out a part of its work for as long as the
employer is motivated by good faith; the contracting is not for purposes of
circumventing the law; and does not involve or be the result of malicious or
arbitrary action.
FACTS:
• Respondent Temic Automotive Philippines, Inc. Employees Union-FFW
(union) is the exclusive bargaining agent of the petitioner's rank-and-file
employees. Petitioner Temic Automotive is engaged in the manufacture of
electronic brake systems and comfort body electronics for automotive
vehicles. Petitioner Temic Automotive and Respondent Union, executed a
collective bargaining agreement.
• The petitioner is composed of several departments, one of which is the
warehouse department. These warehouses are further divided into four
sections·receiving section, raw materials warehouse section, indirect
warehouse section and finished goods section. The union members are
regular rank-and-file employees working in these sections as clerks, material
handlers, system encoders and general clerks.
• The petitioner contracts out some of the work in the warehouse department
to three independent service providers or forwarders, namely, Diversified,
Airfreight and KNI.
• These forwarders also have their own employees who hold the positions of
clerk, material handler, system encoder and general clerk. The regular
employees of the petitioner and those of the forwarders share the same work
area and use the same equipment, tools and computers all belonging to the
petitioner.
• This outsourcing arrangement gave rise to a union grievance on the issue of
the scope and coverage of the collective bargaining unit, contending
contracting out services is the same as the workplace activities undertaken
by regular company rank-and-file employees covered by the bargaining
unit who work under company control.
• The union demanded that the forwarders' employees be absorbed into the
petitioner's regular employee force and be given positions within the
bargaining unit. The petitioner, on the other hand, on the premise that the
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
contracting arrangement with the forwarders is a valid exercise of its
management prerogative, posited that the union's position is a violation of
its management prerogative to determine who to hire and what to contract
out, and that the regular rank-and-file employees and their forwarders’
employees serving as its clerks, material handlers, system encoders and
general clerks do not have the same functions as regular company
employees.
RULING OF THE LOWER COURTS: The issue was submitted to voluntary arbitration.
Voluntary arbitrator defined forwarding as a universally accepted and normal
business practice or activity, and ruled that the company validly contracted out
its forwarding services. At the same time, however, the voluntary arbitrator found
that the petitioner went beyond the limits of the legally allowable contracting
out because the forwarders employees encroached upon the functions of the
petitioner’s regular rank-and-file workers. He declared the forwarders’
employees serving as clerks, material handlers, system encoders and general
clerks to be „employees of the company as the forwarders’ employees perform
their jobs in the company warehouse together with the petitioner’s employees,
use the same company tools and equipment and work under the same
company supervisors, ·indicators that the petitioner exercises supervision and
control over all the employees in the warehouse department. who are entitled
to all the rights and privileges of regular employees of the company including
security of tenure.
It was submitted to the jurisdiction of the Court of Appeals, CA fully affirmed the
voluntary arbitrator’s decision and dismissed the petition for lack of merit.
PETITIONER’s CONTENTIONS:
• The contracting arrangement with the forwarders is a valid exercise of its
management prerogative, posited that the union's position is a violation of
its management prerogative to determine who to hire and what to
contract out, and that the regular rank-and-file employees and their
forwarders’ employees serving as its clerks, material handlers, system
encoders and general clerks do not have the same functions as regular
company employees.
• The union is not in a position to question its business judgment, for even their
CBA expressly recognizes its prerogative to have exclusive control of the
management of all functions and facilities in the company, including the
exclusive right to plan or control operations and introduce new or improved
systems, procedures and methods.
• Its regular employees clerical and material handling tasks are not identical
with those done by the service providers; the clerical work rendered by the
contractors are recording and documentation tasks ancillary to or
supportive of the contracted services of forwarding, packing and loading;
on the other hand, the company employees assigned as general clerks
prepare inventory reports relating to its shipments in general to ensure that
the recording of inventory is consistent with the company’s general system;
company employees assigned as material handlers essentially assist in
DEADPOOL
counter-checking and reporting activities to ensure that the contractors
services comply with company standards.
RESPONDENT’s CONTENTION: It posits that the exercise of management
prerogative is not an absolute right, but is subject to the limitation provided for
by law, contract, existing practice, as well as the general principles of justice
and fair play. It submits that both the law and the parties’ CBA prohibit the
petitioner from contracting out to forwarders the functions of regular
employees, especially when the contracting out will amount to a violation of
the employees’ security of tenure, of the CBA provision on the coverage of the
bargaining unit, or of the law on regular employment. Contracting out services
is the same as the workplace activities undertaken by regular company rank-
and-file employees covered by the bargaining unit who work under company
control. The union demanded that the forwarders' employees be absorbed into
the petitioner's regular employee force and be given positions within the
bargaining unit.
ISSUE: (1) Whether or not the company validly contracted out or outsourced the
services involving forwarding, packing, loading and clerical activities related
thereto; -YES
(2) Whether or not the functions of the forwarders employees are functions
being performed by regular rank-and-file employees covered by the bargaining
unit.
RULING:
(1) YES. Significantly, both the voluntary arbitrator and the CA recognized that
the petitioner was within its right in entering the forwarding agreements with
the forwarders as an exercise of its management prerogative. The
petitioner’s declared objective for the arrangement is to achieve greater
economy and efficiency in its operations a universally accepted business
objective and standard that the union has never questioned.
In Meralco v. Quisumbing, we joined this universal recognition of outsourcing as
a legitimate activity when we held that a company can determine in its best
judgment whether it should contract out a part of its work for as long as the
employer is motivated by good faith; the contracting is not for purposes of
circumventing the law; and does not involve or be the result of malicious or
arbitrary action. Our own examination of the agreement shows that the
forwarding arrangement complies with the requirements of Article 106 of the
Labor Code and its implementing rules. To reiterate, no evidence or argument
questions the company’s basic objective of achieving “greater economy and
efficiency of operations.” This, to our mind, goes a long way to negate the
presence of bad faith. The forwarding arrangement has been in place since
1998 and no evidence has been presented showing that any regular employee
has been dismissed or displaced by the forwarders’ employees since then. From
the perspective of the union in the present case, we note that the forwarding
agreements were already in place when the current CBA was signed. In this
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
sense, the union accepted the forwarding arrangement, albeit implicitly, when
it signed the CBA with the company. Thereby, the union agreed, again implicitly
by its silence and acceptance, that jobs related to the contracted forwarding
activities are not regular company activities and are not to be undertaken by
regular employees falling within the scope of the bargaining unit but by the
forwarders’ employees. Thus, the skills requirements and job content between
forwarders’ jobs and bargaining unit jobs may be the same, and they may even
work on the same company products, but their work for different purposes and
for different entities completely distinguish and separate forwarder and
company employees from one another. A clerical job, therefore, if undertaken
by a forwarders’ employee in support of forwarding activities, is not a CBA-
covered undertaking or a regular company activity.
To be precise, the forwarders’ employees and their positions were not part of
the appropriate bargaining unit „as already constituted.‰ In fact, even now,
the union implicitly recognizes forwarding as a whole as a legitimate non-
company activity by simply claiming as part of their unit the forwarders’
employees undertaking allied support activities.
DISPOSITION: WHEREFORE, premises considered, we hereby NULLIFY and SET
ASIDE the assailed Court of Appeals Decision in CA-G.R. SP No. 99029 dated
October 28, 2008, together with the Voluntary Arbitrator’s Decision of May 1,
2007 declaring the employees of forwarders Diversified Cargo Services, Inc.,
Airfreight 2100 and Kuehne & Nagel, Inc., presently designated and functioning
as clerks, material handlers, system or data encoders and general clerks, to be
regular company employees. No costs.
Smart Communications v. Astorga
January 28, 2008 – Tamargo
Petitioner: Smart Communications, Inc.
Respondent: Regina M. Astorga.
Contractor: SNMI
Doctrine: It is the prerogative of the employer to adopt such measures
(reorganization/contracting out) as will promote greater efficiency, reduce
overhead costs and enhance prospects of economic gains, albeit always within
the framework of existing laws.
Facts:
• Regina M. Astorga (Astorga) was employed by respondent Smart
Communications, Incorporated (SMART) on May 8, 1997 as District Sales
Manager of the Corporate Sales Marketing Group/ Fixed Services Division
(CSMG/FSD).
• In February 1998, SMART launched an organizational realignment to
achieve more efficient operations. This was made known to the employees.
SMART entered into a joint venture agreement with NTT of Japan, and
DEADPOOL
formed SMART-NTT Multimedia, Incorporated (SNMI). Since SNMI was
formed to do the sales and marketing work, SMART abolished the
CSMG/FSD, Astorga’s division.
• On March 3, 1998, SMART issued a memorandum advising Astorga of the
termination of her employment on the ground of redundancy.
• Astorga filed a Complaint for illegal dismissal. She claimed that abolishing
CSMG and, consequently, terminating her employment was illegal for it
violated her right to security of tenure. She also posited that it was illegal for
an employer, like SMART, to contract out services which will displace the
employees, especially if the contractor is an in-house agency.
• SMART responded that there was valid termination of Astorga by reason of
redundancy, which is an authorized cause for termination of employment.
Labor Arbiter: Ruled that contracting out the functions performed by Astorga to
an in-house agency like SNMI was illegal, citing Section 7(e), Rule VIII-A of the
Rules Implementing the Labor Code.
NLRC: Overruled LA ruling. Declared the abolition of CSMG and the creation of
SNMI to do the sales and marketing services for SMART a valid organizational
action. It overruled the Labor Arbiter’s ruling that SNMI is an in-house agency,
holding that it lacked legal basis. It also declared that contracting,
subcontracting and streamlining of operations for the purpose of increasing
efficiency are allowed under the law.
CA: Agreed with the NLRC that the reorganization undertaken by SMART
resulting in the abolition of CSMG was a legitimate exercise of management
prerogative.
Issue: W/N the termination of Astorga due to SMART's reorganization
(contracting out) was valid?
Held: Yes, her termination was valid due to the reorganization (contracting out).
It is the prerogative of the employer to adopt such measures
(reorganization/contracting out) as will promote greater efficiency, reduce
overhead costs and enhance prospects of economic gains, albeit always within
the framework of existing laws.
In this case, Astorga was terminated due to redundancy, which is one of the
authorized causes for the dismissal of an employee. Redundancy (superfluous
or no longer necessary) of employee's job is properly terminable, is an exercise
of business judgment on the part of the employer.
An employer is not precluded from adopting a new policy conducive to a more
economical and effective management even if it is not experiencing economic
reverses. Neither does the law require that the employer should suffer financial
losses before he can terminate the services of the employee on the ground of
redundancy.
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
NOTE: The Court did not further elaborate on the issue whether SNMI is a valid
independent or in house contractor.
Coca-Cola Bottlers v. Agito
February 13, 2009 – Buenaventura
Petitioner: Coca-Cola Bottlers Inc.
Respondents: ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR.,
ALFONSO PAA, JR., DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO,
and EDWIN M. GOLEZ. (workers)
Employer Coca-Cola Bottlers Inc.
Employees Respondents (salesmen)
Contractor/subcontractor Interserve (but found out as Labor-only
contractor)
Labor Issue Labor-only contracting
DOCTRINE:
• 2 elements of Labor-only Contracting:
a. The contractor or subcontractor does NOT have substantial capital OR
investment which relates to the job, work or service to be performed
AND
the employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to
the main business of the principal.
OR
b. The contractor does NOT exercise the right to control over the
performance of the work of the contractual employee.
FACTS:
• Petitioner is a domestic corporation duly registered with the Securities and
Exchange Commission (SEC) and engaged in manufacturing, bottling and
distributing soft drink beverages and other allied products.
• Respondents filed before the NLRC 2 complaints against petitioner and
Interserve for reinstatement and regularization.
• Respondents alleged in their Position Paper that they were salesmen
assigned at the Lagro Sales Office of petitioner. They had been in the
employ of petitioner for years, but were not regularized. Their employment
was terminated on 8 April 2002 without just cause and due process.
• Petitioner filed its Position Paper (with Motion to Dismiss), where it averred
that respondents were employees of Interserve who were tasked to
perform contracted services in accordance with the provisions of the
Contract of Services5 executed between petitioner and Interserve on 23
March 2002. Said Contract between petitioner and Interserve, covering the
period of 1 April 2002 to 30 September 2002, constituted legitimate job
contracting, given that the latter was a bona fide
DEADPOOL
• independent contractor with substantial capital or investment in the form
of tools, equipment, and machinery necessary in the conduct of its
business.
• To prove the status of Interserve as an independent contractor, petitioner
presented the following pieces of evidence:
(1) the Articles of Incorporation of Interserve
(2) the Certificate of Registration of Interserve with the Bureau of Internal
Revenue;
(3) the Income Tax Return, with Audited Financial Statements, of Interserve
for 2001; and
(4) the Certificate of Registration of Interserve as an independent job
contractor, issued by the Department of Labor and Employment (DOLE).
• petitioner asserted that respondents were employees of Interserve, since it
was the latter which hired them, paid their wages, and supervised their
work, as proven by: (1) respondents’ Personal Data Files in the records of
Interserve; (2) respondents’ Contract of Temporary Employment with
Interserve; and (3) the payroll records of Interserve. Petitioner, thus, sought
the dismissal of respondents’ complaint against it on the ground that the
Labor Arbiter did not acquire jurisdiction over the same in the absence of
an employer-employee relationship between petitioner and the
respondents.
RULING OF COURTS:
LA – Respondents were employee of Interserve and not of petitioner. Hence,
dismissed the complaint against the petitioner.
NLRC – affirmed LA’s decision and pronounced that no EER existed between
petitioner and respondents. Interserve was an independent contractor as
evidenced by its substantial assets and registration with the DOLE.
CA – Reversed the NLRC Resolution. Interserve was a labor-only contractor with
insufficient capital and investments for the services which it was contracted to
perform. With only 510,000 pesos invested in its service vehicles and 200,000 in its
machineries and equipment, Interserve would be hard-pressed to meet the
demands of daily soft drink deliveries of petitioner in the Lagro area. It
concluded that the respondents used the equipment, tools, and facilities of
petitioner in the day-to-day sales operations.
- Additionally, the Court of Appeals determined that petitioner had
effective control over the means and method of respondents’ work as
evidenced by the Daily Sales Monitoring Report, the Conventional
Route System Proposed Set-up, and the memoranda issued by the
supervisor of petitioner addressed to workers, who, like respondents,
were supposedly supplied by contractors.
- The appellate court deemed that the respondents, who were tasked
to deliver, distribute, and sell Coca-Cola products, carried out
functions directly related and necessary to the main business of
petitioner.
PETITIONER’S CONTENTION:
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
- Petitioner argues that there could not have been labor-only contracting,
since respondents did not perform activities that were indispensable to
petitioner’s principal business. And, even assuming that they did, such fact
alone does not establish an employer-employee relationship between
petitioner and the respondents, since respondents were unable to show
that petitioner exercised the power to select and hire them, pay their
wages, dismiss them, and control their conduct.
- Interserve has a substantial capital and investment required for
independent contractor. Its authorized capital stock is 2M.
ISSUE: Whether Interserve is a legitimate job-contractor or a labor-only
contractor. – Labor only contractor.
RULING:
The law clearly establishes an employer-employee relationship between the
principal employer and the contractor’s employee upon a finding that the
contractor is engaged in “labor-only” contracting. Article 106 of the Labor Code
categorically states:
“There is ‘labor-only’ contracting where the person supplying
workers to an employee does not have substantial capital or
investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by
such persons are performing activities which are directly related
to the principal business of such employer.”
Thus, performing activities directly related to the principal business of the
employer is only one of the two indicators that “labor only” contracting exists;
the other is lack of substantial capital or investment. The Court finds that both
indicators exist in the case at bar.
Respondents worked for petitioner as salesmen, with the exception of
respondent Gil Francisco whose job was designated as leadman. In the Delivery
Agreement between petitioner and TRMD Incorporated, it is stated that
petitioner is engaged in the manufacture, distribution and sale of softdrinks and
other related products. The work of respondents, constituting distribution and
sale of Coca-Cola products, is clearly indispensable to the principal business of
petitioner. The repeated re-hiring of some of the respondents supports this
finding. Petitioner also does not contradict respondents’ allegations that the
former has Sales Departments and Sales Offices in its various offices, plants, and
warehouses; and that petitioner hires Regional Sales Supervisors and District
Sales Supervisors who supervise and control the salesmen and sales route
helpers.
As to the supposed substantial capital and investment required of an
independent job contractor, petitioner calls the attention of the Court to the
authorized capital stock of Interserve amounting to P2,000,000.00. This Court is
DEADPOOL
unconvinced. Although Interserve has an authorized capital stock amounting
to P2,000,000.00, only P625,000.00 thereof was paid up as of 31 December 2001.
The Court does not set an absolute figure for what it considers substantial capital
for an independent job contractor, but it measures the same against the type
of work which the contractor is obligated to perform for the principal. However,
this is rendered impossible in this case since the Contract between petitioner
and Interserve does not even specify the work or the project that needs to be
performed or completed by the latter’s employees, and uses the dubious
phrase “tasks and activities that are considered contractible under existing laws
and regulations.” Even in its pleadings, petitioner carefully sidesteps identifying
or describing the exact nature of the services that Interserve was obligated to
render to petitioner. The importance of identifying with particularity the work or
task which Interserve was supposed to accomplish for petitioner becomes even
more evident, considering that the Articles of Incorporation of Interserve states
that its primary purpose is to operate, conduct, and maintain the business of
janitorial and allied services. But respondents were hired as salesmen and
leadman for petitioner. The Court cannot, under such ambiguous
circumstances, make a reasonable determination if Interserve had substantial
capital or investment to undertake the job it was contracting with petitioner.
It is not enough to show substantial capitalization or investment in the form of
tools, equipment, machinery and work premises, etc., to be considered an
independent contractor. In fact, jurisprudential holdings were to the effect that
in determining the existence of an independent contractor relationship, several
factors may be considered, such as, but not necessarily confined to, whether
the contractor was carrying on an independent business; the nature and extent
of the work; the skill required; the term and duration of the relationship; the right
to assign the performance of specified pieces of work; the control and
supervision of the workers; the power of the employer with respect to the hiring,
firing and payment of the workers of the contractor; the control of the premises;
the duty to supply premises, tools, appliances, materials and labor; and the
mode, manner and terms of payment.
Insisting that Interserve had substantial investment, petitioner assails, for being
purely speculative, the finding of the Court of Appeals that the service vehicles
and equipment of Interserve, with the values of P510,000.00 and P200,000.00,
respectively, could not have met the demands of the Coca-Cola deliveries in
the Lagro area. Yet again, petitioner fails to persuade. The contractor, not the
employee, has the burden of proof that it has the substantial capital,
investment, and tool to engage in job contracting. Although not the contractor
itself (since Interserve no longer appealed the judgment against it by the Labor
Arbiter), said burden of proof herein falls upon petitioner who is invoking the
supposed status of Interserve as an independent job contractor.
Noticeably, petitioner failed to submit evidence to establish that the service
vehicles and equipment of Interserve, valued at P510,000.00 and P200,000.00,
respectively, were sufficient to carry out its service contract with petitioner.
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
Certainly, petitioner could have simply provided the courts with records showing
the deliveries that were undertaken by Interserve for the Lagro area, the type
and number of equipment necessary for such task, and the valuation of such
equipment. Absent evidence which a legally compliant company could have
easily provided, the Court will not presume that Interserve had sufficient
investment in service vehicles and equipment, especially since respondents’
allegation—that they were using equipment, such as forklifts and pallets
belonging to petitioner, to carry out their jobs—was uncontroverted.
In sum, Interserve did not have substantial capital or investment in the form of
tools, equipment, machineries, and work premises; and respondents, its
supposed employees, performed work which was directly related to the
principal business of petitioner.
It is also apparent that Interserve is a labor-only contractor since it did not
exercise the right to control the performance of the work of respondents. The
lack of control of Interserve over the respondents can be gleaned from the
Contract of Services between Interserve (as the contractor) and petitioner (as
the client).
Paragraph 3 of the Contract specified that the personnel of contractor
Interserve, which included the respondents, would comply with “CLIENT” as well
as “CLIENT’s policies, rules and regulations.” It even required Interserve personnel
to subject themselves to on-the-spot searches by petitioner or its duly authorized
guards or security men on duty every time the said personnel entered and left
the premises of petitioner. Said paragraph explicitly established the control of
petitioner over the conduct of respondents. Although under paragraph 4 of the
same Contract, Interserve warranted that it would exercise the necessary and
due supervision of the work of its personnel, there is a dearth of evidence to
demonstrate the extent or degree of supervision exercised by Interserve over
respondents or the manner in which it was actually exercised. There is even no
showing that Interserve had representatives who supervised respondents’ work
while they were in the premises of petitioner.
Also significant was the right of petitioner under paragraph 2 of the Contract to
“request the replacement of the CONTRACTOR’S personnel.” True, this right was
conveniently qualified by the phrase “if from its judgment, the jobs or the
projects being done could not be completed within the time specified or that
the quality of the desired result is not being achieved,” but such qualification
was rendered meaningless by the fact that the Contract did not stipulate what
work or job the personnel needed to complete, the time for its completion, or
the results desired. The said provision left a gap which could enable petitioner
to demand the removal or replacement of any employee in the guise of his or
her inability to complete a project in time or to deliver the desired result. The
power to recommend penalties or dismiss workers is the strongest indication of
a company’s right of control as direct employer.
DEADPOOL
Paragraph 4 of the same Contract, in which Interserve warranted to petitioner
that the former would provide relievers and replacements in case of absences
of its personnel, raises another red flag. An independent job contractor, who is
answerable to the principal only for the results of a certain work, job, or service
need not guarantee to said principal the daily attendance of the workers
assigned to the latter. An independent job contractor would surely have the
discretion over the pace at which the work is performed, the number of
employees required to complete the same, and the work schedule which its
employees need to follow.
As the Court previously observed, the Contract of Services between Interserve
and petitioner did not identify the work needed to be performed and the final
result required to be accomplished. Instead, the Contract specified the type of
workers Interserve must provide petitioner (“Route Helpers, Salesmen, Drivers,
Clericals, Encoders & PD”) and their qualifications (technical/vocational course
graduates, physically fit, of good moral character, and have not been
convicted of any crime). The Contract also states that, “to carry out the
undertakings specified in the immediately preceding paragraph, the
CONTRACTOR shall employ the necessary personnel,” thus, acknowledging that
Interserve did not yet have in its employ the personnel needed by petitioner and
would still pick out such personnel based on the criteria provided by petitioner.
In other words, Interserve did not obligate itself to perform an identifiable job,
work, or service for petitioner, but merely bound itself to provide the latter with
specific types of employees. These contractual provisions strongly indicated that
Interserve was merely a recruiting and manpower agency providing petitioner
with workers performing tasks directly related to the latter’s principal business.
The certification issued by the DOLE stating that Interserve is an independent job
contractor does not sway this Court to take it at face value, since the primary
purpose stated in the Articles of Incorporation of Interserve is misleading.
According to its Articles of Incorporation, the principal business of Interserve is to
provide janitorial and allied services. The delivery and distribution of Coca-Cola
products, the work for which respondents were employed and assigned to
petitioner, were in no way allied to janitorial services. While the DOLE may have
found that the capital and/or investments in tools and equipment of Interserve
were sufficient for an independent contractor for janitorial services, this does not
mean that such capital and/or investments were likewise sufficient to maintain
an independent contracting business for the delivery and distribution of Coca-
Cola products.
With the finding that Interserve was engaged in prohibited labor-only
contracting, petitioner shall be deemed the true employer of respondents.
DISPOSITION: IN VIEW OF THE FOREGOING, the instant Petition is DENIED.
Manila Water v. Dalumpines
October 4, 2010 – Buño
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
Petitioner: MANILA WATER COMPANY, INC.,
Respondents: JOSE J. DALUMPINES, et. al.
Employer Manila Water
Employee/Union Jose Dalumpines, et. al.
Labor Issue Is FCCSI an independent contractor or a labor-only contractor? of the former, as it is the former that has the right to select/hire, discipline,
DOCTRINE: Job contracting is permissible only if the following conditions are
met: 1) the contractor carries on an independent business and undertakes the
contract work on his own account under his own responsibility according to his
own manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of the work except as
to the results thereof; and 2) the contractor has substantial capital or investment
in the form of tools, equipment, machineries, work premises, and other materials
which are necessary in the conduct of the business.
FACTS:
● By virtue of Republic Act No. 8041, the MWSS was given the authority to
enter into concession agreements allowing the private sector in its
operations. Petitioner Manila Waterwas one of two private concessionaires
contracted by the MWSS to manage the water distribution system in the
east zone of Metro Manila.
● Manila Water undertook to absorb the regular employees of MWSS listed
by the latter. Individual respondents, with the exception of Moises
Zapatero (Zapatero) and Edgar Pamoraga (Pamoraga), were among the
121 employees not included in the list of employees to be absorbed by
Manila Water. Nevertheless, Manila Water engaged their services without
written contract from August 1, 1997 to August 31, 1997.
● The 121 bill collectors formed a corporation duly registered with the SEC as
the Association Collector’s Group, Inc. (ACGI). ACGI was one of the
entities engaged by Manila Water for its courier service.
● 12/1997 - Manila Water entered into a service agreement with respondent
First Classic Courier Services, Inc. (FCCSI) also for its courier needs.
● FCCSI gave a deadline for the bill collectors who were members of ACGI
to submit applications and letters of intent to transfer to FCCSI. The
individual respondents in this case were among the bill collectors who
joined FCCSI and were hired effective December 1, 1997.
● On various dates between May and October 2002, individual respondents
were terminated from employment. Manila Water no longer renewed its
contract with FCCSI because it decided to implement a colectorless
scheme whereby Manila Water customers would instead remit payments
through “Bayad Centers.”
● Thus, the bill collectors filed complaints for illegal dismissal, unfair labor
practice, damages, and attorneyÊs fees, with prayer for reinstatement
and backwages against petitioner Manila Water and respondent FCCSI.
DEADPOOL
LA: Dismissed. Want of jurisdiction; no EER.
NLRC: Affirmed in toto. (CA reversed. FCCSI, a labor-only contractor)
PETITIONER’s CONTENTION: There was no employer-employee relationship
between its company and respondent bill collectors. Based on the agreement
between FCCSI and Manila Water, respondent bill collectors are the employees
supervise, and control. FCCSI has a separate and distinct legal personality from
Manila Water, and it was duly registered as an independent contractor before
the DOLE.
RESPONDENT’s CONTENTION: Bill collectors alleged that when Manila Water
issued their individual contracts of service for three months in 9/97, there was
already an attempt to make it appear that respondent bill collectors were not
its employees but independent contractors. Likewise, FCCSI could not qualify as
independent contractors because they did not have an independent business
of their own, tools, equipment, and capitalization, but were purely dependent
on the wages they earned from Manila Water, which was termed as
“commission.”
ISSUE: WoN FCCSI is an Independent Contractor – NO; labor-only contractor.
RULING:
● Job contracting is permissible only if the following conditions are met: 1)
the contractor carries on an independent business and undertakes the
contract work on his own account under his own responsibility according
to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of
the work except as to the results thereof; and 2) the contractor has
substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in
the conduct of the business.
● Department Order No. 18-02, Series of 2002, enunciates that labor-only
contracting refers to an arrangement where the contractor or
subcontractor merely recruits, supplies, or places workers to perform a job,
work, or service for a principal, and any of the following elements are
present: (i) the contractor or subcontractor does not have substantial
capital or investment which relates to the job, work, or service to be
performed and the employees recruited, supplied, or placed by such
contractor or subcontractor are performing activities which are directly
related to the main business of the principal; or (ii) the contractor does not
exercise the right to control the performance of the work of the
contractual employee.
● Here, FCCSI is a labor- only contractor.
● NO SUBSTANTIAL CAPITAL. FCCSI was incorporated with an authorized
capital stock of P400,000.00, of which only P100,000.00 is actually paid-in.
Such capitalization can hardly be considered substantial.
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
● Document relied on by Manila Water and FCCSI provides:
o Ocular inspection conducted on its office premises and
evaluation of the documents submitted, the firm during the six (6)
months operation has generated employment to thirty six (36)
messengers, and four (4) office personnel.
o The office equipt [sic] with modern facilities such as computers,
printers, electric typewriter, working table, telephone lines,
airconditioning unit, pigeon holes, working tables and delivery
vehicles such as a Suzuki van and three (3) motorcycles. The
firmE’s audited financial statement for the period ending 31
December 1996 [shows] that it earned a net income of
P253,000.00.
● The above document only proves that FCCSI’s capitalization may not be
considered substantial considering that it had close to a hundred
collectors covering the east zone service area of Manila Water customers.
● NB: This case is very similar to Manila Water v Peña. Almost same facts lang,
same people involved, but the contractor is ACGI (the one above-
mentioned) and not FCCSI. There, the court ruled that (1) No substantial
capital, (2) the work performed was directly related to the business, and
(3) ACGI has no independent business free from the control and
supervision of its principal, Manila Water.
● How Manila Water’s control over the bill collectors were manifested: (a)
respondent bill collectors reported daily to the branch offices of Manila
Water to remit their collections with the specified monthly targets, (b)
respondent bill collectors, except for Pamoraga and Zapatero, were
among the 121 collectors who incorporated ACGI, (c) Manila Water
continued to pay their wages in the form of commissions even after the
employees alleged transfer to FCCSI, and (d) the certification or individual
clearances issued by Manila Water to respondent bill collectors upon the
termination of the service contract with FCCSI. The certification stated that
respondents were contract collectors of Manila Water and not of FCCSI.
● If, indeed, FCCSI was the true employer of the bill collectors, it should have
been the one to issue the certification or individual clearances.
● Respondent bill collectors are, therefore, employees of petitioner Manila
Water. The tasks performed by respondent bill collectors are directly
related to the principal business or trade of Manila Water.
DISPOSITION: WHEREFORE, in view of the foregoing, the Decision dated
September 12, 2006 and the Resolution dated November 17, 2006 of the Court
of Appeals in CA-G.R. SP No. 94909 are hereby AFFIRMED.
Babas v. Lorenzo Shipping
December 15, 2010 – Cartagena
Petitioner: EMMANUEL BABAS, DANILO BANAG, ARTURO VILLARIN SR., EDWIN
JAVIER, SANDI BERMEO, REX ALLESA, MAXIMO SORIANO JR., ARSENIO ESTORQUE
and FELIXBERTO ANAJO
DEADPOOL
Respondents: LORENZO SHIPPING CORPORATION
Employer Lorenzo Shipping Corporation [principal]
Emmanuel Babas, Danilo Banag, Arturo Villarin Sr., Edwin
Employee/ Javier, Sandi Bermeo, Rex Allesa, Maximo Soriano Jr.,
Union Arsenio Estorque And Felixberto Anajo
Labor Issue Labor - only contracting
DOCTRINE: Elements of LOC: (a) the contractor or subcontractor does not have
substantial capital or investment to actually perform the job, work, or service;
and (b) the employees recruited, supplied, or placed by such contractor or
subcontractor perform activities which are directly related to the main business
of the principal.
FACTS:
• Lorenzo Shipping Corporation (LSC) is engaged in the shipping industry and
owns several equipment necessary for its business.
• On September 29, 1997, LSC entered into an agreement with Best
Manpower Services, Inc. (BMSI).
• Simultaneous with the execution of the agreement, LSC leased its
equipment, tools, and tractors to BMSI. The period of lease was coterminous
with the agreement.
• BMSI hired the petitioners on various dates to work at LSC as checkers,
welders, utility men, clerks, forklift operators, motor pools and machine shop
workers, technicians, trailer drivers and mechanics.
• 6 years later, LSC entered into a service contract with BMSI.
• In September 2003, petitioners filed with LA a complaint for regularization
against LSC and BMSI.
• On October 1, 2003, LSC terminated the agreement, and petitioners lost
their employment.
RULING OF THE LOWER COURTS:
LA: Petitioners are employees of BMSI. It was BMSI which hired petitioners,
paid their wages, and exercised control over them.
NLRC: Petitioners are employees of LSC. BMSI was engaged in labor - only
contracting. First, BMSI has no equipment, no office premises, no capital
and no investments as shown in the agreement; Second, BMSI has no
independent business or activity or job to perform in LSC; Lastly, BMSI has
no other client other than LSC.
CA: Reversed NLRC. Petitioners are employees of BMSI. The fact that BMSI
entered into a contract of lease with LSC did not ipso factor make BMSI a
labor - only contractor; on the contrary, it proved that BMSI had substantial
capital. The law only required substantial capital or investment.
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
PETITIONER’s CONTENTION: BMSI is not an independent contractor, but a labor -
only contractor and LSC is their employer.
BMSI’s CONTENTION: It is an independent contractor, with substantial capital
and investment.
LSC’s CONTENTION: petitioner’s were employees of BMSI and were assigned to
LSC by virtue of an agreement. BMSI is an independent contractor with
substantial capital or investment in the form of tools, equipment, and machinery
necessary in the conduct of its business. Petitioners were employees of BMSI and
not of LSC.
ISSUE: Whether BMSI is engaged in labor - only contracting? – YES.
RULING:
Labor-only contracting, a prohibited act, is an arrangement where the
contractor or subcontractor merely recruits, supplies, or places workers to
perform a job, work, or service for a principal. In labor-only contracting, the
following elements are present:
(a) the contractor or subcontractor does not have substantial capital
or investment to actually perform the job, work, or service under its own
account and responsibility; and
(b) the employees recruited, supplied, or placed by such contractor
or subcontractor perform activities which are directly related to the
main business of the principal.
On the other hand, permissible job contracting or subcontracting refers to an
arrangement whereby a principal agrees to put out or farm out with the
contractor or subcontractor the performance or completion of a specific job,
work, or service within a definite or predetermined period, regardless of whether
such job, work, or service is to be performed or completed within or outside the
premises of the principal.
A person is considered engaged in legitimate job contracting or subcontracting
if the following conditions concur:
(a) The contractor carries on a distinct and independent business and
undertakes the contract work on his account under his own
responsibility according to his own manner and method, free from the
control and direction of his employer or principal in all matters
connected with the performance of his work except as to the results
thereof;
(b) The contractor has substantial capital or investment; and
(c) The agreement between the principal and the contractor or
subcontractor assures the contractual employees' entitlement to all
labor and occupational safety and health standards, free exercise of
the right to self-organization, security of tenure, and social welfare
benefits.
DEADPOOL
Given the above standards, we sustain the petitioners’ contention that BMSI is
engaged in labor-only contracting.
First, petitioners worked at LSC’s premises, and nowhere else. Other than the
provisions of the Agreement, there was no showing that it was BMSI which
established petitioners’ working procedure and methods, which supervised
petitioners in their work, or which evaluated the same. There was absolute lack
of evidence that BMSI exercised control over them or their work, except for the
fact that petitioners were hired by BMSI.
Second, LSC was unable to present proof that BMSI had substantial capital. The
equipment used by BMSI were owned by, and merely rented from, LSC.
Third, petitioners performed activities which were directly related to the main
business of LSC. The work of petitioners as checkers, welders, utility men, drivers,
and mechanics could only be characterized as part of, or at least clearly
related to, and in the pursuit of, LSC’s business. Logically, when petitioners were
assigned by BMSI to LSC, BMSI acted merely as a labor-only contractor.
Lastly, as found by the NLRC, BMSI had no other client except for LSC.
BMSI’s Certificate of Registration is not a sufficient proof that it is an independent
contractor. A Certificate of Registration issued by the Department of Labor and
Employment is not conclusive evidence of such status. The fact of registration
simply prevents the legal presumption of being a mere labor-only contractor
from arising.
Indubitably, BMSI can only be classified as a labor-only contractor. The workers
that BMSI supplied to LSC became regular employees of the latter. Having
gained regular status, petitioners were entitled to security of tenure and could
only be dismissed for just or authorized causes and after they had been
accorded due process.
DISPOSITION: WHEREFORE, premises considered, the instant petition is hereby
GRANTED. No special pronouncement is made as to costs.
Teng v. Pahagac
November 17, 2010 – Diño
Petitioner: ALBERT TENG, Doing Business Under The Firm Name ALBERT TENG FISH
TRADING, And EMILIA TENG-CHUA
Respondent: Alfredo S. Pahagac, Eddie D. Nipa, Orlando P. Layese, Hernan Y.
Badilles And Roger S. Pahagac
PRINCIPAL Albert Teng Fish Trading
AGENCY / CONTRACTOR Master Fishermen (Maestros)
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
EMPLOYEE Alfredo S. Pahagac, Eddie D. Nipa, Orlando P.
Layese, Hernan Y. Badilles And Roger S. Pahagac
Doctrine: A finding that the maestros are labor-only contractors is equivalent to
a finding that an employer-employee relationship exists between Teng and the
respondent workers.
Facts:
• Albert Teng Fish Trading is engaged in deep sea fishing and, for this purpose,
owns boats (basnig), equipment, and other fishing paraphernalia. As owner
of the business, Teng claims that he customarily enters into joint venture
agreements with master fishermen (maestros) who are skilled and are
experts in deep sea fishing; they take charge of the management of each
fishing venture, including the hiring of the members of its complement. He
avers that the maestros hired the respondent workers as checkers to
determine the volume of the fish caught in every fishing voyage.
• On February 20, 2003, the respondent workers filed a complaint for illegal
dismissal against Albert Teng Fish Trading, Teng, and Chua before the
NCMB.
• Respondent’s Contention: Teng hired them, without any written
employment contract, to serve as his "eyes and ears" aboard the fishing
boats; to classify the fish caught by bañera; to report to Teng via radio
communication the classes and volume of each catch; to receive
instructions from him as to where and when to unload the catch; to prepare
the list of the provisions requested by the maestro and the mechanic for his
approval; and, to procure the items as approved by him.5 They also
claimed that they received regular monthly salaries, 13th month pay,
Christmas bonus, and incentives in the form of shares in the total volume of
fish caught.
• Petitioner’s Contention: Teng maintained that he did not have any hand in
hiring the respondent workers; the maestros, rather than he, invited them to
join the venture. According to him, his role was clearly limited to the
provision of the necessary capital, tools and equipment, consisting of
basnig, gears, fuel, food, and other supplies.
Ruling of the Lower Courts:
Voluntary Arbitrator: Teng’s favor and declared that no employer-employee
relationship existed between Teng and the respondent workers.
Court of Appeals: CA reversed the VA’s decision after finding sufficient evidence
showing the existence of employer-employee relationship
ISSUE: WON the respondents were employees of Teng?
RULING:
There exists an employer-employee relationship between Teng and the
respondent workers.
DEADPOOL
We agree with the CA’s finding that sufficient evidence exists indicating the
existence of an employer-employee relationship between Teng and the
respondent workers.
Teng cannot hide behind his argument that the respondent workers were hired
by the maestros. To consider the respondent workers as employees of the
maestros would mean that Teng committed impermissible labor-only
contracting. As a policy, the Labor Code prohibits labor-only contracting:
ART. 106. Contractor or Subcontractor – x x x The Secretary of
Labor and Employment may, by appropriate regulations, restrict
or prohibit the contracting-out of labor.
xxxx
There is "labor-only" contracting where the person supplying
workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed
by such persons are performing activities which are directly
related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an agent
of the employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly employed
by him.
Section 5 of the DO No. 18-02,46 which implements Article 106 of the Labor Code,
provides:
Section 5. Prohibition against labor-only contracting. – Labor-only
contracting is hereby declared prohibited. For this purpose, labor-
only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal, and any
of the following elements are present:
(i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service
to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing
activities which are directly related to the main business of
the principal; or
(ii) The contractor does not exercise the right to control over
the performance of the work of the contractual employee.
In the present case, the maestros did not have any substantial capital or
investment. Teng admitted that he solely provided the capital and equipment,
while the maestros supplied the workers. The power of control over the
respondent workers was lodged not with the maestros but with Teng. As
checkers, the respondent workers’ main tasks were to count and classify the fish
caught and report them to Teng. They performed tasks that were necessary and
desirable in Teng’s fishing business. Taken together, these incidents confirm the
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
existence of a labor-only contracting which is prohibited in our jurisdiction, as it
is considered to be the employer’s attempt to evade obligations afforded by
law to employees.
Accordingly, we hold that employer-employee ties exist between Teng and the
respondent workers. A finding that the maestros are labor-only contractors is
equivalent to a finding that an employer-employee relationship exists between
Teng and the respondent workers. As regular employees, the respondent
workers are entitled to all the benefits and rights appurtenant to regular
employment.
DISPOSITION: WHEREFORE, we DENY the petition and AFFIRM the September 21,
2004 decision and the September 1, 2005 resolution of the Court of Appeals in
CA-G.R. SP No. 78783. Costs against the petitioners.
Diamond Farms v. Farms Agrarian Reform Beneficiaries Multi-purpose
Cooperative
January 13, 2016 – Landicho
Petitioner: Diamond Farms, Inc. ("DFI")
Respondent: SPFL et al
DOCTRINES:
- Burden of proof is with the principal that alleges the absence of labor-only
contracting
- Please check the ruling for elements.
FACTS:
- DFI owns an 800-hectare banana plantation ("original plantation") in Alejal,
Carmen, Davao. Pursuant to Republic Act No. 6657 or the Comprehensive
Agrarian Reform Law of 1988 ("CARL"), commercial farms shall be subject
to compulsory acquisition and distribution, thus the original plantation was
covered by the law. DFI offered to give up its rights and interest over the
original plantation in favor of the government by way of a Voluntary Offer
to Sell. The DAR accepted DFI's offer to sell the original plantation. Out of
the total 800 hectares, the DAR only approved the disposition of 689.88
hectares. Hence, the original plantation was split into two: 689.88 hectares
were sold to the government ("awarded plantation") and the remaining 200
hectares, more or less, were retained by DPI ("managed area").
- The awarded plantation was turned over to qualified agrarian reform
beneficiaries ("ARBs") under the CARL. These ARBs are the same farmers
who were working in the original plantation. They subsequently organized
themselves into a multi-purpose cooperative named "DARBMUPCO," which
is one of the respondents in this case.
- DARBMUPCO entered into a Banana Production and Purchase Agreement
("BPPA") with DFI. Under the BPPA, DARBMUPCO and its members as owners
of the awarded plantation, agreed to grow and cultivate only high grade
DEADPOOL
quality exportable bananas to be sold exclusively to DPI. The BPPA is
effective for 10 years.
- Hampered by lack of manpower to undertake the agricultural operation
under the BPPA, DFI engaged the services of the respondent-contractors,
who in turn recruited the respondent-workers to assist DARBMUPCO in
meeting its production obligations under the BPPA.
- Southern Philippines Federation of Labor ("SPFL")—a legitimate labor
organization with a local chapter in the awarded plantation filed a petition
for certification election in the Office of the Med-Arbiter on behalf of some
400 workers (the respondent-workers in this petition) "jointly employed by
DFI and DARBMUPCO" working in the awarded plantation.
- In another case, SPFL, together with more than 300 workers, filed a case for
underpayment of wages, nonpayment of 13th month pay and service
incentive leave pay and attorney's fees against DFI, DARBMUPCO and the
respondent-contractors before the National Labor Relations Commission
("NLRC").
- DARBMUPCO and DFI denied that they are the employers of the
respondent-workers. They claimed, instead, that the respondent-workers
are the employees of the respondent-contractors.
LA: held that the respondent-contractors are "labor-only contractors."
NLRC: modified the Decision of the LA and declared that DARBMUPCO and DFI
are the statutory employers of the workers rendering services in the awarded
plantation and the managed area, respectively. (solidarily liable)
CA: DFI is the statutory employer of the respondent-workers. It noted that the
DFI hired the respondent-contractors, who in turn procured their own men to
work in the land owned by DARBMUPCO. Further, DFI admitted that the
respondent-contractors worked under the direction and supervision of DFI's
managers and personnel. DFI also paid for the respondent-contractors'
services.57 The CA said that the fact that the respondent-workers worked in the
land owned by DARBMUPCO is immaterial. "Ownership of the land is not one of
the four (4) elements generally considered to establish employer-employee
relationship."58 The CA also ruled that DFI is the true employer of the respondent-
workers because the respondent-contractors are not independent contractors.
ISSUE: The issue before this Court is who among DFI, DARBMUPCO and the
respondent-contractors is the employer of the respondent-workers. DFI
RULING: DFI
- This case involves job contracting, a labor arrangement expressly allowed
by law. Contracting or subcontracting is an arrangement whereby a
principal (or employer) agrees to put out or farm out with a contractor or
subcontractor the performance or completion of a specific job, work or
service within a definite or predetermined period, regardless of whether
such job, work or service is to be performed or completed within or outside
the premises of the principal.69 It involves a trilateral relationship among the
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019) DEADPOOL

principal or employer, the contractor or subcontractor, and the workers

engaged by the contractor or subcontractor.70
- Article 106 of the Labor Code of the Philippines71 (Labor Code) explains the (2) The workers recruited and placed by such person are performing
relations which may arise between an employer, a contractor, and the
activities which are directly related to the principal business or
contractor's employees,72 thus:
operations of the employer in which workers are habitually
ART. 106. Contractor or subcontracting. - Whenever an employer employed.75
enters into a contract with another person for the performance of
the formers work, the employees of the contractor and of the
As a general rule, a contractor is presumed to be a labor-only contractor, unless
latter's subcontractor, if any, shall be paid in accordance with the
such contractor overcomes the burden of proving that it has the substantial
provisions of this Code.
capital, investment, tools and the like.76
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code, the
Based on the conditions for permissible job contracting, we rule that respondent-
employer shall be jointly and severally liable with his contractor …
contractors are labor-only contractors.
XXX
- There is no evidence showing that respondent-contractors are
There is "labor-only" contracting where the person supplying
independent contractors. The respondent-contractors, DFI, and
workers to an employer does not have substantial capital or
DARBMUPCO did not offer any proof that respondent-contractors
investment in the form of tools, equipment, machineries, work
were not engaged in labor-only contracting.
premises, among others, and the workers recruited and placed
- In this regard, we cite our ruling in Caro v. Rilloraza,77 thus:
by such person are performing activities which are directly related "…but as far as the record shows, Nasol did not testify
to the principal business of such employer. In such cases, the
that the defendant company had no control over him
person or intermediary shall be considered merely as an agent of
as to the manner or methods he employed in pursuing
the employer who shall be responsible to the workers in the same
his work… the burden is on him to show his
manner and extent as if the latter were directly employed by him.
independence.”
The Omnibus Rules Implementing the Labor Code73 distinguishes between
DFI should have presented proof showing that respondent-contractors carry on
permissible job contracting (or independent contractorship) and labor-only
an independent business and have sufficient capitalization. The record,
contracting. Job contracting is permissible under the Code if the following
however, is bereft of showing of even an attempt on the part of DFI to
conditions are met:
substantiate its argument.
(1) The contractor carries on an independent business and undertakes Further, respondent-contractors ADMIT, and even insist that they are engaged
the contract work on his own account under his own responsibility in labor-only contracting.
according to his own manner and method, free from the control
and direction of his employer or principal in all matters connected
Herein respondents, Voltaire Lopez, Jr., et al., were commissioned and
with the performance of the work except as to the results thereof;
contracted by petitioner, Diamond Farms, Inc. (DFI) to recruit farm workers, who
and are the complaining [respondent-workers] (as represented by Southern
Philippines Federation of Labor (SPFL) in this appeal by certiorari)…
(2) The contractor has substantial capital or investment in the form of
tools, equipment, machineries, work premises, and other materials Herein respondents Voltaire Lopez, Jr. et. al. had no adequate capital to acquire
which are necessary in the conduct of his business.74 or purchase such tools, implements, equipment, etc.

In contrast, job contracting shall be deemed as labor-only contracting, an
arrangement prohibited by law, if a person who undertakes to supply workers to
an employer:
(1) Does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises and other materials; and
Herein respondents Voltaire Lopez, Jr., et. al. as well as respondents-SPFL, et. al.
were being directly supervised, controlled and managed by petitioner DFI farm
managers and supervisors, specifically on work assignments and performance
targets.
The foregoing admissions are legally binding on respondent-contractors.83

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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
Manila Memorial Park Cemetery v. Luiz
February 3, 2016 – Lucion
Principal/Employer Manila Memorial Park Cemetery, Inc.
(MMPCI)
Employee Lluz, et. al, Respondents
Contractor engaged in labor- Ward Trading
only contracting
DOCTRINE: Labor-only contracting exists when the contractor or subcontractor
merely recruits, supplies or places workers to perform a job, work or service for
a principal and the contractor or subcontractor does not have a substantial
capital or investment and the contractor does not exercise the right to control
the performance of the work of the employee.
FACTS:
• On 2006, petitioner Manila Memorial Park Cemetery, Inc. entered into a
Contract of Services with respondent Ward Trading. The Contract of
Services provided that Ward Trading, as an independent contractor, will
render interment and exhumation services and other related work to Manila
Memorial in order to supplement operations at Manila Memorial Park,
Paranaque City.
• Among those assigned by Ward Trading to perform services at the Manila
Memorial Park were respondents. They worked six days a week for eight
hours daily and were paid P250 per day.
• Respondents filed a complaint for regularization and CBA benefits against
Manila Memorial. It amended the complaint to include illegal dismissal,
underpayment of 13th month pay, and payment of attorney’s fees.
LA – dismissed the complaint for failing to prove the existence of Er-Ee
relationship.
NLRC – reversed. The NLRC ruled that Ward Trading was a labor-only
contractor and an agent of Manila Memorial.
CA - AFFIRMED
ISSUE: Whether or not an employer-employee relationship exists between Manila
Memorial and respondents for the latter to be entitled to their claim for wages
and other benefits.
HELD: YES. Manila Memorial failed to adduce evidence to prove that Ward
Trading had any substantial capital, investment or assets to perform the work
contracted for. Thus, the presumption that Ward Trading is a labor-only
contractor stands. Consequently, Manila Memorial is deemed the employer of
respondents. As regular employees of Manila Memorial, respondents are
entitled to their claims for wages and other benefits as awarded by the NLRC
and affirmed by the CA.
DEADPOOL
Labor-only contracting exists when the contractor or subcontractor merely
recruits, supplies or places workers to perform a job, work or service for a
principal and any of the following elements are present:
1) The contractor or subcontractor does not have substantial capital or
investment which relates to the job, work or service to be performed and
the employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to the
main business of the principal; or
2) The contractor does not exercise the right to control the performance of the
work of the contractual employee.13
A closer look at the Contract of Services reveals that Ward Trading does not
have substantial capital or investment in the form of tools, equipment,
machinery, work premises and other materials since it is Manila Memorial which
owns the equipment used in the performance of work needed for interment and
exhumation services
a. In the Contract of Services which shows that Manila Memorial owns the
equipment which states that:
The COMPANY shall [sell] to the contractor the COMPANY owned
equipment in the amount of ONE MILLION FOUR HUNDRED THOUSAND
PESOS ONLY (Php 1,400,000.00) payable in two (2) years or a monthly
payment of FIFTY EIGHT THOUSAND THREE HUNDRED THIRTY FIVE PESOS
ONLY (Php 58,335.00) to be deducted from the CONTRACTOR'S billing.
b. The contract of service provides that:
"5. The COMPANY reserves the right to rent all or any of the
CONTRACTOR'S equipment in the event the COMPANY requires the
use of said equipment, x x x."
This provision is clear proof that Ward does not have an absolute right
to use or enjoy subject equipment, considering that its right to do so is
subject to respondent MMPCI's use thereof at any time the latter
requires it.
It is plain to see that Ward is not the owner of the equipment worth
P1,400,000.00 that is being actually and directly used in the
performance of the services contracted out.
c. Service contract states that the company (Manila Memorial) agrees
to provide the ff:
c.1 area to store Contractor’s equipment and materials
c.2 office space for contractor’s staff and personnel.
This provision is clear proof that even the work premises actually and
directly used by Ward in the performance of the services contracted
out is owned by Manila Memorial.
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
d. The difference in the value of the equipment in the total amount of
1,400,000. Can be glaringly seen in Ward Trading’s financial statements
for the year 2006 when compared to its 2005 financial statements.
Ward Trading, in its Income Statements18 for the years 2005 and 2006,
only earned a net income of P53,800 in the year ending 2005 and
P68,141.50 in 2006. Obviously, Ward Trading could not have raised a
substantial capital of P1,400,000.00 from its income alone without the
inclusion of the equipment owned and allegedly sold by Manila
Memorial to Ward Trading after they signed the Contract of Services
on 23 February 2006
e. Manila Memorial even retained the right to control the performance of
the work of the employees.
Ward is still subject to petitioner's control as it specifically provides that
although Ward shall be in charge of the supervision over individual
respondents, the exercise of its supervisory function is heavily
dependent upon the needs of petitioner Memorial Park, particularly:
"It is also agreed that:
a) The CONTRACTOR'S supervisor will conduct a regular
inspection of grave sites/areas being dug to ensure
compliance with the COMPANY'S interment schedules and
other related ceremonies.
b) The CONTRACTOR will provide enough manpower during
peak interment days including Sundays and Holidays.
c) The CONTRACTOR shall schedule off-days for its workers in
coordination with the COMPANY'S schedule of interment
operation.
d) The CONTRACTOR shall be responsible for any damage
done to lawn/s and/or structure/s resulting from its operation,
which must be restored to its/their original condition without
delay and at the expense of CONTRACTOR."
The contract further provides that petitioner has the option to take
over the functions of Ward's personnel if it finds any part or aspect of
the work or service provided to be unsatisfactory, thus:
"6.1 It is hereby expressly agreed and understood that, at any time
during the effectivity of this CONTRACT and its sole determination,
the COMPANY may take over the performance of any of the
functions mentioned in Paragraph I above, in any of the following
cases:
If the COMPANY finds the performance of the CONTRACTOR
in any part or aspect of the grave digging works or other
services provided by it to be unsatisfactory."
It is obvious that the aforementioned provision leaves respondent
Ward at the mercy of petitioner Memorial Park as the contract states
DEADPOOL
that the latter may take over if it finds any part of the services to be
below its expectations, including the manner of its performance;
f. Ward Trading's business documents fell short of sound business
practices.
f.1 Certificate of Business expressly states that it is not a license to
engage in any kind of business, and that it is valid only at the place
indicated therein, which is Las Piñas City.
Hence, the same is not valid in Paranaque City, where Ward assigned
complainants to perform interment services it contracted with
respondent MMPCI.
f.2 Mayor’s permit and Sanitary permit are only valid on 2003.
f.3 Manila Memorial failed to present any proof that Ward is duly
registered as [a] contractor with the Department of Labor and
Employment
The Registration of contractors and subcontractors shall be necessary
for purposes of establishing an effective labor market information and
monitoring.
Failure to register shall give rise to the presumption that the contractor
is engaged in labor-only contracting.
Quintanar v. Coca Cola Bottlers Philippines
June 28, 2016 – Miguel
Petitioner: EMMANUEL D. QUINTANAR, BENJAMIN O. DURANO, CECILIO C.
DELAVIN, RICARDO G. GABORNI, ROMEL G. GERARMAN, JOEL JOHN P.
AGUILAR, RAMIRO T. GAVIOLA, RESTITUTO D. AGSALUD, MARTIN E. CELIS,
PATRICIO L. ARIOS, MICHAEL S. BELLO, LORENZO C. QUINLOG, JUNNE G. BLAYA,
SANTIAGO B. TOLENTINO, JR., NESTOR A. MAGNAYE, ARNOLD S. POLVORIDO,
ALLAN A. AGAPITO, ARIEL E. BAUMBAD, JOSE T. LUTIVA, EDGARDO G. TAPALLA,
ROLDAN C. CADAYONA, REYNALDO V. ALBURO, RUDY C. ULTRA, MARCELO R.
CABILI, ARNOLD B. ASIATEN, REYMUNDO R. MACABALLUG, JOEL R. DELEÑA,
DANILO T. OQUIÑO, GREG B. CAPARAS and ROMEO T. ESCARTIN,.
Respondents: COCA COLA BOTTLERS PHILIPPINES INC
Employer COCA COLA BOTTLERS PHILIPPINES INC
EMMANUEL D. QUINTANAR, BENJAMIN O. DURANO,
CECILIO C. DELAVIN, RICARDO G. GABORNI, ROMEL
G. GERARMAN, JOEL JOHN P. AGUILAR, RAMIRO T.
GAVIOLA, RESTITUTO D. AGSALUD, MARTIN E.
CELIS, PATRICIO L. ARIOS, MICHAEL S. BELLO,
LORENZO C. QUINLOG, JUNNE G. BLAYA, SANTIAGO
Employee/Union B. TOLENTINO, JR., NESTOR A. MAGNAYE, ARNOLD
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
S. POLVORIDO, ALLAN A. AGAPITO, ARIEL E.
BAUMBAD, JOSE T. LUTIVA, EDGARDO G. TAPALLA,
ROLDAN C. CADAYONA, REYNALDO V. ALBURO,
RUDY C. ULTRA, MARCELO R. CABILI, ARNOLD B.
ASIATEN, REYMUNDO R. MACABALLUG, JOEL R.
DELEÑA, DANILO T. OQUIÑO, GREG B. CAPARAS and
ROMEO T. ESCARTIN,
Labor Issue Employer-Employee Relationship; Job Contracting
DOCTRINE: The possession of substantial capital is only one element. Labor-only
contracting exists when any of the two elements is present, that is, such
employees are performing activities directly related to the principal business of
the employer, and lack of substantial capital or investment.
FACTS:
• Complainants allege that they are former employees directly hired by
respondent Coca-Cola on different dates from 1984 up to 2000, assigned
as regular Route Helpers under the direct supervision of the Route Sales
Supervisors. Their duties consist of distributing bottled Coca-Cola products
to the stores and customers in their assigned areas/routes, and they were
paid salaries and commissions at the average of P3,000.00 per month.
• After working for quite sometime as directly hired employees of Coca-Cola,
complainants were allegedly transferred successively as agency workers to
the following manpower agencies, namely, Lipercon Services, Inc.,
People’s Services, Inc., ROMAC, and the latest being respondent Interserve
Management and Manpower Resources, Inc.
• Complainants allege that the Department of Labor and Employment
(DOLE) conducted an inspection of Coca-Cola to determine whether it is
complying with the various mandated labor standards, and relative
thereto, they were declared to be regular employees of Coca-Cola, which
was held liable to pay complainants the underpayment of their 13th month
pay, emergency cost of living allowance (ECOLA), and other claims. As
soon as respondents learned of the filing of the claims with DOLE, they were
dismissed. They filed a complaint for illegal dismissal.
RULING OF THE LOWER COURTS:
LA rendered its decision granting the prayer in the complaint. In its assessment,
the LA explained that the documentary evidence submitted by both parties
confirmed the petitioners’ allegation that they had been working for Coca-Cola
for quite some time. It also noted that Coca-Cola never disputed the petitioners’
contention that after working for Coca-Cola through the years, they were
transferred to the various service contractors engaged by it, namely, Interim
Services, Inc. (ISI), Lipercon Services, Inc. (Lipercon), People Services, Inc. (PSI),
ROMAC, and lastly, Interserve Management and Manpower Resources, Inc.
(Interserve). In view of said facts, the LA concluded that the petitioners were
simply employees of Coca-Cola who were “seconded” to Interserve.
DEADPOOL
The LA opined that it was highly inconceivable for the petitioners, who
were already enjoying a stable job at a multi-national company, to leave and
become mere agency workers. He dismissed the contention of Coca-Cola that
the petitioners were employees of Interserve, stressing that they enjoyed the
constitutional right to security of tenure which Coca-Cola could not
compromise by entering into a service agreement manpower supply
contractors, make petitioners sign employment contracts with them, and
convert their employment status from regular to contractual.
NLRC found that the petitioners were regular employees of Coca-Cola.
Reversing the findings of the LA and the NLRC, the CA opined that the
petitioners were not employees of Coca Cola but of Interserve. The appellate
court agreed with the contention of Coca-Cola that it was Interserve who
exercised the power of selection and engagement over the petitioners
considering that the latter applied for their jobs and went through the
preemployment processes of Interserve. The CA also gave credence to the
position of Coca-Cola that it was Interserve who paid the petitioners’ salaries.
The CA then took into consideration Interserve’s admission that they had to
sever the petitioners’ from their contractual employment because its contract
with Coca-Cola expired and there was no demand for relievers from its other
clients. The CA equated this with Interserve’s exercise of its power to fire the
petitioners. Finally, the CA was of the considered view that it was Interserve
which exercised the power of control.
PETITIONER’s CONTENTION: claim that Interserve was a labor-only contractor
and that Coca-Cola, as principal, should be made ultimately liable for their
claims, the petitioners asserted that Interserve had no products to manufacture,
sell and distribute to customers and did not perform activities in its own manner
and method other than that dictated by Coca-Cola. They claimed that it was
Coca-Cola that owned the softdrinks, the trucks and the equipment used by
Interserve and that Coca-Cola assigned supervisors to ensure that the
petitioners perform their duties.
RESPONDENT’s CONTENTION: Respondent Coca-Cola denies employer-
employee relationship with the complainants pointing to respondent Interserve
with whom it has a service agreement as the complainants’ employer.
ISSUES:
(1) Whether or not an employment relationship exist between the route helpers
and CC even if during the course of their employment they were transferred to
a labor contractor? Yes
(2) Whether or not a contractor can be considered engaged in labor only
contracting despite its registration with the DOLE as an independent contractor
and possession of substantial capital? Yes
(3) Whether or not there was there a valid termination and thereby a valid
severance of employment relationship when complainants were transferred to
manpower agencies? No
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
RULING:
(1) Yes. In this case, the SC, guided by stare decisis, applied its position in prior
cases involving the Routine Helpers and CC. The Court ruled that that an
employment relationship existed between the parties for the following reasons:
- routine Helpers perform functions necessary and desirable, even
indispensable, in the usual business or trade of Coca- Cola Philippines, Inc;
- SC pronouncements in prior cases that Interserve is a labor-only
contractor;**
- the employees performed work which was directly related to the principal
business of petitioner; and
- in the service agreements between CC and the manpower agencies, CC
92still exercised the right of control over the employees.
(2) Yes. The possession of substantial capital is only one element. Labor-only
contracting exists when any of the two elements is present, that is, such
employees are performing activities directly related to the principal business of
the employer, and lack of substantial capital or investment. Thus, even if the
Court would indulge Coca-Cola and admit that Interserve had more than
sufficient capital or investment in the form of tools, equipment, machineries,
work premises, still, it cannot be denied that the petitioners were performing
activities which were directly related to the principal business of such employer.
Also, it has been ruled that no absolute figure is set for what is considered
'substantial capital' because the same is measured against the type of work
which the contractor is obligated to perform for the principal.
(3) No. Even granting that the petitioners were last employed by Interserve, the
record is bereft of any evidence that would show that the petitioners voluntarily
resigned from their employment with Coca-Cola only to be later hired by
Interserve. Other than insisting that the petitioners were last employed by
Interserve, Coca-Cola failed not only to show by convincing evidence how it
severed its employer relationship with the petitioners, but also to prove that the
termination of its relationship with them was made through any of the grounds
sanctioned by law.
*Their duties consist of distributing bottled Coca-Cola products to the stores and
customers in their assigned areas/routes, and they were paid salaries and
commissions at the average of P3,000.00 per month.
**since it did not have substantial capital or investment in the form of tools,
equipment, machineries, and work premises. (Agito case)
DISPOSITION: WHEREFORE, the petition is GRANTED. The July 11, 2013 Decision
and the December 5, 2013 Resolution of the Court of Appeals, in C.A.-G.R. S.P.
No. 115469 are REVERSED and SET ASIDE and the August 29, 2008 Decision of
the Labor Arbiter in NLRC Case Nos. 12-13956-07 and 12-14277-07, as affirmed
in toto by the National Labor Relations Commission, is hereby REINSTATED.
DEADPOOL
Nestle Philippines, Inc. v. Puedan, Jr.
January 20, 2017 – Montellano
Petitioner: NESTLÉ PHILIPPINES, INC.,
Respondents: BENNY A. PUEDAN, JR., JAYFER D. LIMBO, BRODNEY N. AVILA,
ARTHUR C. AQUINO, RYAN A. MIRANDA, RONALD R. ALAVE, JOHNNY A. DIMAYA,
MARLON B. DELOS REYES, ANGELITO R. CORDOVA, EDGAR S. BARRUGA, CAMILO
B. CORDOVA, JR., JEFFRY B. LANGUISAN, EDISON U. VILLAPANDO, JHEIRNEY S.
REMOLIN, MARY LUZ A. MACATALAD,** JENALYN M. GAMUROT, DENNIS G.
BAWAG, RAQUEL A. ABELLERA, and RICANDRO G. GUATNO, JR
Employer Ocho de Septiembre, Inc. (ODSI)
Employee/Union Benny Puedan et. Al.
Labor Issue Labor-only Contracting
DOCTRINE: The imposition of minimum standards concerning sales, marketing,
finance and operations are nothing more than an exercise of sound business
practice to increase sales and maximize profits
FACTS:
• Respondents alleged that on various dates, Ocho de Septiembre, Inc.
(ODSI) and NPI hired them to sell various NPI products in the assigned
covered area. After some time, respondents demanded that they be
considered regular employees of NPI, but they were directed to sign
contracts of employment with ODSI instead. When respondents refused to
comply with such directives, NPI and ODSI terminated them from their
position. Thus, they were constrained to file the complaint, claiming that:
(a) ODSI is a labor-only contractor and, thus, they should be deemed
regular employees of NPI; and (b) there was no just or authorized cause for
their dismissal.
• For its part, ODSI averred that it is a company engaged in the business of
buying, selling, distributing, and marketing of goods and commodities of
every kind and it enters into all kinds of contracts for the acquisition thereof.
• ODSI admitted that on various dates, it hired respondents as its employees
and assigned them to execute the Distributorship Agreement it entered
with NPI,
• However, the business relationship between NPI and ODSI turned sour when
the former’s sales department badgered the latter regarding the sales
targets. Eventually, NPI downsized its marketing and promotional support
from ODSI which resulted to business reverses and in the latter’s filing of a
petition for corporate rehabilitation and, subsequently, the closure of its
Nestlé unit due to the termination of the Distributorship Agreement and the
failure of rehabilitation. Under the foregoing circumstances, ODSI argued
that respondents were not dismissed but merely put in floating status.
• On the other hand, NPI did not file any position paper or appear in the
scheduled conferences.
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019)
RULING OF THE LOWER COURTS:
LA: Labor Arbiter (LA) dismissed the complaint for lack of merit
NLRC: NLRC reversed and set aside the LA ruling. NLRC found ODSI to be a labor-
only contractor of NPI, considering that: (a) ODSI had no substantial
capitalization or investment; (b) respondents performed activities directly
related to NPIÊs principal business; and (c) the fact that respondentsÊ
employment depended on the continuous supply of NPI products shows that
ODSI had not been carrying an independent business according to its own
manner and method. Consequently, the NLRC deemed NPI to be respondentsÊ
true employer, and thus, ordered it jointly and severally liable with ODSI to pay
the monetary claims of respondents.
CA: affirmed.
ISSUE: Whether or not the CA correctly ruled that: ODSI is a labor-only contractor
of NPI, and consequently, NPI is respondents’ true employer and, thus, deemed
jointly and severally liable with ODSI for respondents’ monetary claims.
RULING: No.
A closer examination of the Distributorship Agreement reveals that the
relationship of NPI and ODSI is not that of a principal and a contractor
(regardless of whether labor-only or independent), but that of a seller and a
buyer/reseller. As stipulated in the Distributorship Agreement, NPI agreed to sell
its products to ODSI at discounted prices, which in turn will be resold to identified
customers, ensuring in the process the integrity and quality of the said products
based on the standards agreed upon by the parties. As aptly explained by NPI,
the goods it manufactures are distributed to the market through various
distributors, e.g., ODSI, that in turn, resell the same to designated outlets through
its own employees such as the respondents. Therefore, the reselling activities
allegedly performed by the respondents properly pertain to ODSI, whose
principal business consists of the „buying, selling, distributing, and marketing
goods and commodities of every kind‰ and “[entering] into all kinds of
contracts for the acquisition of such goods [and commodities].”
Thus, contrary to the CAÊs findings, the aforementioned stipulations in the
Distributorship Agreement hardly demonstrate control on the part of NPI over
the means and methods by which ODSI performs its business, nor were they
intended to dictate how ODSI shall conduct its business as a distributor.
Otherwise stated, the stipulations in the Distributorship Agreement do not
operate to control or fix the methodology on how ODSI should do its business as
a distributor of NPI products, but merely provide rules of conduct or guidelines
towards the achievement of a mutually desired result55 · which in this case is
the sale of NPI products to the end consumer. In Steelcase, Inc. v. Design
International Selections, Inc.,56 the Court held that the imposition of minimum
standards concerning sales, marketing, finance and operations are nothing
more than an exercise of sound business practice to increase sales and
maximize profits, to wit:
DEADPOOL
Finally, both the CA and DISI rely heavily on the Dealer
Performance Expectation required by Steelcase of its distributors
to prove that DISI was not functioning independently from
Steelcase because the same imposed certain conditions
pertaining to business planning, organizational structure,
operational effectiveness and efficiency, and financial stability. It
is actually logical to expect that Steelcase, being one of the major
manufacturers of office systems furniture, would require its dealers
to meet several conditions for the grant and continuation of a
distributorship agreement. The imposition of minimum standards
concerning sales, marketing, finance and operations is nothing
more than an exercise of sound business practice to increase
sales and maximize profits for the benefit of both Steelcase and its
distributors. For as long as these requirements do not impinge on
a distributorÊs independence, then there is nothing wrong with
placing reasonable expectations on them. (Emphasis and
underscoring supplied)
Verily, it was only reasonable for NPI · it being a local arm of one of the largest
manufacturers of foods and grocery products worldwide · to require its
distributors, such as ODSI, to meet various conditions for the grant and
continuation of a distributorship agreement for as long as these conditions do
not control the means and methods on how ODSI does its distributorship
business, as shown in this case. This is to ensure the integrity and quality of the
products which will ultimately fall into the hands of the end consumer.
Thus, the foregoing circumstances show that ODSI was not a labor only
contractor of NPI; hence, the latter cannot be deemed the true employer of
respondents. As a consequence, NPI cannot be held jointly and severally liable
to ODSIÊs monetary obligations towards respondents.
DISPOSITION: WHEREFORE, the petition is GRANTED. The Decision dated March
26, 2015 and the Resolution dated September 17, 2015 of the Court of Appeals
in C.A.-G.R. S.P. No. 132686 are hereby REVERSED and SET ASIDE.
Other notes:
Distributorship Agreement relevant portions states:
3.1 DISTRIBUTOR (ODSI) shall assign a sales force in his/her regular
employ, dedicated solely to the handling of NPI Grocery Retail Products under
this Agreement, and who shall exclusively cover assigned areas/channels of
distribution.
3.2 DISTRIBUTOR shall service the outlets within the Territory by reselling
Products obtained exclusively from Nestlé Philippines, Inc. and not from any
other source.
3.3 DISTRIBUTOR shall utilize booking and distribution salesmen to
undertake territory development. Booking done by DISTRIBUTOR shall be
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LABOR REVIEW: Independent Contractors & Labor-Only Contractors (Aug. 14, 2019) DEADPOOL

delivered by its personnel. Collection of accounts shall be taken cared (sic) of

by DISTRIBUTOR, without prejudice to the provisions of Clause 13 hereof.
3.4 DISTRIBUTORÊs route salesmen shall exclusively cover assigned ex-
truck areas/channels of distribution.
3.5 DISTRIBUTOR shall also provide training to its staff or personnel where
necessary, to improve operations in servicing the requirements of DISTRIBUTORÊs
customers. From time to time, NESTLÉ shall offer to DISTRIBUTOR suggestions and
recommendations to improve sales and to further develop the market.
3.6 DISTRIBUTOR shall meet the sales, reach and distribution targets
agreed upon by NESTLÉ and DISTRIBUTOR. For purposes of this clause, reach
targets refer to the number of stores, dealers and/or outlets which DISTRIBUTOR
should cover or service within a particular period. Distribution targets refer to the
number of stock keeping units and/or product lines covered by this Agreement.
In the event of DISTRIBUTORÊs failure to meet NESTLÉÊs sales targets, NESTLÉ has
the sole discretion of assigning another distributor of the Products and/or
reducing the Territory covered by DISTRIBUTOR.
3.7 DISTRIBUTOR agrees to provide at its own cost and expense facilities
and other resources necessary for the distribution and sale of the Products.
3.8 NESTLÉÊs sales personnel may get orders for the Products distributed
by DISTRIBUTOR and pass on the said orders to DISTRIBUTOR.
3.9 NESTLÉ shall provide the necessary promotional and marketing
support for the Products through promotional materials, product information
literature, participation in trade fairs, and other market development activities.
3.10 Should NESTLÉ manufacture and/or distribute other products not
subject of this Agreement, which, in NESTLÉÊs opinion, should likewise be
extended to DISTRIBUTORÊs outlets, such additional products shall be included
among those listed in Annex „A‰ hereof.
NESTLÉ shall deliver the Products to DISTRIBUTORÊs warehouse(s) at its own
expenses. Immediately upon receipt of the Products, DISTRIBUTOR shall carry out
a visual inspection thereof. In the event any quantity of the Products is found to
be defective upon such visual inspection, NESTLÉ shall replace such quantity of
the Products at no cost to DISTRIBUTOR.
3.11 All costs for transportation and/or shipment of the Products from
DISTRIBUTORÊs warehouse(s) to its outlets/customers shall be the account of the
DISTRIBUTOR.

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