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MUTUALLY DESIRED RESULT DO NOT

OPERATE TO CONTROL OR FIX THE
METHODOLOGY AS WOULD RESULT
IN LABOR-ONLY CONTRACTING
Published by  Atty Elvin B. Villanueva at  May 21, 2017 The Author

Atty. Elvin B.
Villanueva is a
litigation lawyer
Nestle Philippines, Inc. vs. Benny A. Puedan, Jr., et al.
specializing in labor
G.R. No. 220617, January 30, 2017
laws. He graduated
Facts: from Arellano
University School of
Puedan, et al alleged that on various dates, ODSI and NPI hired them to sell various Law with honors. He
NPI products in the assigned covered area. was a recipient of
the Supreme Court
After some time, Puedan, et al demanded that they be considered regular
award for his essay
employees of NPI, but they were directed to sign contracts of employment with
on the Role of the
ODSI instead. When Puedan, et al refused to comply with such directives, NPI and
Rule of Law in
ODSI terminated them from their position. Thus, they were constrained to file the
National
complaint, claiming that: (a) ODSI is a labor-only contractor and, thus, they should Development.
be deemed regular employees of NPI; and (b) there was no just or authorized cause
for their dismissal. Ocho de Septiembre, Inc. Learn More
For its part, ODSI averred that it is a company engaged in the business of buying,
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selling, distributing, and marketing of goods and commodities of every kind and it Contact us
enters into all kinds of contracts for the acquisition thereof. ODSI admitted that on
Categories
To deliver
various dates, it hired Puedan, et al aslegal services andMonday
its employees assigned- Friday:
them to execute  Unit G03 Makati
the Distributorship Agreementthatitwill provide
entered withthe best
NPI.  8:30am - 5:30pm Executive Tower 2, Dela
solution for clients and Rosa St.,Atty. Elvin's
Makati City
However, the business relationship between
better results for NPI and ODSI
society. turned -sour
Saturday when the
Sunday: Books
former’s sales department badgered the latter regarding the sales targets.
Closed  (02) 579-9170
Corporation
Eventually, NPI downsized its marketing and promotional support from ODSI which  (02) 831-5881
Law
 attyelvin@gmail.com
resulted to business reverses and in the latter’s filing of a petition for corporate
rehabilitation and, subsequently, the closure of its Nestle unit due to the  Criminal Law
termination of the Distributorship Agreement and the failure of rehabilitation. learomano77@gmail.com
Events
Under the foregoing circumstances, ODSI argued that Puedan, et al were not
dismissed but merely put in floating status. Forms and
Templates
On the other hand, NPI did not file any position paper or appear in the scheduled
conferences. Labor Law
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LA Ruling: Privacy - Terms

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The Labor Arbiter (LA) dismissed the complaint for lack of merit, but nevertheless, Rules of
ordered, inter alia, ODSI and NPI to pay Puedan, et al nominal damages plus Procedure
attorney’s fees.
Tax Law
The LA found that: (a) Puedan, et al were unable to prove that they were NPI
employees; and (b) Puedan, et al were not illegally dismissed as ODSI had indeed TRAIN Law
closed down its operations due to business losses. As to the issue on the failure to
Uncategorized
give Puedan, et al a thirty (30)-day notice prior to such closure, the LA concluded
that all the impleaded Puedan, et al therein (i.e., including NPI) should be held
liable for the payment of nominal damages plus attorney’s fees.

Aggrieved, Puedan, et al appealed to the NLRC. Tags

NLRC Ruling: 120-day rule 240-
day rule
The NLRC reversed and set aside the LA ruling and, accordingly, ordered ODSI and
abandonment
NPI to pay each of the Puedan, et al: (a) separation pay amounting; and (b) nominal
damages. The NLRC likewise ordered NPI and ODSI to pay Puedan, et al attorney’s abandonment
fees. of work attorney's
fees backwages
Contrary to the LA’s findings, the NLRC found that while ODSI indeed shut down its burden of proof
operations, it failed to prove that such closure was due to serious business losses
compensability
as it did not present evidence, e.g., financial statements, to corroborate its claims.
constructive
As such, it ruled that Puedan, et al are entitled to separation pay. In this relation, dismissal Death
the NLRC also found that since ODSI failed to notify Puedan, et al of such closure, benefit disability

the latter are likewise entitled to nominal damages. Disability claim

dismissal
Further, the NLRC found ODSI to be a labor-only contractor of NPI, considering employer-employee
that: (a) ODSI had no substantial capitalization or investment; (b) Puedan, et al relationship
performed activities directly related to NPI’ s principal business; and ( c) the fact immutability of judgment
that Puedan, et al’ employment depended on the continuous supply of NPI labor-
jurisdiction
products shows that ODSI had not been carrying an independent business
only contracting
according to its own manner and method. Consequently, the NLRC deemed NPI to
be Puedan, et al’ true employer, and thus, ordered it jointly and severally liable
loss of trust
with ODSI to pay the monetary claims of Puedan, et al.
and confidence
PEME
Puedan, et al moved for a partial reconsideration. NPI also moved for Permanent
reconsideration. The NLRC denied both motions.
and Total
Dissatisfied, NPI filed a petition for certiorari before the CA, essentially insisting Disability
that: (a) it was deprived of due process before the tribunals a quo; and (b) there petition for certiorari
was no employer-employee relationship between NPI and Puedan, et al. piercing the veil Post
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employment medical
CA Ruling:
examination procedural
To deliver legal services Monday - Friday:  Unit G03 Makati
The CA affirmed the NLRC ruling. Anent the issue on due process, due process project
that will provide the best 8:30amthe CA held that Executive
- 5:30pm Tower 2, Dela
NPI was not deprived of its opportunity to be heard employment quitclaim
solution for clients and as it was able to receive a copy Rosa St., Makati City
of the complaint and other pleadings, albeit
better results foritsociety.
failed to respond
Saturdaythereto.
- Sunday: reinstatement release
 Closed  (02) 579-9170
resignation res judicata
As regards the substantive issue, the CA ruled that despite ODSI and NPI’ s contract  (02) 831-5881
retirement
being denominated as a “Distributorship Agreement,” it contained provisions  attyelvin@gmail.com
retrenchment second
demonstrating a labor-only contracting arrangement between them, as well as NPI’ 
motion for reconsideration
s exercise of control over the business of ODSI. learomano77@gmail.com
separation pay
Moreover, the CA pointed out that: (a) there was nothing in the records which serious
showed that ODSI had substantial capital to undertake an independent business; misconduct
and (b) Puedan, et al performed tasks essential to NPI’s business. Undaunted, NPI strained relations
moved for reconsideration, which was, however, denied in a Resolution. termination theft third
© 2019 EBV Law. All Rights Reserved. doctor valid dismissal
Hence, the petition.
waiver willful breach
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Issue/s: Willful breach of trust

willful disobedience work-
Whether or not NPI was deprived of due process
relatedness

Whether or not there is employer-employee relationship between NPI and Puedan,

et al

SC Ruling:

The observance of fairness in the conduct of any investigation is at the very heart
of procedural due process. The essence of due process is to be heard, and, as
applied to administrative proceedings, this means a fair and reasonable
opportunity to explain one’s side, or an opportunity to seek a reconsideration of
the action or ruling complained of. Administrative due process cannot be fully
equated with due process in its strict judicial sense, for in the former a formal or
trial-type hearing is not always necessary, and technical rules of procedure are not
strictly applied.

In this case, NPI was furnished via courier of a copy of the amended complaint filed
by the Puedan, et al against it as shown by LBC Receipt. It is also apparent that NPI
was also furnished with the Puedan, et al’ Position Paper, Reply, and Rejoinder.

Verily, NPI was indeed accorded due process, but as the LA mentioned, the former
chose not to file any position paper or appear in the scheduled conferences.

Assuming arguendo that NPI was somehow deprived of due process by either of
the labor tribunals, such defect was cured by: (a) NPI’ s filing of its motion for
reconsideration before the NLRC; (b) the NLRC’s subsequent issuance of its
Resolution wherein the tribunal considered all of NPI’s arguments as contained in
its motion; and (c) NPI’s subsequent elevation of the case to the CA.

Evidently, the foregoing shows that NPI was not denied due process of law as it was
afforded the fair and reasonable opportunity to explain its side.

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/re-seller.

Learn the how to draft legally-defensible employment forms and contracts

As stipulated in the Distributorship Agreement, NPI agreed

to sell its products to ODSI at discounted prices, which in
tum will be re-sold to identified customers, ensuring in the
process the integrity and quality of the said products based
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on the standards agreed upon by the parties. As aptly
explained by NPI,
To deliver the
legal goods it manufactures
services are distributed  Unit G03 Makati
Monday - Friday:
to the market through various
that will provide the best distributors, e.g.,
 8:30am - 5:30pm ODSI, that Executive Tower 2, Dela
in tum, re-sellfor
solution the sameand
clients to designated outlets through its Rosa St., Makati City
ownbetter
employees
resultssuch
for as the Puedan,
society. et al. - Sunday:
Saturday
 Closed  (02) 579-9170
Therefore, the reselling activities allegedly performed by  (02) 831-5881
the Puedan, et al properly pertain to ODSI, whose principal  attyelvin@gmail.com
business consists of the “buying, selling, distributing, and 
marketing goods and commodities of every kind” and learomano77@gmail.com
“[entering] into all kinds of contracts for the acquisition of
such goods [and commodities].”

Thus, contrary to the CA’s 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
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to dictate how ODSI shall conduct its business as a distributor. Privacy - Terms

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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 result -which in this case is the sale
of NPI products to the end consumer.

In Steelcase, Inc. vs. Design International Selections, Inc., 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.

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 Puedan, et al.

As a consequence, NPI cannot be held jointly and severally liable to ODSI’ s

monetary obligations towards Puedan, et al.

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