PHILIPPINE AIRLINES, INC. v. ENRIQUE LIGAN, et al. G.R. No.

146408, 30 April 2009, SPECIAL SECOND DIVISION (Carpio

(ii) The contractor does not exercise the right to control
Morales, J.)
over the performance of the work of the contractual employee.
FACTS
Even if only one of the two elements is present then,
Petitioner Philippine Airlines and Synergy Services Corporation there is labor-only contracting.
as Contractor, entered into an Agreement whereby Synergy
From the records of the case, it is gathered that the work
undertook to provide loading and delivery services by furnishing
performed by almost all of the respondents – loading and
all the necessary capital, workers, materials, supplies and
unloading of baggage and cargo of passengers – is directly
equipment for the performance and execution of said work.
related to the main business of petitioner. And the equipment
Herein respondents who appear to have been assigned to work
used by respondents as station loaders, such as trailers and
for petitioner filed complaints before the NLRC for the payment
conveyors, are owned by petitioner.
of their labor standard benefits and regularization of
employment status claiming that they are performing duties Petitioner PAL, and not Synergy, exercises control and
directly connected with petitioner’s business. The Labor supervision over the respondent workers’ methods of doing the
Arbiter’s decision found Synergy an independent contractor but work, as reflected in their Agreement:
was vacated on appeal. The NLRC tribunal declared Synergy to
be a labor-only contractor and was affirmed by the CA. Petitioner (1) Contractor (Synergy) shall require all its workers,
moved for reconsideration but was denied. employees, suppliers and visitors to comply with OWNER’S
(PAL) rules, regulations, procedures and directives relative to
ISSUE: Whether or not there is labor-only contracting. the safety and security of OWNER’S premises, properties and
operations
HELD:
(2) xxx shall furnish its employees and workers
For labor-only contracting to exist, Section 5 of D.O. No.
identification cards to be countersigned by OWNER and
18-02 which requires any of two elements to be present is, for
uniforms to be approved by OWNER.
convenience, re-quoted:
(3) OWNER may require CONTRACTOR to dismiss
(i) The contractor or subcontractor does not have
immediately and prohibit entry into OWNER’S premises of any
substantial capital or investment which relates to the job,
person employed therein by CONTRACTOR who in OWNER’S
work or service to be performed and the employees recruited,
opinion is incompetent or misconducts himself or does not
supplied or placed by such contractor or subcontractor are
comply with OWNER’S reasonable instructions xxx
performing activities which are directly related to the main
business of the principal, OR
 Petitioner in fact admitted that it fixes the work schedule Facts:
of respondents as their work was dependent on the frequency of
Petitioner San Miguel Corporation entered into a one-
plane arrivals. And as the NLRC found, petitioner’s managers and
year contract with the Sunflower Multi-Purpose Cooperative.
supervisors approved respondents’ weekly work assignments
Sunflower undertook and agreed to perform and provide the
and respondents and other regular PAL employees were all
company on a non exclusive basis for a period of one year the
referred to as “station attendants” of the cargo operation and
following: Messengerial, Janitorial, Shrimp harvesting and
airfreight services of petitioner.
Sanitation. Pursuant to the contract, Sunflower engaged private
Respondents having performed tasks which are usually respondents to render services at SMC’s Bacolod Shrimp
necessary and desirable in the air transportation business of Processing Plant. The contract was renewed and private
petitioner, they should be deemed its regular employees and respondentd continued to perform their tasks. Later, private
Synergy as a labor-only contractor. respondents filed a complaint praying to be declared as regular
employees of SMC, with claims of recovery of all benefits and
privileges.
Issue: Whether or not Sunflower is engaged in labor
only contracting.
Held: 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 employees’ 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:
San Miguel vs Aballa (2005) G.R. 149011
to prevent a circumvention of labor laws. The contractor is Therefore since Sunflower is labor only contracting,
considered merely an agent of the principal employer and the there is the existence of an employer- employee relationship
latter is responsible to the employees of the labor-only between SMC and private respondents.
contractor as if such employees had been directly employed by
the principal employer.
Meralco Industrial Engineering Services v. NLRC, March 14,
The following would show that sunflower is engaged in
2008
labor only contracting: What appears is that Sunflower does not
have substantial capitalization or investment in the form of tools, Meralco and the private respondent executed a contract
equipment, machineries, work premises and other materials to where the latter would supply the petitioner janitorial services,
qualify it as an independent contractor. It is gathered that the lot, which include labor, materials, tools and equipment, as well as
building, machineries and all other working tools utilized by supervision of its assigned employees, at Meralco’s Rockwell
private respondents in carrying out their tasks were owned and Thermal Plant in Makati City.
provided by SMC.
The 49 employees lodged a Complaint for illegal
Sunflower, during the existence of its service contract deduction, underpayment, non-payment of overtime pay, legal
with respondent SMC, did not own a single machinery, holiday pay, premium pay for holiday and rest day and night
equipment, or working tool used in the processing plant. differentials against the private respondent before the LA.
Everything was owned and provided by respondent SMC. The
lot, the building, and working facilities are owned by respondent By virtue of RA 6727, the contract between Meralco and
SMC. the private respondent was amended to increase the minimum
daily wage per employee. 2 months after the amendment of the
And from the job description provided by SMC itself, the contract, Meralco sent a letter to private respondent informing
work assigned to private respondents was directly related to the them that at the end of business hours of Jan. 31, 1990, it would
aquaculture operations of SMC. Undoubtedly, the nature of the be terminating contract entered into with the private
work performed by private respondents in shrimp harvesting, respondents. On the said date, the complainants were pulled out
receiving and packing formed an integral part of the shrimp from their work. The complainants amended their complaint to
processing operations of SMC. As for janitorial and messengerial include the charge of illegal dismissal and to implead Meralco as
services, that they are considered directly related to the principal a party respondent. The LA dismissed the complaint. On appeal,
business of the employer has been jurisprudentially recognized. the NLRC affirmed the decision of the LA with the modification
Furthermore, Sunflower did not carry on an independent that Meralco was solidarily liable with the private respondents.
business or undertake the performance of its service contract The CA on the other hand, modified the Decision of the NLRC and
according to its own manner and method, free from the control held Meralco
and supervision of its principal, SMC, its apparent role having
been merely to recruit persons to work for SMC.
to be solidarily liable with the private respondent for the underpayment of wages and non-payment of overtime pay. The
satisfaction of the laborer’s separation pay. joint and several liability of the principal with the contractor and
subcontractor were enacted to ensure compliance with the
Issue: Whether Meralco should be liable for the payment
provisions of the Labor Code, principally those on statutory
of the dismissed laborer’s separation pay.
minimum wage. This liability facilitates, if not guarantees,
Decision: payment of the workers’ compensation, thus, giving the worker
sample protection as mandated by the 1987 Constitution. With
Petition GRANTED, Judgment and Resolution Reversed and SET private respondents’ surety bond, it can therefore be said that
ASIDE. the purpose of the Labor Code provision on the solidary liability
The CA used Art. 109 of the Labor Code to hold Meralco of the indirect employer is already accomplished since the
solidarily liable with the private respondent as regard to the interest of the complainants are already adequately protected.
payment of separation pay. However, the SC ruled that Art.109 Consequently, it will be futile to continuously hold the petitioner
should be read in relation to Art. 106 and 107 of the LC. Thus, an jointly and solidarity liable with the private respondents for the
indirect employer can only be held liable with the independent judgment awards for underpayment of wages and non-payment
contractor or subcontractor in the event that the latter fails to of overtime pay.
pay the wages of its employees. While it is true that the
petitioner was the indirect employer of the complainants, it
cannot be held liable in the same way as the employer in every
respect. Meralco may be considered an indirect employer only
for purposes of unpaid wages.
The only instance when the principal can also be held
liable with the independent contractor or subcontractor for the
backwages and separation pay of the latter’s employees is when
there is proof that the principal conspired with the independent
contractor or subcontractor in the illegal dismissal of the
employees. In the present case, there is no allegation, much less
proof presented, that the petitioner conspired with private
respondents in the illegal dismissal of the latter’s employees;
hence, it cannot be held liable for the same.
In this case, however, private respondents had already
posted a surety bond in an amount sufficient to cover all the
judgment awards due the complainants, including those for
 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
Manila Electric Co., vs Benamira (2005) G.R. 145271 wages; and, (e) disciplined and supervised them or principally
controlled their conduct. The agreement even explicitly
Facts: provided that “[n]othing herein contained shall be understood to
The individual respondents are licensed security guards make the security guards under this Agreement, employees of
formerly employed by People’s Security, Inc. and deployed as the COMPANY, it being clearly understood that such security
such at MERALCO’s head office. The security service agreement guards shall be considered as they are, employees of the AGENCY
between PSI and MERALCO was terminated. Thereafter, 56 of alone.” Clearly, the individual respondents are the employees of
PSI’s security guards, including herein eight individual ASDAI.
respondents, filed a complaint for unpaid monetary benefits Neither is the stipulation that the agency cannot pull out
against PSI and MERALCO. Meanwhile, the security service any security guard from MERALCO without its consent an
agreement between respondent Armed Security & Detective indication of control. It is simply a security clause designed to
Agency, Inc., (ASDAI) and MERALCO took effect. Subsequently, prevent the agency from unilaterally removing its security
the individual respondents were absorbed by ASDAI and guards from their assigned posts at MERALCO’s premises to the
retained at MERALCO’s head office. Later, the security service latter’s detriment.
agreement between respondent Advance Forces Security &
Investigation Services, Inc. (AFSISI) and MERALCO took effect, The clause that MERALCO has the right at all times to
terminating the previous security service agreement with ASDAI. inspect the guards of the agency detailed in its premises is
The individual respondents amended their complaint to implead likewise not indicative of control as it is not a unilateral right.
AFSISI as party respondent. The agreement provides that the agency is principally mandated
to conduct inspections, without prejudice to MERALCO’s right to
conduct its own inspections.
Issue: Whether or not the individual respondents Moreover, ASDAI and AFSISI are not “labor-only”
are employees of MERALCO. contractors. There is “labor only” contract when the person
Held: No. In this case, the terms and conditions acting as contractor is considered merely as an agent or
embodied in the security service agreement between MERALCO intermediary of the principal who is responsible to the workers
and ASDAI expressly recognized ASDAI as the employer of in the same manner and to the same extent as if they had been
individual respondents. Under the security service agreement, it directly employed by him. On the other hand, “job (independent)
was ASDAI which (a) selected, engaged or hired and discharged contracting” is present if the following conditions are met: (a)
the security guards; (b) assigned them to MERALCO according to 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 DOLE Philppines vs Esteva (2006) G.R. 161115
conduct of his business. Given the above distinction and the Facts:
provisions of the security service agreements entered into by
petitioner with ASDAI and AFSISI, we are convinced that ASDAI Petitioner is a corporation duly organized and existing in
and AFSISI were engaged in job contracting. accordance with Philippine laws, engaged principally in the
production and processing of pineapple for the export market.
The individual respondents can not be considered as Its plantation is located in Polomolok, South Cotabato.
regular employees of the MERALCO for, although security
services are necessary and desirable to the business of Respondents are members of the Cannery Multi-Purpose
MERALCO, it is not directly related to its principal business and Cooperative (CAMPCO). CAMPCO was organized in accordance
may even be considered unnecessary in the conduct of with Republic Act No. 6938, otherwise known as the Cooperative
MERALCO’s principal business, which is the distribution of Code of the Philippines, and duly-registered with the
electricity. Cooperative Development Authority (CDA). Members of CAMPCO
live in communities surrounding petitioner's plantation and are
Furthermore, the fact that the individual respondents relatives of petitioner's employees. Petitioner and CAMPCO
filed their claim for unpaid monetary benefits against ASDAI is a entered into a Service Contract. The Service Contract referred to
clear indication that the individual respondents acknowledge petitioner as "the Company," while CAMPCO was "the
that ASDAI is their employer. Contractor."
The fact that there is no actual and direct employer- Pursuant to the foregoing Service Contract, CAMPCO
employee relationship between MERALCO and the individual members rendered services to petitioner. The number of
respondents does not exonerate MERALCO from liability as to CAMPCO members that report for work and the type of service
the monetary claims of the individual respondents. When they performed depended on the needs of petitioner at any given
MERALCO contracted for security services with ASDAI as the time. Although the Service Contract specifically stated that it
security agency that hired individual respondents to work as shall only be for a period of six months, the parties had
guards for it, MERALCO became an indirect employer of apparently extended or renewed the same for the succeeding
individual respondents pursuant to Article 107 of the Labor years without executing another written contract. It was under
Code. these circumstances that respondents came to work for
petitioner.
 The Task Force submitted a report identifying six home status" for more than six months had been constructively
cooperatives that were engaged in labor-only contracting, one of and illegally dismissed. Respondents further claimed entitlement
which was CAMPCO. The DOLE Regional Office No. XI held a to wage differential, moral damages, and attorney's fees.
conference wherein the representatives of the cooperatives
Petitioner, in its Position Paper filed before the NLRC,
named by the Task Force were given the opportunity to explain
denied that respondents were its employees.
the nature of their activities in relation to petitioner. Director
Parel of DOLE Regional Office No. XI issued an Order, directing Petitioner explained that it found the need to engage
the cooperatives to cease and desist from engaging in labor-only external services to augment its regular workforce, which was
contracting. affected by peaks in operation, work backlogs, absenteeism, and
excessive leaves. It used to engage the services of individual
DOLE Undersecretary Cresencio B. Trajano, by the
workers for definite periods specified in their employment
authority of the DOLE Secretary, issued an Order dismissing the
contracts and never exceeding one year. However, such an
appeal of the Cooperatives.
arrangement became the subject of a labor case, in which
Respondents started working for petitioner at various petitioner was accused of preventing the regularization of such
times in the years 1993 and 1994, by virtue of the Service workers. The Labor Arbiter who heard the case, rendered his
Contract executed between CAMPCO and petitioner. All of the Decision declaring that these workers fell squarely within the
respondents had already rendered more than one year of service concept of seasonal workers as envisaged by Article 280 of the
to petitioner. While some of the respondents were still working Labor Code, as amended, who were hired by petitioner in good
for petitioner, others were put on "stay home status" on varying faith and in consonance with sound business practice; and
dates in the years 1994, 1995, and 1996 and were no longer consequently, dismissing the complaint against petitioner.
furnished with work thereafter. Together, respondents filed a
The NLRC, in its Resolution, affirmed in toto the Labor
Complaint, on 19 December 1996, with the National Labor
Arbiter's Decision and further found that the workers were
Relations Commission (NLRC), for illegal dismissal,
validly and legally engaged by petitioner for "term employment,"
regularization, wage differentials, damages and attorney's fees.
wherein the parties agreed to a fixed period of employment,
Respondents thus argued that they should be considered knowingly and voluntarily, without any force, duress or
regular employees of petitioner given that: (1) they were improper pressure being brought to bear upon the employees
performing jobs that were usually necessary and desirable in the and absent any other circumstance vitiating their consent. The
usual business of petitioner; (2) petitioner exercised control over said NLRC Resolution became final and executory. Despite the
respondents, not only as to the results, but also as to the manner favorable ruling of both the Labor Arbiter and the NLRC,
by which they performed their assigned tasks; and (3) CAMPCO, petitioner decided to discontinue such employment
a labor-only contractor, was merely a conduit of petitioner. As arrangement. Yet, the problem of petitioner as to shortage of
regular employees of petitioner, respondents asserted that they workforce due to the peaks in operation, work backlogs,
were entitled to security of tenure and those placed on "stay absenteeism, and excessive leaves, persisted. Petitioner then
found a solution in the engagement of cooperatives such as 1. Whether or not department order no. 10, series
CAMPCO to provide the necessary additional services. of 1997 is the applicable regulation in this case. Whether or not
there should be a retroactive application to department order no.
Petitioner contended that respondents were owners-
3, series of 2001.
members of CAMPCO; that CAMPCO was a duly-organized and
registered cooperative which had already grown into a multi- 2. Whether or not its retroactive application
million enterprise; that CAMPCO was engaged in legitimate job- violated the constitutional provision against impairment of
contracting with its own owners-members rendering the contracts and deprived petitioner of the due process of the law.
contract work; that under the express terms and conditions of
Held:
the Service Contract executed between petitioner (the principal)
and CAMPCO (the contractor), the latter shall undertake the The second assignment of error delves into the
contract work on its own account, under its own responsibility, significance and application to the case at bar of the two
and according to its own manner and method free from the department orders issued by DOLE. Department Order No. 10,
control and direction of the petitioner in all matters connected series of 1997, amended the implementing rules of Books III and
with the performance of the work, except as to the result thereof; VI of the Labor Code, as amended. Under this particular DOLE
and since CAMPCO held itself out to petitioner as a legitimate job department order, the arrangement between petitioner and
contractor, respondents, as owners-members of CAMPCO, were CAMPCO would qualify as permissible contracting. Department
estopped from denying or refuting the same. Order No. 3, series of 2001, revoked Department Order No. 10,
series of 1997, and reiterated the prohibition on labor-only
Petitioner further averred that Department Order No. 10,
contracting.
amending the rules implementing Books III and VI of the Labor
Code, as amended, promulgated by the DOLE on 30 May 1997, Attention is called to the fact that the acts complained of
explicitly recognized the arrangement between petitioner and by the respondents occurred well before the issuance of the two
CAMPCO as permissible contracting and subcontracting. DOLE department orders in 1997 and 2001. The Service Contract
between DOLE and CAMPCO was executed on 17 August 1993.
The LA and the NLRC decided the case in favor of the
Respondents started working for petitioner sometime in 1993
Petitioner Company and against the complaint of the private
and 1994. While some of them continued to work for petitioner,
respondents (employees). On appeal by certiorari, the CA
at least until the filing of the Complaint, others were put on "stay
reversed the rulings of the LA and NLRC. Thus, the petitioner
home status" at various times in 1994, 1995, and 1996.
Company appealed to the SC for Petition for Review on Certiorari
Respondents filed their Complaint with the NLRC on 19
December 1996.
Issues: A basic rule observed in this jurisdiction is that no
statute, decree, ordinance, rule or regulation shall be given
retrospective effect unless explicitly stated. Since there is no employer for purposes of this Code, to prevent any violation or
provision at all in the DOLE department orders that expressly circumvention of any provision of this Code.
allowed their retroactive application, then the general rule
There is "labor-only" contracting where the person
should be followed, and the said orders should be applied only
supplying workers to an employer does not have substantial
prospectively.
capital or investment in the form of tools, equipment,
Which now brings this Court to the question as to what machineries, work premises, among others, and the workers
was the prevailing rule on labor-only contracting from 1993 to recruited and placed by such persons are performing activities
1996, the period when the occurrences subject of the Complaint which are directly related to the principal business of such
before the NLRC took place. employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be
Article 106 of the Labor Code, as amended, permits
responsible to the workers in the same manner and extent as if
legitimate job contracting, but prohibits labor-only contracting.
the latter were directly employed by him.
The said provision reads —
To implement the foregoing provision of the Labor Code,
ART. 106. Contractor or subcontractor. —
as amended, Sections 8 and 9, Rule VIII, Book III of the
Whenever an employer enters into a contract with another
implementing rules, in force since 1976 and prior to their
person for the performance of the former's work, the employees
amendment by DOLE Department Order No. 10, series of 1997,
of the contractor and of the latter's subcontractor, if any, shall be
provided as follows —
paid in accordance with the provisions of this Code.
Sec. 8. Job contracting. — There is job contracting
In the event that the contractor or subcontractor fails to
permissible under the Code if the following conditions are met;
pay the wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor (1) The contractor carries on an independent
or subcontractor to such employees to the extent of the work business and undertakes the contract work on his own account
performed under the contract, in the same manner and extent under his own responsibility according to his own manner and
that he is liable to employees directly employed by him. method, free from the control and direction of his employer or
principal in all matters connected with the performance of the
The Secretary of Labor may, by appropriate regulations,
work except as to the results thereof; and
restrict or prohibit the contracting out of labor to protect the
rights of workers established under this Code. In so prohibiting (2) The contractor has substantial capital or
or restricting, he may make appropriate distinctions between investment in the form of tools, equipment, machineries, work
labor-only contracting and job contracting as well as premises, and other materials which are necessary in the
differentiations within these types of contracting and determine conduct of his business.
who among the parties involved shall be considered the
 Sec. 9. Labor-only contracting. — (a) Any person who that the Court of Appeals gave these orders in its Decision, dated
undertakes to supply workers to an employer shall be deemed to 20 May 2002, and Amended Decision, dated 27 November 2003.
be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment
Aliviado vs Procter and Gamble Phils. Inc., et al (2010) G.R.
in the form of tools, equipment, machineries, work premises and
160506
other materials; and
Facts:
(2) The workers recruited and placed by such
persons are performing activities which are directly related to Petitioners worked as merchandisers of P&G from
the principal business or operations of the employer in which various dates, allegedly starting as early as 1982 or as late as
workers are habitually employed. June 1991, to either May 5, 1992 or March 11, 1993. They all
individually signed employment contracts with either Promm-
(b) Labor-only contracting as defined herein is
Gem or SAPS for periods of more or less five months at a time.
hereby prohibited and the person acting as contractor shall be
They were assigned at different outlets, supermarkets and stores
considered merely as an agent or intermediary of the employer
where they handled all the products of P&G. They received their
who shall be responsible to the workers in the same manner and
wages from Promm-Gem or SAPS.
extent as if the latter were directly employed by him.
SAPS and Promm-Gem imposed disciplinary measures on
(c) For cases not falling under this Article, the
erring merchandisers for reasons such as habitual absenteeism,
Secretary of Labor shall determine through appropriate orders
dishonesty or changing day-off without prior notice.
whether or not the contracting out of labor is permissible in the
light of the circumstances of each case and after considering the P&G is principally engaged in the manufacture and
operating needs of the employer and the rights of the workers production of different consumer and health products, which it
involved. In such case, he may prescribe conditions and sells on a wholesale basis to various supermarkets and
restrictions to insure the protection and welfare of the workers. distributors. To enhance consumer awareness and acceptance of
the products, P&G entered into contracts with Promm-Gem and
Since these statutory and regulatory provisions were the
SAPS for the promotion and merchandising of its products.
ones in force during the years in question, then it was in
consideration of the same that DOLE Regional Director Parel and In December 1991, petitioners filed a complaint against
DOLE Undersecretary Trajano issued their Orders on 19 P&G for regularization, service incentive leave pay and other
September 1993 and 15 September 1994, respectively, both benefits with damages. The complaint was later amended to
finding that CAMPCO was engaged in labor-only contracting. include the matter of their subsequent dismissal.
Petitioner, in its third assignment of error, questions the weight
On November 29, 1996, the Labor Arbiter dismissed the
complaint for lack of merit and ruled that there was no
employer-employee relationship between petitioners and P&G. In the event that the contractor or subcontractor fails to
He found that the selection and engagement of the petitioners, pay the wages of his employees in accordance with this Code, the
the payment of their wages, the power of dismissal and control employer shall be jointly and severally liable with his contractor
with respect to the means and methods by which their work was or subcontractor to such employees to the extent of the work
accomplished, were all done and exercised by Promm- performed under the contract, in the same manner and extent
Gem/SAPS. He further found that Promm-Gem and SAPS were that he is liable to employees directly employed by him.
legitimate independent job contractors.
There is "labor-only" contracting where the person
Appealing to the NLRC, petitioners disputed the Labor supplying workers to an employer does not have substantial
Arbiter’s findings. On July 27, 1998, the NLRC rendered a capital or investment in the form of tools, equipment,
Decision dismissing their appeal. Petitioners then filed a petition machineries, work premises, among others, and the workers
for certiorari with the CA, alleging grave abuse of discretion recruited and placed by such person are performing activities
amounting to lack or excess of jurisdiction on the part of the which are directly related to the principal business of such
Labor Arbiter and the NLRC. However, said petition was also employer. In such cases, the person or intermediary shall be
denied by the CA. considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if
Petitioners filed a motion for reconsideration but the
the latter were directly employed by him.
motion was also denied.
Rule VIII-A, Book III of the Omnibus Rules Implementing
the Labor Code, as amended by Department Order No. 18-02,
Issue: Whether or not Promm-Gem and SAPS are labor-only distinguishes between legitimate and labor-only contracting:
contractors.
Section 3. Trilateral Relationship in Contracting
Held: Arrangements. In legitimate contracting, there exists a trilateral
relationship under which there is a contract for a specific job,
Promm-Gem is an independent contractor however, work or service between the principal and the contractor or
SAPS is a labor-only contractor. subcontractor, and a contract of employment between the
The pertinent Labor Code provision on the matter states: contractor or subcontractor and its workers. Hence, there are
three parties involved in these arrangements, the principal
ART. 106. Contractor or subcontractor. – Whenever an which decides to farm out a job or service to a contractor or
employer enters into a contract with another person for the subcontractor, the contractor or subcontractor which has the
performance of the former’s work, the employees of the capacity to independently undertake the performance of the job,
contractor and of the latter’s subcontractor, if any, shall be paid work or service, and the contractual workers engaged by the
in accordance with the provisions of this Code. contractor or subcontractor to accomplish the job, work or
service.
 Section 5. Prohibition against labor-only contracting. peripheral or core in nature. However, in order for such
Labor-only contracting is hereby declared prohibited. For this outsourcing to be valid, it must be made to an independent
purpose, labor-only contracting shall refer to an arrangement contractor because the current labor rules expressly prohibit
where the contractor or subcontractor merely recruits, supplies labor-only contracting.
or places workers to perform a job, work or service for a
In the instant case, the financial statements of Promm-
principal, and any of the following elements are present:
Gem show that it has authorized capital stock of P1 million and a
i) The contractor or subcontractor does not have paid-in capital, or capital available for operations, of P500,000.00
substantial capital or investment which relates to the job, work as of 1990. It also has long term assets worth P432,895.28 and
or service to be performed and the employees recruited, current assets of P719,042.32. Promm-Gem has also proven that
supplied or placed by such contractor or subcontractor are it maintained its own warehouse and office space with a floor
performing activities which are directly related to the main area of 870 square meters. It also had under its name three
business of the principal; or registered vehicles which were used for its
promotional/merchandising business. Promm-Gem also has
ii) [T]he contractor does not exercise the right to control
other clients aside from P&G. Under the circumstances, we find
over the performance of the work of the contractual employee.
that Promm-Gem has substantial investment which relates to the
The foregoing provisions shall be without prejudice to work to be performed. These factors negate the existence of the
the application of Article 248 (c) of the Labor Code, as amended. element specified in Section 5(i) of DOLE Department Order No.
18-02.
"Substantial capital or investment" refers to capital
stocks and subscribed capitalization in the case of corporations, The records also show that Promm-Gem supplied its
tools, equipment, implements, machineries and work premises, complainant-workers with the relevant materials, such as
actually and directly used by the contractor or subcontractor in markers, tapes, liners and cutters, necessary for them to perform
the performance or completion of the job, work or service their work. Promm-Gem also issued uniforms to them. It is also
contracted out. relevant to mention that Promm-Gem already considered the
complainants working under it as its regular, not merely
The "right to control" shall refer to the right reserved to contractual or project, employees. This circumstance negates the
the person for whom the services of the contractual workers are existence of element (ii) as stated in Section 5 of DOLE
performed, to determine not only the end to be achieved, but Department Order No. 18-02, which speaks of contractual
also the manner and means to be used in reaching that end. employees. This, furthermore, negates – on the part of Promm-
Clearly, the law and its implementing rules allow Gem – bad faith and intent to circumvent labor laws which
contracting arrangements for the performance of specific jobs, factors have often been tipping points that lead the Court to
works or services. Indeed, it is management prerogative to farm strike down the employment practice or agreement concerned as
out any of its activities, regardless of whether such activity is contrary to public policy, morals, good customs or public order.
 Under the circumstances, Promm-Gem cannot be substantial capital or investment and the workers it recruited
considered as a labor-only contractor. We find that it is a are performing activities which are directly related to the
legitimate independent contractor. principal business of P&G, we find that the former is engaged in
"labor-only contracting".
On the other hand, the Articles of Incorporation of SAPS
shows that it has a paid-in capital of only P31,250.00. There is no "Where ‘labor-only’ contracting exists, the Labor Code
other evidence presented to show how much its working capital itself establishes an employer-employee relationship between
and assets are. Furthermore, there is no showing of substantial the employer and the employees of the ‘labor-only’ contractor."
investment in tools, equipment or other assets. The statute establishes this relationship for a comprehensive
purpose: to prevent a circumvention of labor laws. The
In Vinoya v. National Labor Relations Commission, the
contractor is considered merely an agent of the principal
Court held that "[w]ith the current economic atmosphere in the
employer and the latter is responsible to the employees of the
country, the paid-in capitalization of PMCI amounting to
labor-only contractor as if such employees had been directly
P75,000.00 cannot be considered as substantial capital and, as
employed by the principal employer.
such, PMCI cannot qualify as an independent contractor."
Applying the same rationale to the present case, it is clear that Consequently, petitioners recruited and supplied by SAPS
SAPS – having a paid-in capital of only P31,250 - has no -- which engaged in labor-only contracting -- are considered as
substantial capital. SAPS’ lack of substantial capital is underlined the employees of P&G while those having worked under, and
by the records which show that its payroll for its merchandisers been dismissed by Promm-Gem, are considered the employees of
alone for one month would already total P44,561.00. It had 6- Promm-Gem, not of P&G.
month contracts with P&G. Yet SAPS failed to show that it could
complete the 6-month contracts using its own capital and
investment. Its capital is not even sufficient for one month’s
payroll. SAPS failed to show that its paid-in capital of P31,250.00
is sufficient for the period required for it to generate its needed
revenue to sustain its operations independently. Substantial
capital refers to capitalization used in the performance or
completion of the job, work or service contracted out. In the
present case, SAPS has failed to show substantial capital.
Furthermore, the petitioners have been charged with the
merchandising and promotion of the products of P&G, an activity
that has already been considered by the Court as doubtlessly
directly related to the manufacturing business, which is the
principal business of P&G. Considering that SAPS has no
 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.

Temic Automotive v. Temic Automotive Employees Union The union and the petitioner failed to resolve the dispute
at the grievance machinery level, thus necessitating recourse to
FACTS voluntary arbitration.
By practice established since 1998, the petitioner Respondent’s submissions: in evidence a copy of the
contracts out some of the work in the warehouse department, complete manpower complement of the petitioner's warehouse
specifically those in the receiving and finished goods sections, to department showing that there were at the time 19 regular
three independent service providers or forwarders (forwarders), company employees and 26 forwarder employees. And affidavits
namely: Diversified Cargo Services, Inc. (Diversified), Airfreight of regular employees of the petitioner, who deposed that they
2100 (Airfreight) and Kuehne & Nagel, Inc. (KNI). These and the forwarders employees assigned at the warehouse
forwarders also have their own employees who hold the department were performing the same functions.
positions of clerk, material handler, system encoder and general
clerk. The regular employees of the petitioner and those of the Petitioner’s submissions: invoked the exercise of its
forwarders share the same work area and use the same management prerogative and its authority under this
equipment, tools and computers all belonging to the petitioner. prerogative to contract out to independent service providers the
forwarding, packing, loading of raw materials and/or finished
goods and all support and ancillary services (such as clerical
This outsourcing arrangement gave rise to a union activities) for greater economy and efficiency in its operations.
grievance on the issue of the scope and coverage of the collective The petitioner maintained that the services rendered by
bargaining unit, specifically to the question of whether or not the the forwarders employees are not the same as the functions
functions of the forwarders employees are functions being undertaken by regular rank-and-file employees covered by the
performed by the regular rank-and-file employees covered by bargaining unit; therefore, the unions demand that the
the bargaining unit. The union thus demanded that the forwarders employees be assimilated as regular company
forwarders' employees be absorbed into the petitioner's regular employees and absorbed by the collective bargaining unit has no
employee force and be given positions within the bargaining basis; what the union asks constitutes an unlawful interference
unit. The petitioner, on the other hand, on the premise that the in the company's prerogative to choose who to hire as
contracting arrangement with the forwarders is a valid exercise employees. It pointed out that the union could not, and never did,
of its management prerogative, posited that the union's position assert that the contracting-out of work to the service providers
is a violation of its management prerogative to determine who to was in violation of the CBA or prohibited by law.
 the voluntary arbitrator has no jurisdiction; thus, the voluntary
arbitration ruling cannot bind them. This limited scope, of
Voluntary arbitrator’s decision: the outsourcing of forwarding
course, poses no problem as the forwarders and their employees
work is expressly allowed by the rules implementing the Labor
are not indispensable parties and the case is not mooted by their
Code; however, the voluntary the petitioner went beyond the
absence. Our ruling will fully bind the immediate parties and
limits of the legally allowable contracting out because the
shall fully apply to, and clarify the terms of, their relationship,
forwarders' employees encroached upon the functions of the
particularly the interpretation and enforcement of the CBA
petitioner's regular rank-and-file workers. The forwarders'
provisions pertinent to the arbitrated issues.)
employees perform their jobs in the company warehouse
together with the petitioner's employees, use the same company RULING
tools and equipment and work under the same company
Our own examination of the agreement shows that the
supervisors indicators that the petitioner exercises supervision
forwarding arrangement complies with the requirements of
and control over all the employees in the warehouse department.
Article 106 of the Labor Code and its implementing rules.
Thus, the forwarders employees serving as clerks, material
handlers, system encoders and general clerks to be employees of To reiterate, no evidence or argument questions the
the company who are entitled to all the rights and privileges of companys basic objective of achieving greater economy and
regular employees of the company including security of tenure. efficiency of operations. This, to our mind, goes a long way to
negate the presence of bad faith.
CA fully affirmed the voluntary arbitrator’s decision and
dismissed the petition for lack of merit. 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
ISSUE(S) forwarders employees since then. No evidence likewise stands
before us showing that the outsourcing has resulted in a
reduction of work hours or the splitting of the bargaining unit
W/N the functions of the forwarders' employees are functions effects that under the implementing rules of Article 106 of the
being performed by the regular rank-and-file employees covered Labor Code can make a contracting arrangement illegal. The
by the bargaining unit. – NO! other requirements of Article 106, on the other hand, are simply
not material to the present petition.
(Note: the issue poses jurisdictional problems as the forwarders
employees are not parties to the case and the union has no Thus, on the whole, we see no evidence or argument
authority to speak for them. From this perspective, the voluntary effectively showing that the outsourcing of the forwarding
arbitration submission covers matters affecting third parties activities violate our labor laws, regulations, and the parties CBA,
who are not parties to the voluntary arbitration and over whom
specifically that it interfered with, restrained or coerced the current CBA was signed. In this sense, the union accepted
employees in the exercise of their rights to self-organization. the forwarding arrangement, albeit implicitly, when it signed the
CBA with the company. Thereby, the union agreed, again
The job of forwarding, as we earlier described, consists
implicitly by its silence and acceptance, that jobs related to the
not only of a single activity but of several services that
contracted forwarding activities are not regular company
complement one another and can best be viewed as one whole
activities and are not to be undertaken by regular employees
process involving a package of services. These services include
falling within the scope of the bargaining unit but by the
packing, loading, materials handling and support clerical
forwarders employees. Thus, the skills requirements and job
activities, all of which are directed at the transport of company
content between forwarders jobs and bargaining unit jobs may
goods, usually to foreign destinations.
be the same, and they may even work on the same company
It is in the appreciation of these forwarder services as products, but their work for different purposes and for different
one whole package of inter-related services that we discern a entities completely distinguish and separate forwarder and
basic misunderstanding that results in the error of equating the company employees from one another.
functions of the forwarders employees with those of regular
In light of these conclusions, we see no need to dwell on
rank-and-file employees of the company. A clerical job, for
the issue of the voluntary arbitrator’s authority to rule on issues
example, may similarly involve typing and paper pushing
not expressly submitted but which arise as a consequence of the
activities and may be done on the same company products that
voluntary arbitrators findings on the submitted issues.
the forwarders employees and company employees may work
on, but these similarities do not necessarily mean that all these
employees work for the company. The regular company
DISPOSITIVE PORTION
employees, to be sure, work for the company under its
supervision and control, but forwarder employees work for the WHEREFORE, premises considered, we hereby NULLIFY and SET
forwarder in the forwarders own operation that is itself a ASIDE the assailed Court of Appeals Decision, together with the
contracted work from the company. The company controls its Voluntary Arbitrators Decision.
employees in the means, method and results of their work, in the
same manner that the forwarder controls its own employees in
the means, manner and results of their work. Complications and
confusion result because the company at the same time controls
the forwarder in the results of the latters work, without
controlling however the means and manner of the forwarder
employees work.
From the perspective of the union in the present case, we
note that the forwarding agreements were already in place when
 In the meantime, SMART sent a letter to Astorga
demanding that she pay the current market value of the Honda
Civic Sedan which was given to her under the company’s car plan
program, or to surrender the same to the company for proper
disposition.

Smart Communications v. Astorga, January 28, 2008

Astorga, however, failed and refused to do either, thus
FACTS: prompting SMART to file a suit for replevin before the RTC which
Astorga was employed by Smart as District Sales was subsequently denied.
Manager of the Corporate Sales Marketing Group/ Fixed Services Astorga elevated the denial of her motion via certiorari to
Division. SMART launched an organizational realignment to the CA, which, in its February 28, 2000 Decision,19 reversed the
achieve more efficient operations. Part of the reorganization was RTC ruling. Granting the petition and, consequently, dismissing
the outsourcing of the marketing and sales force. Thus, SMART the replevin case, the CA held that the case is intertwined with
formed SMART-NTT Multimedia, Incorporated (SNMI). Since Astorga’s complaint for illegal dismissal; thus, it is the labor
SNMI was formed to do the sales and marketing work, SMART tribunal that has rightful jurisdiction over the complaint.
abolished the CSMG/FSD, Astorga’s division. SMART’s motion for reconsideration having been denied.
SNMI agreed to absorb the CSMG personnel who would On the other hand, the labor arbiter held that Astorga’s
be recommended by SMART. Astorga landed last in the dismissal from employment illegal. While recognizing SMART’s
performance evaluation, thus, she was not recommended by right to abolish any of its departments, the Labor Arbiter held
SMART. SMART, nonetheless, offered her a supervisory position that such right should be exercised in good faith and for causes
in the Customer Care Department, but she refused the offer beyond its control. The Arbiter found the abolition of CSMG done
because the position carried lower salary rank and rate. neither in good faith nor for causes beyond the control of
Astorga continued reporting for work. SMART issued a SMART, but a ploy to terminate Astorga’s employment. The
memorandum advising Astorga of the termination of her Arbiter also ruled that contracting out the functions performed
employment on ground of redundancy, by Astorga to an in-house agency like SNMI was illegal.

Astorga filed a Complaint for illegal dismissal, non- SMART also appealed the unfavorable ruling of the Labor
payment of salaries and other benefits with prayer for moral and Arbiter in the illegal dismissal case to the NLRC which declared
exemplary damages against SMART. the abolition of CSMG and the creation of SNMI to do the sales
and marketing services for SMART a valid organizational action.
 outcome of a number of factors, such as overhiring of workers,
decreased volume of business, or dropping of a particular
product line or service activity previously manufactured or
undertaken by the enterprise.

ISSUE:
Whether or not Astorga’s dismissal was valid. However, as aptly found by the CA, SMART failed to
comply with the mandated one month notice prior to
termination.
RULING:

Article 283 of the Labor Code clearly provides:

Astorga was terminated due to redundancy, which is one Art. 283. Closure of establishment and reduction of
of the authorized causes for the dismissal of an employee. The personnel. — The employer may also terminate the employment
nature of redundancy as an authorized cause for dismissal is of any employee due to the installation of labor saving devices,
explained in the leading case of Wiltshire File Co., Inc. v. National redundancy, retrenchment to prevent losses or the closing or
Labor Relations Commission, viz: cessation of operation of the establishment or undertaking
x x x redundancy in an employer’s personnel force unless the closing is for the purpose of circumventing the
necessarily or even ordinarily refers to duplication of work. That provisions of this Title, by serving a written notice on the
no other person was holding the same position that private workers and the Ministry of Labor and Employment at least one
respondent held prior to termination of his services does not (1) month before the intended date thereof x x x.
show that his position had not become redundant. Indeed, in any SMART’s assertion that Astorga cannot complain of lack
well organized business enterprise, it would be surprising to find of notice because the organizational realignment was made
duplication of work and two (2) or more people doing the work known to all the employees as early as February 1998 fails to
of one person. persuade.
Astorga’s actual knowledge of the reorganization cannot
We believe that redundancy, for purposes of the Labor replace the formal and written notice required by the law. In the
Code, exists where the services of an employee are in excess of written notice, the employees are informed of the specific date of
what is reasonably demanded by the actual requirements of the the termination, at least a month prior to the effectivity of such
enterprise. Succinctly put, a position is redundant where it is termination, to give them sufficient time to find other suitable
superfluous, and superfluity of a position or positions may be the
employment or to make whatever arrangements are needed to dismissed employee. Thus, before backwages may be granted,
cushion the impact of termination. there must be a finding of unjust or illegal dismissal from
work.The Labor Arbiter ruled that Astorga was illegally
Smart gave her a formal notice of termination barely two
dismissed. But on appeal, the NLRC reversed the Labor Arbiter’s
(2) weeks before the effective date of termination, a period very
ruling and categorically declared Astorga’s dismissal valid. This
much shorter than that required by law.
ruling was affirmed by the CA in its assailed Decision. Since
Astorga’s dismissal is for an authorized cause, she is not entitled
to backwages.
This procedural infirmity, however, would not render the
termination of Astorga’s employment illegal. The validity of
termination can exist independently of the procedural infirmity
Manila Water v. Dalumpines, October 4, 2010
of the dismissal.
FACTS:
In DAP Corporation v. CA, the dismissal of the employees
therein valid and for authorized cause even if the employer failed Petitioner Manila Water Company, Inc. (Manila Water)
to comply with the notice requirement under Article 283 of the was one of two private concessionaires contracted by the MWSS
Labor Code. The Court found the need to modify, by increasing, to manage the water distribution system in the east zone of
the indemnity awarded by the CA to Astorga, as a sanction on Metro Manila.
SMART for non-compliance with the one-month mandatory
Under the concession agreement, Manila Water
notice requirement, in light of our ruling in Jaka Food Processing
undertook to absorb the regular employees of MWSS listed by
Corporation v. Pacot, viz.:
the latter effective August 1, 1997. Individual respondents, with
[I]f the dismissal is based on a just cause under Article the exception of Moises Zapatero (Zapatero) and Edgar
282 but the employer failed to comply with the notice Pamoraga (Pamoraga), were among the one hundred twenty-one
requirement, the sanction to be imposed upon him should be (121) employees not included in the list of employees to be
tempered because the dismissal process was, in effect, initiated absorbed by Manila Water. Nevertheless, Manila Water engaged
by an act imputable to the employee, and (2) if the dismissal is their services without written contract from August 1, 1997 to
based on an authorized cause under Article 283 but the August 31, 1997. On September 1, 1997, individual respondents
employer failed to comply with the notice requirement, the signed a three (3)-month contract to perform collection services
sanction should be stiffer because the dismissal process was on commission basis for Manila Waters branches in the east
initiated by the employer’s exercise of his management zone.
prerogative.
Before the expiration of the contract of services, the 121
The award of backwages to Astorga by the CA should be bill collectors formed a corporation duly registered with the
deleted for lack of basis. Backwages is a relief given to an illegally Securities and Exchange Commission (SEC) as the "Association
Collectors Group, Inc." (ACGI). ACGI was one of the entities HELD: Job contracting is permissible only if the following
engaged by Manila Water for its courier service. Manila Water conditions are met:
entered into a service agreement with respondent First Classic
[1] The contractor carries on an independent business
Courier Services, Inc. (FCCSI) also for its courier needs. The
and undertakes the contract work on his own account under his
service agreements between Manila Water and FCCSI covered
own responsibility according to his own manner and method,
the periods 1997 to 1999 and 2000 to 2002. FCCSI gave a
free from the control and direction of his employer or principal
deadline for the bill collectors who were members of ACGI to
in all matters connected with the performance of the work
submit applications and letters of intent to transfer to FCCSI. The
except as to the results thereof; and,
individual respondents in this case were among the bill
collectors who joined FCCSI and were hired effective December [2] The contractor has substantial capital or investment
1, 1997. in the form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of the
business.
On various dates between May and October 2002,
Article 106 of the Code provides that there is labor-only
individual respondents were terminated from employment.
contracting where the person supplying workers to an employer
Manila Water no longer renewed its contract with FCCSI because
does not have substantial capital or investment in the form of
it decided to implement a "collectorless" scheme whereby Manila
tools, equipment, machineries, work premises, among others,
Water customers would instead remit payments through "Bayad
and the workers recruited and placed by such person are
Centers." Thus, aggrieved bill collectors individually filed
performing activities which are directly related to the principal
complaints for illegal dismissal, unfair labor practice, damages,
business of the employer. In such cases, the person or
and attorneys fees, with prayer for reinstatement and backwages
intermediary shall be considered merely as an agent of the
against petitioner Manila Water and respondent FCCSI.
employer who shall be responsible to the workers in the same
The LA rendered a decision dismissing the complaint for manner and to the same extent as if the latter were directly
lack of employer-employee relationship. Respondent bill employed by him.
collectors filed an appeal to the NLRC but the same was denied.
In the instant case, the CA found that FCCSI is a labor-
Respondents filed a petition for certiorari to the CA which
only contractor. Based on the factual findings of the CA, FCCSI
reversed the decision of the NLRC. Petitioners filed a motion for
does not have substantial capital or investment to qualify as an
reconsideration but the same was denied. Hence, this petition.
independent contractor. FCCSI was incorporated on November
ISSUE: 14, 1995, with an authorized capital stock ofP400,000.00, of
which onlyP100,000.00 is actually paid-in. Going by the
Is there employer-employee relationship between
pronouncement in Pe, such capitalization can hardly be
respondent bill collectors and petitioner Manila Water?
considered substantial.
 As correctly ruled by the CA, FCCSIs capitalization may element of control exercised by Manila Water over respondent
not be considered substantial considering that it had close to a bill collectors is manifested in the following circumstances:
hundred collectors covering the east zone service area of Manila
(a) respondent bill collectors reported daily to the
Water customers. The allegation in the position paper of FCCSI
branch offices of Manila Water to remit their collections with the
that it serves other companies courier needs does not "cure" the
specified monthly targets and comply with the collection
fact that it has insufficient capitalization to qualify as
reporting procedures prescribed by the latter;
independent contractor. Neither did FCCSI prove its allegation by
substantial evidence other than by their self-serving (b) respondent bill collectors, except for Pamoraga and
declarations. What is evident is that it was Manila Water that Zapatero, were among the 121 collectors who incorporated
provided the equipment and service vehicles needed in the ACGI;
performance of the contracted service, even if the contract
between FCCSI and Manila Water stated that it was the (c) Manila Water continued to pay their wages in the
Contractor which shall furnish at its own expense all materials, form of commissions even after the employees alleged transfer
tools, and equipment needed to perform the tasks of collectors. to FCCSI. Manila Water paid the respondent bill collectors their
individual commissions, and the lump sum paid by Manila Water
The elements to determine the existence of an employment to FCCSI merely represented the agency fee; and
relationship are:
(d) the certification or individual clearances issued by
(a) the selection and engagement of the employee; Manila Water to respondent bill collectors upon the termination
of the service contract with FCCSI.
(b) the payment of wages;
The certification stated that respondents were contract
(c) the power of dismissal; and,
collectors of Manila Water and not of FCCSI. Thus, this Court
(d) the employer's power to control the employee's agrees with the findings of the CA that if, indeed, FCCSI was the
conduct. true employer of the bill collectors, it should have been the one
to issue the certification or individual clearances.
The most important of these elements is the employer's
control of the employee's conduct, not only as to the result of the
work to be done, but also as to the means and methods to
DENIED
accomplish it.
First, respondent bill collectors were individually hired
by the contractor, but were under the direct control and
supervision of the concessionaire. Second, they performed the
same function of courier and bill collection services. Third, the
 terminated the Agreement. Consequently, petitioners lost their
employment.
LA dismissed the complaint finding that petitioners were
employees of BMSI. It was BMSI which hired petitioners, paid
their wages, and exercised control over them. On appeal, NLRC
reversed the decision. The CA reversed the NLRC ruling holding
the BMSI is an independent contractor.

Babas v. Lorenzo Shipping, December 15, 2010

FACTS: ISSUE:
Lorenzo Shipping Corporation (LSC) is a duly organized Did the CA erred in ignoring the clear evidence of record
domestic corporation engaged in the shipping industry; it owns that BMSI was engaged in labor-only contracting?
several equipment necessary for its business. LSC entered into
an Agreement with Best Manpower Services, Inc. (BMSI). Under HELD:
the Agreement, BMSI undertook to provide maintenance and
In distinguishing between prohibited labor-only
repair services to LSCs container vans, heavy equipment, trailer
contracting and permissible job contracting, the totality of the
chassis, and generator sets. BMSI further undertook to provide
facts and the surrounding circumstances of the case are to be
checkers to inspect all containers received for loading to and/or
considered.
unloading from its vessels. Simultaneous with the execution of
the Agreement, LSC leased its equipment, tools, and tractors to Labor-only contracting, a prohibited act, is an
BMSI. The period of lease was coterminous with the Agreement. arrangement where the contractor or subcontractor merely
recruits, supplies, or places workers to perform a job, work, or
BMSI then hired petitioners on various dates to work at
service for a principal. In labor-only contracting, the following
LSC as checkers, welders, utility men, clerks, forklift operators,
elements are present: (a) the contractor or subcontractor does
motor pool and machine shop workers, technicians, trailer
not have substantial capital or investment to actually perform
drivers, and mechanics. Years later, LSC entered into another
the job, work, or service under its own account and
contract with BMSI, this time, a service contract.
responsibility; and (b) the employees recruited, supplied, or
In September 2003, petitioners filed with the Labor placed by such contractor or subcontractor perform activities
Arbiter a complaint for regularization against LSC and BMSI. LSC which are directly related to the main business of the principal.
 On the other hand, permissible job contracting or thereby bolstering the NLRC finding that BMSI is a labor-only
subcontracting refers to an arrangement whereby a principal contractor.
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.
The Sc sustained the petitioners position that BMSI is
engaged labor-only contracting. First, petitioners worked at LSCs
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
Teng v. Pahagac, November 17, 2010
control over them or their work, except for the fact that
petitioners were hired by BMSI. Second, LSC was unable to FACTS:
present proof that BMSI had substantial capital. The record
before us is bereft of any proof pertaining to the contractors Albert Teng (Petitioner) is engaged in the business of
capitalization, nor to its investment in tools, equipment, or deep sea fishing, and he employs master fishermen to facilitate
implements actually used in the performance or completion of his fishing venture. These master fishermen hire the Respondent
the job, work, or service that it was contracted to render. What is workers as checkers of the volume of the fish caught in every
clear was that the equipment used by BMSI were owned by, and voyage. Respondents filed a complaint of illegal dismissalthey
merely rented from, LSC. Third, petitioners performed activities averred that there was no employment contract, and sometime
which were directly related to the main business of LSC. The around Sept. 2002, Teng doubted the amounts that they were
work of petitioners as checkers, welders, utility men, drivers, and telling him regarding how much fish were caught. By December,
mechanics could only be characterized as part of, or at least Teng told them their services were terminated.
clearly related to, and in the pursuit of, LSCs business. Logically, The VA dismissed the complaint because there was no
when petitioners were assigned by BMSI to LSC, BMSI acted employer-employee relationship. Respondents received the
merely as a labor-only contractor. decision on June 12, 2003; They filed an MR which was denied
Lastly, as found by the NLRC, BMSI had no other client and they received the order on July 8, 2003. The Voluntary
except for LSC, and neither BMSI nor LSC refuted this finding, Arbitrator reasoned that the Procedural Guidelines in the
Conduct of Voluntary Arbitration Proceedings (1989 Procedural respondent workers identification cards (IDs) bearing their
Guidelines) does not provide the remedy of a motion for names as employees and Tengs signature as the employer.
reconsideration to the party adversely affected by the VAs order Generally, in a business establishment, IDs are issued to identify
or decision the holder as a bona fide employee of the issuing entity. For the
13 years that the respondent workers worked for Teng, they
Respondents appealed to the CA, which ordered
received wages on a regular basis, in addition to their shares in
Petitioner to pay backwages and other monetary benefits. After
the fish caught.
denial of the MR,Teng files the case before the Supreme Court
The element of control is present in this case. Teng not
ISSUES: Is the VA's decision not subject to a motion for
only owned the tools and equipment, he directed how the
reconsideration?
respondent workers were to perform their job as checkers; they,
Is there an employer-employee relationship? in fact, acted as Tengs eyes and ears in every fishing expedition.

HELD: The dismissal of an employee, which the employer must

validate, has a twofold requirement: one is substantive, the other
Article 262-A deleted the word "unappealable" from is procedural. Not only must the dismissal be for a just or an
Article 263. The deliberate selection of the language in the authorized cause, as provided by law; the rudimentary
amendatory act differing from that of the original act indicates requirements of due process the opportunity to be heard and to
that the legislature intended a change in the law, and the court defend oneself must be observed as well. The employer has the
should endeavor to give effect to such intent. Presumably, the burden of proving that the dismissal was for a just cause; failure
decision may still be reconsidered by the Voluntary Arbitrator on to show this, as in the present case, would necessarily mean that
the basis of a motion for reconsideration duly filed during that the dismissal was unjustified and, therefore, illegal. DENIED.
period. The seasonable filing of a motion for reconsideration is a
mandatory requirement to forestall the finality of such decision.
The requirement that administrative remedies be
exhausted is based on the doctrine that in providing for a
remedy before an administrative agency, every opportunity must
be given to the agency to resolve the matter and to exhaust all
opportunities for a resolution under the given remedy before
bringing an action in, or resorting to, the courts of justice.
While Teng alleged that it was the maestros who hired
the respondent workers, it was his company that issued to the
 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 quality
exportable bananas to be sold exclusively to DPI. The BPPA is
effective for 10 years.18
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,
Diamond Farms v. Farms Agrarian Reform Beneficiaries
Southern Philippines Federation of Labor ("SPFL")—a
Multi-purpose Cooperative, January 13, 2016
legitimate labor organization with a local chapter in the awarded
Facts plantation filed a petition for certification election in the Office of
the Med-Arbiter on behalf of some 400 workers (the respondent-
DFI owns an 800-hectare banana plantation ("original workers in this petition) "jointly employed by DFI and
plantation") in Alejal, Carmen, Davao. Pursuant to Republic Act DARBMUPCO" working in the awarded plantation.
No. 6657 or the Comprehensive Agrarian Reform Law of 1988
("CARL"), commercial farms shall be subject to compulsory In another case, SPFL, together with more than 300
acquisition and distribution, thus the original plantation was workers, filed a case for underpayment of wages, nonpayment of
covered by the law. DFI offered to give up its rights and interest 13th month pay and service incentive leave pay and attorney's
over the original plantation in favor of the government by way of fees against DFI, DARBMUPCO and the respondent-contractors
a Voluntary Offer to Sell. The DAR accepted DFI's offer to sell the before the National Labor Relations Commission ("NLRC")
original plantation. Out of the total 800 hectares, the DAR only
DARBMUPCO and DFI denied that they are the employers
approved the disposition of 689.88 hectares.
of the respondent-workers. They claimed, instead, that the
The awarded plantation was turned over to qualified respondent-workers are the employees of the respondent-
agrarian reform beneficiaries ("ARBs") under the CARL. These contractors.
ARBs are the same farmers who were working in the original
Issue: Who among DFI,DARBMUPCO and the respondent-
plantation. They subsequently organized themselves into a
contractors is the employer of the respondent-workers?
Ruling: (1) Does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises and other
Petition is denied. Furthermore, the decision of the Court
materials; and
of Appeals declaring DFI to be the employer of respondent-
workers is affirmed. (2) The workers recruited and placed by such person are
performing activities which are directly related to the principal
This case involves job contracting, a labor arrangement
business or operations of the employer in which workers are
expressly allowed by law. Contracting or subcontracting is an
habitually employed.
arrangement whereby a principal (or employer) agrees to put
out or farm out with a contractor or subcontractor the Based on the conditions for permissible job contracting,
performance or completion of a specific job, work or service we rule that respondent-contractors are labor only contractors
within a definite or predetermined period, regardless of whether
There is no evidence showing that respondent-
such job, work or service is to be performed or completed within
contractors are independent contractors. The respondent-
or outside the premises of the principal.
contractors, DFI, and DARBMUPCO did not offer any proof that
The Omnibus Rules Implementing the Labor Code respondent-contractors were not engaged in labor-only
distinguishes between permissible job contracting (or contracting.
independent contractorship) and labor-only contracting. Job
Herein respondents, Voltaire Lopez, Jr., et al., were
contracting is permissible under the Code if the following
commissioned and contracted by petitioner, Diamond Farms, Inc.
conditions are met:
(DFI) to recruit farm workers, who are the complaining
(1) The contractor carries on an independent business [respondent-workers] (as represented by Southern Philippines
and undertakes the contract work on his own account under his Federation of Labor (SPFL) in this appeal by certiorari).
own responsibility according to his own manner and method,
Farm tools, implements and equipment necessary to
free from the control and direction of his employer or principal
performance of such farm activities were supplied by petitioner
in all matters connected with the performance of the work
DFI. Herein respondents Voltaire Lopez, Jr. et. al. had no
except as to the results thereof; and
adequate capital to acquire or purchase such tools, implements,
(2) The contractor has substantial capital or investment equipment, etc.
in the form of tools, equipment, machineries, work premises, and
Herein respondents Voltaire Lopez, Jr., et. al. as well as
other materials which are necessary in the conduct of his
rcspondents-SPFL, et. al. were being directly supervised,
business.
controlled and managed by petitioner DFI farm managers and
In contrast, job contracting shall be deemed as labor-only supervisors, specifically on work assignments and performance
contracting, an arrangement prohibited by law, if a person who targets.
undertakes to supply workers to an employer:
 A finding that a contractor is a labor-only contractor is
equivalent to a declaration that there is an employer-employee
relationship between the principal, and the workers of the labor-
only contractor; the labor-only contractor is deemed only as the
agent of the principal. Thus, in this case, respondent-contractors
are the labor-only contractors and either DFI or DARBMUPCO is
their principal.
We hold that DFI is the principal. The records show that
it is DFI which hired the individual [respondent-contractors]
who in turn hired their own men to work in the 689.88 hectares
land of DARBMUPCO as well as in the managed area of the
plantation.

DFI cannot argue that DARBMUPCO is the principal of the

respondent-contractors because it (DARBMUPCO) owns the Manila Memorial Park Cemetery v. Luiz, February 3, 2016
awarded plantation where respondent-contractors and
Facts:
respondent-workers were working. That DARBMUPCO owns the
awarded plantation where the respondent-contractors and Petitioner Manila Memorial Park Cemetery, Inc. (Manila
respondent-workers were working is immaterial.DFI, as the Memorial) entered into a Contract of Services with respondent
principal, hired the respondent-contractors and the latter, in Ward Trading and Services (Ward Trading). The Contract of
turn, engaged the services of the respondent-workers. Services provided that Ward Trading, as an independent
contractor, will render interment and exhumation services and
Clearly, DFI is the true employer of the respondent-
other related work to Manila Memorial in order to supplement
workers; respondent-contractors are only agents of DFI. Under
operations at Manila Memorial Park, Paranaque City.
Article 106 of the Labor Code, DFI shall be solidarily liable with
the respondent-contractors for the rightful claims of the Among those assigned by Ward Trading to perform
respondent-workers, to the same manner and extent, as if the services at the Manila Memorial Park were respondents Ezard
latter are directly employed by DFI. Lluz, Norman Corral, Erwm Fugaban, Valdimar Balisi, Emilio
Fabon, John Mark Aplicador, Michael Curioso, Junlin Espares, and
Gavino Farinas (respondents).
 Respondents alleged that soon after the management performing activities which are directly related to the main
declined their request for regularization and to be recognized as business of the principal; or
legitimate members of the existing labor union,the latter
2) The contractor does not exercise the right to control
dismissed them. Hence, this case for illegal dismissal.
the performance of the work of the contractual employee.
By way of defense, Manila Memorial argued that there
In the present case, The Contract of Services proved the
was no employer-employee relationship between the company
existence of labor-only conrtacting between Manila Memorial
and respondents. Instead, It argued that respondents were the
and Ward Trading. The Contract of Services provided that Ward
employees of Ward Trading.
Trading, as an independent contractor, will render interment
Issue: Whether or not an employer-employee relationship and exhumation services and other related work to Manila
exists between Manila Memorial and respondents for the Memoria.However,a closer reading of the Contract of Services
latter to be entitled to their claim for wages and other reveals that Ward Trading does not have substantial capital or
benefits. 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. Furthermore, although
Ward shall be in charge of the supervision over individual
Ruling: respondents, the exercise of its supervisory function is heavily
Contracting arrangements for the performance of specific dependent upon the needs of petitioner Memorial Park. The
jobs or services under the law and its implementing rules are contract further provides that petitioner has the option to take
allowed. However, contracting must be made to a legitimate and over the functions of Ward's personnel if it finds any part or
independent job contractor since labor rules expressly prohibit aspect of the work or service provided to be unsatisfactory
labor-only contracting. Manila Memorial failed to adduce evidence to prove that
Labor-only contracting exists when the contractor or Ward Trading had any substantial capital, investment or assets
subcontractor merely recruits, supplies or places workers to to perform the work contracted for. Thus, the presumption that
perform a job, work or service for a principal and any of the Ward Trading is a labor-only contractor stands. Consequently,
following elements are present: Manila Memorial is deemed the employer of respondents.

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
 determine whether it is complying with the various mandated
labor standards, and relative thereto, they were declared to be
regular employees of Coca-Cola
As soon as respondents learned of the filing of the claims
with DOLE, they were dismissed... they filed their complaint for
illegal dismissal.
Issues: whether the petitioners were illegally dismissed
from their employment with Coca-Cola

Ruling:
The Court finds for the petitioners. It cannot be said that route-
helpers, such as the petitioners no longer enjoy the employee-
employer relationship they had with Coca-Cola since they
became employees of Interserve.
Quintanar v. Coca Cola Bottlers Philippines, June 28, 2016
Facts: The argument of petitioner that its usual business or
trade is softdrink manufacturing and that the work assigned to
Complainants allege that they are former employees
respondent workers as sales route helpers so involves merely
directly hired by respondent Coca-Cola... assigned as regular
"postproduction activities," one which is not indispensable in the
Route Helpers under the direct supervision of the Route Sales
manufacture of its products,... scarcely can be persuasive.
Supervisors.
The repeated rehiring of respondent workers and the
After working for quite sometime as directly-hired
continuing need for their services clearly attest to the necessity
employees of Coca-Cola, complainants were allegedly...
or desirability of their services in the regular conduct of the
transferred successively as agency workers to the following
business or trade of petitioner company.
manpower agencies, namely, Lipercon Services, Inc., People's
Services, Inc., ROMAC, and the latest being respondent Interserve Interserve did not have substantial capital or investment
Management and Manpower Resources, Inc. in the form of tools, equipment, machineries, and work premises;
and respondents, its supposed employees, performed work
Complainants allege that the Department of Labor and
which was directly related to the principal business of petitioner.
Employment (DOLE) conducted an inspection of Coca-Cola to
 The petitioners were made to suffer under the prohibited terminated them from their position. Thus, they were
practice of labor-only contracting. even if the Court would constrained to file the complaint, claiming that: (ODSI is a labor-
indulge Coca-Cola and admit that Interserve had more... than only contractor and thus, they should be deemed regular
sufficient capital or investment in the form of tools, equipment, employees of NPI, and (b) there was no just or authorized cause
machineries, work premises, still, it cannot be denied that the for their dismissal.
petitioners were performing activities which were directly
For its part, ODSI averred that it is a company engaged in
related to the principal business of such employer.
the business of buying, selling, distributing, and marketing of
even if Interserve were to be considered as a legitimate goods and commodities of every kind, and it enters into all kinds
job contractor, Coca-Cola failed to rebut the allegation that of contracts for the acquisition thereof. ODSI admitted that on
petitioners were transferred from being its employees to become various dates, it hired Puedan et al as its employees and assigned
the employees of ISI, Lipercon, PSI, and ROMAC, which were them to execute the Distributorship Agreement it entered with
labor-only... contractors. Well-settled is the rule that "[t]he NPI. However, the business relationship between NPI and ODSI
contractor, not the employee, has the burden of proof that it has turned sour. Eventually, NPI downsized its marketing and
the substantial capital, investment, and tool to engage in job promotional support from ODSI which resulted to business
contracting." reverses and in the latter’s filing of a petition for corporate
rehabilitation and subsequently, the closure of its Nestle unit due
to the termination of the Distributorship Agreement and the
In this case, the said burden of proof lies with Coca-Cola... failure of rehab.
although it was not the contractor itself, but it was the one
Under the foregoing circumstances, ODSI argued that Puedan et
invoking the supposed status of these entities as independent job
al were not dismissed but merely put in floating status. On the
contractors.
other hand, NPI did not file any position paper or appear in the
scheduled conferences.

NESTLE PHILIPPINES, INC. VS. BENNY A. PUEDAN, JR., LA Ruling

Facts: Dismissed the complaint for lack of merit but nevertheless

ordered inter alia ODSI and NPI to pay Puedan et al nominal
Puedan, et al. alleged that on various dates, ODSI and NPI damages plus attorney’s fees. It found Puedan to (a)be unable to
hired them to sell various products in the assigned covered area. prove that they were NPI employees; (b) Puedan et al wre not
After some time, Puedan et.al demanded that they be illegally dimissed as ODSI has indeed closed down its operations
considered regular employees of NPI, but they were directed to due to business losses. As to the issue on the failure to give
sign contracts of employment with ODSI instead. When Puedan, Puedan et al a 30 day notice prior to such closure, LA concluded
et al refused to comply with such directives NPI and ODSI
that all impleaded Puedan et al therein should be held liable for Pointed out that (a) there was nothing in the records which
the payment of nominal damages plus attorney’s fees. showedthat ODSI had substantial capital to undertake an
independent business, and (b) Puedan et al performed tasks
Aggrieved , Puedan et al appealed to NLRC.
essential to NPI’s business.
NLRC Ruling:
Issue:
Reversed and set aside the LA. Ordered ODSI and NPI to pay each
W/N there is employee-employer relationship between Puedan
of Puedan et al (a)separation pay; (b)nominal damages;
et al and NPI
(c)attorney’s fees.
Ruling:
NLRC found that while ODSI indeed shut down its operations, it
failed to prove that such closure was due to serious business A closer examination of the Distributorship Agreement
losses as it did not present evidence to corroborate its claims. reveals that the relationship of NPI and ODSI is not that of a
principal and a contractor but that of a seller and a
Futher, NLRC found ODSI to be a labor-only contractor of NPI,
buyer/reseller. As stipulated in the agreement, NPI agreed to sell
considering that (a)ODSI had no substantial
it products to ODSI at discounted prices which in turn will be re-
capitalization/investment; (b)Puedan, et al performed activities
sold to the identified customers, ensuring in the process of
directly related to NPI’s principal business, and (c) the fact that
integrity and quality of the said products based on the standards
Puedan et al employment depended on the continuous supply of
agreed upon by parties. As aptly explained by NPI, the goods it
method. Consequently, NLRC deemed NPI to be Puedan, et al true
manufactures are distributed to the market through various
employer, and this ordered it to be jointly and severally liable
distributors e.g ODSI, that in turn re-sell the same to the
with ODSI to pay monetary claims of Puedan, et al.
designated outlets through its own employees such as Puedan, et
Puedan et al moved for a partial reconsideration. NPI also moved al.
for reconsideration. NLRC Denied both, hence this petition to the
Therefore, the reselling activities allegedly performed by
CA.
the Puedan et al properly pertain to ODSI, whose principal
CA Ruling: business consists of the “buying, selling, distributing, and
marketing good and commodities of every kind” and “[entering]
CA ruled that despite ODSI and NPI’s contract being into all kinds of contracts for the acquisition of such goods [and
denominated as “Distributorship Agreement”, it contained commodities]”. Thus, contrary to the CA’s findings, the
provisions demonstrating a labor-only contracting agreement aforementioned stipulations in the agreement hardly
between them, as well as NPI’S exercise of control over the demonstrate control on the part of NPI over the means and
business of ODSI. methods by which ODSI performs its business, nor were they
intended to dictate how ODSI shall conduct its business as
distributor.
Otherwise stated, the stipulations in the 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 of profits.
Verily, it was only reasonable for NPI -it being a local arm
of one of the largest manufactures 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 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 contactor 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.