Aliviado v. Proctor & Gamble, G.R. No.

160506
Facts: The petitioners were 80 people worked as
merchandisers P&G. They all individually signed employment
contracts with Promm-Gemm or SAPS for periods of more or
less than 5 months. They were all assigned to different
outlets of P&G, and received wages from Promm-Gem or
SAPS. SAPS and Promm-Gem imposed disciplinary measures
on erring merchandisers for reasons such as habitual
absenteeism, dishonesty or changing day-off without prior
notice. P&G is engaged in the manufacture and production
of different consumer and health products, which it sells on a
wholesale basis to various supermarkets and distributors. To
enhance consumer awareness and acceptance of the
products, P&G entered into contracts with Promm-Gem and
SAPS for the promotion and merchandising of its products.
Petitioners filed a complaint against P&G for regularization,
service incentive, leave pay and other benefit with damages,
which was subsequently amended to include the matter of
their subsequent dismissal. Labor Arbiter, NLRC and CA all
ruled that the complaint lacks merit as there was no
employer-employee relationship between the petitioners and
P&G. The selection and engagement of the petitioners, the
payment of their wages, the power of dismissal and control
with respect to the means and methods by which their work
was accomplished, were all done and exercised by PrommGem/SAPS. He further found that Promm-Gem and SAPS were
legitimate independent job contractors.
Issues:
1. Where labor-only contracting exists, the Labor Code
itself establishes an employer-employee relationship
between the employer and the employees of the laboronly contractor, and consequently whether there was
an employer-employee relationship between the
petitioners and P&G.
2. Whether the petitioners were illegally dismissed.
Held:

1. The law and its implementing rules allow contracting

arrangements for the performance of specific jobs,
works or services. Indeed, it is management
prerogative to farm out any of its activities, regardless
of whether such activity is peripheral or core in nature.
However, in order for such outsourcing to be valid, it
must be made to an independent contractor because
the current labor rules expressly prohibit labor-only
contracting. Labor-only contracting exists when the
contractor or sub-contractor merely recruits, supplies
or places workers to perform a job, work or service for
a principal and (1) the contractor does not have
substantial capital or investment to the job, work, or
service to be performed and the employees recruited,
supplied or placed by the contractor are directly
related to the main business of the principal or (2) The
contractor does not exercise the right of control over
the performance of the work contractual employee. In
the case at bar, Promm-Gemms financial statements
showed that it has 1 million Capital Stock, and
P500,000 as of 1990. It also has long term assets
worth P432K, and it also proved that Promm-Gemm
proved that it maintained its own warehouse and office
space, and registered vehicles.
Under the
circumstances,
Promm-Gemm
has
substantial
investments which relates to the work performed.
Promm-Gemm also showed that it supplied relevant
materials such as markers, tapes liners and cuters,
necessary for them to perform their work, as well as
their uniforms. This negates the element of bad faith
and intent to circumvent labor laws. Thus, PrommGemm is a legitimate independent contractor. Thus,
the petitioners working under Promm-Gemm are
employees of Promm-Gemm.
On the case of SAPS, it only has P31,250 paid-in
capital, which evinces that it is not even sufficient for
one month payroll.
Substantial capital refers o
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.
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. Thus, SAPS is engaged in a laboronly contracting. Where labor-only contracting exists,
the Labor Code itself establishes an employeremployee relationship between the employer and the
employees of the labor-only contractor. In this case,
petitioners working under SAPS are thus employees of
P&G.
2. The employer shall not terminate the services of an
employee except for a just or authorized cause.
In the case of employees working under PrommGemm, the termination letters provided that
considering themselves as employees of P&G, and
thus assailing the legitimacy of the Company. This, for
Promm-Gemm, constitutes serious misconduct and
breach of trust.
Misconduct has been defined as improper or wrong
conduct; the transgression of some established and
definite rule of action, a forbidden act, a dereliction of
duty, unlawful in character implying wrongful intent
and not mere error of judgment. The misconduct to be
serious must be of such grave and aggravated
character and not merely trivial and unimportant. To
be a just cause for dismissal, such misconduct (a)
must be serious; (b) must relate to the performance of
the employees duties; and (c) must show that the
employee has become unfit to continue working for
the employer. To constitute serious misconduct, it is
not sufficient that the act or conduct complained
violated some established rules or policies. It must
show that the act or conduct must have been

performed with wrongful intent. In this case, PrommGem may have committed an error of judgment in
claiming to be employees of P&G, but it cannot be said
that they were motivated by any wrongful intent in
doing so.
Thus, they are only liable for simple
misconduct, and cannot be a valid basis for dismissing
an employee.
Meanwhile, loss of trust and confidence, as a ground
for dismissal, must be based on the willful breach of
the trust reposed in the employee by his employer.
Loss of trust and confidence, as a cause for
termination of employment, is premised on the fact
that the employee concerned holds a position of
responsibility or of trust and confidence. As such, he
must be invested with confidence on delicate matters,
such as custody, handling or care and protection of the
property and assets of the employer. And, in order to
constitute a just cause for dismissal, the act
complained of must be work-related and must show
that the employee is unfit to continue to work for the
employer. In this case, the petitioners have not been
shown to be occupying positions of responsibility or of
trust and confidence. Neither is there any evidence to
show that they are unfit to continue to work as
merchandisers for Promm-Gem. Thus, the dismissal
on the workers under Promm Gem is illegal.
In regard to the employees of SAPs, there was no
written notice of dismissal. Upon receipt by SAPS of
P&Gs letter terminating their Merchandising Services
Contact effective March 11, 1993, they in turn verbally
informed the concerned petitioners not to report for
work anymore. In termination cases, the burden of
proof rests upon the employer to show that the
dismissal is for just and valid cause. P&G failed to
discharge the burden of proving the legality and
validity of the dismissals of those petitioners who are

considered its employees. Hence, the dismissals

necessarily were not justified and are therefore illegal.