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146408

G.R.No.146408February29,2008

PHILIPPINEAIRLINES,INC.,petitioner,
vs.

ENRIQUELIGAN,EMELITOSOCO,ALLANPANQUE,JOLITOOLIVEROS,RICHARDGONCER,NONILON
PILAPIL,AQUILINOYBANEZ,BERNABESANDOVAL,RUELGONCER,VIRGILIOP.CAMPOS,JR.,ARTHUR
M.CAPIN,RAMELBERNARDES,LORENZOBUTANAS,BENSONCARESUSA,JEFFREYLLENOS,ROQUE
PILAPIL,ANTONIOM.PAREJA,CLEMENTER.LUMAYNO,NELSONTAMPUS,ROLANDOTUNACAO,
CHERRIEALEGRES,BENEDICTOAUXTERO,EDUARDOMAGDADARAUG,NELSONM.DULCE,andALLAN
BENTUZAL,respondents.

DECISION

CARPIOMORALES,J.:

PetitionerPhilippineAirlinesasOwner,andSynergyServicesCorporation(Synergy)asContractor,enteredintoan
Agreement1onJuly15,1991wherebySynergyundertookto"provideloading,unloading,deliveryofbaggageand
cargoandotherrelatedservicestoandfrom[petitioner]'saircraftattheMactanStation."2

TheAgreementspecifiedthefollowing"ScopeofServices"ofContractorSynergy:

1.2CONTRACTORshallfurnishallthenecessarycapital,workers,loading,unloadinganddeliverymaterials,
facilities, supplies, equipment and tools for the satisfactory performance and execution of the following
services(theWork):

a.Loadingandunloadingofbaggageandcargotoandfromtheaircraft

b.Deliveringofbaggagefromtheramptothebaggageclaimarea

c.Pickingupofbaggagefromthebaggagesortingareatothedesignatedparkedaircraft

d.Deliveringofcargounloadedfromtheflighttocargoterminal

e.Otherrelatedjobs(butnotjanitorialfunctions)asmayberequiredandnecessary

CONTRACTOR shall perform and execute the aforementioned Work at the following areas located at
MactanStation,towit:

a.RampArea

b.BaggageClaimArea

c.CargoTerminalArea,and

d.BaggageSortingArea3(Underscoringsupplied)

AnditexpresslyprovidedthatSynergywas"anindependentcontractorand...thattherew[ould]benoemployer
employeerelationshipbetweenCONTRACTORand/oritsemployeesontheonehand,andOWNER,ontheother."4

OnthedurationoftheAgreement,Section10thereofprovided:

10.1ShouldatanytimeOWNERfindtheserviceshereinundertakenbyCONTRACTORtobeunsatisfactory,
it shall notify CONTRACTOR who shall have fifteen (15) days from such notice within which to improve the
services. If CONTRACTOR fails to improve the services under this Agreement according to OWNER'S
specifications and standards, OWNER shall have the right to terminate this Agreement immediately and
withoutadvancenotice.

10.2 Should CONTRACTOR fail to improve the services within the period stated above or should
CONTRACTORbreachthetermsofthisAgreementandfailorrefusetoperformtheWorkinsuchamanner
aswillbeconsistentwiththeachievementoftheresultthereincontractedfororinanyotherwayfailtocomply
strictly with any terms of this Agreement, OWNER at its option, shall have the right to terminate this
AgreementandtomakeotherarrangementsforhavingsaidWorkperformedandpursuanttheretoshallretain
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so much of the money held on the Agreement as is necessary to cover the OWNER's costs and damages,
withoutprejudicetotherightofOWNERtoseekresorttothebondfurnishedbyCONTRACTORshouldthe
moneyinOWNER'spossessionbeinsufficient.

xxxx(Underscoringsupplied)

ExceptforrespondentBenedictoAuxtero(Auxtero),therestoftherespondents,whoappeartohavebeenassigned
bySynergytopetitionerfollowingtheexecutionoftheJuly15,1991Agreement,filedonMarch3,1992complaints
before the NLRC Regional Office VII at Cebu City against petitioner, Synergy and their respective officials
for underpayment, nonpayment of premium pay for holidays, premium pay for rest days, service incentive leave
pay,13thmonthpayandallowances,andforregularizationofemploymentstatuswithpetitioner,theyclaimingtobe
"performingdutiesforthebenefitof[petitioner]sincetheirjobisdirectlyconnectedwith[its]businessxxx."5

Respondent Auxtero had initially filed a complaint against petitioner and Synergy and their respective officials for
regularizationofhisemploymentstatus.Laterallegingthathewas,withoutvalidground,verballydismissed,hefiled
acomplaintagainstpetitionerandSynergyandtheirrespectiveofficialsforillegaldismissalandreinstatementwith
fullbackwages.6

Thecomplaintsofrespondentswereconsolidated.

ByDecision7ofAugust29,1994,LaborArbiterDominadorAlmirantefoundSynergyanindependentcontractorand
dismissed respondents' complaint for regularization against petitioner, but granted their money claims. The fallo of
thedecisionreads:

WHEREFORE,foregoingpremisesconsidered,judgmentisherebyrenderedasfollows:

(1) Ordering respondents PAL and Synergy jointly and severally to pay all the complainants herein their
13thmonthpayandserviceincentiveleavebenefits

xxxx

(3)OrderingrespondentSynergytopaycomplainantBenedictoAuxteroafinancialassistanceintheamount
ofP5,000.00.

The awards hereinabove enumerated in the aggregate total amount of THREE HUNDRED TWENTYTWO
THOUSANDTHREEHUNDREDFIFTYNINEPESOSANDEIGHTYSEVENCENTAVOS(P322,359.87)are
computedindetailbyourFiscalExaminerwhichcomputationisheretoattachedtoformpartofthisdecision.

Therestoftheclaimsareherebyordereddismissedforlackofmerit.8(Underscoringsupplied)

Onappealbyrespondents,theNLRC,FourthDivision,CebuCity,vacatedandsetasidethedecisionoftheLabor
ArbiterbyDecision9ofJanuary5,1996,thefalloofwhichreads:

WHEREFORE,theDecisionoftheLaborArbiterDominadorA.Almirante,datedAugust29,1994,ishereby
VACATEDandSETASIDEandjudgmentisherebyrendered:

1.DeclaringrespondentSynergyServicesCorporationtobea'laboronly'contractor

2.OrderingrespondentPhilippineAirlinestoaccept,asitsregularemployees,allthecomplainants,...and
to give each of them the salaries, allowances and other employment benefits and privileges of a regular
employeeundertheCollectiveBargainingAgreementsubsistingduringtheperiodoftheiremployment

xxxx

4.DeclaringthedismissalofcomplainantBenedictoAuxterotobeillegalandorderinghisreinstatementas
helper or utility man with respondent Philippine Airlines, with full backwages, allowances and other benefits
andprivilegesfromthetimeofhisdismissaluptohisactualreinstatementand

5. Dismissing the appeal of respondent Synergy Services Corporation, for lack of merit.10 (Emphasis and
underscoringsupplied)

OnlypetitionerassailedtheNLRCdecisionviapetitionforcertioraribeforethisCourt.
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ByResolution11ofJanuary25,1999,thisCourtreferredthecasetotheCourtofAppealsforappropriateactionand
disposition, conformably with St. Martin Funeral Homes v. National Labor Relations Commission which was
promulgatedonSeptember16,1998.

Theappellatecourt,byDecisionofSeptember29,2000,affirmedtheDecisionoftheNLRC.12Petitioner'smotionfor
reconsiderationhavingbeendeniedbyResolutionofDecember21,2000,13the presentpetitionwasfiled, faulting
theappellatecourt

I.

...INUPHOLDINGTHENATIONALLABORRELATIONSCOMMISSIONDECISIONWHICHIMPOSEDTHE
RELATIONSHIP OF EMPLOYEREMPLOYEE BETWEEN PETITIONER AND THE RESPONDENTS
HEREIN.

II.

...INAFFIRMINGTHERULINGOFTHENATIONALLABORRELATIONSCOMMISSIONORDERINGTHE
REINSTATEMENTOFRESPONDENTAUXTERODESPITETHEABSENCE[OF]ANYFACTUALFINDINGIN
THEDECISIONTHATPETITIONERILLEGALLYTERMINATEDHISEMPLOYMENT.

III.

...[INANYEVENTIN]COMMITT[ING]APATENTANDGRAVEERRORINUPHOLDINGTHEDECISION
OF THE NATIONAL LABOR RELATIONS COMMISSION WHICH COMPELLED THE PETITIONER TO
EMPLOYTHERESPONDENTSASREGULAREMPLOYEESDESPITETHEFACTTHATTHEIRSERVICES
ARE IN EXCESS OF PETITIONER COMPANY'S OPERATIONAL REQUIREMENTS.14(Underscoring
supplied)

Petitionerarguesthatthelawdoesnotprohibitanemployerfromengaginganindependentcontractor,likeSynergy,
whichhassubstantialcapitalincarryingonanindependentbusinessofcontracting,toperformspecificjobs.

PetitionerfurtherarguesthatitscontractingouttoSynergyvariousserviceslikejanitorial,aircraftcleaning,baggage
handling,etc.,whicharedirectlyrelatedtoitsbusiness,doesnotmakerespondentsitsemployees.

Petitioner furthermore argues that none of the four (4) elements of an employeremployee relationship between
petitionerandrespondents,viz:selectionandengagementofanemployee,paymentofwages,powerofdismissal,
andthepowertocontrolemployee'sconduct,ispresentinthecase.15

Finally,petitioneraversthatreinstatementofrespondentshadbeenrenderedimpossiblebecauseithadreducedits
personnel due to heavy losses as it had in fact terminated its service agreement with Synergy effective June 30,
199816asacostsavingmeasure.

ThedecisionofthecasehingesonadeterminationofwhetherSynergyisamerejobonlycontractororalegitimate
contractor. If Synergy is found to be a mere jobonly contractor, respondents could be considered as regular
employeesofpetitionerasSynergywouldthenbeamereagentofpetitionerinwhichcaserespondentswouldbe
entitledtoallthebenefitsgrantedtopetitioner'sregularemployeesotherwise,ifSynergyisfoundtobealegitimate
contractor,respondents'claimsagainstpetitionermustfailastheywouldthenbeconsideredemployeesofSynergy.

The statutory basis of legitimate contracting or subcontracting is provided in Article 106 of the Labor Code which
reads:

ART. 106. CONTRACTOR OR SUBCONTRACTOR. Whenever an employer enters into a contract with
anotherpersonfortheperformanceoftheformer'swork,theemployeesofthecontractorandofthelatter's
subcontractor,ifany,shallbepaidinaccordancewiththeprovisionsofthisCode.

Intheeventthatthecontractororsubcontractorfailstopaythewagesofhisemployeesinaccordancewith
this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such
employeestotheextentoftheworkperformedunderthecontract,inthesamemannerandextentthatheis
liabletoemployeesdirectlyemployedbyhim.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to
protect the rights of workers established under the Code. In so prohibiting or restricting, he may make
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appropriate distinctions between laboronly contracting and job contracting as well as differentiations within
thesetypesofcontractinganddeterminewhoamongthepartiesinvolvedshallbeconsideredtheemployerfor
purposesofthisCode,topreventanyviolationorcircumventionofanyprovisionofthisCode.

There is "laboronly" contracting where the person supplying workers to an employer does not have
substantialcapitalorinvestmentintheformoftools,equipment,machineries,workpremises,among
others, AND the workers recruited and placed by such person are performing activities which are
directlyrelatedtotheprincipalbusinessofsuchemployer.Insuchcases,the person or intermediary
shallbeconsideredmerelyasanagentoftheemployerwhoshallberesponsibletotheworkersinthe
same manner and extent as if the latter were directly employed by him. (Emphasis, capitalization and
underscoringsupplied)

LegitimatecontractingandlaboronlycontractingaredefinedinDepartmentOrder(D.O.)No.1802,Seriesof2002
(RulesImplementingArticles106to109oftheLaborCode,asamended)asfollows:

Section 3. Trilateral relationship in contracting arrangements. In legitimate contracting, there exists a

trilateralrelationshipunderwhichthereisacontractforaspecificjob,workorservicebetweentheprincipal
and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor
anditsworkers.Hence,therearethreepartiesinvolvedinthesearrangements,theprincipalwhichdecidesto
farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the
capacity to independently undertake the performance of the job, work or service, and the contractual
workersengaged by the contractor or subcontractor to accomplish the job, work or service. (Emphasis and
underscoringsupplied)

Section5.Prohibition against laboronly contracting.Laboronly contracting is hereby declared prohibited.

For this purpose, laboronly contracting shall refer to an arrangement where the contractor or subcontractor
merely recruits, supplies or places workers to perform a job, work or service for a principal,and any of the
followingelementsare[sic]present:

(i)Thecontractororsubcontractordoesnothavesubstantialcapitalorinvestmentwhichrelatestothejob,
work or service to be performed and the employees recruited, supplied or placed by such contractor or
subcontractorareperformingactivitieswhicharedirectlyrelatedtothemainbusinessoftheprincipalOR

(ii) The contractor does not exercise the right to control over the performance of the work of the
contractualemployee.(Emphasis,underscoringandcapitalizationsupplied)

"Substantial capital or investment" and the "right to control" are defined in the same Section 5 of the Department
Orderasfollows:

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of
corporations,tools,equipment,implements,machineriesandworkpremises,actuallyanddirectlyusedbythe
contractororsubcontractorintheperformanceorcompletionofthejob,workorservicecontractedout.

The"righttocontrol"shallrefertotherightreservedtothepersonforwhomtheservicesofthecontractual
workersareperformed,todeterminenotonlytheendtobeachieved,butalsothemannerandmeanstobe
usedinreachingthatend.(Emphasisandunderscoringsupplied)

Fromtherecordsofthecase,itisgatheredthattheworkperformedbyalmostalloftherespondentsloadingand
unloading of baggage and cargo of passengers is directly related to the main business of petitioner. And the
equipmentusedbyrespondentsasstationloaders,suchastrailersandconveyors,areownedbypetitioner.17

Petitioner asserts, however, that mere compliance with substantial capital requirement suffices for Synergy to be
consideredalegitimatecontractor,citingNeriv.NationalLaborRelationsCommission.18Petitioner'srelianceonsaid
caseismisplaced.

InNeri,theLaborArbiterandtheNLRCbothdeterminedthatBuildingCareCorporationhadacapitalstockofP1
millionfullysubscribedandpaidfor.19Thecorporation'sstatusasindependentcontractorhadinfactbeenpreviously
confirmedinanearliercase20bythisCourtwhichfoundittobeserving,amongothers,auniversity,aninternational
bank,abiglocalbank,ahospitalcenter,governmentagencies,etc."

Instarkcontrasttothecaseatbar,whilepetitionersteadfastlyassertedbeforetheLaborArbiterandtheNLRCthat
Synergy has a substantial capital to engage in legitimate contracting, it failed to present evidence thereon. As the
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NLRCheld:

ThedecisionoftheLaborArbitermerelymentionedonpage5ofhisdecisionthatrespondentSYNERGYhas
substantial capital, but there is no showing in the records as to how much is that capital. Neither had
respondentsshownthatSYNERGYhassuchsubstantialcapital.xxx21(Underscoringsupplied)

ItwasonlyaftertheappellatecourtrendereditschallengedDecisionofSeptember29,2002whenpetitioner,inits
MotionforReconsiderationofthedecision,soughttoprove,forthefirsttime,Synergy'ssubstantialcapitalizationby
attaching photocopies of Synergy's financial statements, e.g., balance sheets, statements of income and retained
earnings,markedas"Annexes'A''A4.'"22

More significantly, however, is that respondents worked alongside petitioner's regular employees who were
performing identical work.23 As San Miguel Corporation v. Aballa24 and Dole Philippines, Inc. v. Esteva, et
al.25teach,suchisanindiciumoflaboronlycontracting.

Forlaboronlycontractingtoexist,Section5ofD.O.No.1802whichrequiresanyoftwoelementstobepresentis,
forconvenience,requoted:

(i)Thecontractororsubcontractordoesnothavesubstantialcapitalorinvestmentwhichrelatestothejob,
work or service to be performed and the employees recruited, supplied or placed by such contractor or
subcontractorareperformingactivitieswhicharedirectlyrelatedtothemainbusinessoftheprincipal,OR

(ii)Thecontractordoesnotexercisetherighttocontrolovertheperformanceoftheworkofthecontractual
employee.(EmphasisandCAPITALIZATIONsupplied)

Evenifonlyoneofthetwoelementsispresentthen,thereislaboronlycontracting.

Thecontroltestelementundertheimmediatelyquotedparagraph(ii),whichwasnotpresentintheoldImplementing
Rules (Department Order No. 10, Series of 1997),26 echoes the prevailing jurisprudential trend27elevating such
elementasaprimarydeterminantofemployeremployeerelationshipinjobcontractingagreements.

Onewhoclaimstobeanindependentcontractorhastoprovethathecontractedtodotheworkaccordingtohisown
methodsandwithoutbeingsubjecttotheemployer'scontrolexceptonlyastotheresults.28

WhilepetitionerclaimedthatitwasSynergy'ssupervisorswhoactuallysupervisedrespondents,itfailedtopresent
evidencethereon.ItdidnotevenidentifywhoweretheSynergysupervisorsassignedattheworkplace.

Eventheparties'Agreementdoesnotlendsupporttopetitioner'sclaim,thus:

Section6.QualifiedandExperiencedWorker:Owner'sRighttoDismissWorkers.

CONTRACTOR shall employ capable and experienced workers and foremen to carry out the loading,
unloading and delivery Work as well as provide all equipment, loading, unloading and delivery equipment,
materials, supplies and tools necessary for the performance of the Work. CONTRACTOR shall upon
OWNER'S request furnish the latter with information regarding the qualifications of the former's workers, to
provetheircapabilityandexperience.Contractorshallrequireallitsworkers,employees,suppliersand
visitorsto comply with OWNER'S rules, regulations, procedures and directives relative to the safety
andsecurityofOWNER'Spremises,propertiesandoperations.Forthispurpose,CONTRACTORshall
furnishitsemployeesandworkersidentificationcardstobecountersignedbyOWNERanduniforms
tobeapprovedbyOWNER.OWNERmayrequireCONTRACTORtodismissimmediatelyandprohibit
entry into OWNER'S premises of any person employed therein by CONTRACTOR who in OWNER'S
opinion is incompetent or misconducts himself or does not comply with OWNER'S reasonable
instructionsand requests regarding security, safety and other matters and such person shall not again be
employed to perform the services hereunder without OWNER'S permission.29 (Underscoring partly in the
originalandpartlysuppliedemphasissupplied)

Petitioner in fact admitted that it fixes the work schedule of respondents as their work was dependent on the
frequencyofplanearrivals.30AndastheNLRCfound,petitioner'smanagersandsupervisorsapprovedrespondents'
weekly work assignments and respondents and other regular PAL employees were all referred to as "station
attendants"ofthecargooperationandairfreightservicesofpetitioner.31

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Respondentshavingperformedtaskswhichareusuallynecessaryanddesirableintheairtransportationbusinessof
petitioner,theyshouldbedeemeditsregularemployeesandSynergyasalaboronlycontractor.32

The express provision in the Agreement that Synergy was an independent contractor and there would be "no
employeremployeerelationshipbetween[Synergy]and/oritsemployeesononehand,and[petitioner]ontheother
hand"isnotlegallybindingandconclusiveascontractualprovisionsarenotvaliddeterminantsoftheexistenceof
such relationship. For it is the totality of the facts and surrounding circumstances of the case33 which is
determinativeoftheparties'relationship.

Respecting the dismissal on November 15, 199234 of Auxtero, a regular employee of petitioner who had been
working as utility man/helper since November 1988, it is not legally justified for want of just or authorized cause
thereforandfornoncompliancewithproceduraldueprocess.Petitioner'sclaimthatheabandonedhisworkdoesnot
persuade.35 The elements of abandonment being (1) the failure to report for work or absence without valid or
justifiablereason,and(2)aclearintentionto severthe employeremployeerelationshipmanifestedbysomeovert
acts,36theonusprobandilieswithpetitionerwhich,however,failedtodischargethesame.

Auxtero, having been declared to be a regular employee of petitioner, and found to be illegally dismissed from
employment, should be entitled to salary differential37 from the time he rendered one year of service until his
dismissal,reinstatementplusbackwagesuntilthefinalityofthisdecision.38Inview,however,ofthelongperiodof
time39thathadelapsedsincehisdismissalonNovember15,1992,itwouldbeappropriatetoawardseparationpay
ofone(1)monthsalaryforeachyearofservice,inlieuofreinstatement.40

As regards the remaining respondents, the Court affirms the ruling of both the NLRC and the appellate court,
orderingpetitionertoacceptthemasitsregularemployeesandtogiveeachofthemthesalaries,allowancesand
other employment benefits and privileges of a regular employee under the pertinent Collective Bargaining
Agreement.

Petitionerclaims,however,thatithasbecomeimpossibleforittocomplywiththeordersoftheNLRCandtheCourt
ofAppeals,forduringthependencyofthiscase,itwasforcedtoreduceitspersonnelduetoheavylossescausedby
economiccrisisandthepilots'strikeofJune5,1998.41Hence,therearenoavailablepositionswhererespondents
couldbeplaced.

Andpetitionerinformsthat"theemploymentcontractsofallifnotmostoftherespondents...wereterminatedby
Synergyeffective30June1998whenpetitionerterminateditscontractwithSynergy."42

Other than its bare allegations, petitioner presented nothing to substantiate its impossibility of compliance. In fact,
petitioner waived this defense by failing to raise it in its Memorandum filed on June 14, 1999 before the Court of
Appeals.43Further,thenoticeofterminationin1998wasindisregardofasubsistingtemporaryrestrainingorder44to
preservethestatusquo,issuedbythisCourtin1996beforeitreferredthecasetotheCourtofAppealsinJanuary
1999.Soastothwarttheattempttosubverttheimplementationoftheassaileddecision,respondentsaredeemedto
becontinuouslyemployedbypetitioner,forpurposesofcomputingthewagesandbenefitsduerespondents.

Finally,itmustbestressedthatrespondents,havingbeendeclaredtoberegularemployeesofpetitioner,Synergy
beingamereagentofthelatter,hadacquiredsecurityoftenure.Assuch,theycouldonlybedismissedbypetitioner,
therealemployer,onthebasisofjustorauthorizedcause,andwithobservanceofproceduraldueprocess.

WHEREFORE,theCourtofAppealsDecisionofSeptember29,2000isAFFIRMEDwithMODIFICATION.

PetitionerPHILIPPINEAIRLINES,INC.isorderedto:

(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD
GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P.
CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA,
JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS,
ROLANDO TUNACAO, CHERRIE ALEGRES, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN
BENTUZALas its regular employees in their same or substantially equivalent positions, and pay the wages and
benefits due them as regular employees plus salary differential corresponding to the difference between the
wagesandbenefitsgiventhemandthosegrantedtopetitioner'sotherregularemployeesofthesamerankand

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(b)payrespondentBENEDICTOAUXTEROsalarydifferentialbackwagesfromthetimeofhisdismissaluntilthe
finalityofthisdecisionandseparationpay,inlieuofreinstatement,equivalenttoone(1)monthpayforeveryyear
ofserviceuntilthefinalityofthisdecision.

There being no data from which this Court may determine the monetary liabilities of petitioner, the case is
REMANDEDtotheLaborArbitersolelyforthatpurpose.

SOORDERED.

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