I.

CONSTITUTIONAL PROTECTION
1. Philippine Constitutional Law; Labor Laws: Deployment Ban of Female Domestic Helper;
Association of Concept of Police Power.—The concept of police power is well-established in
Service this jurisdiction. It has been defined as the "state authority to enact legislation
Exporters, Inc. that may interfere with personal liberty or property in order to promote the
vs. Drilon, general welfare." As defined, it consists of (1) an imposition of restraint upon
No. L-81958. liberty or property, (2) in order to foster the common good. It is not capable
June 30,1988. of an exact definition but has been, purposely, veiled in general terms to
underscore its all-comprehensive embrace. "Its scope, ever-expanding to
meet the exigencies of the times, even to anticipate the future where it could
be done, provides enough room for an efficient and flexible response to
conditions and circumstances thus assuring the greatest benefits."

Valid Discrimination between female and male contract workers under

Department Order No. I justified.— The same, however, cannot be said of our
male workers. In the first place, there is no evidence that, except perhaps for
isolated instances, our men abroad have been afflicted with an identical
predicament. The petitioner has proffered no argument that the Government
should act similarly with respect to male workers. The Court, of course, is not
impressing some male chauvinistic notion that men are superior to women.
What the Court is saying is that it was largely a matter of evidence (that
women domestic workers are being ill-treated abroad in massive instances)
and not upon some fanciful or arbitrary yardstick that the Government acted
in this case. It is evidence capable indeed of unquestionable demonstration
and evidence this Court accepts. The Court cannot, however, say the same
thing as far as men are concerned. There is simply no evidence to justify such
an inference. Suffice it to state, then, that insofar as classification are
concerned, this Court is content that distinctions are borne by the evidence.
Discrimination in this case is justified.

Police power constitutes an implied limitation on the Bill of Rights.—It

constitutes an implied limitation on the Bill of Rights. According to Fernando,
it is "rooted in the conception that men in organizing the state and imposing
upon its government limitations to safeguard constitutional rights did not
intend thereby to enable an individual citizen or a group of citizens to obstruct
unreasonably the enactment of such salutary measures calculated to ensure
communal peace, safety, good order, and welfare." Significantly, the Bill of
Rights itself does not purport to be an absolute guaranty of individual rights
and liberties "Even liberty itself, the greatest of all rights, is not unrestricted
license to act according to one's will." It is subject to the far more overriding
demands and requirements of the greater number.

Equality before the law under the Constitution; Requirements of a valid

classification, satisfied.— The petitioner has shown no satisfactory reason why
the contested measure should be nullified. There is no question that
Department Order No. 1 applies only to "female contract workers," but it does
not thereby make an undue discrimination between the sexes. It is well-settled
that "equality before the law" under the Constitution does not import a perfect
identity of rights among all men and women. It admits of classifications,
provided that (1) such classifications rest on substantial distinctions; (2) they
are germane to the purposes of the law; (3) they are not confined to existing
conditions; and (4) they apply equally to all members of the same class. The
Court is satisfied that the classification made—the preference for female
workers— rests on substantial distinctions.

Department Order No. 1 does not impair the right to travel.—The

consequence the deployment ban has on the right to travel does not impair
the right. The right to travel is subject, among other things, to the requirements
of "public safety, "as may be provided by law." Department Order No. 1 is a
valid implementation of the Labor Code, in particular, its basic policy to
"afford protection to labor," pursuant to the respondent Department of
Labor's rulemaking authority vested in it by the Labor Code. The petitioner
assumes that it is unreasonable simply because of its impact on the right to
travel, but as we have stated, the right itself is not absolute. The disputed
Order is a valid qualification thereto.

No merit in the contention that Department Order No. 1 constitutes an invalid

exercise of legislative power since the Labor Code itself vests the DOLE with
rule-making powers.—Neither is there merit in the contention that Department
Order No. 1 constitutes an invalid exercise of legislative power. It is true that
police power is the domain of the legislature, but it does not mean that such
an authority may not be lawfully delegated. As we have mentioned, the
Labor Code itself vests the Department of Labor and Employment with
rulemaking powers in the enforcement whereof.

"Protection to Labor” does not signify the promotion of employment alone.—

Protection to labor" does not signify the promotion of employment alone.
What concerns the Constitution more paramount is that such an employment
be above all, decent, just, and humane. It is bad enough that the country has
to send its sons and daughters to strange lands because it cannot satisfy their
employment needs at home. Under these circumstances, the Government is
duty-bound to insure that our toiling expatriates have adequate protection,
personally and economically, while away from home. In this case, the
Government has evidence, an evidence the petitioner cannot seriously
dispute, of the lack or inadequacy of such protection, and as part of its duty,
it has precisely ordered an indefinite ban on deployment.

Non-impairment clause must yield to the demands and necessities of State's

power of regulation to provide a decent living to its citizens.—The petitioner's
reliance on the Constitutional guaranty of worker participation "in policy and
decision making processes affecting their rights and benefits" is not well taken.
The right granted by this provision, again, must submit to the demands and
necessities of the State's power of regulation. The nonimpairment clause of
the Constitution, invoked by the petitioner, must yield to the loftier purposes
targeted by the Government. Freedom of contract and enterprise, like all
other freedoms, is not free from restrictions, more so in this jurisdiction, where
laissez faire has never been fully accepted as a controlling economic-way of
life. This Court understands the grave implications the questioned Order has
on the business of recruitment. The concern of the Government, however, is
not necessarily to maintain profits of business firms. In the ordinary sequence
of events, it is profits that suffer as a result of Government regulation. The
interest of the State is to provide a decent living to its citizens. The Government
has convinced the Court in this case that this is its intent. We do not find the
 impugned Order to be tainted witb a grave abuse of discretion to warrant
the extraordinary relief prayed for.
2. Brew Master Equity; In the absence of the appropriate offense which defines an
International, employee’s infraction in the company’s Rules and Regulations, equity
Inc. vs. dictates that a penalty commensurate to the infraction be imposed.—We
National then conclude that complainant’s “prolonged” absence without approval
Federation of does not fall within the definition of abandonment and that his dismissal was
Labor Unions unjustified. While we do not decide here the validity of petitioner’s Rules and
(NAFLU), G.R. Regulations on continuous, unauthorized absences, what is plain is that it was
No. 119243. wielded with undue haste resulting in a deprivation of due process, thus not
April 17, 1997. allowing for a determination of just cause or abandonment. In this light,
petitioner’s dismissal was illegal. This is not to say that his absence should go
unpunished, as impliedly noted by the NLRC in declining to award back
wages. In the absence of the appropriate offense which defines
complainant’s infraction in the company’s Rules and Regulations, equity
dictates that a penalty commensurate to the infraction be imposed.
II. EMPLOYER-EMPLOYEE RELATIONSHIP
3. LVN Pictures, Criterion for employer-employee relationship— An employer-employee
Inc. vs. relationship exists where the person for whom the services are performed
Philippine reserves a right to control not only the end to be achieved but also the means
Musicians to be used in reaching such end. It may exist notwithstanding the intervention
Guild, No. L- of an alleged independent contractor who may hire and fire the workers.
12598. January
28, 1961 Employer and employee.—Musicians, who supply the musical background for
movie productions, are employees of film companies under the facts stated
in the decision. They work under the supervision of the movie director who is
an employee of the film company.
4. Manila Golf No employer-employee relationship exists between golf clubs and persons
& Country rendering caddying services for the clubs’ members.—Said Court’s holding
Club, Inc. vs. that upon the facts, there exists (or existed) a relationship of employer and
IAC, G.R. No. employee between petitioner and private respondent is, however, another
64948. matter. The Court does not agree that said facts necessarily or logically point
September 27, to such a relationship, and to the exclusion of any form of arrangements, other
1994. than of employment, that would make the respondent’s services available to
the members and guests of the petitioner. As long as it is, the list made in the
appealed decision detailing the various matters of conduct, dress, language,
etc. covered by the petitioner’s regulations, does not, in the mind of the
Court, so circumscribe the actions or judgment of the caddies concerned as
to leave them little or no freedom of choice whatsoever in the manner of
carrying out their services. In the very nature of things, caddies must submit to
some supervision of their conduct while enjoying the privilege of pursuing their
occupation within the premises and grounds of whatever club they do their
work in. For all that is made to appear, they work for the club to which they
attach themselves on sufferance but, on the other hand, also without having
to observe any working hours, free to leave anytime they please, to stay away
for as long as they like. It is not pretended that if found remiss in the
observance of said rules, any discipline may be meted them beyond barring
them from the premises which, it may be supposed, the Club may do in any
case even absent any breach of the rules, and without violating any right to
work on their part. All these considerations clash frontally with the concept of
employment.
 Neither the clubs’ suggestion as to the rate of fees to be paid to caddies nor
the implementation of a group rotation system indicates the caddies’ status
as employees.—The IAC would point to the fact that the Club suggests the
rate of fees payable by the players to the caddies as still another indication
of the latter’s status as employees. It seems to the Court, however, that the
intendment of such fact is to the contrary, showing that the Club has not the
measure of control over the incidents of the caddies’ work and compensation
that an employer would possess. The Court agrees with petitioner that the
group rotation system so-called, is less a measure of employee control than
an assurance hat the work is fairly distributed, a caddy who is absent when
his turn number is called simply losing his turn to serve and being assigned
instead the last number for the day.
5. Tan vs. Labor Law; Employer-Employee Relationship; Four-Fold Test to Determine the
Lagrama, G.R. Existence of an Employer-Employee Relationship. —In determining whether
No. 151228. there is an employer-employee relationship, we have applied a “four-fold
August 15, test,” to wit: (1) whether the alleged employer has the power of selection and
2002. engagement of employees; (2) whether he has control of the employee with
respect to the means and methods by which work is to be accomplished; (3)
whether he has the power to dismiss; and (4) whether the employee was paid
wages.

Of the four elements of the employeremployee relationship, the “control test”

is the most important; Independent Contractor Defined.—Of the four
elements of the employer-employee relationship, the “control test” is the most
important. Compared to an employee, an independent contractor is one
who carries on a distinct and independent business and undertakes to
perform the job, work, or service on its own account and under its own
responsibility according to its own manner and method, free from the control
and direction of the principal in all matters connected with the performance
of the work except as to the results thereof. Hence, while an independent
contractor enjoys independence and freedom from the control and
supervision of his principal, an employee is subject to the employer’s power
to control the means and methods by which the employee’s work is to be
performed and accomplished.

Evidence shows that the employee performed his work as painter under the
supervision and control of petitioner.—In the case at bar, albeit petitioner Tan
claims that private respondent Lagrama was an independent contractor and
never his employee, the evidence shows that the latter performed his work as
painter under the supervision and control of petitioner. Lagrama worked in a
designated work area inside the Crown Theater of petitioner, for the use of
which petitioner prescribed rules. The rules included the observance of
cleanliness and hygiene and a prohibition against urinating in the work area
and any place other than the toilet or the rest rooms. Petitioner’s control over
Lagrama’s work extended not only to the use of the work area, but also to the
result of Lagrama’s work, and the manner and means by which the work was
to be accomplished.

The primary standard for determining regular employment is the reasonable

connection between the particular activity performed by the employee in
relation to the usual trade or business of the employer.—The primary standard
for determining regular employment is the reasonable connection between
 the particular activity performed by the employee in relation to the usual
trade or business of the employer. In this case, there is such a connection
between the job of Lagrama painting billboards and murals and the business
of petitioner. To let the people know what movie was to be shown in a movie
theater requires billboards. Petitioner in fact admits that the billboards are
important to his business.
6. Tongko vs. Distinctions between agencies and employment are sufficiently established
The by law and jurisprudence. —The Civil Code defines an agent as a “person
Manufacturers [who] binds himself to render some service or to do something in
Life Insurance, representation or on behalf of another, with the consent or authority of the
G.R. No. latter.” While this is a very broad definition that on its face may even
167622, June encompass an employment relationship, the distinctions between agency
29, 2010. and employment are sufficiently established by law and jurisprudence.

Employer-Employee Relationship; The determinative element is the control

exercised over the one rendering service.—Generally, the determinative
element is the control exercised over the one rendering service. The employer
controls the employee both in the results and in the means and manner of
achieving this result. The principal in an agency relationship, on the other
hand, also has the prerogative to exercise control over the agent in
undertaking the assigned task based on the parameters outlined in the
pertinent laws.

The absence of evidence showing Manulife’s control over Tongko’s

contractual duties points to the absence of any employer-employee
relationship between Tongko and Manulife.—Under this legal situation, the
only conclusion that can be made is that the absence of evidence showing
Manulife’s control over Tongko’s contractual duties points to the absence of
any employer-employee relationship between Tongko and Manulife. In the
context of the established evidence, Tongko remained an agent all along;
although his subsequent duties made him a lead agent with leadership role,
he was nevertheless only an agent whose basic contract yields no evidence
of meansand-manner control.

By the Agreement’s express terms, Tongko serve as “insurance agent” for

Manulife, not as an employee.—By the Agreement’s express terms, Tongko
served as an “insurance agent” for Manulife, not as an employee. To be sure,
the Agreement’s legal characterization of the nature of the relationship
cannot be conclusive and binding on the courts; as the dissent clearly stated,
the characterization of the juridical relationship the Agreement embodied is
a matter of law that is for the courts to determine. At the same time, though,
the characterization the parties gave to their relationship in the Agreement
cannot simply be brushed aside because it embodies their intent at the time
they entered the Agreement, and they were governed by this understanding
throughout their relationship.

From jurisprudence, an important lesson that the First Insular Life case teaches
us is that a commitment to abide by the rules and regulations of an insurance
company does not ipso facto make the insurance agent an employee.—
From jurisprudence, an important lesson that the first Insular Life case teaches
us is that a commitment to abide by the rules and regulations of an insurance
company does not ipso facto make the insurance agent an employee.
 Neither do guidelines somehow restrictive of the insurance agent’s conduct
necessarily indicate “control” as this term is defined in jurisprudence.
Guidelines indicative of labor law “control,” as the first Insular Life case tells us,
should not merely relate to the mutually desirable result intended by the
contractual relationship; they must have the nature of dictating the means or
methods to be employed in attaining the result, or of fixing the methodology
and of binding or restricting the party hired to the use of these means.

The absence of evidence showing Manulife’s control over Tongko’s

contractual duties points to the absence of any employer-employee
relationship between Tongko and Manulife.—Under this legal situation, the
only conclusion that can be made is that the absence of evidence showing
Manulife’s control over Tongko’s contractual duties points to the absence of
any employer-employee relationship between Tongko and Manulife. In the
context of the established evidence, Tongko remained an agent all along;
although his subsequent duties made him a lead agent with leadership role,
he was nevertheless only an agent whose basic contract yields no evidence
of meansand-manner control.
7. Insular Life Labor Relations; Employer-Employee Relationship; Independent Contractor;
Assurance Co., Control Test; Not every form of control over the conduct of the party hired in
Ltd. vs. NLRC, relation to the service rendered establishes employer-employee
G.R. No. 84484. relationship.—It is true that the “control test” expressed in the following
November 15, pronouncement of the Court in the 1956 case of Viana vs. Alejo Al-Lagadan:
1989. “x x x In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee conduct—although the
latter is the most important element (35 Am. Jur. 445). x x x,” has been followed
and applied in later cases, some fairly recent. Indeed, it is without question a
valid test of the character of a contract or agreement to render service. It
should, however, be obvious that not every form of control that the hiring
party reserves to himself over the conduct of the party hired in relation to the
services rendered may be accorded the effect of establishing an employer-
employee relationship between them in the legal or technical sense of the
term. A line must be drawn somewhere, if the recognized distinction between
an employee and an individual contractor is not to vanish altogether.

When an insurance agent is free to adopt his own selling methods or is free to
sell insurance at his own time, he is an independent contractor.—Logically,
the line should be drawn between rules that merely serve as guidelines
towards the achievement of the mutually desired result without dictating the
means or methods to be employed in attaining it, and those that control or
fix the methodology and bind or restrict the party hired to the use of such
means. The first, which aim only to promote the result, create no employer-
employee relationship unlike the second, which address both the result and
the means used to achieve it. The distinction acquires particular relevance in
the case of an enterprise affected with public interest, as is the business of
insurance, and is on that account subject to regulation by the State with
respect, not only to the relations between insurer and insured but also to the
internal affairs of the insurance company. Rules and regulations governing the
conduct of the business are provided for in the Insurance Code and enforced
by the Insurance Commissioner. It is, therefore, usual and expected for an
 insurance company to promulgate a set of rules to guide its commission
agents in selling its policies that they may not run afoul of the law and what it
requires or prohibits. Of such a character are the rules which prescribe the
qualifications of persons who may be insured, subject insurance applications
to processing and approval by the Company, and also reserve to the
Company the determination of the premiums to be paid and the schedules
of payment. None of these really invades the agent’s contractual prerogative
to adopt his own selling methods or to sell insurance at his own time and
convenience, hence cannot justifiably be said to establish an employer-
employee relationship between him and the Company.
8. Brotherhood Labor Relations; Criteria for determining existence of independent contractor
Labor Unity relationship.—The existence of an independent contractor relationship is
Movement of generally established by the following criteria: “whether or not the contractor
the Philippines is carrying on an independent business; the nature and extent of the work;
vs. Zamora, No. the skill required; the term and duration of the relationship; the right to assign
L-48645. the performance of a specified piece of work; the control and supervision of
January 7, the work to another; the employer’s power with respect to the hiring, firing,
1987. and payment of the contractor’s workers; the control of the premises; the duty
to supply the premises tools, appliances, materials and laborer; and the
mode, manner, and terms of payment.
9. Sonza vs. Labor Law; Labor Code; Employer-Employee Relationship; Existence of an
ABS-CBN employer-employee relationship is a question of fact; Appellate courts
Broadcasting accord the factual findings of the Labor Arbiter and the NLRC not only respect
Corporation, but also finality when supported by substantial evidence; Court does not
G.R. No. substitute its own judgment for that of the tribunal in determining where the
138051. June weight of evidence lies or what evidence is credible.—The existence of an
10, 2004. employer-employee relationship is a question of fact. Appellate courts
accord the factual findings of the Labor Arbiter and the NLRC not only respect
but also finality when supported by substantial evidence. Substantial
evidence means such relevant evidence as a reasonable mind might accept
as adequate to support a conclusion. A party cannot prove the absence of
substantial evidence by simply pointing out that there is contrary evidence on
record, direct or circumstantial. The Court does not substitute its own
judgment for that of the tribunal in determining where the weight of evidence
lies or what evidence is credible.

Essential Elements of an EmployerEmployee Relationship; The so-called

“control test” is the most important element.—Case law has consistently held
that the elements of an employer-employee relationship are: (a) the selection
and engagement of the employee; (b) the payment of wages; (c) the power
of dismissal; and (d) the employer’s power to control the employee on the
means and methods by which the work is accomplished. The last element,
the so-called “control test,” is the most important element.

Independent Contractor; The specific selection and hiring of SONZA, because

of his unique skills, talent and celebrity status not possessed by ordinary
employees, is a circumstance indicative but not conclusive of independent
contractual relationship; The method of selecting and engaging SONZA does
not conclusively determine his status.—Independent contractors often
present themselves to possess unique skills, expertise or talent to distinguish
them from ordinary employees. The specific selection and hiring of SONZA,
because of his unique skills, talent and celebrity status not possessed by
ordinary employees, is a circumstance indicative, but not conclusive, of an
independent contractual relationship. If SONZA did not possess such unique
skills, talent and celebrity status, ABS-CBN would not have entered into the
Agreement with SONZA but would have hired him through its personnel
department just like any other employee. In any event, the method of
selecting and engaging SONZA does not conclusively determine his status.
We must consider all the circumstances of the relationship, with the control
test being the most important element.

The greater the supervision and control the hirer exercises, the more likely the
worker is deemed an employee; The less control the hirer exercises, the more
likely the worker is considered an independent contractor; Applying the
control test, SONZA is not an employee but an independent contractor.—
Applying the control test to the present case, we find that SONZA is not an
employee but an independent contractor. The control test is the most
important test our courts apply in distinguishing an employee from an
independent contractor. This test is based on the extent of control the hirer
exercises over a worker. The greater the supervision and control the hirer
exercises, the more likely the worker is deemed an employee. The converse
holds true as well—the less control the hirer exercises, the more likely the
worker is considered an independent contractor.

ABS-CBN did not exercise control over the means and methods of
performance of SONZA’s work.— We find that ABS-CBN was not involved in
the actual performance that produced the finished product of SONZA’s work.
ABS-CBN did not instruct SONZA how to perform his job. ABSCBN merely
reserved the right to modify the program format and airtime schedule “for
more effective programming.” ABS-CBN’s sole concern was the quality of the
shows and their standing in the ratings. Clearly, ABS-CBN did not exercise
control over the means and methods of performance of SONZA’s work.

A radio broadcast specialist who works under minimal supervision is an

independent contractor.— A radio broadcast specialist who works under
minimal supervision is an independent contractor. SONZA’s work as television
and radio program host required special skills and talent, which SONZA
admittedly possesses. The records do not show that ABS-CBN exercised any
supervision and control over how SONZA utilized his skills and talent in his
shows.

In the broadcast industry, exclusivity is not necessarily the same as control.—

Being an exclusive talent does not by itself mean that SONZA is an employee
of ABS-CBN. Even an independent contractor can validly provide his services
exclusively to the hiring party. In the broadcast industry, exclusivity is not
necessarily the same as control.

The right of labor to security of tenure as guaranteed in the Constitution arises

only if there is an employer-employee relationship under labor laws; Not every
performance of services for a fee creates an employer-employee
relationship.—The right of labor to security of tenure as guaranteed in the
Constitution arises only if there is an employeremployee relationship under
labor laws. Not every performance of services for a fee creates an employer-
employee relationship. To hold that every person who renders services to
 another for a fee is an employee—to give meaning to the security of tenure
clause— will lead to absurd results.
III. JOB CONTRACTING & LABOR-ONLY CONTRACTING (ARTS 106 AND 109 OF LC)
10. Baguio vs. Labor Law; Classification of employment; When is a person deemed to be
NLRC, G.R. Nos. engaged in "labor-only" contracting.—In other words, a person is deemed to
79004-08. be engaged in "labor-only" contracting where (1) the person supplying
October workers to an employer does not have substantial capital or investment in the
4,1991. form of tools, equipment, machineries, work premises, among others; and (2)
the workers recruited and placed by such person are performing activities
which are directly related to the principal business of such employer.

When is there a "job contracting."—Specifically, there is "job contracting"

where (1) the contractor carries on an independent business and undertakes
the contract work on his own account under his own responsibility according
to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the
work except as to the results thereof; and (2) the contractor has substantial
capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his
business.

GMC qualified as an "indirect employer."—Based on the foregoing, GMC

qualifies as an "indirect employer." It entered into a contract with an
independent contractor, LUPO, for the construction of an annex building, a
work, task, job or project not directly related to GMC's business of flour and
feeds manufacturing. Being an "indirect employer," GMC is solidarily liable
with LUPO for any violation of the Labor Code pursuant to Article 109 thereof.

GMC is in fact "not an employer" (in the sense of not being a direct employer)
as understood in Article 106 of the Labor Code but qualifies as an "indirect
employer" under Article 107 of said Code.—The NLRC submission that Article
107 is not applicable in the instant case for the reason that the coverage
thereof is limited to one "not an employer" whereas GMC is such an employer
as defined in Article 97 (b) of the Labor Code, is not well-taken. Under the
peculiar set-up herein, GMC is, in fact, "not an employer" (in the sense of not
being a direct employer) as understood in Article 106 of the Labor Code, but
qualifies as an "indirect employer" under Article 107 of said Code.

Distinction between Articles 106 and 107 lies in the fact that Article 106 deals
with "labor-only" contracting, on the other hand, Article 107 deals with "job
contracting".—The distinction between Articles 106 and 107 lies in the fact that
Article 106 deals with "labor-only" contracting. Here, by operation of law. the
contractor is merely considered as an agent of the employer, who is deemed
"responsible to the workers to the same extent as if the latter were directly
employed by him." On the other hand, Article 107 deals with "job contracting."
In the later situation, while the contractor himself is the direct employer of the
employees, the employer is deemed, by operation of law, as an indirect
employer.

A finding that a contractor is a "labor only" contractor is equivalent to

declaring that there is an employeremployee relationship between the owner
of the project and the employee of the "labor-only" contractor.—It should be
 recalled that a finding that a contractor is a "labor-only" contractor is
equivalent to declaring that there is an employer-employee relationship
between the owner of the project and the employees of the "labor-only"
contractor (Associated Anglo American Tobacco Corp. v. Clave, G.R. No.
50915, 30 August 1990, 189 SCRA 127; Industrial Timber Corp. v. NLRC, G.R. No.
83616, 20 January 1989, 169 SCRA 341). This is evidently because, as heretofore
stated, the "labor-only" contractor is considered as a mere agent of an
employer. In contrast, in "job contracting," no employer-employee
relationship exists between the owner and the employees of his contractor.
The owner of the project is not the direct employer but merely an indirect
employer, by operation of law, of his contractor's employees.

GMC is deemed a "direct employer" of his contractor's employees pursuant

to the last sentence of Article 109 of the Labor Code.—As an indirect
employer, and for purposes of determining the extent of its civil liability, GMC
is deemed a "direct employer" of his contractor's employees pursuant to the
last sentence of Article 109 of the Labor Code. As a consequence, GMC can
not escape its joint and solidary liability to petitioners.
11. Vinoya vs. Employer-Employee Relationship; Labor-only Contracting; Elements; Words
National Labor and Phrases; Labor-only contracting, a prohibited act, is an arrangement
Relations where the contractor or subcontractor merely recruits, supplies or places
Commission, workers to perform a job, work or service for a principal.—Labor only
G.R. No. contracting, a prohibited act, is an arrangement where the contractor or
126586. subcontractor merely recruits, supplies or places workers to perform a job,
February 2, work or service for a principal. In labor only contracting, the following
2000. elements are present: (a) The contractor or subcontractor does not have
substantial capital or investment to actually perform the job, work or service
under its own account and responsibility; (b) The employees recruited,
supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal.

Permissible job contracting or subcontracting refers to an arrangement

whereby a principal agrees to put out or farm out with a contractor or
subcontractor the performance or completion of a specific job, work or
service within a definite or predetermined period, regardless of whether such
job, work or service is to be performed or completed within or outside the
premises of the principal.—Permissible job contracting or subcontracting
refers to an arrangement whereby a principal agrees to put out or farm out
with a contractor or subcontractor the performance or completion of a
specific job, work or service within a definite or predetermined period,
regardless of whether such job, work or service is to be performed or
completed within or outside the premises of the principal. A person is
considered engaged in legitimate job contracting or subcontracting if the
following conditions concur: (a) The contractor or subcontractor carries on a
distinct and independent business and undertakes to perform the job, work
or service on its own account and under its own responsibility according to its
own manner and method, and free from the control and direction of the
principal in all matters connected with the performance of the work except
as to the results thereof; (b) The contractor or subcontractor has substantial
capital or investment; and (c) The agreement between the principal and
contractor or subcontractor assures the contractual employees entitlement
to all labor and occupational safety and health standards, free exercise of
the right to self-organization, security of tenure, and social and welfare
benefits.

Factors Considered in Determining Existence of an Independent Contractor

Relationship.—From the two aforementioned decisions, it may be inferred that
it is not enough to show substantial capitalization or investment in the form of
tools, equipment, machineries and work premises, among others, to be
considered as an independent contractor. In fact, jurisprudential holdings are
to the effect that in determining the existence of an independent contractor
relationship, several factors might be considered such as, but not necessarily
confined to, whether the contractor is carrying on an independent business;
the nature and extent of the work; the skill required; the term and duration of
the relationship; the right to assign the performance of specified pieces of
work; the control and supervision of the workers; the power of the employer
with respect to the hiring, firing and payment of the workers of the contractor;
the control of the premises; the duty to supply premises, tools, appliances,
materials and labor; and the mode, manner and terms of payment.

Judicial Notice; Devaluation; The Court takes judicial notice of the fact that
in 1993, the economic situation in the country was not as adverse as the
present, as shown by the devaluation of our peso.—PMCI does not have
substantial capitalization or investment in the form of tools, equipment,
machineries, work premises, among others, to qualify as an independent
contractor. While it has an authorized capital stock of P1,000,000.00, only
P75,000.00 is actually paid-in, which, to our mind, cannot be considered as
substantial capitalization. In the case of Neri which was promulgated in 1993,
BCC had a capital stock of P1,000,000.00 which was fully subscribed and
paid-for. Moreover, when the Neri case was decided in 1993, the rate of
exchange between the dollar and the peso was only P27.30 to $1 while
presently it is at P40.390 to $1. The Court takes judicial notice of the fact that
in 1993, the economic situation in the country was not as adverse as the
present, as shown by the devaluation of our peso. With the current economic
atmosphere in the country, the paid-in capitalization of PMCI amounting to
P75,000.00 cannot be considered as substantial capital and, as such, PMCI
cannot qualify as an independent contractor.

Where the undertaking of a contractor does not involve the performance of

a specific job, but rather the supply of manpower only, it clearly conducts
itself as labor-only contractor.—PMCI was not engaged to perform a specific
and special job or service, which is one of the strong indicators that an entity
is an independent contractor as explained by the Court in the cases of Neri
and Fuji. As stated in the Contract of Service, the sole undertaking of PMCI
was to provide RFC with a temporary workforce able to carry out whatever
service may be required by it. Such venture was complied with by PMCI when
the required personnel were actually assigned to RFC. Apart from that, no
other particular job, work or service was required from PMCI. Obviously, with
such an arrangement, PMCI merely acted as a recruitment agency for RFC.
Since the undertaking of PMCI did not involve the performance of a specific
job, but rather the supply of manpower only, PMCI clearly conducted itself as
labor only contractor.
 Judicial Notice; The Court takes judicial notice of the practice of employers
who, in order to evade the liabilities under the Labor Code, do not issue pay
slips directly to their employees.—The Court takes judicial notice of the
practice of employers who, in order to evade the liabilities under the Labor
Code, do not issue payslips directly to their employees. Under the current
practice, a third person, usually the purported contractor (service or
manpower placement agency), assumes the act of paying the wage. For this
reason, the lowly worker is unable to show proof that it was directly paid by
the true employer. Nevertheless, for the workers, it is enough that they actually
receive their pay, oblivious of the need for payslips, unaware of its legal
implications. Applying this principle to the case at bar, even though the
wages were coursed through PMCI, we note that the funds actually came
from the pockets of RFC. Thus, in the end, RFC is still the one who paid the
wages of petitioner albeit indirectly.
12. Neri vs. Labor Law; Building Care Corporation is a highly capitalized venture and
National Labor cannot be deemed engaged in “labor-only” contracting. —Respondent BCC
Relations need not prove that it made investments in the form of tools, equipment,
Commission, machineries, work premises, among others, because it has established that it
G.R. Nos. has sufficient capitalization. The Labor Arbiter and the NLRC both determined
97008-09. July that BCC had a capital stock of P1 million fully subscribed and paid for. BCC
23, 1993. is therefore a highly capitalized venture and cannot be deemed engaged in
“labor-only” contracting.

Factors to be considered in “labor-only” contracting.—It is well-settled that

there is “labor-only” contracting where: (a) the person supplying workers to
an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others; and, (b) the
workers recruited and placed by such person are performing activities which
are directly related to the principal business of the employer.

BCC cannot be considered a “labor-only” contractor because it has

substantial capital.—Based on the foregoing, BCC cannot be considered a
“labor-only” contractor because it has substantial capital. While there may
be no evidence that it has investment in the form of tools, equipment,
machineries, work premises, among others, it is enough that it has substantial
capital, as was established before the Labor Arbiter as well as the NLRC. In
other words, the law does not require both substantial capital and investment
in the form of tools, equipment, machineries, etc. This is clear from the use of
the conjunction “or”.

While the services may be considered directly related to the principal business
of the employer, nevertheless, they are not necessary in the conduct of the
principal business of the employer.—Be that as it may, the Court has already
taken judicial notice of the general practice adopted in several government
and private institutions and industries of hiring independent contractors to
perform special services. These services range from janitorial, security and
even technical or other specific services such as those performed by
petitioners Neri and Cabelin. While these services may be considered directly
related to the principal business of the employer, nevertheless, they are not
necessary in the conduct of the principal business of the employer.
13. San Miguel It is not enough to show substantial capitalization or investment in the form of
Corporation vs. tools, equipment, machinery and work premises, etc., to be considered an
MAERC independent contractor.—However, in Vinoya v. NLRC, we clarified that it
Integrated was not enough to show substantial capitalization or investment in the form
Services, Inc., of tools, equipment, machinery and work premises, etc., to be considered an
G.R. No. independent contractor. In fact, jurisprudential holdings were to the effect
144672. July 10, that in determining the existence of an independent contractor relationship,
2003.* several factors may be considered, such as, hut not necessarily confined to,
whether the contractor was carrying on an independent business; the nature
and extent of the work; the skill required; the term and duration of the
relationship; the right to assign the performance of specified pieces of work;
the control and supervision of the workers; the power of the employer with
respect to the hiring, firing and payment of the workers of the contractor; the
control of the premises; the duty to supply premises, tools, appliances,
materials and labor; and the mode, manner and terms of payment.

Distinction between an independent contractor and a labor-only

contractor.—On this point, we agree with petitioner as distinctions must be
made. In legitimate job 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. On the other hand,
in labor-only contracting, the statute creates an employer-employee
relationship for a comprehensive purpose: to prevent a circumvention of
labor laws. The contractor is considered merely an agent of the principal
employer and the latter is responsible to the employees of the labor-only
contractor as if such employees had been directly employed by the principal
employer. The principal employer therefore becomes solidarity liable with the
labor-only contractor for all the rightful claims of the employees.
14. Sasan, Sr. Job Contracting; Permissible job contracting or subcontracting refers to an
vs. National arrangement whereby a principal agrees to put out or farm out to a
Labor Relations contractor or subcontractor the performance or completion of a specificjob,
Commission, work or service within a definite or predetermined period, regardless of
G.R. No. whether such job, work or service is to be performed or completed within or
176240. outside the premises of the principal.— Permissible job contracting or
October 17, subcontracting refers to an arrangement whereby a principal agrees to put
2008. out or farm out to a contractor or subcontractor the performance or
completion of a specific job, work or service within a definite or
predetermined period, regardless of whether such job, work or service is to be
performed or completed within or outside the premises of the principal. A
person is considered engaged in legitimate job contracting or subcontracting
if the following conditions concur: (a) The contractor or subcontractor carries
on a distinct and independent business and undertakes to perform the job,
work or service on its own account and under its own responsibility according
to its own manner and method, and free from the control and direction of the
principal in all matters connected with the performance of the work except
as to the results thereof; (b) The contractor or subcontractor has substantial
capital or investment; and (c) The agreement between the principal and
contractor or subcontractor assures the contractual employees entitlement
to all labor and occupational safety and health standards, free exercise of
the right to self-organization, security of tenure, and social and welfare
benefits.
Labor-Only Contracting; Labor-only contracting defined.—Labor-only
contracting, a prohibited act, is an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job,
work or service for a principal. In labor-only contracting, the following
elements are present: (a) The contractor or subcontractor does not have
substantial capital or investment to actually perform the job, work or service
under its own account and responsibility; and (b) The employees recruited,
supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal.

Job Contracting; Labor-Only Contracting; Distinguished permissible job

contracting from prohibited labor-only contracting. —In distinguishing
between permissible job contracting and prohibited labor-only contracting,
we elucidated in Vinoya v. National Labor Relations Commission, 324 SCRA
469, 478 (2000), that it is not enough to show substantial capitalization or
investment in the form of tools, equipment, etc. Other facts that may be
considered include the following: whether or not the contractor is carrying on
an independent business; the nature and extent of the work; the skill required;
the term and duration of the relationship; the right to assign the performance
of specified pieces of work; the control and supervision of the work to another;
the employer’s power with respect to the hiring, firing and payment of the
contractor’s workers; the control of the premises; the duty to supply premises,
tools, appliances, materials and labor; and the mode and manner or terms of
payment. Simply put, the totality of the facts and the surrounding
circumstances of the case are to be considered. Each case must be
determined by its own facts and all the features of the relationship are to be
considered.

Independent Contractors; Substantial Capital or Investment; Words and

Phrases; “Substantial capital or investment” defined.—“Substantial capital or
investment” refers to capital stocks and subscribed capitalization in the case
of corporations, tools, equipments, implements, machineries and work
premises, actually and directly used by the contractor or subcontractor in the
performance or completion of the job, work or service contracted out. An
independent contractor must have either substantial capital or investment in
the form of tools, equipment, machineries, work premises, among others. The
law does not require both substantial capital and investment in the form of
tools, equipment, machineries, etc. It is enough that it has substantial capital.
In the case of HI, it has proven both.

Job Contracting; Independent Contractors; Where the control of the

principal is limited only to the result of the work, independent job contracting
exists.—All these circumstances establish that HI undertook said contract on
its account, under its own responsibility, according to its own manner and
method, and free from the control and direction of E-PCI Bank. Where the
control of the principal is limited only to the result of the work, independent
job contracting exists. The janitorial service agreement between E-PCI Bank
and HI is definitely a case of permissible job contracting. Considering the
foregoing, plus taking judicial notice of the general practice in private, as well
as in government institutions and industries, of hiring an independent
contractor to perform special services, ranging from janitorial, security and
 even technical services, we can only conclude that HI is a legitimate job
contractor. As such legitimate job contractor, the law creates an employer-
employee relationship between HI and petitioners which renders HI liable for
the latter’s claims.
IV. EMPLOYEE CLASSIFICATION and/or STATUS (Articles 296 and 295 of the Labor
Code)
15. Price vs. Regular Employees; Fixed-Term Employment; The employment status of a
Innodata Phils., person is defined and prescribed by law and not by what the parties say it
Inc., G.R. No. should be.—After a painstaking review of the arguments and evidences of
178505. the parties, the Court finds merit in the present Petition. There were no valid
September 30, fixed-term contracts and petitioners were regular employees of the
2008. INNODATA who could not be dismissed except for just or authorized cause.
The employment status of a person is defined and prescribed by law and not
by what the parties say it should be. Equally important to consider is that a
contract of employment is impressed with public interest such that labor
contracts must yield to the common good. Thus, provisions of applicable
statutes are deemed written into the contract, and the parties are not at
liberty to insulate themselves and their relationships from the impact of labor
laws and regulations by simply contracting with each other.