INDEPENDENT CONTRACTORS AND LABOR ONLY
Ramp Area
CONTRACTS
G.R. No. 146408 February 29, 2008
PHILIPPINE AIRLINES, INC., petitioner,
vs.
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, BENEDICTO
AUXTERO, EDUARDO MAGDADARAUG, NELSON M.
DULCE, and ALLAN BENTUZAL, respondents.
DECISION
CARPIO MORALES, J.:
Petitioner Philippine Airlines as Owner, and Synergy
Services Corporation (Synergy) as Contractor, entered
into an Agreement1 on July 15, 1991 whereby Synergy
undertook to "provide loading, unloading, delivery of
baggage and cargo and other related services to and
from [petitioner]'s aircraft at the Mactan Station." 2
The Agreement specified the following "Scope of
Services" of Contractor Synergy:
1.2 CONTRACTOR shall furnish all the
necessary capital, workers, loading, unloading
and deliverymaterials, facilities, supplies,
equipment and tools for the satisfactory
performance and execution of the following
services (the Work):
a. Loading and unloading of baggage and cargo
to and from the aircraft;
b. Delivering of baggage from the ramp to the
baggage claim area;
c. Picking up of baggage from the baggage
sorting area to the designated parked aircraft;
d. Delivering of cargo unloaded from the flight to
cargo terminal;
e. Other related jobs (but not janitorial functions)
as may be required and necessary;
CONTRACTOR shall perform and
execute the aforementioned Work at the
following areas located at Mactan Station,
to wit:
a.
b. Baggage Claim Area
c. Cargo Terminal Area, and
d. Baggage Sorting Area3 (Underscoring
supplied)
And it expressly provided that Synergy was "an
independent contractor and . . . that there w[ould] be
no employer-employee relationship between
CONTRACTOR and/or its employees on the one hand,
and OWNER, on the other."4
On the duration of the Agreement, Section 10 thereof
provided:
10. 1 Should at any time OWNER find the
services herein undertaken by CONTRACTOR
to be unsatisfactory, 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 without advance
notice.
10.2 Should CONTRACTOR fail to improve the
services within the period stated above or
should CONTRACTOR breach the terms of this
Agreement and fail or refuse to perform the
Work in such a manner as will be consistent
with the achievement of the result therein
contracted for or in any other way fail to comply
strictly with any terms of this
Agreement, OWNER at its option, shall have
the right to terminate this Agreement and to
make other arrangements for having said Work
performed and pursuant thereto shall retain so
much of the money held on the Agreement as
is necessary to cover the OWNER's costs and
damages, without prejudice to the right of
OWNER to seek resort to the bond furnished
by CONTRACTOR should the money in
OWNER's possession be insufficient.
x x x x (Underscoring supplied)
Except for respondent Benedicto Auxtero (Auxtero), the
rest of the respondents, who appear to have been
assigned by Synergy to petitioner following the
execution of the July 15, 1991 Agreement, filed on
March 3, 1992 complaints before the NLRC Regional
Office VII at Cebu City against petitioner, Synergy and
their respective officials for underpayment, non-
payment of premium pay for holidays, premium pay for
rest days, service incentiveleave pay, 13th month pay
and allowances, and for regularization of employment
1
status with petitioner, they claiming to be "performing
duties for the benefit of [petitioner] since their job is
directly connected with [its] business x x x."5
Respondent Auxtero had initially filed a complaint against
petitioner and Synergy and their respective officials for
regularization of his employment status. Later alleging
that he was, without valid ground, verbally dismissed, he
filed a complaint against petitioner and Synergy and their
respective officials for illegal dismissal and reinstatement
with full backwages.6
The complaints of respondents were consolidated.
By Decision7 of August 29, 1994, Labor Arbiter
Dominador Almirante found Synergy an independent
contractor and dismissed respondents' complaint for
regularization against petitioner, but granted their money
claims. The fallo of the decision reads:
WHEREFORE, foregoing premises considered,
judgment is hereby rendered as follows:
(1) Ordering respondents PAL and Synergy
jointly and severally to pay all the complainants
herein their 13th month pay and service incentive
leave benefits;
xxxx
(3) Ordering respondent Synergy to pay
complainant Benedicto Auxtero a financial
assistance in the amount of P5,000.00.
The awards hereinabove enumerated in the
aggregate total amount of THREE HUNDRED
TWENTY-TWO THOUSAND THREE HUNDRED
FIFTY NINE PESOS AND EIGHTY SEVEN
CENTAVOS (P322,359.87) are computed in
detail by our Fiscal Examiner which computation
is hereto attached to form part of this decision.
The rest of the claims are hereby ordered
dismissed for lack of merit.8 (Underscoring
supplied)
On appeal by respondents, the NLRC, Fourth Division,
Cebu City, vacated and set aside the decision of the
Labor Arbiter by Decision9 of January 5, 1996, the fallo of
which reads:
WHEREFORE, the Decision of the Labor Arbiter
Dominador A. Almirante, dated August 29, 1994,
is hereby VACATED and SET ASIDE and
judgment is hereby rendered:
1. Declaring respondent Synergy Services
Corporation to be a 'labor-only' contractor;
2. Ordering respondent Philippine Airlines to
accept, as its regular employees, all the
complainants, . . . and to give each of them the
salaries, allowances and other employment
benefits and privileges of a regular
employee under the Collective Bargaining
Agreement subsisting during the period of their
employment;
xxxx
4. Declaring the dismissal of
complainant Benedicto Auxtero to be illegal
and ordering his reinstatementas helper or
utility man with respondent Philippine Airlines,
with full backwages, allowances and other
benefits and privileges from the time of his
dismissal up to his actual reinstatement; and
5. Dismissing the appeal of respondent
Synergy Services Corporation, for lack of
merit.10 (Emphasis and underscoring supplied)
Only petitioner assailed the NLRC decision via petition
for certiorari before this Court.
By Resolution11 of January 25, 1999, this Court referred
the case to the Court of Appeals for appropriate action
and disposition, conformably with St. Martin Funeral
Homes v. National Labor Relations Commission which
was promulgated on September 16, 1998.
The appellate court, by Decision of September 29,
2000, affirmed the Decision of the NLRC.12 Petitioner's
motion for reconsideration having been denied by
Resolution of December 21, 2000, 13 the present
petition was filed, faulting the appellate court
I.
. . . IN UPHOLDING THE NATIONAL LABOR
RELATIONS COMMISSION DECISION
WHICH IMPOSED THE RELATIONSHIP OF
EMPLOYER-EMPLOYEE BETWEEN
PETITIONER AND THE RESPONDENTS
HEREIN.
II.
. . . IN AFFIRMING THE RULING OF THE
NATIONAL LABOR RELATIONS
COMMISSION ORDERING THE
REINSTATEMENT OF RESPONDENT
AUXTERO DESPITE THE ABSENCE [OF] ANY
FACTUAL FINDING IN THE DECISION THAT
PETITIONER ILLEGALLY TERMINATED HIS
EMPLOYMENT.
III.
2
 . . . [IN ANY EVENT IN] COMMITT[ING] A
PATENT AND GRAVE ERROR IN UPHOLDING
THE DECISION OF THE NATIONAL LABOR
RELATIONS COMMISSION WHICH
COMPELLED THE PETITIONER TO EMPLOY
THE RESPONDENTS AS REGULAR
EMPLOYEES DESPITE THE FACT THAT THEIR
SERVICES ARE IN EXCESS OF PETITIONER
COMPANY'S OPERATIONAL
REQUIREMENTS.14 (Underscoring supplied)
Petitioner argues that the law does not prohibit an
employer from engaging an independent contractor, like
Synergy, which has substantial capital in carrying on an
independent business of contracting, to perform specific
jobs.
Petitioner further argues that its contracting out to
Synergy various services like janitorial, aircraft cleaning,
baggage-handling, etc., which are directly related to its
business, does not make respondents its employees.
Petitioner furthermore argues that none of the four (4)
elements of an employer-employee relationship between
petitioner and respondents, viz: selection and
engagement of an employee, payment of wages, power
of dismissal, and the power to control employee's
conduct, is present in the case.15
Finally, petitioner avers that reinstatement of
respondents had been rendered impossible because it
had reduced its personnel due to heavy losses as it had
in fact terminated its service agreement with Synergy
effective June 30, 199816 as a cost-saving measure.
The decision of the case hinges on a determination of
whether Synergy is a mere job-only contractor or a
legitimate contractor. If Synergy is found to be a mere
job-only contractor, respondents could be considered as
regular employees of petitioner as Synergy would then
be a mere agent of petitioner in which case respondents
would be entitled to all the benefits granted to petitioner's
regular employees; otherwise, if Synergy is found to be a
legitimate contractor, respondents' claims against
petitioner must fail as they would then be considered
employees of Synergy.
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 another person for the
performance of the former's work, the employees
of the contractor and of the latter's subcontractor,
if any, shall be paid in accordance with the
provisions of this Code.
In the event that the contractor or subcontractor
fails to pay the wages of his employees in
accordance with this Code, the employer shall
be jointly and severally liable with his contractor
or subcontractor to such employees to the
extent of the work performed under the
contract, in the same manner and extent that
he is liable to employees directly employed by
him.
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 appropriate
distinctions between labor-only contracting and
job contracting as well as differentiations within
these types of contracting and determine who
among the parties involved shall be considered
the employer for purposes of this Code, to
prevent any violation or circumvention of any
provision of this Code.
There is "labor-only" contracting where
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 the workers recruited
and placed by such person are performing
activities which are directly related to the
principal business of such employer. In such
cases, the person or intermediary shall be
considered merely as an agent of the
employer who shall be responsible to the
workers in the same manner and extent as if
the latter were directly employed by him.
(Emphasis, capitalization and underscoring
supplied)
Legitimate contracting and labor-only contracting are
defined in Department Order (D.O.) No. 18-02, Series
of 2002 (Rules Implementing Articles 106 to 109 of the
Labor Code, as amended) as follows:
Section 3. Trilateral relationship in contracting
arrangements. In legitimate contracting, there
exists a trilateral relationship under which there
is a contract for a specific job, work or service
between the principal and the contractor or
subcontractor, and a contract of employment
between the contractor or subcontractor and its
workers. Hence, there are three parties
involved in these arrangements, the
principal which decides to 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 workers engaged by the
contractor or subcontractor to accomplish the
job, work or service. (Emphasis and
underscoring supplied)
3
 Section 5. Prohibition against labor-only
contracting. Labor-only contracting is hereby
declared prohibited. For this purpose, labor-only
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 following
elements are [sic] present:
(i) 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
performing activities which are directly related
to the main business of the principal; OR
(ii) The contractor does not exercise the right
to control over the performance of the work of
the contractual employee. (Emphasis,
underscoring and capitalization supplied)
"Substantial capital or investment" and the "right to
control" are defined in the same Section 5 of the
Department Order as follows:
"Substantial capital or investment" refers to
capital stocks and subscribed capitalization in the
case of
corporations, tools, equipment, 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.
The "right to control" shall refer to the right
reserved to the person for whom the services of
the contractual workers are performed,
to determine not only the end to be achieved, but
also the manner and means to be used in
reaching that end. (Emphasis and underscoring
supplied)
From the records of the case, it is gathered that the work
performed by almost all of the respondents - loading and
unloading of baggage and cargo of passengers - is
directly related to the main business of petitioner. And the
equipment used by respondents as station loaders, such
as trailers and conveyors, are owned by petitioner. 17
Petitioner asserts, however, that mere compliance with
substantial capital requirement suffices for Synergy to be
considered a legitimate contractor, citing Neri v. National
Labor Relations Commission.18 Petitioner's reliance on
said case is misplaced.
In Neri, the Labor Arbiter and the NLRC both determined
that Building Care Corporation had a capital stock of P1
million fully subscribed and paid for. 19 The corporation's
status as independent contractor had in fact been
previously confirmed in an earlier case20 by this Court
which found it to be serving, among others, a
university, an international bank, a big local bank, a
hospital center, government agencies, etc."
In stark contrast to the case at bar, while petitioner
steadfastly asserted before the Labor Arbiter and the
NLRC that Synergy has a substantial capital to engage
in legitimate contracting, it failed to present evidence
thereon. As the NLRC held:
The decision of the Labor Arbiter merely
mentioned on page 5 of his decision that
respondent SYNERGY has substantial capital,
but there is no showing in the records as to
how much is that capital. Neither had
respondents shown that SYNERGY has such
substantial capital. x x x21 (Underscoring
supplied)
It was only after the appellate court rendered its
challenged Decision of September 29, 2002 when
petitioner, in its Motion for Reconsideration of the
decision, sought to prove, for the first time, Synergy's
substantial capitalization by attaching photocopies of
Synergy's financial statements, e.g., balance sheets,
statements of income and retained earnings, marked
as "Annexes 'A' - 'A-4.'"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, such is an indicium of labor-only contracting.
For labor-only contracting to exist, Section 5 of D.O.
No. 18-02 which requires any of two elements to be
present is, for convenience, re-quoted:
(i) 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 performing activities which
are directly related to the main business of
the principal, OR
(ii) The contractor does not exercise the right
to control over the performance of the work of
the contractual employee. (Emphasis and
CAPITALIZATION supplied)
Even if only one of the two elements is present then,
there is labor-only contracting.
The control test element under the immediately-quoted
paragraph (ii), which was not present in the old
Implementing Rules (Department Order No. 10, Series
of 1997),26 echoes the prevailing jurisprudential
trend27elevating such element as a primary determinant
4
of employer-employee relationship in job contracting
agreements.
One who claims to be an independent contractor has to
prove that he contracted to do the work according to his
own methods and without being subject to the
employer's control except only as to the results.28
While petitioner claimed that it was Synergy's
supervisors who actually supervised respondents, it
failed to present evidence thereon. It did not even identify
who were the Synergy supervisors assigned at the
workplace.
Even the parties' Agreement does not lend support to
petitioner's claim, thus:
Section
6. Qualified and Experienced Worker: Owner's Ri
ght to Dismiss Workers.
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 prove
their capability and experience. Contractor shall
require all its workers, employees, suppliers
and visitors to comply with OWNER'S rules,
regulations, procedures and directives
relative to the safety and security of
OWNER'S premises, properties and
operations. For this purpose, CONTRACTOR
shall furnish its employees and
workers identification cards to be
countersigned by OWNER and uniforms to be
approved by OWNER. OWNER may require
CONTRACTOR to dismiss immediately and
prohibit 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 instructions and
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 original and partly supplied;
emphasis supplied)
Petitioner in fact admitted that it fixes the work schedule
of respondents as their work was dependent on the
frequency of plane arrivals.30 And as the NLRC found,
petitioner's managers and supervisors approved
respondents' weekly work assignments and respondents
and other regular PAL employees were all referred to as
"station attendants" of the cargo operation and
airfreight services of petitioner. 31
Respondents having performed tasks which are usually
necessary and desirable in the air transportation
business of petitioner, they should be deemed its
regular employees and Synergy as a labor-only
contractor.32
The express provision in the Agreement that Synergy
was an independent contractor and there would be "no
employer-employee relationship between [Synergy]
and/or its employees on one hand, and [petitioner] on
the other hand" is not legally binding and conclusive as
contractual provisions are not valid determinants of the
existence of such relationship. For it is the totality of
the facts and surrounding circumstances of the
case33 which is determinative of the parties'
relationship.
Respecting the dismissal on November 15, 1992 34 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 therefor and for non-compliance with
procedural due process. Petitioner's claim that he
abandoned his work does not persuade. 35 The
elements of abandonment being (1) the failure to report
for work or absence without valid or justifiable reason,
and (2) a clear intention to sever the employer-
employee relationship manifested by some overt
acts,36 the onus probandi lies with petitioner which,
however, failed to discharge the same.
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, reinstatement plus
backwages until the finality of this decision. 38 In view,
however, of the long period of time 39 that had elapsed
since his dismissal on November 15, 1992, it would be
appropriate to award separation pay of one (1) month
salary for each year of service, in lieu of
reinstatement.40
As regards the remaining respondents, the Court
affirms the ruling of both the NLRC and the appellate
court, ordering petitioner to accept them as its regular
employees and to give each of them the salaries,
allowances and other employment benefits and
privileges of a regular employee under the pertinent
Collective Bargaining Agreement.
Petitioner claims, however, that it has become
impossible for it to comply with the orders of the NLRC
and the Court of Appeals, for during the pendency of
this case, it was forced to reduce its personnel due to
heavy losses caused by economic crisis and the pilots'
strike of June 5, 1998. 41 Hence, there are no available
positions where respondents could be placed.
5
And petitioner informs that "the employment contracts of SO ORDERED.
all if not most of the respondents . . . were terminated by
Synergy effective 30 June 1998 when petitioner
terminated its contract with Synergy."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.43 Further, the notice of termination in 1998
was in disregard of a subsisting temporary restraining
order44 to preserve the status quo, issued by this Court in
1996 before it referred the case to the Court of Appeals
in January 1999. So as to thwart the attempt to subvert
the implementation of the assailed decision, respondents
are deemed to be continuously employed by petitioner,
for purposes of computing the wages and benefits due
respondents.

Finally, it must be stressed that respondents, having

been declared to be regular employees of petitioner,
Synergy being a mere agent of the latter, had acquired
security of tenure. As such, they could only be dismissed
by petitioner, the real employer, on the basis of just or
authorized cause, and with observance of procedural
due process.

WHEREFORE, the Court of Appeals Decision of

September 29, 2000
is AFFIRMED with MODIFICATION.

Petitioner PHILIPPINE AIRLINES, INC. is ordered to:

(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 BENTUZAL as 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 wages and benefits given them
and those granted to petitioner's other regular employees
of the same rank; and

(b) pay respondent BENEDICTO AUXTERO salary

differential; backwages from the time of his dismissal
until the finality of this decision; and separation pay, in
lieu of reinstatement, equivalent to one (1) month pay for
every year of service until the finality of this decision.

There being no data from which this Court may

determine the monetary liabilities of petitioner, the case
is REMANDED to the Labor Arbiter solely for that
purpose.

6
INDEPENDENT CONTRACTORS AND LABOR ONLY
CONTRACTS
G.R. No. 149011 June 28, 2005
SAN MIGUEL CORPORATION, petitioner
vs.
PROSPERO A. ABALLA, BONNY J. ABARING, EDWIN
M. ADLA-ON, ALVIN C. ALCALDE, CELANIO D.
ARROLLADO, EDDIE A. ARROLLADO, REYNALDO T.
ASONG, RENE A. ASPERA, JOEL D. BALATERIA,
JOSEPH D. BALATERIA, JOSE JOLLEN BALLADOS,
WILFREDO B. BASAS, EDWIN E. BEATINGO, SONNY
V. BERONDO, CHRISTOPHER D. BRIONES, MARLON
D. BRIONES, JOEL C. BOOC, ENRIQUE CABALIDA,
DIOSCORO R. CAHINOD, ERNESTO P. CAHINOD,
RENANTE S. CAHINOD, RUDERICK R. CALIXTON,
RONILO C. CALVEZ, PANCHO CAÑETE, JUNNY
CASTEL, JUDY S. CELESTE, ROMEO CHUA, DANILO
COBRA, ARMANDO C. DEDOYCO, JOEY R. DELA
CRUZ, JOHN D. DELFIN, RENELITO P. DEON, ARNEL
C. DE PEDRO, ORLANDO DERDER, CLIFFORD A.
DESPI, RAMIE A. DESPI, SR., VICTOR A. DESPI,
ROLANDO L. DINGLE, ANTONIO D. DOLORFINO,
LARRY DUMA-OP, NOEL DUMOL, CHITO L.
DUNGOG, RODERICK C. DUQUEZA, ROMMEL
ESTREBOR, RIC E. GALPO, MANSUETO GILLE,
MAXIMO L. HILA-US, GERARDO J. JIMENEZ,
ROBERTLY Y. HOFILEÑA, ROBERTO HOFILEÑA,
VICENTE INDENCIO, JONATHAN T. INVENTOR,
PETER PAUL T. INVENTOR, JOEBERT G. LAGARTO,
RENATO LAMINA, ALVIN LAS POBRES, ALBERT LAS
POBRES, LEONARD LEMONCHITO, JERRY LIM,
JOSE COLLY S. LUCERO, ROBERTO E. MARTIL,
HERNANDO MATILLANO, VICENTE M. MATILLANO,
TANNY C. MENDOZA, WILLIAM P. NAVARRO,
WILSON P. NAVARRO, LEO A. OLVIDO, ROBERTO G.
OTERO, BIENVENIDO C. PAROCHILIN, REYNALDO
C. PAROCHILIN, RICKY PALANOG, BERNIE O.
PILLO, ALBERTO O. PILLO, JOE-MARIE S. PUGNA,
EDWIN G. RIBON, RAUL A. RUBIO, HENRY S.
SAMILLANO, EDGAR SANTIAGO, ROLAND B.
SANTILLANA, ROLDAN V. SAYAM, JOSEPH S.
SAYSON, RENE SUARNABA, ELMAR TABLIGAN,
JERRY D. TALITE, OSCAR TALITE, WINIFREDO
TALITE, CAMILO N. TEMPOROSA, JOSE
TEMPOROSA, RANDY TINGALA, TRISTAN A.
TINGSON, ROGELIO TOMESA, DIONISE A. TORMIS,
ADELINO C. UNTAL, FELIX T. UNTAL, RONILO E.
VISTA, JOAN C. VIYO and JOSE JOFER C. VIYO and
the COURT OF APPEALS, respondents.
DECISION
CARPIO-MORALES, J.:
Petitioner San Miguel Corporation (SMC), represented
by its Assistant Vice President and Visayas Area
Manager for Aquaculture Operations Leopoldo S. Titular,
and Sunflower Multi-Purpose Cooperative (Sunflower),
represented by the Chairman of its Board of Directors
Roy G. Asong, entered into a one-year Contract of
Services1 commencing on January 1, 1993, to be
renewed on a month to month basis until terminated by
either party. The pertinent provisions of the contract
read:
1. The cooperative agrees and undertakes to
perform and/or provide for the company, on a
non-exclusive basis for a period of one year the
following services for the Bacolod Shrimp
Processing Plant:
A. Messengerial/Janitorial
B. Shrimp Harvesting/Receiving
C. Sanitation/Washing/Cold Storage2
2. To carry out the undertaking specified in the
immediately preceding paragraph, the
cooperative shall employ the necessary
personnel and provide adequate equipment,
materials, tools and apparatus, to efficiently,
fully and speedily accomplish the work and
services undertaken by the cooperative. xxx
3. In consideration of the above undertaking the
company expressly agrees to pay the
cooperative the following rates per activity:
A. Messengerial/Janitorial Monthly
Fixed Service Charge of: Nineteen
Thousand Five Hundred Pesos Only
(P19,500.00)
B. Harvesting/Shrimp Receiving. –
Piece rate of P0.34/kg. Or P100.00
minimum per person/activity whichever
is higher, with provisions as follows:
P25.00 Fixed Fee per person
Additional meal allowance P15.00
every meal time in case harvest
duration exceeds one meal.
This will be pre-set every harvest based
on harvest plan approved by the Senior
Buyer.
C. Sanitation/Washing and Cold
Storage P125.00/person for 3 shifts.
One-half of the payment for all services
rendered shall be payable on the
fifteenth and the other half, on the end
of each month. The cooperative shall
pay taxes, fees, dues and other
impositions that shall become due as a
result of this contract.
7
 The cooperative shall have the entire
charge, control and supervision of the
work and services herein agreed upon.
xxx
4. There is no employer-employee
relationship between the company and the
cooperative, or the cooperative and any of its
members, or the company and any members of
the cooperative. The cooperative is an
association of self-employed members, an
independent contractor, and an entrepreneur. It is
subject to the control and direction of the
company only as to the result to be accomplished
by the work or services herein specified, and not
as to the work herein contracted. The
cooperative and its members recognize that it is
taking a business risk in accepting a fixed service
fee to provide the services contracted for and its
realization of profit or loss from its undertaking, in
relation to all its other undertakings, will depend
on how efficiently it deploys and fields its
members and how they perform the work and
manage its operations.
5. The cooperative shall, whenever possible,
maintain and keep under its control the premises
where the work under this contract shall be
performed.
6. The cooperative shall have exclusive
discretion in the selection, engagement and
discharge of its member-workers or otherwise in
the direction and control thereof. The
determination of the wages, salaries and
compensation of the member-workers of the
cooperative shall be within its full control. It is
further understood that the cooperative is an
independent contractor, and as such, the
cooperative agrees to comply with all the
requirements of all pertinent laws and
ordinances, rules and regulations. Although it is
understood and agreed between the parties
hereto that the cooperative, in the performance of
its obligations, is subject to the control or
direction of the company merely as a (sic) result
to be accomplished by the work or services
herein specified, and not as to the means and
methods of accomplishing such result, the
cooperative hereby warrants that it will perform
such work or services in such manner as will be
consistent with the achievement of the result
herein contracted for.
xxx
8. The cooperative undertakes to pay the wages
or salaries of its member-workers, as well as all
benefits, premiums and protection in accordance
with the provisions of the labor code, cooperative
code and other applicable laws and decrees and
the rules and regulations promulgated by
competent authorities, assuming all
responsibility therefor.
The cooperative further undertakes to submit to
the company within the first ten (10) days of
every month, a statement made, signed and
sworn to by its duly authorized representative
before a notary public or other officer
authorized by law to administer oaths, to the
effect that the cooperative has paid all wages
or salaries due to its employees or personnel
for services rendered by them during the month
immediately preceding, including overtime, if
any, and that such payments were all in
accordance with the requirements of law.
xxx
12. Unless sooner terminated for the reasons
stated in paragraph 9 this contract shall be for a
period of one (1) year commencing on January
1, 1993. Thereafter, this Contract will be
deemed renewed on a month-to-month basis
until terminated by either party by sending a
written notice to the other at least thirty (30)
days prior to the intended date of termination.
xxx3 (Underscoring supplied)
Pursuant to the contract, Sunflower engaged private
respondents to, as they did, render services at SMC’s
Bacolod Shrimp Processing Plant at Sta. Fe, Bacolod
City. The contract was deemed renewed by the parties
every month after its expiration on January 1, 1994 and
private respondents continued to perform their tasks
until September 11, 1995.
In July 1995, private respondents filed a complaint
before the NLRC, Regional Arbitration Branch No. VI,
Bacolod City, praying to be declared as regular
employees of SMC, with claims for recovery of all
benefits and privileges enjoyed by SMC rank and file
employees.
Private respondents subsequently filed on September
25, 1995 an Amended Complaint4 to include illegal
dismissal as additional cause of action following SMC’s
closure of its Bacolod Shrimp Processing Plant on
September 15, 19955 which resulted in the termination
of their services.
SMC filed a Motion for Leave to File Attached Third
Party Complaint6 dated November 27, 1995 to implead
Sunflower as Third Party Defendant which was, by
Order7 of December 11, 1995, granted by Labor Arbiter
Ray Alan T. Drilon.
In the meantime, on September 30, 1996, SMC filed
before the Regional Office at Iloilo City of the
Department of Labor and Employment (DOLE) a
8
Notice of Closure8 of its aquaculture operations effective
on even date, citing serious business losses.
By Decision of September 23, 1997, Labor Arbiter Drilon
dismissed private respondents’ complaint for lack of
merit, ratiocinating as follows:
We sustain the stand of the respondent SMC that it could
properly exercise its management prerogative to contract
out the preparation and processing aspects of its
aquaculture operations. Judicial notice has already been
taken regarding the general practice adopted in
government and private institutions and industries of
hiring independent contractors to perform special
services. xxx
xxx
Indeed, the law allows job contracting. Job contracting is
permissible under the Labor Code under specific
conditions and we do not see how this activity could not
be legally undertaken by an independent service
cooperative like the third-party respondent herein.
There is no basis to the demand for regularization simply
on the theory that complainants performed activities
which are necessary and desirable in the business of
respondent. It has been held that the definition of regular
employees as those who perform activities which are
necessary and desirable for the business of the employer
is not always determinative because any agreement may
provide for one (1) party to render services for and in
behalf of another for a consideration even without being
hired as an employee.
The charge of the complainants that third-party
respondent is a mere labor-only contractor is a sweeping
generalization and completely unsubstantiated. xxx In
the absence of clear and convincing evidence showing
that third-party respondent acted merely as a labor only
contractor, we are firmly convinced of the legitimacy and
the integrity of its service contract with respondent SMC.
In the same vein, the closure of the Bacolod Shrimp
Processing Plant was a management decision purely
dictated by economic factors which was (sic) mainly
serious business losses. The law recognizes the right of
the employer to close his business or cease his
operations for bonafide reasons, as much as it
recognizes the right of the employer to terminate the
employment of any employee due to closure or cessation
of business operations, unless the closing is for the
purpose of circumventing the provisions of the law on
security of tenure. The decision of respondent SMC to
close its Bacolod Shrimp Processing Plant, due to
serious business losses which has (sic) clearly been
established, is a management prerogative which could
hardly be interfered with.
xxx The closure did affect the regular employees and
workers of the Bacolod Processing Plant, who were
accordingly terminated following the legal requisites
prescribed by law. The closure, however, in so far as
the complainants are concerned, resulted in the
termination of SMC’s service contract with their
cooperative xxx9(Underscoring supplied)
Private respondents appealed to the NLRC.
By Decision of December 29, 1998, the NLRC
dismissed the appeal for lack of merit, it finding
that third party respondent Sunflower was an
independent contractor in light of its observation that
"[i]n all the activities of private respondents, they were
under the actual direction, control and supervision of
third party respondent Sunflower, as well as the
payment of wages, and power of dismissal." 10
Private respondents’ Motion for
Reconsideration11 having been denied by the NLRC for
lack of merit by Resolution of September 10, 1999,
they filed a petition for certiorari 12 before the Court of
Appeals (CA).
Before the CA, SMC filed a Motion to Dismiss 13 private
respondents’ petition for non-compliance with the Rules
on Civil Procedure and failure to show grave abuse of
discretion on the part of the NLRC.
SMC subsequently filed its Comment 14 to the petition
on March 30, 2000.
By Decision of February 7, 2001, the appellate
court reversed the NLRC decision and accordingly
found for private respondents, disposing as follows:
WHEREFORE, the petition is GRANTED. Accordingly,
judgment is hereby RENDERED: (1) REVERSING and
SETTING ASIDE both the 29 December 1998 decision
and 10 September 1999 resolution of the National
Labor Relations Commission (NLRC), Fourth Division,
Cebu City in NLRC Case No. V-0361-97 as well as the
23 September 1997 decision of the labor arbiter in RAB
Case No. 06-07-10316-95; (2) ORDERING the
respondent, San Miguel Corporation, to GRANT
petitioners: (a) separation pay in accordance with the
computation given to the regular SMC employees
working at its Bacolod Shrimp Processing Plant with full
backwages, inclusive of allowances and other benefits
or their monetary equivalent, from 11 September 1995,
the time their actual compensation was withheld from
them, up to the time of the finality of this decision;
(b) differentials pays (sic) effective as of and from the
time petitioners acquired regular employment status
pursuant to the disquisition mentioned above, and all
such other and further benefits as provided by
applicable collective bargaining agreement(s) or other
relations, or by law, beginning such time up to their
termination from employment on 11 September 1995;
and ORDERING private respondent SMC to PAY unto
the petitioners attorney’s fees equivalent to ten (10%)
percent of the total award.
9
No pronouncement as to costs.
SO ORDERED.15 (Underscoring supplied)
Justifying its reversal of the findings of the labor arbiter
and the NLRC, the appellate court reasoned:
Although the terms of the non-exclusive contract of
service between SMC and [Sunflower] showed a clear
intent to abstain from establishing an employer-employee
relationship between SMC and [Sunflower] or the latter’s
members, the extent to which the parties successfully
realized this intent in the light of the applicable law is the
controlling factor in determining the real and actual
relationship between or among the parties.
xxx
With respect to the power to control petitioners’ conduct,
it appears that petitioners were under the direct control
and supervision of SMC supervisors both as to the
manner they performed their functions and as to the end
results thereof. It was only after petitioners lodged a
complaint to have their status declared as regular
employees of SMC that certain members of [Sunflower]
began to countersign petitioners’ daily time records to
make it appear that they (petitioners) were under the
control and supervision of [Sunflower] team leaders
(rollo, pp. 523-527). xxx
Even without these instances indicative of control by
SMC over the petitioners, it is safe to assume that SMC
would never have allowed the petitioners to work within
its premises, using its own facilities, equipment and tools,
alongside SMC employees discharging similar or
identical activities unless it exercised a substantial
degree of control and supervision over the petitioners not
only as to the manner they performed their functions but
also as to the end results of such functions.
xxx
xxx it becomes apparent that [Sunflower] and the
petitioners do not qualify as independent
contractors. [Sunflower] and the petitioners did not have
substantial capital or investment in the form of tools,
equipment, implements, work premises, et cetera
necessary to actually perform the service under their own
account, responsibility, and method. The only "work
premises" maintained by [Sunflower] was a small office
within the confines of a small "carinderia" or refreshment
parlor owned by the mother of its chair, Roy Asong; the
only equipment it owned was a typewriter (rollo, pp. 525-
525) and, the only assets it provided SMC were the bare
bodies of its members, the petitioners herein (rollo, p.
523).
In addition, as shown earlier, petitioners, who worked
inside the premises of SMC, were under the control and
supervision of SMC both as to
the manner and method in discharging their functions
and as to the resultsthereof.
Besides, it should be taken into account that
the activities undertaken by the petitioners as cleaners,
janitors, messengers and shrimp harvesters, packers
and handlers were directly related to the aquaculture
business of SMC (See Guarin vs. NLRC, 198 SCRA
267, 273). This is confirmed by the renewal of the
service contract from January 1993 to September
1995, a period of close to three (3) years.
Moreover, the petitioners here numbering ninety seven
(97), by itself, is a considerable workforce and raises
the suspicion that the non-exclusive service contract
between SMC and [Sunflower] was "designed to evade
the obligations inherent in an employer-employee
relationship" (See Rhone-Poulenc Agrochemicals
Philippines, Inc. vs. NLRC, 217 SCRA 249, 259).
Equally suspicious is the fact that the notary public
who signed the by-laws of [Sunflower] and its
[Sunflower] retained counsel are both partners of
the local counsel of SMC (rollo, p. 9).
xxx
With these observations, no other logical conclusion
can be reached except that [Sunflower] acted as an
agent of SMC, facilitating the manpower requirements
of the latter, the real employer of the petitioners. We
simply cannot allow these two entities through the
convenience of a non-exclusive service contract to
stipulate on the existence of employer-employee
relation. Such existence is a question of law which
cannot be made the subject of agreement to the
detriment of the petitioners (Tabas vs. California
Manufacturing, Inc., 169 SCRA 497, 500).
xxx
There being a finding of "labor-only" contracting,
liability must be shouldered either by SMC or
[Sunflower] or shared by both (See Tabas vs.
California Manufacturing, Inc., supra, p. 502). SMC
however should be held solelyliable for
[Sunflower] became non-existent with the closure of
the aquaculture business of SMC.
Furthermore, since the closure of the aquaculture
operations of SMC appears to be valid, reinstatement
is no longer feasible. Consistent with the
pronouncement in Bustamante, et al., vs. NLRC, G.R.
No. 111651, 28 November 1996, petitioners are thus
entitled to separation pay (in the computation similar to
those given to regular SMC employees at its Bacolod
Shrimp Processing Plant) "with full backwages,
inclusive of allowances and other benefits or their
monetary equivalent, from the time their actual
compensation was withheld from them" up to the time
of the finality of this decision. This is without prejudice
10
to differentials pays (sic) effective as of and from the time
petitioners acquired regular employment status pursuant
to the discussion mentioned above, and all such other
and further benefits as provided by applicable collective
bargaining agreement(s) or other relations, or by law,
beginning such time up to their termination from
employment on 11 September 1995. 16 (Emphasis and
underscoring supplied)
SMC’s Motion for Reconsideration 17 having been denied
for lack of merit by Resolution of July 11, 2001, it comes
before this Court via the present petition for review on
certiorari assigning to the CA the following errors:
I the complaint against petitioners as a group,
THE COURT OF APPEALS GRAVELY ERRED IN
GIVING DUE COURSE AND GRANTING
RESPONDENTS’ PATENTLY DEFECTIVE
PETITION FOR CERTIORARI. IN DOING SO, THE
COURT OF APPEALS DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS.
II
THE COURT OF APPEALS GRAVELY ERRED IN
RECOGNIZING ALL THE RESPONDENTS AS
COMPLAINANTS IN THE CASE BEFORE THE LABOR
ARBITER. IN DOING SO, THE COURT OF APPEALS
DECIDED THIS CASE IN A MANNER NOT IN ACCORD
WITH LAW OR WITH THE APPLICABLE DECISIONS
OF THE SUPREME COURT.
III
THE COURT OF APPEALS GRAVELY ERRED IN
FINDING THAT RESPONDENTS ARE EMPLOYEES OF
SMC.
IV
THE COURT OF APPEALS GRAVELY ERRED IN NOT
FINDNG (sic) THAT RESPONDENTS ARE NOT
ENTITLED TO ANY RELIEF. THE CLOSURE OF THE
BACOLOD SHRIMP PROCESSING PLANT WAS DUE
TO SERIOUS BUSINESS LOSSES.18 (Underscoring
supplied)
SMC bewails the failure of the appellate court to
outrightly dismiss the petition for certiorari as only three
out of the ninety seven named petitioners signed the
verification and certification against forum-shopping.
While the general rule is that the certificate of non-forum
shopping must be signed by all the plaintiffs or
petitioners in a case and the signature of only one of
them is insufficient,19 this Court has stressed that the
rules on forum shopping, which were designed to
promote and facilitate the orderly administration of
justice, should not be interpreted with such absolute
literalness as to subvert its own ultimate and legitimate
objective.20 Strict compliance with the provisions
regarding the certificate of non-forum shopping merely
underscores its mandatory nature in that the
certification cannot be altogether dispensed with or its
requirements completely disregarded. 21 It does not,
however, thereby interdict substantial compliance with
its provisions under justifiable circumstances.22
Thus in the recent case of HLC Construction and
Development Corporation v. Emily Homes Subdivision
Homeowners Association,23 this Court held:
Respondents (who were plaintiffs in the trial court) filed
represented by their homeowners’ association
president who was likewise one of the plaintiffs, Mr.
Samaon M. Buat.Respondents raised one cause of
action which was the breach of contractual obligations
and payment of damages. They shared a common
interest in the subject matter of the case, being the
aggrieved residents of the poorly constructed and
developed Emily Homes Subdivision. Due to the
collective nature of the case, there was no doubt that
Mr. Samaon M. Buat could validly sign the certificate of
non-forum shopping in behalf of all his co-plaintiffs. In
cases therefore where it is highly impractical to require
all the plaintiffs to sign the certificate of non-forum
shopping, it is sufficient, in order not to defeat the ends
of justice, for one of the plaintiffs, acting as
representative, to sign the certificate provided that xxx
the plaintiffs share a common interest in the
subject matter of the case or filed the case as a
"collective," raising only one common cause of
action or defense.24 (Emphasis and underscoring
supplied)
Given the collective nature of the petition filed before
the appellate court by herein private respondents,
raising one common cause of action against SMC, the
execution by private respondents Winifredo Talite,
Renelito Deon and Jose Temporosa in behalf of all the
other private respondents of the certificate of non-
forum shopping constitutes substantial compliance with
the Rules.25 That the three indeed represented their co-
petitioners before the appellate court is, as it correctly
found, "subsequently proven to be true as shown by
the signatures of the majority of the petitioners
appearing in their memorandum filed before Us."26
Additionally, the merits of the substantive aspects of
the case may also be deemed as "special
circumstance" or "compelling reason" to take
cognizance of a petition although the certification
against forum shopping was not executed and signed
by all of the petitioners.27
SMC goes on to argue that the petition filed before the
CA is fatally defective as it was not accompanied by
"copies of all pleadings and documents relevant and
pertinent thereto" in contravention of Section 1, Rule 65
of the Rules of Court.28
11
This Court is not persuaded. The records show that
private respondents appended the following documents
to their petition before the appellate court: the September
23, 1997 Decision of the Labor Arbiter,29 their Notice of
Appeal with Appeal Memorandum dated October 16,
1997 filed before the NLRC,30 the December 29,
1998 NLRCD E C I S I O
N,31 their Motion for Reconsideration dated March 26,
1999 filed with the NLRC32 and the September 10,
1999 NLRC Resolution.33
It bears stressing at any rate that it is the appellate court
which ultimately determines if the supporting documents
are sufficient to make out a prima facie case.34 It discerns
whether on the basis of what have been submitted it
could already judiciously determine the merits of the
petition.35 In the case at bar, the CA found that the
petition was adequately supported by relevant and
pertinent documents.
At all events, this Court has allowed a liberal construction
of the rule on the accomplishment of a certificate of non-
forum shopping in the following cases: (1) where a rigid
application will result in manifest failure or miscarriage of
justice; (2) where the interest of substantial justice will be
served; (3) where the resolution of the motion is
addressed solely to the sound and judicious discretion of
the court; and (4) where the injustice to the adverse party
is not commensurate with the degree of his
thoughtlessness in not complying with the procedure
prescribed.36
Rules of procedure should indeed be viewed as mere
tools designed to facilitate the attainment of justice. Their
strict and rigid application, which would result in
technicalities that tend to frustrate rather than promote
substantial justice, must always be eschewed. 37
SMC further argues that the appellate court exceeded its
jurisdiction in reversing the decisions of the labor arbiter
and the NLRC as "findings of facts of quasi-judicial
bodies like the NLRC are accorded great respect and
finality," and that this principle acquires greater weight
and application in the case at bar as the labor arbiter and
the NLRC have the same factual findings.
The general rule, no doubt, is that findings of facts of an
administrative agency which has acquired expertise in
the particular field of its endeavor are accorded great
weight on appeal.38 The rule is not absolute and admits
of certain well-recognized exceptions, however. Thus,
when the findings of fact of the labor arbiter and the
NLRC are not supported by substantial evidence or their
judgment was based on a misapprehension of facts, the
appellate court may make an independent evaluation of
the facts of the case.39
SMC further faults the appellate court in giving due
course to private respondents’ petition despite the fact
that the complaint filed before the labor arbiter was
signed and verified only by private respondent Winifredo
Talite; that private respondents’ position paper 40 was
verified by only six41 out of the ninety seven
complainants; and that their Joint-Affidavit 42 was
executed only by twelve43 of the complainants.
Specifically with respect to the Joint-Affidavit of private
respondents, SMC asserts that it should not have been
considered by the appellate court in establishing the
claims of those who did not sign the same, citing this
Court’s ruling in Southern Cotabato Development and
Construction, Inc. v. NLRC.44
SMC’s position does not lie.
A perusal of the complaint shows that the ninety seven
complainants were being represented by their counsel
of choice. Thus the first sentence of their complaint
alleges: "xxx complainants, by counsel and unto this
Honorable Office respectfully state xxx." And the
complaint was signed by Atty. Jose Max S. Ortiz as
"counsel for the complainants." Following Section 6,
Rule III of the 1990 Rules of Procedure of the NLRC,
now Section 7, Rule III of the 1999 NLRC Rules, Atty.
Ortiz is presumed to be properly authorized by private
respondents in filing the complaint.
That the verification wherein it is manifested that
private respondent Talite was one of the complainants
and was causing the preparation of the complaint "with
the authority of my co-complainants" indubitably shows
that Talite was representing the rest of his co-
complainants in signing the verification in accordance
with Section 7, Rule III of the 1990 NLRC Rules, now
Section 8, Rule 3 of the 1999 NLRC Rules, which
states:
Section 7. Authority to bind party. – Attorneys and other
representatives of parties shall have authority to bind
their clients in all matters of procedure; but they
cannot, without a special power of attorney or express
consent, enter into a compromise agreement with the
opposing party in full or partial discharge of a client’s
claim. (Underscoring supplied)
As regards private respondents’ position paper which
bore the signatures of only six of them, appended to it
was an Authority/Confirmation of Authority 45 signed by
the ninety one others conferring authority to their
counsel "to file RAB Case No. 06-07-10316-95, entitled
Winifredo Talite et al. v. San Miguel Corporation
presently pending before the sala of Labor Arbiter Ray
Alan Drilon at the NLRC Regional Arbitration Branch
No. VI in Bacolod City" and appointing him as their
retained counsel to represent them in the said case.
That there has been substantial compliance with the
requirement on verification of position papers under
Section 3, Rule V of the 1990 NLRC Rules of
Procedure46 is not difficult to appreciate in light of the
provision of Section 7, Rule V of the 1990 NLRC Rules,
12
now Section 9, Rule V of the 1999 NLRC Rules which
reads:
Section 7. Nature of Proceedings. – The proceedings
before a Labor Arbiter shall be non-litigious in nature.
Subject to the requirements of due process, the
technicalities of law and procedure and the rules
obtaining in the courts of law shall not strictly apply
thereto. The Labor Arbiter may avail himself of all
reasonable means to ascertain the facts of the
controversy speedily, including ocular inspection and
examination of well-informed persons. (underscoring
supplied)
As regards private respondents’ Joint-Affidavit which is
being assailed in view of the failure of some
complainants to affix their signatures thereon, this Court
quotes with approval the appellate court’s ratiocinations:
A perusal of the Southern Cotabato Development Case
would reveal that movant did not quote the whole text of
paragraph 5 on page 865 of 280 SCRA. The whole
paragraph reads:
"Clearly then, as to those who opted to move for the
dismissal of their complaints, or did not submit their
affidavits nor appear during trial and in whose favor no
other independent evidence was adduced, no award for
back wages could have been validly and properly made
for want of factual basis. There is no showing at all that
any of the affidavits of the thirty-four (34) complainants
were offered as evidence for those who did not submit
their affidavits, or that such affidavits had any bearing at
all on the rights and interest of the latter. In the same
vein, private respondent’s position paper was not of any
help to these delinquent complainants.
The implication is that as long as the affidavits of the
complainants were offered as evidence for those
who did not submit theirs, or the affidavits were
material and relevant to the rights and interest of the
latter, such affidavits may be sufficient to establish
the claims of those who did not give their affidavits.
Here, a reading of the joint affidavit signed by twelve (12)
of the ninety-seven (97) complainants (petitioners herein)
would readily reveal that the affidavit was offered as
evidence not only for the signatories therein but for all of
the complainants. (These ninety-seven (97) individuals
were previously identified during the mandatory
conference as the only complainants in the proceedings
before the labor arbiter) Moreover, the affidavit touched
on the common interest of all of the complainants as it
supported their claim of the existence of an employer-
employee relationship between them and respondent
SMC. Thus, the said affidavit was enough to prove the
claims of the rest of the complainants.47 (Emphasis
supplied, underscoring in the original)
In any event, SMC is reminded that the rules of evidence
prevailing in courts of law or equity do not control
proceedings before the Labor Arbiter. So Article 221 of
the Labor Code enjoins:
ART. 221. Technical rules not binding and prior
resort to amicable settlement. – In any proceeding
before the Commission or any of the Labor Arbiters,
the rules of evidence prevailing in courts of law or
equity shall not be controlling and it is the spirit and
intention of this Code that the Commission and its
members and the Labor Arbiters shall use every and all
reasonable means to ascertain the facts in each case
speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of
due process. xxx
As such, their application may be relaxed to serve the
demands of substantial justice.48
On the merits, the petition just the same fails.
SMC insists that private respondents are the
employees of Sunflower, an independent contractor.
On the other hand, private respondents assert that
Sunflower is a labor-only contractor.
Article 106 of the Labor Code provides:
ART. 106. Contractor or subcontracting. – Whenever
an employer enters into a contract with another person
for the performance of the former’s work, the
employees of the contractor and of the latter’s
subcontractor, if any shall be paid in accordance with
the provisions of this Code.
In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with
this Code, the employer shall be jointly and severally
liable with his contractor or subcontractor to such
employees to the extent of the work performed under
the contract, in the same manner and extent that he is
liable to employees directly employed by him.
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
appropriate distinctions between labor-only contracting
and job contracting as well as differentiations within
these types of contracting and determine who among
the parties involved shall be considered the employer
for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code.
There is "labor-only" contracting where 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 the workers recruited and placed by such
person are performing activities which are directly
related to the principal business of such employer. In
such cases, the person or intermediary shall be
13
considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
Rule VIII-A, Book III of the Omnibus Rules Implementing
the Labor Code, as amended by Department Order No.
18, distinguishes between legitimate and labor-only
contracting:
Section 3. Trilateral Relationship in Contracting
Arrangements. In legitimate contracting, there exists a
trilateral relationship under which there is a contract for a
specific job, work or service between the principal and
the contractor or subcontractor, and a contract of
employment between the contractor or subcontractor and
its workers. Hence, there are three parties involved in
these arrangements, the principal which decides to 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 workers engaged by
the contractor or subcontractor to accomplish the job,
work or service.
Section 5. Prohibition against labor-only
contracting. Labor-only contracting Sis hereby declared
prohibited. For this purpose, labor-only 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 following elements are present:
i) 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 performing
activities which are directly related to the main
business of the principal, or
ii) The contractor does not exercise the right to
control over the performance of the work of the
contractual employee.
The foregoing provisions shall be without prejudice to the
application of Article 248 (c) of the Labor Code, as
amended.
"Substantial capital or investment" refers to capital stocks
and subscribed capitalization in the case of corporations,
tools, equipment, 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.
The "right to control" shall refer to the right reserved to
the person for whom the services of the contractual
workers are performed, to determine not only the end to
be achieved, but also the manner and means to be used
in reaching that end.
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.49
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.50
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.51
The Contract of Services between SMC and Sunflower
shows that the parties clearly disavowed the existence
of an employer-employee relationship between SMC
and private respondents. The language of a contract is
not, however, determinative of the parties’
relationship; rather it is the totality of the facts and
surrounding circumstances of the case.52 A party
cannot dictate, by the mere expedient of a unilateral
declaration in a contract, the character of its
business, i.e., whether as labor-only contractor or job
contractor, it being crucial that its character be
measured in terms of and determined by the criteria set
by statute.53
SMC argues that Sunflower could not have been
issued a certificate of registration as a cooperative if it
had no substantial capital.54
While indeed Sunflower was issued Certificate of
Registration No. IL0-87555 on February 10, 1992 by the
Cooperative Development Authority, this merely shows
that it had at least ₱2,000.00 in paid-up share capital
as mandated by Section 5 of Article 14 56 of Republic
Act No. 6938, otherwise known as the Cooperative
Code, which amount cannot be considered substantial
capitalization.
What appears is that Sunflower does not have
substantial capitalization or investment in the form of
tools, equipment, machineries, work premises and
other materials to qualify it as an independent
contractor.
On the other hand, it is gathered that the lot, building,
machineries and all other working tools utilized by
14
private respondents in carrying out their tasks were
owned and provided by SMC. Consider the following
uncontroverted allegations of private respondents in the
Joint Affidavit:
[Sunflower], during the existence of its service contract
with respondent SMC, did not own a single machinery,
equipment, or working tool used in the processing plant.
Everything was owned and provided by respondent
SMC. The lot, the building, and working facilities are
owned by respondent SMC. The machineries and
equipments (sic) like washer machine, oven or cooking
machine, sizer machine, freezer, storage, and chilling
tanks, push carts, hydrolic (sic) jack, tables, and chairs
were all owned by respondent SMC. All the boxes, trays,
molding pan used in the processing are also owned by
respondent SMC. The gloves and boots used by the
complainants were also owned by respondent SMC.
Even the mops, electric floor cleaners, brush, hoose
(sic), soaps, floor waxes, chlorine, liquid stain removers,
lysol and the like used by the complainants assigned as
cleaners were all owned and provided by respondent
SMC.
Simply stated, third-party respondent did not own even a
small capital in the form of tools, machineries, or facilities
used in said prawn processing
xxx
The alleged office of [Sunflower] is found within the
confines of a small "carinderia" or "refreshment" (sic)
owned by the mother of the Cooperative Chairman Roy
Asong.
xxx In said . . . office, the only equipment used and
owned by [Sunflower] was a typewriter. 57
And from the job description provided by SMC itself, the
work assigned to private respondents
was directly relatedto the aquaculture operations of
SMC. Undoubtedly, the nature of the work performed by
private respondents in shrimp harvesting, receiving and
packing formed an integral part of the shrimp processing
operations of SMC. As for janitorial and messengerial
services, that they are considered directly related to the
principal business of the employer58 has been
jurisprudentially recognized.
Furthermore, Sunflower did not carry on an independent
business or undertake the performance of its service
contract according to its own manner and method, free
from the control and supervision of its principal, SMC, its
apparent role having been merely to recruit persons to
work for SMC.
Thus, it is gathered from the evidence adduced by
private respondents before the labor arbiter that
their daily time records were signed by SMC
supervisors Ike Puentebella, Joemel Haro, Joemari
Raca, Erwin Tumonong, Edison Arguello, and Stephen
Palabrica, which fact shows that SMC exercised the
power of control and supervision over its
employees.59 And control of the premises in which
private respondents worked was by SMC. These tend
to disprove the independence of the contractor. 60
More. Private respondents had been working in the
aqua processing plant inside the SMC compound
alongside regular SMC shrimp processing workers
performing identical jobs under the same SMC
supervisors.61 This circumstance is another indicium of
the existence of a labor-only contractorship. 62
And as private respondents alleged in their Joint
Affidavit which did not escape the observation of the
CA, no showing to the contrary having been proffered
by SMC, Sunflower did not cater to clients other than
SMC,63 and with the closure of SMC’s Bacolod Shrimp
Processing Plant, Sunflower likewise ceased to exist.
This Court’s ruling in San Miguel Corporation v.
MAERC Integrated Services, Inc.64 is thus instructive.
xxx Nor do we believe MAERC to have an independent
business. Not only was it set up to specifically meet the
pressing needs of SMC which was then having labor
problems in its segregation division, none of its workers
was also ever assigned to any other establishment,
thus convincing us that it was created solely to service
the needs of SMC. Naturally, with the severance of
relationship between MAERC and SMC followed
MAERC’s cessation of operations, the loss of jobs for
the whole MAERC workforce and the resulting actions
instituted by the workers.65(Underscoring supplied)
All the foregoing considerations affirm by more than
substantial evidence the existence of an employer-
employee relationship between SMC and private
respondents.
Since private respondents who were engaged in
shrimp processing performed tasks usually necessary
or desirable in the aquaculture business of SMC, they
should be deemed regular employees of the
latter66 and as such are entitled to all the benefits and
rights appurtenant to regular employment. 67 They
should thus be awarded differential pay corresponding
to the difference between the wages and benefits given
them and those accorded SMC’s other regular
employees.1awphi1.zw+
Respecting the private respondents who were tasked
with janitorial and messengerial duties, this Court
quotes with approval the appellate court’s ruling
thereon:
Those performing janitorial and messengerial services
however acquired regular status only after rendering
one-year service pursuant to Article 280 of the Labor
Code. Although janitorial and messengerial services
are considered directly related to the aquaculture
business of SMC, they are deemed unnecessary in the
15
conduct of its principal business; hence, the distinction
(See Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA
131, 136-137 and Philippine Bank of Communications v.
NLRC, supra, p. 359).68
The law of course provides for two kinds of regular
employees, namely: (1) those who are engaged to
perform activities which are usually necessary or
desirable in the usual business or trade of the employer;
and (2) those who have rendered at least one year of
service, whether continuous or broken, with respect to
the activity in which they are employed.69
As for those of private respondents who were engaged in
janitorial and messengerial tasks, they fall under the
second category and are thus entitled to differential pay
and benefits extended to other SMC regular employees
from the day immediately following their first year of
service.70
Regarding the closure of SMC’s aquaculture operations
and the consequent termination of private respondents,
Article 283 of the Labor Code provides:
ART. 283. Closure of establishment and reduction of
personnel. – The employer may also terminate the
employment of any employee due to the installation of
labor saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of
the establishment or undertaking unless the closing is for
the purpose of circumventing the provisions of this
Title, by serving a written notice on the workers and the
Department of Labor and Employment at least one (1)
month before the intended date thereof. In case of
termination due to the installation of labor saving devices
or redundancy, the worker affected thereby shall be
entitled to a separation pay equivalent to at least his one
(1) month pay or to at least one (1) month pay for every
year of service, whichever is higher. In case of
retrenchment to prevent losses and in cases of closures
or cessation of operations of establishment or
undertaking not due to serious business losses or
financial reverses, the separation pay shall be equivalent
to one (1) month pay or to at least one-half (1/2) month
pay for every year of service, whichever is higher. A
fraction of at least six (6) months shall be considered one
(1) whole year. (Underscoring supplied)
In the case at bar, a particular department under the
SMC group of companies was closed allegedly due to
serious business reverses. This constitutes retrenchment
by, and not closure of, the enterprise or the company
itself as SMC has not totally ceased operations but is still
very much an on-going and highly viable business
concern.71
Retrenchment is a management prerogative consistently
recognized and affirmed by this Court. It is, however,
subject to faithful compliance with the substantive and
procedural requirements laid down by law and
jurisprudence.72
For retrenchment to be considered valid the following
substantial requirements must be met: (a) the losses
expected should be substantial and not merely de
minimis in extent; (b) the substantial losses
apprehended must be reasonably imminent such as
can be perceived objectively and in good faith by the
employer; (c) the retrenchment must be reasonably
necessary and likely to effectively prevent the expected
losses; and (d) the alleged losses, if already incurred,
and the expected imminent losses sought to be
forestalled, must be proved by sufficient and convincing
evidence.73
In the discharge of these requirements, it is the
employer who has the onus, being in the nature of an
affirmative defense.74
Normally, the condition of business losses is shown by
audited financial documents like yearly balance sheets,
profit and loss statements and annual income tax
returns. The financial statements must be prepared and
signed by independent auditors failing which they can
be assailed as self-serving documents.75
In the case at bar, company losses were duly
established by financial documents audited by Joaquin
Cunanan & Co. showing that the aquaculture
operations of SMC’s Agribusiness Division
accumulated losses amounting to ₱145,848,172.00 in
1992 resulting in the closure of its Calatrava
Aquaculture Center in Negros Occidental,
₱11,393,071.00 in 1993 and ₱80,325,608.00 in 1994
which led to the closure of its San Fernando Shrimp
Processing Plant in Pampanga and the Bacolod
Shrimp Processing Plant in 1995.
SMC has thus proven substantial business reverses
justifying retrenchment of its employees.
For termination due to retrenchment to be valid,
however, the law requires that written notices of the
intended retrenchment be served by the employer on
the worker and on the DOLE at least one (1) month
before the actual date of the retrenchment, 76 in order to
give employees some time to prepare for the eventual
loss of their jobs, as well as to give DOLE the
opportunity to ascertain the verity of the alleged cause
of termination.77
Private respondents, however, were merely verbally
informed on September 10, 1995 by SMC Prawn
Manager Ponciano Capay that effective the following
day or on September 11, 1995, they were no longer to
report for work as SMC would be closing its
operations.78
Where the dismissal is based on an authorized cause
under Article 283 of the Labor Code but the employer
failed to comply with the notice requirement, the
sanction should be stiff as the dismissal process was
initiated by the employer’s exercise of his management
16
prerogative, as opposed to a dismissal based on a just
cause under Article 282 with the same procedural
infirmity where the sanction to be imposed upon the
employer should be tempered as the dismissal process
was, in effect, initiated by an act imputable to the
employee.79
In light of the factual circumstances of the case at bar,
this Court awards ₱50,000.00 to each private respondent
as nominal damages.
The grant of separation pay as an incidence of
termination of employment due to retrenchment to
prevent losses is a statutory obligation on the part of the
employer and a demandable right on the part of the
employee. Private respondents should thus be awarded
separation pay equivalent to at least one (1) month pay
or to at least one-half month pay for every year of
service, whichever is higher, as mandated by Article 283
of the Labor Code or the separation pay awarded by
SMC to other regular SMC employees that were
terminated as a result of the retrenchment, depending on
which is most beneficial to private respondents.
and severally pay each private respondent differential
pay from the time they became regular employees up
to the date of their termination; separation pay
equivalent to at least one (1) month pay or to at least
one-half month pay for every year of service,
whichever is higher, as mandated by Article 283 of the
Labor Code or the separation pay awarded by SMC to
other regular SMC employees that were terminated as
a result of the retrenchment, depending on which is
most beneficial to private respondents; and ten percent
(10%) attorney’s fees based on the herein modified
award.
Petitioner San Miguel Corporation is further ORDERED
to pay each private respondent the amount of
₱50,000.00, representing nominal damages for non-
compliance with statutory due process.
The award of backwages is DELETED.
SO ORDERED.

Considering that private respondents were not illegally

dismissed, however, no backwages need be awarded. It
is well settled that backwages may be granted only when
there is a finding of illegal dismissal.80 The appellate
court thus erred in awarding backwages to private
respondents upon the authority of Bustamante v.
NLRC,81 what was involved in that case being one of
illegal dismissal.

With respect to attorney’s fees, in actions for recovery of

wages or where an employee was forced to litigate and
thus incurred expenses to protect his rights and
interests,82 a maximum of ten percent (10%) of the total
monetary award83 by way of attorney’s fees is justifiable
under Article 111 of the Labor Code, 84 Section 8, Rule
VIII, Book III of its Implementing Rules, 85 and paragraph
7, Article 2208 of the Civil Code. 86 Although an express
finding of facts and law is still necessary to prove the
merit of the award, there need not be any showing that
the employer acted maliciously or in bad faith when it
withheld the wages. There need only be a showing that
the lawful wages were not paid accordingly, as in this
case.87

Absent any evidence showing that Sunflower has been

dissolved in accordance with law, pursuant to Rule VIII-
A, Section 1988 of the Omnibus Rules Implementing the
Labor Code, Sunflower is held solidarily liable with SMC
for all the rightful claims of private respondents.

WHEREFORE, the petition is DENIED. The assailed

Decision dated February 7, 2001 and Resolution dated
July 11, 2001 of the Court of Appeals are AFFIRMED
with MODIFICATION.

Petitioner San Miguel Corporation and Sunflower Multi-

Purpose Cooperative are hereby ORDERED to jointly

17

INDEPENDENT CONTRACTORS AND LABOR ONLY
CONTRACTS
G.R. No. 145402 March 14, 2008
MERALCO INDUSTRIAL ENGINEERING SERVICES
CORPORATION, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
OFELIA P. LANDRITO GENERAL SERVICES and/or
OFELIA P. LANDRITO, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari
under Rule 45 of the 1997 Revised Rules of Civil
Procedure seeking to reverse and set aside (1) the
Decision1 of the Court of Appeals in CA-G.R. SP No.
50806, dated 24 April 2000, which modified the
Decision2 of the National Labor Relations Commission
(NLRC), dated 30 January 1996 in NLRC NCR CA No.
001737-91 (NLRC NCR Case No. 00-09-04432-89), and
thereby held the petitioner solidarily liable with the private
respondents for the satisfaction of the separation pay of
the latter’s employees; and (2) the Resolution 3 of the
appellate court, dated 27 September 2000, in the same
case which denied the petitioner’s Motion for
Reconsideration.
Petitioner Meralco Industrial Engineering Services
Corporation (MIESCOR) is a corporation duly organized
and existing under the laws of the Republic of the
Philippines and a client of private respondents. Private
respondent Ofelia P. Landrito General Services (OPLGS)
is a business firm engaged in providing and rendering
general services, such as janitorial and maintenance
work to its clients, while private respondent Ofelia P.
Landrito is the Proprietor and General Manager of
OPLGS.
The factual milieu of the present case is as follows:
On 7 November 1984, petitioner and private respondents
executed Contract Order No. 166-84,4 whereby the latter
would supply the petitioner janitorial services, which
include labor, materials, tools and equipment, as well as
supervision of its assigned employees, at petitioner’s
Rockwell Thermal Plant in Makati City. Pursuant thereto,
private respondents assigned their 49 employees as
janitors to petitioner’s Rockwell Thermal Plant with a
daily wage of ₱51.50 per employee.
On 20 September 1989, however, the aforesaid 49
employees (complainants) lodged a Complaint for
illegal deduction, underpayment, non-payment of
overtime pay, legal holiday pay, premium pay for
holiday and rest day and night differentials 5 against the
private respondents before the Labor Arbiter. The case
was docketed as NLRC NCR Case No. 00-09-04432-
89.
In view of the enactment of Republic Act No. 6727, 6 the
contract between the petitioner and the private
respondents was amended7 for the 10th time on 3
November 1989 to increase the minimum daily wage
per employee from ₱63.55 to ₱89.00 or ₱2,670.00 per
month. Two months thereafter, or on 2 January
1990,8petitioner sent a letter to private respondents
informing them that effective at the close of business
hours on 31 January 1990, petitioner was terminating
Contract Order No. 166-84. Accordingly, at the end of
the business hours on 31 January 1990, the
complainants were pulled out from their work at the
petitioner’s Rockwell Thermal Plant. Thus, on 27
February 1990, complainants amended their Complaint
to include the charge of illegal dismissal and to implead
the petitioner as a party respondent therein.
Since the parties failed to settle amicably before the
Labor Arbiter, they submitted their respective position
papers and other pleadings together with their
documentary evidence. Thereafter, a Decision was
rendered by the Labor Arbiter on 26 March 1991,
dismissing the Complaint against the petitioner for lack
of merit, but ordering the private respondents to pay
the complainants the total amount of ₱487,287.07
representing unpaid wages, separation pay and
overtime pay; as well as attorney’s fees in an amount
equivalent to 10% of the award or ₱48,728.70. All other
claims of the complainants against the private
respondents were dismissed. 9
Feeling aggrieved, private respondents appealed the
aforesaid Decision to the NLRC. Private respondents
alleged, among other things, that: (1) 48 of the 49
complainants had executed affidavits of desistance and
they had never attended any hearing nor given any
authority to anyone to file a case on their behalf; (2) the
Labor Arbiter erred in not conducting a full-blown
hearing on the case; (3) there is only one complainant
in that case who submitted a position paper on his
own; (4) the complainants were not constructively
dismissed when they were not given assignments
within a period of six months, but had abandoned their
jobs when they failed to report to another place of
assignment; and (5) the petitioner, being the principal,
was solidarily liable with the private respondents for
failure to make an adjustment on the wages of the
complainants.10 On 28 May 1993, the NLRC issued a
Resolution11 affirming the Decision of the Labor Arbiter
dated 26 March 1991 with the modification that the
petitioner was solidarily liable with the private
respondents, ratiocinating thus:
18
We, however, disagree with the dismissal of the case monetary awards granted to the complainants, in
against [herein petitioner]. Under Art. 107 12 of the Labor accordance with the NLRC Order dated 30 July 1993.
Code of the Philippines, [herein petitioner] is considered
an indirect employer and can be held solidarily liable with On 5 October 1994, the Labor Arbiter issued an
[private respondents] as an independent Order,20 which reads:
contractor. Under Art. 109,13 for purposes of determining
the extent of its liability, [herein petitioner] is considered a As can be gleaned from the Resolution dated [28 May
direct employer, hence, it is solidarily liable for 1993], there is that necessity of clarifying the
complainant’s (sic) wage differentials and unpaid respective liabilities of [herein petitioner] and [herein
overtime. We find this situation obtaining in this case in private respondents] insofar as the judgment award in
view of the failure of [private respondents] to pay in full the total sum of ₱487,287.07 is concerned.
the labor standard benefits of complainants, in which
case liability is limited thereto and does not extend to the
The judgment award in the total sum of ₱487,287.07
establishment of employer-employee
as contained in the Decision dated [26 March 1991]
relations.14 [Emphasis supplied].
consists of three (3) parts, as follows: First, the
judgment award on the underpayment; Second, the
Both private respondents and petitioner separately judgment award on separation pay; and Third, the
moved for reconsideration of the aforesaid Resolution of judgment award on the overtime pay.
the NLRC. In their Motion for Reconsideration, private
respondents reiterated that the complainants abandoned
The question now is: Which of these awards is
their work, so that private respondents should not be
[petitioner] solidarily liable with [private respondents]?
liable for separation pay; and that petitioner, not private
respondents, should be liable for complainants’ other
monetary claims, i.e., for wage differentials and unpaid An examination of the record elicits the finding that
overtime. The petitioner, in its own Motion for [petitioner] is solidarily liable with [private respondents]
Reconsideration, asked that it be excluded from liability. on the judgment awards on the underpayment and on
It averred that private respondents should be solely the non-payment of the overtime pay. xxx. This joint
responsible for their acts as it sufficiently paid private and several liability of the contractor [private
respondents all the benefits due the complainants. respondents] and the principal [petitioner] is mandated
by the Labor Code to assure compliance of the
provisions therein, including the statutory minimum
On 30 July 1993, the NLRC issued an Order 15 noting that
wage (Art. 99,21 Labor Code). The contractor-agency is
based on the records of the case, the judgment award in
made liable by virtue of his status as direct employer.
the amount of ₱487,287.07 was secured by a surety
The principal, on the other hand, is made the indirect
bond posted by the private respondents; 16 hence, there
employer of the contractor-agency’s employees for
was no longer any impediment to the satisfaction of the
purposes of paying the employees their wages should
complainants’ claims. Resultantly, the NLRC denied the
the contractor-agency be unable to pay them. This joint
private respondents’ Motion for Reconsideration. The
and several liability facilitates, if not guarantees,
NLRC likewise directed the Labor Arbiter to enforce the
payment of the workers performance of any work, task,
monetary award against the private respondents’ surety
job or project, thus giving the workers ample protection
bond and to determine who should finally shoulder the
as mandated by the 1987 Constitution.
liability therefor.17
In sum, the complainants may enforce the judgment
Alleging grave abuse of discretion of the NLRC in its
award on underpayment and the non-payment of
issuance of the Resolution and Order dated 28 May 1993
overtime pay against either [private respondents]
and 30 July 1993, respectively, private respondents filed
and/or [petitioner].
before this Court a Petition for Certiorari with prayer for
the issuance of a writ of preliminary injunction. The same
was docketed as G.R. No. 111506 entitled Ofelia Landrito However, in view of the finding in the Decision that
General Services v. National Labor Relations [petitioner] had adjusted its contract price for the
Commission. The said Petition suspended the janitorial services it contracted with [private
proceedings before the Labor Arbiter. respondents] conforming to the provisions of Republic
Act No. 6727, should the complainants enforce the
judgment on the underpayment and on the non-
On 23 May 1994, however, this Court issued a
payment of the overtime pay aginst (sic) [petitioner],
Resolution18 dismissing G.R. No. 111506 for failure of
the latter can seek reimbursement from the former
private respondents to sufficiently show that the NLRC
[meaning (private respondents)], but should the
had committed grave abuse of discretion in rendering its
judgment award on the underpayment and on the non-
questioned judgment. This Court’s Resolution in G.R. No.
payment of the overtime pay be enforced against
111506 became final and executory on 25 July 1994. 19
[private respondents], the latter cannot seek
reimbursement against [petitioner].
As a consequence thereof, the proceedings before the
Labor Arbiter resumed with respect to the determination
of who should finally shoulder the liability for the
19
The judgment award on separation pay is the sole
liability of [private respondents].
WHEREFORE, [petitioner] is jointly and severally liable
with [private respondents] in the judgment award on
underpayment and on the non-payment of overtime pay.
Should the complainants enforce the above judgment
award against [petitioner], the latter can seek
reimbursement against [private respondents], but should
the aforementioned judgment award be enforced against
[private respondents], the latter cannot seek
reimbursement from the [petitioner].
The judgment award on the payment of separation pay is
the sole liability of [private respondents].
Let an alias writ of execution be issued. [Emphasis
supplied].
Again, both the private respondents and the petitioner
appealed the afore-quoted Order of the Labor Arbiter to
the NLRC. On 25 April 1995, the NLRC issued a
Resolution22 affirming the Order dated 5 October 1994 of
the Labor Arbiter and dismissing both appeals for non-
posting of the appeal or surety bond and/or for utter lack
of merit.23 When the private respondents and the
petitioner moved for reconsideration, however, it was
granted by the NLRC in its Order24 dated 27 July 1995.
The NLRC thus set aside its Resolution dated 25 April
1995, and directed the private respondents and the
petitioner to each post an appeal bond in the amount of
₱487,287.62 to perfect their respective appeals. 25 Both
parties complied.26
On 30 January 1996, the NLRC rendered a Decision
modifying the Order of the Labor Arbiter dated 5 October
1994, the dispositive portion of which reads:
WHEREFORE, the [21 November 1994] appeal of
[herein petitioner] is hereby granted. The [5 October
1994] Order of Labor Arbiter Donato G. Quinto, Jr., is
modified to the extent that it still held [petitioner] as
"jointly and severally liable with [herein private
respondents] in the judgment award on underpayment
and on the non-payment of overtime pay," our directive
being that the Arbiter should now satisfy said labor-
standards award, as well as that of the separation
pay, exclusively through the surety bond posted by
[private respondents].27 [Emphasis supplied].
Dissatisfied, private respondents moved for the
reconsideration of the foregoing Decision, but it was
denied by the NLRC in an Order28 dated 30 October
1996. This NLRC Order dated 30 October 1996 became
final and executory on 29 November 1996.
On 4 December 1996, private respondents filed a
Petition for Certiorari29 before this Court assailing the
Decision and the Order of the NLRC dated 30 January
1996 and 30 October 1996, respectively. On 9 December
1998, this Court issued a Resolution30 referring the case
to the Court of Appeals conformably with its ruling in St.
Martin Funeral Home v. National Labor Relations
Commission.31 The case was docketed before the
appellate court as CA-G.R. SP No. 50806.
The Petition made a sole assignment of error, to wit:
THE HONORABLE COMMISSION GRAVELY ERRED
AND GRAVELY ABUSED ITS DISCRETION IN
FINDING THAT THE ULTIMATE LIABILITY SHOULD
FALL ON THE [HEREIN PRIVATE RESPONDENTS]
ALONE, WITHOUT REIMBURSEMENT FROM THE
[HEREIN PETITIONER], IN ORDER TO SATISFY THE
MONETARY AWARDS OF THE [THEREIN
COMPLAINANTS].32
After due proceedings, the Court of Appeals rendered
the assailed Decision on 24 April 2000, modifying the
Decision of the NLRC dated 30 January 1996 and
holding the petitioner solidarily liable with the private
respondents for the satisfaction of the laborers’
separation pay. According to the Court of Appeals:
The [NLRC] adjudged the payment of separation pay to
be the sole responsibility of [herein private
respondents] because (1) there is no employer-
employee relationship between [herein petitioner] and
the forty-nine (49) [therein complainants]; (2) the
payment of separation pay is not a labor standard
benefit. We disagree.
Again, We quote Article 109 of the Labor Code, as
amended, viz:
"The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer
shall be held responsible with his contractor or
subcontractor for any violation of any provision of this
Code…"
The abovementioned statute speaks of "any violation of
any provision of this Code." Thus, the existence or non-
existence of employer-employee relationship and
whether or not the violation is one of labor standards is
immaterial because said provision of law does not
make any distinction at all and, therefore, this Court
should also refrain from making any distinction.
Concomitantly, [herein petitioner] should be jointly and
severally liable with [private respondents] for the
payment of wage differentials, overtime pay and
separation pay of the [therein complainants]. The joint
and several liability imposed to [petitioner] is, again,
without prejudice to a claim for reimbursement by
[petitioner] against [private respondents] for reasons
already discusses (sic).
WHEREFORE, premises studiedly considered, the
assailed 30 January 1996 decision of [the NLRC] is
hereby modified insofar as [petitioner] should be held
solidarily liable with [the private respondents] for the
20
satisfaction of the laborers’ separation pay. No
pronouncement as to costs.33 [Emphasis supplied].
The petitioner filed a Motion for Reconsideration of the
aforesaid Decision but it was denied by the Court of
Appeals in a Resolution dated 27 September 2000.
Petitioner now comes before this Court via a Petition for
Review on Certiorari, docketed as G.R. No. 145402,
raising the sole issue of "whether or not the Honorable
Court of Appeals palpably erred when it went beyond the
issues of the case as it modified the factual findings of
the Labor Arbiter which attained finality after it was
affirmed by Public Respondent NLRC and by the
Supreme Court which can no longer be disturbed as it
became the law of the case."34
Petitioner argues that in the assailed Decision dated 24
April 2000, the Court of Appeals found that the sole issue
for its resolution was whether the ultimate liability to pay
the monetary awards in favor of the 49 employees falls
on the private respondents without reimbursement from
the petitioner. Hence, the appellate court should have
limited itself to determining the right of private
respondents to still seek reimbursement from petitioner
for the monetary awards on the unpaid wages and
overtime pay of the complainants.
According to petitioner, the NLRC, in its Resolution dated
28 May 1993, already found that petitioner had fully
complied with its salary obligations to the complainants.
Petitioner invokes the same NLRC Resolution to support
its claim that it was not liable to share with the private
respondents in the payment of separation pay to
complainants. When private respondents questioned the
said NLRC Resolution in a Petition for Certiorari with this
Court, docketed as G.R. No. 111506, this Court found
that the NLRC did not commit grave abuse of discretion
in the issuance thereof and accordingly dismissed private
respondents’ Petition. Said NLRC Resolution, therefore,
has since become final and executory and can no longer
be disturbed for it now constitutes the law of the case.
Assuming for the sake of argument that the Court of
Appeals can still take cognizance of the issue of
petitioner’s liability for complainants’ separation pay,
petitioner asserts that the appellate court seriously erred
in concluding that it is jointly and solidarily liable with
private respondents for the payment thereof. The
payment of separation pay should be the sole
responsibility of the private respondents because there
was no employer-employee relationship between the
petitioner and the complainants, and the payment of
separation pay is not a labor standards benefit.
Law of the case has been defined as the opinion
delivered on a former appeal. It is a term applied to an
established rule that when an appellate court passes on
a question and remands the case to the lower court for
further proceedings, the question there settled becomes
the law of the case upon subsequent appeal. It means
that whatever is once irrevocably established as the
controlling legal rule or decision between the same
parties in the same case continues to be the law of the
case, whether correct on general principles or not, so
long as the facts on which such decision was
predicated continue to be the facts of the case before
the court.35 Indeed, courts must adhere thereto,
whether the legal principles laid down were "correct on
general principles or not" or "whether the question is
right or wrong" because public policy, judicial
orderliness and economy require such stability in the
final judgments of courts or tribunals of competent
jurisdiction.36
Petitioner’s application of the law of the case principle
to the case at bar as regards its liability for payment of
separation pay is misplaced.
The only matters settled in the 23 May 1994 Resolution
of this Court in G.R. No. 111506, which can be
regarded as the law of the case, were (1) both the
petitioner and the private respondents were jointly and
solidarily liable for the judgment awards due the
complainants; and (2) the said judgment awards shall
be enforced against the surety bond posted by the
private respondents. However, the issue as regards the
liability of the petitioner for payment of separation pay
was yet to be resolved because precisely, the NLRC, in
its Order dated 30 July 1993, still directed the Labor
Arbiter to make a determination on who should finally
shoulder the monetary awards granted to the
complainants. And it was only after G.R. No. 111506
was dismissed by this Court that the Labor Arbiter
promulgated his Decision dated 5 October 1994,
wherein he clarified the respective liabilities of the
petitioner and the private respondents for the judgment
awards. In his 5 October 1994 Decision, the Labor
Arbiter explained that the solidary liability of the
petitioner was limited to the monetary awards for wage
underpayment and non-payment of overtime pay due
the complainants, and it did not, in any way, extend to
the payment of separation pay as the same was the
sole liability of the private respondents.
Nonetheless, this Court finds the present Petition
meritorious.
The Court of Appeals indeed erred when it ruled that
the petitioner was jointly and solidarily liable with the
private respondents as regards the payment of
separation pay.
The appellate court used as basis Article 109 of the
Labor Code, as amended, in holding the petitioner
solidarily liable with the private respondents for the
payment of separation pay:
ART. 109. Solidary Liability. - The provisions of existing
laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any
21
provision of this Code. For purposes of determining the
extent of their civil liability under this Chapter, they shall
be considered as direct employers. [Emphasis
supplied].1avvphi1
However, the afore-quoted provision must be read in
conjunction with Articles 106 and 107 of the Labor Code,
as amended.
Article 107 of the Labor Code, as amended, defines an
indirect employer as "any person, partnership,
association or corporation which, not being an employer,
contracts with an independent contractor for the
performance of any work, task, job or project." To ensure
that the contractor’s employees are paid their
appropriate wages, Article 106 of the Labor Code, as
amended, provides:
ART. 106. CONTRACTOR OR SUBCONTRACTOR. – x
x x.
In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable
with his contractor or subcontractor to such employees to
the extent of the work performed under the contract, in
the same manner and extent that he is liable to
employees directly employed by him. [Emphasis
supplied].
Taken together, an indirect employer (as defined by
Article 107) can only be held solidarily liable with the
independent contractor or subcontractor (as provided
under Article 109) in the event that the latter fails to pay
the wages of its employees (as described in Article 106).
Hence, 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. The
petitioner may be considered an indirect employer only
for purposes of unpaid wages. As this Court succinctly
explained in Philippine Airlines, Inc. v. National Labor
Relations Commission37:
While USSI is an independent contractor under the
security service agreement and PAL may be considered
an indirect employer, that status did not make PAL the
employer of the security guards in every respect. As
correctly posited by the Office of the Solicitor General,
PAL may be considered an indirect employer only for
purposes of unpaid wages since Article 106, which is
applicable to the situation contemplated in Section 107,
speaks of wages.The concept of indirect employer only
relates or refers to the liability for unpaid wages. Read
together, Articles 106 and 109 simply mean that the party
with whom an independent contractor deals is solidarily
liable with the latter for unpaid wages, and only to that
extent and for that purpose that the latter is considered a
direct employer. The term "wage" is defined in Article
97(f) of the Labor Code as "the remuneration of
earnings, however designated, capable of being
expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission
basis, or other method of calculating the unwritten
contract of employment for work done or to be done, or
for services rendered or to be rendered and includes
the fair and reasonable value, as determined by the
Secretary of Labor, of board, lodging, or other facilities
customarily furnished by the employer to the
employee."
Further, there is no question that private respondents
are operating as an independent contractor and that
the complainants were their employees. There was no
employer-employee relationship that existed between
the petitioner and the complainants and, thus, the
former could not have dismissed the latter from
employment. Only private respondents, as the
complainants’ employer, can terminate their services,
and should it be done illegally, be held liable therefor.
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,
thus:
The liability arising from an illegal dismissal is unlike an
order to pay the statutory minimum wage, because the
workers’ right to such wage is derived from law. The
proposition that payment of back wages and separation
pay should be covered by Article 109, which holds an
indirect employer solidarily responsible with his
contractor or subcontractor for "any violation of any
provision of this Code," would have been tenable if
there were proof - there was none in this case - that the
principal/employer had conspired with the contractor in
the acts giving rise to the illegal dismissal. 38
It is the established fact of conspiracy that will tie the
principal or indirect employer to the illegal dismissal of
the contractor or subcontractor’s 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.
Neither can the liability for the separation pay of the
complainants be extended to the petitioner based on
contract. Contract Order No. 166-84 executed between
the petitioner and the private respondents contains no
provision for separation pay in the event that the
petitioner terminates the same. It is basic that a
contract is the law between the parties and the
stipulations therein, provided that they are not contrary
to law, morals, good customs, public order or public
policy, shall be binding as between the
parties.39 Hence, if the contract does not provide for
such a liability, this Court cannot just read the same
into the contract without possibly violating the intention
of the parties.
22
It is also worth noting that although the issue in CA-G.R.
SP No. 50806 pertains to private respondents’ right to
reimbursement from petitioner for the "monetary awards"
in favor of the complainants, they limited their arguments
to the monetary awards for underpayment of wages and
non-payment of overtime pay, and were conspicuously
silent on the monetary award for separation pay. Thus,
private respondents’ sole liability for the separation pay
of their employees should have been deemed settled
and already beyond the power of the Court of Appeals to
resolve, since it was an issue never raised before it.40
This Court is not a trier of facts. Well-settled is the rule
that the jurisdiction of this Court in a petition for review
oncertiorari under Rule 45 of the Revised Rules of
Court is limited to reviewing only errors of law, not of
fact, unless the factual findings complained of are
completely devoid of support from the evidence on
record, or the assailed judgment is based on a gross
misapprehension of facts. Besides, factual findings of
quasi-judicial agencies like the NLRC, when affirmed
by the Court of Appeals, are conclusive upon the
parties and binding on this Court.47

Although petitioner is not liable for complainants’
separation pay, the Court conforms to the consistent
findings in the proceedings below that the petitioner is
solidarily liable with the private respondents for the
judgment awards for underpayment of wages and non-
payment of overtime pay.
Having already received from petitioner the correct
amount of wages and benefits, but having failed to turn
them over to the complainants, private respondents
should now solely bear the liability for the
underpayment of wages and non-payment of the
overtime pay.

In this case, however, private respondents had already WHEREFORE, premises considered, the instant
posted a surety bond in an amount sufficient to cover all Petition is hereby GRANTED. The Decision and
the judgment awards due the complainants, including Resolution of the Court of Appeals dated 24 April 2000
those for underpayment of wages and non-payment of and 27 September 2000, respectively, in CA-G.R. SP
overtime pay. The joint and several liability of the No. 50806, are hereby REVERSED AND SET ASIDE.
principal with the contractor and subcontractor were The Decision dated 30 January 1996 of the National
enacted to ensure compliance with the provisions of the Labor Relations Commission in NLRC NCR CA No.
Labor Code, principally those on statutory minimum 001737-91 (NLRC NCR Case No. 00-09-04432-89) is
wage. This liability facilitates, if not guarantees, payment hereby REINSTATED. No costs.
of the workers’ compensation, thus, giving the workers
ample protection as mandated by the 1987 SO ORDERED.
Constitution.41 With private respondents’ surety bond, it
can therefore be said that the purpose of the Labor Code
provision on the solidary liability of the indirect employer
is already accomplished since the interest of the
complainants are already adequately protected.
Consequently, it will be futile to continuously hold the
petitioner jointly and solidarily liable with the private
respondents for the judgment awards for underpayment
of wages and non-payment of overtime pay.

But while this Court had previously ruled that the indirect
employer can recover whatever amount it had paid to the
employees in accordance with the terms of the service
contract between itself and the contractor, 42 the said
ruling cannot be applied in reverse to this case as to
allow the private respondents (the independent
contractor), who paid for the judgment awards in full, to
recover from the petitioner (the indirect employer).

Private respondents have nothing more to recover from

petitioner.

Petitioner had already handed over to private respondent

the wages and other benefits of the complainants.
Records reveal that it had complied with complainants’
salary increases in accordance with the minimum wage
set by Republic Act No. 6727 by faithfully adjusting the
contract price for the janitorial services it contracted with
private respondents. 43 This is a finding of fact made by
the Labor Arbiter,44 untouched by the NLRC45 and
explicitly affirmed by the Court of Appeals, 46 and which
should already bind this Court.
23

INDEPENDENT CONTRACTORS AND LABOR ONLY
CONTRACTS
G.R. No. 145271 July 14, 2005
MANILA ELECTRIC COMPANY, Petitioner,
vs.
ROGELIO BENAMIRA, ERNIE DE SAGUN1,
DIOSDADO YOGARE, FRANCISCO MORO2, OSCAR
LAGONOY3, Rolando Beni, Alex Beni, Raul4 Guia,
Armed Security & Detective Agency, Inc., (ASDAI)
and Advance FORCES Security & INVESTIGATION
Services, Inc., (AFSISI), Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule
45 of the Rules of Court assailing the Decision, 5 dated
September 27, 2000, of the Court of Appeals (CA) in CA-
G.R. SP No. 50520 which declared petitioner Manila
Electric Company (MERALCO) as the direct employer of
individual respondents Rogelio Benamira, Ernie De
Sagun, Diosdado Yogare, Francisco Moro, Oscar
Lagonoy, Rolando Beni, Alex Beni and Raul De Guia
(individual respondents for brevity).
The factual background of the case is as follows:
The individual respondents are licensed security guards
formerly employed by People’s Security, Inc. (PSI) and
deployed as such at MERALCO’s head office in Ortigas
Avenue, Pasig, Metro Manila.
On November 30, 1990, the security service agreement
between PSI and MERALCO was terminated.
Immediately thereafter, fifty-six of PSI’s security guards,
including herein eight individual respondents, filed a
complaint for unpaid monetary benefits against PSI and
MERALCO, docketed as NLRC-NCR Case No. 05-
02746-90.
Meanwhile, the security service agreement between
respondent Armed Security & Detective Agency, Inc.,
(ASDAI) and MERALCO took effect on December 1,
1990. In the agreement, ASDAI was designated as the
AGENCY while MERALCO was designated as the
COMPANY. The pertinent terms and conditions of the
agreement are as follows:
1. The AGENCY shall initially provide the COMPANY
with TWO HUNDRED TWENTY (220) licensed,
uniformed, bonded and armed security guards to be
assigned at the COMPANY’s "MERALCO CENTER,"
complete with nightsticks, flashlights, raincoats, and
other paraphernalias to work on eight (8) hours duty.
The COMPANY shall determine the number of security
guards in accordance with its needs and the areas of
responsibility assigned to each, and shall have the
option to increase or decrease the number of guards at
any time provided the AGENCY is notified within twenty
four (24) hours of the contemplated reduction or
increase of the guards in which case the cost or
consideration shall be adjusted accordingly.
2. The COMPANY shall furnish the AGENCY copies of
written specific instruction to be followed or
implemented by the latter’s personnel in the discharge
of their duties and responsibilities and the AGENCY
shall be responsible for the faithful compliance
therewith by its personnel together with such general
and specific orders which shall be issued from time to
time.
3. For and in consideration of the services to be
rendered by the AGENCY to the COMPANY, the
COMPANY during the term of this contract shall pay
the AGENCY the amount of THREE THOUSAND
EIGHT HUNDRED PESOS (₱3,800.00) a month per
guard, FOUR THOUSAND PESOS (₱4,000.00) for the
Shift Leader and FOUR THOUSAND TWO HUNDRED
PESOS (₱4,200.00) for the Detachment Commander
for eight (8) hours work/day, Saturdays, Sundays and
Holidays included, payable semi-monthly.
xxx
5. The AGENCY shall assume the responsibility for the
proper and efficient performance of duties by the
security guards employed by it and it shall be solely
responsible for any act of said security guards during
their watch hours, the COMPANY being specifically
released from any and all liability to third parties arising
from the acts or omission of the security guards of the
AGENCY.
6. The AGENCY also agrees to hold the COMPANY
entirely free from any liability, cause or causes of action
or claims which may be filed by said security guards by
reason of their employment with the AGENCY pursuant
to this Agreement or under the provisions of the Labor
Code, the Social Security Act, and other laws, decrees
or social legislations now enacted or which hereafter
may be enacted.
7. Discipline and Administration of the security guards
shall conform with the rules and regulations of the
AGENCY, and the COMPANY reserves the right to
24
require without explanation the replacement of any guard
whose behavior, conduct or appearance is not
satisfactory to the COMPANY and that the AGENCY
cannot pull-out any security guard from the COMPANY
without the consent of the latter.
8. The AGENCY shall conduct inspections through its
duly authorized inspector at least two (2) times a week of
guards assigned to all COMPANY installations secured
by the AGENCY located in the Metropolitan Manila area
and at least once a week of the COMPANY’s installations
located outside of the Metropolitan Manila area and to
further submit its inspection reports to the COMPANY.
Likewise, the COMPANY shall have the right at all times
to inspect the guards of the AGENCY assigned to the
COMPANY.
9. The said security guards shall be hired by the
AGENCY and this contract shall not be deemed in any
way to constitute a contract of employment between the
COMPANY and any of the security guards hired by the
AGENCY but merely as a contract specifying the
conditions and manner under which the AGENCY shall
render services to the COMPANY.
10. Nothing herein contained shall be understood to
make the security guards under this Agreement,
employees of the COMPANY, it being clearly understood
that such security guards shall be considered as they
are, employees of the AGENCY alone, so that the
AGENCY shall be responsible for compliance with all
pertinent labor laws and regulations included but not
limited to the Labor Code, Social Security Act, and all
other applicable laws and regulations including that
providing for a withholding tax on income.
xxx
13. This contract shall take effect on the 1st day of
December, 1990 and shall continue from year to year
unless sooner terminated by the COMPANY for cause or
otherwise terminated by either party without cause upon
thirty (30) days written notice by one party to the other. 6
Subsequently, the individual respondents were absorbed
by ASDAI and retained at MERALCO’s head office.
On June 29, 1992, Labor Arbiter Manuel P. Asuncion
rendered a decision in NLRC-NCR Case No. 05-02746-
90 in favor of the former PSI security guards, including
the individual respondents.
Less than a month later, or on July 21, 1992, the
individual respondents filed another complaint for unpaid
monetary benefits, this time against ASDAI and
MERALCO, docketed as NLRC-NCR Case No. 00-07-
03953-92.
On July 25, 1992, the security service agreement
between respondent Advance Forces Security &
Investigation Services, Inc. (AFSISI) and MERALCO took
effect, terminating the previous security service
agreement with ASDAI.7 Except as to the number of
security guards,8 the amount to be paid the
agency,9 and the effectivity of the agreement, 10 the
terms and conditions were substantially identical with
the security service agreement with ASDAI.
On July 29, 1992, the individual respondents amended
their complaint to implead AFSISI as party respondent.
On August 11, 1992 they again amended their
complaint to allege that AFSISI terminated their
services on August 6, 1992 without notice and just
cause and therefore guilty of illegal dismissal.
The individual respondents alleged that: MERALCO
and ASDAI never paid their overtime pay, service
incentive leave pay, premium pay for Sundays and
Holidays, ₱50.00 monthly uniform allowance and
underpaid their 13th month pay; on July 24, 1992,
when the security service agreement of ASDAI was
terminated and AFSISI took over the security functions
of the former on July 25, 1992, respondent security
guard Benamira was no longer given any work
assignment when AFSISI learned that the former has a
pending case against PSI, in effect, dismissing him
from the service without just cause; and, the rest of the
individual respondents were absorbed by AFSISI but
were not given any assignments, thereby dismissing
them from the service without just cause.
ASDAI denied in general terms any liability for the
claims of the individual respondents, claiming that
there is nothing due them in connection with their
services.
On the other hand, MERALCO denied liability on the
ground of lack of employer-employee relationship with
individual respondents. It averred that the individual
respondents are the employees of the security
agencies it contracted for security services; and that it
has no existing liability for the individual respondents’
claims since said security agencies have been fully
paid for their services per their respective security
service agreement.
For its part, AFSISI asserted that: it is not liable for
illegal dismissal since it did not absorb or hire the
individual respondents, the latter were merely hold-
over guards from ASDAI; it is not obliged to employ or
absorb the security guards of the agency it replaced
since there is no provision in its security service
agreement with MERALCO or in law requiring it to
absorb and hire the guards of ASDAI as it has its own
guards duly trained to service its various clients.
On January 3, 1994, after the submission of their
respective evidence and position papers, Labor Arbiter
Pablo C. Espiritu, Jr. rendered a Decision holding
ASDAI and MERALCO jointly and solidarily liable to the
monetary claims of individual respondents and
25
dismissing the complaint against AFSISI. The dispositive
portion of the decision reads as follows:
WHEREFORE, conformably with the above premises,
judgment is hereby rendered:
Individual respondents’ partial appeal assailed solely
the Labor Arbiter’s declaration that ASDAI is their
employer. They insisted that AFSISI is the party liable
for their illegal dismissal and should be the party
directed to reinstate them.

1. Declaring ASDAI as the employer of the complainants
and as such complainants should be reinstated as
regular security guards of ASDAI without loss of seniority
rights, privileges and benefits and for ASDAI to
immediately post the complainants as security guards
with their clients. The complaint against AFSISI is
Dismissed for lack of merit.
2. Ordering both respondents, ASDAI and MERALCO to
jointly and solidarily pay complainants monetary claims
(underpayment of actual regular hours and overtime
hours rendered, and premium pay for holiday and rest
day) in the following amounts:
NAME OVERTIME DIFFERENTIALS AND
PREMIUM PAY FOR HOLIDAY & REST DAY
For its part, MERALCO attributed grave abuse of
discretion on the part of the Labor Arbiter in failing to
consider the absence of employer-employee
relationship between MERALCO and individual
respondents.
On the other hand, ASDAI took exception from the
Labor Arbiter’s finding that it is the employer of the
individual respondents and therefore liable for the
latter’s unpaid monetary benefits.
On April 10, 1995, the NLRC affirmed in toto the
decision of the Labor Arbiter. 12 On April 19, 1995, the
individual respondents filed a motion for partial
reconsideration but it was denied by the NLRC in a
Resolution dated May 23, 1995.13

On August 11, 1995, the individual respondents filed a

1. Rogelio Benamira P14,615.75 petition for certiorari before us, docketed as G.R. No.
121232.14 They insisted that they were absorbed by
AFSISI and the latter effected their termination without
2. Ernie De Sagun 21,164.31 notice and just cause.

3. Diosdado Yogare 7,108.77 After the submission of the responsive pleadings and
memoranda, we referred the petition, in accordance
4. Francisco Maro 26,567.11 with St. Martin Funeral Homes vs. NLRC,15 to the CA
which, on September 27, 2000, modified the decision
5. Oscar Lagonay 18,863.36 of the NLRC by declaring MERALCO as the direct
employer of the individual respondents.
6. Rolando Beni 21,834.12
The CA held that: MERALCO changed the security
agency manning its premises three times while
7. Alex Beni 21,648.80 engaging the services of the same people, the
individual respondents; MERALCO employed a
8. Ruel De Guia 14,200.33 scheme of hiring guards through an agency and
periodically entering into service contract with one
3. Ordering Respondents ASDAI and MERALCO to agency after another in order to evade the security of
jointly and solidarily pay complainants 10% attorney’s tenure of individual respondents; individual
fees in the amount of ₱14,600.25 based on the total respondents are regular employees of MERALCO
monetary award due to the complainants in the amount since their services as security guards are usually
of ₱146,002.55. necessary or desirable in the usual business or trade of
MERALCO and they have been in the service of
All other claims of the complainants are hereby MERALCO for no less than six years; an employer-
DISMISSED for lack of merit. employee relationship exists between MERALCO and
the individual respondents because: (a) MERALCO
had the final say in the selection and hiring of the
The counter-claim of respondent AFSISI for damages is
guards, as when its advice was proved to have carried
hereby dismissed for want of substantial evidence to
weight in AFSISI’s decision not to absorb the individual
justify the grant of damages.
respondents into its workforce; (b) MERALCO paid the
wages of individual respondents through ASDAI and
SO ORDERED.11 AFSISI; (c) MERALCO’s discretion on matters of
dismissal of guards was given great weight and even
All the parties, except AFSISI, appealed to the National finality since the record shows that the individual
Labor Relations Commission (NLRC). respondents were replaced upon the advice of
MERALCO; and, (d) MERALCO has the right, at any

26
time, to inspect the guards, to require without explanation
the replacement of any guard whose behavior, conduct
or appearance is not satisfactory and ASDAI and AFSISI
cannot pull out any security guard from MERALCO
without the latter’s consent; and, a labor-only contract
existed between ASDAI and AFSISI and MERALCO,
such that MERALCO is guilty of illegal dismissal without
just cause and liable for reinstatement of individual
respondents to its workforce.
The dispositive portion of the CA’s Decision reads as
follows:
WHEREFORE, in view of the foregoing premises, the
Resolution subject of this petition is hereby AFFIRMED
with MODIFICATION in the sense that MERALCO is
declared the employer of the petitioners. Accordingly,
private respondent MERALCO is hereby ordered as
follows:
1. To reinstate petitioners into MERALCO’s work force as
regular security guards without loss of seniority rights
and other privileges; and
2. To pay the petitioners’ full backwages, inclusive of
allowances, and other benefits or their monetary
equivalent computed from the time their compensation
was withheld from them up to the time of their actual
reinstatement, for which the Labor Arbiter Pablo C.
Espiritu, Jr. is hereby directed to undertake the
necessary computation and enforcement thereof.
With respect to the rest of the dispositive portion of the
assailed Resolution which affirmed the decision of the
Labor Arbiter Pablo C. Espiritu, Jr., particularly the joint
and solidary liabilities of both ASDAI and MERALCO to
the petitioners, the same are hereby AFFIRMED.
SO ORDERED.16
Hence, the present petition for review on certiorari, filed
by MERALCO, anchored on the following grounds:
A. THE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR AND GRAVE ABUSE OF
DISCRETION IN HOLDING THAT AN EMPLOYER-
EMPLOYEE RELATIONSHIP EXISTS BETWEEN
PETITIONER MERALCO AND INDIVIDUAL
RESPONDENTS.
B. THE COURT OF APPEALS GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT INDIVIDUAL
RESPONDENTS ARE REGULAR EMPLOYEES OF
PETITIONER MERALCO.
C. THE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR IN ALLOWING INDIVIDUAL
RESPONDENTS TO RAISE FOR THE FIRST TIME ON
APPEAL, THE ISSUE THAT PETITIONER WAS THEIR
DIRECT EMPLOYER.
D. THE COURT OF APPEALS COMMITTED
SERIOUS ERROR IN FINDING THAT PETITIONER
MERALCO IS GUILTY OF ILLEGAL DISMISSAL.
E. THE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT INDIVIDUAL RESPONDENTS ARE
ENTITLED TO REINSTATEMENT INTO
PETITIONER’S WORKFORCE.
F. THE COURT OF APPEALS SERIOUSLY ERRED IN
NOT FINDING THAT PETITIONER MERALCO IS
ENTITLED TO REIMBURSEMENT FROM
RESPONDENT ASDAI FOR THE MONETARY
CLAIMS PETITIONER PAID TO INDIVIDUAL
RESPONDENTS PURSUANT TO THE SECURITY
SERVICE AGREEMENT.17
Anent the first ground, MERALCO submits that the
elements of "four-fold" test to determine the existence
of an employer-employee relation, namely: (1) the
power to hire, (2) the payment of wages, (3) the power
to dismiss, and (4) the power to control, are not present
in the instant case.
Regarding the power to hire, MERALCO contends that
the records are bereft of any evidence that shows that
it participated in or influenced the decision of PSI and
ASDAI to hire or absorb the individual respondents.
As to the payment of wages, MERALCO maintains that
the individual respondents received their wages from
their agency.
With regard to the power to dismiss, MERALCO argues
that the security service agreement clearly provided
that the discipline and administration of the security
guards shall conform to the rules and regulations of the
agency.
Concerning the power of control, MERALCO asserts
that there is no evidence that individual respondents
were subjected to its control as to the manner or
method by which they conduct or perform their work of
guarding of MERALCO’s premises.
Furthermore, MERALCO insists that ASDAI and AFSISI
are not labor-only contractors since they have their
own equipment, machineries and work premises which
are necessary in the conduct of their business and the
duties performed by the security guards are not
necessary in the conduct of MERALCO’s principal
business.
With respect to the second ground, MERALCO argues
that the individual respondents cannot be considered
as regular employees as the duties performed by them
as security guards are not necessary in the conduct of
MERALCO’s principal business which is the distribution
of electricity.
27
As regards the third ground, MERALCO argues that it
was denied due process when the individual respondents
raised for the first time in the CA the issue that
MERALCO is their direct employer since the individual
respondents have always considered themselves as
employees of AFSISI and nowhere in the Labor Arbiter or
the NLRC did they raise the argument that MERALCO is
their direct employer.
Regarding the fourth ground, MERALCO asserts that it is
not guilty of illegal dismissal because it had no direct
hand or participation in the termination of the
employment of individual respondents, who even insisted
in their petition for certiorari in the CA that it was AFSISI
which terminated their employment.
As to the fifth ground, MERALCO maintains that the
individual respondents are not entitled to reinstatement
into its workforce because no employer-employee
relationship exists between it and the individual
respondents.
With regard to the sixth ground, MERALCO asserts that
since it is not the direct employer of the individual
respondents, it has a right of reimbursement from ASDAI
for the full amount it may pay to the individual
respondents under Articles 106 and 107 of the Labor
Code.
In contrast, the individual respondents maintain that the
CA aptly found that all the elements in employer-
employee relationship exist between them and
MERALCO and there is no cogent reason to deviate from
such factual findings.
For its part, ASDAI contends that the instant petition
raises factual matters beyond the jurisdiction of this
Court to resolve since only questions of law may be
raised in a petition for review on certiorari. It submits that
while the rule admits of exceptions, MERALCO failed to
establish that the present case falls under any of the
exceptions.
On the other hand, AFSISI avers that there is no
employer-employee relationship between MERALCO
and the security guards of any of the security agencies
under contract with MERALCO.
It is a settled rule that in the exercise of the Supreme
Court’s power of review, the Court is not a trier of facts
and does not normally undertake the re-examination of
the evidence presented by the contending parties during
the trial of the case considering that the findings of facts
of the CA are conclusive and binding on the Court.
However, jurisprudence has recognized several
exceptions in which factual issues may be resolved by
this Court, to wit:
(1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion;
(4) when the judgment is based on a misapprehension
of facts; (5) when the findings of facts are conflicting;
(6) when in making its findings the Court of Appeals
went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and
the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as
well as in the petitioner’s main and reply briefs are not
disputed by the respondent; (10) when the findings of
fact are premised on the supposed absence of
evidence and contradicted by the evidence on record;
and (11) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a
different conclusion.18
In the present case, the existence of an employer-
employee relationship is a question of fact which is well
within the province of the CA. Nonetheless, given the
reality that the CA’s findings are at odds to those of the
NLRC, the Court is constrained to look deeper into the
attendant circumstances obtaining in the present case,
as appearing on record.
At the outset, we note that the individual respondents
never alleged in their complaint in the Labor Arbiter, in
their appeal in the NLRC and even in their petition
for certiorari in the CA that MERALCO was their
employer. They have always advanced the theory that
AFSISI is their employer. A perusal of the records
shows it was only in their Memorandum in the CA that
this thesis was presented and discussed for the first
time. We cannot ignore the fact that this position of
individual respondents runs contrary to their earlier
submission in their pleadings filed in the Labor Arbiter,
NLRC and even in the petition for certiorari in the CA
that AFSISI is their employer and liable for their
termination. As the object of the pleadings is to draw
the lines of battle, so to speak, between the litigants
and to indicate fairly the nature of the claims or
defenses of both parties, a party cannot subsequently
take a position contrary to, or inconsistent, with his
pleadings.19
Moreover, it is a fundamental rule of procedure that
higher courts are precluded from entertaining matters
neither alleged in the pleadings nor raised during the
proceedings below, but ventilated for the first time only
in a motion for reconsideration or on appeal. 20 The
individual respondents are bound by their submissions
that AFSISI is their employer and they should not be
permitted to change their theory. Such a change of
theory cannot be tolerated on appeal, not due to the
strict application of procedural rules but as a matter of
fairness. A change of theory on appeal is objectionable
because it is contrary to the rules of fair play, justice
and due process.21
28
Thus, the CA should not have considered the new theory
offered by the individual respondents in their
memorandum.
The present petition for review on certiorari is far from
novel and, in fact, not without precedence. We have
ruled in Social Security System vs. Court of
Appeals22 that:
...The guards or watchmen render their services to
private respondent by allowing themselves to be
assigned by said respondent, which furnishes them arms
and ammunition, to guard and protect the properties and
interests of private respondent's clients, thus enabling
that respondent to fulfill its contractual obligations. Who
the clients will be, and under what terms and conditions
the services will be rendered, are matters determined not
by the guards or watchmen, but by private respondent.
On the other hand, the client companies have no hand in
selecting who among the guards or watchmen shall be
assigned to them. It is private respondent that issues
assignment orders and instructions and exercises control
and supervision over the guards or watchmen, so much
so that if, for one reason or another, the client is
dissatisfied with the services of a particular guard, the
client cannot himself terminate the services of such
guard, but has to notify private respondent, which either
substitutes him with another or metes out to him
disciplinary measures. That in the course of a
watchman's assignment the client conceivably issues
instructions to him, does not in the least detract from the
fact that private respondent is the employer of said
watchman, for in legal contemplation such instructions
carry no more weight than mere requests, the privity of
contract being between the client and private
respondent, not between the client and the guard or
watchman. Corollarily, such giving out of instructions
inevitably spring from the client's right predicated on the
contract for services entered into by it with private
respondent.
In the matter of compensation, there can be no question
at all that the guards or watchmen receive compensation
from private respondent and not from the companies or
establishments whose premises they are guarding. The
fee contracted for to be paid by the client is admittedly
not equal to the salary of a guard or watchman; such fee
is arrived at independently of the salary to which the
guard or watchman is entitled under his arrangements
with private respondent.23
and reiterated in American President Lines vs.
Clave,24 thus:
In the light of the foregoing standards, We fail to see how
the complaining watchmen of the Marine Security
Agency can be considered as employees of the
petitioner. It is the agency that recruits, hires, and
assigns the work of its watchmen. Hence, a watchman
can not perform any security service for the petitioner's
vessels unless the agency first accepts him as its
watchman. With respect to his wages, the amount to be
paid to a security guard is beyond the power of the
petitioner to determine. Certainly, the lump sum amount
paid by the petitioner to the agency in consideration of
the latter's service is much more than the wages of any
one watchman. In point of fact, it is the agency that
quantifies and pays the wages to which a watchman is
entitled.
Neither does the petitioner have any power to dismiss
the security guards. In fact, We fail to see any evidence
in the record that it wielded such a power. It is true that
it may request the agency to change a particular guard.
But this, precisely, is proof that the power lies in the
hands of the agency.
Since the petitioner has to deal with the agency, and
not the individual watchmen, on matters pertaining to
the contracted task, it stands to reason that the
petitioner does not exercise any power over the
watchmen's conduct. Always, the agency stands
between the petitioner and the watchmen; and it is the
agency that is answerable to the petitioner for the
conduct of its guards.25
In this case, the terms and conditions embodied in the
security service agreement between MERALCO and
ASDAI expressly recognized ASDAI as the employer of
individual respondents.
Under the security service agreement, it was ASDAI
which (a) selected, engaged or hired and discharged
the security guards; (b) assigned them to MERALCO
according to 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 wages; and,
(e) disciplined and supervised them or principally
controlled their conduct. The agreement even explicitly
provided that "[n]othing herein contained shall be
understood to make the security guards under this
Agreement, employees of the COMPANY, it being
clearly understood that such security guards shall be
considered as they are, employees of the AGENCY
alone." Clearly, the individual respondents are the
employees of ASDAI.
As to the provision in the agreement that MERALCO
reserved the right to seek replacement of any guard
whose behavior, conduct or appearance is not
satisfactory, such merely confirms that the power to
discipline lies with the agency. It is a standard
stipulation in security service agreements that the client
may request the replacement of the guards to it.
Service-oriented enterprises, such as the business of
providing security services, generally adhere to the
business adage that "the customer or client is always
right" and, thus, must satisfy the interests, conform to
the needs, and cater to the reasonable impositions of
its clients.
29
Neither is the stipulation that the agency cannot pull out
any security guard from MERALCO without its consent
an indication of control. It is simply a security clause
designed to prevent the agency from unilaterally
removing its security guards from their assigned posts at
MERALCO’s premises to the latter’s detriment.
The clause that MERALCO has the right at all times to
inspect the guards of the agency detailed in its premises
is likewise not indicative of control as it is not a unilateral
right. The agreement provides that the agency is
principally mandated to conduct inspections, without
prejudice to MERALCO’s right to conduct its own
inspections.
Needless to stress, for the power of control to be
present, the person for whom the services are rendered
must reserve the right to direct not only the end to be
achieved but also the means for reaching such
end.26 Not all rules imposed by the hiring party on the
hired party indicate that the latter is an employee of the
former.27 Rules which serve as general
guidelines towards the achievement of the mutually
desired result are not indicative of the power of control. 28
Verily, the security service agreements in the present
case provided that all specific instructions by MERALCO
relating to the discharge by the security guards of their
duties shall be directed to the agency and not directly to
the individual respondents. The individual respondents
failed to show that the rules of MERALCO controlled their
performance.
Moreover, ASDAI and AFSISI are not "labor-only"
contractors. There is "labor only" contract when the
person acting as contractor is considered merely as an
agent or intermediary of the principal who is responsible
to the workers in the same manner and to the same
extent as if they had been directly employed by him. On
the other hand, "job (independent) contracting" is present
if the following conditions are met: (a) 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 conduct
of his business.29 Given the above distinction and the
provisions of the security service agreements entered
into by petitioner with ASDAI and AFSISI, we are
convinced that ASDAI and AFSISI were engaged in job
contracting.
The individual respondents can not be considered as
regular employees of the MERALCO for, although
security services are necessary and desirable to the
business of MERALCO, it is not directly related to its
principal business and may even be considered
unnecessary in the conduct of MERALCO’s principal
business, which is the distribution of electricity.
Furthermore, the fact that the individual respondents
filed their claim for unpaid monetary benefits against
ASDAI is a clear indication that the individual
respondents acknowledge that ASDAI is their
employer.
We cannot give credence to individual respondents’
insistence that they were absorbed by AFSISI when
MERALCO’s security service agreement with ASDAI
was terminated. The individual respondents failed to
present any evidence to confirm that AFSISI absorbed
them into its workforce. Thus, respondent Benamira
was not retained in his post at MERALCO since July
25, 1992 due to the termination of the security service
agreement of MERALCO with ASDAI. As for the rest of
the individual respondents, they retained their post only
as "hold-over" guards until the security guards of
AFSISI took over their post on August 6, 1992.30
In the present case, respondent Benamira has been
"off-detail" for seventeen days while the rest of the
individual respondents have only been "off- detail" for
five days when they amended their complaint on
August 11, 1992 to include the charge of illegal
dismissal. The inclusion of the charge of illegal
dismissal then was premature. Nonetheless, bearing in
mind that ASDAI simply stopped giving the individual
respondents any assignment and their inactivity clearly
persisted beyond the six-month period allowed by
Article 28631 of the Labor Code, the individual
respondents were, in effect, constructively dismissed
by ASDAI from employment, hence, they should be
reinstated.
The fact that there is no actual and direct employer-
employee relationship between MERALCO and the
individual respondents does not exonerate MERALCO
from liability as to the monetary claims of the individual
respondents. When MERALCO contracted for security
services with ASDAI as the security agency that hired
individual respondents to work as guards for it,
MERALCO became an indirect employer of individual
respondents pursuant to Article 107 of the Labor Code,
which reads:
ART. 107. Indirect employer - The provisions of the
immediately preceding Article shall likewise apply to
any person, partnership, association or corporation
which, not being an employer, contracts with an
independent contractor for the performance of any
work, task, job or project.
When ASDAI as contractor failed to pay the individual
respondents, MERALCO as principal becomes jointly
and severally liable for the individual respondents’
wages, under Articles 106 and 109 of the Labor Code,
which provide:
30
ART. 106. Contractor or subcontractor. - Whenever an
employer enters into a contract with another person for
the performance of the former[‘s] work, the employees of
the contractor and of the latter[‘s] subcontractor, if any,
shall be paid in accordance with the provisions of this
Code.
In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable
with his contractor or subcontractor to such employees to
the extent of the work performed under the contract, in
the same manner and extent that he is liable to
employees directly employed by him. xxx
ART. 109. Solidary liability - The provisions of existing
laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any
provision of this Code. For purpose of determining the
extent of their civil liability under this Chapter, they shall
be considered as direct employers.
demands for contractual services is its principal
concern and not any other’s. 35
WHEREFORE, the present petition is GRANTED. The
assailed Decision, dated September 27, 2000, of the
CA is REVERSED and SET ASIDE. The Decision of
the Labor Arbiter dated January 3, 1994 and the
Resolution of the NLRC dated April 10, 1995 are
AFFIRMED with the MODIFICATION that the joint and
solidary liability of ASDAI and MERALCO to pay
individual respondents’ monetary claims for
underpayment of actual regular hours and overtime
hours rendered, and premium pay for holiday and rest
day, as well as attorney’s fees, shall be without
prejudice to MERALCO’s right of reimbursement from
ASDAI.
SO ORDERED.

ASDAI is held liable by virtue of its status as direct

employer, while MERALCO is deemed the indirect
employer of the individual respondents for the purpose of
paying their wages in the event of failure of ASDAI to pay
them. This statutory scheme gives the workers the ample
protection

consonant with labor and social justice provisions of the

1987 Constitution.32

However, as held in Mariveles Shipyard Corp. vs. Court

of Appeals,33 the solidary liability of MERALCO with that
of ASDAI does not preclude the application of Article
1217 of the Civil Code on the right of reimbursement
from his co-debtor by the one who paid, 34 which
provides:

ART. 1217. Payment made by one of the solidary debtors

extinguishes the obligation. If two or more solidary
debtors offer to pay, the creditor may choose which offer
to accept.

He who made the payment may claim from his co-

debtors only the share which corresponds to each, with
the interest for the payment already made. If the
payment is made before the debt is due, no interest for
the intervening period may be demanded.

When one of the solidary debtors cannot, because of his

insolvency, reimburse his share to the debtor paying the
obligation, such share shall be borne by all his co-
debtors, in proportion to the debt of each.

ASDAI may not seek exculpation by claiming that

MERALCO’s payments to it were inadequate for the
individual respondents’ lawful compensation. As an
employer, ASDAI is charged with knowledge of labor
laws and the adequacy of the compensation that it
31

INDEPENDENT CONTRACTORS AND LABOR ONLY
CONTRACTS
G.R. No. 161115 November 30, 2006
DOLE PHILIPPINES, INC., Petitioner,
vs.
MEDEL ESTEVA, HENRY SILVA, GILBERT CABILAO,
LORENZO GAQUIT, DANIEL PABLO, EDWIN CAMILO,
BENJAMIN SAKILAN, RICHARD PENUELA,
ARMANDO PORRAS, EDUARDO FALDAS, NILO
DONDOYANO, MIGUEL DIAZ, ROMEL BAJO,
ARTEMIO TENERIFE, EDDIE LINAO, JERRY LIGTAS,
SAMUEL RAVAL, WILFREDO BLANDO, LORENZO
MONTERO, JR., JAIME TESIPAO, GEORGE DERAL,
ERNESTO ISRAEL, JR., AGAPITO ESTOLOGA,
JOVITO DAGUIO, ARSENIO LEONCIO, MARLON
BLANDO, JOSE OTELO CASPILLO, ARNOLD
LIZADA, JERRY DEYPALUBOS, STEVEN MADULA,
ROGELIO CABULAO, JR., ALVIN COMPOC,
EUGENIO BRITANA, RONNIE GUELOS, EMMANUEL
JIMENA, GERMAN JAVA, JESUS MEJICA, JOEL
INVENTADO, DOMINGO JABULGO, RAMIL ENAD,
RAYMUNDO YAMON, RITCHIE MELENDRES,
JACQUEL ORGE, RAMON BARCELONA, ERWIN
ESPIA, NESTOR DELIDELI, JR., ALLAN GANE,
ROMEO PORRAS, RITCHIE BOCOG, JOSELITO
ACEBES, DANNY TORRES, JIMMY NAVARRO,
RALPH PEREZ, SONNY SESE, RONALD
RODRIQUES, ROBERTO ALLANEC, ERNIE
GIGANTANA, NELSON SAMSON, REDANTE
DAVILA, EDDIE BUSLIG, ALLAN PINEDA, JESUS
BELGERA, VICENTE LABISTE, CARMENCITA
FELISILDA, GEORGE DERLA, RUBEN TORMON,
NEIL TAJALE, ORLANDO ESPENILLA, RITCHEL
MANEJAR, JOEL QUINTANA, ERWIN ALDE, JOEL
CATALAN, ELMER TIZON, ALLAN ESPADA,
EUGENE BRETANA, RAMIL ENAD, RENE INGALLA,
STEVEN MADULLA, RANDY REBUTAZO, NEIL
BAGATILLA, ARSENIO LEONCIO, ROLANDO
VILLEGAS and JUSLIUS TESIPAO, herein
represented by MEDEL ESTEVA, Authorized
Representative,Respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari
under Rule 45 of the revised Rules of Civil Procedure
seeking the reversal of the Decision, 1 dated 20 May
2002, and the Amended Decision, 2 dated 27 November
2003, both rendered by the Court of Appeals in CA-
G.R. SP No. 63405, which declared herein petitioner
Dole Philippines, Inc. as the employer of herein
respondents, Medel Esteva and 86 others; found
petitioner guilty of illegal dismissal; and ordered
petitioner to reinstate respondents to their former
positions and to pay the latter backwages.
The antecedent facts of the case are recounted as
follows:
Petitioner is a corporation duly organized and existing
in accordance with Philippine laws, engaged principally
in the production and processing of pineapple for the
export market.3 Its plantation is located in Polomolok,
South Cotabato.4
Respondents are members of the Cannery Multi-
Purpose Cooperative (CAMPCO). CAMPCO was
organized in accordance with Republic Act No. 6938,
otherwise known as the Cooperative Code of the
Philippines, and duly-registered with the Cooperative
Development Authority (CDA) on 6 January
1993.5 Members of CAMPCO live in communities
surrounding petitioner’s plantation and are relatives of
petitioner’s employees.
On 17 August 1993, petitioner and CAMPCO entered
into a Service Contract.6 The Service Contract referred
to petitioner as "the Company," while CAMPCO was
"the Contractor." Relevant portions thereof read as
follows –
1. That the amount of this contract shall be or shall not
exceed TWO HUNDRED TWENTY THOUSAND ONLY
(₱220,000.00) PESOS, terms and conditions of
payment shall be on a per job basis as specified in the
32
attached schedule of rates; the CONTRACTOR shall
perform the following services for the COMPANY;
1.1 Assist the COMPANY in its daily operations;
1.2 Perform odd jobs as may be assigned.
2. That both parties shall observe the following terms and
conditions as stipulated, to wit:
2.1 CONTRACTOR must carry on an
independent legitimate business, and must
comply with all the pertinent laws of the
government both local and national;
2.2 CONTRACTOR must provide all hand tools
and equipment necessary in the performance of
their work.
However, the COMPANY may allow the use of its
fixed equipment as a casual facility in the
performance of the contract;
2.3 CONTRACTOR must comply with the
attached scope of work, specifications, and GMP
and safety practices of the company;
2.4 CONTRACTOR must undertake the contract
work under the following manner:
a. on his own account;
b. under his own responsibility;
c. according to his manner and method,
free from the control and direction of the
company in all matters connected with
the performance of the work except as to
the result thereof;
3. CONTRACTOR must pay the prescribed minimum
wage, remit SSS/MEDICARE premiums to proper
government agencies, and submit copies of payroll and
proof of SSS/MEDICARE remittances to the COMPANY;
4. This contract shall be for a specific period of Six (6)
months from July 1 to December 31, 1993; x x x.
Pursuant to the foregoing Service Contract, CAMPCO
members rendered services to petitioner. The number of
CAMPCO members that report for work and the type of
service they performed depended on the needs of
petitioner at any given time. Although the Service
Contract specifically stated that it shall only be for a
period of six months, i.e., from 1 July to 31 December
1993, the parties had apparently extended or renewed
the same for the succeeding years without executing
another written contract. It was under these
circumstances that respondents came to work for
petitioner.
Investigation by DOLE
Concomitantly, the Sangguniang Bayan of Polomolok,
South Cotabato, passed Resolution No. 64, on 5 May
1993, addressed to then Secretary Ma. Nieves R.
Confessor of the Department of Labor and
Employment (DOLE), calling her attention to the
worsening working conditions of the petitioner’s
workers and the organization of contractual workers
into several cooperatives to replace the individual
labor-only contractors that used to supply workers to
the petitioner. Acting on the said Resolution, the DOLE
Regional Office No. XI in Davao City organized a Task
Force that conducted an investigation into the alleged
labor-only contracting activities of the cooperatives in
Polomolok.7
On 24 May 1993, the Senior Legal Officer of petitioner
wrote a letter addressed to Director Henry M. Parel of
DOLE Regional Office No. XI, supposedly to correct
the misinformation that petitioner was involved in labor-
only contracting, whether with a cooperative or any
private contractor. He further stated in the letter that
petitioner was not hiring cooperative members to
replace the regular workers who were separated from
service due to redundancy; that the cooperatives were
formed by the immediate dependents and relatives of
the permanent workers of petitioner; that these
cooperatives were registered with the CDA; and that
these cooperatives were authorized by their respective
constitutions and by-laws to engage in the job
contracting business.8
The Task Force submitted a report on 3 June 1993
identifying six cooperatives that were engaged in labor-
only contracting, one of which was CAMPCO. The
DOLE Regional Office No. XI held a conference on 18
August 1993 wherein the representatives of the
cooperatives named by the Task Force were given the
opportunity to explain the nature of their activities in
relation to petitioner. Subsequently, the cooperatives
were required to submit their position papers and other
supporting documents, which they did on 30 August
1993. Petitioner likewise submitted its position paper
on 15 September 1993.9
On 19 October 1993, Director Parel of DOLE Regional
Office No. XI issued an Order10 in which he made the
following findings –
Records submitted to this Office show that the six (6)
aforementioned cooperatives are all duly registered
with the Cooperative Development Authority (CDA).
These cooperatives were also found engaging in
different activities with DOLE PHILIPPINES, INC. a
company engaged in the production of pineapple and
export of pineapple products. Incidentally, some of
these cooperatives were also found engaging in
activities which are directly related to the principal
business or operations of the company. This is true in
the case of the THREE (3) Cooperatives, namely;
Adventurer’s Multi Purpose Cooperative, Human
33
Resource Multi Purpose Cooperative and Cannery Multi
Purpose Cooperative.
From the foregoing findings and evaluation of the
activities of Adventurer’s Multi Purpose Cooperative,
Human Resource Multi Purpose Cooperative and
Cannery Multi Purpose Cooperative, this Office finds and
so holds that they are engaging in Labor Only
Contracting Activities as defined under Section 9, Rule
VIII, Book III of the rules implementing the Labor Code of
the Philippines, as amended which we quote:
"Section 9 Labor Only Contracting – a) Any person who
undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where
such person:
1) Does not have substantial capital or
investment in the form of tools, equipment,
machineries, work premises and other materials;
and
2) The workers recruited and placed by such
person are performing activities which are
directly related to the principal business or
operation of the employer to which workers are
habitually employed.
b) Labor-only contracting as defined herein is
hereby prohibited and the person acting as
contractor shall be considered merely as an
agent or intermediary of the employer who shall
be responsible to the workers in the same
manner and extent as if the latter were directly
employed by him."
WHEREFORE, premises considered, ADVENTURER’S
MULTI PURPOSE COOPERATIVE, HUMAN
RESOURCE MULTI PURPOSE COOPERATIVE and
CANNERY MULTI PURPOSE COOPERATIVE are
hereby declared to be engaged in labor only contracting
which is a prohibited activity. The same cooperatives are
therefore ordered to cease and desist from further
engaging in such activities.
The three (3) other cooperatives, namely Polomolok
Skilled Workers Multi Purpose Cooperative, Unified
Engineering and Manpower Service Multi Purpose
Cooperative and Tibud sa Katibawasan Multi Purpose
Cooperative whose activities may not be directly related
to the principal business of DOLE Philippines, Inc. are
also advised not to engage in labor only contracting with
the company.
All the six cooperatives involved appealed the afore-
quoted Order to the Office of the DOLE Secretary, raising
the sole issue that DOLE Regional Director Director
Parel committed serious error of law in directing the
cooperatives to cease and desist from engaging in labor-
only contracting. On 15 September 1994, DOLE
Undersecretary Cresencio B. Trajano, by the authority of
the DOLE Secretary, issued an Order 11 dismissing the
appeal on the basis of the following ratiocination –
The appeal is devoid of merit.
The Regional Director has jurisdiction to issue a cease
and desist order as provided by Art. 106 of the Labor
Code, as amended, to wit:
"Art. 106. Contractor or subcontractor. x x x
xxxx
The Secretary of Labor may, by appropriate
regulations, restrict or prohibit the contracting out of
labor to protect the rights of workers established under
this Code. In so prohibiting or restricting, he may make
appropriate distinctions between labor only contracting
and job contracting as well as differentiations within
these types of contracting and determine who among
the parties involved shall be considered the employer
for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code (Emphasis
supplied)
There is "labor-only" contracting where the person
supplying workers to an employer does not have
substantial capital or investment in the forms of tools,
equipment, machineries, work premises, among
others, and the workers recruited and placed by such
person are performing activities which are directly
related to the principal business of the employer. In
such cases, the person or the intermediary shall be
considered merely as an agent of the employer who
shall be responsible to the workers in the same manner
and extent as if the latter were directly employed by
him."
in relation to Article 128(b) of the Labor Code, as
amended by Republic Act No. 7730, which reads:
"Art. 128. Visitorial and Enforcement Power.
b) Notwithstanding the provisions of Articles 129 and
217 of this Code to the contrary, and in cases where
the relationship of employer-employee still exists, the
Secretary of Labor and Employment or his duly
authorized representatives shall have the power to
issue compliance orders to give effect to the labor
standards provisions of this Code and other labor
legislation based on the findings of labor employment
and enforcement officers or industrial safety engineers
made in the course of inspection. The Secretary or his
duly authorized representatives shall issue writs of
execution to the appropriate authority for the
enforcement of their orders, except in cases where the
employer contests the findings of the labor employment
and enforcement officer and raises issues supported by
documentary proof which were not considered in the
course of inspection.
34
An order issued by the duly authorized representative of
the Secretary of Labor and Employment under this article
may be appealed to the latter. In case said order involves
a monetary award, an appeal by the employer may be
perfected only upon the posting of a cash bond issued by
a reputable bonding company duly accredited by the
Secretary of Labor and Employment in the amount
equivalent to the monetary award in the order appealed
from."
The records reveal that in the course of the inspection of
the premises of Dolefil, it was found out that the activities
of the members of the [cooperatives] are necessary and
desirable in the principal business of the former; and that
they do not have the necessary investment in the form of
tools and equipments. It is worthy to note that the
cooperatives did not deny that they do not have enough
capital in the form of tools and equipment. Under the
circumstances, it could not be denied that the
[cooperatives] are considered as labor-only contractors
in relation to the business operation of DOLEFIL, INC.
Thus, Section 9, Rule VIII, Book III of the Omnibus Rules
Implementing the Labor Code, provides that:
"Sec. 9. Labor-only contracting. – (a) Any person who
undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where
such person:
(1) Does not have substantial capital or
investment in the form of tools, equipment,
machineries, work premises and other materials;
and
(2) The workers recruited and placed by such
person are performing activities which are
directly related to the principal business or
operations of the employer in which workers are
habitually employed.
(b) Labor-only contracting as defined herein is
hereby prohibited and the person acting as a
contractor shall be considered merely as an
agent or intermediary of the employer who shall
be responsible to the workers in the same
manner and extent as if the latter were directly
employed by him.
x x x x"
Violation of the afore-quoted provision is considered a
labor standards violation and thus, within the visitorial
and enforcement powers of the Secretary of Labor and
Employment (Art. 128).
The Regional Director’s authority to issue a cease and
desist order emanates from Rule I, Section 3 of the
Rules on Disposition of Labor Standard Cases in the
Regional Offices, to wit:
"Section 3. Authorized representative of the Secretary
of Labor and Employment. – The Regional Directors
shall be the duly authorized representatives of the
Secretary of Labor and Employment in the
administration and enforcement of the labor standards
within their respective territorial jurisdiction."
The power granted under Article 106 of the Labor Code
to the Secretary of Labor and Employment to restrict or
prohibit the contracting out of labor to protect the rights
of workers established under the Code is delegated to
the Regional Directors by virtue of the above-quoted
provision.
The reason why "labor-only" contracting is prohibited
under the Labor Code is that it encourages
circumvention of the provisions of the Labor Code on
the workers’ right to security of tenure and to self-
organization.
WHEREFORE, the respondents’ Appeal is hereby
DISMISSED for lack of merit. The Order of the
Regional Director, Regional Office No. XI, Davao City,
is AFFIRMED.
After the motion for reconsideration of the foregoing
Order was denied, no further motion was filed by the
parties, and the Order, dated 15 September 1994, of
DOLE Undersecretary Trajano became final and
executory. A Writ of Execution 12 was issued by DOLE
Regional Office No. XI only on 27 July 1999, years
after the issuance of the order subject of the writ. The
DOLE Regional Office No. XI was informed that
CAMPCO and two other cooperatives "continued to
operate at DOLE Philippines, Inc. despite the cease
and desist Order" it had issued. It therefore
commanded the Sheriff to proceed to the premises of
CAMPCO and the two other cooperatives and
implement its Order dated 19 October 1993.
Respondent’s Complaint before the NLRC
Respondents started working for petitioner at various
times in the years 1993 and 1994, by virtue of the
Service Contract executed between CAMPCO and
petitioner. All of the respondents had already rendered
more than one year of service to petitioner. While some
of the respondents were still working for petitioner,
others were put on "stay home status" on varying dates
in the years 1994, 1995, and 1996 and were no longer
furnished with work thereafter. Together, respondents
filed a Complaint,13 on 19 December 1996, with the
National Labor Relations Commission (NLRC), for
illegal dismissal, regularization, wage differentials,
damages and attorney’s fees.
In their Position Paper, 14 respondents reiterated and
expounded on the allegations they previously made in
their Complaint –
35
Sometime in 1993 and 1994, [herein petitioner] Dolefil
engaged the services of the [herein respondents] through
Cannery Multi-purpose Cooperative. A cooperative which
was organized through the initiative of Dolefil in order to
fill in the vacuum created as a result of the dismissal of
the regular employees of Dolefil sometime in 1990 to
1993.
The [respondents] were assigned at the Industrial
Department of respondent Dolefil. All tools, implements
and machineries used in performing their task such
as: can processing attendant, feeder of canned
pineapple at pineapple processing, nata de coco
processing attendant, fruit cocktail processing
attendant, and etc. were provided by Dolefil. The
cooperative does not have substantial capital and does
not provide the [respondents] with the necessary tools to
effectively perform their assigned task as the same are
being provided by Dolefil.
The training and instructions received by the
[respondents] were provided by Dolefil. Before any of the
[respondents] will be allowed to work, he has to undergo
and pass the training prescribed by Dolefil. As a matter of
fact, the trainers are employees of Dolefil.
The [respondents] perform their assigned task inside the
premises of Dolefil. At the job site, they were given
specific task and assignment by Dolefil’s supervisors
assigned to supervise the works and efficiency of the
complainants. Just like the regular employees of Dolefil,
[respondents] were subjected to the same rules and
regulations observe [sic] inside company premises and
to some extent the rules applied to the [respondents] by
the company through its officers are even stricter.
The functions performed by the [respondents] are the
same functions discharged by the regular employees of
Dolefil. In fact, at the job site, the [respondents] were
mixed with the regular workers of Dolefil. There is no
difference in so far as the job performed by the regular
workers of Dolefil and that of the [respondents].
Some of the [respondents] were deprived of their
employment under the scheme of "stay home status"
where they were advised to literally stay home and wait
for further instruction to report anew for work. However,
they remained in this condition for more than six months.
Hence, they were constructively or illegally dismissed.
Respondents thus argued that they should be considered
regular employees of petitioner given that: (1) they were
performing jobs that were usually necessary and
desirable in the usual business of petitioner; (2) petitioner
exercised control over respondents, not only as to the
results, but also as to the manner by which they
performed their assigned tasks; and (3) CAMPCO, a
labor-only contractor, was merely a conduit of petitioner.
As regular employees of petitioner, respondents asserted
that they were entitled to security of tenure and those
placed on "stay home status" for more than six months
had been constructively and illegally dismissed.
Respondents further claimed entitlement to wage
differential, moral damages, and attorney’s fees.
In their Supplemental Position Paper,15 respondents
presented, in support of their Complaint, the Orders of
DOLE Regional Director Parel, dated 19 October 1993,
and DOLE Undersecretary Trajano, dated 15
September 1994, finding that CAMPCO was a labor-
only contractor and directing CAMPCO to cease and
desist from any further labor-only contracting activities.
Petitioner, in its Position Paper 16 filed before the NLRC,
denied that respondents were its employees.
Petitioner explained that it found the need to engage
external services to augment its regular workforce,
which was affected by peaks in operation, work
backlogs, absenteeism, and excessive leaves. It used
to engage the services of individual workers for definite
periods specified in their employment contracts and
never exceeding one year. However, such an
arrangement became the subject of a labor case, 17 in
which petitioner was accused of preventing the
regularization of such workers. The Labor Arbiter who
heard the case, rendered his Decision 18 on 24 June
1994 declaring that these workers fell squarely within
the concept of seasonal workers as envisaged by
Article 280 of the Labor Code, as amended, who were
hired by petitioner in good faith and in consonance with
sound business practice; and consequently, dismissing
the complaint against petitioner. The NLRC, in its
Resolution,19 dated 14 March 1995, affirmed in toto the
Labor Arbiter’s Decision and further found that the
workers were validly and legally engaged by petitioner
for "term employment," wherein the parties agreed to a
fixed period of employment, knowingly and voluntarily,
without any force, duress or improper pressure being
brought to bear upon the employees and absent any
other circumstance vitiating their consent. The said
NLRC Resolution became final and executory on 18
June 1996. Despite the favorable ruling of both the
Labor Arbiter and the NLRC, petitioner decided to
discontinue such employment arrangement. Yet, the
problem of petitioner as to shortage of workforce due to
the peaks in operation, work backlogs, absenteeism,
and excessive leaves, persisted. Petitioner then found
a solution in the engagement of cooperatives such as
CAMPCO to provide the necessary additional services.
Petitioner contended that respondents were owners-
members of CAMPCO; that CAMPCO was a duly-
organized and registered cooperative which had
already grown into a multi-million enterprise; that
CAMPCO was engaged in legitimate job-contracting
with its own owners-members rendering the contract
work; that under the express terms and conditions of
the Service Contract executed between petitioner (the
principal) and CAMPCO (the contractor), the latter shall
undertake the contract work on its own account, under
its own responsibility, and according to its own manner
and method free from the control and direction of the
36
petitioner in all matters connected with the performance
of the work, except as to the result thereof; and since
CAMPCO held itself out to petitioner as a legitimate job
contractor, respondents, as owners-members of
CAMPCO, were estopped from denying or refuting the
same.
Petitioner further averred that Department Order No. 10,
amending the rules implementing Books III and VI of the
Labor Code, as amended, promulgated by the DOLE on
30 May 1997, explicitly recognized the arrangement
between petitioner and CAMPCO as permissible
contracting and subcontracting, to wit –
Section 6. Permissible contracting and subcontracting. –
Subject to the conditions set forth in Section 3(d) and (e)
and Section 5 hereof, the principal may engage the
services of a contractor or subcontractor for the
performance of any of the following;
(a) Works or services temporarily or occasionally
needed to meet abnormal increase in the
demand of products or services, provided that
the normal production capacity or regular
workforce of the principal cannot reasonably
cope with such demands;
(b) Works or services temporarily or occasionally
needed by the principal for undertakings
requiring expert or highly technical personnel to
improve the management or operations of an
enterprise;
(c) Services temporarily needed for the
introduction or promotion of new products, only
for the duration of the introductory or promotional
period;
(d) Works or services not directly related or not
integral to the main business or operation of the
principal, including casual work, janitorial,
security, landscaping, and messengerial services,
and work not related to manufacturing processes
in manufacturing establishments;
(e) Services involving the public display of
manufacturer’s products which does not involve
the act of selling or issuance of receipts or
invoices;
(f) Specialized works involving the use of some
particular, unusual, or peculiar skills, expertise,
tools or equipment the performance of which is
beyond the competence of the regular workforce
or production capacity of the principal; and
(g) Unless a reliever system is in place among
the regular workforce, substitute services for
absent regular employees, provided that the
period of service shall be coextensive with the
period of absence and the same is made clear to
the substitute employee at the time of
engagement. The phrase "absent regular
employees" includes those who are serving
suspensions or other disciplinary measures not
amounting to termination of employment meted
out by the principal, but excludes those on
strike where all the formal requisites for the
legality of the strike have been prima facie
complied with based on the records filed with
the National Conciliation and Mediation Board.
According to petitioner, the services rendered by
CAMPCO constituted permissible job contracting under
the afore-quoted paragraphs (a), (c), and (g), Section 6
of DOLE Department Order No. 10, series of 1997.
After the parties had submitted their respective Position
Papers, the Labor Arbiter promulgated its Decision 20 on
11 June 1999, ruling entirely in favor of petitioner,
ratiocinating thus –
After judicious review of the facts, narrated and
supporting documents adduced by both parties, the
undersigned finds [and] holds that CAMPCO is not
engaged in labor-only contracting.
Had it not been for the issuance of Department Order
No. 10 that took effect on June 22, 1997 which in the
contemplation of Law is much later compared to the
Order promulgated by the Undersecretary Cresencio
Trajano of Department of [L]abor and Employment, the
undersigned could safely declared [sic] otherwise.
However, owing to the principle observed and followed
in legal practice that the later law or jurisprudence
controls, the reliance to Secretary Trajano’s order is
overturned.
Labor-only contracting as amended by Department
[O]rder No. 10 is defined in this wise:
"Labor-only contracting is prohibited under this Rule is
an arrangement where the contractor or subcontractor
merely recruits, supplied [sic] or places workers to
perform a job, work or service for a principal, and the
following elements are present:
i) The contractor or sub-contractor does not
have substantial capital or investment to
actually perform the job, work, or service under
its own account & responsibility, and
ii) 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."
Verification of the records reveals that per Annexes "J"
and "K" of [herein petitioner DolePhil’s] position paper,
which are the yearly audited Financial Statement and
Balance Sheet of CAMPCO shows [sic] that it has
37
more than substantial capital or investment in order to
qualify as a legitimate job contractor.
We likewise recognize the validity of the contract entered
into and between CAMPCO and [petitioner] for the
former to assists [sic] the latter in its operations and in
the performance of odd jobs – such as the augmentation
of regular manning particularly during peaks in operation,
work back logs, absenteeism and excessive leave
availment of respondent’s regular employees. The rule is
well-settled that labor laws discourage interference with
an employer’s judgment in the conduct of his business.
Even as the law is solicitors [sic] of the welfare of the
employees, it must also protect the right of an employer
to exercise what are clearly management prerogatives.
The free will of management to conduct its own business
affairs to achieve its purpose cannot be denied (Yuco
Chemical Industries vs. Ministry of [L]abor, GR No.
75656, May 28, 1990).
CAMPCO being engaged in legitimate contracting,
cannot therefore declared [sic] as guilty of labor-only
contracting which [herein respondents] want us to
believe.
The second issue is likewise answered in the negative.
The reason is plain and simple[,] section 12 of
Department [O]rder No. 10 states:
"Section 12. Employee-employer relationship. Except in
cases provided for in Section 13, 14, 15 & 17, the
contractor or subcontractor shall be considered the
employer of the contractual employee for purposes of
enforcing the provisions of the Code."
The Resolution of NLRC 5th division, promulgated on
March 14, 1 1995 [sic] categorically declares:
"Judging from the very nature of the terms and
conditions of their hiring, the Commission finds the
complainants to have been engaged to perform
work, although necessary or desirable to the business of
respondent company, for a definite period or what is
community called TERM EMPLOYMENT. It is clear from
the evidence and record that the nature of the business
and operation of respondent company has its peaks and
valleys and therefore, it is not difficult to discern,
inclement weather, or high availment by regular workers
of earned leave credits, additional workers categorized
as casuals, or temporary, are needed to meet the
exigencies." (Underlining in the original)
The validity of fixed-period employment has been
consistently upheld by the Supreme [C]ourt in a long line
of cases, the leading case of which is Brent School, Inc.
vs. Zamora & Alegre, GR No. 48494, February 5, 1990.
Thus at the end of the contract the employer-employee
relationship is terminated. It behooves upon us to rule
that herein complainants cannot be declared regular rank
and file employees of the [petitioner] company.
Anent the third issue, [respondents] dismally failed to
provide us the exact figures needed for the
computation of their wage differentials. To simply
alleged [sic] that one is underpaid of his wages is not
enough. No bill of particulars was submitted. Moreover,
the Order of RTWPB Region XI, Davao City dated
February 21, 1996 exempts [petitioner] company from
complying Wage Order No. 04 [sic] in so far as such
exemption applies only to workers who are not covered
by the Collective Bargaining Agreement, for the period
January 1 to December 31, 1995,. [sic] In so far as
[respondents] were not privies to the CBA, they were
the workers referred to by RTWPB’s Order. [H]ence,
[respondents’] claims for wage differentials are hereby
dismissed for lack of factual basis.
We find no further necessity in delving into the issues
raised by [respondents] regarding moral damages and
attorney’s fees for being moot and academic because
of the findings that CAMPCO does not engaged [sic] in
labor-only contracting and that [respondents] cannot be
declared as regular employees of [petitioner].
WHEREFORE, premises considered, judgment is
hereby rendered in the above-entitled case, dismissing
the complaint for lack of merit.
Respondents appealed the Labor Arbiter’s Decision to
the NLRC, reiterating their position that they should be
recognized as regular employees of the petitioner since
CAMPCO was a mere labor-only contractor, as already
declared in the previous Orders of DOLE Regional
Director Parel, dated 19 October 1993, and DOLE
Undersecretary Trajano, dated 15 September 1994,
which already became final and executory. The NLRC,
in its Resolution,21 dated 29 February 2000, dismissed
the appeal and affirmed the Labor Arbiter’s Decision,
reasoning as follows –
We find no merit in the appeal.
The concept of conclusiveness of judgment under the
principle of "res judicata" means that where between
the first case wherein judgment is rendered and the
second case wherein such judgment is invoked, there
is identity of parties, but there is no identity of cause of
action, the judgment is conclusive in the second case,
only as to those matters actually and directly
controverted and determined and not as to matters
merely involved therein (Viray, etc. vs. Marinas, et al.,
49 SCRA 44). There is no denying that the order of the
Department of Labor and Employment, Regional Office
No. XI in case No. RI100-9310-RI-355, which the
complainants perceive to have sealed the status of
CAMPCO as labor-only contractor, proceeded from the
visitorial and enforcement power of the Department
Secretary under Article 128 of the Labor Code. Acting
on reports that the cooperatives, including CAMPCO,
that operated and offered services at [herein petitioner]
company were engaging in labor-only contracting
activities, that Office conducted a routinary inspection
over the records of said cooperatives and
38
consequently, found the latter to be engaging in labor-
only contracting activities. This being so, [petitioner]
company was not a real party-in-interest in said case, but
the cooperatives concerned. Therefore, there is no
identity of parties between said case and the present
case which means that the afore-said ruling of the DOLE
is not binding and conclusive upon [petitioner] company.
It is not correct, however, to say, as the Labor Arbiter did,
that the afore-said ruling of the Department of Labor and
Employment has been overturned by Department Order
No. 10. It is a basic principle that "once a judgment
becomes final it cannot be disturbed, except for clerical
errors or when supervening events render its execution
impossible or unjust" (Sampaguita Garmens [sic] Corp.
vs. NLRC, G. R. No. 102406, June 7, 1994). Verily, the
subsequent issuance of Department Order No. 10 cannot
be construed as supervening event that would render the
execution of said judgment impossible or unjust.
Department Order No. 10 refers to the ramification of
some provisions of the Rules Implementing Articles 106
and 109 of the Labor Code, without substantially
changing the definition of "labor-only" or "job’ contracting.
Well-settled is the rule that to qualify as an independent
job contractor, one has either substantial capital "or"
investment in the form of tools, equipment and
machineries necessary to carry out his business
(see Virginia Neri, et al. vs. NLRC, et al., G.R. Nos.
97008-89, July 23, 1993). CAMPCO has admittedly a
paid-up capital of P4,562,470.25 and this is more than
enough to qualify it as an independent job contractor, as
aptly held by the Labor Arbiter.
WHEREFORE, the appeal is DISMISSED for lack of
merit and the appealed decision is AFFIRMED.
Petition for Certiorari with the Court of Appeals
Refusing to concede defeat, respondents filed with the
Court of Appeals a Petition for Certiorari under Rule 65 of
the revised Rules of Civil Procedure, asserting that the
NLRC acted without or in excess of its jurisdiction and
with grave abuse of discretion amounting to lack of
jurisdiction when, in its Resolution, dated 29 February
2000, it (1) ruled that CAMPCO was a bona fide
independent job contractor with substantial capital,
notwithstanding the fact that at the time of its
organization and registration with CDA, it only had a
paid-up capital of ₱6,600.00; and (2) refused to apply the
doctrine of res judicata against petitioner. The Court of
Appeals, in its Decision, 22 dated 20 May 2002, granted
due course to respondents’ Petition, and set aside the
assailed NLRC Decision. Pertinent portions of the Court
of Appeals Decision are reproduced below –
In the case at bench, it was established during the
proceedings before the [NLRC] that CAMPCO has a
substantial capital. However, having a substantial capital
does not per se qualify CAMPCO as a job contractor. In
order to be considered an independent contractor it is not
enough to show substantial capitalization or investment
in the form of tools, equipment, machinery and work
premises. The conjunction "and," in defining what a job
contractor is, means that aside from having a
substantial capital or investment in the form of tools,
equipment, machineries, work premise, and other
materials which are necessary in the conduct of his
business, the contractor must be able to prove that it
also 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. [Herein petitioner DolePhil] has failed to prove,
except for the substantial capital requirement, that
CAMPCO has met the other requirements. It was not
established that CAMPCO is engaged or carries on an
independent business. In the performance of the
respective tasks of workers deployed by CAMPCO with
[petitioner], it was not established that CAMPCO
undertook the contract of work it entered with
[petitioner] under its own account and its own
responsibility. It is [petitioner] who provides the
procedures to be followed by the workers in the
performance of their assigned work. The workers
deployed by CAMPCO to [petitioner] performed
activities which are directly related to the principal
business or operations of the employer in which
workers are habitually employed since [petitioner]
admitted that these workers were engaged to perform
the job of other regular employees who cannot report
for work.
Moreover, [NLRC] likewise gravely erred in not giving
weight to the Order dated 19 October 1993 issued by
the Office of the Secretary of the Department of Labor
and Employment, through Undersecretary Cresencio
Trajano, which affirmed the findings of the Department
of Labor and Employment Regional Office, Region XI,
Davao City that Cannery Multi-Purpose Cooperative is
one of the cooperatives engaged in labor-only
contracting activities.
In the exercise of the visitorial and enforcement power
of the Department of Labor and Employment, an
investigation was conducted among the cooperatives
organized and existing in Polomolok, South Cotabato,
relative to labor-only contracting activities. One of the
cooperatives investigated was Cannery Multi-Purpose
Cooperative. After the investigation, the Department of
Labor and Employment, Regional Office No. XI, Davao
City, through its Regional Director, issued the Order
dated 19 October 1993, stating:
"WHEREFORE, premises considered,
ADVENTURER’S MULTI PURPOSE COOPERATIVE,
HUMAN RESOURCE MULTI PURPOSE SKILLED
COOPERATIVE and CANNERY MULTI PURPOSE
COOPERATIVE are hereby declared to be engaged in
labor only contracting which is a prohibited activity. The
39
same cooperatives are therefore ordered to cease and
desist from further engaging in such activities.
xxxx
SO ORDERED."
Cannery Multi Purpose Cooperative, together with the
other cooperatives declared as engaged in labor-only
contracting activity, appeal the above-findings to the
Secretary of the Department of Labor and Employment.
Their appeal was dismissed for lack of merit as follows::
[sic]
xxxx
[NLRC] held that CAMPCO, being not a real party-in
interest in the above-case, the said ruling is not binding
and conclusive upon [petitioner]. This Court, however,
finds the contrary.
CAMPCO was one of the cooperatives investigated by
the Department of Labor and Employment, Regional
Office No. XI, Davao City, pursuant to Article 128 of the
Labor Code. It was one of the appellants before the
Secretary of the Department of Labor questioning the
decision of the Regional Director of DOLE, Regional
Office No. XI, Davao City. This Court noted that in the
proceedings therein, and as mentioned in the decision
rendered by Undersecretary Cresencio B. Trajano of the
Department of Labor and Employment, Manila, regarding
the cooperatives’ appeal thereto, the parties therein,
including Cannery Multi-Purpose Cooperative, submitted
to the said office their position papers and Articles of
Cooperatives and Certification of Registrations [sic] on
30 August 1993. This is a clear indicia that CAMPCO
participated in the proceedings therein. [NLRC],
therefore, committed grave abuse of discretion
amounting to lack or excess of jurisdiction when it held
that CAMPCO was never a party to the said case.
[Petitioner] invokes Section 6 of Department Order No.
10, series of 1997, issued by the Department of Labor
and Employment which took effect on 22 June 1997. The
said section identified the circumstances which are
permissible job contracting, to wit:
xxxx
[Petitioner’s] main contention is based on the decisions
rendered by the labor arbiter and [NLRC] which are both
anchored on Department Order No. 10 issued by the
Department of Labor and Employment. The said
department order provided for several flexible working
relations between a principal, a contractor or
subcontractor and the workers recruited by the latter and
deployed to the former. In the case at bench, [petitioner]
posits that the engagement of [petitioner] of the workers
deployed by CAMPCO was pursuant to D.O. No. 10,
Series of 1997.
However, on 8 May 2001, the Department of Labor and
Employment issued Department Order No. 3, series of
2001, revoking Department Order No. 10, series of
1997. The said department order took effect on 29 May
2001.
xxxx
Under Department Order No. 3, series of 2001, some
contracting and outsourcing arrangements are no
longer legitimate modes of employment relation.
Having revoked Department Order No. 10, series of
1997, [petitioner] can no longer support its argument by
relying on the revoked department order.
Considering that [CAMPCO] is not a job contractor, but
one engaged in labor-only contracting, CAMPCO
serves only as an agent of [petitioner] pursuant to par.
(b) of Sec. 9, Rule VIII, Book III of the Implementing
Rules and Regulations of the Labor Code, stating,
xxxx
However, the Court cannot declare that [herein
respondents] are regular employees of [petitioner]. x x
x
xxxx
In the case at bench, although [respondents] were
engaged to perform activities which are usually
necessary or desirable in the usual business or trade of
private respondent, it is apparent, however, that their
services were engaged by [petitioner] only for a definite
period. [Petitioner’s] nature of business and operation
has its peaks. In order to meet the demands during
peak seasons they necessarily have to engage the
services of workers to work only for a particular
season. In the case of [respondents], when they were
deployed by CAMPCO with [petitioner] and were
assigned by the latter at its cannery department, they
were aware that they will be working only for a certain
duration, and this was made known to them at the time
they were employed, and they agreed to the same.
xxxx
The non-rehiring of some of the petitioners who were
allegedly put on a "floating status’ is an indication that
their services were no longer needed. They attained
their "floating status" only after they have finished their
contract of employment, or after the duration of the
season that they were employed. The decision of
[petitioner] in not rehiring them means that their
services were no longer needed due to the end of the
season for which they were hired. And this Court
reiterates that at the time they were deployed to
[petitioner’s] cannery division, they knew that the
services they have to render or the work they will
perform are seasonal in nature and consequently their
employment is only for the duration of the season.
40
ACCORDINGLY, in view of the foregoing, the instant
petition for certiorari is hereby GRANTED DUE
COURSE. The decision dated 29 February 2000 and
Resolution dated 19 December 2000 rendered by
[NLRC] are herebySET ASIDE. In place thereof, it is
hereby rendered that:
1. Cannery Multi-Purpose Cooperative is a labor-
only contractor as defined under the Labor Code
of the Philippines and its implementing rules and
regulations; and that
2. DOLE Philippines Incorporated is merely an
agent or intermediary of Cannery Multi-Purpose
Cooperative.
All other claims of [respondents] are hereby DENIED for
lack of basis.
Both petitioner and respondents filed their respective
Motions for Reconsideration of the foregoing Decision,
dated 20 May 2002, prompting the Court of Appeals to
promulgate an Amended Decision on 27 November
2003, in which it ruled in this wise:
This court examined again the documentary evidence
submitted by the [herein petitioner] and we rule not to
disturb our findings in our Decision dated May 20, 2002.
It is our opinion that there was no competent evidence
submitted that would show that CAMPCO is engaged to
perform a specific and special job or service which is one
of the strong indicators that an entity is an independent
contractor. The articles of cooperation and by-laws of
CAMPCO do not show that it is engaged in performing a
specific and special job or service. What is clear is that it
is a multi-purpose cooperative organized under RA No.
6938, nothing more, nothing less.
As can be gleaned from the contract that CAMPCO
entered into with the [petitioner], the undertaking of
CAMPCO is to provide [petitioner] with workforce by
assisting the company in its daily operations and perform
odd jobs as may be assigned. It is our opinion that
CAMPCO merely acted as recruitment agency for
[petitioner]. CAMPCO by supplying manpower only,
clearly conducted itself as ‘labor-only" contractor. As can
be gleaned from the service contract, the work performed
by the [herein respondents] are directly related to the
main business of the [petitioner]. Clearly, the requisites of
"labor-only" contracting are present in the case at bench.
In view of the above ruling, we find it unnecessary to
discuss whether the Order of Undersecretary Trajano
finding that CAMPCO is a "labor-only" contractor is a
determining factor or constitutes res judicata in the case
at bench. Our findings that CAMPCO is a "labor-only"
contractor is based on the evidence presented vis-à-
vis the rulings of the Supreme Court on the matter.
Since, the argument that the [petitioner] is the real
employer of the [respondents], the next question that
must be answered is – what is the nature of the
employment of the petitioners?
xxxx
The afore-quoted [Article 280 of the Labor Code, as
amended] provides for two kinds of employment,
namely: (1) regular (2) casual. In our Decision, we
ruled that the [respondents] while performing work
necessary and desirable to the business of the
[petitioner] are seasonal employees as their services
were engaged by the [petitioner] for a definite period or
only during peak season.
In the most recent case of Hacienda Fatima v.
National Federation of Sugarcane Workers Food
and General Trade, the Supreme Court ruled that for
employees to be excluded from those classified as
regular employees, it is not enough that they perform
work or services that are seasonal in nature. They must
have also been employedonly for the duration of one
season. It is undisputed that the [respondents’]
services were engaged by the [petitioner] since 1993
and 1994. The instant complaint was filed in 1996
when the [respondents] were placed on floating status.
Evidently, [petitioner] employed the [respondents] for
more than one season. Therefore, the general rule on
regular employment is applicable. The herein
petitioners who performed their jobs in the workplace of
the [petitioner] every season for several years, are
considered the latter’s regular employees for having
performed works necessary and desirable to the
business of the [petitioner]. The [petitioner’s] eventual
refusal to use their services—even if they were ready,
able and willing to perform their usual duties whenever
these were available—and hiring other workers to
perform the tasks originally assigned to [respondents]
amounted to illegal dismissal of the latter. We thus,
correct our earlier ruling that the herein petitioners are
seasonal workers. They are regular employees within
the contemplation of Article 280 of the Labor Code and
thus cannot be dismissed except for just or authorized
cause. The Labor Code provides that when there is a
finding of illegal dismissal, the effect is that the
employee dismissed shall be reinstated to his former
position without loss of seniority rights with backwages
from the date of his dismissal up to his actual
reinstatement.
This court however, finds no basis for the award of
damages and attorney’s fees in favor of the petitioners.
WHEREFORE, the Decision dated May 20, 2002
rendered by this Court is hereby AMENDED as follows:
1) [Petitioner] DOLE PHILIPPINES is hereby
declared the employer of the [respondents].
2) [Petitioner] DOLE PHILIPPINES is hereby
declared guilty of illegal dismissal and ordered
to immediately reinstate the [respondents] to
41
 their former position without loss of seniority THE FINDINGS OF THE DOLE REGIONAL
rights and other benefits, and to pay each of the OFFICE (REGION XI, DAVAO CITY) THAT
[respondents] backwages from the date of the CAMPCO IS ONE OF THE COOPERATIVES
filing of illegal dismissal on December 19, 1996 ENGAGED IN LABOR-ONLY CONTRACTING
up to actual reinstatement, the same to be ACTIVITIES.
computed by the labor arbiter.
IV.
3) The claims for damages and attorney’s fees
are hereby denied for lack of merit. THE COURT OF APPEALS HAS
DETERMINED A QUESTION OF SUBSTANCE
No costs.23 NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN NOT RULING THAT
The Petition at Bar RESPONDENTS, BY ACTIVELY
REPRESENTING THEMSELVES AND
Aggrieved by the Decision, dated 20 May 2002, and the WARRANTING THAT THEY ARE ENGAGED
Amended Decision, dated 27 November 2003, of the IN LEGITIMATE JOB CONTRACTING, ARE
Court of Appeals, petitioner filed the instant Petition for BARRED BY THE EQUITABLE PRINCIPLE
Review on Certiorari under Rule 45 of the revised Rules OF ESTOPPEL FROM ASSERTING THAT
of Civil Procedure, in which it made the following THEY ARE REGULAR EMPLOYEES OF
assignment of errors – PETITIONER.

I. V.

THE COURT OF APPEALS HAS DEPARTED THE COURT OF APPEALS HAS

FROM THE USUAL COURSE OF JUDCIAL DETERMINED A QUESTION OF SUBSTANCE
PROCEEDINGS WHEN IT MADE ITS OWN NOT IN ACCORD WITH LAW AND
FACTUAL FINDINGS AND DISREGARDED THE JURISPRUDENCE IN RULING THAT
UNIFORM AND CONSISTENT FACTUAL CAMPCO IS ENGAGED IN THE PROHIBITED
FINDINGS OF THE LABOR ARBITER AND THE ACT OF "LABOR-ONLY
NLRC, WHICH MUST BE ACCORDED GREAT CONTRACTING" DESPITE THERE BEING
WEIGHT, RESPECT AND EVEN FINALITY. IN SUBSTANTIAL EVIDENCE TO THE
SO DOING, THE COURT OF APPEALS CONTRARY.
EXCEEDED ITS AUTHORITY ON CERTIORARI
UNDER RULE 65 OF THE RULES OF COURT. VI.

II. THE COURT OF APPEALS HAS

THE COURT OF APPEALS HAS DECIDED A
QUESTION OF SUBSTANCE IN A WAY NOT IN
ACCORD WITH THE CONSTITUTION, LAW,
APPLICABLE RULES AND REGULATIONS AND
DECISIONS OF THE SUPREME COURT
IN NOT HOLDING THAT DEPARTMENT
ORDER NO. 10, SERIES OF 1997 IS THE
APPLICABLE REGULATION IN THIS CASE. IN
GIVING RETROACTIVE APPLICATION
TO DEPARTMENT ORDER NO. 3, SERIES OF
2001, THE COURT OF APPEALS VIOLATED
THE CONSTITUTIONAL PROVISION AGAINST
IMPAIRMENT OF CONTRACTS AND
DEPRIVED PETITIONER OF THE DUE
PROCESS OF THE LAW.
III.
THE COURT OF APPEALS HAS DETERMINED
A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND JURISPRUDENCE
IN GIVING WEIGHT TO THE ORDER DATED 19
OCTOBER 1993 ISSUED BY THE OFFICE OF
SECRETARY OF LABOR, WHICH AFFIRMED
DETERMINED A QUESTION OF SUBSTANCE
NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN RULING THAT
PETITIONER IS THE EMPLOYER OF
RESPONDENTS AND THAT PETITIONER IS
GUILTY OF ILLEGAL DISMISSAL.24
This Court’s Ruling
I
Anent the first assignment of error, petitioner argues
that judicial review under Rule 65 of the revised Rules
of Civil Procedure is limited only to issues concerning
want or excess or jurisdiction or grave abuse of
discretion. The special civil action for certiorari is a
remedy designed to correct errors of jurisdiction and
not mere errors of judgment. It is the contention of
petitioner that the NLRC properly assumed jurisdiction
over the parties and subject matter of the instant case.
The errors assigned by the respondents in their
Petition for Certiorari before the Court of Appeals do
not pertain to the jurisdiction of the NLRC; they are
rather errors of judgment supposedly committed by the
the NLRC, in its Resolution, dated 29 February 2000,
42
and are thus not the proper subject of a petition
for certiorari. Petitioner also posits that the Petition
for Certiorari filed by respondents with the Court of
Appeals raised questions of fact that would necessitate a
review by the appellate court of the evidence presented
by the parties before the Labor Arbiter and the NLRC,
and that questions of fact are not a fit subject for a
special civil action for certiorari.
It has long been settled in the landmark case of St.
Martin Funeral Home v. NLRC,25 that the mode for
judicial review over decisions of the NLRC is by a petition
for certiorari under Rule 65 of the revised Rules of Civil
Procedure. The different modes of appeal, namely, writ of
error (Rule 41), petition for review (Rules 42 and 43), and
petition for review on certiorari (Rule 45), cannot be
availed of because there is no provision on appellate
review of NLRC decisions in the Labor Code, as
amended.26 Although the same case recognizes that
both the Court of Appeals and the Supreme Court have
original jurisdiction over such petitions, it has chosen to
impose the strict observance of the hierarchy of courts.
Hence, a petition for certiorari of a decision or resolution
of the NLRC should first be filed with the Court of
Appeals; direct resort to the Supreme Court shall not be
allowed unless the redress desired cannot be obtained in
the appropriate courts or where exceptional and
compelling circumstances justify an availment of a
remedy within and calling for the exercise by the
Supreme Court of its primary jurisdiction.
The extent of judicial review by certiorari of decisions or
resolutions of the NLRC, as exercised previously by the
Supreme Court and, now, by the Court of Appeals, is
described in Zarate v. Olegario,27 thus –
The rule is settled that the original and exclusive
jurisdiction of this Court to review a decision of
respondent NLRC (or Executive Labor Arbiter as in this
case) in a petition for certiorari under Rule 65 does not
normally include an inquiry into the correctness of its
evaluation of the evidence. Errors of judgment, as
distinguished from errors of jurisdiction, are not within the
province of a special civil action for certiorari, which is
merely confined to issues of jurisdiction or grave abuse
of discretion. It is thus incumbent upon petitioner to
satisfactorily establish that respondent Commission or
executive labor arbiter acted capriciously and whimsically
in total disregard of evidence material to or even decisive
of the controversy, in order that the extraordinary writ
of certiorari will lie. By grave abuse of discretion is meant
such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction, and it must be shown
that the discretion was exercised arbitrarily or
despotically. For certiorari to lie, there must be
capricious, arbitrary and whimsical exercise of power, the
very antithesis of the judicial prerogative in accordance
with centuries of both civil law and common law
traditions.
The Court of Appeals, therefore, can grant the Petition
for Certiorari if it finds that the NLRC, in its assailed
decision or resolution, committed grave abuse of
discretion by capriciously, whimsically, or arbitrarily
disregarding evidence which is material or decisive of
the controversy; and the Court of Appeals can not
make this determination without looking into the
evidence presented by the parties. Necessarily, the
appellate court can only evaluate the materiality or
significance of the evidence, which is alleged to have
been capriciously, whimsically, or arbitrarily
disregarded by the NLRC, in relation to all other
evidence on record.
As this Court elucidated in Garcia v. National Labor
Relations Commission28 --
[I]n Ong v. People, we ruled that certiorari can be
properly resorted to where the factual findings
complained of are not supported by the evidence on
record. Earlier, in Gutib v. Court of Appeals, we
emphasized thus:
[I]t has been said that a wide breadth of discretion is
granted a court of justice in certiorari proceedings. The
cases in which certiorari will issue cannot be defined,
because to do so would be to destroy its
comprehensiveness and usefulness. So wide is the
discretion of the court that authority is not wanting to
show that certiorari is more discretionary than either
prohibition or mandamus. In the exercise of our
superintending control over inferior courts, we are to be
guided by all the circumstances of each particular case
"as the ends of justice may require." So it is that the
writ will be granted where necessary to prevent a
substantial wrong or to do substantial justice.
And in another case of recent vintage, we further held:
In the review of an NLRC decision through a special
civil action for certiorari, resolution is confined only to
issues of jurisdiction and grave abuse of discretion on
the part of the labor tribunal. Hence, the Court refrains
from reviewing factual assessments of lower courts and
agencies exercising adjudicative functions, such as the
NLRC. Occasionally, however, the Court is constrained
to delve into factual matters where, as in the instant
case, the findings of the NLRC contradict those of the
Labor Arbiter.
In this instance, the Court in the exercise of its equity
jurisdiction may look into the records of the case and
re-examine the questioned findings. As a corollary, this
Court is clothed with ample authority to review matters,
even if they are not assigned as errors in their appeal,
if it finds that their consideration is necessary to arrive
at a just decision of the case. The same principles are
now necessarily adhered to and are applied by the
Court of Appeals in its expanded jurisdiction over labor
cases elevated through a petition for certiorari; thus,
we see no error on its part when it made anew a
factual determination of the matters and on that basis
reversed the ruling of the NLRC.
43
II
The second assignment of error delves into the
significance and application to the case at bar of the two
department orders issued by DOLE. Department Order
No. 10, series of 1997, amended the implementing rules
of Books III and VI of the Labor Code, as amended.
Under this particular DOLE department order, the
arrangement between petitioner and CAMPCO would
qualify as permissible contracting. Department Order No.
3, series of 2001, revoked Department Order No. 10,
series of 1997, and reiterated the prohibition on labor-
only contracting.
Attention is called to the fact that the acts complained of
by the respondents occurred well before the issuance of
the two DOLE department orders in 1997 and 2001. The
Service Contract between DOLE and CAMPCO was
executed on 17 August 1993. Respondents started
working for petitioner sometime in 1993 and 1994. While
some of them continued to work for petitioner, at least
until the filing of the Complaint, others were put on "stay
home status" at various times in 1994, 1995, and 1996.
Respondents filed their Complaint with the NLRC on 19
December 1996.
A basic rule observed in this jurisdiction is that no statute,
decree, ordinance, rule or regulation shall be given
retrospective effect unless explicitly stated. 29 Since there
is no provision at all in the DOLE department orders that
expressly allowed their retroactive application, then the
general rule should be followed, and the said orders
should be applied only prospectively.
Which now brings this Court to the question as to what
was the prevailing rule on labor-only contracting from
1993 to 1996, the period when the occurrences subject
of the Complaint before the NLRC took place.
Article 106 of the Labor Code, as amended, permits
legitimate job contracting, but prohibits labor-only
contracting. The said provision reads –
ART. 106. Contractor or subcontractor. – Whenever an
employer enters into a contract with another person for
the performance of the former’s work, the employees of
the contractor and of the latter’s subcontractor, if any,
shall be paid in accordance with the provisions of this
Code.
In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable
with his contractor or subcontractor to such employees to
the extent of the work performed under the contract, in
the same manner and extent that he is liable to
employees directly employed by him.
The Secretary of Labor may, by appropriate regulations,
restrict or prohibit the contracting out of labor to protect
the rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job
contracting as well as differentiations within these types
of contracting and determine who among the parties
involved shall be considered the employer for purposes
of this Code, to prevent any violation or circumvention
of any provision of this Code.
There is "labor-only" contracting where 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 the workers recruited and placed by such
persons are performing activities which are directly
related to the principal business of such employer. In
such cases, the person or intermediary shall be
considered merely as an agent of the employer who
shall be responsible to the workers in the same manner
and extent as if the latter were directly employed by
him.
To implement the foregoing provision of the Labor
Code, as amended, Sections 8 and 9, Rule VIII, Book
III of the implementing rules, in force since 1976 and
prior to their amendment by DOLE Department Order
No. 10, series of 1997, provided as follows –
Sec. 8. Job contracting. – There is job contracting
permissible under the Code if the following conditions
are met;
(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.
Sec. 9. Labor-only contracting. – (a) Any person who
undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where
such person:
(1) Does not have substantial capital or
investment in the form of tools, equipment,
machineries, work premises and other
materials; and
(2) The workers recruited and placed by such
persons are performing activities which are
directly related to the principal business or
operations of the employer in which workers
are habitually employed.
44
 (b) Labor-only contracting as defined
herein is hereby prohibited and the
person acting as contractor shall be
considered merely as an agent or
intermediary of the employer who shall be
responsible to the workers in the same
manner and extent as if the latter were
directly employed by him.
(c) For cases not falling under this Article,
the Secretary of Labor shall determine
through appropriate orders whether or
not the contracting out of labor is
permissible in the light of the
circumstances of each case and after
considering the operating needs of the
employer and the rights of the workers
involved. In such case, he may prescribe
conditions and restrictions to insure the
protection and welfare of the workers.
Since these statutory and regulatory provisions were the
ones in force during the years in question, then it was in
consideration of the same that DOLE Regional Director
Parel and DOLE Undesrsecretary Trajano issued their
Orders on 19 September 1993 and 15 September 1994,
respectively, both finding that CAMPCO was engaged in
labor-only contracting. Petitioner, in its third assignment
of error, questions the weight that the Court of Appeals
gave these orders in its Decision, dated 20 May 2002,
and Amended Decision, dated 27 November 2003.
III
The Orders of DOLE Regional Director Parel, dated 19
September 1993, and of DOLE Undersecretary Trajano,
dated 15 September 1994, were issued pursuant to the
visitorial and enforcement power conferred by the Labor
Code, as amended, on the DOLE Secretary and his duly
authorized representatives, to wit –
ART. 128. Visitorial and enforcement power. – (a) The
Secretary of Labor or his duly authorized
representatives, including labor regulation officers, shall
have access to employer’s records and premises at any
time of the day or night whenever work is being
undertaken therein, and the right to copy therefrom, to
question any employee and investigate any fact,
condition or matter which may be necessary to determine
violations or which may aid in the enforcement of this
Code and of any labor law, wage order or rules and
regulations pursuant thereto.
(b) Notwithstanding the provisions of Articles 129 and
217 of this Code to the contrary, and in cases where the
relationship of employer-employee still exists, the
Secretary of Labor and Employment or his duly
authorized representatives shall have the power to issue
compliance orders to give effect to the labor standards
provisions of this Code and other labor legislation based
on the findings of labor employment and enforcement
officers or industrial safety engineers made in the
course of inspection. The Secretary or his duly
authorized representatives shall issue writs of
execution to the appropriate authority for the
enforcement of their orders, except in cases where the
employer contests the findings of the labor employment
and enforcement officer and raises issues supported by
documentary proofs which were not considered in the
course of inspection.
An order issued by the duly authorized representative
of the Secretary of Labor and Employment under this
article may be appealed to the latter. In case said order
involves a monetary award, an appeal by the employer
may be perfected only upon the posting of a cash or
surety bond issued by a reputable bonding company
duly accredited by the Secretary of Labor and
Employment in the amount equivalent to the monetary
award in the order appealed from. (Emphasis
supplied.)
Before Regional Director Parel issued his Order, dated
19 September 1993, a Task Force investigated the
operations of cooperatives in Polomolok, South
Cotabato, and submitted a report identifying six
cooperatives that were engaged in labor-only
contracting, one of which was CAMPCO. In a
conference before the DOLE Regional Office, the
cooperatives named by the Task Force were given the
opportunity to explain the nature of their activities in
relation to petitioner; and, the cooperatives, as well as
petitioner, submitted to the DOLE Regional Office their
position papers and other supporting documents to
refute the findings of the Task Force. It was only after
these procedural steps did Regional Director Parel
issued his Order finding that three cooperatives,
including CAMPCO, were indeed engaged in labor-only
contracting and were directed to cease and desist from
further engaging in such activities. On appeal, DOLE
Undersecretary Trajano, by authority of the DOLE
Secretary, affirmed Regional Director Parel’s Order.
Upon denial of the Motion for Reconsideration filed by
the cooperatives, and no further appeal taken
therefrom, the Order of DOLE Undersecretary Trajano,
dated 15 September 1994, became final and executory.
Petitioner avers that the foregoing Orders of the
authorized representatives of the DOLE Secretary do
not constitute res judicata in the case filed before the
NLRC. This Court, however, believes otherwise and
finds that the final and executory Orders of the DOLE
Secretary or his authorized representatives should bind
the NLRC.
It is obvious that the visitorial and enforcement power
granted to the DOLE Secretary is in the nature of a
quasi-judicial power. Quasi-judicial power has been
described by this Court in the following manner –
Quasi-judicial or administrative adjudicatory power on
the other hand is the power of the administrative
agency to adjudicate the rights of persons before it. It
45
is the power to hear and determine questions of fact
to which the legislative policy is to apply and to
decide in accordance with the standards laid down
by the law itself in enforcing and administering the
same law. The administrative body exercises its quasi-
judicial power when it performs in a judicial manner an
act which is essentially of an executive or administrative
nature, where the power to act in such manner is
incidental to or reasonably necessary for the
performance of the executive or administrative duty
entrusted to it. In carrying out their quasi-judicial
functions the administrative officers or bodies
are required to investigate facts or ascertain the
existence of facts, hold hearings, weigh evidence,
and draw conclusions from them as basis for their
official action and exercise of discretion in a judicial
nature. Since rights of specific persons are affected it is
elementary that in the proper exercise of quasi-judicial
power due process must be observed in the conduct of
the proceedings.30 (Emphasis supplied.)
The DOLE Secretary, under Article 106 of the Labor
Code, as amended, exercise quasi-judicial power, at
least, to the extent necessary to determine violations of
labor standards provisions of the Code and other labor
legislation. He can issue compliance orders and writs of
execution for the enforcement of his orders. As evidence
of the importance and binding effect of the compliance
orders of the DOLE Secretary, Article 128 of the Labor
Code, as amended, further provides –
ART. 128. Visitorial and enforcement power. –
xxxx
(d) It shall be unlawful for any person or entity to
obstruct, impede, delay or otherwise render ineffective
the orders of the Secretary of Labor or his duly
authorized representatives issued pursuant to the
authority granted under this article, and no inferior court
or entity shall issue temporary or permanent injunction or
restraining order or otherwise assume jurisdiction over
any case involving the enforcement orders issued in
accordance with this article.
The Orders of DOLE Regional Director Parel, dated 19
September 1993, and of DOLE Undersecretary Trajano,
dated 15 September 1994, consistently found that
CAMPCO was engaging in labor-only contracting. Such
finding constitutes res judicata in the case filed by the
respondents with the NLRC.
It is well-established in this jurisdiction that the decisions
and orders of administrative agencies, rendered pursuant
to their quasi-judicial authority, have upon their finality,
the force and binding effect of a final judgment within the
purview of the doctrine of res judicata. The rule of res
judicata, which forbids the reopening of a matter once
judicially determined by competent authority, applies as
well to the judicial and quasi-judicial acts of public,
executive or administrative officers and boards acting
within their jurisdiction as to the judgments of courts
having general judicial powers. The orderly
administration of justice requires that the judgments or
resolutions of a court or quasi-judicial body must reach
a point of finality set by the law, rules and regulations,
so as to write finis to disputes once and for all. This is a
fundamental principle in the Philippine justice system,
without which there would be no end to litigations. 31
Res judicata has dual aspects, "bar by prior judgment"
and "conclusiveness of judgment." This Court has
previously clarified the difference between the two –
Section 49, Rule 39 of the Revised Rules of Court lays
down the dual aspects of res judicata in actions in
personam. to wit:
"Effect of judgment. - The effect of a judgment or final
order rendered by a court or judge of the Philippines,
having jurisdiction to pronounce the judgment or order,
may be as follows:
xxxx
(b) In other cases the judgment or order is, with respect
to the matter directly adjudged or as to any other
matter that could have been raised in relation thereto,
conclusive between the parties and their successors in
interest by title subsequent to the commencement of
the action or special proceeding, litigating for the same
thing and under the same title and in the same
capacity;
(c) In any other litigation between the same parties or
their successors in interest, that only is deemed to
have been adjudged in a former judgment which
appears upon its face to have been so adjudged, or
which was actually and necessarily included therein or
necessary thereto."
Section 49(b) enunciates the first concept of res
judicata known as "bar by prior judgment," whereas,
Section 49(c) is referred to as "conclusiveness of
judgment."
There is "bar by former judgment" when, between the
first case where the judgment was rendered, and the
second case where such judgment is invoked, there is
identity of parties, subject matter and cause of action.
When the three identities are present, the judgment on
the merits rendered in the first constitutes an absolute
bar to the subsequent action. But where between the
first case wherein Judgment is rendered and the
second case wherein such judgment is invoked, there
is only identity of parties but there is no identity of
cause of action, the judgment is conclusive in the
second case, only as to those matters actually and
directly controverted and determined, and not as to
matters merely involved therein. This is what is termed
"conclusiveness of judgment."
46
The second concept of res judicata, conclusiveness of
judgment, is the one applicable to the case at bar.
The same parties who participated in the proceedings
before the DOLE Regional Office are the same parties
involved in the case filed before the NLRC. CAMPCO, on
behalf of its members, attended the conference before
the DOLE Regional Office; submitted its position paper;
filed an appeal with the DOLE Secretary of the Order of
DOLE Regional Director Parel; and moved for
reconsideration of the subsequent Order of DOLE
Undersecretary Trajano. Petitioner, although not
expressly named as a respondent in the DOLE
investigation, was a necessary party thereto, considering
that CAMPCO was rendering services to petitioner
solely. Moreover, petitioner participated in the
proceedings before the DOLE Regional Office,
intervening in the matter through a letter sent by its
Senior Legal Officer, dated 24 May 1993, and submitting
its own position paper.
While the causes of action in the proceedings before the
DOLE and the NLRC differ, they are, in fact, very closely
related. The DOLE Regional Office conducted an
investigation to determine whether CAMPCO was
violating labor laws, particularly, those on labor-only
contracting. Subsequently, it ruled that CAMPCO was
indeed engaging in labor-only contracting activities, and
thereafter ordered to cease and desist from doing so.
Respondents came before the NLRC alleging illegal
dismissal by the petitioner of those respondents who
were put on "stay home status," and seeking
regularization of respondents who were still working for
petitioner. The basis of their claims against petitioner
rests on the argument that CAMPCO was a labor-only
contractor and, thus, merely an agent or intermediary of
petitioner, who should be considered as respondents’
real employer. The matter of whether CAMPCO was a
labor-only contractor was already settled and determined
in the DOLE proceedings, which should be conclusive
and binding upon the NLRC. What were left for the
determination of the NLRC were the issues on whether
there was illegal dismissal and whether respondents
should be regularized.
This Court also notes that CAMPCO and DOLE still
continued with their Service Contract despite the explicit
cease and desist orders rendered by authorized DOLE
officials. There is no other way to look at it except that
CAMPCO and DOLE acted in complete defiance and
disregard of the visitorial and enforcement power of the
DOLE Secretary and his authorized representatives
under Article 128 of the Labor Code, as amended. For
the NLRC to ignore the findings of DOLE Regional
Director Parel and DOLE Undersecretary Trajano is an
unmistakable and serious undermining of the DOLE
officials’ authority.
IV
In petitioner’s fourth assignment of error, it points out that
the Court of Appeals erred in not holding respondents
estopped from asserting that they were regular
employees of petitioner since respondents, as owners-
members of CAMPCO, actively represented
themselves and warranted that they were engaged in
legitimate job contracting.
This Court cannot sustain petitioner’s argument.
It is true that CAMPCO is a cooperative composed of
its members, including respondents. Nonetheless, it
cannot be denied that a cooperative, as soon as it is
registered with the CDA, attains a juridical personality
of its own,32separate and distinct from its members;
much in the same way that a corporation has a juridical
personality separate and distinct from its stockholders,
known as the doctrine of corporate fiction. The
protection afforded by this doctrine is not absolute, but
the exception thereto which necessitates the piercing
of the corporate veil can only be made under specified
circumstances. In Traders Royal Bank v. Court of
Appeals,33 this Court ruled that –
Petitioner cannot put up the excuse of piercing the veil
of corporate entity, as this is merely an equitable
remedy, and maybe awarded only in cases when the
corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a
person.
Piercing the veil of corporate entity requires the court to
see through the protective shroud which exempts its
stockholders from liabilities that ordinarily, they could
be subject to, or distinguishes one corporation from a
seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure
that the corporate fiction was misused, to such an
extent that injustice, fraud, or crime was committed
upon another, disregarding, thus, his, her, or its rights.
It is the corporate entity which the law aims to protect
by this doctrine.
Using the above-mentioned guidelines, is petitioner
entitled to a piercing of the "cooperative identity" of
CAMPCO? This Court thinks not.
It bears to emphasize that the piercing of the corporate
veil is an equitable remedy, and among the maxims of
equity are: (1) he who seeks equity must do equity, and
(2) he who comes into equity must come with clean
hands. Hence, a litigant may be denied relief by a court
of equity on the ground that his conduct has been
inequitable, unfair, dishonest, fraudulent, or deceitful as
to the controversy in issue.34
Petitioner does not come before this Court with clean
hands. It is not an innocent party in this controversy.
Petitioner itself admitted that it encouraged and even
helped the establishment of CAMPCO and the other
cooperatives in Polomolok, South Cotabato. These
47
cooperatives were established precisely to render
services to petitioner. It is highly implausible that the
petitioner was lured into entering into the Service
Contract with CAMPCO in 1993 on the latter’s
misrepresentation and false warranty that it was an
independent job contractor. Even if it is conceded that
petitioner was indeed defrauded into believing that
CAMPCO was an independent contractor, then the
DOLE proceedings should have placed it on guard.
Remember that petitioner participated in the proceedings
before the DOLE Regional Office, it cannot now claim
ignorance thereof. Furthermore, even after the issuance
of the cease and desist order on CAMPCO, petitioner still
continued with its prohibited service arrangement with
the said cooperative. If petitioner was truly defrauded by
CAMPCO and its members into believing that the
cooperative was an independent job contractor, the more
logical recourse of petitioner was to have the Service
Contract voided in the light of the explicit findings of the
DOLE officials that CAMPCO was engaging in labor-only
contracting. Instead, petitioner still carried on its Service
Contract with CAMPCO for several more years
thereafter.
V members when rendering services to the
As previously discussed, the finding of the duly
authorized representatives of the DOLE Secretary that
CAMPCO was a labor-only contractor is already
conclusive. This Court cannot deviate from said finding.
This Court, though, still notes that even an independent
review of the evidence on record, in consideration of the
proper labor statutes and regulations, would result in the
same conclusion: that CAMPCO was engaged in
prohibited activities of labor-only contracting.
The existence of an independent and permissible
contractor relationship is generally established by the
following criteria: 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 a
specified piece 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 the
premises tools, appliances, materials and labor; and the
mode, manner and terms of payment. 35
While there is present in the relationship of petitioner and
CAMPCO some factors suggestive of an independent
contractor relationship (i.e., CAMPCO chose who among
its members should be sent to work for petitioner;
petitioner paid CAMPCO the wages of the members,
plus a percentage thereof as administrative charge;
CAMPCO paid the wages of the members who rendered
service to petitioner), many other factors are present
which would indicate a labor-only contracting
arrangement between petitioner and CAMPCO.36
First, although petitioner touts the multi-million
pesos assets of CAMPCO, it does well to
remember that such were amassed in the years
following its establishment. In 1993, when
CAMPCO was established and the Service
Contract between petitioner and CAMPCO was
entered into, CAMPCO only had ₱6,600.00
paid-up capital, which could hardly be
considered substantial.37 It only managed to
increase its capitalization and assets in the
succeeding years by continually and defiantly
engaging in what had been declared by
authorized DOLE officials as labor-only
contracting.
Second, CAMPCO did not carry out an
independent business from petitioner. It was
precisely established to render services to
petitioner to augment its workforce during peak
seasons. Petitioner was its only client. Even as
CAMPCO had its own office and office
equipment, these were mainly used for
administrative purposes; the tools, machineries,
and equipment actually used by CAMPCO
petitioner belonged to the latter.
Third, petitioner exercised control over the
CAMPCO members, including respondents.
Petitioner attempts to refute control by alleging
the presence of a CAMPCO supervisor in the
work premises. Yet, the mere presence within
the premises of a supervisor from the
cooperative did not necessarily mean that
CAMPCO had control over its members.
Section 8(1), Rule VIII, Book III of the
implementing rules of the Labor Code, as
amended, required for permissible job
contracting that the contractor undertakes the
contract work on his 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. As alleged by
the respondents, and unrebutted by petitioner,
CAMPCO members, before working for the
petitioner, had to undergo instructions and pass
the training provided by petitioner’s personnel.
It was petitioner who determined and prepared
the work assignments of the CAMPCO
members. CAMPCO members worked within
petitioner’s plantation and processing plants
alongside regular employees performing
identical jobs, a circumstance recognized as an
indicium of a labor-only contractorship.38
Fourth, CAMPCO was not engaged to perform
a specific and special job or service. In the
Service Contract of 1993, CAMPCO agreed to
assist petitioner in its daily operations, and
perform odd jobs as may be assigned.
48
 CAMPCO complied with this venture by
assigning members to petitioner. Apart from that,
no other particular job, work or service was
required from CAMPCO, and it is apparent, with
such an arrangement, that CAMPCO merely
acted as a recruitment agency for petitioner.
Since the undertaking of CAMPCO did not
involve the performance of a specific job, but
rather the supply of manpower only, CAMPCO
clearly conducted itself as a labor-only
contractor.39
Lastly, CAMPCO members, including
respondents, performed activities directly related
to the principal business of petitioner. They
worked as can processing attendant, feeder of
canned pineapple and pineapple processing,
nata de coco processing attendant, fruit cocktail
processing attendant, and etc., functions which
were, not only directly related, but were very vital
to petitioner’s business of production and
processing of pineapple products for export.
The findings enumerated in the preceding paragraphs
only support what DOLE Regional Director Parel and
DOLE Undersecretary Trajano had long before
conclusively established, that CAMPCO was a mere
labor-only contractor.
VI
The declaration that CAMPCO is indeed engaged in the
prohibited activities of labor-only contracting, then
consequently, an employer-employee relationship is
deemed to exist between petitioner and respondents,
since CAMPCO shall be considered as a mere agent or
intermediary of petitioner.
Since respondents are now recognized as employees of
petitioner, this Court is tasked to determine the nature of
their employment. In consideration of all the attendant
circumstances in this case, this Court concludes that
respondents are regular employees of petitioner.
Article 280 of the Labor Code, as amended, reads –
ART. 280. Regular and Casual Employment. – The
provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of
the parties, an employment shall be deemed to be
regular where the employee has been engaged to
perform activities which are usually necessary and
desirable in the usual business or trade of the employer,
except where the employment has been fixed for a
specific project or undertaking the completion or
termination of which has been determined at the time of
engagement of the employee or where the work or
services to be performed is seasonal in nature and the
employment is for the duration of the season.
An employment shall be deemed to be casual if its is
not covered by the preceding paragraph: Provided,
That, any employee who has rendered at least one
year of service, whether such service is continuous or
broken, shall be considered a regular employee with
respect to the activity in which he is employed and his
employment shall continue while such activity exists.
This Court expounded on the afore-quoted provision,
thus –
The primary standard, therefore, of determining a
regular employment is the reasonable connection
between the particular activity performed by the
employee in relation to the usual business or trade of
the employer. The test is whether the former is usually
necessary or desirable in the usual business or trade of
the employer. The connection can be determined by
considering the nature of the work performed and its
relation to the scheme of the particular business or
trade in its entirety. Also, if the employee has been
performing the job for at least one year, even if her
performance is not continuous or merely intermittent,
the law deems the repeated and continuing need for its
performance as sufficient evidence of the necessity if
not indispensability of the activity to the business.
Hence, the employment is also considered regular, but
only with respect to such activity and while such activity
exists.40
In the instant Petition, petitioner is engaged in the
manufacture and production of pineapple products for
export.1âwphi1Respondents rendered services as
processing attendant, feeder of canned pineapple and
pineapple processing, nata de coco processing
attendant, fruit cocktail processing attendant, and etc.,
functions they performed alongside regular employees
of the petitioner. There is no doubt that the activities
performed by respondents are necessary or desirable
to the usual business of petitioner.
Petitioner likewise want this Court to believe that
respondents’ employment was dependent on the peaks
in operation, work backlogs, absenteeism, and
excessive leaves. However, bearing in mind that
respondents all claimed to have worked for petitioner
for over a year, a claim which petitioner failed to rebut,
then respondent’s continued employment clearly
demonstrates the continuing necessity and
indispensability of respondents’ employment to the
business of petitioner.
Neither can this Court apply herein the ruling of the
NLRC in the previous case involving petitioner and the
individual workers they used to hire before the advent
of the cooperatives, to the effect that the employment
of these individual workers were not regular, but rather,
were valid "term employments," wherein the employer
and employee knowingly and voluntarily agreed to
employment for only a limited or specified period of
time. The difference between that case and the one
presently before this Court is that the members of
49
CAMPCO, including respondents, were not informed, at
the time of their engagement, that their employment shall
only be for a limited or specified period of time. There is
absence of proof that the respondents were aware and
had knowingly and voluntarily agreed to such term
employment. Petitioner did not enter into individual
contracts with the CAMPCO members, but executed a
Service Contract with CAMPCO alone. Although the
Service Contract of 1993 stated that it shall be for a
specific period, from 1 July to 31 December 1993,
petitioner and CAMPCO continued the service
arrangement beyond 1993. Since there was no written
renewal of the Service Contract, 41 there was no further
indication that the engagement by petitioner of the
services of CAMPCO members was for another definite
or specified period only.

Respondents, as regular employees of petitioner, are

entitled to security of tenure. They could only be
removed based on just and authorized causes as
provided for in the Labor Code, as amended, and after
they are accorded procedural due process. Therefore,
petitioner’s acts of placing some of the respondents on
"stay home status" and not giving them work
assignments for more than six months were already
tantamount to constructive and illegal dismissal.42

In summary, this Court finds that CAMPCO was a labor-

only contractor and, thus, petitioner is the real employer
of the respondents, with CAMPCO acting only as the
agent or intermediary of petitioner. Due to the nature of
their work and length of their service, respondents should
be considered as regular employees of petitioner.
Petitioner constructively dismissed a number of the
respondents by placing them on "stay home status" for
over six months, and was therefore guilty of illegal
dismissal. Petitioner must accord respondents the status
of regular employees, and reinstate the respondents who
it constructively and illegally dismissed, to their previous
positions, without loss of seniority rights and other
benefits, and pay these respondents’ backwages from
the date of filing of the Complaint with the NLRC on 19
December 1996 up to actual reinstatement.

WHEREFORE, in view of the foregoing, the instant

Petition is DENIED and the Amended Decision, dated 27
November 2003, rendered by the Court of Appeals in
CA-G.R. SP No. 63405 is AFFIRMED.

Costs against the petitioner.

SO ORDERED.

50

INDEPENDENT CONTRACTORS AND LABOR ONLY
CONTRACTS
G.R. No. 160506 June 6, 2011
JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC
ALIVIADO, MONCHITO AMPELOQUIO, ABRAHAM
BASMAYOR, JONATHAN MATEO, LORENZO
PLATON, JOSE FERNANDO GUTIERREZ,
ESTANISLAO BUENAVENTURA, LOPE SALONGA,
FRANZ DAVID, NESTOR IGNACIO, JULIO REY,
RUBEN MARQUEZ, JR., MAXIMINO PASCUAL,
ERNESTO CALANAO, ROLANDO ROMASANTA,
RHUEL AGOO, BONIFACIO ORTEGA, ARSENIO
SORIANO, JR., ARNEL ENDAYA, ROBERTO
ENRIQUEZ, NESTOR BAQUILA, EDGARDO
QUIAMBAO, SANTOS BACALSO, SAMSON BASCO,
ALADINO GREGORO, JR., EDWIN GARCIA,
ARMANDO VILLAR, EMIL TAWAT, MARIO P.
LIONGSON, CRESENTE J. GARCIA, FERNANDO
MACABENTE, MELECIO CASAPAO, REYNALDO
JACABAN, FERDINAND SALVO, ALSTANDO
MONTOS, RAINER N. SALVADOR, RAMIL REYES,
PEDRO G. ROY, LEONARDO P. TALLEDO,
ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO
SOYOSA, ROMEO VASQUEZ, JOEL BILLONES,
ALLAN BALTAZAR, NOLI GABUYO, EMMANUEL E.
LABAN, RAMIR E. PIAT, RAUL DULAY, TADEO
DURAN, JOSEPH BANICO, ALBERT LEYNES,
ANTONIO DACUNA, RENATO DELA CRUZ, ROMEO
VIERNES, JR., ELAIS BASEO, WILFREDO TORRES,
MELCHOR CARDANO, MARIANO NARANIAN,
JOHN SUMERGIDO, ROBERTO ROSALES, GERRY
C. GATPO, GERMAN N. GUEVARRA, GILBERT Y.
MIRANDA, RODOLFO C. TOLEDO, ARNOLD D.
LASTONA, PHILIP M. LOZA, MARIO N. CULDAYON,
ORLANDO P. JIMENEZ, FRED P. JIMENEZ,
RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE
ANDRES, ARTUZ BUSTENERA, ROBERTO B.
CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN,
ALEJANDRINO ABATON, and ORLANDO S.
BALANGUE, Petitioners,
vs.
PROCTER & GAMBLE PHILS., INC., and PROMM-
GEM INC., Respondents.
DECISION
DEL CASTILLO, J.:
Labor laws expressly prohibit "labor-only" contracting.
To prevent its circumvention, the Labor Code
establishes an employer-employee relationship
between the employer and the employees of the ‘labor-
only’ contractor.
The instant petition for review assails the March 21,
2003 Decision1 of the Court of Appeals (CA) in CA-G.R.
SP No. 52082 and its October 20, 2003
Resolution2 denying the motions for reconsideration
separately filed by petitioners and respondent Procter
& Gamble Phils. Inc. (P&G). The appellate court
affirmed the July 27, 1998 Decision of the National
Labor Relations Commission (NLRC), which in turn
affirmed the November 29, 1996 Decision 3 of the Labor
Arbiter. All these decisions found Promm-Gem, Inc.
(Promm-Gem) and Sales and Promotions Services
(SAPS) to be legitimate independent contractors and
the employers of the petitioners.
Factual Antecedents
Petitioners worked as merchandisers of P&G from
various dates, allegedly starting as early as 1982 or as
late as June 1991, to either May 5, 1992 or March 11,
1993, more specifically as follows:
Name Date Employed Date Dismissed
1. Joeb M. Aliviado November, 1985 May 5, 1992
2. Arthur Corpuz 1988 March 11, 1993
3. Eric Aliviado 1985 March 11, 1993
51
4. Monchito Ampeloquio September, 1988 March 11, 1993 52. Tadeo Duran[o] 1988 May 5, 1992

5. Abraham Basmayor[, Jr.] 1987 March 11, 1993 53. Joseph Banico 1988 March 11, 1993

6. Jonathan Mateo May, 1988 March 11, 1993 54. Albert Leynes 1990 May 5, 1992

7. Lorenzo Platon 1985 March 11, 1993 55. Antonio Dacu[m]a 1990 May 5, 1992

8. Jose Fernando Gutierrez 1988 May 5, 1992 56. Renato dela Cruz 1982

9. Estanislao Buenaventura June, 1988 March 11, 1993 57. Romeo Viernes, Jr. 1986

10. Lope Salonga 1982 March 11, 1993 58. El[ia]s Bas[c]o 1989

11. Franz David 1989 March 11, 1993 59. Wilfredo Torres 1986 May 5, 1992

12. Nestor Ignacio 1982 March 11, 1993 60. Melchor Carda[ñ]o 1991 May 5, 1992

13. Julio Rey 1989 May 5, 1992 61. [Marino] [Maranion] 1989 May 5, 1992

14. Ruben [Vasquez], Jr. 1985 May 5, 1992 62. John Sumergido 1987 May 5, 1992

15. Maximino Pascual 1990 May 5, 1992 63. Roberto Rosales May, 1987 May 5, 1992

16. Ernesto Calanao[, Jr.] 1987 May 5, 1992 64. Gerry [G]. Gatpo November, 1990 March 11, 1993

17. Rolando Romasanta 1983 March 11, 1993 65. German N. Guevara May, 1990 March 11, 1993

18. [Roehl] Agoo 1988 March 11, 1993 66. Gilbert Y. Miranda June, 1991 March 11, 1993

19. Bonifacio Ortega 1988 March 11, 1993 67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993

20. Arsenio Soriano, Jr. 1985 March 11, 1993 68. Arnold D. [Laspoña] June 1991 March 11, 1993

21. Arnel Endaya 1983 March 11, 1993 69. Philip M. Loza March 5, 1992 March 11, 1993

22. Roberto Enriquez December, 1988 March 11, 1993 70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993

23. Nestor [Es]quila 1983 May 5, 1992 71. Orlando P. Jimenez November 6, 1992 March 11, 1993

24. Ed[g]ardo Quiambao 1989 March 11, 1993 72. Fred P. Jimenez September, 1991 March 11, 1993

25. Santos Bacalso 1990 March 11, 1993 73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993

26. Samson Basco 1984 March 11, 1993 74. Rolando J. de Andres June, 1991 March 11, 1993

27. Aladino Gregor[e], Jr. 1980 May 5, 1992 75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993

28. Edwin Garcia 1987 May 5, 1992 76. Roberto B. Cruz May 4, 1990 March 11, 1993

29. Armando Villar 1990 May 5, 1992 77. Rosedy O. Yordan June, 1991 May 5, 1992

30. Emil Tawat 1988 March 11, 1993 78. Dennis Dacasin May. 1990 May 5, 1992

31. Mario P. Liongson 1991 May 5, 1992 79. Alejandrino Abaton 1988 May 5, 1992

32. Cresente J. Garcia 1984 March 11, 1993 80. Orlando S. Balangue March, 1989 March 11, 19934

33. Fernando Macabent[a] 1990 May 5, 1992

34. Melecio Casapao 1987 March 11, 1993 They all individually signed employment contracts with
either Promm-Gem or SAPS for periods of more or less
35. Reynaldo Jacaban 1990 May 5, 1992
five months at a time. 5 They were assigned at different
36. Ferdinand Salvo 1985 May 5, 1992 outlets, supermarkets and stores where they handled
37. Alstando Montos 1984 March 11, 1993 all the products of P&G. They received their wages
38. Rainer N. Salvador 1984 May 5, 1992
from Promm-Gem or SAPS.6
39. Ramil Reyes 1984 March 11, 1993
SAPS and Promm-Gem imposed disciplinary measures
40. Pedro G. Roy 1987 on erring merchandisers for reasons such as habitual
41. Leonardo [F]. Talledo 1985 March 11, 1993 absenteeism, dishonesty or changing day-off without
42. Enrique [F]. Talledo 1988 March 11, 1993
prior notice.7
43. Willie Ortiz 1987 May 5, 1992
P&G is principally engaged in the manufacture and
44. Ernesto Soyosa 1988 May 5, 1992 production of different consumer and health products,
45. Romeo Vasquez 1985 March 11, 1993 which it sells on a wholesale basis to various
46. Joel Billones 1987 March 11, 1993 supermarkets and distributors.8 To enhance consumer
awareness and acceptance of the products, P&G
47. Allan Baltazar 1989 March 11, 1993
entered into contracts with Promm-Gem and SAPS for
48. Noli Gabuyo 1991 March 11, 1993 the promotion and merchandising of its products.9
49. Emmanuel E. Laban 1987 May 5, 1992

50. Ramir[o] E. [Pita] 1990 May 5, 1992 In December 1991, petitioners filed a
complaint10 against P&G for regularization, service
51. Raul Dulay 1988 May 5, 1992
incentive leave pay and other benefits with damages.

52
The complaint was later amended 11 to include the matter Petitioners now come before us raising the following
of their subsequent dismissal. issues:

Ruling of the Labor Arbiter I.

On November 29, 1996, the Labor Arbiter dismissed the WHETHER X X X THE HONORABLE COURT
complaint for lack of merit and ruled that there was no OF APPEALS HAS COMMITTED [A]
employer-employee relationship between petitioners and REVERSIBLE ERROR WHEN IT DID NOT
P&G. He found that the selection and engagement of the FIND THE PUBLIC RESPONDENTS TO HAVE
petitioners, the payment of their wages, the power of ACTED WITH GRAVE ABUSE OF
dismissal and control with respect to the means and DISCRETION AMOUNTING TO LACK OF OR
methods by which their work was accomplished, were all IN EXCESS OF JURISDICTION IN
done and exercised by Promm-Gem/SAPS. He further RENDERING THE QUESTIONED JUDGMENT
found that Promm-Gem and SAPS were legitimate WHEN, OBVIOUSLY, THE PETITIONERS
independent job contractors. The dispositive portion of WERE ABLE TO PROVE AND ESTABLISH
his Decision reads: THAT RESPONDENT PROCTER & GAMBLE
PHILS., INC. IS THEIR EMPLOYER AND
WHEREFORE, premises considered, judgment is hereby THAT THEY WERE ILLEGALLY DISMISSED
rendered Dismissing the above-entitled cases against BY THE FORMER.
respondent Procter & Gamble (Phils.), Inc. for lack of
merit. II.

SO ORDERED.12 WHETHER X X X THE HONORABLE COURT

OF APPEALS HAS COMMITTED [A]
Ruling of the NLRC REVERSIBLE ERROR WHEN IT DID NOT
DECLARE THAT THE PUBLIC
Appealing to the NLRC, petitioners disputed the Labor RESPONDENTS HAD ACTED WITH GRAVE
Arbiter’s findings. On July 27, 1998, the NLRC rendered ABUSE OF DISCRETION WHEN THE LATTER
a Decision13 disposing as follows: DID NOT FIND THE PRIVATE
RESPONDENTS LIABLE TO THE
PETITIONERS FOR PAYMENT OF ACTUAL,
WHEREFORE, premises considered, the appeal of
MORAL AND EXEMPLARY DAMAGES AS
complainants is hereby DISMISSED and the decision
WELL AS LITIGATION COSTS AND
appealed from AFFIRMED.
ATTORNEY’S FEES.17
SO ORDERED.14
Simply stated, the issues are: (1) whether P&G is the
employer of petitioners; (2) whether petitioners were
Petitioners filed a motion for reconsideration but the illegally dismissed; and (3) whether petitioners are
motion was denied in the November 19, 1998 entitled for payment of actual, moral and exemplary
Resolution.15 damages as well as litigation costs and attorney’s fees.

Ruling of the Court of Appeals Petitioners’ Arguments

Petitioners then filed a petition for certiorari with the CA,
alleging grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the Labor Arbiter and
the NLRC. However, said petition was also denied by the
CA which disposed as follows:
WHEREFORE, the decision of the National Labor
Relations Commission dated July 27, 1998 is AFFIRMED
with the MODIFICATION that respondent Procter &
Gamble Phils., Inc. is ordered to pay service incentive
leave pay to petitioners.
SO ORDERED.16
Petitioners filed a motion for reconsideration but the
motion was also denied. Hence, this petition.
Issues
Petitioners insist that they are employees of P&G. They
claim that they were recruited by the salesmen of P&G
and were engaged to undertake merchandising chores
for P&G long before the existence of Promm-Gem
and/or SAPS. They further claim that when the latter
had its so-called re-alignment program, petitioners
were instructed to fill up application forms and report to
the agencies which P&G created.18
Petitioners further claim that P&G instigated their
dismissal from work as can be gleaned from its
letter19 to SAPS dated February 24, 1993, informing the
latter that their Merchandising Services Contract will no
longer be renewed.
Petitioners further assert that Promm-Gem and SAPS
are labor-only contractors providing services of
manpower to their client. They claim that the
53
contractors have neither substantial capital nor tools and
equipment to undertake independent labor contracting.
Petitioners insist that since they had been engaged to
perform activities which are necessary or desirable in the
usual business or trade of P&G, then they are its regular
employees.20
Respondents’ Arguments
On the other hand, P&G points out that the instant
petition raises only questions of fact and should thus be
thrown out as the Court is not a trier of facts. It argues
that findings of facts of the NLRC, particularly where the
NLRC and the Labor Arbiter are in agreement, are
deemed binding and conclusive on the Supreme Court.
P&G further argues that there is no employment
relationship between it and petitioners. It was Promm-
Gem or SAPS that (1) selected petitioners and engaged
their services; (2) paid their salaries; (3) wielded the
power of dismissal; and (4) had the power of control over
their conduct of work.
P&G also contends that the Labor Code neither defines
nor limits which services or activities may be validly
outsourced. Thus, an employer can farm out any of its
activities to an independent contractor, regardless of
whether such activity is peripheral or core in nature. It
insists that the determination of whether to engage the
services of a job contractor or to engage in direct hiring is
within the ambit of management prerogative.
At this juncture, it is worth mentioning that on January
29, 2007, we deemed as waived the filing of the
Comment of Promm-Gem on the petition. 21 Also,
although SAPS was impleaded as a party in the
proceedings before the Labor Arbiter and the NLRC, it
was no longer impleaded as a party in the proceedings
before the CA.22 Hence, our pronouncements with regard
to SAPS are only for the purpose of determining the
obligations of P&G, if any.
Our Ruling
The petition has merit.
As a rule, the Court refrains from reviewing factual
assessments of lower courts and agencies exercising
adjudicative functions, such as the NLRC. Occasionally,
however, the Court is constrained to wade into factual
matters when there is insufficient or insubstantial
evidence on record to support those factual findings; or
when too much is concluded, inferred or deduced from
the bare or incomplete facts appearing on record. 23 In the
present case, we find the need to review the records to
ascertain the facts.
Labor-only contracting and job contracting
In order to resolve the issue of whether P&G is the
employer of petitioners, it is necessary to first determine
whether Promm-Gem and SAPS are labor-only
contractors or legitimate job contractors.
The pertinent Labor Code provision on the matter
states:
ART. 106. Contractor or subcontractor. – Whenever an
employer enters into a contract with another person for
the performance of the former’s work, the employees of
the contractor and of the latter’s subcontractor, if any,
shall be paid in accordance with the provisions of this
Code.
In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with
this Code, the employer shall be jointly and severally
liable with his contractor or subcontractor to such
employees to the extent of the work performed under
the contract, in the same manner and extent that he is
liable to employees directly employed by him.
The Secretary of Labor may, by appropriate
regulations, restrict or prohibit the contracting out of
labor to protect the rights of workers established under
this Code. In so prohibiting or restricting, he may make
appropriate distinctions between labor-only contracting
and job contracting as well as differentiations within
these types of contracting and determine who among
the parties involved shall be considered the employer
for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code.
There is "labor-only" contracting where 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 the workers recruited and placed by such
person are performing activities which are directly
related to the principal business of such employer. In
such cases, the person or intermediary shall be
considered merely as an agent of the employer who
shall be responsible to the workers in the same manner
and extent as if the latter were directly employed by
him. (Emphasis and underscoring supplied.)
Rule VIII-A, Book III of the Omnibus Rules
Implementing the Labor Code, as amended by
Department Order No. 18-02,24 distinguishes between
legitimate and labor-only contracting:
xxxx
Section 3. Trilateral Relationship in Contracting
Arrangements. In legitimate contracting, there exists a
trilateral relationship under which there is a contract for
a specific job, work or service between the principal
and the contractor or subcontractor, and a contract of
employment between the contractor or subcontractor
and its workers. Hence, there are three parties involved
in these arrangements, the principal which decides to
farm out a job or service to a contractor or
54
subcontractor, the contractor or subcontractor which has
the capacity to independently undertake the performance
of the job, work or service, and the contractual workers
engaged by the contractor or subcontractor to
accomplish the job[,] work or service.
xxxx
Section 5. Prohibition against labor-only
contracting. Labor-only contracting is hereby declared
prohibited. For this purpose, labor-only 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 following elements are present:
i) 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 performing
activities which are directly related to the main
business of the principal; or
ii) [T]he contractor does not exercise the right to
control over the performance of the work of the
contractual employee.
The foregoing provisions shall be without prejudice to the
application of Article 248 (c) of the Labor Code, as
amended.
"Substantial capital or investment" refers to capital stocks
and subscribed capitalization in the case of corporations,
tools, equipment, 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.
The "right to control" shall refer to the right reserved to
the person for whom the services of the contractual
workers are performed, to determine not only the end to
be achieved, but also the manner and means to be used
in reaching that end.
x x x x (Underscoring supplied.)
Clearly, 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.
To emphasize, there is labor-only contracting when the
contractor or sub-contractor merely recruits, supplies or
places workers to perform a job, work or service for a
principal25 and any of the following elements are present:
i) 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 performing activities which
are directly related to the main business of the
principal; or
ii) The contractor does not exercise the right to
control over the performance of the work of
the contractualemployee. (Underscoring
supplied)
In the instant case, the financial statements 26 of
Promm-Gem show that it
has authorized capital stock of ₱1 million and a paid-in
capital, or capital available for operations, of
₱500,000.00 as of 1990. 27 It also has long term assets
worth ₱432,895.28 and current assets of ₱719,042.32.
Promm-Gem has also proven that it maintained its own
warehouse and office space with a floor area of 870
square meters.28 It also had under its name three
registered vehicles which were used for its
promotional/merchandising business.29Promm-Gem
also has other clients aside from P&G.31 Under the
30
circumstances, we find that Promm-Gem has
substantial investment which relates to the work to be
performed. These factors negate the existence of the
element specified in Section 5(i) of DOLE Department
Order No. 18-02.
The records also show that Promm-Gem supplied its
complainant-workers with the relevant materials, such
as markers, tapes, liners and cutters, necessary for
them to perform their work. Promm-Gem also issued
uniforms to them. It is also relevant to mention that
Promm-Gem already considered the complainants
working under it as its regular, not merely contractual
or project, employees.32 This circumstance negates the
existence of element (ii) as stated in Section 5 of DOLE
Department Order No. 18-02, which speaks
of contractual employees. This, furthermore, negates –
on the part of Promm-Gem – bad faith and intent to
circumvent labor laws which factors have often been
tipping points that lead the Court to strike down the
employment practice or agreement concerned as
contrary to public policy, morals, good customs or
public order.33
Under the circumstances, Promm-Gem cannot be
considered as a labor-only contractor. We find that it is
a legitimate independent contractor.
On the other hand, the Articles of Incorporation of
SAPS shows that it has a paid-in capital of only
₱31,250.00. There is no other evidence presented to
show how much its working capital and assets are.
Furthermore, there is no showing of substantial
investment in tools, equipment or other assets.
55
In Vinoya v. National Labor Relations Commission,34 the
Court held that "[w]ith the current economic atmosphere
in the country, the paid-in capitalization of PMCI
amounting to ₱75,000.00 cannot be considered as
substantial capital and, as such, PMCI cannot qualify as
an independent contractor."35 Applying the same
rationale to the present case, it is clear that SAPS –
having a paid-in capital of only ₱31,250 - has no
substantial capital. SAPS’ lack of substantial capital is
underlined by the records36 which show that its payroll for
its merchandisers alone for one month would already
total ₱44,561.00. It had 6-month contracts with
P&G.37 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 ₱31,250.00
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,38 which is the principal business of P&G.
Considering that SAPS has no substantial capital or
investment and the workers it recruited are performing
activities which are directly related to the principal
business of P&G, we find that the former is engaged in
"labor-only contracting".
"Where ‘labor-only’ contracting exists, the Labor Code
itself establishes an employer-employee relationship
between the employer and the employees of the ‘labor-
only’ contractor."39 The statute establishes this
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. 40
Consequently, the following petitioners, having been
recruited and supplied
by SAPS41 -- which engaged in labor-only contracting --
are considered as the employees of P&G: Arthur Corpuz,
Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor,
Jr., Jonathan Mateo, Lorenzo Platon, Estanislao
Buenaventura, Lope Salonga, Franz David, Nestor
Ignacio, Jr., Rolando Romasanta, Roehl Agoo, Bonifacio
Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto
Enriquez, Edgardo Quiambao, Santos Bacalso, Samson
Basco, Alstando Montos, Rainer N. Salvador, Pedro G.
Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel
Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo,
German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo,
Jr., Arnold D. Laspoña, Philip M. Loza, Mario N.
Coldayon, Orlando P. Jimenez, Fred P. Jimenez,
Restituto C. Pamintuan, Jr., Rolando J. De Andres,
Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O.
Yordan, Orlando S. Balangue, Emil Tawat, Cresente J.
Garcia, Melencio Casapao, Romeo Vasquez, Renato
dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis
Dacasin.
The following petitioners, having worked under, and
been dismissed by Promm-Gem, are considered the
employees of Promm-Gem, not of P&G: Wilfredo
Torres, John Sumergido, Edwin Garcia, Mario P.
Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton,
Emmanuel A. Laban, Ernesto Soyosa, Aladino
Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr.,
Maximino Pascual, Willie Ortiz, Armando Villar, Jose
Fernando Gutierrez, Ramiro Pita, Fernando
Macabenta, Nestor Esquila, Julio Rey, Albert Leynes,
Ernesto Calanao, Roberto Rosales, Antonio Dacuma,
Tadeo Durano, Raul Dulay, Marino Maranion, Joseph
Banico, Melchor Cardano, Reynaldo Jacaban, and
Joeb Aliviado.42
Termination of services
We now discuss the issue of whether petitioners were
illegally dismissed. In cases of regular employment, the
employer shall not terminate the services of an
employee except for a just43 or authorized44 cause.
In the instant case, the termination letters given by
Promm-Gem to its employees uniformly specified the
cause of dismissal as grave misconduct and breach of
trust, as follows:
xxxx
This informs you that effective May 5, 1992, your
employment with our company, Promm-Gem, Inc. has
been terminated. We find your expressed admission,
that you considered yourself as an employee of Procter
& Gamble Phils., Inc…. and assailing the integrity of
the Company as legitimate and independent promotion
firm, is deemed as an act of disloyalty prejudicial to the
interests of our Company: serious misconduct and
breach of trust reposed upon you as employee of our
Company which [co]nstitute just cause for the
termination of your employment.
x x x x45
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. 46 To
be a just cause for dismissal, such misconduct (a) must
be serious; (b) must relate to the performance of the
employee’s duties; and (c) must show that the
56
employee has become unfit to continue working for the
employer.47
In other words, in order to constitute serious misconduct
which will warrant the dismissal of an employee under
paragraph (a) of Article 282 of the Labor Code, it is not
sufficient that the act or conduct complained of has
violated some established rules or policies. It is equally
important and required that the act or conduct must have
been performed with wrongful intent. 48 In the instant
case, petitioners-employees of Promm-Gem 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. As such, we
find them guilty of only simple misconduct for assailing
the integrity of Promm-Gem as a legitimate and
independent promotion firm. A misconduct which is not
serious or grave, as that existing in the instant case,
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. Ordinary
breach will not suffice. A breach of trust is willful if it is
done intentionally, knowingly and purposely, without
justifiable excuse, as distinguished from an act done
carelessly, thoughtlessly, heedlessly or inadvertently.49
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.50 In the instant case,
the petitioners-employees of Promm-Gem 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.
All told, we find no valid cause for the dismissal of
petitioners-employees of Promm-Gem.
While Promm-Gem had complied with the procedural
aspect of due process in terminating the employment of
petitioners-employees, i.e., giving two notices and in
between such notices, an opportunity for the employees
to answer and rebut the charges against them, it failed to
comply with the substantive aspect of due process as the
acts complained of neither constitute serious misconduct
nor breach of trust. Hence, the dismissal is illegal.
With regard to the petitioners placed with P&G by SAPS,
they were given no written notice of dismissal. The
records show that upon receipt by SAPS of P&G’s letter
terminating their "Merchandising Services Contact"
effective March 11, 1993, they in turn verbally informed
the concerned petitioners not to report for work
anymore. The concerned petitioners related their
dismissal as follows:
xxxx
5. On March 11, 1993, we were called to a meeting at
SAPS office. We were told by Mr. Saturnino A. Ponce
that we should already stop working immediately
because that was the order of Procter and Gamble.
According to him he could not do otherwise because
Procter and Gamble was the one paying us. To prove
that Procter and Gamble was the one responsible in
our dismissal, he showed to us the letter 51 dated
February 24, 1993, x x x
February 24, 1993
Sales and Promotions Services
Armon’s Bldg., 142 Kamias Road,
Quezon City
Attention: Mr. Saturnino A. Ponce
President & General Manager
Gentlemen:
Based on our discussions last 5 and 19 February 1993,
this formally informs you that we will not be renewing
our Merchandising Services Contract with your agency.
Please immediately undertake efforts to ensure that
your services to the Company will terminate effective
close of business hours of 11 March 1993.
This is without prejudice to whatever obligations you
may have to the company under the abovementioned
contract.
Very truly yours,
(Sgd.)
EMMANUEL M. NON
Sales Merchandising III
6. On March 12, 1993, we reported to our respective
outlet assignments. But, we were no longer allowed to
work and we were refused entrance by the security
guards posted. According to the security guards, all
merchandisers of Procter and Gamble under S[APS]
who filed a case in the Dept. of Labor are already
dismissed as per letter of Procter and Gamble dated
February 25, 1993. x x x52
Neither SAPS nor P&G dispute the existence of these
circumstances. Parenthetically, unlike Promm-Gem
which dismissed its employees for grave misconduct
and breach of trust due to disloyalty, SAPS dismissed
its employees upon the initiation of P&G. It is evident
that SAPS does not carry on its own business because
57
the termination of its contract with P&G automatically
meant for it also the termination of its employees’
services. It is obvious from its act that SAPS had no
other clients and had no intention of seeking other clients
in order to further its merchandising business. From all
indications SAPS, existed to cater solely to the need of
P&G for the supply of employees in the latter’s
merchandising concerns only. Under the circumstances
prevailing in the instant case, we cannot consider SAPS
as an independent contractor.
Going back to the matter of dismissal, it must be
emphasized that the onus probandi to prove the
lawfulness of the dismissal rests with the employer. 53 In
termination cases, the burden of proof rests upon the
employer to show that the dismissal is for just and valid
cause.54 In the instant case, 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.
Damages
We now go to the issue of whether petitioners are
entitled to damages. Moral
and exemplary damages are recoverable where the
dismissal of an employee was attended by bad faith or
fraud or constituted an act oppressive to labor or was
done in a manner contrary to morals, good customs or
public policy.55
With regard to the employees of Promm-Gem, there
being no evidence of bad faith, fraud or any oppressive
act on the part of the latter, we find no support for the
award of damages.
As for P&G, the records show that it dismissed its
employees through SAPS in a manner oppressive to
labor. The sudden and peremptory barring of the
concerned petitioners from work, and from admission to
the work place, after just a one-day verbal notice, and for
no valid cause bellows oppression and utter disregard of
the right to due process of the concerned petitioners.
Hence, an award of moral damages is called for.
Attorney’s fees may likewise be awarded to the
concerned petitioners who were illegally dismissed in
bad faith and were compelled to litigate or incur
expenses to protect their rights by reason of the
oppressive acts56 of P&G.
Lastly, under Article 279 of the Labor Code, an employee
who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other
privileges, inclusive of allowances, and other benefits or
their monetary equivalent from the time the
compensation was withheld up to the time of actual
reinstatement.57Hence, all the petitioners, having been
illegally dismissed are entitled to reinstatement without
loss of seniority rights and with full back wages and
other benefits from the time of their illegal dismissal up
to the time of their actual reinstatement.
1avvphi1
WHEREFORE, the petition is GRANTED. The Decision
dated March 21, 2003 of the Court of Appeals in CA-
G.R. SP No. 52082 and the Resolution dated October
20, 2003 are REVERSED and SET ASIDE. Procter &
Gamble Phils., Inc. and Promm-Gem, Inc.
are ORDERED to reinstate their respective employees
immediately without loss of seniority rights and with full
backwages and other benefits from the time of their
illegal dismissal up to the time of their actual
reinstatement. Procter & Gamble Phils., Inc. is
further ORDERED to pay each of those petitioners
considered as its employees, namely Arthur Corpuz,
Eric Aliviado, Monchito Ampeloquio, Abraham
Basmayor, Jr., Jonathan Mateo, Lorenzo Platon,
Estanislao Buenaventura, Lope Salonga, Franz David,
Nestor Ignacio, Rolando Romasanta, Roehl Agoo,
Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya,
Roberto Enriquez, Edgardo Quiambao, Santos
Bacalso, Samson Basco, Alstando Montos, Rainer N.
Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique
F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo,
Gerry Gatpo, German Guevara, Gilbert Y. Miranda,
Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M.
Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P.
Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De
Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy
O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente
J. Garcia, Melencio Casapao, Romeo Vasquez, Renato
dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis
Dacasin, ₱25,000.00 as moral damages plus ten
percent of the total sum as and for attorney’s fees.
Let this case be REMANDED to the Labor Arbiter for
the computation, within 30 days from receipt of this
Decision, of petitioners’ backwages and other benefits;
and ten percent of the total sum as and for attorney’s
fees as stated above; and for immediate execution.
SO ORDERED.
58

INDEPENDENT CONTRACTORS AND LABOR ONLY
CONTRACTS
G.R. No. 186965 December 23, 2009
TEMIC AUTOMOTIVE PHILIPPINES, INC., Petitioner,
vs.
TEMIC AUTOMOTIVE PHILIPPINES, INC.
EMPLOYEES UNION-FFW, Respondent.
DECISION
BRION, J.:
We resolve the present petition for review
on certiorari[1] filed by Temic Automotive Philippines Inc.
(petitioner) to challenge the decision 2 and resolution3 of
the Court of Appeals (CA) in CA-G.R. SP No. 99029. 4
The Antecedents
The petitioner is a corporation engaged in the
manufacture of electronic brake systems and comfort
body electronics for automotive vehicles. Respondent
Temic Automotive Philippines, Inc. Employees Union-
FFW (union) is the exclusive bargaining agent of the
petitioner's rank-and-file employees. On May 6, 2005,
the petitioner and the union executed a collective
bargaining agreement (CBA) for the period January 1,
2005 to December 31, 2009.
The petitioner is composed of several departments,
one of which is the warehouse department consisting
of two warehouses - the electronic braking system and
the comfort body electronics. These warehouses are
further divided into four sections - receiving section,
raw materials warehouse section, indirect warehouse
section and finished goods section. The union
members are regular rank-and-file employees working
in these sections as clerks, material handlers, system
encoders and general clerks. Their functions are
interrelated and include: receiving and recording of
incoming deliveries, raw materials and spare parts;
checking and booking-in deliveries, raw materials and
spare parts with the use of the petitioner's system
application processing; generating bar codes and
sticking these on boxes and automotive parts; and
issuing or releasing spare parts and materials as may
be needed at the production area, and piling them up
by means of the company's equipment (forklift or
jacklift).
By practice established since 1998, the petitioner
contracts out some of the work in the warehouse
department, specifically those in the receiving and
finished goods sections, to three independent service
providers or forwarders (forwarders), namely:
Diversified Cargo Services, Inc. (Diversified), Airfreight
2100 (Airfreight) and Kuehne & Nagel, Inc. (KNI).
These forwarders also have their own employees who
hold the positions of clerk, material handler, system
encoder and general clerk. The regular employees of
the petitioner and those of the forwarders share the
same work area and use the same equipment, tools
and computers all belonging to the petitioner.
This outsourcing arrangement gave rise to a union
grievance on the issue of the scope and coverage of
the collective bargaining unit, specifically to the
question of "whether or not the functions of the
forwarders’ employees are functions being performed
by the regular rank-and-file employees covered by the
bargaining unit."5 The union thus demanded that the
forwarders' employees be absorbed into the petitioner's
regular employee force and be given positions within
the bargaining unit. The petitioner, on the other hand,
on the premise that the contracting arrangement with
the forwarders is a valid exercise of its management
prerogative, posited that the union's position is a
violation of its management prerogative to determine
who to 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.
The union and the petitioner failed to resolve the
dispute at the grievance machinery level, thus
necessitating recourse to voluntary arbitration. The
parties chose Atty. Roberto A. Padilla as their voluntary
arbitrator. Their voluntary arbitration submission
agreement delineated the issues to be resolved as
follows:
59
 1. Whether or not the company validly contracted
out or outsourced the services involving
forwarding, packing, loading and clerical activities
related thereto; and
2. Whether or not the functions of the forwarders'
employees are functions being performed by
regular rank-and-file employees covered by the
bargaining unit.6
To support its position, the union submitted in evidence a
copy of the complete manpower complement of the
petitioner's warehouse department as of January 3,
20077 showing that there were at the time 19 regular
company employees and 26 forwarder employees. It also
presented the affidavits8 of Edgardo P. Usog, Antonio A.
Muzones, Endrico B. Dumolong, Salvador R. Vargas and
Harley J. Noval, regular employees of the petitioner, who
deposed that they and the forwarders’ employees
assigned at the warehouse department were performing
the same functions. The union also presented the
affidavits of Ramil V. Barit 9 (Barit), Jonathan G.
Prevendido10(Prevendido) and Eduardo H.
Enano (Enano), employees of forwarder KNI, who
11
described their work at the warehouse department.
In its submission,12 the petitioner invoked the exercise of
its management prerogative and its authority under this
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 activities) for greater
economy and efficiency in its operations. It argued that
in Meralco v. Quisumbing13 this Court explicitly
recognized that the contracting out of work is an
employer proprietary right in the exercise of its inherent
management prerogative.
The forwarders, the petitioners alleged, are all highly
reputable freight forwarding companies providing total
logistics services such as customs brokerage that
includes the preparation and processing of import and
export documentation, cargo handling, transport (air, land
or sea), delivery and trucking; and they have substantial
capital and are fully equipped with the technical
knowledge, facilities, equipment, materials, tools and
manpower to service the company's forwarding, packing
and loading requirements. Additionally, the petitioner
argued that the union is not in a position to question its
business judgment, for even their CBA expressly
recognizes its prerogative to have exclusive control of
the management of all functions and facilities in the
company, including the exclusive right to plan or control
operations and introduce new or improved systems,
procedures and methods.
The petitioner maintained that the services rendered by
the forwarders’ employees are not the same as the
functions undertaken by regular rank-and-file employees
covered by the bargaining unit; therefore, the union’s
demand that the forwarders’ employees be assimilated
as regular company employees and absorbed by the
collective bargaining unit has no basis; what the union
asks constitutes an unlawful interference in the
company's prerogative to choose who to hire as
employees. It pointed out that the union could not, and
never did, assert that the contracting-out of work to the
service providers was in violation of the CBA or
prohibited by law.
The petitioner explained that its regular employees'
clerical and material handling tasks are not identical
with those done by the service providers; the clerical
work rendered by the contractors are recording and
documentation tasks ancillary to or supportive of the
contracted services of forwarding, packing and loading;
on the other hand, the company employees assigned
as general clerks prepare inventory reports relating to
its shipments in general to ensure that the recording of
inventory is consistent with the company's general
system; company employees assigned as material
handlers essentially assist in counter-checking and
reporting activities to ensure that the contractors'
services comply with company standards.
The petitioner submitted in evidence the affidavits of
Antonio Gregorio14 (Gregorio), its warehouse manager,
and Ma. Maja Bawar15 (Bawar), its section head.
The Voluntary Arbitration Decision
In his decision of May 1, 2007, 16 the voluntary arbitrator
defined forwarding as a universally accepted and
normal business practice or activity, and ruled that the
company validly contracted out its forwarding services.
The voluntary arbitrator observed that exporters, in
utilizing forwarders as travel agents of cargo, mitigate
the confusion and delays associated with international
trade logistics; the company need not deal with many
of the details involved in the export of goods; and given
the years of experience and constant attention to detail
provided by the forwarders, it may be a good
investment for the company. He found that the
outsourcing of forwarding work is expressly allowed by
the rules implementing the Labor Code.17
At the same time, however, the voluntary arbitrator
found that the petitioner went beyond the limits of the
legally allowable contracting out because the
forwarders' employees encroached upon the functions
of the petitioner's regular rank-and-file workers. He
opined that the forwarders' personnel serving as clerks,
material handlers, system encoders and general clerks
perform "functions [that] are being performed by
regular rank-and-file employees covered by the
bargaining unit." He also noted that the forwarders'
employees perform their jobs in the company
warehouse together with the petitioner's employees,
use the same company tools and equipment and work
under the same company supervisors – indicators that
the petitioner exercises supervision and control over all
the employees in the warehouse department. For these
reasons, he declared the forwarders’ employees
serving as clerks, material handlers, system encoders
60
and general clerks to be "employees of the company
who are entitled to all the rights and privileges of regular
employees of the company including security of tenure."18
The petitioner sought relief from the CA through a
petition for review under Rule 43 of the Rules of Court
invoking questions of facts and law. 19 It specifically
questioned the ruling that the company did not validly
contract out the services performed by the forwarders’
clerks, material handlers, system encoders and general
clerks, and claimed that the voluntary arbitrator acted in
excess of his authority when he ruled that they should be
considered regular employees of the company.
The CA Decision
In its decision of October 28, 2008, 20 the CA fully affirmed
the voluntary arbitrator’s decision and dismissed the
petition for lack of merit. The discussion essentially
focused on three points. First, that decisions of voluntary
arbitrators on matters of fact and law, acting within the
scope of their authority, are conclusive and constitute res
adjudicata on the theory that the parties agreed that the
voluntary arbitrator’s decision shall be final. Second, that
the petitioner has the right to enter into the forwarding
agreements, but these agreements should be limited to
forwarding services; the petitioner failed to present clear
and convincing proof of the delineation of functions and
duties between company and forwarder employees
engaged as clerks, material handlers, system encoders
and general clerks; thus, they should be considered
regular company employees. Third, on the extent of the
voluntary arbitrator's authority, the CA acknowledged that
the arbitrator can only decide questions agreed upon and
submitted by the parties, but maintained that the
arbitrator also has the power to rule on consequential
issues that would finally settle the dispute. On this basis,
the CA justified the ruling on the employment status of
the forwarders' clerks, material handlers, system
encoders and general clerks as a necessary
consequence that ties up the loose ends of the submitted
issues for a final settlement of the dispute.
The CA denied the petitioner’s motion for
reconsideration, giving way to the present petition.
The Petition
The petition questions as a preliminary issue the CA
ruling that decisions of voluntary arbitrators are
conclusive and constitute res adjudicata on the facts and
law ruled upon.
Expectedly, it cites as error the voluntary arbitrator’s and
the CA’s rulings that: (a) the forwarders’ employees
undertaking the functions of clerks, material handlers,
system encoders and general clerks exercise the
functions of regular company employees and are subject
to the company’s control; and (b) the functions of the
forwarders’ employees are beyond the limits of what the
law allows for a forwarding agreement.
The petitioner reiterates that there are distinctions
between the work of the forwarders’ employees and
that of the regular company employees. The receiving,
unloading, recording or documenting of materials the
forwarders’ employees undertake form part of the
contracted forwarding services. The similarity of these
activities to those performed by the company's regular
employees does not necessarily lead to the conclusion
that the forwarders’ employees should be absorbed by
the company as its regular employees. No proof was
ever presented by the union that the company
exercised supervision and control over the forwarders'
employees. The contracted services and even the work
performed by the regular employees in the warehouse
department are also not usually necessary and
desirable in the manufacture of automotive electronics
which is the company’s main business. It adds that as
held in Philippine Global Communications, Inc. v. De
Vera,[21] management can contract out even services
that are usually necessary or desirable in the
employer's business.
On the issue of jurisdiction, the petitioner argues that
the voluntary arbitrator neither had jurisdiction nor
basis to declare the forwarders' personnel as regular
employees of the company because the matter was not
among the issues submitted by the parties for
arbitration; in voluntary arbitration, it is the parties’
submission of the issues that confers jurisdiction on the
voluntary arbitrator. The petitioner finally argues that
the forwarders and their employees were not parties to
the voluntary arbitration case and thus cannot be
bound by the voluntary arbitrator’s decision.
The Case for the Union
In its comment,22 the union takes exception to the
petitioner's position that the contracting out of services
involving forwarding and ancillary activities is a valid
exercise of management prerogative. It posits that the
exercise of management prerogative is not an absolute
right, but is subject to the limitation provided for by law,
contract, existing practice, as well as the general
principles of justice and fair play. It submits that both
the law and the parties' CBA prohibit the petitioner from
contracting out to forwarders the functions of regular
employees, especially when the contracting out will
amount to a violation of the employees' security of
tenure, of the CBA provision on the coverage of the
bargaining unit, or of the law on regular employment.
The union disputes the petitioner's claim that there is a
distinction between the work being performed by the
regular employees and that of the forwarders'
employees. It insists that the functions being assigned,
delegated to and performed by employees of the
forwarders are also those assigned, delegated to and
being performed by the regular rank-and-file
employees covered by the bargaining unit.
On the jurisdictional issue, the union submits that while
the submitted issue is "whether or not the functions of
61
the forwarders' employees are functions being performed
by the regular rank-and-file employees covered by the
bargaining unit," the ruling of the voluntary arbitrator was
a necessary consequence of his finding that the
forwarders' employees were performing functions similar
to those being performed by the regular employees of
the petitioner. It maintains that it is within the power of
the voluntary arbitrator to rule on the issue since it is
inherently connected to, or a consequence of, the main
issues resolved in the case.
The Court's Ruling
We find the petition meritorious.
Underlying Jurisdictional Issues
As submitted by the parties, the first issue is "whether or
not the company validly contracted out or outsourced the
services involving forwarding, packing, loading and
clerical activities related thereto." However, the
forwarders, with whom the petitioner had written
contracts for these services, were never made parties
(and could not have been parties to the voluntary
arbitration except with their consent) so that the various
forwarders’ agreements could not have been validly
impugned through voluntary arbitration and declared
invalid as against the forwarders.
The second submitted issue is "whether or not the
functions of the forwarders’ employees are functions
being performed by regular rank-and-file employees
covered by the bargaining unit." While this submission is
couched in general terms, the issue as discussed by the
parties is limited to the forwarders’ employees
undertaking services as clerks, material handlers, system
encoders and general clerks, which functions are
allegedly the same functions undertaken by regular rank-
and-file company employees covered by the bargaining
unit. Either way, however, the issue poses jurisdictional
problems as the forwarders’ employees are not parties to
the case and the union has no authority to speak for
them.
From this perspective, the voluntary arbitration
submission covers matters affecting third parties who are
not parties to the voluntary arbitration and over whom the
voluntary arbitrator has no jurisdiction; thus, the voluntary
arbitration ruling cannot bind them. 23 While they may
voluntarily join the voluntary arbitration process as
parties, no such voluntary submission appears in the
record and we cannot presume that one exists. Thus, the
voluntary arbitration process and ruling can only be
recognized as valid between its immediate parties as a
case arising from their collective bargaining agreement.
This limited scope, of course, poses no problem as the
forwarders and their employees are not indispensable
parties and the case is not mooted by their absence. Our
ruling will fully bind the immediate parties and shall fully
apply to, and clarify the terms of, their relationship,
particularly the interpretation and enforcement of the
CBA provisions pertinent to the arbitrated issues.
Validity of the Contracting Out
The voluntary arbitration decision itself established,
without objection from the parties, the description of the
work of forwarding as a basic premise for its ruling. We
similarly find the description acceptable and thus adopt
it as our own starting point in considering the nature of
the service contracted out when the petitioner entered
into its forwarding agreements with Diversified,
Airfreight and KNI. To quote the voluntary arbitration
decision:
As forwarders they act as travel agents for cargo. They
specialize in arranging transport and completing
required shipping documentation of respondent's
company's finished products. They provide custom
crating and packing designed for specific needs of
respondent company. These freight forwarders are
actually acting as agents for the company in moving
cargo to an overseas destination. These agents are
familiar with the import rules and regulations, the
methods of shipping, and the documents related to
foreign trade. They recommend the packing methods
that will protect the merchandise during transit. Freight
forwarders can also reserve for the company the
necessary space on a vessel, aircraft, train or truck.
They also prepare the bill of lading and any special
required documentation. Freight forwarders can also
make arrangement with customs brokers overseas that
the goods comply with customs export documentation
regulations. They have the expertise that allows them
to prepare and process the documentation and perform
related activities pertaining to international shipments.
As an analogy, freight forwarders have been called
travel agents for freight.24
Significantly, both the voluntary arbitrator and the CA
recognized that the petitioner was within its right in
entering the forwarding agreements with the forwarders
as an exercise of its management prerogative. The
petitioner's declared objective for the arrangement is to
achieve greater economy and efficiency in its
operations – a universally accepted business objective
and standard that the union has never questioned.
In Meralco v. Quisumbing,25 we joined this universal
recognition of outsourcing as a legitimate activity when
we held that a company can determine in its best
judgment whether it should contract out a part of its
work for as long as the employer is motivated by good
faith; the contracting is not for purposes
of circumventing the law; and does not involve or
be the result of malicious or arbitrary action.
While the voluntary arbitrator and the CA saw nothing
irregular in the contracting out as a whole, they held
otherwise for the ancillary or support services involving
clerical work, materials handling and documentation.
62
They held these to be the same as the workplace
activities undertaken by regular company rank-and-file
employees covered by the bargaining unit who work
under company control; hence, they concluded that the
forwarders’ employees should be considered as regular
company employees.
Our own examination of the agreement shows that the
forwarding arrangement complies with the requirements
of Article 10626 of the Labor Code and its implementing
rules.27 To reiterate, no evidence or argument questions
the company’s basic objective of achieving "greater
economy and efficiency of operations." This, to our mind,
goes a long way to negate the presence of bad faith. 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 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 – effects that under the
implementing rules of Article 106 of the Labor Code can
make a contracting arrangement illegal. The other
requirements of Article 106, on the other hand, are
simply not material to the present petition. Thus, on the
whole, we see no evidence or argument effectively
showing that the outsourcing of the forwarding activities
violate our labor laws, regulations, and the parties’ CBA,
specifically that it interfered with, restrained or coerced
employees in the exercise of their rights to self-
organization as provided in Section 6, par. (f) of the
implementing rules. The only exception, of course, is
what the union now submits as a voluntary arbitration
issue – i.e., the failure to recognize certain forwarder
employees as regular company employees and the effect
of this failure on the CBA’s scope of coverage – which
issue we fully discuss below.
The job of forwarding, as we earlier described, consists
not only of a single activity but of several services that
complement one another and can best be viewed as one
whole process involving a package of services. These
services include packing, loading, materials handling and
support clerical activities, all of which are directed at the
transport of company goods, usually to foreign
destinations.
It is in the appreciation of these forwarder services as
one whole package of inter-related services that we
discern a basic misunderstanding that results in the error
of equating the functions of the forwarders’ employees
with those of regular rank-and-file employees of the
company. A clerical job, for example, may similarly
involve typing and paper pushing activities and may be
done on the same company products that 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
employees, to be sure, work for the company under its
supervision and control, but forwarder employees work
for the forwarder in the forwarder’s own operation that is
itself a contracted work from the company. The company
controls its 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 latter’s
work, without controlling however the means and
manner of the forwarder employees’ work. This
interaction is best exemplified by the adduced
evidence, particularly the affidavits of petitioner’s
warehouse manager Gregorio28 and Section Head
Bawar29 discussed below.
From the perspective of the union in the present case,
we note that the forwarding agreements were already
in place when the current CBA was signed. 30 In this
sense, the union accepted the forwarding arrangement,
albeit implicitly, when it signed the CBA with the
company. Thereby, the union agreed, again implicitly
by its silence and acceptance, that jobs related to the
contracted forwarding activities are not regular
company activities and are not to be undertaken by
regular employees falling within the scope of the
bargaining unit but by the forwarders’ employees.
Thus, the skills requirements and job content between
forwarders’ jobs and bargaining unit jobs may be the
same, and they may even work on the same company
products, but their work for different purposes and for
different entities completely distinguish and separate
forwarder and company employees from one another.
A clerical job, therefore, if undertaken by a forwarders’
employee in support of forwarding activities, is not a
CBA-covered undertaking or a regular company
activity.
The best evidence supporting this conclusion can be
found in the CBA itself, Article 1, Sections 1, 2, 3 and 4
(VII) of which provide:
Section 1. Recognition and Bargaining Unit. – Upon the
union’s representation and showing of continued
majority status among the employees covered by the
bargaining unit as already appropriately constituted,
the company recognizes the union as the sole and
exclusive collective bargaining representative of all its
regular rank-and-file employees, except those
excluded from the bargaining unit as hereinafter
enumerated in Sections 2 and 3 of this Article, for
purposes of collective bargaining in respect to their
rates of pay and other terms and condition of
employment for the duration of this Agreement.
Section 2. Exclusions. The following employment
categories are expressly excluded from the bargaining
unit and from the scope of this Agreement: executives,
managers, supervisors and those employees
exercising any of the attributes of a managerial
employee; Accounting Department, Controlling
Department, Human Resources Department and IT
Department employees, department secretaries, the
drivers and personnel assigned to the Office of the
General Manager and the Office of the Commercial
63
Affairs and Treasury, probationary, temporary and casual
employees, security guards, and other categories of
employees declared by law to be eligible for union
membership.
Section 3. Additional Exclusions. Employees within the
bargaining unit heretofore defined, who are promoted or
transferred to an excluded employment category as
herein before enumerated, shall automatically be
considered as resigned and/or disqualified from
membership in the UNION and automatically removed
from the bargaining unit.
Section 4. Definitions – x x x
VII. A regular employee is one who having satisfactorily
undergone the probationary period of employment and
passed the company’s full requirement for regular
employees, such as, but not limited to physical fitness,
proficiency, acceptable conduct and good moral
character, received an appointment as a regular
employee duly signed by the authorized official of the
COMPANY.
[Emphasis supplied.]
When these CBA provisions were put in place, the
forwarding agreements had been in place so that the
forwarders’ employees were never considered as
company employees who would be part of the bargaining
unit. To be precise, the forwarders’ employees and their
positions were not part of the appropriate bargaining unit
"as already constituted." In fact, even now, the union
implicitly recognizes forwarding as a whole as a
legitimate non-company activity by simply claiming as
part of their unit the forwarders’ employees undertaking
allied support activities.
At this point, the union cannot simply turn around and
claim through voluntary arbitration the contrary position
that some forwarder employees should be regular
employees and should be part of its bargaining unit
because they undertake regular company functions.
What the union wants is a function of negotiations, or
perhaps an appropriate action before the National Labor
Relations Commission impleading the proper parties, but
not a voluntary arbitration that does not implead the
affected parties. The union must not forget, too, that
before the inclusion of the forwarders’ employees in the
bargaining unit can be considered, these employees
must first be proven to be regular company employees.
As already mentioned, the union does not even have the
personality to make this claim for these forwarders’
employees. This is the impenetrable wall that the union
cannot, for now, pass through using the voluntary
arbitration proceedings now before us on appeal.
Significantly, the evidence presented does not also prove
the union’s point that forwarder employees undertake
company rather than the forwarders' activities. We say
this mindful that forwarding includes a whole range of
activities that may duplicate company activities in terms
of the exact character and content of the job done and
even of the skills required, but cannot be legitimately
labeled as company activities because they properly
pertain to forwarding that the company has contracted
out.
The union’s own evidence, in fact, speaks against the
point the union wishes to prove. Specifically, the
affidavits of forwarder KNI employees Barit,
Prevendido, and Enano, submitted in evidence by the
union, confirm that the work they were doing was
predominantly related to forwarding or the shipment or
transport of the petitioner’s finished goods to overseas
destinations, particularly to Germany and the United
States of America (USA). lavvphil
Barit31 deposed that on August 2, 2004 he started
working at the petitioner's CBE finished goods area as
an employee of forwarder Emery Transnational Air
Cargo Group; on the same date, he was absorbed by
KNI and was assigned the same task of a loader; his
actual work involved: making of inventories of CBE
finished products in the warehouse; double checking of
the finished products he inventoried and those received
by the other personnel of KNI; securing from his
superior the delivery note and print-out indicating the
model and the quantity of products to be exported to
Germany; and preparing the loading form and then
referring it to his co-workers from the forwarders who
gather the goods to be transported to Germany based
on the model and quantity needed; with the use of the
computer, printing the airway bill which serves as cargo
ticket for the airline and posted on every box of finished
products before loading on the van of goods bound for
Germany; preparing the gate pass for the van. He
explained that other products to be shipped to the
USA, via sea transport, are picked up by the other
forwarders and brought to their warehouse in
Parañaque.
Prevendido,32 also a loader, stated that his actual work
involved loading into the container van finished CBE
products bound for Germany; when there is a build up
for the E.K. Express (Emirates Airlines), he is sent by
the petitioner to the airlines to load the finished
products and check if they are in good condition;
although the inspection and checking of loaded
finished products should be done by a company
supervisor or clerk, he is asked to do them because he
is already there in the area; he also conducts an
inventory of finished goods in the finished goods area,
prepares loading form schedule and generates the
airway bill and is asked by his supervisor to call up KNI
for the airway bill number.
Enano,33 for his part, stated that on November 11,
1998, he was absorbed by KNI after initially working in
1996 for a janitorial service agency which had a
contract with the petitioner, he was also a loader and
assigned at the finished goods section in the
warehouse department; his actual work involved
64
preparing the gate pass for finished products of the
petitioner to be released; loading the finished products
on the truck and calling up KNI (Air Freight Department)
to check on the volume of the petitioner's products for
export; making inventories of the remaining finished
products and doing other tasks related to the export of
the petitioner's products, which he claimed are supposed
to be done by the company's finished goods supervisor;
and monitoring of KNI's trucking sub-contractor who
handled the transport component of KNI's arrangement
with the petitioner.

The essential nature of the outsourced services is not

substantially altered by the claim of the three KNI
employees that they occasionally do work that pertains to
the company’s finished goods supervisor or a company
employee such as the inspection of goods to be shipped
and inventory of finished goods. This was clarified by
petitioner’s warehouse manager Gregorio 34 and Section
Head Bawar35 in their respective affidavits. They
explained that the three KNI employees do not conduct
inventory of finished goods; rather, as part of the
contract, KNI personnel have to count the boxes of
finished products they load into the trucks to ensure that
the quantity corresponds with the entries made in the
loading form; included in the contracted service is the
preparation of transport documents like the airway bill;
the airway bill is prepared in the office and a KNI
employee calls for the airway bill number, a sticker label
is then printed; and that the use of the company forklift is
necessary for the loading of the finished goods into the
truck.

Thus, even on the evidentiary side, the union’s case

must fail.

In light of these conclusions, we see no need to dwell on

the issue of the voluntary arbitrator’s authority to rule on
issues not expressly submitted but which arise as a
consequence of the voluntary arbitrator’s findings on the
submitted issues.

WHEREFORE, premises considered, we hereby

NULLIFY and SET ASIDE the assailed Court of Appeals
Decision in CA-G.R. SP No. 99029 dated October 28,
2008, together with the Voluntary Arbitrator’s Decision of
May 1, 2007 declaring the employees of forwarders
Diversified Cargo Services, Inc., Airfreight 2100 and
Kuehne & Nagel, Inc., presently designated and
functioning as clerks, material handlers, system or data
encoders and general clerks, to be regular company
employees. No costs.

SO ORDERED.

65
 For the resolution of the Court are three consolidated
petitions for review on certiorari under Rule 45 of the
Rules of Court. G.R. No. 148132 assails the February
28, 2000 Decision1 and the May 7, 2001 Resolution 2 of
the Court of Appeals (CA) in CA-G.R. SP. No. 53831.
G.R. Nos. 151079 and 151372 question the June 11,
2001 Decision3and the December 18, 2001
Resolution4 in CA-G.R. SP. No. 57065.

Regina M. Astorga (Astorga) was employed by

respondent Smart Communications, Incorporated
(SMART) on May 8, 1997 as District Sales Manager of
the Corporate Sales Marketing Group/ Fixed Services
Division (CSMG/FSD). She was receiving a monthly
salary of P33,650.00. As District Sales Manager,
Astorga enjoyed additional benefits, namely, annual
performance incentive equivalent to 30% of her annual
gross salary, a group life and hospitalization insurance
coverage, and a car plan in the amount
of P455,000.00.5

In February 1998, SMART launched an organizational

realignment to achieve more efficient operations. This
was made known to the employees on February 27,
1998.6 Part of the reorganization was the outsourcing
of the marketing and sales force. Thus, SMART
entered into a joint venture agreement with NTT of
Japan, and formed SMART-NTT Multimedia,
Incorporated (SNMI). Since SNMI was formed to do the
sales and marketing work, SMART abolished the
INDEPENDENT CONTRACTORS AND LABOR ONLY CSMG/FSD, Astorga’s division.
CONTRACTS
To soften the blow of the realignment, SNMI agreed to
G.R. No. 148132 January 28, 2008 absorb the CSMG personnel who would be
recommended by SMART. SMART then conducted a
SMART COMMUNICATIONS, INC., petitioner, performance evaluation of CSMG personnel and those
vs. who garnered the highest ratings were favorably
REGINA M. ASTORGA, respondent. recommended to SNMI. Astorga landed last in the
performance evaluation, thus, she was not
x---------------------------------------------------x recommended by SMART. SMART, nonetheless,
offered her a supervisory position in the Customer Care
G.R. No. 151079 January 28, 2008 Department, but she refused the offer because the
position carried lower salary rank and rate.
SMART COMMUNICATIONS, INC., petitioner,
vs. Despite the abolition of the CSMG/FSD, Astorga
REGINA M. ASTORGA, respondent. continued reporting for work. But on March 3, 1998,
SMART issued a memorandum advising Astorga of the
termination of her employment on ground of
x---------------------------------------------------x
redundancy, effective April 3, 1998. Astorga received it
on March 16, 1998.7
G.R. No. 151372 January 28, 2008
The termination of her employment prompted Astorga
REGINA M. ASTORGA, petitioner, to file a Complaint8 for illegal dismissal, non-payment of
vs. salaries and other benefits with prayer for moral and
SMART COMMUNICATIONS, INC. and ANN exemplary damages against SMART and Ann Margaret
MARGARET V. SANTIAGO, respondents. V. Santiago (Santiago). She claimed that abolishing
CSMG and, consequently, terminating her employment
DECISION was illegal for it violated her right to security of tenure.
She also posited that it was illegal for an employer, like
NACHURA, J.: SMART, to contract out services which will displace the
employees, especially if the contractor is an in-house
agency.9
66
SMART responded that there was valid termination. It
argued that Astorga was dismissed by reason of (a) Astorga
redundancy, which is an authorized cause for termination
of employment, and the dismissal was effected in
BACKWAGES; (P33,650.00 x 4 = P134,600.00
accordance with the requirements of the Labor Code. months)
The redundancy of Astorga’s position was the result of
the abolition of CSMG and the creation of a specialized
UNPAID SALARIES (February 15,
and more technically equipped SNMI, which is a valid 1998-April 3, 1998
and legitimate exercise of management prerogative.10
February 15-28, 1998 = P 16,823.00
In the meantime, on May 18, 1998, SMART sent a letter
to Astorga demanding that she pay the current market
March 1-31, [1998] = P 33,650.00
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 April 1-3, 1998 = P 3,882.69
disposition.11 Astorga, however, failed and refused to do
either, thus prompting SMART to file a suit for replevin CAR MAINTENANCE ALLOWANCE = P 8,000.00
with the Regional Trial Court of Makati (RTC) on August (P2,000.00 x 4)
10, 1998. The case was docketed as Civil Case No. 98-
1936 and was raffled to Branch 57.12 FUEL ALLOWANCE = P 14,457.83
(300 liters/mo. x 4 mos. at P12.04/liter)
Astorga moved to dismiss the complaint on grounds of (i)
lack of jurisdiction; (ii) failure to state a cause of action; TOTAL = P211,415.52
(iii) litis pendentia; and (iv) forum-shopping. Astorga
posited that the regular courts have no jurisdiction over
xxxx
the complaint because the subject thereof pertains to a
benefit arising from an employment contract; hence,
jurisdiction over the same is vested in the labor tribunal 3. Jointly and severally pay moral damages in
and not in regular courts.13 the amount of P500,000.00 x x x and
exemplary damages in the amount
of P300,000.00. x x x
Pending resolution of Astorga’s motion to dismiss
the replevin case, the Labor Arbiter rendered a
Decision14dated August 20, 1998, declaring Astorga’s 4. Jointly and severally pay 10% of the amount
dismissal from employment illegal. While recognizing due as attorney’s fees.
SMART’s right to abolish any of its departments, the
Labor Arbiter held that such right should be exercised in SO ORDERED.15
good faith and for causes beyond its control. The Arbiter
found the abolition of CSMG done neither in good faith Subsequently, on March 29, 1999, the RTC issued an
nor for causes beyond the control of SMART, but a ploy Order16 denying Astorga’s motion to dismiss the
to terminate Astorga’s employment. The Arbiter also replevin case. In so ruling, the RTC ratiocinated that:
ruled that contracting out the functions performed by
Astorga to an in-house agency like SNMI was illegal, Assessing the [submission] of the parties, the
citing Section 7(e), Rule VIII-A of the Rules Implementing Court finds no merit in the motion to dismiss.
the Labor Code.
As correctly pointed out, this case is to enforce
Accordingly, the Labor Arbiter ordered: a right of possession over a company car
assigned to the defendant under a car plan
WHEREFORE, judgment is hereby rendered privilege arrangement. The car is registered in
declaring the dismissal of [Astorga] to be illegal the name of the plaintiff. Recovery thereof via
and unjust. [SMART and Santiago] are hereby replevin suit is allowed by Rule 60 of the 1997
ordered to: Rules of Civil Procedure, which is undoubtedly
within the jurisdiction of the Regional Trial
1. Reinstate [Astorga] to [her] former position Court.
or to a substantially equivalent position,
without loss of seniority rights and other In the Complaint, plaintiff claims to be the
owner of the company car and despite demand,
privileges, with full backwages, inclusive of defendant refused to return said car. This is
allowances and other benefits from the time of clearly sufficient statement of plaintiff’s cause of
[her] dismissal to the date of reinstatement, action.
which computed as of this date, are as follows:

67
 Neither is there forum shopping. The element of
litis penden[t]ia does not appear to exist because
the judgment in the labor dispute will not
constitute res judicata to bar the filing of this
case.
WHEREFORE, the Motion to Dismiss is hereby
denied for lack of merit.
SO ORDERED.17
Astorga filed a motion for reconsideration, but the RTC
denied it on June 18, 1999.18
Astorga elevated the denial of her motion via certiorari to
the CA, which, in its February 28, 2000
Decision,19reversed the RTC ruling. Granting the petition
and, consequently, dismissing the replevin case, the CA
held that the case is intertwined with Astorga’s complaint
for illegal dismissal; thus, it is the labor tribunal that has
rightful jurisdiction over the complaint. SMART’s motion
for reconsideration having been denied,20 it elevated the
case to this Court, now docketed as G.R. No. 148132.
Meanwhile, SMART also appealed the unfavorable ruling
of the Labor Arbiter in the illegal dismissal case to the
National Labor Relations Commission (NLRC). In its
September 27, 1999 Decision, 21 the NLRC sustained
Astorga’s dismissal. Reversing the Labor Arbiter, the
NLRC declared the abolition of CSMG and the creation
of SNMI to do the sales and marketing services for
SMART a valid organizational action. It overruled the
Labor Arbiter’s ruling that SNMI is an in-house agency,
holding that it lacked legal basis. It also declared that
contracting, subcontracting and streamlining of
operations for the purpose of increasing efficiency are
allowed under the law. The NLRC further found
erroneous the Labor Arbiter’s disquisition that
redundancy to be valid must be impelled by economic
reasons, and upheld the redundancy measures
undertaken by SMART.
The NLRC disposed, thus:
WHEREFORE, the Decision of the Labor Arbiter
is hereby reversed and set aside. [Astorga] is
further ordered to immediately return the
company vehicle assigned to her. [Smart and
Santiago] are hereby ordered to pay the final
wages of [Astorga] after [she] had submitted the
required supporting papers therefor.
SO ORDERED.22
Astorga filed a motion for reconsideration, but the NLRC
denied it on December 21, 1999.23
Astorga then went to the CA via certiorari. On June 11,
2001, the CA rendered a Decision 24 affirming with
modification the resolutions of the NLRC. In gist, the CA
agreed with the NLRC that the reorganization undertaken
by SMART resulting in the abolition of CSMG was a
legitimate exercise of management prerogative. It
rejected Astorga’s posturing that her non-absorption
into SNMI was tainted with bad faith. However, the CA
found that SMART failed to comply with the mandatory
one-month notice prior to the intended termination.
Accordingly, the CA imposed a penalty equivalent to
Astorga’s one-month salary for this non-compliance.
The CA also set aside the NLRC’s order for the return
of the company vehicle holding that this issue is not
essentially a labor concern, but is civil in nature, and
thus, within the competence of the regular court to
decide. It added that the matter had not been fully
ventilated before the NLRC, but in the regular court.
Astorga filed a motion for reconsideration, while
SMART sought partial reconsideration, of the Decision.
On December 18, 2001, the CA resolved the
motions, viz.:
WHEREFORE, [Astorga’s] motion for
reconsideration is hereby PARTIALLY
GRANTED. [Smart] is hereby ordered to pay
[Astorga] her backwages from 15 February
1998 to 06 November 1998. [Smart’s] motion
for reconsideration is outrightly DENIED.
SO ORDERED.25
Astorga and SMART came to us with their respective
petitions for review assailing the CA ruling, docketed as
G.R Nos. 151079 and 151372. On February 27, 2002,
this Court ordered the consolidation of these petitions
with G.R. No. 148132.26
In her Memorandum, Astorga argues:
I
THE COURT OF APPEALS ERRED IN
UPHOLDING THE VALIDITY OF ASTORGA’S
DISMISSAL DESPITE THE FACT THAT HER
DISMISSAL WAS EFFECTED IN CLEAR
VIOLATION OF THE CONSTITUTIONAL
RIGHT TO SECURITY OF TENURE,
CONSIDERING THAT THERE WAS NO
GENUINE GROUND FOR HER DISMISSAL.
II
SMART’S REFUSAL TO REINSTATE
ASTORGA DURING THE PENDENCY OF THE
APPEAL AS REQUIRED BY ARTICLE 223 OF
THE LABOR CODE, ENTITLES ASTORGA TO
HER SALARIES DURING THE PENDENCY
OF THE APPEAL.
III
THE COURT OF APPEALS WAS CORRECT
IN HOLDING THAT THE REGIONAL TRIAL
68
 COURT HAS NO JURISDICTION OVER THE
COMPLAINT FOR RECOVERY OF A CAR
WHICH ASTORGA ACQUIRED AS PART OF
HER EMPLOYEE (sic) BENEFIT.27
On the other hand, Smart in its Memoranda raises the
following issues:
I
WHETHER THE HONORABLE COURT OF
APPEALS HAS DECIDED A QUESTION OF
SUBSTANCE IN A WAY PROBABLY NOT IN
ACCORD WITH LAW OR WITH APPLICABLE
DECISION OF THE HONORABLE SUPREME
COURT AND HAS SO FAR DEPARTED FROM
THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS AS TO CALL FOR
AN EXERCISE OF THE POWER OF
SUPERVISION WHEN IT RULED THAT SMART
DID NOT COMPLY WITH THE NOTICE
REQUIREMENTS PRIOR TO TERMINATING
ASTORGA ON THE GROUND OF
REDUNDANCY.
II
WHETHER THE NOTICES GIVEN BY SMART
TO ASTORGA AND THE DEPARTMENT OF
LABOR AND EMPLOYMENT ARE
SUBSTANTIAL COMPLIANCE WITH THE
NOTICE REQUIREMENTS BEFORE
TERMINATION.
III
WHETHER THE RULE ENUNCIATED IN
SERRANO VS. NATIONAL LABOR RELATIONS
COMMISSION FINDS APPLICATION IN THE
CASE AT BAR CONSIDERING THAT IN THE
SERRANO CASE THERE WAS ABSOLUTELY
NO NOTICE AT ALL.28
IV
WHETHER THE HONORABLE COURT OF
APPEALS HAS DECIDED A QUESTION OF
SUBSTANCE IN A WAY PROBABLY NOT IN
ACCORD WITH LAW OR WITH APPLICABLE
DECISION[S] OF THE HONORABLE SUPREME
COURT AND HAS SO FAR DEPARTED FROM
THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS AS TO CALL FOR
AN EXERCISE OF THE POWER OF
SUPERVISION WHEN IT RULED THAT THE
REGIONAL TRIAL COURT DOES NOT HAVE
JURISDICTION OVER THE COMPLAINT FOR
REPLEVIN FILED BY SMART TO RECOVER
ITS OWN COMPANY VEHICLE FROM A
FORMER EMPLOYEE WHO WAS LEGALLY
DISMISSED.
V
WHETHER THE HONORABLE COURT OF
APPEALS HAS FAILED TO APPRECIATE
THAT THE SUBJECT OF THE REPLEVIN
CASE IS NOT THE ENFORCEMENT OF A
CAR PLAN PRIVILEGE BUT SIMPLY THE
RECOVERY OF A COMPANY CAR.
VI
WHETHER THE HONORABLE COURT OF
APPEALS HAS FAILED TO APPRECIATE
THAT ASTORGA CAN NO LONGER BE
CONSIDERED AS AN EMPLOYEE OF SMART
UNDER THE LABOR CODE.29
The Court shall first deal with the propriety of
dismissing the replevin case filed with the RTC of
Makati City allegedly for lack of jurisdiction, which is the
issue raised in G.R. No. 148132.
Replevin is an action whereby the owner or person
entitled to repossession of goods or chattels may
recover those goods or chattels from one who has
wrongfully distrained or taken, or who wrongfully
detains such goods or chattels. It is designed to permit
one having right to possession to recover property in
specie from one who has wrongfully taken or detained
the property.30 The term may refer either to the action
itself, for the recovery of personalty, or to the
provisional remedy traditionally associated with it, by
which possession of the property may be obtained by
the plaintiff and retained during the pendency of the
action.31
That the action commenced by SMART against
Astorga in the RTC of Makati City was one for replevin
hardly admits of doubt.
In reversing the RTC ruling and consequently
dismissing the case for lack of jurisdiction, the CA
made the following disquisition, viz.:
[I]t is plain to see that the vehicle was issued to
[Astorga] by [Smart] as part of the employment
package. We doubt that [SMART] would extend
[to Astorga] the same car plan privilege were it
not for her employment as district sales
manager of the company. Furthermore, there is
no civil contract for a loan between [Astorga]
and [Smart]. Consequently, We find that the car
plan privilege is a benefit arising out of
employer-employee relationship. Thus, the
claim for such falls squarely within the original
and exclusive jurisdiction of the labor arbiters
and the NLRC.32
We do not agree. Contrary to the CA’s ratiocination, the
RTC rightfully assumed jurisdiction over the suit and
acted well within its discretion in denying Astorga’s
69
motion to dismiss. SMART’s demand for payment of the
market value of the car or, in the alternative, the
surrender of the car, is not a labor, but a civil, dispute. It
involves the relationship of debtor and creditor rather
than employee-employer relations. 33 As such, the dispute
falls within the jurisdiction of the regular courts.
In Basaya, Jr. v. Militante,34 this Court, in upholding the
jurisdiction of the RTC over the replevin suit, explained:
Replevin is a possessory action, the gist of which
is the right of possession in the plaintiff. The
primary relief sought therein is the return of the
property in specie wrongfully detained by another
person. It is an ordinary statutory proceeding to
adjudicate rights to the title or possession of
personal property. The question of whether or not
a party has the right of possession over the
property involved and if so, whether or not the
adverse party has wrongfully taken and detained
said property as to require its return to plaintiff, is
outside the pale of competence of a labor tribunal
and beyond the field of specialization of Labor
Arbiters.
xxxx
The labor dispute involved is not intertwined with
the issue in the Replevin Case. The respective
issues raised in each forum can be resolved
independently on the other. In fact in 18
November 1986, the NLRC in the case before it
had issued an Injunctive Writ enjoining the
petitioners from blocking the free ingress and
egress to the Vessel and ordering the petitioners
to disembark and vacate. That aspect of the
controversy is properly settled under the Labor
Code. So also with petitioners’ right to picket. But
the determination of the question of who has the
better right to take possession of the Vessel and
whether petitioners can deprive the Charterer, as
the legal possessor of the Vessel, of that right to
possess in addressed to the competence of Civil
Courts.
In thus ruling, this Court is not sanctioning split
jurisdiction but defining avenues of jurisdiction as
laid down by pertinent laws.
The CA, therefore, committed reversible error when it
overturned the RTC ruling and ordered the dismissal of
the replevin case for lack of jurisdiction.
Having resolved that issue, we proceed to rule on the
validity of Astorga’s dismissal.
Astorga was terminated due to redundancy, which is one
of the authorized causes for the dismissal of an
employee. The nature of redundancy as an authorized
cause for dismissal is explained in the leading case
ofWiltshire File Co., Inc. v. National Labor Relations
Commission,35 viz:
x x x redundancy in an employer’s personnel
force necessarily or even ordinarily refers to
duplication of work. That no other person was
holding the same position that private
respondent held prior to termination of his
services does not show that his position had
not become redundant. Indeed, in any well
organized business enterprise, it would be
surprising to find duplication of work and two
(2) or more people doing the work of one
person. We believe that redundancy, for
purposes of the Labor Code, exists where the
services of an employee are in excess of what
is reasonably demanded by the actual
requirements of the enterprise. Succinctly put,
a position is redundant where it is superfluous,
and superfluity of a position or positions may be
the 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.
The characterization of an employee’s services as
superfluous or no longer necessary and, therefore,
properly terminable, is an exercise of business
judgment on the part of the employer. The wisdom and
soundness of such characterization or decision is not
subject to discretionary review provided, of course, that
a violation of law or arbitrary or malicious action is not
shown.36
Astorga claims that the termination of her employment
was illegal and tainted with bad faith. She asserts that
the reorganization was done in order to get rid of her.
But except for her barefaced allegation, no convincing
evidence was offered to prove it. This Court finds it
extremely difficult to believe that SMART would enter
into a joint venture agreement with NTT, form SNMI
and abolish CSMG/FSD simply for the sole purpose of
easing out a particular employee, such as Astorga.
Moreover, Astorga never denied that SMART offered
her a supervisory position in the Customer Care
Department, but she refused the offer because the
position carried a lower salary rank and rate. If indeed
SMART simply wanted to get rid of her, it would not
have offered her a position in any department in the
enterprise.
Astorga also states that the justification advanced by
SMART is not true because there was no compelling
economic reason for redundancy. But contrary to her
claim, an employer is not precluded from adopting a
new policy conducive to a more economical and
effective management even if it is not experiencing
economic reverses. Neither does the law require that
the employer should suffer financial losses before he
can terminate the services of the employee on the
ground of redundancy. 37
70
We agree with the CA that the organizational realignment
introduced by SMART, which culminated in the abolition
of CSMG/FSD and termination of Astorga’s employment
was an honest effort to make SMART’s sales and
marketing departments more efficient and competitive.
As the CA had taken pains to elucidate:
x x x a careful and assiduous review of the
records will yield no other conclusion than that
the reorganization undertaken by SMART is for
no purpose other than its declared objective – as
a labor and cost savings device. Indeed, this
Court finds no fault in SMART’s decision to
outsource the corporate sales market to SNMI in
order to attain greater productivity. [Astorga]
belonged to the Sales Marketing Group under the
Fixed Services Division (CSMG/FSD), a distinct
sales force of SMART in charge of selling
SMART’s telecommunications services to the
corporate market. SMART, to ensure it can
respond quickly, efficiently and flexibly to its
customer’s requirement, abolished CSMG/FSD
and shortly thereafter assigned its functions to
newly-created SNMI Multimedia Incorporated, a
joint venture company of SMART and NTT of
Japan, for the reason that CSMG/FSD does not
have the necessary technical expertise required
for the value added services. By transferring the
duties of CSMG/FSD to SNMI, SMART has
created a more competent and specialized
organization to perform the work required for
corporate accounts. It is also relieved SMART of
all administrative costs – management, time and
money-needed in maintaining the CSMG/FSD.
The determination to outsource the duties of the
CSMG/FSD to SNMI was, to Our mind, a sound
business judgment based on relevant criteria and
is therefore a legitimate exercise of management
prerogative.
Indeed, out of our concern for those lesser
circumstanced in life, this Court has inclined towards the
worker and upheld his cause in most of his conflicts with
his employer. This favored treatment is consonant with
the social justice policy of the Constitution. But while
tilting the scales of justice in favor of workers, the
fundamental law also guarantees the right of the
employer to reasonable returns for his investment. 38 In
this light, we must acknowledge the prerogative of the
employer to adopt such measures as will promote
greater efficiency, reduce overhead costs and enhance
prospects of economic gains, albeit always within the
framework of existing laws. Accordingly, we sustain the
reorganization and redundancy program undertaken by
SMART.
However, as aptly found by the CA, SMART failed to
comply with the mandated one (1) month notice prior to
termination. The record is clear that Astorga received the
notice of termination only on March 16, 1998 39 or less
than a month prior to its effectivity on April 3, 1998.
Likewise, the Department of Labor and Employment was
notified of the redundancy program only on March 6,
1998.40
Article 283 of the Labor Code clearly provides:
Art. 283. Closure of establishment and
reduction of personnel. — The employer may
also terminate the employment of any
employee due to the installation of labor saving
devices, redundancy, retrenchment to prevent
losses or the closing or cessation of operation
of the establishment or undertaking unless the
closing is for the purpose of circumventing the
provisions of this Title, by serving a written
notice on the workers and the Ministry of Labor
and Employment at least one (1) month before
the intended date thereof x x x.
SMART’s assertion that Astorga cannot complain of
lack of notice because the organizational realignment
was made known to all the employees as early as
February 1998 fails to persuade. Astorga’s actual
knowledge of the reorganization cannot replace the
formal and written notice required by the law. In the
written notice, the employees are informed of the
specific date of the termination, at least a month prior
to the effectivity of such termination, to give them
sufficient time to find other suitable employment or to
make whatever arrangements are needed to cushion
the impact of termination. In this case, notwithstanding
Astorga’s knowledge of the reorganization, she
remained uncertain about the status of her employment
until SMART gave her formal notice of termination. But
such notice was received by Astorga barely two (2)
weeks before the effective date of termination, a period
very much shorter than that required by law.
Be that as it may, this procedural infirmity would not
render the termination of Astorga’s employment illegal.
The validity of termination can exist independently of
the procedural infirmity of the dismissal. 41 In DAP
Corporation v. CA,42 we found the dismissal of the
employees therein valid and for authorized cause even
if the employer failed to comply with the notice
requirement under Article 283 of the Labor Code. This
Court upheld the dismissal, but held the employer
liable for non-compliance with the procedural
requirements.
The CA, therefore, committed no reversible error in
sustaining Astorga’s dismissal and at the same time,
awarding indemnity for violation of Astorga's statutory
rights.
However, we find the need to modify, by increasing, the
indemnity awarded by the CA to Astorga, as a sanction
on SMART for non-compliance with the one-month
mandatory notice requirement, in light of our ruling
in Jaka Food Processing Corporation v. Pacot,43 viz.:
71
 [I]f the dismissal is based on a just cause under Resolution in CA-G.R. SP. No. 57065,
Article 282 but the employer failed to comply with are AFFIRMEDwith MODIFICATION. Astorga is
the notice requirement, the sanction to be declared validly dismissed. However, SMART is
imposed upon him should be tempered because ordered to pay AstorgaP50,000.00 as indemnity for its
the dismissal process was, in effect, initiated by non-compliance with procedural due process, her
an act imputable to the employee, and (2) if the separation pay equivalent to one (1) month pay, and
dismissal is based on an authorized cause under her salary from February 15, 1998 until the effective
Article 283 but the employer failed to comply with date of her termination on April 3, 1998. The award of
the notice requirement, the sanction should backwages is DELETED for lack of basis.
be stiffer because the dismissal process was
initiated by the employer’s exercise of his SO ORDERED.
management prerogative.

We deem it proper to increase the amount of the penalty

on SMART to P50,000.00.

As provided in Article 283 of the Labor Code, Astorga is,

likewise, entitled to separation pay equivalent to at least
one (1) month salary or to at least one (1) month’s pay
for every year of service, whichever is higher. The
records show that Astorga’s length of service is less than
a year. She is, therefore, also entitled to separation pay
equivalent to one (1) month pay.

Finally, we note that Astorga claimed non-payment of

wages from February 15, 1998. This assertion was never
rebutted by SMART in the proceedings a quo. No proof
of payment was presented by SMART to disprove the
allegation. It is settled that in labor cases, the burden of
proving payment of monetary claims rests on the
employer.44 SMART failed to discharge the onus
probandi. Accordingly, it must be held liable for Astorga’s
salary from February 15, 1998 until the effective date of
her termination, on April 3, 1998.

However, the award of backwages to Astorga by the CA

should be deleted for lack of basis. Backwages is a relief
given to an illegally dismissed employee. Thus, before
backwages may be granted, there must be a finding of
unjust or illegal dismissal from work. 45 The Labor Arbiter
ruled that Astorga was illegally dismissed. But on appeal,
the NLRC reversed the Labor Arbiter’s ruling and
categorically declared Astorga’s dismissal valid. This
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. The CA’s award of
backwages is totally inconsistent with its finding of valid
dismissal.

WHEREFORE, the petition of SMART docketed as G.R.

No. 148132 is GRANTED. The February 28, 2000
Decision and the May 7, 2001 Resolution of the Court of
Appeals in CA-G.R. SP. No. 53831 are SET ASIDE. The
Regional Trial Court of Makati City, Branch 57
is DIRECTED to proceed with the trial of Civil Case No.
98-1936 and render its Decision with reasonable
dispatch.

On the other hand, the petitions of SMART and Astorga

docketed as G.R. Nos. 151079 and 151372 are DENIED.
The June 11, 2001 Decision and the December 18, 2001

72

INDEPENDENT CONTRACTORS AND LABOR ONLY
CONTRACTS
G.R. No. 179546 February 13, 2009
COCA-COLA BOTTLERS PHILS., INC., Petitioner,
vs.
ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G.
ALARIAO, JR., ALFONSO PAA, JR., DEMPSTER P.
ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO, and
EDWIN M. GOLEZ, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule
45 of the Rules of Court, assailing the Decision 1 dated
19 February 2007, promulgated by the Court of
Appeals in CA-G.R. SP No. 85320, reversing the
Resolution2rendered on 30 October 2003 by the
National Labor Relations Commission (NLRC) in NLRC
NCR CA No. 036494-03. The Court of Appeals, in its
assailed Decision, declared that respondents Alan M.
Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso
Paa, Jr., Dempster P. Ong, Urriquia T. Arvin, Gil H.
Francisco, and Edwin M. Golez were regular
employees of petitioner Coca-Cola Bottlers Phils., Inc;
and that Interserve Management & Manpower
Resources, Inc. (Interserve) was a labor-only
contractor, whose presence was intended merely to
preclude respondents from acquiring tenurial security.
Petitioner is a domestic corporation duly registered with
the Securities and Exchange Commission (SEC) and
engaged in manufacturing, bottling and distributing soft
drink beverages and other allied products.
On 15 April 2002, respondents filed before the NLRC
two complaints against petitioner, Interserve, Peerless
Integrated Services, Inc., Better Builders, Inc., and
Excellent Partners, Inc. for reinstatement with
backwages, regularization, nonpayment of 13th month
pay, and damages. The two cases, docketed as NLRC
NCR Case No. 04-02345-2002 and NLRC NCR Case
No. 05-03137-02, were consolidated.
Respondents alleged in their Position Paper that they
were salesmen assigned at the Lagro Sales Office of
petitioner. They had been in the employ of petitioner for
years, but were not regularized. Their employment was
terminated on 8 April 2002 without just cause and due
process. However, they failed to state the reason/s for
filing a complaint against Interserve; Peerless
Integrated Services, Inc.; Better Builders, Inc.; and
Excellent Partners, Inc.3
Petitioner filed its Position Paper (with Motion to
Dismiss),4 where it averred that respondents were
employees of Interserve who were tasked to perform
contracted services in accordance with the provisions
of the Contract of Services5 executed between
petitioner and Interserve on 23 March 2002. Said
Contract between petitioner and Interserve, covering
the period of 1 April 2002 to 30 September 2002,
constituted legitimate job contracting, given that the
latter was a bona fide independent contractor with
substantial capital or investment in the form of tools,
equipment, and machinery necessary in the conduct of
its business.
To prove the status of Interserve as an independent
contractor, petitioner presented the following pieces of
evidence: (1) the Articles of Incorporation of
Interserve;6 (2) the Certificate of Registration of
73
Interserve with the Bureau of Internal Revenue; 7 (3) the
Income Tax Return, with Audited Financial Statements, of
Interserve for 2001;8 and (4) the Certificate of
Registration of Interserve as an independent job
contractor, issued by the Department of Labor and
Employment (DOLE).9
As a result, petitioner asserted that respondents were
employees of Interserve, since it was the latter which
hired them, paid their wages, and supervised their work,
as proven by: (1) respondents’ Personal Data Files in the
records of Interserve;10 (2) respondents’ Contract of
Temporary Employment with Interserve;11 and (3) the
payroll records of Interserve.12
Petitioner, thus, sought the dismissal of respondents’
complaint against it on the ground that the Labor Arbiter
did not acquire jurisdiction over the same in the absence
of an employer-employee relationship between petitioner
and the respondents.13
In a Decision dated 28 May 2003, the Labor Arbiter found
that respondents were employees of Interserve and not
of petitioner. She reasoned that the standard put forth in
Article 280 of the Labor Code for determining regular
employment (i.e., that the employee is performing
activities that are necessary and desirable in the usual
business of the employer) was not determinative of the
issue of whether an employer-employee relationship
existed between petitioner and respondents. While
respondents performed activities that were necessary
and desirable in the usual business or trade of petitioner,
the Labor Arbiter underscored that respondents’
functions were not indispensable to the principal
business of petitioner, which was manufacturing and
bottling soft drink beverages and similar products.
The Labor Arbiter placed considerable weight on the fact
that Interserve was registered with the DOLE as an
independent job contractor, with total assets amounting
to ₱1,439,785.00 as of 31 December 2001. It was
Interserve that kept and maintained respondents’
employee records, including their Personal Data Sheets;
Contracts of Employment; and remittances to the Social
Securities System (SSS), Medicare and Pag-ibig Fund,
thus, further supporting the Labor Arbiter’s finding that
respondents were employees of Interserve. She ruled
that the circulars, rules and regulations which petitioner
issued from time to time to respondents were not
indicative of control as to make the latter its employees.
Nevertheless, the Labor Arbiter directed Interserve to pay
respondents their pro-rated 13th month benefits for the
period of January 2002 until April 2002. 14
In the end, the Labor Arbiter decreed:
WHEREFORE, judgment is hereby rendered finding that
[herein respondents] are employees of [herein petitioner]
INTERSERVE MANAGEMENT & MANPOWER
RESOURCES, INC. Concomitantly, respondent
Interserve is further ordered to pay [respondents] their
pro-rated 13th month pay.
The complaints against COCA-COLA BOTTLERS
PHILS., INC. is DISMISMMED for lack of merit.
In like manner the complaints against PEERLESS
INTEGRATED SERVICES, INC., BETTER BUILDING
INC. and EXCELLENT PARTNERS COOPERATIVE
are DISMISSED for failure of complainants to pursue
against them.
Other claims are dismissed for lack of merit.
The computation of the Computation and Examination
Unit, this Commission if (sic) made part of this
Decision. 15
Unsatisfied with the foregoing Decision of the Labor
Arbiter, respondents filed an appeal with the NLRC,
docketed as NLRC NCR CA No. 036494-03.
In their Memorandum of Appeal, 16 respondents
maintained that contrary to the finding of the Labor
Arbiter, their work was indispensable to the principal
business of petitioner. Respondents supported their
claim with copies of the Delivery Agreement 17 between
petitioner and TRMD Incorporated, stating that
petitioner was "engaged in the manufacture,
distribution and sale of soft drinks and other related
products with various plants and sales offices and
warehouses located all over the Philippines." Moreover,
petitioner supplied the tools and equipment used by
respondents in their jobs such as forklifts, pallet, etc.
Respondents were also required to work in the
warehouses, sales offices, and plants of petitioner.
Respondents pointed out that, in contrast, Interserve
did not own trucks, pallets cartillas, or any other
equipment necessary in the sale of Coca-Cola
products.
Respondents further averred in their Memorandum of
Appeal that petitioner exercised control over workers
supplied by various contractors. Respondents cited as
an example the case of Raul Arenajo (Arenajo), who,
just like them, worked for petitioner, but was made to
appear as an employee of the contractor Peerless
Integrated Services, Inc. As proof of control by
petitioner, respondents submitted copies of: (1) a
Memorandum18 dated 11 August 1998 issued by
Vicente Dy (Dy), a supervisor of petitioner, addressed
to Arenajo, suspending the latter from work until he
explained his disrespectful acts toward the supervisor
who caught him sleeping during work hours; (2) a
Memorandum19 dated 12 August 1998 again issued by
Dy to Arenajo, informing the latter that the company
had taken a more lenient and tolerant position
regarding his offense despite having found cause for
his dismissal; (3) Memorandum20 issued by Dy to the
personnel of Peerless Integrated Services, Inc.,
requiring the latter to present their timely request for
74
leave or medical certificates for their absences; (4)
Personnel Workers Schedules, 21 prepared by RB Chua,
another supervisor of petitioner; (5) Daily Sales
Monitoring Report prepared by petitioner; 22 and (6) the
Conventional Route System Proposed Set-up of
petitioner. 23
The NLRC, in a Resolution dated 30 October 2003,
affirmed the Labor Arbiter’s Decision dated 28 May 2003
and pronounced that no employer-employee relationship
existed between petitioner and respondents. It reiterated
the findings of the Labor Arbiter that Interserve was an
independent contractor as evidenced by its substantial
assets and registration with the DOLE. In addition, it was
Interserve which hired and paid respondents’ wages, as
well as paid and remitted their SSS, Medicare, and Pag-
ibig contributions. Respondents likewise failed to
convince the NLRC that the instructions issued and
trainings conducted by petitioner proved that petitioner
exercised control over respondents as their
employer.24 The dispositive part of the NLRC Resolution
states:25
WHEREFORE, the instant appeal is hereby DISMISSED
for lack of merit. However, respondent Interserve
Management & Manpower Resources, Inc., is hereby
ordered to pay the [herein respondents] their pro-rated
13th month pay.
Aggrieved once more, respondents sought recourse with
the Court of Appeals by filing a Petition
for Certiorariunder Rule 65, docketed as CA-G.R. SP No.
85320.
The Court of Appeals promulgated its Decision on 9
February 2007, reversing the NLRC Resolution dated 30
October 2003. The appellate court ruled that Interserve
was a labor-only contractor, with insufficient capital and
investments for the services which it was contracted to
perform. With only ₱510,000.00 invested in its service
vehicles and ₱200,000.00 in its machineries and
equipment, Interserve would be hard-pressed to meet
the demands of daily soft drink deliveries of petitioner in
the Lagro area. The Court Appeals concluded that the
respondents used the equipment, tools, and facilities of
petitioner in the day-to-day sales operations.
Additionally, the Court of Appeals determined that
petitioner had effective control over the means and
method of respondents’ work as evidenced by the Daily
Sales Monitoring Report, the Conventional Route System
Proposed Set-up, and the memoranda issued by the
supervisor of petitioner addressed to workers, who, like
respondents, were supposedly supplied by contractors.
The appellate court deemed that the respondents, who
were tasked to deliver, distribute, and sell Coca-Cola
products, carried out functions directly related and
necessary to the main business of petitioner. The
appellate court finally noted that certain provisions of the
Contract of Service between petitioner and Interserve
suggested that the latter’s undertaking did not involve a
specific job, but rather the supply of manpower.
The decretal portion of the Decision of the Court of
Appeals reads:26
WHEREFORE, the petition is GRANTED. The assailed
Resolutions of public respondent NLRC are
REVERSED and SET ASIDE. The case is remanded to
the NLRC for further proceedings.
Petitioner filed a Motion for Reconsideration, which the
Court of Appeals denied in a Resolution, dated 31
August 2007.27
Hence, the present Petition, in which the following
issues are raised28:
I
WHETHER OR NOT THE COURT OF APPEALS
ACTED IN ACCORDANCE WITH EVIDENCE ON
RECORD, APPLICABLE LAWS AND ESTABLISHED
JURISPRUDENCE WHEN IT RULED THAT
INTERSERVE IS A LABOR-ONLY CONTRACTOR;
II
WHETHER OR NOT THE COURT OF APPEALS
ACTED IN ACCORDANCE WITH APPLICABLE LAWS
AND ESTABLISHED JURISPRUDENCE WHEN IT
CONCLUDED THAT RESPONDENTS PERFORMED
WORK NECESSARY AND DESIRABLE TO THE
BUSINESS OF [PETITIONER];
III
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED SERIOUS ERROR WHEN IT
DECLARED THAT RESPONDENTS WERE
EMPLOYEES OF [PETITIONER], EVEN ABSENT THE
FOUR ELEMENTS INDICATIVE OF AN
EMPLOYMENT RELATIONSHIP; AND
IV
WHETHER OR NOT THE COURT OF APPEALS
SERIOUSLY ERRED WHEN IT CONCLUDED THAT
INTERSERVE WAS ENGAGED BY [PETITIONER] TO
SUPPLY MANPOWER ONLY.
The Court ascertains that the fundamental issue in this
case is whether Interserve is a legitimate job
contractor. Only by resolving such issue will the Court
be able to determine whether an employer-employee
relationship exists between petitioner and the
respondents. To settle the same issue, however, the
Court must necessarily review the factual findings of
the Court of Appeals and look into the evidence
presented by the parties on record.
As a general rule, factual findings of the Court of
Appeals are binding upon the Supreme Court. One
75
exception to this rule is when the factual findings of the
former are contrary to those of the trial court, or the lower
administrative body, as the case may be. This Court is
obliged to resolve an issue of fact herein due to the
incongruent findings of the Labor Arbiter and the NLRC
and those of the Court of Appeals. 29
The relations which may arise in a situation, where there
is an employer, a contractor, and employees of the
contractor, are identified and distinguished under Article
106 of the Labor Code:
Article 106. Contractor or subcontractor. - Whenever an
employer enters into a contract with another person for
the performance of the former’s work, the employees of
the contractor and of the latter’s subcontractor, if any,
shall be paid in accordance with the provisions of this
Code.
In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable
with his contractor or subcontractor to such employees to
the extent of the work performed under the contract, in
the same manner and extent that he is liable to
employees directly employed by him.
The Secretary of Labor may, by appropriate regulations,
restrict or prohibit the contracting out of labor to protect
the rights of workers established under this Code. In so
prohibiting or restriction, he may make appropriate
distinctions between labor-only contracting and job
contracting as well as differentiations within these types
of contracting and determine who among the parties
involved shall be considered the employer for purposes
of this Code, to prevent any violation or circumvention of
any provision of this Code.
There is "labor-only" contracting where the person
supplying workers to an employee does not have
substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others,
and the workers recruited and placed by such persons
are performing activities which are directly related to the
principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter
were directly employed by him.
The afore-quoted provision recognizes two possible
relations among the parties: (1) the permitted legitimate
job contract, or (2) the prohibited labor-only contracting.
A legitimate job contract, wherein an employer enters
into a contract with a job contractor for the performance
of the former’s work, is permitted by law. Thus, the
employer-employee relationship between the job
contractor and his employees is maintained. In legitimate
job contracting, the law creates an employer-employee
relationship between the employer and the contractor’s
employees only for a limited purpose, i.e., to ensure
that the employees are paid their wages. The 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 employer is not responsible for any
claim made by the contractor’s employees.30
On the other hand, labor-only contracting is an
arrangement wherein the contractor merely acts as an
agent in recruiting and supplying the principal employer
with workers for the purpose of circumventing labor law
provisions setting down the rights of employees. It is
not condoned by law. A finding by the appropriate
authorities that a contractor is a "labor-only" contractor
establishes an employer-employee relationship
between the principal employer and the contractor’s
employees and the former becomes solidarily liable for
all the rightful claims of the employees. 31
Section 5 of the Rules Implementing Articles 106-109
of the Labor Code, as amended, provides the
guidelines in determining whether labor-only
contracting exists:
Section 5. Prohibition against labor-only contracting.
Labor-only contracting is hereby declared prohibited.
For this purpose, labor-only 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
following elements are [is] present:
i) 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 performing activities which
are directly related to the main business of the
principal; or
ii) The contractor does not exercise the right to
control the performance of the work of the
contractual employee.
The foregoing provisions shall be without prejudice to
the application of Article 248(C) of the Labor Code, as
amended.
"Substantial capital or investment" refers to capital
stocks and subscribed capitalization in the case of
corporations, tools, equipment, 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.
The "right to control" shall refer to the right reversed to
the person for whom the services of the contractual
workers are performed, to determine not only the end
76
to be achieved, but also the manner and means to be
used in reaching that end. (Emphasis supplied.)
When there is labor-only contracting, Section 7 of the
same implementing rules, describes the consequences
thereof:
Section 7. Existence of an employer-employee
relationship.—The contractor or subcontractor shall be
considered the employer of the contractual employee for
purposes of enforcing the provisions of the Labor Code
and other social legislation. The principal, however, shall
be solidarily liable with the contractor in the event of any
violation of any provision of the Labor Code, including
the failure to pay wages.
The principal shall be deemed the employer of the
contractual employee in any of the following case, as
declared by a competent authority:
a. where there is labor-only contracting; or
b. where the contracting arrangement falls within
the prohibitions provided in Section 6
(Prohibitions) hereof.
According to the foregoing provision, labor-only
contracting would give rise to: (1) the creation of an
employer-employee relationship between the principal
and the employees of the contractor or sub-contractor;
and (2) the solidary liability of the principal and the
contractor to the employees in the event of any violation
of the Labor Code.
Petitioner argues that there could not have been labor-
only contracting, since respondents did not perform
activities that were indispensable to petitioner’s principal
business. And, even assuming that they did, such fact
alone does not establish an employer-employee
relationship between petitioner and the respondents,
since respondents were unable to show that petitioner
exercised the power to select and hire them, pay their
wages, dismiss them, and control their conduct.
The argument of petitioner is untenable.
The law clearly establishes an employer-employee
relationship between the principal employer and the
contractor’s employee upon a finding that the contractor
is engaged in "labor-only" contracting. Article 106 of the
Labor Code categorically states: "There is ‘labor-only’
contracting where the person supplying workers to an
employee does not have substantial capital or
investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited
and placed by such persons are performing activities
which are directly related to the principal business of
such employer." Thus, performing activities directly
related to the principal business of the employer is only
one of the two indicators that "labor-only" contracting
exists; the other is lack of substantial capital or
investment. The Court finds that both indicators exist in
the case at bar.
Respondents worked for petitioner as salesmen, with
the exception of respondent Gil Francisco whose job
was designated as leadman. In the Delivery
Agreement32 between petitioner and TRMD
Incorporated, it is stated that petitioner is engaged in
the manufacture, distribution and sale of softdrinks
and other related products. The work of respondents,
constituting distribution and sale of Coca-Cola
products, is clearly indispensable to the principal
business of petitioner. The repeated re-hiring of some
of the respondents supports this finding. 33Petitioner
also does not contradict respondents’ allegations that
the former has Sales Departments and Sales Offices in
its various offices, plants, and warehouses; and that
petitioner hires Regional Sales Supervisors and District
Sales Supervisors who supervise and control the
salesmen and sales route helpers.34
As to the supposed substantial capital and investment
required of an independent job contractor, petitioner
calls the attention of the Court to the authorized capital
stock of Interserve amounting to ₱2,000,000.00.35 It
cites as authority Filipinas Synthetic Fiber Corp. v.
National Labor Relations Commission36 and Frondozo
v. National Labor Relations Commission, 37 where the
contractors’ authorized capital stock of ₱1,600,000.00
and ₱2,000,000.00, respectively, were considered
substantial for the purpose of concluding that they were
legitimate job contractors. Petitioner also refers to Neri
v. National Labor Relations Commission 38 where it was
held that a contractor ceases to be a labor-only
contractor by having substantial capital alone, without
investment in tools and equipment.
This Court is unconvinced.
At the outset, the Court clarifies that although
Interserve has an authorized capital stock amounting to
₱2,000,000.00, only ₱625,000.00 thereof was paid up
as of 31 December 2001. The Court does not set an
absolute figure for what it considers substantial capital
for an independent job contractor, but it measures the
same against the type of work which the contractor is
obligated to perform for the principal. However, this is
rendered impossible in this case since the Contract
between petitioner and Interserve does not even
specify the work or the project that needs to be
performed or completed by the latter’s employees, and
uses the dubious phrase "tasks and activities that are
considered contractible under existing laws and
regulations." Even in its pleadings, petitioner carefully
sidesteps identifying or describing the exact nature of
the services that Interserve was obligated to render to
petitioner. The importance of identifying with
particularity the work or task which Interserve was
supposed to accomplish for petitioner becomes even
more evident, considering that the Articles of
Incorporation of Interserve states that its primary
purpose is to operate, conduct, and maintain the
77
business of janitorial and allied services. 39 But
respondents were hired as salesmen and leadman for
petitioner. The Court cannot, under such ambiguous
circumstances, make a reasonable determination if
Interserve had substantial capital or investment to
undertake the job it was contracting with petitioner.
Petitioner cannot seek refuge in Neri v. National Labor
Relations Commission. Unlike in Neri, petitioner was
unable to prove in the instant case that Interserve had
substantial capitalization to be an independent job
contractor. In San Miguel Corporation v. MAERC
Integrated Services, Inc.,40 therein petitioner San Miguel
Corporation similarly invoked Neri, but was rebuffed by
the Court based on the following ratiocination41 :
Petitioner also ascribes as error the failure of the Court of
Appeals to apply the ruling in Neri v. NLRC. In that case,
it was held that the law did not require one to possess
both substantial capital and investment in the form of
tools, equipment, machinery, work premises, among
others, to be considered a job contractor. The second
condition to establish permissible job contracting was
sufficiently met if one possessed either attribute.
Accordingly, petitioner alleged that the appellate court
and the NLRC erred when they declared MAERC a
labor-only contractor despite the finding that MAERC had
investments amounting to ₱4,608,080.00 consisting of
buildings, machinery and equipment.
However, in Vinoya v. NLRC, we clarified that it was not
enough to show substantial capitalization or investment
in the form of tools, equipment, machinery and work
premises, etc., to be considered an independent
contractor. In fact, jurisprudential holdings were to the
effect that in determining the existence of an
independent contractor relationship, several factors may
be considered, such as, but 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.
In Neri, the Court considered not only the fact that
respondent Building Care Corporation (BCC) had
substantial capitalization but noted that BBC carried on
an independent business and performed its contract
according to its own manner and method, free from the
control and supervision of its principal in all matters
except as to the results thereof. The Court likewise
mentioned that the employees of BCC were engaged to
perform specific special services for their principal. The
status of BCC had also been passed upon by the Court
in a previous case where it was found to be a qualified
job contractor because it was a "big firm which services
among others, a university, an international bank, a big
local bank, a hospital center, government agencies,
etc." Furthermore, there were only two (2)
complainants in that case who were not only selected
and hired by the contractor before being assigned to
work in the Cagayan de Oro branch of FEBTC but the
Court also found that the contractor maintained
effective supervision and control over them.
Thus, in San Miguel Corporation, the investment of
MAERC, the contractor therein, in the form of buildings,
tools, and equipment of more than ₱4,000,000.00 did
not impress the Court, which still declared MAERC to
be a labor-only contractor. In another case, Dole
Philippines, Inc. v. Esteva,42 the Court did not recognize
the contractor therein as a legitimate job contractor,
despite its paid-up capital of over ₱4,000,000.00, in the
absence of substantial investment in tools and
equipment used in the services it was rendering.
Insisting that Interserve had substantial investment,
petitioner assails, for being purely speculative, the
finding of the Court of Appeals that the service vehicles
and equipment of Interserve, with the values of
₱510,000.00 and ₱200,000.00, respectively, could not
have met the demands of the Coca-Cola deliveries in
the Lagro area.
Yet again, petitioner fails to persuade.
The contractor, not the employee, has the burden of
proof that it has the substantial capital, investment, and
tool to engage in job contracting.43 Although not the
contractor itself (since Interserve no longer appealed
the judgment against it by the Labor Arbiter), said
burden of proof herein falls upon petitioner who is
invoking the supposed status of Interserve as an
independent job contractor. Noticeably, petitioner failed
to submit evidence to establish that the service
vehicles and equipment of Interserve, valued at
₱510,000.00 and ₱200,000.00, respectively, were
sufficient to carry out its service contract with petitioner.
Certainly, petitioner could have simply provided the
courts with records showing the deliveries that were
undertaken by Interserve for the Lagro area, the type
and number of equipment necessary for such task, and
the valuation of such equipment. Absent evidence
which a legally compliant company could have easily
provided, the Court will not presume that Interserve
had sufficient investment in service vehicles and
equipment, especially since respondents’ allegation –
that they were using equipment, such as forklifts and
pallets belonging to petitioner, to carry out their jobs –
was uncontroverted.
In sum, Interserve did not have substantial capital or
investment in the form of tools, equipment,
machineries, and work premises; and respondents, its
supposed employees, performed work which was
directly related to the principal business of petitioner. It
is, thus, evident that Interserve falls under the definition
78
of a "labor-only" contractor, under Article 106 of the
Labor Code; as well as Section 5(i) of the Rules
Implementing Articles 106-109 of the Labor Code, as
amended.
The Court, however, does not stop at this finding. It is
also apparent that Interserve is a labor-only contractor
under Section 5(ii)44 of the Rules Implementing Articles
106-109 of the Labor Code, as amended, since it did not
exercise the right to control the performance of the work
of respondents.
The lack of control of Interserve over the respondents
can be gleaned from the Contract of Services between
Interserve (as the CONTRACTOR) and petitioner (as the
CLIENT), pertinent portions of which are reproduced
below:
WHEREAS, the CONTRACTOR is engaged in the
business, among others, of performing and/or
undertaking, managing for consideration, varied projects,
jobs and other related management-oriented services;
WHEREAS, the CONTRACTOR warrants that it has the
necessary capital, expertise, technical know-how and a
team of professional management group and personnel
to undertake and assume the responsibility to carry out
the above mentioned project and services;
WHEREAS, the CLIENT is desirous of utilizing the
services and facilities of the CONTRACTOR for
emergency needs, rush jobs, peak product loads,
temporary, seasonal and other special project
requirements the extent that the available work of the
CLIENT can properly be done by an independent
CONTRACTOR permissible under existing laws and
regulations;
WHEREAS, the CONTRACTOR has offered to perform
specific jobs/works at the CLIENT as stated heretofore,
under the terms and conditions herein stated, and the
CLIENT has accepted the offer.
NOW THEREFORE, for and in consideration of the
foregoing premises and of the mutual covenants and
stipulations hereinafter set forth, the parties have hereto
have stated and the CLIENT has accepted the offer:
1. The CONTRACTOR agrees and undertakes to
perform and/or provide for the CLIENT, on a non-
exclusive basis for tasks or activities that are
considered contractible under existing laws and
regulations, as may be needed by the CLIENT
from time to time.
2. To carry out the undertakings specified in the
immediately preceding paragraph, the
CONTRACTOR shall employ the necessary
personnel like Route Helpers, Salesmen, Drivers,
Clericals, Encoders & PD who are at least
Technical/Vocational courses graduates provided
with adequate uniforms and appropriate
identification cards, who are warranted by the
CONTRACTOR to be so trained as to
efficiently, fully and speedily accomplish the
work and services undertaken herein by the
CONTRACTOR. The CONTRACTOR
represents that its personnel shall be in such
number as will be sufficient to cope with the
requirements of the services and work herein
undertaken and that such personnel shall be
physically fit, of good moral character and has
not been convicted of any crime. The CLIENT,
however, may request for the replacement of
the CONTRACTOR’S personnel if from its
judgment, the jobs or the projects being done
could not be completed within the time
specified or that the quality of the desired result
is not being achieved.
3. It is agreed and understood that the
CONTRACTOR’S personnel will comply with
CLIENT, CLIENT’S policies, rules and
regulations and will be subjected on-the-spot
search by CLIENT, CLIENT’S duly authorized
guards or security men on duty every time the
assigned personnel enter and leave the
premises during the entire duration of this
agreement.
4. The CONTRACTOR further warrants to
make available at times relievers and/or
replacements to ensure continuous and
uninterrupted service as in the case of
absences of any personnel above mentioned,
and to exercise the necessary and due
supervision over the work of its personnel. 45
Paragraph 3 of the Contract specified that the
personnel of contractor Interserve, which included the
respondents, would comply with "CLIENT" as well as
"CLIENT’s policies, rules and regulations." It even
required Interserve personnel to subject themselves to
on-the-spot searches by petitioner or its duly
authorized guards or security men on duty every time
the said personnel entered and left the premises of
petitioner. Said paragraph explicitly established the
control of petitioner over the conduct of respondents.
Although under paragraph 4 of the same Contract,
Interserve warranted that it would exercise the
necessary and due supervision of the work of its
personnel, there is a dearth of evidence to demonstrate
the extent or degree of supervision exercised by
Interserve over respondents or the manner in which it
was actually exercised. There is even no showing that
Interserve had representatives who supervised
respondents’ work while they were in the premises of
petitioner.
Also significant was the right of petitioner under
paragraph 2 of the Contract to "request the
replacement of the CONTRACTOR’S personnel." True,
this right was conveniently qualified by the phrase "if
79
from its judgment, the jobs or the projects being done
could not be completed within the time specified or that
the quality of the desired result is not being achieved,"
but such qualification was rendered meaningless by the
fact that the Contract did not stipulate what work or job
the personnel needed to complete, the time for its
completion, or the results desired. The said provision left
a gap which could enable petitioner to demand the
removal or replacement of any employee in the guise of
his or her inability to complete a project in time or to
deliver the desired result. The power to recommend
penalties or dismiss workers is the strongest indication of
a company’s right of control as direct employer.46
1avvphil.zw+
Paragraph 4 of the same Contract, in which Interserve
warranted to petitioner that the former would provide
relievers and replacements in case of absences of its
personnel, raises another red flag. An independent job
contractor, who is answerable to the principal only for the
results of a certain work, job, or service need not
guarantee to said principal the daily attendance of the
workers assigned to the latter. An independent job
contractor would surely have the discretion over the pace
at which the work is performed, the number of
employees required to complete the same, and the work
schedule which its employees need to follow.
As the Court previously observed, the Contract of
Services between Interserve and petitioner did not
identify the work needed to be performed and the final
result required to be accomplished. Instead, the Contract
specified the type of workers Interserve must provide
petitioner ("Route Helpers, Salesmen, Drivers, Clericals,
Encoders & PD") and their qualifications
(technical/vocational course graduates, physically fit, of
good moral character, and have not been convicted of
any crime). The Contract also states that, "to carry out
the undertakings specified in the immediately preceding
paragraph, the CONTRACTOR shall employ the
necessary personnel," thus, acknowledging that
Interserve did not yet have in its employ the personnel
needed by petitioner and would still pick out such
personnel based on the criteria provided by petitioner. In
other words, Interserve did not obligate itself to perform
an identifiable job, work, or service for petitioner, but
merely bound itself to provide the latter with specific
types of employees. These contractual provisions
strongly indicated that Interserve was merely a recruiting
and manpower agency providing petitioner with workers
performing tasks directly related to the latter’s principal
business.
The certification issued by the DOLE stating that
Interserve is an independent job contractor does not
sway this Court to take it at face value, since the primary
purpose stated in the Articles of Incorporation 47 of
Interserve is misleading. According to its Articles of
Incorporation, the principal business of Interserve is to
provide janitorial and allied services. The delivery and
distribution of Coca-Cola products, the work for which
respondents were employed and assigned to petitioner,
were in no way allied to janitorial services. While the
DOLE may have found that the capital and/or
investments in tools and equipment of Interserve were
sufficient for an independent contractor for janitorial
services, this does not mean that such capital and/or
investments were likewise sufficient to maintain an
independent contracting business for the delivery and
distribution of Coca-Cola products.
With the finding that Interserve was engaged in
prohibited labor-only contracting, petitioner shall be
deemed the true employer of respondents. As regular
employees of petitioner, respondents cannot be
dismissed except for just or authorized causes, none of
which were alleged or proven to exist in this case, the
only defense of petitioner against the charge of illegal
dismissal being that respondents were not its
employees. Records also failed to show that petitioner
afforded respondents the twin requirements of
procedural due process, i.e., notice and hearing, prior
to their dismissal. Respondents were not served
notices informing them of the particular acts for which
their dismissal was sought. Nor were they required to
give their side regarding the charges made against
them. Certainly, the respondents’ dismissal was not
carried out in accordance with law and, therefore,
illegal.48
Given that respondents were illegally dismissed by
petitioner, they are entitled to reinstatement, full
backwages, inclusive of allowances, and to their other
benefits or the monetary equivalents thereof computed
from the time their compensations were withheld from
them up to the time of their actual reinstatement, as
mandated under Article 279 of the Labor Code,.
IN VIEW OF THE FOREGOING, the instant Petition is
DENIED. The Court AFFIRMS WITH MODIFICATION
the Decision dated 19 February 2007 of the Court of
Appeals in CA-G.R. SP No. 85320. The Court
DECLARES that respondents were illegally dismissed
and, accordingly, ORDERS petitioner to reinstate them
without loss of seniority rights, and to pay them full
back wages computed from the time their
compensation was withheld up to their actual
reinstatement. Costs against the petitioner.
SO ORDERED.
80

INDEPENDENT CONTRACTORS AND LABOR ONLY
CONTRACTS
G.R. No. 175501 October 4, 2010
MANILA WATER COMPANY, INC., Petitioner,
vs.
JOSE J. DALUMPINES, EMMANUEL CAPIT, ROMEO
B. CASTOLONE, MELITANTE CASTRO, NONITO
FERNANDEZ, ARNULFO JAMISON, ARTHUR
LAVISTE, ESTEBAN LEGARTO, SUSANO MIRANDA,
RAMON C. REYES, JOSE SIERRA, BENJAMIN
TALAVERA, MOISES ZAPATERO, EDGAR
PAMORAGA, BERNARDO S. MEDINA, MELENCIO
M. BAONGUIS, JR., JOSE AGUILAR, ANGEL C.
GARCIA, JOSE TEODY P. VELASCO, AUGUSTUS J.
TANDOC, ROBERTO DAGDAG, MIGUEL LOPEZ,
GEORGE CABRERA, ARMAN BORROMEO,
RONITO R. FRIAS, ANTONIO VERGARA, RANDY
CORTIGUERRA, and FIRST CLASSIC COURIER
SERVICES, INC., Respondents.
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari
under Rule 45 of the Rules of Court, assailing the
Decision1dated September 12, 2006 and the
Resolution2 dated November 17, 2006 of the Court of
Appeals (CA) in CA-G.R. SP No. 94909.
The facts of the case are as follows:
By virtue of Republic Act No. 8041, otherwise known as
the "National Water Crisis Act of 1995," the
Metropolitan Waterworks and Sewerage System
(MWSS) was given the authority to enter into
concession agreements allowing the private sector in
its operations. Petitioner Manila Water Company, Inc.
(Manila Water) was one of two private concessionaires
contracted by the MWSS to manage the water
distribution system in the east zone of Metro Manila.
The east service area included the following towns and
cities: Mandaluyong, Marikina, Pasig, Pateros, San
Juan, Taguig, Makati, parts of Quezon City and Manila,
Angono, Antipolo, Baras, Binangonan, Cainta,
Cardona, Jala-Jala, Morong, Pililla, Rodriguez, Tanay,
Taytay, Teresa, and San Mateo.3
Under the concession agreement, Manila Water
undertook to absorb the regular employees of MWSS
listed by the latter effective August 1, 1997. Individual
respondents, with the exception of Moises Zapatero
(Zapatero) and Edgar Pamoraga (Pamoraga), were
among the one hundred twenty-one (121) employees
not included in the list of employees to be absorbed by
Manila Water. Nevertheless, Manila Water engaged
their services without written contract from August 1,
1997 to August 31, 1997.4
On September 1, 1997, individual respondents signed
a three (3)-month contract to perform collection
services on commission basis for Manila Water’s
branches in the east zone.5
On November 21, 1997, before the expiration of the
contract of services, the 121 bill collectors formed a
corporation duly registered with the Securities and
Exchange Commission (SEC) as the "Association
Collector’s Group, Inc." (ACGI). ACGI was one of the
entities engaged by Manila Water for its courier
81
service. However, Manila Water contracted ACGI for
collection services only in its Balara Branch.6
In December 1997, Manila Water entered into a service
agreement with respondent First Classic Courier
Services, Inc. (FCCSI) also for its courier needs. The
service agreements between Manila Water and FCCSI
covered the periods 1997 to 1999 and 2000 to
2002.7 Earlier, in a memorandum dated November 28,
1997, FCCSI gave a deadline for the bill collectors who
were members of ACGI to submit applications and letters
of intent to transfer to FCCSI. The individual respondents
in this case were among the bill collectors who joined
FCCSI and were hired effective December 1, 1997.8
On various dates between May and October 2002,
individual respondents were terminated from
employment. Manila Water no longer renewed its
contract with FCCSI because it decided to implement a
"collectorless" scheme whereby Manila Water customers
would instead remit payments through "Bayad
Centers."9 The aggrieved bill collectors individually filed
complaints for illegal dismissal, unfair labor practice,
damages, and attorney’s fees, with prayer for
reinstatement and backwages against petitioner Manila
Water and respondent FCCSI. The complaints were
consolidated and jointly heard.10
Respondent bill collectors alleged that their employment
under Manila Water had four (4) stages: (a) from August
1, 1997 to August 31, 1997; (b) from September 1, 1997
to November 30, 1997; (c) in November 1997 when
FCCSI was incorporated; and (d) after November 1977
when FCCSI came in. While in MWSS, and thereafter in
Manila Water and FCCSI, respondent bill collectors were
made to perform the following functions: (1) delivery of
bills to customers; (2) collection of payments from
customers; and (3) delivery of disconnection notice to
customers. They were also allowed to effect
disconnection and were given tools for this purpose. 11
Respondent bill collectors averred that when Manila
Water issued their individual contracts of service for three
months in September 1997, there was already an
attempt to make it appear that respondent bill collectors
were not its employees but independent contractors.
Respondent bill collectors stressed that they could not
qualify as independent contractors because they did not
have an independent business of their own, tools,
equipment, and capitalization, but were purely dependent
on the wages they earned from Manila Water, which was
termed as "commission."12
Respondent bill collectors alleged that Manila Water had
complete supervision over their work and their
collections, which they had to remit daily to the former.
They also maintained that the incorporation of ACGI did
not mean that they were not employees of Manila Water.
Furthermore, they alleged that they suffered injustice
when Manila Water imposed upon them the work set-up
that caused them to be emotionally depressed because
those who were not assigned to the Balara Branch under
Manila Water’s contract with ACGI were forced to join
FCCSI to retain their employment. They argued that
the entry of FCCSI did not change the employer-
employee relationship of respondent bill collectors with
Manila Water.13
Respondent bill collectors insisted that they remained
employees of Manila Water even after the entry of
FCCSI. The latter did not qualify as a legitimate labor
contractor since it had no substantial capital. FCCSI
only had a paid-up capital of one hundred thousand
pesos (₱100,000.00), out of the four hundred thousand
pesos (₱400,000.00) authorized capital. FCCSI relied
mainly on what Manila Water would pay, from which it
deducted an agency fee, and it had no other clients on
collection. They were forced to transfer to FCCSI when
their service contracts with Manila Water was about to
expire on November 30, 1997. FCCSI was engaged in
labor-only contracting which is prohibited by law.14
Respondent bill collectors averred that even under the
four-fold test of employer-employee relationship, it
appeared that Manila Water was their true employer
based on the following circumstances: (1) it was Manila
Water who engaged their services as bill collectors
when it took over the operations of the east zone from
MWSS on August 1, 1997; (2) it was Manila Water
which paid their wages in the form of commissions
every fifteenth (15th) and thirtieth (30th) day of each
month; (3) Manila Water exercised the power of
dismissal over them as bill collectors as evidenced by
the instances surrounding their termination as set forth
in their respective affidavits, and by the individual
clearances issued to them not by FCCSI but by Manila
Water, stating that the same was "issued in connection
with his termination of contract as Contract Collector of
Manila Water Company"; and (4) their work as bill
collectors was clearly related to the principal business
of Manila Water.15
Respondent FCCSI, on the other hand, claimed that it
is an independent contractor engaged in the business
of providing messengerial or courier services, and it
fulfills the criteria set forth under Department Order No.
10, Series of 1997.16 It was issued a certificate of
registration by the Department of Labor and
Employment (DOLE) as an independent contractor. It
was incorporated and registered with the SEC in
November 1995. It was duly registered with the
Department of Transportation and Communication
(DOTC) and the Office of the Mayor of Makati City for
authority to operate. It has sufficient capital in the form
of tools, equipment, and machinery as attested to by
the Postal Regulation Committee of the DOTC after
conducting an ocular inspection. It provides similar
services to Philippine Long Distance Telephone
Company, Smart Telecommunications, Inc., and Home
Cable, Inc. Under the terms and conditions of its
service agreement with Manila Water, FCCSI has the
power to hire, assign, discipline, or dismiss its own
employees, as well as control the means and methods
82
of accomplishing the assigned tasks, and it pays the
wages of the employees.17
The termination of employment of respondent bill
collectors upon the expiration of FCCSI’s contract with
Manila Water did not mean the automatic termination or
suspension of the employer-employee relationship
between FCCSI and respondent bill collectors. Their
termination after their six (6) month floating status, which
was allowed by law, was due to the non-renewal of
FCCSI’s agreement with Manila Water and its inability to
enter into a similar contract requiring the skills of
respondent bill collectors.18
Petitioner Manila Water, for its part, denied that there
was an employer-employee relationship between its
company and respondent bill collectors. Based on the
agreement between FCCSI and Manila Water,
respondent bill collectors are the employees of the
former, as it is the former that has the right to select/hire,
discipline, supervise, and control. FCCSI has a separate
and distinct legal personality from Manila Water, and it
was duly registered as an independent contractor before
the DOLE.19
Petitioner further claimed that individual service contracts
signed by respondent bill collectors for a 3-month period
with Manila Water were valid and legal. The fact that the
duration of the engagement was stated on the face of the
contract dispels any bad faith on the part of the company.
Fixed term contracts are allowed by law. Furthermore,
respondent bill collectors’ allegation that the
incorporation of ACGI was made as a condition of their
continued employment was unfounded. They transferred
to FCCSI on their own volition. 20
Petitioner Manila Water also averred that, under its
organizational structure, there was no regular plantilla
position of bill collector, which was the main reason why
respondent bill collectors were not included in the list of
MWSS employees absorbed by the company. The
company’s out-sourcing of courier needs to an
independent contractor was valid and legal.
On September 27, 2004, the Labor Arbiter (LA) rendered
a decision,21 the dispositive portion of which reads:
WHEREFORE, premises considered, the complaints
against respondent Manila Water Company, Inc. is
dismissed for lack of jurisdiction due to want of
employer-employee relationship. Respondent First
Classic Courier Services is hereby ordered to pay
complainants separation pay equivalent to one (1)
month pay for every year of service, to wit:
1. JOSE P. DALUMPINES - - - - - - - - ₱36,400.00
2. SUSANO MIRANDA - - - - - - - - - ₱36,400.00
3. EDGAR PAMORAGA - - - - - - - - - ₱29,120.00
4. ARTHUR G. LAVISTI - - - - - - - - - ₱36,400.00
5. BENJAMIN TALAVERA, JR. - - - - ₱36,400.00
6. JOSE S.A. SIERRA - - - - - - - - - - - ₱36,400.00
7. MELITANTE D. CASTRO - - - - - - ₱36,400.00
8. BERNARDO S. MEDINA - - - - - - - ₱36,400.00
9. MELENCIO BAONGUIS - - - - - - - ₱36,400.00
10. NONITO V. FERNANDEZ - - - - - - ₱36,400.00
11. LEGARTO ESTEBAN - - - - - - - - - ₱36,400.00
12. ROMEO B. CASTALONE - - - - - - ₱36,400.00
13. RAMON C. REYES - - - - - - - - - - - ₱36,400.00
14. MOISES L. ZAPATERO - - - - - - - - ₱29,120.00
15. JOSE T. AGUILAR - - - - - - - - - - - ₱36,400.00
16. ARNULFO T. JAMISON - - - - - - - ₱36,400.00
17. ANGEL C. GARCIA - - - - - - - - - - - ₱36,400.00
18. JOSE TEODY P. VELASCO - - - - - ₱36,400.00
19. AUGUSTUS J. TANDOC - - - - - - - ₱36,400.00
20. EMMANUEL L. CAPIT - - - - - - - - ₱36,400.00
21. WILLIAM AGANON - - - - - - - - - - ₱87,360.00
22. ROBERTO S. DAGDAG - - - - - - - - ₱36,400.00
23 MIGUEL J. LOPEZ - - - - - - - - - - - - ₱36,400.00
24. GEORGE CABRERA - - - - - - - - - - ₱36,400.00
25. BORROMEO ARMAN - - - - - - - - - ₱36,400.00
26. RONITO R. FRIAS - - - - - - - - - - - - ₱36,400.00
27. ANTONIO A. VERGARA - - - - - - - ₱36,400.00
28. RANDY T. CORTIGUERRA - - - - - ₱36,400.00
TOTAL - - - - - - - ₱1,055,600.00
SO ORDERED.22
Respondent bill collectors and FCCSI filed their
separate appeals with the National Labor Relations
Commission (NLRC). On March 15, 2006, the NLRC
rendered a decision23 affirming in toto the decision of
the LA. Respondent bill collectors filed a motion for
reconsideration, but the same was denied in a
resolution24 dated April 28, 2006.
Disgruntled, respondent bill collectors filed a petition for
certiorari under Rule 65 of the Rules of Court before
the CA. On September 12, 2006, the CA rendered a
Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, the present
petition is hereby GIVEN DUE COURSE and the writ
prayed for accordingly GRANTED. Consequently, the
assailed Decision dated March 15, 2006 and
Resolution dated April 28, 2006 of the National Labor
83
Relations Commission are hereby ANNULED and SET
ASIDE. A new judgment is hereby entered (a) declaring
the petitioners as employees of private respondent
Manila Water Company, Inc., and their termination as bill
collectors as illegal; and (b) ordering private respondent
Manila Water Company, Inc. to pay the petitioners
separation pay equivalent to one (1) month for every
year of service. In addition, private respondent Manila
Water Company, Inc. is liable to pay ten percent (10%) of
the total amount awarded as attorney’s fees.
No pronouncement as to costs.
SO ORDERED.25
Petitioner Manila Water and respondent bill collectors
filed a motion for reconsideration. However, the CA
denied their respective motions for reconsideration in a
Resolution dated November 17, 2006.
Hence, this petition.
Petitioner Manila Water presented the following issues
for resolution, whether the CA erred (1) in ruling that an
employment relationship exists between respondent bill
collectors and petitioner Manila Water; (2) in its
application of Manila Water Company, Inc. v. Peña 26 to
the instant case; and (3) in ruling that respondent FCCSI
is not a bona fide independent contractor.27
The petition is bereft of merit.
In this case, the LA, the NLRC, and the CA reached
different conclusions of law albeit agreeing on the same
set of facts. It was in their interpretation and appreciation
of the evidence that they differed. The CA ruled that
respondent FCCSI was a labor-only contractor and that
respondent bill collectors are employees of petitioner
Manila Water, while the LA and the NLRC ruled
otherwise.
"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.28
Contracting and subcontracting arrangements are
expressly allowed by law but are subject to regulation for
the promotion of employment and the observance of the
rights of workers to just and humane conditions of work,
security of tenure, self-organization, and collective
bargaining.29 In legitimate contracting, the trilateral
relationship between the parties in these arrangements
involves the principal which decides to farm out a job or
service to a contractor or subcontractor, which has the
capacity to independently undertake the performance of
the job, work, or service, and the contractual workers
engaged by the contractor or subcontractor to
accomplish the job, work, or service.30
Job contracting is permissible only if the following
conditions are met: 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
the business.31
On the other hand, the Labor Code expressly prohibits
"labor-only" contracting. Article 106 of the Code
provides that there is labor-only contracting where 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 the workers recruited and placed by such
person are performing activities which are directly
related to the principal business of the employer. In
such cases, the person or intermediary shall be
considered merely as an agent of the employer who
shall be responsible to the workers in the same manner
and to the same extent as if the latter were directly
employed by him.32
Department Order No. 18-02, Series of 2002,
enunciates that labor-only contracting refers 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
following elements are present: (i) 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
performing activities which are directly related to the
main business of the principal; or (ii) the contractor
does not exercise the right to control the performance
of the work of the contractual employee. 33
"Substantial capital or investment" refers to capital
stocks and subscribed capitalization in the case of
corporations, tools, equipment, 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. The "right to control" refers to the right
reserved to the person for whom the services of the
contractual workers are performed, to determine not
only the end to be achieved, but also the manner and
means to be used in reaching that end.34
In the instant case, the CA found that FCCSI is a labor-
only contractor. Based on the factual findings of the
84
CA, FCCSI does not have substantial capital or
investment to qualify as an independent contractor, viz.:
FCCSI was incorporated on November 14, 1995, with an
authorized capital stock of ₱400,000.00, of which only
₱100,000.00 is actually paid-in. Going by the
pronouncement in Peña, such capitalization can hardly
be considered substantial. FCCSI and Manila Water
make much of the 17 April 1997 letter of Postal
Regulation Committee Chairman Francisco V. Ontalan,
Jr. to DOTC Secretary Arturo T. Enrile recommending the
renewal and/or extension of authority to FCCSI to
operate private messengerial delivery services, which
states in part:
"Ocular inspection conducted on its office premises and
evaluation of the documents submitted, the firm during
the six (6) months operation has generated employment
to thirty six (36) messengers, and four (4) office
personnel.
"The office equipt [sic] with modern facilities such as
computers, printers, electric typewriter, working table,
telephone lines, airconditioning unit, pigeon holes,
working tables and delivery vehicles such as a Suzuki
van and three (3) motorcycles. The firm’s audited
financial statement for the period ending 31 December
1996 [shows] that it earned a net income of ₱253,000.00.
x x x."
The above document only proves that FCCSI has no
sufficient investment in the form of tools, equipment and
machinery to undertake contract services for Manila
Water involving a fleet of around 100 collectors assigned
to several branches and covering the service area of
Manila Water customers spread out in several
cities/towns of the East Zone. The only rational
conclusion is that it is Manila Water that provides most if
not all the logistics and equipment including service
vehicles in the performance of the contracted service,
notwithstanding that the contract between FCCSI and
Manila Water states that it is the Contractor which shall
furnish at its own expense all materials, tools and
equipment needed to perform the tasks of collectors.
Moreover, it must be emphasized that petitioners who
are "trained collectors" performed tasks that cannot be
simply categorized as "messengerial." In fact, these are
the very functions they were already discharging even
before they joined FCCSI which "invited" or "solicited"
their placement just about the expiration of their three
(3)-month contract with Manila Water on November 28,
1997. The Agreement between FCCSI and Manila Water
provides that FCCSI shall "field the required number of
trained collectors to the following Customer Relations
Branch Office": Cubao, España, San Juan-Mandaluyong,
Marikina, Pasig, Taguig-Pateros and Makati.35
1avvphi1
As correctly ruled by the CA, FCCSI’s capitalization may
not be considered substantial considering that it had
close to a hundred collectors covering the east zone
service area of Manila Water customers. The allegation
in the position paper of FCCSI that it serves other
companies’ courier needs does not "cure" the fact that
it has insufficient capitalization to qualify as
independent contractor. Neither did FCCSI prove its
allegation by substantial evidence other than by their
self-serving declarations. What is evident is that it was
Manila Water that provided the equipment and service
vehicles needed in the performance of the contracted
service, even if the contract between FCCSI and
Manila Water stated that it was the Contractor which
shall furnish at its own expense all materials, tools, and
equipment needed to perform the tasks of collectors.
Based on the four-fold test of employer-employee
relationship, Manila Water emerges as the employer of
respondent collectors. The elements to determine the
existence of an employment 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's
conduct. 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 accomplish it.36
The factual circumstances in the instant case are
essentially the same as those cited in Manila Water
Company, Inc. v. Hermiño Peña. 37 In that case, 121 bill
collectors, headed by Peña, filed a complaint for illegal
dismissal against Manila Water. The bill collectors
formed ACGI which was registered with the SEC.
Manila Water, in opposing the claim of the bill
collectors, claimed that there was no employer-
employee relationship with the latter. It averred that the
bill collectors were employees of ACGI, a separate
entity engaged in collection services, an independent
contractor which entered into a service contract for the
collection of Manila Water’s accounts. The Court ruled
that ACGI was not an independent contractor but was
engaged in labor-only contracting, and as such, is
considered merely an agent of Manila Water.38
The Court ratiocinated that: First, ACGI does not have
substantial capitalization or investment in the form of
tools, equipment, machineries, work premises, and
other materials to qualify as an independent contractor.
Second, the work of the bill collectors was directly
related to the principal business or operation of Manila
Water. Being in the business of providing water to the
consumers in the east zone, the collection of the
charges by the bill collectors for the company can only
be categorized as related to, and in the pursuit of, the
latter's business. Lastly, ACGI did not carry on an
independent business or undertake the performance of
its service contract in its own manner and using its own
methods, free from the control and supervision of its
principal, Manila Water. Since ACGI is obviously a
labor-only contractor, the workers it supplied are
considered employees of the principal. Furthermore,
the activities performed by the bill collectors were
necessary or desirable to Manila Water's principal trade
or business; thus, they are regular employees of the
85
latter. Since Manila Water failed to comply with the WHEREFORE, in view of the foregoing, the Decision
requirements of termination under the Labor Code, the dated September 12, 2006 and the Resolution dated
dismissal of the bill collectors was tainted with illegality. 39 November 17, 2006 of the Court of Appeals in CA-G.R.
SP No. 94909 are hereby AFFIRMED.
The similarity between the instant case and Peña is very
evident. First, the work set-up between the respondent Costs against petitioner.
contractor FCCSI and respondent bill collectors is the
same as in Peña. Respondent bill collectors were SO ORDERED.
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 element of control
exercised by Manila Water over respondent bill collectors
is essentially the same as in Peña, manifested in the
following circumstances, viz.: (a) respondent bill
collectors reported daily to the branch offices of Manila
Water to remit their collections with the specified monthly
targets and comply with the collection reporting
procedures prescribed by the latter; (b) respondent bill
collectors, except for Pamoraga and Zapatero, were
among the 121 collectors who incorporated ACGI; (c)
Manila Water continued to pay their wages in the form of
commissions even after the employees alleged transfer
to FCCSI. Manila Water paid the respondent bill
collectors their individual commissions, and the lump
sum paid by Manila Water to FCCSI merely represented
the agency fee; and (d) the certification or individual
clearances issued by Manila Water to respondent bill
collectors upon the termination of the service contract
with FCCSI. The certification stated that respondents
were contract collectors of Manila Water and not of
FCCSI. Thus, this Court agrees with the findings of the
CA that if, indeed, FCCSI was the true employer of the
bill collectors, it should have been the one to issue the
certification or individual clearances.

It should be remembered that the control test merely

calls for the existence of the right to control, and not
necessarily the exercise thereof. It is not essential that
the employer actually supervises the performance of
duties of the employee. It is enough that the former has a
right to wield the power.40

Respondent bill collectors are, therefore, employees of

petitioner Manila Water. It cannot be denied that the
tasks performed by respondent bill collectors are directly
related to the principal business or trade of Manila Water.
Payments made by the subscribers are the lifeblood of
the company, and the respondent bill collectors are the
ones who collect these payments.

The primary standard of determining regular employment

is the reasonable connection between the particular
activity performed by the employee in relation to the
usual business or trade of the employer. In this case, the
connection is obvious when we consider the nature of
the work performed and its relation to the scheme of the
particular business or trade in its entirety. Finally, the
repeated and continuing need for the performance of the
job is sufficient evidence of the necessity, if not
indispensability of the activity to the business.41

86

INDEPENDENT CONTRACTORS AND LABOR ONLY
CONTRACTS
G.R. No. 186091 December 15, 2010
EMMANUEL BABAS, DANILO T. BANAG, ARTURO V.
VILLARIN, SR., EDWIN JAVIER, SANDI BERMEO,
REX ALLESA, MAXIMO SORIANO, JR., ARSENIO
ESTORQUE, and FELIXBERTO ANAJAO, Petitioners,
vs.
LORENZO SHIPPING CORPORATION, Respondent.
DECISION
NACHURA, J.:
Petitioners Emmanuel Babas, Danilo T. Banag, Arturo
V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa,
Maximo Soriano, Jr., Arsenio Estorque, and Felixberto
Anajao appeal by certiorari under Rule 45 of the Rules
of Court the October 10, 2008 Decision 1 of the Court of
Appeals (CA) in CA-G.R. SP. No. 103804, and the
January 21, 2009 Resolution,2 denying its
reconsideration.
Respondent Lorenzo Shipping Corporation (LSC) is a
duly organized domestic corporation engaged in the
shipping industry; it owns several equipment necessary
for its business. On September 29, 1997, LSC entered
into a General Equipment Maintenance Repair and
Management Services Agreement3 (Agreement) with
Best Manpower Services, Inc. (BMSI). Under the
Agreement, BMSI undertook to provide maintenance
and repair services to LSC’s container vans, heavy
equipment, trailer chassis, and generator sets. BMSI
further undertook to provide checkers to inspect all
containers received for loading to and/or unloading
from its vessels.
Simultaneous with the execution of the Agreement,
LSC leased its equipment, tools, and tractors to
BMSI.4 The period of lease was coterminous with the
Agreement.
BMSI then hired petitioners on various dates to work at
LSC as checkers, welders, utility men, clerks, forklift
operators, motor pool and machine shop workers,
technicians, trailer drivers, and mechanics. Six years
later, or on May 1, 2003, LSC entered into another
contract with BMSI, this time, a service contract.5
In September 2003, petitioners filed with the Labor
Arbiter (LA) a complaint for regularization against LSC
and BMSI. On October 1, 2003, LSC terminated the
Agreement, effective October 31, 2003. Consequently,
petitioners lost their employment.
BMSI asserted that it is an independent contractor. It
averred that it was willing to regularize petitioners;
however, some of them lacked the requisite
qualifications for the job. BMSI was willing to reassign
petitioners who were willing to accept reassignment.
BMSI denied petitioners’ claim for underpayment of
wages and non-payment of 13th month pay and other
benefits.
LSC, on the other hand, averred that petitioners were
employees of BMSI and were assigned to LSC by
virtue of the Agreement. BMSI is an independent job
contractor with substantial capital or investment in the
form of tools, equipment, and machinery necessary in
the conduct of its business. The Agreement between
LSC and BMSI constituted legitimate job contracting.
Thus, petitioners were employees of BMSI and not of
LSC.
87
After due proceedings, the LA rendered a
decision6 dismissing petitioners’ complaint. The LA found
that petitioners were employees of BMSI. It was BMSI
which hired petitioners, paid their wages, and exercised
control over them.
Petitioners appealed to the National Labor Relations
Commission (NLRC), arguing that BMSI was engaged in
labor-only contracting. They insisted that their employer
was LSC.
On January 16, 2008, the NLRC promulgated its
decision.7 Reversing the LA, the NLRC held:
We find from the records of this case that respondent
BMSI is not engaged in legitimate job contracting.
First, respondent BMSI has no equipment, no office
premises, no capital and no investments as shown in the
Agreement itself which states:
xxxx
VI. RENTAL OF EQUIPMENT
[6.01.] That the CLIENT has several forklifts and truck
tractor, and has offered to the CONTRACTOR the use of
the same by way of lease, the monthly rental of which
shall be deducted from the total monthly billings of the
CONTRACTOR for the services covered by this
Agreement.
6.02. That the CONTRACTOR has agreed to rent the
CLIENT’s forklifts and truck tractor.
6.03. The parties herein have agreed to execute a
Contract of Lease for the forklifts and truck tractor that
will be rented by the CONTRACTOR. (p. 389, Records)
True enough, parties signed a Lease Contract (p. 392,
Records) wherein respondent BMSI leased several
excess equipment of LSC to enable it to discharge its
obligation under the Agreement. So without the
equipment which respondent BMSI leased from
respondent LSC, the former would not be able to perform
its commitments in the Agreement.
In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the
Supreme Court held:
x x x. The phrase "substantial capital and investment in
the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the
conduct of his business," in the Implementing Rules
clearly contemplates tools, equipment, etc., which are
directly related to the service it is being contracted to
render. One who does not have an independent business
for undertaking the job contracted for is just an agent of
the employer. (underscoring ours)
Second, respondent BMSI has no independent
business or activity or job to perform in respondent
LSC free from the control of respondent LSC except as
to the results thereof. In view of the absence of such
independent business or activity or job to be performed
by respondent BMSI in respondent LSC [petitioners]
performed work that was necessary and desirable to
the main business of respondent LSC. Respondents
were not able to refute the allegations of [petitioners]
that they performed the same work that the regular
workers of LSC performed and they stood side by side
with regular employees of respondent LSC performing
the same work. Necessarily, the control on the manner
and method of doing the work was exercised by
respondent LSC and not by respondent BMSI since the
latter had no business of its own to perform in
respondent LSC.
Lastly, respondent BMSI has no other client but
respondent LSC. If respondent BMSI were a going
concern, it would have other clients to which to assign
[petitioners] after its Agreement with LSC expired.
Since there is only one client, respondent LSC, it is
easy to conclude that respondent BMSI is a mere
supplier of labor.
After concluding that respondent BMSI is engaged in
prohibited labor-only contracting, respondent LSC
became the employer of [petitioners] pursuant to DO
18-02.
[Petitioners] therefore should be reinstated to their
former positions or equivalent positions in respondent
LSC as regular employees with full backwages and
other benefits without loss of seniority rights from
October 31, 2003, when they lost their jobs, until actual
reinstatement (Vinoya v. NLRC, 324 SCRA 469). If
reinstatement is not feasible, [petitioners] then should
be paid separation pay of one month pay for every year
of service or a fraction of six months to be considered
as one year, in addition to full backwages.
Concerning [petitioners’] prayer to be paid wage
differentials and benefits under the CBA, We have no
doubt that [petitioners] would be entitled to them if they
are covered by the said CBA. For this purpose,
[petitioners] should first enlist themselves as union
members if they so desire, or pay agency fee.
Furthermore, only [petitioners] who signed the appeal
memorandum are covered by this Decision. As regards
the other complainants who did not sign the appeal, the
Decision of the Labor Arbiter dismissing this case
became final and executory.8
The NLRC disposed thus:
WHEREFORE, the appeal of [petitioners] is
GRANTED. The Decision of the Labor Arbiter is hereby
REVERSED, and a NEW ONE rendered finding
respondent Best Manpower Services, Inc. is engaged
in prohibited labor-only-contracting and finding
88
respondent Lorenzo Shipping Corp. as the employer of
the following [petitioners]:
1. Emmanuel B. Babas
2. Danilo Banag
3. Edwin L. Javier
4. Rex Allesa
5. Arturo Villarin, [Sr.]
6. Felixberto C. Anajao
7. Arsenio Estorque
8. Maximo N. Soriano, Jr.
9. Sandi G. Bermeo
Consequently, respondent Lorenzo Shipping Corp. is
ordered to reinstate [petitioners] to their former positions
as regular employees and pay their wage differentials
and benefits under the CBA.
If reinstatement is not feasible, both respondents
Lorenzo Shipping Corp. and Best Manpower Services
are adjudged jointly and solidarily to pay [petitioners]
separation pay of one month for every year of service, a
fraction of six months to be considered as one year.
In addition, respondent LSC and BMSI are solidarily
liable to pay [petitioners’] full backwages from October
31, 2003 until actual reinstatement or, if reinstatement is
not feasible, until finality of this Decision.
Respondent LSC and respondent BMSI are likewise
adjudged to be solidarily liable for attorney’s fees
equivalent to ten (10%) of the total monetary award.
xxxx
SO ORDERED.9
LSC went to the CA via certiorari. On October 10, 2008,
the CA rendered the now challenged Decision, 10reversing
the NLRC. In holding that BMSI was an independent
contractor, the CA relied on the provisions of the
Agreement, wherein BMSI warranted that it is an
independent contractor, with adequate capital, expertise,
knowledge, equipment, and personnel necessary for the
services rendered to LSC. According to the CA, the fact
that BMSI entered into a contract of lease with LSC did
not ipso facto make BMSI a labor-only contractor; on the
contrary, it proved that BMSI had substantial capital. The
CA was of the view that the law only required substantial
capital or investment. Since BMSI had substantial
capital, as shown by its ability to pay rents to LSC, then it
qualified as an independent contractor. It added that
even under the control test, BMSI would be the real
employer of petitioners, since it had assumed the entire
charge and control of petitioners’ services. The CA
further held that BMSI’s Certificate of Registration as
an independent contractor was sufficient proof that it
was an independent contractor. Hence, the CA
absolved LSC from liability and instead held BMSI as
employer of petitioners.
The fallo of the CA Decision reads:
WHEREFORE, premises considered, the instant
petition is GRANTED and the assailed decision and
resolution of public respondent NLRC are REVERSED
and SET ASIDE. Consequently, the decision of the
Labor Arbiter dated September 29, 2004 is
REINSTATED.
SO ORDERED.11
Petitioners filed a motion for reconsideration, but the
CA denied it on January 21, 2009. 12
Hence, this appeal by petitioners, positing that:
THE HONORABLE COURT OF APPEALS ERRED IN
IGNORING THE CLEAR EVIDENCE OF RECORD
THAT RESPONDENT WAS ENGAGED IN LABOR-
ONLY CONTRACTING TO DEFEAT PETITIONERS’
RIGHT TO SECURITY OF TENURE.13
Before resolving the petition, we note that only seven
(7) of the nine petitioners signed the Verification and
Certification.14 Petitioners Maximo Soriano, Jr.
(Soriano) and Felixberto Anajao (Anajao) did not sign
the Verification and Certification, because they could
no longer be located by their co-petitioners. 15
In Toyota Motor Phils. Corp. Workers Association
(TMPCWA), et al. v. National Labor Relations
Commission,16citing Loquias v. Office of the
Ombudsman,17 we stated that the petition satisfies the
formal requirements only with regard to the petitioner
who signed the petition, but not his co-petitioner who
did not sign nor authorize the other petitioner to sign it
on his behalf. Thus, the petition can be given due
course only as to the parties who signed it. The other
petitioners who did not sign the verification and
certificate against forum shopping cannot be
recognized as petitioners and have no legal standing
before the Court. The petition should be dismissed
outright with respect to the non-conforming petitioners.
Thus, we dismiss the petition insofar as petitioners
Soriano and Anajao are concerned.
Petitioners vigorously insist that they were employees
of LSC; and that BMSI is not an independent
contractor, but a labor-only contractor. LSC, on the
other hand, maintains that BMSI is an independent
89
contractor, with adequate capital and investment. LSC
capitalizes on the ratiocination made by the CA.
In declaring BMSI as an independent contractor, the CA,
in the challenged Decision, heavily relied on the
provisions of the Agreement, wherein BMSI declared that
it was an independent contractor, with substantial capital
and investment.
De Los Santos v. NLRC18 instructed us that the character
of the business, i.e., whether as labor-only contractor or
as job contractor, should
be measured in terms of, and determined by, the criteria
set by statute. The parties cannot dictate by the mere
expedience of a unilateral declaration in a contract the
character of their business.
In San Miguel Corporation v. Vicente B. Semillano,
Nelson Mondejas, Jovito Remada, Alilgilan Multi-Purpose
Coop (AMPCO), and Merlyn N. Policarpio, 19 this Court
explained:
Despite the fact that the service contracts contain
stipulations which are earmarks of independent
contractorship, they do not make it legally so. The
language of a contract is neither determinative nor
conclusive of the relationship between the parties.
Petitioner SMC and AMPCO cannot dictate, by a
declaration in a contract, the character of AMPCO's
business, that is, whether as labor-only contractor, or job
contractor. AMPCO's character should be measured in
terms of, and determined by, the criteria set by statute.
Thus, in distinguishing between prohibited labor-only
contracting and permissible job contracting, the totality of
the facts and the surrounding circumstances of the case
are to be considered.
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 perform activities which are
directly related to the main business of the principal. 20
On the other hand, permissible job contracting or
subcontracting refers to an arrangement whereby a
principal 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. 21
A person is considered engaged in legitimate job
contracting or subcontracting if the following conditions
concur:
(a) The contractor carries on a distinct and
independent business and undertakes the
contract work on his 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 his work
except as to the results thereof;
(b) The contractor has substantial capital or
investment; and
(c) The agreement between the principal and
the 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 welfare benefits.22
Given the above standards, we sustain the petitioners’
contention that BMSI is engaged in labor-only
contracting.
First, petitioners worked at LSC’s 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 control over them or
their work, except for the fact that petitioners were
hired by BMSI.
Second, LSC was unable to present proof that BMSI
had substantial capital. The record before us is bereft
of any proof pertaining to the contractor’s capitalization,
nor to its investment in tools, equipment, or implements
actually used in the performance or completion of the
job, work, or service that it was contracted to render.
What is clear was that the equipment used by BMSI
were owned by, and merely rented from, LSC.
In Mandaue Galleon Trade, Inc. v. Andales, 23 we held:
The law casts the burden on the contractor to prove
that it has substantial capital, investment,
tools, etc.Employees, on the other hand, need not
prove that the contractor does not have substantial
capital, investment, and tools to engage in job-
contracting.
Third, petitioners performed activities which were
directly related to the main business of LSC. The work
of petitioners as checkers, welders, utility men, drivers,
and mechanics could only be characterized as part of,
or at least clearly related to, and in the pursuit of, LSC’s
business. Logically, when petitioners were assigned by
90
BMSI to LSC, BMSI acted merely as a labor-only
contractor.
Lastly, as found by the NLRC, BMSI had no other client
except for LSC, and neither BMSI nor LSC refuted this
finding, thereby bolstering the NLRC finding that BMSI is
a labor-only contractor.
The CA erred in considering BMSI’s Certificate of
Registration as sufficient proof that it is an independent
contractor. In San Miguel Corporation v. Vicente B.
Semillano, Nelson Mondejas, Jovito Remada, Alilgilan
Multi-Purpose Coop (AMPCO), and Merlyn N.
Policarpio,24 we held that a Certificate of Registration
issued by the Department of Labor and Employment is
not conclusive evidence of such status. The fact of
registration simply prevents the legal presumption of
being a mere labor-only contractor from arising. 251avvphi1
WHEREFORE, the petition is GRANTED. The Decision
and the Resolution of the Court of Appeals in CA-G.R.
SP. No. 103804 are REVERSED and SET ASIDE.
Petitioners Emmanuel Babas, Danilo T. Banag, Arturo
V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa,
and Arsenio Estorque are declared regular employees
of Lorenzo Shipping Corporation. Further, LSC is
ordered to reinstate the seven petitioners to their
former position without loss of seniority rights and other
privileges, and to pay full backwages, inclusive of
allowances, and other benefits or their monetary
equivalent, computed from the time compensation was
withheld up to the time of actual reinstatement.
No pronouncement as to costs.
SO ORDERED.

Indubitably, BMSI can only be classified as a labor-only

contractor. The CA, therefore, erred when it ruled
otherwise. Consequently, the workers that BMSI supplied
to LSC became regular employees of the latter. 26 Having
gained regular status, petitioners were entitled to security
of tenure and could only be dismissed for just or
authorized causes and after they had been accorded due
process.

Petitioners lost their employment when LSC terminated

its Agreement with BMSI. However, the termination of
LSC’s Agreement with BMSI cannot be considered a just
or an authorized cause for petitioners’ dismissal. In
Almeda v. Asahi Glass Philippines. Inc. v. Asahi Glass
Philippines, Inc.,27 this Court declared:

The sole reason given for the dismissal of petitioners by

SSASI was the termination of its service contract with
respondent. But since SSASI was a labor-only
contractor, and petitioners were to be deemed the
employees of respondent, then the said reason would
not constitute a just or authorized cause for petitioners’
dismissal. It would then appear that petitioners were
summarily dismissed based on the aforecited reason,
without compliance with the procedural due process for
notice and hearing.

Herein petitioners, having been unjustly dismissed from

work, are entitled to reinstatement without loss of
seniority rights and other privileges and to full back
wages, inclusive of allowances, and to other benefits or
their monetary equivalents computed from the time
compensation was withheld up to the time of actual
reinstatement. Their earnings elsewhere during the
periods of their illegal dismissal shall not be deducted
therefrom.

Accordingly, we hold that the NLRC committed no grave

abuse of discretion in its decision. Conversely, the CA
committed a reversible error when it set aside the NLRC
ruling.

91
 DECISION

BRION, J.:

Before this Court is a Petition for Review on

Certiorari1 filed by petitioners Albert Teng Fish Trading,
its owner Albert Teng, and its manager Emilia Teng-
Chua, to reverse and set aside the September 21,
2004 decision2 and the September 1, 2005
resolution3 of the Court of Appeals (CA) in CA-G.R. SP
No. 78783. The CA reversed the decision of the
Voluntary Arbitrator (VA), National Conciliation and
Mediation Board (NCMB), Region IX, Zamboanga City,
and declared that there exists an employer-employee
relationship between Teng and respondents Hernan
Badilles, Orlando Layese, Eddie Nipa, Alfredo
Pahagac, and Roger Pahagac (collectively, respondent
workers). It also found that Teng illegally dismissed the
respondent workers from their employment.

BACKGROUND FACTS

Albert Teng Fish Trading is engaged in deep sea

fishing and, for this purpose, owns boats (basnig),
equipment, and other fishing paraphernalia. As owner
of the business, Teng claims that he customarily enters
into joint venture agreements with master fishermen
(maestros) who are skilled and are experts in deep sea
fishing; they take charge of the management of each
fishing venture, including the hiring of the members of
its complement. He avers that the maestros hired the
respondent workers as checkers to determine the
volume of the fish caught in every fishing voyage. 4

On February 20, 2003, the respondent workers filed a

complaint for illegal dismissal against Albert Teng Fish
Trading, Teng, and Chua before the NCMB, Region
Branch No. IX, Zamboanga City.

The respondent workers alleged that Teng hired them,

without any written employment contract, to serve as
his "eyes and ears" aboard the fishing boats; to classify
the fish caught by bañera; to report to Teng via radio
communication the classes and volume of each catch;
to receive instructions from him as to where and when
to unload the catch; to prepare the list of the provisions
requested by the maestro and the mechanic for his
approval; and, to procure the items as approved by
him.5 They also claimed that they received regular
INDEPENDENT CONTRACTORS AND LABOR ONLY monthly salaries, 13th month pay, Christmas bonus,
CONTRACTS and incentives in the form of shares in the total volume
of fish caught.
G.R. No. 169704 November 17, 2010
They asserted that sometime in September 2002, Teng
ALBERT TENG, doing business under the firm name expressed his doubts on the correct volume of fish
ALBERT TENG FISH TRADING, and EMILIA TENG- caught in every fishing voyage. 6 In December 2002,
CHUA, Petitioners, Teng informed them that their services had been
vs. terminated.7
ALFREDO S. PAHAGAC, EDDIE D. NIPA, ORLANDO
P. LAYESE, HERNAN Y. BADILLES and ROGER S. In his defense, Teng maintained that he did not have
PAHAGAC, Respondents. any hand in hiring the respondent workers; the
92
maestros, rather than he, invited them to join the venture.
According to him, his role was clearly limited to the
provision of the necessary capital, tools and equipment,
consisting of basnig, gears, fuel, food, and other
supplies.8
The VA rendered a decision9 in Teng’s favor and declared
that no employer-employee relationship existed between
Teng and the respondent workers. The dispositive
portion of the VA’s May 30, 2003 decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing the instant complaint for lack of
merit.
It follows also, that all other claims are likewise
dismissed for lack of merit.10
The respondent workers received the VA’s decision on
June 12, 2003.11 They filed a motion for reconsideration,
which was denied in an order dated June 27, 2003 and
which they received on July 8, 2003. 12 The VA reasoned
out that Section 6, Rule VII of the 1989 Procedural
Guidelines in the Conduct of Voluntary Arbitration
Proceedings (1989 Procedural Guidelines) does not
provide the remedy of a motion for reconsideration to the
party adversely affected by the VA’s order or
decision.13 The order states:
Under Executive Order No. 126, as amended by
Executive Order No. 251, and in order to implement
Article 260-262 (b) of the Labor Code, as amended by
R.A. No. 6715, otherwise known as the Procedural
Guidelines in the Conduct of Voluntary Arbitration
Proceedings, inter alia:
An award or the Decision of the Voluntary Arbitrators
becomes final and executory after ten (10) calendar days
from receipt of copies of the award or decision by the
parties (Sec. 6, Rule VII).
Moreover, the above-mentioned guidelines do not
provide the remedy of a motion for reconsideration to the
party adversely affected by the order or decision of
voluntary arbitrators.14
On July 21, 2003, the respondent-workers elevated the
case to the CA. In its decision of September 21, 2004,
the CA reversed the VA’s decision after finding sufficient
evidence showing the existence of employer-employee
relationship:
WHEREFORE, premises considered, the petition is
granted. The questioned decision of the Voluntary
Arbitrator dated May 30, 2003 is hereby REVERSED and
SET ASIDE by ordering private respondent to pay
separation pay with backwages and other monetary
benefits. For this purpose, the case is REMANDED to
the Voluntary Arbitrator for the computation of petitioner’s
backwages and other monetary benefits. No
pronouncement as to costs.
SO ORDERED.15
Teng moved to reconsider the CA’s decision, but the
CA denied the motion in its resolution of September 1,
2005.16 He, thereafter, filed the present Petition for
Review on Certiorari under Rule 45 of the Rules of
Court, claiming that:
a. the VA’s decision is not subject to a motion
for reconsideration; and
b. no employer-employee relationship existed
between Teng and the respondent workers.
Teng contends that the VA’s decision is not subject to a
motion for reconsideration in the absence of any
specific provision allowing this recourse under Article
262-A of the Labor Code. 17 He cites the 1989
Procedural Guidelines, which, as the VA declared, does
not provide the remedy of a motion for
reconsideration.18 He claims that after the lapse of 10
days from its receipt, the VA’s decision becomes final
and executory unless an appeal is taken. 19 He argues
that when the respondent workers received the VA’s
decision on June 12, 2003, 20 they had 10 days, or until
June 22, 2003, to file an appeal. As the respondent
workers opted instead to move for reconsideration, the
10-day period to appeal continued to run; thus, the VA’s
decision had already become final and executory by
the time they assailed it before the CA on July 21,
2003.21
Teng further insists that the VA was correct in ruling
that there was no employer-employee relationship
between him and the respondent workers. What he
entered into was a joint venture agreement with the
maestros, where Teng’s role was only to provide
basnig, gears, nets, and other tools and equipment for
every fishing voyage.22
THE COURT’S RULING
We resolve to deny the petition for lack of merit.
Article 262-A of the Labor Code does not prohibit the
filing of a motion for reconsideration.
On March 21, 1989, Republic Act No. 6715 23 took
effect, amending, among others, Article 263 of the
Labor Code which was originally worded as:
Art. 263 x x x Voluntary arbitration awards or decisions
shall be final, unappealable, and executory.
As amended, Article 263 is now Article 262-A, which
states:
Art. 262-A. x x x [T]he award or decision x x x shall
contain the facts and the law on which it is based. It
shall be final and executory after ten (10) calendar
93
days from receipt of the copy of the award or decision by
the parties.
Notably, Article 262-A deleted the word "unappealable"
from Article 263. The deliberate selection of the language
in the amendatory act differing from that of the original
act indicates that the legislature intended a change in the
law, and the court should endeavor to give effect to such
intent.24 We recognized the intent of the change of
phraseology in Imperial Textile Mills, Inc. v.
Sampang,25 where we ruled that:
It is true that the present rule [Art. 262-A] makes the
voluntary arbitration award final and executory after ten
calendar days from receipt of the copy of the award or
decision by the parties. Presumably, the decision may
still be reconsidered by the Voluntary Arbitrator on the
basis of a motion for reconsideration duly filed during that
period.26
In Coca-Cola Bottlers Phil., Inc., Sales Force Union-
PTGWO-Balais v. Coca-Cola Bottlers Philippines,
Inc.,27 we likewise ruled that the VA’s decision may still be
reconsidered on the basis of a motion for reconsideration
seasonably filed within 10 days from receipt
thereof.28 The seasonable filing of a motion for
reconsideration is a mandatory requirement to forestall
the finality of such decision. 29 We further cited the 1989
Procedural Guidelines which implemented Article 262-A,
viz:30
[U]nder Section 6, Rule VII of the same guidelines
implementing Article 262-A of the Labor Code, this
Decision, as a matter of course, would become final and
executory after ten (10) calendar days from receipt of
copies of the decision by the parties x x x unless, in the
meantime, a motion for reconsideration or a petition for
review to the Court of Appeals under Rule 43 of the
Rules of Court is filed within the same 10-day period. 31
These rulings fully establish that the absence of a
categorical language in Article 262-A does not preclude
the filing of a motion for reconsideration of the VA’s
decision within the 10-day period. Teng’s allegation that
the VA’s decision had become final and executory by the
time the respondent workers filed an appeal with the CA
thus fails. We consequently rule that the respondent
workers seasonably filed a motion for reconsideration of
the VA’s judgment, and the VA erred in denying the
motion because no motion for reconsideration is allowed.
The Court notes that despite our interpretation that
Article 262-A does not preclude the filing of a motion for
reconsideration of the VA’s decision, a contrary provision
can be found in Section 7, Rule XIX of the Department of
Labor’s Department Order (DO) No. 40, series of 2003:32
Rule XIX
Section 7. Finality of Award/Decision. – The decision,
order, resolution or award of the voluntary arbitrator or
panel of voluntary arbitrators shall be final and
executory after ten (10) calendar days from receipt of
the copy of the award or decision by the parties and it
shall not be subject of a motion for reconsideration.
Presumably on the basis of DO 40-03, the 1989
Procedural Guidelines was revised in 2005 (2005
Procedural Guidelines),33 whose pertinent provisions
provide that:
Rule VII – DECISIONS
Section 6. Finality of Decisions. – The decision of the
Voluntary Arbitrator shall be final and executory after
ten (10) calendar days from receipt of the copy of the
decision by the parties.
Section 7. Motions for Reconsideration. – The decision
of the Voluntary Arbitrator is not subject of a Motion for
Reconsideration.
We are surprised that neither the VA nor Teng cited DO
40-03 and the 2005 Procedural Guidelines as
authorities for their cause, considering that these were
the governing rules while the case was pending and
these directly and fully supported their theory. Had they
done so, their reliance on the provisions would have
nevertheless been unavailing for reasons we shall now
discuss.
In the exercise of its power to promulgate implementing
rules and regulations, an implementing agency, such
as the Department of Labor, 34 is restricted from going
beyond the terms of the law it seeks to implement; it
should neither modify nor improve the law. The agency
formulating the rules and guidelines cannot exceed the
statutory authority granted to it by the legislature. 35
By allowing a 10-day period, the obvious intent of
Congress in amending Article 263 to Article 262-A is to
provide an opportunity for the party adversely affected
by the VA’s decision to seek recourse via a motion for
reconsideration or a petition for review under Rule 43
of the Rules of Court filed with the CA. Indeed, a
motion for reconsideration is the more appropriate
remedy in line with the doctrine of exhaustion of
administrative remedies. For this reason, an appeal
from administrative agencies to the CA via Rule 43 of
the Rules of Court requires exhaustion of available
remedies36 as a condition precedent to a petition under
that Rule.
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. 37 Where Congress
has not clearly required exhaustion, sound judicial
discretion governs,38guided by congressional intent. 39
94
By disallowing reconsideration of the VA’s decision,
Section 7, Rule XIX of DO 40-03 and Section 7 of the
2005 Procedural Guidelines went directly against the
legislative intent behind Article 262-A of the Labor Code.
These rules deny the VA the chance to correct
himself40 and compel the courts of justice to prematurely
intervene with the action of an administrative agency
entrusted with the adjudication of controversies coming
under its special knowledge, training and specific field of
expertise. In this era of clogged court dockets, the need
for specialized administrative agencies with the special
knowledge, experience and capability to hear and
determine promptly disputes on technical matters or
intricate questions of facts, subject to judicial review, is
indispensable.41 In Industrial Enterprises, Inc. v. Court of
Appeals,42 we ruled that relief must first be obtained in an
administrative proceeding before a remedy will be
supplied by the courts even though the matter is within
the proper jurisdiction of a court.43
There exists an employer-employee relationship between
Teng and the respondent workers.
We agree with the CA’s finding that sufficient evidence
exists indicating the existence of an employer-employee
relationship between Teng and the respondent workers.
While Teng alleged that it was the maestros who hired
the respondent workers, it was his company that issued
to the respondent workers identification cards (IDs)
bearing their names as employees and Teng’s signature
as the employer. Generally, in a business establishment,
IDs are issued to identify the holder as a bona fide
employee of the issuing entity.
For the 13 years that the respondent workers worked for
Teng, they received wages on a regular basis, in addition
to their shares in the fish caught. 44 The worksheet
showed that the respondent workers received uniform
amounts within a given year, which amounts annually
increased until the termination of their employment in
2002.45 Teng’s claim that the amounts received by the
respondent workers are mere commissions is
incredulous, as it would mean that the fish caught
throughout the year is uniform and increases in number
each year.
More importantly, the element of control – which we have
ruled in a number of cases to be a strong indicator of the
existence of an employer-employee relationship – is
present in this case. Teng not only owned the tools and
equipment, he directed how the respondent workers
were to perform their job as checkers; they, in fact, acted
as Teng’s eyes and ears in every fishing expedition.
Teng cannot hide behind his argument that the
respondent workers were hired by the maestros. To
consider the respondent workers as employees of the
maestros would mean that Teng committed
impermissible labor-only contracting. As a policy, the
Labor Code prohibits labor-only contracting:
ART. 106. Contractor or Subcontractor – x x x The
Secretary of Labor and Employment may, by
appropriate regulations, restrict or prohibit the
contracting-out of labor.
xxxx
There is "labor-only" contracting where 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 the workers recruited and
placed by such persons are performing activities
which are directly related to the principal business
of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of
the employer who shall be responsible to the workers
in the same manner and extent as if the latter were
directly employed by him.
Section 5 of the DO No. 18-02, 46 which implements
Article 106 of the Labor Code, provides:
Section 5. Prohibition against labor-only contracting.
– Labor-only contracting is hereby declared
prohibited.For this purpose, labor-only 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 following elements are
present:
(i) 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 performing activities which
are directly related to the main business of the
principal; or
(ii) The contractor does not exercise the right to
control over the performance of the work of the
contractual employee.
In the present case, the maestros did not have any
substantial capital or investment. Teng admitted that
1avvphi1
he solely provided the capital and equipment, while the
maestros supplied the workers. The power of control
over the respondent workers was lodged not with the
maestros but with Teng. As checkers, the respondent
workers’ main tasks were to count and classify the fish
caught and report them to Teng. They performed tasks
that were necessary and desirable in Teng’s fishing
business. Taken together, these incidents confirm the
existence of a labor-only contracting which is prohibited
in our jurisdiction, as it is considered to be the
employer’s attempt to evade obligations afforded by
law to employees.
95
Accordingly, we hold that employer-employee ties exist
between Teng and the respondent workers. A finding that
the maestros are labor-only contractors is equivalent to a
finding that an employer-employee relationship exists
between Teng and the respondent workers. As regular
employees, the respondent workers are entitled to all the
benefits and rights appurtenant to regular employment.
The dismissal of an employee, which the employer must
validate, has a twofold requirement: one is substantive,
the other is procedural. 47 Not only must the dismissal be
for a just or an authorized cause, as provided by law; the
rudimentary requirements of due process – the
opportunity to be heard and to defend oneself – must be
observed as well.48 The employer has the burden of
proving that the dismissal was for a just cause; failure to
show this, as in the present case, would necessarily
mean that the dismissal was unjustified and, therefore,
illegal.49
The respondent worker’s allegation that Teng summarily
dismissed them on suspicion that they were not reporting
to him the correct volume of the fish caught in each
fishing voyage was never denied by Teng.
Unsubstantiated suspicion is not a just cause to
terminate one’s employment under Article 282 50 of the
Labor Code. To allow an employer to dismiss an
employee based on mere allegations and generalities
would place the employee at the mercy of his employer,
and would emasculate the right to security of
tenure.51 For his failure to comply with the Labor Code’s
substantive requirement on termination of employment,
we declare that Teng illegally dismissed the respondent
workers.
WHEREFORE, we DENY the petition and AFFIRM the
September 21, 2004 decision and the September 1,
2005 resolution of the Court of Appeals in CA-G.R. SP
No. 78783. Costs against the petitioners.
SO ORDERED.
INDEPENDENT CONTRACTORS AND LABOR ONLY
CONTRACTS
G.R. Nos. 173254-55 & 173263 January 13, 2016
DIAMOND FARMS, INC., Petitioner,
vs.
SOUTHERN PHILIPPINES FEDERATION OF LABOR
(SPFL)-WORKERS SOLIDARITY OF
DARBMUPCO/DIAMOND-SPFL, DIAMOND FARMS
AGRARIAN REFORM BENEFICIARIES MULTI-
PURPOSE COOPERATIVE (DARBMUPCO), VOLTER
LOPEZ, RUEL ROMERO, PATRICIO CAPRECHO, REY
DIMACALI, ELESIO EMANEL, VICTOR SINGSON,
NILDA DIMACALI, PREMITIVO DIAZ, RUDY VISTAL,
*
ROGER MONTERO, JOSISIMO GOMEZ and
MANUEL MOSQUERA, Respondents.
DECISION
JARDELEZA, J.:
We resolve in this Petition for Review under Rule 45 of
1
the Rules of Court, the issue of who among Diamond
Farms, Inc. ("DFI"), Diamond Farms Agrarian Reform
Beneficiaries Multi-Purpose Cooperative
("DARBMUPCO") and the individual
contractors ("respondent-contractors") is the employer
2
of the 400 employees ("respondent-workers").
DFI challenges the March 31, 2006 Decision and May 3
30, 2006 Resolution of the Court Appeals, Special
4
Twenty-Second Division, Cagayan De Oro City for
being contrary to law and jurisprudence. The Decision
dismissed DFI’s Petition for Certiorari in C.A.-G.R. SP
Nos. 53806 and 61607 and granted DARBMUPCO’s
Petition for Certiorari in C.A.-G.R. SP No. 59958. It
declared DFI as the statutory employer of the
respondent-workers.
The Facts
DFI owns an 800-hectare banana plantation ("original
plantation") in Alejal, Carmen, Davao. Pursuant to5
Republic Act No. 6657 or the Comprehensive Agrarian
Reform Law of 1988 ("CARL"), commercial farms shall
be subject to compulsory acquisition and
distribution, thus the original plantation was covered by
6
the law. However, the Department of Agrarian Reform
("DAR") granted DFI a deferment privilege to continue
agricultural operations until 1998. Due to adverse
7
marketing problems and observance of the so-called
"lay-follow" or the resting of a parcel of land for a
certain period of time after exhaustive utilization, DFI
closed some areas of operation in the original
plantation and laid off its employees. These employees
8
petitioned the DAR for the cancellation of DFI’s
deferment privilege alleging that DFI already
abandoned its area of operations. The DAR Regional
9
Director recalled DFI’s deferment privilege resulting in
the original plantation’s automatic compulsory
acquisition and distribution under the CARL. DFI filed10
a motion for reconsideration which was denied. It then
appealed to the DAR Secretary. 11
In the meantime, to minimize losses, DFI offered to
give up its rights and interest over the original
plantation in favor of the government by way of a
Voluntary Offer to Sell. The DAR accepted DFI’s offer
12
to sell the original plantation. However, out of the total
800 hectares, the DAR only approved the disposition of
689.88 hectares. Hence, the original plantation was
split into two: 689.88 hectares were sold to the
government ("awarded plantation") and the remaining
96
200 hectares, more or less, were retained by DFI
("managed area"). The managed area is subject to the
13
outcome of the appeal on the cancellation of the
deferment privilege before the DAR Secretary.
On January 1, 1996, the awarded plantation was turned
over to qualified agrarian reform beneficiaries ("ARBs")
under the CARL. These ARBs are the same farmers who
were working in the original plantation. They
subsequently organized themselves into a multi-purpose
cooperative named "DARBMUPCO," which is one of the
respondents in this case. 14
On March 27, 1996, DARBMUPCO entered into a
Banana Production and Purchase Agreement
("BPPA") with DFI. Under the BPPA, DARBMUPCO
15 16
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 DFI. The 17
BPPA is effective for 10 years. 18
On April 20, 1996, DARBMUPCO and DFI executed a
"Supplemental to Memorandum Agreement"
("SMA"). The SMA stated that DFI shall take care of the
19
labor cost arising from the packaging operation, cable
maintenance, irrigation pump and irrigation maintenance
that the workers of DARBMUPCO shall conduct for DFI’s
account under the BPPA. 20
From the start, DARBMUPCO was hampered by lack of
manpower to undertake the agricultural operation under
the BPPA because some of its members were not willing
to work. Hence, to assist DARBMUPCO in meeting its
21
production obligations under the BPPA, DFI engaged the
services of the respondent-contractors, who in turn
recruited the respondent-workers. 22
The engagement of the respondent-workers, as will be
seen below, started a series of labor disputes among
DARBMUPCO, DFI and the respondent-contractors.
C.A. G.R. SP No. 53806
On February 10, 1997, respondent Southern Philippines
Federation of Labor ("SPFL")—a legitimate labor
organization with a local chapter in the awarded
plantation—filed a petition for certification election in the
Office of the Med-Arbiter in Davao City. SPFL filed the
23
petition on behalf of some 400 workers (the respondent-
workers in this petition) "jointly employed by DFI and
DARBMUPCO" working in the awarded plantation.
DARBMUPCO and DFI denied that they are the
employers of the respondent-workers. They claimed,
instead, that the respondent-workers are the employees
of the respondent-contractors. 24
In an Order dated May 14, 1997, the Med-Arbiter
25
granted the petition for certification election. It directed
the conduct of certification election and declared that
DARBMUPCO was the employer of the respondent-
workers. The Order stated that "whether the said
workers/employees were hired by independent
contractors is of no moment. What is material is that
they were hired purposely to work on the 689.88
hectares banana plantation [the awarded plantation]
now owned and operated by DARBMUPCO." 26
DARBMUPCO appealed to the Secretary of Labor and
Employment ("SOLE"). In a Resolution dated February
18, 1999, the SOLE modified the decision of the Med-
27
Arbiter. The SOLE held that DFI, through its manager
and personnel, supervised and directed the
performance of the work of the respondentcontractors.
The SOLE thus declared DFI as the employer of the
respondent-workers. 28
DFI filed a motion for reconsideration which the SOLE
denied in a Resolution dated May 4, 1999. 29
On June 11, 1999, DFI elevated the case to the Court
of Appeals ("CA") via a Petition for Certiorari under 30
Rule 65 of the Rules of Court. The case was raffled to
the CA’s former Twelfth Division and was docketed
as C.A.-G.R. SP No. 53806.
C.A.-G.R. SP. No. 59958
Meanwhile, on June 20, 1997 and September 15,
31
1997, SPFL, together with more than 300 workers,
32
filed a case for underpayment of wages, non-payment
of 13th month pay and service incentive leave pay and
attorney’s fees against DFI, DARBMUPCO and the
respondent-contractors before the National Labor
Relations Commission ("NLRC") in Davao City.
DARBMUPCO averred that it is not the employer of
respondent-workers; neither is DFI. It asserted that the
money claims should be directed against the true
employer—the respondent-contractors. 33
In a Decision dated January 22, 1999, the Labor 34
Arbiter ("LA") held that the respondent-contractors are
"labor-only contractors." The LA gave credence to the
affidavits of the other contractors of DFI (who are not
35
party-respondents in this petition) asserting that DFI
engaged their services, and supervised and paid their
laborers. The affidavits also stated that the contractors
had no dealings with DARBMUPCO, except that their
work is done in the awarded plantation. 36
The LA held that, under the law, DFI is deemed as the
statutory employer of all the respondent-workers. The 37
LA dismissed the case against DARBMUPCO and the
respondent-contractors. 38
DFI appealed to the NLRC. In a Resolution dated May
24, 1999, the NLRC Fifth Division modified the
39
Decision of the LA and declared that DARBMUPCO
and DFI are the statutory employers of the workers
rendering services in the awarded plantation and the
managed area, respectively. It adjudged DFI and
40
DARBMUPCO as solidarily liable with the respondent-
97
contractors for the monetary claims of the workers, in
proportion to their net planted area. 41
DARBMUPCO filed a motion for reconsideration which
was denied. It filed a second motion for reconsideration
42
in the NLRC, which was also denied for lack of merit and
for being barred under the NLRC Rules of
Procedure. Hence, DARBMUPCO elevated the case to
43
the CA by way of a Petition for Certiorari. The case was
44
docketed asC.A.-G.R. SP. No. 59958.
The former Eleventh Division of the CA consolidated C.A.
G.R. SP. No. 59958 and C.A.-G.R. SP No. 53806 in a
Resolution dated January 27, 2001. 45
C.A.-G.R. SP No. 61607
Pursuant to the May 4, 1999 Resolution of the SOLE
approving the conduct of certification election, the
Department of Labor and Employment ("DOLE")
conducted a certification election on October 1,
1999. On even date, DFI filed an election
46
protest before the Med-Arbiter arguing that the
47
certification election was premature due to the pendency
of a petition for certiorari before the CA assailing the
February 18, 1999 and May 4, 1999 Resolutions of the
SOLE (previously discussed in C.A.-G.R. SP No. 53806).
In an Order dated December 15, 1999, the Med-Arbiter
48
denied DFI’s election protest, and certified SPFL-
Workers Solidarity of DARBMUPCO/DIAMOND-SPFL
("WSD-SPFL") as the exclusive bargaining
representative of the respondent-workers. DFI filed a
Motion for Reconsideration which the Med-Arbiter
49
treated as an appeal, and which the latter elevated to the
SOLE.
In a Resolution dated July 18, 2000, the SOLE 50
dismissed the appeal. The Resolution stated that the
May 4, 1999 Resolution directing the conduct of
certification election is already final and executory on
June 4, 1999. It pointed out that the filing of the petition
for certiorari before the CA assailing the February 18,
1999 and May 4, 1999 Resolutions does not stay the
conduct of the certification election because the CA did
not issue a restraining order. DFI filed a Motion for
51
Reconsideration but the motion was denied. 52
On October 27, 2000, DFI filed a Petition
for Certiorari before the CA, docketed as C.A.-G.R. SP
53
No. 61607.
In a Resolution dated August 2, 2005, the CA Twenty-
54
Third Division consolidated C.A.-G.R. SP No. 61607 with
C.A.-G.R. SP. No. 59958 and C.A. G.R. SP No. 53806.
The Assailed CA Decision and Resolution
The CA was confronted with two issues: 55
(1) "Whether DFI or DARBMUPCO is the
statutory employer of the [respondent-workers]
in these petitions; and
(2) Whether or not a certification election may
be conducted pending the resolution of the
petition forcertiorari filed before this Court, the
main issue of which is the identity of the
employer of the [respondent-workers] in these
petitions."
On the first issue, the CA agreed with the ruling of the
SOLE that DFI is the statutory employer of the
56
respondent-workers. It noted that the DFI hired the
respondent-contractors, who in turn procured their own
men to work in the land owned by DARBMUPCO.
Further, DFI admitted that the respondent-contractors
worked under the direction and supervision of DFI’s
managers and personnel. DFI also paid for the
respondent-contractors’ services. The CA said that the
57
fact that the respondent-workers worked in the land
owned by DARBMUPCO is immaterial. "Ownership of
the land is not one of the four (4) elements generally
considered to establish employer-employee
relationship." 58
The CA also ruled that DFI is the true employer of the
respondent-workers because the respondent-
contractors are not independent contractors. The CA59
stressed that in its pleadings before the Med-Arbiter,
the SOLE, and the CA, DFI revealed that
DARBMUPCO lacks manpower to fulfill the production
requirements under the BPPA. This impelled DFI to
hire contractors to supply labor enabling DARBMUPCO
to meet its quota. The CA observed that while the
various agencies involved in the consolidated petitions
sometimes differ as to who the statutory employer of
the respondent-workers is, they are uniform in finding
that the respondent-contractors are labor-only
contractors. 60
On the second issue, the CA reiterated the ruling of the
SOLE that absent an injunction from the CA, the
61
pendency of a petition for certiorari does not stay the
holding of the certification election. The challenged
62
Resolution of the SOLE is already final and executory
as evidenced by an Entry of Judgment dated July 14,
1999; hence, the merits of the case can no longer be
reviewed. 63
The CA thus held in its Decision dated March 31, 2006:
WHEREFORE, premises considered, this Court hereby
ORDERS:
(1) the DISMISSAL of the petitions in C.A.-G.R.
SP No. 53806 and C.A.-G.R. SP No. 61607;
and
(2) the GRANTING of the petition in C.A.-G.R.
SP No. 59958 and the SETTING ASIDE of the
98
 assailed resolutions of the NLRC dated 24 May
1999, 30 July 1999 and 26 June 2000,
respectively.
SO ORDERED. 64
DFI filed a Motion for Reconsideration of the CA Decision
which was denied in a Resolution dated May 30, 2006. 65
DFI is now before us by way of Petition for Review
on Certiorari praying that DARBMUPCO be declared the
true employer of the respondent-workers.
DARBMUPCO filed a Comment maintaining that under
66
the control test, DFI is the true employer of the
respondent-workers.
Respondent-contractors filed a Verified Explanation and
Memorandum asserting that they were labor-only
67
contractors; hence, they are merely agents of the true
employer of the respondent-workers.
SPFL did not file any comment or memorandum on
behalf of the respondent-workers.68
The Issue
The issue before this Court is who among DFI,
DARBMUPCO and the respondent-contractors is the
employer of the respondent-workers.
Our Ruling
We deny the petition.
This case involves job contracting, a labor arrangement
expressly allowed by law. Contracting or subcontracting
is an arrangement whereby a principal (or employer)
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. It involves a
69
trilateral relationship among the principal or employer,
the contractor or subcontractor, and the workers
engaged by the contractor or subcontractor. 70
Article 106 of the Labor Code of the Philippines (Labor
71
Code) explains the relations which may arise between an
employer, a contractor, and the contractor’s
employees, thus:
72
ART. 106. Contractor or subcontracting. − Whenever an
employer enters into a contract with another person for
the performance of the formers work, the employees of
the contractor and of the latter’s subcontractor, if any,
shall be paid in accordance with the provisions of this
Code.
In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with
this Code, the employer shall be jointly and severally
liable with his contractor or subcontractor to such
employees to the extent of the work performed under
the contract, in the same manner and extent that he is
liable to employees directly employed by him.
The Secretary of Labor and Employment may, by
appropriate regulations, restrict or prohibit the
contracting out of labor to protect the rights of workers
established under this Code. In so prohibiting or
restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as
well as differentiations within these types of contracting
and determine who among the parties involved shall be
considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision
of this Code.
There is "labor-only" contracting where 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 the workers recruited and placed by such
person are performing activities which are directly
related to the principal business of such employer. In
such cases, the person or intermediary shall be
considered merely as an agent of the employer who
shall be responsible to the workers in the same manner
and extent as if the latter were directly employed by
him.
The Omnibus Rules Implementing the Labor
Code distinguishes
73
between permissible job
contracting (or independent contractorship) and labor-
only contracting. Job contracting is permissible under
the Code if the following conditions are met:
(a) 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
(b) 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.
74
In contrast, job contracting shall be deemed as labor-
only contracting, an arrangement prohibited by law, if a
person who undertakes to supply workers to an
employer:
(1) Does not have substantial capital or
investment in the form of tools, equipment,
99
 machineries, work premises and other materials;
and
(2) The workers recruited and placed by such
person are performing activities which are
directly related to the principal business or
operations of the employer in which workers are
habitually employed. 75
As a general rule, a contractor is presumed to be a labor-
only contractor, unless such contractor overcomes the
burden of proving that it has the substantial capital,
investment, tools and the like. 76
Based on the conditions for permissible job
contracting, we rule that respondent-contractors are
labor-only contractors.
There is no evidence showing that respondent-
contractors are independent contractors. The
respondent-contractors, DFI, and DARBMUPCO did not
offer any proof that respondent-contractors were not
engaged in labor-only contracting. In this regard, we cite
our ruling in Caro v. Rilloraza, thus:
77
"In regard to the first assignment of error, the defendant
company pretends to show through Venancio Nasol's
own testimony that he was an independent contractor
who undertook to construct a railway line between
Maropadlusan and Mantalisay, but as far as the record
shows, Nasol did not testify that the defendant company
had no control over him as to the manner or methods he
employed in pursuing his work. On the contrary, he
stated that he was not bonded, and that he only
depended upon the Manila Railroad for money to be paid
to his laborers. As stated by counsel for the plaintiffs, the
word ‘independent contractor’ means 'one who exercises
independent employment and contracts to do a piece of
work according to his own methods and without being
subject to control of his employer except as to result of
the work.' Furthermore, if the employer claims that the
workmen is an independent contractor, for whose acts he
is not responsible, the burden is on him to show his
independence.
Tested by these definitions and by the fact that the
defendant has presented practically no evidence to
determine whether Venancio Nasol was in reality an
independent contractor or not, we are inclined to
think that he is nothing but an intermediary between
the defendant and certain laborers. It is indeed
difficult to find that Nasol is an independent
contractor; a person who possesses no capital or
money of his own to pay his obligations to them, who
files no bond to answer for any fulfillment of his contract
with his employer and specially subject to the control and
supervision of his employer, falls short of the requisites
or conditions necessary for the common and
independent contractor." (Citations omitted; emphasis
78
supplied.)
To support its argument that respondent-contractors
are the employers of respondent-workers, and not
merely labor-only contractors, DFI should have
presented proof showing that respondent-contractors
carry on an independent business and have sufficient
capitalization. The record, however, is bereft of
showing of even an attempt on the part of DFI to
substantiate its argument.
DFI cannot cite the May 24, 1999 Resolution of the
NLRC as basis that respondent-contractors are
independent contractors. Nowhere in the NLRC
Resolution does it say that the respondent-contractors
are independent contractors. On the contrary, the
NLRC declared that "it was not clearly established on
record that said [respondent-]contractors are
independent, xxx."79
Further, respondent-contractors admit, and even insist
that they are engaged in labor-only contracting. As will
be seen below, respondent-contractors made the
admissions and declarations on two
occasions: first was in their Formal Appearance of
Counsel and Motion for Exclusion of Individual Party-
Respondents filed before the LA; andsecond was in
their Verified Explanation and Memorandum filed
before this Court.
Before the LA, respondent-contractors categorically
stated that they are "labor-only" contractors who have
been engaged by DFI and DARBMUPCO. They 80
admitted that they do not have substantial capital or
investment in the form of tools, equipment,
machineries, work premises and other materials, and
they recruited workers to perform activities directly
related to the principal operations of their employer. 81
Before this Court, respondents-
contractors again admitted that they are labor-only
contractors. They narrated that:
1. Herein respondents, Voltaire Lopez, Jr., et
al., were commissioned and contracted by
petitioner, Diamond Farms, Inc. (DFI) to
recruit farm workers, who are the
complaining [respondent-workers] (as
represented by Southern Philippines
Federation of Labor (SPFL) in this appeal
by certiorari), in order to perform specific farm
activities, such as pruning, deleafing, fertilizer
application, bud inject, stem spray, drainage,
bagging, etc., on banana plantation lands
awarded to private respondent, Diamond
Farms Agrarian Reform Beneficiaries Multi-
Purpose Cooperative (DARBMUPCO) and on
banana planted lands owned and managed by
petitioner, DFI.
2. All farm tools, implements and equipment
necessary to performance of such farm
activities were supplied by petitioner DFI to
100
 respondents Voltaire Lopez, Jr., et. al. as well as
to respondents-SPFL, et. al. Herein
respondents Voltaire Lopez, Jr. et. al. had no
adequate capital to acquire or purchase such
tools, implements, equipment, etc.
3. Herein respondents Voltaire Lopez, Jr., et.
al. As well as respondents-SPFL, et. al. were
being directly supervised, controlled and
managed by petitioner DFI farm managers
and supervisors, specifically on work
assignments and performance targets. DFI
managers and supervisors, at their sole
discretion and prerogative, could directly hire and
terminate any or all of the respondents-SPFL, et.
al., including any or all of the herein respondents
Voltaire Lopez, Jr., et. al.
4. Attendance/Time sheets of respondents-SPFL,
et. al. were being prepared by herein
respondents Voltaire Lopez, Jr., et. al., and
correspondingly submitted to petitioner DFI.
Payment of wages to respondents-SPFL, et. al.
were being paid for by petitioner DFI thru herein
respondents Voltaire Lopez, [Jr.], et. al. The latter
were also receiving their wages/salaries from
petitioner DFI for monitoring/leading/recruiting
the respondents-SPFL, et. al.
5. No monies were being paid directly by private
respondent DARBMUPCO to respondents-SPFL,
et al., nor to herein respondents Voltaire Lopez,
[Jr.], et. al. Nor did respondent DARBMUPCO
directly intervene much less supervise any or all
of [the] respondents-SPFL, et. al. including
herein respondents Voltaire Lopez, Jr., et.
al. (Emphasis supplied.)
82
The foregoing admissions are legally binding on
respondent-contractors. Judicial admissions made by
83
parties in the pleadings, or in the course of the trial or
other proceedings in the same case are conclusive and
so does not require further evidence to prove
them. Here, the respondent-contractors voluntarily
84
pleaded that they are labor-only contractors; hence,
these admissions bind them.
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
85
the labor-only contractors and either DFI or
DARBMUPCO is their principal.
We hold that DFI is the principal.
Under Article 106 of the Labor Code, a principal or
employer refers to the person who enters into an
agreement with a job contractor, either for the
performance of a specified work or for the supply of
manpower. In this regard, we quote with approval the
86
findings of the CA, to wit:
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 admits [that] these
[respondent-contractors] worked under the direction
and supervision of the DFI managers and personnel.
DFI paid the [respondent-contractors] for the services
rendered in the plantation and the [respondent-
contractors] in turn pay their workers after they
[respondent-contractors] received payment from DFI.
xxx DARBMUPCO did not have anything to do with the
hiring, supervision and payment of the wages of the
workers-respondents thru the contractors-respondents.
xxx (Emphasis supplied.)
87
DFI does not deny that it engaged the services of the
respondent-contractors. It does not dispute the claims
of respondent-contractors that they sent their billing to
DFI for payment; and that DFI’s managers and
personnel are in close consultation with the
respondent-contractors. 88
DFI cannot argue that DARBMUPCO is the principal of
the respondent-contractors because it (DARBMUPCO)
owns the awarded plantation where respondent-
contractors and respondent-workers were
working; and therefore DARBMUPCO is the ultimate
89
beneficiary of the employment of the respondent-
workers. 90
That DARBMUPCO owns the awarded plantation
where the respondent-contractors and respondent-
workers were working is immaterial. This does not
change the situation of the parties. As correctly found
by the CA, DFI, as the principal, hired the respondent-
contractors and the latter, in turn, engaged the services
of the respondent-workers. This was also the
91
unanimous finding of the SOLE, the LA, and the
92 93
NLRC. Factual findings of the NLRC, when they
94
coincide with the LA and affirmed by the CA are
accorded with great weight and respect and even
finality by this Court.95
Alilin v. Petron Corporation is applicable. In that case,
96
this Court ruled that the presence of the power of
control on the part of the principal over the workers of
the contractor, under the facts, prove the employer-
employee relationship between the former and the
latter, thus:
[A] finding that a contractor is a ‘labor-only’ contractor
is equivalent to declaring that there is an employer-
employee relationship between the principal and the
employees of the supposed contractor." In this case,
the employer-employee relationship between
Petron and petitioners becomes all the more
101
apparent due to the presence of the power of control
on the part of the former over the latter.
It was held in Orozco v. The Fifth Division of the Hon.
Court of Appeals that:
This Court has constantly adhered to the "four-fold test"
to determine whether there exists an employer-employee
relationship between the parties. The four elements of
1âwphi1
an employment relationship are: (a) the selection and
engagement of the employee; (b) the payment of wages;
(c) the power of dismissal; and (d) the power to control
the employee’s conduct.
Of these four elements, it is the power to control
which is the most crucial and most determinative
factor, so important, in fact, that, the other elements
may even be disregarded.
Hence, the facts that petitioners were hired by Romeo or
his father and that their salaries were paid by them do
not detract from the conclusion that there exists an
employer-employee relationship between the parties due
to Petron’s power of control over the petitioners. One
manifestation of the power of control is the power to
transfer employees from one work assignment to
another. Here, Petron could order petitioners to do work
outside of their regular "maintenance/utility" job. Also,
petitioners were required to report for work everyday at
the bulk plant, observe an 8:00 a.m. to 5:00 p.m. daily
work schedule, and wear proper uniform and safety
helmets as prescribed by the safety and security
measures being implemented within the bulk plant. All
these imply control. In an industry where safety is of
paramount concern, control and supervision over
sensitive operations, such as those performed by the
petitioners, are inevitable if not at all necessary. Indeed,
Petron deals with commodities that are highly volatile
and flammable which, if mishandled or not properly
attended to, may cause serious injuries and damage to
property and the environment. Naturally, supervision by
Petron is essential in every aspect of its product handling
in order not to compromise the integrity, quality and
safety of the products that it distributes to the consuming
public. (Citations omitted; emphasis supplied)
97
That DFI is the employer of the respondent-workers is
bolstered by the CA’s finding that DFI exercises control
over the respondent-workers. DFI, through its manager
98
and supervisors provides for the work assignments and
performance targets of the respondent-workers. The
managers and supervisors also have the power to
directly hire and terminate the respondent-
workers. Evidently, DFI wields control over the
99
respondent-workers.
Neither can DFI argue that it is only the purchaser of the
bananas produced in the awarded plantation under the
BPPA, and that under the terms of the BPPA, no
100
employer-employee relationship exists between DFI and
the respondent-workers, to wit:
101
UNDERTAKING OF THE FIRST PARTY
xxx
3. THE FIRST PARTY [DARBMUPCO] shall be
responsible for the proper conduct, safety, benefits and
general welfare of its members working in the
plantation and specifically render free and harmless the
SECOND PARTY [DFI] of any expense, liability or
claims arising therefrom. It is clearly recognized by
the FIRST PARTY that its members and other
personnel utilized in the performance of its
function under this agreement are not employees
of the SECOND PARTY. (Emphasis supplied)
102
In labor-only contracting, it is the law which creates an
employer-employee relationship between the principal
and the workers of the labor-only contractor. 103
Inasmuch as it is the law that forms the employment
ties, the stipulation in the BPPA that respondent-
workers are not employees of DFI is not controlling, as
the proven facts show otherwise. The law prevails over
the stipulations of the parties. Thus, in Tabas v.
California Manufacturing Co., Inc., we held that:
104
The existence of an employer-employees relation is
a question of law and being such, it cannot be
made the subject of agreement. Hence, the fact that
1âwphi1
the manpower supply agreement between Livi and
California had specifically designated the former as the
petitioners' employer and had absolved the latter from
any liability as an employer, will not erase either party's
obligations as an employer, if an employer-employee
relation otherwise exists between the workers and
either firm. xxx (Emphasis supplied.)
105
Clearly, DFI is the true employer of the respondent-
workers; respondent-contractors are only agents of
DFI. Under Article 106 of the Labor Code, DFI shall be
solidarily liable with the respondent-contractors for the
rightful claims of the respondent-workers, to the same
manner and extent as if the latter are directly employed
by DFI.106
WHEREFORE, the petition is DENIED for lack of merit.
The March 31, 2006 Decision and the May 30, 2006
Resolution of the Court of Appeals in C.A.-G.R. SP
Nos. 53806, 61607 and 59958 are hereby AFFIRMED.
SO ORDERED.
102
 EZARD D. LLUZ, NORMAN CORRAL, ERWIN
FUGABAN, VALDIMAR BALISI, EMILIO FABON,
JOHN MARK APLICADOR, MICHAEL CURIOSO,
JUNLIN ESPARES, GA VINO FARINAS, and WARD
TRADING AND SERVICES, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari assailing the

1

Decision dated
2
21 January 2013 and the
Resolution dated 17 July 2013 of the Court of Appeals
3

(CA) in CA-G.R. SP No. 119237.

The Facts

On 23 February 2006, petitioner Manila Memorial Park

Cemetery, Inc. (Manila Memorial) entered into a
Contract of Services with respondent Ward Trading and
Services (Ward Trading). The Contract of Services
provided that Ward Trading, as an independent
contractor, will render interment and exhumation
services and other related work to Manila Memorial in
order to supplement operations at Manila Memorial
Park, Parañaque City.

Among those assigned by Ward Trading to perform

services at the Manila Memorial Park were
respondents Ezard Lluz, Norman Corral, Erwin
Fugaban, Valdimar Balisi, Emilio Fabon, John Mark
Aplicador, Michael Curioso, Junlin Espares, and
Gavino Farinas (respondents). They worked six days a
week for eight hours daily and were paid P250 per day.

On 26 June 2007, respondents filed a Complaint for 4

regularization and Collective Bargaining Agreement

benefits against Manila Memorial; Enrique B.
Lagdameo, Manila Memorial’s Executive Vice-
President and Director in Charge for Overall
Operations, and Ward Trading. On 6 August 2007,
respondents filed an amended complaint to include
illegal dismissal, underpayment of 13th month pay, and
payment of attorney’s fees.

Respondents alleged that they asked Manila Memorial

to consider them as regular workers within the
appropriate bargaining unit established in the collective
bargaining agreement by Manila Memorial and its
union, the Manila Memorial Park Free Workers Union
(MMP Union). Manila Memorial refused the request
INDEPENDENT CONTRACTORS AND LABOR ONLY
since respondents were employed by Ward Trading, an
CONTRACTS
independent labor contractor. Thereafter, respondents
joined the MMP Union. The MMP Union, on behalf of
G.R. No. 208451 February 3, 2016 respondents, sought their regularization which Manila
Memorial again declined. Respondents then filed the
MANILA MEMORIAL PARK CEMETERY, complaint. Subsequently, respondents were dismissed
INC., Petitioner, by Manila Memorial. Thus, respondents amended the
vs.
103
complaint to include the prayer for their reinstatement
and payment of back wages.
Meanwhile, Manila Memorial sought the dismissal of the
complaint for lack of jurisdiction since there was no
employer-employee relationship. Manila Memorial
argued that respondents were the employees of Ward
Trading.
In a Decision dated 29 March 2010, the Labor Arbiter
5 dispositive portion of the Decision states:
dismissed the complaint for failing to prove the existence
of an employer-employee relationship. The dispositive
portion of the Decision states:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing the above-entitled case for
complainants’ lack of employer-employee relationship
with respondent Manila Memorial Park Cemetery, Inc.
SO ORDERED. 6
Respondents appealed to 7
the NLRC. In a Reconsideration which was denied by the CA in a
Decision dated 30 September 2010, the NLRC reversed
8 Resolution dated 17 July 2013.
the Labor Arbiter’s findings. The NLRC ruled that Ward
Trading was a labor-only contractor and an agent of
Manila Memorial. The dispositive portion of the Decision
states:
WHEREFORE, premises considered, complainants’
appeal is GRANTED. The assailed Decision of Labor
Arbiter Geobel A. Bartolabac dated March 29, 2010 is
MODIFIED. It is hereby declared that complainants were
regular employees of respondent Manila Memorial Park
Cemetery, Inc. and entitled to the benefits provided for
under the CBA between the latter and the Manila
Memorial Park Free Workers Union.
Respondent Manila Memorial Park Cemetery, Inc. is
ordered to pay wage differentials to complainants as
follows:
1. Ezard D. Lluz – P43,982.79
2. Norman Corral – P29,765.67
3. Erwin Fugaban – P28,634.67
4. Valdimar Balisi – P20,310.33
5. Emilio Fabon – P43,982.79
6. John Mark Aplicador – P43,982.79
7. Michael Curioso – P43,982.79
8. Ju[n]lin Espares – P43,982.79
9. Gavino Farinas – P43,982.79
SO ORDERED. 9
Manila Memorial filed a Motion for Reconsideration
which was denied in a Resolution dated 31 January
10
2011.
Thereafter, Manila Memorial filed an appeal with the
CA. In a Decision dated 21 January 2013, the CA
affirmed the ruling of the NLRC. The CA found the
existence of an employer-employee relationship
between Manila Memorial and respondents. The
WHEREFORE, in view of the foregoing, the instant
Petition for Certiorari is DENIED. The Decision, dated
September 30, 2010 and the Resolution, dated
January 31, 2011, rendered by the National Labor
Relations Commission (NLRC) in NLRC LAC No. 06-
001267-10 are AFFIRMED.
SO ORDERED. 11
Manila Memorial then filed a Motion for
Hence, the instant petition.
The Issue
The main issue for our resolution is whether or not an
employer-employee relationship exists between Manila
Memorial and respondents for the latter to be entitled
to their claim for wages and other benefits.
The Court’s Ruling
The petition lacks merit.
Manila Memorial contends that Ward Trading has total
assets in excess of P1.4 million, according to Ward
Trading’s financial statements for the year 2006,
proving that it has sufficient capitalization to qualify as
a legitimate independent contractor. Manila Memorial
insists that nowhere is it provided in the Contract of
Services that Manila Memorial controls the manner and
means by which respondents accomplish the results of
their work. Manila Memorial states that the company
only wants its contractors and the latter’s employees to
abide by company rules and regulations.
Respondents, on the other hand, assert that they are
regular employees of Manila Memorial since Ward
Trading cannot qualify as an independent contractor
but should be treated as a mere labor-only contractor.
Respondents state that (1) there is enough proof that
Ward Trading does not have substantial capital,
investment, tools and the like; (2) the workers recruited
and placed by the alleged contractors performed
activities that were related to Manila Memorial’s
business; and (3) Ward Trading does not exercise the
right to control the performance of the work of the
contractual employees.
104
As a general rule, factual findings of the CA are binding
upon this Court. One exception to this rule is when the
factual findings of the former are contrary to those of the
trial court, or the lower administrative body, as the case
may be. This Court is obliged to resolve an issue of fact
due to the conflicting findings of the Labor Arbiter on one
hand, and the NLRC and the CA on the other.
In order to determine whether there exists an employer-
employee relationship between Manila Memorial and
respondents, relevant provisions of the labor law and
rules must first be reviewed. Article 106 of the Labor
Code states:
Art. 106. Contractor or subcontractor. Whenever an
employer enters into a contract with another person for
the performance of the former’s work, the employees of
the contractor and of the latter’s subcontractor, if any,
shall be paid in accordance with the provisions of this
Code.
In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable
with his contractor or subcontractor to such employees to
the extent of the work performed under the contract, in
the same manner and extent that he is liable to
employees directly employed by him.
The Secretary of Labor and Employment may, by
appropriate regulations, restrict or prohibit the
contracting-out of labor to protect the rights of workers
established under this Code. In so prohibiting or
restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as
well as differentiations within these types of contracting
and determine who among the parties involved shall be
considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision of
this Code.
There is "labor-only" contracting where 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 the workers recruited and placed by
such person are performing activities which are
directly related to the principal business of such
employer. In such cases, the person or intermediary
shall be considered merely as an agent of the
employer who shall be responsible to the workers in
the same manner and extent as if the latter were
directly employed by him. (Emphasis supplied)
Sections 3, 5 and 7 of Department Order No. 18-
02 distinguish between legitimate and labor-only
12
contracting and assume the existence of an employer-
employee relationship if found to be engaged in labor-
only contracting. The provisions state:
xxxx
Section 3. Trilateral Relationship in Contracting
Arrangements. In legitimate contracting, there exists
a trilateral relationship under which there is a contract
for a specific job, work or service between the principal
and the contractor or subcontractor, and a contract of
employment between the contractor or subcontractor
and its workers. Hence, there are three parties involved
in these arrangements, the principal which decides to
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 workers engaged by the contractor or
subcontractor to accomplish the job, work or service.
xxxx
Section 5. Prohibition against labor-only
contracting. Labor-only contracting is hereby
declared prohibited. For this purpose, labor-only
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 following elements are
present:
i) 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 performing activities
which are directly related to the main business of the
principal; or
ii) The contractor does not exercise the right to control
over the performance of the work of the contractual
employee.
The foregoing provisions shall be without prejudice to
the application of Article 248 (c) of the Labor Code, as
amended.
"Substantial capital or investment" refers to capital
stocks and subscribed capitalization in the case of
corporations, tools, equipment, 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.
The "right to control" shall refer to the right reserved to
the person for whom the services of the contractual
workers are performed, to determine not only the end
to be achieved, but also the manner and means to be
used in reaching that end.
xxxx
Section 7. Existence of an employer-employee
relationship. – The contractor or subcontractor shall be
considered the employer of the contractual employee
105
for purposes of enforcing the provisions of the Labor
Code and other social legislation. The principal, however,
shall be solidarily liable with the contractor in the event of
any violation of any provision of the Labor Code,
including the failure to pay wages.
The principal shall be deemed the employer of the
contractual employee in any of the following cases as
declared by a competent authority:
(a) where there is labor-only contracting; or
(b) where the contracting arrangement falls within the
prohibitions provided in Section 6 (Prohibitions) hereof.isi
(Emphasis supplied)
It is clear from these provisions that contracting
arrangements for the performance of specific jobs or
services under the law and its implementing rules are
allowed. However, contracting must be made to a
legitimate and independent job contractor since labor
rules expressly prohibit labor-only contracting.
Labor-only contracting exists when the contractor or
subcontractor merely recruits, supplies or places workers
to perform a job, work or service for a principal and any
of the following elements are present:
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 performing activities which are directly
related to the main business of the principal; or
2) The contractor does not exercise the right to control
the performance of the work of the contractual
employee. 13
In the present case, Manila Memorial entered into a
Contract of Services with Ward Trading, a single
proprietorship owned by Emmanuel Mayor Ward with
business address in Las Piñas City on 23 February 2006.
In the Contract of Services, it was provided that Ward
Trading, as the contractor, had adequate workers and
substantial capital or investment in the form of tools,
equipment, machinery, work premises and other
materials which were necessary in the conduct of its
business.
However, a closer look at the Contract of Services
reveals that Ward Trading does not have substantial
capital or 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. The pertinent provision in the
Contract of Services which shows that Manila Memorial
owns the equipment states:
The COMPANY shall [sell] to the contractor the
COMPANY owned equipment in the amount of ONE
MILLION FOUR HUNDRED THOUSAND PESOS
ONLY (Php 1,400,000.00) payable in two (2) years or a
monthly payment of FIFTY EIGHT THOUSAND
THREE HUNDRED THIRTY FIVE PESOS ONLY (Php
58,335.00) to be deducted from the CONTRACTOR’s
billing.
14
Just by looking at the provision, it seems that the sale
was a regular business transaction between two
parties. However, Manila Memorial did not present any
evidence to show that the sale actually pushed through
or that payments were made by Ward Trading to prove
an ordinary arms length transaction. We agree with the
NLRC in its findings:
While the above-cited provision of the Contract of
Service implies that respondent MMPCI would sell
subject equipment to Ward at some future time, the
former failed to present any contract of sale as proof
that, indeed, it actually sold said equipment to Ward.
Likewise, respondent MMPCI failed to present any
"CONTRACTOR’s billing" wherein the purported
monthly installment of P58,335.00 had been deducted,
to prove that Ward truly paid the same as they fell due.
In a contract to sell, title is retained by the vendor until
full payment of the price.
Moreover, the Contract of Service provides that:
"5. The COMPANY reserves the right to rent all or any
of the CONTRACTOR’s equipment in the event the
COMPANY requires the use of said equipment. x x x."
This provision is clear proof that Ward does not have
an absolute right to use or enjoy subject equipment,
considering that its right to do so is subject to
respondent MMPCI’s use thereof at any time the latter
requires it. Such provision is contrary to Article 428 of
the Civil Code, which provides that "The owner has the
right to enjoy and dispose of a thing, without other
limitation than those established by law." It is plain to
see that Ward is not the owner of the equipment worth
P1,400,000.00 that is being actually and directly used
in the performance of the services contracted out.
Further, the Service Contract states that:
"For its part, the COMPANY agrees to provide the
following:
a) Area to store CONTRACTOR’s equipment and
materials
b) Office space for CONTRACTOR’s staff and
personnel"
This provision is clear proof that even the work
premises actually and directly used by Ward in the
106
performance of the services contracted out is owned by
respondent MMPCI. 15
Also, the difference in the value of the equipment in the
total amount of P1,400,000.00 can be glaringly seen in
Ward Trading’s financial statements for the year 2006
when compared to its 2005 financial statements. It is
significant to note that these financial statements were
submitted by Manila Memorial without any certification
that these financial statements were actually audited by
an independent certified public accountant. Ward
Trading’s Balance Sheet as of 31 December 2005
16
showed that it had assets in the amount of P441,178.50
and property and equipment with a net book value of
P86,026.50 totaling P534,705. A year later, Ward
Trading’s Balance Sheet ending in 31 December 2006
17
showed that it had assets in the amount of P57,084.70
and property and equipment with a net book value of
P1,426,468 totaling P1,491,052.70. Ward Trading, in its
Income Statements for the years 2005 and 2006, only
18
earned a net income of P53,800 in the year ending 2005
and P68,141.50 in 2006. Obviously, Ward Trading could
not have raised a substantial capital of P1,400,000.00
from its income alone without the inclusion of the
equipment owned and allegedly sold by Manila Memorial
to Ward Trading after they signed the Contract of
Services on 23 February 2006.
Further, the records show that Manila Memorial and
Enrique B. Lagdameo admitted that respondents
performed various interment services at its Sucat,
Parañaque branch which were directly related to Manila
Memorial’s business of developing, selling and
maintaining memorial parks and interment functions.
Manila Memorial even retained the right to control the
performance of the work of the employees concerned. As
correctly observed by the CA:
A perusal of the Service Contract would reveal that
respondent Ward is still subject to petitioner’s control as
it specifically provides that although Ward shall be in
charge of the supervision over individual respondents,
the exercise of its supervisory function is heavily
dependent upon the needs of petitioner Memorial Park,
particularly:
"It is also agreed that:
a) The CONTRACTOR’s supervisor will conduct a
regular inspection of grave sites/areas being dug to
ensure compliance with the COMPANY’s interment
schedules and other related ceremonies.
b) The CONTRACTOR will provide enough manpower
during peak interment days including Sundays and
Holidays.
c) The CONTRACTOR shall schedule off-days for its
workers in coordination with the COMPANY’s schedule of
interment operation.
d) The CONTRACTOR shall be responsible for any
damage done to lawn/s and/or structure/s resulting
from its operation, which must be restored to its/their
original condition without delay and at the expense of
CONTRACTOR."
The contract further provides that petitioner has the
option to take over the functions of Ward’s personnel if
it finds any part or aspect of the work or service
provided to be unsatisfactory, thus:
"6.1 It is hereby expressly agreed and understood that,
at any time during the effectivity of this CONTRACT
and its sole determination, the COMPANY may take
over the performance of any of the functions mentioned
in Paragraph I above, in any of the following cases:
xxx
c. If the COMPANY finds the performance of the
CONTRACTOR in any part or aspect of the grave
digging works or other services provided by it to be
unsatisfactory."
It is obvious that the aforementioned provision leaves
respondent Ward at the mercy of petitioner Memorial
Park as the contract states that the latter may take over
if it finds any part of the services to be below its
expectations, including the manner of its performance.
x x x.19
The NLRC also found that Ward Trading’s business
documents fell short of sound business practices. The
relevant portion in the NLRC’s Decision states:
It is also worth noting that while Ward has a Certificate
of Business Name Registration issued by the
Department of Trade and Industry on October 24, 2003
and valid up to October 24, 2008, the same expressly
states that it is not a license to engage in any kind of
business, and that it is valid only at the place indicated
therein, which is Las Piñas City. Hence, the same is not
valid in Parañaque City, where Ward assigned
complainants to perform interment services it
contracted with respondent MMPCI. It is also noted
that the Permit, which was issued to Ward by the Office
of the Mayor of Las Piñas City on October 28, 2003,
was valid only up to December 31, 2003. Likewise, the
Sanitary Permit to Operate, which was issued to Ward
by the Office of the City Health Officer of the Las Piñas
City Health Office on October 28, 2003, expired on
December 31, 2003. While respondents MMPCI and
Lagdameo were able to present copies of the above-
mentioned documents, they failed to present any proof
that Ward is duly registered as [a] contractor with the
Department of Labor and Employment. 20
Section 11 of Department Order No. 18-02, which
mandates registration of contractors or subcontractors
with the DOLE, states:
107
Section 11. Registration of Contractors or
Subcontractors. – Consistent with authority of the
Secretary of Labor and Employment to restrict or prohibit
the contracting out of labor through appropriate
regulations, a registration system to govern contracting
arrangements and to be implemented by the Regional
Office is hereby established.

The Registration of contractors and subcontractors shall

be necessary for purposes of establishing an effective
labor market information and monitoring.

Failure to register shall give rise to the presumption that

the contractor is engaged in labor-only contracting.1âwphi1

For failing to register as a contractor, a presumption

arises that one is engaged in labor-only contracting
unless the contractor overcomes the burden of proving
that it has substantial capital, investment, tools and the
like.
21

In this case, however, Manila Memorial failed to adduce

evidence to prove that Ward Trading had any substantial
capital, investment or assets to perform the work
contracted for. Thus, the presumption that Ward Trading
is a labor-only contractor stands. Consequently, Manila
Memorial is deemed the employer of respondents. As
regular employees of Manila Memorial, respondents are
entitled to their claims for wages and other benefits as
awarded by the NLRC and affirmed by the CA.

WHEREFORE, we DENY the petition. We AFFIRM the

Decision dated 21 January 2013 and the Resolution
dated 1 7 July 2013 of the Court of Appeals in CA-G.R.
SP No. 119237.

SO ORDERED.

108