San Miguel Corporation vs.

Prospero Aballa
461 SCRA 392 (2005)

Facts:

Petitioner San Miguel Corporation (SMC) and Sunflower Multi-Purpose Cooperative

(Sunflower) entered into a one-year contract, renewable on a monthly basis until terminated.
Accordingly, respondent Aballa et al. rendered services to SMC.

After a year of service, Aballa et al., filed a complaint before NLRC praying that they be
declared as regular employees of SMC. On the other hand, SMC file before DOLE a Notice of
Closure due to serious business losses. Hence, the LA dismissed the complaint and ruled in
favor of SMC. Subsequently, Aballa et al., filed an appeal before the NLRC which dismissed the
finding that Sunflower is an independent contractor. On appeal, CA reversed NLRC’s decision
on the ground that the agreement between SMC and Sunflower disavowed the existence of an
employer-employee relationship.

Issue: WON Aballa et al, are employees of SMC.

The test to determine the existence of independent contractorship is WON one claiming to be an
independent contractor has contracted to do the work according to his own methods and without
subject to the control of the employer, except only as to the result of work.

In labor-only contracting, the statute creates an employer-employee relationship to prevent

circumvention of labor laws. Under this scheme, the contractor is considered merely as an agent
of the principal employer and the latter is responsible to the employee as if these employees had
been directly employed by the principal employer.

Applied to this case, the agreement between SMC and Sunflower disowned the existence of an
employer-employee relationship. However, the language is not determinative of the relationship
of the parties; rather it is the totality of the facts and circumstances of the case. A party cannot
unilaterally dictate in a contract the character of its business, that is., whether as labor-only
contractor or job contractor , since its character is determined by the criteria set by the statute.

In this case, Sunflower does not have a substantial capital or investment in the form of tools,
equipment, machineries, and other materials to qualify as an independent contractor. In fact, the
lot, building, machineries and all other tools used by Aballa et al, in carrying out their tasks were
owned and provided by SMC. Moreover, from the job description provided by SMC itself, the
work assigned to Aballa et al., was directly related to the aquaculture operations of SMC.

Moreover, Sunflower did not undertake the performance of its service contract according to its
manner and method, free from the control and supervision of SMC. Its apparent role was merely
to recruit workers for SMC.
Therefore, since Aballa et al were engaged in shrimp processing which is necessary or desirable
in the aquaculture business of SMC, they should be deemed regular employees and as such are
entitled to all the benefits and rights due to regular employment.