DIAMOND FARMS, INC. VS.

SOUTHERN PHILIPPINES FEDERATION OF contractor unless such contractor overcomes the burden of proving that
LABOR (SPFL) – WORKERS SOLIDARITY OF DARBMUPCO it has the substantial capital, investment, tools and the like.
G.R. No. 173254-55 & 173263 | 13 January 2016 | Jardeleza | Santos
(2) The existence of an employer-employee relation is a question of law
PETITIONER: DIAMOND FARMS INC. and cannot be made the subject of an agreement.
RESPONDENTS: Southern Philippines Federation of Labor (SPFL) –
Workers Solidarity of DARBMUPCO
FACTS:
RECIT-READY: DARBMUPCO entered into a Banana Production and
Purchase Agreement (BPPA) with DFI. Under the BPPA, DARPMUPCO
1. DFI owns an 800-hectare banana plantation. Pursuant to RA 6657 or
and its members agreed to grow and cultivate only export quality
the Comprehensive Agrarian Reform Law, it was subject to
bananas to be sold exclusively to DFI, which will be effective for a period
compulsory acquisition and distribution. It was split into two: 698.99
of 10 years. However, DARBMUPCO lacked manpower to undertake the
hectares were sold to the government (the awarded plantation) while
agricultural operation under the BPPA. To assist DARBMUPCO in
reminaing 200h were retained by the DFI (the managed area).
meeting its production obligations under the BPPA, DFI engaged the
- The awarded plantation was turned over to qualified agragrian
services of the respondent-contractors, who in turn recruited the
reform beneficiaries. The they are the same farmers who were
respondent workers. (SPFL), together with more than 300 workers, filed
working in the original plantation. They subsequently organized
a case for underpayment of wages, non-payment of 13 th month pay, and
themselves to a multi-purpose cooperative named
service incentive leave pay against DFI and DARBMUPCO. LA held that
DARBMUPCO.
respondent-contractors are labor-only contractors. The NLRC affirmed,
2. On 27 March 1997, DARBMUPCO entered into a Banana Production
adjuding DFI and DARBMUPCO as solidarily liable with the respondent-
and Purchase Agreement (BPPA) with DFI. Under the BPPA,
contractors while the CA ruled that DFI is the statutory employer of the
DARPMUPCO and its members agreed to grow and cultivate only
respondent-workers. DFI also argues that pursuant to its BBPA, no
export quality bananas to be sold exclusively to DFI, which will be
employer-employee relationship exists between DFI and respondent-
effective for a period of 10 years.
workers.
- They subseuqently executed a Supplemental Memorandum
Agreement wherein DFI undertakes to supply the labor cost
The SC held that as a general rule, a contractor is presumed to be a
arising from the packaging operation, cable maintenance,
labor-only contractor unless such contractor overcomes the burden of
irrigation pump, irrigation maintenance.
proving that it has the substantial capital, investment, tools and the like.
3. However, DARBMUPCO lacked manpower to undertake the
In this case, there is no evidence showing that respondent-contractors
agricultural operation under the BPPA because some of its members
are independent contractors. The respondent-contractors, DFI, and
were not willing to work. To assist DARBMUPCO in meeting its
DARBMUPCO did not offer any proof that respondent-workers were not
production obligations under the BPPA, DFI engaged the services of
engaged in labor-only contracting.
the respondent-contractors, who in turn recruited the respondent
workers.
As to provision in the BPPA excluding an employer-employee
4. The Southern Philippines Federation of Labor (SPFL), together with
relationship, such provision is not controlling. In labor-only contracting, it
more than 300 workers, filed a case for underpayment of wages,
is the law which creates an employer-employee relationship between the
non-payment of 13th month pay, and service incentive leave pay
principal and the workers of the labor-only contractor.
against DFI and DARBMUPCO.
- DARBMUPCO averred that it is not the employer of respondent-
DOCTRINE:
workers, neither is DFI. They assert that the money claims
should be directed against the true employer – the respondent-
(1) As a general rule, a contractor is presumed to be a labor-only
contractors.
 - Before the LA, respondent-workers admitted that they are labor-
only contractors who have been engaged by DFI and
DARBMUPCO and do not have sufficient capitalization or
investment in the form of tools, machineries, and equipment.
Thus, the LA held that respondent-contractors are labor-only
contractors.
- The NLRC affirmed, adjuding DFI and DARBMUPCO as
solidarily liable with the respondent-contractors. The CA ruled
that DFI is the statutory employer of the respondent-workers. It
noted that DFI hired the respondent-contractors, who in turn
procured their own men to work in the land owned by
DARBMUPCO.
5. DFI argues the following:
a) DARBMUPCO is the principal of respondent-contractors
because the former owns the awarded plantation where
respondent-contractors and respondent workers are working
and is the ultimate benificiary of the employment of
respondent-workers;
b) It is only the purchaser of the bananas produced in the
awarded plantation under the BPPA, and under the terms of
the such agreement, no employer-employee relationship
exists between DFI and respondent-workers.
ISSUES: Who among DFI, DARBMUPCO, and the respondent-
contractors is the employer of respondent-workers? DFI is the principal
employer.
RULING:
1. Job contracting is permissible under the following conditions:
a) The contractor carries on an independent business and 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;
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.
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.
Applying the principles, there is no evidence showing that respondent-
contractors are independent contractors. The respondent-contractors, DFI,
and DARBMUPCO did not offer any proof that respondent-workers were not
engaged in labor-only contracting. To support its argument that that
respondent-contractors are the employers of respondent-workers, DFI should
have presented proof showing that respondent-contractors carry on an
independent business and have sufficient capital. The legally binding
admission of respondent-contrators amounts to a finding that there is an
employer-employee relationship between the principal and the workers of the
labor-only contractor; the labor-only contractor being an agent of the
principal.
2. With respect to the first argument of DFI, the Court held that
DARBMUPCO owning the awarded plantation is immaterial. Such does not
change the situation of the parties. DFI hired the respondent-contractors and
the latter in turn, enganged the services of the respondent workers. DFI is
the employer of the respondent-workers is supported by how DFI exercises
control over respondent-workers. DFI, through its manager and supervisors,
provides for the work assignments and performance targets of the
respondent-workers. These DFI representatives also have the power to
directly hire and terminate the respondent-workers. Clearly, DFI wields
control over the respondent-workers.
3. With respect to the second argument of DFI, the Court ruled that
stipulations in the BPPA are not controlling, as the proven facts show
otherwise. 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. It follows that the existence of an employer-employee
relation is a question of law and cannot be made the subject of an
agreement.
4. Clearly, it is the DFI who is the true employer of the respondent-workers.
Respondent-contractors are only agents of DFI. Pursuant to Art. 160 of the
LC, 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.