in shrimp harvesting, receiving and packing formed an integral part of the shrimp processing

operations of SMC. This also holds true with respect to the other workers who were made to
perform janitorial and messengerial services the nature of which has been jurisprudentially
recognized and considered as directly related to the principal business of the employer.
1

(5) The Coca-Cola cases, namely:

Coca-Cola has, over the years, been involved in the issue of regularization of
contractor-supplied workers. Some of the latest cases are as follows:
(a)Coca-Cola v. Agito (Coca-Cola Bottlers Phis.. Inc. v, Agito, G.R. No. 179546,
Feb. 13.2009) where foe contractor’s employees worked in petitioner as salesmen. In the
Delivery Agreement between petitioner and the contractor, it is stated that petitioner is
engaged in the manufacture, distribution and sale ofsoftdrinks 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 Court also stressed that foe repeated
rehiring of those salesmen bolstered the indispensability of their work to foe business of
CCBP1;
(b)Pacquing v. Coca-Cola Philippines, Inc., (G.R No. 157966, Jan. 31, 2008,543
SCRA 344) where the Court ruled that the sales route helpers of CCBP1 were its
regular employees. It was stated here that sales route helpers "were part of a
complement of three personnel comprised of a driver, a salesman and a regular route
helper, for every delivery truck." (See also CCBPI v. NOWM, G.R, No. 176024,
June 13,2007, cited in Quintanar v. Coca-Cola Bofflets, Philippines, Inc., infra);
(c)Quintanar v. Coca-Cola Bottlers, Philippines, Inc., G.R. No. 210565, June
28,2016,794 SCRA 654, where the route helpers w'ere tasked to distribute CCBPTs
products and were likewise successively transferred to agencies after having been
initially employed by CCBP1. The Court decreed therein that said helpers were
regular employees of CCBPI notwithstanding the fact that they were transferred to
agencies while working for CCBPI;
(d)Lingat and Altoveros v. Coca-Cola Bottlers Phils., Inc. GR No. 205683, July
04,2018. plant driver and forklift operator (Lingat), and segregator/mixer (Altoveros),
respectively. The Court, citing foe above cases of Agito, Pacquing and Quintanar,
ruled that petitioners are regular employees of CCBPI. The Court found analogy with
rig/to since herein petitioners have worked for CCBPI since 1993 (Lingat) and 1996
(Altoveros) until the non-renewal of their contracts in 2005. Aside from foe fact that
their work involved the distribution and sale of the products of CCBPI, they
remained to be working for CCBPI despite having been transferred from one agency
to another. Hence, such repeated re-hiring of petitioners, and the performance of the
same tasks for CCBPI established the necessity and the indispensability of their
activities in its business. Citing Pacquing, it was held that it would be absurd for the
Court to hold the route helpers therein as regular employees of CCBPI without giving
the same status to its plant driver, including its segregator of softdrinks, petitioners
herein, whose work also had reasonable connection to CCBPI’s business of
distribution and sale of soft drinks and other beverage products. And in the same vein
as in Quintanar, the transfer of petitioners from one agency to another did not
adversely affect their regular employment status. Such was the case because they
continued to perform the same tasks for CCBPI even if they were placed under
certain agencies, the last of which was MDTC.
2. PERFORMANCE BY CONTRACTOR’S EMPLOYEES OF SPECIFIC SPECIAL
OR TECHNICAL SERVICES, A CRUCIAL FACTOR.
The performance of specific special services by the contractors employees is a
critical factor in determining foe legitimacy of the contracting arrangement In Philippine Fuji
Xerox, G.R. No. 111501, March 5, 1996, the Supreme Court, citing Neri, GR. No.97008-09,
July 23, 1993, ruled that the manpower agency is a labor-only contractor because, inter alia,
the service being rendered by contractor’s employee does not involve a specific or special
skill that the contractor is in the business of providing. In Neri, the holding that the contractor
is engaged in legitimate job contracting was based not only on the substantial capitalization
of the contractor but also on the fact that it was providing specific special services
(radio/telex operator and janitor) to the principal. Although in Neri, the telex machine
operated by the contractor’s employee belonged to the principal, the service was deemed
permissible because it was specific and technical. This cannot be said of the service rendered
by the private respondent in Philippine Fuji Xerox.
3. THE MENIAL AND MECHANICAL NATURE OF THE JOBS IMMATERIAL.
2 LAW OH LABOR STANDARDS AMD SOCIAL LEGISLATION
The feetANNOTATED
that the contracted work or job is menial and mechanical and thus may be
performed by any able-bodied individual is an immaterial consideration in determining the
legitimacy of the job contracting arrangement. This was emphasized in Alilin. Ain v. Petron
Corporation, G.R. No. 177592, June09,2014, where the contractor’s employees were given
various work assignments such as tanker receiving, barge loading, sounding, gauging,
warehousing, mixing, painting carpentry, driving gasul filling and other utility works. Perron
refers to these work assignments as menial works which could be performed by any able-
bodied individual. In declaring that petitioners had already attained regular status as
employees of respondent Petron, the Court pronounced that while the jobs perfonned by
petitioners may be menial and mechanical, they are nevertheless necessary and related to
Petrous business operations. If not for these tasks, Petron’s products will not reach the
consumers in their proper state. Indeed, petitioners’ roles were vital inasmuch as they involve
the preparation of the products that Petron will distribute to its consumers. Furthermore, the
engagement of petitioners for the same works for a long period of time is a strong indication
that such works were indeed necessary to Petron’s business.

4. PLACE OF PERFORMANCE OF CONTRACTED WORK IMMATERIAL;

EXCEPTION.

The validity of job contracting arrangement does not depend on whether the job,
work, or service is done within or outside the company premises of the principal. In Acevedo
(Acevedo v. Advanstar Co.. Inc., G.R. No. 157656, Nov. 11,2005) the Supreme Court, citing
a provision in the Labor Code’s Implementing Rules, (Rute WA, Bock III, Section 4[d] of the
Rules to Implement the Labor Code) emphasized that there is legitimate job contracting
regardless of whether the contracted job, work or service is to be performed or completed
within or outside the premises of the principal. This was also the holding in the 2018 case of
Mago (Mago v. Sun Power Manufacturing Umted. G.R. No. 210961, Jan. 24,2018). Thus, the
fact that the petitioners were working within the premises of the principal (Sunpower), by
itself does not negate the control of the job contractor (Jobcrest) over the means, method, and
result of the petitioners' work. Job contracting is permissible “whether such job, work, or
service is to be performed or completed within or outside the premises of the principal” for as
long as the elements of a labor-only contractor are not present. Since Jobcrest was a provider
of business process services, its employees would necessarily work within the premises of its
client companies in order for Jobcrest to perform its contractual undertaking. Mere physical
presence in Sunpower’s plant does not necessarily mean that Sunpower controlled the means
and method of the petitioners' work.

But in Babas, G.R. No. 186091, Dec. 15, 2010. the High Court cited as additional
basis for holding that the contractor, BMS1,1 was a labor-only contractor, the fact that
petitioners worked at the premises of respondent LSC and nowhere else. Other than the
provisions of the Agreement between respondent LSC and BMSI, there was no showing that
it was BMS1 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

VIII-D.
LEGAL RIGHTS AND BENEFITS COMPLIANCE TEST

1. ELEMENT OF COMPLIANCE WITH CONTRACTOR’S EMPLOYEES’

RIGHTS AND BENEFITS.
The legal rights and benefits compliance test addresses the issue of
 3
whether the Service Agreement between the principal (or indirect/statutory employer) and
contractor assures the employees of the latter fanned out to the former of their entitlement to
all labor and occupational safety and health standards, free exercise of their right to self-
organization, security of tenure, and social and welfare benefits (Consolidated BuMng
Maintenance. Inc. v. Asprec, Jr, G.R. No. 217301, June 06, 2018; Norkis Trading Co, Inc. v.
Gnio, G.R. NO. 159730: Feb. 11, 2008; See also Acevedo v. Advanstar Co, Inc, G.R No.
157656. Nov. 11, 2005, Viroya v. NLRC, 6R No, 126586, Feb. 2, 2000,324 SCRA 469).
How should this element be articulated and reflected in the Service Agreement? It
would seem that a simple stipulation in the Agreement on such compliance would suffice.
Thus, in holding that the job contractor (Jobcrest) was legitimate in the case of Mago* the
Court pronounced that the Service Contract Agreement between Jobcrest and the principal
(Sunpower) complied with the statutory requirement of ensuring the observance of the
contractual employees’ rights under the law when it provided specifically in its paragraph 7
that Jobcrest is obligated to observe all laws, rules and regulations pertaining to the
employment of its employees. This phrase undoubtedly suffices to address the legal rights
and benefits compliance test
2. RIGHTS OF CONTRACTORS’ EMPLOYEES.
All contractors/subcontractor's employees shall be entitled to security of tenure and
all the rights and privileges as provided for in the labor Code, as amended, to include the
following:
a) Safe and healthful working conditions;
b) Labor standards such as but not limited to service incentive leave, rest days,
overtime pay, holiday pay, 13* month pay, and separation pay;
c) Retirement benefits under the SSS or retirement plans of the
contractor/subcontractor, d) Social security and welfare benefits; and e) Self-
organization, collective bargaining and peaceful concerted activities including the
right to strike. Section 10, Department Order No, 174, Series of 2017.
3. EFFECT OF VIOLATION OF RIGHTS OF CONTRACTOR’S EMPLOYEES.
A finding of violation of the Rights of Contractor's Employees 1 shall render the
principal the direct employer of the employees of the contractor or subcontractor, pursuant
to Article 109 of the Labor Code, as amended.2 In other words, the absence of any of these
elements results in a finding that the contractor is engaged in labor-only contracting
(Consolidated Building Maintenance, Inc. v. Asprec Jr G.R. No 217301, June 06, 2018).
IX.

LIABILITY OF PRINCIPAL

1. CIRCUMSTANCES WHEN PRINCIPAL IS TREATED AS DIRECT EMPLOYER

AND THUS SOLIDARILY LIABLE WITH THE CONTRACTOR.
An examination of the pertinent provisions of the Labor Code and its Implementing
Rules enunciated in the latest Department Order No. 174, Series of 2017, indicates that under
the following circumstances, a principal shall no longer be treated as indirect but direct
employer and therefore it shall be deemed solidarity liable with the contractor:
1) In case of violation of any provision of the Labor Code, including die failure of
the contractor to pay wages of its employees supplied to the principal;
2) In case of labor-only contracting;
3) In case of commission of any of the following acts prohibited under Department
Order No. 174:
(a) In case of commission of “other illicit forms of employment arrangements”
under Section 63 thereof,
(b) In case of violation of the “rights of contractor’s/subcontractor’s employees”
under Section 104 thereof;
(c) In case of violation of the “required contracts under the Rules” mentioned in
Section ll5 thereof referring to: [1] Employment contract between the contractor
and its employee; and [2] Service Agreement between the principal and the
1
2
3
4
5
 contractor;
4) In case the termination of employment is caused by the pre-termination of the
Service
4 Agreement not due
LAW to authorized
OH LABOR STANDARDS causes under
AMD SOCIAL Article 298 [283], the right
LEGISLATION
of the contractor's/subcontractor's employee to unpaid wages and other unpaid
ANNOTATED
benefits including unremitted legal mandatory contributions, e.g, SSS, PhilHealth,
Pag-IBIG, ECC, shall be borne by the party at fault without prejudice to the
solidary liability of the parties to the Service Agreement.
5) In case the principal has contracted with a delisted contractor in which case, the
principal shall be considered the direct employer of all employees under the
Service Agreement pursuant to Articles 106 and 109 of the Labor Code, as
amended.
5. In case of non-compliance with legally mandated wage increases wherein, under
R.A. No. 6727, Otherwise known a; the "Wage Rationalization Act” the principal
is also considered solidarily liable with the contractor.

2. SOLIDARY LIABILITY OF PRINCIPAL FOR CONTRACTOR’S VIOLATION

OF ANY PROVISION OF THE LABOR CODE.

a. Situation applies only in legitimate contracting arrangement

At the outset, it bears stressing that the status of the principal as indirect employer
holds true only in situations where the job contractor with which it is dealing is engaged in
legitimate or permissible job contracting arrangement. If it were otherwise, then the principal
is deemed the direct employer of the employees supplied by the contractor which, in this
situation, should be considered merely a labor-only contractor.

b. Scope and extent of solidary liability.

Under the Labor Code, once the job contractor, although legitimate, fails to pay the
wages of its employees supplied to the principal (Alpha investigator and Security Agency,
Inc, v. NLRC, 6.R. No. 111722, May 27,1997; Eagle Security Agency, Inc. v. NLRC, G R
Nos. 81314 & 81447, May 18.1989,173 SCRA 479; See also No. 14, DOLE Primerona
Contracting and Subcontracting, Effects of Department Order No. 3, Series of 2001) or
violates any of the provisions of the Labor Code, the principal would no longer be considered
merely as an indirect employer but as direct employer for the limited purpose of paying the
unpaid wages of the contractor’s employees or of complying with the particular provision of
the Labor Code violated.6 Being by legal fiction considered the direct employer, the principal
now becomes solidarity liable with the legitimate contractor for the payment of the unpaid
wages and for purposes of complying with the legal provision violated. This is clear from the
following provisions of Article 106 (2nd paragraph) and Article 109, to wit:

Article 106, second (2nd) paragraph:

“In the event that the contractor or subcontractor fails to nay
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 manner7 and extent that he is liable to
employees directly employed by him.’"
and Article 109:
“Article 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 purposes of determining
the extent of their civil liability under this Chapter, they shall be
considered as direct employers.’
Moreover, the current rendering of Department Order No. 174, Series of 2017,
which constitutes the latest implementing rules of the afore-quoted Articles 106 to 109, is
crystal clear that “[i]n the event of violation of any provision of the Labor Code, including
the failure to pay wages, there exists a solidary liability on the part of the principal and the
contractor for purposes of enforcing the provisions of the Labor Code and other social
legislations, to the extent of the work performed under the employment contract” (Section9,
Department Order No.174, Series of 2017).
Based on the foregoing provisions of the Labor Code and its Implementing Rules, the
6
7
rule may thus be simplified as follows:
To the extent of the work performed by the contractor’s employees under their
Employment Contract they have with the contractor which is their direct employer, 5 the
principal is solidarity liable with the contractor, as if it is also their direct employer, under
any of the following two (2) situations:
1. To comply with “any” violation of “any” provision of the Labor Code, one of
which is specifically mentioned therein, that is, the failure of the contractor to pay
the wages of its employees (Section 3M, Department Order No. 174, Series of
2017, Under this provision, the term ‘solidary fiabitty’ Is defined as referring to
the liability of tie principal, pursuant to the provision of Article 109 of the Labor
Code, as direct employer together with the contractor for any viotation of any
provision of the Labor Code. It also refers to tie tiabiSty of the principal in the
same manner and extent that he/she is liable to h’siher direct employees, to the
extent of the wait performed under the contract when the contactor fails to pay
the waoes of h&her employees, as provided in Article 106 of the Labor Code, as
amended); and
2. For the enforcement of the provisions of the Labor Code and other social
legislation.
The foregoing statutory scheme is designed to give the workers
ample protection, consonant with labor and social justice provisions of the 1987 Constitution
(Mania Becfric Company v. Benamra, G.R. No. 145271, July 14,2005,501 Phil. 621,644;
Maiveles Shipyard Corp. v. Hon. CA, G.R No. 144134, Nov. 11,2003,461 Phil. 249,267).

The phrase “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” which is used in
the law (Used in the 2nd paragraph of Article 106, Labor Code and in Section 3[fc] and
Section9, Department Order No. 174. Series of 2017) underscores all too clearly the limited
scope and extent of the solidary liability of the principal. Thus, any violation of the Labor
Code and other social legislation by the contractor other than the ones covered by this phrase
no longer falls under the concept of solidary liability for which the principal may be so held
liable (Pa Automation Center, Inc, v. NLRC, G.R. No, 115920, Jan, 29, 1996; Ecalv. NLRC,
G.R, Nos. 92777-78, March 13,1991; Philippine Bank of Communications v, NLRC, G.R. No.
56598, Dec, 19,1986,146 SCRA 347; Cabe v. Tumang, G.R. No. I.-57682. March 18,
1985,135 SCRA 389; Mafinco Trading Corporation v. Ople, G.R. No. L-37790, March
25,1976,70 SCRA 139' See also Section 13, Rule Vlll-A, Book III, Rules to Implementthe
Later Code, as amended by Department Order No. 10, Series of 1997 (May 30,1997]).
Rosewood Processing is illuminating on this point (Rosewood Processing, Inc. Vs.
NLRC, GR. No. 116476-84m may 21, 1996, 290 SCRA408). In this case, the security guards
farmed out by the security agency to petitioner were assigned to its other clients. Withal,
fairness dictates that the petitioner should not be held liable for wage differentials incurred
while the security guards were assigned to other companies. Under Articles 106, 107 and 109
of the Labor Code, should the contractor tail to pay the wages of its employees in accordance
with law, the indirect employer (the petitioner in this case), is jointly and severally liable with
die contractor, but such responsibility should be understood to be limited to the extent of the
work performed under the contract, in the same manner and extent that he is liable to the
employees directly employed by him. This liability of petitioner covers the payment of the
workers' performance of any work, task, job or project. So long as the work, task, job or
project has been performed for petitioner's benefit or on its behalf, the liability accrues for
such period even if, later on, the employees are eventually transferred or reassigned
elsewhere. To reiterate, the principal’s (indirect employer's) liability to the contractor's
employees extends only to the period during which they were working for the petitioner, and
the fact that they were reassigned to another principal necessarily ends such responsibility.
The principal is made liable to his indirect employees because it can protect itself from
irresponsible contractors by withholding such sums and paying them directly (o the
employees or by requiring a bond from the contractor for this purpose.
The Rosewood principle was reiterated in GSIS v. NLRC, GR. No. 180045, Nov. 7,
2010. In this case, DNL Security Agency, the direct employer of the private respondent
security guards which assigned them to petitioner GSIS office in Tacloban City, informed
respondents in February 1993, that its service contract with petitioner was terminated. This
notwithstanding, DNL Security Agency instructed respondents to continue reporting for work
to petitioner. Respondents worked as instructed until April 20, 1993, but without receiving
their wages; after which, they were terminated from employment. The High Court ruled that
petitioner’s
liability does not cover only the payment of respondents’ salary differential and 13 th month
pay during the time they worked for petitioner but additionally, petitioner is solidarity liable
with DNL Security for respondents’ unpaid wages from February 1993 until April 20, 1993.
While 6 LAW OH LABOR STANDARDS AMD SOCIAL LEGISLATION
ANNOTATED

it is true that respondents continued working for petitioner after the expiration of their
contract, based on the instruction of DNL Security, petitioner did not object to such
assignment and allowed respondents to render service. Thus, petitioner impliedly approved
the extension of respondents’ services. Accordingly, petitioner is bound by the provisions of
the Labor Code on indirect employment. Petitioner cannot be allowed to deny its obligation
to respondents after it had benefited from their services. So long as the work, task, job, or

Questions based from the discussions above:

1. What is nature of liability of the Principal for Contractor’s violation of the provision
of the Labor Code?
2. What are the scope and extent of such liability?