Republic of the Philippines

SUPREME COURT
Manila

G.R. No. L-66598 December 19, 1986

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION, HONORABLE ARBITER TEODORICO L.
DOGELIO and RICARDO ORPIADA respondents.

Marcelino Lontok, Jr. for respondents.

FELICIANO, J.:

Petitioner Philippine Bank of Communications and the Corporate Executive Search Inc. (CESI)
entered into a letter agreement dated January 1976 under which (CESI) undertook to provide
"Tempo[rary] Services" to petitioner Consisting of the "temporary services" of eleven (11)
messengers. The contract period is described as being "from January 1976—." The petitioner in
truth undertook to pay a "daily service rate of P18, " on a per person basis.

Attached to the letter agreement was a "List of Messengers assigned at Philippine Bank of
Communications" which list included, as item No. 5 thereof, the name of private respondent Ricardo
Orpiada.

Ricardo Orpiada was thus assigned to work with the petitioner bank. As such, he rendered services
to the bank, within the premises of the bank and alongside other people also rendering services to
the bank. There was some question as to when Ricardo Orpiada commenced rendering services to
the bank. As noted above, the letter agreement was dated January 1976. However, the position
paper submitted by (CESI) to the National Labor Relations Commission stated that (CESI) hired
Ricardo Orpiada on 25 June 1975 as a Tempo Service employee, and assigned him to work with the
petitioner bank "as evidenced by the appointment memo issued to him on 25 June 1975. " Be that as
it may, on or about October 1976, the petitioner requested (CESI) to withdraw Orpiada's assignment
because, in the allegation of the bank, Orpiada's services "were no longer needed."

On 29 October 1976, Orpiada instituted a complaint in the Department of Labor (now Ministry of
Labor and Employment) against the petitioner for illegal dismissal and failure to pay the 13th month
pay provided for in Presidential Decree No. 851. This complaint was docketed as Case No. R04-
1010184-76-E. After investigation, the Office of the Regional Director, Regional Office No. IV of the
Department of Labor, issued an order dismissing Orpiada's complaint for failure of Mr. Orpiada to
show the existence of an employer-employee relationship between the bank and himself.

Despite the foregoing order, Orpiada succeeded in having his complaint certified for compulsory
arbitration in Case No. RB-IV-11187-77 entitled "Ricardo Orpiada, complaint vs. Philippine Bank of
Communications, respondent." During the compulsory arbitration proceedings, CE SI was brought
into the picture as an additional respondent by the bank. Both the bank and (CESI) stoutly
maintained that (CESI) (and not the bank) was the employer of Orpiada.
On 12 September 1977, respondent Labor Arbiter Dogelio rendered a decision in Case No. RB-IV-
11187-77, the dispositive portion of which read as follows:

WHEREFORE, premises considered, respondent bank is hereby ordered to reinstate

complainant to the same or equivalent position with full back wages and to pay the latter's
13th month pay for the year 1976.

On 26 October 1977, the bank appealed the decision of the Labor Arbiter to the respondent NLRC.
More than six years later—and the record is silent on why the proceeding in the NLRC should have
taken more than six years to resolve the NLRC promulgated its decision affirming the award of the
Labor Arbiter and stating as follows:

WHEREFORE, except for the modification reducing the complainant's back wages to two (2)
years without qualification, the Decision appealed from is hereby AFFIRMED in an other
respects.

Accordingly, on 2 April 1984, the bank filed the present petition for certiorari with this Court seeking
to annul and set aside (a) the decision of respondent Labor Arbiter Dogelio dated 12 September
1977 in Labor Case No. RB-IV-1118-77 and (b) the decision of the NLRC promulgated on 29
December 1983 affirming with some modifications the decision of the Labor Arbiter. This Court
granted a temporary restraining order on 11 April 1984. The main issue as litigated by the parties in
this case relates to whether or not an employer-employee relationship existed between the petitioner
bank and private respondent Ricardo Orpiada. The petitioner bank maintains that no employer-
employee relationship was established between itself and Ricardo Orpiada and that Ricardo Orpiada
was an employee of (CESI) and not of the bank. The bank documents its position by pointing to the
following provisions of its letter agreement with CE SI

1. The individual/s you i.e. (CESI) will assign to us i.e. petitioner) will be subject to our
acceptance and will observe work-days, hours, and methods of work (sic); on the other hand,
they will not be asked to perform job (sic) not normally related to the position/s for which
Tempo Services were contracted.

2. Such individuals will nevertheless remain your own employees and you will therefore,
retain all liabilities arising from the new Labor Code as amended Social Security Act and
other applicable Governmental decrees, rules and regulations, provided that, on our part, we
shaIl

a. Require your employers assigned to us to properly accomplish your daily time

record, to faithfully reflect all hours worked in our behalf whether such work be within
or beyond eight hours of any day.

b. Notify you of any change in the work assignment or contract period affecting any
of your employers assigned to us within 24 hours, after such change is made.

— (Emphasis supplied)

The above language of the agreement between the bank and CE SI is of course relevant and
important as manifesting an intent to refrain from constituting an employer-employee relationship
between the bank and the persons assigned or seconded to the bank by (CESI) That extent to which
the parties were successful in realizing their intent is another matter, one that is dependent upon
applicable law and not merely upon the terms of their contract.
In the case of Viana vs. AI-Lagdan and Pica, 99 Phil. 408 (1956), this Court listed certain factors to
be taken into account in determining the existence of an employer-employee relationship. These
factors are:

1) The selection and engagement of the putative employee;

2) The payment of wages;

3) The power of dismissal- and

4) The power to control the putative employees' conduct, although the latter is the most
important element. ... (99 Phil. at 411- 412; Emphasis supplied)

In the present case, Orpiada was not previously selected by the bank. Rather, Orpiada was
assigned to work in the bank by (CESI) Orpiada could not have found his way to the bank's offices
had he not been first hired by (CESI) and later assigned to work in the bank's offices. The selection
of Orpiada by (CESI) was, however, subject to the acceptance of the bank and the bank did accept
him As will be seen shortly, (CESI) had hired Orpiada from the outside world precisely for the
purpose of assigning or seconding him to the bank.

With respect to the payment of Orpiada's wages, the bank remitted to CE SI amounts corresponding
to the "daily service rate" of Orpiada and the others similarly assigned by (CESI) to the bank, and
(CESI) paid to Orpiada and the others the wages pertaining to to them. It is not clear from the record
whether the amounts remitted to (CESI) included some factor for CESIs fees; it seems safe to
assume that (CESI) had required some amount in excess of the wages paid by (CESI) to Orpiada
and the others to cover its own overhead expenses and provide some contribution to profit. The
bank alleged that Orpiada did not appear in its payroll and this allegation was not denied by Orpiada.
Indeed, the Labor Arbiter in Case No. R04-184-76-B found that Orpiada was listed in the payroll of
(CESI) with (CESI) deducting amounts representing his Medicare and Social Security System
premiums. A copy of the (CESI) payroll was presented, strangely enough, by Orpiada himself to
Regional Office No. IV.

In respect of the power of dismissal we note that the bank requested (CESI) to withdraw Orpiada's
assignment and that (CESI) did, in fact, withdraw such assignment. Upon such withdrawal from his
assignment with the bank, Orpiada was also terminated by (CESI) Indeed, it appears clear that
Orpiada was hired by (CESI) specifically for assignment with the bank and that upon his withdrawal
from such assignment upon request of the bank, Orpiada's employment with (CESI) was also
severed, until some other client of (CESI) showed up in the horizon to which Orpiada could once
more be assigned. In the position paper dated August 5, 1977 submitted by (CESI) before the
NLRC, (CESI) explained the relationship between itself and Orpiada in lucid terms:

5. That as Petitioner herein was very well aware of from the very beginning, he was hired by
Corporate Executive Search, Inc. as a temporary employee and as such, was being
assigned to work with the latter's client Respondent herein that the rationale behind his
hiring was the existence of a service contract between Corporate Executive Search Inc. and
its client-company, the Philippine Bank of Communications, the herein Respondent, and that
when this service contract was 0terminated, then the reason for his employment with
Corporate Executive Search, Inc., ceased to exist and that therefore Corporate Executive
Search Inc. had no alternative but to discontinue his employment until another opportune
time for his hiring would present itself;
 6. That Petitioner was not given his 13th-month pay under P.D. 851, because Corporate
Executive Search Inc. gave the 13th month pay for 1976 to its employees in December 1976,
and since the company had lost contact with the Petitioner by reason of his having ceased to
be connected with it as of 22 October 1976, he was not among those given the 13th-month
pay. (Emphasis supplied)

Turning to the power to control Orpiada's conduct, it should be noted immediately that Orpiada
performed his sections within the bank's premises, and not within the office premises of (CESI) As
such, Orpiada must have been subject to at least the same control and supervision that the bank
exercises over any other person physically within its premises and rendering services to or for the
bank, in other words, any employee or staff member of the bank. It seems unreasonable to suppose
that the bank would have allowed Orpiada and the other persons assigned to the bank by CE SI to
remain within the bank's premises and there render services to the bank, without subjecting them to
a substantial measure of control and supervision, whether in respect of the manner in which they
discharged their functions, or in respect of the end results of their functions or activities, or both.

Application of the above factors in the specific context of this case appears to yield mixed results so
far as concerns the existence of an employer- employer relationship between the bank and Orpiada.
The second ("payment of wages") and third ("power of dismissal") factors suggest that the relevant
relationship was that subsisting between (CESI) and Orpiada, a relationship conceded by (CESI) to
be one between employer and employee. Upon the other hand, the first ("selection and
engagement") and fourth ("control of employee's conduct") factors indicate that some direct
relationship did exist between Orpiada and the bank and that such relationship may be assimilated
to employment. Perhaps the most important circumstance which emerges from an examination of
the facts of the tri-lateral relationship between the bank, (CESI) and Orpiada is that the employer-
employee relationship between (CESI) and Orpiada was established precisely in anticipation of, and
for the very purpose of making possible, the secondment of Orpiada to the bank. It is therefore
necessary to confront the task of determining the appropriate characterization of the relationship
between the bank and (CESI) was that relationship one of employer and job (independent)
contractor or one of employer and "labor-only" contractor?

Articles 106 and 107 of the Labor Code of the Philippines (Presidential Decree No. 442, as
amended) provides as follows:

ART. 106. Contractor or sub-contractor.—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 in this
Code.

In the event that the contractor or sub-contractor 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 sub-contructor 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 provisions 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.

ART. 107. Indirect employer. — The provisions of the immediately preceding Article shall
likewise apply to any person, part, nership association or corporation which, not being an
employer, contracts with an independent contractor for the performance of any work, task,
job or project. (Emphasis supplied)

Under the general rule set out in the first and second paragraphs of Article 106, an employer who
enters into a contract with a contractor for the performance of work for the employer, does not
thereby create an employer-employes relationship between himself and the employees of the
contractor. Thus, the employees of the contractor remain the contractor's employees and his alone.
Nonetheless when a contractor fails to pay the wages of his employees in accordance with the Labor
Code, the employer who contracted out the job to the contractor becomes jointly and severally liable
with his contractor to the employees of the latter "to the extent of the work performed under the
contract" as such employer were the employer of the contractor's employees. The law itself, in other
words, establishes an employer-employee relationship between the employer and the job
contractor's employees for a limited purpose, i.e., in order to ensure that the latter get paid the
wages due to them.

A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor-i.e "the
person or intermediary" is considered "merely as an agent of the employer. " The employer is made
by the statute responsible to the employees of the "labor only" contractor as if such employees had
been directly employed by the employer. Thus, where "labor only" contracting exists in a given case,
the statute itself implies or establishes an employer-employee relationship between the employer
(the owner of the project) and the employees of the "labor only" contractor, this time for
a comprehensive purpose: "employer for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code. " The law in effect holds both the employer and the
"labor-only" contractor responsible to the latter's employees for the more effective safeguarding of
the employees' rights under the Labor Code.

Both the petitioner bank and (CESI) have insisted that (CESI) was not a "labor only" contractor.
Section 9 of Rule VIII of Book III entitled "Conditions of Employment," of the Omnibus Rules
Implementing the Labor Code provides as follows:

Sec. 9. Labor-only contracting. — (a) Any person who undertakes to supply workers to an

employer shag 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 to the principal business or operations of the c 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

(c) For cases not file 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. (Emphasis supplied)

In contrast, job contracting-contracting out a particular job to an independent contractor is defined by

the Implementing Rules 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. (Emphasis supplied)

The bank and (CESI) urge that (CESI) is not properly regarded as a "labor-only" contractor upon n
the ground that (CESI) is possessed of substantial capital or investment in the form of office
equipment, tools and trained service personnel.

We are unable to agree with the bank and (CESI) on this score. The definition of "labor-only"
contracting in Rule VIII, Book III of the Implementing Rules must be read in conjunction with the
definition of job contracting given in Section 8 of the same Rules. The undertaking given by CESI in
favor of the bank was not the performance of a specific — job for instance, the carriage and delivery
of documents and parcels to the addresses thereof. There appear to be many companies today
which perform this discrete service, companies with their own personnel who pick up documents and
packages from the offices of a client or customer, and who deliver such materials utilizing their own
delivery vans or motorcycles to the addresses. In the present case, the undertaking of (CESI) was
to provide its client-thebank-with a certain number of persons able to carry out the work of
messengers. Such undertaking of CESI was complied with when the requisite number of persons
were assigned or seconded to the petitioner bank. Orpiada utilized the premises and office
equipment of the bank and not those of (CESI) Messengerial work-the delivery of documents to
designated persons whether within or without the bank premises — is of course directly related to
the day-to-day operations of the bank. Section 9(2) quoted above does not require for its applicability
that the petitioner must be engaged in the delivery of items as a distinct and separate line of
business.

Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and
placement corporation placing bodies, as it were, in d ifferent client companies for longer or shorter
periods of time. It is this factor that, to our mind, distinguishes this case from American President v.
Clave et al, 114 SCRA 826 (1982) if indeed distinguishing way is needed.

The bank urged that the letter agreement entered into with CESI was designed to enable the bank to
obtain the temporary services of people necessary to enable the bank to cope with peak loads, to
replace temporary workers who were out on vacation or sick leave, and to handle specialized work.
There is, of course, nothing illegal about hiring persons to carry out "a specific project or undertaking
the completion or termination of which [was] determined at the time of the engagement of [the]
employee, or where the work or service to be performed is seasonal in nature and the employment
is for the duration of the season" (Article 281, Labor Code). The letter agreement itself, however,
<äre||anº•1àw> 

merely required (CESI) to furnish the bank with eleven 11) messengers for " a contract period from
January 19, 1976 —." The eleven (11) messengers were thus supposed to render "temporary"
services for an indefinite or unstated period of time. Ricardo Orpiada himself was assigned to the
bank's offices from 25 June 1975 and rendered services to the bank until sometime in October 1976,
or a period of about sixteen months. Under the Labor Code, however, any employee who has
rendered at least one year of service, whether such service is continuous or not, shall be considered
a regular employee (Article 281, Second paragraph). Assuming, therefore, that Orpiada could
properly be regarded as a casual (as distinguished from a regular) employee of the bank, he
became entitled to be regarded as a regular employee of the bank as soon as he had completed one
year of service to the bank. Employers may not terminate the service of a regular employee except
for a just cause or when authorized under the Labor Code (Article 280, Labor Code). It is not difficult
to see that to uphold the contractual arrangement between the bank and (CESI) would in effect be to
permit employers to avoid the necessity of hiring regular or permanent employees and to enable
them to keep their employees indefinitely on a temporary or casual status, thus to deny them
security of tenure in their jobs. Article 106 of the Labor Code is precisely designed to prevent such a
result.

We hold that, in the circumstances 'instances of this case, (CESI) was engaged in "labor-only" or
attracting vis-a-vis the petitioner and in respect c Ricardo Orpiada, and that consequently, the
petitioner bank is liable to Orpiada as if Orpiada had been directly, employed not only by (CESI) but
also by the bank. It may well be that the bank may in turn proceed against (CESI) to obtain
reimbursement of, or some contribution to, the amounts which the bank will have to pay to Orpiada;
but this it is not necessary to determine here.

WHEREFORE, the petition for certiorari is DENIED and the decision promulgated on 29 December
1983 of the National Labor Relations Commission is AFFIRMED. The Temporary Restraining Order
issued by this Court on 11 April 1984 is hereby lifted. Costs against petitioner.

SO ORDERED.

Yap (Chairman), Narvasa, Melencio-Herrera and Cruz, JJ., concur.

FIRST DIVISION

G.R. No. 126586. February 2, 2000

ALEXANDER VINOYA, Petitioner, vs. NATIONAL LABOR RELATIONS

COMMISSION, REGENT FOOD CORPORATION AND/OR RICKY SEE
(PRESIDENT), Respondents.

DECISION

KAPUNAN, J.:

This petition for certiorari under Rule 65 seeks to annul and set aside the
decision,1 promulgated on 21 June 1996, of the National Labor Relations Commission
("NLRC") which reversed the decision2 of the Labor Arbiter, rendered on 15 June 1994,
ordering Regent Food Corporation ("RFC") to reinstate Alexander Vinoya to his former
position and pay him backwages.

Private respondent Regent Food Corporation is a domestic corporation principally

engaged in the manufacture and sale of various food products. Private respondent
Ricky See, on the other hand, is the president of RFC and is being sued in that capacity.

Petitioner Alexander Vinoya, the complainant, worked with RFC as sales representative
until his services were terminated on 25 November 1991.

The parties presented conflicting versions of facts.

Petitioner Alexander Vinoya claims that he applied and was accepted by RFC as sales
representative on 26 May 1990. On the same date, a company identification card 3 was
issued to him by RFC. Petitioner alleges that he reported daily to the office of RFC, in
Pasig City, to take the latters van for the delivery of its products. According to
petitioner, during his employ, he was assigned to various supermarkets and grocery
stores where he booked sales orders and collected payments for RFC. For this task, he
was required by RFC to put up a monthly bond of P200.00 as security deposit to
guarantee the performance of his obligation as sales representative. Petitioner contends
that he was under the direct control and supervision of Mr. Dante So and Mr. Sadi Lim,
plant manager and senior salesman of RFC, respectively. He avers that on 1 July 1991,
he was transferred by RFC to Peninsula Manpower Company, Inc. ("PMCI"), an agency
which provides RFC with additional contractual workers pursuant to a contract for the
supply of manpower services (hereinafter referred to as the "Contract of
Service").4 After his transfer to PMCI, petitioner was allegedly reassigned to RFC as
sales representative. Subsequently, on 25 November 1991, he was informed by Ms.
Susan Chua, personnel manager of RFC, that his services were terminated and he was
asked to surrender his ID card. Petitioner was told that his dismissal was due to the
expiration of the Contract of Service between RFC and PMCI. Petitioner claims that he
was dismissed from employment despite the absence of any notice or investigation.
Consequently, on 3 December 1991, petitioner filed a case against RFC before the
Labor Arbiter for illegal dismissal and non-payment of 13th month pay. 5cräläwvirtualibräry

Private respondent Regent Food Corporation, on the other hand, maintains that no
employer-employee relationship existed between petitioner and itself. It insists that
petitioner is actually an employee of PMCI, allegedly an independent contractor, which
had a Contract of Service6 with RFC. To prove this fact, RFC presents an Employment
Contract7 signed by petitioner on 1 July 1991, wherein PMCI appears as his employer.
RFC denies that petitioner was ever employed by it prior to 1 July 1991. It avers that
petitioner was issued an ID card so that its clients and customers would recognize him
as a duly authorized representative of RFC. With regard to the P200.00 pesos monthly
bond posted by petitioner, RFC asserts that it was required in order to guarantee the
turnover of his collection since he handled funds of RFC. While RFC admits that it had
control and supervision over petitioner, it argues that such was exercised in
coordination with PMCI. Finally, RFC contends that the termination of its relationship
with petitioner was brought about by the expiration of the Contract of Service between
itself and PMCI and not because petitioner was dismissed from employment.
On 3 December 1991, when petitioner filed a complaint for illegal dismissal before the
Labor Arbiter, PMCI was initially impleaded as one of the respondents. However,
petitioner thereafter withdrew his charge against PMCI and pursued his claim solely
against RFC. Subsequently, RFC filed a third party complaint against PMCI. After
considering both versions of the parties, the Labor Arbiter rendered a decision, 8 dated
15 June 1994, in favor of petitioner. The Labor Arbiter concluded that RFC was the true
employer of petitioner for the following reasons: (1) Petitioner was originally with RFC
and was merely transferred to PMCI to be deployed as an agency worker and then
subsequently reassigned to RFC as sales representative; (2) RFC had direct control and
supervision over petitioner; (3) RFC actually paid for the wages of petitioner although
coursed through PMCI; and, (4) Petitioner was terminated per instruction of RFC. Thus,
the Labor Arbiter decreed as follows:

ACCORDINGLY, premises considered respondent RFC is hereby declared guilty of illegal

dismissal and ordered to immediately reinstate complainant to his former position
without loss of seniority rights and other benefits and pay him backwages in the
amount of P103,974.00.

The claim for 13th month pay is hereby DENIED for lack of merit.

This case, insofar as respondent PMCI [is concerned] is DISMISSED, for lack of merit.

SO ORDERED.9 cräläwvirtualibräry

RFC appealed the adverse decision of the Labor Arbiter to the NLRC. In a
decision,10 dated 21 June 1996, the NLRC reversed the findings of the Labor Arbiter.
The NLRC opined that PMCI is an independent contractor because it has substantial
capital and, as such, is the true employer of petitioner. The NLRC, thus, held PMCI
liable for the dismissal of petitioner. The dispositive portion of the NLRC decision states:

WHEREFORE, premises considered, the appealed decision is modified as follows:

1. Peninsula Manpower Company Inc. is declared as employer of the complainant;

2. Peninsula is ordered to pay complainant his separation pay of P3,354.00 and his
proportionate 13th month pay for 1991 in the amount of P2,795.00 or the total amount
of P6,149.00.

SO ORDERED.11 cräläwvirtualibräry

Separate motions for reconsideration of the NLRC decision were filed by petitioner and
PMCI. In a resolution,12 dated 20 August 1996, the NLRC denied both motions.
However, it was only petitioner who elevated the case before this Court.

In his petition for certiorari, petitioner submits that respondent NLRC committed grave
abuse of discretion in reversing the decision of the Labor Arbiter, and asks for the
reinstatement of the latters decision.

Principally, this petition presents the following issues:

1. Whether petitioner was an employee of RFC or PMCI.

2. Whether petitioner was lawfully dismissed.

The resolution of the first issue initially boils down to a determination of the true status
of PMCI, whether it is a labor-only contractor or an independent contractor.

In the case at bar, RFC alleges that PMCI is an independent contractor on the sole
ground that the latter is a highly capitalized venture. To buttress this allegation, RFC
presents a copy of the Articles of Incorporation and the Treasurers Affidavit 13 submitted
by PMCI to the Securities and Exchange Commission showing that it has an authorized
capital stock of One Million Pesos (P1,000,000.00), of which Three Hundred Thousand
Pesos (P300,000.00) is subscribed and Seventy-Five Thousand Pesos (P75,000.00) is
paid-in. According to RFC, PMCI is a duly organized corporation engaged in the business
of creating and hiring a pool of temporary personnel and, thereafter, assigning them to
its clients from time to time for such duration as said clients may require. RFC further
contends that PMCI has a separate office, permit and license and its own organization.

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.14 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;

(b) The employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the principal. 15cräläwvirtualibräry

On the other hand, permissible job contracting or subcontracting refers to an

arrangement whereby a principal agrees to put out or farm out with a contractor or
subcontractor the performance or completion of a specific job, work or service within a
definite or predetermined period, regardless of whether such job, work or service is to
be performed or completed within or outside the premises of the principal. 16 A person is
considered engaged in legitimate job contracting or subcontracting if the following
conditions concur:

(a) The contractor or subcontractor carries on a distinct and independent business and
undertakes to perform the job, work or service on its own account and under its own
responsibility according to its own manner and method, and free from the control and
direction of the principal in all matters connected with the performance of the work
except as to the results thereof;

(b) The contractor or subcontractor has substantial capital or investment; and

(c) The agreement between the principal and contractor or subcontractor assures the
contractual employees entitlement to all labor and occupational safety and health
standards, free exercise of the right to self-organization, security of tenure, and social
and welfare benefits.17cräläwvirtualibräry
Previously, in the case of Neri vs. NLRC,18 we held that in order to be considered as a
job contractor it is enough that a contractor has substantial capital. In other words,
once substantial capital is established it is no longer necessary for the contractor to
show evidence that it has investment in the form of tools, equipment, machineries,
work premises, among others. The rational for this is that Article 106 of the Labor Code
does not require that the contractor possess both substantial capital and investment in
the form of tools, equipment, machineries, work premises, among others. 19 The
decision of the Court in Neri thus states:

Respondent BCC need not prove that it made investment in the form of tools,
equipment, machineries, work premises, among others, because it has established that
it has sufficient capitalization. The Labor Arbiter and the NLRC both determined that
BCC had a capital stock of P1 million fully subscribed and paid for. BCC is therefore a
highly capitalized venture and cannot be deemed engaged in "labor-only"
contracting.20
cräläwvirtualibräry

However, in declaring that Building Care Corporation ("BCC") was an independent

contractor, the Court considered not only the fact that it had substantial capitalization.
The Court noted that BCC carried on an independent business and undertook the
performance of 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.21 The Court likewise mentioned that the employees of BCC were engaged to
perform specific special services for its principal. 22 Thus, the Court ruled that BCC was
an independent contractor.

The Court further clarified the import of the Neri decision in the subsequent case
of Philippine Fuji Xerox Corporation vs. NLRC. 23 In the said case, petitioner Fuji Xerox
implored the Court to apply the Neri doctrine to its alleged job-contractor, Skillpower,
Inc., and declare the same as an independent contractor. Fuji Xerox alleged that
Skillpower, Inc. was a highly capitalized venture registered with the Securities and
Exchange Commission, the Department of Labor and Employment, and the Social
Security System with assets exceeding P5,000,000.00 possessing at least 29
typewriters, office equipment and service vehicles, and its own pool of employees with
25 clerks assigned to its clients on a temporary basis. 24 Despite the evidence presented
by Fuji Xerox the Court refused to apply the Neri case and explained:

Petitioners cite the case of Neri v. NLRC, in which it was held that the Building Care
Corporation (BCC) was an independent contractor on the basis of finding that it had
substantial capital, although there was no evidence that it had investments in the form
of tools, equipment, machineries and work premises. But the Court in that case
considered not only the capitalization of the BCC but also the fact that BCC was
providing specific special services (radio/telex operator and janitor) to the employer;
that in another case, the Court had already found that BCC was an independent
contractor; that BCC retained control over the employees and the employer was
actually just concerned with the end-result; that BCC had the power to reassign the
employees and their deployment was not subject to the approval of the employer; and
that BCC was paid in lump sum for the services it rendered. These features of that case
make it distinguishable from the present one.25 cräläwvirtualibräry
Not having shown the above circumstances present in Neri, the Court declared
Skillpower, Inc. to be engaged in labor-only contracting and was considered as a mere
agent of the employer.

From the two aforementioned decisions, it may be inferred that it is not enough to show
substantial capitalization or investment in the form of tools, equipment, machineries
and work premises, among others, to be considered as an independent contractor. In
fact, jurisprudential holdings are to the effect that in determining the existence of an
independent contractor relationship, several factors might be considered such as, but
not necessarily confined to, whether the contractor is carrying on an independent
business; the nature and extent of the work; the skill required; the term and duration
of the relationship; the right to assign the performance of specified pieces of work; the
control and supervision of the workers; the power of the employer with respect to the
hiring, firing and payment of the workers of the contractor; the control of the premises;
the duty to supply premises, tools, appliances, materials and labor; and the mode,
manner and terms of payment.26 cräläwvirtualibräry

Given the above standards and the factual milieu of the case, the Court has to agree
with the conclusion of the Labor Arbiter that PMCI is engaged in labor-only contracting.

First of all, PMCI does not have substantial capitalization or investment in the form of
tools, equipment, machineries, work premises, among others, to qualify as an
independent contractor. While it has an authorized capital stock of P1,000,000.00,
only P75,000.00 is actually paid-in, which, to our mind, cannot be considered as
substantial capitalization. In the case of Neri, which was promulgated in 1993, BCC had
a capital stock of P1,000,000.00 which was fully subscribed and paid-for. Moreover,
when the Neri case was decided in 1993, the rate of exchange between the dollar and
the peso was only P27.30 to $127 while presently it is at P40.390 to $1.28 The Court
takes judicial notice of the fact that in 1993, the economic situation in the country was
not as adverse as the present, as shown by the devaluation of our peso. With the
current economic atmosphere in the country, the paid-in capitalization of PMCI
amounting to P75,000.00 cannot be considered as substantial capital and, as such,
PMCI cannot qualify as an independent contractor.

Second, PMCI did not carry on an independent business nor did it undertake the
performance of its contract according to its own manner and method, free from the
control and supervision of its principal, RFC. The evidence at hand shows that the
workers assigned by PMCI to RFC were under the control and supervision of the latter.
The Contract of Service itself provides that RFC can require the workers assigned by
PMCI to render services even beyond the regular eight hour working day when deemed
necessary.29 Furthermore, RFC undertook to assist PMCI in making sure that the daily
time records of its alleged employees faithfully reflect the actual working hours. 30 With
regard to petitioner, RFC admitted that it exercised control and supervision over
him.31 These are telltale indications that PMCI was not left alone to supervise and
control its alleged employees. Consequently, it can be concluded that PMCI was not an
independent contractor since it did not carry a distinct business free from the control
and supervision of RFC.

Third, PMCI was not engaged to perform a specific and special job or service, which is
one of the strong indicators that an entity is an independent contractor as explained by
the Court in the cases of Neri and Fuji. As stated in the Contract of Service, the sole
undertaking of PMCI was to provide RFC with a temporary workforce able to carry out
whatever service may be required by it.32 Such venture was complied with by PMCI
when the required personnel were actually assigned to RFC. Apart from that, no other
particular job, work or service was required from PMCI. Obviously, with such an
arrangement, PMCI merely acted as a recruitment agency for RFC. Since the
undertaking of PMCI did not involve the performance of a specific job, but rather the
supply of manpower only, PMCI clearly conducted itself as labor-only contractor.

Lastly, in labor-only contracting, the employees recruited, supplied or placed by the

contractor perform activities which are directly related to the main business of its
principal. In this case, the work of petitioner as sales representative is directly related
to the business of RFC. Being in the business of food manufacturing and sales, it is
necessary for RFC to hire a sales representative like petitioner to take charge of
booking its sales orders and collecting payments for such. Thus, the work of petitioner
as sales representative in RFC can only be categorized as clearly related to, and in the
pursuit of the latters business. Logically, when petitioner was assigned by PMCI to RFC,
PMCI acted merely as a labor-only contractor.

Based on the foregoing, PMCI can only be classified as a labor-only contractor and, as
such, cannot be considered as the employer of petitioner.

However, even granting that PMCI is an independent contractor, as RFC adamantly

suggests, still, a finding of the same will not save the day for RFC. A perusal of the
Contract of Service entered into between RFC and PMCI reveals that petitioner is
actually not included in the enumeration of the workers to be assigned to RFC. The
following are the workers enumerated in the contract:

1. Merchandiser

2. Promo Girl

3. Factory Worker

4. Driver33
cräläwvirtualibräry

Obviously, the above enumeration does not include the position of petitioner as sales
representative. This only shows that petitioner was never intended to be a part of those
to be contracted out. However, RFC insists that despite the absence of his position in
the enumeration, petitioner is deemed included because this has been agreed upon
between itself and PMCI. Such contention deserves scant consideration. Had it really
been the intention of both parties to include the position of petitioner they should have
clearly indicated the same in the contract. However, the contract is totally silent on this
point which can only mean that petitioner was never really intended to be covered by it.

Even if we use the "four-fold test" to ascertain whether RFC is the true employer of
petitioner the same result would be achieved. In determining the existence of
employer-employee relationship the following elements of the "four-fold test" are
generally considered, namely: (1) the selection and engagement of the employee or the
power to hire; (2) the payment of wages; (3) the power to dismiss; and (4) the power
to control the employee.34 Of these four, the "control test" is the most important. 35 A
careful study of the evidence at hand shows that RFC possesses the earmarks of being
the employer of petitioner.

With regard to the first element, the power to hire, RFC denies any involvement in the
recruitment and selection of petitioner and asserts that petitioner did not present any
proof that he was actually hired and employed by RFC.

It should be pointed out that no particular form of proof is required to prove the
existence of an employer-employee relationship. 36 Any competent and relevant
evidence may show the relationship.37 If only documentary evidence would be required
to demonstrate that relationship, no scheming employer would ever be brought before
the bar of justice.38 In the case at bar, petitioner presented the identification card
issued to him on 26 May 1990 by RFC as proof that it was the latter who engaged his
services. To our mind, the ID card is enough proof that petitioner was previously hired
by RFC prior to his transfer as agency worker to PMCI. It must be noted that the
Employment Contract between petitioner and PMCI was dated 1 July 1991. On the
other hand, the ID card issued by RFC to petitioner was dated 26 May 1990, or more
than one year before the Employment Contract was signed by petitioner in favor of
PMCI. It makes one wonder why, if petitioner was indeed recruited by PMCI as its own
employee on 1 July 1991, how come he had already been issued an ID card by RFC a
year earlier? While the Employment Contract indicates the word "renewal," presumably
an attempt to show that petitioner had previously signed a similar contract with PMCI,
no evidence of a prior contract entered into between petitioner and PMCI was ever
presented by RFC. In fact, despite the demand made by the counsel of petitioner for
the production of the contract which purportedly shows that prior to 1 July 1991
petitioner was already connected with PMCI, RFC never made a move to furnish the
counsel of petitioner a copy of the alleged original Employment Contract. The only
logical conclusion which may be derived from such inaction is that there was no such
contract and that the only Employment Contract entered into between PMCI and
petitioner was the 1 July 1991 contract and no other. Since, as shown by the ID card,
petitioner was already with RFC on 26 May 1990, prior to the time any Employment
Contract was agreed upon between PMCI and petitioner, it follows that it was RFC who
actually hired and engaged petitioner to be its employee.

With respect to the payment of wages, RFC disputes the argument of petitioner that it
paid his wages on the ground that petitioner did not submit any evidence to prove that
his salary was paid by it, or that he was issued payslip by the company. On the
contrary RFC asserts that the invoices39 presented by it, show that it was PMCI who
paid petitioner his wages through its regular monthly billings charged to RFC.

The Court takes judicial notice of the practice of employers who, in order to evade the
liabilities under the Labor Code, do not issue payslips directly to their
employees.40 Under the current practice, a third person, usually the purported
contractor (service or manpower placement agency), assumes the act of paying the
wage.41 For this reason, the lowly worker is unable to show proof that it was directly
paid by the true employer. Nevertheless, for the workers, it is enough that they actually
receive their pay, oblivious of the need for payslips, unaware of its legal
implications.42 Applying this principle to the case at bar, even though the wages were
coursed through PMCI, we note that the funds actually came from the pockets of RFC.
Thus, in the end, RFC is still the one who paid the wages of petitioner albeit indirectly.

As to the third element, the power to dismiss, RFC avers that it was PMCI who
terminated the employment of petitioner. The facts on record, however, disprove the
allegation of RFC. First of all, the Contract of Service gave RFC the right to terminate
the workers assigned to it by PMCI without the latters approval. Quoted hereunder is
the portion of the contract stating the power of RFC to dismiss, to wit:

7. The First party ("RFC") reserves the right to terminate the services of any worker
found to be unsatisfactory without the prior approval of the second party ("PMCI"). 43 cräläwvirtualibräry

In furtherance of the above provision, RFC requested PMCI to terminate petitioner from
his employment with the company. In response to the request of RFC, PMCI terminated
petitioner from service. As found by the Labor Arbiter, to which we agree, the dismissal
of petitioner was indeed made under the instruction of RFC to PMCI.

The fourth and most important requirement in ascertaining the presence of employer-
employee relationship is the power of control. The power of control refers to the
authority of the employer to control the employee not only with regard to the result of
work to be done but also to the means and methods by which the work is to be
accomplished.44 It should be borne in mind, that the "control test" calls merely for the
existence of the right to control the manner of doing the work, and not necessarily to
the actual exercise of the right. 45 In the case at bar, we need not belabor ourselves in
discussing whether the power of control exists. RFC already admitted that it exercised
control and supervision over petitioner.46 RFC, however, raises the defense that the
power of control was jointly exercised with PMCI. The Labor Arbiter, on the other hand,
found that petitioner was under the direct control and supervision of the personnel of
RFC and not PMCI. We are inclined to believe the findings of the Labor Arbiter which is
supported not only by the admission of RFC but also by the evidence on record.
Besides, to our mind, the admission of RFC that it exercised control and supervision
over petitioner, the same being a declaration against interest, is sufficient enough to
prove that the power of control truly exists.

We, therefore, hold that an employer-employee relationship exists between petitioner

and RFC.

Having determined the real employer of petitioner, we now proceed to ascertain the
legality of his dismissal from employment.

Since petitioner, due to his length of service, already attained the status of a regular
employee,47 he is entitled to the security of tenure provided under the labor laws.
Hence, he may only be validly terminated from service upon compliance with the legal
requisites for dismissal. Under the Labor Code, the requirements for the lawful
dismissal of an employee are two-fold, the substantive and the procedural aspects. Not
only must the dismissal be for a valid or authorized cause, 48 the rudimentary
requirements of due process - notice and hearing 49 must, likewise, be observed before
an employee may be dismissed. Without the concurrence of the two, the termination
would, in the eyes of the law, be illegal.50
cräläwvirtualibräry
As the employer, RFC has the burden of proving that the dismissal of petitioner was for
a cause allowed under the law and that petitioner was afforded procedural due process.
Sad to say, RFC failed to discharge this burden. Indeed, RFC never pointed to any valid
or authorized cause under the Labor Code which allowed it to terminate the services of
petitioner. Its lone allegation that the dismissal was due to the expiration or completion
of contract is not even one of the grounds for termination allowed by law. Neither did
RFC show that petitioner was given ample opportunity to contest the legality of his
dismissal. In fact, no notice of such impending termination was ever given him.
Petitioner was, thus, surprised that he was already terminated from employment
without any inkling as to how and why it came about. Petitioner was definitely denied
due process. Having failed to establish compliance with the requirements on
termination of employment under the Labor Code, the dismissal of petitioner is tainted
with illegality.

An employee who has been illegally dismissed is entitled to reinstatement to his former
position without loss of seniority rights and to payment of full backwages corresponding
to the period from his illegal dismissal up to actual reinstatement. 51 Petitioner is entitled
to no less.

WHEREFORE , the petition is GRANTED. The decision of the NLRC, dated 21 June
1996, as well as its resolution, promulgated on 20 August 1996, are ANNULLED and
SET ASIDE. The decision of the Labor Arbiter rendered on 15 June 1994, is hereby
REINSTATED and AFFIRMED.

SO ORDERED.

Davide, Jr., C.J.,  (Chairman), Puno, Pardo, and  Ynares-Santiago,  JJ., concur.

G.R. No. L-80680 January 26, 1989

DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R.

ERISPE, JOEL MADRIAGA, ARTHUR M. ESPINO, AMARO BONA, FERDINAND
CRUZ, FEDERICO A. BELITA, ROBERTO P. ISLES, ELMER ARMADA, EDUARDO
UDOG, PETER TIANSING, MIGUELITA QUIAMBOA, NOMER MATAGA, VIOLY
ESTEBAN and LYDIA ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A.
AZARCON, NATIONAL LABOR RELATIONS COMMISSION, and HON. EMERSON
C. TUMANON, respondents.

V.E. Del Rosario & Associates for respondent CMC.

The Solicitor General for public respondent.

Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.

Mildred A. Ramos for respondent Lily Victoria A. Azarcon.

 

SARMIENTO,  J.:

On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the National Labor
Relations Commission for reinstatement and payment of various benefits, including minimum
wage, overtime pay, holiday pay, thirteen-month pay, and emergency cost of living allowance
pay, against the respondent, the California Manufacturing Company. 1

On October 7, 1986, after the cases had been consolidated, the California Manufacturing
Company (California) filed a motion to dismiss as well as a position paper denying the existence
of an employer-employee relation between the petitioners and the company and, consequently,
any liability for payment of money claims. 2 On motion of the petitioners, Livi Manpower
Services, Inc. was impleaded as a party-respondent.

It appears that the petitioners were, prior to their stint with California, employees of Livi
Manpower Services, Inc. (Livi), which subsequently assigned them to work as "promotional
merchandisers" 3 for the former firm pursuant to a manpower supply agreement. Among other
things, the agreement provided that California "has no control or supervisions whatsoever over
[Livi's] workers with respect to how they accomplish their work or perform [Californias]
obligation"; 4 the Livi "is an independent contractor and nothing herein contained shall be
construed as creating between [California] and [Livi] . . . the relationship of principal[-]agent or
employer[-]employee'; 5 that "it is hereby agreed that it is the sole responsibility of [Livi] to
comply with all existing as well as future laws, rules and regulations pertinent to employment of
labor" 6 and that "[California] is free and harmless from any liability arising from such laws or
from any accident that may befall workers and employees of [Livi] while in the performance of
their duties for [California]. 7

It was further expressly stipulated that the assignment of workers to California shall be on a
"seasonal and contractual basis"; that "[c]ost of living allowance and the 10 legal holidays will
be charged directly to [California] at cost "; and that "[p]ayroll for the preceeding [sic] week
[shall] be delivered by [Livi] at [California's] premises." 8

The petitioners were then made to sign employment contracts with durations of six months, upon
the expiration of which they signed new agreements with the same period, and so on. Unlike
regular California employees, who received not less than P2,823.00 a month in addition to a host
of fringe benefits and bonuses, they received P38.56 plus P15.00 in allowance daily.

The petitioners now allege that they had become regular California employees and demand, as a
consequence whereof, similar benefits. They likewise claim that pending further proceedings
below, they were notified by California that they would not be rehired. As a result, they filed an
amended complaint charging California with illegal dismissal.

California admits having refused to accept the petitioners back to work but deny liability therefor
for the reason that it is not, to begin with, the petitioners' employer and that the "retrenchment"
had been forced by business losses as well as expiration of contracts. 9 It appears that thereafter,
Livi re-absorbed them into its labor pool on a "wait-in or standby" status. 10
Amid these factual antecedents, the Court finds the single most important issue to be: Whether
the petitioners are California's or Livi's employees.

The labor arbiter's decision, 11 a decision affirmed on appeal, 12ruled against the existence of any
employer-employee relation between the petitioners and California ostensibly in the light of the
manpower supply contract, supra, and consequently, against the latter's liability as and for the
money claims demanded. In the same breath, however, the labor arbiter absolved Livi from any
obligation because the "retrenchment" in question was allegedly "beyond its control ." 13 He
assessed against the firm, nevertheless, separation pay and attorney's fees.

We reverse.

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 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. At any rate, since the agreement was between Livi and California, they alone are bound by
it, and the petitioners cannot be made to suffer from its adverse consequences.

This Court has consistently ruled that the determination of whether or not there is an employer-
employee relation depends upon four standards: (1) the manner of selection and engagement of
the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a
power of dismissal; and (4) the presence or absence of a power to control the putative employee's
conduct. 14 Of the four, the right-of-control test has been held to be the decisive factor. 15

On the other hand, we have likewise held, based on Article 106 of the Labor Code, hereinbelow
reproduced:

ART. 106. Contractor or sub-contractor. — Whenever an employee 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 sub-contractor, if any, shall be paid
in accordance with the provisions of this Code.

In the event that the contractor or sub-contractor fails to pay wages of his
employees in accordance with this Code, the employer shall be jointly and
severally liable with his contractor or sub-contractor 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 provisions 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.

that notwithstanding the absence of a direct employer-employee relationship between the

employer in whose favor work had been contracted out by a "labor-only" contractor, and the
employees, the former has the responsibility, together with the "labor-only" contractor, for any
valid labor claims, 16 by operation of law. The reason, so we held, is that the "labor-only"
contractor is considered "merely an agent of the employer," 17 and liability must be shouldered by
either one or shared by both. 18

There is no doubt that in the case at bar, Livi performs "manpower services", 19 meaning to say, it
contracts out labor in favor of clients. We hold that it is one notwithstanding its vehement claims
to the contrary, and notwithstanding the provision of the contract that it is "an independent
contractor." 20 The nature of one's business is not determined by self-serving appellations one
attaches thereto but by the tests provided by statute and prevailing case law. 21 The bare fact that
Livi maintains a separate line of business does not extinguish the equal fact that it has provided
California with workers to pursue the latter's own business. In this connection, we do not agree
that the petitioners had been made to perform activities 'which are not directly related to the
general business of manufacturing," 22 California's purported "principal operation activity.
" 23 The petitioner's had been charged with "merchandizing [sic] promotion or sale of the
products of [California] in the different sales outlets in Metro Manila including task and
occational [sic] price tagging," 24an activity that is doubtless, an integral part of the
manufacturing business. It is not, then, as if Livi had served as its (California's) promotions or
sales arm or agent, or otherwise, rendered a piece of work it (California) could not have itself
done; Livi, as a placement agency, had simply supplied it with the manpower necessary to carry
out its (California's) merchandising activities, using its (California's) premises and equipment. 25

Neither Livi nor California can therefore escape liability, that is, assuming one exists.

The fact that the petitioners have allegedly admitted being Livi's "direct employees" 26 in their
complaints is nothing conclusive. For one thing, the fact that the petitioners were (are), will not
absolve California since liability has been imposed by legal operation. For another, and as we
indicated, the relations of parties must be judged from case to case and the decree of law, and not
by declarations of parties.

The fact that the petitioners have been hired on a "temporary or seasonal" basis merely is no
argument either. As we held in Philippine Bank of Communications v. NLRC,  27 a temporary or
casual employee, under Article 218 of the Labor Code, becomes regular after service of one year,
unless he has been contracted for a specific project. And we cannot say that merchandising is a
specific project for the obvious reason that it is an activity related to the day-to-day operations of
California.
It would have been different, we believe, had Livi been discretely a promotions firm, and that
California had hired it to perform the latter's merchandising activities. For then, Livi would have
been truly the employer of its employees, and California, its client. The client, in that case,
would have been a mere patron, and not an employer. The employees would not in that event be
unlike waiters, who, although at the service of customers, are not the latter's employees, but of
the restaurant. As we pointed out in the Philippine Bank of Communications case:

xxx xxx xxx

... The undertaking given by CESI in favor of the bank was not the performance
of a specific job for instance, the carriage and delivery of documents and parcels
to the addresses thereof. There appear to be many companies today which
perform this discrete service, companies with their own personnel who pick up
documents and packages from the offices of a client or customer, and who deliver
such materials utilizing their own delivery vans or motorcycles to the addressees.
In the present case, the undertaking of CESI was to provide its client the bank
with a certain number of persons able to carry out the work of messengers. Such
undertaking of CESI was complied with when the requisite number of persons
were assigned or seconded to the petitioner bank. Orpiada utilized the premises
and office equipment of the bank and not those of CESI. Messengerial work the
delivery of documents to designated persons whether within or without the bank
premises-is of course directly related to the day-to-day operations of the bank.
Section 9(2) quoted above does not require for its applicability that the petitioner
must be engaged in the delivery of items as a distinct and separate line of
business.

Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is
a recruitment and placement corporation placing bodies, as it were, in different
client companies for longer or shorter periods of time, ... 28

In the case at bar, Livi is admittedly an "independent contractor providing temporary services of
manpower to its client. " 29 When it thus provided California with manpower, it supplied
California with personnel, as if such personnel had been directly hired by California. Hence,
Article 106 of the Code applies.

The Court need not therefore consider whether it is Livi or California which exercises control
over the petitioner vis-a-vis the four barometers referred to earlier, since by fiction of law, either
or both shoulder responsibility.

It is not that by dismissing the terms and conditions of the manpower supply agreement, we
have, hence, considered it illegal. Under the Labor Code, genuine job contracts are permissible,
provided they are genuine job contracts. But, as we held in Philippine Bank of Communications,
supra, when such arrangements are resorted to "in anticipation of, and for the very purpose of
making possible, the secondment" 30 of the employees from the true employer, the Court will be
justified in expressing its concern. For then that would compromise the rights of the workers,
especially their right to security of tenure.
This brings us to the question: What is the liability of either Livi or California?

The records show that the petitioners bad been given an initial six-month contract, renewed for
another six months. Accordingly, under Article 281 of the Code, they had become regular
employees-of-California-and had acquired a secure tenure. Hence, they cannot be separated
without due process of law.

California resists reinstatement on the ground, first, and as we Id, that the petitioners are not its
employees, and second, by reason of financial distress brought about by "unfavorable political
and economic atmosphere" 31 "coupled by the February Revolution." 32 As to the first objection,
we reiterate that the petitioners are its employees and who, by virtue of the required one-year
length-of-service, have acquired a regular status. As to the second, we are not convinced that
California has shown enough evidence, other than its bare say so, that it had in fact suffered
serious business reverses as a result alone of the prevailing political and economic climate. We
further find the attribution to the February Revolution as a cause for its alleged losses to be
gratuitous and without basis in fact.

California should be warned that retrenchment of workers, unless clearly warranted, has serious
consequences not only on the State's initiatives to maintain a stable employment record for the
country, but more so, on the workingman himself, amid an environment that is desperately
scarce in jobs. And, the National Labor Relations Commission should have known better than to
fall for such unwarranted excuses and nebulous claims.

WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): SETTING

ASIDE the decision, dated March 20, 1987, and the resolution, dated August 19, 1987; (2)
ORDERING the respondent, the California Manufacturing Company, to REINSTATE the
petitioners with full status and rights of regular employees; and (3) ORDERING the respondent,
the California Manufacturing Company, and the respondents, Livi Manpower Service, Inc.
and/or Lily-Victoria Azarcon, to PAY, jointly and severally, unto the petitioners: (a) backwages
and differential pays effective as and from the time they had acquired a regular status under the
second paragraph, of Section 281, of the Labor Code, but not to exceed three (3) years, and (b)
all such other and further benefits as may be provided by existing collective bargaining
agreement(s) or other relations, or by law, beginning such time; and (4) ORDERING the private
respondents to PAY unto the petitioners attorney's fees equivalent to ten (10%) percent of all
money claims hereby awarded, in addition to those money claims. The private respondents are
likewise ORDERED to PAY the costs of this suit.

IT IS SO ORDERED.

Melencio-Herrera, (Chairperson), Paras, Padilla and Regalado, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
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
delivery materials, 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. Ramp Area

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 incentive leave pay, 13th month pay and allowances,
and for regularization of employment 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

reinstatement as 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.

. . . [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)

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.25 teach, 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 trend27 elevating such element as a primary determinant 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 Right 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 differential 37 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 time39 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.

And petitioner informs that "the employment contracts of 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 order 44 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.

G.R. No. 144672 July 10, 2003 - SAN MIGUEL CORP. v. MAERC INTEGRATED
SERVICES, INC., ET AL.:

SECOND DIVISION

[G.R. No. 144672. July 10, 2003.]

SAN MIGUEL CORPORATION, Petitioner, v. MAERC INTEGRATED SERVICES,

INC.; and EMERBERTO ORQUE, ROGELIO PRADO, JR., EDDIE SELLE,
ALEJANDRO ANNABIEZA, ANNIAS JUAMO-AS, CONSORCIO MANLOLOYO,
ANANIAS ALCONTIN, REY GESTOPA, EDGARDO NUÑEZ, JUNEL CABATINGAN,
PAUL DUMAQUETA, FELIMON ECHAVEZ, VITO SEALANA, DENECIA PALAO,
ROBERTO LAPIZ, BALTAZAR LABIO, LEONARDO BONGO, EL CID ICALINA, JOSE
DIOCAMPO, ADELO CANTILLAS, ISAIAS BRANZUELA, RAMON ROSALES,
GAUDENCIO PESON, HECTOR CABAÑOG, EDGARDO DAGMAYAN, ROGELIO
CRUZ, ROLANDO ESPINA, BERNARDINO REGIDOR, ARNELIO SUMALINOG,
GUMERSINDO ALCONTIN, LORETO NUÑEZ, JOEBE BOY DAYON, CONRADO
MESANQUE, MARCELO PESCADOR, MARCELINO JABAGAT, VICENTE
DEVILLERES, VICENTE ALIN, RODOLFO PAHUGOT, RUEL NAVARES, DANILO
ANABIEZA, ALEX JUEN, JUANITO GARCES, SILVINO LIMBAGA, AURELIO
JURPACIO, JOVITO LOON, VICTOR TENEDERO, SASING MORENO, WILFREDO
HORTEZUELA, JOSELITO MELENDEZ, ALFREDO GESTOPA, REGINO GABUYA,
JORGE GAMUZARNO, LOLITO COCIDO, EFRAIM YUBAL, VENERANDO ROAMAR,
GERARDO BUTALID, HIPOLITO VIDAS, VENGELITO FRIAS, VICENTE CELACIO,
CORLITO PESTAÑAS, ERVIN HYROSA, ROMMEL GUERERO, RODRIGO ENERLAS,
FRANCISCO CARBONILLA, NICANOR CUIZON, PEDRO BRIONES, RODOLFO
CABALHUG, TEOFILO RICARDO, DANILO R. DIZON, ALBERTO EMBONG,
ALFONSO ECHAVEZ, GONZALO RORACEÑA, MARCELO CARACINA, RAUL
BORRES, LINO TONGALAMOS, ARTEMIO BONGO, JR., ROY AVILA, MELCHOR
FREGLO, RAUL CABILLADA, EDDIE CATAB, MELENCIO DURANO, ALLAN RAGO,
DOMINADOR CAPARIDA, JOVITO CATAB, ALBERT LASPIÑAS, ALEX ANABIEZA,
 NESTOR REYNANTE, EULOGIO GESTOPA, MARIO BOLO, EDERLITO A.
BALOCANO, JOEL PEPITO, REYNALDO LUDIA, MANUEL CINCO, ALLAN
AGUSTIN, PABLITO POLEGRATES, CLYDE PRADO, DINDO MISA, ROGER
SASING, RAMON ARCALLANA, GABRIEL SALAS, EDWIN SASAN, DIOSDADO
BARRIGA, MOISES SASAN, SINFORIANO CANTAGO, LEONARDO MARTURILLAS,
MARIO RANIS, ALEXANDRO RANIDO, JEROME PRADO, RAUL OYAO, VICTOR
CELACIO, GERALDO ROQUE, ZOSIMO CARARATON, VIRGILIO ZANORIA, JOSE
ZANORIA, ALLAN ZANORIA, VICTORINO SENO, TEODULO JUMAO-AS,
ALEXANDER HERA, ANTHONY ARANETA, ALDRIN SUSON, VICTOR VERANO,
RUEL SUFRERENCIA, ALFRED NAPARATE, WENCESLAO BACLOHON, EDUARDO
LANGITA, FELIX ORDENEZA, ARSENIO LOGARTA, EDUARDO DELA VEGA,
JOVENTINO CANOOG, ROGELIO ABAPO, RICARDO RAMAS, JOSE BANDIALAN,
ANTONIO BASALAN, LYNDON BASALAN, WILFREDO ALIVIANO, BIENVENIDO
ROSARIO, JESUS CAPANGPANGAN, RENATO MENDOZA, ALEJANDRO
CATANDEJAN, RUBEN TALABA, FILEMON ECHAVEZ, MARCELINO CARACENA,
IGNACIO MISA, FELICIANO AGBAY, VICTOR MAGLASANG, ARTURO HEYROSA,
ALIPIO TIROL, ROSENDO MONDARES, ANICETO LUDIA, REYNALDO
LAVANDERO, REUYAN HERCULANO, TEODULO NIQUE, EMERBERTO ORQUE,
ZOSIMO BAOBAO, MEDARDO SINGSON, ANTONIO PATALINGHUG, ERNESTO
SINGSON, ROBERTO TORRES, CESAR ESCARIO, LEODEGARIO DOLLECIN,
ALBERTO ANOBA, RODRIGO BISNAR, ZOSIMO BINGAS, ROSALIO DURAN, SR.,
ROSALIO DURAN, JR., ROMEO DURAN, ANTONIO ABELLA, MARIANO REPOLLO,
POLEGARPO DEGAMO, MARIO CEREZA, ANTONIO LAOROMILLA, PROCTUSO
MAGALLANES, ELADIO TORRES, WARLITO DEMANA, HENRY GEDARO,
DOISEDERIO GEMPERAO, ANICETO GEMPERAO, JERRY CAPAROSO, SERLITO
NOYNAY, LUCIANO RECOPELACION, JUANITO GARCES, FELICIANO TORRES,
RANILO VILLAREAL, FERMIN ALIVIANO, JUNJIE LAVISTE, TOMACITO DE
CASTRO, JOSELITO CAPILINA, SAMUEL CASQUEJO, LEONARDO NATAD,
BENJAMIN SAYSON, PEDRO INOC, EDWARD FLORES, EDWIN SASAN, JOSE REY
INOT, EDGAR CORTES, ROMEO LOMBOG, NICOLAS RIBO, JAIME RUBIN,
ORLANDO REGIS, RICKY ALCONZA, RUDY TAGALOG, VICTORINO TAGALOG,
EDWARD COLINA, RONIE GONZAGA, PAUL CABILLADA, WILFREDO MAGALONA,
JOEL PEPITO, PROSPERO MAGLASANG, ALLAN AGUSTIN, FAUSTO BARGAYO,
NOMER SANCHEZ, JOLITO ALIN, BIRNING REGIDOR, GARRY DIGNOS, EDWIN
DIGNOS, DARIO DIGNOS, ROGELIO DIGNOS, JIMMY CABIGAS, FERNANDO
ANAJAO, ALEX FLORES, FERNANDO REMEDIO, TOTO MOSQUIDA, ALBERTO
YAGONIA, VICTOR BARIQUIT, IGNACIO MISA, ELISEO VILLARENO, MANUEL
LAVANDERO, VIRCEDE, MARIO RANIS, JAIME RESPONSO, MARIANITO
AGUIRRE, MARCIAL HERUELA, GODOFREDO TUÑACAO, PERFECTO REGIS, ROEL
DEMANA, ELMER CASTILLO, WINEFREDO CALAMOHOY, RUDY LUCERNAS,
ANTONIO CAÑETE, EFRAIM YUBAL, JESUS CAPANGPANGAN, DAMIAN
CAPANGPANGAN, TEOFILO CAPANGPANGAN, NILO CAPANGPANGAN,
CORORENO CAPANGPANGAN, EMILIO MONDARES, PONCIANO AGANA,
VICENTE DEVILLERES, MARIO ALIPAN, ROMANITO ALIPAN, ALDEON
ROBINSON, FORTUNATO SOCO, CELSO COMPUESTO, WILLIAM ITORALDE,
ANTONIO PESCADOR, JEREMIAS RONDERO, ESTROPIO PUNAY, LEOVIJILDO
PUNAY, ROMEO QUILONGQUILONG, WILFREDO GESTOPA, ELISEO SANTOS,
HENRY ORIO, JOSE YAP, NICANOR MANAYAGA, TEODORO SALINAS, ANICETO
MONTERO, RAFAELITO VERZOSA, ALEJANDRO RANIDO, HENRY TALABA,
ROMULO TALABA, DIOSDADO BESABELA, SYLVESTRE TORING, EDILBERTO
 PADILLA, ALLAN HEROSA, ERNESTO SUMALINOG, ARISTON VELASCO, JR.,
FERNANDO LOPEZ, ALFONSO ECHAVEZ, NICANOR CUIZON, DOMINADOR
CAPARIDA, ZOSIMO CORORATION, ARTEMIO LOVERANES, DIONISIO
YAGONIA, VICTOR CELOCIA, HIPOLITO VIDAS, TEODORO ARCILLAS,
MARCELINO HABAGAT, GAUDIOSO LABASAN, LEOPOLDO REGIS, AQUILLO
DAMOLE, WILLY ROBLE and NIEL ZANORIA, Respondents.

DECISION

BELLOSILLO, J.:

TWO HUNDRED NINETY-ONE (291) workers filed their complaints (nine [9] complaints
in all) against San Miguel Corporation (petitioner herein) and Maerc Integrated
Services, Inc. (respondent herein), for illegal dismissal, underpayment of wages, non-
payment of service incentive leave pays and other labor standards benefits, and for
separation pays from 25 June to 24 October 1991. The complainants alleged that they
were hired by San Miguel Corporation (SMC) through its agent or intermediary Maerc
Integrated Services, Inc. (MAERC) to work in two (2) designated workplaces in
Mandaue City: one, inside the SMC premises at the Mandaue Container Services, and
another, in the Philphos Warehouse owned by MAERC. They washed and segregated
various kinds of empty bottles used by SMC to sell and distribute its beer beverages to
the consuming public. They were paid on a per piece or pakiao basis except for a few
who worked as checkers and were paid on daily wage basis.

Complainants alleged that long before SMC contracted the services of MAERC a majority
of them had already been working for SMC under the guise of being employees of
another contractor, Jopard Services, until the services of the latter were terminated on
31 January 1988.

SMC denied liability for the claims and averred that the complainants were not its
employees but of MAERC, an independent contractor whose primary corporate purpose
was to engage in the business of cleaning, receiving, sorting, classifying, etc., glass and
metal containers.

It appears that SMC entered into a Contract of Services with MAERC engaging its
services on a non-exclusive basis for one (1) year beginning 1 February 1988. The
contract was renewed for two (2) more years in March 1989. It also provided for its
automatic renewal on a month-to-month basis after the two (2)-year period and
required that a written notice to the other party be given thirty (30) days prior to the
intended date of termination, should a party decide to discontinue with the contract. chanrob1es virtua1 law library

In a letter dated 15 May 1991, SMC informed MAERC of the termination of their service
contract by the end of June 1991. SMC cited its plans to phase out its segregation
activities starting 1 June 1991 due to the installation of labor and cost-saving devices.

When the service contract was terminated, complainants claimed that SMC stopped
them from performing their jobs; that this was tantamount to their being illegally
dismissed by SMC who was their real employer as their activities were directly related,
necessary and desirable to the main business of SMC; and, that MAERC was merely
made a tool or a shield by SMC to avoid its liability under the Labor Code.

MAERC for its part admitted that it recruited the complainants and placed them in the
bottle segregation project of SMC but maintained that it was only conveniently used by
SMC as an intermediary in operating the project or work directly related to the primary
business concern of the latter with the end in view of avoiding its obligations and
responsibilities towards the complaining workers.

The nine (9) cases 1 were consolidated. On 31 January 1995 the Labor Arbiter rendered
a decision holding that MAERC was an independent contractor. 2 He dismissed the
complaints for illegal dismissal but ordered MAERC to pay complainants’ separation
benefits in the total amount of P2,334,150.00. MAERC and SMC were also ordered to
jointly and severally pay complainants their wage differentials in the amount of
P845,117.00 and to pay attorney’s fees in the amount of P317,926.70.

The complainants appealed the Labor Arbiter’s finding that MAERC was an independent
contractor and solely liable to pay the amount representing the separation benefits to
the exclusion of SMC, as well as the Labor Arbiter’s failure to grant the Temporary
Living Allowance of the complainants. SMC appealed the award of attorney’s fees.

The National Labor Relations Commission (NLRC) ruled in its 7 January 1997 decision
that MAERC was a labor-only contractor and that complainants were employees of SMC.
3 The NLRC also held that whether MAERC was a job contractor or a labor-only
contractor, SMC was still solidarily liable with MAERC for the latter’s unpaid obligations,
citing Art. 109 4 of the Labor Code. Thus, the NLRC modified the judgment of the Labor
Arbiter and held SMC jointly and severally liable with MAERC for complainants’
separation benefits. In addition, both respondents were ordered to pay jointly and
severally an indemnity fee of P2,000.00 to each complainant.

SMC moved for a reconsideration which resulted in the reduction of the award of
attorney’s fees from P317,926.70 to P84,511.70. The rest of the assailed decision was
unchanged. 5

On 12 March 1998, SMC filed a petition for certiorari with prayer for the issuance of a
temporary restraining order and/or injunction with this Court which then referred the
petition to the Court of Appeals.

On 28 April 2000 the Court of Appeals denied the petition and affirmed the decision of
the NLRC. 6 The appellate court also denied SMC’s motion for reconsideration in a
resolution 7 dated 26 July 2000. Hence, petitioner seeks a review of the Court of
Appeals’ judgment before this Court.

Petitioner poses the same issues brought up in the appeals court and the pivotal
question is whether the complainants are employees of petitioner SMC or of respondent
MAERC.

Relying heavily on the factual findings of the Labor Arbiter, petitioner maintained that
MAERC was a legitimate job contractor. It directed this Court’s attention to the
undisputed evidence it claimed to establish this assertion: MAERC is a duly organized
stock corporation whose primary purpose is to engage in the business of cleaning,
receiving, sorting, classifying, grouping, sanitizing, packing, delivering, warehousing,
trucking and shipping any glass and/or metal containers and that it had listed in its
general information sheet two hundred seventy-eight (278) workers, twenty-two (22)
supervisors, seven (7) managers/officers and a board of directors; it also voluntarily
entered into a service contract on a non-exclusive basis with petitioner from which it
earned a gross income of P42,110,568.24 from 17 October 1988 to 27 November 1991;
the service contract specified that MAERC had the selection, engagement and discharge
of its personnel, employees or agents or otherwise in the direction and control thereof;
MAERC admitted that it had machinery, equipment and fixed assets used in its business
valued at P4,608,080.00; and, it failed to appeal the Labor Arbiter’s decision which
declared it to be an independent contractor and ordered it to solely pay the separation
benefits of the complaining workers.

We find no basis to overturn the Court of Appeals and the NLRC. Well-established is the
principle that findings of fact of quasi-judicial bodies, like the NLRC, are accorded with
respect, even finality, if supported by substantial evidence. 8 Particularly when passed
upon and upheld by the Court of Appeals, they are binding and conclusive upon the
Supreme Court and will not normally be disturbed. 9

This Court has invariably held that in ascertaining an employer-employee relationship,

the following factors are considered: (a) the selection and engagement of employee;
(b) the payment of wages; (c) the power of dismissal; and, (d) the power to control an
employee’s conduct, the last being the most important. 10 Application of the aforesaid
criteria clearly indicates an employer-employee relationship between petitioner and the
complainants.

Evidence discloses that petitioner played a large and indispensable part in the hiring of
MAERC’s workers. It also appears that majority of the complainants had already been
working for SMC long before the signing of the service contract between SMC and
MAERC in 1988.

The incorporators of MAERC admitted having supplied and recruited workers for SMC
even before MAERC was created. 11 The NLRC also found that when MAERC was
organized into a corporation in February 1988, the complainants who were then already
working for SMC were made to go through the motion of applying for work with Ms.
Olga Ouano, President and General Manager of MAERC, upon the instruction of SMC
through its supervisors to make it appear that complainants were hired by MAERC. This
was testified to by two (2) of the workers who were segregator and forklift operator
assigned to the Beer Marketing Division at the SMC compound and who had been
working with SMC under a purported contractor Jopard Services since March 1979 and
March 1981, respectively. Both witnesses also testified that together with other
complainants they continued working for SMC without break from Jopard Services to
MAERC.

As for the payment of workers’ wages, it is conceded that MAERC was paid in lump sum
but records suggest that the remuneration was not computed merely according to the
result or the volume of work performed. The memoranda of the labor rates bearing the
signature of a Vice-President and General Manager for the Vismin Beer Operations 12
as well as a director of SMC 13 appended to the contract of service reveal that SMC
assumed the responsibility of paying for the mandated overtime, holiday and rest day
pays of the MAERC workers. 14 SMC also paid the employer’s share of the SSS and
Medicare contributions, the 13th month pay, incentive leave pay and maternity
benefits. 15 In the lump sum received, MAERC earned a marginal amount representing
the contractor’s share. These lend credence to the complaining workers’ assertion that
while MAERC paid the wages of the complainants, it merely acted as an agent of SMC.

Petitioner insists that the most significant determinant of an employer-employee

relationship, i.e., the right to control, is absent. The contract of services between
MAERC and SMC provided that MAERC was an independent contractor and that the
workers hired by it "shall not, in any manner and under any circumstances, be
considered employees of the Company, and that the Company has no control or
supervision whatsoever over the conduct of the Contractor or any of its workers in
respect to how they accomplish their work or perform the Contractor’s obligations
under the Contract." 16

In deciding the question of control, the language of the contract is not determinative of
the parties’ relationship; rather, it is the totality of the facts and surrounding
circumstances of each case. 17

Despite SMCs disclaimer, there are indicia that it actively supervised the complainants.
SMC maintained a constant presence in the workplace through its own checkers. Its
asseveration that the checkers were there only to check the end result was belied by
the testimony of Carlito R. Singson, head of the Mandaue Container Service of SMC,
that the checkers were also tasked to report on the identity of the workers whose
performance or quality of work was not according to the rules and standards set by
SMC. According to Singson, "it (was) necessary to identify the names of those
concerned so that the management [referring to MAERC] could call the attention to
make these people improve the quality of work." 18

Viewed alongside the findings of the Labor Arbiter that the MAERC organizational set-up
in the bottle segregation project was such that the segregators/cleaners were
supervised by checkers and each checker was also under a supervisor who was in turn
under a field supervisor, the responsibility of watching over the MAERC workers by
MAERC personnel became superfluous with the presence of additional checkers from
SMC. chanrob1es virtua1 1aw 1ibrary

Reinforcing the belief that the SMC exerted control over the work performed by the
segregators or cleaners, albeit through the instrumentality of MAERC, were letters by
SMC to the MAERC management. These were letters 19 written by a certain Mr. W.
Padin 20 addressed to the President and General Manager of MAERC as well as to its
head of operations, 21 and a third letter 22 from Carlito R. Singson also addressed to
the President and General Manager of MAERC. More than just a mere written report of
the number of bottles improperly cleaned and/or segregated, the letters named three
(3) workers who were responsible for the rejection of several bottles, specified the
infraction committed in the segregation and cleaning, then recommended the penalty to
be imposed. Evidently, these workers were reported by the SMC checkers to the SMC
inspector.

While the Labor Arbiter dismissed these letters as merely indicative of the concern in
the end-result of the job contracted by MAERC, we find more credible the contention of
the complainants that these were manifestations of the right of petitioner to
recommend disciplinary measures over MAERC employees. Although calling the
attention of its contractors as to the quality of their services may reasonably be done
by SMC, there appears to be no need to instruct MAERC as to what disciplinary
measures should be imposed on the specific workers who were responsible for
rejections of bottles. This conduct by SMC representatives went beyond a mere
reminder with respect to the improperly cleaned/segregated bottles or a genuine
concern in the outcome of the job contracted by MAERC.

Control of the premises in which the contractor’s work was performed was also viewed
as another phase of control over the work, and this strongly tended to disprove the
independence of the contractor. 23 In the case at bar, the bulk of the MAERC
segregation activities was accomplished at the MAERC-owned PHILPHOS warehouse but
the building along with the machinery and equipment in the facility was actually being
rented by SMC. This is evident from the memoranda of labor rates which included rates
for the use of forklifts and the warehouse at the PHILPHOS area, hence, the NLRC’s
conclusion that the payment for the rent was cleverly disguised since MAERC was not in
the business of renting warehouses and forklifts. 24

Other instances attesting to SMC’s supervision of the workers are found in the minutes
of the meeting held by the SMC officers on 5 December 1988. Among those matters
discussed were the calling of SMC contractors to have workers assigned to segregation
to undergo and pass eye examination to be done by SMC EENT company doctor and a
review of compensation/incentive system for segregators to improve the segregation
activities.25
cralaw:red

But the most telling evidence is a letter by Mr. Antonio Ouano, Vice-President of MAERC
dated 27 May 1991 addressed to Francisco Eizmendi, SMC President and Chief
Executive Officer, asking the latter to reconsider the phasing out of SMC’s segregation
activities in Mandaue City. The letter was not denied but in fact used by SMC to
advance its own arguments. 26

Briefly, the letter exposed the actual state of affairs under which MAERC was formed
and engaged to handle the segregation project of SMC. It provided an account of how
in 1987 Eizmendi approached the would-be incorporators of MAERC and offered them
the business of servicing the SMC bottle-washing and segregation department in order
to avert an impending labor strike. After initial reservations, MAERC incorporators
accepted the offer and before long trial segregation was conducted by SMC at the
PHILPHOS warehouse. 27

The letter also set out the circumstances under which MAERC entered into the Contract
of Services in 1988 with the assurances of the SMC President and CEO that the
employment of MAERC’s services would be long term to enable it to recover its
investments. It was with this understanding that MAERC undertook borrowings from
banking institutions and from affiliate corporations so that it could comply with the
demands of SMC to invest in machinery and facilities.

In sum, the letter attested to an arrangement entered into by the two (2) parties which
was not reflected in the Contract of Services. A peculiar relationship mutually beneficial
for a time but nonetheless ended in dispute when SMC decided to prematurely end the
contract leaving MAERC to shoulder all the obligations to the workers.

Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling in
Neri v. NLRC. 28 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 29 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 P4,608,080.00 consisting of buildings, machinery and
equipment.

However, in Vinoya v. NLRC, 30 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. 31

In Neri, the Court considered not only the fact that respondent Building Care
Corporation (BBC) had substantial capitalization but noted that BCC 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. 32 The Court likewise mentioned that the employees of BCC were
engaged to perform specific special services for their principal. 33 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.

In comparison, MAERC, as earlier discussed, displayed the characteristics of a labor-

only contractor. Moreover, while MAERC’s investments in the form of buildings, tools
and equipment amounted to more than P4 Million, we cannot disregard the fact that it
was the SMC which required MAERC to undertake such investments under the
understanding that the business relationship between petitioner and MAERC would be
on a long term basis. 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.

Petitioner also alleged that the Court of Appeals erred in ruling that "whether MAERC is
an independent contractor or a labor-only contractor, SMC is liable with MAERC for the
latter’s unpaid obligations to MAERC’s workers." cralaw virtua1aw library

On this point, we agree with petitioner as distinctions must be made. In legitimate job
contracting, the law creates an employer-employee relationship for a limited purpose,
i.e., to ensure that the employees are paid their wages. 34 The principal employer
becomes jointly and severally liable with the job contractor only for the payment of the
employees’ wages whenever the contractor fails to pay the same. Other than that, the
principal employer is not responsible for any claim made by the employees.

On the other hand, in labor-only contracting, the statute creates an employer-employee

relationship for a comprehensive purpose: to prevent a circumvention of labor laws.
The contractor is considered merely an agent of the principal employer and the latter is
responsible to the employees of the labor-only contractor as if such employees had
been directly employed by the principal employer. The principal employer therefore
becomes solidarily liable with the labor-only contractor for all the rightful claims of the
employees. chanrob1es virtua1 1aw 1ibrary

This distinction between job contractor and labor-only contractor, however, will not
discharge SMC from paying the separation benefits of the workers, inasmuch as MAERC
was shown to be a labor-only contractor; in which case, petitioner’s liability is that of a
direct employer and thus solidarily liable with MAERC.

SMC also failed to comply with the requirement of written notice to both the employees
concerned and the Department of Labor and Employment (DOLE) which must be given
at least one (1) month before the intended date of retrenchment. 35 The fines imposed
for violations of the notice requirement have varied. 36 The measure of this award
depends on the facts of each case and the gravity of the omission committed by the
employer. 37 For its failure, petitioner was justly ordered to indemnify each displaced
worker P2,000.00.

The NLRC and the Court of Appeals affirmed the Labor Arbiter’s award of separation pay
to the complainants in the total amount of P2,334,150.00 and of wage differentials in
the total amount of P845,117.00. These amounts are the aggregate of the awards due
the two hundred ninety-one (291) complainants as computed by the Labor Arbiter. The
following is a summary of the computation of the benefits due the complainants which
is part of the Decision of the Labor Arbiter.

SUMMARY
NAME SALARY SEPARATION TOTAL

DIFFERENTIAL PAY

Case No. 06-1165-9

1. Rogelio Prado, Jr. P3,056.00 P8,190.00 P11,246.00

2. Eddie Selle 3,056.00 8,190.00 11,246.00

3. Alejandro Annabieza 3,056.00 8,190.00 11,246.00

4. Ananias Jumao-as 3,056.00 8,190.00 11,246.00

5. Consorcio Manloloyo 3,056.00 8,190.00 11,246.00

6. Anananias Alcotin 3,056.00 8,190.00 11,246.00

7. Rey Gestopa 2,865.00 8,190.00 11,055.00

8. Edgardo Nuñez 2,865.00 8,190.00 11,055.00

9. Junel Cabatingan 2,865.00 8,190.00 11,055.00

10. Paul Dumaqueta 2,865.00 8,190.00 11,055.00

11. Felimon Echavez 2,843.00 8,190.00 10,673.00

12. Vito Sealana 2,843.00 8,190.00 10,673.00

13. Denecia Palao 2,843.00 8,190.00 10,673.00

14. Roberto Lapiz 3,056.00 8,190.00 11,246.00

15. Baltazar Labio 3,056.00 8,190.00 11,246.00

16. Leonardo Bongo 3,056.00 8,190.00 11,246.00

17. El Cid Icalina 3,056.00 8,190.00 11,246.00

18. Jose Diocampo 3,056.00 8,190.00 11,246.00

19. Adelo Cantillas 3,056.00 8,190.00 11,246.00

20. Isaias Branzuela 3,056.00 8,190.00 11,246.00

21. Ramon Rosales 3,056.00 8,190.00 11,246.00

22. Gaudencio Peson 3,056.00 8,190.00 11,246.00

23. Hector Cabañog 3,056.00 8,190.00 11,246.00

24. Edgardo Dagmayan 3,056.00 8,190.00 11,246.00

25. Rogelio Cruz 3,056.00 8,190.00 11,246.00

26. Rolando Espina 3,056.00 8,190.00 11,246.00

27. Bernardino Regidor 3,056.00 8,190.00 11,246.00

28. Arnelio Sumalinog 3,056.00 8,190.00 11,246.00

29. Gumersindo Alcontin 3,056.00 8,190.00 11,246.00

30. Loreto Nuñez 3,056.00 8,190.00 11,246.00

31. Joebe Boy Dayon 3,056.00 8,190.00 11,246.00

32. Conrado Mesanque 3,056.00 8,190.00 11,246.00

33. Marcelo Pescador 3,056.00 8,190.00 11,246.00

34. Marcelino Jabagat 3,056.00 8,190.00 11,246.00

35. Vicente Devilleres 3,056.00 8,190.00 11,246.00

36. Vicente Alin 3,056.00 8,190.00 11,246.00

37. Rodolfo Pahugot 3,056.00 8,190.00 11,246.00

38. Ruel Navares 3,056.00 8,190.00 11,246.00

39. Danilo Anabieza 3,056.00 8,190.00 11,246.00

40. Alex Juen 3,056.00 8,190.00 11,246.00

41. Juanito Garces 3,056.00 8,190.00 11,246.00

42. Silvino Limbaga 3,056.00 8,190.00 11,246.00

43. Aurelio Jurpacio 3,056.00 8,190.00 11,246.00

44. Jovito Loon 3,056.00 8,190.00 11,246.00

45. Victor Tenedero 3,056.00 8,190.00 11,246.00

46. Sasing Moreno 3,056.00 8,190.00 11,246.00

47. Wilfredo Hortezuela 3,056.00 8,190.00 11,246.00

48. Joselito Melendez 3,056.00 8,190.00 11,246.00

49. Alfredo Gestopa 3,056.00 8,190.00 11,246.00

50. Regino Gabuya 3,056.00 8,190.00 11,246.00

51. Jorge Gamuzarno 3,056.00 8,190.00 11,246.00

52. Lolito Cocido 3,056.00 8,190.00 11,246.00

53. Efraim Yubal 3,056.00 8,190.00 11,246.00

54. Venerando Roamar 3,056.00 8,190.00 11,246.00

55. Gerardo Butalid 3,056.00 8,190.00 11,246.00

56. Hipolito Vidas 3,056.00 8,190.00 11,246.00

57. Vengelito Frias 3,056.00 8,190.00 11,246.00

58. Vicente Celacio 3,056.00 8,190.00 11,246.00

59. Corlito Pestañas 3,056.00 8,190.00 11,246.00

60. Ervin Hyrosa 3,056.00 8,190.00 11,246.00

61. Rommel Guerero 3,056.00 8,190.00 11,246.00

62. Rodrigo Enerlas 3,056.00 8,190.00 11,246.00

63. Francisco Carbonilla 3,056.00 8,190.00 11,246.00

64. Nicanor Cuizon 3,056.00 8,190.00 11,246.00

65. Pedro Briones 3,056.00 8,190.00 11,246.00

66. Rodolfo Cabalhug 3,056.00 8,190.00 11,246.00

67. Teofilo Ricardo 3,056.00 8,190.00 11,246.00

68. Danilo R. Dizon 3,056.00 8,190.00 11,246.00

69. Alberto Embong 3,056.00 8,190.00 11,246.00

70. Alfonso Echavez 3,056.00 8,190.00 11,246.00

71. Gonzalo Roraceña 3,056.00 8,190.00 11,246.00

72. Marcelo Caracina 3,056.00 8,190.00 11,246.00

73. Raul Borres 3,056.00 8,190.00 11,246.00

74. Lino Tongalamos 3,056.00 8,190.00 11,246.00

75. Artemio Bongo, Jr. 3,056.00 8,190.00 11,246.00

76. Roy Avila 3,056.00 8,190.00 11,246.00

77. Melchor Freglo 3,056.00 8,190.00 11,246.00

78. Raul Cabillada 3,056.00 8,190.00 11,246.00

79. Eddie Catab 3,056.00 8,190.00 11,246.00

80. Melencio Durano 3,056.00 8,190.00 11,246.00

81. Allan Rago 3,056.00 8,190.00 11,246.00

82. Dominador Caparida 3,056.00 8,190.00 11,246.00

83. Jovito Catab 3,056.00 8,190.00 11,246.00

84. Albert Laspiñas 3,056.00 8,190.00 11,246.00

85. Alex Anabieza 3,056.00 8,190.00 11,246.00

86. Nestor Reynante 3,056.00 8,190.00 11,246.00

87. Eulogio Estopa 3,056.00 8,190.00 11,246.00

88. Mario Bolo 3,056.00 8,190.00 11,246.00

89. Ederlito A. Balocano 3,056.00 8,190.00 11,246.00

90. Joel Pepito 3,056.00 8,190.00 11,246.00

91. Reynaldo Ludia 3,056.00 5,460.00 8,516.00

92. Manuel Cinco 3,056.00 5,460.00 8,516.00

93. Allan Agustin 3,056.00 8,190.00 11,246.00

94. Pablito Polegrates 3,056.00 8,190.00 11,246.00

95. Clyde Prado 3,056.00 8,190.00 11,246.00

96. Dindo Misa 3,056.00 8,190.00 11,246.00

97. Roger Sasing 3,056.00 8,190.00 11,246.00

98. Ramon Arcallana 3,056.00 8,190.00 11,246.00

99. Gabriel Salas 3,056.00 8,190.00 11,246.00

100. Edwin Sasan 3,056.00 8,190.00 11,246.00

101. Diosdado Barriga 3,056.00 8,190.00 11,246.00

102. Moises Sasan 3,056.00 8,190.00 11,246.00

103. Sinforiano Cantago 3,056.00 8,190.00 11,246.00

104. Leonardo Marturillas 3,056.00 8,190.00 11,246.00

105. Mario Ranis 3,056.00 8,190.00 11,246.00

106. Alejandro Ranido 3,056.00 8,190.00 11,246.00

107. Jerome Prado 3,056.00 8,190.00 11,246.00

108. Raul Oyao 3,056.00 8,190.00 11,246.00

109. Victor Celacio 3,056.00 5,460.00 8,516.00

TOTAL P330,621.00 P884,520.00 P1,215,141.00

Case No. 07-1177-91

110. Gerardo Roque P3,056.00 P5,460.00 P8,516.00

Case No. 07-1176-91

111. Zosimo Cararaton P3,056.00 P8,192.00 P11,246.00

Case No. 07-1219-91

112. Virgilio Zanoria P3,056.00 P5,460.00 P8,516.00

113. Jose Zanoria 3,056.00 5,460.00 8,516.00

114. Allan Zanoria 3,056.00 5,460.00 8,516.00

115. Victorino Seno 3,056.00 5,460.00 8,516.00

116. Teodulo Jumao-as 3,056.00 5,460.00 8,516.00

117. Alexander Hera 3,056.00 5,460.00 8,516.00

118. Anthony Araneta 3,056.00 5,460.00 8,516.00

119. Aldrin Suson 3,056.00 5,460.00 8,516.00

120. Victor Verano 3,056.00 5,460.00 8,516.00

121. Ruel Sufrerencia 3,056.00 5,460.00 8,516.00

122. Alfred Naparate 3,056.00 5,460.00 8,516.00

123. Wenceslao Baclohon 3,056.00 8,190.00 11,246.00

124. Eduardo Langita 3,056.00 8,190.00 11,246.00

TOTAL P39,728.00 P76,440.00 P116,168.00

Case No. 07-1283-91

125. Feliz Ordeneza P2,816.00 P8,190.00 P11,006.00

126. Arsenio Logarta 3,056.00 8,190.00 11,246.00

127. Eduardo dela Vega 3,056.00 8,190.00 11,246.00

128. Joventino Canoog 3,056.00 8,190.00 11,246.00

TOTAL P11,984.00 P32,760.00 P44,744.00

Case No. 10-1584-91

129. Regelio Abapo P3,056.00 P8,190.00 P11,246.00

Case No. 08-1321-91

130. Ricardo Ramas P3,056.00 P8,190.00 P11,246.00

Case No. 09-1507-91

131. Jose Bandialan P2,816.00 P8,190.00 P11,006.00

132. Antonio Basalan 2,816.00 8,190.00 11,006.00

133. Lyndon Basalan 2,816.00 8,190.00 11,006.00

134. Wilfredo Aliviano 2,816.00 8,190.00 11,006.00

135. Bienvenido Rosario 2,816.00 8,190.00 11,006.00

136. Jesus Capangpangan 2,816.00 8,190.00 11,006.00

137. Renato Mendoza 2,816.00 8,190.00 11,006.00

138. Alejandro Catandejan 2,816.00 8,190.00 11,006.00

139. Ruben Talaba 2,816.00 8,190.00 11,006.00

140. Filemon Echavez 2,816.00 8,190.00 11,006.00

141. Marcelino Caracena 2,816.00 8,190.00 11,006.00

142. Ignacio Misa 2,816.00 8,190.00 11,006.00

143. Feliciano Agbay 2,816.00 8,190.00 11,006.00

144. Victor Maglasang 2,816.00 8,190.00 11,006.00

145. Arturo Heyrosa 2,816.00 8,190.00 11,006.00

146. Alipio Tirol 2,816.00 8,190.00 11,006.00

147. Rosendo Mondares 2,816.00 8,190.00 11,006.00

148. Aniceto Ludia 2,816.00 8,190.00 11,006.00

149. Reynaldo Lavandero 2,816.00 8,190.00 11,006.00

150. Reuyan Herculano 2,816.00 8,190.00 11,006.00

151. Teodula Nique 2,816.00 8,190.00 11,006.00

TOTAL P59,136.00 P171,990.00 P231,126.00

Case No. 06-1145-91

152. Emerberto Orque P2,816.00 P8,190.00 P11,006.00

153. Zosimo Baobao 2,816.00 8,190.00 11,006.00

154. Medardo Singson 2,816.00 8,190.00 11,006.00

155. Antonio Patalinghug 2,816.00 8,190.00 11,006.00

156. Ernesto Singson 2,816.00 8,190.00 11,006.00

157. Roberto Torres 2,816.00 8,190.00 11,006.00

158. Cesar Escario 2,816.00 8,190.00 11,006.00

159. Leodegario Dollecin 2,816.00 8,190.00 11,006.00

160. Alberto Anoba 2,816.00 8,190.00 11,006.00

161. Rodrigo Bisnar 2,816.00 8,190.00 11,006.00

162. Zosimo Bingas 2,816.00 8,190.00 11,006.00

163. Rosalio Duran, Sr. 2,816.00 8,190.00 11,006.00

164. Rosalio Duran, Jr. 2,816.00 8,190.00 11,006.00

165. Romeo Duran 2,816.00 8,190.00 11,006.00

166. Antonio Abella 2,816.00 8,190.00 11,006.00

167. Mariano Repollo 2,816.00 8,190.00 11,006.00

168. Polegarpo Degamo 2,816.00 8,190.00 11,006.00

169. Mario Cereza 2,816.00 8,190.00 11,006.00

170. Antonio Laoronilla 2,816.00 8,190.00 11,006.00

171. Proctuso Magallanes 2,816.00 8,190.00 11,006.00

172. Eladio Torres 2,816.00 8,190.00 11,006.00

173. Warlito Demana 2,816.00 8,190.00 11,006.00

174. Henry Gedaro 2,816.00 8,190.00 11,006.00

175. Doisederio Gemperao 2,816.00 8,190.00 11,006.00

176. Aniceto Gemperao 2,816.00 8,190.00 11,006.00

177. Jerry Caparoso 2,816.00 8,190.00 11,006.00

178. Serlito Noynay 2,816.00 8,190.00 11,006.00

179. Luciano Recopelacion 2,816.00 8,190.00 11,006.00

180. Juanito Garces 2,816.00 8,190.00 11,006.00

181. Feliciano Torres 2,816.00 8,190.00 11,006.00

182. Ranilo Villareal 2,816.00 8,190.00 11,006.00

183. Fermin Aliviano 2,816.00 8,190.00 11,006.00

184. Junjie Laviste 2,816.00 8,190.00 11,006.00

185. Tomacito de Castro 2,816.00 8,190.00 11,006.00

186. Joselito Capilina 2,816.00 8,190.00 11,006.00

187. Samuel Casquejo 2,816.00 8,190.00 11,006.00

188. Leonardo Natad 2,816.00 8,190.00 11,006.00

189. Benjamin Sayson 2,816.00 8,190.00 11,006.00

190. Pedro Inoc 2,816.00 8,190.00 11,006.00

191. Edward Flores 2,816.00 8,190.00 11,006.00

192. Edwin Sasan 2,816.00 8,190.00 11,006.00

193. Jose Rey Inot 2,816.00 8,190.00 11,006.00

194. Edgar Cortes 2,816.00 8,190.00 11,006.00

195. Romeo Lombog 2,816.00 8,190.00 11,006.00

196. Nicolas Ribo 2,816.00 8,190.00 11,006.00

197. Jaime Rubin 2,816.00 8,190.00 11,006.00

198. Orlando Regis 2,816.00 8,190.00 11,006.00

199. Ricky Alconza 2,816.00 8,190.00 11,006.00

200. Rudy Tagalog 2,816.00 8,190.00 11,006.00

201. Victorino Tagalog 2,816.00 8,190.00 11,006.00

202. Edward Colina 2,816.00 8,190.00 11,006.00

203. Ronie Gonzaga 2,816.00 8,190.00 11,006.00

204. Paul Cabillada 2,816.00 8,190.00 11,006.00

205. Wilfredo Magalona 2,816.00 8,190.00 11,006.00

206. Joel Pepito 2,816.00 8,190.00 11,006.00

207. Prospero Maglasang 2,816.00 8,190.00 11,006.00

208. Allan Agustin 2,816.00 8,190.00 11,006.00

209. Fausto Bargayo 2,816.00 8,190.00 11,006.00

210. Nomer Sanchez 2,816.00 8,190.00 11,006.00

211. Jolito Alin 2,816.00 8,190.00 11,006.00

212. Birning Regidor 2,816.00 8,190.00 11,006.00

213. Garry Dignos 2,816.00 8,190.00 11,006.00

214. Edwin Dignos 2,816.00 8,190.00 11,006.00

215. Dario Dignos 2,816.00 8,190.00 11,006.00

216. Rogelio Dignos 2,816.00 8,190.00 11,006.00

217. Jimmy Cabigas 2,816.00 8,190.00 11,006.00

218. Fernando Anajao 2,816.00 8,190.00 11,006.00

219. Alex Flores 2,816.00 8,190.00 11,006.00

220. Fernando Remedio 2,816.00 8,190.00 11,006.00

221. Toto Mosquido 2,816.00 8,190.00 11,006.00

222. Alberto Yagonia 2,816.00 8,190.00 11,006.00

223. Victor Bariquit 2,816.00 8,190.00 11,006.00

224. Ignacio Misa 2,816.00 8,190.00 11,006.00

225. Eliseo Villareno 2,816.00 8,190.00 11,006.00

226. Manuel Lavandero 2,816.00 8,190.00 11,006.00

227. Vircede 2,816.00 8,190.00 11,006.00

228. Mario Ranis 2,816.00 8,190.00 11,006.00

229. Jaime Responso 2,816.00 8,190.00 11,006.00

230. Marianito Aguirre 2,816.00 8,190.00 11,006.00

231. Marcial Heruela 2,816.00 8,190.00 11,006.00

232. Godofredo Tuñacao 2,816.00 8,190.00 11,006.00

233. Perfecto Regis 2,816.00 8,190.00 11,006.00

234. Roel Demana 2,816.00 8,190.00 11,006.00

235. Elmer Castillo 2,816.00 8,190.00 11,006.00

236. Wilfredo Calamohoy 2,816.00 8,190.00 11,006.00

237. Rudy Lucernas 2,816.00 8,190.00 11,006.00

238. Antonio Cañete 2,816.00 8,190.00 11,006.00

239. Efraim Yubal 2,816.00 8,190.00 11,006.00

240. Jesus Capangpangan 2,816.00 8,190.00 11,006.00

241. Damian Capangpangan 2,816.00 8,190.00 11,006.00

242. Teofilo Capangpangan 2,816.00 8,190.00 11,006.00

243. Nilo Capangpangan 2,816.00 8,190.00 11,006.00

244. Cororeno Capangpangan 2,816.00 8,190.00 11,006.00

245. Emilio Mondares 2,816.00 8,190.00 11,006.00

246. Ponciano Agana 2,816.00 8,190.00 11,006.00

247. Vicente Devilleres 2,816.00 8,190.00 11,006.00

248. Mario Alipan 2,816.00 8,190.00 11,006.00

249. Romanito Alipan 2,816.00 8,190.00 11,006.00

250. Aldeon Robinson 2,816.00 8,190.00 11,006.00

251. Fortunato Soco 2,816.00 8,190.00 11,006.00

252. Celso Compuesto 2,816.00 8,190.00 11,006.00

253. William Itoralde 2,816.00 8,190.00 11,006.00

254. Antonio Pescador 2,816.00 8,190.00 11,006.00

255. Jeremias Rondero 2,816.00 8,190.00 11,006.00

256. Estropio Punay 2,816.00 8,190.00 11,006.00

257. Leovijildo Punay 2,816.00 8,190.00 11,006.00

258. Romeo Quilongquilong 2,816.00 8,190.00 11,006.00

259. Wilfredo Gestopa 2,816.00 8,190.00 11,006.00

260. Eliseo Santos 2,816.00 8,190.00 11,006.00

261. Henry Orio 2,816.00 8,190.00 11,006.00

262. Jose Yap 2,816.00 8,190.00 11,006.00

263. Nicanor Manayaga 2,816.00 8,190.00 11,006.00

264. Teodoro Salinas 2,816.00 8,190.00 11,006.00

265. Aniceto Montero 2,816.00 8,190.00 11,006.00

266. Rafaelito Versoza 2,816.00 8,190.00 11,006.00

267. Alejandro Ranido 2,816.00 8,190.00 11,006.00

268. Henry Talaba 2,816.00 8,190.00 11,006.00

269. Romulo Talaba 2,816.00 8,190.00 11,006.00

270. Diosdado Besabela 2,816.00 8,190.00 11,006.00

271. Sylvestre Toring 2,816.00 8,190.00 11,006.00

272. Edilberto Padilla 2,816.00 8,190.00 11,006.00

273. Allan Herosa 2,816.00 8,190.00 11,006.00

274. Ernesto Sumalinog 2,816.00 8,190.00 11,006.00

275. Ariston Velasco, Jr. 2,816.00 8,190.00 11,006.00

276. Fernando Lopez 2,816.00 8,190.00 11,006.00

277. Alfonso Echavez 2,816.00 8,190.00 11,006.00

278. Nicanor Cuizon 2,816.00 8,190.00 11,006.00

279. Dominador Caparida 2,816.00 8,190.00 11,006.00

280. Zosimo Cororation 2,816.00 8,190.00 11,006.00

281. Artemio Loveranes 2,816.00 8,190.00 11,006.00

282. Dionisio Yagonia 2,816.00 8,190.00 11,006.00

283. Victor Celocia 2,816.00 8,190.00 11,006.00

284. Hipolito Vidas 2,816.00 8,190.00 11,006.00

285. Teodoro Arcillas 2,816.00 8,190.00 11,006.00

286. Marcelino Habagat 2,816.00 8,190.00 11,006.00

287. Gaudioso Labasan 2,816.00 8,190.00 11,006.00

288. Leopoldo Regis 2,816.00 8,190.00 11,006.00

289. Aquillo Damole 2,816.00 8,190.00 11,006.00

290. Willy Roble 2,816.00 8,190.00 11,006.00

TOTAL P391,424.00 P1,138,410.00 P1,529,834.00

RECAP

CASE NO. SALARY SEPARATION TOTAL

DIFFERENTIAL PAY

06-1165-91 P330,621.00 P884,520.00 P1,215,141.00

07-1177-91 3,056.00 5,460.00 8,516.00

06-1176-91 3,056.00 8,190.00 11,246.00

07-1219-91 39,728.00 76,440.00 116,168.00

07-1283-91 11,984.00 32,760.00 44,744.00

10-1584-91 3,056.00 8,190.00 11,246.00

08-1321-91 3,056.00 8,190.00 11,246.00

09-1507-91 59,136.00 171,990.00 231,126.00

06-1145-91 391,424.00 1,138,410.00 1,529,834.00

GRAND TOTAL P845,117.00 P2,334,150.00 P3,179,267.00

However, certain matters have cropped up which require a review of the awards to
some complainants and a recomputation by the Labor Arbiter of the total amounts.

A scrutiny of the enumeration of all the complainants shows that some names 38
appear twice by virtue of their being included in two (2) of the nine (9) consolidated
cases. A check of the Labor Arbiter’s computation discloses that most of these names
were awarded different amounts of separation pay or wage differential in each separate
case where they were impleaded as parties because the allegations of the length and
period of their employment for the separate cases, though overlapping, were also
different. The records before us are incomplete and do not aid in verifying whether
these names belong to the same persons but at least three (3) of those names were
found to have identical signatures in the complaint forms they filed in the separate
cases. It is likely therefore that the Labor Arbiter erroneously granted some
complainants separation benefits and wage differentials twice. Apart from this, we also
discovered some names that are almost identical. 39 It is possible that the minor
variance in the spelling of some names may have been a typographical error and refer
to the same persons although the records seem to be inconclusive.

Furthermore, one of the original complainants 40 was inadvertently omitted by the

Labor Arbiter from his computations. 41 The counsel for the complainants promptly
filed a motion for inclusion/correction 42 which motion was treated as an appeal of the
Decision as the Labor Arbiter was prohibited by the rules of the NLRC from entertaining
any motion at that stage of the proceedings. 43 The NLRC for its part acknowledged the
omission 44 but both the Commission and subsequently the Court of Appeals failed to
rectify the oversight in their decisions.
Finally, the NLRC ordered both MAERC and SMC to pay P84,511.70 in attorneys fees
which is ten percent (10%) of the salary differentials awarded to the complainants in
accordance with Art. 111 of the Labor Code. The Court of Appeals also affirmed the
award. Consequently, with the recomputation of the salary differentials, the award of
attorney’s fees must also be modified.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals
dated 28 April 2000 and the Resolution dated 26 July 2000 are AFFIRMED with
MODIFICATION. Respondent Maerc Integrated Services, Inc. is declared to be a labor-
only contractor. Accordingly, both petitioner San Miguel Corporation and respondent
Maerc Integrated Services, Inc., are ordered to jointly and severally pay complainants
(private respondents herein) separation benefits and wage differentials as may be
finally recomputed by the Labor Arbiter as herein directed, plus attorney’s fees to be
computed on the basis of ten percent (10%) of the amounts which complainants may
recover pursuant to Art. 111 of the Labor Code, as well as an indemnity fee of
P2,000.00 to each complainant. chanrob1es virtua1 1aw 1ibrary

The Labor Arbiter is directed to review and recompute the award of separation pays and
wage differentials due complainants whose names appear twice or are notably similar,
compute the monetary award due to complainant Niel Zanoria whose name was omitted
in the Labor Arbiter’s Decision and immediately execute the monetary awards as found
in the Labor Arbiter’s computations insofar as those complainants whose entitlement to
separation pay and wage differentials and the amounts thereof are no longer in
question. Costs against petitioner.

SO ORDERED.

Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur.

Quisumbing, J., is on leave.