Case Title: MANILA CORDAGE COMPANY – EMPLOYEES LABOR UNION, ET. AL. v.

MANILA
CORDAGECOMPANY (MCC) et. al. , G.R. Nos. 242495-96, September 16, 2020 (LEONEN, J.)

Instruction learned:

1. Whether job contracting is allowed by law.

Obviously, the permitted or permissible or legitimate job contracting or subcontracting is the

one allowed and permitted by law. It is an arrangement whereby a principal agrees to put
out or farm out with the contractor or subcontractor the performance or completion of a
specific job, work, or service within a definite or predetermined period, regardless of
whether such job, work, or service is to be performed or completed within or outside the
premises of the principal. To determine its existence, these conditions must concur: (a) the
contractor carries on a distinct and independent business and partakes the contract work on
his account under his own responsibility according to his own manner and method, free
from the control and direction of his employer or principal in all matters connected with the
performance of his work except as to the results thereof; (b) the contractor has substantial
capital or investment; and (c) the agreement between the principal and the contractor or
subcontractor assures the contractual employees' entitlement to all labor and occupational
safety and health standards, free exercise of the right to self-organization, security of tenure,
and social welfare benefits. Thus, in legitimate job contracting, the employer-employee
relationship between the job contractor and his employees is maintained. While the law
creates an employer-employee relationship between the employer and the contractor's
employees, the same is only for the purpose of ensuring the payment of the employees'
wages. In short, the employer becomes jointly and severally liable with the job contractor but
only for the payment of the employees' wages whenever the contractor fails to pay the same.
Other than that, the employer is not responsible for any claim made by the contractor's
employees.

In stark contrast, labor-only contracting is a prohibited act and it is not condoned by law. It
is an arrangement where the contractor not having substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others, supplies workers to an
employer and the workers recruited are performing activities which are directly related to
the principal business of such employer.

To protect the workforce, a contractor is generally presumed to be engaged in labor-only

contracting, unless it proves otherwise by having substantial capital, investment, tools and
the like. However, the burden of proving the legitimacy of the contractor shifts to the
principal when it is the one claiming that status, such as in this case.

Here, the finding of the existence of labor-only contracting on the part of respondents'
contractors, Alternative Network Resources and Worktrusted Manpower Services, would
give rise to the creation of an employer-employee relationship between respondents as its
principals, and petitioners as its alleged employees.

2. What are the conditions for an entity to be considered as labor-only contractor?

In addition, Section 5 of Department Order No. 18-02 provides that if at least one of the
following conditions are present, then an entity would be considered a labor-only contractor:

(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.