10. MARVIN O. DAGUINOD, petitioner, vs. SOUTHGATE FOODS, INC., represented by MAUREEN O.

FERRER and GENERATION ONE RESOURCE SERVICE AND MULTI-PURPOSE COOPERATIVE, * represented
by RESTY CRUZ, respondents.

DOCTRINE: Under Section 4 (a) of DO 18-02, legitimate labor 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. The "principal" refers to any
employer who puts out or farms out a job, service or work to a contractor or subcontractor. Further,
the "right to control" must be exercised by the contractor, otherwise, the arrangement shall be
considered to be labor only contracting

Facts:

 Petitioner Marvin O. Daguinod (Daguinod) was assigned as counter crew/cashier of a Jollibee

franchise located in Alphaland Southgate Mall, Makati City pursuant to a Service Agreement
between Generation One Resource Service and Multi-Purpose Cooperative (Generation One)
and the franchise operator Southgate Foods, Inc. (Southgate) (collectively respondents).
 Under the Service Agreement, Generation One was contracted by Southgate to provide
"specified non-core functions and operational activities" 5 for its Jollibee Alphaland branch.
 Daguinod also executed a Service Contract with Generation One which stated that Generation
One was contracted by Southgate to perform "specified peripheral and support services." In the
Service Contract, Daguinod was referred to as a "service provider" and "member" of Generation
One cooperative. The specific work responsibilities to be performed by Daguinod were left blank.
 Prior to his employment/membership in Generation One cooperative, Daguinod was employed
directly by Southgate as counter crew.

Petitioner's version of events

 Daguinod alleges that on April 10, 2011, he was given a cash fund of P5,000.00. After serving
one of the customers, Security Guard Rivero approached him and asked for the receipt of
the last customer who had ordered a longanisa breakfast meal. Daguinod realized that he had
put the customer's payment inside the cash register without the corresponding receipt, so he
had it "punched in." Thereafter, Rivero took the receipt and told Daguinod that he had
committed a "pass out" of transaction. Rivero asked for assistance from the manager on duty,
Jane Geling. The latter conducted an audit and verification of the sales which revealed that
the cash in the register was in excess of P106.00.Daguinodwas then brought into a function
room inside Jollibee Alphaland with Rivero keeping guard over him. Geling went into the
room and accused Daguinod of theft.
 Daguinod reasoned that he did not commit any theft as in fact there was an overage of cash in
the register. Geling did not believe him and told him that if he confessed, he would be
forgiven and he could continue working. Daguinod was given two Notices to Explain (NTE). In the
first NTE, he was made to explain the overage in the cash register. In the second NTE, he was
charged with using the manager's swipe card without authority. Daguinod was directed to
 immediately answer the two NTEs. In the first NTE, Daguinod alleges that he was instructed to
write the sentence: "Opo Mam, inaamin ko na po na nagpassout po ako, 2nd weekpo
ngMarch, [P]5,500.00." In the second NTE, Daguinod wrote: "Di ko po alam, mam, nalito na po
ako kaya di ko nabilang ang 50's. Nakita ko po yung [unintelligible] ni S' Aldrin tapos ginamit ko
po. Isang buwan ko na pong ginagamit."
 Daguinod was then brought to the Police Station where he was accused of Qualified Theft and
put in jail. He was made to write a confession letter in exchange for his release from jail.
He did not want to write the confession but he acceded as he had already spent two days in jail.

Respondents' counter-allegations

Generation One admitted that Daguinod was its employee. The cooperative alleged that
Southgate had discovered the attempted act of dishonesty of Daguinod on April 10, 2011. For
its part, Southgate asserted that Daguinod was an employee of Generation One and not Southgate.
Southgate further alleged that the complaint for illegal dismissal was merely retaliatory as it was
Southgate employees who discovered that Daguinod was attempting to steal funds from Southgate.
On the issue of labor-only contracting, both Generation One and Southgate averred that Generation
One is a legitimate labor contractor and that the Service Agreement between the two companies
was valid.

ISSUES 1. Whether Generation One is a legitimate labor contractor.

2.Whether Daguinod's dismissal was valid.

3.Whether Daguinod is entitled to full backwages, separation pay, moral and exemplary
damages, and attorney's fees.

RULING

1. NO. Generation One is not a legitimate labor contractor. Daguinod is a regular employee of
Southgate. The outsourcing of services is not prohibited in all instances. In fact, Article 106
of the Labor Code provides the legal basis for legitimate labor contracting. This provision is
further implemented by DO 18-02.
Meanwhile, labor-only contracting is prohibited and defined under Section 5 of
DO 18-02. There is labor-only contracting where: (a) 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 (b) the workers
recruited and placed by such person are performing activities which are directly
related to the principal business of the employer. When there is labor-only contracting,
Section 7 of DO 18-02 describes the consequences thereof as “the principal shall be
deemed the employer of the contractual employee in any of the following case, as
declared by a competent.
Based on the foregoing, one of the factors in determining whether there is
labor-only contracting is the nature of the employee's job,i.e., whether the work
he performs is necessary and desirable to the business of the principal.
In this particular case, it was established that Daguinod was assigned as a
counter crew/cashier in Jollibee Alphaland. The Service Contract of Daguinod with
 Generation One does not disclose the specific tasks and functions that he was
assigned to do as counter crew/cashier. Thus, the Court must refer to the Service
Agreement between Generation One and Southgate which lists the "non-core" functions
contracted out by Southgate.
Daguinod was assigned to perform cash control activities which entails
gathering of orders and assembling food on the tray for dine-in customers or for
take-out. As cashier, Daguinod was also tasked to receive payments and give
change. These tasks are undoubtedly necessary and desirable to the business of a
fast food restaurant such as Jollibee. The service of food to customers is the main line
of business of any restaurant.
Further, the CA also relied on the Certificate of Registration as an
independent contractor issued by the DOLE to Generation One. However, the Court has
previously ruled that said registration is not conclusive evidence of legitimate
status. The fact of registration simply prevents the legal presumption of being a
mere labor-only contractor from arising. In distinguishing between permissible job
contracting and prohibited labor-only contracting, the totality of the facts and
the surrounding circumstances of the case are to be considered.
Thus, registration with DOLE as an independent contractor does
not automatically vest it with the status of a legitimate labor contractor, it is
merely presumptive proof. In the instant case, the totality of circumstances reveals that
Generation One, despite its DOLE registration, is not a legitimate labor contractor.
Further, Section 5 of DO 18-02 speaks of a second instance, where the
"right to control" must be exercised by the contractor, otherwise, the
arrangement shall be considered to be labor only contracting. The Court
notes that the administrative investigation was conducted by Jollibee
Alphaland's manager-on-duty Geling, in the presence of security guard Rivero. The
handwritten NTEs, although bearing the header and name of Generation One were
served upon Daguinod by Southgate manager Geling. Thus, Southgate took it upon
itself to discipline Daguinod for an alleged violation of its company rules, regulations,
and policies, validating the presence of its right to control Daguinod.

2. NO. There was non-compliance with procedural due process as the NTEs did not contain the
specific information required under the law. It was reasonable for Daguinod to believe
that he had been dismissed from service due to the events of April 10, 2011. He was
immediately arrested and imprisoned without warrant. Thereafter, when he called
Generation One to inquire about the status of his employment and his back pay, he
was told by Cruz, Generation One's Resource Area Coordinator, that his employment was
terminated. Thus, Daguinod cannot be faulted for believing that his employment had
been terminated. Generation One claimed that it was conducting an investigation
of the incident but did not submit any proof of the investigation or the results
thereof. Generation One did not send a Return-to-Work Order to Daguinod if
indeed it still considered him an employee. The haphazard way in which the
accusations were thrown against Daguinod and how the investigation was conducted
shows bad faith on the part of Southgate and Generation One. Daguinod spent
 three days in jail for an alleged attempted theft of P106.00. There was a pre-judgment of
guilt without a proper investigation. Thus, Daguinod was constructively dismissed.

3. YES. Article 294 of the Labor Code provides that an employee who is unjustly dismissed from
work shall be entitled to reinstatement without loss of seniority rights and other
privileges, full backwages, inclusive of allowances, and to his other benefits or
their monetary equivalent computed from the time his compensation was withheld from
him up to the time of his actual reinstatement. When reinstatement is no longer viable
such as when the parties have strained relations, separation pay may be awarded as an
alternative. Undeniably, reinstatement is no longer feasible due to the strained
relations of the parties and considering as well the length of time that has passed since
the filing of this case. Thus, separation pay is awarded in lieu thereof.

Daguinod is likewise entitled to moral and exemplary damages as his dismissal

was attended with bad faith.In the instant case, Southgate and Generation One
clearly acted in bad faith. The respondents created a subterfuge of legitimate labor
contracting to avoid the regularization of Daguinod. More significantly, respondents
haphazardly accused Daguinod of theft without sufficient proof which resulted in his
incarceration for three days. The liability of Generation One and Southgate shall be
joint and solidary.