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DO 18-02 Cases 1

G.R. No. 146408 February 29, 2008 x x x x (Underscoring supplied)

PHILIPPINE AIRLINES, INC., petitioner, Except for respondent Benedicto Auxtero (Auxtero), the rest of the
vs. respondents, who appear to have been assigned by Synergy to
ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO petitioner following the execution of the July 15, 1991 Agreement, filed
OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO on March 3, 1992 complaints before the NLRC Regional Office VII at
YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. Cebu City against petitioner, Synergy and their respective officials for
CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO underpayment, non-payment of premium pay for holidays, premium
BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE pay for rest days, service incentive leave pay, 13th month pay and
PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON allowances, and for regularization of employment status with
TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, BENEDICTO petitioner, they claiming to be "performing duties for the benefit of
AUXTERO, EDUARDO MAGDADARAUG, NELSON M. DULCE, and [petitioner] since their job is directly connected with [its] business x x
ALLAN BENTUZAL, respondents. x."5

CARPIO MORALES, J.: 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,
Petitioner Philippine Airlines as Owner, and Synergy Services verbally dismissed, he filed a complaint against petitioner and Synergy
Corporation (Synergy) as Contractor, entered into an Agreement1 on and their respective officials for illegal dismissal and reinstatement
July 15, 1991 whereby Synergy undertook to "provide loading, with full backwages.6
unloading, delivery of baggage and cargo and other related services to
and from [petitioner]'s aircraft at the Mactan Station."2
The complaints of respondents were consolidated.

The Agreement specified the following "Scope of Services" of


Contractor Synergy: 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
1.2 CONTRACTOR shall furnish all the necessary capital, money claims. The fallo of the decision reads:
workers, loading, unloading and delivery materials, facilities,
supplies, equipment and tools for the satisfactory
performance and execution of the following services (the WHEREFORE, foregoing premises considered, judgment is
Work): hereby rendered as follows:
a. Loading and unloading of baggage and cargo to and from
the aircraft;
b. Delivering of baggage from the ramp to the baggage (1) Ordering respondents PAL and Synergy jointly and
claim area; severally to pay all the complainants herein their 13th month
c. Picking up of baggage from the baggage sorting area to pay and service incentive leave benefits;
the designated parked aircraft; xxxx
d. Delivering of cargo unloaded from the flight to cargo (3) Ordering respondent Synergy to pay complainant
terminal; Benedicto Auxtero a financial assistance in the amount of
e. Other related jobs (but not janitorial functions) as may be P5,000.00.
required and necessary;
The awards hereinabove enumerated in the aggregate total
CONTRACTOR shall perform and execute the amount of THREE HUNDRED TWENTY-TWO THOUSAND
aforementioned Work at the following areas
THREE HUNDRED FIFTY NINE PESOS AND EIGHTY SEVEN
located at Mactan Station, to wit: CENTAVOS (P322,359.87) are computed in detail by our
Fiscal Examiner which computation is hereto attached to
a. Ramp Area form part of this decision.
b. Baggage Claim Area
c. Cargo Terminal Area, and
d. Baggage Sorting Area3 (Underscoring supplied) The rest of the claims are hereby ordered dismissed for lack
of merit.8 (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 On appeal by respondents, the NLRC, Fourth Division, Cebu City,
OWNER, on the other."4 vacated and set aside the decision of the Labor Arbiter by Decision9 of
January 5, 1996, the fallo of which reads:

On the duration of the Agreement, Section 10 thereof provided:


WHEREFORE, the Decision of the Labor Arbiter Dominador A.
Almirante, dated August 29, 1994, is hereby VACATED and
10. 1 Should at any time OWNER find the services herein SET ASIDE and judgment is hereby rendered:
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 1. Declaring respondent Synergy Services Corporation to be
CONTRACTOR fails to improve the services under this a 'labor-only' contractor;
Agreement according to OWNER'S specifications and
standards, OWNER shall have the right to terminate this
Agreement immediately and without advance notice. 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
10.2 Should CONTRACTOR fail to improve the services within benefits and privileges of a regular employee under the
the period stated above or should CONTRACTOR breach the Collective Bargaining Agreement subsisting during the
terms of this Agreement and fail or refuse to perform the period of their employment;
Work in such a manner as will be consistent with the xxxx
achievement of the result therein contracted for or in any 4. Declaring the dismissal of complainant Benedicto
other way fail to comply strictly with any terms of this Auxtero to be illegal and ordering his reinstatement as
Agreement, OWNER at its option, shall have the right to helper or utility man with respondent Philippine Airlines, with
terminate this Agreement and to make other arrangements full backwages, allowances and other benefits and privileges
for having said Work performed and pursuant thereto shall from the time of his dismissal up to his actual reinstatement;
retain so much of the money held on the Agreement as is and
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 5. Dismissing the appeal of respondent Synergy Services
possession be insufficient. Corporation, for lack of merit.10 (Emphasis and underscoring
supplied)
DO 18-02 Cases 2

Only petitioner assailed the NLRC decision via petition for certiorari The Secretary of Labor may, by appropriate regulations,
before this Court. 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
By Resolution11 of January 25, 1999, this Court referred the case to the distinctions between labor-only contracting and job
Court of Appeals for appropriate action and disposition, conformably contracting as well as differentiations within these types of
with St. Martin Funeral Homes v. National Labor Relations Commission contracting and determine who among the parties involved
which was promulgated on September 16, 1998. shall be considered the employer for purposes of this Code,
to prevent any violation or circumvention of any provision of
this Code.
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 There is "labor-only" contracting where the person supplying
petition was filed, faulting the appellate court workers to an employer does not have substantial
capital or investment in the form of tools, equipment,
machineries, work premises, among others, AND the
I.
workers recruited and placed by such person are
. . . IN UPHOLDING THE NATIONAL LABOR RELATIONS
performing activities which are directly related to the
COMMISSION DECISION WHICH IMPOSED THE RELATIONSHIP
principal business of such employer. In such cases, the
OF EMPLOYER-EMPLOYEE BETWEEN PETITIONER AND THE
person or intermediary shall be considered merely as
RESPONDENTS HEREIN.
an agent of the employer who shall be responsible to
II.
the workers in the same manner and extent as if the
. . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR
latter were directly employed by him. (Emphasis,
RELATIONS COMMISSION ORDERING THE REINSTATEMENT
capitalization and underscoring supplied)
OF RESPONDENT AUXTERO DESPITE THE ABSENCE [OF] ANY
FACTUAL FINDING IN THE DECISION THAT PETITIONER
ILLEGALLY TERMINATED HIS EMPLOYMENT. Legitimate contracting and labor-only contracting are defined in
III. Department Order (D.O.) No. 18-02, Series of 2002 (Rules
. . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND GRAVE Implementing Articles 106 to 109 of the Labor Code, as amended) as
ERROR IN UPHOLDING THE DECISION OF THE NATIONAL follows:
LABOR RELATIONS COMMISSION WHICH COMPELLED THE
PETITIONER TO EMPLOY THE RESPONDENTS AS REGULAR
EMPLOYEES DESPITE THE FACT THAT THEIR SERVICES ARE IN Section 3. Trilateral relationship in contracting
EXCESS OF PETITIONER COMPANY'S OPERATIONAL arrangements. In legitimate contracting, there exists a
REQUIREMENTS.14 (Underscoring supplied) trilateral relationship under which there is a contract for a
specific job, work or service between the principal and the
Petitioner argues that the law does not prohibit an employer from contractor or subcontractor, and a contract of employment
engaging an independent contractor, like Synergy, which has between the contractor or subcontractor and its workers.
substantial capital in carrying on an independent business of Hence, there are three parties involved in these
contracting, to perform specific jobs. 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
Petitioner further argues that its contracting out to Synergy various undertake the performance of the job, work or service, and
services like janitorial, aircraft cleaning, baggage-handling, etc., which the contractual workers engaged by the contractor or
are directly related to its business, does not make respondents its subcontractor to accomplish the job, work or service.
employees. (Emphasis and underscoring supplied)

Petitioner furthermore argues that none of the four (4) elements of an Section 5. Prohibition against labor-only contracting. Labor-
employer-employee relationship between petitioner and respondents, only contracting is hereby declared prohibited. For this
viz: selection and engagement of an employee, payment of wages, purpose, labor-only contracting shall refer to an arrangement
power of dismissal, and the power to control employee's conduct, is where the contractor or subcontractor merely recruits,
present in the case.15 supplies or places workers to perform a job, work or service
for a principal, and any of the following elements are [sic]
present:
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 (i) The contractor or subcontractor does not have
effective June 30, 199816 as a cost-saving measure. 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
The decision of the case hinges on a determination of whether Synergy
subcontractor are performing activities which are directly
is a mere job-only contractor or a legitimate contractor. If Synergy is
related to the main business of the principal; OR
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 (ii) The contractor does not exercise the right to control
entitled to all the benefits granted to petitioner's regular employees; over the performance of the work of the contractual
otherwise, if Synergy is found to be a legitimate contractor, employee. (Emphasis, underscoring and capitalization
respondents' claims against petitioner must fail as they would then be supplied)
considered employees of Synergy.

"Substantial capital or investment" and the "right to control" are


The statutory basis of legitimate contracting or subcontracting is defined in the same Section 5 of the Department Order as follows:
provided in Article 106 of the Labor Code which reads:

"Substantial capital or investment" refers to capital stocks


ART. 106. CONTRACTOR OR SUBCONTRACTOR. - Whenever and subscribed capitalization in the case of corporations,
an employer enters into a contract with another person for tools, equipment, implements, machineries and work
the performance of the former's work, the employees of the premises, actually and directly used by the contractor or
contractor and of the latter's subcontractor, if any, shall be subcontractor in the performance or completion of the job,
paid in accordance with the provisions of this Code. work or service contracted out.

In the event that the contractor or subcontractor fails to pay The "right to control" shall refer to the right reserved to
the wages of his employees in accordance with this Code, the person for whom the services of the contractual workers
the employer shall be jointly and severally liable with his are performed, to determine not only the end to be
contractor or subcontractor to such employees to the extent achieved, but also the manner and means to be used in
of the work performed under the contract, in the same reaching that end. (Emphasis and underscoring supplied)
manner and extent that he is liable to employees directly
employed by him.
DO 18-02 Cases 3

From the records of the case, it is gathered that the work performed by Section 6. Qualified and Experienced Worker: Owner's Right
almost all of the respondents - loading and unloading of baggage and to Dismiss Workers.
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 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,
Petitioner asserts, however, that mere compliance with substantial unloading and delivery equipment, materials, supplies and
capital requirement suffices for Synergy to be considered a legitimate tools necessary for the performance of the Work.
contractor, citing Neri v. National Labor Relations Commission.18 CONTRACTOR shall upon OWNER'S request furnish the latter
Petitioner's reliance on said case is misplaced. with information regarding the qualifications of the former's
workers, to prove their capability and experience.
Contractor shall require all its workers, employees,
In Neri, the Labor Arbiter and the NLRC both determined that Building suppliers and visitors to comply with OWNER'S rules,
Care Corporation had a capital stock of P1 million fully subscribed and regulations, procedures and directives relative to the
paid for.19 The corporation's status as independent contractor had in safety and security of OWNER'S premises, properties
fact been previously confirmed in an earlier case20 by this Court which and operations. For this purpose, CONTRACTOR shall
found it to be serving, among others, a university, an international furnish its employees and workers identification cards
bank, a big local bank, a hospital center, government agencies, etc." to be countersigned by OWNER and uniforms to be
approved by OWNER. OWNER may require
CONTRACTOR to dismiss immediately and prohibit
In stark contrast to the case at bar, while petitioner steadfastly
entry into OWNER'S premises of any person employed
asserted before the Labor Arbiter and the NLRC that Synergy has a
therein by CONTRACTOR who in OWNER'S opinion is
substantial capital to engage in legitimate contracting, it failed to
incompetent or misconducts himself or does not
present evidence thereon. As the NLRC held:
comply with OWNER'S reasonable instructions and
requests regarding security, safety and other matters and
The decision of the Labor Arbiter merely mentioned on page such person shall not again be employed to perform the
5 of his decision that respondent SYNERGY has substantial services hereunder without OWNER'S permission.29
capital, but there is no showing in the records as to how (Underscoring partly in the original and partly supplied;
much is that capital. Neither had respondents shown that emphasis supplied)
SYNERGY has such substantial capital. x x x21 (Underscoring
supplied)
Petitioner in fact admitted that it fixes the work schedule of
respondents as their work was dependent on the frequency of plane
It was only after the appellate court rendered its challenged Decision arrivals.30 And as the NLRC found, petitioner's managers and
of September 29, 2002 when petitioner, in its Motion for supervisors approved respondents' weekly work assignments and
Reconsideration of the decision, sought to prove, for the first time, respondents and other regular PAL employees were all referred to as
Synergy's substantial capitalization by attaching photocopies of "station attendants" of the cargo operation and airfreight services of
Synergy's financial statements, e.g., balance sheets, statements of petitioner.31
income and retained earnings, marked as "Annexes 'A' - 'A-4.'"22
Respondents having performed tasks which are usually necessary and
More significantly, however, is that respondents worked alongside desirable in the air transportation business of petitioner, they should
petitioner's regular employees who were performing identical work.23 be deemed its regular employees and Synergy as a labor-only
As San Miguel Corporation v. Aballa24 and Dole Philippines, Inc. v. contractor.32
Esteva, et al.25 teach, such is an indicium of labor-only contracting.
The express provision in the Agreement that Synergy was an
For labor-only contracting to exist, Section 5 of D.O. No. 18-02 which independent contractor and there would be "no employer-employee
requires any of two elements to be present is, for convenience, re- relationship between [Synergy] and/or its employees on one hand, and
quoted: [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
(i) The contractor or subcontractor does not have circumstances of the case33 which is determinative of the parties'
substantial capital or investment which relates to the relationship.
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 Respecting the dismissal on November 15, 199234 of Auxtero, a regular
related to the main business of the principal, OR 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
(ii) The contractor does not exercise the right to control process. Petitioner's claim that he abandoned his work does not
over the performance of the work of the contractual persuade.35 The elements of abandonment being (1) the failure to
employee. (Emphasis and CAPITALIZATION supplied) 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
Even if only one of the two elements is present then, there is labor-only which, however, failed to discharge the same.
contracting.

Auxtero, having been declared to be a regular employee of petitioner,


The control test element under the immediately-quoted paragraph (ii), and found to be illegally dismissed from employment, should be
which was not present in the old Implementing Rules (Department entitled to salary differential37 from the time he rendered one year of
Order No. 10, Series of 1997),26 echoes the prevailing jurisprudential service until his dismissal, reinstatement plus backwages until the
trend27 elevating such element as a primary determinant of employer- finality of this decision.38 In view, however, of the long period of time39
employee relationship in job contracting agreements. that had elapsed since his dismissal on November 15, 1992, it would
be appropriate to award separation pay of one (1) month salary for
One who claims to be an independent contractor has to prove that he each year of service, in lieu of reinstatement.40
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 As regards the remaining respondents, the Court affirms the ruling of
both the NLRC and the appellate court, ordering petitioner to accept
While petitioner claimed that it was Synergy's supervisors who actually them as its regular employees and to give each of them the salaries,
supervised respondents, it failed to present evidence thereon. It did allowances and other employment benefits and privileges of a regular
not even identify who were the Synergy supervisors assigned at the employee under the pertinent Collective Bargaining Agreement.
workplace.
Petitioner claims, however, that it has become impossible for it to
Even the parties' Agreement does not lend support to petitioner's comply with the orders of the NLRC and the Court of Appeals, for
claim, thus: 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
DO 18-02 Cases 4

June 5, 1998.41 Hence, there are no available positions where Lead Master "C" Upholsterer assigned at the Aircraft Furnishing Safety
respondents could be placed. Section of the Maintenance and Engineering Department.3

And petitioner informs that "the employment contracts of all if not At 1:30 p.m. on July 24, 1995, the petitioners were at the PAL Technical
most of the respondents . . . were terminated by Synergy effective 30 Center inside the Toolroom Section of the Plant Equipment and
June 1998 when petitioner terminated its contract with Synergy."42 Maintenance Division (PEMD). With them were their co-employees
Ronaldo Broas, Roberto Buan, Almario Titco and Rodrigo Arcenas, Jr.4
Momentarily, an incident ensued, thereafter to be the subject of
Other than its bare allegations, petitioner presented nothing to different versions: that of the petitioners; Carmelo Villacete, then
substantiate its impossibility of compliance. In fact, petitioner waived manager of the PAL Security and Investigation Division; and Field
this defense by failing to raise it in its Memorandum filed on June 14, Agents Antonio P. Ramos and Ramoncito Villar, also of the PAL Security
1999 before the Court of Appeals.43 Further, the notice of termination and Investigation Division. Rodrigo Arcenas, Jr. also gave his own
in 1998 was in disregard of a subsisting temporary restraining order44 version of the incident.
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 According to Villacete, Ramos and Villar, they barged into the Toolroom
decision, respondents are deemed to be continuously employed by Section and caught the petitioners with Broas, Arcenas, Buan, and
petitioner, for purposes of computing the wages and benefits due Titco sniffing shabu. The security officers found and seized from them
respondents. several grams of the prohibited drug, including aluminum foil, a burner
and lighter. The security officers then searched the locker of Broas and
found more of the drug, and shabu paraphernalia, including
Finally, it must be stressed that respondents, having been declared to P23,000.00 in cash. All this was witnessed by Jose S. Herrera and
be regular employees of petitioner, Synergy being a mere agent of the Remebito F. Gorospe, representatives of the Philippine Airlines
latter, had acquired security of tenure. As such, they could only be Employee’s Association (PALEA). Eliseo Maravillas of the Office of the
dismissed by petitioner, the real employer, on the basis of just or Vice-President for Maintenance and Engineering also witnessed the
authorized cause, and with observance of procedural due process. search and seizure.5 Photographs were taken of the raid. Ramos made
an inventory of the items and substances that were found and seized
from Rack B747-400 at the PEMD Toolroom, as follows:
WHEREFORE, the Court of Appeals Decision of September 29, 2000 is
AFFIRMED with MODIFICATION.
1. (one) 1 plastic sachet containing undetermined amount of
white substance suspected as shabu
Petitioner PHILIPPINE AIRLINES, INC. is ordered to:
2. (four) 4 aluminum foils containing U.A.S. suspected to be
shabu
(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN 3. (one) 1 aluminum foil strip (containing) with residue of
PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, substance suspected to be shabu
AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. 4. (one) 1 improvised tooter with residue susp. to be shabu
CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO 5. (one) 1 plastic sachet containing residue of susp. shabu
BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, 6. (one) 1 strip (aluminum) containing granules + white
ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, substances susp. to be shabu
ROLANDO TUNACAO, CHERRIE ALEGRES, EDUARDO MAGDADARAUG, 7. (one) 1 PAL giveaway kit containing one plastic tube
NELSON M. DULCE and ALLAN BENTUZAL as its regular employees in 8. (one) 1 improvised burner with extra needle
their same or substantially equivalent positions, and pay the wages 9. (four) 4 pcs. crumpled aluminum foils with residue susp. to
and benefits due them as regular employees plus salary be shabu
differential corresponding to the difference between the wages and 10. (five) 5 pcs. aluminum strips
benefits given them and those granted to petitioner's other regular 11. (six) 6 pcs. aluminum foil
employees of the same rank; and 12. (one) 1 plastic sachet containing undetermined quantity
of white substance susp. to be shabu placed inside
improvised metal container
(b) pay respondent BENEDICTO AUXTERO salary differential; 13. (two) 2 plastic sachets cont. residue of white substances
backwages from the time of his dismissal until the finality of this susp. to be shabu
decision; and separation pay, in lieu of reinstatement, equivalent to 14. (one) 1 lighter (disposable)
one (1) month pay for every year of service until the finality of this 15. (seventeen) 17 aluminum strips with residue of
decision. substances susp. to be shabu
16. (two) 2 strips of aluminum foils.6
There being no data from which this Court may determine the Ramos also prepared an inventory of the items found and seized in
monetary liabilities of petitioner, the case is REMANDED to the Labor Broas’ locker, to wit:
Arbiter solely for that purpose.

ITEM
SO ORDERED. DESCRIPTION
(QUANTITY)

1. (one) 1 Plastic sachet containing


G.R. No. 160798 June 8, 2005 undetermined amount of
white substance suspected
as shabu contained in a
JUANITO A. GARCIA and ALBERTO J. DUMAGO, petitioners, blue cloth with a letter.
vs.
PHILIPPINE AIRLINES, INC., respondent. 2. (one) 1 Plastic sachet containing
undetermined amount of
white substance suspected
CALLEJO, SR., J.:
as shabu.7

This is a petition for review of the Resolution1 of the Court of Appeals


(CA) in CA-G.R. SP No. 59826, dismissing the petition for certiorari of The security officers secured urine samples from the petitioners and
the petitioners Juanito A. Garcia and Alberto J. Dumago, as well as the Arcenas, Broas and Titco, which they turned to the Forensic and
Resolution2 denying the motion for reconsideration thereof. Chemistry Division of the National Bureau of Investigation (NBI). The
company, through Luis T. Castro, Jr., turned over/submitted to the NBI
the paraphernalia found in the locker of Broas.8 The men were,
The petition at bench stemmed from the following backdrop:
likewise, turned over to the NBI for investigation.9 The security officers
also prepared and signed Security Report No. SFPSD95/07-453 dated
Garcia was employed by the Philippine Airlines, Inc. (PAL) on December July 25, 1995.
3, 1973. By 1995, he was already an inspector at the Aircraft
Inspection Division of the PAL Technical Center. Dumago, on the other
Forensic Chemist Salud M. Rosales signed Dangerous Drugs Report No.
hand, was employed by PAL on April 18, 1983, and was, by 1995, a
DD-95-1554 stating that the samples gave positive results for
DO 18-02 Cases 5

methamphetamine hydrochloride.10 She also signed Toxicology Report (a) Complainants were caught by PAL personnel in flagrante
Nos. TDD-95-759 and 95-760 indicating that the urine samples given delicto in the act of sniffing shabu. This is attested to by the
by the petitioners tested positive for amphetamine, a metabolite of Joint Affidavit of Messrs. Carmelo Villacete, Antonio Ramos
methamphetamine which is a regulated drug.11 Rosales also signed and Ramoncito Villar, the security personnel who caught
Toxicology Report No. TDD-95-75712 where she stated that the urine them in the act.
sample of Rodrigo Arcenas yielded negative result for the presence of
amphetamine.
(b) An eyewitness, in the person of Rodrigo Arcenas, [Jr.]
confirmed that the complainants (together with three other
13
In the signed statement he gave to Villacete on July 25, 1995, employees) indeed sniffed shabu inside the Toolroom of the
Arcenas alleged that he was on duty at the Toolroom Section of the Plant Equipment [and] Maintenance Division.
PEMD that fateful day of July 24, 1995. At about 1:30 p.m., he saw the
petitioners with Titco and Buan playing cards. Broas, who was beside
the B747-400 tool bin, then took a white substance from a small (c) The National Bureau of Investigation confirmed that the
cellophane sachet, placed the substance in a foil and lighted it with a white crystalline substance found in the possession of the
small burner. The other men then approached Broas as the latter apprehended employees was "Methamphetamine
sniffed the substance twice and passed it around to the others who did Hydrochloride" or shabu, in ordinary parlance.
the same. Arcenas claimed that he did not sniff the white substance.
Momentarily, three persons barged into the toolroom and the men (d) Drug test conducted by the National Bureau of
tried to escape. Additional security then arrived and helped in the
Investigation revealed that the complainants were positive
inventory of the substances and materials found and seized from the for "AMPHETAMINE."22
men.14

On February 11, 1999, Labor Arbiter Ramon Valentin C. Reyes


Petitioners Garcia and Dumago, for their part, admitted that they were rendered a Decision, finding that the private respondent was guilty of
in the toolroom section of PEMD on the day in question. Garcia had
illegal dismissal, thus:
wanted to ask someone where he could take the Tracster’s wheel for
vulcanizing, while Dumago went there to request for an "Allen Wrench"
from Titco. Suddenly, a PAL security officer armed with a handgun WHEREFORE, conformably with the foregoing, judgment is hereby
barged into the toolroom. He was accompanied by a video rendered finding the respondents guilty of illegal suspension and illegal
cameraman. Buan, Broas, and Titco were then each subjected to a dismissal and ordering them to reinstate complainants to their former
body search and were forced to give urine specimen. Their lockers position without loss of seniority rights and other privileges.
were also searched.15 Respondents are hereby further ordered to pay jointly and severally
unto the complainants the following:
The petitioners denied that they used the prohibited drug, alleging that
the door to the toolroom was even open. They claimed that they were Alberto J. Dumago - P409,500.00 backwages as of 1/10/99
in the toolroom because they were on duty, and that the NBI agents P34,125.00 for 13th month pay
only arrived at the scene after the security guards had already Juanito A. Garcia - P1,290,744.00 backwages as of 1/10/99
confiscated the items and paraphernalia allegedly found in the P107,562.00 for 13th month pay
toolroom and in Broas’ locker.16
The amounts of P100,000.00 and P50,000.00 to each complainant as
and by way of moral and exemplary damages; and
A criminal complaint against the petitioners, including Buan, Broas and
Titco, for violation of Section 16 of Republic Act No. 6425, as amended
by Rep. Act No. 7659 was then filed with the Department of Justice, The sum equivalent to ten percent (10%) of the total award as and for
docketed as I.S. No. 95-492. Arcenas was not included in the charge.17 attorney’s fees.

On July 26, 1995, the petitioners were charged with violation of Section Respondents are directed to immediately comply with the
6, Article 46, and Section 6, Article 48 of Chapter II of the PAL Revised reinstatement aspect of this Decision. However, in the event that
Code of Discipline, as follows: reinstatement is no longer feasible, respondents are hereby ordered, in
lieu thereof, to pay unto the complainants their separation pay
computed at one month for every year of service.
1. Violation of Law/Government Regulations-Chapter II, Section 6,
Article 46
SO ORDERED.23
"Any employee who by substantial evidence presented at an
administrative hearing is found to have violated or attempted to The Labor Arbiter ruled that the NBI Toxicology Report on the urine
violate existing laws, decrees, regulations, or orders issued by the samples of the complainants were not admissible in evidence. And
Philippine or other governments, and their agencies and even if they were, being positive for amphetamine does not constitute
instrumentalities, which violation involves moral turpitude is work- as a violation of the law.24 The private respondent appealed the
related, or which involves the safety, welfare, reputation, or standing decision.
of the company in the community, shall be penalized as prescribed in
the schedule of penalties under Article 14 of this Code, depending
upon the gravity and/or frequency of the offense. Where such violation On January 31, 2000, the National Labor Relations Commission (NLRC)
constitutes serious misconduct or breach of trust, the penalty of reversed the decision of the Labor Arbiter and dismissed the case for
dismissal shall be imposed." lack of merit.25 The NLRC ruled that the joint affidavit of the three PAL
security personnel, the joint affidavit of the four NBI Narcotics Division
personnel, the sworn statement of Arcenas, and the NBI toxicology
2. Prohibited Drugs-Chapter II, Section 6, Article 48 reports constituted substantial evidence that the petitioners had,
indeed, used shabu within the private respondent’s premises during
working hours. It held that the acts of the petitioners amounted to
"Any employee who, while on Company premises or on duty, is found serious misconduct that justified their dismissal from employment. The
in the possession of, or uses, or is under the influence of prohibited or
petitioners moved for a reconsideration of the decision, on the ground
controlled drugs, or hallucinogenic substances or narcotics shall suffer that the urine samples were obtained from them without the
the penalty of dismissal."18
assistance of counsel; hence the said samples and the Toxicology
Report of the NBI Field Agents Division were inadmissible in evidence.26
A formal investigation ensued during which Arcenas testified. On The NLRC denied the said motion for lack of merit.27
October 9, 1995, the Grievance Committee rendered a Decision19
finding petitioners Garcia and Dumago guilty as charged; both of them Dissatisfied, the petitioners filed a petition for certiorari with the CA
were meted the penalty of dismissal.
based on the following grounds:

On October 30, 1997, the petitioners instituted separate complaints20 6.1 The public respondent NLRC erred and committed grave
for illegal dismissal against private respondent PAL and its Vice-
abuse of discretion amounting to lack of jurisdiction in:
President for Maintenance and Engineering, Jacinto F. Ortega, Jr.21 In its
reply to the position paper of the complainants, PAL declared that:
(a) Reversing the decision of the labor arbiter;
DO 18-02 Cases 6

(b) Concluding that the petitioners were caught For its part, the private respondent avers that the CA did not err in
sniffing shabu; dismissing the petition for the petitioners’ failure to append the
(c) Disregarding the petitioners’ Constitutional required pleadings and order. It asserts that the petitioners even failed
rights to counsel and due process of law. to give a justification for their failure to comply with the Rules of Court.
The private respondent further points out that the petitioners failed to
6.2 The contradictory findings and conclusions of the labor append an affidavit of proof of service under Section 13, Rule 13 of the
arbiter and the NLRC provide strong and compelling reasons Rules of Court to their motion for reconsideration of the August 10,
to warrant judicial review of the instant case to prevent a 2000 Resolution of the CA, and even failed to give a valid justification
miscarriage of justice. for such failure. Thus, the private respondent avers, the ruling of the
CA is in accord with the Rules of Court.

6.3 There is no appeal or any other plain, speedy and


adequate remedy in the ordinary course of law.28 The petition is meritorious.

On August 10, 2000, the CA dismissed the petition for failure to append The CA erred in dismissing the petition on the ground that the
copies of the material documents referred to therein, such as (a) the petitioner failed to comply with the last paragraph of Section 1 of Rule
petitioners’ complaint for illegal dismissal and damages; (b) the private 65 of the Rules of Court, which provides:
respondent’s position paper filed with the Labor Arbiter; and (c) the
Labor Arbiter’s Order dated June 16, 1998 submitting the case for
resolution.29 The petitioners received a copy of the resolution on SECTION 1. Petition for certiorari. – When any tribunal, board or officer
August 21, 2000 and filed on August 29, 2000 a motion for its exercising judicial or quasi-judicial functions has acted without or in
reconsideration, appending the pleadings and the order adverted to in excess of its or his jurisdiction, or with grave abuse of discretion
the CA resolution.30 amounting to lack or excess of jurisdiction, and there is no appeal, or
any plain, speedy, and adequate remedy in the ordinary course of law,
a person aggrieved thereby may file a verified petition in the proper
On November 5, 2003, the CA denied the petitioners’ motion for court, alleging the facts with certainty and praying that judgment be
reconsideration for lack of merit, on the ground that the said motion rendered annulling or modifying the proceedings of such tribunal,
did not contain an affidavit of proof of service under Section 13 of Rule board or officer, and granting such incidental reliefs as law and justice
13 of the Rules of Court. The appellate court also held that the may require.
petitioners failed to give a valid justification for their failure to comply
with the rules.31
The petition shall be accompanied by a certified true copy of the
judgment, order or resolution subject thereof, copies of all pleadings
The petitioners received a copy of the said resolution, and forthwith and documents relevant and pertinent thereto, and a sworn
filed the instant petition for review on certiorari, where they raise the certification of non-forum shopping as provided in the third paragraph
following issues: of Section 3, Rule 46.

1. Whether or not the Honorable Court of Appeals decided The provision mandates that the following documents should be
CA-G.R. SP No. 59826 in a way not in accord with the law or appended to the petition: a certified copy of the judgment, order or
the decisions of this Honorable Supreme Court, and the resolution subject of the petition; copies of all pleadings and
Constitutional mandate of protection to labor, when it documents relevant and pertinent thereto; and a sworn statement of
dismissed the Petition for Certiorari on purely technical non-forum shopping as provided in the third paragraph of Section 3,
grounds (i.e., failure to append 3 documents), and denied Rule 46, which reads:
the petitioners’ motion for reconsideration, despite the fact
that the petitioners already submitted the documents in
their motion for reconsideration. SEC. 3. Contents and filing of petition, effect of non-compliance with
requirements. –

2. Whether or not the Honorable Court of Appeals departed


from the accepted and usual course of judicial proceedings …
in deciding CA-G.R. SP No. 59826, by not resolving the case The petitioner shall also submit together with the petition a sworn
on the merits despite the conflicting findings and conclusions certification that he has not theretofore commenced any other action
of the Labor Arbiter and the NLRC.32 involving the same issues in the Supreme Court, the Court of Appeals
or different divisions thereof, or any other tribunal or agency; if there is
such other action or proceeding, he must state the status of the same;
The petitioners argue that their failure to append the three documents and if he should thereafter learn that a similar action or proceeding has
to their petition was not fatal because they had substantially complied been filed or is pending before the Supreme Court, the Court of
with all the formal requirements under Section 1, Rule 65 of the Rules Appeals, or different divisions thereof, or any other tribunal or agency,
of Court, in relation to Section 3 of Rule 46. They aver that they he undertakes to promptly inform the aforesaid courts and other
submitted certified true copies of the decision and the resolution tribunal or agency thereof within five (5) days therefrom.
subject of the petition, copies of relevant pleadings, as well as the …
documents necessary for a complete understanding of the issues It is evident, therefore, that aside from the assailed decision, order or
raised, and a certificate of non-forum shopping.33 They posit that resolution, not every pleading or document mentioned in the petition is
should the CA disagree on what they had considered relevant to their required to be submitted – only those that are pertinent and relevant
petition, the petition should not have been dismissed outright; instead, to the judgment, order or resolution subject of the petition. The initial
the CA should have required them to submit the requisite documents.34 determination of what pleadings, documents or orders are relevant and
pertinent to the petition rests on the petitioner. If, upon its initial
review of the petition, the CA is of the view that additional pleadings,
The petitioners stress that the dismissal of the petition on a purely documents or order should have been submitted and appended to the
technical ground is inconsistent with the constitutional mandate on petition, the following are its options: (a) dismiss the petition under the
protection to labor. They maintain that in denying their motion for last paragraph of Rule 46 of the Rules of Court; (b) order the petitioner
reconsideration, the CA acted harshly and in complete disregard of the to submit the required additional pleadings, documents, or order within
law’s tenderness for the plight of labor. The petitioners point out that a specific period of time; or (c) order the petitioner to file an amended
even this Court has been lenient in more serious cases of non- petition appending thereto the required pleadings, documents or order
observance of procedural rules, such as the failure to perfect an appeal within a fixed period.
within the reglementary period.35

If the CA opts to dismiss the petition outright and the petitioner files a
The petitioners further posit that judicial review is warranted in this motion for the reconsideration of such dismissal, appending thereto
case since the findings of the Labor Arbiter were reversed by the NLRC; the requisite pleadings, documents or order/resolution with an
hence, the CA should have resolved the petition for certiorari on its explanation for the failure to append the required documents to the
merits. They contend that the evidence shows that no drugs were original petition, this would constitute substantial compliance with the
found in their possession and that as such, their dismissal could not Rules of Court. In such case, then, the petition should be reinstated. As
have been based on a valid cause. They claim that the NLRC erred in this Court emphasized in Cusi-Hernandez v. Diaz:37
giving credence to the joint affidavit of the private respondent’s
security personnel and the sworn statement of Arcenas.36
Under the circumstances, we hold that there was substantial
compliance with Section 2, Rule 42 of the Rules of Court. In dismissing
DO 18-02 Cases 7

the Petition before it, the appellate court clearly put a premium on Nonetheless, in the interest of substantial justice, taking into account
technicalities at the expense of a just resolution of the case. the fact that this is a labor case, the Court opts to overlook the
procedural lapse of the petitioners, conformably with the ruling of the
Court in ABD Overseas Manpower Corporation v. NLRC:43
We must stress that "cases should be determined on the merits after
full opportunity to all parties for ventilation of their causes and
defenses, rather than on technicality or some procedural Under the Rules of Court which were then in effect and applicable to
imperfections. In that way, the ends of justice would be served better." the case at bar, when MARS failed to file an answer to petitioner’s
Moreover, the Court has held: cross-claim, it should have been declared in default with respect to
such claim. In labor cases, however, technical rules of procedure are
not applicable, but may apply only by analogy or in a suppletory
"Dismissal of appeals purely on technical grounds is frowned upon and character, for instance, when there is a need to attain substantial
the rules of procedure ought not to be applied in a very rigid, technical justice and an expeditious, practical and convenient solution to a labor
sense, for they are adopted to help secure, not override, substantial problem. Hence, when the POEA opted to overlook petitioner’s cross-
justice, and thereby defeat their very aims." claim against MARS, petitioner was denied substantial justice.44

Rules of procedure are mere tools designed to expedite the decision or Indeed, technicalities should not be permitted to stand in the way of
resolution of cases and other matters pending in court. A strict and equitably and completely resolving the rights and obligations of the
rigid application of rules that would result in technicalities that tend to parties. The Court reiterates that where the ends of substantial justice
frustrate rather than promote substantial justice must be avoided.38 would be better served, the application of technical rules of procedure
may be relaxed.45
In this case, the petitioners filed a motion for the reconsideration of the
August 10, 2000 CA Resolution, and appended thereto the required WHEREFORE, the Resolutions of the Court of Appeals dated August
pleadings and order; they likewise explained that they failed to append 10, 2000 and November 5, 2003 are SET ASIDE. The records of the
the same to their original petition because they believed that the said case are REMANDED to the Court of Appeals for further proceedings.
pleadings and order did not affect the substance of the petition filed The appellate court is DIRECTED to REINSTATE CA-G.R. SP No. 59826 in
before the CA. Indeed, there is merit in their contention because the its docket and to require private respondent Philippine Airlines, Inc. to
substance of their complaint with the Labor Arbiter, as well as that of file its Comment on the petition for certiorari. No costs.
the private respondent’s position paper, were already embodied in the
decisions of the Labor Arbiter and the NLRC, certified copies of which
were appended to the original petition. The petitioners thus believed in SO ORDERED.
good faith that the pleadings and order required by the CA were no
longer necessary.
[G.R. No. 162868, July 14, 2008]

It would be more in accord with substantial justice and equity to RODOLFO D. GARCIA, PETITIONER, VS. PHILIPPINE AIRLINES
overlook the procedural lapse, and allow the petition to be resolved on AND/OR CRISTINA W. TRINIDAD, MANAGER, CATERING
its merits. It is well-settled that the application of technical rules of OPERATIONS, RESPONDENTS.
procedure may be relaxed to serve the demands of substantial justice,
particularly in labor cases.39 Labor cases must be decided according to REYES, R.T., J.:
justice and equity and the substantial merits of the controversy.40 As
the Court stressed in a recent case:41 WHO is the employer of petitioner - respondent Philippine Airlines or
the latter's contractor, Stellar Industrial Services, Inc.?
The policy of our judicial system is to encourage full adjudication of the
The question has been adjudged previously and is now barred from
merits of an appeal. In the exercise of its equity jurisdiction, this Court
being relitigated under the doctrine of res judicata, a rule which
may reverse the dismissal of appeals that are grounded merely on
pervades every well-regulated system of jurisprudence. It is founded
technicalities. Moreover, procedural niceties should be avoided in labor
upon two (2) grounds, namely: (1) public policy and necessity which
cases in which the provisions of the Rules of Court are applied only in
makes it to the interest of the State that there should be an end to
suppletory manner. Indeed, rules of procedure may be relaxed to
litigation, interest reipublicae ut sit finis litumi (sa kapakanan ng
relieve a part of an injustice not commensurate with the degree of
Estado ay kailangang magkaroon ng wakas ang kaso); and (2)
noncompliance with the process required.42
the hardship on the individual that he should be vexed twice for the
same cause, memo debet bis vexari et eadem causa (sinuman ay di
The Court thus holds that the petitioners deserve to be heard on their dapat bagabagin ng makalawa sa iisang dahilan).[1]
petition for certiorari, considering the conflicting findings and
conclusions of the Labor Arbiter and the NLRC based on their The doctrine finds application in this petition for review on certiorari of
calibration of the evidence on record. Moreover, the petitioners’ plea the Decision[2] and Resolution[3] of the Court of Appeals (CA), absolving
that urine samples were extracted from them without the assistance of private respondent Philippine Airlines (PAL) of any liability for petitioner
counsel and that the Toxicology Reports of the NBI Forensic and Rodolfo D. Garcia's dismissal.
Chemistry Division are inadmissible in evidence must also be
considered. The joint affidavits of Villacete, Ramos, Villar and Arcenas The Facts
that the petitioners were caught sniffing methamphetamine
hydrochloride are contradicted by the NBI’s Toxicology Reports that Stellar Industrial Services, Inc. (Stellar) had a standing agreement to
the urine samples provided by the petitioners were found positive for supply PAL with workers for janitorial and sanitation functions. On
amphetamine. There is thus a need for the CA to resolve the issues of August 2, 1976, petitioner was assigned by Stellar to PAL, where he
whether amphetamine is indeed a metabolite of methamphetamine was tasked to perform janitorial services at the company's in-flight
and whether the possession and use of such substance is a violation of kitchen until January 24, 1990.
the law.
During the course of his employment, petitioner received a warning
from Stellar for absences incurred. The Memorandum, dated April 28,
We note that the petitioners indeed failed to append to their motion for
1987, pertinently reads:
reconsideration in the CA the affidavit required by Rule 13, Section 13
of the Rules of Court, to wit:
TO : GARCIA, Rodolfo
NUEDA, Ferdinand
SEC. 13. Proof of service. – Proof of personal service shall consist of a
written admission of the party served, or the official return of the FROM : Vice President Comptroller
server, or the affidavit of the party serving, containing a full statement SUBJECT : LAST WARNING
of the date, place and manner of service. If the service is by ordinary DATED : 28 April 1987
mail, proof thereof shall consist of an affidavit of the person mailing of
facts showing compliance with Section 7 of this Rule. If service is made
Our attention was called by our client Philippine Airlines - Inflight
by registered mail, proof shall be made by such affidavit and the
Kitchen regarding your failure to report for work last April 17, 1987.
registry receipt issued by the mailing office. The registry return card
shall be filed immediately upon its receipt by the sender, or in lieu
thereof the unclaimed letter together with the certified or sworn copy Your absences has (sic) caused inconvenience in the operation of our
of the notice given by the postmaster to the addressee. client. Let this serve as our last warning, any repetition or violation of
any
company rules and regulations will constrain us to terminate your
DO 18-02 Cases 8

services with us. Yours truly,


(SGD.) CARLOS P. CALLANGA[4]
On January 25, 1990, petitioner was transferred to PAL's Catering (Sgd.)
Operations as a kitchen busboy in the sanitizing section. RODOLFO GARCIA[7]
Dissatisfied with petitioner's explanation, Stellar subsequently
In a Memorandum dated March 21, 1990, PAL, through Cristina W. terminated his employment.
Trinidad, then Manager of PAL's Catering Operations, requested Stellar
for a replacement for petitioner. In 1992, petitioner filed a complaint for illegal dismissal against Stellar
and Lluz, as well as PAL and Trinidad. The case, docketed as NLRC
Case No. 00-11-06556-92, was assigned to Labor Arbiter Emerson C.
TO : Mr. Oscar Lluz
Tumanon.
Operations Manager Stellar Industrial
Services It appears that sometime in 1988, Stellar employees assigned at PAL
FROM : Manager-Catering Operations filed complaints for regularization against the air carrier. One of the
SUBJECT : MR. RODOLFO GARCIA complainants against PAL was petitioner. These complaints, docketed
as National Labor Relations Commission (NLRC) NCR Case Nos. 00-11-
We would like to request for the immediate replacement of Mr. 04628-88, 00-12-05004-88, 00-01-00465-88, and 00-02-00828-89,
Rodolfo Garcia. were consolidated and assigned to Labor Arbiter Jose De Vera of the
NLRC.[8]

He has failed to meet the performance requirement of a helper On March 31, 1992, Labor Arbiter De Vera rendered judgment[9] in
at Catering Operations. favor of complainants, declaring the existence of an employer-
employee relationship between the Stellar employees and PAL. On
Hereunder are the observations of his superiors from January 8 appeal, the NLRC affirmed in toto the findings of the Labor Arbiter.
to the present.
PAL moved for reconsideration of the April 27, 1995 NLRC Decision.
Acting on PAL's motion, the NLRC, on September 25, 1996, reversed
Always late in completing assigned
01. and set aside its own earlier findings, and declared complainants
tasks.
employees of Stellar, not of PAL.[10]
Must be consistently prodded to
02.
meet deadlines. On February 6, 1998, the aggrieved complainants lodged an appeal
Unable to identify and carry out work with this Court. However, via its Resolutions dated March 2, 1998[11]
03. priorities and needs assistance from and April 22, 1998,[12] this Court denied the same.
co-workers. NLRC Ruling

Worst of all, he was caught selling cigarettes while on duty. On November 29, 1995, Labor Arbiter Tumanon rendered a decision[13]
in the illegal dismissal case in favor of petitioner, stating thus:
WHEREFORE, premises considered, judgment is hereby rendered
We hope you will act on our request immediately. declaring the dismissal of complainant herein to be illegal and
unauthorized; consequently, ordering herein respondents jointly and
(SGD.) CRISTINA W. TRINIDAD[5] severally without loss of seniority rights and privileges and with full
backwages counted from the date of his dismissal until actual
Consequently, in a letter dated March 28, 1990, Carlos P. Callanga, VP- reinstatement which up to the date of the promulgation of this
Operations/Comptroller of Stellar, demanded from petitioner a written Decision has already amounted to TWO HUNDRED FORTY THOUSAND
explanation why no disciplinary action should be taken against him, in FOUR HUNDRED SEVENTY-FIVE and 21/100 (P240,475.21) pesos,
view of the following charges: (1) poor performance/negligence of broken down as follows:
duty; and (2) selling of cigarettes while on duty.[6] Backwages in the sum of P218,810.02;
13th Month pay in the sum of P18,234.16;
Petitioner, in a letter-reply dated April 2, 1990, rendered an Service Incentive Leave pay in the sum of P3,431.03;
explanation in the following tenor:
April 2, 1990 subject to adjustment if payroll or physical reinstatement is denied.
It appearing that complainant has been represented by counsel in the
Mr. Cesar Lluz litigation of this case, said counsel is hereby awarded the sum of ten
Operation Manager (10%) percent of the total award as and for attorney's fees in the
Stellar Industrial Services amount of TWENTY-FOUR THOUSAND FORTY-SEVEN and 52/100
Cibeles Bldg., Ayala (P24,047.52) pesos, subject also for adjustment.
Makati, Metro Manila
SO ORDERED.[14]
Dear Sir: However, on appeal, the Third Division of the NLRC reversed Labor
Arbiter Tumanon, holding that petitioner was "guilty of gross and
These are my answers to the charges against me as inscribed in a habitual neglect and was consequently terminated for cause and with
letter of MS. Cristina W. Trinidad dated March 21, 1990. due process."[15] The NLRC declared that:
x x x respondent Stellar appears to be an independent job contractor
As to the allegation that I was always late in completing assigned task, and not merely a labor only contractor. Apart from the fact that it has
this was not true because works in the Catering Service has (sic) no sufficient capitalization to the tune of more than a million pesos, its
ending due to the nature of PAL's business. workers perform work that are not necessary and desirable to the
business of PAL. Simply stated, it is a job contractor for PAL's
As to the allegation that I must constantly (be) prodded to meet messengerial and janitorial needs no more no less. Hence, its
deadlines, (this) was not correct because of the above reasons. employees are not of PAL.

As to the allegation that I was not able to identify and carry out work ACCORDINGLY, premises considered, the decision appealed from is
priorities and needs assistance from co-workers was not also (sic) hereby SET ASIDE and this case DISMISSED for lack of merits (sic).
correct because I always have a companion in the performance of my
job because the nature of the work calls for it. SO ORDERED.[16]
Petitioner's motion for reconsideration was denied by the NLRC in its
And as to the last allegation that I was caught selling cigarettes while October 8, 2004 Resolution.[17]
on duty was not also tru (sic) because how can I sell cigarettes when I
was surrounded by heavy works and the mess in my hands while on CA Disposition
duty will make them spoiled. The cigarettes inside my pocket was (sic)
only for my personal consumptions (sic). On certiorari, the CA "modified" both the NLRC and the Labor Arbiter
rulings, thus:
I hope these answers will enlighten my case and I am looking forward WHEREFORE, premises considered, the Petition is GRANTED and the
that I will be given merit considering that I am connected with the assailed 27 August 2001 Resolution of respondent Commission in NLRC
service for a period of fourteen (14) years without being NCR CA No. 010218-96 and the 29 November 1995 Decision of Labor
apprehended/complained of misconduct unbecoming. Arbiter Emerson C. Tumanon in NLRC NCR No. 00-11-06556-92 are
hereby MODIFIED insofar as the pecuniary awards declared in the
Labor Arbiter's Decision are the sole responsibility of private
respondent Stellar, petitioner's direct employer.
DO 18-02 Cases 9

an authorized capital stock of P1,000,000.00. SISI has a collective


SO ORDERED.[18] bargaining agreement (CBA) with its employees, including SEA's
In reality, however, the CA merely sustained the NLRC ruling that members, under which complainants obtained substantial benefits.
Stellar is an independent contractor. The CA observed:
However, it is only private respondent Stellar who is responsible to
xxxx
petitioner as the former is an independent contractor. The issue
whether or not Stellar is an independent contractor or merely engaged
We must remember that this case is principally for regularization and
in labor-only contracting was already addressed and settled by the
relies primarily on the premise that SISI is a "labor-only" contractor of
Highest Magistrate in a related case entitled Phil. Airlines vs. NLRC,
PAL. With respect to the issue of whether or not SISI is a legitimate
298 SCRA 430 [2000], to wit:
independent contractor, SEA admits that SISI provides its employees
"Aside from these stipulations in the service agreement, other pieces
with "soap, cleansers, mops, lawn mowers, brooms, dust pans," etc.
of evidence support the conclusion that STELLAR, not PAL, was the
More telling is SEA's admission that SISI has several clients other than
employer of the individual private respondents. A contract of
PAL. SEA tries to avoid the application of Neri, et al. vs. NRLC, et al.,
employment existed between STELLAR and the individual private
224 SCRA 717 (July 23, 1993), by distinguishing SISI's janitorial
respondents, proving that it was said corporation which hired them. It
operations from the other types of employees, like the station loaders.
was also STELLAR which dismissed them, as evidenced by Complainant
Parenas' termination letter, which was signed by Carlos P. Callanga,
This argument, however, falls flat on its face considering that SISI has
vice president for operations and comptroller of STELLAR. Likewise,
substantial authorized capital in the amount of P1.0 Million, since this
they worked under STELLAR's own supervisors, Rodel Pagsulingan,
not limited to its janitorial department. This is evidenced by SISI's
Napoleon Parungao, and Renato Topacio. STELLAR even had its own
Amended Articles of Incorporation which is a public document under
collective bargaining agreement with its employees, including the
the possession, supervision and control of the Securities and Exchange
individual private respondents. Moreover, PAL had no power of control
Commission and We can even take judicial notice of this fact, despite
and dismissal power them (sic)."[19]
SEA's declaration to the contrary.
Petitioner moved for partial reconsideration asking that PAL be made
solidarily liable with Stellar. However, the CA denied his motion in its
We are aware of the standards used to determine a "labor-only"
Resolution dated March 17, 2004. Hence, this petition.
contractor. As SEA itself has pointed out, one such gauge is the
absence of substantial capital, citing Art. 106 of the Labor Code and
Issues
Sec. 9, Rule VIII of its Implementing Rules. In view of SISI's possession
of substantial capital, it cannot be considered a "labor-only" contractor.
Petitioner submits the following assignment:
On the other hand, is SISI an independent contractor? We resolve this
I. is in the affirmative after re-thinking our earlier Resolution. Aside from
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION its capital, it also maintains an independent business as admittedly
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ABSOLVING PAL shown by its diversified clientele and the supervision and control as to
FROM LIABILITY CONSIDERING THAT IT IS THE EMPLOYER OF the means of work as provided by its own timekeepers, foremen, etc.
PETITIONER BECAUSE THE LATTER PERFORMED FUNCTIONS, DUTIES
AND RESPONSIBILITIES NECESSARY AND DESIRABLE TO ITS BUSINESS We cannot subscribe to the position by SEA that the absence of
OPERATIONS. premises, tools, equipment, etc. is anachronistic to SISI's being an
II. independent contractor. There is nothing novel about this since this
has been succinctly ruled upon by the Supreme Court in its Neri
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION decision, supra. There, the High Court refined the definition of an
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ABSOLVING PAL independent contractor in the sense that it need not possess both tools
FROM LIABILITY CONSIDERING THAT IT IS THE EMPLOYER OF and equipment, on one hand, and substantial capitalization, on the
PETITIONER BECAUSE IT IS PAL WHICH EXERCISED CONTROL OVER THE other hand. Otherwise, as observed by the Court, the legislator ought
MEANS AND METHODS (BY WHICH) PETITIONER PERFORMED HIS JOB to have used the conjunctive "and," instead of "or."
AT ITS CATERING DEPARTMENT.
III. Neither is the contention concerning the direct relation of
complainants' services to PAL's operations relevant to the ultimate
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION determination of this case. In Neri, the Supreme Court cited the
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ABSOLVING PAL "general practice," even of government institutions, of contracting out
FROM LIABILITY CONSIDERING THAT IT IS THE EMPLOYER OF certain services, and, with the finding that BCC, the contractor there,
PETITIONER BECAUSE IT IS PAL WHICH ADOPTED RULES, REGULATIONS was an independent one, also said -
AND POLICIES REGARDING DISCIPLINE TO BE FOLLOWED BY ITS
EMPLOYEES AT ITS CATERING DEPARTMENT.[20] (Underscoring supplied) x x x There is even no need for it to refute petitioner's contention that
the activities are directly related to the principal business of
Simply stated, the essential issue is whether PAL is petitioner's respondent bank.
employer and solidarily liable with Stellar for illegal dismissal. xxxx
Our Ruling
Viewed from a different standpoint, the workers have no contractual tie
to PAL because SISI, as a legitimate independent contractor, is their
Preliminarily, We note that the instant petition was filed beyond the
true employer. They applied and executed employment contracts with
requested extension period. Petitioner received a copy of the CA March
SISI, not PAL, although SEA argues that its members were made to sign
17, 2004 Resolution on March 26, 2004. He had until April 10, 2004 to
the application forms and employment contracts. What cannot be
file this petition. He asked the Court that he be allowed until April 25,
denied, however, is the brazen and undisputed fact that SISI has a CBA
2004 to file the same,[21] but failed to comply when he filed the petition
with its employees, including SEA's members. SISI's employees derived
only on April 26, 2004. Nevertheless, inasmuch as the delay is not
benefits under said CBA for the number of years it had been in force.
substantial, the greater interest of justice would be served if this
The CBA is a clear admission of an employment relationship with SISI.
petition is adjudicated on its merits. Sound policy dictates that it is far
It is now too late in the day for them to deny such relationship.
better to dispose of cases on the merits, rather than on a technicality
xxxx
as the latter approach may result in injustice.[22]
Because of the absence of a juridical tie with them, PAL's instructions
On its merits, however, We resolve to deny the petition.
cannot be considered control under the four-fold test of employment
relationship. Going back to the Neri case, "x x x in legal contemplation,
The CA correctly found that PAL is not petitioner's employer and
such instructions carry no more weight than mere requests x x x."
cannot thus be held solidarily liable with Stellar for illegal dismissal.
xxxx
The issue on the existence of an employer-employee relationship
All told, We hereby rule that SISI is a legitimate independent contractor
between petitioner and PAL has long been resolved in the case entitled
and is the true employer of the individual complainants, not PAL.[24]
Stellar Employees Association v. Philippine Airlines and Stellar
(Underscoring supplied)
Industrial Services, Inc.[23] In that case, petitioner joined other Stellar
Due to the failure to seasonably appeal or question the NLRC ruling,[25]
employees in filing complaints for regularization, money claims and
its factual and legal findings have attained finality. Consequently, the
damages against PAL before the NLRC. The NLRC declared, on
holding that PAL is not petitioner's employer constitutes res judicata on
September 25, 1996, that no employer-employee relationship exists
the same issue in this petition.
between PAL and the Stellar employees, finding that:
We have re-examined the record of this case and have found that SISI
Res judicata literally means "a matter adjudged; a thing judicially acted
assigned supervisors and timekeepers at PAL's premises where SEA's
upon or decided; a thing or matter settled by judgment."[26] Res
members performed their work. On the issue of SISI's capitalization, it
judicata is, in fine, a rule of preclusion to the end that facts or issues
cannot be denied that, per its Amended Articles of Incorporation, it has
DO 18-02 Cases 10

settled by final judgment should not be tried anew.[27] controverted, on the determination of which the finding or judgment
was anchored.[37]
The principle of res judicata in actions in personam is found in Section
49(b) and (c), Rule 39 of the Rules of Court which provides: Where material facts or questions, which were in issue in a former
Sec. 49. Effects of judgments. - The effect of a judgment or final order action, were judicially determined, such facts are res judicata.[38] In
rendered by a court or judge of the Philippines, having jurisdiction to Stilianopulos v. City of Legaspi,[39] the Court held that "(w)hen a right or
pronounce the judgment or order, may be as follows: fact has been judicially tried and determined by a court of competent
jurisdiction or an opportunity for such trial has been given, the
judgment of the court, as long as it remains unreversed, should be
xxxx
conclusive upon the parties and those in privity with them. Clearly,
there should be an end to litigation by the same parties and their
(b) In other cases, the judgment or order is, with respect to the matter
privies over a subject, once it is fully and fairly adjudicated."
directly adjudged or as to any other matter that could have been
raised in relation thereto, conclusive between the parties and their
Res judicata requires that stability be accorded to judgments.
successors-in-interest by title subsequent to the commencement of the
Controversies once decided on the merits shall remain in repose for
action or special proceeding, litigating for the same thing and under
there should be an end to litigation which, without the doctrine, would
the same title and in the same capacity;
be endless.[40] As We declared in Camara v. Court of Appeals,[41] both
concepts of res judicata are:
(c) In any other litigation between the same parties or their successors-
x x x founded on the principle of estoppel, and are based on the
in-interest, that only is deemed to have been adjudged in a former
salutary policy against unnecessary multiplicity of suits. Like the
judgment which appears upon its face to have been so adjudged, or
splitting of causes of action, res judicata is in pursuance of such policy.
which was actually and necessarily included therein or necessary
Matters settled by a Court's final judgment should not be litigated upon
thereto.
or invoked again. Relitigation of issues already settled merely burdens
Res judicata has two (2) concepts. The first is "bar by prior judgment"
the Courts and the taxpayers, creates uneasiness and confusion, and
under Rule 39, Section 47(b). This rule dictates that the judgment or
wastes valuable time and energy that could be devoted to worthier
decree of a court of competent jurisdiction on the merits concludes the
causes. As the Roman maxim goes, Non bis in edem.[42]
parties and their privies to the litigation and constitutes a bar to a new
The regularization cases initiated and participated in by petitioner are
action or suit involving the same cause of action either before the
now final and executory, and the issues resolved in that case should no
same or any other tribunal.[28] Stated otherwise, the judgment rendered
longer be disturbed. Nothing is more settled in law than that when a
in the first case is an absolute bar to the subsequent action since said
judgmentbecomes final and executory it becomes immutable and
judgment is conclusive not only as to the matters offered and received
unalterable. The same may no longer be modified in any respect, even
to sustain that judgment but also as to any other matter which might
if the modification is meant to correct what is perceived to be an
have been offered for that purpose and which could have been
erroneous conclusion of fact or law, and whether made by the highest
adjudged therein.[29]
court of the land. The reason is grounded on the fundamental
considerations of public policy and sound practice that, at the risk of
The second rule of res judicata is embodied in Rule 39, Section 47(c),
occasional error, the judgments or orders of courts must be final at
and is known as "conclusiveness of judgment." It provides that any
some definite date fixed by law.[43]
right, fact, or matter in issue directly adjudicated or necessarily
involved in the determination of an action before a competent court in
Verily, res judicata now bars petitioner from reopening, by way of this
which a judgment or decree is rendered on the merits is conclusively
petition, the issue of the existence of an employer-employee
settled by the judgment therein and cannot again be litigated between
relationship between him and PAL. Otherwise, there will never be an
the parties and their privies whether or not the claim or demand,
end to litigation on the issue.
purpose, or subject matter of the two suits is the same. It refers to a
situation where the judgment in the prior action operates as an
Nevertheless, petitioner insists that We again resolve the issue by
estoppel only as to the matters actually determined or which were
looking at "evidentiary facts of employer-employee relationship."[44] At
necessarily included therein.[30]
the same time, he maintains that he raises questions of law.[45]
The other elements being virtually the same, the fundamental
Evidently, the issues raised by the petitioner pertain to factual matters.
difference between the rule of res judicata as a bar by former
If We were to determine these factual issues, We shall have to
judgment and as merely a rule on the conclusiveness of judgment is
examine the documentary and testimonial evidence, as well as the
that, in the first, there is an identity in the cause of action in both cases
factual allegations in the pleadings. In doing so, We shall have to
involved whereas, in the second, the cause of action in the first case is
consider the following elements to determine the existence of an
different from that in the second case.[31]
employment relationship: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and
In this petition, res judicata in the concept of conclusiveness of
(d) the employer's power to control the employee with respect to the
judgment obtains. The concept is applicable here as there is identity of
means and methods by which the work is to be accomplished. Of these
parties and subject matter but not of causes of action.
elements, the so-called "control test" is the most important.[46]
First, there is identity of parties between the two (2) cases. Petitioner
Obviously, an evaluation of the above-mentioned factual matters is
was one of complainants in the consolidated regularization cases and
embraced by the proscription found in Rule 45, Section 1 of the Rules
he is also the same party who initiated this action. His denial of
of Court, which states that an appeal by certiorari to the Supreme
participation in the regularization cases[32] is negated by the records, as
Court "shall raise only questions of law which must be distinctly set
he was awarded wage differentials and CBA benefits by the Labor
forth."
Arbiter in said cases.[33] In fact, records show that petitioner was
awarded the amount of P34,886.00.[34]
Petitioner asks Us to exempt him from the proscription considering the
contrasting findings of the Labor Arbiter, on one hand, and the NLRC
Second, there is identity of subject matter, defined as the matter or
and the CA on the other.
thing with respect to which the controversy has arisen, concerning
which a wrong has been done.[35] It is quite clear that the issue and
However, well-settled is the rule that conclusions and findings of fact
subject matter resolved in the consolidated regularization cases is the
by the lower courts or administrative bodies are entitled to great
existence of an
weight on appeal and will not be disturbed except for strong and
employer-employee relationship between petitioner and PAL. It is also
cogent reasons. The findings of the CA by itself, which are supported
the primordial issue for resolution in the instant petition.
by substantial evidence, are almost beyond the power of review by the
Supreme Court.[47]
However, identity of causes of action is absent between the two (2)
cases. Under the rules, a cause of action is defined as an act or
We find no cogent reason to disturb the NLRC and the CA findings as
omission by which a party violates a right of another.[36] In the
these are supported by substantial evidence. On the other hand, We
regularization cases, the cause of action is the deprivation of the status
cannot rely on the findings of the Labor Arbiter about the existence of
of a regular employee, while in this petition, the cause of action is the
an employer-employee relationship. His decision[48] fails to shed light
dismissal of an employee without just cause under our labor laws.
on what specific findings of fact convinced him that Stellar is a labor-
only contractor, and that PAL is an employer of petitioner.
Applying the rule on conclusiveness of judgment to this case, the
parties are now precluded from relitigating the same issue of the
Moreover, even if We relax the rule, We notice an abject failure of the
existence of an employment relationship between PAL and petitioner.
petitioner to attach to the petition and subsequent pleadings, proof of
these alleged facts of employment relationship. There is a patent
Although it does not have the same effect as bar by prior judgment
dearth of evidence in the records to convince Us that the following
which precludes subsequent actions, conclusiveness of judgment
material allegations exist, namely: that petitioner's duties were
operates as estoppel with respect to matters in issue or points
necessary and desirable to the business of PAL; that PAL exercised
DO 18-02 Cases 11

control over the means and methods of his performance at the in-flight 6. Jesus Delima, Jr. 3/28/91- P3,100/month
kitchen; and that it was PAL's responsibility to issue rules and 3/15/93
regulations regarding discipline to be followed by petitioner at that 6. Jesus Delima, Jr. 3/28/91- P3,100/month
department. 3/15/93

Instead, petitioner merely offered factual assertions which are On March 15, 1993, GSIS terminated the Security Service Contract with
unfortunately not supported by proof, documentary or otherwise. We LSWA. All the complainants, except Virgilio Soriano, were absorbed by
cannot accept this as substantial evidence that is necessary to make a the incoming security agency.
finding of an employer-employee relationship. It is elementary that he
who alleges a fact must prove it, and a mere allegation is not evidence. On March 7, 1994, complainants filed separate complaints against
[49]
LSWA for underpayment of wages and non-payment of labor standard
benefits from March 1991 to March 15, 1993. Virgilio Soriano also
On the basis of the pleadings and evidence before Us, We cannot complained of illegal dismissal.
accept the claim that petitioner was PAL's employee. Petitioner does
not deny that he was selected and engaged by Stellar when he was In its Position Paper, LSWA alleged that complainants were estopped
assigned to PAL.[50] Moreover, while petitioner claims that the funds for from claiming that they were underpaid because they were informed
his salary came from PAL, he did not adduce proof to support his that the pay and benefits given to them were based on the contract
allegation. In any event, he admits that it was Stellar that paid his rate of P103.00 per eight hours of work or about P3,100.00 per month.
wages.[51] The evidence further shows that it was Stellar, not PAL, that
disciplined petitioner. It was Stellar that issued to petitioner various On August 9, 1994, LSWA filed a Third-Party Complaint[5] against GSIS
memoranda asking for an explanation about his infractions,[52] and for underpayment of complainants' wages.
petitioner explained himself to that company, not PAL.[53] In fine,
petitioner recognized the disciplinary authority of Stellar over him, and In its Position Paper,[6] GSIS alleged that the Third-Party Complaint
not that of the air carrier. states no cause of action against it; that LSWA obligated itself in the
Security Service Contract to be solely liable for the enforcement of and
WHEREFORE, the petition is DENIED for lack of merit. compliance with all existing labor laws, rules and regulations; that the
GSIS Board of Trustees approved the upward adjustment on a month-
SO ORDERED. to-month basis, at P4,200 per guard per month, effective January 8,
1991 to May 31, 1991, under Board Resolution No. 207 dated May 24,
Ynares-Santiago, (Chairperson), Quisumbing, Austria-Martinez, and 1991, which was incorporated in the Security Service Contract; that
Nachura, JJ., concur. GSIS fully paid the services of the security guards as agreed upon in
the Security Service Contract.

[G.R. NO. 157647, October 15, 2007] On August 27, 1996, Labor Arbiter Renato Bugarin rendered a
Decision[7] in favor of complainants, the dispositive portion of which
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), reads:
PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION, WHEREFORE, premises considered judgment is hereby rendered:
LANTING SECURITY AND WATCHMAN AGENCY, TOMAS
LANTING, DANIEL FANILA,* HECTOR MORENO, ISAURO FERRER,**
RUBIN WILFREDO, JESUS DELIMA, JR., MARIA LEGASPI, 1. Ordering respondents Lanting Security and Watchman
SANTIAGO NOTO, JR., AND VIRGILIO SORIANO, RESPONDENTS. Agency and Tomas Lanting to reinstate complainant Virgilio
Soriano without loss of seniority rights and benefits and to
pay his backwages amounting to P161,400.47, computed up
to the promulgation of this decision. Failure to reinstate
AUSTRIA-MARTINEZ, J.: complainant to his former position as hereby ordered, his
backwages shall continue to run but in no case shall exceed
Before the Court is a Petition for Review on Certiorari of the Decision[1] three (3) years;
dated July 25, 2002 of the Court of Appeals (CA) in CA-G.R. SP No.
61570 and the CA Resolution[2] dated March 19, 2003 which denied the
2. Ordering, respondents Lanting Security and Watchman
motion for reconsideration thereof.
Agency and/or Thomas Lanting and the Government Service
Insurance System, jointly and severally liable to pay the
The facts:
complainants, their salary differentials; cash equivalent of
their service incentive leaves and proportionate 13th month
Tomas Lanting, doing business under the name and style of Lanting
pay covering the period from June 1, 1991 to March 15,
Security and Watchman Agency (LSWA) entered into a Security Service
1993, hereto indicated as follows:
Contract to provide security guards to the properties of the
Government Service Insurance System (GSIS) at the contract rate of
P3,000.00 per guard per month.[3] 1.Daniel Fanila,Jr. - P18, 439.50
During the effectivity of the contract, LSWA requested the GSIS for an 2. Hector Moreno - P18, 439.50
upward adjustment of the contract rate in view of Section 7 of Wage
Order No. 1 and Section 3 of Wage Order No. 2, which were issued by
3. Isauro Torres - P18, 439.50
the Regional Tripartite Wages and Productivity Board-NCR pursuant to
4. Rubin Wilfredo - P18, 439.50
Republic Act No. 6727, otherwise known as the Wage Rationalization
Act.
5. Jesus Delima, Jr. - P18, 439.50
Acting on the request of LSWA, the GSIS, through its Board of Trustees
and under Board Resolution No. 207, dated May 24, 1991, approved 6. Maria Legaspi - P18, 439.50
the upward adjustments of the contract price from P3,000.00 to 7. Virgilio Soriano - P18, 439.50
P3,716.07 per guard, per month effective November 1, 1990 to January
7, 1991, and P4,200.00 effective January 8, 1991 to May 31, 1991.[4] 3. All other claims are hereby dismissed for lack of merit.

LSWA assigned security guards Daniel Fanila, Hector Moreno, Isauro SO ORDERED.[8]
Ferrer, Rubin Wilfredo, Jesus Delima, Jr., Maria Legaspi, Santiago Noto,
Jr., and Virgilio Soriano (hereafter complainants) to guard one of GSIS's The Labor Arbiter held LSWA and GSIS jointly and severally liable for
properties. The complainants have the following dates of employment the payment of complainants' money claims, pursuant to Articles 106
and compensation package with LSWA: and 107 of the Labor Code.

1. Daniel Fanila 3/28/91- P3,100/month LSWA appealed to the NLRC. On April 14, 2000, the NLRC issued a
3/15/93 Resolution,[9] the dispositive portion of which reads:
2. Virgilio Soriano 10/0/91- P3,100/month WHEREFORE, premises considered, the Appeal is hereby GRANTED.
3/15/93 Accordingly, the Decision appealed from is SUSTAINED subject to the
3. Hector Moreno 1/04/89- P3,100/month modification that Complainant-Appellee Soriano was not illegally
3/15/93 dismissed and hence, is not entitled to reinstatement to his former
4. Isauro Torres 11/ /88- P3,100/month position and to payment of any backwages; that from the other
3/15/93 Complainants-Appellees' awarded salary differentials from 7 March
5. Rubin Wilfredo 3/08/91- P3,100/month 1991 to 1 June 1991 in the amount of (sic) each should be deducted
3/15/93 from their awarded total salary differentials in the sum of P10,917.00
DO 18-02 Cases 12

each; and that the Third-Party Respondent GSIS is alone liable for provisions of this Code.
payment of their salary differentials.
In the event that the contractor or subcontractor fails to pay
SO ORDERED.[10] the wage of his employees in accordance with this Code, the
The NLRC held the GSIS solely liable for payment of complainants' employer shall be jointly and severally liable with his
money claims. contractor or subcontractor to such employees to the extent of
the work performed under the contract, in the same manner
Dissatisfied, the GSIS filed on May 15, 2000 a Motion for and extent that he is liable to employees directly employed by
Reconsideration.[11] On August 20, 2000, the NLRC issued a him.
Resolution[12] denying GSIS's Motion for Reconsideration.
xxx
On November 6, 2000, the GSIS filed a Petition for Certiorari[13] with the
CA arguing that the NLRC gravely abused its discretion in holding GSIS ART. 107 Indirect employer.– The provisions of the immediately
solely liable for complainants' money claims. preceding Article shall likewise apply to any person, partnership,
association or corporation which, not being an employer, contracts
On July 25, 2002, the CA rendered a Decision,[14] the dispositive portion with an independent contractor for the performance of any work, task,
of which reads: job or project. (Emphasis supplied.)
WHEREFORE, the petition is GRANTED for being meritorious. The In this case, the GSIS cannot evade liability by claiming that it had fully
questioned resolution dated 14 April 2000 of the NLRC is hereby paid complainants' salaries by incorporating in the Security Service
modified insofar as it holds petitioner GSIS solely liable for the salary Contract the salary rate increases mandated by Wage Order Nos. 1
differentials of the complainants. Instead, We revert back to the ruling and 2 by increasing the contract price from P3,000.00 to P3,176.07 per
of the Honorable Labor Arbiter and hold petitioner GSIS and guard per month effective November 1, 1990 to January 7, 1991, and
respondent Lanting Security and Watchman Agency and/or Tomas P4,200.00 effective January 8, 1991 to May 31, 1991.
Lanting jointly and severally liable for the payment of complainants'
salary differentials. In Rosewood Processing, Inc. v. National Labor Relations Commission,
[25]
the Court explained the rationale for the joint and several liability of
SO ORDERED. [15]
the employer, thus:
While finding that the GSIS complied with its obligations under Wage The joint and several liability of the employer or principal was
Order Nos. 1 and 2 by incorporating the mandated increase in the enacted to ensure compliance with the provisions of the Code,
Security Service Contract, the CA held the GSIS jointly and severally principally those on statutory minimum wage. The contractor or
liable with LSWA for complainants' money claims pursuant to Articles subcontractor is made liable by virtue of his or her status as a direct
106 and 107 of the Labor Code. employer, and the principal as the indirect employer of the
contractor’s employees. This liability facilitates, if not
On September 3, 2002, the GSIS filed a Motion for Reconsideration.[16] guarantees, payment of the workers’ compensation, thus,
In a Resolution[17] dated March 19, 2003, the CA denied the motion for giving the workers ample protection as mandated by the 1987
reconsideration. Constitution. This is not unduly burdensome to the employer.
Should the indirect employer be constrained to pay the
Hence, the present petition anchored on the following assigned error: workers, it can recover whatever amount it had paid in
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR accordance with the terms of the service contract between
IN HOLDING THAT PETITIONER GSIS IS SOLIDARILY LIABLE FOR itself and the contractor.(Emphasis supplied)[26]
PAYMENT OF COMPLAINANTS-RESPONDNENTS' SALARY Thus, the Court does not agree with the GSIS's claim that a double
DIFFERENTIALS.[18] burden would be imposed upon the latter because it would be paying
The GSIS avers that it cannot twice be held liable for complainants' twice for complainants' services. Such fears are unfounded. Under
salary differentials since it fully paid complainants' salaries by Article 1217 of the Civil Code, if the GSIS should pay the money claims
incorporating in the Security Service Contract the salary rate increases of complainants, it has the right to recover from LSWA whatever
mandated by Wage Order Nos. 1 and 2; otherwise, it would be unjust amount it has paid in accordance with the terms of the service contract
enrichment on the part of complainants and/or LSWA at its expense. It between the LSWA and the GSIS.
submits that Articles 106 and 107 of the Labor Code were not
contemplated by its framers to cover principals or clients of service Joint and solidary liability is simply meant to assure aggrieved workers
contractors who had already paid for the wages of the contractor or of immediate and sufficient payment of what is due them. This is in
subcontractor. line with the policy of the State to protect and alleviate the plight of
the working class.
In its Comment,[19] LSWA maintains that the GSIS is jointly and
severally liable with LSWA because Articles 106 and 107 of the Labor WHEREFORE, the petition is DENIED. The Decision dated July 25, 2002
Code provide so and these provisions were intended to ensure that and the Resolution dated March 19, 2003 of the Court of Appeals (CA)
employees are paid the wages due them in case of violation of the in CA-G.R. SP No. 61570 are AFFIRMED with the MODIFICATION that
Labor Code of either the contractor or the principal; that the GSIS the joint and solidary liability of LSWA and the GSIS to pay
cannot claim that holding it jointly and severally liable with LSWA complainants' salary differentials shall be without prejudice to the
would result in grave injustice since the law did not leave it without GSIS's right of reimbursement from LSWA.
recourse as the GSIS has the right of reimbursement from its co-debtor
under Article 1217[20] of the Civil Code. SO ORDERED.

In their Comment,[21] complainants argue that the GSIS is jointly and Ynares-Santiago, (Chairperson), Chico-Nazario, Nachura, and Reyes, JJ.,
severally liable with LSWA for complainants' money claims since LSWA concur.
actually paid only the sum of P3,100.00 a month, even though the GSIS
incorporated in the Security Service Contract the mandated wage
increases in Wage Order Nos. 1 and 2; that although the Security [G.R. No. 145402, March 14, 2008]
Service Contract provided that there shall be employer-employer
relationship between LSWA and/or its security guards and the GSIS, MERALCO INDUSTRIAL ENGINEERING SERVICES CORPORATION,
Article 106 of the Labor Code establishes an employer-employee Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION,
relationship between the employer and the job contractor's employees OFELIA P. LANDRITO GENERAL SERVICES and/or OFELIA P.
for a limited purpose, that is, in order to ensure that the latter get paid LANDRITO, Respondents.
the wages due them.

The Court gave due course to the petition and required the parties to CHICO-NAZARIO, J.:
submit their respective memoranda.[22] Only the GSIS complied.[23] In
the interest of justice and speedy disposition of cases, the Court Before this Court is a Petition for Review on Certiorari under Rule 45 of
resolved to dispense with the filing of the respective memoranda of the 1997 Revised Rules of Civil Procedure seeking to reverse and set
LSWA and the complainants and to decide the case based on the aside (1) the Decision[1] of the Court of Appeals in CA-G.R. SP No.
pleadings filed.[24] 50806, dated 24 April 2000, which modified the Decision[2] of the
National Labor Relations Commission (NLRC), dated 30 January 1996 in
The petition is bereft of merit. NLRC NCR CA No. 001737-91 (NLRC NCR Case No. 00-09-04432-89),
and thereby held the petitioner solidarily liable with the private
Articles 106 and 107 of the Labor Code provide: respondents for the satisfaction of the separation pay of the latter’s
ART. 106. Contractor or subcontractor.– Whenever an employer employees; and (2) the Resolution[3] of the appellate court, dated 27
enters into contract with another person for the performance of the September 2000, in the same case which denied the petitioner’s
former’s work, the employees of the contractor and of the Motion for Reconsideration.
latter’s subcontractor, if any, shall be paid in accordance with the
DO 18-02 Cases 13

Petitioner Meralco Industrial Engineering Services Corporation i.e., for wage differentials and unpaid overtime. The petitioner, in its
(MIESCOR) is a corporation duly organized and existing under the laws own Motion for Reconsideration, asked that it be excluded from
of the Republic of the Philippines and a client of private respondents. liability. It averred that private respondents should be solely
Private respondent Ofelia P. Landrito General Services (OPLGS) is a responsible for their acts as it sufficiently paid private respondents all
business firm engaged in providing and rendering general services, the benefits due the complainants.
such as janitorial and maintenance work to its clients, while private
respondent Ofelia P. Landrito is the Proprietor and General Manager of On 30 July 1993, the NLRC issued an Order[15] noting that based on
OPLGS. the records of the case, the judgment award in the amount of
P487,287.07 was secured by a surety bond posted by the
The factual milieu of the present case is as follows: private respondents;[16] hence, there was no longer any impediment
to the satisfaction of the complainants’ claims. Resultantly, the NLRC
On 7 November 1984, petitioner and private respondents executed denied the private respondents’ Motion for Reconsideration. The NLRC
Contract Order No. 166-84,[4] whereby the latter would supply the likewise directed the Labor Arbiter to enforce the monetary award
petitioner janitorial services, which include labor, materials, tools and against the private respondents’ surety bond and to determine who
equipment, as well as supervision of its assigned employees, at should finally shoulder the liability therefor.[17]
petitioner’s Rockwell Thermal Plant in Makati City. Pursuant thereto,
private respondents assigned their 49 employees as janitors to Alleging grave abuse of discretion of the NLRC in its issuance of the
petitioner’s Rockwell Thermal Plant with a daily wage of P51.50 per Resolution and Order dated 28 May 1993 and 30 July 1993,
employee. respectively, private respondents filed before this Court a Petition for
Certiorari with prayer for the issuance of a writ of preliminary
On 20 September 1989, however, the aforesaid 49 employees injunction. The same was docketed as G.R. No. 111506 entitled Ofelia
(complainants) lodged a Complaint for illegal deduction, Landrito General Services v. National Labor Relations Commission. The
underpayment, non-payment of overtime pay, legal holiday pay, said Petition suspended the proceedings before the Labor Arbiter.
premium pay for holiday and rest day and night differentials[5] against
the private respondents before the Labor Arbiter. The case was On 23 May 1994, however, this Court issued a Resolution [18] dismissing
docketed as NLRC NCR Case No. 00-09-04432-89. G.R. No. 111506 for failure of private respondents to sufficiently show
that the NLRC had committed grave abuse of discretion in rendering its
In view of the enactment of Republic Act No. 6727,[6] the contract questioned judgment. This Court’s Resolution in G.R. No. 111506
between the petitioner and the private respondents was amended[7] for became final and executory on 25 July 1994.[19]
the 10th time on 3 November 1989 to increase the minimum daily
wage per employee from P63.55 to P89.00 or P2,670.00 per month. As a consequence thereof, the proceedings before the Labor Arbiter
Two months thereafter, or on 2 January 1990,[8] petitioner sent a letter resumed with respect to the determination of who should finally
to private respondents informing them that effective at the close of shoulder the liability for the monetary awards granted to the
business hours on 31 January 1990, petitioner was terminating complainants, in accordance with the NLRC Order dated 30 July 1993.
Contract Order No. 166-84. Accordingly, at the end of the business
hours on 31 January 1990, the complainants were pulled out from their On 5 October 1994, the Labor Arbiter issued an Order,[20] which reads:
work at the petitioner’s Rockwell Thermal Plant. Thus, on 27 February As can be gleaned from the Resolution dated [28 May 1993], there is
1990, complainants amended their Complaint to include the charge of that necessity of clarifying the respective liabilities of [herein
illegal dismissal and to implead the petitioner as a party respondent petitioner] and [herein private respondents] insofar as the judgment
therein. award in the total sum of P487, 287.07 is concerned.

Since the parties failed to settle amicably before the Labor Arbiter, The judgment award in the total sum of P487,287.07 as
they submitted their respective position papers and other pleadings contained in the Decision dated [26 March 1991] consists of three
together with their documentary evidence. Thereafter, a Decision was (3) parts, as follows: First, the judgment award on the underpayment;
rendered by the Labor Arbiter on 26 March 1991, dismissing the Second, the judgment award on separation pay; and Third, the
Complaint against the petitioner for lack of merit, but ordering the judgment award on the overtime pay.
private respondents to pay the complainants the total amount of
P487,287.07 representing unpaid wages, separation pay and overtime The question now is: Which of these awards is [petitioner]
pay; as well as attorney’s fees in an amount equivalent to 10% of the solidarily liable with [private respondents]?
award or P48,728.70. All other claims of the complainants against the
private respondents were dismissed. [9] An examination of the record elicits the finding that
[petitioner] is solidarily liable with [private respondents] on
Feeling aggrieved, private respondents appealed the aforesaid the judgment awards on the underpayment and on the non-
Decision to the NLRC. Private respondents alleged, among other payment of the overtime pay. xxx. This joint and several
things, that: (1) 48 of the 49 complainants had executed affidavits of liability of the contractor [private respondents] and the
desistance and they had never attended any hearing nor given any principal [petitioner] is mandated by the Labor Code to assure
authority to anyone to file a case on their behalf; (2) the Labor Arbiter compliance of the provisions therein, including the statutory minimum
erred in not conducting a full-blown hearing on the case; (3) there is wage (Art. 99,[21] Labor Code). The contractor-agency is made liable by
only one complainant in that case who submitted a position paper on virtue of his status as direct employer. The principal, on the other
his own; (4) the complainants were not constructively dismissed when hand, is made the indirect employer of the contractor-agency’s
they were not given assignments within a period of six months, but employees for purposes of paying the employees their wages
had abandoned their jobs when they failed to report to another place should the contractor-agency be unable to pay them. This joint
of assignment; and (5) the petitioner, being the principal, was and several liability facilitates, if not guarantees, payment of
solidarily liable with the private respondents for failure to the workers performance of any work, task, job or project, thus
make an adjustment on the wages of the complainants.[10] On 28 giving the workers ample protection as mandated by the 1987
May 1993, the NLRC issued a Resolution[11] affirming the Decision of Constitution.
the Labor Arbiter dated 26 March 1991 with the modification that
the petitioner was solidarily liable with the private In sum, the complainants may enforce the judgment award on
respondents, ratiocinating thus: underpayment and the non-payment of overtime pay against either
We, however, disagree with the dismissal of the case against [private respondents] and/or [petitioner].
[herein petitioner]. Under Art. 107[12] of the Labor Code of the
Philippines, [herein petitioner] is considered an indirect However, in view of the finding in the Decision that [petitioner] had
employer and can be held solidarily liable with [private adjusted its contract price for the janitorial services it contracted with
respondents] as an independent contractor. Under Art. 109,[13] [private respondents] conforming to the provisions of Republic Act No.
for purposes of determining the extent of its liability, [herein 6727, should the complainants enforce the judgment on the
petitioner] is considered a direct employer, hence, it is underpayment and on the non-payment of the overtime pay against
solidarily liable for complainant’s (sic) wage differentials and (sic) [petitioner], the latter can seek reimbursement from the former
unpaid overtime. We find this situation obtaining in this case in view [meaning (private respondents)], but should the judgment award on
of the failure of [private respondents] to pay in full the labor standard the underpayment and on the non-payment of the overtime pay be
benefits of complainants, in which case liability is limited thereto and enforced against [private respondents], the latter cannot seek
does not extend to the establishment of employer-employee relations. reimbursement against [petitioner].
[14]
[Emphasis supplied].
Both private respondents and petitioner separately moved for The judgment award on separation pay is the sole liability of [private
reconsideration of the aforesaid Resolution of the NLRC. In their Motion respondents].
for Reconsideration, private respondents reiterated that the
complainants abandoned their work, so that private respondents WHEREFORE, [petitioner] is jointly and severally liable with
should not be liable for separation pay; and that petitioner, not private [private respondents] in the judgment award on underpayment
respondents, should be liable for complainants’ other monetary claims, and on the non-payment of overtime pay. Should the
DO 18-02 Cases 14

complainants enforce the above judgment award against respondents] for the satisfaction of the laborers’ separation
[petitioner], the latter can seek reimbursement against pay. No pronouncement as to costs.[33] [Emphasis supplied].
[private respondents], but should the aforementioned
judgment award be enforced against [private respondents], The petitioner filed a Motion for Reconsideration of the aforesaid
the latter cannot seek reimbursement from the [petitioner]. Decision but it was denied by the Court of Appeals in a Resolution
dated 27 September 2000.
The judgment award on the payment of separation pay is the
sole liability of [private respondents]. Petitioner now comes before this Court via a Petition for Review on
Certiorari, docketed as G.R. No. 145402, raising the sole issue of
Let an alias writ of execution be issued. [Emphasis supplied]. whether or not the Honorable Court of Appeals palpably erred when it
Again, both the private respondents and the petitioner appealed the went beyond the issues of the case as it modified the factual findings
afore-quoted Order of the Labor Arbiter to the NLRC. On 25 April 1995, of the Labor Arbiter which attained finality after it was affirmed by
the NLRC issued a Resolution [22] affirming the Order dated 5 October Public Respondent NLRC and by the Supreme Court which can no
1994 of the Labor Arbiter and dismissing both appeals for non-posting longer be disturbed as it became the law of the case.[34]
of the appeal or surety bond and/or for utter lack of merit.[23] When the
private respondents and the petitioner moved for reconsideration, Petitioner argues that in the assailed Decision dated 24 April 2000, the
however, it was granted by the NLRC in its Order[24] dated 27 July 1995. Court of Appeals found that the sole issue for its resolution was
The NLRC thus set aside its Resolution dated 25 April 1995, and whether the ultimate liability to pay the monetary awards in favor of
directed the private respondents and the petitioner to each post an the 49 employees falls on the private respondents without
appeal bond in the amount of P487,287.62 to perfect their respective reimbursement from the petitioner. Hence, the appellate court should
appeals.[25] Both parties complied.[26] have limited itself to determining the right of private respondents to
still seek reimbursement from petitioner for the monetary awards on
On 30 January 1996, the NLRC rendered a Decision modifying the the unpaid wages and overtime pay of the complainants.
Order of the Labor Arbiter dated 5 October 1994, the dispositive
portion of which reads: According to petitioner, the NLRC, in its Resolution dated 28 May 1993,
already found that petitioner had fully complied with its salary
WHEREFORE, the [21 November 1994] appeal of [herein petitioner] is obligations to the complainants. Petitioner invokes the same NLRC
hereby granted. The [5 October 1994] Order of Labor Arbiter Donato G. Resolution to support its claim that it was not liable to share with the
Quinto, Jr., is modified to the extent that it still held [petitioner] as private respondents in the payment of separation pay to complainants.
jointly and severally liable with [herein private respondents] in the When private respondents questioned the said NLRC Resolution in a
judgment award on underpayment and on the non-payment of Petition for Certiorari with this Court, docketed as G.R. No. 111506, this
overtime pay, our directive being that the Arbiter should now satisfy Court found that the NLRC did not commit grave abuse of discretion in
said labor-standards award, as well as that of the separation pay, the issuance thereof and accordingly dismissed private respondents
exclusively through the surety bond posted by [private respondents]. Petition. Said NLRC Resolution, therefore, has since become final and
[27]
[Emphasis supplied]. executory and can no longer be disturbed for it now constitutes the law
Dissatisfied, private respondents moved for the reconsideration of the of the case.
foregoing Decision, but it was denied by the NLRC in an Order [28] dated
30 October 1996. This NLRC Order dated 30 October 1996 became Assuming for the sake of argument that the Court of Appeals can still
final and executory on 29 November 1996. take cognizance of the issue of petitioners liability for complainants
separation pay, petitioner asserts that the appellate court seriously
On 4 December 1996, private respondents filed a Petition for Certiorari erred in concluding that it is jointly and solidarily liable with private
[29]
before this Court assailing the Decision and the Order of the NLRC respondents for the payment thereof. The payment of separation pay
dated 30 January 1996 and 30 October 1996, respectively. On 9 should be the sole responsibility of the private respondents because
December 1998, this Court issued a Resolution [30] referring the case to there was no employer-employee relationship between the petitioner
the Court of Appeals conformably with its ruling in St. Martin Funeral and the complainants, and the payment of separation pay is not a
Home v. National Labor Relations Commission.[31] The case was labor standards benefit.
docketed before the appellate court as CA-G.R. SP No. 50806.
Law of the case has been defined as the opinion delivered on a former
The Petition made a sole assignment of error, to wit: appeal. It is a term applied to an established rule that when an
THE HONORABLE COMMISSION GRAVELY ERRED AND GRAVELY appellate court passes on a question and remands the case to the
ABUSED ITS DISCRETION IN FINDING THAT THE ULTIMATE LIABILITY lower court for further proceedings, the question there settled
SHOULD FALL ON THE [HEREIN PRIVATE RESPONDENTS] ALONE, becomes the law of the case upon subsequent appeal. It means
WITHOUT REIMBURSEMENT FROM THE [HEREIN PETITIONER], IN that whatever is once irrevocably established as the controlling legal
ORDER TO SATISFY THE MONETARY AWARDS OF THE [THEREIN rule or decision between the same parties in the same case continues
COMPLAINANTS].[32] to be the law of the case, whether correct on general principles or not,
After due proceedings, the Court of Appeals rendered the assailed so long as the facts on which such decision was predicated continue to
Decision on 24 April 2000, modifying the Decision of the NLRC be the facts of the case before the court.[35] Indeed, courts must adhere
dated 30 January 1996 and holding the petitioner solidarily thereto, whether the legal principles laid down were correct on general
liable with the private respondents for the satisfaction of the principles or not or whether the question is right or wrong because
laborers’ separation pay. According to the Court of Appeals: public policy, judicial orderliness and economy require such stability in
The [NLRC] adjudged the payment of separation pay to be the sole the final judgments of courts or tribunals of competent jurisdiction.[36]
responsibility of [herein private respondents] because (1) there is no
employer-employee relationship between [herein petitioner] and the Petitioners application of the law of the case principle to the case at
forty-nine (49) [therein complainants]; (2) the payment of separation bar as regards its liability for payment of separation pay is misplaced.
pay is not a labor standard benefit. We disagree.
The only matters settled in the 23 May 1994 Resolution of this Court in
Again, We quote Article 109 of the Labor Code, as amended, viz: G.R. No. 111506, which can be regarded as the law of the case, were
The provisions of existing laws to the contrary notwithstanding, every (1) both the petitioner and the private respondents were jointly and
employer or indirect employer shall be held responsible with his solidarily liable for the judgment awards due the complainants; and (2)
contractor or subcontractor for any violation of any provision of this the said judgment awards shall be enforced against the surety bond
Code posted by the private respondents. However, the issue as regards the
liability of the petitioner for payment of separation pay was yet to be
The abovementioned statute speaks of any violation of any provision of resolved because precisely, the NLRC, in its Order dated 30 July 1993,
this Code. Thus, the existence or non-existence of employer-employee still directed the Labor Arbiter to make a determination on who should
relationship and whether or not the violation is one of labor standards finally shoulder the monetary awards granted to the complainants. And
is immaterial because said provision of law does not make any it was only after G.R. No. 111506 was dismissed by this Court that the
distinction at all and, therefore, this Court should also refrain from Labor Arbiter promulgated his Decision dated 5 October 1994, wherein
making any distinction. Concomitantly, [herein petitioner] should be he clarified the respective liabilities of the petitioner and the private
jointly and severally liable with [private respondents] for the payment respondents for the judgment awards. In his 5 October 1994 Decision,
of wage differentials, overtime pay and separation pay of the [therein the Labor Arbiter explained that the solidary liability of the petitioner
complainants]. The joint and several liability imposed to [petitioner] is, was limited to the monetary awards for wage underpayment and non-
again, without prejudice to a claim for reimbursement by [petitioner] payment of overtime pay due the complainants, and it did not, in any
against [private respondents] for reasons already discusses (sic). way, extend to the payment of separation pay as the same was the
sole liability of the private respondents.
WHEREFORE, premises studiedly considered, the assailed 30 January
1996 decision of [the NLRC] is hereby modified insofar as Nonetheless, this Court finds the present Petition meritorious.
[petitioner] should be held solidarily liable with [the private
The Court of Appeals indeed erred when it ruled that the petitioner was
DO 18-02 Cases 15

jointly and solidarily liable with the private respondents as regards the respondents in the illegal dismissal of the latter’s employees; hence, it
payment of separation pay. cannot be held liable for the same.

The appellate court used as basis Article 109 of the Labor Code, as Neither can the liability for the separation pay of the complainants be
amended, in holding the petitioner solidarily liable with the private extended to the petitioner based on contract. Contract Order No. 166-
respondents for the payment of separation pay: 84 executed between the petitioner and the private respondents
ART. 109. Solidary Liability. - The provisions of existing laws to the contains no provision for separation pay in the event that the
contrary notwithstanding, every employer or indirect employer shall be petitioner terminates the same. It is basic that a contract is the law
held responsible with his contractor or subcontractor for any between the parties and the stipulations therein, provided that they
violation of any provision of this Code. For purposes of are not contrary to law, morals, good customs, public order or public
determining the extent of their civil liability under this Chapter, they policy, shall be binding as between the parties.[39] Hence, if the
shall be considered as direct employers. [Emphasis supplied]. contract does not provide for such a liability, this Court cannot just
However, the afore-quoted provision must be read in conjunction with read the same into the contract without possibly violating the intention
Articles 106 and 107 of the Labor Code, as amended. of the parties.

Article 107 of the Labor Code, as amended, defines an indirect It is also worth noting that although the issue in CA-G.R. SP No. 50806
employer as any person, partnership, association or corporation which, pertains to private respondent’s right to reimbursement from petitioner
not being an employer, contracts with an independent contractor for for the monetary awards in favor of the complainants, they limited
the performance of any work, task, job or project. To ensure that the their arguments to the monetary awards for underpayment of wages
contractor’s employees are paid their appropriate wages, Article 106 of and non-payment of overtime pay, and were conspicuously silent on
the Labor Code, as amended, provides: the monetary award for separation pay. Thus, private respondents sole
ART. 106. CONTRACTOR OR SUBCONTRACTOR.“ x x x. liability for the separation pay of their employees should have been
deemed settled and already beyond the power of the Court of Appeals
In the event that the contractor or subcontractor fails to pay the wages to resolve, since it was an issue never raised before it.[40]
of his employees in accordance with this Code, the employer shall be
jointly and severally liable with his contractor or subcontractor to such Although petitioner is not liable for complainants separation pay, the
employees to the extent of the work performed under the contract, in Court conforms to the consistent findings in the proceedings below
the same manner and extent that he is liable to employees directly that the petitioner is solidarily liable with the private respondents for
employed by him. [Emphasis supplied]. the judgment awards for underpayment of wages and non-payment of
Taken together, an indirect employer (as defined by Article 107) can overtime pay.
only be held solidarily liable with the independent contractor or
subcontractor (as provided under Article 109) in the event that the In this case, however, private respondents had already posted a surety
latter fails to pay the wages of its employees (as described in Article bond in an amount sufficient to cover all the judgment awards due the
106). complainants, including those for underpayment of wages and non-
payment of overtime pay. The joint and several liability of the principal
Hence, while it is true that the petitioner was the indirect employer of with the contractor and subcontractor were enacted to ensure
the complainants, it cannot be held liable in the same way as the compliance with the provisions of the Labor Code, principally those on
employer in every respect. The petitioner may be considered an statutory minimum wage. This liability facilitates, if not guarantees,
indirect employer only for purposes of unpaid wages. As this Court payment of the workers compensation, thus, giving the workers ample
succinctly explained in Philippine Airlines, Inc. v. National Labor protection as mandated by the 1987 Constitution.[41] With private
Relations Commission [37]: respondents surety bond, it can therefore be said that the purpose of
While USSI is an independent contractor under the security service the Labor Code provision on the solidary liability of the indirect
agreement and PAL may be considered an indirect employer, that employer is already accomplished since the interest of the
status did not make PAL the employer of the security guards in every complainants are already adequately protected. Consequently, it will
respect. As correctly posited by the Office of the Solicitor General, PAL be futile to continuously hold the petitioner jointly and solidarily liable
may be considered an indirect employer only for purposes of unpaid with the private respondents for the judgment awards for
wages since Article 106, which is applicable to the situation underpayment of wages and non-payment of overtime pay.
contemplated in Section 107, speaks of wages. The concept of indirect
employer only relates or refers to the liability for unpaid wages. Read But while this Court had previously ruled that the indirect employer
together, Articles 106 and 109 simply mean that the party with whom can recover whatever amount it had paid to the employees in
an independent contractor deals is solidarily liable with the latter for accordance with the terms of the service contract between itself and
unpaid wages, and only to that extent and for that purpose that the the contractor,[42] the said ruling cannot be applied in reverse to this
latter is considered a direct employer. The term wage is defined in case as to allow the private respondents (the independent contractor),
Article 97(f) of the Labor Code as the remuneration of earnings, who paid for the judgment awards in full, to recover from the petitioner
however designated, capable of being expressed in terms of money, (the indirect employer).
whether fixed or ascertained on a time, task, piece, or commission
basis, or other method of calculating the unwritten contract of Private respondents have nothing more to recover from petitioner.
employment for work done or to be done, or for services rendered or to
be rendered and includes the fair and reasonable value, as determined Petitioner had already handed over to private respondent the wages
by the Secretary of Labor, of board, lodging, or other facilities and other benefits of the complainants. Records reveal that it had
customarily furnished by the employer to the employee. complied with complainant’s salary increases in accordance with the
Further, there is no question that private respondents are operating as minimum wage set by Republic Act No. 6727 by faithfully adjusting the
an independent contractor and that the complainants were their contract price for the janitorial services it contracted with private
employees. There was no employer-employee relationship that existed respondents. [43] This is a finding of fact made by the Labor Arbiter,[44]
between the petitioner and the complainants and, thus, the former untouched by the NLRC[45] and explicitly affirmed by the Court of
could not have dismissed the latter from employment. Only private Appeals,[46] and which should already bind this Court.
respondents, as the complainants employer, can terminate their
services, and should it be done illegally, be held liable therefor. The This Court is not a trier of facts. Well-settled is the rule that the
only instance when the principal can also be held liable with the jurisdiction of this Court in a petition for review on certiorari under Rule
independent contractor or subcontractor for the backwages and 45 of the Revised Rules of Court is limited to reviewing only errors of
separation pay of the latter’s employees is when there is proof that the law, not of fact, unless the factual findings complained of are
principal conspired with the independent contractor or subcontractor in completely devoid of support from the evidence on record, or the
the illegal dismissal of the employees, thus: assailed judgment is based on a gross misapprehension of facts.
Besides, factual findings of quasi-judicial agencies like the NLRC, when
affirmed by the Court of Appeals, are conclusive upon the parties and
The liability arising from an illegal dismissal is unlike an order to pay
binding on this Court.[47]
the statutory minimum wage, because the workers right to such wage
is derived from law. The proposition that payment of back wages and
Having already received from petitioner the correct amount of wages
separation pay should be covered by Article 109, which holds an
and benefits, but having failed to turn them over to the complainants,
indirect employer solidarily responsible with his contractor or
private respondents should now solely bear the liability for the
subcontractor for any violation of any provision of this Code, would
underpayment of wages and non-payment of the overtime pay.
have been tenable if there were proof - there was none in this case -
that the principal/employer had conspired with the contractor in the
WHEREFORE, premises considered, the instant Petition is hereby
acts giving rise to the illegal dismissal. [38]
GRANTED. The Decision and Resolution of the Court of Appeals dated
It is the established fact of conspiracy that will tie the principal or
24 April 2000 and 27 September 2000, respectively, in CA-G.R. SP No.
indirect employer to the illegal dismissal of the contractor or
50806, are hereby REVERSED AND SET ASIDE. The Decision dated
subcontractor’s employees. In the present case, there is no allegation,
30 January 1996 of the National Labor Relations Commission in NLRC
much less proof presented, that the petitioner conspired with private
NCR CA No. 001737-91 (NLRC NCR Case No. 00-09-04432-89) is hereby
DO 18-02 Cases 16

REINSTATED. No costs. retainer basis, under which she could hire her own nurses and other
clinic personnel.
SO ORDERED.

Ynares-Santiago, (Chairperson) Austria-Martinez, Nachura, and Reyes, Brushing aside petitioners’ contention that since their application for
JJ., concur. employment was addressed to Shangri-la, it was really Shangri-la
which hired them and not respondent doctor, the NLRC noted that the
applications for employment were made by persons who are not
parties to the case and were not shown to have been actually hired by
Shangri-la.

On the issue of payment of wages, the NLRC held that the facts that,
for some months, payment of petitioners’ wages were recommended
G.R. No. 178827 March 4, 2009 by Shangri-la’s HRD did not prove that it was Shangri-la which pays
their wages. It thus credited respondent doctor’s explanation that the
recommendations for payment were based on the billings she prepared
JEROMIE D. ESCASINAS and EVAN RIGOR SINGCO, Petitioners, for salaries of additional nurses during Shangri-la’s peak months of
vs. operation, in accordance with the retainership agreement, the guests’
SHANGRI-LA'S MACTAN ISLAND RESORT and DR. JESSICA J.R. payments for medical services having been paid directly to Shanrgi-la.
PEPITO, Respondents.

Petitioners thereupon brought the case to the Court of Appeals which,


CARPIO MORALES, J.: by Decision5 of May 22, 2007, affirmed the NLRC Decision that no
employer-employee relationship exists between Shangri-la and
Registered nurses Jeromie D. Escasinas and Evan Rigor Singco petitioners. The appellate court concluded that all aspects of the
(petitioners) were engaged in 1999 and 1996, respectively, by Dr. employment of petitioners being under the supervision and control of
Jessica Joyce R. Pepito (respondent doctor) to work in her clinic at respondent doctor and since Shangri-la is not principally engaged in
respondent Shangri-la’s Mactan Island Resort (Shangri-la) in Cebu of the business of providing medical or healthcare services, petitioners
which she was a retained physician. could not be regarded as regular employees of Shangri-la.

In late 2002, petitioners filed with the National Labor Relations Petitioners’ motion for reconsideration having been denied by
Commission (NLRC) Regional Arbitration Branch No. VII (NLRC-RAB No. Resolution6 of July 10, 2007, they interposed the present recourse.
VII) a complaint1 for regularization, underpayment of wages, non-
payment of holiday pay, night shift differential and 13th month pay Petitioners insist that under Article 157 of the Labor Code, Shangri-la is
differential against respondents, claiming that they are regular required to hire a full-time registered nurse, apart from a physician,
employees of Shangri-la. The case was docketed as RAB Case No. 07- hence, their engagement should be deemed as regular employment,
11-2089-02. the provisions of the MOA notwithstanding; and that the MOA is
contrary to public policy as it circumvents tenurial security and,
Shangri-la claimed, however, that petitioners were not its employees therefore, should be struck down as being void ab initio. At most, they
but of respondent doctor whom it retained via Memorandum of argue, the MOA is a mere job contract.
Agreement (MOA)2 pursuant to Article 157 of the Labor Code, as
amended. And petitioners maintain that respondent doctor is a labor-only
contractor for she has no license or business permit and no business
Respondent doctor for her part claimed that petitioners were already name registration, which is contrary to the requirements under Sec. 19
working for the previous retained physicians of Shangri-la before she and 20 of the Implementing Rules and Regulations of the Labor Code
was retained by Shangri-la; and that she maintained petitioners’ on sub-contracting.
services upon their request.
Petitioners add that respondent doctor cannot be a legitimate
By Decision3 of May 6, 2003, Labor Arbiter Ernesto F. Carreon declared independent contractor, lacking as she does in substantial capital, the
petitioners to be regular employees of Shangri-la. The Arbiter thus clinic having been set-up and already operational when she took over
ordered Shangri-la to grant them the wages and benefits due them as as retained physician; that respondent doctor has no control over how
regular employees from the time their services were engaged. the clinic is being run, as shown by the different orders issued by
officers of Shangri-la forbidding her from receiving cash payments and
several purchase orders for medicines and supplies which were
In finding petitioners to be regular employees of Shangri-la, the Arbiter coursed thru Shangri-la’s Purchasing Manager, circumstances
noted that they usually perform work which is necessary and desirable indubitably showing that she is not an independent contractor but a
to Shangri-la’s business; that they observe clinic hours and render mere agent of Shangri-la.
services only to Shangri-la’s guests and employees; that payment for
their salaries were recommended to Shangri-la’s Human Resource
Department (HRD); that respondent doctor was Shangri-la’s "in-house" In its Comment,7 Shangri-la questions the Special Powers of Attorneys
physician, hence, also an employee; and that the MOA between (SPAs) appended to the petition for being inadequate. On the merits, it
Shangri-la and respondent doctor was an "insidious mechanism in prays for the disallowance of the petition, contending that it raises
order to circumvent [the doctor’s] tenurial security and that of the factual issues, such as the validity of the MOA, which were never raised
employees under her." during the proceedings before the Arbiter, albeit passed upon by him
in his Decision; that Article 157 of the Labor Code does not make it
mandatory for a covered establishment to employ health personnel;
Shangri-la and respondent doctor appealed to the NLRC. Petitioners that the services of nurses is not germane nor indispensable to its
appealed too, but only with respect to the non-award to them of some operations; and that respondent doctor is a legitimate individual
of the benefits they were claiming. independent contractor who has the power to hire, fire and supervise
the work of the nurses under her.

By Decision4 dated March 31, 2005, the NLRC granted Shangri-la’s and
respondent doctor’s appeal and dismissed petitioners’ complaint for The resolution of the case hinges, in the main, on the correct
lack of merit, it finding that no employer-employee relationship exists interpretation of Art. 157 vis a vis Art. 280 and the provisions on
between petitioner and Shangri-la. In so deciding, the NLRC held that permissible job contracting of the Labor Code, as amended.
the Arbiter erred in interpreting Article 157 in relation to Article 280 of
the Labor Code, as what is required under Article 157 is that the
employer should provide the services of medical personnel to its The Court holds that, contrary to petitioners’ postulation, Art. 157
employees, but nowhere in said article is a provision that nurses are does not require the engagement of full-time nurses as regular
required to be employed; that contrary to the finding of the Arbiter, employees of a company employing not less than 50 workers.
even if Article 280 states that if a worker performs work usually Thus, the Article provides:
necessary or desirable in the business of the employer, he cannot be
automatically deemed a regular employee; and that the MOA amply ART. 157. Emergency medical and dental services. – It shall be the
shows that respondent doctor was in fact engaged by Shangri-la on a duty of every employer to furnish his employees in any locality with
free medical and dental attendance and facilities consisting of:
DO 18-02 Cases 17

(a) The services of a full-time registered nurse when the (1) The contractor carries on an independent business and
number of employees exceeds fifty (50) but not more than undertakes the contract work on his own account under his
two hundred (200) except when the employer does not own responsibility according to his own manner and method,
maintain hazardous workplaces, in which case the services free from the control and direction of his employer or
of a graduate first-aider shall be provided for the protection principal in all matters connected with the performance of
of the workers, where no registered nurse is available. The the work except as to the results thereof; and
Secretary of Labor shall provide by appropriate regulations
the services that shall be required where the number of
employees does not exceed fifty (50) and shall determine by (2) The contractor has substantial capital or investment in
appropriate order hazardous workplaces for purposes of this the form of tools, equipment, machineries, work premises,
Article; and other materials which are necessary in the conduct of
his business.

(b) The services of a full-time registered nurse, a part-time


physician and dentist, and an emergency clinic, when the Sec. 9. Labor-only contracting. – (a) Any person who undertakes to
number of employees exceeds two hundred (200) but not supply workers to an employer shall be deemed to be engaged in
more than three hundred (300); and labor-only contracting where such person:

(c) The services of a full-time physician, dentist and full-time (1) Does not have substantial capital or investment in
registered nurse as well as a dental clinic, and an infirmary the form of tools, equipment, machineries, work
or emergency hospital with one bed capacity for every one premises and other materials; and
hundred (100) employees when the number of employees
exceeds three hundred (300).
(2) The workers recruited and placed by such persons
are performing activities which are directly related to
In cases of hazardous workplaces, no employer shall engage the the principal business or operations of the employer
services of a physician or dentist who cannot stay in the premises of in which workers are habitually employed.
the establishment for at least two (2) hours, in the case of those
engaged on part-time basis, and not less than eight (8) hours in the
(b) Labor-only contracting as defined herein is hereby
case of those employed on full-time basis. Where the undertaking is prohibited and the person acting as contractor shall be
nonhazardous in nature, the physician and dentist may be engaged on
considered merely as an agent or intermediary of the
retained basis, subject to such regulations as the Secretary of Labor employer who shall be responsible to the workers in the
may prescribe to insure immediate availability of medical and dental
same manner and extent as if the latter were directly
treatment and attendance in case of emergency. (Emphasis and employed by him.
underscoring supplied)

(c) For cases not falling under this Article, the Secretary of
Under the foregoing provision, Shangri-la, which employs more than Labor shall determine through appropriate orders whether or
200 workers, is mandated to "furnish" its employees with the services
not the contracting out of labor is permissible in the light of
of a full-time registered nurse, a part-time physician and dentist, and the circumstances of each case and after considering the
an emergency clinic which means that it should provide or make
operating needs of the employer and the rights of the
available such medical and allied services to its employees, not workers involved. In such case, he may prescribe conditions
necessarily to hire or employ a service provider. As held in Philippine
and restrictions to insure the protection and welfare of the
Global Communications vs. De Vera:8 workers. (Emphasis supplied)

x x x while it is true that the provision requires employers to engage


The existence of an independent and permissible contractor
the services of medical practitioners in certain establishments relationship is generally established by considering the following
depending on the number of their employees, nothing is there in the
determinants: whether the contractor is carrying on an independent
law which says that medical practitioners so engaged be actually hired business; the nature and extent of the work; the skill required; the
as employees, adding that the law, as written, only requires the
term and duration of the relationship; the right to assign the
employer "to retain", not employ, a part-time physician who needed to performance of a specified piece of work; the control and supervision
stay in the premises of the non-hazardous workplace for two (2) hours.
of the work to another; the employer's power with respect to the
(Emphasis and underscoring supplied) hiring, firing and payment of the contractor's workers; the control of
the premises; the duty to supply the premises, tools, appliances,
The term "full-time" in Art. 157 cannot be construed as referring to the materials and labor; and the mode, manner and terms of payment.11
type of employment of the person engaged to provide the services, for
Article 157 must not be read alongside Art. 2809 in order to vest
On the other hand, existence of an employer- employee relationship is
employer-employee relationship on the employer and the person so established by the presence of the following determinants: (1) the
engaged. So De Vera teaches:
selection and engagement of the workers; (2) power of dismissal; (3)
the payment of wages by whatever means; and (4) the power to
x x x For, we take it that any agreement may provide that one party control the worker's conduct, with the latter assuming primacy in the
shall render services for and in behalf of another, no matter how overall consideration.12
necessary for the latter’s business, even without being hired as an
employee. This set-up is precisely true in the case of an independent
Against the above-listed determinants, the Court holds that respondent
contractorship as well as in an agency agreement. Indeed, Article 280 doctor is a legitimate independent contractor. That Shangri-la provides
of the Labor Code, quoted by the appellate court, is not the yardstick
the clinic premises and medical supplies for use of its employees and
for determining the existence of an employment relationship. As it is, guests does not necessarily prove that respondent doctor lacks
the provision merely distinguishes between two (2) kinds of
substantial capital and investment. Besides, the maintenance of a
employees, i.e., regular and casual. x x x10 (Emphasis and underscoring clinic and provision of medical services to its employees is required
supplied)
under Art. 157, which are not directly related to Shangri-la’s principal
business – operation of hotels and restaurants.
The phrase "services of a full-time registered nurse" should thus be
taken to refer to the kind of services that the nurse will render in the
As to payment of wages, respondent doctor is the one who underwrites
company’s premises and to its employees, not the manner of his the following: salaries, SSS contributions and other benefits of the
engagement.
staff13; group life, group personal accident insurance and life/death
insurance14 for the staff with minimum benefit payable at 12 times the
As to whether respondent doctor can be considered a legitimate employee’s last drawn salary, as well as value added taxes and
independent contractor, the pertinent sections of DOLE Department withholding taxes, sourced from her P60,000.00 monthly retainer fee
Order No. 10, series of 1997, illuminate: and 70% share of the service charges from Shangri-la’s guests who
avail of the clinic services. It is unlikely that respondent doctor would
report petitioners as workers; pay their SSS premium as well as their
Sec. 8. Job contracting. – There is job contracting permissible under the wages if they were not indeed her employees.15
Code if the following conditions are met:
DO 18-02 Cases 18

With respect to the supervision and control of the nurses and clinic Appeals in CA-G.R. SP No. 72267 dated October 17, 20021 , and July 3,
staff, it is not disputed that a document, "Clinic Policies and Employee 20032 which dismissed the petition for certiorari and denied
Manual"16 claimed to have been prepared by respondent doctor exists, petitioner’s motion for reconsideration respectively.
to which petitioners gave their conformity17 and in which they
acknowledged their co-terminus employment status. It is thus
presumed that said document, and not the employee manual being Petitioner Iligan Cement Corporation, is a corporation duly organized
followed by Shangri-la’s regular workers, governs how they perform and existing under the laws of the Philippines with plant offices at
their respective tasks and responsibilities. Kiwalan, Iligan City.

Contrary to petitioners’ contention, the various office directives issued Iligan Industrial and Agency Services Corporation (ILIASCOR), is the
by Shangri-la’s officers do not imply that it is Shangri-la’s management accredited job contractor of petitioner which provided stevedoring and
and not respondent doctor who exercises control over them or that arrastre services to the latter since its operations in the 1970s at its
Shangri-la has control over how the doctor and the nurses perform private pier in Kiwalan, Iligan City.
their work. The letter18 addressed to respondent doctor dated February
7, 2003 from a certain Tata L. Reyes giving instructions regarding the
Respondent ILIASCOR Employees and Workers Union- Southern
replenishment of emergency kits is, at most, administrative in nature, Philippines Federation of Labor (IEWU-SPFL) is the certified bargaining
related as it is to safety matters; while the letter19 dated May 17, 2004
representative of ILIASCOR’s arrastre and stevedoring workers,
from Shangri-la’s Assistant Financial Controller, Lotlot Dagat, including herein individual respondents, from August 1, 1995 to August
forbidding the clinic from receiving cash payments from the resort’s
1, 2000.3
guests is a matter of financial policy in order to ensure proper sharing
of the proceeds, considering that Shangri-la and respondent doctor
share in the guests’ payments for medical services rendered. In fine, Vedali General Services (Vedali) is an accredited service agency which
as Shangri-la does not control how the work should be performed by provided general services to petitioner’s various departments.
petitioners, it is not petitioners’ employer.

On November 11, 1999, Blue Circle Philippines, Inc. took over the
WHEREFORE, the petition is hereby DENIED. The Decision of the Court management of petitioner’s business,4 and decided to bid5 out the
of Appeals dated May 22, 2007 and the Resolution dated July 10, 2007 services at petitioner’s private pier. Before the actual bidding,
are AFFIRMED. respondent requested that the employment of ILIASCOR’s workers be
continued.6 In a letter dated November 26, 1999, Peter Brinkley,
petitioner’s Vice-President for Operations denied respondent’s request
SO ORDERED. as the contract with ILIASCOR had already expired.7

ILIASCOR lost the bidding to Luzon Visayas Mindanao Arrastre and


Stevedoring, Inc. (LVMASI). Consequently, ILIASCOR paid the individual
respondents their separation pay of half-month (1/2) pay for every year
of service8 , contrary to the stipulation in the Collective Bargaining
Agreement (CBA), which is one-month pay for every year of service.9

The contract between petitioner and LVMASI was not perfected when it
G.R. No. 158956 April 24, 2009 was discovered that LVMASI was a dormant corporation which was
neither a stevedoring company nor possessed with sufficient capital to
engage in the stevedoring and arrastre works.10
ILIGAN CEMENT CORPORATION Petitioner,
vs.
ILIASCOR EMPLOYEES AND WORKERS UNION - SOUTHERN To ensure that its operations would not be hampered, petitioner issued
PHILIPPINES FEDERATION OF LABOR (IEWU-SPFL), AND ITS a service order to Vedali.11 On August 2, 2000 Vedali fielded
OFFICERS AND MEMBERS, HEADED BY CLEMENTINO DENSING, stevedores, including herein respondents. Petitioner’s Packhouse
PRESIDENT, ANTONIO ACASO, FIDEL BADILLO, JR., BONIFACIO Manager Alex Sagario readily engaged stevedores.12 On October 12,
BANSAG, FELIPE BARDILAS, ALFREDO BERNALDEZ, ROMEO 2000, Vedali issued Charge Invoice No. 0275 to petitioner in the
CARANYAGAN, MIGUEL CLAUDEL, VENERANDO DEL MONTE, amount of 534,404.93 for the stevedores assigned at Packhouse from
ROMY DUMA-OG, JAIME DUMA-OG, EUSTIQUIO EBABIOSA, September 16-30, 200013
PEDRO EBABIOSA, VIRGINITO EBABIOSA, DOLIO EPAT, VIRGILIO
FABRICANTE, ANACLETO JUNTILLA, JR., ROBERTO MILIJON,
On October 23, 2000, individual respondents filed a complaint14 with
PACIFICO NACA, EDGARDO PACULBA, DAMACINO PANCHO,
the National Labor Relations Commission (NLRC) Sub-Regional
RODULFO QUARTEROS, EDGARDO RICO, GIL SECULA, SILVANO
Arbitration Branch XII against petitioner. Pursuant to Article 109 of the
VEGA, EMEGDIO AMISTOSO, RODOLFO BABATIDO, CRISOLOGO
Labor Code respondents demanded for the declaration of their status
BAGOY, PRUDENCIO BALABA, JR., ROMEO BALLANCA,
as regular employees and for the payment of the half of their
PERFECTO BOHOL, JASUS BUGTAY, FRANCISCO CABALLA,
separation pay which ILIASCOR previously withheld.
ROMULO CABALUNA, ROLANDO CAGULA, RONALD CASTRO,
DOMINADOR CATIAN, LUCRESIO CUNADO, PABLO DAYDAY,
BERNABE DELA PENA, DISOCORO DIOSMANOS, SIXTO DUMAOG, On October 25, 2000, Vedali sent a Bill/ Demand Letter15 to petitioner,
ANASTACIO FLORIN, JOSELITO FULLIDO, LEONARDO GALLETO, demanding payment in the amount of P533, 666.11 for the services of
APOLINARIO GUINITA, EMELIANO GUINITA, FELIX HERMOSO, its stevedores assigned at Packhouse from October 1-15, 2000.
RODOLFO HERMOSO, DOMINGO JAGONAL, AVELINO JORZA,
ANTONIO JURADO, ISIDRO LAHOY-LAHOY, JR., SALVADOR
LAURE, JIMMY MALIKSI, DEMOCRTO MAGHINAY, MANUELITO On November 15, 2000, petitioner entered into a stevedoring and
MAGSAYO, EDUARDO MALONHAO, JUANITO MANGGAS, arrastre contract with Northern Mindanao Industrial and Port Services
LUCIANO MANGGAS, DIONESIO MANTALABA, FERNANDO Corporation (NMIPSC). Thereafter, NMIPSC took over the stevedoring
MARIQUIT, JOSE MATA, NELSON MIANO, PERDO MIANO, JR., duties of individual respondents.16
ALFREDO MICABALO, ELISAR MONTEJO, FELIX NAMOC,
EDMUNDO NOTORIO, LUIS OGUIMAS, SILVINO OLANDAG,
NARCISO OLLOVES, MARIO OLPOC, SANTIAGO MONDANG, RAUL Hence, on December 14, 2000, individual respondents filed a
PANILAGAO, JOLLY PESARAS, ANTONIO RAGANAS, DIOSCORO Supplemental Complaint17 with the NLRC Sub-Regional Arbitration
RICO, FELIPE RICO, CASEMERO RASARIO, ISIDRO RUBIO, Branch XII for violation of Article 246 of the Labor Code, illegal
BUENAVENTURA RUIZ, IRENIO SABINAY, JR., GILBERT SAYSON, dismissal, with prayer for preliminary injunction, damages and
ELESIO SANTINIAMAN, NIEVES SECULA, BALBINO SILLE, attorney’s fees.
NORBERTO SUMILE, REMEGIO TAMPUS, WILFREDO TANUDRA,
ANTONIO TEJANO, PABLITO TOLEDO, JOHNAN OVALO, ET AL., On March 30, 2001, Labor Arbiter Guardson A. Siao rendered a
Respondents. Decision18 dismissing the complaint for lack of merit, thus:

LEONARDO-DE CASTRO, J.: x x x, this office believes that respondent ICC is not liable to pay the
unpaid portion of complainant’s separation pay representing
Before us is a petition for review on certiorari under Rule 45 of the differentials since respondent is not the employer of the former.
1997 Rules of Court assailing the twin Resolutions of the Court of Besides, in the case of PCI Automation Center, Inc. v. NLRC, G.R. No.
DO 18-02 Cases 19

145920, 29 January 1996, citing Phil. Bank of Commerce v. NLRC, 146 nor notice other than the actual take-over by another corporation of
SCRA 347 (1986), the Hon. Supreme Court opines, viz: their jobs, the dismissal of complainants is clearly illegal.

Other than the payment of wages, the principal employer is not This being the case, complainants are entitled to the reliefs of
responsible for any claim made by the employee. reinstatement with full backwages pursuant to Art. 279 of the Labor
Code. However, the reinstatement of complainants to their previous
positions is rendered impossible by the takeover of NMIPSC manpower.
As can be gleaned from the above-discussion, herein respondent ICC is Thus, in lieu of thereof, the payment of separation pay proportionate to
merely the principal in the contract with ILIASCOR, an independent their length of service with respondent ICC is warranted.
contractor, the employer of individual complainants.

Going to their claim for separation pay differential, the submission of


xxx complainants that respondent ICC should be held liable therefore is
Another point worth discussing is that, the separation pay is based on misplaced. Respondent ICC, as indirect employer of complainants, may
the collective bargaining agreement entered into between the only be held liable, "(I)n the event that the contractor or subcontractor
individual complainants and the complaining union, ILIASCOR IEWU- fails to pay the wages of his employees in accordance with this Code"
SPFL. Respondent ICC is not a privy to that CBA, thus the former (Art. 106 Labor Code). Wage and salary, as differentiated from
cannot be held liable or be demanded upon to pay the same to the separation pay, refer to one and the same meaning, that is, a reward
complainants. or recompense for services performed. Meanwhile, separation pay is
xxx that what is paid by the employer to an employee on account of the
WHEREFORE, premises considered, the instant case is hereby ordered severance of their employment relations for any of the causes
DISMISSED for lack of merit. authorized by law.

All other issues not discussed above and inconsistent with the above Thus, as this case involved the severance of the employment of
discussions are likewise ordered dismissed for lack of merit. complainants, only their undisputed employer, ILIASCOR, may be held
answerable for the benefit sought. More so that the differential being
asked is essentially a contractual obligation of ILIASCOR arising out of
SO ORDERED.
a specific stipulation in the collective bargaining agreement between
them. Correspondingly, since respondent ICC was not privy to the CBA,
On appeal, the National Labor Relations Commission (NLRC), Fifth it has no responsibility to comply therewith.
Division, issued a Resolution19 dated April 19, 2002, reversing the
Decision of the Labor Arbiter and declaring, among others, that
The claim of complainants for damage is likewise dismissed for lack of
respondents are regular employees of petitioner, thus:
merit, but they are awarded attorney’s fees equivalent to 10% of the
total money award as they were compelled to litigate this case for
The contention of complainants that they were directly employed with reliefs.
respondent ICC during the period August 2 to November 15, 2000,
stressing that they were in fact hired by its Packhouse Manager, Alex
WHEREFORE, premises considered, the decision on appeal is hereby
Sagario, is found credible. Not only has respondent failed to deny
VACATED and a new one entered:
having the said Alex Sagario under its ranks, it has not given us any
plausible reason why complainants would wrongfully drag the name of
Sagario in this case. Complainants could not be faulted for failing to 1. Declaring complainants regular employees of respondent
adduce evidence about their hiring by respondent. The workers’ ICC for the period August 2, 2000 to November 15, 2000;
employment papers, their payrolls and other vouchers are naturally in 2. Declaring their dismissal from employment illegal; and
the possession of the employers given the mandate of the law for them 3. Awarding complainants full backwages, separation pay
to keep the same. Thus, having claimed that complainants were and attorney’s fees in the amounts to be computed by the
otherwise employed with Vedali General Services, respondent ICC is branch of origin.
burdened to produce the employment papers of the former with the SO ORDERED.20
latter, but none is offered so far.

Petitioner elevated the case to the Court of Appeals (CA) through a


Besides, we note that respondent has avowed Vedali was a legitimate petition for certiorari21 under Rule 65.
contractor which it could and in fact contracted with to provide
stevedoring services, though it was only on temporary basis. However,
the status of Vedali has been challenged by complainants declaring On October 17, 2002, the CA issued the assailed Resolution22
that it was actually a labor-only contractor. With "labor-only" dismissing the petition, thus:
contracting being strictly prohibited in this jurisdiction, necessity
dictates for respondent to confront the charge and lay bare the records
of Vedali for our scrutiny. This, it should do. After all, we have already The Court resolves to DISMISS the petition based on the following legal
been aptly convinced by complainants on the matter of respondent infirmities:
having earlier contracted the services of an unqualified contractor,
Luzon Visayas Mindanao Arrastre and Stevedoring, Inc. The 1. The verification and certification of non-forum-shopping
documentary evidence (Vol. I pp. 35-40) submitted by complainants
was signed by Renato C. Sunico, however, petitioner failed to
clearly suggest that LVMASI was incorporated for the primary purpose attach a copy of the board resolution authorizing him to sign
of engaging, operating, conducting and maintaining the business of
the same in behalf of the corporation as required in Digital
manufacturing, exporting, importing, buying or selling white cement, Microwave Corp. v. Court of Appeals (328 SCRA 286 [2001]);
its by-products and other cement products, despite its corporate name;
and
that it only had a paid-up capital of only Php 625,000.00 while the
arrastre and stevedoring works up for bidding required the use of two
(2) cranes and eight (8) forklifts; and, that, amazingly it was not 2. Petitioner failed to explain why service was done through
engaged in any singular business as of October, 1999. Truly, the mail as required by Section 3, Rule 13 of the 1997 Rules of
replacement of LVMASI with Vedali validated complainants’ submission Civil Procedure.
in this regard.

SO ORDERED.
For us to gloss over the aforecited matters will be tantamount to our
abandonment of the constitutional mandate affording protection to
labor. Petitioner’s subsequent Motion for Reconsideration was denied in the
other assailed Resolution23 dated July 3, 2003:

Hired by respondent’s representative and working at its premises as


stevedores and piers, services which were undoubtedly necessary in its The Court has gone over the said Motion for Reconsideration and the
business, complainants are thereby declared regular employees of grounds raised therein but finds no cogent reason to reverse the
respondent ICC during the period claimed. That, by the take-over of aforesaid Resolution particularly because the SPA granted to Renato C.
their jobs by the workforce of the Northern Mindanao Industrial and Sunico on August 9, 2002 (See: Secretary’s Certificate, Records, p.
Port Services Corporation (NMIPSC) on November 15, 2000, 317) referred to a case filed before the NLRC.
complainants were evidently dismissed as a result. Bereft of any cause
DO 18-02 Cases 20

Hence, the present petition seeking resolution as to whether the CA We now go to the merits of the case by re-examining the contradicting
erred in denying the petition based merely on procedural infirmities. findings of the Labor Arbiter and the NLRC in order to resolve the
following substantial issues: (1) whether petitioner is the employer of
individual respondents, and; (2) whether individual respondents were
We note that petitioner subsequently made up for its earlier lapse illegally dismissed.
when it submitted a Secretary’s Certificate24 attesting that on August
9, 2002, the Board of Directors of the Corporation authorized Mr.
Sunico "to sign the verification and/or certification of non-forum Petitioner maintains that it never employed the individual respondents
shopping of pleadings that may be filed by the corporation in the and that it contracted Vedali to render services at its pier as a stop-gap
above mentioned case and in subsequent proceedings." While the measure so as not to hamper its activities while it was negotiating with
authorization was submitted to the CA only after the issuance of the another contractor. Petitioner claims that the elements of employer-
Resolution dismissing the petition, in view of the peculiar employee relationship were not present as it did not hire, fire, pay nor
circumstances of the case and in the interest of substantial justice, the exercise control over the work of individual respondents. Petitioner
initial procedural lapse may be excused.25 It is well settled that the further argues that the allegation that it was petitioner’s Packhouse
application of technical rules of procedure may be relaxed in labor Manager Alex Sagario who hired individual respondents should not be
cases to serve the demand of substantial justice.26 given credence for lack of evidence.

The CA’s second ground for dismissal of the petition, that petitioner Individual respondents, on the other hand, counter that there is no
failed to explain why service was done through mail, was not passed proof that petitioner and Vedali entered into a service contract to
upon by the CA in its second Resolution.27 The CA must have found the provide stevedoring services at petitioner’s pier from August 2, 2000 to
explanation of petitioner in its motion for reconsideration acceptable. November 15, 2000. In the absence of such contract, Vedali was
Counsel for petitioner admitted that the non-inclusion of an merely utilized by petitioner as a purported contractor. With regard to
explanation on non-personal service was due to an oversight, but he their hiring by Alex Sagario, individual respondents contend that they
explained that personal service was not feasible considering the cannot be faulted for failing to adduce evidence. Their employment
geographical distance between counsel’s office in Makati City and the papers, payrolls and other vouchers are naturally in the possession of
address of the other parties in Iligan City. He added that there was petitioner. Thus, petitioner is burdened to produce the same. Since
never any intention not to comply with the rules as shown by his petitioner offered nothing to prove their contrary claim, the NLRC
subsequent compliance with all the other technical requirements.28 The Decision should be upheld.
Court also finds this explanation satisfactory.

We rule for the individual respondents.


Moreover, petitioner’s argument that the failure to file an explanation
on non-personal service of the petition should not automatically result
to the outright dismissal of the petition, is meritorious. Section 11, Rule In determining the true status of Vedali viz-a-viz the petitioner, it is
13 reads: important to ascertain first whether Vedali is a labor-only contractor or
an independent contractor.

Section 11. Priorities in modes of service and filing. Whenever


practicable, the service and filing of pleadings and other papers shall Labor-only contracting,31 which is prohibited, is an arrangement
be done personally. Except with respect to papers emanating from the where the contractor or subcontractor merely recruits, supplies or
court, a resort to other modes must be accompanied by a written places workers to perform a job, work or service for a principal. In
explanation why the service or filing was not done personally. A labor-only contracting, the following elements are present:
violation of this Rule may be cause to consider the paper as not filed.
(emphasis ours) (a) The contractor or subcontractor does not have
substantial capital or investment to actually perform the job,
The use of "may," in the above quoted section signifies permissiveness work or service under its own account and responsibility; and
and gives the court discretion whether or not to consider a pleading as
not filed. While it is true that procedural rules are necessary to secure
(b) The employees recruited, supplied or placed by such
an orderly and speedy administration of justice, in this case, the rigid contractor or subcontractor are performing activities which
application of Section 11, Rule 13 may be relaxed in the interest of
are directly related to the main business of the principal.
substantial justice.29

On the other hand, permissible job contracting or


The procedural lapses having been cured, the CA should have
subcontracting32 refers to an arrangement whereby a principal
reconsidered its Resolution dated October 17, 2002 and Order dated agrees to put out or farm out with a contractor or subcontractor the
July 3, 2003 and gave due course to the petition for certiorari.
performance or completion of a specific job, work or service within a
definite or predetermined period, regardless of whether such job, work
Pertinently, Section 9 of Batas Pambansa 129 (B.P. 129), known as the or service is to be performed or completed within or outside the
Judiciary Reorganization Act provides: premises of the principal. A person is considered engaged in legitimate
job contracting or subcontracting if the following conditions concur:

SEC. 9. Jurisdiction.- The Court of Appeals shall exercise:


(a) The contractor or subcontractor carries on a distinct and
independent business and undertakes to perform the job,
(1) Original jurisdiction to issue writs of mandamus, prohibition, work or service on its own account and under its own
certiorari, habeas corpus, and quo warranto, and auxiliary writs or responsibility according to its own manner and method, and
processes, whether or not in aid of its appellate jurisdiction; 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;
xxx
The Court of Appeals shall have the power to try cases and conduct
hearings, receive evidence and perform any and all acts necessary to (b) The contractor or subcontractor has substantial capital or
resolve factual issues raised in cases falling within its original and investment; and
appellate jurisdiction, including the power to grant and conduct new
trials or further proceedings. Trials or hearings in the Court of Appeals
must be continuous and must be completed within three (3) months, (c) The agreement between the principal and contractor or
unless extend[ed] by the Chief Justice. subcontractor assures the contractual employees
entitlement to all labor and occupational safety and health
standards, free exercise of the right to self-organization,
Clearly, the CA can resolve factual issues in special civil actions for security of tenure, and social and welfare benefits.33
certiorari from decisions and resolutions of the NLRC. However, the
remand of the case to the CA would only result in further delay.
Pursuant to established precedents, we deem it expedient in the Taking into account the above mentioned elements and the facts
interest of speedy justice, to rule on the merits of petitioner’s claims obtaining in the present case, we are not convinced that Vedali is an
based on the records of the case including the pleadings and the independent contractor. Petitioner failed to present any service
evidence submitted by the parties.30 contract with Vedali in the proceedings with the Labor Arbiter. There is
nothing on record that Vedali has a substantial capital or investment to
actually perform the service under its own account and responsibility.
DO 18-02 Cases 21

Petitioner only attached to its petition with the CA Vedali’s Certificate COURT OF APPEALS, Fifteenth Division and PHESCO
of Registration and Business permit, which merely pertain to the INCORPORATED, respondents.
registration of Vedali with the SEC as engaged in Construction and
General Services.34 The Charge Invoices, billing statements and
certificate of payment and inspection,35 instead of strengthening ROMERO, J.:
petitioner’s argument, weakened its defense and bolstered the claims
of individual respondents. The Charge Invoices, billing statements and On July 22, 1979, a convoy of four (4) dump trucks owned by the
certificates of payments only show that the wages of individual
National Power Corporation (NPC) left Marawi city bound for Iligan city.
respondents were paid by petitioner. Unfortunately, enroute to its destination, one of the trucks with plate
no RFT-9-6-673 driven by a certain Gavino Ilumba figured in a head-on-
The evidence not having adequately shown that Vedali is an collision with a Toyota Tamaraw. The incident resulted in the death of
independent contractor, can it be considered as a labor-only three (3) persons riding in the Toyota Tamaraw, as well as physical
contractor? We answer in the affirmative. Petitioner is a mere labor- injuries to seventeen other passengers.
only contractor because it only supplied workers to petitioner to work
at its pier.
On June 10, 1980, the heirs of the victims filed a complaint for
damages against National Power Corporation (NPC) and PHESCO
In a labor-only contract, there are three parties involved: (1) the "labor- Incorporated (PHESCO) before the then Court of First Instance of Lanao
only" contractor; (2) the employee who is ostensibly under the employ del Norte, Marawi City. When defendant PHESCO filed its answer to the
of the "labor-only" contractor; and (3) the principal who is deemed the complaint it contended that it was not the owner of the dump truck
real employer. Under this scheme, the "labor-only" contractor is the which collided with the Toyota Tamaraw but NPC. Moreover, it asserted
agent of the principal. Here, Vedali is the "labor-only" contractor; that it was merely a contractor of NPC with the main duty of supplying
individual respondents are the employees and petitioner is the workers and technicians for the latter's projects. On the other hand,
principal. The law makes the principal responsible to the employees of NPC denied any liability and countered that the driver of the dump
the "labor-only contractor" as if the principal itself directly hired or truck was the employee of PHESCO.
employed the employees.36
After trial on the merits, the trial court rendered a decision dated July
Taking into consideration the factual milieu of this case, the Court 25, 1988 absolving NPC of any liability. The dispositive portion reads:
agrees with the conclusion of the NLRC that petitioner and not Vedali,
is the employer of individual respondents and the latter are employees
Consequently, in view of the foregoing consideration,
of petitioner. Individual respondent’s work as stock-pilers, arrastre and judgment is hereby rendered ordering PHESCO, Inc. and
stevedores were undoubtedly directly related to and in pursuit of the
Gavino Ilumba upon receipt hereof:
cement manufacturing and sales business of petitioner. Petitioner’s
packing plant operations would have been hampered were it not for
the work rendered by individual respondents.1awphi1.zw+ 1. To pay jointly and severally the plaintiffs thru the
Dansalan College the sum of P954,154.55 representing the
actual or compensatory damages incurred by the plaintiffs;
Having determined the real employer of respondents, we now proceed
and
to ascertain the legality of their dismissal from employment.

2. To pay the sum of P50,000.00 representing Attorney's


Under the Labor Code, as amended, the requirements for the lawful
fees.
dismissal of an employee are two-fold, the substantive and the
procedural.37 Not only must the dismissal be for a valid or authorized
cause,38 the rudimentary requirements of due process - notice and SO ORDERED.
hearing – must, likewise, be observed before an employee may be
dismissed.39 One does not suffice; without their concurrence, the
termination would, in the eyes of the law, be illegal.40 Dissatisfied, PHESCO appealed to the Court of Appeals, which on
November 10, 1994 reversed the trial court's judgment. We quote the
pertinent portion of the decision:
As the employer, petitioner 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. Petitioner failed to A "labor only" contractor is considered merely as an agent of
discharge this burden. Indeed, it failed to show any valid or authorized the employer (Deferia vs. National Labor Relations
cause under the Labor Code which allowed it to terminate the services Commission, 194 SCRA 525). A finding that a contractor is a
of individual respondents. Neither did petitioner show that individual "labor only" contractor is equivalent to a finding that there is
respondents were given ample opportunity to contest the legality of an employer-employee relationship between the owner of
their dismissal. No notice of such impending termination was ever the project and the employees of the "labor only" contractor
given to them. Individual respondents were definitely denied due (Industrial Timer Corporation vs. National Labor Relations
process. Having failed to establish compliance with the requirements Commission, 202 SCRA 465). So, even if Phesco hired driver
on termination of employment under the Labor Code, the dismissal of Gavino Ilumba, as Phesco is admittedly a "labor only"
individual respondents was tainted with illegality. contractor of Napocor the statute itself establishes an
employer-employee relationship between the employer
(Napocor) and the employee (driver Ilumba) of the labor only
Even if the assailed resolutions of the CA were set aside, the petition contractor (Phesco). (Ecal vs. National Labor Relations
must still fail considering that we find no reversible error was Commission, 195 SCRA 224).
committed by the NLRC in rendering its April 19, 2002 Resolution.

Consequently, we hold Phesco not liable for the tort of driver


WHEREFORE, the petition is hereby DENIED. The Resolution of the Gavino Ilumba, as there was no employment relationship
National Labor Relations Commission dated April 19, 2002 is between Phesco and driver Gavino Ilumba. Under Article
AFFIRMED. 2180 of the Civil Code, to hold the employer liable for torts
committed by his employees within the scope of their
assigned task, there must exist an employer-employee
Costs against petitioner. SO ORDERED. relationship. (Martin vs. Court of Appeals, 205 SCRA 591).

WHEREFORE, we REVERSE the appealed decision. In lieu


thereof, the Court renders judgment sentencing defendant
National Power Corporation to pay plaintiffs the sum of
P174,889.20 plus P20,000.00 as attorney's fees and costs.

G.R. No. 119121 August 14, 1998


SO ORDERED.

NATIONAL POWER CORPORATION, petitioner,


Chagrined by the sudden turnaround, NPC filed a motion for
vs.
reconsideration of said decision which was, however, denied on
February 9, 1995. 1 Hence, this petition.
DO 18-02 Cases 22

The principal query to be resolved is, as between NPC and PHESCO, (b) Labor only contracting as defined herein is hereby
who is the employer of Ilumba, driver of the dumptruck which figured prohibited and the person acting as contractor shall be
in the accident and which should, therefore, would be liable for considered merely as an agent or intermediary of the
damages to the victims. Specifically, NPC assigns the sole error that: employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly
employed by him.
THE COURT OF APPEALS DECISION FINDING THAT
PETITIONER NPC AS THE EMPLOYER OF THE DRIVER GAVINO
ILUMBA, AND CONSEQUENTLY SENTENCING IT TO PAY THE In other words, NPC posits the theory that its liability is limited only to
ACTUAL AND COMPENSATORY DAMAGES SUSTAINED BY compliance with the substantive labor provisions on working
COMPLAINTS, IS NOT IN ACCORD WITH THE LAW OR WITH conditions, rest periods, and wages and shall not extend to liabilities
THE APPLICABLE RULINGS OF THIS HONORABLE COURT. 2 suffered by third parties, viz.:

As earlier stated, NPC denies that the driver of the dump truck was its Consequently, the responsibilities of the employer
employee. It alleges that it did not have the power of selection and contemplated in a "labor only" contract, should, consistent
dismissal nor the power of control over Ilumba. 3 PHESCO, meanwhile, with the terms expressed in the rule, be restricted "to the
argues that it merely acted as a "recruiter" of the necessary workers workers." The same can not be expanded to cover liabilities
for and in behalf of NPC. 4 for damages to third persons resulting from the employees'
tortious acts under Article 2180 of the Civil Code. 17

Before we decide who is the employer of Ilumba, it is evidently


necessary to ascertain the contractual relationship between NPC and The reliance is misplaced. It bears stressing that the action was
PHESCO. Was the relationship one of employer and job (independent) premised on the recovery of damages as a result of quasi-delict
contractor or one of employer and "labor only" contractor? against both NPC and PHESCO, hence, it is the Civil Code and not the
Labor Code which is the applicable law in resolving this case.

Job (independent) contracting is present if the following conditions are


met: (a) the contractor carries on an independent business and To be sure, the pronouncement of this Court in Filamer Christian
undertakes the contract work on his own account under his own Institute v. IAC, 18 is most instructive:
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 to the result The present case does not deal with a labor dispute on
thereof; and (b) the contractor has substantial capital or investments in conditions of employment between an alleged employee and
the form of tools, equipment, machineries, work premises and other an alleged employer. It invokes a claim brought by one for
materials which are necessary in the conduct of his business. 5 Absent damages for injury caused by the patently negligent acts of
these requisites, what exists is a "labor only" contract under which the a person, against both doer-employee and his employer.
person acting as contractor is considered merely as an agent or Hence, the reliance on the implementing rule on labor to
intermediary of the principal who is responsible to the workers in the disregard the primary liability of an employer under Article
same manner and to the same extent as if they had been directly 2180 of the Civil Code is misplaced. An implementing rule on
employed by him. 6 Taking into consideration the above distinction and labor cannot be used by an employer as a shield to avoid
the provisions of the "Memorandum of Understanding" entered into by liability under the substantive provisions of the Civil Code.
PHESCO and NPC, we are convinced that PHESCO was engaged in
"labor only" contracting.
Corollarily from the above doctrine, the ruling in Cuison v. Norton &
Harrison Co., 19 finds applicability in the instant case, viz.:
It must be noted that under the Memorandum, NPC had mandate to
approve the "critical path network and rate of expenditure to be
It is well to repeat that under the civil law an employer is
undertaken by PHESCO. 7 Likewise, the manning schedule and pay only liable for the negligence of his employees in the
scale of the workers hired by PHESCO were subject to confirmation by
discharge of their respective duties. The defense of
NPC. 8 Then too, it cannot be ignored that if PHESCO enters into any independent contractor would be a valid one in the
sub-contract or lease, again NPC's concurrence is needed. 9 Another
Philippines just as it would be in the United States. Here Ora
consideration is that even in the procurement of tools and equipment was a contractor, but it does not necessarily follow that he
that will be used by PHESCO, NPC's favorable recommendation is still
was an independent contractor. The reason for this
necessary before these tools and equipment can be purchased. 10 distinction is that the employer retained the power of
Notably, it is NPC that will provide the money or funding that will be
directing and controlling the work. The chauffeur and the two
used by PHESCO to undertake the project. 11 Furthermore, it must be persons on the truck were the employees of Ora, the
emphasized that the project being undertaken by PHESCO, i.e.,
contractor, but Ora, the contractor, was an employee of
construction of power energy facilities, is related to NPC's principal Norton & Harrison Co., charged with the duty of directing the
business of power generation. In sum, NPC's control over PHESCO in
loading and transportation of the lumber. And it was the
matters concerning the performance of the latter's work is evident. It is negligence in loading the lumber and the use of minors on
enough that NPC has the right to wield such power to be considered as
the truck which caused the death of the unfortunate boy. On
the employer. 12 the facts and the law, Ora was not an independent
contractor, but was the servant of the defendant, and for his
Under this factual milieu, there is no doubt that PHESCO was engaged negligence defendant was responsible.
in "labor-only" contracting vis-à-vis NPC and as such, it is considered
merely an agent of the latter. In labor-only contracting, an employer-
Given the above considerations, it is apparent that Article 2180 of the
employee relationship between the principal employer and the Civil Code and not the Labor Code will determine the liability of NPC in
employees of the "labor-only" contractor is created. Accordingly, the
a civil suit for damages instituted by an injured person for any
principal employer is responsible to the employees of the "labor-only" negligent act of the employees of the "labor only" contractor. This is
contractor as if such employees had been directly employed by the
consistent with the ruling that a finding that a contractor was a "labor-
principal employer. 13 Since PHESCO is only a "labor-only" contractor, only" contractor is equivalent to a finding that an employer-employee
the workers it supplied to NPC, including the driver of the ill-fated
relationship existed between the owner (principal contractor) and the
truck, should be considered as employees of NPC. 14 After all, it is "labor-only" contractor, including the latter's workers. 20
axiomatic that any person (the principal employer) who enters into an
agreement with a job contractor, either for the performance of a
specified work or for the supply of manpower, assumes responsibility With respect to the liability of NPC as the direct employer, Article 2180
over the employees of the latter. 15 of the Civil Code explicitly provides:

However, NPC maintains that even assuming that a "labor only" Employers shall be liable for the damages caused by their
contract exists between it and PHESCO, its liability will not extend to employees and household helpers acting within the scope of
third persons who are injured due to the tortious acts of the employee their assigned tasks, even though the former are not
of the "labor-only" contractor. 16 Stated otherwise, its liability shall only engaged in any business or industry.
be limited to violations of the Labor Code and not quasi-delicts.

In this regard, NPC's liability is direct, primary and solidary with


To bolster its position, NPC cites Section 9(b), Rule VII, Book III of the PHESCO and the driver. 21 Of course, NPC, if the judgment for damages
Omnibus Rules Implementing the Labor Code which reads:
DO 18-02 Cases 23

is satisfied by it, shall have recourse against PHESCO and the driver On appeal, public respondent National Labor Relations Commission
who committed the negligence which gave rise to the action. 22 (NLRC) affirmed the aforesaid decision of the labor arbiter in a
resolution dated October 2, 1989. 2

Finally, NPC, even if it truly believed that it was not the employer of the
driver, could still have disclaimed any liability had it raised the defense The motion for reconsideration of petitioners was denied in a resolution
of due diligence in the selection or supervision of PHESCO and Ilumba. dated March 12, 1990. 3
23
However, for some reason or another, NPC did not invoke said
defense. Hence, by opting not to present any evidence that it
exercised due diligence in the supervision of the activities of PHESCO In this petition for certiorari, petitioners primarily question the finding
and Ilumba, NPC has foreclosed its right to interpose the same on of the public respondent NLRC that no employer-employee relationship
appeal in conformity with the rule that points of law, theories, issues of existed between them and Hi-Line Timber, Inc. They contend that
facts and arguments not raised in the proceedings below cannot be petitioner Isagani Ecal is not an independent contractor but a mere
ventilated for the first time on appeal. 24 Consequently, its liability employee of Hi-Line Line.
stands.
In response, the Solicitor General points out that the issue of whether
WHEREFORE, in view of the foregoing, the assailed decision of the or not an employer-employee relationship exists between the parties is
Court of Appeals dated November 10, 1994 and its accompanying a question of fact and the findings of the labor arbiter and the NLRC on
resolution dated February 9, 1995 are AFFIRMED without prejudice to this issue are conclusive upon this Court if they are supported by
the right of NPC to demand from PHESCO and Ilumba reimbursement substantial evidence 4 as in this case.
of the damages it would be adjudged to pay to complainants. No costs.
The NLRC ruled —
SO ORDERED.
We have carefully examined and evaluated the basis of the
decision of the Labor Arbiter and to Our mind his factual
G.R. Nos. 92777-78 March 13, 1991
findings are indeed supported by substantial evidence. Thus,
we cite a few of the clear and convincing evidence and
ISAGANI ECAL, CRISOLOGO ECAL, NELSON BUENAOBRA, record which compelled the Labor Arbiter to disregard the
NARDING BANDOGELIO, WILMER ECHAGUE, ROGELIO CASTILLO, claim of the complainants that there was (an) employer-
ALFREDO FERNANDO, OLIGARIO BIGATA, ROBERTO FERRER employee relationship between the contending parties.
AND HONESTO TANAEL, Represented by ISAGANI ECAL, Firstly, the affidavit of respondents' personnel officer,
petitioners, Elizabeth Natividad, dated 22 April 1988, clearly attesting to
vs. the fact that complainants, except Isagani Ecal, who worked
NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), at their plant at Bocaue, Bulacan, from 24 April 1986 up to 4
JIMMY MATCHUKA AND HI-LINE TIMBER, INC., respondents. February 1987 and who tendered his resignation on the
latter date, were not at all employees of respondents;
secondly, the payrolls of the respondents do not indicate
Armando A. San Antonio for petitioners. that said complainants were employees of the respondents;
Chicote Abad & Macaisip Law Offices for private respondents. thirdly, the Sinumpaang Salaysay of Jose Mendoza, the
Secretary-Treasurer of the Hi-Line Workers Union-
GANCAYCO, J.:p Confederation of Free Laborers (CFL), a registered labor
Union under Reg. Cert. No. (FED-425)-6756-11, issued
March, 1987, to the effect that none of the complainants,
Is there an employer-employee relationship between petitioners and except Isagani Ecal, were listed as members of the union
private respondent Hi-Line Timber, Inc. or merely an employer- and/or employees of respondents; and lastly, two (2)
independent contractor relationship between said private respondent Sinumpaang Salaysay dated 22 April 1988 executed by
and petitioner Isagani Ecal with the other petitioners being mere respondents' company guard Honorio T. Battung and
contract workers of Ecal? In the case of the latter, is Ecal engaged in Foreman Clemente S. Sales, respectively, attesting that it
"job" contracting or "labor-only" contracting? What then is the extent was only Isagani Ecal who worked with respondents but
of the liability of private respondent? These are the questions raised in resigned on 4 February 1987 to work as (an) independent
this petition. contractor. 5

This case traces its origin from two consolidated complaints for illegal Petitioners claim that the NLRC based its decision solely on the
dismissal and money claims filed by petitioners Isagani Ecal, Crisologo evidence aforestated and completely ignored the evidence they
Ecal, Nelson Buenaobra, Narding Bandogelio, Wilmer Echague, Rogelio presented thus denying them due process. The Court carefully
Castillo, Alfredo Fernando, Oligario Bigata, Roberto Ferrer and Honesto examined the records of the case and finds that the NLRC limited itself
Tanael against private respondents Hi-Line Timber, Inc. (hereinafter to a superficial evaluation of the relationship of the parties based
referred to as Hi-Line) and Jimmy Matchuka, the company foreman, mainly on the aforestated documents with emphasis on the company
with the Department of Labor and Employment docketed as NLRC case payrolls without regard to the particular circumstances of the case.
No. RAB-03-09-0107-87 and No. RAB III-09-0116-87.

The finding of the NLRC that Isagani Ecal is no longer an employee of


In their complaints/position papers, petitioners alleged, among others, Hi-Line line is amply supported by the evidence on record. His
that they have been employed by Hi-Line as follows: Isagani Ecal, from resignation letter dated February 4, 1987 stating "ako po ay
February, 1986; Crisologo Ecal, Buenaobra, Bandogelio, Fernando, magreresign na sa aking trabaho bilang "laborer" sapagka't nakita ko
Bigata, Ferrer and Tanael, from March 3, 1986; and Castillo and na mas malaki ang kikitain kung mangongontrata na lamang " 6 speaks
Echague, from May 1, 1986; that except for Isagani Ecal, they were all for itself. This was unsuccessfully rebutted by petitioners.
receiving a salary of P 35.00 a day; that they were required to report
for work 7 days a week including rest days, legal holidays, except
Christmas and Good Friday from 7:00 A.M. to 7:00 P.M.; that they were To determine whether there exists an employer-employee relationship,
not given living allowance, overtime pay, premium pay for rest days the four-way test should be applied, namely: (1) selection and
and legal holidays, 13th month pay and service incentive leave pay; engagement of the employee; (2) the payment of wages; (3) the power
and, that on June 6, 1987, they were not allowed to work and instead of dismissal; and (4) the power to control the employee's conduct—the
were informed that their services were no longer needed. last being the most important element. 7 Neither the NLRC nor the
labor arbiter utilized these guides in their disposition of the complaint.
Private respondents, on the other hand, denied the existence of an
employer-employee relationship between the company and the The records show that Hi-Line does not choose the workers but merely
petitioners claiming that the latter are under the employ of an accepts whoever may be selected by petitioner Isagani Ecal.
independent contractor, petitioner Isagani Ecal, an employee of the Petitioners are not included in the payroll. Instead a lump sum of
company until his resignation on February 4, 1987. P1,400.00 is given to Isagani Ecal or his representative Solomon de los
Santos, every four days, to cover their wages for the period which the
petitioners divide among themselves.
After submission of the supplemental position papers and other
evidence by the parties, the labor arbiter rendered his decision dated
June 10, 1988 finding no employer-employee relationship between the Private respondents allege that Isagani Ecal customarily removes some
parties. Thus, he dismissed the two cases for lack of merit. 1 of his laborers at the Hi-Line sawmill and assigns them to other
DO 18-02 Cases 24

sawmills; however, there was no evidence adduced to show that to the workers in the same manner and extent as if the latter
indeed Ecal regularly or even once transferred some of his workers to were directly employed.
other sawmills. Petitioners worked at the company compound at
Wakas, Bocaue, Bulacan, at least eight hours a day, for seven days a
week so that it would be impossible for them to find time to work in Art. 107. Indirect Employer. — The provisions of the
some other sawmill. On June 6, 1987, the company unilaterally immediately preceding Article shall likewise apply to any
terminated the services of petitioners without notice allegedly on the person, partnership, association or corporation which, not
ground that its contract with Isagani Ecal has already expired. being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.

As to the matter of control, it would seem that petitioners were mostly


left on their own to devise the most expeditious way of segregating Under the provisions of Article 106, paragraphs 1 and 2, an employer
lumber materials as to sizes and of loading and unloading the same in who enters into a contract with a contractor for the performance of
the chamber for drying. However, their task is performed within the work for the employer does not thereby establish an employer-
work premises of Hi-Line, specifically at its Kiln Drying Section, so it employee relationship between himself and the employees of the
cannot be said that no amount of control and supervision is exerted contractor. The law itself, however, creates such a relationship when a
upon them by the company through their foremen, private respondent contractor fails to pay the wages of his employees in accordance with
Matchuka and Clemente S. Sales. Moreover, the very nature of the task the Labor Code, and only for this limited purpose, i.e. to ensure that
performed by petitioners requires very limited supervision as there are the latter will be paid the wages due them. 8
only so many ways of segregating lumber according to their sizes and
of loading and unloading them in the dryer so that all that the On the other hand, the legal effect of a finding that a contractor is
company has to do is to check on the results of their work.
merely a "labor only" contractor was explained in Philippine Bank of
Communications vs. National Labor Relations Commission, et al., 9 —
The foregoing observation suggests that there is a certain relationship
existing between the parties although a clear-cut characterization of
. . . The "labor-only" contractor — i.e., "the person or
such relationship — whether it is an employer-employee relationship or intermediary" — is considered "merely as an agent of the
an employer-independent contractor relationship — is unavailing.
employer." The employer is made by the statute responsible
Hence, a closer scrutiny of said relationship is in order. to the employees of the "labor only" contractor as if such
employee had been directly employed by the employer.
Petitioners urge that even assuming arguendo that Isagani Ecal is an Thus, where "labor-only" contracting exists in a given case,
independent contractor, he should be considered only a labor supplier the statute itself implies or establishes an employer-
who is deemed an agent of the company so that petitioners should employee relationship between the employer (the owner of
enjoy the status of being its employees; therefore, Hi-Line should be the project) and the employees of the "labor-only"
held liable for illegally dismissing petitioners and for the non-payment contractor, this time for a comprehensive purpose:
of benefits due them. Private respondents, however, maintain that "employer for purposes of this Code, to prevent any violation
Isagani Ecal is an independent contractor or a job contractor. 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
The Solicitor General adopts the theory that Ecal is an independent effective safeguarding of the employees' rights under the
contractor. However, he faults the labor arbiter for his failure to Labor Code.
determine the benefits due petitioners, an issue raised by the latter, on
the ground that Hi-Line, being an indirect employer, is jointly and
severally liable with Isagani Ecal to the extent of the work performed Sections 8 and 9, Rule VIII, Book III of the Omnibus Rules implementing
by the employees as if they were directly employed by it. He, the Labor Code set forth the distinctions between "job" contracting and
therefore, seeks the remand of the case to the labor arbiter for "labor-only" contracting —
determination of the unpaid benefits of petitioners.
Sec. 8. Job contracting. — There is job contracting
The pertinent provisions of the Labor Code, as amended, are: permissible under the Code if the following conditions are
met:

Art. 106. Contractor or subcontractor. — Whenever an


employer enters into a contract with another person for the (1) The contractor carries on an independent business and
performance of the former's work, the employees of the undertakes the contract work on his own account under his
contractor and of the latter's subcontractor, if any, shall be own responsibility according to his own manner and method,
paid in accordance with the provisions of this Code. free from 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
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 (2) The contractor has substantial capital or investment in
contractor or subcontractor to such employees to the extent the form of tools, equipments, machineries, work premises,
of the work performed under the contract, in the same and other materials which are necessary in the conduct of
manner and extent that he is liable to employees directly his business.
employed by him.
Sec. 9. Labor-only contracting — (a) Any person who
The Secretary of Labor may, by appropriate regulations, undertakes to supply workers to an employer shall be
restrict or prohibit the contracting out of labor to protect the deemed to be engaged in labor-only contracting where such
rights of workers established under this Code. In so person:
prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job
(1) Does not have substantial capital or investment in
contracting as well as differentiations within these types of the form of tools, equipments, machineries, work
contracting and determine who among the parties involved
premises and other materials; and
shall be considered the employer for purposes of this Code,
to prevent any violation or circumvention of any provision of
this Code. (2) The workers recruited and placed by such person
are performing activities which are directly related to
the principal business or operations of the employer in
There is "labor-only" contracting where the person supplying
which workers are habitually employed.
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 (b) Labor-only contracting as defined herein is hereby
placed by such person are performing activities which are prohibited and the person acting as contractor shall be
directly related to the principal business of such employer. In considered merely as an agent or intermediary of the
such cases, the person or intermediary shall be considered employer who shall be responsible to the workers in the
merely as an agent of the employer who shall be responsible same manner and extent as if the latter were directly
employed by him.
DO 18-02 Cases 25

xxx xxx xxx considered employees of the company. If petitioners had started their
employment in 1986, they would have rendered more than 1 year of
service at the time of their dismissal and, therefore, should be
Applying the foregoing provisions, the Court finds petitioner Isagani considered regular employees. Even if they have been engaged only in
Ecal to be a "labor-only" contractor, a mere supplier of manpower to April of 1987, they will still be deemed regular employees for as earlier
Hi-Line. Isagani Ecal was only poor laborer at the time of his indicated, Isagani Ecal is a "labor-only" contractor and petitioners
resignation on February 4, 1987 who cannot even afford to have his perform activities directly related to the principal business of Hi-Line
daughter treated for malnutrition. He resigned and became a supplier Line.
of laborers for Hi-Line, because he saw an opportunity for him to earn
more than what he was earning while still in the payroll of the
company. At the same time, he continued working for the company as Petitioners, having been illegally dismissed on June 6, 1987, are
a laborer at the kiln drying section. He definitely does not have entitled to backwages equivalent to three years without qualifications
sufficient capital to invest in tools and machineries. Private and deductions in line with prevailing jurisprudence.
respondents, however, claim that the business contracted by Ecal did
not require the use of tools, equipment and machineries and the
contracted task had to be executed in the premises of Hi-Line. WHEREFORE, the decision of public respondent NLRC is hereby
Precisely, the job assigned to petitioners has to be executed within the REVERSED and SET ASIDE. Private respondent Hi-Line Timber, Inc. is
work premises of Hi-Line where they use the machineries and hereby ordered to reinstate petitioners to their former positions with
equipment of the company for the drying of lumber materials. Even the backwages equivalent to three (3) years without deductions and
company's personnel officer Elizabeth Natividad admitted that Ecal qualifications. The records of the case are remanded to the labor
resigned in order to supply manpower to the company on a task basis. arbiter for determination of the unpaid benefits due petitioners. No
10
By the very allegations of private respondents, it is quite clear that costs.
Isagani Ecal only supplies manpower to Hi-Line within the context of
"labor-only" contracting as defined by law.
SO ORDERED.

There is also no question that the task performed by petitioners is


directly related to the business of Hi-Line. Petitioners were assigned to G.R. No. 106108 February 23, 1995
sort out the lumber materials whether wet or fresh kiln as to sizes and
to carry them from the stockpile to the dryer where they are loaded for CABALAN PASTULAN NEGRITO LABOR ASSOCIATION
drying after which they are unloaded. The work of petitioners is an (CAPANELA) and JOSE ALVIZ, SR. petitioners,
integral part of the operation of the sawmill of Hi-Line without which vs.
production and company sales will suffer. NATIONAL LABOR RELATIONS COMMISSION and FERNANDO
SANCHEZ, respondents.
A finding that Isagani Ecal is a "labor-only" contractor is equivalent to a
finding that an employer-employee relationship exists between the REGALADO, J.:
company and Ecal including the latter's "contract workers" herein
petitioners, the relationship being such as provided by the law itself. 11
A man said to the Universe,
Behold, I am born!
Indeed, the law prohibits "labor-only" contracting and creates an However, replied the Universe,
employer- employee relationship for the protection of the laborers. The The fact does not create in me
Court had in fact observed that businessmen, with the aid of lawyers, A sense of obligation.
have tried to avoid the bringing about of an employer-employee
relationship in some of their enterprises because that juridical relation
spawns obligations connected with workmen's compensation, social To most, these familiar verses express the article of faith for self-
security, medicare, minimum wage, termination pay and unionism. 12 reliance. To the racist in some countries, however, they mean that the
world does not owe the Negroid or other colored people equal
solicitude. The neo-colonial in the Philippines would hold the Negrito or
This unscrupulous practice is quite evident in the case at bar. It is a member of indigenous cultural communities to the same social
company policy that once an employee is assigned to the kiln drying bondage. But our Constitution and our laws were precisely formulated
section, he is no longer included in the payroll and is then paid on a under a sense of obligation to the marginalized and the under
task basis, even if he had long been employed with the company. privileged. Under such mandates, this Court has always accorded them
Since the employee will no longer be included in the payroll, it scrupulous and compassionate attention. In now resolving their
becomes easy for the company to deny the regular employment of predicament in the case at bar, it call once again on the old Castilian
such a worker and is able to avoid whatever obligations it may have tenet: A él que la vida ha dado menos, désele mas por la ley. 1
under an employer-employee relationship. Moreover, Hi-Line limits the
period of undertaking to only four days presumably to make
termination of the services of petitioners easier and to prevent them In this petition for certiorari, the resolution of the National Labor
from attaining regular status. The company had no doubt taken Relations Commission (hereafter, NLRC) dated February 28, 1992 2
advantage of these laborers in order to escape liability for benefits and which dismissed the appeal of herein petitioners from the decision of
privileges accruing to one holding a regular employment. Without a law the labor arbiter 3 for failure to file a supersedeas bond, as well as its
prohibiting "labor-only" contracting to protect the rights of labor, these April 30, 1992 4 denying their motion for reconsideration, are assailed
poor workers will always be at the mercy of the employer. for having been rendered with grave abuse of discretion.

Since petitioners perform tasks which are usually necessary or The antecedents of the present recourse, as culled from the records,
desirable in the main business of Hi-Line, they should be deemed are that herein private respondent, Fernando Sanchez, filed a
regular employees of the latter 13 and as such are entitled to all the complaint for illegal dismissal, non-payment of back wages and other
benefits and rights appurtenant to regular employment. benefits on January 3, 1991 with Regional Office No. III of the
Department of Labor and Employment in Olongapo City originally
docketed therein as NLRC Case No. RAB III 01-1931-91. The complaint,
Being regular employees, they should have been afforded due process naming Cabalan Pastulan Negrito Labor Association (CAPANELA, for
prior to their dismissal. 14 Instead they were unceremoniously brevity) and its president, Jose Alviz, Sr., as respondents, alleged that
dismissed on June 6, 1987 when they were not allowed to enter the the former was employed by CAPANELA as a foreman with a monthly
company's premises by the security guards. The argument of private salary of P3,245.70 from March, 1977 until he was illegally dismissed
respondents that the contract of Ecal with the company expired cannot on January 1, 1990. 5
be sustained. Petitioners may only be dismissed for an authorized or
just cause and after due process.
Said complaint was later amended on February 22, 1991 to introduce
the correction that private respondent was illegally dismissed on March
At this juncture, We note that petitioners and private respondents 27, 1990 (instead of January 1, 1990), and to further pray for
allege conflicting dates of employment of the former. Petitioners claim reinstatement without loss of seniority rights and payment of full back
that as early as March or May, 1986, they have already been working wages and moral and exemplary damages. 6 As no amicable
with Hi-Line Line, while private respondents contend that it was only in settlement was arrived at during the mandatory pre-conference
April, 1987 that they had been engaged by the company. This Court is despite efforts exerted by the labor arbiter, the parties were required
not a trier of facts and there is not enough basis in the records to to simultaneously submit their respective position papers and/or
enable Us to come up with definite dates of employment. However, affidavits. 7 The case was submitted for resolution on March 11, 1991
whatever be the date of their employment, petitioners will still be on the bases of said position papers and other evidence, but the
DO 18-02 Cases 26

parties were further allowed to submit their respective memoranda, 8 and as president of CAPANELA, was himself only an employee at the
after which the case was deemed submitted for decision on May 29, Base. In other words, neither CAPANELA nor its president was the
1991. 9 employer of private respondent Sanchez; rather, it was the United
States Government acting through the military base authorities. 18

A decision was rendered on June 24, 1991 in favor of herein private


respondent, declaring his dismissal illegal, and ordering herein Contrarily, private respondent maintains that there existed an
petitioners, jointly and severally — employer-employee relationship, as allegedly supported by the
evidence on record, and that petitioners CAPANELA and Alviz, Sr.
exercised control as employer over the means and methods by which
1. To pay the backwages of complainant from March 24, the work was accomplished. He further argues that since the
1990 until June 24, 1991 and for 15 months at P3,245.70 a determination of the existence of an employer-employee relationship is
month equals P48,685.50; a factual question, the findings of the labor officials thereon should be
considered conclusive and binding upon and respected by the
appellate courts. 19
2. To immediately reinstate complainant to his former or
equivalent position without loss of seniority rights and other
privileges, and for this purpose, respondents are hereby It is hence clearly apparent that the judgment of the labor arbiter, as
ordered to submit proof of the physical or payroll affirmed by respondent commission, declaring the dismissal of private
reinstatement of the complainant within five (5) working respondent illegal and ordering the payment of back wages to him
days from receipt hereof, provided further that should together with his payroll or physical reinstatement, was premised on
reinstatement (be) not feasible due to any supervening the finding that there was an existing employer-employee relationship.
event, respondents are further ordered to pay the separation
pay of complainant equivalent to one month salary for every
year of service, a fraction of at least six (6) months service Indeed, findings of fact and conclusions of the labor arbiter, 20 as well
considered as in addition to his respondents are further one as those of the NLRC, 21 or, for that matter, any other adjudicative
(1) whole year, in addition to his backwages; . . . . body which
can be considered as a trier of facts on specific matters within its field
of expertise, 22 should be considered as binding and conclusive upon
but dismissing the claim for moral and exemplary damages for want of the appellate courts. This is in addition to the fact that they were in a
substantial evidence. 10 better position to assess and evaluate the credibility of the contending
parties and the validity of their respective evidence. 23 However, these
doctrinal strictures hold true only when such findings and conclusions
The records further reveal that private respondent subsequently filed a
are supported by substantial evidence. 24
motion for the issuance of a writ of 11 This was opposed by execution
on July 15, 1991. 11 This was opposed by CAPANELA 12 through its new
counsel, Atty. Isagani M. Jungco, who at the same time filed a In the case at bar, we are hard put to find sufficient evidential support
memorandum of appeal 13 in its behalf, although admittedly without for public respondent's conclusion on the putative existence of an
posting a supersedeas bond because of want of funds of either employer-employee relationship between petitioners and private
CAPANELA or its president and co-petitioner Alviz, Sr. Private respondent. We are accordingly persuaded that there is ample
respondent, in his answer to CAPANELA's memorandum of, appeal 14 justification to disturb the findings of respondent NLRC and to hold that
and reply to opposition to motion for execution, 15 was unconvinced a reconsideration of its challenged resolutions is in order.
and adamantly insisted on the dismissal of the appeal due to non-
perfection thereof for failure to comply with the legal requirement of
posting a cash or surety bond as a requisite for the perfection of an A careful reevaluation of the documentary evidence of record belies
appeal. the finding that CAPANELA, through its president and co-petitioner,
Jose Alviz, Sr., wielded control as an employer over private respondent.
It will be noted that in his affidavit dated March 4, 1991, 25 private
A partial writ of execution 16 was issued by Labor Arbiter Saludares on respondent himself declared that through the intervention of
August 15, 1991 ordering the physical or payroll reinstatement of CAPANELA, by way of its June 13, 1389 letter 26 to Lt. Mark S. Kistner,
private respondent. The sheriff's return of November 4, 1991, signed he was cleared of the charge of larceny of U.S. government property.
by Numeriano S. Reyes, Sheriff II of the NLRC Regional Arbitration Thereafter, in an indorsement dated July 11, 1989 from the Director of
Branch No. III, stated that the writ expired without any indication of Security, U.S. Navy Public Works Center, the recommendation for his
private respondent having been reinstated. 17 reinstatement and the release of his gate pass to the Base was
addressed to the Director, Investigation Section, U.S. Facility Security
Department via the Director of the Contracts Administration Division. 27
As stated at the outset, the NLRC dismissed the appeal on February 28,
1992 for failure of petitioners to post the supersedeas bond required
by law, stating that "(r)espondents' contention that it cannot post bond This only goes to show that CAPANELA had in fact no control over the
because it is insolvent deserve(s) scant consideration not being continued employment of its members working in the U.S. naval base.
accompanied by proof there(of)," and denied petitioner's motion for For, after conducting its own investigation, CAPANELA could only
reconsideration. intervene in behalf of its members facing charges through a
recommendatory action request for favorable consideration. It could
not, on its own authority, exonerate such members from the charges,
The present controversy raises as principal issues for resolution by the
much less effect their reinstatement without the approval of the Base
Court whether or not (1) the dismissal of private respondent was legal,
authorities. Interestingly, in order to comply with the labor arbiter's
and; (2) the appeal was perfected despite failure to file a supersedeas
decision of June 24, 1991, CAPANELA even had to write to the Resident
bond.
Officer-in-Charge of the Facility Support Contracts at Subic Bay
recommending the reinstatement of private respondent to his former
Anent the first issue, before we delve into the matter of the alleged position. 28
illegal dismissal of private respondent Sanchez by petitioner
CAPANELA, it is evidently necessary to ascertain the existence of an
Under their arrangement, CAPANELA, through its officers, could only
employer-employee relationship between them.
impose disciplinary sanctions upon its members for infractions of its
own rules and regulations, to the extent of ousting a member from the
Petitioners asseverate that CAPANELA is an association composed of association when called for under the circumstances. Nonetheless,
Negritos who worked inside the American naval base in Subic Bay such called termination of membership in the association, which could
(hereinafter referred to as the Base). They initially received a daily result in curtailment of the privilege of working at the Base inasmuch
wage of P100.00 and thus earned, on the average, less than P3,000.00 as employment therein was conditioned upon membership in
per month. Said association organized the system of employment of CAPANELA, is not equivalent to the illegal dismissal from employment
members of this cultural community who were accorded special contemplated in our labor laws. Petitioners, not being the employer,
treatment concededly because of the occupancy of their ancestral obviously could not arrogate unto themselves an employer's
lands as part of the operational area and military facility used by the prerogatives of hiring and firing workers.
Base authorities.
As succinctly pointed out by the Solicitor General:
CAPANELA, through its officers, saw to it that its members reported for
work, recorded their attendance, and distributed the workers' salaries
True, there was a stipulation to the effect that Fernando
paid by the Base at the end of a specific pay period, without gaining
Sanchez was employed by petitioner CAPANELA, but the real
any amount from such undertakings petitioner Alviz, Sr., for his part
DO 18-02 Cases 27

employer was the United States government and petitioner principal in all matters connected with performance of the
was just a "labor-only contractor." Annexes "G" and "H" of work except as to the results thereof; and
CAPANELA's Memorandum on Appeal show that the award or
contract of work was between CAPANELA and the United
States government through the U.S. Navy. The same 2. The contractor has substantial capital or investment in the
contract likewise clearly stipulated that CAPANELA was "to form of tools, equipment, machineries, work premises and
provide labor and material to perform trash sorting services other materials which are necessary in the conduct of his
in the Base period for all work specified in Section C." Annex business. 32
"A" of complainant Fernando Sanchez' Answer to petitioner's
Memorandum on Appeal itself proves that the negotiation
In the present case, the setup was such that CAPANELA was merely
was between CAPANELA and the U.S. Navy, with the former tasked with organizing the Negritos to facilitate the orderly
supplying the labor and the U.S. government paying the
administration of work made available to them at the base facilities,
wages. Since CAPANELA merely provided the labor force, it that is, sorting scraps for recycling. CAPANELA recorded the
cannot be deduced therefrom that CAPANELA should also
attendance of its members and submitted the same to the Base
compensate the laborers; it is a case of non sequitur. In authorities for the determination of wages due them and the
other words, the actual mechanical act of making payments
preparation of the payroll. Payment of wages was coursed through
was done by CAPANELA, but the monies therefor were CAPANELA but the funds therefor came from the coffers of the Base.
provided and disbursements made by the disbursing officer
Once inside the Base, control over the means and methods of work
of the U.S. Naval Supply Depot, Subic Bay (see Annexes "G" was exercised by the Base authorities. Accordingly, CAPANELA
and "H").
functioned as just an administrator of its Negrito members employed
at the Base.
Moreover, ingress and egress in the work premises were
controlled not by CAPANELA but by the U.S. Base authorities
From the legal standpoint, CAPANELA's activities may at most be
who could even reject entry of CAPANELA members then considered akin to that of labor-only contracting, albeit of a special or
duly employed as part of the project, and impose disciplinary
peculiar type, wherein CAPANELA, operating like a contractor, merely
sanctions against them. Annex "1" of petitioners' Position acted as an agent or intermediary of the employer. 33
Paper as respondent in the NLRC Case No. RAB-III-01-193 1-
91, which was the letter of Lt. M.E. Kistner of the U.S. Navy,
clearly proves this. 29 (Emphasis in the original text.) The Solicitor General ramifies this aspect:

Prevailing case law enumerates the essential elements of an employer- . . . , petitioner CAPANELA could not be classified as an
employee relationship as: (a) the selection and engagement of the "independent contractor" because it was not shown that it
employee; has substantial capital or investments to qualify as such
(b) the payment of wages; (c) the power of dismissal; and (d) the under the law. On the other hand, it was apparent that the
power of control with regard to the means and methods by which the premises, tools, equipment, and other paraphernalia used by
work is to be accomplished, with the power of control being the most the workers were all supplied by the U.S. government
determinative factor. 30 through the U.S. Navy. What CAPANELA supplied was only
the local labor force, complainant Fernando Sanchez among
them. It is therefore clear that CAPANELA had no capital
The Solicitor General pertinently illustrates the glaring absence of
outlay involved in the business or in the maintenance
these elements in the present case: thereof. 34

. . . , as aforeshown, CAPANELA had no control of the


While it is not denied that an association or a labor organization or
premises as it was the U.S. naval authorities who had the union can at times be an employer insofar as people hired by it to
power to issue passes or deny their issuance. In fact,
dispose of its business are concerned, 35 the situation in this case is
CAPANELA did not have absolute control on the disciplinary altogether different. A proper and necessary distinction should be
measures to be imposed on its members employed in the
made between the employees of CAPANELA who actually attended to
Base. Annex "1" of CAPANELA's Position Paper submitted its myriad functions as an association and its members who were
before the NLRC Regional Arbitration Branch established the
employed in the jobsite inside the Base vis-a-vis CAPANELA's relative
U.S. Navy's right to impose disciplinary measures for position as the employer of the former and a mere administrator with
violations or infractions of its rules and regulations as well as
respect to the latter.
the right to recommend suspensions or dismissals of the
workers. Moreover, it was not shown that CAPANELA had
control of the means and methods or manner by which the On the matter of the perfection of an appeal from the decision of the
workers were to go about their work. These are indeed NLRC, petitioners plead for a more considerate and humane
strong indicia of the U.S. Navy's right of control over the application of the law as would allow their appeal to prosper despite
workers as direct employer. non-posting of a supersedeas bond on account of their insolvency. To
dismiss the appeal for failure to post said bond, petitioners aver, is
tantamount to denial of the constitutionally guaranteed right of access
Third, there is evidence to prove that payment of wages was to courts by reason of poverty. 36 Private respondent, on the other
merely done through CAPANELA, but the source of payment
hand, argues that perfection of an appeal within the reglementary
was actually the U.S. government paying workers according period and in compliance with all requirements of the law therefor is
to the volume of work accomplished on rates agreed upon
jurisdictional. That petitioners do not have the funds for the premiums
between CAPANELA and the U.S. government. . . . 31 for posting a supersedeas bond or for a cash deposit, disdainfully says
private respondent, "is not in the least our problem." 37
It would, therefore, be inutile to discuss the matter of the legality or
illegality of the dismissal of private respondent. Considering that We have no quarrel with the provision of Article 223 of the Labor Code
petitioners cannot legally be considered as the employer of herein
which, in part and among others, requires that in case of a judgment
private respondent, it follows that it cannot be made liable as such nor involving a monetary award, an appeal by the employer may be
be required to bear the responsibility for the legal consequences of the
perfected only upon posting of a cash or surety bond issued by a
charge of illegal dismissal. Granting arguendo that private respondent reputable bonding company duly accredited by the commission in the
was illegally dismissed, the action should properly be directed against
amount equivalent to the monetary award in the judgment appealed
the U.S. government which, through the Base authorities, was the true from. Perfection of an appeal within the period and in the manner
employer in this case.
prescribed by law is jurisdictional 38 and non-compliance with such
legal requirements is fatal and has the effect of rendering the
Neither can petitioners be deemed to have been engaged in judgment final and executory. 39
permissible job contracting under the law, for failure to satisfy the
following prescribed conditions: However, in a number of recent cases, 40 the Court has eased the
requirement of posting a bond, as a condition for perfection of appeals
1. The contractor carries on an independent business and in labor cases, when to do so would bring about the immediate and
undertakes the contract work on his own account under his appropriate resolution of controversies on the merits without over-
own responsibility according to his own manner and method, indulgence in technicalities, 41 ever mindful of the underlying spirit and
free from the control and direction of his employer or intention of the Labor Code to ascertain the facts of each case speedily
and objectively without regard to technical rules of law and procedure,
DO 18-02 Cases 28

all in the interest of due process. 42 Punctilious adherence to stringent other hand, PCIB agreed to provide the petitioner with encoders and
technical rules may be relaxed in the interest of the working man, 43 computer attendants, among others.3
and should not defeat the complete and equitable resolution of the
rights and obligations of the parties. 44 Moreover, it is the duty of labor
officials to consider their decisions and inquire into the correctness of To comply with its obligation to procure manpower for the petitioner,
execution, as supervening events may affect such execution. 45 PCIB engaged the services of Prime Manpower Resources
Development, Inc. (Prime). PCIB and Prime entered into an External Job
Contract4 which provides:
The Solicitor General realistically assesses the situation, thus:

1. Services — PRIME shall provide qualified and adequate


. . . As aforestated, above the technical consideration on personnel services required by the CLIENT within two (2)
whether failure to post a supersedeas bond was fatal to working days from time of receipt of the notice of the
petitioners' appeal is the importance of first resolving CLIENT's requisition.
whether there was indeed an employer-employee
relationship in this case so as not to render the execution of
the NLRC's resolution unenforceable or impossible to 2. Selection — The CLIENT shall have the right to select,
implement. . . . Besides, it is of public notice that the U.S. refuse, or change any or all of the personnel assigned to
Navy had withdrawn from the Subic Base in view of the deliver these services to the CLIENT upon two (2) working
termination of the Bases Treaty. Even if CAPANELA were days notice to PRIME.
ordered to reinstate complainant Fernando Sanchez, this is
obviously an impossible thing to perform as there is no
3. Supervision — The CLIENT shall be responsible in
longer any work to be done inside the Base. Nor is petitioner supervising all PRIME personnel contracted and assigned to
CAPANELA in a position to pay Sanchez's back wages
deliver such services to the CLIENT. However, PRIME shall
considering that it was the U.S. Navy that paid his check the time cards of the assigned personnel for payroll
wages. . . . 46
and other related purposes. Any change or discontinuance in
the work assignment of the assigned personnel shall be
In light of the circumstances in this case, the Solicitor General further conveyed in writing to PRIME by CLIENT within two (2) days
suggests two ways of writing finis to this dispute, i.e., to reconsider from such change or termination.
public respondent's resolution of February 28, 1992 and April 30, 1992
and reinstate petitioner's appeal to give the latter a chance to prove
4. Liability/Responsibility — It is expressly agreed that the
CAPANELA's insolvency or poverty, or to reverse the decision of the personnel assigned to the client are not employees of the
labor arbiter on the ground that there was no employer-employee
CLIENT, and as such PRIME shall at all times stand solely
relationship between petitioner CAPANELA and private respondent liable and/or responsible for the enforcement of and
Sanchez. Harmonizing our evaluation of the facts of this case with the
compliance with all existing laws, rules and regulations such
greater interests of social justice, and considering that the parties as, but not limited to the Labor Code, Social Security Act,
involved are those upon whose socio-economic status we prefaced this
Employer's (sic) Compensation Commission Act as amended,
opinion, we opt for the latter. Medical Care; provided finally, that PRIME hereby agrees and
binds itself to save and hold CLIENT free and harmless from
While this Court, when it finds that a lower court or quasi-judicial body any civil and criminal liability with respect thereof and/or
is in error, may simply and conveniently nullify the challenged which may arise therefrom.
decision, resolution or order and remand the case thereto for further
appropriate action, it is well within the conscientious exercise of its 5. Direct Hiring/Absorption — Since the personnel assigned
broad review powers to refrain from doing so and instead choose to
to the CLIENT are PRIME employees, said employees cannot
render judgment on the merits when all material facts have been duly be absorbed or hired directly by the CLIENT without PRIME's
laid before it as would buttress its ultimate conclusion, in the public
prior written consent. In which case, CLIENT shall be charged
interest and for the expeditious administration of justice, such as by PRIME a placement fee equivalent to ten percent (10%) of
where the ends of justice would not be subserved by the remand of the
the commencing annual gross compensation of the
case. 47 employee concerned if said employees have worked with
CLIENT for less than five (5) months. If said employees have
IN VIEW OF ALL THE FOREGOING PREMISES, the resolutions of February worked with CLIENT as temporary employee for more than
28, 1992 and April 30, 1992 of respondent National Labor Relations five (5) months CLIENT shall not be charged any fee.
Commission are accordingly ANNULLED, and the adjudgment of Labor
Arbiter Dominador B. Saludares in NLRC Case No. RAB III 01-1931-91 is 6. Injury/Damage — PRIME shall not be responsible for any
hereby REVERSED and SET ASIDE.
loss or damage caused by the assigned personnel to the
CLIENT's properties as well as properties of the customers of
SO ORDERED. the CLIENT unless the loss or damage is caused by the fact
that the assigned personnel lacks the capacity to work by
reason of any mental or physical defect or he was manifestly
Narvasa, C.J., Bidin, Puno and Mendoza, JJ., concur. unfit or unqualified to perform the tasks for which he has
been assigned by PRIME to the client.

G.R. No. 115920 January 29, 1996


In the event of injury to assigned PRIME personnel under this
contract, due to accidents which are work-related, the
PCI AUTOMATION CENTER, INC., petitioner, CLIENT shall reimburse PRIME for medical expenses incurred
vs. which under existing laws are required to be defrayed by the
NATIONAL LABOR RELATIONS COMMISSION and HECTOR employers. In the case of assigned PRIME personnel under
SANTELICES, respondents. regular status, medical expenses due to accidents or
illnesses, whether or not work related, shall be defrayed by
PRIME under its Hospitalization Insurance Scheme.
PUNO, J.:

7. Confidentiality — PRIME shall guarantee the confidentiality


This is a special civil action for certiorari under Rule 65 of the Revised of CLIENT's nature of job where PRIME personnel are
Rules of Court for the annulment of the Decision of the National Labor involved.
Relations Commission (NLRC) dated December 29, 19931 and its
Resolution dated April 15, 1994.2
8. Mode/Term of Payment — For and in consideration of the
abovementioned services, the CLIENT shall pay PRIME the
In 1985, Philippine Commercial International Bank (PCIB) commenced corresponding hourly billing rate listed in Annex A which is
its 4th GL Environment Conversion Project intended to link all existing an integral part of this contract. Annex A consists of letter
computer systems within PCIB and its various branches around the agreement dated May 20, 1986 duly conformed by PRIME
country. It entered into a Computer Services Agreement with petitioner and CLIENT as to the specific hourly rates per job category
PCI Automation Center, Inc. (PCI-AC), under which petitioner obligated and status as well as the composition of the billing rates,
itself to direct, supervise and run the development of the software, basis for computation and the provision of reserves for
computer software applications and computer system of PCIB. On the additional benefits granted to assigned regular PRIME
DO 18-02 Cases 29

employees whenever those are applicable and/or payable. On December 291 1993, public respondent NLRC affirmed the Decision
Such rates apply only to work done by our employees during of the Labor Arbiter, but deleted the award of moral and exemplary
the first eight (8) hours on any work day. damages and attorney's fees.12

For work rendered by the assigned personnel in excess of PCI-AC filed the present petition on the following ground:
the regular work period agreed upon, the CLIENT shall be
billed by PRIME the rates on overtime pay set by the New
Labor Code. The schedule of hourly billing rates per job . . . the public respondent acted with grave abuse of
category for work rendered on overtime whether done on a discretion amounting to lack of jurisdiction when it
regular work day; legal holiday, special holiday or rest day is disregarded the substantial evidence in this case clearly
herein attached as Annex B and shall become an integral showing that private respondent was not illegally dismissed
part of this contract. by petitioner.13

PRIME shall bill the CLIENT for actual services rendered by The petition must fail.
sending CLIENT its statement of account on the 16th and on
the last day of each month. CLIENT shall make payment
Petitioner contends that private respondent, being a project employee,
within seven (7) working days from receipt of said statement was validly dismissed when the project for which he was hired was
of account, unless the CLIENT, within the same period,
completed on March 15, 1991. Petitioner avers that the 4th GL
communicates to PRIME its refusal to pay on some valid Environment Conversion Project involved a phase-by-phase conversion
grounds, e.g. errors in computation etc. In the latter case,
of PCIB's computer system. Private respondent was assigned to work
CLIENT shall make payment within seven (7) working days as data encoder in the Consolidated Financing System/Budget
after the cause for non-payment is settled.
Monitoring phase of the said computer conversion project. Allegedly,
this phase was completed on March 15, 1991. Petitioner makes the
9. Provision for Rate Adjustment — In the event that wages submission that the completion of the work therein terminated further
are increased and increased (sic) and additional fringe need for private respondent's services.14
benefits in favor of the employees are promulgated by law,
decrees or regulation or granted by mutual agreements
The public respondent, however, held otherwise after assessing the
between PRIME and CLIENT, the above mentioned billing evidence on record. It affirmed the findings of the Labor Arbiter, thus:
rates shall be automatically adjusted to conform with the
new levels set by law or by both parties.
Going now to the second point of inquiry, which is the
completion or non-completion of the 4 GL conversion system
On September 20, 1985, private respondent Hector Santelices was
project, the testimony of Danilo Calauag, the assistant vice-
hired by Prime and assigned to petitioner as a data encoder to work on president and manager of International Operations of Prime
the 4th GL Environment Conversion Project of PCIB.5 However, on
Manpower is most explicit. He testified on July 22, 1992 as
March 18, 1991, Prime decided to terminate private respondent's follows:
services after it was informed by the petitioner that his services were
no longer needed in the project.6
Mr. Santelices was assigned initially to Tower 2; (p.
33 TSN) then he was assigned to Tower 1 (ibid)
Private respondent filed before the NLRC a complaint for illegal
because there was work to be done in Tower 1
dismissal against Prime and PCI-AC.7 In his position paper, private that necessitated his (complainant's) transfer
respondent prayed for the payment of his 14th month pay, 13th month
there (p. 35 ibid) although the work he
pay, separation pay, unpaid service incentive leave, unpaid vacation (complainant) was performing in Tower II was still
leave, termination pay, as well as moral and exemplary damages and
existing (supra) and Tower II is still in progress
attorney's fees.8 (supra) meaning his original assignment is still on-
going up to the present (p. 36 ibid).
On April 30, 1993, Labor Arbiter Melquiades Sol Del Rosario rendered a
Decision9 finding that private respondent's dismissal was illegal. The The foregoing testimony expressly and clearly admitted that
dispositive portion of the Decision states:
4 GL conversion project, more particularly Tower II to which
complainant was originally assigned is still an on-going
CONFORMABLY with the foregoing, judgment is hereby project, and not yet completed as posited by respondents.
rendered finding complainant's dismissal to be illegal and There was therefore no reason for complainant's dismissal
without legal basis. Consequently, complainant should be on March 15, 1991 on the pretended ground which is
immediately reinstated to his former or equivalent position completion of the project. . . .15
as data encoder at PCI-AC. Should reinstatement be
impossible or impractical due to a strained relation, then in
We find no valid reason to disturb public respondent's findings. No less
lieu thereof, payment of separation pay by Prime at one than the assistant vice-president and manager for International
month's pay (P3,060.00) per year of service reckoned from
Operations of Prime testified that the project for which private
September 20, 1985, a fraction of six (6) months service respondent was hired was still existing at the time of his dismissal. It is
being considered as one (1) whole year.
settled that factual findings of quasi-judicial agencies like the Labor
Arbiter and the NLRC are generally accorded not only respect but even
Respondents (sic) companies are further ordered to pay in finality if such findings are supported by substantial evidence.16
solidum the complainant the following amounts:
The petitioner also faults the public respondent in affirming the
1. P78,030.00 as backwages (March 16, 1991 to April 30, disposition of the Labor Arbiter holding it solidarily liable with Prime for
1993) not exceeding 3 years without qualification or all the monetary claims of private respondent. It insists that it is not an
deduction at P3,060.00 a month; employer of private respondent. It contends that private respondent is
2. P30,000.00 as moral damages; an employee of Prime and he was merely assigned by Prime to the
3. P10,000.00 as exemplary damages; and petitioner to work on the 4th GL Environment Conversion Project of
4. P5,000.00 as attorney's fees. PCIB.
All other claims are hereby denied for lack of merit. 10
We are not persuaded.
Prime and PCI-AC appealed to the NLRC.

The petitioner, through PCIB, contracted Prime to provide it with


On June 18, 1993, during the pendency of the appeal, Prime paid
qualified personnel to work on the computer conversion project of
private respondent the amount of P24,480.00 as separation pay in lieu PCIB.17 The External Job Contract between Prime and PCIB must be
of reinstatement. This was in partial satisfaction of the judgment
read in conjunction with the Computer Services Agreement between
rendered by the Labor Arbiter. Private respondent, for his part, waived PCIB and the petitioner. Under the Computer Services Agreement, the
his right to be reinstated to his former position in Prime and/or PCI-AC.
petitioner shall direct and supervise the computer conversion project
Accordingly, Prime and private respondent executed and filed before of PCIB while PCIB shall provide the petitioner with data encoders and
the office of the Labor Arbiter a document entitled "Partial Satisfaction
computer attendants to work on the project. Pursuant to said
of Judgment and Waiver of Right".11
DO 18-02 Cases 30

Agreement, PCIB called on Prime to furnish the petitioner with the Under the contract, Prime merely acted as a placement agency
needed personnel, one of whom was private respondent. Hence, providing manpower to the petitioner through PCIB. The service
although the parties in the External Job Contract are only Prime and rendered by Prime in favor of the petitioner was not the performance
PCIB, the legal consequences of such contract must also be made to of a specific job, but the supply of qualified personnel to work as data
apply to the petitioner. Under the circumstances, PCIB merely acted as encoders and computer attendants in connection with the petitioner's
a conduit between the petitioner and Prime. The project was under the project.
management and supervision of the petitioner and it was the petitioner
which exercised control over the persons working on the project.
Rule VIII Book III of the Omnibus Implementing Rules and Regulations
of the Labor Code defines job contracting and labor-only contracting:
Under the law, any person (hereinafter referred to as the "principal
employer") who enters into an agreement with a job contractor, either
for the performance of a specified work or for the supply of manpower, Sec. 8. Job contracting. — There is job contracting
assumes responsibility over the employees of the latter.18 However, for permissible under the Code if the following conditions are
the purpose of determining the extent of the principal employer's met:
liability, the law makes a distinction between legitimate job contracting
and labor-only contracting. Article 106 of the Labor Code states: (1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
Art. 106. Contractor or subcontractor. — Whenever an own responsibility according to his own manner and method,
employer enters into a contract with another person for the free from the control and direction of his employer or
performance of the former's work, the employees of the principal in all matters connected with the performance of
contractor and of the latter's subcontractor, if any, shall be the work except as to the results thereof; and
paid in accordance with the provisions of this Code.
(2) The contractor has substantial capital or investment in
In the event that the contractor or subcontractor fails to pay the form of tools, equipment, machineries, work premises,
the wages of his employees in accordance with this Code, and other materials which are necessary in the conduct of
the employer shall be jointly and severally liable with his his business.
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same Sec. 9. Labor-only contracting. — (a) Any person who
manner and extent that he is liable to employees directly
undertakes to supply workers to an employer shall be
employed by him. deemed to be engaged in labor-only contracting when such
person:
The Secretary of Labor may, by appropriate regulations,
restrict or prohibit the contracting out of labor to protect the (1) Does not have substantial capital or
rights of workers established under this Code. In so
investment in the form of tools, equipment,
prohibiting or restricting, he may make appropriate machineries, work premises and other materials;
distinctions between labor-only contracting and job
and
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, (2) The workers recruited and placed by such
to prevent any violation or circumvention of any provision of person are performing activities which are directly
this Code. related to the principal business or operations of
the employer in which workers are habitually
employed.
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, (b) Labor-only contracting as defined herein is hereby
work premises, among others, and the workers recruited and prohibited and the person acting as contractor shall be
placed by such persons are performing activities which are considered merely as an agent or intermediary of the
directly related to the principal business of such employer. In employer who shall be responsible to the workers in the
such cases, the person or intermediary shall be considered same manner and extent as if the latter were directly
merely as an agent of the employer who shall be responsible employed by him.
to the workers in the same manner and extent as if the latter
were directly employed by him.
xxx xxx xxx

In legitimate job contracting, no employer-employee relationship exists


between the employees of the job contractor and the principal In short, the legitimate job contractor provides services while the labor-
employer. Even then, the principal employer becomes jointly and only contractor provides only manpower. The legitimate job contractor
severally liable with the job contractor for the payment of the undertakes to perform a specific job for the principal employer while
employees' wages whenever the contractor fails to pay the same. In the labor-only contractor merely provides the personnel to work for the
such case, the law creates an employer-employee relationship principal employer.
between the principal employer and the job contractor's employees for
a limited purpose, that is, to ensure that the employees are paid their
wages. Other than the payment of wages, the principal employer is not As Prime is a labor-only contractor, the workers it supplied to the
responsible for any claim made by the employees.19 petitioner, including private respondent, should be considered
employees of the petitioner.23 The admissions made by private
respondent in his affidavits and position paper that he is a regular
On the other hand, in labor-only contracting, an employer-employee employee of Prime are not conclusive on this Court as the existence of
relationship is created by law between the principal employer and the an employer-employee relationship is a question of law which may not
employees of the labor-only contractor. In this case, the labor-only be made the subject of stipulation.24
contractor is considered merely an agent of the principal employer.
The principal employer is responsible to the employees of the labor-
only contractor as if such employees had been directly employed by We hold that public respondent did not commit grave abuse of
the principal employer. The principal employer therefore becomes discretion in affirming the ruling of the Labor Arbiter adjudging the
solidarily liable with the labor-only contractor for all the rightful claims petitioner solidarily liable with Prime for the payment of all the
of the employees.20 monetary claims of private respondent. This is in accord with Article
106 of the Labor Code, as amended.

Thus, in legitimate job contracting, the principal employer is


considered only an indirect employer,21 while in labor-only contracting, IN VIEW WHEREOF, the petition is DISMISSED. The assailed Decision
the principal employer is considered the direct employer of the and Resolution are hereby AFFIRMED. No costs.
employees.22
SO ORDERED.
Considering the terms of the External Job Contract executed by Prime
and PCIB, it cannot be doubted that Prime is a labor-only contractor.
G.R. Nos. 97320-27 July 30, 1993
DO 18-02 Cases 31

VALLUM SECURITY SERVICES and BAGUIO LEISURE limited to one (1) year. In view of supervening event which
CORPORATION (HYATT TERRACES BAGUIO), petitioners, makes the reinstatement imposible, respondents Hyatt
vs. Terraces Baguio and Vallum Security Services Corporation,
THE NATIONAL LABOR RELATIONS COMMISSION, RUBEN are directed, jointly and severally to pay complainants, in
ABELLERA, MANUEL GANANCIAL, SAMSON ALEJERA, ROMEO lieu of reinstatement, separation pay equal to one (1) month
BAUTISTA, CARLOS BANIAGO, GABRIEL CABASAL, ARTEMIO per year of service. Service of six month shall be considered
CARIÑO, BENJAMIN LARON, SANTIAGO PACULAN, FRANCISCO a year for the purpose of the same. 2
OBEDOZA, CEFERINO GARCIA, ARNOLD PAMINLAN, ROMAN
PALIMA, JOSEFINO LOZANO, PEDRO DULAY, JR., CLAUDIO
PANGANIBAN, RONNIE BALDERAS, AVELINO PINTO, BEN Petitioners moved for reconsideration, without success.
ENRIQUE ESTOCAPIO, ESABELITO ANGARA, ROBERT AGUIMBAG,
WILSON ESTAVILLO, FELIXBERTO NARVASA, PABLITO ROSARIO,
Vallum and Hyatt Baguio are hence before this Court on certiorari
EDGAR PALISOC, DONIE PERALTA, WILLY QUESADA, MARIO seeking to: (a) reverse and annul the Resolutions of the NLRC of 31 July
URBANO, EDWIN JACOB, JOSE VIRGILIO LUSTERIO, MA. NESTOR
1990 and 31 January 1991; and (b) reinstate the decision of the Labor
LABADOR, ROMEO LOPEZ, MANOLO MAGAT, MARIANO Arbiter dated 19 May 1989. Petitioners assert that the NLRC's finding
MARCENA, WILSON MUNAR. ROSEMARIE DUMLAO, FLORENTINO
that an employer-employee relationship had existed between Hyatt
CASTAÑEDA, RUBEN PANTERIA, JOHNNY VILLANUEVA, DELIA Baguio and private respondents, is tainted with arbitrariness.
ROSARIO, GARY JAVATE, DEAN PASAMIC, VALERIE BRIONES,
NEMENCIO CUTCHON, PHILIP MORIS, VINCENT NOEL CABRERA
and JAIME GIMENO, respondents. The main issue here presented and addressed below is whether or not
private respondent security guards are indeed employees of petitioner
Hyatt Baguio.
Sanidad Law Offices for petitioners.
Cabato Law Office for respondents.
In determining whether a given set of circumstances constitute or
exhibit an employer-employee relationship, the accepted rule is that
the elements or circumstances relating to the following matters shall
FELICIANO, J.:
be examined and considered:

On 1 September 1986, petitioner Baguio Leisure Corporation (Hyatt 1. the selection and engagement of the employee;.
Terraces Baguio) ("Hyatt Baguio") and petitioner Vallum Security
2. the payment of wages;
Services ("Vallum") entered into a contract for security services under 3. the power of dismissal; and
the terms of which Vallum agreed to protect the properties and
4. the power to control the employees' conduct. 3
premises of Hyatt Baguio by providing fifty (50) security guards, on a
24-hour basis, a day.
Of the above, control of the employees' conduct is commonly regarded
as the most crucial and determinative indicator of the presence or
On 1 June 1988, Heinrich L. Maulbecker, Hyatt Baguio's General absence of an employer-employee relationship. 4 We examine below
Manager, wrote to Domingo A. Inocentes, President of Vallum advising
the circumstances of the relationship between petitioners and private
that effective 1 July 1988, the contract of security services would be respondents under the above four (4) rubrics.
terminated.

In respect of the selection and engagement of the employees, the


Vallum informed Mr. Maulbecker, on 22 June 1988, that it was records here show that private respondents filled up Hyatt
agreeable to the termination of the contract.
employment application forms and submitted the executed forms
directly to the Security Department of Hyatt Baguio. 5 It appears that
On 30 June 1988, private respondents, who were security guards these executed application forms were returned to the respective
provided by Vallum to Hyatt Baguio, were informed by Vallum's applicants; 6 nonetheless, however, a few days after the applications to
Personnel Officer that the contract between the two (2) had already Hyatt Baguio were submitted, Vallum sent letters of acceptance to
expired. Private respondents were directed to report to Vallum's head private respondents. Petitioners do not deny that private respondent
office at Sucat Road, in Muntinlupa, Metropolitan Manila, not later than had applied for employment at Hyatt's Security Department and that
15 July 1988 for re-assignment. They were also told that failure to Security Department was used to process the applications. Petitioners
report at Sucat would be taken to mean that they were no longer argue that because the premises to be secured were located in Baguio,
interested in being re-assigned to some other client of Vallum. Vallum found it more advantageous to recruit security guards from the
Baguio area. It would have been most inconvenient for applicants from
the Baguio area to have gone all the way to Sucat in Makati to file and
None of the private respondents reported at Sucat for re-assignment. follow-up their applications; accordingly, Vallum was provided with its
Instead, between July and September 1988, private respondents filed own office at Hyatt Baguio and there the applications, with the
several complaints against petitioners in the National Labor Relations assistance of Hyatt Baguio's Security Department, were processed. 7
Commission's Office ("NLRC") in Baguio City for illegal dismissal and Petitioners' argument here, while understandable, does not negate the
unfair labor practices; for violation of labor standards relating to fact that the process of selection and engagement of private
underpayment of wages, premium holiday and restday pay, uniform respondents had been carried out in Hyatt Baguio and subject to the
allowances and meal allowances. They prayed for reinstatement with scrutiny of officers and employees of Hyatt Baguio.
full backwages. The several cases were consolidated together.

In respect of the mode or manner of payment of wages, private


On 19 May 1989, the Labor Arbiter rendered a decision dismissing the respondents submitted in evidence four hundred twenty-three (423)
complaints. He found Vallum to be an independent contractor and, pay slips (Exhibits "A" for complainants-private respondents), which
consequently, declined to hold Hyatt Baguio liable for dismissal of bore Hyatt Baguio's logo. 8 These pay slips show that it was Hyatt
private respondents. He also held that the termination of services of Baguio which paid their wages directly and that Hyatt Baguio deducted
private respondents by Vallum did not constitute an unfair labor therefrom the necessary amounts for SSS premiums, internal revenue
practice, considering that such termination had been brought about by withholding taxes, and medicare contributions. The Labor Arbiter had
lack of work. Furthermore, the Labor Arbiter held that private found that a separate payroll was maintained for Vallum by Hyatt
respondents were not entitled to backwages or separation pay, in line Baguio; the NLRC, however, held that this finding had no factual basis,
with the "no work, no pay" principle. Lastly, he found no violation of and we are compelled to agree with this finding. It is true that a
the labor standard provisions on payment of wages and other subsequent agreement (10 September 1986) between Vallum and
employee benefits. 1 Hyatt Baguio had provided:

Private respondents appealed the Labor Arbiter's decision to the NLRC. 1. That for the purposes of facilitating and prevention of
On 31 July 1990, the NLRC promulgated a resolution reversing the delays in the distribution of payroll to all Security guards
Labor Arbiter's decision, the dispositive portion of which resolution assigned at the premises of the company and as embraced
reads as follows: in the contract of Security services, the [vallum] shall
herewith authorize the [Hyatt Baguio] to undertake the
distribution of the payroll directly to the guards as
WHEREFORE, the decision appealed from is hereby mentioned herein. (Emphasis supplied)
REVERSED and set aside and a new one entered ordering the
respondent Hyatt Terraces Baguio to reinstate the
complainants to their former positions with full backwages
DO 18-02 Cases 32

2. That for purposes of the payroll distribution as stated xxx xxx xxx
above, the company shall devise ways to ensure the efficient
and prompt distribution to the guards of their respective
salaries. 9 (Emphasis supplied) 3. The AGENCY shall exercise discipline, supervision, control
and administration over the security guard so assigned to
the premises of the COMPANY in accordance with the Rules
The fact that this agreement had stipulated for direct payment by and Regulations of the PCSUSIA, the Local Police
Hyatt Baguio of private respondents' wages did not, of course, dissolve Departments, the AGENCY and the COMPANY.
the relevance of such direct payment as an indicator of an employer-
employee relationship between Hyatt Baguio and private respondents.
Vallum did not even provide Hyatt Baguio with Vallum's own pay slips 4. The AGENCY shall provide at its own expense all
or payroll vouchers for such direct payments. What clearly emerges is necessary, proper and duly licensed firearms, ammunitions,
that Hyatt Baguio discharged a function which was properly a function nightsticks, and other paraphernalia for security purposes, to
of the employer. the guards it assigns to the COMPANY and shall shoulder all
taxes and licenses relating to the Security Services referred
to in this agreement.
Turning to the matter of location of the power of dismissal, we note
that the contract provided that upon loss of confidence on the part of
Hyatt Baguio vis-a-vis any security guard furnished by Vallum, such 5. It is expressly understood and mutually agreed by the
security guard "may be changed immediately upon the request to parties hereto that the AGENCY shall be held solely liable for
[Vallum] by [Hyatt Baguio]." Notwithstanding the terms of the formal any claim for security guards' wages and/or damages arising
contract between petitioners, the NLRC found that, in operative fact, it out of personal injury including death caused, either by the
was Hyatt Baguio's Chief Security Officer AGENCY's guard upon a third party or by the AGENCY'S
who exercised the power of enforcing disciplinary measures over the guard or third party upon a guard assigned by the AGENCY
security guards. 10 In the matter of termination of services of particular to the COMPANY, and should the COMPANY be held liable
security guards, Hyatt Baguio had merely used Vallum as a channel to therefore, the AGENCY shall reimburse the COMPANY for any
implement its decisions, much as it had done in the process of and all amounts that it may have been called upon to pay.
selection and recruitment of the guards.
xxx xxx xxx
Coming then to the location of the power of control over the activities
of the security guards, the following factors lead us to the conclusion
7. The AGENCY shall always detail within the hours the
that power was effectively located in Hyatt Baguio rather than in period provided for and in the paragraph 1 of this contract,
Vallum:
an authorized representative who shall handle for the
AGENCY all matters regarding security and enforcement
(a) the assignments of particular security guards was subject which the COMPANY may wish to implement.
to the approval of Hyatt Baguio's Chief Security Officer; 11
The thrust of the foregoing discussion, however, is that the relationship
(b) promotions of the security guards from casual to regular between Vallum and Hyatt Baguio as actually conducted departed
employees were approved or ratified by the Chief Security significantly from the formal written terms of their agreement. It is to
Officer of Hyatt Baguio; 12 us self-evident that the characterization in law of such relationship
cannot conclusively be made in terms alone of the written agreement
— which constitutes but one factor out of many that the Court must
(c) Hyatt Baguio's Chief Security Officer decided who among take into account — but must rest upon an examination of the detailed
the various security guards should be an duty or on call, as facts of such relationship in the world of time and space.
well as who, in cases of disciplinary matters, should be
suspended or dismissed; 13
We find no basis for overturning the conclusions reached by the NLRC
that Vallum, in the specific circumstances of this case, was not an
(d) the petitioners themselves admitted that Hyatt Baguio, independent contractor but was, rather, a "labor-only" contracor.
through its Chief Security Officer, awarded citations to Section 9 of Rule VII of Book III entitled "Conditions of Employment" of
individual security guards for meritorious services. 14 the Omnibus Rules Implementing the Labor Code provides as follows:

Petitioners contend that what existed between Vallum and Hyatt Sec. 9. Labor-only contracting. (a) Any person who
Baguio was simply close coordination and dove-tailing of operations, undertakes to supply workers to an employer shall be
rather than control and supervision by one over the operations of the deemed to be engaged in labor-only contracting where such
other, and that Hyatt Baguio's Chief Security Officer had acted as the person:
conduit between Hyatt Baguio and Vallum in respect of the
implementation of the contract of security services. That is not,
however, the characterization given by the NLRC to the details of the (1) Does not have substantial capital or investment in
factual relationships between Hyatt Baguio (acting through its Chief the form of tools, equipment, machineries, work
Security Officer) and Vallum and private respondent security guards premises and other materials; and
and it is clear to the Court that the characterization reached by the
NLRC is not without the support of substantial evidence of record. We (2) The workers recruited and placed by such person
agree with the NLRC's characterization.
are performing activities which are directly related to
the principal business or operations of the employer in
One final circumstance seems worthy of note: orders received by which workers are habitually employed.
private respondent security guards were set forth on paper bearing the
letterheads of both Hyatt Baguio and Vallum. 15 It appears to us, (b) Labor-only contracting as defined herein is hereby
therefore, that Hyatt Baguio explicitly purported, at the very least, to
prohibited and the person acting as contractor shall be
share with Vallum the exercise of the power of control and supervision considered merely as an agent or intermediary of the
with Vallum over the security guards, if indeed Vallum was not
employer who shall be responsible to the workers in the
functioning merely as an alter ego of Hyatt Baguio in respect of the same manner and extent as if the latter were directly
operations of the security guards. In the ordinary course of business,
employed by him.
security guard agencies are engaged because of their specialized
capabilities in the matter of physical security. It is a security agency's
business to know the most efficacious manner of protecting and xxx xxx xxx
securing a particular place at a particular time. In the case at bar, the
functions performed by Hyatt Baguio's Chief Security Officer were
precisely the duties which the head or senior officer of a legitimate Sec. 8. Job contracting. — There is job contracting
security agency would be exercising over its own employees. permissible under the Code if the following conditions are
met:

Finally, we note that the contract for security services between Vallum
and Hyatt Baguio contained the following provisions: (1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
own responsibility according his own manner and method,
DO 18-02 Cases 33

free from the control and direction of his employer or Attached to the letter agreement was a "List of Messengers assigned
principal in all matters connected with the performance of at Philippine Bank of Communications" which list included, as item No.
the work except as to results thereof; and 5 thereof, the name of private respondent Ricardo Orpiada.

(2) The contractor has substantial capital or investment in Ricardo Orpiada was thus assigned to work with the petitioner bank. As
the form of tools, equipment, machineries, work premises, such, he rendered services to the bank, within the premises of the
and other materials which are necessary in the conduct of bank and alongside other people also rendering services to the bank.
his business. 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
In the case at bar, we noted that Vallum did not have a branch office in (CESI) to the National Labor Relations Commission stated that (CESI)
Baguio City and that Hyatt Baguio provided Vallum with offices at hired Ricardo Orpiada on 25 June 1975 as a Tempo Service employee,
Hyatt's own premises and allowed Vallum to use its Security and assigned him to work with the petitioner bank "as evidenced by
Department in the processing of applications. That was the reason too the appointment memo issued to him on 25 June 1975. " Be that as it
why Vallum had stipulated that Hyatt Baguio was to distribute the may, on or about October 1976, the petitioner requested (CESI) to
salaries of the security guards directly to them and that Hyatt had withdraw Orpiada's assignment because, in the allegation of the bank,
used its own corporate forms and pay slips in doing so. The security Orpiada's services "were no longer needed."
guards were clearly performing activities directly related to the
business operations of Hyatt Baguio, since the undertaking to
safeguard the person and belongings of hotel guests is one of the On 29 October 1976, Orpiada instituted a complaint in the Department
obligations of a hotel vis-a-vis its guests and the general public. 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
Where labor-only contracting exists in a given case, the law itself No. R04-1010184-76-E. After investigation, the Office of the Regional
implies or establishes an employer-employee relationship between the Director, Regional Office No. IV of the Department of Labor, issued an
employer (the owner of the project or establishment) (here, Hyatt order dismissing Orpiada's complaint for failure of Mr. Orpiada to show
Baguio) and the employees of the labor-only contractor (here, Vallum) the existence of an employer-employee relationship between the bank
to prevent any violation or circumvention of provisions of the Labor and himself.
Code. 16

Despite the foregoing order, Orpiada succeeded in having his


The issue of illegal dismissal need not detain us for long. It has not complaint certified for compulsory arbitration in Case No. RB-IV-11187-
been alleged by petitioners that a just or authorized cause for 77 entitled "Ricardo Orpiada, complaint vs. Philippine Bank of
terminating private respondents' services had existed. And even if Communications, respondent." During the compulsory arbitration
such lawful cause existed, it is not alleged that private respondents' proceedings, CE SI was brought into the picture as an additional
rights to procedural due process in that connection had been respondent by the bank. Both the bank and (CESI) stoutly maintained
appropriately observed. that (CESI) (and not the bank) was the employer of Orpiada.

We conclude that petitioners have not shown any grave abuse of On 12 September 1977, respondent Labor Arbiter Dogelio rendered a
discretion or any act without or any in excess of jurisdiction on the part decision in Case No. RB-IV-11187-77, the dispositive portion of which
of the National Labor Relations Commission in rendering its Resolutions read as follows:
dated 31 July 1990 and 31 January 1991.

WHEREFORE, premises considered, respondent bank is


WHEREFORE, premises considered, the Petition for Certiorari is hereby hereby ordered to reinstate complainant to the same or
DISMISSED for lack of merit. Costs against petitioners. equivalent position with full back wages and to pay the
latter's 13th month pay for the year 1976.
Bidin, Romero, Melo and Vitug, JJ., concur.
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
G.R. No. L-66598 December 19, 1986 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
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
on 11 April 1984. The main issue as litigated by the parties in this case
vs.
relates to whether or not an employer-employee relationship existed
THE NATIONAL LABOR RELATIONS COMMISSION, HONORABLE
between the petitioner bank and private respondent Ricardo Orpiada.
ARBITER TEODORICO L. DOGELIO and RICARDO ORPIADA
The petitioner bank maintains that no employer-employee relationship
respondents.
was established between itself and Ricardo Orpiada and that Ricardo
Orpiada was an employee of (CESI) and not of the bank. The bank
Marcelino Lontok, Jr. for respondents. documents its position by pointing to the following provisions of its
letter agreement with CE SI

FELICIANO, J.:
1. The individual/s you i.e. (CESI) will assign to us i.e.
petitioner) will be subject to our acceptance and will observe
Petitioner Philippine Bank of Communications and the Corporate work-days, hours, and methods of work (sic); on the other
Executive Search Inc. (CESI) entered into a letter agreement dated hand, they will not be asked to perform job (sic) not normally
January 1976 under which (CESI) undertook to provide "Tempo[rary] related to the position/s for which Tempo Services were
Services" to petitioner Consisting of the "temporary services" of eleven contracted.
(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. 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
DO 18-02 Cases 34

and other applicable Governmental decrees, rules and service contract was 0terminated, then the reason for his
regulations, provided that, on our part, we shaIl 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
a. Require your employers assigned to us to another opportune time for his hiring would present itself;
properly accomplish your daily time record, to
faithfully reflect all hours worked in our behalf
whether such work be within or beyond eight 6. That Petitioner was not given his 13th-month pay under
hours of any day. 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
b. Notify you of any change in the work Petitioner by reason of his having ceased to be connected
assignment or contract period affecting any of with it as of 22 October 1976, he was not among those given
your employers assigned to us within 24 hours, the 13th-month pay. (Emphasis supplied)
after such change is made.

Turning to the power to control Orpiada's conduct, it should be noted


— (Emphasis supplied) 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
The above language of the agreement between the bank and CE SI is
that the bank exercises over any other person physically within its
of course relevant and important as manifesting an intent to refrain
premises and rendering services to or for the bank, in other words, any
from constituting an employer-employee relationship between the
employee or staff member of the bank. It seems unreasonable to
bank and the persons assigned or seconded to the bank by (CESI) That
suppose that the bank would have allowed Orpiada and the other
extent to which the parties were successful in realizing their intent is
persons assigned to the bank by CE SI to remain within the bank's
another matter, one that is dependent upon applicable law and not
premises and there render services to the bank, without subjecting
merely upon the terms of their contract.
them to a substantial measure of control and supervision, whether in
respect of the manner in which they discharged their functions, or in
In the case of Viana vs. AI-Lagdan and Pica, 99 Phil. 408 (1956), this respect of the end results of their functions or activities, or both.
Court listed certain factors to be taken into account in determining the
existence of an employer-employee relationship. These factors are:
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
1) The selection and engagement of the putative employee; employer- employer relationship between the bank and Orpiada. The
2) The payment of wages; second ("payment of wages") and third ("power of dismissal") factors
3) The power of dismissal- and suggest that the relevant relationship was that subsisting between
4) The power to control the putative employees' conduct, (CESI) and Orpiada, a relationship conceded by (CESI) to be one
although the latter is the most important element. ... (99 between employer and employee. Upon the other hand, the first
Phil. at 411- 412; Emphasis supplied) ("selection and engagement") and fourth ("control of employee's
conduct") factors indicate that some direct relationship did exist
In the present case, Orpiada was not previously selected by the bank. between Orpiada and the bank and that such relationship may be
Rather, Orpiada was assigned to work in the bank by (CESI) Orpiada assimilated to employment. Perhaps the most important circumstance
could not have found his way to the bank's offices had he not been first which emerges from an examination of the facts of the tri-lateral
hired by (CESI) and later assigned to work in the bank's offices. The relationship between the bank, (CESI) and Orpiada is that the
selection of Orpiada by (CESI) was, however, subject to the acceptance employer-employee relationship between (CESI) and Orpiada was
of the bank and the bank did accept him As will be seen shortly, (CESI) established precisely in anticipation of, and for the very purpose of
had hired Orpiada from the outside world precisely for the purpose of making possible, the secondment of Orpiada to the bank. It is therefore
assigning or seconding him to the bank. 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
With respect to the payment of Orpiada's wages, the bank remitted to one of employer and "labor-only" contractor?
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 Articles 106 and 107 of the Labor Code of the Philippines (Presidential
from the record whether the amounts remitted to (CESI) included some Decree No. 442, as amended) provides as follows:
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
ART. 106. Contractor or sub-contractor.—Whenever an
others to cover its own overhead expenses and provide some
employer enters into a contract with another person for the
contribution to profit. The bank alleged that Orpiada did not appear in
performance of the former's work, the employees of the
its payroll and this allegation was not denied by Orpiada. Indeed, the
contractor and of the latter's subcontractor, if any, shall be
Labor Arbiter in Case No. R04-184-76-B found that Orpiada was listed
paid in accordance with the provisions in this Code.
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 In the event that the contractor or sub-contractor fails to pay
Regional Office No. IV. the 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
In respect of the power of dismissal we note that the bank requested
of the work performed under the contract in the same
(CESI) to withdraw Orpiada's assignment and that (CESI) did, in fact,
manner and extent that he is liable to employees directly
withdraw such assignment. Upon such withdrawal from his assignment
employed by him
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 The Secretary of Labor may, by appropriate regulations,
assignment upon request of the bank, Orpiada's employment with restrict or prohibit the contracting out of labor to protect the
(CESI) was also severed, until some other client of (CESI) showed up in rights of workers established under this Code. In so
the horizon to which Orpiada could once more be assigned. In the prohibiting or restricting, he may make appropriate
position paper dated August 5, 1977 submitted by (CESI) before the distinctions between labor-only contracting and job
NLRC, (CESI) explained the relationship between itself and Orpiada in contracting as well as differentiations within these types of
lucid terms: 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
5. That as Petitioner herein was very well aware of from the
of this Code.
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 There is "labor-only" contracting where the person supplying
that the rationale behind his hiring was the existence of a workers to an employer does not have substantial capital or
service contract between Corporate Executive Search Inc. investment in the form of tools, equipment, machineries,
and its client-company, the Philippine Bank of work premises, among others, and the workers recruited and
Communications, the herein Respondent, and that when this placed by such person are performing activities which are
DO 18-02 Cases 35

directly related to the principal business of such employer. In In contrast, job contracting-contracting out a particular job to an
such cases, the person or intermediary shall be considered independent contractor is defined by the Implementing Rules as
merely as an agent of the employer who shall be responsible follows:
to the workers in the same manner and extent as if the
latter were directly employed by him.
Sec. 8. Job contracting. — There is job contracting
permissible under the Code if the following conditions are
ART. 107. Indirect employer. — The provisions of the met:
immediately preceding Article shall likewise apply to any
person, part, nership association or corporation which, not
being an employer, contracts with an independent contractor (1) The contractor carries on an independent business and
for the performance of any work, task, job or project. undertakes the contract work on his own account under his
(Emphasis supplied) 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
Under the general rule set out in the first and second paragraphs of the work except as to the results thereof; and
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-employees relationship between himself and the (2) The contractor has substantial capital or investment in
employees of the contractor. Thus, the employees of the contractor the form of tools, equipment, machineries, work premises,
remain the contractor's employees and his alone. Nonetheless when a and other materials which are necessary in the conduct of
contractor fails to pay the wages of his employees in accordance with his business. (Emphasis supplied)
the Labor Code, the employer who contracted out the job to the
contractor becomes jointly and severally liable with his contractor to
The bank and (CESI) urge that (CESI) is not properly regarded as a
the employees of the latter "to the extent of the work performed under "labor-only" contractor upon n the ground that (CESI) is possessed of
the contract" as such employer were the employer of the contractor's
substantial capital or investment in the form of office equipment, tools
employees. The law itself, in other words, establishes an employer- and trained service personnel.
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. 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
A similar situation obtains where there is "labor only" contracting. The job contracting given in Section 8 of the same Rules. The undertaking
"labor-only" contractor-i.e "the person or intermediary" is considered
given by CESI in favor of the bank was not the performance of a
"merely as an agent of the employer. " The employer is made by the specific — job for instance, the carriage and delivery of documents and
statute responsible to the employees of the "labor only" contractor as
parcels to the addresses thereof. There appear to be many companies
if such employees had been directly employed by the employer. Thus, today which perform this discrete service, companies with their own
where "labor only" contracting exists in a given case, the statute itself
personnel who pick up documents and packages from the offices of a
implies or establishes an employer-employee relationship between the client or customer, and who deliver such materials utilizing their own
employer (the owner of the project) and the employees of the "labor
delivery vans or motorcycles to the addresses. In the present case, the
only" contractor, this time for a comprehensive purpose: "employer for undertaking of (CESI) was to provide its client-the bank-with a certain
purposes of this Code, to prevent any violation or circumvention of any
number of persons able to carry out the work of messengers. Such
provision of this Code. " The law in effect holds both the employer and undertaking of CESI was complied with when the requisite number of
the "labor-only" contractor responsible to the latter's employees for the
persons were assigned or seconded to the petitioner bank. Orpiada
more effective safeguarding of the employees' rights under the Labor utilized the premises and office equipment of the bank and not those
Code.
of (CESI) Messengerial work-the delivery of documents to designated
persons whether within or without the bank premises — is of course
Both the petitioner bank and (CESI) have insisted that (CESI) was not a directly related to the day-to-day operations of the bank. Section 9(2)
"labor only" contractor. Section 9 of Rule VIII of Book III entitled quoted above does not require for its applicability that the petitioner
"Conditions of Employment," of the Omnibus Rules Implementing the must be engaged in the delivery of items as a distinct and separate
Labor Code provides as follows: line of business.

Sec. 9. Labor-only contracting. — (a) Any person who Succinctly put, CESI is not a parcel delivery company: as its name
undertakes to supply workers to an employer shag be indicates, it is a recruitment and placement corporation placing bodies,
deemed to be engaged in labor-only contracting where such as it were, in different client companies for longer or shorter periods of
person: 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.
(1) Does not have substantial capital or
investment in the form of tools, equipment,
machineries, work premises and other materials; The bank urged that the letter agreement entered into with CESI was
and 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
(2) The workers recruited and placed by such to handle specialized work. There is, of course, nothing illegal about
person are performing activities which are to the hiring persons to carry out "a specific project or undertaking the
principal business or operations of the c workers completion or termination of which [was] determined at the time of the
are habitually employed, 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).<äre||anº•1àw> The
(b) Labor-only contracting as defined herein is hereby letter agreement itself, however, merely required (CESI) to furnish the
prohibited and the person acting as contractor shall be bank with eleven 11) messengers for " a contract period from January
considered merely as an agent or intermediary of the 19, 1976 —." The eleven (11) messengers were thus supposed to
employer who shall be responsible to the workers in the render "temporary" services for an indefinite or unstated period of
same manner and extent as if the latter were directly time. Ricardo Orpiada himself was assigned to the bank's offices from
employed by him 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
(c) For cases not file under this Article, the Secretary of
service, whether such service is continuous or not, shall be considered
Labor shall determine through appropriate orders whether or
a regular employee (Article 281, Second paragraph). Assuming,
not the contracting out of labor is permissible in the light of
therefore, that Orpiada could properly be regarded as a casual (as
the circumstances of each case and after considering the
distinguished from a regular) employee of the bank, he became
operating needs of the employer and the rights of the
entitled to be regarded as a regular employee of the bank as soon as
workers involved. In such case, he may prescribe conditions
he had completed one year of service to the bank. Employers may not
and restrictions to insure the protection and welfare of the
terminate the service of a regular employee except for a just cause or
workers. (Emphasis supplied)
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
DO 18-02 Cases 36

the necessity of hiring regular or permanent employees and to enable of Incorporation of Interserve;6 (2) the Certificate of Registration of
them to keep their employees indefinitely on a temporary or casual Interserve with the Bureau of Internal Revenue;7 (3) the Income Tax
status, thus to deny them security of tenure in their jobs. Article 106 of Return, with Audited Financial Statements, of Interserve for 2001;8 and
the Labor Code is precisely designed to prevent such a result. (4) the Certificate of Registration of Interserve as an independent job
contractor, issued by the Department of Labor and Employment
(DOLE).9
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 As a result, petitioner asserted that respondents were employees of
is liable to Orpiada as if Orpiada had been directly, employed not only Interserve, since it was the latter which hired them, paid their wages,
by (CESI) but also by the bank. It may well be that the bank may in and supervised their work, as proven by: (1) respondents’ Personal
turn proceed against (CESI) to obtain reimbursement of, or some Data Files in the records of Interserve;10 (2) respondents’ Contract of
contribution to, the amounts which the bank will have to pay to Temporary Employment with Interserve;11 and (3) the payroll records
Orpiada; but this it is not necessary to determine here. of Interserve.12

WHEREFORE, the petition for certiorari is DENIED and the decision Petitioner, thus, sought the dismissal of respondents’ complaint
promulgated on 29 December 1983 of the National Labor Relations against it on the ground that the Labor Arbiter did not acquire
Commission is AFFIRMED. The Temporary Restraining Order issued by jurisdiction over the same in the absence of an employer-employee
this Court on 11 April 1984 is hereby lifted. Costs against petitioner. relationship between petitioner and the respondents.13

SO ORDERED. In a Decision dated 28 May 2003, the Labor Arbiter found that
respondents were employees of Interserve and not of petitioner. She
reasoned that the standard put forth in Article 280 of the Labor Code
Yap (Chairman), Narvasa, Melencio-Herrera and Cruz, JJ., concur. for determining regular employment (i.e., that the employee is
performing activities that are necessary and desirable in the usual
business of the employer) was not determinative of the issue of
G.R. No. 179546 February 13, 2009 whether an employer-employee relationship existed between
petitioner and respondents. While respondents performed activities
COCA-COLA BOTTLERS PHILS., INC., Petitioner, that were necessary and desirable in the usual business or trade of
vs. petitioner, the Labor Arbiter underscored that respondents’ functions
ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR., were not indispensable to the principal business of petitioner, which
ALFONSO PAA, JR., DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL was manufacturing and bottling soft drink beverages and similar
H. FRANCISCO, and EDWIN M. GOLEZ, Respondents. products.

CHICO-NAZARIO, J.: The Labor Arbiter placed considerable weight on the fact that
Interserve was registered with the DOLE as an independent job
contractor, with total assets amounting to P1,439,785.00 as of 31
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of December 2001. It was Interserve that kept and maintained
Court, assailing the Decision1 dated 19 February 2007, promulgated by respondents’ employee records, including their Personal Data Sheets;
the Court of Appeals in CA-G.R. SP No. 85320, reversing the Resolution2 Contracts of Employment; and remittances to the Social Securities
rendered on 30 October 2003 by the National Labor Relations System (SSS), Medicare and Pag-ibig Fund, thus, further supporting the
Commission (NLRC) in NLRC NCR CA No. 036494-03. The Court of Labor Arbiter’s finding that respondents were employees of Interserve.
Appeals, in its assailed Decision, declared that respondents Alan M. She ruled that the circulars, rules and regulations which petitioner
Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso Paa, Jr., issued from time to time to respondents were not indicative of control
Dempster P. Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M. as to make the latter its employees.
Golez were regular employees of petitioner Coca-Cola Bottlers Phils.,
Inc; and that Interserve Management & Manpower Resources, Inc.
(Interserve) was a labor-only contractor, whose presence was intended Nevertheless, the Labor Arbiter directed Interserve to pay respondents
merely to preclude respondents from acquiring tenurial security. their pro-rated 13th month benefits for the period of January 2002 until
April 2002.14

Petitioner is a domestic corporation duly registered with the Securities


and Exchange Commission (SEC) and engaged in manufacturing, In the end, the Labor Arbiter decreed:
bottling and distributing soft drink beverages and other allied products.
WHEREFORE, judgment is hereby rendered finding that [herein
On 15 April 2002, respondents filed before the NLRC two complaints respondents] are employees of [herein petitioner] INTERSERVE
against petitioner, Interserve, Peerless Integrated Services, Inc., Better MANAGEMENT & MANPOWER RESOURCES, INC. Concomitantly,
Builders, Inc., and Excellent Partners, Inc. for reinstatement with respondent Interserve is further ordered to pay [respondents] their
backwages, regularization, nonpayment of 13th month pay, and pro-rated 13th month pay.
damages. The two cases, docketed as NLRC NCR Case No. 04-02345-
2002 and NLRC NCR Case No. 05-03137-02, were consolidated. The complaints against COCA-COLA BOTTLERS PHILS., INC. is
DISMISMMED for lack of merit.
Respondents alleged in their Position Paper that they were salesmen
assigned at the Lagro Sales Office of petitioner. They had been in the In like manner the complaints against PEERLESS INTEGRATED
employ of petitioner for years, but were not regularized. Their SERVICES, INC., BETTER BUILDING INC. and EXCELLENT PARTNERS
employment was terminated on 8 April 2002 without just cause and COOPERATIVE are DISMISSED for failure of complainants to pursue
due process. However, they failed to state the reason/s for filing a against them.
complaint against Interserve; Peerless Integrated Services, Inc.; Better
Builders, Inc.; and Excellent Partners, Inc.3
Other claims are dismissed for lack of merit.
Petitioner filed its Position Paper (with Motion to Dismiss),4 where it
averred that respondents were employees of Interserve who were The computation of the Computation and Examination Unit, this
tasked to perform contracted services in accordance with the Commission if (sic) made part of this Decision. 15
provisions of the Contract of Services5 executed between petitioner
and Interserve on 23 March 2002. Said Contract between petitioner
and Interserve, covering the period of 1 April 2002 to 30 September Unsatisfied with the foregoing Decision of the Labor Arbiter,
2002, constituted legitimate job contracting, given that the latter was a respondents filed an appeal with the NLRC, docketed as NLRC NCR CA
bona fide independent contractor with substantial capital or No. 036494-03.
investment in the form of tools, equipment, and machinery necessary
in the conduct of its business.
In their Memorandum of Appeal,16 respondents maintained that
contrary to the finding of the Labor Arbiter, their work was
To prove the status of Interserve as an independent contractor, indispensable to the principal business of petitioner. Respondents
petitioner presented the following pieces of evidence: (1) the Articles supported their claim with copies of the Delivery Agreement17 between
petitioner and TRMD Incorporated, stating that petitioner was
DO 18-02 Cases 37

"engaged in the manufacture, distribution and sale of soft drinks and Petitioner filed a Motion for Reconsideration, which the Court of
other related products with various plants and sales offices and Appeals denied in a Resolution, dated 31 August 2007.27
warehouses located all over the Philippines." Moreover, petitioner
supplied the tools and equipment used by respondents in their jobs
such as forklifts, pallet, etc. Respondents were also required to work in Hence, the present Petition, in which the following issues are raised28:
the warehouses, sales offices, and plants of petitioner. Respondents
pointed out that, in contrast, Interserve did not own trucks, pallets I
cartillas, or any other equipment necessary in the sale of Coca-Cola
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE
products. WITH EVIDENCE ON RECORD, APPLICABLE LAWS AND ESTABLISHED
JURISPRUDENCE WHEN IT RULED THAT INTERSERVE IS A LABOR-ONLY
Respondents further averred in their Memorandum of Appeal that CONTRACTOR;
petitioner exercised control over workers supplied by various II
contractors. Respondents cited as an example the case of Raul Arenajo WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE
(Arenajo), who, just like them, worked for petitioner, but was made to WITH APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT
appear as an employee of the contractor Peerless Integrated Services, CONCLUDED THAT RESPONDENTS PERFORMED WORK NECESSARY
Inc. As proof of control by petitioner, respondents submitted copies of: AND DESIRABLE TO THE BUSINESS OF [PETITIONER];
(1) a Memorandum18 dated 11 August 1998 issued by Vicente Dy (Dy), III
a supervisor of petitioner, addressed to Arenajo, suspending the latter WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS
from work until he explained his disrespectful acts toward the ERROR WHEN IT DECLARED THAT RESPONDENTS WERE EMPLOYEES OF
supervisor who caught him sleeping during work hours; (2) a [PETITIONER], EVEN ABSENT THE FOUR ELEMENTS INDICATIVE OF AN
Memorandum19 dated 12 August 1998 again issued by Dy to Arenajo, EMPLOYMENT RELATIONSHIP; AND
informing the latter that the company had taken a more lenient and IV
tolerant position regarding his offense despite having found cause for WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED WHEN
his dismissal; (3) Memorandum20 issued by Dy to the personnel of IT CONCLUDED THAT INTERSERVE WAS ENGAGED BY [PETITIONER] TO
Peerless Integrated Services, Inc., requiring the latter to present their SUPPLY MANPOWER ONLY.
timely request for leave or medical certificates for their absences; (4)
Personnel Workers Schedules, 21 prepared by RB Chua, another The Court ascertains that the fundamental issue in this case is whether
supervisor of petitioner; (5) Daily Sales Monitoring Report prepared by Interserve is a legitimate job contractor. Only by resolving such issue
petitioner;22 and (6) the Conventional Route System Proposed Set-up of will the Court be able to determine whether an employer-employee
petitioner. 23 relationship exists between petitioner and the respondents. To settle
the same issue, however, the Court must necessarily review the factual
findings of the Court of Appeals and look into the evidence presented
The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor by the parties on record.
Arbiter’s Decision dated 28 May 2003 and pronounced that no
employer-employee relationship existed between petitioner and
respondents. It reiterated the findings of the Labor Arbiter that As a general rule, factual findings of the Court of Appeals are binding
Interserve was an independent contractor as evidenced by its upon the Supreme Court. One exception to this rule is when the factual
substantial assets and registration with the DOLE. In addition, it was findings of the former are contrary to those of the trial court, or the
Interserve which hired and paid respondents’ wages, as well as paid lower administrative body, as the case may be. This Court is obliged to
and remitted their SSS, Medicare, and Pag-ibig contributions. resolve an issue of fact herein due to the incongruent findings of the
Respondents likewise failed to convince the NLRC that the instructions Labor Arbiter and the NLRC and those of the Court of Appeals. 29
issued and trainings conducted by petitioner proved that petitioner
exercised control over respondents as their employer.24 The dispositive
The relations which may arise in a situation, where there is an
part of the NLRC Resolution states: 25 employer, a contractor, and employees of the contractor, are identified
and distinguished under Article 106 of the Labor Code:
WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit.
However, respondent Interserve Management & Manpower Resources, Article 106. Contractor or subcontractor. - Whenever an employer
Inc., is hereby ordered to pay the [herein respondents] their pro-rated
enters into a contract with another person for the performance of the
13th month pay. 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
Aggrieved once more, respondents sought recourse with the Court of this Code.
Appeals by filing a Petition for Certiorari under Rule 65, docketed as
CA-G.R. SP No. 85320.
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
The Court of Appeals promulgated its Decision on 9 February 2007, jointly and severally liable with his contractor or subcontractor to such
reversing the NLRC Resolution dated 30 October 2003. The appellate employees to the extent of the work performed under the contract, in
court ruled that Interserve was a labor-only contractor, with insufficient the same manner and extent that he is liable to employees directly
capital and investments for the services which it was contracted to employed by him.
perform. With only P510,000.00 invested in its service vehicles and
P200,000.00 in its machineries and equipment, Interserve would be
The Secretary of Labor may, by appropriate regulations, restrict or
hard-pressed to meet the demands of daily soft drink deliveries of prohibit the contracting out of labor to protect the rights of workers
petitioner in the Lagro area. The Court Appeals concluded that the
established under this Code. In so prohibiting or restriction, he may
respondents used the equipment, tools, and facilities of petitioner in make appropriate distinctions between labor-only contracting and job
the day-to-day sales operations.
contracting as well as differentiations within these types of contracting
and determine who among the parties involved shall be considered the
Additionally, the Court of Appeals determined that petitioner had employer for purposes of this Code, to prevent any violation or
effective control over the means and method of respondents’ work as circumvention of any provision of this Code.
evidenced by the Daily Sales Monitoring Report, the Conventional
Route System Proposed Set-up, and the memoranda issued by the
There is "labor-only" contracting where the person supplying workers
supervisor of petitioner addressed to workers, who, like respondents, to an employee does not have substantial capital or investment in the
were supposedly supplied by contractors. The appellate court deemed
form of tools, equipment, machineries, work premises, among others,
that the respondents, who were tasked to deliver, distribute, and sell and the workers recruited and placed by such persons are performing
Coca-Cola products, carried out functions directly related and
activities which are directly related to the principal business of such
necessary to the main business of petitioner. The appellate court employer. In such cases, the person or intermediary shall be
finally noted that certain provisions of the Contract of Service between
considered merely as an agent of the employer who shall be
petitioner and Interserve suggested that the latter’s undertaking did responsible to the workers in the same manner and extent as if the
not involve a specific job, but rather the supply of manpower.
latter were directly employed by him.

The decretal portion of the Decision of the Court of Appeals reads:26 The afore-quoted provision recognizes two possible relations among
the parties: (1) the permitted legitimate job contract, or (2) the
WHEREFORE, the petition is GRANTED. The assailed Resolutions of prohibited labor-only contracting.
public respondent NLRC are REVERSED and SET ASIDE. The case is
remanded to the NLRC for further proceedings.
DO 18-02 Cases 38

A legitimate job contract, wherein an employer enters into a contract the principal and the employees of the contractor or sub-contractor;
with a job contractor for the performance of the former’s work, is and (2) the solidary liability of the principal and the contractor to the
permitted by law. Thus, the employer-employee relationship between employees in the event of any violation of the Labor Code.
the job contractor and his employees is maintained. In legitimate job
contracting, the law creates an employer-employee relationship
between the employer and the contractor’s employees only for a Petitioner argues that there could not have been labor-only
limited purpose, i.e., to ensure that the employees are paid their contracting, since respondents did not perform activities that were
wages. The employer becomes jointly and severally liable with the job indispensable to petitioner’s principal business. And, even assuming
contractor only for the payment of the employees’ wages whenever that they did, such fact alone does not establish an employer-
the contractor fails to pay the same. Other than that, the employer is employee relationship between petitioner and the respondents, since
not responsible for any claim made by the contractor’s employees.30 respondents were unable to show that petitioner exercised the power
to select and hire them, pay their wages, dismiss them, and control
their conduct.
On the other hand, labor-only contracting is an arrangement wherein
the contractor merely acts as an agent in recruiting and supplying the
principal employer with workers for the purpose of circumventing labor The argument of petitioner is untenable.
law provisions setting down the rights of employees. It is not condoned
by law. A finding by the appropriate authorities that a contractor is a
The law clearly establishes an employer-employee relationship
"labor-only" contractor establishes an employer-employee relationship between the principal employer and the contractor’s employee upon a
between the principal employer and the contractor’s employees and
finding that the contractor is engaged in "labor-only" contracting.
the former becomes solidarily liable for all the rightful claims of the Article 106 of the Labor Code categorically states: "There is ‘labor-only’
employees. 31
contracting where the person supplying workers to an employee does
not have substantial capital or investment in the form of tools,
Section 5 of the Rules Implementing Articles 106-109 of the Labor equipment, machineries, work premises, among others, and the
Code, as amended, provides the guidelines in determining whether workers recruited and placed by such persons are performing activities
labor-only contracting exists: which are directly related to the principal business of such employer."
Thus, performing activities directly related to the principal business of
the employer is only one of the two indicators that "labor-only"
Section 5. Prohibition against labor-only contracting. Labor-only contracting exists; the other is lack of substantial capital or
contracting is hereby declared prohibited. For this purpose, labor-only investment. The Court finds that both indicators exist in the case at
contracting shall refer to an arrangement where the contractor or bar.
subcontractor merely recruits, supplies, or places workers to perform a
job, work or service for a principal, and any of the following elements
are [is] present: Respondents worked for petitioner as salesmen, with the exception of
respondent Gil Francisco whose job was designated as leadman. In the
Delivery Agreement32 between petitioner and TRMD Incorporated, it is
i) The contractor or subcontractor does not have substantial stated that petitioner is engaged in the manufacture, distribution
capital or investment which relates to the job, work, or and sale of softdrinks and other related products. The work of
service to be performed and the employees recruited, respondents, constituting distribution and sale of Coca-Cola products,
supplied or placed by such contractor or subcontractor are is clearly indispensable to the principal business of petitioner. The
performing activities which are directly related to the main repeated re-hiring of some of the respondents supports this finding.33
business of the principal; or Petitioner also does not contradict respondents’ allegations that the
former has Sales Departments and Sales Offices in its various offices,
plants, and warehouses; and that petitioner hires Regional Sales
ii) The contractor does not exercise the right to control the Supervisors and District Sales Supervisors who supervise and control
performance of the work of the contractual employee. the salesmen and sales route helpers.34

The foregoing provisions shall be without prejudice to the application As to the supposed substantial capital and investment required of an
of Article 248(C) of the Labor Code, as amended. independent job contractor, petitioner calls the attention of the Court
to the authorized capital stock of Interserve amounting to P2,
000,000.00.35 It cites as authority Filipinas Synthetic Fiber Corp. v.
"Substantial capital or investment" refers to capital stocks and
National Labor Relations Commission36 and Frondozo v. National Labor
subscribed capitalization in the case of corporations, tools, equipment,
Relations Commission,37 where the contractors’ authorized capital
implements, machineries and work premises, actually and directly
stock of P1,600,000.00 and P2,000,000.00, respectively, were
used by the contractor or subcontractor in the performance or
considered substantial for the purpose of concluding that they were
completion of the job, work, or service contracted out.
legitimate job contractors. Petitioner also refers to Neri v. National
Labor Relations Commission38 where it was held that a contractor
The "right to control" shall refer to the right reversed to the person for ceases to be a labor-only contractor by having substantial capital
whom the services of the contractual workers are performed, to alone, without investment in tools and equipment.
determine not only the end to be achieved, but also the manner and
means to be used in reaching that end. (Emphasis supplied.)
This Court is unconvinced.

When there is labor-only contracting, Section 7 of the same


At the outset, the Court clarifies that although Interserve has an
implementing rules, describes the consequences thereof:
authorized capital stock amounting to P2, 000,000.00, only
P625,000.00 thereof was paid up as of 31 December 2001. The Court
Section 7. Existence of an employer-employee relationship.—The does not set an absolute figure for what it considers substantial capital
contractor or subcontractor shall be considered the employer of the for an independent job contractor, but it measures the same against
contractual employee for purposes of enforcing the provisions of the the type of work which the contractor is obligated to perform for the
Labor Code and other social legislation. The principal, however, shall principal. However, this is rendered impossible in this case since the
be solidarily liable with the contractor in the event of any violation of Contract between petitioner and Interserve does not even specify the
any provision of the Labor Code, including the failure to pay wages. work or the project that needs to be performed or completed by the
latter’s employees, and uses the dubious phrase "tasks and activities
that are considered contractible under existing laws and regulations."
The principal shall be deemed the employer of the contractual Even in its pleadings, petitioner carefully sidesteps identifying or
employee in any of the following case, as declared by a competent describing the exact nature of the services that Interserve was
authority: obligated to render to petitioner. The importance of identifying with
particularity the work or task which Interserve was supposed to
accomplish for petitioner becomes even more evident, considering that
a. where there is labor-only contracting; or the Articles of Incorporation of Interserve states that its primary
purpose is to operate, conduct, and maintain the business of janitorial
b. where the contracting arrangement falls within the and allied services.39 But respondents were hired as salesmen and
prohibitions provided in Section 6 (Prohibitions) hereof. leadman for petitioner. The Court cannot, under such ambiguous
circumstances, make a reasonable determination if Interserve had
substantial capital or investment to undertake the job it was
According to the foregoing provision, labor-only contracting would give contracting with petitioner.
rise to: (1) the creation of an employer-employee relationship between
DO 18-02 Cases 39

Petitioner cannot seek refuge in Neri v. National Labor Relations equipment necessary for such task, and the valuation of such
Commission. Unlike in Neri, petitioner was unable to prove in the equipment. Absent evidence which a legally compliant company could
instant case that Interserve had substantial capitalization to be an have easily provided, the Court will not presume that Interserve had
independent job contractor. In San Miguel Corporation v. MAERC sufficient investment in service vehicles and equipment, especially
Integrated Services, Inc.,40 therein petitioner San Miguel Corporation since respondents’ allegation – that they were using equipment, such
similarly invoked Neri, but was rebuffed by the Court based on the as forklifts and pallets belonging to petitioner, to carry out their jobs –
following ratiocination41 : was uncontroverted.

Petitioner also ascribes as error the failure of the Court of Appeals to In sum, Interserve did not have substantial capital or investment in the
apply the ruling in Neri v. NLRC. In that case, it was held that the law form of tools, equipment, machineries, and work premises; and
did not require one to possess both substantial capital and investment respondents, its supposed employees, performed work which was
in the form of tools, equipment, machinery, work premises, among directly related to the principal business of petitioner. It is, thus,
others, to be considered a job contractor. The second condition to evident that Interserve falls under the definition of a "labor-only"
establish permissible job contracting was sufficiently met if one contractor, under Article 106 of the Labor Code; as well as Section 5(i)
possessed either attribute. of the Rules Implementing Articles 106-109 of the Labor Code, as
amended.

Accordingly, petitioner alleged that the appellate court and the NLRC
erred when they declared MAERC a labor-only contractor despite the The Court, however, does not stop at this finding. It is also apparent
finding that MAERC had investments amounting to P4,608,080.00 that Interserve is a labor-only contractor under Section 5(ii)44 of the
consisting of buildings, machinery and equipment. Rules Implementing Articles 106-109 of the Labor Code, as amended,
since it did not exercise the right to control the performance of the
work of respondents.
However, in Vinoya v. NLRC, 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 The lack of control of Interserve over the respondents can be gleaned
independent contractor. In fact, jurisprudential holdings were to the from the Contract of Services between Interserve (as the
effect that in determining the existence of an independent contractor CONTRACTOR) and petitioner (as the CLIENT), pertinent portions of
relationship, several factors may be considered, such as, but not which are reproduced below:
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 WHEREAS, the CONTRACTOR is engaged in the business, among
the performance of specified pieces of work; the control and others, of performing and/or undertaking, managing for consideration,
supervision of the workers; the power of the employer with respect to varied projects, jobs and other related management-oriented services;
the hiring, firing and payment of the workers of the contractor; the
control of the premises; the duty to supply premises, tools, appliances, WHEREAS, the CONTRACTOR warrants that it has the necessary
materials and labor; and the mode, manner and terms of payment.
capital, expertise, technical know-how and a team of professional
management group and personnel to undertake and assume the
In Neri, the Court considered not only the fact that respondent Building responsibility to carry out the above mentioned project and services;
Care Corporation (BCC) had substantial capitalization but noted that
BBC carried on an independent business and performed its contract WHEREAS, the CLIENT is desirous of utilizing the services and facilities
according to its own manner and method, free from the control and
of the CONTRACTOR for emergency needs, rush jobs, peak product
supervision of its principal in all matters except as to the results loads, temporary, seasonal and other special project requirements the
thereof. The Court likewise mentioned that the employees of BCC were
extent that the available work of the CLIENT can properly be done by
engaged to perform specific special services for their principal. The an independent CONTRACTOR permissible under existing laws and
status of BCC had also been passed upon by the Court in a previous
regulations;
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." WHEREAS, the CONTRACTOR has offered to perform specific
Furthermore, there were only two (2) complainants in that case who jobs/works at the CLIENT as stated heretofore, under the terms and
were not only selected and hired by the contractor before being conditions herein stated, and the CLIENT has accepted the offer.
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. NOW THEREFORE, for and in consideration of the foregoing premises
and of the mutual covenants and stipulations hereinafter set forth, the
parties have hereto have stated and the CLIENT has accepted the
Thus, in San Miguel Corporation, the investment of MAERC, the offer:
contractor therein, in the form of buildings, tools, and equipment of
more than P4,000,000.00 did not impress the Court, which still
declared MAERC to be a labor-only contractor. In another case, Dole 1. The CONTRACTOR agrees and undertakes to perform
Philippines, Inc. v. Esteva,42 the Court did not recognize the contractor and/or provide for the CLIENT, on a non-exclusive basis for
therein as a legitimate job contractor, despite its paid-up capital of tasks or activities that are considered contractible under
over P4,000,000.00, in the absence of substantial investment in tools existing laws and regulations, as may be needed by the
and equipment used in the services it was rendering. CLIENT from time to time.

Insisting that Interserve had substantial investment, petitioner assails, 2. To carry out the undertakings specified in the immediately
for being purely speculative, the finding of the Court of Appeals that preceding paragraph, the CONTRACTOR shall employ the
the service vehicles and equipment of Interserve, with the values of necessary personnel like Route Helpers, Salesmen, Drivers,
P510,000.00 and P200,000.00, respectively, could not have met the Clericals, Encoders & PD who are at least
demands of the Coca-Cola deliveries in the Lagro area. Technical/Vocational courses graduates provided with
adequate uniforms and appropriate identification cards, who
are warranted by the CONTRACTOR to be so trained as to
Yet again, petitioner fails to persuade. efficiently, fully and speedily accomplish the work and
services undertaken herein by the CONTRACTOR. The
CONTRACTOR represents that its personnel shall be in such
The contractor, not the employee, has the burden of proof that it has number as will be sufficient to cope with the requirements of
the substantial capital, investment, and tool to engage in job
the services and work herein undertaken and that such
contracting.43 Although not the contractor itself (since Interserve no personnel shall be physically fit, of good moral character and
longer appealed the judgment against it by the Labor Arbiter), said
has not been convicted of any crime. The CLIENT, however,
burden of proof herein falls upon petitioner who is invoking the may request for the replacement of the CONTRACTOR’S
supposed status of Interserve as an independent job contractor.
personnel if from its judgment, the jobs or the projects being
Noticeably, petitioner failed to submit evidence to establish that the done could not be completed within the time specified or
service vehicles and equipment of Interserve, valued at P510,000.00
that the quality of the desired result is not being achieved.
and P200,000.00, respectively, were sufficient to carry out its service
contract with petitioner. Certainly, petitioner could have simply
provided the courts with records showing the deliveries that were 3. It is agreed and understood that the CONTRACTOR’S
undertaken by Interserve for the Lagro area, the type and number of personnel will comply with CLIENT, CLIENT’S policies, rules
DO 18-02 Cases 40

and regulations and will be subjected on-the-spot search by investments were likewise sufficient to maintain an independent
CLIENT, CLIENT’S duly authorized guards or security men on contracting business for the delivery and distribution of Coca-Cola
duty every time the assigned personnel enter and leave the products.
premises during the entire duration of this agreement.

With the finding that Interserve was engaged in prohibited labor-only


4. The CONTRACTOR further warrants to make available at contracting, petitioner shall be deemed the true employer of
times relievers and/or replacements to ensure continuous respondents. As regular employees of petitioner, respondents cannot
and uninterrupted service as in the case of absences of any be dismissed except for just or authorized causes, none of which were
personnel above mentioned, and to exercise the necessary alleged or proven to exist in this case, the only defense of petitioner
and due supervision over the work of its personnel.45 against the charge of illegal dismissal being that respondents were not
its employees. Records also failed to show that petitioner afforded
respondents the twin requirements of procedural due process, i.e.,
Paragraph 3 of the Contract specified that the personnel of contractor notice and hearing, prior to their dismissal. Respondents were not
Interserve, which included the respondents, would comply with served notices informing them of the particular acts for which their
"CLIENT" as well as "CLIENT’s policies, rules and regulations." It even dismissal was sought. Nor were they required to give their side
required Interserve personnel to subject themselves to on-the-spot regarding the charges made against them. Certainly, the respondents’
searches by petitioner or its duly authorized guards or security men on dismissal was not carried out in accordance with law and, therefore,
duty every time the said personnel entered and left the premises of illegal.48
petitioner. Said paragraph explicitly established the control of
petitioner over the conduct of respondents. Although under paragraph
4 of the same Contract, Interserve warranted that it would exercise the Given that respondents were illegally dismissed by petitioner, they are
necessary and due supervision of the work of its personnel, there is a entitled to reinstatement, full backwages, inclusive of allowances, and
dearth of evidence to demonstrate the extent or degree of supervision to their other benefits or the monetary equivalents thereof computed
exercised by Interserve over respondents or the manner in which it from the time their compensations were withheld from them up to the
was actually exercised. There is even no showing that Interserve had time of their actual reinstatement, as mandated under Article 279 of
representatives who supervised respondents’ work while they were in the Labor Code,.
the premises of petitioner.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Court


Also significant was the right of petitioner under paragraph 2 of the AFFIRMS WITH MODIFICATION the Decision dated 19 February 2007 of
Contract to "request the replacement of the CONTRACTOR’S the Court of Appeals in CA-G.R. SP No. 85320. The Court DECLARES
personnel." True, this right was conveniently qualified by the phrase "if that respondents were illegally dismissed and, accordingly, ORDERS
from its judgment, the jobs or the projects being done could not be petitioner to reinstate them without loss of seniority rights, and to pay
completed within the time specified or that the quality of the desired them full back wages computed from the time their compensation was
result is not being achieved," but such qualification was rendered withheld up to their actual reinstatement. Costs against the petitioner.
meaningless by the fact that the Contract did not stipulate what work
or job the personnel needed to complete, the time for its completion,
or the results desired. The said provision left a gap which could enable SO ORDERED.
petitioner to demand the removal or replacement of any employee in
the guise of his or her inability to complete a project in time or to
deliver the desired result. The power to recommend penalties or G.R. No. 177785 September 3, 2008
dismiss workers is the strongest indication of a company’s right of
control as direct employer.46 RANDY ALMEDA, EDWIN M. AUDENCIAL, NOLIE D. RAMIREZ,
ERNESTO M. CALICAGAN and REYNALDO M. CALICAGAN,
Paragraph 4 of the same Contract, in which Interserve warranted to petitioners,
petitioner that the former would provide relievers and replacements in vs.
case of absences of its personnel, raises another red flag. An ASAHI GLASS PHILIPPINES, INC., respondent.
independent job contractor, who is answerable to the principal only for
the results of a certain work, job, or service need not guarantee to said CHICO-NAZARIO, J.:
principal the daily attendance of the workers assigned to the latter. An
independent job contractor would surely have the discretion over the
pace at which the work is performed, the number of employees Before this Court is a Petition for Review on Certiorari under Rule 45 of
required to complete the same, and the work schedule which its the Revised Rules of Court, filed by petitioners Randy Almeda, Edwin
employees need to follow. Audencial, Nolie Ramirez, Ernesto Calicagan and Reynaldo Calicagan,
seeking to reverse and set aside the Decision1 dated 10 November
2006 and the Resolution2 dated 27 April 2007 of the Court of Appeals
As the Court previously observed, the Contract of Services between in CA-G.R. SP No. 93291. The appellate court reversed and set aside
Interserve and petitioner did not identify the work needed to be the Decision dated 29 June 2005 and Resolution dated 24 November
performed and the final result required to be accomplished. Instead, 2005 of the National Labor Relations Commission (NLRC) in NLRC NCR
the Contract specified the type of workers Interserve must provide CA No. 039768-04 finding respondent Asahi Glass Philippines, Inc.
petitioner ("Route Helpers, Salesmen, Drivers, Clericals, Encoders & jointly and severally liable with San Sebastian Allied Services, Inc.
PD") and their qualifications (technical/vocational course graduates, (SSASI) for illegal dismissal, and ordering both respondent and SSASI to
physically fit, of good moral character, and have not been convicted of reinstate petitioners to their former positions and to pay their
any crime). The Contract also states that, "to carry out the backwages from 2 December 2002 up to the date of their actual
undertakings specified in the immediately preceding paragraph, the reinstatement. Instead, the Court of Appeals reinstated the Decision
CONTRACTOR shall employ the necessary personnel," thus, dated 18 February 2004 of the Labor Arbiter dismissing petitioners’
acknowledging that Interserve did not yet have in its employ the complaint for illegal dismissal against respondent and SSASI, but
personnel needed by petitioner and would still pick out such personnel ordering the payment of separation benefits to petitioners.
based on the criteria provided by petitioner. In other words, Interserve
did not obligate itself to perform an identifiable job, work, or service for
petitioner, but merely bound itself to provide the latter with specific The present Petition arose from a complaint for illegal dismissal with
types of employees. These contractual provisions strongly indicated claims for moral and exemplary damages and attorney’s fees filed by
that Interserve was merely a recruiting and manpower agency petitioners against respondent and SSASI.
providing petitioner with workers performing tasks directly related to
the latter’s principal business.
In their Complaint3 filed before the Labor Arbiter, petitioners alleged
that respondent (a domestic corporation engaged in the business of
The certification issued by the DOLE stating that Interserve is an glass manufacturing) and SSASI (a labor-only contractor) entered into a
independent job contractor does not sway this Court to take it at face service contract on 5 March 2002 whereby the latter undertook to
value, since the primary purpose stated in the Articles of provide the former with the necessary manpower for its operations.
Incorporation47 of Interserve is misleading. According to its Articles of Pursuant to such a contract, SSASI employed petitioners Randy
Incorporation, the principal business of Interserve is to provide Almeda, Edwin Audencial, Nolie Ramirez and Ernesto Calicagan as
janitorial and allied services. The delivery and distribution of Coca-Cola glass cutters, and petitioner Reynaldo Calicagan as Quality Controller,4
products, the work for which respondents were employed and assigned all assigned to work for respondent. Petitioners worked for respondent
to petitioner, were in no way allied to janitorial services. While the for periods ranging from three to 11 years.5 On 1 December 2002,
DOLE may have found that the capital and/or investments in tools and respondent terminated its service contract with SSASI, which in turn,
equipment of Interserve were sufficient for an independent contractor terminated the employment of petitioners on the same date. Believing
for janitorial services, this does not mean that such capital and/or that SSASI was a labor-only contractor, and having continuously
DO 18-02 Cases 41

worked as glass cutters and quality controllers for the respondent - respondent and not of SSASI. Hence, the NLRC ruled in its Decision8
functions which are directly related to its main line of business as glass dated 29 June 2005:
manufacturer - for three to 11 years, petitioners asserted that they
should be considered regular employees of the respondent; and that
their dismissal from employment without the benefit of due process of WHEREFORE, the decision appealed from is hereby VACATED
law was unlawful. In support of their complaint, petitioners submitted a and SET ASIDE. [Herein respondent] and [SSASI] are hereby
copy of their work schedule to show that they were under the direct ordered to: (1) reinstate the [herein petitioners] to their
control of the respondent which dictated the time and manner of former position as glass cutters; and (2) pay [petitioners’]
performing their jobs. full backwages from December 2, 2002 up to the date of
their actual reinstatement. The liability of [respondent] and
[SSASI] for [petitioners’] backwages is further declared to be
Respondent, on the other hand, refuted petitioners’ allegations that joint and several.
they were its regular employees. Instead, respondent claimed that
petitioners were employees of SSASI and were merely assigned by
SSASI to work for respondent to perform intermittent services pursuant Only respondent moved for the reconsideration of the foregoing NLRC
to an Accreditation Agreement, dated 5 March 2002, the validity of Decision. Respondent prayed that the NLRC vacate its previous finding
which was never assailed by the petitioners. Respondent contested that SSASI was a labor-only contractor and that it was guilty of the
petitioners’ contention that they were performing functions that were illegal dismissal of petitioners. In a Resolution9 dated 24 November
directly related to respondent’s main business since petitioners were 2005, the NLRC denied the Motion for Reconsideration of respondent
simply tasked to do mirror cutting, an activity occasionally performed for lack of compelling justification to modify, alter or reverse its earlier
upon a customer’s order. Respondent likewise denied exercising Decision.
control over petitioners and asserted that such was wielded by SSASI.
Finally, respondent maintained that SSASI was engaged in legitimate This prompted respondent to elevate its case to the Court of Appeals
job contracting and was licensed by the Department of Labor and
by the filing of a Petition for Certiorari with Application for the Issuance
Employment (DOLE) to engage in such activity as shown in its of Temporary Restraining Order (TRO),10 alleging that the NLRC abused
Certificate of Registration.6 Respondent presented before the Labor
its discretion in ignoring the established facts and legal principles fully
Arbiter copies of the Opinion dated 18 February 2003 of DOLE substantiated by the documentary evidence on record and legal
Secretary Patricia Sto. Tomas authorizing respondent to contract out
opinions of labor officials, and in giving more credence to the empty
certain activities not necessary or desirable to the business of the allegations advanced by petitioners.
company; and the Opinion dated 10 July 2003 of DOLE Bureau of Labor
Relations (DOLE-BLR) Director Hans Leo Cacdac allowing respondent to
contract out even services that were not directly related to its main To prevent the execution of the Decision dated 25 June 2005 and
line of business. Resolution dated 24 November 2005 of the NLRC, respondent included
in its Petition a prayer for the issuance of a TRO, which it reiterated in
a motion filed on 29 August 2006. Acting on respondent’s motion, the
SSASI, for its part, claimed that it was a duly registered independent
Court of Appeals issued a TRO on 11 September 2006 enjoining the
contractor as evidenced by the Certificate of Registration issued by the NLRC from enforcing its 25 June 2005 Decision and 24 November 2005
DOLE on 3 January 2003. SSASI averred that it was the one who hired
Resolution.11
petitioners and assigned them to work for respondent on occasions
that the latter’s work force could not meet the demands of its
customers. Eventually, however, respondent ceased to give job orders On 10 November 2006, the Court of Appeals rendered a Decision
to SSASI, constraining the latter to terminate petitioners’ employment. granting respondent’s Petition for Certiorari and reversingthe NLRC
Decision dated 25 June 2005. The appellate court found merit in
respondent’s argument that the NLRC gravely abused its discretion in
On 18 February 2004, the Labor Arbiter promulgated his Decision7 not finding that there was a legitimate job contracting between
finding that respondent submitted overwhelming documentary
respondent and SSASI. SSASI is a legitimate job contractor as proven
evidence to refute the bare allegations of the petitioners and by its Certificate of Registration issued by the DOLE. Respondent
accordingly dismissing the complaint for lack of merit. However, he
entered into a valid service contract with SSASI, by virtue of which
also ordered the payment of separation benefits to petitioners. The petitioners were assigned by SSASI to work for respondent. The service
Labor Arbiter thus decreed:
contract itself, which was duly approved by the DOLE, defined the
relationship between SSASI and petitioners as one of employer-
WHEREFORE, premises considered, judgment is hereby employees. It was SSASI which exercised the power of control over
rendered declaring that the instant case should be, as it is petitioners. Petitioners were merely allowed to work at respondent’s
hereby DISMISSED for lack of merit. However, the premises for reasons of efficiency. Moreover, it was SSASI, not
respondent San Sebastian Allied Services, Inc. is hereby respondent, who terminated petitioners’ services. The fallo of the
ordered to pay the [herein petitioners] Edwin M. Audencial, Decision of the Court of Appeals state:
Reynaldo Calicagan, Randy Almeda, Nolie D. Ramirez and
Ernesto Calicagan their respective separation benefits in the WHEREFORE, premises considered, the petition is GRANTED
following specified amounts:
and [NLRC’s] assailed 29 June 2005 Decision is, accordingly,
REVERSED and SET ASIDE. In lieu thereof, the 18 February
2004 Decision rendered in the case by Labor Arbiter
(1) Edwin Audencial P 41,327.00 Francisco A. Robles is REINSTATED.12

(2) Reynaldo M. Calicagan 15, 860.00 The Court of Appeals denied petitioners’ Motion for Reconsideration in
a Resolution dated 27 April 2007.

(3) Randy V. Almeda 45,084.00


Hence, petitioners come before this Court via the instant Petition for
Review on Certiorari assailing the 10 November 2006 Decision and 27
(4) Nolie Ramirez 15,028.00 April 2007 Resolution of the Court of Appeals based on the following
assignment of errors:
(5) Ernesto Calicagan 22,542.00
I.
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
REVERSING THE FINDING OF THE NLRC THAT RESPONDENT
All other claims are dismissed.
COMPANY IS ENGAGED IN LABOR-ONLY CONTRACTING.
II.
On appeal, the NLRC reversed the afore-quoted Decision of the Labor THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
Arbiter, giving more evidentiary weight to petitioners’ testimonies. It REVERSING THE RULING OF THE NLRC THAT SAN SEBASTIAN
appeared to the NLRC that SSASI was engaged in labor-only ALLIED SERVICES, INC. IS MERELY RESPONDENT’S AGENT
contracting since it did not have substantial capital and investment in AND RESPONDENT IS PETITIONERS’ REAL EMPLOYER.
the form of tools, equipment and machineries. The petitioners were III.
recruited and assigned by SSASI to respondent as glass cutters, THE COURT OF APPEALS COMMITTED AN ERROR IN
positions which were directly related to respondent’s principal business DISMISSING PETITIONERS’ COMPLAINT FOR ILLEGAL
of glass manufacturing. In light of the factual circumstances of the DISMISSAL.
case, the NLRC declared that petitioners were employees of
DO 18-02 Cases 42

It is apparent to this Court that the judicious resolution of the Petition status and financial capacity of SSASI to venture into and sustain its
at bar hinges on two elemental issues: (1) whether petitioners were own business independent from petitioner.
employees of respondent; and (2) if they were, whether they were
illegally dismissed.
Furthermore, the Court is unconvinced by respondent’s argument that
petitioners were performing jobs that were not directly related to
Respondent adamantly insists that petitioners were not its employees respondent’s main line of business. Respondent is engaged in glass
but those of SSASI, a legitimate job contractor duly licensed by the manufacturing. One of the petitioners served as a quality controller,
DOLE to undertake job contracting activities. The job performed by while the rest were glass cutters. The only excuse offered by
petitioners were not directly related to respondent’s primary venture respondent - that petitioners’ services were required only when there
as flat glass manufacturer, for they were assigned to the mirroring line was an increase in the market’s demand with which respondent could
to perform glass cutting on occasions when the employees of not cope - only prove even more that the services rendered by
respondent could not comply with the market’s intermittent increased petitioners were indeed part of the main business of respondent. It
demand. And even if petitioners were working at respondent’s would mean that petitioners supplemented the regular workforce when
premises, it was SSASI which effectively supervised the manner and the latter could not comply with the market’s demand; necessarily,
method petitioners performed their jobs, except as to the result therefore, petitioners performed the same functions as the regular
thereof. workforce. Even respondent’s claim that petitioners’ services were
required only intermittently, depending on the market, deserves scant
credit. The indispensability of petitioners’ services was fortified by the
The Court would only be able to deem petitioners as employees of length and continuity of their performance, lasting for periods ranging
respondent if it is established that SSASI was a labor-only contractor, from three to 11 years.
and not a legitimate job contractor or subcontractor.

More importantly, the Court finds that the crucial element of control
Permissible job contracting or subcontracting refers to an arrangement over petitioners rested in respondent. The power of control refers to
whereby a principal agrees to put out or farm out to a contractor or the authority of the employer to control the employee not only with
subcontractor the performance or completion of a specific job, work or regard to the result of work to be done, but also to the means and
service within a definite or predetermined period, regardless of methods by which the work is to be accomplished. It should be borne
whether such job, work or service is to be performed or completed in mind that the power of control refers merely to the existence of the
within or outside the premises of the principal.13 A person is considered power and not to the actual exercise thereof. It is not essential for the
engaged in legitimate job contracting or subcontracting if the following employer to actually supervise the performance of duties of the
conditions concur: employee; it is enough that the former has a right to wield the power.18

(a) The contractor or subcontractor carries on a distinct and In the instant case, petitioners worked at the respondent’s premises,
independent business and undertakes to perform the job, and nowhere else. Petitioners followed the work schedule prepared by
work or service on its own account and under its own respondent. They were required to observe all rules and regulations of
responsibility according to its own manner and method, and the respondent pertaining to, among other things, the quality of job
free from the control and direction of the principal in all performance, regularity of job output, and the manner and method of
matters connected with the performance of the work except accomplishing the jobs. Obscurity hounds respondent’s argument that
as to the results thereof; even if petitioners were working under its roof, it was still SSASI which
exercised control over the manner in which they accomplished their
work. There was no showing that it was SSASI who established
(b) The contractor or subcontractor has substantial capital or
petitioners’ working procedure and methods, or who supervised
investment; and
petitioners in their work, or who evaluated the same. Other than being
the one who hired petitioners, there was absolute lack of evidence that
(c) The agreement between the principal and contractor or SSASI exercised control over them or their work.
subcontractor assures the contractual employees
entitlement to all labor and occupational safety and health
The fact that it was SSASI which dismissed petitioners from
standards, free exercise of the right to self-organization,
employment is irrelevant. It is hardly proof of control, since it was
security of tenure, and social and welfare benefits.14
demonstrated only at the end of petitioners’ employment. What is
more, the dismissal of petitioners by SSASI was a mere result of the
On the other hand, labor-only contracting, a prohibited act, is an termination by respondent of its contractual relations with SSASI.
arrangement in which the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a
Despite respondent’s disavowal of the existence of an employer-
principal.15 In labor-only contracting, the following elements are
employee relationship between it and petitioners and its unyielding
present:
insistence that petitioners were employees of SSASI, the totality of the
facts and the surrounding circumstances of the case convey otherwise.
(a) The contractor or subcontractor does not have SSASI is a labor-only contractor; hence, it is considered as the agent of
substantial capital or investment to actually perform the job, respondent. Respondent is deemed by law as the employer of
work or service under its own account and responsibility; petitioners. Surely, respondent cannot expect this Court to sustain its
stance and accord full evidentiary weight to the documentary evidence
belatedly procured in its vain attempt to evade liability as petitioners’
(b) The employees recruited, supplied or placed by such employer.
contractor or subcontractor are performing activities which
are directly related to the main business of the principal.16
The Certificate of Registration presented by respondent to buttress its
position that SSASI is a duly registered job contractor is of little
In labor-only contracting, the statutes create an employer-employee significance, considering that it were issued only on 3 January 2003.
relationship for a comprehensive purpose: to prevent circumvention of There is no further proof that prior to said date, SSASI had already
labor laws. The contractor is considered as merely the agent of the registered with and had been recognized by the DOLE as a job
principal employer and the latter is responsible to the employees of contractor.
the labor-only contractor as if such employees are directly employed
by the principal employer.17 Therefore, if SSASI was a labor-only
contractor, then respondent shall be considered as the employer of Verily, the Certificate of Registration of SSASI, instead of supporting
petitioners who must bear the liability for the dismissal of the latter, if respondent’s case, only served to raise more doubts. The timing of the
any. registration of SSASI is highly suspicious. It is important to note that
SSASI was already providing respondent with workers, including
petitioners, long before SSASI was registered with the DOLE as a job
An important element of legitimate job contracting is that the contractor. Some of the petitioners were hired by SSASI and made to
contractor has substantial capital or investment, which respondent work for respondent for 11 years. Petitioners were also dismissed from
failed to prove. There is a dearth of evidence to prove that SSASI service only a month prior to the issuance of the Certificate of
possessed substantial capital or investment when respondent began Registration of SSASI. Neither respondent nor SSASI exerted any effort
contractual relations with it more than a decade before 2003. to explain the reason for the belated registration with the DOLE by
Respondent’s bare allegations, without supporting proof that SSASI had SSASI as a purported job contractor. It may be safely discerned from
substantial capital or investment, do not sway this Court. The Court did the surrounding circumstances that the Certificate of Registration of
not find a single financial statement or record to attest to the economic SSASI was merely secured in order to blanket the previous relations
between SSASI and respondent with legality.
DO 18-02 Cases 43

Moreover, the Certificate of Registration issued by the DOLE but only with respect to such activity and while such activity
recognized that SSASI was a legitimate job contractor only as of the exists.20
date of its issuance, 3 January 2003. There is no basis whatsoever to
give the said Certificate any retroactive effect. The Certificate can only
be used as reference by persons who would consider the services In the instant Petition, the Court has already declared that petitioners’
offered by SSASI subsequent to its issuance. Respondent, who entered employment as quality controllers and glass cutters are directly related
into contractual relations with SSASI way before the said Certificate, to the usual business or trade of respondent as a glass manufacturer.
cannot claim that it relied thereon. Respondent would have wanted this Court to believe that petitioners’
employment was dependent on the increased market demand.
However, bearing in mind that petitioners have worked for respondent
Hence, the status of SSASI as a job contractor previous to its for not less than three years and as much as 11 years, which
registration with the DOLE on 3 January 2003 is still refutable. It can respondent did not refute, then petitioners’ continued employment
only be determined upon an evaluation of its activities as contractor clearly demonstrates its continuing necessity and indispensability to
prior to the issuance of its Certificate of Registration. the business of respondent, raising their employment to regular status.
Thus, having gained regular status, petitioners were entitled to
security of tenure and could only be dismissed on just or authorized
For the same reasons, this Court cannot give much weight to the causes and after they had been accorded due process.21
Opinions dated 18 February 2003 and 10 July 2003 of DOLE Secretary
Sto. Tomas and DOLE-BLR Director Cacdac, respectively, allowing
respondent to contract out certain services. The said Opinions were As petitioners’ employer, respondent has the burden of proving that
noticeably issued only after the hiring and termination of petitioners. the dismissal was for a cause allowed under the law, and that they
And, although the Opinions allow respondent to contract out certain were afforded procedural due process.22 However, respondent failed to
services, they do not necessarily prove that the services respondent discharge this burden with substantial evidence as it noticeably
contracted to SSASI were actually among those it was allowed to narrowed its defense to the denial of any employer-employee
contract out; or that SSASI was a legitimate job contractor, thus, relationship between it and petitioners.
relieving respondent of any liability for the dismissal of petitioners by
SSASI.
The sole reason given for the dismissal of petitioners by SSASI was the
termination of its service contract with respondent. But since SSASI
Equally unavailing is respondent’s stance that its relationship with was a labor-only contractor, and petitioners were to be deemed the
petitioners should be governed by the Accreditation Agreement employees of respondent, then the said reason would not constitute a
stipulating that petitioners were to remain employees of SSASI and just or authorized cause23 for petitioners’ dismissal. It would then
shall not become regular employees of the respondent. To permit appear that petitioners were summarily dismissed based on the afore-
respondent to disguise the true nature of its transactions with SSASI by cited reason, without compliance with the procedural due process for
the terms of its contract, for the purpose of evading its liabilities under notice and hearing.
the law, would seriously impair the administration of justice. A party
cannot dictate, by the mere expedient of a unilateral declaration in a
contract, the character of its business, i.e., whether as labor-only Herein petitioners, having been unjustly dismissed from work, are
contractor or as job contractor, it being crucial that its character be entitled to reinstatement without loss of seniority rights and other
measured in terms of and determined by the criteria set by statute.19 privileges and to full back wages, inclusive of allowances, and to other
benefits or their monetary equivalents computed from the time
compensation was withheld up to the time of actual reinstatement.24
Having established that respondent was petitioners’ employer, the Their earnings elsewhere during the periods of their illegal dismissal
Court now proceeds to determining whether petitioners were dismissed shall not be deducted therefrom.25
in accordance with law.

WHEREFORE, premises considered, the instant Petition is GRANTED.


Article 280 of the Labor Code, as amended, reads - The Decision dated 10 November 2006 and Resolution dated 27 April
2007 of the Court of Appeals in CA-G.R. SP No. 93291 are REVERSED
and SET ASIDE. The Decision dated 29 June 2005 of the National
ART. 280. Regular and Casual Employment. - The provisions Labor Relations Commission in NLRC-NCR CA No. 039768-04 is thereby
of written agreement to the contrary notwithstanding and REINSTATED. Let the records of this case be remanded to the
regardless of the oral agreement of the parties, an Computation and Examination Unit of the NLRC for the proper
employment shall be deemed to be regular where the computation of subject money claims as above-discussed. No costs.
employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade
of the employer, except where the employment has been SO ORDERED.
fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the
engagement of the employee or where the work or services Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, Reyes, JJ.,
to be performed is seasonal in nature and the employment is concur.
for the duration of the season.
G.R. No. 168537 December 11, 2008
An employment shall be deemed to be casual if its is not
covered by the preceding paragraph: Provided, That, any
employee who has rendered at least one year of service, DAMIAN AKLAN, JUANITO AMIDO, REYNALDO BATICA, RAMIL
whether such service is continuous or broken, shall be BAUTISTA, WELARD BAUTISTA, MAMERTO BRIGOLI, ELMER
considered a regular employee with respect to the activity in CABOTEJA, JOEL CAMMAYO, WELFREDO CARIO, RODOLFO
which he is employed and his employment shall continue CINCO, ARWEN DABLO, RUBEN DE CASTRO, ROMEO DEL
while such activity exists. ROSARIO, RODERICK DELA CRUZ, ALEX DELA VEGA, JOAN ERICO
DUMALAGAN, JULITO DURIAN, JOSELITO DUYANEN, REX
FARNACIO, ROLANDO FELIZARDO, EFREN FERNANDEZ,
This Court expounded on the afore-quoted provision, thus - BERNARDO GALLOGO, EDUARDO GARCIA, REX IGNACIO, DANIEL
JAMISOLA, NOEL JANER, RAQUEL JANER, ROWAN JANER,
CONSORCIO LIÑAN, BERNARD MACARAEG, DARIO MACARAEG,
The primary standard, therefore, of determining a regular JESUS MACARAEG, EDGARDO MAHAGUAY, IRENEO ODIAMAR,
employment is the reasonable connection between the ALEXIS OLIVAR, ARNEL OLIVAR, EDUARDO PEREMNE, ALAN
particular activity performed by the employee in relation to QUILES, JOSEPH QUILES, RHONNEL RODIL, RONALDO
the usual business or trade of the employer. x x x The SALVADOR, RAMIL SANTIAGO, FRANCIS SUPRINO, REXES
connection can be determined by considering the nature of SUPRINO, RODRIGO SUPRINO, RONALD SUPRINO, EDUARDO
the work performed and its relation to the scheme of the TIONGSON, petitioners,
particular business or trade in its entirety. Also, if the vs.
employee has been performing the job for at least one year, SAN MIGUEL CORPORATION, BMA PHILASIA, INC., and ARLENE
even if the performance is not continuous or merely EUSEBIO, respondents.
intermittent, the law deems the repeated and continuing
need for its performance as sufficient evidence of the
necessity if not indispensability of that activity to the REYES, R.T., J.:
business. Hence, the employment is also considered regular,
DO 18-02 Cases 44

WE tackle in this labor case the dichotomy between impermissible tools. It submitted documentary evidence proving that BMA engaged
labor-only contracting and legitimate job contracting. the services of petitioners, paid for their wages and benefits, and
exercised exclusive control and supervision over them.

This is a review on certiorari of the Decision1 of the Court of Appeals


(CA) upholding that of the National Labor Relations Commission SMC showed that under their contract, BMA provided delivery trucks,
(NLRC), finding the dismissal of petitioners justified. drivers, and helpers in the storage and distribution of SMC products.
On a day-to-day basis, after the routes were made by SMC salesmen,
they would book the orders they obtained. In turn, BMA’s Schedular
The Facts Planner, detailed at the Pasig Warehouse, downloaded these booked
orders from the computer and processed the necessary documents to
be forwarded to the Warehouse Checker, also an employee of BMA.
Respondent BMA Philasia, Inc. (BMA) is a domestic corporation
SMC contended that petitioners were dismissed by BMA for staging a
engaged in the business of transporting and hauling of cargoes, goods,
two-hour strike without complying with the mandatory requirements
and commodities of all kinds. Respondent Arlene Eusebio is the
for a valid strike. As a result, BMA had to come up with ways and
president of BMA.
means in order to avoid the disruption of delivery operations.

Petitioners, numbering forty-seven (47) in all, are the former


Labor Arbiter and NLRC Dispositions
employees of respondent BMA at respondent San Miguel Corporation’s
(SMC) warehouse in Pasig City. They were hired under fixed-term
contracts beginning October 1999. After due hearings, Labor Arbiter Veneranda C. Guerrero found
respondent BMA liable for illegal dismissal and ordered the
reinstatement of petitioners. She ruled that the evidence presented
On July 31, 2001, a number of petitioners went to the Department of
duly established that BMA was a legitimate independent contractor
Labor and Employment (DOLE) District Office to file a complaint
and the actual employer of petitioners. Its failure, however, to comply
against BMA and Eusebio for underpayment of wages and non-
with the registration and reportorial requirements of the DOLE
payment of premium pay for rest day, 13th month pay, and service
rendered SMC, its principal, directly liable to the claims of petitioners.8
incentive leave pay.2
Thus, BMA and SMC were found jointly and severally liable for the
payment of petitioners’ backwages and money claims. The dispositive
On August 14, 2001, petitioner Elmer Caboteja was charged with part of the Arbiter ruling runs in this wise:
insubordination and disrespect to superior, failure to properly perform
his job assignment, and unauthorized change of schedule. He was
WHEREFORE, all the foregoing considered, judgment is
directed to submit his written explanation within forty-eight (48) hours.
hereby rendered finding respondent BMA Philasia, Inc., liable
On August 17, 2001, Caboteja was terminated for the offenses of
for illegal dismissal. Accordingly, is it hereby ordered to
disregard of company rules and regulations and rude attitude to
reinstate all of the complainants to their previous positions,
supervisors. On August 27, 2001, he filed a complaint for illegal
and to pay jointly and severally with respondent San Miguel
dismissal against BMA.3
the complainants’ backwages reckoned from the time of
their illegal dismissal up to their actual/payroll
On various dates thereafter, BMA agreed to a settlement with some of reinstatement, the aggregate amount of which as of this
the complainants in the case4 for underpayment of wages.5 Eleven of date amounts to SEVEN MILLION FIVE HUNDRED EIGHTEEN
the present petitioners executed quitclaims and releases in favor of THOUSAND TWO HUNDRED FIFTY-TWO AND 89/100 PESOS
BMA and Eusebio in the presence of DOLE district officers. BMA refused (P7,518,252.89). In addition respondents are solidarily held
to settle the claim of other complainants. liable to pay the complainants’ Daniel Jamisola, Rodolfo
Cinco, Eduardo Garcia, Dario Macaraeg, Romeo Del Rosario,
Alan Quiles, Joseph Quiles, Ronald Suprino, Rolando
On September 13, 2001, petitioners Joan Erico Dumalagan and Ronaldo Felizardo, Efren Fernandez, Damian Aklan, Welard Bautista,
Salvador were also terminated for failure to perform their job Rodrigo Suprino, Noel Janer, Jesus Macaraeg, Reynaldo
responsibilities. On September 17, 2001, Dumalagan and Salvador filed Batica, Rhonnel Rodil, Eduardo Peremne, Mamerto Brigoli,
complaints for illegal dismissal against BMA.6 Ireneo Odiamar, Rex Ignacio, Edgardo Mahaguay, Reyes
Suprino, Rodrigo Dela Cruz, Ramil Bautista, Francis Suprino,
Eduardo Tiongson, Joel Cammayo, Arwen Dablo, Alex Dela
On October 18, 2001, petitioners held a picket at the warehouse Vega, Bernard Gallogo, Rex Farnacio, Ruben De Castro,
premises to protest BMA’s refusal to pay the claim for underpayment Rowan Janer, Raquel Janer, and Bernardo Macaraeg their
of the rest of the workers. This picket disrupted the business salary differentials, service incentive leave pay and 13th
operations of private respondents, prompting BMA to terminate their month pay in the aggregate amount of ONE MILLION TWO
services. Subsequently, petitioners filed separate complaints against HUNDRED FIFTY-SIX THOUSAND THREE HUNDRED SIXTY-SIX
BMA, Eusebio, and SMC for illegal dismissal.7 All the complaints for and 80/100 PESOS (P1,256,366.80).
illegal dismissal were consolidated.

Respondents are further assessed the amount equivalent to


Petitioners alleged that they were illegally dismissed after filing a ten percent (10%) of the total award, as and for attorney’s
complaint for underpayment of wages and non-payment of benefits fees.
before the DOLE; they were terminated after staging a peaceful picket
to protest the non-payment of their claims. According to them, BMA is
a labor-only contractor. SMC was not only the owner of the warehouse The computation of the complainants’ individually adjudged
and equipment used by BMA, it was their true employer. The manner benefits shall form part of this Decision as Annex "A" hereof.
and means by which they performed their work were controlled by
SMC through its Sales Logistic Coordinator who was overseeing their
performance everyday. All other claims are DISMISSED for lack of merit.

Private respondents BMA and Eusebio countered that petitioners SO ORDERED.9 (Emphasis supplied)
Caboteja, Dumalagan, and Salvador were validly and justly dismissed.
They were among the eleven who already signed quitclaims and
Respondents appealed the decision of the Labor Arbiter to the NLRC.
releases before the DOLE district office after receiving an amount in
On December 19, 2003, the NLRC reversed the Labor Arbiter
settlement of their claims. As for the rest of petitioners (36
disposition and ruled that there was no illegal dismissal. The fallo of
complainants), there was no illegal dismissal to speak of. Said
the NLRC decision reads:
employees simultaneously did not go back to work for no apparent
reason on October 18, 2001.
WHEREFORE, in view of all the foregoing, the appealed
decision of the Labor Arbiter is hereby REVERSED and SET
Private respondent SMC maintained that it had no employer-employee
ASIDE and a new decision is hereby rendered finding that
relationship with petitioners who were hired and supervised exclusively
there was no illegal dismissal committed by respondents,
by BMA pursuant to a warehousing and delivery agreement in
hence, no liability for backwages. However, complainants are
consideration of a fixed monthly fee. SMC argued that BMA is a
awarded their salary differentials, service incentive leave
legitimate and independent contractor, duly registered with the
pay and 13th month pay except for the year 2000 in the
Securities and Exchange Commission (SEC) as a separate and distinct
aggregate amount of ONE MILLION TWO HUNDRED FIFTY-SIX
corporation with substantial capitalization, investment, equipment, and
THOUSAND THREE HUNDRED SIXTY-SIX AND 80/100
DO 18-02 Cases 45

(P1,256,366.80) and 10% ATTORNEY’s FEES based on the No pronouncement as to costs.


salary differentials, SILP and 13th month pay.

SO ORDERED.13
SO ORDERED.10

In ruling against petitioners, the CA found that the NLRC committed no


The NLRC found that petitioners Caboteja, Dumalagan, and Salvador reversible error or grave abuse of discretion in ruling that petitioners
were separated from their jobs for just and valid causes. They were were not illegally dismissed but actually refused to report back to work
given the opportunity to explain their sides. As for the quitclaims after staging a surprise stoppage that paralyzed respondent BMA’s
previously executed by the other petitioners, the NLRC ruled that these business operations at the Pasig warehouse on October 18, 2001.
were sufficient basis to release respondent BMA from liability.

Issues
With respect to the first and second assigned errors, the
records show that complainants Elmer Caboteja, Erico "Jojo"
Dumalagan and Ronaldo Salvador were separated from their Undaunted, petitioners resorted to this review on certiorari, anchored
jobs for just and valid causes and after they were given the on the following grounds:
chance to explain their sides. Copies of memoranda were
served upon them advising their violation of company rules
The CA committed a serious legal error in not ruling that
and regulations and rude attitude and disrespect to respondent San Miguel Corporation (principal of respondent
superiors and disrespect to superiors in the case of Caboteja
BMA Philasia), and respondent Arlene Eusebio, (president
and failure to perform duties and responsibilities in the case and owner of respondent BMA Philasia) are all solidarily
of Dumalagan and Salvador. They were asked to explain and
liable for petitioners’ money claims.
finding their explanations unacceptable, respondents
dismissed them. Hence, they are not entitled to separation
pay. The CA committed a serious legal error in ruling that the
quitclaims executed by eleven (11) of the petitioners, in
relation to their claims for underpayment of wages before
As regards the other complainants, there is no showing that
the DOLE, also barred their subsequent complaint for illegal
they were illegally dismissed from their jobs by BMA. They dismissal, despite the fact that the said complaint was not
have not given details on to whom they reported for work,
yet in existence at the time the quitclaims were executed.
who barred them from entering the respondents’ premises
and from working, in so many words how they were told that
they were already dismissed. The only evident fact is that The CA committed a serious legal error in refusing to hold
they just stopped reporting for work beginning October 18, that respondent San Miguel Corporation was petitioners’ real
2001 without informing BMA why there were doing so. Their employer despite the fact that respondent BMA Philasia was
claim that they were not allowed by the respondents to not duly registered with the DOLE and caused the workers to
return to their work is hard to believe. Why should the perform tasks directly related to the business of respondent
respondents terminate simultaneously the services of the San Miguel Corporation and under the latter’s supervision.
complainants and completely paralyze respondents’
business operation, particularly their service contract with
SMC? Complainants have not shown any reason which would The CA committed a legal error and acted with grave abuse
compel the respondents to resort to mass dismissal. On the of discretion in holding that petitioners Elmer Caboteja, Joan
other hand, complainants have strong reason to paralyze Erico Dumalagan, and Ronaldo Salvador were not illegally
respondents’ operation in order to force compliance to their dismissed from their jobs, despite a previous ruling of the
demands. Labor Arbiter to the contrary.

xxxx The CA committed a serious legal error in not awarding


damages, at the very least, to petitioners Joan Erico
Dumalagan, and Ronaldo Salvador for violation of their right
In fact, the records of this case also disclose that during the to due process.
mandatory conciliation proceedings, BMA urged these
complainants to go back to work, but may refused to do so.
Obviously, their refusal to go back to their work was a The CA seriously committed an error of law in holding that
deliberate move to force respondents to give in to their the rest of the petitioners abandoned their jobs and were not
demands. Considering this refusal, it is not hard to believe dismissed therefrom, contrary to the findings of the Labor
that complainants were not dismissed but rather they Arbiter who heard the case.14 (Underscoring supplied)
refused to work in order to paralyze respondents’ operations
and force them to give in to complainants’ demands.11
(Emphasis supplied)

CA Disposition Our Ruling

Aggrieved, petitioners filed a Rule 65 petition with the CA. The Petitioners argue mainly that their employer is, in fact, respondent
following grounds were interposed: (1) that the NLRC gravely abused SMC, not respondent BMA. They contend that BMA is a labor-only
its discretion in holding that Caboteja, Dumalagan, and Salvador were contractor and SMC, as their true employer, should be held directly
validly dismissed; (2) that the other petitioners were not dismissed but liable for their money claims.
were guilty of abandonment; and (3) that the quitclaims executed by
eleven of the petitioners barred the complaint for illegal dismissal.12 A finding that a contractor is a "labor-only" contractor, as
opposed to permissible job contracting, is equivalent to
On April, 15, 2005, the CA denied the petition, affirming in full the declaring that there is an employer-employee relationship
NLRC disposition, thus: between the principal and the employees of the supposed
contractor, and the "labor-only" contractor is considered as a
mere agent of the principal, the real employer.15
WHEREFORE, premises considered, the present petition is
hereby DENIED DUE COURSE and accordingly DISMISSED, for
lack of merit. The assailed Decision dated December 19, Both the Labor Arbiter and the NLRC found that the employment
2003 and Resolution dated July 20, 2004 of the National contracts of petitioners duly prove that an employer-employee
Labor Relations Commission in the consolidated cases, NLRC relationship existed between petitioners and BMA. We hasten to add
Case No. CN 08-04522-01-CA No. 036856-03 (NLRC NCR that the existence of an employer-employee relationship is ultimately a
North Sector Case Nos. 08-04522-2001, 09-04941-2001, 00- question of fact and the findings by the Labor Arbiter and the NLRC on
11-05023-2001, 00-11-05969-2001, 11-01-00450-2002, 02- that score shall be accorded not only respect but even finality when
00934-2002, 12-06288-2001, and 12-06320-2001), are supported by ample evidence.16
hereby AFFIRMED and UPHELD.
DO 18-02 Cases 46

In its ruling, the NLRC considered the following elements to determine their jobs, who prevented their entry to the company
the existence of an employer-employee relationship: (1) the selection premises and details as to what steps they took to bring the
and engagement of the workers; (2) power of dismissal; (3) the matter to the attention of DOLE District Office wherein their
payment of wages by whatever means; and (4) the power to control complaint for labor standards violation was already
the worker’s conduct.17 All four elements were found by the NLRC to be pending.19 (Emphasis supplied)
vested in BMA. This NLRC finding was affirmed by the CA:

Moreover, eleven of petitioners contend that their quitclaims should


x x x It is the BMA which actually conducts the hauling, not be considered as a bar to their complaint for illegal dismissal
storage, handling, transporting, and delivery operations of because that complaint was not yet in existence at the time the
SMC’s products pursuant to their warehousing and Delivery quitclaims were executed. That the quitclaims were executed
Agreement. BMA itself hires and supervises its own workers voluntarily is not denied by petitioners. They, however, contend that
to carry out the aforesaid business activities. Apart from the the quitclaims should be construed as limited to the money claims in
fact that it was BMA which paid for the wages and benefits, connection with the first labor standards complaint20 they had filed
as well as SSS contributions of petitioners, it was also the before the DOLE district office.
management of BMA which directly supervised and imposed
disciplinary actions on the basis of established rules and
regulations of the company. The documentary evidence Unless there is a showing that the employee signed
consisting of numerous memos throughout the period of involuntarily or under duress, quitclaims and releases are
petitioners’ employment leaves no doubt in the mind of this upheld by this Court as the law between the parties.21 If the
Court that petitioners are only too aware of who is their true agreement was voluntarily entered into by the employee, with full
employer. Petitioners received daily instructions on their understanding of what he was doing, and represents a reasonable
tasks form BMA management, particularly, private settlement of the claims of the employee, it is binding on the parties
respondent Arlene C. Eusebio, and whenever they and may not be later disowned simply because of a change of mind.22
committed lapses or offenses in connection with their work, In the case under review, the quitclaims and releases signed by
it was to said officer that they submitted compliance such as petitioners stated:
written explanations, and brought matters connected with
their specific responsibilities.18
That for and in consideration of the sum of FIFTY-THREE
THOUSAND PESOS (P53,000.00)23 in settlement of my/our
The employer-employee relationship between BMA and petitioners is claim/s as financial assistance and/or gratuitously given by
not tarnished by the absence of registration with DOLE as an my/our employer receipt of which is hereby acknowledge to
independent job contractor on the part of BMA. The absence of my/our complete and full satisfaction, I/we hereby release
registration only gives rise to the presumption that the contractor is and discharge the above respondent and/or its officers from
engaged in labor-only contracting, a presumption that respondent BMA any and all claims by way of wages, overtime pay,
ably refuted. differential pay, or otherwise as may be due me/us incident
to my/our past employment with said establishment. I/we
hereby state further that I/we have no more claim, right or
Thus, We find no grave abuse of discretion in the CA observation that action of whatsoever nature whether past, present or
respondent BMA is the true employer of petitioners who should be held contingent against the said respondent and/or its officers.24
directly liable for their claims. Likewise, no grave abuse of discretion (Emphasis supplied)
can be ascribed to the CA when it ruled that illegal dismissal was
absent.
As correctly observed by the NLRC, the language employed by the
above quitclaims and releases indicates in no uncertain terms that
The records fully disclose that petitioners Caboteja, Dumalagan, and petitioners voluntarily and freely acknowledged receipt of full
Salvador were separated from their jobs for just and valid causes. satisfaction of all claims against respondents. Thus, the quitclaims
Caboteja was cited for violation of company rules and regulations and effectively barred petitioners from questioning their dismissal.
disrespectful conduct. Dumalagan and Salvador were investigated for
failure to perform duties and responsibilities. After their explanations
were found unacceptable, they were accordingly dismissed. Social justice must be founded on the recognition of the necessity of
interdependence among diverse units of a society and of the
protection that should be equally and evenly extended to all groups as
As for the other petitioners, they contend that they were illegally a combined force in our social and economic life.25 While labor should
dismissed when respondent BMA barred them from entering the work be protected at all times, this protection must not be at the expense of
premises and from performing their work. Both the NLRC and the CA capital.
found that petitioners failed to substantiate this contention. Rather,
what was shown in the records was that they simply stopped reporting
for work starting October 18, 2001 when they staged a picket. The CA WHEREFORE, the petition is DENIED and the assailed Decision of the
observation along this line is worth restating: Court of Appeals AFFIRMED.

x x x petitioners failed to substantiate their claim that they SO ORDERED.


had been prevented from entering the work premises after
staging a "picket" on October 18, 2001 to further press their
demands for payment of their money claims. At this time, G.R. No. 159668 March 7, 2008
the labor standards case was already pending with the DOLE
District Office and petitioners could have availed of said MANDAUE GALLEON TRADE, INC. and/or GAMALLOSONS
proceedings with the intervention of DOLE officials. Instead, TRADERS, INC., petitioners,
however, they resorted to an illegal stoppage of work that vs.
paralyzed the business operations of BMA. As aptly noted by VICENTE ANDALES, RESTITUTA SOLITANA,* ELPIDIO SUELTO, ET
the NLRC, there is simply no probable or logical reason for AL.**, respondents1.
private respondent BMA to simultaneously dismiss its
workers that will disrupt business operations at the
warehouse. Under the factual circumstances, it clearly .AUSTRIA-MARTINEZ, J.:
appears that petitioners refused to report back to their work
in order to force their employer BMA to give in to their
immediate demand for the salary differentials and unpaid Before the Court is a Petition for Review on Certiorari under Rule 45 of
benefits subject of their complaint with the DOLE. Hence, the Rules of Court assailing the Decision2 dated May 21, 2003 and the
BMA cannot be held liable for illegal dismissal. Amended Decision3 dated August 19, 2003 of the Court of Appeals (CA)
in CA-G.R. SP No. 70214.

While it is true that the defense of abandonment may not be


given credence or is negated by the immediate filing of The facts:
illegal dismissal cases by the affected employees, records
clearly reveal that as of October 18, 2001, petitioners
Petitioners Mandaue Galleon Trade, Inc. (MGTI) and Gamallosons
without justifiable cause failed and refused to report back to
Traders, Inc.4 (GTI) are business entities engaged in rattan furniture
their work. Their claim of having been prevented from
manufacturing for export, with principal place of business at
entering the work premises was not given due weight for no
Cabangcalan, Mandaue City.
particulars was even alleged by them in their report back to
DO 18-02 Cases 47

Respondent Vicente Andales5 (Andales) filed a complaint with the On June 12, 2003, petitioners filed a Motion for Reconsideration.13
Labor Arbiter (LA) against both petitioners for illegal dismissal and non-
payment of 13th month pay and service incentive leave pay. His other
co-workers numbering 260 filed a similar complaint against petitioner On August 19, 2003, the CA rendered an Amended Decision14 partially
MGTI only. granting the motion, in this wise:

The complainants alleged that MGTI hired them on various dates as After taking a second look at the petition and in consonance
weavers, grinders, sanders and finishers; sometime in August 1998, with Article 283 of the Labor Code, We are computing the
workers in the Finishing Department were told that they would be separation pay of the 183 private respondents at one-half
transferred to a contractor and they were given Visitor Identification month salary per year of service up to the promulgation of
Cards (IDs), while workers in the Weaving Department were told to this Amended Decision.
look for work elsewhere as the company had no work for them;
sometime in September 1998, workers in the Grinding Department
WHEREFORE, petitioners' motion for reconsideration is
were not allowed to enter the company premises, while workers in the PARTIALLY GRANTED. This Court's decision dated May 21,
Sanding Department were told that they could no longer work since
2003 is hereby amended. Petitioners are ordered to pay the
there was no work available; workers who were issued IDs were 183 respondents their separation pay computed at one-half
allowed to go inside the premises; and they were dismissed without
month salary per year of service up to the promulgation of
notice and just cause. this Amended Decision.

They further alleged that they are regular employees of MGTI because:
SO ORDERED.15
(a) they performed their work inside the company premises in
Cabangcalan, Mandaue City; (b) they were issued uniforms by MGTI
and were told to strictly follow company rules and regulations; (c) they On September 16, 2003, petitioners filed with this Court a Motion for
were under the supervision of MGTI's foremen, quality control Extension of Time to file a petition for review, which was granted by
personnel and checkers; (d) MGTI supplied the materials, designs, tools the Court,16 and petitioners filed herein petition on October 23, 2003.
and equipment in the production of furniture; (e) MGTI conducts
orientations on how the work was to be done and the safe and efficient
use of tools and equipment; (f) MGTI issues memoranda regarding Meanwhile, on September 24, 2003, respondents filed a Motion for
absences and waste of materials; and (g) MGTI exercises the power to Reconsideration with the CA assailing the reduction of the separation
discipline them. pay in the Amended Decision.17 On December 9, 2003, the CA issued a
Resolution18 merely noting the Motion for Reconsideration filed by
respondents on the ground that the case had already been referred to
On the other hand, MGTI denied the existence of employer-employee this Court by way of the present petition.
relationship with complainants, claiming that they are workers of
independent contractors whose services were engaged temporarily
and seasonally when the demands for its products are high and could Respondents then filed with this Court a Petition for Certiorari with
not be met by its regular workforce; the independent contractors Motion to Consolidate the Petition with the present petition, assailing
recruited and hired the complainants, prepared the payroll and paid the August 19, 2003 Amended Decision and December 9, 2003 CA
their wages, supervised and directed their work, and had authority to Resolution. Respondents' petition, docketed as G.R. No. 162227, was
dismiss them. It averred that due to the economic crisis and internal dismissed in a Resolution19 dated April 14, 2004 for failure to attach a
squabble in the company, the volume of orders from foreign buyers clearly legible duplicate original or certified true copy of the Amended
dived; as a survival measure, management decided to retrench its Decision. On August 26, 2004, entry of judgment was made.20
employees; and the substantial separation pay paid to retrenched
employees caught the jealous eyes of complainants who caused the
filing of the complaint for illegal dismissal. In the present petition, petitioners raise the sole issue:

On August 23, 1999, the LA rendered a Decision6 holding that 1837 I


complainants are regular piece-rate employees of MGTI since they WHETHER OR NOT THE COURT OF APPEALS COMMITTED
were made to perform functions which are necessary to MGTI's rattan GRAVE AND REVERSIBLE ERROR IN CONSIDERING THE
furniture manufacturing business; the independent contractors were RESPONDENTS AS EMPLOYEES OF THE PETITIONERS ABSENT
not properly identified; the absence of proof that the independent THE REQUISITES/ ELEMENTS IN THE JURISPRUDENCE AS
contractors have work premises of their own, substantial capital or DETERMINATIVE FACTOR IN THE EXISTENCE OF EMPLOYER-
investment in the form of tools, equipment and machineries make EMPLOYEE RELATIONSHIP.21
them only labor contractors; and there was no dismissal but only a
claim for separation pay. The LA ordered petitioners to take back Petitioners submit that respondents are employees of independent
complainants and directed it to pay their 13th month pay in the total contractors who have their own manpower, tools, equipment and
sum of P545,386.43. capital; they did not have a hand in respondents' recruitment and
hiring, payment of wages, control and supervision, and dismissal; and
respondents did not have time cards or uniforms, nor were they
Both parties appealed. On April 30, 2001, the National Labor Relations subjected to petitioner's company policies.
Commission (NLRC) rendered a Decision8 affirming the LA's finding of
employer-employee relationship. It held that labor-only contracting and
not job-contracting was present since the alleged contractors did not On the other hand, respondents, in their Comment and Memorandum,
have substantial capital in the form of equipment, machineries and assail the CA's Amended Decision which reduced the separation pay
work premises. The NLRC, however, did not agree with the LA's finding from one month to one-half month, claiming there was no justification
that there was no dismissal. It held that complainants were to support such order. Moreover, they contend that they were denied
constructively dismissed when they were unilaterally transferred to a their day in court when the CA did not resolve their Motion for
contractor to evade payment of separation pay as a result of the Reconsideration of the Amended Decision. They aver that since they
retrenchment. Thus, it directed MGTI to pay complainants separation were illegally dismissed, they are entitled to backwages and not only
pay of one month for every year of service based on the prevailing separation pay.
minimum wage at the time of their dismissal, in addition to payment of
13th month pay. The petition is bereft of merit.

Both parties filed separate motions for reconsideration9 but the NLRC Factual findings of quasi-judicial bodies like the NLRC, when adopted
denied them in a Resolution10 dated February 12, 2002. and confirmed by the CA and if supported by substantial evidence, are
accorded respect and even finality by this Court.22 The existence of an
On April 19, 2002, petitioners filed a Petition for Certiorari11 with the employer-employee relationship is a factual matter that will not be
CA. On May 21, 2003 the CA rendered a Decision12 dismissing the delved into by this Court, since only questions of law may be raised in
petition and affirming the findings of the NLRC. It held that MGTI is petitions for review.23 The Court has recognized several exceptions to
liable to the respondents because the alleged contractors are not this rule, such as: (1) when the findings are grounded entirely on
independent contractors but labor-only contractors; that respondents speculation, surmises or conjectures; (2) when the inference made is
were constructively dismissed when they were unilaterally transferred manifestly mistaken, absurd or impossible; (3) when there is grave
to another contractor; and that the allegation of retrenchment was not abuse of discretion; (4) when the judgment is based on a
proven. misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when in making its findings, the CA went beyond the issues of the
DO 18-02 Cases 48

case, or its findings are contrary to the admissions of both the i) The contractor or subcontractor does not have
appellant and the appellee; (7) when the findings are contrary to the substantial capital or investment which relates to
trial court; (8) when the findings are conclusions without citation of the job, work or service to be performed and the
specific evidence on which they are based; (9) when the facts set forth employees recruited, supplied or placed by such
in the petition as well as in the petitioner's main and reply briefs are contractor or subcontractor are performing
not disputed by the respondent; (10) when the findings of fact are activities which are directly related to the main
premised on the supposed absence of evidence and contradicted by business of the principal; or
the evidence on record; and (11) when the CA manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.24 None of these ii) The contractor does not exercise the right to
exceptions, however, has been convincingly shown by petitioners to control over the performance of the work of the
apply in the present case. contractual employee.

Article 106 of the Labor Code explains the relations which may arise The forgoing provisions shall be without prejudice to the
between an employer, a contractor and the contractor's employees application of Article 248 (C) of the Labor Code, as amended.
thus:
"Substantial capital or investment" refers to capital stocks
ART. 106. Contractor or subcontractor. – Whenever an and subscribed capitalization in the case of corporations,
employer enters into a contract with another person for the tools, equipment, implements, machineries and work
performance of the former's work, the employees of the premises, actually and directly used by the contractor or
contractor and of the latter's subcontractor, if any, shall be subcontractor in the performance or completion of the job,
paid in accordance with the provisions of this Code. work or service contracted out.

In the event that the contractor or subcontractor fails to pay The "right to control" shall refer to the right reserved to the
the wages of his employees in accordance with this Code, person for whom the services of the contractual workers are
the employer shall be jointly and severally liable with his performed, to determine not only the end to be achieved,
contractor or subcontractor to such employees to the extent but also the manner and means to be used in reaching that
of the work performed under the contract, in the same end.
manner and extent that he is liable to employees directly
employed by him. Section 7. Existence of an employer-employee
relationship. – The contractor or subcontractor shall be
The Secretary of Labor may, by appropriate regulations, considered the employer of the contractual employee for
restrict or prohibit the contracting out of labor to protect the purposes of enforcing the provisions of the Labor Code and
rights of workers established under this Code. In so other social legislation. The principal, however, shall be
prohibiting or restricting, he may make appropriate solidarily liable with the contractor in the event of any
distinctions between labor-only contracting and job violation of any provision of the Labor Code, including the
contracting as well as differentiations within these types of failure to pay wages.
contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, The principal shall be deemed the employer of the
to prevent any violation or circumvention of any provision of
contractual employee in any of the following cases, as
this Code. declared by a competent authority:

There is "labor-only" contracting where the person supplying


a. where there is a labor-only contracting; or
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 b. where the contracting arrangement falls within
placed by such persons are performing activities which the prohibitions provided in Section 6
directly related to the principal business of such employer. In (Prohibitions) hereof.
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 Thus, based on Article 106 of the Labor Code and Sections 5 and 7 of
were directly employed by him. the Implementing Rules, "labor-only" contracting exists when the
following criteria are present: (1) where the contractor or
subcontractor supplying workers to an employer does not have
The first two paragraphs of Article 106 set the general rule that a substantial capital or investment in the form of tools, equipment,
principal is permitted by law to engage the services of a contractor for machineries, work premises, among other things; and the workers
the performance of a particular job, but the principal, nevertheless, recruited and placed by the contractor or subcontractor are performing
becomes solidarily liable with the contractor for the wages of the activities which are directly related to the principal business of such
contractor's employees. The third paragraph of Article 106, however, employer; or (2) where the contractor does not exercise the right to
empowers the Secretary of Labor to make distinctions between control the performance of the work of the contractual employee.
permissible job contracting and "labor-only" contracting, which is a
prohibited act further defined under the last paragraph. A finding that
a contractor is a "labor-only" contractor is equivalent to declaring that In the present case, petitioners' claim that their contractors are
there is an employer-employee relationship between the principal and independent contractors, and, therefore, this case is one of permissible
the employees of the supposed contractor, and the "labor-only" job contracting, is without basis.
contractor is considered as a mere agent of the principal, the real
employer.25
First, respondents' work as weavers, grinders, sanders and finishers is
directly related to MGTI's principal business of rattan furniture
Sections 5 and 7 of the Rules Implementing Articles 106 to 109 of the manufacturing. Where the employees are tasked to undertake
Labor Code, as amended26 (Implementing Rules), reinforce the rules in activities usually desirable or necessary in the usual business of the
determining the existence of employer-employee relationship between employer, the contractor is considered as a "labor-only" contractor and
employer, contractor or subcontractor, and the contractor's or such employees are considered as regular employees of the
subcontractor's employee, to wit: employer.27

Section 5. Prohibition against labor-only contracting. – Second, MGTI was unable to present any proof that its contractors had
Labor-only contracting is hereby declared prohibited. For this substantial capital. There was no evidence pertaining to the
purpose, labor-only contracting shall refer to an arrangement contractors' capitalization; nor to their investment in tools, equipment
where the contractor or subcontractor merely recruits, or implements actually used in the performance or completion of the
supplies or places workers to perform a job, work or service job, work, or service that they were contracted to render. The law casts
for a principal, and any of the following elements are [is] the burden on the contractor to prove that it has substantial capital,
present: investment, tools, etc. Employees, on the other hand, need not prove
that the contractor does not have substantial capital, investment, and
tools to engage in job-contracting.28
DO 18-02 Cases 49

Thus, the contractors are "labor-only" contractors since they do not Labor and Employment (DOLE) on April 14, 1997 that it was going to
have substantial capital or investment which relates to the service suspend the operations of the Food and Beverage (F & B) Department
performed and respondents performed activities which were directly one (1) month thereafter. Notices to 54 employees (out of a
related to MGTI's main business. MGTI, the principal employer, is complement of 85 employees in the department) were also sent out,
solidarily liable with the labor-only contractors, for the rightful claims of informing them that they need not report for work anymore after April
the employees. Under this set-up, "labor-only" contractors are deemed 14, 1997 but that they would still be paid their salaries up to May 14,
agents of the principal, MGTI, and the law makes the principal 1997. They were further told that they would be informed once full
responsible to the employees of the "labor-only" contractor as if the operations in Wack Wack resume.
principal itself directly hired or employed the employees. In prohibiting
"labor-only" contracting and creating an employer-employee The Wack Wack Golf Employees Union branded the suspension
relationship between the principal and the supposed contractor's of operations of the F & B Department as arbitrary, discriminatory and
employees, the law intends to prevent employers from circumventing constitutive of union-busting, so they filed a notice of strike with the
labor laws intended to protect employees. DOLE’s National Conciliation and Mediation Board (NCMB). Several
meetings between the officers of Wack Wack and the Union, headed by
its President, Crisanto Baluyot, Sr., and assisted by its counsel, Atty.
Hence, the Court sees no reason to disturb the findings of fact of the Pedro T. De Quiroz, were held until the parties entered into an
NLRC and the CA. amicable settlement. An Agreement[2] was forged whereby a special
separation benefit/retirement package for interested Wack Wack
employees, especially those in the F & B Department was offered. The
Respondents' contention that the CA erred in lowering the award of
terms and conditions thereof reads as follows:
separation pay from one month to one-half month for every year of
service cannot prosper in the present petition. Whether right or wrong, 1. The UNION and the affected employees of F & B who are
the decision of the CA on that matter had long become final and members of the UNION hereby agree to accept the special
executory with the dismissal of respondents' Petition for Certiorari, separation benefit package agreed upon between the CLUB
docketed as G.R. No. 162227, assailing the reduction of the award of management on the one hand, and the UNION officers and
separation pay. Entry of judgment was made therein on August 26, the UNION lawyer on the other, in the amount equivalent to
2004; hence, the reduction of the separation pay is now immutable, one-and-one-half months salary for every year of service,
beyond the jurisdiction of this Court to amend, modify or reverse.29 regardless of the number of years of service rendered. That,
in addition, said employees shall also receive the other
Nothing is more settled in the law than that a decision that has benefits due them, namely, the cash equivalent of unused
acquired finality becomes immutable and unalterable and may no vacation and sick leave credits, proportionate 13th month
longer be modified in any respect even if the modification is meant to pay; and other benefits, if any, computed without premium;
correct erroneous conclusions of fact or law and whether it will be
2. That the affected F & B employees who have already
made by the Court that rendered it or by the highest Court of the
signified intention to be separated from the service under
land.30 The doctrine is founded on considerations of public policy and
the special separation benefit package shall receive their
sound practice that, at the risk of occasional errors, judgments must
separation pay as soon as possible;
become final at some definite point in time.31
3. That the same package shall, likewise, be made available
The only recognized exceptions to the general rule are the correction to other employees who are members of the bargaining unit
of clerical errors, the so-called nunc pro tunc entries which cause no and who may or may not be affected by future similar
prejudice to any party, void judgments, and whenever circumstances suspensions of operations. The UNION re-affirms and
transpire after the finality of the decision rendering its execution unjust recognizes that it is the sole prerogative of the management
and inequitable.32 None of the exceptions are present in the instant of the Club to suspend part or all of its operations as may be
case. necessitated by the exigencies of the situation and the
general welfare of its membership. The closure of the West
Course, which is scheduled for conversion to an All-Weather
The CA Amended Decision cannot be considered by the Court as a void Championship golf course, is cited as an example. It is,
judgment, as it was rendered by a tribunal with jurisdiction over the however, agreed that if a sufficient number of employees,
subject matter of the petition.33 Neither can respondents complain that other than F & B employees, would apply for availment of
they were denied due process of law since they had the opportunity to the package within the next two months, the Club may no
be heard when they assailed the reduction of separation pay in their longer go through the process of formally notifying the
Petition for Certiorari, G.R. No. 162227, but bungled the same when Department of Labor. The processing and handling of
they failed to comply with the basic procedural requirements in filing benefits for these other employees shall be done over a
the petition. Respondents cannot be allowed to resurrect a cause lost transition period within one year;
thru negligence in properly pursuing their case.
4. All qualified employees who may have been separated
from the service under the above package shall be
WHEREFORE, the present petition is DENIED for lack of merit. considered under a priority basis for employment by
concessionaires and/or contractors, and even by the Club
upon full resumption of operations, upon the
SO ORDERED. recommendation of the UNION. The Club may even
persuade an employee-applicant for availment under the
Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., package to remain on his/her job, or be assigned to another
concur. position.[3]

Respondent Carmencita F. Dominguez, who was then working in


SECOND DIVISION [G.R. No. 149793. April 15, 2005] the Administrative Department of Wack Wack, was the first to avail of
the special separation package.[4] Computed at 1½ months for every
WACK WACK GOLF & COUNTRY CLUB, petitioner, vs. NATIONAL year of service pursuant to the Agreement, her separation pay
LABOR RELATIONS COMMISSION, MARTINA G. amounted to P91,116.84, while economic benefits amounted to
CAGASAN, CARMENCITA F. DOMINGUEZ, and P6,327.53.[5] On September 18, 1997, Dominguez signed a Release and
BUSINESS STAFFING AND MANAGEMENT, INC., Quitclaim[6] in favor of Wack Wack.
respondents.
Respondent Martina B. Cagasan was Wack Wack’s Personnel
CALLEJO, SR., J.: Officer who, likewise, volunteered to avail of the separation package.[7]
On September 30, 1997, she received from Wack Wack the amount of
P469,495.66 as separation pay and other economic benefits amounting
This is a petition for review of the Resolution [1] of the Court of to P17,010.50.[8] A Release and Quitclaim [9] was signed on September
Appeals (CA) in CA-G.R. SP No. 63658, dismissing the petition for 30, 1997.
certiorari before it for being insufficient in form and the subsequent
resolution denying the motion for reconsideration thereof. The last one to avail of the separation package was Crisanto
Baluyot, Sr. who, in a Letter[10] dated January 16, 1998 addressed to Mr.
The undisputed antecedent facts are as follows: Bienvenido Juan, Administrative Manager of Wack Wack, signified his
willingness to avail of the said early retirement package. The total
On November 29, 1996, a fire destroyed a large portion of the amount of P688,290.30[11] was received and the Release and
main clubhouse of the Wack Wack Golf and Country Club (Wack Wack), Quitclaim[12] signed on May 14, 1998.
including its kitchen. In view of the reconstruction of the whole
clubhouse complex, Wack Wack filed a notice with the Department of
DO 18-02 Cases 50

On October 15, 1997, Wack Wack entered into a Management does save Wack Wack money. This is feasible on account of the fact
Contract[13] with Business Staffing and Management, Inc. (BSMI), a that they are functions pertaining to administrative work.[21]
corporation engaged in the business as Management Service
Consultant undertaking and managing for a fee projects which are As to Baluyot, however, the Labor Arbiter found that while the
specialized and technical in character like marketing, promotions, position of chief porter had been abolished, the caddie master aide had
merchandising, financial management, operation management and the been created. Their functions were one and the same. The porters,
like.[14] BSMI was to provide management services for Wack Wack in upon instructions from the chief porter, are the ones who bring down
the following operational areas: the golf bags of the players from the vehicle. The caddie master
receives them and counts the number of clubs inside the golf set.
1. Golf operations management; After the game, the same procedure is repeated before the golf sets
2. Management and maintenance of building facilities; are loaded once more into the vehicle. [22] The Labor Arbiter found that
3 .Management of food and beverage operation; the dismissal of Baluyot as Chief Porter was unjustified and can not be
4. Management of materials and procurement functions; considered redundant in the case at bar. It was a means resorted to in
5. To provide and undertake administrative and order to unduly sever Baluyot’s relationship with BSMI without
support services for the [said] projects.[15] justifiable cause. The Labor Arbiter therefore found Baluyot’s dismissal
to be illegal. The dispositive portion of the decision reads as follows:
Pursuant to the Agreement, the retired employees of Wack Wack
by reason of their experience were given priority by BSMI in hiring. On CONFORMABLY WITH THE FOREGOING, judgment is hereby
October 21, 1997, respondents Cagasan and Dominguez filed their rendered dismissing the complaints of Carmencita F. Dominguez and
respective applications[16] for employment with BSMI. They were Martina Cagasan for lack of merit. Finding Crisanto Baluyot’s
eventually hired by BSMI to their former positions in Wack Wack as dismissal to be illegal. Consequently, he should immediately be
project employees and were issued probationary contracts.[17] reinstated to his former position as Chief Porter or Caddie Master, and
paid his backwages which, as of December 31, 1999, has
Aside from BSMI, Wack Wack also engaged several contractors accumulated in the sum of P180,000.00 by BSMI.
which were assigned in various operating functions of the club, to wit:
All other claims are dismissed for lack of merit.[23]
1. Skills and Talent Employment Promotion (STEP)
whose 90 workers are designated as locker Since Baluyot no longer appealed the decision, complainants
attendants, golf bag attendants, nurses, Dominguez and Cagasan filed a Partial Appeal on the ground of prima
messengers, technical support engineer, golf facie abuse of discretion on the part of the Labor Arbiter and serious
director, agriculturist, utilities and gardeners; errors in his findings of facts and law. Their claims were anchored on
2. Marvel Manpower Agency - whose 19 employees are the Agreement between the Union and management, that they were
designated as sweepers, locker attendants, drive promised to be rehired upon the full resumption of operations of Wack
range attendant, telephone operator, workers and Wack. They asserted that Wack Wack and BSMI should not avoid
secretaries; responsibility to their employment, by conniving with each other to
3 City Service Corporation – contractor for janitorial render useless and meaningless the Agreement.
services for the whole club;
4. Microstar Business and Management Services, Inc. BSMI also appealed to the NLRC, alleging that the Labor Arbiter
whose 15 employees are designated in the committed grave abuse of discretion in finding Baluyot’s dismissal to
Finance and Accounting departments.[18] be illegal, when in fact his position as Chief Porter was abolished
pursuant to a bona fide reorganization of Wack Wack. It was not
Due to these various management service contracts, BSMI motivated by factors other than the promotion of the interest and
undertook an organizational analysis and manpower evaluation to welfare of the company.
determine its efficacy, and to streamline its operations. In the course
of its assessment, BSMI saw that the positions of Cagasan and On September 27, 2000, the NLRC rendered its Decision[24]
Dominguez were redundant. In the case of respondent Cagasan, her ordering Wack Wack to reinstate Carmencita F. Dominguez and
tasks as personnel officer were likewise being taken cared of by the Martina Cagasan to their positions in respondent Wack Wack Golf &
different management service contractors; on the other hand, Country Club with full backwages and other benefits from the date of
Dominguez’s work as telephone operator was taken over by the their dismissal until actually reinstated. It anchored its ruling on the
personnel of the accounting department. Thus, in separate Letters[19] Agreement dated June 16, 1997 reached between the Union and Wack
dated February 27, 1998, the services of Dominguez and Cagasan Wack, particularly Section 4[25] thereof. The NLRC directed Wack Wack
were terminated. With respect to Baluyot, he applied for the position to reinstate the respondents and pay their backwages since “Business
of Chief Porter on May 12, 1998. The position, however, was among Staffing and Management, Inc. (BSMI) is a contractor who [merely]
those recommended to be abolished by the BSMI, so he was offered supplies workers to respondent Wack Wack. It has nothing to do with
the position of Caddie Master Aide with a starting salary of P5,500.00 a the grievance of the complainants with their employer, respondent
month. Baluyot declined the offer. Pending Wack Wack’s approval of Wack Wack.”
the proposed abolition of the position of Chief Porter, Baluyot was
temporarily accepted to the position with a monthly salary of Wack Wack and BSMI filed a motion for reconsideration which
P12,000.00. In July 1998, Baluyot decided not to accept the position of was denied in the Resolution[26] dated December 15, 2000.
Caddie Master Aide; thus, BSMI continued with its plan to abolish the
Wack Wack, now the petitioner, consequently filed a petition for
said position of Chief Porter and Baluyot was dismissed from the
certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 63658
service.
alleging the following:
Thereafter, the three (3) employees filed their respective
A. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
complaints with the National Labor Relations Commission (NLRC) for
AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF
illegal dismissal and damages against Wack Wack and BSMI.
DUE PROCESS IN HOLDING THAT RESPONDENTS CAGASAN AND
The complainants averred that they were dismissed without DOMINGUEZ HAVE REGAINED THEIR JOBS OR EMPLOYMENT
cause. They accepted the separation package upon the assurance that PURSUANT TO THE AGREEMENT BETWEEN PETITIONER AND WACK
they would be given their former work and assignments once the Food WACK GOLF EMPLOYEES UNION.
and Beverage Department of Wack Wack resumes its operations. On B. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
the other hand, the respondents therein alleged that the dismissal of AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF
the complainants were made pursuant to a study and evaluation of the DUE PROCESS IN RULING THAT RESPONDENT BSMI IS NOT AN
different jobs and positions and found them to be redundant. INDEPENDENT CONTRACTOR BUT A MERE SUPPLIER OF WORKERS TO
THE PETITIONER.
In a Decision[20] dated January 25, 2000, the Labor Arbiter found
that the dismissal of Dominguez and Cagasan was for a valid and C. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
authorized cause, and dismissed their complaints. AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF
DUE PROCESS IN HOLDING PETITIONER LIABLE FOR THE
The position of personnel manager occupied by Martina Cagasan was REINSTATEMENT OF RESPONDENTS CAGASAN AND DOMINGUEZ AND
redundated as it is allegedly not necessary, because her functions will FOR THE PAYMENT OF THEIR SUPPOSED BACKWAGES DESPITE THE
be taken over [by] the field superintendent and the company’s ABSENCE OF EMPLOYER-EMPLOYEE RELATION BETWEEN THEM.[27]
personnel and operations manager. The work of Carmencita
Dominguez on the other hand as telephone operator will be taken Likewise, BSMI also assailed the resolutions of the NLRC and filed
over by the accounting department personnel. Such move really are its own petition for certiorari with the CA, docketed as CA-G.R. SP No.
intended to streamline operations. While admittedly, they are still 63553.[28] A perusal of the petition which is attached to the records
necessary in the operations of Wack Wack, their jobs can be assigned reveal that BSMI ascribes grave abuse of discretion on the part of the
to some other personnel, who will be performing dual functions and NLRC in ruling that: (a) the private respondents have regained their
employment pursuant to the Agreement between Wack Wack and the
DO 18-02 Cases 51

Wack Wack Golf Employees Union; (b) the dismissal of private and the Union) after a series of discussions and negotiations to avert
respondents was made pursuant to the petitioner’s exercise of its any labor unrest due to the closure of Wack Wack. [35] Priority was given
management prerogatives; and (c) the petitioner (BSMI) is liable for to the employees of the F & B Department, but was, likewise, offered
the reinstatement of private respondents and the payment of their to the other employees who may wish to avail of the separation
backwages.[29] package due to the reconstruction of Wack Wack. Respondents do not
belong to the F & B Department and yet, on their own volition opted to
On April 3, 2001, the CA (Twelfth Division) dismissed the petition avail of the special separation package. The applications which were
on the ground that the petitioner therein failed to attach an Affidavit of similarly worded read as follows:
Service as required in Section 11, Rule 13 of the 1997 Rules of Civil
Procedure. Moreover, the verification and certification against forum TO : WACK WACK GOLF & COUNTRY CLUB
shopping was insufficient for having been executed by the general BOARD OF DIRECTORS AND MANAGEMENT
manager who claimed to be the duly-authorized representative of the
petitioner, but did not show any proof of authority, i.e., a board Based on the information that the Club and the employees’ Union
resolution, to the effect. have reached an agreement on a special separation benefit package
equivalent to one-and-one-half months salary for every year of
A motion for reconsideration was, consequently, filed appending service, regardless of the number of years of service, for employees
thereto the requisite documents of proof of authority. It asserted that who have been affected and may be affected by ongoing as well as
in the interest of substantial justice, the CA should decide the case on forthcoming Club renovation, construction and related activities and
its merits. reportedly even for those who may not be affected but wish to avail of
an early retirement under the above package arrangement, I hereby
BSMI filed a Comment[30] to the Motion for Reconsideration of the register my desire to be separated from the Club and receive the
petitioner, also urging the CA to set aside technicalities and to consider benefits under the above stated package.[36]
the legal issues involved: (a) whether or not there is a guaranty of
employment in favor of the complainants under the Agreement Thereafter, the respondents signed their respective release and
between the petitioner and the Union; (b) whether or not the quitclaims after receiving their money benefits.
termination of the employment of the complainants, based on
redundancy, is legal and valid; and (c) who are the parties liable for the It cannot be said that the respondents in the case at bar did not
reinstatement of the complainants and the payment of backwages. It fully comprehend and realize the consequences of their acts. Herein
further added that it shares the view of the petitioner, that the assailed respondents are not unlettered persons who need special protection.
resolutions of the NLRC are tainted with legal infirmities. For this They held responsible positions in the petitioner-employer, so they
reason, it was also constrained to file its own petition for certiorari with presumably understood the contents of the documents they signed.
the CA, docketed as CA-G.R. SP No. 63553 pending with the Special There is no showing that the execution thereof was tainted with deceit
Fourth Division, just to stress that there is no guaranty of perpetual or coercion. Further, the respondents were paid hefty amounts of
employment in favor of the complainants. separation pay indicating that their separation from the company was
for a valuable consideration. Where the person making the waiver has
On August 31, 2001, the CA denied petitioner’s motion for done so voluntarily, with a full understanding thereof, and the
reconsideration. consideration for the quitclaim is credible and reasonable, the
transaction must be recognized as being a valid and binding
The petitioner is now before the Court, assailing the twin undertaking.[37] As in contracts, these quitclaims amount to a valid and
resolutions of the CA. It points out that BSMI has filed its petition for binding compromise agreement between the parties which deserve to
certiorari before the CA one day late and yet, the Special Fourth be respected.[38]
Division admitted the petition in the interest of substantial justice, and
directed the respondents to file a comment thereon; [31] whereas, in the We reiterate what was stated in the case of Periquet v. NLRC [39]

instant case, the mere lack of proof of authority of Wack Wack’s that:
General Manager to sign the certificate of non-forum shopping was
considered fatal by the CA’s Twelfth Division. It further asserts that its Not all waivers and quitclaims are invalid as against public policy. If
petition for certiorari is meritorious, considering that the NLRC the agreement was voluntarily entered into and represents a
committed grave abuse of discretion in ordering Wack Wack to reasonable settlement, it is binding on the parties and may not later
reinstate the respondents Cagasan and Dominguez, and to pay their be disowned simply because of a change of mind. It is only where
backwages when indubitable evidence shows that the said there is clear proof that the waiver was wangled from an unsuspecting
respondents were no longer employees of Wack Wack when they filed or gullible person, or the terms of settlement are unconscionable on
their complaints with the Labor Arbiter. its face, that the law will step in to annul the questionable
transaction. But where it is shown that the person making the waiver
There is merit in the petition. did so voluntarily, with full understanding of what he was doing, and
the consideration for the quitclaim is credible and reasonable, the
In Novelty Philippines, Inc. v. Court of Appeals,[32] the Court transaction must be recognized as a valid and binding undertaking. …
[40]
recognized the authority of the general manager to sue on behalf of
the corporation and to sign the requisite verification and certification of
non-forum shopping. The general manager is also one person who is in When the respondents voluntarily signed their quitclaims and
the best position to know the state of affairs of the corporation. It accepted the separation package offered by the petitioner, they,
was also error for the CA not to admit the requisite proof of authority thenceforth, already ceased to be employees of the petitioner.
when in the Novelty case, the Court ruled that the subsequent Nowhere does it appear in the Agreement that the petitioner assured
submission of the requisite documents constituted substantial the respondents of continuous employment in Wack Wack. Qualified
compliance with procedural rules. There is ample jurisprudence holding employees were given priority in being hired by its concessionaires
that the subsequent and substantial compliance of an appellant may and/or contractors such as BSMI when it entered into a management
call for the relaxation of the rules of procedure in the interest of contract with the petitioner.
justice.[33] While it is true that rules of procedure are intended to
promote rather than frustrate the ends of justice, and while the swift This brings us to the threshold issue on whether or not BSMI is
unclogging of court dockets is a laudable objective, it nevertheless an independent contractor or a labor-only contractor. The NLRC posits
must not be met at the expense of substantial justice. [34] It was, that BSMI is merely a supplier of workers or a labor-only contractor;
therefore, reversible error for the CA to have dismissed the petition for hence, the petitioner remains to be the principal employer of the
certiorari before it. The ordinary recourse for us to take is to remand respondents and liable for their reinstatement and payment of
the case to the CA for proper disposition on the merits; however, backwages.
considering that the records are now before us, we deem it necessary
to resolve the instant case in order to ensure harmony in the rulings The ruling of the NLRC is wrong. An independent contractor is
and expediency. one who undertakes “job contracting,” i.e., a person who: (a) carries on
an independent business and undertakes the contract work on his own
Indeed, the merits of the case constitute special or compelling account under his own responsibility according to his own manner and
reasons for us to overlook the technical rules in this case. With the method, free from the control and direction of his employer or principal
dismissal of its petition for certiorari before the CA, the petitioner by in all matters connected with the performance of the work except as to
virtue of the NLRC decision is compelled to reinstate respondents the results thereof; and (b) has substantial capital or investment in the
Cagasan and Dominguez and pay their full backwages from the time of form of tools, equipments, machineries, work premises and other
their dismissal until actual reinstatement when the attendant materials which are necessary in the conduct of the business.
circumstances, however, show that the respondents had no cause of Jurisprudential holdings are to the effect that in determining the
action against the petitioner for illegal dismissal and damages. existence of an independent contractor relationship, several factors
may be considered, such as, but not necessarily confined to, whether
It must be recalled that said respondents availed of the special or not the contractor is carrying on an independent business; the
separation package offered by the petitioner. This special separation nature and extent of the work; the skill required; the term and duration
package was thought of and agreed by the two parties (Wack Wack of the relationship; the right to assign the performance of specified
DO 18-02 Cases 52

pieces of work; the control and supervision of the work to another; the promulgated directing an increase of P3.00 per day on the minimum
employer’s power with respect to the hiring, firing, and payment of the wage of workers in the private sector and a P5.00 increase on the
contractor’s workers; the control of the premises; the duty to supply ECOLA. This was followed on November 1, 1984 by Wage Order No. 6
premises, tools, appliances, materials and labor; and the mode, which further increased said minimum wage by P3.00 on the ECOLA.
manner and terms of payment.[41] Both Wage Orders contain the following provision:

There is indubitable evidence showing that BSMI is an


independent contractor, engaged in the management of projects, "In the case of contract for construction projects and for
business operations, functions, jobs and other kinds of business security, janitorial and similar services, the increase in the
ventures, and has sufficient capital and resources to undertake its minimum wage and allowances rates of the workers shall be
principal business. It had provided management services to various borne by the principal or client of the construction/service
industrial and commercial business establishments. Its Articles of contractor and the contracts shall be deemed amended
Incorporation proves its sufficient capitalization. In December 1993, accordingly, subject to the provisions of Sec. 3 (b) of this
Labor Secretary Bienvenido Laguesma, in the case of In re Petition for order" (Sec. 6 and Sec. 9, Wage Orders No. 5 and 6,
Certification Election Among the Regular Rank-and-File Employees respectively).
Workers of Byron-Jackson (BJ) Services International Incorporated,
Federation of Free Workers (FFW)-Byron Jackson Services Employees
Plaintiff demanded that its Guard Service Contract with defendant be
Chapter,[42] recognized BSMI as an independent contractor. As a
upgraded in compliance with Wage Order Nos. 5 and 6. Defendant
legitimate job contractor, there can be no doubt as to the existence of
refused. Their Contract expired on June 6, 1986 without the rate
an employer-employee relationship between the contractor and the
adjustment called for Wage Order Nos. 5 and 6 being implemented. By
workers.[43]
the time of the filing of plaintiff's Complaint, the rate adjustment
BSMI admitted that it employed the respondents, giving the said payable by defendant amounted to P462,346.25. Defendant opposed
retired employees some degree of priority merely because of their the Complaint by raising the following defenses: (1) the rate
work experience with the petitioner, and in order to have a smooth adjustment is the obligation of the plaintiff as employer of the security
transition of operations.[44] In accordance with its own recruitment guards; (2) assuming its liability, the sum it should pay is less in
policies, the respondents were made to sign applications for amount; and (3) the Wage Orders violate the impairment clause of the
employment, accepting the condition that they were hired by BSMI as Constitution.
probationary employees only. Not being contrary to law, morals, good
custom, public policy and public order, these employment contracts, The trial court decided in favor of the plaintiff. It held:
which the parties are bound are considered valid. Unfortunately, after
a study and evaluation of its personnel organization, BSMI was
impelled to terminate the services of the respondents on the ground of xxx xxx xxx
redundancy. This right to hire and fire is another element of the
employer-employee relationship[45] which actually existed between the
respondents and BSMI, and not with Wack Wack. However, in order for the security agency to pay the security guards,
the Wage Orders made specific provisions to amend existing contracts
There being no employer-employee relationship between the for security services by allowing the adjustment of the consideration
petitioner and respondents Cagasan and Dominguez, the latter have paid by the principal to the security agency concerned. (Eagle Security
no cause of action for illegal dismissal and damages against the Agency, Inc. vs. NLRC, Phil. Tuberculosis Society, Inc. vs. NLRC, et al.,
petitioner. Consequently, the petitioner cannot be validly ordered to May 18, 1989).1âwphi1.nêt
reinstate the respondents and pay them their claims for backwages.

WHEREFORE, the petition is GRANTED. The Resolutions of the The Wage Orders require the amendment of the contract as to the
Court of Appeals and the NLRC are SET ASIDE and REVERSED. The consideration to cover the service contractor's payment of the
complaints of respondents Cagasan and Dominguez are DISMISSED. increases mandated. However, in the case at bar, the contract for
No costs. security services had earlier been terminated without the
corresponding amendment. Plaintiff now demands adjustment in the
SO ORDERED. contract price as the same was deemed amended by Wage Order Nos.
5 and 6.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ.,
concur.
Before the plaintiff could pay the minimum wage as mandated by law,
adjustments must be paid by the principal to the security agency
G.R. No. 112139 January 31, 2000 concerned.

LAPANDAY AGRICULTURAL DEVELOPMENT CORPORATION, Given these circumstances, if PTS pays the security guards,
petitioner, it cannot claim reimbursements from Eagle. But if its Eagle
vs. that pays them, the latter can claim reimbursement from
THE HONORABLE COURT OF APPEALS (Former Eighth Division) PTS in lieu of an adjustment, considering that the contract
and COMMANDO SECURITY SERVICE AGENCY, INC., respondents. had expired and had not been renewed. (Eagle Security
Agency vs. NLRC and Phil. Tuberculosis Society, Inc. vs.
NLRC, et al., 18 May 1989).
GONZAGA-REYES, J.:

"As to the issue that Wage Orders Nos. 5 and 6 constitute impairments
Before us is a Petition for Review on Certiorari of the decision1 of the of contracts in violation of constitutional guarantees, the High Court
Court of Appeals2 in CA-G.R. CV No. 33893 entitled COMMANDO ruled" The Supreme Court has rejected the impairment of contract
SECURITY SERVICE AGENCY, INCORPORATED vs. LAPANDAY argument in sustaining the validity and constitutionality of labor and
AGRICULTURAL DEVELOPMENT CORPORATION which affirmed the social legislation like the Blue Sunday Law, compulsory coverage of
decision3 of the Regional Trial Court, 11th Judicial Region, Branch 9, private sector employees in the Social Security System, and the
Davao City in Civil Case No. 19203-88. abolition of share tenancy enacted pursuant to the police power of the
state (Eagle Security Agency, Inc. vs. National Labor Relation
Commission and Phil. Tuberculosis Society, Inc. vs. NLRC, et al., May
The pertinent facts as found by the Court of Appeals are as follows: 18, 1989).

The evidence shows that in June 1986, plaintiff Commando Security Petitioner's motion for reconsideration was denied;4 hence this petition
Service Agency, Inc., and defendant Lapanday Agricultural where petitioner cites the following grounds to support the instant
Development Corporation entered into a Guard Service Contract. petition for review:
Plaintiff provided security guards in defendant's banana plantation. The
contract called for the payment to a guard of P754.28 on a daily 8-hour
basis and an additional P565.72 for a four hour overtime while the 1. THE WAGE INCREASES PROVIDED FOR IN THE WAGE
shift-in-charge was to be paid P811.40 on a daily 8-hour basis and ORDERS WERE DUE TO THE GUARDS AND NOT THE
P808.60 for the 4-hour overtime. SECURITY AGENCY;

Wage Orders increasing the minimum wage in 1983 were complied 2. A SECURITY AGENCY WHO DID NOT PAY WAGE INCREASE
with by the defendant. On June 16, 1984, Wage Order No. 5 was TO ITS GUARDS IT HAD ALREADY TERMINATED AND
DO 18-02 Cases 53

WITHOUT THEIR AUTHORIZATION CANNOT INSTITUTE AN respondent is not seeking any relief under the Labor Code but seeks
ACTION TO RECOVER SAID WAGE INCREASE FOR ITS payment of a sum of money and damages on account of petitioner's
BENEFIT; alleged breach of its obligation under their Guard Service Contract. The
action is within the realm of civil law hence jurisdiction over the case
belongs to the regular courts.9 While the resolution of the issue
3. IN THE ABSENCE OF BAD FAITH AND WITHOUT THE TRIAL involves the application of labor laws, reference to the labor code was
COURT CORRECTLY ESTABLISHING THE BASIS FOR only for the determination of the solidary liability of the petitioner to
ATTORNEY'S FEES, THE SAME MAY NOT BE AWARDED. the respondent where no employer-employee relation exists. Article
217 of the Labor Code as amended vests upon the labor arbiters
exclusive original jurisdiction only over the following:
4. THE NATIONAL LABOR RELATIONS (SIC) IS THE PROPER
FORUM THAT HAS THE JURISDICTION TO RESOLVE THE ISSUE
OF WHETHER OR NOT THE PETITIONER IS LIABLE TO PAY THE 1. Unfair labor practices;
PRIVATE RESPONDENT THE WAGE AND ALLOWANCE
INCREASES MANDATED UNDER WAGE ORDER NOS. 5 AND 6.5
2. Termination disputes;

Reiterating its position below, petitioner asserts that private


respondent has no factual and legal basis to collect the benefits under 3. If accompanied with a claim for reinstatement, those
subject Wage Order Nos. 5 and 6 intended for the security guards cases that workers may file involving wages, rates of pay,
without the authorization of the security guards concerned. Inasmuch hours of work and other terms and conditions of
as the services of the forty-two (42) security guards were already employment;
terminated at the time the complaint was filed on August 15, 1988,
private respondent's complaint partakes of the nature of an action for
recovery of what was supposedly due the guards under said Wage 4. Claims for actual, moral exemplary and other form of
Orders, amounts that they claim were never paid by private damages arising from employer-employee relations;
respondent and therefore not collectible by the latter from the
petitioner. Petitioner also assails the award of attorney's fees in the
5. Cases arising from any violation of Article 264 of this
amount of P115,585.31 or 25% of the total adjustment claim of Code, including questions involving legality of strikes and
P462,341.25 for lack of basis and for being unconscionable.
lockouts; and

Moreover, petitioner submits that it is the National Labor Relations 6. Except claims for Employees Compensation, Social
Commission (NLRC) and not the civil courts that has jurisdiction to
Security, Medicare and maternity benefits, all other claims,
resolve the issue involved in this case for it refers to the enforcement arising from employer-employee relations, including those of
of wage adjustment and other benefits due to private respondent's
persons in domestic or household service, involving an
security guards mandated under Wage Order Nos. 5 and 6. Considering amount exceeding five thousand pesos (P5,000.00)
that the RTC has no jurisdiction, its decision is without force and
regardless of whether accompanied with a claim for
effect.6 reinstatement.

On the other hand, private respondent contends that the basis of its
In all these cases, an employer-employee relationship is an
action against petitioner-appellant is the enforcement of the Guard indispensable jurisdictional requisite;10 and there is none in this case.
Service Contract entered into by them, which is deemed amended by
Section 6 of Wage Order No. 5 and Section 9 of Wage Order No. 6; that
pursuant to their amended Guard Service Contract, the On the merits, the core issue involved in the present petition is
increases/adjustments in wages and ECOLA are due to private whether or not petitioner is liable to the private respondent for the
respondent and not to the security guards who are not parties to the wage adjustments provided under Wage Order Nos. 5 and 6 and for
said contract. It is therefore immaterial whether or not private attorney's fees.
respondent paid its security guards their wages as adjusted by said
Wage Orders and that since the forty-two (42) security guards are not
parties to the Guard Service Contract, there is no need for them to Private respondent admits that there is no employer-employee
authorize the filing of, or be joined in, this suit. relationship between it and the petitioner. The private respondent is an
independent/job contractor11 who assigned security guards at the
petitioner's premises for a stipulated amount per guard per month. The
As regards the award to private respondent of the amount of P115, Contract of Security Services expressly stipulated that the security
585.31 as attorney's fees, private respondent maintains that there is guards are employees of the Agency and not of the petitioner.12
enough evidence and/or basis for the grant thereof, considering that Articles 106 and 107 of the Labor Code provides the rule governing the
the adamant attitude of the petitioner (in implementing the questioned payment of wages of employees in the event that the contractor fails
Wage Orders) compelled the herein private respondent, to litigate in to pay such wages as follows:
court. Furthermore, since the legal fee payable by private respondent
to its counsel is essentially on contingent basis, the amount of P115,
583.31 granted by the trial court which is 25% of the total claim is not Art. 106. Contractor or sub contractor. — Whenever an
unconscionable. 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
As regards the jurisdiction of the RTC, private respondent alleges that paid in accordance with the provisions of this Code.
the suit filed before the trial court is for the purpose of securing the
upgrading of the Guard Service Contract entered into by herein
petitioner and private respondent in June 1983. The enforcement of In the event that the contractor or subcontractor fails to pay
this written contract does not fall under the jurisdiction of the NLRC the wages of his employees in accordance with this Code,
because the money claims involved therein did not arise from the employer shall be jointly and severally liable with his
employer-employee relations between the parties and is intrinsically a contractor or subcontractor to such employees to the extent
civil dispute. Thus, jurisdiction lies with the regular courts. Private of the work performed under the contract, in the same
respondent further contends that petitioner is estopped or barred from manner and extent that he is liable to employees directly
raising the question of jurisdiction for the first time before the Supreme employed by him.
Court after having voluntarily submitted to the jurisdiction of the
regular courts below and having lost its case therein.7
xxx xxx xxx

We resolve to grant the petition.


Art. 107. Indirect employer. — The provisions of the
immediately preceding Article shall likewise apply to any
We resolve first the issue of jurisdiction. We agree with the respondent person, partnership, association or corporation which, not
that the RTC has jurisdiction over the subject matter of the present being an employer, contracts with an independent contractor
case. It is well settled in law and jurisprudence that where no for the performance of any work, task, job or project.
employer-employee relationship exists between the parties and no
issue is involved which may be resolved by reference to the Labor
Code, other labor statutes or any collective bargaining agreement, it is It will be seen from the above provisions that the principal (petitioner)
the Regional Trial Court that has jurisdiction.8 In its complaint, private and the contractor (respondent) are jointly and severally liable to the
employees for their wages. This Court held in Eagle Security, Inc. vs.
DO 18-02 Cases 54

NLRC 13 and Spartan Security and Detective Agency, Inc. vs. NLRC 14 Pursuant to the above provision, the right of reimbursement from a co-
that the joint and several liability of the contractor and the principal is debtor is recognized in favor of the one who paid.
mandated by the Labor Code to assure compliance with the provisions
therein including the minimum wage. The contractor is made liable by
virtue of his status as direct employer. The principal, on the other It will be seen that the liability of the petitioner to reimburse the
hand, is made the indirect employer of the contractor's employees to respondent only arises if and when respondent actually pays its
secure payment of their wages should the contractor be unable to pay employees the increases granted by Wage Order Nos. 5 and 6.
them.15 Even in the absence of an employer-employee relationship, the Payment, which means not only the delivery of money but also the
law itself establishes one between the principal and the employees of performance, in any other manner, of the obligation,18 is the operative
the agency for a limited purpose i.e. in order to ensure that the fact which will entitle either of the solidary debtors to seek
employees are paid the wages due them. In the above-mentioned reimbursement for the share which corresponds to each of the debtors.
cases, the solidary liability of the principal and contractor was held to
apply to the aforementioned Wage Order Nos. 5 and 6.16 In ruling that The records show that judgment was rendered by Labor Arbiter
under the Wage Orders, existing security guard services contracts are
Newton R. Sancho holding both petitioner and private respondent
amended to allow adjustment of the consideration in order to cover jointly and solidarily liable to the security guards in a Decision19 dated
payment of mandated increases, and that the principal is ultimately
October 17, 1986 (NLRC Case No. 2849-MC-XI-86).20 However, it is not
liable for the said increases, this Court stated: disputed that the private respondent has not actually paid the security
guards the wage increases granted under the Wage Orders in question.
The Wage Orders are explicit that payment of the increases Neither is it alleged that there is an extant claim for such wage
are "to be borne" by the principal or client. "To be borne", adjustments from the security guards concerned, whose services have
however, does not mean that the principal, PTSI in this case, already been terminated by the contractor. Accordingly, private
would directly pay the security guards the wage and respondent has no cause of action against petitioner to recover the
allowance increases because there is no privity of contract wage increases. Needless to stress, the increases in wages are
between them. The security guards' contractual relationship intended for the benefit of the laborers and the contractor may not
is with their immediate employer, EAGLE. As an employer, assert a claim against the principal for salary wage adjustments that it
EAGLE is tasked, among others, with the payment of their has not actually paid. Otherwise, as correctly put by the respondent,
wages [See Article VII Sec. 3 of the Contract for Security the contractor would be unduly enriching itself by recovering wage
Services, supra and Bautista vs. Inciong, G.R. No. 52824, increases, for its own benefit.
March 16, 1988, 158 SCRA 665].
Finally, considering that the private respondent has no cause of action
On the other hand, there existed a contractual agreement against the petitioner, private respondent is not entitled to attorney's
between PTSI and EAGLE wherein the former availed of the fees.1âwphi1.nêt
security services provided by the latter. In return, the
security agency collects from its client payment for its
WHEREFORE, the petition is GRANTED. The decision of the Court of
security services. This payment covers the wages for the Appeals dated May 24, 1993 is REVERSED and SET ASIDE. The
security guards and also expenses for their supervision and
complaint of private respondent COMMANDO SECURITY SERVICE
training, the guards bonds, firearms with ammunitions, AGENCY, INC. is hereby DISMISSED.
uniforms and other equipments, accessories, tools, materials
and supplies necessary for the maintenance of a security
force. SO ORDERED.

Premises considered, the security guards' immediate Melo, Vitug, Panganiban and Purisima, JJ., concur.
recourse for the payment of the increases is with their direct
employer, EAGLE. However, in order for the security agency
to comply with the new wage and allowance rates it has to G.R. No. 86010 October 3, 1989
pay the security guards, the Wage Orders made specific
provision to amend existing contracts for security services
by allowing the adjustment of the consideration paid by the LEOPOLDO GUARIN and ONE HUNDRED TWENTY (120) OTHERS,
principal to the security agency concerned. What the Wage petitioners,
Orders require, therefore, is the amendment of the contracts vs.
as to the consideration to cover the service contractors' NATIONAL LABOR RELATIONS COMMISSION, LIPERCON
payment of the increases mandated. In the end, therefore, SERVICES, INC., and/or NOVELTY PHILIPPINES, INC.,
ultimate liability for the payment of the increases rests with respondents.
the principal.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for
In view of the foregoing, the security guards should claim the petitioners.
amount of the increases from EAGLE. Under the Labor Code,
in case the agency fails to pay them the amounts claimed,
Corazon R. Paulino for respondent LSI.
PTSI should be held solidarily liable with EAGLE [Articles 106,
107 and 109]. Should EAGLE pay, it can claim an adjustment
from PTSI for an increase in consideration to cover the Ponce Enrile, Cayetano, Reyes & Manalastas for Novelty Philippines,
increases payable to the security guards.17 Inc.

It is clear also from the foregoing that it is only when contractor pays
the increases mandated that it can claim an adjustment from the
principal to cover the increases payable to the security guards. The
conclusion that the right of the contractor (as principal debtor) to GRIÑO-AQUINO, J.:
recover from the principal as solidary co-debtor) arises only if he has
paid the amounts for which both of them are jointly and severally liable
is in line with Article 1217 of the Civil Code which provides: The sole issue in this petition for certiorari is whether or not, as found
by the National Labor Relations Commission (or NLRC), respondent
Lipercon Services, Inc. is an independent contractor and that
Art. 1217. Payment made by one of the solidary debtors petitioners are its employees.
extinguishes the obligation. If two or more solidary debtors
offer to pay, the creditor may choose which offer to accept.
Novelty Philippines, Inc. is a domestic corporation that is engaged in
the garment manufacturing business.
He who made payment may claim from his co-debtors only
the share which corresponds to each, with interest for the
payment already made. If the payment is made before the Lipercon Services, Inc. is also a domestic corporation which is engaged
debt is due, no interest for the intervening period may be in business as a service contractor providing workers for other
demanded. . . . companies.
DO 18-02 Cases 55

On July 6, 1983, Novelty and Lipercon entered into a "Contract of agreement. Petitioners worked for Novelty for some three years. On
Services" in which Lipercon, as the "CONTRACTOR," and Novelty, as December 31, 1986, Novelty terminated its agreement with Lipercon,
the "COMPANY," agreed as follows: resulting in the dismissal of the petitioners.

1. The CONTRACTOR shall provide the COMPANY with On January 9, 1987, petitioners filed a complaint for illegal dismissal
Contractual Laborers/Helpers/Janitors as requested by the against both Lipercon and Novelty (Case No. NLRC-NCR-1-107-87).
COMPANY from time to time and such other activities that Lipercon did not answer.
may be contracted out at the discretion of the COMPANY.

In a decision dated June 29, 1987, the Labor Arbiter ruled that the
2. In consideration for the above undertakings of the petitioners were regular employees of Novelty and declared their
CONTRACTOR, the COMPANY expressly agrees to pay the dismissal illegal. Both employers appealed.
CONTRACTOR a fee based on the rates as shown on Annex
'A' of this agreement which is deemed as incorporated
herein. A three (3%) percent Contractor's Tax shall be Lipercon Services, Inc., on appeal, alleged that the decision was
charged to the client which is made part of the billing rate. contrary to the facts of the case and not in conformity with the
evidence on record and that the Executive Labor Arbiter gravely
abused his discretion when he ruled that Lipercon Services, Inc. merely
3. The CONTRACTOR shall employ the necessary personnel acted as an agent of Novelty Philippines, Inc. in the hiring and
to efficiently, fully and speedily accomplish the work and placement of the complainants.
services undertaken herein by the CONTRACTOR. The
CONTRACTOR represents that its personnel shall be in such
number as will be sufficient to cope with the requirements of On August 19, 1988, the NLRC rendered a decision holding that
the services and work herein undertaken and that such Lipercon was an independent contractor and that the petitioners were
personnel shall be physically fit, with good moral character its employees. The dispositive portion of the NLRC's decision reads as
and has not been convicted of any crime. follows:

4. The CONTRACTOR shall comply with all labor laws such as WHEREFORE, premises considered, the appealed decision is
Minimum Wage Law, Eight Hour Labor Law, Social Security hereby set aside and another judgment entered, ordering
System, Medicare, Maternity Contribution, ECC and other respondent Lipercon Services, Inc. to reinstate herein
laws relating to employers and employees. It is hereby complainants to their former positions without loss of
expressly understood and agreed that the COMPANY shall seniority rights and other related benefits granted by law
not be liable in any manner whatsoever for non-compliance with a limited backwages of one (1) year without
with any requirements involving employer-employee qualification or deduction. In case reinstatement is no longer
relationship and other matters relative to labor laws, and feasible, respondent Lipercon Services, Inc. is hereby
CONTRACTOR hereby renders the COMPANY free and ordered to grant complainants separation pay of one (1)
harmless from any responsibility whatsoever for non- month salary for every year of service, a fraction of six (6)
compliance with any such requirements and for any violation months considered as one (1) whole year in addition to the
of any laws, rules and regulations. one year backwages. (p. 26, Rollo.)

5. The CONTRACTOR shall be answerable for any claim for The petition is meritorious.
losses caused by its personnel assigned to the COMPANY and
for damages to property of the COMPANY, its employees,
Articles 106 and 107 of the Labor Code of the Philippines provide:
officers or agents or to third parties, or for personal injury,
including death which may arise from the work or services
under this contract from negligence of employees of the ART. 106. Contractor or subcontractor.— Whenever an
CONTRACTOR; provided, however that necessary employer enters into a contract with another person for the
investigation be made and that the loss and/or damage performance of the former's work, the employees of the
sustained was a result of negligence of the contractor's contractor and of the latter's subcontractor, if any, shall be
personnel. paid, in accordance with the provisions of this Code.

6. It is the essence of this contract which is hereby agreed In the event that the contractor or subcontractor fails to pay
and understood by both parties that there is no employer- the wages of his employees in accordance with this Code,
employee relationship between the COMPANY and employee the employer shall be jointly and severally liable with his
assigned by the CONTRACTOR under this agreement. contractor or subcontractor to such employees to the extent
Therefore, the CONTRACTOR obliges itself and its successors of the work performed under the contract, in the same
in interest, to pay whatever salaries and wages may be due manner and extent that he is liable to employees directly
under this contract, including any and all obligations, claims employed by him.
which may arise as a result of the employer-employee
relationship existing between the CONTRACTOR and its
employees assigned under this agreement and warrants to The Secretary of Labor may, by appropriate regulations,
hold the COMPANY free and harmless of and from any restrict or prohibit the contracting out of labor to protect the
responsibility, liability or claim regarding employment. rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job
7. The CONTRACTOR shall have exclusive discretion in the contracting as well as differentiations within these types of
selection, engagement and discharge of its personnel, contracting and determine who among the parties involved
employees or agents or otherwise in the direction and shall be considered the employer for purposes of this code,
control of the personnel, workers and employees of the to prevent any violation or circumvention of any provision of
CONTRACTOR shall be within its full control. this Code.

8. The COMPANY agrees to pay the amount due to the There is 'labor-only' contracting where the person supplying
CONTRACTOR under this contract within seven (7) days after workers to an employer does not have substantial capital or
presentation of bills. If payment is not made within thirty investment in the form of tools, equipment, machineries,
(30) days after due date, a one (1%) percent interest per work premises, among others, and the workers recruited and
month shall be added to the unpaid balance. 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
9. This contract shall remain in full force from July 6, 1983 to
merely as an agent of the employer who shall be responsible
July 5,1984 and is renewable at the option of the COMPANY. to the workers in the same manner and extent as if the latter
Either party may terminate this contract upon giving thirty
were directly employed by him.
(30) days notice to the other party. (pp. 17-18, Rollo.)

ART. 107. Indirect Employer. — The provisions of the


Petitioners were hired by Lipercon and assigned to Novelty as helpers,
immediately preceding Article shall likewise apply to any
janitors, janitresses, firemen, and mechanics under the above
DO 18-02 Cases 56

person, partnership, association or corporation which, not manufacturing garments are sewing, textile cutting, designs, dying,
being an employer, contracts with an independent contractor quality control, personnel, administration, accounting, finance,
for the performance of any work, task, job or project. customs, delivery and similar other activities; and that allegedly, "[i]t is
only by stretching the imagination that one may conclude that the
services of janitors, janitresses, firemen, grasscutters, mechanics and
Sections 8 and 9, Rule VIII, Book I of the Omnibus Rules implementing helpers are directly related to the business of manufacturing
the Labor Code defines "job" contracting and "labor-only" contracting garments" (p. 78, Rollo). Not so, for the work of gardeners in
as follows: maintaining clean and well-kept grounds around the factory,
mechanics to keep the machines functioning properly, and firemen to
look out for fires, are directly related to the daily operations of a
Sec. 8. Job contracting. There is job contracting permissible
garment factory. That fact is confirmed by Novelty's rehiring the
under the Code if the following conditions are met:
workers or renewing the contract with Lipercon every year from 1983
to 1986, a period of three (3) years.
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
As Lipercon was a "labor-only" contractor, the workers it supplied
own responsibility according to his own manner and method,
Novelty became regular employees of the latter.
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 WHEREFORE, the decision of the NLRC is set aside and that of the
Labor Arbiter is reinstated. Novelty Philippines, Inc. is ordered to
reinstate the petitioners with backwages for one (1) year without
(2) The contractor has substantial capital or investment in
qualification or deduction. In case reinstatement is no longer feasible,
the form of tools, equipments, machineries, work premises,
respondent Novelty Philippines, Inc. is hereby ordered to grant the
and other materials which are necessary in the conduct of
complainants separation pay equivalent to one (1) month salary for
his business.
every year of service, a fraction of six (6) months to be considered as
one (1) whole year, in addition to their backwages. Costs against
Sec. 9. Labor-only contracting.— (a) Any person who respondent Novelty Philippines, Inc.
undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where such
SO ORDERED.
person:

Narvasa, Cruz and Gancayco, JJ., concur.


(1) Does not have substantial capital or investment in the
form of tools, equipments, machineries, work premises and
other materials; and Medialdea, J., took no part.

(2) The workers recruited and placed by such person are


G.R. Nos. 102633-35 January 19, 1993
performing activities which are directly related to the
principal business or operations of the employer in which
workers are habitually employed. RHONE-POULENC AGROCHEMICALS PHILIPPINES, INC.,
petitioner,
vs.
(b) Labor-only contracting as defined herein is
NATIONAL LABOR RELATIONS COMMISSION, URCISIO A. ORAIN,
hereby prohibited and the person acting as
and PAULINO G. ROMAN, respondents.
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 Francis V. Sobrevinas and Divinagracia S. San Juan for petitioner.
extent as if the latter were directly employed by him.

GUTIERREZ, JR., J.:


(c) For cases not falling under this article, the
Secretary of Labor shall determine through
appropriate orders whether or not the contracting Petitioner Rhone-Poulenc Agrochemicals Philippines, Inc. (Rhone-
out of labor is permissible in the light of the Poulenc for brevity) assails the finding by the National Labor Relations
circumstances of each case and after considering the Commission (NLRC) that Contemporary Services, Inc. (CSI), a supplier
operating needs of the employer and the rights of of janitorial services, is a labor-only contractor.
the workers involved. In such case, he may prescribe
conditions and restrictions to insurer the protection
and welfare of the workers. The petitioner is a domestic corporation engaged in the manufacture of
agro-chemicals. Its business operations involve the formulation,
production, distribution and sale in the local market of its agro-
It is clear from the foregoing definitions that under the "Contract of chemical products.
Services" between Lipercon and Novelty, Lipercon was a "labor-only"
contractor, hence, only an agent of Novelty to procure workers for the
latter, the real employer. On January 1, 1988, as a consequence of the sale by Union Carbide,
Inc. of all its agricultural-chemical divisions worldwide in favor of
Rhone-Poulenc Agrochemie, France, the petitioner's mother
The NLRC's finding that Lipercon was not a mere labor-only contractor corporation, the petitioner acquired from Union Carbide Philippines Far
because it has substantial capital or investment in the form of tools, East, Inc. (Union Carbide for short) the latter's agro-chemical
equipment, machineries, work premises, is based on insubstantial formulation plant in Namayan, Mandaluyong, Metro Manila.
evidence, as the NLRC pointed out, that "it (Lipercon) claims to be
possessed among others, of substantial capital and equipment
essential to carry out its business as a general independent contractor" Rhone-Poulenc and Union Carbide agreed on a three-month transition
(p. 25, Rollo). period for the turnover of the Namayan plant to the former. Hence,
from January 1 to March 31, 1988, both Union Carbide and Rhone-
Poulenc shared and operated the same facilities.
The law casts the burden on the contractor to prove that he/it has
substantial capital, investment, tools, etc. The petitioners, on the other
hand, need not prove the negative fact that the contractor does not In 1987, prior to the sale, Union Carbide had entered into a contract
have substantial capital, investment, and tools to engage in job with CSI for the latter's supply of janitorial services. During the
contracting. transition period, Union Carbide continued to avail itself of CSI's
janitorial services. Thus, petitioner Rhone-Poulenc found itself sharing
the Namayan plant with Union Carbide while the factory was being
The jobs assigned to the petitioners as mechanics, janitors, gardeners, serviced and maintained by janitors supplied by CSI.
firemen and grasscutters were directly related to the business of
Novelty as a garment manufacturer. In the case of Philippine Bank of
Communications vs. NLRC, 146 SCRA 347, we ruled that the work of a Midway through the transition period, Union Carbide instructed CSI to
messenger is directly related to a bank's operations. In its Comment, reduce the number of janitors working at the plant from eight (8) to
Novelty contends that the services which are directly related to seven (7). Private respondent Paulino Roman, one of the janitors, was
DO 18-02 Cases 57

recalled by CSI on February 15, l988 for reassignment. However, The jobs assigned to the petitioners as mechanics, janitors,
Roman refused to acknowledge receipt of the recall memorandum. gardeners, firemen and grasscutters were directly related to
the business of Novelty as a garment manufacturer. In the
case of Philippine Bank of Communications v. NLRC, 146
On March 9, 1988, Union Carbide formally notified CSI of the SCRA 347, we ruled that the work of a messenger is directly
termination of their janitorial service agreement, effective April 1, related to a bank's operations. In its Comment, Novelty
1988, citing as reason the global buy-out by Rhone-Poulenc, contends that the services which are directly related to
Agrochemie, France of Union Carbides Inc.'s agro-chemical business. manufacturing garments are sewing, textile cutting, designs,
CSI thereafter issued a memorandum dated March 20, 1988 to the dyeing, quality control, personnel, administration,
seven remaining janitors assigned to the Namayan plant, including accounting, finance, customs, delivery and similar activities;
respondent Urcisio Orain, recalling and advising them to report to the and that allegedly, "[i]t is only by stretching the imagination
CSI office for reassignment. Like Roman, the janitors refused to that one may conclude that the services of janitors,
acknowledge receipt of the recall memorandum. janitresses, firemen, grasscutters, mechanics and helpers
are directly related to the business of manufacturing
garments" (p. 78, Rollo). Not so, for the work of gardeners in
Meanwhile, in anticipation of the March 31, 1988 pull-out by Union
maintaining clean and well-kept grounds around the factory,
Carbide, the petitioner started screening proposals by prospective
mechanics to keep the machines functioning properly, and
service contractors. Rhone-Poulenc likewise invited CSI to submit to its
firemen to look out for fires, are directly related to the daily
Bidding Committee a cost quotation of its janitorial services. However,
operations of a garment factory. That fact is confirmed by
another contractor, the Marilag Business and Industrial Services, Inc.
Novelty's rehiring the workers or renewing the contract with
passed the bidding committee's standards and obtained the janitorial
Lipercon every year from 1983 to 1986, a period of three (3)
services contract.
years. (Guarin v. National Labor Relations Commission, 178
SCRA 267, at p. 273).
On April 1, 1988, the eight janitors reported for work at the Namayan
plant but were refused admission and were told that another group of
Applying the Guarin ruling to the case at bar, the NLRC pronounced:
janitors had replaced them. These janitors then filed separate
complaints for illegal dismissal, payment of 13th month salary, service
leave and overtime pay against Union Carbide, Rhone-Poulenc and CSI. It is in the light of the foregoing that we are constrained to
These cases were consolidated by order of Labor Arbiter Manuel rule, and so hold, that respondent CSI is a mere agent of
Asuncion dated May 23, 1988. respondent UCFEI and RPAPI who, in the context of the
aforecited pronouncement of the Supreme Court, were the
real employers of the complainants. Consequently,
Trial on the merits ensued wherein the labor arbiter conducted full-
respondent RPAPI's (the successor-in-interest by sale of
blown hearings on factual issues. After the cases were submitted for
respondent UCFEI) refusal to take in the complainants (after
decision, six of the original complainants tendered their resignations to
admittedly absorbing or utilizing their services during the
CSI in consideration of the latter's settlement of all their claims. Hence,
transition period from 04 January to 31 March 1988) on the
only the claims of respondents Roman and Orain remained unsettled.
ground that it already had engaged the services of another
service contractor, constitutes an illegal dismissal plain and
On November 8, 1989, Labor Arbiter Asuncion ruled that CSI is a simple.
legitimate service contractor and that Roman and Orain were
employees of CSI. The dispositive portion of the labor arbiter's decision
For while it is true that there is no law requiring that a
is quoted below:
purchaser should absorb the employees of the selling
company (Central Azucarera del Davao v. CA, 137 SCRA
WHEREFORE, the respondent CSI is ordered to pay the 295); and unless expressly assumed, labor contracts are not
complainants Orain and Roman their separation pays enforceable against a transferee of an enterprise (Fernando
computed at one-half of their salaries for every year of v. Angat Labor Union, 5 SCRA 249; and Visayan Trans. Co. v.
service. The rest of the claims are dismissed for lack of Java, 93 Phil. 962), it is equally true that employees
merit. absorbed by the successor-employers enjoy continuity of
employment status (Cruz v. PAFLU, 42 SCRA 68; PAFLU v.
CIR, 4 SCRA 457; Guerrero's Transport Services v. Blaylocks ,
The respondents UCFEI and RPAPI were (sic) absolved from 30 June 1976, 71 SCRA 621; and Sumandi v. Leogardo, et al.,
any liability it being shown that they were not the employers G.R. No. 67635, 17 Jan. 1985).
of the complainants. (Rollo, p. 52).

As we have stated earlier, respondent RPAPI admits in its


Respondents Roman and Orain appealed the decision to the NLRC. In a opposition to the appeal (p. 4) that it made use of the
resolution dated March 13, 1991, the NLRC reversed the labor arbiter's services of the complainants during its transition period from
ruling, found that CSI was a mere agent of Union Carbide and Rhone- 04 January to 31 March 1983. Said act of utilizing,
Poulenc and held that Rhone-Poulenc was guilty of illegal dismissal. temporarily though, the services of the complainants (which,
Respondent NLRC cited the case of Guarin v. NLRC, 178 SCRA 267 in a way, attests to the necessity or desirability of the
(1987), which according to it "involves circumstances similar, if not complainants' service to the operation of the respondent's
identical, to the circumstances obtaining in the case at bar." business) constitutes an absorption that gave them the right
to be retained. Its refusal to readmit the complainants
constitutes an illegal dismissal.
In that case, Novelty Philippines, Inc., a domestic corporation engaged
in garment manufacturing, entered into a contract with Lipercon
Services, Inc., a service contractor. The agreement provided, among Under these conditions, the mandate to reinstate the
others, that there was no employer-employee relationship between complainants should, therefore, be addressed to the
Novelty and the workers assigned by Lipercon to the former, and that respondent RPAPI and not to the respondent CSI, a "labor
Lipercon shall have exclusive discretion in the selection, engagement only" contractor, nor to the UCFEI which had ceased to be
and discharge of its employees and shall have full control over said the employer of the complainants because of the sale of its
employees. The one hundred twenty (120) petitioners in Guarin were business. (Rollo, pp. 39-40).
hired by Lipercon and assigned to Novelty as helpers, janitors, firemen
and mechanics until the termination by Novelty of the service
agreement resulting in their dismissal. They sued both Novelty and The NLRC then ordered the petitioner to reinstate respondents Roman
Lipercon for illegal dismissal. and Orain and to pay one year backwages, or to grant them separation
pay if reinstatement was not feasible. As to the respondents' claim for
13th month pay, incentive leave and overtime pay, these were
The labor arbiter adjudged that the petitioners were regular employees dismissed by the NLRC for lack of sufficient factual basis.
of Novelty and declared their dismissal illegal. The NLRC reversed this
decision and declared that Lipercon was an independent contractor
and that the petitioners were its employees. Rhone-Poulenc filed a motion for reconsideration which was denied by
the public respondent in its resolution of September 11, 199l. Hence,
this petition for certiorari.
The Court, in a petition for certiorari, upheld the labor arbiter's decision
and ruled:
On December 2, 1991, the Court resolved to issue a temporary
restraining order enjoining the NLRC from enforcing and/or carrying out
DO 18-02 Cases 58

its resolutions dated March 13, 1991 and September 11, 1991. (Rollo, under this Chapter, they shall be considered as direct
pp. 54-56) employers.

Petitioner Rhone-Poulenc maintains that it is CSI, and not Union The import Of the foregoing provisions was enunciated in the case of
Carbide and Rhone-Poulenc, as successor, which is the actual employer Philippine Bank of Communications v. National Labor Relations
of the respondent janitors. Rhone-Poulenc insists that, contrary to the Commission, 146 SCRA 347 (1986):
NLRC's findings, CSI is a legitimate independent contractor providing
janitorial services to a wide range of clientele including Union Carbide.
Moreover, the petitioner avers that it was grave abuse of discretion on Under the general rule set out in the first and second
the part of the public respondent to conclude that Rhone-Poutlenc paragraphs of Article 106, an employer who enter's into a
absorbed Roman and Orain into its workforce. contract with a contractor for the performance of work for
the employer, does not thereby create an employer-
employee relationship between himself and the employees
The issues to be resolved in this petition are: of the contractor. Thus, the employees of the contractor
(1) Whether or not the janitors were employees of Union remain the contractor's employees and his alone.
Carbide; Nonetheless, when a contractor fails to pay the wages of his
(2) Whether or not CSI is a labor-only contractor; and employees in accordance with the Labor Code, the employer
(3) Whether or not petitioner Rhone-Poulenc absorbed the who contracted out the job to the contractor becomes jointly
janitors into its workforce. and severally liable with his contractor to the employees of
the latter "to the extent of work performed under the
In determining the existence of employer-employee relationship, the contract" as if such employer were the employer of the
following elements are generally considered, namely: (1) the selection contractor's employees. The law itself, in other words,
and engagement of employees (2) the payment of wages; (3) the establishes an employer-employee relationship between the
power of dismissal; and (4) the power to control the employee's employer and the job contractor's employees for a limited
conduct — although the latter is the most important element. (See Ecal purpose, i.e., in order to ensure that the latter get paid the
V. NLRC, 195 SCRA 224 [1991]; Singer Sewing Machine Company v. wages due to them.
Drilon, 193 SCRA 270 [1991]; Brotherhood Labor Unity Movement in
the Philippines v. Zamora, 147 SCRA 49 [1986]; Social Security System
v. Court of Appeals, 39 SCRA 629 [1971]; Viaña v. Al-Lagadan and Piga, A similar situation obtains where there is "labor only"
99 Phil. 408 [1956]). 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
Where the employer-employee relationship has been ascertained, the to the employees of the "labor only" contractor as if such
employer becomes bound by the statutory requirements pertaining, employees had been directly employed by the employer.
though not limited, to terms and conditions of employment, labor Thus, where "labor only" contracting exists in a given case,
relations and the statute itself implies or establishes an employer-
post-employment. But the law has likewise provided for situations employee relationship between the employer (the owner of
where, although the application of the aforementioned four-fold test the project) and the employees of the "labor only"
will not establish an employer-employee relationship, a person or contractor, this time for a comprehensive purpose:
employer who contracts with another for the performance of the "employer for purposes of this Code, to prevent any violation
former's work or of any work, nevertheless becomes liable to the or circumvention of any provision of this Code." The law in
employees of the contractor. Articles 106, 107 and 109 of the Labor effect holds both the employer and the "labor only"
Code provide: contractor responsible to the latter's employees for the more
effective safeguarding of the employees' rights under the
Labor Code. (at p. 356; emphasis supplied)
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 And in determining whether a contractor is engaged in labor-only
contractor and of the latter's subcontractor, if any, shall be contracting or in job contracting, reference may be made to Sections 8
paid in accordance with the provisions of this Code. and 9 of the Implementing Rules, which provide:

In the event that the contractor or subcontractor fails to pay Sec. 8. Job contracting. — There is job contracting
the wages of his employees in accordance with this Code, permissible under the Code if the following conditions are
the employer shall be jointly and severally liable with his met:
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 (1) The contractor carries on an independent business and
employed by him. 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
xxx xxx xxx principal in all matters connected with the performance of
the work except as to the results thereof; and

There is labor-only contracting where the person supplying


workers to an employer does not have substantial capital or (2) The contractor has substantial capital or investment in
investment, in the form of tools, equipment, machineries, the form of tools, equipment, machineries, work premises,
work premises, among others and the workers recruited and and other materials which are necessary in the conduct of
placed by such persons, are performing activities which are his business.
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 Sec. 9. Labor-only contracting. — (a) Any person who
to the workers in the same manner and extent as if the latter undertakes to supply workers to an employer shall be
were directly employed by him. deemed to be engaged in labor-only contracting where such
person;

Art. 107. Indirect employer. — The provisions of the


immediately preceding Article shall likewise apply to any (1) Does not have substantial capital or investment in the
person, partnership, association or corporation which, not form of tools, equipment, machineries, work premises and
being an employer, contracts with an independent contractor other materials; and
for the performance of any work, task, job or project.
(2) The workers recruited and placed by such person are
Art. 109. Solidary liability — The provisions of existing laws performing activities which are directly related to the
to the contrary notwithstanding, every employer or indirect principal business or operations of the employer in which
employer shall be held responsible with his contractor or workers are habitually employed.
subcontractor for any violation of any provision of this Code.
For purposes of determining the extent of their civil liability (b) Labor-only contracting as defined herein is hereby
prohibited and the person acting as contractor shall be
DO 18-02 Cases 59

considered merely as an agent or intermediary of the The NLRC, however, concluded that since Rhone-Poulenc made use of
employer who shall be responsible to the workers in the the services of the janitors during the three-month transition period,
same manner and extent as if the latter were directly then said act of utilizing their services constitutes absorption of the
employed by him. janitors into the petitioner's workforce which gives them the right to be
retained. This ratiocination is not correct. The public respondent failed
to consider the fact that during the three-month transition period prior
xxx xxx xxx to Union Carbide's turnover of the facilities, the service contract
between Union Carbide and CSI was still in force. Whatever benefit the
petitioner derived from the continuous availment by Union Carbide of
Applying the foregoing principles to the case at bar, the Court is
the services of CSI's janitors was merely incidental. The NLRC also
constrained to rule for the petitioner.
overlooked the fact that it was still Union Carbide who paid CSI for the
services of these janitors. Also, even prior to the expiration of the
There is no employer-employee relationship between Union Carbide transition period, the petitioner, in anticipation of the pullout of Union
and the respondent janitors. The respondents themselves admitted Carbide and its hired service agencies, started screening its own
that they were selected and hired by CSI and were assigned to Union service contractors. Under these circumstances, the petitioner may not
Carbide. CSI likewise acknowledged that the two janitors were its be deemed to have absorbed the respondent janitors as its own
employees. The janitors drew their salaries from CSI and not from employees.
Union Carbide. CSI exercised control over these janitors through
Richard Barroga, also a CSI employee, who gave orders and
WHEREFORE, the resolutions of the respondent National Labor
instructions to CSI janitors assigned to the Namayan plant. Moreover,
Relations Commission dated March 13, 1991 and September 11, 1991
CSI had the power to assign its janitors to various clients and to pull
are SET ASIDE. The decision of the labor arbiter dated November 8,
out, as it had done in a number of occasions, any of its janitors working
1989 is hereby REINSTATED.
at Union Carbide.

The temporary restraining order issued by this Court on December 2,


As to whether CSI is engaged in labor-only contracting or in job
1991 is made PERMANENT.
contracting, applying the test prescribed by the Labor Code and the
implementing rules, we find sufficient basis from the records to
conclude that CSI is engaged in job contracting. As correctly declared SO ORDERED.
by the labor arbiter:

Bidin, Davide, Jr., Romero and Melo, JJ., concur.


Moreover, CSI is a legitimate service contractor. It is
registered as one and doing business as such with a number
of known companies in the country. It has a contract with G.R. No. 101539 September 4, 1992
UCFEI to assign janitorial and ground services to the latter
for a fee. The complainants' work were basically janitorial
and gardening chores. The tools of their trade were supplied CECILE DE OCAMPO, WILFREDO SAN PEDRO, REYNALDO
by CSI. Of course, we are aware of the complainants' claim DOVICAR, BIEN MEDINA, CESAR ABRIOL, ARTEMIO CASTRO,
that they were made to do chores which are production jobs. LARRY ALCANTARA, MICHAEL NOCUM, JESUS DEO JR., PUBLEO
Yet, there is no showing of regularity or permanence of such DARAG, EDUARDO BINO, EDUARDO VELES, ERVIN DAVID,
assignment. Those occasional errands cannot be considered PROTACIO PEREZ, NOEL VICTOR, ELENO DACATIMBAN,
as genuine control of UCFEI over the complainants. (Rollo, ANTONIO BERNARDO, CARLITO VICTORIA, TIMOTEO MIJARES,
pp. 51-52) ALEX RAMOS, REYNALDO CRUZ, MODESTO MAMESIA, DOMINGO
SILARDE, RENATO PUENTAS, RENE VILLANUEVA, MARCELO
DELA CRUZ and HERNANDO LEGASPI, petitioners
Moreover, in Kimberly Independent Labor Union v. Drilon, 185 SCRA vs.
190 [1990], the Court took judicial notice of the general practice NATIONAL LABOR RELATIONS COMMISSION and BALIWAG
adopted in several government and private institutions and industries MAHOGANY CORPORATION, respondents.
of hiring a janitorial service on an independent contractor basis.

MEDIALDEA, J.:
It must be stressed that the janitorial service agreement between
Union Carbide and CSI binds only the two, and not petitioner Rhone-
Poulenc. As new owner, Rhone-Poulenc had every right to choose its This Petition for certiorari seeks to annul and set aside the resolution
own service contractor. issued by the respondent National Labor Relations Commission on July
8, 1991, in Certified Case No. 0548 entitled "In Re: Labor Dispute at
Baliwag Mahogany Corporation," affirming with modification its
Respondent NLRC relied heavily on the ruling in Guarin, supra, in previous decision dated October 23, 1990, declaring the union officers
deducing that CSI was a labor-only contractor. The facts in Guarin, and/or members who participated in the illegal strike staged on
however, are different from those obtaining in the present case. In February 6, 1990 to have lost their status of employment; and
Guarin, the contractor failed to prove that it had substantial capital or directing private respondent Baliwag Mahogany Corporation to pay
investment in the form of tools, equipment, machineries, work separation pay to certain employees and to reinstate without
premises and other materials. In the case at bar, it has been backwages all union Members not found to have committed prohibited
established that CSI, the contractor, owns and maintains its own office; acts.
that it owns office equipment such as, but not limited to, typewriters,
calculators, xerox machines, mimeographing machines, airconditioning
units and transportation vehicles; and that it furnishes its janitors the The antecedent facts are as follows:
cleaning equipment such as carpet vacuums and polishing machines.
Moreover, the petitioners in Guarin, who were assigned as helpers,
janitors, firemen and mechanics, numbered one hundred twenty (120) Petitioners Cecile de Ocampo, Wilfredo San Pedro, Reynaldo Dovicar,
in all which, by itself, amounts to a considerable workforce and gives Bien Medina, Cesar Abriol, Artemio Castro, Larry Alcantara, Michael
rise to the suspicion that the service agreement between Novelty and Nocum, Jesus Deo, Jr., Publeo Darag, Eduardo Bino, Eduardo Veles,
Lipercon was designed to evade the obligations inherent in an Ervin David, Prostacio Perez, Noel Victor, Eleno Dacatimban, Antonio
employer-employee relationship. In contrasts there were only eight (8) Bernardo, Carlito Victoria, Timoteo Mijares, Alex Ramos, Reynaldo
janitors supplied by CSI to Union Carbide. Cruz, Modesto Mamesia, Domingo Silarde, Renato Puertas, Rene
Villanueva, Marcelo dela Cruz and Hernando Legaspi are employees of
private respondent Baliwag Mahogany Corporation. They are either
These two substantial differences, taken together, are sufficient to officers or members of the Baliwag Mahogany Corporation Union-CFW,
remove the present case from the ambit of the Guarin ruling. the existing collective bargaining agent of the rank and file employees
in the company. Private respondent Baliwag Mahogany Corporation is
an enterprise engaged in the production of wooden doors and furniture
Even on the supposition that the janitors were, indeed, employees of and has a total workforce of about 900 employees.
Union Carbide or that CSI is a labor-only contractor, thus making Union
Carbide a direct employer of these janitors, petitioner Rhone-Poulenc,
as purchaser of Union Carbide's business is not compelled to absorb In 1988, private respondent Baliwag Mahogany Corporation (company)
these janitors into its workforce. An innocent transferee of a business and Baliwag Mahogany Corporation Union-CFW (union) entered into a
establishment has no liability to the employees of the transferor to collective bargaining agreement containing, among other things,
continue employing them. (Central Azucarera del Davao v. Court of provisions on conversion into cash of unused vacation and sick leaves;
Appeals, 137 SCRA 295 [1985]).
DO 18-02 Cases 60

grievance machinery procedure; and the right of the company to Criminal complaints for illegal assembly, grave threats, and grave
schedule work on Sundays and holidays. coercion were filed against Cecile de Ocampo, Timoteo Mijares,
Modesto Mamesia and Domingo Silarde by the local police authorities
on February 24, 1990.
In November, 1989, the union made several requests from the
company, one of which was the cash conversion of unused vacation
and sick leave for 1987-1988 and 1988-1989. On February 25, 1990, the company caused the publication of his
return to work order in two (2) newspapers, namely NGAYON and
ABANTE.
Acting on the matter, the company ruled to allow payment of unused
vacation and sick leaves for the period of 1987-1988 but disallowed
cash conversion of the 1988-1989 unused leaves. In its letter dated February 27, 1990, the union, through its President
Cecile de Ocampo, requested the Regional Director of DOLE, Region III
to intervene in the existing dispute with management.
On January 3, 1990, the company issued suspension orders affecting
twenty (20) employees for failure to render overtime work on
December 30, 1989. The suspension was for a period of three (3) days Meanwhile, the company extended the February 26, 1990 deadline for
effective January 3, 1996 to January 5, 1990. the workers to return to work until March 15, 1990.

On the same day, the union filed a notice of strike on the grounds of The respondent Commission rendered a decision on October 23, 1990,
unfair labor practice particularly the violation of the CBA provisions on declaring the strikes staged on January 18, 1990 and February 6, 1990
non-payment of unused leaves and illegal dismissal of seven (7) illegal, the dispositive portion of which provides as follows, to wit:
employees in November, 1989.

WHEREFORE, judgment is hereby rendered as follows:


On January 13, 1990, the company issued a notice of termination to
three (3) employees or union members, namely, Cecile de Ocampo,
Rene Villanueva and Marcelo dela Cruz, of the machinery department, 1. The strike staged on January 18, 1990 is hereby declared
allegedly to effect cost reduction and redundancy. illegal and all employees who participated therein are
reprimanded therefor or an further warned that future
similar acts shall be dealt more severely;
The members of the union conducted a picket at the main gate of the
company on January 18, 1990.
2. The strike staged on February 6, 1990 is hereby declared
illegal and the Union officers/members are deemed
On the same day, the company filed a petition to declare the strike suspended from March 15, 1990 the last deadline of the
illegal with prayer for injunction against the union, Cecile de Ocampo, company for them to report to the date of promulgation of
Wilfredo San Pedro and Rene Aguilar. this Decision. In short, the Union officers/members are
ordered reinstated to their positions but without backwages;.

An election of officers was conducted by the union on January 19,


1990. Consequently, Cecile de Ocampo was elected as president. 3. Baliwag Mahogany Corporation is hereby directed to
immediately reinstate Cecile de Ocampo, Rene Villanueva
and Marcelo dela Cruz to their former positions without loss
During the conciliation meeting held at National Conciliation and of seniority rights to pay them full backwages for the period
Mediation Board (NCMB) on January 22, 1990 relative to the notice of from January 17, 1990 to March 15, 1990 only;
strike filed by the union on January 3, 1990, the issue pertaining to the
legality of the termination of three (3) union members was raised by
the union. However, both parties agreed to discuss it separately. 4. The Baliwag Mahogany Corporation is hereby directed to
immediately reinstate Alex Ramos, Ronaldo Cruz, Fernando
Hernandez, Renato Puertas, Hernando Legaspi to their
Subsequently, in a letter dated January 28, 1990, the union requested former positions and to pay them backwages from date of
for the presence of a NCMB representative during a strike vote held by dismissal to March 15, 1990 only;
the union. The strike vote resulted to 388 votes out of 415 total votes
in favor of the strike.
5. The Baliwag Mahogany Corporation is hereby exonerated
of the charge of unfair labor practice;
Consequently, the union staged a strike on February 6, 1990.

6. The Baliwag Mahogany Corporation is directed to pay its


On February 7, 1990, the company filed a petition to assume employment the cash equivalent of unused sick leaves for
jurisdiction with the Department of Labor and Employment. year 1989;

On February 16, 1990, the company filed an amended petition, praying 7. The Baliwag Mahogany Corporation is directed to remit to
among other things, that the strike staged by the union on February 6, the Union the dues for the month of January 1990.
1990 be declared illegal, there being no genuine strikeable issue and
the violation of the no-strike clause of the existing CBA between the
parties. SO ORDERED. (Rollo, pp. 68-69)

The Secretary of Labor in an order dated February 15, 1990, certified Such decision prompted the company to file a motion for
the entire labor dispute to the respondent Commission for compulsory reconsideration substantially on the ground that public respondent
arbitration and directed all striking workers including the dismissed seriously erred in not dismissing the employees particularly the union
employees to return to work and the management to accept them officers, who participated in the illegal strike.
back.

In its supplemental motion for reconsideration, the company


The company filed an urgent motion for assignment of a sheriff to contended that as a result of the strike, it failed to meet the purchase
enforce the order of the Secretary. orders for the quarter valued at fifteen million pesos.

In an order dated February 22, 1990, the Secretary of Labor directed Petitioners filed an opposition to the company's motion for
Sheriff Alfredo Antonio, Jr., to implement the order. reconsideration and subsequently a supplemental comment/opposition
to motion for reconsideration.

On February 23, 1990, the sheriff, with the assistance of the PC/INP of
San Rafael, removed the barricades and opened the main gate of the On December 13, 1990, the respondent Commission directed the Labor
company. Arbiter to receive evidence on the issues raised in the motion for
reconsideration and additional evidence on the issues already passed
upon and to submit a report thereon.
DO 18-02 Cases 61

On July 8, 1991, the respondent Commission rendered a resolution After a careful review of the records of this case, the Court finds the
affirming with modification the decision dated October 23, 1990, the petition devoid of merit.
dispositive portion of which provides as follows:

Petitioners insist that there is no specific finding by the respondent


WHEREFORE, premises considered, the Decision of October commision regarding the particular participation of the individual
23, 1990 is hereby MODIFIED, to wit: petitioners in the supposed acts of violence or commission of
prohibited acts during the strike such as denial of free ingress to the
premises of the company and egress therefrom as well as illegal acts
1. The strike staged on February 6, 1990 is hereby declared of coercion during the February, 1990 strike.
illegal and the Union officers/members who participated in
said strike committed prohibited acts are deemed to have
lost their status of employment, to wit: The Solicitor General disagrees and claims that it is undisputed that
the union resorted to illegal acts during the strike arguing that private
respondent's personnel manager specifically identified the union
1. Cecile de Ocampo officers and members who committed the prohibited acts and actively
2. Wilfredo San Pedro participated therein.
3. Reynaldo Aguilar
4. Bren Medina (Bien Medina)
5. Cesar Abriol Moreover, the Solicitor General maintains that the illegality of the
6. Artemio Castro strike likewise stems from the failure of the petitioners to honor the
7. Larry Alcantara certification order and heed the return-to-work order issued by the
8. Melie Nocum (Michael Nocum) Secretary of Labor.
9. Jesus Deo, Jr.
10. Publeo Darag
11. Eduardo Bino Answering this contention, the petitioners argued that their failure to
12. Eduardo Vices (Eduardo Veles) immediately return to work was not impelled by any malicious or
13. Abroin David (Ervin David) malevolent motive but rather, by their apprehension regarding their
14. Protacio Perez (Prostacio Perez) physical safety due to the presence of military men in the factory who
15. Celso Sarmiento might cause them harm.
16. Neol Vicbon (Noel Victor)
17. Alano Dacatimban (Eleno Dacatimban)
The law on the matter is Article 264 (a) of the Labor Code, to wit:
18. Antonio Bernardo
19. Carlito Victoria
20. Timoteo Mijares Article 264. (a) Prohibited activities. (a) ––
21. Alex Ramos
22. Reynaldo Cruz
23. Modesto Manesia No strike or lockout shall be declared after assumption of
24. Domingo Silarde jurisdiction by the President or the Minister or after
25. Renato Puertas certification or submission of the dispute to compulsory or
26. Hernando Legaspi voluntary arbitration or during the pendency of cases
involving the same grounds for the strike or lockout.

2. The Baliwag Mahogany Corporation is directed to pay


Cecile de Ocampo, Rene Villanueva and Marcelo Cruz Any worker whose employment has been terminated as a
separation pay computed at one month per year of service in consequence of an unlawful lockout shall be entitled to
addition to one month pay as indemnification pay for lack of reinstatement with full backwages. Any union officer who
notice (Art. 283, Labor Code). knowingly participates in an illegal strike and any worker or
union officer who knowingly participates in the commission
of illegal acts during a strike may be declared to have lost
3. The Baliwag Mahogany Corporation is directed to pay Alex his employment status: Provided, That mere participation of
Ramos, Reynaldo Cruz, Renato Puertas, Hernando Legaspi a worker in a lawful strike shall not constitute sufficient
separation pay computed at one (1) month per year of ground for termination of his employment, even if a
service in addition to backwages limited to six (6) months. replacement had been hired by the employer during such
lawful strike.
4. The Baliwag Mahogany Corporation is directed to reinstate
but without backwages all Union members not found herein The clear mandate of the aforequoted article was stressed in the case
to have committed prohibited acts nor found to have of Union of Filipro Employees v. Nestle Philippines, Inc. (G.R. Nos.
accepted settlement from it nor have voluntarily left the 88710-13, December 19, 1990, 192 SCRA 396, 411) where it was held
Company for reasons of their own. that a strike that is undertaken despite the issuance by the Secretary
of Labor of an assumption or certification order becomes a prohibited
activity and thus illegal, pursuant to the second paragraph of Art. 264
5. All other findings in the questioned Decision are affirmed.
of the Labor Code as Amended and the Union officers and members, as
a result, are deemed to have lost their employment status for having
SO ORDERED. (Rollo, pp. 45-47) knowingly participated in an illegal act.

Hence, this present petition raising three (3) issues, to wit: Unrebutted evidence shows that the individual petitioners defied the
return-to-work order of the Secretary of Labor issued on February 15,
1990. As a matter of fact, it was only on February 23, 1990 when the
1. Whether or not there is legal basis for declaring the loss of barricades were removed and the main gate of the company was
employment status by petitioners on account of the strike in opened. Hence, the termination of the services of the individual
respondent Company. petitioners is justified on this ground alone.

2. Whether or not the dismissals of petitioners Cecile de Anent the contention that the respondent Commission gravely abused
Ocampo, Rene Villanueva, and Marcelo dela Cruz from their its discretion when it allowed the presentation of additional evidence to
positions by the company on the ground of redundancy was prove the loss suffered by the company despite the fact that they were
done in good faith. mere afterthoughts and just concocted by the company, time and
again, We emphasize that "technical rules of evidence are not binding
in labor cases. Labor officials should use every and reasonable means
3. Whether or not respondent NLRC acted correctly in to ascertain the facts in each case speedily and objectively, without
allowing respondent company to submit additional evidence regard to technicalities of law or procedure, all in the interest of due
in support of its Motion for Reconsideration and in giving process" (Philippine Telegraph and Telephone Corporation v. National
credence to the said evidence despite the fact that the same Labor Relations Commission, G.R. No. 80600, March 21, 1990, 183
were not newly-discovered evidence as defined under the SCRA 451, 457).
Rules of Court. (Rollo, p. 11)
DO 18-02 Cases 62

Turning to the legality of the termination of three (3) of the individual ROLANDO E. ESCARIO, NESTOR ANDRES, CESAR AMPER,
petitioners, petitioners contend that the company acted in bad faith LORETO BALDEMOR, EDUARDO BOLONIA, ROMEO E. BOLONIA,
when it terminated the services of the three mechanics because the ANICETO CADESIM, JOEL CATAPANG, NESTOR DELA CRUZ,
positions held by them were not at all abolished but merely given to EDUARDO DUNGO ESCARIO REY, ELIZALDE ESTASIO, CAROLINO
Gemac Machineries. M. PABIAN, RENATO JANER, EMER B. LIQUIGAN, ALEJANDRO
MABAWAD, FERNANDO M. MAGTIBAY, DOMINADOR B.
MILLILLIN, NOEL B. MANILA, VIRGILIO A. MANIO, ROMEO M.
On the contrary, the company stresses that when it contracted the MENDOZA, TIMOTEO NOTARION, FREDERICK RAMOS, JOSEPH
services of Gemac Machineries for the maintenance and repair of its REYES, JESSIE SEVILLA, NOEL STO. DOMINGO, DODJIE
industrial machinery, it only adopted a cost saving and cost- TAJONERA, JOSELITO TIONLOC, ARNEL UMALI, MAURLIE C.
consciousness program in order to improve production efficiency. VIBAR, ROLANDO ZALDUA, RODOLFO TUAZON, TEODORO
LUGADA, MAURING MANUEL, MARCIANO VERCARA, JR.,
ARMANDO IBASCO, CAYETANO IBASCO, LEONILO MEDINA,
We sustain respondent Commission's finding that petitioners' dismissal
JOSELITO ODO, MELCHOR BUELA, GOMER GOMEZ, HENRY
was justified by redundancy due to superfluity and hence legal.
PONCE, RAMON ORTIZ, JR., ANTONIO MIJARES, JR., MARIO
DIZER, REYNANTE PEJO, ARNALDO RAFAEL, NELSON BERUELA,
We believe that redundancy, for purposes of our Labor Code, exists AUGUSTO RAMOS, RODOLFO VALENTIN, ANTONIO CACAM,
where the services of an employee are in excess of what is reasonably VERNON VELASQUEZ, NORMAN VALLO, ALEJANDRO ORTIZ,
demanded by the actual requirement of the enterprise. Succinctly put, ROSANO VALLO, ANDREW ESPINOSA, EDGAR CABARDO,
a position is redundant where it is superfluous, and superfluity of a FIDELES REYES, EDGARDO FRANCISCO, FERNANDO VILLARUEL,
position or positions may be the outcome of a number of factors, such LEOPOLDO OLEGARIO, OSCAR SORIANO, GARY RELOS, DANTE
as over hiring of workers, decreased volume of business, or dropping of IRANZO, RONALDO BACOLOR, RONALD ESGUERA VICTOR
a particular product line or service activity previously manufactured or ALVAREZ, JOSE MARCELO, DANTE ESTRELLADO, MELQUIADES
undertaken by the enterprise. The employer had no legal obligation to ANGELES, GREGORIO TALABONG, ALBERT BALAO, ALBERT
keep in its payroll more employees, than are necessary for the CANLAS, CAMILO VELASCO, PONTINO CHRISTOPHER,
operation of its business. (Wiltshire File Co., Inc. v. National Labor WELFREDO RAMOS, REYNALDO RODRIGUEZ, RAZ GARIZALDE,
Relations Commission, G.R. No. 82249, February 7, 1991; 193 SCRA MIGUEL TUAZON, ROBERTO SANTOS, AND RICARDO MORTEL,
665,672). petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, CALIFORNIA
The reduction of the number of workers in a company made necessary MANUFACTURING CO, INC. AND DONNA LOUISE ADVERTISING
by the introduction of the services of Gemac Machineries in the AND MARKETING ASSOCIATES INCORPORATED, respondents.
maintenance and repair of its industrial machinery is justified. There
can be no question as to the right of the company to contract the
services of Gemac Machineries to replace the services rendered by the KAPUNAN, J.
terminated mechanics with a view to effecting more economic and
efficient methods of production.
Before this Court is a petition for certiorari under Rule 65, which seeks
to annul and set aside the decision, promulgated on 10 May 1995, of
In the same case, We ruled that "(t)he characterization of (petitioners') the National Labor Relations Commission (NLRC). The assailed decision
services as no longer necessary or sustainable, and therefore properly reversed the decision of the Labor Arbiter, and ruled that the
terminable, was an exercise of business judgment on the part of petitioners are employees of Donna Louise Advertising and Marketing
(private respondent) company. The wisdom or soundness of such Associates, Inc. and ordered the reinstatement of petitioners and the
characterization or decision was not subject to discretionary review on payment of backwages.
the part of the Labor Arbiter nor of the NLRC so long, of course, as
violation of law or merely arbitrary and malicious action is not shown"
Private respondent California Marketing Co. Inc. (CMC) is a domestic
(ibid, p. 673).
corporation principally engaged in the manufacturing of food products
and distribution of such products to wholesalers and retailers. Private
In contracting the services of Gemac Machineries, as part of the respondent Donna Louise Advertising and Marketing Associates, Inc.
company's cost-saving program, the services rendered by the (D.L. Admark) is a duly registered promotional firm.
mechanics became redundant and superfluous, and therefore properly
terminable. The company merely exercised its business judgment or
Petitioners worked as merchandisers for the products of CMC. Their
management prerogative. And in the absence of any proof that the
services were terminated on 16 March 1992.
management abused its discretion or acted in a malicious or arbitrary
manner, the court will not interfere with the exercise of such
prerogative. The parties presented conflicting versions of the facts.

Well-settled is the rule that the factual findings of administrative Petitioners allege that they were employed by CMC as merchandisers.
bodies are entitled to great weight, and these findings are accorded Among the tasks assigned to them were the withdrawing of stocks
not only respect but even finality when supported by substantial from the warehouse, the fixing of prices, price-tagging, displaying of
evidence (Family Planning Organization of the Philippines, Inc. v. merchandise, and the inventory of stocks. These were done under the
National Labor Relations Commission, G.R. No. 75987, March 23, 1992, control, management and supervision of CMC. The materials and
p. 7 citing Asian Construction and Development Corporation v. National equipment necessary in the performance of their job, such as price
Labor Relations Commission, G.R. No. 85866, July 24, 1998, 187 SCRA markers, gun taggers, toys, pentel pen, streamers and posters were
784, 787). Hence, the truth or the falsehood of alleged facts is not for provided by CMC. Their salaries were being paid by CMC. According to
this Court now to re-examine. petitioners, the hiring, control and supervision of the workers and the
payment of salaries, were all coursed by CMC through its agent D.L.
Admark in order for CMC to avoid its liability under the law.
In the light of the foregoing considerations, it is clear that the assailed
resolution of the respondent Commission is not tainted with
arbitrariness nor grave abuse of discretion. On 7 February 1992, petitioners filed a case against CMC before the
Labor Arbiter for the regularization of their employment status. During
the pendency of the case before the Labor Arbiter, D.L. Admark sent to
ACCORDINGLY, the petition is DISMISSED for lack of merit and the
petitioners notice of termination of their employment effective 16
resolution of the respondent Commission dated July 8, 1991 is hereby
March 1992. Hence, their complaint was amended so as to include
AFFIRMED.
illegal dismissal as cause of action. Thereafter, twenty-seven more
persons joined as complainants. CMC filed a motion to implead as
SO ORDERED. party-defendant D.L. Admark and at the same time the latter filed a
motion to intervene. Both motions were granted.

Cruz, Griño-Aquino and Bellosillo, JJ., concur.


CMC, on the other hand, denied the existence of an employer-
employee relationship between petitioner and itself. Rather, CMC
G.R. No. 124055 June 8, 2000 contended that it is D.L. Admark who is the employer of the
petitioners. While CMC is engaged in the manufacturing of food
products and distribution of such to wholesalers and retailers, it is not
allowed by law to engage in retail or direct sales to end consumers. It,
DO 18-02 Cases 63

however, hired independent job contractors such as D.L. Admark, to 2. The respondent in this case is California Manufacturing
provide the necessary promotional activities for its product Co. Inc. while respondent in the Tabas case is the same
lines.1âwphi1.nêt California Manufacturing Co. Inc.

For its part, D.L. Admark asserted that it is the employer of the 3. The agency in the Tabas case is Livi Manpower Services.
petitioners. Its primary purpose is to carry on the business of In this case, there are at least, three (3) agencies namely:
advertising, promotion and publicity, the sales and merchandising of the same Livi Manpower Services; the Rank Manpower
goods and services and conduct survey and opinion polls. As an Services and D.L. Admark whose participation is to give and
independent contractor it serves several clients among which include pay the salaries of the petitioners and that the money
Purefoods, Corona Supply, Firstbrand, Splash Cosmetics and herein came from the respondent CMC as in the Tabas case.
private respondent California Marketing.

4. The supervision, management and/or control rest upon


On 29 July 1994, the Labor Arbiter rendered a decision finding that respondent California Manufacturing Co. Inc. as found by
petitioners are the employees of CMC as they were engaged in the Honorable Labor Arbiter which is also, true in the Tabas
activities that are necessary and desirable in the usual business or Case. 5
trade of CMC. 1 In justifying its ruling, the Labor Arbiter cited the case
of Tabas v. CMC which, likewise, involved private respondent CMC. In
the Tabas case, this Court ruled that therein petitioner merchandisers We cannot sustain the petition.
were employees of CMC, to wit:
Petitioners' reliance on the Tabas case is misplaced. In said case, we
There is no doubt that in the case at bar, Livi performs ruled that therein contractor Livi Manpower Services was a mere
"manpower services," meaning to say, it contracts out labor placement agency and had simply supplied herein petitioner with the
in favor of clients. We hold that it is one notwithstanding its manpower necessary to carry out the company's merchandising
vehement claims to the contrary and not-withstanding its activity. We, however, further stated that:
vehement claims to the contrary, and notwithstanding the
provision of the contract that it is "an independent It would have been different, we believe, had Livi been
contractor." The nature of one's business is not determined
discretely a promotions firm, and that California had hired it
by self-serving appellations one attaches thereto but by the to perform the latter's merchandising activities. For then, Livi
tests provided by statute and prevailing case law. The bare
would have been truly the employer of its employees and
fact that Livi maintains a separate line of business does not California, its client. . . . . 6
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 petitioner has been In other words, CMC can validly farm out its merchandising activities to
made to perform activities "which are not directly related to a legitimate independent contractor.
the general business of manufacturing," California's
purported "principal operation activity. The petitioners had
been charged with merchandising [sic] promotion or sale of There is labor-only contracting when the contractor or sub-contractor
the products of [California] in the different sales outlets in merely recruits, supplies or places workers to perform a job, work or
Metro Manila including task and occational [sic] price service for a principal. In labor-only contracting, the following elements
tagging" an activity that is doubtless, an integral part of the are present:
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 (a) The person supplying workers to an employer does not
itself have done; Livi as a placement agency, had simply have substantial capital or investment in the form of tools,
supplied it with manpower necessary to carry out its equipment, machineries, work premises, among others; and
(California's) merchandising activities, using its (California's)
premises and equipment. 2 (b) The workers recruited and placed by such person are
performing activities which are directly related to the
On appeal, the NLRC set aside the decision of the Labor Arbiter. It ruled principal business of the employer. 7
that no employer-employee relationship existed between the
petitioners and CMC. It, likewise, held that D.L. Admark is a legitimate In contrast, there is permissible job contracting when a principal
independent contractor, hence, the employer of the petitioners. agrees to put out or farm out with a contractor or a subcontractor the
Finding no valid grounds existed for the dismissal of the petitioners by performance or completion of a specific job, work or service within a
D.L. Admark, it ordered their reinstatement. The dispositive portion of definite or predetermined period, regardless of whether such job or
the decision reads: work or service is to be performed or completed within or outside the
premises of the principal. In this arrangement, the following conditions
WHEREFORE, premises considered, the appealed judgment must concur:
is modified. Intervenor DL ADMARK is ordered to reinstate
the eighty one (81) complainants mentioned in the appealed (a) The contractor carries on a distinct and independent
decision to their former positions with backwages from business and undertakes the contract work on his account
March 16, 1992 until they are actually reinstated. The award under his own responsibility according to his own manner
of attorney's fees equivalent to ten (10%) of the award is and method, free from the control and direction of his
deleted for lack of basis. 3 employer or principal in all matters connected with the
performance of his work except as to the results thereof; and
Petitioners filed a motion for reconsideration but the same was denied
by the NLRC for lack of merit. 4 (b) The contractor has substantial capita or investment in
the form of tools, equipment, machineries (sic), work
Hence, this petition. premises, and other materials which are necessary in the
conduct of his business. 8

In the main, the issue brought to fore is whether petitioners are


employees of CMC or D.L. Admark. In resolving this, it is necessary to In the recent case of Alexander Vinoya vs. NLRC et al., 9 this Court
determine whether D.L. Admark is a labor-only contractor or an ruled that in order to be considered an independent contractor it is not
independent contractor. enough to show substantial capitalization or investment in the form of
tools, equipment, machinery and work premises. In addition, the
following factors need be considered: (a) whether the contractor is
Petitioners are of the position that D.L. Admark is a labor-only carrying on an independent business; (b) the nature and extent of the
contractor and cites this Court's ruling in the case of Tabas, which they work; (c) the skill required; (d) the term and duration of the
claim is applicable to the case at bar for the following reasons: relationship; (e) the right to assign the performance of specified pieces
of work; (f) the control and supervision of the workers; (g) the power of
the employer with respect to the hiring firing and payment of workers
1. The petitioners are merchandisers and the petitioners in of the contractor; (h) the control of the premises; (i) the duty to supply
the Tabas case are also merchandisers who have the same premises, tools, appliances, materials, and labor, and (j) the mode,
nature of work. manner and terms of payment. 10
DO 18-02 Cases 64

Based on the foregoing criterion, we find that D.L. Admark is a noted that in one of the memorandums it was addressed to:
legitimate independent contractor. "All regular merchandisers/demonstrators." . . . we are not
convinced that the documents sufficiently prove employer-
employee relationship between complainants and
Among the circumstances that tend to establish the status of D.L. respondents CMC. 20
Admark as a legitimate job contractor are:

The Office of the Solicitor General, likewise, notes that the documents
1) The SEC registration certificate of D.L. Admark states that fail to show anything that would remotely suggest control and
it is a firm engaged in promotional, advertising, marketing supervision exercised by CMC over petitioners on the matter on how
and merchandising activities. they should perform their work. The memoranda were addressed
either to the store owners or "regular" merchandisers and
demonstrators of CMC. Thus, petitioners, who filed a complaint for
2) The service contract between CMC and D.L. Admark
regularization against respondent CMC, thereby, conceding that they
clearly provides that the agreement is for the supply of sales
are not regular employees of the latter, cannot validly claim to be the
promoting merchandising services rather than one of
ones referred to in said memos. 21
manpower placement. 11

Having proven the existence of an employer-employee relationship


3) D.L. Admark was actually engaged in several activities,
between D.L. Admark and petitioners, it is no longer relevant to
such as advertising, publication, promotions, marketing and
determine whether the activities performed by the latter are necessary
merchandising. It had several merchandising contracts with
or desirable to the usual business or trade of CMC.
companies like Purefoods, Corona Supply, Nabisco Biscuits,
and Licron. It was likewise engaged in the publication
business as evidenced by it magazine the "Phenomenon." 12 On the issue of illegal dismissal, we agree with the findings of the NLRC
that D.L. Admark "admits having dismissed the petitioners for allegedly
disowning and rejecting them as them as their employer."
4) It had its own capital assets to carry out its promotion
Undoubtedly, the reason given is not just cause to terminate
business. It then had current assets amounting to P6 million
petitioners. 22 D.L. Admark's belated claim that the petitioners were not
and is therefore a highly capitalized venture. 13 It had an
terminated but simply did not report to
authorized capital stock of P500,000.00. It owned several
work 23 is not supported by the evidence on record. Moreover, there is
motor vehicles and other tools, materials and equipment to
no showing that due process was afforded the petitioners.
service its clients. It paid rentals of P30,020 for the office
space it occupied.
IN VIEW OF THE FOREGOING, finding no grave abuse of discretion on
the part of the National Labor Relations Commission, the assailed
Moreover, by applying the four-fold test used in determining employer-
decision is AFFIRMED in toto.
employee relationship, the status of D.L. Admark as the true employer
of petitioners is further established. The elements of this test are (1)
the selection and engagement of employee; (2) the payment of wages; SO ORDERED.
(3) the power of dismissal; and (4) the power to control the employee's
conduct. 14
Puno, Pardo and Ynares-Santiago, JJ., concur.

As regards the first element, petitioners themselves admitted that they


were selected and hired by D.L. Admark. 15 Davide, Jr., C.J., on official leave abroad.

As to the second element, the NLRC noted that D.L. Admark was able G.R. Nos. 97008-09 July 23, 1993
to present in evidence the payroll of petitioners, sample SSS
contribution forms filed and submitted by D.L. Admark to the SSS, and
the application for employment by R. de los Reyes, all tending to show VIRGINIA G. NERI and JOSE CABELIN, petitioners,
that D.L. Admark was paying for the petitioners' salaries. In contrast, vs.
petitioners did not submit an iota of evidence that it was CMC who paid NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK &
for their salaries. The fact that the agreement between CMC and D.L. TRUST COMPANY (FEBTC) and BUILDING CARE CORPORATION,
Admark contains the billing rate and cost breakdown of payment for respondents.
core merchandisers and coordinators does not in any way establish
that it was CMC who was paying for their salaries. As correctly pointed
out by both CMC 16 and the Office of the Solicitor General, 17 such cost R.L. Salcedo & Improso Law Office for petitioners.
breakdown is a standard content of service contracts designed to
insure that under the contract, employees of the job contractor will Bengzon, Zarnaga, Narciso, Cudala, Pecson, Bengzon & Jimenez for
receive benefits mandated by law. Bldg. Care Corp.

Neither did the petitioners prove the existence of the third element. Bautista, Picaso, Buyco, Tan & Fider for respondent FEBTC.
Again petitioners admitted that it was D.L. Admark who terminated
their
employment. 18

To prove the fourth and most important element of control, petitioners BELLOSILLO, J.:
presented the memoranda of CMC's sales and promotions manager.
The Labor Arbiter found that these memos "indubitably show that the
complainants were under the supervision and control of the CMC Respondents are sued by two employees of Building Care Corporation,
people." 19 However, as correctly pointed out by the NLRC, a careful which provides janitorial and other specific services to various firms, to
scrutiny of the documents adverted to, will reveal that nothing therein compel Far Bast Bank and Trust Company to recognize them as its
would remotely suggest that CMC was supervising and controlling the regular employees and be paid the same wages which its employees
work of the petitioners: receive.

. . . The memorandums (Exhibit "B") were addressed to the Building Care Corporation (BCC, for brevity), in the proceedings below,
store or grocery owners telling them about the forthcoming established that it had substantial capitalization of P1 Million or a
sales promotions of CMC products. While in one of the stockholders equity of P1.5 Million. Thus the Labor Arbiter ruled that
memorandums a statement is made that "our merchandisers BCC was only job contracting and that consequently its employees
and demonstrators will be assigned to pack the premium were not employees of Far East Bank and Trust Company (FEBTC, for
with your stocks in the shelves . . ., yet it does not brevity). on appeal, this factual finding was affirmed by respondent
necessarily mean to refer to the complainants, as they claim, National Labor Relations Commission (NLRC, for brevity). Nevertheless,
since CMC has also regular merchandisers and petitioners insist before us that BCC is engaged in "labor-only"
demonstrators. It would be different if in the memorandums contracting hence, they conclude, they are employees of respondent
were sent or given to the complainants and their duties or FEBTC.
roles in the said sales campaign are therein defined. It is also
DO 18-02 Cases 65

Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, used. But, having established that it has substantial capital, it was no
and were hired by, respondent BCC, a corporation engaged in longer necessary for BCC to further adduce evidence to prove that it
providing technical, maintenance, engineering, housekeeping, security does not fall within the purview of "labor-only" contracting. There is
and other specific services to its clientele. They were assigned to work even no need for it to refute petitioners' contention that the activities
in the Cagayan de Oro City Branch of respondent FEBTC on 1 May 1979 they perform are directly related to the principal business of
and 1 August 1980, respectively, Neri an radio/telex operator and respondent bank.
Cabelin as janitor, before being promoted to messenger on 1 April
1989.
Be that as it may, the Court has already taken judicial notice of the
general practice adopted in several government and private
On 28 June 1989, petitioners instituted complaints against FEBTC and institutions and industries of hiring independent contractors to perform
BCC before Regional Arbitration Branch No. 10 of the Department of special services. 9 These services range from janitorial, 10 security 11
Labor and Employment to compel the bank to accept them as regular and even technical or other specific services such as those performed
employees and for it to pay the differential between the wages being by petitioners Neri and Cabelin. While these services may be
paid them by BCC and those received by FEBTC employees with similar considered directly related to the principal business of the employer, 12
length of service. nevertheless, they are not necessary in the conduct of the principal
business of the employer.

On 16 November 1989, the Labor Arbiter dismissed the complaint for


lack of merit. 1 Respondent BCC was considered an independent In fact, the status of BCC as an independent contractor was previously
contractor because it proved it had substantial capital. Thus, confirmed by this Court in Associated Labor Unions-TUCP v. National
petitioners were held to be regular employees of BCC, not FEBTC. The Labor Relations Commission, 13 where we held thus —
dismissal was appealed to NLRC which on 28 September 1990 affirmed
the decision on appeal. 2 On 22 October 1990, NLRC denied
reconsideration of its affirmance, 3 prompting petitioners to seek The public respondent ruled that the complainants are not
redress from this Court. employees of the bank but of the company contracted to
serve the bank. Building Care Corporation is a big firm which
services, among others, a university, an international bank,
Petitioners vehemently contend that BCC in engaged in "labor-only" a big local bank, a hospital center, government agencies,
contracting because it failed to adduce evidence purporting to show etc. It is a qualified independent contractor. The public
that it invested in the form of tools, equipment, machineries, work respondent correctly ruled against petitioner's contentions . .
premises and other materials which are necessary in the conduct of its . . (Emphasis supplied).
business. Moreover, petitioners argue that they perform duties which
are directly related to the principal business or operation of FEBTC. If
the definition of "labor-only" contracting 4 is to be read in conjunction Even assuming ex argumenti that petitioners were performing
with job contracting, 5 then the only logical conclusion is that BCC is a activities directly related to the principal business of the bank, under
"labor only" contractor. Consequently, they must be deemed the "right of control" test they must still be considered employees of
employees of respondent bank by operation of law since BCC is merely BCC. In the case of petitioner Neri, it is admitted that FEBTC issued a
an agent of FEBTC following the doctrine laid down in Philippine Bank job description which detailed her functions as a radio/telex operator.
of Communications v. National Labor Relations Commission 6 where we However, a cursory reading of the job description shows that what was
ruled that where "labor-only" contracting exists, the Labor Code itself sought to be controlled by FEBTC was actually the end-result of the
establishes an employer-employee relationship between the employer task, e.g., that the daily incoming and outgoing telegraphic transfer of
and the employees of the "labor-only" contractor; hence, FEBTC should funds received and relayed by her, respectively, tallies with that of the
be considered the employer of petitioners who are deemed its register. The guidelines were laid down merely to ensure that the
employees through its agent, "labor-only" contractor BCC. desired end-result was achieved. It did not, however, tell Neri how the
radio/telex machine should be operated. In the Shipside case, 14 we
ruled —
We cannot sustain the petition.

. . . . If in the course of private respondents' work (referring


Respondent BCC need not prove that it made investments in the form to the workers), SHIPSIDE occasionally issued instructions to
of tools, equipment, machineries, work premises, among others, them, that alone does not in the least detract from the fact
because it has established that it has sufficient capitalization. The that only STEVEDORES is the employer of the private
Labor Arbiter and the NLRC both determined that BCC had a capital respondents, for in legal contemplation, such instructions
stock of P1 million fully subscribed and paid for. 7 BCC is therefore a carry no more weight than mere requests, the privity of
highly capitalized venture and cannot be deemed engaged in "labor- contract being between SHIPSIDE and STEVEDORES . . . .
only" contracting.

Besides, petitioners do not deny that they were selected and hired by
It is well-settled that there is "labor-only" contracting where: (a) the BCC before being assigned to work in the Cagayan de Oro Branch of
person supplying workers to an employer does not have substantial FFBTC. BCC likewise acknowledges that petitioners are its employees.
capital or investment in the form of tools, equipment, machineries, The record is replete with evidence disclosing that BCC maintained
work premises, among others; and, (b) the workers recruited and supervision and control over petitioners through its Housekeeping and
placed by such person are performing activities which are directly Special Services Division: petitioners reported for work wearing the
related to the principal business of the employer. 8 prescribed uniform of BCC; leaves
of absence were filed directly with BCC; and, salaries were drawn only
from BCC. 15
Article 106 of the Labor Code defines "labor-only" contracting thus —

As a matter of fact, Neri even secured a certification from BCC on 16


Art. 106. Contractor or subcontractor. — . . . . There is "labor- May 1986 that she was employed by the latter. On the other hand, on
only" contracting where the person supplying workers to an 24 May 1988, Cabelin filed a complaint for underpayment of wages,
employer does not have substantial capital or investment in non-integration of salary adjustments mandated by Wage Orders Nos.
the form of tools, equipment, machineries, work premises, 5 & 6 and R.A. 6640 as well as for illegal deduction 16 against BCC
among others, and the workers recruited by such persons alone which was provisionally dismissed on 19 August 1988 upon
are performing activities which are directly related to the Cabelin's manifestation that his money claim was negligible. 17
principal business of such employer . . . . (emphasis
supplied).
More importantly, under the terms and conditions of the contract, it
was BCC alone which had the power to reassign petitioners. Their
Based on the foregoing, BCC cannot be considered a "labor-only" deployment to FEBTC was not subject to the bank's acceptance.
contractor because it has substantial capital. While there may be no Cabelin was promoted to messenger because the FEBTC branch
evidence that it has investment in the form of tools, equipment, manager promised BCC that two (2) additional janitors would be hired
machineries, work premises, among others, it is enough that it has from the company if the promotion was to be effected. 18 Furthermore,
substantial capital, as was established before the Labor Arbiter as well BCC was to be paid in lump sum unlike in the situation in Philippine
as the NLRC. In other words, the law does not require both substantial Bank of Communications 19 where the contractor, CESI, was to be paid
capital and investment in the form of tools, equipment, machineries, at a daily rate on a per person basis. And, the contract therein
etc. This is clear from the use of the conjunction "or". If the intention stipulated that the CESI was merely to provide manpower that would
was to require the contractor to prove that he has both capital and the render temporary services. In the case at bar, Neri and Cabelin were to
requisite investment, then the conjunction "and" should have been perform specific special services. Consequently, petitioners cannot be
DO 18-02 Cases 66

held to be employees of FEBTC as BCC "carries an independent COMPANY. The pertinent terms and conditions of the agreement are
business" and undertaken the performance of its contract with various as follows:
clients according to its "own manner and method, free from the control
and supervision" of its principals in all matters "except as to the results 1. The AGENCY shall initially provide the COMPANY with
thereof." 20 TWO HUNDRED TWENTY (220) licensed, uniformed, bonded
and armed security guards to be assigned at the COMPANY’s
“MERALCO CENTER,” complete with nightsticks, flashlights,
Indeed, the facts in Philippine Bank of Communications do not square raincoats, and other paraphernalias to work on eight (8)
with those of the instant case. Therein, the Court ruled that CESI was a hours duty. The COMPANY shall determine the number of
"labor-only" contractor because upholding the contract between the security guards in accordance with its needs and the areas
contractor and the bank would in effect permit employers to avoid the of responsibility assigned to each, and shall have the option
necessity of hiring regular or permanent employees and would enable to increase or decrease the number of guards at any time
them to keep their employees indefinitely on a temporary or casual provided the AGENCY is notified within twenty four (24)
basis, thus denying them security of tenure in their jobs. This of course hours of the contemplated reduction or increase of the
violates the Labor Code. BCC has not committed any violation. Also, guards in which case the cost or consideration shall be
the former case was for illegal dismissal; this case, on the other hand, adjusted accordingly.
is for conversion of employment status so that petitioners can receive
the same salary being given to regular employees of FEBTC. But, as 2. The COMPANY shall furnish the AGENCY copies of written
herein determined, petitioners are not regular employees of FEBTC but specific instruction to be followed or implemented by the
of BCC. At any rate, the finding that BCC in a qualified independent latter’s personnel in the discharge of their duties and
contractor precludes us from applying the Philippine Bank of responsibilities and the AGENCY shall be responsible for the
Communications doctrine to the instant petition. faithful compliance therewith by its personnel together with
such general and specific orders which shall be issued from
time to time.
The determination of employer-employee relationship involves factual
findings. 21 Absent any grave abuse of discretion, and we find none in
3. For and in consideration of the services to be rendered
the case before us, we are bound by the findings of the Labor Arbiter
by the AGENCY to the COMPANY, the COMPANY during the
as affirmed by respondent NLRC.
term of this contract shall pay the AGENCY the amount of
THREE THOUSAND EIGHT HUNDRED PESOS (P3,800.00) a
IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED. month per guard, FOUR THOUSAND PESOS (P4,000.00) for
the Shift Leader and FOUR THOUSAND TWO HUNDRED
PESOS (P4,200.00) for the Detachment Commander for eight
SO ORDERED. (8) hours work/day, Saturdays, Sundays and Holidays
included, payable semi-monthly.
Cruz, Griño-Aquino, Davide, Jr. and Quiason, JJ., concur. xxx

5. The AGENCY shall assume the responsibility for the


SECOND DIVISION
proper and efficient performance of duties by the security
guards employed by it and it shall be solely responsible for
MANILA ELECTRIC COMPANY, G.R. No. 145271 any act of said security guards during their watch hours, the
Petitioner, COMPANY being specifically released from any and all
liability to third parties arising from the acts or omission of
- versus - the security guards of the AGENCY.
Present:
ROGELIO BENAMIRA, ERNIE 6. The AGENCY also agrees to hold the COMPANY entirely
DE SAGUN[1], DIOSDADO PUNO, Chairman, free from any liability, cause or causes of action or claims
YOGARE, FRANCISCO MORO[2], AUSTRIA-MARTINEZ, which may be filed by said security guards by reason of their
OSCAR LAGONOY[3], ROLANDO CALLEJO, SR., employment with the AGENCY pursuant to this Agreement or
BENI, ALEX BENI, RAUL[4] DE TINGA, and under the provisions of the Labor Code, the Social Security
GUIA, ARMED SECURITY & CHICO-NAZARIO, JJ. Act, and other laws, decrees or social legislations now
DETECTIVE AGENCY, INC., enacted or which hereafter may be enacted.
(ASDAI) and ADVANCE FORCES
SECURITY & INVESTIGATION Promulgated: 7. Discipline and Administration of the security guards shall
SERVICES, INC., (AFSISI), conform with the rules and regulations of the AGENCY, and
Respondents. July 14, 2005 the COMPANY reserves the right to require without
x------------------------------------------------x explanation the replacement of any guard whose behavior,
conduct or appearance is not satisfactory to the COMPANY
and that the AGENCY cannot pull-out any security guard
AUSTRIA-MARTINEZ, J.: from the COMPANY without the consent of the latter.

8. The AGENCY shall conduct inspections through its duly


Before us is a petition for review on certiorari under Rule 45 authorized inspector at least two (2) times a week of guards
of the Rules of Court assailing the Decision,[5] dated September 27, assigned to all COMPANY installations secured by the
2000, of the Court of Appeals (CA) in CA-G.R. SP No. 50520 which AGENCY located in the Metropolitan Manila area and at least
declared petitioner Manila Electric Company (MERALCO) as the direct once a week of the COMPANY’s installations located outside
employer of individual respondents Rogelio Benamira, Ernie De Sagun, of the Metropolitan Manila area and to further submit its
Diosdado Yogare, Francisco Moro, Oscar Lagonoy, Rolando Beni, Alex inspection reports to the COMPANY. Likewise, the COMPANY
Beni and Raul De Guia (individual respondents for brevity). shall have the right at all times to inspect the guards of the
AGENCY assigned to the COMPANY.
The factual background of the case is as follows:
9. The said security guards shall be hired by the AGENCY
The individual respondents are licensed security guards and this contract shall not be deemed in any way to
formerly employed by People’s Security, Inc. (PSI) and deployed as constitute a contract of employment between the COMPANY
such at MERALCO’s head office in Ortigas Avenue, Pasig, Metro Manila. and any of the security guards hired by the AGENCY but
merely as a contract specifying the conditions and manner
On November 30, 1990, the security service agreement under which the AGENCY shall render services to the
between PSI and MERALCO was terminated. COMPANY.

Immediately thereafter, fifty-six of PSI’s security guards, 10. Nothing herein contained shall be understood to make
including herein eight individual respondents, filed a complaint for the security guards under this Agreement, employees of the
unpaid monetary benefits against PSI and MERALCO, docketed as COMPANY, it being clearly understood that such security
NLRC-NCR Case No. 05-02746-90. guards shall be considered as they are, employees of the
AGENCY alone, so that the AGENCY shall be responsible for
Meanwhile, the security service agreement between compliance with all pertinent labor laws and regulations
respondent Armed Security & Detective Agency, Inc., (ASDAI) and included but not limited to the Labor Code, Social Security
MERALCO took effect on December 1, 1990. In the agreement, ASDAI Act, and all other applicable laws and regulations including
was designated as the AGENCY while MERALCO was designated as the that providing for a withholding tax on income.
DO 18-02 Cases 67

(underpayment of actual regular hours and overtime hours


xxx rendered, and premium pay for holiday and rest day) in the
following amounts:
13. This contract shall take effect on the 1st day of
December, 1990 and shall continue from year to year unless NAME
sooner terminated by the COMPANY for cause or otherwise OVERTIME DIFFERENTIALS
terminated by either party without cause upon thirty (30) AND PREMIUM
days written notice by one party to the other.[6] PAY FOR HOLIDAY & REST DAY

1. Rogelio Benamira P14,615.75


Subsequently, the individual respondents were absorbed by 2. Ernie De Sagun 21,164.31
ASDAI and retained at MERALCO’s head office. 3. Diosdado Yogare 7,108.77
4. Francisco Maro 26,567.11
On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered 5. Oscar Lagonay 18,863.36
a decision in NLRC-NCR Case No. 05-02746-90 in favor of the former 6. Rolando Beni 21,834.12
PSI security guards, including the individual respondents. 7. Alex Beni 21,648.80
8. Ruel De Guia 14,200.33
Less than a month later, or on July 21, 1992, the individual
respondents filed another complaint for unpaid monetary benefits, this
time against ASDAI and MERALCO, docketed as NLRC-NCR Case No.
3. Ordering Respondents ASDAI and MERALCO to jointly
00-07-03953-92.
and solidarily pay complainants 10% attorney’s fees in the
amount of P14,600.25 based on the total monetary award
On July 25, 1992, the security service agreement between
due to the complainants in the amount of P146,002.55.
respondent Advance Forces Security & Investigation Services, Inc.
(AFSISI) and MERALCO took effect, terminating the previous security
All other claims of the complainants are hereby DISMISSED
service agreement with ASDAI.[7] Except as to the number of security
for lack of merit.
guards,[8] the amount to be paid the agency, [9] and the effectivity of the
agreement,[10] the terms and conditions were substantially identical
The counter-claim of respondent AFSISI for damages is
with the security service agreement with ASDAI.
hereby dismissed for want of substantial evidence to justify
the grant of damages.
On July 29, 1992, the individual respondents amended their
complaint to implead AFSISI as party respondent. On August 11, 1992
SO ORDERED.[11]
they again amended their complaint to allege that AFSISI terminated
their services on August 6, 1992 without notice and just cause and
therefore guilty of illegal dismissal.
All the parties, except AFSISI, appealed to the National Labor
Relations Commission (NLRC).
The individual respondents alleged that: MERALCO and
Individual respondents’ partial appeal assailed solely the
ASDAI never paid their overtime pay, service incentive leave pay,
Labor Arbiter’s declaration that ASDAI is their employer. They insisted
premium pay for Sundays and Holidays, P50.00 monthly uniform
that AFSISI is the party liable for their illegal dismissal and should be
allowance and underpaid their 13th month pay; on July 24, 1992, when
the party directed to reinstate them.
the security service agreement of ASDAI was terminated and AFSISI
took over the security functions of the former on July 25, 1992,
For its part, MERALCO attributed grave abuse of discretion
respondent security guard Benamira was no longer given any work
on the part of the Labor Arbiter in failing to consider the absence of
assignment when AFSISI learned that the former has a pending case
employer-employee relationship between MERALCO and individual
against PSI, in effect, dismissing him from the service without just
respondents.
cause; and, the rest of the individual respondents were absorbed by
AFSISI but were not given any assignments, thereby dismissing them
On the other hand, ASDAI took exception from the Labor
from the service without just cause.
Arbiter’s finding that it is the employer of the individual respondents
and therefore liable for the latter’s unpaid monetary benefits.
ASDAI denied in general terms any liability for the claims of
the individual respondents, claiming that there is nothing due them in
On April 10, 1995, the NLRC affirmed in toto the decision of
connection with their services.
the Labor Arbiter.[12] On April 19, 1995, the individual respondents filed
a motion for partial reconsideration but it was denied by the NLRC in a
On the other hand, MERALCO denied liability on the ground
Resolution dated May 23, 1995.[13]
of lack of employer-employee relationship with individual respondents.
It averred that the individual respondents are the employees of the
On August 11, 1995, the individual respondents filed a
security agencies it contracted for security services; and that it has no
petition for certiorari before us, docketed as G.R. No. 121232.[14] They
existing liability for the individual respondents’ claims since said
insisted that they were absorbed by AFSISI and the latter effected their
security agencies have been fully paid for their services per their
termination without notice and just cause.
respective security service agreement.
After the submission of the responsive pleadings and
For its part, AFSISI asserted that: it is not liable for illegal
memoranda, we referred the petition, in accordance with St. Martin
dismissal since it did not absorb or hire the individual respondents, the
Funeral Homes vs. NLRC,[15] to the CA which, on September 27, 2000,
latter were merely hold-over guards from ASDAI; it is not obliged to
modified the decision of the NLRC by declaring MERALCO as the direct
employ or absorb the security guards of the agency it replaced since
employer of the individual respondents.
there is no provision in its security service agreement with MERALCO
or in law requiring it to absorb and hire the guards of ASDAI as it has
The CA held that: MERALCO changed the security agency
its own guards duly trained to service its various clients.
manning its premises three times while engaging the services of the
same people, the individual respondents; MERALCO employed a
On January 3, 1994, after the submission of their respective
scheme of hiring guards through an agency and periodically entering
evidence and position papers, Labor Arbiter Pablo C. Espiritu, Jr.
into service contract with one agency after another in order to evade
rendered a Decision holding ASDAI and MERALCO jointly and solidarily
the security of tenure of individual respondents; individual respondents
liable to the monetary claims of individual respondents and dismissing
are regular employees of MERALCO since their services as security
the complaint against AFSISI. The dispositive portion of the decision
guards are usually necessary or desirable in the usual business or
reads as follows:
trade of MERALCO and they have been in the service of MERALCO for
no less than six years; an employer-employee relationship exists
WHEREFORE, conformably with the above premises,
between MERALCO and the individual respondents because: (a)
judgment is hereby rendered:
MERALCO had the final say in the selection and hiring of the guards, as
when its advice was proved to have carried weight in AFSISI’s decision
1. Declaring ASDAI as the employer of the complainants
not to absorb the individual respondents into its workforce; (b)
and as such complainants should be reinstated as regular
MERALCO paid the wages of individual respondents through ASDAI and
security guards of ASDAI without loss of seniority rights,
AFSISI; (c) MERALCO’s discretion on matters of dismissal of guards was
privileges and benefits and for ASDAI to immediately post
given great weight and even finality since the record shows that the
the complainants as security guards with their clients. The
individual respondents were replaced upon the advice of MERALCO;
complaint against AFSISI is Dismissed for lack of merit.
and, (d) MERALCO has the right, at any time, to inspect the guards, to
require without explanation the replacement of any guard whose
2. Ordering both respondents, ASDAI and MERALCO to
behavior, conduct or appearance is not satisfactory and ASDAI and
jointly and solidarily pay complainants monetary claims
DO 18-02 Cases 68

AFSISI cannot pull out any security guard from MERALCO without the Concerning the power of control, MERALCO asserts that
latter’s consent; and, a labor-only contract existed between ASDAI and there is no evidence that individual respondents were subjected to its
AFSISI and MERALCO, such that MERALCO is guilty of illegal dismissal control as to the manner or method by which they conduct or perform
without just cause and liable for reinstatement of individual their work of guarding of MERALCO’s premises.
respondents to its workforce.
Furthermore, MERALCO insists that ASDAI and AFSISI are not
The dispositive portion of the CA’s Decision reads as follows: labor-only contractors since they have their own equipment,
machineries and work premises which are necessary in the conduct of
WHEREFORE, in view of the foregoing premises, the their business and the duties performed by the security guards are not
Resolution subject of this petition is hereby AFFIRMED with necessary in the conduct of MERALCO’s principal business.
MODIFICATION in the sense that MERALCO is declared the
employer of the petitioners. Accordingly, private respondent With respect to the second ground, MERALCO argues that
MERALCO is hereby ordered as follows: the individual respondents cannot be considered as regular employees
as the duties performed by them as security guards are not necessary
1. To reinstate petitioners into MERALCO’s work force as in the conduct of MERALCO’s principal business which is the
regular security guards without loss of seniority rights and distribution of electricity.
other privileges; and
As regards the third ground, MERALCO argues that it was
2. To pay the petitioners’ full backwages, inclusive of denied due process when the individual respondents raised for the first
allowances, and other benefits or their monetary equivalent time in the CA the issue that MERALCO is their direct employer since
computed from the time their compensation was withheld the individual respondents have always considered themselves as
from them up to the time of their actual reinstatement, for employees of AFSISI and nowhere in the Labor Arbiter or the NLRC did
which the Labor Arbiter Pablo C. Espiritu, Jr. is hereby they raise the argument that MERALCO is their direct employer.
directed to undertake the necessary computation and
enforcement thereof. Regarding the fourth ground, MERALCO asserts that it is not
guilty of illegal dismissal because it had no direct hand or participation
With respect to the rest of the dispositive portion of the in the termination of the employment of individual respondents, who
assailed Resolution which affirmed the decision of the Labor even insisted in their petition for certiorari in the CA that it was AFSISI
Arbiter Pablo C. Espiritu, Jr., particularly the joint and solidary which terminated their employment.
liabilities of both ASDAI and MERALCO to the petitioners, the
same are hereby AFFIRMED. As to the fifth ground, MERALCO maintains that the
individual respondents are not entitled to reinstatement into its
SO ORDERED. [16]
workforce because no employer-employee relationship exists between
it and the individual respondents.

Hence, the present petition for review on certiorari, filed by With regard to the sixth ground, MERALCO asserts that since
MERALCO, anchored on the following grounds: it is not the direct employer of the individual respondents, it has a right
of reimbursement from ASDAI for the full amount it may pay to the
A. THE COURT OF APPEALS COMMITTED SERIOUS individual respondents under Articles 106 and 107 of the Labor Code.
REVERSIBLE ERROR AND GRAVE ABUSE OF DISCRETION IN
HOLDING THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP In contrast, the individual respondents maintain that the CA
EXISTS BETWEEN PETITIONER MERALCO AND INDIVIDUAL aptly found that all the elements in employer-employee relationship
RESPONDENTS. exist between them and MERALCO and there is no cogent reason to
deviate from such factual findings.
B. THE COURT OF APPEALS GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT INDIVIDUAL RESPONDENTS For its part, ASDAI contends that the instant petition raises
ARE REGULAR EMPLOYEES OF PETITIONER MERALCO. factual matters beyond the jurisdiction of this Court to resolve since
only questions of law may be raised in a petition for review on
C. THE COURT OF APPEALS COMMITTED SERIOUS certiorari. It submits that while the rule admits of exceptions,
REVERSIBLE ERROR IN ALLOWING INDIVIDUAL MERALCO failed to establish that the present case falls under any of
RESPONDENTS TO RAISE FOR THE FIRST TIME ON APPEAL, the exceptions.
THE ISSUE THAT PETITIONER WAS THEIR DIRECT EMPLOYER.
On the other hand, AFSISI avers that there is no employer-
D. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN employee relationship between MERALCO and the security guards of
FINDING THAT PETITIONER MERALCO IS GUILTY OF ILLEGAL any of the security agencies under contract with MERALCO.
DISMISSAL.
It is a settled rule that in the exercise of the Supreme Court’s
E. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING power of review, the Court is not a trier of facts and does not normally
THAT INDIVIDUAL RESPONDENTS ARE ENTITLED TO undertake the re-examination of the evidence presented by the
REINSTATEMENT INTO PETITIONER’S WORKFORCE. contending parties during the trial of the case considering that the
findings of facts of the CA are conclusive and binding on the Court.
F. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT However, jurisprudence has recognized several exceptions in which
FINDING THAT PETITIONER MERALCO IS ENTITLED TO factual issues may be resolved by this Court, to wit:
REIMBURSEMENT FROM RESPONDENT ASDAI FOR THE
MONETARY CLAIMS PETITIONER PAID TO INDIVIDUAL (1) when the findings are grounded entirely on speculation,
RESPONDENTS PURSUANT TO THE SECURITY SERVICE surmises or conjectures; (2) when the inference made is
AGREEMENT.[17] manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; (5) when the findings of facts
Anent the first ground, MERALCO submits that the elements are conflicting; (6) when in making its findings the Court of
of “four-fold” test to determine the existence of an employer-employee Appeals went beyond the issues of the case, or its findings
relation, namely: (1) the power to hire, (2) the payment of wages, (3) are contrary to the admissions of both the appellant and
the power to dismiss, and (4) the power to control, are not present in the appellee; (7) when the findings are contrary to the trial
the instant case. court; (8) when the findings are conclusions without citation
of specific evidence on which they are based; (9) when the
Regarding the power to hire, MERALCO contends that the facts set forth in the petition as well as in the petitioner’s
records are bereft of any evidence that shows that it participated in or main and reply briefs are not disputed by the respondent;
influenced the decision of PSI and ASDAI to hire or absorb the (10) when the findings of fact are premised on the supposed
individual respondents. absence of evidence and contradicted by the evidence on
record; and (11) when the Court of Appeals manifestly
As to the payment of wages, MERALCO maintains that the overlooked certain relevant facts not disputed by the parties,
individual respondents received their wages from their agency. which, if properly considered, would justify a different
conclusion.[18]
With regard to the power to dismiss, MERALCO argues that
the security service agreement clearly provided that the discipline and
administration of the security guards shall conform to the rules and In the present case, the existence of an employer-employee
regulations of the agency. relationship is a question of fact which is well within the province of the
CA. Nonetheless, given the reality that the CA’s findings are at odds to
DO 18-02 Cases 69

those of the NLRC, the Court is constrained to look deeper into the his wages, the amount to be paid to a security guard is
attendant circumstances obtaining in the present case, as appearing beyond the power of the petitioner to determine. Certainly,
on record. the lump sum amount paid by the petitioner to the agency in
consideration of the latter's service is much more than the
At the outset, we note that the individual respondents never wages of any one watchman. In point of fact, it is the
alleged in their complaint in the Labor Arbiter, in their appeal in the agency that quantifies and pays the wages to which a
NLRC and even in their petition for certiorari in the CA that MERALCO watchman is entitled.
was their employer. They have always advanced the theory that
AFSISI is their employer. A perusal of the records shows it was only in Neither does the petitioner have any power to dismiss the
their Memorandum in the CA that this thesis was presented and security guards. In fact, We fail to see any evidence in the
discussed for the first time. We cannot ignore the fact that this record that it wielded such a power. It is true that it may
position of individual respondents runs contrary to their earlier request the agency to change a particular guard. But this,
submission in their pleadings filed in the Labor Arbiter, NLRC and even precisely, is proof that the power lies in the hands of the
in the petition for certiorari in the CA that AFSISI is their employer and agency.
liable for their termination. As the object of the pleadings is to draw Since the petitioner has to deal with the agency, and not the
the lines of battle, so to speak, between the litigants and to indicate individual watchmen, on matters pertaining to the
fairly the nature of the claims or defenses of both parties, a party contracted task, it stands to reason that the petitioner does
cannot subsequently take a position contrary to, or inconsistent, with not exercise any power over the watchmen's conduct.
his pleadings.[19] Always, the agency stands between the petitioner and the
watchmen; and it is the agency that is answerable to the
Moreover, it is a fundamental rule of procedure that higher petitioner for the conduct of its guards.[25]
courts are precluded from entertaining matters neither alleged in the
pleadings nor raised during the proceedings below, but ventilated for
the first time only in a motion for reconsideration or on appeal. [20] The In this case, the terms and conditions embodied in the
individual respondents are bound by their submissions that AFSISI is security service agreement between MERALCO and ASDAI expressly
their employer and they should not be permitted to change their recognized ASDAI as the employer of individual respondents.
theory. Such a change of theory cannot be tolerated on appeal, not
due to the strict application of procedural rules but as a matter of Under the security service agreement, it was ASDAI which
fairness. A change of theory on appeal is objectionable because it is (a) selected, engaged or hired and discharged the security guards; (b)
contrary to the rules of fair play, justice and due process.[21] assigned them to MERALCO according to the number agreed upon; (c)
provided the uniform, firearms and ammunition, nightsticks,
Thus, the CA should not have considered the new theory flashlights, raincoats and other paraphernalia of the security guards;
offered by the individual respondents in their memorandum. (d) paid them salaries or wages; and, (e) disciplined and supervised
them or principally controlled their conduct. The agreement even
The present petition for review on certiorari is far from novel explicitly provided that “[n]othing herein contained shall be
and, in fact, not without precedence. We have ruled in Social Security understood to make the security guards under this Agreement,
System vs. Court of Appeals[22] that: employees of the COMPANY, it being clearly understood that such
security guards shall be considered as they are, employees of the
...The guards or watchmen render their services to private AGENCY alone.” Clearly, the individual respondents are the employees
respondent by allowing themselves to be assigned by said of ASDAI.
respondent, which furnishes them arms and ammunition, to
guard and protect the properties and interests of private As to the provision in the agreement that MERALCO reserved
respondent's clients, thus enabling that respondent to fulfill the right to seek replacement of any guard whose behavior, conduct or
its contractual obligations. Who the clients will be, and appearance is not satisfactory, such merely confirms that the power to
under what terms and conditions the services will be discipline lies with the agency. It is a standard stipulation in security
rendered, are matters determined not by the guards or service agreements that the client may request the replacement of the
watchmen, but by private respondent. On the other hand, guards to it. Service-oriented enterprises, such as the business of
the client companies have no hand in selecting who among providing security services, generally adhere to the business adage
the guards or watchmen shall be assigned to them. It is that “the customer or client is always right” and, thus, must satisfy the
private respondent that issues assignment orders and interests, conform to the needs, and cater to the reasonable
instructions and exercises control and supervision over the impositions of its clients.
guards or watchmen, so much so that if, for one reason or
another, the client is dissatisfied with the services of a Neither is the stipulation that the agency cannot pull out any
particular guard, the client cannot himself terminate the security guard from MERALCO without its consent an indication of
services of such guard, but has to notify private respondent, control. It is simply a security clause designed to prevent the agency
which either substitutes him with another or metes out to from unilaterally removing its security guards from their assigned
him disciplinary measures. That in the course of a posts at MERALCO’s premises to the latter’s detriment.
watchman's assignment the client conceivably issues
instructions to him, does not in the least detract from the The clause that MERALCO has the right at all times to inspect
fact that private respondent is the employer of said the guards of the agency detailed in its premises is likewise not
watchman, for in legal contemplation such instructions carry indicative of control as it is not a unilateral right. The agreement
no more weight than mere requests, the privity of contract provides that the agency is principally mandated to conduct
being between the client and private respondent, not inspections, without prejudice to MERALCO’s right to conduct its own
between the client and the guard or watchman. Corollarily, inspections.
such giving out of instructions inevitably spring from the
client's right predicated on the contract for services entered Needless to stress, for the power of control to be present,
into by it with private respondent. the person for whom the services are rendered must reserve the right
to direct not only the end to be achieved but also the means for
In the matter of compensation, there can be no question at reaching such end.[26] Not all rules imposed by the hiring party on the
all that the guards or watchmen receive compensation from hired party indicate that the latter is an employee of the former.[27]
private respondent and not from the companies or Rules which serve as general guidelines towards the achievement of
establishments whose premises they are guarding. The fee the mutually desired result are not indicative of the power of control.[28]
contracted for to be paid by the client is admittedly not
equal to the salary of a guard or watchman; such fee is Verily, the security service agreements in the present case
arrived at independently of the salary to which the guard or provided that all specific instructions by MERALCO relating to the
watchman is entitled under his arrangements with private discharge by the security guards of their duties shall be directed to the
respondent.[23] agency and not directly to the individual respondents. The individual
respondents failed to show that the rules of MERALCO controlled their
performance.
and reiterated in American President Lines vs. Clave,[24] thus:
Moreover, ASDAI and AFSISI are not “labor-only”
In the light of the foregoing standards, We fail to see how contractors. There is “labor only” contract when the person acting as
the complaining watchmen of the Marine Security Agency contractor is considered merely as an agent or intermediary of the
can be considered as employees of the petitioner. It is the principal who is responsible to the workers in the same manner and to
agency that recruits, hires, and assigns the work of its the same extent as if they had been directly employed by him. On the
watchmen. Hence, a watchman can not perform any other hand, “job (independent) contracting” is present if the following
security service for the petitioner's vessels unless the conditions are met: (a) the contractor carries on an independent
agency first accepts him as its watchman. With respect to business and undertakes the contract work on his own account under
DO 18-02 Cases 70

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 to the ASDAI is held liable by virtue of its status as direct employer,
result thereof; and (b) the contractor has substantial capital or while MERALCO is deemed the indirect employer of the individual
investments in the form of tools, equipment, machineries, work respondents for the purpose of paying their wages in the event of
premises and other materials which are necessary in the conduct of his failure of ASDAI to pay them. This statutory scheme gives the
business.[29] Given the above distinction and the provisions of the workers the ample protection
security service agreements entered into by petitioner with ASDAI and
AFSISI, we are convinced that ASDAI and AFSISI were engaged in job consonant with labor and social justice provisions of the 1987
contracting. Constitution.[32]

The individual respondents can not be considered as regular However, as held in Mariveles Shipyard Corp. vs. Court of
employees of the MERALCO for, although security services are Appeals,[33] the solidary liability of MERALCO with that of ASDAI does
necessary and desirable to the business of MERALCO, it is not directly not preclude the application of Article 1217 of the Civil Code on the
related to its principal business and may even be considered right of reimbursement from his co-debtor by the one who paid, [34]
unnecessary in the conduct of MERALCO’s principal business, which is which provides:
the distribution of electricity.
ART. 1217. Payment made by one of the solidary debtors
Furthermore, the fact that the individual respondents filed extinguishes the obligation. If two or more solidary debtors
their claim for unpaid monetary benefits against ASDAI is a clear offer to pay, the creditor may choose which offer to accept.
indication that the individual respondents acknowledge that ASDAI is
their employer. He who made the payment may claim from his co-debtors
only the share which corresponds to each, with the interest
We cannot give credence to individual respondents’ for the payment already made. If the payment is made
insistence that they were absorbed by AFSISI when MERALCO’s before the debt is due, no interest for the intervening period
security service agreement with ASDAI was terminated. The individual may be demanded.
respondents failed to present any evidence to confirm that AFSISI
absorbed them into its workforce. Thus, respondent Benamira was not When one of the solidary debtors cannot, because of his
retained in his post at MERALCO since July 25, 1992 due to the insolvency, reimburse his share to the debtor paying the
termination of the security service agreement of MERALCO with obligation, such share shall be borne by all his co-debtors, in
ASDAI. As for the rest of the individual respondents, they retained proportion to the debt of each.
their post only as “hold-over” guards until the security guards of AFSISI
took over their post on August 6, 1992.[30]
ASDAI may not seek exculpation by claiming that MERALCO’s
In the present case, respondent Benamira has been “off- payments to it were inadequate for the individual respondents’ lawful
detail” for seventeen days while the rest of the individual respondents compensation. As an employer, ASDAI is charged with knowledge of
have only been “off- detail” for five days when they amended their labor laws and the adequacy of the compensation that it demands for
complaint on August 11, 1992 to include the charge of illegal contractual services is its principal concern and not any other’s.[35]
dismissal. The inclusion of the charge of illegal dismissal then was
premature. Nonetheless, bearing in mind that ASDAI simply stopped WHEREFORE, the present petition is GRANTED. The assailed
giving the individual respondents any assignment and their inactivity Decision, dated September 27, 2000, of the CA is REVERSED and SET
clearly persisted beyond the six-month period allowed by Article 286[31] ASIDE. The Decision of the Labor Arbiter dated January 3, 1994 and
of the Labor Code, the individual respondents were, in effect, the Resolution of the NLRC dated April 10, 1995 are AFFIRMED with the
constructively dismissed by ASDAI from employment, hence, they MODIFICATION that the joint and solidary liability of ASDAI and
should be reinstated. MERALCO to pay individual respondents’ monetary claims for
underpayment of actual regular hours and overtime hours rendered,
The fact that there is no actual and direct employer- and premium pay for holiday and rest day, as well as attorney’s fees,
employee relationship between MERALCO and the individual shall be without prejudice to MERALCO’s right of reimbursement from
respondents does not exonerate MERALCO from liability as to the ASDAI.
monetary claims of the individual respondents. When MERALCO
contracted for security services with ASDAI as the security agency that SO ORDERED.
hired individual respondents to work as guards for it, MERALCO
became an indirect employer of individual respondents pursuant to
Article 107 of the Labor Code, which reads: G.R. No. 171814 May 8, 2009
ART. 107. Indirect employer - The
provisions of the immediately preceding Article
shall likewise apply to any person, partnership, SOUTH DAVAO DEVELOPMENT COMPANY, INC. (NOW SODACO
association or corporation which, not being an AGRICULTURAL CORPORATION) AND/OR MALONE PACQUIAO
employer, contracts with an independent AND VICTOR A. CONSUNJI, Petitioners,
contractor for the performance of any work, task, vs.
job or project. SERGIO L. GAMO, ERNESTO BELLEZA, FELIX TERONA, CARLOS
ROJAS, MAXIMO MALINAO, VIRGILIO COSEP, ELEONOR COSEP,
When ASDAI as contractor failed to pay the individual respondents, MAXIMO TOLDA, NELSON BAGAAN, and TRADE UNION OF THE
MERALCO as principal becomes jointly and severally liable for the PHILIPPINES and ALLIED SERVICES (TUPAS), Respondents.
individual respondents’ wages, under Articles 106 and 109 of the Labor
Code, which provide: TINGA, J.:
ART. 106. Contractor or subcontractor. - Whenever an
employer enters into a contract with another person for the Before us is a Rule 45 petition1 which seeks the reversal of the Court of
performance of the former[‘s] work, the employees of the Appeals’ decision2 and resolution3 in CA-G.R. SP No. 68511. The Court
contractor and of the latter[‘s] subcontractor, if any, shall be of Appeal’s decision reinstated the NLRC’s Resolution4 dated 23 March
paid in accordance with the provisions of this Code. 2001 which reversed the labor arbiter’s decision.5

In the event that the contractor or subcontractor fails to pay


the wages of his employees in accordance with this Code, Petitioner South Davao Development Company (petitioner or petitioner
the employer shall be jointly and severally liable with his corporation) is the operator of a coconut and mango farm in San Isidro,
contractor or subcontractor to such employees to the extent Davao Oriental and Inawayan/Baracatan, Davao del Sur. On August
of the work performed under the contract, in the same 1963 petitioner hired respondent Sergio L. Gamo (Gamo) as a foreman.
manner and extent that he is liable to employees directly Sometime in 1987, petitioner appointed Gamo as a copra maker
employed by him. xxx contractor. Respondents Ernesto Belleza, Carlos Rojas, Maximo Malinao
were all employees in petitioner’s coconut farm, while respondents
ART. 109. Solidary liability - The provisions of existing laws Felix Terona, Virgilio Cosep, Maximo Tolda, and Nelson Bagaan were
to the contrary notwithstanding, every employer or indirect assigned to petitioner’s mango farm. All of the abovenamed
employer shall be held responsible with his contractor or respondents (copra workers) were later transferred by petitioner to
subcontractor for any violation of any provision of this Code. Gamo as the latter’s copraceros. From 1987 to 1999, Gamo and
For purpose of determining the extent of their civil liability petitioner entered into a profit-sharing agreement wherein 70% of the
under this Chapter, they shall be considered as direct net proceeds of the sale of copra went to petitioner and 30% to Gamo.
employers. The copra workers were paid by Gamo from his 30% share.
DO 18-02 Cases 71

Petitioner wanted to standardize payments to its "contractors" in its Things of "common knowledge," of which courts take judicial matters
coconut farms. On 2 October 1999, petitioner proposed a new payment coming to the knowledge of men generally in the course of the
scheme to Gamo. The new scheme provided a specific price for each ordinary experiences of life, or they may be matters which are
copra making activity. Gamo submitted his counter proposal.6 generally accepted by mankind as true and are capable of ready and
Petitioner did not accept Gamo’s counter proposal since it was higher unquestioned demonstration. Thus, facts which are universally known,
by at least fifty percent (50%) from its original offer. Without agreeing and which may be found in encyclopedias, dictionaries or other
to the new payment scheme, Gamo and his copra workers started to publications, are judicially noticed, provided, they are of such universal
do harvesting work. Petitioner told them to stop. Eventually, petitioner notoriety and so generally understood that they may be regarded as
and Gamo agreed that the latter may continue with the harvest forming part of the common knowledge of every person. As the
provided that it would be his last "contract" with petitioner. Gamo common knowledge of man ranges far and wide, a wide variety of
suggested to petitioner to look for a new "contractor" since he was not particular facts have been judicially noticed as being matters of
amenable to the new payment scheme.7 common knowledge. But a court cannot take judicial notice of any fact
which, in part, is dependent on the existence or non-existence of a fact
of which the court has no constructive knowledge.19
Gamo and petitioner failed to agree on a payment scheme, thus,
petitioner did not renew the "contract" of Gamo. Gamo and the copra
workers alleged that they were illegally dismissed. An invocation that the Court take judicial notice of certain facts should
satisfy the requisites set forth by case law. A mere prayer for its
application shall not suffice. Thus, in this case the Court cannot take
On the other hand, respondent Eleonor Cosep (Eleonor) was employed judicial notice of the alleged business practices in the copra industry
as a mango classifier in the packing house of petitioner’s mango farm since none of the material requisites of matters of judicial notice is
in San Isidro, Davao Oriental. Sometime in October 1999, she did not present in the instant petition. The record is bereft of any indication
report for work as she had wanted to raise and sell pigs instead. that the matter is of common knowledge to the public and that it has
Petitioner, through Malone Pacquiao, tried to convince Eleonor to the characteristic of notoriety, except petitioners’ self-serving claim.
report for work but to no avail.

A related issue is whether Gamo is an independent contractor. In


On 22 March 2000, respondents filed a complaint8 for illegal dismissal Escario v. NLRC,20 we ruled that there is permissible job contracting
against petitioner. They alleged that sometime in December 1999, when a principal agrees to put out or farm out with a contractor or a
petitioner verbally terminated them en masse. subcontractor the performance or completion of a specific job, work or
service within a definite or predetermined period, regardless of
whether such job or work service is to be performed within or outside
The labor arbiter dismissed9 the complaint. He ruled that there was no
the premises of the principal.21 To establish the existence of an
employee-employer relationship between petitioner and respondents.
independent contractor, we apply the following conditions: first, the
As to Eleonor, he ruled that she had voluntarily stopped working.
contractor carries on an independent business and undertakes the
contract work on his own account under his own responsibility
Respondents appealed to the National Labor Relations Commission according to his own manner and method, free from the control and
(NLRC). The NLRC’s Resolution10 reversed the arbiter’s decision and direction of his employer or principal in all matters connected with the
ruled that respondents were petitioner’s employees. Petitioner moved11 performance of the work except to the result thereof; and second, the
for reconsideration. The NLRC granted12 the motion for reconsideration contractor has substantial capital or investments in the form of tools,
and ruled that the nature of the job of the respondents could not result equipment, machineries, work premises and other materials which are
in an employer-employee relationship. Respondents moved for necessary in the conduct of his business.22
reconsideration which was denied.13
The Implementing Rules and Regulation of the Labor Code defines
Respondents filed a petition for certiorari14 under Rule 65 with the investment—as tools, equipment, implements, machineries and work
Court of Appeals. The Court of Appeals ruled that there existed an premises, actually and directly used by the contractor or subcontractor
employer-employee relationship. It declared that respondents were in the performance or completion of the job, work, or service
regular seasonal employees who can be dismissed by the petitioner at contracted out.23 The investment must be sufficient to carry out the job
the end of the season provided due process is observed.15 With regard at hand.
to Eleonor, the Court of Appeals ruled that she did not abandon her
work.
In the case at bar, Gamo and the copra workers did not exercise
independent judgment in the performance of their tasks. The tools
Hence this petition. used by Gamo and his copra workers like the karit, bolo, pangbunot,
panglugit and pangtapok are not sufficient to enable them to complete
the job.24 Reliance on these primitive tools is not enough. In fact, the
Petitioner raises the following issues: (1) whether the Court of Appeals accomplishment of their task required more expensive machineries
failed to take judicial notice of the accepted practice of independent and equipment, like the trucks to haul the harvests and the drying
contractors in the coconut industry; (2) whether there is a valid job facility, which petitioner corporation owns.
contracting between petitioner and Gamo; and (3) whether Eleonor
had effectively abandoned her work.
In order to determine the existence of an employer-employee
relationship, the Court has frequently applied the four-fold test: (1) the
The labor arbiter took judicial notice of the alleged prevailing business selection and engagement of the employee; (2) the payment of wages;
practices in the coconut industry that copra making activities are done (3) the power of dismissal; and (4) the power to control the employee’s
quarterly; that the workers can contract with other farms; and that the conduct, or the so called "control test," which is considered the most
workers are independent from the land owner on all work aspects. important element.25 From the time they were hired by petitioner
Petitioner wants this Court to take judicial notice of the current corporation up to the time that they were reassigned to work under
business practice in the coconut industry which allegedly treats Gamo’s supervision, their status as petitioner corporation’s employees
copraceros as independent contractors. In Expertravel & Tours, Inc. v. did not cease. Likewise, payment of their wages was merely coursed
Court of Appeals, 16 we held, thus: through Gamo. As to the most determinative test―the power of
control, it is sufficient that the power to control the manner of doing
the work exists, it does not require the actual exercise of such power.26
Generally speaking, matters of judicial notice have three material In this case, it was in the exercise of its power of control when
requisites: (1) the matter must be one of common and general petitioner corporation transferred the copra workers from their
knowledge; (2) it must be well and authoritatively settled and not previous assignments to work as copraceros. It was also in the exercise
doubtful or uncertain; and (3) it must be known to be within the limits of the same power that petitioner corporation put Gamo in charge of
of the jurisdiction of the court. The principal guide in determining what the copra workers although under a different payment scheme. Thus, it
facts may be assumed to be judicially known is that of notoriety.17 is clear that an employer-employee relationship has existed between
Hence, it can be said that judicial notice is limited to facts evidenced petitioner corporation and respondents since the beginning and such
by public records and facts of general notoriety. Moreover, a judicially relationship did not cease despite their reassignments and the change
noticed fact must be one not subject to a reasonable dispute in that it of payment scheme.
is either: (1) generally known within the territorial jurisdiction of the
trial court; or (2) capable of accurate and ready determination by
resorting to sources whose accuracy cannot reasonably be As to the last issue, petitioner seeks our indulgence to declare that
questionable.18 Eleonor has abandoned her work. Petitioner admitted that Eleonor was
its regular employee.27 However, it claimed that she abandoned her
work, preferring to sell and raise pigs instead.
DO 18-02 Cases 72

It is well settled that abandonment as a just and valid ground for Technical Assistance Services. Hence, SGV proposed qualified
dismissal requires the deliberate and unjustified refusal of the consultants as defined by the Terms of Reference.
employee to return for work. Two elements must be present, namely:
(1) the failure to report for work or absence without valid or justifiable
reason, and (2) a clear intention to sever the employer-employee The acceptance and appointment of the proposed consultants to the
relationship. The second element is more determinative of the intent project were subject to the unanimous approval of the TMI, the DA and
and must be evinced by overt acts. Mere absence, not being sufficient, the Commission. For the position of Sociologist, SGV proposed Felino
the burden of proof rests upon the Lorente (Lorente). However, Thomas Gimenez (Gimenez) of the DA
disputed the qualifications of Lorente and recommended instead De
Raedt.
employer to show that the employee clearly and deliberately intended
to discontinue her employment without any intention of returning.28 In
Samarca v. Arc-Men Industries, Inc, we held that abandonment is a Martin Tull (Tull) of TMI replied to Gimenez that TMI would consider De
matter of intention and cannot lightly be presumed from certain Raedt for the sociologist position. Thus, Gimenez volunteered to call De
equivocal acts.1awphi1 Raedt to advise her of a possible assignment to the CECAP.

To constitute abandonment, there must be clear proof of deliberate Eventually, the DA advised SGV that De Raedt’s nomination, among
and unjustified intent to sever the employer-employee relationship. others, had been approved by the Commission and the DA and that
Clearly, the operative act is still the employee’s ultimate act of putting she was expected to start her assignment on 3 July 1989.
an end to his employment.29 However, an employee who takes steps to
protest her layoff cannot be said to have abandoned her work because
On 6 July 1989, De Raedt wrote SGV expressing her conformity to the
a charge of abandonment is totally inconsistent with the immediate consultancy contract, thus she was advised to sign the same. De Raedt
filing of a complaint for illegal dismissal, more so when it includes a
signed the contract on 14 July 1989 but her start-up date with the
prayer for reinstatement.30 When Eleonor filed the illegal dismissal CECAP was moved to 15 August 1989 with the approval of the DA
complaint, it totally negated petitioner’s theory of abandonment.
because she was in Thailand to finish an assignment.

Also, to effectively dismiss an employee for abandonment, the While the CECAP was in progress, TMI received verbal and written
employer must comply with the due process requirement of sending
complaints from the project staff regarding De Raedt’s performance
notices to the employee. In Brahm Industries, Inc. v. NLRC,31 we ruled and working relations with them.
that this requirement is not a mere formality that may be dispensed
with at will. Its disregard is a matter of serious concern since it
constitutes a safeguard of the highest order in response to man’s An investigation was then conducted by the TMI on the above
innate sense of justice.32 Petitioner was not able to send the necessary complaints. Thereafter, the TMI confirmed that De Raedt’s retention
notice requirement to Eleonor. Petitioner’s belated claim that it was would be counter-productive to the progress of the project because a
not able to send the notice of infraction prior to the filing of the illegal number of project staff found it difficult to work with her. Thus, the TMI
dismissal case cannot simply unacceptable.33 Based on the foregoing, directed SGV to withdraw De Raedt from the CECAP.
Eleonor did not abandon her work.

In compliance with TMI’s instructions, SGV facilitated De Raedt’s


WHEREFORE, the petition is DENIED. The Decision of the Court of withdrawal from the CECAP.
Appeals is AFFIRMED. Cost against petitioner.

De Raedt filed a case against SGV for illegal dismissal and damages
SO ORDERED. before the Arbitration Branch of the NLRC.

G.R. No. 161366 June 16, 2009 The Labor Arbiter rendered a decision in favor of De Raedt.

SYCIP, GORRES, VELAYO & COMPANY, Petitioner, SGV appealed the decision of the Labor Arbiter to the NLRC, which
vs. rendered judgment in favor of SGV.
CAROL DE RAEDT, Respondent.
De Raedt filed a petition for certiorari with the Court of Appeals, which
CARPIO, J.: reversed the NLRC in a Decision promulgated on 7 October 2003.

The Case SGV filed a motion for reconsideration, which was denied by the Court
of Appeals in its Resolution dated 17 December 2003.

Before the Court is a petition for review1 challenging the 7 October


2003 Decision2 and 17 December 2003 Resolution3 of the Court of Hence, this petition.
Appeals in CA-G.R. SP No. 59916. The Court of Appeals reversed the 16
February 2000 Decision4 of the National Labor Relations Commission
and partially reinstated the 14 July 1999 Decision5 of Labor Arbiter The Ruling of the Labor Arbiter
Monroe C. Tabingan holding that respondent Carol De Raedt (De
Raedt) was illegally dismissed by petitioner Sycip, Gorres, Velayo & The Labor Arbiter found De Raedt as an employee of SGV. How she
Company (SGV). conducted herself and how she carried out the project were dependent
on and prescribed by SGV and TMI, respectively. The Labor Arbiter
The Facts further ruled that SGV is considered as the employer of De Raedt since
it acted indirectly in the interest of TMI, the entity directly in-charge of
the CECAP project for which De Raedt was hired. Moreover, the Labor
Sometime in June 1989, the Philippine Government and the Arbiter found SGV as the entity which is the source of De Raedt’s
Commission for European Communities (Commission) entered into a income and other benefits.1avvphi1
Financing Memorandum whereby the Commission undertook to provide
financial and technical assistance for the implementation of rural micro
projects in five provinces of the Cordillera area in Northern Luzon. The Labor Arbiter found no sufficient valid ground to terminate De
Consequently, the Central Cordillera Agricultural Programme (CECAP) Raedt’s services although procedural due process was observed. The
project was launched to be implemented by the Department of dispositive portion of the 14 July 1999 Decision of the Labor Arbiter
Agriculture (DA). reads:

On 22 May 1989, the DA contracted Travers Morgan International Ltd. WHEREFORE, judgment is hereby rendered declaring complainant to
(TMI) to provide the required technical assistance services for CECAP. have been illegally dismissed by respondent. Consequently,
respondent Sycip, Gorres & Velayo and Co. is hereby ordered to pay
complainant the following:
On 1 July 1989, TMI and SGV entered into a Sub-Consultancy
Agreement for the latter to undertake part of the technical assistance
services requirements of the CECAP. SGV would provide for the
DO 18-02 Cases 73

a) Unpaid salaries corresponding to the unexpired portion of employment. In fact, she had to resign from her teaching job at the
the contract in the amount of Eight Hundred Two Thousand University of the Philippines. She could not leave her place of
(P802,000.00) Pesos; assignment without SGV’s consent. She must maintain an accurate
record of the time she spent on the job, and prepare reports which
may be required by her team leader and SGV. Whether actual
b) Moral damages in the amount of Two Hundred Fifty supervision of her work had turned out to be minimal or not, SGV
Thousand (P250,000.00) Pesos; reserved the right to exercise it at any time. Further, SGV asserted its
right to terminate her services.8
c) Exemplary damages in the amount of One Hundred
Thousand (P100,000.00) Pesos; The Court of Appeals found that De Raedt was removed from the
project because of personality differences, which is not one of the
grounds for a valid dismissal of an employee.9
d) 10% of the total award as attorney’s fees amounting to
One Hundred Fifteen Thousand Two Hundred Pesos
(P115,200.00). The dispositive portion of the 7 October 2003 Decision of the Court of
Appeals reads:
The computations of which are hereto attached as Annex "A" and
made an integral part hereof. IN VIEW OF THE FOREGOING, the assailed decision of the NLRC dated
February 16, 2000 is REVERSED, and a new one ENTERED partially
REINSTATING the Decision of Labor Arbiter Monroe Tabing[a]n on July
SO ORDERED.6
14, 1999, by affirming paragraph (a) thereof, deleting paragraph (b)
and (c), and reducing the award of attorney’s fees in paragraph (d) to
The Ruling of the NLRC 5% of the principal award.

The NLRC reversed the ruling of the Labor Arbiter and found that there SO ORDERED.10
was no employer-employee relationship between SGV and De Raedt.
The Issue
The NLRC agreed with the Labor Arbiter’s finding that SGV had no
discretion in the selection of De Raedt for the position of Sociologist in
The issue in this case is whether De Raedt was an employee of SGV. If
the CECAP. The selection was made by the TMI, upon recommendation
so, whether De Raedt was illegally dismissed by SGV.
of Gimenez of the DA, to be approved by the DA and the Commission.
The engagement of De Raedt was coursed through SGV.
The Ruling of the Court
The payment of De Raedt’s service fee was done through SGV but the
funds came from the TMI as shown by SGV’s billings to TMI for De The petition is meritorious.
Raedt’s professional fee.

The existence of an employer-employee relationship is ultimately a


As regards the power of dismissal, SGV merely implemented TMI’s question of fact. As a general rule, factual issues are beyond the
instructions to withdraw De Raedt from the CECAP. province of this Court. However, this rule admits of exceptions, one of
which is where there are conflicting findings of fact, such as in the
present case. Consequently, this Court shall scrutinize the records to
The NLRC found that SGV did not exercise control over De Raedt’s
ascertain the facts for itself.11
work. The Sub-Consultancy Agreement between TMI and SGV clearly
required De Raedt to work closely with and under the direction and
supervision of both the Team leader and the Project Coordinator. To determine the existence of an employer-employee relationship,
case law has consistently applied the four-fold test, to wit: (a) the
selection and engagement of the employee; (b) the payment of wages;
Hence, SGV’s participation is to merely monitor her attendance,
(c) the power of dismissal; and (d) the employer’s power to control the
through time records, for the payment of her retainer fee and to
employee on the means and methods by which the work is
validate the time she expended in the project with her written reports.
accomplished. The so-called "control test" is the most important
indicator of the presence or absence of an employer-employee
The following circumstances also indicated that no employment relationship.12
relationship existed between the parties: (1) De Raedt was engaged on
a contract basis; (2) the letter-agreement between the parties clearly
A. Selection and Engagement of the Employee
states that there is no employer-employee relationship between the
parties and that De Raedt was at all times to be considered an
independent contractor; and (3) De Raedt was allowed to engage in De Raedt was contracted by SGV as part of the latter’s obligation
other employment during all the time she was connected with the under the Sub-Consultancy Agreement with TMI, which was in turn
project. contracted by the DA to provide the services required for the foreign-
assisted CECAP project. De Raedt was neither engaged by SGV as an
ordinary employee, nor was she picked by SGV from a pool of
The dispositive portion of the 16 February 2000 Decision of the NLRC
consultants already working for SGV. Hence, SGV engaged De Raedt’s
reads:
services precisely because SGV had an existing Sub-Consultancy
Agreement with TMI to provide such services.1avvphi1
WHEREFORE, premises considered, the assailed decision of the Labor
Arbiter is REVERSED and SET ASIDE and the complaint is DISMISSED
The Labor Arbiter and the NLRC both agree that SGV had no discretion
for lack of jurisdiction.
in the selection of De Raedt for the position of Sociologist in the
CECAP. The selection was made by the TMI, upon recommendation of
SO ORDERED.7 Gimenez of the DA, to be approved by the DA and the Commission.
The engagement of De Raedt was merely coursed through SGV.

The Ruling of the Court of Appeals


Moreover, SGV’s first choice for the Sociologist position was Lorente.
However, Gimenez recommended De Raedt to SGV. De Raedt’s
The Court of Appeals reversed the ruling of the NLRC and reinstated testimony proves that her appointment was ultimately the DA’s
the decision of the Labor Arbiter insofar as the latter found De Raedt as decision, and not SGV’s, thus:
an employee of SGV.

Q Madam Witness, how did you come to know the vacancy


The Court of Appeals found that based on the letter-agreement here in CECAP project for a position of project Sociologist?
between the parties, SGV engaged De Raedt for the project on a
contract basis for 40 months over a period of five years during which
she was to work full time. She could not engage in any other
DO 18-02 Cases 74

A I was contacted when I was in Honolulu. I was contacted by required services, De Raedt shall be liable for liquidated damages for
the firm Sarmiento and Company who asked me if I would breach of contract, in an amount equivalent to the retainer fee for a
list myself for the position of project sociologist for the period of one month. This pre-termination with penalty clause in the
CECAP project in 1987 when it was discussed by the NGO’s parties’ agreement clearly negates the existence of an employment
in the Cordillera and finally I was contacted by the SGV. They relationship between the parties. If De Raedt were indeed SGV’s
asked me if I am interested in the position project employee, she should have been able to resign for whatever
sociologist. I was also contacted by Mr. Gimenez to ask me if professional or personal reason at anytime, even prior to the end of the
SGV had contacted me regarding the position. contract between the DA and TMI or between TMI and SGV, without
incurring any liability for such resignation.

Q So among the informants who gave you an idea that the


position of project sociologist is the project director himself, Besides, it was TMI, through Tull, which instructed SGV to disengage
is it not? De Raedt from the project. Terminating De Raedt’s services was
beyond SGV’s control, as SGV had no choice but to comply with the
directive of its client (TMI). Clearly, De Raedt’s retention as a
A He informed me that I have been considered by the Sociologist in the CECAP project was dependent on TMI’s and DA’s
Department of Agriculture for the position of project decisions. In his letter dated 14 June 1991 addressed to SGV, Tull wrote
sociologist. the following:

Q Before you were considered for the position of (sic) the Notwithstanding a number of staff on the project, all employed by the
Department of Agriculture, did you give them an application? Department of Agriculture, have confirmed that they have found it
difficult to work with Mrs de Raedt over the past few months which
supports the earlier advice from the Department of Agriculture.
A No, sir.

In the circumstances I consider we have no alternative but to


Q Do you know who gave your name to them?
replace Mrs de Raedt. Would you please make arrangement for her
to be withdrawn from the project by the end of June 1991. Payment of
A Not sure, may be the Department of Agriculture or staff fees and housing allowances under the project in respect of Mrs
Sarmiento, because I was asked by the consultancy firm de Raedt will be paid up to 30th June 1991.15 (Emphasis supplied)
Sarmiento if I would be willing to list with their business
consultants for the CECAP project and this was before the
D. Power of Control
bidding and Sarmiento did not make the bidding for the
project.
The letter-agreement between the parties required De Raedt to
maintain an accurate time record, notify SGV of delays in De Raedt’s
Q Sarmiento is different from SGV is that correct?
schedule, secure a prior clearance to leave place of assignment, and
prepare reports. These requirements hardly show that SGV exercises
A Yes, sir.13 (Emphasis supplied) control over the means and methods in the performance of De Raedt’s
duties as a Sociologist of the CECAP. SGV was not concerned with De
Raedt’s ways of accomplishing her work as a Sociologist. Rather, SGV
B. Payment of Wages naturally expected to be updated regularly of De Raedt’s "work
progress," if any, on the project for which she was specifically
engaged16 to ensure SGV’s compliance with the terms and conditions
The letter-agreement between the parties specifies the consideration of the Sub-Consultancy Agreement with TMI. The services to be
for De Raedt’s services as a retainer fee payable for every day of performed by her specified what she needed to achieve but not on how
completed service in the project. In addition to this, monthly she was to go about it.17
subsistence and housing allowances and medical insurance were to be
given to De Raedt. The retainer fees and privileges given to De Raedt
are not commonly given to ordinary employees, who receive basic In sum, there existed no employer-employee relationship between the
monthly salaries and other benefits under labor laws. parties. De Raedt is an independent contractor, who was engaged by
SGV to render services to SGV’s client TMI, and ultimately to DA on the
CECAP project, regarding matters in the field of her special knowledge
The Court notes that the retainer fees paid by SGV to De Raedt and training for a specific period of time. Unlike an ordinary employee,
ultimately came from its "client," TMI. De Raedt was aware that the De Raedt received retainer fees and benefits such as housing and
source of the funds was the grant from the Commission. By the terms subsistence allowances and medical insurance. De Raedt’s services
of the Sub-Consultancy Agreement, TMI paid SGV remuneration of the could be terminated on the ground of end of contract between the DA
fixed unit rate component of the part services. and TMI, and not on grounds under labor laws. Though the end of the
contract between the DA and TMI was not the ground for the
However, whatever amount SGV received from TMI did not necessarily withdrawal of De Raedt from the CECAP, De Raedt was disengaged
entitle De Raedt to the entire amount. In the parties’ letter-agreement, from the project upon the instruction of SGV’s client, TMI. Most
SGV made it clear that payments made by TMI "should not be important of all, SGV did not exercise control over the means and
construed as being due [De Raedt] since these items are intended for methods by which De Raedt performed her duties as Sociologist. SGV
the administration, overhead expenses, and other related expenses of did impose rules on De Raedt, but these were necessary to ensure
[SGV] in the development, management, and supervision of [De SGV’s faithful compliance with the terms and conditions of the Sub-
Raedt’s] assignment." Consultancy Agreement it entered into with TMI.

C. Power of Dismissal WHEREFORE, the Court GRANTS the petition. The Court SETS ASIDE
the 7 October 2003 Decision and 17 December 2003 Resolution of the
Court of Appeals in CA-G.R. SP No. 59916 and REINSTATES the 16
Under the letter-agreement between the parties, SGV may terminate February 2000 Decision of the National Labor Relations Commission.
De Raedt’s services "at anytime that the contract between the
Department of Agriculture – Government of the Philippines and Travers
Morgan International, Consulting Engineers, Planners and Management SO ORDERED.
Consultants is terminated for any cause whatsoever."
RAUL G. LOCSIN andG.R. No. 185251
De Raedt failed to show that SGV could terminate her services on EDDIE B. TOMAQUIN,
grounds other than the end of the contract between the DA as Petitioners,
implementing agency of the CECAP and TMI or the termination by TMI Present:
of the contract with SGV, such as retrenchment to prevent losses as
provided under labor laws.14 YNARES-SANTIAGO, J.,

Further, under the parties’ agreement, should De Raedt decide to Chairperson,


leave the project for any reason whatsoever other than a reasonable - versus -
cause beyond her control which prevents her from performing the CHICO-NAZARIO,
DO 18-02 Cases 75

VELASCO, JR., Distance and Telephone Company (PLDT) to pay


NACHURA, and complainants Raul E. Locsin and Eddie Tomaquin their
PERALTA, JJ. separation pay and back wages computed as follows:

PHILIPPINE LONG DISTANCE Promulgated: NAME SEPARATION PAY


TELEPHONE COMPANY, BACKWAGES
Respondent.
October 2, 2009
1. Raul E. Locsin P127,500.00
P240,954.67
x-----------------------------------------------------------------------------------------x
2. Eddie B. Tomaquin P127,500.00
P240,954.67
P736,909.
VELASCO, JR., J.: 34

The Case All other claims are DISMISSED for want of factual
basis.

This Petition for Review on Certiorari under Rule 45 seeks Let the computation made by the Computation
the reversal of the May 6, 2008 Decision1[1] and November 4, 2008 and Examination Unit form part of this decision.
Resolution2[2] of the Court of Appeals (CA) in CA-G.R. SP No. 97398,
entitled Philippine Long Distance Telephone Company v. National SO ORDERED.
Labor Relations Commission, Raul G. Locsin and Eddie B. Tomaquin.
The assailed decision set aside the Resolutions of the National Labor PLDT appealed the above Decision to the NLRC which
Relations Commission (NLRC) dated October 28, 2005 and August 28, rendered a Resolution affirming in toto the Arbiter’s Decision.
2006 which in turn affirmed the Decision dated February 13, 2004 of
the Labor Arbiter. The assailed resolution, on the other hand, denied Thus, PDLT filed a Motion for Reconsideration of the NLRC’s
petitioners’ motion for reconsideration of the assailed decision. Resolution which was also denied.

The Facts Consequently, PLDT filed a Petition for Certiorari with the CA
asking for the nullification of the Resolution issued by the NLRC as well
On November 1, 1990, respondent Philippine Long Distance as the Labor Arbiter’s Decision. The CA rendered the assailed decision
Telephone Company (PLDT) and the Security and Safety Corporation of granting PLDT’s petition and dismissing petitioners’ complaint. The
the Philippines (SSCP) entered into a Security Services Agreement3[3] dispositive portion of the CA Decision provides:
(Agreement) whereby SSCP would provide armed security guards to
PLDT to be assigned to its various offices. WHEREFORE, the instant Petition for Certiorari is
GRANTED. The Resolutions dated October 28, 2005 and
Pursuant to such agreement, petitioners Raul Locsin and August 28, 2006 of the National Labor Relations Commission
Eddie Tomaquin, among other security guards, were posted at a PLDT are ANNULLED and SET ASIDE. Private respondents’
office. complaint against Philippine Long Distance Telephone
Company is DISMISSED.
On August 30, 2001, respondent issued a Letter dated
August 30, 2001 terminating the Agreement effective October 1, SO ORDERED.
2001.4[4]
The CA applied the four-fold test in order to determine the
Despite the termination of the Agreement, however, existence of an employer-employee relationship between the parties
petitioners continued to secure the premises of their assigned office. but did not find such relationship. It determined that SSCP was not a
They were allegedly directed to remain at their post by representatives labor-only contractor and was an independent contractor having
of respondent. In support of their contention, petitioners provided the substantial capital to operate and conduct its own business. The CA
Labor Arbiter with copies of petitioner Locsin’s pay slips for the period further bolstered its decision by citing the Agreement whereby it was
of January to September 2002.5[5] stipulated that there shall be no employer-employee relationship
between the security guards and PLDT.
Then, on September 30, 2002, petitioners’ services were
terminated. Anent the pay slips that were presented by petitioners, the
CA noted that those were issued by SSCP and not PLDT; hence, SSCP
Thus, petitioners filed a complaint before the Labor Arbiter continued to pay the salaries of petitioners after the Agreement. This
for illegal dismissal and recovery of money claims such as overtime fact allegedly proved that petitioners continued to be employees of
pay, holiday pay, premium pay for holiday and rest day, service SSCP albeit performing their work at PLDT’s premises.
incentive leave pay, Emergency Cost of Living Allowance, and moral
and exemplary damages against PLDT. From such assailed decision, petitioners filed a motion for
reconsideration which was denied in the assailed resolution.
The Labor Arbiter rendered a Decision finding PLDT liable for
illegal dismissal. It was explained in the Decision that petitioners were Hence, we have this petition.
found to be employees of PLDT and not of SSCP. Such conclusion was
arrived at with the factual finding that petitioners continued to serve as The Issues
guards of PLDT’s offices. As such employees, petitioners were entitled
to substantive and procedural due process before termination of 1. Whether or not; complainants extended services to the
employment. The Labor Arbiter held that respondent failed to observe respondent for one (1) year from October 1, 2001, the
such due process requirements. The dispositive portion of the Labor effectivity of the termination of the contract of
Arbiter’s Decision reads: complainants agency SSCP, up to September 30, 2002,
without a renewed contract, constitutes an employer-
WHEREFORE, premises considered, judgment is employee relationship between respondent and the
hereby rendered ordering respondent Philippine Long complainants.

2. Whether or not; in accordance to the provision of the


1
Article 280 of the Labor Code, complainants extended
services to the respondent for another one (1) year
without a contract be considered as contractual
2 employment.

3. Whether or not; in accordance to the provision of the


3 Article 280 of the Labor Code, does complainants
thirteen (13) years of service to the respondent with
manifestation to the respondent thirteen (13) years
4 renewal of its security contract with the complainant
agency SSCP, can be considered only as “seasonal in
nature” or fixed as [specific projects] or undertakings
and its completion or termination can be dictated as
5 [controlled] by the respondent anytime they wanted to.
DO 18-02 Cases 76

4. Whether or not; complainants from being an alleged Rule 131, Section 3(y) of the Rules of Court provides:
contractual employees of the respondent for thirteen
(13) years as they were then covered by a contract, SEC. 3. Disputable presumptions.—The
becomes regular employees of the respondent as the following presumptions are satisfactory if
one (1) year extended services of the complainants uncontradicted, but may be contradicted and
were not covered by a contract, and can be considered overcome by other evidence:
as direct employment pursuant t