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G.R. No. 160506 March 9, 2010


Petitioners worked as merchandisers of P&G. They all individually signed employment
contracts with either Promm-Gem or SAPS. They were assigned at different outlets,
supermarkets and stores where they handled all the products of P&G. They received their
wages from Promm-Gem or SAPS.

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for
reasons such as habitual absenteeism, dishonesty or changing day-off without prior

To enhance consumer awareness and acceptance of the products, P&G entered into
contracts with Promm-Gem and SAPS for the promotion and merchandising of its

In December 1991, petitioners filed a complaint against P&G for regularization, service
incentive leave pay and other benefits with damages.

Issue: WON P&G is the employer of petitioners.


In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary
to first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate
job contractors.

Clearly, the law and its implementing rules allow contracting arrangements for the
performance of specific jobs, works or services. However, in order for such outsourcing
to be valid, it must be made to an independent contractor because the current labor rules
expressly prohibit labor-only contracting.

To emphasize, there is labor-only contracting when the contractor or sub-contractor
merely recruits, supplies or places workers to perform a job, work or service for a
principal and any of the following elements are present:

We find that it is a legitimate independent contractor. the Labor Code itself establishes an employer- employee relationship between the employer and the employees of the labor-only contractor. . we find that the former is engaged in “labor-only contracting”. Where labor-only contracting exists. ii) The contractor does not exercise the right to control over the performance of the work of the contractual Under the circumstances. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal business of P&G. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer. The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws. Petition Granted. work or service to be performed and the employees recruited. or 1. 1. supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal. Promm-Gem cannot be considered as a labor-only contractor. i) The contractor or subcontractor does not have substantial capital or investment which relates to the job.