Aliviado et al. v.
P&G HELD:
G.R. No. 160506.
March 9, 2010
DOCTRINE:
 The Law and its implementing rules allow contracting arrangements for the performance
of specific jobs, works of services; The current labor rules expressly prohibit labor-only
contracting
o 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
 Elements of labor-only contracting
o i) The contractor or subcontractor does not have substantial capital or
investment which relates to the job, work or service to be performed and the
employees recruited, supplied or placed by such contractor or subcontractor
are performing activities which are directly related to the main business of the
principal; or
o ii) The contractor does not exercise the right to control over the performance
of the work of the contractual employee
 Promm-Gem cannot be considered as a labor-only contractor; It is a legitimate
independent contractor.
FACTS:
 Petitioners Aliviado et al (80 workers) worked as merchandisers of P&G
o They all individually signed employment contracts with either Promm-
Gem or SAPS
o They received their wages from PrommGem or SAPS
o SAPS and Promm-Gem imposed disciplinary measures on erring
merchandisers
 for reasons such as habitual absenteeism, dishonesty or changing
day-off without prior notice
 P&G is principally engaged in the manufacture and production of different consumer and
health products
o 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 products
 petitioners filed a complaint10 against P&G for regularization, and for other benefits
 RULING OF LABOR ARBITER
o L/A ruled that there was no ER-EE Relationship between petitioners and P&G.
 that the selection and engagement of the petitioners, the payment of
their wages, the power of dismissal and control with respect to the
means and methods by which their work was accomplished, were
all done and exercised by Promm-Gem/SAPS.
 that Promm-Gem and SAPS were legitimate independent job
contractors
 NLRC: affirmed
 CA: affirmed
ISSUE: Whether P&G is the employer of petitioners. [YES]
LABOR-ONLY CONTRACTING AND JOB CONTRACTING
 ART. 106. Contractor or subcontractor.—
o “…The Secretary of Labor may, by appropriate regulations, restrict or prohibit
the contracting out of labor to protect the rights of workers established under
this Code. In so prohibiting or restricting, he may make appropriate
distinctions between laboronly contracting and job contracting as well as
differentiations within these types of contracting and determine who among
the parties involved shall be considered the employer for purposes of this
Code, to prevent any violation or circumvention of any provision of this Code.”
o “There is “labor-only” contracting where the person supplying workers to an
employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers
recruited and placed by such person are performing activities which are
directly related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of the employer
who shall be responsible to the workers in the same manner and extent as if
the latter were directly employed by him.”
 the OMNIBUS Rules Implementing the Labor Code. distinguishes between legitimate and
labor-only contracting:
o In legitimate contracting, there exists a trilateral relationship under which
there is a contract for a specific job, work or service between the principal and
the contractor or subcontractor, and a contract of employment between the
contractor or subcontractor and its workers.
o Labor-only contracting is hereby declared prohibited. For this purpose,
labor-only contracting shall refer to an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a
job, work or service for a principal, and any of the following elements are
present
 i) The contractor or subcontractor does not have substantial capital
or investment which relates to the job, work or service to be
performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are
directly related to the main business of the principal; or
 ii) [T]he contractor does not exercise the right to control over the
performance of the work of the contractual employee
 Article 248 (c) of the Labor Code
o “Substantial capital or investment” refers to capital stocks and subscribed
capitalization in the case of corporations, tools, equipment, implements,
machineries and work premises, actually and directly used by the contractor or
subcontractor in the performance or completion of the job, work or service
contracted out.
o The “right to control” shall refer to the right reserved to the person for whom
the services of the contractual workers are performed, to determine not only
the end to be achieved, but also the manner and means to be used in reaching
that end.
PROMM-GEM IS A LEGITIMATE INDEPENDENT CONTRACTOR
 the financial statements of Promm-Gem show that it has authorized capital stock of P1
million and a paid-in capital, or capital available for operations, of P500,000.00 as of 1990
o Promm-Gem has also proven that it maintained its own warehouse and office
space
o Promm-Gem also has other clients aside from P&G
  Under the circumstances, the Court find that Promm-Gem has substantial investment
which relates to the work to be performed
 Based on records,
o Promm-Gem supplied its complainant-workers with the relevant materials
necessary for them to perform their work.
o Promm-Gem also issued uniforms to them.
o relevant to mention that Promm-Gem already considered the complainants
working under it as its regular, not merely contractual or project, employees
 Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor.
We find that it is a legitimate independent contractor

SAPS IS A LABOR-ONLY CONTRACTOR

 Only has P31,250.00 paid-in capital
 no other evidence presented to show how much its working capital and assets are
 no showing of substantial investment in tools, equipment or other asset
 SAPS—having a paid-in capital of only P31,250—has no substantial capital.
 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 Court find that the former is engaged in “labor-only contracting.”

WHEN LABOR-ONLY CONTRATING EXISTS

 the Labor Code itself establishes an employer-employee relationship between the
employer and the employees of the ‘labor-only’ contractor.”
o Purpose: to prevent a circumvention of labor laws.
 The contractor is considered merely an agent of the principal employer and the
latter is responsible to the employees of the labor-only contractor as if such
employees had been directly employed by the principal employer
 Consequently, the petitioners who were recruited by SAPS are considered as the
employees of P&G
o While those who worked and been dismissed by Promm-Gem, are considered
the employees of Promm-Gem, not of P&G
 But the Court found that there was no valid cause for the dismissal
of petitioners-employees of Promm-Gem.