9. COCA-COLA BOTTLERS INC. v.

AGITO
G.R. No. 179546, Feb.13,2009 - BUENAVENTURA

Petitioner: Coca-Cola Bottlers Inc.

Respondents: ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR.,
ALFONSO PAA, JR., DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO,
and EDWIN M. GOLEZ. (workers)
Employer Coca-Cola Bottlers Inc.
Employees Respondents (salesmen)
Contractor/subcontractor Interserve (but found out as Labor-only contractor)
Labor Issue Labor-only contracting

DOCTRINE:
 2 elements of Labor-only Contracting:
a. 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
b. The contractor does NOT exercise the right to control over the performance of
the work of the contractual employee.

FACTS:
 Petitioner is a domestic corporation duly registered with the Securities and
Exchange Commission (SEC) and engaged in manufacturing, bottling and
distributing soft drink beverages and other allied products.
 Respondents filed before the NLRC 2 complaints against petitioner and Interserve
for reinstatement and regularization.
 Respondents alleged in their Position Paper that they were salesmen assigned at
the Lagro Sales Office of petitioner. They had been in the employ of petitioner for
years, but were not regularized. Their employment was terminated on 8 April 2002
without just cause and due process.
 Petitioner filed its Position Paper (with Motion to Dismiss), where it averred that
respondents were employees of Interserve who were tasked to perform contracted
services in accordance with the 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
2002, constituted legitimate job contracting, given that the latter was a bona fide
 independent contractor with substantial capital or investment in the form of tools,
equipment, and machinery necessary in the conduct of its business.
 To prove the status of Interserve as an independent contractor, petitioner
presented the following pieces of evidence:
(1) the Articles of Incorporation of Interserve
(2) the Certificate of Registration of Interserve with the Bureau of Internal Revenue;
 (3) the Income Tax Return, with Audited Financial Statements, of Interserve for
2001; and
(4) the Certificate of Registration of Interserve as an independent job contractor,
issued by the Department of Labor and Employment (DOLE).
 petitioner asserted that respondents were employees of Interserve, since it was
the latter which hired them, paid their wages, and supervised their work, as proven
by: (1) respondents’ Personal Data Files in the records of Interserve; (2)
respondents’ Contract of Temporary Employment with Interserve; and (3) the
payroll records of Interserve. Petitioner, thus, sought the dismissal of respondents’
complaint against it on the ground that the Labor Arbiter did not acquire jurisdiction
over the same in the absence of an employer-employee relationship between
petitioner and the respondents.

RULING OF COURTS:
LA – Respondents were employee of Interserve and not of petitioner. Hence, dismissed
the complaint against the petitioner.
NLRC – affirmed LA’s decision and pronounced that no EER existed between petitioner
and respondents. Interserve was an independent contractor as evidenced by its
substantial assets and registration with the DOLE.
CA – Reversed the NLRC Resolution. Interserve was a labor-only contractor with
insufficient capital and investments for the services which it was contracted to perform.
With only 510,000 pesos invested in its service vehicles and 200,000 in its machineries
and equipment, Interserve would be hard-pressed to meet the demands of daily soft drink
deliveries of petitioner in the Lagro area. It concluded that the respondents used the
equipment, tools, and facilities of petitioner in the day-to-day sales operations.
- Additionally, the Court of Appeals determined that petitioner had effective control over
the means and method of respondents’ work as evidenced by the Daily Sales
Monitoring Report, the Conventional Route System Proposed Set-up, and the
memoranda issued by the supervisor of petitioner addressed to workers, who, like
respondents, were supposedly supplied by contractors.
- The appellate court deemed that the respondents, who were tasked to deliver,
distribute, and sell Coca-Cola products, carried out functions directly related and
necessary to the main business of petitioner.

PETITIONER’S CONTENTION:
- Petitioner argues that there could not have been labor-only contracting, since
respondents did not perform activities that were indispensable to petitioner’s principal
business. And, even assuming that they did, such fact alone does not establish an
employer-employee relationship between petitioner and the respondents, since
respondents were unable to show that petitioner exercised the power to select and
hire them, pay their wages, dismiss them, and control their conduct.
- Interserve has a substantial capital and investment required for independent
contractor. Its authorized capital stock is 2M.
RESPONDENT’S CONTENTION:
 ISSUE: Whether Interserve is a legitimate job-contractor or a labor-only contractor. –
Labor only contractor.
RULING:
The law clearly establishes an employer-employee relationship between the principal
employer and the contractor’s employee upon a finding that the contractor is engaged in “labor-
only” contracting. Article 106 of the Labor Code categorically states:
“There is ‘labor-only’ contracting where the person supplying workers to an
employee 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
persons are performing activities 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” contracting exists; the other is lack of substantial capital
or investment. The Court finds that both indicators exist in the case at bar.
Respondents worked for petitioner as salesmen, with the exception of respondent Gil
Francisco whose job was designated as leadman. In the Delivery Agreement between petitioner
and TRMD Incorporated, it is stated that petitioner is engaged in the manufacture, distribution and
sale of softdrinks and other related products. The work of respondents, constituting distribution
and sale of Coca-Cola products, is clearly indispensable to the principal business of petitioner.
The repeated re-hiring of some of the respondents supports this finding. 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 Supervisors
and District Sales Supervisors who supervise and control the salesmen and sales route helpers.
As to the supposed substantial capital and investment required of an independent job
contractor, petitioner calls the attention of the Court to the authorized capital stock of Interserve
amounting to P2,000,000.00. This Court is unconvinced. Although Interserve has an authorized
capital stock amounting to P2,000,000.00, only P625,000.00 thereof was paid up as of 31
December 2001. The Court does not set an absolute figure for what it considers substantial capital
for an independent job contractor, but it measures the same against the type of work which the
contractor is obligated to perform for the principal. However, this is rendered impossible in this
case since the Contract between petitioner and Interserve does not even specify the 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.”
Even in its pleadings, petitioner carefully sidesteps identifying or describing the exact nature of
the services that Interserve was 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 the Articles of Incorporation of Interserve states
that its primary purpose is to operate, conduct, and maintain the business of janitorial and allied
services. But respondents were hired as salesmen and 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 contracting with petitioner.
It is not enough to show substantial capitalization or investment in the form of tools,
equipment, machinery and work premises, etc., to be considered an independent contractor. In
fact, jurisprudential holdings were to the effect that in determining the existence of an independent
contractor relationship, several factors may be considered, such as, but not 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 the
performance of specified pieces of work; the control and supervision of the workers; the power of
the employer with respect to the hiring, firing and payment of the workers of the contractor; the
control of the premises; the duty to supply premises, tools, appliances, materials and labor; and
the mode, manner and terms of payment.
Insisting that Interserve had substantial investment, petitioner assails, for being purely
speculative, the finding of the Court of Appeals that the service vehicles and equipment of
Interserve, with the values of P510,000.00 and P200,000.00, respectively, could not have met the
demands of the Coca-Cola deliveries in the Lagro area. Yet again, petitioner fails to persuade.
The contractor, not the employee, has the burden of proof that it has the substantial capital,
investment, and tool to engage in job contracting. Although not the contractor itself (since
Interserve no longer appealed the judgment against it by the Labor Arbiter), said burden of proof
herein falls upon petitioner who is invoking the supposed status of Interserve as an independent
job contractor.
Noticeably, petitioner failed to submit evidence to establish that the service vehicles and
equipment of Interserve, valued at P510,000.00 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 undertaken by Interserve for the Lagro area,
the type and number of equipment necessary for such task, and the valuation of such equipment.
Absent evidence which a legally compliant company could have easily provided, the Court will
not presume that Interserve had sufficient investment in service vehicles and equipment,
especially since respondents’ allegation—that they were using equipment, such as forklifts and
pallets belonging to petitioner, to carry out their jobs—was uncontroverted.
In sum, Interserve did not have substantial capital or investment in the form of tools,
equipment, machineries, and work premises; and respondents, its supposed employees,
performed work which was directly related to the principal business of petitioner.
It is also apparent that Interserve is a labor-only contractor since it did not exercise the
right to control the performance of the work of respondents. The lack of control of Interserve over
the respondents can be gleaned from the Contract of Services between Interserve (as the
contractor) and petitioner (as the client).
Paragraph 3 of the Contract specified that the personnel of contractor Interserve, which
included the respondents, would comply with “CLIENT” as well as “CLIENT’s policies, rules and
regulations.” It even required Interserve personnel to subject themselves to on-the-spot searches
by petitioner or its duly authorized guards or security men on duty every time the said personnel
entered and left the premises of 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 necessary and due supervision of the work of its
personnel, there is a dearth of evidence to demonstrate the extent or degree of supervision
exercised by Interserve over respondents or the manner in which it was actually exercised. There
is even no showing that Interserve had representatives who supervised respondents’ work while
they were in the premises of petitioner.
 Also significant was the right of petitioner under paragraph 2 of the Contract to “request
the replacement of the CONTRACTOR’S personnel.” True, this right was conveniently qualified
by the phrase “if from its judgment, the jobs or the projects being done could not be completed
within the time specified or that the quality of the desired result is not being achieved,” but such
qualification was rendered 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 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 dismiss workers is the strongest
indication of a company’s right of control as direct employer.
Paragraph 4 of the same Contract, in which Interserve warranted to petitioner that the
former would provide relievers and replacements in case of absences of its personnel, raises
another red flag. An 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 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 required to
complete the same, and the work schedule which its employees need to follow.
As the Court previously observed, the Contract of Services between Interserve and
petitioner did not identify the work needed to be performed and the final result required to be
accomplished. Instead, the Contract specified the type of workers Interserve must provide
petitioner (“Route Helpers, Salesmen, Drivers, Clericals, Encoders & PD”) and their qualifications
(technical/vocational course graduates, physically fit, of good moral character, and have not been
convicted of any crime). The Contract also states that, “to carry out the undertakings specified in
the immediately preceding paragraph, the CONTRACTOR shall employ the necessary
personnel,” thus, acknowledging that Interserve did not yet have in its employ the personnel
needed by petitioner and would still pick out such personnel 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 types of employees.
These contractual provisions strongly indicated that Interserve was merely a recruiting and
manpower agency providing petitioner with workers performing tasks directly related to the latter’s
principal business.
The certification issued by the DOLE stating that Interserve is an independent job
contractor does not sway this Court to take it at face value, since the primary purpose stated in
the Articles of Incorporation of Interserve is misleading. According to its Articles of Incorporation,
the principal business of Interserve is to provide janitorial and allied services. The delivery and
distribution of Coca-Cola products, the work for which respondents were employed and assigned
to petitioner, were in no way allied to janitorial services. While the DOLE may have found that the
capital and/or investments in tools and equipment of Interserve were sufficient for an independent
contractor for janitorial services, this does not mean that such capital and/or investments were
likewise sufficient to maintain an independent contracting business for the delivery and distribution
of Coca-Cola products.
With the finding that Interserve was engaged in prohibited labor-only contracting, petitioner
shall be deemed the true employer of respondents.
DISPOSITION: IN VIEW OF THE FOREGOING, the instant Petition is DENIED.