Meralco Industrial Engineering Services, Co., vs.

NLRC

Facts:

Meralco and the private respondent executed a contract where the latter would supply the
petitioner janitorial services, which include labor, materials, tools and equipment, as well as supervision of
its assigned employees, at Meralco’s Rockwell Thermal Plant in Makati City.

The 49 employees lodged a Complaint for illegal deduction, underpayment, non-payment of

overtime pay, legal holiday pay, premium pay for holiday and rest day and night differentials against the
private respondent before the LA.

By virtue of RA 6727, the contract between Meralco and the private respondent was amended to
increase the minimum daily wage per employee. 2 months after the amendment of the contract, Meralco
sent a letter to private respondent informing them that at the end of business hours of Jan. 31, 1990, it
would be terminating contract entered into with the private respondents. On the said date, the
complainants were pulled out from their work. The complainants amended their complaint to include the
charge of illegal dismissal and to implead Meralco as a party respondent.

The LA dismissed the complaint. On appeal, the NLRC affirmed the decision of the LA with the
modification that Meralco was solidarily liable with the private respondents. The CA on the other hand,
modified the Decision of the NLRC and held Meralco to be solidarily liable with the private respondent for
the satisfaction of the laborer’s separation pay.

Issue: Whether Meralco should be liable for the payment of the dismissed laborer’s separation pay

Decision: Petition GRANTED, Judgment and Resolution Reversed and SET ASIDE.

The CA used Art. 109 of the Labor Code to hold Meralco solidarily liable with the private
respondent as regard to the payment of separation pay. However, the SC ruled that Art. 109 should be
read in relation to Art. 106 and 107 of the LC. Thus, an indirect employer can only be held liable with the
independent contractor or subcontractor in the event that the latter fails to pay the wages of its
employees. While it is true that the petitioner was the indirect employer of the complainants, it cannot be
held liable in the same way as the employer in every respect. Meralco may be considered an indirect
employer only for purposes of unpaid wages.

The only instance when the principal can also be held liable with the independent contractor or
subcontractor for the backwages and separation pay of the latter’s employees is when there is proof that
the principal conspired with the independent contractor or subcontractor in the illegal dismissal of the
employees. In the present case, there is no allegation, much less proof presented, that the petitioner
conspired with private respondents in the illegal dismissal of the latter’s employees; hence, it cannot be
held liable for the same.

Neither can the liability for the separation pay of the complainants be extended to the petitioner
based on contract. Contract Order No. 166-84 executed between the petitioner and the private
respondents contains no provision for separation pay in the event that the petitioner terminates the same.
It is basic that a contract is the law between the parties and the stipulations therein, provided that they are
not contrary to law, morals, good customs, public order or public policy, shall be binding as between the
parties. Hence, if the contract does not provide for such a liability, this Court cannot just read the same
into the contract without possibly violating the intention of the parties.

Although petitioner is not liable for complainants’ separation pay, the Court conforms to the
consistent findings in the proceedings below that the petitioner is solidarily liable with the private
respondents for the judgment awards for underpayment of wages and non-payment of overtime pay.

In this case, however, private respondents had already posted a surety bond in an amount
sufficient to cover all the judgment awards due the complainants, including those for underpayment of
wages and non-payment of overtime pay. The joint and several liability of the principal with the
contractor and subcontractor were enacted to ensure compliance with the provisions of the Labor Code,
principally those on statutory minimum wage. This liability facilitates, if not guarantees, payment of the
workers’ compensation, thus, giving the workers ample protection as mandated by the 1987 Constitution.
With private respondents’ surety bond, it can therefore be said that the purpose of the Labor Code
provision on the solidary liability of the indirect employer is already accomplished since the interest of the
complainants are already adequately protected. Consequently, it will be futile to continuously hold the
petitioner jointly and solidarily liable with the private respondents for the judgment awards for
underpayment of wages and non-payment of overtime pay.

But while this Court had previously ruled that the indirect employer can recover whatever amount
it had paid to the employees in accordance with the terms of the service contract between itself and the
contractor, the said ruling cannot be applied in reverse to this case as to allow the private respondents
(the independent contractor), who paid for the judgment awards in full, to recover from the petitioner (the
Manila Electric Company v Benamira

Facts:

The individual respondents are licensed security guards formerly employed by People’s Security,
Inc. (PSI) and deployed as such at MERALCO’s head office in Ortigas Avenue, Pasig, Metro Manila. On
November 30, 1990, the security service agreement between PSI and MERALCO was terminated.
Immediately thereafter, fifty-six of PSI’s security guards, including herein eight individual respondents,
filed a complaint for unpaid monetary benefits against PSI and MERALCO.

Meanwhile, the security service agreement between respondent Armed Security & Detective
Agency, Inc., (ASDAI) and MERALCO took effect on December 1, 1990. In the agreement, ASDAI was
designated as the AGENCY while MERALCO was designated as the COMPANY.

Subsequently, the individual respondents were absorbed by ASDAI and retained at MERALCO’s
head office. On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered a decision in favor of the
former PSI security guards, including the individual respondents. 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.

On July 25, 1992, the security service agreement between respondent Advance Forces Security &
Investigation Services, Inc. (AFSISI) and MERALCO took effect, terminating the previous security service
agreement with ASDAI.[7] Except as to the number of security guards,[8] the amount to be paid the
agency,[9] and the effectivity of the agreement,[10] the terms and conditions were substantially identical
with the security service agreement with ASDAI.

Issues: Whether respondents are employees of MERALCO

Whether ASDAI and AFSISI are labor-only contractor

Held: No

In this case, the terms and conditions embodied in the security service agreement between
MERALCO and ASDAI expressly recognized ASDAI as the employer of individual respondents.

Under the security service agreement, it was ASDAI which (a) selected, engaged or hired and
discharged the security guards; (b) assigned them to MERALCO according to the number agreed upon; (c)
provided the uniform, firearms and ammunition, nightsticks, flashlights, raincoats and other paraphernalia
of the security guards; (d) paid them salaries or wages; and, (e) disciplined and supervised them or
principally controlled their conduct. The agreement even explicitly provided that “[n]othing herein
contained shall be understood to make the security guards under this Agreement, employees of the
COMPANY, it being clearly understood that such security guards shall be considered as they are,
employees of the AGENCY alone.” Clearly, the individual respondents are the employees of ASDAI.

As to the provision in the agreement that MERALCO reserved the right to seek replacement of
any guard whose behavior, conduct or appearance is not satisfactory, such merely confirms that the
power to discipline lies with the agency. It is a standard stipulation in security service agreements that the
client may request the replacement of the guards to it. Service-oriented enterprises, such as the business
of providing security services, generally adhere to the business adage that “the customer or client is
always right” and, thus, must satisfy the interests, conform to the needs, and cater to the reasonable
impositions of its clients.

Neither is the stipulation that the agency cannot pull out any security guard from MERALCO
without its consent an indication of control. It is simply a security clause designed to prevent the agency
from unilaterally removing its security guards from their assigned posts at MERALCO’s premises to the
latter’s detriment.

The clause that MERALCO has the right at all times to inspect the guards of the agency detailed in
its premises is likewise not indicative of control as it is not a unilateral right. The agreement provides that
the agency is principally mandated to conduct inspections, without prejudice to MERALCO’s right to
conduct its own inspections.

Needless to stress, for the power of control to be present, 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 reaching
such end.[26] Not all rules imposed by the hiring party on the hired party indicate that the latter is an
employee of the former.[27] Rules which serve as general guidelines towards the achievement of the
mutually desired result are not indicative of the power of control.

Moreover, ASDAI and AFSISI are not “labor-only” contractors. There is “labor only” contract when
the person acting as contractor is considered merely as an agent or intermediary of the principal who is
responsible to the workers in the same manner and to the same extent as if they had been directly
employed by him. On the other hand, “job (independent) contracting” is present if the following
conditions are met: (a) the contractor carries on an independent business and 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 principal in all matters connected with the performance
of the work except to the result thereof; and (b) the contractor has substantial capital or investments in
the form of tools, equipment, machineries, work premises and other materials which are necessary in the
conduct of his business.[29] Given the above distinction and the provisions of the security service
agreements entered into by petitioner with ASDAI and AFSISI, we are convinced that ASDAI and AFSISI
were engaged in job contracting.

The individual respondents can not be considered as regular employees of the MERALCO for,
although security services are necessary and desirable to the business of MERALCO, it is not directly
related to its principal business and may even be considered unnecessary in the conduct of MERALCO’s
principal business, which is the distribution of electricity.
 DOLE PHILIPPINES, INC. v. ESTEVA

Facts:

Petitioner DOLEFIL is a domestic corporation with its pineapple plantation in Polomolok, South
Cotabato.

- Respondents are members of the Cannery Multi-Purpose Cooperative (CAMPCO), which

is duly registered with the CDA, and live in communities surrounding petitioner’s plantation.

- On August 17, 1993, CAMPCO entered into a Service Contract with petitioner, which
stated that the number of CAMPCO members that report for work and the type of service they performed
would depend on the needs of petitioner at any given time.

- The Service Contract stated that it shall only be for a period of 6 months, (from 1 July to
31 December 1993) however, the parties had extended or renewed the same for the succeeding years
without executing another written contract.

- On May 5, 1993, the Sangguniang Bayan of Polomolok passed Resolution No. 64 calling
the attention of the DOLE Secretary to the worsening working conditions of petitioner’s workers and the
organization of contractual workers into several cooperatives to replace the individual labor-only
contractors that used to supply workers to the petitioner.

- The DOLE Regional Office thus organized a Task Force to investigate and found that 6
cooperatives were engaged in labor-only contracting, one of which was CAMPCO.

- The DOLE Regional Office held a conference where the 6 cooperatives were given the
opportunity to explain the nature of their activities in relation to petitioner, and petitioner also submitted
its position paper.

- Nevertheless, DOLE Regional Office found the 6 cooperatives were engaged in different
activities with DOLEFIL with 3 cooperatives (including CAMPCO) engaged in labor-only contracting
activities; and issued an Order to all cooperatives to cease and desist from engaging in labor-only
contracting activities with DOLEFIL.

- DOLEFIL brought this case before the Labor Arbiter and NLRC, which both ruled in its
favor.

- CA ruled for respondents and held that DOLEFIL illegally dismissed its employees and
ordered them reinstated with backwages.

Issues:

1. W/N CAMPCO was a labor-only contractor

 2. W/N petitioner is their real employer.

Held: YES. The Court upheld the ruling of the CA.

1. The finding of the DOLE Secretary that CAMPCO was a labor-only contractor is already
conclusive. However, even if this Court could deviate from said finding, an independent review of the
evidence on record would result in the same conclusion.

The existence of an independent and permissible contractor relationship is generally established

by the following:

a. whether or not the contractor is carrying on an independent business;

b. the nature and extent of the work;

c. the skill required;

d. the term and duration of the relationship;

e. the right to assign the performance of a specified piece of work;

f. the control and supervision of the work to another;

g. the employer's power with respect to the hiring, firing and payment of the contractor's
workers;

h. the control of the premises;

i. the duty to supply the premises tools, appliances, materials and labor; and

j. the mode, manner and terms of payment.

Although the relationship of petitioner and CAMPCO have some factors suggestive of an
independent contractor relationship (i.e., CAMPCO chose who among its members should be sent to work
for petitioner; petitioner paid CAMPCO the wages of the members, plus a percentage thereof as
administrative charge; CAMPCO paid the wages of the members who rendered service to petitioner),
many other factors are present which would indicate a labor-only contracting arrangement between
petitioner and CAMPCO:

a. When CAMPCO was established and the Service Contract between petitioner and
CAMPCO was entered into, CAMPCO only had P6,600.00 paid-up capital which is hardly substantial.

b. CAMPCO did not carry out an independent business from petitioner. It was established
to render services to petitioner to augment its workforce during peak seasons. Petitioner was its only
client. Even as CAMPCO had its own office and office equipment, these were mainly used for
administrative purposes; the tools, machineries, and equipment actually used by CAMPCO members when
rendering services to the petitioner belonged to the latter.

c. Petitioner exercised control over the CAMPCO members. Petitioner attempts to refute
control by alleging the presence of a CAMPCO supervisor in the work premises. Yet, the mere presence
within the premises of a supervisor from the cooperative did not mean CAMPCO had control over its
members. CAMPCO members, before working for the petitioner, had to undergo instructions and pass the
training provided by petitioner’s personnel. It was petitioner who determined and prepared the work
assignments of the CAMPCO members. CAMPCO members worked within petitioner’s plantation and
processing plants alongside regular employees performing identical jobs.

d. CAMPCO was not engaged to perform a specific and special job or service. In the Service
Contract of 1993, CAMPCO agreed to assist petitioner in its daily operations, and perform odd jobs as
may be assigned.

e. CAMPCO members, including respondents, performed activities directly related to the

principal business of petitioner. They worked as can processing attendant, feeder of canned pineapple
and pineapple processing, nata de coco processing attendant, fruit cocktail processing attendant, and etc.,
functions which were, not only directly related, but were very vital to petitioner’s business of production
and processing of pineapple products for export.

2. Since CAMPCO is engaged in labor-only contracting, then an employer-employee relationship

exists between petitioner and CAMPCO, and CAMPCO is considered a mere agent or intermediary of
petitioner.

Further, this Court concludes that respondents are regular employees of petitioner. This Court
cannot sustain the previous NLRC ruling that the CAMPCO members were valid “term employments,”
wherein the employer and employee knowingly and voluntarily agreed to employment for only a limited
or specified period of time. There is no proof that the respondents were aware and had knowingly and
voluntarily agreed to such term employment. Petitioner did not enter into individual contracts with the
CAMPCO members, but executed a Service Contract with CAMPCO alone. Although the Service Contract
of 1993 stated that it shall be for a specific 6-month period, petitioner and CAMPCO continued the service
arrangement beyond 1993. Since there was no written renewal of the Service Contract, there was no
further indication that the engagement by petitioner of the services of CAMPCO members was for
another definite or specified period only.

Respondents, as regular employees of petitioner, are entitled to security of tenure. They could
only be removed based on just and authorized causes as provided for in the Labor Code, and after they
are accorded procedural due process.

Therefore, petitioner’s acts of placing some of the respondents on “stay home status” and not
giving them work assignments for more than 6 months were already tantamount to constructive and
illegal dismissal.
 TEMIC AUTOMOTIVE PHILIPPINES, INC., vs. TEMIC AUTOMOTIVE PHILIPPINES, INC.
EMPLOYEES UNION-FFW,
G.R. No. 186965 December 23, 2009
FACTS:

Respondent Temic Automotive Philippines, Inc. Employees Union-FFW (union) is the exclusive
bargaining agent of the petitioner's rank-and-file employees. The petitioner, engaged in the manufacture
of electronic brake systems and comfort body electronics for automotive vehicles, contracts out some of
the work in the warehouse department to three independent service providers or forwarders.

These forwarders also have their own employees who hold the positions of clerk, material handler,
system encoder and general clerk. The regular employees of the petitioner and those of the forwarders
share the same work area and use the same equipment, tools and computers all belonging to the
petitioner. This outsourcing arrangement gave rise to a union grievance on the issue of the scope and
coverage of the collective bargaining unit, contending contracting out services is the same as the
workplace activities undertaken by regular company rank-and-file employees covered by the bargaining
unit who work under company control.

The union demanded that the forwarders' employees be absorbed into the petitioner's regular
employee force and be given positions within the bargaining unit. The petitioner, on the other hand, on
the premise that the contracting arrangement with the forwarders is a valid exercise of its management
prerogative, posited that the union's position is a violation of its management prerogative to determine
who to hire and what to contract out, and that the regular rank-and-file employees and their forwarders’
employees serving as its clerks, material handlers, system encoders and general clerks do not have the
same functions as regular company employees. The issue was submitted to voluntary arbitration and later,
to the jurisdiction of the Court of Appeals, to which both decided that the regular employees should be
considered regular employees of the company.

ISSUE: Whether the contracting out arrangement is valid.

HELD:

Yes, the arrangement is valid. In Meralco v. Quisumbing, the SC joined the universal recognition of
outsourcing as a legitimate activity and held that a company can determine in its best judgment whether
it should contract out a part of its work for as long as the employer is motivated by good faith; the
contracting is not for purposes of circumventing the law; and does not involve or be the result of
malicious or arbitrary action. In this case, the petitioner's declared objective for the arrangement is to
achieve greater economy and efficiency in its operations –a universally accepted business objective and
standard that the union has never questioned, thus negating the presence of bad faith. Also, no evidence
was presented to show abuses and anything detrimental to the status of the regular employees.

The contract of the forwarding arrangement in the case at bar complies with the requirements of
the Labor Code and its IRR. The company controls its employees in the means, method and results of their
work, in the same manner that the forwarder controls its own employees in the means, manner and
results of their work. Complications and confusion result because the company at the same time controls
the forwarder in the results of the latter’s work, without controlling however the means and manner of the
forwarder employees’ work.
 More importantly, it should be noted that that the forwarding agreements were already in place
when the current CBA was signed. In this sense, the union accepted the forwarding arrangement, albeit
implicitly, when it signed the CBA with the company. Thereby, the union agreed, again implicitly by its
silence and acceptance, that jobs related to the contracted forwarding activities are not regular company
activities and are not to be undertaken by regular employees falling within the scope of the bargaining
unit but by the forwarders’ employees.