COCA-COLA BOTTLERS PHILS., INC.
, Petitioner, Certificate of Registration of Interserve with the Bureau of Internal Revenue; 7 (3) the
vs.
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, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court,
assailing the Decision1 dated 19 February 2007, promulgated by the Court of Appeals
in CA-G.R. SP No. 85320, reversing the Resolution2 rendered on 30 October 2003 by
the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 036494-03.
The Court of Appeals, in its assailed Decision, declared that 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 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 merely to preclude respondents from acquiring tenurial security.
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.
On 15 April 2002, respondents filed before the NLRC two complaints against
petitioner, Interserve, Peerless Integrated Services, Inc., Better Builders, Inc., and
Excellent Partners, Inc. for reinstatement with backwages, regularization, nonpayment
of 13th month pay, and damages. The two cases, docketed as NLRC NCR Case No.
04-02345-2002 and NLRC NCR Case No. 05-03137-02, were consolidated.
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. However, they failed to state the reason/s for filing a
complaint against Interserve; Peerless Integrated Services, Inc.; Better Builders, Inc.;
and Excellent Partners, Inc.3
Petitioner filed its Position Paper (with Motion to Dismiss), 4 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;6 (2) the
Income Tax Return, with Audited Financial Statements, of Interserve for 2001; 8 and
(4) the Certificate of Registration of Interserve as an independent job contractor,
issued by the Department of Labor and Employment (DOLE). 9
As a result, 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; 10 (2)
respondents’ Contract of Temporary Employment with Interserve; 11 and (3) the payroll
records of Interserve.12
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.13
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 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 whether an employer-
employee relationship existed between petitioner and respondents. While
respondents performed activities that were necessary and desirable in the usual
business or trade of petitioner, the Labor Arbiter underscored that respondents’
functions were not indispensable to the principal business of petitioner, which was
manufacturing and bottling soft drink beverages and similar products.
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 ₱1,439,785.00 as of 31 December 2001. It was Interserve that kept and
maintained respondents’ employee records, including their Personal Data Sheets;
Contracts of Employment; and remittances to the Social Securities System (SSS),
Medicare and Pag-ibig Fund, thus, further supporting the Labor Arbiter’s finding that
respondents were employees of Interserve. She ruled that the circulars, rules and
regulations which petitioner issued from time to time to respondents were not
indicative of control as to make the latter its employees.
Nevertheless, the Labor Arbiter directed Interserve to pay respondents their pro-rated
13th month benefits for the period of January 2002 until April 2002. 14
In the end, the Labor Arbiter decreed:
WHEREFORE, judgment is hereby rendered finding that [herein respondents] are
employees of [herein petitioner] INTERSERVE MANAGEMENT & MANPOWER
RESOURCES, INC. Concomitantly, respondent Interserve is further ordered to pay
[respondents] their pro-rated 13th month pay.
The complaints against COCA-COLA BOTTLERS PHILS., INC. is DISMISMMED for
lack of merit.
In like manner the complaints against PEERLESS INTEGRATED SERVICES, INC.,
BETTER BUILDING INC. and EXCELLENT PARTNERS COOPERATIVE are
DISMISSED for failure of complainants to pursue against them.
Other claims are dismissed for lack of merit.
The computation of the Computation and Examination Unit, this Commission if (sic)
made part of this Decision. 15
Unsatisfied with the foregoing Decision of the Labor Arbiter, respondents filed an
appeal with the NLRC, docketed as NLRC NCR CA No. 036494-03.
In their Memorandum of Appeal,16 respondents maintained that contrary to the finding
of the Labor Arbiter, their work was indispensable to the principal business of
petitioner. Respondents supported their claim with copies of the Delivery
Agreement17 between petitioner and TRMD Incorporated, stating that petitioner was
"engaged in the manufacture, distribution and sale of soft drinks and other related
products with various plants and sales offices and 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 the warehouses, sales offices, and plants of petitioner. Respondents
pointed out that, in contrast, Interserve did not own trucks, pallets cartillas, or any
other equipment necessary in the sale of Coca-Cola products.
Respondents further averred in their Memorandum of Appeal that petitioner exercised
control over workers supplied by various contractors. Respondents cited as an
example the case of Raul Arenajo (Arenajo), who, just like them, worked for
petitioner, but was made to appear as an employee of the contractor Peerless
Integrated Services, Inc. As proof of control by petitioner, respondents submitted
copies of: (1) a Memorandum18 dated 11 August 1998 issued by Vicente Dy (Dy), a
supervisor of petitioner, addressed to Arenajo, suspending the latter from work until
he explained his disrespectful acts toward the supervisor who caught him sleeping
during work hours; (2) a Memorandum19 dated 12 August 1998 again issued by Dy to
Arenajo, informing the latter that the company had taken a more lenient and tolerant
position regarding his offense despite having found cause for his dismissal; (3)
Memorandum20 issued by Dy to the personnel of Peerless Integrated Services, Inc.,
requiring the latter to present their timely request for leave or medical certificates for
their absences; (4) Personnel Workers Schedules, 21 prepared by RB Chua, another
supervisor of petitioner; (5) Daily Sales Monitoring Report prepared by
petitioner;22 and (6) the Conventional Route System Proposed Set-up of petitioner. 23
The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor 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 Interserve was an independent contractor as evidenced by its substantial
assets and registration with the DOLE. In addition, it was Interserve which hired and
paid respondents’ wages, as well as paid and remitted their SSS, Medicare, and Pag-
ibig contributions. Respondents likewise failed to convince the NLRC that the
instructions issued and trainings conducted by petitioner proved that petitioner
exercised control over respondents as their employer.24 The dispositive part of the
NLRC Resolution states:25
WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit. However,
respondent Interserve Management & Manpower Resources, Inc., is hereby ordered
to pay the [herein respondents] their pro-rated 13th month pay.
Aggrieved once more, respondents sought recourse with the Court of Appeals by
filing a Petition for Certiorari under Rule 65, docketed as CA-G.R. SP No. 85320.
The Court of Appeals promulgated its Decision on 9 February 2007, reversing the
NLRC Resolution dated 30 October 2003. The appellate court ruled that Interserve
was a labor-only contractor, with insufficient capital and investments for the services
which it was contracted to perform. With only ₱510,000.00 invested in its service
vehicles and ₱200,000.00 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. The Court Appeals 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. The appellate court finally noted that certain provisions of the Contract of
Service between petitioner and Interserve suggested that the latter’s undertaking did
not involve a specific job, but rather the supply of manpower.
The decretal portion of the Decision of the Court of Appeals reads: 26
WHEREFORE, the petition is GRANTED. The assailed Resolutions of public
respondent NLRC are REVERSED and SET ASIDE. The case is remanded to the
NLRC for further proceedings.
Petitioner filed a Motion for Reconsideration, which the Court of Appeals denied in a
Resolution, dated 31 August 2007.27
Hence, the present Petition, in which the following issues are raised 28:
I
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH
EVIDENCE ON RECORD, APPLICABLE LAWS AND ESTABLISHED
JURISPRUDENCE WHEN IT RULED THAT INTERSERVE IS A LABOR-ONLY
CONTRACTOR;
 II
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH
APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT
CONCLUDED THAT RESPONDENTS PERFORMED WORK NECESSARY AND
DESIRABLE TO THE BUSINESS OF [PETITIONER];
III
WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS ERROR
WHEN IT DECLARED THAT RESPONDENTS WERE EMPLOYEES OF
[PETITIONER], EVEN ABSENT THE FOUR ELEMENTS INDICATIVE OF AN
EMPLOYMENT RELATIONSHIP; AND
IV
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT
CONCLUDED THAT INTERSERVE WAS ENGAGED BY [PETITIONER] TO
SUPPLY MANPOWER ONLY.
The Court ascertains that the fundamental issue in this case is whether Interserve is a
legitimate job contractor. Only by resolving such issue will the Court be able to
determine whether an employer-employee 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 by the parties on record.
As a general rule, factual findings of the Court of Appeals are binding upon the
Supreme Court. One exception to this rule is when the factual findings of the former
are contrary to those of the trial court, or the lower administrative body, as the case
may be. This Court is obliged to resolve an issue of fact herein due to the incongruent
findings of the Labor Arbiter and the NLRC and those of the Court of Appeals. 29
The relations which may arise in a situation, where there is an employer, a contractor,
and employees of the contractor, are identified and distinguished under Article 106 of
the Labor Code:
Article 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 contractor and of the latter’s subcontractor, if any, shall be paid in accordance
with the provisions of this Code.
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 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 employed by him.
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 restriction, he may make appropriate distinctions between labor-only
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.
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. 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 afore-quoted provision recognizes two possible relations among the parties: (1)
the permitted legitimate job contract, or (2) the prohibited labor-only contracting.
A legitimate job contract, wherein an employer enters into a contract with a job
contractor for the performance of the former’s work, is permitted by law. Thus, the
employer-employee relationship between 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 limited
purpose, i.e., to ensure that the employees are paid their wages. The employer
becomes jointly and severally liable with the job contractor only for the payment of the
employees’ wages whenever the contractor fails to pay the same. Other than that, the
employer is not responsible for any claim made by the contractor’s employees.30
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 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 "labor-only" contractor establishes an employer-employee relationship
between the principal employer and the contractor’s employees and the former
becomes solidarily liable for all the rightful claims of the employees. 31
Section 5 of the Rules Implementing Articles 106-109 of the Labor Code, as
amended, provides the guidelines in determining whether labor-only contracting
exists:
Section 5. Prohibition against labor-only contracting. 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 [is] 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) The contractor does not exercise the right to control the performance of
the work of the contractual employee.
The foregoing provisions shall be without prejudice to the application of Article 248(C)
of the Labor Code, as amended.
"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.
The "right to control" shall refer to the right reversed 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. (Emphasis
supplied.)
When there is labor-only contracting, Section 7 of the same implementing rules,
describes the consequences thereof:
Section 7. Existence of an employer-employee relationship.—The contractor or
subcontractor shall be considered the employer of the contractual employee for
purposes of enforcing the provisions of the Labor Code and other social legislation.
The principal, however, shall be solidarily liable with the contractor in the event of any
violation of any provision of the Labor Code, including the failure to pay wages.
The principal shall be deemed the employer of the contractual employee in any of the
following case, as declared by a competent authority:
a. where there is labor-only contracting; or
b. where the contracting arrangement falls within the prohibitions provided in
Section 6 (Prohibitions) hereof.
According to the foregoing provision, labor-only contracting would give rise to: (1) the
creation of an employer-employee relationship between the principal and the
employees of the contractor or sub-contractor; and (2) the solidary liability of the
principal and the contractor to the employees in the event of any violation of the Labor
Code.
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.
The argument of petitioner is untenable.
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
Agreement32 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.33 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.34
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 ₱2,000,000.00.35 It cites as authority Filipinas Synthetic Fiber
Corp. v. National Labor Relations Commission36 and Frondozo v. National Labor
Relations Commission,37 where the contractors’ authorized capital stock of
₱1,600,000.00 and ₱2,000,000.00, respectively, were considered substantial for the
purpose of concluding that they were legitimate job contractors. Petitioner also refers
to Neri v. National Labor Relations Commission38 where it was held that a contractor
ceases to be a labor-only contractor by having substantial capital alone, without
investment in tools and equipment.
This Court is unconvinced.
At the outset, the Court clarifies that although Interserve has an authorized capital
stock amounting to ₱2,000,000.00, only ₱625,000.00 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.39 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.
Petitioner cannot seek refuge in Neri v. National Labor Relations Commission. Unlike
in Neri, petitioner was unable to prove in the instant case that Interserve had
substantial capitalization to be an independent job contractor. In San Miguel
Corporation v. MAERC Integrated Services, Inc.,40 therein petitioner San Miguel
Corporation similarly invoked Neri, but was rebuffed by the Court based on the
following ratiocination41 :
Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling
in Neri v. NLRC. In that case, it was held that the law did not require one to possess
both substantial capital and investment in the form of tools, equipment, machinery,
work premises, among others, to be considered a job contractor. The second
condition to establish permissible job contracting was sufficiently met if one
possessed either attribute.
Accordingly, petitioner alleged that the appellate court and the NLRC erred when they
declared MAERC a labor-only contractor despite the finding that MAERC had
investments amounting to ₱4,608,080.00 consisting of buildings, machinery and
equipment.
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 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.
In Neri, the Court considered not only the fact that respondent Building Care
Corporation (BCC) had substantial capitalization but noted that BBC carried on an
independent business and performed its contract according to its own manner and
method, free from the control and supervision of its principal in all matters except as
to the results thereof. The Court likewise mentioned that the employees of BCC were
engaged to perform specific special services for their principal. The status of BCC had
also been passed upon by the Court in a previous 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." Furthermore, there were only two (2) complainants in that case who
were not only selected and hired by the contractor before being 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.
Thus, in San Miguel Corporation, the investment of MAERC, the contractor therein, in
the form of buildings, tools, and equipment of more than ₱4,000,000.00 did not
impress the Court, which still declared MAERC to be a labor-only contractor. In
another case, Dole Philippines, Inc. v. Esteva,42 the Court did not recognize the
contractor therein as a legitimate job contractor, despite its paid-up capital of over
₱4,000,000.00, in the absence of substantial investment in tools and equipment used
in the services it was rendering.
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 ₱510,000.00 and ₱200,000.00,
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. 43 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 ₱510,000.00 and ₱200,000.00, 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, thus, evident that Interserve falls under the definition of a "labor-only"
contractor, under Article 106 of the Labor Code; as well as Section 5(i) of the Rules
Implementing Articles 106-109 of the Labor Code, as amended.
The Court, however, does not stop at this finding. It is also apparent that Interserve is
a labor-only contractor under Section 5(ii)44 of the 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.
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), pertinent portions of which are reproduced below:
WHEREAS, the CONTRACTOR is engaged in the business, among others, of
performing and/or undertaking, managing for consideration, varied projects, jobs and
other related management-oriented services;
WHEREAS, the CONTRACTOR warrants that it has the necessary capital, expertise,
technical know-how and a team of professional management group and personnel to
undertake and assume the responsibility to carry out the above mentioned project and
services;
WHEREAS, the CLIENT is desirous of utilizing the services and facilities of the
CONTRACTOR for emergency needs, rush jobs, peak product loads, temporary,
seasonal and other special project requirements the extent that the available work of
the CLIENT can properly be done by an independent CONTRACTOR permissible
under existing laws and regulations;
WHEREAS, the CONTRACTOR has offered to perform specific jobs/works at the
CLIENT as stated heretofore, under the terms and conditions herein stated, and the
CLIENT has accepted the offer.
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 offer:
1. The CONTRACTOR agrees and undertakes to perform and/or provide for
the CLIENT, on a non-exclusive basis for tasks or activities that are
considered contractible under existing laws and regulations, as may be
needed by the CLIENT from time to time.
2. To carry out the undertakings specified in the immediately preceding
paragraph, the CONTRACTOR shall employ the necessary personnel like
Route Helpers, Salesmen, Drivers, Clericals, Encoders & PD who are at
least Technical/Vocational courses graduates provided with adequate
uniforms and appropriate identification cards, who are warranted by the
CONTRACTOR to be so trained as to efficiently, fully and speedily
accomplish the work and 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 the services and work
herein undertaken and that such personnel shall be physically fit, of good
moral character and has not been convicted of any crime. The CLIENT,
however, may request for the replacement of the CONTRACTOR’S
personnel 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.
3. It is agreed and understood that the CONTRACTOR’S personnel will
comply with CLIENT, CLIENT’S policies, rules and regulations and will be
subjected on-the-spot search by CLIENT, CLIENT’S duly authorized guards
or security men on duty every time the assigned personnel enter and leave
the premises during the entire duration of this agreement.
4. The CONTRACTOR further warrants to make available at times relievers
and/or replacements to ensure continuous and uninterrupted service as in
the case of absences of any personnel above mentioned, and to exercise
the necessary and due supervision over the work of its personnel.45
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.461avvphil.zw+
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 dismissed and, accordingly, ORDERS petitioner to reinstate them without loss of
petitioner did not identify the work needed to be performed and the final result seniority rights, and to pay them full back wages computed from the time their
required to be accomplished. Instead, the Contract specified the type of workers compensation was withheld up to their actual reinstatement. Costs against the
Interserve must provide petitioner ("Route Helpers, Salesmen, Drivers, Clericals, petitioner.
Encoders & PD") and their qualifications (technical/vocational course graduates,
physically fit, of good moral character, and have not been convicted of any crime). SO ORDERED.
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 Incorporation47 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. As regular employees of
petitioner, respondents cannot be dismissed except for just or authorized causes,
none of which were alleged or proven to exist in this case, the only defense of
petitioner 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., notice and hearing, prior to their
dismissal. Respondents were not served notices informing them of the particular acts
for which their dismissal was sought. Nor were they required to give their side
regarding the charges made against them. Certainly, the respondents’ dismissal was
not carried out in accordance with law and, therefore, illegal.48

Given that respondents were illegally dismissed by petitioner, they are entitled to
reinstatement, full backwages, inclusive of allowances, and to their other benefits or
the monetary equivalents thereof computed from the time their compensations were
withheld from them up to the time of their actual reinstatement, as mandated under
Article 279 of the Labor Code,.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Court AFFIRMS
WITH MODIFICATION the Decision dated 19 February 2007 of the Court of Appeals
in CA-G.R. SP No. 85320. The Court DECLARES that respondents were illegally