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ttlers Phils., Inc. v. Agito 8/14/2019
THIRD DIVISION
[G.R. No. 179546. February 13, 2009.]
COCA-COLA BOTTLERS PHILS., INC., petitioner, 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 p:
This is a Petition for Review on Certiorari, under Rule 45 of the
Rules of Court, assailing the Decision 1 dated 19 February 2007,
promulgated by the Court of Appeals in CA-G.R. SP No. 85320,
reversing the Resolution 2 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. SECcAI
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.
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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 Services 5 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. AcTHCE
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 Certificate of Registration of
Interserve with the Bureau of Internal Revenue; 7 (3) 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
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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 P1,439,785.00 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. ScHAIT
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 DISMISSED 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
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supported their claim with copies of the Delivery Agreement 17
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. ASCTac
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 Memorandum 18 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 Memorandum 19 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) Memorandum 20 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
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WHEREFORE, the instant appeal is hereby WHETHER OR NOT THE COURT OF APPEALS ACTED IN
DISMISSED for lack of merit. However, respondent Interserve ACCORDANCE WITH EVIDENCE ON RECORD,
Management & Manpower Resources, Inc., is hereby ordered APPLICABLE LAWS AND ESTABLISHED
to pay the [herein respondents] their pro-rated 13th month JURISPRUDENCE WHEN IT RULED THAT INTERSERVE IS
pay. A LABOR-ONLY CONTRACTOR; IHEAcC
Aggrieved once more, respondents sought recourse with the II
Court of Appeals by filing a Petition for Certiorari under Rule 65,
docketed as CA-G.R. SP No. 85320. caDTSE WHETHER OR NOT THE COURT OF APPEALS ACTED IN
ACCORDANCE WITH APPLICABLE LAWS AND
The Court of Appeals promulgated its Decision on 9 February ESTABLISHED JURISPRUDENCE WHEN IT CONCLUDED
2007, reversing the NLRC Resolution dated 30 October 2003. The THAT RESPONDENTS PERFORMED WORK NECESSARY
appellate court ruled that Interserve was a labor-only contractor, with AND DESIRABLE TO THE BUSINESS OF [PETITIONER];
insufficient capital and investments for the services which it was
contracted to perform. With only P510,000.00 invested in its service III
vehicles and P200,000.00 in its machineries and equipment, WHETHER OR NOT THE COURT OF APPEALS
Interserve would be hard-pressed to meet the demands of daily soft COMMITTED SERIOUS ERROR WHEN IT DECLARED
drink deliveries of petitioner in the Lagro area. The Court Appeals THAT RESPONDENTS WERE EMPLOYEES OF
concluded that the respondents used the equipment, tools, and [PETITIONER], EVEN ABSENT THE FOUR ELEMENTS
facilities of petitioner in the day-to-day sales operations. INDICATIVE OF AN EMPLOYMENT RELATIONSHIP; AND
Additionally, the Court of Appeals determined that petitioner IV
had effective control over the means and method of respondents'
work as evidenced by the Daily Sales Monitoring Report, the WHETHER OR NOT THE COURT OF APPEALS
Conventional Route System Proposed Set-up, and the memoranda SERIOUSLY ERRED WHEN IT CONCLUDED THAT
issued by the supervisor of petitioner addressed to workers, who, INTERSERVE WAS ENGAGED BY [PETITIONER] TO
like respondents, were supposedly supplied by contractors. The SUPPLY MANPOWER ONLY.
appellate court deemed that the respondents, who were tasked to The Court ascertains that the fundamental issue in this case is
deliver, distribute, and sell Coca-Cola products, carried out functions whether Interserve is a legitimate job contractor. Only by resolving
directly related and necessary to the main business of petitioner. such issue will the Court be able to determine whether an employer-
The appellate court finally noted that certain provisions of the employee relationship exists between petitioner and the
Contract of Service between petitioner and Interserve suggested respondents. To settle the same issue, however, the Court must
that the latter's undertaking did not involve a specific job, but rather necessarily review the factual findings of the Court of Appeals and
the supply of manpower. look into the evidence presented by the parties on record.
The decretal portion of the Decision of the Court of Appeals As a general rule, factual findings of the Court of Appeals are
reads: 26 binding upon the Supreme Court. One exception to this rule is when
WHEREFORE, the petition is GRANTED. The assailed the factual findings of the former are contrary to those of the trial
Resolutions of public respondent NLRC are REVERSED and court, or the lower administrative body, as the case may be. This
SET ASIDE. The case is remanded to the NLRC for further Court is obliged to resolve an issue of fact herein due to the
proceedings. incongruent findings of the Labor Arbiter and the NLRC and those of
the Court of Appeals. 29
Petitioner filed a Motion for Reconsideration, which the Court
The relations which may arise in a situation, where there is an
of Appeals denied in a Resolution, dated 31 August 2007. 27
employer, a contractor, and employees of the contractor, are
Hence, the present Petition, in which the following issues are identified and distinguished under Article 106 of the Labor Code: cHESAD
raised: 28
I

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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 restricting, 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
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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 TIHDAa
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. AIaSTE
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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. caIEAD
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
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* 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 32 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
P2,000,000.00. 35 It cites as authority Filipinas Synthetic Fiber Corp.
v. National Labor Relations Commission 36 and Frondozo v. National
Labor Relations Commission, 37 where the contractors' authorized
capital stock of P1,600,000.00 and P2,000,000.00, respectively,
were considered substantial for the purpose of concluding that they
were legitimate job contractors. Petitioner also refers to Neri v.
National Labor Relations Commission 38 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. ICDSca
This Court is unconvinced.
At the outset, the Court clarifies that 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
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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 ratiocination: 41
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 P4,608,080.00 consisting of buildings,
machinery and equipment. CDAEHS
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
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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 P4,000,000.00 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 P4,000,000.00, in the absence of substantial
investment in tools and equipment used in the services it was
rendering. ATHCDa
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.
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The contractor, not the employee, has the burden of proof that undertake and assume the responsibility to carry out the
it has the substantial capital, investment, and tool to engage in job above mentioned project and services;
contracting. 43 Although not the contractor itself (since Interserve no WHEREAS, the CLIENT is desirous of utilizing the
longer appealed the judgment against it by the Labor Arbiter), said services and facilities of the CONTRACTOR for emergency
burden of proof herein falls upon petitioner who is invoking the needs, rush jobs, peak product loads, temporary, seasonal
supposed status of Interserve as an independent job contractor. and other special project requirements the extent that the
Noticeably, petitioner failed to submit evidence to establish that the available work of the CLIENT can properly be done by an
service vehicles and equipment of Interserve, valued at P510,000.00 independent CONTRACTOR permissible under existing laws
and P200,000.00, respectively, were sufficient to carry out its service and regulations;
contract with petitioner. Certainly, petitioner could have simply
provided the courts with records showing the deliveries that were WHEREAS, the CONTRACTOR has offered to perform
undertaken by Interserve for the Lagro area, the type and number of specific jobs/works at the CLIENT as stated heretofore, under
equipment necessary for such task, and the valuation of such the terms and conditions herein stated, and the CLIENT has
equipment. Absent evidence which a legally compliant company accepted the offer.
could have easily provided, the Court will not presume that NOW THEREFORE, for and in consideration of the
Interserve had sufficient investment in service vehicles and foregoing premises and of the mutual covenants and
equipment, especially since respondents' allegation — that they stipulations hereinafter set forth, the parties have hereto have
were using equipment, such as forklifts and pallets belonging to stated and the CLIENT has accepted the offer:
petitioner, to carry out their jobs — was uncontroverted.
1. The CONTRACTOR agrees and
In sum, Interserve did not have substantial capital or undertakes to perform and/or provide for the CLIENT,
investment in the form of tools, equipment, machineries, and work on a non-exclusive basis for tasks or activities that are
premises; and respondents, its supposed employees, performed considered contractible under existing laws and
work which was directly related to the principal business of regulations, as may be needed by the CLIENT from
petitioner. It is, thus, evident that Interserve falls under the definition time to time.
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 2. To carry out the undertakings specified in
the Labor Code, as amended. the immediately preceding paragraph, the
CONTRACTOR shall employ the necessary personnel
The Court, however, does not stop at this finding. It is also
like Route Helpers, Salesmen, Drivers, Clericals,
apparent that Interserve is a labor-only contractor under Section 5
Encoders & PD who are at least Technical/Vocational
(ii) 44 of the Rules Implementing Articles 106-109 of the Labor Code, courses graduates provided with adequate uniforms
as amended, since it did not exercise the right to control the and appropriate identification cards, who are warranted
performance of the work of respondents. by the CONTRACTOR to be so trained as to efficiently,
The lack of control of Interserve over the respondents can be fully and speedily accomplish the work and services
gleaned from the Contract of Services between Interserve (as the undertaken herein by the CONTRACTOR. The
CONTRACTOR) and petitioner (as the CLIENT), pertinent portions CONTRACTOR represents that its personnel shall be in
of which are reproduced below: such number as will be sufficient to cope with the
WHEREAS, the CONTRACTOR is engaged in the requirements of the services and work herein
business, among others, of performing and/or undertaking, undertaken and that such personnel shall be physically
managing for consideration, varied projects, jobs and other fit, of good moral character and has not been convicted
related management-oriented services; DEcTIS of any crime. The CLIENT, however, may request for
the replacement of the CONTRACTOR'S personnel if
WHEREAS, the CONTRACTOR warrants that it has the from its judgment, the jobs or the projects being done
necessary capital, expertise, technical know-how and a team could not be completed within the time specified or that
of professional management group and personnel to the quality of the desired result is not being achieved.
DAHSaT

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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. ScaCEH
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. 46
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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. aDACcH
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 47 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.
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With the finding that Interserve was engaged in prohibited 6. Id. at 78-87.
labor-only contracting, petitioner shall be deemed the true employer
7. Id. at 88.
of respondents. As regular employees of petitioner, respondents
cannot be dismissed except for just or authorized causes, none of 8. Id. at 89-93.
which were alleged or proven to exist in this case, the only defense 9. Id. at 131.
of petitioner against the charge of illegal dismissal being that
respondents were not its employees. Records also failed to show 10. Id. at 94, 97, 100, 103, 106, 109. Only six Personal Data Files
that petitioner afforded respondents the twin requirements of were attached to the Position Paper. Personal Data Files of two of
procedural due process, i.e., notice and hearing, prior to their the respondents, Alfonso Paa, Jr. and Edwin Golez, were not
dismissal. Respondents were not served notices informing them of submitted.
the particular acts for which their dismissal was sought. Nor were 11. Id. at 95-96, 98-99, 101-102, 104-405, 107-108, 110-111. Only
they required to give their side regarding the charges made against six Contracts of Temporary Employment were attached to the
them. Certainly, the respondents' dismissal was not carried out in Position Paper. The Contracts for Temporary Employment of two of
accordance with law and, therefore, illegal. 48 the respondents, Alfonso Paa, Jr. and Edwin Golez, were not
Given that respondents were illegally dismissed by petitioner, submitted.
they are entitled to reinstatement, full backwages, inclusive of 12. Id. at 112-130.
allowances, and to their other benefits or the monetary equivalents
thereof computed from the time their compensations were withheld 13. Id. at 66-69.
from them up to the time of their actual reinstatement, as mandated 14. Rollo, pp. 134-149.
under Article 279 of the Labor Code. CaHcET
15. Id. at 149-150.
IN VIEW OF THE FOREGOING, the instant Petition is
DENIED. The Court AFFIRMS WITH MODIFICATION the Decision 16. CA rollo, pp. 150-170. ASETHC
dated 19 February 2007 of the Court of Appeals in CA-G.R. SP No. 17. Id. at 186.
85320. The Court DECLARES that respondents were illegally
dismissed and, accordingly, ORDERS petitioner to reinstate them 18. Id. at 193.
without loss of seniority rights, and to pay them full back wages 19. Id. at 194.
computed from the time their compensation was withheld up to their
actual reinstatement. Costs against the petitioner. 20. Id. at 195.
SO ORDERED. 21. Id. at 201-202.
Ynares-Santiago, Austria-Martinez, Nachura and Peralta, JJ., 22. Id. at 196.
concur. 23. Id. at 197.
24. Rollo, pp. 152-156.
Footnotes 25. Id. at 156.
1. Penned by Associate Justice Rosalinda Asuncion-Vicente with 26. Id. at 57-68.
Associate Justices Elvi John S. Asuncion and Enrico M. Lanzanas,
concurring. Rollo, pp. 57-69. IAETDc 27. CA rollo, pp. 456-457.
28. Rollo, p. 330.
2. Rollo, pp. 152-157.
29. Filipinas Pre-Fabricated Building Systems (Filsystems), Inc. v.
3. Id. at 236-242.
Puente, G.R. No. 153832, 18 March 2005, 453 SCRA 820, 826.
4. CA rollo, pp. 55-69.
30. San Miguel Corporation v. MAERC Integrated Services, Inc.,
5. Id. at 71-76. 453 Phil. 543, 566-567 (2003). cDHAaT

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31. Id. at 567. i) The contractor or subcontractor does not have substantial capital
or investment which relates to the job, work, or service to be
32. Rollo, p. 199.
performed and the employees recruited, supplied or placed by such
33. Based on respondents' Personal Data files, which were kept by contractor or subcontractor are performing activities which are
Interserve, respondent Regolo Oca worked in Coca-Cola in directly related to the main business of the principal; or
September 2000 as a salesman and his contract was renewed
ii) The contractor does not exercise the right to control the
three more times until he was dismissed in April 2002. Respondent
performance of the work of the contractual employee.
Ernesto Alario worked in Coca-Cola in October 2001, and his
contract was renewed one more time before his dismissal in April The use of the words "any" and "or" in the foregoing provision
2002. Respondent Gil Francisco worked in Coca-cola as a Driver means that the elements of labor-only contracting identified therein
on August 1998 and later on as leadman in December 1998, and need not exist concurrently. The existence of one element is
his contract was renewed until he was dismissed in April 2002. sufficient to establish labor-only contracting.
Respondent Arvin Urquia worked as a salesman in Coca-Cola in
45. Rollo, pp. 74-75.
October 2001, and his contract was renewed in February 2002 until
he was dismissed in April 2002. Lastly, respondent Alan Agito 46. Brotherhood Labor Unity Movement of the Philippines v.
worked in Coca-Cola as salesman in May 2002, and his contract Zamora, G.R. No. L-48645, 7 January 1987, 147 SCRA 49, 59.
was renewed until he was dismissed in April 2002. (CA rollo, pp. 94,
47. CA rollo, p. 78.
97, 100, 103, 106, and 109.)
48. Abesco Construction and Development Corporation v.
34. Rollo, p. 283.
Ramirez, G.R. No. 141168, 10 April 2006, 487 SCRA 9, 15;
35. Id. at 331-338. Grandspan Development Corporation v. Bernardo, G.R. No.
141464, 21 September 2005, 470 SCRA 461, 470; Raycor
36. 327 Phil. 144 (1996).
Aircontrol Systems, Inc. v. National Labor Relations Commission,
37. CA-G.R. SP No. 102442, 30 May 2008. 330 Phil. 306, 334 (1996).
38. G.R. Nos. 97008-09, 23 July 1993, 224 SCRA 717.
39. CA rollo, p. 78.
40. Supra note 30.
41. Id. at 564-566.
42. G.R. No. 161115, 30 November 2006, 509 SCRA 332, 353 and
377.
43. Aboitiz Haulers, Inc. v. Dimapatoi, G.R. No. 148619, 19
September 2006, 502 SCRA 271, 289; Guarin v. National Labor
Relations Commission, G.R. No. 86010, 3 October 1989, 178
SCRA 267, 273. cdtai
44. According to Section 5 of the Rules Implementing Articles 106-
109, as amended:
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:

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