Page 1 of 69
FIRST DIVISION substantial capital or investment which relates to the job, work or service to be
G.R. No. 158255             July 8, 2004
MANILA WATER COMPANY, INC., petitioner,
vs.
HERMINIO D. PENA, ESTEBAN B. BALDOZA, JORGE D. CANONIGO, JR., IKE S.
DELFIN, RIZALINO M. INTAL, REY T. MANLEGRO, JOHN L. MARTEJA, MARLON
B. MORADA, ALLAN D. ESPINA, EDUARDO ONG, AGNESIO D. QUEBRAL,
EDMUNDO B. VICTA, VICTOR C. ZAFARALLA, EDILBERTO C. PINGUL and
FEDERICO M. RIVERA, respondents.
Actions; Pleading and Practice; Certiorari; Factual findings of quasi-judicial
bodies like the NLRC, particularly when they coincide with those of the Labor
Arbiter and if supported by substantial evidence, are accorded respect and even
finality by this Court.—The issue of whether or not an employer-employee
relationship exists in a given case is essentially a question of fact. As a rule, the
Supreme Court is not a trier of facts, and this applies with greater force in labor
cases. Hence, factual findings of quasi-judicial bodies like the NLRC, particularly
when they coincide with those of the Labor Arbiter and if supported by
substantial evidence, are accorded respect and even finality by this Court.
However, a disharmony between the factual findings of the Labor Arbiter and the
National Labor Relations Commission opens the door to a review thereof by this
Court. Factual findings of administrative agencies are not infallible and will be set
aside when they fail the test of arbitrariness. Moreover, when the findings of the
National Labor Relations Commission contradict with those of the labor arbiter,
this Court, in the exercise of its equity jurisdiction, may look into the records of
the case and reexamine the questioned findings.
Labor Law; Employment; Job Contracting; Requisites; Job contracting is
permissible only if the following conditions are met.—Job contracting is
permissible only if the following conditions are met: 1) 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 as to the results thereof; and 2) the
contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the
conduct of the business.
Same; Same; Labor-Only Contracting; Elements; The following elements must
be present.—“Labor-only contracting” as defined in Section 5, Department Order
No. 18-02, Rules Implementing Articles 106-109 of the Labor Code refers to an
arrangement where the contractor or subcontractor merely recruits, supplies or
places workers to perform job, work or service for a principal, and any of the
following elements is present: (i) The contractor or subcontractor does not have
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 over the performance of the work of the contractual employee.
Same; Same; Employer-Employee Relationship; Four-Fold Test; The elements
to determine the existence of an employment relationship are as follows.—The
elements to determine the existence of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the
power of dismissal; and (d) the employer’s power to control the employee’s
conduct. The most important element is the employer’s control of the employee’s
conduct, not only as to the result of the work to be done, but also as to the means
and methods to accomplish it.
DECISION
YNARES-SANTIAGO, J.:
This petition assails the decision1 of the Court of Appeals dated November 29,
2002, in CA-G.R. SP No. 67134, which reversed the decision of the National Labor
Relations Commission and reinstated the decision of the Labor Arbiter with
modification.
Petitioner Manila Water Company, Inc. is one of the two private concessionaires
contracted by the Metropolitan Waterworks and Sewerage System (MWSS) to
manage the water distribution system in the East Zone of Metro Manila, pursuant
to Republic Act No. 8041, otherwise known as the National Water Crisis Act of
1995. Under the Concession Agreement, petitioner undertook to absorb former
employees of the MWSS whose names and positions were in the list furnished by
the latter, while the employment of those not in the list was terminated on the
day petitioner took over the operation of the East Zone, which was on August 1,
1997. Private respondents, being contractual collectors of the MWSS, were among
the 121 employees not included in the list; nevertheless, petitioner engaged their
services without written contract from August 1, 1997 to August 31, 1997.
Thereafter, on September 1, 1997, they signed a three-month contract to perform
collection services for eight branches of petitioner in the East Zone. 2
Before the end of the three-month contract, the 121 collectors incorporated the
Association Collectors Group, Inc. (ACGI),3 which was contracted by petitioner to
collect charges for the Balara Branch. Subsequently, most of the 121 collectors
were asked by the petitioner to transfer to the First Classic Courier Services, a
newly registered corporation. Only private respondents herein remained with
 Page 2 of 69

ACGI. Petitioner continued to transact with ACGI to do its collection needs until Respondent [petitioner herein] is further directed to pay ten (10%)
February 8, 1999, when petitioner terminated its contract with ACGI. 4 percent of the total award as attorney’s fee or the sum of P22,250.00.

Private respondents filed a complaint for illegal dismissal and money claims SO ORDERED.5
against petitioner, contending that they were petitioner’s employees as all the
methods and procedures of their collections were controlled by the latter. Both parties appealed to the NLRC, which reversed the decision of the Labor
Arbiter and ruled that the documentary evidence, e.g., letters and memoranda by
On the other hand, petitioner asserts that private respondents were employees of the petitioner to ACGI regarding the poor performance of the collectors, did not
ACGI, an independent contractor. It maintained that it had no control and constitute proof of control since these documents merely identified the erring
supervision over private respondents’ manner of performing their work except as collectors; the appropriate disciplinary actions were left to the corporation to
to the results. Thus, petitioner did not have an employer-employee relationship impose.6 Further, there was no evidence showing that the incorporation of ACGI
with the private respondents, but only a service contractor-client relationship was irregular.
with ACGI.
Private respondents filed a petition for certiorari with the Court of Appeals,
On May 31, 2000, Labor Arbiter Eduardo J. Carpio rendered a decision finding the contending that the NLRC acted with grave abuse of discretion amounting to lack
dismissal of private respondents illegal. He held that private respondents were or excess of jurisdiction when it reversed the decision of the Labor Arbiter.
regular employees of petitioner not only because the tasks performed by them
were controlled by it but, also, the tasks were obviously necessary and desirable The Court of Appeals reversed the decision of the NLRC and reinstated with
to petitioner’s principal business. The dispositive portion of the decision reads: modification the decision of the Labor Arbiter.7 It held that petitioner deliberately
prevented the creation of an employment relationship with the private
WHEREFORE, premises considered, judgment is hereby rendered, respondents; and that ACGI was not an independent contractor. It likewise denied
finding that complainants were employees of respondent [petitioner petitioner’s motion for reconsideration.8
herein], that they were illegally dismissed, and respondent [petitioner
herein] is hereby ordered to pay their separation pay based on the Hence, this petition for review raising the following errors:
following computed amounts:
THE HONORABLE COURT OF APPEALS IN RENDERING THE ASSAILED
HERMINIO D. PENA P15,000.00 DECISION AND RESOLUTION COMMITTED GRAVE REVERSIBLE
ESTEBAN BALDOZA P12,000.00 ERRORS:
JORGE D. CANONIGO, JR. P16,000.00
IKE S. DELFIN P12,000.00 A. IN GOING BEYOND ITS JURISDICTION AND PROCEEDING TO GIVE DUE
RIZALINO M. INTAL P16,000.00 COURSE TO RESPONDENTS’ PETITION FOR CERTIORARI UNDER RULE
REY T. MANLEGRO P16,000.00 65 OF THE RULES OF COURT, NOTWITHSTANDING THE ABSENCE OF
JOHN L. MARTEJA P12,000.00 ANY PROOF OF GRAVE ABUSE OF DISCRETION ON THE PART OF THE
MARLON B. MORADA P16,000.00 NATIONAL LABOR RELATIONS COMMISSION WHEN IT RENDERED THE
ALLAN D. ESPINA P14,000.00 DECISION ASSAILED BY HEREIN RESPONDENTS.
EDUARDO ONG P15,000.00
AGNESIO D. QUEBRAL P16,000.00 B. WHEN IT MANIFESTLY OVERLOOKED THE EVIDENCE PRESENTED BY
EDMUNDO B. VICTA P13,000.00 THE PETITIONER COMPANY AND RULING THAT THE PETITIONER’S
VICTOR P. ZAFARALLA P15,000.00 DEFENSE OF LACK OF EMPLOYER-EMPLOYEE RELATIONS IS WITHOUT
EDILBERTO C. PINGUL P19,500.00 MERIT.
FEDERICO M. RIVERA   P15,000.00
      TOTAL P222,500.00 C. IN CONCLUDING THAT PETITIONER COMPANY REQUIRED
RESPONDENTS TO INCORPORATE THE ASSOCIATED COLLECTORS

GROUP, INC. ["ACGI"] NOTWITHSTANDING ABSENCE OF ANY SPECIFIC
EVIDENCE IN SUPPORT OF THE SAME.
D. IN FINDING PETITIONER COMPANY GUILTY OF BAD FAITH
NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN
SUPPORT OF THE SAME, AND AWARDING MORAL AND EXEMPLARY
DAMAGES TO HEREIN RESPONDENTS.9
The pivotal issue to be resolved in this petition is whether or not there exists an
employer-employee relationship between petitioner and private respondents.
Corollary thereto is the issue of whether or not private respondents were illegally
dismissed by petitioner.
The issue of whether or not an employer-employee relationship exists in a given
case is essentially a question of fact.10 As a rule, the Supreme Court is not a trier of
facts, and this applies with greater force in labor cases. Hence, factual findings of
quasi-judicial bodies like the NLRC, particularly when they coincide with those of
the Labor Arbiter and if supported by substantial evidence, are accorded respect
and even finality by this Court.11 However, a disharmony between the factual
findings of the Labor Arbiter and the National Labor Relations Commission opens
the door to a review thereof by this Court. Factual findings of administrative
agencies are not infallible and will be set aside when they fail the test of
arbitrariness. Moreover, when the findings of the National Labor Relations
Commission contradict with those of the labor arbiter, this Court, in the exercise
of its equity jurisdiction, may look into the records of the case and reexamine the
questioned findings.12
The resolution of the foregoing issues initially boils down to a determination of
the true status of ACGI, i.e., whether it is an independent contractor or a labor-
only contractor.
Petitioner asserts that ACGI, a duly organized corporation primarily engaged in
collection services, is an independent contractor which entered into a service
contract for the collection of petitioner’s accounts starting November 30, 1997
until the early part of February 1999. Thus, it has no employment relationship
with private respondents, being employees of ACGI.
The existence of an employment relationship between petitioner and private
respondents cannot be negated by simply alleging that the latter are employees of
ACGI as an independent contractor, it being crucial that ACGI’s status, whether as
"labor-only contractor" or "independent contractor", be measured in terms of and
determined by the criteria set by statute.
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The case of De los Santos v. NLRC13 succinctly enunciates this statutory criteria –
Job contracting is permissible only if the following conditions are met: 1)
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 as to the results thereof; and 2) the
contractor has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are
necessary in the conduct of the business.
"Labor-only contracting" as defined in Section 5, Department Order No. 18-02,
Rules Implementing Articles 106-109 of the Labor Code14 refers to an arrangement
where the contractor or subcontractor merely recruits, supplies or places
workers to perform job, work or service for a principal, and any of the following
elements 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 over the
performance of the work of the contractual employee.
Given the above criteria, we agree with the Labor Arbiter that ACGI was not an
independent contractor.
First, ACGI does not have substantial capitalization or investment in the form of
tools, equipment, machineries, work premises, and other materials, to qualify as
an independent contractor. While it has an authorized capital stock of
P1,000,000.00, only P62,500.00 is actually paid-in, which cannot be considered
substantial capitalization. The 121 collectors subscribed to four shares each and
paid only the amount of P625.00 in order to comply with the incorporation
requirements.15 Further, private respondents reported daily to the branch office
of the petitioner because ACGI has no office or work premises. In fact, the
corporate address of ACGI was the residence of its president, Mr. Herminio D.
Peñ a.16 Moreover, in dealing with the consumers, private respondents used the
receipts and identification cards issued by petitioner. 17

Second, the work of the private respondents was directly related to the principal
business or operation of the petitioner. Being in the business of providing water
to the consumers in the East Zone, the collection of the charges therefor by
private respondents for the petitioner can only be categorized as clearly related
to, and in the pursuit of the latter’s business.
Lastly, ACGI did not carry on an independent business or undertake the
performance of its service contract according to its own manner and method, free
from the control and supervision of its principal, petitioner. Prior to private
respondents’ alleged employment with ACGI, they were already working for
petitioner, subject to its rules and regulations in regard to the manner and
method of performing their tasks. This form of control and supervision never
changed although they were already under the seeming employ of ACGI.
Petitioner issued memoranda regarding the billing methods and distribution of
books to the collectors;18 it required private respondents to report daily and to
remit their collections on the same day to the branch office or to deposit them
with Bank of the Philippine Islands; it monitored strictly their attendance as
when a collector cannot perform his daily collection, he must notify petitioner or
the branch office in the morning of the day that he will be absent; and although it
was ACGI which ultimately disciplined private respondents, the penalty to be
imposed was dictated by petitioner as shown in the letters it sent to ACGI
specifying the penalties to be meted on the erring private respondents. 19 These
are indications that ACGI was not left alone in the supervision and control of its
alleged employees. Consequently, it can be concluded that ACGI was not an
independent contractor since it did not carry a distinct business free from the
control and supervision of petitioner.
Under this factual milieu, there is no doubt that ACGI was engaged in labor-only
contracting, and as such, is considered merely an agent of the petitioner. In labor-
only contracting, the statute creates an employer-employee relationship for a
comprehensive purpose: to prevent a circumvention of labor laws. The contractor
is considered merely an agent of the principal employer and the latter is
responsible to the employees of the labor-only contractor as if such employees
had been directly employed by the principal employer. 20 Since ACGI is only a
labor-only contractor, the workers it supplied should be considered as employees
of the petitioner.
Even the "four-fold test" will show that petitioner is the employer of private
respondents. The elements to determine the existence of an employment
relationship are: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the employer’s power to
control the employee’s conduct. The most important element is the employer’s
control of the employee’s conduct, not only as to the result of the work to be done,
but also as to the means and methods to accomplish it.21
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We agree with the Labor Arbiter that in the three stages of private respondents’
services with the petitioner, i.e., (1) from August 1, 1997 to August 31, 1997; (2)
from September 1, 1997 to November 30, 1997; and (3) from December 1, 1997
to February 8, 1999, the latter exercised control and supervision over the
formers’ conduct.
Petitioner contends that the employment of private respondents from August 1,
1997 to August 30, 1997 was only temporary and done to accommodate their
request to be absorbed since petitioner was still undergoing a transition period. It
was only when its business became settled that petitioner employed private
respondents for a fixed term of three months.
Although petitioner was not obliged to absorb the private respondents, by
engaging their services, paying their wages in the form of commission, subjecting
them to its rules and imposing punishment in case of breach thereof, and
controlling not only the end result but the manner of achieving the same as well,
an employment relationship existed between them.
Notably, private respondents performed activities which were necessary or
desirable to its principal trade or business. Thus, they were regular employees of
petitioner, regardless of whether the engagement was merely an accommodation
of their request, pursuant to Article 280 of the Labor Code which reads:
The provisions of written agreement to the contrary notwithstanding
and regardless of the oral agreement of the parties, an employment
shall be deemed to be regular where the employee has been engaged to
perform activities which are usually necessary or desirable in the usual
business or trade of the employer, except where the employment has
been fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the engagement
of the employee or where the work or services to be performed is
seasonal in nature and the employment is for the duration of the season.
As such regular employees, private respondents are entitled to security of tenure
which may not be circumvented by mere stipulation in a subsequent contract that
their employment is one with a fixed period. While this Court has upheld the
legality of fixed-term employment, where from the circumstances it is apparent
that the periods have been imposed to preclude acquisition of tenurial security by
the employee, they should be struck down or disregarded as contrary to public
policy and morals.22
In the case at bar, we find that the term fixed in the subsequent contract was used
to defeat the tenurial security which private respondents already enjoy. Thus, we

concur with the Labor Arbiter, as affirmed by the Court of Appeals, when it held
that:
The next question if whether, with respect to the period, the individual
contracts are valid. Not all contracts of employment fixing a period are
invalid. Under Article 280, the evil sought to be prevented is singled out:
agreements entered into precisely to circumvent security of tenure. It has
no application where a fixed period of employment was agreed upon
knowingly and voluntarily by the parties, without any force, duress or
improper pressure being brought upon the employee and absent any
circumstances vitiating his consent, or where it satisfactorily appears
that the employer and employee dealt with each other on more or less
terms with no moral dominance whatever being exercised by the former
over the latter. That is the doctrine in Brent School, Inc. v. Zamora, 181
SCRA 702. The individual contracts in question were prepared by MWC
in the form of the letter addressed to complainants. The letter-contract is
dated September 1, 1997, when complainants were already working for
MWC as collectors. With their employment as their means of survival,
there was no room then for complainants to disagree with the presented
letter-contracts. Their choice then was not to negotiate for the terms of
the contract but to lose or not to lose their employment – employment
which they already had at that time. The choice is obvious, as what they
did, to sign the ready made letter-contract to retain their employment,
and survive. It is a defiance of the teaching in Brent School, Inc. v. Zamora
if this Office rules that the individual contracts in question are valid, so, in
deference to Brent School ruling, this Office rules they are null and void. 23
In view of the foregoing, we hold that an employment relationship exists between
petitioner and private respondents. We now proceed to ascertain whether private
respondents were dismissed in accordance with law.
As private respondents’ employer, petitioner has the burden of proving that the
dismissal was for a cause allowed under the law and that they were afforded
procedural due process.24 Petitioner failed to discharge this burden by substantial
evidence as it maintained the defense that it was not the employer of private
respondents. Having established that the schemes employed by petitioner were
devious attempts to defeat the tenurial rights of private respondents and that it
Republic of the Philippines
SUPREME COURT
SECOND DIVISION
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failed to comply with the requirements of termination under the Labor Code, the
dismissal of the private respondent is tainted with illegality.
Under Article 279 of the Labor Code, an employee who is unjustly dismissed from
work is entitled to reinstatement without loss of seniority rights and other
privileges, and to his full backwages, inclusive of allowances, and to his other
benefits or their monetary equivalent computed from the time his compensation
was withheld from him up to the time of his actual reinstatement. However, if
reinstatement is no longer possible, the employer has the alternative of paying
the employee his separation pay in lieu of reinstatement. 25
This Court however cannot sustain the award of moral and exemplary damages in
favor of private respondents. Such an award cannot be justified solely upon the
premise that the employer dismissed his employee without just cause or due
process. Additional facts must be pleaded and proved to warrant the grant of
moral damages under the Civil Code. The act of dismissal must be attended with
bad faith, or fraud, or was oppressive to labor or done in a manner contrary to
morals, good customs or public policy and, of course, that social humiliation,
wounded feelings, or grave anxiety resulted therefrom. Similarly, exemplary
damages are recoverable only when the dismissal was effected in a wanton,
oppressive or malevolent manner.26 Those circumstances have not been
adequately established.
However, private respondents are entitled to attorney’s fees as they were
compelled to litigate with petitioners and incur expenses to enforce and protect
their interests.27 The award by the Labor Arbiter of P22,250.00 as attorney’s fees
to private respondents, being reasonable, is sustained.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated
November 29, 2002, in CA-G.R. SP No. 67134, reversing the decision of the
National Labor Relations Commission and reinstating the decision of the Labor
Arbiter is AFFIRMED with the MODIFICATION that the awards of P10,000.00 as
moral damages and P5,000.00 as exemplary damages are DELETED for lack of
evidentiary basis.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur.
G.R. No. 145271 July 14, 2005
MANILA ELECTRIC COMPANY, Petitioner,
vs.

ROGELIO BENAMIRA, ERNIE DE SAGUN1, DIOSDADO YOGARE, FRANCISCO
MORO2, OSCAR LAGONOY3, Rolando Beni, Alex Beni, Raul4 Guia, Armed
Security & Detective Agency, Inc., (ASDAI) and Advance FORCES Security &
INVESTIGATION Services, Inc., (AFSISI), Respondents.
Labor Law; Appeals; It is a settled rule that in the exercise of the Supreme
Court’s power of review, the Court is not a trier of facts and does not normally
undertake the re-examination of the evidence presented by the contending parties
during the trial of the case considering that the findings of facts of the Court of
Appeals are conclusive and binding on the Court; Exceptions.—It is a settled rule
that in the exercise of the Supreme Court’s power of review, the Court is not a
trier of facts and does not normally undertake the reexamination of the evidence
presented by the contending parties during the trial of the case considering that
the findings of facts of the CA are conclusive and binding on the Court. However,
jurisprudence has recognized several exceptions in which factual issues may be
resolved by this Court, to wit: (1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when the findings
of facts are conflicting; (6) when in making its findings the Court of Appeals went
beyond the issues of the case, or its findings are contrary to the admissions of
both the appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as
well as in the petitioner’s main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence
of evidence and contradicted by the evidence on record; and (11) when the Court
of Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion.
Same; Same; The existence of an employer-employee relationship is a
question of fact which is well within the province of the Court of Appeals.—In the
present case, the existence of an employer-employee relationship is a question of
fact which is well within the province of the CA. Nonetheless, given the reality
that the CA’s findings are at odds to those of the NLRC, the Court is constrained to
look deeper into the attendant circumstances obtaining in the present case, as
appearing on record.
Same; Same; Pleadings and Practice; As the object of the pleadings is to draw
the lines of battle, so to speak, between the litigants and to indicate fairly the nature
of the claims or defenses of both parties, a party cannot subsequently take a
position contrary to, or inconsistent with his pleadings.—We note that the
individual respondents never alleged in their complaint in the Labor Arbiter, in
their appeal in the NLRC and even in their petition for certiorari in the CA that
MERALCO was their employer. They have always advanced the theory that AFSISI
is their employer. A perusal of the records shows it was only in their
Page 6 of 69
Memorandum in the CA that this thesis was presented and discussed for the first
time. We cannot ignore the fact that this position of individual respondents runs
contrary to their earlier submission in their pleadings filed in the Labor Arbiter,
NLRC and even in the petition for certiorari in the CA that AFSISI is their
employer and liable for their termination. As the object of the pleadings is to draw
the lines of battle, so to speak, between the litigants and to indicate fairly the
nature of the claims or defenses of both parties, a party cannot subsequently take
a position contrary to, or inconsistent, with his pleadings. Moreover, it is a
fundamental rule of procedure that higher courts are precluded from entertaining
matters neither alleged in the pleadings nor raised during the proceedings below,
but ventilated for the first time only in a motion for reconsideration or on appeal.
The individual respondents are bound by their submissions that AFSISI is their
employer and they should not be permitted to change their theory. Such a change
of theory cannot be tolerated on appeal, not due to the strict application of
procedural rules but as a matter of fairness. A change of theory on appeal is
objectionable because it is contrary to the rules of fair play, justice and due
process.
Same; Security Guards; Employer-Employee Relationship; It is a standard
stipulation in security service agreements that the client may request the
replacement of the guards assigned to it.—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.
Same; Same; Same; 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—rules which serve as general
guidelines towards the achievement of the mutually desired result are not indicative
of the power of control.—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.
Not all rules imposed by the hiring party on the hired party indicate that the latter
is an employee of the former. Rules which serve as general guidelines towards the
achievement of the mutually desired result are not indicative of the power of
control.

Same; Same; Same; Words and Phrases; “Labor-Only Contracting” and “Job
Contracting,” Distinguished.—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. 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.
Same; Same; Same; Although security services are necessary and desirable to
the business of a power firm, it is not directly related to its principal business and
may even be considered unnecessary in the conduct of such company’s principal
business, which is the distribution of electricity.—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.
Same; Same; Same; Indirect Employers; When a company contracted for
security services with a security agency, as it was the latter who hired the security
guards, said company became an indirect employer of the security guards pursuant
to Article 107 of the Labor Code.—The fact that there is no actual and direct
employer-employee relationship between MERALCO and the individual
respondents does not exonerate MERALCO from liability as to the monetary
claims of the individual respondents. When MERALCO contracted for security
services with ASDAI as the security agency that hired individual respondents to
work as guards for it, MERALCO became an indirect employer of individual
respondents pursuant to Article 107 of the Labor Code, which reads: ART.
107. Indirect employer.—The provisions of the immediately preceding Article
shall likewise apply to any person, partnership, association or corporation which,
not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project. When ASDAI as contractor failed to
pay the individual respondents, MERALCO as principal becomes jointly and
severally liable for the individual respondents’ wages, under Articles 106 and 109
of the Labor Code.
Same; Same; Same; Same; The solidary liability of the principal with the
security agency does not preclude the application of Article 1217 of the Civil Code
Page 7 of 69
on the right of reimbursement from its co-debtor by the one who paid.—ASDAI is
held liable by virtue of its status as direct employer, while MERALCO is deemed
the indirect employer of the individual respondents for the purpose of paying
their wages in the event of failure of ASDAI to pay them. This statutory scheme
gives the workers the ample protection consonant with labor and social justice
provisions of the 1987 Constitution. However, as held in Mariveles Shipyard Corp.
vs. Court of Appeals, the solidary liability of MERALCO with that of ASDAI does not
preclude the application of Article 1217 of the Civil Code on the right of
reimbursement from his co-debtor by the one who paid.
Same; Same; Same; Same; A security agency may not seek exculpation by
claiming that the client’s payments to it were inadequate for the individual security
guards’ lawful compensation.—ASDAI may not seek exculpation by claiming that
MERALCO’s payments to it were inadequate for the individual respondents’
lawful compensation. As an employer, ASDAI is charged with knowledge of labor
laws and the adequacy of the compensation that it demands for contractual
services is its principal concern and not any other’s.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the Decision,5 dated September 27, 2000, of the Court of Appeals (CA) in
CA-G.R. SP No. 50520 which declared petitioner Manila Electric Company
(MERALCO) as the direct employer of individual respondents Rogelio Benamira,
Ernie De Sagun, Diosdado Yogare, Francisco Moro, Oscar Lagonoy, Rolando Beni,
Alex Beni and Raul De Guia (individual respondents for brevity).
The factual background of the case is as follows:
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, docketed as NLRC-NCR Case No. 05-02746-90.
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. The pertinent terms and conditions of the
agreement are as follows:
1. The AGENCY shall initially provide the COMPANY with TWO HUNDRED
TWENTY (220) licensed, uniformed, bonded and armed security guards to be
assigned at the COMPANY’s "MERALCO CENTER," complete with nightsticks,
flashlights, raincoats, and other paraphernalias to work on eight (8) hours duty.
The COMPANY shall determine the number of security guards in accordance with
its needs and the areas of responsibility assigned to each, and shall have the
option to increase or decrease the number of guards at any time provided the
AGENCY is notified within twenty four (24) hours of the contemplated reduction
or increase of the guards in which case the cost or consideration shall be adjusted
accordingly.
2. The COMPANY shall furnish the AGENCY copies of written specific instruction
to be followed or implemented by the latter’s personnel in the discharge of their
duties and responsibilities and the AGENCY shall be responsible for the faithful
compliance therewith by its personnel together with such general and specific
orders which shall be issued from time to time.
3. For and in consideration of the services to be rendered by the AGENCY to the
COMPANY, the COMPANY during the term of this contract shall pay the AGENCY
the amount of THREE THOUSAND EIGHT HUNDRED PESOS (₱3,800.00) a month
per guard, FOUR THOUSAND PESOS (₱4,000.00) for the Shift Leader and FOUR
THOUSAND TWO HUNDRED PESOS (₱4,200.00) for the Detachment Commander
for eight (8) hours work/day, Saturdays, Sundays and Holidays included, payable
semi-monthly.
xxx
5. The AGENCY shall assume the responsibility for the proper and efficient
performance of duties by the security guards employed by it and it shall be solely
responsible for any act of said security guards during their watch hours, the
COMPANY being specifically released from any and all liability to third parties
arising from the acts or omission of the security guards of the AGENCY.
6. The AGENCY also agrees to hold the COMPANY entirely free from any liability,
cause or causes of action or claims which may be filed by said security guards by
reason of their employment with the AGENCY pursuant to this Agreement or
under the provisions of the Labor Code, the Social Security Act, and other laws,
decrees or social legislations now enacted or which hereafter may be enacted.
Page 8 of 69
7. Discipline and Administration of the security guards shall conform with the
rules and regulations of the AGENCY, and the COMPANY reserves the right to
require without explanation the replacement of any guard whose behavior,
conduct or appearance is not satisfactory to the COMPANY and that the AGENCY
cannot pull-out any security guard from the COMPANY without the consent of the
latter.
8. The AGENCY shall conduct inspections through its duly authorized inspector at
least two (2) times a week of guards assigned to all COMPANY installations
secured by the AGENCY located in the Metropolitan Manila area and at least once
a week of the COMPANY’s installations located outside of the Metropolitan Manila
area and to further submit its inspection reports to the COMPANY. Likewise, the
COMPANY shall have the right at all times to inspect the guards of the AGENCY
assigned to the COMPANY.
9. The said security guards shall be hired by the AGENCY and this contract shall
not be deemed in any way to constitute a contract of employment between the
COMPANY and any of the security guards hired by the AGENCY but merely as a
contract specifying the conditions and manner under which the AGENCY shall
render services to the COMPANY.
10. Nothing 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, so that the AGENCY shall be responsible for compliance with all
pertinent labor laws and regulations included but not limited to the Labor Code,
Social Security Act, and all other applicable laws and regulations including that
providing for a withholding tax on income.
xxx
13. This contract shall take effect on the 1st day of December, 1990 and shall
continue from year to year unless sooner terminated by the COMPANY for cause
or otherwise terminated by either party without cause upon thirty (30) days
written notice by one party to the other.6
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 NLRC-
NCR Case No. 05-02746-90 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, docketed as NLRC-NCR Case No. 00-07-03953-92.
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.
On July 29, 1992, the individual respondents amended their complaint to implead
AFSISI as party respondent. On August 11, 1992 they again amended their
complaint to allege that AFSISI terminated their services on August 6, 1992
without notice and just cause and therefore guilty of illegal dismissal.
The individual respondents alleged that: MERALCO and ASDAI never paid their
overtime pay, service incentive leave pay, premium pay for Sundays and Holidays,
₱50.00 monthly uniform allowance and underpaid their 13th month pay; on July
24, 1992, when the security service agreement of ASDAI was terminated and
AFSISI took over the security functions of the former on July 25, 1992, respondent
security guard Benamira was no longer given any work assignment when AFSISI
learned that the former has a pending case against PSI, in effect, dismissing him
from the service without just cause; and, the rest of the individual respondents
were absorbed by AFSISI but were not given any assignments, thereby dismissing
them from the service without just cause.
ASDAI denied in general terms any liability for the claims of the individual
respondents, claiming that there is nothing due them in connection with their
services.
On the other hand, MERALCO denied liability on the ground of lack of employer-
employee relationship with individual respondents. It averred that the individual
respondents are the employees of the security agencies it contracted for security
services; and that it has no existing liability for the individual respondents’ claims
since said security agencies have been fully paid for their services per their
respective security service agreement.
Page 9 of 69
For its part, AFSISI asserted that: it is not liable for illegal dismissal since it did
not absorb or hire the individual respondents, the latter were merely hold-over
guards from ASDAI; it is not obliged to employ or absorb the security guards of
the agency it replaced since there is no provision in its security service agreement
with MERALCO or in law requiring it to absorb and hire the guards of ASDAI as it
has its own guards duly trained to service its various clients.
On January 3, 1994, after the submission of their respective evidence and position
papers, Labor Arbiter Pablo C. Espiritu, Jr. rendered a Decision holding ASDAI and
MERALCO jointly and solidarily liable to the monetary claims of individual
respondents and dismissing the complaint against AFSISI. The dispositive portion
of the decision reads as follows:
WHEREFORE, conformably with the above premises, judgment is hereby
rendered:
1. Declaring ASDAI as the employer of the complainants and as such complainants
should be reinstated as regular security guards of ASDAI without loss of seniority
rights, privileges and benefits and for ASDAI to immediately post the
complainants as security guards with their clients. The complaint against AFSISI
is Dismissed for lack of merit.
2. Ordering both respondents, ASDAI and MERALCO to jointly and solidarily pay
complainants monetary claims (underpayment of actual regular hours and
overtime hours rendered, and premium pay for holiday and rest day) in the
following amounts:
NAME OVERTIME DIFFERENTIALS AND PREMIUM PAY FOR HOLIDAY & REST
DAY
1. Rogelio Benamira P14,615.75
2. Ernie De Sagun 21,164.31
3. Diosdado Yogare 7,108.77
4. Francisco Maro 26,567.11
5. Oscar Lagonay 18,863.36
6. Rolando Beni 21,834.12
7. Alex Beni 21,648.80
8. Ruel De Guia 14,200.33
3. Ordering Respondents ASDAI and MERALCO to jointly and solidarily pay
complainants 10% attorney’s fees in the amount of ₱14,600.25 based on the total
monetary award due to the complainants in the amount of ₱146,002.55.

All other claims of the complainants are hereby DISMISSED for lack of merit.
The counter-claim of respondent AFSISI for damages is hereby dismissed for
want of substantial evidence to justify the grant of damages.
SO ORDERED.11
All the parties, except AFSISI, appealed to the National Labor Relations
Commission (NLRC).
Individual respondents’ partial appeal assailed solely the Labor Arbiter’s
declaration that ASDAI is their employer. They insisted that AFSISI is the party
liable for their illegal dismissal and should be the party directed to reinstate
them.
For its part, MERALCO attributed grave abuse of discretion on the part of the
Labor Arbiter in failing to consider the absence of employer-employee
relationship between MERALCO and individual respondents.
On the other hand, ASDAI took exception from the Labor Arbiter’s finding that it
is the employer of the individual respondents and therefore liable for the latter’s
unpaid monetary benefits.
On April 10, 1995, the NLRC affirmed in toto the decision of the Labor
Arbiter.12 On April 19, 1995, the individual respondents filed a motion for partial
reconsideration but it was denied by the NLRC in a Resolution dated May 23,
1995.13
On August 11, 1995, the individual respondents filed a petition
for certiorari before us, docketed as G.R. No. 121232.14 They insisted that they
were absorbed by AFSISI and the latter effected their termination without notice
and just cause.
After the submission of the responsive pleadings and memoranda, we referred
the petition, in accordance with St. Martin Funeral Homes vs. NLRC,15 to the CA
which, on September 27, 2000, modified the decision of the NLRC by declaring
MERALCO as the direct employer of the individual respondents.
The CA held that: MERALCO changed the security agency manning its premises
three times while engaging the services of the same people, the individual
respondents; MERALCO employed a scheme of hiring guards through an agency
and periodically entering into service contract with one agency after another in
Page 10 of 69
order to evade the security of tenure of individual respondents; individual
respondents are regular employees of MERALCO since their services as security
guards are usually necessary or desirable in the usual business or trade of
MERALCO and they have been in the service of MERALCO for no less than six
years; an employer-employee relationship exists between MERALCO and the
individual respondents because: (a) MERALCO had the final say in the selection
and hiring of the guards, as when its advice was proved to have carried weight in
AFSISI’s decision not to absorb the individual respondents into its workforce; (b)
MERALCO paid the wages of individual respondents through ASDAI and AFSISI;
(c) MERALCO’s discretion on matters of dismissal of guards was given great
weight and even finality since the record shows that the individual respondents
were replaced upon the advice of MERALCO; and, (d) MERALCO has the right, at
any time, to inspect the guards, to require without explanation the replacement of
any guard whose behavior, conduct or appearance is not satisfactory and ASDAI
and AFSISI cannot pull out any security guard from MERALCO without the latter’s
consent; and, a labor-only contract existed between ASDAI and AFSISI and
MERALCO, such that MERALCO is guilty of illegal dismissal without just cause and
liable for reinstatement of individual respondents to its workforce.
The dispositive portion of the CA’s Decision reads as follows:
WHEREFORE, in view of the foregoing premises, the Resolution subject of this
petition is hereby AFFIRMED with MODIFICATION in the sense that MERALCO is
declared the employer of the petitioners. Accordingly, private respondent
MERALCO is hereby ordered as follows:
1. To reinstate petitioners into MERALCO’s work force as regular security guards
without loss of seniority rights and other privileges; and
2. To pay the petitioners’ full backwages, inclusive of allowances, and other
benefits or their monetary equivalent computed from the time their
compensation was withheld from them up to the time of their actual
reinstatement, for which the Labor Arbiter Pablo C. Espiritu, Jr. is hereby directed
to undertake the necessary computation and enforcement thereof.
With respect to the rest of the dispositive portion of the assailed Resolution
which affirmed the decision of the Labor Arbiter Pablo C. Espiritu, Jr., particularly
the joint and solidary liabilities of both ASDAI and MERALCO to the petitioners,
the same are hereby AFFIRMED.
SO ORDERED.16

Hence, the present petition for review on certiorari, filed by MERALCO, anchored
on the following grounds:
A. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR AND
GRAVE ABUSE OF DISCRETION IN HOLDING THAT AN EMPLOYER-EMPLOYEE
RELATIONSHIP EXISTS BETWEEN PETITIONER MERALCO AND INDIVIDUAL
RESPONDENTS.
B. THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN HOLDING
THAT INDIVIDUAL RESPONDENTS ARE REGULAR EMPLOYEES OF PETITIONER
MERALCO.
C. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN
ALLOWING INDIVIDUAL RESPONDENTS TO RAISE FOR THE FIRST TIME ON
APPEAL, THE ISSUE THAT PETITIONER WAS THEIR DIRECT EMPLOYER.
D. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN FINDING THAT
PETITIONER MERALCO IS GUILTY OF ILLEGAL DISMISSAL.
E. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT INDIVIDUAL
RESPONDENTS ARE ENTITLED TO REINSTATEMENT INTO PETITIONER’S
WORKFORCE.
F. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING THAT
PETITIONER MERALCO IS ENTITLED TO REIMBURSEMENT FROM RESPONDENT
ASDAI FOR THE MONETARY CLAIMS PETITIONER PAID TO INDIVIDUAL
RESPONDENTS PURSUANT TO THE SECURITY SERVICE AGREEMENT.17
Anent the first ground, MERALCO submits that the elements of "four-fold" test to
determine the existence of an employer-employee relation, namely: (1) the power
to hire, (2) the payment of wages, (3) the power to dismiss, and (4) the power to
control, are not present in the instant case.
Regarding the power to hire, MERALCO contends that the records are bereft of
any evidence that shows that it participated in or influenced the decision of PSI
and ASDAI to hire or absorb the individual respondents.
As to the payment of wages, MERALCO maintains that the individual respondents
received their wages from their agency.
Page 11 of 69
With regard to the power to dismiss, MERALCO argues that the security service
agreement clearly provided that the discipline and administration of the security
guards shall conform to the rules and regulations of the agency.
Concerning the power of control, MERALCO asserts that there is no evidence that
individual respondents were subjected to its control as to the manner or method
by which they conduct or perform their work of guarding of MERALCO’s
premises.
Furthermore, MERALCO insists that ASDAI and AFSISI are not labor-only
contractors since they have their own equipment, machineries and work
premises which are necessary in the conduct of their business and the duties
performed by the security guards are not necessary in the conduct of MERALCO’s
principal business.
With respect to the second ground, MERALCO argues that the individual
respondents cannot be considered as regular employees as the duties performed
by them as security guards are not necessary in the conduct of MERALCO’s
principal business which is the distribution of electricity.
As regards the third ground, MERALCO argues that it was denied due process
when the individual respondents raised for the first time in the CA the issue that
MERALCO is their direct employer since the individual respondents have always
considered themselves as employees of AFSISI and nowhere in the Labor Arbiter
or the NLRC did they raise the argument that MERALCO is their direct employer.
Regarding the fourth ground, MERALCO asserts that it is not guilty of illegal
dismissal because it had no direct hand or participation in the termination of the
employment of individual respondents, who even insisted in their petition
for certiorari in the CA that it was AFSISI which terminated their employment.
As to the fifth ground, MERALCO maintains that the individual respondents are
not entitled to reinstatement into its workforce because no employer-employee
relationship exists between it and the individual respondents.
With regard to the sixth ground, MERALCO asserts that since it is not the direct
employer of the individual respondents, it has a right of reimbursement from
ASDAI for the full amount it may pay to the individual respondents under Articles
106 and 107 of the Labor Code.
In contrast, the individual respondents maintain that the CA aptly found that all
the elements in employer-employee relationship exist between them and
MERALCO and there is no cogent reason to deviate from such factual findings.

For its part, ASDAI contends that the instant petition raises factual matters
beyond the jurisdiction of this Court to resolve since only questions of law may be
raised in a petition for review on certiorari. It submits that while the rule admits
of exceptions, MERALCO failed to establish that the present case falls under any of
the exceptions.
On the other hand, AFSISI avers that there is no employer-employee relationship
between MERALCO and the security guards of any of the security agencies under
contract with MERALCO.
It is a settled rule that in the exercise of the Supreme Court’s power of review, the
Court is not a trier of facts and does not normally undertake the re-examination
of the evidence presented by the contending parties during the trial of the case
considering that the findings of facts of the CA are conclusive and binding on the
Court. However, jurisprudence has recognized several exceptions in which factual
issues may be resolved by this Court, to wit:
(1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the Court of Appeals went beyond the
issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to the trial court;
(8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the respondent; (10) when
the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion.18
In the present case, the existence of an employer-employee relationship is a
question of fact which is well within the province of the CA. Nonetheless, given
the reality that the CA’s findings are at odds to those of the NLRC, the Court is
constrained to look deeper into the attendant circumstances obtaining in the
present case, as appearing on record.
At the outset, we note that the individual respondents never alleged in their
complaint in the Labor Arbiter, in their appeal in the NLRC and even in their
petition for certiorari in the CA that MERALCO was their employer. They have
always advanced the theory that AFSISI is their employer. A perusal of the
records shows it was only in their Memorandum in the CA that this thesis was
Page 12 of 69
presented and discussed for the first time. We cannot ignore the fact that this
position of individual respondents runs contrary to their earlier submission in
their pleadings filed in the Labor Arbiter, NLRC and even in the petition
for certiorari in the CA that AFSISI is their employer and liable for their
termination. As the object of the pleadings is to draw the lines of battle, so to
speak, between the litigants and to indicate fairly the nature of the claims or
defenses of both parties, a party cannot subsequently take a position contrary to,
or inconsistent, with his pleadings.19
Moreover, it is a fundamental rule of procedure that higher courts are precluded
from entertaining matters neither alleged in the pleadings nor raised during the
proceedings below, but ventilated for the first time only in a motion for
reconsideration or on appeal.20 The individual respondents are bound by their
submissions that AFSISI is their employer and they should not be permitted to
change their theory. Such a change of theory cannot be tolerated on appeal, not
due to the strict application of procedural rules but as a matter of fairness. A
change of theory on appeal is objectionable because it is contrary to the rules of
fair play, justice and due process.21
Thus, the CA should not have considered the new theory offered by the individual
respondents in their memorandum.
The present petition for review on certiorari is far from novel and, in fact, not
without precedence. We have ruled in Social Security System vs. Court of
Appeals22 that:
...The guards or watchmen render their services to private respondent by
allowing themselves to be assigned by said respondent, which furnishes them
arms and ammunition, to guard and protect the properties and interests of
private respondent's clients, thus enabling that respondent to fulfill its
contractual obligations. Who the clients will be, and under what terms and
conditions the services will be rendered, are matters determined not by the
guards or watchmen, but by private respondent. On the other hand, the client
companies have no hand in selecting who among the guards or watchmen shall be
assigned to them. It is private respondent that issues assignment orders and
instructions and exercises control and supervision over the guards or watchmen,
so much so that if, for one reason or another, the client is dissatisfied with the
services of a particular guard, the client cannot himself terminate the services of
such guard, but has to notify private respondent, which either substitutes him
with another or metes out to him disciplinary measures. That in the course of a
watchman's assignment the client conceivably issues instructions to him, does
not in the least detract from the fact that private respondent is the employer of
said watchman, for in legal contemplation such instructions carry no more weight
than mere requests, the privity of contract being between the client and private

respondent, not between the client and the guard or watchman. Corollarily, such
giving out of instructions inevitably spring from the client's right predicated on
the contract for services entered into by it with private respondent.
In the matter of compensation, there can be no question at all that the guards or
watchmen receive compensation from private respondent and not from the
companies or establishments whose premises they are guarding. The fee
contracted for to be paid by the client is admittedly not equal to the salary of a
guard or watchman; such fee is arrived at independently of the salary to which
the guard or watchman is entitled under his arrangements with private
respondent.23
and reiterated in American President Lines vs. Clave,24 thus:
In the light of the foregoing standards, We fail to see how the complaining
watchmen of the Marine Security Agency can be considered as employees of the
petitioner. It is the agency that recruits, hires, and assigns the work of its
watchmen. Hence, a watchman can not perform any security service for the
petitioner's vessels unless the agency first accepts him as its watchman. With
respect to his wages, the amount to be paid to a security guard is beyond the
power of the petitioner to determine. Certainly, the lump sum amount paid by the
petitioner to the agency in consideration of the latter's service is much more than
the wages of any one watchman. In point of fact, it is the agency that quantifies
and pays the wages to which a watchman is entitled.
Neither does the petitioner have any power to dismiss the security guards. In fact,
We fail to see any evidence in the record that it wielded such a power. It is true
that it may request the agency to change a particular guard. But this, precisely, is
proof that the power lies in the hands of the agency.
Since the petitioner has to deal with the agency, and not the individual watchmen,
on matters pertaining to the contracted task, it stands to reason that the
petitioner does not exercise any power over the watchmen's conduct. Always, the
agency stands between the petitioner and the watchmen; and it is the agency that
is answerable to the petitioner for the conduct of its guards. 25
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
Page 13 of 69
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. 28
Verily, the security service agreements in the present case provided that all
specific instructions by MERALCO relating to the discharge by the security guards
of their duties shall be directed to the agency and not directly to the individual
respondents. The individual respondents failed to show that the rules of
MERALCO controlled their performance.

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.
Furthermore, the fact that the individual respondents filed their claim for unpaid
monetary benefits against ASDAI is a clear indication that the individual
respondents acknowledge that ASDAI is their employer.
We cannot give credence to individual respondents’ insistence that they were
absorbed by AFSISI when MERALCO’s security service agreement with ASDAI was
terminated. The individual respondents failed to present any evidence to confirm
that AFSISI absorbed them into its workforce. Thus, respondent Benamira was
not retained in his post at MERALCO since July 25, 1992 due to the termination of
the security service agreement of MERALCO with ASDAI. As for the rest of the
individual respondents, they retained their post only as "hold-over" guards until
the security guards of AFSISI took over their post on August 6, 1992. 30
In the present case, respondent Benamira has been "off-detail" for seventeen days
while the rest of the individual respondents have only been "off- detail" for five
days when they amended their complaint on August 11, 1992 to include the
charge of illegal dismissal. The inclusion of the charge of illegal dismissal then
was premature. Nonetheless, bearing in mind that ASDAI simply stopped giving
the individual respondents any assignment and their inactivity clearly persisted
beyond the six-month period allowed by Article 28631 of the Labor Code, the
individual respondents were, in effect, constructively dismissed by ASDAI from
employment, hence, they should be reinstated.
Page 14 of 69
The fact that there is no actual and direct employer-employee relationship
between MERALCO and the individual respondents does not exonerate MERALCO
from liability as to the monetary claims of the individual respondents. When
MERALCO contracted for security services with ASDAI as the security agency that
hired individual respondents to work as guards for it, MERALCO became an
indirect employer of individual respondents pursuant to Article 107 of the Labor
Code, which reads:
ART. 107. Indirect employer - The provisions of the immediately preceding Article
shall likewise apply to any person, partnership, association or corporation which,
not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project.
When ASDAI as contractor failed to pay the individual respondents, MERALCO as
principal becomes jointly and severally liable for the individual respondents’
wages, under Articles 106 and 109 of the Labor Code, which provide:
ART. 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. xxx
ART. 109. Solidary liability - The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held responsible
with his contractor or subcontractor for any violation of any provision of this
Code. For purpose of determining the extent of their civil liability under this
Chapter, they shall be considered as direct employers.
ASDAI is held liable by virtue of its status as direct employer, while MERALCO is
deemed the indirect employer of the individual respondents for the purpose of
paying their wages in the event of failure of ASDAI to pay them. This statutory
scheme gives the workers the ample protection
consonant with labor and social justice provisions of the 1987 Constitution. 32
However, as held in Mariveles Shipyard Corp. vs. Court of Appeals,33 the solidary
liability of MERALCO with that of ASDAI does not preclude the application of

Article 1217 of the Civil Code on the right of reimbursement from his co-debtor
by the one who paid,34 which provides:
ART. 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may choose
which offer to accept.
He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the
payment is made before the debt is due, no interest for the intervening period
may be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his
share to the debtor paying the obligation, such share shall be borne by all his co-
debtors, in proportion to the debt of each.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. 97008-09 July 23, 1993
VIRGINIA G. NERI and JOSE CABELIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK & TRUST
COMPANY (FEBTC) and BUILDING CARE CORPORATION, respondents.
R.L. Salcedo & Improso Law Office for petitioners.
Bengzon, Zarnaga, Narciso, Cudala, Pecson, Bengzon & Jimenez for Bldg. Care Corp.
Bautista, Picaso, Buyco, Tan & Fider for respondent FEBTC.
Labor Law; Building Care Corporation is a highly capitalized venture and
cannot be deemed engaged in “labor-only” contracting.—Respondent BCC need not
prove that it made investments in the form of tools, equipment, machineries,
work premises, among others, because it has established that it has sufficient
capitalization. The Labor Arbiter and the NLRC both determined that BCC had a
Page 15 of 69
ASDAI may not seek exculpation by claiming that MERALCO’s payments to it were
inadequate for the individual respondents’ lawful compensation. As an employer,
ASDAI is charged with knowledge of labor laws and the adequacy of the
compensation that it demands for contractual services is its principal concern and
not any other’s.35
WHEREFORE, the present petition is GRANTED. The assailed Decision, dated
September 27, 2000, of the CA is REVERSED and SET ASIDE. The Decision of the
Labor Arbiter dated January 3, 1994 and the Resolution of the NLRC dated April
10, 1995 are AFFIRMED with the MODIFICATION that the joint and solidary
liability of ASDAI and MERALCO to pay individual respondents’ monetary claims
for underpayment of actual regular hours and overtime hours rendered, and
premium pay for holiday and rest day, as well as attorney’s fees, shall be without
prejudice to MERALCO’s right of reimbursement from ASDAI.
SO ORDERED.
capital stock of P1 million fully subscribed and paid for. BCC is therefore a highly
capitalized venture and cannot be deemed engaged in “labor-only” contracting.
Same; Same; Factors to be considered in “labor-only” contracting.—It is well-
settled that there is “labor-only” contracting where: (a) the person supplying
workers to an employer does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others; and, (b) the
workers recruited and placed by such person are performing activities which are
directly related to the principal business of the employer.
Same; Same; Same; BCC cannot be considered a “labor-only” contractor
because it has substantial capital.—Based on the foregoing, BCC cannot be
considered a “labor-only” contractor because it has substantial capital. While
there may be no evidence that it has investment in the form of tools, equipment,
machineries, work premises, among others, it is enough that it has substantial
capital, as was established before the Labor Arbiter as well as the NLRC. In other
words, the law does not require both substantial capital and investment in the
form of tools, equipment, machineries, etc. This is clear from the use of the
conjunction “or”.
Same; Same; Same; While the services may be considered directly related to
the principal business of the employer, nevertheless, they are not necessary in the
conduct of the principal business of the employer.—Be that as it may, the Court has
already taken judicial notice of the general practice adopted in several
government and private institutions and industries of hiring independent
contractors to perform special services. These services range from janitorial,
security and even technical or other specific services such as those performed by
petitioners Neri and Cabelin. While these services may be considered directly
related to the principal business of the employer, nevertheless, they are not
necessary in the conduct of the principal business of the employer.

Same; Same; Same; The status of BCC as an independent contractor
previously confirmed by the Court in Associated Labor Unions-TUCP v. National
Labor Relations Commission.—In fact, the status of BCC as an independent
contractor was previously confirmed by this Court in Associated Labor Unions-
TUCP v. National Labor Relations Commission.
Same; Same; Same; Same; Under the “right of control” test, petitioners must
still be considered employees of BCC.—Even assuming ex argumenti that
petitioners were performing activities directly related to the principal business of
the bank, under the “right of control” test they must still be considered employees
of BCC.
BELLOSILLO, J.:
Respondents are sued by two employees of Building Care Corporation, which
provides janitorial and other specific services to various firms, to compel Far Bast
Bank and Trust Company to recognize them as its regular employees and be paid
the same wages which its employees receive.
Building Care Corporation (BCC, for brevity), in the proceedings below,
established that it had substantial capitalization of P1 Million or a stockholders
equity of P1.5 Million. Thus the Labor Arbiter ruled that BCC was only job
contracting and that consequently its employees were not employees of Far East
Bank and Trust Company (FEBTC, for brevity). on appeal, this factual finding was
affirmed by respondent National Labor Relations Commission (NLRC, for brevity).
Nevertheless, petitioners insist before us that BCC is engaged in "labor-only"
contracting hence, they conclude, they are employees of respondent FEBTC.
Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, and were
hired by, respondent BCC, a corporation engaged in providing technical,
maintenance, engineering, housekeeping, security and other specific services to
its clientele. They were assigned to work in the Cagayan de Oro City Branch of
respondent FEBTC on 1 May 1979 and 1 August 1980, respectively, Neri an
radio/telex operator and Cabelin as janitor, before being promoted to messenger
on 1 April 1989.
On 28 June 1989, petitioners instituted complaints against FEBTC and BCC before
Regional Arbitration Branch No. 10 of the Department of Labor and Employment
to compel the bank to accept them as regular employees and for it to pay the
differential between the wages being paid them by BCC and those received by
FEBTC employees with similar length of service.
Page 16 of 69
On 16 November 1989, the Labor Arbiter dismissed the complaint for lack of
merit.1 Respondent BCC was considered an independent contractor because it
proved it had substantial capital. Thus, petitioners were held to be regular
employees of BCC, not FEBTC. The dismissal was appealed to NLRC which on 28
September 1990 affirmed the decision on appeal.2 On 22 October 1990, NLRC
denied reconsideration of its affirmance,3 prompting petitioners to seek redress
from this Court.
Petitioners vehemently contend that BCC in engaged in "labor-only" contracting
because it failed to adduce evidence purporting to show that it invested in the
form of tools, equipment, machineries, work premises and other materials which
are necessary in the conduct of its business. Moreover, petitioners argue that they
perform duties which are directly related to the principal business or operation of
FEBTC. If the definition of "labor-only" contracting4 is to be read in conjunction
with job contracting,5 then the only logical conclusion is that BCC is a "labor only"
contractor. Consequently, they must be deemed employees of respondent bank by
operation of law since BCC is merely an agent of FEBTC following the doctrine
laid down in Philippine Bank of Communications v. National Labor Relations
Commission6 where we ruled that where "labor-only" contracting exists, the Labor
Code itself establishes an employer-employee relationship between the employer
and the employees of the "labor-only" contractor; hence, FEBTC should be
considered the employer of petitioners who are deemed its employees through its
agent, "labor-only" contractor BCC.
We cannot sustain the petition.
Respondent BCC need not prove that it made investments in the form of tools,
equipment, machineries, work premises, among others, because it has established
that it has sufficient capitalization. The Labor Arbiter and the NLRC both
determined that BCC had a capital stock of P1 million fully subscribed and paid
for.7 BCC is therefore a highly capitalized venture and cannot be deemed engaged
in "labor-only" contracting.
It is well-settled that there is "labor-only" contracting where: (a) the person
supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among
others; and, (b) the workers recruited and placed by such person are performing
activities which are directly related to the principal business of the employer. 8
Article 106 of the Labor Code defines "labor-only" contracting thus —
Art. 106. Contractor or subcontractor. — . . . . There is "labor-
only" contracting where the person supplying workers to an

employer does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among
others, and the workers recruited by such persons are
performing activities which are directly related to the principal
business of such employer . . . . (emphasis supplied).
Based on the foregoing, BCC cannot be considered a "labor-only" contractor
because it has substantial capital. While there may be no evidence that it has
investment in the form of tools, equipment, machineries, work premises, among
others, it is enough that it has substantial capital, as was established before the
Labor Arbiter as well as the NLRC. In other words, the law does not require both
substantial capital and investment in the form of tools, equipment, machineries,
etc. This is clear from the use of the conjunction "or". If the intention was to
require the contractor to prove that he has both capital and the requisite
investment, then the conjunction "and" should have been used. But, having
established that it has substantial capital, it was no longer necessary for BCC to
further adduce evidence to prove that it does not fall within the purview of
"labor-only" contracting. There is even no need for it to refute petitioners'
contention that the activities they perform are directly related to the principal
business of respondent bank.
Be that as it may, the Court has already taken judicial notice of the general
practice adopted in several government and private institutions and industries of
hiring independent contractors to perform special services. 9 These services range
from janitorial, 10 security 11 and even technical or other specific services such as
those performed by petitioners Neri and Cabelin. While these services may be
considered directly related to the principal business of the
employer, 12 nevertheless, they are not necessary in the conduct of the principal
business of the employer.
In fact, the status of BCC as an independent contractor was previously confirmed
by this Court in Associated Labor Unions-TUCP v. National Labor Relations
Commission, 13 where we held thus —
The public respondent ruled that the complainants are not
employees of the bank but of the company contracted to serve
the bank. Building Care Corporation is a big firm which services,
among others, a university, an international bank, a big local
bank, a hospital center, government agencies, etc. It is a qualified
independent contractor. The public respondent correctly ruled
against petitioner's contentions . . . . (Emphasis supplied).
Page 17 of 69
Even assuming ex argumenti that petitioners were performing activities directly
related to the principal business of the bank, under the "right of control" test they
must still be considered employees of BCC. In the case of petitioner Neri, it is
admitted that FEBTC issued a job description which detailed her functions as a
radio/telex operator. However, a cursory reading of the job description shows
that what was sought to be controlled by FEBTC was actually the end-result of the
task, e.g., that the daily incoming and outgoing telegraphic transfer of funds
received and relayed by her, respectively, tallies with that of the register. The
guidelines were laid down merely to ensure that the desired end-result was
achieved. It did not, however, tell Neri how the radio/telex machine should be
operated. In the Shipside case, 14 we ruled —
. . . . If in the course of private respondents' work (referring to
the workers), SHIPSIDE occasionally issued instructions to them,
that alone does not in the least detract from the fact that only
STEVEDORES is the employer of the private respondents, for in
legal contemplation, such instructions carry no more weight
than mere requests, the privity of contract being between
SHIPSIDE and STEVEDORES . . . .
Besides, petitioners do not deny that they were selected and hired by BCC before
being assigned to work in the Cagayan de Oro Branch of FFBTC. BCC likewise
acknowledges that petitioners are its employees. The record is replete with
evidence disclosing that BCC maintained supervision and control over petitioners
through its Housekeeping and Special Services Division: petitioners reported for
work wearing the prescribed uniform of BCC; leaves
of absence were filed directly with BCC; and, salaries were drawn only from
BCC. 15
As a matter of fact, Neri even secured a certification from BCC on 16 May 1986
that she was employed by the latter. On the other hand, on 24 May 1988, Cabelin
filed a complaint for underpayment of wages, non-integration of salary
adjustments mandated by Wage Orders Nos. 5 & 6 and R.A. 6640 as well as for
illegal deduction 16 against BCC alone which was provisionally dismissed on 19
August 1988 upon Cabelin's manifestation that his money claim was negligible. 17
More importantly, under the terms and conditions of the contract, it was BCC
alone which had the power to reassign petitioners. Their deployment to FEBTC
was not subject to the bank's acceptance. Cabelin was promoted to messenger
because the FEBTC branch manager promised BCC that two (2) additional
janitors would be hired from the company if the promotion was to be
effected. 18 Furthermore, BCC was to be paid in lump sum unlike in the situation
in Philippine Bank of Communications  19 where the contractor, CESI, was to be
paid at a daily rate on a per person basis. And, the contract therein stipulated that

the CESI was merely to provide manpower that would render temporary services.
In the case at bar, Neri and Cabelin were to perform specific special services.
Consequently, petitioners cannot be held to be employees of FEBTC as BCC
"carries an independent business" and undertaken the performance of its
contract with various clients according to its "own manner and method, free from
the control and supervision" of its principals in all matters "except as to the
results thereof." 20
Indeed, the facts in Philippine Bank of Communications do not square with those
of the instant case. Therein, the Court ruled that CESI was a "labor-only"
contractor because upholding the contract between the contractor and the bank
would in effect permit employers to avoid the necessity of hiring regular or
permanent employees and would enable them to keep their employees
indefinitely on a temporary or casual basis, thus denying them security of tenure
in their jobs. This of course violates the Labor Code. BCC has not committed any
violation. Also, the former case was for illegal dismissal; this case, on the other
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
 
G.R. No. 113347 June 14, 1996
FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER VOLTAIRE A.
BALITAAN, FELIPE LOTERTE and DE LIMA TRADING & GENERAL
SERVICES, respondents.
 Labor Relations;  Labor-Only Contracting; Elements.—We agree that there is
sufficient evidence to show that private respondent DE LIMA is an independent
job contractor, not a mere labor only contractor. Under the Labor Code, two (2)
elements must exist for a finding of labor-only contracting: (a) the person
supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among
others, and (b) the workers recruited and placed by such persons are performing
activities directly related to the principal business of such employer.
Page 18 of 69
hand, is for conversion of employment status so that petitioners can receive the
same salary being given to regular employees of FEBTC. But, as herein
determined, petitioners are not regular employees of FEBTC but of BCC. At any
rate, the finding that BCC in a qualified independent contractor precludes us from
applying the Philippine Bank of Communications doctrine to the instant petition.
The determination of employer-employee relationship involves factual
findings. 21 Absent any grave abuse of discretion, and we find none in the case
before us, we are bound by the findings of the Labor Arbiter as affirmed by
respondent NLRC.
IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED.
SO ORDERED.
Cruz, Griño-Aquino, Davide, Jr. and Quiason, JJ., concur.
Same; Same; Employer-Employee Relationship; DE LIMA being an
independent job contractor, no direct employer-employee relationship exists
between petitioner FILSYN and private respondent Felipe Loterte.—These two (2)
elements do not exist in the instant case. As pointed out by petitioner, private
respondent DE LIMA is a going concern duly registered with the Securities and
Exchange Commission with substantial capitalization of P1,600,000.00,
P400,000.00 of which is actually subscribed. Hence, it cannot be considered as
engaged in labor-only contracting being a highly capitalized venture. Moreover,
while the janitorial services performed by Felipe Loterte pursuant to the
agreement between FILSYN and DE LIMA may be considered directly related to
the principal business of FILSYN which is the manufacture of polyester fiber,
nevertheless, they are not necessary in its operation. On the contrary, they are
merely incidental thereto, as opposed to being integral, without which production
and company sales will not suffer. Judicial notice has already been taken of the
general practice in private as well as in government institutions and industries of
hiring janitorial services on an independent contractor basis. Consequently, DE
LIMA being an independent job contractor, no direct employer-employee
relationship exists between petitioner FILSYN and private respondent Felipe
Loterte.
Same; Article 109; Labor Code; Every employer or direct employer shall be
held responsible with his contractor or subcontractor for any violation of any
provision of the Labor Code. For purposes of determining the extent of their civil
liability, they shall be considered as direct employers.—With respect to its liability,
however, petitioner cannot totally exculpate itself from the fact that respondent
DE LIMA is an independent job contractor. We agree with the Solicitor General
that notwithstanding the lack of a direct employer-employee relationship

between FILSYN and Felipe Loterte, the former is still jointly and severally liable
with respondent DE LIMA for Loterte’s monetary claims under Art. 109 of the
Labor Code which explicitly provides—The provisions of existing laws to the
contrary notwithstanding, every employer or indirect employer shall be held
responsible with his contractor or subcontractor for any violation of any provision
of this Code. For purposes of determining the extent of their civil liability under
this Chapter, they shall be considered as direct employers.
BELLOSILLO, J.:
Filipinas Synthetic Fiber Corporation (FILSYN) assails the decision of the National
Labor Relations Commission (NLRC) of 16 September 1993 1 upholding the ruling
of the Labor Arbiter that there exists an employer-employee relationship
between FILSYN and private respondent Felipe Loterte. 2
On 4 April 1991 FILSYN, a domestic corporation engaged in the manufacture of
polyester fiber, contracted with De Lima Trading and General Services (DE LIMA)
for the performance of specific janitorial services at the former's plant in Brgy.
Don Jose, Sta. Rosa, Laguna.3 Pursuant to the agreement Felipe Loterte, among
others, was deployed at FILSYN to take care of the plants and maintain general
cleanliness around the premises.
On 24 February 1992 Loterte sued FILSYN and DE LIMA as alternative
defendants4 for illegal dismissal, underpayment of wages, non-payment of legal
holiday pay, service incentive leave pay and 13th month pay alleging that he was
first assigned to perform janitorial work at FILSYN in 1981 by the La Saga General
Services; that the La Saga was changed to DE LIMA on August 1991; that when a
movement to demand increased wages and 13th month pay arose among the
workers on December 1991 he was accused by a certain Dodie La Flores of having
posted in the bulletin board at FILSYN an article attributing to management a
secret understanding to block the demand; and, for denying responsibility, his
gate pass was unceremoniously cancelled on 6 February 1992 and he was
subsequently dismissed.5
The Labor Arbiter ruled in favor of Loterte. He was classified as a regular
employee on the ground that he performed tasks usually necessary or desirable
in the main business of FILSYN for more than ten (10) years or since 1981 under
the ruling in Guarin v. NLRC.6 FILSYN was declared to be the real employer of
Loterte and DE LIMA as a mere labor contractor.7 Hence, FILSYN was adjudged
liable for Loterte's reinstatement, payment of salary differentials and back wages
from 6 February 1992 up to the date of judgment, in addition to his unpaid legal
holiday pay, service incentive leave pay and 13th month pay in the total amount
of P56,394.90.
Page 19 of 69
FILSYN appealed to the NLRC contending that the application of the Guarin ruling
was misplaced since the contractor in said case was not able to prove that it had
substantial capital, hence the reason for its being declared as a labor-only
contractor. In the case of DE LIMA, however, sufficient evidence existed consisting
of its Certificate of Registration issued by the Securities & Exchange Commission
(SEC) and Articles of Incorporation and By-Laws to prove that it had substantial
capitalization, hence, could not be considered as a mere labor contractor.
The NLRC debunked the claim of FILSYN and affirmed the Labor Arbiter in
finding DE LIMA as a labor-only contractor. When a motion for reconsideration
proved futile, FILSYN filed the instant petition.
On 23 February 1994 a temporary restraining order to stay the execution of the
NLRC decision was issued by the Court upon approval of a bond in the amount of
P56,000.00 to be effective during the pendency of this petition. 8
Petitioner contends that the NLRC committed grave abuse of discretion in holding
DE LIMA as a labor-only contractor with no substantial capital or investment.
Petitioner insists that the evidence 9 it presented shows DE LIMA to be a
corporation duly registered with the SEC with substantial capitalization of
P1,600,000.00, P400,000.00 of which is actually subscribed. Hence, DE LIMA
cannot possibly be considered as without substantial capital. But,
assuming arguendo that DE LIMA is without substantial capital or investment,
petitioner contends that it cannot still be consider as the real employer of Loterte
since his work is not necessary in the principal business of FILSYN which is the
manufacture of polyester, and that present jurisprudence holds that the
performance of janitorial services, although directly related to the principal
business of the alleged employer, is nonetheless unnecessary since non-
performance thereof will not cause production and company sales to suffer. 10
In his Comment the Solicitor General agrees with petitioner that DE LIMA is not a
labor-only contractor. However, while he concedes that no employer-employee
relationship exists between FILSYN and Loterte, the Solicitor General opines that
the former is still liable solidarily with DE LIMA, its contractor, for the satisfaction
of the Labor Arbiter's awards in favor of Loterte as an indirect employer under
Art. 106 of the Labor Code. 11
In its Consolidated Reply FILSYN contends that Art. 106 of the Labor Code cited
by the Solicitor General applies only in cases where there is failure to pay wages,
not in cases where the employee was illegally dismissed, as in the case of Loterte.
We agree that there is sufficient evidence to show that private respondent DE
LIMA is an independent job contractor, not a mere labor-only contractor. Under
 Page 20 of 69

the Labor Code, two (2) elements must exist for a finding of labor-only
contracting: (a) the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries,
work premises, among others, and (b) the workers recruited and placed by such
persons are performing activities directly related to the principal business of such
employer. 12
several liablity of FILSYN and DE LIMA could not have covered the period before
said date. Thus, without prejudice to the right of petitioner to seek
reimbursement from DE LIMA for whatever amount it will have to pay Loterte,
we determine their joint and several liability on the basis of the computation of
the Labor Arbiter, affirmed by the NLRC (which is not disputed by petitioner
except only as to the awards for the period prior to August 1991), as follows --

These two (2) elements do not exist in the instant case. As pointed out by A. Underpayment:
petitioner, private respondent DE LIMA is a going concern duly registered with
the Securities and Exchange Commission with substantial capitalization of From August 1991 to 5 Feb. 1992
P1,600,000.00, P400,000.00 of which is actually subscribed. 13 Hence, it cannot be (P113.00 x 314 = P35,482.00)
considered as engaged in labor-only contracting being a highly capitalized (P35,482.00 ÷ 12 = P2,956.83)
venture. 14 Moreover, while the janitorial services performed by Felipe Loterte P2,956.83 x 6 mos. & 5 days = P18,233.78
pursuant to the agreement between FILSYN and DE LIMA may be considered
directly related to the principal business of FILSYN which is the manufacture of Less: Amount received
polyester fiber, nevertheless, they are not necessary in its operation. 15 On the (P104 x 314 = P32,656.00)
contrary, they are merely incidental thereto, as opposed to being integral, without (P32,656.00 ÷ 12 = P2,721.33)
which production and company sales will not suffer. 16 Judicial notice has already P2,721.33 x 6 mos. & 5 days = 16,781.54
been taken of the general practice in private as well as in government institutions
and industries of hiring janitorial services on an independent contractor
Total underpayment due = 1,452.24
basis. 17 Consequently, DE LIMA being an independent job contractor, no direct
employer-employee relationship exists between petitioner FILSYN and private
respondent Felipe Loterte. 18 B. 13th Month Pay:

With respect to its liability, however, petitioner cannot totally exculpate itself From Aug. to Dec. 1991
from the fact that respondent DE LIMA is an independent job contractor. We (P113.00 x 314 = P35,482.00)
agree with the Solicitor General that notwithstanding the lack of a direct (P35,482.00 ÷ 12 = P2,956.83)
employer-employee relationship between FILSYN and Felipe Loterte, the (P2,956.83 x 5 mos. = P14,784.15)
former is still jointly and severally liable with respondent DE LIMA for Loterte's P14,784.15 ÷ 12 = P1,232.01
monetary claims under Art. 109 of the Labor Code 19 which explicitly provides --
C. Service Incentive Leave Pay:
The provisions of existing laws to the contrary notwithstanding,
every employer or indirect employer shall be held responsible 1991 (P113.00 x 5 days) = P565.00
with his contractor or subcontractor for any violation of any
provision of this Code. For purposes of determining the extent of D. Back wages:
their civil liability under this Chapter, they shall be considered as
direct employers (emphasis supplied). From 6 Feb. 1992 to 31 May 1993
(P113.00 x 314 = P35,482.00)
However, a reduction of the Labor Arbiter's awards is in order. In his decision of (P35,482.00 ÷12 = P2,956.83)
31 May 1993, the Labor Arbiter in computing the 13th month pay and service (P2,956.83 x 15 mos. & 25 days = P46,816.47
incentive leave pay due Loterte erroneously included the period starting June 1992 13th month pay = 2,956.83
1989 to the date of his decision. From the admission of Loterte himself, 20 he 1992 service incentive leave pay = P565.00
started working for DE LIMA only in August 1991 and that the Agreement
between FILSYN and DE LIMA is dated 4 April 1991. 21 Consequently, the joint and

Total back wages due = P50,338.30
WHEREFORE, the questioned decision of respondent National Labor Relations
Commission affirming that of the Labor Arbiter as well as its resolution denying
petitioner's motion for reconsideration is REVERSED and SET ASIDE and a new
one entered:
1. Declaring the relationship between petitioner Filipinas Synthetic Fiber
Corporation (FILSYN) and private respondent De Lima Trading and General
Services (DE LIMA) as one of job contractorship;
2. Ordering private respondent De Lima Trading and General Services (DE LIMA)
to reinstate private respondent FELIPE LOTERTE to his former position or its
equivalent without loss of seniority rights; and
Republic of the Philippines
SUPREME COURT
SECOND DIVISION
G.R. No. 149793. April 15, 2005
WACK WACK GOLF & COUNTRY CLUB, Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, MARTINA G. CAGASAN,
CARMENCITA F. DOMINGUEZ, and BUSINESS STAFFING AND MANAGEMENT,
INC., Respondents.
Actions; Certificate of Non-Forum Shopping; Pleadings and Practice; A
general manager has the authority to sue on behalf of the corporation and to sign
the requisite verification and certification of non-forum shopping; Subsequent
submission of the requisite documents constitute substantial compliance—
subsequent and substantial compliance by an appellant may call for the relaxation
of the rules of procedure in the interest of justice.—In Novelty Philippines, Inc. v.
Court of Appeals, the Court recognized the authority of the general manager to sue
on behalf of the corporation and to sign the requisite verification and certification
of non-forum shopping. The general manager is also one person who is in the best
position to know the state of affairs of the corporation. It was also error for the CA
not to admit the requisite proof of authority when in the Novelty case, the Court
ruled that the subsequent submission of the requisite documents constituted
substantial compliance with procedural rules. There is ample jurisprudence
holding that the subsequent and substantial compliance of an appellant may call
for the relaxation of the rules of procedure in the interest of justice. While it is
Page 21 of 69
3. Ordering private respondent De Lima Trading and General Services (DE LIMA)
jointly and severally with petitioner Filipinas Synthetic Fiber Corporation
(FILSYN) to pay private respondent FELIPE LOTERTE the following amounts:
P1,452.24 for salary differentials, P1,232.01 for 13th month pay, P565.00 for
service incentive leave pay, and P50,338.30 for backwages, or a total of
P53,587.55 due and payable, without prejudice to FILSYN seeking reimbursement
from DE LIMA for whatever amount the former may pay or have paid the latter by
virtue hereof.
SO ORDERED.
Padilla, Kapunan and Hermosisima, Jr., JJ., concur.
Vitug, J., concurs in the result.
true that rules of procedure are intended to promote rather than frustrate the
ends of justice, and while the swift unclogging of court dockets is a laudable
objective, it nevertheless must not be met at the expense of substantial justice. It
was, therefore, reversible error for the CA to have dismissed the petition for
certiorari before it. The ordinary recourse for us to take is to remand the case to
the CA for proper disposition on the merits; however, considering that the
records are now before us, we deem it necessary to resolve the instant case in
order to ensure harmony in the rulings and expediency.
Labor Law; Quitclaims; Where the person making the waiver has done so
voluntarily, with a full understanding thereof, and the consideration for the
quitclaim is credible and reasonable, the transaction must be recognized as being a
valid and binding undertak-ing.—It cannot be said that the respondents in the
case at bar did not fully comprehend and realize the consequences of their acts.
Herein respondents are not unlettered persons who need special protection. They
held responsible positions in the petitioner-employer, so they presumably
understood the contents of the documents they signed. There is no showing that
the execution thereof was tainted with deceit or coercion. Further, the
respondents were paid hefty amounts of separation pay indicating that their
separation from the company was for a valuable consideration. Where the person
making the waiver has done so voluntarily, with a full understanding thereof, and
the consideration for the quitclaim is credible and reasonable, the transaction
must be recognized as being a valid and binding undertaking. As in contracts,
these quitclaims amount to a valid and binding compromise agreement between
the parties which deserve to be respected.
Same; Independent Contractors; Words and Phrases; An independent
contractor is one who undertakes “job contracting.”—The ruling of the NLRC is
wrong. An independent contractor is one who undertakes “job contracting,” i.e., a
person who: (a) 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 as to
the results thereof; and (b) has substantial capital or investment in the form of
tools, equipments, machineries, work premises and other materials which are
necessary in the conduct of the business. Jurisprudential holdings are 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 or not the contractor is 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 work to another; the employer’s power with
respect to the hiring, firing, and payment of the contractor’s workers; the control
of the premises; the duty to supply premises, tools, appliances, materials and
labor; and the mode, manner and terms of payment.
Same; Employer-Employee Relationship; The right to hire and fire is another
element of the employer-employee relationship.—BSMI admitted that it employed
the respondents, giving the said retired employees some degree of priority
merely because of their work experience with the petitioner, and in order to have
a smooth transition of operations. In accordance with its own recruitment
policies, the respondents were made to sign applications for employment,
accepting the condition that they were hired by BSMI as probationary employees
only. Not being contrary to law, morals, good custom, public policy and public
order, these employment contracts, which the parties are bound are considered
valid. Unfortunately, after a study and evaluation of its personnel organization,
BSMI was impelled to terminate the services of the respondents on the ground of
redundancy. This right to hire and fire is another element of the employer-
employee relationship which actually existed between the respondents and BSMI,
and not with Wack Wack.
Same; Same; Where there is no employer-employee relationship between a
corporation and certain individuals, the latter have no cause of action for illegal
dismissal and damages against the former.—There being no employer-employee
relationship between the petitioner and respondents Cagasan and Dominguez,
the latter have no cause of action for illegal dismissal and damages against the
petitioner. Consequently, the petitioner cannot be validly ordered to reinstate the
respondents and pay them their claims for backwages.
DECISION
CALLEJO, SR., J.:
This is a petition for review of the Resolution1 of the Court of Appeals (CA) in CA-
G.R. SP No. 63658, dismissing the petition for certiorari before it for being
insufficient in form and the subsequent resolution denying the motion for
reconsideration thereof.
Page 22 of 69
The undisputed antecedent facts are as follows:
On November 29, 1996, a fire destroyed a large portion of the main clubhouse of
the Wack Wack Golf and Country Club (Wack Wack), including its kitchen. In view
of the reconstruction of the whole clubhouse complex, Wack Wack filed a notice
with the Department of Labor and Employment (DOLE) on April 14, 1997 that it
was going to suspend the operations of the Food and Beverage (F & B)
Department one (1) month thereafter. Notices to 54 employees (out of a
complement of 85 employees in the department) were also sent out, informing
them that they need not report for work anymore after April 14, 1997 but that
they would still be paid their salaries up to May 14, 1997. They were further told
that they would be informed once full operations in Wack Wack resume.
The Wack Wack Golf Employees Union branded the suspension of operations of
the F & B Department as arbitrary, discriminatory and constitutive of union-
busting, so they filed a notice of strike with the DOLE’s National Conciliation and
Mediation Board (NCMB). Several meetings between the officers of Wack Wack
and the Union, headed by its President, Crisanto Baluyot, Sr., and assisted by its
counsel, Atty. Pedro T. De Quiroz, were held until the parties entered into an
amicable settlement. An Agreement2 was forged whereby a special separation
benefit/retirement package for interested Wack Wack employees, especially
those in the F & B Department was offered. The terms and conditions thereof
reads as follows:
1. The UNION and the affected employees of F & B who are members of the
UNION hereby agree to accept the special separation benefit package agreed upon
between the CLUB management on the one hand, and the UNION officers and the
UNION lawyer on the other, in the amount equivalent to one-and-one-half months
salary for every year of service, regardless of the number of years of service
rendered. That, in addition, said employees shall also receive the other benefits
due them, namely, the cash equivalent of unused vacation and sick leave credits,
proportionate 13th month pay; and other benefits, if any, computed without
premium;
2. That the affected F & B employees who have already signified intention to be
separated from the service under the special separation benefit package shall
receive their separation pay as soon as possible;
3. That the same package shall, likewise, be made available to other employees
who are members of the bargaining unit and who may or may not be affected by
future similar suspensions of operations. The UNION re-affirms and recognizes
that it is the sole prerogative of the management of the Club to suspend part or all
of its operations as may be necessitated by the exigencies of the situation and the

general welfare of its membership. The closure of the West Course, which is
scheduled for conversion to an All-Weather Championship golf course, is cited as
an example. It is, however, agreed that if a sufficient number of employees, other
than F & B employees, would apply for availment of the package within the next
two months, the Club may no longer go through the process of formally notifying
the Department of Labor. The processing and handling of benefits for these other
employees shall be done over a transition period within one year;
4. All qualified employees who may have been separated from the service under the
above package shall be considered under a priority basis for employment by
concessionaires and/or contractors, and even by the Club upon full resumption of
operations, upon the recommendation of the UNION. The Club may even persuade
an employee-applicant for availment under the package to remain on his/her job,
or be assigned to another position.3
Respondent Carmencita F. Dominguez, who was then working in the
Administrative Department of Wack Wack, was the first to avail of the special
separation package.4 Computed at 1½ months for every year of service pursuant
to the Agreement, her separation pay amounted to ₱91,116.84, while economic
benefits amounted to ₱6,327.53.5 On September 18, 1997, Dominguez signed a
Release and Quitclaim6 in favor of Wack Wack.
Respondent Martina B. Cagasan was Wack Wack’s Personnel Officer who,
likewise, volunteered to avail of the separation package. 7 On September 30, 1997,
she received from Wack Wack the amount of ₱469,495.66 as separation pay and
other economic benefits amounting to ₱17,010.50. 8 A Release and Quitclaim9 was
signed on September 30, 1997.
The last one to avail of the separation package was Crisanto Baluyot, Sr. who, in a
Letter10 dated January 16, 1998 addressed to Mr. Bienvenido Juan, Administrative
Manager of Wack Wack, signified his willingness to avail of the said early
retirement package. The total amount of ₱688,290.3011 was received and the
Release and Quitclaim12 signed on May 14, 1998.
On October 15, 1997, Wack Wack entered into a Management Contract 13 with
Business Staffing and Management, Inc. (BSMI), a corporation engaged in the
business as Management Service Consultant undertaking and managing for a fee
projects which are specialized and technical in character like marketing,
promotions, merchandising, financial management, operation management and
the like.14 BSMI was to provide management services for Wack Wack in the
following operational areas:
1. Golf operations management;
Page 23 of 69
2. Management and maintenance of building facilities;
3 .Management of food and beverage operation;
4. Management of materials and procurement functions;
5. To provide and undertake administrative and support services for the [said]
projects.15
Pursuant to the Agreement, the retired employees of Wack Wack by reason of
their experience were given priority by BSMI in hiring. On October 21, 1997,
respondents Cagasan and Dominguez filed their respective applications 16 for
employment with BSMI. They were eventually hired by BSMI to their former
positions in Wack Wack as project employees and were issued probationary
contracts.17
Aside from BSMI, Wack Wack also engaged several contractors which were
assigned in various operating functions of the club, to wit:
1. Skills and Talent Employment Promotion (STEP) whose 90 workers are
designated as locker attendants, golf bag attendants, nurses, messengers,
technical support engineer, golf director, agriculturist, utilities and gardeners;
2. Marvel Manpower Agency - whose 19 employees are designated as sweepers,
locker attendants, drive range attendant, telephone operator, workers and
secretaries;
3 City Service Corporation – contractor for janitorial services for the whole club;
4. Microstar Business and Management Services, Inc. whose 15 employees are
designated in the Finance and Accounting departments. 18
Due to these various management service contracts, BSMI undertook an
organizational analysis and manpower evaluation to determine its efficacy, and to
streamline its operations. In the course of its assessment, BSMI saw that the
positions of Cagasan and Dominguez were redundant. In the case of respondent
Cagasan, her tasks as personnel officer were likewise being taken cared of by the
different management service contractors; on the other hand, Dominguez’s work
as telephone operator was taken over by the personnel of the accounting
department. Thus, in separate Letters19 dated February 27, 1998, the services of
Dominguez and Cagasan were terminated. With respect to Baluyot, he applied for
the position of Chief Porter on May 12, 1998. The position, however, was among

those recommended to be abolished by the BSMI, so he was offered the position
of Caddie Master Aide with a starting salary of ₱5,500.00 a month. Baluyot
declined the offer. Pending Wack Wack’s approval of the proposed abolition of the
position of Chief Porter, Baluyot was temporarily accepted to the position with a
monthly salary of ₱12,000.00. In July 1998, Baluyot decided not to accept the
position of Caddie Master Aide; thus, BSMI continued with its plan to abolish the
said position of Chief Porter and Baluyot was dismissed from the service.
Thereafter, the three (3) employees filed their respective complaints with the
National Labor Relations Commission (NLRC) for illegal dismissal and damages
against Wack Wack and BSMI.
The complainants averred that they were dismissed without cause. They accepted
the separation package upon the assurance that they would be given their former
work and assignments once the Food and Beverage Department of Wack Wack
resumes its operations. On the other hand, the respondents therein alleged that
the dismissal of the complainants were made pursuant to a study and evaluation
of the different jobs and positions and found them to be redundant.
In a Decision20 dated January 25, 2000, the Labor Arbiter found that the dismissal
of Dominguez and Cagasan was for a valid and authorized cause, and dismissed
their complaints.
The position of personnel manager occupied by Martina Cagasan was redundated
as it is allegedly not necessary, because her functions will be taken over [by] the
field superintendent and the company’s personnel and operations manager. The
work of Carmencita Dominguez on the other hand as telephone operator will be
taken over by the accounting department personnel. Such move really are
intended to streamline operations. While admittedly, they are still necessary in
the operations of Wack Wack, their jobs can be assigned to some other personnel,
who will be performing dual functions and does save Wack Wack money. This is
feasible on account of the fact that they are functions pertaining to administrative
work.21
As to Baluyot, however, the Labor Arbiter found that while the position of chief
porter had been abolished, the caddie master aide had been created. Their
functions were one and the same. The porters, upon instructions from the chief
porter, are the ones who bring down the golf bags of the players from the vehicle.
The caddie master receives them and counts the number of clubs inside the golf
set. After the game, the same procedure is repeated before the golf sets are loaded
once more into the vehicle.22 The Labor Arbiter found that the dismissal of
Baluyot as Chief Porter was unjustified and can not be considered redundant in
the case at bar. It was a means resorted to in order to unduly sever Baluyot’s
Page 24 of 69
relationship with BSMI without justifiable cause. The Labor Arbiter therefore
found Baluyot’s dismissal to be illegal. The dispositive portion of the decision
reads as follows:
CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered
dismissing the complaints of Carmencita F. Dominguez and Martina Cagasan for
lack of merit. Finding Crisanto Baluyot’s dismissal to be illegal. Consequently, he
should immediately be reinstated to his former position as Chief Porter or Caddie
Master, and paid his backwages which, as of December 31, 1999, has accumulated
in the sum of ₱180,000.00 by BSMI.
All other claims are dismissed for lack of merit.23
Since Baluyot no longer appealed the decision, complainants Dominguez and
Cagasan filed a Partial Appeal on the ground of prima facie abuse of discretion on
the part of the Labor Arbiter and serious errors in his findings of facts and law.
Their claims were anchored on the Agreement between the Union and
management, that they were promised to be rehired upon the full resumption of
operations of Wack Wack. They asserted that Wack Wack and BSMI should not
avoid responsibility to their employment, by conniving with each other to render
useless and meaningless the Agreement.
BSMI also appealed to the NLRC, alleging that the Labor Arbiter committed grave
abuse of discretion in finding Baluyot’s dismissal to be illegal, when in fact his
position as Chief Porter was abolished pursuant to a bona fide reorganization of
Wack Wack. It was not motivated by factors other than the promotion of the
interest and welfare of the company.
On September 27, 2000, the NLRC rendered its Decision24 ordering Wack Wack to
reinstate Carmencita F. Dominguez and Martina Cagasan to their positions in
respondent Wack Wack Golf & Country Club with full backwages and other
benefits from the date of their dismissal until actually reinstated. It anchored its
ruling on the Agreement dated June 16, 1997 reached between the Union and
Wack Wack, particularly Section 425 thereof. The NLRC directed Wack Wack to
reinstate the respondents and pay their backwages since "Business Staffing and
Management, Inc. (BSMI) is a contractor who [merely] supplies workers to
respondent Wack Wack. It has nothing to do with the grievance of the
complainants with their employer, respondent Wack Wack."
Wack Wack and BSMI filed a motion for reconsideration which was denied in the
Resolution26 dated December 15, 2000.

Wack Wack, now the petitioner, consequently filed a petition for certiorari with
the Court of Appeals, docketed as CA-G.R. SP No. 63658 alleging the following:
A. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF DUE
PROCESS IN HOLDING THAT RESPONDENTS CAGASAN AND DOMINGUEZ HAVE
REGAINED THEIR JOBS OR EMPLOYMENT PURSUANT TO THE AGREEMENT
BETWEEN PETITIONER AND WACK WACK GOLF EMPLOYEES UNION.
B. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF DUE
PROCESS IN RULING THAT RESPONDENT BSMI IS NOT AN INDEPENDENT
CONTRACTOR BUT A MERE SUPPLIER OF WORKERS TO THE PETITIONER.
C. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF DUE
PROCESS IN HOLDING PETITIONER LIABLE FOR THE REINSTATEMENT OF
RESPONDENTS CAGASAN AND DOMINGUEZ AND FOR THE PAYMENT OF THEIR
SUPPOSED BACKWAGES DESPITE THE ABSENCE OF EMPLOYER-EMPLOYEE
RELATION BETWEEN THEM.27
Likewise, BSMI also assailed the resolutions of the NLRC and filed its own petition
for certiorari with the CA, docketed as CA-G.R. SP No. 63553. 28 A perusal of the
petition which is attached to the records reveal that BSMI ascribes grave abuse of
discretion on the part of the NLRC in ruling that: (a) the private respondents have
regained their employment pursuant to the Agreement between Wack Wack and
the Wack Wack Golf Employees Union; (b) the dismissal of private respondents
was made pursuant to the petitioner’s exercise of its management prerogatives;
and (c) the petitioner (BSMI) is liable for the reinstatement of private
respondents and the payment of their backwages.29
On April 3, 2001, the CA (Twelfth Division) dismissed the petition on the ground
that the petitioner therein failed to attach an Affidavit of Service as required in
Section 11, Rule 13 of the 1997 Rules of Civil Procedure. Moreover, the
verification and certification against forum shopping was insufficient for having
been executed by the general manager who claimed to be the duly-authorized
representative of the petitioner, but did not show any proof of authority, i.e., a
board resolution, to the effect.
A motion for reconsideration was, consequently, filed appending thereto the
requisite documents of proof of authority. It asserted that in the interest of
substantial justice, the CA should decide the case on its merits.
Page 25 of 69
BSMI filed a Comment30 to the Motion for Reconsideration of the petitioner, also
urging the CA to set aside technicalities and to consider the legal issues involved:
(a) whether or not there is a guaranty of employment in favor of the complainants
under the Agreement between the petitioner and the Union; (b) whether or not
the termination of the employment of the complainants, based on redundancy, is
legal and valid; and (c) who are the parties liable for the reinstatement of the
complainants and the payment of backwages. It further added that it shares the
view of the petitioner, that the assailed resolutions of the NLRC are tainted with
legal infirmities. For this reason, it was also constrained to file its own petition
for certiorari with the CA, docketed as CA-G.R. SP No. 63553 pending with the
Special Fourth Division, just to stress that there is no guaranty of perpetual
employment in favor of the complainants.
On August 31, 2001, the CA denied petitioner’s motion for reconsideration.
The petitioner is now before the Court, assailing the twin resolutions of the CA. It
points out that BSMI has filed its petition for certiorari before the CA one day late
and yet, the Special Fourth Division admitted the petition in the interest of
substantial justice, and directed the respondents to file a comment
thereon;31 whereas, in the instant case, the mere lack of proof of authority of Wack
Wack’s General Manager to sign the certificate of non-forum shopping was
considered fatal by the CA’s Twelfth Division. It further asserts that its petition
for certiorari is meritorious, considering that the NLRC committed grave abuse of
discretion in ordering Wack Wack to reinstate the respondents Cagasan and
Dominguez, and to pay their backwages when indubitable evidence shows that
the said respondents were no longer employees of Wack Wack when they filed
their complaints with the Labor Arbiter.
There is merit in the petition.
In Novelty Philippines, Inc. v. Court of Appeals,32 the Court recognized the authority
of the general manager to sue on behalf of the corporation and to sign the
requisite verification and certification of non-forum shopping. The general
manager is also one person who is in the best position to know the state of affairs
of the corporation. It was also error for the CA not to admit the requisite proof of
authority when in the Novelty case, the Court ruled that the subsequent
submission of the requisite documents constituted substantial compliance with
procedural rules. There is ample jurisprudence holding that the subsequent and
substantial compliance of an appellant may call for the relaxation of the rules of
procedure in the interest of justice.33 While it is true that rules of procedure are
intended to promote rather than frustrate the ends of justice, and while the swift
unclogging of court dockets is a laudable objective, it nevertheless must not be
met at the expense of substantial justice.34 It was, therefore, reversible error for
the CA to have dismissed the petition for certiorari before it. The ordinary

recourse for us to take is to remand the case to the CA for proper disposition on
the merits; however, considering that the records are now before us, we deem it
necessary to resolve the instant case in order to ensure harmony in the rulings
and expediency.
Indeed, the merits of the case constitute special or compelling reasons for us to
overlook the technical rules in this case. With the dismissal of its petition for
certiorari before the CA, the petitioner by virtue of the NLRC decision is
compelled to reinstate respondents Cagasan and Dominguez and pay their full
backwages from the time of their dismissal until actual reinstatement when the
attendant circumstances, however, show that the respondents had no cause of
action against the petitioner for illegal dismissal and damages.
It must be recalled that said respondents availed of the special separation
package offered by the petitioner. This special separation package was thought of
and agreed by the two parties (Wack Wack and the Union) after a series of
discussions and negotiations to avert any labor unrest due to the closure of Wack
Wack.35 Priority was given to the employees of the F & B Department, but was,
likewise, offered to the other employees who may wish to avail of the separation
package due to the reconstruction of Wack Wack. Respondents do not belong to
the F & B Department and yet, on their own volition opted to avail of the special
separation package. The applications which were similarly worded read as
follows:
TO : WACK WACK GOLF & COUNTRY CLUB
BOARD OF DIRECTORS AND MANAGEMENT
Based on the information that the Club and the employees’ Union have reached an
agreement on a special separation benefit package equivalent to one-and-one-half
months salary for every year of service, regardless of the number of years of
service, for employees who have been affected and may be affected by ongoing as
well as forthcoming Club renovation, construction and related activities and
reportedly even for those who may not be affected but wish to avail of an early
retirement under the above package arrangement, I hereby register my desire to
be separated from the Club and receive the benefits under the above stated
package.36
Thereafter, the respondents signed their respective release and quitclaims after
receiving their money benefits.
It cannot be said that the respondents in the case at bar did not fully comprehend
and realize the consequences of their acts. Herein respondents are not unlettered
Page 26 of 69
persons who need special protection. They held responsible positions in the
petitioner-employer, so they presumably understood the contents of the
documents they signed. There is no showing that the execution thereof was
tainted with deceit or coercion. Further, the respondents were paid hefty
amounts of separation pay indicating that their separation from the company was
for a valuable consideration. Where the person making the waiver has done so
voluntarily, with a full understanding thereof, and the consideration for the
quitclaim is credible and reasonable, the transaction must be recognized as being
a valid and binding undertaking.37 As in contracts, these quitclaims amount to a
valid and binding compromise agreement between the parties which deserve to
be respected.38
We reiterate what was stated in the case of Periquet v. NLRC 39 that:
Not all waivers and quitclaims are invalid as against public policy. If the
agreement was voluntarily entered into and represents a reasonable settlement,
it is binding on the parties and may not later be disowned simply because of a
change of mind. It is only where there is clear proof that the waiver was wangled
from an unsuspecting or gullible person, or the terms of settlement are
unconscionable on its face, that the law will step in to annul the questionable
transaction. But where it is shown that the person making the waiver did so
voluntarily, with full understanding of what he was doing, and the consideration
for the quitclaim is credible and reasonable, the transaction must be recognized
as a valid and binding undertaking. …40
When the respondents voluntarily signed their quitclaims and accepted the
separation package offered by the petitioner, they, thenceforth, already ceased to
be employees of the petitioner. Nowhere does it appear in the Agreement that the
petitioner assured the respondents of continuous employment in Wack Wack.
Qualified employees were given priority in being hired by its concessionaires
and/or contractors such as BSMI when it entered into a management contract
with the petitioner.
This brings us to the threshold issue on whether or not BSMI is an independent
contractor or a labor-only contractor. The NLRC posits that BSMI is merely a
supplier of workers or a labor-only contractor; hence, the petitioner remains to
be the principal employer of the respondents and liable for their reinstatement
and payment of backwages.
The ruling of the NLRC is wrong. An independent contractor is one who
undertakes "job contracting," i.e., a person who: (a) 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 as to the results thereof; and (b) has substantial
capital or investment in the form of tools, equipments, machineries, work
premises and other materials which are necessary in the conduct of the business.
Jurisprudential holdings are 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 or not the contractor is 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 work to another; the
employer’s power with respect to the hiring, firing, and payment of the
contractor’s workers; the control of the premises; the duty to supply premises,
tools, appliances, materials and labor; and the mode, manner and terms of
payment.41
There is indubitable evidence showing that BSMI is an independent contractor,
engaged in the management of projects, business operations, functions, jobs and
other kinds of business ventures, and has sufficient capital and resources to
undertake its principal business. It had provided management services to various
industrial and commercial business establishments. Its Articles of Incorporation
proves its sufficient capitalization. In December 1993, Labor Secretary
Bienvenido Laguesma, in the case of In re Petition for Certification Election Among
the Regular Rank-and-File Employees Workers of Byron-Jackson (BJ) Services
International Incorporated, Federation of Free Workers (FFW)-Byron Jackson
Services Employees Chapter,42 recognized BSMI as an independent contractor. As a
legitimate job contractor, there can be no doubt as to the existence of an
employer-employee relationship between the contractor and the workers. 43
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 111501 March 5, 1996
PHILIPPINE FUJI XEROX CORPORATION, JENNIFER A. BERNARDO, and ATTY.
VICTORINO LUIS, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (First Division), PAMBANSANG
KILUSAN NG PAG-GAWA, (KILUSAN)-TUCP, PHILIPPINE XEROX EMPLOYEES
UNION-KILUSAN and PEDRO GARADO, respondents.
Page 27 of 69
BSMI admitted that it employed the respondents, giving the said retired
employees some degree of priority merely because of their work experience with
the petitioner, and in order to have a smooth transition of operations. 44 In
accordance with its own recruitment policies, the respondents were made to sign
applications for employment, accepting the condition that they were hired by
BSMI as probationary employees only. Not being contrary to law, morals, good
custom, public policy and public order, these employment contracts, which the
parties are bound are considered valid. Unfortunately, after a study and
evaluation of its personnel organization, BSMI was impelled to terminate the
services of the respondents on the ground of redundancy. This right to hire and
fire is another element of the employer-employee relationship 45 which actually
existed between the respondents and BSMI, and not with Wack Wack.
There being no employer-employee relationship between the petitioner and
respondents Cagasan and Dominguez, the latter have no cause of action for illegal
dismissal and damages against the petitioner. Consequently, the petitioner cannot
be validly ordered to reinstate the respondents and pay them their claims for
backwages.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals
and the NLRC are SET ASIDE and REVERSED. The complaints of respondents
Cagasan and Dominguez are DISMISSED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.
 Labor Law; Employer-Employee Relationship; Labor-Only
Contracting; Security of Tenure; Employment of workers provided by a “labor-only
contractor” to a client under six-month contracts which are later extended
indefinitely through renewals is nothing but a crude attempt to circumvent the law
and undermine the security of tenure of such employees.—Private respondent was
made to understand that he was an employee of Skillpower, Inc., and not of the
client to which he was assigned. Therefore, the termination of the contract or any
renewal or extension thereof did not entitle him to become an employee of the
client and the latter was not under any obligation to appoint him as such,
“notwithstanding the total duration of the contract or any extension or renewal
thereof.” This is nothing but a crude attempt to circumvent the law and
undermine the security of tenure of private respondent by employing workers
under six-month contracts which are later extended indefinitely through
renewals.

Same; Same; Same; Same; The determination of the existence of an employer-
employee relationship is defined by law according to the facts of each case,
regardless of the nature of the activities involved.—It is wrong to say that if a task
is not directly related to the employer’s business, or it falls under what may be
considered “house-keeping activities,” the one performing the task is a job
contractor. The determination of the existence of an employer-employee
relationship is defined by law according to the facts of each case, regardless of the
nature of the activities involved.
Same; Same; Same; Same; Words and Phrases; The phrase “substantial
capital and investment in the form of tools, equipment, machineries, work premises
and other materials which are necessary in the conduct of his business” clearly
contemplates tools, equipment, etc., which are directly related to the service a job
contractor is being contracted to render.—Petitioner Fuji Xerox argues that
Skillpower, Inc. had typewriters and service vehicles for the conduct of its
business independently of the petitioner. But typewriters and vehicles bear no
direct relationship to the job for which Skillpower, Inc. contracted its service of
operating copier machines and offering copying services to the public. The fact is
that Skillpower, Inc. did not have copying machines of its own. What it did was
simply to supply manpower to Fuji Xerox. The phrase “substantial capital and
investment in the form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his business,” in the
Implementing Rules clearly contemplates tools, equipment, etc., which are
directly related to the service it is being contracted to render. One who does not
have an independent business for undertaking the job contracted for is just an
agent of the employer.
Same; Same; Same; Same; The nature of one’s business is not determined by
self-serving appellations one attaches thereto but by the tests provided by statute
and prevailing case law.—In Tabas v. California Manufacturing Company, Inc., this
Court held on facts similar to those in the case at bar: There is no doubt that in the
case at bar, Livi performs “manpower services,” meaning to say, it contracts out
labor in favor of clients. We hold that it is one notwithstanding its vehement
claims to the contrary, and notwithstanding the provision of the contract that it is
“an independent contractor.” The nature of one’s business is not determined by
self-serving appellations one attaches thereto but by the tests provided by statute
and prevailing case law. The bare fact that Livi maintains a separate line of
business does not extinguish the equal fact that it has provided California with
workers to pursue the latter’s own business.
MENDOZA, J.:p
This is a petition for certiorari to set aside the decision of the NLRC, finding
petitioner Philippine Fuji Xerox Corporation (Fuji Xerox) guilty of illegally
dismissing private respondent Pedro Garado and ordering him reinstated. The
NLRC decision reverses on appeal a decision of the Labor Arbiter finding private
Page 28 of 69
respondent to be an employee of another firm, the Skillpower, Inc., and not of
petitioner Fuji Xerox.
The question raised in this case is whether private respondent is an employee of
Fuji Xerox (as the NLRC found) or of Skillpower, Inc. (as the Labor Arbiter found).
For reasons to be hereafter explained, we hold that private respondent is an
employee of Fuji Xerox and accordingly dismiss the petition for review of Fuji
Xerox.
The following are the facts.
On May 6, 1977, petitioner Fuji Xerox entered into an agreement under which
Skillpower, Inc. supplied workers to operate copier machines of Fuji Xerox as part
of the latter's "Xerox Copier Project" in its sales offices. Private respondent Pedro
Garado was assigned as key operator at Fuji Xerox's branch. at Buendia, Makati,
Metro Manila, in February of 1980.
In February of 1983, Garado went on leave and his place was taken over by a
substitute. Upon his return in March, he discovered that there was a spoilage of
over 600 copies. Afraid that he might be blamed for the spoilage, he tried to talk a
service technician of Fuji Xerox into stopping the meter of the machine.
The technician refused Garado's request, but this incident came to the knowledge
of Fuji Xerox which, on May 31, 1983, reported the matter to Skillpower, Inc. The
next day, Skillpower, Inc. wrote Garado, ordering him to explain. In the meantime,
it suspended him from work. Garado filed a complaint for illegal dismissal.
The Labor Arbiter found that Garado applied for work to Skillpower, Inc.; that in
1980 he was employed and made to sign a contract; that although he received his
salaries regularly from Fuji Xerox, it was Skillpower, Inc. which exercised control
and supervision over his work; that Skillpower, Inc. had substantial capital and
investments in machinery, equipment, and service vehicles, and assets totalling
P5,008,812.43. On the basis of these findings the Labor Arbiter held in a decision
rendered on October 30, 1986 that Garado was an employee of Skillpower, Inc.,
and that he had merely been assigned by Skillpower, Inc. to Fuji Xerox. Hence, the
Labor Arbiter dismissed Garado's complaint.
On the other hand, the NLRC found Garado to be infact an employee of petitioner
Fuji Xerox and by it to have been illegally dismissed. The NLRC found that
although Garado's request was wrongful, dismissal would be a disproportionate
penalty. The NLRC held that although Skillpower, Inc. had substantial capital
assets, the fact was that the copier machines, which Garado operated, belonged to
petitioner Fuji Xerox, and that although it was Skillpower, Inc. which had

suspended Garado, the latter merely acted at the behest of Fuji Xerox. The NLRC
found that Garado worked under the control and supervision of Fuji Xerox, which
paid his salaries, and that Skillpower, Inc. merely acted as paymaster-agent of Fuji
Xerox. The NLRC held that Skillpower, Inc. was a labor-only contractor and
Garado should be deemed to have been directly employed by Fuji Xerox,
regardless of the agreement between it and Skillpower, Inc. Accordingly, the
NLRC ordered:
WHEREFORE, premises considered, the respondents are hereby
ordered to immediately reinstate complainant Pedro Garado to
his former position as key operator with three (3) years
backwages, without qualification or reduction whatsoever . . . .
Except as herein above MODIFIED, the appealed decision is
hereby Affirmed.
Hence the present petition. Fuji Xerox argues that Skillpower, Inc. is an
independent contractor and that Garado is its employee for the following reasons:
(1) Garado was recruited by Skillpower, Inc.;
(2) The work done by Garado was not necessary to the conduct
of the business of Fuji Xerox;
(3) Garado's salaries and benefits were paid directly by
Skillpower, Inc.;
(4) Garado worked under the control of Skillpower, Inc.; and
(5) Skillpower, Inc. is a highly-capitalized business venture.
The contentions are without merit.
Fuji Xerox contends that Garado was actually recruited by Skillpower, Inc. as part
of its personnel pool and later merely assigned to it (petitioner) . It is undisputed,
however, that since 1980, 1 when Garado was first assigned to work at Fuji Xerox,
he had never been assigned to any other company so much so that by 1984, he
was already a member of the union which petitioned the company for his
regularization. 2 From 1980 to 1984 he worked exclusively for petitioner. Indeed,
he was recruited by Skillpower, Inc. solely for assignment to Fuji Xerox to work in
the latter's Xerox Copier Project. 3
Page 29 of 69
Petitioners claim that Skillpower, Inc. has other clients to whom it provided
"temporary" services. That, however, is irrelevant. What is important is that once
employed, Garado was never assigned to any other client of Skillpower, Inc. In
fact, although under the agreement Skillpower, Inc. was supposed to provide only
"temporary" services, Skillpower, Inc. actually supplied Fuji Xerox the labor
which the latter needed for its Xerox Copier Project for seven (7) years, from
1977 to 1984.
On January 1, 1983, private respondent signed a contract entitled "Appointment
as Contract Worker," in which it was stated that private respondent's status was
that of a contract worker for a definite period from January 1, 1983 to June 30,
1983. As such, private respondent's employment was considered temporary, to
terminate automatically six (6) months afterwards, without necessity of any
notice and without entitling private respondent to separation or termination pay.
Private respondent was made to understand that he was an employee of
Skillpower, Inc., and not of the client to which he was assigned. Therefore, the
termination of the contract or any renewal or extension thereof did not entitle
him to become an employee of the client and the latter was not under any
obligation to appoint him as such, "notwithstanding the total duration of the
contract or any extension or renewal thereof."
This is nothing but a crude attempt to circumvent the law and undermine the
security of tenure of private respondent by employing workers under six-month
contracts which are later extended indefinitely through renewals. As this Court
held in the Philippine Bank of Communications v. NLRC: 4
It is not difficult to see that to uphold the contractual
arrangement between the bank and CESI would in effect be to
permit employers to avoid the necessity of hiring regular or
permanent employees and to enable them to keep their
employees indefinitely on a temporary or casual status, thus to
deny them security of tenure in their jobs. Article 106 of the
Labor Code is precisely designed to prevent such a result.
Second. Petitioner contends that the service provided by Skillpower, Inc., namely,
operating petitioners' xerox machine, is not directly related nor necessary to the
business of selling and leasing copier machines of petitioner. Petitioners claim
that their Xerox Copier Project is just for public service and is purely incidental to
its business. What petitioners earn from the project is not even sufficient to
defray their expenses, let alone bring profits to them. As such, the project is no
different from other services which can legally be contracted out, such as security
and janitorial services. Petitioners contend that the copier service can be
considered as part of their "housekeeping" tasks which can be let to independent
contractors. 5

We disagree. As correctly held by the NLRC, at the very least, the Xerox Copier
Project of petitioners promotes goodwill for the company . It may not generate
income for the company but there are activities which a company may find
necessary to engage in because they ultimately redound to its benefit. Operating
the company's copiers at its branches advertises the quality of their products and
promotes the company's reputation and public image. It also advertises the utility
and convenience of having a copier machine. It is noteworthy that while not
operated for profit the copying service is not intended either to be "promotional,"
as, indeed, petitioner charged a fee for the copies made.
It is wrong to say that if a task is not directly related to the employer's business,
or it falls under what may be considered "housekeeping activities," the one
performing the task is a job contractor. The determination of the existence of an
employer-employee relationship is defined by law according to the facts of each
case, regardless of the nature of the activities involved.
Third. Petitioners contend that it never exercised control over the conduct of
private respondent. Petitioners allege that the salaries paid to Garado, as well as
his employment records, vouchers and loanchecks from the SSS were coursed
through Skillpower, Inc. In addition private respondent applied for vacation
leaves to Skillpower, Inc.
It is also contended that it was Skillpower, Inc. which twice required private
respondent to explain why he should not be dismissed for the spoilage in Fuji
Xerox's Buendia branch and suspended him pending the result of the
investigation. According to petitioners, although they conducted an
administrative investigation, the purpose was only to determine the complicity of
their own employees in the incident, if any, and any criminal liability of private
respondent.
This claim is belied by two letters written by Atty. Victorino H. Luis, Legal and
Industrial Relations Officer of the company, to the union president, Nick Macaraig.
The first letter, dated July 6, 1983, stated:
This has reference to your various letters dated today on
administrative case concerning Messrs. Crisostomo Cruz, Pedro
Garado and Ms. Evelyn Abenes.
In connection with the above and in the case likewise of Mr.
Dionisio Guyala, please be advised that the proceedings against
them are being carried out under the terms, and in accordance
with the provisions of our Policy and Procedure on Employment
Termination as well as Policy on Disciplinary Actions dated
Page 30 of 69
October 1, 1982, and not under the Grievance Machinery under
our CBA.
Your action apparently is premised on the assumption that we
are now in the Grievance Stage, which is premature. If we have
allowed the Union to participate in our Investigation and
Administrative panels, it is only a concession on management's
part in accordance with No. IV, Section B, Paragraph 3 of the
abovecited policy on the investigation, the
Personnel/Administrative Department may consult the Union
whenever necessary.
We shall entertain grievances under our CBA Machinery only
after decisions have been made on the foregoing cases and
should you find the penalties imposed, if any, as unjust, unduly
harsh, discriminating otherwise fit subject for grievance by the
Union itself under the terms of our CBA.
Accordingly, we are proceeding with our investigations on the
administrative charges with or without your presence or that of
the respondents if it is the latter's preference, as in the case of
Crisostomo Cruz, to ignore the same. (Emphasis ours)
The second letter, dated July 13, 1983, 6 read:
You obviously persist in pursuing the misconception that our
allowing your presence in the administrative proceedings
against Messrs. Guyala, Cruz, et al. has set the Grievance
Machinery under our CBA into play. We can only reiterate our
statement in our letter of July 6 that we were implementing Policy
and Procedures on Termination dated October 1, 1982 and that
your presence in helping bolster the defense for the respondents
was only with our forbearance in the spirit of cooperation in
order to better ferret out the truth.
The power or authority to impose discipline and disciplinary
measures upon employees is a basic prerogative of Management,
something that cannot be abdicated, much less ceded to a CBA
Grievance Committee which is limited to settling disputes and
misunderstanding as to interpretation, application, or violation
of any provisions of the CBA agreement . . . As likewise pointed
out in our letter of July 6 recourse to Grievance may possibly be
resorted to if in the Union's opinion a penalty imposed upon a

respondent Union member is discriminating to the member or
otherwise illegal, unduly harsh, and the like. Ultimately, the
remedy lies in appeal to the NLRC, as in similar cases in the past.
(Emphasis ours)
These letters reveal the role which Fuji Xerox played in the dismissal of the
private respondent. They dispel any doubt that Fuji Xerox exercised disciplinary
authority over Garado and that Skillpower, Inc. issued the order of dismissal
merely in obedience to the decision of petitioner.
Fourth. Petitioner avers that Skillpower, Inc. is a highly-capitalized business
venture, registered as an "independent employer" with the Securities and
Exchange Commission as well as the Department of Labor and Employment.
Skillpower, Inc. is a member of the Social Security System. In 1984 it had assets
exceeding P5 million pesos and at least 20 typewriters, office equipment and
service vehicles. It had employees of its own and a pool of 25 clerks assigned to
clients on a temporary basis.
Petitioners cite the case of Neri v. NLRC, 7 in which it was held that the Building
Care Corporation (BCC) was an independent contractor on the basis of finding
that it had substantial capital, although there was no evidence that it had
investments in the form of tools, equipment, machineries and work premises. But
the Court in that case considered not only the capitalization of the BCC but also
the fact that BCC was providing specific special services (radio/telex operator and
janitor) to the employer; that in another case 8 the Court had already found that
the BCC was an independent contractor; that BCC retained control over the
employees and the employer was actually just concerned with the end-result; that
BCC had the power to reassign the employees and their deployment was not
subject to the approval of the employer; and that BCC was paid in lump sum for
the services it rendered. These features of that case make it distinguishable from
the present one.
Here, the service being rendered by private respondent was not a specific or
special skill that Skillpower, Inc. was in the business of providing. Although in the
Neri case the telex machine operated by the employee belonged to the employer,
the service was deemed permissible because it was specific and technical. This
cannot be said of the service rendered by private respondent Garado.
The Rules to Implement of the Labor Code, Book III, Rule VIII, §8, provide that
there is job contracting when the following conditions are fulfilled:
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his own
Page 31 of 69
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 as
to the results thereof; and
(2) The contractor has substantial capital or investment in the
form of tools equipment, machineries, work premises, and other
materials which are necessary in the conduct of his business.
Otherwise, according to Art. 106 of the Labor code,
There is "labor-only" contracting where the person supplying
workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed
by such 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.
Petitioner Fuji Xerox argues that Skillpower, Inc. had typewriters and service
vehicles for the conduct of its business independently of the petitioner. But
typewriters and vehicles bear no direct relationship to the job for which
Skillpower, Inc. contracted its service of operating copier machines and offering
copying services to the public. The fact is that Skillpower, Inc. did not have
copying machines of its own. What it did was simply to supply manpower to Fuji
Xerox. The phrase "substantial capital and investment in the form of tools,
equipment, machineries, work premises, and other materials which are necessary
in the conduct of his business," in the Implementing Rules clearly contemplates
tools, equipment, etc., which are directly related to the service it is being
contracted to render. One who does not have an independent business for
undertaking the job contracted for is just an agent of the employer.
Fifth. The Agreement between petitioner Fuji Xerox and Skillpower, Inc. provides
that Skillpower, Inc. is an independent contractor and that the workers hired by it
"shall not, in any manner and under any circumstances, be considered employees
of [the] Company, and that the Company has no control or supervision
whatsoever over the conduct of the Contractor or any of its workers in respect to
how they accomplish their work or perform the Contractor's obligations under
this AGREEMENT."

In Tabas v. California Manufacturing Company, Inc., 9 this Court held on facts
similar to those in case at bar:
There is no doubt that in the case at bar, Livi performs
"manpower services," meaning to say, it contracts out labor in
favor of clients. We hold that it is one notwithstanding its
vehement claims to the contrary, and notwithstanding the
provision of the contract that it is "an independent contractor."
The nature of one's business is not determined by self-serving
appellations one attaches thereto but by the tests provided by
statute and prevailing case law. The bare fact that Livi maintains
a separate line of business does not extinguish the equal fact that
it has provided California with workers to pursue the latter's
own business. In this connection, we do not agree that the
petitioners had been made to perform activities "which are not
directly related to the general business of manufacturing,"
California's purported "principal operation activity." The
petitioners had been charged with "merchandising [sic]
promotion or sale of the products of [California] in the different
sales outlets in Metro Manila including task and occasional [sic]
price tagging," an activity that is doubtless, an integral part of the
manufacturing business. It is not, then, as if Livi had served as its
(California's promotions or sales arm or agents, or otherwise,
rendered a piece of work it (California) could not have itself
SECOND DIVISION
G.R. No. 144672             July 10, 2003
SAN MIGUEL CORPORATION, petitioner,
vs.
MAERC INTEGRATED SERVICES, INC.; and EMERBERTO ORQUE, et. al.,
respondents.
Labor law; National Labor Relations Commission; Appeals; Well-established
is the principle that findings of fact of quasi-judicial bodies, like the NLRC, are
accorded with respect, even finality, if supported by substantial evidence.—We find
no basis to overturn the Court of Appeals and the NLRC. Well-established is the
principle that findings of fact of quasi-judicial bodies, like the NLRC, are accorded
with respect, even finality, if supported by substantial evidence. Particularly
when passed upon and upheld by the Court of Appeals, they are binding and
conclusive upon the Supreme Court and will not normally be disturbed.
Page 32 of 69
done; Livi as a placement agency, had simply supplied it with the
manpower necessary to carry out its (California's)
merchandising activities, using its (California's) premises and
equipment.
xxx xxx xxx
The fact that the petitioners have allegedly admitted being Livi's
"direct employees" in their complaints is nothing conclusive. For
one thing, the fact that the petitioners were (are), will not
absolve California since liability has been imposed by legal
operation. For another, and as we indicated, the relations of
parties must be judged from case to case and the decree of law,
and not by declaration of parties.
Skillpower, Inc. is, therefore, a "labor-only" contractor and Garado is not its
employee. No grave abuse of discretion can thus be imputed to the NLRC for
declaring petitioner Fuji Xerox guilty of illegal dismissal of private respondent.
ACCORDINGLY, the petition for certiorari is DISMISSED for lack of merit.
SO ORDERED.
Regalado, Romero and Puno, JJ., concur.
Same; Employer-Employee Relationship; Factors to be considered in
ascertaining an employer-employee relationship.—This Court has invariably held
that in ascertaining an employer-employee relationship, the following factors are
considered: (a) the selection and engagement of employee; (b) the payment of
wages; (c) the power of dismissal; and, (d) the power to control an employee’s
conduct, the last being the most important.
Same; Independent Contractor; It is not enough to show substantial
capitalization or investment in the form of tools, equipment, machinery and work
premises, etc., to be considered an independent contractor.—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.
Same; Same; Distinction between an independent contractor and a labor-only
contractor.—On this point, we agree with petitioner as distinctions must be made.
In legitimate job contracting, the law creates an employer-employee relationship
for a limited purpose, i.e., to ensure that the employees are paid their wages. The
principal 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 principal employer is not responsible for any
claim made by the employees. On the other hand, in labor-only contracting, the
statute creates an employer-employee relationship for a comprehensive purpose:
to prevent a circumvention of labor laws. The contractor is considered merely an
agent of the principal employer and the latter is responsible to the employees of
the labor-only contractor as if such employees had been directly employed by the
principal employer. The principal employer therefore becomes solidarity liable
with the labor-only contractor for all the rightful claims of the employees.
BELLOSILLO, J.:
TWO HUNDRED NINETY-ONE (291) workers filed their complaints (nine [9]
complaints in all) against San Miguel Corporation (petitioner herein) and Maerc
Integrated Services, Inc. (respondent herein), for illegal dismissal, underpayment
of wages, non-payment of service incentive leave pays and other labor standards
benefits, and for separation pays from 25 June to 24 October 1991. The
complainants alleged that they were hired by San Miguel Corporation (SMC)
through its agent or intermediary Maerc Integrated Services, Inc. (MAERC) to
work in two (2) designated workplaces in Mandaue City: one, inside the SMC
premises at the Mandaue Container Services, and another, in the Philphos
Warehouse owned by MAERC. They washed and segregated various kinds of
empty bottles used by SMC to sell and distribute its beer beverages to the
consuming public. They were paid on a per piece or pakiao basis except for a few
who worked as checkers and were paid on daily wage basis.
Complainants alleged that long before SMC contracted the services of MAERC a
majority of them had already been working for SMC under the guise of being
employees of another contractor, Jopard Services, until the services of the latter
were terminated on 31 January 1988.
SMC denied liability for the claims and averred that the complainants were not its
employees but of MAERC, an independent contractor whose primary corporate
purpose was to engage in the business of cleaning, receiving, sorting, classifying,
etc., glass and metal containers.
Page 33 of 69
It appears that SMC entered into a Contract of Services with MAERC engaging its
services on a non-exclusive basis for one (1) year beginning 1 February 1988. The
contract was renewed for two (2) more years in March 1989. It also provided for
its automatic renewal on a month-to-month basis after the two (2)-year period
and required that a written notice to the other party be given thirty (30) days
prior to the intended date of termination, should a party decide to discontinue
with the contract.
In a letter dated 15 May 1991, SMC informed MAERC of the termination of their
service contract by the end of June 1991. SMC cited its plans to phase out its
segregation activities starting 1 June 1991 due to the installation of labor and
cost-saving devices.
When the service contract was terminated, complainants claimed that SMC
stopped them from performing their jobs; that this was tantamount to their being
illegally dismissed by SMC who was their real employer as their activities were
directly related, necessary and desirable to the main business of SMC; and, that
MAERC was merely made a tool or a shield by SMC to avoid its liability under the
Labor Code.
MAERC for its part admitted that it recruited the complainants and placed them in
the bottle segregation project of SMC but maintained that it was only
conveniently used by SMC as an intermediary in operating the project or work
directly related to the primary business concern of the latter with the end in view
of avoiding its obligations and responsibilities towards the complaining workers.
The nine (9) cases1 were consolidated. On 31 January 1995 the Labor Arbiter
rendered a decision holding that MAERC was an independent contractor. 2 He
dismissed the complaints for illegal dismissal but ordered MAERC to pay
complainants' separation benefits in the total amount of P2,334,150.00. MAERC
and SMC were also ordered to jointly and severally pay complainants their wage
differentials in the amount of P845,117.00 and to pay attorney's fees in the
amount of P317,926.70.
The complainants appealed the Labor Arbiter's finding that MAERC was an
independent contractor and solely liable to pay the amount representing the
separation benefits to the exclusion of SMC, as well as the Labor Arbiter's failure
to grant the Temporary Living Allowance of the complainants. SMC appealed the
award of attorney's fees.
The National Labor Relations Commission (NLRC) ruled in its 7 January 1997
decision that MAERC was a labor-only contractor and that complainants were
employees of SMC.3 The NLRC also held that whether MAERC was a job contractor

or a labor-only contractor, SMC was still solidarily liable with MAERC for the
latter's unpaid obligations, citing Art. 1094 of the Labor Code. Thus, the NLRC
modified the judgment of the Labor Arbiter and held SMC jointly and severally
liable with MAERC for complainants' separation benefits. In addition, both
respondents were ordered to pay jointly and severally an indemnity fee of
P2,000.00 to each complainant.
SMC moved for a reconsideration which resulted in the reduction of the award of
attorney's fees from P317,926.70 to P84,511.70. The rest of the assailed decision
was unchanged.5
On 12 March 1998, SMC filed a petition for certiorari with prayer for the issuance
of a temporary restraining order and/or injunction with this Court which then
referred the petition to the Court of Appeals.
On 28 April 2000 the Court of Appeals denied the petition and affirmed the
decision of the NLRC.6 The appellate court also denied SMC's motion for
reconsideration in a resolution7 dated 26 July 2000. Hence, petitioner seeks a
review of the Court of Appeals' judgment before this Court.
Petitioner poses the same issues brought up in the appeals court and the pivotal
question is whether the complainants are employees of petitioner SMC or of
respondent MAERC.
Relying heavily on the factual findings of the Labor Arbiter, petitioner maintained
that MAERC was a legitimate job contractor. It directed this Court's attention to
the undisputed evidence it claimed to establish this assertion: MAERC is a duly
organized stock corporation whose primary purpose is to engage in the business
of cleaning, receiving, sorting, classifying, grouping, sanitizing, packing,
delivering, warehousing, trucking and shipping any glass and/or metal containers
and that it had listed in its general information sheet two hundred seventy-eight
(278) workers, twenty-two (22) supervisors, seven (7) managers/officers and a
board of directors; it also voluntarily entered into a service contract on a non-
exclusive basis with petitioner from which it earned a gross income of
P42,110,568.24 from 17 October 1988 to 27 November 1991; the service contract
specified that MAERC had the selection, engagement and discharge of its
personnel, employees or agents or otherwise in the direction and control thereof;
MAERC admitted that it had machinery, equipment and fixed assets used in its
business valued at P4,608,080.00; and, it failed to appeal the Labor Arbiter's
decision which declared it to be an independent contractor and ordered it to
solely pay the separation benefits of the complaining workers.
Page 34 of 69
We find no basis to overturn the Court of Appeals and the NLRC. Well-established
is the principle that findings of fact of quasi-judicial bodies, like the NLRC, are
accorded with respect, even finality, if supported by substantial
evidence.8 Particularly when passed upon and upheld by the Court of Appeals,
they are binding and conclusive upon the Supreme Court and will not normally be
disturbed.9
This Court has invariably held that in ascertaining an employer-employee
relationship, the following factors are considered: (a) the selection and
engagement of employee; (b) the payment of wages; (c) the power of dismissal;
and, (d) the power to control an employee's conduct, the last being the most
important.10 Application of the aforesaid criteria clearly indicates an employer-
employee relationship between petitioner and the complainants.
Evidence discloses that petitioner played a large and indispensable part in the
hiring of MAERC's workers. It also appears that majority of the complainants had
already been working for SMC long before the signing of the service contract
between SMC and MAERC in 1988.
The incorporators of MAERC admitted having supplied and recruited workers for
SMC even before MAERC was created.11 The NLRC also found that when MAERC
was organized into a corporation in February 1988, the complainants who were
then already working for SMC were made to go through the motion of applying
for work with Ms. Olga Ouano, President and General Manager of MAERC, upon
the instruction of SMC through its supervisors to make it appear that
complainants were hired by MAERC. This was testified to by two (2) of the
workers who were segregator and forklift operator assigned to the Beer
Marketing Division at the SMC compound and who had been working with SMC
under a purported contractor Jopard Services since March 1979 and March 1981,
respectively. Both witnesses also testified that together with other complainants
they continued working for SMC without break from Jopard Services to MAERC.
As for the payment of workers' wages, it is conceded that MAERC was paid in
lump sum but records suggest that the remuneration was not computed merely
according to the result or the volume of work performed. The memoranda of the
labor rates bearing the signature of a Vice-President and General Manager for the
Vismin Beer Operations12 as well as a director of SMC13 appended to the contract
of service reveal that SMC assumed the responsibility of paying for the mandated
overtime, holiday and rest day pays of the MAERC workers. 14 SMC also paid the
employer's share of the SSS and Medicare contributions, the 13th month pay,
incentive leave pay and maternity benefits.15 In the lump sum received, MAERC
earned a marginal amount representing the contractor's share. These lend
credence to the complaining workers' assertion that while MAERC paid the wages
of the complainants, it merely acted as an agent of SMC.

Petitioner insists that the most significant determinant of an employer-employee
relationship, i.e., the right to control, is absent. The contract of services between
MAERC and SMC provided that MAERC was an independent contractor and that
the workers hired by it "shall not, in any manner and under any circumstances, be
considered employees of the Company, and that the Company has no control or
supervision whatsoever over the conduct of the Contractor or any of its workers
in respect to how they accomplish their work or perform the Contractor's
obligations under the Contract."16
In deciding the question of control, the language of the contract is not
determinative of the parties' relationship; rather, it is the totality of the facts and
surrounding circumstances of each case.17
Despite SMCs disclaimer, there are indicia that it actively supervised the
complainants. SMC maintained a constant presence in the workplace through its
own checkers. Its asseveration that the checkers were there only to check the end
result was belied by the testimony of Carlito R. Singson, head of the Mandaue
Container Service of SMC, that the checkers were also tasked to report on the
identity of the workers whose performance or quality of work was not according
to the rules and standards set by SMC. According to Singson, "it (was) necessary
to identify the names of those concerned so that the management [referring to
MAERC] could call the attention to make these people improve the quality of
work."18
Viewed alongside the findings of the Labor Arbiter that the MAERC organizational
set-up in the bottle segregation project was such that the segregators/cleaners
were supervised by checkers and each checker was also under a supervisor who
was in turn under a field supervisor, the responsibility of watching over the
MAERC workers by MAERC personnel became superfluous with the presence of
additional checkers from SMC.
Reinforcing the belief that the SMC exerted control over the work performed by
the segregators or cleaners, albeit through the instrumentality of MAERC, were
letters by SMC to the MAERC management. These were letters 19 written by a
certain Mr. W. Padin20 addressed to the President and General Manager of MAERC
as well as to its head of operations,21 and a third letter22 from Carlito R. Singson
also addressed to the President and General Manager of MAERC. More than just a
mere written report of the number of bottles improperly cleaned and/or
segregated, the letters named three (3) workers who were responsible for the
rejection of several bottles, specified the infraction committed in the segregation
and cleaning, then recommended the penalty to be imposed. Evidently, these
workers were reported by the SMC checkers to the SMC inspector.
Page 35 of 69
While the Labor Arbiter dismissed these letters as merely indicative of the
concern in the end-result of the job contracted by MAERC, we find more credible
the contention of the complainants that these were manifestations of the right of
petitioner to recommend disciplinary measures over MAERC employees.
Although calling the attention of its contractors as to the quality of their services
may reasonably be done by SMC, there appears to be no need to instruct MAERC
as to what disciplinary measures should be imposed on the specific workers who
were responsible for rejections of bottles. This conduct by SMC representatives
went beyond a mere reminder with respect to the improperly cleaned/segregated
bottles or a genuine concern in the outcome of the job contracted by MAERC.
Control of the premises in which the contractor's work was performed was also
viewed as another phase of control over the work, and this strongly tended to
disprove the independence of the contractor. 23 In the case at bar, the bulk of the
MAERC segregation activities was accomplished at the MAERC-owned PHILPHOS
warehouse but the building along with the machinery and equipment in the
facility was actually being rented by SMC. This is evident from the memoranda of
labor rates which included rates for the use of forklifts and the warehouse at the
PHILPHOS area, hence, the NLRC's conclusion that the payment for the rent was
cleverly disguised since MAERC was not in the business of renting warehouses
and forklifts.24
Other instances attesting to SMC's supervision of the workers are found in the
minutes of the meeting held by the SMC officers on 5 December 1988. Among
those matters discussed were the calling of SMC contractors to have workers
assigned to segregation to undergo and pass eye examination to be done by SMC
EENT company doctor and a review of compensation/incentive system for
segregators to improve the segregation activities. 25
But the most telling evidence is a letter by Mr. Antonio Ouano, Vice-President of
MAERC dated 27 May 1991 addressed to Francisco Eizmendi, SMC President and
Chief Executive Officer, asking the latter to reconsider the phasing out of SMC's
segregation activities in Mandaue City. The letter was not denied but in fact used
by SMC to advance its own arguments.26
Briefly, the letter exposed the actual state of affairs under which MAERC was
formed and engaged to handle the segregation project of SMC. It provided an
account of how in 1987 Eizmendi approached the would-be incorporators of
MAERC and offered them the business of servicing the SMC bottle-washing and
segregation department in order to avert an impending labor strike. After initial
reservations, MAERC incorporators accepted the offer and before long trial
segregation was conducted by SMC at the PHILPHOS warehouse. 27

The letter also set out the circumstances under which MAERC entered into the
Contract of Services in 1988 with the assurances of the SMC President and CEO
that the employment of MAERC's services would be long term to enable it to
recover its investments. It was with this understanding that MAERC undertook
borrowings from banking institutions and from affiliate corporations so that it
could comply with the demands of SMC to invest in machinery and facilities.
In sum, the letter attested to an arrangement entered into by the two (2) parties
which was not reflected in the Contract of Services. A peculiar relationship
mutually beneficial for a time but nonetheless ended in dispute when SMC
decided to prematurely end the contract leaving MAERC to shoulder all the
obligations to the workers.
Petitioner also ascribes as error the failure of the Court of Appeals to apply the
ruling in Neri v. NLRC.28 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 29 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.
However, in Vinoya v. NLRC,30 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.31
In Neri, the Court considered not only the fact that respondent Building Care
Corporation (BBC) had substantial capitalization but noted that BCC 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
Page 36 of 69
except as to the results thereof.32 The Court likewise mentioned that the
employees of BCC were engaged to perform specific special services for their
principal.33 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.
In comparison, MAERC, as earlier discussed, displayed the characteristics of a
labor-only contractor. Moreover, while MAERC's investments in the form of
buildings, tools and equipment amounted to more than P4 Million, we cannot
disregard the fact that it was the SMC which required MAERC to undertake such
investments under the understanding that the business relationship between
petitioner and MAERC would be on a long term basis. Nor do we believe MAERC
to have an independent business. Not only was it set up to specifically meet the
pressing needs of SMC which was then having labor problems in its segregation
division, none of its workers was also ever assigned to any other establishment,
thus convincing us that it was created solely to service the needs of SMC.
Naturally, with the severance of relationship between MAERC and SMC followed
MAERC's cessation of operations, the loss of jobs for the whole MAERC workforce
and the resulting actions instituted by the workers.
Petitioner also alleged that the Court of Appeals erred in ruling that "whether
MAERC is an independent contractor or a labor-only contractor, SMC is liable
with MAERC for the latter's unpaid obligations to MAERC's workers."
On this point, we agree with petitioner as distinctions must be made. In legitimate
job contracting, the law creates an employer-employee relationship for a limited
purpose, i.e., to ensure that the employees are paid their wages. 34 The principal
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 principal employer is not responsible for any claim made by
the employees.
On the other hand, in labor-only contracting, the statute creates an employer-
employee relationship for a comprehensive purpose: to prevent a circumvention
of labor laws. The contractor is considered merely an agent of the principal
employer and the latter is responsible to the employees of the labor-only
contractor as if such employees had been directly employed by the principal
employer. The principal employer therefore becomes solidarily liable with the
labor-only contractor for all the rightful claims of the employees.
 Page 37 of 69

This distinction between job contractor and labor-only contractor, however, will 19 Adelo Cantillas 3,056.00 8,190.00 11,246.00
not discharge SMC from paying the separation benefits of the workers, inasmuch 20 Isaias Branzuela 3,056.00 8,190.00 11,246.00
as MAERC was shown to be a labor-only contractor; in which case, petitioner's 21 Ramon Rosales 3,056.00 8,190.00 11,246.00
liability is that of a direct employer and thus solidarily liable with MAERC. 22 Gaudencio Peson 3,056.00 8,190.00 11,246.00
23 Hector Cabañ og 3,056.00 8,190.00 11,246.00
SMC also failed to comply with the requirement of written notice to both the 24 Edgardo Dagmayan 3,056.00 8,190.00 11,246.00
employees concerned and the Department of Labor and Employment (DOLE) 25 Rogelio Cruz 3,056.00 8,190.00 11,246.00
which must be given at least one (1) month before the intended date of 26 Rolando Espina 3,056.00 8,190.00 11,246.00
retrenchment.35 The fines imposed for violations of the notice requirement have 27 Bernardino Regidor 3,056.00 8,190.00 11,246.00
varied.36 The measure of this award depends on the facts of each case and the
28 Arnelio Sumalinog 3,056.00 8,190.00 11,246.00
gravity of the omission committed by the employer.37 For its failure, petitioner
29 Gumersindo Alcontin 3,056.00 8,190.00 11,246.00
was justly ordered to indemnify each displaced worker P2,000.00.
30 Loreto Nuñ ez 3,056.00 8,190.00 11,246.00
31 Joebe Boy Dayon 3,056.00 8,190.00 11,246.00
The NLRC and the Court of Appeals affirmed the Labor Arbiter's award of
32 Conrado Mesanque 3,056.00 8,190.00 11,246.00
separation pay to the complainants in the total amount of P2,334,150.00 and of
wage differentials in the total amount of P845,117.00. These amounts are the 33 Marcelo Pescador 3,056.00 8,190.00 11,246.00
aggregate of the awards due the two hundred ninety-one (291) complainants as 34 Marcelino Jabagat 3,056.00 8,190.00 11,246.00
computed by the Labor Arbiter. The following is a summary of the computation of 35 Vicente Devilleres 3,056.00 8,190.00 11,246.00
the benefits due the complainants which is part of the Decision of the Labor 36 Vicente Alin 3,056.00 8,190.00 11,246.00
Arbiter. 37 Rodolfo Pahugot 3,056.00 8,190.00 11,246.00
38 Ruel Navares 3,056.00 8,190.00 11,246.00
SUMMARY 39 Danilo Anabieza 3,056.00 8,190.00 11,246.00
NAME SALARY SEPARATION TOTAL 40 Alex Juen 3,056.00 8,190.00 11,246.00
DIFFERENTIAL PAY
41 Juanito Garces 3,056.00 8,190.00 11,246.00
Case No. 06-1165-9
1 Rogelio Prado, Jr. P3,056.00 P8,190.00 P11,246.00 42 Silvino Limbaga 3,056.00 8,190.00 11,246.00
2 Eddie Selle 3,056.00 8,190.00 11,246.00 43 Aurelio Jurpacio 3,056.00 8,190.00 11,246.00
3 Alejandro Annabieza 3,056.00 8,190.00 11,246.00 44 Jovito Loon 3,056.00 8,190.00 11,246.00
4 Ananias Jumao-as 3,056.00 8,190.00 11,246.00 45 Victor Tenedero 3,056.00 8,190.00 11,246.00
5 Consorcio Manloloyo 3,056.00 8,190.00 11,246.00 46 Sasing Moreno 3,056.00 8,190.00 11,246.00
6 Anananias Alcotin 3,056.00 8,190.00 11,246.00 47 Wilfredo Hortezuela 3,056.00 8,190.00 11,246.00
7 Rey Gestopa 2,865.00 8,190.00 11,055.00 48 Joselito Melendez 3,056.00 8,190.00 11,246.00
8 Edgardo Nuñ ez 2,865.00 8,190.00 11,055.00 49 Alfredo Gestopa 3,056.00 8,190.00 11,246.00
9 Junel Cabatingan 2,865.00 8,190.00 11,055.00 50 Regino Gabuya 3,056.00 8,190.00 11,246.00
10 Paul Dumaqueta 2,865.00 8,190.00 11,055.00 51 Jorge Gamuzarno 3,056.00 8,190.00 11,246.00
11 Felimon Echavez 2,843.00 8,190.00 10,673.00 52 Lolito Cocido 3,056.00 8,190.00 11,246.00
12 Vito Sealana 2,843.00 8,190.00 10,673.00 53 Efraim Yubal 3,056.00 8,190.00 11,246.00
13 Denecia Palao 2,843.00 8,190.00 10,673.00 54 Venerando Roamar 3,056.00 8,190.00 11,246.00
14 Roberto Lapiz 3,056.00 8,190.00 11,246.00 55 Gerardo Butalid 3,056.00 8,190.00 11,246.00
15 Baltazar Labio 3,056.00 8,190.00 11,246.00 56 Hipolito Vidas 3,056.00 8,190.00 11,246.00
16 Leonardo Bongo 3,056.00 8,190.00 11,246.00 57 Vengelito Frias 3,056.00 8,190.00 11,246.00
17 El Cid Icalina 3,056.00 8,190.00 11,246.00 58 Vicente Celacio 3,056.00 8,190.00 11,246.00
18 Jose Diocampo 3,056.00 8,190.00 11,246.00 59 Corlito Pestañ as 3,056.00 8,190.00 11,246.00
 Page 38 of 69

60 Ervin Hyrosa 3,056.00 8,190.00 11,246.00 101 Diosdado Barriga 3,056.00 8,190.00 11,246.00
61 Rommel Guerero 3,056.00 8,190.00 11,246.00 102 Moises Sasan 3,056.00 8,190.00 11,246.00
62 Rodrigo Enerlas 3,056.00 8,190.00 11,246.00 103 Sinforiano Cantago 3,056.00 8,190.00 11,246.00
63 Francisco Carbonilla 3,056.00 8,190.00 11,246.00 104 Leonardo Marturillas 3,056.00 8,190.00 11,246.00
64 Nicanor Cuizon 3,056.00 8,190.00 11,246.00 105 Mario Ranis 3,056.00 8,190.00 11,246.00
65 Pedro Briones 3,056.00 8,190.00 11,246.00 106 Alejandro Ranido 3,056.00 8,190.00 11,246.00
66 Rodolfo Cabalhug 3,056.00 8,190.00 11,246.00 107 Jerome Prado 3,056.00 8,190.00 11,246.00
67 Teofilo Ricardo 3,056.00 8,190.00 11,246.00 108 Raul Oyao 3,056.00 8,190.00 11,246.00
68 Danilo R. Dizon 3,056.00 8,190.00 11,246.00 109 Victor Celacio 3,056.00 5,460.00 8,516.00
69 Alberto Embong 3,056.00 8,190.00 11,246.00 TOTAL P330,621.00 P884,520.00 P1,215,141.00
70 Alfonso Echavez 3,056.00 8,190.00 11,246.00 Case No. 07-1177-91
71 Gonzalo Roraceñ a 3,056.00 8,190.00 11,246.00 110 Gerardo Roque P3,056.00 P5,460.00 P8,516.00
72 Marcelo Caracina 3,056.00 8,190.00 11,246.00 Case No. 07-1176-91
111 Zosimo Cararaton P3,056.00 P8,192.00 P11,246.00
73 Raul Borres 3,056.00 8,190.00 11,246.00
Case No. 07-1219-91
74 Lino Tongalamos 3,056.00 8,190.00 11,246.00
112 Virgilio Zanoria P3,056.00 P5,460.00 P8,516.00
75 Artemio Bongo, Jr. 3,056.00 8,190.00 11,246.00
113 Jose Zanoria 3,056.00 5,460.00 8,516.00
76 Roy Avila 3,056.00 8,190.00 11,246.00
114 Allan Zanoria 3,056.00 5,460.00 8,516.00
77 Melchor Freglo 3,056.00 8,190.00 11,246.00
115 Victorino Seno 3,056.00 5,460.00 8,516.00
78 Raul Cabillada 3,056.00 8,190.00 11,246.00
116 Teodulo Jumao-as 3,056.00 5,460.00 8,516.00
79 Eddie Catab 3,056.00 8,190.00 11,246.00
117 Alexander Hera 3,056.00 5,460.00 8,516.00
80 Melencio Durano 3,056.00 8,190.00 11,246.00
118 Anthony Araneta 3,056.00 5,460.00 8,516.00
81 Allan Rago 3,056.00 8,190.00 11,246.00
119 Aldrin Suson 3,056.00 5,460.00 8,516.00
82 Dominador Caparida 3,056.00 8,190.00 11,246.00
120 Victor Verano 3,056.00 5,460.00 8,516.00
83 Jovito Catab 3,056.00 8,190.00 11,246.00
121 Ruel Sufrerencia 3,056.00 5,460.00 8,516.00
84 Albert Laspiñ as 3,056.00 8,190.00 11,246.00
122 Alfred Naparate 3,056.00 5,460.00 8,516.00
85 Alex Anabieza 3,056.00 8,190.00 11,246.00
123 Wenceslao Baclohon 3,056.00 8,190.00 11,246.00
86 Nestor Reynante 3,056.00 8,190.00 11,246.00
124 Eduardo Langita 3,056.00 8,190.00 11,246.00
87 Eulogio Estopa 3,056.00 8,190.00 11,246.00
TOTAL P39,728.00 P76,440.00 P116,168.00
88 Mario Bolo 3,056.00 8,190.00 11,246.00
Case No. 07-1283-91
89 Ederlito A. Balocano 3,056.00 8,190.00 11,246.00 125 Feliz Ordeneza P2,816.00 P8,190.00 P11,006.00
90 Joel Pepito 3,056.00 8,190.00 11,246.00 126 Arsenio Logarta 3,056.00 8,190.00 11,246.00
91 Reynaldo Ludia 3,056.00 5,460.00 8,516.00 127 Eduardo dela Vega 3,056.00 8,190.00 11,246.00
92 Manuel Cinco 3,056.00 5,460.00 8,516.00 128 Joventino Canoog 3,056.00 8,190.00 11,246.00
93 Allan Agustin 3,056.00 8,190.00 11,246.00 TOTAL P11,984.00 P32,760.00 P44,744.00
94 Pablito Polegrates 3,056.00 8,190.00 11,246.00 Case No. 10-1584-91
95 Clyde Prado 3,056.00 8,190.00 11,246.00 129 Regelio Abapo P3,056.00 P8,190.00 P11,246.00
96 Dindo Misa 3,056.00 8,190.00 11,246.00 Case No. 08-1321-91
130 Ricardo Ramas P3,056.00 P8,190.00 P11,246.00
97 Roger Sasing 3,056.00 8,190.00 11,246.00
Case No. 09-1507-91
98 Ramon Arcallana 3,056.00 8,190.00 11,246.00
131 Jose Bandialan P2,816.00 P8,190.00 P11,006.00
99 Gabriel Salas 3,056.00 8,190.00 11,246.00
132 Antonio Basalan 2,816.00 8,190.00 11,006.00
100 Edwin Sasan 3,056.00 8,190.00 11,246.00
 Page 39 of 69

133 Lyndon Basalan 2,816.00 8,190.00 11,006.00 134 Wilfredo Aliviano 2,816.00 8,190.00 11,006.00
 Page 40 of 69

135 Bienvenido Rosario 2,816.00 8,190.00 11,006.00 174 Henry Gedaro 2,816.00 8,190.00 11,006.00
136 Jesus Capangpangan 2,816.00 8,190.00 11,006.00 175 Doisederio Gemperao 2,816.00 8,190.00 11,006.00
137 Renato Mendoza 2,816.00 8,190.00 11,006.00 176 Aniceto Gemperao 2,816.00 8,190.00 11,006.00
138 Alejandro Catandejan 2,816.00 8,190.00 11,006.00 177 Jerry Caparoso 2,816.00 8,190.00 11,006.00
139 Ruben Talaba 2,816.00 8,190.00 11,006.00 178 Serlito Noynay 2,816.00 8,190.00 11,006.00
140 Filemon Echavez 2,816.00 8,190.00 11,006.00 179 Luciano Recopelacion 2,816.00 8,190.00 11,006.00
141 Marcelino Caracena 2,816.00 8,190.00 11,006.00 180 Juanito Garces 2,816.00 8,190.00 11,006.00
142 Ignacio Misa 2,816.00 8,190.00 11,006.00 181 Feliciano Torres 2,816.00 8,190.00 11,006.00
143 Feliciano Agbay 2,816.00 8,190.00 11,006.00 182 Ranilo Villareal 2,816.00 8,190.00 11,006.00
144 Victor Maglasang 2,816.00 8,190.00 11,006.00 183 Fermin Aliviano 2,816.00 8,190.00 11,006.00
145 Arturo Heyrosa 2,816.00 8,190.00 11,006.00 184 Junjie Laviste 2,816.00 8,190.00 11,006.00
146 Alipio Tirol 2,816.00 8,190.00 11,006.00 185 Tomacito de Castro 2,816.00 8,190.00 11,006.00
147 Rosendo Mondares 2,816.00 8,190.00 11,006.00 186 Joselito Capilina 2,816.00 8,190.00 11,006.00
148 Aniceto Ludia 2,816.00 8,190.00 11,006.00 187 Samuel Casquejo 2,816.00 8,190.00 11,006.00
149 Reynaldo Lavandero 2,816.00 8,190.00 11,006.00 188 Leonardo Natad 2,816.00 8,190.00 11,006.00
150 Reuyan Herculano 2,816.00 8,190.00 11,006.00 189 Benjamin Sayson 2,816.00 8,190.00 11,006.00
151 Teodula Nique 2,816.00 8,190.00 11,006.00 190 Pedro Inoc 2,816.00 8,190.00 11,006.00
TOTAL P59,136.00 P171,990.00 P231,126.00 191 Edward Flores 2,816.00 8,190.00 11,006.00
Case No. 06-1145-91 192 Edwin Sasan 2,816.00 8,190.00 11,006.00
152 Emerberto Orque P2,816.00 P8,190.00 P11,006.00 193 Jose Rey Inot 2,816.00 8,190.00 11,006.00
153 Zosimo Baobao 2,816.00 8,190.00 11,006.00 194 Edgar Cortes 2,816.00 8,190.00 11,006.00
154 Medardo Singson 2,816.00 8,190.00 11,006.00 195 Romeo Lombog 2,816.00 8,190.00 11,006.00
155 Antonio Patalinghug 2,816.00 8,190.00 11,006.00 196 Nicolas Ribo 2,816.00 8,190.00 11,006.00
156 Ernesto Singson 2,816.00 8,190.00 11,006.00 197 Jaime Rubin 2,816.00 8,190.00 11,006.00
157 Roberto Torres 2,816.00 8,190.00 11,006.00 198 Orlando Regis 2,816.00 8,190.00 11,006.00
158 Cesar Escario 2,816.00 8,190.00 11,006.00 199 Ricky Alconza 2,816.00 8,190.00 11,006.00
159 Leodegario Dollecin 2,816.00 8,190.00 11,006.00 200 Rudy Tagalog 2,816.00 8,190.00 11,006.00
160 Alberto Anoba 2,816.00 8,190.00 11,006.00 201 Victorino Tagalog 2,816.00 8,190.00 11,006.00
161 Rodrigo Bisnar 2,816.00 8,190.00 11,006.00 202 Edward Colina 2,816.00 8,190.00 11,006.00
162 Zosimo Bingas 2,816.00 8,190.00 11,006.00 203 Ronie Gonzaga 2,816.00 8,190.00 11,006.00
163 Rosalio Duran, Sr. 2,816.00 8,190.00 11,006.00 204 Paul Cabillada 2,816.00 8,190.00 11,006.00
164 Rosalio Duran, Jr. 2,816.00 8,190.00 11,006.00 205 Wilfredo Magalona 2,816.00 8,190.00 11,006.00
165 Romeo Duran 2,816.00 8,190.00 11,006.00 206 Joel Pepito 2,816.00 8,190.00 11,006.00
166 Antonio Abella 2,816.00 8,190.00 11,006.00 207 Prospero Maglasang 2,816.00 8,190.00 11,006.00
167 Mariano Repollo 2,816.00 8,190.00 11,006.00 208 Allan Agustin 2,816.00 8,190.00 11,006.00
168 Polegarpo Degamo 2,816.00 8,190.00 11,006.00 209 Fausto Bargayo 2,816.00 8,190.00 11,006.00
169 Mario Cereza 2,816.00 8,190.00 11,006.00 210 Nomer Sanchez 2,816.00 8,190.00 11,006.00
170 Antonio Laoronilla 2,816.00 8,190.00 11,006.00 211 Jolito Alin 2,816.00 8,190.00 11,006.00
171 Proctuso Magallanes 2,816.00 8,190.00 11,006.00 212 Birning Regidor 2,816.00 8,190.00 11,006.00
172 Eladio Torres 2,816.00 8,190.00 11,006.00 213 Garry Dignos 2,816.00 8,190.00 11,006.00
173 Warlito Demana 2,816.00 8,190.00 11,006.00 214 Edwin Dignos 2,816.00 8,190.00 11,006.00
 Page 41 of 69

215 Dario Dignos 2,816.00 8,190.00 11,006.00

216 Rogelio Dignos 2,816.00 8,190.00 11,006.00
217 Jimmy Cabigas 2,816.00 8,190.00 11,006.00
218 Fernando Anajao 2,816.00 8,190.00 11,006.00
219 Alex Flores 2,816.00 8,190.00 11,006.00
220 Fernando Remedio 2,816.00 8,190.00 11,006.00
221 Toto Mosquido 2,816.00 8,190.00 11,006.00
222 Alberto Yagonia 2,816.00 8,190.00 11,006.00
223 Victor Bariquit 2,816.00 8,190.00 11,006.00
224 Ignacio Misa 2,816.00 8,190.00 11,006.00
225 Eliseo Villareno 2,816.00 8,190.00 11,006.00
226 Manuel Lavandero 2,816.00 8,190.00 11,006.00
227 Vircede 2,816.00 8,190.00 11,006.00
228 Mario Ranis 2,816.00 8,190.00 11,006.00
229 Jaime Responso 2,816.00 8,190.00 11,006.00
230 Marianito Aguirre 2,816.00 8,190.00 11,006.00
231 Marcial Heruela 2,816.00 8,190.00 11,006.00
232 Godofredo Tuñ acao 2,816.00 8,190.00 11,006.00
233 Perfecto Regis 2,816.00 8,190.00 11,006.00
234 Roel Demana 2,816.00 8,190.00 11,006.00
235 Elmer Castillo 2,816.00 8,190.00 11,006.00
236 Wilfredo Calamohoy 2,816.00 8,190.00 11,006.00
237 Rudy Lucernas 2,816.00 8,190.00 11,006.00
238 Antonio Cañ ete 2,816.00 8,190.00 11,006.00
239 Efraim Yubal 2,816.00 8,190.00 11,006.00
240 Jesus Capangpangan 2,816.00 8,190.00 11,006.00
241 Damian 2,816.00 8,190.00 11,006.00
Capangpangan
242 Teofilo Capangpangan 2,816.00 8,190.00 11,006.00
243 Nilo Capangpangan 2,816.00 8,190.00 11,006.00
244 Cororeno 2,816.00 8,190.00 11,006.00
Capangpangan
245 Emilio Mondares 2,816.00 8,190.00 11,006.00
246 Ponciano Agana 2,816.00 8,190.00 11,006.00
247 Vicente Devilleres 2,816.00 8,190.00 11,006.00
248 Mario Alipan 2,816.00 8,190.00 11,006.00
249 Romanito Alipan 2,816.00 8,190.00 11,006.00
250 Aldeon Robinson 2,816.00 8,190.00 11,006.00
251 Fortunato Soco 2,816.00 8,190.00 11,006.00
252 Celso Compuesto 2,816.00 8,190.00 11,006.00
253 William Itoralde 2,816.00 8,190.00 11,006.00
254 Antonio Pescador 2,816.00 8,190.00 11,006.00
Page 42 of 69
 Page 43 of 69

255 Jeremias Rondero 2,816.00 8,190.00 11,006.00 07-1177-91 3,056.00 5,460.00 8,516.00
256 Estropio Punay 2,816.00 8,190.00 11,006.00 06-1176-91 3,056.00 8,190.00 11,246.00
257 Leovijildo Punay 2,816.00 8,190.00 11,006.00 07-1219-91 39,728.00 76,440.00 116,168.00
258 Romeo 2,816.00 8,190.00 11,006.00 07-1283-91 11,984.00 32,760.00 44,744.00
Quilongquilong 10-1584-91 3,056.00 8,190.00 11,246.00
259 Wilfredo Gestopa 2,816.00 8,190.00 11,006.00
08-1321-91 3,056.00 8,190.00 11,246.00
260 Eliseo Santos 2,816.00 8,190.00 11,006.00
09-1507-91 59,136.00 171,990.00 231,126.00
261 Henry Orio 2,816.00 8,190.00 11,006.00
06-1145-91 391,424.00 1,138,410.00 1,529,834.00
262 Jose Yap 2,816.00 8,190.00 11,006.00
GRAND TOTAL P845,117.00 P2,334,150.00 P3,179,267.00
263 Nicanor Manayaga 2,816.00 8,190.00 11,006.00
264 Teodoro Salinas 2,816.00 8,190.00 11,006.00
265 Aniceto Montero 2,816.00 8,190.00 11,006.00 However, certain matters have cropped up which require a review of the awards
266 Rafaelito Versoza 2,816.00 8,190.00 11,006.00
to some complainants and a recomputation by the Labor Arbiter of the total
amounts.
267 Alejandro Ranido 2,816.00 8,190.00 11,006.00
268 Henry Talaba 2,816.00 8,190.00 11,006.00
A scrutiny of the enumeration of all the complainants shows that some
269 Romulo Talaba 2,816.00 8,190.00 11,006.00
names38 appear twice by virtue of their being included in two (2) of the nine (9)
270 Diosdado Besabela 2,816.00 8,190.00 11,006.00
consolidated cases. A check of the Labor Arbiter's computation discloses that
271 Sylvestre Toring 2,816.00 8,190.00 11,006.00
most of these names were awarded different amounts of separation pay or wage
272 Edilberto Padilla 2,816.00 8,190.00 11,006.00 differential in each separate case where they were impleaded as parties because
273 Allan Herosa 2,816.00 8,190.00 11,006.00 the allegations of the length and period of their employment for the separate
274 Ernesto Sumalinog 2,816.00 8,190.00 11,006.00 cases, though overlapping, were also different. The records before us are
275 Ariston Velasco, Jr. 2,816.00 8,190.00 11,006.00 incomplete and do not aid in verifying whether these names belong to the same
276 Fernando Lopez 2,816.00 8,190.00 11,006.00 persons but at least three (3) of those names were found to have identical
277 Alfonso Echavez 2,816.00 8,190.00 11,006.00 signatures in the complaint forms they filed in the separate cases. It is likely
278 Nicanor Cuizon 2,816.00 8,190.00 11,006.00 therefore that the Labor Arbiter erroneously granted some complainants
279 Dominador Caparida 2,816.00 8,190.00 11,006.00 separation benefits and wage differentials twice. Apart from this, we also
280 Zosimo Cororation 2,816.00 8,190.00 11,006.00
discovered some names that are almost identical.39 It is possible that the minor
variance in the spelling of some names may have been a typographical error and
281 Artemio Loveranes 2,816.00 8,190.00 11,006.00
refer to the same persons although the records seem to be inconclusive.
282 Dionisio Yagonia 2,816.00 8,190.00 11,006.00
283 Victor Celocia 2,816.00 8,190.00 11,006.00
Furthermore, one of the original complainants40 was inadvertently omitted by the
284 Hipolito Vidas 2,816.00 8,190.00 11,006.00
Labor Arbiter from his computations.41 The counsel for the complainants
285 Teodoro Arcillas 2,816.00 8,190.00 11,006.00
promptly filed a motion for inclusion/correction42 which motion was treated as
286 Marcelino Habagat 2,816.00 8,190.00 11,006.00 an appeal of the Decision as the Labor Arbiter was prohibited by the rules of the
287 Gaudioso Labasan 2,816.00 8,190.00 11,006.00 NLRC from entertaining any motion at that stage of the proceedings. 43 The NLRC
288 Leopoldo Regis 2,816.00 8,190.00 11,006.00 for its part acknowledged the omission44 but both the Commission and
289 Aquillo Damole 2,816.00 8,190.00 11,006.00 subsequently the Court of Appeals failed to rectify the oversight in their decisions.
290 Willy Roble 2,816.00 8,190.00 11,006.00
TOTAL P391,424.00 P1,138,410.00 P1,529,834.00 Finally, the NLRC ordered both MAERC and SMC to pay P84,511.70 in attorneys
RECAP fees which is ten percent (10%) of the salary differentials awarded to the
CASE NO. SALARY SEPARATION TOTAL complainants in accordance with Art. 111 of the Labor Code. The Court of Appeals
DIFFERENTIAL PAY also affirmed the award. Consequently, with the recomputation of the salary
06-1165-91 P330,621.00 P884,520.00 P1,215,141.00 differentials, the award of attorney's fees must also be modified.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of
Appeals dated 28 April 2000 and the Resolution dated 26 July 2000 are
AFFIRMED with MODIFICATION. Respondent Maerc Integrated Services, Inc. is
declared to be a labor-only contractor. Accordingly, both petitioner San Miguel
Corporation and respondent Maerc Integrated Services, Inc., are ordered to
jointly and severally pay complainants (private respondents herein) separation
benefits and wage differentials as may be finally recomputed by the Labor Arbiter
as herein directed, plus attorney's fees to be computed on the basis of ten percent
(10%) of the amounts which complainants may recover pursuant to Art. 111 of
the Labor Code, as well as an indemnity fee of P2,000.00 to each complainant.
The Labor Arbiter is directed to review and recompute the award of separation
pays and wage differentials due complainants whose names appear twice or are
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-80680 January 26, 1989
DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R.
ERISPE, JOEL MADRIAGA, ARTHUR M. ESPINO, AMARO BONA, FERDINAND
CRUZ, FEDERICO A. BELITA, ROBERTO P. ISLES, ELMER ARMADA, EDUARDO
UDOG, PETER TIANSING, MIGUELITA QUIAMBOA, NOMER MATAGA, VIOLY
ESTEBAN and LYDIA ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON,
NATIONAL LABOR RELATIONS COMMISSION, and HON. EMERSON C.
TUMANON, respondents.
V.E. Del Rosario & Associates for respondent CMC.
The Solicitor General for public respondent.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.
Mildred A. Ramos for respondent Lily Victoria A. Azarcon.
Labor Law; Labor Relations; Employer-Employee Relationship; The existence
of an employer-employee relation cannot be made the subject of an agreement.—
The existence of an employer-employee relation is a question of law and being
such, it cannot be made the subject of agreement. Hence, the fact that the
manpower supply agreement between Livi and California had specifically
designated the former as the petitioners’ employer and had absolved the latter
Page 44 of 69
notably similar, compute the monetary award due to complainant Niel Zanoria
whose name was omitted in the Labor Arbiter's Decision and immediately
execute the monetary awards as found in the Labor Arbiter's computations
insofar as those complainants whose entitlement to separation pay and wage
differentials and the amounts thereof are no longer in question. Costs against
petitioner.
SO ORDERED.
Austria-Martinez, Callejo, Sr. and Tinga, JJ ., concur.
Quisumbing, J ., is on leave.
from any liability as an employer, will not erase either party’s obligations as an
employer, if an employer-employee relation otherwise exists between the
workers and either firm. At any rate, since the agreement was between Livi and
California, they alone are bound by it, and the petitioners cannot be made to
suffer from its adverse consequences.
Same; Same; Same; “Labor Only” Contracting; The “labor only” contractor is
considered merely an agent of the employer, liability therefore must be shouldered
by either one or shared by both.—On the other hand, we have likewise held, based
on Article 106 of the Labor Code. xxx that notwithstanding the absence of a direct
employeremployee relationship between the employer in whose favor work had
been contracted out by a “labor-only” contractor, and the employees, the former
has the responsibility, together with the “labor-only” contractor for any valid
labor claims, by operation of law. The reason, so we held, is that the “labor-only”
contractor is considered “merely an agent of the employer, and liability must be
shouldered by either one or shared by both.
Employees; A temporary or casual employee becomes regular after service of
one year, unless he has been contracted for a specific project.—The fact that the
petitioners have been hired on a “temporary or seasonal” basis merely is no
argument either. As we held in Philippine Bank of Communications v. NLRC, a
temporary or casual employee, under Article 281 of the Labor Code, becomes
regular after service of one year, unless he has been contracted for a specific
project. And we cannot say that merchandising is a specific project for the
obvious reason that it is an activity related to the day-to-day operations of
California.
SARMIENTO, J.:
On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the
National Labor Relations Commission for reinstatement and payment of various
benefits, including minimum wage, overtime pay, holiday pay, thirteen-month

pay, and emergency cost of living allowance pay, against the respondent, the
California Manufacturing Company. 1
On October 7, 1986, after the cases had been consolidated, the California
Manufacturing Company (California) filed a motion to dismiss as well as a
position paper denying the existence of an employer-employee relation between
the petitioners and the company and, consequently, any liability for payment of
money claims. 2 On motion of the petitioners, Livi Manpower Services, Inc. was
impleaded as a party-respondent.
It appears that the petitioners were, prior to their stint with California, employees
of Livi Manpower Services, Inc. (Livi), which subsequently assigned them to work
as "promotional merchandisers" 3 for the former firm pursuant to a manpower
supply agreement. Among other things, the agreement provided that California
"has no control or supervisions whatsoever over [Livi's] workers with respect to
how they accomplish their work or perform [Californias] obligation"; 4 the Livi "is
an independent contractor and nothing herein contained shall be construed as
creating between [California] and [Livi] . . . the relationship of principal[-]agent or
employer[-]employee'; 5 that "it is hereby agreed that it is the sole responsibility
of [Livi] to comply with all existing as well as future laws, rules and regulations
pertinent to employment of labor" 6 and that "[California] is free and harmless
from any liability arising from such laws or from any accident that may befall
workers and employees of [Livi] while in the performance of their duties for
[California].7
It was further expressly stipulated that the assignment of workers to California
shall be on a "seasonal and contractual basis"; that "[c]ost of living allowance and
the 10 legal holidays will be charged directly to [California] at cost "; and that
"[p]ayroll for the preceeding [sic] week [shall] be delivered by [Livi] at
[California's] premises." 8
The petitioners were then made to sign employment contracts with durations of
six months, upon the expiration of which they signed new agreements with the
same period, and so on. Unlike regular California employees, who received not
less than P2,823.00 a month in addition to a host of fringe benefits and bonuses,
they received P38.56 plus P15.00 in allowance daily.
The petitioners now allege that they had become regular California employees
and demand, as a consequence whereof, similar benefits. They likewise claim that
pending further proceedings below, they were notified by California that they
would not be rehired. As a result, they filed an amended complaint charging
California with illegal dismissal.
Page 45 of 69
California admits having refused to accept the petitioners back to work but deny
liability therefor for the reason that it is not, to begin with, the petitioners'
employer and that the "retrenchment" had been forced by business losses as well
as expiration of contracts.9 It appears that thereafter, Livi re-absorbed them into
its labor pool on a "wait-in or standby" status. 10
Amid these factual antecedents, the Court finds the single most important issue to
be: Whether the petitioners are California's or Livi's employees.
The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the
existence of any employer-employee relation between the petitioners and
California ostensibly in the light of the manpower supply contract, supra, and
consequently, against the latter's liability as and for the money claims demanded.
In the same breath, however, the labor arbiter absolved Livi from any obligation
because the "retrenchment" in question was allegedly "beyond its control ." 13 He
assessed against the firm, nevertheless, separation pay and attorney's fees.
We reverse.
The existence of an employer-employees relation is a question of law and being
such, it cannot be made the subject of agreement. Hence, the fact that the
manpower supply agreement between Livi and California had specifically
designated the former as the petitioners' employer and had absolved the latter
from any liability as an employer, will not erase either party's obligations as an
employer, if an employer-employee relation otherwise exists between the
workers and either firm. At any rate, since the agreement was between Livi and
California, they alone are bound by it, and the petitioners cannot be made to
suffer from its adverse consequences.
This Court has consistently ruled that the determination of whether or not there
is an employer-employee relation depends upon four standards: (1) the manner
of selection and engagement of the putative employee; (2) the mode of payment
of wages; (3) the presence or absence of a power of dismissal; and (4) the
presence or absence of a power to control the putative employee's conduct. 14 Of
the four, the right-of-control test has been held to be the decisive factor. 15
On the other hand, we have likewise held, based on Article 106 of the Labor Code,
hereinbelow reproduced:

ART. 106. Contractor or sub-contractor. — Whenever an
employee 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 sub-contractor, if any, shall be paid
in accordance with the provisions of this Code.
In the event that the contractor or sub-contractor fails to pay
wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor
or sub-contractor 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 provisions of this Code.
There is 'labor-only' contracting where the person supplying
workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed
by such person are performing activities which are directly
related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the workers in
the same manner and extent as if the latter were directly
employed by him.
that notwithstanding the absence of a direct employer-employee relationship
between the employer in whose favor work had been contracted out by a "labor-
only" contractor, and the employees, the former has the responsibility, together
with the "labor-only" contractor, for any valid labor claims, 16 by operation of law.
The reason, so we held, is that the "labor-only" contractor is considered "merely
an agent of the employer,"17 and liability must be shouldered by either one or
shared by both. 18
Page 46 of 69
There is no doubt that in the case at bar, Livi performs "manpower
services", 19 meaning to say, it contracts out labor in favor of clients. We hold that
it is one notwithstanding its vehement claims to the contrary, and
notwithstanding the provision of the contract that it is "an independent
contractor." 20 The nature of one's business is not determined by self-serving
appellations one attaches thereto but by the tests provided by statute and
prevailing case law. 21 The bare fact that Livi maintains a separate line of business
does not extinguish the equal fact that it has provided California with workers to
pursue the latter's own business. In this connection, we do not agree that the
petitioners had been made to perform activities 'which are not directly related to
the general business of manufacturing," 22 California's purported "principal
operation activity. " 23 The petitioner's had been charged with "merchandizing
[sic] promotion or sale of the products of [California] in the different sales outlets
in Metro Manila including task and occational [sic] price tagging," 24 an activity
that is doubtless, an integral part of the manufacturing business. It is not, then, as
if Livi had served as its (California's) promotions or sales arm or agent, or
otherwise, rendered a piece of work it (California) could not have itself done; Livi,
as a placement agency, had simply supplied it with the manpower necessary to
carry out its (California's) merchandising activities, using its (California's)
premises and equipment. 25
Neither Livi nor California can therefore escape liability, that is, assuming one
exists.
The fact that the petitioners have allegedly admitted being Livi's "direct
employees" 26 in their complaints is nothing conclusive. For one thing, the fact
that the petitioners were (are), will not absolve California since liability has been
imposed by legal operation. For another, and as we indicated, the relations of
parties must be judged from case to case and the decree of law, and not by
declarations of parties.
The fact that the petitioners have been hired on a "temporary or seasonal" basis
merely is no argument either. As we held in Philippine Bank of Communications v.
NLRC,  27 a temporary or casual employee, under Article 218 of the Labor Code,
becomes regular after service of one year, unless he has been contracted for a
specific project. And we cannot say that merchandising is a specific project for the
obvious reason that it is an activity related to the day-to-day operations of
California.
It would have been different, we believe, had Livi been discretely a promotions
firm, and that California had hired it to perform the latter's merchandising
activities. For then, Livi would have been truly the employer of its employees, and
California, its client. The client, in that case, would have been a mere patron, and
not an employer. The employees would not in that event be unlike waiters, who,

although at the service of customers, are not the latter's employees, but of the
restaurant. As we pointed out in the Philippine Bank of Communications case:
xxx xxx xxx
... The undertaking given by CESI in favor of the bank was not the
performance of a specific job for instance, the carriage and
delivery of documents and parcels to the addresses thereof.
There appear to be many companies today which perform this
discrete service, companies with their own personnel who pick
up documents and packages from the offices of a client or
customer, and who deliver such materials utilizing their own
delivery vans or motorcycles to the addressees. In the present
case, the undertaking of CESI was to provide its client the bank
with a certain number of persons able to carry out the work of
messengers. Such undertaking of CESI was complied with when
the requisite number of persons were assigned or seconded to
the petitioner bank. Orpiada utilized the premises and office
equipment of the bank and not those of CESI. Messengerial work
the delivery of documents to designated persons whether within
or without the bank premises-is of course directly related to the
day-to-day operations of the bank. Section 9(2) quoted above
does not require for its applicability that the petitioner must be
engaged in the delivery of items as a distinct and separate line of
business.
Succinctly put, CESI is not a parcel delivery company: as its name
indicates, it is a recruitment and placement corporation placing
bodies, as it were, in different client companies for longer or
shorter periods of time, ... 28
In the case at bar, Livi is admittedly an "independent contractor providing
temporary services of manpower to its client. " 29 When it thus provided
California with manpower, it supplied California with personnel, as if such
personnel had been directly hired by California. Hence, Article 106 of the Code
applies.
The Court need not therefore consider whether it is Livi or California which
exercises control over the petitioner vis-a-vis the four barometers referred to
earlier, since by fiction of law, either or both shoulder responsibility.
It is not that by dismissing the terms and conditions of the manpower supply
agreement, we have, hence, considered it illegal. Under the Labor Code, genuine
Page 47 of 69
job contracts are permissible, provided they are genuine job contracts. But, as we
held in Philippine Bank of Communications, supra, when such arrangements are
resorted to "in anticipation of, and for the very purpose of making possible, the
secondment" 30 of the employees from the true employer, the Court will be
justified in expressing its concern. For then that would compromise the rights of
the workers, especially their right to security of tenure.
This brings us to the question: What is the liability of either Livi or California?
The records show that the petitioners bad been given an initial six-month
contract, renewed for another six months. Accordingly, under Article 281 of the
Code, they had become regular employees-of-California-and had acquired a
secure tenure. Hence, they cannot be separated without due process of law.
California resists reinstatement on the ground, first, and as we Id, that the
petitioners are not its employees, and second, by reason of financial distress
brought about by "unfavorable political and economic atmosphere" 31 "coupled by
the February Revolution." 32 As to the first objection, we reiterate that the
petitioners are its employees and who, by virtue of the required one-year length-
of-service, have acquired a regular status. As to the second, we are not convinced
that California has shown enough evidence, other than its bare say so, that it had
in fact suffered serious business reverses as a result alone of the prevailing
political and economic climate. We further find the attribution to the February
Revolution as a cause for its alleged losses to be gratuitous and without basis in
fact.
California should be warned that retrenchment of workers, unless clearly
warranted, has serious consequences not only on the State's initiatives to
maintain a stable employment record for the country, but more so, on the
workingman himself, amid an environment that is desperately scarce in jobs. And,
the National Labor Relations Commission should have known better than to fall
for such unwarranted excuses and nebulous claims.
WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1):
SETTING ASIDE the decision, dated March 20, 1987, and the resolution, dated
August 19, 1987; (2) ORDERING the respondent, the California Manufacturing
Company, to REINSTATE the petitioners with full status and rights of regular
employees; and (3) ORDERING the respondent, the California Manufacturing
Company, and the respondents, Livi Manpower Service, Inc. and/or Lily-Victoria
Azarcon, to PAY, jointly and severally, unto the petitioners: (a) backwages and
differential pays effective as and from the time they had acquired a regular status
under the second paragraph, of Section 281, of the Labor Code, but not to exceed
three (3) years, and (b) all such other and further benefits as may be provided by

existing collective bargaining agreement(s) or other relations, or by law,
beginning such time; and (4) ORDERING the private respondents to PAY unto the
petitioners attorney's fees equivalent to ten (10%) percent of all money claims
hereby awarded, in addition to those money claims. The private respondents are
likewise ORDERED to PAY the costs of this suit.
SECOND DIVISION
G.R. No. 121327            December 20, 2001
CECILIO P. DE LOS SANTOS and BUKLOD MANGGAGAWA NG CAMARA
(BUMACA), petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION), HON.
COMMISSIONERS VICTORIANO R. CALAYCAY, RAUL T. AQUINO, and ROGELIO
I. RAYALA, CAMARA STEEL INDUSTRIES INC., JOSELITO JACINTO, ALBERTO
F. DEL PILAR, DENNIS ALBANO, MERCEDITA G. PASTRANA, TOP-FLITE and
RAUL RUIZ, respondents.
Labor Law; Employer-Employee Relationship;  Standards in Determining
Existence of Employer-Employee Relationship.—Etched in an unending stream of
cases are the four (4) standards in determining the existence of an employer-
employee relationship, namely: (a) the manner of selection and engagement of
the putative employee; (b) the mode of payment of wages; (c) the presence or
absence of power of dismissal; and, (d) the presence or absence of control of the
putative employee’s conduct. Most determinative among these factors is the so-
called “control test.”
Same; Same; Daily Time Records; Daily time records which were signed by
company officers prove that the company exercised the power of control and
supervision over its employees.—Incidentally, we do not agree with NLRC’s
submission that the daily time records serve no other purpose than to establish
merely the presence of De los Santos within the premises of CAMARA STEEL.
Contrarily, these records, which were signed by the company’s officers, prove that
the company exercised the power of control and supervision over its employees,
particularly De los Santos. There is dearth of proof to show that Top-Flite was the
real employer of De los Santos other than a naked and unsubstantiated denial by
CAMARA STEEL that it has no power of control over De los Santos. Records would
attest that even the power to dismiss was vested with CAMARA STEEL which
admitted in its Reply that “Top-Flite requested CAMARA STEEL to terminate his
employment after he was caught by the security guard committing theft.”
Same; Illegal Dismissal; Loss of Trust and Confidence; Loss of confidence as a
just cause for the termination of employment is based on the premise that the
employee holds a position of trust and confidence, as when he is entrusted with
responsibility involving delicate matters—the task of a janitor does not fall squarely
Page 48 of 69
IT IS SO ORDERED.
Melencio-Herrera, (Chairperson), Paras, Padilla and Regalado, JJ., concur.
under this category.—Of course, it must be stressed that loss of confidence as a
just cause for the termination of employment is based on the premise that the
employee holds a position of trust and confidence, as when he is entrusted with
responsibility involving delicate matters, and the task of a janitor does not fall
squarely under this category.
Same; Same; Labor-Only Contracting; A person cannot dictate, by the mere
expedient of a unilateral declaration in a contract, the character of its business, i.e.,
whether as “labor-only” contractor, or job contractor, it being crucial that its
character be measured in terms of and determined by the criteria set by statute.—
The preceding provisions do not give a clear and categorical answer as regards
the real character of Top-Flite’s business. For whatever its worth, the invocation
of the contract of service is a tacit admission by both parties that the employment
of De los Santos was by virtue of such contract. Be that as it may, Top-Flite, much
less CAMARA STEEL, cannot dictate, by the mere expedient of a unilateral
declaration in a contract, the character of its business, i.e., whether as “labor-only”
contractor, or job contractor, it being crucial that its character be measured in
terms of and determined by the criteria set by statute. The case of Tiu v.
NLRC succinctly enunciates this statutory criteria—Job contracting is permissible
only if the following conditions are met: 1) 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 as to the results thereof; and 2) the
contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the
conduct of the business.
Same; Same; Same; Elements; Words and Phrases; “Labor-Only Contracting,”
Defined.—“Labor-only contracting” as defined in Sec. 4, par. (f), Rule VIII-A, Book
III, of the Omnibus Rules Implementing the Labor Code states that a “labor-only”
contractor, prohibited under this Rule, is an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job, work
or service for a principal and the following elements are present: (a) The
contractor or subcontractor does not have substantial capital or investment to
actually perform the job, work or service under its own account or responsibility;
and, (b) 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.

Same; Jurisdiction; Administrative Law; Remand of Cases;  While jurisdiction
over the person of the defendant can be acquired by service of summons, it can also
be acquired by voluntary appearance before the court which includes submission of
pleadings in compliance with the order of the court or tribunal; Administrative
tribunals exercising quasi-judicial powers are unfettered by the rigidity of certain
procedural requirements subject to the observance of fundamental and essential
requirements of due process in justiciable cases presented before them; A remand of
the case, as the NLRC envisions, would compel petitioner, a lowly worker, to tread
once again the calvary of a protracted litigation and flagellate him into submission
with the lash of technicality.—The records show that Top-Flite was not only
impleaded in the aforementioned case but was in fact afforded an opportunity to
be heard when it submitted a position paper. This much was admitted by Top-
Flite in par. 5 of its Motion for Intervention where it stated that “movant
submitted its position paper in the cases mentioned in the preceding paragraph
but the Presiding Arbiter ignored the clear and legal basis of the position of the
movant.” In other words, the failure of Top-Flite to receive summons was not a
fatal procedural flaw because it was never deprived of the opportunity to
ventilate its side and challenge petitioner in its position paper, not to mention the
comment which it submitted through counsel before this Court. It moved to
intervene not because it had no notice of the proceedings but because its position
paper allegedly was not considered by the Labor Arbiter. While jurisdiction over
the person of the defendant can be acquired by service of summons, it can also be
acquired by voluntary appearance before the court which includes submission of
pleadings in compliance with the order of the court or tribunal. A
fortiori, administrative tribunals exercising quasi-judicial powers are unfettered
by the rigidity of certain procedural requirements subject to the observance of
fundamental and essential requirements of due process in justiciable cases
presented before them. In labor cases, a punctilious adherence to stringent
technical rules may be relaxed in the interest of the working-man. A remand of
the case, as the NLRC envisions, would compel petitioner, a lowly worker, to tread
once again the calvary of a protracted litigation and flagellate him into
submission with the lash of technicality.
BELLOSILLO, J.:
This is a petition for certiorari under Rule 65 assailing the Decision of public
respondent National Labor Relations Commission (NLRC) which remanded this
case to the Labor Arbiter who ruled that petitioner Cecilio P. de los Santos was
illegally dismissed by private respondent Camara Steel, Inc., and as a
consequence, ordered his immediate reinstatement. Specifically, the dispositive
portion of the Labor Arbiter's Decision promulgated 23 May 1999 states —
WHEREFORE, premises considered, respondent Camara Steel Industries,
Inc. is hereby ordered to reinstate complainant Cecilio de los Santos to
Page 49 of 69
his former position within ten (10) days from receipt of this Resolution
without loss of seniority rights and other benefits with full back wages
from date of dismissal up to actual date of reinstatement which is hereby
computed as of even date as follows:
From 8/23/93-12/15/93 = 3.73 mos.
P118 x 26 days x 3.73 mos. = P11,443.64
12/16/93 - 3/29/94 = 3.43 mos.
135 x 26 days x 3.43 mos. =    12,039.30
Total Backwages as of 3/29/94 P23,482.94
Respondent Camara Steel Industries, Inc. is also ordered to pay
complainant 10% for and as attorney's fees.
All other claims are hereby dismissed for lack of merit.
On 3 May 1991 petitioner De los Santos started working at Camara Steel
Industries Inc. (CAMARA STEEL), a company engaged in the manufacture of steel
products such as LPG cylinders and drums. He was first assigned at the LPG
assembly line, then later, as operator of a blasting machine. While performing his
task as such operator, he met an accident that forced him to go on leave for one
and a half (1-1/2) months. Upon his return, he was designated as a janitor
assigned to clean the premises of the company, and occasionally, to transfer scrap
and garbage from one site to another.1
On 11 May 1993 petitioner was doing his usual chores as a janitor of CAMARA
STEEL when he momentarily left his pushcart to answer the call of Narciso
Honrado, scrap in-charge, who summoned him to the company clinic. There
Honrado handed him a box which he placed on top of a drum in his pushcart for
transfer to the other lot of the company near gate 2. On his way out of gate 2,
however, the security guard on duty found in the box handed to him by Honrado
two (2) pieces of electric cable measuring 2.26 inches each and another piece of
1.76 meters with a total estimated value of P50.00 to P100.00. Apprehensive that
he might be charged with theft, petitioner De los Santos explained that the
electric cord was declared a scrap by Honrado whose instructions he was only
following to transfer the same to the adjacent lot of the company as scrap.
Narciso Honrado admitted responsibility for the haul and his error in declaring
the electric cables as scrap. The general manager, apparently appeased by
Honrado's apology, issued a memorandum acknowledging receipt of his letter of
apology and exculpated him of any wrongdoing.

Taking an unexpected volte face, however, the company through its counsel filed
on 9 July 1993 a criminal complaint for frustrated qualified theft against Honrado
and herein petitioner De los Santos. The complaint however was subsequently
dismissed by the Provincial Prosecutor of Pasig for lack of evidence. 2
On 23 August 1993, upon request of Top-Flite, alleged manpower agency of De los
Santos, CAMARA STEEL terminated his services.
Aggrieved by his illegal termination, De los Santos sought recourse with the Labor
Arbiter who on 29 March 1994 rendered a decision ordering respondent
CAMARA STEEL to reinstate Delos Santos to his former position within ten (10)
days without loss of seniority rights and other benefits with full back wages from
date of dismissal up to actual reinstatement as herein before stated.
CAMARA STEEL went to the NLRC for recourse. Top-Flite filed a Motion for
Intervention praying that it be permitted to intervene in the appeal as co-
respondent and, accordingly, be allowed to submit its own memorandum and
other pleadings.3
On 23 May 1995 the NLRC reversed the Labor Arbiter and ordered the return of
the entire records of the case to the arbitration branch of origin for further
proceedings. In its Decision, NLRC specified the reasons for the remand to the
Labor Arbiter —4
First, as respondents have broadly implied, having alleged that he was an
employee of Camara Steel, it was complainant's burden to prove this
allegation as a fact, not merely through his uncorroborated statements
but through independent evidence. As noted by respondents, he has not
submitted one piece of evidence to support his premise on this matter
except for his sworn statement.
Secondly, the Arbiter maintained that the contract of services submitted
by respondents was insufficient to prove that complainant was an
employee of Top-Flite, but he has obviously omitted consideration of
Annexes F, G, H and I which are time sheets of the complainant with Top-
Flite and the corresponding time cards which he punches in for Camara
Steel.
The NLRC further noted that under the circumstances it became appropriate to
conduct a formal hearing on the particular issue of whether an employer-
employee relationship existed between the parties, which issue was
determinative of the nature of petitioner's dismissal by CAMARA STEEL. That
being so, according to the NLRC, it was necessary for the Labor Arbiter to issue
Page 50 of 69
the appropriate directive to summon Top-Flite as a necessary party to the case,
for the manpower agency to submit its own evidence on the actual status of
petitioner.
As pointed out by petitioner, the errors in the disputed decision by the NLRC are:
(a) NLRC violated due process of law when it did not consider the evidence on
record; (b) CAMARA STEEL, and not Top-Flite, is the real employer of petitioner;
(c) Contrary to the finding of NLRC, Top-Flite was made a party respondent in the
illegal dismissal case docketed as NLRC-NCR No. 00-08-05302-93 and the NLRC
was therefore in error in remanding the case to the Labor Arbiter for further
proceedings.
Petitioner De los Santos contends that NLRC was in grave error when it ruled
that, with the exception of a bare assertion on his sworn statement, he "has not
submitted one piece of evidence to support his premise"5 that he was in fact an
employee of CAMARA STEEL.
To underscore NLRC's oversight, petitioner brings to our attention and specifies
the pieces of evidence which he presented before the Labor Arbiter on 19
November 1993 — also appended as Annexes to petitioner's "Traverse to
Camara's Position Paper and Reply:" (a) Annex "E" to "E-1" — Approval signature
of Camara's Department head, Reynaldo Narisma, without which petitioner
cannot render overtime; (b) Annex "F" — Petitioner's daily time record for
8/3/92 to 8/9/92; (c) Annex "F-1" — Signature of private respondent Mercedita
Pastrana, approving in her capacity as Assistant Manager of Camara Steel; (d)
Annex "F-2" — Signature of private respondent Dennis Albano, Personnel
Manager of Camara Steel Industries Inc. also co-signing for approval; (e) Annex
"F-3" — Signature of Narisma, as Department Head of Camara Steel Industries
Inc. where petitioner is working; (f) Annex "G" — Daily Time Record of petitioner
for 7/6/92 to 7/12/92; (g) Annex "G-1" — Signature of Camara Steel Assistant
Manager; (h) Annex "G-2" — Signature of Camara's Personnel Manager, Dennis
Albano, approving; (i) Annex "G-3" — Signature of Camara's Department Head
where petitioner is working, Mr. Narisma, approving; (j) Annex "H" to "H-1" —
Petitioner's Daily Time Card (representative samples) with name and logo of
Camara Steel Industries Inc.; and, (k) Annex "J" — Affidavit of Complainant.
All these pieces of evidence which, according to petitioner De los Santos, were not
properly considered by NLRC, plainly and clearly show that the power of control
and supervision over him was exercised solely and exclusively by the managers
and supervisors of CAMARA STEEL. Even the power to dismiss was also lodged
with CAMARA STEEL when it admitted in page 3 of its Reply that upon request by
Top-Flite, the steel company terminated his employment after being allegedly
caught committing theft.

Petitioner De los Santos also advances the view that Top-Flite, far from being his
employer, was in fact a "labor-only" contractor as borne out by a contract
whereby Top-Flite undertook to supply CAMARA STEEL workers with "warm
bodies" for its factory needs and edifices. He insists that such contract was not a
job contract but the supply of labor only. All things considered, he is of the firm
belief that for all legal intents and purposes, he was an employee — a regular one
at that — of CAMARA STEEL.
In its comment, private respondent CAMARA STEEL avers that far from being its
employee, De los Santos was merely a project employee of Top-Flite who was
assigned as janitor in private respondent company. This much was acknowledged
by Top-Flite in its Motion for Intervention filed before the NLRC.6 Such allegation,
according to private respondent CAMARA STEEL, supports all along its theory
that De los Santos' assignment to the latter as janitor was based on an
independent contract executed between Top-Flite and CAMARA STEEL. 7
Respondent CAMARA STEEL further argues that crystal clear in the Motion for
Intervention of Top-Flite is its allegation that it was in fact petitioner's real
employer as his salaries and benefits during the contractual period were paid by
Top-Flite; not only that, De los Santos was dismissed by CAMARA STEEL upon the
recommendation of Top-Flite. These ineluctably show that Top-Flite was not only
a job contractor but was in truth and in fact the employer of petitioner.
In his petition, De los Santos vigorously insists that he was the employee of
respondent CAMARA STEEL which in turn was not only denying the allegation
but was finger-pointing Top-Flite as petitioner's real employer. De los Santos
again objects to this assertion and claims that Top-Flite, far from being an
employer, was merely a "labor-only" contractor.
In the maze and flurry of claims and counterclaims, several contentious issues
continue to stick out like a sore thumb. Was De los Santos illegally dismissed? If
so, by whom? Was his employer respondent CAMARA STEEL, in whose premises
he was allegedly caught stealing, or was it Top-Flite, the manpower services
which allegedly hired him?
Inextricably intertwined in the resolution of these issues is the determination of
whether there existed an employer-employee relationship between CAMARA
STEEL and respondent De Los Santos, and whether Top-Flite was an
"independent contractor" or a "labor-only" contractor. A finding that Top-Flite
was a "labor-only" contractor reduces it to a mere agent of CAMARA STEEL which
by statute would be responsible to the employees of the "labor-only" contractor
as if such employees had been directly employed by the employer.
Page 51 of 69
Etched in an unending stream of cases are the four (4) standards in determining
the existence of an employer-employee relationship, namely: (a) the manner of
selection and engagement of the putative employee; (b) the mode of payment of
wages; (c) the presence or absence of power of dismissal; and, (d) the presence or
absence of control of the putative employee's conduct. Most determinative among
these factors is the so-called "control test."
As shown by the evidence on record, De los Santos was hired by CAMARA STEEL
after undergoing an interview with one Carlos Suizo, its timekeeper who worked
under the direct supervision of one Renato Pacion, a supervisor of CAMARA
STEEL. These allegations are contained in the affidavit 8 executed by De los Santos
and were never disputed by CAMARA STEEL. Also remaining uncontroverted are
the pieces of documentary evidence adduced by De los Santos consisting of daily
time records marked Annexes "F" and "G" which, although bearing the heading
and logo of Top-Flite, were signed by officers of respondent CAMARA STEEL, and
Annexes "H" and "I" with the heading and logo of CAMARA STEEL.
Incidentally, we do not agree with NLRC's submission that the daily time records
serve no other purpose than to establish merely the presence of De los Santos
within the premises of CAMARA STEEL. Contrarily, these records, which were
signed by the company's officers, prove that the company exercised the power of
control and supervision over its employees, particularly De los Santos. There is
dearth of proof to show that Top-Flite was the real employer of De los Santos
other than a naked and unsubstantiated denial by CAMARA STEEL that it has no
power of control over De los Santos. Records would attest that even the power to
dismiss was vested with CAMARA STEEL which admitted in its Reply that "Top-
Flite requested CAMARA STEEL to terminate his employment after he was caught
by the security guard committing theft."
A cursory reading of the above declaration will confirm the fact that the dismissal
of De los Santos could only be effected by CAMARA STEEL and not by Top-Flite as
the latter could only "request" for De los Santos' dismissal. If Top-Flite was truly
the employer of De los Santos, it would not be asking permission from or
"requesting" respondent CAMARA STEEL to dismiss De los Santos considering
that it could very well dismiss him without CAMARA STEEL's assent.
All the foregoing considerations affirm by more than substantial evidence the
existence of an employer-employee relationship between De los Santos and
CAMARA STEEL.
As to whether petitioner De los Santos was illegally terminated from his
employment, we are in full agreement with the Labor Arbiter's finding that he
was illegally dismissed. As correctly observed by the Labor Arbiter, it was Narciso

Honrado, scrap in-charge, who handed the box containing the electrical cables to
De los Santos. No shred of evidence can show that De los Santos was aware of its
contents, or if ever, that he conspired with Honrado in bilking the company of its
property. What is certain however is that while Honrado admitted, in a letter of
apology, his culpability for the unfortunate incident and was unconditionally
forgiven by the company, De los Santos was not only unceremoniously dismissed
from service but was charged before the court for qualified theft (later dismissed
by the public prosecutor for lack of evidence). For sure, De los Santos cannot be
held more guilty than Honrado who, being the scrap in-charge, had the power to
classify the cables concerned as scrap.
Neither can we gratify CAMARA STEEL's contention that petitioner was validly
dismissed for loss of trust and confidence. As provided for in the Labor Code:
Art. 282. Termination by employment — An employer may terminate an
employment for any of the following causes: x x x (c) Fraud or willful
breach by the employee of the trust reposed in him by his employer or
duly authorized representative x x x x
Of course, it must be stressed that loss of confidence as a just cause for the
termination of employment is based on the premise that the employee holds a
position of trust and confidence, as when he is entrusted with responsibility
involving delicate matters, and the task of a janitor does not fall squarely under
this category.
Petitioner De los Santos argues that Top-Flite was merely a "labor-only"
contractor. To fortify his stance, De los Santos brings to our attention the contract
of service9 dated 8 February 1991 between CAMARA STEEL and Top-Flite which
provides:
1) The contractor (Top-Flite) shall provide workers (non-skilled) six (6)
days a week for the Client's (Camara) factory and edifices.
However, both respondent CAMARA STEEL and Top-Flite10 are adamant in their
belief that the latter was not a "labor-only" contractor as they rely on another
provision of the contract which states —
2) The Contractor warrants the honesty, reliability, industry and
cooperative disposition of the person it employs to perform the job
subject to this contract, and shall employ such persons only as are in
possession of health certificates and police clearances x x x
Page 52 of 69
The preceding provisions do not give a clear and categorical answer as regards
the real character of Top-Flite's business. For whatever its worth, the invocation
of the contract of service is a tacit admission by both parties that the employment
of De los Santos was by virtue of such contract. Be that as it may, Top-Flite, much
less CAMARA STEEL, cannot dictate, by the mere expedient of a unilateral
declaration in a contract, the character of its business, i.e., whether as "labor-
only" contractor, or job contractor, it being crucial that its character be measured
in terms of and determined by the criteria set by statute. The case of Tiu v.
NLRC11 succinctly enunciates this statutory criteria —
Job contracting is permissible only if the following conditions are met: 1)
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 as to the results thereof; and 2) the
contractor has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are
necessary in the conduct of the business.
"Labor-only contracting" as defined in Sec. 4, par. (f), Rule VIII-A, Book III, of
the Omnibus Rules Implementing the Labor Code states that a "labor-only"
contractor, prohibited under this Rule, is an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job, work
or service for a principal and the following elements are present: (a) The
contractor or subcontractor does not have substantial capital or investment to
actually perform the job, work or service under its own account or responsibility;
and, (b) 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.
Applying the foregoing provisions, the Court finds Top-Flite to be a "labor-only"
contractor, a mere supplier of labor to CAMARA STEEL, the real employer. Other
than its open declaration that it is an independent contractor, no substantial
evidence was adduced by Top-Flite to back up its claim. Its revelation that it
provided a sweeper to petitioner would not suffice to convince this Court that it
possesses adequate capitalization to undertake an independent
business.12 Neither will the submission prosper that De los Santos did not
perform a task directly related to the principal business of respondent CAMARA
STELL. As early as in Guarin v. NLRC13 we ruled that "the jobs assigned to the
petitioners as mechanics, janitors, gardeners, firemen and grasscutters were
directly related to the business of Novelty as a garment manufacturer," reasoning
that "for the work of gardeners in maintaining clean and well-kept grounds
around the factory, mechanics to keep the machines functioning properly, and

firemen to look out for fires, are directly related to the daily operations of a
garment factory."
In its comment respondent CAMARA STEEL emphatically argues that Top-Flite,
although impleaded as respondent in NLRC-NCR Cases Nos. 00-0704761-93 and
00-0805061-93, subject of the present appeal, was never summoned for which
reason it was deprived of procedural due process; basically the same line of
argument adopted by the NLRC in its decision to remand the case to the
arbitration branch of origin. CAMARA STEEL obviously wants to impress upon us
that Top-flite, being a necessary party, should have been summoned and the
failure to do so would justify the remand of the case to the Labor Arbiter.
We are not persuaded. The records show that Top-Flite was not only impleaded
in the aforementioned case but was in fact afforded an opportunity to be heard
when it submitted a position paper. This much was admitted by Top-Flite in par.
5 of its Motion for Intervention where it stated that "movant submitted its
position paper in the cases mentioned in the preceding paragraph but the
Presiding Arbiter ignored the clear and legal basis of the position of the
movant."14 In other words, the failure of Top-Flite to receive summons was not a
fatal procedural flaw because it was never deprived of the opportunity to
ventilate its side and challenge petitioner in its position paper, not to mention the
comment which it submitted through counsel before this Court. 15 It moved to
SECOND DIVISION
G.R. No. 159469               June 8, 2005
ZALDY G. ABELLA and the Members of the PLDT SECURITY PERSONNEL
unioN LISTED IN ANNEX "D" OF THIS PETITION, Petitioners,
vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT CO.) and
PEOPLE'S SECURITY INC. (PSI), Respondents.
Labor Law; Employer-Employee Relationship;  Factors to be Considered in
Determining the Existence of an Employer-Employee Relationship.—Philippine
Airlines, Inc. v. National Labor Relations Commission provides the legal yardstick in
addressing this issue. In that case, Unicorn Security Services, Inc. (USSI) and
Philippine Airlines, Inc. (PAL) executed a security service agreement where USSI
was designated therein as the contractor. In determining which between PAL and
USSI is the employer of the security guards, we considered the following factors
in considering the existence of an employer-employee relationship: (1) the
selection and engagement of the employee; (2) the payment of wages; (3) the
power to dismiss; and (4) the power to control the employee’s conduct.
Page 53 of 69
intervene not because it had no notice of the proceedings but because its position
paper allegedly was not considered by the Labor Arbiter. While jurisdiction over
the person of the defendant can be acquired by service of summons, it can also be
acquired by voluntary appearance before the court which includes submission of
pleadings in compliance with the order of the court or tribunal. A fortiori,
administrative tribunals exercising quasi-judicial powers are unfettered by the
rigidity of certain procedural requirements subject to the observance of
fundamental and essential requirements of due process in justiciable cases
presented before them. In labor cases, a punctilious adherence to stringent
technical rules may be relaxed in the interest of the workingman. A remand of the
case, as the NLRC envisions, would compel petitioner, a lowly worker, to tread
once again the calvary of a protracted litigation and flagellate him into
submission with the lash of technicality.
WHEREFORE, the petition is GRANTED and the appealed Decision of the NLRC is
REVERSED and SET ASIDE and the Decision of the Labor Arbiter promulgated 23
May 1999 is REINSTATED and ADOPTED as the Decision in this case.
SO ORDERED.
Mendoza, Quisumbing and De Leon, Jr., JJ ., concur.
Buena, J ., on official business
Considering these elements, we held in the said case that the security guards of
PAL were the employees of the security agency, not PAL.
Same; Same; Labor Dispute; While the Constitution is committed to the policy
of social justice and the protection of the working class, it should not be supposed
that every labor dispute will be automatically decided in favor of labor.—In fine,
while the Constitution is committed to the policy of social justice and the
protection of the working class, it should not be supposed that every labor
dispute will be automatically decided in favor of labor. The partiality for labor has
not in any way diminished our belief that justice is in every case for the deserving,
to be dispensed in the light of the established facts and the applicable law and
doctrine.
RESOLUTION
CHICO-NAZARIO, J.:
This case stemmed from a complaint for regularization filed by
petitioners1 against respondents before the Arbitration Branch of the National
Labor Relations Commission (NLRC). The petition for review at bar assails the
decision2 of the Court of Appeals, affirming the decision3 of the NLRC, sustaining

the earlier decision4 of the Labor Arbiter dismissing petitioners’ complaint
against the Philippine Long Distance Telephone Company (PLDT) and herein
respondent People’s Security Incorporated (PSI).
The dispute arose from the following factual milieu:
Respondent PSI entered into an agreement with the PLDT to provide the latter
with such number of qualified uniformed and properly armed security guards for
the purpose of guarding and protecting PLDT’s installations and properties from
theft, pilferage, intentional damage, trespass or other unlawful acts. Under the
agreement, it was expressly provided that there shall be no employer-employee
relationship between the PLDT and the security guards, which may be supplied to
it by PSI, and that the latter shall have the entire charge, control and supervision
over the work and services of the supplied security guards. It was likewise
stipulated therein that PSI shall also have the exclusive authority to select,
engage, and discharge its security guards, with full control over their wages,
salaries or compensation.lawphil.net
Consequently, respondent PSI deployed security guards to the PLDT. PLDT’s
Security Division interviewed these security guards and asked them to fill out
personal data sheets. Those who did not meet the height requirements were sent
back by PLDT to PSI.
On 05 June 1995, sixty-five (65) security guards supplied by respondent PSI filed
a Complaint5 for regularization against the PLDT with the Labor Arbiter. The
Complaint alleged inter alia that petitioner security guards have been employed
by the company through the years commencing from 1982 and that all of them
served PLDT directly for more than 1 year. It was further alleged that PSI or other
agencies supply security to PLDT, which entity controls and supervises the
complainants’ work through its Security Department. Petitioners likewise alleged
that PSI acted as the middleman in the payment of the minimum pay to the
security guards, but no premium for work rendered beyond eight hours was paid
to them nor were they paid their 13th month pay. In sum, the Complaint states
that inasmuch as the complainants are under the direct control and supervision
of PLDT, they should be considered as regular employees by the latter with
compensation and benefits equivalent to ordinary rank-and-file employees of the
same job grade.
Forthwith, after filing the complaint, the security guards formed the PLDT
Company Security Personnel Union with petitioner Zaldy Abella as union
president. A month later, PLDT allegedly ordered PSI to terminate about 25
members of said union who participated in a protest picket in front of the PLDT
Office at the Ramon Cojuangco Building in Makati City.1avvphi1
Page 54 of 69
The Labor Arbiter dismissed the complaint for lack of merit. On appeal, the NLRC
affirmed in toto the Labor Arbiter’s decision.
The Court of Appeals, in turn, affirmed the NLRC’s disquisition. 6 According to the
Court of Appeals, evidence demonstrates that it is respondent PSI which is
petitioners’ employer, not the PLDT inasmuch as the power of selection over the
guards lies with the former. The Court of Appeals also took cognizance of the fact
that petitioners have collected their wages from PSI.7
On 29 September 2003, this Court denied the petition for review filed by
petitioners assailing the Court of Appeals’ Decision for lack of verified statement
of material date of receipt of the assailed judgment. On 16 March 2005, the Court
resolved to deny the motion for reconsideration for lack of merit and sufficient
showing that the Court of Appeals had committed any reversible error in the
questioned judgment to warrant the exercise by this Court of its discretionary
appellate jurisdiction.
Undaunted, petitioners moved for reconsideration of our Resolution dated 16
March 2005. Petitioners now urge this Court to ignore technicalities and brush
aside the procedural requirements so this case may be decided "on the merits."
On the postulate that dismissal of appeals based on mere technicalities is frowned
upon, we take another look at this petition for review to quell all doubts that the
Court is impervious to petitioners’ cause. Cautious as we are against rendering a
decision that may well be a "blow on the breadbasket of our lowly
employees,"8 we are hence rendering a complete adjudication of this case at bar.
Crucial to the resolution of this case is a determination whether or not an
employer-employee relationship exists between petitioners and respondent
PLDT.
Philippine Airlines, Inc. v. National Labor Relations Commission9 provides the legal
yardstick in addressing this issue. In that case, Unicorn Security Services, Inc.
(USSI) and Philippine Airlines, Inc. (PAL) executed a security service agreement
where USSI was designated therein as the contractor. In determining which
between PAL and USSI is the employer of the security guards, we considered the
following factors in considering the existence of an employer-employee
relationship: (1) the selection and engagement of the employee; (2) the payment
of wages; (3) the power to dismiss; and (4) the power to control the employee’s
conduct. Considering these elements, we held in the said case that the security
guards of PAL were the employees of the security agency, not PAL. We explained
why-

In the instant case, the security service agreement between PAL and USSI
provides the key to such consideration. A careful perusal thereof, especially the
terms and conditions embodied in paragraphs 4, 6, 7, 8, 9, 10, 13 and 20 quoted
earlier in this ponencia, demonstrates beyond doubt that USSI - and not PAL – was
the employer of the security guards. It was USSI which (a) selected, engaged or
hired and discharged the security guards; (b) assigned them to PAL according to
the number agreed upon; (c) provided, at its own expense, the security guards with
firearms and ammunitions; (d) disciplined and supervised them or controlled their
conduct; (e) determined their wages, salaries, and compensation; and (f) paid them
salaries or wages. Even if we disregard the explicit covenant in said agreement that
"there exists no employer-employee relationship between CONTRACTOR and/or his
guards on the one hand, and PAL on the other" all other considerations confirm the
fact that PAL was not the security guards’ employer.  (Emphasis supplied)
On the first factor, applying PAL v. NLRC as our guidepost in the case before us,
the Labor Arbiter, the NLRC and the Court of Appeals rendered a consistent
finding based on the evidence adduced that it was the PSI, the security provider of
the PLDT, which selected, engaged or hired and discharged the security guards.
The Labor Arbiter was no less emphatic –
It is not disputed that complainants applied for work with PSI, submitted the
necessary employment documentary requirement with PSI and executed
employment contracts with PSI. Complainants, however, contend that their
referral by the PSI to PLDT for further interview and evaluation falls under the
context of "selection and engagement" thereby making them employees of PLDT.
We are not convinced.
Testimonies during the trial reveal that interviews and evaluation were
conducted by PLDT to ensure that the standards it set are met by the security
guards. In fact, PLDT rarely failed to accept security guards referred to by PSI but
on account of height deficiency. The referral is nothing but for possible
assignment in a designated client which has the inherent prerogative to accept
and reject the assignee for justifiable grounds or even arbitrarily. We are thus
convinced that the employer-employee relationship is deemed perfected even
before the posting of the complainants with the PLDT, as assignment only comes
after employment.10
We hasten to add on this score that the Labor Arbiter as well as the NLRC and the
Court of Appeals found that PSI is a legitimate job contractor pursuant to Section
8, Rule VII, Book II of the Omnibus Rules Implementing the Labor Code. It is a
registered corporation duly licensed by the Philippine National Police to engage
in security business. It has substantial capital and investment in the form of guns,
Page 55 of 69
ammunitions, communication equipments, vehicles, office equipments like
computer, typewriters, photocopying machines, etc., and above all, it is servicing
clients other than PLDT like PCIBank, Crown Triumph, and Philippine Cable,
among others.11 Here, the security guards which PSI had assigned to PLDT are
already the former’s employees prior to assignment and if the assigned guards to
PLDT are rejected by PLDT for reasons germane to the security agreement, then
the rejected or terminated guard may still be assigned to other clients of PSI as in
the case of Jonathan Daguno who was posted at PLDT on 21 February 1996 but
was subsequently relieved therefrom and assigned at PCIBank Makati Square
effective 10 May 1996.12 Therefore, the evidence as it stands is at odds with
petitioners’ assertion that PSI is an "in-house" agency of PLDT so as to call for a
piercing of veil of corporate identity as what the Court has done in De leon, et al.
vs. NLRC and Fortune Tobacco Corporation, et al.13
On the second factor, the Labor Arbiter as well as the NLRC and the Court of
Appeals are all in agreement that it is PSI that determined and paid the
petitioners’ wages, salaries, and compensation. As elucidated by the Labor
Arbiter, petitioners’ witness testified that his wages were collected and
withdrawn at the office of PSI and PLDT pays PSI for the security services on a
lump-sum basis and that the wages of complainants are only a portion of the total
sum. The signature of the PLDT supervisor in the Daily Time Records does
not ipso facto make PLDT the employer of complainants inasmuch as the Labor
Arbiter had found that the record is replete with evidence showing that some of
the Daily Time Records do not bear the signature of a PLDT supervisor yet no
complaint was lodged for nonpayment of the guard’s wages evidencing that the
signature of the PLDT’s supervisor is not a condition precedent for the payment
of wages of the guards. Notably, it was not disputed that complainants enjoy the
benefits and incentives of employees of PSI and that they are reported as
employees of PSI with the SSS.14
Anent the third and fourth factors, petitioners capitalize on the delinquency
reports prepared by PLDT personnel against some of the security guards as well
as certificates of participation in civil disturbance course, certificates of
attendance in first aid training, certificate of completion in fire brigade training
seminar and certificate of completion on restricted land mobile radio telephone
operation to show that the petitioners are under the direct control and
supervision of PLDT and that the latter has, in fact, the power to dismiss them.
The Labor Arbiter found from the evidence that the delinquency reports were
nothing but reminders of the infractions committed by the petitioners while on
duty which serve as basis for PLDT to recommend the termination of the
concerned security guard from PLDT. As already adverted to earlier, termination
of services from PLDT did not ipso facto mean dismissal from PSI inasmuch as
some of those pulled out from PLDT were merely detailed at the other clients of

PSI as in the case of Jonathan Daguno, who was merely transferred to PCIBank
Makati.
We are likewise in agreement with the Labor Arbiter’s reasoning that said
delinquency reports merely served as justifiable, not arbitrary, basis for PLDT to
demand replacement of guards found to have committed infractions while on
their tours of duty at PLDT’s premises. In Citytrust Banking Corporation v.
NLRC,15 we upheld the validity of the contract between ADAMS and ESSI to
provide security guards to Citytrust and held that the security guards were the
employees of the security agencies, not Citytrust. Specifically we held as valid and
controlling the stipulation that the bank has the option to ask for replacement of
the guards or personnel assigned to the bank who, in its judgment, are
unsatisfactory, wanting in the performance of their duties or for any reason at the
discretion of the bank. Thus-
In substantially identical language, the contracts between CITYTRUST, on the one
hand, and ADAMS and ESSI, on the other, unequivocally declare that any person
that may be assigned by the "CARRIER" (agency) to carry out its obligation under
the Agreement should in no sense be considered an employee of the bank and
shall always remain an employee of the CARRIER. The contracts moreover
require the CARRIER to give the bank a list of personnel assigned to render
security services to the bank, and make clear that:
1) the CARRIER shall maintain efficient and effective discipline, control
and supervision over any and all guards or personnel it may utilize in
performing its obligations under the Agreement;
2) the BANK has the option to ask for the replacement of the CARRIER’s
guards or personnel assigned to the BANK who, in its judgment, are
unsatisfactory, wanting in the performance of their duties or for any
reason at the discretion of the Bank;. . . .[16] (Emphasis supplied)
As regards the seminars, we defer to the findings of the Labor Arbiter as affirmed
by the NLRC and the Court of Appeals that while said seminars were conducted at
the premises of PLDT, it also remains uncontroverted that complainants’
participation was done with the approval and at the expense of PSI. 17 To be sure,
it is not uncommon, specially for big aggressive corporations like PLDT, to align
or integrate their corporate visions and policies externally or with that of other
entities they deal with such as their suppliers, consultants, or contractors, for that
matter. As a case in point, manufacturing companies usually hold suppliers’
conferences to integrate their suppliers’ corporate goals and visions with their
own so that the manufacturing companies are ensured of the quality and timing
of their supplies of materials or services, as the case may be. It is therefore not
Page 56 of 69
surprising that PLDT would demand that security guards assigned to its premises
undergo seminars and trainings on certain areas of concern which are unique to
PLDT.
In the same way, it is in the ordinary course of things for big companies such as
PLDT to assign their own security personnel and supervisors to monitor the
performance of the security guards as part of the company’s internal check,
monitoring and control system in order to rate whether the security agency it
hired is performing at par with PLDT’s set standards.
Furthermore, petitioners’ logic that the certificates of appreciation and/or
commendations for good performance issued by PLDT to select security guards
are proof that the latter are under the control and supervision of PLDT is
indeed non sequitur. As the Labor Arbiter has found, similar certificates are also
issued as a matter of practice to non-PLDT personnel like members of the
Philippine National Police (PNP) and military officers who have rendered
exemplary support and assistance to PLDT.18
The Labor Arbiter likewise rendered the distinct finding as regards petitioner
Zaldy Abella that documentary evidence belies his claim that PLDT directs and
supervises him. These documents include his application for employment with
PSI, employment contract with PSI, Special Orders of assignment at the different
detachments of PLDT issued by a certain Joreim Aguilar of PSI, his request to PSI
for sick leaves and/or vacation leaves, authority to deduct from his salary death
contributions pursuant to the policy of PSI and Order of Relief from PLDT
Marikina for AWOL issued by said Joreim Aguilar of PSI per Special Order dated
12 June 1995.19 Similarly, as found by the Labor Arbiter in the case of petitioner
Roberto Basilides, his 201 file reflects PSI Orders on his assignment to PLDT
installations and subsequent reassignment to another PCIB client. 20
All told, there being no showing that neither the Labor Arbiter nor the NLRC nor
the Court of Appeals gravely abused its discretion or otherwise acted without
jurisdiction or in excess of the same,21 this Court is bound by their findings of
facts. Indeed, the records reveal that the questioned decision is duly supported by
evidence.22
In fine, while the Constitution is committed to the policy of social justice and the
protection of the working class, it should not be supposed that every labor
dispute will be automatically decided in favor of labor. The partiality for labor has
not in any way diminished our belief that justice is in every case for the deserving,
to be dispensed in the light of the established facts and the applicable law and
doctrine.23

WHEREFORE, petitioners’ motion for reconsideration of our Resolution dated 16
March 2005 is hereby DENIED with Finality no compelling reason having been
adduced by petitioners to warrant the reversal thereof. Accordingly, the Decision
dated 31 January 2003 and the
Resolution dated 06 August 2003 of the Court of Appeals are hereby AFFIRMED.
Costs against petitioners.
FIRST DIVISION
G.R. No. 126586           February 2, 2000
ALEXANDER VINOYA, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, REGENT FOOD CORPORATION
AND/OR RICKY SEE (PRESIDENT), respondents.
Labor Law; Employer-Employee Relationship; Labor-only
Contracting; Elements;  Words and Phrases; Labor-only contracting, a prohibited
act, is an arrangement where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a principal.—Labor-
only contracting, a prohibited act, is an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job, work
or service for a principal. In labor-only contracting, the following elements are
present: (a) The contractor or subcontractor does not have substantial capital or
investment to actually perform the job, work or service under its own account
and responsibility; (b) 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.
Same; Same; Same; Same; Same; Permissible job contracting or
subcontracting refers to an arrangement whereby a principal agrees to put out or
farm out with a contractor or subcontractor the performance or completion of a
specific job, work or service within a definite or predetermined period, regardless of
whether such job, work or service is to be performed or completed within or outside
the premises of the principal.—Permissible job contracting or subcontracting
refers to an arrangement whereby a principal agrees to put out or farm out with a
contractor or subcontractor the performance or completion of a specific job, work
or service within a definite or predetermined period, regardless of whether such
job, work or service is to be performed or completed within or outside the
premises of the principal. A person is considered engaged in legitimate job
contracting or subcontracting if the following conditions concur: (a) The
contractor or subcontractor carries on a distinct and independent business and
undertakes to perform the job, work or service on its own account and under its
Page 57 of 69
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
own responsibility according to its own manner and method, and free from the
control and direction of the principal in all matters connected with the
performance of the work except as to the results thereof; (b) The contractor or
subcontractor has substantial capital or investment; and (c) The agreement
between the principal and contractor or subcontractor assures the contractual
employees entitlement to all labor and occupational safety and health standards,
free exercise of the right to self-organization, security of tenure, and social and
welfare benefits.
Same; Same; Same; Factors Considered in Determining Existence of an
Independent Contractor Relationship.—From the two aforementioned decisions, it
may be inferred that it is not enough to show substantial capitalization or
investment in the form of tools, equipment, machineries and work premises,
among others, to be considered as an independent contractor. In fact,
jurisprudential holdings are to the effect that in determining the existence of an
independent contractor relationship, several factors might be considered such as,
but not necessarily confined to, whether the contractor is 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, too.’s,
appliances, materials and labor; and the mode, manner and terms of payment.
Same; Same; Same; Judicial Notice; Devaluation; The Court takes judicial
notice of the fact that in 1993, the economic situation in the country was not as
adverse as the present, as shown by the devaluation of our peso.—PMCI does not
have substantial capitalization or investment in the form of tools, equipment,
machineries, work premises, among others, to qualify as an independent
contractor. While it has an authorized capital stock of P1,000,000.00, only
P75,000.00 is actually paid-in, which, to our mind, cannot be considered as
substantial capitalization. In the case of Neri which was promulgated in 1993,
BCC had a capital stock of P1,000,000.00 which was fully subscribed and paid-for.
Moreover, when the Neri case was decided in 1993, the rate of exchange between
the dollar and the peso was only P27.30 to $1 while presently it is at P40.390 to
$1. The Court takes judicial notice of the fact that in 1993, the economic situation
in the country was not as adverse as the present, as shown by the devaluation of
our peso. With the current economic atmosphere in the country, the paid-in

capitalization of PMCI amounting to P75,000.00 cannot be considered as
substantial capital and, as such, PMCI cannot qualify as an independent
contractor.
Same; Same; Same; Where the undertaking of a contractor does not involve
the performance of a specific job, but rather the supply of manpower only, it clearly
conducts itself as labor-only contractor.—PMCI was not engaged to perform a
specific and special job or service, which is one of the strong indicators that an
entity is an independent contractor as explained by the Court in the cases of Neri
and Fuji. As stated in the Contract of Service, the sole undertaking of PMCI was to
provide RFC with a temporary workforce able to carry out whatever service may
be required by it. Such venture was complied with by PMCI when the required
personnel were actually assigned to RFC. Apart from that, no other particular job,
work or service was required from PMCI. Obviously, with such an arrangement,
PMCI merely acted as a recruitment agency for RFC. Since the undertaking of
PMCI did not involve the performance of a specific job, but rather the supply of
manpower only, PMCI clearly conducted itself as labor-only contractor.
Same; Same; Same; Control Test; ‘Tour-fold Test” to Ascertain Whether a
Firm is the True Employer of a Worker.—Even if we use the “four-fold test” to
ascertain whether RFC is the true employer of petitioner the same result would
be achieved. In determining the existence of employer-employee relationship the
following elements of the “four-fold test” are generally considered, namely: (1)
the selection and engagement of the employee or the power to hire; (2) the
payment of wages; (3) the power to dismiss; and (4) the power to control the
employee. Of these four, the “control test” is the most important. A careful study
of the evidence at hand shows that RFC possesses the earmarks of being the
employer of petitioner.
Same; Same; Same; Evidence; If only documentary evidence would be
required to demonstrate the existence of an employer-employee relationship, no
scheming employer would ever be brought before the bar of justice.—It should be
pointed out that no particular form of proof is required to prove the existence of
an employer-employee relationship. Any competent and relevant evidence may
show the relationship. If only documentary evidence would be required to
demonstrate that relationship, no scheming employer would ever be brought
before the bar of justice. In the case at bar, petitioner presented the identification
card issued to him on 26 May 1990 by RFC as proof that it was the latter who
engaged his services. To our mind, the ID card is enough proof that petitioner was
previously hired by RFC prior to his transfer as agency worker to PMCI.
Same; Same; Same; Same; Judicial Notice; The Court takes judicial notice of
the practice of employers who, in order to evade the liabilities under the Labor
Code, do not issue pay slips directly to their employees.—The Court takes judicial
notice of the practice of employers who, in order to evade the liabilities under the
Labor Code, do not issue payslips directly to their employees. Under the current
practice, a third person, usually the purported contractor (service or manpower
placement agency), assumes the act of paying the wage. For this reason, the lowly
Page 58 of 69
worker is unable to show proof that it was directly paid by the true employer.
Nevertheless, for the workers, it is enough that they actually receive their pay,
oblivious of the need for payslips, unaware of its legal implications. Applying this
principle to the case at bar, even though the wages were coursed through PMCI,
we note that the funds actually came from the pockets of RFC. Thus, in the end,
RFC is still the one who paid the wages of petitioner albeit indirectly.
Same; Same; Same; Control Test; The power of control refers to the authority
of the employer to control the employee not only with regard to the result of work
to be done but also to the means and methods by which the work is to be
accomplished.—The fourth and most important requirement in ascertaining the
presence of employer-employee relationship is the power of control. The power
of control refers to the authority of the employer to control the employee not only
with regard to the result of work to be done but also to the means and methods
by which the work is to be accomplished. It should be borne in mind, that the
“control test” calls merely for the existence of the right to control the manner of
doing the work, and not necessarily to the actual exercise of the right. In the case
at bar, we need not belabor ourselves in discussing whether the power of control
exists. RFC already admitted that it exercised control and supervision over
petitioner. RFC, however, raises the defense that the power of control was jointly
exercised with PMCI. The Labor Arbiter, on the other hand, found that petitioner
was under the direct control and supervision of the personnel of RFC and not
PMCI. We are inclined to believe the findings of the Labor Arbiter which is
supported not only by the admission of RFC but also by the evidence on record.
Besides, to our mind, the admission of RFC that it exercised control and
supervision over petitioner, the same being a declaration against interest, is
sufficient enough to prove that the power of control truly exists.
Same; Dismissals; Due Process; Not only must the dismissal be for a valid or
authorized cause, the rudimentary requirements of due process—notice and
hearing—must, likewise, be observed before an employee may be dismissed,
otherwise the termination would, in the eyes of the law, be illegal.—Since
petitioner, due to his length of service, already attained the status of a regular
employee, he is entitled to the security of tenure provided under the labor laws.
Hence, he may only be validly terminated from service upon compliance with the
legal requisites for dismissal. Under the Labor Code, the requirements for the
lawful dismissal of an employee are twofold, the substantive and the procedural
aspects. Not only must the dismissal be for a valid or authorized cause, the
rudimentary requirements of due process—notice and hearing—must, likewise,
be observed before an employee may be dismissed. Without the concurrence of
the two, the termination would, in the eyes of the law, be illegal.
KAPUNAN, J.:
This petition for certiorari under Rule 65 seeks to annul and set aside the
decision,1 promulgated on 21 June 1996, of the National Labor Relations

Commission ("NLRC") which reversed the decision2 of the, Labor Arbiter,
rendered on 15 June 1994, ordering Regent Food Corporation ("RFC") to
reinstate Alexander Vinoya to his former position and pay him backwages.
Private respondent Regent Food Corporation is a domestic corporation
principally engaged in the manufacture and sale of various food products. Private
respondent Ricky See, on the other hand, is the president of RFC and is being sued
in that capacity. Petitioner Alexander Vinoya, the complainant, worked with RFC
as sales representative until his services were terminated on 25 November 1991.
The parties presented conflicting versions of facts.
Petitioner Alexander Vinoya claims that he applied and was accepted by RFC as
sales representative on 26 May 1990. On the same date, a company identification
card3 was issued to him by RFC. Petitioner alleges that he reported daily to the
office of RFC, in Pasig City, to take the latter's van for the delivery of its products.
According to petitioner, during his employ, he was assigned to various
supermarkets and grocery stores where he booked sales orders and collected
payments for RFC. For this task, he was required by RFC to put up a monthly bond
of P200.00 as security deposit to guarantee the performance of his obligation as
sales representative. Petitioner contends that he was under the direct control and
supervision of Mr. Dante So and Mr. Sadi Lim, plant manager and senior salesman
of RFC, respectively. He avers that on 1 July 1991, he was transferred by RFC to
Peninsula Manpower Company, Inc. ("PMCI"), an agency which provides RFC with
additional contractual workers pursuant to a contract for the supply of
manpower services (hereinafter referred to as the "Contract of Service"). 4 After
his transfer to PMCI, petitioner was allegedly reassigned to RFC as sales
representative. Subsequently, on 25 November 1991, he was informed by Ms.
Susan Chua, personnel manager of RFC, that his services were terminated and he
was asked to surrender his ID card. Petitioner was told that his dismissal was due
to the expiration of the Contract of Service between RFC and PMCI. Petitioner
claims that he was dismissed from employment despite the absence of any notice
or investigation. Consequently, on 3 December 1991, petitioner filed a case
against RFC before the Labor Arbiter for illegal dismissal and non-payment of
13th month pay.5
Private respondent Regent Food Corporation, on the other hand, maintains that
no employer-employee relationship existed between petitioner and itself. It
insists that petitioner is actually an employee of PMCI, allegedly an independent
contractor, which had a Contract of Service6 with RFC. To prove this fact, RFC
presents an Employment Contract7 signed by petitioner on 1 July 1991, wherein
PMCI appears as his employer. RFC denies that petitioner was ever employed by
it prior to 1 July 1991. It avers that petitioner was issued an ID card so that its
clients and customers would recognize him as a duly authorized representative of
Page 59 of 69
RFC. With regard to the P200.00 pesos monthly bond posted by petitioner, RFC
asserts that it was required in order to guarantee the turnover of his collection
since he handled funds of RFC. While RFC admits that it had control and
supervision over petitioner, it argues that such was exercised in coordination
with PMCI. Finally, RFC contends that the termination of its relationship with
petitioner was brought about by the expiration of the Contract of Service between
itself and PMCI and not because petitioner was dismissed from employment.
On 3 December 1991, when petitioner filed a complaint for illegal dismissal
before the Labor Arbiter, PMCI was initially impleaded as one of the respondents.
However, petitioner thereafter withdrew his charge against PMCI and pursued
his claim solely against RFC. Subsequently, RFC filed a third party complaint
against PMCI. After considering both versions of the parties, the Labor Arbiter
rendered a decision,8 dated 15 June 1994, in favor of petitioner. The Labor Arbiter
concluded that RFC was the true employer of petitioner for the following reasons:
(1) Petitioner was originally with RFC and was merely transferred to PMCI to be
deployed as an agency worker and then subsequently reassigned to RFC as sales
representative; (2) RFC had direct control and supervision over petitioner; (3)
RFC actually paid for the wages of petitioner although coursed through PMCI;
and, (4) Petitioner was terminated per instruction of RFC. Thus, the Labor Arbiter
decreed, as follows:
ACCORDINGLY, premises considered respondent RFC is hereby declared
guilty of illegal dismissal and ordered to immediately reinstate
complainant to his former position without loss of seniority rights and
other benefits and pay him backwages in the amount of P103,974.00.
The claim for 13th month pay is hereby DENIED for lack of merit.
This case, insofar as respondent PMCI [is concerned] is DISMISSED, for
lack of merit.
SO ORDERED.9
RFC appealed the adverse decision of the Labor Arbiter to the NLRC. In a
decision,10 dated 21 June 1996, the NLRC reversed the findings of the Labor
Arbiter. The NLRC opined that PMCI is an independent contractor because it has
substantial capital and, as such, is the true employer of petitioner. The NLRC,
thus, held PMCI liable for the dismissal of petitioner. The dispositive portion of
the NLRC decision states:
WHEREFORE, premises considered, the appealed decision is modified as
follows:
1. Peninsula Manpower Company Inc. is declared as employer of the
complainant;

2. Peninsula is ordered to pay complainant his separation pay of
P3,354.00 and his proportionate 13th month pay for 1991 in the amount
of P2,795.00 or the total amount of P6,149.00.
SO ORDERED.11
Separate motions for reconsideration of the NLRC decision were filed by
petitioner and PMCI. In a resolution,12 dated 20 August 1996, the NLRC denied
both motions. However, it was only petitioner who elevated the case before this
Court.
In his petition for certiorari, petitioner submits that respondent NLRC committed
grave abuse of discretion in reversing the decision of the Labor Arbiter, and asks
for the reinstatement of the latter's decision.
Principally, this petition presents the following issues:
1. Whether petitioner was an employee of RFC or PMCI.
2. Whether petitioner was lawfully dismissed.
The resolution of the first issue initially boils down to a determination of the true
status of PMCI, whether it is a labor-only contractor or an independent
contractor.
In the case at bar, RFC alleges that PMCI is an independent contractor on the sole
ground that the latter is a highly capitalized venture. To buttress this allegation,
RFC presents a copy of the Articles of Incorporation and the Treasurer's
Affidavit13 submitted by PMCI to the Securities and Exchange Commission
showing that it has an authorized capital stock of One Million Pesos
(P1,000,000.00), of which Three Hundred Thousand Pesos (P300,000.00) is
subscribed and Seventy-Five Thousand Pesos (P75,000.00) is paid-in. According
to RFC, PMCI is a duly organized corporation engaged in the business of creating
and hiring a pool of temporary personnel and, thereafter, assigning them to its
clients from time to time for such duration as said clients may require. RFC
further contends that PMCI has a separate office, permit and license and its own
organization.
Labor-only contracting, a prohibited act, is an arrangement where the contractor
or subcontractor merely recruits, supplies or places workers to perform a job,
work or service for a principal.14 In labor-only contracting, the following elements
are present:
Page 60 of 69
(a) The contractor or subcontractor does not have substantial capital or
investment to actually perform the job, work or service under its own
account and responsibility;
(b) 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.15
On the other hand, permissible job contracting or subcontracting refers to an
arrangement whereby a principal agrees to put out or farm out with a contractor
or subcontractor the performance or completion of a specific job, work or service
within a definite or predetermined period, regardless of whether such job, work
or service is to be performed or completed within or outside the premises of the
principal.16 A person is considered engaged in legitimate job contracting or
subcontracting if the following conditions concur:
(a) The contractor or subcontractor carries on a distinct and independent
business and undertakes to perform the job, work or service on its own account
and under its own responsibility according to its own manner and method, and
free from the control and direction of the principal in all matters connected
with the performance of the work except as to the results thereof;
(b) The contractor or subcontractor has substantial capital or investment; and
(c) The agreement between the principal and contractor or subcontractor
assures the contractual employees entitlement to all labor and occupational
safety and health standards, free exercise of the right to self-organization,
security of tenure, and social and welfare benefits. 17
Previously, in the case of Neri vs. NLRC,18 we held that in order to be considered as
a job contractor it is enough that a contractor has substantial capital. In other
words, once substantial capital established it is no longer necessary for the
contractor to show evidence that it has investment in the form of tools,
equipment, machineries, work premises, among others. The rational for this is
that Article 106 of the Labor Code does not require that the contractor possess
both substantial capital and investment in the form of tools, equipment,
machineries, work premises, among others.19 The decision of the Court in Neri,
thus, states:
Respondent BCC need not prove that it made investments in the form of
tools, equipment, machineries, work premises, among others, because it
has established that it has sufficient capitalization. The Labor Arbiter and
the NLRC both determined that BCC had a capital stock of P1 million fully

subscribed and paid for. BCC is therefore a highly capitalized venture and
cannot be deemed engaged in "labor-only" contracting. 20
However, in declaring that Building Care Corporation ("BCC") was an
independent contractor, the Court considered not only the fact that it had
substantial capitalization. The Court noted that BCC carried on an independent
business and undertook the performance of 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.21 The Court likewise mentioned that the
employees of BCC were engaged to perform specific special services for its
principal.22 Thus, the Court ruled that BCC was an independent contractor.
The Court further clarified the import of the Neri decision in the subsequent case
of Philippine Fuji Xerox Corporation vs. NLRC.23 In the said case, petitioner Fuji
Xerox implored the Court to apply the Neri doctrine to its alleged job-contractor,
Skillpower, Inc., and declare the same as an independent contractor. Fuji Xerox
alleged that Skillpower, Inc. was a highly capitalized venture registered with the
Securities and Exchange Commission, the Department of Labor and Employment,
and the Social Security System with assets exceeding P5,000,000.00 possessing at
least 29 typewriters, office equipment and service vehicles, and its own pool of
employees with 25 clerks assigned to its clients on a temporary basis. 24 Despite
the evidence presented by Fuji Xerox the Court refused to apply the Neri  case and
explained:
Petitioners cite the case of Neri v. NLRC, in which it was held that the Building
Care Corporation (BCC) was an independent contractor on the basis of finding
that it had substantial capital, although there was no evidence that it had
investments in the form of tools, equipment, machineries and work premises.
But the Court in that case considered not only the capitalization of the BCC but
also the fact that BCC was providing specific special services (radio/telex
operator and janitor) to the employer; that in another case, the Court had
already found that BCC was an independent contractor; that BCC retained
control over the employees and the employer was actually just concerned with
the end-result; that BCC had the power to reassign the employees and their
deployment was not subject to the approval of the employer; and that BCC was
paid in lump sum for the services it rendered. These features of that case make
it distinguishable from the present one.25
Not having shown the above circumstances present in Neri, the Court declared
Skillpower, Inc. to be engaged in labor-only contracting and was considered as a
mere agent of the employer.
Page 61 of 69
From the two aforementioned decisions, it may be inferred that it is not enough
to show substantial capitalization or investment in the form of tools, equipment,
machineries and work premises, among others, to be considered as an
independent contractor. In fact, jurisprudential holdings are to the effect that in
determining the existence of an independent contractor relationship, several
factors might be considered such as, but not necessarily confined to, whether the
contractor is 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.26
Given the above standards and the factual milieu of the case, the Court has to
agree with the conclusion of the Labor Arbiter that PMCI is engaged in labor-only
contracting.
First of all, PMCI does not have substantial capitalization or investment in the
form of tools, equipment, machineries, work premises, among others, to qualify as
an independent contractor. While it has an authorized capital stock of
P1,000,000.00, only P75,000.00 is actually paid-in, which, to our mind, cannot be
considered as substantial capitalization. In the case of Neri, which was
promulgated in 1993, BCC had a capital stock of P1,000,000.00 which was fully
subscribed and paid-for. Moreover, when the Neri case was decided in 1993, the
rate of exchange between the dollar and the peso was only P27.30 to $1 27 while
presently it is at P40.390 to $1.28 The Court takes judicial notice of the fact that in
1993, the economic situation in the country was not as adverse as the present, as
shown by the devaluation of our peso. With the current economic atmosphere in
the country, the paid-in capitalization of PMCI amounting to P75,000,00 cannot
be considered as substantial capital and, as such, PMCI cannot qualify as an
independent contractor.
Second, PMCI did not carry on an independent business nor did it undertake the
performance of its contract according to its own manner and method, free from
the control and supervision of its principal, RFC. The evidence at hand shows that
the workers assigned by PMCI to RFC were under the control and supervision of
the latter. The Contract of Service itself provides that RFC can require the
workers assigned by PMCI to render services even beyond the regular eight hour
working day when deemed necessary.29 Furthermore, RFC undertook to assist
PMCI in making sure that the daily time records of its alleged employees faithfully
reflect the actual working hours.30 With regard to petitioner, RFC admitted that it
exercised control and supervision over him.31 These are telltale indications that
PMCI was not left alone to supervise and control its alleged employees.

Consequently, it can be, concluded that PMCI was not an independent contractor
since it did not carry a distinct business free from the control and supervision of
RFC.
Third, PMCI was not engaged to perform a specific and special job or service,
which is one of the strong indicators that an entity is an independent contractor
as explained by the Court in the cases of Neri and Fuji. As stated in the Contract of
Service, the sole undertaking of PMCI was to provide RFC with a temporary
workforce able to carry out whatever service may be required by it. 32 Such
venture was complied with by PMCI when the required personnel were actually
assigned to RFC. Apart from that, no other particular job, work or service was
required from PMCI. Obviously, with such an arrangement, PMCI merely acted as
a recruitment agency for RFC. Since the undertaking of PMCI did not involve the
performance of a specific job, but rather the supply of manpower only, PMCI
clearly conducted itself as labor-only contractor.
Lastly, in labor-only contracting, the employees recruited, supplied or placed by
the contractor perform activities which are directly related to the main business
of its principal. In this case, the work of petitioner as sales representative is
directly related to the business of RFC. Being in the business of food
manufacturing and sales, it is necessary for RFC to hire a sales representative like
petitioner to take charge of booking its sales orders and collecting payments for
such. Thus, the work of petitioner as sales representative in RFC can only be
categorized as clearly related to, and in the pursuit of the latter's business.
Logically, when petitioner was assigned by PMCI to RFC, PMCI acted merely as a
labor-only contractor.
Based on the foregoing, PMCI can only be classified as a labor-only contractor
and, as such, cannot be considered as the employer of petitioner.
However, even granting that PMCI is an independent contractor, as RFC
adamantly suggests, still, a finding of the same will not save the day for RFC. A
perusal of the Contract of Service entered into between RFC and PMCI reveals
that petitioner is actually not included in the enumeration of the workers to be
assigned to RFC. The following are the workers enumerated in the contract:
1. Merchandiser
2. Promo Girl
3. Factory Worker
4. Driver33
Page 62 of 69
Obviously, the above enumeration does not include the position of petitioner as
sales representative. This only shows that petitioner was never intended to be a
part of those to be contracted out. However, RFC insists that despite the absence
of his position in the enumeration, petitioner is deemed included because this has
been agreed upon between itself and PMCI. Such contention deserves scant
consideration. Had it really been the intention of both parties to include the
position of petitioner they should have clearly indicated the same in the contract.
However, the contract is totally silent on this point which can only mean that
petitioner was never really intended to be covered by it.
Even if we use the "four-fold test" to ascertain whether RFC is the true employer
of petitioner that same result would be achieved. In determining the existence of
employer-employee relationship the following elements of the "four-fold test" are
generally considered, namely: (1) the selection and engagement of the employee
or the power to hire; (2) the payment of wages; (3) the power to dismiss; and (4)
the power to control the employee.34 Of these four, the "control test" is the most
important.35 A careful study of the evidence at hand shows that RFC possesses the
earmarks of being the employer of petitioner.
With regard to the first element, the power to hire, RFC denies any involvement in
the recruitment and selection of petitioner and asserts that petitioner did not
present any proof that he was actually hired and employed by RFC.
It should be pointed out that no particular form of proof is required to prove the
existence of an employer-employee relationship.36 Any competent and relevant
evidence may show the relationship.37 If only documentary evidence would be
required to demonstrate that relationship, no scheming employer would ever be
brought before bar of justice.38 In the case at bar, petitioner presented the
identification card issue to him on 26 May 1990 by RFC as proof that it was the
latter who engaged his services. To our mind, the ID card is enough proof that
petitioner was previously hired by RFC prior to his transfer as agency worker to
PMCI. It must be noted that the Employment Contract between petitioner and
PMCI was dated 1 July 1991. On the other hand, the ID card issued by RFC to
petitioner was dated 26 May 1990, or more than one year before the Employment
Contract was signed by petitioner in favor of PMCI. It makes one wonder why, if
petitioner was indeed recruited by PMCI as its own employee on 1 July 1991, how
come he had already been issued an ID card by RFC a year earlier? While the
Employment Contract indicates the word "renewal," presumably an attempt to
show that petitioner had previously signed a similar contract with PMCI, no
evidence of a prior contract entered into petitioner and PMCI was ever presented
by RFC. In fact, despite the demand made by the counsel of petitioner for
production of the contract which purportedly shows that prior to 1 July 1991
petitioner was already connected with PMCI, RFC never made a move to furnish
the counsel of petitioner a copy of the alleged original Employment Contract. The

only logical conclusion which may be derived from such inaction is that there was
no such contract end that the only Employment Contract entered into between
PMCI and petitioner was the 1 July 1991 contract and no other. Since, as shown
by the ID card, petitioner was already with RFC on 26 May 1990, prior to the time
any Employment Contract was agreed upon between PMCI and petitioner, it
follows that it was RFC who actually hired and engaged petitioner to be its
employee.
With respect to the payment of wages, RFC disputes the argument of petitioner
that it paid his wages on the ground that petitioner did not submit any evidence
to prove that his salary was paid by it, or that he was issued payslip by the
company. On the contrary, RFC asserts that the invoices39 presented by it, show
that it was PMCI who paid petitioner his wages through its regular monthly
billings charged to RFC.
The Court takes judicial notice of the practice of employers who, in order to evade
the liabilities under the Labor Code, do not issue payslips directly to their
employees.40 Under the current practice, a third person, usually the purported
contractor (service or manpower placement agency), assumes the act of paying
the wage.41 For this reason, the lowly worker is unable to show proof that it was
directly paid by the true employer. Nevertheless, for the workers, it is enough
that they actually receive their pay, oblivious of the need for payslips, unaware of
its legal implications.42 Applying this principle to the case at bar, even though the
wages were coursed through PMCI, we note that the funds actually came from the
pockets of RFC. Thus, in the end, RFC is still the one who paid the wages of
petitioner albeit indirectly.
As to the third element, the power to dismiss, RFC avers that it was PMCI who
terminated the employment of petitioner. The facts on record, however, disprove
the allegation of RFC. First of all, the Contract of Service gave RFC the right to
terminate the workers assigned to it by PMCI without the latter's approval.
Quoted hereunder is the portion of the contract stating the power of RFC to
dismiss, to wit:
7. The First party ("RFC") reserves the right to terminate the services of
any worker found to be unsatisfactory without the prior approval of the
second party ("PMCI").43
In furtherance of the above provision, RFC requested PMCI to terminate
petitioner from his employment with the company. In response to the request of
RFC, PMCI terminated petitioner from service. As found by the Labor Arbiter, to
which we agree, the dismissal of petitioner was indeed made under the
instruction of RFC to PMCI.
Page 63 of 69
The fourth and most important requirement in ascertaining the presence of
employer-employee relationship is the power of control. The power of control
refers to the authority of the employer to control the employee not only with
regard to the result of work to be done but also to the means and methods by
which the work is to be accomplished.44 It should be borne in mind, that the
"control test" calls merely for the existence of the right to control the manner of
doing the work, and not necessarily to the actual exercise of the right. 45 In the
case at bar, we need not belabor ourselves in discussing whether the power of
control exists. RFC already admitted that it exercised control and supervision
over petitioner.46 RFC, however, raises the defense that the power of control was
jointly exercised with PMCI. The Labor Arbiter, on the other hand, found that
petitioner was under the direct control and supervision of the personnel of RFC
and not PMCI. We are inclined to believe the findings of the Labor Arbiter which
is supported not only by the admission of RFC but also by the evidence on record.
Besides, to our mind, the admission of RFC that it exercised control and
supervision over petitioner, the same being a declaration against interest, is
sufficient enough to prove that the power of control truly exists.
We, therefore, hold that an employer-employee relationship exists between
petitioner and RFC.
Having determined the real employer of petitioner, we now proceed to ascertain
the legality of his dismissal from employment.
Since petitioner, due to his length of service, already attained the status of a
regular employee,47 he is entitled to the security of tenure provided under the
labor laws. Hence, he may only be validly terminated from service upon
compliance with the legal requisites for dismissal. Under the Labor Code, the
requirements for the lawful dismissal of an employee are two-fold, the
substantive and the procedural aspects. Not only must the dismissal be for a valid
or authorized cause,48 the rudimentary requirements of due process — notice and
hearing49 — must, likewise, be observed before an employee may be dismissed.
Without the concurrence of the two, the termination would, in the eyes of the law,
be illegal.50
As the employer, RFC has the burden of proving that the dismissal of petitioner
was for a cause allowed under the law and that petitioner was afforded
procedural due process. Sad to say, RFC failed to discharge this burden. Indeed,
RFC never pointed to any valid or authorized cause under the Labor Code which
allowed it to terminate the services of petitioner. Its lone allegation that the
dismissal was due to the expiration or completion of contract is not even one of
the grounds for termination allowed by law. Neither did RFC show that petitioner
was given ample opportunity to contest the legality of his dismissal. In fact, no
notice of such impending termination was ever given him. Petitioner was, thus,

surprised that he was already terminated from employment without any inkling
as to how and why it came about. Petitioner was definitely denied due process.
Having failed to establish compliance with the requirements on termination of
employment under the Labor Code, the dismissal of petitioner is tainted with
illegality.
An employee who has been illegally dismissed is entitled to reinstatement to his
former position without loss of seniority rights and to payment of full backwages
corresponding to the period from his illegal dismissal up to actual
reinstatement.51 Petitioner is entitled to no less.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
 
G.R. No. 110731 July 26, 1996
SHOPPERS GAIN SUPERMART, JERRY TAN, JACK TAN and HEIRS OF JAMES
TAN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, SHOPPERS GAIN SUPERMART
EMPLOYEES UNION-UMP and EDUARDO TARROSA, WARLITO AQUAIADAN,
ARREO JOSE, MAGDALENA ARZAGA, JEROGE BANAGA, CORA BOLOTAOLO,
ELMAR DOLUNTAR, FRANCISCO CABULADA, EVELYN CENA, ROQUITO CENA,
JUANITO DAYMON, PABLITO ESMAS, ARTEMIO GERE, ROSALINDA GO,
ROLITO HANDIG, ALBERTO HOLANDA, AIDA JAVIER, AVELINO JAVIER, JR.,
JESUS LEGASPI, MARIETA LEGASPI, PEDRO LOPEZ, ELARIO LOS BANES,
GEORGE MANAL, EMMA MATIRA, RAFAEL MENODIADO, LUCILA MONARES,
MYRNA ORTIZ, TERESITA PANGAHIN, ALFREDO PERLAS, JR., PACITA
MANALO, ORLANDO SAN JOSE, TERESITA SANTOS, TERESITA SENGSENG, and
NARCITO TUAZON; respondents.
 Labor Law; Dismissal; Employer-Employee Relationship; Petitioner
corporation is deemed the direct employer of the private respondents and thus
liable for all benefits to which such workers are entitled, like wages, separation
benefits and so forth.—In accordance with the above provision, petitioner
corporation is deemed the direct employer of the private respondents and thus
liable for all benefits to which such workers are entitled, like wages, separation
benefits and so forth. There is no denying the fact that private respondents’ work
Page 64 of 69
WHEREFORE, the petition is GRANTED. The decision of the NLRC, dated 21 June
1996, as well as its resolution, promulgated on 20 August 1996, are ANNULLED
and SET ASIDE. The decision of the Labor Arbiter, rendered on 15 June 1994, is
hereby REINSTATED and AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.
as merchandisers, cashiers, baggers, check-out personnel, sales ladies,
warehousemen and so forth were directly related, necessary and vital to the day-
to-day operations of the supermarket; their jobs involved normal and regular
functions in the ordinary business of the petitioner corporation. Given the nature
of their functions and responsibilities, it is improbable that petitioner did not
exercise direct control over their work. Moreover, there is no evidence—as in
fact, petitioners do not even allege—that aside from supplying the manpower, the
labor agencies have “substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others.”
Same; Same; Same; In the Singer case, the Court held that there did not exist
any employment relationship between the company and its collectors.—This Court
held that there did not exist any employment relationship between the company
and its collectors. The collection agency agreement stipulated in plain language
that the designation of the collectors as collection agents of the company shall not
create an employment relationship, and that the collectors were at all times to be
considered independent contractors. Naturally, the literal meaning of the
provisions in the agreement is controlling.
Same; Same; Same; Singer ruling cannot apply to the instant case.—In
contrast, in the case before us, it cannot be claimed that private respondents were
being paid purely on the basis of tangible results. Neither is it possible that they
were not controlled by petitioner corporation in the performance of their work as
merchandiser, cashier, bagger, warehouseman, etc., insofar as the work premises,
hours of work, means and methods of performing their assigned tasks, and end
results were concerned. Nor could it be said that they worked at their pleasure
and did not have to devote full time to their jobs. Obviously, the Singer ruling
cannot apply to the instant case.
Same; Same; Same; When dismissal is valid.—Generally speaking, to validate
a dismissal, the employer must show that (1) there was sufficient or just cause
therefor and that (2) due process was observed.

Same; Same; Same; Non-renewal of petitioner corporation’s lease contract
and its consequent closure and cessation of operations may be considered an event
beyond the control of petitioners.—The non-renewal of petitioner corporation’s
lease contract and its consequent closure and cessation of operations may be
considered an event beyond the control of petitioners, in the nature of a  force
majeure situation. As such it amounts to a just cause for termination of the private
respondents. However, as the latter are deemed by law to have been employees of
the petitioner corporation, they are entitled to receive separation pay equivalent
to one (1) month pay or at least one-half (1/2) month pay for every year of
service, whichever is higher, on account of such termination due to closure.
Same; Same; Same; The due process requirement consists of serving written
notice upon each worker to be terminated and upon the Department of Labor and
Employment at least one (1) month prior to the date of termination.—On the other
hand, the due process requirement in this situation consists of serving written
notice upon each worker to be terminated and upon the Department of Labor and
Employment at least one (1) month prior to the date of termination. As held
in Century Textile Mills, Inc. vs. NLRC, “the rights of an employee x x x to be
informed beforehand of his proposed dismissal (or suspension) as well as of the
reasons therefor, x x x are rights personal to the employee.” In short, an employee
is entitled to be personally informed; and this requirement is not a mere
technicality or formality which the employer may dispense with.
Same; Same; Same; Mere posting of petitioners’ notice to terminate private
respondents’ employment on the employees’ bulletin board is not sufficient
compliance with the statutory requirement.—From the foregoing, it is clear that
the dismissal of private respondents failed to fully satisfy this requirement for
validity and legality. The mere posting of petitioners’ notice to terminate private
respondents’ employment on the employees’ bulletin board is not sufficient
compliance with the statutory requirement.
Same; Same; Monetary Benefits;  Responsible officers of a corporation can be
held liable for non-payment of back wages.—With respect to the last issue, it is
well-settled that the responsible officers of a corporation can be held liable for
non-payment of back wages. More so, where the corporation has been dissolved.
PANGANIBAN, J.:
In this Decision, the Court rules, inter alia, on the tests for determining the
existence of employer-employee relations, as they relate to the grant of monetary
benefits due to closure of a business establishment.
Page 65 of 69
Before this Court is a special civil action for certiorari to reverse the Decision1 of
the National Labor Relations Commission promulgated on May 26, 1993 in NLRC
NCR CA Case No. 002953-92 which affirmed with modifications the labor arbiter's
monetary awards in favor of private respondents.
The Facts
It appears that the 34 private respondents had worked for at least one year each
(from 1982 to 1990) in the Shoppers Gain Supermarket (SGS) in various
capacities as "merchandiser, cashier, bagger, check-out personnel, sales lady,
printer/film and warehouseman". Said respondents were part of a pool of
workers from three manpower agencies which supplied petitioner with workers
under "labor only" contracts. In December 1990, due to the non-renewal of its
lease contract over the premises it was using as a grocery and supermarket,
petitioner corporation was constrained to terminate its contracts with the "labor
only" agency contractors and to apply for business retirement. It paid separation
benefits to its regular employees but not to private respondents, with whom it
believed it had no employer-employee relationship.
Ruling on the complaint for illegal dismissal, the labor arbiter rendered his
decision dated December 27, 1991, the dispositive portion2 of which reads:
WHEREFORE, judgment is hereby rendered: (1) finding the respondents
Shoppers Gain Supermart (SGS Marketing Corporation) and/or James Tan, Jack
Tan and Jerry Tan to be guilty of labor only contracting; (2) ordering the
respondents Shoppers Gains Supermart (SGS Marketing Corp.) and/or James
Tan, Jack Tan and Jerry Tan, and Respondents (manpower agencies) Lipercon
Services, Inc.; Golden Services, Inc.; Versatile Consultative and Radium Multi
Resources to pay jointly and severally complainants the following:
a) One (1) month backwages as a consequences of the illegal closure in the
amount of P3,068.00 for each of the 34 complainants; (excluding Benilda
Pableo) in the total amount of P104,312.00;
b) Separation pay of one (1) month for every year of service (including
complainant Pablito Esmas), in lieu of reinstatement as regular workers
considering that reinstatement is no longer feasible due to the closure of the
business of Shoppers Gain Supermarket in the following amounts of:
1. Warlito Acquiadan P18,408.00
x x x           x x x          x x x

c) Underpayment of wages, unpaid salaries, 5 days service incentive leave with
pay, proportionate 13th month pay and cash bond in the amount of P400.00
refund of Teresita Pangahin, in the following amounts of: [amounts omitted]
d) Ten (10%) Percent attorney's fees in the amount of P59,501.32 based on
the total judgment award of P595,013.22;
(3) Dismissing the complaint for unfair labor practice for lack of evidence.
On appeal, the respondent NLRC affirmed the labor arbiter in the assailed
Decision, with the following disposition:3
WHEREFORE, premises considered, the assailed decision is hereby affirmed
with the modification that the amount of 13th month and service incentive
leave pay already paid to the employees recruited and hired by respondent
Lipercon Services, Inc. should be deducted from the amount due them as
stated in the assailed decision.
Hence, this recourse.
The Issues
The petition4 as well as the petitioners' memorandum5 allege the
following grounds:
I.
Public Respondent gravely abused its discretion when it
affirmed that there exist an employer-employee relationship
between petitioner Corporation and respondents;
II.
Public Respondent gravely abused its discretion when it
declared respondents illegally dismissed by petitioner
Corporation;
III.
Public Respondent gravely abused its discretion in affirming that
Pablito Esmas was not paid his separation pay without
discussing said issue in the body of the decision;
IV.
Public respondent gravely abused its discretion in holding
petitioner Corporation liable backwages, separation pay,
underpayment, and attorney's fees;
V.
Public respondent gravely abused its discretion in holding
individual petitioner(s) James Tan, Jerry Tan, and Jack Tan
jointly and severally liable with Petitioner Corporation for the
Page 66 of 69
above mentioned monetary obligations;
The First and Pivotal Issue:
Existence of Employer-Employee Relationship
In affirming the findings of the labor arbiter that the manpower agencies were
"labor only" contractors, the respondent NLRC held:6
It is likewise our considered view that respondents manpower agencies were
"labor only" contractors, who had acted as mere suppliers of manpower for
respondent SGS. Prescinding on this finding, it is the unavoidable conclusion that
employer-employee relations existed between complainants and respondent SGS.
As held by the Supreme Court in the case of Industrial Timber Corporation
vs. NLRC, 169 SCRA 341, thus:
Hence, a finding that a contractor is a "labor only" contractor is equivalent
to a finding that there exists an employer-employee relationship between
the owner of the project and the employees of the "labor only" contractor
since that relationship is defined and prescribed by the law itself.
Suffice it for us to point out that despite the admission of respondent manpower
agencies that herein complainants were their contractual employees assigned
only to respondent SGS and that they have direct control and supervision over
their work performance including payment of wages, the obvious fact remains
that complainants were employees of respondent SGS as provided by law more
particularly under Articles 106 and 107, and Section(s) 8 and 9 of Rule VIII of
Book III of the Omnibus Rules Implementing the Labor Code. It must be so for the
simple reason that all respondent agencies are "labor only" contractors. As such,
they are agents of respondent SGS and the latter assumes responsibility of an
employer. Thus, the contention of respondent SGS that complainants were (not)
its employees because it did not have control over them is untenable. It is not
denied that all complainants had worked within the premises of respondent and
not within the premises of each respondent agency. As such, complainants must
have been subjected to at least the same control and supervision that respondent
exercised over any other person physically within its premises or rendering
services for it. It is quite unbelievable that complainants would be allowed to
work within the premises without being subjected to a substantial measure of
control and supervision, whether in respect of the manner in which they
discharged their functions, or in respect of the end results of their functions or
activities or both.

Moreover, it appears that complainants' work had (become) regular in
nature. Aside from the fact that complainants(') job(s) as cashier, bagger,
sales lady, merchandiser, check-out personnel, printer/film and
warehouseman is directly related to the day-to-day operation of the
respondent supermarket, they have also rendered more than one year of
service doing the same job in respondent. Apparently, their assignment had
become for an indefinite period or for unstated period of time. As such, they
have become regular employees who may not be dismissed except for a just
cause. It is not difficult to see that to uphold the contractual agreement
between the respondent SGS and the different manpower agencies would in
effect be to permit employers to avoid the necessity of hiring regular or
permanent employees to enable them to keep their employees indefinitely on
a temporary or casual status, thus to deny them security of tenure in their
jobs. Article 106 of the Labor Code is precisely designed to prevent such a
result. (PBC vs. NLRC, 146 SCRA 347)."
On the other hand, petitioners — citing Singer Sewing Machine Company
vs. Drilon, et al.,7 — argue that performance of "activities which are desirable and
necessary for the business of the employer" is not determinative of the existence
of employer-employee relationships. In said case, this Court specifically stated:
The Court finds the contention of the respondents that the union members
are employees under the Article 280 of the Labor Code to have no basis. The
definition that regular employees are those who perform activities which are
desirable and necessary for the business of the employer is not determinative
in this case. Any agreement may provide that one party shall render services
for and in behalf of another for a consideration (no matter how necessary for
the latter's business) even without being hired as an employee. This is
precisely true in the case of an independent contractorship as well as in an
agency agreement. The Court agrees with the petitioner's argument that
Article 280 is not the yardstick for determining the existence of an
employment relationship because it merely distinguishes between two kinds
of employees, i.e. regular employees and casual employees, for purposes of
determining the right of an employee to certain benefits, to join or form a
union, or to security of tenure. Article 280 does not apply where the existence
of an employment relationship is in dispute.
Citing various decisions8 of this Court, petitioners essay that "the existence of
employer-employee relationship is determined by four (4) elements, namely: (1)
selection and engagement of the employees; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control employees' conduct."
Petitioners then argue that since the manpower or labor agencies admitted in
their respective position papers that they selected, hired, paid, disciplined,
Page 67 of 69
dismissed and controlled the private respondents, perforce, the latter are not the
employees of the petitioner corporation but of the agencies only.
We do not agree.
The applicable law is not Article 280 of the Labor Code which is cited by
petitioners, but Art. 106, which provides:
Art. 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 the 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 the this
Code, to prevent any violation of circumvention of any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an
employer does not have substantial capital or investment in the form of tools,
equipment, manchineries, 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. (emphasis supplied)
In accordance with the above provision, petitioner corporation is deemed the
direct employer of the private respondents and thus liable for all benefits to
which such workers are entitled, like ages, separation benefits and so forth. There
is no denying the fact that private respondents' work as merchandisers, cashiers,
baggers, check-out personnel, sales ladies, warehousemen and so forth were
directly related, necessary and vital to the day-to-day operations of the
supermarket; their jobs involved normal and regular functions in the ordinary

business of the petitioner corporation. Given the nature of their functions and
responsibilities, it is improbable that petitioner did not exercise direct control
over their work. Moreover, there is no evidence — as in fact, petitioners do not
even allege — that aside from supplying the manpower, the labor agencies have
"substantial capital or investment in the form of tools, equipment, machineries,
work premises, among others."
Singer Case vis-a-vis the instant case
At this juncture, it would be useful to draw material distinction
between Singer and the instant case. The former case involved collectors of the
Baguio City branch of the Singer Sewing Machine Company who formed a union
and petitioned to be certified as sole and exclusive bargaining agent; the
company opposed on the ground that these so-called union members were not
employees but independent contractors, as evidenced by the collection agency
agreement they signed.
This Court held that there did not exist any employment relationship between
the company and its collectors. The collection agency agreement stipulated in
plain language that the designation of the collectors as collection agents of the
company shall not create an employment relationship, and that the collectors
were at all times to be considered independent contractors. Naturally, the
literal meaning of the provisions in the agreement is controlling.
Furthermore, the agreement did not fix the amount for wages, nor the required
working hours. The collectors' earnings were determined solely on the basis of
the tangible results they produced (i.e., total collections made). They worked at
their pleasure and were not required to observe office hours nor to report to
the company's premises, except only to remit collections; neither were they
required to devote their time exclusively for the company. The manner and
method of effecting collections were left entirely to their discretion without any
interference on the part of the company. The collectors even spent for their
own transportation and other expenses incurred in collecting. Moreover, the
grounds specified in the collection agency agreement for termination of the
relationship had no relation to the means and methods of work that are
ordinarily required of or imposed upon employees, and hence do not support
the view that the company exercised control over the collectors. Therefore, the
Court held that the last and most important element of the control test was not
satisfied by the terms and conditions of said agreement, as there was nothing in
the agreement which indicated control by the company over not only the end to
be achieved, but also the means and methods in achieving the end. The Court
was convinced that the company and the collecting agents intended that the
former would take control only over the amounts of collection, which are the
end results of the job performed.
Page 68 of 69
In contrast, in the case before us, it cannot be claimed that private respondents
were being paid purely on the basis of tangible results. Neither is it possible
that they were not controlled by petitioner corporation in the performance of
their work as merchandiser, cashier, bagger, warehouseman, etc., insofar as the
work premises, hours of work, means and methods of performing their
assigned tasks, and end results were concerned. Nor could it be said that they
worked at their pleasure and did not have to devote full time to their jobs.
Obviously, the Singer ruling cannot apply to the instant case.
Second and Fourth Issues:
Illegal Dismissal and Monetary Awards
Having established that there existed an employment relationship between
petitioner corporation and the private respondents, it is now necessary to
determine if private respondents were dismissed in accordance with law.
Generally speaking, to validate a dismissal, the employer must show that (1)
there was sufficient or just cause therefor and that (2) due process was observed.
It is indisputable that petitioner corporation's situation comes under Art. 283 of
the Labor Code, which reads as follows:
Art. 283. Closure of establishment and reduction of personnel. — The employer
may also terminate the employment of any employee due to the installation of
labor saving devices, redundancy, retrenchment to prevent losses or the
closing or cessation of operation of the establishment or undertaking unless
the closing is for the purpose of circumventing the provisions of this Title, by
serving written notice on the workers and the Ministry of Labor and
Employment at least one (1) month before the intended date thereof. In case
of termination due to the installation of labor saving devices or redundancy,
the worker affected thereby shall be entitled to a separation pay equivalent to
at least his one (1) month pay or to at least one (1) month pay for every year
of service, whichever is higher. In case of retrenchment to prevent losses
and in case of closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the
separation pay shall be equivalent to one (1) month pay or at least one-half
(1/2) month pay for every year of service, whichever is higher. A fraction of at
least six (6) months shall be considered one (1) whole year. (Emphasis added)
The non-renewal of petitioner corporation's lease contract and its consequent
closure and cessation of operations may be considered an event beyond the
control of petitioners, in the nature of a force majeure situation. As such it
amounts to a just cause for termination of the private respondents. However, as
 Page 69 of 69

the latter are deemed by law to have been employees of the petitioner
corporation, they are entitled to receive separation pay equivalent to one (1)
month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher, on account of such termination due to closure.
On the other hand, the due process requirement in this situation consists of
serving written notice upon each worker to be terminated and upon the
Department of Labor and Employment at least one (1) month prior to the date of
termination. As held in Century Textile Mills,  Inc. vs. NLRC9, "the rights of an
employee . . . to be informed beforehand of his proposed dismissal (or
suspension) as well as of the reasons therefor, . . . are rights personal to the
employee." In short, an employee is entitled to be personally informed; and this
requirement is not a mere technicality or formality which the employer may
dispense with.
From the foregoing, it is clear that the dismissal of private respondents failed to
fully satisfy this requirement for validity and legality. The mere posting of
petitioners' notice to terminate private respondents' employment on the
employees' bulletin board is not sufficient compliance with the statutory
requirement. As held by the NLRC:
Anent the contention of respondent SGS that complainants were sufficiently
notified of the closure by reason of the notice posted in the bulletin board 30
days prior to the closure untenable. The law is very clear than an employer
who seeks to terminate the employment of its employee must notify him in
writing at least 30 days before the intended dismissal. The requisite of notice
is intended to inform the employee concerned of the employer's intent to
dismiss him and the reason for the proposed dismissal. Since the notice posted
in the bulletin board cannot be considered compliance with the notice
required by law, it follows that the dismissal is illegal.
matter in its assailed Decision. Suffice it to say that when an appellate tribunal or
court affirms a decision, it adopts the affirmed decision as its own and there is
thus no need to rewrite every word or item, or re-discuss every piece of evidence
or argument so affirmed. On the other hand, the labor arbiter held Esmas to be
entitled to separation pay on the basis of Esmas' evidence, as pointed out by
private respondents' counsel, including "a police report when he filed a complaint
against petitioners. . . ."
Fifth Issue: Joint and Several Liability
With respect to the last issue, it is well-settled that the responsible officers of a
corporation can be held liable for non-payment of back wages. 11 More so, where
the corporation has been dissolved. 12
After petitioner Corporation closed its supermarket business, it applied with
the City Hall of Manila for a business retirement. On January 10, 1991 the
office of the City Treasurer of Manila through Asst. City Treasurer Victor B.
Endriga approved the business retirement of respondent company.
Consequently the contract of the agency employers were likewise
terminated.13
WHEREFORE, there being no clear showing of any grave abuse of discretion on
the part of respondent NLRC, the petition must be as it is hereby DISMISSED, with
costs against petitioners.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.

Inasmuch as the dismissal had been tainted with illegality, the monetary award
for backwages, separation pay and attorney's fees, as modified by public
respondent NLRC, are justified. Besides, the matter of establishing the bases for
the awards constitute factual issues, and as a rule, the factual findings of the labor
tribunals are not disturbed by the Supreme Court, particularly where both the
labor arbiter and the NLRC are in agreement.10

Third Issue: Non-payment of
Separation Pay of Pablito Esmas

Petitioners argue that the NLRC erred when it affirmed the labor arbiter's holding
the Pablito Esmas "was not paid his separation pay" without discussing the