PHILIPPINE AIRLINES, INC. v. ENRIQUE LIGAN, et al. G.R. No.

146408, 30 April 2009, SPECIAL SECOND DIVISION (Carpio

(ii) The contractor does not exercise the right to control
Morales, J.)
over the performance of the work of the contractual employee.
FACTS
Even if only one of the two elements is present then,
Petitioner Philippine Airlines and Synergy Services Corporation there is labor-only contracting.
as Contractor, entered into an Agreement whereby Synergy
From the records of the case, it is gathered that the work
undertook to provide loading and delivery services by furnishing
performed by almost all of the respondents – loading and
all the necessary capital, workers, materials, supplies and
unloading of baggage and cargo of passengers – is directly
equipment for the performance and execution of said work.
related to the main business of petitioner. And the equipment
Herein respondents who appear to have been assigned to work
used by respondents as station loaders, such as trailers and
for petitioner filed complaints before the NLRC for the payment
conveyors, are owned by petitioner.
of their labor standard benefits and regularization of
employment status claiming that they are performing duties Petitioner PAL, and not Synergy, exercises control and
directly connected with petitioner’s business. The Labor supervision over the respondent workers’ methods of doing the
Arbiter’s decision found Synergy an independent contractor but work, as reflected in their Agreement:
was vacated on appeal. The NLRC tribunal declared Synergy to
be a labor-only contractor and was affirmed by the CA. Petitioner (1) Contractor (Synergy) shall require all its workers,
moved for reconsideration but was denied. employees, suppliers and visitors to comply with OWNER’S
(PAL) rules, regulations, procedures and directives relative to
ISSUE: Whether or not there is labor-only contracting. the safety and security of OWNER’S premises, properties and
operations
HELD:
(2) xxx shall furnish its employees and workers
For labor-only contracting to exist, Section 5 of D.O. No.
identification cards to be countersigned by OWNER and
18-02 which requires any of two elements to be present is, for
uniforms to be approved by OWNER.
convenience, re-quoted:
(3) OWNER may require CONTRACTOR to dismiss
(i) The contractor or subcontractor does not have
immediately and prohibit entry into OWNER’S premises of any
substantial capital or investment which relates to the job,
person employed therein by CONTRACTOR who in OWNER’S
work or service to be performed and the employees recruited,
opinion is incompetent or misconducts himself or does not
supplied or placed by such contractor or subcontractor are
comply with OWNER’S reasonable instructions xxx
performing activities which are directly related to the main
business of the principal, OR
 Petitioner in fact admitted that it fixes the work schedule
of respondents as their work was dependent on the frequency of
plane arrivals. And as the NLRC found, petitioner’s managers and
supervisors approved respondents’ weekly work assignments
and respondents and other regular PAL employees were all
referred to as “station attendants” of the cargo operation and
airfreight services of petitioner.
Respondents having performed tasks which are usually
necessary and desirable in the air transportation business of
petitioner, they should be deemed its regular employees and
Synergy as a labor-only contractor.
San Miguel vs Aballa (2005) G.R. 149011
Facts:
Petitioner San Miguel Corporation entered into a one-
year contract with the Sunflower Multi-Purpose Cooperative.
Sunflower undertook and agreed to perform and provide the
company on a non exclusive basis for a period of one year the
following: Messengerial, Janitorial, Shrimp harvesting and
Sanitation. Pursuant to the contract, Sunflower engaged private
respondents to render services at SMC’s Bacolod Shrimp
Processing Plant. The contract was renewed and private
respondentd continued to perform their tasks. Later, private
respondents filed a complaint praying to be declared as regular
employees of SMC, with claims of recovery of all benefits and
privileges.
Issue: Whether or not Sunflower is engaged in labor
only contracting.
Held: The test to determine the existence of independent
contractorship is whether one claiming to be an independent
contractor has contracted to do the work according to his own
methods and without being subject to the control of the
employer, except only as to the results of the work.
In legitimate labor 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.
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 following would show that sunflower is engaged in
labor only contracting: What appears is that Sunflower does not
have substantial capitalization or investment in the form of tools,
equipment, machineries, work premises and other materials to
qualify it as an independent contractor. It is gathered that the lot,
building, machineries and all other working tools utilized by
private respondents in carrying out their tasks were owned and
provided by SMC.
Sunflower, during the existence of its service contract
with respondent SMC, did not own a single machinery,
equipment, or working tool used in the processing plant.
Everything was owned and provided by respondent SMC. The
lot, the building, and working facilities are owned by respondent
SMC.
And from the job description provided by SMC itself, the
work assigned to private respondents was directly related to the
aquaculture operations of SMC. Undoubtedly, the nature of the
work performed by private respondents in shrimp harvesting,
receiving and packing formed an integral part of the shrimp
processing operations of SMC. As for janitorial and messengerial
services, that they are considered directly related to the principal
business of the employer has been jurisprudentially recognized.
Furthermore, Sunflower 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, SMC, its apparent role having
been merely to recruit persons to work for SMC.
Therefore since Sunflower is labor only contracting,
there is the existence of an employer- employee relationship
between SMC and private respondents.
Meralco Industrial Engineering Services v. NLRC, March 14,
2008
Meralco and the private respondent executed a contract
where the latter would supply the petitioner janitorial services,
which include labor, materials, tools and equipment, as well as
supervision of its assigned employees, at Meralco’s Rockwell
Thermal Plant in Makati City.
The 49 employees lodged a Complaint for illegal
deduction, underpayment, non-payment of overtime pay, legal
holiday pay, premium pay for holiday and rest day and night
differentials against the private respondent before the LA.
By virtue of RA 6727, the contract between Meralco and
the private respondent was amended to increase the minimum
daily wage per employee. 2 months after the amendment of the
contract, Meralco sent a letter to private respondent informing
them that at the end of business hours of Jan. 31, 1990, it would
be terminating contract entered into with the private
respondents. On the said date, the complainants were pulled out
from their work. The complainants amended their complaint to
include the charge of illegal dismissal and to implead Meralco as
a party respondent. The LA dismissed the complaint. On appeal,
the NLRC affirmed the decision of the LA with the modification
that Meralco was solidarily liable with the private respondents.
The CA on the other hand, modified the Decision of the NLRC and
held Meralco
to be solidarily liable with the private respondent for the underpayment of wages and non-payment of overtime pay. The
satisfaction of the laborer’s separation pay. joint and several liability of the principal with the contractor and
subcontractor were enacted to ensure compliance with the
Issue: Whether Meralco should be liable for the payment
provisions of the Labor Code, principally those on statutory
of the dismissed laborer’s separation pay.
minimum wage. This liability facilitates, if not guarantees,
Decision: payment of the workers’ compensation, thus, giving the worker
sample protection as mandated by the 1987 Constitution. With
Petition GRANTED, Judgment and Resolution Reversed and SET private respondents’ surety bond, it can therefore be said that
ASIDE. the purpose of the Labor Code provision on the solidary liability
The CA used Art. 109 of the Labor Code to hold Meralco of the indirect employer is already accomplished since the
solidarily liable with the private respondent as regard to the interest of the complainants are already adequately protected.
payment of separation pay. However, the SC ruled that Art.109 Consequently, it will be futile to continuously hold the petitioner
should be read in relation to Art. 106 and 107 of the LC. Thus, an jointly and solidarity liable with the private respondents for the
indirect employer can only be held liable with the independent judgment awards for underpayment of wages and non-payment
contractor or subcontractor in the event that the latter fails to of overtime pay.
pay the wages of its employees. While it is true that the
petitioner was the indirect employer of the complainants, it
cannot be held liable in the same way as the employer in every
respect. Meralco may be considered an indirect employer only
for purposes of unpaid wages.
The only instance when the principal can also be held
liable with the independent contractor or subcontractor for the
backwages and separation pay of the latter’s employees is when
there is proof that the principal conspired with the independent
contractor or subcontractor in the illegal dismissal of the
employees. In the present case, there is no allegation, much less
proof presented, that the petitioner conspired with private
respondents in the illegal dismissal of the latter’s employees;
hence, it cannot be held liable for the same.
In this case, however, private respondents had already
posted a surety bond in an amount sufficient to cover all the
judgment awards due the complainants, including those for

Manila Electric Co., vs Benamira (2005) G.R. 145271
Facts:
The individual respondents are licensed security guards
formerly employed by People’s Security, Inc. and deployed as
such at MERALCO’s head office. The security service agreement
between PSI and MERALCO was terminated. Thereafter, 56 of
PSI’s security guards, including herein eight individual
respondents, filed a complaint for unpaid monetary benefits
against PSI and MERALCO. Meanwhile, the security service
agreement between respondent Armed Security & Detective
Agency, Inc., (ASDAI) and MERALCO took effect. Subsequently,
the individual respondents were absorbed by ASDAI and
retained at MERALCO’s head office. Later, 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.
The individual respondents amended their complaint to implead
AFSISI as party respondent.
Issue: Whether or not the individual respondents
are employees of MERALCO.
Held: No. In this case, the terms and conditions
embodied in the security service agreement between MERALCO
and ASDAI expressly recognized ASDAI as the employer of
individual respondents. Under the security service agreement, it
was ASDAI which (a) selected, engaged or hired and discharged
the security guards; (b) assigned them to MERALCO according to
the number agreed upon; (c) provided the uniform, firearms and
ammunition, nightsticks, flashlights, raincoats and other
paraphernalia of the security guards; (d) paid them salaries or
wages; and, (e) disciplined and supervised them or principally
controlled their conduct. The agreement even explicitly
provided that “[n]othing herein contained shall be understood to
make the security guards under this Agreement, employees of
the COMPANY, it being clearly understood that such security
guards shall be considered as they are, employees of the AGENCY
alone.” Clearly, the individual respondents are the employees of
ASDAI.
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.
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. 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.
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.
DOLE Philppines vs Esteva (2006) G.R. 161115
Facts:
Petitioner is a corporation duly organized and existing in
accordance with Philippine laws, engaged principally in the
production and processing of pineapple for the export market.
Its plantation is located in Polomolok, South Cotabato.
Respondents are members of the Cannery Multi-Purpose
Cooperative (CAMPCO). CAMPCO was organized in accordance
with Republic Act No. 6938, otherwise known as the Cooperative
Code of the Philippines, and duly-registered with the
Cooperative Development Authority (CDA). Members of CAMPCO
live in communities surrounding petitioner's plantation and are
relatives of petitioner's employees. Petitioner and CAMPCO
entered into a Service Contract. The Service Contract referred to
petitioner as "the Company," while CAMPCO was "the
Contractor."
Pursuant to the foregoing Service Contract, CAMPCO
members rendered services to petitioner. The number of
CAMPCO members that report for work and the type of service
they performed depended on the needs of petitioner at any given
time. Although the Service Contract specifically stated that it
shall only be for a period of six months, the parties had
apparently extended or renewed the same for the succeeding
years without executing another written contract. It was under
these circumstances that respondents came to work for
petitioner.
 The Task Force submitted a report identifying six
cooperatives that were engaged in labor-only contracting, one of
which was CAMPCO. The DOLE Regional Office No. XI held a
conference wherein the representatives of the cooperatives
named by the Task Force were given the opportunity to explain
the nature of their activities in relation to petitioner. Director
Parel of DOLE Regional Office No. XI issued an Order, directing
the cooperatives to cease and desist from engaging in labor-only
contracting.
DOLE Undersecretary Cresencio B. Trajano, by the
authority of the DOLE Secretary, issued an Order dismissing the
appeal of the Cooperatives.
Respondents started working for petitioner at various
times in the years 1993 and 1994, by virtue of the Service
Contract executed between CAMPCO and petitioner. All of the
respondents had already rendered more than one year of service
to petitioner. While some of the respondents were still working
for petitioner, others were put on "stay home status" on varying
dates in the years 1994, 1995, and 1996 and were no longer
furnished with work thereafter. Together, respondents filed a
Complaint, on 19 December 1996, with the National Labor
Relations Commission (NLRC), for illegal dismissal,
regularization, wage differentials, damages and attorney's fees.
Respondents thus argued that they should be considered
regular employees of petitioner given that: (1) they were
performing jobs that were usually necessary and desirable in the
usual business of petitioner; (2) petitioner exercised control over
respondents, not only as to the results, but also as to the manner
by which they performed their assigned tasks; and (3) CAMPCO,
a labor-only contractor, was merely a conduit of petitioner. As
regular employees of petitioner, respondents asserted that they
were entitled to security of tenure and those placed on "stay
home status" for more than six months had been constructively
and illegally dismissed. Respondents further claimed entitlement
to wage differential, moral damages, and attorney's fees.
Petitioner, in its Position Paper filed before the NLRC,
denied that respondents were its employees.
Petitioner explained that it found the need to engage
external services to augment its regular workforce, which was
affected by peaks in operation, work backlogs, absenteeism, and
excessive leaves. It used to engage the services of individual
workers for definite periods specified in their employment
contracts and never exceeding one year. However, such an
arrangement became the subject of a labor case, in which
petitioner was accused of preventing the regularization of such
workers. The Labor Arbiter who heard the case, rendered his
Decision declaring that these workers fell squarely within the
concept of seasonal workers as envisaged by Article 280 of the
Labor Code, as amended, who were hired by petitioner in good
faith and in consonance with sound business practice; and
consequently, dismissing the complaint against petitioner.
The NLRC, in its Resolution, affirmed in toto the Labor
Arbiter's Decision and further found that the workers were
validly and legally engaged by petitioner for "term employment,"
wherein the parties agreed to a fixed period of employment,
knowingly and voluntarily, without any force, duress or
improper pressure being brought to bear upon the employees
and absent any other circumstance vitiating their consent. The
said NLRC Resolution became final and executory. Despite the
favorable ruling of both the Labor Arbiter and the NLRC,
petitioner decided to discontinue such employment
arrangement. Yet, the problem of petitioner as to shortage of
workforce due to the peaks in operation, work backlogs,
absenteeism, and excessive leaves, persisted. Petitioner then
found a solution in the engagement of cooperatives such as
CAMPCO to provide the necessary additional services.
Petitioner contended that respondents were owners-
members of CAMPCO; that CAMPCO was a duly-organized and
registered cooperative which had already grown into a multi-
million enterprise; that CAMPCO was engaged in legitimate job-
contracting with its own owners-members rendering the
contract work; that under the express terms and conditions of
the Service Contract executed between petitioner (the principal)
and CAMPCO (the contractor), the latter shall undertake the
contract work on its own account, under its own responsibility,
and according to its own manner and method free from the
control and direction of the petitioner in all matters connected
with the performance of the work, except as to the result thereof;
and since CAMPCO held itself out to petitioner as a legitimate job
contractor, respondents, as owners-members of CAMPCO, were
estopped from denying or refuting the same.
Petitioner further averred that Department Order No. 10,
amending the rules implementing Books III and VI of the Labor
Code, as amended, promulgated by the DOLE on 30 May 1997,
explicitly recognized the arrangement between petitioner and
CAMPCO as permissible contracting and subcontracting.
The LA and the NLRC decided the case in favor of the
Petitioner Company and against the complaint of the private
respondents (employees). On appeal by certiorari, the CA
reversed the rulings of the LA and NLRC. Thus, the petitioner
Company appealed to the SC for Petition for Review on Certiorari
Issues:
1. Whether or not department order no. 10, series
of 1997 is the applicable regulation in this case. Whether or not
there should be a retroactive application to department order no.
3, series of 2001.
2. Whether or not its retroactive application
violated the constitutional provision against impairment of
contracts and deprived petitioner of the due process of the law.
Held:
The second assignment of error delves into the
significance and application to the case at bar of the two
department orders issued by DOLE. Department Order No. 10,
series of 1997, amended the implementing rules of Books III and
VI of the Labor Code, as amended. Under this particular DOLE
department order, the arrangement between petitioner and
CAMPCO would qualify as permissible contracting. Department
Order No. 3, series of 2001, revoked Department Order No. 10,
series of 1997, and reiterated the prohibition on labor-only
contracting.
Attention is called to the fact that the acts complained of
by the respondents occurred well before the issuance of the two
DOLE department orders in 1997 and 2001. The Service Contract
between DOLE and CAMPCO was executed on 17 August 1993.
Respondents started working for petitioner sometime in 1993
and 1994. While some of them continued to work for petitioner,
at least until the filing of the Complaint, others were put on "stay
home status" at various times in 1994, 1995, and 1996.
Respondents filed their Complaint with the NLRC on 19
December 1996.
A basic rule observed in this jurisdiction is that no
statute, decree, ordinance, rule or regulation shall be given
retrospective effect unless explicitly stated. Since there is no
provision at all in the DOLE department orders that expressly
allowed their retroactive application, then the general rule
should be followed, and the said orders should be applied only
prospectively.
Which now brings this Court to the question as to what
was the prevailing rule on labor-only contracting from 1993 to
1996, the period when the occurrences subject of the Complaint
before the NLRC took place.
Article 106 of the Labor Code, as amended, permits
legitimate job contracting, but prohibits labor-only contracting.
The said provision reads —
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.
The Secretary of Labor may, by appropriate regulations,
restrict or prohibit the contracting out of labor to protect the
rights of workers established under this Code. In so prohibiting
or restricting, he may make appropriate distinctions between
labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine
who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code.
There is "labor-only" contracting where the person
supplying workers to an 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.
To implement the foregoing provision of the Labor Code,
—
as amended, Sections 8 and 9, Rule VIII, Book III of the
implementing rules, in force since 1976 and prior to their
amendment by DOLE Department Order No. 10, series of 1997,
provided as follows —
Sec. 8. Job contracting. — There is job contracting
permissible under the Code 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 his business.
 Sec. 9. Labor-only contracting. — (a) Any person who
undertakes to supply workers to an employer shall be deemed to
be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment
in the form of tools, equipment, machineries, work premises and
other materials; and
(2) The workers recruited and placed by such
persons are performing activities which are directly related to
the principal business or operations of the employer in which
workers are habitually employed.
(b) Labor-only contracting as defined herein is
hereby prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary 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.
(c) For cases not falling under this Article, the
Secretary of Labor shall determine through appropriate orders
whether or not the contracting out of labor is permissible in the
light of the circumstances of each case and after considering the
operating needs of the employer and the rights of the workers
involved. In such case, he may prescribe conditions and
restrictions to insure the protection and welfare of the workers.
Since these statutory and regulatory provisions were the
ones in force during the years in question, then it was in
consideration of the same that DOLE Regional Director Parel and
DOLE Undersecretary Trajano issued their Orders on 19
September 1993 and 15 September 1994, respectively, both
finding that CAMPCO was engaged in labor-only contracting.
Petitioner, in its third assignment of error, questions the weight
that the Court of Appeals gave these orders in its Decision, dated
20 May 2002, and Amended Decision, dated 27 November 2003.
Aliviado vs Procter and Gamble Phils. Inc., et al (2010) G.R.
160506
Facts:
Petitioners worked as merchandisers of P&G from
various dates, allegedly starting as early as 1982 or as late as
June 1991, to either May 5, 1992 or March 11, 1993. They all
individually signed employment contracts with either Promm-
Gem or SAPS for periods of more or less five months at a time.
They were assigned at different outlets, supermarkets and stores
where they handled all the products of P&G. They received their
wages from Promm-Gem or SAPS.
SAPS and Promm-Gem imposed disciplinary measures on
erring merchandisers for reasons such as habitual absenteeism,
dishonesty or changing day-off without prior notice.
P&G is principally engaged in the manufacture and
production of different consumer and health products, which it
sells on a wholesale basis to various supermarkets and
distributors. To enhance consumer awareness and acceptance of
the products, P&G entered into contracts with Promm-Gem and
SAPS for the promotion and merchandising of its products.
In December 1991, petitioners filed a complaint against
P&G for regularization, service incentive leave pay and other
benefits with damages. The complaint was later amended to
include the matter of their subsequent dismissal.
On November 29, 1996, the Labor Arbiter dismissed the
complaint for lack of merit and ruled that there was no
employer-employee relationship between petitioners and P&G.
He found that the selection and engagement of the petitioners,
the payment of their wages, the power of dismissal and control
with respect to the means and methods by which their work was
accomplished, were all done and exercised by Promm-
Gem/SAPS. He further found that Promm-Gem and SAPS were
legitimate independent job contractors.
Appealing to the NLRC, petitioners disputed the Labor
Arbiter’s findings. On July 27, 1998, the NLRC rendered a
Decision dismissing their appeal. Petitioners then filed a petition
for certiorari with the CA, alleging grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the
Labor Arbiter and the NLRC. However, said petition was also
denied by the CA.
Petitioners filed a motion for reconsideration but the
motion was also denied.
Issue: Whether or not Promm-Gem and SAPS are labor-only
contractors.
Held:
Promm-Gem is an independent contractor however,
SAPS is a labor-only contractor.
The pertinent Labor Code provision on the matter states:
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.
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.
Rule VIII-A, Book III of the Omnibus Rules Implementing
the Labor Code, as amended by Department Order No. 18-02,
distinguishes between legitimate and labor-only contracting:
Section 3. Trilateral Relationship in Contracting
Arrangements. In legitimate contracting, there exists a trilateral
relationship under which there is a contract for a specific job,
work or service between the principal and the contractor or
subcontractor, and a contract of employment between the
contractor or subcontractor and its workers. Hence, there are
three parties involved in these arrangements, the principal
which decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the
capacity to independently undertake the performance of the job,
work or service, and the contractual workers engaged by the
contractor or subcontractor to accomplish the job, work or
service.
 Section 5. Prohibition against labor-only contracting.
Labor-only contracting is hereby declared prohibited. For this
purpose, labor-only contracting shall refer to an arrangement
where the contractor or subcontractor merely recruits, supplies
or places workers to perform a job, work or service for a
principal, and any of the following elements are 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) [T]he contractor does not exercise the right to control
over the performance of the work of the contractual employee.
The foregoing provisions shall be without prejudice to
the application of Article 248 (c) of the Labor Code, as amended.
"Substantial capital or investment" refers to capital
stocks and subscribed capitalization in the case of corporations,
tools, equipment, implements, machineries and work premises,
actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work or service
contracted out.
The "right to control" shall refer to the right reserved to
the person for whom the services of the contractual workers are
performed, to determine not only the end to be achieved, but
also the manner and means to be used in reaching that end.
Clearly, the law and its implementing rules allow
contracting arrangements for the performance of specific jobs,
works or services. Indeed, it is management prerogative to farm
out any of its activities, regardless of whether such activity is
peripheral or core in nature. However, in order for such
outsourcing to be valid, it must be made to an independent
contractor because the current labor rules expressly prohibit
labor-only contracting.
In the instant case, the financial statements of Promm-
Gem show that it has authorized capital stock of P1 million and a
paid-in capital, or capital available for operations, of P500,000.00
as of 1990. It also has long term assets worth P432,895.28 and
current assets of P719,042.32. Promm-Gem has also proven that
it maintained its own warehouse and office space with a floor
area of 870 square meters. It also had under its name three
registered vehicles which were used for its
promotional/merchandising business. Promm-Gem also has
other clients aside from P&G. Under the circumstances, we find
that Promm-Gem has substantial investment which relates to the
work to be performed. These factors negate the existence of the
element specified in Section 5(i) of DOLE Department Order No.
18-02.
The records also show that Promm-Gem supplied its
complainant-workers with the relevant materials, such as
markers, tapes, liners and cutters, necessary for them to perform
their work. Promm-Gem also issued uniforms to them. It is also
relevant to mention that Promm-Gem already considered the
complainants working under it as its regular, not merely
contractual or project, employees. This circumstance negates the
existence of element (ii) as stated in Section 5 of DOLE
Department Order No. 18-02, which speaks of contractual
employees. This, furthermore, negates – on the part of Promm-
Gem – bad faith and intent to circumvent labor laws which
factors have often been tipping points that lead the Court to
strike down the employment practice or agreement concerned as
contrary to public policy, morals, good customs or public order.
 Under the circumstances, Promm-Gem cannot be substantial capital or investment and the workers it recruited
considered as a labor-only contractor. We find that it is a are performing activities which are directly related to the
legitimate independent contractor. principal business of P&G, we find that the former is engaged in
"labor-only contracting".
On the other hand, the Articles of Incorporation of SAPS
shows that it has a paid-in capital of only P31,250.00. There is no "Where ‘labor-only’ contracting exists, the Labor Code
other evidence presented to show how much its working capital itself establishes an employer-employee relationship between
and assets are. Furthermore, there is no showing of substantial the employer and the employees of the ‘labor-only’ contractor."
investment in tools, equipment or other assets. The statute establishes this relationship for a comprehensive
purpose: to prevent a circumvention of labor laws. The
In Vinoya v. National Labor Relations Commission, the
contractor is considered merely an agent of the principal
Court held that "[w]ith the current economic atmosphere in the
employer and the latter is responsible to the employees of the
country, the paid-in capitalization of PMCI amounting to
labor-only contractor as if such employees had been directly
P75,000.00 cannot be considered as substantial capital and, as
employed by the principal employer.
such, PMCI cannot qualify as an independent contractor."
Applying the same rationale to the present case, it is clear that Consequently, petitioners recruited and supplied by SAPS
SAPS – having a paid-in capital of only P31,250 - has no -- which engaged in labor-only contracting -- are considered as
substantial capital. SAPS’ lack of substantial capital is underlined the employees of P&G while those having worked under, and
by the records which show that its payroll for its merchandisers been dismissed by Promm-Gem, are considered the employees of
alone for one month would already total P44,561.00. It had 6- Promm-Gem, not of P&G.
month contracts with P&G. Yet SAPS failed to show that it could
complete the 6-month contracts using its own capital and
investment. Its capital is not even sufficient for one month’s
payroll. SAPS failed to show that its paid-in capital of P31,250.00
is sufficient for the period required for it to generate its needed
revenue to sustain its operations independently. Substantial
capital refers to capitalization used in the performance or
completion of the job, work or service contracted out. In the
present case, SAPS has failed to show substantial capital.
Furthermore, the petitioners have been charged with the
merchandising and promotion of the products of P&G, an activity
that has already been considered by the Court as doubtlessly
directly related to the manufacturing business, which is the
principal business of P&G. Considering that SAPS has no

Temic Automotive v. Temic Automotive Employees Union
FACTS
By practice established since 1998, the petitioner
contracts out some of the work in the warehouse department,
specifically those in the receiving and finished goods sections, to
three independent service providers or forwarders (forwarders),
namely: Diversified Cargo Services, Inc. (Diversified), Airfreight
2100 (Airfreight) and Kuehne & Nagel, Inc. (KNI). These
forwarders also have their own employees who hold the
positions of clerk, material handler, system encoder and general
clerk. The regular employees of the petitioner and those of the
forwarders share the same work area and use the same
equipment, tools and computers all belonging to the petitioner.
This outsourcing arrangement gave rise to a union
grievance on the issue of the scope and coverage of the collective
bargaining unit, specifically to the question of whether or not the
functions of the forwarders employees are functions being
performed by the regular rank-and-file employees covered by
the bargaining unit. The union thus demanded that the
forwarders' employees be absorbed into the petitioner's regular
employee force and be given positions within the bargaining
unit. The petitioner, on the other hand, on the premise that the
contracting arrangement with the forwarders is a valid exercise
of its management prerogative, posited that the union's position
is a violation of its management prerogative to determine who to
hire and what to contract out, and that the regular rank-and-file
employees and their forwarders employees serving as its clerks,
material handlers, system encoders and general clerks do not
have the same functions as regular company employees.
The union and the petitioner failed to resolve the dispute
at the grievance machinery level, thus necessitating recourse to
voluntary arbitration.
Respondent’s submissions: in evidence a copy of the
complete manpower complement of the petitioner's warehouse
department showing that there were at the time 19 regular
company employees and 26 forwarder employees. And affidavits
of regular employees of the petitioner, who deposed that they
and the forwarders employees assigned at the warehouse
department were performing the same functions.
Petitioner’s submissions: invoked the exercise of its
management prerogative and its authority under this
prerogative to contract out to independent service providers the
forwarding, packing, loading of raw materials and/or finished
goods and all support and ancillary services (such as clerical
activities) for greater economy and efficiency in its operations.
The petitioner maintained that the services rendered by
the forwarders employees are not the same as the functions
undertaken by regular rank-and-file employees covered by the
bargaining unit; therefore, the unions demand that the
forwarders employees be assimilated as regular company
employees and absorbed by the collective bargaining unit has no
basis; what the union asks constitutes an unlawful interference
in the company's prerogative to choose who to hire as
employees. It pointed out that the union could not, and never did,
assert that the contracting-out of work to the service providers
was in violation of the CBA or prohibited by law.

Voluntary arbitrator’s decision: the outsourcing of forwarding
work is expressly allowed by the rules implementing the Labor
Code; however, the voluntary the petitioner went beyond the
limits of the legally allowable contracting out because the
forwarders' employees encroached upon the functions of the
petitioner's regular rank-and-file workers. The forwarders'
employees perform their jobs in the company warehouse
together with the petitioner's employees, use the same company
tools and equipment and work under the same company
supervisors indicators that the petitioner exercises supervision
and control over all the employees in the warehouse department.
Thus, the forwarders employees serving as clerks, material
handlers, system encoders and general clerks to be employees of
the company who are entitled to all the rights and privileges of
regular employees of the company including security of tenure.
CA fully affirmed the voluntary arbitrator’s decision and
dismissed the petition for lack of merit.
ISSUE(S)
W/N the functions of the forwarders' employees are functions
being performed by the regular rank-and-file employees covered
by the bargaining unit. – NO!
(Note: the issue poses jurisdictional problems as the forwarders
employees are not parties to the case and the union has no
authority to speak for them. From this perspective, the voluntary
arbitration submission covers matters affecting third parties
who are not parties to the voluntary arbitration and over whom
the voluntary arbitrator has no jurisdiction; thus, the voluntary
arbitration ruling cannot bind them. This limited scope, of
course, poses no problem as the forwarders and their employees
are not indispensable parties and the case is not mooted by their
absence. Our ruling will fully bind the immediate parties and
shall fully apply to, and clarify the terms of, their relationship,
particularly the interpretation and enforcement of the CBA
provisions pertinent to the arbitrated issues.)
RULING
Our own examination of the agreement shows that the
forwarding arrangement complies with the requirements of
Article 106 of the Labor Code and its implementing rules.
To reiterate, no evidence or argument questions the
companys basic objective of achieving greater economy and
efficiency of operations. This, to our mind, goes a long way to
negate the presence of bad faith.
The forwarding arrangement has been in place since
1998 and no evidence has been presented showing that any
regular employee has been dismissed or displaced by the
forwarders employees since then. No evidence likewise stands
before us showing that the outsourcing has resulted in a
reduction of work hours or the splitting of the bargaining unit
effects that under the implementing rules of Article 106 of the
Labor Code can make a contracting arrangement illegal. The
other requirements of Article 106, on the other hand, are simply
not material to the present petition.
Thus, on the whole, we see no evidence or argument
effectively showing that the outsourcing of the forwarding
activities violate our labor laws, regulations, and the parties CBA,
specifically that it interfered with, restrained or coerced the current CBA was signed. In this sense, the union accepted
employees in the exercise of their rights to self-organization. the forwarding arrangement, albeit implicitly, when it signed the
CBA with the company. Thereby, the union agreed, again
The job of forwarding, as we earlier described, consists
implicitly by its silence and acceptance, that jobs related to the
not only of a single activity but of several services that
contracted forwarding activities are not regular company
complement one another and can best be viewed as one whole
activities and are not to be undertaken by regular employees
process involving a package of services. These services include
falling within the scope of the bargaining unit but by the
packing, loading, materials handling and support clerical
forwarders employees. Thus, the skills requirements and job
activities, all of which are directed at the transport of company
content between forwarders jobs and bargaining unit jobs may
goods, usually to foreign destinations.
be the same, and they may even work on the same company
It is in the appreciation of these forwarder services as products, but their work for different purposes and for different
one whole package of inter-related services that we discern a entities completely distinguish and separate forwarder and
basic misunderstanding that results in the error of equating the company employees from one another.
functions of the forwarders employees with those of regular
In light of these conclusions, we see no need to dwell on
rank-and-file employees of the company. A clerical job, for
the issue of the voluntary arbitrator’s authority to rule on issues
example, may similarly involve typing and paper pushing
not expressly submitted but which arise as a consequence of the
activities and may be done on the same company products that
voluntary arbitrators findings on the submitted issues.
the forwarders employees and company employees may work
on, but these similarities do not necessarily mean that all these
employees work for the company. The regular company
DISPOSITIVE PORTION
employees, to be sure, work for the company under its
supervision and control, but forwarder employees work for the WHEREFORE, premises considered, we hereby NULLIFY and SET
forwarder in the forwarders own operation that is itself a ASIDE the assailed Court of Appeals Decision, together with the
contracted work from the company. The company controls its Voluntary Arbitrators Decision.
employees in the means, method and results of their work, in the
same manner that the forwarder controls its own employees in
the means, manner and results of their work. Complications and
confusion result because the company at the same time controls
the forwarder in the results of the latters work, without
controlling however the means and manner of the forwarder
employees work.
From the perspective of the union in the present case, we
note that the forwarding agreements were already in place when

Smart Communications v. Astorga, January 28, 2008
FACTS:
Astorga was employed by Smart as District Sales
Manager of the Corporate Sales Marketing Group/ Fixed Services
Division. SMART launched an organizational realignment to
achieve more efficient operations. Part of the reorganization was
the outsourcing of the marketing and sales force. Thus, SMART
formed SMART-NTT Multimedia, Incorporated (SNMI). Since
SNMI was formed to do the sales and marketing work, SMART
abolished the CSMG/FSD, Astorga’s division.
SNMI agreed to absorb the CSMG personnel who would
be recommended by SMART. Astorga landed last in the
performance evaluation, thus, she was not recommended by
SMART. SMART, nonetheless, offered her a supervisory position
in the Customer Care Department, but she refused the offer
because the position carried lower salary rank and rate.
Astorga continued reporting for work. SMART issued a
memorandum advising Astorga of the termination of her
employment on ground of redundancy,
Astorga filed a Complaint for illegal dismissal, non-
payment of salaries and other benefits with prayer for moral and
exemplary damages against SMART.
In the meantime, SMART sent a letter to Astorga
demanding that she pay the current market value of the Honda
Civic Sedan which was given to her under the company’s car plan
program, or to surrender the same to the company for proper
disposition.
Astorga, however, failed and refused to do either, thus
prompting SMART to file a suit for replevin before the RTC which
was subsequently denied.
Astorga elevated the denial of her motion via certiorari to
the CA, which, in its February 28, 2000 Decision,19 reversed the
RTC ruling. Granting the petition and, consequently, dismissing
the replevin case, the CA held that the case is intertwined with
Astorga’s complaint for illegal dismissal; thus, it is the labor
tribunal that has rightful jurisdiction over the complaint.
SMART’s motion for reconsideration having been denied.
On the other hand, the labor arbiter held that Astorga’s
dismissal from employment illegal. While recognizing SMART’s
right to abolish any of its departments, the Labor Arbiter held
that such right should be exercised in good faith and for causes
beyond its control. The Arbiter found the abolition of CSMG done
neither in good faith nor for causes beyond the control of
SMART, but a ploy to terminate Astorga’s employment. The
Arbiter also ruled that contracting out the functions performed
by Astorga to an in-house agency like SNMI was illegal.
SMART also appealed the unfavorable ruling of the Labor
Arbiter in the illegal dismissal case to the NLRC which declared
the abolition of CSMG and the creation of SNMI to do the sales
and marketing services for SMART a valid organizational action.

ISSUE:
Whether or not Astorga’s dismissal was valid.
RULING:
Astorga was terminated due to redundancy, which is one
of the authorized causes for the dismissal of an employee. The
nature of redundancy as an authorized cause for dismissal is
explained in the leading case of Wiltshire File Co., Inc. v. National
Labor Relations Commission, viz:
x x x redundancy in an employer’s personnel force
necessarily or even ordinarily refers to duplication of work. That
no other person was holding the same position that private
respondent held prior to termination of his services does not
show that his position had not become redundant. Indeed, in any
well organized business enterprise, it would be surprising to find
duplication of work and two (2) or more people doing the work
of one person.
We believe that redundancy, for purposes of the Labor
Code, exists where the services of an employee are in excess of
what is reasonably demanded by the actual requirements of the
enterprise. Succinctly put, a position is redundant where it is
superfluous, and superfluity of a position or positions may be the
outcome of a number of factors, such as overhiring of workers,
decreased volume of business, or dropping of a particular
product line or service activity previously manufactured or
undertaken by the enterprise.
However, as aptly found by the CA, SMART failed to
comply with the mandated one month notice prior to
termination.
Article 283 of the Labor Code clearly provides:
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 a written notice on the
workers and the Ministry of Labor and Employment at least one
(1) month before the intended date thereof x x x.
SMART’s assertion that Astorga cannot complain of lack
of notice because the organizational realignment was made
known to all the employees as early as February 1998 fails to
persuade.
Astorga’s actual knowledge of the reorganization cannot
replace the formal and written notice required by the law. In the
written notice, the employees are informed of the specific date of
the termination, at least a month prior to the effectivity of such
termination, to give them sufficient time to find other suitable
employment or to make whatever arrangements are needed to
cushion the impact of termination.
Smart gave her a formal notice of termination barely two
(2) weeks before the effective date of termination, a period very
much shorter than that required by law.
This procedural infirmity, however, would not render the
termination of Astorga’s employment illegal. The validity of
termination can exist independently of the procedural infirmity
of the dismissal.
In DAP Corporation v. CA, the dismissal of the employees
therein valid and for authorized cause even if the employer failed
to comply with the notice requirement under Article 283 of the
Labor Code. The Court found the need to modify, by increasing,
the indemnity awarded by the CA to Astorga, as a sanction on
SMART for non-compliance with the one-month mandatory
notice requirement, in light of our ruling in Jaka Food Processing
Corporation v. Pacot, viz.:
[I]f the dismissal is based on a just cause under Article
282 but the employer failed to comply with the notice
requirement, the sanction to be imposed upon him should be
tempered because the dismissal process was, in effect, initiated
by an act imputable to the employee, and (2) if the dismissal is
based on an authorized cause under Article 283 but the
employer failed to comply with the notice requirement, the
sanction should be stiffer because the dismissal process was
initiated by the employer’s exercise of his management
prerogative.
The award of backwages to Astorga by the CA should be
deleted for lack of basis. Backwages is a relief given to an illegally
dismissed employee. Thus, before backwages may be granted,
there must be a finding of unjust or illegal dismissal from
work.The Labor Arbiter ruled that Astorga was illegally
dismissed. But on appeal, the NLRC reversed the Labor Arbiter’s
ruling and categorically declared Astorga’s dismissal valid. This
ruling was affirmed by the CA in its assailed Decision. Since
Astorga’s dismissal is for an authorized cause, she is not entitled
to backwages.
Manila Water v. Dalumpines, October 4, 2010
FACTS:
Petitioner Manila Water Company, Inc. (Manila Water)
was one of two private concessionaires contracted by the MWSS
to manage the water distribution system in the east zone of
Metro Manila.
Under the concession agreement, Manila Water
undertook to absorb the regular employees of MWSS listed by
the latter effective August 1, 1997. Individual respondents, with
the exception of Moises Zapatero (Zapatero) and Edgar
Pamoraga (Pamoraga), were among the one hundred twenty-one
(121) employees not included in the list of employees to be
absorbed by Manila Water. Nevertheless, Manila Water engaged
their services without written contract from August 1, 1997 to
August 31, 1997. On September 1, 1997, individual respondents
signed a three (3)-month contract to perform collection services
on commission basis for Manila Waters branches in the east
zone.
Before the expiration of the contract of services, the 121
bill collectors formed a corporation duly registered with the
Securities and Exchange Commission (SEC) as the "Association
Collectors Group, Inc." (ACGI). ACGI was one of the entities HELD: Job contracting is permissible only if the following
engaged by Manila Water for its courier service. Manila Water conditions are met:
entered into a service agreement with respondent First Classic
[1] The contractor carries on an independent business
Courier Services, Inc. (FCCSI) also for its courier needs. The
and undertakes the contract work on his own account under his
service agreements between Manila Water and FCCSI covered
own responsibility according to his own manner and method,
the periods 1997 to 1999 and 2000 to 2002. FCCSI gave a
free from the control and direction of his employer or principal
deadline for the bill collectors who were members of ACGI to
in all matters connected with the performance of the work
submit applications and letters of intent to transfer to FCCSI. The
except as to the results thereof; and,
individual respondents in this case were among the bill
collectors who joined FCCSI and were hired effective December [2] The contractor has substantial capital or investment
1, 1997. in the form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of the
business.
On various dates between May and October 2002,
Article 106 of the Code provides that there is labor-only
individual respondents were terminated from employment.
contracting where the person supplying workers to an employer
Manila Water no longer renewed its contract with FCCSI because
does not have substantial capital or investment in the form of
it decided to implement a "collectorless" scheme whereby Manila
tools, equipment, machineries, work premises, among others,
Water customers would instead remit payments through "Bayad
and the workers recruited and placed by such person are
Centers." Thus, aggrieved bill collectors individually filed
performing activities which are directly related to the principal
complaints for illegal dismissal, unfair labor practice, damages,
business of the employer. In such cases, the person or
and attorneys fees, with prayer for reinstatement and backwages
intermediary shall be considered merely as an agent of the
against petitioner Manila Water and respondent FCCSI.
employer who shall be responsible to the workers in the same
The LA rendered a decision dismissing the complaint for manner and to the same extent as if the latter were directly
lack of employer-employee relationship. Respondent bill employed by him.
collectors filed an appeal to the NLRC but the same was denied.
In the instant case, the CA found that FCCSI is a labor-
Respondents filed a petition for certiorari to the CA which
only contractor. Based on the factual findings of the CA, FCCSI
reversed the decision of the NLRC. Petitioners filed a motion for
does not have substantial capital or investment to qualify as an
reconsideration but the same was denied. Hence, this petition.
independent contractor. FCCSI was incorporated on November
ISSUE: 14, 1995, with an authorized capital stock ofP400,000.00, of
which onlyP100,000.00 is actually paid-in. Going by the
Is there employer-employee relationship between
pronouncement in Pe, such capitalization can hardly be
respondent bill collectors and petitioner Manila Water?
considered substantial.
 As correctly ruled by the CA, FCCSIs capitalization may element of control exercised by Manila Water over respondent
not be considered substantial considering that it had close to a bill collectors is manifested in the following circumstances:
hundred collectors covering the east zone service area of Manila
(a) respondent bill collectors reported daily to the
Water customers. The allegation in the position paper of FCCSI
branch offices of Manila Water to remit their collections with the
that it serves other companies courier needs does not "cure" the
specified monthly targets and comply with the collection
fact that it has insufficient capitalization to qualify as
reporting procedures prescribed by the latter;
independent contractor. Neither did FCCSI prove its allegation by
substantial evidence other than by their self-serving (b) respondent bill collectors, except for Pamoraga and
declarations. What is evident is that it was Manila Water that Zapatero, were among the 121 collectors who incorporated
provided the equipment and service vehicles needed in the ACGI;
performance of the contracted service, even if the contract
between FCCSI and Manila Water stated that it was the (c) Manila Water continued to pay their wages in the
Contractor which shall furnish at its own expense all materials, form of commissions even after the employees alleged transfer
tools, and equipment needed to perform the tasks of collectors. to FCCSI. Manila Water paid the respondent bill collectors their
individual commissions, and the lump sum paid by Manila Water
The elements to determine the existence of an employment to FCCSI merely represented the agency fee; and
relationship are:
(d) the certification or individual clearances issued by
(a) the selection and engagement of the employee; Manila Water to respondent bill collectors upon the termination
of the service contract with FCCSI.
(b) the payment of wages;
The certification stated that respondents were contract
(c) the power of dismissal; and,
collectors of Manila Water and not of FCCSI. Thus, this Court
(d) the employer's power to control the employee's agrees with the findings of the CA that if, indeed, FCCSI was the
conduct. true employer of the bill collectors, it should have been the one
to issue the certification or individual clearances.
The most important of these elements 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
DENIED
accomplish it.
First, respondent bill collectors were individually hired
by the contractor, but were under the direct control and
supervision of the concessionaire. Second, they performed the
same function of courier and bill collection services. Third, the

Babas v. Lorenzo Shipping, December 15, 2010
FACTS:
Lorenzo Shipping Corporation (LSC) is a duly organized
domestic corporation engaged in the shipping industry; it owns
several equipment necessary for its business. LSC entered into
an Agreement with Best Manpower Services, Inc. (BMSI). Under
the Agreement, BMSI undertook to provide maintenance and
repair services to LSCs container vans, heavy equipment, trailer
chassis, and generator sets. BMSI further undertook to provide
checkers to inspect all containers received for loading to and/or
unloading from its vessels. Simultaneous with the execution of
the Agreement, LSC leased its equipment, tools, and tractors to
BMSI. The period of lease was coterminous with the Agreement.
BMSI then hired petitioners on various dates to work at
LSC as checkers, welders, utility men, clerks, forklift operators,
motor pool and machine shop workers, technicians, trailer
drivers, and mechanics. Years later, LSC entered into another
contract with BMSI, this time, a service contract.
In September 2003, petitioners filed with the Labor
Arbiter a complaint for regularization against LSC and BMSI. LSC
terminated the Agreement. Consequently, petitioners lost their
employment.
LA dismissed the complaint finding that petitioners were
employees of BMSI. It was BMSI which hired petitioners, paid
their wages, and exercised control over them. On appeal, NLRC
reversed the decision. The CA reversed the NLRC ruling holding
the BMSI is an independent contractor.
ISSUE:
Did the CA erred in ignoring the clear evidence of record
that BMSI was engaged in labor-only contracting?
HELD:
In distinguishing between prohibited labor-only
contracting and permissible job contracting, the totality of the
facts and the surrounding circumstances of the case are to be
considered.
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; and (b) the employees recruited, supplied, or
placed by such contractor or subcontractor perform activities
which are directly related to the main business of the principal.
 On the other hand, permissible job contracting or thereby bolstering the NLRC finding that BMSI is a labor-only
subcontracting refers to an arrangement whereby a principal contractor.
agrees to put out or farm out with the 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.
The Sc sustained the petitioners position that BMSI is
engaged labor-only contracting. First, petitioners worked at LSCs
premises, and nowhere else. Other than the provisions of the
Agreement, there was no showing that it was BMSI which
established petitioners working procedure and methods, which
supervised petitioners in their work, or which evaluated the
same. There was absolute lack of evidence that BMSI exercised
Teng v. Pahagac, November 17, 2010
control over them or their work, except for the fact that
petitioners were hired by BMSI. Second, LSC was unable to FACTS:
present proof that BMSI had substantial capital. The record
before us is bereft of any proof pertaining to the contractors Albert Teng (Petitioner) is engaged in the business of
capitalization, nor to its investment in tools, equipment, or deep sea fishing, and he employs master fishermen to facilitate
implements actually used in the performance or completion of his fishing venture. These master fishermen hire the Respondent
the job, work, or service that it was contracted to render. What is workers as checkers of the volume of the fish caught in every
clear was that the equipment used by BMSI were owned by, and voyage. Respondents filed a complaint of illegal dismissalthey
merely rented from, LSC. Third, petitioners performed activities averred that there was no employment contract, and sometime
which were directly related to the main business of LSC. The around Sept. 2002, Teng doubted the amounts that they were
work of petitioners as checkers, welders, utility men, drivers, and telling him regarding how much fish were caught. By December,
mechanics could only be characterized as part of, or at least Teng told them their services were terminated.
clearly related to, and in the pursuit of, LSCs business. Logically, The VA dismissed the complaint because there was no
when petitioners were assigned by BMSI to LSC, BMSI acted employer-employee relationship. Respondents received the
merely as a labor-only contractor. decision on June 12, 2003; They filed an MR which was denied
Lastly, as found by the NLRC, BMSI had no other client and they received the order on July 8, 2003. The Voluntary
except for LSC, and neither BMSI nor LSC refuted this finding, Arbitrator reasoned that the Procedural Guidelines in the
Conduct of Voluntary Arbitration Proceedings (1989 Procedural
Guidelines) does not provide the remedy of a motion for
reconsideration to the party adversely affected by the VAs order
or decision
Respondents appealed to the CA, which ordered
Petitioner to pay backwages and other monetary benefits. After
denial of the MR,Teng files the case before the Supreme Court
ISSUES: Is the VA's decision not subject to a motion for
reconsideration?
Is there an employer-employee relationship?
respondent workers identification cards (IDs) bearing their
names as employees and Tengs signature as the employer.
Generally, in a business establishment, IDs are issued to identify
the holder as a bona fide employee of the issuing entity. For the
13 years that the respondent workers worked for Teng, they
received wages on a regular basis, in addition to their shares in
the fish caught.
The element of control is present in this case. Teng not
only owned the tools and equipment, he directed how the
respondent workers were to perform their job as checkers; they,
in fact, acted as Tengs eyes and ears in every fishing expedition.

HELD: The dismissal of an employee, which the employer must

validate, has a twofold requirement: one is substantive, the other
Article 262-A deleted the word "unappealable" from is procedural. Not only must the dismissal be for a just or an
Article 263. The deliberate selection of the language in the authorized cause, as provided by law; the rudimentary
amendatory act differing from that of the original act indicates requirements of due process the opportunity to be heard and to
that the legislature intended a change in the law, and the court defend oneself must be observed as well. The employer has the
should endeavor to give effect to such intent. Presumably, the burden of proving that the dismissal was for a just cause; failure
decision may still be reconsidered by the Voluntary Arbitrator on to show this, as in the present case, would necessarily mean that
the basis of a motion for reconsideration duly filed during that the dismissal was unjustified and, therefore, illegal. DENIED.
period. The seasonable filing of a motion for reconsideration is a
mandatory requirement to forestall the finality of such decision.
The requirement that administrative remedies be
exhausted is based on the doctrine that in providing for a
remedy before an administrative agency, every opportunity must
be given to the agency to resolve the matter and to exhaust all
opportunities for a resolution under the given remedy before
bringing an action in, or resorting to, the courts of justice.
While Teng alleged that it was the maestros who hired
the respondent workers, it was his company that issued to the

Diamond Farms v. Farms Agrarian Reform Beneficiaries
Multi-purpose Cooperative, January 13, 2016
Facts
DFI owns an 800-hectare banana plantation ("original
plantation") in Alejal, Carmen, Davao. Pursuant to Republic Act
No. 6657 or the Comprehensive Agrarian Reform Law of 1988
("CARL"), commercial farms shall be subject to compulsory
acquisition and distribution, thus the original plantation was
covered by the law. DFI offered to give up its rights and interest
over the original plantation in favor of the government by way of
a Voluntary Offer to Sell. The DAR accepted DFI's offer to sell the
original plantation. Out of the total 800 hectares, the DAR only
approved the disposition of 689.88 hectares.
The awarded plantation was turned over to qualified
agrarian reform beneficiaries ("ARBs") under the CARL. These
ARBs are the same farmers who were working in the original
plantation. They subsequently organized themselves into a
multi-purpose cooperative named "DARBMUPCO," which is one
of the respondents in this case.
DARBMUPCO entered into a Banana Production and
Purchase Agreement ("BPPA") with DFI. Under the BPPA,
DARBMUPCO and its members as owners of the awarded
plantation, agreed to grow and cultivate only high grade quality
exportable bananas to be sold exclusively to DPI. The BPPA is
effective for 10 years.18
Hampered by lack of manpower to undertake the
agricultural operation under the BPPA, DFI engaged the services
of the respondent-contractors, who in turn recruited the
respondent-workers to assist DARBMUPCO in meeting its
production obligations under the BPPA,
Southern Philippines Federation of Labor ("SPFL")—a
legitimate labor organization with a local chapter in the awarded
plantation filed a petition for certification election in the Office of
the Med-Arbiter on behalf of some 400 workers (the respondent-
workers in this petition) "jointly employed by DFI and
DARBMUPCO" working in the awarded plantation.
In another case, SPFL, together with more than 300
workers, filed a case for underpayment of wages, nonpayment of
13th month pay and service incentive leave pay and attorney's
fees against DFI, DARBMUPCO and the respondent-contractors
before the National Labor Relations Commission ("NLRC")
DARBMUPCO and DFI denied that they are the employers
of the respondent-workers. They claimed, instead, that the
respondent-workers are the employees of the respondent-
contractors.
Issue: Who among DFI,DARBMUPCO and the respondent-
contractors is the employer of the respondent-workers?
Ruling:
Petition is denied. Furthermore, the decision of the Court
of Appeals declaring DFI to be the employer of respondent-
workers is affirmed.
This case involves job contracting, a labor arrangement
expressly allowed by law. Contracting or subcontracting is an
arrangement whereby a principal (or employer) 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.
The Omnibus Rules Implementing the Labor Code
distinguishes between permissible job contracting (or
independent contractorship) and labor-only contracting. Job
contracting is permissible under the Code 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 his
business.
In contrast, job contracting shall be deemed as labor-only
contracting, an arrangement prohibited by law, if a person who
undertakes to supply workers to an employer:
(1) Does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises and other
materials; and
(2) The workers recruited and placed by such person are
performing activities which are directly related to the principal
business or operations of the employer in which workers are
habitually employed.
Based on the conditions for permissible job contracting,
we rule that respondent-contractors are labor only contractors
There is no evidence showing that respondent-
contractors are independent contractors. The respondent-
contractors, DFI, and DARBMUPCO did not offer any proof that
respondent-contractors were not engaged in labor-only
contracting.
Herein respondents, Voltaire Lopez, Jr., et al., were
commissioned and contracted by petitioner, Diamond Farms, Inc.
(DFI) to recruit farm workers, who are the complaining
[respondent-workers] (as represented by Southern Philippines
Federation of Labor (SPFL) in this appeal by certiorari).
Farm tools, implements and equipment necessary to
performance of such farm activities were supplied by petitioner
DFI. Herein respondents Voltaire Lopez, Jr. et. al. had no
adequate capital to acquire or purchase such tools, implements,
equipment, etc.
Herein respondents Voltaire Lopez, Jr., et. al. as well as
rcspondents-SPFL, et. al. were being directly supervised,
controlled and managed by petitioner DFI farm managers and
supervisors, specifically on work assignments and performance
targets.
 A finding that a contractor is a labor-only contractor is
equivalent to a declaration that there is an employer-employee
relationship between the principal, and the workers of the labor-
only contractor; the labor-only contractor is deemed only as the
agent of the principal. Thus, in this case, respondent-contractors
are the labor-only contractors and either DFI or DARBMUPCO is
their principal.
We hold that DFI is the principal. The records show that
it is DFI which hired the individual [respondent-contractors]
who in turn hired their own men to work in the 689.88 hectares
land of DARBMUPCO as well as in the managed area of the
plantation.

DFI cannot argue that DARBMUPCO is the principal of the

respondent-contractors because it (DARBMUPCO) owns the
awarded plantation where respondent-contractors and
respondent-workers were working. That DARBMUPCO owns the
awarded plantation where the respondent-contractors and
respondent-workers were working is immaterial.DFI, as the
principal, hired the respondent-contractors and the latter, in
turn, engaged the services of the respondent-workers.
Clearly, DFI is the true employer of the respondent-
workers; respondent-contractors are only agents of DFI. Under
Article 106 of the Labor Code, DFI shall be solidarily liable with
the respondent-contractors for the rightful claims of the
respondent-workers, to the same manner and extent, as if the
latter are directly employed by DFI.
Manila Memorial Park Cemetery v. Luiz, February 3, 2016
Facts:
Petitioner Manila Memorial Park Cemetery, Inc. (Manila
Memorial) entered into a Contract of Services with respondent
Ward Trading and Services (Ward Trading). The Contract of
Services provided that Ward Trading, as an independent
contractor, will render interment and exhumation services and
other related work to Manila Memorial in order to supplement
operations at Manila Memorial Park, Paranaque City.
Among those assigned by Ward Trading to perform
services at the Manila Memorial Park were respondents Ezard
Lluz, Norman Corral, Erwm Fugaban, Valdimar Balisi, Emilio
Fabon, John Mark Aplicador, Michael Curioso, Junlin Espares, and
Gavino Farinas (respondents).
 Respondents alleged that soon after the management
declined their request for regularization and to be recognized as
legitimate members of the existing labor union,the latter
dismissed them. Hence, this case for illegal dismissal.
By way of defense, Manila Memorial argued that there
was no employer-employee relationship between the company
and respondents. Instead, It argued that respondents were the
employees of Ward Trading.
Issue: Whether or not an employer-employee relationship
exists between Manila Memorial and respondents for the
latter to be entitled to their claim for wages and other
benefits.
Ruling:
Contracting arrangements for the performance of specific
jobs or services under the law and its implementing rules are
allowed. However, contracting must be made to a legitimate and
independent job contractor since labor rules expressly prohibit
labor-only contracting.
Labor-only contracting exists when the contractor or
subcontractor merely recruits, supplies or places workers to
perform a job, work or service for a principal and any of the
following elements are present:
1) 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
2) The contractor does not exercise the right to control
the performance of the work of the contractual employee.
In the present case, The Contract of Services proved the
existence of labor-only conrtacting between Manila Memorial
and Ward Trading. The Contract of Services provided that Ward
Trading, as an independent contractor, will render interment
and exhumation services and other related work to Manila
Memoria.However,a closer reading of the Contract of Services
reveals that Ward Trading does not have substantial capital or
investment in the form of tools, equipment, machinery, work
premises and other materials since it is Manila Memorial which
owns the equipment used in the performance of work needed for
interment and exhumation services. Furthermore, although
Ward shall be in charge of the supervision over individual
respondents, the exercise of its supervisory function is heavily
dependent upon the needs of petitioner Memorial Park. The
contract further provides that petitioner has the option to take
over the functions of Ward's personnel if it finds any part or
aspect of the work or service provided to be unsatisfactory
Manila Memorial failed to adduce evidence to prove that
Ward Trading had any substantial capital, investment or assets
to perform the work contracted for. Thus, the presumption that
Ward Trading is a labor-only contractor stands. Consequently,
Manila Memorial is deemed the employer of respondents.

Quintanar v. Coca Cola Bottlers Philippines, June 28, 2016
Facts:
Complainants allege that they are former employees
directly hired by respondent Coca-Cola... assigned as regular
Route Helpers under the direct supervision of the Route Sales
Supervisors.
After working for quite sometime as directly-hired
employees of Coca-Cola, complainants were allegedly...
transferred successively as agency workers to the following
manpower agencies, namely, Lipercon Services, Inc., People's
Services, Inc., ROMAC, and the latest being respondent Interserve
Management and Manpower Resources, Inc.
Complainants allege that the Department of Labor and
Employment (DOLE) conducted an inspection of Coca-Cola to
determine whether it is complying with the various mandated
labor standards, and relative thereto, they were declared to be
regular employees of Coca-Cola
As soon as respondents learned of the filing of the claims
with DOLE, they were dismissed... they filed their complaint for
illegal dismissal.
Issues: whether the petitioners were illegally dismissed
from their employment with Coca-Cola
Ruling:
The Court finds for the petitioners. It cannot be said that route-
helpers, such as the petitioners no longer enjoy the employee-
employer relationship they had with Coca-Cola since they
became employees of Interserve.
The argument of petitioner that its usual business or
trade is softdrink manufacturing and that the work assigned to
respondent workers as sales route helpers so involves merely
"postproduction activities," one which is not indispensable in the
manufacture of its products,... scarcely can be persuasive.
The repeated rehiring of respondent workers and the
continuing need for their services clearly attest to the necessity
or desirability of their services in the regular conduct of the
business or trade of petitioner company.
Interserve did not have substantial capital or investment
in the form of tools, equipment, machineries, and work premises;
and respondents, its supposed employees, performed work
which was directly related to the principal business of petitioner.
 The petitioners were made to suffer under the prohibited
practice of labor-only contracting. even if the Court would
indulge Coca-Cola and admit that Interserve had more... than
sufficient capital or investment in the form of tools, equipment,
machineries, work premises, still, it cannot be denied that the
petitioners were performing activities which were directly
related to the principal business of such employer.
even if Interserve were to be considered as a legitimate
job contractor, Coca-Cola failed to rebut the allegation that
petitioners were transferred from being its employees to become
the employees of ISI, Lipercon, PSI, and ROMAC, which were
labor-only... contractors. Well-settled is the rule that "[t]he
contractor, not the employee, has the burden of proof that it has
the substantial capital, investment, and tool to engage in job
contracting."
In this case, the said burden of proof lies with Coca-Cola...
although it was not the contractor itself, but it was the one
invoking the supposed status of these entities as independent job
contractors.
NESTLE PHILIPPINES, INC. VS. BENNY A. PUEDAN, JR.,
Facts:
Puedan, et al. alleged that on various dates, ODSI and NPI
hired them to sell various products in the assigned covered area.
After some time, Puedan et.al demanded that they be
considered regular employees of NPI, but they were directed to
sign contracts of employment with ODSI instead. When Puedan,
et al refused to comply with such directives NPI and ODSI
terminated them from their position. Thus, they were
constrained to file the complaint, claiming that: (ODSI is a labor-
only contractor and thus, they should be deemed regular
employees of NPI, and (b) there was no just or authorized cause
for their dismissal.
For its part, ODSI averred that it is a company engaged in
the business of buying, selling, distributing, and marketing of
goods and commodities of every kind, and it enters into all kinds
of contracts for the acquisition thereof. ODSI admitted that on
various dates, it hired Puedan et al as its employees and assigned
them to execute the Distributorship Agreement it entered with
NPI. However, the business relationship between NPI and ODSI
turned sour. Eventually, NPI downsized its marketing and
promotional support from ODSI which resulted to business
reverses and in the latter’s filing of a petition for corporate
rehabilitation and subsequently, the closure of its Nestle unit due
to the termination of the Distributorship Agreement and the
failure of rehab.
Under the foregoing circumstances, ODSI argued that Puedan et
al were not dismissed but merely put in floating status. On the
other hand, NPI did not file any position paper or appear in the
scheduled conferences.
LA Ruling
Dismissed the complaint for lack of merit but nevertheless
ordered inter alia ODSI and NPI to pay Puedan et al nominal
damages plus attorney’s fees. It found Puedan to (a)be unable to
prove that they were NPI employees; (b) Puedan et al wre not
illegally dimissed as ODSI has indeed closed down its operations
due to business losses. As to the issue on the failure to give
Puedan et al a 30 day notice prior to such closure, LA concluded
that all impleaded Puedan et al therein should be held liable for
the payment of nominal damages plus attorney’s fees.
Aggrieved , Puedan et al appealed to NLRC.
NLRC Ruling:
Reversed and set aside the LA. Ordered ODSI and NPI to pay each
of Puedan et al (a)separation pay; (b)nominal damages;
(c)attorney’s fees.
NLRC found that while ODSI indeed shut down its operations, it
failed to prove that such closure was due to serious business
losses as it did not present evidence to corroborate its claims.
Futher, NLRC found ODSI to be a labor-only contractor of NPI,
considering that (a)ODSI had no substantial
capitalization/investment; (b)Puedan, et al performed activities
directly related to NPI’s principal business, and (c) the fact that
Puedan et al employment depended on the continuous supply of
method. Consequently, NLRC deemed NPI to be Puedan, et al true
employer, and this ordered it to be jointly and severally liable
with ODSI to pay monetary claims of Puedan, et al.
Puedan et al moved for a partial reconsideration. NPI also moved
for reconsideration. NLRC Denied both, hence this petition to the
CA.
CA Ruling:
CA ruled that despite ODSI and NPI’s contract being
denominated as “Distributorship Agreement”, it contained
provisions demonstrating a labor-only contracting agreement
between them, as well as NPI’S exercise of control over the
business of ODSI.
Pointed out that (a) there was nothing in the records which
showedthat ODSI had substantial capital to undertake an
independent business, and (b) Puedan et al performed tasks
essential to NPI’s business.
Issue:
W/N there is employee-employer relationship between Puedan
et al and NPI
Ruling:
A closer examination of the Distributorship Agreement
reveals that the relationship of NPI and ODSI is not that of a
principal and a contractor but that of a seller and a
buyer/reseller. As stipulated in the agreement, NPI agreed to sell
it products to ODSI at discounted prices which in turn will be re-
sold to the identified customers, ensuring in the process of
integrity and quality of the said products based on the standards
agreed upon by parties. As aptly explained by NPI, the goods it
manufactures are distributed to the market through various
distributors e.g ODSI, that in turn re-sell the same to the
designated outlets through its own employees such as Puedan, et
al.
Therefore, the reselling activities allegedly performed by
the Puedan et al properly pertain to ODSI, whose principal
business consists of the “buying, selling, distributing, and
marketing good and commodities of every kind” and “[entering]
into all kinds of contracts for the acquisition of such goods [and
commodities]”. Thus, contrary to the CA’s findings, the
aforementioned stipulations in the agreement hardly
demonstrate control on the part of NPI over the means and
methods by which ODSI performs its business, nor were they
intended to dictate how ODSI shall conduct its business as
distributor.
Otherwise stated, the stipulations in the Agreement do
not operate to control or fix the methodology on how ODSI
should do its business as a distributor of NPI products, but
merely provide rules of conduct or guidelines towards the
achievement of a mutually desired result – which in this case is
the sale of NPI products to the end consumer.
In Steelcase Inc. vs Design International Selections Inc., the
Court held that the imposition of minimum standards concerning
sales, marketing, finance, and operations are nothing more than
an exercise of sound business practice to increase sales and
maximize of profits.
Verily, it was only reasonable for NPI -it being a local arm
of one of the largest manufactures of foods and grocery products
worldwide – to require its distributors, such as ODSI to meet
various conditions for the grant and continuation of a
distributorship agreement for as long as these conditions do not
control the means and methods on how ODSI does its
distributorship as shown in this case. This is to ensure the
integrity and quality of the products which will ultimately fall
into the hands of the end consumer. Thus the foregoing
circumstances show that ODSI was not a labor-only contactor of
NPI; hence, the latter cannot be deemed the true employer of
Puedan et al.
As a consequence, NPI cannot be held jointly and
severally liable to ODSI’s monetary obligations towards Puedan.
et al.