PETRON VS CABERTE

G.R. 182255 (2015) – Castillo, J.

TICKER: ABC – mere labor-only contractor

FACTS:
Petron is a domestic corporation engaged in the manufacture and distribution of petroleum
products. Pursuant to the nature of its business, it maintains and operates several bulk tanks all
over the country. One of which is located in Bacolod where the respondents were hired as
utility, maintenance and LPG assistance workers in various dates from 1979 to 1998.

In 1996, Petron engaged the service of ABC Contracting Services as a contractor to provide
utility and maintenance services to its Bacolod bulk tanks. In 1999, the contract between Petron
and ABC was terminated which led to the dismissal of the respondents. Thus, they filed a
complaint for illegal dismissal contending that ABC was a mere labor-only contractor which had
no substantial capital and investment, and had no control over the manner and method on how
they accomplished their work. Thus, Petron is their true employer.

Petron countered their contention saying that ABC was an independent contractor which
supplied the needed manpower for the maintenance and utility of its bulk plant.

The Labor Arbiter and the NLRC both decided in favor of Petron stating that ABC was a
legitimate independent contractor and thus, the employer of the respondents. The CA reversed
the judgment of the NLRC and ordered the reinstatement of the respondents.

ISSUE:
Whether or not ABC Contracting Services was a labor-only contractor of Petron

RULING:
The law presumes a contractor to be a labor-only contractor and the employees are not
expected to prove the negative fact that the contractor is a labor-only contractor. Thus,
to overcome this presumption, Petron has the burden of proving and must establish that
ABC is not a labor-only contractor but a legitimate independent contractor.

Under the law and jurisprudence, a contractor is deemed to be a labor-only contractor if the
following elements are present: (i) the contractor does not have substantial capital or
investment to actually perform the job, work or service under its own account and
responsibility; and (ii) the employees recruited, supplied or placed by such contractor
are performing activities which are directly related to the main business of the principal.

In this case, Petron failed to show that ABC had substantial capital or investment and that
respondents were performing activities which were not directly related to Petron’s principal
business. The documentary evidence presented by Petron were not conclusive evidence of
ABC’s financial capacity to operate and perform their business independently, including the
performance bond posted by ABC. It was also shown that ABC does not own basic tools,
equipment and machineries, and work premises needed to carry out their worker’s job.
Moreover, the Court found that the work rendered by the respondents were directly related or
necessary and desirable to the main business of Petron for they are vital as they are in the
manufacture and distribution of petroleum products. Petron’s power of control over the work of
the respondents was also found by the Court through its supervision over their work in handling
LPG products.
Therefore, considering Petron’s failure to overcome the presumption, the Court declared ABC
as a mere labor-only contractor and in finding that a contractor is a ‘labor-only’ contractor,
it is equivalent that there is an employer-employee relationship between the principal and
the employees of the supposed contractor, and the ‘labor-only’ contractor is considered
as a mere agent of the principal, the real employer. Accordingly, in this case, Petron is
declared to be the true employer of respondents who are considered regular employees in view
of the fact that they have been regularly performing activities which are necessary and desirable
to the usual business of Petron for a number of years.