G.R. No.

146408

Philippine Airlines v. Ligan

February 29, 2008

Facts:

In order to offer luggage and cargo loading, unloading, and delivery services to and from the
airline's aircraft at Mactan Station, Philippine Airlines and Synergy Services Corporation entered into an
agreement in 1991. The contract stated that Synergy would supply all resources, personnel, equipment,
facilities, supplies, and tools required for the satisfactory performance of the services. There would be
no employer-employee connection between the contractor and the owner, according to the agreement.

Respondents brought claims in 1992 for underpayment, non-payment of premium pay, service
incentive leave pay, 13th month pay, allowances, and regularization of work status against the airline,
Synergy, and their personnel. The petitioner's appeal for regularization by the respondents was
dismissed by the Labour Arbiter after Synergy was determined to be an independent contractor.

Following an appeal, the NLRC reversed and annulled the Labour Arbiter's ruling, designating
Synergy Services Corporation as a "labor-only" contractor and directing Philippine Airlines to treat all
complainants as regular workers. The petitioner contends that contracting out services that are directly
linked to its business does not transform the respondents into its employees and that the law does not
forbid an employer from hiring an independent contractor like Synergy to carry out certain tasks.

Due to significant losses and the termination of the service agreement with Synergy, the
petitioner claims there is no employer-employee connection in the case and that reinstating the
respondents is thus impossible.

Issue:

Whether Synergy is a mere job-only contractor or a legitimate contractor.

Ruling:

YES. The Labor Code governs subcontracting, where an employer hires a third party to perform
a third party's work under a contract. The employer is responsible for the contractor's work if the
contractor fails to pay wages. The Secretary of Labor can limit or forbid contracting out of labor. Labor-
only contracts occur when the worker lacks significant capital and is directly involved in the main
business. These contracts are not allowed as they require significant financial commitment and direct
involvement from the employee. The court ruled that labor-only contracting occurs when only one of
two conditions is present. The petitioner claimed that respondents were under Synergy's supervision,
but the agreement requires competent and experienced workers. Synergy should be treated as a labor-
only contractor and respondents as regular employees for essential air transportation actions. The court
ruled that the termination of Auxtero was not legally justifiable due to a lack of justification and
procedural due process violations. The remaining respondents should be accepted as regular employees
and receive salaries, allowances, and other employment benefits.

The Court of Appeals decision of September 29, 2000, is upheld with modification. The
petitioner, Philippine Airlines, Inc., is ordered to accept respondents like Enrique Ligan, Emilio Soco, and
others as regular employees, pay them wages and benefits, and pay a salary differential. Respondent
Benedikto Auxtero will also be paid salary differential, backwages, and separation pay. The case is
remanded to the Labor Arbiter for monetary liabilities determination, as there is no data to determine
the petitioner's monetary liabilities.