San Miguel Corporation v MAERC Integrated Services

Facts
Complainants are workers of SMC involved in the washing and segregating of
various kinds of empty bottles used by SMC to sell and distribute its beer beverages
to the consuming public. It appears that SMC entered into a contract with MAERC,
engaging the services of the latter, such contract being renewed from time to time.
When the service contract was terminated, the workers filed a complaint for illegal
dismissal, underpayment of wages and non-payment of other benefits. They
claimed that SMC was their real employer and that MAERC was merely used as a
tool by SMC to avoid its liability under the Labor Code. The Labor Arbiter dismissed
the complaints for illegal dismissal holding that MAERC is an independent
contractor. The NLRC however, ruled that MAERC was a labor-only contractor and
that complainants were SMC employees. This decision was affirmed by the CA.
Issue
1. WON the complainants are employees of SMC or MAERC
2. WON MAERC is a labor-only contractor or an independent contractor
Held
1. The complainants are employees of SMC. In ascertaining an employeremployee relationship, the ff. factors are considered: (1) the selection and
engagement of employee, (2) the payment of wages, (3) the power of
dismissal, and (4) the power to control an employees conduct, which is the
most important factor. In this case, the evidence disclosed that SMC played a
large and indispensable part in the hiring of MAERCs workers. Majority of the
complainants were already working for SMC when the workers were
instructed to apply for work in MAERC to make it appear that complainants
were hired by MAERC. As for the payment of wages, it was revealed that SMC
assumed the responsibility of paying for the mandated overtime, holiday ,
rest day and 13th month pay of the workers. As to the power of control, while
the contract between SMC and MAERC provided that SMC has no control or
supervision whatsoever over the conduct of the workers in respect to how
they perform their task, there are indicators that SMC actively supervised the
complainants. They also asserted their right to discipline the workers by
recommending the penalty to be imposed due to infractions committed by
some workers. With these facts and circumstances, the court thus held that
the complainants are employees of SMC

2. MAERC is a labor-only contractor. There is job contracting permissible under

the Code if the ff. conditions are met: (1) the contractor carries on an

independent business and undertakes to perform the job, service or task on

its own account, under its own responsibility and according to its own manner
and method free from the control and direction of the principal in all matters
connected with the performance of the work, except as to the results thereof,
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 this case, while MAERCs
investment in the form of buildings, tools and equipment amounted to more
than P4,000,000.00, the court cannot disregard the fact that it was SMC who
required that MAERC undertook such investment under the understanding
that their relationship wpuld be on a long-term basis. Nor do the court
believes that MAERC has an independent business. Not only was it set-upped
to specifically meet the pressing needs of SMC which was having their labor
problems in the segretagtion division, none of its workers were also ever
assigned to any other establishment. Therefore, SMC is a labor-only
contractor.