Manila Water Company, inc., vs.

Pena
G.R. No. 158255. July 8, 2004
Ynares-Santiago, J.:
FACTS:
Petitioner was contracted by the Metropolitan Waterworks and Sewerage
System (MWSS) to manage the water distribution system in the East Zone of Metro
Manila. Petitioner undertook to absorb former employees of the MWSS whose
names and positions were in the list furnished by the latter, while the employment
of those not in the list was terminated. Private respondents, notwithstanding their
being contractual collectors of the MWSS, were nevertheless engaged for their
services without written contract. Thereafter, on September 1, 1997, they signed a
three-month contract to perform collection services for eight branches of petitioner.
Before the end of the three-month contract, the 121 collectors were contracted
to collect charges for the Association Collectors Group, Inc. (ACGI). Only private
respondents herein remained with ACGI. Petitioner continued to transact
with ACGI to do its collection needs until February 8, 1999, when petitioner
terminated its contract with ACGI. Private respondents filed a complaint for illegal
dismissal and money claims against petitioner, contending that they were
petitioners employees. On the other hand, petitioner asserts that private
respondents were employees of ACGI, an independent contractor.
ISSUE:
Whether or not ACGI is Labor-only contracting and therefore, respondents are
employees of petitioner.
HELD:
YES. ACGI is Labor-Only contractor.
First, ACGI does not have substantial capitalization or investment in the form
of tools, equipment, machineries, work premises, and other materials, to qualify as
an independent contractor. While it has an authorized capital stock of
P1,000,000.00, only P62,500.00 is actually paid-in, which cannot be considered
substantial capitalization.
Second, the work of the private respondents was directly related to the
principal business or operation of the petitioner. The collection of the charges
therefore by private respondents for the petitioner can only be categorized as
clearly related to, and in the pursuit of the petitioners business.
Lastly, ACGI did not carry on an independent business or undertake the
performance of its service contract according to its own manner and method, free
from the control and supervision of its principal, petitioner. Prior to private

respondents alleged employment with ACGI, they were already working for
petitioner, subject to its rules and regulations in regard to the manner and method
of performing their tasks. This form of control and supervision never changed
although they were already under the seeming employ of ACGI.
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. Since ACGI is
only a labor-only contractor, the workers it supplied should be considered as
employees of the petitioner.

San Miguel Corporation vs. MAERC Integrated Services, Inc

G.R. No. 144672. July 10, 2003
Bellosillo, J.:
FACTS:
291 workers filed complaints against San Miguel Corporation and Maerc
Integrated Services, Inc. for illegal dismissal, underpayment of wages, non-payment
of service incentive leave pays and other labor standards benefits, and for
separation pays from 25 June to 24 October 1991. The complainants alleged that
they were hired by SMC through its agent or intermediary Maerc. They were paid on
a per piece or pakiao basis except for a few who worked as checkers and were paid
on daily wage basis.
SMC denied liability for the claims and averred that the complainants were
not its employees but of MAERC. When the service contract was terminated,
complainants claimed that SMC stopped them from performing their jobs; that this
was tantamount to their being illegally dismissed by SMC who was their real
employer; and, that MAERC was merely made a tool or a shield by SMC to avoid its
liability under the Labor Code.
ISSUE:
Whether or not MAERC is labor-only Contractor.
HELD:
YES. MAERC is labor-only contractor, hence, complainants are employees of
SMC.
In labor-only contracting, the statute creates an employer-employee
relationship for a comprehensive purpose: to prevent a circumvention of labor laws.
The contractor is considered merely an agent of the principal employer and the
latter is responsible to the employees of the labor-only contractor as if such
employees had been directly employed by the principal employer. The principal
employer therefore becomes solidarily liable with the labor-only contractor for all
the rightful claims of the employees.

This distinction between job contractor and labor-only contractor, however,

will not discharge SMC from paying the separation benefits of the workers,
inasmuch as MAERC was shown to be a labor-only contractor; in which case,
petitioner's liability is that of a direct employer and thus solidarily liable with
MAERC. Maerc Integrated Services, Inc. is declared to be a labor-only contractor.