G.R. No.

144672 July 10, 2003 It appears that SMC entered into a Contract of Services with MAERC engaging its services on
a non-exclusive basis for one (1) year beginning 1 February 1988. The contract was renewed
SAN MIGUEL CORPORATION, petitioner, for two (2) more years in March 1989. It also provided for its automatic renewal on a month-
vs. to-month basis after the two (2)-year period and required that a written notice to the other
MAERC INTEGRATED SERVICES, INC.; and EMERBERTO ORQUE, ROGELIO PRADO, JR., EDDIE SELLE, ALEJANDRO party be given thirty (30) days prior to the intended date of termination, should a party decide
ANNABIEZA, ANNIAS JUAMO-AS, CONSORCIO MANLOLOYO, ANANIAS ALCONTIN, REY GESTOPA, EDGARDO NUÑEZ, JUNEL CABATINGAN, PAUL
DUMAQUETA, FELIMON ECHAVEZ, VITO SEALANA, DENECIA PALAO, ROBERTO LAPIZ, BALTAZAR LABIO, LEONARDO BONGO, EL CID ICALINA, JOSE to discontinue with the contract.
DIOCAMPO, ADELO CANTILLAS, ISAIAS BRANZUELA, RAMON ROSALES, GAUDENCIO PESON, HECTOR CABAÑOG, EDGARDO DAGMAYAN, ROGELIO
CRUZ, ROLANDO ESPINA, BERNARDINO REGIDOR, ARNELIO SUMALINOG, GUMERSINDO ALCONTIN, LORETO NUÑEZ, JOEBE BOY DAYON,
CONRADO MESANQUE, MARCELO PESCADOR, MARCELINO JABAGAT, VICENTE DEVILLERES, VICENTE ALIN, RODOLFO PAHUGOT, RUEL NAVARES,
DANILO ANABIEZA, ALEX JUEN, JUANITO GARCES, SILVINO LIMBAGA, AURELIO JURPACIO, JOVITO LOON, VICTOR TENEDERO, SASING MORENO, In a letter dated 15 May 1991, SMC informed MAERC of the termination of their service
WILFREDO HORTEZUELA, JOSELITO MELENDEZ, ALFREDO GESTOPA, REGINO GABUYA, JORGE GAMUZARNO, LOLITO COCIDO, EFRAIM YUBAL,
VENERANDO ROAMAR, GERARDO BUTALID, HIPOLITO VIDAS, VENGELITO FRIAS, VICENTE CELACIO, CORLITO PESTAÑAS, ERVIN HYROSA, contract by the end of June 1991. SMC cited its plans to phase out its segregation activities
ROMMEL GUERERO, RODRIGO ENERLAS, FRANCISCO CARBONILLA, NICANOR CUIZON, PEDRO BRIONES, RODOLFO CABALHUG, TEOFILO
RICARDO, DANILO R. DIZON, ALBERTO EMBONG, ALFONSO ECHAVEZ, GONZALO RORACEÑA, MARCELO CARACINA, RAUL BORRES, LINO starting 1 June 1991 due to the installation of labor and cost-saving devices.
TONGALAMOS, ARTEMIO BONGO, JR., ROY AVILA, MELCHOR FREGLO, RAUL CABILLADA, EDDIE CATAB, MELENCIO DURANO, ALLAN RAGO,
DOMINADOR CAPARIDA, JOVITO CATAB, ALBERT LASPIÑAS, ALEX ANABIEZA, NESTOR REYNANTE, EULOGIO GESTOPA, MARIO BOLO, EDERLITO
A. BALOCANO, JOEL PEPITO, REYNALDO LUDIA, MANUEL CINCO, ALLAN AGUSTIN, PABLITO POLEGRATES, CLYDE PRADO, DINDO MISA, ROGER
SASING, RAMON ARCALLANA, GABRIEL SALAS, EDWIN SASAN, DIOSDADO BARRIGA, MOISES SASAN, SINFORIANO CANTAGO, LEONARDO When the service contract was terminated, complainants claimed that SMC stopped them from
MARTURILLAS, MARIO RANIS, ALEXANDRO RANIDO, JEROME PRADO, RAUL OYAO, VICTOR CELACIO, GERALDO ROQUE, ZOSIMO CARARATON,
VIRGILIO ZANORIA, JOSE ZANORIA, ALLAN ZANORIA, VICTORINO SENO, TEODULO JUMAO-AS, ALEXANDER HERA, ANTHONY ARANETA, ALDRIN performing their jobs; that this was tantamount to their being illegally dismissed by SMC who
SUSON, VICTOR VERANO, RUEL SUFRERENCIA, ALFRED NAPARATE, WENCESLAO BACLOHON, EDUARDO LANGITA, FELIX ORDENEZA, ARSENIO
LOGARTA, EDUARDO DELA VEGA, JOVENTINO CANOOG, ROGELIO ABAPO, RICARDO RAMAS, JOSE BANDIALAN, ANTONIO BASALAN, LYNDON
was their real employer as their activities were directly related, necessary and desirable to the
BASALAN, WILFREDO ALIVIANO, BIENVENIDO ROSARIO, JESUS CAPANGPANGAN, RENATO MENDOZA, ALEJANDRO CATANDEJAN, RUBEN TALABA, main business of SMC; and, that MAERC was merely made a tool or a shield by SMC to avoid
FILEMON ECHAVEZ, MARCELINO CARACENA, IGNACIO MISA, FELICIANO AGBAY, VICTOR MAGLASANG, ARTURO HEYROSA, ALIPIO TIROL,
ROSENDO MONDARES, ANICETO LUDIA, REYNALDO LAVANDERO, REUYAN HERCULANO, TEODULO NIQUE, EMERBERTO ORQUE, ZOSIMO BAOBAO, its liability under the Labor Code.
MEDARDO SINGSON, ANTONIO PATALINGHUG, ERNESTO SINGSON, ROBERTO TORRES, CESAR ESCARIO, LEODEGARIO DOLLECIN, ALBERTO
ANOBA, RODRIGO BISNAR, ZOSIMO BINGAS, ROSALIO DURAN, SR., ROSALIO DURAN, JR., ROMEO DURAN, ANTONIO ABELLA, MARIANO
REPOLLO, POLEGARPO DEGAMO, MARIO CEREZA, ANTONIO LAOROMILLA, PROCTUSO MAGALLANES, ELADIO TORRES, WARLITO DEMANA, HENRY
GEDARO, DOISEDERIO GEMPERAO, ANICETO GEMPERAO, JERRY CAPAROSO, SERLITO NOYNAY, LUCIANO RECOPELACION, JUANITO GARCES, MAERC for its part admitted that it recruited the complainants and placed them in the bottle
FELICIANO TORRES, RANILO VILLAREAL, FERMIN ALIVIANO, JUNJIE LAVISTE, TOMACITO DE CASTRO, JOSELITO CAPILINA, SAMUEL CASQUEJO,
LEONARDO NATAD, BENJAMIN SAYSON, PEDRO INOC, EDWARD FLORES, EDWIN SASAN, JOSE REY INOT, EDGAR CORTES, ROMEO LOMBOG, segregation project of SMC but maintained that it was only conveniently used by SMC as an
NICOLAS RIBO, JAIME RUBIN, ORLANDO REGIS, RICKY ALCONZA, RUDY TAGALOG, VICTORINO TAGALOG, EDWARD COLINA, RONIE GONZAGA,
PAUL CABILLADA, WILFREDO MAGALONA, JOEL PEPITO, PROSPERO MAGLASANG, ALLAN AGUSTIN, FAUSTO BARGAYO, NOMER SANCHEZ, JOLITO intermediary in operating the project or work directly related to the primary business concern
ALIN, BIRNING REGIDOR, GARRY DIGNOS, EDWIN DIGNOS, DARIO DIGNOS, ROGELIO DIGNOS, JIMMY CABIGAS, FERNANDO ANAJAO, ALEX
FLORES, FERNANDO REMEDIO, TOTO MOSQUIDA, ALBERTO YAGONIA, VICTOR BARIQUIT, IGNACIO MISA, ELISEO VILLARENO, MANUEL
of the latter with the end in view of avoiding its obligations and responsibilities towards the
LAVANDERO, VIRCEDE, MARIO RANIS, JAIME RESPONSO, MARIANITO AGUIRRE, MARCIAL HERUELA, GODOFREDO TUÑACAO, PERFECTO REGIS,
ROEL DEMANA, ELMER CASTILLO, WINEFREDO CALAMOHOY, RUDY LUCERNAS, ANTONIO CAÑETE, EFRAIM YUBAL, JESUS CAPANGPANGAN,
complaining workers.
DAMIAN CAPANGPANGAN, TEOFILO CAPANGPANGAN, NILO CAPANGPANGAN, CORORENO CAPANGPANGAN, EMILIO MONDARES, PONCIANO
AGANA, VICENTE DEVILLERES, MARIO ALIPAN, ROMANITO ALIPAN, ALDEON ROBINSON, FORTUNATO SOCO, CELSO COMPUESTO, WILLIAM
ITORALDE, ANTONIO PESCADOR, JEREMIAS RONDERO, ESTROPIO PUNAY, LEOVIJILDO PUNAY, ROMEO QUILONGQUILONG, WILFREDO GESTOPA,
ELISEO SANTOS, HENRY ORIO, JOSE YAP, NICANOR MANAYAGA, TEODORO SALINAS, ANICETO MONTERO, RAFAELITO VERZOSA, ALEJANDRO
The nine (9) cases1 were consolidated. On 31 January 1995 the Labor Arbiter rendered a
RANIDO, HENRY TALABA, ROMULO TALABA, DIOSDADO BESABELA, SYLVESTRE TORING, EDILBERTO PADILLA, ALLAN HEROSA, ERNESTO decision holding that MAERC was an independent contractor.2 He dismissed the complaints
SUMALINOG, ARISTON VELASCO, JR., FERNANDO LOPEZ, ALFONSO ECHAVEZ, NICANOR CUIZON, DOMINADOR CAPARIDA, ZOSIMO CORORATION,
ARTEMIO LOVERANES, DIONISIO YAGONIA, VICTOR CELOCIA, HIPOLITO VIDAS, TEODORO ARCILLAS, MARCELINO HABAGAT, GAUDIOSO for illegal dismissal but ordered MAERC to pay complainants' separation benefits in the total
LABASAN, LEOPOLDO REGIS, AQUILLO DAMOLE, WILLY ROBLE and NIEL ZANORIA, respondents.
amount of P2,334,150.00. MAERC and SMC were also ordered to jointly and severally pay
complainants their wage differentials in the amount of P845,117.00 and to pay attorney's fees
BELLOSILLO, J.: in the amount of P317,926.70.

TWO HUNDRED NINETY-ONE (291) workers filed their complaints (nine [9] complaints in all) The complainants appealed the Labor Arbiter's finding that MAERC was an independent
against San Miguel Corporation (petitioner herein) and Maerc Integrated Services, Inc. contractor and solely liable to pay the amount representing the separation benefits to the
(respondent herein), for illegal dismissal, underpayment of wages, non-payment of service exclusion of SMC, as well as the Labor Arbiter's failure to grant the Temporary Living Allowance
incentive leave pays and other labor standards benefits, and for separation pays from 25 June of the complainants. SMC appealed the award of attorney's fees.
to 24 October 1991. The complainants alleged that they were hired by San Miguel Corporation
(SMC) through its agent or intermediary Maerc Integrated Services, Inc. (MAERC) to work in
The National Labor Relations Commission (NLRC) ruled in its 7 January 1997 decision that
two (2) designated workplaces in Mandaue City: one, inside the SMC premises at the Mandaue
MAERC was a labor-only contractor and that complainants were employees of SMC.3 The NLRC
Container Services, and another, in the Philphos Warehouse owned by MAERC. They washed
also held that whether MAERC was a job contractor or a labor-only contractor, SMC was still
and segregated various kinds of empty bottles used by SMC to sell and distribute its beer
solidarily liable with MAERC for the latter's unpaid obligations, citing Art. 1094 of the Labor
beverages to the consuming public. They were paid on a per piece or pakiao basis except for
Code. Thus, the NLRC modified the judgment of the Labor Arbiter and held SMC jointly and
a few who worked as checkers and were paid on daily wage basis.
severally liable with MAERC for complainants' separation benefits. In addition, both
respondents were ordered to pay jointly and severally an indemnity fee of P2,000.00 to each
Complainants alleged that long before SMC contracted the services of MAERC a majority of complainant.
them had already been working for SMC under the guise of being employees of another
contractor, Jopard Services, until the services of the latter were terminated on 31 January
SMC moved for a reconsideration which resulted in the reduction of the award of attorney's
1988.
fees from P317,926.70 to P84,511.70. The rest of the assailed decision was unchanged.5

SMC denied liability for the claims and averred that the complainants were not its employees
On 12 March 1998, SMC filed a petition for certiorari with prayer for the issuance of a
but of MAERC, an independent contractor whose primary corporate purpose was to engage in
temporary restraining order and/or injunction with this Court which then referred the petition
the business of cleaning, receiving, sorting, classifying, etc., glass and metal containers.
to the Court of Appeals.
On 28 April 2000 the Court of Appeals denied the petition and affirmed the decision of the
NLRC.6 The appellate court also denied SMC's motion for reconsideration in a resolution7 dated
26 July 2000. Hence, petitioner seeks a review of the Court of Appeals' judgment before this
Court.
Petitioner poses the same issues brought up in the appeals court and the pivotal question is
whether the complainants are employees of petitioner SMC or of respondent MAERC.
Relying heavily on the factual findings of the Labor Arbiter, petitioner maintained that MAERC
was a legitimate job contractor. It directed this Court's attention to the undisputed evidence
it claimed to establish this assertion: MAERC is a duly organized stock corporation whose
primary purpose is to engage in the business of cleaning, receiving, sorting, classifying,
grouping, sanitizing, packing, delivering, warehousing, trucking and shipping any glass and/or
metal containers and that it had listed in its general information sheet two hundred seventy-
eight (278) workers, twenty-two (22) supervisors, seven (7) managers/officers and a board
of directors; it also voluntarily entered into a service contract on a non-exclusive basis with
petitioner from which it earned a gross income of P42,110,568.24 from 17 October 1988 to
27 November 1991; the service contract specified that MAERC had the selection, engagement
and discharge of its personnel, employees or agents or otherwise in the direction and control
thereof; MAERC admitted that it had machinery, equipment and fixed assets used in its
business valued at P4,608,080.00; and, it failed to appeal the Labor Arbiter's decision which
declared it to be an independent contractor and ordered it to solely pay the separation benefits
of the complaining workers.
We find no basis to overturn the Court of Appeals and the NLRC. Well-established is the
principle that findings of fact of quasi-judicial bodies, like the NLRC, are accorded with respect,
even finality, if supported by substantial evidence.8 Particularly when passed upon and upheld
by the Court of Appeals, they are binding and conclusive upon the Supreme Court and will not
normally be disturbed.9
This Court has invariably held that in ascertaining an employer-employee relationship, the
following factors are considered: (a) the selection and engagement of employee; (b) the
payment of wages; (c) the power of dismissal; and, (d) the power to control an employee's
conduct, the last being the most important.10 Application of the aforesaid criteria clearly
indicates an employer-employee relationship between petitioner and the complainants.
Evidence discloses that petitioner played a large and indispensable part in the hiring of
MAERC's workers. It also appears that majority of the complainants had already been working
for SMC long before the signing of the service contract between SMC and MAERC in 1988.
The incorporators of MAERC admitted having supplied and recruited workers for SMC even
before MAERC was created.11 The NLRC also found that when MAERC was organized into a
corporation in February 1988, the complainants who were then already working for SMC were
made to go through the motion of applying for work with Ms. Olga Ouano, President and
General Manager of MAERC, upon the instruction of SMC through its supervisors to make it
appear that complainants were hired by MAERC. This was testified to by two (2) of the workers
who were segregator and forklift operator assigned to the Beer Marketing Division at the SMC
compound and who had been working with SMC under a purported contractor Jopard Services
since March 1979 and March 1981, respectively. Both witnesses also testified that together
with other complainants they continued working for SMC without break from Jopard Services
to MAERC.
As for the payment of workers' wages, it is conceded that MAERC was paid in lump sum but
records suggest that the remuneration was not computed merely according to the result or
the volume of work performed. The memoranda of the labor rates bearing the signature of a
Vice-President and General Manager for the Vismin Beer Operations12 as well as a director of
SMC13 appended to the contract of service reveal that SMC assumed the responsibility of
paying for the mandated overtime, holiday and rest day pays of the MAERC workers. 14 SMC
also paid the employer's share of the SSS and Medicare contributions, the 13th month pay,
incentive leave pay and maternity benefits.15 In the lump sum received, MAERC earned a
marginal amount representing the contractor's share. These lend credence to the complaining
workers' assertion that while MAERC paid the wages of the complainants, it merely acted as
an agent of SMC.
Petitioner insists that the most significant determinant of an employer-employee
relationship, i.e., the right to control, is absent. The contract of services between MAERC and
SMC provided that MAERC was an independent contractor and that the workers hired by it
"shall not, in any manner and under any circumstances, be considered employees of the
Company, and that the Company has no control or supervision whatsoever over the conduct
of the Contractor or any of its workers in respect to how they accomplish their work or perform
the Contractor's obligations under the Contract."16
In deciding the question of control, the language of the contract is not determinative of the
parties' relationship; rather, it is the totality of the facts and surrounding circumstances of
each case.17
Despite SMCs disclaimer, there are indicia that it actively supervised the complainants. SMC
maintained a constant presence in the workplace through its own checkers. Its asseveration
that the checkers were there only to check the end result was belied by the testimony of
Carlito R. Singson, head of the Mandaue Container Service of SMC, that the checkers were
also tasked to report on the identity of the workers whose performance or quality of work was
not according to the rules and standards set by SMC. According to Singson, "it (was) necessary
to identify the names of those concerned so that the management [referring to MAERC] could
call the attention to make these people improve the quality of work."18
Viewed alongside the findings of the Labor Arbiter that the MAERC organizational set-up in
the bottle segregation project was such that the segregators/cleaners were supervised by
checkers and each checker was also under a supervisor who was in turn under a field
supervisor, the responsibility of watching over the MAERC workers by MAERC personnel
became superfluous with the presence of additional checkers from SMC.
Reinforcing the belief that the SMC exerted control over the work performed by the
segregators or cleaners, albeit through the instrumentality of MAERC, were letters by SMC to
the MAERC management. These were letters19written by a certain Mr. W. Padin20 addressed
to the President and General Manager of MAERC as well as to its head of operations,21 and a
third letter22 from Carlito R. Singson also addressed to the President and General Manager of
MAERC. More than just a mere written report of the number of bottles improperly cleaned
and/or segregated, the letters named three (3) workers who were responsible for the rejection
of several bottles, specified the infraction committed in the segregation and cleaning, then
recommended the penalty to be imposed. Evidently, these workers were reported by the SMC
checkers to the SMC inspector.
While the Labor Arbiter dismissed these letters as merely indicative of the concern in the end-
result of the job contracted by MAERC, we find more credible the contention of the
complainants that these were manifestations of the right of petitioner to recommend
disciplinary measures over MAERC employees. Although calling the attention of its contractors
as to the quality of their services may reasonably be done by SMC, there appears to be no
need to instruct MAERC as to what disciplinary measures should be imposed on the specific
workers who were responsible for rejections of bottles. This conduct by SMC representatives
went beyond a mere reminder with respect to the improperly cleaned/segregated bottles or a
genuine concern in the outcome of the job contracted by MAERC.
Control of the premises in which the contractor's work was performed was also viewed as
another phase of control over the work, and this strongly tended to disprove the independence
of the contractor. 23 In the case at bar, the bulk of the MAERC segregation activities was
accomplished at the MAERC-owned PHILPHOS warehouse but the building along with the
machinery and equipment in the facility was actually being rented by SMC. This is evident
from the memoranda of labor rates which included rates for the use of forklifts and the
warehouse at the PHILPHOS area, hence, the NLRC's conclusion that the payment for the rent
was cleverly disguised since MAERC was not in the business of renting warehouses and
forklifts.24
Other instances attesting to SMC's supervision of the workers are found in the minutes of the
meeting held by the SMC officers on 5 December 1988. Among those matters discussed were
the calling of SMC contractors to have workers assigned to segregation to undergo and pass
eye examination to be done by SMC EENT company doctor and a review of
compensation/incentive system for segregators to improve the segregation activities. 25
But the most telling evidence is a letter by Mr. Antonio Ouano, Vice-President of MAERC dated
27 May 1991 addressed to Francisco Eizmendi, SMC President and Chief Executive Officer,
asking the latter to reconsider the phasing out of SMC's segregation activities in Mandaue City.
The letter was not denied but in fact used by SMC to advance its own arguments.26
Briefly, the letter exposed the actual state of affairs under which MAERC was formed and
engaged to handle the segregation project of SMC. It provided an account of how in 1987
Eizmendi approached the would-be incorporators of MAERC and offered them the business of
servicing the SMC bottle-washing and segregation department in order to avert an impending
labor strike. After initial reservations, MAERC incorporators accepted the offer and before long
trial segregation was conducted by SMC at the PHILPHOS warehouse.27
The letter also set out the circumstances under which MAERC entered into the Contract of
Services in 1988 with the assurances of the SMC President and CEO that the employment of
MAERC's services would be long term to enable it to recover its investments. It was with this
understanding that MAERC undertook borrowings from banking institutions and from affiliate
corporations so that it could comply with the demands of SMC to invest in machinery and
facilities.
In sum, the letter attested to an arrangement entered into by the two (2) parties which was
not reflected in the Contract of Services. A peculiar relationship mutually beneficial for a time
but nonetheless ended in dispute when SMC decided to prematurely end the contract leaving
MAERC to shoulder all the obligations to the workers.
Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling in Neri
v. NLRC.28 In that case, it was held that the law did not require one to possess both substantial
capital and investment in the form of tools, equipment, machinery, work premises, among
others, to be considered a job contractor. The second condition to establish permissible job
contracting29 was sufficiently met if one possessed either attribute.
Accordingly, petitioner alleged that the appellate court and the NLRC erred when they declared
MAERC a labor-only contractor despite the finding that MAERC had investments amounting to
P4,608,080.00 consisting of buildings, machinery and equipment.
However, in Vinoya v. NLRC,30 we clarified that it was not enough to show substantial
capitalization or investment in the form of tools, equipment, machinery and work premises,
etc., to be considered an independent contractor. In fact, jurisprudential holdings were to the
effect that in determining the existence of an independent contractor relationship, several
factors may be considered, such as, but not necessarily confined to, whether the contractor
was carrying on an independent business; the nature and extent of the work; the skill required;
the term and duration of the relationship; the right to assign the performance of specified
pieces of work; the control and supervision of the workers; the power of the employer with
respect to the hiring, firing and payment of the workers of the contractor; the control of the
premises; the duty to supply premises, tools, appliances, materials and labor; and the mode,
manner and terms of payment.31
In Neri, the Court considered not only the fact that respondent Building Care Corporation
(BBC) had substantial capitalization but noted that BCC carried on an independent business
and performed its contract according to its own manner and method, free from the control
and supervision of its principal in all matters except as to the results thereof. 32 The Court
likewise mentioned that the employees of BCC were engaged to perform specific special
services for their principal.33 The status of BCC had also been passed upon by the Court in a
previous case where it was found to be a qualified job contractor because it was "a big firm
which services among others, a university, an international bank, a big local bank, a hospital
center, government agencies, etc." Furthermore, there were only two (2) complainants in that
case who were not only selected and hired by the contractor before being assigned to work
in the Cagayan de Oro branch of FEBTC but the Court also found that the contractor
maintained effective supervision and control over them.
In comparison, MAERC, as earlier discussed, displayed the characteristics of a labor-only
contractor. Moreover, while MAERC's investments in the form of buildings, tools and
equipment amounted to more than P4 Million, we cannot disregard the fact that it was the
SMC which required MAERC to undertake such investments under the understanding that the
business relationship between petitioner and MAERC would be on a long term basis. Nor do
we believe MAERC to have an independent business. Not only was it set up to specifically
meet the pressing needs of SMC which was then having labor problems in its segregation
division, none of its workers was also ever assigned to any other establishment, thus
convincing us that it was created solely to service the needs of SMC. Naturally, with the
severance of relationship between MAERC and SMC followed MAERC's cessation of operations,
the loss of jobs for the whole MAERC workforce and the resulting actions instituted by the
workers.
Petitioner also alleged that the Court of Appeals erred in ruling that "whether MAERC is an 9 Junel Cabatingan 2,865.00 8,190.00 11,055.00

independent contractor or a labor-only contractor, SMC is liable with MAERC for the latter's 10 Paul Dumaqueta 2,865.00 8,190.00 11,055.00
unpaid obligations to MAERC's workers." 11 Felimon Echavez 2,843.00 8,190.00 10,673.00

12 Vito Sealana 2,843.00 8,190.00 10,673.00

On this point, we agree with petitioner as distinctions must be made. In legitimate job 13 Denecia Palao 2,843.00 8,190.00 10,673.00
contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to
14 Roberto Lapiz 3,056.00 8,190.00 11,246.00
ensure that the employees are paid their wages.34 The principal employer becomes jointly and
severally liable with the job contractor only for the payment of the employees' wages 15 Baltazar Labio 3,056.00 8,190.00 11,246.00

whenever the contractor fails to pay the same. Other than that, the principal employer is not 16 Leonardo Bongo 3,056.00 8,190.00 11,246.00
responsible for any claim made by the employees. 17 El Cid Icalina 3,056.00 8,190.00 11,246.00

18 Jose Diocampo 3,056.00 8,190.00 11,246.00

On the other hand, in labor-only contracting, the statute creates an employer-employee 19 Adelo Cantillas 3,056.00 8,190.00 11,246.00
relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The
20 Isaias Branzuela 3,056.00 8,190.00 11,246.00
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 21 Ramon Rosales 3,056.00 8,190.00 11,246.00

by the principal employer. The principal employer therefore becomes solidarily liable with the 22 Gaudencio Peson 3,056.00 8,190.00 11,246.00
labor-only contractor for all the rightful claims of the employees. 23 Hector Cabañog 3,056.00 8,190.00 11,246.00

24 Edgardo Dagmayan 3,056.00 8,190.00 11,246.00

This distinction between job contractor and labor-only contractor, however, will not discharge
25 Rogelio Cruz 3,056.00 8,190.00 11,246.00
SMC from paying the separation benefits of the workers, inasmuch as MAERC was shown to
26 Rolando Espina 3,056.00 8,190.00 11,246.00
be a labor-only contractor; in which case, petitioner's liability is that of a direct employer and
thus solidarily liable with MAERC. 27 Bernardino Regidor 3,056.00 8,190.00 11,246.00

28 Arnelio Sumalinog 3,056.00 8,190.00 11,246.00

SMC also failed to comply with the requirement of written notice to both the employees 29 Gumersindo Alcontin 3,056.00 8,190.00 11,246.00
concerned and the Department of Labor and Employment (DOLE) which must be given at 30 Loreto Nuñez 3,056.00 8,190.00 11,246.00
least one (1) month before the intended date of retrenchment. 35 The fines imposed for
31 Joebe Boy Dayon 3,056.00 8,190.00 11,246.00
violations of the notice requirement have varied.36 The measure of this award depends on the
32 Conrado Mesanque 3,056.00 8,190.00 11,246.00
facts of each case and the gravity of the omission committed by the employer.37 For its failure,
petitioner was justly ordered to indemnify each displaced worker P2,000.00. 33 Marcelo Pescador 3,056.00 8,190.00 11,246.00

34 Marcelino Jabagat 3,056.00 8,190.00 11,246.00

The NLRC and the Court of Appeals affirmed the Labor Arbiter's award of separation pay to 35 Vicente Devilleres 3,056.00 8,190.00 11,246.00
the complainants in the total amount of P2,334,150.00 and of wage differentials in the total 36 Vicente Alin 3,056.00 8,190.00 11,246.00
amount of P845,117.00. These amounts are the aggregate of the awards due the two hundred
37 Rodolfo Pahugot 3,056.00 8,190.00 11,246.00
ninety-one (291) complainants as computed by the Labor Arbiter. The following is a summary
38 Ruel Navares 3,056.00 8,190.00 11,246.00
of the computation of the benefits due the complainants which is part of the Decision of the
Labor Arbiter. 39 Danilo Anabieza 3,056.00 8,190.00 11,246.00

40 Alex Juen 3,056.00 8,190.00 11,246.00

SUMMARY
41 Juanito Garces 3,056.00 8,190.00 11,246.00
NAME SALARY SEPARATION TOTAL
42 Silvino Limbaga 3,056.00 8,190.00 11,246.00
DIFFERENTIAL PAY
Case No. 06-1165-9 43 Aurelio Jurpacio 3,056.00 8,190.00 11,246.00
1 Rogelio Prado, Jr. P3,056.00 P8,190.00 P11,246.00
44 Jovito Loon 3,056.00 8,190.00 11,246.00
2 Eddie Selle 3,056.00 8,190.00 11,246.00
45 Victor Tenedero 3,056.00 8,190.00 11,246.00
3 Alejandro Annabieza 3,056.00 8,190.00 11,246.00
46 Sasing Moreno 3,056.00 8,190.00 11,246.00
4 Ananias Jumao-as 3,056.00 8,190.00 11,246.00
47 Wilfredo Hortezuela 3,056.00 8,190.00 11,246.00
5 Consorcio Manloloyo 3,056.00 8,190.00 11,246.00
48 Joselito Melendez 3,056.00 8,190.00 11,246.00
6 Anananias Alcotin 3,056.00 8,190.00 11,246.00
49 Alfredo Gestopa 3,056.00 8,190.00 11,246.00
7 Rey Gestopa 2,865.00 8,190.00 11,055.00
50 Regino Gabuya 3,056.00 8,190.00 11,246.00
8 Edgardo Nuñez 2,865.00 8,190.00 11,055.00
51 Jorge Gamuzarno 3,056.00 8,190.00 11,246.00 93 Allan Agustin 3,056.00 8,190.00 11,246.00

52 Lolito Cocido 3,056.00 8,190.00 11,246.00 94 Pablito Polegrates 3,056.00 8,190.00 11,246.00

53 Efraim Yubal 3,056.00 8,190.00 11,246.00 95 Clyde Prado 3,056.00 8,190.00 11,246.00

54 Venerando Roamar 3,056.00 8,190.00 11,246.00 96 Dindo Misa 3,056.00 8,190.00 11,246.00

55 Gerardo Butalid 3,056.00 8,190.00 11,246.00 97 Roger Sasing 3,056.00 8,190.00 11,246.00

56 Hipolito Vidas 3,056.00 8,190.00 11,246.00 98 Ramon Arcallana 3,056.00 8,190.00 11,246.00

57 Vengelito Frias 3,056.00 8,190.00 11,246.00 99 Gabriel Salas 3,056.00 8,190.00 11,246.00

58 Vicente Celacio 3,056.00 8,190.00 11,246.00 100 Edwin Sasan 3,056.00 8,190.00 11,246.00

59 Corlito Pestañas 3,056.00 8,190.00 11,246.00 101 Diosdado Barriga 3,056.00 8,190.00 11,246.00

60 Ervin Hyrosa 3,056.00 8,190.00 11,246.00 102 Moises Sasan 3,056.00 8,190.00 11,246.00

61 Rommel Guerero 3,056.00 8,190.00 11,246.00 103 Sinforiano Cantago 3,056.00 8,190.00 11,246.00

62 Rodrigo Enerlas 3,056.00 8,190.00 11,246.00 104 Leonardo Marturillas 3,056.00 8,190.00 11,246.00

63 Francisco Carbonilla 3,056.00 8,190.00 11,246.00 105 Mario Ranis 3,056.00 8,190.00 11,246.00

64 Nicanor Cuizon 3,056.00 8,190.00 11,246.00 106 Alejandro Ranido 3,056.00 8,190.00 11,246.00

65 Pedro Briones 3,056.00 8,190.00 11,246.00 107 Jerome Prado 3,056.00 8,190.00 11,246.00

66 Rodolfo Cabalhug 3,056.00 8,190.00 11,246.00 108 Raul Oyao 3,056.00 8,190.00 11,246.00

67 Teofilo Ricardo 3,056.00 8,190.00 11,246.00 109 Victor Celacio 3,056.00 5,460.00 8,516.00

68 Danilo R. Dizon 3,056.00 8,190.00 11,246.00 TOTAL P330,621.00 P884,520.00 P1,215,141.00

69 Alberto Embong 3,056.00 8,190.00 11,246.00 Case No. 07-1177-91

110 Gerardo Roque P3,056.00 P5,460.00 P8,516.00
70 Alfonso Echavez 3,056.00 8,190.00 11,246.00
Case No. 07-1176-91
71 Gonzalo Roraceña 3,056.00 8,190.00 11,246.00 111 Zosimo Cararaton P3,056.00 P8,192.00 P11,246.00
72 Marcelo Caracina 3,056.00 8,190.00 11,246.00 Case No. 07-1219-91
112 Virgilio Zanoria P3,056.00 P5,460.00 P8,516.00
73 Raul Borres 3,056.00 8,190.00 11,246.00
113 Jose Zanoria 3,056.00 5,460.00 8,516.00
74 Lino Tongalamos 3,056.00 8,190.00 11,246.00
114 Allan Zanoria 3,056.00 5,460.00 8,516.00
75 Artemio Bongo, Jr. 3,056.00 8,190.00 11,246.00
115 Victorino Seno 3,056.00 5,460.00 8,516.00
76 Roy Avila 3,056.00 8,190.00 11,246.00
116 Teodulo Jumao-as 3,056.00 5,460.00 8,516.00
77 Melchor Freglo 3,056.00 8,190.00 11,246.00
117 Alexander Hera 3,056.00 5,460.00 8,516.00
78 Raul Cabillada 3,056.00 8,190.00 11,246.00
118 Anthony Araneta 3,056.00 5,460.00 8,516.00
79 Eddie Catab 3,056.00 8,190.00 11,246.00
119 Aldrin Suson 3,056.00 5,460.00 8,516.00
80 Melencio Durano 3,056.00 8,190.00 11,246.00
120 Victor Verano 3,056.00 5,460.00 8,516.00
81 Allan Rago 3,056.00 8,190.00 11,246.00
121 Ruel Sufrerencia 3,056.00 5,460.00 8,516.00
82 Dominador Caparida 3,056.00 8,190.00 11,246.00
122 Alfred Naparate 3,056.00 5,460.00 8,516.00
83 Jovito Catab 3,056.00 8,190.00 11,246.00
123 Wenceslao Baclohon 3,056.00 8,190.00 11,246.00
84 Albert Laspiñas 3,056.00 8,190.00 11,246.00
124 Eduardo Langita 3,056.00 8,190.00 11,246.00
85 Alex Anabieza 3,056.00 8,190.00 11,246.00
TOTAL P39,728.00 P76,440.00 P116,168.00
86 Nestor Reynante 3,056.00 8,190.00 11,246.00
Case No. 07-1283-91
87 Eulogio Estopa 3,056.00 8,190.00 11,246.00
125 Feliz Ordeneza P2,816.00 P8,190.00 P11,006.00
88 Mario Bolo 3,056.00 8,190.00 11,246.00
126 Arsenio Logarta 3,056.00 8,190.00 11,246.00
89 Ederlito A. Balocano 3,056.00 8,190.00 11,246.00
127 Eduardo dela Vega 3,056.00 8,190.00 11,246.00
90 Joel Pepito 3,056.00 8,190.00 11,246.00
128 Joventino Canoog 3,056.00 8,190.00 11,246.00
91 Reynaldo Ludia 3,056.00 5,460.00 8,516.00
TOTAL P11,984.00 P32,760.00 P44,744.00
92 Manuel Cinco 3,056.00 5,460.00 8,516.00
Case No. 10-1584-91
 129 Regelio Abapo P3,056.00 P8,190.00 P11,246.00 169 Mario Cereza 2,816.00 8,190.00 11,006.00

Case No. 08-1321-91 170 Antonio Laoronilla 2,816.00 8,190.00 11,006.00

130 Ricardo Ramas P3,056.00 P8,190.00 P11,246.00
171 Proctuso Magallanes 2,816.00 8,190.00 11,006.00
Case No. 09-1507-91
131 Jose Bandialan P2,816.00 P8,190.00 P11,006.00 172 Eladio Torres 2,816.00 8,190.00 11,006.00

132 Antonio Basalan 2,816.00 8,190.00 11,006.00 173 Warlito Demana 2,816.00 8,190.00 11,006.00

133 Lyndon Basalan 2,816.00 8,190.00 11,006.00 174 Henry Gedaro 2,816.00 8,190.00 11,006.00

134 Wilfredo Aliviano 2,816.00 8,190.00 11,006.00 175 Doisederio Gemperao 2,816.00 8,190.00 11,006.00

135 Bienvenido Rosario 2,816.00 8,190.00 11,006.00 176 Aniceto Gemperao 2,816.00 8,190.00 11,006.00

136 Jesus Capangpangan 2,816.00 8,190.00 11,006.00 177 Jerry Caparoso 2,816.00 8,190.00 11,006.00

137 Renato Mendoza 2,816.00 8,190.00 11,006.00 178 Serlito Noynay 2,816.00 8,190.00 11,006.00

138 Alejandro Catandejan 2,816.00 8,190.00 11,006.00 179 Luciano Recopelacion 2,816.00 8,190.00 11,006.00

139 Ruben Talaba 2,816.00 8,190.00 11,006.00 180 Juanito Garces 2,816.00 8,190.00 11,006.00

140 Filemon Echavez 2,816.00 8,190.00 11,006.00 181 Feliciano Torres 2,816.00 8,190.00 11,006.00

141 Marcelino Caracena 2,816.00 8,190.00 11,006.00 182 Ranilo Villareal 2,816.00 8,190.00 11,006.00

142 Ignacio Misa 2,816.00 8,190.00 11,006.00 183 Fermin Aliviano 2,816.00 8,190.00 11,006.00

143 Feliciano Agbay 2,816.00 8,190.00 11,006.00 184 Junjie Laviste 2,816.00 8,190.00 11,006.00

144 Victor Maglasang 2,816.00 8,190.00 11,006.00 185 Tomacito de Castro 2,816.00 8,190.00 11,006.00

145 Arturo Heyrosa 2,816.00 8,190.00 11,006.00 186 Joselito Capilina 2,816.00 8,190.00 11,006.00

146 Alipio Tirol 2,816.00 8,190.00 11,006.00 187 Samuel Casquejo 2,816.00 8,190.00 11,006.00

147 Rosendo Mondares 2,816.00 8,190.00 11,006.00 188 Leonardo Natad 2,816.00 8,190.00 11,006.00

148 Aniceto Ludia 2,816.00 8,190.00 11,006.00 189 Benjamin Sayson 2,816.00 8,190.00 11,006.00

149 Reynaldo Lavandero 2,816.00 8,190.00 11,006.00 190 Pedro Inoc 2,816.00 8,190.00 11,006.00

150 Reuyan Herculano 2,816.00 8,190.00 11,006.00 191 Edward Flores 2,816.00 8,190.00 11,006.00

151 Teodula Nique 2,816.00 8,190.00 11,006.00 192 Edwin Sasan 2,816.00 8,190.00 11,006.00

TOTAL P59,136.00 P171,990.00 P231,126.00 193 Jose Rey Inot 2,816.00 8,190.00 11,006.00

Case No. 06-1145-91 194 Edgar Cortes 2,816.00 8,190.00 11,006.00

152 Emerberto Orque P2,816.00 P8,190.00 P11,006.00
195 Romeo Lombog 2,816.00 8,190.00 11,006.00
153 Zosimo Baobao 2,816.00 8,190.00 11,006.00
196 Nicolas Ribo 2,816.00 8,190.00 11,006.00
154 Medardo Singson 2,816.00 8,190.00 11,006.00
197 Jaime Rubin 2,816.00 8,190.00 11,006.00
155 Antonio Patalinghug 2,816.00 8,190.00 11,006.00
198 Orlando Regis 2,816.00 8,190.00 11,006.00
156 Ernesto Singson 2,816.00 8,190.00 11,006.00
199 Ricky Alconza 2,816.00 8,190.00 11,006.00
157 Roberto Torres 2,816.00 8,190.00 11,006.00
200 Rudy Tagalog 2,816.00 8,190.00 11,006.00
158 Cesar Escario 2,816.00 8,190.00 11,006.00
201 Victorino Tagalog 2,816.00 8,190.00 11,006.00
159 Leodegario Dollecin 2,816.00 8,190.00 11,006.00
202 Edward Colina 2,816.00 8,190.00 11,006.00
160 Alberto Anoba 2,816.00 8,190.00 11,006.00
203 Ronie Gonzaga 2,816.00 8,190.00 11,006.00
161 Rodrigo Bisnar 2,816.00 8,190.00 11,006.00
204 Paul Cabillada 2,816.00 8,190.00 11,006.00
162 Zosimo Bingas 2,816.00 8,190.00 11,006.00
205 Wilfredo Magalona 2,816.00 8,190.00 11,006.00
163 Rosalio Duran, Sr. 2,816.00 8,190.00 11,006.00
206 Joel Pepito 2,816.00 8,190.00 11,006.00
164 Rosalio Duran, Jr. 2,816.00 8,190.00 11,006.00
207 Prospero Maglasang 2,816.00 8,190.00 11,006.00
165 Romeo Duran 2,816.00 8,190.00 11,006.00
208 Allan Agustin 2,816.00 8,190.00 11,006.00
166 Antonio Abella 2,816.00 8,190.00 11,006.00
209 Fausto Bargayo 2,816.00 8,190.00 11,006.00
167 Mariano Repollo 2,816.00 8,190.00 11,006.00
210 Nomer Sanchez 2,816.00 8,190.00 11,006.00
168 Polegarpo Degamo 2,816.00 8,190.00 11,006.00
211 Jolito Alin 2,816.00 8,190.00 11,006.00 253 William Itoralde 2,816.00 8,190.00 11,006.00

212 Birning Regidor 2,816.00 8,190.00 11,006.00 254 Antonio Pescador 2,816.00 8,190.00 11,006.00

213 Garry Dignos 2,816.00 8,190.00 11,006.00 255 Jeremias Rondero 2,816.00 8,190.00 11,006.00

214 Edwin Dignos 2,816.00 8,190.00 11,006.00 256 Estropio Punay 2,816.00 8,190.00 11,006.00

215 Dario Dignos 2,816.00 8,190.00 11,006.00 257 Leovijildo Punay 2,816.00 8,190.00 11,006.00

216 Rogelio Dignos 2,816.00 8,190.00 11,006.00 258 Romeo Quilongquilong 2,816.00 8,190.00 11,006.00

217 Jimmy Cabigas 2,816.00 8,190.00 11,006.00 259 Wilfredo Gestopa 2,816.00 8,190.00 11,006.00

218 Fernando Anajao 2,816.00 8,190.00 11,006.00 260 Eliseo Santos 2,816.00 8,190.00 11,006.00

219 Alex Flores 2,816.00 8,190.00 11,006.00 261 Henry Orio 2,816.00 8,190.00 11,006.00

220 Fernando Remedio 2,816.00 8,190.00 11,006.00 262 Jose Yap 2,816.00 8,190.00 11,006.00

221 Toto Mosquido 2,816.00 8,190.00 11,006.00 263 Nicanor Manayaga 2,816.00 8,190.00 11,006.00

222 Alberto Yagonia 2,816.00 8,190.00 11,006.00 264 Teodoro Salinas 2,816.00 8,190.00 11,006.00

223 Victor Bariquit 2,816.00 8,190.00 11,006.00 265 Aniceto Montero 2,816.00 8,190.00 11,006.00

224 Ignacio Misa 2,816.00 8,190.00 11,006.00 266 Rafaelito Versoza 2,816.00 8,190.00 11,006.00

225 Eliseo Villareno 2,816.00 8,190.00 11,006.00 267 Alejandro Ranido 2,816.00 8,190.00 11,006.00

226 Manuel Lavandero 2,816.00 8,190.00 11,006.00 268 Henry Talaba 2,816.00 8,190.00 11,006.00

227 Vircede 2,816.00 8,190.00 11,006.00 269 Romulo Talaba 2,816.00 8,190.00 11,006.00

228 Mario Ranis 2,816.00 8,190.00 11,006.00 270 Diosdado Besabela 2,816.00 8,190.00 11,006.00

229 Jaime Responso 2,816.00 8,190.00 11,006.00 271 Sylvestre Toring 2,816.00 8,190.00 11,006.00

230 Marianito Aguirre 2,816.00 8,190.00 11,006.00 272 Edilberto Padilla 2,816.00 8,190.00 11,006.00

231 Marcial Heruela 2,816.00 8,190.00 11,006.00 273 Allan Herosa 2,816.00 8,190.00 11,006.00

232 Godofredo Tuñacao 2,816.00 8,190.00 11,006.00 274 Ernesto Sumalinog 2,816.00 8,190.00 11,006.00

233 Perfecto Regis 2,816.00 8,190.00 11,006.00 275 Ariston Velasco, Jr. 2,816.00 8,190.00 11,006.00

234 Roel Demana 2,816.00 8,190.00 11,006.00 276 Fernando Lopez 2,816.00 8,190.00 11,006.00

235 Elmer Castillo 2,816.00 8,190.00 11,006.00 277 Alfonso Echavez 2,816.00 8,190.00 11,006.00

236 Wilfredo Calamohoy 2,816.00 8,190.00 11,006.00 278 Nicanor Cuizon 2,816.00 8,190.00 11,006.00

237 Rudy Lucernas 2,816.00 8,190.00 11,006.00 279 Dominador Caparida 2,816.00 8,190.00 11,006.00

238 Antonio Cañete 2,816.00 8,190.00 11,006.00 280 Zosimo Cororation 2,816.00 8,190.00 11,006.00

239 Efraim Yubal 2,816.00 8,190.00 11,006.00 281 Artemio Loveranes 2,816.00 8,190.00 11,006.00

240 Jesus Capangpangan 2,816.00 8,190.00 11,006.00 282 Dionisio Yagonia 2,816.00 8,190.00 11,006.00

241 Damian Capangpangan 2,816.00 8,190.00 11,006.00 283 Victor Celocia 2,816.00 8,190.00 11,006.00

242 Teofilo Capangpangan 2,816.00 8,190.00 11,006.00 284 Hipolito Vidas 2,816.00 8,190.00 11,006.00

243 Nilo Capangpangan 2,816.00 8,190.00 11,006.00 285 Teodoro Arcillas 2,816.00 8,190.00 11,006.00

244 Cororeno Capangpangan 2,816.00 8,190.00 11,006.00 286 Marcelino Habagat 2,816.00 8,190.00 11,006.00

245 Emilio Mondares 2,816.00 8,190.00 11,006.00 287 Gaudioso Labasan 2,816.00 8,190.00 11,006.00

246 Ponciano Agana 2,816.00 8,190.00 11,006.00 288 Leopoldo Regis 2,816.00 8,190.00 11,006.00

247 Vicente Devilleres 2,816.00 8,190.00 11,006.00 289 Aquillo Damole 2,816.00 8,190.00 11,006.00

248 Mario Alipan 2,816.00 8,190.00 11,006.00 290 Willy Roble 2,816.00 8,190.00 11,006.00

249 Romanito Alipan 2,816.00 8,190.00 11,006.00 TOTAL P391,424.00 P1,138,410.00 P1,529,834.00

250 Aldeon Robinson 2,816.00 8,190.00 11,006.00 RECAP

251 Fortunato Soco 2,816.00 8,190.00 11,006.00 CASE NO. SALARY SEPARATION TOTAL
DIFFERENTIAL PAY
252 Celso Compuesto 2,816.00 8,190.00 11,006.00 06-1165-91 P330,621.00 P884,520.00 P1,215,141.00
 07-1177-91 3,056.00 5,460.00 8,516.00 (10%) of the amounts which complainants may recover pursuant to Art. 111 of the Labor
06-1176-91 3,056.00 8,190.00 11,246.00 Code, as well as an indemnity fee of P2,000.00 to each complainant.
07-1219-91 39,728.00 76,440.00 116,168.00

07-1283-91 11,984.00 32,760.00 44,744.00 The Labor Arbiter is directed to review and recompute the award of separation pays and wage
10-1584-91 3,056.00 8,190.00 11,246.00
differentials due complainants whose names appear twice or are notably similar, compute the
monetary award due to complainant Niel Zanoria whose name was omitted in the Labor
08-1321-91 3,056.00 8,190.00 11,246.00
Arbiter's Decision and immediately execute the monetary awards as found in the Labor
09-1507-91 59,136.00 171,990.00 231,126.00 Arbiter's computations insofar as those complainants whose entitlement to separation pay and
06-1145-91 391,424.00 1,138,410.00 1,529,834.00 wage differentials and the amounts thereof are no longer in question. Costs against petitioner.
GRAND TOTAL P845,117.00 P2,334,150.00 P3,179,267.00
SO ORDERED.

However, certain matters have cropped up which require a review of the awards to some
complainants and a recomputation by the Labor Arbiter of the total amounts.

A scrutiny of the enumeration of all the complainants shows that some names38 appear twice
by virtue of their being included in two (2) of the nine (9) consolidated cases. A check of the
Labor Arbiter's computation discloses that most of these names were awarded different
amounts of separation pay or wage differential in each separate case where they were
impleaded as parties because the allegations of the length and period of their employment for
the separate cases, though overlapping, were also different. The records before us are
incomplete and do not aid in verifying whether these names belong to the same persons but
at least three (3) of those names were found to have identical signatures in the complaint
forms they filed in the separate cases. It is likely therefore that the Labor Arbiter erroneously
granted some complainants separation benefits and wage differentials twice. Apart from this,
we also discovered some names that are almost identical.39 It is possible that the minor
variance in the spelling of some names may have been a typographical error and refer to the
same persons although the records seem to be inconclusive.

Furthermore, one of the original complainants40 was inadvertently omitted by the Labor Arbiter
from his computations.41 The counsel for the complainants promptly filed a motion for
inclusion/correction42 which motion was treated as an appeal of the Decision as the Labor
Arbiter was prohibited by the rules of the NLRC from entertaining any motion at that stage of
the proceedings.43 The NLRC for its part acknowledged the omission44 but both the
Commission and subsequently the Court of Appeals failed to rectify the oversight in their
decisions.

Finally, the NLRC ordered both MAERC and SMC to pay P84,511.70 in attorneys fees which is
ten percent (10%) of the salary differentials awarded to the complainants in accordance with
Art. 111 of the Labor Code. The Court of Appeals also affirmed the award. Consequently, with
the recomputation of the salary differentials, the award of attorney's fees must also be
modified.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated 28
April 2000 and the Resolution dated 26 July 2000 are AFFIRMED with MODIFICATION.
Respondent Maerc Integrated Services, Inc. is declared to be a labor-only contractor.
Accordingly, both petitioner San Miguel Corporation and respondent Maerc Integrated
Services, Inc., are ordered to jointly and severally pay complainants (private respondents
herein) separation benefits and wage differentials as may be finally recomputed by the Labor
Arbiter as herein directed, plus attorney's fees to be computed on the basis of ten percent
G.R. No. 161115 November 30, 2006
DOLE PHILIPPINES, INC., Petitioner,
vs.
MEDEL ESTEVA, HENRY SILVA, GILBERT CABILAO, LORENZO GAQUIT, DANIEL
PABLO, EDWIN CAMILO, BENJAMIN SAKILAN, RICHARD PENUELA, ARMANDO
PORRAS, EDUARDO FALDAS, NILO DONDOYANO, MIGUEL DIAZ, ROMEL BAJO,
ARTEMIO TENERIFE, EDDIE LINAO, JERRY LIGTAS, SAMUEL RAVAL, WILFREDO
BLANDO, LORENZO MONTERO, JR., JAIME TESIPAO, GEORGE DERAL, ERNESTO
ISRAEL, JR., AGAPITO ESTOLOGA, JOVITO DAGUIO, ARSENIO LEONCIO, MARLON
BLANDO, JOSE OTELO CASPILLO, ARNOLD LIZADA, JERRY DEYPALUBOS, STEVEN
MADULA, ROGELIO CABULAO, JR., ALVIN COMPOC, EUGENIO BRITANA, RONNIE
GUELOS, EMMANUEL JIMENA, GERMAN JAVA, JESUS MEJICA, JOEL INVENTADO,
DOMINGO JABULGO, RAMIL ENAD, RAYMUNDO YAMON, RITCHIE MELENDRES,
JACQUEL ORGE, RAMON BARCELONA, ERWIN ESPIA, NESTOR DELIDELI, JR.,
ALLAN GANE, ROMEO PORRAS, RITCHIE BOCOG, JOSELITO ACEBES, DANNY
TORRES, JIMMY NAVARRO, RALPH PEREZ, SONNY SESE, RONALD RODRIQUES,
ROBERTO ALLANEC, ERNIE GIGANTANA, NELSON SAMSON, REDANTE DAVILA,
EDDIE BUSLIG, ALLAN PINEDA, JESUS BELGERA, VICENTE LABISTE,
CARMENCITA FELISILDA, GEORGE DERLA, RUBEN TORMON, NEIL TAJALE,
ORLANDO ESPENILLA, RITCHEL MANEJAR, JOEL QUINTANA, ERWIN ALDE, JOEL
CATALAN, ELMER TIZON, ALLAN ESPADA, EUGENE BRETANA, RAMIL ENAD, RENE
INGALLA, STEVEN MADULLA, RANDY REBUTAZO, NEIL BAGATILLA, ARSENIO
LEONCIO, ROLANDO VILLEGAS and JUSLIUS TESIPAO, herein represented by
MEDEL ESTEVA, Authorized Representative,Respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the revised Rules of
Civil Procedure seeking the reversal of the Decision,1 dated 20 May 2002, and the Amended
Decision,2 dated 27 November 2003, both rendered by the Court of Appeals in CA-G.R. SP No.
63405, which declared herein petitioner Dole Philippines, Inc. as the employer of herein
respondents, Medel Esteva and 86 others; found petitioner guilty of illegal dismissal; and
ordered petitioner to reinstate respondents to their former positions and to pay the latter
backwages.
The antecedent facts of the case are recounted as follows:
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. 3 Its
plantation is located in Polomolok, South Cotabato.4
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) on 6 January 1993.5 Members of CAMPCO live in communities surrounding petitioner’s
plantation and are relatives of petitioner’s employees.
On 17 August 1993, petitioner and CAMPCO entered into a Service Contract.6 The Service
Contract referred to petitioner as "the Company," while CAMPCO was "the Contractor."
Relevant portions thereof read as follows –
1. That the amount of this contract shall be or shall not exceed TWO HUNDRED TWENTY
THOUSAND ONLY (₱220,000.00) PESOS, terms and conditions of payment shall be on a per
job basis as specified in the attached schedule of rates; the CONTRACTOR shall perform the
following services for the COMPANY;
1.1 Assist the COMPANY in its daily operations;
1.2 Perform odd jobs as may be assigned.
2. That both parties shall observe the following terms and conditions as stipulated, to wit:
2.1 CONTRACTOR must carry on an independent legitimate business, and must
comply with all the pertinent laws of the government both local and national;
2.2 CONTRACTOR must provide all hand tools and equipment necessary in the
performance of their work.
However, the COMPANY may allow the use of its fixed equipment as a casual facility
in the performance of the contract;
2.3 CONTRACTOR must comply with the attached scope of work, specifications, and
GMP and safety practices of the company;
2.4 CONTRACTOR must undertake the contract work under the following manner:
a. on his own account;
b. under his own responsibility;
c. according to his manner and method, free from the control and direction
of the company in all matters connected with the performance of the work
except as to the result thereof;
3. CONTRACTOR must pay the prescribed minimum wage, remit SSS/MEDICARE premiums to
proper government agencies, and submit copies of payroll and proof of SSS/MEDICARE
remittances to the COMPANY;
4. This contract shall be for a specific period of Six (6) months from July 1 to December 31,
1993; x x x.
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, i.e., from 1 July to 31
December 1993, 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.
Investigation by DOLE
Concomitantly, the Sangguniang Bayan of Polomolok, South Cotabato, passed Resolution No.
64, on 5 May 1993, addressed to then Secretary Ma. Nieves R. Confessor of the Department
of Labor and Employment (DOLE), calling her attention to the worsening working conditions
of the petitioner’s workers and the organization of contractual workers into several
cooperatives to replace the individual labor-only contractors that used to supply workers to
the petitioner. Acting on the said Resolution, the DOLE Regional Office No. XI in Davao City
organized a Task Force that conducted an investigation into the alleged labor-only contracting
activities of the cooperatives in Polomolok.7
On 24 May 1993, the Senior Legal Officer of petitioner wrote a letter addressed to Director
Henry M. Parel of DOLE Regional Office No. XI, supposedly to correct the misinformation that
petitioner was involved in labor-only contracting, whether with a cooperative or any private
contractor. He further stated in the letter that petitioner was not hiring cooperative members
to replace the regular workers who were separated from service due to redundancy; that the
cooperatives were formed by the immediate dependents and relatives of the permanent
workers of petitioner; that these cooperatives were registered with the CDA; and that these
cooperatives were authorized by their respective constitutions and by-laws to engage in the
job contracting business.8
The Task Force submitted a report on 3 June 1993 identifying six cooperatives that were
engaged in labor-only contracting, one of which was CAMPCO. The DOLE Regional Office No.
XI held a conference on 18 August 1993 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. Subsequently, the cooperatives were required to submit their position
papers and other supporting documents, which they did on 30 August 1993. Petitioner likewise
submitted its position paper on 15 September 1993.9
On 19 October 1993, Director Parel of DOLE Regional Office No. XI issued an Order10 in which
he made the following findings –
Records submitted to this Office show that the six (6) aforementioned cooperatives are all
duly registered with the Cooperative Development Authority (CDA). These cooperatives were
also found engaging in different activities with DOLE PHILIPPINES, INC. a company engaged
in the production of pineapple and export of pineapple products. Incidentally, some of these
cooperatives were also found engaging in activities which are directly related to the principal
business or operations of the company. This is true in the case of the THREE (3) Cooperatives,
namely; Adventurer’s Multi Purpose Cooperative, Human Resource Multi Purpose Cooperative
and Cannery Multi Purpose Cooperative.
From the foregoing findings and evaluation of the activities of Adventurer’s Multi Purpose
Cooperative, Human Resource Multi Purpose Cooperative and Cannery Multi Purpose
Cooperative, this Office finds and so holds that they are engaging in Labor Only Contracting
Activities as defined under Section 9, Rule VIII, Book III of the rules implementing the Labor
Code of the Philippines, as amended which we quote:
"Section 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 person are performing activities which
are directly related to the principal business or operation of the employer to 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."
WHEREFORE, premises considered, ADVENTURER’S MULTI PURPOSE COOPERATIVE, HUMAN
RESOURCE MULTI PURPOSE COOPERATIVE and CANNERY MULTI PURPOSE COOPERATIVE
are hereby declared to be engaged in labor only contracting which is a prohibited activity. The
same cooperatives are therefore ordered to cease and desist from further engaging in such
activities.
The three (3) other cooperatives, namely Polomolok Skilled Workers Multi Purpose
Cooperative, Unified Engineering and Manpower Service Multi Purpose Cooperative and Tibud
sa Katibawasan Multi Purpose Cooperative whose activities may not be directly related to the
principal business of DOLE Philippines, Inc. are also advised not to engage in labor only
contracting with the company.
All the six cooperatives involved appealed the afore-quoted Order to the Office of the DOLE
Secretary, raising the sole issue that DOLE Regional Director Director Parel committed serious
error of law in directing the cooperatives to cease and desist from engaging in labor-only
contracting. On 15 September 1994, DOLE Undersecretary Cresencio B. Trajano, by the
authority of the DOLE Secretary, issued an Order 11 dismissing the appeal on the basis of the
following ratiocination –
The appeal is devoid of merit.
The Regional Director has jurisdiction to issue a cease and desist order as provided by Art.
106 of the Labor Code, as amended, to wit:
"Art. 106. Contractor or subcontractor. x x x
xxxx
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 (Emphasis supplied)
There is "labor-only" contracting where the person supplying workers to an employer does
not have substantial capital or investment in the forms 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 the employer. In such cases,
the person or the 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."
in relation to Article 128(b) of the Labor Code, as amended by Republic Act No. 7730, which
reads:
"Art. 128. Visitorial and Enforcement Power.
b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in
cases where the relationship of employer-employee still exists, the Secretary of Labor and
Employment or his duly authorized representatives shall have the power to issue compliance
orders to give effect to the labor standards provisions of this Code and other labor legislation
based on the findings of labor employment and enforcement officers or industrial safety
engineers made in the course of inspection. The Secretary or his duly authorized
representatives shall issue writs of execution to the appropriate authority for the enforcement
of their orders, except in cases where the employer contests the findings of the labor
employment and enforcement officer and raises issues supported by documentary proof which
were not considered in the course of inspection.
An order issued by the duly authorized representative of the Secretary of Labor and
Employment under this article may be appealed to the latter. In case said order involves a
monetary award, an appeal by the employer may be perfected only upon the posting of a cash
bond issued by a reputable bonding company duly accredited by the Secretary of Labor and
Employment in the amount equivalent to the monetary award in the order appealed from."
The records reveal that in the course of the inspection of the premises of Dolefil, it was found
out that the activities of the members of the [cooperatives] are necessary and desirable in the
principal business of the former; and that they do not have the necessary investment in the
form of tools and equipments. It is worthy to note that the cooperatives did not deny that
they do not have enough capital in the form of tools and equipment. Under the circumstances,
it could not be denied that the [cooperatives] are considered as labor-only contractors in
relation to the business operation of DOLEFIL, INC.
Thus, Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code,
provides that:
"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 person 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 a 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.
x x x x"
Violation of the afore-quoted provision is considered a labor standards violation and thus,
within the visitorial and enforcement powers of the Secretary of Labor and Employment (Art.
128).
The Regional Director’s authority to issue a cease and desist order emanates from Rule I,
Section 3 of the Rules on Disposition of Labor Standard Cases in the Regional Offices, to wit:
"Section 3. Authorized representative of the Secretary of Labor and Employment. – The
Regional Directors shall be the duly authorized representatives of the Secretary of Labor and
Employment in the administration and enforcement of the labor standards within their
respective territorial jurisdiction."
The power granted under Article 106 of the Labor Code to the Secretary of Labor and
Employment to restrict or prohibit the contracting out of labor to protect the rights of workers
established under the Code is delegated to the Regional Directors by virtue of the above-
quoted provision.
The reason why "labor-only" contracting is prohibited under the Labor Code is that it
encourages circumvention of the provisions of the Labor Code on the workers’ right to security
of tenure and to self-organization.
WHEREFORE, the respondents’ Appeal is hereby DISMISSED for lack of merit. The Order of
the Regional Director, Regional Office No. XI, Davao City, is AFFIRMED.
After the motion for reconsideration of the foregoing Order was denied, no further motion was
filed by the parties, and the Order, dated 15 September 1994, of DOLE Undersecretary Trajano
became final and executory. A Writ of Execution12 was issued by DOLE Regional Office No. XI
only on 27 July 1999, years after the issuance of the order subject of the writ. The DOLE
Regional Office No. XI was informed that CAMPCO and two other cooperatives "continued to
operate at DOLE Philippines, Inc. despite the cease and desist Order" it had issued. It therefore
commanded the Sheriff to proceed to the premises of CAMPCO and the two other cooperatives
and implement its Order dated 19 October 1993.
Respondent’s Complaint before the NLRC
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,13 on 19 December 1996, with the
National Labor Relations Commission (NLRC), for illegal dismissal, regularization, wage
differentials, damages and attorney’s fees.
In their Position Paper,14 respondents reiterated and expounded on the allegations they
previously made in their Complaint –
Sometime in 1993 and 1994, [herein petitioner] Dolefil engaged the services of the [herein
respondents] through Cannery Multi-purpose Cooperative. A cooperative which was organized
through the initiative of Dolefil in order to fill in the vacuum created as a result of the dismissal
of the regular employees of Dolefil sometime in 1990 to 1993.
The [respondents] were assigned at the Industrial Department of respondent Dolefil. All tools,
implements and machineries used in performing their task such as: can processing
attendant, feeder of canned pineapple at pineapple processing, nata de coco
processing attendant, fruit cocktail processing attendant, and etc. were provided by
Dolefil. The cooperative does not have substantial capital and does not provide the
[respondents] with the necessary tools to effectively perform their assigned task as the same
are being provided by Dolefil.
The training and instructions received by the [respondents] were provided by Dolefil. Before
any of the [respondents] will be allowed to work, he has to undergo and pass the training
prescribed by Dolefil. As a matter of fact, the trainers are employees of Dolefil.
The [respondents] perform their assigned task inside the premises of Dolefil. At the job site,
they were given specific task and assignment by Dolefil’s supervisors assigned to supervise
the works and efficiency of the complainants. Just like the regular employees of Dolefil,
[respondents] were subjected to the same rules and regulations observe [sic] inside company
premises and to some extent the rules applied to the [respondents] by the company through
its officers are even stricter.
The functions performed by the [respondents] are the same functions discharged by the
regular employees of Dolefil. In fact, at the job site, the [respondents] were mixed with the
regular workers of Dolefil. There is no difference in so far as the job performed by the regular
workers of Dolefil and that of the [respondents].
Some of the [respondents] were deprived of their employment under the scheme of "stay
home status" where they were advised to literally stay home and wait for further instruction
to report anew for work. However, they remained in this condition for more than six months.
Hence, they were constructively or illegally dismissed.
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.
In their Supplemental Position Paper,15 respondents presented, in support of their Complaint,
the Orders of DOLE Regional Director Parel, dated 19 October 1993, and DOLE Undersecretary
Trajano, dated 15 September 1994, finding that CAMPCO was a labor-only contractor and
directing CAMPCO to cease and desist from any further labor-only contracting activities.
Petitioner, in its Position Paper16 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,17 in which petitioner was accused of
preventing the regularization of such workers. The Labor Arbiter who heard the case, rendered
his Decision18 on 24 June 1994 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,19 dated
14 March 1995, 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 on
18 June 1996. 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, to wit –
Section 6. Permissible contracting and subcontracting. – Subject to the conditions set forth in
Section 3(d) and (e) and Section 5 hereof, the principal may engage the services of a
contractor or subcontractor for the performance of any of the following;
(a) Works or services temporarily or occasionally needed to meet abnormal increase
in the demand of products or services, provided that the normal production capacity
or regular workforce of the principal cannot reasonably cope with such demands;
(b) Works or services temporarily or occasionally needed by the principal for
undertakings requiring expert or highly technical personnel to improve the
management or operations of an enterprise;
(c) Services temporarily needed for the introduction or promotion of new products,
only for the duration of the introductory or promotional period;
(d) Works or services not directly related or not integral to the main business or
operation of the principal, including casual work, janitorial, security, landscaping, and
messengerial services, and work not related to manufacturing processes in
manufacturing establishments;
(e) Services involving the public display of manufacturer’s products which does not
involve the act of selling or issuance of receipts or invoices;
(f) Specialized works involving the use of some particular, unusual, or peculiar skills,
expertise, tools or equipment the performance of which is beyond the competence
of the regular workforce or production capacity of the principal; and
(g) Unless a reliever system is in place among the regular workforce, substitute
services for absent regular employees, provided that the period of service shall be
coextensive with the period of absence and the same is made clear to the substitute
employee at the time of engagement. The phrase "absent regular employees"
includes those who are serving suspensions or other disciplinary measures not
amounting to termination of employment meted out by the principal, but excludes
those on strike where all the formal requisites for the legality of the strike have been
prima facie complied with based on the records filed with the National Conciliation
and Mediation Board.
According to petitioner, the services rendered by CAMPCO constituted permissible job
contracting under the afore-quoted paragraphs (a), (c), and (g), Section 6 of DOLE
Department Order No. 10, series of 1997.
After the parties had submitted their respective Position Papers, the Labor Arbiter promulgated
its Decision20 on 11 June 1999, ruling entirely in favor of petitioner, ratiocinating thus –
After judicious review of the facts, narrated and supporting documents adduced by both
parties, the undersigned finds [and] holds that CAMPCO is not engaged in labor-only
contracting.
Had it not been for the issuance of Department Order No. 10 that took effect on June 22,
1997 which in the contemplation of Law is much later compared to the Order promulgated by
the Undersecretary Cresencio Trajano of Department of [L]abor and Employment, the
undersigned could safely declared [sic] otherwise. However, owing to the principle observed
and followed in legal practice that the later law or jurisprudence controls, the reliance to
Secretary Trajano’s order is overturned.
Labor-only contracting as amended by Department [O]rder No. 10 is defined in this wise:
"Labor-only contracting is prohibited under this Rule is an arrangement where the contractor
or subcontractor merely recruits, supplied [sic] or places workers to perform a job, work or
service for a principal, and the following elements are present:
i) The contractor or sub-contractor does not have substantial capital or investment
to actually perform the job, work, or service under its own account & responsibility,
and
ii) 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."
Verification of the records reveals that per Annexes "J" and "K" of [herein petitioner DolePhil’s]
position paper, which are the yearly audited Financial Statement and Balance Sheet of
CAMPCO shows [sic] that it has more than substantial capital or investment in order to qualify
as a legitimate job contractor.
We likewise recognize the validity of the contract entered into and between CAMPCO and
[petitioner] for the former to assists [sic] the latter in its operations and in the performance
of odd jobs – such as the augmentation of regular manning particularly during peaks in
operation, work back logs, absenteeism and excessive leave availment of respondent’s regular
employees. The rule is well-settled that labor laws discourage interference with an employer’s
judgment in the conduct of his business. Even as the law is solicitors [ sic] of the welfare of
the employees, it must also protect the right of an employer to exercise what are clearly
management prerogatives. The free will of management to conduct its own business affairs
to achieve its purpose cannot be denied (Yuco Chemical Industries vs. Ministry of [L]abor, GR
No. 75656, May 28, 1990).
CAMPCO being engaged in legitimate contracting, cannot therefore declared [sic] as guilty of
labor-only contracting which [herein respondents] want us to believe.
The second issue is likewise answered in the negative. The reason is plain and simple[,] section
12 of Department [O]rder No. 10 states:
"Section 12. Employee-employer relationship. Except in cases provided for in Section 13, 14,
15 & 17, the contractor or subcontractor shall be considered the employer of the contractual
employee for purposes of enforcing the provisions of the Code."
The Resolution of NLRC 5th division, promulgated on March 14, 1 1995 [ sic] categorically
declares:
"Judging from the very nature of the terms and conditions of their hiring, the Commission
finds the complainants to have been engaged to perform work, although necessary or
desirable to the business of respondent company, for a definite period or what is community
called TERM EMPLOYMENT. It is clear from the evidence and record that the nature of the
business and operation of respondent company has its peaks and valleys and therefore, it is
not difficult to discern, inclement weather, or high availment by regular workers of earned
leave credits, additional workers categorized as casuals, or temporary, are needed to meet
the exigencies." (Underlining in the original)
The validity of fixed-period employment has been consistently upheld by the Supreme [C]ourt
in a long line of cases, the leading case of which is Brent School, Inc. vs. Zamora & Alegre,
GR No. 48494, February 5, 1990. Thus at the end of the contract the employer-employee
relationship is terminated. It behooves upon us to rule that herein complainants cannot be
declared regular rank and file employees of the [petitioner] company.
Anent the third issue, [respondents] dismally failed to provide us the exact figures needed for
the computation of their wage differentials. To simply alleged [sic] that one is underpaid of
his wages is not enough. No bill of particulars was submitted. Moreover, the Order of RTWPB
Region XI, Davao City dated February 21, 1996 exempts [petitioner] company from complying
Wage Order No. 04 [sic] in so far as such exemption applies only to workers who are not
covered by the Collective Bargaining Agreement, for the period January 1 to December 31,
1995,. [sic] In so far as [respondents] were not privies to the CBA, they were the workers
referred to by RTWPB’s Order. [H]ence, [respondents’] claims for wage differentials are hereby
dismissed for lack of factual basis.
We find no further necessity in delving into the issues raised by [respondents] regarding moral
damages and attorney’s fees for being moot and academic because of the findings that
CAMPCO does not engaged [sic] in labor-only contracting and that [respondents] cannot be
declared as regular employees of [petitioner].
WHEREFORE, premises considered, judgment is hereby rendered in the above-entitled case,
dismissing the complaint for lack of merit.
Respondents appealed the Labor Arbiter’s Decision to the NLRC, reiterating their position that
they should be recognized as regular employees of the petitioner since CAMPCO was a mere
labor-only contractor, as already declared in the previous Orders of DOLE Regional Director
Parel, dated 19 October 1993, and DOLE Undersecretary Trajano, dated 15 September 1994,
which already became final and executory. The NLRC, in its Resolution, 21 dated 29 February
2000, dismissed the appeal and affirmed the Labor Arbiter’s Decision, reasoning as follows –
We find no merit in the appeal.
The concept of conclusiveness of judgment under the principle of "res judicata" means that
where between the first case wherein judgment is rendered and the second case wherein such
judgment is invoked, there is identity of parties, but there is no identity of cause of action, the
judgment is conclusive in the second case, only as to those matters actually and directly
controverted and determined and not as to matters merely involved therein ( Viray, etc. vs.
Marinas, et al., 49 SCRA 44). There is no denying that the order of the Department of Labor
and Employment, Regional Office No. XI in case No. RI100-9310-RI-355, which the
complainants perceive to have sealed the status of CAMPCO as labor-only contractor,
proceeded from the visitorial and enforcement power of the Department Secretary under
Article 128 of the Labor Code. Acting on reports that the cooperatives, including CAMPCO, that
operated and offered services at [herein petitioner] company were engaging in labor-only
contracting activities, that Office conducted a routinary inspection over the records of said
cooperatives and consequently, found the latter to be engaging in labor-only contracting
activities. This being so, [petitioner] company was not a real party-in-interest in said case, but
the cooperatives concerned. Therefore, there is no identity of parties between said case and
the present case which means that the afore-said ruling of the DOLE is not binding and
conclusive upon [petitioner] company.
It is not correct, however, to say, as the Labor Arbiter did, that the afore-said ruling of the
Department of Labor and Employment has been overturned by Department Order No. 10. It
is a basic principle that "once a judgment becomes final it cannot be disturbed, except for
clerical errors or when supervening events render its execution impossible or unjust"
(Sampaguita Garmens [sic] Corp. vs. NLRC, G. R. No. 102406, June 7, 1994). Verily, the
subsequent issuance of Department Order No. 10 cannot be construed as supervening event
that would render the execution of said judgment impossible or unjust. Department Order No.
10 refers to the ramification of some provisions of the Rules Implementing Articles 106 and
109 of the Labor Code, without substantially changing the definition of "labor-only" or "job’
contracting.
Well-settled is the rule that to qualify as an independent job contractor, one has either
substantial capital "or" investment in the form of tools, equipment and machineries necessary
to carry out his business (see Virginia Neri, et al. vs. NLRC, et al., G.R. Nos. 97008-89,
July 23, 1993). CAMPCO has admittedly a paid-up capital of P4,562,470.25 and this is more
than enough to qualify it as an independent job contractor, as aptly held by the Labor Arbiter.
WHEREFORE, the appeal is DISMISSED for lack of merit and the appealed decision is
AFFIRMED.
Petition for Certiorari with the Court of Appeals
Refusing to concede defeat, respondents filed with the Court of Appeals a Petition
for Certiorari under Rule 65 of the revised Rules of Civil Procedure, asserting that the NLRC
acted without or in excess of its jurisdiction and with grave abuse of discretion amounting to
lack of jurisdiction when, in its Resolution, dated 29 February 2000, it (1) ruled that CAMPCO
was a bona fide independent job contractor with substantial capital, notwithstanding the fact
that at the time of its organization and registration with CDA, it only had a paid-up capital of
₱6,600.00; and (2) refused to apply the doctrine of res judicata against petitioner. The Court
of Appeals, in its Decision,22 dated 20 May 2002, granted due course to respondents’ Petition,
and set aside the assailed NLRC Decision. Pertinent portions of the Court of Appeals Decision
are reproduced below –
In the case at bench, it was established during the proceedings before the [NLRC] that
CAMPCO has a substantial capital. However, having a substantial capital does not per se qualify
CAMPCO as a job contractor. In order to be considered an independent contractor it is not
enough to show substantial capitalization or investment in the form of tools, equipment,
machinery and work premises. The conjunction "and," in defining what a job contractor is,
means that aside from having a substantial capital or investment in the form of tools,
equipment, machineries, work premise, and other materials which are necessary in the
conduct of his business, the contractor must be able to prove that it also 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. [Herein petitioner DolePhil] has failed to prove, except for the
substantial capital requirement, that CAMPCO has met the other requirements. It was not
established that CAMPCO is engaged or carries on an independent business. In the
performance of the respective tasks of workers deployed by CAMPCO with [petitioner], it was
not established that CAMPCO undertook the contract of work it entered with [petitioner] under
its own account and its own responsibility. It is [petitioner] who provides the procedures to
be followed by the workers in the performance of their assigned work. The workers deployed
by CAMPCO to [petitioner] performed activities which are directly related to the principal
business or operations of the employer in which workers are habitually employed since
[petitioner] admitted that these workers were engaged to perform the job of other regular
employees who cannot report for work.
Moreover, [NLRC] likewise gravely erred in not giving weight to the Order dated 19 October
1993 issued by the Office of the Secretary of the Department of Labor and Employment,
through Undersecretary Cresencio Trajano, which affirmed the findings of the Department of
Labor and Employment Regional Office, Region XI, Davao City that Cannery Multi-Purpose
Cooperative is one of the cooperatives engaged in labor-only contracting activities.
In the exercise of the visitorial and enforcement power of the Department of Labor and
Employment, an investigation was conducted among the cooperatives organized and existing
in Polomolok, South Cotabato, relative to labor-only contracting activities. One of the
cooperatives investigated was Cannery Multi-Purpose Cooperative. After the investigation, the
Department of Labor and Employment, Regional Office No. XI, Davao City, through its
Regional Director, issued the Order dated 19 October 1993, stating:
"WHEREFORE, premises considered, ADVENTURER’S MULTI PURPOSE COOPERATIVE,
HUMAN RESOURCE MULTI PURPOSE SKILLED COOPERATIVE and CANNERY MULTI PURPOSE
COOPERATIVE are hereby declared to be engaged in labor only contracting which is a
prohibited activity. The same cooperatives are therefore ordered to cease and desist from
further engaging in such activities.
xxxx
SO ORDERED."
Cannery Multi Purpose Cooperative, together with the other cooperatives declared as engaged
in labor-only contracting activity, appeal the above-findings to the Secretary of the Department
of Labor and Employment. Their appeal was dismissed for lack of merit as follows:: [ sic]
xxxx
[NLRC] held that CAMPCO, being not a real party-in interest in the above-case, the said ruling
is not binding and conclusive upon [petitioner]. This Court, however, finds the contrary.
CAMPCO was one of the cooperatives investigated by the Department of Labor and
Employment, Regional Office No. XI, Davao City, pursuant to Article 128 of the Labor Code. It
was one of the appellants before the Secretary of the Department of Labor questioning the
decision of the Regional Director of DOLE, Regional Office No. XI, Davao City. This Court noted
that in the proceedings therein, and as mentioned in the decision rendered by Undersecretary
Cresencio B. Trajano of the Department of Labor and Employment, Manila, regarding the
cooperatives’ appeal thereto, the parties therein, including Cannery Multi-Purpose
Cooperative, submitted to the said office their position papers and Articles of Cooperatives
and Certification of Registrations [sic] on 30 August 1993. This is a clear indicia that CAMPCO
participated in the proceedings therein. [NLRC], therefore, committed grave abuse of
discretion amounting to lack or excess of jurisdiction when it held that CAMPCO was never a
party to the said case.
[Petitioner] invokes Section 6 of Department Order No. 10, series of 1997, issued by the
Department of Labor and Employment which took effect on 22 June 1997. The said section
identified the circumstances which are permissible job contracting, to wit:
xxxx
[Petitioner’s] main contention is based on the decisions rendered by the labor arbiter and
[NLRC] which are both anchored on Department Order No. 10 issued by the Department of
Labor and Employment. The said department order provided for several flexible working
relations between a principal, a contractor or subcontractor and the workers recruited by the
latter and deployed to the former. In the case at bench, [petitioner] posits that the
engagement of [petitioner] of the workers deployed by CAMPCO was pursuant to D.O. No. 10,
Series of 1997.
However, on 8 May 2001, the Department of Labor and Employment issued Department Order
No. 3, series of 2001, revoking Department Order No. 10, series of 1997. The said department
order took effect on 29 May 2001.
xxxx
Under Department Order No. 3, series of 2001, some contracting and outsourcing
arrangements are no longer legitimate modes of employment relation. Having revoked
Department Order No. 10, series of 1997, [petitioner] can no longer support its argument by
relying on the revoked department order.
Considering that [CAMPCO] is not a job contractor, but one engaged in labor-only contracting,
CAMPCO serves only as an agent of [petitioner] pursuant to par. (b) of Sec. 9, Rule VIII, Book
III of the Implementing Rules and Regulations of the Labor Code, stating,
xxxx
However, the Court cannot declare that [herein respondents] are regular employees of
[petitioner]. x x x
xxxx
In the case at bench, although [respondents] were engaged to perform activities which are
usually necessary or desirable in the usual business or trade of private respondent, it is
apparent, however, that their services were engaged by [petitioner] only for a definite period.
[Petitioner’s] nature of business and operation has its peaks. In order to meet the demands
during peak seasons they necessarily have to engage the services of workers to work only for
a particular season. In the case of [respondents], when they were deployed by CAMPCO with
[petitioner] and were assigned by the latter at its cannery department, they were aware that
they will be working only for a certain duration, and this was made known to them at the time
they were employed, and they agreed to the same.
xxxx
The non-rehiring of some of the petitioners who were allegedly put on a "floating status’ is an
indication that their services were no longer needed. They attained their "floating status" only
after they have finished their contract of employment, or after the duration of the season that
they were employed. The decision of [petitioner] in not rehiring them means that their services
were no longer needed due to the end of the season for which they were hired. And this Court
reiterates that at the time they were deployed to [petitioner’s] cannery division, they knew
that the services they have to render or the work they will perform are seasonal in nature and
consequently their employment is only for the duration of the season.
ACCORDINGLY, in view of the foregoing, the instant petition for certiorari is hereby GRANTED
DUE COURSE. The decision dated 29 February 2000 and Resolution dated 19 December 2000
rendered by [NLRC] are hereby SET ASIDE. In place thereof, it is hereby rendered that:
1. Cannery Multi-Purpose Cooperative is a labor-only contractor as defined under the
Labor Code of the Philippines and its implementing rules and regulations; and that
2. DOLE Philippines Incorporated is merely an agent or intermediary of Cannery Multi-
Purpose Cooperative.
All other claims of [respondents] are hereby DENIED for lack of basis.
Both petitioner and respondents filed their respective Motions for Reconsideration of the
foregoing Decision, dated 20 May 2002, prompting the Court of Appeals to promulgate an
Amended Decision on 27 November 2003, in which it ruled in this wise:
This court examined again the documentary evidence submitted by the [herein petitioner] and
we rule not to disturb our findings in our Decision dated May 20, 2002. It is our opinion that
there was no competent evidence submitted that would show that CAMPCO is engaged to
perform a specific and special job or service which is one of the strong indicators that an entity
is an independent contractor. The articles of cooperation and by-laws of CAMPCO do not show
that it is engaged in performing a specific and special job or service. What is clear is that it is
a multi-purpose cooperative organized under RA No. 6938, nothing more, nothing less.
As can be gleaned from the contract that CAMPCO entered into with the [petitioner], the
undertaking of CAMPCO is to provide [petitioner] with workforce by assisting the company in
its daily operations and perform odd jobs as may be assigned. It is our opinion that CAMPCO
merely acted as recruitment agency for [petitioner]. CAMPCO by supplying manpower only,
clearly conducted itself as ‘labor-only" contractor. As can be gleaned from the service contract,
the work performed by the [herein respondents] are directly related to the main business of
the [petitioner]. Clearly, the requisites of "labor-only" contracting are present in the case at
bench.
In view of the above ruling, we find it unnecessary to discuss whether the Order of
Undersecretary Trajano finding that CAMPCO is a "labor-only" contractor is a determining
factor or constitutes res judicata in the case at bench. Our findings that CAMPCO is a "labor-
only" contractor is based on the evidence presented vis-à-vis the rulings of the Supreme Court
on the matter.
Since, the argument that the [petitioner] is the real employer of the [respondents], the next
question that must be answered is – what is the nature of the employment of the petitioners?
xxxx
The afore-quoted [Article 280 of the Labor Code, as amended] provides for two kinds of
employment, namely: (1) regular (2) casual. In our Decision, we ruled that the [respondents]
while performing work necessary and desirable to the business of the [petitioner] are seasonal
employees as their services were engaged by the [petitioner] for a definite period or only
during peak season.
In the most recent case of Hacienda Fatima v. National Federation of Sugarcane
Workers Food and General Trade, the Supreme Court ruled that for employees to be
excluded from those classified as regular employees, it is not enough that they perform work
or services that are seasonal in nature. They must have also been employed only for the
duration of one season. It is undisputed that the [respondents’] services were engaged by the
[petitioner] since 1993 and 1994. The instant complaint was filed in 1996 when the
[respondents] were placed on floating status. Evidently, [petitioner] employed the
[respondents] for more than one season. Therefore, the general rule on regular employment
is applicable. The herein petitioners who performed their jobs in the workplace of the
[petitioner] every season for several years, are considered the latter’s regular employees for
having performed works necessary and desirable to the business of the [petitioner]. The
[petitioner’s] eventual refusal to use their services—even if they were ready, able and willing
to perform their usual duties whenever these were available—and hiring other workers to
perform the tasks originally assigned to [respondents] amounted to illegal dismissal of the
latter. We thus, correct our earlier ruling that the herein petitioners are seasonal workers.
They are regular employees within the contemplation of Article 280 of the Labor Code and
thus cannot be dismissed except for just or authorized cause. The Labor Code provides that
when there is a finding of illegal dismissal, the effect is that the employee dismissed shall be
reinstated to his former position without loss of seniority rights with backwages from the date
of his dismissal up to his actual reinstatement.
This court however, finds no basis for the award of damages and attorney’s fees in favor of
the petitioners.
WHEREFORE, the Decision dated May 20, 2002 rendered by this Court is
hereby AMENDED as follows:
 1) [Petitioner] DOLE PHILIPPINES is hereby declared the employer of the
[respondents].
2) [Petitioner] DOLE PHILIPPINES is hereby declared guilty of illegal dismissal and
ordered to immediately reinstate the [respondents] to their former position without
loss of seniority rights and other benefits, and to pay each of the [respondents]
backwages from the date of the filing of illegal dismissal on December 19, 1996 up
to actual reinstatement, the same to be computed by the labor arbiter.
3) The claims for damages and attorney’s fees are hereby denied for lack of merit.
No costs.23
The Petition at Bar
Aggrieved by the Decision, dated 20 May 2002, and the Amended Decision, dated 27
November 2003, of the Court of Appeals, petitioner filed the instant Petition for Review
on Certiorari under Rule 45 of the revised Rules of Civil Procedure, in which it made the
following assignment of errors –
I.
THE COURT OF APPEALS HAS DEPARTED FROM THE USUAL COURSE OF JUDCIAL
PROCEEDINGS WHEN IT MADE ITS OWN FACTUAL FINDINGS AND DISREGARDED
THE UNIFORM AND CONSISTENT FACTUAL FINDINGS OF THE LABOR ARBITER AND
THE NLRC, WHICH MUST BE ACCORDED GREAT WEIGHT, RESPECT AND EVEN
FINALITY. IN SO DOING, THE COURT OF APPEALS EXCEEDED ITS AUTHORITY ON
CERTIORARI UNDER RULE 65 OF THE RULES OF COURT.
II.
THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT
IN ACCORD WITH THE CONSTITUTION, LAW, APPLICABLE RULES AND
REGULATIONS AND DECISIONS OF THE SUPREME COURT IN NOT HOLDING
THAT DEPARTMENT ORDER NO. 10, SERIES OF 1997 IS THE APPLICABLE
REGULATION IN THIS CASE. IN GIVING RETROACTIVE APPLICATION
TO DEPARTMENT ORDER NO. 3, SERIES OF 2001, THE COURT OF APPEALS
VIOLATED THE CONSTITUTIONAL PROVISION AGAINST IMPAIRMENT OF
CONTRACTS AND DEPRIVED PETITIONER OF THE DUE PROCESS OF THE LAW.
III.
THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND JURISPRUDENCE IN GIVING WEIGHT TO THE ORDER
DATED 19 OCTOBER 1993 ISSUED BY THE OFFICE OF SECRETARY OF LABOR,
WHICH AFFIRMED THE FINDINGS OF THE DOLE REGIONAL OFFICE (REGION XI,
DAVAO CITY) THAT CAMPCO IS ONE OF THE COOPERATIVES ENGAGED IN LABOR-
ONLY CONTRACTING ACTIVITIES.
IV.
THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND JURISPRUDENCE IN NOT RULING THAT RESPONDENTS,
BY ACTIVELY REPRESENTING THEMSELVES AND WARRANTING THAT THEY ARE
ENGAGED IN LEGITIMATE JOB CONTRACTING, ARE BARRED BY THE EQUITABLE
PRINCIPLE OF ESTOPPEL FROM ASSERTING THAT THEY ARE REGULAR EMPLOYEES
OF PETITIONER.
V.
THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT CAMPCO IS ENGAGED
IN THE PROHIBITED ACT OF "LABOR-ONLY CONTRACTING" DESPITE THERE BEING
SUBSTANTIAL EVIDENCE TO THE CONTRARY.
VI.
THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT PETITIONER IS THE
EMPLOYER OF RESPONDENTS AND THAT PETITIONER IS GUILTY OF ILLEGAL
DISMISSAL.24
This Court’s Ruling
I
Anent the first assignment of error, petitioner argues that judicial review under Rule 65 of the
revised Rules of Civil Procedure is limited only to issues concerning want or excess or
jurisdiction or grave abuse of discretion. The special civil action for certiorari is a remedy
designed to correct errors of jurisdiction and not mere errors of judgment. It is the contention
of petitioner that the NLRC properly assumed jurisdiction over the parties and subject matter
of the instant case. The errors assigned by the respondents in their Petition
for Certiorari before the Court of Appeals do not pertain to the jurisdiction of the NLRC; they
are rather errors of judgment supposedly committed by the the NLRC, in its Resolution, dated
29 February 2000, and are thus not the proper subject of a petition for certiorari. Petitioner
also posits that the Petition for Certiorari filed by respondents with the Court of Appeals raised
questions of fact that would necessitate a review by the appellate court of the evidence
presented by the parties before the Labor Arbiter and the NLRC, and that questions of fact
are not a fit subject for a special civil action for certiorari.
It has long been settled in the landmark case of St. Martin Funeral Home v. NLRC,25 that the
mode for judicial review over decisions of the NLRC is by a petition for certiorari under Rule
65 of the revised Rules of Civil Procedure. The different modes of appeal, namely, writ of error
(Rule 41), petition for review (Rules 42 and 43), and petition for review on certiorari (Rule
45), cannot be availed of because there is no provision on appellate review of NLRC decisions
in the Labor Code, as amended.26 Although the same case recognizes that both the Court of
Appeals and the Supreme Court have original jurisdiction over such petitions, it has chosen to
impose the strict observance of the hierarchy of courts. Hence, a petition for certiorari of a
decision or resolution of the NLRC should first be filed with the Court of Appeals; direct resort
to the Supreme Court shall not be allowed unless the redress desired cannot be obtained in
the appropriate courts or where exceptional and compelling circumstances justify an availment
of a remedy within and calling for the exercise by the Supreme Court of its primary jurisdiction.
The extent of judicial review by certiorari of decisions or resolutions of the NLRC, as exercised
previously by the Supreme Court and, now, by the Court of Appeals, is described in Zarate v.
Olegario,27 thus –
The rule is settled that the original and exclusive jurisdiction of this Court to review a decision
of respondent NLRC (or Executive Labor Arbiter as in this case) in a petition for certiorari under
Rule 65 does not normally include an inquiry into the correctness of its evaluation of the
evidence. Errors of judgment, as distinguished from errors of jurisdiction, are not within the
province of a special civil action for certiorari, which is merely confined to issues of jurisdiction
or grave abuse of discretion. It is thus incumbent upon petitioner to satisfactorily establish
that respondent Commission or executive labor arbiter acted capriciously and whimsically in
total disregard of evidence material to or even decisive of the controversy, in order that the
extraordinary writ of certiorari will lie. By grave abuse of discretion is meant such capricious
and whimsical exercise of judgment as is equivalent to lack of jurisdiction, and it must be
shown that the discretion was exercised arbitrarily or despotically. For certiorari to lie, there
must be capricious, arbitrary and whimsical exercise of power, the very antithesis of the
judicial prerogative in accordance with centuries of both civil law and common law traditions.
The Court of Appeals, therefore, can grant the Petition for Certiorari if it finds that the NLRC,
in its assailed decision or resolution, committed grave abuse of discretion by capriciously,
whimsically, or arbitrarily disregarding evidence which is material or decisive of the
controversy; and the Court of Appeals can not make this determination without looking into
the evidence presented by the parties. Necessarily, the appellate court can only evaluate the
materiality or significance of the evidence, which is alleged to have been capriciously,
whimsically, or arbitrarily disregarded by the NLRC, in relation to all other evidence on record.
As this Court elucidated in Garcia v. National Labor Relations Commission28 --
[I]n Ong v. People, we ruled that certiorari can be properly resorted to where the factual
findings complained of are not supported by the evidence on record. Earlier, in Gutib v. Court
of Appeals, we emphasized thus:
[I]t has been said that a wide breadth of discretion is granted a court of justice in certiorari
proceedings. The cases in which certiorari will issue cannot be defined, because to do so would
be to destroy its comprehensiveness and usefulness. So wide is the discretion of the court
that authority is not wanting to show that certiorari is more discretionary than either
prohibition or mandamus. In the exercise of our superintending control over inferior courts,
we are to be guided by all the circumstances of each particular case "as the ends of justice
may require." So it is that the writ will be granted where necessary to prevent a substantial
wrong or to do substantial justice.
And in another case of recent vintage, we further held:
In the review of an NLRC decision through a special civil action for certiorari, resolution is
confined only to issues of jurisdiction and grave abuse of discretion on the part of the labor
tribunal. Hence, the Court refrains from reviewing factual assessments of lower courts and
agencies exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court
is constrained to delve into factual matters where, as in the instant case, the findings of the
NLRC contradict those of the Labor Arbiter.
In this instance, the Court in the exercise of its equity jurisdiction may look into the records
of the case and re-examine the questioned findings. As a corollary, this Court is clothed with
ample authority to review matters, even if they are not assigned as errors in their appeal, if it
finds that their consideration is necessary to arrive at a just decision of the case. The same
principles are now necessarily adhered to and are applied by the Court of Appeals in its
expanded jurisdiction over labor cases elevated through a petition for certiorari; thus, we see
no error on its part when it made anew a factual determination of the matters and on that
basis reversed the ruling of the NLRC.
II
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.29 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
Undesrsecretary 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.
III
The Orders of DOLE Regional Director Parel, dated 19 September 1993, and of DOLE
Undersecretary Trajano, dated 15 September 1994, were issued pursuant to the visitorial and
enforcement power conferred by the Labor Code, as amended, on the DOLE Secretary and
his duly authorized representatives, to wit –
ART. 128. Visitorial and enforcement power. – (a) The Secretary of Labor or his duly authorized
representatives, including labor regulation officers, shall have access to employer’s records
and premises at any time of the day or night whenever work is being undertaken therein, and
the right to copy therefrom, to question any employee and investigate any fact, condition or
matter which may be necessary to determine violations or which may aid in the enforcement
of this Code and of any labor law, wage order or rules and regulations pursuant thereto.
(b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and
in cases where the relationship of employer-employee still exists, the Secretary of Labor and
Employment or his duly authorized representatives shall have the power to issue compliance
orders to give effect to the labor standards provisions of this Code and other labor
legislation based on the findings of labor employment and enforcement officers or industrial
safety engineers made in the course of inspection. The Secretary or his duly authorized
representatives shall issue writs of execution to the appropriate authority for the enforcement
of their orders, except in cases where the employer contests the findings of the labor
employment and enforcement officer and raises issues supported by documentary proofs
which were not considered in the course of inspection.
An order issued by the duly authorized representative of the Secretary of Labor and
Employment under this article may be appealed to the latter. In case said order involves a
monetary award, an appeal by the employer may be perfected only upon the posting of a cash
or surety bond issued by a reputable bonding company duly accredited by the Secretary of
Labor and Employment in the amount equivalent to the monetary award in the order appealed
from. (Emphasis supplied.)
Before Regional Director Parel issued his Order, dated 19 September 1993, a Task Force (d) It shall be unlawful for any person or entity to obstruct, impede, delay or otherwise render
investigated the operations of cooperatives in Polomolok, South Cotabato, and submitted a ineffective the orders of the Secretary of Labor or his duly authorized representatives issued
report identifying six cooperatives that were engaged in labor-only contracting, one of which pursuant to the authority granted under this article, and no inferior court or entity shall issue
was CAMPCO. In a conference before the DOLE Regional Office, the cooperatives named by temporary or permanent injunction or restraining order or otherwise assume jurisdiction over
the Task Force were given the opportunity to explain the nature of their activities in relation any case involving the enforcement orders issued in accordance with this article.
to petitioner; and, the cooperatives, as well as petitioner, submitted to the DOLE Regional
Office their position papers and other supporting documents to refute the findings of the Task The Orders of DOLE Regional Director Parel, dated 19 September 1993, and of DOLE
Force. It was only after these procedural steps did Regional Director Parel issued his Order Undersecretary Trajano, dated 15 September 1994, consistently found that CAMPCO was
finding that three cooperatives, including CAMPCO, were indeed engaged in labor-only engaging in labor-only contracting. Such finding constitutes res judicata in the case filed by
contracting and were directed to cease and desist from further engaging in such activities. On the respondents with the NLRC.
appeal, DOLE Undersecretary Trajano, by authority of the DOLE Secretary, affirmed Regional
Director Parel’s Order. Upon denial of the Motion for Reconsideration filed by the cooperatives,
It is well-established in this jurisdiction that the decisions and orders of administrative
and no further appeal taken therefrom, the Order of DOLE Undersecretary Trajano, dated 15
agencies, rendered pursuant to their quasi-judicial authority, have upon their finality, the force
September 1994, became final and executory.
and binding effect of a final judgment within the purview of the doctrine of res judicata. The
rule of res judicata, which forbids the reopening of a matter once judicially determined by
Petitioner avers that the foregoing Orders of the authorized representatives of the DOLE competent authority, applies as well to the judicial and quasi-judicial acts of public, executive
Secretary do not constitute res judicata in the case filed before the NLRC. This Court, however, or administrative officers and boards acting within their jurisdiction as to the judgments of
believes otherwise and finds that the final and executory Orders of the DOLE Secretary or his courts having general judicial powers. The orderly administration of justice requires that the
authorized representatives should bind the NLRC. judgments or resolutions of a court or quasi-judicial body must reach a point of finality set by
the law, rules and regulations, so as to write finis to disputes once and for all. This is a
It is obvious that the visitorial and enforcement power granted to the DOLE Secretary is in the fundamental principle in the Philippine justice system, without which there would be no end
nature of a quasi-judicial power. Quasi-judicial power has been described by this Court in the to litigations.31
following manner –
Res judicata has dual aspects, "bar by prior judgment" and "conclusiveness of judgment." This
Quasi-judicial or administrative adjudicatory power on the other hand is the power of the Court has previously clarified the difference between the two –
administrative agency to adjudicate the rights of persons before it. It is the power to hear
and determine questions of fact to which the legislative policy is to apply and to Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of res judicata
decide in accordance with the standards laid down by the law itself in enforcing in actions in personam. to wit:
and administering the same law. The administrative body exercises its quasi-judicial
power when it performs in a judicial manner an act which is essentially of an executive or
"Effect of judgment. - The effect of a judgment or final order rendered by a court or judge of
administrative nature, where the power to act in such manner is incidental to or
the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows:
reasonably necessary for the performance of the executive or administrative duty
entrusted to it. In carrying out their quasi-judicial functions the administrative officers or
bodies are required to investigate facts or ascertain the existence of facts, hold x x x x
hearings, weigh evidence, and draw conclusions from them as basis for their
official action and exercise of discretion in a judicial nature. Since rights of specific (b) In other cases the judgment or order is, with respect to the matter directly adjudged or
persons are affected it is elementary that in the proper exercise of quasi-judicial power due as to any other matter that could have been raised in relation thereto, conclusive between the
process must be observed in the conduct of the proceedings.30 (Emphasis supplied.) parties and their successors in interest by title subsequent to the commencement of the action
or special proceeding, litigating for the same thing and under the same title and in the same
The DOLE Secretary, under Article 106 of the Labor Code, as amended, exercise quasi-judicial capacity;
power, at least, to the extent necessary to determine violations of labor standards provisions
of the Code and other labor legislation. He can issue compliance orders and writs of execution (c) In any other litigation between the same parties or their successors in interest, that only
for the enforcement of his orders. As evidence of the importance and binding effect of the is deemed to have been adjudged in a former judgment which appears upon its face to have
compliance orders of the DOLE Secretary, Article 128 of the Labor Code, as amended, further been so adjudged, or which was actually and necessarily included therein or necessary
provides – thereto."

ART. 128. Visitorial and enforcement power. – Section 49(b) enunciates the first concept of res judicata known as "bar by prior judgment,"
whereas, Section 49(c) is referred to as "conclusiveness of judgment."
xxxx
There is "bar by former judgment" when, between the first case where the judgment was
rendered, and the second case where such judgment is invoked, there is identity of parties,
subject matter and cause of action. When the three identities are present, the judgment on
the merits rendered in the first constitutes an absolute bar to the subsequent action. But
where between the first case wherein Judgment is rendered and the second case wherein
such judgment is invoked, there is only identity of parties but there is no identity of cause of
action, the judgment is conclusive in the second case, only as to those matters actually and
directly controverted and determined, and not as to matters merely involved therein. This is
what is termed "conclusiveness of judgment."
The second concept of res judicata, conclusiveness of judgment, is the one applicable to the
case at bar.
The same parties who participated in the proceedings before the DOLE Regional Office are
the same parties involved in the case filed before the NLRC. CAMPCO, on behalf of its
members, attended the conference before the DOLE Regional Office; submitted its position
paper; filed an appeal with the DOLE Secretary of the Order of DOLE Regional Director Parel;
and moved for reconsideration of the subsequent Order of DOLE Undersecretary Trajano.
Petitioner, although not expressly named as a respondent in the DOLE investigation, was a
necessary party thereto, considering that CAMPCO was rendering services to petitioner solely.
Moreover, petitioner participated in the proceedings before the DOLE Regional Office,
intervening in the matter through a letter sent by its Senior Legal Officer, dated 24 May 1993,
and submitting its own position paper.
While the causes of action in the proceedings before the DOLE and the NLRC differ, they are,
in fact, very closely related. The DOLE Regional Office conducted an investigation to determine
whether CAMPCO was violating labor laws, particularly, those on labor-only contracting.
Subsequently, it ruled that CAMPCO was indeed engaging in labor-only contracting activities,
and thereafter ordered to cease and desist from doing so. Respondents came before the NLRC
alleging illegal dismissal by the petitioner of those respondents who were put on "stay home
status," and seeking regularization of respondents who were still working for petitioner. The
basis of their claims against petitioner rests on the argument that CAMPCO was a labor-only
contractor and, thus, merely an agent or intermediary of petitioner, who should be considered
as respondents’ real employer. The matter of whether CAMPCO was a labor-only contractor
was already settled and determined in the DOLE proceedings, which should be conclusive and
binding upon the NLRC. What were left for the determination of the NLRC were the issues on
whether there was illegal dismissal and whether respondents should be regularized.
This Court also notes that CAMPCO and DOLE still continued with their Service Contract despite
the explicit cease and desist orders rendered by authorized DOLE officials. There is no other
way to look at it except that CAMPCO and DOLE acted in complete defiance and disregard of
the visitorial and enforcement power of the DOLE Secretary and his authorized representatives
under Article 128 of the Labor Code, as amended. For the NLRC to ignore the findings of DOLE
Regional Director Parel and DOLE Undersecretary Trajano is an unmistakable and serious
undermining of the DOLE officials’ authority.
IV
In petitioner’s fourth assignment of error, it points out that the Court of Appeals erred in not
holding respondents estopped from asserting that they were regular employees of petitioner
since respondents, as owners-members of CAMPCO, actively represented themselves and
warranted that they were engaged in legitimate job contracting.
This Court cannot sustain petitioner’s argument.
It is true that CAMPCO is a cooperative composed of its members, including respondents.
Nonetheless, it cannot be denied that a cooperative, as soon as it is registered with the CDA,
attains a juridical personality of its own,32separate and distinct from its members; much in the
same way that a corporation has a juridical personality separate and distinct from its
stockholders, known as the doctrine of corporate fiction. The protection afforded by this
doctrine is not absolute, but the exception thereto which necessitates the piercing of the
corporate veil can only be made under specified circumstances. In Traders Royal Bank v. Court
of Appeals,33 this Court ruled that –
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely
an equitable remedy, and maybe awarded only in cases when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation
is a mere alter ego or business conduit of a person.
Piercing the veil of corporate entity requires the court to see through the protective shroud
which exempts its stockholders from liabilities that ordinarily, they could be subject to, or
distinguishes one corporation from a seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure that the corporate fiction was misused,
to such an extent that injustice, fraud, or crime was committed upon another, disregarding,
thus, his, her, or its rights. It is the corporate entity which the law aims to protect by this
doctrine.
Using the above-mentioned guidelines, is petitioner entitled to a piercing of the "cooperative
identity" of CAMPCO? This Court thinks not.
It bears to emphasize that the piercing of the corporate veil is an equitable remedy, and
among the maxims of equity are: (1) he who seeks equity must do equity, and (2) he who
comes into equity must come with clean hands. Hence, a litigant may be denied relief by a
court of equity on the ground that his conduct has been inequitable, unfair, dishonest,
fraudulent, or deceitful as to the controversy in issue.34
Petitioner does not come before this Court with clean hands. It is not an innocent party in this
controversy.
Petitioner itself admitted that it encouraged and even helped the establishment of CAMPCO
and the other cooperatives in Polomolok, South Cotabato. These cooperatives were
established precisely to render services to petitioner. It is highly implausible that the petitioner
was lured into entering into the Service Contract with CAMPCO in 1993 on the latter’s
misrepresentation and false warranty that it was an independent job contractor. Even if it is
conceded that petitioner was indeed defrauded into believing that CAMPCO was an
independent contractor, then the DOLE proceedings should have placed it on guard.
Remember that petitioner participated in the proceedings before the DOLE Regional Office, it
cannot now claim ignorance thereof. Furthermore, even after the issuance of the cease and
desist order on CAMPCO, petitioner still continued with its prohibited service arrangement with
the said cooperative. If petitioner was truly defrauded by CAMPCO and its members into
believing that the cooperative was an independent job contractor, the more logical recourse
of petitioner was to have the Service Contract voided in the light of the explicit findings of the
DOLE officials that CAMPCO was engaging in labor-only contracting. Instead, petitioner still
carried on its Service Contract with CAMPCO for several more years thereafter.
V direction of his employer or principal in all matters connected with the performance
As previously discussed, the finding of the duly authorized representatives of the DOLE
Secretary that CAMPCO was a labor-only contractor is already conclusive. This Court cannot
deviate from said finding.
This Court, though, still notes that even an independent review of the evidence on record, in
consideration of the proper labor statutes and regulations, would result in the same
conclusion: that CAMPCO was engaged in prohibited activities of labor-only contracting.
The existence of an independent and permissible contractor relationship is generally
established by the following criteria: whether or not the contractor is carrying on an
independent business; the nature and extent of the work; the skill required; the term and
duration of the relationship; the right to assign the performance of a specified piece of work;
the control and supervision of the work to another; the employer's power with respect to the
hiring, firing and payment of the contractor's workers; the control of the premises; the duty
to supply the premises tools, appliances, materials and labor; and the mode, manner and
terms of payment.35
While there is present in the relationship of petitioner and CAMPCO some factors suggestive
of an independent contractor relationship (i.e., CAMPCO chose who among its members should
be sent to work for petitioner; petitioner paid CAMPCO the wages of the members, plus a
percentage thereof as administrative charge; CAMPCO paid the wages of the members who
rendered service to petitioner), many other factors are present which would indicate a labor-
only contracting arrangement between petitioner and CAMPCO.36
First, although petitioner touts the multi-million pesos assets of CAMPCO, it does well Director Parel and DOLE Undersecretary Trajano had long before conclusively established, that
to remember that such were amassed in the years following its establishment. In
1993, when CAMPCO was established and the Service Contract between petitioner
and CAMPCO was entered into, CAMPCO only had ₱6,600.00 paid-up capital, which
could hardly be considered substantial.37 It only managed to increase its
capitalization and assets in the succeeding years by continually and defiantly
engaging in what had been declared by authorized DOLE officials as labor-only
contracting.
Second, CAMPCO did not carry out an independent business from petitioner. It was
precisely established to render services to petitioner to augment its workforce during
peak seasons. Petitioner was its only client. Even as CAMPCO had its own office and
office equipment, these were mainly used for administrative purposes; the tools,
machineries, and equipment actually used by CAMPCO members when rendering
services to the petitioner belonged to the latter.
Third, petitioner exercised control over the CAMPCO members, including
respondents. Petitioner attempts to refute control by alleging the presence of a
CAMPCO supervisor in the work premises. Yet, the mere presence within the
premises of a supervisor from the cooperative did not necessarily mean that CAMPCO
had control over its members. Section 8(1), Rule VIII, Book III of the implementing
rules of the Labor Code, as amended, required for permissible job contracting that
the contractor undertakes the contract work on his account, under his own
responsibility, according to his own manner and method, free from the control and
of the work except as to the results thereof. As alleged by the respondents, and
unrebutted by petitioner, CAMPCO members, before working for the petitioner, had
to undergo instructions and pass the training provided by petitioner’s personnel. It
was petitioner who determined and prepared the work assignments of the CAMPCO
members. CAMPCO members worked within petitioner’s plantation and processing
plants alongside regular employees performing identical jobs, a circumstance
recognized as an indicium of a labor-only contractorship.38
Fourth, CAMPCO was not engaged to perform a specific and special job or service.
In the Service Contract of 1993, CAMPCO agreed to assist petitioner in its daily
operations, and perform odd jobs as may be assigned. CAMPCO complied with this
venture by assigning members to petitioner. Apart from that, no other particular job,
work or service was required from CAMPCO, and it is apparent, with such an
arrangement, that CAMPCO merely acted as a recruitment agency for petitioner.
Since the undertaking of CAMPCO did not involve the performance of a specific job,
but rather the supply of manpower only, CAMPCO clearly conducted itself as a labor-
only contractor.39
Lastly, CAMPCO members, including respondents, performed activities directly
related to the principal business of petitioner. They worked as can processing
attendant, feeder of canned pineapple and pineapple processing, nata de coco
processing attendant, fruit cocktail processing attendant, and etc., functions which
were, not only directly related, but were very vital to petitioner’s business of
production and processing of pineapple products for export.
The findings enumerated in the preceding paragraphs only support what DOLE Regional
CAMPCO was a mere labor-only contractor.
VI
The declaration that CAMPCO is indeed engaged in the prohibited activities of labor-only
contracting, then consequently, an employer-employee relationship is deemed to exist
between petitioner and respondents, since CAMPCO shall be considered as a mere agent or
intermediary of petitioner.
Since respondents are now recognized as employees of petitioner, this Court is tasked to
determine the nature of their employment. In consideration of all the attendant circumstances
in this case, this Court concludes that respondents are regular employees of petitioner.
Article 280 of the Labor Code, as amended, reads –
ART. 280. Regular and Casual Employment. – The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties, an employment
shall be deemed to be regular where the employee has been engaged to perform activities
which are usually necessary and desirable in the usual business or trade of the employer,
except where the employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of engagement of the
employee or where the work or services to be performed is seasonal in nature and the
employment is for the duration of the season.
An employment shall be deemed to be casual if its is not covered by the preceding paragraph:
Provided, That, any employee who has rendered at least one year of service, whether such
service is continuous or broken, shall be considered a regular employee with respect to the
activity in which he is employed and his employment shall continue while such activity exists.
This Court expounded on the afore-quoted provision, thus –
The primary standard, therefore, of determining a regular employment is the reasonable
connection between the particular activity performed by the employee in relation to the usual
business or trade of the employer. The test is whether the former is usually necessary or
desirable in the usual business or trade of the employer. The connection can be determined
by considering the nature of the work performed and its relation to the scheme of the
particular business or trade in its entirety. Also, if the employee has been performing the job
for at least one year, even if her performance is not continuous or merely intermittent, the
law deems the repeated and continuing need for its performance as sufficient evidence of the
necessity if not indispensability of the activity to the business. Hence, the employment is also
considered regular, but only with respect to such activity and while such activity exists.40
In the instant Petition, petitioner is engaged in the manufacture and production of pineapple
products for export.1âwphi1Respondents rendered services as processing attendant, feeder
of canned pineapple and pineapple processing, nata de coco processing attendant, fruit
cocktail processing attendant, and etc., functions they performed alongside regular employees
of the petitioner. There is no doubt that the activities performed by respondents are necessary
or desirable to the usual business of petitioner.
that it shall be for a specific period, from 1 July to 31 December 1993, petitioner and CAMPCO
continued the service arrangement beyond 1993. Since there was no written renewal of the
Service Contract,41 there was no further indication that the engagement by petitioner of the
services of CAMPCO members was for another definite or specified period only.
Respondents, as regular employees of petitioner, are entitled to security of tenure. They could
only be removed based on just and authorized causes as provided for in the Labor Code, as
amended, and after they are accorded procedural due process. Therefore, petitioner’s acts of
placing some of the respondents on "stay home status" and not giving them work assignments
for more than six months were already tantamount to constructive and illegal dismissal. 42
In summary, this Court finds that CAMPCO was a labor-only contractor and, thus, petitioner
is the real employer of the respondents, with CAMPCO acting only as the agent or intermediary
of petitioner. Due to the nature of their work and length of their service, respondents should
be considered as regular employees of petitioner. Petitioner constructively dismissed a number
of the respondents by placing them on "stay home status" for over six months, and was
therefore guilty of illegal dismissal. Petitioner must accord respondents the status of regular
employees, and reinstate the respondents who it constructively and illegally dismissed, to their
previous positions, without loss of seniority rights and other benefits, and pay these
respondents’ backwages from the date of filing of the Complaint with the NLRC on 19
December 1996 up to actual reinstatement.
WHEREFORE, in view of the foregoing, the instant Petition is DENIED and the Amended
Decision, dated 27 November 2003, rendered by the Court of Appeals in CA-G.R. SP No. 63405
is AFFIRMED.
Costs against the petitioner.
SO ORDERED.

Petitioner likewise want this Court to believe that respondents’ employment was dependent
on the peaks in operation, work backlogs, absenteeism, and excessive leaves. However,
bearing in mind that respondents all claimed to have worked for petitioner for over a year, a
claim which petitioner failed to rebut, then respondent’s continued employment clearly
demonstrates the continuing necessity and indispensability of respondents’ employment to the
business of petitioner.

Neither can this Court apply herein the ruling of the NLRC in the previous case involving
petitioner and the individual workers they used to hire before the advent of the cooperatives,
to the effect that the employment of these individual workers were not regular, but rather,
were valid "term employments," wherein the employer and employee knowingly and
voluntarily agreed to employment for only a limited or specified period of time. The difference
between that case and the one presently before this Court is that the members of CAMPCO,
including respondents, were not informed, at the time of their engagement, that their
employment shall only be for a limited or specified period of time. There is absence of proof
that the respondents were aware and had knowingly and voluntarily agreed to such term
employment. Petitioner did not enter into individual contracts with the CAMPCO members, but
executed a Service Contract with CAMPCO alone. Although the Service Contract of 1993 stated
G.R. No. 146408 February 29, 2008
PHILIPPINE AIRLINES, INC., petitioner,
vs.
ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD
GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL
GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES,
LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL,
ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO
TUNACAO, CHERRIE ALEGRES, BENEDICTO AUXTERO, EDUARDO MAGDADARAUG,
NELSON M. DULCE, and ALLAN BENTUZAL, respondents.
DECISION
CARPIO MORALES, J.:
Petitioner Philippine Airlines as Owner, and Synergy Services Corporation (Synergy) as
Contractor, entered into an Agreement1 on July 15, 1991 whereby Synergy undertook to
"provide loading, unloading, delivery of baggage and cargo and other related services to and
from [petitioner]'s aircraft at the Mactan Station."2
The Agreement specified the following "Scope of Services" of Contractor Synergy:
1.2 CONTRACTOR shall furnish all the necessary capital, workers, loading, unloading
and delivery materials, facilities, supplies, equipment and tools for the satisfactory
performance and execution of the following services (the Work):
a. Loading and unloading of baggage and cargo to and from the aircraft;
b. Delivering of baggage from the ramp to the baggage claim area;
c. Picking up of baggage from the baggage sorting area to the designated parked
aircraft;
d. Delivering of cargo unloaded from the flight to cargo terminal;
e. Other related jobs (but not janitorial functions) as may be required and necessary;
CONTRACTOR shall perform and execute the aforementioned Work at the
following areas located at Mactan Station, to wit:
a. Ramp Area
b. Baggage Claim Area
c. Cargo Terminal Area, and
d. Baggage Sorting Area3 (Underscoring supplied)
And it expressly provided that Synergy was "an independent contractor and . . . that there
w[ould] be no employer-employee relationship between CONTRACTOR and/or its employees
on the one hand, and OWNER, on the other."4
On the duration of the Agreement, Section 10 thereof provided:
10. 1 Should at any time OWNER find the services herein undertaken by
CONTRACTOR to be unsatisfactory, it shall notify CONTRACTOR who shall have
fifteen (15) days from such notice within which to improve the services. If
CONTRACTOR fails to improve the services under this Agreement according to
OWNER'S specifications and standards, OWNER shall have the right to terminate this
Agreement immediately and without advance notice.
10.2 Should CONTRACTOR fail to improve the services within the period stated above
or should CONTRACTOR breach the terms of this Agreement and fail or refuse to
perform the Work in such a manner as will be consistent with the achievement of the
result therein contracted for or in any other way fail to comply strictly with any terms
of this Agreement, OWNER at its option, shall have the right to terminate this
Agreement and to make other arrangements for having said Work performed and
pursuant thereto shall retain so much of the money held on the Agreement as is
necessary to cover the OWNER's costs and damages, without prejudice to the right
of OWNER to seek resort to the bond furnished by CONTRACTOR should the money
in OWNER's possession be insufficient.
x x x x (Underscoring supplied)
Except for respondent Benedicto Auxtero (Auxtero), the rest of the respondents, who appear
to have been assigned by Synergy to petitioner following the execution of the July 15, 1991
Agreement, filed on March 3, 1992 complaints before the NLRC Regional Office VII at Cebu
City against petitioner, Synergy and their respective officials for underpayment, non-payment
of premium pay for holidays, premium pay for rest days, service incentive leave
pay, 13th month pay and allowances, and for regularization of employment status with
petitioner, they claiming to be "performing duties for the benefit of [petitioner] since their job
is directly connected with [its] business x x x."5
Respondent Auxtero had initially filed a complaint against petitioner and Synergy and their
respective officials for regularization of his employment status. Later alleging that he was,
without valid ground, verbally dismissed, he filed a complaint against petitioner and Synergy
and their respective officials for illegal dismissal and reinstatement with full backwages.6
The complaints of respondents were consolidated.
By Decision7 of August 29, 1994, Labor Arbiter Dominador Almirante found Synergy an
independent contractor and dismissed respondents' complaint for regularization against
petitioner, but granted their money claims. The fallo of the decision reads:
 WHEREFORE, foregoing premises considered, judgment is hereby rendered as
follows:
(1) Ordering respondents PAL and Synergy jointly and severally to pay all the
complainants herein their 13thmonth pay and service incentive leave benefits;
xxxx
(3) Ordering respondent Synergy to pay complainant Benedicto Auxtero a financial
assistance in the amount of P5,000.00.
The awards hereinabove enumerated in the aggregate total amount of THREE
HUNDRED TWENTY-TWO THOUSAND THREE HUNDRED FIFTY NINE PESOS AND
EIGHTY SEVEN CENTAVOS (P322,359.87) are computed in detail by our Fiscal
Examiner which computation is hereto attached to form part of this decision.
The rest of the claims are hereby ordered dismissed for lack of merit.8 (Underscoring
supplied)
On appeal by respondents, the NLRC, Fourth Division, Cebu City, vacated and set aside the
decision of the Labor Arbiter by Decision9 of January 5, 1996, the fallo of which reads:
WHEREFORE, the Decision of the Labor Arbiter Dominador A. Almirante, dated
August 29, 1994, is hereby VACATED and SET ASIDE and judgment is hereby
rendered:
1. Declaring respondent Synergy Services Corporation to be a 'labor-only' contractor;
2. Ordering respondent Philippine Airlines to accept, as its regular employees, all
the complainants, . . . and to give each of them the salaries, allowances and other
employment benefits and privileges of a regular employee under the Collective
Bargaining Agreement subsisting during the period of their employment;
xxxx
4. Declaring the dismissal of complainant Benedicto Auxtero to be illegal and
ordering his reinstatement as helper or utility man with respondent Philippine
Airlines, with full backwages, allowances and other benefits and privileges from the
time of his dismissal up to his actual reinstatement; and
5. Dismissing the appeal of respondent Synergy Services Corporation, for lack of
merit.10 (Emphasis and underscoring supplied)
Only petitioner assailed the NLRC decision via petition for certiorari before this Court.
By Resolution11 of January 25, 1999, this Court referred the case to the Court of Appeals for
appropriate action and disposition, conformably with St. Martin Funeral Homes v. National
Labor Relations Commission which was promulgated on September 16, 1998.
The appellate court, by Decision of September 29, 2000, affirmed the Decision of the
NLRC.12 Petitioner's motion for reconsideration having been denied by Resolution of December
21, 2000,13 the present petition was filed, faulting the appellate court
I.
. . . IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION DECISION
WHICH IMPOSED THE RELATIONSHIP OF EMPLOYER-EMPLOYEE BETWEEN
PETITIONER AND THE RESPONDENTS HEREIN.
II.
. . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR RELATIONS
COMMISSION ORDERING THE REINSTATEMENT OF RESPONDENT AUXTERO
DESPITE THE ABSENCE [OF] ANY FACTUAL FINDINGIN THE DECISION THAT
PETITIONER ILLEGALLY TERMINATED HIS EMPLOYMENT.
III.
. . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND GRAVE ERROR IN
UPHOLDING THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION
WHICH COMPELLED THE PETITIONER TO EMPLOY THE RESPONDENTS AS
REGULAR EMPLOYEES DESPITE THE FACT THAT THEIR SERVICES ARE IN EXCESS
OF PETITIONER COMPANY'S OPERATIONAL REQUIREMENTS.14(Underscoring
supplied)
Petitioner argues that the law does not prohibit an employer from engaging an independent
contractor, like Synergy, which has substantial capital in carrying on an independent business
of contracting, to perform specific jobs.
Petitioner further argues that its contracting out to Synergy various services like janitorial,
aircraft cleaning, baggage-handling, etc., which are directly related to its business, does not
make respondents its employees.
Petitioner furthermore argues that none of the four (4) elements of an employer-employee
relationship between petitioner and respondents, viz: selection and engagement of an
employee, payment of wages, power of dismissal, and the power to control employee's
conduct, is present in the case.15
Finally, petitioner avers that reinstatement of respondents had been rendered impossible
because it had reduced its personnel due to heavy losses as it had in fact terminated its service
agreement with Synergy effective June 30, 199816 as a cost-saving measure.
The decision of the case hinges on a determination of whether Synergy is a mere job-only
contractor or a legitimate contractor. If Synergy is found to be a mere job-only contractor,
respondents could be considered as regular employees of petitioner as Synergy would then
be a mere agent of petitioner in which case respondents would be entitled to all the benefits
granted to petitioner's regular employees; otherwise, if Synergy is found to be a legitimate
contractor, respondents' claims against petitioner must fail as they would then be considered
employees of Synergy.
The statutory basis of legitimate contracting or subcontracting is provided in Article 106 of the
Labor Code which 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 the 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 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. (Emphasis, capitalization and underscoring supplied)
Legitimate contracting and labor-only contracting are defined in Department Order (D.O.) No.
18-02, Series of 2002 (Rules Implementing Articles 106 to 109 of the Labor Code, as amended)
as follows:
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 workersengaged by the contractor or subcontractor to accomplish the
job, work or service. (Emphasis and underscoring supplied)
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 [sic] 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) The contractor does not exercise the right to control over the
performance of the work of the contractual employee. (Emphasis, underscoring
and capitalization supplied)
"Substantial capital or investment" and the "right to control" are defined in the same Section
5 of the Department Order as follows:
"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.
(Emphasis and underscoring supplied)
From the records of the case, it is gathered that the work performed by almost all of the
respondents - loading and unloading of baggage and cargo of passengers - is directly related
to the main business of petitioner. And the equipment used by respondents as station loaders,
such as trailers and conveyors, are owned by petitioner.17
Petitioner asserts, however, that mere compliance with substantial capital requirement suffices
for Synergy to be considered a legitimate contractor, citing Neri v. National Labor Relations
Commission.18 Petitioner's reliance on said case is misplaced.
In Neri, the Labor Arbiter and the NLRC both determined that Building Care Corporation had
a capital stock of P1 million fully subscribed and paid for.19 The corporation's status as
independent contractor had in fact been previously confirmed in an earlier case20 by this Court
which found it to be serving, among others, a university, an international bank, a big local
bank, a hospital center, government agencies, etc."
In stark contrast to the case at bar, while petitioner steadfastly asserted before the Labor
Arbiter and the NLRC that Synergy has a substantial capital to engage in legitimate contracting,
it failed to present evidence thereon. As the NLRC held:
 The decision of the Labor Arbiter merely mentioned on page 5 of his decision that
respondent SYNERGY has substantial capital, but there is no showing in the records
as to how much is that capital. Neither had respondents shown that SYNERGY has
such substantial capital. x x x21 (Underscoring supplied)
It was only after the appellate court rendered its challenged Decision of September 29, 2002
when petitioner, in its Motion for Reconsideration of the decision, sought to prove, for the first
time, Synergy's substantial capitalization by attaching photocopies of Synergy's financial
statements, e.g., balance sheets, statements of income and retained earnings, marked as
"Annexes 'A' - 'A-4.'"22
More significantly, however, is that respondents worked alongside petitioner's regular
employees who were performing identical work.23 As San Miguel Corporation v.
Aballa24 and Dole Philippines, Inc. v. Esteva, et al.25teach, such is an indicium of labor-only
contracting.
For labor-only contracting to exist, Section 5 of D.O. No. 18-02 which requires any of two
elements to be present is, for convenience, re-quoted:
(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) The contractor does not exercise the right to control over the performance of
the work of the contractual employee. (Emphasis and CAPITALIZATION supplied)
Even if only one of the two elements is present then, there is labor-only contracting.
The control test element under the immediately-quoted paragraph (ii), which was not present
in the old Implementing Rules (Department Order No. 10, Series of 1997), 26 echoes the
prevailing jurisprudential trend27elevating such element as a primary determinant of employer-
employee relationship in job contracting agreements.
One who claims to be an independent contractor has to prove that he contracted to do the
work according to his own methods and without being subject to the employer's control except
only as to the results.28
While petitioner claimed that it was Synergy's supervisors who actually supervised
respondents, it failed to present evidence thereon. It did not even identify who were the
Synergy supervisors assigned at the workplace.
Even the parties' Agreement does not lend support to petitioner's claim, thus:
Section 6. Qualified and Experienced Worker: Owner's Right to Dismiss Workers.
CONTRACTOR shall employ capable and experienced workers and foremen to carry
out the loading, unloading and delivery Work as well as provide all equipment,
loading, unloading and delivery equipment, materials, supplies and tools necessary
for the performance of the Work. CONTRACTOR shall upon OWNER'S request furnish
the latter with information regarding the qualifications of the former's workers, to
prove their capability and experience. Contractor shall require all its workers,
employees, suppliers and visitors to comply with OWNER'S rules,
regulations, procedures and directives relative to the safety and security
of OWNER'S premises, properties and operations. For this purpose,
CONTRACTOR shall furnish its employees and workers identification cards
to be countersigned by OWNER and uniforms to be approved by OWNER.
OWNER may require CONTRACTOR to dismiss immediately and prohibit
entry into OWNER'S premises of any person employed therein by
CONTRACTOR who in OWNER'S opinion is incompetent or misconducts
himself or does not comply with OWNER'S reasonable instructions and
requests regarding security, safety and other matters and such person shall not again
be employed to perform the services hereunder without OWNER'S
permission.29 (Underscoring partly in the original and partly supplied; emphasis
supplied)
Petitioner in fact admitted that it fixes the work schedule of respondents as their work was
dependent on the frequency of plane arrivals.30 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.31
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.32
The express provision in the Agreement that Synergy was an independent contractor and
there would be "no employer-employee relationship between [Synergy] and/or its employees
on one hand, and [petitioner] on the other hand" is not legally binding and conclusive as
contractual provisions are not valid determinants of the existence of such relationship. For it
is the totality of the facts and surrounding circumstances of the case 33 which is
determinative of the parties' relationship.
Respecting the dismissal on November 15, 199234 of Auxtero, a regular employee of petitioner
who had been working as utility man/helper since November 1988, it is not legally justified for
want of just or authorized cause therefor and for non-compliance with procedural due process.
Petitioner's claim that he abandoned his work does not persuade. 35 The elements of
abandonment being (1) the failure to report for work or absence without valid or justifiable
reason, and (2) a clear intention to sever the employer-employee relationship manifested by
some overt acts,36 the onus probandi lies with petitioner which, however, failed to discharge
the same.
Auxtero, having been declared to be a regular employee of petitioner, and found to be illegally
dismissed from employment, should be entitled to salary differential 37 from the time he
rendered one year of service until his dismissal, reinstatement plus backwages until the finality
of this decision.38 In view, however, of the long period of time39 that had elapsed since his
dismissal on November 15, 1992, it would be appropriate to award separation pay of one (1) (b) pay respondent BENEDICTO AUXTERO salary differential; backwages from the time
month salary for each year of service, in lieu of reinstatement.40 of his dismissal until the finality of this decision; and separation pay, in lieu of reinstatement,
equivalent to one (1) month pay for every year of service until the finality of this decision.
As regards the remaining respondents, the Court affirms the ruling of both the NLRC and the
appellate court, ordering petitioner to accept them as its regular employees and to give each There being no data from which this Court may determine the monetary liabilities of petitioner,
of them the salaries, allowances and other employment benefits and privileges of a regular the case is REMANDED to the Labor Arbiter solely for that purpose.
employee under the pertinent Collective Bargaining Agreement.
SO ORDERED.
Petitioner claims, however, that it has become impossible for it to comply with the orders of
the NLRC and the Court of Appeals, for during the pendency of this case, it was forced to
reduce its personnel due to heavy losses caused by economic crisis and the pilots' strike of
June 5, 1998.41 Hence, there are no available positions where respondents could be placed.

And petitioner informs that "the employment contracts of all if not most of the respondents .
. . were terminated by Synergy effective 30 June 1998 when petitioner terminated its
contract with Synergy."42

Other than its bare allegations, petitioner presented nothing to substantiate its impossibility
of compliance. In fact, petitioner waived this defense by failing to raise it in its Memorandum
filed on June 14, 1999 before the Court of Appeals. 43 Further, the notice of termination in
1998 was in disregard of a subsisting temporary restraining order44to preserve the status quo,
issued by this Court in 1996 before it referred the case to the Court of Appeals in January
1999. So as to thwart the attempt to subvert the implementation of the assailed decision,
respondents are deemed to be continuously employed by petitioner, for purposes of
computing the wages and benefits due respondents.

Finally, it must be stressed that respondents, having been declared to be regular employees
of petitioner, Synergy being a mere agent of the latter, had acquired security of tenure. As
such, they could only be dismissed by petitioner, the real employer, on the basis of just or
authorized cause, and with observance of procedural due process.

WHEREFORE, the Court of Appeals Decision of September 29, 2000

is AFFIRMED with MODIFICATION.

Petitioner PHILIPPINE AIRLINES, INC. is ordered to:

(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO
OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL,
RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO
BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA,
CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES,
EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL as its regular
employees in their same or substantially equivalent positions, and pay the wages and
benefits due them as regular employees plus salary differential corresponding to the
difference between the wages and benefits given them and those granted to petitioner's other
regular employees of the same rank; and
G.R. No. 179546 February 13, 2009
COCA-COLA BOTTLERS PHILS., INC., Petitioner,
vs.
ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR., ALFONSO PAA,
JR., DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO, and EDWIN M.
GOLEZ, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the
Decision1 dated 19 February 2007, promulgated by the Court of Appeals in CA-G.R. SP No.
85320, reversing the Resolution2 rendered on 30 October 2003 by the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 036494-03. The Court of Appeals, in its assailed
Decision, declared that respondents Alan M. Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr.,
Alfonso Paa, Jr., Dempster P. Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M. Golez
were regular employees of petitioner Coca-Cola Bottlers Phils., Inc; and that Interserve
Management & Manpower Resources, Inc. (Interserve) was a labor-only contractor, whose
presence was intended merely to preclude respondents from acquiring tenurial security.
Petitioner is a domestic corporation duly registered with the Securities and Exchange
Commission (SEC) and engaged in manufacturing, bottling and distributing soft drink
beverages and other allied products.
On 15 April 2002, respondents filed before the NLRC two complaints against petitioner,
Interserve, Peerless Integrated Services, Inc., Better Builders, Inc., and Excellent Partners,
Inc. for reinstatement with backwages, regularization, nonpayment of 13th month pay, and
damages. The two cases, docketed as NLRC NCR Case No. 04-02345-2002 and NLRC NCR
Case No. 05-03137-02, were consolidated.
Respondents alleged in their Position Paper that they were salesmen assigned at the Lagro
Sales Office of petitioner. They had been in the employ of petitioner for years, but were not
regularized. Their employment was terminated on 8 April 2002 without just cause and due
process. However, they failed to state the reason/s for filing a complaint against Interserve;
Peerless Integrated Services, Inc.; Better Builders, Inc.; and Excellent Partners, Inc.3
Petitioner filed its Position Paper (with Motion toDismiss),4
where it averred that respondents
were employees of Interserve who were tasked to perform contracted services in accordance
with the provisions of the Contract of Services5 executed between petitioner and Interserve
on 23 March 2002. Said Contract between petitioner and Interserve, covering the period of 1
April 2002 to 30 September 2002, constituted legitimate job contracting, given that the latter
was a bona fide independent contractor with substantial capital or investment in the form of
tools, equipment, and machinery necessary in the conduct of its business.
To prove the status of Interserve as an independent contractor, petitioner presented the
following pieces of evidence: (1) the Articles of Incorporation of Interserve;6 (2) the Certificate
of Registration of Interserve with the Bureau of Internal Revenue;7 (3) the Income Tax Return,
with Audited Financial Statements, of Interserve for 2001; 8and (4) the Certificate of
Registration of Interserve as an independent job contractor, issued by the Department of
Labor and Employment (DOLE).9
As a result, petitioner asserted that respondents were employees of Interserve, since it was
the latter which hired them, paid their wages, and supervised their work, as proven by: (1)
respondents’ Personal Data Files in the records of Interserve; 10 (2) respondents’ Contract of
Temporary Employment with Interserve;11 and (3) the payroll records of Interserve.12
Petitioner, thus, sought the dismissal of respondents’ complaint against it on the ground that
the Labor Arbiter did not acquire jurisdiction over the same in the absence of an employer-
employee relationship between petitioner and the respondents.13
In a Decision dated 28 May 2003, the Labor Arbiter found that respondents were employees
of Interserve and not of petitioner. She reasoned that the standard put forth in Article 280 of
the Labor Code for determining regular employment (i.e., that the employee is performing
activities that are necessary and desirable in the usual business of the employer) was not
determinative of the issue of whether an employer-employee relationship existed between
petitioner and respondents. While respondents performed activities that were necessary and
desirable in the usual business or trade of petitioner, the Labor Arbiter underscored that
respondents’ functions were not indispensable to the principal business of petitioner, which
was manufacturing and bottling soft drink beverages and similar products.
The Labor Arbiter placed considerable weight on the fact that Interserve was registered with
the DOLE as an independent job contractor, with total assets amounting to ₱1,439,785.00 as
of 31 December 2001. It was Interserve that kept and maintained respondents’ employee
records, including their Personal Data Sheets; Contracts of Employment; and remittances to
the Social Securities System (SSS), Medicare and Pag-ibig Fund, thus, further supporting the
Labor Arbiter’s finding that respondents were employees of Interserve. She ruled that the
circulars, rules and regulations which petitioner issued from time to time to respondents were
not indicative of control as to make the latter its employees.
Nevertheless, the Labor Arbiter directed Interserve to pay respondents their pro-rated 13th
month benefits for the period of January 2002 until April 2002.14
In the end, the Labor Arbiter decreed:
WHEREFORE, judgment is hereby rendered finding that [herein respondents] are employees
of [herein petitioner] INTERSERVE MANAGEMENT & MANPOWER RESOURCES, INC.
Concomitantly, respondent Interserve is further ordered to pay [respondents] their pro-rated
13th month pay.
The complaints against COCA-COLA BOTTLERS PHILS., INC. is DISMISMMED for lack of merit.
In like manner the complaints against PEERLESS INTEGRATED SERVICES, INC., BETTER
BUILDING INC. and EXCELLENT PARTNERS COOPERATIVE are DISMISSED for failure of
complainants to pursue against them.
Other claims are dismissed for lack of merit.
The computation of the Computation and Examination Unit, this Commission if (sic) made part
of this Decision. 15
Unsatisfied with the foregoing Decision of the Labor Arbiter, respondents filed an appeal with
the NLRC, docketed as NLRC NCR CA No. 036494-03.
In their Memorandum of Appeal,16 respondents maintained that contrary to the finding of the
Labor Arbiter, their work was indispensable to the principal business of petitioner.
Respondents supported their claim with copies of the Delivery Agreement17 between petitioner
and TRMD Incorporated, stating that petitioner was "engaged in the manufacture, distribution
and sale of soft drinks and other related products with various plants and sales offices and
warehouses located all over the Philippines." Moreover, petitioner supplied the tools and
equipment used by respondents in their jobs such as forklifts, pallet, etc. Respondents were
also required to work in the warehouses, sales offices, and plants of petitioner. Respondents
pointed out that, in contrast, Interserve did not own trucks, pallets cartillas, or any other
equipment necessary in the sale of Coca-Cola products.
Respondents further averred in their Memorandum of Appeal that petitioner exercised control
over workers supplied by various contractors. Respondents cited as an example the case of
Raul Arenajo (Arenajo), who, just like them, worked for petitioner, but was made to appear
as an employee of the contractor Peerless Integrated Services, Inc. As proof of control by
petitioner, respondents submitted copies of: (1) a Memorandum18 dated 11 August 1998
issued by Vicente Dy (Dy), a supervisor of petitioner, addressed to Arenajo, suspending the
latter from work until he explained his disrespectful acts toward the supervisor who caught
him sleeping during work hours; (2) a Memorandum19 dated 12 August 1998 again issued by
Dy to Arenajo, informing the latter that the company had taken a more lenient and tolerant
position regarding his offense despite having found cause for his dismissal; (3)
Memorandum20 issued by Dy to the personnel of Peerless Integrated Services, Inc., requiring
the latter to present their timely request for leave or medical certificates for their absences;
(4) Personnel Workers Schedules, 21prepared by RB Chua, another supervisor of petitioner;
(5) Daily Sales Monitoring Report prepared by petitioner;22and (6) the Conventional Route
System Proposed Set-up of petitioner. 23
The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor Arbiter’s Decision dated
28 May 2003 and pronounced that no employer-employee relationship existed between
petitioner and respondents. It reiterated the findings of the Labor Arbiter that Interserve was
an independent contractor as evidenced by its substantial assets and registration with the
DOLE. In addition, it was Interserve which hired and paid respondents’ wages, as well as paid
and remitted their SSS, Medicare, and Pag-ibig contributions. Respondents likewise failed to
convince the NLRC that the instructions issued and trainings conducted by petitioner proved
that petitioner exercised control over respondents as their employer.24 The dispositive part of
the NLRC Resolution states:25
WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit. However, respondent
Interserve Management & Manpower Resources, Inc., is hereby ordered to pay the [herein
respondents] their pro-rated 13th month pay.
Aggrieved once more, respondents sought recourse with the Court of Appeals by filing a
Petition for Certiorari under Rule 65, docketed as CA-G.R. SP No. 85320.
The Court of Appeals promulgated its Decision on 9 February 2007, reversing the NLRC
Resolution dated 30 October 2003. The appellate court ruled that Interserve was a labor-only
contractor, with insufficient capital and investments for the services which it was contracted
to perform. With only ₱510,000.00 invested in its service vehicles and ₱200,000.00 in its
machineries and equipment, Interserve would be hard-pressed to meet the demands of daily
soft drink deliveries of petitioner in the Lagro area. The Court Appeals concluded that the
respondents used the equipment, tools, and facilities of petitioner in the day-to-day sales
operations.
Additionally, the Court of Appeals determined that petitioner had effective control over the
means and method of respondents’ work as evidenced by the Daily Sales Monitoring Report,
the Conventional Route System Proposed Set-up, and the memoranda issued by the supervisor
of petitioner addressed to workers, who, like respondents, were supposedly supplied by
contractors. The appellate court deemed that the respondents, who were tasked to deliver,
distribute, and sell Coca-Cola products, carried out functions directly related and necessary to
the main business of petitioner. The appellate court finally noted that certain provisions of the
Contract of Service between petitioner and Interserve suggested that the latter’s undertaking
did not involve a specific job, but rather the supply of manpower.
The decretal portion of the Decision of the Court of Appeals reads:26
WHEREFORE, the petition is GRANTED. The assailed Resolutions of public respondent NLRC
are REVERSED and SET ASIDE. The case is remanded to the NLRC for further proceedings.
Petitioner filed a Motion for Reconsideration, which the Court of Appeals denied in a
Resolution, dated 31 August 2007.27
Hence, the present Petition, in which the following issues are raised28:
I
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH EVIDENCE ON
RECORD, APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT RULED THAT
INTERSERVE IS A LABOR-ONLY CONTRACTOR;
II
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH APPLICABLE
LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT CONCLUDED THAT RESPONDENTS
PERFORMED WORK NECESSARY AND DESIRABLE TO THE BUSINESS OF [PETITIONER];
III
WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT
DECLARED THAT RESPONDENTS WERE EMPLOYEES OF [PETITIONER], EVEN ABSENT THE
FOUR ELEMENTS INDICATIVE OF AN EMPLOYMENT RELATIONSHIP; AND
IV
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT CONCLUDED THAT
INTERSERVE WAS ENGAGED BY [PETITIONER] TO SUPPLY MANPOWER ONLY.
The Court ascertains that the fundamental issue in this case is whether Interserve is a
legitimate job contractor. Only by resolving such issue will the Court be able to determine
whether an employer-employee relationship exists between petitioner and the respondents.
To settle the same issue, however, the Court must necessarily review the factual findings of
the Court of Appeals and look into the evidence presented by the parties on record.
As a general rule, factual findings of the Court of Appeals are binding upon the Supreme Court.
One exception to this rule is when the factual findings of the former are contrary to those of
the trial court, or the lower administrative body, as the case may be. This Court is obliged to
resolve an issue of fact herein due to the incongruent findings of the Labor Arbiter and the
NLRC and those of the Court of Appeals. 29
The relations which may arise in a situation, where there is an employer, a contractor, and
employees of the contractor, are identified and distinguished under Article 106 of the Labor
Code:
Article 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
restriction, 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 employee 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.
The afore-quoted provision recognizes two possible relations among the parties: (1) the
permitted legitimate job contract, or (2) the prohibited labor-only contracting.
A legitimate job contract, wherein an employer enters into a contract with a job contractor for
the performance of the former’s work, is permitted by law. Thus, the employer-employee
relationship between the job contractor and his employees is maintained. In legitimate job
contracting, the law creates an employer-employee relationship between the employer and
the contractor’s employees only for a limited purpose, i.e., to ensure that the employees are
paid their wages. The 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 employer is not responsible for any claim made by the contractor’s
employees.30
On the other hand, labor-only contracting is an arrangement wherein the contractor merely
acts as an agent in recruiting and supplying the principal employer with workers for the
purpose of circumventing labor law provisions setting down the rights of employees. It is not
condoned by law. A finding by the appropriate authorities that a contractor is a "labor-only"
contractor establishes an employer-employee relationship between the principal employer and
the contractor’s employees and the former becomes solidarily liable for all the rightful claims
of the employees. 31
Section 5 of the Rules Implementing Articles 106-109 of the Labor Code, as amended, provides
the guidelines in determining whether labor-only contracting exists:
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 [is] 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) The contractor does not exercise the right to control 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 reversed 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. (Emphasis supplied.)
When there is labor-only contracting, Section 7 of the same implementing rules, describes the
consequences thereof:
Section 7. Existence of an employer-employee relationship.—The contractor or subcontractor
shall be considered the employer of the contractual employee for purposes of enforcing the
provisions of the Labor Code and other social legislation. The principal, however, shall be
solidarily liable with the contractor in the event of any violation of any provision of the Labor
Code, including the failure to pay wages.
The principal shall be deemed the employer of the contractual employee in any of the following
case, as declared by a competent authority:
a. where there is labor-only contracting; or
b. where the contracting arrangement falls within the prohibitions provided in Section
6 (Prohibitions) hereof.
According to the foregoing provision, labor-only contracting would give rise to: (1) the creation
of an employer-employee relationship between the principal and the employees of the
contractor or sub-contractor; and (2) the solidary liability of the principal and the contractor
to the employees in the event of any violation of the Labor Code.
Petitioner argues that there could not have been labor-only contracting, since respondents did
not perform activities that were indispensable to petitioner’s principal business. And, even
assuming that they did, such fact alone does not establish an employer-employee relationship
between petitioner and the respondents, since respondents were unable to show that
petitioner exercised the power to select and hire them, pay their wages, dismiss them, and
control their conduct.
The argument of petitioner is untenable.
The law clearly establishes an employer-employee relationship between the principal employer
and the contractor’s employee upon a finding that the contractor is engaged in "labor-only"
contracting. Article 106 of the Labor Code categorically states: "There is ‘labor-only’
contracting where the person supplying workers to an employee 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." Thus, performing activities
directly related to the principal business of the employer is only one of the two indicators that
"labor-only" contracting exists; the other is lack of substantial capital or investment. The Court
finds that both indicators exist in the case at bar.
Respondents worked for petitioner as salesmen, with the exception of respondent Gil Francisco
whose job was designated as leadman. In the Delivery Agreement32 between petitioner and
TRMD Incorporated, it is stated that petitioner is engaged in the manufacture, distribution
and sale of softdrinks and other related products. The work of respondents, constituting
distribution and sale of Coca-Cola products, is clearly indispensable to the principal business
of petitioner. The repeated re-hiring of some of the respondents supports this
finding.33 Petitioner also does not contradict respondents’ allegations that the former has Sales
Departments and Sales Offices in its various offices, plants, and warehouses; and that
petitioner hires Regional Sales Supervisors and District Sales Supervisors who supervise and
control the salesmen and sales route helpers.34
As to the supposed substantial capital and investment required of an independent job
contractor, petitioner calls the attention of the Court to the authorized capital stock of
Interserve amounting to ₱2,000,000.00.35 It cites as authority Filipinas Synthetic Fiber Corp.
v. National Labor Relations Commission36 and Frondozo v. National Labor Relations
Commission,37 where the contractors’ authorized capital stock of ₱1,600,000.00 and
₱2,000,000.00, respectively, were considered substantial for the purpose of concluding that
they were legitimate job contractors. Petitioner also refers to Neri v. National Labor Relations
Commission38 where it was held that a contractor ceases to be a labor-only contractor by
having substantial capital alone, without investment in tools and equipment.
This Court is unconvinced.
At the outset, the Court clarifies that although Interserve has an authorized capital stock
amounting to ₱2,000,000.00, only ₱625,000.00 thereof was paid up as of 31 December 2001.
The Court does not set an absolute figure for what it considers substantial capital for an
independent job contractor, but it measures the same against the type of work which the
contractor is obligated to perform for the principal. However, this is rendered impossible in
this case since the Contract between petitioner and Interserve does not even specify the work
or the project that needs to be performed or completed by the latter’s employees, and uses
the dubious phrase "tasks and activities that are considered contractible under existing laws
and regulations." Even in its pleadings, petitioner carefully sidesteps identifying or describing
the exact nature of the services that Interserve was obligated to render to petitioner. The
importance of identifying with particularity the work or task which Interserve was supposed
to accomplish for petitioner becomes even more evident, considering that the Articles of
Incorporation of Interserve states that its primary purpose is to operate, conduct, and maintain
the business of janitorial and allied services.39But respondents were hired as salesmen and
leadman for petitioner. The Court cannot, under such ambiguous circumstances, make a
reasonable determination if Interserve had substantial capital or investment to undertake the
job it was contracting with petitioner.
Petitioner cannot seek refuge in Neri v. National Labor Relations Commission. Unlike in Neri,
petitioner was unable to prove in the instant case that Interserve had substantial capitalization
to be an independent job contractor. In San Miguel Corporation v. MAERC Integrated Services,
Inc.,40 therein petitioner San Miguel Corporation similarly invoked Neri, but was rebuffed by
the Court based on the following ratiocination41 :
Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling in Neri
v. NLRC. In that case, it was held that the law did not require one to possess both substantial
capital and investment in the form of tools, equipment, machinery, work premises, among
others, to be considered a job contractor. The second condition to establish permissible job
contracting was sufficiently met if one possessed either attribute.
Accordingly, petitioner alleged that the appellate court and the NLRC erred when they declared
MAERC a labor-only contractor despite the finding that MAERC had investments amounting to
₱4,608,080.00 consisting of buildings, machinery and equipment.
However, in Vinoya v. NLRC, we clarified that it was not enough to show substantial
capitalization or investment in the form of tools, equipment, machinery and work premises,
etc., to be considered an independent contractor. In fact, jurisprudential holdings were to the
effect that in determining the existence of an independent contractor relationship, several
factors may be considered, such as, but not necessarily confined to, whether the contractor
was carrying on an independent business; the nature and extent of the work; the skill required;
the term and duration of the relationship; the right to assign the performance of specified
pieces of work; the control and supervision of the workers; the power of the employer with
respect to the hiring, firing and payment of the workers of the contractor; the control of the
premises; the duty to supply premises, tools, appliances, materials and labor; and the mode,
manner and terms of payment.
In Neri, the Court considered not only the fact that respondent Building Care Corporation
(BCC) had substantial capitalization but noted that BBC carried on an independent business
and performed its contract according to its own manner and method, free from the control
and supervision of its principal in all matters except as to the results thereof. The Court likewise
mentioned that the employees of BCC were engaged to perform specific special services for
their principal. The status of BCC had also been passed upon by the Court in a previous case
where it was found to be a qualified job contractor because it was a "big firm which services
among others, a university, an international bank, a big local bank, a hospital center,
government agencies, etc." Furthermore, there were only two (2) complainants in that case
who were not only selected and hired by the contractor before being assigned to work in the
Cagayan de Oro branch of FEBTC but the Court also found that the contractor maintained
effective supervision and control over them.
Thus, in San Miguel Corporation, the investment of MAERC, the contractor therein, in the form
of buildings, tools, and equipment of more than ₱4,000,000.00 did not impress the Court,
which still declared MAERC to be a labor-only contractor. In another case, Dole Philippines,
Inc. v. Esteva,42 the Court did not recognize the contractor therein as a legitimate job
contractor, despite its paid-up capital of over ₱4,000,000.00, in the absence of substantial
investment in tools and equipment used in the services it was rendering.
Insisting that Interserve had substantial investment, petitioner assails, for being purely
speculative, the finding of the Court of Appeals that the service vehicles and equipment of
Interserve, with the values of ₱510,000.00 and ₱200,000.00, respectively, could not have met
the demands of the Coca-Cola deliveries in the Lagro area.
Yet again, petitioner fails to persuade.
The contractor, not the employee, has the burden of proof that it has the substantial capital,
investment, and tool to engage in job contracting.43 Although not the contractor itself (since
Interserve no longer appealed the judgment against it by the Labor Arbiter), said burden of
proof herein falls upon petitioner who is invoking the supposed status of Interserve as an
independent job contractor. Noticeably, petitioner failed to submit evidence to establish that
the service vehicles and equipment of Interserve, valued at ₱510,000.00 and ₱200,000.00,
respectively, were sufficient to carry out its service contract with petitioner. Certainly,
petitioner could have simply provided the courts with records showing the deliveries that were
undertaken by Interserve for the Lagro area, the type and number of equipment necessary
for such task, and the valuation of such equipment. Absent evidence which a legally compliant
company could have easily provided, the Court will not presume that Interserve had sufficient
investment in service vehicles and equipment, especially since respondents’ allegation – that
they were using equipment, such as forklifts and pallets belonging to petitioner, to carry out
their jobs – was uncontroverted.
In sum, 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. It is, thus,
evident that Interserve falls under the definition of a "labor-only" contractor, under Article 106
of the Labor Code; as well as Section 5(i) of the Rules Implementing Articles 106-109 of the
Labor Code, as amended.
The Court, however, does not stop at this finding. It is also apparent that Interserve is a labor-
only contractor under Section 5(ii)44 of the Rules Implementing Articles 106-109 of the Labor
Code, as amended, since it did not exercise the right to control the performance of the work
of respondents.
The lack of control of Interserve over the respondents can be gleaned from the Contract of
Services between Interserve (as the CONTRACTOR) and petitioner (as the CLIENT), pertinent
portions of which are reproduced below:
WHEREAS, the CONTRACTOR is engaged in the business, among others, of performing and/or
undertaking, managing for consideration, varied projects, jobs and other related
management-oriented services;
WHEREAS, the CONTRACTOR warrants that it has the necessary capital, expertise, technical
know-how and a team of professional management group and personnel to undertake and
assume the responsibility to carry out the above mentioned project and services;
WHEREAS, the CLIENT is desirous of utilizing the services and facilities of the CONTRACTOR
for emergency needs, rush jobs, peak product loads, temporary, seasonal and other special
project requirements the extent that the available work of the CLIENT can properly be done
by an independent CONTRACTOR permissible under existing laws and regulations;
WHEREAS, the CONTRACTOR has offered to perform specific jobs/works at the CLIENT as
stated heretofore, under the terms and conditions herein stated, and the CLIENT has accepted
the offer.
NOW THEREFORE, for and in consideration of the foregoing premises and of the mutual
covenants and stipulations hereinafter set forth, the parties have hereto have stated and the
CLIENT has accepted the offer:
1. The CONTRACTOR agrees and undertakes to perform and/or provide for the CLIENT, on
a non-exclusive basis for tasks or activities that are considered contractible under existing
laws and regulations, as may be needed by the CLIENT from time to time.
2. To carry out the undertakings specified in the immediately preceding paragraph, the
CONTRACTOR shall employ the necessary personnel like Route Helpers, Salesmen, Drivers,
Clericals, Encoders & PD who are at least Technical/Vocational courses graduates provided
with adequate uniforms and appropriate identification cards, who are warranted by the
CONTRACTOR to be so trained as to efficiently, fully and speedily accomplish the work and
services undertaken herein by the CONTRACTOR. The CONTRACTOR represents that its
personnel shall be in such number as will be sufficient to cope with the requirements of the
services and work herein undertaken and that such personnel shall be physically fit, of good
moral character and has not been convicted of any crime. The CLIENT, however, may
request for the replacement of the CONTRACTOR’S personnel if from its judgment, the jobs
or the projects being done could not be completed within the time specified or that the
quality of the desired result is not being achieved.
 3. It is agreed and understood that the CONTRACTOR’S personnel will comply with CLIENT, the criteria provided by petitioner. In other words, Interserve did not obligate itself to perform
CLIENT’S policies, rules and regulations and will be subjected on-the-spot search by CLIENT, an identifiable job, work, or service for petitioner, but merely bound itself to provide the latter
CLIENT’S duly authorized guards or security men on duty every time the assigned personnel with specific types of employees. These contractual provisions strongly indicated that
enter and leave the premises during the entire duration of this agreement. Interserve was merely a recruiting and manpower agency providing petitioner with workers
performing tasks directly related to the latter’s principal business.
4. The CONTRACTOR further warrants to make available at times relievers and/or
replacements to ensure continuous and uninterrupted service as in the case of absences of The certification issued by the DOLE stating that Interserve is an independent job contractor
any personnel above mentioned, and to exercise the necessary and due supervision over does not sway this Court to take it at face value, since the primary purpose stated in the
the work of its personnel.45 Articles of Incorporation47 of Interserve is misleading. According to its Articles of
Incorporation, the principal business of Interserve is to provide janitorial and allied services.
Paragraph 3 of the Contract specified that the personnel of contractor Interserve, which The delivery and distribution of Coca-Cola products, the work for which respondents were
included the respondents, would comply with "CLIENT" as well as "CLIENT’s policies, rules employed and assigned to petitioner, were in no way allied to janitorial services. While the
and regulations." It even required Interserve personnel to subject themselves to on-the-spot DOLE may have found that the capital and/or investments in tools and equipment of Interserve
searches by petitioner or its duly authorized guards or security men on duty every time the were sufficient for an independent contractor for janitorial services, this does not mean that
said personnel entered and left the premises of petitioner. Said paragraph explicitly established such capital and/or investments were likewise sufficient to maintain an independent
the control of petitioner over the conduct of respondents. Although under paragraph 4 of the contracting business for the delivery and distribution of Coca-Cola products.
same Contract, Interserve warranted that it would exercise the necessary and due supervision
of the work of its personnel, there is a dearth of evidence to demonstrate the extent or degree With the finding that Interserve was engaged in prohibited labor-only contracting, petitioner
of supervision exercised by Interserve over respondents or the manner in which it was actually shall be deemed the true employer of respondents. As regular employees of petitioner,
exercised. There is even no showing that Interserve had representatives who supervised respondents cannot be dismissed except for just or authorized causes, none of which were
respondents’ work while they were in the premises of petitioner. alleged or proven to exist in this case, the only defense of petitioner against the charge of
illegal dismissal being that respondents were not its employees. Records also failed to show
Also significant was the right of petitioner under paragraph 2 of the Contract to "request the that petitioner afforded respondents the twin requirements of procedural due process, i.e.,
replacement of the CONTRACTOR’S personnel." True, this right was conveniently qualified by notice and hearing, prior to their dismissal. Respondents were not served notices informing
the phrase "if from its judgment, the jobs or the projects being done could not be completed them of the particular acts for which their dismissal was sought. Nor were they required to
within the time specified or that the quality of the desired result is not being achieved," but give their side regarding the charges made against them. Certainly, the respondents’ dismissal
such qualification was rendered meaningless by the fact that the Contract did not stipulate was not carried out in accordance with law and, therefore, illegal.
48

what work or job the personnel needed to complete, the time for its completion, or the results
desired. The said provision left a gap which could enable petitioner to demand the removal or Given that respondents were illegally dismissed by petitioner, they are entitled to
replacement of any employee in the guise of his or her inability to complete a project in time reinstatement, full backwages, inclusive of allowances, and to their other benefits or the
or to deliver the desired result. The power to recommend penalties or dismiss workers is the monetary equivalents thereof computed from the time their compensations were withheld
strongest indication of a company’s right of control as direct employer.461avvphil.zw+ from them up to the time of their actual reinstatement, as mandated under Article 279 of the
Labor Code,.
Paragraph 4 of the same Contract, in which Interserve warranted to petitioner that the former
would provide relievers and replacements in case of absences of its personnel, raises another IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Court AFFIRMS WITH
red flag. An independent job contractor, who is answerable to the principal only for the results MODIFICATION the Decision dated 19 February 2007 of the Court of Appeals in CA-G.R. SP
of a certain work, job, or service need not guarantee to said principal the daily attendance of No. 85320. The Court DECLARES that respondents were illegally dismissed and, accordingly,
the workers assigned to the latter. An independent job contractor would surely have the ORDERS petitioner to reinstate them without loss of seniority rights, and to pay them full back
discretion over the pace at which the work is performed, the number of employees required wages computed from the time their compensation was withheld up to their actual
to complete the same, and the work schedule which its employees need to follow. reinstatement. Costs against the petitioner.

As the Court previously observed, the Contract of Services between Interserve and petitioner SO ORDERED.
did not identify the work needed to be performed and the final result required to be
accomplished. Instead, the Contract specified the type of workers Interserve must provide
petitioner ("Route Helpers, Salesmen, Drivers, Clericals, Encoders & PD") and their
qualifications (technical/vocational course graduates, physically fit, of good moral character,
and have not been convicted of any crime). The Contract also states that, "to carry out the
undertakings specified in the immediately preceding paragraph, the CONTRACTOR shall
employ the necessary personnel," thus, acknowledging that Interserve did not yet have in its
employ the personnel needed by petitioner and would still pick out such personnel based on
G.R. No. 160506 March 9, 2010 Name Date Employed Date Dismissed
1. Joeb M. Aliviado November, 1985 May 5, 1992
2. Arthur Corpuz 1988 March 11, 1993
3. Eric Aliviado 1985 March 11, 1993
JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO 4. Monchito Ampeloquio September, 1988 March 11, 1993
AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO PLATON, 5. Abraham Basmayor[, Jr.] 1987 March 11, 1993
JOSE FERNANDO GUTIERREZ, ESTANISLAO BUENAVENTURA, LOPE SALONGA, 6. Jonathan Mateo May, 1988 March 11, 1993
7. Lorenzo Platon 1985 March 11, 1993
FRANZ DAVID, NESTOR IGNACIO, JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO 8. Jose Fernando Gutierrez 1988 May 5, 1992
PASCUAL, ERNESTO CALANAO, ROLANDO ROMASANTA, RHUEL AGOO, 9. Estanislao Buenaventura June, 1988 March 11, 1993
10. Lope Salonga 1982 March 11, 1993
BONIFACIO ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA, ROBERTO 11. Franz David 1989 March 11, 1993
ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS BACALSO, 12. Nestor Ignacio 1982 March 11, 1993
SAMSON BASCO, ALADINO GREGORO, JR., EDWIN GARCIA, ARMANDO VILLAR, 13. Julio Rey 1989 May 5, 1992
14. Ruben [Vasquez], Jr. 1985 May 5, 1992
EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J. GARCIA, FERNANDO 15. Maximino Pascual 1990 May 5, 1992
MACABENTE, MELECIO CASAPAO, REYNALDO JACABAN, FERDINAND SALVO, 16. Ernesto Calanao[, Jr.] 1987 May 5, 1992
17. Rolando Romasanta 1983 March 11, 1993
ALSTANDO MONTOS, RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY, 18. [Roehl] Agoo 1988 March 11, 1993
LEONARDO P. TALLEDO, ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO 19. Bonifacio Ortega 1988 March 11, 1993
SOYOSA, ROMEO VASQUEZ, JOEL BILLONES, ALLAN BALTAZAR, NOLI GABUYO, 20. Arsenio Soriano, Jr. 1985 March 11, 1993
21. Arnel Endaya 1983 March 11, 1993
EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL DULAY, TADEO DURAN, JOSEPH 22. Roberto Enriquez December, 1988 March 11, 1993
BANICO, ALBERT LEYNES, ANTONIO DACUNA, RENATO DELA CRUZ, ROMEO 23. Nestor [Es]quila 1983 May 5, 1992
24. Ed[g]ardo Quiambao 1989 March 11, 1993
VIERNES, JR., ELAIS BASEO, WILFREDO TORRES, MELCHOR CARDANO, MARIANO 25. Santos Bacalso 1990 March 11, 1993
NARANIAN, JOHN SUMERGIDO, ROBERTO ROSALES, GERRY C. GATPO, GERMAN 26. Samson Basco 1984 March 11, 1993
N. GUEVARRA, GILBERT Y. MIRANDA, RODOLFO C. TOLEDO, ARNOLD D. 27. Aladino Gregor[e], Jr. 1980 May 5, 1992
28. Edwin Garcia 1987 May 5, 1992
LASTONA, PHILIP M. LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ, FRED 29. Armando Villar 1990 May 5, 1992
P. JIMENEZ, RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ 30. Emil Tawat 1988 March 11, 1993
31. Mario P. Liongson 1991 May 5, 1992
BUSTENERA, ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, 32. Cresente J. Garcia 1984 March 11, 1993
ALEJANDRINO ABATON, and ORLANDO S. BALANGUE, Petitioners, 33. Fernando Macabent[a] 1990 May 5, 1992
34. Melecio Casapao 1987 March 11, 1993
vs.
35. Reynaldo Jacaban 1990 May 5, 1992
PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents. 36. Ferdinand Salvo 1985 May 5, 1992
37. Alstando Montos 1984 March 11, 1993
38. Rainer N. Salvador 1984 May 5, 1992
DECISION 39. Ramil Reyes 1984 March 11, 1993
40. Pedro G. Roy 1987
41. Leonardo [F]. Talledo 1985 March 11, 1993
DEL CASTILLO, J.: 42. Enrique [F]. Talledo 1988 March 11, 1993
43. Willie Ortiz 1987 May 5, 1992
44. Ernesto Soyosa 1988 May 5, 1992
45. Romeo Vasquez 1985 March 11, 1993
Labor laws expressly prohibit "labor-only" contracting. To prevent its circumvention, the Labor 46. Joel Billones 1987 March 11, 1993
Code establishes an employer-employee relationship between the employer and the 47. Allan Baltazar 1989 March 11, 1993
employees of the ‘labor-only’ contractor. 48. Noli Gabuyo 1991 March 11, 1993
49. Emmanuel E. Laban 1987 May 5, 1992
50. Ramir[o] E. [Pita] 1990 May 5, 1992
51. Raul Dulay 1988 May 5, 1992
The instant petition for review assails the March 21, 2003 Decision 1 of the Court of Appeals 52. Tadeo Duran[o] 1988 May 5, 1992
(CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution 2 denying the motions for 53. Joseph Banico 1988 March 11, 1993
reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc. 54. Albert Leynes 1990 May 5, 1992
55. Antonio Dacu[m]a 1990 May 5, 1992
(P&G). The appellate court affirmed the July 27, 1998 Decision of the National Labor Relations 56. Renato dela Cruz 1982
Commission (NLRC), which in turn affirmed the November 29, 1996 Decision3 of the Labor 57. Romeo Viernes, Jr. 1986
58. El[ia]s Bas[c]o 1989
Arbiter. All these decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions 59. Wilfredo Torres 1986 May 5, 1992
Services (SAPS) to be legitimate independent contractors and the employers of the petitioners. 60. Melchor Carda[ñ]o 1991 May 5, 1992
61. [Marino] [Maranion] 1989 May 5, 1992
62. John Sumergido 1987 May 5, 1992
Factual Antecedents 63. Roberto Rosales May, 1987 May 5, 1992
64. Gerry [G]. Gatpo November, 1990 March 11, 1993
65. German N. Guevara May, 1990 March 11, 1993
Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 66. Gilbert Y. Miranda June, 1991 March 11, 1993
67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993
1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as 68. Arnold D. [Laspoña] June 1991 March 11, 1993
follows: 69. Philip M. Loza March 5, 1992 March 11, 1993
70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993
71. Orlando P. Jimenez November 6, 1992 March 11, 1993
72. Fred P. Jimenez September, 1991 March 11, 1993
 73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993 Petitioners filed a motion for reconsideration but the motion was denied in the November 19,
74. Rolando J. de Andres June, 1991 March 11, 1993
75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993 1998 Resolution.15
76. Roberto B. Cruz May 4, 1990 March 11, 1993
77. Rosedy O. Yordan June, 1991 May 5, 1992
78. Dennis Dacasin May. 1990 May 5, 1992 Ruling of the Court of Appeals
79. Alejandrino Abaton 1988 May 5, 1992
80. Orlando S. Balangue March, 1989 March 11, 19934
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.
They all individually signed employment contracts with either Promm-Gem or SAPS for periods
However, said petition was also denied by the CA which disposed as follows:
of more or less five months at a time.5 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.6 WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998 is
AFFIRMED with the MODIFICATION that respondent Procter & Gamble Phils., Inc. is ordered
to pay service incentive leave pay to petitioners.
SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons
such as habitual absenteeism, dishonesty or changing day-off without prior notice.7
SO ORDERED.16
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 Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this
distributors.8 To enhance consumer awareness and acceptance of the products, P&G entered petition.
into contracts with Promm-Gem and SAPS for the promotion and merchandising of its
products.9 Issues

In December 1991, petitioners filed a complaint10 against P&G for regularization, service Petitioners now come before us raising the following issues:
incentive leave pay and other benefits with damages. The complaint was later amended11 to
include the matter of their subsequent dismissal. I.

Ruling of the Labor Arbiter
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. The dispositive portion
of his Decision reads:
WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE
ERROR WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN
RENDERING THE QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS WERE
ABLE TO PROVE AND ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS
THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY DISMISSED BY THE FORMER.
II.

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE

WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above- ERROR WHEN IT DID NOT DECLARE THAT THE PUBLIC RESPONDENTS HAD ACTED WITH
entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit. GRAVE ABUSE OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE
RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF ACTUAL, MORAL AND
SO ORDERED.12 EXEMPLARY DAMAGES AS WELL AS LITIGATION COSTS AND ATTORNEY’S FEES.17

Ruling of the NLRC Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether
petitioners were illegally dismissed; and (3) whether petitioners are entitled for payment of
Appealing to the NLRC, petitioners disputed the Labor Arbiter’s findings. On July 27, 1998, the actual, moral and exemplary damages as well as litigation costs and attorney’s fees.
NLRC rendered a Decision13 disposing as follows:
Petitioners’ Arguments
WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the
decision appealed from AFFIRMED. Petitioners insist that they are employees of P&G. They claim that they were recruited by the
salesmen of P&G and were engaged to undertake merchandising chores for P&G long before
SO ORDERED.14 the existence of Promm-Gem and/or SAPS. They further claim that when the latter had its so-
called re-alignment program, petitioners were instructed to fill up application forms and report In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to
to the agencies which P&G created.18 first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job
contractors.
Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from
its letter19 to SAPS dated February 24, 1993, informing the latter that their Merchandising The pertinent Labor Code provision on the matter states:
Services Contract will no longer be renewed.
ART. 106. Contractor or subcontractor. – Whenever an employer enters into a contract with
Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing another person for the performance of the former’s work, the employees of the contractor
services of manpower to their client. They claim that the contractors have neither substantial and of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this
capital nor tools and equipment to undertake independent labor contracting. Petitioners insist Code.
that since they had been engaged to perform activities which are necessary or desirable in
the usual business or trade of P&G, then they are its regular employees.20 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
Respondents’ Arguments 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.
On the other hand, P&G points out that the instant petition raises only questions of fact and
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting
should thus be thrown out as the Court is not a trier of facts. It argues that findings of facts
of the NLRC, particularly where the NLRC and the Labor Arbiter are in agreement, are deemedout of labor to protect the rights of workers established under this Code. In so prohibiting or
binding and conclusive on the Supreme Court. 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
P&G further argues that there is no employment relationship between it and petitioners. It among the parties involved shall be considered the employer for purposes of this Code, to
was Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid prevent any violation or circumvention of any provision of this Code.
their salaries; (3) wielded the power of dismissal; and (4) had the power of control over their
conduct of work. 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
P&G also contends that the Labor Code neither defines nor limits which services or activities premises, among others, and the workers recruited and placed by such person are performing
may be validly outsourced. Thus, an employer can farm out any of its activities to an activities which are directly related to the principal business of such employer. In such cases,
independent contractor, regardless of whether such activity is peripheral or core in nature. It the person or intermediary shall be considered merely as an agent of the employer who shall
insists that the determination of whether to engage the services of a job contractor or to be responsible to the workers in the same manner and extent as if the latter were directly
engage in direct hiring is within the ambit of management prerogative. employed by him. (Emphasis and underscoring supplied.)

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the
filing of the Comment of Promm-Gem on the petition.21 Also, although SAPS was impleaded
as a party in the proceedings before the Labor Arbiter and the NLRC, it was no longer
impleaded as a party in the proceedings before the CA.22 Hence, our pronouncements with
regard to SAPS are only for the purpose of determining the obligations of P&G, if any.
Our Ruling
The petition has merit.
As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies
exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is
constrained to wade into factual matters when there is insufficient or insubstantial evidence
on record to support those factual findings; or when too much is concluded, inferred or
deduced from the bare or incomplete facts appearing on record. 23 In the present case, we
find the need to review the records to ascertain the facts.
Labor-only contracting and job contracting
Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18-02,24 distinguishes between legitimate and labor-only contracting:
xxxx
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.
xxxx
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.
x x x x (Underscoring supplied.)
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.
To emphasize, there is labor-only contracting when the contractor or sub-contractor merely
recruits, supplies or places workers to perform a job, work or service for a
principal25 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) The contractor does not exercise the right to control over the performance of the work of
the contractualemployee. (Underscoring supplied)
In the instant case, the financial statements26 of Promm-Gem show that it
has authorized capital stock of ₱1 million and a paid-in capital, or capital available for
operations, of ₱500,000.00 as of 1990.27 It also has long term assets worth ₱432,895.28 and
current assets of ₱719,042.32. Promm-Gem has also proven that it maintained its own
warehouse and office space with a floor area of 870 square meters. 28 It also had under its
name three registered vehicles which were used for its promotional/merchandising
business.29Promm-Gem also has other clients30 aside from P&G.31 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.32 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.33
Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We
find that it is a legitimate independent contractor.
On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of
only ₱31,250.00. There is no other evidence presented to show how much its working capital
and assets are. Furthermore, there is no showing of substantial investment in tools, equipment
or other assets.
In Vinoya v. National Labor Relations Commission,34 the Court held that "[w]ith the current
economic atmosphere in the country, the paid-in capitalization of PMCI amounting to
₱75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as
an independent contractor."35 Applying the same rationale to the present case, it is clear that
SAPS – having a paid-in capital of only ₱31,250 - has no substantial capital. SAPS’ lack of
substantial capital is underlined by the records36 which show that its payroll for its
merchandisers alone for one month would already total ₱44,561.00. It had 6-month contracts
with P&G.37 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 ₱31,250.00 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,38 which is the principal business of P&G.
Considering that SAPS has no substantial capital or investment and the workers it recruited
are performing activities which are directly related to the principal business of P&G, we find
that the former is engaged in "labor-only contracting".
"Where ‘labor-only’ contracting exists, the Labor Code itself establishes an employer-employee
relationship between the employer and the employees of the ‘labor-only’ contractor."39 The
statute establishes this 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.40
Consequently, the following petitioners, having been recruited and supplied by SAPS41 -- which
engaged in labor-only contracting -- are considered as the employees of P&G: Arthur Corpuz,
Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon,
Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta,
Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo
Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G.
Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry
Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip
M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr.,
Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S.
Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela
Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin.
The following petitioners, having worked under, and been dismissed by Promm-Gem, are
considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido,
Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A.
Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino
Pascual, Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando
Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales,
Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico, Melchor
Cardano, Reynaldo Jacaban, and Joeb Aliviado.42
Termination of services
We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular
employment, the employer shall not terminate the services of an employee except for a
just43 or authorized44 cause.
In the instant case, the termination letters given by Promm-Gem to its employees uniformly
specified the cause of dismissal as grave misconduct and breach of trust, as follows:
xxxx
This informs you that effective May 5, 1992, your employment with our company, Promm-
Gem, Inc. has been terminated. We find your expressed admission, that you considered
yourself as an employee of Procter & Gamble Phils., Inc…. and assailing the integrity of the
Company as legitimate and independent promotion firm, is deemed as an act of disloyalty
prejudicial to the interests of our Company: serious misconduct and breach of trust reposed
upon you as employee of our Company which [co]nstitute just cause for the termination of
your employment.
x x x x45
Misconduct has been defined as improper or wrong conduct; the transgression of some
established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in
character implying wrongful intent and not mere error of judgment. The misconduct to be
serious must be of such grave and aggravated character and not merely trivial and
unimportant.46 To be a just cause for dismissal, such misconduct (a) must be serious; (b) must
relate to the performance of the employee’s duties; and (c) must show that the employee has
become unfit to continue working for the employer.47
In other words, in order to constitute serious misconduct which will warrant the dismissal of
an employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the
act or conduct complained of has violated some established rules or policies. It is equally
important and required that the act or conduct must have been performed with wrongful
intent.48 In the instant case, petitioners-employees of Promm-Gem may have committed an
error of judgment in claiming to be employees of P&G, but it cannot be said that they were
motivated by any wrongful intent in doing so. As such, we find them guilty of only simple
misconduct for assailing the integrity of Promm-Gem as a legitimate and independent
promotion firm. A misconduct which is not serious or grave, as that existing in the instant
case, cannot be a valid basis for dismissing an employee.
Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the
willful breach of the trust reposed in the employee by his employer. Ordinary breach will not
suffice. A breach of trust is willful if it is done intentionally, knowingly and purposely, without
justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or
inadvertently.49
Loss of trust and confidence, as a cause for termination of employment, is premised on the
fact that the employee concerned holds a position of responsibility or of trust and confidence.
As such, he must be invested with confidence on delicate matters, such as custody, handling
or care and protection of the property and assets of the employer. And, in order to constitute
a just cause for dismissal, the act complained of must be work-related and must show that
the employee is unfit to continue to work for the employer.50 In the instant case, the
petitioners-employees of Promm-Gem have not been shown to be occupying positions of
responsibility or of trust and confidence. Neither is there any evidence to show that they are
unfit to continue to work as merchandisers for Promm-Gem.
All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem.
While Promm-Gem had complied with the procedural aspect of due process in terminating the
employment of petitioners-employees, i.e., giving two notices and in between such notices,
an opportunity for the employees to answer and rebut the charges against them, it failed to
comply with the substantive aspect of due process as the acts complained of neither constitute
serious misconduct nor breach of trust. Hence, the dismissal is illegal.
With regard to the petitioners placed with P&G by SAPS, they were given no written notice of
dismissal. The records show that upon receipt by SAPS of P&G’s letter terminating their
"Merchandising Services Contact" effective March 11, 1993, they in turn verbally informed the
concerned petitioners not to report for work anymore. The concerned petitioners related their
dismissal as follows:
xxxx
5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr.
Saturnino A. Ponce that we should already stop working immediately because that was the
order of Procter and Gamble. According to him he could not do otherwise because Procter and
Gamble was the one paying us. To prove that Procter and Gamble was the one responsible in
our dismissal, he showed to us the letter51 dated February 24, 1993, x x x
February 24, 1993
Sales and Promotions Services
Armon’s Bldg., 142 Kamias Road,
Quezon City
Attention: Mr. Saturnino A. Ponce
President & General Manager
Gentlemen:
Based on our discussions last 5 and 19 February 1993, this formally informs you that we will
not be renewing our Merchandising Services Contract with your agency.
Please immediately undertake efforts to ensure that your services to the Company will
terminate effective close of business hours of 11 March 1993.
This is without prejudice to whatever obligations you may have to the company under the
abovementioned contract.
Very truly yours,
(Sgd.)
EMMANUEL M. NON
Sales Merchandising III
6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no
longer allowed to work and we were refused entrance by the security guards posted. According
to the security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case
in the Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February
25, 1993. x x x521avvphi1
Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike
Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to
disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS
does not carry on its own business because the termination of its contract with P&G
automatically meant for it also the termination of its employees’ services. It is obvious from
its act that SAPS had no other clients and had no intention of seeking other clients in order to
further its merchandising business. From all indications SAPS, existed to cater solely to the
need of P&G for the supply of employees in the latter’s merchandising concerns only. Under
the circumstances prevailing in the instant case, we cannot consider SAPS as
an independent contractor.
Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove
the lawfulness of the dismissal rests with the employer.53 In termination cases, the burden of
proof rests upon the employer to show that the dismissal is for just and valid cause. 54 In the
instant case, P&G failed to discharge the burden of proving the legality and validity of the
dismissals of those petitioners who are considered its employees. Hence, the dismissals
necessarily were not justified and are therefore illegal.
Damages
We now go to the issue of whether petitioners are entitled to damages. Moral
and exemplary damages are recoverable where the dismissal of an employee was attended
by bad faith or fraud or constituted an act oppressive to labor or was done in a manner
contrary to morals, good customs or public policy.55
With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or
any oppressive act on the part of the latter, we find no support for the award of damages.
As for P&G, the records show that it dismissed its employees through SAPS in a manner
oppressive to labor. The sudden and peremptory barring of the concerned petitioners from
work, and from admission to the work place, after just a one-day verbal notice, and for no
valid cause bellows oppression and utter disregard of the right to due process of the concerned
petitioners. Hence, an award of moral damages is called for.
Attorney’s fees may likewise be awarded to the concerned petitioners who were illegally
dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights
by reason of the oppressive acts56 of P&G.
Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work
shall be entitled to reinstatement without loss of seniority rights and other privileges, inclusive
of allowances, and other benefits or their monetary equivalent from the time the compensation
was withheld up to the time of actual reinstatement.57 Hence, all the petitioners, having been
illegally dismissed are entitled to reinstatement without loss of seniority rights and with full
back wages and other benefits from the time of their illegal dismissal up to the time of their
actual reinstatement.
WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of
Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003
are REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc.
are ORDERED to reinstate their respective employees immediately without loss of seniority
rights and with full backwages and other benefits from the time of their illegal dismissal up to
the time of their actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to
pay each of those petitioners considered as its employees, namely Arthur Corpuz, Eric Aliviado,
Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao
Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo,
Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao,
Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo
F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German
Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario
N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De
Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil
Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo
Viernes, Jr., Elias Basco and Dennis Dacasin, ₱25,000.00 as moral damages plus ten percent
of the total sum as and for attorney’s fees.

Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from
receipt of this Decision, of petitioners’ backwages and other benefits; and ten percent of the
total sum as and for attorney’s fees as stated above; and for immediate execution.

SO ORDERED.
G.R. No. 182018 October 10, 2012
NORKIS TRADING CORPORATION, Petitioner,
vs.
JOAQUIN BUENA VISTA, HENRY FABROA, RICARDO CAPE, BERTULDO TULOD,
WILLY DONDOY ANO and GLEN VILLARASA, Respondents.
DECISION
REYES, J.:
Before us is a Petition for Review on Certiorari filed by petitioner Norkis Trading Corporation
(Norkis Trading) to assail the Decision1 dated May 7, 2007 and Resolution2 dated March 4,
2008 of the Court of Appeals (CA) in CA-G.R. SP No. 84041.
The Facts
The petition stems from an amended complaint for illegal suspension, illegal dismissal, unfair
labor practice and other monetary claims filed with the National Labor Relations Commission
(NLRC) by herein respondents Joaquin Buenavista (Buenavista), Henry Fabroa (Fabroa),
Ricardo Cape (Cape), Bertuldo Tulod (Tulod), Willy Dondoyano (Dondoyano) and Glen
Villariasa (Villariasa) against Norkis Trading and Panaghiusa sa Kauswagan Multi-Purpose
Cooperative (PASAKA). The complaint was docketed as NLRC-RAB-VII Case No. 09-1402-99.
During the proceedings a quo, herein respondents submitted the following averments:
The respondents were hired by Norkis Trading, a domestic corporation engaged in the
business of manufacturing and marketing of Yamaha motorcycles and multi-purpose vehicles,
on separate dates and for various positions, particularly:
machines. The machines used by complainants herein respondents in their work are all owned
by respondent Norkis Trading herein petitioner and these are installed and located in the
working area of the complainants inside the company’s premises.
The complainants produced steel crates which are exported directly by respondent Norkis
Trading to Japan. These crates are used as containers of motorcycle machines and are shipped
from Japan back to respondent Norkis Trading.
The materials and supplies used by complainants in their work are supplied by respondent
Norkis Trading through Benjamin Gulbin, the company’s Stockman, upon the request of Tirso
Maslog, a Leadman also employed by respondent Norkis Trading.
Respondent Norkis Trading gave instructions and supervised the work of complainants through
Edwin Ponce and Kiven Alilin, who are both Leadmen, and Rico Cabanas, who is the Production
Supervisor, of the former.
The salaries of complainants are paid inside the premises of respondent Norkis Trading by
Dalia Rojo and Belen Rubio, who are also employees of the said company assigned at the
accounting office.
Despite having served respondent Norkis Trading for many years and performing the same
functions as regular employees, complainants were not accorded regular status. It was made
to appear that complainants are not employees of said company but that of respondent
PASAKA.6
Against the foregoing scenario, the respondents, together with several other
complainants,7 filed on June 9, 1999 with the Department of Labor and Employment (DOLE)
a complaint against Norkis Trading and PASAKA for labor-only contracting and non-payment
of minimum wage and overtime pay. The complaint was docketed as LSED Case No. RO700-
9906-CI-CS-168.

Name Date of Hiring Position The filing of the complaint for labor-only contracting allegedly led to the suspension of the
Joaquin Buenavista March 14, 1994 Operator
respondents’ membership with PASAKA. On July 22, 1999, they were served by PASAKA with
Henry Fabroa January 5, 1993 Welder
memoranda charging them with a violation of the rule against commission of acts injurious or
Ricardo Cape January 1993 Welder/Operator
prejudicial to the interest or welfare of the cooperative. The memoranda cited that the
Bertuldo Tulod November 13, 1994 Welder/Assistant Operator
respondents’ filing of a case against Norkis Trading had greatly prejudiced the interest and
Willy Dondoyano January 1993 Welder
welfare of the cooperative.8 In their answer9 to the memoranda, the respondents explained
Glen Villariasa February 1993 Welder3
that they merely wanted to be recognized as regular employees of Norkis Trading. The case
records include copies of the memoranda sent to respondents Buenavista, Fabroa and
Although they worked for Norkis Trading as skilled workers assigned in the operation of Dondoyano.10
industrial and welding machines owned and used by Norkis Trading for its business, they were
not treated as regular employees by Norkis Trading. Instead, they were regarded by Norkis
On August 16, 1999, the respondents received another set of memoranda from PASAKA, now
Trading as members of PASAKA, a cooperative organized under the Cooperative Code of the
charging them with the following violations of the cooperative’s rules and regulations: (1)
Philippines, and which was deemed an independent contractor that merely deployed the
serious misconduct or willful disobedience of superior’s instructions or orders; (2) gross and
respondents to render services for Norkis Trading.4 The respondents nonetheless believed that
habitual neglect of duties by abandoning work without permission; (3) absences without filing
they were regular employees of Norkis Trading, citing in their Position Paper5 the following
leave of absence; and (4) wasting time or loitering on company’s time or leaving their post
circumstances that allegedly characterized their employment with the company:
temporarily without permission during office hours.11 Copies of the memoranda12 sent to
Fabroa and Cape form part of the records.
The work of the operators involves operating industrial machines, such as, press machine,
hydraulic machine, and spotweld machine. On the other hand, the welders used the welding
On August 26, 1999, PASAKA informed the respondents of the cooperative’s decision to
suspend them for fifteen (15) working days, to be effective from September 1 to 21, 1999,
for violation of PASAKA rules.
The records include copies of the memoranda13 sent to Fabroa and Cape. The suspension
prompted the respondents to file with the NLRC the complaint for illegal suspension against
Norkis Trading and PASAKA.
The 15-day suspension of the respondents was extended for another period of 15 days, from
September 22, 1999 to October 12, 1999.14 Copies of PASAKA’s separate letters15 to
Buenavista, Fabroa, Cape and Dondoyano on the cooperative’s decision to extend the
suspension form part of the records.
On October 13, 1999, the respondents were to report back to work but during the hearing in
their NLRC case, they were informed by PASAKA that they would be transferred to Norkis
Tradings’ sister company, Porta Coeli Industrial Corporation (Porta Coeli), as washers of
Multicab vehicles.
The respondents opposed the transfer as it would allegedly result in a change of employers,
from Norkis Trading to Porta Coeli. The respondents also believed that the transfer would
result in a demotion since from being skilled workers in Norkis Trading, they would be reduced
to being utility workers.These circumstances made the respondents amend their complaint for
illegal suspension, to include the charges of unfair labor practice, illegal dismissal, damages
and attorney’s fees.
For their part, both Norkis Trading and PASAKA claimed that the respondents were not
employees of Norkis Trading. They insisted that the respondents were members of PASAKA,
which served as an independent contractor that merely supplied services to Norkis
International Co., Inc. (Norkis International) pursuant to a job contract 16which PASAKA and
Norkis International executed on January 14, 1999 for 121,500 pieces of F/GF-Series
Reinforcement Production. After PASAKA received reports from its coordinator at Norkis
International of the respondents’ low efficiency and violation of the cooperative’s rules, and
after giving said respondents the chance to present their side, a penalty of suspension was
imposed upon them by the cooperative. The illegal suspension being complained of was then
not linked to the respondents’ employment, but to their membership with PASAKA.
Norkis Trading stressed that the respondents were deployed by PASAKA to Norkis
International, a company that is entirely separate and distinct from Norkis Trading.
The Ruling of the Labor Arbiter
On June 1, 2000, Labor Arbiter Jose G. Gutierrez (LA Gutierrez) dismissed the complaint via a
Decision17 with decretal portion that reads:
WHEREFORE, the foregoing premises considered, judgment is hereby rendered DISMISSING
this case for lack of merit. Complainants herein respondents are however directed to report
back to respondent PASAKA for work assignment within ten (10) days from receipt of this
decision. Likewise, respondent PASAKA is directed to accept the complainants back for work.
SO ORDERED.18
LA Gutierrez sustained the suspension imposed by PASAKA upon the respondents, taking into
account the offenses that the said respondents were found to have committed. He likewise
rejected the respondents’ claim of illegal dismissal. He ruled that to begin with, the
respondents had failed to prove with convincing evidence that they were dismissed from
employment. The Decision reads in part:
Before the legality or illegality of a dismissal can be put in issue, the fact of dismissal itself
must, first, be clearly established. In the instant case, We find that complainants herein
respondents failed to prove with convincing evidence the fact that they were dismissed from
employment. This observation is derived from their very own allegation in their position paper.
The first paragraph of page 5 of the complainants’ position paper clearly shows that they were
not yet dismissed from their employment. The said paragraph states:
"Convinced that the company is bent on terminating their services, complainants amended
their complaint to include the charges of unfair labor practice, illegal dismissal, damages and
attorney’s fees."
The truth, as the record would show is that, complainants were only offered another post in
order to save the contractual relations between their cooperative and Norkis Trading as the
latter finds the complainants’ performance not satisfactory. The complainants took this offer
as a demotion amounting to dismissal. We do not however, agree as their transfer to another
post was only the best option available in order to save the contractual relations between their
cooperative (PASAKA) and Norkis Trading.19
The allegation of unfair labor practice and claim for monetary awards were likewise rejected
by the LA. Feeling aggrieved, the respondents appealed from the decision of the LA to the
NLRC.
In the meantime, DOLE Regional Director Melencio Q. Balanag (Regional Director Balanag)
issued on August 22, 2000 his Order20 in LSED Case No. RO700-9906-CI-CS-168. Regional
Director Balanag ruled that PASAKA was engaged in labor-only contracting.21 The other
findings in his Order that are significant to this case are as follows: (1) PASAKA had failed to
prove that it had substantial capital;22 (2) the machineries, equipment and supplies used by
the respondents in the performance of their duties were all owned by Norkis Trading and not
by PASAKA;23 (3) the respondents’ membership with PASAKA as a cooperative was
inconsequential to their employment with Norkis Trading;24 (4) Norkis Trading and PASAKA
failed to prove that their sub-contracting arrangements were covered by any of the conditions
set forth in Section 6 of Department Order No. 10, Series of 1997; 25 (5) Norkis Trading and
PASAKA failed to dispute the respondents’ claim that their work was supervised by leadmen
and production supervisors of Norkis Trading;26 and (6) Norkis Trading and PASAKA failed to
dispute the respondents’ allegation that their salaries were paid by employees of Norkis
Trading.27 Norkis Trading and PASAKA were then declared solidarily liable for the monetary
claims of therein complainants, as provided in the dispositive portion of Regional Director
Balanag’s Order, to wit:
WHEREFORE, respondent PANAGHIUSA SA KAUSWAGAN MULTIPURPOSE
COOPERATIVEand/or NORKIS TRADING CORPORATION are hereby ORDERED to pay
solidarily the amount of THREE HUNDRED THIRTEEN THOUSAND THREE HUNDRED
FIFTY-FOUR AND 50/100 ([P]313,354.50) PESOS, Philippine Currency, within ten (10)
calendar days from receipt hereof to herein complainants x x x:
xxxx
SO ORDERED.28
The respondents informed the NLRC of Regional Director Balanag’s Order by filing a
Manifestation29 dated September 11, 2000, attaching thereto a copy of the Order dated August
22, 2000.
It bears mentioning that Regional Director Balanag’s Order was later affirmed by then DOLE
Secretary Patricia Sto. Tomas (Sec. Sto. Tomas) in her Orders dated February 7, 2002 and
October 14, 2002.30 When the rulings of the DOLE Secretary were appealed before the CA via
the petitions for certiorari docketed as CA-G.R. SP No. 73880 and CA-G.R. SP No. 74619, the
CA affirmed the Orders of the DOLE Secretary.31 A motion for reconsideration of the CA
decision was denied in a Resolution32 dated October 9, 2007. The two petitions docketed as
G.R. Nos. 180078-79, which were brought before this Court to question the CA’s rulings, were
later denied with finality by this Court in the Resolutions dated December 5, 2007 33 and April
14, 2008.34
The Ruling of the NLRC
On April 18, 2002, the NLRC rendered its Decision35 affirming with modification the decision
of LA Gutierrez. It held that the respondents were not illegally suspended from work, as it was
their membership in the cooperative that was suspended after they were found to have
violated the cooperative’s rules and regulations. It also declared that the respondents’
dismissal was not established by substantial evidence. The NLRC however declared that the
LA had no jurisdiction over the dispute because the respondents were not employees, but
members of PASAKA. The suspension of the respondents as members of PASAKA for alleged
violation of the cooperative’s rules and regulations was not a labor dispute, but an intra-
corporate dispute.36 The complaint was also declared to have been filed against the wrong
party because the respondents were found by the NLRC to have been deployed by PASAKA to
Norkis International pursuant to a job contract.
The dispositive portion of the NLRC’s Decision reads:
WHEREFORE, the Decision dated June 1, 2000 of the Labor Arbiter is AFFIRMED, with respect
to the DISMISSAL of the complainants herein respondents for lack of merit [sic], but deleting
the portion directing the complainants to report back to respondent PASAKA for work
assignment and to accept them back to work being an internal concern of PASAKA.
SO ORDERED.37
The respondents’ motion for reconsideration was denied by the NLRC in a Resolution38 dated
December 18, 2003. Undaunted, the respondents questioned the NLRC’s rulings before the
CA via a petition for certiorari.
The Ruling of the CA
Finding merit in the petition for certiorari, the CA rendered its decision reversing and setting
aside the decision and resolution of the NLRC. The dispositive portion of its Decision dated
May 7, 2007 reads:
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the NLRC,
are hereby REVERSED and SET ASIDE, and a new judgment is hereby rendered ordering the
private respondents to:
(1) Reinstate petitioners to their former positions without loss of seniority rights, and to pay
full backwages inclusive of allowances and their other benefits or their monetary equivalent
computed from the time of illegal dismissal to the time of actual reinstatement; and
(2) Alternatively, if reinstatement is not possible, to pay full backwages inclusive of other
benefits or their monetary equivalent from the time of illegal dismissal until the same is paid
in full, and pay petitioners’ separation pay equivalent to one month’s salary for every year of
service.
SO ORDERED.39
The CA rejected the argument of PASAKA and Norkis Trading that by virtue of a job contract
executed on January 14, 1999, the respondents were deployed to Norkis International and
not to Norkis Trading. The CA held:
We are not convinced. Private respondents’ among them, herein petitioner own evidence belie
their claim.
In its Comment, NORKIS TRADING attached the Payroll Registers for PANAGHIUSA SA
KAUSWAGAN (PASAKA) MULTIPURPOSE COOPERATIVE-NICI Tin Plate covering the
payroll periods "12/28/98-01/07/99" and "01/08/99-01/14/99". Included among the payees
therein were the petitioners herein respondents. x x x Why were petitioners included in said
payrolls for said payroll periods when the supposed Contract with NORKIS INTERNATIONAL
was not yet executed? Apparently, private respondents slipped. Thus, we hold that the much
ballyhooed January 14, 1999 Contract between PASAKA and NORKIS INTERNATIONAL, is but
a mere afterthought, a concoction designed by private respondents to evade their obligations
to petitioners.40 (Citations omitted and emphasis supplied)
The CA also considered Regional Director Balanag’s finding in LSED Case No. RO700-9906-CI-
CS-168 that PASAKA was engaged in labor-only contracting. In ruling that the respondents
were illegally dismissed, the CA held that Norkis Trading’s refusal to accept the respondents
back to their former positions, offering them instead to accept a new assignment as washers
of vehicles in its sister company, was a demotion that amounted to a constructive dismissal.
Norkis Trading’s motion for reconsideration was denied by the CA in its Resolution41 dated
March 4, 2008. Hence, this petition.
The Present Petition
The petition is founded on the following grounds:
1) THE COURT OF APPEALS HAS DEPARTED FROM THE USUAL COURSE OF JUDICIAL
PROCEEDINGS WHEN IT MADE ITS OWN FACTUAL FINDINGS AND DISREGARDED THE
UNIFORM AND CONSISTENT FACTUAL FINDINGS OF THE LABOR ARBITER AND THE NLRC,
WHICH MUST BE ACCORDED GREAT WEIGHT, RESPECT AND EVEN FINALITY. IN SO DOING,
THE COURT OF APPEALS EXCEEDED ITS AUTHORITY ON CERTIORARI UNDER RULE 65 OF
THE RULES OF COURT BECAUSE SUCH FACTUAL FINDINGS WERE BASED ON SPECULATIONS
AND NOT ON OTHER EVIDENCES [SIC] ON RECORD.
2) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD
WITH LAW AND JURISPRUDENCE IN RULING THAT THE NLRC COMMITTED GRAVE ABUSE
OF DISCRETION IN ALLEGEDLY IGNORING THE RULING OF THE REGIONAL DIRECTOR.
3) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD
WITH LAW AND JURISPRUDENCE IN RULING THAT PETITIONER IS THE EMPLOYER OF
RESPONDENTS.
4) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD
WITH LAW AND JURISPRUDENCE IN RULING THAT THE RESPONDENTS WERE
CONSTRUCTIVELY DISMISSED CONTRARY TO THE FACTUAL FINDINGS OF THE LABOR
ARBITER AND THE NLRC AND WITHOUT SHOWING ANY EVIDENCE TO OVERTURN SUCH
FINDING OF FACT.42
The respondents oppose these grounds in their Comment.43 In support of their arguments, considering that PASAKA is a mere
the respondents submit with their Comment copies of the CA’s Decision 44 and Resolution45 in labor-only contractor.
CA-G.R. SP No. 73880 and CA-G.R. SP No. 74619, and this Court’s Resolutions46 in G.R. Nos.
180078-79.
This Court’s Ruling
The Court resolves to deny the petition.
by substantial evidence. It is within the jurisdiction of the CA, whose jurisdiction over labor
cases has been expanded to review the findings of the NLRC.47
We have thus explained in Cocomangas Hotel Beach Resort v. Visca 48 that the CA can take
cognizance of a petition for certiorari if it finds that the NLRC committed grave abuse of
discretion by capriciously, whimsically, or arbitrarily disregarding evidence which are material
to or decisive of the controversy. The CA cannot make this determination without looking into
the evidence presented by the parties. The appellate court needs to evaluate the materiality
or significance of the evidence, which are alleged to have been capriciously, whimsically, or
arbitrarily disregarded by the NLRC, in relation to all other evidence on record.
This case falls within the exception to the general rule that findings of fact of labor officials
are to be accorded respect and finality on appeal. As our discussions in the other grounds that
are raised in this petition will demonstrate, the CA has correctly held that the NLRC has
disregarded facts and evidence that are material to the outcome of the respondents’ case. No
error can be ascribed to the appellate court for making its own assessment of the facts that
are significant to the case to determine the presence or absence of grave abuse of discretion
on the part of the NLRC, even if the CA’s findings turn out to be different from the factual
findings of both the LA and NLRC.
Norkis Trading is the principal
employer of the respondents,
The second and third grounds, being interrelated as they both pertain to the CA’s finding that
an employer-employee relationship existed between the petitioner and the respondents, shall
be discussed jointly. In its decision, the CA cited the findings of the Regional Director in LSED
Case No. RO700-9906-CI-CS-168 and declared that the NLRC committed a grave abuse of
discretion when it ignored said findings.

Factual findings of labor officials
may be examined by the courts
when there is a showing that they
were arrived at arbitrarily or in
disregard of evidence on record.
As regards the first ground, the petitioner questions the CA’s reversal of LA Gutierrez’s and
the NLRC’s rulings, and argues that said rulings should have been accorded great weight and
finality by the appellate court as these were allegedly supported by substantial evidence.
On this matter, the settled rule is that factual findings of labor officials, who are deemed to
have acquired expertise in matters within their jurisdiction, are generally accorded not only
respect but even finality by the courts when supported by substantial evidence, i.e., the
amount of relevant evidence which a reasonable mind might accept as adequate to support a
conclusion. We emphasize, nonetheless, that these findings are not infallible. When there is a
showing that they were arrived at arbitrarily or in disregard of the evidence on record, they
may be examined by the courts. The CA can then grant a petition for certiorari if it finds that
the NLRC, in its assailed decision or resolution, has made a factual finding that is not supported
The issue of whether or not the respondents shall be regarded as employees of the petitioner
hinges mainly on the question of whether or not PASAKA is a labor-only contractor. 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. These differentiate it from permissible or
legitimate job contracting or subcontracting, which refers to an arrangement whereby a
principal 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. A person is considered engaged in legitimate job
contracting or subcontracting if the following conditions concur: (a) the contractor carries on
a distinct and independent business and partakes the contract work on his 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 his
work except as to the results thereof; (b) the contractor has substantial capital or investment;
and (c) the agreement between the principal and the contractor or subcontractor assures the g) Unless a reliever system is in place among the regular workforce, substitute services for
contractual employees’ entitlement to all labor and occupational safety and health standards, absent regular employees...
free exercise of the right to self-organization, security of tenure, and social welfare benefits. 49
It is therefore evident that herein respondents are engaged in "labor-only" contracting as
We emphasize that the petitioner’s arguments against the respondents’ claim that PASAKA is defined in Art. 106 of the Labor Code. Furthermore, such contracting/sub-contracting
a labor-only contractor, which is thus to be regarded as a mere agent of Norkis Trading for arrangement not only falls under labor-only contracting but also fails to qualify as legitimate
which the respondents rendered service, are already mooted by the finality of this Court’s subcontracting as defined under Sec. 4 par. e of D.O. #10 S. 1997, to wit:
Resolutions dated December 5, 2007 and April 14, 2008 in G.R. Nos. 180078-79, which stems
from the CA’s and the DOLE Secretary’s review of the DOLE Regional Director’s Order dated "Sec. 4. Definition of terms. …
August 22, 2000 in LSED Case No. RO700-9906-CI-CS-168.
d) …
To recapitulate, Regional Director Balanag issued on August 22, 2000 its Order50 in LSED Case
No. RO700-9906-CI-CS-168 and declared PASAKA as a mere labor-only contractor, and Norkis
Subject to the provisions of Sections 6, 7 and 8 of this Rule, contracting or subcontracting
Trading as the true employer of herein respondents. He explained that PASAKA failed to prove
shall be legitimate if the following circumstances concur:
during the conduct of a summary investigation that the cooperative had substantial capital or
investment sufficient to enable it to perform the functions of an independent contractor. The
respondents’ claim that the machinery, equipment and supplies they used to perform their i) The contractor or subcontractor carries on a distinct and independent business and
duties were owned by Norkis Trading, and not by PASAKA, was undisputed. While PASAKA undertakes to perform the job, work or service on its own account and under its own
reflected in its Statement of Financial Condition for the year 1996 property and equipment net responsibility, according to its own manner and method, and free from the control and
of accumulated depreciation at ₱ 344,273.02, there was no showing that the properties direction of the principal in all matters connected with the performance of the work except to
covered thereby were actually and directly used in the conduct of PASAKA’s business.51 The the results thereof;
DOLE Regional Director explained:
ii) The contractor or subcontractor has substantial capital or investment; and
Herein respondents among them, herein petitioner failed to prove that their sub-contracting
arrangements fall under any of the conditions set forth in Sec. 6 of D.O. # 10 S. 1997 to iii) The agreement between the principal and contractor or subcontractor assures the
qualify as permissible contracting or subcontracting as provided for as follows: contractual employees entitlement to all labor and occupational and safety and health
standards, free exercise of the right to self-organization, security of tenure and social and
Sec. 6. Permissible contracting or subcontracting. Subject to conditions set forth in Sec. 4 (d) welfare benefits."52 (Emphasis supplied)
and (e) and Section 5 hereof, the principal may engage the services of a contractor or
subcontractor for the performance of any of the following: Together with his finding that PASAKA evidently lacked substantial capital or investment
required from legitimate job contractors, Regional Director Balanag ruled that the cooperative
a.) Works or services temporarily or occasionally needed to meet abnormal increase in the failed to dispute the respondents’ allegation that officers of Norkis Trading supervised their
demand of products or services... work and paid their salaries. In conclusion, PASAKA and Norkis Trading were declared solidarily
liable for the monetary awards made in favor of therein claimants-employees, which included
herein respondents. A motion for reconsideration of the Order was denied by the Regional
b) Works or services temporarily or occasionally needed by the principal for undertakings
Director.
requiring expert or highly technical personnel to improve the management or operations of an
enterprise;
Upon appeal, then DOLE Sec. Sto. Tomas affirmed the rulings of Regional Director Balanag.
Both Norkis Trading and PASAKA filed their separate appeals from the orders of the DOLE
c) Services temporarily needed for the introduction or promotion of new products...;
Secretary to the CA via the petitions for certiorari docketed as CA-G.R. SP Nos. 73880 and
74619, but said petitions were dismissed for lack of merit by the CA in its Decision dated May
d) Works or services not directly related or not integral to main business or operation of the 7, 2007 and Resolution dated October 9, 2007. The CA held:
principal including casual work, janitorial, security, landscaping and messengerial services and
work not related to manufacturing processes in manufacturing establishments.
This Court agrees with the finding of the DOLE Regional Director, as affirmed by the Secretary
of Labor in her assailed Order, that petitioners among them, herein petitioner were engaged
e) Services involving the public display of manufacturers’ products...; in labor-only contracting.

f) Specialized works involving the use of some particular, unusual or peculiar skills... and First. PASAKA failed to prove that it has substantial capitalization or investment in the form of
tools, equipment, machineries, work premises, among others, to qualify as an independent
contractor. PASAKA’s claim that it has machineries and equipment worth ₱ 344,273.02 as
reflected in its Financial Statements and Supplementary Schedules is belied by private
respondents’ among them, herein respondents evidence which consisted of pictures showing
machineries and equipment which were owned by and located at the premises of petitioner
NORKIS TRADING (as earlier noted, some of the pictures showed some of the private
respondents operating said machines). Indeed it makes one wonder why, if PASAKA indeed
had such machineries and equipment worth ₱ 344,273.02, private respondents were using
machineries and equipment owned by and located at the premises of NORKIS TRADING.
Even granting that indeed PASAKA had machineries and equipment worth ₱ 344,273.02, it
was not shown that said machineries and equipment were actually used in the performance
or completion of the job, work, or service that it was contracted to render under its supposed
job contract.
xxxx
Second. PASAKA likewise did not carry out an independent business from NORKIS TRADING. Clearly, res judicata in the concept of conclusiveness of judgment has set in. In the
While PASAKA was issued its Certificate of Registration on July 18, 1991, all it could show to
prove that it carried out an independent business as a job contractor were the Project Contract
dated January 2, 1998 with NORKIS TRADING, and the Project Contract dated December 18,
1998 with NORKIS INTERNATIONAL. However, as earlier discussed, the Project Contract dated
December 18, 1998 with NORKIS INTERNATIONAL is nothing more than an afterthought by
the petitioners to confuse its workers and defeat their rightful claims. The same can be said
of the Project Contract with WICKER and VINE, INC., considering that it was executed only on
February 1, 2000. Verily, said contract was submitted only to strengthen PASAKA’s claim that
it is a legitimate job contractor.
Third. Private respondents performed activities directly related to the principal business of Similarly, in Dole Philippines, Inc. v. Esteva,57 we held that the finding of the DOLE Regional
NORKIS TRADING. They worked as welders and machine operators engaged in the production
of steel crates which were sent to Japan for use as containers of motorcycles that are then
sent back to NORKIS TRADING. Private respondents‘ functions therefore are directly related
and vital to NORKIS TRADING’s business of manufacturing of Yamaha motorcycles.
All the foregoing considerations affirm by more than substantial evidence that NORKIS
TRADING and PASAKA engaged in labor-only contracting.53 (Citations omitted and emphasis
supplied)
When the case was brought before this Court via the petitions for review
on certiorari docketed as G.R. Nos. 180078-79, we resolved to issue on December 5, 2007 our
Resolution dismissing the appeal for, among other grounds, the failure of Norkis Trading to
sufficiently show any reversible error in the the CA decision. In our Resolution dated April 14,
2008, we denied with finality Norkis Tradings’ motion for reconsideration on the ground that
no substantial argument and compelling reason was adduced to warrant a reconsideration of
our dismissal of the petition. This Court’s resolutions, affirming the findings of the CA, had
then become final and executory.
Applying the doctrine of res judicata, all matters that have been fully resolved with finality by
this Court’s dismissal of the appeal that stemmed from Regional Director Balanag’s Order
dated August 22, 2000 in LSED Case No. RO700-9906-CI-CS-168 are already conclusive
between the parties. Res judicata is defined as a matter adjudged; a thing judicially acted
upon or decided; a thing or matter settled by judgment. Under this doctrine, an existing final
judgment or decree rendered on the merits, and without fraud or collusion, by a court of
competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the rights of
the parties or their privies, in all other actions or suits in the same or any other judicial tribunal
of concurrent jurisdiction on the points and matters in issue in the first suit.
To state simply, a final judgment or decree on the merits by a court of competent jurisdiction
is conclusive of the rights of the parties or their privies in all later suits on all points and
matters determined in the former suit.54
Res judicata has two aspects: bar by prior judgment and conclusiveness of judgment as
provided under Section 47(b) and (c), Rule 39, respectively, of the Rules of Court.55 Under the
doctrine of conclusiveness of judgment, facts and issues actually and directly resolved in a
former suit cannot be raised in any future case between the same parties, even if the latter
suit may involve a different cause of action.56
proceedings before the Regional Director and the LA, there were identity of parties and identity
of issues, although the causes of action in the two actions were different. First, herein
respondents on the one hand, and Norkis Trading on the other hand, were all parties in the
two cases, being therein complainants and respondent, respectively. As to the second
requisite, the issue of whether PASAKA was a labor-only contractor which would make Norkis
Trading the true employer of the respondents was the main issue in the two cases, especially
since Norkis Trading had been arguing in both proceedings that it could not be regarded as
the herein respondents’ employer, harping on the defense that PASAKA was a legitimate job
contractor.
Director, which had been affirmed by the Undersecretary of Labor, by authority of the
Secretary of Labor, in an Order that has reached finality and which provided that the
cooperative Cannery Multi-Purpose Cooperative (CAMPCO) was engaged in labor-only
contracting should bind the NLRC in a case for illegal dismissal. We ruled:
While the causes of action in the proceedings before the DOLE and the NLRC differ, they are,
in fact, very closely related. The DOLE Regional Office conducted an investigation to determine
whether CAMPCO was violating labor laws, particularly, those on labor-only contracting.
Subsequently, it ruled that CAMPCO was indeed engaging in labor-only contracting activities,
and thereafter ordered to cease and desist from doing so. x x x The matter of whether
CAMPCO was a labor-only contractor was already settled and determined in the DOLE
proceedings, which should be conclusive and binding upon the NLRC. What were left for the
determination of the NLRC were the issues on whether there was illegal dismissal and whether
respondents should be regularized.
x x x For the NLRC to ignore the findings of DOLE Regional Director Parel and DOLE
Undersecretary Trajano is an unmistakable and serious undermining of the DOLE officials’
authority.58
The rule on conclusiveness of judgment then now precludes this Court from re-opening the
issues that were already settled with finality in G.R. Nos. 180078-79, which effectively affirmed
the CA’s findings that PASAKA was engaged in labor-only contracting, and that Norkis Trading
shall be treated as the employer of the respondents.
In the present petition, Norkis Trading still argues that the NLRC committed no grave abuse
of discretion in ignoring the findings of Regional Director Balanag considering that his Order
had not yet reached finality at the time the NLRC resolved the appeal from the decision of the
LA. This notwithstanding, this Court holds that the CA still committed no error in finding grave
abuse of discretion on the part of the NLRC by the latter’s utter disregard of the findings of
the Regional Director that Norkis Trading should be considered the employer of herein
respondents. As correctly observed by the CA in the assailed Decision dated May 7, 2007:
Surprisingly, the NLRC failed to consider or even make reference to the said August 22, 2000
Order of the DOLE Regional Director. Considering the significance of the DOLE Regional
Director’s findings, the same cannot just be perfunctorily rejected. For the NLRC to ignore the
findings of DOLE Regional Director is to undermine or disregard of [sic] the visitorial and
enforcement power of the DOLE Secretary and his authorized representatives under Article
128 of the Labor Code, as amended. It was grave abuse of discretion then on the part of the
NLRC to ignore or simply sweep under the rug the findings of the DOLE Regional
Director.59 (Citation omitted and emphasis ours)
A reading of the NLRC’s Resolution60 dated December 18, 2003 indicates that while it was
confronted with opposing findings of the Regional Director and the LA on the material issue
of labor-only contracting, it failed to even attempt to review thoroughly the matter, look into
the records, reconcile the differing judgments and make its own appreciation of the evidence
presented by the parties. Instead, it simply brushed aside the rulings of the Regional Director,
without due consideration of the circumstance that said labor official had the jurisdiction to
rule on the issue pursuant to the visitorial and enforcement powers of the DOLE Secretary and
his duly authorized representatives under Article 12861 of the Labor Code.
The rule in appeals in labor cases provides that the CA can grant a petition for certiorari if it
finds that the NLRC, in its assailed decision or resolution, committed grave abuse of discretion
by capriciously, whimsically or arbitrarily disregarding evidence which is material or decisive
of the controversy.62 Significantly, the Secretary of Labor had already affirmed Regional
Director Balanag’s Order when the appeal from the LA’s rulings was resolved. In the NLRC
Resolution dated December 18, 2003, the Commission nonetheless merely held:
The photocopies of the Order of the Honorable Secretary of the Department of Labor and
Employment dated February 7, 2002 and the Order of the Regional Director of the Regional
Office of the Department of Labor and Employment finding the existence of labor-only
contracting between respondent NORKIS [Trading] and respondent PASAKA do not provide
sufficient basis to disturb Our Decision. We are not convinced that the facts and evidence,
which are totally distinct from this case and which were presented in a separate proceedings
and before another Office, would be a sufficient and valid basis to divest the Labor Arbiter a
quo of his authority which undoubtedly the law vests upon him as his exclusive jurisdiction.
The jurisdiction conferred by Article 217 of the Labor Code upon the Labor Arbiter is "original
and exclusive", and his authority to hear and decide case[s] vested upon him is to the
exclusion of any other court or quasi-judicial body. By reason of their training, experience,
and expertise, Labor Arbiters are in a better position to resolve controversies, for which they
are conferred original and exclusive jurisdiction by law. Even Article 218 of the Labor Code
does not empower the Regional Director of the Department of Labor and Employment to share
original and exclusive jurisdiction conferred on the Labor Arbiter by Article 217 x x x.63
Such utter disregard by the NLRC of the findings of the Regional Director and DOLE Secretary
amounts to grave abuse of discretion amounting to lack or excess of jurisdiction. As this Court’s
review of the records would confirm, a judicious study of the evidence presented by the parties
would have supported the finding that Norkis Trading should be treated as the respondents’
true employer, with PASAKA being merely an agent of said employer. PASAKA failed to
sufficiently show that it had substantial capital or investment in the form of tools, equipment,
machineries and work premises required from legitimate job contractors. The work required
from the respondents, being welders and/or operators of industrial machines, were also
directly related to Norkis Trading’s principal business of manufacturing. The job contract
supposedly executed by and between PASAKA and Norkis International in 1999 deserved nil
consideration given that the respondents had claimed early on that they began working for
Norkis Trading on various dates from 1993 to 1994. Moreover, the records confirm that Norkis
Trading was still among the clients of PASAKA as of July 1999, as clearly indicated in the
memoranda it sent to respondents Buenavista, Fabroa and Dondoyano on July 22, 1999, which
provide:
Please take note that the recent action you have done in filing a case against one of our
clients, Norkis Trading Co., Inc., has greatly prejudiced the interest and welfare of the
Cooperative.64 (Emphasis ours)
This categorical statement of PASAKA that Norkis Trading was among its clients at the time
the memoranda were issued only further bolsters the respondents’ claim, and Regional
Director Balanag’s finding, that said respondents were deployed by PASAKA to Norkis Trading.
This also contradicts petitioner’s argument that its contract with PASAKA had ended in 1998. 65
Finally, contrary to the insinuations of Norkis Trading, the fact that PASAKA was a duly-
registered cooperative did not preclude the possibility that it was engaged in labor-only
contracting, as confirmed by the findings of the Regional Director. An entity is characterized
as a labor-only contractor based on the elements and guidelines established by law and
jurisprudence, judging primarily on the relationship that the said entity has with the company
to which the workers are deployed, and not on any special arrangement that the entity has
with said workers.
Termination of an employment for
no just or authorized cause
amounts to an illegal dismissal.
As to the issue of whether the respondents were illegally dismissed by Norkis Trading, we
answer in the affirmative, although not by constructive dismissal as declared by the CA, but
by actual dismissal.
Where an entity is declared to be a labor-only contractor, the employees supplied by said
contractor to the principal employer become regular employees of the latter. Having gained
regular status, the employees are entitled to security of tenure and can only be dismissed for
just or authorized causes and after they had been afforded due process. 66 Termination of
employment without just or authorized cause and without observing procedural due process
is illegal.1âwphi1
In claiming that they were illegally dismissed from their employment, the respondents alleged
having been informed by PASAKA that they would be transferred, upon the behest of Norkis
Trading, as Multicab washers or utility workers to Porta Coeli, a sister company of Norkis
Trading. Norkis Trading does not dispute that such job transfer was relayed by PASAKA unto
the respondents, although the company contends that the transfer was merely an "offer" that
did not constitute a dismissal. It bears mentioning, however, that the respondents were not
given any other option by PASAKA and Norkis Trading but to accede to said transfer. In fact,
there is no showing that Norkis Trading would still willingly accept the respondents to work
for the company. Worse, it still vehemently denies that the respondents had ever worked for
it. Again, all defenses of Norkis Trading that anchor on the alleged lack of employer-employee
relationship between it and the respondents no longer merit any consideration, given that this
Court’s findings in G.R. Nos. 180078-79 have become conclusive. Thus, the respondents’
transfer to Porta Coeli, although relayed to the respondents by PASAKA was effectively an act
of Norkis Trading. Where labor-only contracting exists, the Labor Code itself establishes an
employer-employee relationship between the employer and the employees of the labor-only
contractor. The statute establishes this 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.67

No further evidence or document should then be required from the respondents to prove such
fact of dismissal, especially since Norkis Trading maintains that it has no duty to admit and
treat said respondents as its employees. Considering that Porta Coeli is an entity separate and
distinct from Norkis Trading, the respondents’ employment with Norkis Trading was
necessarily severed by the change in work assignment. It then did not even matter whether
or not the transfer involved a demotion in the respondents’ rank and work functions; the
intention to dismiss, and the actual dismissal of the respondents were sufficiently established.

In the absence of a clear showing that the respondents’ dismissal was for just or authorized
causes, the termination of the respondents’ employment was illegal. What may be reasonably
deduced from the records was that Norkis Trading decided on the transfer, after the
respondents had earlier filed their complaint for labor-only contracting against the company.
Even Norkis Trading’s contention that the transfer may be deemed a valid exercise of
management prerogative is misplaced. First, the exercise of management prerogative
presupposes that the transfer is only for positions within the business establishment. Second,
the exercise of management prerogative by employers is not absolute, as it is limited by law
and the general principles of fair play and justice.

WHEREFORE, premises considered, the petition is DENIED.

SO ORDERED.
G.R. Nos. 83380-81 November 15, 1989
MAKATI HABERDASHERY, INC., JORGE LEDESMA and CECILIO G.
INOCENCIO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, CEFERINA J. DIOSANA (Labor
Arbiter, Department of Labor and Employment, National Capital Region),
SANDIGAN NG MANGGAGAWANG PILIPINO (SANDIGAN)-TUCP and its members,
JACINTO GARCIANO, ALFREDO C. BASCO, VICTORIO Y. LAURETO, ESTER
NARVAEZ, EUGENIO L. ROBLES, BELEN N. VISTA, ALEJANDRO A. ESTRABO,
VEVENCIO TIRO, CASIMIRO ZAPATA, GLORIA ESTRABO, LEONORA MENDOZA,
MACARIA G. DIMPAS, MERILYN A. VIRAY, LILY OPINA, JANET SANGDANG,
JOSEFINA ALCOCEBA and MARIA ANGELES, respondents.
FERNAN, C.J.:
This petition for certiorari involving two separate cases filed by private respondents against
herein petitioners assails the decision of respondent National Labor Relations Commission in
NLRC CASE No. 7-2603-84 entitled "Sandigan Ng Manggagawang Pilipino (SANDIGAN)-TUCP
etc., et al. v. Makati Haberdashery and/or Toppers Makati, et al." and NLRC CASE No. 2-428-
85 entitled "Sandigan Ng Manggagawang Pilipino (SANDIGAN)-TUCP etc., et al. v. Toppers
Makati, et al.", affirming the decision of the Labor Arbiter who jointly heard and decided
aforesaid cases, finding: (a) petitioners guilty of illegal dismissal and ordering them to reinstate
the dismissed workers and (b) the existence of employer-employee relationship and granting
respondent workers by reason thereof their various monetary claims.
The undisputed facts are as follows:
Individual complainants, private respondents herein, have been working for petitioner Makati
Haberdashery, Inc. as tailors, seamstress, sewers, basters (manlililip) and "plantsadoras".
They are paid on a piece-rate basis except Maria Angeles and Leonila Serafina who are paid
on a monthly basis. In addition to their piece-rate, they are given a daily allowance of three
(P 3.00) pesos provided they report for work before 9:30 a.m. everyday.
Private respondents are required to work from or before 9:30 a.m. up to 6:00 or 7:00 p.m.
from Monday to Saturday and during peak periods even on Sundays and holidays.
On July 20, 1984, the Sandigan ng Manggagawang Pilipino, a labor organization of the
respondent workers, filed a complaint docketed as NLRC NCR Case No. 7-2603-84 for (a)
underpayment of the basic wage; (b) underpayment of living allowance; (c) non-payment of
overtime work; (d) non-payment of holiday pay; (e) non-payment of service incentive pay; (f)
13th month pay; and (g) benefits provided for under Wage Orders Nos. 1, 2, 3, 4 and 5.1
During the pendency of NLRC NCR Case No. 7-2603-84, private respondent Dioscoro Pelobello
left with Salvador Rivera, a salesman of petitioner Haberdashery, an open package which was
discovered to contain a "jusi" barong tagalog. When confronted, Pelobello replied that the
same was ordered by respondent Casimiro Zapata for his customer. Zapata allegedly admitted
that he copied the design of petitioner Haberdashery. But in the afternoon, when again
questioned about said barong, Pelobello and Zapata denied ownership of the same.
Consequently a memorandum was issued to each of them to explain on or before February 4,
1985 why no action should be taken against them for accepting a job order which is prejudicial
and in direct competition with the business of the company. 2 Both respondents allegedly did
not submit their explanation and did not report for work. 3 Hence, they were dismissed by
petitioners on February 4, 1985. They countered by filing a complaint for illegal dismissal
docketed as NLRC NCR Case No. 2-428-85 on February 5, 1985. 4
On June 10, 1986, Labor Arbiter Ceferina J. Diosana rendered judgment, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in NLRC NCR Case No. 2-428-85 finding
respondents guilty of illegal dismissal and ordering them to reinstate Dioscoro Pelobello and
Casimiro Zapata to their respective or similar positions without loss of seniority rights, with
full backwages from July 4, 1985 up to actual reinstatement. The charge of unfair labor
practice is dismissed for lack of merit.
In NLRC NCR Case No. 7-26030-84, the complainants' claims for underpayment re violation
of the minimum wage law is hereby ordered dismissed for lack of merit.
Respondents are hereby found to have violated the decrees on the cost of living allowance,
service incentive leave pay and the 13th Month Pay. In view thereof, the economic analyst
of the Commission is directed to compute the monetary awards due each complainant based
on the available records of the respondents retroactive as of three years prior to the filing
of the instant case.
SO ORDERED. 5
From the foregoing decision, petitioners appealed to the NLRC. The latter on March 30, 1988
affirmed said decision but limited the backwages awarded the Dioscoro Pelobello and Casimiro
Zapata to only one (1) year. 6
After their motion for reconsideration was denied, petitioners filed the instant petition raising
the following issues:
I
THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT AN EMPLOYER-EMPLOYEE
RELATIONSHIP EXISTS BETWEEN PETITIONER HABERDASHERY AND RESPONDENTS
WORKERS.
II
THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS WORKERS ARE
ENTITLED TO MONETARY CLAIMS DESPITE THE FINDING THAT THEY ARE NOT ENTITLED
TO MINIMUM WAGE.
III
THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS PELOBELLO
AND ZAPATA WERE ILLEGALLY DISMISSED. 7
The first issue which is the pivotal issue in this case is resolved in favor of private respondents.
We have repeatedly held in countless decisions that the test of employer-employee
relationship is four-fold: (1) the selection and engagement of the employee; (2) the payment
of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct. It
is the so called "control test" that is the most important element. 8 This simply means the
determination of whether the employer controls or has reserved the right to control the
employee not only as to the result of the work but also as to the means and method by which
the same is to be accomplished. 9
The facts at bar indubitably reveal that the most important requisite of control is present. As
gleaned from the operations of petitioner, when a customer enters into a contract with the
haberdashery or its proprietor, the latter directs an employee who may be a tailor, pattern
maker, sewer or "plantsadora" to take the customer's measurements, and to sew the pants,
coat or shirt as specified by the customer. Supervision is actively manifested in all these
aspects — the manner and quality of cutting, sewing and ironing.
Furthermore, the presence of control is immediately evident in this memorandum issued by
Assistant Manager Cecilio B. Inocencio, Jr. dated May 30, 1981 addressed to Topper's Makati
Tailors which reads in part:
4. Effective immediately, new procedures shall be followed:
A. To follow instruction and orders from the undersigned Roger Valderama, Ruben Delos
Reyes and Ofel Bautista. Other than this person (sic) must ask permission to the above
mentioned before giving orders or instructions to the tailors.
B. Before accepting the job orders tailors must check the materials, job orders, due dates
and other things to maximize the efficiency of our production. The materials should be
checked (sic) if it is matched (sic) with the sample, together with the number of the job
order.
C. Effective immediately all job orders must be finished one day before the due date. This
can be done by proper scheduling of job order and if you will cooperate with your
supervisors. If you have many due dates for certain day, advise Ruben or Ofel at once so
that they can make necessary adjustment on due dates.
D. Alteration-Before accepting alteration person attending on customs (sic) must ask first
or must advise the tailors regarding the due dates so that we can eliminate what we call
'Bitin'.
Private respondents are also entitled to claim their 13th Month Pay under Section 3(e) of the
E. If there is any problem regarding supervisors or co-tailor inside our shop, consult with Rules and Regulations Implementing P.D. No. 851 which provides:
me at once settle the problem. Fighting inside the shop is strictly prohibited. Any tailor
violating this memorandum will be subject to disciplinary action.
Section 3. Employers covered. — The Decree shall apply to all employers except to:
For strict compliance. 10
From this memorandum alone, it is evident that petitioner has reserved the right to control its
employees not only as to the result but also the means and methods by which the same are
to be accomplished. That private respondents are regular employees is further proven by the
fact that they have to report for work regularly from 9:30 a.m. to 6:00 or 7:00 p.m. and are
paid an additional allowance of P 3.00 daily if they report for work before 9:30 a.m. and which
is forfeited when they arrive at or after 9:30 a.m. 11
Since private respondents are regular employees, necessarily the argument that they are
independent contractors must fail. As established in the preceding paragraphs, private
respondents did not exercise independence in their own methods, but on the contrary were
subject to the control of petitioners from the beginning of their tasks to their completion.
Unlike independent contractors who generally rely on their own resources, the equipment,
tools, accessories, and paraphernalia used by private respondents are supplied and owned by
petitioners. Private respondents are totally dependent on petitioners in all these aspects.
Coming now to the second issue, there is no dispute that private respondents are entitled to
the Minimum Wage as mandated by Section 2(g) of Letter of Instruction No. 829, Rules
Implementing Presidential Decree No. 1614 and reiterated in Section 3(f), Rules Implementing
Presidential Decree 1713 which explicitly states that, "All employees paid by the result shall
receive not less than the applicable new minimum wage rates for eight (8) hours work a day,
except where a payment by result rate has been established by the Secretary of Labor.
..." 12 No such rate has been established in this case.
But all these notwithstanding, the question as to whether or not there is in fact an
underpayment of minimum wages to private respondents has already been resolved in the
decision of the Labor Arbiter where he stated: "Hence, for lack of sufficient evidence to support
the claims of the complainants for alleged violation of the minimum wage, their claims for
underpayment re violation of the Minimum Wage Law under Wage Orders Nos. 1, 2, 3, 4, and
5 must perforce fall." 13
The records show that private respondents did not appeal the above ruling of the Labor Arbiter
to the NLRC; neither did they file any petition raising that issue in the Supreme Court.
Accordingly, insofar as this case is concerned, that issue has been laid to rest. As to private
respondents, the judgment may be said to have attained finality. For it is a well-settled rule
in this jurisdiction that "an appellee who has not himself appealed cannot obtain from the
appellate court-, any affirmative relief other than the ones granted in the decision of the court
below. " 14
As a consequence of their status as regular employees of the petitioners, they can claim cost
of living allowance. This is apparent from the provision defining the employees entitled to said
allowance, thus: "... All workers in the private sector, regardless of their position, designation
or status, and irrespective of the method by which their wages are paid. " 15
xxx xxx xxx
 (e) Employers of those who are paid on purely commission, boundary, or task basis, and The law is protecting the rights of the laborer authorizes neither oppression nor self-
those who are paid a fixed amount for performing a specific work, irrespective of the time destruction of the employer. 17More importantly, while the Constitution is committed to the
consumed in the performance thereof, except where the workers are paid on piece-rate policy of social justice and the protection of the working class, it should not be supposed that
basis in which case the employer shall be covered by this issuance insofar as such workers every labor dispute will automatically be decided in favor of labor. 18
are concerned. (Emphasis supplied.)
Finally, it has been established that the right to dismiss or otherwise impose discriplinary
On the other hand, while private respondents are entitled to Minimum Wage, COLA and 13th sanctions upon an employee for just and valid cause, pertains in the first place to the
Month Pay, they are not entitled to service incentive leave pay because as piece-rate workers employer, as well as the authority to determine the existence of said cause in accordance with
being paid at a fixed amount for performing work irrespective of time consumed in the the norms of due process. 19
performance thereof, they fall under one of the exceptions stated in Section 1(d), Rule V,
Implementing Regulations, Book III, Labor Code. For the same reason private respondents There is no evidence that the employer violated said norms. On the contrary, private
cannot also claim holiday pay (Section 1(e), Rule IV, Implementing Regulations, Book III, respondents who vigorously insist on the existence of employer-employee relationship,
Labor Code). because of the supervision and control of their employer over them, were the very ones who
exhibited their lack of respect and regard for their employer's rules.
With respect to the last issue, it is apparent that public respondents have misread the
evidence, for it does show that a violation of the employer's rules has been committed and Under the foregoing facts, it is evident that petitioner Haberdashery had valid grounds to
the evidence of such transgression, the copied barong tagalog, was in the possession of terminate the services of private respondents.
Pelobello who pointed to Zapata as the owner. When required by their employer to explain in
a memorandum issued to each of them, they not only failed to do so but instead went on
WHEREFORE, the decision of the National Labor Relations Commission dated March 30, 1988
AWOL (absence without official leave), waited for the period to explain to expire and for
and that of the Labor Arbiter dated June 10, 1986 are hereby modified. The complaint filed
petitioner to dismiss them. They thereafter filed an action for illegal dismissal on the far-
by Pelobello and Zapata for illegal dismissal docketed as NLRC NCR Case No. 2-428-85 is
fetched ground that they were dismissed because of union activities. Assuming that such acts
dismissed for lack of factual and legal bases. Award of service incentive leave pay to private
do not constitute abandonment of their jobs as insisted by private respondents, their blatant
respondents is deleted.
disregard of their employer's memorandum is undoubtedly an open defiance to the lawful
orders of the latter, a justifiable ground for termination of employment by the employer
expressly provided for in Article 283(a) of the Labor Code as well as a clear indication of guilt SO ORDERED.
for the commission of acts inimical to the interests of the employer, another justifiable ground
for dismissal under the same Article of the Labor Code, paragraph (c). Well established in our
jurisprudence is the right of an employer to dismiss an employee whose continuance in the
service is inimical to the employer's interest. 16

In fact the Labor Arbiter himself to whom the explanation of private respondents was
submitted gave no credence to their version and found their excuses that said barong tagalog
was the one they got from the embroiderer for the Assistant Manager who was investigating
them, unbelievable.

Under the circumstances, it is evident that there is no illegal dismissal of said employees.
Thus, We have ruled that:

No employer may rationally be expected to continue in employment a person whose lack of

morals, respect and loyalty to his employer, regard for his employer's rules, and appreciation
of the dignity and responsibility of his office, has so plainly and completely been bared.

That there should be concern, sympathy, and solicitude for the rights and welfare of the
working class, is meet and proper. That in controversies between a laborer and his master,
doubts reasonably arising from the evidence, or in the interpretation of agreements and
writings should be resolved in the former's favor, is not an unreasonable or unfair rule. But
that disregard of the employer's own rights and interests can be justified by that concern
and solicitude is unjust and unacceptable. (Stanford Microsystems, Inc. v. NLRC, 157 SCRA
414-415 [1988] ).