G.R. No.
205300 This prompted respondents to file complaints for illegal dismissal,
FONTERRA BRANDS PHILS., INC., Petitioner,
vs.
LEONARDO1 LARGADO and TEOTIMO ESTRELLADO, Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking the reversal and setting aside of the Decision of the Court of
Appeals (CA) dated September 6, 2012, as well as its January 11, 2013
Resolution denying reconsideration thereof, in CA-G.R. SP No. 114227,
entitled Leonardo Largado and Teotimo P. Estrellado v. National Labor
Relations Commission (NLRC), Fonterra Brands Phils., lnc./Carlo Mendoza,
Zytron Marketing & Promotions Corp./Francisco Valencia, A. C. Sicat
Marketing & Promotional Services/Arturo Sicat.
The Facts
Petitioner Fonterra Brands Phils., Inc. (Fonterra) contracted the services of
Zytron Marketing and Promotions Corp. (Z)rtron) for the marketing and
promotion of its milk and dairy products. Pursuant to the contract, Zytron
provided Fonterra with trade merchandising representatives (TMRs),
including respondents Leonardo Largado (Largado) and Teotimo Estrellado
(Estrellado). The engagement of their services began on September 15,
2003 and May 27, 2002, respectively, and ended on June 6, 2006.
On May 3, 2006, Fonterra sent Zytron a letter terminating its promotions
contract, effective June 5, 2006. Fonterra then entered into an agreement
for manpower supply with A.C. Sicat Marketing and Promotional Services
(A.C. Sicat). Desirous of continuing their work as TMRs, respondents
submitted their job applications with A.C. Sicat, which hired them for a
term of five (5) months, beginning June 7, 2006 up to November 6, 2006.
When respondents’ 5-month contracts with A.C. Sicat were about to
expire, they allegedly sought renewal thereof, but were allegedly refused.
regularization, non-payment of service incentive leave and 13th month
pay, and actual and moral damages, against petitioner, Zytron, and A.C.
Sicat.
The Labor Arbiter dismissed the complaint and ruled that: (1) respondents
were not illegally dismissed. As a matter of fact, they were the ones who
refused to renew their contract and that they voluntarily complied with the
requirements for them to claim their corresponding monetary benefits in
relation thereto; and (2) they were consecutively employed by Zytron and
A.C. Sicat, not by Fonterra. The dispositive portion of the Decision 2 reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered
DISMISSING the instant case for utter lack of merit.
SO ORDERED.
The NLRC affirmed the Labor Arbiter, finding that respondents’ separation
from Zytron was brought about by the execution of the contract between
Fonterra and A.C. Sicat where the parties agreed to absorb Zytron’s
personnel, including respondents. Too, respondents failed to present any
evidence that they protested this set-up. Furthermore, respondents failed
to refute the allegation that they voluntarily refused to renew their
contract with A.C. Sicat. Also, respondents did not assert any claim
against Zytron and A.C. Sicat. The NLRC disposed of the case in this wise:
WHEREFORE, premises considered, the appeals are hereby
ordered DISMISSED and the Decision of the Labor Arbiter is AFFIRMED
[in] toto.
SO ORDERED.3
The NLRC decision was assailed in a petition under Rule 65 before the CA.
Ruling on the petition, the CA, in the questioned Decision, 4 found that A.C.
Sicat satisfies the requirements of legitimate job contracting, but Zytron
does not. According to the CA: (1) Zytron’s paid-in capital of 250,000
cannot be considered as substantial capital; (2) its Certificate of
Registration was issued by the DOLE months after respondents’ supposed
employment ended; and (3) its claim that it has the necessary tools and
equipment for its business is unsubstantiated. Therefore, according to the
CA, respondents were Fonterra’s employees.
Additionally, the CA held that respondents were illegally dismissed since
Fonterra itself failed to prove that their dismissal is lawful. However, the
illegal dismissal should be reckoned from the termination of their
supposed employment with Zytron on June 6, 2006. Furthermore,
respondents’ transfer to A.C. Sicat is tantamount to a completely new
engagement by another employer. Lastly, the termination of their contract
with A.C. Sicat arose from the expiration of their respective contracts with
the latter. The CA, thus, ruled that Fonterra is liable to respondents and
ordered the reinstatement of respondents without loss of seniority rights,
with full backwages, and other benefits from the time of their illegal
dismissal up to the time of their actual reinstatement. The fallo of the
Decision reads:
WHEREFORE, premises considered, the petition is hereby GRANTED. The
assailed Decision dated 20 November 2009 and Resolution dated 5 March
2010 of the National Labor Relations Commission (NLRC), Seventh
Division, are hereby ANULLED and SET ASIDE. Private respondent
Fonterra Brand, Inc. is hereby ordered to REINSTATE [respondents] without
loss of seniority rights. Private respondents Fonterra Brand, Inc. and
Zytron Marketing and Promotional Corp. are hereby further ORDERED to
jointly and severally pay petitioners their full backwages and other
benefits from the time of their illegal dismissal up to the time of their
actual reinstatement; and attorney’s fees.
SO ORDERED.
Zytron and Fonterra moved for reconsideration, but to no avail. Hence,
this petition.
The Issues
Petitioner presents the following issues for Our resolution:
I.The CA erred in ruling that Zytron was a mere labor-only contractor to
petitioner Fonterra, in that:
a.As held by the Court, there is no absolute figure that constitutes
"substantial" capital for an independent contractor, and the same
should instead be measured against the type of work it is obligated
to do for the principal. It is most respectfully submitted that, here,
the merchandising work undertaken by Zytron’s paid-in capital of
250,000 was as of 1990, the year it was incorporated;
b.As shown in its Articles of Incorporation, Zytron had been in
business since 1990, or more than a decade before it signed a
merchandising agreement with petitioner Fonterra;
c.Very importantly, petitioner Fonterra never exercised the right to
control respondents and other employees of Zytron. Indeed,
respondents neither alleged that petitioner exercised control over
them nor presented proof in support thereof in any of their previous
pleadings.
II.Respondents never claimed nor adduced evidence that they were
dismissed from employment by Zytron. In fact, Zytron denies terminating
them from work. The CA, thus, erred in finding that respondents were
"illegally dismissed."
Succinctly, the issues in the case at bar are: (1) whether or not Zytron and
A.C. Sicat are labor-only contractors, making Fonterra the employer of
herein respondents; and (2) whether or not respondents were illegally
dismissed.
Our Ruling
We find merit in the petition.
As regards the CA’s conclusion that Zytron is not a legitimate job
contractor, We are of the view that such is immaterial to the resolution of
the illegal dismissal issue for one reason: We find that respondents
voluntarily terminated their employment with Zytron, contrary to their
allegation that their employment with Zytron was illegally terminated.
We do not agree with the CA that respondents’ employment with Zytron
was illegally terminated.
As correctly held by the Labor Arbiter and the NLRC, the termination of
respondents’ employment with Zytron was brought about by the cessation
of their contracts with the latter. We give credence to the Labor Arbiter’s
conclusion that respondents were the ones who refused to renew their
contracts with Zytron, and the NLRC’s finding that they themselves
acquiesced to their transfer to A.C. Sicat.
By refusing to renew their contracts with Zytron, respondents effectively
resigned from the latter. Resignation is the voluntary act of employees
who are compelled by personal reasons to dissociate themselves from
their employment, done with the intention of relinquishing an office,
accompanied by the act of abandonment.5
Here, it is obvious that respondents were no longer interested in
continuing their employment with Zytron. Their voluntary refusal to renew
their contracts was brought about by their desire to continue their
assignment in Fonterra which could not happen in view of the conclusion
of Zytron’s contract with Fonterra. Hence, to be able to continue with their
assignment, they applied for work with A.C. Sicat with the hope that they
will be able to continue rendering services as TMRs at Fonterra since A.C.
Sicat is Fonterra’s new manpower supplier. This fact is even acknowledged
by the CA in the assailed Decision where it recognized the reason why
respondents applied for work at A.C. Sicat. The CA stated that "[t]o
continuously work as merchandisers of Fonterra products, [respondents]
submitted their job applications to A.C. Sicat x x x." 6 This is further
bolstered by the fact that respondents voluntarily complied with the
requirements for them to claim their corresponding monetary benefits in
relation to the cessation of their employment contract with Zytron.
In short, respondents voluntarily terminated their employment with Zytron
by refusing to renew their employment contracts with the latter, applying
with A.C. Sicat, and working as the latter’s employees, thereby
abandoning their previous employment with Zytron. Too, it is well to
mention that for obvious reasons, resignation is inconsistent with illegal
dismissal. This being the case, Zytron cannot be said to have illegally
dismissed respondents, contrary to the findings of the CA.
As regards respondents’ employment with A.C. Sicat and its termination
via non-renewal of their contracts, considering that in labor-only
contracting, the law creates an employer-employee relationship between
the principal and the labor-only contractor’s employee as if such
employees are directly employed by the principal employer, and considers
the contractor as merely the agent of the principal, 7 it is proper to dispose
of the issue on A.C. Sicat’s status as a job contractor first before resolving
the issue on the legality of the cessation of respondents’ employment.
In this regard, We defer to the findings of the CA anent A.C. Sicat’s status
as a legitimate job contractor, seeing that it is consistent with the rules on
job contracting and is sufficiently supported by the evidence on record.
A person is considered engaged in legitimate job contracting or
subcontracting if the following conditions concur:
1.The contractor or subcontractor carries on a distinct and
independent business and undertakes to perform the job, work or
service on its own account and under its own responsibility
according to its own manner and method, and free from the control
and direction of the principal in all matters connected with the
performance of the work except as to the results thereof;
2.The contractor or subcontractor has substantial capital or
investment; and
3.The agreement between the principal and contractor or
subcontractor assures the contractual employees entitlement to all
labor and occupational safety and health standards, free exercise of
the right to self-organization, security of tenure, and social and
welfare benefits.8
On the other hand, contracting is prohibited when the contractor or
subcontractor merely recruits, supplies or places workers to perform a job,
work or service for a principal and if any of the following elements are
present, thus:
1.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
2.The contractor does not exercise the right to control over the
performance of the work of the contractual employee. 9
The CA correctly found that A.C. Sicat is engaged in legitimate job
contracting. It duly noted that A.C. Sicat was able to prove its status as a
legitimate job contractor for having presented the following evidence, to
wit:
1.Certificate of Business Registration;
2.Certificate of Registration with the Bureau of Internal Revenue;
3.Mayor’s Permit;
4.Certificate of Membership with the Social Security System;
5.Certificate of Registration with the Department of Labor and
Employment;
6.Company Profile; and
7.Certifications issued by its clients.10
Furthermore, A.C. Sicat has substantial capital, having assets totaling
5,926,155.76 as of December 31, 2006. Too, its Agreement with Fonterra
clearly sets forth that A.C. Sicat shall be liable for the wages and salaries
of its employees or workers, including benefits, premiums, and protection
due them, as well as remittance to the proper government entities of all
withholding taxes, Social Security Service, and Medicare premiums, in
accordance with relevant laws.
The appellate court further correctly held that Fonterra’s issuance of
Merchandising Guidelines, stock monitoring and inventory forms, and
promo mechanics, for compliance and use of A.C. Sicat’s employees
assigned to them, does not establish that Fonterra exercises control over
A.C. Sicat. We agree with the CA’s conclusion that these were imposed
only to ensure the effectiveness of the promotion services to be rendered
by the merchandisers as it would be risky, if not imprudent, for any
company to completely entrust the performance of the operations it has
contracted out.
These sufficiently show that A.C. Sicat carries out its merchandising and
promotions business, independent of Fonterra’s business.1âwphi1 Thus,
having settled that A.C. Sicat is a legitimate job contractor, We now
determine whether the termination of respondents’ employment with the
former is valid.
We agree with the findings of the CA that the termination of respondents’
employment with the latter was simply brought about by the expiration of
their employment contracts.
Foremost, respondents were fixed-term employees. As previously held by
this Court, fixed-term employment contracts are not limited, as they are
under the present Labor Code, to those by nature seasonal or for specific
projects with predetermined dates of completion; they also include those
to which the parties by free choice have assigned a specific date of
termination.11 The determining factor of such contracts is not the duty of
the employee but the day certain agreed upon by the parties for the
commencement and termination of the employment relationship.12
In the case at bar, it is clear that respondents were employed by A.C. Sicat
as project employees. In their employment contract with the latter, it is
clearly stated that "[A.C. Sicat is] temporarily employing [respondents] as
TMR[s] effective June 6[, 2006] under the following terms and conditions:
The need for your service being only for a specific project, your temporary
employment will be for the duration only of said project of our client,
namely to promote FONTERRA BRANDS products x x x which is expected
to be finished on or before Nov. 06, 2006." 13
Respondents, by accepting the conditions of the contract with A.C. Sicat,
were well aware of and even acceded to the condition that their
employment thereat will end on said pre-determined date of termination.
They cannot now argue that they were illegally dismissed by the latter
when it refused to renew their contracts after its expiration. This is so
since the non-renewal of their contracts by A.C. Sicat is a management
prerogative, and failure of respondents to prove that such was done in bad
faith militates against their contention that they were illegally dismissed.
The expiration of their contract with A.C. Sicat simply caused the natural
cessation of their fixed-term employment thereat. We, thus, see no reason
to disturb the ruling of the CA in this respect.
With these, We need not belabor the other assigned errors.
IN VIEW OF THE FOREGOING, the instant Petition for Review
is GRANTED. The assailed Decision of the Court of Appeals dated
September 6, 2012 and its January 11, 2013 Resolution denying
reconsideration thereof, in CA-G.R. SP No. 114227, are
hereby REVERSED and SET ASIDE. The Decision of the National Labor
Relations Commission dated November 20, 2009 and its Resolution dated
March 5, 2010 in NLRC Case No. RAB IV 12-23927-06-Q are
hereby REINSTATED.

SO ORDERED.

G.R. No. 177592 June 9, 2014

AVELINO S. ALILIN, TEODORO CALESA, CHARLIE HINDANG,
EUTIQUIO GINDANG, ALLAN SUNGAHID, MAXIMO LEE, JOSE G.
MORA TO, REX GABILAN, AND EUGEMA L. LAURENTE, Petitioners,
vs.
PETRON CORPORATION, Respondent.

DECISION

DEL CASTILLO, J.:

A contractor is presumed to be a labor-only contractor, unless it proves

that it has the substantial capital, investment, tools and the like. However,
where the principal is the one claiming that the contractor is a legitimate
contractor, the burden of proving the supposed status of the contractor
rests on the principal.1

This Petition for Review on Certiorari 2 assails the Decision3 dated May 10,
2006 of the Court of Appeals (CA) in CA-G.R. SP No. 01291 which granted
the Petition for Certiorari filed therewith, reversed and set aside the
February 18, 2005 Decision4 and August 24, 2005 Resolution 5 of the
National Labor Relations Commission (NLRC) in NLRC Case No. V-000481-
2003 and dismissed the Complaint for illegal dismissal filed by petitioners
Avelino Alilin (Alilin), Teodoro Calesa (Calesa), Charlie Hindang (Hindang),
Eutiquio Gindang (Gindang), Allan Sungahid (Sungahid), Maximo Lee
(Lee), Jose G. Morato (Morato), Rex Gabilan (Gabilan) and Eugema L.
Laurente (Laurente) against respondent Petron Corporation (Petron). Also
assailed in this Petition is the CA Resolution 6 dated March 30, 2007 which
denied petitioners’ Motion for Reconsideration 7 and Supplemental Motion
for Reconsideration.8

Factual Antecedents
 Petron is a domestic corporation engaged in the oil business. It owns
several bulk plants in the country for receiving, storing and distributing its
petroleum products.
In 1968, Romualdo D. Gindang Contractor, which was owned and operated
by Romualdo D. Gindang (Romualdo), started recruiting laborers for
fielding to Petron’s Mandaue Bulk Plant. When Romualdo died in1989, his
son Romeo D. Gindang (Romeo), through Romeo D. Gindang
Services(RDG), took over the business and continued to provide
manpower services to Petron. Petitioners were among those recruited by
Romualdo D. Gindang Contractor and RDG to work in the premises of the
said bulk plant, with the corresponding dates of hiring and work duties, to
wit:
mployees Date of Hiring Duties
2002. Upon expiration thereof, no further renewal of the service contract
was done.
Proceedings before the Labor Arbiter
Alleging that they were barred fromcontinuing their services on October
16, 2002, petitioners Alilin, Calesa, Hindang, Gindang, Sungahid, Lee,
Morato and Gabilan filed a Complaint10 for illegal dismissal, underpayment
of wages, damages and attorney’s fees against Petron and RDG on
November 12, 2002. Petitioner Laurente filed another Complaint 11 for
illegal dismissal, underpayment of wages, non-payment of overtime pay,
holiday pay, premium pay for holiday, rest day, 13th month pay, service
incentive leave pay, allowances, separation pay, retirement benefits,
damages and attorney’s fees against Petron and RDG. The said complaints
were later consolidated.

tiquio Gindang 1968 utility/tanker receiver/barge

Petitioners did not deny that RDG hired them and paid their salaries. They,
loader/warehouseman/mixer however, claimed that the latter is a labor-only contractor, which merely
gema L. Laurente June 1979 telephone operator/order taker acted as an agent of Petron, their true employer. They asseverated that
their jobs, which are directly related to Petron’s business, entailed them to
odoro Calesa August 1, 1981 utility/tanker receiver/barge loader/sounder/gauger work inside the premises of Petron using the required equipment and tools
furnished by it and that they were subject to Petron’s supervision.
x Gabilan July 1, 1987 warehouseman/forklift driver/tanker receiver/barge
Claiming to be regular employees, petitioners thus asserted that their
loader
dismissal allegedly in view of the expiration of the service contract
arlie T. Hindang September 18, utility/tanker receiver/barge loader/sounder/gauger between Petron and RDG is illegal.
1990
RDG corroborated petitioners’ claim that they are regular employees of
an P. Sungahid September 18, filler/sealer/painter/tanker receiver/utility Petron. It alleged that Petron directly supervised their activities; they
1990 performed jobs necessary and desirable to Petron’s business; Petron
aximo S. Lee September 18, gasul filler/painter/utility provided petitioners with supplies, tools and equipment used in their jobs;
1990 and that petitioners’ workplace since the start of their employment was at
Petron’s bulk plant in Mandaue City. RDG denied liability over petitioners’
elino S. Alilin July 16, 1992 carpenter/driver claim of illegal dismissal and further argued that Petron cannot capitalize
se Gerry M. March 16, 1993 cylinder checker/tanker on the service contract to escape liability.
receiver/grass
orato cutter/janitor/utility
Petron, on the other hand, maintained that RDG is an independent
contractor and the real employer of the petitioners. It was RDG which
On June 1, 2000, Petron and RDG entered into a Contract for Services 9 for hired and selected petitioners, paid their salaries and wages, and directly
the period from June 1, 2000 to May 31, 2002, whereby RDG undertook to supervised their work. Attesting to these were two former employees of
provide Petron with janitorial, maintenance, tanker receiving, packaging RDG and Petron’s Mandaue Terminal Superintendent whose joint
and other utility services in its Mandaue Bulk Plant. This contract was affidavit12 and affidavit,13 respectively, were submitted by Petron. Anent its
extended on July 31, 2002 and further extended until September 30,
allegation that RDG is an independent contractor, Petron presented the 2. Eutiquio Gindang P
following documents: (1) RDG’s Certificate of Registration issued by the 202,800.00
Department of Labor and Employment (DOLE) on December 27,
2000;14 (2) RDG’s Certificate of Registration of Business Name issued by 3. Charlie T. Gindang P
the Department of Trade and Industry (DTI) on August 18, 2000; 15 (3) 91,260.00
Contractor’s Pre-Qualification Statement;16 (4) Conflict of Interest
4. Allan P. Sungahid P
Statement signed by Romeo Gindang as manager of RDG; 17 (5) RDG’s
91,260.00
Audited Financial Statements for the years 1998 18 199919 and 2000;20 (6)
RDG’s Mayor’s Permit for the years 2000 21 and 2001;22 (7) RDG’s 5. Jose Gerry Morato P
Certificate of Accreditation issued by DTI in October 1991; 23 (8) 76,050.00
performance bond24and insurance policy25 posted to insure against
liabilities; (9) Social Security System (SSS) Online Inquiry System 6. Avelino A. Alilin P
Employee Contributions and Employee Static Information; 26 and, (10) 95,680.00
Romeo’s affidavit27 stating that he had paid the salaries of his employees 7. Rex S. Gabilan P
assigned to Petron for the period of November 4, 2001 to December 31, 106,470.00
2001. Petron argued that with the expiration of the service contract it
entered with RDG, petitioners’ term of employment has concomitantly 8. Maximo S. Lee P
ended. And not being the employer, Petron cannot be held liable for 91,260.00
petitioners’ claim of illegal dismissal. 9. Eugema Minao P
Laurente 150,800.00
In a Decision28 dated June 12, 2003,the Labor Arbiter ruled that petitioners
are regular employees of Petron. It found that their jobs were directly Total award ₱1,042,470
related to Petron’s business operations; they worked under the .00
supervision of Petron’s foreman and supervisor; and they were using
Petron’s tools and equipment in the performance of their works. The Labor The other claims are dismissed for lack of merit.
Arbiter also found that Petron merely utilized RDG in its attempt to hide
the existence of employee-employer relationship between it and SO ORDERED.29
petitioners and avoid liability under labor laws. And there being no
showing that petitioners’ dismissal was for just or authorized cause, the
Proceedings before the National Labor Relations Commission
Labor Arbiter declared them to have been illegally dismissed. Petron was
thus held solidarily liable with Romeo for the payment of petitioners’
Petron continued to insist that there is no employer-employee relationship
separation pay (in lieu of reinstatement due to strained relations with
between it and petitioners. The NLRC, however, was not convinced. In its
Petron) fixed at one month pay for every year of service and backwages
Decision30 of February 18, 2005, the NLRC ruled that petitioners are
computed on the basis of the last salary rate at the time of dismissal. The
Petron’s regular employees because they are performing job assignments
dispositive portion of the Decision reads: WHEREFORE, premises
which are germane to its main business. Thus:
considered, judgment is hereby rendered ordering the respondents Petron
Corporation and Romeo Gindang to pay the complainants as follows:
WHEREFORE, premises considered, the Decision of the Labor Arbiter is
hereby affirmed. It is understood that the grant of backwages shall be
1. Teodoro Calesa P until finality of the Decision.
136,890.00
The appeal of respondent Petron Corporation is hereby DISMISSED for lack
of merit.
SO ORDERED.31
The NLRC also denied Petron’s Motion for Reconsideration in its
Resolution32 of August 24, 2005.
Proceedings before the Court of Appeals
Petron filed a Petition for Certiorari with prayer for the issuance of a
temporary restraining order or writ of injunction before the CA. The said
court resolved to grant the injunction. 33 Hence, a Writ of Preliminary
Injunction34 to restrain the implementation of the February 18, 2005
Decision and August 24, 2005 Resolution of the NLRC was issued on March
3, 2006.
In a Decision35 dated May 10, 2006, the CA found no employer-employee
relationship between the parties. According to it, the records of the case
do not show that petitioners were directly hired, selected or employed by
Petron; that their wages and other wage related benefits were paid by the
said company; and that Petron controlled the manner by which they
carried out their tasks. On the other hand, RDG was shown to be
responsible for paying petitioners’ wages. In fact, SSS records show that
RDG is their employer and actually the one remitting their contributions
thereto. Also, two former employees of RDG who were likewise assigned in
the Mandaue Bulk Plant confirmed by way of a joint affidavit that it was
Romeo and his brother Alejandre Gindang who supervised their work, not
Petron’s foreman or supervisor. This was even corroborated by the
Terminal Superintendent of the Mandaue Bulk Plant.
The CA also found RDG to be an independent labor contractor with
sufficient capitalization and investment as shown by its financial
statement for year-end 2000. In addition, the works for which RDG was
contracted to provide were menial which were neither directly related nor
sensitive and critical to Petron’s principal business. The CA disposed of the
case as follows:
WHEREFORE, the Petition is GRANTED. The February 18, 2005 Decision
and the August 24, 2005 Resolution of the Fourth Division of the National
Labor Relations Commission in NLRC Case No. V-000481-2003, entitled
"Teodoro Calesa et al. vs. Petron Corporation and R.D. Gindang Services",
having been rendered with grave abuse of discretion amounting to excess
of jurisdiction, are hereby REVERSED and SET ASIDE and a NEW ONE is
entered DISMISSING private respondents’ complaint against petitioner. It
is so ordered.36
Petitioners filed a Motion for Reconsideration 37 insisting that Petron
illegally dismissed them; that RDG is a labor-only contractor; and that they
performed jobs which are sensitive to Petron’s business operations. To
support these, they attached to their Supplemental Motion for
Reconsideration38 Affidavits39 of former employees of Petron attesting to
the fact that their jobs were critical to Petron’s business operations and
that they were carried out under the control of a Petron employee.
Petitioners’ motions were, however, denied by the CA in a
Resolution40 dated March 30, 2007.
Hence, this Petition.
Issue
The primary issue to be resolved in this case is whether RDG is a
legitimate job contractor. Upon such finding hinges the determination of
whether an employer-employee relationship exists between the parties as
to make Petron liable for petitioners’ dismissal.
Our Ruling
The Petition is impressed with merit. The conflicting findings of the Labor
Arbiter and the NLRC on one hand, and of the CA on the other, constrains
the Court to review the factual issues involved in this case.
As a general rule, the Court does not review errors that raise factual
questions.41 Nonetheless, while it is true that the determination of whether
an employer-employee relationship existed between the parties basically
involves a question of fact, the conflicting findings of the Labor Arbiter and
the NLRC on one hand, and of the CA on the other, constrains the Court to
review and reevaluate such factual findings. 42
Labor-only contracting, distinguished
from permissible job contracting.
The prevailing rule on labor-only contracting at the time Petron and RDG
entered into the Contract for Services in June 2000 is DOLE Department
Order No. 10, series of 1997,43 the pertinent provision of which reads:
Section 4. x x x
xxxx
(f) "Labor-only contracting" prohibited under this Rule is an arrangement
where the contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal and the following
elements are present:
(i) 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
(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.
xxxx
Section 6. Permissible contracting or 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 manufacturers’ products
which do 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.
"Permissible job contracting or subcontracting refers to an arrangement
whereby a principal agrees to farm out with a contractor or subcontractor
the performance 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. Under this arrangement, the following conditions must be met:
(a) the contractor carries on a distinct and independent business and
undertakes 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 contractor or subcontractor assures the
contractual employees’ entitlement to all labor and occupational safety
and health standards, free exercise of the right to self-organization,
security of tenure, and social welfare benefits." 44 Labor-only contracting,
on the other hand, is a prohibited act, defined as "supplying workers to an
employer who 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."45 "[I]n distinguishing between prohibited labor-only contracting
and permissible job contracting, the totality of the facts and the
surrounding circumstances of the case shall be considered." 46 Generally,
the contractor is presumed to be a labor-only contractor, unless such
contractor overcomes the burden of proving that it has the substantial
capital, investment, tools and the like. However, where the principal is the
one claiming that the contractor is a legitimate contractor, as in the
present case, said principal has the burden of proving that supposed
status.47 It is thus incumbent upon Petron, and not upon petitioners as
Petron insists,48 to prove that RDG is an independent contractor.
Petron failed to discharge the burden of
proving that RDG is a legitimate
contractor. Hence, the presumption that
RDG is a labor-only contractor stands.
Here, the audited financial statements and other financial documents of
RDG for the years 1999 to 2001 establish that it does have sufficient
working capital to meet the requirements of its service contract. In fact,
the financial evaluation conducted by Petron of RDG’s financial statements
for years 1998-2000 showed RDG to have a maximum financial capability
of Php4.807 Million as of December 1998, 49 and Php1.611 Million as of
December 2000.50 Petron was able to establish RDG’s sufficient
capitalization when it entered into the service contract in 2000. The Court
stresses though that this determination of RDG’s status as an independent
contractor is only with respect to its financial capability for the period
covered by the financial and other documents presented. In other words,
the evidence adduced merely proves that RDG was financially qualified as
a legitimate contractor but only with respect to its last service contract
with Petron in the year 2000.
As may be recalled, petitioners have rendered work for Petron for a long
period of time even before the service contract was executed in 2000. The
respective dates on which petitioners claim to have started working for
Petron, as well as the fact that they have rendered continuous service to it
until October 16, 2002, when they were prevented from entering the
premises of Petron’s Mandaue Bulk Plant, were not at all disputed by
Petron. In fact, Petron even recognized that some of the petitioners were
initially fielded by Romualdo Gindang, the father of Romeo, through RDG’s
precursor, Romualdo D.Gindang Contractor, while the others were
provided by Romeo himself when he took over the business of his father in
1989.1âwphi1 Hence, while Petron was able to establish that RDG was
financially capable as a legitimate contractor at the time of the execution
of the service contract in 2000, it nevertheless failed to establish the
financial capability of RDG at the time when petitioners actually started to
work for Petron in 1968, 1979, 1981, 1987, 1990,1992 and 1993.
Sections 8 and 9,Rule VIII, Book III 51 of the implementing rules of the Labor
Code, in force since 1976 and prior to DOLE Department Order No. 10,
series of 1997,52 provide that for job contracting to be permissible, one of
the conditions that has to be met is that the contractor must have
substantial capital or investment. Petron having failed to show that this
condition was met by RDG, it can be concluded, on this score alone, that
RDG is a mere labor-only contractor. Otherwise stated, the presumption
that RDG is a labor-only contractor stands due to the failure of Petron to
discharge the burden of proving the contrary. The Court also finds, as will
be discussed below, that the works performed by petitioners were directly
related to Petron’s business, another factor which negates Petron’s claim
that RDG is an independent contractor.
Petron’s power of control over petitioners exists in this case.
"[A] finding that a contractor is a ‘labor-only’ contractor is equivalent to
declaring that there is an employer-employee relationship between the
principal and the employees of the supposed contractor." 53 In this case,
the employer employee relationship between Petron and petitioners
becomes all the more apparent due to the presence of the power of
control on the part of the former over the latter.
It was held in Orozco v. The Fifth Division of the Hon. Court of
Appeals54 that:
This Court has constantly adhered to the "four-fold test" to determine
whether there exists an employer-employee relationship between the
parties. The four elements of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the power to control the employee’s
conduct. Of these four elements, it is the power to control which is the
most crucial and most determinative factor, so important, in fact, that, the
other elements may even be disregarded." (Emphasis supplied)
Hence, the facts that petitioners were hired by Romeo or his father and
that their salaries were paid by them do not detract from the conclusion
that there exists an employer-employee relationship between the parties
due to Petron’s power of control over the petitioners. One manifestation of
the power of control is the power to transfer employees from one work
assignment to another.55 Here, Petron could order petitioners to do work
outside of their regular "maintenance/utility" job. Also, petitioners were
required to report for work everyday at the bulk plant, observe an 8:00
a.m. to 5:00 p.m. daily work schedule, and wear proper uniform and
safety helmets as prescribed by the safety and security measures being
implemented within the bulk plant. All these imply control. In an industry
where safety is of paramount concern, control and supervision over
sensitive operations, such as those performed by the petitioners, are
inevitable if not at all necessary. Indeed, Petron deals with commodities
that are highly volatile and flammable which, if mishandled or not properly
attended to, may cause serious injuries and damage to property and the
environment. Naturally, supervision by Petron is essential in every aspect
of its product handling in order not to compromise the integrity, quality
and safety of the products that it distributes to the consuming public.
Petitioners already attained regular status as employees of Petron.
Petitioners were given various work assignments such as tanker receiving,
barge loading, sounding, gauging, warehousing, mixing, painting,
carpentry, driving, gasul filling and other utility works. Petron refers to
these work assignments as menial works which could be performed by
any able-bodied individual. The Court finds, however, that while the jobs
performed by petitioners may be menial and mechanical, they are
nevertheless necessary and related to Petron’s business operations. If not
for these tasks, Petron’s products will not reach the consumers in their
proper state. Indeed, petitioners’ roles were vital inasmuch as they involve
the preparation of the products that Petron will distribute to its consumers.
Furthermore, while it may be true that any able-bodied individual can
perform the tasks assigned to petitioners, the Court notes the undisputed
fact that for many years, it was the same able-bodied individuals
(petitioners) who performed the tasks for Petron. The engagement of
petitioners for the same works for a long period of time is a strong
indication that such works were indeed necessary to Petron’s business. In
view of these, and considering further that petitioners’ length of service
entitles them to become regular employees under the Labor Code,
petitioners are deemed by law to have already attained the status as
Petron’s regular employees. As such, Petron could not terminate their
services on the pretext that the service contract it entered with RDG has
already lapsed. For one, and as previously discussed, such regular status
had already attached to them even before the execution of the service
contract in 2000. For another, the same does not constitute a just or
authorized cause for a valid dismissal of regular employees.
In sum, the Court finds that RDG is a labor-only contractor. As such, it is
considered merely as an agent of Petron. Consequently, the employer-
employee relationship which the Court finds to exist in this case is
between petitioners as employees and Petron as their employer. Petron
therefore, being the principal employer and RDG, being the labor-only
contractor, are solidarily liable for petitioners' illegal dismissal and
monetary claims.56
WHEREFORE, the Petition is GRANTED. The May 10, 2006 Decision and
March 30, 2007 Resolution of the Court of Appeals in CA-G.R. SP No.
01291 are REVERSED and SET ASIDE. The February 18, 2005 Decision and
August 24, 2005 Resolution of the National Labor Relations Commission in
NLRC Case No. V-000481-2003 are hereby REINSTATED and AFFIRMED.
SO ORDERED.
G.R. No. 160506 June 6, 2011
JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO
AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO
PLATON, JOSE FERNANDO GUTIERREZ, ESTANISLAO
BUENAVENTURA, LOPE SALONGA, FRANZ DAVID, NESTOR IGNACIO,
JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO
CALANAO, ROLANDO ROMASANTA, RHUEL AGOO, BONIFACIO
ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA, ROBERTO
ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS Factual Antecedents
BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN
GARCIA, ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, Petitioners worked as merchandisers of P&G from various dates, allegedly
CRESENTE J. GARCIA, FERNANDO MACABENTE, MELECIO CASAPAO, starting as early as 1982 or as late as June 1991, to either May 5, 1992 or
REYNALDO JACABAN, FERDINAND SALVO, ALSTANDO MONTOS, March 11, 1993, more specifically as follows:
RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY, LEONARDO P.
TALLEDO, ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO SOYOSA,
Date Date
ROMEO VASQUEZ, JOEL BILLONES, ALLAN BALTAZAR, NOLI Name
Employed Dismissed
GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL DULAY,
TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES, ANTONIO November,
1. Joeb M. Aliviado May 5, 1992
DACUNA, RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO, 1985
WILFREDO TORRES, MELCHOR CARDANO, MARIANO NARANIAN,
JOHN SUMERGIDO, ROBERTO ROSALES, GERRY C. GATPO, GERMAN March 11,
2. Arthur Corpuz 1988
N. GUEVARRA, GILBERT Y. MIRANDA, RODOLFO C. TOLEDO, 1993
ARNOLD D. LASTONA, PHILIP M. LOZA, MARIO N. CULDAYON, March 11,
ORLANDO P. JIMENEZ, FRED P. JIMENEZ, RESTITUTO C. 3. Eric Aliviado 1985
1993
PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ BUSTENERA,
ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, September, March 11,
4. Monchito Ampeloquio
ALEJANDRINO ABATON, and ORLANDO S. BALANGUE, Petitioners, 1988 1993
vs. 5. Abraham Basmayor[, March 11,
PROCTER & GAMBLE PHILS., INC., and PROMM-GEM 1987
Jr.] 1993
INC., Respondents.
March 11,
6. Jonathan Mateo May, 1988
DECISION 1993
March 11,
DEL CASTILLO, J.: 7. Lorenzo Platon 1985
1993
Labor laws expressly prohibit "labor-only" contracting. To prevent its 8. Jose Fernando Gutierrez 1988 May 5, 1992
circumvention, the Labor Code establishes an employer-employee
9. Estanislao March 11,
relationship between the employer and the employees of the ‘labor-only’ June, 1988
Buenaventura 1993
contractor.
March 11,
10. Lope Salonga 1982
1
The instant petition for review assails the March 21, 2003 Decision of the 1993
Court of Appeals (CA) in CA-G.R. SP No. 52082 and its October 20, 2003
March 11,
Resolution2 denying the motions for reconsideration separately filed by 11. Franz David 1989
1993
petitioners and respondent Procter & Gamble Phils. Inc. (P&G). The
appellate court affirmed the July 27, 1998 Decision of the National Labor March 11,
Relations Commission (NLRC), which in turn affirmed the November 29, 12. Nestor Ignacio 1982
1993
1996 Decision3 of the Labor Arbiter. All these decisions found Promm-Gem,
Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be 13. Julio Rey 1989 May 5, 1992
legitimate independent contractors and the employers of the petitioners. 14. Ruben [Vasquez], Jr. 1985 May 5, 1992
15. Maximino Pascual 1990 May 5, 1992 March 11,
34. Melecio Casapao 1987
1993
16. Ernesto Calanao[, Jr.] 1987 May 5, 1992
35. Reynaldo Jacaban 1990 May 5, 1992
March 11,
17. Rolando Romasanta 1983
1993 36. Ferdinand Salvo 1985 May 5, 1992
March 11, March 11,
18. [Roehl] Agoo 1988 37. Alstando Montos 1984
1993 1993
March 11, 38. Rainer N. Salvador 1984 May 5, 1992
19. Bonifacio Ortega 1988
1993
March 11,
39. Ramil Reyes 1984
March 11, 1993
20. Arsenio Soriano, Jr. 1985
1993
40. Pedro G. Roy 1987
March 11,
21. Arnel Endaya 1983 March 11,
1993 41. Leonardo [F]. Talledo 1985
1993
22. Roberto Enriquez March 11,
1988 March 11,
December, 1993 42. Enrique [F]. Talledo 1988
1993
23. Nestor [Es]quila 1983 May 5, 1992
43. Willie Ortiz 1987 May 5, 1992
March 11,
24. Ed[g]ardo Quiambao 1989 44. Ernesto Soyosa 1988 May 5, 1992
1993
March 11, March 11,
25. Santos Bacalso 1990 45. Romeo Vasquez 1985
1993 1993

March 11, March 11,

26. Samson Basco 1984 46. Joel Billones 1987
1993 1993

27. Aladino Gregor[e], Jr. 1980 May 5, 1992 March 11,

47. Allan Baltazar 1989
1993
28. Edwin Garcia 1987 May 5, 1992
March 11,
48. Noli Gabuyo 1991
29. Armando Villar 1990 May 5, 1992 1993
March 11, 49. Emmanuel E. Laban 1987 May 5, 1992
30. Emil Tawat 1988
1993
50. Ramir[o] E. [Pita] 1990 May 5, 1992
31. Mario P. Liongson 1991 May 5, 1992
51. Raul Dulay 1988 May 5, 1992
March 11,
32. Cresente J. Garcia 1984 52. Tadeo Duran[o] 1988 May 5, 1992
1993
33. Fernando Macabent[a] 1990 May 5, 1992 March 11,
53. Joseph Banico 1988
1993
54. Albert Leynes 1990 May 5, 1992 March 11,
74. Rolando J. de Andres June, 1991
1993
55. Antonio Dacu[m]a 1990 May 5, 1992
December, March 11,
56. Renato dela Cruz 1982 75. Artuz Bustenera[, Jr.]
1989 1993
57. Romeo Viernes, Jr. 1986 March 11,
76. Roberto B. Cruz May 4, 1990
58. El[ia]s Bas[c]o 1989 1993

59. Wilfredo Torres 1986 May 5, 1992 77. Rosedy O. Yordan June, 1991 May 5, 1992

60. Melchor Carda[ñ]o 1991 May 5, 1992 78. Dennis Dacasin May. 1990 May 5, 1992

61. [Marino] [Maranion] 1989 May 5, 1992 79. Alejandrino Abaton 1988 May 5, 1992

62. John Sumergido 1987 May 5, 1992 March 11,

80. Orlando S. Balangue March, 1989
19934
63. Roberto Rosales May, 1987 May 5, 1992
November, March 11, They all individually signed employment contracts with either Promm-Gem
64. Gerry [G]. Gatpo
1990 1993 or SAPS for periods of more or less five months at a time. 5 They were
assigned at different outlets, supermarkets and stores where they handled
March 11,
65. German N. Guevara May, 1990 all the products of P&G. They received their wages from Promm-Gem or
1993
SAPS.6
March 11,
66. Gilbert Y. Miranda June, 1991
1993 SAPS and Promm-Gem imposed disciplinary measures on erring
merchandisers for reasons such as habitual absenteeism, dishonesty or
March 11, changing day-off without prior notice.7
67. Rodolfo C. Toledo[, Jr.] May 14, 1991
1993
March 11, P&G is principally engaged in the manufacture and production of different
68. Arnold D. [Laspoña] June 1991 consumer and health products, which it sells on a wholesale basis to
1993
various supermarkets and distributors.8 To enhance consumer awareness
March 11, and acceptance of the products, P&G entered into contracts with Promm-
69. Philip M. Loza March 5, 1992
1993 Gem and SAPS for the promotion and merchandising of its products. 9
March 11,
70. Mario N. C[o]ldayon May 14, 1991 In December 1991, petitioners filed a complaint 10 against P&G for
1993
regularization, service incentive leave pay and other benefits with
November 6, March 11, damages. The complaint was later amended 11 to include the matter of
71. Orlando P. Jimenez
1992 1993 their subsequent dismissal.
September, March 11,
72. Fred P. Jimenez Ruling of the Labor Arbiter
1991 1993
73. Restituto C. March 11, On November 29, 1996, the Labor Arbiter dismissed the complaint for lack
March 5, 1992
Pamintuan, Jr. 1993 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:
WHEREFORE, premises considered, judgment is hereby rendered
Dismissing the above-entitled cases against respondent Procter & Gamble
(Phils.), Inc. for lack of merit.
SO ORDERED.12
Ruling of the NLRC
Appealing to the NLRC, petitioners disputed the Labor Arbiter’s findings.
On July 27, 1998, the NLRC rendered a Decision 13 disposing as follows:
WHEREFORE, premises considered, the appeal of complainants is hereby
DISMISSED and the decision appealed from AFFIRMED.
SO ORDERED.14
Petitioners filed a motion for reconsideration but the motion was denied in
the November 19, 1998 Resolution.15
Ruling of the Court of Appeals
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. However, said petition was also denied
by the CA which disposed as follows:
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.
SO ORDERED.16
Petitioners filed a motion for reconsideration but the motion was also
denied. Hence, this petition.
Issues
Petitioners now come before us raising the following issues:
I.
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 ERROR WHEN IT DID NOT DECLARE
THAT THE PUBLIC RESPONDENTS HAD ACTED WITH GRAVE ABUSE
OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE
RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF
ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS
LITIGATION COSTS AND ATTORNEY’S FEES.17
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 actual, moral and
exemplary damages as well as litigation costs and attorney’s fees.
Petitioners’ Arguments
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 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 to the agencies which P&G created. 18
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 Services Contract will no
longer be renewed.
Petitioners further assert that Promm-Gem and SAPS are labor-only
contractors providing services of manpower to their client. They claim that
the contractors have neither substantial capital nor tools and equipment
to undertake independent labor contracting. Petitioners insist 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
Respondents’ Arguments
On the other hand, P&G points out that the instant petition raises only
questions of fact and 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 deemed binding and
conclusive on the Supreme Court.
P&G further argues that there is no employment relationship between it
and petitioners. It was Promm-Gem or SAPS that (1) selected petitioners
and engaged their services; (2) paid their salaries; (3) wielded the power
of dismissal; and (4) had the power of control over their conduct of work.
P&G also contends that the Labor Code neither defines nor limits which
services or activities may be validly outsourced. Thus, an employer can
farm out any of its activities to an independent contractor, regardless of
whether such activity is peripheral or core in nature. It insists that the
determination of whether to engage the services of a job contractor or to
engage in direct hiring is within the ambit of management prerogative.
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
In order to resolve the issue of whether P&G is the employer of
petitioners, it is necessary to first determine whether Promm-Gem and
SAPS are labor-only contractors or legitimate job contractors.
The pertinent Labor Code provision on the matter states:
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 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 and underscoring supplied.)
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
anindependent 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 statements 26 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 letter 51 dated February 24, 1993, x x
x It is obvious from its act that SAPS had no other clients and had no
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 x52
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.
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 acts 56 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.1avvphi1
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.