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F: Petitioners PBC and CESI entered into a letter agreement where CESI undertook
to provide Temporary Services consisting of 11 messengers from January 1976--(o
nwards). Respondent Orpiada was one of these messengers.
Orpiada worked with the petitioner bank until PBC requested CESI to withdraw Orp
iada, as he was supposedly no longer needed, leading toa complaint for illegal
LA: Illegal dismissal.
NLRC: LA decision affirmed. Was appealed straight to the Supreme Court
Args: No e-er; CESI was the employer :: Basis: key provisions from the letter ag
I: Whether or not CESI, and not PBC, was the employer of respondent Orpiada.
H/R: NO.
- The four-point test was used to determine the existence of an employee-employe
r relationship (selection, payment, dismissal, control).
- Selection: CESI hired Orpiada for the purpose of assigning him to the
bank, who will ultimately accept him.
- Payment: Daily service rate was remitted to CESI, who in turn released
their wages [payroll].
- Dismissal: CESI was requested to withdraw assignment, and to dismissal
Orpiada outright.
- Control: Orpiada performed within the premises of PBC; he must have be
en subject to the same control any other person would be subjected to.
- Effect: Mixed results. Some gravitate towards e-er being solely towards CESI,
while some gravitate towards PBC. There is a TRI-LATERAL RELATIONSHIP between th
e bank, CESI, and Orpiada:: the e-er between CESI and Orpiada was established pr
ecisely for the bank. Hence, it must be determined then if this relationship is
an acceptable contractual agreement (independent contractor) as opposed to a lab
or-only contractor that is frowned under the law.
I: Whether or not CESI was a labor-only contractor.
- Art. 106 and 107 LC provide for key definitions: labor-only contracting exists
when the person supplying workers to an employer does not have substantial capi
tal or investment in the form of tools, equipment, machineries, etc., and the wo
rkers recruited and placed are performing activitis directly related to the prin
cipal business of the employer (where the contracting is meant to circumvent the
code). In such a case, the 'contracting agency' will be considered an agent of
the employer. Art. 106 also applies to independent contractors (non-payment).
- The petitioners insist that they were not labor-only contractors. However, Sec
. 9 of Rule VIII of Book III of the Omnibus Rules Implementing the Labor Code sh
ow otherwise.
- Labor-only if: person supplying employees does not have substantial ca
pital/investment and workers recruited/placed perform activites for principal bu
siness of the employer; such is prohibited under law
- Independent if: independent business; contract done own account under
own responsibility free from control and direction of employer in all matters ex
cept as to the result, and substantial capital/investment
- Arg: CESI has substantial capital and investment.
- Court: The rules must be read together. CESI's undertaking was not the perform
ance of a specific job. It is a general messenger job where the messengers work
in and under the bank. Messengerial work is admittedly essential to the day-to-d
ay operations of the bank. CESI, on the other hand, is a general placement corpo
- While this type of contractual arrangement is permissible, what makes this pro
blematic is the contract itself. The contract period was indefinite-- under the
LC, employment for at least one year under an indefinite term makes one a regula
r employee that enjoys security of tenure. It appears that the contractual agree
ment was a means to deny security of tenure, which Art. 106 of the LC frowns upo
- KEY: Circumstances alongside the contractual provisions show that the intent w
as really to use the contractual arrangement to circumvent security of tenure.
F: AMPCO hired the services of respondents, who were later assigned to SMC's bot
tling plant in Bacolod to segregate bottles, remove dirt thereform, file in desi
gnated places, load and unload to/from delivery trucks, and to do other tasks as
may be ordered bySMC. They worked inside the premises of SMC using SMC's equipm
ent for more than 6 months.
At this point, SMC entered into a Contract of Services with AMPCO designating AM
PCO as the employer of the respondents, leaving them unable to claim the rights
and benefits of regular employees of SMC. In 1995, the respondents were not allo
wed to enter the premises of SMC, leading to a complaint for illegal dismissal.
Args: Activities were necessary and desirable; controlled by SMC; SMC used AMPCO
to evade payment of benefits
Ans: AMPCO was an independent contractor.
LA: Semillano et al. were regular employees of SMC.
NRLC: Affirmed LA decision, but on MR reversed due to substantial capital of at
least 1 million and the supposed control of AMPCO over the respondents.
CA: Reinstated LA. Control and dismissal actually under SMC.
I: Whether or not an e-er exists between the respondents and SMC.
- Args: Reliance of contract (AMPCO to provide...; AMPCO with exclusive discreti
on/wages); actually action for regularization, which is not recognized or allowe
d by law; repeated arguments in lower courts
- The definitions of job contracting and labor-only contracting were taken from
DOLE DO No. 10 s-1997. Sec. 8 provides that job contracting requires a confluenc
e of factors: independent business, own responsibility, free from control, and s
ubstantial capital/investment. Labor-only contracting requires lack of capital/i
nvestment and the placement of workers in activities directly related to princip
al business/operations of the employer.
- Substantial capital/investment refers to such stock/equipment actually and dir
ectly used by the contractor/subcontractor in the performance or completion of t
he job work or service contracted out. Right to control in IC refers to control
over result, manner, and means.
- In this case, the court relies on multiple factors: independent business, natu
re of work, skill required, term and duration of relationship, right to assign,
right of control, right to dismiss, right over premises, and duty to supply.
- Although it appears that AMPCO and SMC have an independent contractor relation
ship based on the contract, various factors reveal otherwise:
- AMPCO's actual capital falls way under the P1m required under law
- AMPCO's actual equipment was not the type that could be used in the pe
rformance or completion of the contracted job (in fact, it was mentioned that th
ey used SMC's equipment)
- Control: circumstances show that it was SMC that indeed had control (n
o evidence showing AMPCO actually took control; had to wait for SMC's decisions)
- Certificates do not conclusively prove status when the facts clearly show othe
- NOTE: When some of the elements are present, there is the presumption that a c
ontractual set-up is a LABOR-ONLY CONTRACTOR set-up.
F: On Feb 8 2000, the respondent filed a complaint for illegal dismissal and non
-payment of wages/premium pay/etc. against Polyfoam. He alleged that he was hire
d by Polyfoam as an all-around factory worker, and worked there for six years. O
ne day, his time card was no longer present as he was dismissed due to an infarc
tion of a company rule (which was never mentioned).
However, Gramaje filed a Motion for Inttervention claiming to be the real employ
er of respondent; Polyfoam then claimed that there was no e-er, and used that as
a ground for a Motion to Dismiss. Gramaje was then admitted as an indispensable
party, while Polyfoam's mtd was denied as the lack of e-er is not one of the gr
ounds for a mtd.
Gramaje then claims that PAGES is a legit job contractor that provided Polyfoam'
s manpower needs. Concepcion was a packer assigned to Polyfoam. They also claim
that Concepcion abandoned his work.
LA: Illegal dismissal. Polyfoam and PAGES solidarily liable.
NLRC: Illegal dismissal, but only PAGES liable. Independent contractor (Gramaje
had control, had own equipment and even supplied the materials used in perofrmin
g duties, paid wages)
CA: Reinstated LA decision. Labor-only contractor (Gramaje failed to: present fi
nancial statement, contract with Polyfoam, show a valid DOLE license, show it wa
s registered as a private receruitment agency, present a SSS collection list tha
t was not doubtful; fact that both petitioners represented by only one law firm
was considered). These, and other factors, show that Gramaje was just establishe
d to evade the obligations inherent in an e-er.
I: Whether or not there was an e-er between Polyfoam and respondent (was Gramaje
an IC).
- Citing Arts. 105 and 106 and Sasan v NLRC, the Court again makes the distincti
on between independent and labor-only contracting. The key test for determining
the nature of a contractual relationship was enunciated in SMC v Semillano, and
was applied in this case (totality of factors in spite of the surface relations)
- Applying these tests, Gramaje is a labor-only contractor.
- No substantial capital. Presumption of labor-only contracting unless e
vidence shows otherwise. Only a bare statement was presented in order to substan
tiate the alleged capital/investment. There was no concrete evidence of the mach
ines used. Impl: Actually used Polyfoam's equipment.
- No independent business/own control. Was always treated as a Polyfoam
employee, and Polyfoam even furnished a copy of its own employee manual. No cont
racts or proof that Gramaje had control.
- Effect: Labor-only contractor.
- Was illegally dismissed.
F: The respondents were hired by Norkis trading, a domestic corporation engaged
in the business of manufacturing and marketing of Yamaha motorcycles and multi-p
urpose vehicles. Though they were skilled works assigned in the operation of key
machinery, they were not treated as regular employees by Norkis. Instead, they
were treated as members and employees of PASAKA, a cooperative and independent c
However, the machineries and materials used were owned by Norkis, and instructio
ns/salaries were being handled by Norkis. Still, they were never accorded regula
r status, leading to a complaint for labor-only contracting and non-payment of m
inimum wage and overtime pay.
The filing of the compaint led to the suspension of their membership as PASAKA;
they were later charged with serious violations of their coop's rules and regula
After their suspension, they were to report back to work, but they were transfer
red by PASAKA to a different company as washers of Multicab vehicles-- this they
also oppose as this would be a change of employers AND a demotion. (this they a
mended to the original complaint)
Ans: Not employees of Norkis Trading; PASAKA as IC pursuant to job contract; cla
ims that the respondents were not efficient at work, which led to their suspensi
NLRC: LA DECISION AFFIRMED with MODIFICATION. No illegal suspension-- based on a
violation. Dismissal not established by substantial evidence.
CA: REVERSED. Job contract not held controlling on its own. Key evidence: Payrol
l prior to the signing of job order.
I: Whether or not PASAKA is the actual 'employer' of the respondents.
H/R: NO.
- Elements of labor-only contracting: no substantial capital/investment, employe
es supplied perform activities directly related to main business of the principa
- Contrast to legitimate contracting: contractor with independent business, own
control except as to result, substantial capital/investment, agreement ensures e
ntitlement to benefits and standards under law
- Petitioners' arguments are mooted by the findings of the Court in prior resolu
tions. The regional director of DOLE and CA found that it was undisputed that th
e material and equipment used were owned by Norkis. Though PASAKA had some inves
tment, it was not shown that their investment was used in the conduct of its bus
- They also failed to prove that their sub-contracting arrangements fall under t
hose allowed in Sec. 6 of DO 10 s-1997>> it was not even proper sub-contracting
(Sec. 4 of same DO-- no substantial capital, was under control of principal, fai
lure to meet the agreement re standards and benefits).
- (CA found that the circumstances fall squarely under the elements of labor-onl
y contracting)
- At this point, previous findings in the resolution now res judicata.
- Conclusion: Solidarily liable.
[No evidence required to show fact of dismissal; the agent's acts are the acts o
f the principal, which here is the transfer-- which they don't deny :: not even
proper management prerogative as it should be within the company]
F: Petitioner engaged the services of LANCER to provide reliever services to its
business (manufacture and sale of corrugated boxes). The respondents were then
engaged for four months in loading/unloading/segregation of said boxes. Later, t
he respondents file a complaint for underpayment of wages, non-payment of premiu
ms, etc.
The DOLE found that there was no presentation of payrolls and daily time records
, submission of annual report of safety/medical reports, registraton of establis
hment under Rule 1020 of Occupational and Health Standards, and trainged first a
id. The claims were granted.
Reply: Respondents were employees of LANCER.
DOLE: Denied MR. Failed to support claim that the respondents were not its emplo
yees. Even then, Sec. 13 DO 10 s-1997 applicable (principal solidarily liable to
extent of work performed when contractor fails to pay wages). AFFIRMED BY CA.
Both solidarily liable
I: Whether or not LANCER was the actual employer of the respondents.
H/R: NO.
- Arg: Solidary liability of principal does not extend to a punitive ward agains
t a contractor; no evidence showing overtime work. Merely indirect employer.
- Key proof that LANCER was LOC: authorized capital stock was P400k, but actual
capital stock was P25k. Investment not enough for day-to-day operations. Though
there is no absolute figure for substantial capital, it can be determined in pro
portion to the type of work performed (esp. as here, the work was directly relat
ed to the petitioner's business). The disparity shows that LANCER was LOC. Petit
ioner liable as principal as LANCER treated as agent.
I. Facts:
- Eparwa and LDCU entered into a Contract for Security Services. Among the
pertinent stipulations are:
o LDCU to pay P5000/month/guard payable 15 days after Eparwa submits its i
o LDCU to be furnished a monthly copy of SSS countributions and payroll
- However, at around the Christmas season, several guards filed a complain
t before the NLRC against Eparwa and LDCU for underpayment of salaries and other
benefits (wage differentials, holiday premiums). LDCU, on the other hand, made
a cross claim and prayed that Eparwa should reimburse LDCU for any payment.
- The Labor Arbiter ruled in favour of the security guards; at the same ti
me, LDCU and Eparwa were held solidarily liable pursuant to Art. 109 LC. Eparwa
would reimburse LDCU for any amounts paid.
o LDCU agreed with the decision except on the salary differential as some
of the security guards were differently situatedmerit and situation should be bas
is of award.
o Eparwa filed an appeal for its liabilities regarding the claims.
- NLRC modified the judgment of the Labor Arbiter in the following ways:
o Eparwa not required to reimburse LDCU, but liability is still solidary.
o Monetary awards should be recomputed according to dates worked by securi
ty guard (i.e. merit).
- On MR, NLRC declared that LDCU alone should be ultimately liable in spit
e of the solidary liability, and that it is LDCU who should reimburse Eparwa.
- The CA reinstated the Labor Arbiter decision and allowed LDCU to claim r
II. Issues:
1. Whether or not LDCU is ultimately liable for the payment of the wage dif
ferentials and premiums?
III. Held:
1. Yes, LDCU is ultimately liable because the expiration of the Contract of
Security Services has altered the liability of both parties.
IV. Ratio:
n: In this case, it appears that EPARWA was a legitimate contractor. This deals
with a case of solidary liability outside the other cases on L-OC.
- The court looked at its ruling in Eagle Security v. NLRC vis--vis Article
s 106, 107, and 109 of the Labor Code. It must be noted the facts in both cases
are very similar. Of note are the following parts of the decision:
o It must be first be noted that the direct employer of the security guard
s is the agency itself, with the contracting company having a direct contractual
relationship with the agency and an indirect employer relationship with the gua
o In Eagle, the contracts with the company have already expiredthere is no
more relationship binding the company and the security agency. However, they bot
h have some kind of employee-employer relationship with the guardsthe obligation
to pay the guards remains, with solidary liability between the two parties. Howe
ver, the following points should be noted:
Normally, if either side paid the guards whatever needs to be paid, the other co
mpany should reimburse the side that paid the guards.
In this situation, there is no more contractual relationship between the company
and the agency. The Court held that the following should happen if the given sc
enarios arise:
If the company pays the guards, there is no reimbursement.
If the agency pays the guards, the company should reimburse.
- Why should the company reimburse the agency if the latter should pay?
o The payment of the security guards is the obligation of both employersthe
direct employer because they are the ones who furnish the money to the guards,
and the indirect employer because it is ultimately the source of the money which
is paid to the guards. This is why they are solidarily liable.
o However, there is no more contractual relationship due to the expiration
of the Contract for Security Services. The company is still liable because of A
rticles 106, 107, and 109 of the Labor Code (as indirect employer). The agency
is of course liable as the direct employer. However, in the absence of the contr
actual relationship, only the agency is entitled to reimbursement because the fu
nds are really supposed to come out of the contracting company in this situation