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G.R. No. 110068, February 15, 1995, EN BANC, (FELICIANO, J.)

Philippine Duplicators, Inc. (Duplicators) is assailing the decision of the NLRC directing petitioner to pay
13th month pay to private respondent employees computed on the basis of their fixed wages plus sales
commissions. The Third Division denied with finality on 15 December 1993 the Motion for Reconsideration filed
(on 12 December 1993) by petitioner.

On 17 January 1994, petitioner Duplicators filed (a) a Motion for Leave to Admit Second Motion for
Reconsideration and (b) a Second Motion for Reconsideration. This time, petitioner invoked the decision handed
down by this Court, through its Second Division, on 10 December 1993 in the two (2) consolidated cases of Boie-
Takeda Chemicals, Inc. vs. Hon. Dionisio de la Serna and Philippine Fuji Xerox Corp. vs. Hon. Cresenciano B. Trajano, in G.R.
Nos. 92174 and 102552.

ISSUE: Is the sales commission earned by the salesmen who make or close a sale of duplicating machines distributed
by petitioner corporation, constitute part of the compensation or remuneration paid to salesmen for serving as
salesmen, and hence as part of the 'wage' or salary of petitioner's salesmen?

The Third Division held, correctly, that the sales commissions were an integral part of the basic salary
structure of Philippine Duplicators' employees-salesmen. These commissions are not overtime payments, nor profit-
sharing payments nor any other fringe benefit. Thus, the salesmen's commissions, comprising a pre-determined
percent of the selling price of the goods sold by each salesman, were properly included in the term "basic salary" for
purposes of computing their 13[th] month pay.

The Supplementary Rules and Regulations Implementing P.D. No. 851 subsequently issued by former Labor
Minister Ople sought to clarify the scope of items excluded in the computation of the 13th month pay; viz.

"Sec. 4. Overtime pay, earnings and other remunerations which are not part of the basic salary shall
not be included in the computation of the 13th month pay."

We observe that the third item excluded from the term "basic salary" is cast in open ended and apparently
circular terms: "other remunerations which are not part of the basic salary." However, what particular types of
earnings and remuneration are or are not properly included or integrated in the basic salary are questions to be
resolved on a case to case basis, in the light of the specific and detailed facts of each case. In principle, where these
earnings and remuneration are closely akin to fringe benefits, overtime pay or profit-sharing payments, they are
properly excluded in computing the 13th month pay. However, sales commissions which are effectively an integral
portion of the basic salary structure of an employee, shall be included in determining his 13th month pay.


We recognize that both productivity bonuses and sales commissions may have an incentive effect. But there
is reason to distinguish one from the other here. Productivity bonuses are generally tied to the productivity or profit
generation of the employer corporation. Productivity bonuses are not directly dependent on the extent an individual
employee exerts himself. A productivity bonus is something extra for which no specific additional services are
rendered by any particular employee and hence not legally demandable, absent a contractual undertaking to pay it.
Sales commissions, on the other hand, such as those paid in Duplicators, are intimately related to or directly
proportional to the extent or energy of an employee's endeavors. Commissions are paid upon the specific results
achieved by a salesman-employee. It is a percentage of the sales closed by a salesman and operates as an integral part
of such salesman's basic pay.

G.R. No. 92174, December 10, 1993, Second Division, (NARVASA, C.J.)
G.R. NO. 102552. DECEMBER 10, 1993, Second Division, (NARVASA, C.J.)

2 cases were consolidated involving similar issues. A routine inspection was conducted in the premises of
petitioner Boie-Takeda Chemicals, Inc. Finding that Boie-Takeda had not been including the commissions earned by
its medical representatives in the computation of their 13th month pay, The officer served a Notice of Inspection
Results on Boie-Takeda requiring Boie-Takeda within ten (10) calendar days from notice to effect restitution or
correction of "the underpayment of 13th month pay for the year(s) 1986, 1987 and 1988 of Med Rep (Revised
Guidelines on the Implementation of 13th month pay # 5) in the total amount of P558,810.89."

Boie-Takeda wrote the Labor Department contesting the Notice of Inspection Results because according to
the law, only basic salary is required
. Regional Director directed Boie-Takeda to pay the said amount. On appeal
before the Acting Labor Secretary, the commissions shall be excluded in the computation of their 13th month pay. A
similar inspection was also conducted in the premises of Philippine Fuji Xerox Corp. The two companies had the
same counsel who filed a complaint against labor officials Hon. Dionisio dela Serna and Undersecretary Cresenciano
B. Trajano in issuing the questioned Orders and attacked Section 5 Revised Guidelines of P. D. 851

ISSUE: Are Commissions of Sales Representatives excluded from the computation of 13
month pay?

YES. In remunerative schemes consisting of a fixed or guaranteed wage plus commission, the fixed or
guaranteed wage is patently the "basic salary" for this is what the employee receives for a standard work period.
Commissions are given for extra efforts exerted in consummating sales or other related transactions. They are, as
such, additional pay, which this Court has made clear do not form part of the "basic salary."

Respondents would do well to distinguish this case from Songco vs. National Labor Relations Commission, supra,
upon which they rely so heavily. What was involved therein was the term "salary" without the restrictive adjective
"basic". Thus, in said case, we construed the term in its generic sense to refer to all types of "direct remunerations for
services rendered," including commissions. In the same case, we also took judicial notice of the fact "that some
salesmen do not receive any basic salary but depend on commissions and allowances or commissions alone, although
an employer-employee relationship exists," which statement is quite significant in that it speaks of a "basic salary"
apart and distinct from "commissions" and "allowances". Instead of supporting respondents' stand, it would appear
that Songco itself recognizes that commissions are not part of "basic salary."

In including commissions in the computation of the 13th month pay, the second paragraph of Section 5 (a)
of the Revised Guidelines on the Implementation of the 13th Month Pay Law unduly expanded the concept of "basic
salary" as defined in P.D. 851. It is a fundamental rule that implementing rules cannot add to or detract from the
provisions of the law it is designed to implement. Administrative regulations adopted under legislative authority by a
particular department must be in harmony with the provisions of the law they are intended to carry into effect. They
cannot widen its scope. An administrative agency cannot amend an act of Congress.

WHEREFORE, the consolidated petitions are hereby GRANTED. The second paragraph of Section 5 (a) of the
Revised Guidelines on the Implementation of the 13th Month Pay Law issued on November 16, 1987 by then Labor
Secretary Franklin M. Drilon is declared null and void as being violative of the law said Guidelines were issued to
implement, hence issued with grave abuse of discretion correctible by the writ of prohibition and certiorari.

b) "Basic Salary" shall include all remunerations or earnings paid by an employer to an employee for services rendered but may not include
cost-of-living allowances granted pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174, profit-sharing payments, and all
allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.
5. 13th Month Pay for Certain Types of Employees.
(a) Employees Paid by Results.- Employees who are paid on piece work basis are by law entitled to the 13th month pay.
Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the mandated 13th month pay based on their total
earnings during the calendar year, i.e., on both their fixed or guaranteed wage and commission.
G.R. No. 158255, July 8, 2004, FIRST DIVISION (Ynares-Santiago, J.)

Manila Water Company, Inc. is contracted by the Metropolitan Waterworks and Sewerage System (MWSS) to
manage the water distribution system in the East Zone of Metro Manila. Manila Water absorbed the former
employees of the MWSS whose names and positions were in the list furnished by the latter, while the employment of
those not in the list was terminated on the day Manila Water took over the operation of the East Zone. Respondents,
being contractual collectors of the MWSS, were among the 121 employees not included in the list. Manila Water
engaged their services without written contract. Then, they signed a three-month contract to perform collection
services for 8 branches of Manila Water in the East Zone. Before the end of the three-month contract, the 121
collectors incorporated the Association Collectors Group, Inc. (ACGI), which was contracted by Manila Water to
collect charges for the Balara Branch. Subsequently, most of the 121 collectors were asked by Manila Water to transfer
to the First Classic Courier Services, a newly registered corporation. Respondents remained with ACGI. Later, Manila
Water terminated its contract with ACGI.

Respondents filed a complaint for illegal dismissal and money claims, contending that they were Manila
Waters employees as all the methods and procedures of their collections were controlled by the latter. Manila Water
asserts that respondents were employees of ACGI, an independent contractor. It maintained that it had no control
and supervision over private respondents manner of performing their work except as to the results. Thus, Manila
Water did not have an employer-employee relationship with the private respondents, but only a service contractor-
client relationship with ACGI.

ISSUE: Is ACGI an independent contractor?

NO. ACGI was engaged in labor-only contracting, and as such, is considered merely an agent of the
petitioner. Since ACGI is only a labor-only contractor, the workers it supplied should be considered as employees of
Manila Water.

First, ACGI does not have substantial capitalization or investment in the form of tools, equipment,
machineries, work premises, and other materials, to qualify as an independent contractor. While it has an authorized
capital stock of P1,000,000.00, only P62,500.00 is actually paid-in, which cannot be considered substantial
capitalization. The 121 collectors subscribed to four shares each and paid only the amount of P625.00 in order to
comply with the incorporation requirements. Respondents reported daily to the branch office of Manila Water
because ACGI has no office or work premises. The corporate address of ACGI was the residence of its president, Mr.
Pea. Moreover, in dealing with the consumers, respondents used the receipts and identification cards issued by
Manila Water.
Second, the work of the private respondents was directly related to the principal business or operation of
Manila Water. Being in the business of providing water to the consumers in the East Zone, the collection of the
charges by respondents for Manila Water can only be categorized as clearly related to, and in the pursuit of the latters
Lastly, ACGI did not carry on an independent business or undertake the performance of its service contract
according to its own manner and method, free from the control and supervision of its principal, petitioner. Prior to
respondents alleged employment with ACGI, they were already working for petitioner, subject to its rules and
regulations in regard to the manner and method of performing their tasks. This form of control and supervision never
changed although they were already under the seeming employ of ACGI. Manila Water issued memoranda regarding
the billing methods and distribution of books to the collectors; it required respondents to report daily and to remit
their collections on the same day to the branch office or to deposit them with Bank of the Philippine Islands; it
monitored strictly their attendance as when a collector cannot perform his daily collection, he must notify petitioner
or the branch office in the morning of the day that he will be absent; and although it was ACGI which ultimately
disciplined respondents, the penalty to be imposed was dictated by petitioner as shown in the letters it sent to ACGI
specifying the penalties to be meted on the erring respondents. These are indications that ACGI was not left alone in
the supervision and control of its alleged employees. Consequently, it can be concluded that ACGI was not an
independent contractor since it did not carry a distinct business free from the control and supervision of petitioner.

G.R. No. 149011, June 28, 2005, THIRD DIVISION (Carpio-Morales, J.)

San Miguel Corporation (SMC), entered into a one-year Contract of Services with Sunflower Multi-Purpose
Cooperative (Sunflower) to be renewed on a month to month basis until terminated by either party. Under the
contract, Sunflower agrees and undertakes to perform and/or provide for the company the following services for the
Bacolod Shrimp Processing Plant: Messengerial/Janitorial, Shrimp Harvesting/Receiving, and
Sanitation/Washing/Cold Storage. The cooperative shall employ the necessary personnel and provide adequate
equipment, materials, tools and apparatus, to efficiently, fully and speedily accomplish the work and services
undertaken by the cooperative. The cooperative shall have the entire charge, control and supervision of the work and
services. There is no employer-employee relationship between the company and the cooperative, or the cooperative
and any of its members, or the company and any members of the cooperative. The cooperative shall, whenever
possible, maintain and keep under its control the premises where the work under this contract shall be performed.

Respondents filed a complaint praying to be declared as regular employees of SMC, with claims for recovery
of all benefits and privileges enjoyed by SMC rank and file employees. Subsequently, they included illegal dismissal as
additional cause of action following SMCs closure of its Bacolod Shrimp Processing Plant which resulted in the
termination of their services. Moreover, SMC insists that respondents are the employees of Sunflower, an
independent contractor. On the other hand, respondents assert that Sunflower is a labor-only contractor.

ISSUE: Is Sunflower an independent contractor?

NO. The following considerations affirm by more than substantial evidence the existence of an employer-
employee relationship between SMC and respondents:

The Contract of Services between SMC and Sunflower shows that the parties clearly disavowed the existence
of an employer-employee relationship between SMC and respondents. The language of a contract is not, however,
determinative of the parties relationship; rather it is the totality of the facts and surrounding circumstances of the
case. A party cannot dictate, by the mere expedient of a unilateral declaration in a contract, the character of its
business, i.e., whether as labor-only contractor or job contractor, it being crucial that its character be measured in
terms of and determined by the criteria set by statute.

What appears is that Sunflower does not have substantial capitalization or investment in the form of tools,
equipment, machineries, work premises and other materials to qualify it as an independent contractor.

And from the job description provided by SMC itself, the work assigned to private respondents was directly
related to the aquaculture operations of SMC. Undoubtedly, the nature of the work performed by respondents in
shrimp harvesting, receiving and packing formed an integral part of the shrimp processing operations of SMC. As for
janitorial and messengerial services, that they are considered directly related to the principal business of the employer
has been jurisprudentially recognized.

Furthermore, Sunflower did not carry on an independent business or undertake the performance of its
service contract according to its own manner and method, free from the control and supervision of its principal, SMC,
its apparent role having been merely to recruit persons to work for SMC.

Thus, it is gathered from the evidence adduced by respondents before the LA that their daily time records
were signed by SMC supervisors which fact shows that SMC exercised the power of control and supervision over its
employees. And control of the premises in which private respondents worked was by SMC. These tend to disprove
the independence of the contractor.

Other Important Labor Provisions
A. Contracting Arrangements
Petitioner is a corporation engaged principally in the production and processing of pineapple for the export market.
Its plantation is located in Polomolok, South Cotabato. Respondents are members of the Cannery Multi-Purpose
Cooperative (CAMPCO). CAMPCO was organized in accordance with R.A. No. 6938, the Cooperative Code of the
Philippines, and duly registered with the Cooperative Development Authority (CDA).
On 17 August 1993, petitioner and CAMPCO entered into a Service Contract wherein CAMPCO members will
render their services to petitioner for six months. The parties apparently extended or renewed the same for
the succeeding years without executing another written contract. However, due to investigations and reliable
information, the RD of DOLE, in the exercise of his visitorial and enforcement power, found out that CAMPCO is
engaged in labor-only contracting together with some other cooperatives.

WON CAMPCO was a labor-only contractor.
WON DOLE Phils is their real employer.

1. YES, CAMPCO is engaged in labor-only contracting. Although the relationship of petitioner and
CAMPCO have some factors suggestive of an independent contractor relationship (i.e., CAMPCO chose
who among its members should be sent to work for petitioner; petitioner paid CAMPCO the wages of the
members, plus a percentage thereof as administrative charge; CAMPCO paid the wages of the members who
rendered service to petitioner), many other factors are present which would indicate a labor-only contracting
arrangement between petitioner and CAMPCO:
a. CAMPCO only had P6,600.00 paid-up capital which is hardly substantial.
b. CAMPCO did not carry out an independent business from petitioner.
c. Petitioner exercised control over the CAMPCO members. CAMPCO members, before working for the
petitioner, had to undergo instructions and pass the training provided by petitioners personnel. It
was petitioner who determined and prepared the work assignments of the CAMPCO
members. CAMPCO members worked within petitioners plantation and processing plants alongside
regular employees performing identical jobs.
d. CAMPCO was not engaged to perform a specific and special job or service. In their Service Agreement,
CAMPCO agreed to assist petitioner in its daily operations and perform odd jobs as may be assigned.
e. CAMPCO members performed activities directly related to the principal business of the petitioner. They
worked as can processing attendant, feeder of canned pineapple
and pineapple processing, nata de coco processing attendant, fruit cocktail processing attendant etc.,
functions which were, not only directly related, but were very vital to petitioners business of production
and processing of pineapple products for export.

2. YES. Since CAMPCO is engaged in labor-only contracting, then an employer-employee relationship exists
between petitioner and CAMPCO.
Further, this Court concludes that respondents are regular employees of petitioner. This Court cannot sustain the
previous NLRC ruling that the CAMPCO members were valid term employments, wherein the employer and
employee knowingly and voluntarily agreed to employment for only a limited or specified period of time. There is
no proof that the respondents were aware and had knowingly and voluntarily agreed to such term employment.
Petitioner did not enter into individual contracts with the CAMPCO members, but executed a Service Contract
with CAMPCO alone. Although the Service Contract of 1993 stated that it shall be for a specific 6-month period,
petitioner and CAMPCO continued the service arrangement beyond 1993. Since there was no written renewal of
the Service Contract, there was no further indication that the engagement by petitioner of the services of
CAMPCO members was for another definite or specified period only. Respondents, as regular employees of
petitioner, are entitled to security of tenure. They could only be removed based on just and authorized causes as
provided for in the Labor Code, and after they are accorded procedural due process. Therefore, petitioners acts
of placing some of the respondents on stay home status and not giving them work assignments for more than 6
months were already tantamount to constructive and illegal dismissal.

Other Important Labor Provisions
A. Contracting Arrangements
Asiapro, as a cooperative, is composed of owners-members. Its primary objectives are to provide savings and
credit facilities and to develop other livelihood services for its owners-members. In the discharge of the aforesaid
primary objectives, respondent cooperative entered into several Service Contracts with Stanfilco. The owners-
members do not receive compensation or wages from the respondent cooperative. Instead, they receive a share in the
service surplus which Asiapro earns from different areas of trade it engages in, such as the income derived from the
said Service Contracts with Stanfilco.
In order to enjoy the benefits under the Social Security Law of 1997, the owners-members of Asiapro in
Stanfilco requested the services of the latter to register them with SSS as self-employed and to remit their
contributions as such. Petitioner SSS sent a letter to respondent cooperative informing the latter that based on the
Service Contracts it executed with Stanfilco, Asiapro is actually a manpower contractor supplying employees to
Stanfilco and so, it is an employer of its owners-members working with Stanfilco. Thus, Asiapro should register itself
with petitioner SSS as an employer and make the corresponding report and remittance of premium contributions.
Despite letters received, respondent cooperative continuously ignored the demand of petitioner SSS. Respondent
cooperative alleges that its owners-members own the cooperative, thus, no employer-employee relationship can arise
between them.
ISSUE. WON an employer-employee relationship exists between Stanfilco and its owner-members.
YES. an owner-member of a cooperative can be an employee of the latter and an employer-employee relationship
can exist between them. a cooperative acquires juridical personality upon its registration with the Cooperative
Development Authority. It has its Board of Directors, which directs and supervises its business; meaning, its Board
of Directors is the one in charge in the conduct and management of its affairs. With that, a cooperative can be
likened to a corporation with a personality separate and distinct from its owners-members.

It is true that the Service Contracts executed between the respondent cooperative and Stanfilco expressly provide that
there shall be no employer-employee relationship between the respondent cooperative and its owners-members.
However, the existence of an employer-employee relationship cannot be negated by expressly repudiating it
in a contract, when the terms and surrounding circumstances show otherwise. The employment status of a
person is defined and prescribed by law and not by what the parties say it should be.

It is settled that the contracting parties may establish such stipulations, clauses, terms and conditions as they want, and
their agreement would have the force of law between them. However, the agreed terms and conditions must not
be contrary to law, morals, customs, public policy or public order. The Service Contract provision in question
must be struck down for being contrary to law and public policy since it is apparently being used by the respondent
cooperative merely to circumvent the compulsory coverage of its employees, who are also its owners-members, by the
Social Security Law.

The four elements in determining the existence of an employer-employee relationship are all present in this
case. First. It is expressly provided in the Service Contracts that it is the respondent cooperative which has
the exclusive discretion in the selection and engagement of the owners-members as well as its team leaders who will
be assigned at Stanfilco. Second. the weekly stipends or the so-called shares in the service surplus given by the
respondent cooperative to its owners-members were in reality wages, as the same were equivalent to an amount not
lower than that prescribed by existing labor laws, rules and regulations, including the wage order applicable to the area
and industry, they are also given to the owners-members as compensation in rendering services to respondent
cooperatives client, Stanfilco. Third. it is the respondent cooperative which has the power to investigate, discipline
and remove the owners-members and its team leaders who were rendering services at Stanfilco. Fourth and most
importantly, it is the respondent cooperative which has the sole control over the manner and means of performing the
services under the Service Contracts with Stanfilco as well as the means and methods of work. All these clearly prove
that, indeed, there is an employer-employee relationship between the respondent cooperative and its owners-

Petitioner PBC and the Corporate Executive Search Inc. (CESI) entered into a letter agreement under which
CESI undertook to provide "Temporary Services" to petitioner consisting of the "temporary services" of eleven (11)
messengers. Ricardo Orpiada, one of the messengers, was thus assigned to work with the petitioner bank. As such, he
rendered services to the bank, within the premises of the bank and alongside other people also rendering services to
the bank. But later on, Orpiada was withdrawn from PBC as his services were no longer needed.
Orpiada filed a complaint against petitioner for illegal dismissal and failure to pay the 13th month pay. The
labor arbiter rendered a decision ordering the reinstatement of the former with full back wages and 13
month pay.
Upon appeal, the NLRC affirmed the decision.
Hence, this petition for certiorari.
ISSUE. WON the relationship between PBC and CESI, by virtue of the contractual agreement, was one of employer
and labor-only contractor
YES. CESI was engaged in "labor-only" contracting vis-a-vis the petitioner bank and in respect of Orpiada,
and that consequently, the petitioner bank is liable to Orpiada as if he had been directly employed not only by CESI
but also by the bank.
Under the general rule set out in the first and second paragraphs of Article 106, an employer who enters into
a contract with a contractor for the performance of work for the employer, does not thereby create an employer-
employee relationship between himself and the employees of the contractor. Nonetheless, when a contractor fails to
pay the wages of his employees in accordance with the Labor Code, the employer who contracted out the job to the
contractor becomes jointly and severally liable with his contractor to the employees of the latter "to the extent of the
work performed under the contract" as if such employer were the employer of the contractor's employees.
A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor i.e. "the
person or intermediary" is considered "merely as an agent of the employer." The employer is made by statute
responsible to the employees of the "labor only" contractor as if such employees had been directly employed by the
Section 9 of Rule VIII of Book III of the Omnibus Rules Implementing the Labor Code provides as follows:
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an employer shall
be deemed to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment x x x;
(2) The workers recruited and placed by such person are performing activities which are directly related x x x;
(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly employed by him.
x x x
In contrast, job contracting out a particular job to an independent contractor is defined by the Implementing
Rules as follows:
Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on his own account
under his own responsibility according to his own manner and method, free from the control and direction
of his employer or principal in all matters connected with the performance of the work except as to the
results thereof; and
(2) The contractor has substantial capital or investment x x x;
The bank and CESI urge that CESI is not properly regarded as a "labor-only" contractor upon the ground
that CESI is possessed of substantial capital or investment in the form of office equipment, tools and trained service
personnel. We are unable to agree with the bank and CESI on this score. The undertaking given by CESI in favor of
the bank was not the performance of a specific job for instance, the carnage and delivery of documents and parcels
to the addresses thereof. Orpiada utilized the premises and office equipment of the bank and not those of CESI.
Messengerial work the delivery of documents to designated persons whether within the bank premises or not is
of course directly related to the day-to-day operations of the bank. Section 9(2) quoted above does not require for its
applicability that the petitioner must be engaged in the delivery of items as a distinct and separate line of business.
Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and placement
corporation placing bodies, as it were, in different client companies for longer or shorter periods of time.
Moreover, the letter agreement itself merely required CESI to furnish the bank with eleven messengers for "a
contract period from January 19, 1976 ."The eleven messengers were thus supposed to render "temporary" services
for an indefinite or unstated period of time. Assuming that Orpiada could properly be regarded as a casual (as
distinguished from a regular) employee of the bank, he became entitled to be regarded as a regular employee of the
bank, as soon as he had completed one year of service to the bank. Employers may not terminate the service of a
regular employee except for a just cause or when authorized under the Labor Code (Article 280, Labor Code). It is not
difficult to see that to uphold the contractual arrangement between the bank and CESI would in effect be to permit
employers to avoid the necessity of hiring regular or permanent employees and to enable them to keep their
employees indefinitely on a temporary or casual status, thus to deny them security of tenure in their jobs. Article 106
of the Labor Code is precisely designed to prevent such a result.
Petition denied.

Petitioners were employees of Livi, who assigned them to work as promotional merchandisers for
California pursuant to a manpower supply agreement. Among other things, the agreement provided that California
has no control or supervision whatsoever over Livi's workers with respect to how they accomplish their work or
perform California's obligation; that Livi "is an independent contractor and nothing herein contained shall be
construed as creating between them the relationship of principal-agent or employer-employee"[5]; that "it is hereby
agreed that it is the sole responsibility of Livi to comply with all existing as well as future laws, rules and regulations
pertinent to employment of labor"; and that "California is free and harmless from any liability arising from such labor
laws or from any accident that may befall workers and employees of [Livi] while in the performance of their duties for
[California]." It was further expressly stipulated that the assignment of workers to California shall be on a "seasonal
and contractual basis.
The petitioners were then made to sign employment contracts with durations of six months, upon the
expiration of which they signed new agreements with the same period, and so on. Unlike regular California
employees, who received not less than P2,823.00 a month in addition to a host of fringe benefits and bonuses, they
received P38.56 plus P15.00 in allowance daily.
The petitioners now allege that they had become regular California employees and demand, as a consequence
whereof, similar benefits. They likewise claim that pending further proceedings below, they were notified by
California that they would not be rehired. As a result, they filed an amended complaint charging California with illegal
California admits having refused to accept Tabas et al., back to work but deny liability therefor for the reason
that it is not, to begin with, the petitioners' employer and that the "retrenchment" had been forced by business losses
as well as expiration of contracts. It appears that thereafter, Livi reabsorbed them into its labor pool on a "wait-in or
standby" status.
ISSUE. WON the contractual agreement was binding insofar as California is free from any liability
NO. 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 x x x.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the
rights of workers x x x.
There is "labor-only" contracting where the person supplying workers to an employer does not have substantial
capital or investment x x x 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.
In the case at bar, Livi is admittedly an "independent contractor providing temporary services of manpower
to its clients." When it thus provided California with manpower, it supplied California with personnel, as if such
personnel had been directly hired by California, charged with "merchandising [sic] promotion or sale of the products
of [California] in the different sales outlets in Metro Manila including task and occasional price tagging," an activity
that is doubtless, an integral part of the manufacturing business. Relations of parties must be judged from case to case
and the decree of law, and not by declarations of parties. Hence, Article 106 of the Code applies.
The fact that the petitioners have been hired on a "temporary or seasonal" basis merely is no argument
either. As we held in Philippine Bank of Communications v. NLRC, a temporary or casual employee, under Article
281 of the Labor Code, becomes regular after service of one year, unless he has been contracted for a specific
project. And we cannot say that merchandising is a specific project for the obvious reason that it is an activity related
to the day-to-day operations of California.
Accordingly, under Article 281 of the Code, they had become regular employees of California and had
acquired a secure tenure. Hence, they cannot be separated without due process of law.
It is not that by dismissing the terms and conditions of the manpower supply agreement, we have, hence,
considered it illegal. Under the Labor Code, genuine job contracts are permissible, provided they are genuine job
contracts. But, as we held in Philippine Bank of Communications, supra, when such arrangements are resorted to "in
anticipation of, and for the very purpose of making possible, the secondment" of the employees from the true
employer, the Court will be justified in expressing its concern. For then that would compromise the rights of the
workers, especially their right to security of tenure.
Petition granted. California is hereby ordered to reinstate petitioners and to jointly and severally pay with Livi,
the latter their money claims.

G.R. No. 138051, June 10, 2004, CARPIO, J., FIRST DIVISION

In May 1994, ABS-CBN signed an Agreement with the Mel and Jay Management and Development
Corporation (MJMDC). ABS-CBN was represented by its corporate officers while MJMDC was represented by
Sonza, as President and General Manager, and Carmela Tiangco (TIANGCO), as EVP and Treasurer. Referred to in
the Agreement as agent, MJMDC agreed to provide SONZAs services exclusively to ABS-CBN as talent for radio
and television. Under such contract, Sonza was to Co-host the Mel and Jay program for radio and television receiving
an amount of 310K a month for the first year and 317k for the second and third. In 1996, Sonza sent a letter to ABS-
CBN rescinding the contract.
Later on, Sonza filed a complaint before the Department of Labor and Employment, National Capital Region
in Quezon City. SONZA complained that ABS-CBN did not pay his salaries, separation pay, service incentive leave
pay, 13th month pay, signing bonus, travel allowance and amounts due under the Employees Stock Option Plan. The
labor arbiter dismissed the complaint for lack of jurisdiction on the ground that no employer-employee relationship
existed between Sonza and ABS-CBN. The NLRC and CA likewise, affirmed the decision on appeal.
Issue. WON Sonza is an employee of ABS-CBN entitling him the benefits granted under the labor code.
No, Case law has consistently held that the elements of an employer - employee relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employers power to control the employee on the means and methods by which the work is accomplished. The last
element, the so-called control test, is the most important element.
A. Selection and engagement of employee - Independent contractors often present themselves to possess
unique skills, expertise or talent to distinguish them from ordinary employees. The specific selection and hiring of
SONZA, because of his unique skills, talent and celebrity status not possessed by ordinary employees, is a
circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess
such unique skills, talent and celebrity status, ABS-CBN would not have entered into the Agreement with SONZA
but would have hired him through its personnel department just like any other employee.
B. Payment of wages - All the talent fees and benefits paid to SONZA were the result of negotiations that
led to the Agreement. If SONZA were ABS-CBNs employee, there would be no need for the parties to stipulate on
benefits such as SSS, Medicare, 13th month pay etc., which the law automatically incorporates into every employer-
employee contract. Whatever benefits SONZA enjoyed arose from contract and not because of an employer-
employee relationship.
C. Power of Dismissal - Even if ABS-CBN suffered severe business losses, ABS-CBN could not retrench
SONZA because ABS-CBN remained obligated to pay SONZAs talent fees during the life of the Agreement. This
circumstance indicates an independent contractual relationship between SONZA and ABS-CBN.
D. Control - In Alberty Vlez v. Corporacin De Puerto Rico Para La Difusin Pblica (WIPR) the US
CA held that a television program host is an independent contractor on the ff. grounds: First, a television actress is a
skilled position requiring talent and training not available on-the-job. Second, Alberty (talent) provided the tools and
instrumentalities necessary for her to perform. Third, WIPR could not assign Alberty work in addition to filming
Desde Mi Pueblo. Albertys contracts with WIPR specifically provided that WIPR hired her professional services
as Hostess for the Program Desde Mi Pueblo.
In this case, ABS-CBN did not assign any other work to Sonza. To perform his work, SONZA only needed
his skills and talent. How SONZA delivered his lines, appeared on television, and sounded on radio were outside
ABS-CBNs control.. Second, although ABS-CBN has the power to not broadcast the programs of Sonza, this does
not mean it has power to over the means and methods over Sonzas work since its still bound to pay Sonza by virtue
of the contract between them and that although ABS-CBN has rules and regulations regarding its talents, the
Agreement does not require SONZA to comply with the rules and standards of performance prescribed for
employees of ABS-CBN.

Considered a landmark case because this is the first time that the Court will resolve the nature of the relationship between a television and
radio station and one of its talents.
SONZA insists that MJMDC is a labor-only contractor and ABS-CBN is his employer. In a labor-only
contract, there are three parties involved: (1) the labor-only contractor; (2) the employee who is ostensibly under the
employ of the labor-only contractor; and (3) the principal who is deemed the real employer. Under this scheme, the
labor-only contractor is the agent of the principal. MJMDC, is a corporation organized and owned by Sonza and
Tianco. The President and General Manager of MJMDC is SONZA himself. It is absurd to hold that MJMDC, which
is owned, controlled, headed and managed by SONZA, acted as agent of ABS-CBN in entering into the Agreement
with SONZA, who himself is represented by MJMDC. That would make MJMDC the agent of both ABS-CBN and
All of these being the case, the court agrees with the findings of the Labor Arbiter and the Court of Appeals
that SONZAs claims (regarding benefits) are all based on the May 1994 Agreement and stock option plan, and not on
the Labor Code.
Petition dismissed.

G.R. No. 124055, June 08, 2000, KAPUNAN, J., FIRST DIVISION
Respondent California Marketing Co. Inc. (CMC) is a domestic corporation principally engaged in the
manufacturing of food products and distribution of such products to wholesalers and retailers while respondent
Donna Louise Advertising and Marketing Associates, Inc. (D.L. Admark) is a duly registered promotional firm. For
promotion of its products, CMC contracted the services of D.L. Admark as an independent job contractor, petitioners
are employees of the latter. In 1992, petitioners filed a case against CMC before the Labor Arbiter for the
regularization of their employment status. During the pendency of the case before the Labor Arbiter, D.L. Admark
sent to petitioners notice of termination of their employment effective 16 March 1992. Hence, their complaint was
amended so as to include illegal dismissal as cause of action. In ruling in favor of petitioners, the Labor arbiter cited
the case of Tabas v. CMC.
Issue. WON petitioners are employees of CMC
No, reliance on the Tabas case was misplaced. In said case, the court ruled ruled that contractor Livi
Manpower Services was a mere placement agency and had simply supplied CMC with the manpower necessary to
carry out the company's merchandising activity. The court, however, further stated that: It would have been different,
had Livi been discretely a promotions firm, and that California had hired it to perform the latter's merchandising
activities. For then, Livi would have been truly the employer of its employees and California, its client. In other words,
CMC can validly farm out its merchandising activities to a legitimate independent contractor. 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 principal. In labor-only contracting, the following elements are present:
(a) 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
(b) The workers recruited and placed by such person are performing activities which are directly
related to the principal business of the employer.
In contrast, there is permissible job contracting when a principal agrees to put out or farm out with a
contractor or a subcontractor the performance or completion of a specific job, work or service within a definite or
predetermined period, regardless of whether such job or work or service is to be performed or completed within or
outside the premises of the principal. In this arrangement, the following conditions must concur:
(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; and
(b) The contractor has substantial capital or investment in the form of tools, equipment, machineries
(sic), work premises, and other materials which are necessary in the conduct of his business.
Furthermore in Alexander Vinoya vs. NLRC et al., this Court ruled that in order to be considered an
independent contractor it is not enough to show substantial capitalization or investment in the form of tools,
equipment, machinery and work premises. In addition, the following factors need be considered: (a) whether the
contractor is carrying on an independent business; (b) the nature and extent of the work; (c) the skill required; (d) the
term and duration of the relationship; (e) the right to assign the performance of specified pieces of work; (f) the
control and supervision of the workers; (g) the power of the employer with respect to the hiring, firing and payment
of workers of the contractor; (h) the control of the premises; (i) the duty to supply premises, tools, appliances,
materials, and labor; and (j) the mode, manner and terms of payment.
Based on the foregoing criterion, we find that D.L. Admark is a legitimate independent contractor for the
following reasons: (1) it is registered with the SEC as a firm engaged in promotional, advertising, marketing and
merchandising activities, (2) The service contract between CMC and D.L. Admark clearly provides that the agreement
is for the supply of sales promoting merchandising services rather than manpower placement, (3) D.L. Admark was
actually engaged in several activities, such as advertising, publication, promotions, marketing and merchandising
(serving clients like Purefoods, Corona Supply, Etc.), (4) It had its own capital assets to carry out its promotion
business. It then had current assets amounting to P6 million and is therefore a highly capitalized venture owns several
motor vehicles and other tools, materials and equipment to service its clients.
Petition Denied


A complaint for illegal dismissal; underpayment of wages; and for nonpayment of overtime pay, legal holiday pay,
premium pay for holiday and rest day, thirteenth month pay, cash bond deposit, unpaid wages and damages was filed
against Veterans Philippine Scout Security Agency and/or Sergio Jamila IV (collectively referred to as the security
agency, for brevity) and petitioner, ROSEWOOD PROCESSING, INC, was impleaded as a third-party respondent
by the security agency.

Napoleon Mamon works for the [security agency] and was assigned to different companies. He was later was assigned
as office guard to Rosewood Processing, Inc. and was required to render also 12 hours duty every day with a salary of
P2,600.00/month. Rosewood Processing, Inc. later asked for the relief of Mamon and other guards at Rosewood
because they came to know that complainants filed a complaint for underpayment. After that, complainant was
floated until he was assigned to Mead Johnson Philippines Corporation. [A]t about a week later, [the security agency]
received summons on complainants complaint for underpayment and he was called to [the security agencys] office.
When he reported, he was told to sign a Quitclaim and Waiver. When he refused to sign, he was told that the he
would no longer be given assignment the following day. Thinking that it was only a joke, he reported the following
day to the detachment commander and he was told that the main office relieved him because he did not sign the
quitclaim and waiver. He rendered his resignation because he wasnt given any assignment, although respondent was
recruiting new guards and posting them.

Complainants, Arsenio Gazzingan, Rodolfo Velasco, Armando Ballon, Jose Cabrebra, Victor Aldeza all worked for
the [security agency]. All of them were assigned in Rosewood Processing Inc. except for Cabrera. Velasco was
suspended by [security of agency ] for no cause. Ballon, because he applied for sick leave and was absent due to his
illness, was later terminated. Cabrera was hospitalized due to a stab wound, when he reported back to the [security
agency] he was given a run-around and was told to come back, but he saw the agency hiring new recruits. Aldeza on
the other hand was relieved because he complained about his salary.

Issue: 1. Was petitioner liable in solidum with the agency for salary differentials based on Articles 106, 107 and 109 of
the Labor Code which hold an employer jointly and severally liable with its contractor or subcontractor, as if it is the
direct employer?
2. Can the petitioner be held liable for back wages and separation pay?

Held: 1. Yes.
ART. 106. Contractor or subcontractor. -- Whenever an employer enters into a contract with another
person for the performance of the formers work, the employees of the contractor and of the latters
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.
xxx xxx xxx."
ART. 107. Indirect employer. -- The provisions of the immediately preceding Article shall likewise
apply to any person, partnership, association or corporation which, not being an employer, contracts
with an independent contractor for the performance of any work, task, job or project.

ART. 109. Solidary liability. -- The provisions of existing laws to the contrary notwithstanding, every
employer or indirect employer shall be held responsible with his contractor or subcontractor for any
violation of any provision of this Code. For purposes of determining the extent of their civil liability
under this Chapter, they shall be considered as direct employers.
The joint and several liability of the employer or principal was enacted to ensure compliance with the provisions of
the Code, principally those on statutory minimum wage. The contractor or subcontractor is made liable by virtue of
his or her status as a direct employer, and the principal as the indirect employer of the contractors employees. This
liability facilitates, if not guarantees, payment of the workers compensation, thus, giving the workers ample protection
as mandated by the 1987 Constitution. This is not unduly burdensome to the employer. Should the indirect employer
be constrained to pay the workers, it can recover whatever amount it had paid in accordance with the terms of the
service contract between itself and the contractor.

Withal, fairness likewise dictates that the petitioner should not, however, be held liable for wage differentials incurred
while the complainants were assigned to other companies. Under these cited provisions of the Labor Code, should the
contractor fail to pay the wages of its employees in accordance with law, the indirect employer (the petitioner in this
case), is jointly and severally liable with the contractor, but such responsibility should be understood to be limited to
the extent of the work performed under the contract, in the same manner and extent that he is liable to the employees
directly employed by him. This liability of petitioner covers the payment of the workers performance of any work,
task, job or project. So long as the work, task, job or project has been performed for petitioners benefit or on its
behalf, the liability accrues for such period even if, later on, the employees are eventually transferred or reassigned

2. No.
The indirect employers liability to the contractors employees extends only to the period during which they were
working for the petitioner, and the fact that they were reassigned to another principal necessarily ends such
responsibility. The principal is made liable to his indirect employees, because it can protect itself from irresponsible
contractors by withholding such sums and paying them directly to the employees or by requiring a bond from the
contractor or subcontractor for this purpose.

Similarly, the solidary liability for payment of back wages and separation pay is limited, under Article 106, to the
extent of the work performed under the contract; under Article 107, to the performance of any work, task, job or
project; and under Article 109, to the extent of their civil liability under this Chapter [on payment of wages].

These provisions cannot apply to petitioner, considering that the complainants were no longer working for or
assigned to it when they were illegally dismissed. Furthermore, an order to pay back wages and separation pay is
invested with a punitive character, such that an indirect employer should not be made liable without a finding that it
had committed or conspired in the illegal dismissal.

The liability arising from an illegal dismissal is unlike an order to pay the statutory minimum wage, because the
workers right to such wage is derived from law. The proposition that payment of back wages and separation pay
should be covered by Article 109, which holds an indirect employer solidarily responsible with his contractor or
subcontractor for any violation of any provision of this Code, would have been tenable if there were proof -- there
was none in this case -- that the principal/employer had conspired with the contractor in the acts giving rise to the
illegal dismissal.

Petition was partially GRANTED. Petitioner, with the security agency, was solidarily liable to PAY the complainants
only wage differentials during the period that the complainants (except Cabrera) were actually under its employ.
Petitioner was EXONERATED from the payment of back wages and separation pay.

Respondent MASADA Security Agency, Inc., entered into a one year


to provide security services to the
various offices, warehouses and installations of NFA within the scope of the NFA Region I, comprised of the
provinces of Pangasinan, La Union, Abra, Ilocos Sur and Ilocos Norte. Upon the expiration of said contract, the
parties extended the effectivity thereof on a monthly basis under same terms and condition.

Meanwhile, the Regional Tripartite Wages and Productivity Board issued several wage orders mandating increases in
the daily wage rate. Accordingly, respondent requested NFA for a corresponding upward adjustment in the monthly
contract rate consisting of the increases in the daily minimum wage of the security guards as well as the corresponding
raise in their overtime pay, holiday pay, 13th month pay, holiday and rest day pay. It also claimed increases in Social
Security System (SSS) and Pag-ibig premiums as well as in the administrative costs and margin. NFA, however,
granted the request only with respect to the increase in the daily wage by multiplying the amount of the mandated
increase by 30 days and denied the same with respect to the adjustments in the other benefits and remunerations
computed on the basis of the daily wage.

Issue: Whether or not the liability of principals in service contracts under Section 6 of Wage Rationalization Act and
the wage orders issued by the Regional Tripartite Wages and Productivity Board is limited only to the increment in the
minimum wage?
Held: Yes.
Payment of the increases in the wage rate of workers is ordinarily shouldered by the employer. Section 6 of RA 6727,
however, expressly lodged said obligation to the principals or indirect employers in construction projects and
establishments providing security, janitorial and similar services. Substantially the same provision is incorporated in
the wage orders issued by the RTWPB. Section 6 of RA 6727, provides:
SEC. 6. In the case of contracts for construction projects and for security, janitorial and similar services, the
prescribed increases in the wage rates of the workers shall be borne by the principals or clients of the
construction/service contractors and the contract shall be deemed amended accordingly. In the event, however, that
the principal or client fails to pay the prescribed wage rates, the construction/service contractor shall be jointly and
In construing the word wage in Section 6 of RA 6727, reference must be had to Section 4 (a) of the same Act. It
SEC. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates for all workers and employees in the
private sector, whether agricultural or non-agricultural, shall be increased by twenty-five pesos (P25) per day
(Emphasis supplied)
The term wage as used in Section 6 of RA 6727 pertains to no other than the statutory minimum wage which is
defined under the Rules Implementing RA 6727 as the lowest wage rate fixed by law that an employer can pay his
The basis thereof under Section 7 of the same Rules is the normal working hours, which shall not exceed
eight hours a day. Hence, the prescribed increases or the additional liability to be borne by the principal under Section
6 of RA 6727 is the increment or amount added to the remuneration of an employee for an 8-hour work.

Expresio unius est exclusio alterius. Where a statute, by its terms, is expressly limited to certain matters, it may not, by
interpretation or construction, be extended to others. Since the increase in wage referred to in Section 6 pertains to
the statutory minimum wage as defined herein, principals in service contracts cannot be made to pay the
corresponding wage increase in the overtime pay, night shift differential, holiday and rest day pay, premium pay and
other benefits granted to workers. While basis of said remuneration and benefits is the statutory minimum wage, the
law cannot be unduly expanded as to include those not stated in the subject provision.

The settled rule in statutory construction is that if the statute is clear, plain and free from ambiguity, it must be given
its literal meaning and applied without interpretation. This plain meaning rule or verba legis derived from the maxim
index animi sermo est (speech is the index of intention) rests on the valid presumption that the words employed by the
legislature in a statute correctly express its intention or will and preclude the court from construing it differently. The
legislature is presumed to know the meaning of the words, to have used words advisedly, and to have expressed its
intent by use of such words as are found in the statute. Verba legis non est recedendum, or from the words of a statute
there should be no departure.
The presumption therefore is that lawmakers are well aware that the word wage as used in Section 6 means the
statutory minimum wage. If their intention was to extend the obligation of principals in service contracts to the
payment of the increment in the other benefits and remuneration of workers, it would have so expressly specified. In
not so doing, the only logical conclusion is that the legislature intended to limit the additional obligation imposed on
principals in service contracts to the payment of the increment in the statutory minimum wage.

The general rule is that construction of a statute by an administrative agency charged with the task of interpreting or
applying the same is entitled to great weight and respect. The Court, however, is not bound to apply said rule where
such executive interpretation, is clearly erroneous, or when there is no ambiguity in the law interpreted, or when the
language of the words used is clear and plain, as in the case at bar. Besides, administrative interpretations are at best
advisory for it is the Court that finally determines what the law means.
Hence, the interpretation given by the labor
agencies in the instant case which went as far as supplementing what is otherwise not stated in the law cannot bind
this Court.

It is not within the province of this Court to inquire into the wisdom of the law for indeed, we are bound by the
words of the statute.
The law is applied as it is. At any rate, the interest of the employees will not be adversely
affected if the obligation of principals under the subject provision will be limited to the increase in the statutory
minimum wage. This is so because all remuneration and benefits other than the increased statutory minimum wage
would be shouldered and paid by the employer or service contractor to the workers concerned. Thus, in the end, all
allowances and benefits as computed under the increased rate mandated by RA 6727 and the wage orders will be
received by the workers.
There being no assumption by NFA of a greater liability than that mandated by Section 6 of the Act, its obligation is
limited to the payment of the increased statutory minimum wage rates which, as admitted by respondent, had already
been satisfied by NFA.
petition was GRANTED.

Meralco Industrial Engineering Services, Co., vs. NLRC
Meralco and the private respondent executed a contract where the latter would suppl y the petitioner
janitori al services, which incl ude labor, materials, tools and equipment, as well as supervision of its
assigned employees, at Meralcos Rockwell Thermal Plant in Makati City.
T h e 4 9 e mp l o y e e s l o d g e d a Co mp l a i n t f o r i l l e g a l deduction, underpayment, non-
payment of overtime pay, legal hol i da y pa y , pr e mi um pa y f or hol i da y a nd r e s t da y a nd ni ght
differentials against the private respondent before the LA.
By virtue of RA 6727, the contract between Meralco and the private respondent was amended to increase the
minimum dail y wage per employee. 2 months after the amendment of the contract, Meral co sent a
letter to private respondent informing them that at the end of business hours of Jan. 31, 1990, it would be
terminating the contract entered into with the private respondents. On the said date, the complainants were pulled out
from their work. The complainants amended their complaint to include the charge of illegal dismissal and
to implead Meralco as a party respondent. The LA dismissed the complaint. On appeal, the NLRC affirmed the
decision of the LA with the modification that Meralco was solidarily liable with the private respondents. The CA on
the other hand, modified the Decision of the NLRC and held Meralco to be solidarily liable with the private
respondents for the satisfaction of the laborers separation pay.
Issue: Should Meral co be li able for the payment of the dismissed laborers separation pay?
No. SC ruled that Art.109 should be read in relation to Art. 106 and 107 of the LC.
Thus , a n i ndi r e c t e mpl oy e r c a n onl y be he l d l i a bl e wi t h t he independent contractor or
subcontractor in the event that the latter fails to pay the wages of its employees. While it is true that the
petitioner was the indirect employer of the complainants, it cannot be held l iabl e in the same way as
the employer in every respect. Meral co may be considered an indirect employer onl y for purposes of
unpaid wages.
The only instance when the principal can also be held li able with the independent contractor or
subcontractor for the back wages and separation pay of the latters employees is when there is proof that the
principal conspired with the independent contractor or subcontractor in the illegal dismissal of the
employees. In the present case, there is no allegation, much less
pr oof pr e s e nt e d, t ha t t he pe t i t i one r c ons pi r e d wi t h pr i va t e respondents in the il legal
dismissal of the l atters employees; hence, it cannot be held liable for the same.