Aliviado vs. Procter & Gamble Philippines, Inc.

GR No. 160506
9 March 2010
Facts:
P&G is principally engaged in the manufacture and production of different consumer and health
products, which it sells on a wholesale basis to various supermarkets and distributors. To enhance
consumer awareness and acceptance of the products, P&G entered into contracts with PrommGem and SAPS for the promotion and merchandising of its products. Aliviado and other
petitioners worked as P&Gs merchandisers, and individually signed employment contracts with
either Promm-Gem or SAPS for periods of more or less five months at a time. They were assigned
at different outlets, supermarkets, and stores where they handled all the products of P&G, and
received their wages from Promm-Gem or SAPS. Promm-Gem and SAPS imposed disciplinary
measures on erring merchandisers. In December 1991, petitioners filed a complaint against P&G
for regularization, service incentive leave pay, and other benefits, with damages. The
LA dismissed the case for lack of merit and ruled that there was no employer-employee
relationship between the 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 by Promm-Gem/SAPS.
He further found that Promm-Gem and SAPS were legitimate independent job contractors. The
NLRC and the CA subsequently affirmed the LAs findings.
Issue:
W/N Promm-Gem and SAPS are legitimate job contractors.
Ruling:
Promm-Gem is a legitimate job contractor, while SAPS is a labor-only contractor. Therefore, the
employees of SAPS are the employees of P&G, SAPS being merely the agent of P&G. PrommGem has shown evidence that it has substantial investment which relates to the work to be
performed, such as authorized stock of P1M and a paid-in capital, or capital available for
operations, of P500k; it has long-term assets worth over P400k and current assets worth over
P700k; it maintained its own warehouse and office space with a floor area of 870 square meters;
it had under its name three registered vehicles which were used for its promotional/merchandising
business; and it has clients aside from P&G. Promm-Gem also 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 them uniforms. Also, Promm-Gem already
considered the complainants working under it as its regular, not merely contractual or project,
employees. This 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. On the other hand, SAPS Articles of Incorporation shows that it has a paid-in
capital of only little over P31k. 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. It failed to show that its paid-in capital is sufficient for its 6-month
contract period with P&G to generate its needed revenue to sustain its operations independently.
Instead, it could be readily seen that its capital is not even sufficient for one months payroll, which
is pegged at little over P44k. Furthermore, 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, 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, SAPS is
engaged in labor-only contracting.

Petition granted.
Labor laws expressly prohibit labor-only contracting. To prevent its circumvention, the Labor
Code establishes an employer-employee relationship between the employer and the employees
of the labor-only 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 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 contractual employee.
Where labor-only contracting exists, the Labor Code itself establishes an employer-employee
relationship between the employer and the employees of the labor-only contractor. The statute
establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor
laws. The contractor is considered merely an agent of the principal employer and the latter is
responsible to the employees of the labor-only contractor as if such employees had been directly
employed by the principal employer.
In termination cases, the burden of proof rests upon the employer to show that the dismissal is
for just and valid cause