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13.

Bonuses generally not part of wages


Mega Magzine Publications v Defensor GR 162021, June 16, 2014
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 162021

June 16, 2014

MEGA MAGAZINE PUBLICATIONS, INC., JERRY TIU, AND SARITA V.


YAP, Petitioners,
vs.
MARGARET A. DEFENSOR, Respondent.
DECISION
BERSAMIN, J.:
In labor cases, the rules on the degree of proof are enforced not as stringently as
in other cases in order to better serve the higher ends of justice. This lenity is
intended to afford to the employee every opportunity to level the playing field.
The Case
Being now assailed is the amended decision promulgated on November 19,
2003,1 whereby the Court of Appeals (CA) reconsidered its original disposition, and
granted the petition for certiorari filed by respondent Margaret A. Defensor
(respondent) by annulling and setting aside the adverse resolutions dated July 31,
2002 and March 31, 2003 issued by the National Labor Relations Commission
(NLRC).
Antecedents
Petitioner Mega Magazine Publications, Inc. (MMPI) first employed the respondent
as an Associate Publisher in 1996, and later promoted her as a Group Publisher
with a monthly salary of P60,000.00.2
In a memorandum dated February 25, 1999, the respondent proposed to MMPIs
Executive Vice-President Sarita V. Yap (Yap) year-end commissions for herself and
a special incentive plan for the Sales Department.3
The proposed schedule of the respondents commissions would be as follows:
1. MMPI Total revenue at P28-P29 M 0.05% outright commission

2. MMPI Total revenue at P30-P34 M 0.075% outright commission


3. MMPI Total revenue at P35-P38 M 0.1% outright commission
4. MMPI Total revenue at P39-P41 M 0.1% outright commission
5. MMPI Total revenue at P41M up 0.1% outright commission
while the proposed schedule of the special incentive plan would be the following:
1. MMPI Total revenue at P28-P29 M P5,000 each by year-end
2. MMPI Total revenue at P30-P34 M P7,000 each by year-end
3. MMPI Total revenue at P35-P38 M P8,500 each by year-end
4. MMPI Total revenue at P39-P41 M P10,000 each by year-end
5. MMPI Total revenue at P41M up P10,000 each by year-end Plus incentive
trip abroad
Yap made marginal notes of her counter-proposals on her copy of the
respondents memorandum dated February 25, 1999 itself, 4 crossing out proposed
items 1 and 2 from the schedule of the respondents commissions, and proposing
instead that outright commissions be at 0.1% of P35-P38 million in accordance
with proposed item 3; and crossing out proposed items 1 and 2 from the schedule
of the special incentive plan, and writing "start here" and "stet" in reference to
item 3. Yap also wrote on the memorandum: "Marge, if everything is ok w/ you,
draft something for me to sign "; "You can also announce that at 5 M net for
MMPI [acc to my computation, achievable if they only meet their month min.
quota] we can declare 14th month pay for entire company." 5
The respondent sent another memorandum on April 5, 1999 setting out the 1999
advertisement sales, target and commissions, and proposing that the schedule of
her outright commissions should start at .05% of P34.5 million total revenue,
or P175,000.00;6 and further proposing that the special incentives be given when
total revenues reached P35-P38 million.
On August 31, 1999, the respondent sent Yap a report on sales and sales targets. 7
On October 1999, the respondent tendered her letter of resignation effective at
the end of December 1999.1wphi1 Yap accepted the resignation.8 Before leaving
MMPI, the respondent sent Yap another report on the sales and advertising targets
for 1999.9 On December 8, 1999, Yap responded with a "formalization" of her
approval of the 1999 special incentive scheme proposed by the respondent
through her memorandum dated February 25, 1999, 10 revising anew the schedule
by starting commissions at.05% of P35-P38 million gross advertising revenue

(including barter), and the proposed special incentives at P35-P38 million


with P8,500.00 bonus.11
The respondent replied to Yap, pointing out that her memorandum dated April 5,
1999 had been the result of Yaps own comments on the special incentive scheme
she had proposed, and that she had assumed that Yap had been amenable to the
proposal when she did not receive any further reaction from the latter. 12
On May 2000, after the respondent had left the company, she filed a complaint for
payment of bonus and incentive compensation with damages, 13 specifically
demanding the payment ofP271,264.68 as sales commissions, P60,000.00 as 14th
month pay, and P8,500.00 as her share in the incentive scheme for the
advertising and sales staff.14
Ruling of the Labor Arbiter
In a decision dated February 5, 2001,15 the Labor Arbiter (LA) dismissed the
respondents complaint, ruling that the respondent had not presented any
evidence showing that MMPI had agreed or committed to the terms proposed in
her memorandum of April 5, 1999; that even assuming that the petitioners had
agreed to her terms, the table she had submitted justifying a gross revenue
of P36,216,624.07 was not an official account by MMPI; 16and that the petitioners
had presented a 1999 statement of income and deficit prepared by the auditing
firm of Punongbayan & Araullo showing MMPIs gross revenue for 1999 being
only P31,947,677.00.17
Decision of the NLRC
The respondent appealed, but the NLRC denied the appeal for its lack of
merit,18 with the NLRC concurring with the LAs ruling that there had been no
agreement between the petitioners and the respondent on the terms and
conditions of the incentives reached.
The respondent filed a motion for reconsideration and a supplement to the motion
for reconsideration.1wphi1 In the supplement, she included a motion to admit
additional evidence (i.e., the affidavit of Lie Tabingo who had worked as a traffic
clerk in the Advertising Department of MMPI and had been in charge of keeping
track of the advertisements placed with MMPI) on the ground that such evidence
had been "unavailable during the hearing as newly discovered evidence in a
motion for new trial".19
The NLRC denied the respondents motions for reconsideration. 20
Judgment of the CA
The respondent brought a special civil action for certiorari in the CA.

In its decision promulgated on August 28, 2003,21 the CA dismissed the


respondents petition for certiorari and upheld the resolutions of the NLRC.
On motion for reconsideration by the respondent, however, the CA promulgated
on November 19, 2003 its assailed amended decision granting the motion for
reconsideration and giving due course to the respondents petition for certiorari;
annulling the challenged resolutions of the NLRC; and remanding the case to the
NLRC for the reception of additional evidence. The CA opined that the NLRC had
committed a grave abuse of discretion in finding that there had been no special
incentive scheme approved and implemented for 1999, 22 and in disallowing the
respondent from presenting additional evidence that was crucial in establishing
her claim about MMPIs gross revenue.23 The amended decision disposed as
follows:
WHEREFORE, premises considered, the motion for reconsideration is hereby
GRANTED. Our Decision of August 28, 2003 is hereby RECONSIDERED AND SET
ASIDE. A new judgment is hereby entered GIVING DUE COURSE to the petition and
GRANTING the writ prayed for. Accordingly, the challenged Resolutions of the
NLRC in NLRC NCR 00-03-61361-00 (CA No. 028358-01) dated July 31, 2002 and
March 31, 2003 are hereby ANNULLED and SET ASIDE. The case is hereby
remanded to the NLRC for reception of additional evidence on appeal as prayed
for by petitioner and for proper proceedings in accordance with Our disquisitions
herein.
The denial of the claim for 14th month pay is sustained for lack of evidentiary
basis.
No pronouncement as to costs.
SO ORDERED.24
The petitioners and the respondent sought reconsideration of the CAs amended
decision, but the CA denied their motions through the resolution promulgated on
February 4, 2004.25
Issues
Hence, this appeal by petition for review on certiorari, with the petitioners urging
that the CA erred in ruling that
I. RESPONDENT CAN INTRODUCE EVIDENCE THAT IS NOT NEWLYDISCOVERED FOR THE FIRST TIME ON APPEAL.
II. A [REMAND] OF THE CASETO THE NLRC FOR FURTHER RECEPTION OF
EVIDENCE IS JUSTIFIED BY REASON OF DEARTH OF EVIDENCE TO PROVE
THAT TARGET GROSS SALES OR REVENUES WEREACTUALLY MET AS TO
ENTITLE RESPONDENT TO THE INCENTIVE BONUS FOR THE SUBJECT
PERIOD/YEAR.26

The petitioners argue that the circumstances of the case did not warrant the
relaxation of the rules of procedure in order to allow the submission of the
memorandum and the affidavit of Tabingo to the LA and the NLRC. They contend
that the respondent had sought to introduce in the proceedings before the LA
Tabingos memorandum dated December 10, 1999 addressed to the Accounting
Department stating that the "gross revenue from all publications
was P36,022,624.07, while net revenue was P32,551,890.58";27 that Tabingos
affidavit was meant to validate her memorandum; that such pieces of evidence
sought to prove that MMPIs target gross sales had been met, and would then
entitle the respondent to her claims of commissions and special incentives; that
the LA actually considered but did not give any weight or value to Tabingos
memorandum in resolving the respondents claims; that any affidavit from
Tabingo that the respondent intended to introduce would be merely corroborative
of the evidence already presented, like the table purportedly showing MMPIs
gross revenue for 1999; and that such evidence was already considered by the
NLRC in resolving the appeal.28
The important issue is whether or not the respondent was entitled to the
commissions and the incentive bonus being claimed.
Ruling
The appeal is partly meritorious.
The grant of a bonus or special incentive, being a management prerogative, is not
a demandable and enforceable obligation, except when the bonus or special
incentive is made part of the wage, salary or compensation of the employee, 29 or
is promised by the employer and expressly agreed upon by the parties. 30 By its
very definition, bonus is a gratuity or act of liberality of the giver, 31 and cannot be
considered part of an employees wages if it is paid only when profits are realized
or a certain amount of productivity is achieved. If the desired goal of production or
actual work is not accomplished, the bonus does not accrue.
Due to the nature of the bonus or special incentive being a gratuity or act of
liberality on the part of the giver, the respondent could not validly insist on the
schedule proposed in her memorandum of April 5, 1999 considering that the grant
of the bonus or special incentive remained a management prerogative. However,
the Court agrees with the CAs ruling that the petitioners had already exercised
the management prerogative to grant the bonus or special incentive. At no
instance did Yap flatly refuse or reject the respondents request for commissions
and the bonus or incentive. This is plain from the fact that Yap even "bargained"
with the respondent on the schedule of the rates and the revenues on which the
bonus or incentive would be pegged. What remained contested was only the
schedule of the rates and the revenues. In her initial memorandum of February
25, 1999, the respondent had suggested the following schedule, namely: (a)
0.05% outright commission on total revenue of P28-P29 million; (b) 0.075%
on P30-P34 million; (c) 0.1% on P35-P38 million; (d) 0.1% on P39-P41 million

pesos; and (f) 0.1% on P41 million or higher, but Yap had countered by revising
the schedule to start at 0.1% as outright commissions on a total revenue of P35P38 million, and the special incentive bonus to start at revenues of P35-P38
million. Moreover, on December 8, 1999, Yap sent to the respondent a
memorandum entitled Re: Formalization of my handwritten approval of 1999
Incentive scheme dated 25 February 1999. Such actuations and actions by Yap
indicated that, firstly, the petitioners had already acceded to the grant of the
special incentive bonus; and, secondly, the only issue still to be threshed out was
at which point and at what rate the respondents outright commissions and the
special incentive bonus for the sales staff should be given.
For sure, Yaps memorandum dated December 8, 1999, aside from being the
petitioners categorical admission of the grant of the commissions and the bonus
or incentives, laid down the petitioners own schedule of the commissions and the
bonus or incentives,32 to wit:
Re: Formalization of my handwritten approval of 1999 incentive scheme dated 25
February 1999
1999 Incentive Scheme for Group Publisher

MMPI Gross Advertising Revenue


(includes barter)

P35-38 M
P39-41 M
P41 M

.05%
.075%
up 1%

Commissionable ad revenue is net of advertising agency commission and


absorbed production costs.1avvphi1Commission will be paid in bartered goods
and cash in direct proportion to percentage of cash and bartered goods revenue
for the year. This amount will be paid by January 30, 2000 if the documents
(contracts, P.O.s) to support the gross revenue claim are in order and submitted to
Finance.
Group Incentive for Sale and Traffic Team

MMPI Gross Advertising Revenue

P35-38 M
P39-41 M
P41 M up

P8,500.00 each
P10,000.00 each
P10,000.00 each
+ incentive trip abroad

Concerning the remand of the case to the NLRC for reception of additional
evidence at the instance of the respondent, we hold that the CA committed a
reversible error. Although, as a rule, the submission to the NLRC of additional
evidence like documents and affidavits is not prohibited, so that the NLRC may
properly consider such evidence for the first time on appeal, 33 the circumstances
of the case did not justify the application of the rule herein.

The additional evidence the respondent has sought to be admitted (i.e., Tabingos
affidavit executed on October 14, 2002) was already attached to the pleadings
filed in the NLRC, and was part of the records thereat. Its introduction was
apparently aimed to rebut the petitioners claim that its gross revenue was
only P31,947,677.00 and did not reach the minimum P35 million necessary for the
grant of the respondents outright commissions and the special incentive bonus
for the sales staff (inclusive of the respondent). Tabingos affidavit corroborated
her memorandum to the Accounting Department dated December 10, 1999
stating that MMPIs revenue for 1999 wasP36,216,624.07.341wphi1
Confronted with the conflicting claims on MMPIs gross revenue realized in 1999,
the question is which evidence must be given more weight?
The resolution of the question requires the re-examination and calibration of
evidence.35 Such re-examination and calibration, being of a factual nature,
ordinarily lies beyond the purview of the Courts authority in this appeal. Yet,
because the documents are already before the Court, we hereby treat the
situation as an exception in order to resolve the question promptly and finally
instead of still remanding the case to the CA for the reevaluation and calibration.
We start by observing that the degree of proof required in labor cases is not as
stringent as in other types of cases.36 This liberal approach affords to the
employee every opportunity to level the playing field in which her employer is
pitted against her. Here, on the one hand, were Tabingos memorandum and
affidavit indicating that MMPIs revenues in 1999 totaled P36,216,624.07, and, on
the other, the audit report showing MMPIs gross revenues amounting to
only P31,947,677.00 in the same year. That the audit report was rendered by the
auditing firm of Punongbayan & Araullo did not make it weightier than Tabingos
memorandum and affidavit, for only substantial evidence that amount of
relevant evidence which a reasonable mind might accept as adequate to justify a
conclusion37 was required in labor adjudication. Moreover, whenever the
evidence presented by the employer and that by the employee are in equipoise,
the scales of justice must tilt in favor of the latter. 38For purposes of determining
whether or not the petitioners gross revenue reached the minimum target of P35
million, therefore, Tabingos memorandum and affidavit sufficed to positively
establish that it did, particularly considering that Tabingos memorandum was
made in the course of the performance of her official tasks as a traffic clerk of
MMPI. In her affidavit, too, Tabingo asserted that her issuance of the
memorandum was pursuant to MMPIs year-end procedures, an assertion that the
petitioners did not refute. In any event, Tabingos categorical declaration in her
affidavit that "[because] of that achievement, as part of the Sales and Traffic Team
of MMPI, in addition to my other bonuses that year, I received P8,500.00 in gift
certificates as my share in the Group Incentive for the Sales and Traffic Team for
gross advertising revenue of P35 to P38 million xxx,"39 aside from the petitioners
not refuting it, was corroborated by the 1999 Advertising Target sent by the
respondent to Yap on December 2, 1999, in which the respondent reported a gross
revenue of P36,216,624.07 as of December 1, 1999. 40

Accordingly, the Court concludes that the respondent was entitled to her 0.05%
outright commissions and to the special incentive bonus of P8,500.00 based on
MMPI having reached the minimum target of P35 million in gross revenues paid in
"bartered goods and cash in direct proportion to percentage of cash and bartered
goods revenue for the year," as provided in Yaps memorandum of December 8,
1999.41
WHEREFORE, the Court REVERSES AND SETS ASIDE the amended decision
promulgated on November 19, 2003; ENTERS a new decision granting respondent
Margaret A. Defensors claim for outright commissions in the amount of P 181,083
.12 and special incentive bonus of P8,500.00, or a total of 1!189,583.12; and
DIRECTS petitioner Mega Magazine Publications, Inc. to pay the costs of suit.
SO ORDERED.

14. Art 106-109, Labor only contracting


W.M. Manufacturing Inc v dalag. GR 209418, December 7, 2015
THIRD DIVISION
G.R. No. 209418, December 07, 2015
W.M. MANUFACTURING, INC., Petitioner, v. RICHARD R. DALAG AND
GOLDEN ROCK MANPOWER SERVICES, Respondent.
DECISION
VELASCO JR., J.:

Nature of the Case


For consideration is the amended petition for review under Rule 45 of the Rules of
Court, assailing the February 21, 2013 Decision1 and September 17, 2013
Amended Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 122425,3 which
declared petitioner W.M. Manufacturing, Inc. (WM MFG) and respondent Golden
Rock Manpower Services (Golden Rock) solidarily liable to respondent Richard R.
Dalag (Dalag) for the latter's alleged illegal dismissal from employment.
The Facts
On January 3, 2010, petitioner, as client, and respondent Golden Rock, as
contractor, executed a contract denominated as "Service Agreement," 4 which
pertinently reads:
SERVICE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS
xxxx
The CONTRACTOR shall render, undertake, perform and employ the necessary
number of workers as the CLIENT may need, at such dates and times as the
CLIENT may deem necessary.
The CLIENT shall have the right to request for replacement to relieve such workers
as the need arises for any reason whatsoever and the CONTRACTOR undertakes
to furnish a replacement immediately as possible.
xxxx
There shall be no employer-employee relationship between the CLIENT, on the
one hand, and the persons assigned by the CONTRACTOR to perform the services
called for hereunder, on the other hand.
In view of this, CONTRACTOR agrees to hold the CLIENT free from any liability,
cause(s) o(f) action and/or claims which may failed (sic) by said workers including
but not limited to those arising from injury or death of any kind of nature that may
be sustained by them while in the performance of their assigned tasks.
The CONTRACTOR hereby warrants compliance with the provisions of the Labor
Code of the Philippines as well as with all other presidential decrees, general
orders, letters of instruction, laws rules and regulations pertaining to the
employment of a labor now existing or which may hereafter be enacted, including
the payment of wages, allowances, bonuses, and other fringe benefits, and the
CLIENT shall not in any way be responsible for any claim for personal injury or
death, for wages, allowances, bonuses and other fringe benefits, made either by

the said personnel or by third parties, whether or not such injury, death or claim
by third parties, whether or not such injury, death or claim arises out of, or in any
way connected with, the performance of personnel's duties.
The CLIENT shall have the right to report to the CONTRACTOR and protest any
untoward act, negligence, misconduct, malfeasance or nonfeasance of the said
personnel and the contractor alone shall have the right to discipline the said
personnel.
The CONTRACTOR shall fully and faithfully comply with the provisions of the New
Labor Code, as well as with other laws, rules and regulations, pertaining to the
employment of labor which is now existing or which hereafter be promulgated or
enacted.
In relation to the Service Agreement, Golden Rock, on April 26, 2010, engaged the
services of respondent Dalag as a factory worker to be assigned at petitioner's
factory. For this purpose, respondents inked a five-month Employment Contract
For Contractual Employees (Employment Contract)5 that reads:
EMPLOYMENT CONTRACT FOR CONTRACTUAL EMPLOYEES Dear Mr./Ms. Richard
Dalag,
[Golden Rock] hire(s) you as a contractual worker/employee to work at WM MFG
under these conditions:chanRoblesvirtualLawlibrary
1) You will hold the position as (sic) Factory Worker.
2) Your employment as a CONTRACTUAL EMPLOYEE takes effect on April 26, 2010
to Sept. 26, 2010. You will receive a salary of P328.00 per day payable
weekly/15'h (sic) day monthly of the calendar month.
xxxx
7) Your employment as a CONTRACTUAL EMPLOYEE may be terminated at any
time for any cause, which may arise due to inability to learn and undertake duties
and responsibilities of the position you are being employed for, inefficiency,
violation of company rules, policies and regulations, personnel reduction and
recession business. In either event, you will be given a notice of termination
during your working hours/day.
The company undertakes to pay your compensation for the days actually worked
and the company shall not be liable for the period of the contract not run for any
separation pay.
Notwithstanding the five-month duration stipulated in the contract, respondent
Dalag would allege in his complaint for illegal dismissal6 that on August 7, 2010,
one of WM MFCs security guards prevented him from going to his work station
and, instead, escorted him to the locker room and limited his activity to
withdrawing his belongings therefrom. Having been denied entry to his work
station without so much as an explanation from management, Dalag claimed that

he was illegally dismissed, his employment having been terminated without either
notice or cause, in violation of his right to due process, both substantive and
procedural.
Dalag further claimed that his assignment at WM MFG as side seal machine
operator was necessary and desirable for the company's plastic manufacturing
business, making him a regular employee entitled to benefits under such
classification.7 He likewise alleged that WM MFG and Golden Rock engaged in the
illegal act of labor-only contracting based on the following circumstances: that all
the equipment, machine and tools that he needed to perform his job were
furnished by WM MFG; that the jobs are to be performed at WM MFCs workplace;
and that he was under the supervision of WM MFCs team leaders and supervisors.
The complaint, docketed as LAC No. 03-000673-11, was lodged against WM MFG,
Golden Rock, Jocelyn Hernando (Hernando), Watson Nakague (Nakague) and Pablo
Ong (Ong), the latter three individuals as officers of the impleaded companies. In
their joint position paper, therein respondents argued that Dalag was not
dismissed and that, on the contrary, it was he who abandoned his work. They
offered as proof WM MFG's memos8 addressed to Dalag, which ordered him to
answer within 24-hours the accusations relating to the following alleged
infractions: gross negligence, qualified theft, malicious mischief, incompetence,
grave misbehaviour, insubordination, dishonesty, and machine sabotage. 9 Based
on the memos and the affidavits submitted by his former co-workers, 10 Dalag
repeatedly failed to immediately report to management the breakdowns of the
side-seal machine he was assigned to operate; that he did not report that the
machine's thermocouple wire and conveyor belt needed repair, causing the
damage on the belt to worsen and for the wire to eventually break; and that he
pocketed spare parts of petitioner's machines without company management's
consent.
Memo 2010-19 dated August 7, 2010, the final memo WM MFG attempted to
serve Dalag, pertinently reads:11
Samakaluwid, matapos ang isinagawang imbestigasyon tungkol sa mga
insidenteng kinasangkutan mo. Napagdesisyunan na ng Management na
magbaba ng Final Decision na ikaw ay patawan ng suspension at pinagrereport sa
Golden Rock Agency, ito ay clahil sa mga alegasyon na nagpapatunay na ikaw ay
nagkasala at lumabag sa Patakaran ng kumpanyang ito.
Dalag, however, allegedly refused to receive the memos, and instead turned his
back on his superiors, informing them that he will no longer return, and then
walked away. And on that very same day, WM MFG, through a letter addressed to
Golden Rock, informed the manpower company of its intention to exercise its right
to ask for replacement employees under the Service Agreement. As per the letter,
WM MFG no longer needed Dalag's services.12
The parties would later file their respective replies in support of the allegations
and arguments raised in their position papers.13

Ruling of the Labor Arbiter


On January 24, 2011, Labor Arbiter Eduardo G. Magno rendered a Decision 14 in
LAC No. 03-000673-11 dismissing Dalag's complaint. The dispositive portion of the
Decision reads:
WHEREFORE, the Complaint is hereby DISMISSED for lack of merit.
However, respondents are hereby ordered to pay his unpaid wages for three days
in the amount of P1,212.00
SO ORDERED.
Citing Machica v. Roosevelt Center Services, Inc.,15 the Labor Arbiter ratiocinated
that the burden of proving actual dismissal is upon the shoulders of the party
alleging it; and that WM MFG and Golden Rock can only be burdened to justify a
dismissal if it, indeed, took place. Unfortunately for Dalag, the Labor Arbiter did
not find substantial evidence to sustain a finding that he was, in the first place,
actually dismissed from employment. As observed by the Labor Arbiter: 16
Records show that complainant [Dalag] last reported for work on August 6, 2010
and filed his complaint for illegal dismissal on August 9, 2010. However, [Dalag]
failed to establish the fact of his alleged dismissal on August 07, 2010.
As established by respondents [WM MFG, Golden Rock, Hernando, Nakague, and
Ong], [Dalag] was hired by [Golden Rock] as contractual employee on April 26,
2010 until September 26, 2010 and was assigned at its client [WM MFG].
[Dalag] failed to present any letter of termination of his employment by his
employer [Golden Rock].
A party alleging a critical fact must support his allegation with substantial
evidence for any decision based on unsubstantiated allegation cannot stand as it
will offend due process.
There is no illegal dismissal to speak of where the employee was not notified that
he had been dismissed from his employment nor he was prevented from returning
to his work. (words in brackets added, citations omitted)
Plainly, between WM MFG and Golden Rock, the Labor Arbiter considered the
latter as Dalag's true employer. Thus, Dalag's termination from employment, if
any, ought to come not from WM MFG but from Golden Rock. Without such
termination, actual or constructive, Dalag's complaint cannot prosper for there
was no dismissal to begin with, legal or otherwise.
Obviously aggrieved by the Labor Arbiter's ruling, Dalag interposed an appeal
with the National Labor Relations Commission (NLRC).
Rulings of the NLRC
On May 31,2011, Dalag obtained a favorable ruling from the NLRC through its

Decision17 in NLRC NCR CASE NO. 08-11002-10, which granted his appeal in the
following wise:
WHEREFORE, in view of the foregoing premises, the appeal of the complainant is
GRANTED. The assailed Decision dated January 24, 2011 is hereby REVERSED and
SET ASIDE. Judgment is now rendered declaring complainant to have been
illegally terminated from employment. Respondents W.M Manufacturing, Inc., et.
al., are hereby ordered to reinstate immediately complainant to his former
position without loss of seniority rights and privileges computed from the time he
was actually dismissed or his compensation withheld up to the time of actual
reinstatement, which as of the decision, amounted to a total of One Hundred
Seven Thousand Seven Hundred Thirty-Nine and 73/100 Pesos (P107,739.73), as
computed by the NLRC Computation Unit, exclusive of the complainant's unpaid
wages from August 4-6, 2010, in the amount of P1,212.00 as previously awarded.
All other claims are hereby dismissed for lack of merit.
SO ORDERED.
In siding with respondent Dalag, the NLRC determined that Dalag's true employer
was WM MFG, who merely engaged respondent Golden Rock as a labor-only
contractor. To arrive at this conclusion, the NLRC utilized the control test, thusly: 18
x x x [T]he employment contract of the complainant only showed that [Golden
Rocld] hired [Dalag] as a factory worker to be assigned to [WM MFG] and by all
indications, Golden Rock did not provide technical or special services [WM MFG].
Moreover, [WM MFG and Golden Rock] did not deny that the machines or tools
used by the complainant, including the work premises, belonged to respondent
[WM MFG], and not to the agency.
[WM MFG]'s control and supervision over the work of [Dalag] is indeed explicit,
and as stated by [Dalag] he was supervised not by Golden Rock but by the team
leaders and supervisors of [WM MFG]. And not only that, based on the evidence
submitted by respondent [WM MFG], it was the latter who even took the pains of
investigating the alleged infractions of [Dalag]. By [WM MFG and Golden Rock]'s
own allegation, it was [WM MFG] who issued memos to [Dalag] directing him to
explain several infractions allegedly committed. All those notices and
memoranda, which according to [WM MFG] [Dalag] refused to receive, emanated
from [WM MFG], and not from Golden Rock. This only demonstrates that the
complainant is not an employee of [Golden Rock] but of [WM MFG].
The so-called "control test" in determining employer-employee relationship is
applicable in the instant case. In this case, [WM MFG] reserved the right to control
the complainant not only as to the result of the work to be done but also to the
means and methods by which the same is to be accomplished. Hence, clearly,
there is an employer-employee between [WM MFG] and [Dalag].
Aside from applying the control test, the Commission likewise gave credence to
Dalag's postulation that several other factors point to Golden Rock's nature as a
labor-only contractor, a mere agent. The NLRC outlined these considerations as
follows: that Golden Rock supplied WM MFG with employees that perform

functions that are necessary, desirable, and directly related to the latter's main
business;19 that there is an absence of proof that Golden Rock is involved in
permissible contracting services20 and that it carries on an independent business
for undertaking job contracts other than to WM MFG;21 and that both WM MFG and
Golden Rock even jointly submitted pleadings to the NLRC, with the same
submission and defenses, and even under the same representation. 22 On account
of these circumstances, the NLRC deemed the contractual relation between WM
MFG and Golden Rock as one of labor-only contracting, akin to that of a principal
and his agent. In light of this determination, the NLRC held that they are,
therefore, jointly and severally liable23 to WM MFG's illegally dismissed employees
that were supplied by Golden Rock.
Dalag, having been prevented from reporting to work without just cause and
without being afforded the opportunity to be heard, is one of such illegally
dismissed employees to whom Golden Rock and petitioner are solidarily liable, so
the NLRC ruled. In its initial findings, the NLRC held that the attempt to serve
Dalag copies of the memoranda did not constitute sufficient notice for there was
no proof of service or even of an attempt thereof. The Commission explained that
assuming for the sake of argument that Dalag, indeed, refused to receive copies
of the memos personally served, WM MFG's remedy was then to serve them
through registered mail in order to be considered as compliance with the
procedural requirement of notice.24 WM MFG's failure to comply with the same
then resulted in Dalag being deprived of his procedural due process right.
Moreover, assuming even further that there was no deviation from procedure, the
NLRC held that the contents of the memos offered by petitioner in evidence do
not amount to valid cause for they merely constituted allegations, not proof, of
Dalag's infractions. As noted by the NLRC, no formal investigation followed the
attempt to serve Dalag copies of the memoranda. Thus, to the mind of the
Commission, the veracity of the allegations in the memoranda were not verified
and cannot, therefore, be taken at face value.25cralawred
Dalag's legal victory, however, would be short-lived, for eventually, WM MFG and
Nakague would jointly move for reconsideration, which would be granted by the
NLRC.
In its second Decision26 promulgated on September 20, 2011, the NLRC absolved
Dalag's alleged employers from liability, as follows:
WHEREFORE, in view of the foregoing premises, the Motion for Reconsideration
is hereby, GRANTED. The assailed Decision dated May 31, 2011 is
hereby REVERSED andSET ASIDE. The Decision of Labor Arbiter Eduardo G.
Magno dated January 24, 2011 is hereby REINSTATED.
SO ORDERED.
To justify the turnabout, the NLRC took into consideration Certificate of
Registration No. NCR-CFO-091110-0809-00327 dated August 27, 2009 and issued
by the Department of Labor and Employment (DOLE) to Golden Rock pursuant to

Department Order No. 18-02, s. 2002,28 and Articles 106-109 of the Labor Code,
on job-contracting.29 The said certificate, along with the copy of the Service
Agreement between WM MFG and Golden Rock and Dalag's Employment Contract,
was submitted for the first time as attachments to WM MFG and Nakague's motion
for reconsideration, but were, nevertheless, admitted by the NLRC in the interest
of substantial justice.30
With the introduction of these new pieces of evidence, the commission ruled anew
that its previous observationthat there was an absence of proof that Golden
Rock is a legitimate job contractorhas effectively been refuted. What is more,
the NLRC no longer relied solely on the control test and instead applied the fourfold test in ascertaining Dalag's true employer. And in reviewing its earlier
Decision, the NLRC noted that it is Golden Rock who paid Dalag's salaries and
wages; that under the Service Agreement, it reserved unto itself the power to
dismiss Dalag; and that it has sole control over the exercise of Dalag's
employment.31
The NLRC then proceeded to reiterate the Labor Arbiter's position that for the
employer's burden to prove that its dismissal of an employee was for just cause to
arise, the employee must first demonstrate that he was, in the first place, actually
dismisseda fact which Dalag failed to establish. Lastly, the NLRC noted that
Dalag reported for work for only three (3) months and cannot, therefore, be
considered a regular employee.32
Rulings of the Court of Appeals
Expectedly, the September 20, 2011 NLRC Decision prompted Dalag to elevate
the case to the CA via a Rule 65 petition for certiorari, docketed as CA-G.R. SP No.
122425, alleging that the commission committed grave abuse of discretion when
it reversed its own ruling. Specifically, Dalag argued that it was highly irregular for
the Commission to have admitted the documents belatedly offered by WM MFG as
evidence,33 and insisted that the NLRC did not err in its first Decision finding that
he was illegally dismissed.34 Meanwhile, WM MFG and Nakague would counter that
the petition to the CA ought to be dismissed outright since Dalag failed to file a
motion for reconsideration of the NLRC's second Decision, a condition sine qua
non for filing a petition for certiorari under Rule 65. They likewise point to the
Entry of Judgment35 issued by the NLRC, signifying that the second Decision of the
NLRC has already attained finality. To modify the same would then violate the
doctrine on the immutability of judgments.
On February 21, 2013, the appellate court rendered a Decision favoring Dalag in
the following wise:
WHEREFORE, the petition is GRANTED. The Decision Dated September 20, 2011
of the National Labor Arbiter's Commission, Second Division in NLRC NCR 0811002-10 (LAC No. 03-000673-11) is hereby REVERSED and SET ASIDE. The
NLRC's Decision dated May 31, 2011 is REINSTATED.

SO ORDERED.36ChanRoblesVirtualawlibrary
Dispensing with the procedural arguments, the CA struck down the contentions of
both parties relating to the rigid application of procedural rules. 37 It held that rules
of evidence prevailing in courts of law or equity are not binding in labor
cases,38 and allow the admission of additional evidence not presented before the
Labor Arbiter, and submitted before the NLRC for the first time on appeal, 39 as in
WM MFCs case.
As regards the alleged availability of a plain, speedy, and adequate remedy at
Dalag's disposal that bars the filing of a petition for certiorari, the CA held that
technical rules may be relaxed in this regard in the interest of substantial
justice.40 To quote the appellate court:
In this case, a liberal construction of the rules is called for as records show that
petitioner filed the petition as a pauper litigant. Technical rules of procedure may
be relaxed to serve the demands of substantial justice particularly in labor cases,
where the prevailing principle is that technical rules shall be liberally construed in
favor of the working class in accordance with the demands of substantial justice.
Rules of procedure should also not be applied in a very rigid technical sense in
labor cases in order that technicalities would not stand in the way of equitably
and completely resolving the rights and obligations of the parties. (citations
omitted)
On to the merits, the CA discussed that Golden Rock's Certificate of Registration is
not conclusive evidence that the company is an independent contractor. 41 More
controlling for the CA was the failure of Golden Rock to prove the concurrence of
the requisites of a legitimate independent job contractor according to
jurisprudence.42 Absent proof that Golden Rock has substantial capital and that it
exercised control over Dalag, the CA held that petitioner and Golden Rock
miserably failed to establish the latter's status as a legitimate independent
contractor.43 Finally, the appellate court did not give credence to petitioner's claim
of abandonment since it failed to discharge the burden of proving Dalag's
unjustified refusal to return to work.44
Unfazed, WM MFG and Nakague moved for reconsideration of the CA's ruling. On
September 17, 2013, the CA rendered an Amended Decision partially granting the
motion and modifying the decretal portion of its earlier ruling in the following
wise:
WHEREFORE, the Motion for Reconsideration is PARTIALLY GRANTED. The
Decision, dated February 21, 2013 of this Court which reads:
WHEREFORE, the petition is GRANTED. The Decision Dated September 20, 2011 of
the National Labor Arbiter's Commission, Second Division in NLRC NCR 08-1100210 (LAC No. 03-000673-11) is hereby REVERSED and SET ASIDE. The NLRC's
Decision dated May 31, 2011 is REINSTATED.
SO ORDERED.
is hereby AMENDED to read:

WHEREFORE, the petition is GRANTED. The Decision Dated September 20, 2011 of
the National Labor Arbiter's Commission, Second Division in NLRC NCR 08-1100210 (LAC No. 03-000673-11) is hereby REVERSED and SET ASIDE. The NLRC's
Decision dated May 31, 2011 is REINSTATED insofar as the liability of Golden Rock
Manpower Services and W.M. Manufacturing, Inc. are concerned. The company
officers, Watson Nakague and Pablo Ong are absolved of liability.
SO ORDERED.
SO ORDERED.45ChanRoblesVirtualawlibrary

15. Art 106, Labor only contractor


Manila Memorial Park v Lluz GR 208451, February 3, 2016
SECOND DIVISION
G.R. No. 208451, February 03, 2016
MANILA MEMORIAL PARK CEMETERY, INC., Petitioner, v. EZARD D. LLUZ,
NORMAN CORRAL, ERWIN FUGABAN, VALDIMAR BALISI, EMILIO FABON,
JOHN MARK APLICADOR, MICHAEL CURIOSO, JUNLIN ESPARES, GAVINO
FARINAS, AND WARD TRADING AND SERVICES,Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 assailing the Decision2 dated 21 January
2013 and the Resolution3 dated 17 July 2013 of the Court of Appeals (CA) in CAG.R. SP No. 119237.chanRoblesvirtualLawlibrary

The Facts
On 23 February 2006, petitioner Manila Memorial Park Cemetery, Inc. (Manila
Memorial) entered into a Contract of Services with respondent Ward Trading and
Services (Ward Trading). The Contract of Services provided that Ward Trading, as
an independent contractor, will render interment and exhumation services and
other related work to Manila Memorial in order to supplement operations at Manila
Memorial Park, Paranaque City.
Among those assigned by Ward Trading to perform services at the Manila
Memorial Park were respondents Ezard Lluz, Norman Corral, Erwm Fugaban,
Valdimar Balisi, Emilio Fabon, John Mark Aplicador, Michael Curioso, Junlin Espares,
and Gavino Farinas (respondents). They worked six days a week for eight hours
daily and were paid P250 per day.
On 26 June 2007, respondents filed a Complaint 4 for regularization and Collective
Bargaining Agreement benefits against Manila Memorial; Enrique B. Lagdameo,
Manila Memorial's Executive Vice-President and Director in Charge for Overall
Operations, and Ward Trading. On 6 August 2007, respondents filed an amended
complaint to include illegal dismissal, underpayment of 13 th month pay, and
payment of attorney's fees.
Respondents alleged that they asked Manila Memorial to consider them as regular
workers within the appropriate bargaining unit established in the collective
bargaining agreement by Manila Memorial and its union, the Manila Memorial Park
Free Workers Union (MMP Union). Manila Memorial refused the request since
respondents were employed by Ward Trading, an independent labor contractor.
Thereafter, respondents joined the MMP Union. The MMP Union, on behalf of
respondents, sought their regularization which Manila Memorial again declined.
Respondents then filed the complaint. Subsequently, respondents were dismissed
by Manila Memorial. Thus, respondents amended the complaint to include the
prayer for their reinstatement and payment of back wages.
Meanwhile, Manila Memorial sought the dismissal of the complaint for lack of
jurisdiction since there was no employer-employee relationship. Manila Memorial
argued that respondents were the employees of Ward Trading.
In a Decision5 dated 29 March 2010, the Labor Arbiter dismissed the complaint for
failing to prove the existence of an employer-employee relationship. The
dispositive portion of the Decision states:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, judgment is hereby rendered dismissing the
above-entitled case for complainants' lack of employer-employee relationship with
respondent Manila Memorial Park Cemetery, Inc.
SO ORDERED.6chanroblesvirtuallawlibrary
Respondents appealed7 to the NLRC. In a Decision8 dated 30 September 2010, the
NLRC reversed the Labor Arbiter's findings. The NLRC ruled that Ward Trading was

a labor-only contractor and an agent of Manila Memorial. The dispositive portion


of the Decision states:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, complainants' appeal is GRANTED. The
assailed Decision of Labor Arbiter Geobel A. Bartolabac dated March 29, 2010 is
MODIFIED. It is hereby declared that complainants were regular employees of
respondent Manila Memorial Park Cemetery, Inc. and entitled to the benefits
provided for under the CBA between the latter and the Manila Memorial Park Free
Workers Union.
Respondent Manila Memorial Park Cemetery, Inc. is ordered to pay wage
differentials to complainants as follows:ChanRoblesVirtualawlibrary
P43,982.
1. Ezard D. Lluz 79
2. Norman Corral P29,765.
67
3. Erwin Fugaban P28,634.
67
4. Valdimar Balisi P20,310.
33
5. Emilio Fabon -

P43,982.
79

6. John Mark
Aplicador -

P43,982.
79

7. Michael
Curioso -

P43,982.
79

8. Ju[n]lin
Espares -

P43,982.
79

9. Gavino Farinas P43,982.


79
9
SO ORDERED. chanroblesvirtuallawlibrary
Manila Memorial filed a Motion for Reconsideration which was denied in a
Resolution10 dated 31 January 2011.
Thereafter, Manila Memorial filed an appeal with the CA. In a Decision dated 21
January 2013, the CA affirmed the ruling of the NLRC. The CA found the existence
of an employer-employee relationship between Manila Memorial and respondents.
The dispositive portion of the Decision states:ChanRoblesVirtualawlibrary
WHEREFORE, in view of the foregoing, the instant Petition for Certiorari is DENIED.
The Decision, dated September 30, 2010 and the Resolution, dated January 31,
2011, rendered by the National Labor Relations Commission (NLRC) in NLRC LAC
No. 06-001267-10 are AFFIRMED.
SO ORDERED.11chanroblesvirtuallawlibrary

Manila Memorial then filed a Motion for Reconsideration which was denied by the
CA in a Resolution dated 17 July 2013.
Hence, the instant petition.chanRoblesvirtualLawlibrary
The Issue
The main issue for our resolution is whether or not an employer-employee
relationship exists between Manila Memorial and respondents for the latter to be
entitled to their claim for wages and other benefits.chanRoblesvirtualLawlibrary
The Court's Ruling
The petition lacks merit.
Manila Memorial contends that Ward Trading has total assets in excess of P1.4
million, according to Ward Trading's financial statements for the year 2006,
proving that it has sufficient capitalization to qualify as a legitimate independent
contractor. Manila Memorial insists that nowhere is it provided in the Contract of
Services that Manila Memorial controls the manner and means by which
respondents accomplish the results of their work. Manila Memorial states that the
company only wants its contractors and the latter's employees to abide by
company rules and regulations.
Respondents, on the other hand, assert that they are regular employees of Manila
Memorial since Ward Trading cannot qualify as an independent contractor but
should be treated as a mere labor-only contractor. Respondents state that (1)
there is enough proof that Ward Trading does not have substantial capital,
investment, tools and the like; (2) the workers recruited and placed by the alleged
contractors performed activities that were related to Manila Memorial's business;
and (3) Ward Trading does not exercise the right to control the performance of the
work of the contractual employees.
As a general rule, factual findings of the CA are binding upon this Court. One
exception to this rule is when the factual findings of the former are contrary to
those of the trial court, or the lower administrative body, as the case may be. This
Court is obliged to resolve an issue of fact due to the conflicting findings of the
Labor Arbiter on one hand, and the NLRC and the CA on the other.
In order to determine whether there exists an employer-employee relationship
between Manila Memorial and respondents, relevant provisions of the labor law
and rules must first be reviewed. Article 106 of the Labor Code
states:ChanRoblesVirtualawlibrary
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 and Employment 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 supplied)
Sections 3, 5 and 7 of Department Order No. 18-02 12 distinguish between
legitimate and labor-only contracting and assume the existence of an employeremployee relationship if found to be engaged in labor-only contracting. The
provisions state:ChanRoblesVirtualawlibrary
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) The 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.
xxxx
Section 7. Existence of an employer-employee relationship. - The contractor or
subcontractor shall be considered the employer of the contractual employee for
purposes of enforcing the provisions of the Labor Code and other social
legislation. The principal, however, shall be solidarity liable with the contractor in
the event of any violation of any provision of the Labor Code, including the failure
to pay wages.
The principal shall be deemed the employer of the contractual employee in any of
the following cases as declared by a competent
authority:ChanRoblesVirtualawlibrary
(a) where there is labor-only contracting; or
(b) where the contracting arrangement falls within the prohibitions provided in
Section 6 (Prohibitions) hereof. (Emphasis supplied)
It is clear from these provisions that contracting arrangements for the
performance of specific jobs or services under the law and its implementing rules
are allowed. However, contracting must be made to a legitimate and independent
job contractor since labor rules expressly prohibit labor-only contracting.
Labor-only contracting exists when 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:

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 the performance of the
work of the contractual employee.13

In the present case, Manila Memorial entered into a Contract of Services with
Ward Trading, a single proprietorship owned by Emmanuel Mayor Ward with
business address in Las Pias City on 23 February 2006. In the Contract of
Services, it was provided that Ward Trading, as the contractor, had adequate
workers and substantial capital or investment in the form of tools, equipment,
machinery, work premises and other materials which were necessary in the
conduct of its business.
However, a closer look at the Contract of Services reveals that Ward Trading does
not have substantial capital or investment in the form of tools, equipment,
machinery, work premises and other materials since it is Manila Memorial which
owns the equipment used in the performance of work needed for interment and
exhumation services. The pertinent provision in the Contract of Services which
shows that Manila Memorial owns the equipment
states:ChanRoblesVirtualawlibrary
The COMPANY shall [sell] to the contractor the COMPANY owned equipment in the
amount of ONE MILLION FOUR HUNDRED THOUSAND PESOS ONLY (Php
1,400,000.00) payable in two (2) years or a monthly payment of FIFTY EIGHT
THOUSAND THREE HUNDRED THIRTY FIVE PESOS ONLY (Php 58,335.00) to be
deducted from the CONTRACTOR'S billing.14chanroblesvirtuallawlibrary
Just by looking at the provision, it seems that the sale was a regular business
transaction between two parties. However, Manila Memorial did not present any
evidence to show that the sale actually pushed through or that payments were
made by Ward Trading to prove an ordinary arms length transaction. We agree
with the NLRC in its findings:ChanRoblesVirtualawlibrary
While the above-cited provision of the Contract of Service implies that respondent
MMPCI would sell subject equipment to Ward at some future time, the former
failed to present any contract of sale as proof that, indeed, it actually sold said
equipment to Ward. Likewise, respondent MMPCI failed to present any
"CONTRACTOR'S billing" wherein the purported monthly installment of P58,335.00
had been deducted, to prove that Ward truly paid the same as they fell due. In a
contract to sell, title is retained by the vendor until full payment of the price.
Moreover, the Contract of Service provides that:ChanRoblesVirtualawlibrary
"5. The COMPANY reserves the right to rent all or any of the CONTRACTOR'S
equipment in the event the COMPANY requires the use of said equipment, x x x."
This provision is clear proof that Ward does not have an absolute right to use or
enjoy subject equipment, considering that its right to do so is subject to

respondent MMPCI's use thereof at any time the latter requires it. Such provision
is contrary to Article 428 of the Civil Code, which provides that "The owner has
the right to enjoy and dispose of a thing, without other limitation than those
established by law." It is plain to see that Ward is not the owner of the equipment
worth P1,400,000.00 that is being actually and directly used in the performance of
the services contracted out.
Further, the Service Contract states that:ChanRoblesVirtualawlibrary
"For its part, the COMPANY agrees to provide the following:
a) Area to store CONTRACTOR'S equipment and materials
b) Office space for CONTRACTOR'S staff and personnel"
This provision is clear proof that even the work premises actually and directly
used by Ward in the performance of the services contracted out is owned by
respondent MMPCI.15chanroblesvirtuallawlibrary
Also, the difference in the value of the equipment in the total amount of
P1,400,000.00 can be glaringly seen in Ward Trading's financial statements for the
year 2006 when compared to its 2005 financial statements. It is significant to note
that these financial statements were submitted by Manila Memorial without any
certification that these financial statements were actually audited by an
independent certified public accountant. Ward Trading's Balance Sheet 16 as of 31
December 2005 showed that it had assets in the amount of P441,178.50 and
property and equipment with a net book value of P86,026.50 totaling P534,705. A
year later, Ward Trading's Balance Sheet17 ending in 31 December 2006 showed
that it had assets in the amount of P57,084.70 and property and equipment with a
net book value of Pl,426,468 totaling P1,491,052.70. Ward Trading, in its Income
Statements18 for the years 2005 and 2006, only earned a net income of P53,800
in the year ending 2005 and P68,141.50 in 2006. Obviously, Ward Trading could
not have raised a substantial capital of P1,400,000.00 from its income alone
without the inclusion of the equipment owned and allegedly sold by Manila
Memorial to Ward Trading after they signed the Contract of Services on 23
February 2006.
Further, the records show that Manila Memorial and Enrique B. Lagdameo
admitted that respondents performed various interment services at its Sucat,
Paranaque branch which were directly related to Manila Memorial's business of
developing, selling and maintaining memorial parks and interment functions.
Manila Memorial even retained the right to control the performance of the work of
the employees concerned. As correctly observed by the
CA:ChanRoblesVirtualawlibrary
A perusal of the Service Contract would reveal that respondent Ward is still
subject to petitioner's control as it specifically provides that although Ward shall
be in charge of the supervision over individual respondents, the exercise of its
supervisory function is heavily dependent upon the needs of petitioner Memorial
Park, particularly:ChanRoblesVirtualawlibrary
"It is also agreed that:

a) The CONTRACTOR'S supervisor will conduct a regular inspection of grave


sites/areas being dug to ensure compliance with the COMPANY'S interment
schedules and other related ceremonies.
b) The CONTRACTOR will provide enough manpower during peak interment days
including Sundays and Holidays.
c) The CONTRACTOR shall schedule off-days for its workers in coordination with
the COMPANY'S schedule of interment operation.
d) The CONTRACTOR shall be responsible for any damage done to lawn/s and/or
structure/s resulting from its operation, which must be restored to its/their original
condition without delay and at the expense of CONTRACTOR."
The contract further provides that petitioner has the option to take over the
functions of Ward's personnel if it finds any part or aspect of the work or service
provided to be unsatisfactory, thus:ChanRoblesVirtualawlibrary
"6.1 It is hereby expressly agreed and understood that, at any time during the
effectivity of this CONTRACT and its sole determination, the COMPANY may take
over the performance of any of the functions mentioned in Paragraph I above, in
any of the following cases:chanRoblesvirtualLawlibrary
xxx
c. If the COMPANY finds the performance of the CONTRACTOR in any part or
aspect of the grave digging works or other services provided by it to be
unsatisfactory."
It is obvious that the aforementioned provision leaves respondent Ward at the
mercy of petitioner Memorial Park as the contract states that the latter may take
over if it finds any part of the services to be below its expectations, including the
manner of its performance. x x x.19chanroblesvirtuallawlibrary
The NLRC also found that Ward Trading's business documents fell short of sound
business practices. The relevant portion in the NLRC's Decision
states:ChanRoblesVirtualawlibrary
It is also worth noting that while Ward has a Certificate of Business Name
Registration issued by the Department of Trade and Industry on October 24, 2003
and valid up to October 24, 2008, the same expressly states that it is not a license
to engage in any kind of business, and that it is valid only at the place indicated
therein, which is Las Pias City. Hence, the same is not valid in Paranaque City,
where Ward assigned complainants to perform interment services it contracted
with respondent MMPCI. It is also noted that the Permit, which was issued to Ward
by the Office of the Mayor of Las Pias City on October 28, 2003, was valid only
up to December 31, 2003. Likewise, the Sanitary Permit to Operate, which was
issued to Ward by the Office of the City Health Officer of the Las Pias City Health
Office on October 28, 2003, expired on December 31, 2003. While respondents
MMPCI and Lagdameo were able to present copies of the above-mentioned
documents, they failed to present any proof that Ward is duly registered as [a]
contractor with the Department of Labor and
Employment.20chanroblesvirtuallawlibrary

Section 11 of Department Order No. 18-02, which mandates registration of


contractors or subcontractors with the DOLE, states:ChanRoblesVirtualawlibrary
Section 11. Registration of Contractors or Subcontractors. - Consistent with
authority of the Secretary of Labor and Employment to restrict or prohibit the
contracting out of labor through appropriate regulations, a registration system to
govern contracting arrangements and to be implemented by the Regional Office is
hereby established.
The Registration of contractors and subcontractors shall be necessary for
purposes of establishing an effective labor market information and monitoring.
Failure to register shall give rise to the presumption that the contractor is
engaged in labor-only contracting.
For failing to register as a contractor, a presumption arises that one is engaged in
labor-only contracting unless the contractor overcomes the burden of proving that
it has substantial capital, investment, tools and the
like.21chanroblesvirtuallawlibrary
In this case, however, Manila Memorial failed to adduce evidence to prove that
Ward Trading had any substantial capital, investment or assets to perform the
work contracted for. Thus, the presumption that Ward Trading is a labor-only
contractor stands. Consequently, Manila Memorial is deemed the employer of
respondents. As regular employees of Manila Memorial, respondents are entitled
to their claims for wages and other benefits as awarded by the NLRC and affirmed
by the CA.
WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 21 January
2013 and the Resolution dated 17 July 2013 of the Court of Appeals in CA-G.R. SP
No. 119237.
SO ORDERED.
Velasco, Jr.,*Del Castillo, and Mendoza, JJ., concur.
Leonen, J., on leave.

16. Art 106 Labor contracting


Diamond Farms v Southern Phils Federation of Labor, GR 173254- 55 , January 13,
2016
THIRD DIVISION
G.R. Nos. 173254-55 & 173263, January 13, 2016
DIAMOND FARMS, INC., Petitioner, v. SOUTHERN PHILIPPINES FEDERATION
OF LABOR (SPFL)-WORKERS SOLIDARITY OF DARBMUPCO/DIAMONDSPFL, DIAMOND FARMS AGRARIAN REFORM BENEFICIARIES MULTIPURPOSE COOPERATIVE (DARBMUPCO), VOLTER LOPEZ, RUEL ROMERO,
PATRICK) CAPRECHO, REY DIMACALI, ELESIO EMANEL, VICTOR SINGSON,
NILDA DIMACALI, PREMITIVO* DIAZ, RUDY VISTAL, ROGER MONTERO,
JOSISIMO GOMEZ AND MANUEL MOSQUERA, Respondents.
DECISION
JARDELEZA, J.:
We resolve in this Petition for Review1 under Rule 45 of the Rules of Court, the
issue of who among Diamond Farms, Inc. ("DFI"), Diamond Farms Agrarian Reform
Beneficiaries Multi-Purpose Cooperative ("DARBMUPCO") and the individual
contractors2 ("respondent-contractors") is the employer of the 400 employees
("respondent-workers").

DFI challenges the March 31, 2006 Decision3 and May 30, 2006 Resolution4 of the
Court Appeals, Special Twenty-Second Division, Cagayan De Oro City for being
contrary to law and jurisprudence. The Decision dismissed DFI's Petition
for Certiorari in C.A.-G.R. SP Nos. 53806 and 61607 and granted DARBMUPCO's
Petition for Certiorari in C.A.-G.R. SP No. 59958. It declared DFI as the statutory
employer of the respondent-workers.
The Facts
DFI owns an 800-hectare banana plantation ("original plantation") in Alejal,
Carmen, Davao.5 Pursuant to Republic Act No. 6657 or the Comprehensive
Agrarian Reform Law of 1988 ("CARL"), commercial farms shall be subject to
compulsory acquisition and distribution,6 thus the original plantation was covered
by the law. However, the Department of Agrarian Reform ("DAR") granted DFI a
deferment privilege to continue agricultural operations until 1998. 7 Due to
adverse marketing problems and observance of the so-called "lay-follow" or the
resting of a parcel of land for a certain period of time after exhaustive utilization,
DFI closed some areas of operation in the original plantation and laid off its
employees.8 These employees petitioned the DAR for the cancellation of DFI's
deferment privilege alleging that DFI already abandoned its area of
operations.9 The DAR Regional Director recalled DFI's deferment privilege resulting
in the original plantation's automatic compulsory acquisition and distribution
under the CARL.10 DFI filed a motion for reconsideration which was denied. It then
appealed to the DAR Secretary.11
In the meantime, to minimize losses, DPI offered to give up its rights and interest
over the original plantation in favor of the government by way of a Voluntary Offer
to Sell.12 The DAR accepted DFI's offer to sell the original plantation. However, out
of the total 800 hectares, the DAR only approved the disposition of 689.88
hectares. Hence, the original plantation was split into two: 689.88 hectares were
sold to the government ("awarded plantation") and the remaining 200 hectares,
more or less, were retained by DPI ("managed area").13 The managed area is
subject to the outcome of the appeal on the cancellation of the deferment
privilege before the DAR Secretary.
On January 1, 1996, the awarded plantation was turned over to qualified agrarian
reform beneficiaries ("ARBs") under the CARL. These ARBs are the same farmers
who were working in the original plantation. They subsequently organized
themselves into a multi-purpose cooperative named "DARBMUPCO," which is one
of the respondents in this case.14
On March 27, 1996, DARBMUPCO entered into a Banana Production and Purchase
Agreement ("BPPA")15with DFI.16 Under the BPPA, DARBMUPCO and its members as
owners of the awarded plantation, agreed to grow and cultivate only high grade
quality exportable bananas to be sold exclusively to DPI. 17 The BPPA is effective
for 10 years.18

On April 20, 1996, DARBMUPCO and DFI executed a "Supplemental to


Memorandum Agreement" ("SMA").19 The SMA stated that DFI shall take care of
the labor cost arising from the packaging operation, cable maintenance, irrigation
pump and irrigation maintenance that the workers of DARBMUPCO shall conduct
for DFI's account under the BPPA.20
From the start, DARBMUPCO was hampered by lack of manpower to undertake the
agricultural operation under the BPPA because some of its members were not
willing to work.21 Hence, to assist DARBMUPCO in meeting its production
obligations under the BPPA, DFI engaged the services of the respondentcontractors, who in turn recruited the respondent-workers. 22
The engagement of the respondent-workers, as will be seen below, started a
series of labor disputes among DARBMUPCO, DFI and the respondent-contractors.
CA. G.R. SP No. 53806
On February 10, 1997, respondent Southern Philippines Federation of Labor
("SPFL")a legitimate labor organization with a local chapter in the awarded
plantationfiled a petition for certification election in the Office of the Med-Arbiter
in Davao City.23 SPFL filed the petition on behalf of some 400 workers (the
respondent-workers in this petition) "jointly employed by DFI and DARBMUPCO"
working in the awarded plantation.
DARBMUPCO and DFI dented that they are the employers of the respondentworkers. They claimed, instead, that the respondent-workers are the employees of
the respondent-contractors.24
In an Order dated May 14, 1997,25 the Med-Arbiter granted the petition for
certification election. It directed the conduct of certification election and declared
that DARBMUPCO was the employer of the respondent-workers. The Order stated
that "whether the said workers/employees were hired by independent contractors
is of no moment. What is material is that they were hired purposely to work on the
689.88 hectares banana plantation [the awarded plantation] now owned and
operated by DARBMUPCO."26
DARBMUPCO appealed to the Secretary of Labor and Employment ("SOLE"). In a
Resolution dated February 18, 1999,27 the SOLE modified the decision of the MedArbiter. The SOLE held that DFI, through its manager and personnel, supervised
and directed the performance of the work of the respondent-contractors. The
SOLE thus declared DFI as the employer of the respondent-workers. 28
DFI filed a motion for reconsideration which the SOLE denied in a Resolution dated
May 4, 1999.29
On June 11, 1999, DFI elevated the case to the Court of Appeals ("CA") via a
Petition for Certiorari30under Rule 65 of the Rules of Court. The case was raffled to

the CA's former Twelfth Division and was docketed as C.A.-G.R. SP No. 53806.
CA.-G.R. SP No. 59958
Meanwhile, on June 20, 199731 and September 15, 1997,32 SPFL, together with
more than 300 workers, filed a case for underpayment of wages, nonpayment of
13th month pay and service incentive leave pay and attorney's fees against DFI,
DARBMUPCO and the respondent-contractors before the National Labor Relations
Commission ("NLRC") in Davao City. DARBMUPCO averred that it is not the
employer of respondent-workers; neither is DFI. It asserted that the money claims
should be directed against the true employerthe respondent-contractors. 33
In a Decision dated January 22, 1999, 34 the Labor Arbiter ("LA") held that die
respondent-contractors are "labor-only contractors." The LA gave credence to the
affidavits of the other contractors35 of DFI (who are not party-respondents in this
petition) asserting that DFI engaged their services, and supervised and paid their
laborers. The affidavits also stated that the contractors had no dealings with
DARBMUPCO, except that their work is done in the awarded plantation.36
The LA held that, under the law, DFI is deemed as the statutory employer of all
the respondent-workers.37 The LA dismissed the case against DARBMUPCO and
the respondent-contractors.38
DFI appealed to the NLRC. In a Resolution dated May 24, 1999, 39 the NLRC Fifth
Division modified the Decision of the LA and declared that DARBMUPCO and DFI
are the statutory employers of the workers rendering services in the awarded
plantation and the managed area, respectively. 40 It adjudged DFI and DARBMUPCO
as solidarity liable with the respondent-contractors for the monetary claims of the
workers, in proportion to their net planted area. 41
DARBMUPCO filed a motion for reconsideration which was denied. 42 It filed a
second motion for reconsideration in the NLRC, which was also denied for lack of
merit and for being barred under the NLRC Rules of Procedure.43 Hence,
DARBMUPCO elevated the case to the CA by way of a Petition forCertiorari.44 The
case was docketed as CA.-G.R. SP. No. 59958.
The former Eleventh Division of the CA consolidated C.A. G.R. SP. No. 59958 and
C.A.-G.R. SP No. 53806 in a Resolution dated January 27, 2001. 45
C.A.-G.R. SPNo. 61607
Pursuant to the May 4, 1999 Resolution of the SOLE approving the conduct of
certification election, the Department of Labor and Employment ("DOLE")
conducted a certification election on October 1, 1999.46On even date, DFI filed an
election protest47 before the Med-Arbiter arguing that the certification election
was premature due to the pendency of a petition for certiorari before the CA
assailing the February 18, 1999 and May 4, 1999 Resolutions of the SOLE

(previously discussed in C.A.-G.R. SP No. 53806).


In an Order dated December 15, 1999,48 the Med-Arbiter denied DFI's election
protest, and certified SPFL- Workers Solidarity of DARBMUPCO/DIAMOND-SPFL
("WSD-SPFL") as the exclusive bargaining representative of the respondentworkers. DPI filed a Motion for Reconsideration49 which the Med-Arbiter treated as
an appeal, and which the latter elevated to the SOLE.
In a Resolution dated July 18, 2000,50 the SOLE dismissed the appeal. The
Resolution stated that the May 4, 1999 Resolution directing the conduct of
certification election is already final and executory on June 4, 1999. It pointed out
that the filing of the petition for certiorari before the CA assailing the February 18,
1999 and May 4, 1999 Resolutions does not stay the conduct of the certification
election because the CA did not issue a restraining order. 51 DFI filed a Motion for
Reconsideration but the motion was denied.52
On October 27, 2000, DFI filed a Petition for Certiorari53 before the CA, docketed
as C.A.-G.R. SP No. 61607.
In a Resolution dated August 2, 2005,54 the CA Twenty-Third Division consolidated
C.A.-G.R. SP No. 61607 with C.A.-G.R. SP. No. 59958 and C.A. G.R. SP No. 53806.
The Assailed CA Decision and Resolution
The CA was confronted with two issues:55
(1) "Whether DFI or DARBMUPCO is the statutory employer of the [respondentworkers] in these petitions; and
(2)

Whether or not a certification election may be conducted pending the


resolution of the petition for certiorari filed before this Court, the main issue
of which is the identity of the employer of the [respondent-workers] in these
petitions."
On the first issue, the CA agreed with the ruling of the SOLE56 that DFI is the
statutory employer of the respondent-workers. It noted that the DFI hired the
respondent-contractors, who in turn procured their own men to work in the land
owned by DARBMUPCO. Further, DFI admitted that the respondent-contractors
worked under the direction and supervision of DFI's managers and personnel. DFI
also paid for the respondent-contractors' services.57 The CA said that the fact that
the respondent-workers worked in the land owned by DARBMUPCO is immaterial.
"Ownership of the land is not one of the four (4) elements generally considered to
establish employer-employee relationship."58
The CA also ruled that DFI is the true employer of the respondent-workers
because the respondent-contractors are not independent contractors. 59 The CA
stressed that in its pleadings before the Med-Arbiter, the SOLE, and the CA, DFI
revealed that DARBMUPCO lacks manpower to fulfill the production requirements

under the BPPA. This impelled DFI to hire contractors to supply labor enabling
DARBMUPCO to meet its quota. The CA observed that while the various agencies
involved in the consolidated petitions sometimes differ as to who the statutory
employer of the respondent-workers is, they are uniform in finding that the
respondent-contractors are labor-only contractors. 60
On the second issue, the CA reiterated the ruling of the SOLE 61 that absent an
injunction from the CA, the pendency of a petition for certiorari does not stay the
holding of the certification election.62 The challenged Resolution of the SOLE is
already final and executory as evidenced by an Entry of Judgment dated July 14,
1999; hence, the merits of the case can no longer be reviewed. 63
The CA thus held in its Decision dated March 31, 2006:
WHEREFORE, premises considered, this Court hereby ORDERS:
(1) the DISMISSAL of the petitions in C.A.-G.R. SP No. 53806 and C.A.-G.R. SP
No. 61607; and
(2)

the GRANTING of the petition in C.A.-G.R. SP No. 59958 and the SETTING
ASIDE of the assailed resolutions of the NLRC dated 24 May 1999, 30 July
1999 and 26 June 2000, respectively.
SO ORDERED.64ChanRoblesVirtualawlibrary
DFI filed a Motion for Reconsideration of the CA Decision which was denied in a
Resolution dated May 30, 2006.65
DFI is now before us by way of Petition for Review on Certiorari praying that
DARBMUPCO be declared the true employer of the respondent-workers.
DARBMUPCO filed a Comment66 maintaining that under the control test, DFI is the
true employer of the respondent-workers.
Respondent-contractors filed a Verified Explanation and Memorandum 67 asserting
that they were labor-only contractors; hence, they are merely agents of the true
employer of the respondent-workers.
SPFL did not file any comment or memorandum on behalf of the respondentworkers.68
The Issue
The issue before this Court is who among DFI, DARBMUPCO and the respondentcontractors is the employer of the respondent-workers.
Our Ruling
We deny the petition.

This case involves job contracting, a labor arrangement expressly allowed by law.
Contracting or subcontracting is an arrangement whereby a principal (or
employer) agrees to put out or farm out with a contractor or subcontractor the
performance or completion of a specific job, work or service within a definite or
predetermined period, regardless of whether such job, work or service is to be
performed or completed within or outside the premises of the principal. 69 It
involves a trilateral relationship among the principal or employer, the contractor
or subcontractor, and the workers engaged by the contractor or subcontractor. 70
Article 106 of the Labor Code of the Philippines71 (Labor Code) explains the
relations which may arise between an employer, a contractor, and the
contractor's employees,72 thus:
ART. 106. Contractor or subcontracting. - 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 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 and Employment 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.
The Omnibus Rules Implementing the Labor Code73 distinguishes between
permissible job contracting (or independent contractorship) and labor-only
contracting. Job contracting is permissible under the Code if the following
conditions are met:
(1) The contractor carries on an independent business and undertakes the
contract work on his own account under his own responsibility according to
his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the

work except as to the results thereof; and


(2)

The contractor has substantial capital or investment in the form of tools,


equipment, machineries, work premises, and other materials which are
necessary in the conduct of his business.74
In contrast, job contracting shall be deemed as labor-only contracting, an
arrangement prohibited by law, if a person who undertakes to supply workers to
an employer:
(1) Does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises and other materials; and
(2)

The workers recruited and placed by such person are performing activities
which are directly related to the principal business or operations of the
employer in which workers are habitually employed.75
As a general rule, a 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.76
Based on the conditions for permissible job contracting, we rule that
respondent-contractors are labor-only contractors.
There is no evidence showing that respondent-contractors are independent
contractors. The respondent-contractors, DFI, and DARBMUPCO did not offer any
proof that respondent-contractors were not engaged in labor-only contracting. In
this regard, we cite our ruling in Caro v. Rilloraza,77 thus:
"In regard to the first assignment of error, the defendant company pretends to
show through Venancio Nasol's own testimony that he was an independent
contractor who undertook to construct a railway line between Maropadlusan and
Mantalisay, but as far as the record shows, Nasol did not testify that the
defendant company had no control over him as to the manner or methods he
employed in pursuing his work. On the contrary, he stated that he was not
bonded, and that he only depended upon the Manila Railroad for money to be
paid to his laborers. As stated by counsel for the plaintiffs, the word 'independent
contractor' means 'one who exercises independent employment and contracts to
do a piece of work according to his own methods and without being subject to
control of his employer except as to result of the work.' furthermore, if the
employer claims that the workmen is an independent contractor, for whose acts
he is not responsible, the burden is on him to show his independence.
Tested by these definitions and by the fact that the defendant has
presented piactically no evidence to determine whether Venancio Nasol
was in reality an independent contractor or not, we are inclined to think
that he is nothing but an intermediary between the defendant and
certain laborers. It is indeed difficult to find that Nasol is an independent

contractor; a person who possesses no capital or money of his own to pay his
obligations to them, who files no bond to answer for any fulfillment of his contract
with his employer and specially subject to the control and supervision of his
employer, falls short of the requisites or conditions necessary for the common and
independent contractor."78 (Citations omitted; Emphasis supplied.)
To support its argument that respondent-contractors are the employers of
respondent-workers, and not merely labor-only contractors, DFI should have
presented proof showing that respondent-contractors carry on an independent
business and have sufficient capitalization. The record, however, is bereft of
showing of even an attempt on the part of DFI to substantiate its argument.
DFI cannot cite the May 24, 1999 Resolution of the NLRC as basis that respondentcontractors are independent contractors. Nowhere in the NLRC Resolution does it
say that the respondent-contractors are independent contractors. On the
contrary, the NLRC declared that "it was not clearly established on record that
said [respondent-]contractors are independent, xxx." 79
Further, respondent-contractors admit, and even insist that they are engaged in
labor-only contracting. As will be seen below, respondent-contractors made the
admissions and declarations on two occasions:first was in their Formal
Appearance of Counsel and Motion for Exclusion of Individual Party-Respondents
filed before the LA; and second was in their Verified Explanation and
Memorandum filed before this Court.
Before the LA, respondent-contractors categorically stated that they are "laboronly" contractors who have been engaged by DFI and DARBMUPCO. 80 They
admitted that they do not have substantial capital or investment in the form of
tools, equipment, machineries, work premises and other materials, and they
recruited workers to perform activities directly related to the principal operations
of their employer.81
Before this Court, respondents-contractors again admitted that they are labor-only
contractors. They narrated that:
1. Herein respondents, Voltaire Lopez, Jr., et al., were commissioned
and contracted by petitioner, Diamond Farms, Inc. (DFI) to recruit
farm workers, who are the complaining [respondent-workers] (as
represented by Southern Philippines Federation of Labor (SPFL) in
this appeal bycertiorari), in order to perform specific farm activities, such
as pruning, dcleafing, fertilizer application, bud inject, stem spray, drainage,
bagging, etc., on banana plantation lands awarded to private respondent,
Diamond Farms Agrarian Reform Beneficiaries Multi-Purpose Cooperative
(DARBMUPCO) and on banana planted lands owned and managed by
petitioner, DFI.
2. All farm tools, implements and equipment necessary to performance of such
farm activities were supplied by petitioner DFI to respondents Voltaire Lopez,

Jr., et. al. as well as to respondents-SPFL, et. al. Herein respondents


Voltaire Lopez, Jr. et. al. had no adequate capital to acquire or
purchase such tools, implements, equipment, etc.
3. Herein respondents Voltaire Lopez, Jr., et. al. as well as
rcspondents-SPFL, et. al. were being directly supervised, controlled
and managed by petitioner DFI farm managers and supervisors,
specifically on work assignments and performance targets. DFI
managers and supervisors, at their sole discretion and prerogative, could
directly hire and terminate any or all of the respondents-SPFL, et. al.,
including any or all of the herein respondents Voltaire Lopez, Jr., et. al.
4. Attendance/Time sheets of respondents-SPFL, et. al. were being prepared by
herein respondents Voltaire Lopez, Jr., et. al., and correspondingly submitted
to petitioner DFI. Payment of wages to respondents-SPFL, et. al. were being
paid for by petitioner DFI thru herein respondents Voltaire Lopez, [Jr.], et. al.
The latter were also receiving their wages/salaries from petitioner DFI for
monitoring/leading/recruiting the respondents- SPFL, et. al.
5. No monies were being paid directly by private respondent DARBMUPCO to
respondents-SPFL, et al., nor to herein respondents Voltaire Lopez, [Jr.], et.
al. Nor did respondent DARBMUPCO directly intervene much less supervise
any or all of [the] respondents- SPFL, et. al. including herein respondents
Voltaire Lopez, Jr.. et. al.82 (Emphasis supplied.)
The foregoing admissions are legally binding on respondent-contractors. 83 Judicial
admissions made by parties in the pleadings, or in the course of the trial or other
proceedings in the same case are conclusive and so does not require further
evidence to prove them.84 Here, the respondent-contractors voluntarily pleaded
that they are labor-only contractors; hence, these admissions bind them.
A finding that a contractor is a labor-only contractor is equivalent to a declaration
that there is an employer-employee relationship between the principal, and the
workers of the labor-only contractor; the labor-only contractor is deemed only as
the agent of the principal.85 Thus, in this case, respondent-contractors are the
labor-only contractors and either DFI or DARBMUPCO is their principal.
We hold that DFI is the principal.
Under Article 106 of the Labor Code, a principal or employer refers to the person
who enters into an agreement with a job contractor, either for the performance of
a specified work or for the supply of manpower. 86 In this regard, we quote with
approval the findings of the CA, to wit:
The records show that it is DFI which hired the individual [respondentcontractors] who in turn hired their own men to work in the 689.88
hectares land of DARBMUPCO as well as in the managed area of the
plantation. DFI admits [that] these [respondent-contractors] worked under the

direction and supervision of the DFI. managers and personnel. DFI paid the
[respondent-contractors] for the services rendered in the plantation and the
[respondent-contractors] in turn pay their workers after they [respondentcontractors] received payment from DFI xxx DARBMUPCO did not have anything
to do with the hiring, supervision and payment of the wages of the workersrespondents thru the contractors-respondents. xxx87 (Emphasis supplied.)
DFI does not deny that it engaged the services of the respondent-contractors. It
does not dispute the claims of respondent-contractors that they sent their billing
to DFI for payment; and that DFI's managers and personnel are in close
consultation with the respondent-contractors.88
DFI cannot argue that DARBMUPCO is the principal of the respondent-contractors
because it (DARBMUPCO) owns the awarded plantation where respondentcontractors and respondent-workers were working;89 and therefore DARBMUPCO is
the ultimate beneficiary of the employment of the respondent-workers. 90
That DARBMUPCO owns the awarded plantation where the respondent-contractors
and respondent-workers were working is immaterial. This does not change the
situation of the parties. As correctly found by the CA, DFI, as the principal, hired
the respondent-contractors and the latter, in turn, engaged the services of the
respondent-workers.91 This was also the unanimous finding of the SOLE,92 the
LA,93 and the NLRC.94 Factual findings of the NLRC, when they coincide with the LA
and affirmed by the CA are accorded with great weight and respect and even
finality by this Court.95
Alilin v. Petron Corporation96 is applicable. In that case, this Court ruled that the
presence of the power of control on the part of the principal over the workers of
the contractor, under the facts, prove the employer-employee relationship
between the former and the latter, thus:
[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." In this case, the employer-employee
relationship between Pctron 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 Appeals that:
This Court has constantly adhered to the "fourfold 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.
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 Pctron'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. 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.97 (Citations omitted; Emphasis supplied)
That DFI is the employer of the respondent-workers is bolstered by the CA's
finding that DFI exercises control over the respondent-workers.98 DFI, through its
manager and supervisors provides for the work assignments and performance
targets of the respondent-workers. The managers and supervisors also have the
power to directly hire and terminate the respondent-workers.99 Evidently, DFI
wields control over the respondent-workers.
Neither can DFI argue that it is only the purchaser of the bananas produced in the
awarded plantation under the BPPA,100 and that under the terms of the BPPA, no
employer-employee relationship exists between DFI and the respondentworkers,101 to wit:
UNDERTAKING OF THE FIRST PARTY
xxx
3. THE FIRST PARTY [DARBMUPCO] shall be responsible for the proper conduct,
safety, benefits and general welfare of its members working in the plantation and
specifically render free and harmless the SECOND PARTY [DPI] of any expense,
liability or claims arising therefrom. It is clearly recognized, by the FIRST
PARTY that its members and other personnel utilized in the performance
of its function under this agreement are not employees of the SECOND
PARTY.102 (Emphasis supplied)
In labor-only contracting, it is the law which creates an employer-employee
relationship between the principal and the workers of the labor-only contractor. 103
Inasmuch as it is the law that forms the employment ties, the stipulation in the
BPPA that respondent-workers are not employees of DFI is not controlling, as the
proven facts show otherwise. The law prevails over the stipulations of the parties.
Thus, in Tabas v. California Manufacturing Co., Inc.,104 we held that:

The existence of an employer-employees relation is a question of law


and being such, it cannot be made the subject of agreement. Hence, the
fact that the manpower supply agreement between Livi and California had
specifically designated the former as the petitioners' employer and had absolved
the latter from any liability as an employer, will not erase either party's
obligations as an employer, if an employer-employee relation otherwise exists
between the workers and either firm. xxx105 (Emphasis supplied.)
Clearly, DFI is the true employer of the respondent-workers; respondentcontractors are only agents of DFI. Under Article 106 of the Labor Code, DFI shall
be solidarily liable with the respondent-contractors for the rightful claims of the
respondent-workers, to the same manner and extent, as if the latter are directly
employed by DFI.106
WHEREFORE, the petition is DENIED for lack of merit. The March 31, 2006
Decision and the May 30, 2006 Resolution of the Court of Appeals in C.A.-G.R. SP
Nos. 53806, 61607 and 59958 are herebyAFFIRMED.
SO ORDERED.chanroblesvirtuallawlibrary
Velasco, Jr., (Chairperson), Leonardo-De Castro, **Peralta, and Villarama, Jr., JJ.,
concur.