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G.R. No. 172349 June 13, 2012


Edgardo Concepcion alleged that he was hired by the petitioner company as an all-around
factory worker for almost 6 years. He allegedly discovered that his time card was not in the rack and
was informed by the security guard that he could no longer punch his time card. He protested to his
supervisor and he told him that the management decided to dismiss him due to infraction of company
rules. Company Manager Cheng refused to face him. Respondents counsel wrote requesting that
respondent be re-admitted to work. Request unheeded.

Respondent filed a Complaint for illegal dismissal, non-payment of wages, premium pay for rest
day, separation pay, service incentive leave pay, 13th month pay, damages, and attorneys fees against
Polyfoam and Ms. Natividad Cheng (Cheng).

Gramaje filed a Motion for Intervention on April 28, 2000. Polyfoam filed a Motion to Dismiss on
the grounds of: NLRC has no jurisdiction because of the absence of employer-employee relationship
between Polyfoam and respondent and that moneyclaim has already prescribed. LA issued an order
granting Gramajes motion and denying Polyfoam and Chengs motion to dismiss as the lack of ee-er
relationship is only a defense. LA rendered a decision finding respondent to have been illegally dismissed
and holding Gramaje/Pages solidary liable to his money claims. Gramaje was not enrolled in as
employment agency in the registry of DOLE. Responded performed a job directly related to the main
business .

NLRC modified the LAs decision by exonerating Polyfoam from liability for respondents
claims .Gramaje was ordered to pay separation pay of 1 month salary for every year of service from April
21, 1996 up to the rendition of the decision. NLRC found out that Gramaje to be an independent
contractor and were assigned to Polyfoam but remained under the supervision of Gramaje.Gramaje had
its subtantial capital, own office, equipment, tools etc. Gramaje paid respondents wages and benefits
and reported the latter to SSS as covered employee .As to illegal dismissal, respondent was not notified
that he had been dismissed nor was he prevented from returning to his work.Respondent elevated case
to the CA in a special civil action for certiorari .Decision was granted and the decision of the NLRC was
reversed and the decision of the LA was reinstated.


Whether or not Gramaje is an independent job contractor.

Gramaje is a Labor-Only Contractor

Article 106 of the Labor Code explains the relations which may arise between an employer, a contractor,
and the contractors employees, 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 latters
subcontractor, if any, shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work performed under the contract, in the same
manner and extent that he is liable to employees directly employed by him.

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 test of independent contractorship is "whether one claiming to be an independent contractor

has contracted to do the work according to his own methods and without being subject to the control of
the employer, except only as to the results of the work." In San Miguel Corporation v. Semillano, the
Court laid down the criteria in determining the existence of an independent and permissible contractor
relationship, to wit:x x x

[W]hether or not the contractor is carrying on an independent business; the nature and extent of
the work; the skill required; the term and duration of the relationship; the right to assign the performance
of a specified piece of work; the control and supervision of the work to another; the employers power with
respect to the hiring, firing and payment of the contractors workers; the control of the premises; the duty
to supply the premises, tools, appliances, materials, and labor; and the mode,manner and terms of

Simply put, the totality of the facts and the surrounding circumstances of the case are to be
considered. Each case must be determined by its own facts and all the features of the relationship are to
be considered.

Applying the foregoing tests, we agree with the CAs conclusion that Gramaje is not an
independent job contractor, but a "labor-only" contractor.

First, Gramaje has no substantial capital or investment. The presumption is that a contractor is a
labor-only contract or unless he overcomes the burden of proving that it has substantial capital,
investment, tools, and the like. The employee should not be expected to prove the negative fact that the
contractor does not have substantial capital, investment and tools to engage in job-contracting.

Gramaje claimed that it has substantial capital of its own as well as investment in its office,
equipment and tools. She pointed out that she furnished the plastic containers and carton boxes used in
carrying out the function of packing the mattresses of Polyfoam. She added that she had placed in
Polyfoams workplace ten (10) sealing machines, twenty (20) hand trucks, and two(2) forklifts to enable
respondent and the other employees of Gramaje assigned at Polyfoam to perform their job. Finally, she
explained that she had her own office with her own staff .However, aside from her own bare statement,
neither Gramaje nor Polyfoam presented evidence showing Gramajes ownership of the equipment and
machineries used in the performance of the alleged contracted job. Considering that these machineries
are found in Polyfoams premises, there can be no other logical conclusion but that the tools and
equipment utilized by Gramaje and her "employees" are owned by Polyfoam. Neither did Polyfoam nor
Gramaje show that the latter had clients other than the former. Since petitioners failed to adduce evidence
that Gramaje had any substantial capital, investment or assets to perform the work contracted for, the
presumption that Gramaje is a labor-only contractor stands.

Second, Gramaje did not carry on an independent business or undertake the performance of its
service contract according to its own manner and method, free from the control and supervision of its
principal, Polyfoam, its apparent role having been merely to recruit persons to work for Polyfoam.
It is undisputed that respondent had performed his task of packing Polyfoams foam products in
Polyfoams premises. As to the recruitment of respondent, petitioners were able to establish only that
respondents application was referred to Gramaje, but that is all. Prior to his termination, respondent had
been performing the same job in Polyfoams business for almost six (6) years. He was even furnished a
copy of Polyfoams "Mga Alituntunin at Karampatang Parusa,"which embodied Polyfoams rules on
attendance, the manner of performing theemployees duties, ethical standards, cleanliness, health, safety,
peace and order. These rules carried with them the corresponding penalties in case of violation. While it is
true that petitioners submitted the Affidavit of Polyfoams supervisor Victor Abadia, claiming that the latter
did not exercise supervision over respondent because the latter was not Polyfoams but Gramajes
employee, said Affidavit is insufficient to prove such claim. Petitioners should have presented the person
who they claim to have exercised supervision over respondent and their alleged other employees
assigned to Polyfoam. It was never established that Gramaje took entire charge, control and supervision
of the work and service agreed upon. And as aptly observed by the CA, "it is likewise highly unusual and
suspect as to the absence of a written contract specifying the performance of a specified service, the
nature and extent of the service or work to be done and the term and duration of the relationship."

Superior Packaging Corp. vs Balagsay,

GR No. 178909 , October 10,2012

The petitioner Superior Packaging Corporation (principal) engaged the services of Lancer (agent)
to provide reliever services to its business, which involves the manufacture and sale of commercial and
industrial corrugated boxes. According to petitioner, the respondents were engaged for four (4) months
from February to June 1998and their tasks included loading,unloading and segregation of corrugated

Pursuant to a complaint filed by the respondents against the petitioner and its President, Cesar
Luz (Luz), for underpayment of wages, non-payment of premium pay for worked rest, overtime pay and
non-payment of salary, the DOLE conducted an inspection of the petitioners premises and found several
violations, to wit: (1) non-presentation of payrolls and daily time records; (2) non-submission of annual
report of safety organization; (3) medical and accident/illness reports; (4)non-registration of establishment
under Rule 1020 of Occupational and Health Standards; and (5) no trained first aid Due to the
petitioners failure to appear in the summary investigations conducted by the DOLE, an Order was issued
on June 18,2003 finding in favor of the respondents and adopting the computation of the claims
submitted. Petitioner and Luz were ordered, among others, to pay respondents their total claims in the
amount of P 840,463.38.

Petitioner and Luz filed a motion for reconsideration on the ground that respondents are not its
employees but of Lancer and that they pay Lancer in lump sum for the services rendered. The DOLE,
however, denied its motion in its Resolution dated February 16, 2004, ruling that the petitioner failed to
support its claim that the respondents are not its employees, and even assuming that they were employed
by Lancer, the petitioner still cannot escape liability as Section 13 of the Department Order No. 10, Series
of 1997, makes a principal jointly and severally liable with the contractor to contractual employees to the
extent of the work performed when the contractor fails to pay its employees wages.

Their appeal to the Secretary of DOLE was dismissed per Order dated July 30, 2004 and the
Order dated June 18,2003 and Resolution dated February 16, 2004 were affirmed. Their motion for
reconsideration likewise having been dismissed by the Secretary of DOLE in an Order dated January 21,
2005, petitioner and Luz filed a petition for certiorari with the Court of Appeals (CA).

On November 17, 2006, the CA affirmed the Secretary of DOLEs orders, with the modification in
that Luz was absolved of any personal liability under the award. The petitioner filed a partial motion for
reconsideration insofar as the finding of solidary liability with Lancer is concerned but it was denied by
the CA in a Resolution dated July 10, 2007. The petitioner is now before the Court on petition for review
under Rule 45 of the Rules of Court.


(1) Whether the DOLE has authority to make a finding of an employer-employee relationship
concomitant to its visitorial and enforcement power
(2) Whether Superior Packaging Corporation (petitioner) may be held solidarily liable with Lancer
Staffing & Services Network, Inc. (Lancer) for respondents unpaid money claims.


The DOLE has authority to make a finding of an employer-employee relationship concomitant to

its visitorial and enforcement power.

The DOLE clearly acted within its authority when it determined the existence of an employer-employee
relationship between the petitioner and respondents as it falls within the purview of its visitorial and
enforcement power under Article 128(b) of the Labor Code.
In Peoples Broadcasting (Bombo Radyo Phils., Inc.) v. Secretary of the Department of Labor and Employment, the
Court stated that it can be assumed that the DOLE in the exercise of its visitorial and enforcement power
somehow has to make a determination of the existence of an employer-employee relationship. Such
determination, however, is merely preliminary, incidental and collateral to the DOLEs primary function of
enforcing labor standards provisions. Also, the existence of an employer-employee relationship is
ultimately a question of fact . The determination made in this case by the DOLE, albeit provisional, and as
affirmed by the Secretary of DOLE and the CA is beyond the ambit of a petition for review on certiorari.

Lancer was engaged in labor-only contracting.

It was the consistent conclusion of the DOLE and the CA that Lancer was not an independent contractor
but was engaged in "labor-only contracting"; hence, the petitioner was considered an indirect employer of
respondents and liable to the latter for their unpaid money claims.
At the time of the respondents employment in 1998, the applicable regulation was DOLE
Department Order No. 10, Series of 1997. Under said Department Order, labor-only contracting was
defined as follows:

Sec. 9. Labor-only contracting (a) Any person who undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and
other materials; and
(2) The workers recruited and placed by such persons are performing activities which are directly related to the
principal business or operations of the employer in which workers are habitually employed.

Labor-only contracting is prohibited and the person acting as contractor shall be considered merely as an
agent or intermediary of the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.

According to the CA, the totality of the facts and surrounding circumstances of this case point to such conclusion. The
Court agrees.

The ratio of Lancers authorized capital stock of P 400,000.00 as against its subscribed and paid-
up capital stock of P25,000.00 shows the inadequacy of its capital investment necessary to maintain
its day-to-day operations. And while the Court does not set an absolute figure for what it considers
substantial capital for an independent job contractor, it measures the same against the type of work which
the contractor is obligated to perform for the principal. Moreover, the nature of respondents work was
directly related to the petitioners business. The marked disparity between the petitioners actual
capitalization (P 25,000.00) and the resources needed to maintain its business, i.e., "to establish, operate
and manage a personnel service company which will conduct and undertake services for the use of
offices, stores, commercial and industrial services of all kinds," supports the finding that Lancer was,
indeed, a labor-only contractor. Aside from these is the undisputed fact that the petitioner failed to
produce any written service contract that might serve as proof of its alleged agreement with Lancer.

Finally, 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, and the "labor only" contractor is considered as a mere agent of the principal, the real
employer.. The former becomes solidarily liable for all the rightful claims of the employees. The petitioner
therefore, being the principal employer and Lancer, being the labor-only contractor, are solidarily liable for
respondents unpaid money claims.