Petron Corp.

v Caberte GR 182255; June 15, 2015

Summary: The Principal Company bears the burden of proving that the contractor is not
engaging in labor-only contractor, but rather a legitimate independent contractor.

Facts:

Petron, a domestic corporation engaged in the manufacture and distribution to the

general public of various petroleum products, hired the respondents to work at
Petrons Bulk Plant in San Patrick, Bacolod City, and Negros Occidental from 1979 to
1998.
For the periods from March 1, 1996 to February 28, 1999 and November 1, 1996 to
June 30, 1999, Petron and ABC, a labor contracting business owned and operated by
Caberte Sr., entered into a Contract for Services and a Contract for LPG Assistance
Services. Under both service contracts, ABC undertook to provide utility and
maintenance services to Petron in its Bacolod Bulk Plant.

On July 1, 1999, Petron no longer allowed them to enter and work in the premises of
its Bacolod Bulk Plant. Hence, eight respondents were filed a complaint for illegal
dismissal, underpayment of wages and non-payment of allowances, 13 th month pay,
overtime pay, holiday pay, service incentive leave pay, moral and exemplary
damages and attorney's fees against Petron before the Labor Arbiter.
On March 7, 2002, LA Danilo C. Acosta held that ABC is an independent contractor
that has substantial capital and that respondents were its employees. He likewise
ruled that ABC's cessation of operation is a force majeure that justifies respondents'
dismissal. Hence, the petition is dismissed.
The case elevated to the NLRC, but, the NLRC affirmed the decision of Labor Arbiter.
Thereafter, the respondents filed a petition for certiorari before the Court of
Appeals. In their decision, the CA ruled that ABC is engaged in labor-only
contracting because: first, it did not have substantial capital or investment in the
form of tools, equipment, implements, machineries and work premises, actually and
directly used in the performance or completion of the job it contracted out from
Petron; second, the work assigned to respondents were directly related to Petron's
business; and, third, the nature of Petron's business requires it to exercise control
over the performance of respondents' work. Consequently, the CA declared
respondents as Petron's regular employees.
As a result, the petitioner Petron filed a petition for review on certiorari before the
Supreme Court.
Issue:
Whether or not the Court of Appeals seriously erred and decided a question of
substance in a manner not in accord with law and with applicable jurisprudence in
finding that ABC Contracting Services is a mere labor-only contractor and in holding
that respondents are thus regular employees of the company.
Held:
No The Court of appeals did not err in finding that ABC Contracting Services is a
mere labor-only contractor and holding that respondents are regular employees of
the Petron.
Under Article 106 of the Labor Code, a contractor is deemed to be a labor-only
contractor if the following elements are present:
(i) the contractor does not have substantial capital or investment to
actually perform the job, work or service under its own account and
responsibility; and
(ii) the employees recruited, supplied or placed by such contractor are
performing activities which are directly related to the main business of
the principal.
The law presumes a contractor to be a labor-only contractor and the employees are
not expected to prove the negative fact that the contractor is a labor-only
contractor. Therefore, the Petron, principal, bears the burden of establishing that
ABC is no a labor-only contractor but a legitimate independent contractor.
In order to be a legitimate independent contractor, the following conditions concur:
a) the contractor carries on a distinct and independent business and partakes
the contract work on his account under his own responsibility according to his
own manner and method, free from the control and direction of his employer
or principal in all matters connected with the performance of his work except
as to the results thereof;
b) the contractor has substantial capital or investment; and
c) the agreement between the principal and the contractor or subcontractor
assures the contractual employees' entitlement to all labor and occupational
safety and health standards, free exercise of the right to self-organization,
security of tenure, and social welfare benefits.
In the case at bar, Gestupa, Ponteras, Develos, Blanco and Mariano were LPG fillers
and maintenance crew; Caberte was an LPG operator supervisor; Te was a
warehouseman and utility worker; and Servicio and Galorosa were tanker receiving
crew and utility workers. Undoubtedly, the work they rendered were directly related
to Petron's main business, vital as they are in the manufacture and distribution of
petroleum products. Besides, it is clear that Petron failed to discharge its burden of
proving that ABC is not a labor-only contractor.
Therefore, Petron is declared to be the true employer of respondents who are
considered regular employees in view of the fact that they have been regularly
performing activities which are necessary and desirable to the usual business of
Petron for a number of years.
WHEREFORE, the petition is DENIED. The November 14, 2007 Decision and the
March 4, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 82356
are MODIFIED in that: (1) the Complaint of respondent Antonio Caberte, Jr. against
petitioner Petron Corporation is dismissed; and (2) petitioner Petron Corporation is
ordered to reinstate all of the respondents, except for Antonio Caberte, Jr., to their
former positions with the same rights and benefits and the same salary rates as its
regular employees, or if reinstatement is no longer feasible, to separation pay
equivalent to one month salary for every year of service and to pay them their full
backwages from July 1, 1999 until actual reinstatement or upon finality of this
Decision as the case may be, as well as attorney's fees equivalent to 10% of the
monetary award, with costs against Petron Corporation.
Concept:
LABOR-ONLY vs. PERMISSIBLE/LEGITIMATE:
As defined under Article 106 of the Labor Code, labor-only contracting, a
prohibited act, is an arrangement where the contractor, who does not have
substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others, supplies workers to an employer and the workers recruited
are performing activities which are directly related to the principal business of such
employer.

Permissible or legitimate job contracting or subcontracting, on the other

hand, "refers to an arrangement whereby a principal agrees to put out or farm out
with the 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. A person is considered engaged in legitimate job
contracting or subcontracting if the following conditions concur: (a) the contractor
carries on a distinct and independent business and partakes the contract work on
his account under his own responsibility according to his own manner and method,
free from the control and direction of his employer or principal in all matters
connected with the performance of his work except as to the results thereof; (b) the
contractor has substantial capital or investment; and (c) the agreement between
the principal and the contractor or subcontractor assures the contractual
employees' entitlement to all labor and occupational safety and health standards,
free exercise of the right to self-organization, security of tenure, and social welfare
benefits.

Escasinas v Shangri-la GR 178827 March 4, 2009

Summary:
Under Article 157 is that the employer should provide the services of medical
personnel to its employees, but nowhere in said article is a provision that nurses are
required to be employed.
Facts:
Registered nurses Jeromie D. Escasinas and Evan Rigor Singco (petitioners) were
engaged in 1999 and 1996, respectively, by Dr. Jessica Joyce R. Pepito (respondent
doctor) to work in her clinic at respondent Shangri-las Mactan Island Resort
(Shangri-la) in Cebu of which she was a retained physician.
In late 2002, petitioners filed with the National Labor Relations Commission (NLRC)
a complaint for regularization, underpayment of wages, non-payment of holiday
pay, night shift differential and 13th month pay differential against respondents,
claiming that they are regular employees of Shangri-la.
Shangri-la claimed, however, that petitioners were not its employees but of
respondent doctor whom it retained via Memorandum of Agreement (MOA), that
Article 157 of the Labor Code, as amended, does not make it mandatory for a
covered establishment to employ health personnel, that the services of nurses is
not germane nor indispensable to its operations, and that respondent doctor is a
legitimate individual contractor who has the power to hire, fire and supervise the
work of nurses under her.
Labor Arbiter Ernesto F. Carreon declared petitioners to be regular employees of
Shangri-la. He noted that they usually perform work which is necessary and
desirable to Shangri-las business. Hence, ordered Shangri-la to grant them the
wages and benefits due them as regular employees from the time their services
were engaged.
Upon appeal, NRLC found out that that no employer-employee relationship exists
between petitioner and Shangri-la. The NLRC held that the Arbiter erred in
interpreting Article 157 in relation to Article 280 of the Labor Code, as what is
required under Article 157 is that the employer should provide the services of
medical personnel to its employees, but nowhere in said article is a provision that
nurses are required to be employed. Contrary to the finding of the LA, even if Article
280 states that if a worker performs work usually necessary or desirable in the
business of the employer, he cannot be automatically deemed a regular employee.
The Court of Appeals (CA) affirmed the NLRC decision, concluding that all aspects of
employment of petitioners being under the supervision and control of respondent
doctor and since Shangri-la is not principally engaged in the business of providing
medical or healthcare services, petitioners could not be regarded as regular
employees of Shangri-la.
Issue:
Whether or not respondent doctor can be considered a legitimate independent
contractor.
Held:
Yes The court holds that respondent doctor is a legitimate independent
contractor.
The existence of an independent and permissible contractor relationship is generally
established by considering the following determinants: whether 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 employer's power with respect to the hiring, firing and payment of the
contractor's workers; the control of the premises; the duty to supply the premises,
tools, appliances, materials and labor; and the mode, manner and terms of
payment.
In the case at bar, the respondent doctor is a legitimate independent contractor as
when the Shangri-la provides the clinic premises and medical supplies for use of its
employees and guests does not necessarily prove that respondent doctor lacks
substantial capital and investment. Besides, the maintenance of a clinic and
provision of medical services to its employees is required under Art. 157, which are
not directly related to Shangri-las principal business operation of hotels and
restaurants. In addition, the respondent doctor, as to the payment of wages, the
one who underwrites the SSS contribution and takes charge of their wages.
With respect to the supervision and control of the nurses and clinic staff, it is not
disputed that a document, Clinic Policies and Employee Manual claimed to have
been prepared by respondent doctor exists, to which petitioners gave their
conformity and in which they acknowledged their co-terminus employment status. It
is thus presumed that said document, and not the employee manual being followed
by Shangri-las regular workers, governs how they perform their respective tasks and
responsibilities.
WHEREFORE, the petition is hereby DENIED. The Decision of the Court of Appeals
dated May 22, 2007 and the Resolution dated July 10, 2007 are AFFIRMED.
Concept:
The existence of an independent and permissible contractor relationship is generally
established by considering the following determinants:
a) whether the contractor is carrying on an independent business;
b) the nature and extent of the work;
c) the skill required;
d) the term and duration of the relationship;
e) the right to assign the performance of a specified piece of work;
f) the control and supervision of the work to another;
g) the employer's power with respect to the hiring, firing and payment of the
contractor's workers; the control of the premises; the duty to supply the
premises, tools, appliances,

South Davao v Gamo GR 171814; May 8, 2009

Summary:
Gamo and the copra workers did not exercise independent judgment in the
performance of their tasks as per their tools used are not sufficient to complete
their job.
Facts:
Petitioner South Davao Development Company (petitioner or petitioner corporation)
is the operator of a coconut and mango farm in San Isidro, Davao Oriental and
Inawayan/Baracatan, Davao del Sur. On August 1963 petitioner hired respondent
Sergio L. Gamo (Gamo) as a foreman. Sometime in 1987, petitioner appointed
Gamo as a copra maker contractor. Respondents Ernesto Belleza, Carlos Rojas,
Maximo Malinao were all employees in petitioners coconut farm, while respondents
Felix Terona, Virgilio Cosep, Maximo Tolda, and Nelson Bagaan were assigned to
petitioners mango farm. All of the abovenamed respondents (copra workers) were
later transferred by petitioner to Gamo as the latters copraceros. From 1987 to
1999, Gamo and petitioner entered into a profit-sharing agreement wherein 70% of
the net proceeds of the sale of copra went to petitioner and 30% to Gamo. The
copra workers were paid by Gamo from his 30% share.
Petitioner wanted to standardize payments to its contractors in its coconut farms.
On 2 October 1999, petitioner proposed a new payment scheme to Gamo. The new
scheme provided a specific price for each copra making activity. Gamo submitted
his counter proposal.[6] Petitioner did not accept Gamos counter proposal since it
was higher by at least fifty percent (50%) from its original offer. Without agreeing to
the new payment scheme, Gamo and his copra workers started to do harvesting
work. Petitioner told them to stop. Eventually, petitioner and Gamo agreed that the
latter may continue with the harvest provided that it would be his last contract with
petitioner. Gamo suggested to petitioner to look for a new contractor since he was
not amenable to the new payment scheme. [7]
Gamo and petitioner failed to agree on a payment scheme, thus, petitioner did not
renew the contract of Gamo. Gamo and the copra workers alleged that they were
illegally dismissed.
The Labor Arbiter ruled that there was no employee-employer relationship between
petitioner and respondents.
Upon Appeal, NLRC reversed the decision of the LA and ruled that respondents were
petitioners employees. Petitioners filed a motion for reconsideration, which was
granted by NLRC. Upon granted, NLRC ruled that the nature of the job of the
respondents could not result in an employer-employee relationship. Respondents
moved for reconsideration which was denied.
Respondent filed a petition on certiorari before the Court of Appeals. The Court of
Appeals ruled that there existed an employer-employee relationship. It declared that
respondents were regular seasonal employees who can be dismissed by the
petitioner at the end of the season provided due process is observed.
Hence this case elevated before the Supreme Court.
Issue:
Whether or not Gamo is an independent contractor.
Held:
No
To establish the existence of an independent contractor, we apply the following
conditions:
First, 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 to the result
thereof; and
Second, the contractor has substantial capital or investments in the form of tools,
equipment, machineries, work premises and other materials which are necessary in
the conduct of his business.
In the case at bar, Gamo and the copra workers did not exercise independent
judgment in the performance of their tasks. The tools used by Gamo and his copra
workers like the karit, bolo, pangbunot, panglugit and pangtapok are not sufficient
to enable them to complete the job. Reliance on these primitive tools is not enough.
In fact, the accomplishment of their task required more expensive machineries and
equipment, like the trucks to haul the harvests and the drying facility, which
petitioner corporation owns.
Concept:
The Implementing Rules and Regulation of the Labor Code defines investmentas
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.[23] The investment must be sufficient to carry
out the job at hand.