Philippine Airlines, Inc. v. Ligan G.R. No.

146408 1 of 8

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 146408 February 29, 2008

PHILIPPINE AIRLINES, INC., petitioner,
vs.
ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER,
NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P.
CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON
CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R.
LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, BENEDICTO
AUXTERO, EDUARDO MAGDADARAUG, NELSON M. DULCE, and ALLAN BENTUZAL, respondents.

DECISION
CARPIO MORALES, J.:
Petitioner Philippine Airlines as Owner, and Synergy Services Corporation (Synergy) as Contractor, entered into an
Agreement on July 15, 1991 whereby Synergy undertook to "provide loading, unloading, delivery of baggage and
cargo and other related services to and from [petitioner]'s aircraft at the Mactan Station."
The Agreement specified the following "Scope of Services" of Contractor Synergy:
1.2 CONTRACTOR shall furnish all the necessary capital, workers, loading, unloading and delivery
materials, facilities, supplies, equipment and tools for the satisfactory performance and execution of the
following services (the Work):
a. Loading and unloading of baggage and cargo to and from the aircraft;
b. Delivering of baggage from the ramp to the baggage claim area;
c. Picking up of baggage from the baggage sorting area to the designated parked aircraft;
d. Delivering of cargo unloaded from the flight to cargo terminal;
e. Other related jobs (but not janitorial functions) as may be required and necessary;
CONTRACTOR shall perform and execute the aforementioned Work at the following areas located
at Mactan Station, to wit:
a. Ramp Area
b. Baggage Claim Area
c. Cargo Terminal Area, and
Philippine Airlines, Inc. v. Ligan G.R. No. 146408 2 of 8

d. Baggage Sorting Area (Underscoring supplied)

And it expressly provided that Synergy was "an independent contractor and . . . that there w[ould] be no employer-
employee relationship between CONTRACTOR and/or its employees on the one hand, and OWNER, on the
other."
On the duration of the Agreement, Section 10 thereof provided:
10. 1 Should at any time OWNER find the services herein undertaken by CONTRACTOR to be
unsatisfactory, it shall notify CONTRACTOR who shall have fifteen (15) days from such notice within
which to improve the services. If CONTRACTOR fails to improve the services under this Agreement
according to OWNER'S specifications and standards, OWNER shall have the right to terminate this
Agreement immediately and without advance notice.
10.2 Should CONTRACTOR fail to improve the services within the period stated above or should
CONTRACTOR breach the terms of this Agreement and fail or refuse to perform the Work in such a
manner as will be consistent with the achievement of the result therein contracted for or in any other way
fail to comply strictly with any terms of this Agreement, OWNER at its option, shall have the right to
terminate this Agreement and to make other arrangements for having said Work performed and pursuant
thereto shall retain so much of the money held on the Agreement as is necessary to cover the OWNER's
costs and damages, without prejudice to the right of OWNER to seek resort to the bond furnished by
CONTRACTOR should the money in OWNER's possession be insufficient.
x x x x (Underscoring supplied)
Except for respondent Benedicto Auxtero (Auxtero), the rest of the respondents, who appear to have been assigned
by Synergy to petitioner following the execution of the July 15, 1991 Agreement, filed on March 3, 1992
complaints before the NLRC Regional Office VII at Cebu City against petitioner, Synergy and their respective
officials for underpayment, non-payment of premium pay for holidays, premium pay for rest days, service
incentive leave pay, 13th month pay and allowances, and for regularization of employment status with petitioner,
they claiming to be "performing duties for the benefit of [petitioner] since their job is directly connected with [its]
business x x x."
Respondent Auxtero had initially filed a complaint against petitioner and Synergy and their respective officials for
regularization of his employment status. Later alleging that he was, without valid ground, verbally dismissed, he
filed a complaint against petitioner and Synergy and their respective officials for illegal dismissal and reinstatement
with full backwages.
The complaints of respondents were consolidated.
By Decision of August 29, 1994, Labor Arbiter Dominador Almirante found Synergy an independent contractor
and dismissed respondents' complaint for regularization against petitioner, but granted their money claims. The
fallo of the decision reads:
WHEREFORE, foregoing premises considered, judgment is hereby rendered as follows:
(1) Ordering respondents PAL and Synergy jointly and severally to pay all the complainants herein their
13th month pay and service incentive leave benefits;
Philippine Airlines, Inc. v. Ligan G.R. No. 146408 3 of 8

xxxx
(3) Ordering respondent Synergy to pay complainant Benedicto Auxtero a financial assistance in the
amount of P5,000.00.
The awards hereinabove enumerated in the aggregate total amount of THREE HUNDRED TWENTY-TWO
THOUSAND THREE HUNDRED FIFTY NINE PESOS AND EIGHTY SEVEN CENTAVOS
(P322,359.87) are computed in detail by our Fiscal Examiner which computation is hereto attached to form
part of this decision.
The rest of the claims are hereby ordered dismissed for lack of merit. (Underscoring supplied)
On appeal by respondents, the NLRC, Fourth Division, Cebu City, vacated and set aside the decision of the Labor
Arbiter by Decision of January 5, 1996, the fallo of which reads:
WHEREFORE, the Decision of the Labor Arbiter Dominador A. Almirante, dated August 29, 1994, is
hereby VACATED and SET ASIDE and judgment is hereby rendered:
1. Declaring respondent Synergy Services Corporation to be a 'labor-only' contractor;
2. Ordering respondent Philippine Airlines to accept, as its regular employees, all the complainants, . . .
and to give each of them the salaries, allowances and other employment benefits and privileges of a regular
employee under the Collective Bargaining Agreement subsisting during the period of their employment;
xxxx
4. Declaring the dismissal of complainant Benedicto Auxtero to be illegal and ordering his reinstatement as
helper or utility man with respondent Philippine Airlines, with full backwages, allowances and other
benefits and privileges from the time of his dismissal up to his actual reinstatement; and
5. Dismissing the appeal of respondent Synergy Services Corporation, for lack of merit. (Emphasis and
underscoring supplied)
Only petitioner assailed the NLRC decision via petition for certiorari before this Court.
By Resolution of January 25, 1999, this Court referred the case to the Court of Appeals for appropriate action and
disposition, conformably with St. Martin Funeral Homes v. National Labor Relations Commission which was
promulgated on September 16, 1998.
The appellate court, by Decision of September 29, 2000, affirmed the Decision of the NLRC. Petitioner's motion
for reconsideration having been denied by Resolution of December 21, 2000, the present petition was filed,
faulting the appellate court
I.
. . . IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION DECISION WHICH
IMPOSED THE RELATIONSHIP OF EMPLOYER-EMPLOYEE BETWEEN PETITIONER AND THE
RESPONDENTS HEREIN.
II.
. . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR RELATIONS COMMISSION
Philippine Airlines, Inc. v. Ligan G.R. No. 146408 4 of 8

ORDERING THE REINSTATEMENT OF RESPONDENT AUXTERO DESPITE THE ABSENCE [OF]

ANY FACTUAL FINDING IN THE DECISION THAT PETITIONER ILLEGALLY TERMINATED HIS
EMPLOYMENT.
III.
. . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND GRAVE ERROR IN UPHOLDING THE
DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION WHICH COMPELLED THE
PETITIONER TO EMPLOY THE RESPONDENTS AS REGULAR EMPLOYEES DESPITE THE FACT
THAT THEIR SERVICES ARE IN EXCESS OF PETITIONER COMPANY'S OPERATIONAL
REQUIREMENTS. (Underscoring supplied)
Petitioner argues that the law does not prohibit an employer from engaging an independent contractor, like
Synergy, which has substantial capital in carrying on an independent business of contracting, to perform specific
jobs.
Petitioner further argues that its contracting out to Synergy various services like janitorial, aircraft cleaning,
baggage-handling, etc., which are directly related to its business, does not make respondents its employees.
Petitioner furthermore argues that none of the four (4) elements of an employer-employee relationship between
petitioner and respondents, viz: selection and engagement of an employee, payment of wages, power of dismissal,
and the power to control employee's conduct, is present in the case.
Finally, petitioner avers that reinstatement of respondents had been rendered impossible because it had reduced its
personnel due to heavy losses as it had in fact terminated its service agreement with Synergy effective June 30,
1998 as a cost-saving measure.
The decision of the case hinges on a determination of whether Synergy is a mere job-only contractor or a legitimate
contractor. If Synergy is found to be a mere job-only contractor, respondents could be considered as regular
employees of petitioner as Synergy would then be a mere agent of petitioner in which case respondents would be
entitled to all the benefits granted to petitioner's regular employees; otherwise, if Synergy is found to be a
legitimate contractor, respondents' claims against petitioner must fail as they would then be considered employees
of Synergy.
The statutory basis of legitimate contracting or subcontracting is provided in Article 106 of the Labor Code which
reads:
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 may, by appropriate regulations, restrict or prohibit the contracting out of labor to
protect the rights of workers established under the Code. In so prohibiting or restricting, he may make
appropriate distinctions between labor-only contracting and job contracting as well as differentiations
Philippine Airlines, Inc. v. Ligan G.R. No. 146408 5 of 8

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, capitalization and
underscoring supplied)
Legitimate contracting and labor-only contracting are defined in Department Order (D.O.) No. 18-02, Series of
2002 (Rules Implementing Articles 106 to 109 of the Labor Code, as amended) as follows:
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.
(Emphasis and underscoring supplied)
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 [sic] 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. (Emphasis, underscoring and capitalization supplied)
"Substantial capital or investment" and the "right to control" are defined in the same Section 5 of the Department
Order as follows:
"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. (Emphasis and underscoring supplied)
Philippine Airlines, Inc. v. Ligan G.R. No. 146408 6 of 8

From the records of the case, it is gathered that the work performed by almost all of the respondents - loading and
unloading of baggage and cargo of passengers - is directly related to the main business of petitioner. And the
equipment used by respondents as station loaders, such as trailers and conveyors, are owned by petitioner.
Petitioner asserts, however, that mere compliance with substantial capital requirement suffices for Synergy to be
considered a legitimate contractor, citing Neri v. National Labor Relations Commission. Petitioner's reliance on
said case is misplaced.
In Neri, the Labor Arbiter and the NLRC both determined that Building Care Corporation had a capital stock of P1
million fully subscribed and paid for. The corporation's status as independent contractor had in fact been previously
confirmed in an earlier case by this Court which found it to be serving, among others, a university, an international
bank, a big local bank, a hospital center, government agencies, etc."
In stark contrast to the case at bar, while petitioner steadfastly asserted before the Labor Arbiter and the NLRC that
Synergy has a substantial capital to engage in legitimate contracting, it failed to present evidence thereon. As the
NLRC held:
The decision of the Labor Arbiter merely mentioned on page 5 of his decision that respondent SYNERGY
has substantial capital, but there is no showing in the records as to how much is that capital. Neither had
respondents shown that SYNERGY has such substantial capital. x x x (Underscoring supplied)
It was only after the appellate court rendered its challenged Decision of September 29, 2002 when petitioner, in its
Motion for Reconsideration of the decision, sought to prove, for the first time, Synergy's substantial capitalization
by attaching photocopies of Synergy's financial statements, e.g., balance sheets, statements of income and retained
earnings, marked as "Annexes 'A' - 'A-4.'"
More significantly, however, is that respondents worked alongside petitioner's regular employees who were
performing identical work. As San Miguel Corporation v. Aballa and Dole Philippines, Inc. v. Esteva, et al. teach,
such is an indicium of labor-only contracting.
For labor-only contracting to exist, Section 5 of D.O. No. 18-02 which requires any of two elements to be present
is, for convenience, re-quoted:
(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. (Emphasis and CAPITALIZATION supplied)
Even if only one of the two elements is present then, there is labor-only contracting.
The control test element under the immediately-quoted paragraph (ii), which was not present in the old
Implementing Rules (Department Order No. 10, Series of 1997), echoes the prevailing jurisprudential trend
elevating such element as a primary determinant of employer-employee relationship in job contracting agreements.
One who claims to be an independent contractor has to prove that he contracted to do the work according to his
own methods and without being subject to the employer's control except only as to the results.
Philippine Airlines, Inc. v. Ligan G.R. No. 146408 7 of 8

While petitioner claimed that it was Synergy's supervisors who actually supervised respondents, it failed to present
evidence thereon. It did not even identify who were the Synergy supervisors assigned at the workplace.
Even the parties' Agreement does not lend support to petitioner's claim, thus:
Section 6. Qualified and Experienced Worker: Owner's Right to Dismiss Workers.
CONTRACTOR shall employ capable and experienced workers and foremen to carry out the loading,
unloading and delivery Work as well as provide all equipment, loading, unloading and delivery equipment,
materials, supplies and tools necessary for the performance of the Work. CONTRACTOR shall upon
OWNER'S request furnish the latter with information regarding the qualifications of the former's workers,
to prove their capability and experience. Contractor shall require all its workers, employees, suppliers
and visitors to comply with OWNER'S rules, regulations, procedures and directives relative to the
safety and security of OWNER'S premises, properties and operations. For this purpose,
CONTRACTOR shall furnish its employees and workers identification cards to be countersigned by
OWNER and uniforms to be approved by OWNER. OWNER may require CONTRACTOR to
dismiss immediately and prohibit entry into OWNER'S premises of any person employed therein by
CONTRACTOR who in OWNER'S opinion is incompetent or misconducts himself or does not
comply with OWNER'S reasonable instructions and requests regarding security, safety and other matters
and such person shall not again be employed to perform the services hereunder without OWNER'S
permission. (Underscoring partly in the original and partly supplied; emphasis supplied)
Petitioner in fact admitted that it fixes the work schedule of respondents as their work was dependent on the
frequency of plane arrivals. And as the NLRC found, petitioner's managers and supervisors approved respondents'
weekly work assignments and respondents and other regular PAL employees were all referred to as "station
attendants" of the cargo operation and airfreight services of petitioner.
Respondents having performed tasks which are usually necessary and desirable in the air transportation business of
petitioner, they should be deemed its regular employees and Synergy as a labor-only contractor.
The express provision in the Agreement that Synergy was an independent contractor and there would be "no
employer-employee relationship between [Synergy] and/or its employees on one hand, and [petitioner] on the other
hand" is not legally binding and conclusive as contractual provisions are not valid determinants of the existence of
such relationship. For it is the totality of the facts and surrounding circumstances of the case which is
determinative of the parties' relationship.
Respecting the dismissal on November 15, 1992 of Auxtero, a regular employee of petitioner who had been
working as utility man/helper since November 1988, it is not legally justified for want of just or authorized cause
therefor and for non-compliance with procedural due process. Petitioner's claim that he abandoned his work does
not persuade. The elements of abandonment being (1) the failure to report for work or absence without valid or
justifiable reason, and (2) a clear intention to sever the employer-employee relationship manifested by some overt
acts, the onus probandi lies with petitioner which, however, failed to discharge the same.
Auxtero, having been declared to be a regular employee of petitioner, and found to be illegally dismissed from
employment, should be entitled to salary differential from the time he rendered one year of service until his
dismissal, reinstatement plus backwages until the finality of this decision. In view, however, of the long period of
time that had elapsed since his dismissal on November 15, 1992, it would be appropriate to award separation pay
Philippine Airlines, Inc. v. Ligan G.R. No. 146408 8 of 8

of one (1) month salary for each year of service, in lieu of reinstatement.
As regards the remaining respondents, the Court affirms the ruling of both the NLRC and the appellate court,
ordering petitioner to accept them as its regular employees and to give each of them the salaries, allowances and
other employment benefits and privileges of a regular employee under the pertinent Collective Bargaining
Agreement.
Petitioner claims, however, that it has become impossible for it to comply with the orders of the NLRC and the
Court of Appeals, for during the pendency of this case, it was forced to reduce its personnel due to heavy losses
caused by economic crisis and the pilots' strike of June 5, 1998. Hence, there are no available positions where
respondents could be placed.
And petitioner informs that "the employment contracts of all if not most of the respondents . . . were terminated by
Synergy effective 30 June 1998 when petitioner terminated its contract with Synergy."
Other than its bare allegations, petitioner presented nothing to substantiate its impossibility of compliance. In fact,
petitioner waived this defense by failing to raise it in its Memorandum filed on June 14, 1999 before the Court of
Appeals. Further, the notice of termination in 1998 was in disregard of a subsisting temporary restraining order to
preserve the status quo, issued by this Court in 1996 before it referred the case to the Court of Appeals in January
1999. So as to thwart the attempt to subvert the implementation of the assailed decision, respondents are deemed to
be continuously employed by petitioner, for purposes of computing the wages and benefits due respondents.
Finally, it must be stressed that respondents, having been declared to be regular employees of petitioner, Synergy
being a mere agent of the latter, had acquired security of tenure. As such, they could only be dismissed by
petitioner, the real employer, on the basis of just or authorized cause, and with observance of procedural due
process.
WHEREFORE, the Court of Appeals Decision of September 29, 2000 is AFFIRMED with MODIFICATION.
Petitioner PHILIPPINE AIRLINES, INC. is ordered to:
(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS,
RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER,
VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON
CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO,
NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, EDUARDO MAGDADARAUG,
NELSON M. DULCE and ALLAN BENTUZAL as its regular employees in their same or substantially equivalent
positions, and pay the wages and benefits due them as regular employees plus salary differential corresponding
to the difference between the wages and benefits given them and those granted to petitioner's other regular
employees of the same rank; and
(b) pay respondent BENEDICTO AUXTERO salary differential; backwages from the time of his dismissal until
the finality of this decision; and separation pay, in lieu of reinstatement, equivalent to one (1) month pay for every
year of service until the finality of this decision.
There being no data from which this Court may determine the monetary liabilities of petitioner, the case is
REMANDED to the Labor Arbiter solely for that purpose.
SO ORDERED.