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SMC vs. MAERC Integrated Services, Inc., GR No.

144672, 10 July 2003


FACTS:
Complainants are workers of SMC involved in the washing and segregating of various kinds of
empty bottles used by SMC to sell and distribute its beer beverages to the consuming public. It
appears that SMC entered into a contract with MAERC, engaging the services of the latter, such
contract being renewed from time to time. When the service contract was terminated, the workers
filed a complaint for illegal dismissal, underpayment of wages and non-payment of other benefits.
They claimed that SMC was their real employer and that MAERC was merely used as a tool by
SMC to avoid its liability under the Labor Code. The Labor Arbiter dismissed the complaints for
illegal dismissal holding that MAERC is an independent contractor. The NLRC however, ruled
that MAERC was a labor-only contractor and that complainants were SMC employees. This
decision was affirmed by the CA.
ISSUES:
1. WON the complainants are employees of SMC or MAERC
2. WON MAERC is a labor-only contractor or an independent contractor

RULING:
1. The complainants are employees of SMC. In ascertaining an employer-employee
relationship, the ff. factors are considered: (1) the selection and engagement of employee,
(2) the payment of wages, (3) the power of dismissal, and (4) the power to control an
employees conduct. In this case, the evidence disclosed that SMC played a large and
indispensable part in the hiring of MAERCs workers. Majority of the complainants were
already working for SMC when the workers were instructed to apply for work in MAERC
to make it appear that complainants were hired by MAERC. As for the payment of wages,
it was revealed that SMC assumed the responsibility of paying for the mandated overtime,
holiday , rest day and 13th month pay of the workers. As to the power of control, while the
contract between SMC and MAERC provided that SMC has no control or supervision
whatsoever over the conduct of the workers in respect to how they perform their task, there
are indicators that SMC actively supervised the complainants. They also asserted their right
to discipline the workers by recommending the penalty to be imposed due to infractions
committed by some workers. With these facts and circumstances, the court thus held that
the complainants are employees of SMC

2. MAERC is a labor-only contractor. There is job contracting permissible under the Code if
the ff. conditions are met: (1) the contractor carries on an independent business and
undertakes to perform the job, service or task on its own account, under its own
responsibility and according to its own manner and method free from the control and
direction of the 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. In this case, while MAERCs investment in the
form of buildings, tools and equipment amounted to more than P4,000,000.00, the court
cannot disregard the fact that it was SMC who required that MAERC undertook such
investment under the understanding that their relationship wpuld be on a long-term basis.
Nor do the court believes that MAERC has an independent business. Not only was it set-
upped to specifically meet the pressing needs of SMC which was having their labor
problems in the segretagtion division, none of its workers were also ever assigned to any
other establishment. Therefore, SMC is a labor-only contractor.