You are on page 1of 11


- versus -
Promulgated: July 14, 2005

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Decision,[5] dated September 27, 2000,
of the Court of Appeals (CA) in CA-G.R. SP No. 50520 which declared petitioner Manila Electric Company (MERALCO) as the direct
employer of individual respondents Rogelio Benamira, Ernie De Sagun, Diosdado Yogare, Francisco Moro, Oscar Lagonoy, Rolando
Beni, Alex Beni and Raul De Guia (individual respondents for brevity).

The factual background of the case is as follows:

The individual respondents are licensed security guards formerly employed by Peoples Security, Inc. (PSI) and deployed as such at
MERALCOs head office in Ortigas Avenue, Pasig, Metro Manila.

On November 30, 1990, the security service agreement between PSI and MERALCO was terminated.

Immediately thereafter, fifty-six of PSIs security guards, including herein eight individual respondents, filed a complaint for unpaid
monetary benefits against PSI and MERALCO, docketed as NLRC-NCR Case No. 05-02746-90.

Meanwhile, the security service agreement between respondent Armed Security & Detective Agency, Inc., (ASDAI) and MERALCO
took effect on December 1, 1990. In the agreement, ASDAI was designated as the AGENCY while MERALCO was designated as the
COMPANY. The pertinent terms and conditions of the agreement are as follows:

1. The AGENCY shall initially provide the COMPANY with TWO HUNDRED TWENTY (220) licensed, uniformed, bonded and armed
security guards to be assigned at the COMPANYs MERALCO CENTER, complete with nightsticks, flashlights, raincoats, and other
paraphernalias to work on eight (8) hours duty. The COMPANY shall determine the number of security guards in accordance with its
needs and the areas of responsibility assigned to each, and shall have the option to increase or decrease the number of guards at any
time provided the AGENCY is notified within twenty four (24) hours of the contemplated reduction or increase of the guards in which
case the cost or consideration shall be adjusted accordingly.

2. The COMPANY shall furnish the AGENCY copies of written specific instruction to be followed or implemented by the latters
personnel in the discharge of their duties and responsibilities and the AGENCY shall be responsible for the faithful compliance
therewith by its personnel together with such general and specific orders which shall be issued from time to time.

3. For and in consideration of the services to be rendered by the AGENCY to the COMPANY, the COMPANY during the term of this
contract shall pay the AGENCY the amount of THREE THOUSAND EIGHT HUNDRED PESOS (P3,800.00) a month per guard, FOUR
THOUSAND PESOS (P4,000.00) for the Shift Leader and FOUR THOUSAND TWO HUNDRED PESOS (P4,200.00) for the
Detachment Commander for eight (8) hours work/day, Saturdays, Sundays and Holidays included, payable semi-monthly.

5. The AGENCY shall assume the responsibility for the proper and efficient performance of duties by the security guards employed by
it and it shall be solely responsible for any act of said security guards during their watch hours, the COMPANY being specifically
released from any and all liability to third parties arising from the acts or omission of the security guards of the AGENCY.

6. The AGENCY also agrees to hold the COMPANY entirely free from any liability, cause or causes of action or claims which may be
filed by said security guards by reason of their employment with the AGENCY pursuant to this Agreement or under the provisions of the
Labor Code, the Social Security Act, and other laws, decrees or social legislations now enacted or which hereafter may be enacted.

7. Discipline and Administration of the security guards shall conform with the rules and regulations of the AGENCY, and the COMPANY
reserves the right to require without explanation the replacement of any guard whose behavior, conduct or appearance is not
satisfactory to the COMPANY and that the AGENCY cannot pull-out any security guard from the COMPANY without the consent of the

8. The AGENCY shall conduct inspections through its duly authorized inspector at least two (2) times a week of guards assigned to all
COMPANY installations secured by the AGENCY located in the Metropolitan Manila area and at least once a week of the COMPANYs
installations located outside of the Metropolitan Manila area and to further submit its inspection reports to the COMPANY. Likewise, the
COMPANY shall have the right at all times to inspect the guards of the AGENCY assigned to the COMPANY.

9. The said security guards shall be hired by the AGENCY and this contract shall not be deemed in any way to constitute a contract of
employment between the COMPANY and any of the security guards hired by the AGENCY but merely as a contract specifying the
conditions and manner under which the AGENCY shall render services to the COMPANY.

10. Nothing herein contained shall be understood to make the security guards under this Agreement, employees of the COMPANY, it
being clearly understood that such security guards shall be considered as they are, employees of the AGENCY alone, so that the
AGENCY shall be responsible for compliance with all pertinent labor laws and regulations included but not limited to the Labor Code,
Social Security Act, and all other applicable laws and regulations including that providing for a withholding tax on income.
13. This contract shall take effect on the 1st day of December, 1990 and shall continue from year to year unless sooner terminated by
the COMPANY for cause or otherwise terminated by either party without cause upon thirty (30) days written notice by one party to the

Subsequently, the individual respondents were absorbed by ASDAI and retained at MERALCOs head office.

On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered a decision in NLRC-NCR Case No. 05-02746-90 in favor of the former
PSI security guards, including the individual respondents.

Less than a month later, or on July 21, 1992, the individual respondents filed another complaint for unpaid monetary benefits, this time
against ASDAI and MERALCO, docketed as NLRC-NCR Case No. 00-07-03953-92.

On July 25, 1992, the security service agreement between respondent Advance Forces Security & Investigation Services, Inc. (AFSISI)
and MERALCO took effect, terminating the previous security service agreement with ASDAI.[7] Except as to the number of security
guards,[8] the amount to be paid the agency,[9] and the effectivity of the agreement,[10] the terms and conditions were substantially
identical with the security service agreement with ASDAI.

On July 29, 1992, the individual respondents amended their complaint to implead AFSISI as party respondent. On August 11, 1992
they again amended their complaint to allege that AFSISI terminated their services on August 6, 1992 without notice and just cause
and therefore guilty of illegal dismissal.

The individual respondents alleged that: MERALCO and ASDAI never paid their overtime pay, service incentive leave pay, premium
pay for Sundays and Holidays, P50.00 monthly uniform allowance and underpaid their 13th month pay; on July 24, 1992, when the
security service agreement of ASDAI was terminated and AFSISI took over the security functions of the former on July 25, 1992,
respondent security guard Benamira was no longer given any work assignment when AFSISI learned that the former has a pending
case against PSI, in effect, dismissing him from the service without just cause; and, the rest of the individual respondents were
absorbed by AFSISI but were not given any assignments, thereby dismissing them from the service without just cause.

ASDAI denied in general terms any liability for the claims of the individual respondents, claiming that there is nothing due them in
connection with their services.

On the other hand, MERALCO denied liability on the ground of lack of employer-employee relationship with individual respondents. It
averred that the individual respondents are the employees of the security agencies it contracted for security services; and that it has no
existing liability for the individual respondents claims since said security agencies have been fully paid for their services per their
respective security service agreement.

For its part, AFSISI asserted that: it is not liable for illegal dismissal since it did not absorb or hire the individual respondents, the latter
were merely hold-over guards from ASDAI; it is not obliged to employ or absorb the security guards of the agency it replaced since
there is no provision in its security service agreement with MERALCO or in law requiring it to absorb and hire the guards of ASDAI as it
has its own guards duly trained to service its various clients.

On January 3, 1994, after the submission of their respective evidence and position papers, Labor Arbiter Pablo C. Espiritu, Jr. rendered
a Decision holding ASDAI and MERALCO jointly and solidarily liable to the monetary claims of individual respondents and dismissing
the complaint against AFSISI. The dispositive portion of the decision reads as follows:

WHEREFORE, conformably with the above premises, judgment is hereby rendered:

1. Declaring ASDAI as the employer of the complainants and as such complainants should be reinstated as regular security guards of
ASDAI without loss of seniority rights, privileges and benefits and for ASDAI to immediately post the complainants as security guards
with their clients. The complaint against AFSISI is Dismissed for lack of merit.

2. Ordering both respondents, ASDAI and MERALCO to jointly and solidarily pay complainants monetary claims (underpayment of
actual regular hours and overtime hours rendered, and premium pay for holiday and rest day) in the following amounts:


1. Rogelio Benamira P14,615.75

2. Ernie De Sagun 21,164.31

3. Diosdado Yogare 7,108.77

4. Francisco Maro 26,567.11

5. Oscar Lagonay 18,863.36

6. Rolando Beni 21,834.12

7. Alex Beni 21,648.80

8. Ruel De Guia 14,200.33

3. Ordering Respondents ASDAI and MERALCO to jointly and solidarily pay complainants 10% attorneys fees in the amount of
P14,600.25 based on the total monetary award due to the complainants in the amount of P146,002.55.
All other claims of the complainants are hereby DISMISSED for lack of merit.

The counter-claim of respondent AFSISI for damages is hereby dismissed for want of substantial evidence to justify the grant of
damages. SO ORDERED.

All the parties, except AFSISI, appealed to the National Labor Relations Commission (NLRC).

Individual respondents partial appeal assailed solely the Labor Arbiters declaration that ASDAI is their employer. They insisted that
AFSISI is the party liable for their illegal dismissal and should be the party directed to reinstate them.

For its part, MERALCO attributed grave abuse of discretion on the part of the Labor Arbiter in failing to consider the absence of
employer-employee relationship between MERALCO and individual respondents.

On the other hand, ASDAI took exception from the Labor Arbiters finding that it is the employer of the individual respondents and
therefore liable for the latters unpaid monetary benefits.

On April 10, 1995, the NLRC affirmed in toto the decision of the Labor Arbiter.[12] On April 19, 1995, the individual respondents filed a
motion for partial reconsideration but it was denied by the NLRC in a Resolution dated May 23, 1995.[13]

On August 11, 1995, the individual respondents filed a petition for certiorari before us, docketed as G.R. No. 121232.[14] They insisted
that they were absorbed by AFSISI and the latter effected their termination without notice and just cause.

After the submission of the responsive pleadings and memoranda, we referred the petition, in accordance with St. Martin Funeral
Homes vs. NLRC,[15] to the CA which, on September 27, 2000, modified the decision of the NLRC by declaring MERALCO as the
direct employer of the individual respondents.

The CA held that: MERALCO changed the security agency manning its premises three times while engaging the services of the same
people, the individual respondents; MERALCO employed a scheme of hiring guards through an agency and periodically entering into
service contract with one agency after another in order to evade the security of tenure of individual respondents; individual respondents
are regular employees of MERALCO since their services as security guards are usually necessary or desirable in the usual business or
trade of MERALCO and they have been in the service of MERALCO for no less than six years; an employer-employee relationship
exists between MERALCO and the individual respondents because: (a) MERALCO had the final say in the selection and hiring of the
guards, as when its advice was proved to have carried weight in AFSISIs decision not to absorb the individual respondents into its
workforce; (b) MERALCO paid the wages of individual respondents through ASDAI and AFSISI; (c) MERALCOs discretion on matters
of dismissal of guards was given great weight and even finality since the record shows that the individual respondents were replaced
upon the advice of MERALCO; and, (d) MERALCO has the right, at any time, to inspect the guards, to require without explanation the
replacement of any guard whose behavior, conduct or appearance is not satisfactory and ASDAI and AFSISI cannot pull out any
security guard from MERALCO without the latters consent; and, a labor-only contract existed between ASDAI and AFSISI and
MERALCO, such that MERALCO is guilty of illegal dismissal without just cause and liable for reinstatement of individual respondents to
its workforce.

The dispositive portion of the CAs Decision reads as follows:

WHEREFORE, in view of the foregoing premises, the Resolution subject of this petition is hereby AFFIRMED with MODIFICATION in
the sense that MERALCO is declared the employer of the petitioners. Accordingly, private respondent MERALCO is hereby ordered as

1. To reinstate petitioners into MERALCOs work force as regular security guards without loss of seniority rights and other privileges;

2. To pay the petitioners full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed from the
time their compensation was withheld from them up to the time of their actual reinstatement, for which the Labor Arbiter Pablo C.
Espiritu, Jr. is hereby directed to undertake the necessary computation and enforcement thereof.

With respect to the rest of the dispositive portion of the assailed Resolution which affirmed the decision of the Labor Arbiter Pablo C.
Espiritu, Jr., particularly the joint and solidary liabilities of both ASDAI and MERALCO to the petitioners, the same are hereby

Hence, the present petition for review on certiorari, filed by MERALCO, anchored on the following grounds:






Anent the first ground, MERALCO submits that the elements of four-fold test to determine the existence of an employer-employee
relation, namely: (1) the power to hire, (2) the payment of wages, (3) the power to dismiss, and (4) the power to control, are not present
in the instant case.

Regarding the power to hire, MERALCO contends that the records are bereft of any evidence that shows that it participated in or
influenced the decision of PSI and ASDAI to hire or absorb the individual respondents.

As to the payment of wages, MERALCO maintains that the individual respondents received their wages from their agency.

With regard to the power to dismiss, MERALCO argues that the security service agreement clearly provided that the discipline and
administration of the security guards shall conform to the rules and regulations of the agency.

Concerning the power of control, MERALCO asserts that there is no evidence that individual respondents were subjected to its control
as to the manner or method by which they conduct or perform their work of guarding of MERALCOs premises.

Furthermore, MERALCO insists that ASDAI and AFSISI are not labor-only contractors since they have their own equipment,
machineries and work premises which are necessary in the conduct of their business and the duties performed by the security guards
are not necessary in the conduct of MERALCOs principal business.

With respect to the second ground, MERALCO argues that the individual respondents cannot be considered as regular employees as
the duties performed by them as security guards are not necessary in the conduct of MERALCOs principal business which is the
distribution of electricity.

As regards the third ground, MERALCO argues that it was denied due process when the individual respondents raised for the first time
in the CA the issue that MERALCO is their direct employer since the individual respondents have always considered themselves as
employees of AFSISI and nowhere in the Labor Arbiter or the NLRC did they raise the argument that MERALCO is their direct

Regarding the fourth ground, MERALCO asserts that it is not guilty of illegal dismissal because it had no direct hand or participation in
the termination of the employment of individual respondents, who even insisted in their petition for certiorari in the CA that it was
AFSISI which terminated their employment.

As to the fifth ground, MERALCO maintains that the individual respondents are not entitled to reinstatement into its workforce because
no employer-employee relationship exists between it and the individual respondents.

With regard to the sixth ground, MERALCO asserts that since it is not the direct employer of the individual respondents, it has a right of
reimbursement from ASDAI for the full amount it may pay to the individual respondents under Articles 106 and 107 of the Labor Code.

In contrast, the individual respondents maintain that the CA aptly found that all the elements in employer-employee relationship exist
between them and MERALCO and there is no cogent reason to deviate from such factual findings.

For its part, ASDAI contends that the instant petition raises factual matters beyond the jurisdiction of this Court to resolve since only
questions of law may be raised in a petition for review on certiorari. It submits that while the rule admits of exceptions, MERALCO failed
to establish that the present case falls under any of the exceptions.

On the other hand, AFSISI avers that there is no employer-employee relationship between MERALCO and the security guards of any
of the security agencies under contract with MERALCO.

It is a settled rule that in the exercise of the Supreme Courts power of review, the Court is not a trier of facts and does not normally
undertake the re-examination of the evidence presented by the contending parties during the trial of the case considering that the
findings of facts of the CA are conclusive and binding on the Court. However, jurisprudence has recognized several exceptions in
which factual issues may be resolved by this Court, to wit:

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial
court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in
the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different

In the present case, the existence of an employer-employee relationship is a question of fact which is well within the province of the
CA. Nonetheless, given the reality that the CAs findings are at odds to those of the NLRC, the Court is constrained to look deeper into
the attendant circumstances obtaining in the present case, as appearing on record.
At the outset, we note that the individual respondents never alleged in their complaint in the Labor Arbiter, in their appeal in the NLRC
and even in their petition for certiorari in the CA that MERALCO was their employer. They have always advanced the theory that
AFSISI is their employer. A perusal of the records shows it was only in their Memorandum in the CA that this thesis was presented and
discussed for the first time. We cannot ignore the fact that this position of individual respondents runs contrary to their earlier
submission in their pleadings filed in the Labor Arbiter, NLRC and even in the petition for certiorari in the CA that AFSISI is their
employer and liable for their termination. As the object of the pleadings is to draw the lines of battle, so to speak, between the litigants
and to indicate fairly the nature of the claims or defenses of both parties, a party cannot subsequently take a position contrary to, or
inconsistent, with his pleadings.[19]

Moreover, it is a fundamental rule of procedure that higher courts are precluded from entertaining matters neither alleged in the
pleadings nor raised during the proceedings below, but ventilated for the first time only in a motion for reconsideration or on appeal.[20]
The individual respondents are bound by their submissions that AFSISI is their employer and they should not be permitted to change
their theory. Such a change of theory cannot be tolerated on appeal, not due to the strict application of procedural rules but as a matter
of fairness. A change of theory on appeal is objectionable because it is contrary to the rules of fair play, justice and due process.[21]

Thus, the CA should not have considered the new theory offered by the individual respondents in their memorandum.

The present petition for review on certiorari is far from novel and, in fact, not without precedence. We have ruled in Social Security
System vs. Court of Appeals[22] that:

...The guards or watchmen render their services to private respondent by allowing themselves to be assigned by said respondent,
which furnishes them arms and ammunition, to guard and protect the properties and interests of private respondent's clients, thus
enabling that respondent to fulfill its contractual obligations. Who the clients will be, and under what terms and conditions the services
will be rendered, are matters determined not by the guards or watchmen, but by private respondent. On the other hand, the client
companies have no hand in selecting who among the guards or watchmen shall be assigned to them. It is private respondent that
issues assignment orders and instructions and exercises control and supervision over the guards or watchmen, so much so that if, for
one reason or another, the client is dissatisfied with the services of a particular guard, the client cannot himself terminate the services
of such guard, but has to notify private respondent, which either substitutes him with another or metes out to him disciplinary measures.
That in the course of a watchman's assignment the client conceivably issues instructions to him, does not in the least detract from the
fact that private respondent is the employer of said watchman, for in legal contemplation such instructions carry no more weight than
mere requests, the privity of contract being between the client and private respondent, not between the client and the guard or
watchman. Corollarily, such giving out of instructions inevitably spring from the client's right predicated on the contract for services
entered into by it with private respondent.

In the matter of compensation, there can be no question at all that the guards or watchmen receive compensation from private
respondent and not from the companies or establishments whose premises they are guarding. The fee contracted for to be paid by the
client is admittedly not equal to the salary of a guard or watchman; such fee is arrived at independently of the salary to which the guard
or watchman is entitled under his arrangements with private respondent.

and reiterated in American President Lines vs. Clave,[24] thus:

In the light of the foregoing standards, We fail to see how the complaining watchmen of the Marine Security Agency can be considered
as employees of the petitioner. It is the agency that recruits, hires, and assigns the work of its watchmen. Hence, a watchman can not
perform any security service for the petitioner's vessels unless the agency first accepts him as its watchman. With respect to his wages,
the amount to be paid to a security guard is beyond the power of the petitioner to determine. Certainly, the lump sum amount paid by
the petitioner to the agency in consideration of the latter's service is much more than the wages of any one watchman. In point of fact, it
is the agency that quantifies and pays the wages to which a watchman is entitled.

Neither does the petitioner have any power to dismiss the security guards. In fact, We fail to see any evidence in the record that it
wielded such a power. It is true that it may request the agency to change a particular guard. But this, precisely, is proof that the power
lies in the hands of the agency.

Since the petitioner has to deal with the agency, and not the individual watchmen, on matters pertaining to the contracted task, it
stands to reason that the petitioner does not exercise any power over the watchmen's conduct. Always, the agency stands between the
petitioner and the watchmen; and it is the agency that is answerable to the petitioner for the conduct of its guards.[25]

In this case, the terms and conditions embodied in the security service agreement between MERALCO and ASDAI expressly
recognized ASDAI as the employer of individual respondents.

Under the security service agreement, it was ASDAI which (a) selected, engaged or hired and discharged the security guards; (b)
assigned them to MERALCO according to the number agreed upon; (c) provided the uniform, firearms and ammunition, nightsticks,
flashlights, raincoats and other paraphernalia of the security guards; (d) paid them salaries or wages; and, (e) disciplined and
supervised them or principally controlled their conduct. The agreement even explicitly provided that [n]othing herein contained shall be
understood to make the security guards under this Agreement, employees of the COMPANY, it being clearly understood that such
security guards shall be considered as they are, employees of the AGENCY alone. Clearly, the individual respondents are the
employees of ASDAI.

As to the provision in the agreement that MERALCO reserved the right to seek replacement of any guard whose behavior, conduct or
appearance is not satisfactory, such merely confirms that the power to discipline lies with the agency. It is a standard stipulation in
security service agreements that the client may request the replacement of the guards to it. Service-oriented enterprises, such as the
business of providing security services, generally adhere to the business adage that the customer or client is always right and, thus,
must satisfy the interests, conform to the needs, and cater to the reasonable impositions of its clients.
Neither is the stipulation that the agency cannot pull out any security guard from MERALCO without its consent an indication of control.
It is simply a security clause designed to prevent the agency from unilaterally removing its security guards from their assigned posts at
MERALCOs premises to the latters detriment.

The clause that MERALCO has the right at all times to inspect the guards of the agency detailed in its premises is likewise not
indicative of control as it is not a unilateral right. The agreement provides that the agency is principally mandated to conduct
inspections, without prejudice to MERALCOs right to conduct its own inspections.

Needless to stress, for the power of control to be present, the person for whom the services are rendered must reserve the right to
direct not only the end to be achieved but also the means for reaching such end.[26] Not all rules imposed by the hiring party on the
hired party indicate that the latter is an employee of the former.[27] Rules which serve as general guidelines towards the achievement
of the mutually desired result are not indicative of the power of control.[28]

Verily, the security service agreements in the present case provided that all specific instructions by MERALCO relating to the discharge
by the security guards of their duties shall be directed to the agency and not directly to the individual respondents. The individual
respondents failed to show that the rules of MERALCO controlled their performance.

Moreover, ASDAI and AFSISI are not labor-only contractors. There is labor only contract when the person acting as contractor is
considered merely as an agent or intermediary of the principal who is responsible to the workers in the same manner and to the same
extent as if they had been directly employed by him. On the other hand, job (independent) contracting is present if the following
conditions are met: (a) 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 (b) 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.[29] Given the above distinction and the provisions of the security service agreements entered into by petitioner with ASDAI
and AFSISI, we are convinced that ASDAI and AFSISI were engaged in job contracting.

The individual respondents cannot be considered as regular employees of the MERALCO for, although security services are necessary
and desirable to the business of MERALCO, it is not directly related to its principal business and may even be considered unnecessary
in the conduct of MERALCOs principal business, which is the distribution of electricity.

Furthermore, the fact that the individual respondents filed their claim for unpaid monetary benefits against ASDAI is a clear indication
that the individual respondents acknowledge that ASDAI is their employer.

We cannot give credence to individual respondents insistence that they were absorbed by AFSISI when MERALCOs security service
agreement with ASDAI was terminated. The individual respondents failed to present any evidence to confirm that AFSISI absorbed
them into its workforce. Thus, respondent Benamira was not retained in his post at MERALCO since July 25, 1992 due to the
termination of the security service agreement of MERALCO with ASDAI. As for the rest of the individual respondents, they retained
their post only as hold-over guards until the security guards of AFSISI took over their post on August 6, 1992.

In the present case, respondent Benamira has been off-detail for seventeen days while the rest of the individual respondents have only
been off- detail for five days when they amended their complaint on August 11, 1992 to include the charge of illegal dismissal. The
inclusion of the charge of illegal dismissal then was premature. Nonetheless, bearing in mind that ASDAI simply stopped giving the
individual respondents any assignment and their inactivity clearly persisted beyond the six-month period allowed by Article 286[31] of
the Labor Code, the individual respondents were, in effect, constructively dismissed by ASDAI from employment, hence, they should
be reinstated.

The fact that there is no actual and direct employer-employee relationship between MERALCO and the individual respondents does not
exonerate MERALCO from liability as to the monetary claims of the individual respondents. When MERALCO contracted for security
services with ASDAI as the security agency that hired individual respondents to work as guards for it, MERALCO became an indirect
employer of individual respondents pursuant to Article 107 of the Labor Code, which reads:

ART. 107. Indirect employer - The provisions of the immediately preceding Article shall likewise apply to any person, partnership,
association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work,
task, job or project.

When ASDAI as contractor failed to pay the individual respondents, MERALCO as principal becomes jointly and severally liable for the
individual respondents wages, under Articles 106 and 109 of the Labor Code, which provide:

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. xxx

ART. 109. Solidary liability - The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall
be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purpose of determining the
extent of their civil liability under this Chapter, they shall be considered as direct employers.
ASDAI is held liable by virtue of its status as direct employer, while MERALCO is deemed the indirect employer of the individual
respondents for the purpose of paying their wages in the event of failure of ASDAI to pay them. This statutory scheme gives the
workers the ample protection

consonant with labor and social justice provisions of the 1987 Constitution.[32]

However, as held in Mariveles Shipyard Corp. vs. Court of Appeals,[33] the solidary liability of MERALCO with that of ASDAI does not
preclude the application of Article 1217 of the Civil Code on the right of reimbursement from his co-debtor by the one who paid,[34]
which provides:

ART. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the
creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment
already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such
share shall be borne by all his co-debtors, in proportion to the debt of each.

ASDAI may not seek exculpation by claiming that MERALCOs payments to it were inadequate for the individual respondents lawful
compensation. As an employer, ASDAI is charged with knowledge of labor laws and the adequacy of the compensation that it demands
for contractual services is its principal concern and not any others.

WHEREFORE, the present petition is GRANTED. The assailed Decision, dated September 27, 2000, of the CA is REVERSED and
SET ASIDE. The Decision of the Labor Arbiter dated January 3, 1994 and the Resolution of the NLRC dated April 10, 1995 are
AFFIRMED with the MODIFICATION that the joint and solidary liability of ASDAI and MERALCO to pay individual respondents
monetary claims for underpayment of actual regular hours and overtime hours rendered, and premium pay for holiday and rest day, as
well as attorneys fees, shall be without prejudice to MERALCOs right of reimbursement from ASDAI.



Rogelio Benamira et al were security guards who worked for PSI (People’s Security, Inc.). PSI was the security agency contracted by
MERALCO (Manila Electric Company). The contract between PSI and MERALCO expired. MERALCO subsequently contracted ASDAI
(Armed Security and Detective Agency, Inc.) as its new security agency. ASDAI absorbed Benamira et al upon MERALCO’s advice.
After two years, the contract between ASDAI and MERALCO expired. MERALCO subsequently contracted AFSISI (Advance Forces
Security and Investigation Services, Inc.). AFSISI did not schedule any work for Benamira et al. It was interpreted as a constructive
dismissal. Benamira sued MERALO, ASDAI, and AFSISI.

The Labor Arbiter ruled that ASDAI should reinstate Benamira et al and that MERALCO is solidarily liable. No liability for AFSISI. NLRC
affirmed LA. The CA reversed the lower courts. The CA ruled that the employer is actually MERALCO.

ISSUE: Whether or not MERALCO is the employer of the fired security guards.

HELD: No. Under the contract between ASDAI and MERALCO, it can be seen that ASDAI is indeed the employer of the guards.
Applying the 4 Fold Test: ASDAI employed the guards when it absorbed them from PSI. ASDAI provided the salaries of the guards
(MERALCO merely pays ASDAI for providing the guards). ASDAI has control over the guards because they are being inspected
(MERALCO has the right to conduct its own inspection as per contract with ASDAI only). ASDAI has the power to terminate the guards,
as when they did not provide any tours or schedules to them.

Further, the services offered by the guards are not necessary to the principal business of MERALCO which is to provide electricity.

AFSISI is not the employer of the guards as well (as claimed by the guards) because AFSISI never absorbed them nor was there any
evidence showing otherwise.

These security agencies are not Labor Only agencies (unlike HR agencies) because they have their own equipment’s, machineries and
in general they carry their own business.

Lapanday vs CA
GR No 112139
January 13, 2000
GR No 145402
March 14, 2008
Pag – Asa Steel Works vs CA (2006) G.R. 166647
Petitioner is engaged in the manufacture of steel bars and wire rods while Pag-Asa Steel Workers Union is
the duly authorized bargaining agent of the rank-and-file employees.
RTWPB of NCR issued a wage order which provided for a P 13.00 increase of the salaries receiving
minimum wages. The Petitioner and the union negotiated on the increase. Petitioner forwarded a letter to
the union with the list of adjustments involving rank and file employees. In September 1999, the petitioner
and union entered into an collective bargaining agreement where it provided wage adjustments namely
P15, P25, P30 for three succeeding year. On the first year, the increase provided were followed until
RTWPB issued another wage order where it provided for a P25.50 per day increase in the salary of
employees receiving the minimum wage and increased the minimum wage to P223.50 per day. Petitioner
paid the P25.50 per day increase to all of its rank-and-file employees.
On November 2000, Wage Order No. NCR-08 was issued where it provided the increase of P26.50 per
Meralco Industrial Engineering Services, Co., vs. NLRC

Meralco and the private respondent executed a contract where the latter would supply the petitioner janitorial services, which
include labor, materials, tools and equipment, as well as supervision of its assigned employees, at Meralco’s Rockwell Thermal Plant in
Makati City.
The 49 employees lodged a Complaint for illegal deduction, underpayment, non-payment of overtime pay, legal holiday pay,
premium pay for holiday and rest day and night differentials against the private respondent before the LA.
By virtue of RA 6727, the contract between Meralco and the private respondent was amended to increase the minimum daily
wage per employee. 2 months after the amendment of the contract, Meralco sent a letter to private respondent informing them that at
the end of business hours of Jan. 31, 1990, it would be terminating contract entered into with the private respondents. On the said date,
the complainants were pulled out from their work. The complainants amended their complaint to include the charge of illegal dismissal
and to implead Meralco as a party respondent.
The LA dismissed the complaint. On appeal, the NLRC affirmed the decision of the LA with the modification that Meralco was
solidarily liable with the private respondents. The CA on the other hand, modified the Decision of the NLRC and held Meralco to be
solidarily liable with the private respondent for the satisfaction of the laborer’s separation pay.

Issue: Whether Meralco should be liable for the payment of the dismissed laborer’s separation pay.


The CA used Art. 109 of the Labor Code to hold Meralco solidarily liable with the private respondent as regard to the payment
of separation pay. However, the SC ruled that Art. 109 should be read in relation to Art. 106 and 107 of the LC. Thus, an indirect
employer can only be held liable with the independent contractor or subcontractor in the event that the latter fails to pay the wages of
its employees. While it is true that the petitioner was the indirect employer of the complainants, it cannot be held liable in the same way
as the employer in every respect. Meralco may be considered an indirect employer only for purposes of unpaid wages.

The only instance when the principal can also be held liable with the independent contractor or subcontractor for the
backwages and separation pay of the latter’s employees is when there is proof that the principal conspired with the independent
contractor or subcontractor in the illegal dismissal of the employees. In the present case, there is no allegation, much less proof
presented, that the petitioner conspired with private respondents in the illegal dismissal of the latter’s employees; hence, it cannot be
held liable for the same.

Neither can the liability for the separation pay of the complainants be extended to the petitioner based on contract. Contract
Order No. 166-84 executed between the petitioner and the private respondents contains no provision for separation pay in the event
that the petitioner terminates the same. It is basic that a contract is the law between the parties and the stipulations therein, provided
that they are not contrary to law, morals, good customs, public order or public policy, shall be binding as between the parties. Hence, if
the contract does not provide for such a liability, this Court cannot just read the same into the contract without possibly violating the
intention of the parties.

Although petitioner is not liable for complainants’ separation pay, the Court conforms to the consistent findings in the
proceedings below that the petitioner is solidarily liable with the private respondents for the judgment awards for underpayment of
wages and non-payment of overtime pay.

In this case, however, private respondents had already posted a surety bond in an amount sufficient to cover all the judgment
awards due the complainants, including those for underpayment of wages and non-payment of overtime pay. The joint and several
liability of the principal with the contractor and subcontractor were enacted to ensure compliance with the provisions of the Labor Code,
principally those on statutory minimum wage. This liability facilitates, if not guarantees, payment of the workers’ compensation, thus,
giving the workers ample protection as mandated by the 1987 Constitution. With private respondents’ surety bond, it can therefore be
said that the purpose of the Labor Code provision on the solidary liability of the indirect employer is already accomplished since the
interest of the complainants are already adequately protected. Consequently, it will be futile to continuously hold the petitioner jointly
and solidarily liable with the private respondents for the judgment awards for underpayment of wages and non-payment of overtime
But while this Court had previously ruled that the indirect employer can recover whatever amount it had paid to the employees
in accordance with the terms of the service contract between itself and the contractor, the said ruling cannot be applied in reverse to
this case as to allow the private respondents (the independent contractor), who paid for the judgment awards in full, to recover from the
petitioner (the indirect employer).
FACTS: Diamond Farms owns an 800-hectare banana plantation in Davao. Pursuant to R.A. No. 6657 or the Comprehensive Agrarian
Reform Law 1988 (CARL) commercial farms shall be subject to compulsory acquisition and distribution these the original plantation
was covered by the law. However the Department of Agrarian Reform (DAR) granted DFI a deferment privilege to continue operation till
1980. Due to marketing problems and observance of “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 and laid off employees. These employees petitioner DAR to cancel DFI’s
deferment privilege. The DAR recalled the deferment privilege pursuant to CARL.
In order to minimize losses, DFI offered to give up its rights and interest over the original plantation in favor of the government by was
of a Voluntary Offer to Sell. DAR accepted but only to 689.88 hectares of disposition, and the remaining 200 hectares were retained by
DFI. The awarded plantation was turned over to qualified agrarian reform beneficiaries under the CARL and were the same farmers
who were working in the original plantation. They subsequently organized themselves as a multi-purpose cooperative “DARBMUPCO”.
On 1996, DARBMUPCO entered into a Banana Production and Purchase Agreement (BPPA) with DFI. 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 DFI—this was effective for 10 years. Both parties entered into the Supplemental to Memorandum
Agreement (SMA). The SMA stated that DFI shall take care of the labor cost arising from the packaging operation, cable maintenance,
irrigation pump and irrigation maintenance. From the start, DARBMUPCO was hampered by lack of manpower since some of its
members were not willing to work. Hence, to assist DARBMUPCO, DFI engaged the services of the respondent-contractors (SPFL)
who recruited workers. The engagement of respondent workers started series of labor disputes.
Souther Philippine Federation of Labor (SPFL)—a legitimate labor organization with a local chapter in the plantation filed a petition for
certification election in the office of the Med-Arbiter in Davao City. SPFL filed the petition on behalf of some 400 workers “jointly
employed by DFI and DARBMUPCO working in the awarded plantation. DARBMUPCO and DFI denied that they are employers of the
respondent-workers. 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. DARBMUPCO appealed the case stating that DFI is the
employer of SPFL. The Sec. of DOLE declared such. The CA stated that the DFI was the statutory employer of all respondent-workers.

ISSUE: Whether or not DFI or DARBMUPCO is the statutory employer of respondent-contractors—DFI

HELD: DFI is the employer of respondent workers. This case involves job contracting, a labor arrangement expressly allowed by law.
Contracting or subcontracting is an arrangement whereby a principal agrees to put our or farm out with a contractor or subcontractor
the performance or completion of specific job. work or service within a definite or predetermined period, regardless of whether such job,
work, service is to be performed or completed within or outside the premises of the principal. Article 106 of the Labor Code the relation
which may aries between an employer, a contractor and the contractor’s employees. The Omnibus Rules Implementing the Labor
Code distinguishes between permissible job contracting (or independent contractorship) and labor-only contracting. Job contracting is
permissible under the Code if the conditions are met:
(a) The contractor carries on an independent business and undertakes the contract work on his won account under his won
responsibility according to his own manner and method
(b) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises and other
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 empployer:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises
(2) Workers recruited perform activity directly related to the principal business of employer
As a general rule, a contractor is presumed to be labor-only contractor, unless such contractor overcomes the burden of proving that it
had the substantial capital, investment, tools and the like.
There is no evidence showing that respondents-contractors are independent contractor. The respondent-contractor, DFI and
DARBMUPCO did not offer any proof that respondent contractors were not engaged in labor-only the case of Caro v.
Rilloraza, 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.
To supply 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-contractor carry on an independent business and have sufficient capitalization.
The recordd shows that there is no attempt on the part of DFI to substantiate its argument. DFI cannot cite the resolution of the NLRC
as basis since nowhere does it say that respondent-contractors are independent contractors.
Respondent-contractor even admitted that they are in labor-only contracting in their (1) formal appearance of counsel and motion for
exclusion of individual party-respondents (2) Verified explanation and memorandum filed before this court. 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
rectified workers to perform activities directly related to the principal operation of their employer. These admission are legally being on
respondent-contractors and need no evidence to prove them.

There exists an employer-employee relationship between the principal DFI and the workers, respondent SPFL. 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 manager and personnel are in close consultation with the respondent-contractors.
DFI cannot argue that DARBMUPCO is the principal of the respondent-contractors because it owns the awarded plantation where they
work. It is immaterial whether DARBMUPCO owns the awarded plantation. In the case of Alilin v. Petron Corporation the presence of
the power of control on the part of the principal over the worker prove the employer-employee relationship between the former and the
latter. DFI also exercises control through its manager and 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.
Evidently, DFI wields control over the worker.
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.

Petitioner is a corporation engaged principally in the production and processing of pineapple for the export market. Respondents are
members of the Cannery Multi-Purpose Cooperative (CAMPCO). CAMPCO was organized in accordance with Republic Act No. 6938,
otherwise known as the Cooperative Code of the Philippines. Pursuant to the Service Contract, CAMPCO members rendered services
to petitioner. The number of CAMPCO members that report for work and the type of service they performed depended on the needs of
petitioner at any given time. Although the Service Contract specifically stated that it shall only be for a period of six months ,i.e., from 1
July to 31 December 1993, the parties had apparently extended or renewed the same for the succeeding years without executing
another written contract. It was under these circumstances that respondents came to work for petitioner. DOLE organized a Task Force
that conducted an investigation into the alleged labor-only contracting activities of the cooperatives. The Task Force identified six
cooperatives that were engaged in labor-only contracting, one of which was CAMPCO. In this case, respondents alleged that they
started working for petitioner at various times in the years 1993 and 1994, by virtue of the Service Contract executed between
CAMPCO and petitioner. All of the respondents had already rendered more than one year of service to petitioner. While some of the
respondents were still working for petitioner, others were put on “stay home status” on varying dates in the years 1994, 1995, and 1996
and were no longer furnished with work thereafter. Together, respondents filed a Complaint with the NLRC for illegal dismissal,
regularization, wage differentials, damages and attorney’s fees. Petitioner denied that respondents were its employees. It explained
that it found the need to engage external services to augment its regular workforce, which was affected by peaks in operation, work
backlogs, absenteeism, and excessive leaves. It used to engage the services of individual workers for definite periods specified in their
employment contracts and never exceeding one year. However, such an arrangement became the subject of a labor case, in which
petitioner was accused of preventing the regularization of such workers.


1. Whether or not the court of appeals was correct when it made its own factual findings and disregarded the factual findings of the
labor arbiter and the NLRC

2. Whether or not CAMPCO was a mere labor-only contractor.


The Court in the exercise of its equity jurisdiction may look into the records of the case and re-examine the questioned findings. As a
corollary, this Court is clothed with ample authority to review matters, even if they are not assigned as errors in their appeal, if it finds
that their consideration is necessary to arrive at a just decision of the case. The same principles are now necessarily adhered to and
are applied by the Court of Appeals in its expanded jurisdiction over labor cases elevated through a petition for certiorari; thus, we see
no error on its part when it made a new a factual determination of the matters and on that basis reversed the ruling of the NLRC. On
the second issue, CAMPCO was a mere labor-only contractor.

This Court finds that CAMPCO was a labor-only contractor and, thus, petitioner is the real employer of the respondents, with CAMPCO
acting only as the agent or intermediary of petitioner. Due to the nature of their work and length of their service, respondents should be
considered as regular employees of petitioner. Petitioner constructively dismissed a number of the respondents by placing them on
"stay home status" for over six months, and was therefore guilty of illegal dismissal. Petitioner must accord respondents the status of
regular employees, and reinstate the respondents who it constructively and illegally dismissed, to their previous positions, without loss
of seniority rights and other benefits, and pay these respondents’ back wages from the date of filing of the Complaint with the NLRC on
19 December 1996 up to actual reinstatement.

Petitioner Philippine Airlines and Synergy Services Corporation as Contractor, entered into an Agreement whereby Synergy undertook
to provide loading and delivery services by furnishing all the necessary capital, workers, materials, supplies and equipment for the
performance and execution of said work. Herein respondents who appear to have been assigned to work for petitioner filed complaints
before the NLRC for the payment of their labor standard benefits and regularization of employment status claiming that they are
performing duties directly connected with petitioner’s business. The Labor Arbiter’s decision found Synergy an independent contractor
but was vacated on appeal. The NLRC tribunal declared Synergy to be a labor-only contractor and was affirmed by the CA. Petitioner
moved for reconsideration but was denied.

Issue: Whether or not there is labor-only contracting.

Ruling: YES.

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,

(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.

Even if only one of the two elements is present then, there is labor-only contracting.

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 PAL, and not Synergy, exercises control and supervision over the respondent workers’ methods of doing the work, as
reflected in their Agreement: (1) Contractor (Synergy) shall require all its workers, employees, suppliers and visitors to comply with
OWNER’S (PAL) rules, regulations, procedures and directives relative to the safety and security of OWNER’S premises, properties and
operations (2) xxx shall furnish its employees and workers identification cards to be countersigned by OWNER and uniforms to be
approved by OWNER. (3) 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 xxx

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.