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(2010) Arguments of the Respondents (P&G, Promm-Gemm)

Digest by: Reginald Matt Santiago | GR 160506 P&G argues that there is no ER-EE for it was Promm-Gem or
SAPS that (1) selected petitioners and engaged their services;
Facts: Petitioners worked as merchandisers of Procter and (2) paid their salaries; (3) wielded the power of dismissal; and
Gamble (P&G) from various dates some starting as early as (4) had the power of control over their conduct of work.
1982 or as late as June 1991 to either May 5, 1992 or March 11,
1993. Appended to are names of 80 different individuals. In addition it stated that the Labor Code neither defines nor
limits which services may be validly outsource stating than an
They all individually signed employment contracts with either employer can farm out any of its activities to an independent
Promm-Gem or SAPS more or less five months at a time. They contractor, regardless whether peripheral or core in natures.
were assigned at different outlets, supermarkets and stores
where they handled all the products of P&G. They received their Issues
wages from Promm-Gem or SAPS. 1. Whether P&G is the employer of the petitioners;
YES, in relation to SAPS as labor-only contracting.
P&G is principally engaged in the manufacture and production
of different consumer and health products, which it sells on a 2. Whether petitioners were illegally dismissed;
wholesale basis to various supermarkets and distributors. P&G YES, there was no valid cause for dismissal.
entered into contract with Promm-Gem and SAPS for the
promotion and merchandising of its products. Promm-Gemm 3. Whether petitioners are entitled for payment of
or SAPS imposed disciplinary measures on erring damages and costs as well as attorney’s fees.
merchandisers like habitual absenteeism, dishonesty or YES.
changing day-off without prior notice.
RULING: Petition has merit.
In December 1991, petitioners filed a Complaint against P&G
for regularization, service incentive leave pay and other Labor-Only Contracting and Job Contracting
benefits with damages – and later amended to include the In order to resolve the issue whether P&G is the employer, it is
matter of their subsequent dismissal. necessary to first determine whether Promm-Gem and SAPS are
labor-only contractors or legitimate job contractors.
LA: Dismissed the complaint for lack or merit and ruled that
there was no employer-employee relations (ER-EE) between the Clearly, (Labor Code and Omnibus Rules of Implementing the
petitioners and P&G. He found that the selection and Labor Code) allow contracting arrangements for the
engagement of the petitioners, payment of wages, power of performance of specific jobs, works or services.
dismissal and control were all done by Promm-Gem/SAPS and
that the latter were legitimate independent job contractors. Indeed, it is the management prerogative to farm out any of
its activities whether such activity is peripheral or core in nature.
NLRC: It dismissed the appeal and affirming the findings of the
LA and denied the later motion for reconsideration. However, for such outsourcing to be valid, it must be made to
an independent contractor because the current labor rules
CA: It denied the appeal affirming the findings of the NLRC and expressly prohibit labor-only contracting.
also denied the later motion for reconsideration.
Labor-Only Contracting, Elements
Argument of the Petitioners (Aliviado et al.) To emphasize, there is labor-only contracting when the
They insist that they are the employees of P&G and that they contractor or sub-contractor merely recruits, supplies or places
were recruited by its salesmen to undertake merchandising workers to perform a job, work or service for a principle and any
chores for P&G long before the existence of Promm-Gem and of the following elements are present:
SAPS. And claim because of P&G’s realignment program they
were instructed to fill up forms and report to the agencies which 1. The contractor or subcontractor does not have
the P&G created. They also claim that P&G instigated dismissal substantial capital or investment which relates to the
as it transmitted a letter to SAPS informing that their job, work or service to be performed and the
Merchandising Services Contract will no longer be renewed. employees recruited, supplied or placed by such
contractor or subcontractor are performing activities
They also added that Promm-Gem and SAPS are labor-only which are directly related to the main business of the
contractors providing services of manpower to their client principal; or
and that they have neither substantial capital nor tools and
equipment to undertake independent labor contracting. 2. The contractor does not exercise the right to control
over the performance of the work of the contractual
In addition they insist that they engaged in the performance of employee.
activities which are necessary or desirable in the usual business
or trade of P&G thus they are regular employees.

AS TO PROMM-GEM Misconduct as to warrant dismissal: It is not sufficient that
In the instant case, the financial statements of Promm-Gem the act or conduct complained of has violated some established
show it has authorized capital stock of P1M and a paid-in capital rules or policies. It is equally important and required that the
or capital available for operations of P500K. It also has long act or conduct must have been performed with wrongful intent.
terms asserts of P432K and current assets of P719K. Promm-
Gem has also proven that it maintained its own warehouse and IN THIS CASE:Petitioners-employees of Promm-Gem may have
office space with a floor area of 870 sq.m. It also has registered committed an error of judgment in claiming to be employees
vehicles for promo and merchandising business. of P&G, but it cannot be said that they were motivated by any
 The court finds that Promm-Gem has substantial wrongful intent in doing so. As such, we find them guilty of only
investments which relates to the work performed. simple misconduct for assailing the integrity of Promm-Gem
as a legitimate and independent promotion firm.
The records also that it supplies its complainant workers with A misconduct which is not serious or grave, as that existing in
the relevant materials such as markers, tapes, liners and the instant case, cannot be a valid basis for dismissing an
cutters, necessary for them to perform their work – even employee.
uniforms. Promm-Gem already considered them as regular  The court finds no valid cause for the dismissal of
employees. Which also negates the second requisite. petitioner-employees of Promm-Gem.
 Promm-Gemm CANNOT be considered as a labor-  THUS THE DISMISSAL WAS ILLEGAL.
only contractor.
 It is a legitimate independent contractor. Damages
As for P&G, the records show that it dismissed its employees
AS TO SAPS through SAPS in a manner oppressive to labor. The sudden and
It shows that it has paid-in capital of only P31K and no other peremptory barring of the concerned petitioners from work,
evidence showing how much its working capital and assets are. and from admission to the work place, after just a one-day
Furthermore, there is no showing of substantial investment in verbal notice, and for no valid cause bellows oppression and
tools, equipment or other assets. utter disregard of the right to due process of the concerned
 Court ruled that it has NO substantial capital. petitioners. Hence, an award of moral damages is called for.
 It has a 6-month contract with P&G
 It failed to show that it can complete the period using Decision: The petition is granted. P&G and Promm-Gem are
its own capital and investment. ordered to reinstate their respective employees immediately
 Its capital is not even sufficient for 1-month payroll. without loss of seniority rights and with full back wages and
other benefits. Remanded for computation.
Substantial capital – refers to capitalization used in the
performance or completion of the job, work, or service
contracted out.

Considering that SAPS has no substantial capital or investment

and the workers it recruited are performing activities which
are directly related to the principal business of P&G it is then

What happens if there is labor-only contracting?

The Labor Code itself (Article 106 and 107); establishes an ER-
EE between the employer and the employees of the labor-only
contractor. This is to prevent circumvention of labor laws. The
contractor is considered merely agent of principal employer.

The SC in this case then pointed out who out of the 80

complainant workers are:
a. Recruited and supplied by SAPS
b. Employees of Promm-Gem

Termination of Services
In cases of regular employment, employer shall not terminate
the services of employee except for just or authorized cause.
In this case, the termination letters given by Promm-Gem to its
employees uniformly specified the cause of dismissal as grave
misconduct and breach of trust.