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Case #010. Coca Cola Bottlers v.

Agito et al
Ref./Date/Pn. G.R. No. 179546/February 13, 2009 /Chico-Nazario, J.(Karine)
Law/Subject Job Contracting/Labor Relations
Case Aid Labor only contractor-no substantial capital or investment,employees performed worked
directly related to the principal business, no control

Facts:

This is a petition for review on certiorari filed by the petitioner GMA Network Inc assailing the decision
of the CA. The Court of Appeals, in its assailed Decision, declared that respondents Alan M. Agito
Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso Paa, Jr., Dempster P. Ong, Urriquia T. Arvin, Gil H.
Francisco, and Edwin M. Golez were regular employees of petitioner Coca-Cola Bottlers Phils., Inc; and
that Interserve Management & Manpower Resources, Inc. (Interserve) was a labor-only contractor, whose
presence.

 Respondents filed before the NLRC two complaints against petitioner, Interserve, Peerless
Integrated Services, Inc., Better Builders, Inc., and Excellent Partners, Inc. for reinstatement with
backwages, regularization, nonpayment of 13th month pay, and damages.
 Respondents alleged in their position paper that they were salesmen assigned at the Lagro Sales
Office of petitioner. They had been in the employ of petitioner for years, but were not regularized.
Their employment was terminated without just cause and due process.
 Petitioner Coca Cola Bottlers filed its Position Paper where it averred that respondents were
employees of Interserve who were tasked to perform contracted services in accordance with the
provisions of the Contract executed between petitioner and Interserve. Said Contract between
petitioner and Interserve, constituted legitimate job contracting, given that the latter was a bona
fide independent contractor with substantial capital or investment in the form of tools, equipment,
and machinery necessary in the conduct of its business. petitioner asserted that respondents were
employees of Interserve, since it was the latter which hired them, paid their wages, and
supervised their work, as proven by: (1) respondents’ Personal Data Files in the records of
Interserve; (2) respondents’ Contract of Temporary Employment with Interserve;and (3) the
payroll records of Interserve.
 Labor Arbiter found that respondents were employees of Interserve and not of petitioner.
 NLRC affirmed labor Arbiter’s decision and pronounced that no employer-employee relationship
existed between petitioner and respondents. respondents. It reiterated the findings of the Labor
Arbiter that Interserve was an independent contractor as evidenced by its substantial assets and
registration with the DOLE.
 CA ruled that Interserve was a labor-only contractor, with insufficient capital and investments for
the services which it was contracted to perform.

Issue:

WON the Interserve is a legitimate job contractor

Held:
No. Interserve was engaged in prohibited labor-only contracting. Hence, Coca Cola
Bottlers shall be deemed the true employer of respondents.

A legitimate job contract, wherein an employer enters into a contract with a job contractor for the performance
of the former’s work, is permitted by law. Thus, the employer-employee relationship between the job contractor
and his employees is maintained. In legitimate job contracting, the law creates an employer-employee
relationship between the employer and the contractor’s employees only for a limited purpose, i.e., to ensure that
the employees are paid their wages. The employer becomes jointly and severally liable with the job contractor
only for the payment of the employees’ wages whenever the contractor fails to pay the same. Other than that,
the employer is not responsible for any claim made by the contractor’s employees.

On the other hand, labor-only contracting is an arrangement wherein the contractor merely acts as an agent in
recruiting and supplying the principal employer with workers for the purpose of circumventing labor law
provisions setting down the rights of employees. It is not condoned by law. A finding by the appropriate
authorities that a contractor is a "labor-only" contractor establishes an employer-employee relationship
between the principal employer and the contractor’s employees and the former becomes solidarily liable for all
the rightful claims of the employees.

Section 5 of the Rules Implementing Articles 106-109 of the Labor Code, as amended, provides the guidelines
in determining whether labor-only contracting exists:

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 [is] 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 the performance of the work of the contractual
employee.

The law clearly establishes an employer-employee relationship between the principal employer and the
contractor’s employee upon a finding that the contractor is engaged in "labor-only" contracting. Article 106 of
the Labor Code categorically states: "There is ‘labor-only’ contracting where the person supplying workers to
an employee 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 persons are performing activities which
are directly related to the principal business of such employer." Thus, performing activities directly related to
the principal business of the employer is only one of the two indicators that "labor-only" contracting exists; the
other is lack of substantial capital or investment. The Court finds that both indicators exist in the case at bar.

The work of respondents, constituting distribution and sale of Coca-Cola products, is clearly indispensable to
the principal business of petitioner. The repeated re-hiring of some of the respondents supports this finding.

The Court clarifies that although Interserve has an authorized capital stock amounting toP2,000,000.00,
only P625,000.00 thereof was paid up as of 31 December 2001. The Court does not set an absolute figure for
what it considers substantial capital for an independent job contractor, but it measures the same against the
type of work which the contractor is obligated to perform for the principal. However, this is rendered
impossible in this case since the Contract between petitioner and Interserve does not even specify the work or
the project that needs to be performed or completed by the latter’s employees, and uses the dubious phrase
"tasks and activities that are considered contractible under existing laws and regulations." Even in its
pleadings, petitioner carefully sidesteps identifying or describing the exact nature of the services that Interserve
was obligated to render to petitioner. The importance of identifying with particularity the work or task which
Interserve was supposed to accomplish for petitioner becomes even more evident, considering that the Articles
of Incorporation of Interserve states that its primary purpose is to operate, conduct, and maintain the business
of janitorial and allied services. But respondents were hired as salesmen and leadman for petitioner. The Court
cannot, under such ambiguous circumstances, make a reasonable determination if Interserve had substantial
capital or investment to undertake the job it was contracting with petitioner.

It is thus evident that Interserve falls under the definition labor-only" contractor, under Article 106 of the Labor
Code. Interserve did not have substantial capital or investment in the form of tools, equipment, machineries,
and work premises; and respondents, its supposed employees, performed work which was directly related to
the principal business of petitioner.

It is also apparent that Interserve is a labor-only contractor under Section 5(ii of the Rules Implementing
Articles 106-109 of the Labor Code, as amended, since it did not exercise the right to control the performance
of the work of respondents.