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ALEXANDER VINOYA, Petitioner, v.

NATIONAL LABOR RELATIONS COMMISSION,


REGENT FOOD CORPORATION AND/OR RICKY SEE (PRESIDENT), Respondents.

FACTS

Private respondent RFC thru Ricky See, the President, was sued by Vinoya who worked
with them as sales representative until his services were terminated. He was assigned
to various supermarkets where he booked sales orders and collected payments.
Petitioner contends that he was under the direct control and supervision plant manager
and senior salesman of RFC. Thereafter he was transferred by RFC to PMCI, an agency
which provides RFC with additional contractual workers pursuant to a Contract of
Service. After his transfer to PMCI, petitioner was allegedly reassigned to RFC as sales
representative. Subsequently, he was informed by the personnel manager of RFC that
his services were terminated due to the expiration of the Contract of Service between
RFC and PMCI. Petitioner claims that he was dismissed from employment despite the
absence of any notice or investigation.

Private respondent Regent Food Corporation, on the other hand, maintains that no
employer-employee relationship existed between petitioner and itself as he is an
employee of PMCI, which had a Contract of Service with RFC. It avers that petitioner
was issued an ID card so that its clients, and customers would recognize him as a duly
authorized representative of RFC. With regard to the P200 monthly bond posted by
petitioner was required in order to guarantee the turnover of his collection since he
handled funds of RFC. RFC admits that it had control and supervision over petitioner
but was exercised in coordination with PMCI. Finally, RFC contends that the
termination of its relationship with petitioner was brought about by the expiration of
the Contract of Service between itself and PMCI and not because petitioner was
dismissed from employment.

Labor Arbiter rendered a decision, in favor of petitioner reasoning that RFC was the true
employer of petitioner. NLRC reversed the findings of the Labor Arbiter on the ground
that PMCI is an independent contractor because it has substantial capital and, as such,
is the true employer of petitioner.

ISSUE

1. Whether PMCI is a labor-only contractor or an independent contractor.

RULING

NO. PMCI is engaged in labor-only contracting. Labor-only contracting, a prohibited act,


is an arrangement where the contractor or subcontractor merely recruits, supplies or
places workers to perform a job, work or service for a principal. In labor-only
contracting, the following elements are present:

(a) The contractor or subcontractor does not have substantial capital or investment to actually
perform the job, work or service under its own account and responsibility;

(b) 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.
On the other hand, permissible job contracting or subcontracting refers to an
arrangement whereby a principal agrees to put out or farm out with a contractor or
subcontractor the performance or completion of a specific job, work or service within a
definite or predetermined period, regardless of whether such job, work or service is to
be performed or completed within or outside the premises of the principal. A person is
considered engaged in legitimate job contracting or subcontracting if the following
conditions concur:

(a) The contractor or subcontractor carries on a distinct and independent business and
undertakes to perform the job, work or service on its own account and under its own responsibility
according to its own manner and method, and 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;

(b) The contractor or subcontractor has substantial capital or investment; and

(c) The agreement between the principal and contractor or subcontractor assures the
contractual employees entitlement to all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure, and social and welfare benefits.

It is not enough to show substantial capitalization or investment in the form of tools,


equipment, machineries and work premises, among others, to be considered as an
independent contractor. In fact, jurisprudential holdings are to the effect that in
determining the existence of an independent contractor relationship, several factors
might be considered such as, but not necessarily confined to, whether the contractor is
carrying on an independent business; the nature and extent of the work; the skill
required; the term and duration of the relationship, among others.

First of all, PMCI does not have substantial capitalization or investment in the form of
tools, equipment, machineries, and work premises, among others, to qualify as an
independent contractor. While it has an authorized capital stock of P1,000,000.00, only
P75,000.00 is actually paid-in, which, to our mind, cannot be considered as substantial
capitalization. Second, PMCI did not carry on an independent business nor did it
undertake the performance of its contract according to its own manner and method,
free from the control and supervision of its principal, RFC. Third, PMCI was not engaged
to perform a specific and special job or service as the sole undertaking of PMCI was to
provide RFC with a temporary workforce able to carry out whatever service may be
required by it. Lastly, in labor-only contracting, the employees recruited, supplied or
placed by the contractor perform activities which are directly related to the main
business of its principal. Based on the foregoing, PMCI can only be classified as a labor-
only contractor and, as such, cannot be considered as the employer of petitioner.
VIRGINIA G. NERI and JOSE CABELIN, vs. NATIONAL LABOR RELATIONS
COMMISSION FAR EAST BANK & TRUST COMPANY (FEBTC) and BUILDING CARE
CORPORATION - G.R. Nos. 97008-09 July 23, 1993

FACTS

Petitioners Virginia G. Neri and Jose Cabelin were hired by respondent BCC, a
corporation engaged in providing technical, maintenance, engineering, housekeeping,
security and other specific services to its clientele. They were assigned to work in the
Cagayan de Oro City Branch of FEBTC, Neri a radio/telex operator and Cabelin as
janitor. Then, the petitioners instituted complaints against FEBTC and BCC before
Regional Arbitration Branch of the Department of Labor and Employment to compel the
bank to accept them as regular employees and for it to pay the differential between the
wages being paid them by BCC and those received by FEBTC employees with similar
length of service.

BCC, in the proceedings below, established that it had substantial capitalization of P1


Million or a stockholders equity of P1.5 Million. Thus the Labor Arbiter dismissed the
complaint for lack of merit, reasoning that BCC was only job contracting and that
consequently its employees were not employees of FEBTC. On appeal, this factual
finding was affirmed by respondent National Labor Relations Commission (NLRC, for
brevity). Nevertheless, petitioners insist before us that BCC is engaged in "labor-only"
contracting hence, they conclude, they are employees of respondent FEBTC.

ISSUE

WON BCC in engaged in "labor-only" contracting because it failed to adduce evidence


purporting to show that it invested in the form of tools, equipment, machineries, work
premises and other materials which are necessary in the conduct of its business

RULING

NO. Respondent BCC need not prove that it made investments in the form of tools,
equipment, machineries, work premises, among others, because it has established that
it has sufficient capitalization. The Labor Arbiter and the NLRC both determined that
BCC had a capital stock of P1 million fully subscribed and paid for.7 BCC is therefore a
highly capitalized venture and cannot be deemed engaged in "labor-only" contracting.

It is well-settled that there is "labor-only" contracting where: (a) 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, (b) the workers
recruited and placed by such person are performing activities which are directly related
to the principal business of the employer.

Based on the foregoing, BCC cannot be considered a "labor-only" contractor because it


has substantial capital. In other words, the law does not require both substantial capital
and investment in the form of tools, equipment, machineries, etc. This is clear from the
use of the conjunction "or". If the intention was to require the contractor to prove that
he has both capital and the requisite investment, then the conjunction "and" should
have been used. But, having established that it has substantial capital, it was no longer
necessary for BCC to further adduce evidence to prove that it does not fall within the
purview of "labor-only" contracting. There is even no need for it to refute petitioners'
contention that the activities they perform are directly related to the principal business
of respondent bank.

In fact, the status of BCC as an independent contractor was previously confirmed by


this Court in Associated Labor Unions-TUCP v. National Labor Relations
Commission, 13 where we held thus —

The public respondent ruled that the complainants are not employees of
the bank but of the company contracted to serve the bank. Building Care
Corporation is a big firm which services, among others, a university, an
international bank, a big local bank, a hospital center, government agencies,
etc. It is a qualified independent contractor. The public respondent correctly
ruled against petitioner's contentions . . . . (Emphasis supplied).
SAN MIGUEL CORPORATION, petitioner, vs. MAERC INTEGRATED SERVICES, INC
et. al. - G.R. No. 144672 July 10, 2003

FACTS

291 workers filed complaints against SMC and Maerc Integrated Services, Inc., for illegal
dismissal, underpayment of wages, non-payment of service incentive leave pays and
other labor standards benefits, and for separation pays. The complainants alleged that
they were hired by SMC through its agent or intermediary MAERC to work in two 2
plants: one, inside the SMC premises at the Mandaue Container Services, and another,
in the Philphos Warehouse owned by MAERC. They washed and segregated various
kinds of empty bottles used by SMC. Complainants alleged that long before SMC
contracted the services of MAERC a majority of them had already been working for SMC
under the guise of being employees of another contractor, Jopard Services, until the
services of the latter were terminated on 31 January 1988. SMC denied liability for the
claims and averred that the complainants were not its employees but of MAERC, an
independent contractor whose primary corporate purpose was to engage in the business
of cleaning, receiving, sorting, classifying, etc., glass and metal containers, as SMC
entered ONLY into a Contract of Services with MAERC. However, SMC informed MAERC
of the termination of their service contract due to the installation of labor and cost-
saving devices. as such, the complainants claimed that SMC stopped them from
performing their jobs; that this was tantamount to their being illegally dismissed by
SMC who was their real employer as their activities were directly related, necessary and
desirable to the main business of SMC.

Labor Arbiter rendered a decision holding that MAERC was an independent


contractor. He dismissed the complaints for illegal dismissal but ordered MAERC to pay
complainants' separation benefits. The National Labor Relations Commission (NLRC)
ruled that MAERC was a labor-only contractor and that complainants were employees
of SMC.

ISSUE

1. WON the complainants are employees of petitioner SMC or of respondent MAERC.


2. WON the MAERC are engaged in labor-only contracting, thereby resulting in
SMC’s liability for the employees’ claims.

RULING

1. YES. Evidence discloses that petitioner played a large and indispensable part in
the hiring of MAERC's workers. It also appears that majority of the complainants had
already been working for SMC long before the signing of the service contract between
SMC and MAERC. The incorporators of MAERC admitted having supplied and recruited
workers for SMC even before MAERC was created. As for the payment of workers' wages,
it is conceded that MAERC was paid in lump sum but records suggest that the
remuneration was not computed merely according to the result or the volume of work
performed. The memoranda of the labor rates bearing the signature of a Vice-President
and General Manager for the Vismin Beer Operations12 as well as a director of
SMC13 appended to the contract of service reveal that SMC assumed the responsibility
of paying for the mandated overtime, holiday and rest day pays of the MAERC
workers.14 SMC also paid the employer's share of the SSS and Medicare contributions.
In deciding the question of control, the language of the contract is not determinative of
the parties' relationship; rather, it is the totality of the facts and surrounding
circumstances of each case. SMC maintained a constant presence in the workplace
through its own checkers. But the most telling evidence is a letter by Vice-President of
MAERC to SMC President and Chief Executive Officer, asking the latter to reconsider
the phasing out of SMC's segregation activities in Mandaue City.

2. YES. In determining the existence of an independent contractor relationship, several


factors may be considered, such as, but not necessarily confined to, whether the
contractor was carrying on an independent business; the nature and extent of the work;
the skill required; the term and duration of the relationship; the right to assign the
performance of specified pieces of work; the control and supervision of the workers; the
power of the employer with respect to the hiring, firing and payment of the workers of
the contractor; the control of the premises; the duty to supply premises, tools,
appliances, materials and labor; and the mode, manner and terms of payment.

MAERC displayed the characteristics of a labor-only contractor. Moreover, while


MAERC's investments in the form of buildings, tools and equipment amounted to more
than P4 Million, we cannot disregard the fact that it was the SMC which required
MAERC to undertake such investments under the understanding that the business
relationship between petitioner and MAERC would be on a long term basis. Not only
was it set up to specifically meet the pressing needs of SMC which was then having
labor problems in its segregation division, none of its workers was also ever assigned to
any other establishment.

In legitimate job contracting, the law creates an employer-employee relationship for a


limited purpose, i.e., to ensure that the employees are paid their wages. The principal
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 principal employer is not responsible for any claim made by the
employees.

On the other hand, in labor-only contracting, the statute creates an employer-employee


relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The
contractor is considered merely an agent of the principal employer and the latter is
responsible to the employees of the labor-only contractor as if such employees had been
directly employed by the principal employer. The principal employer therefore becomes
solidarily liable with the labor-only contractor for all the rightful claims of the employees.

This distinction between job contractor and labor-only contractor, however, will not
discharge SMC from paying the separation benefits of the workers, inasmuch as MAERC
was shown to be a labor-only contractor; in which case, petitioner's liability is that of a
direct employer and thus solidarily liable with MAERC.
ROLANDO SASAN, SR., LEONILO DAYDAY, MODESTO AGUIRRE, ALEJANDRO
ARDIMER, ELEUTERIO SACIL, WILFREDO JUEGOS, PETRONILO CARCEDO and
CESAR PACIENCIA, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION
4TH DIVISION, EQUITABLE-PCI BANK and HELPMATE, INC.,respondents.

G.R. No. 176240 October 17, 2008

FACTS

Equitable-PCI Bank entered into a Contract for Services4 with HI providing janitorial
and messengerial services. Pursuant to their contract, HI shall hire and assign workers
to E-PCIBank to perform janitorial/messengerial and maintenance services. The
contract was impliedly renewed year after year. Petitioners were among those employed
and assigned to E-PCIBank at its branch along Gorordo Avenue, Lahug, Cebu City, as
well as to its other branches in the Visayas. Thereafter, petitioners filed with the NLRC
in Cebu City against E-PCIBank and HI for illegal dismissal, with claims for separation
pay, service incentive leave pay, allowances by reason that they had become regular
employees of E-PCIBank with respect to the activities for which they were employed,
having continuously rendered janitorial and messengerial services to the bank for more
than one year; that E-PCIBank had direct control and supervision over the means and
methods by which they were to perform their jobs; and that their dismissal by HI was
null and void because the latter had no power to do so since they had become regular
employees of E-PCIBank.

HI, on the other hand, asserted that it was an independent job contractor engaged in
the business of providing janitorial and related services to business establishments, and
E-PCIBank was one of its clients ad that the petitioners were assigned to new work
assignments and were not dismissed, but the latter refused to comply with the same.

LA= HI was not a legitimate job contractor as it did not possess the required substantial
capital or investment to actually perform the job, work, or service under its own account
and responsibility as required under the Labor Code. HI is therefore a labor-only
contractor and the real employer of petitioners is E-PCIBank which is held liable to
petitioners.

NLRC = modified the ruling; The NLRC took into consideration the documentary
evidence presented by HI for the first time on appeal and, on the basis thereof, declared
HI as a highly capitalized venture with sufficient capitalization, which cannot be
considered engaged in "labor-only contracting."

CA = affirmed the findings of the NLRC that HI was a legitimate job contractor and that
it did not illegally dismiss petitioners

ISSUE:

WON HI is a labor-only contactor and E-PCIBank should be deemed petitioners’


principal employer; and whether petitioners were illegally dismissed from their
employment.
RULING

NO. Permissible job contracting or subcontracting refers to an arrangement whereby a


principal agrees to put out or farm out to a contractor or subcontractor the performance
or completion of a specific job, work or service within a definite or predetermined period,
regardless of whether such job, work or service is to be performed or completed within
or outside the premises of the principal.35 A person is considered engaged in legitimate
job contracting or subcontracting if the following conditions concur:

(a) The contractor or subcontractor carries on a distinct and independent


business and undertakes to perform the job, work or service on its own account
and under its own responsibility according to its own manner and method, and
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;

(b) The contractor or subcontractor has substantial capital or investment; and

(c) The agreement between the principal and contractor or subcontractor assures
the contractual employees entitlement to all labor and occupational safety and
health standards, free exercise of the right to self-organization, security of tenure,
and social and welfare benefits.

In contrast, labor-only contracting, a prohibited act, is an arrangement where the


contractor or subcontractor merely recruits, supplies or places workers to perform a
job, work or service for a principal.37 In labor-only contracting, the following elements
are present:

(a) The contractor or subcontractor does not have substantial capital or


investment to actually perform the job, work or service under its own account
and responsibility; and

(b) 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.

In the case at bar, we find substantial evidence to support the finding of the NLRC,
affirmed by the Court of Appeals, that HI is a legitimate job contractor. HI is carrying on
a distinct and independent business from E-PCIBank. The employees of HI are assigned
to clients to perform janitorial and messengerial services, clearly distinguishable from
the banking services in which E-PCIBank is engaged.

"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. HI has substantial
capital in the amount of ₱20,939,935.72. It has its own building where it holds office
and it has been engaged in business for more than a decade now. 51 As observed by the
Court of Appeals, surely, such a well-established business entity cannot be considered
a labor-only contractor.
CHERRY J. PRICE, vs INNODATA PHILS. INC.,/ INNODATA CORPORATION, LEO
RABANG AND JANE NAVARETTE,

FACTS

INNODATA Corporation employed encoders, indexers, formatters, programmers,


and quality/quantity staff, such as the petitioners for a period of one year. Once they
finished the job for one client, they were immediately assigned to do a new job for
another client. Then, the HRAD Manager of INNODATA wrote petitioners informing them
of their last day of work prompting the petitioners filed a Complaint6 for illegal dismissal
and damages against respondents. Petitioners claimed that they should be considered
regular employees since their positions as formatters were necessary and desirable to
the usual business of INNODATA as an encoding, conversion and data processing
company. They argued that they could not be considered project employees considering
that their employment was not coterminous with any project or undertaking, the
termination of which was predetermined.

Due to the wide range of services rendered to its clients, INNODATA was
constrained to hire new employees for a fixed period of not more than one year.
Respondents asserted that petitioners were not illegally dismissed, for their employment
was terminated due to the expiration of their terms of employment.

Labor Arbiter = complaint for illegal dismissal and damages is meritorious as petitioners
occupied jobs that were necessary, desirable, and indispensable to the data processing
and encoding business of INNODATA.

NLRC = reversed the LA Decision and absolved INNODATA of the charge of illegal
dismissal as they were fixed-term employees as stipulated in their respective contracts
of employment.

Court of Appeals =sustaining the ruling of the NLRC

ISSUE

WON petitioners were hired by INNODATA under valid fixed-term employment


contracts.

RULING

NO. The employment status of a person is defined and prescribed by law and not by
what the parties say it should be.19 Equally important to consider is that a contract of
employment is impressed with public interest such that labor contracts must yield to
the common good.

Regular employment has been defined by Article 280 of the Labor Code. Based on the
afore-quoted provision, the following employees are accorded regular status: (1) those
who are engaged to perform activities which are necessary or desirable in the usual
business or trade of the employer, regardless of the length of their employment; and (2)
those who were initially hired as casual employees, but have rendered at least one year
of service, whether continuous or broken, with respect to the activity in which they are
employed.

The applicable test to determine whether an employment should be considered regular


or non-regular is the reasonable connection between the particular activity performed
by the employee in relation to the usual business or trade of the employer. In the case
at bar, petitioners were employed by INNODATA as formatters. The primary business of
INNODATA is data encoding, and the formatting of the data entered into the computers
is an essential part of the process of data encoding.

However, it is also true that while certain forms of employment require the performance
of usual or desirable functions and exceed one year, these do not necessarily result in
regular employment under Article 280 of the Labor Code. While this Court has
recognized the validity of fixed-term employment contracts, it has consistently held that
this is the exception rather than the general rule. More importantly, a fixed-term
employment is valid only under certain circumstances. In Brent, the very same case
invoked by respondents, the Court identified several circumstances wherein a fixed-
term is an essential and natural appurtenance, to wit:

overseas employment contracts, for one, to which, whatever the nature of the engagement, the concept of
regular employment with all that it implies does not appear ever to have been applied, Article 280 of the Labor
Code notwithstanding; also appointments to the positions of dean, assistant dean, college secretary, principal,
and other administrative offices in educational institutions, which are by practice or tradition rotated among
the faculty members, and where fixed terms are a necessity without which no reasonable rotation would be
possible.

As a matter of fact, the Court, in its oft-quoted decision in Brent, also issued a stern
admonition that where, if it is apparent that the period was imposed to preclude the
acquisition of tenurial security by the employee, then it should be struck down as being
contrary to law, morals, good customs, public order and public policy.

The employment contract was also altered as to look like the employees started at a
later date so that they would not purport to have actually started at 16 February 1999,
as the date of the contract was merely crossed out and replaced with 6 September 1999.
Such modification and denial by respondents as to the real beginning date of petitioners’
employment contracts render the said contracts ambiguous.