Supreme Court of the Philippines

570 Phil. 497

SECOND DIVISION
G.R. No. 146408, February 29, 2008
PHILIPPINE AIRLINES, INC., PETITIONER, VS. ENRIQUE LIGAN,
EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD
GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE
SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M.
CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON
CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA,
CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO,
CHERRIE ALEGRES, BENEDICTO AUXTERO, EDUARDO
MAGDADARAUG, NELSON M. DULCE, AND ALLAN BENTUZAL,
RESPONDENTS.

DECISION

CARPIO MORALES, J.:

Petitioner Philippine Airlines as Owner, and Synergy Services Corporation

(Synergy) as Contractor, entered into an Agreement [1] on July 15, 1991 whereby
Synergy undertook to “provide loading, unloading, delivery of baggage and
cargo and other related services to and from [petitioner] ’s aircraft at the Mactan
Station.”[2]

The Agreement specified the following “Scope of Services” of Contractor

Synergy:
1.2 CONTRACTOR shall furnish all the necessary capital, workers, loading,
unloading and delivery materials, facilities, supplies, equipment and tools for
the satisfactory performance and execution of the following services (the
Work):

a. Loading and unloading of baggage and cargo to and from the

aircraft;
 b. Delivering of baggage from the ramp to the baggage claim
area;

c. Picking up of baggage from the baggage sorting area to the

designated parked aircraft;

d. Delivering of cargo unloaded from the flight to cargo

terminal;

e. Other related jobs (but not janitorial functions) as may be

required and necessary;

CONTRACTOR shall perform and execute the aforementioned Work at the

following areas located at Mactan Station, to wit:

a. Ramp Area

b. Baggage Claim Area

c. Cargo Terminal Area, and

d. Baggage Sorting Area[3] (Underscoring supplied)

And it expressly provided that Synergy was “an independent contractor and . . .
that there w[ould] be no employer-employee relationship between
CONTRACTOR and/or its employees on the one hand, and OWNER, on the
other.”[4]

On the duration of the Agreement, Section 10 thereof provided:

10.1Should at any time OWNER find the services herein undertaken by
CONTRACTOR to be unsatisfactory, it shall notify CONTRACTOR who
shall have fifteen (15) days from such notice within which to improve the
services. If CONTRACTOR fails to improve the services under this
Agreement according to OWNER’S specifications and standards, OWNER
shall have the right to terminate this Agreement immediately and without
advance notice.

10.2Should CONTRACTOR fail to improve the services within the period

stated above or should CONTRACTOR breach the terms of this
 Agreement and fail or refuse to perform the Work in such a manner as will
be consistent with the achievement of the result therein contracted for or in
any other way fail to comply strictly with any terms of this Agreement,
OWNER at its option, shall have the right to terminate this Agreement and
to make other arrangements for having said Work performed and pursuant
thereto shall retain so much of the money held on the Agreement as is
necessary to cover the OWNER’s costs and damages, without prejudice to
the right of OWNER to seek resort to the bond furnished by
CONTRACTOR should the money in OWNER’s possession be
insufficient.

x x x x (Underscoring supplied)
Except for respondent Benedicto Auxtero (Auxtero), the rest of the
respondents, who appear to have been assigned by Synergy to petitioner
following the execution of the July 15, 1991 Agreement, filed on March 3, 1992
complaints before the NLRC Regional Office VII at Cebu City against
petitioner, Synergy and their respective officials for underpayment, non-payment
of premium pay for holidays, premium pay for rest days, service incentive leave
pay, 13th month pay and allowances, and for regularization of employment status
with petitioner, they claiming to be “performing duties for the benefit of
[petitioner] since their job is directly connected with [its] business x x x.”[5]

Respondent Auxtero had initially filed a complaint against petitioner and

Synergy and their respective officials for regularization of his employment
status. Later alleging that he was, without valid ground, verbally dismissed, he
filed a complaint against petitioner and Synergy and their respective officials for
illegal dismissal and reinstatement with full backwages.[6]

The complaints of respondents were consolidated.

By Decision[7] of August 29, 1994, Labor Arbiter Dominador Almirante found

Synergy an independent contractor and dismissed respondents’ complaint for
regularization against petitioner, but granted their money claims. The fallo of the
decision reads:

WHEREFORE, foregoing premises considered, judgment is hereby rendered as

follows:
(1) Ordering respondents PAL and Synergy jointly and severally to pay all the
complainants herein their 13th month pay and service incentive leave
benefits;

xxxx

(3) Ordering respondent Synergy to pay complainant Benedicto Auxtero a

financial assistance in the amount of P5,000.00.
The awards hereinabove enumerated in the aggregate total amount of THREE
HUNDRED TWENTY-TWO THOUSAND THREE HUNDRED FIFTY
NINE PESOS AND EIGHTY SEVEN CENTAVOS (P322,359.87) are
computed in detail by our Fiscal Examiner which computation is hereto
attached to form part of this decision.

The rest of the claims are hereby ordered dismissed for lack of
merit.[8] (Underscoring supplied)

On appeal by respondents, the NLRC, Fourth Division, Cebu City, vacated and
set aside the decision of the Labor Arbiter by Decision[9] of January 5, 1996, the
fallo of which reads:

WHEREFORE, the Decision of the Labor Arbiter Dominador A. Almirante,

dated August 29, 1994, is hereby VACATED and SET ASIDE and judgment is
hereby rendered:

1. Declaring respondent Synergy Services Corporation to be a

‘labor-only’ contractor;

2. Ordering respondent Philippine Airlines to accept, as its

regular employees, all the complainants, . . . and to give each of
them the salaries, allowances and other employment benefits
and privileges of a regular employee under the Collective
Bargaining Agreement subsisting during the period of their
employment;

xxxx

4. Declaring the dismissal of complainant Benedicto Auxtero

to be illegal and ordering his reinstatement as helper or
 utility man with respondent Philippine Airlines, with full
backwages, allowances and other benefits and privileges from
the time of his dismissal up to his actual reinstatement; and

5. Dismissing the appeal of respondent Synergy Services

Corporation, for lack of merit.[10] (Emphasis and
underscoring supplied)

Only petitioner assailed the NLRC decision via petition for certiorari before this
Court.

By Resolution[11] of January 25, 1999, this Court referred the case to the Court
of Appeals for appropriate action and disposition, conformably with St. Martin
Funeral Homes v. National Labor Relations Commission which was promulgated on
September 16, 1998.

The appellate court, by Decision of September 29, 2000, affirmed the Decision
of the NLRC.[12] Petitioner’s motion for reconsideration having been denied by
Resolution of December 21, 2000,[13] the present petition was filed, faulting the
appellate court
I.

. . . IN UPHOLDING THE NATIONAL LABOR RELATIONS

COMMISSION DECISION WHICH IMPOSED THE RELATIONSHIP OF
EMPLOYER-EMPLOYEE BETWEEN PETITIONER AND THE
RESPONDENTS HEREIN.

II.

. . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR

RELATIONS COMMISSION ORDERING THE REINSTATEMENT OF
RESPONDENT AUXTERO DESPITE THE ABSENCE [OF] ANY
FACTUAL FINDING IN THE DECISION THAT PETITIONER
ILLEGALLY TERMINATED HIS EMPLOYMENT.

III.

. . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND GRAVE

ERROR IN UPHOLDING THE DECISION OF THE NATIONAL LABOR
RELATIONS COMMISSION WHICH COMPELLED THE PETITIONER
TO EMPLOY THE RESPONDENTS AS REGULAR EMPLOYEES
DESPITE THE FACT THAT THEIR SERVICES ARE IN EXCESS OF
PETITIONER COMPANY’S OPERATIONAL
REQUIREMENTS.[14] (Underscoring supplied)

Petitioner argues that the law does not prohibit an employer from engaging an
independent contractor, like Synergy, which has substantial capital in carrying on
an independent business of contracting, to perform specific jobs.

Petitioner further argues that its contracting out to Synergy various services like
janitorial, aircraft cleaning, baggage-handling, etc., which are directly related to
its business, does not make respondents its employees.

Petitioner furthermore argues that none of the four (4) elements of an

employer-employee relationship between petitioner and respondents, viz:
selection and engagement of an employee, payment of wages, power of
dismissal, and the power to control employee’s conduct, is present in the case.[15]

Finally, petitioner avers that reinstatement of respondents had been rendered

impossible because it had reduced its personnel due to heavy losses as it had in
fact terminated its service agreement with Synergy effective June 30, 1998[16] as a
cost-saving measure.

The decision of the case hinges on a determination of whether Synergy is a mere

job-only contractor or a legitimate contractor. If Synergy is found to be a mere
job-only contractor, respondents could be considered as regular employees of
petitioner as Synergy would then be a mere agent of petitioner in which case
respondents would be entitled to all the benefits granted to petitioner’s regular
employees; otherwise, if Synergy is found to be a legitimate contractor,
respondents’ claims against petitioner must fail as they would then be
considered employees of Synergy.

The statutory basis of legitimate contracting or subcontracting is provided in

Article 106 of the Labor Code which reads:
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.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the

contracting out of labor to protect the rights of workers established under the
Code. In so prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as differentiations
within these types of contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to prevent any
violation or circumvention of any provision of this Code.

There is "labor-only" contracting where 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 the
workers recruited and placed by such person are performing activities
which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him.
(Emphasis, capitalization and underscoring supplied)
Legitimate contracting and labor-only contracting are defined in Department
Order (D.O.) No. 18-02, Series of 2002 (Rules Implementing Articles 106 to
109 of the Labor Code, as amended) as follows:

Section 3. Trilateral relationship in contracting arrangements. In legitimate

contracting, there exists a trilateral relationship under which there is a contract
for a specific job, work or service between the principal and the contractor or
subcontractor, and a contract of employment between the contractor or
subcontractor and its workers. Hence, there are three parties involved in these
arrangements, the principal which decides to farm out a job or service to a
contractor or subcontractor, the contractor or subcontractor which has the
capacity to independently undertake the performance of the job, work or
service, and the contractual workers engaged by the contractor or subcontractor
to accomplish the job, work or service. (Emphasis and underscoring supplied)

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 [sic] 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 over the
performance of the work of the contractual employee. (Emphasis,
underscoring and capitalization supplied)
“Substantial capital or investment” and the “right to control” are defined in the
same Section 5 of the Department Order as follows:

"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.

The "right to control" shall refer to the right reserved to the person for whom
the services of the contractual workers are performed, to determine not only the
end to be achieved, but also the manner and means to be used in reaching that
end. (Emphasis and underscoring supplied)

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.[17]
Petitioner asserts, however, that mere compliance with substantial capital
requirement suffices for Synergy to be considered a legitimate contractor, citing
Neri v. National Labor Relations Commission.[18] Petitioner’s reliance on said case is
misplaced.

In Neri, the Labor Arbiter and the NLRC both determined that Building Care
Corporation had a capital stock of P1 million fully subscribed and paid
for.[19] The corporation’s status as independent contractor had in fact been
previously confirmed in an earlier case[20] by this Court which found it to be
serving, among others, a university, an international bank, a big local bank, a
hospital center, government agencies, etc.”

In stark contrast to the case at bar, while petitioner steadfastly asserted before
the Labor Arbiter and the NLRC that Synergy has a substantial capital to engage
in legitimate contracting, it failed to present evidence thereon. As the NLRC
held:

The decision of the Labor Arbiter merely mentioned on page 5 of his decision
that respondent SYNERGY has substantial capital, but there is no showing in
the records as to how much is that capital. Neither had respondents shown that
SYNERGY has such substantial capital. x x x[21] (Underscoring supplied)

It was only after the appellate court rendered its challenged Decision of
September 29, 2002 when petitioner, in its Motion for Reconsideration of the
decision, sought to prove, for the first time, Synergy’s substantial capitalization
by attaching photocopies of Synergy’s financial statements, e.g., balance sheets,
statements of income and retained earnings, marked as “Annexes ‘A’ – ‘A-4.’”[22]

More significantly, however, is that respondents worked alongside petitioner’s

regular employees who were performing identical work.[23] As San Miguel
Corporation v. Aballa[24] and Dole Philippines, Inc. v. Esteva, et al.[25] teach, such is an
indicium of labor-only contracting.

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, re- quoted:
(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. (Emphasis and
CAPITALIZATION supplied)
Even if only one of the two elements is present then, there is labor-only
contracting.

The control test element under the immediately-quoted paragraph (ii), which
was not present in the old Implementing Rules (Department Order No. 10,
Series of 1997),[26] echoes the prevailing jurisprudential trend[27] elevating such
element as a primary determinant of employer-employee relationship in job
contracting agreements.

One who claims to be an independent contractor has to prove that he

contracted to do the work according to his own methods and without being
subject to the employer’s control except only as to the results.[28]

While petitioner claimed that it was Synergy’s supervisors who actually

supervised respondents, it failed to present evidence thereon. It did not even
identify who were the Synergy supervisors assigned at the workplace.

Even the parties’ Agreement does not lend support to petitioner’s claim, thus:

Section 6. Qualified and Experienced Worker: Owner’s Right to Dismiss

Workers.

CONTRACTOR shall employ capable and experienced workers and foremen to

carry out the loading, unloading and delivery Work as well as provide all
equipment, loading, unloading and delivery equipment, materials, supplies and
tools necessary for the performance of the Work. CONTRACTOR shall upon
OWNER’S request furnish the latter with information regarding the
qualifications of the former’s workers, to prove their capability and experience.
Contractor shall require all its workers, employees, suppliers and visitors
to comply with OWNER’S rules, regulations, procedures and directives
relative to the safety and security of OWNER’S premises, properties and
operations. For this purpose, CONTRACTOR shall furnish its employees
and workers identification cards to be countersigned by OWNER and
uniforms to be approved by OWNER. 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 and requests
regarding security, safety and other matters and such person shall not again be
employed to perform the services hereunder without OWNER’S permission.[29]
(Underscoring partly in the original and partly supplied; emphasis supplied)

Petitioner in fact admitted that it fixes the work schedule of respondents as their
work was dependent on the frequency of plane arrivals.[30] 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.[31]

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.[32]

The express provision in the Agreement that Synergy was an independent

contractor and there would be “no employer-employee relationship between
[Synergy] and/or its employees on one hand, and [petitioner] on the other
hand” is not legally binding and conclusive as contractual provisions are not
valid determinants of the existence of such relationship. For it is the totality of
the facts and surrounding circumstances of the case[33] which is
determinative of the parties’ relationship.

Respecting the dismissal on November 15, 1992[34] of Auxtero, a regular

employee of petitioner who had been working as utility man/helper since
November 1988, it is not legally justified for want of just or authorized cause
therefor and for non-compliance with procedural due process. Petitioner’s claim
that he abandoned his work does not persuade.[35] The elements of
abandonment being (1) the failure to report for work or absence without valid
or justifiable reason, and (2) a clear intention to sever the employer-employee
relationship manifested by some overt acts,[36] the onus probandi lies with
petitioner which, however, failed to discharge the same.

Auxtero, having been declared to be a regular employee of petitioner, and found

to be illegally dismissed from employment, should be entitled to salary
differential[37] from the time he rendered one year of service until his dismissal,
reinstatement plus backwages until the finality of this decision.[38] In view,
however, of the long period of time[39] that had elapsed since his dismissal on
November 15, 1992, it would be appropriate to award separation pay of one (1)
month salary for each year of service, in lieu of reinstatement.[40]

As regards the remaining respondents, the Court affirms the ruling of both the
NLRC and the appellate court, ordering petitioner to accept them as its regular
employees and to give each of them the salaries, allowances and other
employment benefits and privileges of a regular employee under the pertinent
Collective Bargaining Agreement.

Petitioner claims, however, that it has become impossible for it to comply with
the orders of the NLRC and the Court of Appeals, for during the pendency of
this case, it was forced to reduce its personnel due to heavy losses caused by
economic crisis and the pilots’ strike of June 5, 1998.[41] Hence, there are no
available positions where respondents could be placed.

And petitioner informs that “the employment contracts of all if not most of the
respondents . . . were terminated by Synergy effective 30 June 1998 when
petitioner terminated its contract with Synergy.”[42]

Other than its bare allegations, petitioner presented nothing to substantiate its
impossibility of compliance. In fact, petitioner waived this defense by failing to
raise it in its Memorandum filed on June 14, 1999 before the Court of
Appeals.[43] Further, the notice of termination in 1998 was in disregard of a
subsisting temporary restraining order[44] to preserve the status quo, issued by
this Court in 1996 before it referred the case to the Court of Appeals in January
1999. So as to thwart the attempt to subvert the implementation of the assailed
decision, respondents are deemed to be continuously employed by petitioner,
for purposes of computing the wages and benefits due respondents.

Finally, it must be stressed that respondents, having been declared to be regular

employees of petitioner, Synergy being a mere agent of the latter, had acquired
security of tenure. As such, they could only be dismissed by petitioner, the real
employer, on the basis of just or authorized cause, and with observance of
procedural due process.

WHEREFORE, the Court of Appeals Decision of September 29, 2000 is

AFFIRMED with MODIFICATION.

Petitioner PHILIPPINE AIRLINES, INC. is ordered to:

(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN
PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON
PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL
GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL
BERNARDES, LORENZO BUTANAS, BENSON CARESUSA,
JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA,
CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO
TUNACAO, CHERRIE ALEGRES, EDUARDO MAGDADARAUG,
NELSON M. DULCE and ALLAN BENTUZAL as its regular employees
in their same or substantially equivalent positions, and pay the wages and
benefits due them as regular employees plus salary differential
corresponding to the difference between the wages and benefits given them
and those granted to petitioner’s other regular employees of the same rank;
and

(b) pay respondent BENEDICTO AUXTERO salary differential;

backwages from the time of his dismissal until the finality of this decision;
and separation pay, in lieu of reinstatement, equivalent to one (1) month
pay for every year of service until the finality of this decision.
There being no data from which this Court may determine the monetary
liabilities of petitioner, the case is REMANDED to the Labor Arbiter solely for
that purpose.

SO ORDERED.

Carpio (Acting Chairperson), Azcuna, Tinga and Velasco, Jr. JJ., concur.
Quisumbing (Chairperson), On official leave per Special Order No. 485 dated
February 14, 2008.
[1] NLRC records, Vol. I, pp. 168-177.

[2] Rollo, p. 136.

[3] Id. at 136-137.

[4] Id. at 138.

[5] Id. at 8; NLRC records, Vol. 1, p. 104.

[6] Ibid.; vide also NLRC records, Vol. 1, p. 151.

[7] Rollo, pp. 302-316.

[8] Id. at 315-316.

[9] Id. at 226-237.

[10] Id. at 236-237.

[11] CA rollo, p. 179.

[12] Rollo,
pp. 7-17. Penned by Associate Justice B.A. Adefuin-De la Cruz and
concurred in by then Presiding Justice Salome Montoya and Associate Justice
Renato Dacudao.

[13] Id. at 29.

[14] Id. at 42-43.

[15] Id. at 47-49.

[16] Id. at 52.

[17] Id. at 184.

[18] G.R. Nos. 97008-09, July 23, 1993, 224 SCRA 717.
[19] Id. at 720.

Citing Associated Labor Unions-TUCP v. National Labor Relations Commission,

[20]

G.R. No. 101784, October 21, 1991, Third Division, Minute Resolution.

[21] Rollo, p. 285.

Vide Petitioner’s Motion for Reconsideration of CA Decision of September

[22]

29, 2000, id. at 425-450.

Id. at 348-349; vide NLRC records, Vol. 1, pp. 105 and 223; Position Papers
[23]

for Petitioner, NLRC records, Vol. 1, pp. 83-92 and pp. 156-167; Affidavit of
Benedicto A. Auxtero, NLRC records, Vol. 1, p. 185; Memorandum for
petitioner, NLRC records, Vol. 1, pp. 206-216.

[24] G.R. No. 149011, June 28, 2005, 461 SCRA 392, 425. This Court held:
xxxx

More. Private respondents had been working in the aqua processing plant inside
the SMC compound alongside regular SMC shrimp processing workers
performing identical jobs under the same SMC supervisors. This circumstance is
another indicium of the existence of a labor-only contractorship.

x x x x (Underscoring supplied)
[25] G.R. No. 161115, November 30, 2006, 509 SCRA 332.

[26] Section
4(f) of Rule VIII-A of the Implementing Rules of Book III, as added
by Department Order No. 10, Series of 1997, merely provides:

(f) “Labor-only contracting” prohibited under this Rule is an arrangement where

the contractor or subcontractor merely recruits, supplies or places workers to
perform a job, work or service for a principal, and the following elements are
present:
(i) 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
(ii) 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.
[27] Vide Neri v. National Labor Relations Commission, supra note 18; Aurora Land

Projects Corp. v. National Labor Relations Commission, 334 Phil. 44, 48

(1997); Escario v. National Labor Relations Commission, G.R. No. 124055, June 8,
2000, 333 SCRA 257; Vinoya v. National Labor Relations Commission, G.R. No.
126586, February 2, 2000, 324 SCRA 469; National Power Corporation v. Court of
Appeals, G.R. No. 119121, August 14, 1998, 294 SCRA 209.

Acevedo v. Advanstar Company, Inc., G.R. No. 157656, November 11, 2005, 474
[28]

SCRA 656, 668 citing New Golden City Builders and Development Corporation v. Court
of Appeals, 463 Phil. 821 (2003); San Miguel Corporation v. Aballa, supra note 24 at
421.

[29] Rollo, p. 170.

[30] NLRC records, Vol. 1, p. 6.

[31] Id. at 477.

Aboitiz Haulers, Inc. v. Dimapatoi, G.R. No. 148619, September 19, 2006, 502
[32]

SCRA 271, 287 citing Guinnux Interiors, Inc. v. National Labor Relations Commission,
339 Phil. 75, 78-79 (1997); Manila Water Company Inc. v. Peña, G.R. No. 158255,
July 8, 2004, 434 SCRA 53, 60-61.

[33] San Miguel Corporation v. Aballa, supra note 24 at 422-423 (citation omitted).

[34] NLRC records, Vol. 1, p. 185.

Floren Hotel v. National Labor Relations Commission, G.R. No. 155264, May 6,
[35]

2005, 458 SCRA 128, 144; Masagana Concrete Products v. NLRC, 372 Phil. 459
(1999).

Northwest Tourism Corp. v. Court of Appeals, Former Special Third Division,

[36]

G.R. No. 150591, June 27, 2005, 461 SCRA 298, 309; ACD Investigation Security
Agency, Inc. v. Daquera, G.R. No. 147473, March 30, 2004, 426 SCRA 494; Premier
Development Bank v. NLRC, 354 Phil. 851 (1998).
 Vide Cinderella Marketing Corporation v. NLRC, 353 Phil. 284 (1998); ABS-CBN
[37]

Broadcasting Corporation v. Nazareno, G.R. No. 164156, September 2006, 503

SCRA 204; Kimberly-Clark (Phils.), Inc., v. Secretary of Labor, G.R. No. 156668,
November 23, 2007 for jurisprudence on regularization differential.

Star Paper Corporation v. Espiritu, G.R. No. 154006, November 2, 2006, 506
[38]

SCRA 556, 568; Tan v. Lagrama, G.R. No. 151228, August 15, 2002, 387 SCRA
393, 406; Prudential Bank and Trust Co. v. Reyes, G.R. No. 141093, February 20,
2001, 352 SCRA 316, 332.

Gold City Integrated Port Service, Inc. v. National Labor Relations Commission, G.R.
[39]

No. 103560, July 6, 1995, 245 SCRA 627, 641; Panday v. National Labor Relations
Commission, G.R. No. 67664, May 20, 1992, 209 SCRA 122.

Northwest Tourism Corp. v. Court of Appeals, Former Special Third Division,

[40]

G.R. No. 150591, June 27, 2005, 461 SCRA 298, 311; F.F. Marine Corporation v.
National Labor Relations Commission, Second Division, G.R. No. 152039, April 8,
2005, 455 SCRA 154, 174.

[41] Rollo, p. 53.

[42] Id. at 54; vide Annexes “B” – “B-12” inclusive, pp. 453-465.

[43] Vide rollo, pp. 382-396.

[44] Rollo, pp. 327-341.

 THIRD DIVISION

G.R. No. 149011 June 28, 2005

SAN MIGUEL CORPORATION, petitioner

vs.
PROSPERO A. ABALLA, BONNY J. ABARING, EDWIN M. ADLA-ON, ALVIN C. ALCALDE,
CELANIO D. ARROLLADO, EDDIE A. ARROLLADO, REYNALDO T. ASONG, RENE A.
ASPERA, JOEL D. BALATERIA, JOSEPH D. BALATERIA, JOSE JOLLEN BALLADOS,
WILFREDO B. BASAS, EDWIN E. BEATINGO, SONNY V. BERONDO, CHRISTOPHER D.
BRIONES, MARLON D. BRIONES, JOEL C. BOOC, ENRIQUE CABALIDA, DIOSCORO R.
CAHINOD, ERNESTO P. CAHINOD, RENANTE S. CAHINOD, RUDERICK R. CALIXTON,
RONILO C. CALVEZ, PANCHO CAÑETE, JUNNY CASTEL, JUDY S. CELESTE, ROMEO CHUA,
DANILO COBRA, ARMANDO C. DEDOYCO, JOEY R. DELA CRUZ, JOHN D. DELFIN,
RENELITO P. DEON, ARNEL C. DE PEDRO, ORLANDO DERDER, CLIFFORD A. DESPI, RAMIE
A. DESPI, SR., VICTOR A. DESPI, ROLANDO L. DINGLE, ANTONIO D. DOLORFINO, LARRY
DUMA-OP, NOEL DUMOL, CHITO L. DUNGOG, RODERICK C. DUQUEZA, ROMMEL
ESTREBOR, RIC E. GALPO, MANSUETO GILLE, MAXIMO L. HILA-US, GERARDO J. JIMENEZ,
ROBERTLY Y. HOFILEÑA, ROBERTO HOFILEÑA, VICENTE INDENCIO, JONATHAN T.
INVENTOR, PETER PAUL T. INVENTOR, JOEBERT G. LAGARTO, RENATO LAMINA, ALVIN
LAS POBRES, ALBERT LAS POBRES, LEONARD LEMONCHITO, JERRY LIM, JOSE COLLY S.
LUCERO, ROBERTO E. MARTIL, HERNANDO MATILLANO, VICENTE M. MATILLANO, TANNY
C. MENDOZA, WILLIAM P. NAVARRO, WILSON P. NAVARRO, LEO A. OLVIDO, ROBERTO G.
OTERO, BIENVENIDO C. PAROCHILIN, REYNALDO C. PAROCHILIN, RICKY PALANOG,
BERNIE O. PILLO, ALBERTO O. PILLO, JOE-MARIE S. PUGNA, EDWIN G. RIBON, RAUL A.
RUBIO, HENRY S. SAMILLANO, EDGAR SANTIAGO, ROLAND B. SANTILLANA, ROLDAN V.
SAYAM, JOSEPH S. SAYSON, RENE SUARNABA, ELMAR TABLIGAN, JERRY D. TALITE,
OSCAR TALITE, WINIFREDO TALITE, CAMILO N. TEMPOROSA, JOSE TEMPOROSA, RANDY
TINGALA, TRISTAN A. TINGSON, ROGELIO TOMESA, DIONISE A. TORMIS, ADELINO C.
UNTAL, FELIX T. UNTAL, RONILO E. VISTA, JOAN C. VIYO and JOSE JOFER C. VIYO and the
COURT OF APPEALS, respondents.

DECISION

CARPIO-MORALES, J.:

Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and Visayas
Area Manager for Aquaculture Operations Leopoldo S. Titular, and Sunflower Multi-Purpose
Cooperative (Sunflower), represented by the Chairman of its Board of Directors Roy G. Asong,
entered into a one-year Contract of Services1 commencing on January 1, 1993, to be renewed on a
month to month basis until terminated by either party. The pertinent provisions of the contract read:
1. The cooperative agrees and undertakes to perform and/or provide for the company, on a
non-exclusive basis for a period of one year the following services for the Bacolod Shrimp
Processing Plant:

A. Messengerial/Janitorial

B. Shrimp Harvesting/Receiving

C. Sanitation/Washing/Cold Storage2

2. To carry out the undertaking specified in the immediately preceding paragraph, the
cooperative shall employ the necessary personnel and provide adequate equipment,
materials, tools and apparatus, to efficiently, fully and speedily accomplish the work and
services undertaken by the cooperative. xxx

3. In consideration of the above undertaking the company expressly agrees to pay the
cooperative the following rates per activity:

A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand Five

Hundred Pesos Only (P19,500.00)

B. Harvesting/Shrimp Receiving. – Piece rate of P0.34/kg. Or P100.00 minimum per

person/activity whichever is higher, with provisions as follows:

P25.00 Fixed Fee per person

Additional meal allowance P15.00 every meal time in case harvest duration exceeds
one meal.

This will be pre-set every harvest based on harvest plan approved by the Senior
Buyer.

C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts.

One-half of the payment for all services rendered shall be payable on the fifteenth
and the other half, on the end of each month. The cooperative shall pay taxes, fees,
dues and other impositions that shall become due as a result of this contract.

The cooperative shall have the entire charge, control and supervision of the work and
services herein agreed upon. xxx

4. There is no employer-employee relationship between the company and the cooperative, or

the cooperative and any of its members, or the company and any members of the
cooperative. The cooperative is an association of self-employed members, an independent
contractor, and an entrepreneur. It is subject to the control and direction of the company only
as to the result to be accomplished by the work or services herein specified, and not as to
the work herein contracted. The cooperative and its members recognize that it is taking a
business risk in accepting a fixed service fee to provide the services contracted for and its
realization of profit or loss from its undertaking, in relation to all its other undertakings, will
depend on how efficiently it deploys and fields its members and how they perform the work
and manage its operations.
 5. The cooperative shall, whenever possible, maintain and keep under its control the
premises where the work under this contract shall be performed.

6. The cooperative shall have exclusive discretion in the selection, engagement and
discharge of its member-workers or otherwise in the direction and control thereof. The
determination of the wages, salaries and compensation of the member-workers of the
cooperative shall be within its full control. It is further understood that the cooperative is an
independent contractor, and as such, the cooperative agrees to comply with all the
requirements of all pertinent laws and ordinances, rules and regulations. Although it is
understood and agreed between the parties hereto that the cooperative, in the performance
of its obligations, is subject to the control or direction of the company merely as a (sic) result
to be accomplished by the work or services herein specified, and not as to the means and
methods of accomplishing such result, the cooperative hereby warrants that it will perform
such work or services in such manner as will be consistent with the achievement of the result
herein contracted for.

xxx

8. The cooperative undertakes to pay the wages or salaries of its member-workers, as well
as all benefits, premiums and protection in accordance with the provisions of the labor code,
cooperative code and other applicable laws and decrees and the rules and regulations
promulgated by competent authorities, assuming all responsibility therefor.

The cooperative further undertakes to submit to the company within the first ten (10) days of
every month, a statement made, signed and sworn to by its duly authorized representative
before a notary public or other officer authorized by law to administer oaths, to the effect that
the cooperative has paid all wages or salaries due to its employees or personnel for services
rendered by them during the month immediately preceding, including overtime, if any, and
that such payments were all in accordance with the requirements of law.

xxx

12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall be for
a period of one (1) year commencing on January 1, 1993. Thereafter, this Contract will be
deemed renewed on a month-to-month basis until terminated by either party by sending a
written notice to the other at least thirty (30) days prior to the intended date of termination.

xxx3 (Underscoring supplied)

Pursuant to the contract, Sunflower engaged private respondents to, as they did, render services at
SMC’s Bacolod Shrimp Processing Plant at Sta. Fe, Bacolod City. The contract was deemed
renewed by the parties every month after its expiration on January 1, 1994 and private respondents
continued to perform their tasks until September 11, 1995.

In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration Branch
No. VI, Bacolod City, praying to be declared as regular employees of SMC, with claims for recovery
of all benefits and privileges enjoyed by SMC rank and file employees.

Private respondents subsequently filed on September 25, 1995 an Amended Complaint4 to include
illegal dismissal as additional cause of action following SMC’s closure of its Bacolod Shrimp
Processing Plant on September 15, 19955 which resulted in the termination of their services.
SMC filed a Motion for Leave to File Attached Third Party Complaint6 dated November 27, 1995 to
implead Sunflower as Third Party Defendant which was, by Order7 of December 11, 1995, granted
by Labor Arbiter Ray Alan T. Drilon.

In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo City of the
Department of Labor and Employment (DOLE) a Notice of Closure8 of its aquaculture operations
effective on even date, citing serious business losses.

By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents’ complaint
for lack of merit, ratiocinating as follows:

We sustain the stand of the respondent SMC that it could properly exercise its management
prerogative to contract out the preparation and processing aspects of its aquaculture operations.
Judicial notice has already been taken regarding the general practice adopted in government and
private institutions and industries of hiring independent contractors to perform special services. xxx

xxx

Indeed, the law allows job contracting. Job contracting is permissible under the Labor Code under
specific conditions and we do not see how this activity could not be legally undertaken by an
independent service cooperative like the third-party respondent herein.

There is no basis to the demand for regularization simply on the theory that complainants performed
activities which are necessary and desirable in the business of respondent. It has been held that the
definition of regular employees as those who perform activities which are necessary and desirable
for the business of the employer is not always determinative because any agreement may provide
for one (1) party to render services for and in behalf of another for a consideration even without
being hired as an employee.

The charge of the complainants that third-party respondent is a mere labor-only contractor is a
sweeping generalization and completely unsubstantiated. xxx In the absence of clear and convincing
evidence showing that third-party respondent acted merely as a labor only contractor, we are firmly
convinced of the legitimacy and the integrity of its service contract with respondent SMC.

In the same vein, the closure of the Bacolod Shrimp Processing Plant was a management decision
purely dictated by economic factors which was (sic) mainly serious business losses. The law
recognizes the right of the employer to close his business or cease his operations for bonafide
reasons, as much as it recognizes the right of the employer to terminate the employment of any
employee due to closure or cessation of business operations, unless the closing is for the purpose of
circumventing the provisions of the law on security of tenure. The decision of respondent SMC to
close its Bacolod Shrimp Processing Plant, due to serious business losses which has (sic) clearly
been established, is a management prerogative which could hardly be interfered with.

xxx The closure did affect the regular employees and workers of the Bacolod Processing Plant, who
were accordingly terminated following the legal requisites prescribed by law. The closure, however,
in so far as the complainants are concerned, resulted in the termination of SMC’s service contract
with their cooperative xxx9(Underscoring supplied)

Private respondents appealed to the NLRC.

By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of merit, it finding
that third party respondent Sunflower was an independent contractor in light of its observation that
"[i]n all the activities of private respondents, they were under the actual direction, control and
supervision of third party respondent Sunflower, as well as the payment of wages, and power of
dismissal."10

Private respondents’ Motion for Reconsideration11 having been denied by the NLRC for lack of merit
by Resolution of September 10, 1999, they filed a petition for certiorari12 before the Court of Appeals
(CA).

Before the CA, SMC filed a Motion to Dismiss13 private respondents’ petition for non-compliance with
the Rules on Civil Procedure and failure to show grave abuse of discretion on the part of the NLRC.

SMC subsequently filed its Comment14 to the petition on March 30, 2000.

By Decision of February 7, 2001, the appellate court reversed the NLRC decision and accordingly
found for private respondents, disposing as follows:

WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby RENDERED: (1)

REVERSING and SETTING ASIDE both the 29 December 1998 decision and 10 September 1999
resolution of the National Labor Relations Commission (NLRC), Fourth Division, Cebu City in NLRC
Case No. V-0361-97 as well as the 23 September 1997 decision of the labor arbiter in RAB Case
No. 06-07-10316-95; (2) ORDERING the respondent, San Miguel Corporation, to GRANT
petitioners: (a) separation pay in accordance with the computation given to the regular SMC
employees working at its Bacolod Shrimp Processing Plant with full backwages, inclusive of
allowances and other benefits or their monetary equivalent, from 11 September 1995, the time their
actual compensation was withheld from them, up to the time of the finality of this decision;
(b) differentials pays (sic) effective as of and from the time petitioners acquired regular employment
status pursuant to the disquisition mentioned above, and all such other and further benefits as
provided by applicable collective bargaining agreement(s) or other relations, or by law, beginning
such time up to their termination from employment on 11 September 1995; and ORDERING private
respondent SMC to PAY unto the petitioners attorney’s fees equivalent to ten (10%) percent of the
total award.

No pronouncement as to costs.

SO ORDERED.15 (Underscoring supplied)

Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate court reasoned:

Although the terms of the non-exclusive contract of service between SMC and [Sunflower] showed a
clear intent to abstain from establishing an employer-employee relationship between SMC and
[Sunflower] or the latter’s members, the extent to which the parties successfully realized this intent in
the light of the applicable law is the controlling factor in determining the real and actual
relationship between or among the parties.

xxx

With respect to the power to control petitioners’ conduct, it appears that petitioners were under the
direct control and supervision of SMC supervisors both as to the manner they performed their
functions and as to the end results thereof. It was only after petitioners lodged a complaint to have
their status declared as regular employees of SMC that certain members of [Sunflower] began to
countersign petitioners’ daily time records to make it appear that they (petitioners) were under the
control and supervision of [Sunflower] team leaders (rollo, pp. 523-527). xxx

Even without these instances indicative of control by SMC over the petitioners, it is safe to assume
that SMC would never have allowed the petitioners to work within its premises, using its own
facilities, equipment and tools, alongside SMC employees discharging similar or identical activities
unless it exercised a substantial degree of control and supervision over the petitioners not only as to
the manner they performed their functions but also as to the end results of such functions.

xxx

xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent
contractors. [Sunflower] and the petitioners did not have substantial capital or investment in the form
of tools, equipment, implements, work premises, et cetera necessary to actually perform the service
under their own account, responsibility, and method. The only "work premises" maintained by
[Sunflower] was a small office within the confines of a small "carinderia" or refreshment parlor owned
by the mother of its chair, Roy Asong; the only equipment it owned was a typewriter (rollo, pp. 525-
525) and, the only assets it provided SMC were the bare bodies of its members, the petitioners
herein (rollo, p. 523).

In addition, as shown earlier, petitioners, who worked inside the premises of SMC, were under the
control and supervision of SMC both as to the manner and method in discharging their functions
and as to the results thereof.

Besides, it should be taken into account that the activities undertaken by the petitioners as cleaners,
janitors, messengers and shrimp harvesters, packers and handlers were directly related to the
aquaculture business of SMC(See Guarin vs. NLRC, 198 SCRA 267, 273). This is confirmed by
the renewal of the service contract from January 1993 to September 1995, a period of close to three
(3) years.

Moreover, the petitioners here numbering ninety seven (97), by itself, is a considerable workforce
and raises the suspicion that the non-exclusive service contract between SMC and [Sunflower] was
"designed to evade the obligations inherent in an employer-employee relationship" (See Rhone-
Poulenc Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249, 259).

Equally suspicious is the fact that the notary public who signed the by-laws of [Sunflower]
and its [Sunflower] retained counsel are both partners of the local counsel of SMC (rollo, p. 9).

xxx

With these observations, no other logical conclusion can be reached except that [Sunflower] acted
as an agent of SMC, facilitating the manpower requirements of the latter, the real employer of the
petitioners. We simply cannot allow these two entities through the convenience of a non-exclusive
service contract to stipulate on the existence of employer-employee relation. Such existence is a
question of law which cannot be made the subject of agreement to the detriment of the petitioners
(Tabas vs. California Manufacturing, Inc., 169 SCRA 497, 500).

xxx
There being a finding of "labor-only" contracting, liability must be shouldered either by SMC or
[Sunflower] or shared by both (See Tabas vs. California Manufacturing, Inc., supra, p. 502). SMC
however should be held solely liablefor [Sunflower] became non-existent with the closure of the
aquaculture business of SMC.

Furthermore, since the closure of the aquaculture operations of SMC appears to be valid,
reinstatement is no longer feasible. Consistent with the pronouncement in Bustamante, et al., vs.
NLRC, G.R. No. 111651, 28 November 1996, petitioners are thus entitled to separation pay (in the
computation similar to those given to regular SMC employees at its Bacolod Shrimp Processing
Plant) "with full backwages, inclusive of allowances and other benefits or their monetary equivalent,
from the time their actual compensation was withheld from them" up to the time of the finality of this
decision. This is without prejudice to differentials pays (sic) effective as of and from the time
petitioners acquired regular employment status pursuant to the discussion mentioned above, and all
such other and further benefits as provided by applicable collective bargaining agreement(s) or other
relations, or by law, beginning such time up to their termination from employment on 11 September
1995.16 (Emphasis and underscoring supplied)

SMC’s Motion for Reconsideration17 having been denied for lack of merit by Resolution of July 11,
2001, it comes before this Court via the present petition for review on certiorari assigning to the CA
the following errors:

THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE COURSE AND GRANTING
RESPONDENTS’ PATENTLY DEFECTIVE PETITION FOR CERTIORARI. IN DOING SO, THE
COURT OF APPEALS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS.

II

THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE RESPONDENTS AS

COMPLAINANTS IN THE CASE BEFORE THE LABOR ARBITER. IN DOING SO, THE COURT OF
APPEALS DECIDED THIS CASE IN A MANNER NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT.

III

THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE

EMPLOYEES OF SMC.

IV

THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic) THAT RESPONDENTS ARE
NOT ENTITLED TO ANY RELIEF. THE CLOSURE OF THE BACOLOD SHRIMP PROCESSING
PLANT WAS DUE TO SERIOUS BUSINESS LOSSES.18 (Underscoring supplied)

SMC bewails the failure of the appellate court to outrightly dismiss the petition for certiorari as only
three out of the ninety seven named petitioners signed the verification and certification against
forum-shopping.
While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs
or petitioners in a case and the signature of only one of them is insufficient,19 this Court has stressed
that the rules on forum shopping, which were designed to promote and facilitate the orderly
administration of justice, should not be interpreted with such absolute literalness as to subvert its
own ultimate and legitimate objective.20 Strict compliance with the provisions regarding the certificate
of non-forum shopping merely underscores its mandatory nature in that the certification cannot be
altogether dispensed with or its requirements completely disregarded.21 It does not, however,
thereby interdict substantial compliance with its provisions under justifiable circumstances.22

Thus in the recent case of HLC Construction and Development Corporation v. Emily Homes
Subdivision Homeowners Association,23 this Court held:

Respondents (who were plaintiffs in the trial court) filed the complaint against petitioners as a group,
represented by their homeowners’ association president who was likewise one of the plaintiffs, Mr.
Samaon M. Buat. Respondents raised one cause of action which was the breach of contractual
obligations and payment of damages. They shared a common interest in the subject matter of the
case, being the aggrieved residents of the poorly constructed and developed Emily Homes
Subdivision. Due to the collective nature of the case, there was no doubt that Mr. Samaon M. Buat
could validly sign the certificate of non-forum shopping in behalf of all his co-plaintiffs. In cases
therefore where it is highly impractical to require all the plaintiffs to sign the certificate of non-forum
shopping, it is sufficient, in order not to defeat the ends of justice, for one of the plaintiffs, acting as
representative, to sign the certificate provided that xxx the plaintiffs share a common interest in
the subject matter of the case or filed the case as a "collective," raising only one common
cause of action or defense.24 (Emphasis and underscoring supplied)

Given the collective nature of the petition filed before the appellate court by herein private
respondents, raising one common cause of action against SMC, the execution by private
respondents Winifredo Talite, Renelito Deon and Jose Temporosa in behalf of all the other private
respondents of the certificate of non-forum shopping constitutes substantial compliance with the
Rules.25 That the three indeed represented their co-petitioners before the appellate court is, as it
correctly found, "subsequently proven to be true as shown by the signatures of the majority of the
petitioners appearing in their memorandum filed before Us."26

Additionally, the merits of the substantive aspects of the case may also be deemed as "special
circumstance" or "compelling reason" to take cognizance of a petition although the certification
against forum shopping was not executed and signed by all of the petitioners.27

SMC goes on to argue that the petition filed before the CA is fatally defective as it was not
accompanied by "copies of all pleadings and documents relevant and pertinent thereto" in
contravention of Section 1, Rule 65 of the Rules of Court.28

This Court is not persuaded. The records show that private respondents appended the following
documents to their petition before the appellate court: the September 23, 1997 Decision of the Labor
Arbiter,29 their Notice of Appeal with Appeal Memorandum dated October 16, 1997 filed before the
NLRC,30 the December 29, 1998 NLRC D E C I S I O N,31 their Motion for Reconsideration dated
March 26, 1999 filed with the NLRC32 and the September 10, 1999 NLRC Resolution.33

It bears stressing at any rate that it is the appellate court which ultimately determines if the
supporting documents are sufficient to make out a prima facie case.34 It discerns whether on the
basis of what have been submitted it could already judiciously determine the merits of the
petition.35 In the case at bar, the CA found that the petition was adequately supported by relevant
and pertinent documents.
At all events, this Court has allowed a liberal construction of the rule on the accomplishment of a
certificate of non-forum shopping in the following cases: (1) where a rigid application will result in
manifest failure or miscarriage of justice; (2) where the interest of substantial justice will be served;
(3) where the resolution of the motion is addressed solely to the sound and judicious discretion of
the court; and (4) where the injustice to the adverse party is not commensurate with the degree of
his thoughtlessness in not complying with the procedure prescribed.36

Rules of procedure should indeed be viewed as mere tools designed to facilitate the attainment of
justice. Their strict and rigid application, which would result in technicalities that tend to frustrate
rather than promote substantial justice, must always be eschewed.37

SMC further argues that the appellate court exceeded its jurisdiction in reversing the decisions of the
labor arbiter and the NLRC as "findings of facts of quasi-judicial bodies like the NLRC are accorded
great respect and finality," and that this principle acquires greater weight and application in the case
at bar as the labor arbiter and the NLRC have the same factual findings.

The general rule, no doubt, is that findings of facts of an administrative agency which has acquired
expertise in the particular field of its endeavor are accorded great weight on appeal.38 The rule is not
absolute and admits of certain well-recognized exceptions, however. Thus, when the findings of fact
of the labor arbiter and the NLRC are not supported by substantial evidence or their judgment was
based on a misapprehension of facts, the appellate court may make an independent evaluation of
the facts of the case.39

SMC further faults the appellate court in giving due course to private respondents’ petition despite
the fact that the complaint filed before the labor arbiter was signed and verified only by private
respondent Winifredo Talite; that private respondents’ position paper40 was verified by only six41 out
of the ninety seven complainants; and that their Joint-Affidavit42 was executed only by twelve43 of the
complainants.

Specifically with respect to the Joint-Affidavit of private respondents, SMC asserts that it should not
have been considered by the appellate court in establishing the claims of those who did not sign the
same, citing this Court’s ruling in Southern Cotabato Development and Construction, Inc. v. NLRC.44

SMC’s position does not lie.

A perusal of the complaint shows that the ninety seven complainants were being represented by
their counsel of choice. Thus the first sentence of their complaint alleges: "xxx complainants, by
counsel and unto this Honorable Office respectfully state xxx." And the complaint was signed by
Atty. Jose Max S. Ortiz as "counsel for the complainants." Following Section 6, Rule III of the 1990
Rules of Procedure of the NLRC, now Section 7, Rule III of the 1999 NLRC Rules, Atty. Ortiz is
presumed to be properly authorized by private respondents in filing the complaint.

That the verification wherein it is manifested that private respondent Talite was one of the
complainants and was causing the preparation of the complaint "with the authority of my co-
complainants" indubitably shows that Talite was representing the rest of his co-complainants in
signing the verification in accordance with Section 7, Rule III of the 1990 NLRC Rules, now Section
8, Rule 3 of the 1999 NLRC Rules, which states:

Section 7. Authority to bind party. – Attorneys and other representatives of parties shall have
authority to bind their clients in all matters of procedure; but they cannot, without a special power of
attorney or express consent, enter into a compromise agreement with the opposing party in full or
partial discharge of a client’s claim. (Underscoring supplied)
As regards private respondents’ position paper which bore the signatures of only six of them,
appended to it was an Authority/Confirmation of Authority45 signed by the ninety one others
conferring authority to their counsel "to file RAB Case No. 06-07-10316-95, entitled Winifredo
Talite et al. v. San Miguel Corporation presently pending before the sala of Labor Arbiter Ray Alan
Drilon at the NLRC Regional Arbitration Branch No. VI in Bacolod City" and appointing him as their
retained counsel to represent them in the said case.

That there has been substantial compliance with the requirement on verification of position papers
under Section 3, Rule V of the 1990 NLRC Rules of Procedure46 is not difficult to appreciate in light
of the provision of Section 7, Rule V of the 1990 NLRC Rules, now Section 9, Rule V of the 1999
NLRC Rules which reads:

Section 7. Nature of Proceedings. – The proceedings before a Labor Arbiter shall be non-litigious in
nature. Subject to the requirements of due process, the technicalities of law and procedure and the
rules obtaining in the courts of law shall not strictly apply thereto. The Labor Arbiter may avail
himself of all reasonable means to ascertain the facts of the controversy speedily, including ocular
inspection and examination of well-informed persons. (underscoring supplied)

As regards private respondents’ Joint-Affidavit which is being assailed in view of the failure of some
complainants to affix their signatures thereon, this Court quotes with approval the appellate court’s
ratiocinations:

A perusal of the Southern Cotabato Development Case would reveal that movant did not quote the
whole text of paragraph 5 on page 865 of 280 SCRA. The whole paragraph reads:

"Clearly then, as to those who opted to move for the dismissal of their complaints, or did not submit
their affidavits nor appear during trial and in whose favor no other independent evidence was
adduced, no award for back wages could have been validly and properly made for want of factual
basis. There is no showing at all that any of the affidavits of the thirty-four (34) complainants were
offered as evidence for those who did not submit their affidavits, or that such affidavits had any
bearing at all on the rights and interest of the latter. In the same vein, private respondent’s position
paper was not of any help to these delinquent complainants.

The implication is that as long as the affidavits of the complainants were offered as evidence
for those who did not submit theirs, or the affidavits were material and relevant to the rights
and interest of the latter, such affidavits may be sufficient to establish the claims of those
who did not give their affidavits.

Here, a reading of the joint affidavit signed by twelve (12) of the ninety-seven (97) complainants
(petitioners herein) would readily reveal that the affidavit was offered as evidence not only for the
signatories therein but for all of the complainants. (These ninety-seven (97) individuals were
previously identified during the mandatory conference as the only complainants in the proceedings
before the labor arbiter) Moreover, the affidavit touched on the common interest of all of the
complainants as it supported their claim of the existence of an employer-employee relationship
between them and respondent SMC. Thus, the said affidavit was enough to prove the claims of the
rest of the complainants.47 (Emphasis supplied, underscoring in the original)

In any event, SMC is reminded that the rules of evidence prevailing in courts of law or equity do not
control proceedings before the Labor Arbiter. So Article 221 of the Labor Code enjoins:

ART. 221. Technical rules not binding and prior resort to amicable settlement. – In any
proceeding before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in
courts of law or equity shall not be controlling and it is the spirit and intention of this Code that the
Commission and its members and the Labor Arbiters shall use every and all reasonable means to
ascertain the facts in each case speedily and objectively and without regard to technicalities of law
or procedure, all in the interest of due process. xxx

As such, their application may be relaxed to serve the demands of substantial justice.48

On the merits, the petition just the same fails.

SMC insists that private respondents are the employees of Sunflower, an independent contractor.
On the other hand, private respondents assert that Sunflower is a labor-only contractor.

Article 106 of the Labor Code provides:

ART. 106. Contractor or subcontracting. – 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.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of
labor to protect the rights of workers established under the Code. In so prohibiting or restricting, he
may make appropriate distinctions between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among the parties involved shall
be considered the employer for purposes of this Code, to prevent any violation or circumvention of
any provision of this Code.

There is "labor-only" contracting where 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 the workers recruited and placed by such person are performing activities which are
directly related to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the workers in
the same manner and extent as if the latter were directly employed by him.

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18, distinguishes between legitimate and labor-only contracting:

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there

exists a trilateral relationship under which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and a contract of employment between
the contractor or subcontractor and its workers. Hence, there are three parties involved in these
arrangements, the principal which decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the capacity to independently undertake
the performance of the job, work or service, and the contractual workers engaged by the contractor
or subcontractor to accomplish the job, work or service.

Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis 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 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 over the performance of the work of
the contractual employee.

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor
Code, as amended.

"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.

The "right to control" shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.

The test to determine the existence of independent contractorship is whether one claiming to be
an independent contractor has contracted to do the work according to his own methods and
without being subject to the control of the employer, except only as to the results of the
work.49

In legitimate labor 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.50

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.51

The Contract of Services between SMC and Sunflower shows that the parties clearly disavowed the
existence of an employer-employee relationship between SMC and private respondents. The
language of a contract is not, however, determinative of the parties’ relationship; rather it is the
totality of the facts and surrounding circumstances of the case.52 A party cannot dictate, by the mere
expedient of a unilateral declaration in a contract, the character of its business, i.e., whether as
labor-only contractor or job contractor, it being crucial that its character be measured in terms of and
determined by the criteria set by statute.53

SMC argues that Sunflower could not have been issued a certificate of registration as a cooperative
if it had no substantial capital.54
While indeed Sunflower was issued Certificate of Registration No. IL0-87555 on February 10, 1992 by
the Cooperative Development Authority, this merely shows that it had at least ₱2,000.00 in paid-up
share capital as mandated by Section 5 of Article 1456 of Republic Act No. 6938, otherwise known as
the Cooperative Code, which amount cannot be considered substantial capitalization.

What appears is that Sunflower does not have substantial capitalization or investment in the form of
tools, equipment, machineries, work premises and other materials to qualify it as an independent
contractor.

On the other hand, it is gathered that the lot, building, machineries and all other working tools utilized
by private respondents in carrying out their tasks were owned and provided by SMC. Consider the
following uncontroverted allegations of private respondents in the Joint Affidavit:

[Sunflower], during the existence of its service contract with respondent SMC, did not own a single
machinery, equipment, or working tool used in the processing plant. Everything was owned and
provided by respondent SMC. The lot, the building, and working facilities are owned by respondent
SMC. The machineries and equipments (sic) like washer machine, oven or cooking machine, sizer
machine, freezer, storage, and chilling tanks, push carts, hydrolic (sic) jack, tables, and chairs were
all owned by respondent SMC. All the boxes, trays, molding pan used in the processing are also
owned by respondent SMC. The gloves and boots used by the complainants were also owned by
respondent SMC. Even the mops, electric floor cleaners, brush, hoose (sic), soaps, floor waxes,
chlorine, liquid stain removers, lysol and the like used by the complainants assigned as cleaners
were all owned and provided by respondent SMC.

Simply stated, third-party respondent did not own even a small capital in the form of tools,
machineries, or facilities used in said prawn processing

xxx

The alleged office of [Sunflower] is found within the confines of a small "carinderia" or "refreshment"
(sic) owned by the mother of the Cooperative Chairman Roy Asong.

xxx In said . . . office, the only equipment used and owned by [Sunflower] was a typewriter. 57

And from the job description provided by SMC itself, the work assigned to private respondents
was directly relatedto the aquaculture operations of SMC. Undoubtedly, the nature of the work
performed by private respondents in shrimp harvesting, receiving and packing formed an integral
part of the shrimp processing operations of SMC. As for janitorial and messengerial services, that
they are considered directly related to the principal business of the employer58 has been
jurisprudentially recognized.

Furthermore, Sunflower did not carry on an independent business or undertake the performance of
its service contract according to its own manner and method, free from the control and supervision of
its principal, SMC, its apparent role having been merely to recruit persons to work for SMC.

Thus, it is gathered from the evidence adduced by private respondents before the labor arbiter that
their daily time records were signed by SMC supervisors Ike Puentebella, Joemel Haro, Joemari
Raca, Erwin Tumonong, Edison Arguello, and Stephen Palabrica, which fact shows that SMC
exercised the power of control and supervision over its employees.59 And control of the premises in
which private respondents worked was by SMC. These tend to disprove the independence of the
contractor.60
More. Private respondents had been working in the aqua processing plant inside the SMC
compound alongside regular SMC shrimp processing workers performing identical jobs under the
same SMC supervisors.61 This circumstance is another indicium of the existence of a labor-only
contractorship.62

And as private respondents alleged in their Joint Affidavit which did not escape the observation of
the CA, no showing to the contrary having been proffered by SMC, Sunflower did not cater to clients
other than SMC,63 and with the closure of SMC’s Bacolod Shrimp Processing Plant, Sunflower
likewise ceased to exist. This Court’s ruling in San Miguel Corporation v. MAERC Integrated
Services, Inc.64 is thus instructive.

xxx Nor do we believe MAERC to have an independent business. 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, thus
convincing us that it was created solely to service the needs of SMC. Naturally, with the severance
of relationship between MAERC and SMC followed MAERC’s cessation of operations, the loss of
jobs for the whole MAERC workforce and the resulting actions instituted by the
workers.65(Underscoring supplied)

All the foregoing considerations affirm by more than substantial evidence the existence of an
employer-employee relationship between SMC and private respondents.

Since private respondents who were engaged in shrimp processing performed tasks usually
necessary or desirable in the aquaculture business of SMC, they should be deemed regular
employees of the latter66 and as such are entitled to all the benefits and rights appurtenant to regular
employment.67 They should thus be awarded differential pay corresponding to the difference
between the wages and benefits given them and those accorded SMC’s other regular employees. 1aw phi 1.zw+

Respecting the private respondents who were tasked with janitorial and messengerial duties, this
Court quotes with approval the appellate court’s ruling thereon:

Those performing janitorial and messengerial services however acquired regular status only after
rendering one-year service pursuant to Article 280 of the Labor Code. Although janitorial and
messengerial services are considered directly related to the aquaculture business of SMC, they are
deemed unnecessary in the conduct of its principal business; hence, the distinction (See Coca Cola
Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-137 and Philippine Bank of Communications v.
NLRC, supra, p. 359).68

The law of course provides for two kinds of regular employees, namely: (1) those who are engaged
to perform activities which are usually necessary or desirable in the usual business or trade of the
employer; and (2) those who have rendered at least one year of service, whether continuous or
broken, with respect to the activity in which they are employed.69

As for those of private respondents who were engaged in janitorial and messengerial tasks, they fall
under the second category and are thus entitled to differential pay and benefits extended to other
SMC regular employees from the day immediately following their first year of service.70

Regarding the closure of SMC’s aquaculture operations and the consequent termination of private
respondents, Article 283 of the Labor Code provides:

ART. 283. Closure of establishment and reduction of personnel. – The employer may also
terminate the employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the provisions of
this Title, by serving a written notice on the workers and the Department of Labor and Employment
at least one (1) month before the intended date thereof. In case of termination due to the installation
of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation
pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of
service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or undertaking not due to serious business losses or
financial reverses, the separation pay shall be equivalent to one (1) month pay or to at least one-half
(1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months
shall be considered one (1) whole year. (Underscoring supplied)

In the case at bar, a particular department under the SMC group of companies was closed allegedly
due to serious business reverses. This constitutes retrenchment by, and not closure of, the
enterprise or the company itself as SMC has not totally ceased operations but is still very much an
on-going and highly viable business concern.71

Retrenchment is a management prerogative consistently recognized and affirmed by this Court. It is,
however, subject to faithful compliance with the substantive and procedural requirements laid down
by law and jurisprudence.72

For retrenchment to be considered valid the following substantial requirements must be met: (a) the
losses expected should be substantial and not merely de minimis in extent; (b) the substantial losses
apprehended must be reasonably imminent such as can be perceived objectively and in good faith
by the employer; (c) the retrenchment must be reasonably necessary and likely to effectively prevent
the expected losses; and (d) the alleged losses, if already incurred, and the expected imminent
losses sought to be forestalled, must be proved by sufficient and convincing evidence.73

In the discharge of these requirements, it is the employer who has the onus, being in the nature of
an affirmative defense.74

Normally, the condition of business losses is shown by audited financial documents like yearly
balance sheets, profit and loss statements and annual income tax returns. The financial statements
must be prepared and signed by independent auditors failing which they can be assailed as self-
serving documents.75

In the case at bar, company losses were duly established by financial documents audited by Joaquin
Cunanan & Co. showing that the aquaculture operations of SMC’s Agribusiness Division
accumulated losses amounting to ₱145,848,172.00 in 1992 resulting in the closure of its Calatrava
Aquaculture Center in Negros Occidental, ₱11,393,071.00 in 1993 and ₱80,325,608.00 in 1994
which led to the closure of its San Fernando Shrimp Processing Plant in Pampanga and the Bacolod
Shrimp Processing Plant in 1995.

SMC has thus proven substantial business reverses justifying retrenchment of its employees.

For termination due to retrenchment to be valid, however, the law requires that written notices of the
intended retrenchment be served by the employer on the worker and on the DOLE at least one (1)
month before the actual date of the retrenchment,76 in order to give employees some time to prepare
for the eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the verity of
the alleged cause of termination.77
Private respondents, however, were merely verbally informed on September 10, 1995 by SMC
Prawn Manager Ponciano Capay that effective the following day or on September 11, 1995, they
were no longer to report for work as SMC would be closing its operations.78

Where the dismissal is based on an authorized cause under Article 283 of the Labor Code but the
employer failed to comply with the notice requirement, the sanction should be stiff as the dismissal
process was initiated by the employer’s exercise of his management prerogative, as opposed to a
dismissal based on a just cause under Article 282 with the same procedural infirmity where the
sanction to be imposed upon the employer should be tempered as the dismissal process was, in
effect, initiated by an act imputable to the employee.79

In light of the factual circumstances of the case at bar, this Court awards ₱50,000.00 to each private
respondent as nominal damages.

The grant of separation pay as an incidence of termination of employment due to retrenchment to

prevent losses is a statutory obligation on the part of the employer and a demandable right on the
part of the employee. Private respondents should thus be awarded separation pay equivalent to at
least one (1) month pay or to at least one-half month pay for every year of service, whichever is
higher, as mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to
other regular SMC employees that were terminated as a result of the retrenchment, depending on
which is most beneficial to private respondents.

Considering that private respondents were not illegally dismissed, however, no backwages need be
awarded. It is well settled that backwages may be granted only when there is a finding of illegal
dismissal.80 The appellate court thus erred in awarding backwages to private respondents upon the
authority of Bustamante v. NLRC,81 what was involved in that case being one of illegal dismissal.

With respect to attorney’s fees, in actions for recovery of wages or where an employee was forced to
litigate and thus incurred expenses to protect his rights and interests,82 a maximum of ten percent
(10%) of the total monetary award83 by way of attorney’s fees is justifiable under Article 111 of the
Labor Code,84 Section 8, Rule VIII, Book III of its Implementing Rules,85 and paragraph 7, Article
2208 of the Civil Code.86 Although an express finding of facts and law is still necessary to prove the
merit of the award, there need not be any showing that the employer acted maliciously or in bad faith
when it withheld the wages. There need only be a showing that the lawful wages were not paid
accordingly, as in this case.87

Absent any evidence showing that Sunflower has been dissolved in accordance with law, pursuant
to Rule VIII-A, Section 1988 of the Omnibus Rules Implementing the Labor Code, Sunflower is held
solidarily liable with SMC for all the rightful claims of private respondents.

WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001 and
Resolution dated July 11, 2001 of the Court of Appeals are AFFIRMED with MODIFICATION.

Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby ORDERED
to jointly and severally pay each private respondent differential pay from the time they became
regular employees up to the date of their termination; separation pay equivalent to at least one (1)
month pay or to at least one-half month pay for every year of service, whichever is higher, as
mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to other regular
SMC employees that were terminated as a result of the retrenchment, depending on which is most
beneficial to private respondents; and ten percent (10%) attorney’s fees based on the herein
modified award.
Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount
of ₱50,000.00, representing nominal damages for non-compliance with statutory due process.

The award of backwages is DELETED.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

Footnotes

1 Rollo at 278-286.

2Annexed to the Service Contract is a detailed listing of the scope of the services to be
provided to SMC:

A. Shrimp Receiving/Harvesting

- Assist in the crushing and loading of ice;

- Receive the raw materials and put them into the chilling tanks;

- Sort the shrimp according to standard quality specifications;

- Pack the raw materials into styropor boxes/containers and assist on the
delivery of the harvested raw materials to the processing plant;

- Prepare harvest materials and equipment and clean them after use and

- Perform other duties that the company may assign from time to time.

B. Janitorial and Messengerial Services

1. Maintain, sanitize and clean the following:

- Streets cemented and otherwise

- Canals and floor area

- Administration building offices and comfort rooms

- Logistics/materials/warehouse building

- Clinic and comfort room

- Plant grounds/lawn
 2. Maintain and Water the plants and trees

3. Haul and dispose garbage daily from designated waste containers within
the compound to an area outside and far from the compound.

4. Perform messengerial activities within Bacolod City and other duties that
may be assigned during office hours.

C. Sanitation/Washing Services

1. Wash and sanitize boxes, chilling tanks, trays and other harvesting
materials.

2. Store harvesting materials in the designated area after washing.

3. Load and unload boxes, trays, chilling tanks and other harvesting materials
to be used during harvest schedule.

3 Rollo at 279-283.

4 Id. at 114-117.

5 Id. at 502.

6 Id. at 118-120.

7 Id. at 121.

8 Id. at 340.

9 Id. at 504-507.

10 Id. at 553-557.

11 Id. at 559-563.

12 Id. at 574-587.

13 CA Rollo at 74-82.

14 Id. at 108-142.

15 Rollo at 22.

16
Id. at 15-21-a.

17 Id. at 623-637.

18 Id. at 57-58.
19 Docena v. Lapesura, 355 SCRA 658, 667 (2001).

20 Cavile v. Heirs of Clarita Cavile, 400 SCRA 255, 261-262 (2003) (citations omitted).

HLC Construction and Development Corporation v. Emily Homes Subdivision

21

Homeowners Association, 411 SCRA 504, 508 (2003).

22 Cavile v. Heirs of Clarita Cavile, 400 SCRA 255, 262 (2003) (citation omitted).

23 411 SCRA 504 (2003).

24 Id. at 509-510.

25 Vide: Cavile v. Heirs of Clarita Cavile, 400 SCRA 255 (2003) where this Court found:

We find that the execution by Thomas George Cavile, Sr. in behalf of all the other
petitioners of the certificate of non-forum shopping constitutes substantial compliance
with the Rules. All the petitioners, being relatives and co-owners of the properties in
dispute, share a common interest thereon. They also share a common defense in the
complaint for partition filed by the respondents. Thus, when they filed the instant
petition, they filed it as a collective, raising only one argument to defend their rights
over the properties in question. There is sufficient basis, therefore, for Thomas
George Cavili, Sr. to speak for and in behalf of his co-petitioners that they have not
filed any action or claim involving the same issues in another court or tribunal, nor is
there other pending action or claim in another court or tribunal involving the same
issues.

26 Rollo at 28.

27Torres v. Specialized Packaging Development Corporation, 433 SCRA 455, 467

(2004), Cavile v. Heirs of Clarita Cavile, 400 SCRA 255, 262 (2003) (citation omitted).

28SECTION 1. Petition for Certiorari. – When any tribunal, board or officer exercising judicial
or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal,
or any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the facts with certainty and
praying that judgment be rendered annulling or modifying the proceedings of such tribunal,
board or officer, and granting such incidental reliefs as law and justice may require.

The petition shall be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and
pertinent thereto, and a sworn certification of non-forum shopping as provided in the
third paragraph of section 3, Rule 46.

29 CA Rollo at 16-31.

30 Id. at 33-47.

31 Id. at 48-61.
32 Id. at 63-67.

33 Id. at 68-69.

34 Atillo v. Bombay, 351 SCRA 361, 369 (2001).

35 Ibid.

Manila Hotel Corporation v. Court of Appeals, 384 SCRA 520, 524 (2002) (citation
36

omitted).

37 Serrano v. Galant Maritime Services, Inc., 408 SCRA 523, 528 (2003) (citations omitted).

38Pepsi-Cola Distributors of the Philippines, Inc. v. NLRC, 272 SCRA 267, 276
(1997), Trendline Employees Association-Southern Philippines Federation of
Labor v. NLRC, 272 SCRA 172, 179 (1997) (citation omitted).

EMCO Plywood Corporation v. Abelgas, 427 SCRA 496, 515-516 (2004) (citations
39

omitted), Villar v. NLRC, 331 SCRA 686, 692 (2000) (citation omitted).

40 Rollo at 124-136.

Winifredo Talite, Camilo Temporosa, Arnel De Pedro, Jonathan Inventor, Ramie Despi and
41

Roderick Duquesa.

42 Rollo at 483-489.

43Winifredo Talite, Jerry Talite, Clifford Despi, Joey de la Cruz, Jonathan Inventor, Ramie
Despi, Arnel De Pedro, Leonardo Lemoncito, Camilo Temporosa, Renelito Deon, Jose
Temporosa and Victor Despi.

44 280 SCRA 853 (1997).

45
Rollo at 133-135.

46Section 3. Submission of Position Papers/Memorandum. – Should the parties fail to agree

upon an amicable settlement, either in whole or in part, during the conferences, the Labor
Arbiter shall issue an order stating therein the matters taken up and agreed upon during the
conferences and directing the parties to simultaneously file their respective verified position
papers.

These verified position papers shall cover only those claims and causes of action
raised in the complaint excluding those that may have been amicably settled, and
shall be accompanied by all supporting documents including the affidavits of their
respective witnesses which shall take the place of the latter’s direct testimony. The
parties shall thereafter not be allowed to allege facts, or present evidence to prove
facts, not referred to and any cause or causes of action not included in the complaint
or position papers, affidavits and other documents. Unless otherwise requested in
writing by both parties, the Labor Arbiter shall direct both parties to submit
simultaneously their position papers/memorandum with the supporting documents
 and affidavits within fifteen (15) calendar days from the date of the last conference,
with proof of having furnished each other with copies thereof.

47 Rollo at 26.

48Havtor Management Phils., Inc. v. NLRC, 372 SCRA 271, 274 (2001) (citation omitted),
Samahan ng Manggagawa sa Moldex Products, Inc. v. NLRC, 324 SCRA 237, 252 (2000)
(citation omitted).

49New Golden City Builders & Development Corporation v. Court of Appeals, 418 SCRA
411, 417 (2003), Vinoya v. NLRC, 324 SCRA 469, 487 (2000) (citation omitted), Philippine
Airlines, Inc. v. NLRC, 298 SCRA 430, 444 (1998) (citation omitted).

50New Golden City Builders & Development Corporation v. Court of Appeals, 418 SCRA
411, 419 (2003) (citation omitted), San Miguel Corporation v. MAERC Integrated Services,
Inc., 405 SCRA 579, 596 (2003) (citation omitted).

51Manila Water Company, Inc. v. Peña, 434 SCRA 53, 61 (2004) (citation omitted), San
Miguel Corporation v.MAERC Integrated Services, Inc., 405 SCRA 579, 596
(2003), Philippine Airlines, Inc. v. NLRC, 298 SCRA 430, 447 (1998) (citation omitted),
Ponce v. NLRC, 293 SCRA 366, 375-376, (1998) (citations omitted), Tiu v.NLRC, 254 SCRA
1, 9 (1996) (citations omitted), Ecal v. NLRC, 195 SCRA 224, 231 (1991) (citation omitted),
Philippine Bank of Communications v. NLRC, 146 SCRA 347, 356 (1986).

52San Miguel Corporation v. MAERC Integrated Services, Inc, 405 SCRA 579, 589 (2003)
(citation omitted), Bernardo v. NLRC, 310 SCRA 186, 205 (1999) (citation omitted).

53 De los Santos v. NLRC, 372 SCRA 723, 734 (2001).

54 Rollo at 76.

55 Id. at 287.

56(5) No cooperative shall be registered unless the articles of cooperation is accompanied

with the bonds of the accountable officers and a sworn statement of the treasurer elected by
the subscribers showing that at least twenty-five per centum (25%) of the authorized share
capital has been subscribed and at least twenty-five per centum (25%) of the total
subscription has been paid: Provided, That in no case shall the paid-up share capital shall be
less than Two thousand pesos (P2,000.00).

57 Rollo at 483-486.

58 Coca Cola Bottlers Phils, Inc. v. NLRC, 307 SCRA 131, 137 (1999) (citation omitted), Neri
v. NLRC, 224 SCRA 717, 722 (1993) (citation omitted), Guarin v. NLRC, 178 SCRA 267, 273
(1989) (citation omitted).

59 De los Santos v. NLRC, 372 SCRA 723, 732 (2001).

60San Miguel Corporation v. MAERC Integrated Services, Inc., 405 SCRA 579, 590 (2003)
(citation omitted).
61 Rollo at 485.

62Vide: Philippine Bank of Communications v. NLRC (146 SCRA 347, 354) where this Court
found:

Turning to the power to control Orpiada’s conduct, it should be noted immediately

that Orpiada performed his functions within the bank’s premises, and not within the
office premises of CESI. As such, Orpiada must have been subject to at least the
same control and supervision that the bank exercises over any other person
physically within its premises and rendering services to or for the bank, in other
words, any employee or staff member of the bank. It seems unreasonable to
suppose that the bank would have allowed Orpiada and the other persons assigned
to the bank by CESI to remain within the bank’s premises and there render services
to the bank, without subjecting them to a substantial measure of control and
supervision xxx

63 Vide: Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 140 (1999).

64 405 SCRA 579 (2003).

65 Id. at 595-596.

66 Manila Water Company, Inc. v. Pena, 434 SCRA 53, 62 (2004).

67 Ecal v. NLRC, 195 SCRA 224, 234 (1991) (citations omitted).

68 Rollo at 21.

69 Kimberly Independent Union v. Drilon, 185 SCRA 190, 203 (1990).

70 Id. at 205.

71Catatista v. NLRC, 247 SCRA 46, 51 (1995), Construction & Development Corporation of
the Philippines v.Leogardo, Jr., 125 SCRA 863, 867 (1983).

72 EMCO Plywood Corporation v. Abelgas, 427 SCRA 496, 511 (2004) (citation omitted).

73EMCO Plywood Corporation v. Abelgas, 427 SCRA 496, 508 (2004) (citation
omitted), Philippine Tobacco Flue-Curing & Redrying Corporation v. NLRC, 300 SCRA 37,
55-56 (1998) (citation omitted), Somerville Stainless Steel Corporation v. NLRC, 287 SCRA
420, 430 (1998) (citation omitted), Edge Apparel, Inc., v. NLRC, 286 SCRA 302, 313 (1998)
(citation omitted), San Miguel Jeepney Service v. NLRC, 265 SCRA 35, 44 (1996) (citation
omitted), Catatista v. NLRC, 247 SCRA 46, 52 (1995) (citation omitted).

Somerville Stainless Steel Corporation v. NLRC, 287 SCRA 420, 432 (1998) (citation
74

omitted), San Miguel Jeepney Service v. NLRC, 265 SCRA 35, 45 (1996) (citation omitted),
Guerrero v. NLRC, 261 SCRA 301, 306 (1996) (citation omitted).

75 Asian Alcohol Corporation v. NLRC, 305 SCRA 417 (1999) (citations omitted).
76EMCO Plywood Corporation v. Abelgas, 427 SCRA 496, 511-512 (2004) (citation
omitted), San Miguel Corporation v. MAERC Integrated Services, Inc., 405 SCRA 579, 596
(2003) (citations omitted), Guerrero v.NLRC, 261 SCRA 301, 307 (1996).

EMCO Plywood Corporation v. Abelgas, 427 SCRA 496, 512 (2004) (citation omitted),
77

Sebuguero v.NLRC, 248 SCRA 532, 545 (1995).

78 Rollo at 126.

79 JAKA Food Processing Corporation v. Pacot, G.R. No. 151378, March 28, 2005.

80 J.A.T. General Services v. NLRC, 421 SCRA 78, 91 (2004) (citation omitted).

81 265 SCRA 61, 71 (1996).

82Manila Water v. Pena, 434 SCRA 53, 64-65 (2004) (citation omitted), Rasonable v. NLRC,
253 SCRA 815, 819 (1996) (citations omitted).

Reyes v. Court of Appeals, 409 SCRA 267, 284 (2003) (citations omitted), Marsaman
83

Manning Agency, Inc. v. NLRC, 313 SCRA 88, 99 (1999).

84ART. 111. Attorney’s fees. – (a) In cases of unlawful withholding of wages the culpable
party may be assessed attorney’s fees equivalent to ten percent of the amount of wages
recovered. (b) It shall be unlawful for any person to demand or accept, in any judicial or
administrative proceedings for the recovery of the wages, attorney’s fees which exceed ten
percent of the amount of wages recovered.

85SEC. 8. Attorney’s fees. – Attorney’s fees in any judicial or administrative proceedings for
the recovery of wages shall not exceed 10% of the amount awarded. The fees may be
deducted from the total amount due the winning party.

86ART. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other
than judicial costs, cannot be recovered, except: xxx (7) In actions for the recovery of wages
of household helpers, laborers and skilled workers.

87 Reyes v. Court of Appeals, 409 SCRA 267, 283 (2003) (citations omitted).

88SEC. 19. Solidary Liability. The principal shall be deemed as the direct employer of the
contractual employees and therefore, solidarily liable with the contractor or subcontractor for
whatever monetary claims the contractual employees may have against the former in the
case of violations as provided for in Sections 5 (Labor-Only contracting), 6 (Prohibitions), 8
(Rights of Contractual Employees) and 16 (Delisting) of these Rules. In addition, the principal
shall also be solidarily liable in case the contract between the principal and contractor or
subcontractor is preterminated for reasons not attributed to the fault of the contractor or
subcontractor.
 Supreme Court of the Philippines

572 Phil. 94

THIRD DIVISION
G.R. No. 145402, March 14, 2008
MERALCO INDUSTRIAL ENGINEERING SERVICES CORPORATION,
Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, OFELIA P.
LANDRITO GENERAL SERVICES and/or OFELIA P. LANDRITO,
Respondents.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the
1997 Revised Rules of Civil Procedure seeking to reverse and set aside (1) the
Decision[1] of the Court of Appeals in CA-G.R. SP No. 50806, dated 24 April
2000, which modified the Decision[2] of the National Labor Relations
Commission (NLRC), dated 30 January 1996 in NLRC NCR CA No. 001737-91
(NLRC NCR Case No. 00-09-04432-89), and thereby held the petitioner
solidarily liable with the private respondents for the satisfaction of the
separation pay of the latter’s employees; and (2) the Resolution[3] of the appellate
court, dated 27 September 2000, in the same case which denied the petitioner’s
Motion for Reconsideration.

Petitioner Meralco Industrial Engineering Services Corporation (MIESCOR) is

a corporation duly organized and existing under the laws of the Republic of the
Philippines and a client of private respondents. Private respondent Ofelia P.
Landrito General Services (OPLGS) is a business firm engaged in providing and
rendering general services, such as janitorial and maintenance work to its clients,
while private respondent Ofelia P. Landrito is the Proprietor and General
Manager of OPLGS.

The factual milieu of the present case is as follows:

On 7 November 1984, petitioner and private respondents executed Contract
Order No. 166-84,[4] whereby the latter would supply the petitioner janitorial
services, which include labor, materials, tools and equipment, as well as
supervision of its assigned employees, at petitioner’s Rockwell Thermal Plant in
Makati City. Pursuant thereto, private respondents assigned their 49 employees
as janitors to petitioner’s Rockwell Thermal Plant with a daily wage of P51.50
per employee.

On 20 September 1989, however, the aforesaid 49 employees (complainants)

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[5] against the private respondents before the Labor Arbiter. The case
was docketed as NLRC NCR Case No. 00-09-04432-89.

In view of the enactment of Republic Act No. 6727,[6] the contract between the
petitioner and the private respondents was amended[7] for the 10th time on 3
November 1989 to increase the minimum daily wage per employee from P63.55
to P89.00 or P2,670.00 per month. Two months thereafter, or on 2 January
1990,[8] petitioner sent a letter to private respondents informing them that
effective at the close of business hours on 31 January 1990, petitioner was
terminating Contract Order No. 166-84. Accordingly, at the end of the business
hours on 31 January 1990, the complainants were pulled out from their work at
the petitioner’s Rockwell Thermal Plant. Thus, on 27 February 1990,
complainants amended their Complaint to include the charge of illegal dismissal
and to implead the petitioner as a party respondent therein.

Since the parties failed to settle amicably before the Labor Arbiter, they
submitted their respective position papers and other pleadings together with
their documentary evidence. Thereafter, a Decision was rendered by the Labor
Arbiter on 26 March 1991, dismissing the Complaint against the petitioner for
lack of merit, but ordering the private respondents to pay the complainants the
total amount of P487,287.07 representing unpaid wages, separation pay and
overtime pay; as well as attorney’s fees in an amount equivalent to 10% of the
award or P48,728.70. All other claims of the complainants against the private
respondents were dismissed. [9]

Feeling aggrieved, private respondents appealed the aforesaid Decision to the

NLRC. Private respondents alleged, among other things, that: (1) 48 of the 49
complainants had executed affidavits of desistance and they had never attended
any hearing nor given any authority to anyone to file a case on their behalf; (2)
the Labor Arbiter erred in not conducting a full-blown hearing on the case; (3)
there is only one complainant in that case who submitted a position paper on
his own; (4) the complainants were not constructively dismissed when they were
not given assignments within a period of six months, but had abandoned their
jobs when they failed to report to another place of assignment; and (5) the
petitioner, being the principal, was solidarily liable with the private
respondents for failure to make an adjustment on the wages of the
complainants.[10] On 28 May 1993, the NLRC issued a Resolution[11] affirming
the Decision of the Labor Arbiter dated 26 March 1991 with the modification
that the petitioner was solidarily liable with the private respondents,
ratiocinating thus:
We, however, disagree with the dismissal of the case against [herein
petitioner]. Under Art. 107[12] of the Labor Code of the Philippines,
[herein petitioner] is considered an indirect employer and can be held
solidarily liable with [private respondents] as an independent contractor.
Under Art. 109,[13] for purposes of determining the extent of its liability,
[herein petitioner] is considered a direct employer, hence, it is solidarily
liable for complainant’s (sic) wage differentials and unpaid overtime. We
find this situation obtaining in this case in view of the failure of [private
respondents] to pay in full the labor standard benefits of complainants, in which
case liability is limited thereto and does not extend to the establishment of
employer-employee relations.[14] [Emphasis supplied].
Both private respondents and petitioner separately moved for reconsideration of
the aforesaid Resolution of the NLRC. In their Motion for Reconsideration,
private respondents reiterated that the complainants abandoned their work, so
that private respondents should not be liable for separation pay; and that
petitioner, not private respondents, should be liable for complainants’ other
monetary claims, i.e., for wage differentials and unpaid overtime. The petitioner,
in its own Motion for Reconsideration, asked that it be excluded from liability.
It averred that private respondents should be solely responsible for their acts as
it sufficiently paid private respondents all the benefits due the complainants.

On 30 July 1993, the NLRC issued an Order[15] noting that based on the
records of the case, the judgment award in the amount of P487,287.07 was
secured by a surety bond posted by the private respondents;[16] hence, there
was no longer any impediment to the satisfaction of the complainants’ claims.
Resultantly, the NLRC denied the private respondents’ Motion for
Reconsideration. The NLRC likewise directed the Labor Arbiter to enforce the
monetary award against the private respondents’ surety bond and to determine
who should finally shoulder the liability therefor.[17]

Alleging grave abuse of discretion of the NLRC in its issuance of the Resolution
and Order dated 28 May 1993 and 30 July 1993, respectively, private
respondents filed before this Court a Petition for Certiorari with prayer for the
issuance of a writ of preliminary injunction. The same was docketed as G.R. No.
111506 entitled Ofelia Landrito General Services v. National Labor Relations
Commission. The said Petition suspended the proceedings before the Labor
Arbiter.

On 23 May 1994, however, this Court issued a Resolution[18] dismissing G.R.

No. 111506 for failure of private respondents to sufficiently show that the
NLRC had committed grave abuse of discretion in rendering its questioned
judgment. This Court’s Resolution in G.R. No. 111506 became final and
executory on 25 July 1994.[19]

As a consequence thereof, the proceedings before the Labor Arbiter resumed

with respect to the determination of who should finally shoulder the liability for
the monetary awards granted to the complainants, in accordance with the NLRC
Order dated 30 July 1993.

On 5 October 1994, the Labor Arbiter issued an Order,[20] which reads:

As can be gleaned from the Resolution dated [28 May 1993], there is that
necessity of clarifying the respective liabilities of [herein petitioner] and [herein
private respondents] insofar as the judgment award in the total sum of
P487,287.07 is concerned.

The judgment award in the total sum of P487,287.07 as contained in the

Decision dated [26 March 1991] consists of three (3) parts, as follows: First,
the judgment award on the underpayment; Second, the judgment award on
separation pay; and Third, the judgment award on the overtime pay.
The question now is: Which of these awards is [petitioner] solidarily liable
with [private respondents]?

An examination of the record elicits the finding that [petitioner] is

solidarily liable with [private respondents] on the judgment awards on the
underpayment and on the non-payment of the overtime pay. xxx. This
joint and several liability of the contractor [private respondents] and the
principal [petitioner] is mandated by the Labor Code to assure compliance
of the provisions therein, including the statutory minimum wage (Art. 99,[21]
Labor Code). The contractor-agency is made liable by virtue of his status as
direct employer. The principal, on the other hand, is made the indirect
employer of the contractor-agency’s employees for purposes of paying the
employees their wages should the contractor-agency be unable to pay
them. This joint and several liability facilitates, if not guarantees,
payment of the workers performance of any work, task, job or project,
thus giving the workers ample protection as mandated by the 1987
Constitution.

In sum, the complainants may enforce the judgment award on underpayment

and the non-payment of overtime pay against either [private respondents]
and/or [petitioner].

However, in view of the finding in the Decision that [petitioner] had adjusted its
contract price for the janitorial services it contracted with [private respondents]
conforming to the provisions of Republic Act No. 6727, should the
complainants enforce the judgment on the underpayment and on the non-
payment of the overtime pay aginst (sic) [petitioner], the latter can seek
reimbursement from the former [meaning (private respondents)], but should the
judgment award on the underpayment and on the non-payment of the overtime
pay be enforced against [private respondents], the latter cannot seek
reimbursement against [petitioner].

The judgment award on separation pay is the sole liability of [private

respondents].

WHEREFORE, [petitioner] is jointly and severally liable with [private

respondents] in the judgment award on underpayment and on the non-
payment of overtime pay. Should the complainants enforce the above
judgment award against [petitioner], the latter can seek reimbursement
against [private respondents], but should the aforementioned judgment
award be enforced against [private respondents], the latter cannot seek
reimbursement from the [petitioner].

The judgment award on the payment of separation pay is the sole liability
of [private respondents].

Let an alias writ of execution be issued. [Emphasis supplied].

Again, both the private respondents and the petitioner appealed the afore-
quoted Order of the Labor Arbiter to the NLRC. On 25 April 1995, the NLRC
issued a Resolution[22] affirming the Order dated 5 October 1994 of the Labor
Arbiter and dismissing both appeals for non-posting of the appeal or surety
bond and/or for utter lack of merit.[23] When the private respondents and the
petitioner moved for reconsideration, however, it was granted by the NLRC in
its Order[24] dated 27 July 1995. The NLRC thus set aside its Resolution dated
25 April 1995, and directed the private respondents and the petitioner to each
post an appeal bond in the amount of P487,287.62 to perfect their respective
appeals.[25] Both parties complied.[26]

On 30 January 1996, the NLRC rendered a Decision modifying the Order of the
Labor Arbiter dated 5 October 1994, the dispositive portion of which reads:
WHEREFORE, the [21 November 1994] appeal of [herein petitioner] is hereby
granted. The [5 October 1994] Order of Labor Arbiter Donato G. Quinto, Jr., is
modified to the extent that it still held [petitioner] as “jointly and severally liable
with [herein private respondents] in the judgment award on underpayment and
on the non-payment of overtime pay,” our directive being that the Arbiter
should now satisfy said labor-standards award, as well as that of the separation
pay, exclusively through the surety bond posted by [private respondents].[27]
[Emphasis supplied].
Dissatisfied, private respondents moved for the reconsideration of the foregoing
Decision, but it was denied by the NLRC in an Order[28] dated 30 October 1996.
This NLRC Order dated 30 October 1996 became final and executory on 29
November 1996.

On 4 December 1996, private respondents filed a Petition for Certiorari[29]

before this Court assailing the Decision and the Order of the NLRC dated 30
January 1996 and 30 October 1996, respectively. On 9 December 1998, this
Court issued a Resolution[30] referring the case to the Court of Appeals
conformably with its ruling in St. Martin Funeral Home v. National Labor
Relations Commission.[31] The case was docketed before the appellate court as
CA-G.R. SP No. 50806.

The Petition made a sole assignment of error, to wit:

THE HONORABLE COMMISSION GRAVELY ERRED AND GRAVELY
ABUSED ITS DISCRETION IN FINDING THAT THE ULTIMATE
LIABILITY SHOULD FALL ON THE [HEREIN PRIVATE
RESPONDENTS] ALONE, WITHOUT REIMBURSEMENT FROM THE
[HEREIN PETITIONER], IN ORDER TO SATISFY THE MONETARY
AWARDS OF THE [THEREIN COMPLAINANTS].[32]
After due proceedings, the Court of Appeals rendered the assailed Decision on
24 April 2000, modifying the Decision of the NLRC dated 30 January 1996
and holding the petitioner solidarily liable with the private respondents
for the satisfaction of the laborers’ separation pay. According to the Court
of Appeals:
The [NLRC] adjudged the payment of separation pay to be the sole
responsibility of [herein private respondents] because (1) there is no employer-
employee relationship between [herein petitioner] and the forty-nine (49)
[therein complainants]; (2) the payment of separation pay is not a labor standard
benefit. We disagree.

Again, We quote Article 109 of the Labor Code, as amended, viz:

“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…”
The abovementioned statute speaks of “any violation of any provision of
this Code.” Thus, the existence or non-existence of employer-employee
relationship and whether or not the violation is one of labor standards is
immaterial because said provision of law does not make any distinction at
all and, therefore, this Court should also refrain from making any
distinction. Concomitantly, [herein petitioner] should be jointly and
severally liable with [private respondents] for the payment of wage
differentials, overtime pay and separation pay of the [therein
complainants]. The joint and several liability imposed to [petitioner] is,
again, without prejudice to a claim for reimbursement by [petitioner]
against [private respondents] for reasons already discusses (sic).

WHEREFORE, premises studiedly considered, the assailed 30 January 1996

decision of [the NLRC] is hereby modified insofar as [petitioner] should be
held solidarily liable with [the private respondents] for the satisfaction of
the laborers’ separation pay. No pronouncement as to costs.[33] [Emphasis
supplied].
The petitioner filed a Motion for Reconsideration of the aforesaid Decision but
it was denied by the Court of Appeals in a Resolution dated 27 September 2000.

Petitioner now comes before this Court via a Petition for Review on Certiorari,
docketed as G.R. No. 145402, raising the sole issue of “whether or not the
Honorable Court of Appeals palpably erred when it went beyond the issues of the case as it
modified the factual findings of the Labor Arbiter which attained finality after it was affirmed
by Public Respondent NLRC and by the Supreme Court which can no longer be disturbed as
it became the law of the case.”[34]

Petitioner argues that in the assailed Decision dated 24 April 2000, the Court of
Appeals found that the sole issue for its resolution was whether the ultimate liability
to pay the monetary awards in favor of the 49 employees falls on the private respondents
without reimbursement from the petitioner. Hence, the appellate court should have
limited itself to determining the right of private respondents to still seek
reimbursement from petitioner for the monetary awards on the unpaid wages
and overtime pay of the complainants.

According to petitioner, the NLRC, in its Resolution dated 28 May 1993, already
found that petitioner had fully complied with its salary obligations to the
complainants. Petitioner invokes the same NLRC Resolution to support its
claim that it was not liable to share with the private respondents in the payment
of separation pay to complainants. When private respondents questioned the
said NLRC Resolution in a Petition for Certiorari with this Court, docketed as
G.R. No. 111506, this Court found that the NLRC did not commit grave abuse
of discretion in the issuance thereof and accordingly dismissed private
respondents’ Petition. Said NLRC Resolution, therefore, has since become final
and executory and can no longer be disturbed for it now constitutes the law of
the case.

Assuming for the sake of argument that the Court of Appeals can still take
cognizance of the issue of petitioner’s liability for complainants’ separation pay,
petitioner asserts that the appellate court seriously erred in concluding that it is
jointly and solidarily liable with private respondents for the payment thereof.
The payment of separation pay should be the sole responsibility of the private
respondents because there was no employer-employee relationship between the
petitioner and the complainants, and the payment of separation pay is not a
labor standards benefit.

Law of the case has been defined as the opinion delivered on a former appeal. It
is a term applied to an established rule that when an appellate court passes on a
question and remands the case to the lower court for further proceedings, the
question there settled becomes the law of the case upon subsequent
appeal. It means that whatever is once irrevocably established as the controlling
legal rule or decision between the same parties in the same case continues to be
the law of the case, whether correct on general principles or not, so long as the facts on
which such decision was predicated continue to be the facts of the case before
the court.[35] Indeed, courts must adhere thereto, whether the legal principles laid
down were “correct on general principles or not” or “whether the question is
right or wrong” because public policy, judicial orderliness and economy require
such stability in the final judgments of courts or tribunals of competent
jurisdiction.[36]

Petitioner’s application of the law of the case principle to the case at bar as regards
its liability for payment of separation pay is misplaced.

The only matters settled in the 23 May 1994 Resolution of this Court in G.R.
No. 111506, which can be regarded as the law of the case, were (1) both the
petitioner and the private respondents were jointly and solidarily liable for the
judgment awards due the complainants; and (2) the said judgment awards shall
be enforced against the surety bond posted by the private respondents.
However, the issue as regards the liability of the petitioner for payment of
separation pay was yet to be resolved because precisely, the NLRC, in its Order
dated 30 July 1993, still directed the Labor Arbiter to make a determination on
who should finally shoulder the monetary awards granted to the complainants.
And it was only after G.R. No. 111506 was dismissed by this Court that the
Labor Arbiter promulgated his Decision dated 5 October 1994, wherein he
clarified the respective liabilities of the petitioner and the private respondents
for the judgment awards. In his 5 October 1994 Decision, the Labor Arbiter
explained that the solidary liability of the petitioner was limited to the monetary
awards for wage underpayment and non-payment of overtime pay due the
complainants, and it did not, in any way, extend to the payment of separation
pay as the same was the sole liability of the private respondents.

Nonetheless, this Court finds the present Petition meritorious.

The Court of Appeals indeed erred when it ruled that the petitioner was jointly
and solidarily liable with the private respondents as regards the payment of
separation pay.

The appellate court used as basis Article 109 of the Labor Code, as amended, in
holding the petitioner solidarily liable with the private respondents for the
payment of separation pay:
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 purposes of determining the extent of their civil liability under this
Chapter, they shall be considered as direct employers. [Emphasis supplied].
However, the afore-quoted provision must be read in conjunction with Articles
106 and 107 of the Labor Code, as amended.

Article 107 of the Labor Code, as amended, defines an indirect employer as “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.” To ensure that the contractor’s employees are paid their
appropriate wages, Article 106 of the Labor Code, as amended, provides:
ART. 106. CONTRACTOR OR SUBCONTRACTOR. – x x x.

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. [Emphasis
supplied].
Taken together, an indirect employer (as defined by Article 107) can only be
held solidarily liable with the independent contractor or subcontractor (as
provided under Article 109) in the event that the latter fails to pay the wages of
its employees (as described in Article 106).

Hence, 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. The petitioner may be considered an indirect employer only for
purposes of unpaid wages. As this Court succinctly explained in Philippine
Airlines, Inc. v. National Labor Relations Commission[37]:
While USSI is an independent contractor under the security service agreement
and PAL may be considered an indirect employer, that status did not make PAL
the employer of the security guards in every respect. As correctly posited by the
Office of the Solicitor General, PAL may be considered an indirect employer
only for purposes of unpaid wages since Article 106, which is applicable to the
situation contemplated in Section 107, speaks of wages. The concept of indirect
employer only relates or refers to the liability for unpaid wages. Read together,
Articles 106 and 109 simply mean that the party with whom an independent
contractor deals is solidarily liable with the latter for unpaid wages, and only to
that extent and for that purpose that the latter is considered a direct employer.
The term “wage” is defined in Article 97(f) of the Labor Code as “the
remuneration of earnings, however designated, capable of being expressed in
terms of money, whether fixed or ascertained on a time, task, piece, or
commission basis, or other method of calculating the unwritten contract of
employment for work done or to be done, or for services rendered or to be
rendered and includes the fair and reasonable value, as determined by the
Secretary of Labor, of board, lodging, or other facilities customarily furnished by
the employer to the employee.”
Further, there is no question that private respondents are operating as an
independent contractor and that the complainants were their employees. There
was no employer-employee relationship that existed between the petitioner and
the complainants and, thus, the former could not have dismissed the latter from
employment. Only private respondents, as the complainants’ employer, can
terminate their services, and should it be done illegally, be held liable therefor.
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, thus:

The liability arising from an illegal dismissal is unlike an order to pay the
statutory minimum wage, because the workers’ right to such wage is derived
from law. The proposition that payment of back wages and separation pay
should be covered by Article 109, which holds an indirect employer solidarily
responsible with his contractor or subcontractor for “any violation of any
provision of this Code,” would have been tenable if there were proof - there
was none in this case - that the principal/employer had conspired with the
contractor in the acts giving rise to the illegal dismissal. [38]
It is the established fact of conspiracy that will tie the principal or indirect
employer to the illegal dismissal of the contractor or subcontractor’s 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.[39] 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.

It is also worth noting that although the issue in CA-G.R. SP No. 50806 pertains
to private respondents’ right to reimbursement from petitioner for the
“monetary awards” in favor of the complainants, they limited their arguments to
the monetary awards for underpayment of wages and non-payment of overtime
pay, and were conspicuously silent on the monetary award for separation pay.
Thus, private respondents’ sole liability for the separation pay of their
employees should have been deemed settled and already beyond the power of
the Court of Appeals to resolve, since it was an issue never raised before it.[40]

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.[41] 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 pay.

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,[42] 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).

Private respondents have nothing more to recover from petitioner.

Petitioner had already handed over to private respondent the wages and other
benefits of the complainants. Records reveal that it had complied with
complainants’ salary increases in accordance with the minimum wage set by
Republic Act No. 6727 by faithfully adjusting the contract price for the janitorial
services it contracted with private respondents. [43] This is a finding of fact made
by the Labor Arbiter,[44] untouched by the NLRC[45] and explicitly affirmed by
the Court of Appeals,[46] and which should already bind this Court.
This Court is not a trier of facts. Well-settled is the rule that the jurisdiction of
this Court in a petition for review on certiorari under Rule 45 of the Revised
Rules of Court is limited to reviewing only errors of law, not of fact, unless the
factual findings complained of are completely devoid of support from the
evidence on record, or the assailed judgment is based on a gross
misapprehension of facts. Besides, factual findings of quasi-judicial agencies like
the NLRC, when affirmed by the Court of Appeals, are conclusive upon the
parties and binding on this Court.[47]

Having already received from petitioner the correct amount of wages and
benefits, but having failed to turn them over to the complainants, private
respondents should now solely bear the liability for the underpayment of wages
and non-payment of the overtime pay.

WHEREFORE, premises considered, the instant Petition is hereby

GRANTED. The Decision and Resolution of the Court of Appeals dated 24
April 2000 and 27 September 2000, respectively, in CA-G.R. SP No. 50806, are
hereby REVERSED AND SET ASIDE. The Decision dated 30 January 1996
of the National Labor Relations Commission in NLRC NCR CA No. 001737-
91 (NLRC NCR Case No. 00-09-04432-89) is hereby REINSTATED. No
costs.

SO ORDERED.

Ynares-Santiago, (Chairperson) Austria-Martinez, Nachura, and Reyes, JJ., concur.

Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices

[1]

Fermin A. Martin, Jr. and Romeo A. Brawner, concurring; rollo, pp. 34-44.

Penned by Commissioner Vicente S.E. Veloso with Presiding Commissioner

[2]

Bartolome S. Carale and Commissioner Alberto R. Quimpo, concurring; rollo,

pp. 120-133.

[3] Id. at 46.

[4] Id. at 60-63.

[5] Records, pp. 1-6.

[6]Its complete title is “An Act to Rationalize Wage Policy Determination by

Establishing the Mechanism and Proper Standards Therefor, Amending for the
Purpose Article 99 of, and Incorporating Articles 120, 121, 122, 123, 124, 126
and 127 into, Presidential Decree No. 442, as Amended, Otherwise Known as
the Labor Code of the Philippines, Fixing New Wage Rates, Providing Wage
Incentives for Industrial Dispersal to the Countryside, and for Other Purposes.”
It is also known as the “Wage Rationalization Act.” It took effect on 1 July
1989,

[7] Rollo, p. 65.

[8] Id. at 64.

[9] Id. at 83-84.

[10] Id. at 86-87.

Penned by Commissioner Vicente S.E. Veloso with Commissioner Alberto

[11]

R. Quimpo, concurring; id. at 86-97.

ART. 107. INDIRECT EMPLOYER. The provisions of the immediately

[12]

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.

[13]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 purposes of determining the extent of their civil
liability under this Chapter, they shall be considered as direct employers.

[14] Rollo, pp. 88-89.

[15] Penned by Commissioner Vicente S.E. Veloso with Presiding Commissioner

Bartolome S. Carale and Commissioner Alberto R. Quimpo, concurring; id. at
98-101.

[16] Records, pp. 250-251.

[17] Rollo, p. 100.

[18] Records, p. 563.

As shown in the Entry of Judgment bearing date 13 September 1994; id. at

[19]

573.

[20] Penned by Labor Arbiter Donato G. Quinto, Jr.; rollo, pp. 103-105.

Art. 99. Regional Minimum Wages. The minimum wage rates for agricultural
[21]

and non- agricultural employees and workers in each and every region of the
country shall be those prescribed by the Regional Tripartite Wages and
Productivity Boards. [As amended by Republic Act No. 6727 (Wage
Rationalization Act)]. By virtue of Republic Act No. 6727 the Regional
Tripartite Wage and Productivity Boards or RTWPBs have issued orders fixing
the minimum wages for their respective regions.

Penned by Commissioner Vicente S.E. Veloso with Presiding Commissioner

[22]

Bartolome S. Carale and Commissioner Alberto R. Quimpo, concurring; rollo,

pp. 106-114.

[23] Id. at 113.

[24] Id. at 115-118.

[25] Id. at 117.

[26] Records, pp. 714-717 and 814-817.

[27] Rollo, pp. 132-133.

[28] Id. at 135-136.

 In Molina v. Pacific Plans, Inc., G.R. No. 165476, 10 March 2006, 484 SCRA
[29]

498, 516, this Court ruled that: “Under Rule VII, Section 2 of the NLRC
Omnibus Rules of Procedure, the decision of the NLRC becomes final and
executory after ten (10) calendar days from receipt of the same. xxx.
Nonetheless, the Court ruled in St. Martin Funeral Home v. NLRC that, although
the 10-day period for finality of the NLRC decision may have elapsed as
contemplated in the last paragraph of Section 223 of the Labor Code, the CA
may still take cognizance of and resolve a petition for certiorari for the
nullification of the decision of the NLRC on jurisdictional and due process
considerations.”

[30] CA rollo, pp. 186-187.

[31] G.R. No. 130866, 16 September 1998, 295 SCRA 494.

[32] CA rollo, p. 194.

[33] Rollo, pp. 42-44.

[34] Id. at 173.

Pelayo v. Perez, G.R. No. 141323, 8 June 2005, 459 SCRA 475, 484, citing
[35]

Cucueco v. Court of Appeals, G.R. No. 139278, 25 October 2004, 441 SCRA 290,
300-301.

Bañes v. Lutheran Church in the Philippines, G.R. No. 142308, 15 November

[36]

2005, 475 SCRA 13, 31.

[37] G.R. No. 120506, 28 October 1996, 263 SCRA 638, 656-657.

Rosewood Processing, Inc. v. National Labor Relations Commission, G.R. No.

[38]

116476-84, 21 May 1998, 290 SCRA 408, 427.

Roxas v. De Zuzuarregui, Jr., G.R. No. 152072, 31 January 2006, 481 SCRA
[39]

258, 276.

[40] See private respondents’ Petition, CA rollo, pp. 7-15.

 Rosewood Processing, Inc. v. National Labor Relations Commission, supra note 38 at
[41]

425-426.

[42] Id.

[43] Rollo, pp. 40-41.

[44] Id. at 104-105.

[45] Id. at 120-133.

[46] Id. at 140-141.

Ramos v. Court of Appeals, G.R. No. 145405, 29 June 2004, 433 SCRA 177,
[47]

182.
 Supreme Court of the Philippines

G.R. No. 145271

SECOND DIVISION
G.R. NO. 145271, August 14, 2005
MANILA ELECTRIC COMPANY, PETITIONER, VS. ROGELIO
BENAMIRA, ERNIE DE SAGUN[1], DIOSDADO YOGARE, FRANCISCO
MORO[2], OSCAR LAGONOY[3], ROLANDO BENI, ALEX BENI, RAUL[4] DE
GUIA, ARMED SECURITY & DETECTIVE AGENCY, INC., (ASDAI) AND
ADVANCE FORCES SECURITY & INVESTIGATION SERVICES, INC.,
(AFSISI),

DECISION

AUSTRIA-MARTINEZ, J.:

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

People’s Security, Inc. (PSI) and deployed as such at MERALCO’s 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 PSI’s 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 COMPANY’s
“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 latter’s
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.
 xxx
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 latter.

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 COMPANY’s 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.

xxx

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 other.[6]
Subsequently, the individual respondents were absorbed by ASDAI and retained
at MERALCO’s 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

OVERTIME DIFFERENTIALSPAY FOR

NAMEAND PREMIUM HOLIDAY &
REST DAY
1. P14,615.75
Rogelio Benamira
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% attorney’s 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.[11]
All the parties, except AFSISI, appealed to the National Labor Relations
Commission (NLRC).

Individual respondents’ partial appeal assailed solely the Labor Arbiter’s

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 Arbiter’s finding
that it is the employer of the individual respondents and therefore liable for the
latter’s 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 AFSISI’s decision not to absorb the individual
respondents into its workforce; (b) MERALCO paid the wages of individual
respondents through ASDAI and AFSISI; (c) MERALCO’s 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 latter’s
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 CA’s 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 follows:

1. To reinstate petitioners into MERALCO’s work force as regular security

guards without loss of seniority rights and other privileges; and

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 AFFIRMED.

SO ORDERED.[16]
Hence, the present petition for review on certiorari, filed by MERALCO,
anchored on the following grounds:

A. THE COURT OF APPEALS COMMITTED SERIOUS

REVERSIBLE ERROR AND GRAVE ABUSE OF
DISCRETION IN HOLDING THAT AN EMPLOYER-
 EMPLOYEE RELATIONSHIP EXISTS BETWEEN
PETITIONER MERALCO AND INDIVIDUAL
RESPONDENTS.

B. THE COURT OF APPEALS GRAVELY ABUSED ITS

DISCRETION IN HOLDING THAT INDIVIDUAL
RESPONDENTS ARE REGULAR EMPLOYEES OF
PETITIONER MERALCO.

C. THE COURT OF APPEALS COMMITTED SERIOUS

REVERSIBLE ERROR IN ALLOWING INDIVIDUAL
RESPONDENTS TO RAISE FOR THE FIRST TIME ON
APPEAL, THE ISSUE THAT PETITIONER WAS THEIR
DIRECT EMPLOYER.

D. THE COURT OF APPEALS COMMITTED SERIOUS ERROR

IN FINDING THAT PETITIONER MERALCO IS GUILTY
OF ILLEGAL DISMISSAL.

E. THE COURT OF APPEALS GRAVELY ERRED IN

HOLDING THAT INDIVIDUAL RESPONDENTS ARE
ENTITLED TO REINSTATEMENT INTO PETITIONER’S
WORKFORCE.

F. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT

FINDING THAT PETITIONER MERALCO IS ENTITLED
TO REIMBURSEMENT FROM RESPONDENT ASDAI FOR
THE MONETARY CLAIMS PETITIONER PAID TO
INDIVIDUAL RESPONDENTS PURSUANT TO THE
SECURITY SERVICE AGREEMENT.[17]

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
MERALCO’s 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
MERALCO’s 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 MERALCO’s
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 employer.

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 Court’s 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 petitioner’s 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 conclusion.[18]
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 CA’s 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.[23]
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 MERALCO’s premises to the
latter’s 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 MERALCO’s 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 can not 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 MERALCO’s 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 MERALCO’s 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.[30]

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 MERALCO’s 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 other’s.[35]

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
attorney’s fees, shall be without prejudice to MERALCO’s right of
reimbursement from ASDAI.

SO ORDERED.

Puno, (Chairman), Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

[1] Also spelled as Sagum in some parts of the Rollo.

[2] Sometimes spelled as Maro.

[3] Sometimes spelled as Lagonay.

[4] Sometimes spelled as Ruel.

[5]Penned by Justice Bennie A. Adefuin-Dela Cruz (now retired) and concurred

in by Justices Salome A. Montoya (now retired) and Renato C. Dacudao.

[6] Rollo, pp. 83-85.

[7] Id., p. 89.

[8] 235 security guards.

P4,837.00 a month per guard, P5,037.00 for the Shift In-Charge/Asst.

[9]

Detachment Commander and P5,237.00 for the Detachment Commander.

[10] July 25, 1992.

[11] CA Rollo, pp. 24-26.

[12] Id., p. 44.

[13] Id., p. 46.

[14] Id., p. 3.

[15] G.R. No. 130866, September 16, 1998, 295 SCRA 494.

[16] Rollo, pp. 71-72.

[17] Id., pp. 22-23.

[18] The Insular Life Assurance Company, Ltd. vs. Court of Appeals, G.R. No.
126850, April 28, 2004, 428 SCRA 79, 86; Aguirre vs. Court of Appeals, G.R.
No. 122249, January 29, 2004, 421 SCRA 310, 319; C & S Fishfarm Corporation
vs. Court of Appeals, G.R. No. 122720, December 16, 2002, 394 SCRA 82, 88.

Philippine Ports Authority vs. City of Iloilo, G.R. No. 109791, July 14, 2003,
[19]

406 SCRA 88, 95.

Development Bank of the Philippines vs. West Negros College, Inc., G.R.
[20]

No. 152359, May 21, 2004, 429 SCRA 50, 60; Solid Homes, Inc., vs. Court of
Appeals, G.R. No. 117501, July 8, 1997, 275 SCRA 267, 282; People vs.
Echegaray, G.R. No. 117472, February 7, 1997, 267 SCRA 682, 689.

Bank of the Philippine Islands vs. Leobrera, G.R. Nos. 137147-48,

[21]

November 18, 2003, 416 SCRA 15, 19; Balitaosan vs. Secretary of Education,
Culture and Sports, G.R. No. 138238, September 2, 2003, 410 SCRA 233, 235-
236.

[22] No. L-28134, June 30, 1971, 39 SCRA 629.

[23] Id., pp. 635-636.

[24] No. L-51641, June 29, 1982, 114 SCRA 826.

Id., pp. 832-833. See also Citytrust Banking Corporation vs. NLRC, G.R. No.
[25]

123318, August 20, 1998, 294 SCRA 496; Canlubang Security Agency Corp. vs.
NLRC, G.R. No. 97492, December 8, 1992, 216 SCRA 280; and Philippine
Airlines, Inc. vs. NLRC, G.R. No. 120506, October 28, 1996, 263 SCRA 638.

[26] Tiu vs. NLRC, G.R. No. 95845, February 21, 1996, 254 SCRA 1, 7.

Sonza vs. ABS-CBN Broadcasting Corporation, G.R. No. 138051, June 10,
[27]

2004, 431 SCRA 583, 603; AFP Mutual Benefit Association, Inc. vs. NLRC,
G.R. No. 102199, January 28, 1997, 267 SCRA 47, 59.

See Insular Life Assurance Co., Ltd. vs. NLRC, G.R. No. 84484, November
[28]

15, 1989, 179 SCRA 459, 465. Reiterated recently in Consulta vs. Court of
Appeals, G.R. No. 145443, March 18, 2005.
 National Power Corporation vs. Court of Appeals, G.R. No. 119121, August
[29]

14, 1998, 294 SCRA 209, 214.

[30] CA Rollo, pp. 20, 38, 51-58.

Art. 286. When employment not deemed terminated.—The bona fide suspension of
[31]

the operation of a business or undertaking for a period not exceeding six (6)
months, or the fulfillment by the employee of a military or civic duty shall not
terminate employment. In all such cases, the employer shall reinstate the
employee to his former position without loss of seniority rights if he indicates
his desire to resume his work not later than one (1) month from the resumption
of operations of his employer or from his relief from the military or civic duty.

Mariveles Shipyard Corp. vs. Court of Appeals, G.R. No. 144134, November
[32]

11, 2003, 415 SCRA 573; 587; Alpha Investigation and Security Agency, Inc. vs.
NLRC, G.R. No. 111722, May 27, 1997, 272 SCRA 653, 658; Eagle Security
Agency, Inc. vs. NLRC, G.R. No. 81314, and Philippine Tubercolosis Society,
Inc. vs. NLRC, G.R. No. 81447, jointly decided on May 18, 1989, 173 SCRA
479, 486.

[33] Supra.

Ibid. See also Lapanday Agricultural Development Corporation vs. Court of

[34]

Appeals, G.R. No. 112139, January 31, 2000, 324 SCRA 39; Alpha Investigation
and Security Agency, Inc. vs. NLRC, supra; Deferia vs. NLRC, G.R. No. 78713,
and Norico vs. NLRC, G.R. No. 82718, jointly decided on February 27, 1991,
194 SCRA 531; Eagle Security Agency, Inc. vs. NLRC, supra.

Mariveles Shipyard Corp. vs. Court of Appeals, supra; Philippine Fisheries

[35]

Development Authority vs. NLRC, G.R. No. 94825, September 4, 1992, 213
SCRA 621, 629; Del Rosario & Sons Logging Enterprises, Inc. vs. NLRC, No.
L-64204, May 31, 1985, 136 SCRA 669, 673.
 Supreme Court of the Philippines

538 Phil. 817

FIRST DIVISION
G.R. NO. 161115, November 30, 2006
DOLE PHILIPPINES, INC., PETITIONER, VS. MEDEL ESTEVA, HENRY
SILVA, GILBERT CABILAO, LORENZO GAQUIT, DANIEL PABLO,
EDWIN CAMILO, BENJAMIN SAKILAN, RICHARD PENUELA,
ARMANDO PORRAS, EDUARDO FALDAS, NILO DONDOYANO, MIGUEL
DIAZ, ROMEL BAJO, ARTEMIO TENERIFE, EDDIE LINAO, JERRY
LIGTAS, SAMUEL RAVAL, WILFREDO BLANDO, LORENZO MONTERO,
JR., JAIME TESIPAO, GEORGE DERAL, ERNESTO ISRAEL, JR., AGAPITO
ESTOLOGA, JOVITO DAGUIO, ARSENIO LEONCIO, MARLON BLANDO,
JOSE OTELO CASPILLO, ARNOLD LIZADA, JERRY DEYPALUBOS,
STEVEN MADULA, ROGELIO CABULAO, JR., ALVIN COMPOC,
EUGENIO BRITANA, RONNIE GUELOS, EMMANUEL JIMENA,
GERMAN JAVA, JESUS MEJICA, JOEL INVENTADO, DOMINGO
JABULGO, RAMIL ENAD, RAYMUNDO YAMON, RITCHIE MELENDRES,
JACQUEL ORGE, RAMON BARCELONA, ERWIN ESPIA, NESTOR
DELIDELI, JR., ALLAN GANE, ROMEO PORRAS, RITCHIE BOCOG,
JOSELITO ACEBES, DANNY TORRES, JIMMY NAVARRO, RALPH PEREZ,
SONNY SESE, RONALD RODRIQUES, ROBERTO ALLANEC, ERNIE
GIGANTANA, NELSON SAMSON, REDANTE DAVILA, EDDIE BUSLIG,
ALLAN PINEDA, JESUS BELGERA, VICENTE LABISTE, CARMENCITA
FELISILDA, GEORGE DERLA, RUBEN TORMON, NEIL TAJALE,
ORLANDO ESPENILLA, RITCHEL MANEJAR, JOEL QUINTANA, ERWIN
ALDE, JOEL CATALAN, ELMER TIZON, ALLAN ESPADA, EUGENE
BRETANA, RAMIL ENAD, RENE INGALLA, STEVEN MADULLA, RANDY
REBUTAZO, NEIL BAGATILLA, ARSENIO LEONCIO, ROLANDO
VILLEGAS AND JUSLIUS TESIPAO, HEREIN REPRESENTED BY MEDEL
ESTEVA, AUTHORIZED REPRESENTATIVE, RESPONDENTS.

DECISION

CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the
revised Rules of Civil Procedure seeking the reversal of the Decision,[1] dated 20
May 2002, and the Amended Decision,[2] dated 27 November 2003, both
rendered by the Court of Appeals in CA-G.R. SP No. 63405, which declared
herein petitioner Dole Philippines, Inc. as the employer of herein respondents,
Medel Esteva and 86 others; found petitioner guilty of illegal dismissal; and
ordered petitioner to reinstate respondents to their former positions and to pay
the latter backwages.

The antecedent facts of the case are recounted as follows:

Petitioner is a corporation duly organized and existing in accordance with

Philippine laws, engaged principally in the production and processing of
pineapple for the export market.[3] Its plantation is located in Polomolok, South
Cotabato.[4]

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, and duly-
registered with the Cooperative Development Authority (CDA) on 6 January
1993.[5] Members of CAMPCO live in communities surrounding petitioner's
plantation and are relatives of petitioner's employees.

On 17 August 1993, petitioner and CAMPCO entered into a Service Contract.[6]

The Service Contract referred to petitioner as "the Company," while CAMPCO
was "the Contractor." Relevant portions thereof read as follows –

1. That the amount of this contract shall be or shall not exceed

TWO HUNDRED TWENTY THOUSAND ONLY
(P220,000.00) PESOS, terms and conditions of payment shall
be on a per job basis as specified in the attached schedule of
rates; the CONTRACTOR shall perform the following
services for the COMPANY;

1.1 Assist the COMPANY in its daily operations;

1.2 Perform odd jobs as may be assigned.

2. That both parties shall observe the following terms and
conditions as stipulated, to wit:

2.1 CONTRACTOR must carry on an independent

legitimate business, and must comply with all the pertinent
laws of the government both local and national;

2.2 CONTRACTOR must provide all hand tools and

equipment necessary in the performance of their work.

However, the COMPANY may allow the use of its fixed

equipment as a casual facility in the performance of the
contract;

2.3 CONTRACTOR must comply with the attached scope of

work, specifications, and GMP and safety practices of the
company;

2.4 CONTRACTOR must undertake the contract work

under the following manner:

a. on his own account;

b. under his own responsibility;

c. according to his manner and method, free from the

control and direction of the company in all matters
connected with the performance of the work except as
to the result thereof;

3. CONTRACTOR must pay the prescribed minimum wage,

remit SSS/MEDICARE premiums to proper government
 agencies, and submit copies of payroll and proof of
SSS/MEDICARE remittances to the COMPANY;

4. This contract shall be for a specific period of Six (6) months

from July 1 to December 31, 1993; x x x.

Pursuant to the foregoing 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.

Investigation by DOLE

Concomitantly, the Sangguniang Bayan of Polomolok, South Cotabato, passed

Resolution No. 64, on 5 May 1993, addressed to then Secretary Ma. Nieves R.
Confessor of the Department of Labor and Employment (DOLE), calling her
attention to the worsening working conditions of the petitioner's workers and
the organization of contractual workers into several cooperatives to replace the
individual labor-only contractors that used to supply workers to the petitioner.
Acting on the said Resolution, the DOLE Regional Office No. XI in Davao
City organized a Task Force that conducted an investigation into the alleged
labor-only contracting activities of the cooperatives in Polomolok.[7]

On 24 May 1993, the Senior Legal Officer of petitioner wrote a letter addressed
to Director Henry M. Parel of DOLE Regional Office No. XI, supposedly to
correct the misinformation that petitioner was involved in labor-only
contracting, whether with a cooperative or any private contractor. He further
stated in the letter that petitioner was not hiring cooperative members to replace
the regular workers who were separated from service due to redundancy; that
the cooperatives were formed by the immediate dependents and relatives of the
permanent workers of petitioner; that these cooperatives were registered with
the CDA; and that these cooperatives were authorized by their respective
constitutions and by-laws to engage in the job contracting business.[8]
The Task Force submitted a report on 3 June 1993 identifying six cooperatives
that were engaged in labor-only contracting, one of which was CAMPCO. The
DOLE Regional Office No. XI held a conference on 18 August 1993 wherein
the representatives of the cooperatives named by the Task Force were given the
opportunity to explain the nature of their activities in relation to petitioner.
Subsequently, the cooperatives were required to submit their position papers
and other supporting documents, which they did on 30 August 1993. Petitioner
likewise submitted its position paper on 15 September 1993.[9]

On 19 October 1993, Director Parel of DOLE Regional Office No. XI issued

an Order[10] in which he made the following findings –
Records submitted to this Office show that the six (6) aforementioned
cooperatives are all duly registered with the Cooperative Development
Authority (CDA). These cooperatives were also found engaging in different
activities with DOLE PHILIPPINES, INC. a company engaged in the
production of pineapple and export of pineapple products. Incidentally, some of
these cooperatives were also found engaging in activities which are directly
related to the principal business or operations of the company. This is true in
the case of the THREE (3) Cooperatives, namely; Adventurer's Multi Purpose
Cooperative, Human Resource Multi Purpose Cooperative and Cannery Multi
Purpose Cooperative.

From the foregoing findings and evaluation of the activities of Adventurer's

Multi Purpose Cooperative, Human Resource Multi Purpose Cooperative and
Cannery Multi Purpose Cooperative, this Office finds and so holds that they are
engaging in Labor Only Contracting Activities as defined under Section 9, Rule
VIII, Book III of the rules implementing the Labor Code of the Philippines, as
amended which we quote:
"Section 9 Labor Only Contracting – a) Any person who undertakes to supply
workers to an employer shall be deemed to be engaged in labor-only contracting
where such person:

1) Does not have substantial capital or investment in the form of tools,

equipment, machineries, work premises and other materials; and

2) The workers recruited and placed by such person are performing activities
which are directly related to the principal business or operation of the employer
to which workers are habitually employed.
b) Labor-only contracting as defined herein is hereby prohibited and the person
acting as contractor shall be considered merely as an agent or intermediary of
the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him."
WHEREFORE, premises considered, ADVENTURER'S MULTI PURPOSE
COOPERATIVE, HUMAN RESOURCE MULTI PURPOSE
COOPERATIVE and CANNERY MULTI PURPOSE COOPERATIVE are
hereby declared to be engaged in labor only contracting which is a prohibited
activity. The same cooperatives are therefore ordered to cease and desist from
further engaging in such activities.

The three (3) other cooperatives, namely Polomolok Skilled Workers Multi
Purpose Cooperative, Unified Engineering and Manpower Service Multi
Purpose Cooperative and Tibud sa Katibawasan Multi Purpose Cooperative
whose activities may not be directly related to the principal business of DOLE
Philippines, Inc. are also advised not to engage in labor only contracting with
the company.
All the six cooperatives involved appealed the afore-quoted Order to the Office
of the DOLE Secretary, raising the sole issue that DOLE Regional Director
Director Parel committed serious error of law in directing the cooperatives to
cease and desist from engaging in labor-only contracting. On 15 September
1994, DOLE Undersecretary Cresencio B. Trajano, by the authority of the
DOLE Secretary, issued an Order[11] dismissing the appeal on the basis of the
following ratiocination –
The appeal is devoid of merit.

The Regional Director has jurisdiction to issue a cease and desist order as
provided by Art. 106 of the Labor Code, as amended, to wit:

"Art. 106. Contractor or subcontractor. x x x

xxxx
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the
contracting out of labor to protect the rights of workers established under this
Code. In so prohibiting or restricting, he may make appropriate distinctions
between labor only contracting and job contracting as well as differentiations
within these types of contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to prevent any
violation or circumvention of any provision of this Code (Emphasis supplied)

There is "labor-only" contracting where the person supplying workers to an

employer does not have substantial capital or investment in the forms of tools,
equipment, machineries, work premises, among others, and the workers
recruited and placed by such person are performing activities which are directly
related to the principal business of the employer. In such cases, the person or
the intermediary shall be considered merely as an agent of the employer who
shall be responsible to the workers in the same manner and extent as if the latter
were directly employed by him."
in relation to Article 128(b) of the Labor Code, as amended by Republic Act
No. 7730, which reads:

"Art. 128. Visitorial and Enforcement Power.

b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the
contrary, and in cases where the relationship of employer-employee still exists,
the Secretary of Labor and Employment or his duly authorized representatives
shall have the power to issue compliance orders to give effect to the labor
standards provisions of this Code and other labor legislation based on the
findings of labor employment and enforcement officers or industrial safety
engineers made in the course of inspection. The Secretary or his duly authorized
representatives shall issue writs of execution to the appropriate authority for the
enforcement of their orders, except in cases where the employer contests the
findings of the labor employment and enforcement officer and raises issues
supported by documentary proof which were not considered in the course of
inspection.

An order issued by the duly authorized representative of the Secretary of Labor

and Employment under this article may be appealed to the latter. In case said
order involves a monetary award, an appeal by the employer may be perfected
only upon the posting of a cash bond issued by a reputable bonding company
duly accredited by the Secretary of Labor and Employment in the amount
equivalent to the monetary award in the order appealed from."
The records reveal that in the course of the inspection of the premises of
Dolefil, it was found out that the activities of the members of the [cooperatives]
are necessary and desirable in the principal business of the former; and that they
do not have the necessary investment in the form of tools and equipments. It is
worthy to note that the cooperatives did not deny that they do not have enough
capital in the form of tools and equipment. Under the circumstances, it could
not be denied that the [cooperatives] are considered as labor-only contractors in
relation to the business operation of DOLEFIL, INC.

Thus, Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the
Labor Code, provides that:
"Sec. 9. Labor-only contracting. – (a) Any person who undertakes to supply
workers to an employer shall be deemed to be engaged in labor-only contracting
where such person:

(1) Does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises and other materials; and

(2) The workers recruited and placed by such person are performing activities
which are directly related to the principal business or operations of the employer
in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person
acting as a contractor shall be considered merely as an agent or intermediary of
the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.

x x x x"
Violation of the afore-quoted provision is considered a labor standards violation
and thus, within the visitorial and enforcement powers of the Secretary of Labor
and Employment (Art. 128).

The Regional Director's authority to issue a cease and desist order emanates
from Rule I, Section 3 of the Rules on Disposition of Labor Standard Cases in
the Regional Offices, to wit:
"Section 3. Authorized representative of the Secretary of Labor and
Employment. – The Regional Directors shall be the duly authorized
representatives of the Secretary of Labor and Employment in the administration
and enforcement of the labor standards within their respective territorial
jurisdiction."
The power granted under Article 106 of the Labor Code to the Secretary of
Labor and Employment to restrict or prohibit the contracting out of labor to
protect the rights of workers established under the Code is delegated to the
Regional Directors by virtue of the above-quoted provision.

The reason why "labor-only" contracting is prohibited under the Labor Code is
that it encourages circumvention of the provisions of the Labor Code on the
workers' right to security of tenure and to self-organization.

WHEREFORE, the respondents' Appeal is hereby DISMISSED for lack of

merit. The Order of the Regional Director, Regional Office No. XI, Davao City,
is AFFIRMED.
After the motion for reconsideration of the foregoing Order was denied, no
further motion was filed by the parties, and the Order, dated 15 September
1994, of DOLE Undersecretary Trajano became final and executory. A Writ of
Execution[12] was issued by DOLE Regional Office No. XI only on 27 July
1999, years after the issuance of the order subject of the writ. The DOLE
Regional Office No. XI was informed that CAMPCO and two other
cooperatives "continued to operate at DOLE Philippines, Inc. despite the cease
and desist Order" it had issued. It therefore commanded the Sheriff to proceed
to the premises of CAMPCO and the two other cooperatives and implement its
Order dated 19 October 1993.

Respondent's Complaint before the NLRC

Respondents 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,[13] on 19 December 1996, with the
National Labor Relations Commission (NLRC), for illegal dismissal,
regularization, wage differentials, damages and attorney's fees.

In their Position Paper,[14] respondents reiterated and expounded on the

allegations they previously made in their Complaint –
Sometime in 1993 and 1994, [herein petitioner] Dolefil engaged the services of
the [herein respondents] through Cannery Multi-purpose Cooperative. A
cooperative which was organized through the initiative of Dolefil in order to fill
in the vacuum created as a result of the dismissal of the regular employees of
Dolefil sometime in 1990 to 1993.

The [respondents] were assigned at the Industrial Department of respondent

Dolefil. All tools, implements and machineries used in performing their task
such as: can processing attendant, feeder of canned pineapple at
pineapple processing, nata de coco processing attendant, fruit cocktail
processing attendant, and etc. were provided by Dolefil. The cooperative
does not have substantial capital and does not provide the [respondents] with
the necessary tools to effectively perform their assigned task as the same are
being provided by Dolefil.

The training and instructions received by the [respondents] were provided by

Dolefil. Before any of the [respondents] will be allowed to work, he has to
undergo and pass the training prescribed by Dolefil. As a matter of fact, the
trainers are employees of Dolefil.

The [respondents] perform their assigned task inside the premises of Dolefil. At
the job site, they were given specific task and assignment by Dolefil's
supervisors assigned to supervise the works and efficiency of the complainants.
Just like the regular employees of Dolefil, [respondents] were subjected to the
same rules and regulations observe [sic] inside company premises and to some
extent the rules applied to the [respondents] by the company through its officers
are even stricter.

The functions performed by the [respondents] are the same functions

discharged by the regular employees of Dolefil. In fact, at the job site, the
[respondents] were mixed with the regular workers of Dolefil. There is no
difference in so far as the job performed by the regular workers of Dolefil and
that of the [respondents].

Some of the [respondents] were deprived of their employment under the

scheme of "stay home status" where they were advised to literally stay home and
wait for further instruction to report anew for work. However, they remained in
this condition for more than six months. Hence, they were constructively or
illegally dismissed.
Respondents thus argued that they should be considered regular employees of
petitioner given that: (1) they were performing jobs that were usually necessary
and desirable in the usual business of petitioner; (2) petitioner exercised control
over respondents, not only as to the results, but also as to the manner by which
they performed their assigned tasks; and (3) CAMPCO, a labor-only contractor,
was merely a conduit of petitioner. As regular employees of petitioner,
respondents asserted that they were entitled to security of tenure and those
placed on "stay home status" for more than six months had been constructively
and illegally dismissed. Respondents further claimed entitlement to wage
differential, moral damages, and attorney's fees.

In their Supplemental Position Paper,[15] respondents presented, in support of

their Complaint, the Orders of DOLE Regional Director Parel, dated 19
October 1993, and DOLE Undersecretary Trajano, dated 15 September 1994,
finding that CAMPCO was a labor-only contractor and directing CAMPCO to
cease and desist from any further labor-only contracting activities.

Petitioner, in its Position Paper[16] filed before the NLRC, denied that
respondents were its employees.

Petitioner 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,[17] in which petitioner was accused of preventing the
regularization of such workers. The Labor Arbiter who heard the case, rendered
his Decision[18] on 24 June 1994 declaring that these workers fell squarely within
the concept of seasonal workers as envisaged by Article 280 of the Labor Code,
as amended, who were hired by petitioner in good faith and in consonance with
sound business practice; and consequently, dismissing the complaint against
petitioner. The NLRC, in its Resolution,[19] dated 14 March 1995, affirmed in toto
the Labor Arbiter's Decision and further found that the workers were validly
and legally engaged by petitioner for "term employment," wherein the parties
agreed to a fixed period of employment, knowingly and voluntarily, without any
force, duress or improper pressure being brought to bear upon the employees
and absent any other circumstance vitiating their consent. The said NLRC
Resolution became final and executory on 18 June 1996. Despite the favorable
ruling of both the Labor Arbiter and the NLRC, petitioner decided to
discontinue such employment arrangement. Yet, the problem of petitioner as to
shortage of workforce due to the peaks in operation, work backlogs,
absenteeism, and excessive leaves, persisted. Petitioner then found a solution in
the engagement of cooperatives such as CAMPCO to provide the necessary
additional services.

Petitioner contended that respondents were owners-members of CAMPCO;

that CAMPCO was a duly-organized and registered cooperative which had
already grown into a multi-million enterprise; that CAMPCO was engaged in
legitimate job-contracting with its own owners-members rendering the contract
work; that under the express terms and conditions of the Service Contract
executed between petitioner (the principal) and CAMPCO (the contractor), the
latter shall undertake the contract work on its own account, under its own
responsibility, and according to its own manner and method free from the
control and direction of the petitioner in all matters connected with the
performance of the work, except as to the result thereof; and since CAMPCO
held itself out to petitioner as a legitimate job contractor, respondents, as
owners-members of CAMPCO, were estopped from denying or refuting the
same.

Petitioner further averred that Department Order No. 10, amending the rules
implementing Books III and VI of the Labor Code, as amended, promulgated
by the DOLE on 30 May 1997, explicitly recognized the arrangement between
petitioner and CAMPCO as permissible contracting and subcontracting, to wit –
Section 6. Permissible contracting and subcontracting. – Subject to the conditions set
forth in Section 3(d) and (e) and Section 5 hereof, the principal may engage the
services of a contractor or subcontractor for the performance of any of the
following;

(a) Works or services temporarily or occasionally needed to meet abnormal

increase in the demand of products or services, provided that the normal
production capacity or regular workforce of the principal cannot reasonably
cope with such demands;

(b) Works or services temporarily or occasionally needed by the principal for

undertakings requiring expert or highly technical personnel to improve the
management or operations of an enterprise;

(c) Services temporarily needed for the introduction or promotion of new

products, only for the duration of the introductory or promotional period;

(d) Works or services not directly related or not integral to the main business or
operation of the principal, including casual work, janitorial, security,
landscaping, and messengerial services, and work not related to manufacturing
processes in manufacturing establishments;

(e) Services involving the public display of manufacturer's products which does
not involve the act of selling or issuance of receipts or invoices;

(f) Specialized works involving the use of some particular, unusual, or peculiar
skills, expertise, tools or equipment the performance of which is beyond the
competence of the regular workforce or production capacity of the principal;
and

(g) Unless a reliever system is in place among the regular workforce, substitute
services for absent regular employees, provided that the period of service shall
be coextensive with the period of absence and the same is made clear to the
substitute employee at the time of engagement. The phrase "absent regular
employees" includes those who are serving suspensions or other disciplinary
measures not amounting to termination of employment meted out by the
principal, but excludes those on strike where all the formal requisites for the
legality of the strike have been prima facie complied with based on the records
filed with the National Conciliation and Mediation Board.
According to petitioner, the services rendered by CAMPCO constituted
permissible job contracting under the afore-quoted paragraphs (a), (c), and (g),
Section 6 of DOLE Department Order No. 10, series of 1997.

After the parties had submitted their respective Position Papers, the Labor
Arbiter promulgated its Decision[20] on 11 June 1999, ruling entirely in favor of
petitioner, ratiocinating thus –
After judicious review of the facts, narrated and supporting documents adduced
by both parties, the undersigned finds [and] holds that CAMPCO is not engaged
in labor-only contracting.
Had it not been for the issuance of Department Order No. 10 that took effect
on June 22, 1997 which in the contemplation of Law is much later compared to
the Order promulgated by the Undersecretary Cresencio Trajano of Department
of [L]abor and Employment, the undersigned could safely declared [sic]
otherwise. However, owing to the principle observed and followed in legal
practice that the later law or jurisprudence controls, the reliance to Secretary
Trajano's order is overturned.

Labor-only contracting as amended by Department [O]rder No. 10 is defined in

this wise:
"Labor-only contracting is prohibited under this Rule is an arrangement where
the contractor or subcontractor merely recruits, supplied [sic] or places workers
to perform a job, work or service for a principal, and the following elements are
present:

i) The contractor or sub-contractor does not have substantial capital or

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

ii) 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."
Verification of the records reveals that per Annexes "J" and "K" of [herein
petitioner DolePhil's] position paper, which are the yearly audited Financial
Statement and Balance Sheet of CAMPCO shows [sic] that it has more than
substantial capital or investment in order to qualify as a legitimate job
contractor.

We likewise recognize the validity of the contract entered into and between
CAMPCO and [petitioner] for the former to assists [sic] the latter in its
operations and in the performance of odd jobs – such as the augmentation of
regular manning particularly during peaks in operation, work back logs,
absenteeism and excessive leave availment of respondent's regular employees.
The rule is well-settled that labor laws discourage interference with an
employer's judgment in the conduct of his business. Even as the law is solicitors
[sic] of the welfare of the employees, it must also protect the right of an
employer to exercise what are clearly management prerogatives. The free will of
management to conduct its own business affairs to achieve its purpose cannot
be denied (Yuco Chemical Industries vs. Ministry of [L]abor, GR No. 75656, May 28,
1990).

CAMPCO being engaged in legitimate contracting, cannot therefore declared

[sic] as guilty of labor-only contracting which [herein respondents] want us to
believe.

The second issue is likewise answered in the negative. The reason is plain and
simple[,] section 12 of Department [O]rder No. 10 states:
"Section 12. Employee-employer relationship. Except in cases provided for in
Section 13, 14, 15 & 17, the contractor or subcontractor shall be considered the
employer of the contractual employee for purposes of enforcing the provisions
of the Code."
The Resolution of NLRC 5th division, promulgated on March 14, 1 1995 [sic]
categorically declares:
"Judging from the very nature of the terms and conditions of their hiring, the
Commission finds the complainants to have been engaged to perform work,
although necessary or desirable to the business of respondent company, for a
definite period or what is community called TERM EMPLOYMENT. It is clear from
the evidence and record that the nature of the business and operation of
respondent company has its peaks and valleys and therefore, it is not difficult to
discern, inclement weather, or high availment by regular workers of earned leave
credits, additional workers categorized as casuals, or temporary, are needed to
meet the exigencies." (Underlining in the original)
The validity of fixed-period employment has been consistently upheld by the
Supreme [C]ourt in a long line of cases, the leading case of which is Brent School,
Inc. vs. Zamora & Alegre, GR No. 48494, February 5, 1990. Thus at the end of the
contract the employer-employee relationship is terminated. It behooves upon us
to rule that herein complainants cannot be declared regular rank and file
employees of the [petitioner] company.

Anent the third issue, [respondents] dismally failed to provide us the exact
figures needed for the computation of their wage differentials. To simply alleged
[sic] that one is underpaid of his wages is not enough. No bill of particulars was
submitted. Moreover, the Order of RTWPB Region XI, Davao City dated
February 21, 1996 exempts [petitioner] company from complying Wage Order
No. 04 [sic] in so far as such exemption applies only to workers who are not
covered by the Collective Bargaining Agreement, for the period January 1 to
December 31, 1995,. [sic] In so far as [respondents] were not privies to the CBA,
they were the workers referred to by RTWPB's Order. [H]ence, [respondents']
claims for wage differentials are hereby dismissed for lack of factual basis.

We find no further necessity in delving into the issues raised by [respondents]

regarding moral damages and attorney's fees for being moot and academic
because of the findings that CAMPCO does not engaged [sic] in labor-only
contracting and that [respondents] cannot be declared as regular employees of
[petitioner].

WHEREFORE, premises considered, judgment is hereby rendered in the

above-entitled case, dismissing the complaint for lack of merit.
Respondents appealed the Labor Arbiter's Decision to the NLRC, reiterating
their position that they should be recognized as regular employees of the
petitioner since CAMPCO was a mere labor-only contractor, as already declared
in the previous Orders of DOLE Regional Director Parel, dated 19 October
1993, and DOLE Undersecretary Trajano, dated 15 September 1994, which
already became final and executory. The NLRC, in its Resolution,[21] dated 29
February 2000, dismissed the appeal and affirmed the Labor Arbiter's Decision,
reasoning as follows –
We find no merit in the appeal.

The concept of conclusiveness of judgment under the principle of "res judicata"

means that where between the first case wherein judgment is rendered and the
second case wherein such judgment is invoked, there is identity of parties, but
there is no identity of cause of action, the judgment is conclusive in the second
case, only as to those matters actually and directly controverted and determined
and not as to matters merely involved therein (Viray, etc. vs. Marinas, et al.,
49 SCRA 44). There is no denying that the order of the Department of Labor
and Employment, Regional Office No. XI in case No. RI100-9310-RI-355,
which the complainants perceive to have sealed the status of CAMPCO as
labor-only contractor, proceeded from the visitorial and enforcement power of
the Department Secretary under Article 128 of the Labor Code. Acting on
reports that the cooperatives, including CAMPCO, that operated and offered
services at [herein petitioner] company were engaging in labor-only contracting
activities, that Office conducted a routinary inspection over the records of said
cooperatives and consequently, found the latter to be engaging in labor-only
contracting activities. This being so, [petitioner] company was not a real party-
in-interest in said case, but the cooperatives concerned. Therefore, there is no
identity of parties between said case and the present case which means that the
afore-said ruling of the DOLE is not binding and conclusive upon [petitioner]
company.

It is not correct, however, to say, as the Labor Arbiter did, that the afore-said
ruling of the Department of Labor and Employment has been overturned by
Department Order No. 10. It is a basic principle that "once a judgment becomes
final it cannot be disturbed, except for clerical errors or when supervening
events render its execution impossible or unjust" (Sampaguita Garmens [sic]
Corp. vs. NLRC, G. R. No. 102406, June 7, 1994). Verily, the subsequent
issuance of Department Order No. 10 cannot be construed as supervening
event that would render the execution of said judgment impossible or unjust.
Department Order No. 10 refers to the ramification of some provisions of the
Rules Implementing Articles 106 and 109 of the Labor Code, without
substantially changing the definition of "labor-only" or "job" contracting.

Well-settled is the rule that to qualify as an independent job contractor, one has
either substantial capital "or" investment in the form of tools, equipment and
machineries necessary to carry out his business (see Virginia Neri, et al. vs.
NLRC, et al., G.R. Nos. 97008-89, July 23, 1993). CAMPCO has admittedly a
paid-up capital of P4,562,470.25 and this is more than enough to qualify it as an
independent job contractor, as aptly held by the Labor Arbiter.

WHEREFORE, the appeal is DISMISSED for lack of merit and the appealed
decision is AFFIRMED.
Petition for Certiorari with the Court of Appeals

Refusing to concede defeat, respondents filed with the Court of Appeals a

Petition for Certiorari under Rule 65 of the revised Rules of Civil Procedure,
asserting that the NLRC acted without or in excess of its jurisdiction and with
grave abuse of discretion amounting to lack of jurisdiction when, in its
Resolution, dated 29 February 2000, it (1) ruled that CAMPCO was a bona fide
independent job contractor with substantial capital, notwithstanding the fact
that at the time of its organization and registration with CDA, it only had a paid-
up capital of P6,600.00; and (2) refused to apply the doctrine of res judicata
against petitioner. The Court of Appeals, in its Decision,[22] dated 20 May 2002,
granted due course to respondents' Petition, and set aside the assailed NLRC
Decision. Pertinent portions of the Court of Appeals Decision are reproduced
below –
In the case at bench, it was established during the proceedings before the
[NLRC] that CAMPCO has a substantial capital. However, having a substantial
capital does not per se qualify CAMPCO as a job contractor. In order to be
considered an independent contractor it is not enough to show substantial
capitalization or investment in the form of tools, equipment, machinery and
work premises. The conjunction "and," in defining what a job contractor is,
means that aside from having a substantial capital or investment in the form of
tools, equipment, machineries, work premise, and other materials which are
necessary in the conduct of his business, the contractor must be able to prove
that it also 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 as to the results
thereof. [Herein petitioner DolePhil] has failed to prove, except for the
substantial capital requirement, that CAMPCO has met the other requirements.
It was not established that CAMPCO is engaged or carries on an independent
business. In the performance of the respective tasks of workers deployed by
CAMPCO with [petitioner], it was not established that CAMPCO undertook
the contract of work it entered with [petitioner] under its own account and its
own responsibility. It is [petitioner] who provides the procedures to be followed
by the workers in the performance of their assigned work. The workers
deployed by CAMPCO to [petitioner] performed activities which are directly
related to the principal business or operations of the employer in which workers
are habitually employed since [petitioner] admitted that these workers were
engaged to perform the job of other regular employees who cannot report for
work.

Moreover, [NLRC] likewise gravely erred in not giving weight to the Order
dated 19 October 1993 issued by the Office of the Secretary of the Department
of Labor and Employment, through Undersecretary Cresencio Trajano, which
affirmed the findings of the Department of Labor and Employment Regional
Office, Region XI, Davao City that Cannery Multi-Purpose Cooperative is one
of the cooperatives engaged in labor-only contracting activities.
In the exercise of the visitorial and enforcement power of the Department of
Labor and Employment, an investigation was conducted among the
cooperatives organized and existing in Polomolok, South Cotabato, relative to
labor-only contracting activities. One of the cooperatives investigated was
Cannery Multi-Purpose Cooperative. After the investigation, the Department of
Labor and Employment, Regional Office No. XI, Davao City, through its
Regional Director, issued the Order dated 19 October 1993, stating:
"WHEREFORE, premises considered, ADVENTURER'S MULTI PURPOSE
COOPERATIVE, HUMAN RESOURCE MULTI PURPOSE SKILLED
COOPERATIVE and CANNERY MULTI PURPOSE COOPERATIVE are
hereby declared to be engaged in labor only contracting which is a prohibited
activity. The same cooperatives are therefore ordered to cease and desist from
further engaging in such activities.

xxxx

SO ORDERED."
Cannery Multi Purpose Cooperative, together with the other cooperatives
declared as engaged in labor-only contracting activity, appeal the above-findings
to the Secretary of the Department of Labor and Employment. Their appeal
was dismissed for lack of merit as follows:: [sic]

xxxx

[NLRC] held that CAMPCO, being not a real party-in interest in the above-case,
the said ruling is not binding and conclusive upon [petitioner]. This Court,
however, finds the contrary.

CAMPCO was one of the cooperatives investigated by the Department of

Labor and Employment, Regional Office No. XI, Davao City, pursuant to
Article 128 of the Labor Code. It was one of the appellants before the Secretary
of the Department of Labor questioning the decision of the Regional Director
of DOLE, Regional Office No. XI, Davao City. This Court noted that in the
proceedings therein, and as mentioned in the decision rendered by
Undersecretary Cresencio B. Trajano of the Department of Labor and
Employment, Manila, regarding the cooperatives' appeal thereto, the parties
therein, including Cannery Multi-Purpose Cooperative, submitted to the said
office their position papers and Articles of Cooperatives and Certification of
Registrations [sic] on 30 August 1993. This is a clear indicia that CAMPCO
participated in the proceedings therein. [NLRC], therefore, committed grave
abuse of discretion amounting to lack or excess of jurisdiction when it held that
CAMPCO was never a party to the said case.

[Petitioner] invokes Section 6 of Department Order No. 10, series of 1997,

issued by the Department of Labor and Employment which took effect on 22
June 1997. The said section identified the circumstances which are permissible
job contracting, to wit:

xxxx

[Petitioner's] main contention is based on the decisions rendered by the labor

arbiter and [NLRC] which are both anchored on Department Order No. 10
issued by the Department of Labor and Employment. The said department
order provided for several flexible working relations between a principal, a
contractor or subcontractor and the workers recruited by the latter and deployed
to the former. In the case at bench, [petitioner] posits that the engagement of
[petitioner] of the workers deployed by CAMPCO was pursuant to D.O. No.
10, Series of 1997.

However, on 8 May 2001, the Department of Labor and Employment issued

Department Order No. 3, series of 2001, revoking Department Order No. 10,
series of 1997. The said department order took effect on 29 May 2001.

xxxx

Under Department Order No. 3, series of 2001, some contracting and

outsourcing arrangements are no longer legitimate modes of employment
relation. Having revoked Department Order No. 10, series of 1997, [petitioner]
can no longer support its argument by relying on the revoked department order.

Considering that [CAMPCO] is not a job contractor, but one engaged in labor-
only contracting, CAMPCO serves only as an agent of [petitioner] pursuant to
par. (b) of Sec. 9, Rule VIII, Book III of the Implementing Rules and
Regulations of the Labor Code, stating,

xxxx
However, the Court cannot declare that [herein respondents] are regular
employees of [petitioner]. x x x

xxxx

In the case at bench, although [respondents] were engaged to perform activities

which are usually necessary or desirable in the usual business or trade of private
respondent, it is apparent, however, that their services were engaged by
[petitioner] only for a definite period. [Petitioner's] nature of business and
operation has its peaks. In order to meet the demands during peak seasons they
necessarily have to engage the services of workers to work only for a particular
season. In the case of [respondents], when they were deployed by CAMPCO
with [petitioner] and were assigned by the latter at its cannery department, they
were aware that they will be working only for a certain duration, and this was
made known to them at the time they were employed, and they agreed to the
same.

xxxx

The non-rehiring of some of the petitioners who were allegedly put on a

"floating status" is an indication that their services were no longer needed. They
attained their "floating status" only after they have finished their contract of
employment, or after the duration of the season that they were employed. The
decision of [petitioner] in not rehiring them means that their services were no
longer needed due to the end of the season for which they were hired. And this
Court reiterates that at the time they were deployed to [petitioner's] cannery
division, they knew that the services they have to render or the work they will
perform are seasonal in nature and consequently their employment is only for
the duration of the season.

ACCORDINGLY, in view of the foregoing, the instant petition for certiorari is

hereby GRANTED DUE COURSE. The decision dated 29 February 2000 and
Resolution dated 19 December 2000 rendered by [NLRC] are hereby SET
ASIDE. In place thereof, it is hereby rendered that:

1. Cannery Multi-Purpose Cooperative is a labor-only

contractor as defined under the Labor Code of the
 Philippines and its implementing rules and regulations;
and that

2. DOLE Philippines Incorporated is merely an agent or

intermediary of Cannery Multi-Purpose Cooperative.

All other claims of [respondents] are hereby DENIED for lack of basis.
Both petitioner and respondents filed their respective Motions for
Reconsideration of the foregoing Decision, dated 20 May 2002, prompting the
Court of Appeals to promulgate an Amended Decision on 27 November 2003,
in which it ruled in this wise:
This court examined again the documentary evidence submitted by the [herein
petitioner] and we rule not to disturb our findings in our Decision dated May
20, 2002. It is our opinion that there was no competent evidence submitted that
would show that CAMPCO is engaged to perform a specific and special job or
service which is one of the strong indicators that an entity is an independent
contractor. The articles of cooperation and by-laws of CAMPCO do not show
that it is engaged in performing a specific and special job or service. What is
clear is that it is a multi-purpose cooperative organized under RA No. 6938,
nothing more, nothing less.

As can be gleaned from the contract that CAMPCO entered into with the
[petitioner], the undertaking of CAMPCO is to provide [petitioner] with
workforce by assisting the company in its daily operations and perform odd jobs
as may be assigned. It is our opinion that CAMPCO merely acted as recruitment
agency for [petitioner]. CAMPCO by supplying manpower only, clearly
conducted itself as "labor-only" contractor. As can be gleaned from the service
contract, the work performed by the [herein respondents] are directly related to
the main business of the [petitioner]. Clearly, the requisites of "labor-only"
contracting are present in the case at bench.

In view of the above ruling, we find it unnecessary to discuss whether the Order
of Undersecretary Trajano finding that CAMPCO is a "labor-only" contractor is
a determining factor or constitutes res judicata in the case at bench. Our
findings that CAMPCO is a "labor-only" contractor is based on the evidence
presented vis-á-vis the rulings of the Supreme Court on the matter.

Since, the argument that the [petitioner] is the real employer of the
[respondents], the next question that must be answered is – what is the nature
of the employment of the petitioners?

xxxx

The afore-quoted [Article 280 of the Labor Code, as amended] provides for two
kinds of employment, namely: (1) regular (2) casual. In our Decision, we ruled
that the [respondents] while performing work necessary and desirable to the
business of the [petitioner] are seasonal employees as their services were
engaged by the [petitioner] for a definite period or only during peak season.

In the most recent case of Hacienda Fatima v. National Federation of

Sugarcane Workers Food and General Trade, the Supreme Court ruled that
for employees to be excluded from those classified as regular employees, it is
not enough that they perform work or services that are seasonal in nature. They
must have also been employed only for the duration of one season. It is
undisputed that the [respondents'] services were engaged by the [petitioner]
since 1993 and 1994. The instant complaint was filed in 1996 when the
[respondents] were placed on floating status. Evidently, [petitioner] employed
the [respondents] for more than one season. Therefore, the general rule on
regular employment is applicable. The herein petitioners who performed their
jobs in the workplace of the [petitioner] every season for several years, are
considered the latter's regular employees for having performed works necessary
and desirable to the business of the [petitioner]. The [petitioner's] eventual
refusal to use their services—even if they were ready, able and willing to
perform their usual duties whenever these were available—and hiring other
workers to perform the tasks originally assigned to [respondents] amounted to
illegal dismissal of the latter. We thus, correct our earlier ruling that the herein
petitioners are seasonal workers. They are regular employees within the
contemplation of Article 280 of the Labor Code and thus cannot be dismissed
except for just or authorized cause. The Labor Code provides that when there is
a finding of illegal dismissal, the effect is that the employee dismissed shall be
reinstated to his former position without loss of seniority rights with backwages
from the date of his dismissal up to his actual reinstatement.

This court however, finds no basis for the award of damages and attorney's fees
in favor of the petitioners.
WHEREFORE, the Decision dated May 20, 2002 rendered by this Court is
hereby AMENDED as follows:

1) [Petitioner] DOLE PHILIPPINES is hereby declared the employer of the

[respondents].

2) [Petitioner] DOLE PHILIPPINES is hereby declared guilty of illegal

dismissal and ordered to immediately reinstate the [respondents] to their former
position without loss of seniority rights and other benefits, and to pay each of
the [respondents] backwages from the date of the filing of illegal dismissal on
December 19, 1996 up to actual reinstatement, the same to be computed by the
labor arbiter.

3) The claims for damages and attorney's fees are hereby denied for lack of
merit.

No costs.[23]
The Petition at Bar

Aggrieved by the Decision, dated 20 May 2002, and the Amended Decision,
dated 27 November 2003, of the Court of Appeals, petitioner filed the instant
Petition for Review on Certiorari under Rule 45 of the revised Rules of Civil
Procedure, in which it made the following assignment of errors –

I.

THE COURT OF APPEALS HAS DEPARTED FROM THE USUAL

COURSE OF JUDCIAL PROCEEDINGS WHEN IT MADE ITS OWN
FACTUAL FINDINGS AND DISREGARDED THE UNIFORM AND
CONSISTENT FACTUAL FINDINGS OF THE LABOR ARBITER AND
THE NLRC, WHICH MUST BE ACCORDED GREAT WEIGHT,
RESPECT AND EVEN FINALITY. IN SO DOING, THE COURT OF
APPEALS EXCEEDED ITS AUTHORITY ON CERTIORARI UNDER
RULE 65 OF THE RULES OF COURT.

II.

THE COURT OF APPEALS HAS DECIDED A QUESTION OF

SUBSTANCE IN A WAY NOT IN ACCORD WITH THE
CONSTITUTION, LAW, APPLICABLE RULES AND REGULATIONS
AND DECISIONS OF THE SUPREME COURT IN NOT HOLDING
THAT DEPARTMENT ORDER NO. 10, SERIES OF 1997 IS THE
APPLICABLE REGULATION IN THIS CASE. IN GIVING
RETROACTIVE APPLICATION TO DEPARTMENT ORDER NO. 3,
SERIES OF 2001, THE COURT OF APPEALS VIOLATED THE
CONSTITUTIONAL PROVISION AGAINST IMPAIRMENT OF
CONTRACTS AND DEPRIVED PETITIONER OF THE DUE PROCESS
OF THE LAW.

III.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF

SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN
GIVING WEIGHT TO THE ORDER DATED 19 OCTOBER 1993
ISSUED BY THE OFFICE OF SECRETARY OF LABOR, WHICH
AFFIRMED THE FINDINGS OF THE DOLE REGIONAL OFFICE
(REGION XI, DAVAO CITY) THAT CAMPCO IS ONE OF THE
COOPERATIVES ENGAGED IN LABOR-ONLY CONTRACTING
ACTIVITIES.

IV.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF

SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN
NOT RULING THAT RESPONDENTS, BY ACTIVELY REPRESENTING
THEMSELVES AND WARRANTING THAT THEY ARE ENGAGED IN
LEGITIMATE JOB CONTRACTING, ARE BARRED BY THE
EQUITABLE PRINCIPLE OF ESTOPPEL FROM ASSERTING THAT
THEY ARE REGULAR EMPLOYEES OF PETITIONER.

V.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF

SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN
RULING THAT CAMPCO IS ENGAGED IN THE PROHIBITED ACT
OF "LABOR-ONLY CONTRACTING" DESPITE THERE BEING
SUBSTANTIAL EVIDENCE TO THE CONTRARY.

VI.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF

SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN
RULING THAT PETITIONER IS THE EMPLOYER OF RESPONDENTS
AND THAT PETITIONER IS GUILTY OF ILLEGAL DISMISSAL.[24]

This Court's Ruling

Anent the first assignment of error, petitioner argues that judicial review under
Rule 65 of the revised Rules of Civil Procedure is limited only to issues
concerning want or excess or jurisdiction or grave abuse of discretion. The
special civil action for certiorari is a remedy designed to correct errors of
jurisdiction and not mere errors of judgment. It is the contention of petitioner
that the NLRC properly assumed jurisdiction over the parties and subject matter
of the instant case. The errors assigned by the respondents in their Petition for
Certiorari before the Court of Appeals do not pertain to the jurisdiction of the
NLRC; they are rather errors of judgment supposedly committed by the the
NLRC, in its Resolution, dated 29 February 2000, and are thus not the proper
subject of a petition for certiorari. Petitioner also posits that the Petition for
Certiorari filed by respondents with the Court of Appeals raised questions of fact
that would necessitate a review by the appellate court of the evidence presented
by the parties before the Labor Arbiter and the NLRC, and that questions of
fact are not a fit subject for a special civil action for certiorari.

It has long been settled in the landmark case of St. Martin Funeral Home v.
NLRC,[25] that the mode for judicial review over decisions of the NLRC is by a
petition for certiorari under Rule 65 of the revised Rules of Civil Procedure. The
different modes of appeal, namely, writ of error (Rule 41), petition for review
(Rules 42 and 43), and petition for review on certiorari (Rule 45), cannot be
availed of because there is no provision on appellate review of NLRC decisions
in the Labor Code, as amended.[26] Although the same case recognizes that both
the Court of Appeals and the Supreme Court have original jurisdiction over
such petitions, it has chosen to impose the strict observance of the hierarchy of
courts. Hence, a petition for certiorari of a decision or resolution of the NLRC
should first be filed with the Court of Appeals; direct resort to the Supreme
Court shall not be allowed unless the redress desired cannot be obtained in the
appropriate courts or where exceptional and compelling circumstances justify an
availment of a remedy within and calling for the exercise by the Supreme Court
of its primary jurisdiction.

The extent of judicial review by certiorari of decisions or resolutions of the

NLRC, as exercised previously by the Supreme Court and, now, by the Court of
Appeals, is described in Zarate v. Olegario,[27] thus –
The rule is settled that the original and exclusive jurisdiction of this Court to
review a decision of respondent NLRC (or Executive Labor Arbiter as in this
case) in a petition for certiorari under Rule 65 does not normally include an
inquiry into the correctness of its evaluation of the evidence. Errors of
judgment, as distinguished from errors of jurisdiction, are not within the
province of a special civil action for certiorari, which is merely confined to issues
of jurisdiction or grave abuse of discretion. It is thus incumbent upon petitioner
to satisfactorily establish that respondent Commission or executive labor arbiter
acted capriciously and whimsically in total disregard of evidence material to or
even decisive of the controversy, in order that the extraordinary writ of certiorari
will lie. By grave abuse of discretion is meant such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction, and it must be
shown that the discretion was exercised arbitrarily or despotically. For certiorari
to lie, there must be capricious, arbitrary and whimsical exercise of power, the
very antithesis of the judicial prerogative in accordance with centuries of both
civil law and common law traditions.
The Court of Appeals, therefore, can grant the Petition for Certiorari if it finds
that the NLRC, in its assailed decision or resolution, committed grave abuse of
discretion by capriciously, whimsically, or arbitrarily disregarding evidence which
is material or decisive of the controversy; and the Court of Appeals can not
make this determination without looking into the evidence presented by the
parties. Necessarily, the appellate court can only evaluate the materiality or
significance of the evidence, which is alleged to have been capriciously,
whimsically, or arbitrarily disregarded by the NLRC, in relation to all other
evidence on record.

As this Court elucidated in Garcia v. National Labor Relations Commission[28]--

[I]n Ong v. People, we ruled that certiorari can be properly resorted to where the
factual findings complained of are not supported by the evidence on record.
Earlier, in Gutib v. Court of Appeals, we emphasized thus:
[I]t has been said that a wide breadth of discretion is granted a court of justice in
certiorari proceedings. The cases in which certiorari will issue cannot be defined,
because to do so would be to destroy its comprehensiveness and usefulness. So
wide is the discretion of the court that authority is not wanting to show that
certiorari is more discretionary than either prohibition or mandamus. In the
exercise of our superintending control over inferior courts, we are to be guided
by all the circumstances of each particular case "as the ends of justice may
require." So it is that the writ will be granted where necessary to prevent a
substantial wrong or to do substantial justice.
And in another case of recent vintage, we further held:
In the review of an NLRC decision through a special civil action for certiorari,
resolution is confined only to issues of jurisdiction and grave abuse of discretion
on the part of the labor tribunal. Hence, the Court refrains from reviewing
factual assessments of lower courts and agencies exercising adjudicative
functions, such as the NLRC. Occasionally, however, the Court is constrained
to delve into factual matters where, as in the instant case, the findings of the
NLRC contradict those of the Labor Arbiter.

In this instance, 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 anew a factual determination of the matters and on that
basis reversed the ruling of the NLRC.
II

The second assignment of error delves into the significance and application to
the case at bar of the two department orders issued by DOLE. Department
Order No. 10, series of 1997, amended the implementing rules of Books III and
VI of the Labor Code, as amended. Under this particular DOLE department
order, the arrangement between petitioner and CAMPCO would qualify as
permissible contracting. Department Order No. 3, series of 2001, revoked
Department Order No. 10, series of 1997, and reiterated the prohibition on
labor-only contracting.

Attention is called to the fact that the acts complained of by the respondents
occurred well before the issuance of the two DOLE department orders in 1997
and 2001. The Service Contract between DOLE and CAMPCO was executed
on 17 August 1993. Respondents started working for petitioner sometime in
1993 and 1994. While some of them continued to work for petitioner, at least
until the filing of the Complaint, others were put on "stay home status" at
various times in 1994, 1995, and 1996. Respondents filed their Complaint with
the NLRC on 19 December 1996.

A basic rule observed in this jurisdiction is that no statute, decree, ordinance,

rule or regulation shall be given retrospective effect unless explicitly stated.[29]
Since there is no provision at all in the DOLE department orders that expressly
allowed their retroactive application, then the general rule should be followed,
and the said orders should be applied only prospectively.

Which now brings this Court to the question as to what was the prevailing rule
on labor-only contracting from 1993 to 1996, the period when the occurrences
subject of the Complaint before the NLRC took place.

Article 106 of the Labor Code, as amended, permits legitimate job contracting,
but prohibits labor-only contracting. The said provision reads –
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.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the

contracting out of labor to protect the rights of workers established under this
Code. In so prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as differentiations
within these types of contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to prevent any
violation or circumvention of any provision of this Code.

There is "labor-only" contracting where 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 the workers
recruited and placed by such persons are performing activities which are directly
related to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were
directly employed by him.
To implement the foregoing provision of the Labor Code, as amended, Sections
8 and 9, Rule VIII, Book III of the implementing rules, in force since 1976 and
prior to their amendment by DOLE Department Order No. 10, series of 1997,
provided as follows –
Sec. 8. Job contracting. – There is job contracting permissible under the Code if
the following conditions are met;
(1) 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 as
to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are necessary
in the conduct of his business.

Sec. 9. Labor-only contracting. – (a) Any person who undertakes to supply workers
to an employer shall be deemed to be engaged in labor-only contracting where
such person:

(1) Does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises and other materials; and

(2) The workers recruited and placed by such persons are performing activities
which are directly related to the principal business or operations of the employer
in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person
acting as contractor shall be considered merely as an agent or intermediary of
the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.

(c) For cases not falling under this Article, the Secretary of Labor shall
determine through appropriate orders whether or not the contracting out of
labor is permissible in the light of the circumstances of each case and after
considering the operating needs of the employer and the rights of the workers
involved. In such case, he may prescribe conditions and restrictions to insure
the protection and welfare of the workers.
Since these statutory and regulatory provisions were the ones in force during the
years in question, then it was in consideration of the same that DOLE Regional
Director Parel and DOLE Undesrsecretary Trajano issued their Orders on 19
September 1993 and 15 September 1994, respectively, both finding that
CAMPCO was engaged in labor-only contracting. Petitioner, in its third
assignment of error, questions the weight that the Court of Appeals gave these
orders in its Decision, dated 20 May 2002, and Amended Decision, dated 27
November 2003.

III

The Orders of DOLE Regional Director Parel, dated 19 September 1993, and
of DOLE Undersecretary Trajano, dated 15 September 1994, were issued
pursuant to the visitorial and enforcement power conferred by the Labor Code,
as amended, on the DOLE Secretary and his duly authorized representatives, to
wit –
ART. 128. Visitorial and enforcement power. – (a) The Secretary of Labor or his
duly authorized representatives, including labor regulation officers, shall have
access to employer's records and premises at any time of the day or night
whenever work is being undertaken therein, and the right to copy therefrom, to
question any employee and investigate any fact, condition or matter which may
be necessary to determine violations or which may aid in the enforcement of
this Code and of any labor law, wage order or rules and regulations pursuant
thereto.
(b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the
contrary, and in cases where the relationship of employer-employee still exists,
the Secretary of Labor and Employment or his duly authorized representatives
shall have the power to issue compliance orders to give effect to the labor
standards provisions of this Code and other labor legislation based on the
findings of labor employment and enforcement officers or industrial safety
engineers made in the course of inspection. The Secretary or his duly authorized
representatives shall issue writs of execution to the appropriate authority for
the enforcement of their orders, except in cases where the employer contests the
findings of the labor employment and enforcement officer and raises issues
supported by documentary proofs which were not considered in the course of
inspection.

An order issued by the duly authorized representative of the Secretary of Labor

and Employment under this article may be appealed to the latter. In case said
order involves a monetary award, an appeal by the employer may be perfected
only upon the posting of a cash or surety bond issued by a reputable bonding
company duly accredited by the Secretary of Labor and Employment in the
amount equivalent to the monetary award in the order appealed from.
(Emphasis supplied.)
Before Regional Director Parel issued his Order, dated 19 September 1993, a
Task Force investigated the operations of cooperatives in Polomolok, South
Cotabato, and submitted a report identifying six cooperatives that were engaged
in labor-only contracting, one of which was CAMPCO. In a conference before
the DOLE Regional Office, the cooperatives named by the Task Force were
given the opportunity to explain the nature of their activities in relation to
petitioner; and, the cooperatives, as well as petitioner, submitted to the DOLE
Regional Office their position papers and other supporting documents to refute
the findings of the Task Force. It was only after these procedural steps did
Regional Director Parel issued his Order finding that three cooperatives,
including CAMPCO, were indeed engaged in labor-only contracting and were
directed to cease and desist from further engaging in such activities. On appeal,
DOLE Undersecretary Trajano, by authority of the DOLE Secretary, affirmed
Regional Director Parel's Order. Upon denial of the Motion for Reconsideration
filed by the cooperatives, and no further appeal taken therefrom, the Order of
DOLE Undersecretary Trajano, dated 15 September 1994, became final and
executory.
Petitioner avers that the foregoing Orders of the authorized representatives of
the DOLE Secretary do not constitute res judicata in the case filed before the
NLRC. This Court, however, believes otherwise and finds that the final and
executory Orders of the DOLE Secretary or his authorized representatives
should bind the NLRC.

It is obvious that the visitorial and enforcement power granted to the DOLE
Secretary is in the nature of a quasi-judicial power. Quasi-judicial power has
been described by this Court in the following manner –
Quasi-judicial or administrative adjudicatory power on the other hand is the
power of the administrative agency to adjudicate the rights of persons before it.
It is the power to hear and determine questions of fact to which the
legislative policy is to apply and to decide in accordance with the
standards laid down by the law itself in enforcing and administering the
same law. The administrative body exercises its quasi-judicial power when it
performs in a judicial manner an act which is essentially of an executive or
administrative nature, where the power to act in such manner is incidental
to or reasonably necessary for the performance of the executive or
administrative duty entrusted to it. In carrying out their quasi-judicial
functions the administrative officers or bodies are required to investigate
facts or ascertain the existence of facts, hold hearings, weigh evidence,
and draw conclusions from them as basis for their official action and
exercise of discretion in a judicial nature. Since rights of specific persons are
affected it is elementary that in the proper exercise of quasi-judicial power due
process must be observed in the conduct of the proceedings.[30] (Emphasis
supplied.)
The DOLE Secretary, under Article 106 of the Labor Code, as amended,
exercise quasi-judicial power, at least, to the extent necessary to determine
violations of labor standards provisions of the Code and other labor legislation.
He can issue compliance orders and writs of execution for the enforcement of
his orders. As evidence of the importance and binding effect of the compliance
orders of the DOLE Secretary, Article 128 of the Labor Code, as amended,
further provides –
ART. 128. Visitorial and enforcement power. –

xxxx

(d) It shall be unlawful for any person or entity to obstruct, impede, delay or
otherwise render ineffective the orders of the Secretary of Labor or his duly
authorized representatives issued pursuant to the authority granted under this
article, and no inferior court or entity shall issue temporary or permanent
injunction or restraining order or otherwise assume jurisdiction over any case
involving the enforcement orders issued in accordance with this article.
The Orders of DOLE Regional Director Parel, dated 19 September 1993, and
of DOLE Undersecretary Trajano, dated 15 September 1994, consistently found
that CAMPCO was engaging in labor-only contracting. Such finding constitutes
res judicata in the case filed by the respondents with the NLRC.

It is well-established in this jurisdiction that the decisions and orders of

administrative agencies, rendered pursuant to their quasi-judicial authority, have
upon their finality, the force and binding effect of a final judgment within the
purview of the doctrine of res judicata. The rule of res judicata, which forbids the
reopening of a matter once judicially determined by competent authority, applies
as well to the judicial and quasi-judicial acts of public, executive or
administrative officers and boards acting within their jurisdiction as to the
judgments of courts having general judicial powers. The orderly administration
of justice requires that the judgments or resolutions of a court or quasi-judicial
body must reach a point of finality set by the law, rules and regulations, so as to
write finis to disputes once and for all. This is a fundamental principle in the
Philippine justice system, without which there would be no end to litigations.[31]

Res judicata has dual aspects, "bar by prior judgment" and "conclusiveness of
judgment." This Court has previously clarified the difference between the two –
Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of
res judicata in actions in personam. to wit:

"Effect of judgment. - The effect of a judgment or final order rendered by a

court or judge of the Philippines, having jurisdiction to pronounce the judgment
or order, may be as follows:

xxxx

(b) In other cases the judgment or order is, with respect to the matter directly
adjudged or as to any other matter that could have been raised in relation
thereto, conclusive between the parties and their successors in interest by title
subsequent to the commencement of the action or special proceeding, litigating
for the same thing and under the same title and in the same capacity;

(c) In any other litigation between the same parties or their successors in
interest, that only is deemed to have been adjudged in a former judgment which
appears upon its face to have been so adjudged, or which was actually and
necessarily included therein or necessary thereto."

Section 49(b) enunciates the first concept of res judicata known as "bar by prior
judgment," whereas, Section 49(c) is referred to as "conclusiveness of
judgment."

There is "bar by former judgment" when, between the first case where the
judgment was rendered, and the second case where such judgment is invoked,
there is identity of parties, subject matter and cause of action. When the three
identities are present, the judgment on the merits rendered in the first
constitutes an absolute bar to the subsequent action. But where between the
first case wherein Judgment is rendered and the second case wherein such
judgment is invoked, there is only identity of parties but there is no identity of
cause of action, the judgment is conclusive in the second case, only as to those
matters actually and directly controverted and determined, and not as to matters
merely involved therein. This is what is termed "conclusiveness of judgment."
The second concept of res judicata, conclusiveness of judgment, is the one
applicable to the case at bar.

The same parties who participated in the proceedings before the DOLE
Regional Office are the same parties involved in the case filed before the NLRC.
CAMPCO, on behalf of its members, attended the conference before the
DOLE Regional Office; submitted its position paper; filed an appeal with the
DOLE Secretary of the Order of DOLE Regional Director Parel; and moved
for reconsideration of the subsequent Order of DOLE Undersecretary Trajano.
Petitioner, although not expressly named as a respondent in the DOLE
investigation, was a necessary party thereto, considering that CAMPCO was
rendering services to petitioner solely. Moreover, petitioner participated in the
proceedings before the DOLE Regional Office, intervening in the matter
through a letter sent by its Senior Legal Officer, dated 24 May 1993, and
submitting its own position paper.

While the causes of action in the proceedings before the DOLE and the NLRC
differ, they are, in fact, very closely related. The DOLE Regional Office
conducted an investigation to determine whether CAMPCO was violating labor
laws, particularly, those on labor-only contracting. Subsequently, it ruled that
CAMPCO was indeed engaging in labor-only contracting activities, and
thereafter ordered to cease and desist from doing so. Respondents came before
the NLRC alleging illegal dismissal by the petitioner of those respondents who
were put on "stay home status," and seeking regularization of respondents who
were still working for petitioner. The basis of their claims against petitioner rests
on the argument that CAMPCO was a labor-only contractor and, thus, merely
an agent or intermediary of petitioner, who should be considered as
respondents' real employer. The matter of whether CAMPCO was a labor-only
contractor was already settled and determined in the DOLE proceedings, which
should be conclusive and binding upon the NLRC. What were left for the
determination of the NLRC were the issues on whether there was illegal
dismissal and whether respondents should be regularized.

This Court also notes that CAMPCO and DOLE still continued with their
Service Contract despite the explicit cease and desist orders rendered by
authorized DOLE officials. There is no other way to look at it except that
CAMPCO and DOLE acted in complete defiance and disregard of the visitorial
and enforcement power of the DOLE Secretary and his authorized
representatives under Article 128 of the Labor Code, as amended. For the
NLRC to ignore the findings of DOLE Regional Director Parel and DOLE
Undersecretary Trajano is an unmistakable and serious undermining of the
DOLE officials' authority.

IV

In petitioner's fourth assignment of error, it points out that the Court of

Appeals erred in not holding respondents estopped from asserting that they
were regular employees of petitioner since respondents, as owners-members of
CAMPCO, actively represented themselves and warranted that they were
engaged in legitimate job contracting.

This Court cannot sustain petitioner's argument.

It is true that CAMPCO is a cooperative composed of its members, including

respondents. Nonetheless, it cannot be denied that a cooperative, as soon as it is
registered with the CDA, attains a juridical personality of its own,[32] separate
and distinct from its members; much in the same way that a corporation has a
juridical personality separate and distinct from its stockholders, known as the
doctrine of corporate fiction. The protection afforded by this doctrine is not
absolute, but the exception thereto which necessitates the piercing of the
corporate veil can only be made under specified circumstances. In Traders Royal
Bank v. Court of Appeals,[33] this Court ruled that –
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as
this is merely an equitable remedy, and maybe awarded only in cases when the
corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime or where a corporation is a mere alter ego or business
conduit of a person.

Piercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that ordinarily,
they could be subject to, or distinguishes one corporation from a seemingly
separate one, were it not for the existing corporate fiction. But to do this, the
court must be sure that the corporate fiction was misused, to such an extent that
injustice, fraud, or crime was committed upon another, disregarding, thus, his,
her, or its rights. It is the corporate entity which the law aims to protect by this
doctrine.
Using the above-mentioned guidelines, is petitioner entitled to a piercing of the
"cooperative identity" of CAMPCO? This Court thinks not.

It bears to emphasize that the piercing of the corporate veil is an equitable

remedy, and among the maxims of equity are: (1) he who seeks equity must do
equity, and (2) he who comes into equity must come with clean hands. Hence, a
litigant may be denied relief by a court of equity on the ground that his conduct
has been inequitable, unfair, dishonest, fraudulent, or deceitful as to the
controversy in issue.[34]

Petitioner does not come before this Court with clean hands. It is not an
innocent party in this controversy.

Petitioner itself admitted that it encouraged and even helped the establishment
of CAMPCO and the other cooperatives in Polomolok, South Cotabato. These
cooperatives were established precisely to render services to petitioner. It is
highly implausible that the petitioner was lured into entering into the Service
Contract with CAMPCO in 1993 on the latter's misrepresentation and false
warranty that it was an independent job contractor. Even if it is conceded that
petitioner was indeed defrauded into believing that CAMPCO was an
independent contractor, then the DOLE proceedings should have placed it on
guard. Remember that petitioner participated in the proceedings before the
DOLE Regional Office, it cannot now claim ignorance thereof. Furthermore,
even after the issuance of the cease and desist order on CAMPCO, petitioner
still continued with its prohibited service arrangement with the said cooperative.
If petitioner was truly defrauded by CAMPCO and its members into believing
that the cooperative was an independent job contractor, the more logical
recourse of petitioner was to have the Service Contract voided in the light of the
explicit findings of the DOLE officials that CAMPCO was engaging in labor-
only contracting. Instead, petitioner still carried on its Service Contract with
CAMPCO for several more years thereafter.

As previously discussed, the finding of the duly authorized representatives of

the DOLE Secretary that CAMPCO was a labor-only contractor is already
conclusive. This Court cannot deviate from said finding.

This Court, though, still notes that even an independent review of the evidence
on record, in consideration of the proper labor statutes and regulations, would
result in the same conclusion: that CAMPCO was engaged in prohibited
activities of labor-only contracting.

The existence of an independent and permissible contractor relationship is

generally established by the following criteria: whether or not 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; the right to assign the
performance of a specified piece of work; the control and supervision of the
work to another; the employer's power with respect to the hiring, firing and
payment of the contractor's workers; the control of the premises; the duty to
supply the premises tools, appliances, materials and labor; and the mode,
manner and terms of payment.[35]

While there is present in the relationship of petitioner and CAMPCO some

factors suggestive of an independent contractor relationship (i.e., CAMPCO
chose who among its members should be sent to work for petitioner; petitioner
paid CAMPCO the wages of the members, plus a percentage thereof as
administrative charge; CAMPCO paid the wages of the members who rendered
service to petitioner), many other factors are present which would indicate a
labor-only contracting arrangement between petitioner and CAMPCO.[36]

First, although petitioner touts the multi-million pesos assets of CAMPCO, it

does well to remember that such were amassed in the years following its
establishment. In 1993, when CAMPCO was established and the Service
Contract between petitioner and CAMPCO was entered into, CAMPCO only
had P6,600.00 paid-up capital, which could hardly be considered substantial.[37]
It only managed to increase its capitalization and assets in the succeeding years
by continually and defiantly engaging in what had been declared by authorized
DOLE officials as labor-only contracting.

Second, CAMPCO did not carry out an independent business from petitioner. It
was precisely established to render services to petitioner to augment its
workforce during peak seasons. Petitioner was its only client. Even as
CAMPCO had its own office and office equipment, these were mainly used for
administrative purposes; the tools, machineries, and equipment actually used by
CAMPCO members when rendering services to the petitioner belonged to the
latter.

Third, petitioner exercised control over the CAMPCO members, including

respondents. Petitioner attempts to refute control by alleging the presence of a
CAMPCO supervisor in the work premises. Yet, the mere presence within the
premises of a supervisor from the cooperative did not necessarily mean that
CAMPCO had control over its members. Section 8(1), Rule VIII, Book III of
the implementing rules of the Labor Code, as amended, required for permissible
job contracting that the contractor undertakes the contract work on his 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 as to the results thereof. As
alleged by the respondents, and unrebutted by petitioner, CAMPCO members,
before working for the petitioner, had to undergo instructions and pass the
training provided by petitioner's personnel. It was petitioner who determined
and prepared the work assignments of the CAMPCO members. CAMPCO
members worked within petitioner's plantation and processing plants alongside
regular employees performing identical jobs, a circumstance recognized as an
indicium of a labor-only contractorship.[38]

Fourth, CAMPCO was not engaged to perform a specific and special job or
service. In the Service Contract of 1993, CAMPCO agreed to assist petitioner in
its daily operations, and perform odd jobs as may be assigned. CAMPCO
complied with this venture by assigning members to petitioner. Apart from that,
no other particular job, work or service was required from CAMPCO, and it is
apparent, with such an arrangement, that CAMPCO merely acted as a
recruitment agency for petitioner. Since the undertaking of CAMPCO did not
involve the performance of a specific job, but rather the supply of manpower
only, CAMPCO clearly conducted itself as a labor-only contractor.[39]

Lastly, CAMPCO members, including respondents, performed activities directly

related to the principal business of petitioner. They worked as can processing
attendant, feeder of canned pineapple and pineapple processing, nata de coco
processing attendant, fruit cocktail processing attendant, and etc., functions
which were, not only directly related, but were very vital to petitioner's business
of production and processing of pineapple products for export.

The findings enumerated in the preceding paragraphs only support what DOLE
Regional Director Parel and DOLE Undersecretary Trajano had long before
conclusively established, that CAMPCO was a mere labor-only contractor.

VI

The declaration that CAMPCO is indeed engaged in the prohibited activities of

labor-only contracting, then consequently, an employer-employee relationship is
deemed to exist between petitioner and respondents, since CAMPCO shall be
considered as a mere agent or intermediary of petitioner.

Since respondents are now recognized as employees of petitioner, this Court is

tasked to determine the nature of their employment. In consideration of all the
attendant circumstances in this case, this Court concludes that respondents are
regular employees of petitioner.

Article 280 of the Labor Code, as amended, reads –

ART. 280. Regular and Casual Employment. – The provisions of written
agreement to the contrary notwithstanding and regardless of the oral agreement
of the parties, an employment shall be deemed to be regular where the employee
has been engaged to perform activities which are usually necessary and desirable
in the usual business or trade of the employer, except where the employment
has been fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of engagement of the
employee or where the work or services to be performed is seasonal in nature
and the employment is for the duration of the season.

An employment shall be deemed to be casual if its is not covered by the

preceding paragraph: Provided, That, any employee who has rendered at least
one year of service, whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in which he is
employed and his employment shall continue while such activity exists.
This Court expounded on the afore-quoted provision, thus –
The primary standard, therefore, of determining a regular employment is the
reasonable connection between the particular activity performed by the
employee in relation to the usual business or trade of the employer. The test is
whether the former is usually necessary or desirable in the usual business or
trade of the employer. The connection can be determined by considering the
nature of the work performed and its relation to the scheme of the particular
business or trade in its entirety. Also, if the employee has been performing the
job for at least one year, even if her performance is not continuous or merely
intermittent, the law deems the repeated and continuing need for its
performance as sufficient evidence of the necessity if not indispensability of the
activity to the business. Hence, the employment is also considered regular, but
only with respect to such activity and while such activity exists.[40]
In the instant Petition, petitioner is engaged in the manufacture and production
of pineapple products for export. Respondents rendered services as processing
attendant, feeder of canned pineapple and pineapple processing, nata de coco
processing attendant, fruit cocktail processing attendant, and etc., functions they
performed alongside regular employees of the petitioner. There is no doubt that
the activities performed by respondents are necessary or desirable to the usual
business of petitioner.

Petitioner likewise want this Court to believe that respondents' employment was
dependent on the peaks in operation, work backlogs, absenteeism, and excessive
leaves. However, bearing in mind that respondents all claimed to have worked
for petitioner for over a year, a claim which petitioner failed to rebut, then
respondent's continued employment clearly demonstrates the continuing
necessity and indispensability of respondents' employment to the business of
petitioner.

Neither can this Court apply herein the ruling of the NLRC in the previous case
involving petitioner and the individual workers they used to hire before the
advent of the cooperatives, to the effect that the employment of these individual
workers were not regular, but rather, were valid "term employments," wherein
the employer and employee knowingly and voluntarily agreed to employment
for only a limited or specified period of time. The difference between that case
and the one presently before this Court is that the members of CAMPCO,
including respondents, were not informed, at the time of their engagement, that
their employment shall only be for a limited or specified period of time. There is
absence of proof that the respondents were aware and had knowingly and
voluntarily agreed to such term employment. Petitioner did not enter into
individual contracts with the CAMPCO members, but executed a Service
Contract with CAMPCO alone. Although the Service Contract of 1993 stated
that it shall be for a specific period, from 1 July to 31 December 1993, petitioner
and CAMPCO continued the service arrangement beyond 1993. Since there was
no written renewal of the Service Contract,[41] there was no further indication
that the engagement by petitioner of the services of CAMPCO members was
for another definite or specified period only.

Respondents, as regular employees of petitioner, are entitled to security of

tenure. They could only be removed based on just and authorized causes as
provided for in the Labor Code, as amended, and after they are accorded
procedural due process. Therefore, petitioner's acts of placing some of the
respondents on "stay home status" and not giving them work assignments for
more than six months were already tantamount to constructive and illegal
dismissal.[42]

In summary, 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' backwages from the date
of filing of the Complaint with the NLRC on 19 December 1996 up to actual
reinstatement.

WHEREFORE, in view of the foregoing, the instant Petition is DENIED

and the Amended Decision, dated 27 November 2003, rendered by the Court of
Appeals in CA-G.R. SP No. 63405 is AFFIRMED.

Costs against the petitioner.

SO ORDERED.

Panganiban, C.J., (Chairperson), Ynares-Santiago, Austria-Martinez, and Callejo, Sr., JJ.,

concur.

Penned by Associate Justice Perlita J. Tria-Tirona, with Associate Justices

[1]

Buenaventura J. Guerrero and Rodrigo V. Cosico, concurring; rollo, pp. 87-99.

[2] Id. at 101-115.

[3] NLRC Records, Vol. 1, p. 159.

[4] Id. at 64.

[5] Rollo, p. 227.

[6] Id. at 273-274.

[7] NLRC Records, Vol. 1, pp. 352, 357-358.

[8] Id. at 358-359.

[9] Id. at 352-354, 358-361.

[10] Id. at 352-355.

[11] Id. at 356-367.

[12] NLRC Records, Vol. 1, pp. 29-30.

Docketed as Case No. RAB-XI-12-50364-96, entitled Medel Esteva v. Dole

[13]

Philippines, Inc., Id. at 1-5.

[14] Id. at 64-66.

[15] Id. at 349-350.

[16] Id. at 159-198.

Docketed as Case No. RAB-11-04-50147-91, entitled Pawis ng Makabayang

[17]

Obrero-National Federation of Labor (PAMAO-NFL), for and in behalf of the dismissed

members/workers within the bargaining unit v. Dole Philippines, Inc., and Thomas W.
Oliver.

Penned by Labor Arbiter Amado M. Solamo, NLRC Records, Vol. 1, pp.

[18]

211-236.

[19]Penned by Commissioner Leon G. Gonzaga, Jr., with Presiding

Commissioner Mulib M. Buat and Commissioner Oscar N. Abella, concurring;
id. at 238-259.

[20] Penned by Labor Arbiter Noel Augusto S. Magbanua; id. at 368-382.

Penned by Commissioner Leon G. Gonzaga, Jr., with Presiding

[21]

Commissioner Salic B. Dumarpa and Commissioner Oscar N. Abella,

concurring, NLRC Records, Vol. 2, pp. 226-230.

[22] Supra note 1.

[23] Rollo, pp. 110-114.

[24] Id. at 33-35.

356 Phil. 811, 816 (1998); See also Philippine National Bank v. Cabansag, G.R.
[25]

No. 157010, 21 June 2005, 460 SCRA 514, 524.

Noted in Footnote 17 of the case St. Martin Funeral Home v. National Labor
[26]

Relations Commission, supra.

[27] 331 Phil. 278, 287-288 (1996).

[28] G.R. No. 147427, 7 February 2005, 450 SCRA 535, 548-549.

Dueñas v. Santos Subdivision Homeowners Association, G.R. No. 149417, 4 June

[29]

2004, 431 SCRA 76; Republic of the Philippines v. Sandiganbayan, 355 Phil. 181
(1998); Co v. Court of Appeals, G.R. No. 100776, 28 October 1993, 227 SCRA
444.

Commissioner of Internal Revenue v. Court of Appeals, 329 Phil. 987, 1018-1019

[30]

(1996).

[31]Hon. Fortich v. Hon. Corona, 352 Phil. 460 (1998); Ipekdjian Merchandising Co.,
Inc. v. Court of Tax Appeals, 118 Phil. 915 (1963); Brillantes v. Castro, 99 Phil. 497
(1956).

Section 4(7) of Republic Act No. 6938, otherwise known as the Cooperative
[32]

Code of the Philippines.

[33] 336 Phil. 15, 28 (1997).

[34] Pilapil v. Hon. Garchitorena, 359 Phil. 674 (1998).

"Brotherhood" Labor Unity Movement of the Philippines v. Zamora, G.R. No. L-

[35]

48645, 7 January 1987, 147 SCRA 49.

Broadway Motors, Inc. v. National Labor Relations Commission, G.R. No. L-78382,
[36]

14 December 1987, 156 SCRA 522.

 This Court did not even consider as substantial P75,000.00 paid-in capital
[37]

(Vinoya v. National Labor Relations Commission, 381 Phil. 460, 475-476 [2000]) and
P62,500.00 paid-in capital (Manila Water Company, Inc. v. Pena, G.R. No. 158255,
8 July 2004, 434 SCRA 53).

San Miguel Corporation v. Aballa, G.R. No. 149011, 28 June 2005, 461 SCRA
[38]

392, 425.

[39] Vinoya v. National Labor Relations Commission, supra note 36.

De Leon v. National Labor Relations Commission, G.R. No. 70705, 21 August

[40]

1989, 176 SCRA 615, 621.

In 1997, petitioner and CAMPCO renewed their Service Contract. It should

[41]

be noted, however, that by the time this second agreement was executed,
DOLE Department Order No. 10, series of 1997, was already in force.

Pulp and Paper, Inc. v. National Labor Relations Commission, 344 Phil. 821, 833
[42]

(1997).
 Supreme Court of the Philippines

665 Phil. 542

SECOND DIVISION
G.R. No. 160506, June 06, 2011
JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO
AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO
PLATON, JOSE FERNANDO GUTIERREZ, ESTANISLAO
BUENAVENTURA, LOPE SALONGA, FRANZ DAVID, NESTOR IGNACIO,
JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO
CALANAO, ROLANDO ROMASANTA, RHUEL AGOO, BONIFACIO
ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA, ROBERTO
ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS
BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN GARCIA,
ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J.
GARCIA, FERNANDO MACABENTE, MELECIO CASAPAO, REYNALDO
JACABAN, FERDINAND SALVO, ALSTANDO MONTOS, RAINER N.
SALVADOR, RAMIL REYES, PEDRO G. ROY, LEONARDO P. TALLEDO,
ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO SOYOSA, ROMEO
VASQUEZ, JOEL BILLONES, ALLAN BALTAZAR, NOLI GABUYO,
EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL DULAY, TADEO DURAN,
JOSEPH BANICO, ALBERT LEYNES, ANTONIO DACUNA, RENATO
DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO, WILFREDO TORRES,
MELCHOR CARDANO, MARIANO NARANIAN, JOHN SUMERGIDO,
ROBERTO ROSALES, GERRY C. GATPO, GERMAN N. GUEVARRA,
GILBERT Y. MIRANDA, RODOLFO C. TOLEDO, ARNOLD D. LASTONA,
PHILIP M. LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ, FRED
P. JIMENEZ, RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE
ANDRES, ARTUZ BUSTENERA, ROBERTO B. CRUZ, ROSEDY O.
YORDAN, DENNIS DACASIN, ALEJANDRINO ABATON, AND ORLANDO
S. BALANGUE, PETITIONERS, VS. PROCTER & GAMBLE PHILS., INC.,
AND PROMM-GEM INC., RESPONDENTS.

DECISION

DEL CASTILLO, J.:

On March 9, 2010, this Court rendered a Decision [1] holding: (a) that Promm-
Gem, Inc. (Promm-Gem) is a legitimate independent contractor; (b) that Sales
and Promotions Services (SAPS) is a labor-only contractor consequently its
employees are considered employees of Procter & Gamble Phils., Inc. (P&G);
(c) that Promm-Gem is guilty of illegal dismissal; (d) that SAPS/P&G is likewise
guilty of illegal dismissal; (e) that petitioners are entitled to reinstatement; and (f)
that the dismissed employees of SAPS/P&G are entitled to moral damages and
attorney's fees there being bad faith in their dismissal.

The dispositive portion of our Decision reads:

WHEREFORE, the petition is GRANTED. The Decision dated March 21,

2003 of the Court of Appeals in CA-G.R. SP No. 52082 and the Resolution
dated October 20, 2003 are REVERSED and SET ASIDE. Procter & Gamble
Phils., Inc. and Promm-Gem, Inc. are ORDERED to reinstate their respective
employees immediately without loss of seniority rights and with full backwages
and other benefits from the time of their illegal dismissal up to the time of their
actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to
pay each of those petitioners considered as its employees, namely Arthur
Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr.,
Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz
David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega,
Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao,
Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G.
Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli
Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C.
Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P.
Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres,
Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue,
Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato
dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, P25,000.00 as
moral damages plus ten percent of the total sum as and for attorney's fees.

Let this case be REMANDED to the Labor Arbiter for the computation,
within 30 days from receipt of this Decision, of petitioners' backwages and
other benefits; and ten percent of the total sum as and for attorney's fees as
stated above; and for immediate execution.
SO ORDERED. [2]

P&G filed a Motion for Reconsideration,[3] an Opposition[4] (to petitioners' motion for
partial reconsideration), and Supplemental Opposition.[5] On the other hand,
petitioners filed a Motion for Partial Reconsideration[6] and Comment/ Opposition[7] (to
P&G's motion for reconsideration).

On June 16, 2010, we denied the Motion for Reconsideration of P&G as well as
the Motion for Partial Reconsideration of the petitioners.[8]

Entry of Judgment was made on July 27, 2010.[9]

Before any of the parties received the notice of Entry of Judgment, P&G filed
on August 9, 2010 a Motion for Leave to File Motion to Refer the Case to the Supreme
Court En Banc with Second Motion for Reconsideration and Motion for Clarification [10]
and a Motion to Refer the Case to the Supreme Court En Banc with Second Motion for
Reconsideration and Motion for Clarification. [11] On October 4, 2010, P&G filed a
Motion for Leave to Admit the Attached Supplement to the Motion to Refer the Case to the
Supreme Court En Banc with Second Motion for Reconsideration and Motion for
Clarification [12] as well as a Supplement to the Motion to Refer the Case to the Supreme
Court En Banc with Second Motion for Reconsideration and Motion for Clarification. [13]

Thereafter, or on November 8, 2010, P&G filed a Manifestation and Motion [14]

praying that its Motion for Leave to File Motion to Refer the Case to the Supreme Court
En Banc with Second Motion for Reconsideration and Motion for Clarification, Motion to
Refer the Case to the Supreme Court En Banc with Second Motion for Reconsideration and
Motion for Clarification, Motion for Leave to Admit the Attached Supplement to the Motion
to Refer the Case to the Supreme Court En Banc with Second Motion for Reconsideration and
Motion for Clarification as well as its Supplement to the Motion to Refer the Case to the
Supreme Court En Banc with Second Motion for Reconsideration and Motion for
Clarification, be resolved as they were filed before it received notice of the entry
of judgment.

In our Resolution [15] dated January 17, 2011, we resolved to note the aforesaid
pleadings and at the same time to require the petitioners to file their comment
thereto. We reiterated our directive for petitioners to file their comment via our
Resolution [16] dated February 28, 2011. On March 16, 2011, petitioners filed a
Very Urgent Manifestation [17] in lieu of their comment. In gist, they reminded
this Court of the Entry of Judgment made on July 27, 2010 and argued that the
motions filed by P&G are frivolous and dilatory.

Issuance of Entry of Judgment was Proper.

We stress that the issuance of the Entry of Judgment on July 27, 2010 was
proper because it was made after receipt by P&G of a copy of the Resolution
denying its motion for reconsideration. Section 1, Rule 15 of the Internal Rules
of the Supreme Court [18] provides that:

SECTION 1. Finality of decisions and resolutions. - A decision or resolution of the

Court may be deemed final after the lapse of fifteen days from receipt by the
parties of a copy of the same subject to the following:

(a) the date of receipt indicated in the registry return card signed by the party
or, in case he or she is represented by counsel, by such counsel or his or her
representative, shall be the reckoning date for counting the fifteen-day period;
and

(b) if the Judgment Division is unable to retrieve the registry return card within
thirty (30) days from mailing, it shall immediately inquire from the receiving post
office on (i) the date when the addressee received the mailed decision or
resolution, and (ii) who received the same, with the information provided by
authorized personnel of the said post office serving as the basis for the
computation of the fifteen-day period.

It is immaterial that the Entry of Judgment was made without the Court having
first resolved P&G's second motion for reconsideration. This is because the
issuance of the entry of judgment is reckoned from the time the parties received
a copy of the resolution denying the first motion for reconsideration. The filing
by P&G of several pleadings after receipt of the resolution denying its first
motion for reconsideration does not in any way bar the finality or entry of
judgment. Besides, to reckon the finality of a judgment from receipt of the
denial of the second motion for reconsideration would be absurd. First, the
Rules of Court and the Internal Rules of the Supreme Court prohibit the filing
of a second motion for reconsideration. Second, some crafty litigants may
resort to filing prohibited pleadings just to delay entry of judgment. Our ruling
in Securities and Exchange Commission v. PICOP Resources, Inc. [19] is instructive, thus:

In Dinglasan v. Court of Appeals, this Court explained the reason why it is unwise
to reckon the period of finality of judgment from the denial of the second
motion for reconsideration.

`To rule that finality of judgment shall be reckoned from the receipt of the
resolution or order denying the second motion for reconsideration would result
to an absurd situation whereby courts will be obliged to issue orders or
resolutions denying what is a prohibited motion in the first place, in order
that the period for the finality of judgments shall run, thereby, prolonging the
disposition of cases. Moreover, such a ruling would allow a party to forestall the
running of the period of finality of judgments by virtue of filing a prohibited
pleading; such a situation is not only illogical but also unjust to the winning
party.' [20]

The March 9, 2010 Decision has

attained finality; it is therefore
immutable.

The March 9, 2010 Decision had already attained finality. It could no longer be
set aside or modified.

It is a hornbook rule that once a judgment has become final and executory, it
may no longer be modified in any respect, even if the modification is meant to
correct an erroneous conclusion of fact or law, and regardless of whether the
modification is attempted to be made by the court rendering it or by the highest
court of the land, as what remains to be done is the purely ministerial
enforcement or execution of the judgment.

The doctrine of finality of judgment is grounded on fundamental considerations

of public policy and sound practice that at the risk of occasional errors, the
judgment of adjudicating bodies must become final and executory on some
definite date fixed by law. [...], the Supreme Court reiterated that the doctrine of
immutability of final judgment is adhered to by necessity notwithstanding
occasional errors that may result thereby, since litigations must somehow come
to an end for otherwise, it would 'even be more intolerable than the wrong and
injustice it is designed to correct.' [21]

In Mocorro, Jr. v. Ramirez, [22] we held that:

A definitive final judgment, however erroneous, is no longer subject to change

or revision.

A decision that has acquired finality becomes immutable and unalterable. This
quality of immutability precludes the modification of a final judgment, even if
the modification is meant to correct erroneous conclusions of fact and law. And
this postulate holds true whether the modification is made by the court that
rendered it or by the highest court in the land. The orderly administration of
justice requires that, at the risk of occasional errors, the judgments/resolutions
of a court must reach a point of finality set by the law. The noble purpose is to
write finis to dispute once and for all. This is a fundamental principle in our
justice system, without which there would be no end to litigations. Utmost
respect and adherence to this principle must always be maintained by those who
exercise the power of adjudication. Any act, which violates such principle, must
immediately be struck down. Indeed, the principle of conclusiveness of prior
adjudications is not confined in its operation to the judgments of what are
ordinarily known as courts, but extends to all bodies upon which judicial powers
had been conferred.

The only exceptions to the rule on the immutability of final judgments are (1)
the correction of clerical errors, (2) the so-called nunc pro tunc entries which cause
no prejudice to any party, and (3) void judgments. Nunc pro tunc judgments have
been defined and characterized by the Court in the following manner:

The object of a judgment nunc pro tunc is not the rendering of a new judgment
and the ascertainment and determination of new rights, but is one placing in
proper form on the record, the judgment that had been previously rendered, to
make it speak the truth, so as to make it show what the judicial action really was,
not to correct judicial errors, such as to render a judgment which the court
ought to have rendered, in place of the one it did erroneously render, nor to
supply nonaction by the court, however erroneous the judgment may have been.
(Wilmerding vs. Corbin Banking Co., 28 South., 640, 641; 126 Ala., 268.)
A nunc pro tunc entry in practice is an entry made now of something which was
actually previously done, to have effect as of the former date. Its office is not to
supply omitted action by the court, but to supply an omission in the record of
action really had, but omitted through inadvertence or mistake. (Perkins vs.
Haywood, 31 N. E., 670, 672)

A second motion for reconsideration

is a prohibited pleading.

Section 2, Rule 52 of the Rules of Court explicitly provides that "[n]o motion
for reconsideration of a judgment or final resolution by the same party shall be
entertained. Moreover, Section 3, Rule 15 of the Internal Rules of the Supreme
Court [23] decrees viz:

SEC. 3. Second motion for reconsideration. - The Court shall not entertain a second
motion for reconsideration and any exception to this rule can only be granted in
the higher interest of justice by the Court en banc upon a vote of at least two-
thirds of its actual membership. There is reconsideration 'in the highest interest
of justice' when the assailed decision is not only legally erroneous but is likewise
patently unjust and potentially capable of causing unwarranted and irremediable
injury or damage to the parties. A second motion for reconsideration can only
be entertained before the ruling sought to be reconsidered becomes final
by operation of law or by the Court's declaration.

In the Division, a vote of three Members shall be required to elevate a second

motion for reconsideration to the Court En Banc. [24]

Clearly, therefore, P&G's second motion for reconsideration could no longer be

entertained based on two grounds: First, it is a prohibited pleading. Second, the
ruling sought to be reconsidered has already become final per Entry of
Judgment made on July 27, 2010.

The foregoing notwithstanding, we will proceed to discuss the issues raised by

P&G - not because they are of transcendental importance or that P&G
proffered "extraordinarily persuasive reasons" [25] but only to dispel any doubt
that it is being denied due process.

The Court correctly determined that

SAPS is a labor-only contractor.

There is no basis for P&G's claim that the Court erred in not applying the
"four-fold" test, particularly the "control test" in determining whether SAPS is a
legitimate independent contractor or a labor-only contractor. As discussed in
our March 9, 2010 Decision, the applicable rules are Article 106 of the Labor
Code and Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor
Code, as amended by Department Order No. 18-02. [26]

Article 106 defines "labor-only" contracting, viz:

There is "labor-only" contracting where 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 the workers
recruited and placed by such person are performing activities which are directly
related to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were
directly employed by him.

On the same vein, Rule VIII-A, Book III of the Omnibus Rules Implementing
the Labor Code, as amended by Department Order No. 18-02, pertinently
provides:

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 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) [T]he contractor does not exercise the right to control over the performance
of the work of the contractual employee.
Therefore, the "control test" is merely one of the factors to consider. This is
clearly deduced from the above-provision which states that labor-only
contracting exists when any of the two elements is present. In our March 9,
2010 Decision, it was established that SAPS has no substantial capitalization and
it was performing merchandising and promotional activities which are directly
related to P&G's business. Since SAPS met one of the requirements, it was
enough basis for us to hold that it is a labor-only contractor. Consequently, its
principal, P&G, is considered the employer of its employees. This is pursuant
to our ruling in Aklan v. San Miguel Corporation [27] where we held that "[a]
finding that a contractor isa`labor-only'contractor, as opposed to
permissible job contracting, is equivalent to declaring that there is an
employer-employee relationship between the principal and the employees
of the supposed contractor, and the `labor-only' contractor is considered
as a mere agent of the principal, the real employer."

Corollarily, we also decreed in Coca-Cola Bottlers Phils., Inc. v. Agito [28] that:

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 employer 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 Court did not err in finding

that SAPS has no substantial capital.

P&G claims that contrary to the principle that "no absolute figure is set for what
is considered 'substantial capital'" because the same is "measured against the
type of work which the contractor is obligated to perform for the principal,"
[29] the March 9, 2010 Decision used the prevailing economic atmosphere in the
country and the capitalization of another contractor engaged to perform a
different kind of service to gauge the sufficiency or insufficiency of the
capitalization of SAPS.

This is misleading. Our discussion on whether Promm-Gem and SAPS have

substantial capitalization in our March 9, 2010 Decision is self-explanatory.

In the instant case, the financial statements of Promm-Gem show that it has
authorized capital stock of P1 million and a paid-in capital, or capital available
for operations, of P500,000.00 as of 1990. It also has long term assets worth
P432,895.28 and current assets of P719,042.32. Promm-Gem has also proven
that it maintained its own warehouse and office space with a floor area of 870
square meters. It also had under its name three registered vehicles which were
used for its promotional/merchandising business. Promm-Gem also has other
clients aside from P&G. Under the circumstances, we find that Promm-Gem
has substantial investment which relates to the work to be performed. These
facts negate the existence of the element specified in Section 5(i) of DOLE
Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with
the relevant materials, such as markers, tapes, liners and cutters, necessary for
them to perform their work. Promm-Gem also issued uniforms to them. It is
also relevant to mention that Promm-Gem already considered the complainants
working under it as its regular, not merely contractual or project,
employees. This circumstance negates the existence of element (ii) as stated in
Section 5 of DOLE Department Order No. 18-02, which speaks of contractual
employees. This, furthermore, negates - on the part of Promm-Gem - bad faith
and intent to circumvent labor laws which factors have often been tipping
points that lead the Court to strike down the employment practice or agreement
concerned as contrary to public policy, morals, good customs or public order.

Under the circumstances, Promm-Gem cannot be considered as a labor-only

contractor. We find that it is a legitimate independent contractor.

On the other hand, the Articles of Incorporation of SAPS shows that it has
a paid-in capital of only P31,250. There is no other evidence presented to
show how much its working capital and assets are. Furthermore, there is
no showing of substantial investment in tools, equipment or other assets.
In Vinoya v. National Labor Relations Commission, the Court held that "[w]ith the
current economic atmosphere in the country, the paid-in capitalization of PMCI
amounting to P75,000.00 cannot be considered as substantial capital and, as
such, PMCI cannot qualify as an independent contractor." Applying the same
rationale to the present case, it is clear that SAPS - having a paid-in capital of
only P31,250 - has no substantial capital. SAPS' lack of substantial capital
is underlined by the records which show that its payroll for its
merchandisers alone for one month would already total P44,561.00. It has
6-month contracts with P&G. Yet SAPS failed to show that it could
complete the 6-month contracts using its own capital and investment. Its
capital is not even sufficient for one month's payroll. SAPS failed to show
that its paid-in capital of P31,250.00 is sufficient for the period required
for it to generate [the] needed revenue to sustain its operations
independently. Substantial capital refers to capitalization used in the
performance or completion of the job, work or service contracted out. In
the present case, SAPS failed to show substantial capital. [30]

The awards of moral damages

and attorney's fees are proper.

P&G insists that to be entitled to moral damages, "it must be proven that the
act of dismissal was attended by bad faith or fraud, or was oppressive to labor,
or done in a manner contrary to morals, good customs, or public policy".
[31] Our March 9, 2010 Decision complied with this requirement when we ruled

in this wise:

We now go to the issue of whether petitioners are entitled to damages. Moral

and exemplary damages are recoverable where the dismissal of an employee was
attended by bad faith or fraud or constituted an act oppressive to labor or was
done in a manner contrary to moral, good customs or public policy.

With regard to the employees of Promm-Gem, there being no evidence of bad

faith, fraud or any oppressive act on the part of the latter, we find no support
for the award of damages.

As for P&G, the records show that it dismissed its employees through
SAPS in a manner oppressive to labor. The sudden and peremptory
barring of concerned petitioners from work, and from admission to the
work place, after just a one-day verbal notice, and for no valid cause
bellows oppression and utter disregard of the right to the due process of
the concerned petitioners. Hence, an award of moral damages is called
for.

Attorney's fees may likewise be awarded to the concerned petitioners who were
illegally dismissed in bad faith and were compelled to litigate or incur expenses
to protect their rights by reason of the oppressive acts of P&G. [32]

Nevertheless, P&G insists that there is no evidence to prove that it dismissed

the petitioners, much less that it was done in an oppressive manner. [33] It claims
that if there was any bad faith in the dismissal of the petitioners, it could only be
attributed to SAPS and not to P&G. [34] It asserts that it acted in good faith in
dealing with SAPS.

The contentions are untenable. It must be emphasized that in labor-only

contracting, "the labor-only contractor is considered merely an agent of the
principal employer. The principal employer 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." [35]

P&G's assertions that it was held responsible

for 10 employees despite their having no record
of having been assigned by SAPS to P&G
and that petitioners could not be reinstated because
there are no available positions for them in the
existing plantilla of P&G are belatedly raised.

P&G claims that 10 out of the 50 employees of SAPS have never been assigned
to P&G; thus, they should not be declared employees of P&G. [36] In particular,
P&G asserts that Rosedy Yordan, Dennis Dacasin, Allan Baltazar, Philip Loza,
Emil Tawat, Cresente Garcia, Romeo Vasquez, Renato dela Cruz, Romeo
Viernes, Jr. and Elias Basco, were never assigned to it.

It would appear that this issue was raised for the first time in P&G's second
motion for reconsideration. It will be noted that in petitioners' Petition for
Review on Certiorari, [37] and even in petitioners' previous pleadings, it was
alleged already that Rosedy Yordan, [38] Dennis Dacasin, [39] Allan Baltazar, [40]
Philip Loza, [41] Emil Tawat, [42] Cresente Garcia, [43] Romeo Vasquez, [44] Renato
dela Cruz, [45] Romeo Viernes, Jr. [46] and Elias Basco [47] were employees of
P&G through its own agents and salesmen. However, this was never rebutted
by P&G. In fact, in its Comment [48] P&G even alleged that "it was amply
shown throughout the course of the proceedings that the respondent
contractors, through an assigned supervisor, regularly checked the attendance of
the petitioners, monitored their on-site performance, and oversaw their actual
day-to-day work in the areas where they had been engaged to promote the
products of respondent P&G." [49] This alone belies the claim that these 10
petitioners were never assigned by SAPS to P&G. Moreover, this issue has not
been raised in P&G's Memorandum; consequently it is now considered as
waived or abandoned. In our January 29, 2007 Resolution [50] we apprised both
parties that "[n]o new issues may be raised by a party in his/its memorandum
and the issues raised in his/its pleadings but not included in the memorandum
shall be deemed waived or abandoned. Being summations of the parties'
previous pleadings, the Court may consider the memoranda alone in deciding or
resolving this petition."

Likewise raised belatedly is P&G's claim that petitioners could no longer be

reinstated because its existing plantilla does not have positions for them; that
there is a climate of antagonism pervading between the parties; and because of
the prolonged period of time that has passed between the dismissals and the
resolution of the case. We note that petitioners had been consistently praying
for reinstatement as shown in their Memorandum filed before the Labor
Arbiter, Memorandum of Appeal filed before the National Labor Relations
Commission, Motion for Reconsideration filed before the Court of Appeals,
and their Petition for Review on Certiorari and Memorandum filed before this
Court. However, in P&G's Memorandum filed before this Court, it merely
confined its discussion to the fact that it was allegedly not the employer of the
herein petitioners and proceeded to argue that there being no employer-
employee relationship between it and the petitioners, then petitioners' "claims
for backwages, monetary claims, damages and/or attorney's fees" [51] are without
basis. It omitted to mention the issue of reinstatement which is one of
petitioners' causes of action.
Even after the rendition of our March 9, 2010 Decision where we ordered the
reinstatement of the petitioners, P&G still failed to raise the non-feasibility of
the same. In its Motion for Reconsideration, [52] P&G only tersely stated that
there is no basis for petitioners' reinstatement or payment of backwages because
they are not its employees. It is only now that it is raising the issue that no
similar or equivalent position exists in its plantilla and that there is existing
antagonism between the parties. [53] It is likewise in its second motion for
reconsideration and in its supplement thereto that P&G is raising the issue that
reinstatement is no longer feasible because of the "length of time that has
passed from the date of their dismissal to the final resolution of the case."
[54] P&G failed to raise this matter in its first motion for reconsideration. It was

only after the Decision became final and executory that it brought this issue to
the attention of the Court. For the orderly administration of justice, the rules of
court provide for only one motion for reconsideration so errors committed by
the Court may be brought to its attention and the Court be given a chance to
timely correct its mistake. It wreaks havoc on the administration of justice to
allow parties to move for a reconsideration of a decision in a piecemeal manner
and with no time limit. Even P&G concedes to this principle when it stated in
its Supplemental Opposition [55] (to petitioners' motion for partial
reconsideration) that "to allow fresh issues on appeal is violative of the
rudiments of fair play, justice and due process". [56]

"Well-settled is the rule that issues or grounds not raised below cannot be
resolved on review by the Supreme Court, for to allow the parties to raise new
issues is antithetical to the sporting idea of fair play, justice and due
process. Issues not raised during the trial cannot be raised for the first time on
appeal and more especially on motion for reconsideration. Litigation must end
at some point; once the case is finally adjudged, the parties must learn to accept
victory or defeat." [57] Finally, we wish to reiterate our discussion above that a
second motion for reconsideration is a prohibited pleading and that the instant
Decision had already attained finality hence it is already immutable.

Every case must end at some some point. Every Decision becomes final and
executory at some point. In the present case, the Entry of Judgment states that
the Decision became final and executory on July 27, 2010.

ACCORDINGLY, premises considered, we DENY with FINALITY

respondent Procter & Gamble Phils., Inc.'s Motion to Refer the Case to the
Supreme Court En Banc with Second Motion for Reconsideration and Motion
for Clarification and its Supplement to the Motion to Refer the Case to the
Supreme Court En Banc with Second Motion for Reconsideration and Motion
for Clarification considering that the assailed March 9, 2010 Decision has
already attained finality in view of the Entry of Judgment made on July 27,
2010. No further pleadings shall be entertained.

SO ORDERED.

Corona, C.J., (Chairman), Velasco, Jr., Leonardo-De Castro, and Perez, JJ., concur.

* Also spelled as Gregore in some parts of the records.

** Also spelled as Elias Basco in some parts of the records.

Penned by Associate Justice Mariano C. Del Castillo and concurred in by

[1]

Associate Justices Antonio T. Carpio, Arturo D. Brion, Roberto A. Abad and

Jose Portugal Perez.

[2] Rollo, pp. 852-853.

[3] Id. at 908-938.

[4] Id. at 986-1000.

[5] Id. at 1052-1066.

[6] Id. at 939-954.

[7] Id. at 1030-1047.

[8] Id. at 1001-1001-A.

In a notice dated October 20, 2010, the Judicial Records Office, Judgment
[9]

Division, informed the parties that an Entry of Judgment was made on July 27,
2010. Id. at 1171-1172.
[10] Id. at 1080-1086.

[11] Id. at 1087-1134.

[12] Id. at 1146-1150.

[13] Id. at 1151-1164.

[14] Id. at 1186-1193.

[15] Id. at 2199-2200.

[16] Id. at 2281-2282.

[17] Id. at 1652-1656.

[18] A.M. No. 10-4-20-SC.

[19] G.R. No. 164314, September 26, 2008, 566 SCRA 451.

[20] Id. at 467-468.

Vios v. Pantangco, Jr., G.R. No. 163103, February 6, 2009, 578 SCRA 129, 143-
[21]

144. Citation omitted.

[22] G.R. No. 178366, July 28, 2008, 560 SCRA 362, 372-373.

[23] A.M. No. 10-4-20-SC.

[24] Emphasis supplied.

United Planters Sugar Milling Company, Inc. v. Court of Appeals, G.R. No. 126890,
[25]

March 9, 2010, 614 SCRA 451, 463.

[26] Rollo, pp. 840-841.

[27] G.R. No. 168537, December 11, 2008, 573 SCRA 675, 685.
[28] G.R. No. 179546, February 13, 2009, 579 SCRA 445, 460-461.

[29] Rollo, p. 1106 citing Coca-cola Bottlers Phils, Inc. v. Agito, supra.

[30] Id. at 842-844.

[31] Id. at 1117.

[32] Id. at 850-851.

[33] Id. at 1118.

[34] Id. at 1119-1120.

PCI Automation Center, Inc. v. National Labor Relations Commission, 322 Phil. 536,
[35]

548 (1996) citing Philippine Bank of Communications v. National Labor Relations

Commission, 230 Phil. 430, (1986).

[36] Rollo, pp. 1126-1127.

[37] Id. at 19-85.

[38] Id. at 31, as #77.

[39] Id. at 31 as #78.

[40] Id. at 30, as #47.

[41] Id. at 31 as #69.

[42] Id. at 30 as # 30.

[43] Id. at 31 as #32.

[44] Id. at 30 as #45.

[45] Id. at 31 as #56.

[46] Id. at 31 as #57.

[47] Id. at 31 as #58.

[48] Id. at 357.

[49] Id. at 376.

[50] Id. at 652-653.

[51] Rollo, p. 748.

[52] Id. at 929.

[53] Id. at 1128-1129.

[54] Id. at 1155.

[55] Id. at 1052-1066.

Id. at 1056, citing Labor Congress of the Philippines v. National Labor Relations
[56]

Commission, 354 Phil. 481, 490 (1998).

Cuenco v. Talisay Tourist Sports Complex, Incorporated, G.R. No. 174154, July 30,
[57]

2009, 594 SCRA 396, 399-400.

 SECOND DIVISION
G.R. No. 186965, December 23, 2009
TEMIC AUTOMOTIVE PHILIPPINES, INC., PETITIONER, VS. TEMIC
AUTOMOTIVE PHILIPPINES, INC. EMPLOYEES UNION-FFW,
RESPONDENT.

DECISION

BRION, J.:

We resolve the present petition for review on certiorari[1] filed by Temic

Automotive Philippines Inc. (petitioner) to challenge the decision[2] and
resolution[3] of the Court of Appeals (CA) in CA-G.R. SP No. 99029.[4]

The Antecedents

The petitioner is a corporation engaged in the manufacture of electronic brake

systems and comfort body electronics for automotive vehicles. Respondent
Temic Automotive Philippines, Inc. Employees Union-FFW (union) is the
exclusive bargaining agent of the petitioner's rank-and-file employees. On May
6, 2005, the petitioner and the union executed a collective bargaining agreement
(CBA) for the period January 1, 2005 to December 31, 2009.

The petitioner is composed of several departments, one of which is the

warehouse department consisting of two warehouses - the electronic braking
system and the comfort body electronics. These warehouses are further divided
into four sections - receiving section, raw materials warehouse section, indirect
warehouse section and finished goods section. The union members are regular
rank-and-file employees working in these sections as clerks, material handlers,
system encoders and general clerks. Their functions are interrelated and include:
receiving and recording of incoming deliveries, raw materials and spare parts;
checking and booking-in deliveries, raw materials and spare parts with the use of
the petitioner's system application processing; generating bar codes and sticking
these on boxes and automotive parts; and issuing or releasing spare parts and
materials as may be needed at the production area, and piling them up by means
of the company's equipment (forklift or jacklift).
By practice established since 1998, the petitioner contracts out some of the
work in the warehouse department, specifically those in the receiving and
finished goods sections, to three independent service providers or forwarders
(forwarders), namely: Diversified Cargo Services, Inc. (Diversified), Airfreight 2100
(Airfreight) and Kuehne & Nagel, Inc. (KNI). These forwarders also have their
own employees who hold the positions of clerk, material handler, system
encoder and general clerk. The regular employees of the petitioner and those of
the forwarders share the same work area and use the same equipment, tools and
computers all belonging to the petitioner.

This outsourcing arrangement gave rise to a union grievance on the issue of the
scope and coverage of the collective bargaining unit, specifically to the question
of "whether or not the functions of the forwarders' employees are functions being performed by
the regular rank-and-file employees covered by the bargaining unit."[5] The union thus
demanded that the forwarders' employees be absorbed into the petitioner's
regular employee force and be given positions within the bargaining unit. The
petitioner, on the other hand, on the premise that the contracting arrangement
with the forwarders is a valid exercise of its management prerogative, posited
that the union's position is a violation of its management prerogative to
determine who to hire and what to contract out, and that the regular rank-and-
file employees and their forwarders' employees serving as its clerks, material
handlers, system encoders and general clerks do not have the same functions as
regular company employees.

The union and the petitioner failed to resolve the dispute at the grievance
machinery level, thus necessitating recourse to voluntary arbitration. The parties
chose Atty. Roberto A. Padilla as their voluntary arbitrator. Their voluntary
arbitration submission agreement delineated the issues to be resolved as follows:

1. Whether or not the company validly contracted out or

outsourced the services involving forwarding, packing,
loading and clerical activities related thereto; and

2. Whether or not the functions of the forwarders' employees

are functions being performed by regular rank-and-file
employees covered by the bargaining unit.[6]
To support its position, the union submitted in evidence a copy of the complete
manpower complement of the petitioner's warehouse department as of January
3, 2007[7] showing that there were at the time 19 regular company employees
and 26 forwarder employees. It also presented the affidavits[8] of Edgardo P.
Usog, Antonio A. Muzones, Endrico B. Dumolong, Salvador R. Vargas and
Harley J. Noval, regular employees of the petitioner, who deposed that they and
the forwarders' employees assigned at the warehouse department were
performing the same functions. The union also presented the affidavits of Ramil
V. Barit[9] (Barit), Jonathan G. Prevendido[10] (Prevendido) and Eduardo H.
Enano[11] (Enano), employees of forwarder KNI, who described their work at
the warehouse department.

In its submission,[12] the petitioner invoked the exercise of its management

prerogative and its authority under this prerogative to contract out to
independent service providers the forwarding, packing, loading of raw materials
and/or finished goods and all support and ancillary services (such as clerical
activities) for greater economy and efficiency in its operations. It argued that in
Meralco v. Quisumbing[13] this Court explicitly recognized that the contracting out
of work is an employer proprietary right in the exercise of its inherent
management prerogative.

The forwarders, the petitioners alleged, are all highly reputable freight
forwarding companies providing total logistics services such as customs
brokerage that includes the preparation and processing of import and export
documentation, cargo handling, transport (air, land or sea), delivery and
trucking; and they have substantial capital and are fully equipped with the
technical knowledge, facilities, equipment, materials, tools and manpower to
service the company's forwarding, packing and loading requirements.
Additionally, the petitioner argued that the union is not in a position to question
its business judgment, for even their CBA expressly recognizes its prerogative to
have exclusive control of the management of all functions and facilities in the
company, including the exclusive right to plan or control operations and
introduce new or improved systems, procedures and methods.

The petitioner maintained that the services rendered by the forwarders'

employees are not the same as the functions undertaken by regular rank-and-file
employees covered by the bargaining unit; therefore, the union's demand that
the forwarders' employees be assimilated as regular company employees and
absorbed by the collective bargaining unit has no basis; what the union asks
constitutes an unlawful interference in the company's prerogative to choose who
to hire as employees. It pointed out that the union could not, and never did,
assert that the contracting-out of work to the service providers was in violation
of the CBA or prohibited by law.

The petitioner explained that its regular employees' clerical and material
handling tasks are not identical with those done by the service providers; the
clerical work rendered by the contractors are recording and documentation tasks
ancillary to or supportive of the contracted services of forwarding, packing and
loading; on the other hand, the company employees assigned as general clerks
prepare inventory reports relating to its shipments in general to ensure that the
recording of inventory is consistent with the company's general system;
company employees assigned as material handlers essentially assist in counter-
checking and reporting activities to ensure that the contractors' services comply
with company standards.

The petitioner submitted in evidence the affidavits of Antonio Gregorio[14]

(Gregorio), its warehouse manager, and Ma. Maja Bawar[15] (Bawar), its section
head.

The Voluntary Arbitration Decision

In his decision of May 1, 2007,[16] the voluntary arbitrator defined forwarding as

a universally accepted and normal business practice or activity, and ruled that
the company validly contracted out its forwarding services. The voluntary
arbitrator observed that exporters, in utilizing forwarders as travel agents of
cargo, mitigate the confusion and delays associated with international trade
logistics; the company need not deal with many of the details involved in the
export of goods; and given the years of experience and constant attention to
detail provided by the forwarders, it may be a good investment for the company.
He found that the outsourcing of forwarding work is expressly allowed by the
rules implementing the Labor Code.[17]

At the same time, however, the voluntary arbitrator found that the petitioner
went beyond the limits of the legally allowable contracting out because the
forwarders' employees encroached upon the functions of the petitioner's regular
rank-and-file workers. He opined that the forwarders' personnel serving as
clerks, material handlers, system encoders and general clerks perform "functions
[that] are being performed by regular rank-and-file employees covered by the bargaining unit."
He also noted that the forwarders' employees perform their jobs in the company
warehouse together with the petitioner's employees, use the same company tools
and equipment and work under the same company supervisors - indicators that
the petitioner exercises supervision and control over all the employees in the
warehouse department. For these reasons, he declared the forwarders'
employees serving as clerks, material handlers, system encoders and general
clerks to be "employees of the company who are entitled to all the rights and privileges of
regular employees of the company including security of tenure."[18]

The petitioner sought relief from the CA through a petition for review under
Rule 43 of the Rules of Court invoking questions of facts and law.[19] It
specifically questioned the ruling that the company did not validly contract out
the services performed by the forwarders' clerks, material handlers, system
encoders and general clerks, and claimed that the voluntary arbitrator acted in
excess of his authority when he ruled that they should be considered regular
employees of the company.

The CA Decision

In its decision of October 28, 2008,[20] the CA fully affirmed the voluntary
arbitrator's decision and dismissed the petition for lack of merit. The discussion
essentially focused on three points. First, that decisions of voluntary arbitrators
on matters of fact and law, acting within the scope of their authority, are
conclusive and constitute res adjudicata on the theory that the parties agreed that
the voluntary arbitrator's decision shall be final. Second, that the petitioner has
the right to enter into the forwarding agreements, but these agreements should
be limited to forwarding services; the petitioner failed to present clear and
convincing proof of the delineation of functions and duties between company
and forwarder employees engaged as clerks, material handlers, system encoders
and general clerks; thus, they should be considered regular company employees.
Third, on the extent of the voluntary arbitrator's authority, the CA acknowledged
that the arbitrator can only decide questions agreed upon and submitted by the
parties, but maintained that the arbitrator also has the power to rule on
consequential issues that would finally settle the dispute. On this basis, the CA
justified the ruling on the employment status of the forwarders' clerks, material
handlers, system encoders and general clerks as a necessary consequence that
ties up the loose ends of the submitted issues for a final settlement of the
dispute.

The CA denied the petitioner's motion for reconsideration, giving way to the
present petition.

The Petition

The petition questions as a preliminary issue the CA ruling that decisions of

voluntary arbitrators are conclusive and constitute res adjudicata on the facts and
law ruled upon.

Expectedly, it cites as error the voluntary arbitrator's and the CA's rulings that:
(a) the forwarders' employees undertaking the functions of clerks, material
handlers, system encoders and general clerks exercise the functions of regular
company employees and are subject to the company's control; and (b) the
functions of the forwarders' employees are beyond the limits of what the law
allows for a forwarding agreement.

The petitioner reiterates that there are distinctions between the work of the
forwarders' employees and that of the regular company employees. The
receiving, unloading, recording or documenting of materials the forwarders'
employees undertake form part of the contracted forwarding services. The
similarity of these activities to those performed by the company's regular
employees does not necessarily lead to the conclusion that the forwarders'
employees should be absorbed by the company as its regular employees. No
proof was ever presented by the union that the company exercised supervision
and control over the forwarders' employees. The contracted services and even
the work performed by the regular employees in the warehouse department are
also not usually necessary and desirable in the manufacture of automotive
electronics which is the company's main business. It adds that as held in
Philippine Global Communications, Inc. v. De Vera,[21] management can contract out
even services that are usually necessary or desirable in the employer's business.

On the issue of jurisdiction, the petitioner argues that the voluntary arbitrator
neither had jurisdiction nor basis to declare the forwarders' personnel as regular
employees of the company because the matter was not among the issues
submitted by the parties for arbitration; in voluntary arbitration, it is the parties'
submission of the issues that confers jurisdiction on the voluntary arbitrator.
The petitioner finally argues that the forwarders and their employees were not
parties to the voluntary arbitration case and thus cannot be bound by the
voluntary arbitrator's decision.

The Case for the Union

In its comment,[22] the union takes exception to the petitioner's position that the
contracting out of services involving forwarding and ancillary activities is a valid
exercise of management prerogative. It posits that the exercise of management
prerogative is not an absolute right, but is subject to the limitation provided for
by law, contract, existing practice, as well as the general principles of justice and
fair play. It submits that both the law and the parties' CBA prohibit the
petitioner from contracting out to forwarders the functions of regular
employees, especially when the contracting out will amount to a violation of the
employees' security of tenure, of the CBA provision on the coverage of the
bargaining unit, or of the law on regular employment.

The union disputes the petitioner's claim that there is a distinction between the
work being performed by the regular employees and that of the forwarders'
employees. It insists that the functions being assigned, delegated to and
performed by employees of the forwarders are also those assigned, delegated to
and being performed by the regular rank-and-file employees covered by the
bargaining unit.

On the jurisdictional issue, the union submits that while the submitted issue is
"whether or not the functions of the forwarders' employees are functions being performed by the
regular rank-and-file employees covered by the bargaining unit," the ruling of the
voluntary arbitrator was a necessary consequence of his finding that the
forwarders' employees were performing functions similar to those being
performed by the regular employees of the petitioner. It maintains that it is
within the power of the voluntary arbitrator to rule on the issue since it is
inherently connected to, or a consequence of, the main issues resolved in the
case.

The Court's Ruling

We find the petition meritorious.

Underlying Jurisdictional Issues

As submitted by the parties, the first issue is "whether or not the company validly
contracted out or outsourced the services involving forwarding, packing, loading and clerical
activities related thereto." However, the forwarders, with whom the petitioner had
written contracts for these services, were never made parties (and could not
have been parties to the voluntary arbitration except with their consent) so that
the various forwarders' agreements could not have been validly impugned
through voluntary arbitration and declared invalid as against the
forwarders.

The second submitted issue is "whether or not the functions of the forwarders' employees
are functions being performed by regular rank-and-file employees covered by the bargaining
unit." While this submission is couched in general terms, the issue as discussed
by the parties is limited to the forwarders' employees undertaking services as
clerks, material handlers, system encoders and general clerks, which functions
are allegedly the same functions undertaken by regular rank-and-file company
employees covered by the bargaining unit. Either way, however, the issue
poses jurisdictional problems as the forwarders' employees are not parties
to the case and the union has no authority to speak for them.

From this perspective, the voluntary arbitration submission covers matters

affecting third parties who are not parties to the voluntary arbitration and over
whom the voluntary arbitrator has no jurisdiction; thus, the voluntary arbitration
ruling cannot bind them.[23] While they may voluntarily join the voluntary
arbitration process as parties, no such voluntary submission appears in the
record and we cannot presume that one exists. Thus, the voluntary arbitration
process and ruling can only be recognized as valid between its immediate parties
as a case arising from their collective bargaining agreement. This limited scope,
of course, poses no problem as the forwarders and their employees are not
indispensable parties and the case is not mooted by their absence. Our ruling
will fully bind the immediate parties and shall fully apply to, and clarify the terms
of, their relationship, particularly the interpretation and enforcement of the CBA
provisions pertinent to the arbitrated issues.
Validity of the Contracting Out

The voluntary arbitration decision itself established, without objection from the
parties, the description of the work of forwarding as a basic premise for its
ruling. We similarly find the description acceptable and thus adopt it as our own
starting point in considering the nature of the service contracted out when the
petitioner entered into its forwarding agreements with Diversified, Airfreight
and KNI. To quote the voluntary arbitration decision:

As forwarders they act as travel agents for cargo. They specialize in arranging
transport and completing required shipping documentation of respondent's
company's finished products. They provide custom crating and packing
designed for specific needs of respondent company. These freight forwarders
are actually acting as agents for the company in moving cargo to an overseas
destination. These agents are familiar with the import rules and regulations, the
methods of shipping, and the documents related to foreign trade. They
recommend the packing methods that will protect the merchandise during
transit. Freight forwarders can also reserve for the company the necessary space
on a vessel, aircraft, train or truck.

They also prepare the bill of lading and any special required documentation.
Freight forwarders can also make arrangement with customs brokers overseas
that the goods comply with customs export documentation regulations. They
have the expertise that allows them to prepare and process the documentation
and perform related activities pertaining to international shipments. As an
analogy, freight forwarders have been called travel agents for freight.[24]

Significantly, both the voluntary arbitrator and the CA recognized that the
petitioner was within its right in entering the forwarding agreements with the
forwarders as an exercise of its management prerogative. The petitioner's
declared objective for the arrangement is to achieve greater economy and
efficiency in its operations - a universally accepted business objective and
standard that the union has never questioned. In Meralco v. Quisumbing,[25] we
joined this universal recognition of outsourcing as a legitimate activity when we
held that a company can determine in its best judgment whether it should
contract out a part of its work for as long as the employer is motivated by good
faith; the contracting is not for purposes of circumventing the law; and does
not involve or be the result of malicious or arbitrary action.
While the voluntary arbitrator and the CA saw nothing irregular in the
contracting out as a whole, they held otherwise for the ancillary or support
services involving clerical work, materials handling and documentation. They
held these to be the same as the workplace activities undertaken by regular
company rank-and-file employees covered by the bargaining unit who work
under company control; hence, they concluded that the forwarders' employees
should be considered as regular company employees.

Our own examination of the agreement shows that the forwarding arrangement
complies with the requirements of Article 106[26] of the Labor Code and its
implementing rules.[27] To reiterate, no evidence or argument questions the
company's basic objective of achieving "greater economy and efficiency of operations."
This, to our mind, goes a long way to negate the presence of bad faith. The
forwarding arrangement has been in place since 1998 and no evidence has been
presented showing that any regular employee has been dismissed or displaced by
the forwarders' employees since then. No evidence likewise stands before us
showing that the outsourcing has resulted in a reduction of work hours or the
splitting of the bargaining unit - effects that under the implementing rules of
Article 106 of the Labor Code can make a contracting arrangement illegal. The
other requirements of Article 106, on the other hand, are simply not material to
the present petition. Thus, on the whole, we see no evidence or argument
effectively showing that the outsourcing of the forwarding activities violate our
labor laws, regulations, and the parties' CBA, specifically that it interfered with,
restrained or coerced employees in the exercise of their rights to self-
organization as provided in Section 6, par. (f) of the implementing rules. The
only exception, of course, is what the union now submits as a voluntary
arbitration issue - i.e., the failure to recognize certain forwarder employees as
regular company employees and the effect of this failure on the CBA's scope of
coverage - which issue we fully discuss below.

The job of forwarding, as we earlier described, consists not only of a single

activity but of several services that complement one another and can best be
viewed as one whole process involving a package of services. These services
include packing, loading, materials handling and support clerical activities, all of
which are directed at the transport of company goods, usually to foreign
destinations.
It is in the appreciation of these forwarder services as one whole package of
inter-related services that we discern a basic misunderstanding that results in the
error of equating the functions of the forwarders' employees with those of
regular rank-and-file employees of the company. A clerical job, for example,
may similarly involve typing and paper pushing activities and may be done on
the same company products that the forwarders' employees and company
employees may work on, but these similarities do not necessarily mean that all
these employees work for the company. The regular company employees, to be
sure, work for the company under its supervision and control, but forwarder
employees work for the forwarder in the forwarder's own operation that is itself
a contracted work from the company. The company controls its employees in
the means, method and results of their work, in the same manner that the
forwarder controls its own employees in the means, manner and results of their
work. Complications and confusion result because the company at the same
time controls the forwarder in the results of the latter's work, without
controlling however the means and manner of the forwarder employees' work.
This interaction is best exemplified by the adduced evidence, particularly the
affidavits of petitioner's warehouse manager Gregorio[28] and Section Head
Bawar[29] discussed below.

From the perspective of the union in the present case, we note that the
forwarding agreements were already in place when the current CBA was
signed.[30] In this sense, the union accepted the forwarding arrangement, albeit
implicitly, when it signed the CBA with the company. Thereby, the union
agreed, again implicitly by its silence and acceptance, that jobs related to the
contracted forwarding activities are not regular company activities and are not to
be undertaken by regular employees falling within the scope of the bargaining
unit but by the forwarders' employees. Thus, the skills requirements and job
content between forwarders' jobs and bargaining unit jobs may be the same, and
they may even work on the same company products, but their work for
different purposes and for different entities completely distinguish and separate
forwarder and company employees from one another. A clerical job, therefore,
if undertaken by a forwarders' employee in support of forwarding activities, is
not a CBA-covered undertaking or a regular company activity.

The best evidence supporting this conclusion can be found in the CBA itself,
Article 1, Sections 1, 2, 3 and 4 (VII) of which provide:
Section 1. Recognition and Bargaining Unit. - Upon the union's
representation and showing of continued majority status among the
employees covered by the bargaining unit as already appropriately
constituted, the company recognizes the union as the sole and exclusive
collective bargaining representative of all its regular rank-and-file
employees, except those excluded from the bargaining unit as hereinafter
enumerated in Sections 2 and 3 of this Article, for purposes of collective
bargaining in respect to their rates of pay and other terms and condition of
employment for the duration of this Agreement.

Section 2. Exclusions. The following employment categories are expressly

excluded from the bargaining unit and from the scope of this Agreement:
executives, managers, supervisors and those employees exercising any of the
attributes of a managerial employee; Accounting Department, Controlling
Department, Human Resources Department and IT Department employees,
department secretaries, the drivers and personnel assigned to the Office of the
General Manager and the Office of the Commercial Affairs and Treasury,
probationary, temporary and casual employees, security guards, and other
categories of employees declared by law to be eligible for union membership.

Section 3. Additional Exclusions. Employees within the bargaining unit

heretofore defined, who are promoted or transferred to an excluded
employment category as herein before enumerated, shall automatically be
considered as resigned and/or disqualified from membership in the UNION
and automatically removed from the bargaining unit.

Section 4. Definitions - x x x

VII. A regular employee is one who having satisfactorily undergone the

probationary period of employment and passed the company's full requirement
for regular employees, such as, but not limited to physical fitness, proficiency,
acceptable conduct and good moral character, received an appointment as a
regular employee duly signed by the authorized official of the COMPANY.

[Emphasis supplied.]

When these CBA provisions were put in place, the forwarding agreements had
been in place so that the forwarders' employees were never considered as
company employees who would be part of the bargaining unit. To be precise,
the forwarders' employees and their positions were not part of the appropriate
bargaining unit "as already constituted." In fact, even now, the union
implicitly recognizes forwarding as a whole as a legitimate non-company activity
by simply claiming as part of their unit the forwarders' employees undertaking
allied support activities.

At this point, the union cannot simply turn around and claim through voluntary
arbitration the contrary position that some forwarder employees should be
regular employees and should be part of its bargaining unit because they
undertake regular company functions. What the union wants is a function of
negotiations, or perhaps an appropriate action before the National Labor
Relations Commission impleading the proper parties, but not a voluntary
arbitration that does not implead the affected parties. The union must not
forget, too, that before the inclusion of the forwarders' employees in the
bargaining unit can be considered, these employees must first be proven to be
regular company employees. As already mentioned, the union does not even
have the personality to make this claim for these forwarders' employees. This is
the impenetrable wall that the union cannot, for now, pass through using the
voluntary arbitration proceedings now before us on appeal.

Significantly, the evidence presented does not also prove the union's point that
forwarder employees undertake company rather than the forwarders' activities.
We say this mindful that forwarding includes a whole range of activities that
may duplicate company activities in terms of the exact character and content of
the job done and even of the skills required, but cannot be legitimately labeled
as company activities because they properly pertain to forwarding that the
company has contracted out.

The union's own evidence, in fact, speaks against the point the union wishes to
prove. Specifically, the affidavits of forwarder KNI employees Barit,
Prevendido, and Enano, submitted in evidence by the union, confirm that the
work they were doing was predominantly related to forwarding or the shipment
or transport of the petitioner's finished goods to overseas destinations,
particularly to Germany and the United States of America (USA).

Barit[31] deposed that on August 2, 2004 he started working at the petitioner's

CBE finished goods area as an employee of forwarder Emery Transnational Air
Cargo Group; on the same date, he was absorbed by KNI and was assigned the
same task of a loader; his actual work involved: making of inventories of CBE
finished products in the warehouse; double checking of the finished products he
inventoried and those received by the other personnel of KNI; securing from
his superior the delivery note and print-out indicating the model and the
quantity of products to be exported to Germany; and preparing the loading
form and then referring it to his co-workers from the forwarders who gather the
goods to be transported to Germany based on the model and quantity needed;
with the use of the computer, printing the airway bill which serves as cargo
ticket for the airline and posted on every box of finished products before
loading on the van of goods bound for Germany; preparing the gate pass for the
van. He explained that other products to be shipped to the USA, via sea
transport, are picked up by the other forwarders and brought to their warehouse
in Parañaque.

Prevendido,[32] also a loader, stated that his actual work involved loading into the
container van finished CBE products bound for Germany; when there is a build
up for the E.K. Express (Emirates Airlines), he is sent by the petitioner to the
airlines to load the finished products and check if they are in good condition;
although the inspection and checking of loaded finished products should be
done by a company supervisor or clerk, he is asked to do them because he is
already there in the area; he also conducts an inventory of finished goods in the
finished goods area, prepares loading form schedule and generates the airway
bill and is asked by his supervisor to call up KNI for the airway bill number.

Enano,[33] for his part, stated that on November 11, 1998, he was absorbed by
KNI after initially working in 1996 for a janitorial service agency which had a
contract with the petitioner, he was also a loader and assigned at the finished
goods section in the warehouse department; his actual work involved preparing
the gate pass for finished products of the petitioner to be released; loading the
finished products on the truck and calling up KNI (Air Freight Department) to
check on the volume of the petitioner's products for export; making inventories
of the remaining finished products and doing other tasks related to the export of
the petitioner's products, which he claimed are supposed to be done by the
company's finished goods supervisor; and monitoring of KNI's trucking sub-
contractor who handled the transport component of KNI's arrangement with
the petitioner.
The essential nature of the outsourced services is not substantially altered by the
claim of the three KNI employees that they occasionally do work that pertains
to the company's finished goods supervisor or a company employee such as the
inspection of goods to be shipped and inventory of finished goods. This was
clarified by petitioner's warehouse manager Gregorio[34] and Section Head
Bawar[35] in their respective affidavits. They explained that the three KNI
employees do not conduct inventory of finished goods; rather, as part of the
contract, KNI personnel have to count the boxes of finished products they load
into the trucks to ensure that the quantity corresponds with the entries made in
the loading form; included in the contracted service is the preparation of
transport documents like the airway bill; the airway bill is prepared in the office
and a KNI employee calls for the airway bill number, a sticker label is then
printed; and that the use of the company forklift is necessary for the loading of
the finished goods into the truck.

Thus, even on the evidentiary side, the union's case must fail.

In light of these conclusions, we see no need to dwell on the issue of the

voluntary arbitrator's authority to rule on issues not expressly submitted but
which arise as a consequence of the voluntary arbitrator's findings on the
submitted issues.

WHEREFORE, premises considered, we hereby NULLIFY and SET

ASIDE the assailed Court of Appeals Decision in CA-G.R. SP No. 99029 dated
October 28, 2008, together with the Voluntary Arbitrator's Decision of May 1,
2007 declaring the employees of forwarders Diversified Cargo Services, Inc.,
Airfreight 2100 and Kuehne & Nagel, Inc., presently designated and functioning
as clerks, material handlers, system or data encoders and general clerks, to be
regular company employees. No costs.

SO ORDERED.

Carpio, (Chairperson), Leonardo-De Castro, Del Castillo, and Abad, JJ., concur.

[1] Filed pursuant to Rule 45 of the Rules of Court; Rollo, pp. 25-53.
 Dated October 28, 2008; penned by Associate Justice Isaias Dicdican with
[2]

Associate Justice Juan Q. Enriquez and Associate Justice Marlene Gonzales-

Sison, concurring; id. at 8-19.

[3] Dated February 25, 2009, id. at 21-22.

Temic Automotive Philippines, Inc. v. Temic Automotive Phils., Inc. Employees Union-
[4]

FFW.

[5] Rollo, pp. 77 and 237.

[6] Id. at 241.

[7] Id. at 80.

[8] Id. at 91-95.

[9] Id. at 96-97.

[10] Id. at 98-99.

[11] Id. at 100-101.

[12] Id. at 105-115.

[13] G.R. No. 127598, January 27, 1999, 302 SCRA 173.

[14] Rollo, pp. 180-184.

[15] Id. at 211-216.

[16] Id. at 237.

DOLE Department Order No. 18-02 (2002), Rules Implementing Articles

[17]

106 to 109 of the Labor Code, as amended.

[18] Rollo, p. 250.

[19] Id. at 251-271.

[20] Supra note 2.

[21] G.R. No. 157214, June 7, 2005, 459 SCRA 260.

[22] Rollo, pp. 356-367.

Stanfilco Employees Agrarian Reform Beneficiaries Multi-Purpose Cooperative v. Dole

[23]

Philippines, Inc. (Stanfilco Division), G.R. No. 154048, November 27, 2009.

[24] Rollo, p. 241.

[25] Supra note 13.

[26] Article 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.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the

contracting out of labor to protect the rights of workers established under this
Code. In so prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as differentiations
within these types of contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to prevent any
violation or circumvention of any provision of this Code.

There is "labor-only" contracting where 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 the workers
recruited and placed by such persons are performing activities which are directly
related to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were
directly employed by him.

[27] Supra note 17.

Sections 1 and 6 (a) of Department Order No. 18-02 state:

Section 1. Guiding principles. - Contracting or subcontracting arrangements are

expressly allowed by law and are subject to regulation for the promotion of
employment and the observance of the rights of workers to just and humane
conditions of work, security of tenure, self-organization, and collective
bargaining. Labor-only contracting as defined herein shall be prohibited.

xxxx

Section 6. Prohibitions. - Notwithstanding Section 5 of these Rules, the following

are hereby declared prohibited for being contrary to law or public policy:

(a) Contracting out of a job, work or service when not done in good faith and
not justified by the exigencies of the business and the same results in the
termination of regular employees and reduction of work hours or reduction or
splitting of the bargaining unit;

[28] Supra note 14.

[29] Supra note 15.

[30] Rollo, pp. 29 and 40.

[31] Supra note 9.

[32] Supra note 10.

[33] Supra note 11.

[34] Supra note 14.

[35] Supra note 15.

 Supreme Court of the Philippines

566 Phil. 422

THIRD DIVISION
G.R. NO. 148132, January 23, 2008
SMART COMMUNICATIONS, INC., PETITIONER, VS. REGINA M.
ASTORGA, RESPONDENT.

G.R. NO. 151079

SMART COMMUNICATIONS, INC., PETITIONER, VS. REGINA M.

ASTORGA, RESPONDENT.

G.R. NO. 151372

REGINA M. ASTORGA, PETITIONER, VS. SMART COMMUNICATIONS,

INC. AND ANN MARGARET V. SANTIAGO, RESPONDENTS.

DECISION

NACHURA, J.:

For the resolution of the Court are three consolidated petitions for review on
certiorari under Rule 45 of the Rules of Court. G.R. No. 148132 assails the
February 28, 2000 Decision[1] and the May 7, 2001 Resolution[2] of the Court of
Appeals (CA) in CA-G.R. SP. No. 53831. G.R. Nos. 151079 and 151372
question the June 11, 2001 Decision[3] and the December 18, 2001 Resolution[4]
in CA-G.R. SP. No. 57065.

Regina M. Astorga (Astorga) was employed by respondent Smart

Communications, Incorporated (SMART) on May 8, 1997 as District Sales
Manager of the Corporate Sales Marketing Group/ Fixed Services Division
(CSMG/FSD). She was receiving a monthly salary of P33,650.00. As District
Sales Manager, Astorga enjoyed additional benefits, namely, annual performance
incentive equivalent to 30% of her annual gross salary, a group life and
hospitalization insurance coverage, and a car plan in the amount of
P455,000.00.[5]

In February 1998, SMART launched an organizational realignment to achieve

more efficient operations. This was made known to the employees on February
27, 1998.[6] Part of the reorganization was the outsourcing of the marketing and
sales force. Thus, SMART entered into a joint venture agreement with NTT of
Japan, and formed SMART-NTT Multimedia, Incorporated (SNMI). Since
SNMI was formed to do the sales and marketing work, SMART abolished the
CSMG/FSD, Astorga's division.

To soften the blow of the realignment, SNMI agreed to absorb the CSMG
personnel who would be recommended by SMART. SMART then conducted a
performance evaluation of CSMG personnel and those who garnered the
highest ratings were favorably recommended to SNMI. Astorga landed last in
the performance evaluation, thus, she was not recommended by SMART.
SMART, nonetheless, offered her a supervisory position in the Customer Care
Department, but she refused the offer because the position carried lower salary
rank and rate.

Despite the abolition of the CSMG/FSD, Astorga continued reporting for

work. But on March 3, 1998, SMART issued a memorandum advising Astorga
of the termination of her employment on ground of redundancy, effective April
3, 1998. Astorga received it on March 16, 1998.[7]

The termination of her employment prompted Astorga to file a Complaint[8] for

illegal dismissal, non-payment of salaries and other benefits with prayer for
moral and exemplary damages against SMART and Ann Margaret V. Santiago
(Santiago). She claimed that abolishing CSMG and, consequently, terminating
her employment was illegal for it violated her right to security of tenure. She
also posited that it was illegal for an employer, like SMART, to contract out
services which will displace the employees, especially if the contractor is an in-
house agency.[9]

SMART responded that there was valid termination. It argued that Astorga was
dismissed by reason of redundancy, which is an authorized cause for
termination of employment, and the dismissal was effected in accordance with
the requirements of the Labor Code. The redundancy of Astorga's position was
the result of the abolition of CSMG and the creation of a specialized and more
technically equipped SNMI, which is a valid and legitimate exercise of
management prerogative.[10]

In the meantime, on May 18, 1998, SMART sent a letter to Astorga demanding
that she pay the current market value of the Honda Civic Sedan which was
given to her under the company's car plan program, or to surrender the same to
the company for proper disposition.[11] Astorga, however, failed and refused to
do either, thus prompting SMART to file a suit for replevin with the Regional
Trial Court of Makati (RTC) on August 10, 1998. The case was docketed as Civil
Case No. 98-1936 and was raffled to Branch 57.[12]

Astorga moved to dismiss the complaint on grounds of (i) lack of jurisdiction;

(ii) failure to state a cause of action; (iii) litis pendentia; and (iv) forum-shopping.
Astorga posited that the regular courts have no jurisdiction over the complaint
because the subject thereof pertains to a benefit arising from an employment
contract; hence, jurisdiction over the same is vested in the labor tribunal and not
in regular courts.[13]

Pending resolution of Astorga's motion to dismiss the replevin case, the Labor
Arbiter rendered a Decision[14] dated August 20, 1998, declaring Astorga's
dismissal from employment illegal. While recognizing SMART's right to abolish
any of its departments, the Labor Arbiter held that such right should be
exercised in good faith and for causes beyond its control. The Arbiter found the
abolition of CSMG done neither in good faith nor for causes beyond the
control of SMART, but a ploy to terminate Astorga's employment. The Arbiter
also ruled that contracting out the functions performed by Astorga to an in-
house agency like SNMI was illegal, citing Section 7(e), Rule VIII-A of the Rules
Implementing the Labor Code.

Accordingly, the Labor Arbiter ordered:

WHEREFORE, judgment is hereby rendered declaring the dismissal of

[Astorga] to be illegal and unjust. [SMART and Santiago] are hereby ordered to:
1. Reinstate [Astorga] to [her] former position or to a substantially equivalent
position, without loss of seniority rights and other privileges, with full
backwages, inclusive of allowances and other benefits from the time of [her]
dismissal to the date of reinstatement, which computed as of this date, are as
follows:

(a) Astorga

BACKWAGES; (P33,650.00 = 134,600.00

x 4 months) P
UNPAID SALARIES
(February 15, 1998-
April 3, 1998
February 15-28, 1998 = 16,823.00
P
March 1-31, [1998] = 33,650.00
P
April 1-3, 1998 = 3,882.69
P
CAR MAINTENANCE
ALLOWANCE
(P2,000.00 x 4) = 8,000.00
P
FUEL ALLOWANCE (300
liters/mo. x
4 mos. at P12.04/liter) = 14,457.83
P
TOTAL = 211,415.52
P
xxxx

3. Jointly and severally pay moral damages in the amount of P500,000.00 x x x

and exemplary damages in the amount of P300,000.00. x x x

4. Jointly and severally pay 10% of the amount due as attorney's fees.
SO ORDERED.[15]
Subsequently, on March 29, 1999, the RTC issued an Order[16] denying Astorga's
motion to dismiss the replevin case. In so ruling, the RTC ratiocinated that:
Assessing the [submission] of the parties, the Court finds no merit in the motion
to dismiss.

As correctly pointed out, this case is to enforce a right of possession over a

company car assigned to the defendant under a car plan privilege arrangement.
The car is registered in the name of the plaintiff. Recovery thereof via replevin
suit is allowed by Rule 60 of the 1997 Rules of Civil Procedure, which is
undoubtedly within the jurisdiction of the Regional Trial Court.

In the Complaint, plaintiff claims to be the owner of the company car and
despite demand, defendant refused to return said car. This is clearly sufficient
statement of plaintiff's cause of action.

Neither is there forum shopping. The element of litis penden[t]ia does not
appear to exist because the judgment in the labor dispute will not constitute res
judicata to bar the filing of this case.

WHEREFORE, the Motion to Dismiss is hereby denied for lack of merit.

SO ORDERED.[17]
Astorga filed a motion for reconsideration, but the RTC denied it on June 18,
1999.[18]

Astorga elevated the denial of her motion via certiorari to the CA, which, in its
February 28, 2000 Decision,[19] reversed the RTC ruling. Granting the petition
and, consequently, dismissing the replevin case, the CA held that the case is
intertwined with Astorga's complaint for illegal dismissal; thus, it is the labor
tribunal that has rightful jurisdiction over the complaint. SMART's motion for
reconsideration having been denied,[20] it elevated the case to this Court, now
docketed as G.R. No. 148132.

Meanwhile, SMART also appealed the unfavorable ruling of the Labor Arbiter
in the illegal dismissal case to the National Labor Relations Commission
(NLRC). In its September 27, 1999 Decision,[21] the NLRC sustained Astorga's
dismissal. Reversing the Labor Arbiter, the NLRC declared the abolition of
CSMG and the creation of SNMI to do the sales and marketing services for
SMART a valid organizational action. It overruled the Labor Arbiter's ruling
that SNMI is an in-house agency, holding that it lacked legal basis. It also
declared that contracting, subcontracting and streamlining of operations for the
purpose of increasing efficiency are allowed under the law. The NLRC further
found erroneous the Labor Arbiter's disquisition that redundancy to be valid
must be impelled by economic reasons, and upheld the redundancy measures
undertaken by SMART.

The NLRC disposed, thus:

WHEREFORE, the Decision of the Labor Arbiter is hereby reversed and set
aside. [Astorga] is further ordered to immediately return the company vehicle
assigned to her. [Smart and Santiago] are hereby ordered to pay the final wages
of [Astorga] after [she] had submitted the required supporting papers therefor.

SO ORDERED.[22]
Astorga filed a motion for reconsideration, but the NLRC denied it on
December 21, 1999.[23]

Astorga then went to the CA via certiorari. On June 11, 2001, the CA rendered a
Decision[24] affirming with modification the resolutions of the NLRC. In gist,
the CA agreed with the NLRC that the reorganization undertaken by SMART
resulting in the abolition of CSMG was a legitimate exercise of management
prerogative. It rejected Astorga's posturing that her non-absorption into SNMI
was tainted with bad faith. However, the CA found that SMART failed to
comply with the mandatory one-month notice prior to the intended termination.
Accordingly, the CA imposed a penalty equivalent to Astorga's one-month
salary for this non-compliance. The CA also set aside the NLRC's order for the
return of the company vehicle holding that this issue is not essentially a labor
concern, but is civil in nature, and thus, within the competence of the regular
court to decide. It added that the matter had not been fully ventilated before the
NLRC, but in the regular court.

Astorga filed a motion for reconsideration, while SMART sought partial

reconsideration, of the Decision. On December 18, 2001, the CA resolved the
motions, viz.:
WHEREFORE, [Astorga's] motion for reconsideration is hereby PARTIALLY
GRANTED. [Smart] is hereby ordered to pay [Astorga] her backwages from 15
February 1998 to 06 November 1998. [Smart's] motion for reconsideration is
outrightly DENIED.

SO ORDERED.[25]
Astorga and SMART came to us with their respective petitions for review
assailing the CA ruling, docketed as G.R Nos. 151079 and 151372. On February
27, 2002, this Court ordered the consolidation of these petitions with G.R. No.
148132.[26]

In her Memorandum, Astorga argues:

I

THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY

OF ASTORGA'S DISMISSAL DESPITE THE FACT THAT HER
DISMISSAL WAS EFFECTED IN CLEAR VIOLATION OF THE
CONSTITUTIONAL RIGHT TO SECURITY OF TENURE,
CONSIDERING THAT THERE WAS NO GENUINE GROUND FOR
HER DISMISSAL.

II

SMART'S REFUSAL TO REINSTATE ASTORGA DURING THE

PENDENCY OF THE APPEAL AS REQUIRED BY ARTICLE 223 OF
THE LABOR CODE, ENTITLES ASTORGA TO HER SALARIES
DURING THE PENDENCY OF THE APPEAL.

III

THE COURT OF APPEALS WAS CORRECT IN HOLDING THAT THE

REGIONAL TRIAL COURT HAS NO JURISDICTION OVER THE
COMPLAINT FOR RECOVERY OF A CAR WHICH ASTORGA
ACQUIRED AS PART OF HER EMPLOYEE (sic) BENEFIT.[27]
On the other hand, Smart in its Memoranda raises the following issues:
I

WHETHER THE HONORABLE COURT OF APPEALS HAS DECIDED

A QUESTION OF SUBSTANCE IN A WAY PROBABLY NOT IN
ACCORD WITH LAW OR WITH APPLICABLE DECISION OF THE
HONORABLE SUPREME COURT AND HAS SO FAR DEPARTED
FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER OF
SUPERVISION WHEN IT RULED THAT SMART DID NOT COMPLY
WITH THE NOTICE REQUIREMENTS PRIOR TO TERMINATING
ASTORGA ON THE GROUND OF REDUNDANCY.

II

WHETHER THE NOTICES GIVEN BY SMART TO ASTORGA AND

THE DEPARTMENT OF LABOR AND EMPLOYMENT ARE
SUBSTANTIAL COMPLIANCE WITH THE NOTICE REQUIREMENTS
BEFORE TERMINATION.

III

WHETHER THE RULE ENUNCIATED IN SERRANO VS. NATIONAL

LABOR RELATIONS COMMISSION FINDS APPLICATION IN THE
CASE AT BAR CONSIDERING THAT IN THE SERRANO CASE THERE
WAS ABSOLUTELY NO NOTICE AT ALL.[28]

IV

WHETHER THE HONORABLE COURT OF APPEALS HAS DECIDED

A QUESTION OF SUBSTANCE IN A WAY PROBABLY NOT IN
ACCORD WITH LAW OR WITH APPLICABLE DECISION[S] OF THE
HONORABLE SUPREME COURT AND HAS SO FAR DEPARTED
FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER OF
SUPERVISION WHEN IT RULED THAT THE REGIONAL TRIAL
COURT DOES NOT HAVE JURISDICTION OVER THE COMPLAINT
FOR REPLEVIN FILED BY SMART TO RECOVER ITS OWN
COMPANY VEHICLE FROM A FORMER EMPLOYEE WHO WAS
LEGALLY DISMISSED.

WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED TO

APPRECIATE THAT THE SUBJECT OF THE REPLEVIN CASE IS NOT
THE ENFORCEMENT OF A CAR PLAN PRIVILEGE BUT SIMPLY THE
RECOVERY OF A COMPANY CAR.

VI

WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED TO

APPRECIATE THAT ASTORGA CAN NO LONGER BE CONSIDERED
AS AN EMPLOYEE OF SMART UNDER THE LABOR CODE.[29]
The Court shall first deal with the propriety of dismissing the replevin case filed
with the RTC of Makati City allegedly for lack of jurisdiction, which is the issue
raised in G.R. No. 148132.

Replevin is an action whereby the owner or person entitled to repossession of

goods or chattels may recover those goods or chattels from one who has
wrongfully distrained or taken, or who wrongfully detains such goods or
chattels. It is designed to permit one having right to possession to recover
property in specie from one who has wrongfully taken or detained the
property.[30] The term may refer either to the action itself, for the recovery of
personalty, or to the provisional remedy traditionally associated with it, by which
possession of the property may be obtained by the plaintiff and retained during
the pendency of the action.[31]

That the action commenced by SMART against Astorga in the RTC of Makati
City was one for replevin hardly admits of doubt.

In reversing the RTC ruling and consequently dismissing the case for lack of
jurisdiction, the CA made the following disquisition, viz.:
[I]t is plain to see that the vehicle was issued to [Astorga] by [Smart] as part of
the employment package. We doubt that [SMART] would extend [to Astorga]
the same car plan privilege were it not for her employment as district sales
manager of the company. Furthermore, there is no civil contract for a loan
between [Astorga] and [Smart]. Consequently, We find that the car plan privilege
is a benefit arising out of employer-employee relationship. Thus, the claim for
such falls squarely within the original and exclusive jurisdiction of the labor
arbiters and the NLRC.[32]
We do not agree. Contrary to the CA's ratiocination, the RTC rightfully assumed
jurisdiction over the suit and acted well within its discretion in denying Astorga's
motion to dismiss. SMART's demand for payment of the market value of the
car or, in the alternative, the surrender of the car, is not a labor, but a civil,
dispute. It involves the relationship of debtor and creditor rather than
employee-employer relations.[33] As such, the dispute falls within the jurisdiction
of the regular courts.

In Basaya, Jr. v. Militante,[34] this Court, in upholding the jurisdiction of the RTC
over the replevin suit, explained:
Replevin is a possessory action, the gist of which is the right of possession in the
plaintiff. The primary relief sought therein is the return of the property in specie
wrongfully detained by another person. It is an ordinary statutory proceeding to
adjudicate rights to the title or possession of personal property. The question of
whether or not a party has the right of possession over the property involved
and if so, whether or not the adverse party has wrongfully taken and detained
said property as to require its return to plaintiff, is outside the pale of
competence of a labor tribunal and beyond the field of specialization of Labor
Arbiters.

xxxx

The labor dispute involved is not intertwined with the issue in the Replevin
Case. The respective issues raised in each forum can be resolved independently
on the other. In fact in 18 November 1986, the NLRC in the case before it had
issued an Injunctive Writ enjoining the petitioners from blocking the free
ingress and egress to the Vessel and ordering the petitioners to disembark and
vacate. That aspect of the controversy is properly settled under the Labor Code.
So also with petitioners' right to picket. But the determination of the question of
who has the better right to take possession of the Vessel and whether
petitioners can deprive the Charterer, as the legal possessor of the Vessel, of
that right to possess in addressed to the competence of Civil Courts.

In thus ruling, this Court is not sanctioning split jurisdiction but defining
avenues of jurisdiction as laid down by pertinent laws.
The CA, therefore, committed reversible error when it overturned the RTC
ruling and ordered the dismissal of the replevin case for lack of jurisdiction.

Having resolved that issue, we proceed to rule on the validity of Astorga's

dismissal.

Astorga was terminated due to redundancy, which is one of the authorized

causes for the dismissal of an employee. The nature of redundancy as an
authorized cause for dismissal is explained in the leading case of Wiltshire File
Co., Inc. v. National Labor Relations Commission,[35] viz:
x x x redundancy in an employer's personnel force necessarily or even ordinarily
refers to duplication of work. That no other person was holding the same
position that private respondent held prior to termination of his services does
not show that his position had not become redundant. Indeed, in any well
organized business enterprise, it would be surprising to find duplication of work
and two (2) or more people doing the work of one person. We believe that
redundancy, for purposes of the Labor Code, exists where the services of an
employee are in excess of what is reasonably demanded by the actual
requirements of the enterprise. Succinctly put, a position is redundant where it is
superfluous, and superfluity of a position or positions may be the outcome of a
number of factors, such as overhiring of workers, decreased volume of business,
or dropping of a particular product line or service activity previously
manufactured or undertaken by the enterprise.
The characterization of an employee's services as superfluous or no longer
necessary and, therefore, properly terminable, is an exercise of business
judgment on the part of the employer. The wisdom and soundness of such
characterization or decision is not subject to discretionary review provided, of
course, that a violation of law or arbitrary or malicious action is not shown.[36]

Astorga claims that the termination of her employment was illegal and tainted
with bad faith. She asserts that the reorganization was done in order to get rid of
her. But except for her barefaced allegation, no convincing evidence was offered
to prove it. This Court finds it extremely difficult to believe that SMART would
enter into a joint venture agreement with NTT, form SNMI and abolish
CSMG/FSD simply for the sole purpose of easing out a particular employee,
such as Astorga. Moreover, Astorga never denied that SMART offered her a
supervisory position in the Customer Care Department, but she refused the
offer because the position carried a lower salary rank and rate. If indeed SMART
simply wanted to get rid of her, it would not have offered her a position in any
department in the enterprise.

Astorga also states that the justification advanced by SMART is not true because
there was no compelling economic reason for redundancy. But contrary to her
claim, an employer is not precluded from adopting a new policy conducive to a
more economical and effective management even if it is not experiencing
economic reverses. Neither does the law require that the employer should suffer
financial losses before he can terminate the services of the employee on the
ground of redundancy. [37]

We agree with the CA that the organizational realignment introduced by

SMART, which culminated in the abolition of CSMG/FSD and termination of
Astorga's employment was an honest effort to make SMART's sales and
marketing departments more efficient and competitive. As the CA had taken
pains to elucidate:
x x x a careful and assiduous review of the records will yield no other conclusion
than that the reorganization undertaken by SMART is for no purpose other than
its declared objective - as a labor and cost savings device. Indeed, this Court
finds no fault in SMART's decision to outsource the corporate sales market to
SNMI in order to attain greater productivity. [Astorga] belonged to the Sales
Marketing Group under the Fixed Services Division (CSMG/FSD), a distinct
sales force of SMART in charge of selling SMART's telecommunications
services to the corporate market. SMART, to ensure it can respond quickly,
efficiently and flexibly to its customer's requirement, abolished CSMG/FSD and
shortly thereafter assigned its functions to newly-created SNMI Multimedia
Incorporated, a joint venture company of SMART and NTT of Japan, for the
reason that CSMG/FSD does not have the necessary technical expertise
required for the value added services. By transferring the duties of CSMG/FSD
to SNMI, SMART has created a more competent and specialized organization
to perform the work required for corporate accounts. It is also relieved SMART
of all administrative costs - management, time and money-needed in maintaining
the CSMG/FSD. The determination to outsource the duties of the CSMG/FSD
to SNMI was, to Our mind, a sound business judgment based on relevant
criteria and is therefore a legitimate exercise of management prerogative.
Indeed, out of our concern for those lesser circumstanced in life, this Court has
inclined towards the worker and upheld his cause in most of his conflicts with
his employer. This favored treatment is consonant with the social justice policy
of the Constitution. But while tilting the scales of justice in favor of workers, the
fundamental law also guarantees the right of the employer to reasonable returns
for his investment.[38] In this light, we must acknowledge the prerogative of the
employer to adopt such measures as will promote greater efficiency, reduce
overhead costs and enhance prospects of economic gains, albeit always within
the framework of existing laws. Accordingly, we sustain the reorganization and
redundancy program undertaken by SMART.

However, as aptly found by the CA, SMART failed to comply with the
mandated one (1) month notice prior to termination. The record is clear that
Astorga received the notice of termination only on March 16, 1998[39] or less
than a month prior to its effectivity on April 3, 1998. Likewise, the Department
of Labor and Employment was notified of the redundancy program only on
March 6, 1998.[40]

Article 283 of the Labor Code clearly provides:

Art. 283. Closure of establishment and reduction of personnel. -- The employer
may also terminate the employment of any employee due to the installation of
labor saving devices, redundancy, retrenchment to prevent losses or the closing
or cessation of operation of the establishment or undertaking unless the closing
is for the purpose of circumventing the provisions of this Title, by serving a
written notice on the workers and the Ministry of Labor and Employment at
least one (1) month before the intended date thereof x x x.
SMART's assertion that Astorga cannot complain of lack of notice because the
organizational realignment was made known to all the employees as early as
February 1998 fails to persuade. Astorga's actual knowledge of the
reorganization cannot replace the formal and written notice required by the law.
In the written notice, the employees are informed of the specific date of the
termination, at least a month prior to the effectivity of such termination, to give
them sufficient time to find other suitable employment or to make whatever
arrangements are needed to cushion the impact of termination. In this case,
notwithstanding Astorga's knowledge of the reorganization, she remained
uncertain about the status of her employment until SMART gave her formal
notice of termination. But such notice was received by Astorga barely two (2)
weeks before the effective date of termination, a period very much shorter than
that required by law.

Be that as it may, this procedural infirmity would not render the termination of
Astorga's employment illegal. The validity of termination can exist
independently of the procedural infirmity of the dismissal.[41] In DAP Corporation
v. CA,[42] we found the dismissal of the employees therein valid and for
authorized cause even if the employer failed to comply with the notice
requirement under Article 283 of the Labor Code. This Court upheld the
dismissal, but held the employer liable for non-compliance with the procedural
requirements.

The CA, therefore, committed no reversible error in sustaining Astorga's

dismissal and at the same time, awarding indemnity for violation of Astorga's
statutory rights.

However, we find the need to modify, by increasing, the indemnity awarded by

the CA to Astorga, as a sanction on SMART for non-compliance with the one-
month mandatory notice requirement, in light of our ruling in Jaka Food
Processing Corporation v. Pacot,[43] viz.:
[I]f the dismissal is based on a just cause under Article 282 but the employer
failed to comply with the notice requirement, the sanction to be imposed upon
him should be tempered because the dismissal process was, in effect, initiated by
an act imputable to the employee, and (2) if the dismissal is based on an
authorized cause under Article 283 but the employer failed to comply with the
notice requirement, the sanction should be stiffer because the dismissal process
was initiated by the employer's exercise of his management prerogative.
We deem it proper to increase the amount of the penalty on SMART to
P50,000.00.

As provided in Article 283 of the Labor Code, Astorga is, likewise, entitled to
separation pay equivalent to at least one (1) month salary or to at least one (1)
month's pay for every year of service, whichever is higher. The records show
that Astorga's length of service is less than a year. She is, therefore, also entitled
to separation pay equivalent to one (1) month pay.

Finally, we note that Astorga claimed non-payment of wages from February 15,
1998. This assertion was never rebutted by SMART in the proceedings a quo.
No proof of payment was presented by SMART to disprove the allegation. It is
settled that in labor cases, the burden of proving payment of monetary claims
rests on the employer.[44] SMART failed to discharge the onus probandi.
Accordingly, it must be held liable for Astorga's salary from February 15, 1998
until the effective date of her termination, on April 3, 1998.

However, the award of backwages to Astorga by the CA should be deleted for

lack of basis. Backwages is a relief given to an illegally dismissed employee.
Thus, before backwages may be granted, there must be a finding of unjust or
illegal dismissal from work.[45] The Labor Arbiter ruled that Astorga was illegally
dismissed. But on appeal, the NLRC reversed the Labor Arbiter's ruling and
categorically declared Astorga's dismissal valid. This ruling was affirmed by the
CA in its assailed Decision. Since Astorga's dismissal is for an authorized cause,
she is not entitled to backwages. The CA's award of backwages is totally
inconsistent with its finding of valid dismissal.

WHEREFORE, the petition of SMART docketed as G.R. No. 148132 is

GRANTED. The February 28, 2000 Decision and the May 7, 2001 Resolution
of the Court of Appeals in CA-G.R. SP. No. 53831 are SET ASIDE. The
Regional Trial Court of Makati City, Branch 57 is DIRECTED to proceed with
the trial of Civil Case No. 98-1936 and render its Decision with reasonable
dispatch.

On the other hand, the petitions of SMART and Astorga docketed as G.R. Nos.
151079 and 151372 are DENIED. The June 11, 2001 Decision and the
December 18, 2001 Resolution in CA-G.R. SP. No. 57065, are AFFIRMED
with MODIFICATION. Astorga is declared validly dismissed. However,
SMART is ordered to pay Astorga P50,000.00 as indemnity for its non-
compliance with procedural due process, her separation pay equivalent to one
(1) month pay, and her salary from February 15, 1998 until the effective date of
her termination on April 3, 1998. The award of backwages is DELETED for
lack of basis.
SO ORDERED.

Ynares-Santiago, (Chairperson), Austria-Martinez, Corona,* and Reyes, JJ., concur.

*In lieu of Associate Justice Minita V. Chico-Nazario per Special Order No. 484
dated January 11, 2008.

Penned by Associate Justice Elvi John S. Asuncion (dismissed), with

[1]

Associate Justices Corona Ibay-Somera (retired) and Portia Aliño-

Hormachuelos, concurring; rollo (G.R. No. 148132), pp. 146-152.

[2] Rollo, pp. 164-165.

Penned by Associate Justice Romeo Brawner (retired), with Associate Justices

[3]

Remedios Salazar-Fernando and Josefina Guevara-Salonga, concurring; rollo

(G.R. No. 151079), pp. 24-36.

[4] Id. at 42-45.

[5] Rollo (G.R. No. 151372), pp. 58-59.

[6] Rollo (G.R. No. 151079), p. 46.

[7] Rollo (G.R. No. 151372), p. 62.

[8] Id. at 40-42.

[9] Id. at 43-54.

[10] Id. at 68-78.

[11] Rollo (G.R. No. 148132), p. 47.

[12] Id. at 30-34.

[13] Id. at 51-59.

[14] Rollo (G.R. No. 151372), pp. 79-92.

[15] Id. at 90-92.

[16] Rollo (G.R. No. 148132), pp. 79-80.

[17] Id.

[18] Id. at 110.

[19] Id. at 146-152.

[20] Id. at 164-165.

[21] Rollo (G.R. No. 151079), pp. 102-120.

[22] Id. at 120.

[23] Id. at 122.

[24] Id. at 24-36.

[25] Id. at 45.

[26] Rollo (G.R. No. 151372), p. 175.

[27] Rollo (G.R. No. 151079), p. 250.

[28] Id. at 273.

[29] Rollo (G.R. No. 148132), p. 266.

[30] Black's Law Dictionary, Fifth Edition, p. 1168.

[31] Tillson v. Court of Appeals, G.R. No. 89870, May 28, 1991, 197 SCRA 587, 598.
[32] Id. at 148.

See Nestle Philippines Inc. v. National Labor Relations Commission, G. R. No.

[33]

85197, March 18, 1991, 195 SCRA 340, 343.

[34] G.R. L-75837, December 11, 1987, 156 SCRA 299, 303-304.

[35] G.R. No. 82249, February 7, 1991, 193 SCRA 665, 672.

Dole Philippines, Inc. v. National Labor Relations Commission, 417 Phil. 428, 440
[36]

(2001).

[37] Id.

Asian Alcohol Corporation v. National Labor Relations Commission, 364 Phil. 912,
[38]

924-925 (1999).

[39] Rollo (G.R. No. 151372), p. 62.

[40] Id. at 56.

DAP Corporation v. Court of Appeals, G.R. No. 165811, December 14, 2005,
[41]

477 SCRA 792, 798.

[42] Id.

[43] G.R. No. 151378, March 28, 2005, 454 SCRA 119, 125-126.

G & M (Phil.), Inc. v. Batomalaque, G.R. No. 151849, June 23, 2005, 461 SCRA
[44]

111, 118.

Filflex Industrial & Manufacturing Corporation v. National Labor Relations

[45]

Commission, G.R. No. 115395, February 12, 1998, 286 SCRA 245, 253.
 Supreme Court of the Philippines

646 Phil. 383

SECOND DIVISION
G.R. No. 175501, October 04, 2010
MANILA WATER COMPANY, INC., PETITIONER, VS. JOSE J.
DALUMPINES, EMMANUEL CAPIT, ROMEO B. CASTOLONE,
MELITANTE CASTRO, NONITO FERNANDEZ, ARNULFO JAMISON,
ARTHUR LAVISTE, ESTEBAN LEGARTO, SUSANO MIRANDA, RAMON
C. REYES, JOSE SIERRA, BENJAMIN TALAVERA, MOISES ZAPATERO,
EDGAR PAMORAGA, BERNARDO S. MEDINA, MELENCIO M.
BAONGUIS, JR., JOSE AGUILAR, ANGEL C. GARCIA, JOSE TEODY P.
VELASCO, AUGUSTUS J. TANDOC, ROBERTO DAGDAG, MIGUEL
LOPEZ, GEORGE CABRERA, ARMAN BORROMEO, RONITO R. FRIAS,
ANTONIO VERGARA, RANDY CORTIGUERRA, AND FIRST CLASSIC
COURIER SERVICES, INC., RESPONDENTS.

DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court, assailing the Decision[1] dated September 12, 2006 and the
Resolution[2] dated November 17, 2006 of the Court of Appeals (CA) in CA-
G.R. SP No. 94909.

The facts of the case are as follows:

By virtue of Republic Act No. 8041, otherwise known as the "National Water
Crisis Act of 1995," the Metropolitan Waterworks and Sewerage System
(MWSS) was given the authority to enter into concession agreements allowing
the private sector in its operations. Petitioner Manila Water Company, Inc.
(Manila Water) was one of two private concessionaires contracted by the MWSS
to manage the water distribution system in the east zone of Metro Manila. The
east service area included the following towns and cities: Mandaluyong,
Marikina, Pasig, Pateros, San Juan, Taguig, Makati, parts of Quezon City and
Manila, Angono, Antipolo, Baras, Binangonan, Cainta, Cardona, Jala-Jala,
Morong, Pililla, Rodriguez, Tanay, Taytay, Teresa, and San Mateo.[3]

Under the concession agreement, Manila Water undertook to absorb the regular
employees of MWSS listed by the latter effective August 1, 1997. Individual
respondents, with the exception of Moises Zapatero (Zapatero) and Edgar
Pamoraga (Pamoraga), were among the one hundred twenty-one (121)
employees not included in the list of employees to be absorbed by Manila
Water. Nevertheless, Manila Water engaged their services without written
contract from August 1, 1997 to August 31, 1997.[4]

On September 1, 1997, individual respondents signed a three (3)-month

contract to perform collection services on commission basis for Manila Water's
branches in the east zone.[5]

On November 21, 1997, before the expiration of the contract of services, the
121 bill collectors formed a corporation duly registered with the Securities and
Exchange Commission (SEC) as the "Association Collector's Group, Inc."
(ACGI). ACGI was one of the entities engaged by Manila Water for its courier
service. However, Manila Water contracted ACGI for collection services only in
its Balara Branch.[6]

In December 1997, Manila Water entered into a service agreement with

respondent First Classic Courier Services, Inc. (FCCSI) also for its courier
needs. The service agreements between Manila Water and FCCSI covered the
periods 1997 to 1999 and 2000 to 2002.[7] Earlier, in a memorandum dated
November 28, 1997, FCCSI gave a deadline for the bill collectors who were
members of ACGI to submit applications and letters of intent to transfer to
FCCSI. The individual respondents in this case were among the bill collectors
who joined FCCSI and were hired effective December 1, 1997.[8]

On various dates between May and October 2002, individual respondents were
terminated from employment. Manila Water no longer renewed its contract with
FCCSI because it decided to implement a "collectorless" scheme whereby
Manila Water customers would instead remit payments through "Bayad
Centers."[9] The aggrieved bill collectors individually filed complaints for illegal
dismissal, unfair labor practice, damages, and attorney's fees, with prayer for
reinstatement and backwages against petitioner Manila Water and respondent
FCCSI. The complaints were consolidated and jointly heard.[10]

Respondent bill collectors alleged that their employment under Manila Water
had four (4) stages: (a) from August 1, 1997 to August 31, 1997; (b) from
September 1, 1997 to November 30, 1997; (c) in November 1997 when FCCSI
was incorporated; and (d) after November 1977 when FCCSI came in. While in
MWSS, and thereafter in Manila Water and FCCSI, respondent bill collectors
were made to perform the following functions: (1) delivery of bills to customers;
(2) collection of payments from customers; and (3) delivery of disconnection
notice to customers. They were also allowed to effect disconnection and were
given tools for this purpose.[11]

Respondent bill collectors averred that when Manila Water issued their
individual contracts of service for three months in September 1997, there was
already an attempt to make it appear that respondent bill collectors were not its
employees but independent contractors. Respondent bill collectors stressed that
they could not qualify as independent contractors because they did not have an
independent business of their own, tools, equipment, and capitalization, but
were purely dependent on the wages they earned from Manila Water, which was
termed as "commission."[12]

Respondent bill collectors alleged that Manila Water had complete supervision
over their work and their collections, which they had to remit daily to the
former. They also maintained that the incorporation of ACGI did not mean that
they were not employees of Manila Water. Furthermore, they alleged that they
suffered injustice when Manila Water imposed upon them the work set-up that
caused them to be emotionally depressed because those who were not assigned
to the Balara Branch under Manila Water's contract with ACGI were forced to
join FCCSI to retain their employment. They argued that the entry of FCCSI did
not change the employer-employee relationship of respondent bill collectors
with Manila Water.[13]

Respondent bill collectors insisted that they remained employees of Manila

Water even after the entry of FCCSI. The latter did not qualify as a legitimate
labor contractor since it had no substantial capital. FCCSI only had a paid-up
capital of one hundred thousand pesos (P100,000.00), out of the four hundred
thousand pesos (P400,000.00) authorized capital. FCCSI relied mainly on what
Manila Water would pay, from which it deducted an agency fee, and it had no
other clients on collection. They were forced to transfer to FCCSI when their
service contracts with Manila Water was about to expire on November 30, 1997.
FCCSI was engaged in labor-only contracting which is prohibited by law.[14]

Respondent bill collectors averred that even under the four-fold test of
employer-employee relationship, it appeared that Manila Water was their true
employer based on the following circumstances: (1) it was Manila Water who
engaged their services as bill collectors when it took over the operations of the
east zone from MWSS on August 1, 1997; (2) it was Manila Water which paid
their wages in the form of commissions every fifteenth (15th) and thirtieth (30th)
day of each month; (3) Manila Water exercised the power of dismissal over them
as bill collectors as evidenced by the instances surrounding their termination as
set forth in their respective affidavits, and by the individual clearances issued to
them not by FCCSI but by Manila Water, stating that the same was "issued in
connection with his termination of contract as Contract Collector of Manila
Water Company"; and (4) their work as bill collectors was clearly related to the
principal business of Manila Water.[15]

Respondent FCCSI, on the other hand, claimed that it is an independent

contractor engaged in the business of providing messengerial or courier services,
and it fulfills the criteria set forth under Department Order No. 10, Series of
1997.[16] It was issued a certificate of registration by the Department of Labor
and Employment (DOLE) as an independent contractor. It was incorporated
and registered with the SEC in November 1995. It was duly registered with the
Department of Transportation and Communication (DOTC) and the Office of
the Mayor of Makati City for authority to operate. It has sufficient capital in the
form of tools, equipment, and machinery as attested to by the Postal Regulation
Committee of the DOTC after conducting an ocular inspection. It provides
similar services to Philippine Long Distance Telephone Company, Smart
Telecommunications, Inc., and Home Cable, Inc. Under the terms and
conditions of its service agreement with Manila Water, FCCSI has the power to
hire, assign, discipline, or dismiss its own employees, as well as control the
means and methods of accomplishing the assigned tasks, and it pays the wages
of the employees.[17]

The termination of employment of respondent bill collectors upon the

expiration of FCCSI's contract with Manila Water did not mean the automatic
termination or suspension of the employer-employee relationship between
FCCSI and respondent bill collectors. Their termination after their six (6) month
floating status, which was allowed by law, was due to the non-renewal of
FCCSI's agreement with Manila Water and its inability to enter into a similar
contract requiring the skills of respondent bill collectors.[18]

Petitioner Manila Water, for its part, denied that there was an employer-
employee relationship between its company and respondent bill collectors.
Based on the agreement between FCCSI and Manila Water, respondent bill
collectors are the employees of the former, as it is the former that has the right
to select/hire, discipline, supervise, and control. FCCSI has a separate and
distinct legal personality from Manila Water, and it was duly registered as an
independent contractor before the DOLE.[19]

Petitioner further claimed that individual service contracts signed by respondent

bill collectors for a 3-month period with Manila Water were valid and legal. The
fact that the duration of the engagement was stated on the face of the contract
dispels any bad faith on the part of the company. Fixed term contracts are
allowed by law. Furthermore, respondent bill collectors' allegation that the
incorporation of ACGI was made as a condition of their continued employment
was unfounded. They transferred to FCCSI on their own volition.[20]

Petitioner Manila Water also averred that, under its organizational structure,
there was no regular plantilla position of bill collector, which was the main
reason why respondent bill collectors were not included in the list of MWSS
employees absorbed by the company. The company's out-sourcing of courier
needs to an independent contractor was valid and legal.

On September 27, 2004, the Labor Arbiter (LA) rendered a decision,[21] the
dispositive portion of which reads:

WHEREFORE, premises considered, the complaints against respondent

Manila Water Company, Inc. is dismissed for lack of jurisdiction due to want
of employer-employee relationship. Respondent First Classic Courier Services
is hereby ordered to pay complainants separation pay equivalent to one (1)
month pay for every year of service, to wit:
1. JOSE P. DALUMPINES - - - - - - - - P36,400.00
2. SUSANO MIRANDA - - - - - - - - - P36,400.00
3. EDGAR PAMORAGA - - - - - - - - - P29,120.00
4. ARTHUR G. LAVISTI - - - - - - - - - P36,400.00
5. BENJAMIN TALAVERA, JR. - - - - P36,400.00
6. JOSE S.A. SIERRA - - - - - - - - - - - P36,400.00
7. MELITANTE D. CASTRO - - - - - - P36,400.00
8. BERNARDO S. MEDINA - - - - - - - P36,400.00
9. MELENCIO BAONGUIS - - - - - - - P36,400.00
10. NONITO V. FERNANDEZ - - - - - - P36,400.00
11. LEGARTO ESTEBAN - - - - - - - - - P36,400.00
12. ROMEO B. CASTALONE - - - - - - P36,400.00
13. RAMON C. REYES - - - - - - - - - - - P36,400.00
14. MOISES L. ZAPATERO - - - - - - - - P29,120.00
15. JOSE T. AGUILAR - - - - - - - - - - - P36,400.00
16. ARNULFO T. JAMISON - - - - - - - P36,400.00
17. ANGEL C. GARCIA - - - - - - - - - - - P36,400.00
18. JOSE TEODY P. VELASCO - - - - - P36,400.00
19. AUGUSTUS J. TANDOC - - - - - - - P36,400.00
20. EMMANUEL L. CAPIT - - - - - - - - P36,400.00
21. WILLIAM AGANON - - - - - - - - - - P87,360.00
22. ROBERTO S. DAGDAG - - - - - - - - P36,400.00
23 MIGUEL J. LOPEZ - - - - - - - - - - - - P36,400.00
24. GEORGE CABRERA - - - - - - - - - - P36,400.00
25. BORROMEO ARMAN - - - - - - - - - P36,400.00
26. RONITO R. FRIAS - - - - - - - - - - - - P36,400.00
27. ANTONIO A. VERGARA - - - - - - - P36,400.00
28. RANDY T. CORTIGUERRA - - - - - P36,400.00

TOTAL - - - - - - - P1,055,600.00

SO ORDERED.[22]

Respondent bill collectors and FCCSI filed their separate appeals with the
National Labor Relations Commission (NLRC). On March 15, 2006, the NLRC
rendered a decision[23] affirming in toto the decision of the LA. Respondent bill
collectors filed a motion for reconsideration, but the same was denied in a
resolution[24] dated April 28, 2006.

Disgruntled, respondent bill collectors filed a petition for certiorari under Rule 65
of the Rules of Court before the CA. On September 12, 2006, the CA rendered
a Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the present petition is hereby GIVEN

DUE COURSE and the writ prayed for accordingly GRANTED. Consequently,
the assailed Decision dated March 15, 2006 and Resolution dated April 28, 2006
of the National Labor Relations Commission are hereby ANNULED and SET
ASIDE. A new judgment is hereby entered (a) declaring the petitioners as
employees of private respondent Manila Water Company, Inc., and their
termination as bill collectors as illegal; and (b) ordering private respondent
Manila Water Company, Inc. to pay the petitioners separation pay equivalent to
one (1) month for every year of service. In addition, private respondent Manila
Water Company, Inc. is liable to pay ten percent (10%) of the total amount
awarded as attorney's fees.

No pronouncement as to costs.

SO ORDERED.[25]

Petitioner Manila Water and respondent bill collectors filed a motion for
reconsideration. However, the CA denied their respective motions for
reconsideration in a Resolution dated November 17, 2006.

Hence, this petition.

Petitioner Manila Water presented the following issues for resolution, whether
the CA erred (1) in ruling that an employment relationship exists between
respondent bill collectors and petitioner Manila Water; (2) in its application of
Manila Water Company, Inc. v. Peña[26] to the instant case; and (3) in ruling that
respondent FCCSI is not a bona fide independent contractor.[27]

The petition is bereft of merit.

In this case, the LA, the NLRC, and the CA reached different conclusions of
law albeit agreeing on the same set of facts. It was in their interpretation and
appreciation of the evidence that they differed. The CA ruled that respondent
FCCSI was a labor-only contractor and that respondent bill collectors are
employees of petitioner Manila Water, while the LA and the NLRC ruled
otherwise.

"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.[28]

Contracting and subcontracting arrangements are expressly allowed by law but

are subject to regulation for the promotion of employment and the observance
of the rights of workers to just and humane conditions of work, security of
tenure, self-organization, and collective bargaining.[29] In legitimate contracting,
the trilateral relationship between the parties in these arrangements involves the
principal which decides to farm out a job or service to a contractor or
subcontractor, which has the capacity to independently undertake the
performance of the job, work, or service, and the contractual workers engaged
by the contractor or subcontractor to accomplish the job, work, or service.[30]

Job contracting is permissible only if the following conditions are met: 1) 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 as to the results
thereof; and 2) the contractor has substantial capital or investment in the form
of tools, equipment, machineries, work premises, and other materials which are
necessary in the conduct of the business.[31]

On the other hand, the Labor Code expressly prohibits "labor-only" contracting.
Article 106 of the Code provides that there is labor-only contracting where 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 the workers recruited and placed by such person are performing
activities which are directly related to the principal business of the employer. In
such cases, the person or intermediary shall be considered merely as an agent of
the employer who shall be responsible to the workers in the same manner and
to the same extent as if the latter were directly employed by him.[32]

Department Order No. 18-02, Series of 2002, enunciates that labor-only

contracting refers 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 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.[33]

"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. The "right to control" refers to the right reserved to the person for
whom the services of the contractual workers are performed, to determine not
only the end to be achieved, but also the manner and means to be used in
reaching that end.[34]

In the instant case, the CA found that FCCSI is a labor-only contractor. Based
on the factual findings of the CA, FCCSI does not have substantial capital or
investment to qualify as an independent contractor, viz.:

FCCSI was incorporated on November 14, 1995, with an authorized capital

stock of P400,000.00, of which only P100,000.00 is actually paid-in. Going by
the pronouncement in Peña, such capitalization can hardly be considered
substantial. FCCSI and Manila Water make much of the 17 April 1997 letter of
Postal Regulation Committee Chairman Francisco V. Ontalan, Jr. to DOTC
Secretary Arturo T. Enrile recommending the renewal and/or extension of
authority to FCCSI to operate private messengerial delivery services, which
states in part:

"Ocular inspection conducted on its office premises and evaluation of the

documents submitted, the firm during the six (6) months operation has
generated employment to thirty six (36) messengers, and four (4) office
personnel.

"The office equipt [sic] with modern facilities such as computers, printers,
electric typewriter, working table, telephone lines, airconditioning unit, pigeon
holes, working tables and delivery vehicles such as a Suzuki van and three (3) motorcycles.
The firm's audited financial statement for the period ending 31 December 1996
[shows] that it earned a net income of P253,000.00. x x x."

The above document only proves that FCCSI has no sufficient investment in
the form of tools, equipment and machinery to undertake contract services for
Manila Water involving a fleet of around 100 collectors assigned to several
branches and covering the service area of Manila Water customers spread out in
several cities/towns of the East Zone. The only rational conclusion is that it is
Manila Water that provides most if not all the logistics and equipment including
service vehicles in the performance of the contracted service, notwithstanding
that the contract between FCCSI and Manila Water states that it is the
Contractor which shall furnish at its own expense all materials, tools and
equipment needed to perform the tasks of collectors. Moreover, it must be
emphasized that petitioners who are "trained collectors" performed tasks that
cannot be simply categorized as "messengerial." In fact, these are the very
functions they were already discharging even before they joined FCCSI which
"invited" or "solicited" their placement just about the expiration of their three
(3)-month contract with Manila Water on November 28, 1997. The Agreement
between FCCSI and Manila Water provides that FCCSI shall "field the required
number of trained collectors to the following Customer Relations Branch
Office": Cubao, España, San Juan-Mandaluyong, Marikina, Pasig, Taguig-
Pateros and Makati.[35]

As correctly ruled by the CA, FCCSI's capitalization may not be considered

substantial considering that it had close to a hundred collectors covering the east
zone service area of Manila Water customers. The allegation in the position
paper of FCCSI that it serves other companies' courier needs does not "cure"
the fact that it has insufficient capitalization to qualify as independent
contractor. Neither did FCCSI prove its allegation by substantial evidence other
than by their self-serving declarations. What is evident is that it was Manila
Water that provided the equipment and service vehicles needed in the
performance of the contracted service, even if the contract between FCCSI and
Manila Water stated that it was the Contractor which shall furnish at its own
expense all materials, tools, and equipment needed to perform the tasks of
collectors.

Based on the four-fold test of employer-employee relationship, Manila Water

emerges as the employer of respondent collectors. The elements to determine
the existence of an employment relationship are: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer's power to control the employee's conduct. The
most important of these elements is the employer's control of the employee's
conduct, not only as to the result of the work to be done, but also as to the
means and methods to accomplish it.[36]

The factual circumstances in the instant case are essentially the same as those
cited in Manila Water Company, Inc. v. Hermiño Peña.[37] In that case, 121 bill
collectors, headed by Peña, filed a complaint for illegal dismissal against Manila
Water. The bill collectors formed ACGI which was registered with the SEC.
Manila Water, in opposing the claim of the bill collectors, claimed that there was
no employer-employee relationship with the latter. It averred that the bill
collectors were employees of ACGI, a separate entity engaged in collection
services, an independent contractor which entered into a service contract for the
collection of Manila Water's accounts. The Court ruled that ACGI was not an
independent contractor but was engaged in labor-only contracting, and as such,
is considered merely an agent of Manila Water.[38]

The Court ratiocinated that: First, ACGI does not have substantial capitalization
or investment in the form of tools, equipment, machineries, work premises, and
other materials to qualify as an independent contractor. Second, the work of the
bill collectors was directly related to the principal business or operation of
Manila Water. Being in the business of providing water to the consumers in the
east zone, the collection of the charges by the bill collectors for the company
can only be categorized as related to, and in the pursuit of, the latter's business.
Lastly, ACGI did not carry on an independent business or undertake the
performance of its service contract in its own manner and using its own
methods, free from the control and supervision of its principal, Manila Water.
Since ACGI is obviously a labor-only contractor, the workers it supplied are
considered employees of the principal. Furthermore, the activities performed by
the bill collectors were necessary or desirable to Manila Water's principal trade
or business; thus, they are regular employees of the latter. Since Manila Water
failed to comply with the requirements of termination under the Labor Code,
the dismissal of the bill collectors was tainted with illegality.[39]

The similarity between the instant case and Peña is very evident. First, the work
set-up between the respondent contractor FCCSI and respondent bill collectors
is the same as in Peña. Respondent bill collectors were individually hired by the
contractor, but were under the direct control and supervision of the
concessionaire. Second, they performed the same function of courier and bill
collection services. Third, the element of control exercised by Manila Water
over respondent bill collectors is essentially the same as in Peña, manifested in
the following circumstances, viz.: (a) respondent bill collectors reported daily to
the branch offices of Manila Water to remit their collections with the specified
monthly targets and comply with the collection reporting procedures prescribed
by the latter; (b) respondent bill collectors, except for Pamoraga and Zapatero,
were among the 121 collectors who incorporated ACGI; (c) Manila Water
continued to pay their wages in the form of commissions even after the
employees alleged transfer to FCCSI. Manila Water paid the respondent bill
collectors their individual commissions, and the lump sum paid by Manila Water
to FCCSI merely represented the agency fee; and (d) the certification or
individual clearances issued by Manila Water to respondent bill collectors upon
the termination of the service contract with FCCSI. The certification stated that
respondents were contract collectors of Manila Water and not of FCCSI. Thus,
this Court agrees with the findings of the CA that if, indeed, FCCSI was the true
employer of the bill collectors, it should have been the one to issue the
certification or individual clearances.

It should be remembered that the control test merely calls for the existence of
the right to control, and not necessarily the exercise thereof. It is not essential
that the employer actually supervises the performance of duties of the employee.
It is enough that the former has a right to wield the power.[40]

Respondent bill collectors are, therefore, employees of petitioner Manila Water.

It cannot be denied that the tasks performed by respondent bill collectors are
directly related to the principal business or trade of Manila Water. Payments
made by the subscribers are the lifeblood of the company, and the respondent
bill collectors are the ones who collect these payments.
The primary standard of determining regular employment is the reasonable
connection between the particular activity performed by the employee in
relation to the usual business or trade of the employer. In this case, the
connection is obvious when we consider the nature of the work performed and
its relation to the scheme of the particular business or trade in its entirety.
Finally, the repeated and continuing need for the performance of the job is
sufficient evidence of the necessity, if not indispensability of the activity to the
business.[41]

WHEREFORE, in view of the foregoing, the Decision dated September 12,

2006 and the Resolution dated November 17, 2006 of the Court of Appeals in
CA-G.R. SP No. 94909 are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.

Velasco, Jr.,* Peralta, Mendoza, and Sereno,*** JJ., concur.

*Additional member in lieu of Associate Justice Antonio T. Carpio per Special

Order No. 897 dated September 28, 2010.

**In lieu of Associate Justice Antonio T. Carpio per Special Order No. 898
dated September 28, 2010.

Additional member in lieu of Associate Justice Roberto A. Abad per Special

***

Order No. 903 dated September 28, 2010.

Penned by Associate Justice Martin S. Villarama, Jr. (now a member of this

[1]

Court), with Associate Justices Lucas P. Bersamin (now a member of this Court)
and Monina Arevalo-Zenarosa, concurring; rollo, pp. 572-603.

[2] Id. at 637.

[3] Id. at 573.

[4] Id.

[5] Id.

[6] Id. at 294-295, 573.

[7] Id. at 295.

[8] Id. at 295, 574.

[9] Id. at 574.

[10] Id. at 292, 575.

[11] Id. at 575.

[12] Id.

[13] Id.

[14] Id. at 575-576.

[15] Id. at 576.

Department Order No. 10, Series of 1997, otherwise known as the rules
[16]

implementing Article 106 to 109 of Book III of the Labor Code, was revoked by
Department Order No. 03, Series of 2001. The new department order
continued to prohibit labor-only contracting.

[17] Rollo, pp. 576-577.

[18] Id. at 577.

[19] Id.

[20] Id.

[21] Penned by Executive Labor Arbiter Fatima Jamabro-Franco; id. at 291-320.

[22] Id. at 319-320.

[23] Penned by Presiding Commissioner Lourdes C. Javier; id. at 406-428.

[24] Id. at 450-451.

[25] Id. at 602.

[26] 478 Phil. 68 (2004).

[27] Rollo, p. 799.

[28] Department Order No. 18-02, Series of 2002, Sec. 4(a).

[29] Department Order No. 18-02, Series of 2002, Sec. 1.

[30] Department Order No. 18-02, Series of 2002, Sec. 3.

Manila Water Company, Inc. v. Peña, supra note 26, at 78, citing De los Santos
[31]

v. NLRC, 423 Phil. 1020, 1032 (2001).

[32] Labor Code, Art. 106.

[33] Department Order No. 18-02, Series of 2002, Sec. 5.

[34] Id.

[35] Rollo, pp. 593-594.

Lopez v. Metropolitan Waterworks and Sewerage System, 501 Phil. 115, 137 (2005);
[36]

Manila Water Company, Inc. v. Peña, supra note 26, at 81.

[37] Supra.

[38] Id.

[39] Id.
[40]Lopez v. Metropolitan Waterworks and Sewerage System, supra note 36, at 133,
citing MAM Realty Development Corporation v. NLRC, 314 Phil. 838, 842 (1995).

[41] Lopez v. Metropolitan Waterworks and Sewerage System, supra note 35, at 433, 453.
 Supreme Court of the Philippines

653 Phil. 421

SECOND DIVISION
G.R. No. 186091, December 15, 2010
EMMANUEL BABAS, DANILO T. BANAG, ARTURO V. VILLARIN, SR.,
EDWIN JAVIER, SANDI BERMEO, REX ALLESA, MAXIMO SORIANO, JR.,
ARSENIO ESTORQUE, AND FELIXBERTO ANAJAO, PETITIONERS, VS.
LORENZO SHIPPING CORPORATION, RESPONDENT

D E C I S I O N.

NACHURA, J.:

Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin

Javier, Sandi Bermeo, Rex Allesa, Maximo Soriano, Jr., Arsenio Estorque, and
Felixberto Anajao appeal by certiorari under Rule 45 of the Rules of Court the
October 10, 2008 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP. No.
103804, and the January 21, 2009 Resolution,[2] denying its reconsideration.

Respondent Lorenzo Shipping Corporation (LSC) is a duly organized domestic

corporation engaged in the shipping industry; it owns several equipment
necessary for its business. On September 29, 1997, LSC entered into a General
Equipment Maintenance Repair and Management Services Agreement[3] (Agreement) with
Best Manpower Services, Inc. (BMSI). Under the Agreement, BMSI undertook to
provide maintenance and repair services to LSC's container vans, heavy
equipment, trailer chassis, and generator sets. BMSI further undertook to
provide checkers to inspect all containers received for loading to and/or
unloading from its vessels.

Simultaneous with the execution of the Agreement, LSC leased its equipment,
tools, and tractors to BMSI.[4] The period of lease was coterminous with the
Agreement.
BMSI then hired petitioners on various dates to work at LSC as checkers,
welders, utility men, clerks, forklift operators, motor pool and machine shop
workers, technicians, trailer drivers, and mechanics. Six years later, or on May 1,
2003, LSC entered into another contract with BMSI, this time, a service
contract.[5]

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint
for regularization against LSC and BMSI. On October 1, 2003, LSC terminated
the Agreement, effective October 31, 2003. Consequently, petitioners lost their
employment.

BMSI asserted that it is an independent contractor. It averred that it was willing

to regularize petitioners; however, some of them lacked the requisite
qualifications for the job. BMSI was willing to reassign petitioners who were
willing to accept reassignment. BMSI denied petitioners' claim for
underpayment of wages and non-payment of 13th month pay and other benefits.

LSC, on the other hand, averred that petitioners were employees of BMSI and
were assigned to LSC by virtue of the Agreement. BMSI is an independent job
contractor with substantial capital or investment in the form of tools,
equipment, and machinery necessary in the conduct of its business. The
Agreement between LSC and BMSI constituted legitimate job contracting. Thus,
petitioners were employees of BMSI and not of LSC.

After due proceedings, the LA rendered a decision[6] dismissing petitioners'

complaint. The LA found that petitioners were employees of BMSI. It was
BMSI which hired petitioners, paid their wages, and exercised control over
them.

Petitioners appealed to the National Labor Relations Commission (NLRC),

arguing that BMSI was engaged in labor-only contracting. They insisted that
their employer was LSC.

On January 16, 2008, the NLRC promulgated its decision.[7] Reversing the LA,
the NLRC held:

We find from the records of this case that respondent BMSI is not engaged in
legitimate job contracting.
First, respondent BMSI has no equipment, no office premises, no capital and no
investments as shown in the Agreement itself which states:

xxxx

VI. RENTAL OF EQUIPMENT

[6.01.] That the CLIENT has several forklifts and truck tractor, and has offered to the
CONTRACTOR the use of the same by way of lease, the monthly rental of which shall be
deducted from the total monthly billings of the CONTRACTOR for the services covered by
this Agreement.

6.02. That the CONTRACTOR has agreed to rent the CLIENT's forklifts and truck
tractor.

6.03. The parties herein have agreed to execute a Contract of Lease for the forklifts and truck
tractor that will be rented by the CONTRACTOR. (p. 389, Records)

True enough, parties signed a Lease Contract (p. 392, Records) wherein
respondent BMSI leased several excess equipment of LSC to enable it to
discharge its obligation under the Agreement. So without the equipment which
respondent BMSI leased from respondent LSC, the former would not be able to
perform its commitments in the Agreement.

In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme Court held:

x x x. The phrase "substantial capital and investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business," in the Implementing Rules clearly contemplates tools, equipment, etc., which are
directly related to the service it is being contracted to render. One who does not have an
independent business for undertaking the job contracted for is just an agent of the employer.
(underscoring ours)

Second, respondent BMSI has no independent business or activity or job to

perform in respondent LSC free from the control of respondent LSC except as
to the results thereof. In view of the absence of such independent business or
activity or job to be performed by respondent BMSI in respondent LSC
[petitioners] performed work that was necessary and desirable to the main
business of respondent LSC. Respondents were not able to refute the allegations
of [petitioners] that they performed the same work that the regular workers of
LSC performed and they stood side by side with regular employees of
respondent LSC performing the same work. Necessarily, the control on the
manner and method of doing the work was exercised by respondent LSC and
not by respondent BMSI since the latter had no business of its own to perform
in respondent LSC.

Lastly, respondent BMSI has no other client but respondent LSC. If

respondent BMSI were a going concern, it would have other clients to which to
assign [petitioners] after its Agreement with LSC expired. Since there is only
one client, respondent LSC, it is easy to conclude that respondent BMSI is a
mere supplier of labor.

After concluding that respondent BMSI is engaged in prohibited labor-only

contracting, respondent LSC became the employer of [petitioners] pursuant to
DO 18-02.

[Petitioners] therefore should be reinstated to their former positions or

equivalent positions in respondent LSC as regular employees with full
backwages and other benefits without loss of seniority rights from October 31,
2003, when they lost their jobs, until actual reinstatement (Vinoya v. NLRC, 324
SCRA 469). If reinstatement is not feasible, [petitioners] then should be paid
separation pay of one month pay for every year of service or a fraction of six
months to be considered as one year, in addition to full backwages.

Concerning [petitioners'] prayer to be paid wage differentials and benefits under

the CBA, We have no doubt that [petitioners] would be entitled to them if they
are covered by the said CBA. For this purpose, [petitioners] should first enlist
themselves as union members if they so desire, or pay agency fee. Furthermore,
only [petitioners] who signed the appeal memorandum are covered by this
Decision. As regards the other complainants who did not sign the appeal, the
Decision of the Labor Arbiter dismissing this case became final and executory.[8]

The NLRC disposed thus:

WHEREFORE, the appeal of [petitioners] is GRANTED. The Decision of the
Labor Arbiter is hereby REVERSED, and a NEW ONE rendered finding
respondent Best Manpower Services, Inc. is engaged in prohibited labor-only-
contracting and finding respondent Lorenzo Shipping Corp. as the employer of
the following [petitioners]:

1. Emmanuel B. Babas
2. Danilo Banag
3. Edwin L. Javier
4. Rex Allesa
5. Arturo Villarin, [Sr.]
6. Felixberto C. Anajao
7. Arsenio Estorque
8. Maximo N. Soriano, Jr.
9. Sandi G. Bermeo

Consequently, respondent Lorenzo Shipping Corp. is ordered to reinstate

[petitioners] to their former positions as regular employees and pay their wage
differentials and benefits under the CBA.

If reinstatement is not feasible, both respondents Lorenzo Shipping Corp. and

Best Manpower Services are adjudged jointly and solidarily to pay [petitioners]
separation pay of one month for every year of service, a fraction of six months
to be considered as one year.

In addition, respondent LSC and BMSI are solidarily liable to pay [petitioners']
full backwages from October 31, 2003 until actual reinstatement or, if
reinstatement is not feasible, until finality of this Decision.

Respondent LSC and respondent BMSI are likewise adjudged to be solidarily

liable for attorney's fees equivalent to ten (10%) of the total monetary award.

xxxx

SO ORDERED.[9]

LSC went to the CA via certiorari. On October 10, 2008, the CA rendered the
now challenged Decision,[10] reversing the NLRC. In holding that BMSI was an
independent contractor, the CA relied on the provisions of the Agreement,
wherein BMSI warranted that it is an independent contractor, with adequate
capital, expertise, knowledge, equipment, and personnel necessary for the
services rendered to LSC. According to the CA, the fact that BMSI entered into
a contract of lease with LSC did not ipso facto make BMSI a labor-only
contractor; on the contrary, it proved that BMSI had substantial capital. The
CA was of the view that the law only required substantial capital or investment.
Since BMSI had substantial capital, as shown by its ability to pay rents to LSC,
then it qualified as an independent contractor. It added that even under the
control test, BMSI would be the real employer of petitioners, since it had
assumed the entire charge and control of petitioners' services. The CA further
held that BMSI's Certificate of Registration as an independent contractor was
sufficient proof that it was an independent contractor. Hence, the CA absolved
LSC from liability and instead held BMSI as employer of petitioners.

The fallo of the CA Decision reads:

WHEREFORE, premises considered, the instant petition is GRANTED and

the assailed decision and resolution of public respondent NLRC are
REVERSED and SET ASIDE. Consequently, the decision of the Labor
Arbiter dated September 29, 2004 is REINSTATED.

SO ORDERED.[11]

Petitioners filed a motion for reconsideration, but the CA denied it on January

21, 2009.[12]

Hence, this appeal by petitioners, positing that:

THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE

CLEAR EVIDENCE OF RECORD THAT RESPONDENT WAS
ENGAGED IN LABOR-ONLY CONTRACTING TO DEFEAT
PETITIONERS' RIGHT TO SECURITY OF TENURE.[13]

Before resolving the petition, we note that only seven (7) of the nine petitioners
signed the Verification and Certification.[14] Petitioners Maximo Soriano, Jr.
(Soriano) and Felixberto Anajao (Anajao) did not sign the Verification and
Certification, because they could no longer be located by their co-petitioners.[15]

In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National Labor
Relations Commission,[16] citing Loquias v. Office of the Ombudsman,[17] we stated that
the petition satisfies the formal requirements only with regard to the petitioner
who signed the petition, but not his co-petitioner who did not sign nor
authorize the other petitioner to sign it on his behalf. Thus, the petition can be
given due course only as to the parties who signed it. The other petitioners who
did not sign the verification and certificate against forum shopping cannot be
recognized as petitioners and have no legal standing before the Court. The
petition should be dismissed outright with respect to the non-conforming
petitioners.

Thus, we dismiss the petition insofar as petitioners Soriano and Anajao are
concerned.

Petitioners vigorously insist that they were employees of LSC; and that BMSI is
not an independent contractor, but a labor-only contractor. LSC, on the other
hand, maintains that BMSI is an independent contractor, with adequate capital
and investment. LSC capitalizes on the ratiocination made by the CA.

In declaring BMSI as an independent contractor, the CA, in the challenged

Decision, heavily relied on the provisions of the Agreement, wherein BMSI
declared that it was an independent contractor, with substantial capital and
investment.

De Los Santos v. NLRC[18] instructed us that the character of the business, i.e.,
whether as labor-only contractor or as job contractor, should

be measured in terms of, and determined by, the criteria set by statute. The
parties cannot dictate by the mere expedience of a unilateral declaration in a
contract the character of their business.

In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada,

Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,[19] this Court
explained:
Despite the fact that the service contracts contain stipulations which are
earmarks of independent contractorship, they do not make it legally so. The
language of a contract is neither determinative nor conclusive of the relationship
between the parties. Petitioner SMC and AMPCO cannot dictate, by a
declaration in a contract, the character of AMPCO's business, that is, whether as
labor-only contractor, or job contractor. AMPCO's character should be
measured in terms of, and determined by, the criteria set by statute.

Thus, in distinguishing between prohibited labor-only contracting and

permissible job contracting, the totality of the facts and the surrounding
circumstances of the case are to be considered.

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; and (b) the employees recruited,
supplied, or placed by such contractor or subcontractor perform activities which
are directly related to the main business of the principal.[20]

On the other hand, permissible job contracting or subcontracting refers to an

arrangement whereby a principal agrees to put out or farm out with the
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. [21]

A person is considered engaged in legitimate job contracting or subcontracting

if the following conditions concur:

(a) The contractor carries on a distinct and independent business and undertakes
the contract work on his 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 his work except as
to the results thereof;

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

(c) The agreement between the principal and the 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 welfare benefits.[22]

Given the above standards, we sustain the petitioners' contention that BMSI is
engaged in labor-only contracting.

First, petitioners worked at LSC's premises, and nowhere else. Other than the
provisions of the Agreement, there was no showing that it was BMSI which
established petitioners' working procedure and methods, which supervised
petitioners in their work, or which evaluated the same. There was absolute lack
of evidence that BMSI exercised control over them or their work, except for the
fact that petitioners were hired by BMSI.

Second, LSC was unable to present proof that BMSI had substantial capital. The
record before us is bereft of any proof pertaining to the contractor's
capitalization, nor to its investment in tools, equipment, or implements actually
used in the performance or completion of the job, work, or service that it was
contracted to render. What is clear was that the equipment used by BMSI were
owned by, and merely rented from, LSC.

In Mandaue Galleon Trade, Inc. v. Andales,[23] we held:

The law casts the burden on the contractor to prove that it has substantial
capital, investment, tools, etc. Employees, on the other hand, need not prove
that the contractor does not have substantial capital, investment, and tools to
engage in job-contracting.

Third, petitioners performed activities which were directly related to the main
business of LSC. The work of petitioners as checkers, welders, utility men,
drivers, and mechanics could only be characterized as part of, or at least clearly
related to, and in the pursuit of, LSC's business. Logically, when petitioners were
assigned by BMSI to LSC, BMSI acted merely as a labor-only contractor.

Lastly, as found by the NLRC, BMSI had no other client except for LSC, and
neither BMSI nor LSC refuted this finding, thereby bolstering the NLRC
finding that BMSI is a labor-only contractor.

The CA erred in considering BMSI's Certificate of Registration as sufficient

proof that it is an independent contractor. In San Miguel Corporation v. Vicente B.
Semillano, Nelson Mondejas, Jovito Remada, Alilgilan Multi-Purpose Coop (AMPCO),
and Merlyn N. Policarpio,[24] we held that a Certificate of Registration issued by the
Department of Labor and Employment is not conclusive evidence of such
status. The fact of registration simply prevents the legal presumption of being a
mere labor-only contractor from arising.[25]

Indubitably, BMSI can only be classified as a labor-only contractor. The CA,

therefore, erred when it ruled otherwise. Consequently, the workers that BMSI
supplied to LSC became regular employees of the latter.[26] Having gained
regular status, petitioners were entitled to security of tenure and could only be
dismissed for just or authorized causes and after they had been accorded due
process.

Petitioners lost their employment when LSC terminated its Agreement with
BMSI. However, the termination of LSC's Agreement with BMSI cannot be
considered a just or an authorized cause for petitioners' dismissal. In Almeda v.
Asahi Glass Philippines. Inc. v. Asahi Glass Philippines, Inc.,[27] this Court declared:

The sole reason given for the dismissal of petitioners by SSASI was the
termination of its service contract with respondent. But since SSASI was a
labor-only contractor, and petitioners were to be deemed the employees of
respondent, then the said reason would not constitute a just or authorized cause
for petitioners' dismissal. It would then appear that petitioners were summarily
dismissed based on the aforecited reason, without compliance with the
procedural due process for notice and hearing.

Herein petitioners, having been unjustly dismissed from work, are entitled to
reinstatement without loss of seniority rights and other privileges and to full
back wages, inclusive of allowances, and to other benefits or their monetary
equivalents computed from the time compensation was withheld up to the time
of actual reinstatement. Their earnings elsewhere during the periods of their
illegal dismissal shall not be deducted therefrom.

Accordingly, we hold that the NLRC committed no grave abuse of discretion in

its decision. Conversely, the CA committed a reversible error when it set aside
the NLRC ruling.

WHEREFORE, the petition is GRANTED. The Decision and the

Resolution of the Court of Appeals in CA-G.R. SP. No. 103804 are
REVERSED and SET ASIDE. Petitioners Emmanuel Babas, Danilo T.
Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa, and
Arsenio Estorque are declared regular employees of Lorenzo Shipping
Corporation. Further, LSC is ordered to reinstate the seven petitioners to their
former position without loss of seniority rights and other privileges, and to pay
full backwages, inclusive of allowances, and other benefits or their monetary
equivalent, computed from the time compensation was withheld up to the time
of actual reinstatement.

No pronouncement as to costs.

SO ORDERED.

Carpio, (Chairperson), Peralta, Del Castillo,* and Mendoza, JJ., concur.

*Additional member in lieu of Associate Justice Roberto A. Abad per Raffle

dated December 15, 2010.

Penned by Associate Justice Marlene Gonzales-Sison, with Associate Justices

[1]

Juan Q. Enriquez, Jr. and Isaias P. Dicdican, concurring; rollo, pp. 34-49.

[2] Id. at 53-54.

[3] Id. at 124-130.

[4] Id. at 131-134.

[5] Id. at 135-138.

[6] Id. at 278-286.

[7] Id. at 81-92.

[8] Id. at 86-88.

[9] Id. at 89-91.

[10] Supra note 1.

[11] Id. at 48.

[12] Supra note 2.

[13] Rollo, p. 21.

[14] Id. at 31-32.

[15] See Compliance; id. at 335-336.

[16] G.R. Nos. 158786 & 158789, October 19, 2007, 537 SCRA 171, 198-199.

[17] 392 Phil. 596, 603-604 (2000).

[18] 423 Phil. 1020, 1032 (2001).

[19] G.R. No. 164257, July 5, 2010.

Iligan Cement Corporation v. ILIASCOR Employees and Workers Union-Southern

[20]

Philippines Federation of Labor (IEWU-SPFL), G.R. No. 158956, April 24, 2009,
586 SCRA 449, 464-465.

Purefoods Corporation (now San Miguel Purefoods Company, Inc.) v. National Labor
[21]

Relations Commission, G.R. No. 172241, November 20, 2008, 571 SCRA 406, 413.

[22] Vinoya v. National Labor Relations Commission, 381 Phil. 460, 472-473 (2000).

[23] G.R. No. 159668, March 7, 2008, 548 SCRA 17, 28.

[24] Supra note 19.

[25] Id.

[26] See PCI Automation Center Inc. v. NLRC, 322 Phil. 536 (1996).

[27] G.R. No. 177785, September 3, 2008, 564 SCRA 115, 132-134.
 Supreme Court of the Philippines

G.R. No. 169704

THIRD DIVISION
G.R. No. 169704, November 17, 2010
ALBERT TENG, DOING BUSINESS UNDER THE FIRM NAME ALBERT
TENG FISH TRADING, AND EMILIA TENG-CHUA, PETITIONERS, VS.
ALFREDO S. PAHAGAC, EDDIE D. NIPA, ORLANDO P. LAYESE,
HERNAN Y. BADILLES AND ROGER S. PAHAGAC, RESPONDENTS.

DECISION

BRION, J.:

Before this Court is a Petition for Review on Certiorari[1] filed by petitioners

Albert Teng Fish Trading, its owner Albert Teng, and its manager Emilia Teng-
Chua, to reverse and set aside the September 21, 2004 decision[2] and the
September 1, 2005 resolution[3] of the Court of Appeals (CA) in CA-G.R. SP
No. 78783. The CA reversed the decision of the Voluntary Arbitrator (VA),
National Conciliation and Mediation Board (NCMB), Region IX, Zamboanga
City, and declared that there exists an employer-employee relationship between
Teng and respondents Hernan Badilles, Orlando Layese, Eddie Nipa, Alfredo
Pahagac, and Roger Pahagac (collectively, respondent workers). It also found that
Teng illegally dismissed the respondent workers from their employment.

BACKGROUND FACTS

Albert Teng Fish Trading is engaged in deep sea fishing and, for this purpose,
owns boats (basnig), equipment, and other fishing paraphernalia. As owner of the
business, Teng claims that he customarily enters into joint venture agreements
with master fishermen (maestros) who are skilled and are experts in deep sea
fishing; they take charge of the management of each fishing venture, including
the hiring of the members of its complement. He avers that the maestros hired
the respondent workers as checkers to determine the volume of the fish caught
in every fishing voyage.[4]

On February 20, 2003, the respondent workers filed a complaint for illegal
dismissal against Albert Teng Fish Trading, Teng, and Chua before the NCMB,
Region Branch No. IX, Zamboanga City.

The respondent workers alleged that Teng hired them, without any written
employment contract, to serve as his "eyes and ears" aboard the fishing boats; to
classify the fish caught by bañera; to report to Teng via radio communication the
classes and volume of each catch; to receive instructions from him as to where
and when to unload the catch; to prepare the list of the provisions requested by
the maestro and the mechanic for his approval; and, to procure the items as
approved by him.[5] They also claimed that they received regular monthly
salaries, 13th month pay, Christmas bonus, and incentives in the form of shares
in the total volume of fish caught.

They asserted that sometime in September 2002, Teng expressed his doubts on
the correct volume of fish caught in every fishing voyage.[6] In December 2002,
Teng informed them that their services had been terminated.[7]

In his defense, Teng maintained that he did not have any hand in hiring the
respondent workers; the maestros, rather than he, invited them to join the
venture. According to him, his role was clearly limited to the provision of the
necessary capital, tools and equipment, consisting of basnig, gears, fuel, food, and
other supplies.[8]

The VA rendered a decision[9] in Teng's favor and declared that no employer-

employee relationship existed between Teng and the respondent workers. The
dispositive portion of the VA's May 30, 2003 decision reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing

the instant complaint for lack of merit.

It follows also, that all other claims are likewise dismissed for lack of merit.[10]

The respondent workers received the VA's decision on June 12, 2003.[11] They
filed a motion for reconsideration, which was denied in an order dated June
27, 2003 and which they received on July 8, 2003.[12] The VA reasoned out that
Section 6, Rule VII of the 1989 Procedural Guidelines in the Conduct of
Voluntary Arbitration Proceedings (1989 Procedural Guidelines) does not provide
the remedy of a motion for reconsideration to the party adversely affected by
the VA's order or decision.[13] The order states:

Under Executive Order No. 126, as amended by Executive Order No. 251, and
in order to implement Article 260-262 (b) of the Labor Code, as amended by
R.A. No. 6715, otherwise known as the Procedural Guidelines in the Conduct
of Voluntary Arbitration Proceedings, inter alia:

An award or the Decision of the Voluntary Arbitrators becomes final and

executory after ten (10) calendar days from receipt of copies of the award or
decision by the parties (Sec. 6, Rule VII).

Moreover, the above-mentioned guidelines do not provide the remedy of

a motion for reconsideration to the party adversely affected by the order
or decision of voluntary arbitrators.[14]

On July 21, 2003, the respondent-workers elevated the case to the CA. In its
decision of September 21, 2004, the CA reversed the VA's decision after finding
sufficient evidence showing the existence of employer-employee relationship:

WHEREFORE, premises considered, the petition is granted. The questioned

decision of the Voluntary Arbitrator dated May 30, 2003 is hereby
REVERSED and SET ASIDE by ordering private respondent to pay
separation pay with backwages and other monetary benefits. For this purpose,
the case is REMANDED to the Voluntary Arbitrator for the computation of
petitioner's backwages and other monetary benefits. No pronouncement as to
costs.

SO ORDERED.[15]

Teng moved to reconsider the CA's decision, but the CA denied the motion in
its resolution of September 1, 2005.[16] He, thereafter, filed the present Petition
for Review on Certiorari under Rule 45 of the Rules of Court, claiming that:

a. the VA's decision is not subject to a motion for reconsideration; and

b. no employer-employee relationship existed between Teng and the respondent
workers.

Teng contends that the VA's decision is not subject to a motion for
reconsideration in the absence of any specific provision allowing this recourse
under Article 262-A of the Labor Code.[17] He cites the 1989 Procedural
Guidelines, which, as the VA declared, does not provide the remedy of a motion
for reconsideration.[18] He claims that after the lapse of 10 days from its receipt,
the VA's decision becomes final and executory unless an appeal is taken.[19] He
argues that when the respondent workers received the VA's decision on June 12,
2003,[20] they had 10 days, or until June 22, 2003, to file an appeal. As the
respondent workers opted instead to move for reconsideration, the 10-day
period to appeal continued to run; thus, the VA's decision had already become
final and executory by the time they assailed it before the CA on July 21,
2003.[21]

Teng further insists that the VA was correct in ruling that there was no
employer-employee relationship between him and the respondent workers.
What he entered into was a joint venture agreement with the maestros, where
Teng's role was only to provide basnig, gears, nets, and other tools and
equipment for every fishing voyage.[22]

THE COURT'S RULING

We resolve to deny the petition for lack of merit.

Article 262-A of the Labor Code

does not prohibit the filing of a
motion for reconsideration.

On March 21, 1989, Republic Act No. 6715[23] took effect, amending, among
others, Article 263 of the Labor Code which was
originally worded as:

Art. 263 x x x Voluntary arbitration awards or decisions shall be final,

unappealable, and executory.

As amended, Article 263 is now Article 262-A, which states:

Art. 262-A. x x x [T]he award or decision x x x shall contain the facts and the
law on which it is based. It shall be final and executory after ten (10)
calendar days from receipt of the copy of the award or decision by the
parties.

Notably, Article 262-A deleted the word "unappealable" from Article 263.
The deliberate selection of the language in the amendatory act differing from
that of the original act indicates that the legislature intended a change in the law,
and the court should endeavor to give effect to such intent.[24] We recognized
the intent of the change of phraseology in Imperial Textile Mills, Inc. v. Sampang,[25]
where we ruled that:

It is true that the present rule [Art. 262-A] makes the voluntary arbitration award
final and executory after ten calendar days from receipt of the copy of the award
or decision by the parties. Presumably, the decision may still be
reconsidered by the Voluntary Arbitrator on the basis of a motion for
reconsideration duly filed during that period.[26]

In Coca-Cola Bottlers Phil., Inc., Sales Force Union-PTGWO-Balais v. Coca-Cola Bottlers

Philippines, Inc.,[27] we likewise ruled that the VA's decision may still be
reconsidered on the basis of a motion for reconsideration seasonably filed
within 10 days from receipt thereof.[28] The seasonable filing of a motion
for reconsideration is a mandatory requirement to forestall the finality of
such decision.[29] We further cited the 1989 Procedural Guidelines which
implemented Article 262-A, viz:[30]

[U]nder Section 6, Rule VII of the same guidelines implementing Article 262-A
of the Labor Code, this Decision, as a matter of course, would become final and
executory after ten (10) calendar days from receipt of copies of the decision by
the parties x x x unless, in the meantime, a motion for reconsideration or a
petition for review to the Court of Appeals under Rule 43 of the Rules of
Court is filed within the same 10-day period. [31]

These rulings fully establish that the absence of a categorical language in Article
262-A does not preclude the filing of a motion for reconsideration of the VA's
decision within the 10-day period. Teng's allegation that the VA's decision had
become final and executory by the time the respondent workers filed an appeal
with the CA thus fails. We consequently rule that the respondent workers
seasonably filed a motion for reconsideration of the VA's judgment, and the VA
erred in denying the motion because no motion for reconsideration is allowed.

The Court notes that despite our interpretation that Article 262-A does not
preclude the filing of a motion for reconsideration of the VA's decision, a
contrary provision can be found in Section 7, Rule XIX of the Department of
Labor's Department Order (DO) No. 40, series of 2003:[32]

Rule XIX

Section 7. Finality of Award/Decision. - The decision, order, resolution or

award of the voluntary arbitrator or panel of voluntary arbitrators shall be final
and executory after ten (10) calendar days from receipt of the copy of the award
or decision by the parties and it shall not be subject of a motion for
reconsideration.

Presumably on the basis of DO 40-03, the 1989 Procedural Guidelines was

revised in 2005 (2005 Procedural Guidelines),[33] whose pertinent provisions
provide that:

Rule VII -
DECISIONS

Section 6. Finality of Decisions. - The decision of the Voluntary Arbitrator

shall be final and executory after ten (10) calendar days from receipt of the copy
of the decision by the parties.

Section 7. Motions for Reconsideration. - The decision of the Voluntary

Arbitrator is not subject of a Motion for Reconsideration.

We are surprised that neither the VA nor Teng cited DO 40-03 and the 2005
Procedural Guidelines as authorities for their cause, considering that these were
the governing rules while the case was pending and these directly and fully
supported their theory. Had they done so, their reliance on the provisions would
have nevertheless been unavailing for reasons we shall now discuss.

In the exercise of its power to promulgate implementing rules and regulations,

an implementing agency, such as the Department of Labor,[34] is restricted from
going beyond the terms of the law it seeks to implement; it should neither
modify nor improve the law. The agency formulating the rules and guidelines
cannot exceed the statutory authority granted to it by the legislature.[35]

By allowing a 10-day period, the obvious intent of Congress in amending Article

263 to Article 262-A is to provide an opportunity for the party adversely
affected by the VA's decision to seek recourse via a motion for reconsideration
or a petition for review under Rule 43 of the Rules of Court filed with the CA.
Indeed, a motion for reconsideration is the more appropriate remedy in line
with the doctrine of exhaustion of administrative remedies. For this reason, an
appeal from administrative agencies to the CA via Rule 43 of the Rules of Court
requires exhaustion of available remedies[36] as a condition precedent to a
petition under that Rule.

The requirement that administrative remedies be exhausted is based on the

doctrine that in providing for a remedy before an administrative agency, every
opportunity must be given to the agency to resolve the matter and to exhaust all
opportunities for a resolution under the given remedy before bringing an action
in, or resorting to, the courts of justice.[37] Where Congress has not clearly
required exhaustion, sound judicial discretion governs,[38] guided by
congressional intent.[39]

By disallowing reconsideration of the VA's decision, Section 7, Rule XIX of DO

40-03 and Section 7 of the 2005 Procedural Guidelines went directly against the
legislative intent behind Article 262-A of the Labor Code. These rules deny the
VA the chance to correct himself[40] and compel the courts of justice to
prematurely intervene with the action of an administrative agency entrusted with
the adjudication of controversies coming under its special knowledge, training
and specific field of expertise. In this era of clogged court dockets, the need for
specialized administrative agencies with the special knowledge, experience and
capability to hear and determine promptly disputes on technical matters or
intricate questions of facts, subject to judicial review, is indispensable.[41] In
Industrial Enterprises, Inc. v. Court of Appeals,[42] we ruled that relief must first be
obtained in an administrative proceeding before a remedy will be supplied by
the courts even though the matter is within the proper jurisdiction of a court.[43]

There exists an employer-employee

relationship between Teng and the
respondent workers.

We agree with the CA's finding that sufficient evidence exists indicating the
existence of an employer-employee relationship between Teng and the
respondent workers.

While Teng alleged that it was the maestros who hired the respondent workers, it
was his company that issued to the respondent workers identification cards
(IDs) bearing their names as employees and Teng's signature as the employer.
Generally, in a business establishment, IDs are issued to identify the holder as a
bona fide employee of the issuing entity.

For the 13 years that the respondent workers worked for Teng, they received
wages on a regular basis, in addition to their shares in the fish caught.[44] The
worksheet showed that the respondent workers received uniform amounts
within a given year, which amounts annually increased until the termination of
their employment in 2002.[45] Teng's claim that the amounts received by the
respondent workers are mere commissions is incredulous, as it would mean that
the fish caught throughout the year is uniform and increases in number each
year.

More importantly, the element of control - which we have ruled in a number of

cases to be a strong indicator of the existence of an employer-employee
relationship - is present in this case. Teng not only owned the tools and
equipment, he directed how the respondent workers were to perform their job
as checkers; they, in fact, acted as Teng's eyes and ears in every fishing
expedition.

Teng cannot hide behind his argument that the respondent workers were hired
by the maestros. To consider the respondent workers as employees of the maestros
would mean that Teng committed impermissible labor-only contracting. As a
policy, the Labor Code prohibits labor-only contracting:

ART. 106. Contractor or Subcontractor - x x x The Secretary of Labor and

Employment may, by appropriate regulations, restrict or prohibit the
contracting-out of labor.
 xxxx

There is "labor-only" contracting where 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 the
workers recruited and placed by such persons are performing activities
which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of
the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.

Section 5 of the DO No. 18-02,[46] which implements Article 106 of the Labor
Code, provides:

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 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 over the performance
of the work of the contractual employee.

In the present case, the maestros did not have any substantial capital or
investment. Teng admitted that he solely provided the capital and equipment,
while the maestros supplied the workers. The power of control over the
respondent workers was lodged not with the maestros but with Teng. As
checkers, the respondent workers' main tasks were to count and classify the fish
caught and report them to Teng. They performed tasks that were necessary and
desirable in Teng's fishing business. Taken together, these incidents confirm the
existence of a labor-only contracting which is prohibited in our jurisdiction, as it
is considered to be the employer's attempt to evade obligations afforded by law
to employees.

Accordingly, we hold that employer-employee ties exist between Teng and the
respondent workers. A finding that the maestros are labor-only contractors is
equivalent to a finding that an employer-employee relationship exists between
Teng and the respondent workers. As regular employees, the respondent
workers are entitled to all the benefits and rights appurtenant to regular
employment.

The dismissal of an employee, which the employer must validate, has a twofold
requirement: one is substantive, the other is procedural.[47] Not only must the
dismissal be for a just or an authorized cause, as provided by law; the
rudimentary requirements of due process - the opportunity to be heard and to
defend oneself - must be observed as well.[48] The employer has the burden of
proving that the dismissal was for a just cause; failure to show this, as in the
present case, would necessarily mean that the dismissal was unjustified and,
therefore, illegal.[49]

The respondent worker's allegation that Teng summarily dismissed them on

suspicion that they were not reporting to him the correct volume of the fish
caught in each fishing voyage was never denied by Teng. Unsubstantiated
suspicion is not a just cause to terminate one's employment under Article 282[50]
of the Labor Code. To allow an employer to dismiss an employee based on
mere allegations and generalities would place the employee at the mercy of his
employer, and would emasculate the right to security of tenure.[51] For his failure
to comply with the Labor Code's substantive requirement on termination of
employment, we declare that Teng illegally dismissed the respondent workers.

WHEREFORE, we DENY the petition and AFFIRM the September 21,

2004 decision and the September 1, 2005 resolution of the Court of Appeals in
CA-G.R. SP No. 78783.Costs against the petitioners.

SO ORDERED.

Carpio Morales, (Chairperson), Bersamin, Villarama, Jr., and Sereno, JJ., concur.
[1] Under Rule 45 of the Rules of Court; rollo, pp. 9-37.

[2]Penned by Associate Justice Arturo G. Tayag, and concurred in by Associate

Justice Estela M. Perlas-Bernabe and Associate Justice Edgardo A. Camello; id.
at 41-51.

[3] Id. at 52-53.

[4] Id. at 14.

[5] Id. at 188.

[6] Id. at 43.

[7] Ibid.

[8] Id. at 14.

[9] Id. at 60-69.

[10] Id. at 69.

[11] Id. at 72.

[12] Ibid.

[13] Id. at 70.

[14] Ibid.

[15] Id. at 50.

[16] Id. at 52-53.

[17] Id. at 17-18.

[18] Id. at 70-71.

[19] Id. at 18.

[20] Id. at 72.

[21] Id.at 19.

[22] Id. at 21.

An Act To Extend Protection To Labor, Strengthen The Constitutional

[23]

Rights Of Workers To Self-Organization, Collective Bargaining And Peaceful

Concerted Activities, Foster Industrial Peace And Harmony, Promote The
Preferential Use Of Voluntary Modes Of Settling Labor Disputes And
Reorganize The National Labor Relations Commission, Amending For These
Purposes Certain Provisions Of Presidential Decree No. 442, As Amended,
Otherwise Known As The Labor Code Of The Philippines,
Appropriating Funds Therefor and For Other Purposes.

Agpalo, Statutory Construction (2006 ed.), p. 390, citing Sarcos v. Castillo, 26

[24]

SCRA 853 (1969); Portillo v. Salvani, 54 Phil. 543 (1930).

[25] G.R. No. 94960, March 8, 1993, 219 SCRA 651.

[26] Id. at 654.

[27] G.R. No. 155651, July 28, 2005, 464 SCRA 507, 516.

[28] Ibid.

[29] Ibid.

[30] Id. at 513.

[31] Id. at 515-516.

[32] Took effect on March 15, 2003.

[33] Signed by the Secretary of Labor on March 15, 2005.

 Labor Code, Article 5. Rules and regulations. - The Department of Labor and
[34]

other government agencies charged with the administration and enforcement of

this Code or any of its parts shall promulgate the necessary implementing rules
and regulations. Such rules and regulations shall become effective fifteen (15)
days after announcement of their adoption in newspapers of general circulation.

Philippine Apparel Workers Union v. NLRC, No. L-50320, July 31, 1981, 106
[35]

SCRA 444.

[36] De Leon, De Leon, Jr., Administrative Law: Text and Cases (2005 ed.), p. 360.

[37] Id. at 357.

[38] 2 Am Jur 2d, § 506, 492.

[39] Ibid.

[40] Agpalo, Administrative Law (2005 ed.), p. 178.

Padua, et al. v. Ranada, et al., G.R. Nos. 141949 and 151108, October 14, 2002,
[41]

390 SCRA 663.

[42] G.R. No. 88550, April 18, 1990, 184 SCRA 426.

[43] Ibid.

[44] At the ratio of one bañera for every 30 bañera of fish caught, id. at 42-43.

[45] Id. at 42-43, the monthly salaries of the respondent workers from 1989-1998:

1. Alfredo S. Pahagac and Eddie D. Nipa

YEAR MONTHLY WAGE RATE

1989 P 300.00
1989 500.00
1992 700.00
 1994 1,000.00
1996 1,400.00
1998 until dismissed 1,700.00

2. Hernan Y. Badilles and Roger S. Pahagac

YEAR MONTHLY WAGE RATE

1990 P 500.00
1992 700.00
1994 1,000.00
1996 1,400.00
1998 until dismissed 1,700.00

3. Orlando P. Layese, who was originally hired as second patron in 1989-1995

with share in [the] catch, was subsequently appointed as checker sometime in
February 1996 with a fixed monthly wage rate as follows:

YEAR MONTHLY WAGE RATE

1989-1995 [on commission basis]
1996 P 1,500.00
1998 until dismissed P 1,700.00

[46] Effective March 16, 2002.

Pascua, et al. v. NLRC, et al., G.R. No. 123518, March 13, 1998, 287 SCRA
[47]

554.

[48] Ibid., citing Jamer, et al, v. NLRC, et al., 278 SCRA 632 (1997).

[49]Ibid., citing, Metro Transit Organization, Inc. v. NLRC, et al., 263 SCRA 313
(1996); Mapalo v. NLRC, et al., 233 SCRA 266 (1994); Philippine Manpower Services,
Inc., et al. v. NLRC, et al., 224 SCRA 691 (1993).
 Art. 282. Termination by Employer. An employer may terminate an
[50]

employment for any of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful

orders of his employer or representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

(c) Fraud or willful breach by the employee of the trust reposed in him by his
employer or duly authorized representative;

(d) Commission of a crime or offense by the employee against the person of his
employer or any immediate member of his family or his duly authorized
representatives; and

(e) Other causes analogous to the foregoing.

Supra note 47, citing, Sanyo Travel Corp., et al. v. NLRC, 280 SCRA 129 (1997);
[51]

and JGB and Associates, Inc. v. NLRC, et al., 254 SCRA 457 (1996).
 Supreme Court of the Philippines

THIRD DIVISION
G.R. Nos. 173254-55 & 173263, January 13, 2016
DIAMOND FARMS, INC., PETITIONER, VS. SOUTHERN PHILIPPINES
FEDERATION OF LABOR (SPFL)-WORKERS SOLIDARITY OF
DARBMUPCO/DIAMOND-SPFL, DIAMOND FARMS AGRARIAN REFORM
BENEFICIARIES MULTI-PURPOSE COOPERATIVE (DARBMUPCO),
VOLTER LOPEZ, RUEL ROMERO, PATRICK) CAPRECHO, REY
DIMACALI, ELESIO EMANEL, VICTOR SINGSON, NILDA DIMACALI,
PREMITIVO* DIAZ, RUDY VISTAL, ROGER MONTERO, JOSISIMO
GOMEZ AND MANUEL MOSQUERA, RESPONDENTS.

DECISION

JARDELEZA, J.:

We resolve in this Petition for Review[1] under Rule 45 of the Rules of Court, the issue of
who among Diamond Farms, Inc. ("DFI"), Diamond Farms Agrarian Reform Beneficiaries
Multi-Purpose Cooperative ("DARBMUPCO") and the individual contractors[2]
("respondent-contractors") is the employer of the 400 employees ("respondent-workers").

DFI challenges the March 31, 2006 Decision[3] and May 30, 2006 Resolution[4] of the Court
Appeals, Special Twenty-Second Division, Cagayan De Oro City for being contrary to law
and jurisprudence. The Decision dismissed DFI's Petition for Certiorari in C.A.-G.R. SP Nos.
53806 and 61607 and granted DARBMUPCO's Petition for Certiorari in C.A.-G.R. SP No.
59958. It declared DFI as the statutory employer of the respondent-workers.

The Facts

DFI owns an 800-hectare banana plantation ("original plantation") in Alejal, Carmen,

Davao.[5] Pursuant to Republic Act No. 6657 or the Comprehensive Agrarian Reform Law
of 1988 ("CARL"), commercial farms shall be subject to compulsory acquisition and
distribution,[6] thus the original plantation was covered by the law. However, the Department
of Agrarian Reform ("DAR") granted DFI a deferment privilege to continue agricultural
operations until 1998.[7] Due to adverse marketing problems and observance of the so-called
"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 in the original plantation and laid off its
employees.[8] These employees petitioned the DAR for the cancellation of DFI's deferment
privilege alleging that DFI already abandoned its area of operations.[9] The DAR Regional
Director recalled DFI's deferment privilege resulting in the original plantation's automatic
compulsory acquisition and distribution under the CARL.[10] DFI filed a motion for
reconsideration which was denied. It then appealed to the DAR Secretary.[11]

In the meantime, to minimize losses, DPI offered to give up its rights and interest over the
original plantation in favor of the government by way of a Voluntary Offer to Sell.[12] The
DAR accepted DFI's offer to sell the original plantation. However, out of the total 800
hectares, the DAR only approved the disposition of 689.88 hectares. Hence, the original
plantation was split into two: 689.88 hectares were sold to the government ("awarded
plantation") and the remaining 200 hectares, more or less, were retained by DPI ("managed
area").[13] The managed area is subject to the outcome of the appeal on the cancellation of
the deferment privilege before the DAR Secretary.

On January 1, 1996, the awarded plantation was turned over to qualified agrarian reform
beneficiaries ("ARBs") under the CARL. These ARBs are the same farmers who were
working in the original plantation. They subsequently organized themselves into a multi-
purpose cooperative named "DARBMUPCO," which is one of the respondents in this
case.[14]

On March 27, 1996, DARBMUPCO entered into a Banana Production and Purchase
Agreement ("BPPA")[15] with DFI.[16] 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 DPI.[17] The BPPA is effective for 10 years.[18]

On April 20, 1996, DARBMUPCO and DFI executed a "Supplemental to Memorandum

Agreement" ("SMA").[19] The SMA stated that DFI shall take care of the labor cost arising
from the packaging operation, cable maintenance, irrigation pump and irrigation
maintenance that the workers of DARBMUPCO shall conduct for DFI's account under the
BPPA.[20]

From the start, DARBMUPCO was hampered by lack of manpower to undertake the
agricultural operation under the BPPA because some of its members were not willing to
work.[21] Hence, to assist DARBMUPCO in meeting its production obligations under the
BPPA, DFI engaged the services of the respondent-contractors, who in turn recruited the
respondent-workers.[22]

The engagement of the respondent-workers, as will be seen below, started a series of labor
disputes among DARBMUPCO, DFI and the respondent-contractors.

C.A. G.R. SP No. 53806

On February 10, 1997, respondent Southern Philippines Federation of Labor ("SPFL")—a
legitimate labor organization with a local chapter in the awarded plantation—filed a petition
for certification election in the Office of the Med-Arbiter in Davao City.[23] SPFL filed the
petition on behalf of some 400 workers (the respondent-workers in this petition) "jointly
employed by DFI and DARBMUPCO" working in the awarded plantation.

DARBMUPCO and DFI dented that they are the employers of the respondent-workers.
They claimed, instead, that the respondent-workers are the employees of the respondent-
contractors.[24]

In an Order dated May 14, 1997,[25] 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. The Order stated that "whether the said
workers/employees were hired by independent contractors is of no moment. What is
material is that they were hired purposely to work on the 689.88 hectares banana plantation
[the awarded plantation] now owned and operated by DARBMUPCO."[26]

DARBMUPCO appealed to the Secretary of Labor and Employment ("SOLE"). In a

Resolution dated February 18, 1999,[27] the SOLE modified the decision of the Med-Arbiter.
The SOLE held that DFI, through its manager and personnel, supervised and directed the
performance of the work of the respondent-contractors. The SOLE thus declared DFI as
the employer of the respondent-workers.[28]

DFI filed a motion for reconsideration which the SOLE denied in a Resolution dated May 4,
1999.[29]

On June 11, 1999, DFI elevated the case to the Court of Appeals ("CA") via a Petition for
Certiorari[30] under Rule 65 of the Rules of Court. The case was raffled to the CA's former
Twelfth Division and was docketed as C.A.-G.R. SP No. 53806.

C.A.-G.R. SP No. 59958

Meanwhile, on June 20, 1997[31] and September 15, 1997,[32] SPFL, together with more than
300 workers, filed a case for underpayment of wages, nonpayment of 13th month pay and
service incentive leave pay and attorney's fees against DFI, DARBMUPCO and the
respondent-contractors before the National Labor Relations Commission ("NLRC") in
Davao City. DARBMUPCO averred that it is not the employer of respondent-workers;
neither is DFI. It asserted that the money claims should be directed against the true
employer—the respondent-contractors.[33]

In a Decision dated January 22, 1999,[34] the Labor Arbiter ("LA") held that die respondent-
contractors are "labor-only contractors." The LA gave credence to the affidavits of the other
contractors[35] of DFI (who are not party-respondents in this petition) asserting that DFI
engaged their services, and supervised and paid their laborers. The affidavits also stated that
the contractors had no dealings with DARBMUPCO, except that their work is done in the
awarded plantation.[36]

The LA held that, under the law, DFI is deemed as the statutory employer of all the
respondent-workers.[37] The LA dismissed the case against DARBMUPCO and the
respondent-contractors.[38]

DFI appealed to the NLRC. In a Resolution dated May 24, 1999,[39] the NLRC Fifth
Division modified the Decision of the LA and declared that DARBMUPCO and DFI are
the statutory employers of the workers rendering services in the awarded plantation and the
managed area, respectively.[40] It adjudged DFI and DARBMUPCO as solidarity liable with
the respondent-contractors for the monetary claims of the workers, in proportion to their
net planted area.[41]

DARBMUPCO filed a motion for reconsideration which was denied.[42] It filed a second
motion for reconsideration in the NLRC, which was also denied for lack of merit and for
being barred under the NLRC Rules of Procedure.[43] Hence, DARBMUPCO elevated the
case to the CA by way of a Petition for Certiorari.[44] The case was docketed as C.A.-G.R. SP
No. 59958.

The former Eleventh Division of the CA consolidated C.A. G.R. SP No. 59958 and C.A.-
G.R. SP No. 53806 in a Resolution dated January 27, 2001.[45]

C.A.-G.R. SP No. 61607

Pursuant to the May 4, 1999 Resolution of the SOLE approving the conduct of certification
election, the Department of Labor and Employment ("DOLE") conducted a certification
election on October 1, 1999.[46] On even date, DFI filed an election protest[47] before the
Med-Arbiter arguing that the certification election was premature due to the pendency of a
petition for certiorari before the CA assailing the February 18, 1999 and May 4, 1999
Resolutions of the SOLE (previously discussed in C.A.-G.R. SP No. 53806).

In an Order dated December 15, 1999,[48] the Med-Arbiter denied DFI's election protest,
and certified SPFL-Workers Solidarity of DARBMUPCO/DIAMOND-SPFL ("WSD-
SPFL") as the exclusive bargaining representative of the respondent-workers. DPI filed a
Motion for Reconsideration[49] which the Med-Arbiter treated as an appeal, and which the
latter elevated to the SOLE.

In a Resolution dated July 18, 2000,[50] the SOLE dismissed the appeal. The Resolution
stated that the May 4, 1999 Resolution directing the conduct of certification election is
already final and executory on June 4, 1999. It pointed out that the filing of the petition for
certiorari before the CA assailing the February 18, 1999 and May 4, 1999 Resolutions does not
stay the conduct of the certification election because the CA did not issue a restraining
order.[51] DFI filed a Motion for Reconsideration but the motion was denied.[52]

On October 27, 2000, DFI filed a Petition for Certiorari[53] before the CA, docketed as C.A.-
G.R. SP No. 61607.

In a Resolution dated August 2, 2005,[54] the CA Twenty-Third Division consolidated C.A.-

G.R. SP No. 61607 with C.A.-G.R. SP. No. 59958 and C.A. G.R. SP No. 53806.

The Assailed CA Decision and Resolution

The CA was confronted with two issues:[55]

(1) "Whether DFI or DARBMUPCO is the statutory employer of the [respondent-workers]
in these petitions; and
(2) Whether or not a certification election may be conducted pending the resolution of the
petition for certiorari filed before this Court, the main issue of which is the identity of the
employer of the [respondent-workers] in these petitions."
On the first issue, the CA agreed with the ruling of the SOLE[56] that DFI is the statutory
employer of the respondent-workers. It noted that the DFI hired the respondent-
contractors, who in turn procured their own men to work in the land owned by
DARBMUPCO. Further, DFI admitted that the respondent-contractors worked under the
direction and supervision of DFI's managers and personnel. DFI also paid for the
respondent-contractors' services.[57] The CA said that the fact that the respondent-workers
worked in the land owned by DARBMUPCO is immaterial. "Ownership of the land is not
one of the four (4) elements generally considered to establish employer-employee
relationship."[58]

The CA also ruled that DFI is the true employer of the respondent-workers because the
respondent-contractors are not independent contractors.[59] The CA stressed that in its
pleadings before the Med-Arbiter, the SOLE, and the CA, DFI revealed that
DARBMUPCO lacks manpower to fulfill the production requirements under the BPPA.
This impelled DFI to hire contractors to supply labor enabling DARBMUPCO to meet its
quota. The CA observed that while the various agencies involved in the consolidated
petitions sometimes differ as to who the statutory employer of the respondent-workers is,
they are uniform in finding that the respondent-contractors are labor-only contractors.[60]

On the second issue, the CA reiterated the ruling of the SOLE[61] that absent an injunction
from the CA, the pendency of a petition for certiorari does not stay the holding of the
certification election.[62] The challenged Resolution of the SOLE is already final and
executory as evidenced by an Entry of Judgment dated July 14, 1999; hence, the merits of
the case can no longer be reviewed.[63]
The CA thus held in its Decision dated March 31, 2006:
WHEREFORE, premises considered, this Court hereby ORDERS:
(1) the DISMISSAL of the petitions in C.A.-G.R. SP No. 53806 and C.A.-G.R. SP No.
61607; and
(2) the GRANTING of the petition in C.A.-G.R. SP No. 59958 and the SETTING
ASIDE of the assailed resolutions of the NLRC dated 24 May 1999, 30 July 1999 and
26 June 2000, respectively.
SO ORDERED.[64]
DFI filed a Motion for Reconsideration of the CA Decision which was denied in a
Resolution dated May 30, 2006.[65]

DFI is now before us by way of Petition for Review on Certiorari praying that
DARBMUPCO be declared the true employer of the respondent-workers.

DARBMUPCO filed a Comment[66] maintaining that under the control test, DFI is the true
employer of the respondent-workers.

Respondent-contractors filed a Verified Explanation and Memorandum[67] asserting that they

were labor-only contractors; hence, they are merely agents of the true employer of the
respondent-workers.

SPFL did not file any comment or memorandum on behalf of the respondent-workers.[68]

The Issue

The issue before this Court is who among DFI, DARBMUPCO and the respondent-
contractors is the employer of the respondent-workers.

Our Ruling

We deny the petition.

This case involves job contracting, a labor arrangement expressly allowed by law.
Contracting or subcontracting is an arrangement whereby a principal (or employer) 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.[69] It involves a trilateral relationship among the principal or employer, the
contractor or subcontractor, and the workers engaged by the contractor or subcontractor.[70]
Article 106 of the Labor Code of the Philippines[71] (Labor Code) explains the relations
which may arise between an employer, a contractor, and the contractor's employees,[72] thus:
ART. 106. Contractor or subcontracting. - Whenever an employer enters into a contract with
another person for the performance of the formers 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.

The Secretary of Labor and Employment may, by appropriate regulations, restrict or

prohibit the contracting out of labor to protect the rights of workers established under this
Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-
only contracting and job contracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the employer
for purposes of this Code, to prevent any violation or circumvention of any provision of this
Code.

There is "labor-only" contracting where 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 the workers recruited and placed by such person are
performing activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him.
The Omnibus Rules Implementing the Labor Code[73] distinguishes between permissible job
contracting (or independent contractorship) and labor-only contracting. Job contracting is
permissible under the Code if the following conditions are met:
(1) 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 as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of
his business.[74]
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 employer:
(1) Does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials; and
(2) The workers recruited and placed by such person are performing activities which are
directly related to the principal business or operations of the employer in which workers
are habitually employed.[75]
As a general rule, a contractor is presumed to be a labor-only contractor, unless such
contractor overcomes the burden of proving that it has the substantial capital, investment,
tools and the like.[76]

Based on the conditions for permissible job contracting, we rule that respondent-
contractors are labor-only contractors.

There is no evidence showing that respondent-contractors are independent contractors. The

respondent-contractors, DFI, and DARBMUPCO did not offer any proof that respondent-
contractors were not engaged in labor-only contracting. In this regard, we cite our ruling in
Caro v. Rilloraza,[77] thus:
"In regard to the first assignment of error, the defendant company pretends to show through
Venancio Nasol's own testimony that he was an independent contractor who undertook to
construct a railway line between Maropadlusan and Mantalisay, but as far as the record
shows, Nasol did not testify that the defendant company had no control over him as to the manner or
methods he employed in pursuing his work. On the contrary, he stated that he was not bonded, and
that he only depended upon the Manila Railroad for money to be paid to his laborers. As
stated by counsel for the plaintiffs, the word 'independent contractor' means 'one who
exercises independent employment and contracts to do a piece of work according to his own
methods and without being subject to control of his employer except as to result of the
work.' furthermore, 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.

Tested by these definitions and by the fact that the defendant has presented
practically no evidence to determine whether Venancio Nasol was in reality an
independent contractor or not, we are inclined to think that he is nothing but an
intermediary between the defendant and certain laborers. It is indeed difficult to find
that Nasol is an independent contractor; a person who possesses no capital or money of his
own to pay his obligations to them, who files no bond to answer for any fulfillment of his
contract with his employer and specially subject to the control and supervision of his employer, falls
short of the requisites or conditions necessary for the common and independent
contractor."[78] (Citations omitted; emphasis supplied.)
To support 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-contractors carry on an independent business and have sufficient
capitalization. The record, however, is bereft of showing of even an attempt on the part of
DFI to substantiate its argument.
DFI cannot cite the May 24, 1999 Resolution of the NLRC as basis that respondent-
contractors are independent contractors. Nowhere in the NLRC Resolution does it say that
the respondent-contractors are independent contractors. On the contrary, the NLRC
declared that "it was not clearly established on record that said [respondent-]contractors are
independent, xxx."[79]

Further, respondent-contractors admit, and even insist that they are engaged in labor-only
contracting. As will be seen below, respondent-contractors made the admissions and
declarations on two occasions: first was in their Formal Appearance of Counsel and Motion
for Exclusion of Individual Party-Respondents filed before the LA; and second was in their
Verified Explanation and Memorandum filed before this Court.

Before the LA, respondent-contractors categorically stated that they are "labor-only"
contractors who have been engaged by DFI and DARBMUPCO.[80] 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 recruited workers to perform activities directly
related to the principal operations of their employer.[81]

Before this Court, respondents-contractors again admitted that they are labor-only
contractors. They narrated that:

1. Herein respondents, Voltaire Lopez, Jr., et. al., were

commissioned and contracted by petitioner, Diamond Farms,
Inc. (DFI) to recruit farm workers, who are the complaining
[respondent-workers] (as represented by Southern Philippines
Federation of Labor (SPFL) in this appeal by certiorari), in order
to perform specific farm activities, such as pruning, deleafing, fertilizer
application, bud inject, stem spray, drainage, bagging, etc., on banana
plantation lands awarded to private respondent, Diamond Farms
Agrarian Reform Beneficiaries Multi-Purpose Cooperative
(DARBMUPCO) and on banana planted lands owned and managed by
petitioner, DFI.

2. All farm tools, implements and equipment necessary to performance

of such farm activities were supplied by petitioner DFI to respondents
Voltaire Lopez, Jr., et. al. as well as to respondents-SPFL, et. al.
Herein respondents Voltaire Lopez, Jr. et. al. had no adequate
capital to acquire or purchase such tools, implements,
equipment, etc.

3. Herein respondents Voltaire Lopez, Jr., et. al. as well as

rcspondents-SPFL, et. al. were being directly supervised,
 controlled and managed by petitioner DFI farm managers and
supervisors, specifically on work assignments and performance
targets. DFI managers and supervisors, at their sole discretion and
prerogative, could directly hire and terminate any or all of the
respondents-SPFL, et. al., including any or all of the herein
respondents Voltaire Lopez, Jr., et. al.

4. Attendance/Time sheets of respondents-SPFL, et. al. were being

prepared by herein respondents Voltaire Lopez, Jr., et. al., and
correspondingly submitted to petitioner DFI. Payment of wages to
respondents-SPFL, et. al. were being paid for by petitioner DFI thru
herein respondents Voltaire Lopez, [Jr.], et. al. The latter were also
receiving their wages/salaries from petitioner DFI for
monitoring/leading/recruiting the respondents-SPFL, et. al.

5. No monies were being paid directly by private respondent

DARBMUPCO to respondents-SPFL, et. al., nor to herein
respondents Voltaire Lopez, [Jr.], et. al. Nor did respondent
DARBMUPCO directly intervene much less supervise any or all of
[the] respondents-SPFL, et. al. including herein respondents Voltaire
Lopez, Jr. et. al.[82] (Emphasis supplied.)

The foregoing admissions are legally binding on respondent-contractors.[83] Judicial

admissions made by parties in the pleadings, or in the course of the trial or other
proceedings in the same case are conclusive and so does not require further evidence to
prove them.[84] Here, the respondent-contractors voluntarily pleaded that they are labor-only
contractors; hence, these admissions bind them.

A finding that a contractor is a labor-only contractor is equivalent to a declaration that there

is an employer-employee relationship between the principal, and the workers of the labor-
only contractor; the labor-only contractor is deemed only as the agent of the principal.[85]
Thus, in this case, respondent-contractors are the labor-only contractors and either DFI or
DARBMUPCO is their principal.

We hold that DFI is the principal.

Under Article 106 of the Labor Code, a principal or employer refers to the person who
enters into an agreement with a job contractor, either for the performance of a specified
work or for the supply of manpower.[86] In this regard, we quote with approval the findings
of the CA, to wit:
The records show that it is DFI which hired the individual [respondent-contractors]
who in turn hired their own men to work in the 689.88 hectares land of
DARBMUPCO as well as in the managed area of the plantation. DFI admits [that]
these [respondent-contractors] worked under the direction and supervision of the DFI.
managers and personnel. DFI paid the [respondent-contractors] for the services rendered in
the plantation and the [respondent-contractors] in turn pay their workers after they
[respondent-contractors] received payment from DFI xxx DARBMUPCO did not have
anything to do with the hiring, supervision and payment of the wages of the workers-
respondents thru the contractors-respondents. xxx[87] (Emphasis supplied.)
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 managers and personnel are in close consultation with the respondent-
contractors.[88]

DFI cannot argue that DARBMUPCO is the principal of the respondent-contractors

because it (DARBMUPCO) owns the awarded plantation where respondent-contractors and
respondent-workers were working;[89] and therefore DARBMUPCO is the ultimate
beneficiary of the employment of the respondent-workers.[90]

That DARBMUPCO owns the awarded plantation where the respondent-contractors and
respondent-workers were working is immaterial. This does not change the situation of the
parties. As correctly found by the CA, DFI, as the principal, hired the respondent-
contractors and the latter, in turn, engaged the services of the respondent-workers.[91] This
was also the unanimous finding of the SOLE,[92] the LA,[93] and the NLRC.[94] Factual
findings of the NLRC, when they coincide with the LA and affirmed by the CA are accorded
with great weight and respect and even finality by this Court.[95]

Alilin v. Petron Corporation[96] is applicable. In that case, this Court ruled that the presence of
the power of control on the part of the principal over the workers of the contractor, under
the facts, prove the employer-employee relationship between the former and the latter, thus:
[A] finding that a contractor is a 'labor-only' contractor is equivalent to declaring that there is
an employer-employee relationship between the principal and the employees of the
supposed contractor. In this case, the employer-employee relationship between Petron
and petitioners becomes all the more apparent due to the presence of the power of
control on the part of the former over the latter.

It was held in Orozco v. The Fifth Division of the Hon. Court of Appeals that:
This Court has constantly adhered to the "fourfold test" to determine whether there exists
an employer-employee relationship between the parties. The four elements of an
employment relationship are: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the power to control the employee's
conduct.
Of these four elements, it is the power to control which is the most crucial and most
determinative factor, so important, in fact, that, the other elements may even be
disregarded.
Hence, the facts that petitioners were hired by Romeo or his father and that their salaries
were paid by them do not detract from the conclusion that there exists an employer-
employee relationship between the parties due to Petron's power of control over the
petitioners. One manifestation of the power of control is the power to transfer employees
from one work assignment to another. Here, Petron could order petitioners to do work
outside of their regular "maintenance/utility" job. Also, petitioners were required to report
for work everyday at the bulk plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule,
and wear proper uniform and safety helmets as prescribed by the safety and security
measures being implemented within the bulk plant. All these imply control. In an industry
where safety is of paramount concern, control and supervision over sensitive operations,
such as those performed by the petitioners, are inevitable if not at all necessary. Indeed,
Petron deals with commodities that are highly volatile and flammable which, if mishandled
or not properly attended to, may cause serious injuries and damage to property and the
environment. Naturally, supervision by Petron is essential in every aspect of its product
handling in order not to compromise the integrity, quality and safety of the products that it
distributes to the consuming public.[97] (Citations omitted; emphasis supplied)
That DFI is the employer of the respondent-workers is bolstered by the CA's finding that
DFI exercises control over the respondent-workers.[98] DFI, through its manager 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.[99] Evidently, DFI wields control over the respondent-workers.

Neither can DFI argue that it is only the purchaser of the bananas produced in the awarded
plantation under the BPPA,[100] and that under the terms of the BPPA, no employer-
employee relationship exists between DFI and the respondent-workers,[101] to wit:
UNDERTAKING OF THE FIRST PARTY

xxx

3. THE FIRST PARTY [DARBMUPCO] shall be responsible for the proper conduct,
safety, benefits and general welfare of its members working in the plantation and specifically
render free and harmless the SECOND PARTY [DPI] of any expense, liability or claims
arising therefrom. It is clearly recognized, by the FIRST PARTY that its members and
other personnel utilized in the performance of its function under this agreement are
not employees of the SECOND PARTY.[102] (Emphasis supplied)
In labor-only contracting, it is the law which creates an employer-employee relationship
between the principal and the workers of the labor-only contractor.[103]

Inasmuch as it is the law that forms the employment ties, 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. Thus, in Tabas v. California
Manufacturing Co., Inc.,[104] we held that:
The existence of an employer-employees relation is a question of law and being
such, it cannot be made the subject of agreement. Hence, the fact that the manpower
supply agreement between Livi and California had specifically designated the former as the
petitioners' employer and had absolved the latter from any liability as an employer, will not
erase either party's obligations as an employer, if an employer-employee relation otherwise
exists between the workers and either firm. xxx[105] (Emphasis supplied.)
Clearly, DFI is the true employer of the respondent-workers; respondent-contractors are
only agents of DFI. Under Article 106 of the Labor Code, DFI shall be solidarily liable with
the respondent-contractors for the rightful claims of the respondent-workers, to the same
manner and extent, as if the latter are directly employed by DFI.[106]

WHEREFORE, the petition is DENIED for lack of merit. The March 31, 2006 Decision
and the May 30, 2006 Resolution of the Court of Appeals in C.A.-G.R. SP Nos. 53806,
61607 and 59958 are hereby AFFIRMED.

SO ORDERED.

Velasco, Jr., (Chairperson), Leonardo-De Castro,** Peralta, and Villarama, Jr., JJ., concur.

February 11, 2016

NOTICE OF JUDGMENT

Sirs / Mesdames:

Please take notice that on January 13, 2016 a Decision, copy attached hereto, was rendered
by the Supreme Court in the above-entitled cases, the original of which was received by this
Office on February 11, 2016 at 9:37 a.m.

Very truly yours,

(SGD)WILFREDO V. LAPITAN
Division Clerk of Court

* Also referred to as Primitive in other parts of the records.

** Designated as additional Member per Raffle dated November 4, 2015.

[1] Rollo, pp. 9-39.

Voller Lopez, Ruel Romero, Patricio Caprecho, Rey Dimacali, Elesio Emanel, Victor
[2]

Singson, Nilda Dimacali, Premitivo Diaz, Rudy Vistal, Roger Montero, Josisimo Gomez and
Manuel Mosquera.

Penned by Associate Justice Myrna Dimaranan Vidal and concurred in by Associate

[3]

Justices Romulo V. Borja and Ricardo R. Rosario. Rollo, pp. 42-73.

[4]Penned by Associate Justice Myrna Dimaranan Vidal and concurred in by Associate

Justices Romulo V. Borja and Edgardo A. Camello (in lieu of Associate Justice Rosario, on
leave). Id. at 76-77.

[5] Id. at 50.

[6] The pertinent portion of Republic Act No. 6657 provides:

Section 11. Commercial Farming. — Commercial farms, which are private agricultural lands
devoted to commercial livestock, poultry and swine raising, and aquaculture including
saltbeds, fishponds and prawn ponds, fruit farms, orchards, vegetable and cut-flower farms,
and cacao, coffee and rubber plantations, shall be subject to immediate compulsory
acquisition and distribution after (10) years from the effectivity of the Act. In the case of
new farms, the ten-year period shall begin from the first year of commercial production and
operation, as determined by the DAR. During the ten-year period, the government shall
initiate the steps necessary to acquire these lands, upon payment of just compensation for
the land and the improvements thereon, preferably in favor of organized cooperatives or
associations, which shall hereafter manage the said lands for the worker-beneficiaries. xxx.

[7] Rollo, p. 50.

[8] Id.

[9] Id.

Id.; Republic Act No. 6657 reads:

[10]

Section 11. Commercial Farming. xxx If the DAR determines that the purposes for which this
deferment is granted no longer exist, such areas shall automatically be subject to
redistribution.
[11] Rollo, p. 50.

[12] Id. at 51.

[13] Id.

[14] Rollo, p. 14.

[15] CA rollo (CA-G.R. SP No. 59958), pp. 108-112.

[16] Petition for Review, rollo, p. 14.

[17] CA rollo (CA-G.R. SP No. 59958), p. 109.

[18] Id. at 108.

[19] Id. at 113-114.

[20] Id. at 113.

[21] CA rollo (CA-G.R. SP No. 53806), p. 53.

[22] Rollo, p. 52 citing CA rollo (CA-G.R. SP No. 53806), p. 53.

[23] CA rollo (CA-G.R. SP No. 53806), pp. 57-60.

[24] Id. at 76.

[25] CA rollo (CA-G.R. SP No. 61607), pp. 125-131.

[26] Id. at 128-129.

[27] CA rollo (CA-G.R. SP No. 53806), pp. 86-88.

[28] Id. at 88.

[29] Id. at 95.

[30] Id. at 47-56.

RAB-11-05-00598-97. Decision of the LA dated January 22, 1999, CA rollo (CA-G.R. SP

[31]

No. 59958), p. 88.

[32] RAB-11-09-00865-97. Id.

[33] CA rollo (CA-G.R. SP No. 59958), p. 95.

[34] Id. at 83-100.

Pertaining to Rolando Alonsagay, Edilberto Amoguis and Socrates Edilon who were
[35]

former contractors of DPI. Id. at 97.

[36] Id. at 98.

[37] Id. at 99-100.

[38] Id. at 100.

[39] Id. at 55-62.

[40] Id. at 60.

[41] Id. at 61.

[42] NLRC's Resolution dated July 30, 1999, id. at 64-67.

[43] NLRC's Resolution dated June 26, 2000, id. at 69-71.

[44] Id. at 14-53.

[45] Rollo, p. 18.

[46] Id. at 58.

[47] CA rollo (CA-G.R. SP No. 61607), pp. 137-139.

[48] Id. at 144-147.

[49] Id. at 148-150

[50] Id. at 165-167.

[51] Id. at 166-167.

[52] Id. at 172.

[53] Id. at 10-23.

[54] Id. at 389.

[55] Rollo, pp. 60-61.

[56] In C.A.-G.R. SP No. 53806 (certification election).

[57] Rollo, pp. 64-65.

[58] Id. at 65.

[59] Id. at 67.

[60] Id. at 67-68.

[61] In C.A. G.R. No. 61607.

[62] Rollo, p. 69.

[63] Id. at 69-72.

[64] Id. at 72.

[65] Id. at 76-77.

[66] Id. at 90-111.

Id. at 513-518. Only Voltaire Lopez, Jr., Ruel Romero, Patricio Capricho, Rudy Vistal,
[67]

Roger Montero, Zosimo Gomez and Manuel Mosquera prepared the Verified Explanation
and Memorandum. Elesio Emanel and Prcmitivo Dias were already deceased.

In a Resolution dated January 16, 2012, this Court dispensed with the memorandum of Rey
Dimacali, Nilda Dimacali, Primitvo Diaz, Elesio Emanel and Victor Singson; id. at 566.

In a Manifestation dated December 17, 2012, Alvaro Lague, Sr.—the President of

[68]

SPFL—asked for this Court's indulgence in view of SPFL's failure to report the death of its
counsels. He admitted that SPFL has been negligent in representing the respondent-workers
and such was caused by "inter-organization conflict and serious splitting among its leaders."
SPFL also informed this Court of the new address where notices and resolutions should be
sent; id., at 606-607.

In a Resolution dated March 6, 2013, this Court required SPFL to cause the entry of
appearance of its new counsel, id. at 611. However, SPFL failed to comply. Hence, this
Court issued a Resolution dated September 18, 2013 reiterating the order for SPFL to cause
the entry of appearance of its new counsel. SPFL, again, failed to comply, id. at 618. On July
23, 2014, we resolved to issue a show cause order against Lague, Sr. for his failure to comply
with this Court's abovementioned resolutions; id. at 651.

DOLE Department Order No. 10 (1997), Amending the Rules Implementing Books III
[69]

and VI of the Labor Code, as amended, Section 4(d).

[70] DOLE Department Order No. 10 (1997), Section 3.

[71] Presidential Decree No. 442 (1974).

Polyfoam-RGC International Corporation v. Concepcion, G.R. No. 172349, June 13, 2012, 672
[72]

SCRA 148, 158.

The Omnibus Rules Implementing the Labor Code (before its amendment by
[73]

Department Order No, 10, series of 1997) is the prevailing rule at the time the respondent-
workers were employed by respondent-contractors in 1996.

[74] Omnibus Rules Implementing the Labor Code, Book III, Rule VIII, Section 8.

[75] Id., Section 9.

Alilin v. Petron Corporation, G.R. No. 177592, June 9, 2014, 725 SCRA 342, 346, citing
[76]

Garden of Memories Park and Life Plan, Inc. v. NLRC, G.R. No. 160278, February 8, 2012, 665
SCRA 293, 306. See also Alps Transportation v. Rodriguez, G.R. No. 186732, June 13, 2013, 698
SCRA 423, 434.

[77] 102 Phil. 61 (1957).

[78] Id. at 65-66, citing Andoyo v. Manila Railroad Co., 56 Phil. 852 (1932) (unreported).

[79] CA rollo (CA-G.R. SP No. 59958), p. 59.

Manifestation and Explanation In Lieu of Comment filed before us (reproduced in toto

[80]

the Formal Appearance of Counsel and Motion for Exclusion of Individual Party-
Respondents); rollo, p. 148.

[81] Id.

[82] Verified Explanation and Memorandum. Rollo, pp. 514-515.

Constantino v. Heirs of Pedro Constantino, Jr., G.R. No. 181508, October 2, 2013, 706 SCRA
[83]

580, 596.
[84]Philippine Long Distance Telephone Company v. Pingol, G.R. No. 182622, September 8, 2010,
630 SCRA 413, 421; citing Damasco v. NLRC, G.R. No. 115755 & 116101, December 4,
2000, 346 SCRA 714, 725, citing Philippine American General Insurance Co., Inc. v. Sweet Lines,
Inc., G.R. No. 87434, August 5, 1992, 212 SCRA 194, 204.

Aklan v. San Miguel Corporation, G.R. No. 168537, December 11, 2008, 573 SCRA 675,
[85]

685; citing Aboitiz Haulers, Inc. v. Dimapatoi, G.R. No. 148619, September 19, 2006, 502
SCRA 271, 283. See also Polyfoam-RGC International Corporation v. Concepcion, supra note 73 at
163.

PCI Automation Center, Inc. v. NLRC, G.R. No. 115920, January 29, 1996, 252 SCRA 493,
[86]

503.

[87] CA Decision, rollo, pp. 64-65.

[88] DFI's Memorandum before the CA, CA rollo (CA-G.R. SP No. 53806), p. 308.

[89] Memorandum for the Petitioner, rollo, p. 301.

[90] Id.

[91] CA Decision, rollo, p. 64.

[92] SOLE's Resolution dated February 18, 1998, CA rollo (CA-G.R. SP No. 53806), p. 88.

[93] LA's Decision dated January 23, 1999, CA rollo (CA-G.R. SP No. 59958), p. 99.

[94] NLRC's Resolution dated May 24, 1999, id. at 59-60.

Emeritus Security and Maintenance Systems, Inc. v. Dailig, G.R. No. 204761, April 2, 2014, 720
[95]

SCRA 572, 578-579, citing Bank of Lubao, Inc. v. Manabat, G.R. No. 188722, February 1, 2012,
664 SCRA 772, 779.

[96] G.R. No. 177592, June 9, 2014, 725 SCRA 342.

[97] Id. at 361-362.

[98] CA Decision, rollo, pp. 64-65.

[99] Verified Explanation and Memorandum, id. at 515.

[100] Id. at 291.

[101] Id. at 302.

[102] CA rollo (CA-G.R. SP No. 59958), pp. 108-109.

[103]Aliviado v. Procter & Gamble Phils., Inc., G.R. No. 160506, March 9, 2010, 614 SCRA 563,
580; citing Neri v. NLRC, G.R. Nos. 97008-09, July 23, 1993, 224 SCRA 717, 720, citing
Philippine Bank of Communications v. NLRC, G.R. No. L-66598, December 19, 1986, 146
SCRA 347, 356.

[104] G.R. No. 80680, January 26, 1989, 169 SCRA 497.

Id. at 500. See also Insular Life Assurance Co., Ltd v. NLRC (4th Division), G.R. No. 119930,
[105]

March 12, 1998, 287 SCRA 476, 483.

Vigilla v. Philippine College of Criminology, Inc., G.R. No. 200094, June 10, 2013, 698 SCRA
[106]

247; San Miguel Corporation v. MAERC Integrated Services, Inc., G.R. No. 144672, July 10, 2003,
405 SCRA 579.
 Supreme Court of the Philippines

SECOND DIVISION
G.R. No. 208451, February 03, 2016
MANILA MEMORIAL PARK CEMETERY, INC., PETITIONER, VS. EZARD
D. LLUZ, NORMAN CORRAL, ERWIN FUGABAN, VALDIMAR BALISI,
EMILIO FABON, JOHN MARK APLICADOR, MICHAEL CURIOSO,
JUNLIN ESPARES, GAVINO FARINAS, AND WARD TRADING AND
SERVICES, RESPONDENTS.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari[1] assailing the Decision[2] dated 21 January 2013 and the
Resolution[3] dated 17 July 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 119237.

The Facts

On 23 February 2006, petitioner Manila Memorial Park Cemetery, Inc. (Manila Memorial) entered into a
Contract of Services with respondent Ward Trading and Services (Ward Trading). The Contract of Services
provided that Ward Trading, as an independent contractor, will render interment and exhumation services
and other related work to Manila Memorial in order to supplement operations at Manila Memorial Park,
Parañaque City.

Among those assigned by Ward Trading to perform services at the Manila Memorial Park were respondents
Ezard Lluz, Norman Corral, Erwin Fugaban, Valdimar Balisi, Emilio Fabon, John Mark Aplicador, Michael
Curioso, Junlin Espares, and Gavino Farinas (respondents). They worked six days a week for eight hours daily
and were paid P250 per day.

On 26 June 2007, respondents filed a Complaint[4] for regularization and Collective Bargaining Agreement
benefits against Manila Memorial; Enrique B. Lagdameo, Manila Memorial's Executive Vice-President and
Director in Charge for Overall Operations, and Ward Trading. On 6 August 2007, respondents filed an
amended complaint to include illegal dismissal, underpayment of 13th month pay, and payment of attorney's
fees.

Respondents alleged that they asked Manila Memorial to consider them as regular workers within the
appropriate bargaining unit established in the collective bargaining agreement by Manila Memorial and its
union, the Manila Memorial Park Free Workers Union (MMP Union). Manila Memorial refused the request
since respondents were employed by Ward Trading, an independent labor contractor. Thereafter, respondents
joined the MMP Union. The MMP Union, on behalf of respondents, sought their regularization which Manila
Memorial again declined. Respondents then filed the complaint. Subsequently, respondents were dismissed by
Manila Memorial. Thus, respondents amended the complaint to include the prayer for their reinstatement and
payment of back wages.

Meanwhile, Manila Memorial sought the dismissal of the complaint for lack of jurisdiction since there was no
employer-employee relationship. Manila Memorial argued that respondents were the employees of Ward
Trading.

In a Decision[5] dated 29 March 2010, the Labor Arbiter dismissed the complaint for failing to prove the
existence of an employer-employee relationship. The dispositive portion of the Decision states:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the above-entitled case for
complainants' lack of employer-employee relationship with respondent Manila Memorial Park Cemetery, Inc.

SO ORDERED.[6]

Respondents appealed[7] to the NLRC. In a Decision[8] dated 30 September 2010, the NLRC reversed the
Labor Arbiter's findings. The NLRC ruled that Ward Trading was a labor-only contractor and an agent of
Manila Memorial. The dispositive portion of the Decision states:

WHEREFORE, premises considered, complainants' appeal is GRANTED. The assailed Decision of Labor
Arbiter Geobel A. Bartolabac dated March 29, 2010 is MODIFIED. It is hereby declared that complainants
were regular employees of respondent Manila Memorial Park Cemetery, Inc. and entitled to the benefits
provided for under the CBA between the latter and the Manila Memorial Park Free Workers Union.

Respondent Manila Memorial Park Cemetery, Inc. is ordered to pay wage differentials to complainants as
follows:

1. Ezard D. Lluz - P43,982.79

2. Norman Corral - P29,765.67

3. Erwin Fugaban - P28,634.67

4. Valdimar Balisi - P20,310.33

5. Emilio Fabon - P43,982.79

6. John Mark Aplicador - P43,982.79

7. Michael Curioso - P43,982.79

8. Ju[n]lin Espares - P43,982.79

9. Gavino Farinas - P43,982.79

SO ORDERED.[9]

Manila Memorial filed a Motion for Reconsideration which was denied in a Resolution[10] dated 31 January
2011.

Thereafter, Manila Memorial filed an appeal with the CA. In a Decision dated 21 January 2013, the CA
affirmed the ruling of the NLRC. The CA found the existence of an employer-employee relationship between
Manila Memorial and respondents. The dispositive portion of the Decision states:

WHEREFORE, in view of the foregoing, the instant Petition for Certiorari is DENIED. The Decision,
dated September 30, 2010 and the Resolution, dated January 31, 2011, rendered by the National Labor
Relations Commission (NLRC) in NLRC LAC No. 06-001267-10 are AFFIRMED.

SO ORDERED.[11]

Manila Memorial then filed a Motion for Reconsideration which was denied by the CA in a Resolution dated
17 July 2013.

Hence, the instant petition.

The Issue

The main issue for our resolution is whether or not an employer-employee relationship exists between Manila
Memorial and respondents for the latter to be entitled to their claim for wages and other benefits.

The Court's Ruling

The petition lacks merit.

Manila Memorial contends that Ward Trading has total assets in excess of P1.4 million, according to Ward
Trading's financial statements for the year 2006, proving that it has sufficient capitalization to qualify as a
legitimate independent contractor. Manila Memorial insists that nowhere is it provided in the Contract of
Services that Manila Memorial controls the manner and means by which respondents accomplish the results
of their work. Manila Memorial states that the company only wants its contractors and the latter's employees
to abide by company rules and regulations.

Respondents, on the other hand, assert that they are regular employees of Manila Memorial since Ward
Trading cannot qualify as an independent contractor but should be treated as a mere labor-only contractor.
Respondents state that (1) there is enough proof that Ward Trading does not have substantial capital,
investment, tools and the like; (2) the workers recruited and placed by the alleged contractors performed
activities that were related to Manila Memorial's business; and (3) Ward Trading does not exercise the right to
control the performance of the work of the contractual employees.

As a general rule, factual findings of the CA are binding upon this Court. One exception to this rule is when
the factual findings of the former are contrary to those of the trial court, or the lower administrative body, as
the case may be. This Court is obliged to resolve an issue of fact due to the conflicting findings of the Labor
Arbiter on one hand, and the NLRC and the CA on the other.

In order to determine whether there exists an employer-employee relationship between Manila Memorial and
respondents, relevant provisions of the labor law and rules must first be reviewed. Article 106 of the Labor
Code states:

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.

The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting-
out of labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he
may make appropriate distinctions between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among the parties involved shall be
considered the employer for purposes of this Code, to prevent any violation or circumvention of any
provision of this Code.

There is "labor-only" contracting where 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 the workers recruited and placed by such person are performing activities which
are directly related to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed by him. (Emphasis
supplied)

Sections 3, 5 and 7 of Department Order No. 18-02[12] distinguish between legitimate and labor-only
contracting and assume the existence of an employer-employee relationship if found to be engaged in labor-
only contracting. The provisions state:

xxxx

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral
relationship under which there is a contract for a specific job, work or service between the principal and the
contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its
workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm
out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity
to independently undertake the performance of the job, work or service, and the contractual workers engaged
by the contractor or subcontractor to accomplish the job, work or service.

xxxx

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 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 over the performance of the work of the contractual
employee.

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code, as
amended.

"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.

The "right to control" shall refer to the right reserved to the person for whom the services of the contractual
workers are performed, to determine not only the end to be achieved, but also the manner and means to be
used in reaching that end.

xxxx

Section 7. Existence of an employer-employee relationship. - The contractor or subcontractor shall be considered the
employer of the contractual employee for purposes of enforcing the provisions of the Labor Code and other
social legislation. The principal, however, shall be solidarity liable with the contractor in the event of any
violation of any provision of the Labor Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of the following cases as
declared by a competent authority:
(a) where there is labor-only contracting; or
(b) where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions)
hereof. (Emphasis supplied)

It is clear from these provisions that contracting arrangements for the performance of specific jobs or
services under the law and its implementing rules are allowed. However, contracting must be made to a
legitimate and independent job contractor since labor rules expressly prohibit labor-only contracting.

Labor-only contracting exists when 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 present:

1) 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

2) The contractor does not exercise the right to control the performance of the work of the contractual
employee.[13]

In the present case, Manila Memorial entered into a Contract of Services with Ward Trading, a single
proprietorship owned by Emmanuel Mayor Ward with business address in Las Piñas City on 23 February
2006. In the Contract of Services, it was provided that Ward Trading, as the contractor, had adequate workers
and substantial capital or investment in the form of tools, equipment, machinery, work premises and other
materials which were necessary in the conduct of its business.

However, a closer look at the Contract of Services reveals that Ward Trading does not have substantial capital
or investment in the form of tools, equipment, machinery, work premises and other materials since it is
Manila Memorial which owns the equipment used in the performance of work needed for interment and
exhumation services. The pertinent provision in the Contract of Services which shows that Manila Memorial
owns the equipment states:

The COMPANY shall [sell] to the contractor the COMPANY owned equipment in the amount of ONE
MILLION FOUR HUNDRED THOUSAND PESOS ONLY (Php1,400,000.00) payable in two (2) years or
a monthly payment of FIFTY EIGHT THOUSAND THREE HUNDRED THIRTY FIVE PESOS ONLY
(Php58,335.00) to be deducted from the CONTRACTOR'S billing.[14]

Just by looking at the provision, it seems that the sale was a regular business transaction between two parties.
However, Manila Memorial did not present any evidence to show that the sale actually pushed through or
that payments were made by Ward Trading to prove an ordinary arms length transaction. We agree with the
NLRC in its findings:

While the above-cited provision of the Contract of Service implies that respondent MMPCI would sell
subject equipment to Ward at some future time, the former failed to present any contract of sale as proof
that, indeed, it actually sold said equipment to Ward. Likewise, respondent MMPCI failed to present any
"CONTRACTOR'S billing" wherein the purported monthly installment of P58,335.00 had been deducted, to
prove that Ward truly paid the same as they fell due. In a contract to sell, title is retained by the vendor until
full payment of the price.

Moreover, the Contract of Service provides that:

"5. The COMPANY reserves the right to rent all or any of the CONTRACTOR'S equipment in the event the
COMPANY requires the use of said equipment, x x x."

This provision is clear proof that Ward does not have an absolute right to use or enjoy subject equipment,
considering that its right to do so is subject to respondent MMPCI's use thereof at any time the latter requires
it. Such provision is contrary to Article 428 of the Civil Code, which provides that "The owner has the right
to enjoy and dispose of a thing, without other limitation than those established by law." It is plain to see that
Ward is not the owner of the equipment worth P1,400,000.00 that is being actually and directly used in the
performance of the services contracted out.

Further, the Service Contract states that:

"For its part, the COMPANY agrees to provide the following:

a) Area to store CONTRACTOR'S equipment and materials

b) Office space for CONTRACTOR'S staff and personnel"

This provision is clear proof that even the work premises actually and directly used by Ward in the
performance of the services contracted out is owned by respondent MMPCI.[15]

Also, the difference in the value of the equipment in the total amount of P1,400,000.00 can be glaringly seen
in Ward Trading's financial statements for the year 2006 when compared to its 2005 financial statements. It is
significant to note that these financial statements were submitted by Manila Memorial without any
certification that these financial statements were actually audited by an independent certified public
accountant. Ward Trading's Balance Sheet[16] as of 31 December 2005 showed that it had assets in the amount
of P441,178.50 and property and equipment with a net book value of P86,026.50 totaling P534,705. A year
later, Ward Trading's Balance Sheet[17] ending in 31 December 2006 showed that it had assets in the amount
of P57,084.70 and property and equipment with a net book value of P1,426,468 totaling P1,491,052.70. Ward
Trading, in its Income Statements[18] for the years 2005 and 2006, only earned a net income of P53,800 in the
year ending 2005 and P68,141.50 in 2006. Obviously, Ward Trading could not have raised a substantial capital
of P1,400,000.00 from its income alone without the inclusion of the equipment owned and allegedly sold by
Manila Memorial to Ward Trading after they signed the Contract of Services on 23 February 2006.

Further, the records show that Manila Memorial and Enrique B. Lagdameo admitted that respondents
performed various interment services at its Sucat, Parañaque branch which were directly related to Manila
Memorial's business of developing, selling and maintaining memorial parks and interment functions. Manila
Memorial even retained the right to control the performance of the work of the employees concerned. As
correctly observed by the CA:

A perusal of the Service Contract would reveal that respondent Ward is still subject to petitioner's control as
it specifically provides that although Ward shall be in charge of the supervision over individual respondents,
the exercise of its supervisory function is heavily dependent upon the needs of petitioner Memorial Park,
particularly:

"It is also agreed that:

a) The CONTRACTOR'S supervisor will conduct a regular inspection of grave sites/areas being dug to
ensure compliance with the COMPANY'S interment schedules and other related ceremonies.
b) The CONTRACTOR will provide enough manpower during peak interment days including Sundays and
Holidays.
c) The CONTRACTOR shall schedule off-days for its workers in coordination with the COMPANY'S
schedule of interment operation.
d) The CONTRACTOR shall be responsible for any damage done to lawn/s and/or structure/s resulting
from its operation, which must be restored to its/their original condition without delay and at the expense of
CONTRACTOR."

The contract further provides that petitioner has the option to take over the functions of Ward's personnel if
it finds any part or aspect of the work or service provided to be unsatisfactory, thus:

"6.1 It is hereby expressly agreed and understood that, at any time during the effectivity of this CONTRACT
and its sole determination, the COMPANY may take over the performance of any of the functions
mentioned in Paragraph I above, in any of the following cases:

xxx

c. If the COMPANY finds the performance of the CONTRACTOR in any part or aspect of the grave
digging works or other services provided by it to be unsatisfactory."

It is obvious that the aforementioned provision leaves respondent Ward at the mercy of petitioner Memorial
Park as the contract states that the latter may take over if it finds any part of the services to be below its
expectations, including the manner of its performance. x x x.[19]

The NLRC also found that Ward Trading's business documents fell short of sound business practices. The
relevant portion in the NLRC's Decision states:

It is also worth noting that while Ward has a Certificate of Business Name Registration issued by the
Department of Trade and Industry on October 24, 2003 and valid up to October 24, 2008, the same
expressly states that it is not a license to engage in any kind of business, and that it is valid only at the place
indicated therein, which is Las Piñas City. Hence, the same is not valid in Parañaque City, where Ward
assigned complainants to perform interment services it contracted with respondent MMPCI. It is also noted
that the Permit, which was issued to Ward by the Office of the Mayor of Las Piñas City on October 28, 2003,
was valid only up to December 31, 2003. Likewise, the Sanitary Permit to Operate, which was issued to Ward
by the Office of the City Health Officer of the Las Piñas City Health Office on October 28, 2003, expired on
December 31, 2003. While respondents MMPCI and Lagdameo were able to present copies of the above-
mentioned documents, they failed to present any proof that Ward is duly registered as [a] contractor with the
Department of Labor and Employment.[20]
Section 11 of Department Order No. 18-02, which mandates registration of contractors or subcontractors
with the DOLE, states:

Section 11. Registration of Contractors or Subcontractors. - Consistent with authority of the Secretary of Labor and
Employment to restrict or prohibit the contracting out of labor through appropriate regulations, a registration
system to govern contracting arrangements and to be implemented by the Regional Office is hereby
established.

The Registration of contractors and subcontractors shall be necessary for purposes of establishing an
effective labor market information and monitoring.

Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting.

For failing to register as a contractor, a presumption arises that one is engaged in labor-only contracting
unless the contractor overcomes the burden of proving that it has substantial capital, investment, tools and
the like.[21]

In this case, however, Manila Memorial failed to adduce evidence to prove that Ward Trading had any
substantial capital, investment or assets to perform the work contracted for. Thus, the presumption that Ward
Trading is a labor-only contractor stands. Consequently, Manila Memorial is deemed the employer of
respondents. As regular employees of Manila Memorial, respondents are entitled to their claims for wages and
other benefits as awarded by the NLRC and affirmed by the CA.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 21 January 2013 and the
Resolution dated 17 July 2013 of the Court of Appeals in CA-G.R. SP No. 119237.

SO ORDERED.

Velasco, Jr.,* Del Castillo, and Mendoza, JJ., concur.

Leonen, J., on leave.

* Designated additional member per Raffle dated 8 September 2014.

[1] Under Rule 45 of the 1997 Revised Rules of Civil Procedure.

Rollo, pp. 34-47. Penned by Associate Justice Agnes Reyes-Carpio, with Associate Justices Rosalinda
[2]

Asuncion-Vicente and Priscilla J. Baltazar-Padilla concurring.

[3] Id. at 48-49.

[4] Docketed as NLRC OFW Case No. 06-06550-07.

[5] Rollo, pp. 252-257.

[6] Id. at 257.

[7] Docketed as NLRC NCR Case No. 06-06550-07 and NLRC LAC No. 06-001267-10.

[8] Rollo, pp. 81-97.

[9] Id. at 96.

[10] Id. at 98-99.

[11] Id. at 46.

[12] Rules Implementing Articles 106-109 of the Labor Code, as amended. Approved on 21 February 2002.

[13] Aliviado v. Procter & Gamble Phils., Inc., 628 Phil. 469, 483 (2010).

[14] Rollo, p. 128.

[15] Id. at 88-89.

[16] Id. at 152.

[17] Id. at 146.

[18] Id. at 151 and 147, respectively.

[19] Id. at 42-43.

[20] Id. at 90-91.

[21] 7K Corporation v. National Labor Relations Commission, 537 Phil. 664 (2006).
 Supreme Court of the Philippines

EN BANC
G.R. No. 210565, June 28, 2016
EMMANUEL D. QUINTANAR, BENJAMIN O. DURANO, CECILIO C.
DELAVIN, RICARDO G GABORNI, ROMEL G GERARMAN, JOEL JOHN P.
AGUILAR, RAMIRO T. GAVIOLA, RESTITUTO D. AGSALUD, MARTIN E.
CELIS, PATRICIO L. ARIOS, MICHAEL S. BELLO, LORENZO C.
QUINLOG, JUNNE G. BLAYA, SANTIAGO B. TOLENTINO, JR., NESTOR
A. MAGNAYE, ARNOLD S. POLVORIDO, ALLAN A. AGAPITO, ARIEL E.
BAUMBAD, JOSE T. LUTIVA, EDGARDO G. TAPALLA, ROLDAN C.
CADAYONA, REYNALDO V. ALBURO, RUDY C. ULTRA, MARCELO R.
CABILI, ARNOLD B. ASIATEN, REYMUNDO R. MACABALLUG, JOEL R.
DELEÑA, DANILO T. OQUIÑO, GREG B. CAPARAS AND ROMEO T.
ESCARTIN, PETITIONERS, VS. COCA-COLA BOTTLERS, PHILIPPINES,
INC., RESPONDENT.

DECISION

MENDOZA, J.:

At bench is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the July 11, 2013
Decision[1] and the December 5, 2013 Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 115469,
which reversed and set aside the March 25, 2010 Decision[3] and the May 28, 2010 Resolution[4] of the
National Labor Relations Commission (NLRC), affirming the August 29, 2008 Decision of the Labor Arbiter
(LA), in a case for illegal dismissal, damages and attorney's fees filed by the petitioners against respondent
Coca-Cola Bottlers Philippines, Inc. (Coca-Cola).

The gist of the subject controversy, as narrated by the LA and adopted by the NLRC and the CA, is as
follows:

Complainants allege that they are former employees directly hired by respondent Coca-Cola on different
dates from 1984 up to 2000, assigned as regular Route Helpers under the direct supervision of the Route
Sales Supervisors. Their duties consist of distributing bottled Coca-Cola products to the stores and customers
in their assigned areas/routes, and they were paid salaries and commissions at the average of P3,000.00 per
month. After working for quite sometime as directly-hired employees of Coca-Cola, complainants were
allegedly transferred successively as agency workers to the following manpower agencies, namely, Lipercon
Services, Inc., People's Services, Inc., ROMAC, and the latest being respondent Interserve Management and
Manpower Resources, Inc.

Further, complainants allege that the Department of Labor and Employment (DOLE) conducted an
inspection of Coca-Cola to determine whether it is complying with the various mandated labor standards, and
relative thereto, they were declared to be regular employees of Coca-Cola, which was held liable to pay
complainants the underpayment of their 13th month pay, emergency cost of living allowance (ECOLA), and
other claims. As soon as respondents learned of the filing of the claims with DOLE, they were dismissed on
various dates in January 2004. Their claims were later settled by the respondent company, but the settlement
allegedly did not include the issues on reinstatement and payment of CBA benefits. Thus, on November 10,
2006, they filed their complaint for illegal dismissal.

In support of their argument that they were regular employees of Coca-Cola, the complainants relied on the
pronouncement of the Supreme Court in the case of CCBPI vs. NOWM, G.R. No. 176024, June 18, 2007, as
follows:

"In the case at bar, individual complainants were directly hired by respondent Coca-Cola as Route Helpers.
They assist in the loading and unloading of softdrinks. As such they were paid by respondent Coca-Cola their
respective salaries plus commission. It is of common knowledge in the sales of softdrinks that salesmen are
not alone in making a truckload of softdrinks for delivery to customers. Salesmen are usually provided with
route helpers or utility men who does the loading and unloading. The engagement of the individual
complainants to such activity is usually necessary in the usual business of respondent Coca-Cola.

Contrary to the Labor Arbiter's conclusion that respondent Coca-Cola is engaged solely in the manufacturing
is erroneous as it is also engaged in the sales of the softdrinks it manufactured.

Moreover, having been engaged to perform, such activity for more than a year all the more bolsters individual
complainants' status as regular employees notwithstanding the contract, oral or written, or even if their
employment was subsequently relegated to a labor contractor."

Respondent Coca-Cola denies employer-employee relationship with the complainants pointing to respondent
Interserve with whom it has a service agreement as the complainants' employer. As alleged independent
service contractor of respondent Coca-Cola, respondent Interserve "is engaged in the business of rendering
substitute or reliever delivery services to its own clients and for CCBPI in particular, the delivery of CCBPI's
softdrinks and beverage products." It is allegedly free from the control and direction of CCBPI in all matters
connected with the performance of the work, except as to the results thereof, pursuant to the service
agreement. Moreover, respondent Interserve is allegedly highly capitalized with a total of P21,658,220.26 and
with total assets of P27,509,716.32.

Further, respondent Coca-Cola argued that all elements of employer-employee relationship exist between
respondent Interserve and the complainants. It was allegedly Interserve which solely selected and engaged the
services of the complainants, which paid the latter their salaries, which was responsible with respect to the
imposition of appropriate disciplinary sanctions against its erring employees, including the complainants,
without any participation from Coca-Cola, which personally monitors the route helpers' performance of their
delivery services pointing to Noel Sambilay as the Interserve Coordinator. Expounding on the power of
control, respondent Coca-Cola vigorously argued that:

"12. According to Mr. Sambilay, he designates who among the route helpers, such as complainants herein,
will be assigned for each of the delivery trucks. Based on the route helpers' performance and rapport with the
truck driver and the other route helpers, he groups together a team of three (3) to five (5) route helpers to
undertake the loading and unloading of the softdrink products to the delivery trucks and to their designated
delivery point. It is his exclusive discretion to determine who among the route helpers will be grouped
together to comprise an effective team to render the most efficient delivery service of CCBPI's products.

"13. Similarly, it is Interserve, through Mr. Sambilay, who takes charge of monitoring the attendance of the
route helpers employed by Interserve. At the start of the working day, Mr. Sambilay would position himself at
the gate of the CCBPI premises to check the attendance of the route helpers. He also maintains a logbook to
record the time route helpers appear for work. In case a route helper is unable to report for duty, Mr.
Sambilay reassigns another route helper to take his place."

On its part, respondent Interserve merely filed its position paper, pertaining only to complainants Quintanar
and Cabili totally ignoring all the other twenty-eight (28) complainants. It maintains that it is a legitimate job
contractor duly registered as such and it undertakes to perform utility, janitorial, packaging, and assist in
transporting services by hiring drivers. Complainants Quintanar and Cabili were allegedly hired as clerks who
were assigned to CCBPI Mendiola Office, under the supervision of Interserve supervisors. Respondent Coca-
Cola does not allegedly interfere with the manner and the methods of the complainants' performance at work
as long as the desired results are achieved. While admitting employer-employee relationship with the
complainants, nonetheless, respondent Interserve avers that complainants are not its regular employees as
they were allegedly mere contractual workers whose employment depends on the service contracts with the
clients and the moment the latter sever said contracts, respondent has allegedly no choice but to either deploy
the complainants to other principals, and if the latter are unavailable, respondent cannot allegedly be
compelled to retain them.[5]

The Decision of the LA

On August 29, 2008, the LA rendered its decision granting the prayer in the complaint. In its assessment, the
LA explained that the documentary evidence submitted by both parties confirmed the petitioners' allegation
that they had been working for Coca-Cola for quite some time. It also noted that Coca-Cola never disputed
the petitioners' contention that after working for Coca-Cola through the years, they were transferred to the
various service contractors engaged by it, namely, Interim Services, Inc. (ISI), Lipercon Services, Inc.
(Lipercon), People Services, Inc. (PSI), ROMAC, and lastly, Interserve Management and Manpower Resources,
Inc. (Interserve). In view of said facts, the LA concluded that the petitioners were simply employees of Coca-
Cola who were "seconded" to Interserve.[6]

The LA opined that it was highly inconceivable for the petitioners, who were already enjoying a stable job at a
multi-national company, to leave and become mere agency workers. He dismissed the contention of Coca-
Cola that the petitioners were employees of Interserve, stressing that they enjoyed the constitutional right to
security of tenure which Coca-Cola could not compromise by entering into a service agreement manpower
supply contractors, make petitioners sign employment contracts with them, and convert their employment
status from regular to contractual.[7]

Ultimately, the LA ordered Coca-Cola to reinstate the petitioners to their former positions and to pay their
full backwages.[8] The dispositive portion of the decision reads:

WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered ordering
respondent Coca-Cola Bottlers Phils., Inc. to reinstate complainants to their former or substantially
equivalent positions, and to pay their full backwages which as of August 29, 2008 already amounts to
P15,319,005.00, without prejudice to recomputation upon subsequent determination of the applicable salary
rates and benefits due a regular route helper or substantially equivalent position on the plantilla of respondent
CCBPI.

SO ORDERED.[9]

The Decision of the NLRC

Similar to the conclusion reached by the LA, the NLRC found that the petitioners were regular employees of
Coca-Cola. In its decision, dated March 25, 2010, it found that the relationship between the parties in the
controversy bore a striking similarity with the facts in the cases of Coca-Cola Bottlers Philippines, Inc. v. National
Organization of Workingmen[10] (N.O.W.) and Magsalin v. National Organization of Workingmen (Magsalin).[11] The
NLRC, thus, echoed the rulings of the Court in the said cases which found the employees involved, like the
petitioners in this case, as regular employees of Coca-Cola. It stated that the entities ISI, Lipercon, PSI,
ROMAC, and Interserve simply "played to feign that status of an employer so that its alleged principal would
be free from any liabilities and responsibilities to its employees."[12] As far as it is concerned, Coca-Cola failed
to provide evidence that would place the subject controversy on a different plane from N.O.W and Magsalin
as to warrant a deviation from the rulings made therein.

As for the quitclaims executed by the petitioners, the NLRC held that the same could not be used by Coca-
Cola to shield it from liability. The NLRC noted the Minutes of the National Conciliation and Mediation
Board (NCMB) which stated that the petitioners agreed to settle their claims with Coca-Cola only with
respect to their claims for violation of labor standards law, and that their claims for illegal dismissal would be
submitted to the NLRC for arbitration.[13]

Coca-Cola sought reconsideration of the NLRC decision but its motion was denied.[14]

The Decision of the CA

Reversing the findings of the LA and the NLRC, the CA opined that the petitioners were not employees of
Coca-Cola but of Interserve. In its decision, the appellate court agreed with the contention of Coca-Cola that
it was Interserve who exercised the power of selection and engagement over the petitioners considering that
the latter applied for their jobs and went through the pre-employment processes of Interserve. It noted that
the petitioners' contracts of employment and personal data sheets, which were filed with Interserve,
categorically stipulated that Interserve had the sole power to assign them temporarily as relievers for absent
employees of their clients. The CA also noted that the petitioners had been working for other agencies before
they were hired by Interserve.[15]

The CA also gave credence to the position of Coca-Cola that it was Interserve who paid the petitioners'
salaries. This, coupled with the CA's finding that Coca-Cola paid Interserve for the services rendered by the
petitioners whenever they substituted for the regular employees of Coca-Cola, led the CA to conclude that it
was Interserve who exercised the power of paying the petitioners' wages.

The CA then took into consideration Interserve's admission that they had to sever the petitioners' from their
contractual employment because its contract with Coca-Cola expired and there was no demand for relievers
from its other clients. The CA equated this with Interserve's exercise of its power to fire the petitioners.[16]

Finally, the CA was of the considered view that it was Interserve which exercised the power of control. Citing
the Affidavit[17] of Noel F. Sambilay (Sambilay), Coordinator of Interserve, the CA noted that Interserve
exercised the power of control, monitoring the petitioners' attendance, providing them with their assignments
to the delivery trucks of Coca-Cola, and making sure that they were able to make their deliveries.[18]

The CA then went on to conclude that Interserve was a legitimate independent contractor. It noted that the
said agency was registered with the Department of Labor and Employment (DOLE) as an independent
contractor which had provided delivery services for other beverage products of its clients, and had shown
that it had substantial capitalization and owned properties and equipment that were used in the conduct of its
business operations. The CA was, thus, convinced that Interserve ran its own business, separate and distinct
from Coca-Cola.[19]

The petitioners sought reconsideration, but they were rebuffed.[20]

Hence, this petition, raising the following

GROUNDS FOR THE PETITION/ASSIGNMENT OF ERRORS

THE COURT OF APPEALS IS GUILTY OF GRAVE ABUSE OF DISCRETION AMOUNTING

TO LACK OR IN EXCESS OF JURISDICTION IN:

I.

RENDERING A DECISION THAT IS CONTRARY TO LAW AND ESTABLISHED

JURISPRUDENCE

II.

MISAPPRECIATING FACTS WHICH GRAVELY PREJUDICED THE RIGHTS OF THE

PETITIONERS.[21]
In their petition for review on certiorari, the petitioners ascribed grave abuse of discretion on the part of the
CA when it reassessed the evidence and reversed the findings of fact of the LA and the NLRC that ruled in
their favor.[22]

The petitioners also claimed that the CA violated the doctrine of stare decisis when it ruled that Interserve was
a legitimate job contractor. Citing Coca Cola Bottlers, Philippines, Inc. v. Agito (Agito),[23] the petitioners argued
that because the parties therein were the same parties in the subject controversy, then the appellate court
should have followed precedent and declared Interserve as a labor-only contractor.[24]

In further support of their claim that Interserve was a labor-only contractor and that Coca-Cola, as principal,
should be made ultimately liable for their claims, the petitioners asserted that Interserve had no products to
manufacture, sell and distribute to customers and did not perform activities in its own manner and method
other than that dictated by Coca-Cola. They claimed that it was Coca-Cola that owned the softdrinks, the
trucks and the equipment used by Interserve and that Coca-Cola assigned supervisors to ensure that the
petitioners perform their duties.[25]

Lastly, the petitioners insisted that both Coca-Cola and Interserve should be made liable for moral and
exemplary damages, as well as attorney's fees, for having transgressed the petitioners' right to security of
tenure and due process.[26]

The Court's Ruling

Essentially, the core issue presented by the foregoing petition is whether the petitioners were illegally
dismissed from their employment with Coca-Cola. This, in turn, necessitates a determination of the
characterization of the relationship between route-helpers such as the petitioners, and softdrink
manufacturers such as Coca-Cola, notwithstanding the participation of entities such as ISI, Lipercon, PSI,
ROMAC, and Interserve. The petitioners insist that ISI, Lipercon, PSI, ROMAC, and Interserve are labor-
only contractors, making Coca-Cola still liable for their claims. The latter, on the other hand, asserts that the
said agencies are independent job contractors and, thus, liable to the petitioners on their own.

Procedural Issues

Before the Court proceeds to resolve the case on its merits, it must first be pointed out that the petitioners
erred in resorting to this petition for review on certiorari under Rule 45 of the Rules of Court and alleging, at
the same time, that the CA abused its discretion in rendering the assailed decision.

Well-settled is the rule that grave abuse of discretion or errors of jurisdiction may be corrected only by the
special civil action of certiorari under Rule 65. Such corrective remedies do not avail in a petition for review on
certiorari which is confined to correcting errors of judgment only. Considering that the petitioners have availed
of the remedy under Rule 45, recourse to Rule 65 cannot be allowed either as an add-on or as a substitute for
appeal.[27]

Moreover, it is observed that from a perusal of the petitioners' arguments, it is quite apparent that the petition
raises questions of facts, inasmuch as this Court is being asked to revisit and assess anew the factual findings
of the CA and the NLRC. The petitioners fundamentally assail the findings of the CA that the evidence on
record did not support their claims for illegal dismissal against Coca-Cola. In effect, they would have the
Court sift through, calibrate and re-examine the credibility and probative value of the evidence on record so
as to ultimately decide whether or not there is sufficient basis to hold the respondents accountable for their
alleged illegal dismissal. This clearly involves a factual inquiry, the determination of which is the statutory
function of the NLRC.[28]

Basic is the rule that the Court is not a trier of facts and this doctrine applies with greater force in labor cases.
Questions of fact are for the labor tribunals to resolve.[29] Only errors of law are generally reviewed in
petitions for review on certiorari under Rule 45 of the Rules of Court.

In exceptional cases, however, the Court may be urged to probe and resolve factual issues when there is
insufficient or insubstantial evidence to support the findings of the tribunal or the court below, or when too
much is concluded, inferred or deduced from the bare or incomplete facts submitted by the parties or, where
the LA and the NLRC came up with conflicting positions.[30] In this case, considering the conflicting findings
of the LA and the NLRC on one hand, and the CA on the other, the Court is compelled to resolve the factual
issues along with the legal ones.

Substantial Issues

The Court finds for the petitioners. The reasons are:

First. Contrary to the position taken by Coca-Cola, it cannot be said that route-helpers, such as the petitioners
no longer enjoy the employee-employer relationship they had with Coca-Cola since they became employees
of Interserve. A cursory review of the jurisprudence regarding this matter reveals that the controversy
regarding the characterization of the relationship between route-helpers and Coca-Cola is no longer a novel
one.

As early as May 2003, the Court in Magsalin struck down the defense of Coca-Cola that the complainants
therein, who were route-helpers, were its "temporary" workers. In the said Decision, the Court explained:

The basic law on the case is Article 280 of the Labor Code. Its pertinent provisions read:

Art. 280. Regular and Casual Employment. The provisions of written agreement to the contrary notwithstanding
and regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the
employee has been engaged to perform activities which are usually necessary or desirable in the usual business
or trade of the employer, except where the employment has been fixed for a specific project or undertaking
the completion or termination of which has been determined at the time of the engagement of the employee
or where the work or services to be performed is seasonal in nature and the employment is for the duration
of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That,
any employee who has rendered at least one year of service, whether such service is continuous or broken,
shall be considered a regular employee with respect to the activity in which he is employed and his
employment shall continue while such activity exists.

Coca-Cola Bottlers Phils., Inc. is one of the leading and largest manufacturers of softdrinks in the country.
Respondent workers have long been in the service of petitioner company. Respondent workers, when hired,
would go with route salesmen on board delivery trucks and undertake the laborious task of loading and
unloading softdrink products of petitioner company to its various delivery points.

Even while the language of law might have been more definitive, the clarity of its spirit and intent, i.e., to
ensure a "regular" worker's security of tenure, however, can hardly be doubted. In determining whether an
employment should be considered regular or non-regular, the applicable test is the reasonable connection
between the particular activity performed by the employee in relation to the usual business or trade of the
employer. The standard, supplied by the law itself, is whether the work undertaken is necessary or desirable in
the usual business or trade of the employer, a fact that can be assessed by looking into the nature of the
services rendered and its relation to the general scheme under which the business or trade is pursued in the
usual course. It is distinguished from a specific undertaking that is divorced from the normal activities
required in carrying on the particular business or trade. But, although the work to be performed is only for a
specific project or seasonal, where a person thus engaged has been performing the job for at least one year,
even if the performance is not continuous or is merely intermittent, the law deems the repeated and
continuing need for its performance as being sufficient to indicate the necessity or desirability of that activity
to the business or trade of the employer. The employment of such person is also then deemed to be regular
with respect to such activity and while such activity exists.

The argument of petitioner that its usual business or trade is softdrink manufacturing and that the work
assigned to respondent workers as sales route helpers so involves merely "postproduction activities," one
which is not indispensable in the manufacture of its products, scarcely can be persuasive. If, as so argued by
petitioner company, only those whose work are directly involved in the production of softdrinks may be held
performing functions necessary and desirable in its usual business or trade, there would have then been no
need for it to even maintain regular truck sales route helpers. The nature of the work performed must be
viewed from a perspective of the business or trade in its entirety and not on a confined scope.

The repeated rehiring of respondent workers and the continuing need for their services clearly attest to the
necessity or desirability of their services in the regular conduct of the business or trade of petitioner company.
The Court of Appeals has found each of respondents to have worked for at least one year with petitioner
company. While this Court, in Brent School, Inc. vs. Zamora, has upheld the legality of a fixed-term employment,
it has done so, however, with a stern admonition that where from the circumstances it is apparent that the
period has been 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 pernicious
practice of having employees, workers and laborers, engaged for a fixed period of few months, short of the
normal six-month probationary period of employment, and, thereafter, to be hired on a day-to-day basis,
mocks the law. Any obvious circumvention of the law cannot be countenanced. The fact that respondent
workers have agreed to be employed on such basis and to forego the protection given to them on their
security of tenure, demonstrate nothing more than the serious problem of impoverishment of so many of our
people and the resulting unevenness between labor and capital. A contract of employment is impressed with
public interest. The provisions of applicable statutes are deemed written into the contract, and "the parties are
not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by
simply contracting with each other."[31]

Shortly thereafter, the Court in Bantolino v. Coca-Cola,[32] among others, agreed with the unanimous finding of
the LA, the NLRC and the CA that the route-helpers therein were not simply employees of Lipercon, Peoples
Specialist Services, Inc. or ISI, which, as Coca-Cola claimed were independent job contractors, but rather,
those of Coca-Cola itself. In the said case, the Court sustained the finding of the LA that the testimonies of
the complainants therein were more credible as they sufficiently supplied every detail of their employment,
specifically identifying their salesmen/drivers were and their places of assignment, aside from the dates of
their engagement and dismissal.

Then in 2008, in Pacquing v. Coca-Cola Philippines, Inc. (Pacquing),[33] the Court applied the ruling in Magsalin
under the principle of stare decisis et non quieta movere (follow past precedents and do not disturb what has been
settled). It was stressed therein that because the petitioners, as route helpers, were performing the same
functions as the employees in Magsalin, which were necessary and desirable in the usual business or trade of
Coca- Cola Philippines, Inc., they were considered regular employees of Coca-Cola entitled to security of
tenure.

A year later, the Court in Agito[34] similarly struck down Coca-Cola's contention that the salesmen therein
were employees of Interserve, notwithstanding the submission by Coca-Cola of their personal data files from
the records of Interserve; their Contract of Temporary Employment with Interserve; and the payroll records
of Interserve. In categorically declaring Interserve as a labor-only contractor,[35] the Court found that the
work of the respondent salesmen therein, constituting distribution and sale of Coca-Cola products, was
clearly indispensable to the principal business of petitioner Coca-Cola.[36]

As to the supposed substantial capital and investment required of an independent job contractor, the Court
stated that it "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."[37] The Court reiterated that the contractor, not the employee, had the burden of proof that it
has the substantial capital, investment and tool to engage in job contracting. As applied to Interserve, the
Court ruled:

The contractor, not the employee, has the burden of proof that it has the substantial capital, investment, and
tool to engage in job contracting. Although not the contractor itself (since Interserve no longer appealed the
judgment against it by the Labor Arbiter), said burden of proof herein falls upon petitioner who is invoking
the supposed status of Interserve as an independent job contractor. Noticeably, petitioner failed to submit
evidence to establish that the service vehicles and equipment of Interserve, valued at P510,000.00 and
P200,000.00, respectively, were sufficient to carry out its service contract with petitioner. Certainly, petitioner
could have simply provided the courts with records showing the deliveries that were undertaken by Interserve
for the Lagro area, the type and number of equipment necessary for such task, and the valuation of such
equipment. Absent evidence which a legally compliant company could have easily provided, the Court will
not presume that Interserve had sufficient investment in service vehicles and equipment, especially since
respondents' allegation that they were using equipment, such as forklifts and pallets belonging to petitioner, to
carry out their jobs was uncontroverted.

In sum, 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, thus, evident that Interserve falls under the
definition of a labor-only contractor, under Article 106 of the Labor Code; as well as Section 5(1) of the Rules
Implementing Articles 106-109 of the Labor Code, as amended.[38]

As for the certification issued by the DOLE stating that Interserve was an independent job contractor, the
Court ruled:

The certification issued by the DOLE stating that Interserve is an independent job contractor does not sway
this Court to take it at face value, since the primary purpose stated in the Articles of Incorporation of
Interserve is misleading. According to its Articles of Incorporation, the principal business of Interserve is to
provide janitorial and allied services. The delivery and distribution of Coca-Cola products, the work for which
respondents were employed and assigned to petitioner, were in no way allied to janitorial services. While the
DOLE may have found that the capital and/or investments in tools and equipment of Interserve were
sufficient for an independent contractor for janitorial services, this does not mean that such capital and/or
investments were likewise sufficient to maintain an independent contracting business for the delivery and
distribution of Coca-Cola products.[39]

Finally, the Court determined the existence of an employer-employee relationship between the parties therein
considering that the contract of service between Coca-Cola and Interserve showed that the former indeed
exercised the power of control over the complainants therein.[40]

The Court once more asserted the findings that route-helpers were indeed employees of Coca-Cola in Coca-Cola
Bottlers Philippines, Inc. v. Dela Cruz[41] and, recently, in Basan v. Coca-Cola Bottlers Philippines, Inc.[42] and that the
complainants therein were illegally dismissed for want of just or authorized cause. Similar dispositions by the
CA were also upheld by this Court in N.O.W[43] and Ostani,[44] through minute resolutions.

It bears mentioning that the arguments raised by Coca-Cola in the case at bench even bear a striking similarity
with the arguments it raised before the CA in N.O.W[45] and Ostani.[46]

From all these, a pattern emerges by which Coca-Cola consistently resorts to various methods in order to
deny its route-helpers the benefits of regular employment. Despite this, the Court, consistent with sound
pronouncements above, adopts the rulings made in Pacquing that Interserve was a labor-only contractor and
that Coca-Cola should be held liable pursuant to the principle of stare decisis et non quieta movere.

It should be remembered that the doctrine of stare decisis et non quieta movere is embodied in Article 8 of the
Civil Code of the Philippines which provides:

ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal
system of the Philippines.
And, as explained in Fermin v. People:[47]

The doctrine of stare decisis enjoins adherence to judicial precedents. It requires courts in a country to
follow the rule established in a decision of the Supreme Court thereof. That decision becomes a judicial
precedent to be followed in subsequent cases by all courts in the land. The doctrine of stare decisis is based on
the principle that once a question of law has been examined and decided, it should be deemed settled and
closed to further argument.[48]

[Emphasis Supplied]
The Court's ruling in Chinese Young Men's Christian Association of the Philippine Islands v. Remington Steel Corporation
is also worth citing, viz:[49]

Time and again, the court has held that it is a very desirable and necessary judicial practice that when a
court has laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle
and apply it to all future cases in which the facts are substantially the same. Stare decisis et non quieta movere.
Stand by the decisions and disturb not what is settled. Stare decisis simply means that for the sake of
certainty, a conclusion reached in one case should be applied to those that follow if the facts are
substantially the same, even though the parties may be different. It proceeds from the first principle of
justice that, absent any powerful countervailing considerations, like cases ought to be decided alike.
Thus, where the same questions relating to the same event have been put forward by the parties similarly
situated as in a previous case litigated and decided by a competent court, the rule of stare decisis is a bar to
any attempt to relitigate the same issue.[50]

[Emphases Supplied]
Verily, the doctrine has assumed such value in our judicial system that the Court has ruled that
"[a]bandonment thereof must be based only on strong and compelling reasons, otherwise, the
becoming virtue of predictability which is expected from this Court would be immeasurably affected and the
public's confidence in the stability of the solemn pronouncements diminished."[51] Thus, only upon showing
that circumstances attendant in a particular case override the great benefits derived by our judicial system
from the doctrine of stare decisis, can the courts be justified in setting it aside.

In this case, Coca-Cola has not shown any strong and compelling reason to convince the Court that the
doctrine of stare decisis should not be applied. It failed to successfully demonstrate how or why both the LA
and the NLRC committed grave abuse of discretion in sustaining the pleas of the petitioners that they were
its regular employees and not of Interserve.

Second. A reading of the decision of the CA and the pleadings submitted by Coca-Cola before this Court
reveals that they both lean heavily on the service agreement[52] entered into by Coca-Cola and Interserve; the
admission by Interserve that it paid the petitioners' salaries; and the affidavit of Sambilay who attested that it
was Interserve which exercised the power of control over the petitioners.

The service agreements entered into by Coca-Cola and Interserve, the earliest being that dated January
1998,[53] (another one dated July 11, 2006)[54] and the most recent one dated March 21, 2007[55] - all reveal that
they were entered into One, after the petitioners were hired by Coca-Cola (some of whom were hired as early as 1984);
Two, after they were dismissed from their employment sometime in January 2004; and Three, after the petitioners filed their
complaint for illegal dismissal on November 10, 2006 with the LA.

To quote with approval the observations of the LA:

x x x The most formidable obstacle against the respondent's theory of lack of employer-employee
relationship is that complainants have [been] performing the tasks of route-helpers for several years and that
practically all of them have been rendering their services as such even before respondent Interserve
entered into a service agreement with Coca-Cola sometime in 1998. Thus, the complainants in their
position paper categorically stated the record of their service with Coca-Cola as having started on the
following dates: Emmanuel Quintanar - October 15, 1994; Benjamin Durano - November 16, [1987]; Cecilio
Delaving - June 10, 1991; Ricardo Gaborni - September 28, 1992; Romel Gerarman - June 20, 1995; Ramilo
Gaviola - October 10, 1988; Joel John Aguilar - June 1, 1992; Restituto Agsalud - September 7, 1989; Martin
Celis - August 15, 1995; Patricio Arios - June 2, 1989; Michael Bello - February 15, 1992; Lorenzo Quinlog -
May 15, 1992; Junne Blaya - September 15, 1997; Santiago Tolentino, Jr. - May 29, 1989; Nestor Magnaye -
February 15, 1996; Arnold Polvorido - February 8, 1996; Allan Agapito - April 15, 1995; Ariel Baumbad -
January 15, 1995; Jose Lutiya - February 15, 1995; Edgardo Tapalla - August 15, 1994; Roldan Cadayona -
May 14, 1996; Raynaldo Alburo - September 15, 1996; Rudy Ultra - February 28, 1997; Marcelo Cabili -
November 15, 1995; Arnold Asiaten - May 2, 1992; Raymundo Macaballug - July 31, 1995; Joel Delena -
January 15, 1991; Danilo Oquino - September 15, 1990; Greg Caparas - August 15, 1995; and Romeo
Escartin - May 15, 1986.

It should be mentioned that the foregoing allegation of the complainants' onset of their services with
respondent Coca-Cola has been confirmed by the Bio-Data Sheets submitted in evidence by the said
respondent [Coca-Cola]. Thus, in the Bio-Data Sheet of complainant Quintanar (Annex "4"), he stated
therein that he was in the service of respondent Coca-Cola continuously from 1993 up to 2002. Likewise,
complainant Quinlog indicated in his Bio-data Sheet submitted to respondent Interserve that he was already
in the employ of respondent Coca-Cola from 1992 (Annex "12"). Complainant Edgardo Tapalla also
indicated in his Bio-Data Sheet that he was already in the employ of Coca-Cola since 1995 until he was
seconded to Interserve in 2002 (Annex "20").

As a matter of fact, complainants' allegation that they were directly hired by respondent Coca-Cola and had
been working with the latter for quite sometime when they were subsequently referred to successive agencies
such as Lipercon, ROMAC, People's Services, and most recently, respondent Interserve, has not been
controverted by the respondents. Even when respondent Coca-Cola filed its reply to the complainants'
position paper, there is nothing therein which disputed complainant's statements of their services directly
with the respondent even before it entered into service agreement with respondent Interserve.[56]

As to the payment of salaries, although the CA made mention that it was Interserve which paid the
petitioners' salaries, no reference was made to any evidence to support such a conclusion. The Court, on the
other hand, gives credence to the petitioners' contention that they were employees of Coca-Cola. Aside from
their collective account that it was Coca-Cola's Route Supervisors who provided their daily schedules for the
distribution of the company's products, the petitioners' payslips,[57] tax records,[58] SSS[59] and Pag-Ibig[60]
records more than adequately showed that they were being compensated by Coca-Cola. More convincingly,
the petitioners even presented their employee Identification Cards,[61] which expressly indicated that they were
"[d]irect hire[es]" of Coca-Cola.

As for the affidavit of Sambilay, suffice it to say that the same was bereft of evidentiary weight, considering
that he failed to attest not only that he was already with Interserve at the time of the petitioners hiring, but
also that he had personal knowledge of the circumstances surrounding the hiring of the petitioners following
their alleged resignation from Coca-Cola.

Third. As to the characterization of Interserve as a contractor, the Court finds that, contrary to the conclusion
reached by the CA, the petitioners were made to suffer under the prohibited practice of labor-only
contracting. Article 106 of the Labor Code provides the definition of what constitutes labor-only contracting.
Thus:

Article 106. Contractor or subcontractor. - x x x

There is "labor-only" contracting where 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 the workers recruited and placed by such person are performing activities which are directly related to the
principal business of such employer. In such cases, the person or intermediary shall be considered merely as
an agent of the employer who shall be responsible to me workers in the same manner and extent as if the
latter were directly employed by him.

Expounding on the concept, the Court in Agito explained:

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 employer 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.

[Emphases and Underscoring Supplied]

In this case, the appellate court considered the evidence of Interserve that it was registered with the DOLE as
independent contractor and that it had a total capitalization of P27,509,716.32 and machineries and
equipment worth P12,538859.55.[62] As stated above, however, the possession of substantial capital is
only one element. Labor-only contracting exists when any of the two elements is present.[63] Thus, even if
the Court would indulge Coca-Cola and admit that Interserve had more than sufficient capital or investment
in the form of tools, equipment, machineries, work premises, still, it cannot be denied that the petitioners
were performing activities which were directly related to the principal business of such employer. Also, it has
been ruled that no absolute figure is set for what is considered 'substantial capital' because the same is
measured against the type of work which the contractor is obligated to perform for the principal.[64]
More importantly, even if Interserve were to be considered as a legitimate job contractor, Coca-Cola failed to
rebut the allegation that petitioners were transferred from being its employees to become the employees of
ISI, Lipercon, PSI, and ROMAC, which were labor-only contractors. Well-settled is the rule that "[t]he
contractor, not the employee, has the burden of proof that it has the substantial capital, investment, and tool
to engage in job contracting."[65] In this case, the said burden of proof lies with Coca-Cola although it was not
the contractor itself, but it was the one invoking the supposed status of these entities as independent job
contractors.

Fourth. In this connection, even granting that the petitioners were last employed by Interserve, the record is
bereft of any evidence that would show that the petitioners voluntarily resigned from their employment with
Coca-Cola only to be later hired by Interserve. Other than insisting that the petitioners were last employed by
Interserve, Coca-Cola failed not only to show by convincing evidence how it severed its employer
relationship with the petitioners, but also to prove that the termination of its relationship with them was
made through any of the grounds sanctioned by law.

The rule is long and well-settled that, in illegal dismissal cases such as the one at bench, the burden of proof is
upon the employer to show that the employees' termination from service is for a just and valid cause.[66] The
employer's case succeeds or fails on the strength of its evidence and not the weakness of that adduced by the
employee,[67] in keeping with the principle that the scales of justice must be tilted in favor of the latter in case
doubts exist over the evidence presented by the parties.[68]

For failure to overcome this burden, the Court concurs in the observation of the LA that it was highly
inconceivable for the petitioners, who were already enjoying a stable job at a multi-national company, to leave
and become mere agency workers. Indeed, it is contrary to human experience that one would leave a stable
employment in a company like Coca-Cola, only to become a worker of an agency like Interserve, and be
assigned back to his original employer — Coca-Cola.

Although it has been said that among the four (4) tests to determine the existence of any employer-employee
relationship, it is the "control test" that is most persuasive, the courts cannot simply ignore the other
circumstances obtaining in each case in order to determine whether an employer-employee relationship exists
between the parties.

WHEREFORE, the petition is GRANTED. The July 11, 2013 Decision and the December 5, 2013
Resolution of the Court of Appeals, in CA-G.R. SP No. 115469 are REVERSED and SET ASIDE and the
August 29, 2008 Decision of the Labor Arbiter in NLRC Case Nos. 12-13956-07 and 12-14277-07, as
affirmed in toto by the National Labor Relations Commission, is hereby REINSTATED.

SO ORDERED.

Sereno, C. J., Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Peralta, Bersamin, Perez, Reyes, Perlas-Bernabe, Leonen,
and Caguioa, JJ., concur.
Del Castillo, J., on leave.
Jardeleza, J., no part.

NOTICE OF JUDGMENT

Sirs/Mesdames:

Please take notice that on June 28, 2016 a Decision/Resolution, copy attached herewith, was rendered by the
Supreme Court in the above-entitled case, the original of which was received by this Office on July 21, 2016
at 2:37 p.m.

Very truly yours,

(SGD)FELIPA G. BORLONGAN-ANAMA
Clerk of Court

Penned by Associate Justice Edwin D. Sorongon with Associate Justices Hakim S. Abdulwahid (now
[1]

retired) and Marlene Gonzales-Sison, concurring; rollo, pp. 1730-1753.

[2] Id. at 1843-1845.

[3] Id. at 726-743. Penned by Commissioner Nieves E. Vivar-de Castro.

Id. at 552-559. Penned by Labor Arbiter Jose G. De Vera, concurred in by Presiding Commissioner
[4]

Benedicto R. Palacol and Commissioner Isabel G. Panganiban-Ortiquerra.

[5] Id. at 553-555.

[6] Id. at 556-557.

[7] Id. at 557.

[8] Id. at 559.

[9] Id.

Docketed as G.R. 176024; Disposed by the Court via Minute Resolution, dated June 18, 2007; id. at 531-
[10]

532. See also Minute Resolutions, id. at 547-548.

[11] 451 Phil. 254 (2003).

[12] Id. at 736-737.

[13] Id. at 741-742.

[14] Id. at 778-779.

[15] Id. at 1745-1746.

[16] Id. at 1746-1747.

[17] Id. at 351-352.

[18] Id. at 1747-1748.

[19] Id. at 1750-1751.

[20] Id. at 1843-1845.

[21] Id. at 12-13.

[22] Id. at 13-14.

[23] 598 Phil. 909 (2009).

[24] Rollo, pp. 14-16.

[25] Id. at 16-22.

[26] Id. at 22-23.

Prudential Guarantee and Assurance Employee Labor Union, et al. v. National Labor Relations Commission, 687 Phil.
[27]

351, 360-361 (2012); and Cebu Woman's Club v. de la Victoria, 384 Phil. 264, 270 (2000).

[28] CBL Transit, Inc. v. National Labor Relations Commission, 469 Phil. 363, 371 (2004).

[29] Alfaro v. Court of Appeals, 416 Phil. 310, 318 (2001).

[30] Nisda v. Sea Serve Maritime Agency, 611 Phil. 291, 311 (2009).

[31] Magsalin v. National Organization of Workingmen, supra note 11, at 260-262.

[32] 451 Phil. 839 (2003).

[33] 567 Phil. 323, 333 (2008).

[34] Supra note 23.

[35] Id. at 934.

[36] Id. at 925.

[37] Id. at 927.

[38] Id. at 929-930.

[39] Id. at 934.

[40] Id. at 930-934.

[41] 622 Phil. 886 (2009).

[42] G.R. Nos. 174365-66, February 4, 2015, 749 SCRA 541.

[43] Resolutions, G.R. 176024, dated March 14, 2007 and June 18, 2007; See rollo, pp. 531-532.

[44] Resolutions, G.R. No. 1771996, dated June 4, 2007 and September 3, 2007; id. at 547-548.

See Decision of the Court of Appeals in CA-G.R. SP No. 82457, the subject of the Court's Minute
[45]

Resolution in G.R. 176024; id. at 520-530.

See Decision of the Court of Appeals in CA-G.R. SP No. 84524, the subject of the Court's Minute
[46]

Resolution in G.R. No. 1771996; id. at 533-546.

[47] 573 Phil. 278 (2008).

[48] Id. at 287, citing Castillo v. Sandiganbayan, 427 Phil. 785, 793 (2002).

[49] 573 Phil. 320 (2008).

[50] Id. at 337, citing Ty v. Banco Filipino Savings and Mortgage Bank, 511 Phil. 510, 520-521 (2005).

[51] Pepsi-Cola Products, Phil., Inc. v. Pagdanganan, 535 Phil. 540, 554-555 (2006).
[52] Denominated as Contract for Substitute or Reliever Services. Rollo, pp. 170-175.

[53] Id. at 384-388.

[54] Id. at 58-62.

[55] Id. at 170-174.

[56] Id. at 639-640.

[57] Id. at 1315-1318, 1320-1321, 1338-1339, 1342, 1346, 1353-1355.

[58] Id. at 1331, 1337, 1351.

[59] Id. at 1310, 1326-1327, 1333, 1336, 1343, 1344-1345, 1347.

[60] Id. at 1348-1350.

[61] Id. at 1312, 1314, 1319, 1322, 1324, 1328, 1329.

[62] Id. at 1751.

[63] Aliviado v. Procter and Gamble, Inc., 665 Phil. 542, 554 (2011).

[64] Coca Cola Bottlers, Philippines, Inc. v. Agito, supra note 23 at 927.

[65] Id. at 929.

[66] Harborview Restaurant v. Labro, 605 Phil. 349, 354 (2009).

[67] Philippine Long Distance Telephone Company, Inc. v. Tiamson, 511 Phil. 384, 394 (2005).

[68] Triple Eight Integrated Services, Inc. v. National Labor Relations Commission, 359 Phil. 955, 964 (1998).
804 Phil. 583

FIRST DIVISION
G.R. No. 220617, January 30, 2017

NESTLE PHILIPPINES, INC., PETITIONER, VS. BENNY A.

PUEDAN, JR., JAYFER D. LIMBO, BRODNEY N. AVILA, ARTHUR
C. AQUINO, RYAN A. MIRANDA, RONALD R. ALAVE, JOHNNY
A. DIMAYA, MARLON B. DELOS REYES, ANGELITO R.
CORDOVA, EDGAR S. BARRUGA, CAMILO B. CORDOVA, JR.,
JEFFRY B. LANGUISAN, EDISON U. VILLAPANDO, JHEIRNEY
S. REMOLIN, MARY LUZ A. MACATALAD,* JENALYN M.
GAMUROT, DENNIS G. BAWAG, RAQUEL A. ABELLERA, AND
RICANDRO G. GUATNO, JR., RESPONDENTS.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari[1] are the Decision[2] dated March
26, 2015 and the Resolution[3] dated September 17, 2015 of the Court of Appeals
(CA) in CA-G.R. SP No. 132686, which affirmed the Decision[4] dated May 30, 2013
and the Resolution[5] dated August 30, 2013 of the National Labor Relations
Commission (NLRC) in LAC No. 02-000699-13/ NCR-03-04761-12, declaring
petitioner Nestle Philippines, Inc. (NPI), jointly and severally liable with Ocho de
Septiembre, Inc. (ODSI) to respondents Benny A. Puedan, Jr., Jayfer D. Limbo,
Bradney N. Avila, Arthur C. Aquino, Ryan A. Miranda, Ronald R. Alave, Johnny A.
Dimaya, Marlon B. Delos Reyes, Angelita R. Cordova, Edgar S. Barruga, Camilo B.
Cordova, Jr., Jeffry B. Languisan, Edison U. Villapando, Jheirney S. Remolin, Mary
Luz A. Macatalad, Jenalyn M. Gamurot, Dennis G. Bawag, Raquel A. Abellera, and
Ricandro G. Guatno, Jr. (respondents) for separation pay, nominal damages, and
attorney's fees.

The Facts

The instant case arose from an amended[6] complaint[7] dated July 6, 2012 for
illegal dismissal, damages, and attorney's fees filed by respondents against, inter
alia, ODSI and NPI. Respondents alleged that on various dates, ODSI and NPI hired
them to sell various NPI products in the assigned covered area. After some time,
respondents demanded that they be considered regular employees of NPI, but they
were directed to sign contracts of employment with ODSI instead. When
respondents refused to comply with such directives, NPI and ODSI terminated them
from their position.[8] Thus, they were constrained to file the complaint, claiming
that: (a) ODSI is a labor-only contractor and, thus, they should be deemed regular
employees of NPI; and (b) there was no just or authorized cause for their
dismissal.[9]

For its part, ODSI averred that it is a company engaged in the business of buying,
selling, distributing, and marketing of goods and commodities of every kind and it
enters into all kinds of contracts for the acquisition thereof. ODSI admitted that on
various dates, it hired respondents as its employees and assigned them to execute
the Distributorship Agreement[10] it entered with NPI,[11] the relevant portions of
which state:

3.1 DISTRIBUTOR (ODSI) shall assign a sales force in his/her regular employ,
dedicated solely to the handling of NPI Grocery Retail Products under this
Agreement, and who shall exclusively cover assigned areas/channels of
distribution.

3.2 DISTRIBUTOR shall service the outlets within the Territory by re-selling
Products obtained exclusively from Nestle Philippines, Inc. and not from any
other source.

3.3 DISTRIBUTOR shall utilize booking and distribution salesmen to undertake

territory development. Booking done by DISTRIBUTOR shall be delivered by its
personnel. Collection of accounts shall be taken cared (sic) of by
DISTRIBUTOR, without prejudice to the provisions of Clause 13 hereof.

3.4 DISTRIBUTOR's route salesmen shall exclusively cover assigned ex-truck

areas/channels of distribution.

3.5 DISTRIBUTOR shall also provide training to its staff or personnel where
necessary, to improve operations in servicing the requirements of
DISTRIBUTOR's customers. From time to time, NESTLE shall offer to
DISTRIBUTOR suggestions and recommendations to improve sales and to
further develop the market.

3.6 DISTRIBUTOR shall meet the sales, reach and distribution targets agreed upon
by NESTLE and DISTRIBUTOR. For purposes of this clause, reach targets refer
to the number of stores, dealers and/or outlets which DISTRIBUTOR should
cover or service within a particular period. Distribution targets refer to the
number of stock keeping units and/or product lines covered by this Agreement.

In the event of DISTRIBUTOR's failure to meet NESTLE's sales targets, NESTLE

has the sole discretion of assigning another distributor of the Products and/or
reducing the Territory covered by DISTRIBUTOR.
3.7 DISTRIBUTOR agrees to provide at its own cost and expense facilities and
other resources necessary for the distribution and sale of the Products.

3.8 NESTLE's sales personnel may get orders for the Products distributed by
DISTRIBUTOR and pass on the said orders to DISTRIBUTOR.

3.9 NESTLE shall provide the necessary promotional and marketing support for the
Products through promotional materials, product information literature,
participation in trade fairs, and other market development activities.

3.10Should NESTLE manufacture and/or distribute other products not subject of

this Agreement, which, in NESTLE's opinion, should likewise be extended to
DISTRIBUTOR's outlets, such additional products shall be included among
those listed in Annex "A" hereof.

NESTLE shall deliver the Products to DISTRIBUTOR's warehouse(s) at its own

expenses. Immediately upon receipt of the Products, DISTRIBUTOR shall carry
out a visual inspection thereof. In the event any quantity of the Products is
found to be defective upon such visual inspection, NESTLE shall replace such
quantity of the Products at no cost to DISTRIBUTOR.

3.11All costs for transportation and/or shipment of the Products from

DISTRIBUTOR's warehouse(s) to its outlets/customers shall be the account of
the DISTRIBUTOR.[12]

However, the business relationship between NPI and ODSI turned sour when the
former's sales department badgered the latter regarding the sales targets.
Eventually, NPI downsized its marketing and promotional support from ODSI which
resulted to business reverses and in the latter's filing of a petition for corporate
rehabilitation and, subsequently, the closure of its Nestle unit due to the
termination of the Distributorship Agreement and the failure of rehabilitation. Under
the foregoing circumstances, ODSI argued that respondents were not dismissed but
merely put in floating status.[13]

On the other hand, NPI did not file any position paper or appear in the scheduled
conferences.[14]

The Labor Arbiter Ruling

In a Decision[15] dated December 28, 2012, the Labor Arbiter (LA) dismissed the
complaint for lack of merit, but nevertheless, ordered, inter alia, ODSI and NPI to
pay respondents nominal damages in the aggregate amount of P235,728.00 plus
attorney's fees amounting to ten percent (10%) of the total monetary awards.[16]
The LA found that: (a) respondents were unable to prove that they were NPI
employees; and (b) respondents were not illegally dismissed as ODSI had indeed
closed down its operations due to business losses.[17] As to the issue on the failure
to give respondents a thirty (30)-day notice prior to such closure, the LA concluded
that all the impleaded respondents therein (i.e., including NPI) should be held liable
for the payment of nominal damages plus attorney's fees.[18]

Aggrieved, respondents appealed to the NLRC.[19]

The NLRC Ruling

In a Decision[20] dated May 30, 2013, the NLRC reversed and set aside the LA ruling
and, accordingly, ordered ODSI and NPI to pay each of the respondents: (a)
separation pay amounting to 1/2 month pay for every year of service reckoned
from the time they were employed until the finality of the Decision; and (b) nominal
damages in the amount of P30,000.00. The NLRC likewise ordered NPI and ODSI to
pay respondents attorney's fees amounting to ten percent (10%) of the monetary
awards.[21]

Contrary to the LA's findings, the NLRC found that while ODSI indeed shut down its
operations, it failed to prove that such closure was due to serious business losses
as it did not present evidence, e.g., financial statements, to corroborate its claims.
As such, it ruled that respondents are entitled to separation pay. In this relation,
the NLRC also found that since ODSI failed to notify respondents of such closure,
the latter are likewise entitled to nominal damages.[22]

Further, the NLRC found ODSI to be a labor-only contractor of NPI, considering

that: (a) ODSI had no substantial capitalization or investment; (b) respondents
performed activities directly related to NPI's principal business; and (c) the fact that
respondents' employment depended on the continuous supply of NPI products
shows that ODSI had not been carrying an independent business according to its
own manner and method.[23] Consequently, the NLRC deemed NPI to be
respondents' true employer, and thus, ordered it jointly and severally liable with
ODSI to pay the monetary claims of respondents.[24]

Respondents moved for a partial reconsideration,[25] arguing that since it was only
ODSI that closed down operations and not NPI and, considering the finding that the
latter was deemed to be their true employer, NPI should reinstate them, or if not
practicable, to pay them separation pay equivalent to one (1) month pay for every
year of service. NPI also moved for reconsideration,[26] contending that: (a) it was
deprived of its right to participate in the proceedings before the LA and the NLRC;
and (b) it had no employer-employee relationship with respondents as ODSI was
never its contractor, whether independent or labor-only.[27] However, the NLRC
denied both motions in a Resolution[28] dated August 30, 2013, holding that: (a)
respondents' termination was due to the closure of ODSI's Nestle unit, an
authorized cause and, thus, the monetary awards in their favor were proper; (b)
NPI was not deprived of its right to participate in the proceedings as it was duly
served with copies of the parties' respective pleadings, as well as the rulings of both
the LA and the NLRC; (c) assuming arguendo that NPI was indeed deprived of due
process, its subsequent filing of a motion for reconsideration before the NLRC cured
the defect as it was able to argue its position in the said motion; and (d) the
circumstances surrounding the Distributorship Agreement between ODSI and NPI
showed that the former is indeed a labor-only contractor of the latter.[29]

Dissatisfied, NPI filed a petition for certiorari[30] before the CA, essentially insisting
that: (a) it was deprived of due process before the tribunals a quo; and (b) there
was no employer-employee relationship between NPI and respondents.[31] Records
reveal that no other party elevated the matter before the CA.

The CA Ruling

In a Decision[32] dated March 26, 2015, the CA affirmed the NLRC ruling. Anent the
issue on due process, the CA held that NPI was not deprived of its opportunity to be
heard as it was able to receive a copy of the complaint and other pleadings, albeit it
failed to respond thereto.[33] As regards the substantive issue, the CA ruled that
despite ODSI and NPI's contract being denominated as a "Distributorship
Agreement," it contained provisions demonstrating a labor-only contracting
arrangement between them, as well as NPI's exercise of control over the business
of ODSI. Moreover, the CA pointed out that: (a) there was nothing in the records
which showed that ODSI had substantial capital to undertake an independent
business; and (b) respondents performed tasks essential to NPI's business.[34]

Undaunted, NPI moved for reconsideration,[35] which was, however, denied in a

Resolution[36] dated September 17, 2015; hence, this petition.

The Issues Before the Court

The essential issues for the Court's resolution are whether or not the CA correctly
ruled that: (a) NPI was accorded due process by the tribunals a quo; and (b) ODSI
is a labor-only contractor of NPI, and consequently, NPI is respondents' true
employer and, thus, deemed jointly and severally liable with ODSI for respondents'
monetary claims.

The Court's Ruling

To justify the grant of the extraordinary remedy of certiorari, the petitioner must
satisfactorily show that the court or quasi-judicial authority gravely abused the
discretion conferred upon it. Grave abuse of discretion connotes a capricious and
whimsical exercise of judgment, done in a despotic manner by reason of passion or
personal hostility, the character of which being so patent and gross as to amount to
an evasion of positive duty or to a virtual refusal to perform the duty enjoined by or
to act at all in contemplation of law.[37]

In labor disputes, grave abuse of discretion may be ascribed to the NLRC when,
inter alia, its findings and conclusions are not supported by substantial evidence, or
that amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.[38]

Guided by the foregoing considerations, the Court finds that the CA was correct in
ruling that the labor tribunals a quo gave NPI an opportunity to be heard. However,
it erred in not ascribing grave abuse of discretion on the NLRC's finding that ODSI is
a labor-only contractor of NPI and, thus, the latter is the respondents' true
employer, and jointly and severally liable with ODSI for respondents' monetary
claims. As will be explained hereunder, such finding by the NLRC is not supported
by substantial evidence.

I.

The observance of fairness in the conduct of any investigation is at the very heart
of procedural due process. The essence of due process is to be heard, and, as
applied to administrative proceedings, this means a fair and reasonable opportunity
to explain one's side, or an opportunity to seek a reconsideration of the action or
ruling complained of. Administrative due process cannot be fully equated with due
process in its strict judicial sense, for in the former a formal or trial-type hearing is
not always necessary, and technical rules of procedure are not strictly applied.[39]
The Court's disquisition in Ledesma v. CA[40] is instructive on this matter, to wit:

Due process, as a constitutional precept, does not always and in all situations
require a trial-type proceeding. Due process is satisfied when a person is notified of
the charge against him and given an opportunity to explain or defend himself. In
administrative proceedings, the filing of charges and giving reasonable opportunity
for the person so charged to answer the accusations against him constitute the
minimum requirements of due process. The essence of due process is simply to
be heard, or as applied to administrative proceedings, an opportunity to
explain ones side, or an opportunity to seek a reconsideration of the action
or ruling complained of.[41] (Emphasis and underscoring supplied)

In this case, NPI essentially claims that it was deprived of its right to due process
when it was not notified of the proceedings before the LA and did not receive copies
and issuances from the other parties and the LA, respectively.[42] However, as
correctly pointed out by the CA, NPI was furnished via courier of a copy of the
amended complaint filed by the respondents against it as shown by LBC Receipt No.
125158910840.[43] It is also apparent that NPI was also furnished with the
respondents' Position Paper, Reply, and Rejoinder.[44] Verily, NPI was indeed
accorded due process, but as the LA mentioned, the former chose not to file any
position paper or appear in the scheduled conferences.[45]

Assuming arguendo that NPI was somehow deprived of due process by either of the
labor tribunals, such defect was cured by: (a) NPI's filing of its motion for
reconsideration before the NLRC; (b) the NLRC's subsequent issuance of its
Resolution dated August 30, 2013 wherein the tribunal considered all ofNPI's
arguments as contained in its motion; and (c) NPI's subsequent elevation of the
case to the CA. In Gonzales v. Civil Service Commission,[46] the Court reiterated the
rule that "[a]ny seeming defect in [the] observance [of due process] is cured by the
filing of a motion for reconsideration," and that "denial of due process cannot be
successfully invoked by a party who [was] afforded the opportunity to be heard x x
x."[47] Similarly, in Autencio v. Manara,[48] it was held that defects in procedural due
process may be cured when the party has been afforded the opportunity to appeal
or to seek reconsideration of the action or ruling complained of.[49]

Evidently, the foregoing shows that NPI was not denied due process of law as it was
afforded the fair and reasonable opportunity to explain its side.

II.

In holding NPI jointly and severally liable with ODSI for the monetary awards in
favor of respondents, both the NLRC and the CA held that based on the provisions
of the Distributorship Agreement between them, ODSI is merely a labor-only
contractor of NPI.[50] In this regard, the CA opined that the following stipulations of
the said Agreement evinces that NPI had control over the business of ODSI,
namely, that: (a) NPI shall offer to ODSI suggestions and recommendations to
improve sales and to further develop the market; (b) NPI prohibits ODSI from
exporting its products (the No-Export provision); (c) NPI provided standard
requirements to ODSI for the warehousing and inventory management of the sold
goods; and (d) prohibition imposed on ODSI to sell any other products that directly
compete with those of NPI.[51]

However, a closer examination of the Distributorship Agreement reveals that the

relationship of NPI and ODSI is not that of a principal and a contractor (regardless
of whether labor-only or independent), but that of a seller and a buyer/re-seller. As
stipulated in the Distributorship Agreement, NPI agreed to sell its products to ODSI
at discounted prices,[52] which in turn will be re-sold to identified customers,
ensuring in the process the integrity and quality of the said products based on the
standards agreed upon by the parties.[53] As aptly explained by NPI, the goods it
manufactures are distributed to the market through various distributors, e.g.,
ODSI, that in turn, re-sell the same to designated outlets through its own
employees such as the respondents. Therefore, the reselling activities allegedly
performed by the respondents properly pertain to ODSI, whose principal business
consists of the "buying, selling, distributing, and marketing goods and commodities
of every kind" and "[entering] into all kinds of contracts for the acquisition of such
goods [and commodities]."[54]

Thus, contrary to the CA's findings, the aforementioned stipulations in the

Distributorship Agreement hardly demonstrate control on the part of NPI over the
means and methods by which ODSI performs its business, nor were they intended
to dictate how ODSI shall conduct its business as a distributor. Otherwise stated,
the stipulations in the Distributorship Agreement do not operate to control or fix the
methodology on how ODSI should do its business as a distributor of NPI products,
but merely provide rules of conduct or guidelines towards the achievement of a
mutually desired result[55] - which in this case is the sale of NPI products to the end
consumer. In Steelcase, Inc. v. Design International Selections, Inc.,[56] the Court
held that the imposition of minimum standards concerning sales, marketing, finance
and operations are nothing more than an exercise of sound business practice to
increase sales and maximize profits, to wit:

Finally, both the CA and DISI rely heavily on the Dealer Performance Expectation
required by Steelcase of its distributors to prove that DISI was not functioning
independently from Steelcase because the same imposed certain conditions
pertaining to business planning, organizational structure, operational effectiveness
and efficiency, and financial stability. It is actually logical to expect that Steelcase,
being one of the major manufacturers of office systems furniture, would require its
dealers to meet several conditions for the grant and continuation of a
distributorship agreement. The imposition of minimum standards concerning
sales, marketing, finance and operations is nothing more than an exercise
of sound business practice to increase sales and maximize profits for the
benefit of both Steelcase and its distributors. For as long as these
requirements do not impinge on a distributor's independence, then there is
nothing wrong with placing reasonable expectations on them.[57] (Emphasis
and underscoring supplied)

Verily, it was only reasonable for NPI - it being a local arm of one of the largest
manufacturers of foods and grocery products worldwide - to require its distributors,
such as ODSI, to meet various conditions for the grant and continuation of a
distributorship agreement for as long as these conditions do not control the means
and methods on how ODSI does its distributorship business, as shown in this case.
This is to ensure the integrity and quality of the products which will ultimately fall
into the hands of the end consumer.

Thus, the foregoing circumstances show that ODSI was not a labor only contractor
of NPI; hence, the latter cannot be deemed the true employer of respondents. As a
consequence, NPI cannot be held jointly and severally liable to ODSI's monetary
obligations towards respondents.

WHEREFORE, the petition is GRANTED. The Decision dated March 26, 2015 and
the Resolution dated September 17, 2015 of the Court of Appeals in CA-G.R. SP No.
132686 are hereby REVERSED and SET ASIDE. Accordingly, the Decision dated
May 30, 2013 and the Resolution dated August 30, 2013 of the National Labor
Relations Commission in LAC No. 02-000699-13/NCR-03-04761-12 are MODIFIED,
DELETING petitioner Nestle Philippines, Inc.'s solidary liability with Ocho de
Septiembre, Inc. (ODSI) for the latter's monetary obligations to respondents Benny
A. Puedan, Jr., Jayfer D. Limbo, Brodney N. Avila, Arthur C. Aquino, Ryan A.
Miranda, Ronald R. Alave, Johnny A. Dimaya, Marlon B. Delos Reyes, Angelito R.
Cordova, Edgar S. Barruga, Camilo B. Cordova, Jr., Jeffry B. Languisan, Edison U.
Villapando, Jheimey S. Remolin, Mary Luz A. Macatalad, Jenalyn M. Gamurot,
Dennis G. Bawag, Raquel A. Abellera, and Ricandro G. Guatno, Jr.

SO ORDERED.

Sereno, C. J., Leonardo-De Castro, Del Castillo, and Caguioa, JJ., concur.

*
"Nacatalad" in some parts of the record.

[1]
Rollo, pp. 10-35.

Id. at 39-51. Penned by Associate Justice Agnes Reyes-Carpio with Associate

[2]

Justices Rosmari D. Carandang and Romeo F. Barza concurring.

[3]
Id. at 53-54.

Id. at 86-99. Penned by Commissioner Nieves E. Vivar-De Castro with

[4]

Commissioners Joseph Gerard E. Mabilog and Isabel G. Panganiban-Ortiguerra

concurring.

[5]
Id. at 101-112.

Said complaint was amended to include NPI as one of the respondents therein;
[6]

see id. at 234 and 245.

[7]
See id. at 152-156.

[8]
See id. at 159.
[9]
Id. at 40.

[10]
ODSI entered into the Distributorship Agreement with NPI when the former was
still named "Service Edge Distribution, Inc." Id. at 127-139.

[11]
Id. at 40.

[12]
Id. at 128-129.

[13]
See id. at 41-43.

[14]
Id. at 234.

[15]
Id. at 228-238. Penned by Labor Arbiter Lilia S. Savari.

[16]
See id. at 237-238.

[17]
See id. at 235-236.

[18]
See id. at 236.

[19]
See Memorandum of Appeal dated January 28, 2013; id. at 241-256.

[20]
Id. at 86-99.

[21]
Id. at 97-99.

[22]
See id. at 95-96.

[23]
See id. at 91-92.

[24]
See id. at 92-93 and 96-97.

[25]
See Partial Motion for Reconsideration dated June 24, 2013; id. at 272-278.

[26]
See Motion for Reconsideration dated July 12, 2013; CA rollo, pp. 61-73.

[27]
See rollo, pp. 102-103.

[28]
Id. at 101-112.

[29]
See id. at 103-111.
[30]
Dated November 15, 2013. Id. at 55-81.

[31]
Id. at 46-47.

[32]
Id. at 39-51.

[33]
Id. at 47.

[34]
Id. at 48-50.

[35]
See Motion for Reconsideration dated May 6, 2015; id. at 333-349.

[36]
Id. at 53-54.

[37]
See Sta. Isabelv. Perla Campañia De Seguros, Inc., G.R. No. 219430, November
7, 2016.

[38]
See id., citation omitted.

[39]
Vivo v. Philippine Amusement and Gaming Corporation, 721 Phil. 34, 39 (2013),
citations omitted.

[40]
565 Phil. 731 (2007).

[41]
Id. at 740, citations omitted.

[42]
Rollo, pp. 20-24.

[43]
See rollo, p. 156 and CA rollo, p. 104.

[44]
See CA rollo, pp. 119, 129, and 134.

[45]
Rollo, p. 234.

[46]
524 Phil. 271 (2006).

[47]
Id. at 278.

[48]
489 Phil. 752 (2005).

[49]
See id. at 761.

[50]
See rollo, pp. 48-50 and 91-93.
[51]
Id. at 48.

[52]
Id. at 128.

[53]
See id. at 128- 129.

[54]
See id. at 40.

[55]
See Bernarte v. Philippine Basketball Association, 673 Phil. 384, 395 (2011),
citing Sonza v. ABS-CBN Broadcasting Corporation, G.R. No. 138051, June 10,
2004, 431 SCRA 583, 603-604.

[56]
686 Phil. 59 (2012).

[57]
Id. at 69-70.