Escario vs. NLRC - G.R. No.

124055

FACTS:

Private respondents California Marketing Co., Inc. (CMC) is a domestic corporation principally
engaged in the manufacturing of food products and distribution of such products to wholesalers and
retailers. Private respondent Donna Louis Advertising and Marketing Associates, Inc. is a duly
registered promotional firm. Petitioners alleged that they were employed by CMC as merchandisers.
They alleged that the hiring, control and supervision of workers and the payment of the salaries were
all covered by CMC through hits agent D.L Admark in order CMC to avoid its liability under the law.
Petitioners filed a case against CMC before the labor arbiter for regularization of their employment
status. During the pendency of the case, D.L Admark terminated the services of the petitioners. The
complaint was amended to include alleged dismissal. CMC filed a motion to implead as party
defendant D.L Admark, the latter filed a motion to intervene. Both motions were granted. CMC denied
being petitioners employer while D.L Admark asserted it is the employer of the petitioners. The labor
arbiter found petitioners as employees of CMC as they were engaged in activities that are necessary
and desirable in the usual business/trade of CMC. On appeal, the NLRC set aside the labor arbiters
decision. But ordered the reinstatement of the petitioners in D.L Admark petitioners filed a motion for
consideration before the NLRC which was denied for lack of merit. Hence the petition.

ISSUE:

Whether or not D.L Admark is a labor-only contractor or as independent contractor.

HELD:

The Supreme Court denied the petition.

There is labor-only contracting when 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:

1. the person supplying workers to an employer does not have substantial capital or investment in the
form of tools, equipment, machineries, wok premise, among other tools

2. the workers recruited and placed by such person performing activities which are directly related to
the principal business of the employer.

In contract, there is permissible job contracting when a principal agrees to put out or farm out with a
contractor or a subcontractor the performance/completion of a specific job, work or services within a
definite or predetermined period, regardless of whether such job/services is to be performed or
completed within or outside the premises of the principal. In this arrangement, the following
conditions must concur.

1. The contractor carries on a distinct and independent business and undertakes the contract work on
his account under the responsibility according to his own manual and methods, free from the control
and direction of his employer or principal in all matters connected with the performance of his
employer work except as to the results thereof; and

2. The contractor has substantial capital / investment which are necessary in the conduct of his
business.
The court reiterated that it is not enough to show substantial capitalization on investment. In addition
the following factors need be considered whether the contractor is carrying on an independent
business the nature and extent of the work the skill required the term and duration of the relationship
the right to assign the performance of specified pieces of work the control and supervision of the
workers the power of the employer with respect to the hiring, firing and payment of workers of the
contractor the control of the premises the duty to supply premises, tools, appliances, materials and
labor mode, manner and terms of payment. Based on the foregoing criteria, the court found that D.L
Admark is a legitimate independent contractor. Applying the four-fold test, D.L Admark was found to
be the employer of the petitioners. The Supreme Court affirmed the NLRC’s ruling.