Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 79004-08 October 4, 1991

FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT AND 6 OTHERS, ROY MAGALLANES
AND 4 OTHERS, CLAUDIO BONGO, EDUARDO ANDALES and 4 OTHERS, petitioners,

vs.

NATIONAL LABOR RELATIONS COMMISSION (3rd DIVISION), GENERAL MILLING

CORPORATION and/or FELICIANO LUPO, respondents.

Public Attorney's Office for petitioners.

Joseph M. Baduel & Steve R. Siclot for private respondents.

MELENCIO-HERRERA, J.:

The liability of an employer in job contracting, vis-a-vis his contractor's employees, is the sole issue
brought to the fore in this labor dispute.

This Petition for certiorari seeks to set aside the Resolution, dated 27 February 1987, of public
respondent National Labor Relations Commission (NLRC), Third Division, which reversed the
Resolution of its First Division, dated 27 December 1985, and absolved private respondent General
Milling Corporation (GMC) from any and all liability to petitioners.

Sometime in 1983, private respondent Feliciano LUPO, a building contractor, entered into a contract
with GMC, a domestic corporation engaged in flour and feeds manufacturing, for the construction of
an annex building inside the latter's plant in Cebu City. In connection with the aforesaid contract,
LUPO hired herein petitioners either as carpenters, masons or laborers.

Subsequently, LUPO terminated petitioners' services, on different dates. As a result, petitioners filed
Complaints against LUPO and GMC before the NLRC Regional Arbitration Branch No. VII, Cebu
City, for unpaid wages, COLA differentials, bonus and overtime pay.

In a Decision, dated 21 November 1984, the Executive Labor Arbiter, Branch VII, found LUPO and
GMC jointly and severally liable to petitioners, premised on Article 109 of the Labor Code, infra, and
ordered them to pay the aggregate amount of P95,382.92. Elevated on appeal on 14 December
1984, the NLRC (First Division) denied the same for lack of merit in a Resolution, dated 27
December 1985.

Upon Motion for Reconsideration, filed on 27 February 1986, the case was reassigned to the Third
Division. In a Resolution of 27 February 1987, that Division absolved GMC from any liability. It
opined that petitioners were only hired by LUPO as workers in his construction contract with GMC
and were never meant to be employed by the latter.

Petitioners now assail that judgment in this Petition for Certiorari.

Petitioners contend that GMC is jointly and severally liable with LUPO for the latter's obligations to
them. They seek recovery from GMC based on Article 106 of the Labor Code, infra, which holds the
employer jointly and severally liable with his contractor for unpaid wages of employees of the latter.

In his "Manifestation in lieu of Comment," the Solicitor General recognizes the solidary liability of
GMC and LUPO but bases recovery on Article 108 of the Labor Code, infra, contending that
inasmuch as GMC failed to require them LUPO a bond to answer for the latter's obligations to his
employees, as required by said provision, GMC should, correspondingly, be deemed solidarily liable.

In their respective Comments, both GMC and the NLRC maintain that Article 106 finds no
application in the instant case because it is limited to situations where the work being performed by
the contractor's employees are directly related to the principal business of the employer. The NLRC
further opines that Article 109 on "Solidary Liability" finds no application either because GMC was
neither petitioners' employer nor indirect employer.
Upon the facts and circumstances, we uphold the solidary liability of GMC and LUPO for the latter's
liabilities in favor of employees whom he had earlier employed and dismissed.

Recovery, however, should not be based on Article 106 of the Labor Code. This provision treats
specifically of "labor-only" contracting, which is not the set-up between GMC and LUPO.

Article 106 provides:

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 xxx xxx

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 (Emphasis supplied).

In other words, a person is deemed to be engaged in "labor only" contracting where (1) 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 (2) the workers recruited and
placed by such person are performing activities which are directly related to the principal business of
such employer (See Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the Labor
Code; emphasis supplied).
Since the construction of an annex building inside the company plant has no relation whatsoever
with the employer's business of flour and feeds manufacturing, "labor-only" contracting does not
exist. Article 106 is thus inapplicable.

Instead, it is "job contracting," covered by Article 107, which is involved, reading:

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. (Emphasis
supplied).

Specifically, there is "job contracting" where (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. It may be that
LUPO subsequently ran out of capital and was unable to satisfy the award to petitioners. That was
an after-the-fact development, however, and does not detract from his status as an independent
contractor.

Based on the foregoing, GMC qualifies as an "indirect employer." It entered into a contract with an
independent contractor, LUPO, for the construction of an annex building, a work, task, job or project
not directly related to GMC's business of flour and feeds manufacturing. Being an "indirect
employer," GMC is solidarily liable with LUPO for any violation of the Labor Code pursuant to Article
109 thereof, reading:

Art. 109. Solidary Liability. — The provisions of existing laws to the contrary notwithstanding, every
employer or indirect employer shall be held responsible with a 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.

The provision of existing law referred to is Article 1728 of the Civil Code, which states, among
others, that "the contractor is liable for all the claims of laborers and others employed by him ..."
The foregoing interpretation finds a precedent in the case o Deferia v. NLRC (G.R. No. 78713, 27
February 1991) per Sarmiento, J., where Articles 107 and 109 were applied as the statutory basis for
the joint and several liability of the employer with his contractor, in addition to Article 106, since the
situation in that case was clearly one of "labor-only" contracting.

The NLRC submission that Article 107 is not applicable in the instant case for the reason that the
coverage thereof is limited to one "not an employer" whereas GMC is such an employer as defined
in Article 97 (b) of the Labor Code, 1 is not well-taken. Under the peculiar set-up herein, GMC is, in
fact, "not an employer" (in the sense of not being a direct employer) as understood in Article 106 of
the Labor Code, but qualifies as an "indirect employer" under Article 107 of said Code.

The distinction between Articles 106 and 107 was in the fact that Article 106 deals with "labor-only"
contracting. Here, by operation of law, the contractor is merely considered as an agent of the
employer, who is deemed "responsible to the workers to the same extent as if the latter were directly
employed by him." On the other hand, Article 107 deals with "job contracting." In the latter situation,
while the contractor himself is the direct employer of the employees, the employer is deemed, by
operation of law, as an indirect employer.

In other words, the phrase "not an employer" found in Article 107 must be read in conjunction with
Article 106. A contrary interpretation would render the provisions of Article 107 meaningless
considering that everytime an employer engages a contractor, the latter is always acting in the
interest of the former, whether directly or indirectly, in relation to his employees.

It should be recalled that a finding that a contractor is a "labor-only" contractor is equivalent to

declaring that there is an employer-employee relationship between the owner of the project and the
employees of the "labor-only" contractor (Associated Anglo-American Tobacco Corp. v. Clave, G.R.
No. 50915, 30 August 1990, 189 SCRA 127; Industrial Timber Corp. v. NLRC, G.R. No. 83616, 20
January 1989, 169 SCRA 341). This is evidently because, as heretofore stated, the "labor-only"
contractor is considered as a mere agent of an employer. In contrast, in "job contracting," no
employer-employee relationship exists between the owner and the employees of his contractor. The
owner of the project is not the direct employer but merely an indirect employer, by operation of law,
of his contractor's employees.

As an indirect employer, and for purposes of determining the extent of its civil liability, GMC is
deemed a "direct employee" of his contractor's employees pursuant to the last sentence of Article
109 of the Labor Code. As a consequence, GMC can not escape its joint and solidary liability to
petitioners.
Further, Article 108 of the Labor Code requires the posting of a bond to answer for wages that a
contractor fails to pay, thus:

Article 108. Posting of Bond. — An employer or indirect employer may require the contractor or
subcontractor to furnish a bond equal to the cost of labor under contract, on condition that the bond
will answer for the wages due the employees showed the contractor or subcontractor, as the case
may be, fails to pay the same.

Having failed to require LUPO to post such a bond, GMC must answer for whatever liabilities LUPO
may have incurred to his employees. This is without prejudice to its seeking reimbursement from
LUPO for whatever amount it will have to pay petitioners.

WHEREFORE, the Petition for certiorari is GRANTED. The Resolution of respondent NLRC, Third
Division, dated 27 February 1987, is hereby SET ASIDE, and the Decision of the Labor Arbiter,
dated 21 November 1984, is hereby REINSTATED.

SO ORDERED.

Paras, Sarmiento and Regalado, JJ., concur.

Separate Opinions

PADILLA, J.,:

The present petition seeks to have General Milling Corporation (the Company) held liable for the
unpaid wages of the petitioners in solidum with the contractor (Lupo) who recruited the petitioners'
services. This majority finds for the petitioners in the total adjudged sum of P95,382.92, a conclusion
with which I am in complete accord. But I am not quite comfortable, and therefore disagree, with the
legal basis on which the company's liability is determined.

As determined by the majority, such liability of the company is called for by Article 107, Chapter III,
Title II, Book III of the Labor Code, which is as follows:

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. (emphasis
supplied)

It is strongly urged by the majority that the phrase "not being an employer" found in said Article 107
be given a circumspect appraisal. To my mind, there is no other interpretation of this provision of the
Code than that an indirect employer, to be categorized as such, must not be an EMPLOYER as this
term is defined under the Code. Article 97 of the same Title of the Labor Code defines an
EMPLOYER as —

ART. 97. Definition. — As used in this Title

a) ...

b) "Employer" includes any person acting directly or indirectly in the interest of an employer in
relation to an employee and shall include the Government and all its branches, subdivision and
instrumentalities, all government-owned or controlled corporations and institutions, as well as non-
profit private institutions, or organizations.

... (emphasis supplied)

From the foregoing basic premises, it is my submission that the company (General Milling
Corporation) is an employer in every sense of the word. It engages in the primary enterprise of
manufacturing flour and feeds, it definitely employs employees and workers in its plant and outlets to
work in various capacities. Therefore, the company cannot, in any way, be considered an indirect
employer, as the term is defined, for purposes of the petitioner's cause of action against it.
To hold as the majority does, that Article 107 does apply in this case, would, in my view, render
useless the phrase "not being an employer" contained therein. Evidently, the framers of the Labor
Code had a purpose in mind in providing for such qualification. Such a qualification, as I see it, gives
protection to those workers hired or recruited by a contractor to work on some job for a person who
is not himself engaged in any enterprise. An example easily comes to mind: a person who wishes to
have a residential house built. He engages an architect or engineer to undertake the project who, in
turn, hires laborers, masons and carpenters. Should the architect or engineer renege on his
obligations to the workers he shall have recruited, to whom will the latter seek relief? By mandate of
Article 107, above-quoted, the owner of the house, who is not himself an employer as defined by
law, shall be held accountable. This is where, in my view, Article 107 properly applies.

In the present case, however, the company's liability to the petitioners properly comes under Article
106, Chapter III, Title II, Book III of the Code, which, in its entirety, provides:

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 the 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 the 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 case, 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.
It appears abundantly clear that the juridical relationship envisioned in Article 106 involves an
employer, as defined by the Code. It thus applies to the juridical situation involved in this case,
where the actors are General Milling Corporation (as the employer), Lupo (as the contractor) and the
petitioners (as the employees or workers). Article 106, upon careful examination, deals with three (3)
situations in the juridical relationship between employer-contractor-employee. It does not deal solely
with "labor-only" contracting.

The first situation in Article 106 is where the employer (project owner) enters into a contract with a
contractor for the performance of some job or work; the employees recruited by such contractor shall
be paid, according to Article 106, first paragraph, in accordance with the requirements of the Labor
Code. Stated in another way, the first paragraph of Article 106, provides the manner by which such
employees shall be paid their wages and that is, in compliance with the provisions of the Labor
Code. This, therefore, would include the rules on manner of payment, minimum wage, place of
payment, etc.

In an employer-contractor-employee relationship, it is clear that the contractor is the real employer

and, therefore, responsible to his workers for their wages. However, should such contractor fail or
renege on his said obligation, to whom will the unpaid worker have recourse? The second paragraph
of Article 106 resolves the seeming dilemma of the workers by providing that the EMPLOYER, (i.e.,
the project owner) shall be solidarily liable to such workers to the extent of the work performed by
them, meaning that the EMPLOYER shall solidarily answer for the payment of wages corresponding
to the amount of work undertaken by the contractor's employees in the project. This is the second
situation contemplated by Article 106.

The third and final situation treated in Article 106 is contained in the fourth paragraph thereof. It
pertains to what the majority perceives (erroneously, in my view) as the sole coverage of Article 106-
that of a "labor-only" contracting and the extent of the rights and liabilities of the parties involved in
such a relationship. As explained in the ponencia, for this scheme or situation to exist, two (2)
circumstances must concur: one, the contractor who recruits the workers must have 'no substantial
capital or investment in the form of tools, equipment, machineries and work premises,' and two,
'such workers are so engaged to perform activities directly related to the employer's principal
business.' Should there be a finding of 'labor-only' contracting, the law expressly provides that the
EMPLOYER (or project owner) shall be considered the direct employer of such workers. Such
juridical relationship would then spawn a whole gamut of employer's obligations, including
obligations under the workmen's compensation, social security, medicare, minimum wage,
termination pay and unionism. 1

From the facts of this case as presented, the second paragraph of article 106 finds clear application.
Because of contractor Lupo's default in the payment of petitioners' wages, owing to his insolvency,
the employer (company) must comply with its joint and several obligation to answer for Lupo's
accountability to his employees for their unpaid wages. Thereafter, should the company be inclined
to do so, it may seek reimbursement from Lupo.

In sum, it is my submission that the company's solidary liability to the petitioners ought to be
predicated on the basis, not of Article 107 of the Labor Code (which applies only to non-employers
while the company in this case is an employer) but rather, upon the express declaration of
paragraph 2, Article 106 of the Labor Code, which covers employers (not non-employers) as the
company in the case at bar.

# Separate Opinions

PADILLA, J.,

The present petition seeks to have General Milling Corporation (the Company) held liable for the
unpaid wages of the petitioners in solidum with the contractor (Lupo) who recruited the petitioners'
services. This majority finds for the petitioners in the total adjudged sum of P95,382.92, a conclusion
with which I am in complete accord. But I am not quite comfortable, and therefore disagree, with the
legal basis on which the company's liability is determined.

As determined by the majority, such liability of the company is called for by Article 107, Chapter III,
Title II, Book III of the Labor Code, which is as follows:

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. (emphasis
supplied)

It is strongly urged by the majority that the phrase "not being an employer" found in said Article 107
be given a circumspect appraisal. To my mind, there is no other interpretation of this provision of the
Code than that an indirect employer, to be categorized as such, must not be an EMPLOYER as this
term is defined under the Code. Article 97 of the same Title of the Labor Code defines an
EMPLOYER as —
ART. 97. Definition. — As used in this Title

a) ...

b) "Employer" includes any person acting directly or indirectly in the interest of an employer in
relation to an employee and shall include the Government and all its branches, subdivision and
instrumentalities, all government-owned or controlled corporations and institutions, as well as non-
profit private institutions, or organizations.

... (emphasis supplied)

From the foregoing basic premises, it is my submission that the company (General Milling
Corporation) is an employer in every sense of the word. It engages in the primary enterprise of
manufacturing flour and feeds, it definitely employs employees and workers in its plant and outlets to
work in various capacities. Therefore, the company cannot, in any way, be considered an indirect
employer, as the term is defined, for purposes of the petitioner's cause of action against it.

To hold as the majority does, that Article 107 does apply in this case, would, in my view, render
useless the phrase "not being an employer" contained therein. Evidently, the framers of the Labor
Code had a purpose in mind in providing for such qualification. Such a qualification, as I see it, gives
protection to those workers hired or recruited by a contractor to work on some job for a person who
is not himself engaged in any enterprise. An example easily comes to mind: a person who wishes to
have a residential house built. He engages an architect or engineer to undertake the project who, in
turn, hires laborers, masons and carpenters. Should the architect or engineer renege on his
obligations to the workers he shall have recruited, to whom will the latter seek relief? By mandate of
Article 107, above-quoted, the owner of the house, who is not himself an employer as defined by
law, shall be held accountable. This is where, in my view, Article 107 properly applies.

In the present case, however, the company's liability to the petitioners properly comes under Article
106, Chapter III, Title II, Book III of the Code, which, in its entirety, provides:

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 the 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 the 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 case, 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.

It appears abundantly clear that the juridical relationship envisioned in Article 106 involves an
employer, as defined by the Code. It thus applies to the juridical situation involved in this case,
where the actors are General Milling Corporation (as the employer), Lupo (as the contractor) and the
petitioners (as the employees or workers). Article 106, upon careful examination, deals with three (3)
situations in the juridical relationship between employer-contractor-employee. It does not deal solely
with "labor-only" contracting.

The first situation in Article 106 is where the employer (project owner) enters into a contract with a
contractor for the performance of some job or work; the employees recruited by such contractor shall
be paid, according to Article 106, first paragraph, in accordance with the requirements of the Labor
Code. Stated in another way, the first paragraph of Article 106, provides the manner by which such
employees shall be paid their wages and that is, in compliance with the provisions of the Labor
Code. This, therefore, would include the rules on manner of payment, minimum wage, place of
payment, etc.

In an employer-contractor-employee relationship, it is clear that the contractor is the real employer

and, therefore, responsible to his workers for their wages. However, should such contractor fail or
renege on his said obligation, to whom will the unpaid worker have recourse? The second paragraph
of Article 106 resolves the seeming dilemma of the workers by providing that the EMPLOYER, (i.e.,
the project owner) shall be solidarily liable to such workers to the extent of the work performed by
them, meaning that the EMPLOYER shall solidarily answer for the payment of wages corresponding
to the amount of work undertaken by the contractor's employees in the project. This is the second
situation contemplated by Article 106.

The third and final situation treated in Article 106 is contained in the fourth paragraph thereof. It
pertains to what the majority perceives (erroneously, in my view) as the sole coverage of Article 106-
that of a "labor-only" contracting and the extent of the rights and liabilities of the parties involved in
such a relationship. As explained in the ponencia, for this scheme or situation to exist, two (2)
circumstances must concur: one, the contractor who recruits the workers must have 'no substantial
capital or investment in the form of tools, equipment, machineries and work premises,' and two,
'such workers are so engaged to perform activities directly related to the employer's principal
business.' Should there be a finding of 'labor-only' contracting, the law expressly provides that the
EMPLOYER (or project owner) shall be considered the direct employer of such workers. Such
juridical relationship would then spawn a whole gamut of employer's obligations, including
obligations under the workmen's compensation, social security, medicare, minimum wage,
termination pay and unionism. 1

From the facts of this case as presented, the second paragraph of article 106 finds clear application.
Because of contractor Lupo's default in the payment of petitioners' wages, owing to his insolvency,
the employer (company) must comply with its joint and several obligation to answer for Lupo's
accountability to his employees for their unpaid wages. Thereafter, should the company be inclined
to do so, it may seek reimbursement from Lupo.

In sum, it is my submission that the company's solidary liability to the petitioners ought to be
predicated on the basis, not of Article 107 of the Labor Code (which applies only to non-employers
while the company in this case is an employer) but rather, upon the express declaration of
paragraph 2, Article 106 of the Labor Code, which covers employers (not non-employers) as the
company in the case at bar.

_______________________________________________________________________________

G.R. No. 172349               June 13, 2012

POLYFOAM-RGC INTERNATIONAL, CORPORATION and PRECILLA A. GRAMAJE, Petitioners,

vs.
EDGARDO CONCEPCION, Respondent.

DECISION

PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioners
Polyfoam-RGC International Corporation (Polyfoam) and Precilla A. Gramaje (Gramaje) against
respondent Edgardo Concepcion assailing the Court of Appeals (CA) Decision dated December 19,
1 

2005 and Resolution dated April 25, 2006 in CA-G.R. SP No. 83696. The assailed decision reversed
2 

the National Labor Relations Commission’s (NLRC’s) Decision dated May 7, 2003 in NLRC NCR CA
3 

No. 030622-02, while the assailed resolution denied petitioners’ and respondent’s motions for
reconsideration.

The factual and procedural antecedents follow:

On February 8, 2000, respondent filed a Complaint for illegal dismissal, non-payment of wages,
4 

premium pay for rest day, separation pay, service incentive leave pay, 13th month pay, damages,
and attorney’s fees against Polyfoam and Ms. Natividad Cheng (Cheng). Respondent alleged that
he was hired by Polyfoam as an "all-around" factory worker and served as such for almost six
years. On January 14, 2000, he allegedly discovered that his time card was not in the rack and was
5 

later informed by the security guard that he could no longer punch his time card. When he protested
6 

to his supervisor, the latter allegedly told him that the management decided to dismiss him due to an
infraction of a company rule. Cheng, the company’s manager, also refused to face him.
Respondent’s counsel later wrote a letter to Polyfoam’s manager requesting that respondent be re-
7 

admitted to work, but the request remained unheeded prompting the latter to file the complaint for
illegal dismissal.
8

On April 28, 2000, Gramaje filed a Motion for Intervention claiming to be the real employer of
9 

respondent. On the other hand, Polyfoam and Cheng filed a Motion to Dismiss on the grounds that
10 

the NLRC has no jurisdiction over the case, because of the absence of employer-employee
relationship between Polyfoam and respondent and that the money claims had already prescribed. 11

On May 24, 2000, Labor Arbiter Adolfo Babiano issued an Order granting Gramaje’s motion for
12 

intervention, it appearing that she is an indispensable party and denying Polyfoam and Cheng’s
motion to dismiss as the lack of employer-employee relationship is only a matter of defense.

In their Position Paper, Polyfoam and Cheng insisted that the NLRC has no jurisdiction over the
13 

case, because respondent was not their employee. They likewise contended that respondent’s
money claims had already prescribed. Finally, they fault respondent for including Cheng as a party-
defendant, considering that she is not even a director of the company. 14

In her Position Paper, Gramaje claimed that P.A. Gramaje Employment Services (PAGES) is a
15 

legitimate job contractor who provided some manpower needs of Polyfoam. It was alleged that
respondent was hired as "packer" and assigned to Polyfoam, charged with packing the latter’s
finished foam products. She argued, however, that respondent was not dismissed from employment,
rather, he simply stopped reporting for work. 16

On December 14, 2001, Labor Arbiter (LA) Marita V. Padolina rendered a Decision finding
respondent to have been illegally dismissed from employment and holding Polyfoam and
Gramaje/PAGES solidarily liable for respondent’s money claims. The dispositive portion of the
Decision is quoted below for easy reference:

WHEREFORE, premises considered, judgment is hereby rendered finding complainant to have been
illegally dismissed and respondents Polyfoam-RGC International Corporation, P.A. Gramaje
Employment Services/Precilla A. Gramaje are ordered to pay complainant jointly and severally the
following:
 1). Separation Pay - ₱ 52,000.00
2). Backwages - 157,041.38
3). 13th Month Pay - 17,407.00
4). Moral Damages - 5,000.00
5). Exemplary Damages - 5,000.00
6). Attorney’s fees - 23,644.83

₱ 260,093.21

All other claims are denied for lack of factual basis.

SO ORDERED. 17

The Labor Arbiter found respondent to have been illegally dismissed from employment and thus is
entitled to full backwages inclusive of allowances. In lieu of reinstatement, the LA awarded
respondent separation pay of one month salary for every year of service from April 21, 1994 until
promulgation of the decision. The LA further held that petitioners are solidarily liable to respondent
18 

for the latter’s money claims, considering that Gramaje (the contractor) was not enrolled as private
employment agency in the registry of the Regional Office of the Department of Labor and
Employment (DOLE) and considering further that respondent performed a job directly related to the
main business of Polyfoam. 19

On appeal by petitioners, the NLRC modified the LA decision by exonerating Polyfoam from liability
for respondent’s claim for separation pay and deleting the awards of backwages, 13th month pay,
damages, and attorney’s fees. The dispositive portion of the decision reads:

WHEREFORE, the appealed decision is modified in that the complaint against respondent-appellant
Polyfoam-RGC International Corp. is dismissed. However, respondent-intervenor-appellant P.A.
Gramaje Employment Services is hereby ordered to pay complainant separation pay of one (1)
month salary for every year of service reckoned from April 21, 1996 up to the rendition of this
decision, or the sum of ₱58,5000 (sic).

The awards of backwages, 13th month pay, damages, and attorney’s fees are set aside.

SO ORDERED. 20

The NLRC found Gramaje to be an independent contractor who contracted the packaging aspect of
the finished foam products of Polyfoam. Pursuant to said contract, Gramaje’s employees, including
respondent, were assigned to Polyfoam but remained under the control and supervision of Gramaje.
It likewise concluded that Gramaje had its own office equipment, tools, and substantial capital and,
in fact, supplied the plastic containers and carton boxes used by her employees in performing their
duties. The Commission also found sufficient evidence to prove that Gramaje paid respondent’s
21 

wages and benefits and reported the latter to the Social Security System (SSS) as a covered
employee. As to whether there was illegal dismissal, the NLRC answered in the negative, since
22 

respondent was not notified that he had been dismissed nor was he prevented from returning to his
work. The NLRC found Gramaje liable for claiming that respondent abandoned his job.
Reinstatement, however, could not be decreed because of the strained relations between the
parties; hence, the award of separation pay. But the NLRC refused to award backwages. The award 23 

of moral and exemplary damages was likewise deleted for lack of evidence. 24

Aggrieved, respondent elevated the case to the CA in a special civil action for certiorari under Rule
65 of the Rules of Court. On December 19, 2005, the appellate court rendered the assailed
decision, the dispositive portion of which reads:
25 

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed Decision of
the National Labor Relations Commission, First Division dated May 7, 2003 is REVERSED and the
decision of Labor Arbiter Marita Padolina, dated December 14, 2001, is hereby REINSTATED.

SO ORDERED. 26

The CA agreed with the LA’s conclusion that Gramaje is not a legitimate job contractor but only a
"labor-only" contractor because of the following: (1) Gramaje failed to present its Audited Financial
Statement that would have shown its financial standing and ownership of equipment, machineries,
and tools necessary to run her own business; (2) Gramaje failed to present a single copy of the
27 

purported contract with Polyfoam as to the packaging aspect of the latter’s business; (3) Gramaje’s
28 

licenses supposedly issued by the DOLE appeared to be spurious. (4) Gramaje was not registered
29 

with DOLE as a private recruitment agency; and (5) Gramaje presented only one (1) SSS Quarterly
30 

Collection List whose authenticity is doubtful. The CA noted that petitioners are represented by only
31 

one law firm though they made it appear that they were represented by different lawyers. These 32 

circumstances, says the CA, give rise to the suspicion that the creation or establishment of Gramaje
was just a scheme designed to evade the obligation inherent in an employer-employee
relationship. Thus, respondent was indeed Polyfoam’s employee. This relationship was specifically
33 

shown by Polyfoam’s exercise of supervision over the work of respondent; the furnishing of a copy
34 

of Polyfoam’s "Mga Alituntunin at Karampatang Parusa" to serve as respondent’s guide in the

performance of his duty; the length of time that respondent had performed activities necessary for
35 

Polyfoam’s business; and Polyfoam’s act of directly firing respondent. Finally, the appellate court
36  37 

affirmed the LA’s findings of illegal dismissal as respondent was dismissed from the service without
cause and due process. Consequently, separation pay in lieu of reinstatement was awarded. The
38 

CA quoted with approval the LA conclusions on the award of respondent’s other money claims. 39

Petitioners now come before the Court in this petition for review on certiorari based on the following
assigned errors:

I.

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE PETITION

FOR CERTIORARI FILED BY HEREIN RESPONDENT CONSIDERING THE FACT THAT IT
WAS CLEARLY FILED OUT OF TIME, HAVING BEEN FILED ON THE 77 TH DAY FROM
RECEIPT BY HEREIN RESPONDENT OF THE RESOLUTION OF THE NLRC DENYING
HIS MOTION FOR RECONSIDERATION.

II.

THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE DECISION OF THE NLRC
AND ITS FINDINGS THAT A) RESPONDENT CONCEPCION IS AN EMPLOYEE OF P.A.
GRAMAJE EMPLOYMENT SERVICES; B) P.A. GRAMAJE IS A LEGITIMATE JOB
CONTRACTOR; C) RESPONDENT CONCEPCION WAS NOT DISMISSED FROM HIS
JOB, CONSIDERING THAT THESE FINDINGS ARE FULLY SUPPORTED BY EVIDENCE.
 III.

THE COURT OF APPEALS ERRED IN REINSTATING THE DECISION OF THE LABOR

ARBITER MARITA PADOLINA AWARDING RESPONDENT CONCEPCION BACKWAGES,
MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES. 40

There are three issues for resolution, to wit: (1) whether or not Gramaje is an independent job
contractor; (2) whether or not an employer-employee relationship exists between Polyfoam and
respondent; and (3) whether or not respondent was illegally dismissed from employment.

Gramaje is a Labor-Only Contractor

Article 106 of the Labor Code explains the relations which may arise between an employer, a
contractor, and the contractor’s employees, thus:

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 and Employment 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.

In Sasan, Sr. v. National Labor Relations Commission 4th Division, the Court distinguished
41 

permissible job contracting or subcontracting from "labor-only" contracting, to wit:

Permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to

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

(a) The contractor or subcontractor carries on a distinct and independent business and undertakes
to perform the job, work or service on its own account and under its own responsibility according to
its own manner and method, and free from the control and direction of the principal in all matters
connected with the performance of the work except as to the results thereof;
(b) The contractor or subcontractor has substantial capital or investment; and

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

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

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

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

(b) The employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the principal.
42

The test 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." In San Miguel Corporation v.
43 

Semillano, the Court laid down the criteria in determining the existence of an independent and
44 

permissible contractor relationship, to wit:

x x x [W]hether 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. 45

Simply put, the totality of the facts and the surrounding circumstances of the case are to be
considered. Each case must be determined by its own facts and all the features of the relationship
are to be considered.46

Applying the foregoing tests, we agree with the CA’s conclusion that Gramaje is not an independent
job contractor, but a "labor-only" contractor.

First, Gramaje has no substantial capital or investment. The presumption is that a contractor is a
labor-only contractor unless he overcomes the burden of proving that it has substantial capital,
investment, tools, and the like. The employee should not be expected to prove the negative fact that
the contractor does not have substantial capital, investment and tools to engage in job-contracting. 47

Gramaje claimed that it has substantial capital of its own as well as investment in its office,
equipment and tools. She pointed out that she furnished the plastic containers and carton boxes
used in carrying out the function of packing the mattresses of Polyfoam. She added that she had
placed in Polyfoam’s workplace ten (10) sealing machines, twenty (20) hand trucks, and two (2)
forklifts to enable respondent and the other employees of Gramaje assigned at Polyfoam to perform
their job. Finally, she explained that she had her own office with her own staff. However, aside from
48 

her own bare statement, neither Gramaje nor Polyfoam presented evidence showing Gramaje’s
ownership of the equipment and machineries used in the performance of the alleged contracted job.
Considering that these machineries are found in Polyfoam’s premises, there can be no other logical
conclusion but that the tools and equipment utilized by Gramaje and her "employees" are owned by
Polyfoam. Neither did Polyfoam nor Gramaje show that the latter had clients other than the former.
Since petitioners failed to adduce evidence that Gramaje had any substantial capital, investment or
assets to perform the work contracted for, the presumption that Gramaje is a labor-only contractor
stands.49

Second, Gramaje 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, Polyfoam, its apparent role having been merely to recruit persons to work for Polyfoam. It 50 

is undisputed that respondent had performed his task of packing Polyfoam’s foam products in
Polyfoam’s premises. As to the recruitment of respondent, petitioners were able to establish only
that respondent’s application was referred to Gramaje, but that is all. Prior to his termination,
respondent had been performing the same job in Polyfoam’s business for almost six (6) years. He
was even furnished a copy of Polyfoam’s "Mga Alituntunin at Karampatang Parusa," which 51 

embodied Polyfoam’s rules on attendance, the manner of performing the employee’s duties, ethical
standards, cleanliness, health, safety, peace and order. These rules carried with them the
corresponding penalties in case of violation.

While it is true that petitioners submitted the Affidavit of Polyfoam’s supervisor Victor Abadia,
claiming that the latter did not exercise supervision over respondent because the latter was not
Polyfoam’s but Gramaje’s employee, said Affidavit is insufficient to prove such claim. Petitioners
should have presented the person who they claim to have exercised supervision over respondent
and their alleged other employees assigned to Polyfoam. It was never established that Gramaje took
entire charge, control and supervision of the work and service agreed upon. And as aptly observed
by the CA, "it is likewise highly unusual and suspect as to the absence of a written contract
specifying the performance of a specified service, the nature and extent of the service or work to be
done and the term and duration of the relationship." 52

An Employer-Employee Relationship Exists Between Respondent and Polyfoam

A finding that a contractor is a "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. In this case, Polyfoam is the principal employer and
53 

Gramaje is the labor-only contractor. Polyfoam and Gramaje are, therefore, solidarily liable for the
rightful claims of respondent.54

Respondent was Illegally Dismissed

From Employment

Respondent stated that on January 14, 2000, his time card was suddenly taken off the rack.  His1âwphi1

supervisor later informed him that Polyfoam’s management decided to dismiss him due to infraction
of company rule. In short, respondent insisted that he was dismissed from employment without just
or lawful cause and without due process. Polyfoam did not offer any explanation of such dismissal.
It, instead, explained that respondent’s real employer is Gramaje. Gramaje, on the other hand,
denied the claim of illegal dismissal. She shifted the blame on respondent claiming that the latter in
fact abandoned his work.

The LA gave credence to respondent’s narration of the circumstances of the case. Said conclusion
was affirmed by the CA. We find no reason to depart from such findings.

Abandonment cannot be inferred from the actuations of respondent. When he discovered that his
time card was off the rack, he immediately inquired from his supervisor. He later sought the
assistance of his counsel, who wrote a letter addressed to Polyfoam requesting that he be re-
admitted to work. When said request was not acted upon, he filed the instant illegal dismissal case.
These circumstances clearly negate the intention to abandon his work.

Petitioners failed to show any valid or authorized cause under the Labor Code which allowed it to
terminate the services of respondent. Neither was it shown that respondent was given ample
opportunity to contest the legality of his dismissal. No notice of termination was given to him. Clearly,
respondent was not afforded due process. Having failed to establish compliance with the
requirements of termination of employment under the Labor Code, the dismissal of respondent was
tainted with illegality. Consequently, respondent is entitled to reinstatement without loss of seniority
55 

rights, and other privileges and to his full backwages inclusive of allowances and to his other
benefits or their monetary equivalent computed from the time his compensation was withheld up to
the time of his actual reinstatement. However, if reinstatement is no longer feasible as in this case,
separation pay equivalent to one month salary for every year of service shall be awarded as an
alternative. Thus, the CA is correct in affirming the LA’s award of separation pay with full backwages
56 

and other monetary benefits.

WHEREFORE, premises considered, the petition is hereby DENIED. The Court of Appeals Decision
dated December 19, 2005 and Resolution dated April 25, 2006, in CA-G.R. SP No. 83696, are
AFFIRMED.

SO ORDERED.

______________________________________________________________________

FIRST DIVISION

G.R. No. 182018               October 10, 2012

NORKIS TRADING CORPORATION, Petitioner,

vs.
JOAQUIN BUENA VISTA, HENRY FABROA, RICARDO CAPE, BERTULDO TULOD, WILLY
DONDOY ANO and GLEN VILLARASA, Respondents.

DECISION

REYES, J.:

Before us is a Petition for Review on Certiorari filed by petitioner Norkis Trading Corporation (Norkis
Trading) to assail the Decision dated May 7, 2007 and Resolution dated March 4, 2008 of the Court
1  2 

of Appeals (CA) in CA-G.R. SP No. 84041.

The Facts

The petition stems from an amended complaint for illegal suspension, illegal dismissal, unfair labor
practice and other monetary claims filed with the National Labor Relations Commission (NLRC) by
herein respondents Joaquin Buenavista (Buenavista), Henry Fabroa (Fabroa), Ricardo Cape (Cape),
Bertuldo Tulod (Tulod), Willy Dondoyano (Dondoyano) and Glen Villariasa (Villariasa) against Norkis
Trading and Panaghiusa sa Kauswagan Multi-Purpose Cooperative (PASAKA). The complaint was
docketed as NLRC-RAB-VII Case No. 09-1402-99.
During the proceedings a quo, herein respondents submitted the following averments:

The respondents were hired by Norkis Trading, a domestic corporation engaged in the business of
manufacturing and marketing of Yamaha motorcycles and multi-purpose vehicles, on separate dates
and for various positions, particularly:

Name Date of Hiring Position

Joaquin Buenavista March 14, 1994 Operator

Henry Fabroa January 5, 1993 Welder

Ricardo Cape January 1993 Welder/Operator

Bertuldo Tulod November 13, 1994 Welder/Assistant Operator

Willy Dondoyano January 1993 Welder

Glen Villariasa February 1993 Welder 3

Although they worked for Norkis Trading as skilled workers assigned in the operation of industrial
and welding machines owned and used by Norkis Trading for its business, they were not treated as
regular employees by Norkis Trading. Instead, they were regarded by Norkis Trading as members of
PASAKA, a cooperative organized under the Cooperative Code of the Philippines, and which was
deemed an independent contractor that merely deployed the respondents to render services for
Norkis Trading. The respondents nonetheless believed that they were regular employees of Norkis
4 

Trading, citing in their Position Paper the following circumstances that allegedly characterized their
5 

employment with the company:

The work of the operators involves operating industrial machines, such as, press machine, hydraulic
machine, and spotweld machine. On the other hand, the welders used the welding machines. The
machines used by complainants herein respondents in their work are all owned by respondent
Norkis Trading herein petitioner and these are installed and located in the working area of the
complainants inside the company’s premises.

The complainants produced steel crates which are exported directly by respondent Norkis Trading to
Japan. These crates are used as containers of motorcycle machines and are shipped from Japan
back to respondent Norkis Trading.

The materials and supplies used by complainants in their work are supplied by respondent Norkis
Trading through Benjamin Gulbin, the company’s Stockman, upon the request of Tirso Maslog, a
Leadman also employed by respondent Norkis Trading.

Respondent Norkis Trading gave instructions and supervised the work of complainants through
Edwin Ponce and Kiven Alilin, who are both Leadmen, and Rico Cabanas, who is the Production
Supervisor, of the former.

The salaries of complainants are paid inside the premises of respondent Norkis Trading by Dalia
Rojo and Belen Rubio, who are also employees of the said company assigned at the accounting
office.
Despite having served respondent Norkis Trading for many years and performing the same functions
as regular employees, complainants were not accorded regular status. It was made to appear that
complainants are not employees of said company but that of respondent PASAKA. 6

Against the foregoing scenario, the respondents, together with several other complainants, filed on
7 

June 9, 1999 with the Department of Labor and Employment (DOLE) a complaint against Norkis
Trading and PASAKA for labor-only contracting and non-payment of minimum wage and overtime
pay. The complaint was docketed as LSED Case No. RO700-9906-CI-CS-168.

The filing of the complaint for labor-only contracting allegedly led to the suspension of the
respondents’ membership with PASAKA. On July 22, 1999, they were served by PASAKA with
memoranda charging them with a violation of the rule against commission of acts injurious or
prejudicial to the interest or welfare of the cooperative. The memoranda cited that the respondents’
filing of a case against Norkis Trading had greatly prejudiced the interest and welfare of the
cooperative. In their answer to the memoranda, the respondents explained that they merely wanted
8  9 

to be recognized as regular employees of Norkis Trading. The case records include copies of the
memoranda sent to respondents Buenavista, Fabroa and Dondoyano. 10

On August 16, 1999, the respondents received another set of memoranda from PASAKA, now
charging them with the following violations of the cooperative’s rules and regulations: (1) serious
misconduct or willful disobedience of superior’s instructions or orders; (2) gross and habitual neglect
of duties by abandoning work without permission; (3) absences without filing leave of absence; and
(4) wasting time or loitering on company’s time or leaving their post temporarily without permission
during office hours. Copies of the memoranda sent to Fabroa and Cape form part of the records.
11  12 

On August 26, 1999, PASAKA informed the respondents of the cooperative’s decision to suspend
them for fifteen (15) working days, to be effective from September 1 to 21, 1999, for violation of
PASAKA rules.

The records include copies of the memoranda sent to Fabroa and Cape. The suspension prompted
13 

the respondents to file with the NLRC the complaint for illegal suspension against Norkis Trading
and PASAKA.

The 15-day suspension of the respondents was extended for another period of 15 days, from
September 22, 1999 to October 12, 1999. Copies of PASAKA’s separate letters to Buenavista,
14  15 

Fabroa, Cape and Dondoyano on the cooperative’s decision to extend the suspension form part of
the records.

On October 13, 1999, the respondents were to report back to work but during the hearing in their
NLRC case, they were informed by PASAKA that they would be transferred to Norkis Tradings’
sister company, Porta Coeli Industrial Corporation (Porta Coeli), as washers of Multicab vehicles.

The respondents opposed the transfer as it would allegedly result in a change of employers, from
Norkis Trading to Porta Coeli. The respondents also believed that the transfer would result in a
demotion since from being skilled workers in Norkis Trading, they would be reduced to being utility
workers.These circumstances made the respondents amend their complaint for illegal suspension,
to include the charges of unfair labor practice, illegal dismissal, damages and attorney’s fees.

For their part, both Norkis Trading and PASAKA claimed that the respondents were not employees
of Norkis Trading. They insisted that the respondents were members of PASAKA, which served as
an independent contractor that merely supplied services to Norkis International Co., Inc. (Norkis
International) pursuant to a job contract which PASAKA and Norkis International executed on
16 
January 14, 1999 for 121,500 pieces of F/GF-Series Reinforcement Production. After PASAKA
received reports from its coordinator at Norkis International of the respondents’ low efficiency and
violation of the cooperative’s rules, and after giving said respondents the chance to present their
side, a penalty of suspension was imposed upon them by the cooperative. The illegal suspension
being complained of was then not linked to the respondents’ employment, but to their membership
with PASAKA.

Norkis Trading stressed that the respondents were deployed by PASAKA to Norkis International, a
company that is entirely separate and distinct from Norkis Trading.

The Ruling of the Labor Arbiter

On June 1, 2000, Labor Arbiter Jose G. Gutierrez (LA Gutierrez) dismissed the complaint via a
Decision with decretal portion that reads:
17 

WHEREFORE, the foregoing premises considered, judgment is hereby rendered DISMISSING this
case for lack of merit. Complainants herein respondents are however directed to report back to
respondent PASAKA for work assignment within ten (10) days from receipt of this decision.
Likewise, respondent PASAKA is directed to accept the complainants back for work.

SO ORDERED. 18

LA Gutierrez sustained the suspension imposed by PASAKA upon the respondents, taking into
account the offenses that the said respondents were found to have committed. He likewise rejected
the respondents’ claim of illegal dismissal. He ruled that to begin with, the respondents had failed to
prove with convincing evidence that they were dismissed from employment. The Decision reads in
part:

Before the legality or illegality of a dismissal can be put in issue, the fact of dismissal itself must, first,
be clearly established. In the instant case, We find that complainants herein respondents failed to
prove with convincing evidence the fact that they were dismissed from employment. This
observation is derived from their very own allegation in their position paper. The first paragraph of
page 5 of the complainants’ position paper clearly shows that they were not yet dismissed from their
employment. The said paragraph states:

"Convinced that the company is bent on terminating their services, complainants amended their
complaint to include the charges of unfair labor practice, illegal dismissal, damages and attorney’s
fees."

The truth, as the record would show is that, complainants were only offered another post in order to
save the contractual relations between their cooperative and Norkis Trading as the latter finds the
complainants’ performance not satisfactory. The complainants took this offer as a demotion
amounting to dismissal. We do not however, agree as their transfer to another post was only the
best option available in order to save the contractual relations between their cooperative (PASAKA)
and Norkis Trading. 19

The allegation of unfair labor practice and claim for monetary awards were likewise rejected by the
LA. Feeling aggrieved, the respondents appealed from the decision of the LA to the NLRC.

In the meantime, DOLE Regional Director Melencio Q. Balanag (Regional Director Balanag) issued
on August 22, 2000 his Order in LSED Case No. RO700-9906-CI-CS-168. Regional Director
20 
Balanag ruled that PASAKA was engaged in labor-only contracting. The other findings in his Order
21 

that are significant to this case are as follows: (1) PASAKA had failed to prove that it had substantial
capital; (2) the machineries, equipment and supplies used by the respondents in the performance of
22 

their duties were all owned by Norkis Trading and not by PASAKA; (3) the respondents’
23 

membership with PASAKA as a cooperative was inconsequential to their employment with Norkis
Trading; (4) Norkis Trading and PASAKA failed to prove that their sub-contracting arrangements
24 

were covered by any of the conditions set forth in Section 6 of Department Order No. 10, Series of
1997; (5) Norkis Trading and PASAKA failed to dispute the respondents’ claim that their work was
25 

supervised by leadmen and production supervisors of Norkis Trading; and (6) Norkis Trading and
26 

PASAKA failed to dispute the respondents’ allegation that their salaries were paid by employees of
Norkis Trading. Norkis Trading and PASAKA were then declared solidarily liable for the monetary
27 

claims of therein complainants, as provided in the dispositive portion of Regional Director Balanag’s
Order, to wit:

WHEREFORE, respondent PANAGHIUSA SA KAUSWAGAN MULTIPURPOSE

COOPERATIVE and/or NORKIS TRADING CORPORATION are hereby ORDERED to pay
solidarily the amount of THREE HUNDRED THIRTEEN THOUSAND THREE HUNDRED FIFTY-
FOUR AND 50/100 ([P]313,354.50) PESOS, Philippine Currency, within ten (10) calendar days from
receipt hereof to herein complainants x x x:

xxxx

SO ORDERED. 28

The respondents informed the NLRC of Regional Director Balanag’s Order by filing a
Manifestation dated September 11, 2000, attaching thereto a copy of the Order dated August 22,
29 

2000.

It bears mentioning that Regional Director Balanag’s Order was later affirmed by then DOLE
Secretary Patricia Sto. Tomas (Sec. Sto. Tomas) in her Orders dated February 7, 2002 and October
14, 2002. When the rulings of the DOLE Secretary were appealed before the CA via the petitions
30 

for certiorari docketed as CA-G.R. SP No. 73880 and CA-G.R. SP No. 74619, the CA affirmed the
Orders of the DOLE Secretary. A motion for reconsideration of the CA decision was denied in a
31 

Resolution dated October 9, 2007. The two petitions docketed as G.R. Nos. 180078-79, which were
32 

brought before this Court to question the CA’s rulings, were later denied with finality by this Court in
the Resolutions dated December 5, 2007 and April 14, 2008.
33  34

The Ruling of the NLRC

On April 18, 2002, the NLRC rendered its Decision affirming with modification the decision of LA
35 

Gutierrez. It held that the respondents were not illegally suspended from work, as it was their
membership in the cooperative that was suspended after they were found to have violated the
cooperative’s rules and regulations. It also declared that the respondents’ dismissal was not
established by substantial evidence. The NLRC however declared that the LA had no jurisdiction
over the dispute because the respondents were not employees, but members of PASAKA. The
suspension of the respondents as members of PASAKA for alleged violation of the cooperative’s
rules and regulations was not a labor dispute, but an intra-corporate dispute. The complaint was
36 

also declared to have been filed against the wrong party because the respondents were found by the
NLRC to have been deployed by PASAKA to Norkis International pursuant to a job contract.

The dispositive portion of the NLRC’s Decision reads:

WHEREFORE, the Decision dated June 1, 2000 of the Labor Arbiter is AFFIRMED, with respect to
the DISMISSAL of the complainants herein respondents for lack of merit [sic], but deleting the
portion directing the complainants to report back to respondent PASAKA for work assignment and to
accept them back to work being an internal concern of PASAKA.

SO ORDERED. 37

The respondents’ motion for reconsideration was denied by the NLRC in a Resolution dated 38 

December 18, 2003. Undaunted, the respondents questioned the NLRC’s rulings before the CA via
a petition for certiorari.

The Ruling of the CA

Finding merit in the petition for certiorari, the CA rendered its decision reversing and setting aside
the decision and resolution of the NLRC. The dispositive portion of its Decision dated May 7, 2007
reads:

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the NLRC, are
hereby REVERSED and SET ASIDE, and a new judgment is hereby rendered ordering the private
respondents to:

(1) Reinstate petitioners to their former positions without loss of seniority rights, and to pay full
backwages inclusive of allowances and their other benefits or their monetary equivalent computed
from the time of illegal dismissal to the time of actual reinstatement; and

(2) Alternatively, if reinstatement is not possible, to pay full backwages inclusive of other benefits or
their monetary equivalent from the time of illegal dismissal until the same is paid in full, and pay
petitioners’ separation pay equivalent to one month’s salary for every year of service.

SO ORDERED. 39

The CA rejected the argument of PASAKA and Norkis Trading that by virtue of a job contract
executed on January 14, 1999, the respondents were deployed to Norkis International and not to
Norkis Trading. The CA held:

We are not convinced. Private respondents’ among them, herein petitioner own evidence belie their
claim.

In its Comment, NORKIS TRADING attached the Payroll Registers for PANAGHIUSA SA

KAUSWAGAN (PASAKA) MULTIPURPOSE COOPERATIVE-NICI Tin Plate covering the payroll
periods "12/28/98-01/07/99" and "01/08/99-01/14/99". Included among the payees therein were the
petitioners herein respondents. x x x Why were petitioners included in said payrolls for said payroll
periods when the supposed Contract with NORKIS INTERNATIONAL was not yet executed?
Apparently, private respondents slipped. Thus, we hold that the much ballyhooed January 14, 1999
Contract between PASAKA and NORKIS INTERNATIONAL, is but a mere afterthought, a
concoction designed by private respondents to evade their obligations to petitioners. (Citations
40 

omitted and emphasis supplied)

The CA also considered Regional Director Balanag’s finding in LSED Case No. RO700-9906-CI-CS-
168 that PASAKA was engaged in labor-only contracting. In ruling that the respondents were illegally
dismissed, the CA held that Norkis Trading’s refusal to accept the respondents back to their former
positions, offering them instead to accept a new assignment as washers of vehicles in its sister
company, was a demotion that amounted to a constructive dismissal.

Norkis Trading’s motion for reconsideration was denied by the CA in its Resolution dated March 4,
41 

2008. Hence, this petition.

The Present Petition

The petition is founded on the following grounds:

1) THE COURT OF APPEALS HAS DEPARTED FROM THE USUAL COURSE OF JUDICIAL
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 BECAUSE SUCH FACTUAL FINDINGS WERE BASED ON
SPECULATIONS AND NOT ON OTHER EVIDENCES [SIC] ON RECORD.

2) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN

ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT THE NLRC COMMITTED GRAVE
ABUSE OF DISCRETION IN ALLEGEDLY IGNORING THE RULING OF THE REGIONAL
DIRECTOR.

3) 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.

4) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN

ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT THE RESPONDENTS WERE
CONSTRUCTIVELY DISMISSED CONTRARY TO THE FACTUAL FINDINGS OF THE LABOR
ARBITER AND THE NLRC AND WITHOUT SHOWING ANY EVIDENCE TO OVERTURN SUCH
FINDING OF FACT. 42

The respondents oppose these grounds in their Comment. In support of their arguments, the
43 

respondents submit with their Comment copies of the CA’s Decision and Resolution in CA-G.R. SP
44  45 

No. 73880 and CA-G.R. SP No. 74619, and this Court’s Resolutions in G.R. Nos. 180078-79.
46 

This Court’s Ruling

The Court resolves to deny the petition.

Factual findings of labor officials

may be examined by the courts
when there is a showing that they
were arrived at arbitrarily or in
disregard of evidence on record.

As regards the first ground, the petitioner questions the CA’s reversal of LA Gutierrez’s and the
NLRC’s rulings, and argues that said rulings should have been accorded great weight and finality by
the appellate court as these were allegedly supported by substantial evidence.
On this matter, the settled rule is that factual findings of labor officials, who are deemed to have
acquired expertise in matters within their jurisdiction, are generally accorded not only respect but
even finality by the courts when supported by substantial evidence, i.e., the amount of relevant
evidence which a reasonable mind might accept as adequate to support a conclusion. We
emphasize, nonetheless, that these findings are not infallible. When there is a showing that they
were arrived at arbitrarily or in disregard of the evidence on record, they may be examined by the
courts. The CA can then grant a petition for certiorari if it finds that the NLRC, in its assailed decision
or resolution, has made a factual finding that is not supported by substantial evidence. It is within the
jurisdiction of the CA, whose jurisdiction over labor cases has been expanded to review the findings
of the NLRC. 47

We have thus explained in Cocomangas Hotel Beach Resort v. Visca that the CA can take
48 

cognizance of a petition for certiorari if it finds that the NLRC committed grave abuse of discretion by
capriciously, whimsically, or arbitrarily disregarding evidence which are material to or decisive of the
controversy. The CA cannot make this determination without looking into the evidence presented by
the parties. The appellate court needs to evaluate the materiality or significance of the evidence,
which are alleged to have been capriciously, whimsically, or arbitrarily disregarded by the NLRC, in
relation to all other evidence on record.

This case falls within the exception to the general rule that findings of fact of labor officials are to be
accorded respect and finality on appeal. As our discussions in the other grounds that are raised in
this petition will demonstrate, the CA has correctly held that the NLRC has disregarded facts and
evidence that are material to the outcome of the respondents’ case. No error can be ascribed to the
appellate court for making its own assessment of the facts that are significant to the case to
determine the presence or absence of grave abuse of discretion on the part of the NLRC, even if the
CA’s findings turn out to be different from the factual findings of both the LA and NLRC.

Norkis Trading is the principal

employer of the respondents,
considering that PASAKA is a mere
labor-only contractor.

The second and third grounds, being interrelated as they both pertain to the CA’s finding that an
employer-employee relationship existed between the petitioner and the respondents, shall be
discussed jointly. In its decision, the CA cited the findings of the Regional Director in LSED Case No.
RO700-9906-CI-CS-168 and declared that the NLRC committed a grave abuse of discretion when it
ignored said findings.

The issue of whether or not the respondents shall be regarded as employees of the petitioner hinges
mainly on the question of whether or not PASAKA is a labor-only contractor. 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. These differentiate it from
permissible or legitimate job contracting or subcontracting, which 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. 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
partakes 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.49

We emphasize that the petitioner’s arguments against the respondents’ claim that PASAKA is a
labor-only contractor, which is thus to be regarded as a mere agent of Norkis Trading for which the
respondents rendered service, are already mooted by the finality of this Court’s Resolutions dated
December 5, 2007 and April 14, 2008 in G.R. Nos. 180078-79, which stems from the CA’s and the
DOLE Secretary’s review of the DOLE Regional Director’s Order dated August 22, 2000 in LSED
Case No. RO700-9906-CI-CS-168.

To recapitulate, Regional Director Balanag issued on August 22, 2000 its Order in LSED Case No.
50 

RO700-9906-CI-CS-168 and declared PASAKA as a mere labor-only contractor, and Norkis Trading
as the true employer of herein respondents. He explained that PASAKA failed to prove during the
conduct of a summary investigation that the cooperative had substantial capital or investment
sufficient to enable it to perform the functions of an independent contractor. The respondents’ claim
that the machinery, equipment and supplies they used to perform their duties were owned by Norkis
Trading, and not by PASAKA, was undisputed. While PASAKA reflected in its Statement of Financial
Condition for the year 1996 property and equipment net of accumulated depreciation at ₱
344,273.02, there was no showing that the properties covered thereby were actually and directly
used in the conduct of PASAKA’s business. The DOLE Regional Director explained:
51 

Herein respondents among them, herein petitioner failed to prove that their sub-contracting
arrangements fall under any of the conditions set forth in Sec. 6 of D.O. # 10 S. 1997 to qualify as
permissible contracting or subcontracting as provided for as follows:

Sec. 6. Permissible contracting or subcontracting. Subject to conditions set forth in Sec. 4 (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...

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...;

d) Works or services not directly related or not integral to 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 manufacturers’ products...;

f) Specialized works involving the use of some particular, unusual or peculiar skills... and
g) Unless a reliever system is in place among the regular workforce, substitute services for absent
regular employees...

It is therefore evident that herein respondents are engaged in "labor-only" contracting as defined in
Art. 106 of the Labor Code. Furthermore, such contracting/sub-contracting arrangement not only
falls under labor-only contracting but also fails to qualify as legitimate subcontracting as defined
under Sec. 4 par. e of D.O. #10 S. 1997, to wit:

"Sec. 4. Definition of terms. …

d) …

Subject to the provisions of Sections 6, 7 and 8 of this Rule, contracting or subcontracting shall be
legitimate if the following circumstances concur:

i) The contractor or subcontractor carries on a distinct and independent business and undertakes to
perform the job, work or service on its own account and under its own responsibility, according to its
own manner and method, and free from the control and direction of the principal in all matters
connected with the performance of the work except to the results thereof;

ii) The contractor or subcontractor has substantial capital or investment; and

iii) The agreement between the principal and contractor or subcontractor assures the contractual
employees entitlement to all labor and occupational and safety and health standards, free exercise
of the right to self-organization, security of tenure and social and welfare benefits." (Emphasis
52 

supplied)

Together with his finding that PASAKA evidently lacked substantial capital or investment required
from legitimate job contractors, Regional Director Balanag ruled that the cooperative failed to dispute
the respondents’ allegation that officers of Norkis Trading supervised their work and paid their
salaries. In conclusion, PASAKA and Norkis Trading were declared solidarily liable for the monetary
awards made in favor of therein claimants-employees, which included herein respondents. A motion
for reconsideration of the Order was denied by the Regional Director.

Upon appeal, then DOLE Sec. Sto. Tomas affirmed the rulings of Regional Director Balanag. Both
Norkis Trading and PASAKA filed their separate appeals from the orders of the DOLE Secretary to
the CA via the petitions for certiorari docketed as CA-G.R. SP Nos. 73880 and 74619, but said
petitions were dismissed for lack of merit by the CA in its Decision dated May 7, 2007 and
Resolution dated October 9, 2007. The CA held:

This Court agrees with the finding of the DOLE Regional Director, as affirmed by the Secretary of
Labor in her assailed Order, that petitioners among them, herein petitioner were engaged in labor-
only contracting.

First. PASAKA failed to prove that it has substantial capitalization or investment in the form of tools,
equipment, machineries, work premises, among others, to qualify as an independent contractor.
PASAKA’s claim that it has machineries and equipment worth ₱ 344,273.02 as reflected in its
Financial Statements and Supplementary Schedules is belied by private respondents’ among them,
herein respondents evidence which consisted of pictures showing machineries and equipment which
were owned by and located at the premises of petitioner NORKIS TRADING (as earlier noted, some
of the pictures showed some of the private respondents operating said machines). Indeed it makes
one wonder why, if PASAKA indeed had such machineries and equipment worth ₱ 344,273.02,
private respondents were using machineries and equipment owned by and located at the premises
of NORKIS TRADING.

Even granting that indeed PASAKA had machineries and equipment worth ₱ 344,273.02, it was not
shown that said machineries and equipment were actually used in the performance or completion of
the job, work, or service that it was contracted to render under its supposed job contract.

xxxx

Second. PASAKA likewise did not carry out an independent business from NORKIS TRADING.
While PASAKA was issued its Certificate of Registration on July 18, 1991, all it could show to prove
that it carried out an independent business as a job contractor were the Project Contract dated
January 2, 1998 with NORKIS TRADING, and the Project Contract dated December 18, 1998 with
NORKIS INTERNATIONAL. However, as earlier discussed, the Project Contract dated December
18, 1998 with NORKIS INTERNATIONAL is nothing more than an afterthought by the petitioners to
confuse its workers and defeat their rightful claims. The same can be said of the Project Contract
with WICKER and VINE, INC., considering that it was executed only on February 1, 2000. Verily,
said contract was submitted only to strengthen PASAKA’s claim that it is a legitimate job contractor.

Third. Private respondents performed activities directly related to the principal business of NORKIS
TRADING. They worked as welders and machine operators engaged in the production of steel
crates which were sent to Japan for use as containers of motorcycles that are then sent back to
NORKIS TRADING. Private respondents‘ functions therefore are directly related and vital to
NORKIS TRADING’s business of manufacturing of Yamaha motorcycles.

All the foregoing considerations affirm by more than substantial evidence that NORKIS TRADING
and PASAKA engaged in labor-only contracting. (Citations omitted and emphasis supplied)
53 

When the case was brought before this Court via the petitions for review on certiorari docketed as
G.R. Nos. 180078-79, we resolved to issue on December 5, 2007 our Resolution dismissing the
appeal for, among other grounds, the failure of Norkis Trading to sufficiently show any reversible
error in the the CA decision. In our Resolution dated April 14, 2008, we denied with finality Norkis
Tradings’ motion for reconsideration on the ground that no substantial argument and compelling
reason was adduced to warrant a reconsideration of our dismissal of the petition. This Court’s
resolutions, affirming the findings of the CA, had then become final and executory.

Applying the doctrine of res judicata, all matters that have been fully resolved with finality by this
Court’s dismissal of the appeal that stemmed from Regional Director Balanag’s Order dated August
22, 2000 in LSED Case No. RO700-9906-CI-CS-168 are already conclusive between the parties.
Res judicata is defined as a matter adjudged; a thing judicially acted upon or decided; a thing or
matter settled by judgment. Under this doctrine, an existing final judgment or decree rendered on the
merits, and without fraud or collusion, by a court of competent jurisdiction, upon any matter within its
jurisdiction, is conclusive of the rights of the parties or their privies, in all other actions or suits in the
same or any other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the
first suit.

To state simply, a final judgment or decree on the merits by a court of competent jurisdiction is
conclusive of the rights of the parties or their privies in all later suits on all points and matters
determined in the former suit. 54
Res judicata has two aspects: bar by prior judgment and conclusiveness of judgment as provided
under Section 47(b) and (c), Rule 39, respectively, of the Rules of Court. Under the doctrine of
55 

conclusiveness of judgment, facts and issues actually and directly resolved in a former suit cannot
be raised in any future case between the same parties, even if the latter suit may involve a different
cause of action.56

Clearly, res judicata in the concept of conclusiveness of judgment has set in. In the proceedings
before the Regional Director and the LA, there were identity of parties and identity of issues,
although the causes of action in the two actions were different. First, herein respondents on the one
hand, and Norkis Trading on the other hand, were all parties in the two cases, being therein
complainants and respondent, respectively. As to the second requisite, the issue of whether
PASAKA was a labor-only contractor which would make Norkis Trading the true employer of the
respondents was the main issue in the two cases, especially since Norkis Trading had been arguing
in both proceedings that it could not be regarded as the herein respondents’ employer, harping on
the defense that PASAKA was a legitimate job contractor.

Similarly, in Dole Philippines, Inc. v. Esteva, we held that the finding of the DOLE Regional Director,
57 

which had been affirmed by the Undersecretary of Labor, by authority of the Secretary of Labor, in
an Order that has reached finality and which provided that the cooperative Cannery Multi-Purpose
Cooperative (CAMPCO) was engaged in labor-only contracting should bind the NLRC in a case for
illegal dismissal. We ruled:

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. x x x 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.

x x x 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.
58

The rule on conclusiveness of judgment then now precludes this Court from re-opening the issues
that were already settled with finality in G.R. Nos. 180078-79, which effectively affirmed the CA’s
findings that PASAKA was engaged in labor-only contracting, and that Norkis Trading shall be
treated as the employer of the respondents.

In the present petition, Norkis Trading still argues that the NLRC committed no grave abuse of
discretion in ignoring the findings of Regional Director Balanag considering that his Order had not
yet reached finality at the time the NLRC resolved the appeal from the decision of the LA. This
notwithstanding, this Court holds that the CA still committed no error in finding grave abuse of
discretion on the part of the NLRC by the latter’s utter disregard of the findings of the Regional
Director that Norkis Trading should be considered the employer of herein respondents. As correctly
observed by the CA in the assailed Decision dated May 7, 2007:

Surprisingly, the NLRC failed to consider or even make reference to the said August 22, 2000 Order
of the DOLE Regional Director. Considering the significance of the DOLE Regional Director’s
findings, the same cannot just be perfunctorily rejected. For the NLRC to ignore the findings of
DOLE Regional Director is to undermine or disregard of [sic] the visitorial and enforcement power of
the DOLE Secretary and his authorized representatives under Article 128 of the Labor Code, as
amended. It was grave abuse of discretion then on the part of the NLRC to ignore or simply sweep
under the rug the findings of the DOLE Regional Director. (Citation omitted and emphasis ours)
59 

A reading of the NLRC’s Resolution dated December 18, 2003 indicates that while it was confronted
60 

with opposing findings of the Regional Director and the LA on the material issue of labor-only
contracting, it failed to even attempt to review thoroughly the matter, look into the records, reconcile
the differing judgments and make its own appreciation of the evidence presented by the parties.
Instead, it simply brushed aside the rulings of the Regional Director, without due consideration of the
circumstance that said labor official had the jurisdiction to rule on the issue pursuant to the visitorial
and enforcement powers of the DOLE Secretary and his duly authorized representatives under
Article 128 of the Labor Code.
61 

The rule in appeals in labor cases provides that the CA can grant a 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. Significantly, the Secretary of Labor had already affirmed Regional Director Balanag’s
62 

Order when the appeal from the LA’s rulings was resolved. In the NLRC Resolution dated December
18, 2003, the Commission nonetheless merely held:

The photocopies of the Order of the Honorable Secretary of the Department of Labor and
Employment dated February 7, 2002 and the Order of the Regional Director of the Regional Office of
the Department of Labor and Employment finding the existence of labor-only contracting between
respondent NORKIS [Trading] and respondent PASAKA do not provide sufficient basis to disturb
Our Decision. We are not convinced that the facts and evidence, which are totally distinct from this
case and which were presented in a separate proceedings and before another Office, would be a
sufficient and valid basis to divest the Labor Arbiter a quo of his authority which undoubtedly the law
vests upon him as his exclusive jurisdiction. The jurisdiction conferred by Article 217 of the Labor
Code upon the Labor Arbiter is "original and exclusive", and his authority to hear and decide case[s]
vested upon him is to the exclusion of any other court or quasi-judicial body. By reason of their
training, experience, and expertise, Labor Arbiters are in a better position to resolve controversies,
for which they are conferred original and exclusive jurisdiction by law. Even Article 218 of the Labor
Code does not empower the Regional Director of the Department of Labor and Employment to share
original and exclusive jurisdiction conferred on the Labor Arbiter by Article 217 x x x.63

Such utter disregard by the NLRC of the findings of the Regional Director and DOLE Secretary
amounts to grave abuse of discretion amounting to lack or excess of jurisdiction. As this Court’s
review of the records would confirm, a judicious study of the evidence presented by the parties
would have supported the finding that Norkis Trading should be treated as the respondents’ true
employer, with PASAKA being merely an agent of said employer. PASAKA failed to sufficiently show
that it had substantial capital or investment in the form of tools, equipment, machineries and work
premises required from legitimate job contractors. The work required from the respondents, being
welders and/or operators of industrial machines, were also directly related to Norkis Trading’s
principal business of manufacturing. The job contract supposedly executed by and between
PASAKA and Norkis International in 1999 deserved nil consideration given that the respondents had
claimed early on that they began working for Norkis Trading on various dates from 1993 to 1994.
Moreover, the records confirm that Norkis Trading was still among the clients of PASAKA as of July
1999, as clearly indicated in the memoranda it sent to respondents Buenavista, Fabroa and
Dondoyano on July 22, 1999, which provide:
Please take note that the recent action you have done in filing a case against one of our clients,
Norkis Trading Co., Inc., has greatly prejudiced the interest and welfare of the
Cooperative. (Emphasis ours)
64 

This categorical statement of PASAKA that Norkis Trading was among its clients at the time the
memoranda were issued only further bolsters the respondents’ claim, and Regional Director
Balanag’s finding, that said respondents were deployed by PASAKA to Norkis Trading. This also
contradicts petitioner’s argument that its contract with PASAKA had ended in 1998. 65

Finally, contrary to the insinuations of Norkis Trading, the fact that PASAKA was a duly-registered
cooperative did not preclude the possibility that it was engaged in labor-only contracting, as
confirmed by the findings of the Regional Director. An entity is characterized as a labor-only
contractor based on the elements and guidelines established by law and jurisprudence, judging
primarily on the relationship that the said entity has with the company to which the workers are
deployed, and not on any special arrangement that the entity has with said workers.

Termination of an employment for

no just or authorized cause
amounts to an illegal dismissal.

As to the issue of whether the respondents were illegally dismissed by Norkis Trading, we answer in
the affirmative, although not by constructive dismissal as declared by the CA, but by actual
dismissal.

Where an entity is declared to be a labor-only contractor, the employees supplied by said contractor
to the principal employer become regular employees of the latter. Having gained regular status, the
employees are entitled to security of tenure and can only be dismissed for just or authorized causes
and after they had been afforded due process. Termination of employment without just or
66 

authorized cause and without observing procedural due process is illegal. 1âwphi1

In claiming that they were illegally dismissed from their employment, the respondents alleged having
been informed by PASAKA that they would be transferred, upon the behest of Norkis Trading, as
Multicab washers or utility workers to Porta Coeli, a sister company of Norkis Trading. Norkis
Trading does not dispute that such job transfer was relayed by PASAKA unto the respondents,
although the company contends that the transfer was merely an "offer" that did not constitute a
dismissal. It bears mentioning, however, that the respondents were not given any other option by
PASAKA and Norkis Trading but to accede to said transfer. In fact, there is no showing that Norkis
Trading would still willingly accept the respondents to work for the company. Worse, it still
vehemently denies that the respondents had ever worked for it. Again, all defenses of Norkis Trading
that anchor on the alleged lack of employer-employee relationship between it and the respondents
no longer merit any consideration, given that this Court’s findings in G.R. Nos. 180078-79 have
become conclusive. Thus, the respondents’ transfer to Porta Coeli, although relayed to the
respondents by PASAKA was effectively an act of Norkis Trading. Where labor-only contracting
exists, the Labor Code itself establishes an employer-employee relationship between the employer
and the employees of the labor-only contractor. The statute establishes this 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. 67

No further evidence or document should then be required from the respondents to prove such fact of
dismissal, especially since Norkis Trading maintains that it has no duty to admit and treat said
respondents as its employees. Considering that Porta Coeli is an entity separate and distinct from
Norkis Trading, the respondents’ employment with Norkis Trading was necessarily severed by the
change in work assignment. It then did not even matter whether or not the transfer involved a
demotion in the respondents’ rank and work functions; the intention to dismiss, and the actual
dismissal of the respondents were sufficiently established.

In the absence of a clear showing that the respondents’ dismissal was for just or authorized causes,
the termination of the respondents’ employment was illegal. What may be reasonably deduced from
the records was that Norkis Trading decided on the transfer, after the respondents had earlier filed
their complaint for labor-only contracting against the company. Even Norkis Trading’s contention that
the transfer may be deemed a valid exercise of management prerogative is misplaced. First, the
exercise of management prerogative presupposes that the transfer is only for positions within the
business establishment. Second, the exercise of management prerogative by employers is not
absolute, as it is limited by law and the general principles of fair play and justice.

WHEREFORE, premises considered, the petition is DENIED.

SO ORDERED.

____________________________________________________________________________

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.

DECISION

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
Agreement3 (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. NLRC18 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 1avvphi1

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.

____________________________________________________________________________

G.R. No. 206390

JACK C. VALENCIA, Petitioner,
vs.
CLASSIQUE VINYL PRODUCTS CORPORATION, JOHNNY CHANG (Owner) and/or
CANTINGAS MANPOWER SERVICES, Respondents.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari assails the December 5, 2012 Decision  and March 18, 2013
1

Resolution  of the Court of Appeals (CA) in CA-G.R. SP No. 120999, which respectively denied the
2

Petition for Certiorari filed therewith by petitioner Jack C. Valencia (Valencia) and the motion for
reconsideration thereto.

Factual Antecedents

On March 24, 2010, Valencia filed with the Labor Arbiter a Complaint  for Underpayment of Salary
3

and Overtime Pay; Non-Payment of Holiday Pay, Service Incentive Leave Pay, 13 th Month Pay;
Regularization; Moral and Exemplary Damages; and, Attorney's Fees against respondents
Classique Vinyl Products Corporation (Classique Vinyl) and its owner Johnny Chang (Chang) and/or
respondent Cantingas Manpower Services (CMS). When Valencia, however, asked permission from
Chang to attend the hearing in connection the said complaint on April 17, 2010, the latter allegedly
scolded him and told him not to report for work anymore. Hence, Valencia amended his complaint to
include illegal dismissal.
4

In his Sinumpaang Salaysay,   Valencia alleged that he applied for work with Classique Vinyl but
5

was told by the latter's personnel office to proceed to CMS, a local manpower agency, and therein
submit the requirements for employment. Upon submission thereof, CMS made him sign a contract
of employment  but no copy of the same was given to him. He then proceeded to Classique Vinyl for
6

interview and thereafter started working for the company in June 2005 as felitizer operator. Valencia
claimed that he worked 12 hours a day from Monday to Saturday and was receiving ₱187.52 for the
first eight hours and an overtime pay of ₱117.20 for the next four hours, or beyond the then
minimum wage mandated by law. Five months later, he was made to serve as extruder operator but
without the corresponding increase in sa1aiy. He was neither paid his holiday pay, service incentive
leave pay, and 13th month pay. Worse, premiums for Philhealth and Pag-IBIG Fund were not paid
and his monthly deductions for Social Security System (SSS) premiums were not properly remitted.
He was also being deducted the amounts of ₱100.00 and ₱60.00 a week for Cash Bond and Agency
Fee, respectively. Valencia averred that his salary was paid on a weekly basis but his pay slips
neither bore the name of Classique Vinyl nor of CMS; that all the machineries that he was
using/operating in connection with his work were all owned by Classique Vinyl; and that his work
was regularly supervised by Classique Vinyl. He further averred that he worked for Classique Vinyl
for four years until his dismissal. Hence, by operation of law, he had already attained the status of a
regular employee of his true employer, Classique Vinyl, since according to him, CMS is a mere
labor-only contractor. Valencia, therefore, argued that Classique Vinyl should be held guilty of illegal
dismissal for failing to comply with the twin-notice requirement when it dismissed him from the
service and be made to pay for his monetary claims.

Classique Vinyl, for its part, denied having hired Valencia and instead pointed to CMS as the one
who actually selected, engaged, and contracted out Valencia's services. It averred that CMS would
only deploy Valencia to Classique Vinyl whenever there was an urgent specific task or temporary
work and these occasions took place sometime in the years 2005, 2007, 2009 and 2010. It stressed
that Valencia's deployment to Classique Vinyl was intermittent and limited to three to four months
only in each specific year. Classique Vinyl further contended that Valencia's performance was
exclusively and directly supervised by CMS and that his wages and other benefits were also paid by
the said agency. It likewise denied dismissing Valencia from work and instead averred that on April
16, 2010, while deployed with Classique Vinyl, Valencia went on a prolonged absence from work for
reasons only known to him. In sum, Classique Vinyl asserted that there was no employer-employee
relationship between it and Valencia, hence, it could not have illegally dismissed the latter nor can it
be held liable for Valencia's monetary claims. Even assuming that Valencia is entitled to monetary
benefits, Classique Vinyl averred that it cannot be made to pay the same since it is an establishment
regularly employing less than 10 workers. As such, it is exempted from paying the prescribed wage
orders in its area and other benefits under the Labor Code. At any rate, Classique Vinyl insisted that
Valencia's true employer was CMS, the latter being an independent contractor as shown by the fact
that it was duly incorporated and registered not only with the Securities and Exhange Commission
but also with the Department of Labor and Employment; and, that it has substantial capital or
investment in connection with the work performed and services rendered by its employees to clients.

CMS, on the other hand, denied any employer-employee relationship between it and Valencia. It
contended that after it deployed Valencia to Classique Vinyl, it was already the latter which
exercised full control and supervision over him. Also, Valencia's wages were paid by Classique Vinyl
only that it was CMS which physically handed the same to Valencia.

Ruling of the Labor Arbiter

On September 13, 2010, the Labor Arbiter issued a Decision,  the pertinent portions of which read:
7

Is [Valencia] a regular employee of respondent (Classique Vinyl]?

The Certificate of Business Name Registration issued by the Department of Trade and Industry
dated 17 August 2007 and the Renewal of PRP A License No. M-08-03-269 for the period 29 August
2008 to 28 August 2010 issued by the Regional Director of the National Capital Region of the
Department of Labor and Employment [on the] 1st day of September 2008 are pieces of evidence to
prove that respondent [CMS] is a legitimate Private Recruitment and Placement Agency.

Pursuant to its business objective, respondent CMS entered into several Employment Contracts with
complainant Valencia as Contractual Employee for deployment to respondent [Classique Vinyl], the
last of which was signed by [Valencia] on 06 February 2010.

The foregoing Employment Contract for a definite period supports respondent [Classique Vinyl's]
assertion that [Valencia] was not hired continuously but intermittently ranging from 3 months to 4
months for the years 2005, 2007, 2009 and 2010. Notably, no controverting evidence was offered to
dispute respondent [Classique Vinyl's] assertion.

Obviously, [Valencia] was deployed by CMS to [Classique Vinyl] for a fixed period.
In Pangilinan v. General Milling Corporation, G.R. No. 149329, July 12, 2004, the Supreme Court
ruled that it does not necessarily follow that where the duties of the employee consist of activities
usually necessary or desirable in the usual business of the employer, the parties are forbidden from
agreeing on a period of time for the performance of such activities. There is thus nothing essentially
contradictory between a definite period of employment and the nature of the employee's duties.

Thus, even if respondent [Classique Vinyl] exercises full control and supervision over the activities
perfom1ed by [Valencia], the latter's employment cannot be considered as regular.

Likewise, even if [Valencia] is considered the regular employee of respondent CMS, the complaint
for illegal dismissal cannot prosper as [the] employment was not terminated by respondent CMS.

On the other hand, there is no substantial evidence to support

[Valencia's] view that he was actually dismissed from his employment by respondent [Classique
Vinyl]. After all, it is elementary that he who makes an affirmative allegation has the burden of proof.
On this score, [Valencia] failed to establish that he was actually dismissed from his job by
respondent [Classique Vinyl], aside from his bare allegation.

With regard to underpayment of salary, respondent CMS admitted that it received from respondent
[Classique Vinyl] the salary for [Valencia's] deployment. Respondent CMS never contested that the
amount received was sufficient for the payment of [Valencia's] salary.

Furthermore, respondent [Classique Vinyl] cannot be obliged to pay [Valencia's] overtime pay,
holiday pay, service incentive leave and 13th month pay as well as the alleged illegal deduction on
the following grounds:

a) [Valencia] is not a rank-and-file employee of [Classique Vinyl];

b) No proof was offered to establish that [Valencia] actually rendered overtime services;

c) [Valencia had] not [worked] continuously or even intermittently for [one whole] (1) year[-]period
during the specific year of his deployment with respondent [Classique Vinyl] to be entitled to service
incentive leave pay.

d) [Valencia] failed to offer substantial evidence to prove that respondent [Classique Vinyl] illegally
deducted from his sala.  the alleged agency and cash bond.
7

Moreover, as against respondent CMS[,] the record is bereft of factual basis for the exact
computation of [Valencia's] money claims as it has remained uncontroverted that [Valencia] was not
deployed continuously neither with respondent [Classique Vinyl] and/or to such other clientele.

WHEREFORE, premises considered, judgment is hereby rendered [d]ismissing the above-entitled

case for lack of merit and/or factual basis

SO ORDERED, 8

Ruling of the National Labor Relations Commission

Valencia promptly appealed to the National Labor Relations Commission (NLRC). Applying the four-
fold test, the NLRC, however, declared CMS as Valencia's employer in its Resolution  dated April 14,
9

2011, viz.:

In Order to determine the existence of an employer-employee relationship, the following yardstick

had been consistently applied: (l) the selection and engagement; (2) payment of wages; (3) power of
dismissal and; (4) the power to control the employee[']s conduct.

In this case, [Valencia] admitted that he applied for work with respondent [CMS] x x x. Upon the
acceptance of his application, he was made to sign an employment contract x x x. [Valencia] also
admitted that he received his wages from respondent [CMS] x x x. As a matter of fact, respondent
[CMS] argued that [Valencia] was given a non-cash wage in the approximate amount of
Php3,000.00 x x x.

Notably, it is explicitly stated in the employment contract of [Valencia] that he is required to observe
all the rules and regulations of the company as well as [the] lawful instructions of the management
during his employment. That failure to do so would cause the termination of his employment
contract. The pertinent provision of the contract reads:

2. The employee shall observe all the rules and regulations of the company during the period of
employment and [the] lawful instructions of the management or its representatives. Failure to do so
or if performance is below company standards, management [has] the right to immediatelycancel
this contract. x x x

The fact that [Vale1icia] was subjected to such restriction is an evident exercise of the power of
control over [Valencia].

The power of control of respondent [CMS] over Valencia was further bolstered by the declaration of
the former that they will not take against [Valencia] his numerous tardiness and absences at work
and[;] his nonobservance of the company rules,· The statement of [CMS] reads:

Needless to say that [Valencia] in the course of his employment has incurred many infractions like
tardiness and absences, non-observance of company rules, but respondent [CMS], in reiteration will
not take this up as leverage against [Valencia]. x x x

Though [Valencia] worked in the premises of Classique Vinyl x x x and that the [equipment] he used
in the performance of his work was provided by the between [Valencia] and Classique Vinyl x x x in
view of the foregoing circumstances earlier reflected. Besides, as articulated by jurisprudence, the
power of control does not require actual exercise of the power but the power to wield that power x x
x.

With the foregoing chain of events, it is evident that [Valencia] is an employee of respondent [CMS].

xxxx 10

Accordingly, the NLRC held that there is no basis for Valencia to hold Classique Vinyl liable for his
alleged illegal dismissal as well as for his money claims. Hence, the NLRC dismissed Valencia's
appeal and affirmed the decision of the Labor Arbiter.

Valencia's motion for reconsideration thereto was likewise denied for lack of merit in the
Resolution  dated June 8, 2011.
11
Ruling of the Court of Appeals

When Valencia sought recourse from the CA, the said court rendered a Decision  dated December
12

5, 2012 denying his Petition for Certiorari and affirming the ruling of the NLRC.

Valencia's motion for reconsideration was likewise denied in a Resolution   dated March 18, 2013.
13

Hence, this Petition for Review on Certiorari imputing upon the CA the following errors:

WITH DUE RESPECT, IT IS A SERIOUS ERROR WHICH CONSTITUTE[S] GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION ON THE PART OF THE
HONORABLE COURT OF APPEALS TO HAVE RULED THAT PETITIONER IS AN EMPLOYEE OF
CMS AND FURTHER RULED THAT HE IS NOT ENTITLED TO HIS MONETARY CLAIMS.

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS['] DECISION AND RESOLUTION
ARE CONTRARY TO LAW AND WELL-SETTLED RULE. 14

Valencia points out that the CA, in ruling that he was an employee of CMS, relied heavily on the
employment contract which the latter caused him to sign. He argues, however, that the said contract
deserves scant consideration since aside from being improperly filled up (there were many portions
without entries), the same was not notarized. Valencia likewise stresses that ti.11e burden of proving
that CMS is a legitimate job contractor lies with respondents. Here, neither Classique Vinyl nor CMS
was able to present proof that the latter has substantial capital to do business as to be considered a
legitimate independent contractor. Hence, CMS is presumed to be a mere labor-only contractor and
Classique Vinyl, as CMS' principal, was Valencia's true employer. As to his alleged dismissal,
Valencia argues that respondents failed to establish just or authorized cause, thus, his dismissal was
illegal. Anent his monetary claims, Valencia invokes the principle that he who pleads payment has
the burden of proving it. Since respondents failed to present even a single piece of evidence that he
has been paid his labor standards benefits, he believes that he is entitled to recover them from
respondents who must be held jointly and severally liable for the same. Further, Valencia contends
that respondents should be assessed moral and exemplary damages for circumventing pertinent
labor laws by preventing him from attaining regular employment status. Lastly, for having been
compelled to engage the services of counsel, Valencia claims that he is likewise entitled to attorney's
fees.

For their part, respondents Classique Vinyl and Chang point out that the issues raised by Valencia
involve questions of fact which are not within the ambit of a petition for review on certiorari. Besides,
findings of facts of the labor tribunals when affirmed by the CA are generally binding on this Court. At
any rate, the said respondents reiterate the argun1ents they raised before the labor tribunals and the
CA.

With respect to respondent CMS, the Court dispensed with the filing of its comment  when the
15

resolution requiring it to file one was returned to the Court unserved   and after Valencia informed
16

the Court that per Certification   of the Office of the Treasurer of Valenzuela City where CMS's office
17

was located, the latter had already closed down its business on March 21, 2012.

Our Ruling

There is no merit in the Petition.

The core issue here is whether there exists an employer-employee relationship between Classique
Vinyl and Valencia. Needless to state, it is from the said detennination that the other issues
raised, i.e., whether Valencia was illegally dismissed by Classique Vinyl and whether the latter is
liable for his monetary claims, hinge. However, as correctly pointed out by Classique Vinyl, "[t]he
issue of whether or not an employer-employee relationship existed between [Valencia] and
[Classique Vinyl] is essentially a question of fact."   "The Court is not a trier of facts and will not
18

review the factual findings of the lower tribunals as these are generally binding and
conclusive."'  While there are recognized exceptions,  none of them applies in this case.
19 20

Even if otherwise, the Court is not inclined to depart from the uniform findings of the Labor Arbiter,
the NLRC and the CA.

"It is an oft-repeated rule that in labor cases, as in other administrative and quasi-judicial
proceedings, 'the quantum of proof necessary is substantial evidence, or such amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion.’ ‘The burden of
proof rests upon the party who asserts the affirmative of an issue’."  Since it is Valencia here who is
21

claiming to be an employee of Classique Vinyl, it is thus incumbent upon him to proffer evidence to
prove the existence of employer-employee relationship between them. He "needs to show by
substantial evidence that he was indeed an employee of the company against which he claims illegal
dismissal."  Corollary, the burden to prove the elements of an employer-employee
22

relationship, viz.: (1) the selection and engagement of the employee; (2) the payment of wages; (3)
the power of dismissal; and (4) the power of control, lies upon Valencia.

Indeed, there is no hard and fast rule designed to establish the aforementioned elements of
employer-employee relationship.  "Any competent and relevant evidence to prove the relationship
23

may be admitted."  In this case, however, Valencia failed to present competent evidence,
24

documentary or otherwise, to support his claimed employer-employee relationship between him and
Classique Vinyl. All he advanced were mere factual assertions unsupported by proof.

In fact, most of Valencia's allegations even militate against his claim that Classique Vinyl was his
true employer. For one, Valencia stated in his Sinumpaang Salaysay that his application was
actually received and processed by CMS which required him to submit the necessary requirements
for employment. Upon submission thereof, it was CMS that caused him to sign an employment
contract, which upon perusal, is actually a contract between him and CMS. It was only after he was
engaged as a contractual employee of CMS that he was deployed to Classique Vinyl. Clearly,
Valencia's selection and engagement was undertaken by CMS and conversely, this negates the
existence of such element insofar as Classique Vinyl is concerned. It bears to state, in addition, that
as opposed to Valencia's argument, the lack of notarization of the said employment contract did not
adversely affect its veracity and effectiveness since significantly, Valencia does not deny having
signed the same.  The CA, therefore, did not err in relying on the said employment contract in its
25

determination of the merits of this case. For another, Valencia himself acknowledged that the pay
slips  he submitted do not bear the name of Classique Vinyl. While the Court in Vinoya v. National
26

Labor Relations Commission took judicial notice of the practice of employer to course through the
27

purported contractor the act of paying wages to evade liabilities under the Labor Code, hence, the
non-appearance of employer's name in the pay slip, the Court is not inclined to rule that such is the
case here. This is conside1ing that although CMS claimed in its supplemental Position
Paper/Comment that the money it used to pay Valencia's wages came from Classique Vinyl,  the 28

same is a mere allegation without proof Moreover, such allegation is inconsistent with CMS's earlier
assertion in its Position Paper  that Valencia received from it non-cash wages in an approximate
29

amount of ₱3,000.00. A clear showing of the element of payment of wages by Classique Vinyl is
therefore absent.
Aside from the afore-mentioned inconsistent allegations of Valencia, his claim that his work was
supervised by Classique Vinyl does not hold water. Again, the Court finds the same as a self-serving
assertion unworthy of credence. On the other hand, the employment contract which Valencia signed
with CMS categorically states that the latter possessed not only the power of control but also of
dismissal over him, viz.:

xxxx

2. That the employee shall observe all rules and regulations of the company during the period of
employment and [the] lawful instructions of the management or its representatives. Failure to do so
or if performance is below company standards, management [has] the right to immediately cancel
this contract.

xxxx 30

Clearly, therefore, no error can be attributed on the part of the labor tribunals and the CA in ruling
out the existence of employer-employee relationship between Valencia and Classique Vinyl.

Further, the Court finds untenable Valencia's argument that neither Classique Vinyl nor CMS was
able to present proof that the latter is a legitimate independent contractor and therefore, unable to
rebut the presumption that a contractor is presumed to be a labor-only contractor. "Genera1ly, the
presumption is that the contractor is a labor-only [contractor] unless such contractor overcomes the
burden of proving that it has the substantial capital, investment, tools and the lik.e."  Here, to prove
31

that CMS was a legitimate contractor, Classique Vinyl presented the former's Certificate of
Registration  with the Department of Trade and Industry and, License  as private recruitment and
32 33

placement agency from the Department of Labor and Employment. Indeed, these documents are not
conclusive evidence of the status of CMS as a contractor. However, such fact of registration of CMS
prevented the legal presumption of it being a mere labor-only contractor from arising.  In any event,
34

it must be stressed that "in labor-only contracting, the statute creates an employer-employee
relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is
considered merely an agent of the principal employer and the latter is responsible to the employees
of the labor-only contractor as if such employees had been directly employed by the principal
employer. The principal employer therefore becomes solidarily liable with the labor-only contractor
for all the rightful claims of the employees."  The facts of this case, however, failed to establish that
35

there is any circumvention of labor laws as to call for the creation by the statute of an employer-
employee relationship between Classique Vinyl and Valencia. In fact, even as against CMS,
Valencia's money claims has been debunked by the labor tribunals and the CA. Again, the Court is
not inclined to disturb the same.

In view of the above disquisition, the Court finds no necessity to dwell on the issue of whether
Valencia was illegally dismissed by Classique Vinyl and whether the latter is liable for Valencia's
money claims.

WHEREFORE, the Petition for Review on Certiorari is DENIED. 'The assailed December 5, 2012

Decision and March 18, 2013 Resolution of the Court of Appeals in CA-G.R. SP No. 120999
are AFFIRMED.

SO ORDERED.

_______________________________________________________________________________
G.R. No. 164257               July 5, 2010

SAN MIGUEL CORPORATION, Petitioner,

vs.
VICENTE B. SEMILLANO, NELSON MONDEJAR, JOVITO REMADA, ALILGILAN MULTI-
PURPOSE COOP (AMPCO) and MERLYN V. POLIDARIO, Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing (i) the
February 19, 2004 Decision1 of the Court of Appeals in CA-G.R. SP. No. 75209 which reversed and
set aside the February 28, 2002 and September 27, 2002 Resolutions of the National Labor
Relations Commission in NLRC Case No. V-000588-98; and (ii) its May 28, 2004
Resolution2 denying petitioner’s motion for the reconsideration thereof.

The facts of the case, as found by the Court of Appeals, 3 are as follows:

"xxx It appears that AMPCO hired the services of Vicente et al. [Vicente Semillano, Nelson
Mondejar, Jovito Remada and Alex Hawod,4 respondents herein] on different dates in December [of
1991 and] 1994. All of them were assigned to work in SMC’s Bottling Plant situated at Brgy.
Granada Sta. Fe, Bacolod City, in order to perform the following tasks: segregating bottles, removing
dirt therefrom, filing them in designated places, loading and unloading the bottles to and from the
delivery trucks, and performing other tasks as may be ordered by SMC’s officers. [They] were
required to work inside the premises of SMC using [SMC’s] equipment. [They] rendered service with
SMC for more than 6 months.

Subsequently, SMC entered into a Contract of Services5 with AMPCO designating the latter as the
employer of Vicente, et al. As a result, Vicente et al. failed to claim the rights and benefits ordinarily
accorded a regular employee of SMC. In fact, they were not paid their 13th month pay. On June 6,
1995, they were not allowed to enter the premises of SMC. The project manager of AMPCO, Merlyn
Polidario, told them to wait for further instructions from the SMC’s supervisor. Vicente et al. waited
for one month, unfortunately, they never heard a word from SMC.

Consequently, Vicente et al., as complainants, filed on July 17, 1995 a COMPLAINT FOR ILLEGAL
DISMISSAL with the Labor Arbiter against AMPCO, Merlyn V. Polidario, SMC and Rufino I. Yatar
[SMC Plant Manager], as respondents. xxx Complainants alleged that they were fillers of SMC
Bottling Plant xxx assigned to perform activities necessary and desirable in the usual business of
SMC. xxx They claim that they were under the control and supervision of SMC personnel and have
worked for more than 6 months in the company. As such, they assert that they are regular
employees of SMC.

However, SMC utilized AMPCO making it appear that the latter was their employer, so that SMC
may evade the responsibility of paying the benefits due them under the law. Finally, complainants
contend that AMPCO and SMC failed to give their 13th month pay and that they were prevented
from entering the SMC’s premises. Hence, complainants contend that they were illegally dismissed
from service.

On the other hand, respondent SMC raised the defense that it is not the employer of the
complainants. According to SMC, AMPCO is their employer because the latter is an independent
contractor xxx. Also SMC alleged that it was AMPCO that directly paid their salaries and remitted
their contributions to the SSS. Finally, SMC assails the jurisdiction of the Labor Arbiter contending
that the instant dispute is intra-cooperative in nature falling within the jurisdiction of the Arbitration
Committee of the Cooperative Development Authority.

On April 30, 1998, the Labor Arbiter (LA) rendered his decision. 6 The dispositive portion of which
reads:

Wherefore, premises considered, judgment is hereby rendered declaring herein complainants as

regular employees of San Miguel Corporation and the latter is ordered:

1. To reinstate complainants to their previous or equivalent positions without loss of seniority

rights with payment of full backwages from the time of their illegal dismissal up to the time of
their actual reinstatement; and

2. To pay complainant’s counsel attorney’s fees 10% of the total award or ₱36,625.76.

Per our computation complainants Vicente Semillano, Nelson Mondejar and Jovito Remada are
entitled to the amount of ₱122,085.88 each as full backwages covering the period June 6, 1995 up
to April 30, 1998.

SO ORDERED.7

Accordingly, respondents filed a motion for partial execution of the decision of the Labor Arbiter
praying for their immediate reinstatement.8 Petitioner San Miguel Corporation (SMC) filed its
Opposition to the motion.9 The LA, however, rendered no ruling thereon.10

Petitioner appealed the LA Decision to the NLRC. Initially, the NLRC Fourth Division affirmed with
modifications the findings of the LA as follows:

WHEREFORE, premises considered, the appeals of respondents AMPCO and SMC are denied for
lack of merit and the decision appealed from is affirmed with a modification in the following:

a. Respondent SMC to pay complainants their backwages from June 6, 1995 up to and until
July 22, 1998;

b. Respondent SMC to pay complainants their accrued salaries and allowances from July 23,
1998 up to the present; and

c. Respondent SMC to pay complainants ten percent (10%) of the total award as attorney’s
fees.

Complainants, to restate, are regular employees of San Miguel Corporation and the latter is ordered
to reinstate complainants to their former position as pilers/segregators.

Petitioner SMC moved for a reconsideration of the foregoing decision. In a Resolution dated
February 28, 2002, the NLRC acted on the motion and reversed its earlier ruling. It absolved
petitioner from liability and instead held AMPCO, as employer of respondents, liable to pay for
respondents’ backwages, accrued salaries, allowances, and attorney’s fees. In holding that AMPCO
was an independent contractor, NLRC was of the view that the law only required substantial capital
or investment. Since AMPCO had "substantial capital of nearly one (1) million" then it qualified as an
independent contractor. The NLRC added that even under the control test, AMPCO would be the
real employer of the respondents, since it had assumed the entire charge and control of
respondents’ services. Hence, an employer-employee relationship existed between AMPCO and the
respondents.

Respondents timely filed their motion for reconsideration of the NLRC resolution but it was denied. 11

Feeling aggrieved over the turnaround by the NLRC, the respondents filed a petition for review on
certiorari under Rule 65 with the Court of Appeals (CA), which favorably acted on it.

In overturning the commission’s ruling, the Court of Appeals ironically applied the same control test
that the NLRC used to resolve the issue of who the actual employer was. The CA, however, found
that petitioner SMC wielded (i) the power of control over respondent, as SMC personnel supervised
respondents’ performance of loading and unloading of beer bottles, and (ii) the power of dismissal,
as respondents were refused entry by SMC to its premises and were instructed by the AMPCO
manager "to wait for further instructions from the SMC’s supervisor." The CA added that AMPCO
was a labor-only contractor since "a capital of nearly one million pesos" was insufficient for it to
qualify as an independent contractor. Thus, the decretal portion reads:

WHEREFORE, premises considered, the instant petition is GRANTED. The assailed Resolutions
dated February 28, 2002 and September 27, 2002 both issued by the public respondent National
Labor Relations Commission in the case docketed as RAB CASE NO. 06-07-10298-95 are hereby
SET ASIDE and a new one entered reinstating its original Decision dated June 30, 2000, which
affirmed with modification the decision of the Labor Arbiter dated April 30, 1998. No pronouncement
as to costs.

SO ORDERED.

SMC filed a motion for reconsideration but it was denied by the CA in its May 28, 2004 Resolution. 12

Hence, this petition for review on certiorari.

Petitioner SMC argues that the CA wrongly assumed that it exercised power of control over the
respondents just because they performed their work within SMC’s premises. In advocacy of its claim
that AMPCO is an independent contractor, petitioner relies on the provisions of the service contract
between petitioner and AMPCO, wherein the latter undertook to provide the materials, tools and
equipment to accomplish the services contracted out by petitioner. The same contract provides that
AMPCO shall have exclusive discretion in the selection, engagement and discharge of its
employees/personnel or otherwise in the direction and control thereof. Petitioner also adds that
AMPCO determines the wages of its employees/personnel who shall be within its full control.

Petitioner further argues that respondents’ action is essentially one for "regularization" (as
employees of SMC) which is nowhere recognized or allowed by law. Lastly, petitioner contends that
the case involves an intra-cooperative dispute, which is within the original and exclusive jurisdiction
of the Arbitration Committee of the Cooperative and, thereafter, the Cooperative Development
Authority.

In its Comment,13 respondent AMPCO essentially advanced the same arguments in support of its
claim as a legitimate job contractor.
The only issue that needs to be resolved is whether or not AMPCO is a legitimate job contractor. A
claim that an action for regularization has no legal basis and is violative of petitioner’s constitutional
and statutory rights is, therefore, dependent upon the resolution of the issue posed above.

The petition fails.

Generally, the findings of fact made by the Labor Arbiter and the NLRC, as the specialized agencies
presumed to have the expertise on matters within their respective fields, are accorded much respect
and even finality, when supported by ample evidence14 and affirmed by the CA. The fact that the
NLRC, in its subsequent resolution, reversed its original decision does not render the foregoing
inapplicable where the resolution itself is not supported by substantial evidence.

Department of Labor and Employment (DOLE) Department Order No. 10, Series of 1997, defines
"job contracting" and "labor-only contracting" 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.

Section 5 of Department Order No. 18-02 (Series of 2002) of the Rules Implementing Articles 106 to
109 of the Labor Code further provides that:
"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. (emphasis supplied)

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 or not the 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. 15

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. 16

Although there may be indications of an independent contractor arrangement between petitioner and
AMPCO, the most determinant of factors exists which indicate otherwise.

Petitioner’s averment that AMPCO had total assets amounting to ₱932,599.22 and income of
₱2,777,603.46 in 1994 was squarely debunked by the LA. Thus:

Furthermore, there are no pieces of evidence that AMPCO has substantial capital or investment. An
examination its "Statement of Income and Changes in Undivided Savings" show that its income for
the year 1994 was ₱2,777,603.46 while its operating expenses for said year is ₱2,718,315.33 or a
net income of ₱59,288.13 for the year 1994; that its cash on hand for 1994 is ₱22,154.80.

In fact, the NLRC in its original decision likewise stated as follows:

In contrast, the (sic) AMPCO’s main business activity is trading, maintaining a store catering to
members and the public. Its job contracting with SMC is only a minor activity or sideline. The
component of AMPCO’s substantial capital are [sic]in fact invested and used in the trading business.
This is palpably shown in the sizable amount of its accounts receivables amounting to more than
₱.6M out of its members’ capital of only ₱.47M in 1994.

Neither did petitioner prove that AMPCO had substantial equipment, tools, machineries, and
supplies actually and directly used by it in the performance or completion of the segregation and
piling job. In fact, as correctly pointed out by the NLRC in its original decision, there is nothing in
AMPCO’s list17 of fixed assets, machineries, tools, and equipment which it could have used, actually
and directly, in the performance or completion of its contracted job, work or service with petitioner.
For said reason, there can be no other logical conclusion but that the tools and equipment utilized by
respondents are owned by petitioner SMC. It is likewise noteworthy that neither petitioner nor
AMPCO has shown that the latter had clients other than petitioner. Therefore, AMPCO has no
independent business.
In connection therewith, DOLE Department Order No. 10 also states that an independent 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, and 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. This embodies what has long been jurisprudentially recognized as the control
test18 to determine the existence of employer-employee relationship.

In the case at bench, petitioner faults the CA for holding that the respondents were under the control
of petitioner whenever they performed the task of loading in the delivery trucks and unloading from
them. It, however, fails to show how AMPCO took "entire charge, control and supervision of the work
and service agreed upon." AMPCO’s Comment on the Petition is likewise utterly silent on this point.
Notably, both petitioner and AMPCO chose to ignore the uniform finding of the LA, NLRC (in its
original decision) and the CA that one of the assigned jobs of respondents was to "perform other
acts as may be ordered by SMC’s officers." Significantly, AMPCO, opted not to challenge the original
decision of the NLRC that found it a mere labor-only contractor. 1avvphi1

Moreover, the Court is not convinced that AMPCO wielded "exclusive discretion in the discharge" 19 of
respondents. As the CA correctly pointed out, Merlyn Polidario, AMPCO’s project manager, even
told respondents to "wait for further instructions from the SMC’s supervisor" after they were
prevented from entering petitioner SMC’s premises. Based on the foregoing, no other logical
conclusion can be reached than that it was petitioner, not AMPCO, who wielded power of control.

Despite the fact that the service contracts 20 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. 21 At a closer look, AMPCO’s actual status and participation regarding
respondents’ employment clearly belie the contents of the written service contract.

Petitioner cannot rely either on AMPCO’s Certificate of Registration as an Independent Contractor

issued by the proper Regional Office of the DOLE to prove its claim. It 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.22 In distinguishing between permissible job contracting and prohibited labor-
only contracting, the totality of the facts and the surrounding circumstances of the case are to be
considered.23

Petitioner also argues that among the permissible contracting arrangements include "work or
services not directly related or not integral to the main business or operation of the principal
including… work related to manufacturing processes of manufacturing establishments." 24 The Court
is not persuaded. The evidence is clear that respondents performed activities which were directly
related to petitioner’s main line of business. Petitioner is primarily engaged in manufacturing and
marketing of beer products, and respondents’ work of segregating and cleaning bottles is unarguably
an important part of its manufacturing and marketing process.

Lastly, petitioner claims that the present case is outside the jurisdiction of the labor tribunals
because respondent Vicente Semillano is a member of AMPCO, not SMC. Precisely, he has joined
the others in filing this complaint because it is his position that petitioner SMC is his true employer
and liable for all his claims under the Labor Code.

Thus, petitioner SMC, as principal employer, is solidarily liable with AMPCO, the labor-only
contractor, for all the rightful claims of respondents. Under this set-up, AMPCO, as the "labor-only"
contractor, is deemed an agent of the principal (SMC). The law makes the principal responsible over
the employees of the "labor-only" contractor as if the principal itself directly hired the employees. 25

WHEREFORE, the petition is DENIED. The February 19, 2004 Decision of the Court of Appeals,
reversing the decision of the National Labor Relations Commission and reinstating the decision of
the Labor Arbiter, is AFFIRMED.

SO ORDERED.