4_case Digest.docx

A. Legitimate Job Contracting Trilateral Relationship in Legitimate Contracting 1. Coca-Cola Bottlers Phils. Inc. v. Dela Cruz (184977, December 7, 2009) Facts: Respondents filed for regularization against Coca-Cola Bottlers Philippines, Inc. They are route helpers assigned to work in petitioner’s trucks. They go from the sales offices or plants to customer outlets. They were hired either directly or by contractors, but they do not enjoy the full benefits and privileges granted to regular sales force. Petitioner contended that it entered into contracts of services with Peerless and Excellent Partners Cooperative, Inc., who both retained the right to select, hire, dismiss, supervise, control and discipline and pay the salaries of all personnel they assign to petitioner, all for a fee. Hence, there is no employeremployee relationship between it and respondents and the complaints should be dismissed for lack of jurisdiction on the part of the NLRC. Respondents countered that they worked under the control and supervision of supervisors who prepared their work schedules; and, that Peerless and Excellent did not have sufficient capital or investment to provide services to the petitioner. Hence, these are in nature of labor-only contracts prohibited by law. Petitioner claimed that its main business is soft drinks manufacturing and the respondents’ tasks of handling, loading and unloading them are not part of the manufacturing process. It stressed that its only interest in the respondents is in the result of their work, and left to them the means and the methods of achieving this result. Issue: Whether or not the contracts for services are valid contracting for employee services Held: No, Peerless and Excellent were suppliers of labor who had no sufficient capitalization and equipment to undertake sales and distribution of soft drinks as independent activities separate from the manufacture of soft drinks, and who had no control and supervision over the contracted personnel. They are therefore labor-only contractors and the contracted personnel, engaged in component functions in the main business of the company under the latter’s supervision and control, are regular employees of petitioner. In a legitimate contracting relationship, the principal controls the contractor and his employees with respect to the ultimate results or output of the contract. On the other hand, a contractor controls his employees, not only to the results to be obtained, but with respect to the means and manner of achieving this result. There results in an employer-employee relationship between them. This is different from the relationship in a labor-only contracting situation where the contractor simply becomes an agent of the principal. Either directly or through the agent, the principal then controls the results as well as the means and manner of achieving the desired results. 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 intermediary shall be considered 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. A legitimate job contractor must have the capitalization and equipment to undertake the sale and distribution of the manufacturer’s products, and must do it on its own using its own means and selling methods. The contracts of services provide that that the contractors shall provide petitioner the services of employees for a temporary period for tasks or activities and they shall have exclusive discretion in the selection, engagement and discharge of their employees. The determination of the compensation of the personnel shall also be within their full control. The contracts also stated that the employees’ work is subject to the control and direction of petitioner merely as to result to be accomplished, and not as to the means and methods of accomplishing such result. Here, respondents worked by helping in the sale and distribution of company products. They provided the muscle that sale and distribution required and were under petitioner’s control and supervision in doing these tasks. Also, the contractors were not independently selling and distributing company products, using their own equipment, means and methods. They only supplied the manpower in the handing of products for sale and distribution. The contracting for sale and distribution as an independent and selfcontained operation is a legitimate contract, but the pure supply of manpower with the task of assisting in sales and distribution controlled by a principal fall within prohibited labor-only contracting.

2. Temic Automotive Philippines v. Temic Automotive Philippines Inc. Employees Union – FFW (186965, December 23, 2009) Facts: Petitioner manufactures electronic brake systems and comfort body electronics for automotive vehicles; while respondent is the exclusive bargaining agent of petitioner's employees. Petitioner is composed of several departments, one of which is the warehouse department consisting of two warehouses - the electronic braking system and the comfort body electronics. These warehouses are further divided into four sections - receiving section, raw materials warehouse section, indirect warehouse section and finished goods section. The union members are regular rank-and-file employees working in these sections as clerks, material handlers, system encoders and general clerks. Since 1998, petitioner contracts out some of the work in the warehouse department, specifically those in the receiving and finished goods sections, to three independent forwarders, namely: Diversified, Airfreight Airfreight and KNI. They also have their own employees who hold the positions of clerk, material handler, system encoder and general clerk. The regular employees of petitioner and those of the forwarders share the same work area and use the same equipment, tools and computers all belonging to petitioner. The union demanded that the forwarders' employees be absorbed as regular employees and be given positions within the bargaining unit. Petitioner contends that the arrangement is a valid exercise of its management prerogative. Issue:

Whether or not the the forwarders' employees are covered by the CBA Held: The job of forwarding consists of several services that complement one another and can best be viewed as one whole process involving a package of services. These services include packing, loading, materials handling and support clerical activities, all of which are directed at the transport of company goods, usually to foreign destinations. It is in the appreciation of these forwarder services that a basic misunderstanding results in the error of equating the functions of the forwarders’ employees with those of regular employees. A clerical job, for example, may be done on the same company products that the forwarders’ employees and company employees may work on, but these similarities do not necessarily mean that all these employees work for the company. The regular company employees work for petitioner under its supervision and control, but forwarder employees work for the forwarders in their own operation that is they contracted work from the company. The company controls its employees in the means, method and results of their work, in the same manner that the forwarder controls its own employees in the means, manner and results of their work. Complications and confusion result because the company at the same time controls the forwarder in the results of the latter’s work, without controlling however the means and manner of the forwarder employees’ work. From the perspective of the union, the forwarding agreements were already in place when the CBA was signed. In this sense, it agreed implicitly by its silence and acceptance, that jobs related to the contracted forwarding activities are not regular company activities and are not to be undertaken by regular employees falling within the scope of the bargaining unit but by the forwarders’ employees. Thus, the skills requirements and job content between forwarders’ jobs and bargaining unit jobs may be the same, and they may even work on the same company products, but their work for different purposes and for different entities completely distinguish forwarder and company employees. At this point, the union cannot simply turn around and claim the contrary position that some forwarder employees should be regular employees and should be part of its bargaining unit because they undertake regular company functions. This is a more appropriate action before the NLRC impleading the proper parties, but not a voluntary arbitration that does not implead the affected parties. Before the inclusion of the forwarders’ employees in the bargaining unit can be considered, these employees must first be proven to be regular company employees. The union does not have the personality to make this claim for these forwarders’ employees. Forwarding includes a whole range of activities that may duplicate company activities in terms of the exact character and content of the job done and even of the skills required, but cannot be legitimately labeled as company activities because they properly pertain to forwarding that the company has contracted out. The union’s own evidence, in fact, speaks against the point the union wishes to prove. Specifically, the affidavits of forwarder employees confirm that the work they were doing was predominantly related to forwarding or the shipment or transport of the petitioner’s finished goods to overseas destinations. The nature of the outsourced services is not substantially altered by the claim that they occasionally do work that pertains to the company’s finished goods supervisor or a company employee such as the inspection of goods to be shipped and inventory of finished goods.

3. Alviado v. Procter & Gamble (160506, March 9, 2010) Facts: P&G manufactures different consumer and health products. To enhance consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products. Petitioners worked as merchandisers of P&G from various dates, from 1982 to 1993. They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time. They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G. They received their wages from Promm-Gem or SAPS which imposed disciplinary measures on erring merchandisers. Petitioners filed a complaint against P&G for regularization and subsequently, for illegal dismissal. They insist that they were recruited by P&G and were engaged to undertake merchandising chores even before the existence of Promm-Gem and SAPS. They further claim that they were instructed to fill up application forms to the agencies which P&G created. They further claim that P&G instigated their dismissal, informing the latter that their Merchandising Services Contract will no longer be renewed and that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their client. On the other hand, P&G argues that there is no employment relationship between it and petitioners. It was Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of work. Issue: Whether or not petitioners were employees of P&G Held: Those supplied by SAPS, which engaged in labor-only contracting, are considered as employees of P&G. However, those having worked under, and been dismissed by Promm-Gem, are considered the employees of Promm-Gem, not of P&G. Labor-only contracting is prohibited. The elements are: i) the contractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor are performing activities which are directly related to the main business of the principal; or ii) the contractor does not exercise the right to control over the performance of the work of the contractual employee. "Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out. The "right to control" shall refer to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used. Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or services. Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature. However, in order for such outsourcing to be valid, it must be made to an independent contractor because the current labor rules expressly prohibit laboronly contracting.

Promm-Gem The FS of Promm-Gem show that it has authorized capital stock of P1 million and a paid-in capital of P500,000. It also has long term assets worth P432,895 and current assets of P719,042. Promm-Gem has also proven that it maintained its own warehouse and office space with a floor area of 870 square meters. It also had three registered vehicles used for its merchandising business. Promm-Gem also has other clients aside from P&G. Under the circumstances, Promm-Gem has substantial capital and investment which relates to the work to be performed. Also, Promm-Gem supplied its workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their work. It also issued uniforms to them. It already considered the complainants working under it as its regular employees. This circumstance shows it exercises control over its workers. Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. It is a legitimate independent contractor. SAPS The Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250. There is no other evidence presented to show how much its working capital and assets are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets. Jurisprudence dictates that with the current economy, the paid-in capitalization amounting to P75,000 cannot be considered as substantial. Applying the same rationale, it is clear that SAPS – having a paid-in capital of only P31,250 - has no substantial capital. Its payroll for its merchandisers alone for one month would already total P44,561. It had 6-month contracts with P&G. Its capital is not even sufficient for one month’s payroll. SAPS failed to show that its paid-in capital is sufficient for the period required for it to generate its needed revenue to sustain its operations independently. Substantial capital refers to capitalization used in the performance of the job. Thus, SAPS has failed to show substantial capital. Furthermore, petitioners have been charged with the merchandising and promotion of the products of P&G, an activity directly related to the principal business of P&G. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal business of P&G, we find that the former is engaged in "labor-only contracting". "Where ‘labor-only’ contracting exists, an employer-employee relationship is established between the employer and the employees of the ‘labor-only’ contractor." The purpose is to prevent a circumvention of labor laws. The contractor is considered merely an agent of the employer and the latter is responsible to the employees as if such employees had been directly employed by it.

Elements of Legitimate Contracting 4. Neri v. NLRC (97008-09, July 23, 1993) Facts: Far East Bank and Trust Company (Bank) and Building Care Corporation (BCC) are sued by two employees of BBC, which provides janitorial and other specific services to various firms, for regularization. BBC, Virginia Neri and Jose Cabelin were hired by Building Care Corporation (BCC), a corporation engaged in providing technical, maintenance, engineering, housekeeping, security and other specific services to its clientele, as telex operator and as janitor, respectively. They were assigned to work in the Far East Bank and Trust Company (Bank). Petitioners filed complaints against the Bank and BCC to compel the Bank to accept them as regular employees. They contend that BCC is engaged in "labor-only" contracting because it failed to adduce evidence purporting to show that it invested in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of its business. Moreover, they perform duties which are directly related to the principal business or operation of the Bank. Issue: Whether or not BBC is engaged in labor-only contracting when it has no investment in the form of tools, equipment, machineries, work premises, among others Held: There is "labor-only" contracting where: (a) the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others; and, (b) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. Here, BBC is not a labor-only contractor. While there is no evidence that it has investment, it is enough that it has substantial capital. The law does not require both substantial capital and investment. This is clear from the use of the conjunction "or". If the intention was otherwise, then the conjunction "and" should have been used. Furthermore, the hiring of independent contractors to perform special services, ranging from janitorial, security and even technical or other specific services such as those performed by petitioners are not necessary in the conduct of the principal business of the employer. In fact, the status of BCC as an independent contractor was previously confirmed in ALU-TUCP v. NLRC. Besides, petitioners do not deny that they were selected and hired by BCC which likewise acknowledges that they are its employees. BCC maintained supervision and control over petitioners: petitioners reported for work wearing the prescribed uniform of BCC; leaves of absence were filed directly with BCC; and, salaries were drawn only from BCC. More importantly, under the contract, it was BCC which had the power to reassign petitioners. Their deployment to the Bank was not subject to the bank's acceptance. Cabelin was promoted to messenger because the Bank promised BCC that two additional janitors would be hired if the promotion was to be effected.

5. Vinoya v. NLRC (126586, February 2, 2000) Facts: Regent Food Corporation (RFC) manufactures various food products. Alexander Vinoya claims that he was hired by RFC as sales representative. An ID card was issued to him and he reported daily to the office of RFC to take the latter's van for the delivery of its products. During his employ, he was assigned to various supermarkets and grocery stores where he booked sales orders and collected payments for RFC. For this task, he was required by RFC to put up a monthly bond of P200 as security deposit to guarantee the performance of his obligation. Petitioner contends that he was under the direct control and supervision of the plant manager and the senior salesman of RFC, respectively. Thereafter, he avers that he was transferred by RFC to Peninsula Manpower Company, Inc. (PMCI), an agency which provides RFC with additional contractual workers pursuant to a contract for the supply of manpower services. Subsequently, he was informed by RFC, that his services were terminated and he was asked to surrender his ID card. Consequently, he filed a case for illegal dismissal. RFC maintains that no employer-employee relationship existed between petitioner and itself. It insists that petitioner is actually an employee of PMCI, allegedly an independent contractor, which had a Contract of Service with RFC. It presents an Employment Contract signed by petitioner, wherein PMCI appears as his employer. RFC denies that petitioner was ever employed by it prior to this. It avers that petitioner was issued an ID card so that its clients would recognize him as a duly authorized representative. With regard to the bond, RFC asserts that it was required in order to guarantee the turnover of his collection since he handled funds of RFC. Finally, RFC contends that the termination of its relationship with petitioner was brought about by the expiration of the Contract of Service between itself and PMCI and not because petitioner was dismissed from employment. Issue: Whether or not petitioner is an employee of RFC Held: Yes, since PMCI is a labor-only contractor, it is deemed an agent of RFC which ultimately hired petitioner. Jurisprudence dictates that it is not enough to show substantial capitalization or investment in the form of tools, equipment, machineries and work premises, among others, to be considered as an independent contractor. In fact, several factors might be considered such as, but not necessarily confined to, whether the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of specified pieces of work; the control and supervision of the workers; the power of the employer with respect to the hiring, firing and payment of the workers of the contractor; the control of the premises; the duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of payment. First, PMCI does not have substantial capitalization or investment. It only has P75,000 in paid-in capital, which cannot be considered as substantial capitalization. With the current economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000 cannot be considered as substantial capital and, as such, PMCI cannot qualify as an independent contractor.

Second, PMCI did not carry on an independent business nor did it undertake the performance of its contract according to its own manner and method, free from the control and supervision of its principal, RFC. The Contract of Service itself provides that RFC can require the workers assigned by PMCI to render services even beyond the regular eight hour working day when deemed necessary. Furthermore, RFC undertook to assist PMCI in making sure that the daily time records of its alleged employees faithfully reflect the actual working hours. Third, PMCI was not engaged to perform a specific and special job or service, which is one of the strong indicators that an entity is an independent contractor. The sole undertaking of PMCI was to provide RFC with a temporary workforce able to carry out whatever service may be required by it. Obviously, PMCI merely acted as a recruitment agency for RFC. PMCI clearly conducted itself as labor-only contractor. Lastly, in labor-only contracting, the employees recruited by the contractor perform activities which are directly related to the main business of its principal. In this case, the work of petitioner as sales representative is directly related to the business of RFC. Being in the business of food manufacturing and sales, it is necessary for RFC to hire a sales representative to take charge of booking its sales orders and collecting payments for such. Thus, the work of petitioner as sales representative in RFC can only be categorized as clearly related to the latter's business. Based on the foregoing, PMCI can only be classified as a labor-only contractor and, as such, cannot be considered as the employer of petitioner. However, even granting that PMCI is an independent contractor, a perusal of the Contract of Service entered into between RFC and PMCI reveals that petitioner is actually not included in the enumeration of the workers to be assigned to RFC, not including the position of petitioner as sales representative. This only shows that petitioner was never intended to be a part of those to be contracted out. Even if we use the "four-fold test" to ascertain whether RFC is the true employer of petitioner that same result would be achieved. With regard the power to hire, petitioner presented the identification card issued to him as proof that it was the latter who engaged his services. This is enough proof that petitioner was previously hired by RFC prior to his transfer as agency worker to PMCI. The ID card issued was dated more than one year before the Employment Contract. Thus, it follows that it was RFC who hired petitioner to be its employee. With respect to the payment of wages, RFC disputes that petitioner did not submit any evidence to prove that his salary was paid by it. On the contrary, RFC asserts that the invoices presented by it, show that it was PMCI who paid petitioner his wages through its regular monthly billings charged to RFC. The Court takes judicial notice of the practice of employers who, in order to evade the liabilities under the Labor Code, do not issue pay slips directly to their employees, but through a third person, usually the purported contractor (service or manpower placement agency). For this reason, the lowly worker is unable to show proof that it was directly paid by the true employer. Nevertheless, for the workers, it is enough that they actually receive their pay, oblivious of the need for payslips, unaware of its legal implications. Applying this principle, even though the wages were coursed through PMCI, we note that the funds actually came from the pockets of RFC. As to the power to dismiss, RFC avers that it was PMCI who terminated the employment of petitioner. The facts on record, however, disprove the allegation of RFC. First of all, the Contract of Service gave RFC

the right to terminate the workers assigned to it by PMCI without the latter's approval. In furtherance of the this, RFC requested PMCI to terminate petitioner from his employment with the company. Finally, the power of control refers to the authority of the employer to control the employee not only with regard to the result of work to be done but also to the means and methods by which the work is to be accomplished. It should be borne in mind, that the "control test" calls merely for the existence of the right to control the manner of doing the work, and not necessarily to the actual exercise of the right. In the case, RFC raises the defense that the power of control was jointly exercised with PMCI. On the other hand, petitioner was under the direct control and supervision of the personnel of RFC and not PMCI. The admission of RFC that it exercised control and supervision over petitioner, the same being a declaration against interest, is sufficient enough to prove that the power of control truly exists.

6. San Miguel Corporation v. Semillano (164257, July 5, 2010) Facts: Alilgilan Multi-Purpose Coop (AMPCO) hired the services of respondents on different dates in December in 1991 and 1994. All of them were assigned to work in SMC’s Bottling Plant 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, for six months. They were required to work inside the premises of the plant using its equipment. Subsequently, SMC entered into a Contract of Services with AMPCO designating the latter as the employer of respondents. As a result, the employees failed to claim the rights and benefits ordinarily accorded a regular employee of SMC. In fact, they were not paid their 13th month pay. The project manager of AMPCO, Merlyn Polidario, told them to wait for further instructions from the SMC’s supervisor. They waited for one month, unfortunately, they never heard a word from SMC. Consequently, respondents filed complaints for illegal dismissal. They alleged that they performed activities necessary and desirable in the usual business of SMC. They claim that they were under the control and supervision of SMC personnel and have worked for more than six months in the company. As such, they assert that they are regular employees of SMC. Respondent SMC raised the defense that AMPCO is their employer because the latter is an independent contractor. Also, SMC alleged that it was AMPCO that directly paid their salaries and remitted their contributions to the SSS. Issue: Whether or not AMPCO is a legitimate job contractor Held: No, it is engaged in labor-only contracting deeming an employment relationship between SMC and respondents. 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. Here, an examination its Statement of Income and Changes in Undivided Savings show that its income for the year 1994 was P2,777,603 while its operating expenses for said year is P2,718,315 or a net income of P59,288 for the year 1994; that its cash on hand for 1994 is ₱22,154. 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 is invested and used in the trading business. This is shown in the sizable amount of its accounts receivable amounting to more than P600,000 out of its members’ capital of only P470,000 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 list 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. Also, AMPCO had no clients other than petitioner. Therefore, AMPCO has no independent business. 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. Control over Operations 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. Here, SMC fails to show how AMPCO took entire charge, control and supervision of the work and service agreed upon. Moreover, AMPCO did not wield exclusive discretion in the discharge of respondents as its 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. 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 is deemed an agent of SMC. The law makes the principal responsible over the employees of the labor-only contractor as if the principal itself directly hired the employees.

7. Baguio v. NLRC (79004, October 4, 1991) Facts: General Milling Corporation (GMC) is engaged in flour and feeds manufacturing for the construction of an annex building inside the its plant in Cebu City. Feliciano Lupo entered into a contract of services with GMC and hired petitioners either as carpenters, masons or laborers. Subsequently, Lupo terminated petitioners' services, on different dates. As a result, petitioners filed complaints before the NLRC for unpaid wages, cost of living allowances, bonus and overtime pay. 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 which holds the employer solidary liable with his contractor for unpaid wages of employees of the latter. Issue: Whether or not petitioners may hold GMC solidary liable with Lupo Held: Yes, they should be solidary liable to petitioners. However, recovery 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. 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. Here, 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, this case involves "job contracting," covered by Article 107. 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 was unable to satisfy his liabilities. However, this does not detract his status as independent contractor. Based on the foregoing, GMC qualifies as an "indirect employer." It entered into a contract with an independent contractor, 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 solidary liable with Lupo for any violation of the Labor Code pursuant to Article 109 thereof. The distinction between Articles 106 and 107 was in the fact that Article 106 deals with "labor-only" contracting, where the contractor is 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,” where the contractor himself is the direct employer of the employees, the employer is deemed as an indirect employer.

Mandatory Registration Requirement and Effect of Non-registration 8. San Miguel Corporation v. Semillano (164257, July 5, 2010) Facts: Alilgilan Multi-Purpose Coop (AMPCO) hired the services of respondents on different dates in December in 1991 and 1994. All of them were assigned to work in SMC’s Bottling Plant 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, for six months. They were required to work inside the premises of the plant using its equipment. Subsequently, SMC entered into a Contract of Services with AMPCO designating the latter as the employer of respondents. As a result, the employees failed to claim the rights and benefits ordinarily accorded a regular employee of SMC. In fact, they were not paid their 13th month pay. The project manager of AMPCO, Merlyn Polidario, told them to wait for further instructions from the SMC’s supervisor. They waited for one month, unfortunately, they never heard a word from SMC. Consequently, respondents filed complaints for illegal dismissal. They alleged that they performed activities necessary and desirable in the usual business of SMC. They claim that they were under the control and supervision of SMC personnel and have worked for more than six months in the company. As such, they assert that they are regular employees of SMC. Respondent SMC raised the defense that AMPCO is their employer because the latter is an independent contractor. Also, SMC alleged that it was AMPCO that directly paid their salaries and remitted their contributions to the SSS. Issue: Whether or not AMPCO is a legitimate job contractor when its COR classified it as independent contractor Held: No, AMPCO will still be considered as a labor-only contractor. Despite the fact that the service contracts contain stipulations which are earmarks of independent contractor relationship, they do not make it legally so. Petitioner SMC and AMPCO cannot dictate, by a declaration in a contract, the character of AMPCO’s business. AMPCO’s character should be measured in terms of, and determined by, the criteria set by statute. Petitioner cannot rely either on AMPCO’s COR 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. 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.

9. Consolidated Building Maintenance, Inc. v. Asprec, Jr. (217301, June 6, 2018) Facts: Petitioner is in the business of providing janitorial, kitchen, messengerial, elevator maintenance and allied services to various entities. Among its clients is Pizza Hut. Rolando Asprec, Jr. and Jonalen Bataller alleged that they are regular employees of Pizza Hut, Asprec having commenced work as a "Rider" in January 2001 and Bataller as "team member/slice cashier" in March 2008. Asprec averred that after the expiration of his contract, Pizza Hut advised him to go on leave. Thereafter, he was told to sign a contract. Except for the fact that the pay slips were then issued by petitioner, work proceeded as usual. Also, Bataller related that before the expiration of her contract, she was informed by Pizza Hut that for her continued employment, she must submit a resignation letter and take a vacation. Thereafter, she passed an interview, Pizza Hut prepared her documents and then forwarded the same to petitioner. She then resumed employment under the same conditions. Thereafter, petitioner posited that respondents are its employees, and they were investigated based on a report for an attempted theft. Accordingly, Jessie Revilla supposedly delivered an excess of two boxes to Pizza Hut’s slice booth at the LRT Santolan Station, which the respondents failed to report. Asprec claimed not to have known the incident. On the other hand, Bataller, who was manning the slice booth, claimed that, she was busy attending to customers and did not notice the excess in the delivery. Revilla allegedly went back to get the extra pizza boxes later that day. Respondents were thereafter dismissed. Issue: Whether or not petitioner is a labor-only contractor Held: No, petitioner is an independent contractor. As evidence that it is engaged in legitimate job contracting, petitioner submitted COR with the DOLE. Furthermore, it has been in operation for almost 50 years. DOLE DO No. 18-02, Series of 2002 reiterates the prohibition against labor-only contracting, which is an arrangement where the contractor merely recruits, supplies or places workers to perform a job, work or service for a principal and any of the following elements are present: i. the contractor does not have substantial capital or investment which relates to the job, work, or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or ii. the contractor does not exercise the right to control the performance of the work of the contractual employee. In addition, DO No. 18-02 requires that contractors be registered with the DOLE Regional Offices. This is to regulate and monitor contracting arrangements that those contractors operate in accordance with law. However, the absence of registration merely gives rise to the presumption that the contractor is engaged in labor-only contracting. Conversely, in the absence of evidence to the contrary, the existence of registration in favor of a contractor is a strong badge of legitimacy in favor of the contractor. It is not disputed that petitioner is a duly licensed labor contractor by the DOLE. As the primary agency tasked to regulate job contracting, DOLE is presumed to have acted in accordance with its mandate and after due evaluation of rules and regulations in its registration of petitioner. The COR issued by DOLE recognizes petitioner as an independent contractor. In this light, it then becomes incumbent upon

respondents to rebut the presumption of regularity to prove that petitioner is not a legitimate contractor as determined by the DOLE, which they failed to do. Capital or Investment While the COR offered as evidence pertains only to a period of three years, case law dictates that the status of petitioner may be evaluated on the basis of its activities and status prior to their registration. Here, petitioner has established compliance with the requirements of legitimate job contracting. Its total assets amount to P79,203,902 in 2008, P76,189,554 in 2009, and P84,351,349 in 2010. This consists of cash, receivables, and property and equipment. Likewise, it has an authorized capital stock of P1,000,000 shares, half of which have been subscribed. Its retained earnings amount to P6,433,525 and P10,988,890 for the years 2009 and 2010, respectively. Incidentally, its paid-up capital amounted to P3,500,000, which is even beyond by the standard set by the DOLE D.0. No. 18-A, series of 2011, of what constitutes "substantial capital." Clearly, petitioner has substantial capital to maintain its manpower business. Independent Business Petitioner runs a business independent from the PPL Based on its registration with the Securities and Exchange Commission (SEC), CBMI has been in existence since 1967; and has since provided a variety of services to entities in various fields, such as banking, hospitals, and even government institutions. Right to Control Above all, petitioner maintains the "right of control" over the respondents. The "right of control" is 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 in achieving that end. The contract of service, while of itself is not determinative of the relationship between the parties, provides useful leads into the relationship between the principal and the job contractor. Here, the "Contract of Services" between petitioner and Pizza Hut, imposes upon the former the obligation to provide not only the necessary personnel but as well to provide tools and equipment necessary for the rendition of such services. Also, it is understood under the agreement that upon deployment, the personnel are already qualified and possessed of the necessary skills for their assigned tasks. It mentioned that petitioner has the sole authority to control and direct the performance of the details of the work of its employees. Further, that any complaints or reports regarding the performance, misconduct, or negligence of the persons so deployed shall be made in writing and addressed by Pizza Hut to petitioner, the latter having the sole authority to discipline its employees. Control over respondents is manifested by the fact that petitioner has the following powers over them: "selection and engagement, payment of wages, dismissal, and control over their conduct." Therefore, they were hired by petitioner, which assigned them to Pizza Hut after they were briefed of company policies and their duties. It is also the one which pays respondents their salaries, and remits to PhilHealth and SSS. Moreover, petitioner maintains the power to discipline the respondents. Pursuant to its power of supervision over respondents, it initiated investigations and on the basis thereof imposed upon respondents preventive suspension. All these indicate that petitioner possesses the power of control over respondents; which in tum supports the conclusion that it carries a business independent of Pizza Hut.

10. Mago v. Sun Power Manufacturing Limited (210961, January 24, 2018) Facts: Petitioners were employees of Jobcrest Manufacturing, Inc., engaged in contracting management consultancy and services, licensed by the DOLE. Jobcrest and respondent entered into a Service Contract Agreement, which assigned petitioners to Sunpower's plant in Laguna Technopark. Leo Mago was tasked as a Production Operator in the Coinstacking Station, while Leilanie Colobong was assigned as a Production Operator, tasked with final visual inspection in the Packaging Station. Jobcrest's On-site Supervisor supervised them. Thereafter, Sunpower and terminated the Coinstacking/Material Handling segment and the Visual Inspection segment. Meanwhile, Mago and Colobong were on paternity and maternity leave for the birth to their common child. When Mago reported for work, he was informed that his employment was terminated due to his absences. Jobcrest served Mago with a "Notice of Admin Charge/Explanation Slip." The notice stated that Leo violated the policy against falsification or tampering because he failed to disclose his relationship with Colobong. On the other hand, Colobong alleged that when she reported for work at Jobcrest, she was informed by one of the Jobcrest personnel that she will be transferred to another client company. She was likewise provided a referral slip for a medical examination, pursuant to her new assignment. She was likewise served with a similar "Notice of Admin Charge/Explanation Slip," requiring her to explain why she failed to disclose her co-habitation status with Mago. Petitioners filed a complaint for illegal dismissal and regularization with the NLRC. During the mandatory conference, Jobcrest clarified that petitioners were not dismissed from employment and offered to accept them when they report back to work. Petitioners refused and insisted that they were regular employees of Sunpower, not Jobcrest. Issue: Whether or not Jobcrest is a legitimate and independent contractor Held: Yes, it is a legitimate job contractor and thus, petitioners are not employees of Sunpower, but of Jobcrest. To be a legitimate contractor, one must have substantial capital or investment, and must carry a distinct and independent business free from the control of the principal. In addition, the agreement between the principal and the contractor to assure 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. Furthermore, job contracting is permissible when the principal agrees to farm out the performance of a specific job, work or service to the contractor, for a definite or predetermined period of time, regardless of whether such job, work, or service is to be performed or completed within or outside the premises of the principal. Ordinarily, a contractor is presumed to be a labor-only contractor, unless the contractor is able to discharge the burden of overcoming this presumption. In cases when it's the principal claiming the legitimacy of the contractor, then the burden is borne by the principal.

There is no such burden resting on either Sunpower or Jobcrest in this case. It is true that Sunpower maintained its position that Jobcrest is a legitimate and independent contractor. But since the petitioners do not dispute that Jobcrest was a duly-registered contractor under Section 11 of DOLE DO No. 18-02, there is no operative presumption that Jobcrest is a labor-only contractor. Conversely, registration with DOLE does not necessarily create a presumption that Jobcrest is a legitimate and independent contractor. However, the DOLE COR issued in favor of Jobcrest is presumed to have been issued in the regular performance of official duty. In other words, the DOLE officer who issued the certificate in favor of Jobcrest is presumed to have evaluated the application for registration in accordance with the applicable rules and regulations. The petitioners must overcome the presumption of regularity accorded to the official act of DOLE, which is no less than the agency primarily tasked with the regulation of job contracting. Substantial Capital or Investment Substantial capital or investment was defined in DOLE DO No. 18-02 as 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. DOLE DO No. 18-A, that substantial capital refers to paid-up capital stocks/shares of at least Php 3,000,000. Here, Jobcrest established that it had an authorized capital stock of P8,000,000, P2,000,000 of which was subscribed, and a paid-up capital stock of P500,000. For the year 2011, the paid-up capital of Jobcrest increased to Php 8,000,000, notably more than the required capital. The balance sheet for the year 2010 also reveals that its total assets for 2009 amounted to P11,280,597, and P16,825,271 for the year 2010, which were comprised of office furniture, fixtures and equipment, land, building, and motor vehicles, among others. As of 2012, the total assets for the years 2011 and 2012 also increased to P35,631,498 and P42,603,167, respectively. Evidently, Jobcrest had substantial capital to perform the business process services it provided Sunpower. It has its own office, to which the petitioners admittedly reported to, possessed numerous assets for the conduct of its business, and even continuously earned profit as a result. The petitioners argue that the amount of substantial capital is irrelevant because Sunpower provided the tools and owned the work premises. DOLE DO No. 18-02 and DO No. 18-A, as well as Article 106 of the Labor Code itself, all use the conjunctive term "or" in prescribing that the contractor should have substantial capital or investment. Having established that Jobcrest had substantial capital, it is unnecessary to determine whether it had sufficient investment.

Liability of Principal to the Contractor’s Employees 11. Jaguar Security and Investigation Agency v. Sales (162420, April 22, 2008) Facts: Petitioner is a private corporation engaged in the business of providing security services to its clients, one of whom is Delta Milling Industries, Inc. Respondents were hired as security guards by Jaguar. They were assigned at the premises of Delta. Caranyagan and Tamayo were dismissed by Jaguar. Allegedly, their dismissals were arbitrary and illegal. Sales, Moron, Fetalvero and Silva remained with Jaguar. All the guardemployees, claim for monetary benefits such as underpayment, overtime pay, rest day and holiday premium pay, underpaid 13th month pay, night shift differential, five days service and incentive leave pay. In addition to these money claims, Caranyagan and Tamayo argue that they were entitled to separation pay and back wages, for the time they were illegally dismissed until finality of the decision. The LA rendered a decision in favor of respondents ordering petitioner and Delta under solidary liability. Now, petitioner contends that Delta Milling should be liable to it for payments to the complainants being solidary liable debtors. Issue: Whether petitioner may claim reimbursement from Delta Milling Held: No, petitioner may not claim from Delta Milling. Jurisdiction The RTC has jurisdiction over the subject matter. Where no employer-employee relationship exists between the parties and no issue is involved which may be resolved by reference to the Labor Code, other labor statutes or any CBA, it is the RTC that has jurisdiction. The action is within the realm of civil law hence jurisdiction over the case belongs to the regular courts. While the resolution of the issue involves the application of labor laws, reference to the labor code was only for the determination of the solidary liability of Delta Milling to respondent where no employer-employee relation exists. The jurisdiction of labor courts extends only to cases where an employer-employee relationship exists. Here, there exists no employer-employee relationship between petitioner and Delta Milling. Petitioner is not seeking any relief under the Labor Code but merely reimbursement of the monetary benefits claims awarded and to be paid to the guard employees. There is no labor dispute involved. Petitioner's crossclaim is within the realm of civil law, and jurisdiction over it belongs to the regular courts. Reimbursement The liability of Delta Milling to reimburse petitioner will only arise if and when petitioner actually pays its employees the adjudged liabilities. Payment is the operative fact which will entitle either of the solidary debtors to seek reimbursement for the share which corresponds to each of the debtors. In this case, petitioner has yet to pay the guard employees. Accordingly, petitioner has no cause of action against Delta Milling. There must first be payment to the laborers, otherwise, the contractor would be unduly enriching itself by recovering wage increases, for its own benefit.

B. Labor-only Contracting Elements of Labor-only Contracting 12. Coca-Cola Bottlers Phils., Inc. v. Agito (179546, February 13, 2009) Facts: Respondents were hired as salesmen for Coca-Cola, but through a job contractor, Interserve Management and Manpower Resources, Inc. When they were dismissed, they filed a case for illegal dismissal against petitioner and against Interserve. Petitioner averred that respondents were employees of Interserve who were tasked to perform contracted services in accordance with the provisions of the contract of services executed between it and Interserve. It argued that this contract constituted legitimate job contracting, given that the latter was a bona fide independent contractor with substantial capital or investment in the form of tools, equipment, and machinery necessary in the conduct of its business. Petitioner presented as evidence: (1) the Articles of Incorporation of Interserve; (2) the COR of Interserve with the BIR; (3) the ITR and AFS of Interserve for 2001; and (4) the COR of Interserve as an independent job contractor, issued by the DOLE. Issue: Whether or not there exists a legitimate job contracting Held: No, this case involves a labor-only contracting. There are two prerequisites to find that there is labor-only contracting: (1) the person supplying workers 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 persons are performing activities directly related to the principal business of the principal. As regards the first requirement, while Interserve may have capital stock amounting to P2M, only P625k was paid up. In determining what amount of capital is “substantial” for an independent job contractor; the figure is determined as against the type of work the contractor is obligated to perform. However, this is impossible in this case because the contract between petitioner and Interserve does not describe the type of work to be performed; it only says “tasks and activities considered contractible under the laws.” Petitioner never submitted evidence regarding the amount that Interserve has invested for its service vehicles and equipment. On the second requirement, the Delivery Agreement between petitioner and TRMD Inc. stated that petitioner is engaged in the manufacture, distribution, and sale of soft drinks. Clearly, the work of respondents, which is selling the soft drinks, is directly related to petitioner’s principal business. This is supported by the fact that they were repeatedly re-hired, and that it has numerous departments and offices dedicated to Sales. Power of control In addition, Interserve did not exert control over respondents, in order to support that Interserve was merely a labor-only contractor. Interserve’s personnel were obliged to comply with petitioner’s rules & regulations, and that they are subject to on-the-spot searches by petitioner’s security guards every time they leave or enter company premises.

The contract manifested petitioner’s control over respondents. It did not specify exactly what kind of jobs respondents should be doing, this effectively allowed petitioner to remove/replace contracted workers at will, in the guise of inability to perform their functions. This equates to the power to dismiss, which is the strongest indication of power of control. Furthermore, it stated that Interserve would provide for replacement personnel in case of absences. But this is a red flag. An independent job contractor answers only for the results of the work that was contracted. It has no obligation to adhere to policies of the employer on attendance and on how the workers should perform their jobs. The contract also stated that it will employ the necessary personnel, further showing that it had no personnel of its own. In other words, Interserve did not bind itself to perform an identifiable service for petitioner, it merely bound itself to provide the latter with specific types of employees. Irrelevance of the DOLE certification The DOLE certification that Interserve is an independent job contractor is likewise misleading because the Articles of Incorporation of Interserve states that its principal business is to provide janitorial and allied services. Thus, the DOLE certification merely shows that Interserve has substantial capital and equipment for janitorial and allied services, but not necessarily for sales services.

13. Garden of Memories Park and Life Plan, Inc. v. NLRC (160278, February 8, 2012) Facts: Petitioner is engaged in the business of operating a memorial park and selling memorial plan and services. Hilaria Cruz worked with it as a utility worker from August 1991 until her dismissal in February 1998. She filed a complaint for illegal dismissal. Upon motion of petitioner, Paulina Requiño was impleaded on the ground that she was its service contractor and the employer of Cruz. Cruz averred that she was in charge of the cleaning and maintenance of the ground facilities of the memorial park. Sometime in February 1998, she had a misunderstanding with Adoracion Requiño regarding the use of a garden water hose. Thereafter, Paulina Requiño instructed them to go home and not to return anymore. After three days, Cruz reported for work but she was told that she had been replaced. She immediately manifested her protest. Cruz argued that as a regular employee of the Garden of Memories, she could not be terminated without just or valid cause. Also, her dismissal was violative of due process as she was not afforded the opportunity to explain her side before her employment was terminated. However, petitioner denied liability and asserted that she was not its employee but that of Requiño, its independent service contractor, who maintained the park for a contract price. In her defense, Requiño prayed for the dismissal of the complaint stating that it was Victoriana, her mother, who hired Cruz, and she merely took over the supervision and management of the workers of the memorial park when her mother got ill. Requiño further stated that Cruz was not dismissed from her employment but that she abandoned her work. Issue: Whether or not Paulina Requiño is a labor-only contractor Held: Yes, Requiño is engaged in labor-only contracting thus deeming her an agent of petitioner. There is laboronly contracting where: (a) the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others; and (b) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. Capital or Investment Generally, the presumption is that the contractor is a labor-only contracting unless such contractor overcomes the burden of proving that it has the substantial capital or investment. In this case, petitioner has the burden of proving that Requiño has sufficient capital or investment since it is claiming the supposed status of Requiño as independent contractor. It, however, failed to adduce evidence purporting to show that she had sufficient capitalization. Neither did it show that she had investments necessary in the completion of the service contract. Furthermore, Requiño was not a licensed contractor. Her explanation that her business was a mere livelihood program akin to a cottage industry provided by petitioner as part of its contribution to the upliftment of the underprivileged residing near the memorial park proves that her capital investment was not substantial. Obviously, Requiño is a labor-only contractor. Another determinant factor was her failure

to exercise the right to control the performance of the work of Cruz. This can be gleaned from the Service Contract Agreement. Control The requirement of the law in determining the existence of independent contractorship is that the contractor should undertake the work on his own account, under his own responsibility, according to his own manner and method, free from the control and direction of the employer except as to the results thereof. In this case, however, the Service Contract Agreement clearly indicates that Requiño has no discretion to determine the means and manner by which the work is performed. Rather, the work should be in strict compliance with, and subject to, all requirements and standards of petitioner. Under these circumstances, there is no doubt that Requiño is engaged in labor-only contracting, and is considered merely an agent of petitioner. As such, the workers she supplies should be considered as employees of petitioner. Consequently, the latter, as principal employer, is responsible to the employees of the labor-only contractor as if such employees have been directly employed by it.

14. Aliviado v. Procter & Gamble Phils., Inc. (160506, March 9, 2010) Facts: P&G manufactures different consumer and health products. To enhance consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products. Petitioners worked as merchandisers of P&G from various dates, from 1982 to 1993. They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time. They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G. They received their wages from Promm-Gem or SAPS which imposed disciplinary measures on erring merchandisers. Petitioners filed a complaint against P&G for regularization and subsequently, for illegal dismissal. They insist that they were recruited by P&G and were engaged to undertake merchandising chores even before the existence of Promm-Gem and SAPS. They further claim that they were instructed to fill up application forms to the agencies which P&G created. They further claim that P&G instigated their dismissal, informing the latter that their Merchandising Services Contract will no longer be renewed and that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their client. On the other hand, P&G argues that there is no employment relationship between it and petitioners. It was Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of work. Issue: Whether or not petitioners were employees of P&G Held: Those supplied by SAPS, which engaged in labor-only contracting, are considered as employees of P&G. However, those having worked under, and been dismissed by Promm-Gem, are considered the employees of Promm-Gem, not of P&G. Labor-only contracting is prohibited. The elements are: i) the contractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor are performing activities which are directly related to the main business of the principal; or ii) the contractor does not exercise the right to control over the performance of the work of the contractual employee. "Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out. The "right to control" shall refer to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used. Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or services. Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature. However, in order for such outsourcing to be valid, it must be made to an independent contractor because the current labor rules expressly prohibit laboronly contracting.

Promm-Gem The FS of Promm-Gem show that it has authorized capital stock of P1 million and a paid-in capital of P500,000. It also has long term assets worth P432,895 and current assets of P719,042. Promm-Gem has also proven that it maintained its own warehouse and office space with a floor area of 870 square meters. It also had three registered vehicles used for its merchandising business. Promm-Gem also has other clients aside from P&G. Under the circumstances, Promm-Gem has substantial capital and investment which relates to the work to be performed. Also, Promm-Gem supplied its workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their work. It also issued uniforms to them. It already considered the complainants working under it as its regular employees. This circumstance shows it exercises control over its workers. Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. It is a legitimate independent contractor. SAPS The Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250. There is no other evidence presented to show how much its working capital and assets are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets. Jurisprudence dictates that with the current economy, the paid-in capitalization amounting to P75,000 cannot be considered as substantial. Applying the same rationale, it is clear that SAPS – having a paid-in capital of only P31,250 - has no substantial capital. Its payroll for its merchandisers alone for one month would already total P44,561. It had 6-month contracts with P&G. Its capital is not even sufficient for one month’s payroll. SAPS failed to show that its paid-in capital is sufficient for the period required for it to generate its needed revenue to sustain its operations independently. Substantial capital refers to capitalization used in the performance of the job. Thus, SAPS has failed to show substantial capital. Furthermore, petitioners have been charged with the merchandising and promotion of the products of P&G, an activity directly related to the principal business of P&G. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal business of P&G, we find that the former is engaged in "labor-only contracting". "Where ‘labor-only’ contracting exists, an employer-employee relationship is established between the employer and the employees of the ‘labor-only’ contractor." The purpose is to prevent a circumvention of labor laws. The contractor is considered merely an agent of the employer and the latter is responsible to the employees as if such employees had been directly employed by it.

15. Manila Memorial Park Cemetery, Inc. v. Lluz (208451, February 3, 2016) Facts: Petitioner entered into a Contract of Services with Ward Trading and Services. The Contract of Services provided that Ward Trading, as an independent contractor, will render interment and exhumation services and other related work in order to supplement operations at Manila Memorial Park. Among those assigned by Ward Trading to the contract were respondents. They worked six days a week for eight hours daily and were paid P250 per day. Respondents alleged that they have asked petitioner to consider them as regular workers within the appropriate bargaining unit established in its CBA with its union. Manila Memorial refused the request since respondents were employed by Ward Trading, an independent labor contractor. Thereafter, respondents joined the MMP Union. The MMP Union, in their behalf, sought their regularization which petitioner again declined. Respondents filed a complaint for regularization and CBA benefits against petitioner and Ward Trading. Subsequently, respondents were dismissed by petitioner. Thus, respondents amended the complaint to include the prayer for their reinstatement and payment of back wages. Meanwhile, petitioner sought the dismissal of the complaint for lack of jurisdiction since there was no employer-employee relationship. It argued that respondents were the employees of Ward Trading. Issue: Whether or not an employment relationship exists between petitioner and respondents Held: Yes, as Ward Trading is a labor-only contractor, petitioner is deemed the employer of respondents. Contracting arrangements for the performance of specific jobs or services under the law and its implementing rules are allowed. However, contracting must be made to a legitimate and independent job contractor since labor rules expressly prohibit labor-only contracting, which exists when the contractor merely recruits, supplies or places workers to perform a job, work or service for a principal and any of the following elements are present: 1) the contractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or 2) the contractor does not exercise the right to control the performance of the work of the contractual employee. Capital or Investment A closer look at the Contract of Services reveals that Ward Trading does not have substantial capital or investment in the form of tools, equipment, machinery, work premises and other materials since it is petitioner which owns the equipment used in the performance of work needed for interment and exhumation services. First, the sale of equipment was a regular business transaction between parties. However, petitioner did not present any showing that the sale actually pushed through or that payments were made by Ward

Trading to prove an ordinary arm’s length transaction. In a contract to sell, title is retained by the vendor until full payment of the price. Second, the Contract of Service provides that petitioner reserves the right to rent all or any of the CONTRACTOR’s equipment in the event the COMPANY requires the use of said equipment. This provision is proof that Ward Trading does not have an absolute right to use or enjoy subject equipment, considering that its right to do so is subject to petitioner’s use thereof at any time the latter requires it. It is plain to see that Ward Trading is not the owner of the equipment that is being actually and directly used in the performance of the services contracted out. Third, the Service Contract states that petitioner agrees to provide spaces for storage of equipment and for office of staff and personnel. This is proof that even the work premises actually and directly used by Ward Trading in the performance of the services contracted out is owned by petitioner. Fourth, the difference in the value of the equipment in the total amount of P1,400,000.00 can be seen in Ward Trading’s financial statements for the year 2006. These financial statements were submitted without any certification that they were actually audited. Ward Trading’s Balance Sheet for showed that it had total assets in the amount of P534,705 for 2005. A year later, the Balance Sheet showed that it had total assets in the amount of P1,491,052 for 2006. The Income Statements for the years 2005 and 2006, showed it only earned a net income of P53,800 for 2005 and P68,141 for 2006. Obviously, it could not have raised a substantial capital of P1,400,000 from its income alone without the inclusion of the equipment owned and allegedly obtained from petitioner after they signed the Contract of Services. Right of Control Petitioner retained the right to control the performance of the work of the employees concerned. Ward Trading is still subject to petitioner’s control as the Contract of Services specifically provides that the exercise of its supervisory function is heavily dependent upon the needs of petitioner. The contract further provides that petitioner has the option to take over the functions of Ward Trading’s personnel if it finds any part or aspect of the work or service provided to be unsatisfactory. Registry with DOLE While petitioner was able to present copies of the Certificate of Business Name Registration, Sanitary Permit to Operate and Permit from the Office of the Mayor, it failed to present any proof that Ward is duly registered as a contractor with the DOLE. DOLE DO No. 18-02 mandates registration of contractors with the DOLE. The registration shall be necessary for purposes of establishing an effective labor market information and monitoring. Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting. However, the contractor may overcome the burden by proving that it has substantial capital, investment, tools and the like. In this case, however, petitioner failed to adduce evidence to prove that Ward Trading had any substantial capital, investment or assets to perform the work contracted for. Thus, the presumption that Ward Trading is a labor-only contractor stands. Consequently, petitioner is deemed the employer of respondents.

16. W.M. Manufacturing, Inc. v. Dalag (209418, December 7, 2015) Facts: Petitioner and Golden Rock Manpower Services executed a contract in which the contractor shall render, and employ the necessary number of workers as the petitioner may need, at such dates and times as the latter may deem necessary. Petitioner has the right to request for replacement as the need arises for any reason whatsoever. Pursuant to this, petitioner shall have the right to report and protest any untoward act of the personnel and the contractor shall have the right to discipline the personnel. Golden Rock engaged the services of Richard Dalag as a factory worker in relation to the contract. For this purpose, he was a contractual employee under petitioner. It was agreed that his services may be terminated at any time for any cause, which may arise due to inability to undertake the responsibilities of his position. Dalag, in his complaint for illegal dismissal, alleges that one of petitioner’s security guards prevented him from going to his work station, notwithstanding that his contract is yet to expire. He claims that he was illegally dismissed, his employment having been terminated without either notice or cause. He further claims that his assignment as side seal machine operator was necessary and desirable for petitioner’s plastic manufacturing business. He likewise alleged Golden Rock was a labor-only contractor because all the equipment, machine and tools that he needed to perform his job were furnished by petitioner; that the jobs are to be performed at petitioner’s workplace; and that he was under petitioner’s supervision. Petitioner argued that it was Dalag who abandoned his work. They offered as proof memos addressed to Dalag, which ordered him to answer accusations relating to alleged infractions: gross negligence, qualified theft, malicious mischief, incompetence, grave misbehavior, insubordination, dishonesty, and machine sabotage. He allegedly repeatedly failed to report to management the breakdowns of the side-seal machine he operates; and that he pocketed spare parts of petitioner's machines without management's consent. Both companies claim that Golden Rock is a legitimate contractor for manpower services, relying on its COR and their stipulation leaving Golden Rock with the power to discipline its employees. Issue: Whether or not Golden Rock is engaged in labor-only contracting Held: Yes, Golden Rock is a labor-only contractor, thus deeming petitioner liable as employer of Dalag. DOLE DO 18-02 laid down the criteria in determining whether or not labor-only contracting exists between two parties. Labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present: i) the contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or ii) the contractor does not exercise the right to control over the performance of the work of the contractual employee.

The essential element in labor-only contracting is that the contractor merely recruits, supplies or places workers to perform a job, work or service for a principal. However, the presence of this essential element is not enough and must, in fact, be accompanied by any one of the confirmatory elements to be considered a labor-only contractor within the contemplation of the rule. Essential Element The presence of the essential element in the extant case cannot be gainsaid. This much is clearly provided in the service agreement that the Golden Rock shall render, undertake, perform and employ the necessary number of workers as petitioner may need, at such dates and times as the petitioner may deem necessary. Capital or Investment Petitioner and Golden Rock refuted the alleged lack of substantial capital by presenting its COR from the DOLE. Although not conclusive proof of legitimacy as a manpower provider, the certification nevertheless prevented the presumption of labor-only contracting from arising. In its stead, the certification gave rise to a disputable presumption that the contractor's operations are legitimate. Among the requirements for registration is a copy of the AFS, if the applicant is a corporation, partnership, cooperative or a union, or a copy of the latest ITR if the applicant is a sole proprietorship. Upon submission, the DOLE Regional Director concerned will then have seven days to evaluate the information supplied and determine whether the application ought to be approved or denied. Since Golden Rock's application was approved, the DOLE found Golden Rock's capitalization to be satisfactory and substantial, contrary to Dalag's claim. Petitioner and Golden Rock's contentions are unmeritorious. It may be that the DOLE Regional Director was satisfied by Golden Rock's capitalization as reflected on its financial documents, but the basis for determining the substantiality of a company's "capital" rests not only thereon but also on the tools and equipment it owns in relation to the job, work, or service it provides. DO 18-02 defines "substantial capital or investment" in the context of labor-only contracting as referring not only to a contractor's financial capability, but also encompasses the 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. Here, the COR may have prevented the presumption of labor-only contracting from arising, but the evidence Dalag adduced was sufficient to overcome the disputable presumption that Golden Rock is an independent contractor. To be sure, in performing his tasks, Dalag made use of the raw materials and equipment that petitioner supplied. He also operated the side-seal machine in the workplace of petitioner, not of Golden Rock. With these attendant circumstances, the first element exists. Right of Control As to the second confirmatory element, petitioner argues that the Service Agreement it forged with Golden Rock specifically provides that the latter exclusively exercises control over employees assigned. Furthermore, it is Golden Rock who paid for Dalag's salaries and wages. Petitioner's claim is unmeritorious. The second element under DO 18-02 does not require the application of the economic test and, even more so, the four-fold test to determine whether or not the relation between the parties is one of laboronly contracting. All it requires is that the contractor does not exercise control over the employees it

supplies, making the control test of paramount consideration. The fact that Golden Rock pays for Dalag's wages and salaries then has no bearing in resolving the issue. Under DO 18-02, the "right to control" refers to the right to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. Here, notwithstanding the stipulation leaving Golden Rock the exclusive right to control the working bodies it provides petitioner, evidence suggests that it was petitioner who actually exercised supervision over Dalag's work performance. As culled from the records, Dalag was supervised by petitioner’s employees. Petitioner even went as far as furnishing Dalag with not less than seven memos directing him to explain within his alleged work infractions. The company likewise took pains in issuing investigation reports detailing its findings on Dalag's culpability. Clearly, petitioner took it upon itself to discipline Dalag for violation of company rules, regulations, and policies, validating the presence of the second confirmatory element. Conclusion Having ascertained that the essential element and at least one confirmatory element obtain in the extant case, petitioner and Golden Rock are engaged in labor-only contracting. As such, they are, by legal fiction, considered principal and agent, respectively, jointly and severally liable to their illegally dismissed employees.

Effects of Labor-only Contracting 17. Diamond Farms, Inc. v. Southern Philippines Federation of Labor (173254-55, January 13, 2016) Facts: DFI owns an 800-hectare banana plantation. Pursuant to the CARL, commercial farms shall be subject to compulsory acquisition and distribution. However, the DAR granted DFI a deferment privilege to continue agricultural operations until 1998. Due to adverse marketing problems and observance of the so-called "lay-follow", DFI closed some areas of operation in the original plantation and laid off its employees. These employees petitioned the DAR for the cancellation of DFI’s deferment privilege alleging that DFI already abandoned its area of operations. The DAR recalled DFI’s deferment privilege resulting in the original plantation’s automatic compulsory acquisition and distribution under the CARL. To minimize losses, DFI offered to give up its rights and interest over the original plantation in favor of the government by way of a Voluntary Offer to Sell. The DAR accepted DFI’s offer to sell the original plantation. However, the DAR only approved the disposition of 689.88 hectares. Hence, the original plantation was split into two. The managed area is subject to the outcome of the appeal on the cancellation of the deferment privilege before the DAR Secretary. The awarded plantation was turned over to qualified agrarian reform beneficiaries (ARBs), who were working in the original plantation. They subsequently organized themselves into a multi-purpose cooperative named DARBMUPCO, which entered into a Banana Production and Purchase Agreement (MOA) with DFI. Under the MOA, DARBMUPCO and its members, agreed to grow and cultivate only highgrade quality exportable bananas to be sold exclusively to DFI. The MOA is effective for 10 years. DARBMUPCO and DFI executed a "Supplemental to Memorandum Agreement" (SMA) that DFI shall take care of the labor cost arising from the packaging operation, cable maintenance, irrigation pump and irrigation maintenance that the workers of DARBMUPCO shall conduct for DFI’s account. From the start, DARBMUPCO was hampered by lack of manpower to undertake the agricultural operation under the MOA because some of its members were not willing to work. Hence, to assist DARBMUPCO in meeting its production obligations, DFI engaged the services of the respondent-contractors, who in turn recruited the respondent-workers. The engagement of the respondent-workers started a series of labor disputes among DARBMUPCO, DFI and the respondent-contractors. Issue: Whether or not DFI is the employer of respondent-workers Held: Yes, respondent-contractors are deemed engaged in labor-only contracting. DFI is deemed the employer of respondent-workers. Job Contracting and Labor-Only Contracting, Distinguished The Omnibus Rules Implementing the Labor Code distinguishes between permissible job contracting and labor-only contracting. Job contracting is permissible under the Code if the following conditions are met: (a) The contractor carries on an independent business and undertakes the contract work on his own

account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof; and (b) 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. In contrast, job contracting shall be deemed as labor-only contracting, an arrangement prohibited by law, if a person who undertakes to supply workers to an employer: (1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials; and (2) The workers recruited and placed by such person are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed. As a general rule, a contractor is presumed to be a labor-only contractor, unless such contractor overcomes the burden of proving that it has the substantial capital, investment, tools and the like. Respondent-Contractors Are Labor-Only Contractors There is no evidence showing that respondent-contractors are independent contractors. The respondentcontractors, DFI, and DARBMUPCO did not offer any proof that respondent-contractors were not engaged in labor-only contracting. An independent contractor is defined as one who exercises independent employment and contracts to do a piece of work according to his own methods and without being subject to control of his employer except as to result of the work. If the employer claims that the workman is an independent contractor, the burden is on him to show his independence. Further, respondent-contractors admit, and even insist that they are engaged in labor-only contracting. They narrated that they were engaged to recruit workers to perform specific farm activities on banana plantation lands awarded to DARBMUPCO and on banana planted lands owned by DFI. All farm tools, implements and equipment necessary to performance of such farm activities were supplied by DFI and they had no adequate capital to acquire or purchase such tools, implements, equipment, etc. Respondentworkers were being directly supervised, controlled and managed by DFI farm managers and supervisors. DFI managers and supervisors, at their sole discretion and prerogative, could directly hire and terminate any or all of the respondents-workers. Time sheets were being prepared and submitted to DFI. Payment of wages were paid by DFI thru respondent-contractors. The foregoing admissions are legally binding on respondent-contractors. A finding that a contractor is a labor-only contractor is equivalent to a declaration that there is an employer-employee relationship between the principal, and the workers of the labor-only contractor; the labor-only contractor is deemed only as the agent of the principal. In this case, respondent-contractors are the labor-only contractors and either DFI or DARBMUPCO is their principal. DFI is the Principal A principal refers to the person who enters into an agreement with a job contractor, either for the performance of a specified work or for the supply of manpower. The records show that it is DFI which hired the respondent-contractors who in turn hired their own men to work in the 689.88 hectares land of DARBMUPCO as well as in the remaining land for DFI. DFI admits that these respondent-contractors worked under the direction and supervision of the DFI managers and

personnel. DFI paid respondent-contractors for the services rendered in the plantation and the latter in turn pay their workers. DARBMUPCO did not have anything to do with the hiring, supervision and payment of the wages of the workers-respondents thru the contractors-respondents. DFI cannot argue that DARBMUPCO is the principal of the respondent-contractors because it owns the awarded plantation; and therefore, DARBMUPCO is the ultimate beneficiary of the employment of the respondent-workers. Power of Control The presence of the power of control on the part of the principal over the workers of the contractor, under the facts, prove the employer-employee relationship between the former and the latter. A finding that a contractor is a ‘labor-only’ contractor is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor. The "four-fold test" must be used to determine whether there exists an employer-employee relationship between the parties. The four elements of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the power to control the employee’s conduct. Of these four elements, it is the power to control which is the most crucial and most determinative factor, so important, in fact, that, the other elements may even be disregarded. That DFI is the employer of the respondent-workers is bolstered by the finding that DFI exercises control over the respondent-workers. DFI, through its manager and supervisors provides for the work assignments and performance targets of the respondent-workers. The managers and supervisors also have the power to directly hire and terminate the respondent-workers. Evidently, DFI wields control over respondent-workers. Stipulation that There Is No Employment Relationship Neither can DFI argue that it is only the purchaser of the bananas produced in the awarded plantation under the MOA and that under the terms of the MOA, no employer-employee relationship exists between DFI and the respondent-workers. In labor-only contracting, it is the law which creates an employeremployee relationship between the principal and the workers of the labor-only contractor. Inasmuch as it is the law that forms the employment ties, the stipulation in the MOA that respondentworkers are not employees of DFI is not controlling, as the proven facts show otherwise. The law prevails over the stipulations of the parties. The existence of an employer-employees relation is a question of law and being such, it cannot be made the subject of agreement. Clearly, DFI is the true employer of the respondent-workers; respondent-contractors are only agents of DFI. Under Article 106 of the Labor Code, DFI shall be solidarily liable with the respondent-contractors for the rightful claims of the respondent-workers, to the same manner and extent as if the latter are directly employed by DFI.