- The principal who alleges that the contractor is a legitimate one has the burden of proving permissible contracting
- For a contractor to be considered a legitimate one, it must have substantial capitalization for the entire duration that the contractor's employees were assigned at the principal's premises
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Jul 2, 2016
G.R. No. 177592
June 9, 2014
Alilin, et al. are laborers hired by Romualdo D. Gindang Contractor and RDG to work in the premises of Petron's bulk plant. Their dates of hiring range from 1968 to 1993. In 2000, Petron and RDG entered into a Contract of Services for the period June 1, 2000 to May 31, 2002 whereby RDG undertook to provide Petron with janitorial, maintenance, tanker receiving, packaging and other utility services in its Mandaue Bulk Plant. This contract was extended on July 31, 2002 and further extended until September 30, 2002. Upon expiration, no further extension was made. Thus, on October 16, 2002, Alilin, et al. were barred from continuing their services with Petron.
Hence, the filing of a complaint for illegal dismissal, etc. against Petron, claiming to be the latter's regular employees. Petron, on the other hand, alleges that they are employees of RDG, an independent contractor. It presented the following pieces of evidence: (1) RDG's Certificate of Registration of Business Name issued by DTI; (2) RDG's Certificate of Registration issued by DOLE; (3) Contractor's Pre-Qualification Statement; (4) Conflict of Interest Statement signed by Romeo Gindang as manager of RDG; (5) RDG's Audited Financial Statements for the years 1998, 1999 and 2000; (6) RDG's Mayor's Permit for the years 2000 and 2001; (7) RDG's Certificate of Accreditation issued by DTI; (8) performance bond and insurance policy; (9) SSS Online Inquiry System Employee Contributions and Employee Static Information; and (10) Romeo's affidavit stating that he had paid the salaries of his employees assigned to Petron.
LA found against Petron and ruled that Alilin, et al. are its regular employees because their jobs were directly related to Petron's business operations; they worked under the supervision of Petron's foreman; they were using Petron's tools and equipment in the performance of their works. NLRC affirmed the ruling. However, CA reversed the ruling and found RDG to be a legitimate contractor.
ISSUE: Whether or not RDG is a legitimate contractor
Petron failed to discharge the burden of proving that RDG is a legitimate contractor. Hence, the presumption that RDG is a labor-only contractor stands.
The audited financial statements and other financial documents of RDG for the years 1999 to 2001 establish that it does have sufficient working capital to meet the requirements of its service contract. In fact, the financial evaluation conducted by Petron of RDG's financial statements for years 1998-2000 showed RDG to have a maximum financial capability of Php4.807 Million as of December 1998, and PHp1.611 Million as of December 2000. Petron was able to establish RDG's sufficient capitalization when it entered into the service contract in 2000. The Court stresses though that this determination of RDG's status as an independent contractor is only with respect to its financial capability for the period covered by the financial and other documents presented. In other words, the evidence adduced merely proves that RDG was financially qualified as a legitimate contractor but only with respect to its last service contract with Petron in the year 2000.
As may be recalled, petitioners have rendered work for Petron for a long period of time even before the service contract was executed in 2000. The respective dates on which petitioners claim to have started working for Petron, as well as the fact that they have rendered continuous service to it until October 16, 2002, when they were prevented from entering the premises of Petron's Mandaue Bulk Plant, were not at all disputed by Petron. In fact, Petron even recognized that some of the petitioners were initially fielded by Romualdo Gindang, the father of Romeo, through RDG's precursor, Romualdo D. Gindang Contractor, while the others were provided by Romeo himself when he took over the business of his father in 1989. Hence, while Petron was able to establish that RDG was financially capable as a legitimate contractor at the time of the execution of the service contract in 2000, it nevertheless failed to establish the financial capability of RDG at the time when petitioners actually started to work for Petron in 1968, 1979, 1981, 1987, 1990, 1992 and 1993.
Petron's power of control over petitioners exists in this case
The facts that petitioners were hired by Romeo or his father and that their salaries were paid by them do not detract from the conclusion that there exists an employer-employee relationship between the parties due to Petron's power of control over petitioners. One manifestation of the power of control is the power to transfer employees from one work assignment to another. Here, Petron could order petitioners to work outside of their regular "maintenance/utility" job. Also, petitioners were required to report for work every day at the bulk plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule, and wear proper uniform and safety helmets as prescribed by the safety and security measures being implemented within the bulk plant. All these imply control. In an industry where safety is of paramount concern, control and supervision over sensitive operations, such as those performed by the petitioners, are inevitable if not at all necessary. Indeed, Petron deals with commodities that are highly volatile and flammable which, if mishandled or not properly attended to, may cause serious injuries and damage to property and the environment. Naturally, supervision by Petron is essential in every aspect of its product handling in order not to compromise the integrity, quality and safety of the products that it distributes to the consuming public.
Petitioners already attained regular status as employees of Petron
Petitioners were given various work assignments such as tanker receiving, barge loading, sounding, gauging, warehousing, mixing, painting, carpentry, driving, gasul filling and other utility works. Petron refers to these work assignments as menial works which could be performed by any able-bodied individual. The Court finds, however, that while the jobs performed by petitioners may be menial and mechanical, they are nevertheless necessary and related to Petron's business operations. If not for these tasks, Petron's products will not reach the consumers in their proper state. Indeed, petitioners' roles were vital inasmuch as they involve the preparation of the products that Petron will distribute to its consumers.
Jul 1, 2016
G.R. No. 174156
June 20, 2012
Respondent Jose A. Espinas was driving his car along Leon Guinto Street in Manila when he was suddenly hit by another car. Upon verifying with the LTO, Espinas learned that the owner of the other car is Filcar. This car was assigned to Filcar's Corporate Secretary Atty. Candido Flor and, at the time of the incident, was driven by Atty. Flor's personal driver, Timoteo Floresca.
Espinas sued Filcar for damages. Filcar denied liability, claiming that the incident was not due to its fault or negligence since Floresca was not its employee but that of Atty. Flor.
ISSUE: Whether or not Filcar, as registered owner of the motor vehicle which figured in an accident, may be held liable for the damages caused to the Espinas
Filcar, as registered owner, is deemed the employer of the driver, Floresca, and is thus vicariously liable under Article 2176 in relation with Article 2180 of the Civil Code
It is undisputed that Filcar is the registered owner of the motor vehicle which hit and caused damage to Espinas' car. It is on this basis that Filcar is primarily and directly liable to Espinas for damages.
As a general rule, one is only responsible for his own act or omission. Thus, a person will generally be held liable only for the torts committed by himself and not by another. This general rule is laid down in Article 2176 of the Civil Code, which provides to wit:
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
Based on the above-cited article, the obligation to indemnify another for damage caused by one's act or omission is imposed upon the tortfeasor himself, i.e., the person who committed the negligent act or omission. The law, however, provides for exceptions when it makes certain persons liable for the act or omission of another.
One exception is an employer who is made vicariously liable for the tort committed by his employee. Article 2180 of the Civil Code states:
Article 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible.
x x x x
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.
x x x x
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.
Under Article 2176, in relation with Article 2180, of the Civil Code, an action predicated on an employee's act or omission may be instituted against the employer who is held liable for the negligent act or omission committed by his employee.
Although the employer is not the actual tortfeasor, the law makes him vicariously liable on the basis of the civil law principle of pater familias for failure to exercise due care and vigilance over the acts of one's subordinates to prevent damage to another. In the last paragraph of Article 2180 of the Civil Code, the employer may invoke the defense that he observed all the diligence of a good father of a family to prevent damage.
It is well settled that in case of motor vehicle mishaps, the registered owner of the motor vehicle is considered as the employer of the tortfeasor-driver, and is made primarily liable for the tort committed by the latter under Article 2176, in relation with Article 2180, of the Civil Code.
In so far as third persons are concerned, the registered owner of the motor vehicle is the employer of the negligent driver, and the actual employer is considered merely as an agent of such owner.
Thus, it is clear that for the purpose of holding the registered owner of the motor vehicle primarily and directly liable for damages under Article 2176, in relation with Article 2180, of the Civil Code, the existence of an employer-employee relationship, as it is understood in labor relations law, is not required. It is sufficient to establish that Filcar is the registered owner of the motor vehicle causing damage in order that it may be held vicariously liable under Article 2180 of the Civil Code.
Rationale for holding the registered owner vicariously liable
The rationale for the rule that a registered owner is vicariously liable for damages caused by the operation of his motor vehicle is explained by the principle behind motor vehicle registration, viz:
The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways.
Employer-employee relationship between registered owner and driver is irrelevant
Thus, whether there is an employer-employee relationship between the registered owner and the driver is irrelevant in determining the liability of the registered owner who the law holds primarily and directly responsible for any accident, injury or death caused by the operation of the vehicle in the streets and highways.
The general public policy involved in motor vehicle registration is the protection of innocent third persons who may have no means of identifying public road malefactors and, therefore, would find it difficult if not impossible to seek redress for damages they may sustain in accidents resulting in deaths, injuries and other damages; by fixing the person held primarily and directly liable for the damages sustained by victims of road mishaps, the law ensures that relief will always be available to them.
To identify the person primarily and directly responsible for the damages would also prevent a situation where a registered owner of a motor vehicle can easily escape liability by passing on the blame to anther who may have no means to answer for the damages caused, thereby defeating the claims of victims of road accidents. We take note that some motor vehicles running on our roads are driven not by their registered owners, but by employed drivers who, in most instances, do not have the financial means to pay for the damages caused in case of accidents.
Filcar cannot pass on the liability to another party
The agreement between Filcar and Atty. Flor to assign the motor vehicle to the latter does not bind Espinas who was not a party to and has no knowledge of the agreement, and whose only recourse is to the motor vehicle registration.
Filcar cannot use the defense that the employee acted beyond the scope of his assigned task or that it exercised the due diligence of a good father of a family to prevent damage
Neither can Filcar use the defenses available under Article 2180 of the Civil Code – that the employee acts beyond the scope of his assigned task or that it exercised the due diligence of a good father of a family to prevent damage – because the motor vehicle registration law, to a certain extent, modified Article 2180 of the Civil Code by making these defenses unavailable to the registered owner of the motor vehicle. Thus, for as long as Filcar is the registered owner of the car involved in the vehicular accident, it could not escape primary liability for the damages caused to Espinas.
Filcar's recourse is against the actual employer of the driver and the driver himself
- Registered owner is deemed employer of the driver and is thus vicariously liable under Article 2176 in relation with Article 2180 of the Civil Code
- The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on public highways, responsibility therefor can be fixed on a definite individual, the registered owner.
- The motor vehicle registration law modified Article 2180 to a certain extent so that the defense available thereunder cannot be used by the registered owner
- The registered owner can recover from the actual owner and the driver under the doctrine of unjust enrichment
Mar 28, 2016
G.R. No. 179546, February 13, 2009
Agito, et al. are salesmen assigned at the Lagro Sales Office of Coca-Cola for a number of years but were not regularized. Their employment was terminated without just cause and due process. They filed complaints against Coca-Cola, Interserve, Peerless Integrated Services, Inc. Better Builders, Inc., and Excellent Partners, Inc. However, they failed to state a reason for filing complaints against Interserve, Peerless, Better Builders and Excellent Partners.
Coca-Cola averred that Agito, et al. were employees of Interserve who were tasked to perform contracted services in accordance with the provision of the Contract of Services. The contract covering the period of April 1, 2002 to September 30, 2002 constituted legitimate job contracting.
To prove that Interserve is an independent contractor, Coca-Cola presented the following: (1) AOI of Interserve; (2) Certificate of Registration of Interserve with BIR; (3) ITR with Audited Financial Statements of Interserve for 2001; and (4) Certificate of Registration of Interserve as an independent contractor issued by DOLE.
As a result, Coca-Cola asserted that Agito, et al. were employees of Interserve since it was the latter which hired them, paid their wages and supervised their work, as proven by: (1) PDFs are in the records of Interserve; (2) Contracts of Temporary Employment with Interserve; and (3) payroll records of Interserve.
LA found for Coca-Cola and held that Interserve was a legitimate job contractor. The complaints against Peerless, Better Building and Excellent Partners was dismissed for failure to pursue the case.
On appeal, NLRC affirmed LA's decision.
CA reversed the NLRC decision and ruled that Interserve was a labor-only contractor with insufficient capital and investments for the services which it was contracted to perform. Additionally, CA determined that Coca-Cola had effective control over the means and method of Agito, et al.'s work as evidenced by the Daily Sales Monitoring Report, the Conventional Route System Proposed Set-Up, and the memoranda issued by the supervisor of petitioner addressed to workers. Respondents' tasks were directly related and necessary to the main business of Coca-Cola. Finally, certain provisions of the Contract of Service between Coca-Cola and Interserve suggested that the latter's undertaking did not involve a specific job but rather the supply of manpower.
ISSUE: Whether or not Interserve is a legitimate job contractor
Legitimate Contracting vs. Labor-Only Contracting
The relations which may arise in a situation, where there is an employer, a contractor, and employees of the contractor, are identified and distinguished under Article 106 of the Labor Code:
Article 106. Contractor or subcontractor. - Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or restriction, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code.
There is labor-only contracting where the person supplying workers to an employee does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
The afore-quoted provision recognizes two possible relations among the parties: (1) the permitted legitimate job contract, or (2) the prohibited labor-only contracting.
A legitimate job contract, wherein an employer enters into a contract with a job contractor for the performance of the formers work, is permitted by law. Thus, the employer-employee relationship between the job contractor and his employees is maintained. In legitimate job contracting, the law creates an employer-employee relationship between the employer and the contractors employees only for a limited purpose, i.e., to ensure that the employees are paid their wages. The employer becomes jointly and severally liable with the job contractor only for the payment of the employees wages whenever the contractor fails to pay the same. Other than that, the employer is not responsible for any claim made by the contractors employees.
On the other hand, labor-only contracting is an arrangement wherein the contractor merely acts as an agent in recruiting and supplying the principal employer with workers for the purpose of circumventing labor law provisions setting down the rights of employees. It is not condoned by law.A finding by the appropriate authorities that a contractor is a labor-only contractor establishes an employer-employee relationship between the principal employer and the contractors employees and the former becomes solidarily liable for all the rightful claims of the employees.
Section 5 of the Rules Implementing Articles 106-109 of the Labor Code, as amended, provides the guidelines in determining whether labor-only contracting exists:
Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work or service for a principal, and any of the following elements are [is] present:
i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work, or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or
ii) The contractor does not exercise the right to control the performance of the work of the contractual employee.
The foregoing provisions shall be without prejudice to the application of Article 248(C) of the Labor Code, as amended.
Substantial capital or investment refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work, or service contracted out.
The right to control shall refer to the right reversed to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. (Emphasis supplied.)
When there is labor-only contracting, there is employer-employee relationship between the principal and the contractual employee
When there is labor-only contracting, Section 7 of the same implementing rules, describes the consequences thereof:
Section 7. Existence of an employer-employee relationship. The contractor or subcontractor shall be considered the employer of the contractual employee for purposes of enforcing the provisions of the Labor Code and other social legislation. The principal, however, shall be solidarily liable with the contractor in the event of any violation of any provision of the Labor Code, including the failure to pay wages.
The principal shall be deemed the employer of the contractual employee in any of the following case, as declared by a competent authority:
a. where there is labor-only contracting; or
b. where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions) hereof.
According to the foregoing provision, labor-only contracting would give rise to: (1) the creation of an employer-employee relationship between the principal and the employees of the contractor or sub-contractor; and (2) the solidary liability of the principal and the contractor to the employees in the event of any violation of the Labor Code.
Even if employees are not performing activities indispensable to the business of the principal, labor-contracting may still exist if the contractor does not demonstrate substantial capital or investment
The law clearly establishes an employer-employee relationship between the principal employer and the contractors employee upon a finding that the contractor is engaged in labor-only contracting. Article 106 of the Labor Code categorically states: There is labor-only contracting where the person supplying workers to an employee does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. Thus, performing activities directly related to the principal business of the employer is only one of the two indicators that labor-only contracting exists; the other is lack of substantial capital or investment. The Court finds that both indicators exist in the case at bar.
Interserve has no substantial capital; it is impossible to measure whether or not there is substantial capital because the Contract between Coca-Cola and Interserve does not specify the work or the project that needs to be performed or completed.
At the outset, the Court clarifies that although Interserve has an authorized capital stock amounting to
P2,000,000.00, only P625,000.00 thereof was paid up
as of 31 December 2001. The Court does not set an absolute
figure for what it considers substantial capital for an independent job
contractor, but it measures the same against the type of work which the
contractor is obligated to perform for the principal. However, this is rendered impossible
in this case since the Contract between petitioner and Interserve does not even
specify the work or the project that needs to be performed or completed by the
latters employees, and uses the dubious phrase tasks and activities that are
considered contractible under existing laws and regulations. Even in its pleadings, petitioner
carefully sidesteps identifying or describing the exact nature of the services
that Interserve was obligated to render to petitioner. The importance of identifying with
particularity the work or task which Interserve was supposed to accomplish for
petitioner becomes even more evident, considering that the Articles of Incorporation of
Interserve states that its primary purpose is to operate, conduct, and maintain
the business of janitorial and allied services. But respondents were hired as salesmen and
leadman for petitioner. The Court
cannot, under such ambiguous circumstances, make a reasonable determination if
Interserve had substantial capital or investment to undertake the job it was
contracting with petitioner.
Burden of proof of substantial capital rests in the contractor, or in its absence, the principal claiming it to be an independent contractor
The contractor, not the employee, has the burden of proof that it has the substantial capital, investment, and tool to engage in job contracting. Although not the contractor itself (since Interserve no longer appealed the judgment against it by the Labor Arbiter), said burden of proof herein falls upon petitioner who is invoking the supposed status of Interserve as an independent job contractor. Noticeably, petitioner failed to submit evidence to establish that the service vehicles and equipment of Interserve, valued at
respectively, were sufficient to carry out its service contract with
petitioner. Certainly, petitioner
could have simply provided the courts with records showing the deliveries that
were undertaken by Interserve for the Lagro area, the type and number of
equipment necessary for such task, and the valuation of such equipment. Absent evidence which a legally
compliant company could have easily provided, the Court will not presume that
Interserve had sufficient investment in service vehicles and equipment,
especially since respondents allegation that they were using equipment, such as
forklifts and pallets belonging to petitioner, to carry out their jobs was
Interserve did not exercise the right to control the performance of the work of the respondents
The lack of control of Interserve over the respondents can be gleaned from the Contract of Services between Interserve (as the CONTRACTOR) and petitioner (as the CLIENT).
Paragraph 3 of the Contract specified that the personnel of contractor Interserve, which included the respondents, would comply with CLIENT as well as CLIENTs policies, rules and regulations. It even required Interserve personnel to subject themselves to on-the-spot searches by petitioner or its duly authorized guards or security men on duty every time the said personnel entered and left the premises of petitioner. Said paragraph explicitly established the control of petitioner over the conduct of respondents. Although under paragraph 4 of the same Contract, Interserve warranted that it would exercise the necessary and due supervision of the work of its personnel, there is a dearth of evidence to demonstrate the extent or degree of supervision exercised by Interserve over respondents or the manner in which it was actually exercised. There is even no showing that Interserve had representatives who supervised respondents work while they were in the premises of petitioner.
Also significant was the right of petitioner under paragraph 2 of the Contract to request the replacement of the CONTRACTORS personnel. True, this right was conveniently qualified by the phrase if from its judgment, the jobs or the projects being done could not be completed within the time specified or that the quality of the desired result is not being achieved, but such qualification was rendered meaningless by the fact that the Contract did not stipulate what work or job the personnel needed to complete, the time for its completion, or the results desired. The said provision left a gap which could enable petitioner to demand the removal or replacement of any employee in the guise of his or her inability to complete a project in time or to deliver the desired result. The power to recommend penalties or dismiss workers is the strongest indication of a companys right of control as direct employer.
Paragraph 4 of the same Contract, in which Interserve warranted to petitioner that the former would provide relievers and replacements in case of absences of its personnel, raises another red flag. An independent job contractor, who is answerable to the principal only for the results of a certain work, job, or service need not guarantee to said principal the daily attendance of the workers assigned to the latter. An independent job contractor would surely have the discretion over the pace at which the work is performed, the number of employees required to complete the same, and the work schedule which its employees need to follow.
As the Court previously observed, the Contract of Services between Interserve and petitioner did not identify the work needed to be performed and the final result required to be accomplished. Instead, the Contract specified the type of workers Interserve must provide petitioner (Route Helpers, Salesmen, Drivers, Clericals, Encoders & PD) and their qualifications (technical/vocational course graduates, physically fit, of good moral character, and have not been convicted of any crime). The Contract also states that, to carry out the undertakings specified in the immediately preceding paragraph, the CONTRACTOR shall employ the necessary personnel, thus, acknowledging that Interserve did not yet have in its employ the personnel needed by petitioner and would still pick out such personnel based on the criteria provided by petitioner. In other words, Interserve did not obligate itself to perform an identifiable job, work, or service for petitioner, but merely bound itself to provide the latter with specific types of employees. These contractual provisions strongly indicated that Interserve was merely a recruiting and manpower agency providing petitioner with workers performing tasks directly related to the latters principal business.
Certification issued by DOLE is not sufficient to prove independent contractorship
- Legitimate Contracting vs. Labor-only Contracting
- When there is labor-only contracting, an employer-employee exists between the contractual employee and the principal
- Even if employees are not performing activities indispensable to the business of the principal, labor-only contracting may still exist if the contractor does not demonstrate substantial capital or investment
- To determine whether or not there is substantial capital for purposes of legitimate contracting, one must examine the specific job, work or service provided in the Service Agreement
- The burden of proof that the contractor is a legitimate contractor rests with the contractor, or in its absence, the principalCertification from DOLE is not sufficient to prove independent contractorship
Mar 19, 2016
G.R. No. 172349, June 13, 2012
Concepcion was hired by Polyfoam as an all-around factory worker and served as such for almost six years. One day, when Concepcion reported for work, he discovered that his time card was not in the rack and he was later informed by the security guard that he could no longer punch his time card. He was informed by his supervisor that the management decided to dismiss him due to an infraction of a company rule.
Hence, the filing of a complaint for illegal dismissal.
Gramaje later intervened, claiming to be the real employer of Concepcion. Gramaje claimed that P.A. Gramaje Employment Services (PAGES) is a legitimate job contractor who provided some manpower needs of Polyfoam and that Concepcion was hired as a packer and assigned to Polyfoam. She claimed no dismissal but that Concepcion simply stopped reporting for work.
LA found that Concepcion was illegally dismissed and holding Polyfoam and Gramaje solidarily liable for money claims.
On appeal, NLRC modified the decision by exonerating Polyfoam from liability and deleting the awards of backwages, 13th month pay, damages and attorney's fees. NLRC found Gramaje to be an independent contractor who had its own office equipment, tools, and substantial capital, and in fact supplied the plastic containers and carton boxes used by her employees in performing their duties. NLRC also found that Gramaje paid respondents wages and benefits and reported the latter to the SSS as a covered employee.
CA agreed with LA's conclusion that Gramaje is a labor-only contractor because of the following: (1) Gramaje failed to present its Audited Financial Statement that would have show its financial standing and ownership of equipment, machineries, and tools necessary to run her own business; (2) Gramaje failed to present a single copy of the purported contract with Polyfoam as to the packaging aspect of the latter's business; (3) Gramaje's licenses supposedly issued by the DOLE appeared to be spurious; (4) Gramaje was not registered with DOLE as a private recruitment agency; and (5) Gramaje presented only one SSS Quarterly Collection List whose authenticity is doubtful. The CA noted that petitioners are represented by only one law firm though they made it appear that they were represented by different lawyers.
1. Whether or not Gramaje is an independent job contractor
2. Whether or not an employer-employee relationship exists between Polyfoam and respondent; and
3. Whether or not respondent was illegally dismissed from employment
Contracting or subcontracting
Article 106 of the Labor Code explains the relations which may arise between an employer, a contractor, and the contractor's employees, thus:
Art. 106. Contracting or subcontracting. – Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under the Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code.
There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
In Sasan, Sr. v. National Labor Relations Commission 4th Division, the Court distinguished permissible job contracting or subcontracting from labor-only contracting, to wit:
Permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out to a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal. A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:
(a) The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work or service on its own account and under its own responsibility according to its own manner and method, and free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof;
(b) The contractor or subcontractor has substantial capital or investment; and
(c) The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits.
In contrast, labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal. In labor-only contracting, the following elements are present:
(a) The contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility; and
(b) The employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal.
The test of independent contractorship
The test of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work. In San Miguel Corporation v. Semillano, the Court laid down the criteria in determining the existence of an independent and permissible contractor relationship, to wit:
x x x [W]hether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of a specified piece of work; the control and supervision of the work to another; the employers power with respect to the hiring, firing and payment of the contractors 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.
Simply put, the totality of the facts and the surrounding circumstances of the case are to be considered. Each case must be determined by its own facts and all the features of the relationship are to be considered.
Gramaje is a labor-only contractor
Applying the foregoing tests, we agree with the CAs conclusion that Gramaje is not an independent job contractor, but a labor-only contractor.
First, Gramaje has no substantial capital or investment. The presumption is that a contractor is a labor-only contractor unless he overcomes the burden of proving that it has substantial capital, investment, tools, and the like. The employee should not be expected to prove the negative fact that the contractor does not have substantial capital, investment and tools to engage in job-contracting.
Gramaje claimed that it has substantial capital of its own as well as investment in its office, equipment and tools. She pointed out that she furnished the plastic containers and carton boxes used in carrying out the function of packing the mattresses of Polyfoam. She added that she had placed in Polyfoams workplace ten (10) sealing machines, twenty (20) hand trucks, and two (2) forklifts to enable respondent and the other employees of Gramaje assigned at Polyfoam to perform their job.Finally, she explained that she had her own office with her own staff. However, aside from her own bare statement, neither Gramaje nor Polyfoam presented evidence showing Gramajes ownership of the equipment and machineries used in the performance of the alleged contracted job.Considering that these machineries are found in Polyfoams premises, there can be no other logical conclusion but that the tools and equipment utilized by Gramaje and her employees are owned by Polyfoam. Neither did Polyfoam nor Gramaje show that the latter had clients other than the former. Since petitioners failed to adduce evidence that Gramaje had any substantial capital, investment or assets to perform the work contracted for, the presumption that Gramaje is a labor-only contractor stands.
Second, Gramaje did not carry on an independent business or undertake the performance of its service contract according to its own manner and method, free from the control and supervision of its principal, Polyfoam, its apparent role having been merely to recruit persons to work for Polyfoam. It is undisputed that respondent had performed his task of packing Polyfoams foam products in Polyfoams premises. As to the recruitment of respondent, petitioners were able to establish only that respondents application was referred to Gramaje, but that is all. Prior to his termination, respondent had been performing the same job in Polyfoams business for almost six (6) years. He was even furnished a copy of Polyfoams Mga Alituntunin at Karampatang Parusa,which embodied Polyfoams rules on attendance, the manner of performing the employees duties, ethical standards, cleanliness, health, safety, peace and order. These rules carried with them the corresponding penalties in case of violation.
While it is true that petitioners submitted the Affidavit of Polyfoams supervisor Victor Abadia, claiming that the latter did not exercise supervision over respondent because the latter was not Polyfoams but Gramajes employee, said Affidavit is insufficient to prove such claim. Petitioners should have presented the person who they claim to have exercised supervision over respondent and their alleged other employees assigned to Polyfoam. It was never established that Gramaje took entire charge, control and supervision of the work and service agreed upon. And as aptly observed by the CA, it is likewise highly unusual and suspect as to the absence of a written contract specifying the performance of a specified service, the nature and extent of the service or work to be done and the term and duration of the relationship.
An Employer-Employee Relationship Exists
Between Respondent and Polyfoam
A finding that a contractor is a labor-only contractor, as opposed to permissible job contracting, is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor, and the labor-only contractor is considered as a mere agent of the principal, the real employer. In this case, Polyfoam is the principal employer and Gramaje is the labor-only contractor. Polyfoam and Gramaje are, therefore, solidarily liable for the rightful claims of respondent.
Respondent was Illegally Dismissed
Respondent stated that on January 14, 2000, his time card was suddenly taken off the rack. His supervisor later informed him that Polyfoams management decided to dismiss him due to infraction of company rule. In short, respondent insisted that he was dismissed from employment without just or lawful cause and without due process. Polyfoam did not offer any explanation of such dismissal.It, instead, explained that respondents real employer is Gramaje. Gramaje, on the other hand, denied the claim of illegal dismissal. She shifted the blame on respondent claiming that the latter in fact abandoned his work.
The LA gave credence to respondents narration of the circumstances of the case. Said conclusion was affirmed by the CA. We find no reason to depart from such findings.
Abandonment cannot be inferred from the actuations of respondent. When he discovered that his time card was off the rack, he immediately inquired from his supervisor. He later sought the assistance of his counsel, who wrote a letter addressed to Polyfoam requesting that he be re-admitted to work. When said request was not acted upon, he filed the instant illegal dismissal case. These circumstances clearly negate the intention to abandon his work.
Petitioners failed to show any valid or authorized cause under the Labor Code which allowed it to terminate the services of respondent. Neither was it shown that respondent was given ample opportunity to contest the legality of his dismissal. No notice of termination was given to him. Clearly, respondent was not afforded due process. Having failed to establish compliance with the requirements of termination of employment under the Labor Code, the dismissal of respondent was tainted with illegality. Consequently, respondent is entitled to reinstatement without loss of seniority rights, and other privileges and to his full backwages inclusive of allowances and to his other benefits or their monetary equivalent computed from the time his compensation was withheld up to the time of his actual reinstatement. However, if reinstatement is no longer feasible as in this case, separation pay equivalent to one month salary for every year of service shall be awarded as an alternative. Thus, the CA is correct in affirming the LAs award of separation pay with full backwages and other monetary benefits.
- Permissible job contracting vis-à-vis labor-only contracting
- The test of independent contractorship: totality of facts and circumstances
- One who claims to be an independent contractor has the burden of proving substantial capital and/or investment
- Independent contractor carries on an independent business
- A finding of labor-only contracting creates an employer-employee relationship between the "principal" and the employee
- Abandonment of work must be inferred from the actuations of the employee
Nov 12, 2015
The questionnaires are available for download at the Supreme Court website.
In case the above site fails due to traffic, I'm also providing them here as a download: