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
HELD:
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 toP2,000,000.00, 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 P510,000.00
and P200,000.00,
respectively, were sufficient to carry out its service contract with
petitioner. Certainly, petitioner
could have simply provided the courts with records showing the deliveries that
were undertaken by Interserve for the Lagro area, the type and number of
equipment necessary for such task, and the valuation of such equipment. Absent evidence which a legally
compliant company could have easily provided, the Court will not presume that
Interserve had sufficient investment in service vehicles and equipment,
especially since respondents allegation that they were using equipment, such as
forklifts and pallets belonging to petitioner, to carry out their jobs was
uncontroverted.
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
The certification issued by the DOLE stating that
Interserve is an independent job contractor does not sway this Court to take it
at face value, since the primary purpose stated in the Articles of
Incorporation of Interserve is misleading. According to its Articles of
Incorporation, the principal business of Interserve is to provide janitorial
and allied services. The delivery
and distribution of Coca-Cola products, the work for which respondents were
employed and assigned to petitioner, were in no way allied to janitorial
services. While the DOLE may have
found that the capital and/or investments in tools and equipment of Interserve
were sufficient for an independent contractor for janitorial services, this
does not mean that such capital and/or investments were likewise sufficient to
maintain an independent contracting business for the delivery and distribution
of Coca-Cola products.
- 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
