G.R. No.

205300 This prompted respondents to file complaints for illegal dismissal,

regularization, non-payment of service incentive leave and 13th month
FONTERRA BRANDS PHILS., INC., Petitioner, pay, and actual and moral damages, against petitioner, Zytron, and A.C.
vs. Sicat.
LEONARDO1 LARGADO and TEOTIMO ESTRELLADO, Respondents.
The Labor Arbiter dismissed the complaint and ruled that: (1) respondents
DECISION were not illegally dismissed. As a matter of fact, they were the ones who
refused to renew their contract and that they voluntarily complied with the
VELASCO, JR., J.: requirements for them to claim their corresponding monetary benefits in
relation thereto; and (2) they were consecutively employed by Zytron and
The Case A.C. Sicat, not by Fonterra. The dispositive portion of the Decision 2 reads:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of WHEREFORE, in view of the foregoing, judgment is hereby rendered
Court seeking the reversal and setting aside of the Decision of the Court of DISMISSING the instant case for utter lack of merit.
Appeals (CA) dated September 6, 2012, as well as its January 11, 2013
Resolution denying reconsideration thereof, in CA-G.R. SP No. 114227, SO ORDERED.
entitled Leonardo Largado and Teotimo P. Estrellado v. National Labor
Relations Commission (NLRC), Fonterra Brands Phils., lnc./Carlo Mendoza, The NLRC affirmed the Labor Arbiter, finding that respondents’ separation
Zytron Marketing & Promotions Corp./Francisco Valencia, A. C. Sicat from Zytron was brought about by the execution of the contract between
Marketing & Promotional Services/Arturo Sicat. Fonterra and A.C. Sicat where the parties agreed to absorb Zytron’s
personnel, including respondents. Too, respondents failed to present any
The Facts evidence that they protested this set-up. Furthermore, respondents failed
to refute the allegation that they voluntarily refused to renew their
Petitioner Fonterra Brands Phils., Inc. (Fonterra) contracted the services of contract with A.C. Sicat. Also, respondents did not assert any claim
Zytron Marketing and Promotions Corp. (Z)rtron) for the marketing and against Zytron and A.C. Sicat. The NLRC disposed of the case in this wise:
promotion of its milk and dairy products. Pursuant to the contract, Zytron
provided Fonterra with trade merchandising representatives (TMRs), WHEREFORE, premises considered, the appeals are hereby
including respondents Leonardo Largado (Largado) and Teotimo Estrellado ordered DISMISSED and the Decision of the Labor Arbiter is AFFIRMED
(Estrellado). The engagement of their services began on September 15, [in] toto.
2003 and May 27, 2002, respectively, and ended on June 6, 2006.
SO ORDERED.3
On May 3, 2006, Fonterra sent Zytron a letter terminating its promotions
contract, effective June 5, 2006. Fonterra then entered into an agreement The NLRC decision was assailed in a petition under Rule 65 before the CA.
for manpower supply with A.C. Sicat Marketing and Promotional Services
(A.C. Sicat). Desirous of continuing their work as TMRs, respondents Ruling on the petition, the CA, in the questioned Decision, 4 found that A.C.
submitted their job applications with A.C. Sicat, which hired them for a Sicat satisfies the requirements of legitimate job contracting, but Zytron
term of five (5) months, beginning June 7, 2006 up to November 6, 2006. does not. According to the CA: (1) Zytron’s paid-in capital of 250,000
cannot be considered as substantial capital; (2) its Certificate of
When respondents’ 5-month contracts with A.C. Sicat were about to Registration was issued by the DOLE months after respondents’ supposed
expire, they allegedly sought renewal thereof, but were allegedly refused. employment ended; and (3) its claim that it has the necessary tools and
equipment for its business is unsubstantiated. Therefore, according to the should instead be measured against the type of work it is obligated
CA, respondents were Fonterra’s employees. to do for the principal. It is most respectfully submitted that, here,
the merchandising work undertaken by Zytron’s paid-in capital of
Additionally, the CA held that respondents were illegally dismissed since 250,000 was as of 1990, the year it was incorporated;
Fonterra itself failed to prove that their dismissal is lawful. However, the
illegal dismissal should be reckoned from the termination of their b.As shown in its Articles of Incorporation, Zytron had been in
supposed employment with Zytron on June 6, 2006. Furthermore, business since 1990, or more than a decade before it signed a
respondents’ transfer to A.C. Sicat is tantamount to a completely new merchandising agreement with petitioner Fonterra;
engagement by another employer. Lastly, the termination of their contract
with A.C. Sicat arose from the expiration of their respective contracts with c.Very importantly, petitioner Fonterra never exercised the right to
the latter. The CA, thus, ruled that Fonterra is liable to respondents and control respondents and other employees of Zytron. Indeed,
ordered the reinstatement of respondents without loss of seniority rights, respondents neither alleged that petitioner exercised control over
with full backwages, and other benefits from the time of their illegal them nor presented proof in support thereof in any of their previous
dismissal up to the time of their actual reinstatement. The fallo of the pleadings.
Decision reads:
II.Respondents never claimed nor adduced evidence that they were
WHEREFORE, premises considered, the petition is hereby GRANTED. The dismissed from employment by Zytron. In fact, Zytron denies terminating
assailed Decision dated 20 November 2009 and Resolution dated 5 March them from work. The CA, thus, erred in finding that respondents were
2010 of the National Labor Relations Commission (NLRC), Seventh "illegally dismissed."
Division, are hereby ANULLED and SET ASIDE. Private respondent
Fonterra Brand, Inc. is hereby ordered to REINSTATE [respondents] without Succinctly, the issues in the case at bar are: (1) whether or not Zytron and
loss of seniority rights. Private respondents Fonterra Brand, Inc. and A.C. Sicat are labor-only contractors, making Fonterra the employer of
Zytron Marketing and Promotional Corp. are hereby further ORDERED to herein respondents; and (2) whether or not respondents were illegally
jointly and severally pay petitioners their full backwages and other dismissed.
benefits from the time of their illegal dismissal up to the time of their
actual reinstatement; and attorney’s fees. Our Ruling

SO ORDERED. We find merit in the petition.

Zytron and Fonterra moved for reconsideration, but to no avail. Hence, As regards the CA’s conclusion that Zytron is not a legitimate job
this petition. contractor, We are of the view that such is immaterial to the resolution of
the illegal dismissal issue for one reason: We find that respondents
The Issues voluntarily terminated their employment with Zytron, contrary to their
allegation that their employment with Zytron was illegally terminated.
Petitioner presents the following issues for Our resolution:
We do not agree with the CA that respondents’ employment with Zytron
I.The CA erred in ruling that Zytron was a mere labor-only contractor to was illegally terminated.
petitioner Fonterra, in that:
As correctly held by the Labor Arbiter and the NLRC, the termination of
a.As held by the Court, there is no absolute figure that constitutes respondents’ employment with Zytron was brought about by the cessation
"substantial" capital for an independent contractor, and the same of their contracts with the latter. We give credence to the Labor Arbiter’s
conclusion that respondents were the ones who refused to renew their of the issue on A.C. Sicat’s status as a job contractor first before resolving
contracts with Zytron, and the NLRC’s finding that they themselves the issue on the legality of the cessation of respondents’ employment.
acquiesced to their transfer to A.C. Sicat.
In this regard, We defer to the findings of the CA anent A.C. Sicat’s status
By refusing to renew their contracts with Zytron, respondents effectively as a legitimate job contractor, seeing that it is consistent with the rules on
resigned from the latter. Resignation is the voluntary act of employees job contracting and is sufficiently supported by the evidence on record.
who are compelled by personal reasons to dissociate themselves from
their employment, done with the intention of relinquishing an office, A person is considered engaged in legitimate job contracting or
accompanied by the act of abandonment.5 subcontracting if the following conditions concur:

Here, it is obvious that respondents were no longer interested in 1.The contractor or subcontractor carries on a distinct and
continuing their employment with Zytron. Their voluntary refusal to renew independent business and undertakes to perform the job, work or
their contracts was brought about by their desire to continue their service on its own account and under its own responsibility
assignment in Fonterra which could not happen in view of the conclusion according to its own manner and method, and free from the control
of Zytron’s contract with Fonterra. Hence, to be able to continue with their and direction of the principal in all matters connected with the
assignment, they applied for work with A.C. Sicat with the hope that they performance of the work except as to the results thereof;
will be able to continue rendering services as TMRs at Fonterra since A.C.
Sicat is Fonterra’s new manpower supplier. This fact is even acknowledged 2.The contractor or subcontractor has substantial capital or
by the CA in the assailed Decision where it recognized the reason why investment; and
respondents applied for work at A.C. Sicat. The CA stated that "[t]o
continuously work as merchandisers of Fonterra products, [respondents] 3.The agreement between the principal and contractor or
submitted their job applications to A.C. Sicat x x x." 6 This is further subcontractor assures the contractual employees entitlement to all
bolstered by the fact that respondents voluntarily complied with the labor and occupational safety and health standards, free exercise of
requirements for them to claim their corresponding monetary benefits in the right to self-organization, security of tenure, and social and
relation to the cessation of their employment contract with Zytron. welfare benefits.8

In short, respondents voluntarily terminated their employment with Zytron On the other hand, contracting is prohibited when the contractor or
by refusing to renew their employment contracts with the latter, applying subcontractor merely recruits, supplies or places workers to perform a job,
with A.C. Sicat, and working as the latter’s employees, thereby work or service for a principal and if any of the following elements are
abandoning their previous employment with Zytron. Too, it is well to present, thus:
mention that for obvious reasons, resignation is inconsistent with illegal
dismissal. This being the case, Zytron cannot be said to have illegally 1.The contractor or subcontractor does not have substantial capital
dismissed respondents, contrary to the findings of the CA. or investment which relates to the job, work or service to be
performed and the employees recruited, supplied or placed by such
As regards respondents’ employment with A.C. Sicat and its termination contractor or subcontractor are performing activities which are
via non-renewal of their contracts, considering that in labor-only directly related to the main business of the principal; or
contracting, the law creates an employer-employee relationship between
the principal and the labor-only contractor’s employee as if such 2.The contractor does not exercise the right to control over the
employees are directly employed by the principal employer, and considers performance of the work of the contractual employee. 9
the contractor as merely the agent of the principal, 7 it is proper to dispose
The CA correctly found that A.C. Sicat is engaged in legitimate job determine whether the termination of respondents’ employment with the
contracting. It duly noted that A.C. Sicat was able to prove its status as a former is valid.
legitimate job contractor for having presented the following evidence, to
wit: We agree with the findings of the CA that the termination of respondents’
employment with the latter was simply brought about by the expiration of
1.Certificate of Business Registration; their employment contracts.

2.Certificate of Registration with the Bureau of Internal Revenue; Foremost, respondents were fixed-term employees. As previously held by
this Court, fixed-term employment contracts are not limited, as they are
3.Mayor’s Permit; under the present Labor Code, to those by nature seasonal or for specific
projects with predetermined dates of completion; they also include those
4.Certificate of Membership with the Social Security System; to which the parties by free choice have assigned a specific date of
termination.11 The determining factor of such contracts is not the duty of
5.Certificate of Registration with the Department of Labor and the employee but the day certain agreed upon by the parties for the
Employment; commencement and termination of the employment relationship.12

6.Company Profile; and In the case at bar, it is clear that respondents were employed by A.C. Sicat
as project employees. In their employment contract with the latter, it is
7.Certifications issued by its clients.10 clearly stated that "[A.C. Sicat is] temporarily employing [respondents] as
TMR[s] effective June 6[, 2006] under the following terms and conditions:
The need for your service being only for a specific project, your temporary
Furthermore, A.C. Sicat has substantial capital, having assets totaling
employment will be for the duration only of said project of our client,
5,926,155.76 as of December 31, 2006. Too, its Agreement with Fonterra
namely to promote FONTERRA BRANDS products x x x which is expected
clearly sets forth that A.C. Sicat shall be liable for the wages and salaries
to be finished on or before Nov. 06, 2006." 13
of its employees or workers, including benefits, premiums, and protection
due them, as well as remittance to the proper government entities of all
withholding taxes, Social Security Service, and Medicare premiums, in Respondents, by accepting the conditions of the contract with A.C. Sicat,
accordance with relevant laws. were well aware of and even acceded to the condition that their
employment thereat will end on said pre-determined date of termination.
They cannot now argue that they were illegally dismissed by the latter
The appellate court further correctly held that Fonterra’s issuance of
when it refused to renew their contracts after its expiration. This is so
Merchandising Guidelines, stock monitoring and inventory forms, and
since the non-renewal of their contracts by A.C. Sicat is a management
promo mechanics, for compliance and use of A.C. Sicat’s employees
prerogative, and failure of respondents to prove that such was done in bad
assigned to them, does not establish that Fonterra exercises control over
faith militates against their contention that they were illegally dismissed.
A.C. Sicat. We agree with the CA’s conclusion that these were imposed
The expiration of their contract with A.C. Sicat simply caused the natural
only to ensure the effectiveness of the promotion services to be rendered
cessation of their fixed-term employment thereat. We, thus, see no reason
by the merchandisers as it would be risky, if not imprudent, for any
to disturb the ruling of the CA in this respect.
company to completely entrust the performance of the operations it has
contracted out.
With these, We need not belabor the other assigned errors.
These sufficiently show that A.C. Sicat carries out its merchandising and
promotions business, independent of Fonterra’s business.1âwphi1 Thus, IN VIEW OF THE FOREGOING, the instant Petition for Review
having settled that A.C. Sicat is a legitimate job contractor, We now is GRANTED. The assailed Decision of the Court of Appeals dated
September 6, 2012 and its January 11, 2013 Resolution denying
reconsideration thereof, in CA-G.R. SP No. 114227, are
hereby REVERSED and SET ASIDE. The Decision of the National Labor
Relations Commission dated November 20, 2009 and its Resolution dated
March 5, 2010 in NLRC Case No. RAB IV 12-23927-06-Q are
hereby REINSTATED.

SO ORDERED.

G.R. No. 177592 June 9, 2014

AVELINO S. ALILIN, TEODORO CALESA, CHARLIE HINDANG,
EUTIQUIO GINDANG, ALLAN SUNGAHID, MAXIMO LEE, JOSE G.
MORA TO, REX GABILAN, AND EUGEMA L. LAURENTE, Petitioners,
vs.
PETRON CORPORATION, Respondent.

DECISION

DEL CASTILLO, J.:

A contractor is presumed to be a labor-only contractor, unless it proves

that it has the substantial capital, investment, tools and the like. However,
where the principal is the one claiming that the contractor is a legitimate
contractor, the burden of proving the supposed status of the contractor
rests on the principal.1

This Petition for Review on Certiorari 2 assails the Decision3 dated May 10,
2006 of the Court of Appeals (CA) in CA-G.R. SP No. 01291 which granted
the Petition for Certiorari filed therewith, reversed and set aside the
February 18, 2005 Decision4 and August 24, 2005 Resolution 5 of the
National Labor Relations Commission (NLRC) in NLRC Case No. V-000481-
2003 and dismissed the Complaint for illegal dismissal filed by petitioners
Avelino Alilin (Alilin), Teodoro Calesa (Calesa), Charlie Hindang (Hindang),
Eutiquio Gindang (Gindang), Allan Sungahid (Sungahid), Maximo Lee
(Lee), Jose G. Morato (Morato), Rex Gabilan (Gabilan) and Eugema L.
Laurente (Laurente) against respondent Petron Corporation (Petron). Also
assailed in this Petition is the CA Resolution 6 dated March 30, 2007 which
denied petitioners’ Motion for Reconsideration 7 and Supplemental Motion
for Reconsideration.8

Factual Antecedents
 Petron is a domestic corporation engaged in the oil business. It owns 2002. Upon expiration thereof, no further renewal of the service contract
several bulk plants in the country for receiving, storing and distributing its was done.
petroleum products.
Proceedings before the Labor Arbiter
In 1968, Romualdo D. Gindang Contractor, which was owned and operated
by Romualdo D. Gindang (Romualdo), started recruiting laborers for Alleging that they were barred fromcontinuing their services on October
fielding to Petron’s Mandaue Bulk Plant. When Romualdo died in1989, his 16, 2002, petitioners Alilin, Calesa, Hindang, Gindang, Sungahid, Lee,
son Romeo D. Gindang (Romeo), through Romeo D. Gindang Morato and Gabilan filed a Complaint10 for illegal dismissal, underpayment
Services(RDG), took over the business and continued to provide of wages, damages and attorney’s fees against Petron and RDG on
manpower services to Petron. Petitioners were among those recruited by November 12, 2002. Petitioner Laurente filed another Complaint 11 for
Romualdo D. Gindang Contractor and RDG to work in the premises of the illegal dismissal, underpayment of wages, non-payment of overtime pay,
said bulk plant, with the corresponding dates of hiring and work duties, to holiday pay, premium pay for holiday, rest day, 13th month pay, service
wit: incentive leave pay, allowances, separation pay, retirement benefits,
damages and attorney’s fees against Petron and RDG. The said complaints
mployees Date of Hiring Duties were later consolidated.

tiquio Gindang 1968 utility/tanker receiver/barge

Petitioners did not deny that RDG hired them and paid their salaries. They,
loader/warehouseman/mixer however, claimed that the latter is a labor-only contractor, which merely
gema L. Laurente June 1979 telephone operator/order taker acted as an agent of Petron, their true employer. They asseverated that
their jobs, which are directly related to Petron’s business, entailed them to
odoro Calesa August 1, 1981 utility/tanker receiver/barge loader/sounder/gauger work inside the premises of Petron using the required equipment and tools
furnished by it and that they were subject to Petron’s supervision.
x Gabilan July 1, 1987 warehouseman/forklift driver/tanker receiver/barge
Claiming to be regular employees, petitioners thus asserted that their
loader
dismissal allegedly in view of the expiration of the service contract
arlie T. Hindang September 18, utility/tanker receiver/barge loader/sounder/gauger between Petron and RDG is illegal.
1990
RDG corroborated petitioners’ claim that they are regular employees of
an P. Sungahid September 18, filler/sealer/painter/tanker receiver/utility Petron. It alleged that Petron directly supervised their activities; they
1990 performed jobs necessary and desirable to Petron’s business; Petron
aximo S. Lee September 18, gasul filler/painter/utility provided petitioners with supplies, tools and equipment used in their jobs;
1990 and that petitioners’ workplace since the start of their employment was at
Petron’s bulk plant in Mandaue City. RDG denied liability over petitioners’
elino S. Alilin July 16, 1992 carpenter/driver claim of illegal dismissal and further argued that Petron cannot capitalize
se Gerry M. March 16, 1993 cylinder checker/tanker on the service contract to escape liability.
receiver/grass
orato cutter/janitor/utility
Petron, on the other hand, maintained that RDG is an independent
contractor and the real employer of the petitioners. It was RDG which
On June 1, 2000, Petron and RDG entered into a Contract for Services 9 for hired and selected petitioners, paid their salaries and wages, and directly
the period from June 1, 2000 to May 31, 2002, whereby RDG undertook to supervised their work. Attesting to these were two former employees of
provide Petron with janitorial, maintenance, tanker receiving, packaging RDG and Petron’s Mandaue Terminal Superintendent whose joint
and other utility services in its Mandaue Bulk Plant. This contract was affidavit12 and affidavit,13 respectively, were submitted by Petron. Anent its
extended on July 31, 2002 and further extended until September 30,
allegation that RDG is an independent contractor, Petron presented the 2. Eutiquio Gindang P
following documents: (1) RDG’s Certificate of Registration issued by the 202,800.00
Department of Labor and Employment (DOLE) on December 27,
2000;14 (2) RDG’s Certificate of Registration of Business Name issued by 3. Charlie T. Gindang P
the Department of Trade and Industry (DTI) on August 18, 2000; 15 (3) 91,260.00
Contractor’s Pre-Qualification Statement;16 (4) Conflict of Interest
4. Allan P. Sungahid P
Statement signed by Romeo Gindang as manager of RDG; 17 (5) RDG’s
91,260.00
Audited Financial Statements for the years 1998 18 199919 and 2000;20 (6)
RDG’s Mayor’s Permit for the years 2000 21 and 2001;22 (7) RDG’s 5. Jose Gerry Morato P
Certificate of Accreditation issued by DTI in October 1991; 23 (8) 76,050.00
performance bond24and insurance policy25 posted to insure against
liabilities; (9) Social Security System (SSS) Online Inquiry System 6. Avelino A. Alilin P
Employee Contributions and Employee Static Information; 26 and, (10) 95,680.00
Romeo’s affidavit27 stating that he had paid the salaries of his employees 7. Rex S. Gabilan P
assigned to Petron for the period of November 4, 2001 to December 31, 106,470.00
2001. Petron argued that with the expiration of the service contract it
entered with RDG, petitioners’ term of employment has concomitantly 8. Maximo S. Lee P
ended. And not being the employer, Petron cannot be held liable for 91,260.00
petitioners’ claim of illegal dismissal. 9. Eugema Minao P
Laurente 150,800.00
In a Decision28 dated June 12, 2003,the Labor Arbiter ruled that petitioners
are regular employees of Petron. It found that their jobs were directly Total award ₱1,042,470
related to Petron’s business operations; they worked under the .00
supervision of Petron’s foreman and supervisor; and they were using
Petron’s tools and equipment in the performance of their works. The Labor The other claims are dismissed for lack of merit.
Arbiter also found that Petron merely utilized RDG in its attempt to hide
the existence of employee-employer relationship between it and SO ORDERED.29
petitioners and avoid liability under labor laws. And there being no
showing that petitioners’ dismissal was for just or authorized cause, the
Proceedings before the National Labor Relations Commission
Labor Arbiter declared them to have been illegally dismissed. Petron was
thus held solidarily liable with Romeo for the payment of petitioners’
Petron continued to insist that there is no employer-employee relationship
separation pay (in lieu of reinstatement due to strained relations with
between it and petitioners. The NLRC, however, was not convinced. In its
Petron) fixed at one month pay for every year of service and backwages
Decision30 of February 18, 2005, the NLRC ruled that petitioners are
computed on the basis of the last salary rate at the time of dismissal. The
Petron’s regular employees because they are performing job assignments
dispositive portion of the Decision reads: WHEREFORE, premises
which are germane to its main business. Thus:
considered, judgment is hereby rendered ordering the respondents Petron
Corporation and Romeo Gindang to pay the complainants as follows:
WHEREFORE, premises considered, the Decision of the Labor Arbiter is
hereby affirmed. It is understood that the grant of backwages shall be
1. Teodoro Calesa P until finality of the Decision.
136,890.00
The appeal of respondent Petron Corporation is hereby DISMISSED for lack "Teodoro Calesa et al. vs. Petron Corporation and R.D. Gindang Services",
of merit. having been rendered with grave abuse of discretion amounting to excess
of jurisdiction, are hereby REVERSED and SET ASIDE and a NEW ONE is
SO ORDERED.31 entered DISMISSING private respondents’ complaint against petitioner. It
is so ordered.36
The NLRC also denied Petron’s Motion for Reconsideration in its
Resolution32 of August 24, 2005. Petitioners filed a Motion for Reconsideration 37 insisting that Petron
illegally dismissed them; that RDG is a labor-only contractor; and that they
Proceedings before the Court of Appeals performed jobs which are sensitive to Petron’s business operations. To
support these, they attached to their Supplemental Motion for
Petron filed a Petition for Certiorari with prayer for the issuance of a Reconsideration38 Affidavits39 of former employees of Petron attesting to
temporary restraining order or writ of injunction before the CA. The said the fact that their jobs were critical to Petron’s business operations and
court resolved to grant the injunction. 33 Hence, a Writ of Preliminary that they were carried out under the control of a Petron employee.
Injunction34 to restrain the implementation of the February 18, 2005
Decision and August 24, 2005 Resolution of the NLRC was issued on March Petitioners’ motions were, however, denied by the CA in a
3, 2006. Resolution40 dated March 30, 2007.

In a Decision35 dated May 10, 2006, the CA found no employer-employee Hence, this Petition.
relationship between the parties. According to it, the records of the case
do not show that petitioners were directly hired, selected or employed by Issue
Petron; that their wages and other wage related benefits were paid by the
said company; and that Petron controlled the manner by which they The primary issue to be resolved in this case is whether RDG is a
carried out their tasks. On the other hand, RDG was shown to be legitimate job contractor. Upon such finding hinges the determination of
responsible for paying petitioners’ wages. In fact, SSS records show that whether an employer-employee relationship exists between the parties as
RDG is their employer and actually the one remitting their contributions to make Petron liable for petitioners’ dismissal.
thereto. Also, two former employees of RDG who were likewise assigned in
the Mandaue Bulk Plant confirmed by way of a joint affidavit that it was Our Ruling
Romeo and his brother Alejandre Gindang who supervised their work, not
Petron’s foreman or supervisor. This was even corroborated by the The Petition is impressed with merit. The conflicting findings of the Labor
Terminal Superintendent of the Mandaue Bulk Plant. Arbiter and the NLRC on one hand, and of the CA on the other, constrains
the Court to review the factual issues involved in this case.
The CA also found RDG to be an independent labor contractor with
sufficient capitalization and investment as shown by its financial As a general rule, the Court does not review errors that raise factual
statement for year-end 2000. In addition, the works for which RDG was questions.41 Nonetheless, while it is true that the determination of whether
contracted to provide were menial which were neither directly related nor an employer-employee relationship existed between the parties basically
sensitive and critical to Petron’s principal business. The CA disposed of the involves a question of fact, the conflicting findings of the Labor Arbiter and
case as follows: the NLRC on one hand, and of the CA on the other, constrains the Court to
review and reevaluate such factual findings. 42
WHEREFORE, the Petition is GRANTED. The February 18, 2005 Decision
and the August 24, 2005 Resolution of the Fourth Division of the National Labor-only contracting, distinguished
Labor Relations Commission in NLRC Case No. V-000481-2003, entitled
from permissible job contracting. (c) Services temporarily needed for the introduction or promotion of
new products, only for the duration of the introductory or
The prevailing rule on labor-only contracting at the time Petron and RDG promotional period;
entered into the Contract for Services in June 2000 is DOLE Department
Order No. 10, series of 1997,43 the pertinent provision of which reads: (d) Works or services not directly related or not integral to the main
business or operation of the principal, including casual work,
Section 4. x x x janitorial, security, landscaping, and messengerial services, and
work not related to manufacturing processes in manufacturing
xxxx establishments;

(f) "Labor-only contracting" prohibited under this Rule is an arrangement (e) Services involving the public display of manufacturers’ products
where the contractor or subcontractor merely recruits, supplies or places which do not involve the act of selling or issuance of receipts or
workers to perform a job, work or service for a principal and the following invoices;
elements are present:
(f) Specialized works involving the use of some particular, unusual
(i) The contractor or subcontractor does not have substantial capital or peculiar skills, expertise, tools or equipment the performance of
or investment to actually perform the job, work or service under its which is beyond the competence of the regular workforce or
own account and responsibility; and production capacity of the principal; and

(ii) The employees recruited, supplied or placed by such contractor (g) Unless a reliever system is in place among the regular
or subcontractor are performing activities which are directly related workforce, substitute services for absent regular employees,
to the main business of the principal. provided that the period of service shall be coextensive with the
period of absence and the same is made clear to the substitute
xxxx employee at the time of engagement. The phrase "absent regular
employees" includes those who are serving suspensions or other
Section 6. Permissible contracting or subcontracting. - Subject to the disciplinary measures not amounting to termination of employment
conditions set forth in Section 3 (d) and (e) and Section 5 hereof, the meted out by the principal, but excludes those on strike where all
principal may engage the services of a contractor or subcontractor for the the formal requisites for the legality of the strike have been prima
performance of any of the following: facie complied with based on the records filed with the National
Conciliation and Mediation Board.
(a) Works or services temporarily or occasionally needed to meet
abnormal increase in the demand of products or services, provided "Permissible job contracting or subcontracting refers to an arrangement
that the normal production capacity or regular workforce of the whereby a principal agrees to farm out with a contractor or subcontractor
principal cannot reasonably cope with such demands; the performance 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
(b) Works or services temporarily or occasionally needed by the
principal. Under this arrangement, the following conditions must be met:
principal for undertakings requiring expert or highly technical
(a) the contractor carries on a distinct and independent business and
personnel to improve the management or operations of an
undertakes the contract work on his account under his own responsibility
enterprise;
according to his own manner and method, free from the control and
direction of his employer or principal in all matters connected with the
performance of his work except as to the results thereof; (b) the As may be recalled, petitioners have rendered work for Petron for a long
contractor has substantial capital or investment; and (c) the agreement period of time even before the service contract was executed in 2000. The
between the principal and contractor or subcontractor assures the respective dates on which petitioners claim to have started working for
contractual employees’ entitlement to all labor and occupational safety Petron, as well as the fact that they have rendered continuous service to it
and health standards, free exercise of the right to self-organization, until October 16, 2002, when they were prevented from entering the
security of tenure, and social welfare benefits." 44 Labor-only contracting, premises of Petron’s Mandaue Bulk Plant, were not at all disputed by
on the other hand, is a prohibited act, defined as "supplying workers to an Petron. In fact, Petron even recognized that some of the petitioners were
employer who does not have substantial capital or investment in the form initially fielded by Romualdo Gindang, the father of Romeo, through RDG’s
of tools, equipment, machineries, work premises, among others, and the precursor, Romualdo D.Gindang Contractor, while the others were
workers recruited and placed by such person are performing activities provided by Romeo himself when he took over the business of his father in
which are directly related to the principal business of such 1989.1âwphi1 Hence, while Petron was able to establish that RDG was
employer."45 "[I]n distinguishing between prohibited labor-only contracting financially capable as a legitimate contractor at the time of the execution
and permissible job contracting, the totality of the facts and the of the service contract in 2000, it nevertheless failed to establish the
surrounding circumstances of the case shall be considered." 46 Generally, financial capability of RDG at the time when petitioners actually started to
the contractor is presumed to be a labor-only contractor, unless such work for Petron in 1968, 1979, 1981, 1987, 1990,1992 and 1993.
contractor overcomes the burden of proving that it has the substantial
capital, investment, tools and the like. However, where the principal is the Sections 8 and 9,Rule VIII, Book III 51 of the implementing rules of the Labor
one claiming that the contractor is a legitimate contractor, as in the Code, in force since 1976 and prior to DOLE Department Order No. 10,
present case, said principal has the burden of proving that supposed series of 1997,52 provide that for job contracting to be permissible, one of
status.47 It is thus incumbent upon Petron, and not upon petitioners as the conditions that has to be met is that the contractor must have
Petron insists,48 to prove that RDG is an independent contractor. substantial capital or investment. Petron having failed to show that this
condition was met by RDG, it can be concluded, on this score alone, that
Petron failed to discharge the burden of RDG is a mere labor-only contractor. Otherwise stated, the presumption
proving that RDG is a legitimate that RDG is a labor-only contractor stands due to the failure of Petron to
contractor. Hence, the presumption that discharge the burden of proving the contrary. The Court also finds, as will
RDG is a labor-only contractor stands. be discussed below, that the works performed by petitioners were directly
related to Petron’s business, another factor which negates Petron’s claim
Here, the audited financial statements and other financial documents of that RDG is an independent contractor.
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, Petron’s power of control over petitioners exists in this case.
the financial evaluation conducted by Petron of RDG’s financial statements
for years 1998-2000 showed RDG to have a maximum financial capability "[A] finding that a contractor is a ‘labor-only’ contractor is equivalent to
of Php4.807 Million as of December 1998, 49 and Php1.611 Million as of declaring that there is an employer-employee relationship between the
December 2000.50 Petron was able to establish RDG’s sufficient principal and the employees of the supposed contractor." 53 In this case,
capitalization when it entered into the service contract in 2000. The Court the employer employee relationship between Petron and petitioners
stresses though that this determination of RDG’s status as an independent becomes all the more apparent due to the presence of the power of
contractor is only with respect to its financial capability for the period control on the part of the former over the latter.
covered by the financial and other documents presented. In other words,
the evidence adduced merely proves that RDG was financially qualified as It was held in Orozco v. The Fifth Division of the Hon. Court of
a legitimate contractor but only with respect to its last service contract Appeals54 that:
with Petron in the year 2000.
This Court has constantly adhered to the "four-fold test" to determine Furthermore, while it may be true that any able-bodied individual can
whether there exists an employer-employee relationship between the perform the tasks assigned to petitioners, the Court notes the undisputed
parties. The four elements of an employment relationship are: (a) the fact that for many years, it was the same able-bodied individuals
selection and engagement of the employee; (b) the payment of wages; (c) (petitioners) who performed the tasks for Petron. The engagement of
the power of dismissal; and (d) the power to control the employee’s petitioners for the same works for a long period of time is a strong
conduct. Of these four elements, it is the power to control which is the indication that such works were indeed necessary to Petron’s business. In
most crucial and most determinative factor, so important, in fact, that, the view of these, and considering further that petitioners’ length of service
other elements may even be disregarded." (Emphasis supplied) entitles them to become regular employees under the Labor Code,
petitioners are deemed by law to have already attained the status as
Hence, the facts that petitioners were hired by Romeo or his father and Petron’s regular employees. As such, Petron could not terminate their
that their salaries were paid by them do not detract from the conclusion services on the pretext that the service contract it entered with RDG has
that there exists an employer-employee relationship between the parties already lapsed. For one, and as previously discussed, such regular status
due to Petron’s power of control over the petitioners. One manifestation of had already attached to them even before the execution of the service
the power of control is the power to transfer employees from one work contract in 2000. For another, the same does not constitute a just or
assignment to another.55 Here, Petron could order petitioners to do work authorized cause for a valid dismissal of regular employees.
outside of their regular "maintenance/utility" job. Also, petitioners were
required to report for work everyday at the bulk plant, observe an 8:00 In sum, the Court finds that RDG is a labor-only contractor. As such, it is
a.m. to 5:00 p.m. daily work schedule, and wear proper uniform and considered merely as an agent of Petron. Consequently, the employer-
safety helmets as prescribed by the safety and security measures being employee relationship which the Court finds to exist in this case is
implemented within the bulk plant. All these imply control. In an industry between petitioners as employees and Petron as their employer. Petron
where safety is of paramount concern, control and supervision over therefore, being the principal employer and RDG, being the labor-only
sensitive operations, such as those performed by the petitioners, are contractor, are solidarily liable for petitioners' illegal dismissal and
inevitable if not at all necessary. Indeed, Petron deals with commodities monetary claims.56
that are highly volatile and flammable which, if mishandled or not properly
attended to, may cause serious injuries and damage to property and the WHEREFORE, the Petition is GRANTED. The May 10, 2006 Decision and
environment. Naturally, supervision by Petron is essential in every aspect March 30, 2007 Resolution of the Court of Appeals in CA-G.R. SP No.
of its product handling in order not to compromise the integrity, quality 01291 are REVERSED and SET ASIDE. The February 18, 2005 Decision and
and safety of the products that it distributes to the consuming public. August 24, 2005 Resolution of the National Labor Relations Commission in
NLRC Case No. V-000481-2003 are hereby REINSTATED and AFFIRMED.
Petitioners already attained regular status as employees of Petron.
SO ORDERED.
Petitioners were given various work assignments such as tanker receiving,
barge loading, sounding, gauging, warehousing, mixing, painting, G.R. No. 160506 June 6, 2011
carpentry, driving, gasul filling and other utility works. Petron refers to
these work assignments as menial works which could be performed by JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO
any able-bodied individual. The Court finds, however, that while the jobs AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO
performed by petitioners may be menial and mechanical, they are PLATON, JOSE FERNANDO GUTIERREZ, ESTANISLAO
nevertheless necessary and related to Petron’s business operations. If not BUENAVENTURA, LOPE SALONGA, FRANZ DAVID, NESTOR IGNACIO,
for these tasks, Petron’s products will not reach the consumers in their JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO
proper state. Indeed, petitioners’ roles were vital inasmuch as they involve CALANAO, ROLANDO ROMASANTA, RHUEL AGOO, BONIFACIO
the preparation of the products that Petron will distribute to its consumers. ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA, ROBERTO
ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS Factual Antecedents
BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN
GARCIA, ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, Petitioners worked as merchandisers of P&G from various dates, allegedly
CRESENTE J. GARCIA, FERNANDO MACABENTE, MELECIO CASAPAO, starting as early as 1982 or as late as June 1991, to either May 5, 1992 or
REYNALDO JACABAN, FERDINAND SALVO, ALSTANDO MONTOS, March 11, 1993, more specifically as follows:
RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY, LEONARDO P.
TALLEDO, ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO SOYOSA,
Date Date
ROMEO VASQUEZ, JOEL BILLONES, ALLAN BALTAZAR, NOLI Name
Employed Dismissed
GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL DULAY,
TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES, ANTONIO November,
1. Joeb M. Aliviado May 5, 1992
DACUNA, RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO, 1985
WILFREDO TORRES, MELCHOR CARDANO, MARIANO NARANIAN,
JOHN SUMERGIDO, ROBERTO ROSALES, GERRY C. GATPO, GERMAN March 11,
2. Arthur Corpuz 1988
N. GUEVARRA, GILBERT Y. MIRANDA, RODOLFO C. TOLEDO, 1993
ARNOLD D. LASTONA, PHILIP M. LOZA, MARIO N. CULDAYON, March 11,
ORLANDO P. JIMENEZ, FRED P. JIMENEZ, RESTITUTO C. 3. Eric Aliviado 1985
1993
PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ BUSTENERA,
ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, September, March 11,
4. Monchito Ampeloquio
ALEJANDRINO ABATON, and ORLANDO S. BALANGUE, Petitioners, 1988 1993
vs. 5. Abraham Basmayor[, March 11,
PROCTER & GAMBLE PHILS., INC., and PROMM-GEM 1987
Jr.] 1993
INC., Respondents.
March 11,
6. Jonathan Mateo May, 1988
DECISION 1993
March 11,
DEL CASTILLO, J.: 7. Lorenzo Platon 1985
1993
Labor laws expressly prohibit "labor-only" contracting. To prevent its 8. Jose Fernando Gutierrez 1988 May 5, 1992
circumvention, the Labor Code establishes an employer-employee
9. Estanislao March 11,
relationship between the employer and the employees of the ‘labor-only’ June, 1988
Buenaventura 1993
contractor.
March 11,
10. Lope Salonga 1982
1
The instant petition for review assails the March 21, 2003 Decision of the 1993
Court of Appeals (CA) in CA-G.R. SP No. 52082 and its October 20, 2003
March 11,
Resolution2 denying the motions for reconsideration separately filed by 11. Franz David 1989
1993
petitioners and respondent Procter & Gamble Phils. Inc. (P&G). The
appellate court affirmed the July 27, 1998 Decision of the National Labor March 11,
Relations Commission (NLRC), which in turn affirmed the November 29, 12. Nestor Ignacio 1982
1993
1996 Decision3 of the Labor Arbiter. All these decisions found Promm-Gem,
Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be 13. Julio Rey 1989 May 5, 1992
legitimate independent contractors and the employers of the petitioners. 14. Ruben [Vasquez], Jr. 1985 May 5, 1992
15. Maximino Pascual 1990 May 5, 1992 March 11,
34. Melecio Casapao 1987
1993
16. Ernesto Calanao[, Jr.] 1987 May 5, 1992
35. Reynaldo Jacaban 1990 May 5, 1992
March 11,
17. Rolando Romasanta 1983
1993 36. Ferdinand Salvo 1985 May 5, 1992
March 11, March 11,
18. [Roehl] Agoo 1988 37. Alstando Montos 1984
1993 1993
March 11, 38. Rainer N. Salvador 1984 May 5, 1992
19. Bonifacio Ortega 1988
1993
March 11,
39. Ramil Reyes 1984
March 11, 1993
20. Arsenio Soriano, Jr. 1985
1993
40. Pedro G. Roy 1987
March 11,
21. Arnel Endaya 1983 March 11,
1993 41. Leonardo [F]. Talledo 1985
1993
22. Roberto Enriquez March 11,
1988 March 11,
December, 1993 42. Enrique [F]. Talledo 1988
1993
23. Nestor [Es]quila 1983 May 5, 1992
43. Willie Ortiz 1987 May 5, 1992
March 11,
24. Ed[g]ardo Quiambao 1989 44. Ernesto Soyosa 1988 May 5, 1992
1993
March 11, March 11,
25. Santos Bacalso 1990 45. Romeo Vasquez 1985
1993 1993

March 11, March 11,

26. Samson Basco 1984 46. Joel Billones 1987
1993 1993

27. Aladino Gregor[e], Jr. 1980 May 5, 1992 March 11,

47. Allan Baltazar 1989
1993
28. Edwin Garcia 1987 May 5, 1992
March 11,
48. Noli Gabuyo 1991
29. Armando Villar 1990 May 5, 1992 1993
March 11, 49. Emmanuel E. Laban 1987 May 5, 1992
30. Emil Tawat 1988
1993
50. Ramir[o] E. [Pita] 1990 May 5, 1992
31. Mario P. Liongson 1991 May 5, 1992
51. Raul Dulay 1988 May 5, 1992
March 11,
32. Cresente J. Garcia 1984 52. Tadeo Duran[o] 1988 May 5, 1992
1993
33. Fernando Macabent[a] 1990 May 5, 1992 March 11,
53. Joseph Banico 1988
1993
54. Albert Leynes 1990 May 5, 1992 March 11,
74. Rolando J. de Andres June, 1991
1993
55. Antonio Dacu[m]a 1990 May 5, 1992
December, March 11,
56. Renato dela Cruz 1982 75. Artuz Bustenera[, Jr.]
1989 1993
57. Romeo Viernes, Jr. 1986 March 11,
76. Roberto B. Cruz May 4, 1990
58. El[ia]s Bas[c]o 1989 1993

59. Wilfredo Torres 1986 May 5, 1992 77. Rosedy O. Yordan June, 1991 May 5, 1992

60. Melchor Carda[ñ]o 1991 May 5, 1992 78. Dennis Dacasin May. 1990 May 5, 1992

61. [Marino] [Maranion] 1989 May 5, 1992 79. Alejandrino Abaton 1988 May 5, 1992

62. John Sumergido 1987 May 5, 1992 March 11,

80. Orlando S. Balangue March, 1989
19934
63. Roberto Rosales May, 1987 May 5, 1992
November, March 11, They all individually signed employment contracts with either Promm-Gem
64. Gerry [G]. Gatpo
1990 1993 or SAPS for periods of more or less five months at a time. 5 They were
assigned at different outlets, supermarkets and stores where they handled
March 11,
65. German N. Guevara May, 1990 all the products of P&G. They received their wages from Promm-Gem or
1993
SAPS.6
March 11,
66. Gilbert Y. Miranda June, 1991
1993 SAPS and Promm-Gem imposed disciplinary measures on erring
merchandisers for reasons such as habitual absenteeism, dishonesty or
March 11, changing day-off without prior notice.7
67. Rodolfo C. Toledo[, Jr.] May 14, 1991
1993
March 11, P&G is principally engaged in the manufacture and production of different
68. Arnold D. [Laspoña] June 1991 consumer and health products, which it sells on a wholesale basis to
1993
various supermarkets and distributors.8 To enhance consumer awareness
March 11, and acceptance of the products, P&G entered into contracts with Promm-
69. Philip M. Loza March 5, 1992
1993 Gem and SAPS for the promotion and merchandising of its products. 9
March 11,
70. Mario N. C[o]ldayon May 14, 1991 In December 1991, petitioners filed a complaint 10 against P&G for
1993
regularization, service incentive leave pay and other benefits with
November 6, March 11, damages. The complaint was later amended 11 to include the matter of
71. Orlando P. Jimenez
1992 1993 their subsequent dismissal.
September, March 11,
72. Fred P. Jimenez Ruling of the Labor Arbiter
1991 1993
73. Restituto C. March 11, On November 29, 1996, the Labor Arbiter dismissed the complaint for lack
March 5, 1992
Pamintuan, Jr. 1993 of merit and ruled that there was no employer-employee relationship
between petitioners and P&G. He found that the selection and Petitioners filed a motion for reconsideration but the motion was also
engagement of the petitioners, the payment of their wages, the power of denied. Hence, this petition.
dismissal and control with respect to the means and methods by which
their work was accomplished, were all done and exercised by Promm- Issues
Gem/SAPS. He further found that Promm-Gem and SAPS were legitimate
independent job contractors. The dispositive portion of his Decision reads: Petitioners now come before us raising the following issues:

WHEREFORE, premises considered, judgment is hereby rendered I.

Dismissing the above-entitled cases against respondent Procter & Gamble
(Phils.), Inc. for lack of merit. WHETHER X X X THE HONORABLE COURT OF APPEALS HAS
COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT FIND THE
SO ORDERED.12 PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF
Ruling of the NLRC JURISDICTION IN RENDERING THE QUESTIONED JUDGMENT WHEN,
OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND
Appealing to the NLRC, petitioners disputed the Labor Arbiter’s findings. ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS
On July 27, 1998, the NLRC rendered a Decision 13 disposing as follows: THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY DISMISSED BY
THE FORMER.
WHEREFORE, premises considered, the appeal of complainants is hereby
DISMISSED and the decision appealed from AFFIRMED. II.

SO ORDERED.14 WHETHER X X X THE HONORABLE COURT OF APPEALS HAS

COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT DECLARE
Petitioners filed a motion for reconsideration but the motion was denied in THAT THE PUBLIC RESPONDENTS HAD ACTED WITH GRAVE ABUSE
the November 19, 1998 Resolution.15 OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE
RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF
Ruling of the Court of Appeals ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS
LITIGATION COSTS AND ATTORNEY’S FEES.17
Petitioners then filed a petition for certiorari with the CA, alleging grave
abuse of discretion amounting to lack or excess of jurisdiction on the part Simply stated, the issues are: (1) whether P&G is the employer of
of the Labor Arbiter and the NLRC. However, said petition was also denied petitioners; (2) whether petitioners were illegally dismissed; and (3)
by the CA which disposed as follows: whether petitioners are entitled for payment of actual, moral and
exemplary damages as well as litigation costs and attorney’s fees.
WHEREFORE, the decision of the National Labor Relations Commission
dated July 27, 1998 is AFFIRMED with the MODIFICATION that respondent Petitioners’ Arguments
Procter & Gamble Phils., Inc. is ordered to pay service incentive leave pay
to petitioners. Petitioners insist that they are employees of P&G. They claim that they
were recruited by the salesmen of P&G and were engaged to undertake
SO ORDERED.16 merchandising chores for P&G long before the existence of Promm-Gem
and/or SAPS. They further claim that when the latter had its so-called re-
alignment program, petitioners were instructed to fill up application forms pronouncements with regard to SAPS are only for the purpose of
and report to the agencies which P&G created. 18 determining the obligations of P&G, if any.

Petitioners further claim that P&G instigated their dismissal from work as Our Ruling
can be gleaned from its letter19 to SAPS dated February 24, 1993,
informing the latter that their Merchandising Services Contract will no The petition has merit.
longer be renewed.
As a rule, the Court refrains from reviewing factual assessments of lower
Petitioners further assert that Promm-Gem and SAPS are labor-only courts and agencies exercising adjudicative functions, such as the NLRC.
contractors providing services of manpower to their client. They claim that Occasionally, however, the Court is constrained to wade into factual
the contractors have neither substantial capital nor tools and equipment matters when there is insufficient or insubstantial evidence on record to
to undertake independent labor contracting. Petitioners insist that since support those factual findings; or when too much is concluded, inferred or
they had been engaged to perform activities which are necessary or deduced from the bare or incomplete facts appearing on record. 23 In the
desirable in the usual business or trade of P&G, then they are its regular present case, we find the need to review the records to ascertain the
employees.20 facts.

Respondents’ Arguments Labor-only contracting and job contracting

On the other hand, P&G points out that the instant petition raises only In order to resolve the issue of whether P&G is the employer of
questions of fact and should thus be thrown out as the Court is not a trier petitioners, it is necessary to first determine whether Promm-Gem and
of facts. It argues that findings of facts of the NLRC, particularly where the SAPS are labor-only contractors or legitimate job contractors.
NLRC and the Labor Arbiter are in agreement, are deemed binding and
conclusive on the Supreme Court. The pertinent Labor Code provision on the matter states:

P&G further argues that there is no employment relationship between it ART. 106. Contractor or subcontractor. – Whenever an employer enters
and petitioners. It was Promm-Gem or SAPS that (1) selected petitioners into a contract with another person for the performance of the former’s
and engaged their services; (2) paid their salaries; (3) wielded the power work, the employees of the contractor and of the latter’s subcontractor, if
of dismissal; and (4) had the power of control over their conduct of work. any, shall be paid in accordance with the provisions of this Code.

P&G also contends that the Labor Code neither defines nor limits which In the event that the contractor or subcontractor fails to pay the wages of
services or activities may be validly outsourced. Thus, an employer can his employees in accordance with this Code, the employer shall be jointly
farm out any of its activities to an independent contractor, regardless of and severally liable with his contractor or subcontractor to such
whether such activity is peripheral or core in nature. It insists that the employees to the extent of the work performed under the contract, in the
determination of whether to engage the services of a job contractor or to same manner and extent that he is liable to employees directly employed
engage in direct hiring is within the ambit of management prerogative. by him.

At this juncture, it is worth mentioning that on January 29, 2007, we The Secretary of Labor may, by appropriate regulations, restrict or
deemed as waived the filing of the Comment of Promm-Gem on the prohibit the contracting out of labor to protect the rights of workers
petition.21 Also, although SAPS was impleaded as a party in the established under this Code. In so prohibiting or restricting, he may make
proceedings before the Labor Arbiter and the NLRC, it was no longer appropriate distinctions between labor-only contracting and job
impleaded as a party in the proceedings before the CA. 22 Hence, our contracting as well as differentiations within these types of contracting
and determine who among the parties involved shall be considered the i) The contractor or subcontractor does not have substantial capital
employer for purposes of this Code, to prevent any violation or or investment which relates to the job, work or service to be
circumvention of any provision of this Code. performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are
There is "labor-only" contracting where the person supplying workers to an directly related to the main business of the principal; or
employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the ii) [T]he contractor does not exercise the right to control over the
workers recruited and placed by such person are performing activities performance of the work of the contractual employee.
which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an The foregoing provisions shall be without prejudice to the application of
agent of the employer who shall be responsible to the workers in the same Article 248 (c) of the Labor Code, as amended.
manner and extent as if the latter were directly employed by him.
(Emphasis and underscoring supplied.) "Substantial capital or investment" refers to capital stocks and subscribed
capitalization in the case of corporations, tools, equipment, implements,
Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as machineries and work premises, actually and directly used by the
amended by Department Order No. 18-02, 24 distinguishes between contractor or subcontractor in the performance or completion of the job,
legitimate and labor-only contracting: work or service contracted out.

xxxx 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
Section 3. Trilateral Relationship in Contracting Arrangements. not only the end to be achieved, but also the manner and means to be
In legitimate contracting, there exists a trilateral relationship under which used in reaching that end.
there is a contract for a specific job, work or service between the principal
and the contractor or subcontractor, and a contract of employment x x x x (Underscoring supplied.)
between the contractor or subcontractor and its workers. Hence, there are
three parties involved in these arrangements, the principal which decides Clearly, the law and its implementing rules allow contracting
to farm out a job or service to a contractor or subcontractor, the arrangements for the performance of specific jobs, works or services.
contractor or subcontractor which has the capacity to independently Indeed, it is management prerogative to farm out any of its activities,
undertake the performance of the job, work or service, and the regardless of whether such activity is peripheral or core in nature.
contractual workers engaged by the contractor or subcontractor to However, in order for such outsourcing to be valid, it must be made to
accomplish the job[,] work or service. anindependent contractor because the current labor rules expressly
prohibit labor-only contracting.
xxxx
To emphasize, there is labor-only contracting when the contractor or sub-
Section 5. Prohibition against labor-only contracting. Labor-only contractor merely recruits, supplies or places workers to perform a job,
contracting is hereby declared prohibited. For this purpose, labor-only work or service for a principal25 and any of the following elements are
contracting shall refer to an arrangement where the contractor or present:
subcontractor merely recruits, supplies or places workers to perform a job,
work or service for a principal, and any of the following elements are i) The contractor or subcontractor does not have substantial capital
present: 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 is no showing of substantial investment in tools, equipment or other
directly related to the main business of the principal; or assets.

ii) The contractor does not exercise the right to control over the In Vinoya v. National Labor Relations Commission,34 the Court held that
performance of the work of the contractualemployee. (Underscoring "[w]ith the current economic atmosphere in the country, the paid-in
supplied) capitalization of PMCI amounting to ₱75,000.00 cannot be considered as
substantial capital and, as such, PMCI cannot qualify as an independent
In the instant case, the financial statements 26 of Promm-Gem show that it contractor."35 Applying the same rationale to the present case, it is clear
that SAPS – having a paid-in capital of only ₱31,250 - has no substantial
has authorized capital stock of ₱1 million and a paid-in capital, or capital capital. SAPS’ lack of substantial capital is underlined by the
available for operations, of ₱500,000.00 as of 1990.27 It also has long term records36 which show that its payroll for its merchandisers alone for one
assets worth ₱432,895.28 and current assets of ₱719,042.32. Promm- month would already total ₱44,561.00. It had 6-month contracts with
Gem has also proven that it maintained its own warehouse and office P&G.37 Yet SAPS failed to show that it could complete the 6-month
space with a floor area of 870 square meters. 28 It also had under its name contracts using its own capital and investment. Its capital is not even
three registered vehicles which were used for its sufficient for one month’s payroll. SAPS failed to show that its paid-in
promotional/merchandising business.29Promm-Gem also has other capital of ₱31,250.00 is sufficient for the period required for it to generate
clients30 aside from P&G.31 Under the circumstances, we find that Promm- its needed revenue to sustain its operations independently. Substantial
Gem has substantial investment which relates to the work to be capital refers to capitalization used in the performance or completion of
performed. These factors negate the existence of the element specified in the job, work or service contracted out. In the present case, SAPS has
Section 5(i) of DOLE Department Order No. 18-02. failed to show substantial capital.

The records also show that Promm-Gem supplied its complainant-workers Furthermore, the petitioners have been charged with the merchandising
with the relevant materials, such as markers, tapes, liners and cutters, and promotion of the products of P&G, an activity that has already been
necessary for them to perform their work. Promm-Gem also issued considered by the Court as doubtlessly directly related to the
uniforms to them. It is also relevant to mention that Promm-Gem already manufacturing business,38 which is the principal business of P&G.
considered the complainants working under it as its regular, not merely Considering that SAPS has no substantial capital or investment and the
contractual or project, employees.32 This circumstance negates the workers it recruited are performing activities which are directly related to
existence of element (ii) as stated in Section 5 of DOLE Department Order the principal business of P&G, we find that the former is engaged in
No. 18-02, which speaks of contractual employees. This, furthermore, "labor-only contracting".
negates – on the part of Promm-Gem – bad faith and intent to circumvent
labor laws which factors have often been tipping points that lead the Court "Where ‘labor-only’ contracting exists, the Labor Code itself establishes an
to strike down the employment practice or agreement concerned as employer-employee relationship between the employer and the
contrary to public policy, morals, good customs or public order. 33 employees of the ‘labor-only’ contractor."39 The statute establishes this
relationship for a comprehensive purpose: to prevent a circumvention of
Under the circumstances, Promm-Gem cannot be considered as a labor- labor laws. The contractor is considered merely an agent of the principal
only contractor. We find that it is a legitimate independent contractor. employer and the latter is responsible to the employees of the labor-only
contractor as if such employees had been directly employed by the
On the other hand, the Articles of Incorporation of SAPS shows that it has principal employer.40
a paid-in capital of only ₱31,250.00. There is no other evidence presented
to show how much its working capital and assets are. Furthermore, there Consequently, the following petitioners, having been recruited and
supplied
by SAPS41 -- which engaged in labor-only contracting -- are considered as Gamble Phils., Inc…. and assailing the integrity of the Company as
the employees of P&G: Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, legitimate and independent promotion firm, is deemed as an act of
Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao disloyalty prejudicial to the interests of our Company: serious misconduct
Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando and breach of trust reposed upon you as employee of our Company which
Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel [co]nstitute just cause for the termination of your employment.
Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson
Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. x x x x45
Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry
Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold Misconduct has been defined as improper or wrong conduct; the
D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. transgression of some established and definite rule of action, a forbidden
Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz act, a dereliction of duty, unlawful in character implying wrongful intent
Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, and not mere error of judgment. The misconduct to be serious must be of
Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato such grave and aggravated character and not merely trivial and
dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin. unimportant.46 To be a just cause for dismissal, such misconduct (a) must
be serious; (b) must relate to the performance of the employee’s duties;
The following petitioners, having worked under, and been dismissed by and (c) must show that the employee has become unfit to continue
Promm-Gem, are considered the employees of Promm-Gem, not of P&G: working for the employer.47
Wilfredo Torres, John Sumergido, Edwin Garcia, Mario P. Liongson, Jr.,
Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa, In other words, in order to constitute serious misconduct which will
Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, warrant the dismissal of an employee under paragraph (a) of Article 282
Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, of the Labor Code, it is not sufficient that the act or conduct complained of
Fernando Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto has violated some established rules or policies. It is equally important and
Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay, required that the act or conduct must have been performed with wrongful
Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and intent.48 In the instant case, petitioners-employees of Promm-Gem may
Joeb Aliviado.42 have committed an error of judgment in claiming to be employees of P&G,
but it cannot be said that they were motivated by any wrongful intent in
Termination of services doing so. As such, we find them guilty of only simple misconduct for
assailing the integrity of Promm-Gem as a legitimate and independent
We now discuss the issue of whether petitioners were illegally dismissed. promotion firm. A misconduct which is not serious or grave, as that
In cases of regular employment, the employer shall not terminate the existing in the instant case, cannot be a valid basis for dismissing an
services of an employee except for a just43 or authorized44 cause. employee.

In the instant case, the termination letters given by Promm-Gem to its Meanwhile, loss of trust and confidence, as a ground for dismissal, must
employees uniformly specified the cause of dismissal as grave misconduct be based on the willful breach of the trust reposed in the employee by his
and breach of trust, as follows: employer. Ordinary breach will not suffice. A breach of trust is willful if it is
done intentionally, knowingly and purposely, without justifiable excuse, as
xxxx distinguished from an act done carelessly, thoughtlessly, heedlessly or
inadvertently.49
This informs you that effective May 5, 1992, your employment with our
company, Promm-Gem, Inc. has been terminated. We find your expressed Loss of trust and confidence, as a cause for termination of employment, is
admission, that you considered yourself as an employee of Procter & premised on the fact that the employee concerned holds a position of
responsibility or of trust and confidence. As such, he must be invested Sales and Promotions Services Armon’s Bldg., 142 Kamias Road, Quezon
with confidence on delicate matters, such as custody, handling or care City
and protection of the property and assets of the employer. And, in order to
constitute a just cause for dismissal, the act complained of must be work- Attention: Mr. Saturnino A. Ponce President & General Manager
related and must show that the employee is unfit to continue to work for
the employer.50 In the instant case, the petitioners-employees of Promm- Gentlemen:
Gem have not been shown to be occupying positions of responsibility or of
trust and confidence. Neither is there any evidence to show that they are Based on our discussions last 5 and 19 February 1993, this formally
unfit to continue to work as merchandisers for Promm-Gem. informs you that we will not be renewing our Merchandising Services
Contract with your agency.
All told, we find no valid cause for the dismissal of petitioners-employees
of Promm-Gem. Please immediately undertake efforts to ensure that your services to the
Company will terminate effective close of business hours of 11 March
While Promm-Gem had complied with the procedural aspect of due 1993.
process in terminating the employment of petitioners-employees, i.e.,
giving two notices and in between such notices, an opportunity for the This is without prejudice to whatever obligations you may have to the
employees to answer and rebut the charges against them, it failed to company under the abovementioned contract.
comply with the substantive aspect of due process as the acts complained
of neither constitute serious misconduct nor breach of trust. Hence, the Very truly yours,
dismissal is illegal.
(Sgd.)
With regard to the petitioners placed with P&G by SAPS, they were given EMMANUEL M. NON Sales Merchandising III
no written notice of dismissal. The records show that upon receipt by SAPS
of P&G’s letter terminating their "Merchandising Services Contact"
6. On March 12, 1993, we reported to our respective outlet assignments.
effective March 11, 1993, they in turn verbally informed the concerned
But, we were no longer allowed to work and we were refused entrance by
petitioners not to report for work anymore. The concerned petitioners
the security guards posted. According to the security guards, all
related their dismissal as follows:
merchandisers of Procter and Gamble under S[APS] who filed a case in the
Dept. of Labor are already dismissed as per letter of Procter and Gamble
xxxx dated February 25, 1993. x x x52

5. On March 11, 1993, we were called to a meeting at SAPS office. We Neither SAPS nor P&G dispute the existence of these circumstances.
were told by Mr. Saturnino A. Ponce that we should already stop working Parenthetically, unlike Promm-Gem which dismissed its employees for
immediately because that was the order of Procter and Gamble. According grave misconduct and breach of trust due to disloyalty, SAPS dismissed its
to him he could not do otherwise because Procter and Gamble was the employees upon the initiation of P&G. It is evident that SAPS does not
one paying us. To prove that Procter and Gamble was the one responsible carry on its own business because the termination of its contract with P&G
in our dismissal, he showed to us the letter 51 dated February 24, 1993, x x automatically meant for it also the termination of its employees’ services.
x It is obvious from its act that SAPS had no other clients and had no
intention of seeking other clients in order to further its merchandising
February 24, 1993 business. From all indications SAPS, existed to cater solely to the need of
P&G for the supply of employees in the latter’s merchandising concerns
only. Under the circumstances prevailing in the instant case, we cannot benefits or their monetary equivalent from the time the compensation was
consider SAPS as an independent contractor. withheld up to the time of actual reinstatement. 57 Hence, all the
petitioners, having been illegally dismissed are entitled to reinstatement
Going back to the matter of dismissal, it must be emphasized that without loss of seniority rights and with full back wages and other benefits
the onus probandi to prove the lawfulness of the dismissal rests with the from the time of their illegal dismissal up to the time of their actual
employer.53 In termination cases, the burden of proof rests upon the reinstatement.1avvphi1
employer to show that the dismissal is for just and valid cause. 54 In the
instant case, P&G failed to discharge the burden of proving the legality WHEREFORE, the petition is GRANTED. The Decision dated March 21,
and validity of the dismissals of those petitioners who are considered its 2003 of the Court of Appeals in CA-G.R. SP No. 52082 and the Resolution
employees. Hence, the dismissals necessarily were not justified and are dated October 20, 2003 are REVERSED and SET ASIDE. Procter &
therefore illegal. Gamble Phils., Inc. and Promm-Gem, Inc. are ORDERED to reinstate their
respective employees immediately without loss of seniority rights and
Damages with full backwages and other benefits from the time of their illegal
dismissal up to the time of their actual reinstatement. Procter & Gamble
We now go to the issue of whether petitioners are entitled to damages. Phils., Inc. is further ORDERED to pay each of those petitioners
Moral considered as its employees, namely Arthur Corpuz, Eric Aliviado,
Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo
and exemplary damages are recoverable where the dismissal of an Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor
employee was attended by bad faith or fraud or constituted an act Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio
oppressive to labor or was done in a manner contrary to morals, good Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos
customs or public policy.55 Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G.
Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar,
With regard to the employees of Promm-Gem, there being no evidence of Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C.
bad faith, fraud or any oppressive act on the part of the latter, we find no Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P.
support for the award of damages. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres,
Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S.
Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo
As for P&G, the records show that it dismissed its employees through
Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis
SAPS in a manner oppressive to labor. The sudden and peremptory barring
Dacasin, ₱25,000.00 as moral damages plus ten percent of the total sum
of the concerned petitioners from work, and from admission to the work
as and for attorney’s fees.
place, after just a one-day verbal notice, and for no valid cause bellows
oppression and utter disregard of the right to due process of the
concerned petitioners. Hence, an award of moral damages is called for. Let this case be REMANDED to the Labor Arbiter for the computation,
within 30 days from receipt of this Decision, of petitioners’ backwages and
other benefits; and ten percent of the total sum as and for attorney’s fees
Attorney’s fees may likewise be awarded to the concerned petitioners who
as stated above; and for immediate execution.
were illegally dismissed in bad faith and were compelled to litigate or
incur expenses to protect their rights by reason of the oppressive acts 56 of
P&G. SO ORDERED.

Lastly, under Article 279 of the Labor Code, an employee who is unjustly
dismissed from work shall be entitled to reinstatement without loss of
seniority rights and other privileges, inclusive of allowances, and other