PAL v. Ligan

1. PAL V.
LIGAN
G.R.No. 146408, Feb. 29, 2008 – BUENAVENTURA
Petitioner: Philippine Airlines Inc. (PAL)

Respondents: ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO
OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE
SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL
BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS,
ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON
TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, BENEDICTO AUXTERO,
EDUARDO MAGDADARAUG, NELSON M. DULCE, and ALLAN BENTUZAL (workers
assigned by Synergy to PAL)
Employer PAL
Employees Respondents
Contractor/subcontractor Synergy (but found out as Labor Only Contractor)
Labor Issue Labor-only contracting
DOCTRINE:
 2 elements of Labor-only Contracting:
a. 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
b. The contractor does NOT exercise the right to control over the performance of
the work of the contractual employee.
- even if only one of the 2 elements is present, then there is labor-only
contracting.
 One who claims to be an independent contractor has to prove that he contracted

to do work according to his own methods and without being subject to the
employer’s control except only as to the result.
FACTS:
 PAL as owner and Synergy Service Corp (Synergy) as Contractor, entered into an
agreement whereby Synergy undertook to ““provide loading, unloading, delivery of
baggage and cargo and other related services to and from petitioner’s aircraft at
the Mactan Station.
 It was specified in the Agreement the following “Scope of Services” of contractor
Synergy:
1.2. CONTRACTOR shall furnish all the necessary capital, workers, loading,
unloading and delivery materials, facilities, supplies, equipment and tools
for the satisfactory performance and execution of the following services:
And it expressly provided that Synergy was “an independent contractor and
. . . that there w[ould] be no employer-employee relationship between
CONTRACTOR and/or its employees on the one hand, and OWNER, on
the other.
 Except for respondent Auxtero, the respondents, who appear to have been assigned by
Synergy to PAL following the execution of the Agreement, filed complaints against PAL
and Synergy for regularization of employment status with petitioner PAL.
 Auxtero had initially filed a complaint against petitioner PAL and Synergy for regularization
of his employment status. Later, he was verbally dismissed without valid ground. Hence,
he filed a complaint against petitioner PAL and Synergy for illegal dismissal.
 Complaints were consolidated.
RULING OF THE COURTS:

LA – found Synergy an independent contractor and dismissed respondent’s
complaint for regularization against petitioner, but granted their money claims.
NLRC – set aside the decision of LA. It declared Synergy to be a labor-only
contractor and ordered PAL to accept respondents as its regular employees.
CA – affirmed the decision of NLRC.
PETITIONER’S CONTENTION:
- the law does not prohibit an employer from engaging an independent
contractor, like Synergy, which has substantial capital in carrying on an
independent business of contracting, to perform specific jobs.
- its contracting out to Synergy various services like janitorial, aircraft cleaning,
baggage handling etc., which are directly related to its business, does not make
respondents its employees.
- No EER between PAL and respondents.
RESPONDENTS’ CONTENTION: They are regular employees of Petitioner PAL since

their job is directly connected with its business.
ISSUE: Whether Synergy is merely labor-only contractor or a legitimate contractor. –

LABOR ONLY CONTRACTOR
RULING:
Legitimate contracting and labor only contracting are defined in D.O. No. 18-02 Series of
2002. It was stated that:
Sec.3. Trilateral relationship in contracting arrangements - legitimate contracting, there

exists a trilateral relationship under which there is a contract for a specific job, work or
service between the principal and the contractor or subcontractor, and a contract of
employment between the contractor or subcontractor and its workers. Hence, there are
three parties involved in these arrangements, the principal which decides to farm out a job
or service to a contractor or subcontractor, the contractor or subcontractor which has the
capacity to independently undertake the performance of the job, work or service, and the
contractual workers engaged by the contractor or subcontractor to accomplish the job,
work or service.
Sec.5. prohibition against labor-only contracting - Labor-only contractor 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 [sic]
present:
(i) The contractor or subcontractor does not have substantial capital or investment
which relates to the job, work or service to be performed and the employees
recruited, supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal; OR
(ii) The contractor does not exercise the right to control over the performance of the
work of the contractual employee.
“Substantial capital or investment” refers to capital stocks and subscribed capitalization

in the case of corporations, tools, equipment, implements, machineries and work
premises, actually and directly used by the contractor or subcontractor in the performance
or completion of the job, work or service contracted out.
The “right to control” shall refer to the right reserved to the person for whom the services
of the contractual workers are performed, to determine not only the end to be achieved,
but also the manner and means to be used in reaching that end.”
From the records of the case, it is gathered that the work performed by almost all
of the respondents—loading and unloading of baggage and cargo of passengers—is
directly related to the main business of petitioner. And the equipment used by respondents
as station loaders, such as trailers and conveyors, are owned by petitioner.
Petitioner asserts, however, that mere compliance with substantial capital
requirement suffices for Synergy to be considered a legitimate contractor, citing Neri v.
National Labor Relations Commission. Petitioner’s reliance on said case is misplaced. In
stark contrast to the case at bar, while petitioner steadfastly asserted before the Labor
Arbiter and the NLRC that Synergy has a substantial capital to engage in legitimate
contracting, it failed to present evidence thereon.
More significantly, however, is that respondents worked alongside petitioner’s
regular employees who were performing identical work.
Even if only one of the 2 elements is present then, there is labor-only contracting.
One who claims to be an independent contractor has to prove that he contracted to do the
work according to his own methods and without being subject to the employer’s control
except only as to the results. While petitioner claimed that it was Synergy’s supervisors
who actually supervised respondents, it failed to present evidence thereon. It did not even
identify who were the Synergy supervisors assigned at the workplace. Petitioner in fact
admitted that it fixes the work schedule of respondents as their work was dependent on
the frequency of plane arrivals. And as the NLRC found, petitioner’s managers and
supervisors approved respondents’ weekly work assignments and respondents and other
regular PAL employees were all referred to as “station attendants” of the cargo operation
and airfreight services of petitioner.
Respondents having performed tasks which are usually necessary and desirable
in the air transportation business of petitioner, they should be deemed its regular
employees and Synergy as a labor-only contractor.
The express provision in the Agreement that Synergy was an independent
contractor and there would be “no employer employee relationship between [Synergy]
and/or its employees on one hand, and [petitioner] on the other hand” is not legally binding
and conclusive as contractual provisions are not valid determinants of the existence of
such relationship. For it is the totality of the facts and surrounding circumstances of the
case which is determinative of the parties’ relationship.
DISPOSITION: WHEREFORE, the Court of Appeals Decision of September 29, 2000 is
AFFIRMED with MODIFICATION. Petitioner PHILIPPINE AIRLINES, INC. is ordered to:
a. Accept respondents as its regular employees in their same or substantially equivalent
positions.

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1. PAL V.

Petitioner: Philippine Airlines Inc. (PAL)

 One who claims to be an independent contractor has to prove that he contracted

RULING OF THE COURTS:

RESPONDENTS’ CONTENTION: They are regular employees of Petitioner PAL since

ISSUE: Whether Synergy is merely labor-only contractor or a legitimate contractor. –

Sec.3. Trilateral relationship in contracting arrangements - legitimate contracting, there

“Substantial capital or investment” refers to capital stocks and subscribed capitalization

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