In labor-only contracting, a prohibited act, the following elements are present: (a) the contractor or subcontractor does not have substantial capital or investment to actually perform the job, work, or service under its own account and responsibility; and (b) the employees recruited, supplied, or placed by such contractor or subcontractor perform activities which are directly related to the main business of the principal.
On the other hand, permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out with the contractor or subcontractor the performance or completion of a specific job, work, or service within a definite or predetermined period, regardless of whether such job, work, or service
is to be performed or completed within or outside the premises of the principal.
FACTS:
Respondent LSC entered into a General Equipment Maintenance Repair and Management Services Agreement (Agreement) with Best Manpower Services, Inc. (BMSI). Under the Agreement, BMSI undertook to provide maintenance and repair services to LSCs container vans, heavy equipment, trailer chassis, and generator sets. BMSI further undertook to provide checkers to inspect all containers received for loading to and/or unloading from its vessels.
Simultaneous with the execution of the Agreement, LSC leased its equipment, tools, and tractors to BMSI. The period of lease was coterminous with the Agreement.
BMSI then hired petitioners on various dates to work at LSC as checkers, welders, utility men, clerks, forklift operators, motor pool and machine shop workers, technicians, trailer drivers, and mechanics. Six years later, LSC entered into another contract with BMSI, this time, a service contract.
In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint for regularization against LSC and BMSI. On October 1, 2003, LSC terminated the Agreement. Consequently, petitioners lost their employment. BMSI asserted that it is an independent contractor. It averred that it was willing to regularize petitioners; however, some of them lacked the requisite qualifications for the job. BMSI was willing to reassign petitioners who were willing to accept reassignment.
LSC, on the other hand, averred that petitioners were employees of BMSI and were assigned to LSC by virtue of the Agreement. The Agreement between LSC and BMSI constituted legitimate job contracting. Thus, petitioners were employees of BMSI and not of LSC.
LA RULING: LA found that petitioners were employees of BMSI.
NLRC RULING: Reversing the LA, the NLRC held: BMSI is not engaged in legitimate job contracting. BMSI has
no equipment, no office premises, no capital and no investments as shown in the Agreement itself. BMSI has no independent business or activity or job to perform in respondent LSC free from the control of respondent LSC except as to the results thereof. LSC [petitioners] performed work that was necessary and desirable to the main business of respondent LSC. BMSI has no other client but respondent LSC.
Consequently, respondent Lorenzo Shipping Corp. is ordered to reinstate [petitioners] to their former positions as regular employees and pay their wage differentials and benefits. If reinstatement is not feasible, both respondents Lorenzo Shipping Corp. and Best Manpower Services are adjudged jointly and solidarily to pay [petitioners] separation pay.
CA RULING: CA rendered the now challenged Decision, reversing the NLRC. According to the CA, the
fact that BMSI entered into a contract of lease with LSC did not ipso facto make BMSI a labor-only contractor; on the contrary, it proved that BMSI had substantial capital. The CA was of the view that the law only required substantial capital or investment.
SC RULING:
YES. In distinguishing between prohibited labor-only contracting and permissible job contracting, the totality of
the facts and the surrounding circumstances of the case are to be considered.
In labor-only contracting, a prohibited act, the following elements are present: (a) the contractor or subcontractor does not have substantial capital or investment to actually perform the job, work, or service under its own account and responsibility; and (b) the employees recruited, supplied, or placed by such contractor or subcontractor perform activities which are directly related to the main business of the principal.
A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:
(a) The contractor carries on a distinct and independent business and undertakes the contract work on his account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of his work except as to the results thereof;
(b) The contractor has substantial capital or investment; and
(c) The agreement between the principal and the contractor or subcontractor assures the contractual employees' entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social welfare benefits.
The Court sustains the petitioners contention that BMSI is engaged in labor-only contracting.
First, petitioners worked at LSCs premises, and nowhere else. There was no showing that it was BMSI which established petitioners working procedure and methods, which supervised petitioners in their work, or which evaluated the same. There was absolute lack of evidence that BMSI exercised control over them or their work.
Second, LSC was unable to present proof that BMSI had substantial capital. What is clear was that the equipment used by BMSI were owned by, and merely rented from, LSC.
Third, petitioners performed activities which were directly related to the main business of LSC.
Lastly, BMSI had no other client except for LSC. A Certificate of Registration issued by the Department of Labor and Employment is not conclusive evidence of status of independent contractor. The fact of registration simply prevents the legal presumption of being a mere labor-only contractor from arising.
Consequently, the workers that BMSI supplied to LSC became regular employees of the latter. Having gained regular status, petitioners were entitled to security of tenure and could only be dismissed for just or authorized causes and after they had been accorded due process.
58. FIRST PHILIPPINE INDUSTRIAL CORPORATION v. RAQUEL M. CALIMBAS AND LUISA P. MAHILOM G.R. No. 179256 July 10, 2013
PERALTA, J.: Doctrine:
There is “labor-only” contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
FACTS:
(FPIC) is a domestic corporation primarily engaged in the transportation of petroleum products by pipeline. [DGMS] is engaged in the business of supplying manpower to render general clerical, building and grounds maintenance, and janitorial and utility services.
FPIC, entered into a Contract of Special Services with DGMS, wherein the latter agreed to undertake some aspects of building and grounds maintenance at FPIC’s premises, offices and facilities, as well as to provide clerical and other utility services as may be required from time to time by FPIC.
Pursuant to the said Contract, petitioner Raquel Calimbas and Luisa Mahilom were engaged by the DGMS to render services to FPIC. Thereat, petitioner Calimbas was assigned as a department secretary at the Technical Services Department while petitioner Mahilom served as a clerk at the Money Movement Section of the Finance Division.
FPIC, through its Human Resources Manager, Lorna Young, informed the petitioners that their services to the company would no longer be needed as a result of the “Pace-Setting” Study conducted by an outside consultant. Accordingly, Treasurer of DGMS, formally notified both the petitioners that their respective work assignments in FPIC were no longer available to them citing the termination of the Project Contract with FPIC as the main reason thereof. Calimbas and Mahilom signed quitclaims, releasing and discharging DGMS from whatever claims that they might have against it by virtue of their past employment.
Petitioners still filed a Complaint against FPIC for illegal dismissal and for the collection of monetary benefits, alleging that they were regular employees of FPIC after serving almost five (5) years, rendering services which were usually necessary or desirable in the usual business or trade of FPIC and that they were dismissed without cause.
In their Position Paper, petitioners maintained that their real employer was FPIC, and that DGMS was merely its agent for having been engaged in prohibited labor-only contracting. The petitioners averred that DGMS did not have substantial capital.
FPIC insisted that the Labor Arbiter had no jurisdiction over the case because there was absolutely no employer-employee relationship between it and the petitioners; and that they executed quitclaims in favor of DGMS
LA RULING: Labor Arbiter rendered a Decision4 holding that respondents were regular employees of FPIC, and that they were illegally dismissed.
NLRC RULING: NLRC the Labor Arbiter’s decision. However, in a Resolution after MR by FPIC, the NLRC
reversed its decision. The CA finds no legal basis to deem DGMS a “labor-only contracting” entity as maintained by complainants. The fact that DGMS had only a capitalization of P75,000.00, without an investment in tools, equipment, etc., does not necessarily constitute the latter as labor-only contractor. Labor Arbiter is hereby REINSTATED.
SC RULING:
YES. Article 106 of the Labor Code and Sections 8 and 9 of DOLE Department Order No. 10, Series of 1997 are
the standards to apply.
There is “labor-only” contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
Respondents are petitioner’s employees and that DGMS is engaged in labor-only contracting.
First, in Vinoya v. National Labor Relations Commission,12 this Court categorically stated that the actual paid-in
capital of P75,000.00 could not be considered as substantial capital. Thus, DGMS’s actual paid-in capital in the amount of P75,000.00 does not constitute substantial capital essential to carry out its business as an independent job contractor. DGMS has no substantial equipment in the form of tools, equipment and machinery. As a matter of fact, respondents were using office equipment and materials owned by petitioner while they were rendering their services at its offices.
Second, FPIC exercised the power of control and supervision over the respondents. The fact that DGMS did not assign representatives to supervise over respondents’ work in petitioner’s company tends to disprove the independence of DGMS. Respondents were subjected to the control and supervision of petitioner while they were performing their jobs.”
Third, also worth stressing are the points highlighted by respondents: Respondents worked only at petitioner’s offices for an uninterrupted period of five years, occupying the same position at the same department under the supervision of company officials; FPIC’s HR Manager Lorna Young notified respondents, in a closed-door meeting, that their services to the company would be terminated; The direct superiors of respondents were managerial employees of petitioner, and had direct control over all the work-related activities of the latter. All told, an employer-employee relationship exists between petitioner and respondents. And having served for almost five years at petitioner’s company, respondents had already attained the status of regular employees. In the present case, petitioners failed to show any valid or just cause under the Labor Code on which it may justify the termination of services of respondents. Also, apart from notifying that their services had already been terminated, petitioner failed to comply with the rudimentary requirement of notifying respondents regarding the acts or omissions which led to the termination of their services as well as giving them an ample opportunity to contest the legality of their dismissal. Having failed to establish compliance with the requirements of termination of employment under the Labor Code, respondents’ dismissal is tainted with illegality.
59. AVELINO S. ALILIN, ET. AL. vs. PETRON CORPORATION G.R. No. 177592 June 9, 2014
DEL CASTILLO, J.