Subsequently, LUPO terminated petitioners' services, on different dates.
As a result,
6.2 INDEPENDENT CONTRACTOR AND LABOR ONLY CONTRACTOR
A. INDEPENDENT CONTRACTOR
Management Function- Determination need
[G.R. No. 127598. January 27, 1999]
MANILA ELECTRIC COMPANY, petitioner, vs. THE HONORABLE SECRETARY
OF LABOR LEONARDO QUISUMBING AND MERALCO EMPLOYEES AND
WORKERS ASSOCIATION (MEWA), respondents.
Facts; In 1999, the SC promulgated a decision directing the parties to execute a CBA
which provided for increase in wages and retroactive application of arbitral awards.
MERALCO filed this petition arguing that an increase in wages will result in higher
rates of electricity which will be passed to the consumers. The Union likewise asks for
reconsideration in so far as the 1999 decision denied them the benefit of being
granted loans to set up a cooperative. Finally, the Union questions the right given to
MERALCO in contracting out jobs without need to consult the Union.
Issue: W/N matters of salary are part of management prerogative
RULING: Yes. There is no need to consult the Secretary of Labor in cases involving
contracting out for 6 months or more as it is part of management prerogative. However,
a line must be drawn with respect to management prerogatives on business
operations per se and those which affect the rights of the workers. Employers must see
to it that that employees are properly informed of its decisions to attain harmonious
labor relations and enlighten the worker as to their rights.
The contracting out business or services is an exercise of business judgment if it is for
the promotion of efficiency and attainment of economy. Management must be
motivated by good faith and contracting out should not be done to circumvent the law.
Provided there was no malice or that it was not done arbitrarily, the courts will not
interfere with the exercise of this judgment.
REQUIREMENTS- INDEPENDENT CONTRACTOR
G.R. No. 79004-08 October 4, 1991
FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT AND 6 OTHERS, ROY
MAGALLANES AND 4 OTHERS, CLAUDIO BONGO, EDUARDO ANDALES and 4
OTHERS, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (3rd
DIVISION), GENERAL MILLING CORPORATION and/or FELICIANO
LUPO, respondents.
FACTS: private respondent Feliciano LUPO, a building contractor, entered into a
contract with GMC, a domestic corporation engaged in flour and feeds manufacturing,
for the construction of an annex building inside the latter's plant in Cebu City. In
connection with the aforesaid contract, LUPO hired herein petitioners either as
carpenters, masons or laborers.
petitioners filed Complaints against LUPO and GMC before the NLRC for unpaid
wages, COLA differentials, bonus and overtime pay.
Labor Arbiter found LUPO and GMC jointly and severally liable to petitioners,
premised on Article 109 of the Labor Code. Upon Motion for Reconsideration, that
Division absolved GMC from any liability. It opined that petitioners were only hired by
LUPO as workers in his construction contract with GMC and were never meant to be
employed by the latter.
ISSUE:WON GMC is an employer or indirect employer?
HELD:The Court uphold the solidary liability of GMC and LUPO for the latter's
liabilities in favor of employees whom he had earlier employed and dismissed.
a person is deemed to be engaged in "labor only" contracting where (1) 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 (2) the
workers recruited and placed by such person are performing activities which
are directly related to the principal business of such employer. Since the construction
of an annex building inside the company plant has no relation whatsoever with the
employer's business of flour and feeds manufacturing, "labor-only" contracting does
not exist. Article 106 is thus inapplicable.
Instead, it is "job contracting," covered by Article 107, which is involved, reading: Art.
107. Indirect Employer. — The provisions of the immediately preceding Article shall
likewise apply to any person, partnership, association or corporation which, not being
an employer, contracts with an independent contractor for the performance of any
work, task, job or project.
Specifically, there is "job contracting" where (1) the contractor carries on an
independent business and undertakes the contract work on his own 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
the work except as to the results thereof; and (2) the contractor has substantial capital
or investment in the form of tools, equipment, machineries, work premises, and other
materials which are necessary in the conduct of his business. It may be that LUPO
subsequently ran out of capital and was unable to satisfy the award to petitioners.
That was an after-the-fact development, however, and does not detract from his
status as an independent contractor.
GMC qualifies as an "indirect employer." It entered into a contract with an
independent contractor, LUPO, for the construction of an annex building, a work, task,
job or project not directly related to GMC's business of flour and feeds manufacturing.
Being an "indirect employer," GMC is solidarily liable with LUPO for any violation of
the Labor Code pursuant to Article 109.
G.R. Nos. 97008-09 July 23, 1993
VIRGINIA G. NERI and JOSE CABELIN, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION FAR EAST BANK & TRUST COMPANY (FEBTC) and
BUILDING CARE CORPORATION, respondents.
FACTS: Petitioners Virginia Neri and Jose Cabelin were hired by Building Care
(BCC), a corporation engaged in providing technical, maintenance, engineering,
housekeeping, security and other specific services to its clientele. They were
assigned to respondent Far East Bank and Trust Company (FEBTC), with Neri as a
radio/telex operator and Cabelin as janitor/messenger.
Petitioners then instituted an action with the Regional Arbitration Branch No. 10 to
compel FEBTC to recognize and accept them as regular employees. The Labor Arbiter
denied the complaint for lack of merit, declaring that BCC was considered an
independent contractor because it proved it had substantial capital of P1M. Neri and
Cabelin, however, contend that BCC is engaged in LOC because it failed to adduce
evidence purporting to show that it invested in the form of tools, equipment,
machineries, work premises and other materials which are necessary in the conduct of
its business. Moreover, they argued that they performed duties which are directly
related to the principal business of FEBTC.
ISSUE: Whether or not BCC is engaged in LOC.
HELD: BCC is an independent contractor. One is not required to possess both a)
substantial capital and b) investment in the form of tools, equipment, machinery, work
premises, among others, to be considered a job contractor. Possession of either
attribute is sufficient for the purposes of complying with one of the conditions for the
establishment of permissible job contracting. In this case, BCC proved it had substantial
capital of P1M.
On the issue of control, petitioners do not deny that they were selected and hired by
BCC before being deployed in FEBTC. BCC likewise acknowledges that petitioners are
its employees. The record is replete with evidence disclosing the BCC maintained
supervision and control over petitioners through its Housekeeping and Special Services
Division. Petitioners reported for work wearing the prescribed uniform of BCC: leaves
for absence were filed directly with the BCC and salaries were drawn only from BCC.
As a matter of fact, Neri even secured a certificate from BCC that she was employed
by the latter. More importantly, under the terms and conditions of the contract, it was
BCC alone which had the power to reassign petitioners. These are indications that BCC
carries an independent business according to its own manner and method, free from
the control and supervision of its principal in all matters except as to the results thereof.
The Court has already taken judicial notice of the general practice adopted in several
government and private institutions and industries of hiring independent contractors to
perform special services ranging from janitorial, security and even technical or other
specific services such as those performed by Neri and Cabelin. While these services
may be considered directly related to the principal business of the employer,
nevertheless they are not necessary in the conduct of the principal business of the
employer.
G.R. No. 210961, January 24, 2018
LEO V. MAGO AND LEILANIE E. COLOBONG, Petitioners, v. SUN POWER
MANUFACTURING LIMITED, Respondent.
FACTS: The petitioners are former employees of Jobcrest, a corporation duly
organized under existing laws of the Philippines, engaged in the business of
contracting management consultancy and services. During the time material to this
case, the petitioners' co-habited together. Jobcrest and Sunpower entered into a
Service Contract Agreement, in which Jobcrest undertook to provide business
process services for Sunpower, a corporation principally engaged in the business of
manufacturing automotive computer and other electronic parts.
the petitioners were assigned to Sunpower's plant in Laguna Technopark. Leo was
tasked as a Production Operator in the Coinstacking, while Leilanie was assigned as
a Production Operator. Sunpower conducted an operational alignment, which affected
some of the services supplied by Jobcrest. Sunpower decided to terminate the
Coinstacking/Material Handling segment and the Visual Inspection segment.
Meanwhile, Leo and Leilanie were respectively on paternity and maternity leave
because Leilanie was due to give birth to their common child.
Allan purportedly informed Leo that his employment was terminated due to his
absences. Leo, however, further alleged that he was asked to report to Jobcrest for
his assignment to Sunpower. In their defense, both Jobcrest and Allan denied
terminating Leo's employment from Jobcrest.
Jobcrest's Human Resource Manager, Noel J. Pagtalunan (Noel), served Leo with a
"Notice, the notice stated that Leo violated the Jobcrest policy against falsification or
tampering because he failed to disclose his relationship with Leilanie. Leo denied the
charges and explained that he already filed a complaint for illegal dismissal with the
NLRC.Leilanie, on the other hand, alleged that when she reported for work at
Jobcrest, she was informed by one of the Jobcrest personnel that she will be
transferred to another client company.
Instead of complying with Jobcrest's directives, Leo and Leilanie filed a complaint for
illegal dismissal and regularization. Despite the filing of the complaint, Leilanie
returned to Jobcrest where she was served with a similar "Notice of Admin
Charge/Explanation Slip," requiring her to explain why she failed to disclose her co-
habitation status with Leo.
During the mandatory conference, Jobcrest clarified that the petitioners were not
dismissed from employment and offered to accept them when they report back to
work. The petitioners refused and insisted that they were regular employees of
Sunpower, not Jobcrest.
the LA held that Jobcrest is a legitimate independent contractor and the petitioners'
statutory employer. The NLRC reversed the LA's findings. According to the NLRC, the
contract between Jobcrest and Sunpower was for the sole supply of manpower. the
CA granted Sunpower's petition for certiorari and enjoined the implementation of the
assailed NLRC ruling. The CA ruled that Sunpower was able to overcome the
presumption that Jobcrest was a labor-only contractor, especially considering that the
DOLE Certificate of Registration issued in favor of Jobcrest carries the presumption of
regularity.

ISSUE: WON Jobcrest is a legitimate and independent contractor?
HELD: The Court resolves to deny the petition.
Article 106 of the Labor Code defines labor-only contracting as a situation "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 order to become a legitimate contractor, the contractor must have substantial
capital or investment, and must carry a distinct and independent business free from
the control of the principal. In addition, the Court requires the agreement between the
principal and the contractor or subcontractor to assure 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.
Furthermore, the Court considers job contracting or subcontracting as permissible
when the principal agrees to farm out the performance of a specific job, work or
service to the contractor, for a definite or predetermined period of time, regardless of
whether such job, work, or service is to be performed or completed within or outside
the premises of the principal. Ordinarily, a contractor is presumed to be a labor-only
contractor, unless the contractor is able to discharge the burden of overcoming this
presumption. In cases when it's the principal claiming the legitimacy of the contractor,
then the burden is borne by the principal.
the Court finds that there is no such burden resting on either Sunpower or Jobcrest in
this case. It is true that Sunpower maintained its position that Jobcrest is a legitimate
and independent contractor. But since the petitioners do not dispute that Jobcrest was
a duly-registered contractor under Section 11 of DOLE DO No. 18-02, there is no
operative presumption that Jobcrest is a labor-only contractor.
The Court can therefore reasonably conclude from Jobcrest's financial statements
that it carried its own business independent from and distinctly outside the control of
its principals. The fact that the petitioners were working within the premises of
Sunpower, by itself, does not negate Jobcrest's control over the means, method, and
result of the petitioners' work. Job contracting is permissible "whether such job, work,
or service is to be performed or completed within or outside the premises of the
principal" for as long as the elements of a labor-only contractor are not present.
All things considered, Sunpower is not the statutory employer of the petitioners. The
circumstances obtaining in this case, as supported by the evidence on record,
establish that Jobcrest was a legitimate and independent contractor. There is no
reason for this Court to depart from the CA's findings.
G.R. No. 195145, February 10, 2016
MANILA ELECTRIC COMPANY, Petitioner, v. SPOUSES SULPICIO AND
PATRICIA RAMOS, Respondents.
FACTS: Respondents are licensed security guards formerly employed by People’s
Security, Inc. (PSI) and deployed as such to MERALCO. In 1990, the security service
agreement between PSI and MERALCO was terminated. Immediately thereafter, 56
of PSI’s security guards filed a complaint for unpaid monetary benefits against PSI
and MERALCO. Meanwhile, a new security service agreement was entered into
between Armed Security & Detective Agency, Inc. (ASDAI) and MERALCO. The
agreement provided that nothing herein contained shall be understood to make the
security guards under the agreement employees of MERALCO, as they are
employees of ASDI, and that ASDI shall be responsible for compliance with all
pertinent labor laws and regulations. Subsequently, the individual respondents were
absorbed by ASDAI and retained at MERALCO’s office.
LA ruled in favor of respondents. Thereafter, the individual respondents filed another
complaint for unpaid monetary benefits, this time against ASDAI and MERALCO.
Thereafter, the security service agreement with ASDAI was terminated, and a new
agreement was entered into with Advance Forces Security & Investigation Services,
Inc. (AFSISI) and MERALCO which is substantially identical with the agreement with
ASDAI. Subsequently, respondents amended their complaint to implead AFSISI as
party respondent. Not soon after, they again amended their complaint to allege that
AFSISI terminated their services without notice and just cause.
Respondents alleged that MERALCO and ASDAI never paid their OT pay, SIL,
premium pay for Sundays and Holidays, P50 monthly uniform allowance and
underpaid their 13th month. Furthermore, after AFSISI took over the security
functions, respondents were no longer given any work assignment when AFSISI
learned that the former has a pending case against PSI. ASDAI denied any liability
claiming that there is nothing due them in connection with their services. MERALCO
denied liability on the ground of lack of employer-employee relationship. AFSISI
denied liability for illegal dismissal since it did not absorb or hire the respondents, the
latter were merely hold-over guards from ASDAI, and that it is not obliged to employ
or absorb the security guards.
LA ruled in favor of respondents holding ASDAI and MERALCO jointly and solidarily
liable to the monetary claims of respondents and dismissing the complaint against
AFSISI, which was affirmed in toto by the NLRC. Upon appeal to the CA, the CA
modified the decision of the NLRC by declaring MERALCO as the direct employer of
the respondents by applying the four-fold test, and that MERALCO’s act of changing
security agencies from one after the other was a scheme in order to evade the
security of tenure of respondents. Furthermore, CA further held that MERALCO,
ASDAI and AFSISI are engaged in labor-only contracting, hence, MERALCO is also
guilty of illegal dismissal.
ISSUE: Whether MERALCO is liable for the monetary claims of respondents as
a direct employer?
HELD: NO
In this case, the terms and conditions embodied in the security service agreement
between MERALCO and ASDAI expressly recognized ASDAI as the employer of
individual respondents. Under the security service agreement, it was ASDAI which (a)
selected, engaged or hired and discharged the security guards; (b) assigned them to
MERALCO according to the number agreed upon; (c) provided the uniform, firearms
and ammunition, nightsticks, flashlights, raincoats and other paraphernalia of the
security guards; (d) paid them salaries or wages; and, (e) disciplined and supervised
them or principally controlled their conduct. The agreement even explicitly provided
that “[n]othing herein contained shall be understood to make the security guards
under this Agreement, employees of the COMPANY.”
Verily, the security service agreements in the present case provided that all specific
instructions by MERALCO relating to the discharge by the security guards of their
duties shall be directed to the agency and not directly to the individual respondents.
The individual respondents failed to show that the rules of MERALCO controlled their
performance.
Moreover, ASDAI and AFSISI are not “labor-only” contractors. There is “labor only”
contract when the person acting as contractor is considered merely as an agent or
intermediary of the principal who is responsible to the workers in the same manner
and to the same extent as if they had been directly employed by him. The individual
respondents cannot be considered as regular employees of the MERALCO for,
although security services are necessary and desirable to the business of MERALCO,
it is not directly related to its principal business and may even be considered
unnecessary in the conduct of MERALCO’s principal business, which is the
distribution of electricity.
Furthermore, the fact that the individual respondents filed their claim for unpaid
monetary benefits against ASDAI is a clear indication that the individual respondents
acknowledge that ASDAI is their employer.
The fact that there is no actual and direct employer- employee relationship between
MERALCO and the individual respondents does not exonerate MERALCO from
liability as to the monetary claims of the individual respondents. When MERALCO
contracted for security services with ASDAI as the security agency that hired
individual respondents to work as guards for it, MERALCO became an indirect
employer of individual respondents pursuant to Article 107 of the Labor Code.
ASDAI is held liable by virtue of its status as direct employer, while MERALCO is
deemed the indirect employer of the individual respondents for the purpose of paying
their wages in the event of failure of ASDAI to pay them. This statutory scheme gives
the workers the ample protection consonant with labor and social justice provisions of
the 1987 Constitution.
[G.R. No. 149011. June 28, 2005]
SAN MIGUEL CORPORATION, petitioner, vs. PROSPERO A. ABALLA
Facts: San Miguel Corporation (SMC), entered into a one-year Contract of Services
with Sunflower Multi-Purpose Cooperative (Sunflower) to be renewed on a month to
month basis until terminated by either party. Under the contract, Sunflower agrees
and undertakes to perform and/or provide for the company the following services for
the Bacolod Shrimp Processing Plant: Messengerial/Janitorial, Shrimp
Harvesting/Receiving, and Sanitation/Washing/Cold Storage. The cooperative shall
employ the necessary personnel and provide adequate equipment, materials, tools
and apparatus, to efficiently, fully and speedily accomplish the work and services
undertaken by the cooperative. The cooperative shall have the entire charge, control
and supervision of the work and services. There is no employer-employee
relationship between the company and the cooperative, or the cooperative and any of
its members, or the company and any members of the cooperative. The cooperative
shall, whenever possible, maintain and keep under its control the premises where the
work under this contract shall be performed. Respondents filed a complaint praying to
be declared as regular employees of SMC, with claims for recovery of all benefits and
privileges enjoyed by SMC rank and file employees. Subsequently, they included
illegal dismissal as additional cause of action following SMC’s closure of its Bacolod
Shrimp Processing Plant which resulted in the termination of their services. Moreover,
SMC insists that respondents are the employees of Sunflower, an independent
contractor. On the other hand, respondents assert that Sunflower is a labor-only
contractor.
Issue: Whether or not Sunflower is an independent contractor?
HELD: NO. The following considerations affirm by more than substantial evidence the
existence of an employer-employee relationship between SMC and respondents: The
Contract of Services between SMC and Sunflower shows that the parties clearly
disavowed the existence of an employer-employee relationship between SMC and
respondents.
The language of a contract is not, however, determinative of the parties’ relationship;
rather it is the totality of the facts and surrounding circumstances of the case. A party
cannot dictate, by the mere expedient of a unilateral declaration in a contract, the
character of its business, i.e., whether as labor-only contractor or job contractor, it
being crucial that its character be measured in terms of and determined by the criteria
set by statute. What appears is that Sunflower does not have substantial
capitalization or investment in the form of tools, equipment, machineries, work
premises and other materials to qualify it as an independent contractor. And from the
job description provided by SMC itself, the work assigned to private respondents was
directly related to the aquaculture operations of SMC.
Undoubtedly, the nature of the work performed by respondents in shrimp harvesting,
receiving and packing formed an integral part of the shrimp processing operations of
SMC. As for janitorial and messengerial services, that they are considered directly
related to the principal business of the employer has been jurisprudentially
recognized.
Furthermore, Sunflower did not carry on an independent business or undertake the
performance of its service contract according to its own manner and method, free
from the control and supervision of its principal, SMC, its apparent role having been
merely to recruit persons to work for SMC. Thus, it is gathered from the evidence
adduced by respondents before the LA that their daily time records were signed by
SMC supervisors which fact shows that SMC exercised the power of control and
supervision over its employees. And control of the premises in which private
respondents worked was by SMC. These tend to disprove the independence of the
contractor.
G.R. No. 160854
BIG AA MANUFACTURER, Petitioner,- versus -EUTIQUIO ANTONIO,
JAY ANTONIO, FELICISIMO ANTONIO, and LEONARDO ANTONIO, SR.,
Respondents.
Facts: The respondent employees alleged that as regular employees, they worked for
petitioner Big AA from 8:00 a.m. to 5:00 p.m. in its premises and using its tools and
equipment. They received P250 per day. They alleged that they were dismissed
without just cause and due process. However, Big AA denied that respondents were
its regular employees. Instead, it claimed that Antonio was one of its independent
contractors who used the services of the other respondents. According to Big AA, its
independent contractors were paid by results and were responsible for the salaries of
their own workers. As such, there was no employer-employee relationship between
petitioner and respondents. Big AA explained that it allowed respondents to use its
facilities only to meet job orders. It also denied that respondents were laid-off, since
they were merely project employees.
Issue: Whether or not respondents are regular employees
Held: Respondents are regular employees. They were employed for more than one
year and their work as carpenters was necessary or desirable in petitioner’s usual
trade or business of manufacturing office furniture.
Under Article 280 of the Labor Code, the applicable test to determine whether an
employment should be considered regular or non-regular is the reasonable
connection between the particular activity performed by the employee in relation to
the usual business or trade of the employer. Respondents cannot be considered
project employees. Petitioner had neither shown that respondents were hired for a
specific project the duration of which was determined at the time of their hiring nor
identified the specific project or phase thereof for which respondents werehired.
Antonio was not an independent contractor for he does not carry a distinct and
independent business, and he does not possess substantial capital or investment in
tools, equipment, machinery or work premises. He works within petitioner’s premises
using the latter’s tools and materials and other facilities for the "proper
implementation" of job orders. He is also under petitioner’s control and supervision.
Moreover, the Implementing Guidelines regulating attendance, overtime, deadlines,
penalties; providing petitioner’s right to fire employees or "contractors"; requiring the
carpentry division to join petitioner’s exercise program; and providing rules on
machine maintenance, all reflect control and supervision over respondents.
DESIRABLE-UNNECESSARY
G.R. No. 194969, October 07, 2015
CONVOY MARKETING CORPORATION AND/OR ARNOLD
LAAB, Petitioners, v. OLIVER B. ALBIA,*Respondent.
FACTS: Oliver Albia started working for Convoy Marketing in 2001. In 2002, he
became a delivery van driver for the company. As a driver, he was paid P290 per trip
regardless of the route. He was not given any additional or special pay mandated by
the Labor Code (vacation leave with pay, holiday pay, 13 th month pay, service
incentive pay, etc). On July 22, 2004 he drank beer with his co-workers after his shift
ended for the day. He later returned to their warehouse smelling like liquor. The
incident was reported to Convoy’s logistics manager Arnold Laab who terminated
Albia’s employment the very next day, or on July 23, 2004. On July 26, 2004, Albia
filed a complaint for illegal dismissal and nonpayment of wage benefits against
Convoy Marketing and Laab. Respondents contended that Albia was not an
employee of the company but was only an independent contractor. To prove their
contentions, respondents showed delivery service agreements and quitclaims signed
by Albia saying that he would never be considered an employee of Convoy and that
once he received his wage he would no longer be able to go after Convoy. Albia on
the other hand argued that the quitclaims he signed are only for the money claims
and not those arising out of his employee-employer relationship with Convoy
Marketing.
ISSUE: Whether Albia is a regular employee of Convoy?’
HELD: Yes. As stated in Article 280, ‘an employment shall be deemed to be regular
where the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer’ and ‘any
employee who has rendered at least one year of service, whether such service is
continuous or broken, shall be considered a regular employee’.
Albia’s work was necessary in the usual course of Convoy’s business, and his
employment although broken lasted for more than one year. Also, there is no question
that Convoy controls or has reserved its right to control Albia’s conduct, not only as to
the result of his work but also as to the means and methods by which such result is to
be accomplished.
[G.R. No. 120466. May 17, 1999]
COCA COLA BOTTLERS PHILS., INC., petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and RAMON B. CANONICATO, respondents.
FACTS: COCA COLA entered into a contract of janitorial services with Bacolod
Janitorial Services (BJS) stipulating COCA COLA) desires to engage the services of
BJS as an Independent Contractor, to perform and provide for the maintenance,
sanitation and cleaning services for the areas herein below mentioned, all located
within the aforesaid building. Every year thereafter a service contract was entered into
between the parties under similar terms and conditions until about May 1994.
COCA COLA hired private respondent Ramon Canonicato as a casual employee and
assigned him to the bottling crew as a substitute for absent employees. COCA COLA
terminated Canonicato's casual employment. Later that year COCA COLA availed of
Canonicato's services, this time as a painter in contractual projects. Canonicato was
hired as a janitor by BJS which assigned him to COCA COLA considering his
familiarity with its premises. Goaded by information that COCA COLA employed
previous BJS employees who filed a complaint against the company for regularization
pursuant to a compromise agreement, Canonicato submitted a similar complaint
against COCA COLA to the Labor Arbiter. Without notifying BJS, Canonicato no
longer reported to his COCA COLA assignment, he sent his sister Rowena to collect
his salary from BJS. BJS released his salary but advised Rowena to tell Canonicato
to report for work. Claiming that he was barred from entering the premises of COCA
COLA, Canonicato met with the proprietress of BJS, Gloria Lacson, who offered him
assignments in other firms which he however refused. Canonicato amended his
complaint against COCA COLA by citing instead as grounds therefor illegal dismissal
and underpayment of wages.
the Labor Arbiter ruled that: (a) there was no employer-employee relationship
between COCA COLA and Ramon Canonicato because BJS was Canonicato's real
employer; (b) BJS was a legitimate job contractor, hence, any liability of COCA COLA
as to Canonicato's salary or wage differentials was solidary with BJS. The NLRC
rejected on appeal the decision of the Labor Arbiter on the ground that the janitorial
services of Canonicato were found to be necessary or desirable in the usual business
or trade of COCA COLA. The NLRC accepted Canonicato's proposition that his work
with the BJS was the same as what he did while still a casual employee of COCA
COLA. In so holding the NLRC applied Art. 280 of the Labor Code and declared that
Canonicato was a regular employee of COCA COLA and entitled to reinstatement
and payment of back wages.
ISSUE: WON BJS was a legitimate job contractor?
HELD: In determining the existence of an employer-employee relationship it is
necessary to determine whether the following factors are present: (a) the selection
and engagement of the employee; (b) the payment of wages; (c) the power to
dismiss; and, (d) the power to control the employee's conduct. Notably, these are all
found in the relationship between BJS and Canonicato and not between Canonicato
and petitioner COCA COLA. As the Solicitor-General manifested.
In the instant case, the selection and engagement of the janitors for petitioner were
done by BJS. The application form and letter submitted by private respondent
(Canonicato) to BJS show that he acknowledged the fact that it was BJS who did the
hiring and not petitioner. BJS paid the wages of private respondent, Power of
dismissal is also exercised by BJS and not petitioner. Lastly, BJS has the power to
control the conduct of the janitors. The supervisors of petitioner, being interested in
the result of the work of the janitors, also gives suggestions as to the performance of
the janitors, but this does not mean that BJS has no control over them. The interest of
petitioner is only with respect to the result of their work. On the other hand, BJS
oversees the totality of their performance.
It is clear from these established circumstances that NLRC should have recognized
BJS as the employer of Canonicato and not COCA COLA. This is demanded by the
fact that it did not disturb, and therefore it upheld, the finding of the Labor Arbiter that
BJS was truly a legitimate job-contractor and could by itself hire its own
employees. The Commission could not have reached any other legitimate conclusion
considering that BJS satisfied all the requirements of a job-contractor under the law,
namely, (a) the ability to carry on an independent business and undertake the
contract work on its own account under its own responsibility according to its manner
and method, free from the control and direction of its principal or client in all matters
connected with the performance of the work except as to the results thereof; and, (b)
the substantial capital or investment in the form of tools, equipment, machinery, work
premises, and other materials which are necessary in the conduct of its business.
WHEREFORE, the petition is GRANTED.
EMPLOYER-EMPLOYEE
[G.R. No. 125792. November 9, 1998]
PHILIPPINE AIRLINES, INC., petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION
FACTS:Petitioner PAL entered into a service agreement with Stellar, a Domestic
corporation engaged in the business of job contracting janitorial services. Pursuant to
this agreement, Stellar hired workers to perform janitorial and maintenance services
for PAL, to which Parenas and the 47 other private respondents belong. The latter’s
works were under the supervision of Stellar’s supervisors and timekeepers. They
were also furnished by Stellar with janitorial supplies such as vacuum cleaners and
polishers. The contract expired in 1990. PAL called for the bidding of its janitorial
requirements. But PAL informed Stellar that the service agreement would not be
renewed since janitorial services were bidded to other job contractors. Alleging that
they were illegally dismissed, the private respondents filed with the NLRC complaints
against PAL for illegal dismissal and for payment of separation pay. NLRC held PAL
liable for the payment of separation pay.
ISSUE: Whether or not the individual private respondents was a labor-only contractor
HELD: The main business of STELLAR is the supply of manpower to perform janitorial
services for its clients, and the individual respondents were janitors engaged to perform
activities that were necessary and desirable to STELLAR’s enterprise. The individual
respondents were STELLAR’s regular employees, and there was no valid cause for
their dismissal. It’s STELLAR’s regular employees not PAL.
It is evident that there was permissible job contracting for the entire duration of the
employment of private respondents. In fact, Stellar claims that it fails under the
definition of an independent job contractor. This being the case, employer— employee
relationship never existed between PAL and private respondents. In legitimate job
contracting, no employer-employee relation exists between the principal and the jdb
contractor’s employees. The principal (PAL) is responsible to the job contractor’s
employees only for the payment of wages and not separation pay.
JOB CONTRACTING; In legitimate job contracting, there exists no employer-employee
relation between the principal and the worker cupplied by a job contractor. The principal
is considered employer of the job contractor’s employees only for the payment of wages
but not for separation pay.
Art. 106 Contractor or Subcontractor. 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 persons are performing
activities which are directly related to the principal business of such employer. In such
cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as
if the latter were directly employed by him.
Petitioners continued employment of [complainants] inspite of the expiration of the
janitorial contract is an implied absorption to the point of making them its regular
employees and making illegal their subsequent termination from service.
[G.R. No. 144458. July 14, 2004] selection of the guards cannot, in the ordinary course of events, be demanded from
MERCURY DRUG CORPORATION, petitioner, vs. ATTY. RODRIGO B. the client whose premises or property are protected by the security guards.
LIBUNAO, respondent.
Indeed, the petitioner had assigned Sido to help the management open and close the
FACTS: Atty. Rodrigo B. Libunao, a corporate lawyer of Caltex Philippines, and his door of the drug store; inspect the bags of customers as they enter the store; and,
friend, Jesus Bustos Atencio, the Secretary of the Senate Committee on Government check the receipts issued by the cashier to said customers for their purchases.
Corporations, had dinner at the Robinsons Galleria. Afterwards, they proceeded to the However, such circumstances do not automatically make the security guard the
self-service section of the Mercury Drug Store where Libunao purchased some items, employee of the petitioner, and, as such, liable for the guards tortious acts. The fact
including antibiotics. Libunao paid for his purchases and was issued a tape receiptby that a client company may give instructions or directions to the security guards
the cashier. Libunao placed the receipt inside his pocket. As Libunao and Atencio were assigned to it, does not, by itself, render the client responsible as an employer of the
exiting from the drugstore, they were accosted by Sido, who demanded to see the security guards concerned and liable for their wrongful acts or omissions.
receipt for his purchase. It took sometime for The Customer to produce his receipt
because according to him The Guard was holding his arm. An altercation ensued
GRANTED.
between the two, where invectives flew back and forth, until The Guard hit The
Customer twice, one in the nose and one in the mouth, pointed his gun at The Customer
and ordered him to go out lest he fire his gun. The Customer was so traumatised by
the incident, he had to consult his psychiatrist, who diagnosed him as suffering from
post traumatic depression syndrome. He filed a case for damages again the drugstore,
the guard, the president of the company, and the store manager.

On the other hand, the company anchored its defense that The Guard is not its
employee, being employed by the security agency contracted by the store to guard its
premises, thus it should not be held liable for damages. Both the Regional Trial Court
and the Court of Appeals found the drugstore liable, because the store was not able to
show proof that The Guard was employed by the agency, thus he is the store’s
employee.

ISSUE: WON SIDO IS NOT AN EMPLOYEE OF PETITIONER-DEFENDANT

MERCURY DRUG CORPORATION?

HELD: Based on the evidence on record, the petitioner was not Sido’s employer;
hence, the trial and appellate courts erred in applying Article 2180 of the New Civil
Code14 against the petitioner and holding it liable for Sido’s harmful acts.

it is thus evident that the respondent had no cause of action against the petitioner for
damages for Sido’s illegal and harmful acts. The respondent should have sued Sido
and the BSSC for damages, conformably to Article 2180 of the New Civil Code.

In Soliman, Jr. v. Tuazon, we held that where the security agency recruits, hires and
assigns the works of its watchmen or security guards to a client, the employer of such
guards or watchmen is such agency, and not the client, since the latter has no hand in
selecting the security guards. Thus, the duty to observe the diligence of a good father
of a family cannot be demanded from the said client: [I]t is settled in our jurisdiction
that where the security agency, as here, recruits, hires and assigns the work of its
watchmen or security guards, the agency is the employer of such guards or
watchmen. Liability for illegal or harmful acts committed by the security guards
attaches to the employer agency, and not to the clients or customers of such agency.
As a general rule, a client or customer of a security agency has no hand in selecting
who among the pool of security guards or watchmen employed by the agency shall be
assigned to it; the duty to observe the diligence of a good father of a family in the