MANILA WATER COMPANY, INC., vs. PENA, Facts: Petitioner Manila Water Company, Inc.

is one of the two private concessionaires contracted by the Metropolitan Waterworks and Sewerage System (MWSS) to manage the water distribution system in the East Zone of Metro Manila, pursuant to Republic Act No. 8041, otherwise known as the National Water Crisis Act of 1995. Under the Concession Agreement, petitioner undertook to absorb former employees of the MWSSwhose names and positions were in the list furnished by the latter, while the employment of those not in the list was terminated on the day petitioner took over the operation of the East Zone, which was on August 1, 1997. Private respondents, being contractual collectors of theMWSS, were among the 121 employees not included in the list; nevertheless, petitioner engaged their services without written contract fromAugust 1, 1997 to August 31, 1997. Thereafter, on September 1, 1997, they signed a three-month contract to perform collection services for eight branches of petitioner in the East Zone.[2] Before the end of the three-month contract, the 121 collectors incorporated the Association Collectors Group, Inc. (ACGI), [3] which was contracted by petitioner to collect charges for the Balara Branch. Subsequently, most of the 121 collectors were asked by the petitioner to transfer to the First Classic Courier Services, a newly registered corporation. Only private respondents herein remained with ACGI. Petitioner continued to transact with ACGI to do its collection needs until February 8, 1999, when petitioner terminated its contract with ACGI.[4] Private respondents filed a complaint for illegal dismissal and money claims against petitioner, contending that they were petitioners employees as all the methods and procedures of their collections were controlled by the latter. On May 31, 2000, Labor Arbiter Eduardo J. Carpio rendered a decision finding the dismissal of private respondents illegal. He held that private respondents were regular employees of petitioner not only because the tasks performed by them were controlled by it but, also, the tasks were obviously necessary and desirable to petitioners principal business. Both parties appealed to the NLRC, which reversed the decision of the Labor Arbiter and ruled that the documentary evidence, e.g., letters and memoranda by the petitioner to ACGI regarding the poor performance of the collectors, did not constitute proof of control since these documents merely identified the erring collectors; the appropriate disciplinary actions were left to the corporation to impose.[6] Further, there was no evidence showing that the incorporation of ACGI was irregular. Private respondents filed a petition for certiorari with the Court of Appeals, contending that the NLRC acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it reversed the decision of the Labor Arbiter. The Court of Appeals reversed the decision of the NLRC and reinstated with modification the decision of the Labor Arbiter.[7] It held that petitioner deliberately prevented the creation of an employment relationship with the private respondents; and that ACGI was not an independent contractor. It likewise denied petitioners motion for reconsideration. [8] Hence, this petition for review. Issue: whether or not there exists an employer-employee relationship between petitioner and private respondents. Corollary thereto is the issue of whether or not private respondents were illegally dismissed by petitioner. Held: Job contracting is permissible only if the following conditions are met: 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 the business. Labor-only contracting as defined in Section 5, Department Order No. 18-02, Rules Implementing Articles 106-109 of the Labor Code [14]refers to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform job, work or service for a principal, and any of the following elements is present: (i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or (ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee. Given the above criteria, we agree with the Labor Arbiter that ACGI was not an independent contractor. Under this factual milieu, there is no doubt that ACGI was engaged in labor-only contracting, and as such, is considered merely an agent of the petitioner. In labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer. [20] Since ACGI is only a labor-only contractor, the workers it supplied should be considered as employees of the petitioner. Notably, private respondents performed activities which were necessary or desirable to its principal trade or business. Thus, they were regular employees of petitioner, regardless of whether the engagement was merely an accommodation of their request, pursuant to Article 280 of the Labor Code which reads: The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of the parties, 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, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee or where the work or services to be performed is seasonal in nature and the employment is for the duration of the season. As such regular employees, private respondents are entitled to security of tenure which may not be circumvented by mere stipulation in a subsequent contract that their employment is one with a fixed period. While this Court has upheld the legality of fixed-term employment, where from the circumstances it is apparent that the periods have been imposed to preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to public policy and morals. [22] WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated November 29, 2002, in CA-G.R. SP No. 67134, reversing the decision of the National Labor Relations Commission and reinstating the decision of the Labor Arbiter is AFFIRMED with the MODIFICATION that the awards of P10,000.00 as moral damages and P5,000.00 as exemplary damages are DELETED for lack of evidentiary basis.

SO ORDERED.

SAN MIGUEL CORPORATION, petitioner, vs. PROSPERO A. ABALLA Facts: Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and Visayas Area Manager for Aquaculture Operations Leopoldo S. Titular, and Sunflower Multi-Purpose Cooperative (Sunflower), represented by the Chairman of its Board of Directors Roy G. Asong, entered into a one-year Contract of Services[1] commencing on January 1, 1993, to be renewed on a month to month basis until terminated by either party. In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration Branch No. VI, Bacolod City, 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. In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo City of the Department of Labor and Employment (DOLE) a Notice of Closure [8] of its aquaculture operations effective on even date, citing serious business losses. By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents complaint for lack of merit Private respondents appealed to the NLRC. By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of merit, it finding that third party respondent Sunflower was an independent contractor in light of its observation that [i]n all the activities of private respondents, they were under the actual direction, control and supervision of third party respondent Sunflower, as well as the payment of wages, and power of dismissal.[10] Private respondents Motion for Reconsideration[11] having been denied by the NLRC for lack of merit by Resolution of September 10, 1999, they filed a petition for certiorari[12] before the Court of Appeals (CA). Before the CA, SMC filed a Motion to Dismiss[13] private respondents petition for non-compliance with the Rules on Civil Procedure and failure to show grave abuse of discretion on the part of the NLRC. SMC subsequently filed its Comment[14] to the petition on March 30, 2000. By Decision of February 7, 2001, the appellate court reversed the NLRC decision and accordingly found for private respondents Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate court Held: SMC insists that private respondents are the employees of Sunflower, an independent contractor. On the other hand, private respondents assert that Sunflower is a labor-only contractor. Article 106 of the Labor Code provides:

ART. 106. Contractor or subcontracting. Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under the Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code. There is labor-only contracting where the person supplying workers to an 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. Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18, distinguishes between legitimate and labor-only contracting: Section 3. Trilateral Relationship in Contracting Arrangements. In 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. Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis 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 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. The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code, as amended. Substantial capital or investment refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out. The right to control shall refer to the right 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. The test to determine the existence of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work.[49]

In legitimate labor contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to ensure that the employees are paid their wages. The principal employer becomes jointly and severally liable with the job contractor, only for the payment of the employees wages whenever the contractor fails to pay the same. Other than that, the principal employer is not responsible for any claim made by the employees.[50] In labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.[51] All the foregoing considerations affirm by more than substantial evidence the existence of an employer-employee relationship between SMC and private respondents. Since private respondents who were engaged in shrimp processing performed tasks usually necessary or desirable in the aquaculture business of SMC, they should be deemed regular employees of the latter [66] and as such are entitled to all the benefits and rights appurtenant to regular employment.[67] They should thus be awarded differential pay corresponding to the difference between the wages and benefits given them and those accorded SMCs other regular employees. ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or to at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. (Underscoring supplied) In the case at bar, a particular department under the SMC group of companies was closed allegedly due to serious business reverses. This constitutes retrenchment by, and not closure of, the enterprise or the company itself as SMC has not totally ceased operations but is still very much an on-going and highly viable business concern. [71] Retrenchment is a management prerogative consistently recognized and affirmed by this Court. It is, however, subject to faithful compliance with the substantive and procedural requirements laid down by law and jurisprudence.[72] For retrenchment to be considered valid the following substantial requirements must be met: (a) the losses expected should be substantial and not merely de minimis in extent; (b) the substantial losses apprehended must be reasonably imminent such as can be perceived objectively and in good faith by the employer; (c) the retrenchment must be reasonably necessary and likely to effectively prevent the expected losses; and (d) the alleged losses, if already incurred, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. [73] WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001 and Resolution dated July 11, 2001 of the Court of Appeals are AFFIRMED with MODIFICATION.

Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby ORDERED to jointly and severally pay each private respondent differential pay from the time they became regular employees up to the date of their termination; separation pay equivalent to at least one (1) month pay or to at least one-half month pay for every year of service, whichever is higher, as mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to other regular SMC employees that were terminated as a result of the retrenchment, depending on which is most beneficial to private respondents; and ten percent (10%) attorneys fees based on the herein modified award. Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount of P50,000.00, representing nominal damages for non-compliance with statutory due process. The award of backwages is DELETED.

HACIENDA FATIMA and/or PATRICIO VILLEGAS, ALFONSO VILLEGAS and CRISTINE SEGURA, petitioners, vs. NATIONAL FEDERATION OF SUGARCANE WORKERS-FOOD AND GENERAL TRADE , respondents. Facts: Contrary to the findings of the Labor Arbiter that complainants [herein respondents] refused to work and/or were choosy in the kind of jobs they wanted to perform, the records is replete with complainants persistence and dogged determination in going back to work. Indeed, it would appear that respondents did not look with favor workers having organized themselves into a union. Thus, when complainant union was certified as the collective bargaining representative in the certification elections, respondents under the pretext that the result was on appeal, refused to sit down with the union for the purpose of entering into a collective bargaining agreement. Moreover, the workers including complainants herein were not given work for more than one month. In protest, complainants staged a strike which was however settled upon the signing of a Memorandum of Agreement When respondents again reneged on its commitment, complainants filed the present complaint. But for all their persistence, the risk they had to undergo in conducting a strike in the face of overwhelming odds, complainants in an ironic twist of fate now find themselves being accused of refusing to work and being choosy in the kind of work they have to perform. 1[5] (Citations omitted) The CA affirmed that while the work of respondents was seasonal in nature, they were considered to be merely on leave during the off-season and were therefore still employed by petitioners. Moreover, the workers enjoyed security of tenure. Any infringement upon this right was deemed by the CA to be tantamount to illegal dismissal. The appellate court found neither rhyme nor reason in petitioners argument that it was the workers themselves who refused to or were choosy in their work. As found by the NLRC, the record of this case is replete with complainants persistence and dogged determination in going back to work.2[6]

1 2

[5] NLRC Decision, pp. 5-9; rollo, pp. 59-63; records, pp. 24-28. Italics provided.

[6] Assailed CA Decision, p. 6; rollo, p. 35.

The CA likewise concurred with the NLRCs finding that petitioners were guilty of unfair labor practice. Hence this Petition.3[7] Issue: Whether or not the Court of Appeals erred in holding that respondents, admittedly seasonal workers, were regular employees, contrary to the clear provisions of Article 280 of the Labor Code, which categorically state that seasonal employees are not covered by the definition of regular employees under paragraph 1, nor covered under paragraph 2 which refers exclusively to casual employees who have served for at least one year. held: The Court is not a trier of facts and, in labor cases, this doctrine applies with greater force.4[11] Factual questions are for labor tribunals to resolve. 5[12] In the present case, these have already been threshed out by the NLRC. Its findings were affirmed by the appellate court. Contrary to petitioners contention, the CA did not err when it held that respondents were regular employees. An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That, any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exist. (Italics supplied) For respondents to be excluded from those classified as regular employees, it is not enough that they perform work or services that are seasonal in nature. They must have also been employed only for the duration of one season . The evidence proves the existence of the first, but not of the second, condition. The fact that respondents -- with the exception of Luisa Rombo, Ramona Rombo, Bobong Abriga and Boboy Silva -- repeatedly worked as sugarcane workers for petitioners for several years is not denied by the latter. Evidently, petitioners employed respondents for more than one season. Therefore, the general rule of regular employment is applicable. The primary standard, therefore, of determining regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual trade or business of the employer. The test is whether the former is usually necessary or desirable in the usual trade or business of the employer. The connection can be determined by considering the nature of the work performed and its relation to the scheme of the particular business or trade in its entirety. Also if the employee has been performing the job for at least a year, even if the performance is not continuous and merely intermittent, the law deems repeated and continuing need for its performance as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence, the employment is considered regular, but only with respect to such activity and while such activity exists. The finding of unfair labor practice done in bad faith carries with it the sanction of moral and exemplary damages.6[21] WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioners. SO ORDERED.

3 4 5 6

[7] This case was deemed submitted for resolution on April 30, 2002, upon receipt by the Court of petitioners Memorandum, which was signed by Atty. Teodoro V. Cortes. Respondents Memorandum, signed by Attys. Francisco D. Yap and Whelma F. Siton-Yap, was received by the Court on March 7, 2002.

[11] Ropali Trading Corporation v. National Labor Relations Commission, 296 SCRA 309, September 25, 1998.

[12] Chua v. National Labor Relations Commission , 267 SCRA 196, January 30, 1997.

[21] Nueva Ecija I Electric Cooperative, Inc. v. National Labor Relations Commission, 323 SCRA 86, January 24, 2000.

ASSOCIATION OF TRADE UNIONS (ATU), RODOLFO MONTECLARO and EDGAR JUESAN, petitioners, vs. HON. COMISSIONERS OSCAR N. ABELLA Facts: Respondent company is a domestic corporation engaged in road construction projects of the government. From 1968 to 1989, it engaged the services of the following workers to work on various projects on different dates Their contracts indicate the particular project they are assigned, the duration of their employment and their daily wage.

In February 1989, the above-named workers joined petitioner union as members. Accordingly, petitioner union filed a petition for certification election with the regional office of the labor department. Respondent company opposed the petition on the ground that the workers were project employees and therefore not qualified to form part of the rank and file collective bargaining unit. Not for long, the Med-Arbiter dismissed the petition for certification election. On appeal, the Secretary of Labor and Employment reversed the Med-Arbiter's decision and ordered the immediate holding of a certification election. Meanwhile, the national president of petitioner union sent a demand letter to respondent company seeking the payment of wage differentials to some affected union members. As said demand was unheeded,

petitioner union and the concerned workers filed a complaint for payment of wage differentials and other benefits before the Regional Office of the Department of Labor and Employment. Shortly thereafter, respondent company terminated the employment of aforementioned workers owing to the completion of its projects or the expiration of workers' contracts. Respondent company explained the circumstances surrounding the separation of the workers from the service On appeal, the National Labor Relations Commission affirmed said decision. Petitioner union then elevated the matter to this Court by way of petition for certiorari which was eventually dismissed. [6]
7

Meanwhile, the aggrieved workers filed with the Regional Arbitration Branch of the NLRC their individual complaints against private respondent company for illegal dismissal, unfair labor practice, underpayment of wages, 13th month pay, holiday pay and overtime pay. They also sought reinstatement with back wages. Petitioners and private respondents separately appealed the Labor Arbiters ruling to the National Labor Relations Commission. On May 17, 1991, the NLRC promulgated its resolution modifying the decision of Labor Arbiter Nicolas Sayon. It held that the labor arbiter erred in not resolving the issue of underpayment of wages because not all of the original complainants filed the same money claims with the labor department. [8]
8

As noted by the Solicitor General, private respondents filed their motion for reconsideration, which was denied.9[10] We find, however, that herein petitioners did not move for reconsideration, as the petition did not so indicate and none appears on the records before us. ISSUE: whether petitioners are regular or project employees of respondent company. HELD: In the case at bar, the contracts of employment of the petitioners attest to the fact that they had been hired for specific projects, and their employment was coterminous with the completion of the project for which they had been hired. Said contracts expressly provide that the workers' tenure of employment would depend on the duration of any phase of the project or the completion of the awarded government construction projects in any of their planned phases. Further, petitioners were informed in advance that said project or undertaking for which they were hired would end on a stated or determinable date. Besides, public respondent noted that respondent company regularly submitted reports of termination of services of project workers to the regional office of the labor department as required under Policy Instruction No. 20. This compliance with the reportorial requirement confirms that petitioners were project employees.

Considering that petitioners were project employees, whose nature of employment they were fully informed about, at the time of their engagement, related to a specific project, work or undertaking, their employment legally ended upon completion of said project. The termination of their employment could not be regarded as illegal dismissal. WHEREFORE, the instant petition is DISMISSED, and the assailed RESOLUTION of respondent NLRC dated May 17, 1991, is AFFIRMED.

7 8 9

[6] ATU-TUCP vs. Hon. Musib Buat, GR-101357, September 23, 1991.

[8] Id . at 50.

[10] Id. at 126.

Furthermore, Policy Instruction No. 20, stated:

10

[20]

which was in force during the period of petitioners' employment,

"Project employees are those employed in connection with a particular construction project. Non-project (regular) employees are those employed by a construction company without reference to any particular project. Project employees are not entitled to termination pay if they are terminated as a result of the completion of the project or any phase thereof in which they are employed, regardless of the number of projects in which they have been employed by a particular construction company. Moreover, the company is not required to obtain clearance from the Secretary of Labor in connection with such termination. What is required of the company is report to the nearest Public Employment Office for statistical purposes."

10[20] DOLE Department Order No. 19 issued on April 1, 1993 now governs the employment of project employees in the construction industry.