G.R. No.

182018
October 10, 2012
NORKIS TRADING CORPORATION, Petitioner,
vs.
JOAQUIN BUENA VISTA, HENRY FABROA, RICARDO CAPE, BERTULDO TULOD, WILLY DONDOY ANO and
GLEN VILLARASA, Respondents.
Facts:
The petition stems from an amended complaint for illegal suspension, illegal dismissal, unfair labor practice and
other monetary claims filed with the National Labor Relations Commission (NLRC) by herein respondents Joaquin
Buenavista (Buenavista), Henry Fabroa (Fabroa), Ricardo Cape (Cape), Bertuldo Tulod (Tulod), Willy Dondoyano
(Dondoyano) and Glen Villariasa (Villariasa) against Norkis Trading and Panaghiusa sa Kauswagan Multi-Purpose
Cooperative (PASAKA).
The respondents were hired by Norkis Trading.
Although they worked for Norkis Trading as skilled workers assigned in the operation of industrial and welding
machines owned and used by Norkis Trading for its business, they were not treated as regular employees by Norkis Trading.
Instead, they were regarded by Norkis Trading as members of PASAKA, a cooperative organized under the Cooperative Code
of the Philippines, and which was deemed an independent contractor that merely deployed the respondents to render services
for Norkis Trading.4 The respondents nonetheless believed that they were regular employees of Norkis Trading.
Despite having served respondent Norkis Trading for many years and performing the same functions as regular
employees, complainants were not accorded regular status. It was made to appear that complainants are not employees of said
company but that of respondent PASAKA.6
The respondents filed on June 9, 1999 with the Department of Labor and Employment (DOLE) a complaint against
Norkis Trading and PASAKA for labor-only contracting and non-payment of minimum wage and overtime pay.
On August 26, 1999, PASAKA informed the respondents of the cooperatives decision to suspend them for fifteen
(15) working days.
On October 13, 1999, the respondents were to report back to work but during the hearing in their NLRC case, they
were informed by PASAKA that they would be transferred to Norkis Tradings sister company, Porta Coeli Industrial
Corporation (Porta Coeli), as washers of Multicab vehicles.
The respondents opposed the transfer as it would allegedly result in a change of employers, from Norkis Trading to
Porta Coeli. The respondents also believed that the transfer would result in a demotion since from being skilled workers in
Norkis Trading, they would be reduced to being utility workers.These circumstances made the respondents amend their
complaint for illegal suspension, to include the charges of unfair labor practice, illegal dismissal, damages and attorneys fees.
The Ruling of the Labor Arbiter: Dismissed the complaint via a Decision. The allegation of unfair labor practice and claim
for monetary awards were likewise rejected by the LA. Feeling aggrieved, the respondents appealed from the decision of the
LA to the NLRC.
The Ruling of the NLRC: Affirmed with modification the decision of LA. It held that the respondents were not illegally
suspended from work, as it was their membership in the cooperative that was suspended after they were found to have violated
the cooperatives rules and regulations. It also declared that the respondents dismissal was not established by substantial
evidence. The NLRC however declared that the LA had no jurisdiction over the dispute because the respondents were not
employees, but members of PASAKA.
The Ruling of the CA: Reversed and set aside the decision and resolution of the NLRC. In ruling that the respondents were
illegally dismissed, the CA held that Norkis Tradings refusal to accept the respondents back to their former positions, offering
them instead to accept a new assignment as washers of vehicles in its sister company, was a demotion that amounted to a
constructive dismissal.
Issue: Whether or not the respondents shall be regarded as employees (or whether or not PASAKA is a labor-only contractor).
Ruling:
Norkis Trading is the principal employer of the respondents, considering that PASAKA is a mere labor-only
contractor.
Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits,
supplies, or places workers to perform a job, work, or service for a principal. In labor-only contracting, 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. These
differentiate it from permissible or legitimate job contracting or subcontracting, which 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. 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
partakes 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. 49
PASAKA as a mere labor-only contractor, and Norkis Trading as the true employer of herein respondents.
The respondents claim that the machinery, equipment and supplies they used to perform their duties were owned by Norkis
Trading, and not by PASAKA, was undisputed. Herein petitioner failed to prove that their sub-contracting arrangements fall
under any of the conditions set forth in Sec. 6 of D.O. # 10 S. 1997 to qualify as permissible contracting or subcontracting as
provided for as follows:
Sec. 6. Permissible contracting or subcontracting. Subject to conditions set forth in Sec. 4 (d) and (e) and Section 5 hereof, the
principal may engage the services of a contractor or subcontractor for the performance of any of the following:
a.) Works or services temporarily or occasionally needed to meet abnormal increase in the demand of products or services...
b) Works or services temporarily or occasionally needed by the principal for undertakings requiring expert or highly technical
personnel to improve the management or operations of an enterprise;

c) Services temporarily needed for the introduction or promotion of new products...;

d) Works or services not directly related or not integral to main business or operation of the principal including casual work,
janitorial, security, landscaping and messengerial services and work not related to manufacturing processes in manufacturing
establishments.
e) Services involving the public display of manufacturers products...;
f) Specialized works involving the use of some particular, unusual or peculiar skills... and
g) Unless a reliever system is in place among the regular workforce, substitute services for absent regular employees...
It is therefore evident that herein respondents are engaged in "labor-only" contracting as defined in Art. 106 of the Labor
Code. Furthermore, such contracting/sub-contracting arrangement not only falls under labor-only contracting but also fails to
qualify as legitimate subcontracting as defined under Sec. 4 par. e of D.O. #10 S. 1997, to wit:
"Sec. 4. Definition of terms.
d)
Subject to the provisions of Sections 6, 7 and 8 of this Rule, contracting or subcontracting shall be legitimate if the following
circumstances concur:
i) The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work or
service on its own account and under its own responsibility, according to its own manner and method, and free from the
control and direction of the principal in all matters connected with the performance of the work except to the results thereof;
ii) The contractor or subcontractor has substantial capital or investment; and
iii) The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all
labor and occupational and safety and health standards, free exercise of the right to self-organization, security of tenure and
social and welfare benefits."52 (Emphasis supplied)
This Court agrees with the finding of the DOLE Regional Director, as affirmed by the Secretary of Labor in her
assailed Order, that petitioners among them, herein petitioner were engaged in labor-only contracting.
First. PASAKA failed to prove that it has substantial capitalization or investment in the form of tools, equipment,
machineries, work premises, among others, to qualify as an independent contractor. Private respondents were using
machineries and equipment owned by and located at the premises of NORKIS TRADING.
Second. PASAKA likewise did not carry out an independent business from NORKIS TRADING. Based on facts. The
Project Contract dated December 18, 1998 with NORKIS INTERNATIONAL is nothing more than an afterthought by the
petitioners to confuse its workers and defeat their rightful claims.
Third. Private respondents performed activities directly related to the principal business of NORKIS TRADING. They
worked as welders and machine operators engaged in the production of steel crates which were sent to Japan for use as
containers of motorcycles that are then sent back to NORKIS TRADING. Private respondents functions therefore are directly
related and vital to NORKIS TRADINGs business of manufacturing of Yamaha motorcycles.
All the foregoing considerations affirm by more than substantial evidence that NORKIS TRADING and PASAKA engaged in
labor-only contracting.53
Termination of an employment for no just or authorized cause amounts to an illegal dismissal.
As to the issue of whether the respondents were illegally dismissed by Norkis Trading, we answer in the affirmative, although
not by constructive dismissal as declared by the CA, but by actual dismissal.
Where an entity is declared to be a labor-only contractor, the employees supplied by said contractor to the principal employer
become regular employees of the latter. Having gained regular status, the employees are entitled to security of tenure and can
only be dismissed for just or authorized causes and after they had been afforded due process. 66 Termination of employment
without just or authorized cause and without observing procedural due process is illegal.1wphi1
In claiming that they were illegally dismissed from their employment, the respondents alleged having been informed by
PASAKA that they would be transferred, upon the behest of Norkis Trading, as Multicab washers or utility workers to Porta
Coeli, a sister company of Norkis Trading. Norkis Trading does not dispute that such job transfer was relayed by PASAKA
unto the respondents, although the company contends that the transfer was merely an "offer" that did not constitute a
dismissal. It bears mentioning, however, that the respondents were not given any other option by PASAKA and Norkis Trading
but to accede to said transfer. In fact, there is no showing that Norkis Trading would still willingly accept the respondents to
work for the company. Worse, it still vehemently denies that the respondents had ever worked for it. Respondents transfer to
Porta Coeli, although relayed to the respondents by PASAKA was effectively an act of Norkis Trading. Where labor-only
contracting exists, the Labor Code itself establishes an employer-employee relationship between the employer and the
employees of the labor-only contractor. The statute establishes this 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.67
LABOR STANDARDS
COCA COLA BOTTLERS INC v. DELA CRUZ
G.R. No. 184977
CASE DIGEST
Where the contractors were merely suppliers of labor, the contracted personnel, engaged in component functions in the main
business of the company under the latters supervision and control, cannot but be regular company employees.
FACTS:
Respondents Dela Cruz et.al. filed complaints for regularization with money claims against Coca-Cola Bottlers. The
respondents alleged they are route helpers who go from the Coca- Cola sales offices or plants to customer outlets, and doing
such, their jobs are necessary and desirable in its main business. They further alleged that they worked under the control and
supervision of the companys supervisors who prepared their work schedules and assignments. They argued that the

petitioners contracts of services with Peerless and Excellent are in the nature of labor-only contracts prohibited by law since
Peerless and Excellent did not have sufficient capital or investment to provide services to the petitioner.
Coca-cola, the petitioner, contended that it entered into contracts of services with Peerless and Excellent Partners to provide
allied services and that the contractors shall pay the salaries of all personnel assigned to the petitioner. It claimed that its main
business is softdrinks manufacturing and the respondents tasks of sale and distribution are not part of the manufacturing
process. The petitioner posited that there is no employer-employee relationship between the company and the respondents and
the complaints should be dismissed for lack of jurisdiction.
The labor arbiter and the NLRC dismissed the case. CA reversed the decision and denied the motion for reconsideration. Thus
this petition.
ISSUE:
W/N Excellent and Peerless were independent labor contractors or labor-only contractors.
HELD:
Article 106 which provides: 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 shall be paid in accordance with the provisions
of this Code. x x x 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 alter were directly employed by him.
The CA noted that both the contracts for Peerless and the Excellent show that their obligation was solely to provide the
company with the services of contractual employees, and nothing more. Peerless and Excellent were mere suppliers of labor
who had no sufficient capitalization and equipment to undertake sales and distribution of softdrinks as independent activities
separate from the manufacture of softdrinks, and who had no control and supervision over the contracted personnel. They are
therefore labor-only contractors. Consequently, the contracted personnel, engaged in component functions in the main
business of the company under the latters supervision and control, cannot but be regular company employees.
7K CORPORATION VS NLRC
FACTS:
In February of 1997, 7K Corporation (petitioner) and Universal Janitorial and Allied Services (Universal) entered
into a service contract where Universal bound itself to provide petitioner with drivers at the rate of P4,637.00 per
driver a month.
Rene Corona and Alex Catingan started working for the petitioner on March 7, 1997 and Aril 11, 1997, respectively.
Pursuant to the service contract, petitioner paid Universal the sum of P4,637.00 per driver. As to overtime pay
however, petitioner directly paid the private respondents.
A controversy arose when the overtime paid by the accounting department of petitioner was short of the actual
overtime rendered by the private respondents. Private respondents time-cards reflected overtime of up to 70 hours,
however, the accounting personnel reduced them to only 20 hours. After their grievances were repeatedly ignored,
respondents filed separate complaints for illegal dismissal, payment of salary differentials, unpaid overtime, and
reinstatement with backwages, against Universal and/or petitioner before the Labor Arbiter (LA).
Labor Arbiter declared Universal as the employer of the private respondents and that the respondents were illegally
dismissed thus entitled to backwages and separation pay. He gave weight to the service contract between the
petitioner and Universal which provided that the Contractor [universal] shall continue to be the employer of the
workers assigned to the clients [petitioner] premises and shall assume all responsibilities of an employer shall be
solely responsible to its employeesshall exercise in full its power of control and supervision over the workers
assigned
Universal appealed to NLRC claiming that it is petitioner which is the employer of the private respondents because
(1) it was petitioner which had direct control and supervision over the two (2) petitioner may select, replace and
dismiss the driver whose services are found to be unsatisfactory and (3) petitioner directly paid the private
respondents their overtime pay.
Universal also claimed that private respondents were not illegally dismissed, thus they are not entitled to backwages
and reinstatement.
NLRC found that Universal is a labor-only contractor since it does not have substantial capital or investment in the
form of tools, equipments, machineries and the like and the workers are performing activities which are directly
related to the principal business of the employer.
The NLRC further held that since Universal is a labor-only contractor, petitioner as the principal employer, is
solidarily liable with Universal for all the rightful claims of private respondents. There was also no illegal dismissal
as the LA failed to identify who dismissed the complainants.
PETITIONER AND PRIVATE RESPONDENTS FILED MOTION FOR RECONSIDERATION. NLRC DENIED
THE MOTIONS FOR RECON
PETITIONER went to CA for NLRC grave abuse in its discretion. CA dismissed the petition.
SC- petitioner alleged that CA gravely erred when it affirmed NLRCs decision that Universal Janitorial and Allied
Services is a labor-only contractor.
ISSUE: WHETHER LA AND NLRC COMMITTED GRAVE ABUSE IN ITS DISCRETIO WHEN IT
DECLARED THAT UNIVERSAL JANITORIAL & ALLIED SERVICES IS A LABOR-ONLY
CONTRACTOR.
RULING: NO SUCH GRAVE ABUSE OF DISCRETION/

The fact that the service contract entered into by petitioner and Universal stipulated that private respondents shall be the
employees of Universal, would not help petitioner, as the language of a contract is not determinative of the relationship of the
parties.1[26] Petitioner and Universal cannot dictate, by the mere expedient of a declaration in a contract, the character of
Universals business, i.e., whether as labor-only contractor, or job contractor, it being crucial that Universals character be
measured in terms of and determined by the criteria set by statute. 2[27]
Art. 106 of the Labor Code provides that there is 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.
That private respondents are performing activities which are directly related to the principal business of
such employer are not questioned by any of the parties and Since neither petitioner nor Universal was able to adduce evidence
that Universal had any substantial capital, investment or assets to perform the work contracted for, the presumption that
Universal is a labor-only contractor stands.
Thus, petitioner, the principal employer, is solidarily liable with
Universal, the labor-only contractor, for the rightful claims of the employees. 3[30] Under this set-up, Universal, as the laboronly contractor, is deemed an agent of the principal, herein petitioner, and the law makes the principal responsible to the
employees of the labor-only contractor as if the principal itself directly hired or employed the employees.

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