9. COCA COLA BOTTLERS V.
AGITO,
G.R. No. 179546. 13 December 2009
Keren del Rosario
NATURE: Labor-only Contracting
Petitioner/s: Coca-Cola Bottlers
Respondent: Agito
Ponente: Chico-Nazario, J..
RECIT READY DIGEST
FACTS: Coca-Cola (Coke) is a domestic corporation, who engaged the services of
Interserve as a manning agency. Respondents in this case were deployed by
Interserve. Respondents were salesmen assigned at the Lagro Sales Office of Coke.
Respondents alleged that they were employed by Coke for years, but were not
regularized. Their employment was terminated by Coke. This prompted the
respondents to file a complaint for regularization and reinstatement.
In its defense, Coke alleged that respondents were not their employees as evidenced
by the Contract of Coke with Interserve. The contract constituted a legitimate job
contracting.
ISSUE: W/N Interserve is a legitimate job contractor.
HELD: No. Interserve is a labor-only contractor
The law clearly establishes an employer- employee relationship between the principal
employer and the contractors employee upon a finding that the contractor is engaged
in labor-only contracting. There is labor-only contracting where: (1) the person
supplying workers to an employee does not have substantial capital or investment in
the form of tools, equipment, machineries, work premises, among others, and the (2)
workers recruited and placed by such persons are performing activities which are
directly related to the principal business of such employer.
In this case, both indicators are present. First, although there is no absolute figure for
what is considered a substantial capital, the court measures the same against the
type of work which the contractor obligated to perform for the principal. In this case,
the Contract does not specify the work or project to be performed by the respondents.
Further, in Interserves Articles of Incorporation, its primary purpose is in the business
of janitorial and allied services. Yet, the respondents were hired as salesmen and
leadman of Coke.
The contractor, not the employee, has the burden of proof that it has the substantial
capital, investment, and tool to engage in job contracting. Having failed to establish
the substantial capital of Interserve, the Court will not presume that Interserve had
sufficient investment in service vehicles and equipment, especially since respondents
allegationthat they were using equipment.
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DOCTRINE.
Under Section 7 of the IRR of the Labor Code, labor-only contracting would give rise
to: (1) the creation of an employer-employee relationship between the principal and
the employees of the contractor or sub-contractor; and (2) the solidary liability of the
principal and the contractor to the employees in the event of any violation of the Labor
Code.
The contractor, not the employee, has the burden of proof that it has the substantial
capital, investment, and tool to engage in job contracting.
FACTS
1. Petitioner is a domestic corporation duly registered with the Securities and
Exchange Commission (SEC) and engaged in manufacturing, bottling and
distributing soft drink beverages and other allied products.
2. Respondents were salesmen and leadman assigned at the Lagro Sales
Office of Coke. They filed a 2 complaints against Coke for reinstatement and
regularization.
3. Petitioner averred that respondents were employees of Interserve who were
tasked to perform contracted services in accordance with the provisions of
the Contract of Services5 executed. It constituted legitimate job contracting
given that Interserve was a a bona fide independent contractor with
substantial capital or investment in the form of tools, equipment, and
machinery necessary in the conduct of its business.
4. LA: found that respondents were employees of Interserve and not of
petitioner. LA placed considerable weight on the fact that Interserve was
registered with the DOLE as an independent job contractor
5. NLRC affirmed LA
6. CA reversed NLRC. Interserve was a labor-only contractor, with insufficient
capital and investments for the services which it was contracted to perform.
Respondents used the equipment, tools, and facilities of petitioner in the
day-to-day sales operations
7. Hence, this petition.
ISSUE: W/N Interserve is a legitimate job contractor.
HELD: No. Interserve is a labor-only contractor
The Contract between petitioner and Interserve does not even specify the work or the
project that needs to be performed or completed by the latters employees, and uses
the dubious phrase tasks and activities that are considered contractible under existing
laws and regulations. The importance of identifying with particularity the work or task
which Interserve was supposed to accomplish for petitioner becomes even more
evident, considering that the Articles of Incorporation of Interserve states that its
primary purpose is to operate, conduct, and maintain the business of janitorial and allied
services. But respondents were hired as salesmen and leadman for petitioner. The
Court cannot, under such ambiguous circumstances, make a reasonable determination
if Interserve had substantial capital or investment to undertake the job it was contracting
with petitioner.

It is also apparent that Interserve is a labor-only contractor under Section 5(ii) of the
Rules Implementing Articles 106-109 of the Labor Code, as amended, since it did not
exercise the right to control the performance of the work of respondents. The lack of
control of Interserve over the respondents can be gleaned from the Contract of Services

Also significant was the right of petitioner under paragraph 2 of the Contract to request
the replacement of the CONTRACTORS personnel. The power to recommend
penalties or dismiss workers is the strongest indication of a companys right of control
as direct employer.

The contractor, not the employee, has the burden of proof that it has the substantial
capital, investment, and tool to engage in job contracting. Although not the contractor
itself (since Interserve no longer appealed the judgment against it by the Labor Arbiter),
said burden of proof herein falls upon petitioner who is invoking the supposed status of
Interserve as an independent job contractor.

ADDITIONAL NOTE/S:

A legitimate job contract, wherein an employer enters into a contract with a job
contractor for the performance of the formers work, is permitted by law. Thus, the
employer- employee relationship between the job contractor and his employees is
maintained. In legitimate job contracting, the law creates an employer-employee
relationship between the employer and the contractors employees only for a limited
purpose, i.e., to ensure that the employees are paid their wages. The 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
employer is not responsible for any claim made by the contractors employees.

Labor-only contracting is an arrangement wherein the contractor merely acts as an

agent in recruiting and supplying the principal employer with workers for the purpose of
circumventing labor law provisions setting down the rights of employees. It is not
condoned by law. A finding by the appropriate authorities that a contractor is a labor-
only contractor establishes an employer- employee relationship between the principal
employer and the contractors employees and the former becomes solidarily liable for
all the rightful claims of the employees.

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