G.R. No.
205300 The Labor Arbiter dismissed the complaint and ruled that: (1) respondents were not illegally
FONTERRA BRANDS PHILS., INC., Petitioner,
vs.
LEONARDO1 LARGADO and TEOTIMO ESTRELLADO, Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the
reversal and setting aside of the Decision of the Court of Appeals (CA) dated September 6,
2012, as well as its January 11, 2013 Resolution denying reconsideration thereof, in CA-G.R.
SP No. 114227, entitled Leonardo Largado and Teotimo P. Estrellado v. National Labor
Relations Commission (NLRC), Fonterra Brands Phils., lnc./Carlo Mendoza, Zytron
Marketing & Promotions Corp./Francisco Valencia, A. C. Sicat Marketing & Promotional
Services/Arturo Sicat.
The Facts
Petitioner Fonterra Brands Phils., Inc. (Fonterra) contracted the services of Zytron Marketing
and Promotions Corp. (Z)rtron) for the marketing and promotion of its milk and dairy
products. Pursuant to the contract, Zytron provided Fonterra with trade merchandising
representatives (TMRs), including respondents Leonardo Largado (Largado) and Teotimo
Estrellado (Estrellado). The engagement of their services began on September 15, 2003 and
May 27, 2002, respectively, and ended on June 6, 2006.
On May 3, 2006, Fonterra sent Zytron a letter terminating its promotions contract, effective
June 5, 2006. Fonterra then entered into an agreement for manpower supply with A.C. Sicat
Marketing and Promotional Services (A.C. Sicat). Desirous of continuing their work as TMRs,
respondents submitted their job applications with A.C. Sicat, which hired them for a term of
five (5) months, beginning June 7, 2006 up to November 6, 2006.
When respondents’ 5-month contracts with A.C. Sicat were about to expire, they allegedly
sought renewal thereof, but were allegedly refused. This prompted respondents to file
complaints for illegal dismissal, regularization, non-payment of service incentive leave and 13th
month pay, and actual and moral damages, against petitioner, Zytron, and A.C. Sicat.
dismissed. As a matter of fact, they were the ones who refused to renew their contract and that
they voluntarily complied with the requirements for them to claim their corresponding
monetary benefits in relation thereto; and (2) they were consecutively employed by Zytron and
A.C. Sicat, not by Fonterra. The dispositive portion of the Decision2 reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered DISMISSING the
instant case for utter lack of merit.
SO ORDERED.
The NLRC affirmed the Labor Arbiter, finding that respondents’ separation from Zytron was
brought about by the execution of the contract between Fonterra and A.C. Sicat where the
parties agreed to absorb Zytron’s personnel, including respondents. Too, respondents failed to
present any evidence that they protested this set-up. Furthermore, respondents failed to refute
the allegation that they voluntarily refused to renew their contract with A.C. Sicat. Also,
respondents did not assert any claim against Zytron and A.C. Sicat. The NLRC disposed of the
case in this wise:
WHEREFORE, premises considered, the appeals are hereby ordered DISMISSED and the
Decision of the Labor Arbiter is AFFIRMED [in] toto.
SO ORDERED.3
The NLRC decision was assailed in a petition under Rule 65 before the CA.
Ruling on the petition, the CA, in the questioned Decision,4 found that A.C. Sicat satisfies the
requirements of legitimate job contracting, but Zytron does not. According to the CA: (1)
Zytron’s paid-in capital of 250,000 cannot be considered as substantial capital; (2) its Certificate
of Registration was issued by the DOLE months after respondents’ supposed employment
ended; and (3) its claim that it has the necessary tools and equipment for its business is
unsubstantiated. Therefore, according to the CA, respondents were Fonterra’s employees.
Additionally, the CA held that respondents were illegally dismissed since Fonterra itself failed
to prove that their dismissal is lawful. However, the illegal dismissal should be reckoned from
the termination of their supposed employment with Zytron on June 6, 2006. Furthermore,
respondents’ transfer to A.C. Sicat is tantamount to a completely new engagement by another
employer. Lastly, the termination of their contract with A.C. Sicat arose from the expiration of
their respective contracts with the latter. The CA, thus, ruled that Fonterra is liable to
respondents and ordered the reinstatement of respondents without loss of seniority rights, with
full backwages, and other benefits from the time of their illegal dismissal up to the time of their
actual reinstatement. The fallo of the Decision reads:
WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed
Decision dated 20 November 2009 and Resolution dated 5 March 2010 of the National Labor
Relations Commission (NLRC), Seventh Division, are hereby ANULLED and SET ASIDE.
Private respondent Fonterra Brand, Inc. is hereby ordered to REINSTATE [respondents]
without loss of seniority rights. Private respondents Fonterra Brand, Inc. and Zytron Marketing
and Promotional Corp. are hereby further ORDERED to jointly and severally pay petitioners
their full backwages and other benefits from the time of their illegal dismissal up to the time of
their actual reinstatement; and attorney’s fees.
SO ORDERED.
Zytron and Fonterra moved for reconsideration, but to no avail. Hence, this petition.
The Issues
Petitioner presents the following issues for Our resolution:
I.The CA erred in ruling that Zytron was a mere labor-only contractor to petitioner Fonterra, in
that:
a.As held by the Court, there is no absolute figure that constitutes "substantial" capital
for an independent contractor, and the same should instead be measured against the
type of work it is obligated to do for the principal. It is most respectfully submitted that,
here, the merchandising work undertaken by Zytron’s paid-in capital of 250,000 was as
of 1990, the year it was incorporated;
b.As shown in its Articles of Incorporation, Zytron had been in business since 1990, or
more than a decade before it signed a merchandising agreement with petitioner
Fonterra;
c.Very importantly, petitioner Fonterra never exercised the right to control
respondents and other employees of Zytron. Indeed, respondents neither alleged that
petitioner exercised control over them nor presented proof in support thereof in any of
their previous pleadings.
II.Respondents never claimed nor adduced evidence that they were dismissed from
employment by Zytron. In fact, Zytron denies terminating them from work. The CA, thus,
erred in finding that respondents were "illegally dismissed."
Succinctly, the issues in the case at bar are: (1) whether or not Zytron and A.C. Sicat are labor-
only contractors, making Fonterra the employer of herein respondents; and (2) whether or not
respondents were illegally dismissed.
Our Ruling
We find merit in the petition.
As regards the CA’s conclusion that Zytron is not a legitimate job contractor, We are of the
view that such is immaterial to the resolution of the illegal dismissal issue for one reason: We
find that respondents voluntarily terminated their employment with Zytron, contrary to their
allegation that their employment with Zytron was illegally terminated.
We do not agree with the CA that respondents’ employment with Zytron was illegally
terminated.
As correctly held by the Labor Arbiter and the NLRC, the termination of respondents’
employment with Zytron was brought about by the cessation of their contracts with the latter.
We give credence to the Labor Arbiter’s conclusion that respondents were the ones who
refused to renew their contracts with Zytron, and the NLRC’s finding that they themselves
acquiesced to their transfer to A.C. Sicat.
By refusing to renew their contracts with Zytron, respondents effectively resigned from the
latter. Resignation is the voluntary act of employees who are compelled by personal reasons to
dissociate themselves from their employment, done with the intention of relinquishing an
office, accompanied by the act of abandonment.5
Here, it is obvious that respondents were no longer interested in continuing their employment
with Zytron. Their voluntary refusal to renew their contracts was brought about by their desire
to continue their assignment in Fonterra which could not happen in view of the conclusion of
Zytron’s contract with Fonterra. Hence, to be able to continue with their assignment, they
applied for work with A.C. Sicat with the hope that they will be able to continue rendering
services as TMRs at Fonterra since A.C. Sicat is Fonterra’s new manpower supplier. This fact is
even acknowledged by the CA in the assailed Decision where it recognized the reason why
respondents applied for work at A.C. Sicat. The CA stated that "[t]o continuously work as
merchandisers of Fonterra products, [respondents] submitted their job applications to A.C.
Sicat x x x."6 This is further bolstered by the fact that respondents voluntarily complied with the
requirements for them to claim their corresponding monetary benefits in relation to the
cessation of their employment contract with Zytron.
In short, respondents voluntarily terminated their employment with Zytron by refusing to
renew their employment contracts with the latter, applying with A.C. Sicat, and working as the
latter’s employees, thereby abandoning their previous employment with Zytron. Too, it is well
to mention that for obvious reasons, resignation is inconsistent with illegal dismissal. This being
the case, Zytron cannot be said to have illegally dismissed respondents, contrary to the findings
of the CA.
As regards respondents’ employment with A.C. Sicat and its termination via non-renewal of
their contracts, considering that in labor-only contracting, the law creates an employer-
employee relationship between the principal and the labor-only contractor’s employee as if
such employees are directly employed by the principal employer, and considers the contractor
as merely the agent of the principal,7 it is proper to dispose of the issue on A.C. Sicat’s status as
a job contractor first before resolving the issue on the legality of the cessation of respondents’
employment.
2.The contractor does not exercise the right to control over the performance of the
work of the contractual employee.9
The CA correctly found that A.C. Sicat is engaged in legitimate job contracting. It duly noted
that A.C. Sicat was able to prove its status as a legitimate job contractor for having presented the
following evidence, to wit:
1.Certificate of Business Registration;
2.Certificate of Registration with the Bureau of Internal Revenue;
3.Mayor’s Permit;

In this regard, We defer to the findings of the CA anent A.C. Sicat’s status as a legitimate job 4.Certificate of Membership with the Social Security System;
contractor, seeing that it is consistent with the rules on job contracting and is sufficiently
supported by the evidence on record.
5.Certificate of Registration with the Department of Labor and Employment;
A person is considered engaged in legitimate job contracting or subcontracting if the following
6.Company Profile; and
conditions concur:
7.Certifications issued by its clients.10
1.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 Furthermore, A.C. Sicat has substantial capital, having assets totaling 5,926,155.76 as of
direction of the principal in all matters connected with the performance of the work December 31, 2006. Too, its Agreement with Fonterra clearly sets forth that A.C. Sicat shall be
except as to the results thereof; liable for the wages and salaries of its employees or workers, including benefits, premiums, and
protection due them, as well as remittance to the proper government entities of all withholding
taxes, Social Security Service, and Medicare premiums, in accordance with relevant laws.
2.The contractor or subcontractor has substantial capital or investment; and
The appellate court further correctly held that Fonterra’s issuance of Merchandising
3.The agreement between the principal and contractor or subcontractor assures the
Guidelines, stock monitoring and inventory forms, and promo mechanics, for compliance and
contractual employees entitlement to all labor and occupational safety and health
use of A.C. Sicat’s employees assigned to them, does not establish that Fonterra exercises
standards, free exercise of the right to self-organization, security of tenure, and social
control over A.C. Sicat. We agree with the CA’s conclusion that these were imposed only to
and welfare benefits.8
ensure the effectiveness of the promotion services to be rendered by the merchandisers as it
would be risky, if not imprudent, for any company to completely entrust the performance of
On the other hand, contracting is prohibited when the contractor or subcontractor merely the operations it has contracted out.
recruits, supplies or places workers to perform a job, work or service for a principal and if any
of the following elements are present, thus:
These sufficiently show that A.C. Sicat carries out its merchandising and promotions business,
independent of Fonterra’s business.1âwphi1 Thus, having settled that A.C. Sicat is a legitimate
1.The contractor or subcontractor does not have substantial capital or investment job contractor, We now determine whether the termination of respondents’ employment with
which relates to the job, work or service to be performed and the employees recruited, the former is valid.
supplied or placed by such contractor or subcontractor are performing activities which
are directly related to the main business of the principal; or
We agree with the findings of the CA that the termination of respondents’ employment with
the latter was simply brought about by the expiration of their employment contracts.

Foremost, respondents were fixed-term employees. As previously held by this Court, fixed-
term employment contracts are not limited, as they are under the present Labor Code, to those
by nature seasonal or for specific projects with predetermined dates of completion; they also
include those to which the parties by free choice have assigned a specific date of
termination.11 The determining factor of such contracts is not the duty of the employee but the
day certain agreed upon by the parties for the commencement and termination of the
employment relationship. 12

In the case at bar, it is clear that respondents were employed by A.C. Sicat as project
employees. In their employment contract with the latter, it is clearly stated that "[A.C. Sicat is]
temporarily employing [respondents] as TMR[s] effective June 6[, 2006] under the following
terms and conditions: The need for your service being only for a specific project, your
temporary employment will be for the duration only of said project of our client, namely to
promote FONTERRA BRANDS products x x x which is expected to be finished on or before
Nov. 06, 2006."13

Respondents, by accepting the conditions of the contract with A.C. Sicat, were well aware of
and even acceded to the condition that their employment thereat will end on said pre-
determined date of termination. They cannot now argue that they were illegally dismissed by
the latter when it refused to renew their contracts after its expiration. This is so since the non-
renewal of their contracts by A.C. Sicat is a management prerogative, and failure of
respondents to prove that such was done in bad faith militates against their contention that they
were illegally dismissed. The expiration of their contract with A.C. Sicat simply caused the
natural cessation of their fixed-term employment thereat. We, thus, see no reason to disturb
the ruling of the CA in this respect.

With these, We need not belabor the other assigned errors.

IN VIEW OF THE FOREGOING, the instant Petition for Review is GRANTED. The
assailed Decision of the Court of Appeals dated September 6, 2012 and its January 11, 2013
Resolution denying reconsideration thereof, in CA-G.R. SP No. 114227, are
hereby REVERSED and SET ASIDE. The Decision of the National Labor Relations
Commission dated November 20, 2009 and its Resolution dated March 5, 2010 in NLRC Case
No. RAB IV 12-23927-06-Q are hereby REINSTATED.

SO ORDERED.

G.R. No. 177592 June 9, 2014

 AVELINO S. ALILIN, TEODORO CALESA, CHARLIE HINDANG, EUTIQUIO Eutiquio Gindang
GINDANG, ALLAN SUNGAHID, MAXIMO LEE, JOSE G. MORA TO, REX
GABILAN, AND EUGEMA L. Eugema L. Laurente
LAURENTE, Petitioners,
vs.
Teodoro Calesa
PETRON CORPORATION, Respondent.
Rex Gabilan
DECISION
Charlie T. Hindang
DEL CASTILLO, J.: Allan P. Sungahid
Maximo S. Lee
A contractor is presumed to be a labor-only contractor, unless it proves that it has the
substantial capital, investment, tools and the like. However, where the principal is the one
Avelino S. Alilin
claiming that the contractor is a legitimate contractor, the burden of proving the supposed
status of the contractor rests on the principal.1 Jose Gerry M. Morato
This Petition for Review on Certiorari2 assails the Decision3 dated May 10, 2006 of the Court of
Appeals (CA) in CA-G.R. SP No. 01291 which granted the Petition for Certiorari filed
therewith, reversed and set aside the February 18, 2005 Decision4 and August 24, 2005
Resolution5 of the National Labor Relations Commission (NLRC) in NLRC Case No. V-
000481-2003 and dismissed the Complaint for illegal dismissal filed by petitioners Avelino
Alilin (Alilin), Teodoro Calesa (Calesa), Charlie Hindang (Hindang), Eutiquio Gindang
(Gindang), Allan Sungahid (Sungahid), Maximo Lee (Lee), Jose G. Morato (Morato), Rex
Gabilan (Gabilan) and Eugema L. Laurente (Laurente) against respondent Petron Corporation
(Petron). Also assailed in this Petition is the CA Resolution6 dated March 30, 2007 which
denied petitioners’ Motion for Reconsideration7 and Supplemental Motion for
Reconsideration.8
Factual Antecedents
Petron is a domestic corporation engaged in the oil business. It owns several bulk plants in the
country for receiving, storing and distributing its petroleum products.
In 1968, Romualdo D. Gindang Contractor, which was owned and operated by Romualdo D.
Gindang (Romualdo), started recruiting laborers for fielding to Petron’s Mandaue Bulk Plant.
When Romualdo died in1989, his son Romeo D. Gindang (Romeo), through Romeo D.
Gindang Services(RDG), took over the business and continued to provide manpower services
to Petron. Petitioners were among those recruited by Romualdo D. Gindang Contractor and
RDG to work in the premises of the said bulk plant, with the corresponding dates of hiring and
work duties, to wit:
ployees Date of Hiring Duties
1968 utility/tanker receiver/barge loader/warehouseman/mixer
June 1979 telephone operator/order taker
August 1, 1981 utility/tanker receiver/barge loader/sounder/gauger
July 1, 1987 warehouseman/forklift driver/tanker receiver/barge loader
September 18, 1990 utility/tanker receiver/barge loader/sounder/gauger
September 18, 1990 filler/sealer/painter/tanker receiver/utility
September 18, 1990 gasul filler/painter/utility
July 16, 1992 carpenter/driver
March 16, 1993 cylinder checker/tanker receiver/grass cutter/janitor/utility
On June 1, 2000, Petron and RDG entered into a Contract for Services9 for the period from
June 1, 2000 to May 31, 2002, whereby RDG undertook to provide Petron with janitorial,
maintenance, tanker receiving, packaging and other utility services in its Mandaue Bulk Plant.
This contract was extended on July 31, 2002 and further extended until September 30, 2002.
Upon expiration thereof, no further renewal of the service contract was done.
Proceedings before the Labor Arbiter
Alleging that they were barred fromcontinuing their services on October 16, 2002, petitioners
Alilin, Calesa, Hindang, Gindang, Sungahid, Lee, Morato and Gabilan filed a Complaint10 for
illegal dismissal, underpayment of wages, damages and attorney’s fees against Petron and RDG
on November 12, 2002. Petitioner Laurente filed another Complaint11 for illegal dismissal,
underpayment of wages, non-payment of overtime pay, holiday pay, premium pay for holiday,
rest day, 13th month pay, service incentive leave pay, allowances, separation pay, retirement
benefits, damages and attorney’s fees against Petron and RDG. The said complaints were later
consolidated.
Petitioners did not deny that RDG hired them and paid their salaries. They, however, claimed
that the latter is a labor-only contractor, which merely acted as an agent of Petron, their true
employer. They asseverated that their jobs, which are directly related to Petron’s business,
entailed them to work inside the premises of Petron using the required equipment and tools
furnished by it and that they were subject to Petron’s supervision. Claiming to be regular
employees, petitioners thus asserted that their dismissal allegedly in view of the expiration of
the service contract between Petron and RDG is illegal.
RDG corroborated petitioners’ claim that they are regular employees of Petron. It alleged that
Petron directly supervised their activities; they performed jobs necessary and desirable to
Petron’s business; Petron provided petitioners with supplies, tools and equipment used in their 2. Eutiquio Gindang P 202,800.00
jobs; and that petitioners’ workplace since the start of their employment was at Petron’s bulk
plant in Mandaue City. RDG denied liability over petitioners’ claim of illegal dismissal and 3. Charlie T. Gindang P 91,260.00
further argued that Petron cannot capitalize on the service contract to escape liability.
4. Allan P. Sungahid P 91,260.00
Petron, on the other hand, maintained that RDG is an independent contractor and the real 5. Jose Gerry Morato P 76,050.00
employer of the petitioners. It was RDG which hired and selected petitioners, paid their
salaries and wages, and directly supervised their work. Attesting to these were two former 6. Avelino A. Alilin P 95,680.00
employees of RDG and Petron’s Mandaue Terminal Superintendent whose joint affidavit12 and 7. Rex S. Gabilan P 106,470.00
affidavit,13 respectively, were submitted by Petron. Anent its allegation that RDG is an
independent contractor, Petron presented the following documents: (1) RDG’s Certificate of 8. Maximo S. Lee P 91,260.00
Registration issued by the Department of Labor and Employment (DOLE) on December 27, 9. Eugema Minao Laurente P 150,800.00
2000;14 (2) RDG’s Certificate of Registration of Business Name issued by the Department of
Trade and Industry (DTI) on August 18, 2000;15 (3) Contractor’s Pre-Qualification Total award ₱1,042,470.00
Statement;16 (4) Conflict of Interest Statement signed by Romeo Gindang as manager of
RDG;17 (5) RDG’s Audited Financial Statements for the years 199818 199919 and 2000;20 (6) The other claims are dismissed for lack of merit.
RDG’s Mayor’s Permit for the years 200021 and 2001;22 (7) RDG’s Certificate of Accreditation
issued by DTI in October 1991;23 (8) performance bond24and insurance policy25 posted to insure
SO ORDERED.29
against liabilities; (9) Social Security System (SSS) Online Inquiry System Employee
Contributions and Employee Static Information;26 and, (10) Romeo’s affidavit27 stating that he
had paid the salaries of his employees assigned to Petron for the period of November 4, 2001 Proceedings before the National Labor Relations Commission
to December 31, 2001. Petron argued that with the expiration of the service contract it entered
with RDG, petitioners’ term of employment has concomitantly ended. And not being the Petron continued to insist that there is no employer-employee relationship between it and
employer, Petron cannot be held liable for petitioners’ claim of illegal dismissal. petitioners. The NLRC, however, was not convinced. In its Decision30 of February 18, 2005,
the NLRC ruled that petitioners are Petron’s regular employees because they are performing
In a Decision28 dated June 12, 2003,the Labor Arbiter ruled that petitioners are regular job assignments which are germane to its main business. Thus:
employees of Petron. It found that their jobs were directly related to Petron’s business
operations; they worked under the supervision of Petron’s foreman and supervisor; and they WHEREFORE, premises considered, the Decision of the Labor Arbiter is hereby affirmed. It
were using Petron’s tools and equipment in the performance of their works. The Labor Arbiter is understood that the grant of backwages shall be until finality of the Decision.
also found that Petron merely utilized RDG in its attempt to hide the existence of employee-
employer relationship between it and petitioners and avoid liability under labor laws. And there The appeal of respondent Petron Corporation is hereby DISMISSED for lack of merit.
being no showing that petitioners’ dismissal was for just or authorized cause, the Labor Arbiter
declared them to have been illegally dismissed. Petron was thus held solidarily liable with SO ORDERED.31
Romeo for the payment of petitioners’ separation pay (in lieu of reinstatement due to strained
relations with Petron) fixed at one month pay for every year of service and backwages The NLRC also denied Petron’s Motion for Reconsideration in its Resolution32 of August 24,
computed on the basis of the last salary rate at the time of dismissal. The dispositive portion of 2005.
the Decision reads: WHEREFORE, premises considered, judgment is hereby rendered
ordering the respondents Petron Corporation and Romeo Gindang to pay the complainants as Proceedings before the Court of Appeals
follows:
Petron filed a Petition for Certiorari with prayer for the issuance of a temporary restraining
1. Teodoro Calesa P 136,890.00 order or writ of injunction before the CA. The said court resolved to grant the
injunction.33 Hence, a Writ of Preliminary Injunction34 to restrain the implementation of the
February 18, 2005 Decision and August 24, 2005 Resolution of the NLRC was issued on
March 3, 2006.
In a Decision35 dated May 10, 2006, the CA found no employer-employee relationship between
the parties. According to it, the records of the case do not show that petitioners were directly
hired, selected or employed by Petron; that their wages and other wage related benefits were
paid by the said company; and that Petron controlled the manner by which they carried out
their tasks. On the other hand, RDG was shown to be responsible for paying petitioners’ wages.
In fact, SSS records show that RDG is their employer and actually the one remitting their
contributions thereto. Also, two former employees of RDG who were likewise assigned in the
Mandaue Bulk Plant confirmed by way of a joint affidavit that it was Romeo and his brother
Alejandre Gindang who supervised their work, not Petron’s foreman or supervisor. This was
even corroborated by the Terminal Superintendent of the Mandaue Bulk Plant.
Our Ruling
The Petition is impressed with merit. The conflicting findings of the Labor Arbiter and the
NLRC on one hand, and of the CA on the other, constrains the Court to review the factual
issues involved in this case.
As a general rule, the Court does not review errors that raise factual questions.41 Nonetheless,
while it is true that the determination of whether an employer-employee relationship existed
between the parties basically involves a question of fact, the conflicting findings of the Labor
Arbiter and the NLRC on one hand, and of the CA on the other, constrains the Court to
review and reevaluate such factual findings.42
Labor-only contracting, distinguished

The CA also found RDG to be an independent labor contractor with sufficient capitalization from permissible job contracting.
and investment as shown by its financial statement for year-end 2000. In addition, the works for
which RDG was contracted to provide were menial which were neither directly related nor The prevailing rule on labor-only contracting at the time Petron and RDG entered into the
sensitive and critical to Petron’s principal business. The CA disposed of the case as follows: Contract for Services in June 2000 is DOLE Department Order No. 10, series of 1997,43 the
pertinent provision of which reads:
WHEREFORE, the Petition is GRANTED. The February 18, 2005 Decision and the August
24, 2005 Resolution of the Fourth Division of the National Labor Relations Commission in Section 4. x x x
NLRC Case No. V-000481-2003, entitled "Teodoro Calesa et al. vs. Petron Corporation and
R.D. Gindang Services", having been rendered with grave abuse of discretion amounting to
xxxx
excess of jurisdiction, are hereby REVERSED and SET ASIDE and a NEW ONE is entered
DISMISSING private respondents’ complaint against petitioner. It is so ordered.36
(f) "Labor-only contracting" prohibited under this Rule is an arrangement where the contractor
or subcontractor merely recruits, supplies or places workers to perform a job, work or service
Petitioners filed a Motion for Reconsideration37 insisting that Petron illegally dismissed them;
for a principal and the following elements are present:
that RDG is a labor-only contractor; and that they performed jobs which are sensitive to
Petron’s business operations. To support these, they attached to their Supplemental Motion for
Reconsideration38 Affidavits39 of former employees of Petron attesting to the fact that their jobs (i) The contractor or subcontractor does not have substantial capital or investment to
were critical to Petron’s business operations and that they were carried out under the control of actually perform the job, work or service under its own account and responsibility; and
a Petron employee.
(ii) The employees recruited, supplied or placed by such contractor or subcontractor
40
Petitioners’ motions were, however, denied by the CA in a Resolution dated March 30, 2007. are performing activities which are directly related to the main business of the
principal.
Hence, this Petition.
xxxx
Issue
Section 6. Permissible contracting or subcontracting. - Subject to the conditions set forth in
Section 3 (d) and (e) and Section 5 hereof, the principal may engage the services of a contractor
The primary issue to be resolved in this case is whether RDG is a legitimate job contractor.
or subcontractor for the performance of any of the following:
Upon such finding hinges the determination of whether an employer-employee relationship
exists between the parties as to make Petron liable for petitioners’ dismissal.
 (a) Works or services temporarily or occasionally needed to meet abnormal increase in
the demand of products or services, provided that the normal production capacity or
regular workforce of the principal cannot reasonably cope with such demands;
(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,
only for the duration of the introductory or promotional period;
(d) Works or services not directly related or not integral to the 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 which do not
involve the act of selling or issuance of receipts or invoices;
(f) Specialized works involving the use of some particular, unusual or peculiar skills,
expertise, tools or equipment the performance of which is beyond the competence of
the regular workforce or production capacity of the principal; and
(g) Unless a reliever system is in place among the regular workforce, substitute services
for absent regular employees, provided that the period of service shall be coextensive
with the period of absence and the same is made clear to the substitute employee at the
time of engagement. The phrase "absent regular employees" includes those who are
serving suspensions or other disciplinary measures not amounting to termination of
employment meted out by the principal, but excludes those on strike where all the
formal requisites for the legality of the strike have been prima facie complied with
based on the records filed with the National Conciliation and Mediation Board.
"Permissible job contracting or subcontracting refers to an arrangement whereby a principal
agrees to farm out with a contractor or subcontractor the performance 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. Under
this arrangement, the following conditions must be met: (a) the contractor carries on a distinct
and independent business and undertakes the contract work on his account under his own
responsibility according to his own manner and method, free from the control and direction of
his employer or principal in all matters connected with the performance of his work except as
to the results thereof; (b) the contractor has substantial capital or investment; and (c) the
agreement between the principal and 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."44 Labor-only
contracting, on the other hand, is a prohibited act, defined as "supplying workers to an
employer who 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."45 "[I]n distinguishing between prohibited labor-only contracting and permissible job
contracting, the totality of the facts and the surrounding circumstances of the case shall be
considered."46 Generally, the contractor is presumed to be a labor-only contractor, unless such
contractor overcomes the burden of proving that it has the substantial capital, investment, tools
and the like. However, where the principal is the one claiming that the contractor is a legitimate
contractor, as in the present case, said principal has the burden of proving that supposed
status.47 It is thus incumbent upon Petron, and not upon petitioners as Petron insists,48 to prove
that RDG is an independent contractor.
Petron failed to discharge the burden of
proving that RDG is a legitimate
contractor. Hence, the presumption that
RDG is a labor-only contractor stands.
Here, the audited financial statements and other financial documents of RDG for the years
1999 to 2001 establish that it does have sufficient working capital to meet the requirements of
its service contract. In fact, the financial evaluation conducted by Petron of RDG’s financial
statements for years 1998-2000 showed RDG to have a maximum financial capability of
Php4.807 Million as of December 1998,49 and Php1.611 Million as of December
2000.50 Petron was able to establish RDG’s sufficient capitalization when it entered into the
service contract in 2000. The Court stresses though that this determination of RDG’s status as
an independent contractor is only with respect to its financial capability for the period covered
by the financial and other documents presented. In other words, the evidence adduced merely
proves that RDG was financially qualified as a legitimate contractor but only with respect to its
last service contract with Petron in the year 2000.
As may be recalled, petitioners have rendered work for Petron for a long period of time even
before the service contract was executed in 2000. The respective dates on which petitioners
claim to have started working for Petron, as well as the fact that they have rendered continuous
service to it until October 16, 2002, when they were prevented from entering the premises of
Petron’s Mandaue Bulk Plant, were not at all disputed by Petron. In fact, Petron even
recognized that some of the petitioners were initially fielded by Romualdo Gindang, the father
of Romeo, through RDG’s precursor, Romualdo D.Gindang Contractor, while the others were
provided by Romeo himself when he took over the business of his father in
1989.1âwphi1 Hence, while Petron was able to establish that RDG was financially capable as a
legitimate contractor at the time of the execution of the service contract in 2000, it nevertheless
failed to establish the financial capability of RDG at the time when petitioners actually started to
work for Petron in 1968, 1979, 1981, 1987, 1990,1992 and 1993.
Sections 8 and 9,Rule VIII, Book III51 of the implementing rules of the Labor Code, in force
since 1976 and prior to DOLE Department Order No. 10, series of 1997,52 provide that for job
contracting to be permissible, one of the conditions that has to be met is that the contractor
must have substantial capital or investment. Petron having failed to show that this condition was
met by RDG, it can be concluded, on this score alone, that RDG is a mere labor-only
contractor. Otherwise stated, the presumption that RDG is a labor-only contractor stands due
to the failure of Petron to discharge the burden of proving the contrary. The Court also finds,
as will be discussed below, that the works performed by petitioners were directly related to
Petron’s business, another factor which negates Petron’s claim that RDG is an independent
contractor.
Petron’s power of control over petitioners exists in this case.
"[A] finding that a contractor is a ‘labor-only’ contractor is equivalent to declaring that there is
an employer-employee relationship between the principal and the employees of the supposed
contractor."53 In this case, the employer employee relationship between Petron and petitioners
becomes all the more apparent due to the presence of the power of control on the part of the
former over the latter.
It was held in Orozco v. The Fifth Division of the Hon. Court of Appeals54 that:
This Court has constantly adhered to the "four-fold test" to determine whether there exists an
employer-employee relationship between the parties. The four elements of an employment
relationship are: (a) the selection and engagement of the employee; (b) the payment of wages;
(c) the power of dismissal; and (d) the power to control the employee’s conduct. Of these four
elements, it is the power to control which is the most crucial and most determinative factor, so
important, in fact, that, the other elements may even be disregarded." (Emphasis supplied)
Hence, the facts that petitioners were hired by Romeo or his father and that their salaries were
paid by them do not detract from the conclusion that there exists an employer-employee
relationship between the parties due to Petron’s power of control over the petitioners. One
manifestation of the power of control is the power to transfer employees from one work
assignment to another.55 Here, Petron could order petitioners to do work outside of their
regular "maintenance/utility" job. Also, petitioners were required to report for work everyday at
the bulk plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule, and wear proper
uniform and safety helmets as prescribed by the safety and security measures being
implemented within the bulk plant. All these imply control. In an industry where safety is of
paramount concern, control and supervision over sensitive operations, such as those performed
by the petitioners, are inevitable if not at all necessary. Indeed, Petron deals with commodities
that are highly volatile and flammable which, if mishandled or not properly attended to, may
cause serious injuries and damage to property and the environment. Naturally, supervision by
Petron is essential in every aspect of its product handling in order not to compromise the
integrity, quality and safety of the products that it distributes to the consuming public.
Petitioners already attained regular status as employees of Petron.
Petitioners were given various work assignments such as tanker receiving, barge loading,
sounding, gauging, warehousing, mixing, painting, carpentry, driving, gasul filling and other
utility works. Petron refers to these work assignments as menial works which could be
performed by any able-bodied individual. The Court finds, however, that while the jobs
performed by petitioners may be menial and mechanical, they are nevertheless necessary and
related to Petron’s business operations. If not for these tasks, Petron’s products will not reach
the consumers in their proper state. Indeed, petitioners’ roles were vital inasmuch as they
involve the preparation of the products that Petron will distribute to its consumers.
Furthermore, while it may be true that any able-bodied individual can perform the tasks
assigned to petitioners, the Court notes the undisputed fact that for many years, it was the same
able-bodied individuals (petitioners) who performed the tasks for Petron. The engagement of
petitioners for the same works for a long period of time is a strong indication that such works
were indeed necessary to Petron’s business. In view of these, and considering further that
petitioners’ length of service entitles them to become regular employees under the Labor Code,
petitioners are deemed by law to have already attained the status as Petron’s regular employees.
As such, Petron could not terminate their services on the pretext that the service contract it
entered with RDG has already lapsed. For one, and as previously discussed, such regular status
had already attached to them even before the execution of the service contract in 2000. For
another, the same does not constitute a just or authorized cause for a valid dismissal of regular
employees.
In sum, the Court finds that RDG is a labor-only contractor. As such, it is considered merely as
an agent of Petron. Consequently, the employer-employee relationship which the Court finds
to exist in this case is between petitioners as employees and Petron as their employer. Petron
therefore, being the principal employer and RDG, being the labor-only contractor, are
solidarily liable for petitioners' illegal dismissal and monetary claims.56
WHEREFORE, the Petition is GRANTED. The May 10, 2006 Decision and March 30, 2007
Resolution of the Court of Appeals in CA-G.R. SP No. 01291 are REVERSED and SET
ASIDE. The February 18, 2005 Decision and August 24, 2005 Resolution of the National
Labor Relations Commission in NLRC Case No. V-000481-2003 are hereby REINSTATED
and AFFIRMED.
SO ORDERED.
G.R. No. 160506 June 6, 2011 Promotions Services (SAPS) to be legitimate independent contractors and the employers of the
petitioners.
JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO
AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO Factual Antecedents
PLATON, JOSE FERNANDO GUTIERREZ, ESTANISLAO BUENAVENTURA, LOPE
SALONGA, FRANZ DAVID, NESTOR IGNACIO, JULIO REY, RUBEN MARQUEZ, Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as
JR., MAXIMINO PASCUAL, ERNESTO CALANAO, ROLANDO ROMASANTA, 1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as
RHUEL AGOO, BONIFACIO ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA, follows:
ROBERTO ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS
BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN GARCIA,
ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J. GARCIA, Name Date Employed Date Dismissed
FERNANDO MACABENTE, MELECIO CASAPAO, REYNALDO JACABAN, 1. Joeb M. Aliviado November, 1985 May 5, 1992
FERDINAND SALVO, ALSTANDO MONTOS, RAINER N. SALVADOR, RAMIL
REYES, PEDRO G. ROY, LEONARDO P. TALLEDO, ENRIQUE F. TALLEDO, 2. Arthur Corpuz 1988 March 11, 1993
WILLIE ORTIZ, ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL BILLONES, ALLAN
BALTAZAR, NOLI GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL 3. Eric Aliviado 1985 March 11, 1993
DULAY, TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES, ANTONIO
4. Monchito Ampeloquio September, 1988 March 11, 1993
DACUNA, RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO,
WILFREDO TORRES, MELCHOR CARDANO, MARIANO NARANIAN, JOHN 5. Abraham Basmayor[, Jr.] 1987 March 11, 1993
SUMERGIDO, ROBERTO ROSALES, GERRY C. GATPO, GERMAN N. GUEVARRA,
GILBERT Y. MIRANDA, RODOLFO C. TOLEDO, ARNOLD D. LASTONA, PHILIP 6. Jonathan Mateo May, 1988 March 11, 1993
M. LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ, FRED P. JIMENEZ,
RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ 7. Lorenzo Platon 1985 March 11, 1993
BUSTENERA, ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, 8. Jose Fernando Gutierrez 1988 May 5, 1992
ALEJANDRINO ABATON, and ORLANDO S. BALANGUE, Petitioners,
vs. 9. Estanislao Buenaventura June, 1988 March 11, 1993
PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents.
10. Lope Salonga 1982 March 11, 1993
DECISION 11. Franz David 1989 March 11, 1993
DEL CASTILLO, J.: 12. Nestor Ignacio 1982 March 11, 1993

Labor laws expressly prohibit "labor-only" contracting. To prevent its circumvention, the Labor 13. Julio Rey 1989 May 5, 1992
Code establishes an employer-employee relationship between the employer and the employees 14. Ruben [Vasquez], Jr. 1985 May 5, 1992
of the ‘labor-only’ contractor.
15. Maximino Pascual 1990 May 5, 1992
1
The instant petition for review assails the March 21, 2003 Decision of the Court of Appeals
(CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution2 denying the motions for 16. Ernesto Calanao[, Jr.] 1987 May 5, 1992
reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc. 17. Rolando Romasanta 1983 March 11, 1993
(P&G). The appellate court affirmed the July 27, 1998 Decision of the National Labor
Relations Commission (NLRC), which in turn affirmed the November 29, 1996 Decision3 of 18. [Roehl] Agoo 1988 March 11, 1993
the Labor Arbiter. All these decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and
19. Bonifacio Ortega 1988 March 11, 1993 44. Ernesto Soyosa 1988 May 5, 1992
20. Arsenio Soriano, Jr. 1985 March 11, 1993 45. Romeo Vasquez 1985 March 11, 1993
21. Arnel Endaya 1983 March 11, 1993 46. Joel Billones 1987 March 11, 1993
22. Roberto Enriquez December, 1988 March 11, 1993 47. Allan Baltazar 1989 March 11, 1993
23. Nestor [Es]quila 1983 May 5, 1992 48. Noli Gabuyo 1991 March 11, 1993
24. Ed[g]ardo Quiambao 1989 March 11, 1993 49. Emmanuel E. Laban 1987 May 5, 1992
25. Santos Bacalso 1990 March 11, 1993 50. Ramir[o] E. [Pita] 1990 May 5, 1992
26. Samson Basco 1984 March 11, 1993 51. Raul Dulay 1988 May 5, 1992
27. Aladino Gregor[e], Jr. 1980 May 5, 1992 52. Tadeo Duran[o] 1988 May 5, 1992
28. Edwin Garcia 1987 May 5, 1992 53. Joseph Banico 1988 March 11, 1993
29. Armando Villar 1990 May 5, 1992 54. Albert Leynes 1990 May 5, 1992
30. Emil Tawat 1988 March 11, 1993 55. Antonio Dacu[m]a 1990 May 5, 1992
31. Mario P. Liongson 1991 May 5, 1992 56. Renato dela Cruz 1982
32. Cresente J. Garcia 1984 March 11, 1993 57. Romeo Viernes, Jr. 1986
33. Fernando Macabent[a] 1990 May 5, 1992 58. El[ia]s Bas[c]o 1989
34. Melecio Casapao 1987 March 11, 1993 59. Wilfredo Torres 1986 May 5, 1992
35. Reynaldo Jacaban 1990 May 5, 1992 60. Melchor Carda[ñ]o 1991 May 5, 1992
36. Ferdinand Salvo 1985 May 5, 1992 61. [Marino] [Maranion] 1989 May 5, 1992
37. Alstando Montos 1984 March 11, 1993 62. John Sumergido 1987 May 5, 1992
38. Rainer N. Salvador 1984 May 5, 1992 63. Roberto Rosales May, 1987 May 5, 1992
39. Ramil Reyes 1984 March 11, 1993 64. Gerry [G]. Gatpo November, 1990 March 11, 1993
40. Pedro G. Roy 1987 65. German N. Guevara May, 1990 March 11, 1993
41. Leonardo [F]. Talledo 1985 March 11, 1993 66. Gilbert Y. Miranda June, 1991 March 11, 1993
42. Enrique [F]. Talledo 1988 March 11, 1993 67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993
43. Willie Ortiz 1987 May 5, 1992 68. Arnold D. [Laspoña] June 1991 March 11, 1993
 69. Philip M. Loza March 5, 1992 March 11, 1993 On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled
that there was no employer-employee relationship between petitioners and P&G. He found
70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993 that the selection and engagement of the petitioners, the payment of their wages, the power of
dismissal and control with respect to the means and methods by which their work was
71. Orlando P. Jimenez November 6, 1992 March 11, 1993 accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that
Promm-Gem and SAPS were legitimate independent job contractors. The dispositive portion
72. Fred P. Jimenez September, 1991 March 11, 1993
of his Decision reads:
73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993
WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-
74. Rolando J. de Andres June, 1991 March 11, 1993 entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit.
75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993
SO ORDERED.12
76. Roberto B. Cruz May 4, 1990 March 11, 1993
Ruling of the NLRC
77. Rosedy O. Yordan June, 1991 May 5, 1992
78. Dennis Dacasin May. 1990 May 5, 1992 Appealing to the NLRC, petitioners disputed the Labor Arbiter’s findings. On July 27, 1998,
the NLRC rendered a Decision13 disposing as follows:
79. Alejandrino Abaton 1988 May 5, 1992
WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and
80. Orlando S. Balangue March, 1989 March 11, 19934 the decision appealed from AFFIRMED.

They all individually signed employment contracts with either Promm-Gem or SAPS for SO ORDERED.14
periods of more or less five months at a time.5 They were assigned at different outlets,
supermarkets and stores where they handled all the products of P&G. They received their Petitioners filed a motion for reconsideration but the motion was denied in the November 19,
wages from Promm-Gem or SAPS.6 1998 Resolution.15

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons
such as habitual absenteeism, dishonesty or changing day-off without prior notice.7
P&G is principally engaged in the manufacture and production of different consumer and
health products, which it sells on a wholesale basis to various supermarkets and
distributors.8 To enhance consumer awareness and acceptance of the products, P&G entered
into contracts with Promm-Gem and SAPS for the promotion and merchandising of its
products.9
In December 1991, petitioners filed a complaint10 against P&G for regularization, service
incentive leave pay and other benefits with damages. The complaint was later amended11 to
include the matter of their subsequent dismissal.
Ruling of the Labor Arbiter
Ruling of the Court of Appeals
Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the NLRC.
However, said petition was also denied by the CA which disposed as follows:
WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998
is AFFIRMED with the MODIFICATION that respondent Procter & Gamble Phils., Inc. is
ordered to pay service incentive leave pay to petitioners.
SO ORDERED.16
Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this
petition.
Issues
Petitioners now come before us raising the following issues:
I.
WHETHER X X X THE HONORABLE COURT OF APPEALS HAS
COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT FIND THE
PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF
JURISDICTION IN RENDERING THE QUESTIONED JUDGMENT WHEN,
OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND
ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS
THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY DISMISSED BY
THE FORMER.
II.
WHETHER X X X THE HONORABLE COURT OF APPEALS HAS
COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT DECLARE
THAT THE PUBLIC RESPONDENTS HAD ACTED WITH GRAVE ABUSE
OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE
RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF
ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS
LITIGATION COSTS AND ATTORNEY’S FEES.17
Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether
petitioners were illegally dismissed; and (3) whether petitioners are entitled for payment of
actual, moral and exemplary damages as well as litigation costs and attorney’s fees.
Petitioners’ Arguments
Petitioners insist that they are employees of P&G. They claim that they were recruited by the
salesmen of P&G and were engaged to undertake merchandising chores for P&G long before
the existence of Promm-Gem and/or SAPS. They further claim that when the latter had its so-
called re-alignment program, petitioners were instructed to fill up application forms and report
to the agencies which P&G created.18
Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from
its letter19 to SAPS dated February 24, 1993, informing the latter that their Merchandising
Services Contract will no longer be renewed.
Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing
services of manpower to their client. They claim that the contractors have neither substantial
capital nor tools and equipment to undertake independent labor contracting. Petitioners insist
that since they had been engaged to perform activities which are necessary or desirable in the
usual business or trade of P&G, then they are its regular employees.20
Respondents’ Arguments
On the other hand, P&G points out that the instant petition raises only questions of fact and
should thus be thrown out as the Court is not a trier of facts. It argues that findings of facts of
the NLRC, particularly where the NLRC and the Labor Arbiter are in agreement, are deemed
binding and conclusive on the Supreme Court.
P&G further argues that there is no employment relationship between it and petitioners. It was
Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their
salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct
of work.
P&G also contends that the Labor Code neither defines nor limits which services or activities
may be validly outsourced. Thus, an employer can farm out any of its activities to an
independent contractor, regardless of whether such activity is peripheral or core in nature. It
insists that the determination of whether to engage the services of a job contractor or to engage
in direct hiring is within the ambit of management prerogative.
At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the
filing of the Comment of Promm-Gem on the petition.21 Also, although SAPS was impleaded
as a party in the proceedings before the Labor Arbiter and the NLRC, it was no longer
impleaded as a party in the proceedings before the CA.22 Hence, our pronouncements with
regard to SAPS are only for the purpose of determining the obligations of P&G, if any.
Our Ruling
The petition has merit.
As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies
exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is
constrained to wade into factual matters when there is insufficient or insubstantial evidence on
record to support those factual findings; or when too much is concluded, inferred or deduced
from the bare or incomplete facts appearing on record.23 In the present case, we find the need
to review the records to ascertain the facts.
Labor-only contracting and job contracting
In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to
first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job
contractors.
The pertinent Labor Code provision on the matter states:
ART. 106. Contractor or subcontractor. – Whenever an employer enters into a contract with
another person for the performance of the former’s work, the employees of the contractor and
of the latter’s 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 this 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. (Emphasis and underscoring supplied.)
Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18-02,24 distinguishes between legitimate and labor-only contracting:
xxxx
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.
xxxx
Section 5. Prohibition against labor-only contracting. Labor-only contracting is 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) [T]he 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.
x x x x (Underscoring supplied.)
Clearly, the law and its implementing rules allow contracting arrangements for the performance
of specific jobs, works or services. Indeed, it is management prerogative to farm out any of its
activities, regardless of whether such activity is peripheral or core in nature. However, in order
for such outsourcing to be valid, it must be made to anindependent contractor because the
current labor rules expressly prohibit labor-only contracting.
To emphasize, there is labor-only contracting when the contractor or sub-contractor merely
recruits, supplies or places workers to perform a job, work or service for a principal25 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 contractualemployee. (Underscoring supplied)
In the instant case, the financial statements26 of Promm-Gem show that it
has authorized capital stock of ₱1 million and a paid-in capital, or capital available for
operations, of ₱500,000.00 as of 1990.27 It also has long term assets worth ₱432,895.28 and
current assets of ₱719,042.32. Promm-Gem has also proven that it maintained its own
warehouse and office space with a floor area of 870 square meters.28 It also had under its name
three registered vehicles which were used for its promotional/merchandising business.29Promm-
Gem also has other clients30 aside from P&G.31 Under the circumstances, we find that Promm-
Gem has substantial investment which relates to the work to be performed. These factors
negate the existence of the element specified in Section 5(i) of DOLE Department Order No.
18-02.
The records also show that Promm-Gem supplied its complainant-workers with the relevant
materials, such as markers, tapes, liners and cutters, necessary for them to perform their work.
Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem
already considered the complainants working under it as its regular, not merely contractual or
project, employees.32 This circumstance negates the existence of element (ii) as stated in Section
5 of DOLE Department Order No. 18-02, which speaks of contractual employees. This,
furthermore, negates – on the part of Promm-Gem – bad faith and intent to circumvent labor
laws which factors have often been tipping points that lead the Court to strike down the
employment practice or agreement concerned as contrary to public policy, morals, good
customs or public order.33
Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We
find that it is a legitimate independent contractor.
On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of
only ₱31,250.00. There is no other evidence presented to show how much its working capital
and assets are. Furthermore, there is no showing of substantial investment in tools, equipment
or other assets.
In Vinoya v. National Labor Relations Commission,34 the Court held that "[w]ith the current
economic atmosphere in the country, the paid-in capitalization of PMCI amounting to
₱75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as an
independent contractor."35 Applying the same rationale to the present case, it is clear that SAPS
– having a paid-in capital of only ₱31,250 - has no substantial capital. SAPS’ lack of substantial
capital is underlined by the records36 which show that its payroll for its merchandisers alone for
one month would already total ₱44,561.00. It had 6-month contracts with P&G.37 Yet SAPS
failed to show that it could complete the 6-month contracts using its own capital and
investment. Its capital is not even sufficient for one month’s payroll. SAPS failed to show that
its paid-in capital of ₱31,250.00 is sufficient for the period required for it to generate its needed
revenue to sustain its operations independently. Substantial capital refers to capitalization used
in the performance or completion of the job, work or service contracted out. In the present
case, SAPS has failed to show substantial capital.
Furthermore, the petitioners have been charged with the merchandising and promotion of the
products of P&G, an activity that has already been considered by the Court as doubtlessly
directly related to the manufacturing business,38 which is the principal business of P&G.
Considering that SAPS has no substantial capital or investment and the workers it recruited are
performing activities which are directly related to the principal business of P&G, we find that
the former is engaged in "labor-only contracting".
"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."39 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.40
Consequently, the following petitioners, having been recruited and supplied
by SAPS41 -- which engaged in labor-only contracting -- are considered as the employees of
P&G: Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan
Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio,
Jr., Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya,
Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos,
Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones,
Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C.
Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez,
Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr.,
Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia,
Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and
Dennis Dacasin.
The following petitioners, having worked under, and been dismissed by Promm-Gem, are
considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido,
Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A.
Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino
Pascual, Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando
Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales,
Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico, Melchor
Cardano, Reynaldo Jacaban, and Joeb Aliviado.42
Termination of services
We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular
employment, the employer shall not terminate the services of an employee except for a just43 or
authorized44 cause.
In the instant case, the termination letters given by Promm-Gem to its employees uniformly
specified the cause of dismissal as grave misconduct and breach of trust, as follows:
xxxx
This informs you that effective May 5, 1992, your employment with our company, Promm-
Gem, Inc. has been terminated. We find your expressed admission, that you considered
yourself as an employee of Procter & Gamble Phils., Inc…. and assailing the integrity of the
Company as legitimate and independent promotion firm, is deemed as an act of disloyalty
prejudicial to the interests of our Company: serious misconduct and breach of trust reposed
upon you as employee of our Company which [co]nstitute just cause for the termination of
your employment.
x x x x45
Misconduct has been defined as improper or wrong conduct; the transgression of some
established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in
character implying wrongful intent and not mere error of judgment. The misconduct to be
serious must be of such grave and aggravated character and not merely trivial and
unimportant.46 To be a just cause for dismissal, such misconduct (a) must be serious; (b) must
relate to the performance of the employee’s duties; and (c) must show that the employee has
become unfit to continue working for the employer.47
In other words, in order to constitute serious misconduct which will warrant the dismissal of an
employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act
or conduct complained of has violated some established rules or policies. It is equally
important and required that the act or conduct must have been performed with wrongful
intent.48 In the instant case, petitioners-employees of Promm-Gem may have committed an
error of judgment in claiming to be employees of P&G, but it cannot be said that they were
motivated by any wrongful intent in doing so. As such, we find them guilty of only simple
misconduct for assailing the integrity of Promm-Gem as a legitimate and independent
promotion firm. A misconduct which is not serious or grave, as that existing in the instant case,
cannot be a valid basis for dismissing an employee.
Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful
breach of the trust reposed in the employee by his employer. Ordinary breach will not suffice.
A breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable
excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.49
Loss of trust and confidence, as a cause for termination of employment, is premised on the fact
that the employee concerned holds a position of responsibility or of trust and confidence. As
such, he must be invested with confidence on delicate matters, such as custody, handling or
care and protection of the property and assets of the employer. And, in order to constitute a
just cause for dismissal, the act complained of must be work-related and must show that the
employee is unfit to continue to work for the employer.50 In the instant case, the petitioners-
employees of Promm-Gem have not been shown to be occupying positions of responsibility or
of trust and confidence. Neither is there any evidence to show that they are unfit to continue to
work as merchandisers for Promm-Gem.
All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem.
While Promm-Gem had complied with the procedural aspect of due process in terminating the
employment of petitioners-employees, i.e., giving two notices and in between such notices, an
opportunity for the employees to answer and rebut the charges against them, it failed to comply
with the substantive aspect of due process as the acts complained of neither constitute serious
misconduct nor breach of trust. Hence, the dismissal is illegal.
With regard to the petitioners placed with P&G by SAPS, they were given no written notice of
dismissal. The records show that upon receipt by SAPS of P&G’s letter terminating their
"Merchandising Services Contact" effective March 11, 1993, they in turn verbally informed the
concerned petitioners not to report for work anymore. The concerned petitioners related their
dismissal as follows:
xxxx
5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr.
Saturnino A. Ponce that we should already stop working immediately because that was the
order of Procter and Gamble. According to him he could not do otherwise because Procter
and Gamble was the one paying us. To prove that Procter and Gamble was the one responsible
in our dismissal, he showed to us the letter51 dated February 24, 1993, x x x
February 24, 1993
Sales and Promotions Services Armon’s Bldg., 142 Kamias Road, Quezon City
Attention: Mr. Saturnino A. Ponce President & General Manager
Gentlemen:
Based on our discussions last 5 and 19 February 1993, this formally informs you that we will
not be renewing our Merchandising Services Contract with your agency.
Please immediately undertake efforts to ensure that your services to the Company will
terminate effective close of business hours of 11 March 1993.
This is without prejudice to whatever obligations you may have to the company under the
abovementioned contract.
Very truly yours,
(Sgd.)
EMMANUEL M. NON Sales Merchandising III
6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no
longer allowed to work and we were refused entrance by the security guards posted. According
to the security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case
in the Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February
25, 1993. x x x52
Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike
Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to
disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS
does not carry on its own business because the termination of its contract with P&G
automatically meant for it also the termination of its employees’ services. It is obvious from its
act that SAPS had no other clients and had no intention of seeking other clients in order to
further its merchandising business. From all indications SAPS, existed to cater solely to the
need of P&G for the supply of employees in the latter’s merchandising concerns only. Under
the circumstances prevailing in the instant case, we cannot consider SAPS as
an independent contractor.
Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove
the lawfulness of the dismissal rests with the employer.53 In termination cases, the burden of
proof rests upon the employer to show that the dismissal is for just and valid cause.54 In the
instant case, P&G failed to discharge the burden of proving the legality and validity of the
dismissals of those petitioners who are considered its employees. Hence, the dismissals
necessarily were not justified and are therefore illegal.
Damages
We now go to the issue of whether petitioners are entitled to damages. Moral
and exemplary damages are recoverable where the dismissal of an employee was attended by
bad faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to
morals, good customs or public policy.55
With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or
any oppressive act on the part of the latter, we find no support for the award of damages.
As for P&G, the records show that it dismissed its employees through SAPS in a manner
oppressive to labor. The sudden and peremptory barring of the concerned petitioners from
work, and from admission to the work place, after just a one-day verbal notice, and for no valid
cause bellows oppression and utter disregard of the right to due process of the concerned
petitioners. Hence, an award of moral damages is called for.
Attorney’s fees may likewise be awarded to the concerned petitioners who were illegally
dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights by
reason of the oppressive acts56 of P&G.
Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work
shall be entitled to reinstatement without loss of seniority rights and other privileges, inclusive
of allowances, and other benefits or their monetary equivalent from the time the compensation
was withheld up to the time of actual reinstatement.57 Hence, all the petitioners, having been
illegally dismissed are entitled to reinstatement without loss of seniority rights and with full back
wages and other benefits from the time of their illegal dismissal up to the time of their actual
reinstatement.1avvphi1
WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court
of Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003
are REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc.
are ORDERED to reinstate their respective employees immediately without loss of seniority
rights and with full backwages and other benefits from the time of their illegal dismissal up to
the time of their actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to
pay each of those petitioners considered as its employees, namely Arthur Corpuz, Eric
Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon,
Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando Romasanta,
Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez,
Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador,
Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli
Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr., Arnold
D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez,
Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz,
Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao,
Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin,
₱25,000.00 as moral damages plus ten percent of the total sum as and for attorney’s fees.

Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from
receipt of this Decision, of petitioners’ backwages and other benefits; and ten percent of the
total sum as and for attorney’s fees as stated above; and for immediate execution.

SO ORDERED.