Coca Cola vs. Agito, G.R. No.

179546, February 13, 2009

SEPTEMBER 12, 2018
SUMMARY:

Private respondents filed a complaint for illegal dismissal against Coca Cola praying for
reinstatement, backwages, and other benefits. Coca Cola countered that they are not its employees
but rather of its contractor, Interserve.

DOCTRINE: (Labor-only contracting)

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.

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.

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 contractor’s employees
and the former becomes solidarily liable for all the rightful claims of the employees.

FACTS:

Private respondents filed a complaint with the Labor Arbiter for illegal dismissal and prayed for
reinstatement, backwages and other benefits. They alleged that

They were salesmen for Coca Cola at the Lagro Sales Office for years.
Their employment was subsequently terminated by Coca Cola without just cause and due process.
Coca Cola averred that:

respondents are in reality employees of Interserve, a job contractor, as evidenced by a contract of

services Coca-Cola executed with Interserve.
it was Interserve that hired them, paid their wages, and supervised their work, as proven by: (1)
respondents Personal Data Files in the records of Interserve;[10] (2) respondents Contract of
Temporary Employment with Interserve; and (3) the payroll records of Interserve.
Interserve is an independent contractor as shown by its articles of incorporation, and certificate or
registration from DOLE as to its status as an independent contractor, among others.
Coca-Cola argued that there is no employer-employee relationship between it and respondents and
thus prayed for the dismissal of the complaint for lack of jurisdiction.

The Labor Arbiter dismissed the complaint. It found that respondents were employees of
Interserve and not of Coca Cola. The Labor Arbiter underscored that respondents’ functions were
not indispensable to the principal business of Coca Cola, which was manufacturing and bottling
soft drink beverages and similar products. The Labor Arbiter also placed considerable weight on
the fact that Interserve was registered with the DOLE as an independent job contractor and that
Interserve kept the records of respondents.

The respondents appealed to the NLRC. Respondents maintained that contrary to the finding of
the Labor Arbiter, their work was indispensable to the principal business of petitioner.
Respondents supported their claim with copies of the Delivery Agreements. They also argued that
Coca-Cola supplied the tools and equipment they used in their work and that it exercised control
over them. Unfortunately for respondents, the NLRC affirmed the Labor Arbiter.

The CA reversed the NLRC. It found that Interserve lacks substantial capital to perform delivery
services. It also determined that Coca-Cola exercised control over respondents through its daily
sales monitoring reports, proposed route, among others. The CA also found that the contract of
services between Interserve and Coca-Cola failed to state which services Interserve will perform.

ISSUES/HELD:

Whether Interserve is a legitimate job contractor. If so, whether an employer-employee

relationship exists between Coca-Cola and the respondents. (YES to both)

RATIO:

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.

On the other hand, 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.

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.
No substantial capital and no type of work indicated in the contract

In the present case, the Court clarifies found although Interserve has an authorized capital stock
amounting to P2,000,000.00, only P625,000.00 thereof was paid up as of 31 December 2001.
There is no absolute figure for what it considers substantial capital for an independent job
contractor, but it measures the same against the type of work which the contractor is obligated to
perform for the principal. However, this is rendered impossible in this case since the Contract
between petitioner and Interserve does not even specify the work or the project that needs to be
performed or completed by the latter’s 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.

As to substantial capital, the contractor, not the employee, has the burden of proof that it has the
substantial capital, investment, and tool to engage in job contracting. Petitioner failed to submit
evidence to establish that the service vehicles and equipment of Interserve, valued at P510,000.00
and P200,000.00, respectively, were sufficient to carry out its service contract with petitioner.
Absent such evidence, the Court will not presume that Interserve had sufficient investment in
service vehicles and equipment, especially since respondents allegation that they were using
equipment, such as forklifts and pallets belonging to petitioner, to carry out their jobs was
uncontroverted.

Lack of control

The lack of control of Interserve over the respondents can be gleaned from the Contract of
Services between Interserve (as the CONTRACTOR) and petitioner (as the CLIENT).

The Court pointed out the following provisions in the contract to conclude that Coca-Cola
exercised control over respondents:

Respondents should comply with CLIENT as well as CLIENTs policies, rules and regulations.
Respondents should subject themselves to on-the-spot searches by petitioner or its duly authorized
guards or security men on duty every time the said personnel entered and left the premises of
petitioner.
Coca-Cola may demand the removal or replacement of any employee in the guise of his or her
inability to complete a project in time or to deliver the desired result.
Interserve would provide relievers and replacements in case of absences of its personnel. (The
Court commented that an independent job contractor, who is answerable to the principal only for
the results of a certain work, job, or service need not guarantee to said principal the daily
attendance of the workers assigned to the latter.)
The Contract of Services between Interserve and petitioner did not identify the work needed to be
performed and the final result required to be accomplished
The certification issued by the DOLE stating that Interserve is an independent job contractor does
not sway this Court to take it at face value, since the primary purpose stated in the Articles of
Incorporation of Interserve is misleading. According to its Articles of Incorporation, the principal
business of Interserve is to provide janitorial and allied services. The delivery and distribution of
Coca-Cola products, the work for which respondents were employed and assigned to petitioner,
were in no way allied to janitorial services.

With the finding that Interserve was engaged in prohibited labor-only contracting, petitioner shall
be deemed the true employer of respondents. As regular employees of petitioner, respondents
cannot be dismissed except for just or authorized causes, none of which were alleged or proven to
exist in this case, the only defense of petitioner against the charge of illegal dismissal being that
respondents were not its employees. Records also failed to show that petitioner afforded
respondents the twin requirements of procedural due process, i.e., notice and hearing, prior to their
dismissal. Respondents were not served notices informing them of the particular acts for which
their dismissal was sought. Nor were they required to give their side regarding the charges made
against them. Certainly, the respondents dismissal was not carried out in accordance with law and,
therefore, illegal.