G.R. No.

110731 July 26, 1996

SHOPPERS GAIN SUPERMART, JERRY TAN, JACK TAN and HEIRS OF JAMES TAN vs. NLRC

FACTS:

From 1982 to 1990, private respondents had worked in the Shoppers Gain Supermarket in various
capacities as "merchandiser, cashier, bagger, check-out personnel, sales lady, printer/film and
warehouseman" for at least one year each. Private respondents were part of a pool of workers supplied
by three (3) manpower service companies under "labor-only" contracts. In December of 1990, due to an
unavoidable circumstance, petitioner constrained to stop its business and consequently terminate its
contract with the three (3) manpower service companies. Petitioner was able to pay separation pays for
its regular employees but not for private respondents.

A complaint for illegal dismissal was filed for which the Labor Arbiter rendered a decision finding
Shoppers Gain Supermarket guilty of labor-only contracting and ordered it to pay separation pay and
backwages to respondents. On appeal, the National Labor Relations Commission affirmed said decision.
Elevating the case to the Supreme Court, petitioners raised the following grounds inter alia:

(a) That for employer-employee to exist, the following requirements must be satisfied, namely: (1)
selection and engagement of the employees; (2) the payment of wages; (3) the power of dismissal; and
(4) the power to control employees' conduct; and

(b) Since the manpower agencies themselves admitted per their respective position papers that they
selected, hired, paid, disciplined, dismissed and controlled the private respondents, it followed that the
latter are not the employees of the petitioner corporation but of the agencies only.

ISSUE:

WON private respondents are considered employees of petitioner Shoppers Gain Supermarket in view of
the fact that they were merely furnished through labor-only contracts with three manpower agencies.

RULING:

YES. The Supreme Court held that what was controlling in the issue is the provisions of Artcile 106 of the
Labor Code and not that of Article 208. The former clearly defines what constitute labor-only contractor as
differentiated from a direct contractor, including the legal effects of each, while the latter is merely for the
purpose of determining whether or not an employee is considered regular. Based on the provision of
Article 106, the Supreme Court ruled that the petitioner was indeed the direct employer of private
respondents and was therefore 0bliged to pay them separation pay. The Supreme Court reasoned that
since it is undeniable that the private respondents' work as merchandisers, cashiers, baggers, check-out
personnel, sales ladies, warehousemen and so forth were directly related, necessary and vital to the day-
to-day operations of the supermarket and that their jobs involved normal and regular functions in the
ordinary business of the petitioner corporation, the provision of Article 106 clearly applied thus making the
manpower agencies merely agents of petitioner corporation. Consequently, private respondents are
considered employees of petitioner Shoppers Gain Supermart.