Philippine Airlines v Ligan (Carpio Morales, 2008) Facts: PAL (as owner) and Synergy Services Corp (as

contractor) entered into an Agreement where the latter undertook to provide loading, unloading, delivery and other related services. It was expressly stated that Synergy was an independent contractor and that no employer-employee relationship would exist between its employees and PAL. Ligan et al (laborer-respondents) filed complaints against PAL and Synergy for 1) underpayment, th non-payment of 13 month pay/holiday pay/premium pay etc and for 2) regularization of employment. The Labor Arbiter found Synergy an independent contractor and dismissed the complaint against PAL for regularization. NLRC set aside this decision and held that Synergy was a labor-only contractor. CA affirmed NLRCs decision. Issue: WON Synergy is a legitimate contractor? No. SC held Synergy a labor-only contractor. Ruling:
1

D.O. No. 18-02, Series of 2002 defines legitimate contracting and labor-only contracting. If one of the two elements is present, there is labor-only contracting: 2 (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 3 (ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee. In this case, the work performed by the respondents were directly related to the main business of PAL. Also, the equipment used as station loaders such as trailers and conveyors were all owned by PAL. PAL and Synergy also failed to substantiate their claim that the latter had substantial capital, and only after the CA decision was rendered did it try to prove such fact. It was found that respondents worked alongside PALs regular employees who performed the same work. PAL tried to disprove the its right to control; however, the Court found that the Agreement stipulated that the contractor shall comply with the owners rules, regulations, procedures, and directives. PAL in fact admitted that it fixes the work schedule of respondents. Also, PALs managers and supervisors approved respondents weekly work assignments and were referred to as station attendants of cargo operation and airfreight services of PAL. Respondents having performed tasks which are usually necessary and desirable in the air transportation business of PAL, they should be deemed its regular employees and Synergy as a laboronly contractor. The Court ordered PAL to accept respondents as regular employees, pay wages and benefits due, plus salary differentials. Case remanded to LA for determination of monetary liabilities.
1

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. (Emphasis and underscoring supplied)
2

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.
3

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