Professional Documents
Culture Documents
160506
- versus -
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DECISION
Labor laws expressly prohibit labor-only contracting. To prevent its circumvention, the Labor
Code establishes an employer-employee relationship between the employer and the employees of the
labor-only contractor.
[1]
The instant petition for review assails the March 21, 2003 Decision of the Court of Appeals (CA) in
[2]
CA-G.R. SP No. 52082 and its October 20, 2003 Resolution denying the motions for reconsideration
separately filed by petitioners and respondent Procter & Gamble Phils. Inc. (P&G).The appellate court
affirmed the July 27, 1998 Decision of the National Labor Relations Commission (NLRC), which in
[3]
turn affirmed the November 29, 1996 Decision of the Labor Arbiter. All these decisions found
Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be legitimate
independent contractors and the employers of the petitioners.
Factual Antecedents
Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as
1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:
P&G is principally engaged in the manufacture and production of different consumer and health
[8]
products, which it sells on a wholesale basis to various supermarkets and distributors. To enhance
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consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and
[9]
SAPS for the promotion and merchandising of its products.
[10]
In December 1991, petitioners filed a complaint against P&G for regularization, service
[11]
incentive leave pay and other benefits with damages. The complaint was later amended to include
the matter of their subsequent dismissal.
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 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 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 of his Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled cases
against respondent Procter & Gamble (Phils.), Inc. for lack of merit.
[12]
SO ORDERED.
Ruling of the NLRC
Appealing to the NLRC, petitioners disputed the Labor Arbiters findings. On July 27, 1998, the
[13]
NLRC rendered a Decision disposing as follows:
WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the decision
appealed from AFFIRMED.
[14]
SO ORDERED.
Petitioners filed a motion for reconsideration but the motion was denied in the November 19,
[15]
1998 Resolution.
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.
[16]
SO ORDERED.
Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this petition.
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Issues
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 ATTORNEYS
[17]
FEES.
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 attorneys 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
[18]
which P&G created.
Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from
[19]
its letter 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
[20]
P&G, then they are its regular employees.
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.
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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
[21]
of the Comment of Promm-Gem on the petition. 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
[22]
proceedings before the CA. Hence, our pronouncements with regard to SAPS are only for the
purpose of determining the obligations of P&G, if any.
Our Ruling
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
[23]
appearing on record. In the present case, we find the need to review the records to ascertain the
facts.
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.
ART. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another
person for the performance of the formers work, the employees of the contractor and of the latters
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.
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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
[24]
Department Order No. 18-02, distinguishes between legitimate and labor-only contracting:
xxxx
xxxx
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.
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
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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 contractual employee. (Underscoring supplied)
[26]
In the instant case, the financial statements of Promm-Gem show that it
has authorized capital stock of P1 million and a paid-in capital, or capital available for operations,
[27]
of P500,000.00 as of 1990. It also has long term assets worth P432,895.28 and current assets
of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space
[28]
with a floor area of 870 square meters. It also had under its name three registered vehicles which
[29] [30]
were used for its promotional/merchandising business. Promm-Gem also has other clients aside
[31]
from P&G. 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
[32]
the complainants working under it as its regular, not merely contractual or project, employees. 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
[33]
policy, morals, good customs or public order.
On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of
only P31,250.00. 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.
[34]
In Vinoya v. National Labor Relations Commission, the Court held that [w]ith the current
economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000.00
cannot be considered as substantial capital and, as such, PMCI cannot qualify as an independent
[35]
contractor. Applying the same rationale to the present case, it is clear that SAPS having a paid-in
capital of only P31,250 - has no substantial capital. SAPS lack of substantial capital is underlined by the
[36]
records which show that its payroll for its merchandisers alone for one month would already
[37]
total P44,561.00. It had 6-month contracts with P&G. 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
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for one months payroll. SAPS failed to show that its paid-in capital of P31,250.00 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
[38]
related to the manufacturing business, 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
[39]
relationship between the employer and the employees of the labor-only contractor. 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
[40]
principal employer.
Termination of services
We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular
[43]
employment, the employer shall not terminate the services of an employee except for a just or
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[44]
authorized 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.
[45]
xxxx
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
[46]
aggravated character and not merely trivial and unimportant. To be a just cause for dismissal, such
misconduct (a) must be serious; (b) must relate to the performance of the employees duties; and (c)
[47]
must show that the employee has become unfit to continue working for the employer.
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
[48]
required that the act or conduct must have been performed with wrongful intent. 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
[49]
from an act done carelessly, thoughtlessly, heedlessly or inadvertently.
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
[50]
the employer. In the instant case, the petitioners-employees of Promm-Gem have not been shown to
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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&Gs 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
[51]
letter dated February 24, 1993, x x x
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
[52]
dismissed as per letter of Procter and Gamble dated February 25, 1993. x x x
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
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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 latters
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
[53]
lawfulness of the dismissal rests with the employer. In termination cases, the burden of proof rests
[54]
upon the employer to show that the dismissal is for just and valid cause. 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
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.
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
[57]
time of actual reinstatement. 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.
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.
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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. Laspoa, 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, P25,000.00 as moral damages
plus ten percent of the total sum as and for attorneys 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
attorneys fees as stated above; and for immediate execution.
SO ORDERED.
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