Facts: 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, they were 80 employees. Their employment lasted around 5-7 years.
They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time. They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G. They received their wages from Promm-Gem or SAPS
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. 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.
In December 1991, petitioners
filed a complaint against
P&G for regularization, service incentive leave pay and other benefits with
damages and including the matter of their subsequent dismissal.
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
Petitioners appealed to the NLRC and CA but were both denied. hence this petition
Issues: :
(1) whether P&G is the employer of petitioners
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
Held: The petition has merit.
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, distinguishes
between legitimate and labor-only contracting:
x x x x
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.
x x x x
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 an independent 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 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) 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 statementsof
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. 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.It
also had under its name three registered vehicles which were used for its
promotional/merchandising business.Promm-Gem
also has other clients aside
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 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 policy, morals, good customs or public order.
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.
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 records 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.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, 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."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.
47 petitioners, having been
recruited and supplied by SAPS
All told, we find no valid cause
for the dismissal of petitioners-employees of Promm-Gem.
. 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.
Sales and Promotions Services
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.
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 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. 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
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