Rico alleged that on October 2, 2002, PPI Holdings, Inc. (PPI), the sole franchisee of Pizza Hut in the Philippines, hired him as a messenger for its human resources department, and later on, for its accounting department.
Rico stated that his employment was transferred to a manpower agency, a certain Human Resources, Inc., and subsequently, to Consolidated Buildings Maintenance, Inc. (CBMI), now Atalian Global Services.
Rico also stated that despite such transfer, nothing changed with his employment in that he continued to be PPI’s messenger in its accounting department until CBMI sent him, along with other coworkers, a letter dated August 1, 2016 informing him of the termination of his services with PPI.
Rico thus filed an illegal dismissal case with money claims against PPI, CBMI, and their owners, arguing that he was a regular employee of PPI for having worked with it for 14 years, and that there was no just cause for his dismissal.
PPI denied having an employer-employee relationship with Rico. It posited that Rico was merely assigned to it by CBMI, a legitimate contractor that had rendered janitorial, sanitation, warehousing services, and allied services to PPI until the termination of their latest Contract of Services Agreement on September 1, 2016. Invoking the service agreement with CBMI, PPI averred that it was CBMI which relayed the company rules, regulations, and working terms and conditions upon Rico’s engagement, and which paid Rico’s salary, Social Security System, Pag-IBIG, and PhilHealth contributions.
For its part, CBMI acknowledged Rico as its employee assigned to PPI. It asserted that it is a legitimate contractor engaged in the business of providing janitorial, kitchen, elevator maintenance, and allied services to various entities, including PPI. However, while it recognized Rico’s employment, CBMI denied having terminated his services. Instead, it alleged that Rico, along with his other co-employees, was merely placed on floating status when it decided to terminate its latest service contract with PPI effective September 1, 2016 due to certain financial disagreements. Hence, for CBMI, Rico’s complaint should be dismissed for being prematurely filed.
The Office of the Labor Arbiter considered CBMI as a legitimate contractor based on the following documents:
- CBMI Securities and Exchange Commission (SEC) Registration;
- CBMI Company Profile;
- Contracts of Services entered into with PPI for several years;
- CBMI Certificates of Registration with the Department of Labor and Employment under such Department’s Orders numbered 18-A, Series of 2011 and 18-02, Series of 2002; and
- Audited Financial Statement filed with the SEC showing substantial capital or investment.
The Office of the Labor Arbiter further found that, as stipulated in the service agreements, CBMI carried out its work/service independently from its principal in accordance with its own means, method, and manner.
Nonetheless, the Office of the Labor Arbiter ruled that Rico was PPI’s regular employee as it found no evidence of the existence of an employer-employee relationship between CBMI and Rico. Such Office found that Rico’s 14 years of service with PPI, performing tasks which are usually necessary or desirable to PPI’s main business as messenger, proved that Rico was PPI’s employee. Since PPI failed to present any just or authorized cause in terminating his employment, the Office of the Labor Arbiter directed PPI to reinstate Rico and held PPI and CBMI solidarily liable for payment of his backwages.
PPI filed a partial appeal from the Office of the Labor Arbiter’s Decision, insisting that Rico was not its employee but that of CBMI, which is a legitimate contractor as found by said Office.
The National Labor Relations Commission ruled that CBMI is a labor-only contractor. The Commission found that, despite proof of substantial capitalization, there was no showing that CBMI carried on an independent business or undertook the performance of its service contracts according to its own manner and method, free from PPI’s control and supervision. The Commission added that the contracts of services between PPI and CBMI clearly showed that CBMI undertook to merely supply manpower. The Commission further added that CBMI’s registration with the DOLE as an independent contractor was not conclusive of such status.
Further, the Commission agreed with the Office of the Labor Arbiter’s ruling that Rico was PPI’s regular employee. The Commission found that Rico’s job as a messenger was necessary and vital to PPI’s business as the only franchisee of Pizza Hut, which requires food and kitchen services, sanitation, delivery, warehousing, commissary, and related services for its various restaurants. The Commission also took note of Rico’s 14 years of uninterrupted service with PPI.
Finally, the Commission upheld the Office of the Labor Arbiter’s finding that PPI failed to adduce evidence that Rico’s dismissal was for a just or authorized cause, and that procedural due process was observed in his dismissal from employment.
When the case reached the Court of Appeals, such Court declared CBMI as a legitimate contractor, based solely on two cases decided by the Supreme Court concerning PPI and CBMI, specifically, Consolidated Building Maintenance, Inc. v. Asprec, Jr.1G.R. No. 217301, June 6, 2018 and Philippine Pizza, Inc. v. Cayetano.2G.R. No. 230030, August 29, 2018] On that premise, the Court of Appeals concluded that Rico was CBMI’s direct employer. Nevertheless, the Court of Appeals sustained the labor tribunals’ uniform ruling that Rico was illegally dismissed from employment.
Rico filed a petition for review on certiorari to assail the ruling of the Court of Appeals.
Did PPI and CBMI engage in labor-only contracting?
The Supreme Court ruled that PPI and CBMI engaged in labor-only contracting.
The Court began by stating that outsourcing of services is not totally prohibited in the Philippines. It pointed out that Articles 106 to 109 of the Labor Code of the Philippines, Department of Labor and Employment Orders numbered 18-02, Series of 2002 and 18-A, Series of 2011, or the implementing rules in force at the time of Rico’s employment, provided the legal basis for service contracting and delineated the situations when it is not permitted. Considering such laws and rules, the Court stated that the following must be considered in determining whether CBMI was a legitimate contractor or engaged in labor-only contracting:
- registration with the proper government agencies;
- existence of substantial capital or investment;
- service agreement that ensures compliance with all the rights and benefits under labor laws;
- nature of the activities performed by the employees, i.e., if they are usually necessary or desirable to the operation of the principal’s company or directly related to the main business of the principal within a definite predetermined period; and
- the exercise of the right to control the performance of the employees’ work.3Barretto v. Amber Golden Pot Restaurant, G.R. No. 254596-97, November 24, 2021
In the present case, the Supreme Court found the certificates of registration, financial statements, and service agreements insufficient in supporting PPI and CBMI’s claim of legitimate contracting. The Court mentioned the following reasons:
- A certificate of registration as an independent contractor is not conclusive evidence of such status, as such registration merely prevents the legal presumption of being a labor-only contractor from arising;4Daguinod v. Southgate Foods, Inc., G.R. No. 227795, February 20, 2019
- It is settled that, despite proof of substantial capital, a contractor is still considered engaged in labor-only contracting whenever it is established that the principal actually controls the manner of the employee’s work;5Mago v. Sun Power Manufacturing Limited, G.R. No. 210961, January 24, 2018 and
- The true nature of the relationship between the principal, contractor, and employee cannot be dictated by mere expedience of a unilateral declaration in a contract;6Daguinod v. Southgate Foods, Inc., G.R. No. 227795, February 20, 2019
The Supreme Court added that the totality of attendant circumstances led to a finding that PPI and CBMI engaged in labor-only contracting.
First, there was no evidence that CBMI carried on an independent business or undertook the performance of its service contracts according to its own manner and method, free from the control and supervision of PPI. While the various service agreements between PPI and CBMI contained the latter’s undertaking for the employees’ qualification and training, hiring and payroll, as well as their supervision, discipline, suspension or termination, said clauses were still but empty words that hardly helped PPI’s case, in absence of concrete proof that CBMI indeed carried on an independent business.
Second, there was also no evidence that CBMI hired Rico. In fact, there was no contract of employment showing that Rico was an employee of CBMI, nor were there records submitted in evidence to show such relationship.
Third, the fact that PPI exercised the right of control over Rico’s work was clear and unmistakable. As messenger, Rico had been performing his tasks at PPI’s premises for about fourteen (14) years. All those times, all the tools and equipment which he used in the performance of his work were owned by PPI and the latter’s managers and supervisors controlled his work inside the company premises.
Fourth, the various contract of services executed between PPI and CBMI, which spanned for several years from 1999 to 2012, showed that CBMI undertook to supply manpower only.
And fifth, Rico’s job as messenger was necessary and vital to PPI’s business as the Philippine franchisee of Pizza Hut which requires waitering, food and kitchen services, sanitation, delivery, warehousing, commissary and related services for its various restaurants. Otherwise, Rico would not have been repeatedly and continuously hired by PPI for fourteen (14) years. The Court stressed that such repeated and continuing need for the performance of the job is sufficient evidence of the necessity, if not indispensability, of the activity to the business.
The Supreme Court added that the Court of Appeals gravely erred in declaring CBMI as a legitimate contractor solely on the basis of the pronouncements in Consolidated Building Maintenance, Inc. v. Asprec, Jr.7G.R. No. 217301, June 6, 2018 and Philippine Pizza, Inc. v. Cayetano.8G.R. No. 230030, August 29, 2018]
The Supreme Court emphasized that the principle of stare decisis cannot be applied in determining whether one is engaged in permissible contracting or otherwise, since such characterization should be based on the distinct features of the relationship between the parties, and the totality of the facts and attendant circumstances of each case, then measured against the terms of and criteria set by the statute.9San Miguel Foods, Inc. v. Rivera, G.R. No. 220103, January 31, 2018 and 7K Corp. v. National Labor Relations Commission, G.R. No. 148490, November 22, 2006, 537 PHIL 664-681 Specifically, the Court mentioned while those two cases also involved PPI and CBMI, the nature of work and treatment of employment of the employees in those cases may be different from Rico’s. Hence, the Court found it necessary to independently determine Rico’s case, which was aptly undertaken by the Commission in this case.
The Supreme Court further pointed out that the Court of Appeals merely made inference from previous cases without reference to the evidence on hand in concluding that CBMI was a legitimate contractor, and as such was Rico’s direct employer. The Supreme Court reiterated that the totality of the facts and the surrounding circumstances of the case must be considered in distinguishing prohibited contracting from permissible contracting.10Philippine Pizza, Inc. v. Cayetano, G.R. No. 230030, August 29, 2018]
With the finding that CBMI was a labor-only contractor, such company was considered as a mere agent of PPI, which, in turn, was deemed to be Rico’s employer. Consequently, PPI and CBMI were held solidarily liable for payment of Rico’s awards.
This is because of the established principle that in labor-only contracting, the statute creates an employer-employee 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. The principal employer therefore becomes solidarily liable with the labor-only contractor for all the rightful claims of the employees.11San Miguel Corp. v. MAERC Integrated Services Inc., G.R. No. 144672, July 10, 2003, 453 PHIL 543-576
Further reading:
- Conjusta v. PPI Holdings, Inc., G.R. No. 252720, August 22, 2022.
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