Contractor’s Supervision Over Its Employees Found to Be Dependent Upon Principal’s Needs

2016 February 03

Contracting arrangements for the performance of specific jobs or services under the law are allowed. However, jurisprudence dictates that contracting must be made to a legitimate and independent contractor since labor rules expressly prohibit labor-only contracting.

Labor-only contracting exists when 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:

a)

i. The contractor or subcontractor does not have substantial capital, or

ii. The contractor or subcontractor does not have investments in the form of tools, equipment, machineries, supervision, work premises, among others; and

iii. The contractor’s or subcontractor’s employees recruited and placed are performing activities which are directly related to the main business operation of the principal; or

b)

The contractor or subcontractor does not exercise the right to control over the performance of the work of the employee.1now Section 5, Rules Implementing Articles 106 to 109 of the Labor Code, as Amended, Department of Labor and Employment Order No. 174-17, March 16, 2017 (formerly Section 6, Department Order No. 18-A-11 and Section 5, Department Order No. 18-02).

The Supreme Court ruled that the complainants in this case were regular employees of Manila Memorial Park Cemetery, Inc. (Manila Memorial) despite having been engaged by Ward Trading and Services (Ward Trading).

  • Ward Trading did not have substantial capital or investment in the form of tools, equipment, machinery, work premises and other material, as it was Manila Memorial which owned the equipment used by Ward Trading’s interment and exhumation services.
  • Ward Trading could not have raised substantial capital from its income alone without the inclusion of the equipment owned and allegedly sold to it by Manila Memorial.
  • Manila Memorial admitted that the complainants performed various interment services at one of its branches. Said activities were directly related to Manila Memorial’s business of developing, selling and maintaining memorial parks and interment functions.
  • Manila Memorial retained the right to control complainants’ performance of their work. Although Ward Trading was still in charge of the supervising the complainants, the exercise of its supervision was heavily dependent upon the needs of Manila Memorial.
  • The service contract between Manila Memorial and Ward Trading further provided that the former had the option to take over the functions of the complainants if it finds any part or aspect of their work or service to be unsatisfactory.

According to the Supreme Court, Manila Ward Trading was a labor-only contractor. Consequently, Manila Memorial was deemed the employer of the complainants. Said complainants, as regular employees of Manila Memorial, were entitled to their claims for wages and other benefits.

Further reading:

  • Manila Memorial Park Cemetery, Inc. v. Lluz, G.R. No. 208451, February 3, 2016.