Diamond Farms Agrarian Reform Beneficiaries Multi-Purpose Cooperative (DARBMUPCO) was a multi-purpose cooperative composed of agrarian reform beneficiaries who were awarded portions of the banana plantation of Diamond Farms, Inc. (DFI).
DARBMUPCO entered into a Banana Production and Purchase Agreement (BPPA) with DFI. Under the BPPA, DARBMUPCO and its members, as owners of the awarded plantation, agreed to grow and cultivate only high grade quality exportable bananas to be sold exclusively to DFI.
DARBMUPCO was, however, hampered by lack of manpower to undertake the agricultural operation under the BPPA because some of its members were not willing to work. Hence, to assist DARBMUPCO in meeting its production obligations under the BPPA, DFI engaged the services of contractors. Said contractors recruited workers for the agricultural operation under the BPPA.
The legitimate labor organization representing the workers filed a petition for certification election in the Office of the Med-Arbiter. DARBMUPCO and DFI, however, denied that they were the employers of the workers. They claimed, instead, that the workers were the employees of the contractors.
A group of workers then filed a case for money claims and attorney’s fees against DFI, DARBMUPCO, and the contractors before the National Labor Relations Commission (NLRC). DARBMUPCO and DFI also averred that they were not the employers of the workers. They asserted that the money claims should be directed against the true employer, the contractors.
Who among DFI, DARBMUPCO, and the contractors is the employer of the workers?
Job contracting is permissible if the following conditions are met:
- The contractor carries on an independent business and undertakes the contract work on his own account, under his own responsibility, according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work, except as to the results thereof; and
- The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business.
By contrast, there is labor-only contracting if a person who undertakes to supply workers to an employer:
- Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials; and
- The workers recruited and placed by such person are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed.
In this case, the Supreme Court held that DFI was the true employer of the workers and that the contractors were labor-only contractors.
First, the Court found no evidence showing that herein contractors could be considered as independent contractors. The contractors, DFI, and DARBMUPCO also did not offer any proof that the contractors were not engaged in labor-only contracting.
Second, the Court found that the contractors also admitted and even insisted that they were engaged in labor-only contracting.
Record showed it was DFI which hired the contractors, who, in turn, hired their own men to work in the land of DARBMUPCO and in the plantation.
DFI did not deny that it engaged the services of the contractors. It did not dispute the claims of the contractors that they sent their billing to DFI for payment, and that DFI’s managers and personnel were in close consultation with the contractors.
DFI admitted that the contractors worked under the direction and supervision of the DFI managers and personnel. DFI paid the contractors for the services rendered in the plantation and the contractors, in turn, paid their workers after the contractors received payment from DFI. DARBMUPCO had nothing to do with the hiring, supervision and payment of the wages of the workers thru the contractors.
That DFI was the employer of the workers was bolstered by the fact that DFI exercised control over the workers. DFI, through its manager and supervisors, provided for the work assignments and performance targets of the workers. The managers and supervisors also had the power to directly hire and terminate the workers. Evidently, DFI wielded control over the workers.
During the proceedings before the Office of the Labor Arbiter, the contractors categorically stated that they are “labor-only” contractors who have been engaged by DFI and DARBMUPCO. They admitted that they did not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials, and they recruited workers to perform activities directly related to the principal operations of their employer.
In their petition before the Supreme Court, the contractors again admitted that they were labor-only contractors by way of the following narration:
- Herein respondents, Voltaire Lopez, Jr., et al., were commissioned and contracted by petitioner, Diamond Farms, Inc. (DFI) to recruit farm workers, who are the complaining [respondent-workers] (as represented by Southern Philippines Federation of Labor (SPFL) in this appeal by certiorari), in order to perform specific farm activities, such as pruning, deleafing, fertilizer application, bud inject, stem spray, drainage, bagging, etc., on banana plantation lands awarded to private respondent, Diamond Farms Agrarian Reform Beneficiaries Multi-Purpose Cooperative (DARBMUPCO) and on banana planted lands owned and managed by petitioner, DFI.
- All farm tools, implements and equipment necessary to performance of such farm activities were supplied by petitioner DFI to respondents Voltaire Lopez, Jr., et al. as well as to respondents-SPFL, et al. Herein respondents Voltaire Lopez, Jr. et al. had no adequate capital to acquire or purchase such tools, implements, equipment, etc.
- Herein respondents Voltaire Lopez, Jr., et al. as well as respondents-SPFL, et al. were being directly supervised, controlled and managed by petitioner DFI farm managers and supervisors, specifically on work assignments and performance targets. DFI managers and supervisors, at their sole discretion and prerogative, could directly hire and terminate any or all of the respondents-SPFL, et al., including any or all of the herein respondents Voltaire Lopez, Jr., et al.
- Attendance/Time sheets of respondents-SPFL, et al. were being prepared by herein respondents Voltaire Lopez, Jr., et al., and correspondingly submitted to petitioner DFI. Payment of wages to respondents-SPFL, et al. were being paid for by petitioner DFI thru herein respondents Voltaire Lopez, [Jr.], et al. The latter were also receiving their wages/salaries from petitioner DFI for monitoring/leading/recruiting the respondents-SPFL, et al.
- No monies were being paid directly by private respondent DARBMUPCO to respondents-SPFL, et al., nor to herein respondents Voltaire Lopez, [Jr.], et al. Nor did respondent DARBMUPCO directly intervene much less supervise any or all of [the] respondents-SPFL, et al. including herein respondents Voltaire Lopez, Jr., et al.
According to the Court, the contractors voluntarily pleaded that they were labor-only contractors. Such admissions had bound them.
Third, the Court ruled that DFI could not argue that DARBMUPCO was the principal of the contractors because it (DARBMUPCO) owned the awarded plantation where contractors and workers were working; and therefore DARBMUPCO was the ultimate beneficiary of the employment of the workers.
That DARBMUPCO owned the awarded plantation where the contractors and workers were working was immaterial. This did not change the situation of the parties. DFI, as the principal, hired the contractors and the latter, in turn, engaged the services of the workers.
And fourth, the Court stated that neither could DFI argue that it was only the purchaser of the bananas produced in the awarded plantation under the BPPA, and that under the terms of the BPPA, no employer-employee relationship existed between DFI and the workers, to wit:
UNDERTAKING OF THE FIRST PARTY
x x x
THE FIRST PARTY [DARBMUPCO] shall be responsible for the proper conduct, safety, benefits and general welfare of its members working in the plantation and specifically render free and harmless the SECOND PARTY [DFI] of any expense, liability or claims arising therefrom. It is clearly recognized by the FIRST PARTY that its members and other personnel utilized in the performance of its function under this agreement are not employees of the SECOND PARTY.
In labor-only contracting, it is the law which creates an employer-employee relationship between the principal and the workers of the labor-only contractor.
Inasmuch as it is the law that forms the employment ties, the stipulation in the BPPA that workers were not employees of DFI was not controlling, as the proven facts showed otherwise. The Court stressed that the law prevails over the stipulations of the parties. The existence of an employer-employees relation is a question of law and being such, it cannot be made the subject of agreement.
A finding that a contractor is a labor-only contractor is equivalent to a declaration that there is an employer-employee relationship between the principal, and the workers of the labor-only contractor; the labor-only contractor is deemed only as the agent of the principal.
Thus, in this case, contractors were found to be labor-only contractors, and DFI was declared the true employer of the workers. Under the law, DFI should be solidarily liable with the contractors for the rightful claims of the workers, to the same manner and extent as if the latter were directly employed by DFI.
Further reading:
- Diamond Farms, Inc. v. Southern Philippines Federation of Labor-Workers Solidarity of DARBMUPCO/Diamond-SPFL, G.R. Nos. 173254-55 & 173263, January 13, 2016.
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