Totality of Circumstances and Contracting Arrangements

The employer here was unorganized and had no exclusive bargaining agent. A labor union soon filed a petition for certification election before the regional office of the Department of Labor and Employment. The employer opposed the petition asserting that the members of the said union were employees of their contractor. The petition was still granted despite the opposition and certification elections were conducted.

The employer then filed a protest with the Med-Arbiter, which then granted the same. In justifying the grant of the protest, the Med-Arbiter found that the contractor was legitimate and accordingly the employer of the challenged voters during the certification elections. The Med-Arbiter thus declared the relevant votes cast invalid for the purpose of certifying the labor union as exclusive bargaining agent to the employer.

The Department of Labor and Employment reversed the order of the Med-Arbiter and found that the contractor was a labor-only contractor. It ruled that the challenged votes should be considered.

The Court of Appeals reversed the decision of the Department of Labor and Employment, as the contractor was considered as legitimate. According to the Court of Appeals, the employer had presented substantial evidence that the contractor was legitimate. Specifically, it presented a Certificate of Registration issued by the Department of Labor and Employment, which declared the legitimacy of the contractor. Furthermore, it found that the contractor had substantial capitalization. Also the contractor had other clients from various industries. For the Court of Appeals, the fact that the contractor had other clients negated the conclusion that it is a labor-only contractor.

Should the contractor be considered as a labor-only contractor?

The Supreme Court ruled in the affirmative.

The Court stated that although a contractor possesses badges of legitimate contracting by having substantial capitalization and catering to other clients, the Court stressed that such situation does not automatically convert a labor-only contractor to a legitimate contractor because in the issue of labor-only contracting, the totality of the facts and the surrounding circumstances of the case must still be considered.

In the present case, the Court found that the employer entered into a Memorandum of Agreement with contractor even before the latter was issued a Certificate of Registration by the Department of Labor and Employment. The contractor had supplied manpower to various clients even without the stamp of imprimatur from the Department of Labor and Employment.

Furthermore, although the contractor complied with capitalization requirements, there was a showing that the said contractor exercised control over the employee’s work performance and output. According to the Court, proof of substantial capital does not make an entity immune to a finding of labor-only contracting when there is showing that control over the employees resides in the principal and not in the contractor.

The Court accordingly declared that since the contractor was a labor-only contractor, this created an employer-employee relationship between the employer as a principal, and workers whose votes were invalidated as its alleged employees.

Further reading:

  • Manila Cordage Company-Employees Labor Union-Organized Labor Union in Line Industries and Agriculture v. Manila Cordage Co., G.R. Nos. 242495-96, September 16, 2020.