GR No. 160506
March 9, 2010
Facts
Petitioners worked as merchandisers of Procter & Gamble Philippines (P&G). 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.
Petitioners 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.
Thereafter, petitioners filed a complaint against P&G for regularization, service incentive leave pay and other benefits with damages. The Labor Arbiter, NLRC, and Court of Appeals ruled in favor of P&G. Hence, this petition.
The petitioners alleged that they are employees of P&G. They claimed that they were recruited by the salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the existence of Promm-Gem and/or SAPS. Moreover, petitioners further asserted that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their client. They claim that the contractors have neither substantial capital nor tools and equipment to undertake independent labor contracting. Petitioners insist that since they had been engaged to perform activities which are necessary or desirable in the usual business or trade of P&G, then they are its regular employees.
Issue
Whether or not Promm-Gem and/or SAPS are labor-only contractors or legitimate job contractors?
Held
Contracting per se is not illegal since it is a legitimate exercise of management prerogative. What is prohibited under Article 106 of the Labor Code is the labor-only contracting arrangement. Section 5 of Rule VIII-A of the Omnibus Rules Implementing the Labor Code provides that labor-only contracting refers 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.
In other words, a valid contracting arrangement is one done by an independent contractor because the current labor rules expressly prohibit labor-only contracting. In labor-only contracting, the person who recruited the employees 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. The effect of the presence of labor-only contracting is that the he Labor Code itself establishes an employer-employee relationship between the employer and the employees of the ‘labor-only’ contractor.
In this case, the Court found that Promm-Gem is an independent contractor while SAPS is a labor-only contractor.
Promm-Gem is considered as an independent contract since it has substantial investment which relates to the work to be performed. The financial statements of Promm-Gem show that it has authorized capital stock of P1 million and a paid-in capital, or capital available for operations, of P500,000.00 as of 1990. It also has long term assets worth P432,895.28 and current assets of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space with a floor area of 870 square meters. Hence, Promm-Gem cannot be considered as a labor-only contractor.
On the other hand, Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250.00. 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. 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, SAPS is engaged in “labor-only contracting.”
Hence, the employees employed and recruited by SAPS are employees of P & G while the employees employed and recruited by Promm-Gem are considered as employee by the latter. With that, P&G is only liable to the employees recruited by SAPS since the latter are considered employees by the former.