G.R. No.

179546               February 13, 2009 necessary and desirable in the usual business or trade of petitioner,
the Labor Arbiter underscored that respondents’ functions were not
indispensable to the principal business of petitioner, which was
COCA-COLA BOTTLERS PHILS., INC., Petitioner,
manufacturing and bottling soft drink beverages and similar products.
vs.
ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO,
JR., ALFONSO PAA, JR., DEMPSTER P. ONG, URRIQUIA T. The Labor Arbiter placed considerable weight on the fact that
ARVIN, GIL H. FRANCISCO, and EDWIN M. GOLEZ, Respondents. Interserve was registered with the DOLE as an independent job
contractor, with total assets amounting to ₱1,439,785.00 as of 31
December 2001. It was Interserve that kept and maintained
DECISION
respondents’ employee records, including their Personal Data Sheets;
Contracts of Employment; and remittances to the Social Securities
CHICO-NAZARIO, J.: System (SSS), Medicare and Pag-ibig Fund, thus, further supporting
the Labor Arbiter’s finding that respondents were employees of
This is a Petition for Review on Certiorari, under Rule 45 of the Rules Interserve. She ruled that the circulars, rules and regulations which
of Court, assailing the Decision1 dated 19 February 2007, promulgated petitioner issued from time to time to respondents were not indicative
by the Court of Appeals in CA-G.R. SP No. 85320, reversing the of control as to make the latter its employees.
Resolution2 rendered on 30 October 2003 by the National Labor
Relations Commission (NLRC) in NLRC NCR CA No. 036494-03. The Nevertheless, the Labor Arbiter directed Interserve to pay respondents
Court of Appeals, in its assailed Decision, declared that respondents their pro-rated 13th month benefits for the period of January 2002
Alan M. Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso Paa, until April 2002.14
Jr., Dempster P. Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M.
Golez were regular employees of petitioner Coca-Cola Bottlers Phils.,
In the end, the Labor Arbiter decreed:
Inc; and that Interserve Management & Manpower Resources, Inc.
(Interserve) was a labor-only contractor, whose presence was intended
merely to preclude respondents from acquiring tenurial security. WHEREFORE, judgment is hereby rendered finding that [herein
respondents] are employees of [herein petitioner] INTERSERVE
MANAGEMENT & MANPOWER RESOURCES, INC. Concomitantly,
Petitioner is a domestic corporation duly registered with the Securities
respondent Interserve is further ordered to pay [respondents] their
and Exchange Commission (SEC) and engaged in manufacturing,
pro-rated 13th month pay.
bottling and distributing soft drink beverages and other allied products.

The complaints against COCA-COLA BOTTLERS PHILS., INC. is

On 15 April 2002, respondents filed before the NLRC two complaints
DISMISMMED for lack of merit.
against petitioner, Interserve, Peerless Integrated Services, Inc., Better
Builders, Inc., and Excellent Partners, Inc. for reinstatement with
backwages, regularization, nonpayment of 13th month pay, and In like manner the complaints against PEERLESS INTEGRATED
damages. The two cases, docketed as NLRC NCR Case No. 04-02345- SERVICES, INC., BETTER BUILDING INC. and EXCELLENT PARTNERS
2002 and NLRC NCR Case No. 05-03137-02, were consolidated. COOPERATIVE are DISMISSED for failure of complainants to pursue
against them.
Respondents alleged in their Position Paper that they were salesmen
assigned at the Lagro Sales Office of petitioner. They had been in the Other claims are dismissed for lack of merit.
employ of petitioner for years, but were not regularized. Their
employment was terminated on 8 April 2002 without just cause and
The computation of the Computation and Examination Unit, this
due process. However, they failed to state the reason/s for filing a
Commission if (sic) made part of this Decision. 15
complaint against Interserve; Peerless Integrated Services, Inc.; Better
Builders, Inc.; and Excellent Partners, Inc.3
Unsatisfied with the foregoing Decision of the Labor Arbiter,
respondents filed an appeal with the NLRC, docketed as NLRC NCR CA
Petitioner filed its Position Paper (with Motion to Dismiss),4 where it
No. 036494-03.
averred that respondents were employees of Interserve who were
tasked to perform contracted services in accordance with the
provisions of the Contract of Services5 executed between petitioner In their Memorandum of Appeal,16 respondents maintained that
and Interserve on 23 March 2002. Said Contract between petitioner contrary to the finding of the Labor Arbiter, their work was
and Interserve, covering the period of 1 April 2002 to 30 September indispensable to the principal business of petitioner. Respondents
2002, constituted legitimate job contracting, given that the latter was supported their claim with copies of the Delivery Agreement17 between
a bona fide independent contractor with substantial capital or petitioner and TRMD Incorporated, stating that petitioner was
investment in the form of tools, equipment, and machinery necessary "engaged in the manufacture, distribution and sale of soft drinks and
in the conduct of its business. other related products with various plants and sales offices and
warehouses located all over the Philippines." Moreover, petitioner
supplied the tools and equipment used by respondents in their jobs
To prove the status of Interserve as an independent contractor,
such as forklifts, pallet, etc. Respondents were also required to work in
petitioner presented the following pieces of evidence: (1) the Articles
the warehouses, sales offices, and plants of petitioner. Respondents
of Incorporation of Interserve;6 (2) the Certificate of Registration of
pointed out that, in contrast, Interserve did not own trucks, pallets
Interserve with the Bureau of Internal Revenue;7 (3) the Income Tax
cartillas, or any other equipment necessary in the sale of Coca-Cola
Return, with Audited Financial Statements, of Interserve for 2001;8 and
products.
(4) the Certificate of Registration of Interserve as an independent job
contractor, issued by the Department of Labor and Employment
(DOLE).9 Respondents further averred in their Memorandum of Appeal that
petitioner exercised control over workers supplied by various
contractors. Respondents cited as an example the case of Raul Arenajo
As a result, petitioner asserted that respondents were employees of
(Arenajo), who, just like them, worked for petitioner, but was made to
Interserve, since it was the latter which hired them, paid their wages,
appear as an employee of the contractor Peerless Integrated Services,
and supervised their work, as proven by: (1) respondents’ Personal
Inc. As proof of control by petitioner, respondents submitted copies of:
Data Files in the records of Interserve;10 (2) respondents’ Contract of
(1) a Memorandum18 dated 11 August 1998 issued by Vicente Dy (Dy),
Temporary Employment with Interserve;11 and (3) the payroll records
a supervisor of petitioner, addressed to Arenajo, suspending the latter
of Interserve.12
from work until he explained his disrespectful acts toward the
supervisor who caught him sleeping during work hours; (2) a
Petitioner, thus, sought the dismissal of respondents’ complaint against Memorandum19 dated 12 August 1998 again issued by Dy to Arenajo,
it on the ground that the Labor Arbiter did not acquire jurisdiction over informing the latter that the company had taken a more lenient and
the same in the absence of an employer-employee relationship tolerant position regarding his offense despite having found cause for
between petitioner and the respondents.13 his dismissal; (3) Memorandum20 issued by Dy to the personnel of
Peerless Integrated Services, Inc., requiring the latter to present their
timely request for leave or medical certificates for their absences; (4)
In a Decision dated 28 May 2003, the Labor Arbiter found that
Personnel Workers Schedules, 21 prepared by RB Chua, another
respondents were employees of Interserve and not of petitioner. She
supervisor of petitioner; (5) Daily Sales Monitoring Report prepared by
reasoned that the standard put forth in Article 280 of the Labor Code
petitioner;22 and (6) the Conventional Route System Proposed Set-up
for determining regular employment (i.e., that the employee is
of petitioner. 23
performing activities that are necessary and desirable in the usual
business of the employer) was not determinative of the issue of
whether an employer-employee relationship existed between petitioner The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor
and respondents. While respondents performed activities that were Arbiter’s Decision dated 28 May 2003 and pronounced that no
employer-employee relationship existed between petitioner and The Court ascertains that the fundamental issue in this case is whether
respondents. It reiterated the findings of the Labor Arbiter that Interserve is a legitimate job contractor. Only by resolving such issue
Interserve was an independent contractor as evidenced by its will the Court be able to determine whether an employer-employee
substantial assets and registration with the DOLE. In addition, it was relationship exists between petitioner and the respondents. To settle
Interserve which hired and paid respondents’ wages, as well as paid the same issue, however, the Court must necessarily review the factual
and remitted their SSS, Medicare, and Pag-ibig contributions. findings of the Court of Appeals and look into the evidence presented
Respondents likewise failed to convince the NLRC that the instructions by the parties on record.
issued and trainings conducted by petitioner proved that petitioner
exercised control over respondents as their employer.24 The dispositive
As a general rule, factual findings of the Court of Appeals are binding
part of the NLRC Resolution states:25
upon the Supreme Court. One exception to this rule is when the
factual findings of the former are contrary to those of the trial court, or
WHEREFORE, the instant appeal is hereby DISMISSED for lack of the lower administrative body, as the case may be. This Court is
merit. However, respondent Interserve Management & Manpower obliged to resolve an issue of fact herein due to the incongruent
Resources, Inc., is hereby ordered to pay the [herein respondents] findings of the Labor Arbiter and the NLRC and those of the Court of
their pro-rated 13th month pay. Appeals. 29

Aggrieved once more, respondents sought recourse with the Court of The relations which may arise in a situation, where there is an
Appeals by filing a Petition for Certiorari under Rule 65, docketed as employer, a contractor, and employees of the contractor, are identified
CA-G.R. SP No. 85320. and distinguished under Article 106 of the Labor Code:

The Court of Appeals promulgated its Decision on 9 February 2007, Article 106. Contractor or subcontractor. - Whenever an employer
reversing the NLRC Resolution dated 30 October 2003. The appellate enters into a contract with another person for the performance of the
court ruled that Interserve was a labor-only contractor, with former’s work, the employees of the contractor and of the latter’s
insufficient capital and investments for the services which it was subcontractor, if any, shall be paid in accordance with the provisions of
contracted to perform. With only ₱510,000.00 invested in its service this Code.
vehicles and ₱200,000.00 in its machineries and equipment, Interserve
would be hard-pressed to meet the demands of daily soft drink
In the event that the contractor or subcontractor fails to pay the wages
deliveries of petitioner in the Lagro area. The Court Appeals concluded
of his employees in accordance with this Code, the employer shall be
that the respondents used the equipment, tools, and facilities of
jointly and severally liable with his contractor or subcontractor to such
petitioner in the day-to-day sales operations.
employees to the extent of the work performed under the contract, in
the same manner and extent that he is liable to employees directly
Additionally, the Court of Appeals determined that petitioner had employed by him.
effective control over the means and method of respondents’ work as
evidenced by the Daily Sales Monitoring Report, the Conventional
The Secretary of Labor may, by appropriate regulations, restrict or
Route System Proposed Set-up, and the memoranda issued by the
prohibit the contracting out of labor to protect the rights of workers
supervisor of petitioner addressed to workers, who, like respondents,
established under this Code. In so prohibiting or restriction, he may
were supposedly supplied by contractors. The appellate court deemed
make appropriate distinctions between labor-only contracting and job
that the respondents, who were tasked to deliver, distribute, and sell
contracting as well as differentiations within these types of contracting
Coca-Cola products, carried out functions directly related and
and determine who among the parties involved shall be considered the
necessary to the main business of petitioner. The appellate court finally
employer for purposes of this Code, to prevent any violation or
noted that certain provisions of the Contract of Service between
circumvention of any provision of this Code.
petitioner and Interserve suggested that the latter’s undertaking did
not involve a specific job, but rather the supply of manpower.
There is "labor-only" contracting where the person supplying workers
26 to an employee does not have substantial capital or investment in the
The decretal portion of the Decision of the Court of Appeals reads:
form of tools, equipment, machineries, work premises, among others,
and the workers recruited and placed by such persons are performing
WHEREFORE, the petition is GRANTED. The assailed Resolutions of activities which are directly related to the principal business of such
public respondent NLRC are REVERSED and SET ASIDE. The case is employer. In such cases, the person or intermediary shall be
remanded to the NLRC for further proceedings. 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.
Petitioner filed a Motion for Reconsideration, which the Court of
Appeals denied in a Resolution, dated 31 August 2007.27
The afore-quoted provision recognizes two possible relations among
the parties: (1) the permitted legitimate job contract, or (2) the
Hence, the present Petition, in which the following issues are raised28:
prohibited labor-only contracting.

I
A legitimate job contract, wherein an employer enters into a contract
with a job contractor for the performance of the former’s work, is
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE permitted by law. Thus, the employer-employee relationship between
WITH EVIDENCE ON RECORD, APPLICABLE LAWS AND ESTABLISHED the job contractor and his employees is maintained. In legitimate job
JURISPRUDENCE WHEN IT RULED THAT INTERSERVE IS A LABOR- contracting, the law creates an employer-employee relationship
ONLY CONTRACTOR; between the employer and the contractor’s employees only for a
limited purpose, i.e., to ensure that the employees are paid their
II wages. The employer becomes jointly and severally liable with the job
contractor only for the payment of the employees’ wages whenever
the contractor fails to pay the same. Other than that, the employer is
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE not responsible for any claim made by the contractor’s employees.30
WITH APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN
IT CONCLUDED THAT RESPONDENTS PERFORMED WORK NECESSARY
AND DESIRABLE TO THE BUSINESS OF [PETITIONER]; On the other hand, labor-only contracting is an arrangement wherein
the contractor merely acts as an agent in recruiting and supplying the
principal employer with workers for the purpose of circumventing labor
III law provisions setting down the rights of employees. It is not
condoned by law. A finding by the appropriate authorities that a
WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS contractor is a "labor-only" contractor establishes an employer-
ERROR WHEN IT DECLARED THAT RESPONDENTS WERE EMPLOYEES employee relationship between the principal employer and the
OF [PETITIONER], EVEN ABSENT THE FOUR ELEMENTS INDICATIVE contractor’s employees and the former becomes solidarily liable for all
OF AN EMPLOYMENT RELATIONSHIP; AND the rightful claims of the employees. 31

IV Section 5 of the Rules Implementing Articles 106-109 of the Labor

Code, as amended, provides the guidelines in determining whether
labor-only contracting exists:
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED
WHEN IT CONCLUDED THAT INTERSERVE WAS ENGAGED BY
[PETITIONER] TO SUPPLY MANPOWER ONLY. Section 5. Prohibition against labor-only contracting. Labor-only
contracting is hereby declared prohibited. For this purpose, labor-only
contracting shall refer to an arrangement where the contractor or stated that petitioner is engaged in the manufacture, distribution
subcontractor merely recruits, supplies, or places workers to perform a and sale of softdrinks and other related products. The work of
job, work or service for a principal, and any of the following elements respondents, constituting distribution and sale of Coca-Cola products,
are [is] present: is clearly indispensable to the principal business of petitioner. The
repeated re-hiring of some of the respondents supports this
finding.33 Petitioner also does not contradict respondents’ allegations
i) The contractor or subcontractor does not have substantial
that the former has Sales Departments and Sales Offices in its various
capital or investment which relates to the job, work, or
offices, plants, and warehouses; and that petitioner hires Regional
service to be performed and the employees recruited,
Sales Supervisors and District Sales Supervisors who supervise and
supplied or placed by such contractor or subcontractor are
control the salesmen and sales route helpers.34
performing activities which are directly related to the main
business of the principal; or
As to the supposed substantial capital and investment required of an
independent job contractor, petitioner calls the attention of the Court
ii) The contractor does not exercise the right to control the
to the authorized capital stock of Interserve amounting to
performance of the work of the contractual employee.
₱2,000,000.00.35 It cites as authority Filipinas Synthetic Fiber Corp. v.
National Labor Relations Commission36 and Frondozo v. National Labor
The foregoing provisions shall be without prejudice to the application Relations Commission,37 where the contractors’ authorized capital stock
of Article 248(C) of the Labor Code, as amended. of ₱1,600,000.00 and ₱2,000,000.00, respectively, were considered
substantial for the purpose of concluding that they were legitimate job
"Substantial capital or investment" refers to capital stocks and contractors. Petitioner also refers to Neri v. National Labor Relations
subscribed capitalization in the case of corporations, tools, equipment, Commission38 where it was held that a contractor ceases to be a labor-
implements, machineries and work premises, actually and directly used only contractor by having substantial capital alone, without investment
by the contractor or subcontractor in the performance or completion of in tools and equipment.
the job, work, or service contracted out.
This Court is unconvinced.
The "right to control" shall refer to the right reversed to the person for
whom the services of the contractual workers are performed, to At the outset, the Court clarifies that although Interserve has an
determine not only the end to be achieved, but also the manner and authorized capital stock amounting to ₱2,000,000.00, only
means to be used in reaching that end. (Emphasis supplied.) ₱625,000.00 thereof was paid up as of 31 December 2001. The Court
does not set an absolute figure for what it considers substantial capital
When there is labor-only contracting, Section 7 of the same for an independent job contractor, but it measures the same against
implementing rules, describes the consequences thereof: the type of work which the contractor is obligated to perform for the
principal. However, this is rendered impossible in this case since the
Contract between petitioner and Interserve does not even specify the
Section 7. Existence of an employer-employee relationship.—The work or the project that needs to be performed or completed by the
contractor or subcontractor shall be considered the employer of the latter’s employees, and uses the dubious phrase "tasks and activities
contractual employee for purposes of enforcing the provisions of the that are considered contractible under existing laws and regulations."
Labor Code and other social legislation. The principal, however, shall Even in its pleadings, petitioner carefully sidesteps identifying or
be solidarily liable with the contractor in the event of any violation of describing the exact nature of the services that Interserve was
any provision of the Labor Code, including the failure to pay wages. obligated to render to petitioner. The importance of identifying with
particularity the work or task which Interserve was supposed to
The principal shall be deemed the employer of the contractual accomplish for petitioner becomes even more evident, considering that
employee in any of the following case, as declared by a competent the Articles of Incorporation of Interserve states that its primary
authority: purpose is to operate, conduct, and maintain the business of janitorial
and allied services.39 But respondents were hired as salesmen and
leadman for petitioner. The Court cannot, under such ambiguous
a. where there is labor-only contracting; or circumstances, make a reasonable determination if Interserve had
substantial capital or investment to undertake the job it was
b. where the contracting arrangement falls within the contracting with petitioner.
prohibitions provided in Section 6 (Prohibitions) hereof.
Petitioner cannot seek refuge in Neri v. National Labor Relations
According to the foregoing provision, labor-only contracting would give Commission. Unlike in Neri, petitioner was unable to prove in the
rise to: (1) the creation of an employer-employee relationship between instant case that Interserve had substantial capitalization to be an
the principal and the employees of the contractor or sub-contractor; independent job contractor. In San Miguel Corporation v. MAERC
and (2) the solidary liability of the principal and the contractor to the Integrated Services, Inc.,40 therein petitioner San Miguel Corporation
employees in the event of any violation of the Labor Code. similarly invoked Neri, but was rebuffed by the Court based on the
following ratiocination41 :
Petitioner argues that there could not have been labor-only
contracting, since respondents did not perform activities that were Petitioner also ascribes as error the failure of the Court of Appeals to
indispensable to petitioner’s principal business. And, even assuming apply the ruling in Neri v. NLRC. In that case, it was held that the law
that they did, such fact alone does not establish an employer- did not require one to possess both substantial capital and investment
employee relationship between petitioner and the respondents, since in the form of tools, equipment, machinery, work premises, among
respondents were unable to show that petitioner exercised the power others, to be considered a job contractor. The second condition to
to select and hire them, pay their wages, dismiss them, and control establish permissible job contracting was sufficiently met if one
their conduct. possessed either attribute.

The argument of petitioner is untenable. Accordingly, petitioner alleged that the appellate court and the NLRC
erred when they declared MAERC a labor-only contractor despite the
finding that MAERC had investments amounting to ₱4,608,080.00
The law clearly establishes an employer-employee relationship consisting of buildings, machinery and equipment.
between the principal employer and the contractor’s employee upon a
finding that the contractor is engaged in "labor-only" contracting.
Article 106 of the Labor Code categorically states: "There is ‘labor-only’ However, in Vinoya v. NLRC, we clarified that it was not enough to
contracting where the person supplying workers to an employee does show substantial capitalization or investment in the form of tools,
not have substantial capital or investment in the form of tools, equipment, machinery and work premises, etc., to be considered an
equipment, machineries, work premises, among others, and the independent contractor. In fact, jurisprudential holdings were to the
workers recruited and placed by such persons are performing activities effect that in determining the existence of an independent contractor
which are directly related to the principal business of such employer." relationship, several factors may be considered, such as, but not
Thus, performing activities directly related to the principal business of necessarily confined to, whether the contractor was carrying on an
the employer is only one of the two indicators that "labor-only" independent business; the nature and extent of the work; the skill
contracting exists; the other is lack of substantial capital or investment. required; the term and duration of the relationship; the right to assign
The Court finds that both indicators exist in the case at bar. the performance of specified pieces of work; the control and
supervision of the workers; the power of the employer with respect to
the hiring, firing and payment of the workers of the contractor; the
Respondents worked for petitioner as salesmen, with the exception of control of the premises; the duty to supply premises, tools, appliances,
respondent Gil Francisco whose job was designated as leadman. In the materials and labor; and the mode, manner and terms of payment.
Delivery Agreement32 between petitioner and TRMD Incorporated, it is
In Neri, the Court considered not only the fact that respondent loads, temporary, seasonal and other special project requirements the
Building Care Corporation (BCC) had substantial capitalization but extent that the available work of the CLIENT can properly be done by
noted that BBC carried on an independent business and performed its an independent CONTRACTOR permissible under existing laws and
contract according to its own manner and method, free from the regulations;
control and supervision of its principal in all matters except as to the
results thereof. The Court likewise mentioned that the employees of
WHEREAS, the CONTRACTOR has offered to perform specific
BCC were engaged to perform specific special services for their
jobs/works at the CLIENT as stated heretofore, under the terms and
principal. The status of BCC had also been passed upon by the Court in
conditions herein stated, and the CLIENT has accepted the offer.
a previous case where it was found to be a qualified job contractor
because it was a "big firm which services among others, a university,
an international bank, a big local bank, a hospital center, government NOW THEREFORE, for and in consideration of the foregoing premises
agencies, etc." Furthermore, there were only two (2) complainants in and of the mutual covenants and stipulations hereinafter set forth, the
that case who were not only selected and hired by the contractor parties have hereto have stated and the CLIENT has accepted the
before being assigned to work in the Cagayan de Oro branch of FEBTC offer:
but the Court also found that the contractor maintained effective
supervision and control over them. 1. The CONTRACTOR agrees and undertakes to perform
and/or provide for the CLIENT, on a non-exclusive basis for
Thus, in San Miguel Corporation, the investment of MAERC, the tasks or activities that are considered contractible under
contractor therein, in the form of buildings, tools, and equipment of existing laws and regulations, as may be needed by the
more than ₱4,000,000.00 did not impress the Court, which still CLIENT from time to time.
declared MAERC to be a labor-only contractor. In another case, Dole
Philippines, Inc. v. Esteva,42 the Court did not recognize the contractor 2. To carry out the undertakings specified in the immediately
therein as a legitimate job contractor, despite its paid-up capital of preceding paragraph, the CONTRACTOR shall employ the
over ₱4,000,000.00, in the absence of substantial investment in tools necessary personnel like Route Helpers, Salesmen, Drivers,
and equipment used in the services it was rendering. Clericals, Encoders & PD who are at least
Technical/Vocational courses graduates provided with
Insisting that Interserve had substantial investment, petitioner assails, adequate uniforms and appropriate identification cards, who
for being purely speculative, the finding of the Court of Appeals that are warranted by the CONTRACTOR to be so trained as to
the service vehicles and equipment of Interserve, with the values of efficiently, fully and speedily accomplish the work and
₱510,000.00 and ₱200,000.00, respectively, could not have met the services undertaken herein by the CONTRACTOR. The
demands of the Coca-Cola deliveries in the Lagro area. CONTRACTOR represents that its personnel shall be in such
number as will be sufficient to cope with the requirements of
the services and work herein undertaken and that such
Yet again, petitioner fails to persuade.
personnel shall be physically fit, of good moral character and
has not been convicted of any crime. The CLIENT, however,
The contractor, not the employee, has the burden of proof that it has may request for the replacement of the CONTRACTOR’S
the substantial capital, investment, and tool to engage in job personnel if from its judgment, the jobs or the projects being
contracting.43 Although not the contractor itself (since Interserve no done could not be completed within the time specified or
longer appealed the judgment against it by the Labor Arbiter), said that the quality of the desired result is not being achieved.
burden of proof herein falls upon petitioner who is invoking the
supposed status of Interserve as an independent job contractor.
3. It is agreed and understood that the CONTRACTOR’S
Noticeably, petitioner failed to submit evidence to establish that the
personnel will comply with CLIENT, CLIENT’S policies, rules
service vehicles and equipment of Interserve, valued at ₱510,000.00
and regulations and will be subjected on-the-spot search by
and ₱200,000.00, respectively, were sufficient to carry out its service
CLIENT, CLIENT’S duly authorized guards or security men on
contract with petitioner. Certainly, petitioner could have simply
duty every time the assigned personnel enter and leave the
provided the courts with records showing the deliveries that were
premises during the entire duration of this agreement.
undertaken by Interserve for the Lagro area, the type and number of
equipment necessary for such task, and the valuation of such
equipment. Absent evidence which a legally compliant company could 4. The CONTRACTOR further warrants to make available at
have easily provided, the Court will not presume that Interserve had times relievers and/or replacements to ensure continuous
sufficient investment in service vehicles and equipment, especially and uninterrupted service as in the case of absences of any
since respondents’ allegation – that they were using equipment, such personnel above mentioned, and to exercise the necessary
as forklifts and pallets belonging to petitioner, to carry out their jobs – and due supervision over the work of its personnel.45
was uncontroverted.
Paragraph 3 of the Contract specified that the personnel of contractor
In sum, Interserve did not have substantial capital or investment in the Interserve, which included the respondents, would comply with
form of tools, equipment, machineries, and work premises; and "CLIENT" as well as "CLIENT’s policies, rules and regulations." It even
respondents, its supposed employees, performed work which was required Interserve personnel to subject themselves to on-the-spot
directly related to the principal business of petitioner. It is, thus, searches by petitioner or its duly authorized guards or security men on
evident that Interserve falls under the definition of a "labor-only" duty every time the said personnel entered and left the premises of
contractor, under Article 106 of the Labor Code; as well as Section 5(i) petitioner. Said paragraph explicitly established the control of
of the Rules Implementing Articles 106-109 of the Labor Code, as petitioner over the conduct of respondents. Although under paragraph
amended. 4 of the same Contract, Interserve warranted that it would exercise the
necessary and due supervision of the work of its personnel, there is a
dearth of evidence to demonstrate the extent or degree of supervision
The Court, however, does not stop at this finding. It is also apparent
exercised by Interserve over respondents or the manner in which it
that Interserve is a labor-only contractor under Section 5(ii)44 of the
was actually exercised. There is even no showing that Interserve had
Rules Implementing Articles 106-109 of the Labor Code, as amended,
representatives who supervised respondents’ work while they were in
since it did not exercise the right to control the performance of the
the premises of petitioner.
work of respondents.

Also significant was the right of petitioner under paragraph 2 of the

The lack of control of Interserve over the respondents can be gleaned
Contract to "request the replacement of the CONTRACTOR’S
from the Contract of Services between Interserve (as the
personnel." True, this right was conveniently qualified by the phrase "if
CONTRACTOR) and petitioner (as the CLIENT), pertinent portions of
from its judgment, the jobs or the projects being done could not be
which are reproduced below:
completed within the time specified or that the quality of the desired
result is not being achieved," but such qualification was rendered
WHEREAS, the CONTRACTOR is engaged in the business, among meaningless by the fact that the Contract did not stipulate what work
others, of performing and/or undertaking, managing for consideration, or job the personnel needed to complete, the time for its completion,
varied projects, jobs and other related management-oriented services; or the results desired. The said provision left a gap which could enable
petitioner to demand the removal or replacement of any employee in
the guise of his or her inability to complete a project in time or to
WHEREAS, the CONTRACTOR warrants that it has the necessary
deliver the desired result. The power to recommend penalties or
capital, expertise, technical know-how and a team of professional
dismiss workers is the strongest indication of a company’s right of
management group and personnel to undertake and assume the
control as direct employer.461avvphil.zw+
responsibility to carry out the above mentioned project and services;

Paragraph 4 of the same Contract, in which Interserve warranted to

WHEREAS, the CLIENT is desirous of utilizing the services and facilities
petitioner that the former would provide relievers and replacements in
of the CONTRACTOR for emergency needs, rush jobs, peak product
case of absences of its personnel, raises another red flag. An
independent job contractor, who is answerable to the principal only for
the results of a certain work, job, or service need not guarantee to said
principal the daily attendance of the workers assigned to the latter. An
independent job contractor would surely have the discretion over the
pace at which the work is performed, the number of employees
required to complete the same, and the work schedule which its
employees need to follow.

As the Court previously observed, the Contract of Services between

Interserve and petitioner did not identify the work needed to be
performed and the final result required to be accomplished. Instead,
the Contract specified the type of workers Interserve must provide
petitioner ("Route Helpers, Salesmen, Drivers, Clericals, Encoders &
PD") and their qualifications (technical/vocational course graduates,
physically fit, of good moral character, and have not been convicted of
any crime). The Contract also states that, "to carry out the
undertakings specified in the immediately preceding paragraph, the
CONTRACTOR shall employ the necessary personnel," thus,
acknowledging that Interserve did not yet have in its employ the
personnel needed by petitioner and would still pick out such personnel
based on the criteria provided by petitioner. In other words, Interserve
did not obligate itself to perform an identifiable job, work, or service
for petitioner, but merely bound itself to provide the latter with specific
types of employees. These contractual provisions strongly indicated
that Interserve was merely a recruiting and manpower agency
providing petitioner with workers performing tasks directly related to
the latter’s principal business.

The certification issued by the DOLE stating that Interserve is an

independent job contractor does not sway this Court to take it at face
value, since the primary purpose stated in the Articles of
Incorporation47 of Interserve is misleading. According to its Articles of
Incorporation, the principal business of Interserve is to provide
janitorial and allied services. The delivery and distribution of Coca-Cola
products, the work for which respondents were employed and
assigned to petitioner, were in no way allied to janitorial services.
While the DOLE may have found that the capital and/or investments in
tools and equipment of Interserve were sufficient for an independent
contractor for janitorial services, this does not mean that such capital
and/or investments were likewise sufficient to maintain an independent
contracting business for the delivery and distribution of Coca-Cola
products.

With the finding that Interserve was engaged in prohibited labor-only

contracting, petitioner shall be deemed the true employer of
respondents. As regular employees of petitioner, respondents cannot
be dismissed except for just or authorized causes, none of which were
alleged or proven to exist in this case, the only defense of petitioner
against the charge of illegal dismissal being that respondents were not
its employees. Records also failed to show that petitioner afforded
respondents the twin requirements of procedural due process, i.e.,
notice and hearing, prior to their dismissal. Respondents were not
served notices informing them of the particular acts for which their
dismissal was sought. Nor were they required to give their side
regarding the charges made against them. Certainly, the respondents’
dismissal was not carried out in accordance with law and, therefore,
illegal.48

Given that respondents were illegally dismissed by petitioner, they are

entitled to reinstatement, full backwages, inclusive of allowances, and
to their other benefits or the monetary equivalents thereof computed
from the time their compensations were withheld from them up to the
time of their actual reinstatement, as mandated under Article 279 of
the Labor Code,.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The

Court AFFIRMS WITH MODIFICATION the Decision dated 19 February
2007 of the Court of Appeals in CA-G.R. SP No. 85320. The Court
DECLARES that respondents were illegally dismissed and, accordingly,
ORDERS petitioner to reinstate them without loss of seniority rights,
and to pay them full back wages computed from the time their
compensation was withheld up to their actual reinstatement. Costs
against the petitioner.

SO ORDERED.