G.R. No. 158255 - Manila Water Co., Inc. vs. Pena

Petitioner Manila Water Company, Inc. is one of the two private concessionaires contracted by the Metropolitan Waterworks and Sewerage System (MWSS) to manage the water distribution system in the East Zone of Metro Manila pursuant to Republic Act No. 8041 (National Water Crisis Act of 1995).
Under the Concession Agreement, Manila Water was obliged to absorb former MWSS employees whose names and positions were included in the list furnished by MWSS, while terminating the employment of those not on the list effective August 1, 1997.

Although 121 collectors (the private respondents) were among those not included in the MWSS list, Manila Water temporarily engaged their services without a written contract from August 1, 1997, to August 31, 1997.
On September 1, 1997, these collectors signed a three-month service contract to perform collection services for eight branches of Manila Water in the East Zone.
Before the expiry of the three-month contract, the 121 collectors formed the Association Collectors Group, Inc. (ACGI).
Subsequently, most collectors were transferred by Manila Water to another company, First Classic Courier Services, leaving only the private respondents working with ACGI under Manila Water’s direct contracting arrangement until February 8, 1999, when the contract was terminated.

Private respondents filed a complaint for illegal dismissal and money claims against Manila Water, arguing that they were de facto employees because the petitioner controlled not only the results of their collections but also the methods and procedures of their work.
Manila Water contended that the private respondents were merely employees of ACGI, an independent contractor, over which it only had a client–contractor (service) relationship, not an employer–employee relationship.
The Labor Arbiter ruled in favor of the private respondents, finding their dismissal illegal and ordering Manila Water to pay separation pay in addition to attorney’s fees.

The NLRC reversed the Labor Arbiter’s decision on the ground that documentary evidence (e.g., letters and memoranda) did not prove Manila Water exercised control over the private respondents’ work; it posited that disciplinary actions were the responsibility of ACGI.
The private respondents then elevated the case via a petition for certiorari before the Court of Appeals.
The Court of Appeals reversed the NLRC’s reversal and reinstated (with modifications) the Labor Arbiter’s decision, holding that Manila Water deliberately prevented an employment relationship with the private respondents, and that ACGI was in fact a labor-only contractor rather than an independent contractor.
Petitioner Manila Water filed a petition for review before the Supreme Court, raising several errors regarding appellate jurisdiction, the evidentiary basis for findings, and the determination of the employer–employee relationship.

Granting due course to a petition for certiorari under Rule 65 despite the absence of demonstrable grave abuse of discretion by the NLRC.
Overlooking evidence presented by the petitioner showing that there was no direct employment relationship between Manila Water and the private respondents.
Ruling that the incorporation of ACGI was improper without adequate proof and awarding damages based on unsubstantiated findings of bad faith.

The pivotal issue revolved around whether an employer–employee relationship existed between Manila Water and the private respondents, thereby rendering the dismissals illegal.

Whether or not Manila Water Company, Inc. exercised control and supervision over the private respondents to such an extent that an employer–employee relationship was established, despite the involvement of ACGI.
Whether ACGI functioned as an independent contractor or as a labor-only contractor, and the consequent impact of its status on the legal relationship between Manila Water and the private respondents.

Whether the dismissal of the private respondents was conducted according to law, particularly in view of the absence of due process and the circumvention of the workers’ security of tenure.
Whether the contractual arrangements (specifically the fixed-term contracts) were valid or were used to defeat the tenurial rights of the employees.

The propriety of awarding separation pay and attorney’s fees in light of the established employer–employee relationship.
Whether moral and exemplary damages could be awarded without sufficient evidence of bad faith, oppression, or an overtly malevolent manner in the dismissal process.