Case Summary (G.R. No. 18636)
Procedural History and Complaints Filed
Respondents filed two consolidated complaints before the NLRC against Coca-Cola Bottlers Phils., Inc., Interserve, and other contractors for their alleged illegal dismissal, nonpayment of benefits, and lack of regularization. They claimed long years of employment as salesmen in Coca-Cola’s Lagro Sales Office without regular employee status, and they were dismissed without just cause or due process on April 8, 2002.
Petitioner’s Position and Evidence
Petitioner argued respondents were employees of Interserve, an independent contractor engaged in legitimate job contracting based on a Contract of Services executed on March 23, 2002. Petitioner presented evidence to support Interserve’s status as an independent contractor, including Interserve’s Articles of Incorporation, BIR Registration, tax returns and audited financial statements, and a certification by the Department of Labor and Employment (DOLE) recognizing Interserve as a registered independent job contractor. Petitioner maintained respondents were hired, supervised, and paid by Interserve, thus denying an employer-employee relationship.
Labor Arbiter and NLRC Findings
The Labor Arbiter ruled that respondents were employees of Interserve, not petitioner, emphasizing that respondents’ functions, while related to petitioner’s business, were not indispensable to its principal business of manufacturing and bottling. The Labor Arbiter placed significant weight on Interserve’s DOLE registration as an independent contractor and on the fact that Interserve maintained all employment records and administered employee benefits. The NLRC affirmed this finding, dismissing respondents’ complaint against petitioner for lack of merit but ordering Interserve to pay pro-rated 13th month pay.
Court of Appeals Decision
The Court of Appeals reversed the NLRC decision and declared:
- Interserve was a labor-only contractor lacking substantial capital or investment appropriate to the contracted services.
- Respondents performed work directly related and indispensable to petitioner’s principal business—delivery, distribution, and sale of Coca-Cola products.
- Petitioner exercised effective control over respondents' work, demonstrated by internal memoranda, work schedules, and supervisory directives.
- The Contract of Service between petitioner and Interserve was vague and indicated supply of manpower rather than specific job performance by Interserve.
The Court of Appeals thus held respondents were regular employees of petitioner.
Issues Raised in the Petition for Review
- Whether the Court of Appeals correctly ruled Interserve was a labor-only contractor.
- Whether respondents performed work necessary and desirable to petitioner’s business.
- Whether the Court of Appeals erred by declaring respondents employees of petitioner absent the traditional indicia of an employer-employee relationship.
- Whether the Court mistaken in concluding Interserve’s engagement was solely for supply of manpower.
Supreme Court’s Review of Labor Contracting under Article 106 and Implementing Rules
The Court emphasized that Article 106 distinguishes:
- Legitimate job contracting: independent contractor with substantial capital or investment performing a specific job or service; employer-employee relationship exists only between contractor and workers, with principal liable jointly only for unpaid wages.
- Labor-only contracting: contractor lacks substantial capital/investment and the workers perform activities directly related to the principal’s business; the contractor is deemed an agent, and the principal becomes the direct employer deemed solidarily liable.
Section 5 of the Implementing Rules further clarifies that labor-only contracting is prohibited when either:
(i) the contractor lacks substantial capital/investment and the workers perform activities related to the principal’s main business, or
(ii) the contractor lacks control over the contractual employees’ work performance.
Application of Law to the Case — Performance of Work Related to Principal Business
Respondents were employed as salesmen and leadman engaged in sales and distribution of Coca-Cola products, which is directly related to petitioner’s principal business in manufacture, distribution, and sale of soft drinks. This fact is supported by delivery agreements and respondents' long-term engagement in these functions.
Application of Law — Lack of Substantial Capital or Investment by Interserve
Although Interserve has an authorized capital stock of P2,000,000.00, only P625,000.00 was paid up as of 2001. The Court highlighted that "substantial capital" is measured in relation to the job contracted. Interserve’s actual investment in service vehicles and equipment (totaling approximately P710,000.00) was insufficient for the scope of work required. The Contract lacked specificity regarding the tasks or projects Interserve was to perform, further undermining claims of substantial investment. The Articles of Incorporation declaring janitorial services as primary business contrasted with the sales and distribution role performed by respondents. Relevant precedents (San Miguel Corporation v. MAERC, Dole Philippines, Inc. v. Esteva) indicate that mere capitalization without corresponding investment in tools and equipment and evidence of independent operation is insufficient to establish legitimate job contracting.
Application of Law — Lack of Control by Interserve
The Contract required Interserve’s personnel to comply strictly with petitioner’s policies and subjected workers to on-the-spot searches by petitioner’s security, evidencing control by petitioner. Petitioner reserved the right to request replacement of workers if the "job or project
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Case Syllabus (G.R. No. 18636)
Background and Procedural History
- This case involves a Petition for Review on Certiorari under Rule 45 of the Rules of Court which challenges a decision dated 19 February 2007 by the Court of Appeals (CA) in CA-G.R. SP No. 85320.
- The CA reversed a Resolution by the National Labor Relations Commission (NLRC), which had affirmed the Labor Arbiter’s Decision dismissing claims against Coca-Cola Bottlers Philippines, Inc. (petitioner).
- Respondents filed complaints for illegal dismissal, regularization, nonpayment of benefits, and damages against petitioner and several contractors, including Interserve Management & Manpower Resources, Inc. (Interserve).
- The complaints were consolidated into NLRC cases.
- The Labor Arbiter found respondents were employees of Interserve, a legitimate independent contractor, and dismissed complaints against Coca-Cola.
- The NLRC upheld the Labor Arbiter’s ruling that no employer-employee relationship existed between petitioner and respondents.
- The Court of Appeals reversed the NLRC, ruling that Interserve was a labor-only contractor and respondents were regular employees of petitioner.
- Petitioner filed a Motion for Reconsideration which the CA denied, leading to the present Supreme Court review.
Facts of the Case
- Petitioner is a domestic corporation engaged in manufacturing, bottling, and distributing soft drinks.
- Respondents worked as salesmen and related positions at petitioner’s Lagro Sales Office but were hired and paid by Interserve under a Contract of Services from April to September 2002.
- Respondents claimed years of employment with petitioner but lack of regularization and dismissal without just cause or due process.
- Petitioner maintained that respondents were employees of Interserve, which was registered with the DOLE as an independent job contractor with substantial capital and investment.
- Evidence presented by petitioner included: Articles of Incorporation of Interserve, its BIR registration, audited financial statements, DOLE registration certificate as an independent contractor, respondents' contracts and payroll with Interserve, and personal data files maintained by Interserve.
- Respondents contesting the contractor status argued their work was indispensable to petitioner’s business, that petitioner exercised control over them, and that Interserve lacked substantial capital or equipment relevant to services rendered.
- Contract of Services ambiguously described tasks as “contractible under existing laws and regulations” without clearly specifying the job or project.
Issues Presented
- Whether the Court of Appeals erred in ruling that Interserve was a labor-only contractor.
- Whether respondents were performing work necessary and desirable to petitioner’s principal business.
- Whether there was a valid employer-employee relationship between petitioner and respondents despite absence of the four conventional elements indicating employment.
- Whether Interserve was engaged merely to supply manpower rather than perform an independent job or project.
Legal Framework and Definitions
- Under Article 106 of the Labor Code, two types of contracting relations exist: legitimate job contracting and prohibited labor-only contracting.
- Legitimate job contracting involves a contractor with substantial capital or investment performing a specific job distinct from the principal business; contractor’s employees remain their employees.
- Labor-only contracting exists where the contractor lacks substantial capital or investment and the workers perform activities directly related to the principal business; in this case, the principal employer is considered the employer of the contractor’s workers.
- Section 5 of the Rules Implementing Articles 106-109 of the Labor Code defines labor-only contracting with two key elements:
- Lack of substantial capital or investment by the contractor related to the job.
- Contractor does not exercise control over workers’ performance.
- The existence of either element suffices to establish labor-only contracting.
- Section 7 of the same Rules provides that in labor-only contracting, employer-employee relationship exists between principal and workers, creating join