Title
Deferia vs. National Labor Relations Commission
Case
G.R. No. 78713
Decision Date
Feb 27, 1991
ERMA, an indirect employer, held jointly liable with Undan for labor claims despite no direct employer-employee relationship; business closure deemed unfair labor practice.
unfair labor practices
liability of employer
monetary claims
A

Case Summary (G.R. No. 78713)

Parties, Procedural History, and Issues Framed by the Court

In G.R. No. 78713, petitioners assailed a National Labor Relations Commission resolution dated January 8, 1987, which affirmed a Labor Arbiter’s decision holding that no employer-employee relationship existed between petitioners and the private respondents. The petition involved alleged violations of labor standard laws. In G.R. No. 82718, petitioners challenged a National Labor Relations Commission resolution dated August 31, 1987, which reiterated the lack of employer-employee relationship and affirmed the Labor Arbiter’s dismissal of a complaint for unfair labor practices. In both cases, the Commission denied the motions for reconsideration. Upon the Solicitor General’s manifestation and motion, the Court ordered the petitions consolidated on December 14, 1988, and later resolved G.R. No. 82718 on March 26, 1990 by dispensing with respondents’ comment due to their failure to comply with prior Court directives.

Factual Background: The ERMA–Undan Contract and Petitioners’ Work

On May 3, 1979, ERMA, a private corporation engaged in exporting shrimps, prawns, squids, and other marine products, entered into a contract with Cirilo Undan for Undan to supply ERMA with marine products in Bacolod City. Under the contract, ERMA was to provide financing and equipment, while Undan was responsible for hiring workers. Subsequently, Undan engaged the services of the nineteen petitioners to perform tasks required for shipment and delivery to ERMA: cleaning, beheading, sorting, preparing, and packing marine products. The records indicated that from 1982 up to June 30, 1984, petitioners worked continuously for Undan, paid on a piece-work basis or pakiao. Petitioners claimed that female employees handling cleaning, beheading, and sorting were paid at P0.16 per kilo, with average weekly earnings of P8.00 to P22.00, while male employees handling preparation and packing were paid at P0.25 per kilo, earning P60.00 to P100.00 weekly. Petitioners asserted that they worked every day, including Sundays and legal holidays, from 8:00 o’clock AM to 6:00 o’clock PM.

In April 1984, a majority of petitioners joined and became members of the co-petitioner Commercial and Agro-Industrial Labor Organization (CAILO). On May 9, 1984, petitioners filed a petition for certification election as ERMA’s sole and exclusive bargaining representative, docketed as LRD Case No. 0638-84, and simultaneously filed a labor standards complaint with the National Labor Relations Commission, Regional Arbitration Branch No. VI, docketed as RAB 0230-84, seeking payment of wage differentials, emergency and cost allowances, thirteenth month pay, night shift differentials, and service incentive pay. They also made a complaint with the Social Security System for failure to register them as employees.

Petitioners later alleged that on June 30, 1984, while they were about to report for work in the morning, the entrance to their working place was closed by Undan, who informed them of the shutdown of the business. Petitioners maintained that the business continued to operate at another location—at the residence of Undan’s relative—and that the purported closure was a sham made without prior notice. They therefore filed an unfair labor practice complaint designated as RAB Case No. 0313-84, charging pretended closure as interference with their union activities.

NLRC and Labor Arbiter Rulings: Lack of Employer-Employee Relationship

The Med-Arbiter, Rodolfo G. Lagoc, dismissed the petition for certification election on October 9, 1984, finding that there was no employer-employee relationship between petitioners and ERMA and suggesting that petitioners’ employer was Undan. On March 27, 1985, Labor Arbiter Ricardo T. Octavio dismissed RAB 0230-84 for violation of labor standards, again on the ground of lack of an employer-employee relationship. On appeal, the NLRC, in a resolution dated January 8, 1987, affirmed the Labor Arbiter and denied a motion for reconsideration.

As to unfair labor practice, on October 30, 1985, Labor Arbiter Jose Aguirre dismissed RAB Case No. 0313-84 on the same finding that no employer-employee relationship existed between petitioners and the private respondents. On appeal, the NLRC, in a resolution dated August 31, 1987, affirmed and denied a subsequent motion for reconsideration. These rulings formed the basis for the twin consolidated petitions.

The Parties’ Contentions and the Common Issues

The Court identified the common issues as: first, whether an employer-employee relationship existed between ERMA and petitioners; and second, whether ERMA was petitioners’ indirect employer such that it should be solidarily liable with Cirilo Undan for the petitioners’ monetary claims. Petitioners insisted on their entitlement to relief arising from labor standards violations and unfair labor practice, notwithstanding the NLRC’s conclusion regarding the absence of a direct employer-employee relationship between ERMA and petitioners.

Legal Basis: Employer-Employee Relationship Test

On the first issue, the Court affirmed the NLRC’s ruling that there was no employer-employee relationship between ERMA and petitioners. Jurisprudence required the presence of four elements to establish such relationship: (1) selection and engagement of the employee; (2) payment of wages; (3) power of dismissal; and (4) power to control employees’ conduct. The Court held that petitioners failed to show evidence substantiating these elements as to ERMA.

Evidence Evaluation: Undan as Direct Employer Despite ERMA’s Involvement

The Court reasoned that the exhibits presented by petitioners, including an alleged authorization signed by Undan as officer-in-charge of ERMA, sales and charge invoices, and delivery receipts purportedly showing ERMA’s involvement, actually reinforced the conclusion that Undan was the direct and actual employer. The Court stated that it was Undan who engaged petitioners, paid their wages, controlled their conduct, and dismissed them. Consequently, the Court held that the employer-employee relationship existed between Undan and petitioners, not between ERMA and petitioners.

Indirect Employer Liability and Statutory Solidary Responsibility

Even though ERMA was not the direct employer, the Court held that ERMA could not be freed from liability for certain monetary awards. On the second issue, the Court agreed with the Solicitor General that ERMA was an indirect employer and thus liable for petitioners’ monetary claims as a matter of solidary responsibility.

The Court treated the arrangement between ERMA and Undan as one in which ERMA contracted with Undan for the services necessary to prepare and pack the marine products procured by ERMA, with ERMA providing financing and equipment while Undan provided the workers. It pointed to provisions in the ERMA–Undan contract that supported this understanding, including references that ERMA provided financing and equipment, that Undan was the supplier whose operations ERMA financed, and that ERMA expected the arrangement not to be complicated, with equipment to be turned over to ERMA upon termination.

The Court then anchored ERMA’s solidary liability on Articles 106, 107, and 109 of the Labor Code. Article 106 addresses employer liability when an employer contracts out work and the contractor fails to pay wages; it also defines “labor-only” contracting, where the intermediary lacks substantial capital or investment and supplies workers to perform activities directly related to the employer’s principal business, in which case the intermediary is deemed an agent responsible to the workers. Article 107 extends the application to indirect employers who contract with independent contractors for performance of work. Article 109 mandates that every employer or indirect employer is responsible, with the contractor or subcontractor, for any violation of the Labor Code, treating them as direct employers for purposes of civil liability under the chapter. The Court further stated that ERMA’s joint and several liability would not bar ERMA’s claim for reimbursement from Undan for amounts ERMA might pay.

Unfair Labor Practice: The Sham Closure as Interference with Union Rights

The Court also found meritorious the charge against Cirilo Undan of unfair labor practice for allegedly illegally dismissing the petitioners through the sham closure of the business. The Court held that the act constituted interference and restraint with petitioners’ right to self-organization, noting that petitioners were then pursuing union affiliation and membership with CAILO. The Court cited an earlier ruling where corporate maneuvers designed to evade financial obligations and avoid reinstatement were disregarded as fiction, explaining that the present case likewise warranted disregard of evasive arrangements that circumvented employees’ valid claims.

Disposition: Annulment of NLRC Resolutions and Relief Granted

The Court granted the petitions and annulled and set aside the NLRC resolutions. It ordered Undan to reinstate the petitioners to their same or substantially equivalent positions at the time of termination, with three years backwages, and without loss or seniority rights and benefits appurte

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