G.R. No. 214667 - Lingnam Restaurant vs. Skills and Talent Employment Pool, Inc.

Case Summary (G.R. No. 214667)

Factual Background

The operative facts are that respondent STEP is a manpower and technical services corporation and that petitioner Lingnam Restaurant engaged STEP to supply personnel for its restaurant operations. Jessie Colaste was employed by STEP as a project employee and assigned to work as assistant cook at Lingnam Restaurant from 2006 until March 5, 2008. Colaste alleged that on March 5, 2008 he was told by STEP personnel that his contract had expired, and on March 7, 2008 he was prevented from reporting to work at Lingnam Restaurant and informed that he had been terminated. Colaste thereafter filed an amended complaint for illegal dismissal, reinstatement, backwages, monetary benefits, damages and attorney’s fees against both Lingnam Restaurant and STEP.

Labor Arbiter Proceedings and Ruling

The Labor Arbiter conducted proceedings on the complaint and initially dismissed the case for lack of merit, finding STEP to be Colaste’s real employer because STEP exercised direct powers and responsibilities over him. Upon remand for failure to rule on illegal dismissal, a different Labor Arbiter issued judgment on September 26, 2012 declaring Lingnam Restaurant guilty of illegal dismissal, holding that Colaste’s duties were necessary and desirable to the restaurant business and that he was a regular employee of Lingnam Restaurant, and awarding reinstatement, full backwages computed to promulgation, salary differentials, thirteen month pay, and attorney’s fees while dismissing STEP for lack of service.

NLRC Proceedings and Ruling

On appeal, the NLRC reversed and set aside the Labor Arbiter’s decision by its January 31, 2013 disposition. The NLRC held that STEP was an independent contractor and the actual employer of Colaste, that Colaste was a regular employee of STEP, and that STEP constructively dismissed Colaste by failing to assign him to other clients after six months; accordingly the NLRC ordered STEP to reinstate Colaste with backwages and to pay the monetary awards previously granted. STEP’s motion for reconsideration was denied.

Court of Appeals Proceedings and Ruling

STEP filed a petition for certiorari under Rule 65 in the Court of Appeals alleging grave abuse of discretion by the NLRC. The Court of Appeals reversed the NLRC on December 20, 2013 and reinstated the Labor Arbiter’s September 26, 2012 decision. The appellate court found that STEP merely supplied manpower and that the contracts established that Colaste’s work performance was under the strict supervision and control of Lingnam Restaurant. The Court of Appeals concluded that STEP engaged in labor-only contracting, that Lingnam Restaurant exercised the right to control and that the assistant cook position was directly related to Lingnam Restaurant’s main business; accordingly Lingnam Restaurant was deemed Colaste’s employer and liable for illegal dismissal for failure to show just cause or observe due process.

Issues on Review

Petitioner Lingnam Restaurant raised chiefly that the Court of Appeals erred in joining it as respondent in STEP’s certiorari petition, that the petition was insufficient in form and substance as to Lingnam Restaurant thereby denying due process, that the Court of Appeals exceeded authority by revisiting a portion of the NLRC decision that had become final and executory as to Lingnam Restaurant, and that a party who does not appeal cannot obtain affirmative relief when the Court of Appeals set aside the NLRC decision in favor of Colaste and against Lingnam Restaurant.

Standard of Review Applied by the Supreme Court

The Court observed the general Rule 45 limitation to questions of law but noted that in labor cases it may review findings of fact when the findings of the Court of Appeals and of the labor tribunals are contradictory. Citing Alaska Milk Corp. v. Ponce, the Court decided to review the record because the Labor Arbiter, the NLRC and the Court of Appeals reached inconsistent factual conclusions concerning the nature of the contracting arrangement and the identity of the employer.

The Court’s Determination on the Nature of the Contracting Arrangement

The Court analyzed the contracts and pleadings and agreed with the Court of Appeals that STEP performed the role of a manpower supplier rather than a legitimate job contractor. The Court relied on the statutory definition of labor-only contracting in Article 106 of the Labor Code and the implementing Rule VIII-A, Book III which defines contracting and declares labor-only contracting prohibited when the contractor lacks substantial capital or when the contractor does not exercise the right to control. The Court found that STEP’s contractual arrangement provided manpower to Lingnam Restaurant; that the employment contracts expressly stated that Colaste’s work performance was under the strict supervision, control and standards specified by the client; and that the assistant cook work was directly related to Lingnam Restaurant’s restaurant business. The Court therefore concluded that the contracting arrangement met the elements of labor-only contracting and that under Section 7 of Rule VIII-A the principal, Lingnam Restaurant, was to be deemed the employer of Colaste.

Ruling on Illegal Dismissal and Remedies

Having concluded that Lingnam Restaurant was Colaste’s employer, the Court held that the reason for Colaste’s separation—expiration of the contract between STEP and Lingnam Restaurant—did not constitute a just or authorized cause for dismissal under Articles 282 to 284 of the Labor Code when the employment relationship is deemed direct. The Court found too that Lingnam Restaurant failed to comply with the procedural twin-notice requirement of Article 277(b). The absence of a valid substantive cause and of procedural due process rendered Cola

Case Syllabus (G.R. No. 214667)

Parties and Procedural Posture

Lingnam Restaurant filed a petition for review on certiorari from the Decision of the Court of Appeals in CA-G.R. SP No. 129856.
Skills & Talent Employment Pool, Inc. (STEP) and Jessie Colaste were respondents in the proceedings below.
The Labor Arbiter rendered a Decision dated September 26, 2012 finding Lingnam Restaurant guilty of illegal dismissal and awarding reinstatement and monetary reliefs.
The National Labor Relations Commission (NLRC) reversed the Labor Arbiter in its Decision dated January 31, 2013 and held STEP liable for constructive dismissal.
The Court of Appeals reversed the NLRC in a Decision dated December 20, 2013 and reinstated the Labor Arbiter’s September 26, 2012 Decision.
The Supreme Court resolved a petition for review on certiorari and affirmed the Decision of the Court of Appeals.

Key Factual Allegations

Jessie Colaste alleged that he started working as assistant cook/general utility on December 21, 2006 at a daily wage of P350.00 and that he worked six days a week in two shifts.
Colaste alleged that on March 5, 2008 he was informed at STEP’s office that his contract had expired, yet he reported for work thereafter and was thereafter barred from punching in and told by Lingnam Restaurant supervisors that he was terminated.
Colaste alleged nonpayment of proper minimum wages, premium pay, holiday pay, 13th month pay, and unpaid salary for March 1–5, 2008.
STEP asserted that it was an independent contractor providing manpower under a 2002 agreement with Lingnam Restaurant and that its services ceased in February 2008 because Lingnam Restaurant allegedly failed to pay agreed contract salaries.
STEP further asserted that Colaste’s employment was co-terminus with STEP’s contract and that STEP retained the right to transfer Colaste to other clients.

Issues Presented

Whether the Court of Appeals erred in reversing the NLRC and reinstating the Labor Arbiter’s finding that Lingnam Restaurant was the employer responsible for Colaste’s illegal dismissal.
Whether respondent STEP was engaged in labor-only contracting such that Lingnam Restaurant is deemed the employer under applicable rules.
Whether Lingnam Restaurant was denied due process when the Court of Appeals entertained a Rule 65 petition filed by STEP that did not expressly pray for relief against Lingnam Restaurant.
Whether the NLRC’s decision dismissing the case against Lingnam Restaurant became final and executory insofar as Lingnam Restaurant was concerned.

Contentions of the Parties

Colaste contended that he was illegally dismissed and was entitled to reinstatement, full backwages, benefits, moral and exemplary damages, and attorney’s fees.
Lingnam Restaurant contended that it was not Colaste’s employer and that STEP was the real employer and therefore Lingnam Restaurant should be absolved of liability.
STEP contended that it was an independent contractor and that Colaste’s status was floating or co-terminus and that it did not terminate Colaste but merely had no assignment for him.

Statutory and Regulatory Framework

Article 106 of the Labor Code was cited for the definition of labor-only contracting.
Rule VIII-A, Book III of the Amended Rules to Implement the Labor Code (per DOLE Order No. 18-02) supplied the definitions and prohibition against labor-only contracting, including Sections 4, 5 and 7.
Articles 282 to 284 of the Labor Code were cited as the provisions delineating just causes for termination.
Article 277(b) of the Labor Code was cited as imposing the twin notice requirement for termination.
Rule 65, Rules of Court governed the petition for certiorari filed with the Court of Appeals.
The Court relied on PCI Automation Center, Inc. v. NLRC and other labor precedents distinguishing legitimate job contracting from labor-only contracting.

Findings of the Labor Arbiter

The Labor Arbiter, Pablo A. Gajardo, Jr., found Lingnam Restaurant guilty of illegal dismissal and declared Colaste to be a regular employee of Lingnam Restaurant.
The Labor Arbiter ordered immediate reinstatement of