Case Summary (G.R. No. 214667)
Procedural History
- Initial filing: Colaste filed an amended complaint for illegal dismissal with the Labor Arbiter (LA).
- Labor Arbiter (Sept. 26, 2012): Found Lingnam Restaurant guilty of illegal dismissal; ordered reinstatement and monetary awards; dismissed claims against STEP for lack of service.
- NLRC (Jan. 31, 2013): Reversed LA, dismissed complaint against Lingnam, held STEP liable for constructive dismissal and ordered STEP to reinstate and pay backwages and other awards.
- Court of Appeals (Dec. 20, 2013): Reversed NLRC, reinstated and affirmed the LA decision holding Lingnam liable as employer and guilty of illegal dismissal.
- Supreme Court: Petition for review on certiorari by Lingnam; Supreme Court affirmed the Court of Appeals’ decision.
Factual Background Material
- Employment relationship: Colaste began working at Lingnam as assistant cook/general utility on December 21, 2006, paid P350/day, six days per week, eight hours per day on two shifts, under an employment contract with STEP that assigned him to Lingnam. Subsequent contracts with STEP showed assignment to Lingnam with terms stating Colaste’s performance was under “Strict Supervision, Control” and must meet client-specified standards.
- Termination facts: On March 5–7, 2008, Colaste was informed through STEP and Lingnam supervisors that his contract had expired and that he was terminated; no written notices of termination or opportunity to be heard are shown in the record. Colaste alleged underpayment and nonpayment of statutory benefits in addition to illegal dismissal.
Issues Presented
- Primary legal question: Whether STEP was engaged in labor-only contracting such that Lingnam Restaurant should be deemed Colaste’s employer and therefore liable for illegal dismissal.
- Subsidiary issues: Whether the dismissal lacked substantive and procedural justifications under the Labor Code; whether petitioner’s due process rights were violated in appellate proceedings when STEP filed a petition for certiorari with the Court of Appeals; and whether the NLRC decision became final and executory as to Lingnam because Colaste did not appeal.
Applicable Law and Legal Standards
- Constitutional basis: Decision reached under the 1987 Philippine Constitution (applicable given decision date).
- Statutory and regulatory framework cited in the record: Article 106 (as quoted in the record) describing “labor-only” contracting; Rule VIII-A, Book III of the Amended Rules to Implement the Labor Code (DOLE Order No. 18-02, Feb. 21, 2002), specifically Sections 4, 5 and 7 defining “contracting,” prohibiting labor-only contracting, and specifying when a principal is deemed employer or solidarily liable.
- Governing concepts drawn from the rules: Labor-only contracting exists where the supplier lacks substantial capital or investment related to the job and the supplied workers perform activities directly related to the principal’s main business; absence of the contractor’s right to control the manner and means of work also indicates labor-only contracting. The principal is deemed employer in such cases.
- Standard of appellate review: Rule 45 generally limits Supreme Court review to questions of law, but the Court may review factual findings in labor cases when findings of the Court of Appeals and labor tribunals are contradictory.
Court of Appeals and NLRC Findings — Points of Conflict
- NLRC conclusion: STEP was a legitimate independent contractor and Colaste was STEP’s employee; because STEP failed to assign Colaste to other clients after six months, STEP constructively dismissed him and was liable. NLRC thereby absolved Lingnam.
- Court of Appeals conclusion: STEP was a labor-only contractor and Lingnam exercised control over Colaste’s work; therefore, Lingnam was the true employer and guilty of illegal dismissal for failing to comply with substantive and procedural termination requirements. The Court of Appeals reinstated the Labor Arbiter’s finding of illegal dismissal by Lingnam.
Analysis — Labor-only Contracting and Control
- Nature of STEP’s service: The record (STEP’s own pleadings) admits STEP contracted to “provide manpower” to Lingnam, and the employment contracts placed Colaste at Lingnam with express terms that his work performance was under the strict supervision and standards of the client. The Court treated this as indicating that STEP supplied personnel rather than contracted to perform a distinct job.
- Application of the statutory test: Under Section 5 of Rule VIII-A, the elements demonstrating labor-only contracting were present: (1) STEP supplied personnel for activities directly related to Lingnam’s core restaurant business (assistant cook duties performed at Lingnam’s premises), and (2) STEP did not exercise the right to control the manner and means of Colaste’s work — Lingnam exercised such control, as reflected in the contractual clause requiring compliance with client-specified standards and the operational reality that Colaste worked under Lingnam’s supervision.
- Substantial capital inquiry: The court relied on the characterization of STEP as a manpower placement agency whose service consisted of supplying personnel rather than performing a distinct job using substantial capital or tools; record statements and contractual structure supported that STEP lacked the kind of capital or investment tied to a job contractor’s performance.
Employee Status, Grounds for Dismissal, and Due Process
- Regular employment status: Because Colaste worked for Lingnam since 2006 performing duties necessary and desirable to Lingnam’s business, the Court considered him a regular employee of Lingnam under the applicable rules.
- Substantive grounds for dismissal: Lingnam’s asserted reason — that Colaste’s contract expired — does not constitute an authorized cause for termination when STEP is a labor-only contractor and Lingnam is the deemed employer; no valid cause under the Labor Code articles cited was established.
- Procedural due process: The record shows no compliance with the twin-notice requirements (notice of cause and hearing) mandated by labor law for termination. The lack of written notice and opportunity to be heard rendered the dismissal procedurally infirm. Both lack of valid cause and failure to observe due process rendered the dismissal illegal.
Remedies Ordered and Their Basis
- Remedies affirmed: Reinstatement without loss of seniority rights and privileges; full backwages inclusive of allowances and other benefits or their monetary equivalent from the time compensation was withheld until actual reinstatement; additional monetary awards as previously determined by the Labor Arbiter (salary differentials, unpaid salary for specific days, 13th month pay for specified years, and attorney’s fees as computed in the Labor Arbiter’s decision).
- Legal foundation: Remedies flow from the finding of illegal dismissal
Case Syllabus (G.R. No. 214667)
Case and Decision Information
- G.R. No.: 214667; Third Division; Decision promulgated December 03, 2018; penned by Justice Peralta.
- Petition: Petition for review on certiorari under Rule 45 challenging the Court of Appeals Decision dated December 20, 2013 in CA-G.R. SP No. 129856.
- Relief sought in the Supreme Court: Review of the Court of Appeals’ reversal of the NLRC decision and reinstatement of the Labor Arbiter’s decision finding illegal dismissal and imposing liability on Lingnam Restaurant.
- Concurring Justices: Leonen, Gesmundo, J. Reyes, Jr., and Hernando, JJ., concurred.
Parties and Roles
- Petitioner: Lingnam Restaurant (a business enterprise owned and operated by Liberty C. Nacion), which contended it was not the employer of complainant.
- Respondent-intervenor/contractor: Skills & Talent Employment Pool, Inc. (STEP), domestic corporation engaged in manpower management and technical services; STEP maintained it was the real employer and an independent contractor.
- Respondent-complainant: Jessie Colaste, employed by STEP and assigned to work as assistant cook at Lingnam Restaurant; claimant in an illegal dismissal case.
Factual Background
- Employment and assignment history:
- Colaste began working for Lingnam Restaurant as assistant cook/general utility on December 21, 2006, with salary P350.00 per day, six days a week, eight hours a day, two shifts.
- Employment relationship formalized by contracts between Colaste and STEP covering January 4, 2006–June 3, 2007; November 5, 2007–January 5, 2008; and January 5, 2008–March 5, 2008, showing assignment to Lingnam Restaurant.
- Employment contracts stated that Colaste’s “work result performance shall be under the Strict Supervision, Control and make sure that the end result is in accordance with the standard specified by client to STEP Inc.”
- Events leading to complaint:
- March 5, 2008: Colaste was informed at STEP’s main office that his contract with Lingnam Restaurant had expired and was given a clearance form.
- March 7, 2008: Upon reporting for work at Lingnam Restaurant, the Chief Cook told him not to punch in because he was already terminated; Supervisor Philipp Prado told him by phone, “finish contract ka na, hindi kana pwede pumasok sa trabaho mo, tanggal ka na.”
- Colaste alleged underpayment and nonpayment of benefits and claimed illegal dismissal; he sought reinstatement, backwages, monetary benefits, damages, and attorney’s fees.
Procedural History (Tribunals and Courts)
- Labor Arbiter (Felipe P. Pati): In a Decision dated September 15, 2008, dismissed the complaint for lack of merit, ruling STEP was Colaste’s real employer and dismissing money claims.
- NLRC Remand (Resolution, Sept. 24, 2009): NLRC remanded case to the Labor Arbiter’s branch for further proceedings because the Labor Arbiter failed to rule on the issue of illegal dismissal.
- Labor Arbiter (Pablo A. Gajardo, Jr.): In a Decision dated September 26, 2012, found Lingnam Restaurant guilty of illegal dismissal; ordered reinstatement and awarded full backwages P624,020.81 (computed till promulgation), salary differential P10,042.76, unpaid March 1–5 salary P1,810.00, 13th month pay P10,235.90 and 10% attorney’s fees P64,610.95; dismissed claims against STEP for lack of service of summons.
- NLRC (Decision, Jan. 31, 2013): Reversed and set aside the Labor Arbiter’s decision; dismissed illegal dismissal complaint against Lingnam Restaurant; held STEP liable for constructive dismissal for failing to assign Colaste to other clients after six months; ordered STEP to reinstate Colaste and pay backwages and monetary awards.
- NLRC Motion for Reconsideration: Denied in Resolution dated April 22, 2013.
- Court of Appeals (Decision, Dec. 20, 2013): Reversed and set aside NLRC Decision and Resolution; reinstated and affirmed Labor Arbiter Gajardo’s September 26, 2012 Decision finding Lingnam Restaurant guilty of illegal dismissal and ordering reinstatement and payment of backwages and benefits.
- Court of Appeals Motion for Reconsideration: Lingnam Restaurant’s motion denied for lack of merit by Resolution dated September 24, 2014.
- Supreme Court: Petition for review on certiorari by Lingnam Restaurant contesting Court of Appeals’ rulings; Supreme Court affirmed the Court of Appeals’ Decision and Resolution.
Claims, Reliefs and Parties’ Contentions
- Complainant (Colaste):
- Alleged illegal dismissal on March 5–7, 2008.
- Alleged underpayment (paid P350/day when minimum was P362/day from Aug. 28, 2007 to June 13, 2008).
- Claimed unpaid benefits: premium pay for Sundays and holidays, 13th month pay, pay for March 1–5, 2008, backwages, moral and exemplary damages, and attorney’s fees.
- Lingnam Restaurant:
- Denied being Colaste’s employer; asserted STEP was the real employer and the complaint should be dismissed insofar as it concerned Lingnam.
- Argued it was a franchisor and that complainant was hired and retained by Ms. Liberty Nacion (franchisee) at the franchise business establishment where Colaste worked.
- Raised procedural objections in the Supreme Court that it was improperly joined in Court of Appeals proceedings and that its due process rights were violated because STEP’s petition contained no prayer for relief against Lingnam.
- STEP:
- Asserted lack of proper service of summons and maintained it was an independent contractor and the employer of Colaste.
- Claimed co-terminus employment dependent on STEP’s contract with Lingnam and the right to reassign Colaste.
- Explained it ceased manpower services in Feb. 2008 because Lingnam allegedly owed STEP P2,907,690.55 for manpower from March 2007 to Feb. 19, 2008.
- Argued complaint for illegal dismissal should be dismissed for lack of merit; alternatively claimed floating status and non-termination by STEP.
Issues Presented to the Supreme Court
- Whether the Court of Appeals erred in setting aside the NLRC Decision and in reinstating the Labor Arbiter’s Decision holding Lingnam Restaurant liable for illegal dismissal.
- Whether STEP was engaged in labor-only contracting or legitimate job contracting, i.e., who was the actual employer of Colaste.
- Whether due process was violated as to Lingnam Restaurant when the Court of Appeals entertained STEP’s petition for certiorari and included Lingnam in the proceedings when STEP’s petition contained no praye