Title
RNB Garments Philippines, Inc. vs. Ramrol Multi-Purpose Cooperative
Case
G.R. No. 236331
Decision Date
Sep 14, 2020
RNB engaged RMPC for garment production; workers claimed illegal dismissal, alleging RMPC as a labor-only contractor. Courts ruled RNB and RMPC jointly liable, affirming employer-employee relationship and illegal dismissal, but absolved RNB’s president from liability.
illegal dismissal
workers
joint and several liability

Case Summary (G.R. No. 236331)

Formation of the Work Arrangement

RNB entered into an agreement with RMPC under which RMPC would manufacture garments according to RNB’s specifications. In line with this arrangement, RNB engaged the services of Desacada, et al., who performed tasks such as sewers, trimmers, reviser, quality control staff, and sewing mechanic. The employment set-up placed these workers within the garment manufacturing operations associated with RNB’s production requirements.

Events Leading to Lay-off and Separation

On 10 October 2011, RNB decided to stop loading RMPC’s sewing line until further notice, claiming that it had suffered from “very minimal loading” of orders from its principal vendor, Champan. The complainants asserted that this resulted in their temporary lay-off for more than six months.

Desacada, et al. pursued individual illegal dismissal complaints before the National Labor Relations Commission (NLRC), and the Labor Arbiter (LA) consolidated the complaints. Some complainants—Elmer, Arnold, Melchor, Philip, and Herjane—alleged that RMPC’s Chairman, Ramil Sarol, informed them on different dates that they were temporarily laid off, but that no recall order was issued after six months.

Others—Myrna, Carmen, Ma. Cecilia, and Sonia—alleged that on 19 October 2011, Sarol verbally dismissed them on the ground that RNB abolished its sewing line. In both strands of the allegations, the complainants contended that they ended up separated from employment without lawful cause and without due process.

Employer-Contractor Dispute Raised Before the LA

RNB denied an employer-employee relationship with Desacada, et al., claiming RMPC was the employer as an independent contractor. RMPC responded that it was a legitimate independent contractor registered with DOLE. While RMPC denied illegal dismissal, it explained that the workers’ employment was merely suspended due to the purported suspension of operations stemming from RNB’s principal vendor.

In reply, Desacada, et al. asserted that RMPC was a labor-only contractor. They emphasized that RMPC lacked substantial capital such as tools, equipment, machineries, or work premises. They maintained that RMPC merely supplied workers to RNB, and that their functions were directly related to RNB’s principal business. They also alleged that RNB exercised control over the means and methods of work, including work performed inside RNB premises using RNB’s materials and production requirements.

LA Findings: RNB as Real Employer and Illegal Dismissal

In a Decision dated 29 November 2012, the LA ruled in favor of Desacada, et al. The LA found them to be regular employees of RNB, not RMPC. The LA reasoned that RMPC acted as an agent of RNB because RMPC failed to substantiate the existence of substantial capital, machineries, or tools necessary for a genuine contracting arrangement. The LA also found that Desacada, et al. actually worked inside RNB’s premises using RNB’s sewing machines.

On illegal dismissal, the LA sustained the complainants’ claim. It held that RNB failed to prove that any purported abolition of the sewing line was anchored on a valid and lawful measure to prevent business losses, especially because RNB only alleged “minimal loading orders” from Champan. The LA therefore ordered reinstatement and payment of monetary benefits, including full backwages from 19 October 2011 until actual reinstatement, salary differential, thirteenth month pay, service incentive leave pay, and attorney’s fees.

NLRC Proceedings and Modifications Due to Cessation of Operations

Only RNB appealed the LA decision to the NLRC. The NLRC initially dismissed the appeal in a procedural resolution dated 30 September 2013, but on a subsequent motion for reconsideration, it reinstated the appeal and affirmed the LA decision with modifications in a Resolution dated 30 April 2014.

The NLRC deletion of reinstatement followed the fact that RNB had ceased operations effective 31 December 2012. Consequently, the NLRC adjusted the award by deleting the reinstatement directive and modifying backwages, and it deleted the wage differential for a defined earlier period. The remainder of the awards was affirmed.

On the merits, the NLRC agreed with the LA that RNB was the real employer of Desacada, et al. It found that the workers’ tasks—sewers, trimmers/revisers, quality control staff, sewing mechanic, and bundle boy—were directly related, necessary, and desirable to RNB’s garment business. It also found that Charito Fajardo, RNB’s production manager, exercised the right of control over the performance of work.

As to illegal dismissal, the NLRC held that RNB constructively dismissed the complainants who were placed on floating status by failing to recall them after the six-month period allowed under Article 286 of the Labor Code (renumbered later, but applied in the case as referenced by the NLRC). It also noted that purchase orders from Champan continued beyond the floating status. For the workers allegedly dismissed on 19 October 2011, the NLRC found RNB failed to prove it did not dismiss them due to the purported abolition of the sewing line.

RMPC filed its own motion for reconsideration before the NLRC, asserting it did not receive the LA decision. The NLRC denied RMPC’s arguments and held the LA decision had already become final and executory as to RMPC due to its failure to file a timely appeal.

CA Review and Consolidated Dismissal

Both RNB and RMPC sought certiorari relief before the CA. In a Decision dated 26 May 2017, the CA dismissed both petitions and affirmed the NLRC and LA. The CA sustained the conclusion that RMPC was not an independent contractor but instead served as an agent of RNB, stressing that RMPC lacked working capital and that the workers’ duties were directly related to RNB’s business and were performed inside RNB premises using RNB’s fabrics and sewing accessories according to RNB’s specifications and production requirements.

The CA also affirmed the illegal dismissal findings. It faulted RNB for failing to recall the complainants after floating status and for failing to prove any just and/or authorized cause for separation. The CA further found lack of compliance with procedural due process because RNB did not show that it gave notice and hearing before dismissal.

On RMPC’s separate challenge, the CA ruled that the LA decision had already become final and executory against RMPC due to inexcusable negligence in not appealing from the LA decision.

Issues Raised Before the Supreme Court

RNB argued that the CA erred in declaring RMPC a labor-only contractor, insisting that RMPC was registered and had sufficient capital and investment in tools and equipment, and that RNB relied in good faith on RMPC’s DOLE registration. It also argued that outsourcing related services does not automatically negate management prerogative. RNB maintained it did not exercise control over Desacada, et al. and that any evidence of control related only to end results. Finally, it contested the solidary liability of RMPC’s president, Robert Sy, absent a finding of malice or bad faith.

RMPC essentially corroborated RNB’s position and added a procedural argument: it maintained that it did not receive the LA decision because it was mailed to its former address. It prayed for relaxation of technicalities.

The consolidated petitions presented issues on whether the CA erred in: (1) declaring RMPC a labor-only contractor; (2) finding an employer-employee relationship between RNB and Desacada, et al.; and (3) declaring illegal dismissal. RMPC additionally challenged the CA’s ruling that it was barred from questioning the LA decision.

Supreme Court Ruling on RMPC’s Alleged Loss of Finality

The Supreme Court first addressed RMPC’s procedural posture. It held that the CA’s view—that the LA decision had already become final and executory as to RMPC due to failure to appeal—was not correct. The Court reiterated that, as a rule, an appeal by one party does not automatically inure to the benefit of a co-party who did not appeal, and the judgment continues to run its course until finality. However, it recognized an exception where the parties have a commonality of interests such that liabilities are interwoven and inseparable.

The Court concluded that RNB and RMPC had common interests because both were held solidarily liable in the labor case and both were parties to the illegal dismissal complaints. A ruling on whether RMPC was a labor-only contractor and the consequences of that ruling would affect both parties’ liabilities. Thus, the Supreme Court treated the matter as reviewable even despite RMPC’s failure to appeal the LA decision.

Labor-Only Contracting: Definition and Standards

On the substantive issue, the Court restated the statutory definition under Article 106 of the Labor Code, explaining that labor-only contracting is a prohibited arrangement where the contractor lacks substantial capital or investment in tools, equipment, machineries, work premises, and related assets, and supplies workers to an employer performing activities directly related to the employer’s principal business.

The Court contrasted this with legitimate job contracting or subcontracting, referring to the Court’s definition in Norkis Trading Corporation v. Buenavista. Under that doctrine, the arrangement is legitimate if the contractor carries on a distinct and independent business, the contractor has substantial capital or investment, and the agreement assures workers’ statutory rights, including security of tenure, and social welfare benefits. The Court also cited Department Order No. 18-02 on the meaning of “substantial capital or investment” and the concept of right to control, emphasizing that the “right to control” includes the reserved right not only over results but also over the manner and means of reaching those results.

The Court reaffirmed that the test of independent contracting is whether the contractor performs according to its own methods and

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