Case Summary (G.R. No. 220103)
Change of Operations and Respondents’ Reaction
In 2009 SMFI shifted invoicing operations from its head office to Pampanga. ICSI informed its personnel to apply for transfer by July 13, 2009. Only one respondent applied; others resigned, continued without transfer, or stopped reporting, prompting collective complaints.
Complaints and Labor Arbiter Findings
Respondents filed for constructive dismissal, regularization, and unpaid benefits. The Labor Arbiter ruled that ICSI was a legitimate contractor: it hired, paid, disciplined, and supervised invoicers. By the four-fold test (selection, payment, dismissal power, control), ICSI—not SMFI—was the employer. SMFI’s involvement was limited to receiving final reports.
NLRC Affirmation
The National Labor Relations Commission upheld the Labor Arbiter’s dismissal of respondents’ claims, reiterating that ICSI possessed substantial capital, independent business, and control over its workforce.
Court of Appeals Reversal
The Court of Appeals applied the control test to find SMFI exercised detailed supervision—issuing work instructions, redirecting personnel, and ordering dismissals. It concluded respondents were SMFI employees entitled to regular status and ordered reinstatement with full backwages.
Issue: Job Contracting vs. Labor-Only Contracting
Under Art. 106, permissible job contracting requires a contractor to have independent business, substantial capital or investment, and control over methods of work. Labor-only contracting—prohibited—occurs when the intermediary lacks such capital and control, and its workers perform tasks directly related to the principal’s core business.
Supreme Court’s Analysis of Legitimacy of Contractor
The Court found conflict among factual findings and, exercising its equity jurisdiction, reviewed records:
• ICSI was duly registered with SEC, DOLE, and other agencies.
• Its authorized capital stock (₱4M), audited gross income (₱14.2M), and assets (₱30.8M) demonstrated substantial capital.
• ICSI served multiple “A-list” clients, confirming independent operation.
• Its officers determined work schedules and monitored attendance, exercising control over methods of performance.
Employer-Employee Relationship and Control Test
By the four-fold test:
- Selection and engagement: ICSI recruited and hired respondents.
- Payment of wages: ICSI issued salaries, made statutory deductions, and remitted contributions.
- Power of dismissal: ICSI issued notices to explain and disciplinary me
Case Syllabus (G.R. No. 220103)
Factual Background
- San Miguel Foods, Inc. (SMFI) is engaged in feeds, poultry and meats businesses, including growing, breeding, dressing, sale and marketing of poultry products.
- SMFI decided to outsource ancillary invoicing services—witnessing/unloading, preparing invoices/delivery receipts, securing receiving documents, and submitting delivery reports.
- In January 2005, SMFI contracted IMSHR Corporate Support, Inc. (ICSI), an independent contractor registered with DOLE, for six months invoicing services renewable month-to-month thereafter.
Contractual Arrangement with ICSI
- SMFI and ICSI agreed that upon contract expiration, services would continue under the same terms on a month-to-month basis unless formally renewed.
- ICSI was to supply duly hired employees (the respondents) to perform invoicing tasks under its supervision.
- ICSI recruited, selected, paid, and disciplined its own invoicers, remitting SSS, Philhealth, PAG-IBIG, and BIR contributions.
Events Leading to Complaint
- In mid-2009, SMFI ceased invoicing operations at its head office, transferring them to plants in San Fernando, Pampanga, and Nueva Ecija.
- SMFI notified ICSI, which directed its employees to apply for transfer by July 13, 2009. One respondent applied; others resigned, continued working irregularly, or stopped reporting.
- Affected invoicers filed consolidated Complaints for constructive dismissal, regularization, underpayment, non-payment of benefits, illegal deductions, moral/exemplary damages, and attorney’s fees before the Labor Arbiter.
Respondents’ Allegations
- They were directly employed by SMFI as “Invoicers” between January 2005 and May 2009.
- SMFI assigned daily work, monitored attendance via outlet-countersigned forms, required end-of-day liquidation reports, and supervised them through a finance officer.
- They wore SMFI-branded uniforms, used SMFI delivery documents, and reported to Key Account Managers (KAM) on task execution.
SMFI’s Defense
- SMFI maintained it was not the respondents’ employer; ICSI hired, paid, and controlled them.
- ICSI held the power of selection, payment, discipline, and termination.
- Respondents did not use SMFI tools or premises;