Title
Shipside, Inc. vs. National Labor Relations Commission
Case
G.R. No. L-50358
Decision Date
Nov 2, 1982
SHIPSIDE and STEVEDORES had a service contract for stevedoring. After termination, dismissed employees sought separation pay. Court ruled SHIPSIDE not liable, as no employer-employee relationship existed; STEVEDORES solely employed the workers.
stevedores
money benefits
separation pay
A

Case Summary (G.R. No. L-50358)

Factual Background

The Contract for Services required that stevedoring work consist of handling cargo from ship to pier and vice versa, with Stevedores furnishing all labor needed for the stevedoring work. The contract provided that stevedoring charges would be billed by SHIPSIDE through to the shipping company, shipper, or consignee, with rates worked out by mutual consent in accordance with standard stevedoring practice. It further stipulated that Stevedores would present its payroll to SHIPSIDE for payment after every operation, while Stevedores remained responsible for paying its own men individually. The net balance of stevedoring charges, after deductions of Stevedores’ payroll and other operating expenses incurred by both parties, would be equally divided between SHIPSIDE and Stevedores on a fifty-fifty basis. The contract also guaranteed Stevedores’ exclusive right to do stevedoring work in the relevant port facilities owned and/or controlled by SHIPSIDE, conditioned on Stevedores not entering into stevedoring contracts with others without coursing them through SHIPSIDE, while Stevedores further guaranteed the supply of all labor required by SHIPSIDE at all times.

Under the contract’s termination provision, it would take effect on January 1, 1964 and could not be terminated by either party unless a three-month termination notice in writing was given. The contract imposed liability for damages and attorney’s fees on any party that violated its terms.

Pursuant to that arrangement, Stevedores hired private respondents to constitute its labor force. On August 28, 1974, SHIPSIDE informed Stevedores that, three months after September 1, 1974, or effective as of the close of business on November 30, 1974, the contract would be terminated due to financial reverses. SHIPSIDE, however, offered to absorb Stevedores’ operating personnel, from the lowest rank up to foreman, who desired to work under SHIPSIDE on a vessel-to-vessel basis. The business relations between SHIPSIDE and Stevedores were then terminated on November 30, 1974. As a result, several stevedores and office personnel lost their jobs.

Labor Arbiter and NLRC Rulings

Because private respondents received no separation benefits, they filed their complaint in February 1975 for separation pay with the Ministry of Labor, which was docketed as NLRC Case No. RB-1-38-78. After due hearing, the Labor Arbiter ruled that both SHIPSIDE and Stevedores were employers of private respondents by reason of the Contract for Services, which the Labor Arbiter construed as either a “joint venture” or a “partnership.” The Labor Arbiter therefore held SHIPSIDE and Stevedores jointly and severally liable to pay the separation pay claimed. In addition, it awarded to private respondents an amount equivalent to two months’ salary as penalty for failure to file or submit to the Ministry of Labor the required clearance application or report of termination as mandated by the then Labor Code.

On appeal by SHIPSIDE and Stevedores, the NLRC affirmed the Labor Arbiter’s decision on October 11, 1978. The NLRC en banc denied SHIPSIDE’s motion for reconsideration in its February 9, 1979 resolution. Thereafter, the Labor Arbiter issued an Order dated April 6, 1979 directing immediate execution of the NLRC decision and resolution. SHIPSIDE challenged these dispositions through the present petition for certiorari with preliminary injunction, leading to the issuance of a temporary restraining order on May 7, 1979.

Core Issue: Employer-Employee Relationship

The crux of the controversy turned on whether SHIPSIDE could be held liable for the money benefits claimed by private respondents. The Court emphasized that, absent an employer-employee relationship, private respondents had no cause of action against SHIPSIDE. The decision therefore required resolution of the more fundamental question of whether private respondents were employees of SHIPSIDE or remained employees solely of Stevedores.

In assessing employer-employee relationship, the decision applied the generally recognized criteria: (1) selection and engagement of the employee; (2) payment of wages; (3) power of dismissal; and (4) power to control the employee’s conduct, with the last being the most important.

The Court’s Assessment of the Employment Criteria

Applying those elements to the undisputed arrangement, the Court held that SHIPSIDE could not be considered the employer of private respondents. The records did not show SHIPSIDE’s participation in selecting and engaging the individual stevedores who would form Stevedores’ labor force. The Court found that matters regarding who the workers would be and the terms under which they would render services were determined by Stevedores, not by SHIPSIDE.

The Court also found no direct employment relationship between SHIPSIDE and private respondents. The contract arrangement showed that Stevedores contracted the private respondents in its favor and rendered services through Stevedores as part of Stevedores’ contractual obligation with SHIPSIDE. The Court noted that private respondents, who were not known to SHIPSIDE and dealt only with Stevedores regarding the contracted task, could not perform stevedoring services for SHIPSIDE unless Stevedores first accepted them.

On wages, the Court determined that SHIPSIDE had no hand in deciding the amount of salary paid to each stevedore. Stevedores paid its workers directly, and the amount was beyond SHIPSIDE’s power to determine. SHIPSIDE merely paid Stevedores an aggregate amount based on the payroll that Stevedores presented after each operation pursuant to their contract for services.

Similarly, the Court concluded that SHIPSIDE did not reserve power to dismiss private respondents. It found no evidence showing that SHIPSIDE wielded such power. Likewise, the Court ruled that there was nothing indicating that private respondents were under SHIPSIDE’s control as to the means and methods of performing their work.

Instructions by SHIPSIDE Did Not Establish Control

The Court acknowledged that SHIPSIDE occasionally issued instructions to private respondents. However, it held that such issuance did not detract from the controlling fact that Stevedores exercised supervision and control over its labor force. The Court reasoned that, in legal contemplation, SHIPSIDE’s instructions carried no more weight than mere requests and reflected the privity of contract between SHIPSIDE and Stevedores rather than between SHIPSIDE and the workers. The Court further explained that instructions would naturally spring from SHIPSIDE’s contractual right to manage and oversee aspects of the services in the context of its Contract for Services with Stevedores.

Termination of the Contract Was Not Termination of Employment by SHIPSIDE

Another consideration led the Court away from imposing employer liability on SHIPSIDE. It pointed out that the Contract for Services had already expired or had been terminated according to its own terms. After that expiration, SHIPSIDE undertook the stevedoring work by itself and had offered to absorb Stevedores’ personnel on a vessel-to-vessel basis. Yet, private respondents rejected the offer, although some stevedores accepted and were later hired by SHIPSIDE.

The Court therefore found it unfair to treat private respondents as SHIPSIDE’s employees after the contract ended. It held that such a ruling would also violate SHIPSIDE’s prerogative to determine whether it would enter into an employment contract at all. The Court cited the principle from Allied Free Workers’ Union v. Compania Maritima, as well as the due process rationale articulated in Pampanga Bus Co. vs. Pambusco Employees’ Union, that the general right to make contracts in one’s business includes the employer’s right to choose whether and whom to employ, and that no relationship should be imposed against that will.

Consistently, the Court held that, in so far as SHIPSIDE was concerned, there was no employment termination attributable to SHIPSIDE. What had terminated was the contract for services between SHIPSIDE and Stevedores, not an employment relationship between SHIPSIDE and the private respondents.

Prejudicial Question and Jurisdictional Overlap

The Court also grounded its approach on a procedural and jurisdictional concern. It noted that prior to the institution of the labor case in February 1975, Stevedores had already filed a petition in the Court of First Instance of La Union on December 2, 1974, docketed as Civil Case No. 2624, seeking a

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