Aliviado v. P&G (G.R. No. 160506; June 6, 2011)

CASE DIGEST: JOEB M. ALIVIADO, et al., Petitioners v. PROCTER & GAMBLE PHILS., INC., AND PROMM-GEM INC., Respondents. (G.R. No. 160506; June 6, 2011).

FACTS: Petitioners worked as merchandisers of P&G from various dates and they all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time. They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G.They received their wages from Promm-Gem or SAPS. SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.

Petitioners filed a complaint against P&G for regularization, service incentive leave pay and other benefits with damages.The complaint was later amended to include the matter of their subsequent dismissal.

The Labor Arbiter dismissed the complaint for lack of merit and ruled that there was no employer-employee relationship between petitioners and P&G.He found that the selection and engagement of the petitioners, the payment of their wages, the power of dismissal and control with respect to the means and methods by which their work was accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that Promm-Gem and SAPS were legitimate independent job contractors. The NLRC and the CA both affirmed the ruling of the Labor Arbiter.

ISSUE: Is there an employer-employee relationship?

In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors.Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or services.Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature.However, in order for such outsourcing to be valid, it must be made to an independent contractor because the current labor rules expressly prohibit labor-only contracting.

To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places workers to perform a job, work or service for a principal and any of the following elements are present:

[1] The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or

[2] The contractor does not exercise the right to control over the performance of the work of the contractual employee.

In the instant case,the financial statements of Promm-Gem show that it has authorized capital stock of P1 million and a paid-in capital, or capital available for operations, of P500,000.00 as of 1990. It also has long term assets worth P432,895.28 and current assets of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space with a floor area of 870 square meters. It also had under its name three registered vehicles which were used for its promotional/merchandising business. Promm-Gem also has other clients aside from P&G. Under the circumstances, we find that Promm-Gem has substantial investment which relates to the work to be performed.These factors negate the existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their work.Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already considered the complainants working under it as its regular, not merely contractual or project, employees. This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates - on the part of Promm-Gem - bad faith and intent to circumvent labor laws which factors have often been tipping points that lead the Court to strike down the employment practice or agreement concerned as contrary to public policy, morals, good customs or public order.

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor.We find that it is a legitimate independent contractor.

On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250.00.There is no other evidence presented to show how much its working capital and assets are.Furthermore, there is no showing of substantial investment in tools, equipment or other assets.

Applying the same rationale to the present case, it is clear that SAPS - having a paid-in capital of only P31,250 - has no substantial capital.SAPS' lack of substantial capital is underlined by the records which show that its payroll for its merchandisers alone for one month would already total P44,561.00.It had 6-month contracts withP&G. Yet SAPS failed to show that it could complete the 6-month contracts using its own capital and investment.Its capital is not even sufficient for one month's payroll. SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for the period required for it to generate its needed revenue to sustain its operations independently. Substantial capital refers to capitalization used in the performance or completion of the job, work or service contracted out.In the present case, SAPS has failed to show substantial capital.

Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity that has already been considered by the Court as doubtlessly directly related to the manufacturing business, which is the principal business of P&G.Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal business of P&G, we find that the former is engaged in "labor-only contracting".

"Where `labor-only' contracting exists, the Labor Code itself establishes an employer-employee relationship between the employer and the employees of the `labor-only' contractor." The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.

Consequently, the petitioners that have been recruited and supplied by SAPS -- which engaged in labor-only contracting -- are considered as the employees of P&G.

On the other hand, the petitioners, who, having worked under, and been dismissed by Promm-Gem, are considered the employees of Promm-Gem, not of P&G. GRANTED.