CASE DIGEST: Aliviado v. Procter & Gamble

G.R. No. 160506 : March 9, 2010

JOEB M. ALIVIADO, et al., Petitioners, v. PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents.



Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982 or as late as June 1991, to either May 5, 1992orMarch 11, 1993.

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.

P&G is principally engaged in the manufacture and production of different consumer and health products, which it sells on a wholesale basis to various supermarkets and distributors. To enhance consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products.

In December 1991, petitioners filed a complaint against P&G for regularization, service incentive leave pay and other benefits with damages.The complaint was later amendedto include the matter of their subsequent dismissal.

OnNovember 29, 1996, 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. On appeal, the NLRC dismissed the same. Petitioners filed a motion for reconsideration but the motion was denied in theNovember 19, 1998Resolution.

Petitioners likewise failed to have a favrable decision in the CA hence, this petition.


Whether or not Promm-Gem and SAPS are labor-only contractors or legitimate job contractors?


The petition is granted.


Article 106 of the Labor Code 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 anindependent contractorbecause 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 principalandanyof the following elements are present: (i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performedandthe 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 (ii) The contractor does not exercise the right to control over the performance of the work of thecontractualemployee.

In the instant case,thefinancialstatementsof Promm-Gem show that it

has authorized capital stock ofP1 million and a paid-in capital, or capital available for operations, ofP500,000.00 as of 1990. It also has long term assets worthP432,895.28 and current assets ofP719,042.32.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 clientsaside from P&G. Under the circumstances, 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 ofcontractualemployees. 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. Thus, 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 onlyP31,250.00.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.

It is clear that SAPS having a paid-in capital of onlyP31,250 - 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 totalP44,561.00.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 months payroll. SAPS failed to show that its paid-in capital ofP31,250.00 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 theperformance or completionof 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.


In cases of regular employment, the employer shall not terminate the services of an employee except for a justor authorized cause.

In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified the cause of dismissal as grave misconduct and breach of trust.

Misconduct has been defined as improper or wrong conduct; the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character implying wrongful intent and not mere error of judgment.The misconduct to be serious must be of such grave and aggravated character and not merely trivial and unimportant.To be a just cause for dismissal, such misconduct (a) must be serious; (b) must relate to the performance of the employees duties; and (c) must show that the employee has become unfit to continue working for the employer.

In the instant case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so.As such, they are only found them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm.A misconduct which is not serious or grave, as that existing in the instant case, cannot be a valid basis for dismissing an employee.

Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the trust reposed in the employee by his employer.Ordinary breach will not suffice.A breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.

Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that the employee concerned holds a position of responsibility or of trust and confidence.As such, he must be invested with confidence on delicate matters, such as custody, handling or care and protection of the property and assets of the employer.And, in order to constitute a just cause for dismissal, the act complained of must be work-related and must show that the employee is unfit to continue to work for the employer. In the instant case, the petitioners-employees of Promm-Gem have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is there any evidence to show that they are unfit to continue to work as merchandisers for Promm-Gem. Thus, there was no valid cause for the dismissal of petitioners-employees of Promm-Gem.

While Promm-Gem had complied with the procedural aspect of due process in terminating the employment of petitioners-employees,i.e., giving two notices and in between such notices, an opportunity for the employees to answer and rebut the charges against them, it failed to comply with the substantive aspect of due process as the acts complained of neither constitute serious misconduct nor breach of trust.Hence, the dismissal is illegal.

With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal.The records show that upon receipt by SAPS of P&Gs letter terminating their Merchandising Services Contact effective March 11, 1993, they in turn verbally informed the concerned petitioners not to report for work anymore.

Neither SAPS nor P&G dispute the existence of these circumstances.Parenthetically, unlike Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon the initiation of P&G.It is evident that SAPS does not carry on its own business because the termination of its contract with P&G automatically meant for it also the termination of its employees services.It is obvious from its act that SAPS had no other clients and had no intention of seeking other clients in order to further its merchandising business.From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in the latters merchandising concerns only.Under the circumstances prevailing in the instant case, we cannot consider SAPS as anindependent contractor.

In termination cases, the burden of proof rests upon the employer to show that the dismissal is for just and valid cause. In the instant case, P&G failed to discharge the burden of proving the legality and validity of the dismissals of those petitioners who are considered its employees. Hence, the dismissals necessarily were not justified and are therefore illegal.


Moral and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or fraud or constituted an act oppressive to labor or were done in a manner contrary to morals, good customs or public policy.

With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any oppressive act on the part of the latter, we find no support for the award of damages.

As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor. The sudden and peremptory barring of the concerned petitioners from work, and from admission to the work place, after just a one-day verbal notice,andfor no valid cause bellows oppression and utter disregard of the right to due process of the concerned petitioners.Hence, an award of moral damages is called for.

Attorneys fees may likewise be awarded to the concerned petitioners who wereillegallydismissedinbadfaithandwerecompelledtolitigateorincur expenses to protect their rights by reason of the oppressive act of P&G.


Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges, inclusive of allowances, and other benefits or their monetary equivalent from the time the compensation was withheld up to the time of actual reinstatement. Hence, all the petitioners, having been illegally dismissed are entitled to reinstatement without loss of seniority rights and with full back wages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.

The decision and resolution of the Court of Appeals are reversed and set aside. The case is remanded to the NLRC.

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