Case Digest: Polyfoam v. Concepcion

G.R. No. 172349 : June 13, 2012




In his February 08, 2000 complaint for illegal dismissal against Polyfoam and Natividad Cheng, Edgardo Concepcion alleged that he was hired by Polyfoam as an "all-around" factory worker and served as such for almost six years. On January 14, 2000, he allegedly discovered that his time card was not in the rack and was later informed by the security guard that he could no longer punch his time card. When he protested to his supervisor, the latter allegedly told him that the management decided to dismiss him due to an infraction of a company rule. Cheng, the company manager, also refused to face him. Respondent counsel later wrote a letter to Polyfoam manager requesting that respondent be re-admitted to work, but the request remained unheeded prompting the latter to file the complaint for illegal dismissal.

On April 28, 2000, Gramaje filed a Motion for Intervention claiming to be the real employer of respondent. On the other hand, Polyfoam and Cheng filed a Motion to Dismiss on the grounds that the NLRC has no jurisdiction over the case, because of the absence of employer-employee relationship between Polyfoam and respondent and that the money claims had already prescribed.

On May 24, 2000, Labor Arbiter Adolfo Babiano issued an Order granting Gramaje motion for intervention, it appearing that she is an indispensable party and denying Polyfoam and Cheng motion to dismiss as the lack of employer-employee relationship is only a matter of defense.

In their Position Paper, Polyfoam and Cheng insisted that the NLRC has no jurisdiction over the case, because respondent was not their employee. They likewise contended that respondent money claims had already prescribed. Finally, they fault respondent for including Cheng as a party-defendant, considering that she is not even a director of the company.

In her Position Paper,Gramaje claimed that P.A. Gramaje Employment Services (PAGES) is a legitimate job contractor who provided some manpower needs of Polyfoam. It was alleged that respondent was hired as "packer" and assigned to Polyfoam, charged with packing the latter finished foam products. She argued, however, that respondent was not dismissed from employment, rather, he simply stopped reporting for work.

On December 14, 2001, Labor Arbiter rendered a Decision finding respondent to have been illegally dismissed from employment and holding Polyfoam and Gramaje/PAGES solidarily liable for respondent money claims.

On appeal by petitioners, the NLRC modified the LA decision by exonerating Polyfoam from liability for respondent claim for separation pay and deleting the awards of backwages, 13th month pay, damages, and attorney fees.

Aggrieved, respondent elevated the case to the CA in a special civil action for certiorari under Rule 65 of the Rules of Court. On December 19, 2005, the appellate court granted the petition. The CA agreed with the LA conclusion that Gramaje is not a legitimate job contractor but only a "labor-only" contractor. The appellate court affirmed the LA findings of illegal dismissal as respondent was dismissed from the service without cause and due process.Consequently, separation pay in lieu of reinstatement was awarded. The CA quoted with approval the LA conclusions on the award of respondent other money claims.


1. Whether or not Gramaje is an independent job contractor?

2. Whether or not respondent was illegally dismissed from employment?

HELD: The decision of the Court of Appeals is affirmed.

Gramaje is a Labor-Only Contractor - Article 106 of the Labor Code explains the relations which may arise between an employer, a contractor, and the contractor employees, thus:

ART. 106. Contractor or subcontracting. − Whenever an employer enters into a contract with another person for the performance of the former work, the employees of the contractor and of the latter subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.

The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under the Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code.

There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

The test of independent contractorship is "whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work." In San Miguel Corporation v. Semillano, the Court laid down the criteria in determining the existence of an independent and permissible contractor relationship, to wit:

x x x [W]hether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of a specified piece of work; the control and supervision of the work to another; the employer power with respect to the hiring, firing and payment of the contractor workers; the control of the premises; the duty to supply the premises, tools, appliances, materials, and labor; and the mode, manner and terms of payment.

Simply put, the totality of the facts and the surrounding circumstances of the case are to be considered. Each case must be determined by its own facts and all the features of the relationship are to be considered.

Applying the foregoing tests, we agree with the CA conclusion that Gramaje is not an independent job contractor, but a "labor-only" contractor.

First, Gramaje has no substantial capital or investment. The presumption is that a contractor is a labor-only contractor unless he overcomes the burden of proving that it has substantial capital, investment, tools, and the like. The employee should not be expected to prove the negative fact that the contractor does not have substantial capital, investment and tools to engage in job-contracting.

Gramaje claimed that it has substantial capital of its own as well as investment in its office, equipment and tools. She pointed out that she furnished the plastic containers and carton boxes used in carrying out the function of packing the mattresses of Polyfoam. She added that she had placed in Polyfoam workplace ten (10) sealing machines, twenty (20) hand trucks, and two (2) forklifts to enable respondent and the other employees of Gramaje assigned at Polyfoam to perform their job. Finally, she explained that she had her own office with her own staff. However, aside from her own bare statement, neither Gramaje nor Polyfoampresented evidence showing Gramaje ownership of the equipment and machineries used in the performance of the alleged contracted job. Considering that these machineries are found in Polyfoam premises, there can be no other logical conclusion but that the tools and equipment utilized by Gramaje and her "employees" are owned by Polyfoam. Neither did Polyfoam nor Gramaje show that the latter had clients other than the former. Since petitioners failed to adduce evidence that Gramaje had any substantial capital, investment or assets to perform the work contracted for, the presumption that Gramaje is a labor-only contractor stands.

Second, Gramaje did not carry on an independent business or undertake the performance of its service contract according to its own manner and method, free from the control and supervision of its principal,Polyfoam, its apparent role having been merely to recruit persons to work for Polyfoam.It is undisputed that respondent had performed his task of packing Polyfoam foam products in Polyfoam premises. As to the recruitment of respondent, petitioners were able to establish only that respondent application was referred toGramaje, but that is all. Prior to his termination, respondent had been performing the same job in Polyfoambusiness for almost six (6) years. He was even furnished a copy of Polyfoam "Mga Alituntunin at KarampatangParusa,"which embodied Polyfoam rules on attendance, the manner of performing the employee duties, ethical standards, cleanliness, health, safety, peace and order. These rules carried with them the corresponding penalties in case of violation.

While it is true that petitioners submitted the Affidavit of Polyfoam supervisor Victor Abadia, claiming that the latter did not exercise supervision over respondent because the latter was not Polyfoam but Gramajeemployee, said Affidavit is insufficient to prove such claim. Petitioners should have presented the person who they claim to have exercised supervision over respondent and their alleged other employees assigned toPolyfoam. It was never established that Gramaje took entire charge, control and supervision of the work and service agreed upon. And as aptly observed by the CA, "it is likewise highly unusual and suspect as to the absence of a written contract specifying the performance of a specified service, the nature and extent of the service or work to be done and the term and duration of the relationship."

A finding that a contractor is a "labor-only" contractor, as opposed to permissible job contracting, is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor, and the "labor-only" contractor is considered as a mere agent of the principal, the real employer.In this case, Polyfoam is the principal employer and Gramaje is the labor-only contractor. Polyfoam and Gramaje are, therefore, solidarily liable for the rightful claims of respondent.

Respondent was Illegally DismissedFrom Employment - Respondent stated that on January 14, 2000, his time card was suddenly taken off the rack. His supervisor later informed him that Polyfoam management decided to dismiss him due to infraction of company rule. In short, respondent insisted that he was dismissed from employment without just or lawful cause and without due process. Polyfoam did not offer any explanation of such dismissal. It, instead, explained that respondent real employer is Gramaje. Gramaje, on the other hand, denied the claim of illegal dismissal. She shifted the blame on respondent claiming that the latter in fact abandoned his work.

The LA gave credence to respondent narration of the circumstances of the case. Said conclusion was affirmed by the CA. We find no reason to depart from such findings.

Abandonment cannot be inferred from the actuations of respondent. When he discovered that his time card was off the rack, he immediately inquired from his supervisor. He later sought the assistance of his counsel, who wrote a letter addressed to Polyfoam requesting that he be re-admitted to work. When said request was not acted upon, he filed the instant illegal dismissal case. These circumstances clearly negate the intention to abandon his work.

Petitioners failed to show any valid or authorized cause under the Labor Code which allowed it to terminate the services of respondent. Neither was it shown that respondent was given ample opportunity to contest the legality of his dismissal. No notice of termination was given to him. Clearly, respondent was not afforded due process. Having failed to establish compliance with the requirements of termination of employment under the Labor Code, the dismissal of respondent was tainted with illegality. Consequently, respondent is entitled to reinstatement without loss of seniority rights, and other privileges and to his full backwages inclusive of allowances and to his other benefits or their monetary equivalent computed from the time his compensation was withheld up to the time of his actual reinstatement. However, if reinstatement is no longer feasible as in this case, separation pay equivalent to one-month salary for every year of service shall be awarded as an alternative. Thus, the CA is correct in affirming the LA award of separation pay with full backwages and other monetary benefits.