Añonuevo vs. CBK Power Company, Ltd.

A contractor is presumed to be engaged in labor-only contracting absent proof of DOLE registration and substantial capital or investment, and where the principal retains control over the workers' performance; in such cases, the contractor is deemed merely an agent of the principal, and the workers are considered regular employees of the principal who may not be dismissed except for just or authorized cause.

CBK Power Company, Ltd. is a duly registered partnership engaged in power production, awarded the contract for operating the Kalayaan, Botocan, and Caliraya Power Plants owned by the National Power Corporation under a Build Rehabilitate Operate and Transfer Agreement. Pursuant to that agreement, CBK absorbed NAPOCOR employees for its core operations and contracted out temporary, incidental, non-core jobs to external manpower providers. Petitioner Edward R. Añonuevo sought employment directly with CBK but was directed to apply through Rolpson Enterprise, one of CBK's manpower providers, and later through TCS Manpower Services, Inc. The legal framework governing the contracting-out of labor is Article 106 of the Labor Code, as implemented by Department Order No. 18-02 (Series of 2002) and Department Order No. 18-A (Series of 2011), which distinguish legitimate job contracting from prohibited labor-only contracting.

On or about July 10, 2008, Edward R. Añonuevo went to the office of CBK's Human Resources Department in Kalayaan, Laguna to apply for work as a maintenance technician at CBK's Kalayaan Power Plant. He was instructed by CBK's staff to apply instead with Rolpson Enterprise, one of CBK's manpower providers. On the same day, Añonuevo went to Rolpson's office, where he was told that while he would work at CBK, he would receive his salary from Rolpson. On July 14, 2008, he commenced work at CBK's Kalayaan Power Plant under the Quality Management System Department. There was no written contract between Añonuevo and Rolpson.

On June 15, 2010, Añonuevo was informed by CBK that from then on, he would be receiving his salary from TCS Manpower Services, Inc. instead of Rolpson. Thereafter, on March 9, 2011, TCS required Añonuevo to sign two employment contracts: one covering the period June 16, 2010 to November 15, 2010, and another covering November 16, 2010 to April 15, 2011. Añonuevo continued performing the same tasks at CBK's premises as he had since 2008. He maintained that it was CBK, not TCS, that controlled his work — CBK's officers and employees gave him orders, reviewed his reports, and prepared his on-call duty schedule — and that CBK supplied all the tools and equipment he used, including computers, testing instruments, office supplies, and vehicles.

On December 14, 2012, TCS informed Añonuevo that his employment at CBK would be terminated effective December 31, 2012 in view of the expiration of the service contract between TCS and CBK. On December 19, 2012, Añonuevo reported for work but was escorted out of CBK's premises upon the order of Servillano Dunglao, CBK's Vice-President for Administration, who declared that Añonuevo was no longer allowed inside CBK's premises as he had already been terminated. This prompted Añonuevo to file a complaint for illegal dismissal, regularization, attorney's fees, and moral and exemplary damages against CBK, Hiroshi Tanimura (CBK's Chief Administrative Officer), Dunglao, and TCS.

CBK, Tanimura, and Dunglao denied any employment relationship with Añonuevo, asserting that CBK contracted out temporary and incidental non-core jobs to legitimate job contractors such as TCS. TCS, which intervened in the case, claimed to be Añonuevo's employer and a duly registered independent contractor with a valid service contract with CBK. TCS stated that it hired Añonuevo on June 16, 2010 as an IT Technician assigned to CBK, that Añonuevo's employment contract was automatically renewed following the renewal of TCS's contract with CBK, and that on December 12, 2012, it informed Añonuevo of the expiration of the service contract and directed him to report to TCS's head office, which Añonuevo did not comply with.

The Labor Arbiter dismissed the complaint, finding TCS a legitimate job contractor and ruling that no employer-employee relationship existed between Añonuevo and CBK. The NLRC affirmed, additionally finding that Añonuevo, as an IT Technician, was not performing tasks necessary and desirable to CBK's power production business. The CA dismissed Añonuevo's petition for certiorari, applying the four-fold test and agreeing that no employer-employee relationship existed between CBK and Añonuevo.

• Labor-Only Contracting: Petitioner maintained that Rolpson and TCS were labor-only contractors because it was CBK that controlled the performance of his work and supplied all the tools and equipment he used, including computers, testing instruments, office supplies, and vehicles.
• Regular Employment: Petitioner argued that since there was no written contract between him and Rolpson, he became CBK's regular employee on his first day of work on July 14, 2008, having performed activities necessary and desirable to CBK's electric power generation business, such as monitoring and reporting on contractors' rehabilitation and repair activities, performing IT jobs, safety patrol duties, and computer drawing.
• Illegal Dismissal: Petitioner contended that at the time of his dismissal, there was no longer any subsisting contract between him and TCS, and that he was illegally dismissed by CBK because there was no just or authorized cause warranting the termination of his employment.
• Control by CBK: Petitioner alleged that his Daily Time Records were certified not by TCS but by CBK, and that his email correspondence with CBK's officers and employees, as well as reports he prepared, showed that CBK gave him orders and reviewed his work without interference from TCS.

• No Employer-Employee Relationship with CBK: CBK, Tanimura, and Dunglao denied any employment relationship between CBK and Añonuevo, arguing that CBK is a partnership engaged in power production that contracted out temporary and incidental non-core jobs to legitimate job contractors such as TCS.
• Lack of Jurisdiction: CBK maintained that the complaint should be dismissed in relation to CBK on the ground of lack of jurisdiction because, applying the four-fold test, CBK was not the employer of Añonuevo.
• TCS as Legitimate Contractor: TCS averred that it was Añonuevo's employer and a duly registered independent contractor with a valid service contract with CBK, that it hired Añonuevo on June 16, 2010 as an IT Technician assigned to CBK, and that Añonuevo's employment contract was automatically renewed following the renewal of TCS's contract with CBK.
• Non-Compliance with Directive: TCS claimed that on December 12, 2012, it informed Añonuevo of the expiration of the service contract and directed him to report to TCS's head office, but Añonuevo did not comply with the directive.

• Grave Abuse of Discretion: Whether the CA erred in holding that the NLRC committed no grave abuse of discretion in finding that Añonuevo was not a regular employee of CBK.
• Labor-Only Contracting (Rolson): Whether Rolpson was a labor-only contractor, such that Añonuevo should be deemed a regular employee of CBK from his first day of work in 2008.
• Labor-Only Contracting (TCS): Whether TCS was a labor-only contractor, notwithstanding its DOLE Certificate of Registration and substantial paid-up capital.
• Illegal Dismissal: Whether Añonuevo was illegally dismissed, given the finding that both Rolpson and TCS were labor-only contractors.
• Damages and Attorney's Fees: Whether Añonuevo was entitled to moral and exemplary damages and attorney's fees.

• Grave Abuse of Discretion: Yes. The CA erred in finding no grave abuse of discretion, as the evidence was insufficient to support the conclusion that Añonuevo was an employee of TCS rather than CBK.
• Labor-Only Contracting (Rolson): Yes. Rolpson was a labor-only contractor because it lacked DOLE registration, giving rise to the presumption of labor-only contracting, which CBK failed to overcome with proof of substantial capital or investment.
• Labor-Only Contracting (TCS): Yes. TCS was a labor-only contractor because its registration was defective — it supplied manpower to CBK before its Certificate of Registration was issued — and the evidence of TCS's control over Añonuevo's work was insufficient, while CBK plainly exercised control.
• Illegal Dismissal: Yes. Añonuevo was illegally dismissed, as his termination was predicated solely on the expiration of TCS's contract with CBK, which is not a just or authorized cause for terminating a regular employee.
• Damages and Attorney's Fees: Yes. Respondents acted in bad faith by employing a scheme to evade being identified as Añonuevo's employer, warranting moral and exemplary damages of PHP 50,000.00 each and 10% attorney's fees.

• Grave Abuse of Discretion: In labor cases, a petition for review on certiorari under Rule 45 is limited to determining whether the CA was correct in finding the presence or absence of grave abuse of discretion on the part of the NLRC. Grave abuse of discretion exists when the NLRC's findings and conclusions are not supported by substantial evidence — that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. The Court found that the evidence relied upon by the Labor Arbiter, the NLRC, and the CA was insufficient to support their conclusion that Añonuevo was an employee of TCS; on the contrary, the evidence pointed to CBK as Añonuevo's real employer. The Court also noted that the lower tribunals skirted the issue of whether Rolpson was a labor-only contractor, which Añonuevo had squarely raised.

• Labor-Only Contracting (Rolson): Under Article 106 of the Labor Code, labor-only contracting exists where the person supplying workers does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, and the workers are performing activities directly related to the principal business of the employer. The general presumption is that a contractor is engaged in labor-only contracting, placing the burden on respondents to prove otherwise. Pursuant to Section 11 of DO 18-02, failure to register with the DOLE gives rise to the presumption that the contractor is engaged in labor-only contracting. CBK failed to present Rolpson's Certificate of Registration, and adduced no proof that Rolpson had substantial capital, investment, or assets. The presumption that Rolpson was a labor-only contractor therefore stood unrebutted. A finding that a contractor is a labor-only contractor is equivalent to a declaration that an employer-employee relationship exists between the principal and the workers; the labor-only contractor is deemed merely an agent of the principal. Since Añonuevo worked at CBK's Kalayaan Power Plant from 2008 until his dismissal in 2012, and performed the same tasks after his purported transfer to TCS in 2010, the engagement of Añonuevo by TCS was a mere ruse to avoid CBK being identified as the direct employer and bearing the consequences of regularization.

• Labor-Only Contracting (TCS): A Certificate of Registration is not conclusive evidence of being a legitimate job contractor; it merely prevents the presumption of labor-only contracting and gives rise to a disputable presumption of legitimacy. TCS's registration suffered from a defect: Añonuevo started working at CBK in 2008, TCS employed him on June 16, 2010, and the earliest service contract between TCS and CBK on record was executed on February 19, 2009, while TCS's Certificate of Registration was issued only on September 22, 2011. There was no basis to give the registration retroactive effect, indicating that TCS supplied manpower to CBK without DOLE authorization and giving rise to the presumption of labor-only contracting. Under Section 6 of DO 18-A, labor-only contracting exists if the contractor lacks substantial capital related to the job and the workers perform activities directly related to the principal's main business, or if the contractor does not exercise the right to control over the performance of the work. Although TCS met the PHP 3,000,000.00 paid-up capital threshold with PHP 10,000,000.00 in 2012, the record was bereft of proof that TCS's capital was related to the job or service it undertook. More importantly, proof of substantial capital does not immunize an entity from a finding of labor-only contracting when control over the employees resides in the principal. The evidence relied upon by the CA — TCS's Inter Office Memorandum Order, Retarino's Affidavit, and Añonuevo's Daily Time Records — did not constitute substantial evidence that TCS exercised control. The memorandum only showed that Retarino was assigned as project supervisor, not that he actually supervised Añonuevo. Retarino's affidavit merely averred generally that TCS monitored Añonuevo without stating how. The Daily Time Records bore identical signatures for "checked by," "certified by," and "client's signature," bolstering Añonuevo's claim that CBK, not TCS, certified his records — an allegation neither CBK nor TCS refuted. Añonuevo's email correspondence and reports showed that CBK's officers gave him orders and reviewed his work, and CBK prepared his on-call duty schedule. Even if both parties presented substantial evidence, the equipoise rule tilts the scales in favor of labor.

• Illegal Dismissal: Regular employees may only be terminated for just or authorized cause. This applies in cases of labor-only contracting, where the law creates an employer-employee relationship between the principal and the employees of the purported contractor. Añonuevo's employment was terminated due to the expiration of CBK's contract with TCS. Because Rolpson and TCS were labor-only contractors, Añonuevo was by operation of law CBK's employee and could not be validly dismissed on the ground of the expiration of TCS's contracting agreement with CBK. Having been terminated without lawful cause, he was entitled to reinstatement without loss of seniority rights and other privileges, or separation pay if reinstatement is no longer feasible, plus full backwages inclusive of allowances and benefits pursuant to Article 279 of the Labor Code.

• Damages and Attorney's Fees: Moral damages are awarded in illegal dismissal cases when the employer acted in bad faith or fraud, oppressively to labor, or contrary to morals, good customs, or public policy. Exemplary damages may be imposed by way of example or correction for the public good. Respondents acted in bad faith by employing a scheme through CBK and TCS designed to allow CBK to evade being identified as Añonuevo's employer and the consequences of his regularization. Because Añonuevo's dismissal resulted from prohibited labor-only contracting and respondents' unjust acts compelled him to litigate to protect his rights, moral and exemplary damages of PHP 50,000.00 each and 10% attorney's fees were deemed reasonable, to be paid jointly and solidarily by respondents pursuant to Article 109 of the Labor Code. Monetary awards are subject to 6% interest per annum from finality of the decision until full payment, per Nacar vs. Gallery Frames.

• Presumption of Labor-Only Contracting — The general presumption is that a contractor is engaged in labor-only contracting, placing the burden on the employer or contractor to prove legitimacy. Failure of a contractor to register with the DOLE gives rise to the presumption that it is engaged in labor-only contracting. This presumption prevails unless the contractor overcomes the burden of proving it has substantial capital, investment, tools, and the like. The Court applied this doctrine to Rolpson, which lacked DOLE registration and for which no proof of substantial capital was adduced.

• Effect of Labor-Only Contracting on Employer-Employee Relationship — A finding that a contractor is a labor-only contractor is equivalent to a declaration that an employer-employee relationship exists between the principal and the workers of the labor-only contractor. The labor-only contractor is deemed merely an agent of the principal, who shall be responsible to the workers in the same manner and extent as if they were directly employed. The Court applied this to hold that Añonuevo was a regular employee of CBK by operation of law.

• Certificate of Registration as Disputable Presumption — A DOLE Certificate of Registration is not conclusive evidence of being a legitimate job contractor. It merely prevents the presumption of labor-only contracting and gives rise to a disputable presumption that the contractor is legitimate. This presumption may be overcome by evidence that the contractor does not exercise control over the employees or that its capital is unrelated to the job performed. The Court applied this to TCS, whose registration was defective and whose control over Añonuevo was not substantiated.

• Right to Control as Determinative Factor — The right to control — the right reserved to the person for whom services are performed to determine not only the end to be achieved but also the manner and means used in reaching that end — is the most important criterion in determining the existence of an employer-employee relationship. Proof of substantial capital does not make an entity immune to a finding of labor-only contracting when control over the employees resides in the principal. The Court found that CBK, not TCS, exercised control over Añonuevo's work.

• Equipoise Rule in Labor Cases — Where both parties present substantial evidence to support their allegations, the equipoise rule dictates that the scales of justice be tilted in favor of labor, in line with the State's policy to afford greater protection to labor. The Court invoked this rule as an additional basis for finding that TCS was a labor-only contractor.

• Exception to Finality of Administrative Findings of Fact — While findings of fact of quasi-judicial bodies, especially when affirmed by the CA, are generally accorded finality and respect, this Court is not completely precluded from revisiting them when administrative bodies grossly misappreciated evidence of such nature as to compel a contrary conclusion. Factual findings of administrative agencies are not infallible and will be set aside when they fail the test of arbitrariness. The Court applied this exception to reverse the CA, NLRC, and Labor Arbiter's findings on control.

• "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." — This passage reproduces the statutory definition of labor-only contracting under Article 106 of the Labor Code, which the Court applied to find both Rolpson and TCS to be labor-only contractors.

• "A finding that a contractor is a labor-only contractor is equivalent to a declaration that there is an employer-employee relationship between the principal and the workers of the labor-only contractor; the labor-only contractor is deemed only as the agent of the principal." — This passage articulates the legal consequence of labor-only contracting: the principal becomes the employer by operation of law, which was the ratio decidendi for declaring Añonuevo a regular employee of CBK.

• "The Court stresses that a Certificate of Registration is not conclusive evidence of being a legitimate job contractor. It merely prevents the presumption of labor-only contracting and gives rise to a disputable presumption that the contractor is legitimate." — This passage defines the evidentiary weight of a DOLE Certificate of Registration, a doctrine frequently cited in subsequent labor contracting jurisprudence.

• "To be sure, even if both parties in this case have presented substantial evidence to support their allegations, the equipoise rule dictates that the scales of justice be tilted in favor of labor. This is in line with the policy of the State to afford greater protection to labor." — This passage states the equipoise rule as applied in labor cases, reinforcing the constitutional policy of social justice and protection to labor.

• Manila Cordage Company-Employees Labor Union vs. Manila Cordage Co., G.R. Nos. 242495-96, September 16, 2020 — Cited for the propositions that a petition for review on certiorari under Rule 45 in labor cases is limited to determining grave abuse of discretion by the NLRC, and that a Certificate of Registration merely gives rise to a disputable presumption of legitimate contracting.

• Abuda vs. L. Natividad Poultry Farms, 835 Phil. 554 (2018) — Cited for the principle that labor-only contracting is prohibited as a circumvention of labor laws, and that failure to register gives rise to the presumption of labor-only contracting.

• Alaska Milk Corporation vs. Paez, G.R. No. 237277, November 27, 2019 — Cited for the principle that a Certificate of Registration cannot be given retroactive effect, and that the right to control is the most important criterion in determining employer-employee relationship.

• Aklan Electric Cooperative, Inc. vs. National Labor Relations Commission, 380 Phil. 225 (2000) — Cited for the exception to the rule of finality of administrative findings of fact: that this Court may reverse factual findings of administrative bodies when they grossly misappreciated evidence or fail the test of arbitrariness.

• Ortiz vs. Forever Richsons Trading Corp., G.R. No. 238289, January 20, 2021 — Cited for the principle that in labor-only contracting there is no contracting and no contractor, only the employer's representative who gathers and supplies people, and for the rule on reinstatement and backwages under Article 279.

• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Cited for the rule that monetary awards in labor cases are subject to 6% interest per annum from finality of the decision until full payment.

• Article 106, Labor Code — Governs job contracting and subcontracting. Defines labor-only contracting as existing where the person supplying workers lacks substantial capital or investment and the workers perform activities directly related to the principal's business. Provides that in labor-only contracting, the intermediary is considered merely an agent of the employer, who is responsible to the workers as if directly employed. The Court applied this provision to find both Rolpson and TCS to be labor-only contractors and CBK as Añonuevo's employer.

• Article 279, Labor Code — Provides that an employee unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges, full backwages inclusive of allowances and benefits, or separation pay if reinstatement is no longer feasible. The Court applied this provision to award reinstatement and backwages to Añonuevo.

• Article 109, Labor Code — Provides for joint and solidary liability of the employer and contractor in labor-only contracting arrangements. The Court applied this provision to hold respondents jointly and solidarily liable for the monetary awards.

• Section 11, Department Order No. 18-02, Series of 2002 — Establishes the registration system for contractors and subcontractors and provides that failure to register gives rise to the presumption that the contractor is engaged in labor-only contracting. The Court applied this provision to Rolpson, which had no DOLE registration.

• Section 6, Department Order No. 18-A, Series of 2011 — Defines the elements of labor-only contracting: (i) the contractor lacks substantial capital related to the job and the workers perform activities directly related to the principal's main business; or (ii) the contractor does not exercise the right to control over the performance of the work. The Court applied this provision to TCS, finding that while TCS had substantial capital, it did not exercise control over Añonuevo's work.

• Section 3(1) and 3(i), Department Order No. 18-A, Series of 2011 — Defines "substantial capital" as paid-up capital of at least PHP 3,000,000.00 for corporations, partnerships, and cooperatives, and "right to control" as the right to determine not only the end to be achieved but also the manner and means used in reaching that end. The Court applied these definitions in evaluating TCS's capital and control.

Caguioa (Chairperson), Inting, Gaerlan, and Dimaampao, JJ., concurred. No separate concurring opinions were noted.