"Brotherhood" Labor Unity Movement of the Philippines vs. Zamora

An employer-employee relationship exists where the principal supplies the premises, tools, equipment, and paraphernalia used by the workers, exercises control over the means and methods of work and disciplinary measures, and the alleged contractor lacks substantial capital or investment — indicating a prohibited labor-only contracting scheme under Article 106 of the Labor Code, rendering the principal the direct employer.

The petitioners were members of the "Brotherhood" Labor Unity Movement of the Philippines (BLUM), a labor union. The individual petitioners worked as "cargadores" or "pahinante" at the San Miguel Corporation Parola Glass Factory, engaged in loading, unloading, piling, and palleting empty bottles and wooden shells to and from company trucks and warehouses. San Miguel Corporation, a large commercial enterprise, maintained a shipping and warehousing department at its glass plant and claimed that the workers were not its employees but rather employees of an independent labor contractor called Guaranteed Labor Contractor. The dispute originated in 1969 when the workers organized and affiliated with BLUM, pressed management for benefits, and were subsequently dismissed — giving rise to charges of illegal dismissal and unfair labor practice originally filed with the Court of Industrial Relations, which was later abolished and replaced by the National Labor Relations Commission.

The individual petitioners were workers employed at the San Miguel Corporation Parola Glass Factory since 1961, averaging about seven years of service at the time of their termination. They worked as "cargadores" or "pahinante," loading, unloading, piling, or palleting empty bottles and wooden shells to and from company trucks and warehouses, and at times accompanying company trucks on delivery routes. They first reported for work to Superintendent-in-Charge Camahort, who issued them gate passes and provided the tools, equipment, and paraphernalia used in the loading, unloading, piling, and hauling operations. Job orders emanated from Camahort and were transmitted through an assistant-officer-in-charge to warehousemen and checkers, who relayed them to capatazes or group leaders, who in turn directed the workers as to where, when, and what to load, unload, pile, pallet, or clean.

Work at the glass factory was neither regular nor continuous, depending wholly on the volume of bottles manufactured and the company's business activity. Work did not necessarily fill an eight-hour day, though at times it exceeded eight hours and required work on Sundays and holidays, for which the petitioners received neither overtime nor holiday pay. Petitioners were paid every ten days on a piece-rate basis, according to the number of cartons and wooden shells they loaded, unloaded, or piled. The group leader recorded each worker's output, which was compared against the notes of the checker and warehousemen for verification, with final approval by officer-in-charge Camahort. Paychecks were given to group leaders for encashment, distribution, and payment to the petitioners according to payrolls prepared by the leaders. From the group's total earnings, the group leader received a ten-percent share plus an additional amount from each individual worker's earnings. The petitioners worked exclusively at the SMC plant and were never assigned to other companies or departments, even when work volume was minimal. When glass furnaces broke down and shutdowns were necessary, the petitioners' work was temporarily suspended, but they would return to the glass plant thereafter.

Sometime in January 1969, the petitioner workers, numbering one hundred and forty, organized and affiliated with the petitioner union BLUM and engaged in union activities. Believing themselves entitled to overtime and holiday pay, the petitioners pressed management, airing grievances including being paid below the minimum wage, inhumane treatment, being forced to borrow at usurious rates, and being coerced into buying raffle tickets through salary withholding. These grievances were not heeded. On February 6, 1969, BLUM filed a notice of strike with the Bureau of Labor Relations in connection with the dismissal of members allegedly castigated for union membership. Several conciliation conferences were scheduled. On February 12, 1969, union member Rogelio Dipad was dismissed. At the February 19, 1969 conference, the union presented a letter containing labor demands and a request for recognition and collective bargaining. San Miguel refused to bargain, alleging the workers were not its employees.

On February 20, 1969, all the petitioners were dismissed from their jobs and thereafter denied entrance to the glass factory despite regularly reporting for work. SMC claimed the workers were employees of Guaranteed Labor Contractor, an independent labor contracting firm, and that the company never had control over the means and methods followed by the contractor. The records, however, showed that no written contract existed specifying the performance of work, the nature and extent of the work, or the term and duration of the relationship between SMC and the alleged contractor. The premises, tools, equipment, and paraphernalia used by the petitioners were all supplied by SMC, and even the alleged contractor's office — consisting of space at SMC's warehouse, a table, chair, typewriter, and cabinet — was provided by the company. The alleged contractor had no substantial capital or investment. The shutdown that SMC cited as the reason for dismissal was merely temporary, caused by a furnace needing repair; operations resumed after repairs, but the petitioners had already been refused entry and new workers manned their positions.

• Employer-Employee Relationship: Petitioners strongly argued that an employer-employee relationship existed between them and respondent San Miguel Corporation, and that they were dismissed for unionism, constituting unfair labor practice for which respondents must be made to answer.
• Regular Employment Status: Petitioners contended that having worked continuously and exclusively at SMC's plant for an average of seven years, they were engaged to perform activities necessary or desirable in the usual business or trade of the respondent, making them regular employees.
• Labor-Only Contracting: Petitioners' position was supported by evidence showing that the alleged contractor lacked substantial capital, that SMC supplied all tools, equipment, and premises, and that SMC exercised control over the workers, indicating a prohibited labor-only contracting scheme.

• Independent Contractor Relationship: Respondent SMC moved for dismissal of the complaint on the ground that the complainants were not and had never been employees of the respondent company but employees of an independent contractor, and that SMC never had control over the means and methods followed by the contractor who enjoyed full authority to hire and control said employees.
• Estoppel: Respondent argued that the individual complainants were barred by estoppel from asserting that they were employees of the respondent company.
• Piece-Rate Basis: Respondent contended that the petitioners were not employees because they worked on a piece-rate basis.
• Refusal to Bargain Justified: Respondent refused to bargain with the petitioner union on the ground that the workers were not its employees.
• Retrenchment Due to Shutdown: Respondent characterized the dismissal as retrenchment due to closure or cessation of operations of the glass manufacturing plant.

• Employer-Employee Relationship: Whether an employer-employee relationship existed between the petitioner-workers and San Miguel Corporation, or whether they were employees of an independent contractor.
• Labor-Only Contracting: Whether the arrangement between SMC and the alleged labor contractor constituted a prohibited labor-only contracting scheme.
• Regular Employment: Whether the petitioners were regular employees of SMC given the nature and duration of their work.
• Unfair Labor Practice — Refusal to Bargain: Whether SMC's refusal to bargain with the petitioner union constituted unfair labor practice.
• Validity of Dismissal: Whether the dismissal of the petitioners was lawful or constituted illegal dismissal.

• Employer-Employee Relationship: Yes. The four-fold test, particularly the control test, was satisfied: SMC selected and engaged the workers, paid their wages through the group leaders, exercised the power of dismissal, and controlled the means and methods of work as well as disciplinary measures.
• Labor-Only Contracting: Yes. The alleged contractor had neither substantial capital nor investment; all premises, tools, and equipment were supplied by SMC, and the contractor supplied only manpower, constituting labor-only contracting prohibited under Articles 106 and 109 of the Labor Code.
• Regular Employment: Yes. The petitioners worked continuously and exclusively for SMC for an average of seven years, performing activities necessary or desirable in the usual business of the company, making them regular employees notwithstanding the piece-rate method of compensation and intermittent work schedules.
• Unfair Labor Practice — Refusal to Bargain: No. SMC had an existing collective bargaining agreement with the IBM union, the recognized bargaining representative at the glass plant; the petitioners could not merely form a union and demand bargaining without following the proper procedure for recognition as sole bargaining representative under the Labor Code.
• Validity of Dismissal: No. The shutdown was merely temporary and was used as a ploy to get rid of the petitioners who were agitating for benefits, reforms, and collective bargaining; there was no showing that the petitioners had been remiss in their obligations or inefficient in their jobs.

• Employer-Employee Relationship: The Court applied the four-fold test: (a) selection and engagement of the employee; (b) payment of wages; (c) power of dismissal; and (d) the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished. The control test is the most important element. The evidence showed that job orders emanated from SMC's Superintendent-in-Charge Camahort, transmitted through an assistant-officer-in-charge to warehousemen, checkers, and group leaders who directed the workers. SMC provided the tools, equipment, and paraphernalia. Paychecks were distributed through group leaders based on payrolls verified by SMC's checkers and warehousemen and approved by Camahort. Inter-office memoranda established SMC's right to impose disciplinary measures, recommend transfers, and dismiss workers — even over Abner Bungay, whom SMC alleged to be a representative of the labor contractor. No evidence showed that the alleged contractor possessed such control or even supervised the workers. The absence of a written contract specifying the nature, extent, and duration of the work was highly unusual for a large commercial outfit like SMC, casting serious doubt on the independent contractor claim.

• Labor-Only Contracting: Under Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code, permissible job contracting requires that the contractor carry on an independent business with its own responsibility, free from the control and direction of the employer, and that the contractor have substantial capital or investment in the form of tools, equipment, machinery, work premises, and other materials. The Court found that the alleged contractors had neither substantial capital nor investment. All premises, tools, equipment, and paraphernalia were supplied by SMC; even the contractor's office space, table, chair, typewriter, and cabinet were provided by the company. The contractor supplied only manpower, which is the hallmark of labor-only contracting prohibited under Article 106 and Section 9(b), Rule VIII, Book III of the Implementing Rules. Under Article 106, the intermediary is considered merely an agent of the employer, who is responsible to the workers as if they were directly employed. Furthermore, the payment scheme — where SMC paid the alleged contractor a lump sum representing only the workers' salaries without any allowance for business expenses or capital outlay, and the contractor derived its profit from a percentage of the workers' earnings — confirmed the absence of a genuinely independent contractor relationship, as distinguished from the rule in Social Security System vs. Court of Appeals where fees in a true independent contractor relationship are paid in lump sum without indicating a per-worker salary basis.

• Regular Employment: The petitioners worked continuously and exclusively at SMC's plant for an average of seven years, performing loading, unloading, piling, and palleting — activities necessary or desirable in SMC's glass manufacturing and distribution business. Despite temporary shutdowns for furnace repairs, the petitioners promptly returned to work and were never replaced or assigned elsewhere until the controversy arose. The continuity and habituality of their work, and the indefinite term of their employment, established regular employment status. The piece-rate method of compensation did not negate employee status, as payment by the piece is merely a method of compensation and does not define the essence of the employment relationship. The Court cited Dy Keh Beng vs. International Labor and Marine Union of the Philippines for the principle that piece-rate payment in an establishment is merely a yardstick for determining the rate of compensation and does not give the employer complete liberty to turn out workers at pleasure.

• Unfair Labor Practice — Refusal to Bargain: The Court found that SMC had an existing collective bargaining agreement with the IBM union, which was the recognized collective bargaining representative at the respondent's glass plant. Because a recognized bargaining representative already existed for all employees at the plant, the petitioners could not simply form a union and demand bargaining. The Labor Code provides the proper procedure for the recognition of unions as sole bargaining representatives, which must be followed. SMC's refusal to bargain with BLUM was therefore not unfair labor practice.

• Validity of Dismissal: SMC characterized the dismissal as retrenchment due to closure or cessation of operations. The Court found, however, that the shutdown was merely temporary — one of the furnaces needed repair, and operations resumed afterward. The petitioners had already been refused entry and dismissed, with new workers taking their positions. The closure was a ploy to remove the petitioners, who were agitating for benefits, reforms, and collective bargaining. There was no showing that the petitioners had been remiss in their obligations or inefficient in their jobs to warrant separation. The dismissal was therefore illegal.

• Four-Fold Test for Employer-Employee Relationship — The existence of an employer-employee relationship is determined by four elements: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished. The control test is the most important element. In this case, all four elements were satisfied: SMC engaged the workers, paid wages through group leaders, exercised the power of dismissal, and controlled the means and methods of work and disciplinary measures.

• Labor-Only Contracting Doctrine — Under Article 106 of the Labor Code, where the contractor supplies only manpower and lacks substantial capital or investment in tools, equipment, machinery, work premises, and other materials, the arrangement constitutes labor-only contracting, and the intermediary is considered merely an agent of the employer who is responsible to the workers as if they were directly employed. The Court found that the alleged contractor had no capital outlay, with all premises, tools, and equipment supplied by SMC, and the contractor's profit derived from a percentage of workers' earnings rather than from an independent business.

• Regular Employment Doctrine — Employees engaged to perform activities necessary or desirable in the usual business or trade of the employer are regular employees, regardless of the piece-rate method of compensation or intermittent work schedules. The continuity, habituality, and exclusivity of work over an indefinite period establish regular employment status. Payment by the piece is merely a method of compensation and does not define the essence of the employment relationship.

• Sole Bargaining Representative Doctrine — Where a recognized collective bargaining representative already exists under an existing collective bargaining agreement, a newly formed union cannot simply demand bargaining; the proper procedure under the Labor Code for recognition as sole bargaining representative must be followed.

• "It is the called 'control test' that is the most important element" — This passage identifies the control test as the paramount criterion among the four-fold test elements for determining the existence of an employer-employee relationship, a principle consistently applied in Philippine labor jurisprudence.

• "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." — This quotation of Article 106 of the Labor Code establishes the legal effect of labor-only contracting: the employer-principal is directly responsible to the workers as if they were its own employees, a doctrine central to the Court's ruling that SMC was the petitioners' employer.

• "[C]ircumstances must be construed to determine indeed if payment by the piece is just a method of compensation and does not define the essence of the relation. Units of time . . . and units of work are in establishments like respondent (sic) just yardsticks whereby to determine rate of compensation, to be applied whenever agreed upon. We cannot construe payment by the piece where work is done in such an establishment so as to put the worker completely at liberty to turn him out and take in another at pleasure." — This passage from Dy Keh Beng vs. International Labor and Marine Union of the Philippines articulates the principle that piece-rate compensation does not negate the existence of an employer-employee relationship, a key rationale for rejecting SMC's argument that the petitioners were not employees because they were paid on a piece basis.

• Investment Planning Corp. of the Phils. vs. The Social Security System, 21 SCRA 924 — Cited as authority for the four-fold test and the primacy of the control test in determining employer-employee relationship.
• Mafinco Trading Corp. vs. Ople, 70 SCRA 139 — Cited for the proposition that some businessmen try to avoid creating an employer-employee relationship because of the obligations it spawns, and for the control test as the most important element.
• Rosario Brothers, Inc. vs. Ople, 131 SCRA 72 — Cited as additional authority for the control test in determining the existence of an employer-employee relationship.
• Phil. Fishing Boat Officers and Engineers Union vs. Court of Industrial Relations, 112 SCRA 159 — Cited for the principle that workers engaged in activities necessary or desirable in the usual business of the employer are regular employees.
• RJL Martinez Fishing Corporation vs. National Labor Relations Commission, 127 SCRA 454 — Cited and quoted at length for the doctrine that the employer-employee relationship is not coterminous with each loading and unloading job where the activities performed are necessary or desirable in the employer's business, making employment regular rather than seasonal.
• Social Security System vs. Court of Appeals, 39 SCRA 629 — Cited for the rule that in a truly independent contractor-contractee relationship, fees are paid in lump sum to the manpower agency without indicating a per-worker salary basis, which was absent in this case.
• Dy Keh Beng vs. International Labor and Marine Union of the Philippines, 90 SCRA 161 — Cited and quoted for the principle that piece-rate payment is merely a method of compensation and does not define the essence of the employment relationship.

• Article 106, Labor Code — Defines labor-only contracting and provides that the person or intermediary in a labor-only contracting scheme shall be considered merely as an agent of the employer, who shall be responsible to the workers as if they were directly employed. Applied to find SMC directly liable as employer because the alleged contractor supplied only manpower without substantial capital.
• Article 109, Labor Code — Cited alongside Article 106 in support of the prohibition against labor-only contracting.
• Section 8, Rule VIII, Book III, Implementing Rules of the Labor Code — Sets forth the two conditions for permissible job contracting: (1) the contractor carries on an independent business under his own responsibility, free from the control and direction of the employer except as to results; and (2) the contractor has substantial capital or investment in tools, equipment, machinery, work premises, and other materials. Applied to determine that the alleged contractor failed both conditions.
• Section 9(b), Rule VIII, Book III, Implementing Rules and Regulations of the Labor Code — Defines labor-only contracting as a prohibited scheme where the contractor supplies only manpower. Applied to characterize the arrangement between SMC and the alleged contractor.
• Section 4(a), subsections (1) and (4), Republic Act No. 875 — The unfair labor practice provisions under which the original complaint was filed, alleging that respondents ordered workers to disaffiliate from the union and dismissed them for insisting on union membership.

Feria (Chairman), Fernan, Alampay, and Paras, JJ., concurred.