Consolidated Building Maintenance, Inc. and Sarah Delgado vs. Rolando Asprec, Jr. and Jonalen Bataller

A DOLE-registered contractor with substantial capital, an independent business, and the power to control its employees is a legitimate independent contractor, not a labor-only contractor; the principal is not the employer. Preventive suspension extended beyond the 30-day period without reinstatement or payment of wages and benefits, and an unproven lay-off without the required notice, constitute constructive illegal dismissal.

Petitioner Consolidated Building Maintenance, Inc. (CBMI), joined by its Human Resource Manager Sarah Delgado, is a corporation engaged in providing janitorial, kitchen, messengerial, elevator maintenance, and allied services to various entities. Among its clients is Philippine Pizza, Inc.-Pizza Hut (PPI), for which CBMI provides kitchen, delivery, sanitation, and other related services under one-year contracts of service. Respondents Rolando Asprec, Jr. and Jonalen Bataller were assigned to PPI's Pizza Hut branch at Marcos Highway, Marikina City, as rider/production person and team member/slice cashier, respectively. The dispute required application of the Labor Code's prohibition against labor-only contracting, its implementing rules on job contracting, and the Omnibus Rules on preventive suspension.

Consolidated Building Maintenance, Inc. (CBMI) is a corporation engaged in the business of providing janitorial, kitchen, messengerial, elevator maintenance, and allied services to various entities. Among its clients is Philippine Pizza, Inc.-Pizza Hut (PPI), for which CBMI provides kitchen, delivery, sanitation, and other related services pursuant to contracts of service valid for one-year periods. Contracts of services were executed between PPI and CBMI in 2000 and from 2002 until 2010.

Rolando Asprec, Jr. and Jonalen Bataller alleged that they were regular employees of PPI. Asprec stated that he began work as a "Rider" in January 2001, while Bataller began as "team member/slice cashier" in March 2008, both assigned at PPI's Pizza Hut, Marcos Highway, Marikina City Branch. In his Sinumpaang Salaysay dated February 8, 2011, Asprec averred that after his contract expired on November 4, 2001, PPI advised him to go on leave for one month and ten days. He was later called for an interview by PPI Area Manager Rommel Blanco; after passing, he was told to proceed to CBMI's office where he signed a contract. Except that payslips were then issued by CBMI, work proceeded as usual, with him assigned to the same branch and performing his usual duties as "Rider/Production Person."

Bataller narrated in her own Sinumpaang Salaysay dated February 8, 2011 that before the expiration of her employment contract, Pizza Hut Restaurant Manager Jun Samar informed her that, as a precondition for continued employment, she had to submit a resignation letter, pass through CBMI, and after six months go on vacation for one month. She was thereafter interviewed by PPI General Manager Edilberto Garcia. After passing the interview, PPI prepared her documents and forwarded them to CBMI. She resumed employment in December 2008 until July 23, 2010, assigned to the same branch, performing her usual duties, and receiving the same salary.

CBMI, for its part, posited that the respondents were its employees. CBMI claimed that the respondents were investigated based on an Incident Report by PPI's Store Manager Karl Clemente concerning an attempted theft on July 23, 2010. On that date, Jessie Revilla supposedly delivered an excess of two boxes to PPI's slice booth at the Light Rail Train (LRT) Santolan, Pasig Station, which the respondents failed to report. Asprec asserted that he had no knowledge of Revilla's actions and claimed that the matter was outside his responsibility as a "production person"; nonetheless, he claimed that on account of the incident he was suspended for eight days and eventually dismissed. Bataller, who was manning the slice booth at the LRT Santolan, Pasig Station on the day of the incident, claimed that when Revilla brought the three boxes of pizza she ordered, she was busy attending to customers and did not notice that there had been an excess in the delivery. Upon discovery, she called Revilla, but he was already far from the station and could no longer return; Revilla allegedly went back to get the two extra pizza boxes later that day. Bataller informed the area manager of the incident but was asked to proceed to PPI's Marcos Highway branch, where she was interviewed along with Asprec and Revilla and then told to report to the head office. Starting July 24, 2010, she was allegedly no longer allowed to return to work.

On November 12, 2010, the respondents filed their Complaint against the petitioners for constructive illegal dismissal, illegal suspension, and non-payment of separation pay. They argued that their transfer from PPI to CBMI constituted labor-only contracting and was a mere scheme by PPI to prevent their regularization, and that they were illegally dismissed without cause and due process of law. On December 20, 2010, they amended their Complaint by impleading PPI and including a prayer for reinstatement and payment of moral and exemplary damages and attorney's fees. The Labor Arbiter found that the respondents were employees of PPI and that the arrangement between CBMI and PPI constituted labor-only contracting. The NLRC found that the respondents were regular employees of CBMI. The Court of Appeals found that PPI, not CBMI, exercised control over the manner and method of the respondents' work.

• Independent Contractor Status: Petitioners maintained that CBMI is a legitimate independent contractor, citing its Certificate of Registration with the DOLE, its nearly 50 years of operation, its various institutional clients, its substantial capital, and its exercise of control over the respondents.
• Employment of Respondents: Petitioners posited that the respondents are employees of CBMI, not PPI.
• Illegal Dismissal and Monetary Awards: Petitioners alleged that the NLRC gravely abused its discretion in awarding backwages, separation pay, and attorney's fees despite the absence of a finding that the respondents had been illegally dismissed.
• Lay-off / Floating Status: CBMI alleged that the respondents were merely placed under "floating status" due to a decline in PPI's demand for their services, which it claimed was a valid exercise of management prerogative under Article 286 of the Labor Code.

• Regular Employment with PPI: Respondents asserted that the totality of evidence proved they were regular employees of PPI, not CBMI; their transfer to CBMI was a mere ploy to prevent their regularization, and they remained under the direct supervision of PPI.
• Labor-Only Contracting: Respondents argued that their transfer from PPI to CBMI constituted labor-only contracting and was a scheme by PPI to prevent their regularization.
• Illegal Dismissal: Respondents argued that they were illegally dismissed without cause and due process of law, and they filed the complaint for constructive illegal dismissal, illegal suspension, and non-payment of separation pay.
• Monetary Claims: Respondents prayed for reinstatement and payment of moral and exemplary damages and attorney's fees.

• Employment Status / Labor-Only Contracting: Whether the respondents are employees of CBMI, or whether CBMI is a labor-only contractor and PPI the true employer.
• Illegal Dismissal: Whether the respondents were illegally dismissed.
• Monetary Claims: Whether the respondents are entitled to backwages, separation pay, moral damages, exemplary damages, and attorney's fees.

• Employment Status / Labor-Only Contracting: Yes. The respondents are employees of CBMI, which is a legitimate independent contractor; it is not a labor-only contractor. Its DOLE registration, substantial capital, independent business, and right of control over the respondents negate labor-only contracting.
• Illegal Dismissal: Yes. The extension of the respondents' preventive suspension beyond 30 days without reinstatement or payment of wages and benefits, and the unproven lay-off without the required notice, rendered the suspension illegal and amounted to constructive dismissal.
• Monetary Claims: Yes, in part. The respondents are entitled to backwages, separation pay, and attorney's fees as awarded by the NLRC; the final award carries 6% interest per annum from finality. Moral and exemplary damages are not included in the reinstated NLRC Resolution.

• Employment Status / Labor-Only Contracting: Article 106 of the Labor Code defines labor-only contracting as an arrangement where a person who does not have substantial capital or investment supplies workers to an employer to perform activities directly related to the principal's business. DOLE Department Order No. 18-02, Series of 2002, Section 5, declares labor-only contracting prohibited when the contractor merely recruits, supplies, or places workers and either (i) lacks substantial capital or investment while the workers perform activities directly related to the principal's main business, or (ii) does not exercise the right to control the performance of the work. Job contracting is legitimate when the contractor has substantial capital or investment and runs a business independent and free from control by the principal; Norkis Trading Co., Inc. vs. Gnilo adds that the agreement must assure the contractual employees' entitlement to labor and occupational safety and health standards, self-organization, security of tenure, and social welfare benefits. Registration with the DOLE is required, but its absence merely gives rise to a presumption of labor-only contracting; registration is a strong badge of legitimacy. CBMI's DOLE Certificate of Registration recognized it as an independent contractor from February 13, 2008 to February 14, 2011, within the relevant period, and the respondents failed to rebut the presumption of regularity. CBMI also showed substantial capital: total assets of Php84,351,349.00 in 2010; Php79,203,902.00 in 2008; Php76,189,554.00 in 2009; authorized capital stock of 1,000,000 shares, half subscribed; retained earnings of Php6,433,525.00 in 2009 and Php10,988,890.00 in 2010; and paid-up capital of Php3,500,000.00 for 2005 to 2007 and 2012, exceeding the Php3,000,000.00 standard under DOLE D.O. No. 18-A, Series of 2011. It had been in existence since 1967 and served clients in banking, hospitals, and government, including De La Salle University, Philippine National Bank, Smart Communications, Inc., SM Supermalls, and the United States Embassy, for which it had been a service contractor for seven years. As to control, DO 18-02 defines the right of control as the right reserved to the person for whom the services are performed to determine not only the end to be achieved but also the manner and means of achieving it; Almeda, et al. vs. Asahi Glass Philippines, Inc. holds that the power of control refers merely to the existence of the power and not to its actual exercise. The contracts of service made CBMI responsible for hiring, supervision, discipline, suspension, and termination of its own employees, for their payroll and wages and SSS, Pag-Ibig, and other contributions, and for providing coordinators or supervisors to direct the performance of the services; the 2009 and 2010 contracts further gave CBMI the sole authority to control and direct the details of its employees' work and to discipline them, with complaints from PPI to be in writing and addressed to CBMI. CBMI hired the respondents, assigned them to PPI's Marcos Highway branch after briefing, paid their salaries, remitted PhilHealth and SSS premiums, provided the training for their skills, and retained sole power to determine their place of assignment and transfer without PPI's approval. PPI's concern was only the result—what and how many items were to be produced and where delivered. CBMI also investigated the incident and imposed the preventive suspension. These circumstances established CBMI's right of control and its independent business, so it is not a labor-only contractor.
• Illegal Dismissal: Section 4, Rule XIV of the Omnibus Rules Implementing the Labor Code provides that no preventive suspension shall last longer than 30 days; thereafter, the employer must reinstate the worker in his former or substantially equivalent position, or may extend the period provided that during the extension it pays the wages and other benefits due. The respondents were suspended for 15 days, from August 5 to 19, 2010, after an administrative hearing. They were then placed on "temporary-lay-off status" for six months, from August 20, 2010 to February 20, 2011, allegedly due to PPI's reduced needs and the incident under investigation. This extended the preventive suspension beyond the maximum period without any word on the result of the investigation and without reinstatement or payment of wages and benefits, rendering the extended suspension illegal. Failure to comply with these requirements makes the preventive suspension illegal and amounts to constructive dismissal. CBMI's claim that the suspension was a valid lay-off or floating status under Article 286 is an afterthought. Lay-off or retrenchment, as defined in Sebuguero, et al. vs. NLRC, is termination initiated by the employer through no fault of the employee and without prejudice to the latter, resorted to during business recession, industrial depression, seasonal fluctuations, or lulls. A permanent lay-off amounts to dismissal, while a temporary one is a mere suspension of employment. Although lay-off is an exercise of management prerogative, it must be attended by good faith and requires notice to the employees concerned and the DOLE at least one month before the intended date. Article 286 contemplates a temporary lay-off not exceeding six months. The notices dated August 23, 2010 stated that due to the reduced needs of CBMI's client for the respondents' services and because of the July 2010 incident, their assignment was subject to further investigation, and they were placed on temporary lay-off from August 20, 2010 to February 20, 2011. The equivocal wording showed that the real reason was the attempted stealing incident. CBMI failed to present evidence of reduced demand, and PPI did not corroborate its claim. CBMI also failed to comply with the one-month notice requirement: the notice dated August 23, 2010 was sent by registered mail on August 20, 2010 for a lay-off starting August 20, 2010, and there was no proof that the DOLE was furnished a copy. Because the employer bears the burden to prove with sufficient and convincing evidence the justification for lay-off and compliance with the legal parameters, and CBMI failed to discharge that burden, the extended suspension was illegal and entitled the respondents to their money claims.
• Monetary Claims: The NLRC Resolution, which the Court reinstated insofar as it holds CBMI liable, ordered CBMI to pay the respondents backwages computed from August 20, 2010 up to the finality of the decision, separation pay equivalent to one month's pay for every year of service, and 10% attorney's fees based on the total judgment award. The Court added interest on the monetary awards at 6% per annum from the date of finality of the Decision until fully paid. The final award is limited to those monetary claims granted in the reinstated NLRC Resolution; the moral and exemplary damages awarded by the Labor Arbiter were not included in that resolution.

• Labor-only contracting vs. legitimate job contracting — Labor-only contracting is prohibited under Article 106 of the Labor Code and Section 5 of DOLE D.O. No. 18-02, Series of 2002. It exists when the contractor merely recruits, supplies, or places workers and either (i) lacks substantial capital or investment while the workers perform activities directly related to the principal's main business, or (ii) does not exercise control over the performance of the work. Legitimate job contracting exists when the contractor has substantial capital or investment and runs an independent business free from the principal's control, and the agreement assures the contractual employees' labor standards, self-organization, security of tenure, and social welfare benefits. The Court applied this test to hold CBMI a legitimate independent contractor.
• DOLE registration as badge of legitimacy — Registration with the DOLE is required for contractors, but its absence merely gives rise to a presumption of labor-only contracting. Conversely, registration is a strong badge of legitimacy in favor of the contractor. The Court relied on CBMI's Certificate of Registration valid from February 13, 2008 to February 14, 2011, which the respondents failed to rebut.
• Right of control in contracting — The right of control is 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 of achieving it. The power of control refers merely to the existence of the power, not its actual exercise. The Court found that CBMI, not PPI, had the right to control the respondents through hiring, supervision, discipline, dismissal, payment, assignment, and training.
• Preventive suspension beyond 30 days — Under Section 4, Rule XIV of the Omnibus Rules Implementing the Labor Code, no preventive suspension shall last longer than 30 days. The employer must thereafter reinstate the worker or extend the suspension only if it pays wages and benefits during the extension. Failure to comply renders the preventive suspension illegal and amounts to constructive dismissal. The Court applied this to CBMI's six-month extension.
• Lay-off or floating status — A bona fide temporary lay-off not exceeding six months does not terminate employment under Article 286 of the Labor Code; a permanent lay-off amounts to dismissal. Lay-off is a management prerogative but requires good faith and notice to the employees and the DOLE at least one month before the intended date. The Court found CBMI's lay-off claim an afterthought, unsupported by evidence, and non-compliant with notice.
• Employer's burden of proof — The employer bears the burden to prove with sufficient and convincing evidence the justification for lay-off and compliance with legal parameters. CBMI failed to discharge this burden, so the dismissal was illegal.

• "Labor-only contracting is defined by Article 106 of the Labor Code of the Philippines, as an arrangement where a person, who does not have substantial capital or investment, supplies workers to an employer to perform activities which are directly related to the principal business of such employer." — This passage states the statutory definition of labor-only contracting that the Court used to distinguish CBMI's status as an independent contractor.
• "But unlike the elements of substantial capital or investment and control, the absence of registration merely gives rise to the presumption that the contractor is engaged in labor-only contracting." — This passage explains the evidentiary effect of DOLE registration and supports the Court's reliance on CBMI's Certificate of Registration as a badge of legitimacy.
• "Failure by the employer to comply with these, the preventive suspension is deemed illegal as it amounts to a constructive dismissal." — This is the ratio on the illegal dismissal issue, holding that CBMI's extension of the respondents' preventive suspension beyond 30 days constituted constructive dismissal.
• "Considering the dire consequences of "lay-off" to an employee, jurisprudence places upon the employer the burden to prove with sufficient and convincing evidence the justification therefor, and as well compliance with the parameters set forth by law." — This passage states the employer's burden in lay-off cases, which CBMI failed to discharge.

• Norkis Trading Co., Inc. vs. Gnilo, 568 Phil. 256 (2008) — Cited to require that the agreement between the principal and the contractor assure the contractual employees' entitlement to labor and occupational safety and health standards, self-organization, security of tenure, and social welfare benefits; applied as part of the test for legitimate job contracting.
• Almeda, et al. vs. Asahi Glass Philippines, Inc., 586 Phil. 103 (2008) — Held that the power of control refers merely to the existence of the power and not to its actual exercise; relied on to find CBMI's right of control over the respondents sufficient.
• Coca-Cola Bottlers Phils., Inc. vs. Agito, et al., 598 Phil. 909 (2009) — Cited for the factors indicating an independent contract relationship, including independent business, nature and extent of work, skill required, term and duration, right to assign work, control and supervision, hiring/firing/payment, control of premises, tools, and mode of payment.
• Tongko vs. The Manufacturers Life Insurance Co. (Phils.), Inc., et al., 655 Phil. 384 (2011) — Cited to explain that the control determinative of an employer-employee relationship must have the nature of dictating the means and methods to be employed in attaining the result.
• Sebuguero, et al. vs. NLRC, 318 Phil. 635 (1995) — Defined lay-off or retrenchment as termination initiated by the employer through no fault of the employee, resorted to during business recession, industrial depression, seasonal fluctuations, or lulls; used to assess CBMI's floating status claim.
• Lopez vs. Irvine Construction Corp., et al., 741 Phil. 728 (2014) — Cited for the rule that permanent lay-off amounts to dismissal while temporary lay-off is a mere suspension, and that lay-off requires good faith and one-month notice to employees and the DOLE; applied to reject CBMI's lay-off justification.
• Genesis Transport Service, Inc., et al. vs. Unyon ng Malayang Manggagawa ng Genesis Transport, et al., 631 Phil. 350 (2010) — Cited in support of the rule that failure to comply with the requirements for preventive suspension renders the suspension illegal and amounts to constructive dismissal.
• Mandapat vs. Add Force Personnel Services, Inc., et al., 638 Phil. 150 (2010) — Cited for the principle that illegal preventive suspension amounts to constructive dismissal.
• Sasan, Sr., et al. vs. NLRC, 4th Div., et al., 590 Phil. 685 (2008) — Cited on the failure to rebut the presumption of regularity of DOLE registration and the finding of legitimate contracting.
• Gallego vs. Bayer Philippines, Inc., et al., 612 Phil. 250 (2009) — Cited regarding DOLE registration and the presumption of regularity in favor of a registered contractor.
• Leo V. Mago and Leilani E. Colobong vs. Sunpower Philippines Manufacturing Limited, G.R. No. 210961, January 24, 2018 — Cited for the applicability of DOLE Department Order No. 18-02, Series of 2002, to the contracting arrangement.
• Philippine Airlines, Inc. vs. NLRC, 358 Phil. 919 (1998) — Cited for the four-fold test of selection and engagement, payment of wages, dismissal, and control over the employee's conduct.
• Royale Homes Marketing Corp. vs. Alcantara, 739 Phil. 744 (2014) and South East International Rattan, Inc., et al. vs. Coming, 729 Phil. 298 (2014) — Cited for the exception to Rule 45 when the factual findings of the lower tribunals vary.

• Article 106, Labor Code of the Philippines — Defines labor-only contracting as an arrangement where a person who does not have substantial capital or investment supplies workers to an employer to perform activities directly related to the principal's business. The Court used this definition to distinguish CBMI as an independent contractor.
• Section 5, DOLE Department Order No. 18-02, Series of 2002 — Prohibits labor-only contracting and sets its elements: the contractor merely recruits, supplies, or places workers and either lacks substantial capital or investment while the workers perform activities directly related to the principal's main business, or does not exercise control over the performance of the work. The Court found neither element present as to CBMI.
• Sections 11 and 12, DOLE Department Order No. 18-02, Series of 2002 — Require contractors and subcontractors to register with the DOLE Regional Offices. The absence of registration merely gives rise to a presumption of labor-only contracting, while registration is a strong badge of legitimacy. CBMI's registration was relied upon by the Court.
• Section 4, Rule XIV, Omnibus Rules Implementing the Labor Code — Provides that no preventive suspension shall last longer than 30 days; the employer must thereafter reinstate the worker or extend the suspension only if it pays wages and other benefits during the extension. The Court applied this to hold CBMI's extension illegal.
• Section 3, Rule XIV, Omnibus Rules Implementing the Labor Code — Recognizes the employer's power to impose preventive suspension pending investigation. The Court acknowledged CBMI's power but held that its exercise exceeded the legal period.
• Article 286, Labor Code of the Philippines (now Article 301 per Department Advisory No. 01, Series of 2015) — States that a bona fide suspension of the operation of a business or undertaking for a period not exceeding six months does not terminate employment. The Court rejected CBMI's reliance on this provision because its lay-off claim was an afterthought, unsupported by evidence, and non-compliant with notice requirements.
• DOLE Department Order No. 18-A, Series of 2011, Section 3(i) — Defines substantial capital as paid-up capital stocks or shares of at least Php3,000,000.00 in the case of corporations. The Court noted that CBMI's paid-up capital of Php3,500,000.00 exceeded this standard.
• Rule 45, Rules of Court — Governs petitions for review on certiorari. The Court noted that factual issues are generally not proper under Rule 45 but allowed re-evaluation because the factual findings of the Labor Arbiter and Court of Appeals differed from those of the NLRC.

Carpio (Chairperson), Peralta, Perlas-Bernabe, and Caguioa, JJ., concur.