Delera and Quiling vs. Philippine Foremost Milling, Corp.

A contractor engaged to provide ancillary or manual services that do not customarily require equipment or machinery need not demonstrate investment in tools, equipment, or machineries to be deemed a legitimate job contractor, provided it possesses substantial capital, operates as an independent business, and satisfies the four-fold test of employment over its workers; the requirement of substantial investment in equipment applies only where the contracted work ordinarily necessitates such equipment.

MMA Competent Manpower & General Services, Inc. (MMA) is a domestic corporation engaged in providing human resource and various services to clients, two of which are Philippine Foremost Milling, Corp. (PFMC) and Amigo Logistics Corp. (Amigo). PFMC is engaged in flour milling and the production of flour-related by-products, while Amigo provides logistical support services including warehousing, trucking, and ship operations. Both principals share similar business addresses and belong to the La Filipina Uy Gongco Group of Companies. The legal framework governing the arrangement includes Article 106 of the Labor Code and Department Order No. 174, Series of 2017 (DO 174), which distinguish legitimate job contracting from prohibited labor-only contracting.

MMA is a domestic corporation engaged in providing human resource and various services to its clients. Two of its clients are PFMC, a company engaged in flour milling and the production of flour and flour-related by-products, and Amigo, a company engaged in logistical support services including warehousing, trucking, and ship operations. Both principals share similar business addresses and belong to the La Filipina Uy Gongco Group of Companies. In July 2003, MMA assigned petitioner Richard Huna Delera to work at PFMC and Amigo as a feed mill bagger. Thereafter, in January 2017, MMA also assigned petitioner Dionel Bandillon Quiling at both companies as a pollard stacker.

On August 24, 2017, PFMC issued a Spot Report to MMA reporting that Quiling had committed "unsafe act or sabotage of company property" by intentionally hitting and moving a CCTV camera in the pollard loading area. On October 5, 2017, PFMC issued an Information Report to MMA reporting that Delera had threatened the Shift-In-Charge Security Officer at the feed mill, allegedly threatening to stab him with a knife. MMA issued notices to explain to both petitioners and preventively suspended them from work.

On November 27, 2017, after investigation and due process, MMA absolved petitioners of the charges for insufficiency of evidence. However, on November 28, 2017, PFMC and Amigo requested MMA to relocate petitioners to its other clients, invoking paragraph 12.2 of the Service Agreement, which granted the principals the right to require the contractor to replace or substitute employees deployed at their premises. On November 30, 2017, MMA served Notices of Finished Contract to petitioners with respect to their assignment at PFMC and Amigo, stating that their Project Employment Contracts would expire on December 1, 2017. Due to the unavailability of positions within Metro Manila, MMA temporarily placed petitioners on floating status and provided financial assistance comprising their unpaid income and average two-month wage.

On January 11, 2018, the parties underwent conciliation before the Regional Conciliation and Mediation Board of the DOLE. During mediation, petitioners requested a re-computation of the financial assistance, while MMA offered work assignments in Cavite or Bataan. Although petitioners initially indicated they would consider the offer, they ultimately failed to report for their reassigned posts, and no settlement was reached. On April 13, 2018, petitioners filed a complaint against PFMC, Amigo, and MMA before the Labor Arbiter for illegal dismissal, with money claims and damages.

• Regular Employment Status: Petitioners argued that they were regular employees of PFMC and Amigo because their jobs as a Feed Mill Bagger and Pollard Stacker were usually necessary or desirable in the business of both companies.
• Control by Principals: Petitioners averred that PFMC and Amigo exercised control over the means and methods of their work, citing their attendance at regular meetings conducted by the companies and their dependence on instructions from superiors at the premises of PFMC and Amigo.
• Continuous Reassignment: Petitioners alleged that MMA continuously reassigned them at the premises of both companies and that they had continuously worked thereat for several years, further indicating regular employment with the principals.

• Independent Contractor Status: Whether the CA erred in affirming the NLRC's finding that MMA is an independent contractor and the true employer of petitioners.
• Illegal Dismissal and Money Claims: Whether petitioners were illegally dismissed from work and entitled to their money claims.

• Independent Contractor Status: No. MMA is a legitimate job contractor and the true employer of petitioners, having satisfied the four-fold test of employment and possessing substantial capital; the ancillary and manual nature of the bagging and stacking tasks did not require investment in equipment under the Conqueror exception.
• Illegal Dismissal and Money Claims: No (as to dismissal); Modified (as to reinstatement). Petitioners were not illegally dismissed, as they had merely rejected offers of reassignment by MMA; however, because the employment relationship was not severed, petitioners are entitled to reinstatement without backwages. Their money claims were denied, they being piece-rate workers under Article 82 of the Labor Code.

• Independent Contractor Status: The Court applied the four-fold test of employment — (a) selection and engagement, (b) payment of wages, (c) power to dismiss, and (d) power of control — and found all elements present between MMA and petitioners. Petitioners' work assignments stemmed from duly executed Service Agreements between MMA and the principals; MMA paid their wages as evidenced by payrolls and contribution/remittance forms; MMA exercised the power to dismiss through its issuance of notices of preventive suspension and finished contract, and petitioners executed quitclaims in favor of MMA; and MMA's supervisor and coordinator executed affidavits detailing how they supervised petitioners, which petitioners failed to rebut. On the issue of labor-only contracting, the Court reconciled its rulings in Conqueror and Nozomi. Under Nozomi, a contractor must demonstrate investment in tools, equipment, or machinery actually and directly used in the performance of the contracted work when the contracted job ordinarily requires such equipment. Under Conqueror, lack of investment in equipment does not automatically render a contractor labor-only if, by the very nature of the work, no such equipment is reasonably necessary. The Court held that the tasks of a Feed Mill Bagger and Pollard Stacker are ancillary, post-production handling functions — manual labor that does not require specialized machinery or technical knowledge — and thus fall within the Conqueror exception. MMA's substantial paid-up capital of ₱27,000,000.00, its DOLE Certificate of Registration, and its satisfaction of the four-fold test established it as a legitimate job contractor.

• Illegal Dismissal and Money Claims: The Court found that MMA did not dismiss petitioners. After absolving them of administrative charges, MMA served Notices of Finished Contract pursuant to the principals' request for replacement under the Service Agreement, placed petitioners on floating status, and offered reassignment to Cavite or Bataan. Petitioners initially indicated they would consider the offer but ultimately failed to report. The Court reasoned that if MMA had intended to terminate petitioners, it could have used the prior administrative charges as grounds for dismissal; instead, it conducted an exhaustive investigation and absolved them. Because there was no dismissal and no abandonment was proven, the employment relationship remained intact, entitling petitioners to reinstatement — but without backwages, as the failure to work was occasioned neither by abandonment nor by termination, and each party must bear its own economic loss. On money claims, the Court deferred to the unanimous factual findings of the labor tribunals and the CA that petitioners were piece-rate workers paid by results, and thus not entitled to overtime pay, holiday pay, premium pay, service incentive leave pay, night shift differential, 13th month pay, or minimum wage adjustments under Article 82 of the Labor Code. The monetary award for wages during the extended preventive suspension was upheld, subject to 6% legal interest per annum from finality until full payment.

• Four-Fold Test of Employment — The existence of an employer-employee relationship is determined by: (a) the employer's selection and engagement of the employee; (b) the payment of wages; (c) the power to dismiss; and (d) the power to control the employee's conduct, including the means and methods by which the work is accomplished. The Court found all four elements present between MMA and petitioners, establishing MMA as the true employer.

• Labor-Only Contracting (Article 106, Labor Code; DO 174, Sec. 5) — Labor-only contracting exists 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 are performing activities directly related to the principal business of the employer. In such cases, the intermediary is considered merely an agent of the employer.

• Reconciliation of Conqueror and Nozomi — The Court reconciled two apparently divergent rulings: Nozomi requires substantial investment in equipment when the contracted job ordinarily requires it, to prevent mere manpower supply in core functions; Conqueror clarifies that lack of investment in equipment does not automatically make a contractor labor-only if, by the very nature of the work, no such equipment is reasonably necessary. The test is whether the contracted service is one that ordinarily requires equipment/machinery (in which case Nozomi controls) or is ancillary, simple, or manual work that customarily does not require equipment (in which case Conqueror applies). Conqueror should be read narrowly as carving out a practical exception for service-oriented industries.

• Reinstatement Without Backwages — Where the employee's failure to work was occasioned neither by abandonment nor by termination, the burden of economic loss is not rightfully shifted to the employer; each party must bear its own loss. The employment relationship remains intact, and the employee is entitled to reinstatement but not to backwages.

• Piece-Rate Workers and Statutory Benefits — Workers paid by results (piece-rate workers) are not entitled to overtime pay, holiday pay, premium pay, service incentive leave pay, night shift differential, or 13th month pay under Article 82 of the Labor Code and its implementing rules, as these benefits apply only to time-based workers.

• "If the contracted service is one that ordinarily requires equipment/machinery, then Nozomi controls—the lack of investment means labor-only contracting. If the contracted service is ancillary, simple, or manual work that customarily does not require equipment, then Conqueror applies—substantial capital and independence of a legitimate business suffice." — This passage articulates the Court's reconciliation of Conqueror and Nozomi, establishing the controlling framework for determining when investment in equipment is required of a legitimate contractor.

• "Thus, Conqueror should not be abandoned, but rather read narrowly: it carves out a practical exception for industries where the contracted work is ancillary and does not involve tools, machineries, or equipment." — This defines the scope and limitation of the Conqueror exception, clarifying that it applies only to ancillary work not involving equipment.

• "[T]he Court has held that where the employees failure to work was occasioned neither by his [or her] abandonment nor by a termination, the burden of economic loss is not rightfully shifted to the employer. Each party must bear his [or her] own loss." — This states the doctrinal basis for ordering reinstatement without backwages where neither abandonment nor dismissal is established.

• Conqueror Industrial Peace Management Cooperative vs. Balingbing, 919 Phil. 170 (2022) — The Court declined to abandon this ruling and instead read it narrowly as carving out a practical exception for ancillary, manual services that do not require equipment. Applied directly to the case because the bagging and stacking tasks were ancillary and manual in character.
• Nozomi Fortune Services vs. Naredo, 956 Phil. 1062 (2024) — Distinguished from the case at bar. Nozomi requires substantial investment in equipment when the contracted job ordinarily requires it; the Court reconciled it with Conqueror by limiting its application to services that customarily necessitate machinery.
• Mendaros vs. Lazada E-Services Phil., Inc., 958 Phil. 347, 356 (2024) — Cited for the formulation of the four-fold test of employment.
• Daguinod vs. Southgate Foods, Inc., 847 Phil. 878, 890-891 (2019) — Cited for the legal basis of legitimate labor contracting under Article 106 of the Labor Code and DO 174.
• Atienza vs. Saluta, 853 Phil. 661, 686 (2019); Borja vs. Miñoza, 812 Phil. 133, 147 (2017); MZR Industries vs. Colambot, 716 Phil. 617, 628 (2013) — Cited for the doctrine that where the employee's failure to work was occasioned neither by abandonment nor by termination, each party must bear its own economic loss.
• Rodriguez vs. Sintron Systems, Inc., 857 Phil. 779, 796 (2019) — Cited in support of the ruling that the employment relationship not having been severed, MMA must accept petitioners back to work.
• Lara's Gifts and Decors, Inc. vs. Midtown Industrial Sales, Inc., 860 Phil. 744 (2019) — Cited for the imposition of 6% legal interest per annum on monetary awards from finality until full payment.

• Article 106, Labor Code of the Philippines (P.D. No. 442, as amended) — Provides the legal basis for legitimate labor contracting and defines labor-only contracting, where the person supplying workers lacks substantial capital or investment and the workers perform activities directly related to the principal's business, making the intermediary merely an agent of the employer.
• Article 82, Labor Code of the Philippines — Provides that workers paid by results (piece-rate workers) are not entitled to overtime pay, holiday pay, premium pay, service incentive leave pay, and night shift differential. Applied to deny petitioners' money claims.
• Section 3(c), Department Order No. 174, Series of 2017 (DO 174) — Defines legitimate labor contracting or subcontracting as an arrangement whereby a principal agrees to farm out to a contractor the performance of a specific job or work within a definite or predetermined period, regardless of whether performed within or outside the principal's premises.
• Section 5(b), DO 174 — States that a contractor or subcontractor who does not exercise the right of control over the performance of the work of the employee is deemed a labor-only contractor. Applied in evaluating whether MMA exercised control over petitioners.
• Section 5(a), DO 174 — Defines labor-only contracting by the absence of substantial capital or investment in tools, equipment, machinery, work premises, among others. The Court interpreted this provision in light of the Conqueror exception to avoid disqualifying contractors in service-oriented industries.

Caguioa (Chairperson), Gaerlan, Dimaampao, and Singh, JJ., concurred.