Lingnam Restaurant vs. Skills & Talent Employment Pool, Inc.

A contractor that merely recruits, supplies, or places workers to perform a job directly related to the principal's main business, and that does not exercise the right to control the performance of the workers' work, is engaged in labor-only contracting; the principal is deemed the employer of the supplied workers and is liable for their illegal dismissal. The reason for termination — the expiration of the service contract — was not a just or authorized cause under Articles 282 to 284 of the Labor Code, and the absence of the written notice required by Article 277(b) rendered the dismissal illegal.

Respondent Skills & Talent Employment Pool, Inc. (STEP) is a domestic corporation engaged in manpower management and technical services, and one of its clients is petitioner Lingnam Restaurant, a business enterprise owned and operated by Liberty C. Nacion. In 2002, STEP and Lingnam Restaurant entered into an agreement under which STEP would provide the latter with manpower to perform activities related to the operation of its restaurant business. Respondent Jessie Colaste was a project employee of STEP assigned to work with Lingnam Restaurant as assistant cook.

Respondent Skills & Talent Employment Pool, Inc. (STEP) is a domestic corporation engaged in manpower management and technical services, and one of its clients is petitioner Lingnam Restaurant, a business enterprise owned and operated by Liberty C. Nacion. Under a contract of employment, respondent Jessie Colaste was a project employee of STEP assigned to work with Lingnam Restaurant as assistant cook.

On May 21, 2008, Colaste filed with the Labor Arbiter an Amended Complaint for illegal dismissal against Lingnam Restaurant and STEP. In his Position Paper, Colaste alleged that on December 21, 2006, he began working at Lingnam Restaurant as an assistant cook/general utility with a salary of P350.00 a day, working six days a week, eight hours a day on two shifts.

On March 5, 2008, at about 10:00 a.m., Colaste reported to the main office of STEP at Ortigas Center, Pasig City, where one Katherine R. Barrun informed him that his contract with Lingnam Restaurant had expired. He was given a clearance form to be signed by his supervisor at Lingnam Restaurant, but he nonetheless reported for work as usual at Lingnam Restaurant from 2:00 p.m. to 10:00 p.m. He was on day-off on March 6, 2008. On March 7, 2008, he reported for work at Lingnam Restaurant at Greenhills, San Juan City, Metro Manila, but the Chief Cook told him not to punch in his time card because he was already terminated from work. After a few minutes, the Chief Cook handed him the telephone, and Supervisor Philipp Prado of the main office of Lingnam Restaurant told him, "finish contract ka na, hindi kana pwede pumasok sa trabaho mo, tanggal ka na."

Lingnam Restaurant denied being Colaste's employer and alleged that STEP was his real employer, so that it was not liable for his claims. STEP, in a Request for Clarification and Cautionary Entry of Appearance and later in a Cautionary Pleading, manifested the lack of service of summons upon it and alleged that it is an independent contractor engaged in rendering management and technical services; that Colaste was a project employee assigned as kitchen helper at Lingnam Restaurant, one of its clients; that his employment was co-terminus with its contract with Lingnam Restaurant; and that it had the right to transfer him to another assignment, project, or client. STEP narrated that in 2002 it entered into an agreement with Lingnam Restaurant to provide the latter with manpower for activities related to the operation of its restaurant business, but that in 2007 Lingnam Restaurant reneged in paying the agreed contract salary of the manpower staff detailed at its establishment, compelling STEP to use its own funds until Lingnam Restaurant's total unpaid obligation reached P2,907,690.55 covering the period from March 2007 up to February 19, 2008. In February 2008, STEP ceased its manpower services to Lingnam Restaurant. STEP argued that the complaint stated no cause of action because Colaste was still on floating status and had yet to be enlisted to its other business clients within a period of six months, and that it had not terminated his services. Lingnam Restaurant, in a subsequent Position Paper, stated that it is a franchisor of the business establishment Lingnam Restaurant and that the franchisee who hired and retained Colaste was Ms. Liberty Nacion at its franchise business establishment at Shaw Boulevard, Mandaluyong City, where Colaste rendered services through STEP.

In his Memorandum, Colaste reiterated that he was paid P350.00 per day until his illegal dismissal and contended that he was underpaid from August 28, 2007 to March 2008 because the minimum wage for those dates up to June 13, 2008 was already P362.00 per day. He also claimed that he was not paid his benefits such as premium pay for work performed during Sundays, holiday pay, premium pay for holiday, and 13th month pay, and that he was not paid his five days' salary for work performed from March 1, 2008 to March 5, 2008.

The employment contracts between Colaste and STEP covered the periods January 4, 2006 to June 3, 2007, during which he was assigned as kitchen helper at Lingnam Restaurant, and November 5, 2007 to January 5, 2008, and January 5, 2008 to March 5, 2008, during which he was assigned as assistant cook at the same establishment. All three contracts stated that Colaste's "work result performance shall be under the Strict Supervision, Control and make sure that the end result is in accordance with the standard specified by client to STEP Inc."

Labor Arbiter Gajardo, Jr. found that Colaste's job as assistant cook is necessary and desirable to the restaurant business of Lingnam Restaurant, so that he is considered a regular employee of Lingnam Restaurant, and that Colaste was not paid his salary in accordance with applicable wage orders. The Court of Appeals found that STEP is a labor-only contractor, that the so-called project was under the management and supervision of Lingnam Restaurant, and that it was the latter which exercised control over Colaste; that Lingnam Restaurant offered no explanation for Colaste's dismissal but instead explained that his real employer is STEP; and that no notice of termination was given to Colaste and he was not afforded due process.

• Improper Joinder and Insufficiency of the Petition: Petitioner maintained that the Court of Appeals erred in allowing Lingnam Restaurant to be joined as respondent in CA-G.R. SP No. 129856 despite the fact that STEP's petition for certiorari contained no allegation of claim and no prayer for relief against Lingnam Restaurant, and in not declaring the petition insufficient in form and substance with respect to Lingnam Restaurant.
• Due Process: Petitioner argued that it was placed in a position where it could not intelligently identify and discern the matters it ought to address or comment on in the petition for certiorari, thereby violating its right to due process.
• Finality of the NLRC Decision: Petitioner contended that the Court of Appeals erred in setting aside the portion of the NLRC Decision and Resolution which dismissed the case against Lingnam Restaurant, despite the fact that the dismissal of the case against it had become final and executory.
• Relief for a Non-Appealing Party: Petitioner argued that the Court of Appeals violated the rule that a party who does not appeal cannot obtain affirmative reliefs when it set aside the NLRC Decision and Resolution in favor of Colaste and against Lingnam Restaurant, despite the fact that Colaste did not appeal therefrom and had never participated in the Court of Appeals proceedings.

• Requirements of a Rule 65 Petition: Respondent STEP countered that in a petition for certiorari under Rule 65 of the Rules of Court, it is not required to state any claim or cause of action, or relief against petitioner; what is required is the filing of a verified petition alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of the tribunal, board, or officer alleged to have acted with grave abuse of discretion amounting to lack or excess of jurisdiction, and granting such incidental reliefs as law and justice may require.
• Independent Contractor Status: STEP maintained that it is an independent contractor engaged in the business of rendering management and technical services; that Colaste was a project employee assigned as kitchen helper at Lingnam Restaurant, one of its clients; that his employment was co-terminus with and dependent upon its contract with Lingnam Restaurant; and that it had the right to transfer him to another assignment, project, or client.
• No Termination by STEP: STEP argued that the complaint for illegal dismissal stated no cause of action since Colaste was still on floating status and had yet to be enlisted to its other business clients within a period of six months, and that it did not terminate his services.

• Labor-Only Contracting and Employer Identity: Whether the Court of Appeals erred in setting aside the decision of the NLRC and in reinstating the decision of Labor Arbiter Gajardo, Jr., or, stated otherwise, whether the Court of Appeals correctly ruled that respondent STEP is engaged in labor-only contracting, such that petitioner Lingnam Restaurant is the employer of respondent Jessie Colaste and is liable for his illegal dismissal.
• Due Process: Whether petitioner Lingnam Restaurant was denied due process when the Court of Appeals allowed it to be joined as respondent and did not declare STEP's petition for certiorari insufficient in form and substance as to it.
• Finality and Executory Nature of the NLRC Decision: Whether the portion of the NLRC Decision dismissing the case against Lingnam Restaurant had become final and executory, and whether the Court of Appeals could still review Lingnam Restaurant's liability despite Colaste's failure to appeal.

• Labor-Only Contracting and Employer Identity: Yes. The Court of Appeals correctly ruled that STEP is engaged in labor-only contracting under Article 106 of the Labor Code and Section 5, Rule VIII-A, Book III of the Amended Rules to Implement the Labor Code; Lingnam Restaurant is therefore deemed the employer of Colaste under Section 7 of the same Rules and is liable for his illegal dismissal.
• Due Process: No. The essence of due process is simply an opportunity to be heard, and petitioner was not denied this since it filed a Manifestation/Notice and Comment with the Court of Appeals containing the same arguments it now raises.
• Finality and Executory Nature of the NLRC Decision: No. The NLRC Decision did not become final and executory because STEP timely filed a petition for certiorari, which placed the Decision under the Court of Appeals' power of judicial review.

• Labor-Only Contracting and Employer Identity: Article 106 of the Labor Code provides that 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 directly related to the principal business of such employer; in such cases the person or intermediary is considered merely an agent of the employer, who is responsible to the workers in the same manner and extent as if the latter were directly employed by him. Section 5, Rule VIII-A, Book III of the Amended Rules to Implement the Labor Code declares labor-only contracting prohibited and defines it as an arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work, or service for a principal, and any of the following elements is present: (i) the contractor or subcontractor does not have substantial capital or investment which relates to the job, work, or service to be performed and the employees recruited, supplied, or placed are performing activities directly related to the main business of the principal; or (ii) the contractor does not exercise the right to control over the performance of the work of the contractual employee. The Court, citing PCI Automation Center, Inc. vs. NLRC, explained that the legitimate job contractor provides services while the labor-only contractor provides only manpower — the former undertakes to perform a specific job for the principal employer, while the latter merely provides the personnel to work for the principal employer. Applying these provisions, the Court agreed with the Court of Appeals that STEP was engaged in labor-only contracting. STEP itself stated in its Cautionary Pleading that it entered into an agreement with Lingnam Restaurant in 2002 to provide the latter with manpower to perform activities related to the operation of its restaurant business, so that STEP merely acted as a placement agency providing manpower; the service it rendered was not the performance of a specific job but the supply of personnel to work at Lingnam Restaurant, in this case an assistant cook in the person of Colaste. The employment contracts showed that Colaste was assigned as kitchen helper and later as assistant cook at Lingnam Restaurant, and that his work result performance was to be under the strict supervision and control of the client, with the end result in accordance with the standard specified by the client. As assistant cook, Colaste's work was directly related to the restaurant business of Lingnam Restaurant; he worked in its restaurant and presumably under the supervision of its Chief Cook. This fell squarely under Section 5, Rule VIII-A, Book III, since STEP merely supplied Colaste as assistant cook to the principal, the job of Colaste was directly related to the main business of Lingnam Restaurant, and STEP did not exercise the right to control the performance of his work. Because STEP was engaged in labor-only contracting, the principal, Lingnam Restaurant, was deemed the employer of Colaste under Section 7, Rule VIII-A, Book III. Colaste had worked with petitioner since 2006 and was therefore a regular employee. The reason for his termination was that his contract with Lingnam Restaurant through STEP had expired, but since STEP was a labor-only contractor, Lingnam Restaurant was deemed his employer, and the expiration of the contract was not a just or authorized cause for dismissal under Articles 282 to 284 of the Labor Code. Colaste was also not afforded procedural due process, as petitioner failed to comply with the written-notice requirement under Article 277(b). The lack of valid cause and the failure to comply with the twin-notice requirement rendered the dismissal illegal. As Colaste was illegally dismissed, he 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, consistent with Jardin vs. National Labor Relations Commission.
• Due Process: The contention that petitioner's right to due process was violated is unmeritorious. The essence of due process is simply an opportunity to be heard or, as applied to administrative proceedings, an opportunity to explain one's side or an opportunity to seek a reconsideration of the action or ruling complained of. What the law prohibits is absolute absence of the opportunity to be heard; hence, a party cannot feign denial of due process where he had been afforded the opportunity to present his side. Petitioner was not denied due process because it filed with the Court of Appeals a Manifestation/Notice and Comment to the petition for certiorari, which contained the same arguments as to the insufficiency in form and substance of the petition, among others. As to petitioner's allegation that it could not intelligently identify and discern the matters it ought to address or oppose in the petition for certiorari, only petitioner can be held responsible for its misapprehension, and this could not be attributed to the Court of Appeals, which did not find the petition insufficient in form and substance.
• Finality and Executory Nature of the NLRC Decision: The Decision of the NLRC did not become final and executory because respondent STEP timely filed a petition for certiorari assailing the said Decision before the Court of Appeals. The assailed Decision was thus subject to review by the Court of Appeals, which was necessarily empowered to determine whether or not the NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction in its decision. Given this power of judicial review of labor cases under Rule 65 of the Rules of Court, the Court of Appeals has the authority to affirm, modify, or reverse the assailed Decision of the NLRC.

• Labor-Only Contracting — 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 recruited and placed by such person are performing activities directly related to the principal business of such employer. Under Section 5, Rule VIII-A, Book III of the Amended Rules to Implement the Labor Code, it refers to an arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work, or service for a principal, and any of the following elements is present: (i) the contractor or subcontractor does not have substantial capital or investment which relates to the job, work, or service to be performed and the employees recruited, supplied, or placed are performing activities directly related to the main business of the principal; or (ii) the contractor does not exercise the right to control over the performance of the work of the contractual employee. The Court applied this doctrine to hold that STEP, which merely supplied Colaste as assistant cook to Lingnam Restaurant, did not control his work, and placed him in a position directly related to the restaurant's main business, was a labor-only contractor.
• Legitimate Job Contractor vs. Labor-Only Contractor — The legitimate job contractor provides services, while the labor-only contractor provides only manpower. The legitimate job contractor undertakes to perform a specific job for the principal employer, while the labor-only contractor merely provides the personnel to work for the principal employer. The Court used this distinction to characterize STEP's undertaking as the mere supply of personnel rather than the performance of a specific job.
• Principal as Deemed Employer in Labor-Only Contracting — Under Section 7, Rule VIII-A, Book III of the Amended Rules to Implement the Labor Code, the principal is deemed the employer of the contractual employee where there is labor-only contracting. Because STEP was a labor-only contractor, Lingnam Restaurant was deemed the employer of Colaste and was liable for his illegal dismissal.
• Essence of Due Process — The essence of due process is simply an opportunity to be heard or, as applied to administrative proceedings, an opportunity to explain one's side or an opportunity to seek a reconsideration of the action or ruling complained of. What the law prohibits is absolute absence of the opportunity to be heard; hence, a party cannot feign denial of due process where he had been afforded the opportunity to present his side. The Court applied this doctrine to reject petitioner's due process claim, since petitioner had filed a Manifestation/Notice and Comment with the Court of Appeals.
• Requirements of a Petition for Certiorari under Rule 65 — A petition for certiorari under Rule 65 does not require the statement of any claim or cause of action, or relief against a particular party; what is required is the filing of a verified petition alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of the tribunal, board, or officer alleged to have acted with grave abuse of discretion amounting to lack or excess of jurisdiction, and granting such incidental reliefs as law and justice may require.
• Review of Facts in Labor Cases under Rule 45 — As a rule, the Court does not review questions of fact but only questions of law in a petition for review on certiorari under Rule 45 of the Rules of Court; however, the rule is not absolute, as the Court may review the facts in labor cases where the findings of the Court of Appeals and of the labor tribunals are contradictory. The Court applied this exception because the factual findings of the Labor Arbiter and the Court of Appeals differed from those of the NLRC.

• "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." — This is the Court's quotation of Article 106 of the Labor Code, the statutory definition that anchors the entire ruling on STEP's status and Lingnam Restaurant's liability.
• "the legitimate job contractor provides services, while the labor-only contractor provides only manpower. The legitimate job contractor undertakes to perform a specific job for the principal employer, while the labor-only contractor merely provides the personnel to work for the principal employer." — This passage, drawn from PCI Automation Center, Inc. vs. NLRC, states the canonical distinction the Court used to classify STEP as a labor-only contractor.
• "The essence of due process is simply an opportunity to be heard or as applied to administrative proceedings, an opportunity to explain one's side or an opportunity to seek a reconsideration of the action or ruling complained of." — This defines the due process standard applied to reject petitioner's claim of denial of due process.
• "What the law prohibits is absolute absence of the opportunity to be heard; hence, a party cannot feign denial of due process where he had been afforded the opportunity to present his side." — This completes the due process doctrine and explains why petitioner's filing of a Manifestation/Notice and Comment defeated its claim.

• PCI Automation Center, Inc. vs. NLRC, 322 Phil. 536 (1996) — Cited as the controlling precedent distinguishing the legitimate job contractor, which provides services, from the labor-only contractor, which provides only manpower; the Court relied on this distinction in classifying STEP.
• Alaska Milk Corp. vs. Ponce, G.R. Nos. 228412 & 228439, July 26, 2017 — Cited for the exception to the rule that only questions of law are reviewed under Rule 45, allowing factual review in labor cases where the findings of the Court of Appeals and the labor tribunals are contradictory.
• Jardin vs. National Labor Relations Commission, 383 Phil. 187 (2000) — Cited for the entitlement of an illegally dismissed employee to reinstatement without loss of seniority rights and other privileges, and to full backwages, inclusive of allowances, and other benefits or their monetary equivalent.
• Audion Electric Co., Inc. vs. National Labor Relations Commission, 367 Phil. 620 (1999) — Cited for the doctrine that the essence of due process is an opportunity to be heard or to explain one's side, and that only the absolute absence of such opportunity constitutes a denial of due process.

• Article 106, Labor Code — Defines labor-only contracting and provides that the person or intermediary is considered merely an agent of the employer, who is responsible to the workers in the same manner and extent as if the latter were directly employed by him; applied to hold STEP a labor-only contractor and Lingnam Restaurant the responsible employer.
• Section 4, Rule VIII-A, Book III, Amended Rules to Implement the Labor Code — Defines "contracting" or "subcontracting" as an arrangement whereby a principal agrees to put out or farm out with a contractor or subcontractor the performance or completion of a specific job, work, or service within a definite or predetermined period; used to frame the nature of the STEP–Lingnam arrangement.
• Section 5, Rule VIII-A, Book III, Amended Rules to Implement the Labor Code — Prohibits labor-only contracting and enumerates its elements, namely, (i) the contractor lacks substantial capital or investment relating to the job and the workers perform activities directly related to the main business of the principal, or (ii) the contractor does not exercise the right to control over the performance of the work of the contractual employee; applied to find both elements present as to STEP.
• Section 7, Rule VIII-A, Book III, Amended Rules to Implement the Labor Code — Provides that the principal shall be deemed the employer of the contractual employee where there is labor-only contracting; applied to deem Lingnam Restaurant the employer of Colaste.
• Articles 282 to 284, Labor Code — Enumerate the just and authorized causes for termination of employment; applied to hold that the expiration of Colaste's contract was not a just or authorized cause for his dismissal.
• Article 277(b), Labor Code — Requires written notice to the employee in cases of termination; applied to find that petitioner failed to comply with the twin-notice requirement, rendering the dismissal procedurally infirm.
• Rule 45, Rules of Court — Governs petitions for review on certiorari, generally limited to questions of law; cited as the general rule, subject to the exception permitting factual review in labor cases where the findings of the Court of Appeals and the labor tribunals are contradictory.
• Rule 65, Rules of Court — Governs petitions for certiorari and requires a verified petition alleging facts with certainty and praying for the annulment or modification of the proceedings of the tribunal, board, or officer alleged to have acted with grave abuse of discretion; cited to reject petitioner's claim that STEP's petition was insufficient in form and substance.

Leonen, Gesmundo, J. Reyes, Jr., and Hernando, JJ., concur.