Locsin vs. Philippine Long Distance Telephone Company

An employer-employee relationship may arise after the termination of a security services agreement where the principal directs the security guards to remain at their posts and continue their duties, thereby exercising control over the means and methods of their work; such control makes the principal the employer from the termination of the agreement onwards.

Philippine Long Distance Telephone Company (PLDT) engaged Security and Safety Corporation of the Philippines (SSCP) under a Security Services Agreement to provide armed security guards for its offices. Petitioners Raul G. Locsin and Eddie B. Tomaquin were among the guards posted at PLDT premises. Before the events in this case, Abella vs. Philippine Long Distance Telephone Company had ruled that petitioners therein, including herein petitioners, were employees of their respective security agencies and not of PLDT. The Labor Code provisions on contracting and labor-only contracting, particularly Article 106 and Department Order No. 18-2002, Series of 2002, supplied the regulatory backdrop for determining whether a direct employment relationship arose.

On November 1, 1990, PLDT and SSCP entered into a Security Services Agreement under which SSCP would provide armed security guards to PLDT for assignment to its various offices. Pursuant to that agreement, petitioners Raul Locsin and Eddie Tomaquin, among other security guards, were posted at a PLDT office.

On August 30, 2001, PLDT issued a letter terminating the Agreement effective October 1, 2001. Despite the termination, petitioners continued to secure the premises of their assigned office. According to petitioners, they were directed to remain at their posts by representatives of PLDT. To support this, they provided the Labor Arbiter with copies of Locsin’s pay slips for January to September 2002. On September 30, 2002, petitioners’ services were terminated.

Petitioners filed a complaint before the Labor Arbiter against PLDT for illegal dismissal and recovery of money claims, including overtime pay, holiday pay, premium pay for holiday and rest day, service incentive leave pay, Emergency Cost of Living Allowance, and moral and exemplary damages. The Labor Arbiter found that petitioners continued to serve as guards at PLDT’s offices and concluded that they were employees of PLDT, not SSCP, and that PLDT failed to observe substantive and procedural due process before terminating them.

The NLRC affirmed. On appeal, the CA found that SSCP was not a labor-only contractor but an independent contractor with substantial capital; that the Agreement stipulated no employer-employee relationship between the security guards and PLDT; and that the pay slips were issued by SSCP, not PLDT, showing that SSCP continued to pay petitioners’ salaries after the Agreement. The CA thus found no employer-employee relationship between petitioners and PLDT. The Supreme Court, however, noted that PLDT did not deny that petitioners remained at their posts until September 30, 2002, and that PLDT did not explain why they were not made to vacate their posts.

• Employer-Employee Relationship After Termination: Petitioners maintained that although the SSCP-PLDT Agreement was terminated effective October 1, 2001, they continued to secure PLDT premises for one year until September 30, 2002, allegedly upon instructions of PLDT representatives, and that this extended service without a renewed contract constituted an employer-employee relationship with PLDT.
• Article 280 – Contractual Employment: Petitioners argued that under Article 280 of the Labor Code, their continued service for another year without a contract should be considered contractual employment.
• Article 280 – Seasonal or Fixed-Term Work: Petitioners contended that their thirteen years of service to PLDT, with yearly renewals of PLDT’s security contract with SSCP, could not be considered merely seasonal in nature or fixed as specific projects or undertakings whose completion or termination could be dictated by PLDT.
• Article 280 – Regular Employment: Petitioners argued that after thirteen years as alleged contractual employees covered by a contract, they became regular employees of PLDT because their one-year extended services were not covered by a contract and could be considered direct employment under Article 280.
• Grave Abuse of Discretion: Petitioners maintained that the CA committed grave abuse of discretion in setting aside the Labor Arbiter’s decision and the NLRC’s resolution declaring the dismissal illegal.

• Denial of Instructions and Salary Arrangement: Respondent denied petitioners’ allegations that they were told to remain at their posts by respondent’s Security Department and that SSCP Operations Officer Eduardo Juliano informed them their salaries would be coursed through SSCP as per arrangement with PLDT.
• No Knowledge of Continued Presence: Respondent stated that it did not know why petitioners remained at their posts after the Agreement was terminated.
• No Employer-Employee Relationship: Respondent denied any employer-employee relationship, contesting petitioners’ allegations and relying on the absence of any explanation for petitioners’ continued presence at the premises.

• Employer-Employee Relationship After Termination: Whether complainants’ extended services to respondent for one year from October 1, 2001 to September 30, 2002, without a renewed contract, constituted an employer-employee relationship between respondent and complainants.
• Article 280 – Contractual Employment: Whether, under Article 280 of the Labor Code, complainants’ extended services for another year without a contract should be considered contractual employment.
• Article 280 – Seasonal or Fixed-Term Work: Whether, under Article 280, complainants’ thirteen years of service to respondent, with yearly renewals of respondent’s security contract with SSCP, could be considered only seasonal in nature or fixed as specific projects or undertakings whose completion or termination could be dictated by respondent.
• Article 280 – Regular Employment: Whether complainants, after thirteen years as alleged contractual employees covered by a contract, became regular employees of respondent because their one-year extended services were not covered by a contract and could be considered direct employment under Article 280.
• Grave Abuse of Discretion: Whether the CA committed grave abuse of discretion in setting aside the Labor Arbiter’s decision and the NLRC’s resolution declaring the dismissal illegal.

• Employer-Employee Relationship After Termination: Yes. Petitioners became employees of PLDT after the Agreement’s termination because PLDT directed them to remain at their posts and exercised control over their work.
• Article 280 – Contractual Employment: Not separately resolved. The Court confined its resolution to whether an employer-employee relationship arose after termination, which it answered in the affirmative.
• Article 280 – Seasonal or Fixed-Term Work: Not separately resolved. The Court did not reach the seasonal or fixed-term characterization; the controlling finding was the existence of an employer-employee relationship after termination.
• Article 280 – Regular Employment: Not separately resolved. The Court did not separately rule on regular employment under Article 280; it reinstated the findings of illegal dismissal based on the employer-employee relationship that arose after termination.
• Grave Abuse of Discretion: Yes. The CA’s annulment of the Labor Arbiter and NLRC decisions was set aside, as those bodies correctly found illegal dismissal.

• Employer-Employee Relationship After Termination: The Court noted that no employer-employee relationship existed from petitioners’ first assignment by SSCP in 1988 until the alleged termination of the Agreement, consistent with Abella vs. Philippine Long Distance Telephone Company. The only issue was whether petitioners became employees of PLDT after the Agreement was terminated. PLDT did not deny that petitioners remained at their posts until September 30, 2002, and it did not explain why they were not made to vacate. Under Rule 131, Section 3(y) of the Rules of Court, things are presumed to have happened according to the ordinary course of nature and the ordinary habits of life. Responsible business owners would not allow security guards of an agency with whom they had severed ties to continue staying within the premises, because doing so would expose them to liability for acts of guards over whom they allegedly had no control. It was also doubtful that a profit-oriented security agency would continue paying guards to secure PLDT’s premises after the Agreement ended. Reason dictated that petitioners remained at their posts under PLDT’s instructions and that PLDT dictated their regular duties to secure the premises during operating hours. This constituted control—the right to control not only the end to be achieved but also the means to be used—and established an employer-employee relationship. The Court applied the four-fold test and reiterated that the control test is the most important index of employment. Having found that PLDT had control over petitioners from the termination of the Agreement onwards, the Court held that PLDT was their employer and that the Labor Arbiter and NLRC correctly found illegal dismissal because PLDT failed to observe due process.
• Article 280 – Contractual Employment: The Court did not discuss Article 280’s contractual-employment test. Its analysis proceeded from the four-fold test and control, and it expressly framed the only issue as whether petitioners became employees of respondent after the Agreement’s termination.
• Article 280 – Seasonal or Fixed-Term Work: No separate discussion of seasonal or fixed-term work appears in the ruling. The holding rested on PLDT’s control over petitioners after the Agreement ended, not on the nature of their prior service.
• Article 280 – Regular Employment: The Court did not separately address regular employment under Article 280. Because it found an employer-employee relationship after termination, it reinstated the Labor Arbiter and NLRC rulings that petitioners were illegally dismissed.
• Grave Abuse of Discretion: The CA’s reversal was set aside because it failed to account for the undisputed fact that petitioners remained at their posts after the Agreement’s termination and because PLDT’s denials did not explain that continued presence. The Labor Arbiter and NLRC found that PLDT did not observe due process; with the employer-employee relationship established, the dismissal was illegal.

• Four-Fold Test — The existence of an employer-employee relationship is determined by: (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’s conduct. The Court applied this test and found that PLDT’s control over petitioners after the Agreement’s termination established the relationship.
• Control Test — The control test is the most important index of employer-employee relationship. It exists where the person for whom services are performed reserves the right to control not only the end to be achieved but also the means and methods by which the work is to be accomplished. The Court found that PLDT’s direction to petitioners to remain at their posts and continue their duties constituted control.
• Disputable Presumption of Ordinary Course of Things — Under Rule 131, Section 3(y) of the Rules of Court, things are presumed to have happened according to the ordinary course of nature and the ordinary habits of life. The Court used this presumption to reject PLDT’s claim that it did not know why petitioners remained at their posts, reasoning that responsible business owners would not allow guards of a terminated agency to stay without arrangement.
• Employer-Employee Relationship After Termination of Service Agreement — A direct employer-employee relationship may arise after the termination of a service agreement between a principal and a security agency where the principal thereafter directs the security guards to remain at their posts and exercises control over their work. The Court held that PLDT became petitioners’ employer from the termination of the Agreement onwards.
• Labor-Only Contracting — Article 106 of the Labor Code and Department Order No. 18-2002, Series of 2002, define and regulate labor-only contracting, where the contractor merely recruits, supplies, or places workers and either lacks substantial capital or does not exercise control over the workers’ performance. The Court quoted these provisions, but its holding rested on the control exercised by PLDT after the Agreement’s termination rather than on a finding that SSCP was a labor-only contractor.

• "The only issue in this case is whether petitioners became employees of respondent after the Agreement between SSCP and respondent was terminated. This must be answered in the affirmative." — This states the Court’s narrow framing of the controversy and its ratio decidendi: the employment relationship arose only after the SSCP-PLDT Agreement ended.
• "With the conclusion that respondent directed petitioners to remain at their posts and continue with their duties, it is clear that respondent exercised the power of control over them; thus, the existence of an employer-employee relationship." — This is the core application of the control test to the facts, showing how PLDT’s directives created a direct employment relationship.
• "It is the so-called "control test" which constitutes the most important index of the existence of the employer-employee relationship that is, whether the employer controls or has reserved the right to control the employee not only as to the result of the work to be done but also as to the means and methods by which the same is to be accomplished." — This is the canonical formulation of the control test relied upon by the Court in finding an employer-employee relationship.
• "In the ordinary course of things, responsible business owners or managers would not allow security guards of an agency with whom the owners or managers have severed ties with to continue to stay within the business’ premises." — This passage grounds the Court’s use of the disputable presumption under Rule 131, Section 3(y) and explains why PLDT’s denial of control was not credible.

• Abella vs. Philippine Long Distance Telephone Company, G.R. No. 159469, June 8, 2005, 459 SCRA 724 — Ruled that petitioners therein, including herein petitioners, were employees of their respective security agencies and not of PLDT; the Court relied on it to establish that no employer-employee relationship existed before the Agreement’s termination.
• Lee Eng Hong vs. Court of Appeals, G.R. No. 114145, February 15, 1995, 241 SCRA 392, 398 — Cited for the rule that evidence, to be believed, must not only come from a credible witness but must be credible in itself, conforming to common experience and observation; used to reject PLDT’s denials.
• Tongko vs. The Manufacturers Life Insurance Co. (Phils.) Inc., G.R. No. 167622, November 7, 2008, 570 SCRA 503, 516 — Reiterated the four-fold test and the rule that control is the most important element in determining the existence of an employer-employee relationship.
• Pacific Consultants International Asia, Inc. vs. Schonfeld — Cited in Tongko for the elements of an employer-employee relationship and the control test.
• Francisco vs. National Labor Relations Commission, G.R. No. 170087, August 31, 2006, 500 SCRA 690, 697 — Cited for the explanation that the power of control is the right to control not only the end to be achieved but also the means to be used in reaching that end.
• Castañares vs. Court of Appeals, 92 SCRA 568 [1979] — Quoted in Lee Eng Hong for the rule that human testimony must conform to knowledge, observation, and experience to be believed.

• Rule 131, Section 3(y), Rules of Court — Provides that things have happened according to the ordinary course of nature and the ordinary habits of life, a disputable presumption. The Court applied it to conclude that responsible business owners would not allow security guards of a terminated agency to remain on the premises without an arrangement, thereby supporting petitioners’ claim that PLDT directed them to stay.
• Article 106, Labor Code — Defines contractor or subcontractor arrangements and labor-only contracting. The Court quoted the provision, noting that labor-only contracting exists where the contractor lacks substantial capital or investment and the workers perform activities directly related to the principal’s business. The Court’s holding, however, rested on the control exercised by PLDT after the Agreement’s termination.
• Department Order No. 18-2002, Series of 2002, Sections 5 and 7 — Implements Article 106 by prohibiting labor-only contracting and defining its elements and consequences, including when the principal is deemed the employer. The Court quoted these provisions but resolved the case on the control test rather than on a labor-only contracting finding.

Consuelo Ynares-Santiago (Chairperson), Minita V. Chico-Nazario, Antonio Eduardo B. Nachura, and Diosdado M. Peralta.