Macalino vs. Coca-Cola Beverages Philippines, Inc.

A contractor that merely supplies manpower to perform work indispensable to the principal’s usual business, without substantial investment in tools, equipment, machineries, supervision, and work premises, is a labor-only contractor; the principal is deemed the direct employer of the contractor’s employees and may be held solidarily liable for their illegal dismissal.

Coca-Cola Beverages Philippines, Inc. is a domestic corporation engaged in the manufacture and distribution of carbonated drinks and other beverages for the domestic market. The Redsystems Company, Inc. is a corporation engaged in providing distribution and warehousing services, while Macslink-PSV Services, Inc. is a corporation whose primary purpose includes providing management, consulting, business process outsourcing, and other manpower-related services. Their arrangements were governed by the Labor Code and DOLE Department Order No. 174, series of 2017, which define labor-only contracting and deem the principal the direct employer of a labor-only contractor’s employees.

Coca-Cola Beverages Philippines, Inc. is a domestic corporation engaged in the manufacture and distribution of carbonated drinks and other beverages for the domestic market. The Redsystems Company, Inc. (TRCI) is a corporation engaged in providing distribution and warehousing services, including management and administrative services related thereto. Macslink-PSV Services, Inc. (Macslink) is a corporation whose primary purpose includes providing management, consulting, business process outsourcing, and other manpower-related services, such as recruitment, training, and local placement of temporary, contractual, emergency, seasonal, and regular employees. In 2010, Coca-Cola and TRCI entered into a Service Agreement and later a Service Level Agreement, renewed annually, under which TRCI undertook to provide distribution, delivery, hauling, fleet management, warehousing, and warehouse allied services at Coca-Cola’s Tarlac City Plant/Sales Office and Meycuayan Bulacan Plant. On March 26, 2012, TRCI entered into a Reliever Services Agreement with Macslink, which was tapped to provide reliever services such as delivery, hauling, hauling execution management, fleet management, and collection from delivery partners or outlets; a separate Service Agreement between TRCI and Macslink covered delivery, messengerial, clerical, checking, and yard services until January 31, 2017. On October 12, 2012, Coca-Cola and Macslink executed a Service Agreement, renewed annually until July 31, 2017, whereby Macslink undertook to provide Coca-Cola with warehouse crew operations, including pickers who prepared Coca-Cola products at the picking area by arranging and ensuring that the products were properly placed on pallets before loading onto TRCI trucks for delivery to key account clients. Petitioners Eduardo V. Macalino, Danilo Tolentino, Crisanto Tabago, and Noel Tagaro were among the warehouse general crew or pickers assigned by Macslink to Coca-Cola’s Tarlac City Plant/Sales Office and were covered by Project Employment Contracts.

Macslink later experienced financial difficulties and decided to permanently close its business and cease operations effective May 31, 2017. Consequently, the warehouse general crew deployed by Macslink to Coca-Cola, including petitioners, were terminated effective May 31, 2017.

Twenty-four employees filed complaints for regularization and money claims. Six amicably settled, while nine failed to sign the Position Paper. The remaining nine complainants, including petitioners, proceeded with a complaint for illegal dismissal, regularization, reinstatement, money claims, damages, and attorney’s fees against Coca-Cola, TRCI, and Macslink before the Labor Arbiter, docketed as NLRC Case No. RAB-III-12-26817-17. The complainants alleged that they had been assigned to Coca-Cola via TRCI, an in-house agency of Coca-Cola, for several years and were terminated on May 31, 2017; they claimed to be regular employees of Coca-Cola because Macslink and TRCI were engaged in labor-only contracting and their work was necessary and desirable to Coca-Cola’s business. Coca-Cola denied any employer-employee relationship with the complainants, asserting that they were employees of TRCI and Macslink because the service contracts were legitimate, the contractors were duly registered with the Department of Labor and Employment, and each had sufficient capital and investments; it further asserted that the position of picker was not necessary and desirable to Coca-Cola’s main business of manufacturing. TRCI, for its part, asserted that it was a duly registered legitimate job contractor with substantial capital, necessary equipment, and manpower, and that it had no employer-employee relationship with the complainants because they were directly deployed by Macslink to Coca-Cola and did not appear in TRCI’s records as employees.

The Labor Arbiter found the complainants to be regular employees of Coca-Cola, reasoning that both TRCI and Macslink were engaged in labor-only contracting and that the complainants’ tasks as pickers were necessary and desirable to Coca-Cola’s business. The National Labor Relations Commission affirmed the Labor Arbiter’s finding that the complainants were regular employees of Coca-Cola and held that TRCI was a labor-only contractor solidarily liable with Coca-Cola. On appeal, the Court of Appeals found that Macalino et al. were directly assigned by Macslink to Coca-Cola and that they presented no evidence to prove they were deployed by TRCI to Coca-Cola or that Macslink assigned them to Coca-Cola through TRCI. The Court of Appeals noted that Coca-Cola presented Project Employment Contracts showing that Macalino et al. were assigned as pickers, a position contracted out by Coca-Cola to Macslink under their Service Agreements; that Macslink was registered with the Department of Labor and Employment; that it was incorporated on October 12, 2011 with a paid-up capital of PHP 10,000,000.00; and that its 2016 General Information Sheet showed a paid-up capital of PHP 35,000,000.00 as of 2015 and total assets of PHP 98,266,960.00. The Court of Appeals further found that Macslink had the power of control over Macalino et al., including the power to assign, hire, or dismiss, and the obligation to pay their salaries and statutory benefits; that the Project Employment Contracts identified Macslink as the hiring company; and that their identification cards, payrolls, SSS and PhilHealth remittances, daily time records, and overtime authority forms all bore or were processed under Macslink’s name or letterhead.

• Labor-Only Contracting and Regular Employment: Petitioners argued that they were assigned to Coca-Cola via TRCI, an in-house agency of Coca-Cola, for several years and were terminated on May 31, 2017; they maintained that they are regular employees of Coca-Cola because Macslink and TRCI are engaged in labor-only contracting and their work as pickers is necessary and desirable to Coca-Cola’s business.
• Control and Work Conditions: Petitioners argued that they reported for work inside Coca-Cola’s premises in its Tarlac City Plant/Sales Office; that they were assigned as pickers, a job necessary and desirable to Coca-Cola’s usual business; that they were bodily searched by security guards of Coca-Cola; that they were required to work in accordance with the manning and shifting schedule of Coca-Cola plant officers; and that they worked side by side with Coca-Cola regular employees.
• Tools and Equipment: Petitioners argued that the warehouse, tools, and equipment they used in performing their tasks were all owned by Coca-Cola, and that there was no showing that the delivery trucks necessary to fulfill delivery operations were owned by either TRCI or Macslink.
• Court of Appeals Error: Petitioners argued that the Court of Appeals committed a reversible error when it overturned the Labor Arbiter and NLRC findings that they were regular employees of Coca-Cola who were illegally dismissed.

• No Employer-Employee Relationship: Coca-Cola denied any employer-employee relationship between the company and the complainants; it argued that complainants are employees of TRCI and Macslink since the service contracts it entered into with TRCI and Macslink are legitimate, they being legitimate job contractors duly registered with the Department of Labor and Employment and each having sufficient capital and investments; and that complainants’ position as pickers is not necessary and desirable to Coca-Cola’s main business of manufacturing.
• Control by Macslink: Coca-Cola posited that Macslink was the employer of petitioners since under their Service Agreements, it was solely the discretion of Macslink on how the employees were screened, selected, and hired; that each employee deployed to Coca-Cola had a separate project employment contract with Macslink; that it was solely Macslink who paid the wages and law-mandated benefits of the employees; that the right to control was absent; and that the Service Agreements between Coca-Cola and Macslink expressly provide that there is no employer-employee relationship between petitioners and Coca-Cola.
• TRCI’s Defense: TRCI argued that it is a duly registered legitimate job contractor with substantial capital, necessary equipment, and manpower for the performance of its contracted services; and that it had no employer-employee relationship with the complainants since they were directly deployed by Macslink to Coca-Cola and do not appear in any of its records as its employees.

• Labor-Only Contracting and Employer-Employee Relationship: Whether TRCI or Macslink are labor-only contractors and, consequently, whether there is an employer-employee relationship between Coca-Cola and petitioners.
• Illegal Dismissal: Whether petitioners were illegally dismissed by Coca-Cola/Macslink.

• Labor-Only Contracting and Employer-Employee Relationship: Yes. Both TRCI and Macslink are labor-only contractors; Coca-Cola, as principal, is deemed the direct employer of petitioners under Section 7, D.O. No. 174, series of 2017. TRCI’s labor-only status and solidary liability are final and conclusive, while Macslink is labor-only for lack of substantial investment in tools, equipment, machineries, supervision, and work premises.
• Illegal Dismissal: Yes. Coca-Cola, as employer, failed to prove any just or authorized cause and due process; petitioners were laid off upon Macslink’s closure on May 31, 2017. Coca-Cola, TRCI, and Macslink are solidarily liable for the rightful claims of petitioners.

• Labor-Only Contracting and Employer-Employee Relationship: Labor-only contracting refers to the arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job or work for a principal. Under Section 5 of D.O. No. 174, series of 2017, labor-only contracting exists when: (a) the contractor or subcontractor does not have substantial capital or investment in tools, equipment, machineries, supervision, and work premises and the employees perform activities directly related to the main business of the principal; or (b) the contractor or subcontractor does not exercise the right of control over the work of the employees except as to the result. The Court recognized two instances of labor-only contracting: first, where the contractor lacks substantial capitalization or investment and its employees perform activities directly related and indispensable to the principal’s main business; second, where the principal, not the contractor, exercises control over the manner and method of the employees’ work. The Labor Arbiter and NLRC both found TRCI and Macslink to be labor-only contractors and Coca-Cola to be the principal and employer of petitioners. As to TRCI, the finding that it is a labor-only contractor and solidarily liable is final and conclusive because TRCI failed to post the required appeal bond; the NLRC dismissed its appeal, the Court of Appeals dismissed its certiorari petition, and the Supreme Court in G.R. No. 252783 dismissed TRCI’s petition and held that the appeal bond requirement is jurisdictional. As to Macslink, Coca-Cola submitted evidence of its registration, capital, assets, contracts, payroll records, and statutory contributions, but substantial capitalization does not automatically equate to legitimate job contracting; no absolute figure defines substantial capital, and it is measured against the type of work the contractor is obligated to perform. Macslink did not present concrete evidence of tools or equipment such as delivery trucks, crates, buildings, or machineries; the warehouse, tools, and equipment used by petitioners were owned by Coca-Cola, and there was no showing that the delivery trucks were owned by TRCI or Macslink. Thus, Macslink was a labor-only contractor that supplied manpower to Coca-Cola. The Service Agreement between Macslink and Coca-Cola and the Project Employment Contracts were a scheme to prevent petitioners from attaining regular employment status. On the question of control, the language of the contract is not determinative; the totality of the facts and surrounding circumstances controls. Petitioners reported for work inside Coca-Cola’s premises, were assigned as pickers, were bodily searched by Coca-Cola security guards, were required to work according to Coca-Cola’s manning and shifting schedule, and worked side by side with Coca-Cola regular employees. Under Article 295 of the Labor Code, project employees are workers whose employment has been fixed for a specific project or undertaking, the completion or termination of which has been determined at the time of engagement. The Court explained that a project may be within the regular business of the employer but must be distinct, separate, and identifiable from the employer’s other undertakings, or it may be outside the regular business but must also be identifiably separate and distinct. Petitioners’ tasks as pickers were within Coca-Cola’s regular or usual business of manufacturing and distributing non-alcoholic carbonated drinks; their work was not distinct, separate, or unusual but essential or even indispensable to Coca-Cola’s day-to-day operations. Their continuous rehiring on three-month periods, performing the same tasks in the same premises from 2012 to 2017, bolstered the indispensability of their work. Magsalin vs. National Organization of Working Men and related Coca-Cola cases held that sales route helpers, cargadores, pahinantes, drivers, salespersons, route helpers, plant drivers, forklift operators, and segregators/mixers were regular employees of Coca-Cola because their tasks were necessary and desirable to its business and they were repeatedly rehired. Petitioners, as pickers, performed tasks indispensable to Coca-Cola’s usual business and are therefore regular employees of Coca-Cola. Under Section 7 of D.O. No. 174, series of 2017, the principal is deemed the direct employer of the contractor’s or subcontractor’s employees upon a finding that the latter is a labor-only contractor. Thus, Coca-Cola is the direct employer of petitioners and is liable for their claims.

• Illegal Dismissal: Petitioners were laid off from their work instantaneously upon Macslink’s termination of operations on May 31, 2017. Since Coca-Cola is the employer of petitioners, it had the burden of proving that petitioners were dismissed upon a just or authorized cause under the Labor Code. Coca-Cola did not prove any just cause for petitioners’ sudden dismissal, or that the closure of Macslink’s business was necessary and authorized by the Department of Labor and Employment; instead, it argued that petitioners were not its employees and used the contracts it entered into with Macslink to evade liability. There was also no showing that petitioners were afforded due process when they were dismissed. Thus, Coca-Cola illegally dismissed petitioners. Considering that petitioners were illegally terminated, Coca-Cola, TRCI, and Macslink are solidarily liable for the rightful claims of petitioners. An employee unjustly dismissed from work is entitled to reinstatement without loss of seniority rights and other privileges, and to full backwages, inclusive of allowances and other benefits or their monetary equivalent, computed from the time compensation was withheld up to actual reinstatement; if reinstatement is not possible, separation pay is proper. Backwages are granted on grounds of equity to workers for earnings lost due to illegal dismissal. Petitioners lost the earnings they should have been entitled to had they not been illegally dismissed. They are entitled to full backwages inclusive of all allowances and other benefits, including 13th month pay and service incentive leaves, from May 31, 2017 until the finality of the Decision. Because of the considerable lapse of time since the inception of the case in 2017, separation pay is awarded in lieu of reinstatement, equivalent to one month’s salary for every year of service from June 1, 2017 until the finality of the Decision. Attorney’s fees of 10% of the monetary award are awarded because petitioners were compelled to litigate to protect their rights. The awards of moral and exemplary damages by the Labor Arbiter and NLRC are deleted for lack of basis. Legal interest of 6% per annum shall be imposed on all monetary grants from the finality of the Decision until paid in full.

• Labor-Only Contracting — Labor-only contracting refers to the arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job or work for a principal. Under Section 5 of D.O. No. 174, series of 2017, labor-only contracting exists when: (a) the contractor or subcontractor does not have substantial capital or investment in tools, equipment, machineries, supervision, and work premises and the employees perform activities directly related to the main business of the principal; or (b) the contractor or subcontractor does not exercise the right of control over the work of the employees except as to the result. The Court applied this doctrine to declare both TRCI and Macslink labor-only contractors.
• Substantial Capitalization Is Not Determinative of Legitimate Job Contracting — Having substantial capitalization does not easily equate to legitimate job contracting. No absolute figure defines substantial capital; it is measured against the type of work the contractor is obligated to perform. A contractor must also show substantial investment in tools, equipment, machineries, supervision, and work premises. The Court applied this to Macslink, which failed to present concrete evidence of tools or equipment despite showing paid-up capital and assets.
• Project Employees vs. Regular Employees — Article 295 of the Labor Code defines project employees as workers whose employment has been fixed for a specific project or undertaking, the completion or termination of which has been determined at the time of engagement. A project may be within the regular business of the employer but must be distinct, separate, and identifiable from the employer’s other undertakings, or it may be outside the regular business but must also be identifiably separate and distinct. If the work performed is necessary or desirable to the usual business or trade of the employer and the employee is continuously rehired, the employee is regular. The Court applied this to petitioners, whose picker work was indispensable to Coca-Cola’s business and who were continuously rehired from 2012 to 2017.
• Control Test and Totality of Circumstances — In deciding the question of control, the language of the contract is not determinative of the parties’ relationship; rather, it is the totality of the facts and surrounding circumstances of each case. The Court applied this by considering that petitioners reported inside Coca-Cola’s premises, were searched by Coca-Cola guards, followed Coca-Cola’s manning and shifting schedule, and worked side by side with Coca-Cola regular employees.
• Principal as Direct Employer of Labor-Only Contractor’s Employees — Under Section 7 of D.O. No. 174, series of 2017, the principal is deemed the direct employer of the contractor’s or subcontractor’s employees upon a finding that the latter is a labor-only contractor. The Court applied this to hold Coca-Cola as the direct employer of petitioners, with Coca-Cola, TRCI, and Macslink solidarily liable.
• Illegal Dismissal and Burden of Proof — The employer has the burden of proving that the employee was dismissed upon a just or authorized cause under the Labor Code and that due process was observed. Coca-Cola failed to prove any just cause or authorized closure, and there was no showing of due process; thus, petitioners were illegally dismissed.
• Backwages, Separation Pay, Attorney’s Fees, and Interest — An employee unjustly dismissed is entitled to reinstatement without loss of seniority rights and full backwages inclusive of allowances and other benefits; if reinstatement is not possible, separation pay is proper. Backwages are granted on equity for earnings lost due to illegal dismissal. Attorney’s fees may be awarded when the employee is compelled to litigate to protect rights. Legal interest of 6% per annum is imposed on monetary awards from finality until fully paid. The Court applied these remedies to petitioners.

• "Labor-only contracting refers to the arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job or work for a principal." — This is the Court’s canonical definition of labor-only contracting, which anchors the finding that TRCI and Macslink were labor-only contractors.
• "It is settled that having a substantial capitalization does not easily equate to legitimate job contracting. Jurisprudence has established that this Court does not set an absolute figure for what it considers substantial capital for an independent job contractor, but it measures the same against the type of work which the contractor is obligated to perform for the principal." — This passage states the ratio for rejecting Macslink’s claim of legitimate job contracting despite its paid-up capital and assets.
• "Clearly, petitioners' tasks as pickers were essential or even indispensable to the day-to-day operations of Coca-Cola. The orderly and prompt distribution of Coca-Cola's products to its retailers and end-consumers would not be possible without pickers who inspect and transport the bottles from the warehouse to the picking area, inspect and arrange the same in their pallets, and ensure that they are complete or up to company standards before they are loaded into the delivery trucks." — This defines why petitioners’ work was necessary and desirable to Coca-Cola’s usual business, making them regular employees rather than project employees.
• "There can be no other conclusion therefore, but that Coca-Cola illegally dismissed petitioners. There's also no showing that petitioners were afforded due process when they were dismissed. Considering that petitioners were illegally terminated, Coca-Cola, TRCI, and Macslink are solidarily liable for the rightful claims of petitioners." — This is the core ruling on illegal dismissal and solidary liability.

• Luces vs. Coca-Cola Bottlers Phils., Inc., 891 Phil. 149, 166 (2020) — Cited for the definition of labor-only contracting and the two instances when a contractor is deemed engaged therein; applied to TRCI and Macslink.
• San Miguel Corp. vs. MAERC Integrated Services Inc., 453 Phil. 543, 565 (2003) — Cited for the factors in determining an independent contractor relationship and for the rule that substantial capitalization alone does not establish legitimate job contracting; applied to Macslink.
• Vinoya vs. National Labor Relations Commission, 381 Phil. 460 (2000) — Cited in San Miguel for the factors considered in determining an independent contractor relationship.
• DOLE Philippines Inc. vs. Esteva, 538 Phil. 817, 834 (2006) — Cited to show that a contractor with paid-up capital of over PHP 4,000,000.00 was not recognized as a legitimate job contractor absent substantial investment in tools and equipment; applied by analogy to Macslink.
• Magsalin vs. National Organization of Working Men, 451 Phil. 254, 261 (2003) — Cited for the rule that sales route helpers, cargadores, or pahinantes are necessary and desirable to Coca-Cola’s business and that continuous rehiring indicates indispensability; applied to petitioners as pickers.
• Pacquing vs. Coca-Cola Philippines, Inc., 567 Phil. 323, 328 (2008) — Cited for the ruling that drivers, salespersons, and route helpers assigned to Coca-Cola were its regular employees; applied to petitioners’ regular employment.
• Coca-Cola Bottlers Philippines, Inc. vs. Agito, 598 Phil. 909, 926 (2009) — Cited for the ruling that sales representatives were regular employees of Coca-Cola and that Interserve was engaged in labor-only contracting; applied to the labor-only contracting analysis.
• Quintanar vs. Coca-Cola Bottlers, Philippines, Inc., 788 Phil. 385, 403-404 (2016) — Cited for the ruling that route helpers were regular employees of Coca-Cola; reiterated Magsalin.
• Lingat vs. Coca-Cola Bottlers Philippines, Inc., 835 Phil. 617, 629 (2018) — Cited for the ruling that plant driver, forklift operator, and segregator/mixer were regular employees of Coca-Cola; applied to petitioners’ indispensable tasks.
• Coca-Cola Bottlers Phils., Inc. vs. Dela Cruz, 622 Phil. 886 (2009) — Cited for the rule that pure supply of manpower controlled by the principal falls within prohibited labor-only contracting; applied to Macslink.
• ALU-TUCP vs. National Labor Relations Commission, 304 Phil. 844, 850-852 (1994) — Cited for the definition of “project” and the distinction between project and regular employees; applied to petitioners.
• ICT Marketing Services, Inc. vs. Sales, 769 Phil. 498, 524 (2015) — Cited for the rule on reinstatement and full backwages; applied to the relief awarded.
• Equitable Banking Corporation (EQUITABLE-PCI BANK) vs. Sadac, 523 Phil. 781, 819 (2006) — Cited for the nature of backwages as reparation for illegal dismissal; applied to the award.
• The Redsystems Company, Inc. vs. Eduardo V. Macalino, Danilo Tolentino, Axel Pangilinan, Leonardo Santos, Jr., Crisanto Tabago, Noel Tagaro, Gerald Balmores, and R-Jay Vidad, G.R. No. 252783, September 21, 2022 — Cited as the prior final ruling that TRCI’s appeal was not perfected for failure to post the appeal bond and that its labor-only contractor status and solidary liability were final and conclusive.

• Article 295 [280], Labor Code — Defines regular and casual employment, including the exception for project employees whose employment is fixed for a specific project or undertaking, the completion or termination of which has been determined at the time of engagement. Applied: petitioners’ picker work was necessary and desirable to Coca-Cola’s usual business and not a distinct, separate, or unusual project, so they are regular employees.
• Article 282, Labor Code — Enumerates the just causes for termination by the employer. Applied: Coca-Cola failed to prove any just cause for petitioners’ dismissal.
• Article 283, Labor Code — Governs closure of establishment and reduction of personnel, requiring written notice and separation pay. Applied: Coca-Cola did not prove that the closure of Macslink’s business was necessary and authorized by the Department of Labor and Employment, and no due process was shown.
• Article 229 (formerly Article 223), Labor Code and the 2011 NLRC Rules of Procedure — Require the posting of a cash or surety bond equivalent to the monetary award to perfect an appeal from a Labor Arbiter’s decision involving monetary awards. Applied: TRCI failed to post the correct appeal bond, its appeal was not perfected, and the Labor Arbiter’s Decision became final as to TRCI.
• Section 5, D.O. No. 174, series of 2017 — Defines labor-only contracting and the two instances when a contractor or subcontractor is deemed engaged therein. Applied: Macslink and TRCI were labor-only contractors.
• Section 7, D.O. No. 174, series of 2017 — Provides that the principal is deemed the direct employer of the contractor’s or subcontractor’s employees upon a finding that the latter is a labor-only contractor. Applied: Coca-Cola is the direct employer of petitioners.
• Article 109, Labor Code — Cited by the NLRC in ordering Coca-Cola and TRCI solidarily liable for the monetary award. Applied: Coca-Cola, TRCI, and Macslink are solidarily liable for petitioners’ rightful claims.
• Section 5, Department Order No. 18-A — Cited by the NLRC in the same solidary liability ruling. Applied: solidary liability for the monetary award.

Gesmundo, C.J. (Chairperson) and Rosario, J., concur. Zalameda and Marquez, JJ., were on official business.