MCC-ELU-OLALIA and MSI-ELU-OLALIA vs. Manila Cordage Company and Manco Synthetic, Inc.

A labor contractor's Certificate of Registration with the Department of Labor and Employment is not conclusive evidence of its status as a legitimate labor contracting entity; it merely creates a disputable presumption of legitimacy that can be refuted by other evidence. In determining whether an entity is a labor-only contractor or a legitimate job contractor, the totality of the facts and surrounding circumstances of the case must be considered, and proof of substantial capital does not make an entity immune to a finding of labor-only contracting when control over the employees resides in the principal.

The Organized Labor Union in Line Industries and Agriculture (OLALIA) is a legitimate labor organization that established local chapters in companies engaged in rope manufacturing. MCC-ELU-OLALIA and MSI-ELU-OLALIA were its local chapters in Manila Cordage Company and Manco Synthetic, Inc., respectively. Manila Cordage and Manco Synthetic were unorganized and had no exclusive bargaining agent, prompting OLALIA to file Petitions for Certification Election before the Department of Labor and Employment, Regional Office IV. The companies opposed the petitions, asserting that members of the subject labor unions were employees of their labor contractors, Alternative Network Resources Unlimited Multi-Purpose Cooperative and Worktrusted Manpower Services Cooperative.

OLALIA, a legitimate labor organization with local chapters in companies engaged in rope manufacturing, established MCC-ELU-OLALIA and MSI-ELU-OLALIA as its local chapters in Manila Cordage and Manco Synthetic, respectively. Because Manila Cordage and Manco Synthetic were unorganized and had no exclusive bargaining agent, OLALIA filed Petitions for Certification Election before the Department of Labor and Employment, Regional Office IV. Manila Cordage and Manco Synthetic opposed the petitions, asserting that members of the subject labor unions were employees of their labor contractors, Alternative Network Resources Unlimited Multi-Purpose Cooperative and Worktrusted Manpower Services Cooperative.

The petitions were granted despite the opposition, and certification elections were conducted on January 27, 2016. For Manila Cordage, the results showed 0 "Yes" votes, 10 "No" votes, 294 challenged votes, and 0 spoiled votes, with 304 total valid votes cast. For Manco Synthetic, the results showed 0 "Yes" votes, 4 "No" votes, 139 challenged votes, and 0 spoiled votes, with 143 total valid votes cast. Manila Cordage filed a protest challenging 294 of the 304 votes, and Manco Synthetic filed a protest challenging 139 of 143 votes, both contending that the challenged voters were not their employees but employees of their respective independent contractors.

On March 28, 2016, Med-Arbiter Tongson issued two separate Orders granting the protests, finding that the contractors were legitimate job contractors providing manpower services and thus the employers of the challenged voters. The Med-Arbiter consequently held the challenged votes invalid for the purpose of certifying the unions as exclusive bargaining agents. Both unions separately filed Memoranda of Appeal before the Department of Labor and Employment.

Undersecretary Chato, by authority of the Secretary of Labor, reversed the Med-Arbiter's Orders on May 13, 2016 and June 20, 2016, finding that the contractors were labor-only contractors and that the challenged votes should be considered. The dispositive portion of the May 13, 2016 Decision granted the appeal of MCC-ELU-OLALIA and ordered the opening and canvassing of the 294 segregated ballots. The June 20, 2016 Decision partially granted the appeal of MSI-ELU-OLALIA, ordering the opening and canvassing of 127 segregated ballots, except for the ballots of twelve named individuals.

Manila Cordage and Manco Synthetic separately filed Petitions for Certiorari before the Court of Appeals, alleging that the Secretary of Labor gravely abused its discretion in ruling that there was an employer-employee relationship between them and the challenged voters. The two Petitions were consolidated on motion by MCC-ELU-OLALIA. The Court of Appeals granted the Petitions, finding grave abuse of discretion on the part of the Secretary of Labor. The Court of Appeals held that respondents submitted substantial evidence that the contractors were legitimate job contractors, specifically presenting Certificates of Registration numbered NCR-MPFO-72600-3111-210-R and RO-IVA-08-10-28 issued by the Department of Labor and Employment. The Court of Appeals also found that the contractors had substantial capitalization, both having more than the required minimum paid-up capital of P3 million, and that the fact that they had other clients from various industries negated the conclusion that they were labor-only contractors.

The unions filed their respective Motions for Reconsideration, which the Court of Appeals denied in its September 20, 2018 Resolution. On December 3, 2018, the unions filed a Petition for Review on Certiorari with the Supreme Court. On October 14, 2019, petitioners filed a Manifestation informing the Court of the decision of the Court of Appeals in Alternative Network Resources Unlimited Multi-Purpose Cooperative vs. Department of Labor and Employment and Regional Director Angaracampita, docketed as CA G.R. S.P. No. 150758, where workers under the payroll of various contractors were held to be employees of Manila Cordage after finding that the contractors were labor-only contractors.

Records showed that respondents entered into Memoranda of Agreement with the contractors even before these contractors were issued Certificates of Registration by the Department of Labor and Employment. The Certificates of Registration presented covered the period of 2014 to 2017, yet Alternative Network Resources undertook to provide Manila Cordage with manufacturing support services as early as 2008, while Worktrusted Manpower Services entered into a Memorandum of Agreement with Manco Synthetic in 2009. The employees deployed in Manila Cordage were assigned to departments tasked to accomplish the main business of respondents in the manufacturing of rope: Engineering, which maintains and repairs equipment and machineries; Production, which takes care of the actual production of ropes; Warehouse, which stores raw materials and manufactured ropes; Quality, which is in charge of quality standards; Matting, which packs the manufactured ropes; and Facility, which maintains cleanliness in the entire production line. The employees for Manco Synthetic were assigned to departments with the same functions: engineering, production, matting, and facility. While working in these departments, the workers' manner and method of work were closely supervised and monitored by regular employees of Manila Cordage and Manco Synthetic.

• Labor-Only Contracting: Petitioners maintained that Alternative Network Resources and Worktrusted Manpower Services are engaged in labor-only contracting, and hence the challenged voters of the certification elections should be deemed employees of respondents and their votes proclaimed as valid.
• Nature of Services: Petitioners alleged that the two contractors do not provide a specific service to respondents and merely supply manpower.
• Insufficient Proof of Compliance: Petitioners asserted that the contractors' substantial capital is not sufficient to prove that they complied with the requirements provided for in Department Order No. 18-A.
• Lack of Tools and Equipment: Petitioners maintained that respondents should have submitted evidence that the two contractors own tools, equipment, and machineries used in the main business of respondents, which is rope production.

• Questions of Fact: Respondents asserted that the Petition should not be entertained as it tackles questions of fact and not of law.
• No Employer-Employee Relationship: Respondents argued that there is no employer-employee relationship between them and the employees with challenged votes since the latter were hired from independent job contractors which had substantial capitalization and DOLE certifications.
• Substantial Capital or Investment: Respondents submitted that there was no need to prove that these contractors have investment in the form of tools, equipment, and machineries since all that Department Order No. 18-A requires is either substantial capitalization or investment.
• Lack of Control: Respondents stated that they wield no power or control over the employees, except for the end result of their work.

• Employer-Employee Relationship: Whether an employer-employee relationship exists between petitioners and respondents.
• Status of Contractors: Whether Alternative Network Resources Unlimited Multi-Purpose Cooperative and Worktrusted Manpower Services Cooperative are legitimate job contractors or labor-only contractors.

• Employer-Employee Relationship: Yes. An employer-employee relationship exists between petitioners and respondents because the contractors were found to be labor-only contractors, making respondents the true employers of the workers.
• Status of Contractors: Labor-only contractors. Alternative Network Resources and Worktrusted Manpower Services are labor-only contractors because, despite their substantial capitalization and Certificates of Registration, the totality of facts and circumstances showed they merely supplied manpower and respondents exercised control over the workers' performance.

• Employer-Employee Relationship: The Court noted that as a general rule, the Supreme Court is not a trier of facts, and in labor cases, petitions for review on certiorari under Rule 45 are limited to determining whether the Court of Appeals was correct in finding the presence or absence of grave abuse of discretion and jurisdictional errors on the part of the lower tribunal. The existence of an employer-employee relationship or labor-only contracting is a question of fact because it entails an assessment of the probative value of the evidence presented. However, the exceptions laid down in Pascual vs. Burgos apply, and in this case, the factual findings of the Court of Appeals are contrary to those of the Secretary of Labor and Employment, making it proper for the Court to delve into the factual circumstances and records of the case.

• Status of Contractors: The Court applied Article 106 of the Labor Code, which defines labor-only contracting as occurring 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. Citing San Miguel Foods, Inc. vs. Rivera, the Court enumerated the conditions for legitimate job contracting: (a) the contractor carries on a distinct and independent business and partakes the contract work on his account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of his work except as to the results thereof; (b) the contractor has substantial capital or investment; and (c) the agreement between the principal and the contractor assures the contractual employees' entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social welfare benefits.

The Court held that a Certificate of Registration is not conclusive evidence of being a legitimate independent contractor; it merely prevents the presumption of labor-only contracting and gives rise to a disputable presumption that the contractor is legitimate. The Court noted that respondents entered into Memoranda of Agreement with the contractors even before these contractors were issued Certificates of Registration, indicating that they supplied manpower to various clients even without the imprimatur from the Department of Labor and Employment.

Applying Section 5 of Department Order No. 18-02, the Court found that both conditions for labor-only contracting were present: (i) the contractors do not have substantial investment in the form of tools, equipment, and machineries necessary to carry out the functions of their alleged employees who perform activities directly related to the business of respondents, and their alleged employees use respondents' equipment and machinery to carry out jobs related to rope manufacturing; and (ii) respondents exercised control over the performance of the work of the contractual employees. The Court rejected respondents' argument that since the presence of both substantial capital and substantial investment are not required by law, the contractors must be considered legitimate, citing Dole Phils., Inc. vs. Esteva to illustrate that an entity may still be held as a labor-only contractor despite numerous badges supporting the notion that it is a legitimate labor contractor.

The Court found that despite the contractors' role in hiring, disciplining, and paying wages, it was still respondents who exercised control over the workers' work performance and output. The workers were assigned to departments tasked to accomplish the main business of respondents in the manufacturing of rope, and their manner and method of work were closely supervised and monitored by regular employees of Manila Cordage and Manco Synthetic. This negated respondents' contention that they did not exercise control over the work, as the supervisors deployed by the contractors merely dealt with administrative matters such as checking attendance and distributing payslips. The Court also found that the workers performed functions necessary and directly related to the main business of respondents, as they were involved in the core operations for the manufacturing and export of respondents' rope products, and had been performing these functions even before the contractors were registered as legitimate labor contractors.

• Disputable Presumption of Legitimacy of Labor Contractors — A Certificate of Registration with the Department of Labor and Employment is not conclusive evidence of an entity's status as a legitimate labor contracting entity. At most, it causes a disputable presumption that the entity is a legitimate labor contractor which can be refuted by other evidence. The Court applied this doctrine by examining the totality of facts and circumstances, including the timing of the Memoranda of Agreement relative to the Certificates of Registration, to find that the contractors were labor-only contractors despite their registration.

• Totality of Facts and Circumstances Test — In determining whether an entity is a labor-only contractor or a legitimate job contractor, what must be considered is the totality of the facts and surrounding circumstances of the case. The Court applied this test by considering multiple factors: the contractors' lack of substantial investment in tools and equipment, respondents' exercise of control over the workers, the workers' performance of functions directly related to respondents' main business, and the timing of the contractors' registration relative to their engagement.

• Control Test — The "right to control" refers to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. The Court applied this test by finding that despite the contractors' role in hiring, disciplining, and paying wages, it was respondents who exercised control over the workers' work performance and output, as the workers were closely supervised and monitored by regular employees of respondents.

• Labor-Only Contracting — Labor-only contracting is an arrangement where the contractor, not having substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, supplies workers to an employer and the workers recruited are performing activities which are directly related to the principal business of such employer. A finding that a contractor is a labor-only contractor is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor, and the labor-only contractor is considered as a mere agent of the principal, the real employer.

• "A labor contractor's Certificate of Registration with the Department of Labor and Employment is not conclusive evidence of its status as a legitimate labor contracting entity. At most, it causes a disputable presumption that the entity is a legitimate labor contractor which can be refuted by other evidence. In order to determine whether an entity is a labor-only contractor or a legitimate labor contractor, what must be considered is the totality of the facts and surrounding circumstances of the case." — This opening statement articulates the core doctrine of the case, establishing that registration is merely presumptive and the totality test governs.

• "Although this may be a badge of legitimate job contracting, it does not automatically convert a labor-only contractor to a legitimate job contractor because in the issue of labor-only contracting, 'the totality of the facts and the surrounding circumstances of the case' must be considered." — This passage addresses respondents' argument that having other clients indicates legitimate job contracting, clarifying that this factor alone is insufficient.

• "Further, proof of substantial capital does not make an entity immune to a finding of labor-only contracting when there is showing that control over the employees reside in the principal and not in the contractor." — This passage establishes that substantial capitalization, while a requirement for legitimate job contracting, is not dispositive when the control test indicates labor-only contracting.

• _"In labor-only contracting, there is no principal and contractor; 'there is only the employer's representative who gathers and supplies people for the employer.'" — This passage explains the legal consequence of a finding of labor-only contracting, that the supposed contractor is merely an agent of the principal who is the real employer.

• San Miguel Foods, Inc. vs. Rivera, 924 Phil. 961 (2018) — Cited as the source of the characteristics that differentiate legitimate job contractors from prohibited labor-only contractors, including the three concurring conditions for legitimate job contracting.

• Dole Phils., Inc. vs. Esteva, 538 Phil. 817 (2006) — Cited to illustrate that an entity may still be held as a labor-only contractor despite numerous badges supporting the notion that it is a legitimate labor contractor, with the Court enumerating the factors considered in that case.

• W.M. Manufacturing Inc. vs. Dalag, 774 Phil. 353 (2015) — Cited as persuasive authority for the proposition that the control test is of paramount consideration under Department Order No. 18-02, and that the contractor's payment of wages has no bearing when the principal actually exercises supervision over the workers' performance.

• Petron Corp. vs. Caberte, 759 Phil. 353 (2015) — Cited for the proposition that a finding that a contractor is a labor-only contractor is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor, and that the repeated and continuing need for the performance of the job is sufficient evidence of the necessity of the activity to the business.

• Pascual vs. Burgos, 776 Phil. 167 (2016) — Cited for the exceptions to the general rule that the Supreme Court is not a trier of facts, including when the findings of fact of the Court of Appeals are contrary to those of the trial court.

• Meralco Industrial vs. National Labor Relations Commission, 572 Phil. 94 (2008) — Cited for the general rule that the Supreme Court is not a trier of facts and that factual findings of quasi-judicial agencies, when affirmed by the Court of Appeals, are conclusive upon the parties.

• Alilin vs. Petron Corp., 735 Phil. 509 (2014) — Cited for the proposition that the burden of proving the legitimacy of the contractor shifts to the principal when it is the one claiming that status.

• Mago vs. Sun Power Manufacturing Limited, 824 Phil. 464 (2013) — Cited for the proposition that proof of substantial capital does not make an entity immune to a finding of labor-only contracting when there is showing that control over the employees resides in the principal.

• Coca-Cola Bottlers Philippines, Inc. vs. Dela Cruz, 622 Phil. 886 (2009) — Cited for the proposition that in labor-only contracting, there is no principal and contractor, only the employer's representative who gathers and supplies people for the employer.

• Article 106, Labor Code — Defines contractor or subcontractor arrangements, provides for joint and several liability of the employer for unpaid wages, and defines labor-only contracting as occurring where the person supplying workers 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.

• Section 5, Department Order No. 18-02 — Provides the conditions for determining labor-only contracting: (i) the contractor does not have substantial capital or investment which relates to the job, work, or service to be performed and the employees 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 found both conditions present in this case.

• Rule 45, Revised Rules of Court — Limits the Supreme Court's jurisdiction in petitions for review on certiorari to reviewing only errors of law, not of fact, unless the factual findings complained of are completely devoid of support from the evidence on record or the assailed judgment is based on a gross misapprehension of facts.

• Gesmundo, J.
• Carandang, J.
• Lopez, J. (designated additional Member per Raffle dated Sept 9, 2020)
• Delos Santos, J. (additional Member per S.O. No. 2753)

N/A — The case text does not indicate any dissenting opinions.