Primary Holding
Failure of a contractor to register with the DOLE Regional Office gives rise to the presumption that it is engaged in labor-only contracting; the principal bears the burden of proving legitimate job contracting, and the parties cannot dictate the character of their business through unilateral declarations in a contract.
Background
Saekyung Realty Corporation (SRC) is a corporation engaged in real estate development, particularly condominium projects, while MPY Construction supplied construction workers to it under a Contractor Agreement. The dispute is governed by Article 106 of the Labor Code and Department Order No. 18, Series of 2002, which regulate job contracting and presume labor-only contracting where the contractor fails to register with the DOLE Regional Office. The case also involves the statutory requirements for valid dismissal and the relief available to illegally dismissed employees.
History
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Complaints for illegal dismissal, non-payment of salaries, overtime pay, holiday pay, and 13th month pay were filed by petitioners against SRC before the Labor Arbiter.
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Labor Arbiter, December 3, 2015 — dismissed the consolidated cases after finding no employer-employee relationship between petitioners and SRC, ruling that MPY was the employer under the four-fold test.
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NLRC, May 31, 2016 — reversed the Labor Arbiter, held MPY to be a labor-only contractor and SRC the actual employer, and ordered reinstatement except for Apollo S. Tura and payment of P12,777,095.20.
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NLRC, September 20, 2016 — granted respondents' motion for reconsideration, vacated the May 31, 2016 Decision, and dismissed the case for lack of employer-employee relationship, without prejudice to refiling against MPY as direct employer and SRC as indirect employer.
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NLRC, November 29, 2016 — denied petitioners' motion for reconsideration, reiterating that MPY was a legitimate contractor based largely on the LTO letter and that the PRC certification had no bearing on its findings.
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Court of Appeals, August 31, 2018 — dismissed the Petition for Certiorari, holding that the NLRC correctly found substantial evidence that MPY was a legitimate and independent contractor.
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Court of Appeals, August 7, 2019 — denied petitioners' motion for reconsideration.
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Supreme Court, October 11, 2021 — granted the petition, reversed and set aside the CA Decision and Resolution, and reinstated the NLRC Decision dated May 31, 2016.
Facts
Petitioners filed several complaints for illegal dismissal, non-payment of salaries, overtime pay, holiday pay, and 13th month pay against Saekyung Realty Corporation (SRC), a company engaged in real estate development, particularly condominium projects. They alleged that SRC hired them on different dates as construction workers, particularly as foreman, mason, carpenter, steel man, painter, helper, and laborer, through MPY Construction (MPY), a labor-only contractor that paid them below the minimum rate. According to petitioners, SRC President Lim Cheolsik directly supervised their work, while SRC employee Willy P. Yalung personally monitored their time-ins and time-outs and prepared their weekly payroll reports.
On September 28, 2013, at around 9:00 a.m., Yalung told Foreman Jonathan Baje that the employment of Baje's group would be terminated at 5:00 p.m. that day. SRC then hired new workers after terminating petitioners' services. Petitioners claimed that those who worked under SRC's control from the very beginning continued to work for SRC even after the death of MPY's owner, Yraola.
SRC and Lim, for their part, averred that SRC was neither established as a construction company nor authorized to hire and select construction workers and personnel. After SRC was incorporated on August 18, 2010, it started developing nine condominium projects in Cebu. For the first three buildings, SRC entered into a Contractor Agreement on October 27, 2011 with MPY, an independent contractor, covering specific work, number of laborers, and the rate per laborer. MPY hired petitioners and detailed them to SRC as project employees. On January 10, 2014, MPY informed SRC that petitioners abandoned their jobs. Thinking that the matter was MPY's concern, respondents did nothing about the situation and were surprised to learn that petitioners filed complaints against them. Respondents denied that Yalung was their payroll master and manifested that they successfully defended similar cases against other employees in Ayod, et al. vs. SRC and Emia, et al. vs. SRC.
The Labor Arbiter found that no employer-employee relationship existed between petitioners and SRC, ruling that MPY was petitioners' employer under the four-fold test. On reconsideration, the NLRC found MPY to be a legitimate contractor based on additional documents, including DTI Certificates of Business Name Registration, a Mayor's Business Permit, a Dun and Bradstreet Phils., Inc. certification, Audited Financial Statements, and an LTO-Region 7 letter listing motor vehicles registered under MPY and Yraola. The CA found substantial evidence supported the NLRC's conclusion that MPY was a legitimate and independent contractor.
Arguments of the Petitioners
- Labor-Only Contracting / DOLE Registration: Petitioners asserted that MPY was not registered as a legitimate labor contractor with the Regional Office of the Department of Labor and Employment and was not licensed by the Philippine Contractors Accreditation Board.
- Control and Integration: Petitioners maintained that respondents retained overall rights in the management and performance of the scope of work and that petitioners performed tasks that were vital, necessary, and indispensable to the usual business or trade of SRC.
- Tools and Materials: Petitioners argued that SRC provided the tools and materials used by petitioners for the project.
- Compensation Arrangement: Petitioners claimed that SRC had an agreement with MPY that the latter's compensation would be 10% of the total payroll of the workers.
- Continuity of Work: Petitioners asserted that those who worked under the control of SRC from the very beginning continued to work for SRC even after the death of MPY's owner, Yraola.
- Grave Abuse of Discretion: Petitioners argued that the CA erred in deciding that there was no grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the NLRC when it decided that there was no employer-employee relationship between petitioners and private respondents.
- Contrary to Petron vs. Caberte: Petitioners maintained that the CA erred in giving credence to the documents presented by private respondents contrary to and not in accordance with Petron Corporation vs. Caberte, G.R. No. 182255, June 15, 2015.
- Illegal Dismissal: Petitioners argued that the CA erred in failing to rule that there was illegal dismissal.
- Solidary Liability: Petitioners contended that the CA erred in dismissing the case and failing to recognize the solidary liability of the direct employer and indirect employer, granting for the sake of argument that petitioners were workers of MPY Construction.
- Review of Factual Issues: Petitioners asserted that the CA erred in deciding that it could not review factual issues raised in the Petition for Certiorari.
Arguments of the Respondents
- No Grave Abuse of Discretion: Respondents maintained that the CA did not err in ruling over the factual issues, which are not reviewable by the Court in a petition for certiorari, and asserted that there was no grave abuse on the part of the NLRC.
- Independent Contractor: Respondents averred that SRC was neither established as a construction company nor authorized to hire and select construction workers and personnel, and that it engaged MPY as an independent contractor under a Contractor Agreement.
- MPY as Employer: Respondents claimed that MPY hired petitioners and detailed them to SRC as project employees.
- Abandonment: Respondents asserted that MPY informed SRC that petitioners abandoned their jobs and that they thought the matter was MPY's concern.
- Denial of Supervision: Respondents denied that Yalung was their payroll master.
- Prior Similar Cases: Respondents manifested that they successfully defended similar cases against other employees in Ayod, et al. vs. SRC and Emia, et al. vs. SRC.
Issues
- Labor-Only Contracting: Whether MPY is a labor-only contractor.
- Employer-Employee Relationship / Illegal Dismissal: Whether, if MPY is a labor-only contractor, petitioners are considered regular employees of SRC and were illegally dismissed.
- Monetary Awards: Whether petitioners are entitled to reinstatement, backwages, wage differentials, service incentive leave pay, attorney's fees, and legal interest.
- Factual Review / Grave Abuse of Discretion: Whether the CA erred in refusing to review factual issues and in finding no grave abuse of discretion on the part of the NLRC.
Ruling
- Labor-Only Contracting: Yes. MPY is a labor-only contractor because it failed to register with the DOLE-RO under DO 18-02 and failed to prove substantial capital actually and directly used in the contracted work.
- Employer-Employee Relationship / Illegal Dismissal: Yes. As a labor-only contractor, MPY is a mere agent of SRC, and petitioners are considered SRC's regular employees; their dismissal without just or authorized cause and due process was illegal.
- Monetary Awards: Yes. Reinstatement, backwages, wage differentials, service incentive leave pay, and 10% attorney's fees are warranted, totaling P12,777,095.20, with 6% legal interest per annum from finality.
- Factual Review / Grave Abuse of Discretion: Yes. Although factual findings are generally respected, re-examination is proper because the CA overlooked relevant facts that would justify a different conclusion.
Ruling Rationale
- Labor-Only Contracting: The general presumption is that a contractor is engaged in labor-only contracting unless the contractor proves otherwise by having substantial capital, investment, tools, and the like. The burden of proving the legitimacy of the contractor shifts to the principal when it is the one claiming that status. Article 106 of the Labor Code defines labor-only contracting as an arrangement 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 recruited and placed by such person are performing activities directly related to the principal business of the employer. Section 5 of DOLE Order No. 18-05 further prohibits labor-only contracting and defines it as an arrangement wherein the contractor merely recruits, supplies, or places workers to perform a job, work, or service for a principal, and any of the following elements are present: (1) the contractor 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 by such contractor are performing activities directly related to the main business of the principal; or (2) the contractor does not exercise the right to control over the performance of the work of the contractual employee. Job contracting is permissible but regulated; the contractor carries out a business distinct and independent from that of the principal and undertakes the work or service on its own account, using its own manner and methods. In determining independent contractor relationship, several factors may be considered, including whether the contractor is carrying on an independent business, the nature and extent of the work, the skill required, the term and duration of the relationship, the right to assign performance of specified pieces of work, the control and supervision of the work, the employer's power with respect to hiring, firing, and payment of the contractor's workers, the control of the premises, the duty to supply premises, tools, appliances, material, and labor, and the mode, manner, and terms of payment. DO 18-02 requires contractors to register with the DOLE Regional Office in which they operate, and failure to register gives rise to the presumption that the contractor is engaged in labor-only contracting. In this case, respondents failed to present MPY's certificate of registration as required by DO 18-02. The tribunals below erred when they overlooked such noncompliance, as the presumption provided by law arose, especially when respondents had nothing but silence to rebut it. While a certificate of registration is not conclusive evidence of the contractor's legitimate status, the fact of registration prevents the legal presumption of being a mere labor-only contractor from arising. There being no certificate of registration, the presumption arose that MPY is engaged in labor-only contracting.
- Employer-Employee Relationship / Illegal Dismissal: Even if a principal or contractor submits a certificate of registration in compliance with DO 18-02, this is not conclusive evidence that the entity is a legitimate contracting entity; compliance merely gives rise to a disputable presumption that the entity is a legitimate labor contractor which can be refuted by other evidence. In determining whether an entity is a labor-only contractor or a legitimate labor contractor, the totality of the facts and surrounding circumstances must be considered. Here, there was no financial statement that could be relied upon as proof of MPY's capitalization. MPY's Audited Financial Statement, which respondents submitted to the NLRC in their motion for reconsideration, was prepared by a certain Ladislao V. Molina, Sr., CPA, who turned out to be non-existent upon verification with the PRC. Respondents merely stated that assuming it was not prepared by a CPA, it does not necessarily make the figures and financial capability stated therein false, which is clearly self-serving. The LTO-Region 7 letter, which the NLRC stated as its basis in finding that MPY had substantial capitalization, enumerated motor vehicles consisting of five trucks and five motorcycles registered in the names of MPY and Yraola. While it may be true that MPY owned trucks, it was not shown to have been actually and directly used by the contractor in the completion of the job, work, or service contracted out. It therefore does not satisfy the requirement that the equipment be used in the performance of the specific work contracted out. Substantial capital or investment is defined as capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out. In the plain language of DO 18-02, such assets must be manifested as investments relating to the job or service to be performed. At most, the vehicles registered with LTO under the names of MPY and Yraola only show that MPY was engaged in the trucking business, consistent with Yraola's letter to SRC dated May 19, 2011 where Yraola declared that MPY was engaged in supplying quarry materials such as sand and gravel and that Yraola was a member of the Visayas Truckers, Equipment & Quarry Operators. As for the tools and materials actually used by petitioners, these were supplied by SRC, consistent with the provisions of the Contractor Agreement. In ruling that MPY was petitioners' employer, the LA gave weight to the provisions of the Contractor Agreement which gave MPY the power to exercise management right over its laborers, personnel and engineers, including the right to hire, discharge, promote and transfer employees. However, the character of the business, whether as labor-only contractor or as a job contractor, should be determined by the criteria set by statute, and the parties cannot dictate by the mere expedience of a unilateral declaration in a contract the character of their business. Thus, it is erroneous for courts to place reliance on contracts as the provisions therein are not the sole determining factor in ascertaining the true nature of the relationship between the principal, contractor, and employees. With the finding that MPY is a labor-only contractor, petitioners are therefore considered regular employees of SRC as provided under Section 7 of DO 18-02. As the employer, SRC should have complied with the substantive and procedural due process in the dismissal of its employees. There must be just and authorized causes for dismissal as provided under Articles 297, 298, and 299 of the Labor Code, and the twin requirements of notice and hearing must be duly observed. Employees who are unjustly dismissed from work are entitled to reinstatement without loss of seniority rights and other privileges, full backwages, inclusive of allowances, and to other benefits or monetary equivalent. When reinstatement is no longer viable, separation pay may be awarded as an alternative. Attorney's fees equivalent to 10% of the total monetary award are also in order. In actions for recovery of wages or where an employee was forced to litigate and thus incurred expenses to protect his rights and interest, the award of attorney's fees is legally and morally justifiable. As petitioners were compelled to litigate to enforce their rights which had been unjustly and blatantly violated by SRC, they are entitled to attorney's fees. Finally, the monetary award shall earn legal interest at the rate of 6% per annum from finality of this Decision until full payment.
- Monetary Awards: The NLRC Decision dated May 31, 2016 ordered respondents to reinstate petitioners, except for Apollo S. Tura, without loss of seniority rights and privileges and to pay them backwages, wage differentials, service incentive leave pay and 10% attorney's fees in the total amount of P12,777,095.20. The Supreme Court reinstated this award. The monetary award shall earn legal interest at the rate of 6% per annum from finality of the Decision until full payment.
- Factual Review / Grave Abuse of Discretion: The Court generally does not disturb the findings of the CA in labor cases, especially if they are consistent with the LA and the NLRC findings, in recognition of the expertise of administrative agencies whose jurisdiction is limited to specific fields of law. Rule 45 petitions should raise only questions of law, as the Court is not duty-bound to analyze and re-examine the evidence already passed upon by courts or tribunals below. However, there are recognized exceptions, including when the findings are grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly mistaken, absurd or impossible; when there is grave abuse of discretion; when the judgment is based on a misapprehension of facts; when the findings of facts are conflicting; when in making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; when the findings are contrary to the trial court; when the findings are conclusions without citation of specific evidence on which they are based; when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion. As the CA overlooked relevant facts in this case that would result in a different conclusion if properly considered, a re-examination of the evidence presented before the lower tribunals is proper.
Doctrines
- 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 the employer. Under Section 5 of DOLE Order No. 18-05, labor-only contracting is present when either (1) the contractor does not have substantial capital or investment relating 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 (2) the contractor does not exercise the right to control over the performance of the work of the contractual employee. The Court applied this doctrine by finding that MPY lacked proof of substantial capital actually used in the contracted work and that petitioners performed construction activities directly related to SRC's condominium projects.
- Burden of Proof in Job Contracting — The general presumption is that a contractor is engaged in labor-only contracting unless the contractor proves otherwise by having substantial capital, investment, tools, and the like. The burden of proving the legitimacy of the contractor shifts to the principal when it is the one claiming that status. The Court applied this by holding that SRC, not petitioners, bore the burden of proving that MPY was a legitimate labor contractor, and SRC failed to discharge it.
- DOLE Registration Requirement and Presumption from Non-Registration — Under Section 11 of DO 18-02, contractors must register with the DOLE Regional Office, and failure to register gives rise to the presumption that the contractor is engaged in labor-only contracting. A certificate of registration is not conclusive evidence of legitimate status, but the fact of registration prevents the legal presumption of labor-only contracting from arising. The Court applied this by finding that respondents failed to present MPY's certificate of registration, thereby giving rise to the presumption that MPY was a labor-only contractor.
- Substantial Capital or Investment — Substantial capital or investment is defined as capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out. The Court applied this by holding that the LTO letter listing trucks and motorcycles under MPY and Yraola did not prove substantial capital because the vehicles were not shown to have been actually and directly used in the contracted work, and no reliable financial statement supported MPY's capitalization.
- Contract Does Not Determine Status — The character of the business, whether as labor-only contractor or as a job contractor, should be determined by the criteria set by statute, and the parties cannot dictate by the mere expedience of a unilateral declaration in a contract the character of their business. The Court applied this by ruling that the Contractor Agreement provisions giving MPY management rights over its workers were not the sole determining factor in ascertaining the true nature of the relationship between the principal, contractor, and employees.
- Illegal Dismissal and Relief — As the employer, SRC should have complied with the substantive and procedural due process in the dismissal of its employees. There must be just and authorized causes for dismissal as provided under Articles 297, 298, and 299 of the Labor Code, and the twin requirements of notice and hearing must be duly observed. Employees who are unjustly dismissed from work are entitled to reinstatement without loss of seniority rights and other privileges, full backwages, inclusive of allowances, and to other benefits or monetary equivalent. When reinstatement is no longer viable, separation pay may be awarded as an alternative. Attorney's fees equivalent to 10% of the total monetary award are also in order. The Court applied this by awarding reinstatement, backwages, wage differentials, service incentive leave pay, attorney's fees, and legal interest.
- Factual Findings in Labor Cases; Exceptions — The Court generally does not disturb the findings of the CA in labor cases, especially if they are consistent with the LA and the NLRC findings, in recognition of the expertise of administrative agencies. Rule 45 petitions should raise only questions of law. However, recognized exceptions allow re-examination, including when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion. The Court applied this by re-examining the evidence because the CA overlooked MPY's non-registration and lack of proof of substantial capital.
Key Excerpts
- "Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting." — This passage states the legal consequence of non-registration under DO 18-02 and serves as the core basis for presuming MPY to be a labor-only contractor.
- "The burden of proving the legitimacy of the contractor shifts to the principal when it is the one claiming that status." — This passage allocates the burden of proof in job contracting disputes and was applied against SRC, which claimed MPY was a legitimate contractor.
- "In the case at bar, respondents failed to present MPY's certificate of registration as required by DO 18-02. The tribunals below therefore erred when they overlooked such noncompliance as there arises the presumption provided by law, which finds more significance especially when respondents have nothing but silence to rebut it." — This passage is the ratio decidendi on the registration requirement, explaining why the lower tribunals erred in finding MPY a legitimate contractor.
- "While it may be true that MPY owned trucks, it was not shown to have been actually and directly used by the contractor in the completion of the job, work, or service contracted out. It therefore does not satisfy the requirement that the equipment be used in the performance of the specific work contracted out." — This passage defines the evidentiary standard for substantial capital and explains why the LTO letter did not establish MPY's legitimate contractor status.
Precedents Cited
- Daguinod vs. Southgate Foods, Inc., G.R. No. 227795, February 20, 2019 — Cited for the recognized exceptions to the rule that factual findings are generally not disturbed, for the factors in determining independent contractor relationship, for the rule that a certificate of registration is not conclusive evidence of legitimate status, and for the requirements and relief in illegal dismissal cases.
- Manila Cordage Company-Employees Labor Union-Organized Labor Union in Line Industries and Agriculture vs. Manila Cordage Co., G.R. Nos. 242495-96, September 16, 2020 — Cited for the rule that the burden of proving legitimacy shifts to the principal and that a certificate of registration is not conclusive evidence, the totality of facts being controlling.
- Alilin, et al. vs. Petron Corporation, 735 Phil. 509, 524 (2014) — Cited in Manila Cordage for the principle that the burden of proving legitimate job contracting rests on the principal claiming that status.
- Garden of Memories Park and Life Plan, Inc. vs. NLRC, et al., 681 Phil. 299, 311 (2012) — Cited for the burden of proof and the factors considered in determining the existence of an independent contractor relationship.
- Alaska Milk Corp. vs. Paez, G.R. Nos. 237277 & 237317, November 27, 2019 — Cited for the permissible yet regulated nature of job contracting, the DOLE registration system, the presumption arising from failure to register, and the requirement that assets be investments relating to the job or service to be performed.
- Petron Corporation vs. Caberte, et al., 759 Phil. 353, 366 (2015) — Cited for the factors in determining independent contractor relationship and for the rule that the character of the business cannot be dictated by unilateral declarations in a contract.
- Consolidated Building Maintenance, Inc., et al. vs. Asprec, et al., 832 Phil. 630, 644 (2018) — Cited for the DOLE-RO registration requirement and the regulatory purpose of monitoring contracting arrangements.
- De Castro, et al. vs. Court of Appeals, et al., 796 Phil. 681, 700 (2016) — Cited for the consequence of noncompliance with the registration requirement.
- San Miguel Corporation vs. Semillano, et al., 637 Phil. 115, 129-130 (2010) — Cited for the rule that registration prevents the legal presumption of labor-only contracting from arising.
- Polyfoam-RGC International, Corp., et al. vs. Concepcion, 687 Phil. 137, 148 (2012) — Cited for the rule that the totality of facts and surrounding circumstances must be considered in determining whether an entity is a labor-only contractor.
- CEPALCO, et al. vs. CEPALCO Employee's Labor Union-Associated Labor Unions-Trade Union Congress of the Phils. (TUCP), 787 Phil. 612 (2016) — Cited for the requirement that equipment be actually and directly used in the performance of the specific work contracted out.
- Monsanto Philippines, Inc. vs. National Labor Relations Commission, G.R. Nos. 230609-10, August 27, 2020 — Cited for the definition of substantial capital or investment.
- Peak Ventures Corp., et al. vs. Heirs of Nestor B. Villareal, 747 Phil. 320, 335 (2014) — Cited for the relief available to unjustly dismissed employees.
- Aliling vs. Feliciano, et al., 686 Phil. 889, 922 (2012) — Cited for the award of attorney's fees in actions for recovery of wages or where an employee was forced to litigate.
- Nacar vs. Gallery Frames, 716 Phil. 267, 281 (2013) — Cited for the imposition of legal interest at 6% per annum from finality of the decision until full payment.
- New City Builders, Inc. vs. NLRC, 499 Phil. 207, 213 (2005) — Cited for the exceptions to the rule that factual findings are generally not disturbed.
- The Insular Life Assurance Co., Ltd. vs. Court of Appeals, 472 Phil. 11, 22-23 (2004) — Cited in New City Builders for the recognized exceptions to the factual findings rule.
- Mago, et al. vs. Sun Power Manufacturing Limited, 824 Phil. 464, 476 (2018) — Cited for the nature of job contracting as a permissible yet regulated practice.
Provisions
- Article 106, Labor Code of the Philippines — Defines labor-only contracting as an arrangement 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 the 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. The Court applied this provision by finding MPY to be a labor-only contractor and SRC to be the responsible employer.
- Section 5, DOLE Order No. 18-05 — Prohibits labor-only contracting and defines it as an arrangement wherein 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 are present: (1) 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 by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or (2) the contractor does not exercise the right to control over the performance of the work of the contractual employee. The Court used this provision to define the prohibited arrangement and to support the finding of labor-only contracting.
- Section 11, Department Order No. 18, Series of 2002 (DO 18-02) — Establishes a registration system for contractors and subcontractors to be implemented by the Regional Offices, requires registration for purposes of establishing effective labor market information and monitoring, and provides that failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting. The Court applied this by holding that respondents' failure to present MPY's certificate of registration gave rise to the presumption that MPY was a labor-only contractor.
- Section 7, Department Order No. 18, Series of 2002 (DO 18-02) — Provides that the contractor or subcontractor shall be considered the employer of the contractual employee for purposes of enforcing the Labor Code and other social legislation, but the principal shall be solidarily liable with the contractor for violations. The principal shall be deemed the employer of the contractual employee in cases declared by a competent authority, including where there is labor-only contracting or where the contracting arrangement falls within the prohibited arrangements. The Court applied this by deeming SRC the employer of petitioners after finding labor-only contracting.
- Articles 297, 298, and 299, Labor Code of the Philippines — Provide the just and authorized causes for dismissal. The Court applied these by holding that as the employer, SRC should have complied with the substantive and procedural due process requirements, including the twin requirements of notice and hearing, in dismissing petitioners.
- Rule 45 — Provides that petitions should raise only questions of law, as the Court is not duty-bound to analyze and re-examine evidence already passed upon by courts or tribunals below. The Court applied this rule by recognizing its exceptions and re-examining the evidence because the CA overlooked relevant facts that would justify a different conclusion.
Notable Concurring Opinions
Hernando (Acting Chairperson), Gaerlan, and Dimaampao, JJ., concur. Perlas-Bernabe, S.A.J., was on official leave.