Monsanto Philippines, Inc. vs. National Labor Relations Commission

A contractor that lacks substantial capital or investment for the contracted work and does not exercise control over the workers it supplies is a labor-only contractor; the principal that exercises control over the workers and hired them before the service agreement is their direct employer and is liable for illegal dismissal and the resulting monetary awards.

Monsanto Philippines, Inc. is a domestic corporation engaged in the manufacture, processing, refinement, importation, and marketing of seeds, agricultural products, chemicals, and related products, with Filipino farmers growing rice and corn as its main clientele. East Star Agricultural Development Corporation is a domestic corporation providing agricultural production, processing, packaging, warehousing, and distribution services and was described as an accredited job contractor with the Department of Labor and Employment. Monsanto entered into a service agreement with East Star on April 25, 2005, under which East Star was to supply workers to promote Monsanto’s products. The Labor Code and DOLE Order No. 18-02 govern job contracting and prohibit labor-only contracting, making the principal liable for violations of labor laws.

Monsanto Philippines, Inc., a domestic corporation engaged in the manufacture, processing, refinement, importation, and marketing of seeds, agricultural products, chemicals, and related products, served Filipino farmers growing rice and corn. To promote its products, it entered into a service agreement with East Star Agricultural Development Corporation on April 25, 2005. East Star was a domestic corporation providing agricultural production, processing, packaging, warehousing, and distribution services and was described as an accredited job contractor with the Department of Labor and Employment. Under the service agreement, East Star was considered the employer of the contractual employees for enforcing the Labor Code and other social legislation, but Monsanto, as principal, was solidarily liable with East Star for any violation of the Labor Code, including failure to pay wages and other monetary claims.

Private respondents Martin B. Generoso Jr., Orville P. Pagonzaga, Roel M. Morano, Roel T. Malinao, Felmer Y. Estaño, Sherwin T. Tabanag, Ponciano O. Laranio, Ariel F. Balili, Jerih M. Juntado, Jr., and Antonio S. Siso were agricultural crop technicians tasked to promote Monsanto’s products. According to the NLRC’s factual findings, Monsanto hired them on different dates between 1996 and 2001, exercised direct control and supervision over their activities through its Marketing Executives and Territory Leads, provided them vehicles, gasoline, and promotional materials, conducted defensive driving seminars and test drives that included them, required them to open ATM accounts through which Monsanto paid their salaries, and had them represent Monsanto in Marketing Incentives Program Agreements with dealers, financiers, and big landowners. After the service agreement, East Star took over payment of their salaries but did not exercise control and supervision over their work.

Sometime in April 2007, private respondents were told that their positions and functions were redundant. On May 16, 2007, East Star formally terminated their employment. This prompted private respondents to file a complaint against Monsanto, East Star, and its corporate officers Arnold Estrada, Gemma Lustre, and Teodorico Dereje, Jr. for illegal dismissal, with claims for backwages, separation pay, incentives/commission, and tax refund.

The Labor Arbiter found that East Star acted as a labor-only contractor because there was no showing that it hired private respondents and that it had no control over their work, while Monsanto exercised control over their work and thus made them its regular employees. The Labor Arbiter also found that private respondents were dismissed for an authorized cause—reorganization of personnel to streamline Monsanto’s operations—but that due process was not observed. The NLRC affirmed these findings and added that Monsanto did not dispute private respondents’ allegation that it hired them through its officers on different dates before the service agreement, which amounted to admission by silence; it also found that Monsanto transferred them to East Star as their new employer but remained their employer. The NLRC further determined that although East Star had a subscribed capital of P10,000,000.00 as stated in its Articles of Incorporation, it did not have substantial capital or investment in the form of tools, equipment, implements, and machines to use in the performance of private respondents’ work.

The CA later found that private respondents, except Generoso, did not present evidence that Monsanto employed them before April 25, 2005, and that the service agreement was prima facie evidence that they were East Star’s employees. It found that Generoso proved Monsanto engaged his services before the service agreement through letters dated December 3, 2004 to several municipal mayors informing them of the setting up of promotional materials in their localities. The CA also found that the claimed benefits—14th month pay, annual wage increase, dependents’ medical insurance coverage, and stock option benefit—were not proven to have been given to Monsanto’s regular employees as a matter of practice.

• Employment Relationship: Monsanto argued that the CA erred in ruling that East Star is a legitimate job contractor and is the employer of private respondents.
• Solidary Liability: Monsanto argued that the CA erred in holding it solidarily liable with East Star.
• Illegal Dismissal: Monsanto argued that the CA erred in ruling that private respondents were illegally dismissed for lack of just or authorized cause.
• Monetary Awards: Monsanto argued that the CA erred in awarding backwages, separation pay, damages, and attorney’s fees to private respondents.
• Generoso’s Employment: Monsanto argued that the CA erred in ruling that Generoso is an employee of Monsanto.

• East Star’s Status and Employment: Whether the CA erred in ruling that East Star is a legitimate job contractor and is the employer of private respondents.
• Solidary Liability: Whether Monsanto is solidarily liable with East Star.
• Illegal Dismissal: Whether the CA erred in ruling that private respondents were illegally dismissed for lack of just or authorized cause.
• Monetary Awards: Whether the CA erred in awarding backwages, separation pay, damages, and attorney’s fees to private respondents.
• Generoso’s Employment: Whether the CA erred in ruling that Generoso is an employee of Monsanto.

• East Star’s Status and Employment: No. East Star is not a legitimate job contractor but a labor-only contractor, and it is not the employer of private respondents; Monsanto is their employer because it exercised control and hired them before the service agreement.
• Solidary Liability: Yes, but not solely under the service agreement. Monsanto is directly liable as the employer, and the Court also declared East Star and Monsanto solidarily liable for the money claims.
• Illegal Dismissal: Yes. The dismissal was illegal because redundancy was not substantiated by evidence of losses and due process was not observed, so no just or authorized cause existed.
• Monetary Awards: Yes. Backwages, separation pay, moral and exemplary damages, and attorney’s fees are warranted under the Labor Code and jurisprudence, with 6% interest from finality.
• Generoso’s Employment: Yes. Generoso is an employee of Monsanto, and all private respondents are direct employees of Monsanto because East Star is a labor-only contractor; however, none proved entitlement to the claimed benefits.

• East Star’s Status and Employment: The Court first addressed the Rule 45 limitation that only questions of law may be raised, noting that an exception applies when the CA’s findings are contrary to those of the trial court; because the Labor Arbiter is the first adjudicator of truth and the LA/NLRC findings differed from the CA’s, the Court reassessed the evidence. The NLRC, affirming the LA, found that Monsanto hired private respondents on different dates between 1996 and 2001; that Monsanto exercised direct control and supervision over their activities through its Marketing Executives and Territory Leads; that they conducted farmers’ meetings, harvest festivals, big landowners/financiers’ meetings, and product inventories; that Monsanto provided vehicles, gasoline, and promotional materials; that Monsanto conducted defensive driving seminars and test drives including private respondents; that private respondents represented Monsanto in Marketing Incentives Program Agreements with dealers, financiers, and big landowners; and that Monsanto initially paid their salaries through ATM accounts, with East Star taking over salary payments only after the service agreement without exercising control or supervision. The Court applied the control test: one who exercises power of control over the means, methods, and manner of performing an employee’s work is the employer, and this is the most significant determinant of an employer-employee relationship. Since Monsanto, not East Star, exercised control, East Star was not a legitimate job contractor but a labor-only contractor under Section 5 of DOLE Order No. 18-02. The Court noted that East Star had a subscribed capital of P10,000,000.00 but no substantial capital or investment in tools, equipment, implements, and machines for the work, satisfying one element of labor-only contracting; and that East Star did not exercise control over private respondents’ work, satisfying another. The Court also doubted the service agreement because it took effect on January 1, 2005 or before East Star’s DOLE registration on July 14, 2005, and was executed on April 25, 2005 before that registration; even if valid, East Star was a labor-only contractor when executed because it was not yet a DOLE-registered job contractor. The Court observed that East Star did not file its Position Paper, did not participate before the CA, and did not participate before the Supreme Court, while Monsanto took the cudgels for it. The evidence thus pointed to Monsanto as the employer; it hired private respondents before the service agreement and, after reorganizing, transferred them to East Star in violation of their security of tenure, making it liable for violations of labor laws.
• Solidary Liability: The Court stated that the issue of Monsanto’s solidary liability with East Star under the service agreement was of no moment because Monsanto was already pronounced the employer of private respondents and was directly liable for the consequences of illegal dismissal, including money claims. In the discussion of monetary awards, the Court also sustained the NLRC’s ruling, considering East Star a labor-only contractor, that East Star and Monsanto are solidarily liable to pay all of private respondents’ money claims. The service agreement’s clause making the principal solidarily liable for Labor Code violations was therefore not the sole basis for liability; Monsanto’s status as employer supplied the direct liability.
• Illegal Dismissal: The LA ruled and the NLRC affirmed that private respondents were dismissed for an authorized cause—reorganization to streamline Monsanto’s operations—but that due process was not observed, leading to nominal damages. The CA held that the dismissal was not based on just or authorized causes under Articles 282 and 283 of the Labor Code, now Articles 297 and 298. The Court agreed with the CA. Although Monsanto claimed private respondents’ positions and functions were redundant, there was neither allegation nor evidence that Monsanto suffered losses or would suffer losses justifying the reduction of workforce. Without evidence to substantiate redundancy, the dismissal could not be characterized as just or authorized. The Court also sustained the unanimous finding of lack of due process in the dismissal. The absence of both just or authorized cause and due process rendered the dismissal illegal.
• Monetary Awards: Under Article 294 (formerly Article 279) of the Labor Code, an illegally dismissed employee is entitled to backwages from the time compensation was withheld. Separation pay is warranted when termination is not attributable to the employee’s fault, including illegal dismissal where reinstatement is no longer feasible. While reinstatement is the general rule, the Court found the exception applicable because 13 years had passed since dismissal on May 16, 2007, making reinstatement unlikely feasible; private respondents also prayed for separation pay rather than reinstatement, indicating strained relations. Under the doctrine of strained relations, separation pay is an acceptable alternative when reinstatement is no longer desirable or viable. The NLRC had considered the approved compromise agreement between East Star and private respondents before the DOLE Regional Office and a receipt showing they received separation pay; the Court sustained the deduction of whatever amount they previously received from the separation pay ordered. The Court followed Genuino Agro-Industrial Development Corp. vs. Romano: when separation pay is ordered in lieu of reinstatement, backwages are computed from dismissal until finality of the decision ordering separation pay, and separation pay is equivalent to one month salary for every year of service, not beyond the date of actual separation or the date reinstatement became impossible. Moral damages are recoverable when dismissal is attended by bad faith, fraud, oppression to labor, or is contrary to good morals, good customs, or public policy; exemplary damages are recoverable when dismissal is wanton, oppressive, or malevolent. The CA awarded unspecified moral damages because the dismissal was contrary to public policy and East Star treated private respondents as contractual employees to prevent regular status. The Court agreed with P15,000.00 moral damages and P15,000.00 exemplary damages to each private respondent, but for the reason that private respondents were unceremoniously transferred to East Star to end their regular status in Monsanto, their years of service were unrecognized, and they were deprived of hard-earned benefits—oppression to labor violating good morals, good customs, and public policy. Attorney’s fees equivalent to 10% of the amount of wages recovered may be assessed on the culpable party under Article 111 of the Labor Code, as affirmed in National Power Corp. vs. Cabanag. Pursuant to Nacar vs. Gallery Frames, the monetary awards are subject to 6% interest per annum from finality until fully paid.
• Generoso’s Employment: Monsanto argued that the CA erred in holding Generoso its employee, but the Court found no reason to reverse the CA. Because East Star was a labor-only contractor, all private respondents, including Generoso, are direct employees of Monsanto. The CA sustained the LA’s finding, affirmed by the NLRC, that Generoso proved he was a regular employee of Monsanto: he presented communications dated December 3, 2004 to several mayors informing them of the setting up of promotional materials in their municipalities, proving Monsanto hired him before the service agreement signed on April 25, 2005. However, neither Generoso nor the other private respondents proved that 14th month pay, annual wage increase, dependents’ medical insurance coverage, and stock option benefits were given to Monsanto’s regular employees as a matter of practice. The NLRC had reversed its earlier ruling and deleted these awards because complainants failed to prove that the grant was a long-established tradition or regular practice and did not state or discuss with particularity the bases for claiming the benefits. The CA similarly denied the benefits, stating that the agricultural crop technicians failed to substantiate entitlement and that the burden of proving entitlement rested on them because the benefits were not incurred in the normal course of business. With the consistent findings of the two labor tribunals and the appellate court, the Court saw no reason to overturn the denial. Accordingly, all private respondents were not entitled to those benefits.

• Labor-only contracting — Under Section 5 of DOLE Order No. 18-02, labor-only contracting exists when a contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work, or service for a principal and either (1) the contractor lacks substantial capital or investment related to the job and the workers perform activities directly related to the principal’s main business, or (2) the contractor does not exercise the right to control the performance of the workers’ work. Substantial capital or investment means capital stocks and subscribed capitalization for corporations, tools, equipment, implements, machineries, and work premises actually and directly used by the contractor in performing the contracted work. The Court applied this doctrine to hold East Star a labor-only contractor because it had subscribed capital but no tools, equipment, implements, or machines for the work, and because it did not control private respondents’ work.
• Control test in employer-employee relationship — The power of the employer to control the work of the employee—specifically the means, methods, and manner of performing the work—is the most significant determinant of an employer-employee relationship. It is premised on whether the person for whom services are performed reserves the right to control both the end achieved and the manner and means used to achieve that end. The Court applied this test to find Monsanto the employer because it exercised direct control and supervision over private respondents through its Marketing Executives and Territory Leads, provided their work materials, and had them represent it in agreements, while East Star did not exercise control.
• Liability of principal in labor-only contracting — A principal that uses a labor-only contractor is responsible for the workers as its own employees and is liable for violations of labor laws. The Court held Monsanto directly liable for the consequences of illegal dismissal, including money claims, because it was the employer; it also sustained the ruling that East Star and Monsanto are solidarily liable to pay all of private respondents’ money claims.
• Redundancy as an authorized cause — Redundancy under Article 298 (formerly Article 283) of the Labor Code may justify termination due to reduction of personnel, but it must be supported by evidence of losses or impending losses that justify the reduction of workforce. Without such evidence, the dismissal cannot be characterized as just or authorized. The Court applied this to hold the dismissal illegal because Monsanto neither alleged nor proved losses to justify redundancy.
• Due process in dismissal — Even an authorized cause dismissal requires observance of due process. The Court sustained the unanimous finding that due process was not observed, which, combined with the absence of just or authorized cause, rendered the dismissal illegal.
• Strained relations doctrine — Separation pay may be awarded in lieu of reinstatement when reinstatement is no longer desirable or viable due to strained relations. An employee’s prayer for separation pay instead of reinstatement indicates strained relations. The Court applied this because 13 years had passed since dismissal and private respondents prayed for separation pay, making reinstatement not feasible.
• Computation of backwages and separation pay when separation pay is in lieu of reinstatement — Under Article 294 (formerly Article 279) of the Labor Code and Genuino Agro-Industrial Development Corp. vs. Romano, when separation pay is ordered in lieu of reinstatement, backwages are computed from the time of dismissal until the finality of the decision ordering separation pay. Separation pay is equivalent to one month salary for every year of service and should not go beyond the date the employee was actually separated or the date reinstatement became impossible. The Court applied this computation and ordered the Labor Arbiter to recompute the awards.
• Moral and exemplary damages in illegal dismissal — Moral damages are recoverable when the dismissal is attended by bad faith or fraud, constitutes an act oppressive to labor, or is done contrary to good morals, good customs, or public policy. Exemplary damages are recoverable when the dismissal is done in a wanton, oppressive, or malevolent manner. The Court awarded P15,000.00 moral and P15,000.00 exemplary damages to each private respondent because they were unceremoniously transferred to East Star to end their regular status, their years of service were unrecognized, and they were deprived of benefits.
• Attorney’s fees — Article 111 of the Labor Code allows attorney’s fees equivalent to 10% of the amount of wages recovered to be assessed on the culpable party. The Court awarded attorney’s fees at 10% of the total award.
• Interest on monetary awards — Under Nacar vs. Gallery Frames, monetary awards are subject to 6% interest per annum from finality of the decision until fully paid. The Court applied this to the monetary awards.
• Burden of proving company practice benefits — Employees claiming benefits such as 14th month pay, annual wage increase, dependents’ medical insurance coverage, and stock option benefits must prove that these were given to regular employees as a matter of practice. The Court denied these benefits because private respondents failed to substantiate entitlement and the benefits were not incurred in the normal course of business.

• "In labor law, one who exercises the power of control over the means, methods, and manner of performing an employee’s work is considered as the employer." — This states the control test used by the Court to hold Monsanto the employer and East Star a labor-only contractor.
• "The power of the employer to control the work of the employee is considered the most significant determinant of the existence of an employer-employee relationship. This test is premised on whether the person for whom the services are performed reserves the right to control both the end achieved and the manner and means used to achieve that end." — This is the Court’s canonical formulation of the control test in determining employer-employee relationship.
• "Here, the NLRC determined that although East Star has a subscribed capital of P10,000,000.00 as stated in its Articles of Incorporation, it does not have substantial capital or investment in the form of tools, equipment, implements and machines to use in the performance of the private respondents’ work." — This supports the finding that East Star was engaged in labor-only contracting.
• "The Court agrees with the CA. Private respondents were dismissed from the service after Monsanto reorganized its company to streamline operations. Monsanto claimed that their positions and functions were redundant. However, there is neither allegation nor evidence that Monsanto suffered losses or would suffer losses that justifies the reduction of workforce. Without evidence to substantiate redundancy, the dismissal cannot be characterized as just or authorized." — This is the ratio decidendi for the finding of illegal dismissal.

• Republic vs. Heirs of Santiago, G.R. No. 193828, March 27, 2017, 808 SCRA 1 — Cited for the exception to the Rule 45 rule that only questions of law may be raised: the Court may entertain factual reassessment when the CA’s findings are contrary to those of the trial court.
• Interadent Zahntechnik Philippines, Inc. vs. Simbillo, 800 Phil. 769, 781 (2016) — Cited for the rule that factual findings of quasi-judicial agencies such as the NLRC are generally accorded respect and finality due to their specialized knowledge.
• Reyes vs. Glaucoma Research Foundation, Inc., 760 Phil. 779, 794 (2015) — Cited for the control test as the most significant determinant of employer-employee relationship.
• Symex Security Services, Inc. vs. Rivera, Jr., G.R. No. 202613, November 8, 2017, 844 SCRA 416, 436-437 — Cited for separation pay when termination is not attributable to employee’s fault and for moral and exemplary damages in illegal dismissal.
• Emeritus Security & Maintenance Systems, Inc. vs. Dailig, 731 Phil. 319, 325 (2014) — Cited for the general rule that reinstatement is the remedy for illegal dismissal and separation pay is awarded only in exceptional circumstances.
• Cabañas vs. Abelardo G. Luzano Law Office, G.R. No. 225803, July 2, 2018 — Cited for the doctrine of strained relations as a basis for separation pay in lieu of reinstatement.
• Genuino Agro-Industrial Development Corp. vs. Romano, G.R. No. 204782, September 18, 2019 — Cited for the computation of backwages and separation pay when separation pay is ordered in lieu of reinstatement.
• National Power Corp. vs. Cabanag, G.R. No. 194529, August 6, 2019 — Cited for attorney’s fees under Article 111 of the Labor Code.
• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Cited for the 6% interest per annum on monetary awards from finality until fully paid.

• Section 5, DOLE Order No. 18-02 — Prohibits labor-only contracting and defines its elements and substantial capital or investment. Applied to hold East Star a labor-only contractor because it lacked substantial capital or investment for the work and did not exercise control over private respondents.
• Article 297 (formerly Article 282), Labor Code — Lists just causes for termination by employer. Cited in the CA’s ruling, which the Court agreed with, that no just cause existed for private respondents’ dismissal.
• Article 298 (formerly Article 283), Labor Code — Allows termination due to closure, reduction of personnel, redundancy, retrenchment, etc. Applied to find redundancy not substantiated by evidence of losses, so the dismissal was not authorized.
• Article 294 (formerly Article 279), Labor Code — Provides security of tenure and entitles an illegally dismissed employee to reinstatement, full backwages, allowances, and other benefits. Applied to award backwages and, because reinstatement was no longer feasible, separation pay in lieu.
• Article 111, Labor Code — Allows attorney’s fees equivalent to 10% of wages recovered to be assessed on the culpable party. Applied to award 10% attorney’s fees.
• Rule 45, Rules of Court — Governs petitions for review on certiorari raising only questions of law, subject to exceptions. The Court applied the exception because the CA’s findings differed from the LA/NLRC’s findings.

Peralta, C.J. (Chairperson), Caguioa, Lazaro-Javier, and Lopez, JJ., concur.