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

The DOLE Secretary, in the exercise of visitorial and enforcement power under Article 128(b) of the Labor Code, may determine the existence of an employer-employee relationship, and the CA cannot overturn that determination by merely relying on a later NLRC ruling in another case under res judicata. Where contractors merely supply manpower, lack substantial investment, and the principal controls the workers, the contractors are labor-only and the workers are employees of the principal.

OLALIA is a legitimate labor organization, with MSI-ELU-OLALIA and MCC-ELU-OLALIA as its local chapters in MCC and MSI, domestic corporations engaged in rope-making. MCC and MSI had no exclusive bargaining agent. Workers from WMSC and ANRUMC were deployed to MCC and MSI, and the dispute concerns whether those workers were employees of the cooperatives or of MCC and MSI. The Labor Code’s visitorial and enforcement power under Article 128 and the rules on labor-only contracting under Department Order No. 18-A supply the statutory backdrop.

OLALIA, a legitimate labor organization with MSI-ELU-OLALIA and MCC-ELU-OLALIA as its local chapters in MCC and MSI, filed two Petitions for Certification Election before the DOLE Regional Office IV after MCC and MSI, both domestic corporations engaged in rope-making, had no exclusive bargaining agent. The Petitions were granted, and certification elections were conducted on January 27, 2016. MCC and MSI filed formal protests challenging the results, claiming that the voters were not their employees but of independent contractors WMSC and ANRUMC. The Med-Arbiter granted the protests, prompting petitioners to file a Memorandum of Appeal before the DOLE Secretary in the certification election case.

Meanwhile, pursuant to the visitorial and enforcement powers of the DOLE Regional Director under Article 128 of the Labor Code, joint assessments were conducted on April 26, 2016 in the premises of MCC and MSI where WMSC and ANRUMC workers were deployed. The DOLE Regional Director issued separate Notices of Results for each company, noting for both: no CWW notification submitted to DOLE and non-payment of overtime and additional holiday premiums; non-presentation of payroll records and DTRs from October 2014 to the time of assessment; non-presentation of proofs of remittances of SSS, PhilHealth, and Pag-IBIG contributions; non-presentation of proof of payment of 13th month pay; violation of Item 7, Section 7 of D.O. 18-A on repeated hiring and circumvention of security of tenure; violation of Item 5, Section 7 of D.O. 18-A on contracting out of a job or work necessary and desirable or directly related to the business or operation; and poor working environment due to heat and noise pollution. MCC and MSI submitted a Memorandum explaining that they could not provide the workers’ records because the workers were employees of WMSC and ANRUMC, and that they were not given more time to coordinate with the service cooperatives.

On May 4, 2016, during the pendency of their appeal in the certification election case, members of petitioners staged a strike that paralyzed the companies’ business operations, and MCC and MSI filed a Petition to Declare Illegal Strike, docketed as NLRC LAC No. 02-000593-18/NLRC Case No. RAB-IV-02-00209-17L. After mandatory conferences following the DOLE inspection, the DOLE Regional Director issued an August 8, 2016 Order directing WMSC and MCC to pay 251 affected workers PHP 1,494,705.00; WMSC and MSI to pay 52 affected workers PHP 309,660.00; ANRUMC and MCC to pay 81 affected workers PHP 655,702.50; and ANRUMC and MSI to pay 101 affected workers PHP 924,960.00, representing underpayment of five days service incentive leave pay and illegal wage deductions for the first two, and illegal wage deductions for cooperative share and underpayment of five days service incentive leave pay for the latter two. The Order also deemed the deployed employees regular employees of MCC and MSI, ordered submission of proofs of issuance of notice of regular employment, revoked the certificates of registration of WMSC and ANRUMC, delisted them from the roster of legitimate contractors, and directed them to cease and desist from contracting and subcontracting activities.

MCC and MSI appealed to the DOLE Secretary, arguing that the elements of an employer-employee relationship were absent, that WMSC and ANRUMC were DOLE-accredited independent job contractors with substantial capitalization serving several clients, and that there was no basis to hold MCC and MSI liable for membership fees and cooperative shares collected by the cooperatives from their own members. On February 9, 2017, DOLE Secretary Silvestre H. Bello issued a Resolution dismissing the appeal for lack of merit and affirming the August 8, 2016 Order. The DOLE Secretary noted that WMSC and ANRUMC failed to present evidence to controvert the finding that their members used machinery owned by MCC and MSI, and found nothing in the records to rebut the finding that the cooperatives did not exercise control and supervision over their deployed members. On illegal deductions, the DOLE Secretary ruled that the amounts deducted pertained to membership contribution, which constituted deduction of capital share or build-up expressly prohibited by DOLE Labor Advisory No. 11, Series of 2014 in service cooperatives. The Motion for Reconsideration was denied in an April 7, 2017 Resolution.

MCC and MSI elevated the case to the CA via a Petition for Certiorari. On August 30, 2019, the CA denied the Petition, upheld the jurisdiction of the DOLE Regional Office, and sustained the finding that WMSC and ANRUMC were not bona fide independent contractors. The CA found a dearth of evidence that WMSC and ANRUMC possessed substantial investment in equipment, tools, implements, machinery, and work premises; observed that their workers were deployed to plants and production areas to perform activities directly related to rope manufacturing; and noted that the workers used MCC and MSI machines, with MCC and MSI reserving the right to inspect their tasks and suggest alterations and changes to procedure. On MCC and MSI’s Motion for Reconsideration, the CA rendered an October 12, 2020 Amended Decision after MCC and MSI submitted a certified true copy of the Entry of Judgment in the illegal strike case and a Certification dated September 10, 2019 from the CA Judicial Records Division that no petition was filed to appeal the NLRC Decision. The CA applied res judicata by conclusiveness of judgment based on the NLRC’s finding that the union members could not have committed an illegal strike as they were never employees of MCC and MSI and were employees of WMSC and ANRUMC, which the NLRC declared legitimate independent contractors. Petitioners filed an Omnibus Motion, calling attention to the LA ruling in “Anthony Aguillana, et al. vs. Manila Cordage Company, et al.” (RAB IV-11-01876-14-L and RAB IV-12-02068-14-L) declaring WMSC engaged in illegal labor-only contracting and its deployed workers in MCC regular employees, which had attained finality because MCC’s appeal before the NLRC was dismissed for being filed out of time, and later filed a Manifestation informing the CA of the SC’s September 16, 2020 Decision in the certification election case, G.R. Nos. 242495-96, finding WMSC and ANRUMC engaged in labor-only contracting and their workers employees of MCC and MSI. The CA denied the Omnibus Motion in an October 26, 2021 Resolution, and petitioners filed the present Petition for Review on Certiorari.

• Res Judicata: Petitioners argued that the CA mistakenly applied the doctrine of res judicata in finding the absence of an employer-employee relationship between the parties; instead of upholding the NLRC ruling in the illegal strike case, the CA should have applied the SC’s ruling in the certification election case pursuant to the principles of judicial notice and stare decisis.
• Obiter Dictum: Petitioners asserted that since the NLRC ruling in the illegal strike case did not modify the dispositive portion of the LA ruling as to the employment status of WMSC and ANRUMC members, the NLRC finding that the workers are not employees of MCC and MSI remained an obiter which cannot be considered as precedent.
• Prior LA Ruling: Petitioners called attention to the LA ruling in “Anthony Aguillana, et al. vs. Manila Cordage Company, et al.” (RAB IV-11-01876-14-L and RAB IV-12-02068-14-L) declaring WMSC to be engaged in illegal labor-only contracting and its deployed workers in MCC regular employees of MCC, which had attained finality because MCC’s appeal before the NLRC was dismissed for being filed out of time.
• Suspension of CA Proceedings: Petitioners prayed for the suspension of the CA proceedings due to the pendency of their Petition for Review on Certiorari before the SC concerning the Consolidated Decision and Resolution of the CA in the certification election case.

• Jurisdiction: MCC and MSI argued that the DOLE Regional Office exceeded its jurisdiction in determining that an employer-employee relationship existed between them and the workers from WMSC and ANRUMC.
• Independent Contracting: MCC and MSI maintained that WMSC and ANRUMC were DOLE-accredited independent job contractors with substantial capitalization serving several clients; their personnel were also available to other clients or principals, and at most MCC and MSI’s Quality Control Officers could only reject products poorly done without giving instructions to the concerned workers.
• Grave Abuse of Discretion: MCC and MSI averred that the DOLE Secretary gravely abused its discretion in solely relying on the baseless and erroneous report of the labor law compliance officer and concluding that WMSC and ANRUMC were labor-only contracting cooperatives, with no evidence presented to support the ruling that the workers should be deemed regular employees of MCC and MSI.
• Liability for Deductions and SIL: MCC and MSI argued that even assuming arguendo that WMSC and ANRUMC acted as agents of MCC and MSI in the employment of workers, WMSC and ANRUMC should still be held solely liable for acts of their own volition, including the practice of deducting cooperative shares from wages and the underpayment of Service Incentive Leaves, which was not contained in the Notice of Results.
• Finality and Scope of Certification Election Ruling: MCC and MSI countered that the SC Decision in the certification election case had no binding force for not being final and executory due to the pendency of their Motion for Reconsideration; the NLRC already categorically declared that the union members are not employees of MCC and MSI, and that decision had long become final and executory as petitioners never appealed; and the finding of an employer-employee relationship in a certification election case does not foreclose all further dispute between the parties as to the existence of such relationship in subsequent cases.

• Grave Abuse of Discretion: Whether the CA correctly found grave abuse of discretion in the DOLE Secretary’s Resolutions that found the presence of an employer-employee relationship between MCC, MSI, and members of MCC-ELU-OLALIA and MSI-ELU-OLALIA.
• Application of NLRC Illegal Strike Ruling: Whether the CA correctly applied the finding of the NLRC in NLRC LAC No. 02-000593-18/NLRC Case No. RAB-IV-02-00209-17L (illegal strike case) to the present controversy.

• Grave Abuse of Discretion: No. The DOLE Secretary did not commit grave abuse of discretion; the DOLE is empowered under Article 128(b) of the Labor Code, as amended by Republic Act No. 7730, to determine the existence of an employer-employee relationship, and its findings were supported by evidence.
• Application of NLRC Illegal Strike Ruling: No. The CA erred in applying the NLRC illegal strike ruling under res judicata; the SC’s certification election decision had already settled the employment status, and the CA should not have mechanically relied on the NLRC ruling.

• Grave Abuse of Discretion: The SC began from the nature of the CA’s review: the CA resolved a Rule 65 Petition challenging the DOLE Secretary’s Resolutions for grave abuse of discretion, and under Rule 45 only questions of law were reviewable. Article 128(b) of the Labor Code, as amended by Republic Act No. 7730, fully empowers the DOLE to decide the existence of an employer-employee relationship in the exercise of its visitorial and enforcement power, subject to judicial review, not review by the NLRC. In People’s Broadcasting Service vs. The Secretary of the DOLE, et al., the SC En Banc upheld that power and explained that the DOLE may use the four-fold test—(1) selection and engagement of the employee; (2) payment of wages; (3) power of dismissal; and (4) employer’s power to control the employee’s conduct—and that a prima facie showing of the absence of an employer-employee relationship is needed to oust the DOLE of jurisdiction. The DOLE Secretary’s Resolutions were issued on February 9, 2017 and April 7, 2017, before the NLRC rendered its April 6, 2018 illegal strike decision. The CA’s first Decision had itself reviewed the records and found the DOLE findings supported by substantial evidence: WMSC and ANRUMC were not bona fide independent contractors, lacked substantial investment in equipment, tools, implements, machinery, and work premises, deployed workers to plants and production areas to perform activities directly related to rope manufacturing, and the workers used MCC and MSI machines while MCC and MSI reserved the right to inspect their tasks and suggest alterations or changes in procedure. Under The City of Iloilo vs. Judge Honrado, et al., grave abuse of discretion means capricious or whimsical exercise of judgment equivalent to lack of jurisdiction, and the DOLE Secretary’s findings did not meet that standard. The CA therefore should have upheld the DOLE Resolutions and dismissed MCC and MSI’s Petition for Certiorari.
• Application of NLRC Illegal Strike Ruling: The CA committed a serious error in applying the April 6, 2018 NLRC Decision in the illegal strike case under res judicata. First, the SC had already promulgated its September 16, 2020 Decision in the certification election case before the CA rendered its October 12, 2020 Amended Decision, so the NLRC Decision ceased to be the prevailing ruling on the employer-employee issue. Petitioners filed a Manifestation on July 21, 2021 to inform the CA of the SC’s certification election ruling, but the CA still denied their Motion for Reconsideration on October 26, 2021. Even if the SC’s September 16, 2020 Decision was not yet final when the CA rendered the assailed rulings, prudence required the CA to review its Amended Decision because it contradicted the SC’s findings; the NLRC had also cited the CA’s January 19, 2018 Consolidated Decision in the certification election case, which the SC had since reversed and set aside. Second, the CA has discretion to correct errors of judgment if blind and stubborn adherence to the doctrine of immutability of final judgments would sacrifice justice for technicality. In Salud vs. Court of Appeals, the SC explained that there should not be mechanical and uncaring reliance on res judicata where more important societal values deserve protection, and that the demands of due process present a weightier consideration than the need to bring an end to the parties’ litigation. In Principe vs. Philippine-Singapore Transport Services, Inc., the SC refrained from applying res judicata to give life to the constitutional mandate affording protection to labor. In Hijo Resources Corporation vs. Mejares, et al., the SC did not adopt the Med-Arbiter’s verdict in a certification election case even if final, because dismissing the illegal dismissal case on that basis would deny due process. Here, petitioners did not appeal the NLRC ruling, but the NLRC had ruled in their favor albeit on the basis of the absence of employer-employee relations; petitioners believed the NLRC’s finding was an obiter dictum because the dispositive portion of the LA Decision was not modified. Under these circumstances, dismissing the petition for non-filing of an appeal would deny petitioners due process and renege on the constitutional mandate of promoting social justice and affording protection to labor. The SC thus upheld the uniform findings of the DOLE Regional Director and DOLE Secretary that WMSC and ANRUMC were labor-only contractors and that MCC and MSI were the employers of the union members, consistent with the SC’s certification election decision.

• DOLE Visitorial and Enforcement Power — Under Article 128(b) of the Labor Code, as amended by Republic Act No. 7730, the DOLE is fully empowered to decide the existence of an employer-employee relationship in the exercise of its visitorial and enforcement power, subject to judicial review, not review by the NLRC. The SC applied this to uphold the DOLE Secretary’s Resolutions finding an employer-employee relationship and issuing compliance orders.
• Four-Fold Test — The elements are: (1) selection and engagement of the employee; (2) payment of wages; (3) power of dismissal; and (4) employer’s power to control the employee’s conduct. The SC noted that the DOLE may use this test in determining the existence of an employer-employee relationship.
• Labor-Only Contracting — Under Section 5 of Department Order No. 18-02, an entity is a labor-only contractor if (i) it does not have substantial capital or investment relating to the job, work, or service to be performed and the employees recruited, supplied, or placed perform activities directly related to the main business of the principal, or (ii) it does not exercise the right to control over the performance of the work of the contractual employee. The SC found both conditions present: WMSC and ANRUMC lacked substantial investment in tools, equipment, and machineries, and their workers used MCC and MSI’s equipment and machinery for rope manufacturing; MCC and MSI also exercised control over the workers.
• Right to Control — Under Department Order No. 18-A, Series of 2011, 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 SC applied this to hold that the presence of coordinators from WMSC and ANRUMC did not show control because MCC and MSI reserved the right to inspect tasks and suggest alterations or changes in procedure.
• Res Judicata by Conclusiveness of Judgment — The CA applied the final NLRC illegal strike ruling as conclusive on the employer-employee issue. The SC held this was error because the SC’s September 16, 2020 certification election decision had already settled the issue, and the CA should not have mechanically relied on the NLRC ruling.
• Immutability of Final Judgments and Liberal Application — The SC recognized that the CA has discretion to correct errors of judgment if blind and stubborn adherence to the doctrine of immutability of final judgments would involve the sacrifice of justice for technicality. The SC applied this to justify not following the final NLRC illegal strike ruling where due process and protection to labor weighed more heavily.
• Protection to Labor and Social Justice — The SC held that dismissing the petition because petitioners did not appeal the NLRC ruling would deny them due process and renege on the constitutional mandate of promoting social justice and affording protection to labor. The SC applied this in favor of the workers despite the finality of the NLRC ruling.

• “The DOLE must have the power to determine [whether] an employer-employee relationship exists, and from there to decide [whether] to issue compliance orders in accordance with Art. 128 (b) of the Labor Code, as amended by Republic Act No. 7730.” — In People’s Broadcasting Service, the SC En Banc upheld the DOLE Secretary’s authority to determine the existence of an employer-employee relationship in deciding whether to issue compliance orders under Article 128(b).
• “Grave abuse of discretion means such capricious or whimsical exercise of judgment which is equivalent to lack of jurisdiction.” — In The City of Iloilo vs. Judge Honrado, et al., the SC stated the standard for grave abuse of discretion, which the DOLE Secretary’s Resolutions did not meet.
• “The demands of due process present a weightier consideration than the need to bring an end to the parties’ litigation[.]” — In Salud vs. Court of Appeals, the SC used this to reject mechanical reliance on res judicata where due process and justice require otherwise.
• “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[.]’’” — In the SC’s September 16, 2020 certification election decision, the SC used this to hold that WMSC and ANRUMC merely supplied manpower and the workers were employees of MCC and MSI.

• People’s Broadcasting Service vs. The Secretary of the DOLE, et al., 683 Phil. 509 (2012) — Controlling precedent; the SC relied on it to uphold the DOLE Secretary’s power to determine the existence of an employer-employee relationship under Article 128(b).
• The City of Iloilo vs. Judge Honrado, et al., 775 Phil. 21 (2015) — Cited for the standard of grave abuse of discretion; the SC found the DOLE Secretary did not meet it.
• Salud vs. Court of Appeals, 303 Phil. 397 (1994) — Followed; the SC cited it to reject mechanical reliance on res judicata where due process is a weightier consideration.
• Principe vs. Philippine-Singapore Transport Services, Inc., 257 Phil. 522 (1989) — Followed; the SC cited it as an example of refraining from res judicata to protect labor.
• Hijo Resources Corporation vs. Mejares, et al., 778 Phil. 344 (2016) — Followed; the SC cited it for not adopting a final Med-Arbiter ruling in a certification election case where due process would be denied.
• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Applied; the SC used it to impose 6% legal interest per annum from finality of judgment until full payment.
• 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 — Prior SC decision in the certification election case; the SC relied on it as having settled the employment status of the workers.
• People vs. Escobar, 814 Phil. 840 (2017) — Cited for the CA’s discretion to correct errors of judgment if blind adherence to the immutability of final judgments would sacrifice justice for technicality.

• Article 128(b), Labor Code, as amended by Republic Act No. 7730 — Empowers the DOLE with visitorial and enforcement power, including the determination of the existence of an employer-employee relationship and the issuance of compliance orders; the SC applied it to uphold the DOLE Secretary’s jurisdiction and findings.
• Department Order No. 18-A, Series of 2011 — Provides the rules on labor-only contracting and defines the “right to control” as the right to determine not only the end to be achieved but also the manner and means to be used; the SC applied it to find WMSC and ANRUMC labor-only contractors and the workers regular employees of MCC and MSI.
• Section 5, Department Order No. 18-02 — Sets out the conditions for labor-only contracting: (i) the contractor lacks substantial capital or investment relating to the job and the workers perform 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; the SC found both conditions present.
• DOLE Labor Advisory No. 11, Series of 2014 — Prohibits deduction of capital share or build-up in service cooperatives; the DOLE Secretary ruled that the membership contribution deductions were illegal, and the SC upheld the DOLE Order.
• Rule 45, Rules of Court — Governs the Petition for Review on Certiorari and limits review to questions of law; the SC noted it is not a trier of facts.
• Rule 65, Rules of Court — Governs the Petition for Certiorari filed by MCC and MSI before the CA to challenge the DOLE Secretary’s Resolutions for grave abuse of discretion; the SC held the CA should have reviewed the DOLE findings on that standard.