Norkis Trading Corporation vs. Buena Vista

A final DOLE Regional Director’s finding that a cooperative is a labor-only contractor binds the NLRC under res judicata/conclusiveness of judgment, so the principal employer is the true employer of the deployed workers; transferring those workers to a separate sister company without just or authorized cause constitutes illegal actual dismissal.

Norkis Trading Corporation is a domestic corporation engaged in manufacturing and marketing Yamaha motorcycles and multi-purpose vehicles, while Panaghiusa sa Kauswagan Multi-Purpose Cooperative (PASAKA) is a cooperative organized under the Cooperative Code. The respondents were regarded by Norkis Trading as PASAKA members deployed to render services for it, with PASAKA treated as an independent contractor. The legal backdrop is the Labor Code’s prohibition on labor-only contracting and the DOLE’s visitorial and enforcement power over labor standards.

The respondents were hired by Norkis Trading on separate dates and for various positions: Joaquin Buenavista on March 14, 1994 as Operator; Henry Fabroa on January 5, 1993 as Welder; Ricardo Cape in January 1993 as Welder/Operator; Bertuldo Tulod on November 13, 1994 as Welder/Assistant Operator; Willy Dondoyano in January 1993 as Welder; and Glen Villariasa in February 1993 as Welder. Although they worked for Norkis Trading as skilled workers assigned to the operation of industrial and welding machines owned and used by Norkis Trading for its business, they were not treated as regular employees. Instead, Norkis Trading regarded them as members of PASAKA, a cooperative organized under the Cooperative Code of the Philippines, which was deemed an independent contractor that merely deployed them to render services for Norkis Trading.

The respondents believed they were regular employees of Norkis Trading and cited the following circumstances: the operators used industrial machines such as press, hydraulic, and spotweld machines, while the welders used welding machines; all these machines were owned by Norkis Trading and installed and located in the respondents’ working area inside the company premises; the respondents produced steel crates exported directly by Norkis Trading to Japan and used as containers of motorcycle machines shipped from Japan back to Norkis Trading; the materials and supplies used by the respondents were supplied by Norkis Trading through Benjamin Gulbin, the company’s Stockman, upon the request of Tirso Maslog, a Leadman also employed by Norkis Trading; Norkis Trading gave instructions and supervised the respondents’ work through Edwin Ponce and Kiven Alilin, both Leadmen, and Rico Cabanas, the Production Supervisor; and the respondents’ salaries were paid inside the premises of Norkis Trading by Dalia Rojo and Belen Rubio, also employees of the company assigned at the accounting office.

On June 9, 1999, the respondents, together with several other complainants, filed with the DOLE a complaint against Norkis Trading and PASAKA for labor-only contracting and non-payment of minimum wage and overtime pay, docketed as LSED Case No. RO700-9906-CI-CS-168. The filing of that complaint allegedly led to the suspension of the respondents’ membership with PASAKA. On July 22, 1999, PASAKA served them with memoranda charging them with violation of the rule against commission of acts injurious or prejudicial to the interest or welfare of the cooperative, citing that their filing of a case against Norkis Trading had greatly prejudiced the cooperative’s interest and welfare. In their answer, the respondents explained that they merely wanted to be recognized as regular employees of Norkis Trading. On August 16, 1999, the respondents received another set of memoranda from PASAKA charging them with serious misconduct or willful disobedience of superior’s instructions or orders; gross and habitual neglect of duties by abandoning work without permission; absences without filing leave of absence; and wasting time or loitering on company time or leaving their post temporarily without permission during office hours. On August 26, 1999, PASAKA informed the respondents of its decision to suspend them for fifteen working days, effective September 1 to 21, 1999, for violation of PASAKA rules; the suspension prompted the respondents to file with the NLRC the complaint for illegal suspension against Norkis Trading and PASAKA.

The fifteen-day suspension was extended for another fifteen days, from September 22, 1999 to October 12, 1999, and PASAKA sent separate letters to Buenavista, Fabroa, Cape and Dondoyano on the extension. On October 13, 1999, the respondents were to report back to work, but during the hearing in their NLRC case, PASAKA informed them that they would be transferred to Norkis Trading’s sister company, Porta Coeli Industrial Corporation (Porta Coeli), as washers of Multicab vehicles. The respondents opposed the transfer because it would allegedly result in a change of employers, from Norkis Trading to Porta Coeli, and because they believed it would result in a demotion from skilled workers in Norkis Trading to utility workers. These circumstances made the respondents amend their complaint for illegal suspension to include unfair labor practice, illegal dismissal, damages and attorney’s fees.

For their part, Norkis Trading and PASAKA claimed that the respondents were not employees of Norkis Trading; they insisted that the respondents were PASAKA members and that PASAKA was an independent contractor that merely supplied services to Norkis International Co., Inc. (Norkis International) under a job contract executed on January 14, 1999 for 121,500 pieces of F/GF-Series Reinforcement Production. According to them, after PASAKA received reports from its coordinator at Norkis International of the respondents’ low efficiency and violation of the cooperative’s rules, and after giving the respondents a chance to present their side, PASAKA imposed the suspension; the illegal suspension complained of was therefore not linked to the respondents’ employment but to their membership with PASAKA. Norkis Trading stressed that the respondents were deployed by PASAKA to Norkis International, a company entirely separate and distinct from Norkis Trading. LA Gutierrez found that the respondents failed to prove dismissal with convincing evidence and that their transfer to another post was only the best option to save the contractual relations between PASAKA and Norkis Trading. Regional Director Balanag, however, found that PASAKA failed to prove substantial capital; that the machineries, equipment and supplies used by the respondents were owned by Norkis Trading, not PASAKA; that the respondents’ membership with PASAKA was inconsequential to their employment with Norkis Trading; that Norkis Trading and PASAKA failed to prove that their subcontracting arrangements fell under Section 6 of Department Order No. 10, Series of 1997; that Norkis Trading and PASAKA failed to dispute that Norkis Trading’s leadmen and production supervisors supervised the respondents’ work; and that they failed to dispute that Norkis Trading’s employees paid the respondents’ salaries. The CA also found that Norkis Trading’s payroll registers for PASAKA-NICI Tin Plate covering the periods “12/28/98-01/07/99” and “01/08/99-01/14/99” included the respondents as payees, even though the supposed January 14, 1999 contract with Norkis International had not yet been executed, and treated that contract as a mere afterthought.

• Factual Findings of Labor Officials: Norkis Trading argued that the CA departed from the usual course of judicial proceedings when it made its own factual findings and disregarded the uniform and consistent factual findings of the LA and NLRC, which must be accorded great weight, respect and even finality; it maintained that the CA exceeded its authority on certiorari under Rule 65 because those factual findings were based on speculation and not on evidence on record.
• Grave Abuse of Discretion / Regional Director’s Order: Norkis Trading argued that the CA determined a question of substance not in accord with law and jurisprudence in ruling that the NLRC committed grave abuse of discretion in ignoring the Regional Director’s ruling, especially since the Order had not yet reached finality when the NLRC resolved the appeal from the LA.
• Employer-Employee Relationship: Norkis Trading argued that the CA determined a question of substance not in accord with law and jurisprudence in ruling that it was the employer of the respondents; it insisted that the respondents were PASAKA members and that PASAKA was an independent contractor that deployed them to Norkis International under a job contract dated January 14, 1999, an entity separate and distinct from Norkis Trading.
• Constructive Dismissal / Management Prerogative: Norkis Trading argued that the CA determined a question of substance not in accord with law and jurisprudence in ruling that the respondents were constructively dismissed contrary to the factual findings of the LA and NLRC and without evidence; it contended that the transfer was a mere offer and a valid exercise of management prerogative.

• Factual Findings of Labor Officials: Whether the CA erred in making its own factual findings and reversing the LA and NLRC findings despite the general rule according respect and finality to factual findings of labor officials.
• Grave Abuse of Discretion / Regional Director’s Order: Whether the NLRC committed grave abuse of discretion in disregarding the DOLE Regional Director’s finding that PASAKA was a labor-only contractor and that Norkis Trading was the true employer.
• Employer-Employee Relationship / Res Judicata: Whether Norkis Trading is the employer of the respondents by virtue of PASAKA being a labor-only contractor, and whether the final DOLE findings in G.R. Nos. 180078-79 are conclusive under res judicata.
• Illegal Dismissal: Whether the respondents were illegally dismissed by Norkis Trading, and whether the dismissal was constructive as the CA held or actual as the SC held.

• Factual Findings of Labor Officials: No. The general rule according respect and finality to labor officials’ factual findings does not apply where those findings were arrived at arbitrarily or in disregard of evidence on record; the CA may examine them on certiorari.
• Grave Abuse of Discretion / Regional Director’s Order: Yes. The NLRC gravely abused its discretion when it ignored the Regional Director’s findings, which were material and decisive, and failed to reconcile them with the LA’s findings.
• Employer-Employee Relationship / Res Judicata: Yes. PASAKA was a labor-only contractor and Norkis Trading was the true employer; the final DOLE findings in G.R. Nos. 180078-79 are conclusive under res judicata/conclusiveness of judgment.
• Illegal Dismissal: Yes. The respondents were illegally dismissed, by actual dismissal rather than constructive dismissal, because their transfer to Porta Coeli severed their employment without just or authorized cause.

• Factual Findings of Labor Officials: The settled rule is that factual findings of labor officials, who are deemed to have acquired expertise in matters within their jurisdiction, are generally accorded not only respect but even finality by the courts when supported by substantial evidence, i.e., the amount of relevant evidence which a reasonable mind might accept as adequate to support a conclusion. These findings are not infallible. When there is a showing that they were arrived at arbitrarily or in disregard of the evidence on record, they may be examined by the courts. The CA can grant a petition for certiorari if it finds that the NLRC, in its assailed decision or resolution, has made a factual finding not supported by substantial evidence; it is within the CA’s jurisdiction, whose jurisdiction over labor cases has been expanded, to review the findings of the NLRC. In Cocomangas Hotel Beach Resort vs. Visca, the SC explained that the CA can take cognizance of a petition for certiorari if it finds that the NLRC committed grave abuse of discretion by capriciously, whimsically, or arbitrarily disregarding evidence material to or decisive of the controversy, and the CA cannot make this determination without looking into the evidence presented by the parties. This case falls within the exception because the CA correctly held that the NLRC disregarded facts and evidence material to the outcome of the respondents’ case; no error can be ascribed to the CA for making its own assessment of the facts to determine the presence or absence of grave abuse of discretion, even if its findings turn out to be different from those of both the LA and NLRC.
• Grave Abuse of Discretion / Regional Director’s Order: The NLRC was confronted with opposing findings of the Regional Director and the LA on the material issue of labor-only contracting, but it failed to review thoroughly the matter, look into the records, reconcile the differing judgments, and make its own appreciation of the evidence. Instead, it simply brushed aside the Regional Director’s rulings without due consideration of the circumstance that the labor official had jurisdiction to rule on the issue pursuant to the visitorial and enforcement powers of the DOLE Secretary and his duly authorized representatives under Article 128 of the Labor Code. The Secretary of Labor had already affirmed Regional Director Balanag’s Order when the appeal from the LA’s rulings was resolved, yet the NLRC in its December 18, 2003 Resolution merely held that the DOLE orders did not provide sufficient basis to disturb its decision and that the LA had original and exclusive jurisdiction under Article 217. Such utter disregard by the NLRC of the findings of the Regional Director and DOLE Secretary amounted to grave abuse of discretion amounting to lack or excess of jurisdiction. The SC held that even if the Regional Director’s Order had not yet reached finality when the NLRC resolved the appeal, the CA still committed no error in finding grave abuse of discretion because the NLRC utterly disregarded findings that were material and decisive. The CA correctly observed that for the NLRC to ignore the findings of the DOLE Regional Director was to undermine or disregard the visitorial and enforcement power of the DOLE Secretary and his authorized representatives under Article 128.
• Employer-Employee Relationship / Res Judicata: Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work, or service for a principal. Its elements are: (a) the contractor or subcontractor does not have substantial capital or investment to actually perform the job, work, or service under its own account and responsibility; and (b) the employees recruited, supplied or placed by such contractor or subcontractor perform activities directly related to the main business of the principal. Legitimate job contracting requires: (a) the contractor carries on a distinct and independent business and undertakes the contract work on its own account under its own responsibility according to its own manner and method, free from the control and direction of the principal in all matters connected with the performance of the work except as to the results; (b) the contractor has substantial capital or investment; and (c) the agreement 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. PASAKA failed to prove substantial capital or investment; the machinery, equipment and supplies used by the respondents were owned by Norkis Trading, not PASAKA; the respondents performed welding and machine-operation work directly related to Norkis Trading’s principal business of manufacturing; and the January 14, 1999 job contract with Norkis International deserved no consideration because the respondents had claimed early on that they began working for Norkis Trading on various dates from 1993 to 1994, and PASAKA’s July 22, 1999 memoranda still referred to Norkis Trading as one of its clients. PASAKA’s status as a duly registered cooperative did not preclude a finding of labor-only contracting, because the characterization depends on the elements and guidelines established by law and jurisprudence, judging primarily on the relationship between the entity and the company to which the workers are deployed, not on any special arrangement with the workers. Under the doctrine of res judicata, specifically conclusiveness of judgment under Section 47(b) and (c), Rule 39 of the Rules of Court, facts and issues actually and directly resolved in a former suit cannot be raised in any future case between the same parties, even if the latter suit involves a different cause of action. The SC’s Resolutions dated December 5, 2007 and April 14, 2008 in G.R. Nos. 180078-79 became final and executory and affirmed the CA’s findings that PASAKA was engaged in labor-only contracting and that Norkis Trading shall be treated as the employer of the respondents. There was identity of parties and identity of issues, although the causes of action in the two actions were different. Dole Philippines, Inc. vs. Esteva held that the finding of the DOLE Regional Director, affirmed by the Undersecretary of Labor by authority of the Secretary of Labor, in an Order that has reached finality, that a cooperative was engaged in labor-only contracting should bind the NLRC in a case for illegal dismissal. Thus, the rule on conclusiveness of judgment precluded the SC from re-opening the issues already settled with finality in G.R. Nos. 180078-79.
• Illegal Dismissal: Where an entity is declared to be a labor-only contractor, the employees supplied by said contractor to the principal employer become regular employees of the latter. Having gained regular status, the employees are entitled to security of tenure and can only be dismissed for just or authorized causes and after they had been afforded due process. Termination of employment without just or authorized cause and without observing procedural due process is illegal. The respondents alleged having been informed by PASAKA that they would be transferred, upon the behest of Norkis Trading, as Multicab washers or utility workers to Porta Coeli, a sister company of Norkis Trading. Norkis Trading did not dispute that such job transfer was relayed by PASAKA to the respondents, although it contended that the transfer was merely an offer that did not constitute dismissal. The respondents were not given any other option by PASAKA and Norkis Trading but to accede to the transfer, and there was no showing that Norkis Trading would still willingly accept them to work for the company; worse, it still vehemently denied that they had ever worked for it. Because all defenses anchored on the alleged lack of employer-employee relationship no longer merited consideration, the respondents’ transfer to Porta Coeli, although relayed by PASAKA, was effectively an act of Norkis Trading. Where labor-only contracting exists, the Labor Code itself establishes an employer-employee relationship between the employer and the employees of the labor-only contractor to prevent a circumvention of labor laws; the contractor is considered merely an agent of the principal employer, and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer. No further evidence or document was required from the respondents to prove the fact of dismissal, especially since Norkis Trading maintained that it had no duty to admit and treat them as its employees. Considering that Porta Coeli is an entity separate and distinct from Norkis Trading, the respondents’ employment with Norkis Trading was necessarily severed by the change in work assignment; it did not even matter whether the transfer involved a demotion in rank and work functions, because the intention to dismiss and the actual dismissal were sufficiently established. In the absence of a clear showing that the dismissal was for just or authorized causes, the termination was illegal. Norkis Trading’s contention that the transfer was a valid exercise of management prerogative was misplaced: the exercise of management prerogative presupposes that the transfer is only for positions within the business establishment, and it is not absolute, being limited by law and the general principles of fair play and justice.

• Labor-only contracting — A prohibited arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work, or service for a principal. The elements are: (a) the contractor or subcontractor does not have substantial capital or investment to actually perform the job, work, or service under its own account and responsibility; and (b) the employees recruited, supplied or placed by such contractor or subcontractor perform activities directly related to the main business of the principal. The SC applied this to PASAKA because it lacked substantial capital and the respondents’ welding and machine-operation work was directly related to Norkis Trading’s manufacturing business.
• Legitimate job contracting — An arrangement where a principal agrees to put out or farm out with a contractor or subcontractor the performance or completion of a specific job, work, or service within a definite or predetermined period, regardless of whether it is performed within or outside the principal’s premises. The conditions are: (a) the contractor carries on a distinct and independent business and undertakes the contract work on its own account under its own responsibility according to its own manner and method, free from the principal’s control and direction in all matters connected with the performance of the work except as to the results; (b) the contractor has substantial capital or investment; and (c) the agreement 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. PASAKA failed to satisfy these conditions.
• Res judicata / conclusiveness of judgment — A final judgment or decree on the merits by a court of competent jurisdiction is conclusive of the rights of the parties or their privies in all later suits on all points and matters determined in the former suit. Under conclusiveness of judgment, facts and issues actually and directly resolved in a former suit cannot be raised in any future case between the same parties, even if the latter suit involves a different cause of action. The SC applied this because the final Resolutions in G.R. Nos. 180078-79 had settled that PASAKA was a labor-only contractor and Norkis Trading was the employer.
• Factual findings of labor officials — Factual findings of labor officials are generally accorded respect and even finality when supported by substantial evidence, but they are not infallible and may be examined when arrived at arbitrarily or in disregard of the evidence on record. The CA may review them on certiorari if the NLRC committed grave abuse of discretion by capriciously, whimsically, or arbitrarily disregarding evidence material or decisive to the controversy. The SC applied the exception because the NLRC disregarded the DOLE Regional Director’s findings.
• Security of tenure in labor-only contracting — Where an entity is declared a labor-only contractor, the employees supplied by it to the principal employer become regular employees of the latter, entitled to security of tenure and dismissible only for just or authorized causes and after due process. The SC applied this to hold that the respondents became regular employees of Norkis Trading and could not be transferred to Porta Coeli without just or authorized cause.
• Management prerogative — The exercise of management prerogative is not absolute; it is limited by law and the general principles of fair play and justice, and it presupposes that the transfer is only for positions within the business establishment. The SC held that transferring the respondents to Porta Coeli, a separate entity, was not a valid exercise of management prerogative.
• Actual dismissal — A transfer to a separate and distinct entity severs employment with the original employer; the intention to dismiss and the actual dismissal may be established without showing that the transfer involved a demotion. The SC applied this to characterize the respondents’ dismissal as actual, not constructive.

• "Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work, or service for a principal." — This defines labor-only contracting and frames the employer-status issue.
• "Under the doctrine of conclusiveness of judgment, facts and issues actually and directly resolved in a former suit cannot be raised in any future case between the same parties, even if the latter suit may involve a different cause of action." — This states the res judicata aspect that made the final DOLE findings binding on the NLRC.
• "Where an entity is declared to be a labor-only contractor, the employees supplied by said contractor to the principal employer become regular employees of the latter." — This establishes the employment effect of labor-only contracting and supports the security-of-tenure ruling.
• "In the absence of a clear showing that the respondents’ dismissal was for just or authorized causes, the termination of the respondents’ employment was illegal." — This is the SC’s conclusion on the illegal dismissal issue.

• Cocomangas Hotel Beach Resort vs. Visca, G.R. No. 167045, August 29, 2008, 563 SCRA 705 — Relied on for the rule that the CA may take cognizance of a petition for certiorari if the NLRC committed grave abuse of discretion by capriciously, whimsically, or arbitrarily disregarding evidence material or decisive to the controversy.
• Dole Philippines, Inc. vs. Esteva, 538 Phil. 817 (2006) — Controlling precedent; held that a final DOLE Regional Director finding that a cooperative was engaged in labor-only contracting binds the NLRC in an illegal dismissal case.
• Babas vs. Lorenzo Shipping Corporation, G.R. No. 186091, December 15, 2010, 638 SCRA 735 — Relied on for the definitions and elements of labor-only contracting and legitimate job contracting.
• Aliviado vs. Procter and Gamble Phils., Inc., G.R. No. 160506, June 6, 2011, 650 SCRA 400 — Relied on for the rule that in labor-only contracting the contractor is merely an agent of the principal employer, who is responsible to the employees as if directly employed.
• Prince Transport, Inc. vs. Garcia, G.R. No. 167291, January 12, 2011, 639 SCRA 312 — Cited for the rule that factual findings of labor officials may be examined when arrived at arbitrarily or in disregard of the evidence on record.
• AMA Computer College, Inc. vs. Garcia, G.R. No. 166703, April 14, 2008, 551 SCRA 254 — Cited for the CA’s authority to grant certiorari where the NLRC capriciously, whimsically, or arbitrarily disregards evidence material or decisive to the controversy.
• Antonio vs. Sayman Vda. de Monje, G.R. No. 149624, September 29, 2010, 631 SCRA 471 — Cited for the definition of res judicata as a matter adjudged or a thing settled by judgment.
• Tan vs. Court of Appeals, 415 Phil. 675 (2001) — Cited for the doctrine of conclusiveness of judgment, under which facts and issues actually and directly resolved in a former suit cannot be raised in a future case between the same parties.

• Article 106, Labor Code — Defines labor-only contracting; the SC applied it to hold that PASAKA was a labor-only contractor and Norkis Trading the principal employer.
• Article 128, Labor Code — Vests the DOLE Secretary and duly authorized representatives with visitorial and enforcement power; the SC applied it to hold that the NLRC undermined that power when it ignored the Regional Director’s findings.
• Section 47(b) and (c), Rule 39, Rules of Court — Govern res judicata and conclusiveness of judgment; the SC applied them to make the final DOLE findings in G.R. Nos. 180078-79 conclusive between the parties.
• Section 4 and Section 6, Department Order No. 10, Series of 1997 — Define legitimate contracting/subcontracting and list permissible contracting/subcontracting arrangements; the SC applied them in affirming that PASAKA’s arrangements failed to qualify as legitimate job contracting.