Nozomi Fortune Services, Inc. vs. Naredo

A DOLE Certificate of Registration is not conclusive proof of legitimacy for a manpower provider; it only prevents the presumption of labor-only contracting from arising. To determine whether a contractor is a legitimate job contractor or a labor-only contractor, the totality of the facts and surrounding circumstances must be considered, and the contractor must show that it has equipment and machinery "actually and directly used in the performance of the work or service" it is contracted to do, not merely substantial capital.

Nozomi Fortune Services, Inc. is a manpower business that hired complainants and assigned them to Samsung Electro-Mechanics Phils., a company engaged in the production and exportation of microchips primarily used for the assembly of electronic products. Nozomi was duly registered with the Department of Labor and Employment (DOLE) as an independent job contractor and operated its own medical laboratory and diagnostic services center, training facilities, and other centers. The complainants were detailed as production operators for various electronic components manufactured by Samsung pursuant to a service contract between Nozomi and Samsung.

Nozomi Fortune Services, Inc. (Nozomi), a manpower business, hired Celestino A. Naredo and several other complainants and assigned them to Samsung Electro-Mechanics Phils. (Samsung) on various dates between 2003 and 2005. They were detailed as production operators for the various electronic components manufactured by Samsung. Sometime in May 2010, Nozomi's branch manager, Ludy Lasiog, told complainants that Samsung would absorb them as regular employees if they passed its examination. They failed to hurdle the tests, and Samsung informed them that their services were no longer needed. On July 15, 2010, complainants all tendered their voluntary resignation by submitting handwritten letters citing various personal reasons.

A month later, complainants instituted a complaint for illegal dismissal and regularization before the National Labor Relations Commission (NLRC). They averred that they were actually regular employees of Samsung because they had been working for it for more than a year and the nature of their job was necessary and desirable to its usual business. They claimed that Nozomi was a mere labor-only contractor as it did not have substantial capital or investment, that the machines and equipment they used belonged to Samsung, and that it was Samsung which controlled and supervised them, with Nozomi merely serving as a conduit for the payment of their wages.

Nozomi countered that it was duly registered with the DOLE as an independent job contractor, operating its own medical laboratory and diagnostic services center for its employees. It owned various training facilities, had several service agreements with various companies including Samsung, and had substantial capital to finance its operations. Samsung denied liability, insisting that complainants were Nozomi's employees who were only assigned to it pursuant to a service contract whenever it was short of regular employees.

The service contract between Nozomi and Samsung provided that Samsung shall engage Nozomi's services for works or services temporarily or occasionally needed to meet other than the normal or increase in production; works or services temporarily or occasionally needed for undertakings requiring expert or highly technical personnel; services temporarily needed for the introduction of new production line; specialized works involving the use of some particular or specific skills, expertise, tools or equipment; substitute services for absent regular employees; and all other works or services beyond the capacity of Samsung's current regular workforce. By Nozomi's own representation, Naredo was detailed to Samsung to work on a specific production line as a production operator, operating a stacking machine to pile chip capacitors on the press table to serve as guides for the alignment process in the manufacturing chain. Naredo's engagement with Samsung was continuous for more than five years. Samsung paid Naredo's salary, and Samsung's supervisors gave him instructions as to the means, method, and specifications for his job.

Naredo admitted to resigning from his position but claimed that he and the other complainants were coerced to do so to receive "financial assistance" from Nozomi. He proffered no other evidence to support this claim of coercion.

• Legitimate Independent Contractor Status: Nozomi argued that it was duly registered with the DOLE as an independent job contractor, operating its own medical laboratory and diagnostic services center for its employees, and that it owned various training facilities, had several service agreements with various companies including Samsung, and had substantial capital to finance its operations.
• Substantial Capital and Investment: Nozomi adduced proof of having substantial capital, including a 2009 net income of PHP 991,413,266.00, and its several facilities, as evidenced by its registration with both the Department of Trade and Industry and the Department of Health, which cater to the medical needs of its employees.
• Actual Employer Status: Nozomi maintained that it hired complainants, paid their wages, exercised the power to discipline and terminate them, and controlled the means and methods in the performance of their work, making complainants Nozomi's regular employees and not Samsung's.

• Regular Employee of Samsung: Naredo argued that he was actually a regular employee of Samsung because he had been working for it for more than a year and the nature of his job was necessary and desirable to its usual business.
• Labor-Only Contractor: Naredo contended that Nozomi was a mere labor-only contractor as it did not have substantial capital or investment, that the machines and equipment he used to perform his functions belonged to Samsung, and that it was Samsung which controlled and supervised him, with Nozomi merely acting as a conduit for the payment of wages.
• Coerced Resignation: Naredo claimed that he and the other complainants were coerced to resign to receive "financial assistance" from Nozomi, making their resignation involuntary and constituting constructive dismissal.

• Labor-Only Contracting: Whether the Court of Appeals correctly declared that Nozomi is a labor-only contractor and that Samsung is Naredo's true employer.
• Illegal Dismissal: Whether Naredo was illegally dismissed despite his admission of resignation.

• Labor-Only Contracting: Yes. The CA correctly found grave abuse of discretion on the part of the NLRC. Nozomi is engaged in labor-only contracting because it failed to show that it possessed tools and equipment actually and directly used in the performance of the contracted service, and Naredo's work as a production operator was directly related to Samsung's principal business. Samsung is the true employer of Naredo.
• Illegal Dismissal: No. Naredo was not illegally dismissed. When the fact of resignation is admitted, it becomes incumbent upon the employee to prove that it was involuntary and that it was actually a case of constructive dismissal. Naredo's bare allegation of coercion, without other evidence, cannot be given credence.

• Labor-Only Contracting: The Court emphasized that in deciding a Rule 45 petition inveighing against the CA's ruling on a Rule 65 petition, it is limited to determining whether the CA correctly determined the presence or absence of grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the NLRC. There is grave abuse of discretion when the NLRC's findings and conclusions are not supported by substantial evidence. While a Rule 45 petition is generally confined to questions of law, the Court may deviate when the findings of the labor tribunals and the CA are in conflict, as in this case. The Court emphasized that a DOLE Certificate of Registration, by itself, is not conclusive proof of legitimacy for a manpower provider; it only prevents the presumption of labor-only contracting from arising. Citing Caballero vs. Vikings Commissary, the Court held that the totality of the facts and surrounding circumstances must be considered. Under Article 106 of the Labor Code, an entity is engaged in prohibited labor-only contracting when: (1) a person who supplies workers to an employer does not possess substantial capital or investment in the form of tools, pieces of equipment or machinery, work premises, among others; and (2) the workers are made to perform tasks which are directly related to the employer's principal business. In gauging the first standard, it is not enough that the contractor possesses substantial capital; the contractor must also show that it has the equipment and machinery "actually and directly used in the performance of the work or service" it is contracted to do. While Nozomi has sufficient capitalization as evinced by its audited financial statements, there is nothing on record to show that Nozomi provided Naredo with the tools and equipment to perform his tasks as a production operator, and there does not appear to be any declared technical equipment in its financial statements for this particular kind of work. Nozomi's medical laboratories, diagnostic centers, training facilities, and other centers do not relate to the particular service contract entered into with Samsung. On the second standard, Naredo's work was directly related to Samsung's business, as Samsung is engaged in the production and exportation of microchips, and Naredo operated a stacking machine to pile chip capacitors in the manufacturing chain. The fact that Naredo was given the "opportunity" to be absorbed as a regular employee of Samsung supports the conclusion that his task was directly necessary to Samsung's business. The Court also found that Samsung is the true employer of Naredo because the power of control is the most significant factor in determining the existence of an employer-employee relationship, and it was Samsung's supervisors who gave him instructions as to the means, method, and specifications for his job, and Samsung paid his salary. Naredo's continuous engagement with Samsung for more than five years further supports this conclusion.
• Illegal Dismissal: The Labor Arbiter, the NLRC, and the CA were of one mind in declaring that the evidence presented spoke of no illegal dismissal. Naredo admitted to resigning from his position but claimed that he and the other complainants were coerced to do so to receive "financial assistance" from Nozomi. Other than his bare allegation of this purported coercion, he proffered no other evidence to support this claim. When the fact of resignation is admitted, it becomes incumbent upon the employee to prove that it was involuntary and that it was actually a case of constructive dismissal. Bare allegations of constructive dismissal, when contrary to the evidence on record, cannot be given credence. Unless the fact of dismissal is proven, whether actual or constructive, the validity or legality thereof cannot be put in issue.

• Labor-Only Contracting Test — Under Article 106 of the Labor Code, an entity is engaged in prohibited labor-only contracting when: (1) a person who supplies workers to an employer does not possess substantial capital or investment in the form of tools, pieces of equipment or machinery, work premises, among others; and (2) the workers are made to perform tasks which are directly related to the employer's principal business. In this case, Nozomi failed the first prong because it did not show that it possessed equipment and machinery actually and directly used in the performance of the contracted service, and failed the second prong because Naredo's work as a production operator was directly related to Samsung's microchip production business.
• Totality of Circumstances Test — To determine whether a contractor was engaged by the principal as a legitimate job contractor or a labor-only contractor, the totality of the facts and the surrounding circumstances are to be considered, and all the features of the relationship are assessed. A DOLE Certificate of Registration, by itself, is not conclusive proof of legitimacy for a manpower provider; it only prevents the presumption of labor-only contracting from arising. The Court applied this test in finding that Nozomi's substantial capital and facilities did not relate to the particular service contract with Samsung.
• Power of Control Test — The power of control is the most significant factor to consider in determining the existence of an employer-employee relationship. The power of control exists when such power extends not only over the work done but over the means and methods by which the employee must accomplish the work. The Court applied this test in finding that Samsung was Naredo's true employer because Samsung's supervisors gave him instructions as to the means, method, and specifications for his job, and Samsung paid his salary.
• Burden of Proof in Constructive Dismissal — When the fact of resignation is admitted, it becomes incumbent upon the employee to prove that it was involuntary and that it was actually a case of constructive dismissal. Bare allegations of constructive dismissal, when contrary to the evidence on record, cannot be given credence. The Court applied this doctrine in rejecting Naredo's claim of coerced resignation for lack of evidence.

• "A DOLE Certificate of Registration, by itself, is not a conclusive proof of legitimacy for a manpower provider. It only prevents the presumption of labor-only contracting from arising." — This passage establishes the limited evidentiary value of a DOLE registration certificate in labor-only contracting cases, clarifying that it does not automatically confer legitimate contractor status.
• "To determine whether the contractor was engaged by the principal as a legitimate job contractor or a labor-only contractor, the totality of the facts and the surrounding circumstances are to be considered." — This passage, quoted from Caballero v. Vikings Commissary, articulates the controlling standard for distinguishing permissible job contracting from prohibited labor-only contracting.
• "However, the contractor must also show that it has the equipment and machinery 'actually and directly used in the performance of the work or service' it is contracted to do." — This passage defines the first prong of the labor-only contracting test, requiring that the contractor's equipment must relate to the specific contracted service, not merely demonstrate general business operations.
• "When the fact of resignation is admitted, it becomes incumbent upon the employee to prove that it was involuntary and that it was actually a case of constructive dismissal. Bare allegations of constructive dismissal, when contrary to the evidence on record, cannot be given credence." — This passage states the burden of proof rule in constructive dismissal cases where resignation is admitted, which the Court applied to reject Naredo's claim of coercion.

• Caballero vs. Vikings Commissary, G.R. No. 238859, October 19, 2022 — Controlling precedent cited for the totality of circumstances test in determining whether a contractor is a legitimate job contractor or a labor-only contractor, and for the distinction between permissible job contracting (contracting out of work) and prohibited labor-only contracting (contracting out of only labor).
• Servflex, Inc. vs. Urera, G.R. No. 246369, March 29, 2022 — Followed for the two-pronged test of labor-only contracting and for the requirement that the contractor's tools, equipment, or machinery must be actually and directly used in the performance of the contracted work or service.
• Ditiangkin vs. Lazada E-Services Philippines, Inc., G.R. No. 246892, September 21, 2022 — Cited for the proposition that the power of control is the most significant factor in determining the existence of an employer-employee relationship, extending not only over the work done but over the means and methods by which the employee must accomplish the work.
• Alenaje vs. C.F. Sharp Crew Management, Inc., G.R. No. 249195, February 14, 2022 — Cited for the rule that when resignation is admitted, the employee must prove that it was involuntary and that it was actually a case of constructive dismissal.
• Italkarat 18, Inc. vs. Gerasmio, 886 Phil. 433, 448 (2020) — Cited for the proposition that unless the fact of dismissal is proven, whether actual or constructive, the validity or legality thereof cannot be put in issue.

• Article 106, Labor Code — Defines contractor or subcontractor arrangements and prohibits labor-only contracting. The provision states that 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 which are directly related to the principal business of such employer. The Court applied this provision in determining that Nozomi is a labor-only contractor.
• Rule 45, Rules of Court — Governs Petitions for Review on Certiorari to the Supreme Court. The Court noted that while a Rule 45 petition is generally confined to questions of law, the Court may deviate from this rule when the findings of the labor tribunals and the CA are in conflict, compelling the Court to re-evaluate and re-examine the attendant factual issues and findings.
• Rule 65, Rules of Court — Governs Petitions for Certiorari to the Court of Appeals. The Court explained that in deciding a Rule 45 petition inveighing against the CA's ruling on a Rule 65 petition, the Court is limited to determining whether the CA correctly determined the presence or absence of grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the NLRC.

Caguioa (Chairperson), Inting, Gaerlan, and Singh, JJ., concurred.