Polyfoam-RGC International, Corporation and Precilla A. Gramaje vs. Edgardo Concepcion

A contractor that fails to prove substantial capital or investment and merely supplies workers to perform activities directly related to the principal's main business is a labor-only contractor; the principal is deemed the real employer and is solidarily liable with the labor-only contractor for the employees' lawful claims. An employee is illegally dismissed where no valid or authorized cause is shown and no notice or opportunity to contest the dismissal is given; abandonment is not established when the employee promptly inquires about his status, seeks readmission, and files an illegal dismissal complaint.

Polyfoam-RGC International Corporation operated a foam products business, and Precilla A. Gramaje claimed through P.A. Gramaje Employment Services to be a legitimate job contractor supplying manpower to Polyfoam. Edgardo Concepcion was assigned to pack Polyfoam's finished foam products. The dispute implicated Article 106 of the Labor Code, which governs permissible job contracting and labor-only contracting and fixes the liability of the principal and contractor to the workers.

Polyfoam-RGC International Corporation was engaged in the foam products business. Edgardo Concepcion alleged that he was hired by Polyfoam as an "all-around" factory worker and served as such for almost six years. Precilla A. Gramaje later claimed, through P.A. Gramaje Employment Services (PAGES), that she was the real employer and a legitimate job contractor providing manpower to Polyfoam; Polyfoam and Natividad Cheng denied any employer-employee relationship with Concepcion.

On January 14, 2000, Concepcion discovered that his time card was not in the rack. A security guard told him that he could no longer punch his time card. When he protested to his supervisor, the supervisor allegedly told him that management had decided to dismiss him due to an infraction of a company rule. Cheng, the company's manager, refused to face him. Concepcion's counsel later wrote a letter to Polyfoam's manager requesting his readmission, but the request was unheeded. On February 8, 2000, Concepcion filed a complaint for illegal dismissal, non-payment of wages, premium pay for rest day, separation pay, service incentive leave pay, 13th month pay, damages, and attorney's fees against Polyfoam and Cheng.

After the complaint, Gramaje filed a Motion for Intervention on April 28, 2000, claiming to be the real employer. Polyfoam and Cheng moved to dismiss on the grounds that the NLRC had no jurisdiction because no employer-employee relationship existed and that the money claims had prescribed. On May 24, 2000, Labor Arbiter Adolfo Babiano granted Gramaje's intervention, finding her an indispensable party, and denied the motion to dismiss, holding that the lack of employer-employee relationship was a matter of defense.

In their position papers, Polyfoam and Cheng insisted that the NLRC had no jurisdiction because Concepcion was not their employee, that his money claims had prescribed, and that Cheng should not have been included as a party because she was not a director. Gramaje claimed that PAGES was a legitimate job contractor that supplied some of Polyfoam's manpower needs. She alleged that Concepcion was hired as a "packer" and assigned to Polyfoam to pack its finished foam products, and that he was not dismissed but simply stopped reporting for work.

Gramaje claimed that she had substantial capital and investment, including an office, equipment, and tools; that she furnished plastic containers and carton boxes; and that she placed ten sealing machines, twenty hand trucks, and two forklifts at Polyfoam's workplace. She also claimed to have her own office and staff. However, no evidence was presented to prove her ownership of the equipment and machineries, which were found in Polyfoam's premises, and no proof was shown that she had clients other than Polyfoam. Concepcion performed his packing work in Polyfoam's premises for almost six years and was furnished a copy of Polyfoam's "Mga Alituntunin at Karampatang Parusa," which embodied Polyfoam's rules on attendance, performance of duties, ethical standards, cleanliness, health, safety, peace, and order. No written contract specifying the service, its nature and extent, or its term and duration was presented. The Labor Arbiter credited Concepcion's narration and found him illegally dismissed; the NLRC found Gramaje to be an independent contractor and Concepcion not dismissed; the Court of Appeals reinstated the Labor Arbiter's findings.

• Timeliness of Respondent's CA Petition: Petitioners argued that the Court of Appeals erred in not dismissing respondent's petition for certiorari because it was filed on the 77th day from receipt of the NLRC Resolution denying his motion for reconsideration, and was therefore filed out of time.
• Gramaje as Independent Job Contractor: Petitioners maintained that the Court of Appeals erred in not upholding the NLRC's findings that Concepcion was an employee of P.A. Gramaje Employment Services, that P.A. Gramaje was a legitimate job contractor, and that Concepcion was not dismissed from his job, these findings being fully supported by evidence.
• Awards of Backwages, Damages, and Attorney's Fees: Petitioners argued that the Court of Appeals erred in reinstating the Labor Arbiter's decision awarding Concepcion backwages, moral and exemplary damages, and attorney's fees.

• Independent Job Contracting: Whether Gramaje is an independent job contractor.
• Employer-Employee Relationship: Whether an employer-employee relationship exists between Polyfoam and respondent.
• Illegal Dismissal: Whether respondent was illegally dismissed from employment.

• Independent Job Contracting: No. Gramaje is a labor-only contractor, not an independent job contractor, because she failed to prove substantial capital or investment and did not carry on an independent business free from Polyfoam's control.
• Employer-Employee Relationship: Yes. A finding of labor-only contracting is equivalent to declaring an employer-employee relationship between the principal and the employees of the supposed contractor; Polyfoam is the principal employer and Gramaje is a mere agent, and both are solidarily liable.
• Illegal Dismissal: Yes. Respondent was dismissed without just or authorized cause and without due process; abandonment cannot be inferred from his immediate inquiry, counsel's letter, and filing of the complaint.

• Independent Job Contracting: Article 106 of the Labor Code defines labor-only contracting and provides that a person supplying workers without substantial capital or investment, where the workers perform activities directly related to the principal's main business, is merely an agent of the employer. The distinction in Sasan, Sr. vs. National Labor Relations Commission 4th Division requires that permissible job contracting involve a distinct and independent business, substantial capital or investment, and assurance of labor standards and benefits; labor-only contracting exists when the contractor lacks substantial capital or investment and the workers perform activities directly related to the principal's main business. The test is whether the contractor has contracted to do the work according to its own methods and without being subject to the principal's control except as to results, considering the totality of the facts and the criteria in San Miguel Corporation vs. Semillano. Gramaje failed to prove substantial capital or investment; her claims about equipment and tools were unsupported, the equipment was in Polyfoam's premises, and she showed no other clients. She also did not carry on an independent business or perform the service according to her own manner and method free from Polyfoam's control; her role was merely to recruit persons to work for Polyfoam. The absence of a written contract and the failure to prove that Gramaje exercised entire charge, control, and supervision reinforced the conclusion. Thus, Gramaje was a labor-only contractor.
• Employer-Employee Relationship: A finding that a contractor is a labor-only contractor is equivalent to declaring an employer-employee relationship between the principal and the employees of the supposed contractor. The labor-only contractor is considered a mere agent of the principal, who is the real employer. Because Gramaje was a labor-only contractor, Polyfoam was the principal employer and Gramaje was its agent. Polyfoam and Gramaje were therefore solidarily liable for Concepcion's rightful claims, consistent with Article 106 and the rulings in Aklan vs. San Miguel Corporation and 7K Corporation vs. National Labor Relations Commission.
• Illegal Dismissal: Concepcion stated that on January 14, 2000, his time card was removed and his supervisor told him that management had decided to dismiss him for an infraction of a company rule. The Labor Arbiter gave credence to his narration, and the Court of Appeals affirmed. Abandonment cannot be inferred from his actuations: he immediately inquired from his supervisor, sought counsel, wrote a letter requesting readmission, and filed the illegal dismissal case when the request was not acted upon. These circumstances negated any intention to abandon work. Petitioners failed to show any valid or authorized cause under the Labor Code for termination, and no notice of termination or opportunity to contest the dismissal was given. The dismissal was therefore illegal. Consequently, Concepcion was entitled to reinstatement without loss of seniority rights, full backwages inclusive of allowances, and other benefits or their monetary equivalent; if reinstatement was no longer feasible, separation pay equivalent to one month salary for every year of service was the alternative. The Court of Appeals correctly affirmed the Labor Arbiter's award of separation pay with full backwages and other monetary benefits.

• Labor-Only Contracting — Under Article 106 of the Labor Code, 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 perform activities directly related to the principal business of the employer. In such cases, the intermediary is considered merely an agent of the employer, who is responsible to the workers as if they were directly employed. This doctrine was applied because Gramaje failed to prove substantial capital or investment and the workers she supplied packed Polyfoam's finished foam products, an activity directly related to Polyfoam's main business.
• Permissible Job Contracting or Independent Contractorship — Permissible job contracting requires that the contractor carry on a distinct and independent business and undertake the job on its own account and responsibility according to its own manner and method, free from the principal's control and direction except as to results; that the contractor have substantial capital or investment; and that the agreement assure the contractual employees' entitlement to labor and occupational safety and health standards, the right to self-organization, security of tenure, and social and welfare benefits. The test is whether the contractor has contracted to do the work according to its own methods and without being subject to the employer's control except as to results, considering the totality of the facts. Gramaje failed this test because she did not prove substantial capital or investment and did not carry on an independent business free from Polyfoam's control.
• Abandonment — Abandonment cannot be inferred from the employee's actuations where he promptly inquires about his status, seeks readmission, and files an illegal dismissal complaint when no action is taken. This doctrine was applied because Concepcion immediately asked his supervisor about his time card, had counsel write a letter requesting readmission, and filed the complaint when the request was unheeded, thereby negating any intention to abandon his work.
• Due Process in Dismissal — Termination of employment requires a valid or authorized cause under the Labor Code and compliance with the requirements of notice and opportunity to contest the dismissal. No valid or authorized cause was shown, and no notice of termination or opportunity to contest was given, rendering the dismissal illegal.
• Solidary Liability of Principal and Labor-Only Contractor — A finding of labor-only contracting makes the principal the real employer and the labor-only contractor a mere agent, and both are solidarily liable for the employees' lawful claims. This doctrine was applied by holding Polyfoam and Gramaje solidarily liable for Concepcion's separation pay, backwages, and other monetary benefits.

• "There is labor-only contracting 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. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him." — This passage defines labor-only contracting and states its legal consequence, making the intermediary a mere agent of the real employer.
• "The presumption is that a contractor is a labor-only contractor unless he overcomes the burden of proving that it has substantial capital, investment, tools, and the like. The employee should not be expected to prove the negative fact that the contractor does not have substantial capital, investment and tools to engage in job-contracting." — This passage allocates the burden of proof and explains why Gramaje's unsupported claims of capital and equipment failed.
• "A finding that a contractor is a "labor-only" contractor, as opposed to permissible job contracting, is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor, and the "labor-only" contractor is considered as a mere agent of the principal, the real employer." — This passage establishes the employer-employee relationship between Polyfoam and Concepcion and the basis for solidary liability.
• "Abandonment cannot be inferred from the actuations of respondent. When he discovered that his time card was off the rack, he immediately inquired from his supervisor. He later sought the assistance of his counsel, who wrote a letter addressed to Polyfoam requesting that he be re-admitted to work. When said request was not acted upon, he filed the instant illegal dismissal case. These circumstances clearly negate the intention to abandon his work." — This passage is the ratio for rejecting the abandonment defense and finding illegal dismissal.

• Sasan, Sr. vs. National Labor Relations Commission 4th Division, G.R. No. 176240, October 17, 2008, 569 SCRA 670 — The Court relied on this case for the distinction between permissible job contracting and labor-only contracting, including the conditions for legitimate job contracting and the elements of labor-only contracting.
• San Miguel Corporation vs. Semillano, G.R. No. 164257, July 5, 2010, 623 SCRA 114 — Cited for the criteria in determining the existence of an independent and permissible contractor relationship, including the contractor's independent business, control and supervision, hiring and firing, and mode of payment.
• San Miguel Corporation vs. Aballa, G.R. No. 149011, June 28, 2005, 461 SCRA 392 — Cited for the test of independent contractorship: whether the contractor has contracted to do the work according to its own methods and without being subject to the employer's control except as to results.
• 7K Corporation vs. National Labor Relations Commission, G.R. No. 148490, November 22, 2006, 507 SCRA 509 — Cited for the presumption that a contractor is a labor-only contractor unless it proves substantial capital, investment, and tools, and for the solidary liability of the principal and labor-only contractor.
• Aklan vs. San Miguel Corporation, G.R. No. 168537, December 11, 2008, 573 SCRA 675 — Cited for the rule that a finding of labor-only contracting is equivalent to declaring an employer-employee relationship between the principal and the employees of the supposed contractor, with the labor-only contractor as mere agent.
• Iligan Cement Corporation vs. ILIASCOR Employees and Workers Union-Southern Philippines Federation of Labor (IEWU-SPFL), G.R. No. 158956, April 24, 2009, 586 SCRA 449 — Cited in connection with the requirements for termination of employment and the consequences of failure to comply with due process.
• Big AA Manufacturer vs. Antonio, G.R. No. 160854, March 3, 2006, 484 SCRA 33 — Cited for the rule that reinstatement is the primary relief, but separation pay may be awarded as an alternative when reinstatement is no longer feasible.

• Article 106, Labor Code — Defines contractor or subcontracting, labor-only contracting, and the liability of the principal and contractor. The provision was applied by holding that Gramaje was a labor-only contractor because she lacked substantial capital or investment and supplied workers performing activities directly related to Polyfoam's main business; Polyfoam, as principal, was the real employer and solidarily liable with Gramaje for Concepcion's lawful claims.
• Rule 45, Rules of Court — The petition before the Supreme Court was filed under Rule 45 as a petition for review on certiorari. The petition was denied and the Court of Appeals Decision and Resolution were affirmed.
• Rule 65, Rules of Court — Concepcion's petition before the Court of Appeals was a special civil action for certiorari under Rule 65. The Court of Appeals granted it and reversed the NLRC.

Justice Diosdado M. Peralta wrote the decision. Justices Roberto A. Abad, Martin S. Villarama, Jose Catral Mendoza, and Estela M. Perlas-Bernabe concurred.