Servflex, Inc. vs. Urera

A labor contractor is a mere labor-only contractor, notwithstanding its DOLE registration, where it lacks substantial capital or investment in tools, equipment, machinery, or work premises actually used in the contracted service and its deployed workers perform tasks directly necessary to the principal's business; the principal that exercises control over the workers' manner and means of work is their true employer, and the labor-only contractor is deemed its agent, making both jointly and severally liable for the workers' salaries and benefits as regular employees.

Philippine Long Distance Telephone Company (PLDT), a telecommunications company, engaged Servflex, Inc. under a contract of service for the supply of Database Engineers to support PLDT's network facility build-up, migrations, optimization, and testing and troubleshooting. The contract of service ran from January 1, 2014 to December 31, 2016, but Servflex had already assigned respondents to PLDT before that period. The arrangement was governed by the Labor Code's rules on job contracting and labor-only contracting, and by the Department of Labor and Employment's registration regime for manpower providers.

Philippine Long Distance Telephone Company (PLDT) is a domestic company engaged in the telecommunications industry. Due to an increase in internet usage, its revenue from call and text messaging services decreased; to facilitate its digital shift, PLDT invested in new technologies and was constrained to outsource staff from contractors. It engaged Servflex, Inc., which agreed to undertake the supply of labor, particularly Database Engineers, to support PLDT's network facility build-up, migrations, optimization, and testing and troubleshooting. The contract of service between Servflex and PLDT was for three years, commencing on January 1, 2014 and ending on December 31, 2016. Even before the commencement of that contract, however, Servflex had already assigned respondents at PLDT. Respondents began working for PLDT on the following dates and with the following monthly salaries: Lovelynn M. Urera on March 18, 2013 at P15,860.00; Precious C. Palanca on May 14, 2013 at P13,110.00; Sherryl I. Cabrera on March 7, 2013 at P13,110.00; and Joco Jim L. Sevilla on October 1, 2013 at P13,110.00.

Respondents alleged that they applied at PLDT, but PLDT referred them to Servflex, which after their engagement still deployed them at PLDT. They stated that Servflex was a mere labor-only contractor because it had no independent business for which it hired respondents, their work was integral to the business of PLDT, and their work performance was under the control of PLDT.

PLDT, Servflex, and their officers Simeon and Abundo countered that Servflex deployed respondents at the premises of PLDT pursuant to an agreement for contracted service, and that the agreement laid down Servflex's hiring, termination, control, and supervision over respondents and their work; thus, respondents were regular employees of Servflex, not of PLDT. They averred that Servflex was a legitimate job contractor as shown by its registration and certification issued by the Securities and Exchange Commission and the Department of Labor and Employment, certifications showing that it had no pending case with the DOLE, its General Information Sheet for 2016, and its goodwill and established clientele.

The dispute reached the labor tribunals when respondents filed a complaint for regularization of employment and nonpayment of benefits with prayer for moral and exemplary damages and attorney's fees against PLDT, Servflex, Simeon, and Abundo. The Labor Arbiter found no proof that Servflex's assets or capital were used in the service it provided to PLDT, and found that PLDT exercised control over respondents because they were required to work at PLDT's premises, were required to follow a work schedule, were supervised and given work instructions by PLDT's Manager and Section Head, and were given training and seminars by PLDT. The Labor Arbiter also found that Servflex and PLDT's reliance on the language of their contract of service, which stipulated that Servflex had control over the contract workers, was more apparent than real.

The NLRC found that Servflex was the employer of respondents as shown by their application for employment, contract of employment, payslips, leave applications, and remittances to government institutions. It ruled that Servflex was engaged in legitimate job contracting because it was registered as such with the DOLE, was registered with the SEC as a corporation with "contracting" as one of its purposes, had an independent business and clients, and because respondents performed their work in their own manner and method free from the control and supervision of PLDT. The Court of Appeals found that respondents were working for PLDT since 2013, or prior to the effectivity of the service agreement between Servflex and PLDT that commenced only on January 1, 2014; that respondents were regular employees of PLDT because Servflex deployed them to perform activities directly related to the principal business of PLDT; and that their work as Database Engineers was necessary and indispensable to PLDT's business. The Court of Appeals also noted that respondents performed the same work in the same premises as PLDT's regular employees, using the same tools and implements provided by PLDT.

• DOLE Registration and Capital: Petitioner contended that its certificate of registration proves that it is a legitimate job contractor; it is validly registered and has substantial capital and necessary tools to operate as an independent job contractor.
• Independent Business and Clientele: Petitioner maintained that it has been providing manpower service to several clients.
• Employer Status and Control: Petitioner argued that respondents are its regular employees because it exercised the power to hire, pay, and control them.
• Independent Performance of Contracted Work: Petitioner argued that its employees, including respondents, independently perform the contracted work of providing additional support on addressing PLDT's network projects.

• DOLE Registration: Respondents countered that petitioner's DOLE registration as an independent contractor is not conclusive evidence of such status.
• Control by PLDT: Respondents argued that it was PLDT which exercised the power of control over the work of respondents, which they performed in the premises of PLDT.
• Failure to Prove Control: Respondents maintained that petitioner did not at all prove how it controlled respondents' work performance, free from the control and direction of PLDT.
• Labor-Only Contracting: Respondents alleged that petitioner was a mere labor-only contractor because it had no independent business for which it hired respondents, their work was integral to the business of PLDT, and their work performance was under the control of PLDT.

• Grave Abuse of Discretion: Whether the Court of Appeals erred in finding grave abuse of discretion on the part of the NLRC in reversing the Labor Arbiter's Decision.
• Labor-Only Contracting: Whether petitioner is an independent job contractor or a mere labor-only contractor.
• Employer-Employee Relationship: Whether respondents are regular employees of PLDT or of petitioner.
• Control: Whether petitioner or PLDT exercised control over respondents' work.
• DOLE Registration: Whether petitioner's DOLE certificate of registration conclusively establishes its status as a legitimate job contractor.

• Grave Abuse of Discretion: No. The Court of Appeals correctly found that the NLRC committed grave abuse of discretion when it reversed the Labor Arbiter's Decision and dismissed the complaint, because the NLRC's findings were not supported by substantial evidence.
• Labor-Only Contracting: Servflex is a labor-only contractor. It did not possess substantial capital or investment in tools, equipment, machinery, or work premises actually used for the contracted service, and respondents performed tasks directly necessary to PLDT's principal business.
• Employer-Employee Relationship: Respondents are regular employees of PLDT. By legal fiction, Servflex is deemed PLDT's agent, and PLDT is responsible for respondents as if it directly hired them.
• Control: PLDT exercised control over respondents' work. It controlled the work premises, imposed work activities and schedules, supervised the work, provided trainings and seminars, and required processes, rules, and regulations.
• DOLE Registration: No. The DOLE certificate of registration is not conclusive proof of legitimate independent contracting; it only prevents the presumption of labor-only contracting from arising.

• Grave Abuse of Discretion: In a Rule 45 review in labor cases, the Court examines the Court of Appeals' Decision from the prism of whether the latter had correctly determined the presence or absence of grave abuse of discretion in the NLRC's Decision. Grave abuse of discretion exists when the NLRC's findings and conclusions are not supported by substantial evidence, or that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. Here, the NLRC reversed and set aside the Labor Arbiter's Decision and dismissed the complaint, but its conclusion that Servflex was the employer and a legitimate job contractor was not supported by substantial evidence. The Court of Appeals therefore did not err in finding grave abuse of discretion and in granting the extraordinary remedy of certiorari.

• Labor-Only Contracting: Labor-only contracting refers to an arrangement whereby a person who does not have substantial capital or investment deploys workers to the employer for them to perform tasks that are directly necessary to the employer's principal business. It is present where: (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. Under such circumstances, the intermediary or the person who assigned the workers to the employer shall be deemed as the latter's agent, and the employer shall be responsible for the workers, as if it directly hired them. In this case, Servflex did not specify any tool or equipment it owned and supplied respondents for them to perform their work for PLDT; on the contrary, PLDT provided the relevant tools and the premises for the performance of respondents' work. Respondents performed tasks central and necessary to the business of PLDT. Their duties included checking availability of port and bandwidth or speed before issuance of the Certificate of Authorization Order, issuance of the CAO for activation of internet connection to PLDT equipment installed in the client's premises, recording the connection in PLDT's database, and after-sale tasks such as checking, organizing, and troubleshooting network connections. The Service Agreement itself stated that the contract was for purposes of providing "additional support" or to add manpower to PLDT's Technical Group. It was undisputed that respondents performed the same work in the same premises as PLDT's regular employees, using the same tools and implements provided by PLDT. These matters indicate that PLDT is the employer of respondents and that Servflex is a mere labor-only contractor.

• Employer-Employee Relationship: Because petitioner and PLDT are engaged in labor-only contracting, by legal fiction they are considered agent and principal, respectively. PLDT is thus responsible for respondents as if it directly hired them, and respondents are regular employees of PLDT entitled to security of tenure and all benefits and rights appurtenant thereto. Petitioner and PLDT are jointly and severally liable to pay respondents the salaries and benefits due them as regular employees.

• Control: Right of control is defined as 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 element of control is indicative of an employer-employee relationship and relates not only to a mutually desirable end intended by the agreement but is of such a nature as to dictate the means and methods to be done to achieve the work result. In this case, PLDT not only possessed but actually wielded and exercised the power of control over the work performance of respondents. Respondents were required to work in the premises of PLDT; PLDT obliged them to follow a work schedule just like its regular employees; emails showed that respondents directly received orders from PLDT Manager Garnel Gilberto Dangel and Section Head Willie Sison, including orders to delete or add Network Orders and directives to expedite revision or accommodation of NOs, which had something to do with how respondents should perform their work. PLDT also provided trainings and seminars about its processes and software, and respondents' job description pertained to the manner and method by which their work should be done. Servflex's reliance on the contract stipulation that it had the right of control over respondents was untenable, especially because respondents started working for PLDT since 2013, prior to the execution of the contract of service between Servflex and PLDT; respondents were already under the control and supervision of PLDT, and PLDT did not transfer such function by the mere execution of the contract. The stipulation itself only stated in general terms the power of control, and Servflex failed to prove that it exercised supervision over respondents' work.

• DOLE Registration: A certificate of registration with the DOLE is not a conclusive proof of legitimacy as a manpower provider. The certificate only prevents the presumption of labor-only contracting from arising. Petitioner's insistence that it is registered with the DOLE as an independent contractor cannot fully establish its status as such. The registration is only for the purpose of preventing the presumption of labor-only contracting from arising, but it is not conclusive proof that petitioner is indeed a legitimate labor contractor. The presumption cannot prevail in this case, there being overwhelming evidence supporting the conclusion that petitioner is a mere labor-only contractor.

• Labor-Only Contracting — Labor-only contracting is an arrangement whereby a person who does not have substantial capital or investment deploys workers to an employer for them to perform tasks directly necessary to the employer's principal business. It exists when: (1) the supplier of workers does not possess substantial capital or investment in the form of tools, equipment, machinery, work premises, among others; and (2) the workers perform tasks directly related to the employer's principal business. The intermediary is deemed the employer's agent, and the employer is responsible for the workers as if it directly hired them. The Court applied this doctrine to hold Servflex a labor-only contractor and PLDT the true employer.

• Substantial Capital or Investment — In labor-only contracting, substantial capital or investment rests not only on the capitalization indicated in financial documents but on the pieces of equipment and machinery, and work premises actually and directly used in the performance of the work or service contracted out. A legitimate labor contractor must possess the necessary tools and premises in relation to the job or service it renders. Servflex failed to show any tool or equipment it owned and supplied to respondents; PLDT provided the tools and premises.

• Right of Control — The right of control is 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. It is indicative of an employer-employee relationship. PLDT exercised this control through work premises, work schedules, direct instructions from its Manager and Section Head, trainings and seminars, and required processes, rules, and regulations.

• DOLE Certificate of Registration — A certificate of registration with the DOLE is not conclusive proof of legitimacy as a manpower provider. It only prevents the presumption of labor-only contracting from arising. It cannot prevail against overwhelming evidence that the contractor is a mere labor-only contractor.

• Legal Fiction of Agency and Joint and Several Liability — In labor-only contracting, the contractor is considered merely an agent of the principal, and the principal is responsible for the workers as if it directly hired them. The contractor and the principal are jointly and severally liable to pay the workers the salaries and benefits due them as regular employees.

• Grave Abuse of Discretion in Labor Cases — In a Rule 45 review in labor cases, the Court examines the Court of Appeals' Decision to determine whether it correctly found grave abuse of discretion in the NLRC's Decision. Grave abuse of discretion exists when the NLRC's findings and conclusions are not supported by substantial evidence, which is that amount of relevant evidence a reasonable mind might accept as adequate to justify a conclusion. Such grave abuse warrants the grant of certiorari.

• Legal Interest — In conformity with prevailing jurisprudence, monetary awards shall earn legal interest at the rate of 6% per annum from the finality of the Decision until full payment.

• "Labor-only contracting refers to an arrangement whereby a person who does not have substantial capital or investment deploys workers to the employer for them to perform tasks that are directly necessary to the employer's principal business." — This is the Court's canonical definition of labor-only contracting, framing the core doctrine applied to Servflex.

• "First, it bears stressing that in the context of labor-only contracting, substantial capital or investment rests not only on the capitalization indicated in the financial documents but on the pieces of equipment and machinery, and work premises a person or entity actually and directly used in the performance of the work or service it contracts out." — This clarifies that substantial capital is measured by actual tools, equipment, machinery, and work premises used in the contracted service, not merely by financial documents.

• "Right of control is defined as such '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.'" — This states the controlling test for employer-employee relationship and supports the finding that PLDT, not Servflex, controlled respondents' work.

• "Notably, a certificate of registration with the DOLE is not a conclusive proof of legitimacy as a manpower provider. The certificate only prevents the presumption of labor-only contracting from arising." — This defines the limited evidentiary value of a DOLE certificate of registration and rejects petitioner's reliance on it.

• Inocentes vs. R. Syjuco Construction, Inc., G.R. No. 237020, July 29, 2019 — Cited for the rule that factual issues are generally outside the scope of a Rule 45 petition, but the Court may reevaluate evidence when factual findings diverge.
• Dacuital vs. L.M. Camus Engineering Corp., 644 Phil. 158, 169 (2010) — Cited in Inocentes for the same principle on factual issues and divergent findings.
• Slord Development Corporation vs. Noya, G.R. No. 232687, February 14, 2019 — Cited for the standard of review in labor cases: the Court examines the CA's Decision to determine whether it correctly found grave abuse of discretion in the NLRC's Decision.
• Ace Navigation Company vs. Garcia, 760 Phil. 924 (2015) — Cited for the rule that grave abuse of discretion exists when the NLRC's findings are not supported by substantial evidence, warranting certiorari.
• Mercado vs. AMA Computer College-Paranaque City, Inc., 632 Phil. 228 (2010) — Cited for the substantial evidence standard in labor cases.
• Consolidated Building Maintenance, Inc. vs. Asprec, 832 Phil. 630, 642 (2018) — Cited for the definition of labor-only contracting, the requisites of permissible job contracting, and the right of control.
• W.M. Manufacturing, Inc. vs. Dalag, 774 Phil. 353, 375-376 (2015) — Cited for the requisites of labor-only contracting under Article 106 of the Labor Code, substantial capital, the legal fiction of agency, and joint and several liability.
• Daguinod vs. Southgate Foods, Inc., G.R. No. 227795, February 20, 2019 — Cited for the definition of the right of control.
• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Cited for the imposition of 6% per annum legal interest on monetary awards from finality until full payment.

• Article 106, Labor Code of the Philippines — Cited in W.M. Manufacturing, Inc. vs. Dalag for the definition and consequences of labor-only contracting. The Court applied it to hold that Servflex, lacking substantial capital or investment and supplying workers who performed tasks directly necessary to PLDT's principal business, was a labor-only contractor; Servflex was deemed PLDT's agent, and PLDT was responsible for respondents as if it directly hired them.
• Rule 45, Rules of Court — Governs the Petition for Review on Certiorari filed by Servflex. The Court noted that factual issues are generally outside its scope, but because the Labor Arbiter and Court of Appeals, on one hand, and the NLRC, on the other, had divergent factual findings, it reevaluated the evidence and examined whether the Court of Appeals correctly found grave abuse of discretion in the NLRC's Decision.

Gesmundo, C.J., Chairperson; Caguioa, J.; Gaerlan, J.; and Dimaampao, J., concurred.