The Red Systems Company, Inc. vs. Macalino

A labor-only contractor found solidarily liable with the principal employer for monetary awards to employees is deemed an "employer" for purposes of the appeal bond requirement under Article 229 of the Labor Code and Section 6, Rule VI of the 2011 NLRC Rules of Procedure, and must post a bond equivalent to the monetary award to perfect its appeal.

TRCI was engaged in the business of distribution, delivery, hauling, and transportation of goods, and had entered into agreements with Coca-Cola FEMSA Philippines, Inc. (Coca-Cola) for the delivery and hauling of the latter's products. TRCI, in turn, contracted with Macslink-PSV Services, Inc. (Macslink) for delivery service assistance, specifically the provision of personnel to assist in loading and unloading Coca-Cola's products during delivery. Macslink engaged the services of Eduardo V. Macalino, Danilo Tolentino, Axel Pangilinan, Leonardo Santos, Jr., Crisanto Tabago, Noel Tagaro, Gerald Balmores, and R-Jay Vidad (Macalino et al.) and assigned them to Coca-Cola's Tarlac Distribution Center and Meycauayan Plant as pickers and segregators. The dispute arose when Macslink ceased operations and terminated the services of its employees, prompting the filing of a labor complaint that eventually produced a finding that TRCI was a labor-only contractor and Coca-Cola the true employer.

TRCI was engaged in the business of distribution, delivery, hauling, and transportation of goods. It entered into several agreements with Coca-Cola FEMSA Philippines, Inc. (now Coca-Cola Beverages Philippines, Inc.) for the delivery and hauling of Coca-Cola's products. Subsequently, TRCI also entered into service agreements with Macslink-PSV Services, Inc. (Macslink) for delivery service assistance, particularly for the provision of personnel who would assist TRCI's employees in loading and unloading Coca-Cola's products on board TRCI's trucks during delivery. Pursuant to its agreements with TRCI, Macslink engaged the services of Eduardo V. Macalino, Danilo Tolentino, Axel Pangilinan, Leonardo Santos, Jr., Crisanto Tabago, Noel Tagaro, Gerald Balmores, and R-Jay Vidad (Macalino et al.) and assigned them to the Tarlac Distribution Center and Meycauayan Plant of Coca-Cola as pickers and segregators.

In March 2017, Macslink closed shop. It formally ceased operations and terminated the services of Macalino et al. and 15 others on May 31, 2017. This prompted the 24 employees to file a complaint before the labor arbiter for reinstatement with backwages, regularization, benefits under the Collective Bargaining Agreement, payment of overtime pay, service incentive leave pay, 13th month pay, as well as damages and attorney's fees.

In a Decision dated December 28, 2018, the Labor Arbiter granted the complaint, noting that out of the 24 complainants, only Macalino et al. filed their respective Position Papers. The Labor Arbiter ruled that Macalino et al. were regular employees of Coca-Cola since TRCI was engaged in labor-only contracting, observing that even before TRCI entered into a service agreement with Macslink, and before Macslink was registered with the Securities and Exchange Commission, Macalino et al. were already working for Coca-Cola. The Labor Arbiter also found that at the time of the execution of the service agreements with Coca-Cola, TRCI did not have sufficient equipment or tools necessary for providing the services required by Coca-Cola. The Labor Arbiter held that since Macalino et al. were employees of Coca-Cola, their dismissal based on the supposed cessation of business of Macslink was illegal, and ordered reinstatement with backwages, service incentive leave pay, 13th month pay, and overtime pay, as well as moral damages, exemplary damages, and attorney's fees of P50,000.00 each.

Aggrieved, TRCI filed a partial appeal before the NLRC, arguing that the Labor Arbiter gravely abused its discretion in ruling that it was a labor-only contractor. TRCI insisted it was a legitimate contractor, citing its certificate of registration as an independent job contractor from the Department of Labor and Employment, its Amended Articles of Incorporation showing a distinct and independent business of distribution, financial statements showing substantial capital since 2010, its complete control and supervision over its employees, and the assertion that the services contracted to it were not necessary or desirable or directly related to Coca-Cola's main business. The NLRC, however, denied the partial appeal in its Resolution dated March 25, 2019, ruling that TRCI failed to perfect its appeal because it did not post the required cash or surety bond in the amount of P545,051.03, representing the total monetary award, having paid only P520.00 for appeal and legal research fee. TRCI's Motion for Reconsideration was denied on May 31, 2019. TRCI then filed a petition for certiorari before the CA, which dismissed the petition on November 7, 2019, and denied reconsideration on June 15, 2020. Meanwhile, respondents brought to the Court's attention that the NLRC, in a separate Decision dated May 27, 2019 and Resolution dated August 30, 2019, gave due course to Coca-Cola's separate appeal but nevertheless affirmed the Labor Arbiter's Decision and similarly found TRCI engaged in labor-only contracting, holding Coca-Cola and TRCI solidarily liable for the monetary awards.

• Non-Applicability of Appeal Bond Requirement: Petitioner insisted that it was not required to pay an appeal bond equivalent to the monetary award adjudged by the Labor Arbiter because the rule applies only when the appeal is brought by the "employer." Since the Labor Arbiter did not declare TRCI as the employer of respondents nor hold it liable for the payment of monetary awards, there was no basis to require it to post an appeal bond for the perfection of its appeal.
• Legitimate Contractor Status: Petitioner maintained that it was a legitimate contractor, as evidenced by its DOLE certificate of registration as an independent job contractor, its Amended Articles of Incorporation showing a distinct and independent distribution business, financial statements showing substantial capital since 2010, its complete control and supervision over its employees, and the assertion that the services contracted to it were not necessary or desirable or directly related to Coca-Cola's main business.

• Mootness of the Issue: Respondents countered that it was no longer necessary to resolve the issue raised by petitioner, pointing out that while the NLRC denied petitioner's partial appeal, it gave due course to Coca-Cola's separate appeal and, in its Decision dated May 27, 2019 and Resolution dated August 30, 2019, nevertheless affirmed the Labor Arbiter's Decision and similarly found petitioner engaged in labor-only contracting, holding Coca-Cola and petitioner solidarily liable for the monetary awards.

• Appeal Bond Requirement: Whether the CA correctly held that the NLRC did not commit grave abuse of discretion in dismissing the appeal of petitioner TRCI for its failure to file the requisite appeal bond, notwithstanding that the Labor Arbiter did not specifically declare TRCI as the "employer" of respondents.

• Appeal Bond Requirement: No. The CA committed no error in finding no grave abuse of discretion on the part of the NLRC. The term "employer" under Article 229 of the Labor Code and Section 6, Rule VI of the NLRC Rules of Procedure, for purposes of the appeal bond requirement, includes parties adjudged solidarily liable with the employer for monetary awards, including a labor-only contractor. TRCI's failure to post a bond equivalent to the monetary award rendered its appeal unperfected.

• Appeal Bond Requirement: The posting of a bond—cash or surety—is required to perfect an appeal from a Labor Arbiter's decision involving monetary awards, pursuant to Article 229 (formerly Article 223) of the Labor Code and Sections 4 and 6, Rule VI of the 2011 NLRC Rules of Procedure. The rationale is to assure workers that if they prevail, they will receive the money judgment upon dismissal of the employer's appeal, and to discourage employers from using the appeal to delay or evade their obligation to satisfy the judgment. The requirement is one of jurisdiction, not merely procedure; non-compliance deprives the NLRC of jurisdiction and renders the Labor Arbiter's decision final and executory. Petitioner argued that the bond requirement applies only when the "employer" files the appeal, and since the Labor Arbiter declared Coca-Cola—not TRCI—as the true employer, TRCI need not post a bond. This argument was rejected. The Labor Arbiter found TRCI to be a labor-only contractor; under Articles 106 and 109 of the Labor Code, a labor-only contractor is solidarily liable with the principal employer for all rightful claims of the employees. This solidary liability arises by operation of law, regardless of whether the Labor Arbiter specifically ruled to that effect. The practical consequence is that respondents may demand payment of the monetary awards from either Coca-Cola or TRCI. Accordingly, the term "employer" under Article 229, for purposes of the appeal bond requirement, includes parties adjudged solidarily liable with the employer, including a labor-only contractor. To construe otherwise would defeat the rationale behind the appeal bond and encourage employers to facilitate the appeal of a solidary debtor to avoid filing the bond. Moreover, by seeking the appeal, TRCI was asking the NLRC to declare it a legitimate contractor and the real employer of respondents; if its appeal were granted, it could be held solely liable for the monetary benefits already found due to respondents. Relaxation of the bond requirement was not warranted, as TRCI exhibited no willingness to pay and instead insisted on a literal interpretation of the law that would contravene the clear purpose of the legislature. A literal interpretation must be rejected when it leads to mischievous results or contravenes the legislative purpose. The NLRC also correctly declined to resolve TRCI's appeal jointly with Coca-Cola's, since their rights are diametrically opposed—the grant of their respective appeals could mean that TRCI is solely liable for respondents' claims. TRCI could not rely on Coca-Cola's bond to secure its own obligations.

• Appeal Bond as a Jurisdictional Requirement — The posting of a cash or surety bond equivalent to the monetary award is indispensable for the perfection of an appeal from a Labor Arbiter's decision involving monetary awards. The requirement is jurisdictional, not merely procedural; non-compliance deprives the NLRC of jurisdiction to entertain the appeal and renders the Labor Arbiter's decision final and executory. While the perfection of an appeal is optional (as indicated by the word "may" in Article 229), doing so mandates the posting of the required bond. The Court applied this doctrine to TRCI, whose failure to post the bond was fatal to its appeal.

• Solidary Liability of Labor-Only Contractor with Principal Employer — Under Articles 106 and 109 of the Labor Code, a labor-only contractor is considered merely an agent of the employer, and the principal employer is responsible to the employees as if they were directly employed by it. The principal employer is solidarily liable with the labor-only contractor for all rightful claims of the employees. This solidary liability arises by operation of law, even without an express ruling to that effect from the Labor Arbiter. The Court relied on this doctrine to hold that TRCI, as a labor-only contractor, was solidarily liable with Coca-Cola for the monetary awards, and therefore fell within the term "employer" for purposes of the appeal bond requirement.

• Expanded Meaning of "Employer" for Appeal Bond Purposes — The term "employer" under Article 229 of the Labor Code and Section 6, Rule VI of the NLRC Rules of Procedure, for purposes of requiring an appeal bond, includes parties adjudged by the Labor Arbiter as solidarily liable with the employer for the payment of monetary awards to workers, including a labor-only contractor. The Court established this principle to prevent circumvention of the appeal bond requirement through a literal reading that would exempt a solidary debtor from the rule.

• "The term employer under Article 229 of the Labor Code, and Section 6 of the NLRC Rules of Procedure, for purposes of requiring an appeal bond, includes parties who are adjudged by the LA as solidarily liable with the employer for the payment of monetary awards to workers, including a labor-only contractor, as in this case." — This passage articulates the ratio decidendi: the Court's expansion of the term "employer" to include labor-only contractors for appeal bond purposes, ensuring that solidary debtors cannot evade the bond requirement.

• "To construe otherwise will defeat the rationale behind the appeal bond requirement and, worse, will encourage a practice for employers to facilitate the appeal of a solidary debtor in order to avoid filing the appeal bond." — This passage explains the policy basis for rejecting a literal interpretation of "employer" that would exclude labor-only contractors, warning against the mischief of allowing employers to use a solidary debtor's appeal to circumvent the bond requirement.

• "However, it is settled that a literal interpretation of the law must be rejected if it would lead to mischievous results or contravene the clear purpose of the legislature. In such cases, the law should be construed according to its spirit and reason, without regard to the literal reading of its provisions." — This passage states the interpretive principle the Court applied to reject TRCI's literal reading of Article 229, prioritizing legislative purpose over textual literalism.

• San Miguel Corporation vs. MAERC Integrated Services, Inc., 453 Phil. 543 (2003) — Cited as controlling authority for the principle that in labor-only contracting, the contractor is considered merely an agent of the principal employer, and the principal employer becomes solidarily liable with the labor-only contractor for all rightful claims of the employees. The Court relied on this case to establish TRCI's solidary liability with Coca-Cola.

• Philux, Inc., et al. vs. National Labor Relations Commission, et al., 586 Phil. 19 (2008) — Cited for the principle that the appeal bond requirement may be relaxed in certain cases, such as where there was substantial compliance, or where appellants exhibited willingness to pay by posting a partial bond, or where the failure to comply was justified. The Court distinguished this case, finding no basis for relaxation since TRCI showed no willingness to pay and instead insisted on a literal interpretation of the law.

• Arellano, et al. vs. Powertech Corporation, et al., 566 Phil. 178 (2008) — Cited for the rationale behind the appeal bond requirement: to assure workers that if they prevail, they will receive the money judgment in their favor upon dismissal of the employer's appeal.

• Article 229 (formerly Article 223), Labor Code — Provides that decisions of the Labor Arbiter are final and executory unless appealed within ten calendar days, and that in case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety bond equivalent to the monetary award. The Court interpreted "employer" to include a labor-only contractor solidarily liable with the principal employer.

• Article 106, Labor Code — Defines labor-only contracting as occurring where the person supplying workers lacks substantial capital or investment and the workers perform activities directly related to the principal business. In such cases, the intermediary is considered merely an agent of the employer, who is responsible to the workers as if directly employed. The Court applied this provision to TRCI, which the Labor Arbiter found to be a labor-only contractor.

• Article 109, Labor Code — Provides that every employer or indirect employer shall be held responsible with its contractor or subcontractor for any violation of the Labor Code, and they shall be considered direct employers for purposes of determining civil liability. The Court relied on this provision to establish the solidary liability between Coca-Cola and TRCI.

• Sections 4 and 6, Rule VI, 2011 NLRC Rules of Procedure — Section 4 requires that an appeal be accompanied by proof of payment of the appeal fee and posting of a cash or surety bond as provided in Section 6. Section 6 provides that where the Labor Arbiter's decision involves a monetary award, an appeal by the employer may be perfected only upon posting of a bond equivalent to the monetary award, exclusive of damages and attorney's fees. The Court applied these rules to hold that TRCI's appeal was not perfected.

• Article 1207, Civil Code — Provides that solidary liability exists only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Cited in a footnote to support the proposition that respondents may demand payment of the monetary awards from either Coca-Cola or TRCI by virtue of the solidary obligation created by law.

Leonen, SAJ. (Chairperson), Lazaro-Javier, and Kho, Jr., JJ., concurred. M. Lopez, J., was on official business.