Legitimate labor Contracting versus labor-only contracting Republic v. Asiapro Cooperative (2007) DOLE v. Esteva et al (2006) San Miguel Corporation v. Aballa (2005)

DEFINITION LEGITIMATE LABOR CONTRACTING LABOR-ONLY CONTRACTING Arrangement whereby 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 such job, work or service is to be performed or completed within or outside the premises of the principal. (D.O. No. 18-02) 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 persons are performing activities which are directly related to the principal business of such employer. (Art. 106, LC) DEFINITION

ELEMENTS (IRR of Book III) LEGITIMATE LABOR CONTRACTING LABOR-ONLY CONTRACTING Contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work Contractor has substantial capital or investment (§8) No substantial capital or investment Workers recruited and placed by the LOC are performing activities which are directly related to the principal business or operations of the employer in which the workers are habitually employed (§9) ELEMENTS (IRR of Book III)

Parties involved Trilateral relationship Principal LEGITIMATE LABOR CONTRACTING LABOR-ONLY CONTRACTING Trilateral relationship Principal Contractor or Subcontractor Workers of the contractor or subcontractor (Sec. 3, D.O. No. 18-02) The law creates an ER-EE relationship for a comprehensive purpose; 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. (SMC v. Aballa) Parties involved

ELEMENTS (D.O. No. 18-02) Substantial capital Independent business LEGITIMATE LABOR CONTRACTING LABOR-ONLY CONTRACTING Substantial capital Independent business Subject of the contract is the performance or completion of an identified job (Summary of Lecture by Prof. Azucena, 22 May 2009) [ESSENTIAL ELEMENT] An arrangement where the contractor or subcontractor merely recruits, supplies or place workers to perform a job, work or service for a principal [CONFIRMING ELEMENTS] No substantial capital or investment which relates to the job, work or service to be performed AND employees recruited, supplied or placed are performing activities which are directly related to the main business of the principal No right of control over the performance of the work (§5) Elements likewise provided under D.O. No. 10 (1997) but copy of order unavailable. DO 10 was ultimately revoked. ELEMENTS (D.O. No. 18-02)

SUMMARY ER-EE RELATIONSHIP ER-EE RELATIONSHIP EMPLOYER CONTRACTOR WORKERS EMPLOYER “CONTRACTOR” WORKER ER-EE RELATIONSHIP ER-EE RELATIONSHIP

cooperative A cooperative is a duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking (R.A. No. 6938)

San Miguel Corp. v. Aballa (2005) San Miguel Corp (“SMC”) entered into a Service Contract with SUNFLOWER ABALLA, et al. were engaged by SUNFLOWER to render services to SMC ABALLA, et al. sought to be declared as regular employees of SMC Upon closure of SMC’s business, ABALLA et al. amended the complaint to include illegal dismissal

San Miguel Corp. v. Aballa (2005) Labor Arbiter dismissed the complaint NLRC affirmed dismissal; SUNFLOWER is an independent contractor CA reversed, ruling in favor of ABALLA et al.; SUNFLOWER is labor-only contractor, and SMC is employer

San Miguel Corp. v. Aballa (2005) RULING: SUNFLOWER does not possess the elements necessary to qualify as an independent contractor. There exists an ER-EE relationship between SMC and ABALLA et al.

San Miguel Corp. v. Aballa (2005) SUNFLOWER does not have substantial capitalization or investment in the form of tools, equipment, machineries, work premises and other materials to qualify it as an independent contractor Work assigned to ABALLA et al. was directly related to the aquaculture operations of SMC SUNFLOWER did not carry on an independent business or undertake the performance of its service contract accdg. to its own manner and method (free from control and supervision of SMC) Notwithstanding Certificate of Registration (as cooperative), this is only proof of paid-up share capital of P2,000.00 SUNFLOWER did not cater to clients other than SMC

San Miguel Corp. v. Aballa (2005) SMC exercised the power of control and supervision (including control of the premises) With the closure of SMC’s business, SUNFLOWER likewise ceased to exist

San Miguel Corp. v. Aballa (2005) In legitimate labor contracting, the law creates an ER-EE relationship for a limited purpose (ensure that the employees are paid their wages). The principal employer becomes jointly and severally liable with the job contractor ONLY for the payment of the employees’ wages whenever the contractor fails to pay the same. In labor-only contracting, the statute creates an ER-EE relationship for a comprehensive purpose; 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.

DOLE v. Esteva, et al. (2006) DOLE and CAMPCO entered into a Service Contract By virtue of Sangguniang Resolution No. 64, an investigation was conducted on cooperatives supplying workers for DOLE CAMPCO was identified as one of the cooperatives engaged in labor-only contracting; ordered to cease and desist from engaging in such activities

DOLE v. Esteva, et al. (2006) Upon appeal to the Office of the D.O.L.E. Secretary, CAMPCO was affirmed as labor-only contractor; no necessary investment and work of its members are necessary and desirable in the principal business of DOLE (This order became final and executory) Separate complaint filed by ESTEVA et al. before the NLRC for illegal dismissal, regularization, wage differentials, damages and attorney’s fees

DOLE v. Esteva, et al. (2006) Labor Arbiter dismissed the complaint - CAMPCO is not engaged in labor-only contracting; no ER-EE relationship between DOLE and ESTEVA, et al. NLRC affirmed the judgment CA reversed – CAMPCO is engaged in labor-only contracting; denied claims of ESTEVA, et al. CA modified, granting claims of ESTEVA, et al.

DOLE v. Esteva, et al. (2006) RULING Service of contract existed prior to DOLE Department Orders prescribing rules on labor-only contracting; this notwithstanding, applicable rules under the Labor Code and its IRR apply and on the basis of the latter, CAMPCO was found to have engaged in labor-only contracting

DOLE v. Esteva, et al. (2006) 2. The matter of whether CAMPCO was engaged in labor-only contracting was already settled and determined (order has become final and executory) and therefore, should have been conclusive and binding upon the NLRC. NLRC should have confined itself to the determination of whether there had been an illegal dismissal as alleged in ESTEVA et al.’s complaint

DOLE v. Esteva, et al. (2006) 3. The existence of an independent and permissible contractor relations is generally established by the ff criteria: Nature and extent of work Skill required Term and duration of the relationship Right to assign the performance of a specified piece of work Control and supervision of the work of another Employer’s power with respect to the hiring, firing and payment of the contractor’s workers Control of the premises Duty to supply the premises tools, appliances, materials and labor Mode, Manner and terms of payment

DOLE v. Esteva, et al. (2006) At the time of the establishment of the Service Contract, CAMPCO did not have substantial paid-up capital CAMPCO did not carry out an independent business from DOLE DOLE exercised control over the CAMPCO members CAMPCO was not engaged to perform a specific and special job or service Members of CAMPCO performed activities directly related to the principal business of DOLE

Republic v. ASIAPRO Cooperative (2007) ASIAPRO entered into several Service Contracts with STANFILCO Owners-members of ASIAPRO requested STANFILCO to register them with SSS as self-employed and remit their contributions SSS informed ASIAPRO that it is the employer of the owners-members (as a manpower contractor) and therefore, should registered itself as employer with the SSS and remit the corresponding contributions

Republic v. ASIAPRO Cooperative (2007) SSS filed a petition before the SSC against ASIAPRO and STANFILCO SSC denied ASIAPRO’s Motion to Dismiss, so the latter appealed before the CA CA granted ASIAPRO’s petition and consequently ordered the dismissal of SSS’ complaint

Republic v. ASIAPRO Cooperative (2007) RULING: There exists an ER-EE relationship between ASIAPRO and its owners-members a. ASIAPRO has exclusive discretion in the selection and engagement of the owners-members who will be assigned at STANFILCO b. The stipends received by the owners-members from the service surplus are wages; compensation in rendering services to STANFILCO

Republic v. ASIAPRO Cooperative (2007) c. ASIAPRO has the power to investigate, discipline and remove the owners-members and its team leaders, rendering services at STANFILCO d. ASIAPRO has sole control over the manner and means of performing the services under the Service Contracts with STANFILCO as well as the means and methods of work

Republic v. ASIAPRO Cooperative (2007) A cooperative can be likened to a corporation with a personality separate and distinct from its owners-members. Consequently, an owner-member of a cooperative can be an employee of the latter and an ER-EE relationship can exist between them.

COMPARISON In the ASIAPRO Case, the cooperative was found to be a manpower contractor and therefore, with respect to its owners-members, it is the employer of the latter In the cases of DOLE and SMC, the cooperatives therein were declared as labor-only contracting. Consequently, the employer of the members of the cooperatives were deemed as employees of the principal employer, and not of the cooperative.

comparison In ASIAPRO, the SSC declared the cooperative as a manpower agency, but without necessarily establishing the existence of the essential requisites therefor. In DOLE and SMC, the cooperatives therein failed to comply with the requirements to be declared an independent contractor. Further, it fell under the definition of a labor-only contractor, which is prohibited under the law.