PETRON CORPORATION v. CABERTE ET AL (ARCENAS) business.

A finding that a contractor is a ‘labor-only’ contractor (ABC) is equivalent

June 15, 2015 | Del Castillo, J. | Employee – Employer Relationship (labor-only to declaring that there is an employer-employee relationship between the principal
contractor) (PETRON) and the employees (CABERTE ET AL) of the supposed contractor, and
the ‘labor-only’ contractor (ABC) is considered as a mere agent of the principal
PETITIONER: Petron Corporation (PETRON), the real employer. Since SC held that CABERTE ET AL (except
RESPONDENTS: Armz Caberte, Antonio Caberte, Jr., Michael Servicio,* Ariel CABERTE JR, see ratio for explanation) were considered regular employees and
Develos, Adolfo Gestupa, Archie Ponteras, Arnold Blanco, Dante Mariano,* Virgilio PETRON did not give a just or authorized cause for termination, CABERTE ET AL
Galorosa, And Camilo Te were declared illegally dismissed and entitled to all the remedies of an illegally
dismissed employee.
SUMMARY: PETRON and ABC entered into several service contracts whereby
ABC would provide utility and maintenance services to PETRON’s Bacolod Bulk DOCTRINE: A finding that a contractor is a ‘labor-only’ contractor is equivalent to
Plant. CABERTE ET AL were among those who were hired to work at the plant as declaring that there is an employer-employee relationship between the principal and
LPG/Gasul fillers, maintenance crew, warehousemen, utility workers and tanker the employees of the supposed contractor, and the ‘labor-only’ contractor is
receiving crew. On July 1, 1999, PETRON did not allow CABERTE ET AL entry considered as a mere agent of the principal, the real employer.
into the Bacolod Bulk Plant and so on July 2, 1999, they filed several complaints for
illegal dismissal, underpayment of wages etc (see fact #5) against PETRON, ABC
and CABERTE SR (owner of ABC), which were consolidated in an Order by the FACTS:
Labor Arbiter (LA). CABERTE ET AL contend that PETRON was their true 1. PETRON is a domestic corporation engaged in the manufacture and
employer having worked for it for years and that ABC is a mere labor-only distribution to the general public of various petroleum products and owns
contractor having no substantial capital or investment and no control over and operates several bulk plants in the country for receiving, storing and
CABERTE ET AL’s work. Executive LA Acosta held that ABC is an independent distributing its products
contractor that has substantial capital and CABERTE ET AL were its employees and 2. From 1979 to 1998, CABERTE ET AL were hired to work at PETRON’s
that ABC’s cessation of operation is force majeure justifying CABERTE ET AL’s Bacolod Bulk Plant in San Patricio, Bacolod City, Negross Ocdiental as
dismissal. They appealed to the NLRC who affirmed the LA’s decision. However, LPG/Gasul fillers, maintenance crew, warehousemen, utility workers and
reversed the NLRC declaring that ABC is a labor-only because ABC did not have tanker receiving crew.
substantial capital or investment, the work assigned to CABERTE ET AL were 3. For the periods from March 1, 1996 to Feb 28, 1999 and Nov 1, 1996 to
directly related to PETRON’s business and thebnature of PETRON’s business June 30, 1999 - PETRON and ABC CONTRACTING SERVICES (a labor
requires it to exercise control over the performance of CABERTE ET AL’s work. contracting business), owned by CABERTE SR. entered into a Contract for
CA also declared CABERTE ET AL as PETRON’s regular employees and ordered Services and a Contract for LPG Assistance Services.
their reinstatement without loss of seniority rights and privileges. Hence, this petition 1. Under these, ABC would provide utility and maintenance services
to the SC by PETRON. The issue is whether or not ABC is a labor-only contractor or to PETRON’s Bacolod Bulk Plant.
a legitimate independent contractor. The SC held that the CA was correct in holding 4. July 1, 1999 - PETRON did not allow CABERTE ET AL to enter and work
that ABC is a mere labor-only contractor and that PETRON is the true employer of in the Bacolod Bulk Plant
CABERTE ET AL who are considered regular employees considering they have 5. July 2, 1999 - CABERTE ET AL filed several Complaints for illegal
been regularly performing activities which are necessary and desirable to the usual dismissal, underpayment of wages and non-payment of allowances, 13th
business of PETRON for a number of years. SC ruled that PETRON’s contention month pay, overtime pay, holiday pay, service incentive leave pay, moral
that CA erred in ruling that ABC is a labor-only contractor since CABERTE ET AL and exemplary damages and attorney’s fees against PETRON, ABC and
failed to prove that ABC is not an independent contractor was wrong and that CABERTE SR before the labor arbiter, which were consolidated in an
PETRON, as principal, bears the burden of proving that ABC is an independent Order.
contractor, not a labor-only contractor. PETRON has to show that ABC has a) 6. CABERTE ET AL aver that they had already been working for PETRON
substantial capital or investment and b) CABERTE ET AL were performing for years, even before it engaged ABC as contractor and despite designating
activities which were not directly related to PETRON’S principal business. SC found ABC as CABERTE ET AL’s new employer. They further said that
that the documents submitted by PETRON were not enough to prove that ABC has PETRON still exercised control and supervision over their work and
substantial capital or investment. And based on the service contracts entered into by performance necessary in the trade and business.
PETRON and ABC, CABERTE ET AL performed activities which required the
supervision and control of PETRON, making their functions necessary to the
 1.They added that ABC is a mere labor-only contractor which had no 10. CABERTE ET AL filed a Motion for Reconsidertaion but was denied by
substantial capital and investment and had no control over NLRC. They, then, filed a Petition for Certiorari before the CA alleging
CABERTE ET AL’s work, making PETRON their true employer. NLRC committed grave abuse of discretion amounting to lack or in excess
7. PETRON counters that ABC is an independent contractor which supplied of jurisdiction in holding they are not employees of PETRON.
the manpower for the maintenance and that CABERTE ET AL were the 1. CA ruled that ABC is engaged in labor-only contracting because 1)
workers supplied, except CABERTE JR. Also, that PETRON cannot allow ABC did not have substantial capital or investment (e.g. in tools,
continuous employment of CABERTE ET AL beyond the expiration of equipment, implements, machineries and work premises used in
contracts with ABC. PETRON’s business); 2) the work assigned to CABERTE ET AL
1. PETRON also submitted documents to prove the legitimacy and were directly related to PETRON’s business; and 3) nature of
capcity of ABC as independent contractor1 PETRON’s business requires it to exercise control over the
2. ABC also posted a performance bond and took out insurance performance of CABERTE ET AL’s work.
policies against liabilities 2. CA declared CABERTE ET AL as PETRON’s regular employees
3. PETRON presented affidavits of PETRON employees that and ordered their reinstatement without loss of seniority rights and
CABERTE ET AL did not perform activities related to PETRON’s privileges, with the alternative of separation pay and full
business operation, only those relating to the contract for service backwages, inclusive of allowances. But CA denied claims for
and actually used materials such as floor polisher, floor wax, moral and exemplary damages in the absence of bad faith in
broom, dustpan, cleaning rags and worked under the supervision of dismissing them.
CABERTE SR. 11. PETRON’s MR was denied by CA. Hence, this petition.
8. Exectuive Labor Arbiter Acosta (LA Acosta) held that ABC is an
independent contractor that has substantial capital and CABERTE ET AL ISSUE/s:
were its employees and that ABC’s cessation of operation is force majeure 1. WoN ABC is a labor-only contractor or independent contractor – Labor-
justifying CABERTE ET AL’s dismissal. only contractor because PETRON failed to overcome the presumption that
1. However, LA Acosta awarded them separation pay based on the ABC is a labor-only contractor since the documents submitted did not prove
applicable minimum wage rate at the time of expiration of the that ABC has substantial capital or investment and SC found that
contracts for service. CABERTE ET AL were performing activities necessary and desirable to
2. He denied claims for overtime pay and night shift differential pay PETRON’s principal business
for lack of merit.
9. CABERTE ET AL appealed to the National Labor Relations Commission RULING: WHEREFORE, the petition is DENIED. The November 14, 2007
(NLRC) insisting that they are regular employees of PETRON since ABC is Decision and the March 4, 2008 Resolution of the Court of Appeals in CA-G.R. SP
a labor-only contractor. NLRC affirmed the ruling of the LA and found that No. 82356 are MODIFIED in that: (1) the Complaint of respondent Antonio Caberte,
ABOC is a legitimate independent contractor taking into account the Jr. against petitioner Petron Corporation is dismissed; and (2) petitioner Petron
following: Corporation is ordered to reinstate all of the respondents, except for Antonio
1. ABC/CABERTE SR has control over CABERTE ET AL; that Caberte, Jr., to their former positions with the same rights and benefits and the same
PETRON intervened at times but this was limited to safety salary rates as its regular employees, or if reinstatement is no longer feasible, to
precautions due to the hazardous nature of the products separation pay equivalent to one month salary for every year of service and to pay
2. ABC has sufficient capital and equipment according to the them their full backwages from July 1, 1999 until actual reinstatement or upon
documents submitted by PETRON finality of this Decision as the case may be, as well as attorney's fees equivalent to
3. ABC/CABERTE SR has power to hire and dismiss CABERTE ET 10% of the monetary award, with costs against Petron Corporation.
AL
RATIO:
LABOR-ONLY CONTRACTING vs LEGITIMATE JOB CONTRACTING
1. Under Article 106 of the Labor Code, labor-only contracting, a prohibited
Contractor’s Pre-qualification Statement; PETRON’s Conflict of Interest Policy signed by CABERTE
1

SR.; ABC’s Certificate of Registration issued by BIR; Value-added Tax Return for 1995; BIR
act, is an arrangement where the following elements are present:
Confirmation Receipt; CABERTE SR’s TIN and individual income tax return for 1993, 1994; ABC’s 1. the contractor, who does not have substantial capital or investment
audited financial statements for 1992, 1993, 1994; ABC’s Mayor’s Permit for 1995; ABC’s Certificate of in the form of tools, equipment, machineries, work premises,
registration of Business Name issued by DTI among others, supplies workers to an employer and
 2. the workers recruited are performing activities which are directly PETRON FAILED TO PROVE THAT ABC IS NOT A LABOR-ONLY
related to the principal business of such employer. CONTRACTOR
2. Permissible or legitimate job contracting or subcontracting, on the other 9. In proving that ABC is a legitimate independent contractor, PETRON has to
hand, "refers to an arrangement whereby a principal agrees to put out or show that ABC has a) substantial capital or investment and b) CABERTE
farm out with the contractor or subcontractor the performance or completion ET AL were performing activities which were not directly related to
of a specific job, work, or service within a definite or predetermined period, PETRON’S principal business.
regardless of whether such job, work, or service is to be performed or No substantial capital or investment
completed within or outside the premises of the principal. 10. SC ruled that the documents submitted by PETRON2 were not conclusive
3. A person is considered engaged in legitimate job contracting or evidence of ABC’s financial capability, but merely show that ABC is
subcontracting if the following conditions concur: engaged in business and licensed by the appropriate government agencies.
1. the contractor carries on a distinct and independent business and 11. The financial statements presented (Years 1992, 1993 and 1994) were
partakes the contract work on his account under his own correctly deemed insufficient by CA and upheld by SC considering that the
responsibility according to his own manner and method, free from service contracts between PETRON and ABC were from 1996 to 1999.
the control and direction of his employer or principal in all matters Hence, the material audited financial statements (1996, 1997, 1998 and
connected with the performance of his work except as to the results 1999) were absent.
thereof; 1. SC noted that ABC was obligated to submit to PETRON at least
2. the contractor has substantial capital or investment; and once every 2 years its latest audited financial statements, as a
3. the agreement between the principal and the contractor or requirement for retention as an accredited contractor of PETRON.
subcontractor assures the contractual employees’ entitlement to all But PETRON failed to present such financial statements for said
labor and occupational safety and health standards, free exercise of years which were presumed to be in PETRON’s possession.
the right to self-organization, security of tenure, and social welfare 12. Likewise, the performance bond taken out by ABC is insignificant evidence
benefits of its substantial capital as aptly explained by CA: not shown that the
4. To determine whether a contractor is engaged in labor-only contracting or performance bond of Php 596, 799.51 was enough to cover the payrolls,
permissible job contracting, "the totality of the facts and the surrounding rentals and equipment and possible damages to third parties and other
circumstances of the case are to be considered contignent liabilities.
13. Further, PETRON failed to sahow that ABC possessed substantial
BURDEN OF PROOF UPON PRINCIPAL investment in the form of equipment, tools, implements, machineries and
5. SC ruled that PETRON’s contention that CA erred in ruling that ABC is a work premises.
labor-only contractor since CABERTE ET AL failed to prove that ABC is 1. SC found that ABC has been renting a forklift from PETRON to
not an independent contractor was wrong. carry out the job of CABERTE ET AL, showing that ABC does
6. SC asserted that the law presumes a contractor to be a labor-only not own basic equipment needed.
contractor and the employees are not expected to prove the negative 2. The fact that ABC leased a property for the establishment of its
fact that the contractor is a labor-only contractor. Bacolod office is immaterial since it was not shown that it was
7. As held in Alilin v. Petron Corporation, where the principal is the one used in the performance of the service contract. Under Section 5,
claiming that the contractor is a legitimate contractor, the burden of proving Rule VIII-A, Book III of the Omnibus Rules Implementing the
the supposed status of the contractor rests on the principal." Labor Code, substantial capital or investment does not include
1. Thus, PETRON bears the burden of establishing that ABC is not a those which are not actually and directly used in the performance
labor-only contractor but a legitimate independent contractor. of the job contracted out.
8. Also, as held in Babas v. Lorenzo Shipping corporation, the character of Caberte et al performed activities necessary or desirable to PETRON’s business
the business, whether as labor-only contractor or as a job contractor, 14. SC found that the service contracts PETRON entered into with ABC
should be determined by the criteria set by statute and the parties referred to functions such as maintenance and utility works which were
cannot dictate by the mere expedience of a unilateral declaration in a directly related to PETRON’s main business (these include LPG fillers and
contract the character of their business maintenance crew, LPG operator supervisor, warehouseman and utility
1. SC, thus, added that PETRON cannot rely on the contracts for
service entered into with ABC since these are not determinative of
the true nature of the parties’ relationship ‘ 2
ABC’s BIR Certificate of Registration, VAT Return, BIR Confirmation Receipt, TIN, Individual Income
Tax Return, Mayor’s Permit and DTI Certificate of Registration.
 worker, tanker receiving crew and utitlity workers). Also, some already
worked for PETRON even before engaging ABC as contractor.
1. CABERTE ET AL performed the same tasks within the premises
of PETRON and the repeated and continuing need for the
performance of the job is sufficient evidence of the necessity, if not
indispensability of the activity to the business.
2. SC held that PETRON is the true employer based on the fact that
PETRON has the power of control over CABERTE ET AL in the
performance of their work that the power of control merely calls
for the existence of the right to control and not necessarily the
exercise thereof.
15. PETRON itself admitted of the supervision over PETRON employees due
to the hazardous nature of its products and the need to constantly check the
procedures of handling the equipment.

SC RULING
1. SC declared ABC as a mere labor-only contractor and PETRON as
the true employer of CABERTE ET AL who are considered regular
employees considering they have been regularly performing
activities which are necessary and desirable to the usual business of
PETRON for a number of years.
a) A finding that a contractor is a ‘labor-only’ contractor 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."
2. In cases of regular employment, an employment, an employer may only
terminate the services of an employee for just or authorized causes under
the law.
a) Since SC held that CABERTE ET AL (except CABERTE JR)
were considered regular employees and PETRON did not give a
just or authorized cause for termination, CABERTE ET AL were
declared illegally dismissed and entitled to all the remedies of an
illegally dismissed employee.
b) CABERTE JR is an exception since PETRON has disputed his
employment from the beginning. CABERTE JR must first
establish that an employer-employee relationship existed between
them since it is basic that the issue of illegal dismissal is premised
on the existence of such relationship between the parties. SC
dismissed CABERTE JR’s complaint, in the end, since records do
not show he worked for PETRON.