MCC-ELU-OLAIA v.

MCC and MSI,

Topic: Legitimate Labor Contracting and Labor Only Contracting

Facts:

The Organized Labor Union in Line Industries and Agriculture (OLALIA) is a legitimate labor organization that
established local chapters in companies engaged in rope manufacturing. Manila Cordage Company–Employees
Labor Union–Organized Labor Union in Line Industries and Agriculture (MCC-ELU-OLALIA) and Manco Synthetic,
Inc. Employees Labor Union–Organized Labor Union in Line Industries and Agriculture (MSI-ELU-OLALIA) were
its local chapters in Manila Cordage and Manco Synthetic, respectively.

Considering that Manila Cordage and Manco Synthetic were unorganized and had no exclusive bargaining agent,
OLALIA filed Petitions for Certification Election before the Department of Labor and Employment, Regional Office
IV. Manila Cordage and Manco Synthetic opposed this, asserting that members of the subject labor unions are
employees of their labor contractors, Alternative Network Resources Unlimited Multi-Purpose Cooperative
(Alternative Network Resources) and Work trusted Manpower Services Cooperative (Work trusted Manpower
Services)

Manila Cordage Company filed a protest with the Mediator-Arbiter, challenging 294 of the304 votes cast during
the certification elections. Likewise, Manco Synthetic, Inc. filed a protest challenging 139 of 143 of the votes. Both
contended that the challenged voters were not their employees but employees of their respective independent
contractors.

 Mediator-Arbiter found that Alternative Network Resources and Work trusted Manpower Services were
legitimate job contractors providing manpower services to Manila Cordage and Manco Synthetic and were
thus, the employers of those challenged voters during the certification elections. Consequently, the votes cast
during the Certification Elections were held invalid for the purpose of certifying MCC-ELU-OLALIA and MSI-
ELU-OLALIA as the exclusive bargaining agents in Manila Cordage and Manco Synthetic.

 The Undersecretary of DOLE reversed the Decision of the Mediator-Arbiter and found that Alternative
Network Resources and Worktrusted Manpower Services were labor-only contractors. Thus, the challenged
votes cast by employees of Manila Cordage and Manco Synthetic should be considered.

Manila Cordage and Manco Synthetic separately filed their Petitions for Certiorari before the Court of Appeals.
In both Petitions, they alleged that the Secretary of Labor and Employment gravely abused its discretion when
it ruled that there was an employer-employee relationship between them and the challenged voters of the
certification election as Alternative Network Resources and Worktrusted Manpower Services were mere labor-
only contractors.

 The Court of Appeals granted the Petitions for Certiorari filed by Manila Cordage and Manco Synthetic in its
Consolidated Decision. According to the Court of Appeals, Manila Cordage and Manco Synthetic both
submitted substantial evidence that Alternative Network Resources and Worktrusted Manpower Services were
legitimate job contractors providing manpower services to them.

Petitioners contentions:

In their Petition for Review on Certiorari, MCC-ELU-OLALIA and MSI-ELU-OLALIA maintain that Alternative
Network Resources and Worktrusted Manpower Services are engaged in labor-only contracting. Hence, the
challenged voters of the certification elections should be deemed employees of respondents and their votes
proclaimed as valid.

Petitioners allege that the two contractors do not provide a specific service to respondents and merely supply
manpower.[36] They further assert that Alternative Network Resources' and Worktrusted Manpower Services'
substantial capital is not sufficient to prove that they complied with the requirements provided for in Department
Order No. 18-A. Petitioners maintain that respondents should have submitted evidence that the two contractors
own tools, equipment, and machineries used in the main business of respondents, which is rope production.

Issue and Ruling:

Whether an employer-employee relationship exists between petitioners and respondent – YES.

In labor cases, petitions for review on certiorari under Rule 45 is limited to determining whether the Court of
Appeals was correct in finding the presence or absence of grave abuse of discretion and jurisdictional errors on
the part of the lower tribunal.
The existence of an employer-employee relationship or labor-only contracting is a question of fact because it
entails an assessment of the probative value of the evidence presented in the lower courts. Thus, it is only
appropriately acted upon by this Court when certain exceptions are present as laid down in Pascual v. Burgos:
(1) When the conclusion is a finding grounded entirely on speculation, surmises or conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee;
(7) The findings of the Court of Appeals are contrary to those of the trial court;
(8) (8) When the findings of fact are conclusions without citation of specific evidence on which they are
based;
(9) When the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed
by the respondents; and
(10) The finding of fact of the Court of Appeals is premised on the supposed absence of evidence and is
contradicted by the evidence on record.

These exceptions similarly apply in petitions for review filed before this court involving civil, labor, tax, or criminal
cases.

In this case, the factual findings of the Court of Appeals are contrary to those of the Secretary of Labor and
Employment, thus, it becomes proper for this Court to delve into the factual circumstances and records of the
case.

The Case of San Miguel Foods, Inc. v. Rivera

Obviously, the permitted or permissible or legitimate job contracting or subcontracting is the one allowed
and permitted by law. It is an arrangement whereby a principal agrees to put out or farm out with the
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. To determine its existence, these conditions
must concur:
(a) the contractor carries on a distinct and independent business and partakes the contract work
on his 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 his work except as to the results thereof;
(b) the contractor has substantial capital or investment; and
(c) the agreement between the principal and the contractor or subcontractor assures the
contractual employees' entitlement to all labor and occupational safety and health standards,
free exercise of the right to self-organization, security of tenure, and social welfare benefits.
Thus, in legitimate job contracting, the employer-employee relationship between the job contractor and
his employees is maintained. While the law creates an employer-employee relationship between the
employer and the contractor's employees, the same is only for the purpose of ensuring the payment of
the employees' wages. In short, the employer becomes jointly and severally liable with the job contractor
but only for the payment of the employees' wages whenever the contractor fails to pay the same. Other
than that, the employer is not responsible for any claim made by the contractor's employees.

In stark contrast, labor-only contracting is a prohibited act and it is not condoned by law. It is an
arrangement where the contractor not having substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, supplies workers to an employer and the workers
recruited are performing activities which are directly related to the principal business of such employer.

To protect the workforce, a contractor is generally presumed to be engaged in labor-only contracting, unless it
proves otherwise by having substantial capital, investment, tools and the like. However, the burden of proving the
legitimacy of the contractor shifts to the principal when it is the one claiming that status, such as in this case.

Here, the finding of the existence of labor-only contracting on the part of respondents' contractors, Alternative
Network Resources and Worktrusted Manpower Services, would give rise to the creation of an employer-
employee relationship between respondents as its principals, and petitioners as its alleged employees.

A Certificate of Registration is not conclusive evidence of being a legitimate independent contractor. It merely
prevents the presumption of labor-only contracting and gives rise to a disputable presumption that the contractor
is legitimate.
In this case, it is worth noting that respondents entered into a Memorandum of Agreement with Alternative
Network Resources and Worktrusted Manpower Services even before these contractors were issued Certificates
of Registration by the Department of Labor and Employment.

The Certificates of Registration presented by respondents covered the period of2014 to 2017, yet records show
that Alternative Network Resources undertook to provide respondent Manila Cordage with manufacturing support
services as early as 2008 while Worktrusted Manpower Services entered into a Memorandum-of Agreement with
Manco Synthetic in 2009.[62] This indicates that they supplied manpower to various clients even without the
stamp of imprimatur from the Department of Labor and Employment.

In addition, Section 5 of Department Order No. 18-02 provides that if at least one of the following conditions are
present, then an entity would be considered a labor-only contractor:
(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job,
work or service to be performed and the employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to the main business of the principal; or
(ii) the contractor does not exercise the right to control over the performance of the work of the contractual
employee.

Here, both conditions are present. While both Alternative Network Resources and Worktrusted Manpower
Services have the required paid-up capital as seen in their Articles of Incorporation, Annual Income Tax and
Audited Financial Statements, records show that they do not have substantial investment in the form of tools,
equipment, and machineries necessary to carry out the functions of their alleged employees who perform
activities directly related to the business of respondents. Instead, their alleged employees, herein petitioners; use
respondents' equipment and machinery to carry out jobs related to rope manufacturing. Alternative Network
Resources and Worktrusted Manpower Services may still be considered as labor-only contractors given other
circumstances surrounding the case. Further, proof of substantial capital does not make an entity immune to a
finding of labor-only contracting when there is showing that control over the employees reside in the principal and
not in the contractor.

The employees for Manco Synthetic were assigned to following departments with the same functions as
enumerated above: engineering, production, matting, and facility. While working in these departments, petitioners'
manner and method of work were closely supervised and monitored by regular employees of Manila Cordageand
Manco Synthetic. This negates respondents' contention that they did not exercise control over the work of
petitioners as the supervisors deployed by Alternative Network Resources and Worktrusted Manpower Services
merely dealt with administrative matters such as checking attendance and distributing payslips

It is likewise clear that petitioners perform functions necessary and directly related to the main business of
respondents as they are involved in the core operations for the manufacturing and export of respondents' rope
products. Further, petitioners have been performing these functions with respondents even before Alternative
Network Resources and Worktrusted Manpower Services were registered as legitimate labor contractors with the
Department of Labor and Employment. Thus, ''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."

As respondents failed to adduce sufficient evidence to prove that Alternative Network Resources and Worktrusted
Manpower Services are legitimate labor contractors, they are deemed engaged in labor-only contracting.
Consequently, their alleged employees are in effect the employees of their principal, herein respondents.

In labor-only contracting, there is no principal and contractor; "there is only the employer's representative who
gathers and supplies people for the employer[.]" Here, Alternative Network Resources and Worktrusted
Manpower Services merely supplied manpower for respondents. Thus, petitioners are considered employees of
respondents and the votes they casted during the Certification Elections held on January 27, 2016 are valid.