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EMMANUEL BABAS v. LORENZO SHIPPING CORPORATION

FACTS:

The petitioners in this case were hired by Best Manpower Services, Inc. (BMSI) and filed a complaint for regularization against Lorenzo Shipping Corporation (LSC) and BMSI. They argued that BMSI was engaged in labor-only contracting, with LSC being their actual employer. BMSI claimed to be an independent contractor and denied the allegations of underpayment of wages and non-payment of benefits. LSC, on the other hand, contended that the petitioners were employees of BMSI and not LSC.

The Labor Arbiter dismissed the complaint filed by the petitioners, ruling that they were employees of BMSI. However, on appeal, the National Labor Relations Commission (NLRC) reversed the decision. The NLRC found that BMSI was engaged in prohibited labor-only contracting and declared LSC to be the petitioners' employer. As a result, the NLRC ordered LSC to reinstate the petitioners as regular employees and pay their wage differentials and benefits in accordance with the collective bargaining agreement (CBA).

LSC, dissatisfied with the NLRC's decision, filed a petition for certiorari with the Court of Appeals (CA). The CA reversed the NLRC's decision and held that BMSI was an independent contractor, citing the provisions of the agreement between LSC and BMSI.

ISSUES:

  1. Whether BMSI is an independent contractor or a labor-only contractor.

  2. Whether LSC is liable as employer of the petitioners.

  3. Whether or not BMSI is engaged in labor-only contracting.

  4. Whether or not the termination of the agreement between LSC and BMSI can be considered a just or authorized cause for the dismissal of the petitioners.

  5. Whether the respondent is entitled to back wages, inclusive of allowances, and other benefits or their monetary equivalent.

  6. Whether the respondent is entitled to the reinstatement of his position.

RULING:

  1. BMSI is a labor-only contractor. The Court held that the character of the business as either labor-only contractor or job contractor cannot be determined by the mere declaration in a contract, but by the criteria set by statute and the totality of the facts and the surrounding circumstances. In this case, BMSI did not have substantial capital or investment to perform the job under its own account and responsibility. Furthermore, the activities performed by the employees were directly related to the main business of LSC. Therefore, BMSI was deemed a labor-only contractor.

  2. LSC is liable as employer of the petitioners. The Court affirmed the finding of the Labor Arbiter that LSC and BMSI are solidarily liable for the full backwages and attorney's fees of the petitioners. LSC cannot escape liability by entering into an agreement with BMSI and declaring it as an independent contractor. The Court emphasized that the control test is also applied in determining the existence of an employer-employee relationship. Since BMSI assumed charge and control of the petitioners' services, it was found to be the real employer of the petitioners alongside LSC.

  3. Yes, BMSI is engaged in labor-only contracting. The Supreme Court found that BMSI did not control or supervise the work of the petitioners, except for the fact that they were hired by BMSI. There was also no proof of substantial capital on the part of BMSI, as the equipment used by BMSI were owned by and rented from LSC. Additionally, the work performed by the petitioners was directly related to the main business of LSC. BMSI had no other clients except for LSC, which further supports the finding that they are a labor-only contractor.

  4. No, the termination of the agreement between LSC and BMSI cannot be considered a just or authorized cause for the dismissal of the petitioners. As the petitioners were deemed regular employees of LSC, they can only be dismissed for just or authorized causes and after due process. The termination of the agreement with BMSI, being a labor-only contractor, does not constitute a just or authorized cause for their dismissal.

  5. The respondent is entitled to back wages, inclusive of allowances, and other benefits or their monetary equivalent, computed from the time compensation was withheld up to the time of actual reinstatement.

  6. The respondent is entitled to reinstatement of his position.

PRINCIPLES:

  • The character of the business, whether labor-only contracting or job contracting, is determined by the criteria set by statute and the totality of the facts and circumstances surrounding the case.

  • The language of a contract is not determinative or conclusive of the relationship between the parties.

  • Control test is applied in determining the existence of an employer-employee relationship.

  • To be considered engaged in legitimate job contracting or subcontracting, the contractor must meet the following conditions: (a) carries on a distinct and independent business, (b) has substantial capital or investment, and (c) the agreement assures the contractual employees' entitlement to all labor and occupational safety and health standards, right to self-organization, security of tenure, and social welfare benefits.

  • The burden is on the contractor to prove that it has substantial capital, investment, and tools to engage in job contracting.

  • A Certificate of Registration issued by the Department of Labor and Employment is not conclusive evidence of being an independent contractor.

  • Termination of an agreement with a labor-only contractor cannot be considered a just or authorized cause for the dismissal of regular employees supplied by the contractor.

  • Employees are entitled to back wages, inclusive of allowances, and other benefits or their monetary equivalent, when they are unjustly dismissed from their employment.

  • Reinstatement is the general rule in cases of illegal dismissal.