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JOEB M. ALIVIADO v. PROCTER

FACTS:

Petitioners in this case worked as merchandisers for Procter & Gamble Phils. Inc. (P&G) through their employment contracts with Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS). Their contracts were for periods of five months and they were assigned to various outlets where they handled P&G products. They received their wages from Promm-Gem or SAPS. Petitioners filed a complaint against P&G for regularization, service incentive leave pay, and other benefits with damages. The complaint was later amended to include the matter of their subsequent dismissal. The Labor Arbiter dismissed the complaint, ruling that there was no employer-employee relationship between petitioners and P&G as the selection and engagement of petitioners, payment of their wages, and control over their work were all done by Promm-Gem/SAPS.

The petitioners in this case claim to be employees of respondent Procter & Gamble (Phils.), Inc. (P&G). They allege that they were recruited by P&G salesmen and were engaged to undertake merchandising chores for P&G before the existence of Promm-Gem and/or SAPS, the contractors involved in the case. They further assert that when new contractors were introduced, they were instructed to fill up application forms and report to the agencies created by P&G.

The petitioners also argue that P&G instigated their dismissal from work, which can be seen in P&G's letter to SAPS informing them that their merchandising services contract will no longer be renewed.

In response, P&G argues that there is no employment relationship between them and the petitioners. They claim that Promm-Gem or SAPS selected and engaged the petitioners, paid their salaries, had the power of dismissal, and controlled their conduct of work. P&G asserts that the determination of whether to engage the services of a job contractor or engage in direct hiring is within the ambit of management prerogative.

It is worth noting that Promm-Gem did not file a comment, and SAPS was no longer impleaded as a party in the proceedings before the Court of Appeals.

ISSUES:

  1. Whether Promm-Gem is a legitimate independent contractor or a labor-only contractor.

  2. Whether SAPS is a legitimate independent contractor or a labor-only contractor.

  3. Whether the petitioners were illegally dismissed by Promm-Gem, Inc.

  4. Whether the petitioners placed with Promm-Gem, Inc. by Sales and Promotions Services (SAPS) were given proper notice of dismissal.

  5. Whether SAPS should be considered an independent contractor or whether it is a labor-only contractor.

  6. Whether the dismissals of the employees were justified and lawful.

  7. Whether the employees are entitled to damages.

  8. Whether the employees are entitled to reinstatement with full backwages and benefits.

RULING:

  1. Promm-Gem is a legitimate independent contractor.

  2. SAPS is a labor-only contractor.

  3. The Supreme Court ruled that the dismissal of the petitioners by Promm-Gem, Inc. was illegal. The termination letters given by Promm-Gem uniformly specified the cause of dismissal as grave misconduct and breach of trust. However, the Court found that the petitioners were guilty of only simple misconduct for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm. The Court held that simple misconduct is not a valid basis for dismissing an employee. Therefore, there was no just or authorized cause for the dismissal.

  4. The Supreme Court ruled that the petitioners placed with Promm-Gem by SAPS were not given proper notice of dismissal. The records showed that upon receipt of P&G's letter terminating their "Merchandising Services Contract," SAPS verbally informed the concerned petitioners not to report for work anymore. The Court held that this verbal notice was not in compliance with the substantive aspect of due process. Therefore, the dismissal of these petitioners was also illegal.

  5. SAPS is not considered an independent contractor but a labor-only contractor.

  6. The dismissals of the employees were not justified and lawful.

  7. The employees are entitled to moral damages and attorney's fees.

  8. The employees are entitled to reinstatement with full backwages and benefits.

PRINCIPLES:

  • The Court refrains from reviewing factual assessments of lower courts and agencies, but may wade into factual matters when there is insufficient or insubstantial evidence on record.

  • Labor-only contracting is prohibited under the law.

  • To be a legitimate job contractor, there must be a trilateral relationship between the principal, contractor/subcontractor, and the workers.

  • Substantial capital or investment refers to the tools, equipment, machineries, and work premises used by the contractor in performing the contracted job, work, or service.

  • The right to control refers to the reserved right of the principal to determine not only the desired outcome but also the manner and means to be used in reaching that outcome.

  • Labor-only contracting exists when the contractor merely recruits or supplies employees to the principal employer who perform activities directly related to the principal employer's main business. In such cases, an employer-employee relationship is established between the principal employer and the employees of the labor-only contractor.

  • To determine whether a contractor is a legitimate independent contractor or a labor-only contractor, the following factors may be considered: (1) substantial investment of the contractor in tools, equipment, or other assets; (2) the contractor's control over the performance of the work; and (3) whether the work being performed by the employees of the contractor is directly related to the main business of the principal employer.

  • Substantial capital refers to the capitalization used in the performance or completion of the job, work, or service contracted out. A contractor's lack of substantial capital may indicate labor-only contracting.

  • The intent to circumvent labor laws and the presence of bad faith on the part of the contractor may also be factors in determining the existence of labor-only contracting.

  • In cases of regular employment, the employer shall not terminate the services of an employee except for a just or authorized cause.

  • Misconduct, to be a just cause for dismissal, must be serious, relate to the performance of the employee's duties, and show that the employee has become unfit to continue working for the employer.

  • Loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the trust reposed in the employee by the employer.

  • Loss of trust and confidence must be work-related and must show that the employee is unfit to continue working for the employer.

  • Due process in termination of employment requires both procedural and substantive aspects to be complied with.

  • The burden of proof in termination cases rests upon the employer to prove the legality and validity of the dismissal.

  • Moral and exemplary damages are recoverable when the dismissal of an employee was attended by bad faith, fraud, oppression, or was done in a manner contrary to morals, good customs, or public policy.

  • Attorney's fees may be awarded to employees who were illegally dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights.

  • Under Article 279 of the Labor Code, an employee who is unjustly dismissed from work is entitled to reinstatement without loss of seniority rights and other privileges, inclusive of allowances and other benefits or their monetary equivalent.