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CAGAYAN ELECTRIC v. CEPALCO EMPLOYEE'S LABOR UNION ET AL.

FACTS:

The case involves two separate complaints for unfair labor practice (ULP) filed by the CEPALCO Employee's Labor Union against Cagayan Electric Power & Light Company, Inc. (CEPALCO) and CEPALCO Energy Services Corporation (CESCO). The first complaint involves the contract between CEPALCO and CESCO for meter-reading work, while the second complaint involves the contract between CEPALCO and CESCO for warehousing works.

In the first complaint, the union alleged that CEPALCO's intention in contracting out the services was to evade its responsibilities under the Collective Bargaining Agreement (CBA) and labor laws, resulting in the dissipation of the union's membership. The union claimed that CESCO's workers should be considered regular employees of CEPALCO. In defense, petitioners argued that CESCO is an independent job contractor. The Labor Arbiter dismissed the complaint, ruling that CESCO is an independent contractor, and the NLRC affirmed the decision on appeal.

In the second complaint, the union alleged that three union members were transferred and replaced by CESCO workers without their consent. The same arguments were raised by both parties as in the first case. The Labor Arbiter dismissed the complaint, citing the earlier decision in the first case.

The NLRC denied respondent's motion for reconsideration, and respondent appealed to the CA. The CA partially granted the certiorari petition, holding that CESCO was engaged in labor-only contracting while finding no substantial evidence of ULP committed by CEPALCO. The CA's ruling was upheld, and petitioners filed a motion for reconsideration which was denied. Petitioners then elevated the case to the Supreme Court, questioning the finding that CESCO was a labor-only contractor and arguing that the issue of CESCO's status as an independent contractor was already mooted by the finding that CEPALCO committed no ULP.

ISSUES:

  1. Whether or not the labor-only contracting arrangement between CEPALCO and CESCO constitutes unfair labor practice (ULP), as alleged by the respondent.

  2. Whether or not CEPALCO violated Article 259(c) of the Labor Code by contracting out services or functions being performed by union members.

  3. Whether CEPALCO engaged in labor-only contracting with CESCO for the meter-reading work and warehousing work contracts.

  4. Whether the contracting arrangements violated the workers' right to self-organization.

  5. Whether or not the workers hired by CESCO are regular employees of CEPALCO.

  6. Whether or not CEPALCO is responsible to said workers in the same manner and extent as if they were directly employed by it.

RULING:

  1. The labor-only contracting arrangement between CEPALCO and CESCO does not constitute unfair labor practice. The arrangement was questioned by the respondent only in relation to the charges of ULP raised in their complaints before the labor tribunals. The essential issue is whether the contracting out of activities or services being performed by union members constitutes ULP. The Supreme Court found that labor-only contracting is only considered as ULP when it is devised by the employer to interfere with, restrain, or coerce employees in the exercise of their rights to self-organization.

  2. CEPALCO did not violate Article 259(c) of the Labor Code. The provision prohibits an employer from contracting out services or functions being performed by union members when it will interfere with, restrain, or coerce employees in the exercise of their rights to self-organization. The Court held that to determine whether the contracting out of services was intended to defeat the workers' right to self-organization is impelled by the concept of ULP. Therefore, an employer can only be held liable for ULP if it can be shown that his acts affect the right of his employees to self-organize.

  3. Yes. CEPALCO engaged in labor-only contracting as the criteria under Section 5 of DO 18-02 were met. CESCO did not show substantial capital or investment related to the job they performed. The increase in CESCO's authorized capital stock and paid-up capital were only made after CEPALCO contracted out the warehousing works to CESCO. Furthermore, CESCO did not own the tools and equipment used in the meter-reading service, which were owned by CEPALCO. Meter-reading is directly related to CEPALCO's main business as an electric distribution utility.

  4. No. The complaints for unfair labor practice (ULP) should be dismissed as respondent failed to present evidence that the contracting arrangements violated the workers' right to self-organization. The determination of labor-only contracting is only relevant to the charges of ULP and the complaints do not stand as a real party-in-interest.

  5. The Court deleted the portions of the Decisions and Resolutions of the Court of Appeals (CA) declaring that the workers hired by CESCO are regular employees of CEPALCO, and that CEPALCO is responsible to said workers in the same manner and extent as if they were directly employed by it.

PRINCIPLES:

  • Labor-only contracting is an arrangement where the contractor, who does not have substantial capital or investment, supplies workers to an employer and the workers recruited are performing activities directly related to the principal business of such employer.

  • The criteria for determining labor-only contracting include the absence of substantial capital or investment of the contractor and the performance of activities directly related to the main business of the principal, as well as the absence of the right to control over the performance of the work of the contractual employee.

  • Substantial capital or investment refers to capital stocks, subscribed capitalization, tools, equipment, implements, machineries, and work premises used by the contractor in the performance of the job, work, or service contracted out.

  • The right to control refers to the power of the person for whom the services of contractual workers are performed to determine the end to be achieved, as well as the manner and means to be used in reaching that end.

  • Labor-only contracting is considered unfair labor practice when it is devised by the employer to interfere with, restrain, or coerce employees in the exercise of their rights to self-organization.

  • Article 259(c) of the Labor Code prohibits an employer from contracting out services or functions being performed by union members if it will interfere with, restrain, or coerce employees in the exercise of their rights to self-organization.

  • Prohibited acts constitutive of unfair labor practice relate to the workers' right to self-organization, and an employer may be held liable if his conduct affects the right of an employee to self-organize.

  • Labor-only contracting requires substantial capital or investment related to the job, work, or service to be performed. The contractor should also exercise control and supervision over the workers.

  • The violation of workers' right to self-organization constitutes unfair labor practice (ULP).

  • A case becomes moot and academic when it no longer presents a justiciable controversy because the issues involved have become academic or resolved.

  • Legal standing requires a personal and substantial interest in the case, with direct injury resulting from the act being challenged.

  • A party must have a material interest, an interest in issue and to be affected by the decree, and a personal interest, not one based on a desire to vindicate the constitutional right of some third and unrelated party.

  • In cases of labor-only contracting, the person or intermediary is considered merely an agent of the employer who shall be responsible to the workers in the same manner and extent as if they were directly employed by him.

  • Strangers to a case are not bound by any judgment rendered by the court.