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LEO V. MAGO v. SUN POWER MANUFACTURING LIMITED

FACTS:

The petitioners were former employees of Jobcrest Manufacturing, Incorporated, a labor contractor. They were assigned to work at Sunpower Philippines Manufacturing Limited through a Service Contract Agreement. Their employment was terminated by Sunpower, and they filed a complaint for illegal dismissal and regularization with the NLRC. The Labor Arbiter ruled in favor of the petitioners and ordered their reinstatement. Jobcrest appealed, claiming that the petitioners refused to be reinstated and were constructively resigned. The petitioners insisted that they were regular employees of Sunpower. The NLRC reversed the Labor Arbiter's decision, but the CA granted Sunpower's petition and nullified the NLRC's ruling. The petitioners sought the reversal of the CA's decision before the Supreme Court. The Court affirmed the CA's decision, stating that Jobcrest was a legitimate contractor and not the petitioners' employer.

ISSUES:

  1. Whether Jobcrest is a legitimate and independent contractor.

  2. Whether Jobcrest has substantial capital.

  3. Whether Jobcrest has substantial capital or investment as required by DOLE DO No. 18-02, DO No. 18-A, and Article 106 of the Labor Code.

  4. Whether Jobcrest exercised control over the work of the petitioners.

  5. Whether the petitioners were regular employees of Jobcrest

  6. Whether the petitioners were illegally dismissed from employment

  7. Whether or not the employee was illegally dismissed.

  8. Whether or not Sunpower is the statutory employer of the petitioners.

RULING:

  1. Jobcrest is a legitimate and independent contractor. The petitioners do not dispute that Jobcrest was a duly-registered contractor and there is no operative presumption that Jobcrest is a labor-only contractor.

  2. Jobcrest has substantial capital. Jobcrest established that it had an authorized capital stock of Php 8,000,000.00, subscribed capital stock of Php 2,000,000.00, and a paid-up capital stock of Php 500,000.00, in compliance with the Corporation Code. Jobcrest's financial statements show that it had assets amounting to Php 11,280,597.94 in 2009, Php 16,825,271.30 in 2010, Php 35,631,498.58 in 2011, and Php 42,603,167.16 in 2012. The Court concludes that Jobcrest had substantial capital to perform its business services and carried its own business independent from and outside the control of its principals.

  3. Jobcrest has substantial capital. The conjunctive term "or" is used in DOLE DO No. 18-02, DO No. 18-A, and Article 106 of the Labor Code, which means that proof of either substantial capital or investment is sufficient to determine the absence of labor-only contracting. The court established that Jobcrest had substantial capital, and therefore, there is no need to determine whether it had sufficient investment in the form of tools, equipment, machinery, and work premises. (Neri v. NLRC)

  4. Jobcrest exercised control over the work of the petitioners. The control over the employees' performance of the work is manifested through the power to hire, fire, and pay the contractor's employees, the power to discipline the employees, and the actual supervision of the employees' performance. The evidence presented shows that Jobcrest conducted a training and certification program for the petitioners, assigned trainers and supervisors to oversee their work at Sunpower, and had administrative control over their attendance, punctuality, and compliance with rules and regulations. (DOLE DO No. 18-02)

  5. The petitioners were regular employees of Jobcrest. Jobcrest exercised control over the means, method, and result of the petitioners' work. The power of control is the most important element in determining an employer-employee relationship. Jobcrest selected and engaged the petitioners, paid their wages, retained the power to discipline them, and all indications show that Jobcrest exercised control over their work.

  6. The petitioners were not illegally dismissed from employment. Jobcrest intended to assign Leo again to Sunpower and provide Leilanie with another engagement. Jobcrest offered the petitioners to return to work, but they refused. There is no evidence of actual dismissal from their employment.

  7. The Court ruled that since the fact of dismissal from service was not established by the employee, it cannot be concluded that the employee was illegally dismissed.

  8. The Court held that Sunpower is not the statutory employer of the petitioners as the circumstances and evidence on record establish that Jobcrest was a legitimate and independent contractor.

PRINCIPLES:

  • Prohibition against labor-only contracting. Labor-only contracting exists when a contractor merely recruits, supplies, or places workers to perform a job for a principal and certain elements are present, such as the lack of substantial capital or investment by the contractor and the performance of activities directly related to the main business of the principal.

  • Requirements for legitimate contractor. A legitimate contractor must have substantial capital or investment and carry a distinct and independent business free from the control of the principal. The agreement between the principal and the contractor must also assure the contractual employees' entitlement to labor and occupational safety standards, right to self-organization, security of tenure, and social welfare benefits.

  • Burden of proof. The contractor is presumed to be a labor-only contractor, unless able to overcome this presumption. In cases where the principal claims the legitimacy of the contractor, the burden of proof is on the principal. Additionally, the DOLE Certificate of Registration is presumed to have been issued in the regular performance of official duty, and the party challenging it must overcome this presumption.

  • Proof of either substantial capital or investment is sufficient to determine the absence of labor-only contracting. (Neri v. NLRC)

  • The control over the employees' performance of the work is manifested through the power to hire, fire, and pay the contractor's employees, the power to discipline the employees, and the actual supervision of the employees' performance. (DOLE DO No. 18-02)

  • Job contracting is permissible "whether such job, work, or service is to be performed or completed within or outside the premises of the principal" for as long as the elements of a labor-only contractor are not present.

  • The four-fold test is used to determine the existence of an employer-employee relationship: selection and engagement of the employee, payment of wages, power of dismissal, and power of control over the employee's conduct.

  • The power of control is the most important element in determining an employer-employee relationship.

  • The principal's right to control is limited to the results of the work of the contractor's employees.

  • An employee claiming illegal dismissal must first establish the fact of dismissal from service.

  • A dismissal from service must be established by the employee in order for the court to rule that the dismissal was illegal.

  • In determining the employer-employee relationship, the court will consider the circumstances and evidence on record to establish whether the contractor is a legitimate and independent contractor.