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CONSOLIDATED BUILDING MAINTENANCE v. ROLANDO ASPREC

FACTS:

The case involves a complaint for illegal dismissal filed by respondents against Pizza Hut and CBMI. The respondents were hired by Pizza Hut through CBMI to perform cleaning and maintenance duties. However, CBMI's contract with Pizza Hut was terminated, and the respondents were no longer allowed to work at Pizza Hut.

The Labor Arbiter (LA) ruled in favor of the respondents, finding them to be employees of Pizza Hut and CBMI to be a labor-only contractor. The LA ordered Pizza Hut and CBMI to pay the respondents backwages, separation pay, and attorney's fees.

The National Labor Relations Commission (NLRC) modified the LA's decision, holding that the respondents were regular employees of CBMI. The NLRC ordered CBMI to pay the respondents their claims.

Both the petitioners (Pizza Hut) and respondents appealed to the Court of Appeals (CA). The CA denied the petitioners' appeal and affirmed the NLRC's decision, ruling that CBMI was a labor-only contractor and the respondents were employees of Pizza Hut. The CA ordered Pizza Hut and CBMI to pay the respondents their monetary claims.

The petitioners sought reconsideration, but the CA denied it. Hence, the petitioners filed a petition for review before the Supreme Court, questioning the CA's ruling.

The main issues to be resolved by the Court are whether CBMI is a labor-only contractor and whether the respondents have been illegally dismissed and entitled to their monetary claims.

ISSUES:

  1. What is the status of the respondents?

  2. Is CBMI a legitimate contractor?

  3. Whether CBMI is engaged in legitimate contracting or prohibited labor-only contracting

  4. Whether CBMI has the power of control over the respondents

  5. Whether the extension of the period of preventive suspension by the employer is warranted under the circumstances.

  6. Whether there was sufficient evidence to prove the justification for the extended period of suspension or lay-off.

  7. Whether Consolidated Building Maintenance, Inc. (CBMI) complied with the mandatory one-month notice requirement.

RULING:

  1. The respondents' status as employees or independent contractors depends on the criteria set forth in Department Order (DO) No. 18-02. If CBMI is engaged in labor-only contracting, the respondents are considered employees of PPI. If CBMI is a legitimate contractor, the respondents are considered independent contractors of CBMI.

  2. CBMI is a legitimate contractor. CBMI has substantial capital as evidenced by its total assets and authorized/paid-up capital. CBMI also runs a business independent from PPI, as shown by its registration with the Securities and Exchange Commission and its provision of services to various clients. Furthermore, CBMI maintains the right of control over the respondents.

  3. CBMI is engaged in legitimate contracting. The Supreme Court held that the control element in determining whether a job contractor is engaged in legitimate contracting or prohibited labor-only contracting does not merely pertain to the desired end result but also extends to the manner and means in achieving that result. The fact that CBMI is responsible for hiring, supervision, discipline, suspension, or termination of its own employees, as stated in the Contract of Services, supports the conclusion that CBMI carries a business independent of PPI.

  4. CBMI has the power of control over the respondents. It was established that CBMI has the authority to select and engage, pay wages, dismiss, and control the conduct of the employees. CBMI also dictates the manner in which the respondents perform their tasks, determines their place of assignment, and has the power to discipline them. These indicate that CBMI possesses the power of control over the respondents.

  5. The Court ruled that the extension of the period of preventive suspension by the employer is unwarranted under the circumstances. Section 4, Rule XIV of the Omnibus Rules Implementing the Labor Code explicitly states that the period of preventive suspension should not exceed 30 days. The employer must reinstate the worker in his former or a substantially equivalent position or the employer may extend the period of suspension provided that during the period of extension, the worker shall be paid the wages and other benefits due. In this case, the employees have been under preventive suspension for more than the maximum period allowed by law, without any word as to the result of the investigation, and without having been reinstated to their former or a substantially equivalent position. This renders the period of extended suspension illegal and amounts to constructive dismissal.

  6. CBMI failed to provide sufficient and convincing evidence to justify the extended period of suspension or lay-off. The lack of evidence to prove a reduction in the demand for the services provided by PPI, as well as the failure of PPI to corroborate CBMI's submission, led the court to view the extended period of suspension as illegal.

  7. CBMI did not comply with the mandatory one-month notice requirement. The notice to the respondents was sent via registered mail on August 20, 2010, for an intended period of lay-off starting on the same date. However, there was no proof that CBMI furnished a copy of the notice to the Department of Labor and Employment (DOLE).

PRINCIPLES:

  • Labor-only contracting is prohibited, while legitimate job contracting is allowed. To determine whether a job contractor is engaged in labor-only contracting or legitimate job contracting, the presence of substantial capital, independence from the principal, and the exercise of the right to control must be considered.

  • Registration with the Department of Labor and Employment (DOLE) is not a requirement for legitimate job contracting but is a strong evidence of legitimacy. The absence of registration gives rise to the presumption of labor-only contracting, but the presumption can be rebutted by evidence to the contrary.

  • The status of a job contractor can be evaluated based on its activities and status prior to its registration.

  • In determining whether a job contractor is engaged in legitimate contracting or prohibited labor-only contracting, the element of control extends to the manner and means in achieving the desired end result.

  • The power of control refers to the existence of the power, not necessarily the actual exercise thereof.

  • The contract of service provides useful leads in determining the relationship between the principal and the job contractor.

  • The nature of the agreement between the principal and job contractor, as well as the allocation of responsibilities, can indicate whether the job contractor carries a business independent of the principal.

  • The power of control includes the authority to select and engage, pay wages, dismiss, and control the conduct of employees.

  • The period of preventive suspension should not exceed 30 days, and the employer must either reinstate the worker or extend the period of suspension while paying the worker's wages and benefits. Failure to comply with these results in an illegal preventive suspension.

  • Lay-off may be temporary or permanent. When temporary, it is regarded as a mere suspension of the employment status of the employee, while when permanent, it amounts to dismissal. A temporary lay-off must be attended by good faith and notice must be given to the employees and the DOLE at least one month prior to the intended date of lay-off or retrenchment.

  • The burden is on the employer to prove, with sufficient and convincing evidence, the justification for a lay-off or suspension and compliance with the parameters set forth by law.

  • The notice requirement for lay-offs mandates that notice be given one month prior to the intended date of lay-off. Failure to comply with this requirement can render the lay-off illegal.

  • Diligent coordination with the DOLE is necessary to ensure compliance with the legal requirements for a lay-off or suspension.