FACTS:

Marvin Daguinod was employed as a counter crew/cashier in a Jollibee franchise. He worked under a Service Agreement between Generation One Resource Service and Multi-Purpose Cooperative (Generation One) and Southgate Foods, Inc. (Southgate). Daguinod paid a membership fee and participated in a savings program to become a member of Generation One. On April 10, 2011, Daguinod made a transaction error at work, and it was discovered that the cash in the register had an excess of P106.00. He was accused of theft, given two Notices to Explain (NTEs), and brought to the Makati Police Station. Daguinod eventually wrote a confession letter and was released. He was informed that his employment was terminated effective May 13, 2011.

The Labor Arbiter held that Daguinod was a regular employee of Generation One but failed to prove that he was illegally dismissed. The National Labor Relations Commission affirmed the Labor Arbiter's decision. The Court of Appeals held that Daguinod failed to provide corroborative evidence and dismissed his petition. Daguinod filed a petition with the Supreme Court challenging the decision of the Court of Appeals.

The Supreme Court reviewed the facts and determined that Generation One was not a legitimate labor contractor. Daguinod was found to be a regular employee of Southgate. The Court discussed the rules regarding the determination of an independent contractor relationship.

ISSUES:

1. Whether Generation One is a legitimate labor contractor.

2. Whether Daguinod’s dismissal was valid.

RULING:

The Petition is meritorious.

The Court resolves to overturn the Decision of the CA, finding that Generation One is not a legitimate labor contractor and thus, Daguinod is a regular employee of Southgate. Consequently, his dismissal was found to be invalid, lacking both substantive and procedural due process. The Court awarded full backwages, separation pay, moral and exemplary damages, attorney’s fees, and interest.

PRINCIPLES:

1. Labor-Only Contracting Defined and prohibited under Section 5 of DOLE Order No. 18, Series of 2002 (DO 18-02). Involves scenarios where the contractor lacks substantial capital or investment or does not exercise control over the contracted employees.

2. Legitimate Labor Contracting Under Section 4(a) of DO 18-02, refers to arrangements where the principal outsources specific jobs or services provided the contractor has substantial capital or investment and exercises control over the employees.

3. Employer-Employee Relationship When labor-only contracting is found, the principal is deemed to be the employer of the contractual employees as provided under Section 7 of DO 18-02.

4. Substantive and Procedural Due Process in Dismissal As per Articles 297, 298, and 299 of the Labor Code, employers must observe just causes for dismissal and comply with procedural due process requirements, including providing two written notices and the opportunity for the employee to be heard.

5. Remedies for Illegal Dismissal The employee is entitled to reinstatement without loss of seniority, full backwages, separation pay, moral and exemplary damages, and attorney's fees under Aliling v. Feliciano.

6. Totality of Circumstances Test The legitimacy of a labor contracting arrangement is determined not solely by contractual declarations but by the totality of facts and circumstances.

7. Certificates of Registration Issued by DOLE are not conclusive evidence of legitimate contractor status, but merely presumptive proof, which must be corroborated by actual capital investment and independence in operations.

8. Constructive Dismissal Occurs when working conditions are rendered so difficult, unreasonable, or unlikely by the employer that the employee is forced to resign or perceive they have been dismissed.

9. Damages and Interests Moral and exemplary damages may be awarded when an employer acts in bad faith, fraudulently, or in a manner oppressive to labor, with corresponding interest rates applied to monetary awards as specified in Nacar v. Gallery Frames.