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TO : CCV

FROM : ILG
DATE : 19 May 2014


Aliviado v. Procter & Gamble Philippines, Inc.
G.R. No. 160506, 614 SCRA 563, March 9, 2010


FACTS:
Petitioners worked as merchandisers of respondent Procter & Gamble Philippines, Inc.
(hereafter, P&G) from various dates, allegedly starting as early as 1982 or as late as June
1991, to either May 5, 1992 or March 11, 1993.
Petitioners signed employment contracts with respondent Promm-Gem, Inc. (Promm-Gem)
and Sales and Promotions Services (SAPS). They were employed for five months at time,
assigned to different stations in supermarkets.
SAPS and Promm-Gem paid petitioners wages and imposed disciplinary measures on
petitioners when warranted.
P&G entered into contracts with SAPS and Promm-Gem for the promotion of its products. It
appears that petitioners were assigned to promote P&Gs products.
In December 1991, petitioners filed a complaint for regularization and other money claims
against P&G. The complaint was later amended to include charges of illegal dismissal.
Labor Arbiter: Dismissed the complaint; there was no employer-employee relationship
(EER) between petitioners and P&G, as the former were employed by Promm-Gem and
SAPS.
o Applied the four-fold test for EER:
1. Selection and engagement;
2. Payment of wages;
3. Power of dismissal;
4. Power of control.
o Declared Promm-Gem and SAPS legitimate job contractors.
Petitioners appealed to the NLRC.
NLRC: Dismissed the appeal, affirmed the Labor Arbiters Decision. Motion for
reconsideration denied.
Petitioners sought recourse with the Court of Appeals via a petition for certiorari under
Rule 65 of the Rules of Court.
CA: Denied the petition and affirmed the NLRCs Decision with modification.
o P&G ordered to pay service incentive leave pay to petitioners.
o Petitioners motion for reconsideration was denied.
Hence, this petition for review by certiorari under Rule 45 of the Rules of Court.

ISSUES + RATIO:

Whether or not contracting out of a companys core activities is allowed under the Labor Code and its
Implementing Rules. YES.
To be sure, the Labor Code and its Implementing Rules do not prohibit job contracting. The
law allows contracting arrangements for the performance of specific jobs, works or services.
Indeed, it is management prerogative to farm out any of its activities, regardless of
whether such activity is peripheral or core in nature. However, in order for such
outsourcing to be valid, it must be made to an independent contractor because the current
labor rules expressly prohibit labor-only contracting.
Labor-only contracting exists where the contractor merely recruits, supplies or places
workers to perform a job, work or service for a principal. Moreover, any of the following
elements must concur:
o The contractor or subcontractor does not have substantial capital or investment
which relates to the job, work or service to be performed and the employees
recruited, supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal; or
o The contractor does not exercise the right to control over the performance of the
work of the contractual employee.

Whether or not Promm-Gem is engaged in labor-only contracting. NO; it is a legitimate job
contractor.
It has substantial capital, as shown by its financial statements.
o Authorized capital stock P1 million.
o Paid-in capital P500,000.
It has substantial investments in the form of warehouses, office spaces, and vehicles.
Promm-Gem has other clients aside from P&G.
Promm-Gem provided its workers with uniforms and materials. The latter were considered
regular employees.

Whether or not SAPS is engaged in labor-only contracting. YES.
It does not have substantial capitalits paid-in capital is only P31,250.
o Monthly payroll already totaled P44,561. Its contracts with P&G were for six-month
periods. Its capital is not even sufficient for one months payroll.
o SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for the period
required for it to generate its needed revenue to sustain its operations
independently.
Neither is there a showing of substantial investment in tools, equipment or other assets.
Furthermore, petitioners activities which consisted of merchandising and promotion of
P&G products are directly related to the manufacturing business.
Considering that SAPS has no substantial capital or investment and the workers it recruited
are performing activities which are directly related to the principal business of P&G, the
Court found that SAPS is engaged in labor-only contracting.

Whether or not an employer-employee relationship exists between P&G and petitioners. YES.
Where labor-only contracting exits, the law establishes an EER between the employer and
the employees of the contractor.
Rationale: to prevent circumvention of labor laws.
The petitioners recruited by SAPS are considered P&G employees. The petitioners who
worked under Promm-Gem are not, since the latter is a legitimate job contractor.

Whether or not petitioners (Promm-Gem employees) were illegally dismissed. YES.
Promm-Gem dismissed petitioners for grave misconduct and breach of trust after they
sought regularization from P&G. Promm-Gem claimed that this assailed the integrity of the
company as a legitimate and independent promotion firm.
To be a just cause for dismissal, misconduct (a) must be serious; (b) must relate to the
performance of the employees duties; and (c) must show that the employee has become
unfit to continue working for the employer.
o In the instant case, petitioners-employees of Promm-Gem may have committed an
error of judgment in claiming to be employees of P&G, but it cannot be said that they
were motivated by any wrongful intent in doing so.
o Thus, petitioners are guilty only of simple misconduct.
Meanwhile, 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 his employer.
o The erring employee must hold a position of responsibility or of trust and
confidence. And, in order to constitute a just cause for dismissal, the act complained
of must be work-related and must show that the employee is unfit to continue to
work for the employer.
o Here, the petitioners-employees of Promm-Gem have not been shown to be
occupying positions of responsibility or of trust and confidence. Neither is there any
evidence to show that they are unfit to continue to work as merchandisers for
Promm-Gem.

Whether or not petitioners (SAPS-P&G employees) were illegally dismissed. YES.
They were not afforded procedural due process (two notice rule). They were merely
verbally informed of the termination of their services.
Petitioners were dismissed upon the initiation of P&G. When the latter did not renew its
contract with SAPS, petitioners services were automatically terminated evidently because
SAPS had no other clients.

Whether or not petitioners are entitled to the payment of damages, costs, and attorneys fees. YES.
With regard to the employees of Promm-Gem, their dismissals were not attended with bad
faith so as to warrant the award of moral and exemplary damages.
As for P&G, the records show that it dismissed its employees through SAPS in a manner
oppressive to labor. The sudden and peremptory barring of the concerned petitioners from
work, and from admission to the work place, after just a one-day verbal notice, and for no
valid cause bellows oppression and utter disregard of the right to due process of the
concerned petitioners. Hence, an award of moral damages is called for.
P&G is also liable for attorneys fees.
Finally, all petitioners having been illegally dismissed, they are entitled to reinstatement
with backwages.

DISPOSITION: Petition granted. Case remanded to Labor Arbiter for computation of backwages
and other benefits.

Aliviado v. Procter & Gamble Philippines, Inc.
(Motion to refer the case to the Supreme Court en banc)
G.R. No. 160506, 650 SCRA 400, June 6, 2011

ISSUE + RATIO:

Whether or not the Court erred in ruling that SAPS is a labor-only contractor. NO.
P&G claims that the Court should have applied the four-fold test, specifically the control
test, in determining whether SAPS is a legitimate job contractor or a labor-only contractor.
This is incorrect. The control test is only one of the ways to determine the existence of
labor-only contracting.
Pertinently, Department Order No. 18-02 provides:

Section 5. Prohibition against labor-only contracting. Labor only contracting is hereby declared
prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or
service for a principal, and ANY of the following elements are present:

(i) The contractor or subcontractor does not have substantial capital or investment which relates to
the job, work or service to be performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are directly related to the main
business of the principal; OR

(ii) [T]he contractor does not exercise the right to control over the performance of the work of the
contractual employee. (Emphasis supplied)

In the case at bar, the Court already concluded that (1) SAPS merely recruited workers for
P&G, (2) it did not have substantial capital or investment, and (3) the workers performed
activities directly related to the business of the principal.
Hence, SAPS may be considered a labor-only contractor under D.O. 18-02, Sec. 5 (i).
In Coca-Cola Bottlers Phils., Inc. v. Agito, the Court ruled:

The law clearly establishes an employer-employee relationship between the principal employer and
the contractors employee upon a finding that the contractor is engaged in labor-only contracting.
Article 106 of the Labor Code categorically states: There is labor-only contracting where the person
supplying workers to an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the workers recruited and placed
by such persons are performing activities which are directly related to the principal business of such
employer. Thus, performing activities directly related to the principal business of the
employer is only one of the two indicators that labor-only contracting exists; the other is lack
of substantial capital or investment. The Court finds that both indicators exist in the case at bar.
(Emphasis supplied)

DISPOSITION: Judgment affirmed.

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