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JOB CONTRACTING TEMIC AUTOMOTIVE PHILIPPINES, INC., vs. TEMIC AUTOMOTIVE PHILIPPINES, INC. EMPLOYEES UNION-FFW, FACTS The petitioner is a corporation engaged in the manufacture of electronic brake systems and comfort body electronics for automotive vehicles. Respondent Temic Automotive Philippines, Inc. Employees Union-FFW (union) is the exclusive bargaining agent of the petitioner's rank-and-file employees. On May 6, 2005, the petitioner and the union executed a collective bargaining agreement (CBA) for the period January 1, 2005 to December 31, 2009. The petitioner is composed of several departments, one of which is the warehouse department consisting of two warehouses. These warehouses are further divided into four sections - receiving section, raw materials warehouse section, indirect warehouse section and finished goods section. The union members are regular rank-and-file employees working in these sections as clerks, material handlers, system encoders and general clerks. Their functions are interrelated. By practice established since 1998, the petitioner contracts out some of the work in the warehouse department, specifically those in the receiving and finished goods sections, to three independent service providers or forwarders (forwarders), namely: Diversified Cargo Services, Inc. (Diversified), Airfreight 2100 (Airfreight) and Kuehne & Nagel, Inc. (KNI). These forwarders also have their own employees

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JOB CONTRACTING

TEMIC AUTOMOTIVE PHILIPPINES, INC., vs. TEMIC AUTOMOTIVE PHILIPPINES, INC. EMPLOYEES UNION-FFW,

FACTS

The petitioner is a corporation engaged in the manufacture of electronic brake systems and comfort body electronics for automotive vehicles.  Respondent Temic Automotive Philippines, Inc. Employees Union-FFW (union) is the exclusive bargaining agent of the petitioner's rank-and-file employees.  On May 6, 2005, the petitioner and the union executed a collective bargaining agreement (CBA) for the period January 1, 2005 to December 31, 2009.

The petitioner is composed of several departments, one of which is the warehouse department consisting of two warehouses. These warehouses are further divided into four sections - receiving section, raw materials warehouse section, indirect warehouse section and finished goods section.  The union members are regular rank-and-file employees working in these sections as clerks, material handlers, system encoders and general clerks.  Their functions are interrelated.

By practice  established since 1998, the petitioner contracts out some of the work in the warehouse department, specifically those in the receiving and finished goods sections, to three independent service providers or forwarders (forwarders), namely: Diversified Cargo Services, Inc. (Diversified), Airfreight 2100 (Airfreight) and Kuehne & Nagel, Inc. (KNI).  These forwarders also have their own employees who hold the positions of clerk, material handler, system encoder and general clerk.  The regular employees of the petitioner and those of the forwarders share the same work area and use the same equipment, tools and computers all belonging to the petitioner.

This outsourcing arrangement gave rise to a union grievance on the issue of the scope and coverage of the collective bargaining unit, specifically to the question of “whether or not the functions of the forwarders’ employees are functions being performed by the regular rank-and-file employees covered by the bargaining unit.”[5]  The union thus demanded that the forwarders' employees be absorbed into the petitioner's regular employee force and be given positions within the bargaining unit. The petitioner invoked the

exercise of its management prerogative and its authority under this prerogative to contract out to independent service providers the forwarding, packing, loading of raw materials and/or finished goods and all support and ancillary services (such as clerical activities) for greater economy and efficiency in its operations. The petitioner reiterates that there are distinctions between the work of the forwarders’ employees and that of the regular company employees.  The receiving, unloading, recording or documenting of materials the forwarders’ employees undertake form part of the contracted forwarding services.  The similarity of these activities to those performed by the company's regular employees does not necessarily lead to the conclusion that the forwarders’ employees should be absorbed by the company as its regular employees. No proof was ever presented by the union that the company exercised supervision and control over the forwarders' employees. The contracted services and even the work performed by the regular employees in the warehouse department are also not usually necessary and desirable in the manufacture of automotive electronics which is the company’s main business.

ISSUES

1.       Whether or not the company validly contracted out or outsourced the services involving forwarding, packing, loading and clerical activities related thereto;

2.    Whether or not the functions of the forwarders' employees are functions being performed by regular rank-and-file employees covered by the bargaining unit.

RULING

The issue poses jurisdictional problems as the forwarders’ employees are not parties to the case and the union has no authority to speak for them. This limited scope, of course, poses no problem as the forwarders and their employees are not indispensable parties and the case is not mooted by their absence.  Our ruling will fully bind the immediate parties and shall fully apply to, and clarify the terms of, their relationship, particularly the interpretation and enforcement of the CBA provisions pertinent to the arbitrated issues.

1. YES. As forwarders they act as travel agents for cargo.  They specialize in arranging transport and completing required shipping documentation of respondent's company's finished products.  They provide custom crating

and packing designed for specific needs of respondent company.  These freight forwarders are actually acting as agents for the company in moving cargo to an overseas destination.  These agents are familiar with the import rules and regulations, the methods of shipping, and the documents related to foreign trade. 

Significantly, both the voluntary arbitrator and the CA recognized that the petitioner was within its right in entering the forwarding agreements with the forwarders as an exercise of its management prerogative.  The petitioner's declared objective for the arrangement is to achieve greater economy and efficiency in its operations – a universally accepted business objective and standard that the union has never questioned.  

In Meralco v. Quisumbing,[25] we joined this universal recognition of outsourcing as a legitimate activity when we held that a company can determine in its best judgment whether it should contract out a part of its work for as long as the employer is motivated by good faith;the contracting is not for purposes of circumventing the law; and does not involve or be the result of malicious or arbitrary action. 

Our own examination of the agreement shows that the forwarding arrangement complies with the requirements of Article 106[26] of the Labor Code and its implementing rules.[27]  To reiterate, no evidence or argument questions the company’s basic objective of achieving “greater economy and efficiency of operations.” This, to our mind, goes a long way to negate the presence of bad faith.  The forwarding arrangement has been in place since 1998 and no evidence has been presented showing that any regular employee has been dismissed or displaced by the forwarders’ employees since then.  No evidence likewise stands before us showing that the outsourcing has resulted in a reduction of work hours or the splitting of the bargaining unit – effects that under the implementing rules of Article 106 of the Labor Code can make a contracting arrangement illegal.  

2. NO. The job of forwarding, as we earlier described, consists not only of a single activity but of several services that complement one another and can best be viewed as one whole process involving a package of services. These services include packing, loading, materials handling and support clerical activities, all of which are directed at the transport of company goods, usually to foreign destinations.

It is in the appreciation of these forwarder services as one whole package of inter-related services that we discern a basic misunderstanding that results in the error of equating the functions of the forwarders’ employees with those of regular rank-and-file employees of the company. The regular company employees, to be sure, work for the company under its supervision and control, but forwarder employees work for the forwarder in the forwarder’s own operation that is itself a contracted work from the company.  The company controls its employees in the means, method and results of their work, in the same manner that the forwarder controls its own employees in the means, manner and results of their work.  Complications and confusion result because the company at the same time controls the forwarder in the results of the latter’s work, without controlling however the means and manner of the forwarder employees’ work. 

From the perspective of the union in the present case, we note that the forwarding agreements were already in place when the current CBA was signed.[30]  In this sense, the union accepted the forwarding arrangement, albeit implicitly, when it signed the CBA with the company.  Thereby, the union agreed, again implicitly by its silence and acceptance, that jobs related to the contracted forwarding activities are not regular company activities and are not to be  undertaken by regular employees falling within the scope of the bargaining unit but by the forwarders’ employees.  Thus, the skills requirements and job content between forwarders’ jobs and bargaining unit jobs may be the same, and they may even work on the same company products, but their work for different purposes and for different entities completely distinguish and separate forwarder and company employees from one another. A clerical job, therefore, if undertaken by a forwarders’ employee in support of forwarding activities, is not a CBA-covered undertaking or a regular company activity.

The union must not forget, too, that before the inclusion of the forwarders’ employees in the bargaining unit can be considered, these employees must first be proven to be regular company employees. As already mentioned, the union does not even have the personality to make this claim for these forwarders’ employees.  This is the impenetrable wall that the union cannot, for now, pass through using the voluntary arbitration proceedings now before us on appeal. 

ALIVIADO vs. PROCTER & GAMBLE PHILS., INC. and PROMM-GEM INC.

FACTS

Petitioners worked as merchandisers of 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.

They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time.[5]  They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G.  They received their wages from Promm-Gem or SAPS.[6]

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.

 P&G is principally engaged in the manufacture and production of different consumer and health products, which it sells on a wholesale basis to various supermarkets and distributors.[8]  To enhance consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products.[9]

In December 1991, petitioners filed a complaint[10] against P&G for regularization, service incentive leave pay and other benefits with damages.  The complaint was later amended[11] to include the matter of their subsequent dismissal.

Petitioners insist that they are employees of P&G.  They claim that they were recruited by the salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the existence of Promm-Gem and/or SAPS.  

Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their client.  They claim that the contractors have neither substantial capital nor tools and equipment to undertake independent labor contracting.  Petitioners insist that since they had been engaged to perform activities which are necessary or desirable in the usual business or trade of P&G, then they are its regular employees.

P&G argues that there is no employment relationship between it and petitioners.  It was Promm-Gem or SAPS that (1) selected petitioners and

engaged their services; (2) paid their salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of work. P&G also contends that the Labor Code neither defines nor limits which services or activities may be validly outsourced.  Thus, an employer can farm out any of its activities to an independent contractor, regardless of whether such activity is peripheral or core in nature.  It insists that the determination of whether to engage the services of a job contractor or to engage in direct hiring is within the ambit of management prerogative.

ISSUE

Whether P&G is the employer of petitioners;

RULING

In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors. 

 The pertinent Labor Code provision on the matter states:

ART. 106. Contractor or subcontractor. – Whenever an employer enters into a contract with another person for the performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code.  In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this

Code, to prevent any violation or circumvention of any provision of this Code.

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 person are performing activities which are directly related to the principal business of such employer.  In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. (Emphasis and underscoring supplied.)

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18-02,[24] distinguishes between legitimate and labor-only contracting:

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers.  Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job[,] work or service.

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.

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code, as amended.

“Substantial capital or investment” refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out.

The “right to control” shall refer to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. 

Clearly, the law and its implementing rules allow 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.

 In the instant case,  the  financial  statements[26]  of Promm-Gem show that it has authorized capital stock of P1 million and a paid-in capital, or capital available for operations, of P500,000.00 as of 1990.[27] It also has long term assets worth P432,895.28 and current assets of P719,042.32.  Promm-Gem has also proven that it maintained its own warehouse and office space with a floor area of 870 square meters.[28]  It also had under its name three registered vehicles which were used for its promotional/merchandising business.[29]  Promm-Gem also has other clients[30] aside from P&G.[31] Under the circumstances, we find that Promm-Gem has substantial investment which relates to the work to be performed.  These factors negate the existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their work.  Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already considered the complainants working under it as its regular, not merely contractual or project, employees.[32]  This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates – on the part of Promm-Gem – bad faith and intent to circumvent labor laws which factors have often been tipping points that lead the Court to strike down the employment practice or agreement concerned as contrary to public policy, morals, good customs or public order.[33]  

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor.  We find that it is a legitimate independent contractor.

On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250.00.  There is no other evidence presented to show how much its working capital and assets are.  Furthermore, there is no showing of substantial investment in tools, equipment or other assets. It is clear that SAPS – having a paid-in capital of only P31,250 - has no substantial capital.  SAPS’ lack of substantial capital is underlined by the records[36] which show that its payroll for its merchandisers alone for one month would already total P44,561.00.  It had 6-month contracts with  P&G.[37]  Yet SAPS failed to show that it could complete the 6-month contracts using its own capital and investment.  Its capital is not even sufficient for one month’s payroll. SAPS failed to show that its paid-in capital ofP31,250.00 is sufficient for the period required for it to generate its needed revenue to sustain its operations independently.  Substantial capital refers to capitalization used in theperformance or completion of the job, work or service contracted out.  In the present case, SAPS has failed to show substantial capital.

Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity that has already been considered by the Court as doubtlessly directly related to the manufacturing business,[38] which is the principal business of P&G.  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, we find that the former is engaged in “labor-only contracting”.

“Where ‘labor-only’ contracting exists, the Labor Code itself establishes an employer-employee relationship between the employer and the employees of the ‘labor-only’ contractor.”[39] The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws.  The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.[40]

VALID SUBCONTRACTING

VIRGINIA G. NERI and JOSE CABELIN, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK & TRUST COMPANY (FEBTC) and BUILDING CARE CORPORATION, respondents.

FACTS

Respondents are sued by two employees of Building Care Corporation, which provides janitorial and other specific services to various firms, to compel Far Bast Bank and Trust Company to recognize them as its regular employees and be paid the same wages which its employees receive.

Building Care Corporation (BCC, for brevity), in the proceedings below, established that it had substantial capitalization of P1 Million or a stockholders equity of P1.5 Million. Thus the Labor Arbiter ruled that BCC was only job contracting and that consequently its employees were not employees of Far East Bank and Trust Company (FEBTC, for brevity). on appeal, this factual finding was affirmed by respondent National Labor Relations Commission (NLRC, for brevity). Nevertheless, petitioners insist before us that BCC is engaged in "labor-only" contracting hence, they conclude, they are employees of respondent FEBTC.

Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, and were hired by, respondent BCC, a corporation engaged in providing technical, maintenance, engineering, housekeeping, security and other specific services to its clientele. 

On 28 June 1989, petitioners instituted complaints against FEBTC and BCC before Regional Arbitration Branch No. 10 of the Department of Labor and Employment to compel the bank to accept them as regular employees and for it to pay the differential between the wages being paid them by BCC and those received by FEBTC employees with similar length of service.

Petitioners vehemently contend that BCC in engaged in "labor-only" contracting because it failed to adduce evidence purporting to show that it invested in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of its business. Moreover, petitioners argue that they perform duties which are directly related to the principal business or operation of FEBTC.

ISSUE

Whether or not BCC was engaged in labor-only contracting.

RULING

We cannot sustain the petition.

Respondent BCC need not prove that it made investments in the form of tools, equipment, machineries, work premises, among others, because it has established that it has sufficient capitalization. The Labor Arbiter and the NLRC both determined that BCC had a capital stock of P1 million fully subscribed and paid for. 7 BCC is therefore a highly capitalized venture and cannot be deemed engaged in "labor-only" contracting.

It is well-settled that there is "labor-only" contracting where: (a) 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, (b) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. 

BCC cannot be considered a "labor-only" contractor because it has substantial capital. While there may be no evidence that it has investment in the form of tools, equipment, machineries, work premises, among others, it is enough that it has substantial capital, as was established before the Labor Arbiter as well as the NLRC. In other words, the law does not require both substantial capital and investment in the form of tools, equipment,

machineries, etc. This is clear from the use of the conjunction "or". If the intention was to require the contractor to prove that he has both capital and the requisite investment, then the conjunction "and" should have been used. But, having established that it has substantial capital, it was no longer necessary for BCC to further adduce evidence to prove that it does not fall within the purview of "labor-only" contracting. There is even no need for it to refute petitioners' contention that the activities they perform are directly related to the principal business of respondent bank.

Be that as it may, the Court has already taken judicial notice of the general practice adopted in several government and private institutions and industries of hiring independent contractors to perform special services. 9These services range from janitorial, 10 security 11 and even technical or other specific services such as those performed by petitioners Neri and Cabelin. While these services may be considered directly related to the principal business of the employer, 12 nevertheless, they are not necessary in the conduct of the principal business of the employer.

ALEXANDER VINOYA, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, REGENT FOOD CORPORATION AND/OR RICKY SEE (PRESIDENT), respondents.

FACTS

Private respondent Regent Food Corporation is a domestic corporation principally engaged in the manufacture and sale of various food products. Private respondent Ricky See, on the other hand, is the president of RFC and is being sued in that capacity.

Petitioner Alexander Vinoya, the complainant, worked with RFC as sales representative until his services were terminated on 25 November 1991.

Petitioner alleges that he reported daily to the office of RFC, in Pasig City, to take the latter's van for the delivery of its products. According to petitioner, during his employ, he was assigned to various supermarkets and grocery stores where he booked sales orders and collected payments for RFC.  He avers that on 1 July 1991, he was transferred by RFC to Peninsula Manpower Company, Inc. ("PMCI"), an agency which provides RFC with additional contractual workers pursuant to a contract for the supply of manpower services (hereinafter referred to as the "Contract of

Service").4 After his transfer to PMCI, petitioner was allegedly reassigned to RFC as sales representative. Subsequently, on 25 November 1991, he was informed by Ms. Susan Chua, personnel manager of RFC, that his services were terminated and he was asked to surrender his ID card. Petitioner was told that his dismissal was due to the expiration of the Contract of Service between RFC and PMCI.

Private respondent Regent Food Corporation, on the other hand, maintains that no employer-employee relationship existed between petitioner and itself. It insists that petitioner is actually an employee of PMCI, allegedly an independent contractor, which had a Contract of Service6 with RFC. RFC alleges that PMCI is an independent contractor on the sole ground that the latter is a highly capitalized venture.

While RFC admits that it had control and supervision over petitioner, it argues that such was exercised in coordination with PMCI. Finally, RFC contends that the termination of its relationship with petitioner was brought about by the expiration of the Contract of Service between itself and PMCI and not because petitioner was dismissed from employment.

ISSUE

Whether or not petitioner was an employee of RFC and thereby, illegally dismissed.

RULING

YES.

PMCI is engaged in labor-only contracting.

First of all, PMCI does not have substantial capitalization or investment in the form of tools, equipment, machineries, work premises, among others, to qualify as an independent contractor. While it has an authorized capital stock of P1,000,000.00, only P75,000.00 is actually paid-in, which, to our mind, cannot be considered as substantial capitalization. With the current economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000,00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as an independent contractor.

Second, PMCI did not carry on an independent business nor did it undertake the performance of its contract according to its own manner and

method, free from the control and supervision of its principal, RFC. The evidence at hand shows that the workers assigned by PMCI to RFC were under the control and supervision of the latter. The Contract of Service itself provides that RFC can require the workers assigned by PMCI to render services even beyond the regular eight hour working day when deemed necessary.29 Furthermore, RFC undertook to assist PMCI in making sure that the daily time records of its alleged employees faithfully reflect the actual working hours.30 With regard to petitioner, RFC admitted that it exercised control and supervision over him.31 These are telltale indications that PMCI was not left alone to supervise and control its alleged employees. Consequently, it can be, concluded that PMCI was not an independent contractor since it did not carry a distinct business free from the control and supervision of RFC.

Third, PMCI was not engaged to perform a specific and special job or service, which is one of the strong indicators that an entity is an independent contractor as explained by the Court in the cases of Neri and Fuji. As stated in the Contract of Service, the sole undertaking of PMCI was to provide RFC with a temporary workforce able to carry out whatever service may be required by it.32 Such venture was complied with by PMCI when the required personnel were actually assigned to RFC. Apart from that, no other particular job, work or service was required from PMCI. Obviously, with such an arrangement, PMCI merely acted as a recruitment agency for RFC. Since the undertaking of PMCI did not involve the performance of a specific job, but rather the supply of manpower only, PMCI clearly conducted itself as labor-only contractor.

Lastly, in labor-only contracting, the employees recruited, supplied or placed by the contractor perform activities which are directly related to the main business of its principal. In this case, the work of petitioner as sales representative is directly related to the business of RFC. Being in the business of food manufacturing and sales, it is necessary for RFC to hire a sales representative like petitioner to take charge of booking its sales orders and collecting payments for such. Thus, the work of petitioner as sales representative in RFC can only be categorized as clearly related to, and in the pursuit of the latter's business. Logically, when petitioner was assigned by PMCI to RFC, PMCI acted merely as a labor-only contractor.

Based on the foregoing, PMCI can only be classified as a labor-only contractor and, as such, cannot be considered as the employer of petitioner.

SAN MIGUEL CORPORATION VS. SEMILLANO

FACTS

It appears that AMPCO hired the services of respondents herein on different dates in December [of 1991 and] 1994.  All of them were assigned to work in SMC’s Bottling Plant situated at Brgy. Granada Sta. Fe, Bacolod City, in order to perform the following tasks: segregating bottles, removing dirt therefrom, filing them in designated places, loading and unloading the bottles to and from the delivery trucks, and performing other tasks as may be ordered by SMC’s officers.  [They] were required to work inside the premises of SMC using [SMC’s] equipment. [They] rendered service with SMC for more than 6 months. Subsequently, SMC entered into a Contract of Services[5] with AMPCO designating the latter as the employer of Vicente, et al. As a result, Vicente et al. failed to claim the rights and benefits ordinarily accorded a regular employee of SMC.  

On June 6, 1995, they were not allowed to enter the premises of SMC. The project manager of AMPCO, Merlyn Polidario, told them to wait for further instructions from the SMC’s supervisor. Vicente et al. waited for one month, unfortunately, they never heard a word from SMC.

Consequently, Vicente et al., as complainants, filed on July 17, 1995 a COMPLAINT FOR ILLEGAL DISMISSAL with the Labor Arbiter against AMPCO, Merlyn V. Polidario, SMC and Rufino I. Yatar [SMC Plant Manager], as respondents. 

Complainants alleged that they were fillers of SMC Bottling Plant xxx assigned to perform activities necessary and desirable in the usual business of SMC. xxx They claim that they were under the control and supervision of SMC personnel and have worked for more than 6 months in the company. As such, they assert that they are regular employees of SMC.

 However, SMC utilized AMPCO making it appear that the latter was their employer, so that SMC may evade the responsibility of paying the benefits due them under the law. 

According to SMC, AMPCO is their employer because the latter is an independent contractor xxx. Also SMC alleged that it was AMPCO that directly paid their salaries and remitted their contributions to the SSS.  

ISSUE: Whether or not AMPCO is a legitimate job contractor. 

RULING

NO.

The test to determine the existence of independent contractorship is whether or not the one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work.[15]

The existence of an independent and permissible contractor relationship is generally established by the following criteria: whether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of a specified piece of work; the control and supervision of the work to another; the employer's power with respect to the hiring, firing and payment of the contractor's workers; the control of the premises; the duty to supply the premises, tools, appliances, materials, and labor; and the mode, manner and terms of payment.[16]

Although there may be indications of an independent contractor arrangement between petitioner and AMPCO, the most determinant of factors exists which indicate otherwise.

There are no pieces of evidence that AMPCO has substantial capital or investment. An examination its “Statement of Income and Changes in Undivided Savings” show that its income for the year 1994 was P2,777,603.46 while its operating expenses for said year is P2,718,315.33 or a net income of P59,288.13 for the year 1994; that its cash on hand for 1994 is P22,154.80.

Neither did petitioner prove that AMPCO had substantial equipment, tools, machineries, and supplies actually and directly used by it in the performance or completion of the segregation and piling job.  In fact, as  correctly  pointed out by the NLRC in its original decision, there is

nothing in AMPCO’s list[17] of fixed assets, machineries, tools, and equipment which it could have used, actually and directly, in the performance or completion of its contracted job, work or service with petitioner.  For said reason, there can be no other logical conclusion but that the tools and equipment utilized by respondents are owned by petitioner SMC. It is likewise noteworthy that neither petitioner nor AMPCO has shown that the latter had clients other than petitioner.  Therefore, AMPCO has no independent business.

Moreover, the Court is not convinced that AMPCO wielded “exclusive discretion in the discharge”[19] of respondents.  As the CA correctly pointed out, Merlyn Polidario, AMPCO’s project manager,  even told respondents to “wait for further instructions from the SMC’s supervisor” after they were prevented from entering petitioner SMC’s premises. Based on the foregoing, no other logical conclusion can be reached than that it was petitioner, not AMPCO, who wielded power of control.

Petitioner cannot rely either on AMPCO’s Certificate of Registration as an Independent Contractor issued by the proper Regional Office of the DOLE to prove its claim.  It is not conclusive evidence of such status.  The fact of registration simply prevents the legal presumption of being a mere labor-only contractor from arising.[22]  In distinguishing between permissible job contracting and prohibited labor-only contracting, the totality of the facts and the surrounding circumstances of the case are to be considered.

Thus, petitioner SMC, as principal employer, is solidarily liable with AMPCO, the labor-only contractor, for all the rightful claims of respondents. Under this set-up, AMPCO, as the "labor-only" contractor, is deemed an agent of the principal (SMC).  The law makes the principal responsible over the employees of the "labor-only" contractor as if the principal itself directly hired the employees.

FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT AND 6 OTHERS, ROY MAGALLANES AND 4 OTHERS, CLAUDIO BONGO, EDUARDO ANDALES and 4 OTHERS, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION (3rd DIVISION), GENERAL MILLING CORPORATION and/or FELICIANO LUPO, respondents.

FACTS

Sometime in 1983, private respondent Feliciano LUPO, a building contractor, entered into a contract with GMC, a domestic corporation engaged in flour and feeds manufacturing, for the construction of an annex building inside the latter's plant in Cebu City. In connection with the aforesaid contract, LUPO hired herein petitioners either as carpenters, masons or laborers.

Subsequently, LUPO terminated petitioners' services, on different dates. As a result, petitioners filed Complaints against LUPO and GMC before the NLRC Regional Arbitration

Petitioners contend that GMC is jointly and severally liable with LUPO for the latter's obligations to them. They seek recovery from GMC based on Article 106 of the Labor Code, infra, which holds the employer jointly and severally liable with his contractor for unpaid wages of employees of the latter.

In their respective Comments, both GMC and the NLRC maintain that Article 106 finds no application in the instant case because it is limited to situations where the work being performed by the contractor's employees are directly related to the principal business of the employer. 

ISSUE

RULING

Upon the facts and circumstances, we uphold the solidary liability of GMC and LUPO for the latter's liabilities in favor of employees whom he had earlier employed and dismissed.

Recovery, however, should not be based on Article 106 of the Labor Code. This provision treats specifically of "labor-only" contracting, which is not the set-up between GMC and LUPO.

Since the construction of an annex building inside the company plant has no relation whatsoever with the employer's business of flour and feeds manufacturing, "labor-only" contracting does not exist. Article 106 is thus inapplicable.

Instead, it is "job contracting," covered by Article 107, which is involved, reading:

Art. 107. Indirect Employer. — The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. (Emphasis supplied).

Specifically, there is "job contracting" where (1) the contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof; and (2) the contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business. It may be that LUPO subsequently ran out of capital and was unable to satisfy the award to petitioners. That was an after-the-fact development, however, and does not detract from his status as an independent contractor.

Based on the foregoing, GMC qualifies as an "indirect employer." It entered into a contract with an independent contractor, LUPO, for the construction of an annex building, a work, task, job or project not directly related to GMC's business of flour and feeds manufacturing. Being an "indirect employer," GMC is solidarily liable with LUPO for any violation of the Labor Code pursuant to Article 109 thereof, reading:

Art. 109. Solidary Liability. — The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with a contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.

The provision of existing law referred to is Article 1728 of the Civil Code, which states, among others, that "the contractor is liable for all the claims of laborers and others employed by him ..."

The distinction between Articles 106 and 107 was in the fact that Article 106 deals with "labor-only" contracting. Here, by operation of law, the contractor is merely considered as an agent of the employer, who is deemed

"responsible to the workers to the same extent as if the latter were directly employed by him." On the other hand, Article 107 deals with "job contracting." In the latter situation, while the contractor himself is the direct employer of the employees, the employer is deemed, by operation of law, as an indirect employer.

In other words, the phrase "not an employer" found in Article 107 must be read in conjunction with Article 106. A contrary interpretation would render the provisions of Article 107 meaningless considering that everytime an employer engages a contractor, the latter is always acting in the interest of the former, whether directly or indirectly, in relation to his employees.

As an indirect employer, and for purposes of determining the extent of its civil liability, GMC is deemed a "direct employee" of his contractor's employees pursuant to the last sentence of Article 109 of the Labor Code. As a consequence, GMC can not escape its joint and solidary liability to petitioners.

LABOR-ONLY CONTRACTING

EMMANUEL BABAS vs. LORENZO SHIPPING CORPORATION

FACTS

 Respondent Lorenzo Shipping Corporation (LSC) is a duly organized domestic corporation engaged in the shipping industry; it owns several equipment necessary for its business. On September 29, 1997, LSC entered into a General Equipment Maintenance Repair and Management Services Agreement[3] (Agreement) with Best Manpower Services, Inc. (BMSI).  Under the Agreement, BMSI undertook to provide maintenance and repair services to LSC’s container vans, heavy equipment, trailer chassis, and generator sets.  BMSI further undertook to provide checkers to inspect all containers received for loading to and/or unloading from its vessels.

          Simultaneous with the execution of the Agreement, LSC leased its equipment, tools, and tractors to BMSI.[4]  The period of lease was coterminous with the Agreement. 

          BMSI then hired petitioners on various dates to work at LSC as checkers, welders, utility men, clerks, forklift operators, motor pool and

machine shop workers, technicians, trailer drivers, and mechanics.    Six years later, or on May 1, 2003, LSC entered into another contract with BMSI, this time, a service contract.[5] 

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint for regularization against LSC and BMSI.  On October 1, 2003, LSC terminated theAgreement, effective October 31, 2003.  Consequently, petitioners lost their employment.

Petitioners vigorously insist that they were employees of LSC; and that BMSI is not an independent contractor, but a labor-only contractor.

BMSI asserted that it is an independent contractor.  It averred that it was willing to regularize petitioners; however, some of them lacked the requisite qualifications for the job. 

LSC, on the other hand, averred that petitioners were employees of BMSI and were assigned to LSC by virtue of the Agreement.  BMSI is an independent job contractor with substantial capital or investment in the form of tools, equipment, and machinery necessary in the conduct of its business. The Agreement between LSC and BMSI constituted legitimate job contracting.  Thus, petitioners were employees of BMSI and not of LSC.

ISSUE

WON BMSI is engaged in labor-only contracting.

RULING

YES.

We sustain the petitioners’ contention that BMSI is engaged in labor-only contracting.

First, petitioners worked at LSC’s premises, and nowhere else. Other than the provisions of the Agreement, there was no showing that it was BMSI which established petitioners’ working procedure and methods, which supervised petitioners in their work, or which evaluated the same. There was absolute lack of evidence that BMSI exercised control over them or their work, except for the fact that petitioners were hired by BMSI.

Second, LSC was unable to present proof that BMSI had substantial capital.  The record before us is bereft of any proof pertaining to the

contractor’s capitalization, nor to its investment in tools, equipment, or implements actually used in the performance or completion of the job, work, or service that it was contracted to render.  What is clear was that the equipment used by BMSI were owned by, and merely rented from, LSC.  

Third, petitioners performed activities which were directly related to the main business of LSC. The work of petitioners as checkers, welders, utility men, drivers, and mechanics could only be characterized as part of, or at least clearly related to, and in the pursuit of, LSC’s business. Logically, when petitioners were assigned by BMSI to LSC, BMSI acted merely as a labor-only contractor.

Lastly, as found by the NLRC, BMSI had no other client except for LSC, and neither BMSI nor LSC refuted this finding, thereby bolstering the NLRC finding that BMSI is a labor-only contractor.

Indubitably, BMSI can only be classified as a labor-only contractor.   The CA, therefore, erred when it ruled otherwise. Consequently, the workers that BMSI supplied to LSC became regular employees of the latter.[26]  Having gained regular status, petitioners were entitled to security of tenure and could only be dismissed for just or authorized causes and after they had been accorded due process.

Petitioners lost their employment when LSC terminated its Agreement with BMSI.  However, the termination of LSC’s Agreement with BMSI cannot be considered a just or an  authorized cause for petitioners’ dismissal.

POLYFOAM-RGC INTERNATIONAL, CORPORATION and PRECILLA A. GRAMAJE vs. EDGARDO CONCEPCION

FACTS

Respondent alleged that he was hired by Polyfoam as an “all-around” factory worker and served as such for almost six years.[5]  On January 14, 2000, he allegedly discovered that his time card was not in the rack and was later informed by the security guard that he could no longer punch his time

card.[6]  When he protested to his supervisor, the latter allegedly told him that the management decided to dismiss him due to an infraction of a company rule.  Cheng, the company’s manager, also refused to face him.  Respondent’s counsel later wrote a letter[7] to Polyfoam’s manager requesting that respondent be re-admitted to work, but the request remained unheeded prompting the latter to file the complaint for illegal dismissal.

On April 28, 2000, Gramaje filed a Motion for Intervention[9] claiming to be the real employer of respondent. Gramaje claimed that P.A. Gramaje Employment Services (PAGES) is a legitimate job contractor who provided some manpower needs of Polyfoam.  It was alleged that respondent was hired as “packer” and assigned to Polyfoam, charged with packing the latter’s finished foam products.  She argued, however, that respondent was not dismissed from employment, rather, he simply stopped reporting for work.

On the other hand, Polyfoam and Cheng filed a Motion to Dismiss[10] on the grounds that the NLRC has no jurisdiction over the case, because of the absence of employer-employee relationship between Polyfoam and respondent.

ISSUES

(1) whether or not Gramaje is an independent job contractor;

(2) whether or not an employer-employee relationship exists between Polyfoam and respondent

RULING

NO. We agree with the CA’s conclusion that Gramaje is not an independent job contractor, but a “labor-only” contractor.

The test of independent contractorship is “whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work.”

Simply put, the totality of the facts and the surrounding circumstances of the case are to be considered.  Each case must be determined by its own facts and all the features of the relationship are to be considered.

First, Gramaje has no substantial capital or investment.  The presumption is that a contractor is a labor-only contractor unless he overcomes the burden of proving that it has substantial capital, investment, tools, and the like.  The employee should not be expected to prove the negative fact that the contractor does not have substantial capital, investment and tools to engage in job-contracting. Neither Gramaje nor Polyfoam presented evidence showing Gramaje’s ownership of the equipment and machineries used in the performance of the alleged contracted job.  Considering that these machineries are found in Polyfoam’s premises, there can be no other logical conclusion but that the tools and equipment utilized by Gramaje and her “employees” are owned by Polyfoam.  Neither did Polyfoam nor Gramaje show that the latter had clients other than the former. 

Second, Gramaje did not carry on an independent business or undertake the performance of its service contract according to its own manner and method, free from the control and supervision of its principal, Polyfoam, its apparent role having been merely to recruit persons to work for Polyfoam.[50]  It is undisputed that respondent had performed his task of packing Polyfoam’s foam products in Polyfoam’s premises.  As to the recruitment of respondent, petitioners were able to establish only that respondent’s application was referred to Gramaje, but that is all.  Prior to his termination, respondent had been performing the same job in Polyfoam’s business for almost six (6) years.

YES.  A finding that a contractor is a “labor-only” contractor, as opposed to permissible job contracting, is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor, and the “labor-only” contractor is considered as a mere agent of the principal, the real employer.[53]  In this case, Polyfoam is the principal employer and Gramaje is the labor-only contractor.  Polyfoam and Gramaje are, therefore, solidarily liable for the rightful claims of respondent.

SAN MIGUEL CORPORATION, petitioner, vs.MAERC INTEGRATED SERVICES, INC.

FACTS

The complainants alleged that they were hired by San Miguel Corporation (SMC) through its agent or intermediary Maerc Integrated Services, Inc. (MAERC) to work in two (2) designated workplaces in Mandaue City: one, inside the SMC premises at the Mandaue Container Services, and another, in the Philphos Warehouse owned by MAERC. They washed and segregated various kinds of empty bottles used by SMC to sell and distribute its beer beverages to the consuming public. They were paid on a per piece or pakiao basis except for a few who worked as checkers and were paid on daily wage basis.

Complainants alleged that long before SMC contracted the services of MAERC a majority of them had already been working for SMC under the guise of being employees of another contractor, Jopard Services, until the services of the latter were terminated on 31 January 1988.

SMC denied liability for the claims and averred that the complainants were not its employees but of MAERC, an independent contractor whose primary corporate purpose was to engage in the business of cleaning, receiving, sorting, classifying, etc., glass and metal containers.

In a letter dated 15 May 1991, SMC informed MAERC of the termination of their service contract by the end of June 1991. SMC cited its plans to phase out its segregation activities starting 1 June 1991 due to the installation of labor and cost-saving devices.

When the service contract was terminated, complainants claimed that SMC stopped them from performing their jobs; that this was tantamount to their being illegally dismissed by SMC who was their real employer as their activities were directly related, necessary and desirable to the main business of SMC; and, that MAERC was merely made a tool or a shield by SMC to avoid its liability under the Labor Code.

ISSUE: Whether the complainants are employees of petitioner SMC.

RULING

YES.

This Court has invariably held that in ascertaining an employer-employee relationship, the following factors are considered: (a) the selection and engagement of employee; (b) the payment of wages; (c) the power of

dismissal; and, (d) the power to control an employee's conduct, the last being the most important.10 Application of the aforesaid criteria clearly indicates an employer-employee relationship between petitioner and the complainants.

Evidence discloses that petitioner played a large and indispensable part in the hiring of MAERC's workers. It also appears that majority of the complainants had already been working for SMC long before the signing of the service contract between SMC and MAERC in 1988.

The incorporators of MAERC admitted having supplied and recruited workers for SMC even before MAERC was created. The NLRC also found that when MAERC was organized into a corporation in February 1988, the complainants who were then already working for SMC were made to go through the motion of applying for work with Ms. Olga Ouano, President and General Manager of MAERC, upon the instruction of SMC through its supervisors to make it appear that complainants were hired by MAERC.

As for the payment of workers' wages, it is conceded that MAERC was paid in lump sum but records suggest that the remuneration was not computed merely according to the result or the volume of work performed. The memoranda of the labor rates bearing the signature of a Vice-President and General Manager for the Vismin Beer Operations12 as well as a director of SMC13 appended to the contract of service reveal that SMC assumed the responsibility of paying for the mandated overtime, holiday and rest day pays of the MAERC workers.14 SMC also paid the employer's share of the SSS and Medicare contributions, the 13th month pay, incentive leave pay and maternity benefits.15 In the lump sum received, MAERC earned a marginal amount representing the contractor's share. These lend credence to the complaining workers' assertion that while MAERC paid the wages of the complainants, it merely acted as an agent of SMC.

In deciding the question of control, the language of the contract is not determinative of the parties' relationship; rather, it is the totality of the facts and surrounding circumstances of each case.17

Despite SMCs disclaimer, there are indicia that it actively supervised the complainants. SMC maintained a constant presence in the workplace through its own checkers. Its asseveration that the checkers were there only to check the end result was belied by the testimony of Carlito R. Singson,

head of the Mandaue Container Service of SMC, that the checkers were also tasked to report on the identity of the workers whose performance or quality of work was not according to the rules and standards set by SMC. According to Singson, "it (was) necessary to identify the names of those concerned so that the management [referring to MAERC] could call the attention to make these people improve the quality of work."

Control of the premises in which the contractor's work was performed was also viewed as another phase of control over the work, and this strongly tended to disprove the independence of the contractor. 23 In the case at bar, the bulk of the MAERC segregation activities was accomplished at the MAERC-owned PHILPHOS warehouse but the building along with the machinery and equipment in the facility was actually being rented by SMC. 

But the most telling evidence is a letter by Mr. Antonio Ouano, Vice-President of MAERC dated 27 May 1991 addressed to Francisco Eizmendi, SMC President and Chief Executive Officer, asking the latter to reconsider the phasing out of SMC's segregation activities in Mandaue City. The letter was not denied but in fact used by SMC to advance its own arguments.

MAERC, as earlier discussed, displayed the characteristics of a labor-only contractor. Moreover, while MAERC's investments in the form of buildings, tools and equipment amounted to more than P4 Million, we cannot disregard the fact that it was the SMC which required MAERC to undertake such investments under the understanding that the business relationship between petitioner and MAERC would be on a long term basis. Nor do we believe MAERC to have an independent business. Not only was it set up to specifically meet the pressing needs of SMC which was then having labor problems in its segregation division, none of its workers was also ever assigned to any other establishment, thus convincing us that it was created solely to service the needs of SMC. Naturally, with the severance of relationship between MAERC and SMC followed MAERC's cessation of operations, the loss of jobs for the whole MAERC workforce and the resulting actions instituted by the workers.

NOTE:

*In legitimate job contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to ensure that the employees are paid their wages.34 The principal employer becomes jointly and severally liable

with the job contractor only for the payment of the employees' wages whenever the contractor fails to pay the same. Other than that, the principal employer is not responsible for any claim made by the employees.

On the other hand, in labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer. The principal employer therefore becomes solidarily liable with the labor-only contractor for all the rightful claims of the employees.

This distinction between job contractor and labor-only contractor, however, will not discharge SMC from paying the separation benefits of the workers, inasmuch as MAERC was shown to be a labor-only contractor; in which case, petitioner's liability is that of a direct employer and thus solidarily liable with MAERC.

*Jurisprudence has it that in determining the existence of an independent contractor relationship, several factors may be considered such as:

o   whether the contractor was carrying on an independent business

o   the nature and extent of the work

o   the skill required

o   the term and duration of the relationship

o   the right to assign the performance of specified pieces of work

o   the control and supervision of the workers

o   the power of the employer with respect to the hiring, firing and payment of the workers of the contractor

o   the control of the premises

o   i.the duty to supply premises, tools, appliances, materials and labor

o   the mode, manner and terms of payment.

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.THE NATIONAL LABOR RELATIONS COMMISSION and MALAYANG SAMAHAN NG MGA MANGAGAWA SA ATLAS TEXTILE DEVELOPMENT CORPORATION

FACTS

The private respondents were employees of ATLAS, a textile firm, which hypothecated its certain assets to DBP. After ATLAS defaulted in its obligations, DBP foreclosed on the mortgage in March 1985. The latter acquired the mortgaged assets by virtue of the foreclosure sale.

The private respondents filed their claim, on 30 October 1985, against both ATLAS and DBP. The Labor Arbiter ruled for the private respondents. On appeal by DBP, the decision was sustained by the NLRC.

The petitioner contends that it is error on the part of the public respondent to consider the workers' preference under Article 110 of the Labor Code over that of DBP's mortgage lien.

ISSUE:

RULING

Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages does not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241, number 6: "claims for laborers' wages, on the goods manufactured or the work done;" or by Article 2242, number 3: "claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works upon said buildings, canals or other works." To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits under Article 2244. Applying Article 2241, number 6 to the instant case, the claims of the Unions for separation pay of their members constitute liens attaching to the processed leaf tobacco, cigars and cigarettes and other products produced or

manufactured by Insolvent, but not to other assets owned by the Insolvent. And even in respect of such tobacco and tobacco products produced by Insolvent, the claims of the Unions may be given effect only after the Bureau of Internal Revenue's claim for unpaid tobacco inspection fees shall have been satisfied out of the products so manufactured by the Insolvent.

Article 110 of the Labor Code was later amended by Republic ActNo. 6715 which became effective on 21 march 1989. And so modified, the provision thenceforth provided:

Article 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages, and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid.

The amendment expands worker preference to cover not only unpaid wages but also other monetary claims to which even claims of the Government must be deemed subordinate.

xxx xxx xxx

Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have been eliminated. Does this mean then that liquidation proceedings have been done away with?

We opine in the negative upon the following considerations:

1. Because of its impact on the entire system of credit,Article 110 of the labor Code cannot be viewed in isolation but must be read in relation to the Civil Code scheme on classification and preference of credits.

xxx xxx xxx

2. In the same way that the Civil Code provisions on classification of credits and the Insolvency Law have been brought into harmony, so also must the kindered provisions of the Labor Law be made to harmonize with those laws.

3. In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvent's property among his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvent's creditors may be given and where the claims of preferred creditors may be bindingly adjudicated (De Baretto vs. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). The rationale therefore has been expressed in the recent case of DBP vs. Secretary of Labor (G.R. No. 79351, 28 November 1989), . . .

4. A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first preference in the discharge of the funds of the judgment debtor.

xxx xxx xxx

6. Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean "absolute preference," the same should be given only prospective effect in line with the cardinal rule that laws have no retroactive effect, unless the contrary is provided (Article 4, Civil Code). Thereby, any infringement on the constitutional guarantee on non-impairment of the obligation of contracts (Section 10, Article III, 1987 Constitution) is also avoided. In point of fact, DBP's mortgage credit antedated by several years the amendatory law, RA No. 6715. To give Article 110 retroactive effect would be to wipe out the mortgage in DBP's favor and expose it to a risk which is sought to protect itself against by requiring a collateral in the form of real property.

In fine, the right of preference given to workers under Article 110 of the Labor Code cannot exist in any effective way prior to the time of its presentation in distribution proceedings. It will find application when, in proceedings such as insolvency, such unpaid wages shall be paid in full before the "claims of the Government and other creditors" may be paid. But, for an orderly settlement of a debtor's assets, all creditors must be convened, their claims ascertained and inventoried, and thereafter the

preferences determined in the course of judicial proceedings which have for their object the subjection of the property of the debtor of the payment of his debts and other lawful obligations. Thereby, an orderly determination of preference of creditors' claims is assured (Philippine Savings bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the adjudication made will be binding on all parties-in-interest, since those proceedings are proceeding in rem; and the legal scheme of classification, concurrence and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony.

The case at bench concerns monetary claims of workers that are not involved in judicial proceedings in rem in adjudication of claims of creditors vis-a-vis the assets of the debtor, nor have such claims accrued after the effectivity of Republic Act 6715. The petition thus raises issues heretofore squarely resolved in our aforequoted decisions. To recapitulate.

(1) Article 110 of the Labor Code, as amended, must be viewed and read in conjunction with the provisions of the Civil Code on concurrence and preferences of credits;

(2) The aforesaid provisions of the Civil Code, including Article 110 of the Labor Code, require judicial proceedings in rem in adjudication of creditors' claims against the debtor's assets to become operative;

(3) Republic Act No. 6715 has the effect of expanding the "worker preference" to cover not only unpaid wages but also other monetary claims of laborers, to which even claims of the Government must be deemed subordinate; and

(4) The amendatory provisions of Republic Act 6715, which took effect on 21 march 1989, should only be given prospective application.

WHEREFORE, the petition is GRANTED. The assailed decision of public respondent, National Labor Relations Commission and that of the Labor Arbiter, insofar as the latter holds the petitioner liable for monetary claims of private respondents, are hereby REVERSED and SET ASIDE.

RAMY GALLEGO, Petitioner, vs.BAYER PHILIPPINES, INC., DANPIN GUILLERMO, PRODUCT IMAGE MARKETING, INC., and EDGARDO BERGONIA, Respondents.

FACTS

Ramy Gallego was contracted in 1992 by Bayer Philippines as crop protection technician to promote and market Bayer products by making farm visits to convince the farmers to buy their products. Petitioner employment came to a halt in 1996 prompting Gallego to seek another employment, but he was reemployed in 1997 as part of the Product Image and Marketing Services, Inc. (PRODUCT IMAGE) of which respondent Edgardo Bergonia (Bergonia) was the President and General Manager, which actually performs the same task as crop protection technician.  In 2001, he was directed to submit a resignation letter and ordered to return all pieces of service equipment, which he refused. He continued performing his duties and received compensation until January 2002. On April 7, 2002, he received a memorandum that his area of responsibility would be transferred to Luzon, of which memorandum he sought reconsideration but to no avail; and that Guillermo and Bergonia spread rumors that reached the dealers in Antique to the effect that he was not anymore connected with BAYER and any transaction with him would no longer be honored as of April 30, 2002.5

Believing that his employment was terminated, petitioner lodged on June 6, 2002 a complaint for illegal dismissal with the National Labor Relations Commission (NLRC) against herein respondents Bayer, Guillermo, Product Image, and Bergonia.

Respondents BAYER and Guillermo denied the existence of an employer-employee relationship between BAYER and petitioner, explaining that petitioner’s work at BAYER was simply occasioned by the Contract of Promotional Services that BAYER had executed with PRODUCT IMAGE whereby PRODUCT IMAGE was to promote and market BAYER products on its (PRODUCT IMAGE) own account and in its own manner and method. They added that as an independent contractor, PRODUCT IMAGE retained the exclusive power of control over petitioner as it assigned full-time supervisors to exercise control and supervision over its employees assigned at BAYER.7

Respondents PRODUCT IMAGE and Bergonia, on the other hand, admitted that petitioner was hired as an employee of PRODUCT IMAGE on April 7, 1997 on a contractual basis to promote and market BAYER products pursuant to the Contract of Promotional Services forged between it and BAYER. They alleged that petitioner was a field worker who had no fixed

hours and worked under minimal supervision, his performance being gauged only by his accomplishment reports duly certified to by BAYER acting as his de facto supervisor.

ISSUES

Whether PRODUCT IMAGE is a labor-only contactor and BAYER should be deemed petitioner’s principal employer;

Whether petitioner was illegally dismissed from his employment.

RULING

In the case at bar, the Court finds substantial evidence to support the finding of the NLRC that PRODUCT IMAGE is a legitimate job contractor.

In distinguishing between permissible job contracting and prohibited labor-only contracting,27 the totality of the facts and the surrounding circumstances of the case are to be considered,28 each case to be determined by its own facts, and all the features of the relationship assessed.29

Independently of the DOLE’s Certification, among the circumstances that establish the status of PRODUCT IMAGE as a legitimate job contractor are: (1) PRODUCT IMAGE had, during the period in question, a contract with BAYER for the promotion and marketing of BAYER products;32 (2) PRODUCT IMAGE has an independent business and provides services nationwide to big companies such as Ajinomoto Philippines and Procter and Gamble Corporation;33 and (3) PRODUCT IMAGE’s total assets from 1998 to 2000 amounted to P405,639, P559,897, andP644,728, respectively.34 PRODUCT IMAGE also posted a bond in the amount of P100,000 to answer for any claim of its employees for unpaid wages and other benefits that may arise out of the implementation of its contract with BAYER.35

PRODUCT IMAGE cannot thus be considered a labor-only contractor.

The existence of an employer-employee relationship is determined on the basis of four standards, namely: (a) the manner of selection and engagement of the putative employee; (b) the mode of payment of wages; (c) the presence or absence of power of dismissal; and (d) the presence or

absence of control of the putative employee’s conduct. Most determinative among these factors is the so-called "control test."36

The presence of the first requisite which refers to selection and engagement is evidenced by a document entitled Job Offer, whereby PRODUCT IMAGE offered to hire petitioner as crop protection technician effective April 7, 1997, which offer petitioner accepted.37

On the second requisite regarding the payment of wages, it was PRODUCT IMAGE that paid the wages and other benefits of petitioner, pursuant to the stipulation in the contract between PRODUCT IMAGE and BAYER that BAYER shall pay PRODUCT IMAGE an amount based on services actually rendered without regard to the number of personnel employed by PRODUCT IMAGE; and that PRODUCT IMAGE shall faithfully comply with the provisions of the Labor Code and hold BAYER free and harmless from any claim of its employees arising from the contract.38

As to the third requisite which relates to the power of dismissal, and the fourth requisite which relates to the power of control, both powers are vested in PRODUCT IMAGE. The Contract of Promotional Services provides that PRODUCT IMAGE shall have the power to discipline its employees assigned at BAYER, such that no control whatsoever shall be exercised by BAYER over those personnel on the manner and method by which they perform their duties,39 and that all directives, complaints, or observations of BAYER relating to the performance of the employees of PRODUCT IMAGE shall be addressed to the latter.40

If at all, the only control measure retained by BAYER over petitioner was to act as his de facto supervisor in certifying to the veracity of the accomplishment reports he submitted to PRODUCT IMAGE. This is by no means the kind of control that establishes an employer-employee relationship as it pertains only to the results and not the manner and method of doing the work. It would be a rare contract of service that gives untrammelled freedom to the party hired and eschews any intervention whatsoever in his performance of the engagement.41 Surely, it would be foolhardy for any company to completely give the reins and totally ignore the operations it has contracted out.42

In fine, PRODUCT IMAGE is ineluctably the employer of petitioner.

NO. The Court appreciates no evidence that petitioner was dismissed. What it finds is that petitioner unilaterally stopped reporting for work before filing a complaint for illegal dismissal, based on his belief that Guillermo and Bergonia had spread rumors that his transactions on behalf of BAYER would no longer be honored as of April 30, 2002. This belief remains just that – it is unsubstantiated. While in cases of illegal dismissal, the employer bears the burden of proving that the dismissal is for a valid or authorized cause, the employee must first establish by substantial evidence the fact of dismissal.

RECRUITMENT AND PLACEMENT OF WORKERS

FROM SCRIBD:

SAMEER OVERSEAS PLACEMENT AGENCY, INC. vs. JOY C. CABILESG.R. No. 170139. August 5, 2014

Facts:

Petitioner, Sameer Overseas Placement Agency, Inc., is a recruitment and placement agency. Responding to an ad it published, respondent, Joy C. Cabiles, submitted her application for a quality control job in Taiwan. Joy's application was accepted wherein he was later asked to sign a one-year employment contract. She alleged that Sameer Overseas Agency required her to pay a placement fee of PhP70,000.00 when she signed the employmentcontract. Joy was deployed to work for Taiwan Wacoal, Co. Ltd. (Wacoal) on June 26, 1997. She alleged that in heremployment contract, she agreed to work as quality control for one year. However, upon reaching Taiwan, her job was that of a cutter. Sameer Overseas Placement Agency claims that on July 14, 1997, a certain Mr. Huwang from Wacoal informed Joy, without prior notice, that she was terminated and that "she should immediately report to their office to get her salary and passport." She was asked to "prepare for immediate repatriation." Joy claimed that her earning amounted only to a total of NT$9,000. And that Wacoal deducted her plane ticket from her earnings. Joy subsequently filed a complaint with the National Labor Relations Commission against petitioner and Wacoal. In her complaint she alleged that she was illegally dismissed and that she is asking that her placement fee be returned together with the withheld amount

for repatriation costs, payment of her salary for 23 months as well as moral and exemplary damages. Sameer Overseas Placement Agency alleged that respondent's termination was due to her inefficiency and failure to comply with the demands of her foreign employer. The agency also claimed that it did not ask for a placement fee ofPhP70,000.00. They further added that Wacoal’s accreditation is now transferred to the Pacific Manpower &Management Services, Inc. (Pacific) and thus all claims should be directed to Pacific Manpower. Pacific Manpower moved for the dismissal of petitioner's claims against it. It alleged that there was no employer-employee relationship between them and moved to dismiss the case on the ground of lack of jurisdiction. The Labor Arbiter dismissed the case stating that the accusation was merely based on speculation. Joy appealed the case to the National Labor Relations Commission which declared that Joy was illegally dismissed. It reiterated the doctrine that the burden of proof to show that the dismissal was based on a just or valid cause belongs to the employer. It found that Sameer Overseas Placement Agency failed to prove that there were just causes for termination. There was no sufficient proof to show that respondent was inefficient in her work and that she failed to comply with company requirements. Furthermore, procedural due process was not observed in terminating respondent. However, NLRC did not rule on the issue on reimbursement of placement fee as well as the alleged transfer of obligations to Pacific. Sameer, aggrieved by the decision filed an appeal before the Court of Appeals. The Court of Appeals affirmed the decision of the NLRC but remanded the case to the NLRC with regards the allegation concerning Pacific. Sameer Overseas Placement Agency was ordered to award Joy with her three months’ worth of salary and the reimbursement of her repatriation and attorney’s fees. Thus this petition.

Issues:

WON Joy was illegally dismissed and was not afforded due process?

WON Sameer’s responsibility is transferred to Pacific?

Ruling:

First, established is the rule that lex loci contractus (the law of the place where the contract is made) governs in this jurisdiction. There is no question that the contract of employment in this case was perfected here in thePhilippines. Therefore, the Labor Code, its

implementing rules and regulations, and other laws affecting labor apply in this case. Furthermore, settled is the rule that the courts of the forum will not enforce any foreign claim obnoxious to the forum's public policy. The provisions of the Constitution as well as the Labor Code which afford protection to labor apply to Filipino employees whether working within the Philippines or abroad. Moreover, the principle of lex loci contractus (the law of the place where the contract is made) governs in this jurisdiction. It is not disputed that the Contract of Employment entered into by and between petitioners and private respondent was executed here in the Philippines with the approval of the Philippine Overseas Employment Administration (POEA). Hence, the Labor Code together with its implementing rules and regulations and other laws affecting labor apply in this case.By our laws, overseas Filipino workers (OFWs) may only be terminated for a just or authorized cause and after compliance with procedural due process requirements.

Art. 282. Termination by employer.— An employer may terminate an employment for any of the following causes:

a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;

b) Gross and habitual neglect by the employee of his duties;

c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;

d)Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representatives; and

e) Other causes analogous to the foregoing. Petitioner’s allegation that respondent was inefficient in her work and negligent in her duties may, therefore, constitute a just cause for termination under Article 282 (b), but only if petitioner was able to prove it. The burden of proving that there is just cause for termination is on the employer. "The employer must affirmatively show rationally adequate evidence that the dismissal was for a justifiable cause." Failure to show that there was valid or just cause for termination would necessarily mean that the dismissal was illegal. To show that dismissal resulting from inefficiency in work is valid, it must be shown that:

1) The employer has set standards of conduct and workmanship against which the employee will be judged;

2) The standards of conduct and workmanship must have been communicated to the employee; and

3) The communication was made at a reasonable time prior to the employee's performance assessment. In this case, petitioner merely alleged that respondent failed to comply with her foreign employer's work requirements and was inefficient in her work. No evidence was shown to support such allegations. Petitioner did not even bother to specify what requirements were not met, what efficiency standards were violated, or what particular acts of respondent constituted inefficiency. There was also no showing that respondent was sufficiently informed of the standards against which her work efficiency and performance were judged.

The parties' conflict as to the position held by respondent showed that even the matter as basic as the job title was not clear. The bare allegations of petitioner are not sufficient to support a claim that there is just cause for termination. There is no proof that respondent was legally terminated.

Petitioner failed to comply with the due process requirements. Respondent's dismissal less than one year from hiring and her repatriation on the same day show not only failure on the part of petitioner to comply with the requirement of the existence of just cause for termination. They patently show that the employers did not comply with the due process requirement. A valid dismissal requires both a valid cause and adherence to the valid procedure of dismissal. The employer is required to give the charged employee at least two written notices before termination. One of the written notices must inform the employee of the particular acts that may cause his or her dismissal. The other notice must "[inform] the employee of the employer's decision". Aside from the notice requirement, the employee must also be given "an opportunity to be heard." Respondent Joy Cabiles, having been illegally dismissed, is entitled to her salary for the unexpired portion of the employment contract that was violated together with attorney's fees and reimbursement of amounts withheld from her salary. Section 10 of Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995,states that overseas workers who were terminated without just, valid, or authorized cause "shall be entitled to the full reimbursement of his placement fee with interest of twelve (12%) per

annum, plus his salaries for the unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever is less."

On the other hand Section 15 of Republic Act No. 8042 states that "repatriation of the worker and the transport of his [or her] personal belongings shall be the primary responsibility of the agency which recruited or deployed the worker overseas". The exception is when "termination of employment is due solely to the fault of the worker," which as we have established, is not the case. The Labor Code also entitles the employee to 10% of the amount of withheld wages as attorney's fees when the withholding is unlawful. The liability of the principal/employer and the recruitment/placement agency for any and all claims under this section shall be joint and several. This provision shall be incorporated in the contract for overseas employment and shall be a condition precedent for its approval. Such liabilities shall continue during the entire period or duration of the employment contract and shall not be affected by any substitution, amendment or modification made locally or in a foreign country of the said contract. And so we clarify the liabilities of Wacoal as principal and petitioner as the employment agency that facilitated respondent's overseas employment. Section 10 of the Migrant Workers and Overseas Filipinos Act of 1995 provides that the foreign employer and the local employment agency are jointly and severally liable for money claims including claims arising out of an employer-employee relationship and/or damages. This provision is in line with the state's policy of affording protection to labor and alleviating workers' plight. The provision on joint and several liability in the Migrant Workers and Overseas Filipinos Act of 1995 assures overseas workers that their rights will not be frustrated with these complications. The fundamental effect of joint and several liability is that "each of the debtors is liable for the entire obligation." A final determination may, therefore, be achieved even if only one of the joint and several debtors are impleaded in an action. Hence, in the case of overseas employment, either the local agency or the foreign employer may be sued for all claims arising from the foreign employer's labor law violations. This way, the overseas workers are assured that someone—the foreign employer's local agent—may be made to answer for violations that the foreign employer may have committed. The Migrant Workers and Overseas Filipinos Act of 1995 ensures that overseas workers have recourse in law despite the circumstances of their

employment. By providing that the liability of the foreign employer may be "enforced to the full extent" against the local agent, the overseas worker is assured of immediate and sufficient payment of what is due them. Corollary to the assurance of immediate recourse in law, the provision on joint and several liability in the Migrant Workers and Overseas Filipinos Act of 1995 shifts the burden of going after the foreign employer from the overseas worker to the local employment agency. However, it must be emphasized that the local agency that is held to answer for the overseas worker's money claims is not left without remedy. The law does not preclude it from going after the foreign employer for reimbursement of whatever payment it has made to the employee to answer for the money claims against the foreign employer. A further implication of making local agencies jointly and severally liable with the foreign employer is that an additional layer of protection is afforded to overseas workers. Local agencies, which are businesses by nature, are inoculated with interest in being always on the lookout against foreign employers that tend to violate labor law. Lest they risk their reputation or finances, local agencies must already have mechanisms for guarding against unscrupulous foreign employers even at the level prior to overseas employment applications. With the present state of the pleadings, it is not possible to determine whether there was indeed a transfer of obligations from petitioner to Pacific. This should not be an obstacle for the respondent overseas worker to proceed with the enforcement of this judgment. Petitioner is possessed with the resources to determine the proper legal remedies to enforce its rights against Pacific, if any.

SECTION 5, RA NO. 10022

"Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or more persons conspiring or confederating with one another. It is deemed committed in large scale if committed against three (3) or more persons individually or as a group.

"In addition to the acts enumerated above, it shall also be unlawful for any person or entity to commit the following prohibited acts:

"(1) Grant a loan to an overseas Filipino worker with interest exceeding eight percent (8%) per annum, which will be used for payment of legal and allowable placement fees and make the migrant worker issue, either

personally or through a guarantor or accommodation party, postdated checks in relation to the said loan;

"(2) Impose a compulsory and exclusive arrangement whereby an overseas Filipino worker is required to avail of a loan only from specifically designated institutions, entities or persons;

"(3) Refuse to condone or renegotiate a loan incurred by an overseas Filipino worker after the latter's employment contract has been prematurely terminated through no fault of his or her own;

"(4) Impose a compulsory and exclusive arrangement whereby an overseas Filipino worker is required to undergo health examinations only from specifically designated medical clinics, institutions, entities or persons, except in the case of a seafarer whose medical examination cost is shouldered by the principal/shipowner;

"(5) Impose a compulsory and exclusive arrangement whereby an overseas Filipino worker is required to undergo training, seminar, instruction or schooling of any kind only from specifically designated institutions, entities or persons, except fpr recommendatory trainings mandated by principals/shipowners where the latter shoulder the cost of such trainings;

"(6) For a suspended recruitment/manning agency to engage in any kind of recruitment activity including the processing of pending workers' applications; and

"(7) For a recruitment/manning agency or a foreign principal/employer to pass on the overseas Filipino worker or deduct from his or her salary the payment of the cost of insurance fees, premium or other insurance related charges, as provided under the compulsory worker's insurance coverage.

"The persons criminally liable for the above offenses are the principals, accomplices and accessories. In case of juridical persons, the officers having ownership, control, management or direction of their business who are responsible for the commission of the offense and the responsible employees/agents thereof shall be liable.

"In the filing of cases for illegal recruitment or any of the prohibited acts under this section, the Secretary of Labor and Employment, the POEA Administrator or their duly authorized representatives, or any aggrieved

person may initiate the corresponding criminal action with the appropriate office. For this purpose, the affidavits and testimonies of operatives or personnel from the Department of Labor and Employment, POEA and other law enforcement agencies who witnessed the acts constituting the offense shall be sufficient to prosecute the accused.

"In the prosecution of offenses punishable under this section, the public prosecutors of the Department of Justice shall collaborate with the anti-illegal recruitment branch of the POEA and, in certain cases, allow the POEA lawyers to take the lead in the prosecution. The POEA lawyers who act as prosecutors in such cases shall be entitled to receive additional allowances as may be determined by the POEA Administrator.

"The filing of an offense punishable under this Act shall be without prejudice to the filing of cases punishable under other existing laws, rules or regulations."

Department Order No. 18-A Series of 2011 

RULES IMPLEMENTING ARTICLES 106 TO 109 OF THE LABOR CODE, AS AMENDED

By virtue of the power vested in the Secretary of Labor and Employment under Articles 5 and 106 to 109 of the Labor Code of the Philippines, as amended, the following regulations governing contracting and subcontracting arrangements are hereby issued:

Section 1. Guiding principles. Contracting and subcontracting arrangements are expressly allowed by law and are subject to regulations for the promotion of employment and the observance of the rights of workers to just and humane conditions of work, security of tenure, self-organization and collective bargaining. Labor-only contracting as defined herein shall be prohibited. 

Section 2. Coverage. These Rules shall apply to all parties of contracting and subcontracting arrangements where employer-employee relationships exist. It shall also apply to cooperatives engaging in contracting or subcontracting arrangements. 

Contractors and subcontractors referred to in these Rules are prohibited from engaging in recruitment and placement activities as defined in Article 13(b) of the Labor Code, whether for local or overseas employment. 

Section 3. Definition of terms. The following terms as used in these Rules, shall mean:

(a) “Bond/s” refers to the bond under Article 108 of the Labor Code that the principal may require from the contractor to be posted equal to the cost of labor under contract. The same may also refer to the security or guarantee posted by the principal for the payment of the services of the contractors under the Service Agreement. 

(b) “Cabo” refers to a person or group of persons or to a labor group which, in the guise of a labor organization, cooperative or any entity, supplies workers to an employer, with or without any monetary or other consideration, whether in the capacity of an agent of the employer or as an ostensible independent contractor. 

(c) “Contracting” or “Subcontracting” refers to an arrangement whereby a principal agrees to put out or farm out with a contractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal. 

(d) “Contractor” refers to any person or entity, including a cooperative, engaged in a legitimate contracting or subcontracting arrangement providing either services, skilled workers, temporary workers, or a combination of services to a principal under a Service Agreement. 

(e) “Contractor’s employee” includes one employed by a contractor to perform or complete a job, work, or service pursuant to a Service Agreement with a principal. It shall also refer to regular employees of the contractor whose functions are not dependent on the performance or completion of a specific job, work or service within a definite period of time, i.e., administrative staff. 

(f) “In-house agency” refers to a contractor which is owned, managed, or controlled directly or indirectly by the principal or one where the principal owns/represents any share of stock, and which operates solely or mainly for the principal. 

(g) “Net Financial Contracting Capacity (NFCC)1” refers to the formula to determine the financial capacity of the contractor to carry out the job, work or services sought to be undertaken under a Service Agreement. NFCC is current assets minus current liabilities multiplied by K, which stands for contract duration equivalent to: 10 for one year or less; 15 for more than one (1) year up to two (2) years; and 20 for more than two (2) years, minus the value of all outstanding or ongoing projects including contracts to be started. 

1 Refers to the formula set out in the Implementing Rules and Regulations of Republic Act No. 9184, or An Act Providing for the Modernization, Standardization and Regulation of the Procurement Activities of the Government and For Other Purposes. 

(h) “Principal” refers to any employer, whether a person or entity, including government agencies and government-owned and controlled-corporations, who/which puts out or farms out a job, service or work to a contractor. 

(i) “Right to control” refers to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. 

(j) “Service Agreement” refers to the contract between the principal and contractor containing the terms and conditions governing the performance or completion of a specific job, work or service being farmed out for a definite or predetermined period. 

(k) “Solidary liability” refers to the liability of the principal, pursuant to the provision of Article 109 of the Labor Code, as direct employer together with the contractor for any violation of any provision of the Labor Code. 

It also refers to the liability of the principal, in the same manner and extent that he/she is liable to his/her direct employees, to the extent of the work performed under the contract when the contractor fails to pay the wages of his/her employees, as provided in Article 106 of the Labor Code, as amended. 

(l) "Substantial capital” refers to paid-up capital stocks/shares of at least Three Million Pesos (P3,000,000.00) in the case of corporations, partnerships and cooperatives; in the case of single proprietorship, a net worth of at least Three Million Pesos (P3,000,000.00). 

(m) “Trilateral Relationship” refers to the relationship in a contracting or subcontracting arrangement where there is a contract for a specific job, work or service between the principal and the contractor, and a contract of employment between the contractor and its workers. There are three (3) parties involved in these arrangements: the principal who decides to farm out a job, work or service to a contractor; the contractor who has the capacity to independently undertake the performance of the job, work or service; and the contractual workers engaged by the contractor to accomplish the job, work or service. 

Section 4. Legitimate contracting or subcontracting. Contracting or subcontracting shall be legitimate if all the following circumstances concur: 

(a) The contractor must be registered in accordance with these Rules and carries a distinct and independent business and undertakes to perform the job, work or service on its own responsibility, according to its own manner and method, and free from control and direction of the principal in all matters connected with the performance of the work except as to the results thereof; 

(b) The contractor has substantial capital and/or investment; and 

(c) The Service Agreement ensures compliance with all the rights and benefits under Labor Laws. 

Section 5. Trilateral relationship in contracting arrangements; Solidary liability. In legitimate contracting or subcontracting arrangement there exists: 

(a) An employer-employee relationship between the contractor and the employees it engaged to perform the specific job, work or service being contracted; and 

(b) A contractual relationship between the principal and the contractor as governed by the provisions of the Civil Code. 

In the event of any violation of any provision of the Labor Code, including the failure to pay wages, there exists a solidary liability on the part of the principal and the contractor for purposes of enforcing the provisions of the Labor Code and other social legislation, to the extent of the work performed under the employment contract. 

However, the principal shall be deemed the direct employer of the contractor’s employee in cases where there is a finding by a competent authority of labor-only contracting, or commission of prohibited activities as provided in Section 7, or a violation of either Sections 8 or 9 hereof. 

Section 6. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this purpose, labor only contracting shall refer to an arrangement where: 

(a) The contractor does not have substantial capital or investments in the form of tools, equipment, machineries, work premises, among others, and the employees recruited and placed are performing activities which are usually necessary or desirable to the operation of the company, or directly related to the main business of the principal within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal; or 

(b) The contractor does not exercise the right to control over the performance of the work of the employee. 

Section 7. Other Prohibitions. Notwithstanding Section 6 of these Rules, the following are hereby declared prohibited for being contrary to law or public policy: 

A. Contracting out of jobs, works or services when not done in good faith and not justified by the exigencies of the business such as the following:

(1) Contracting out of jobs, works or services when the same results in the termination or reduction of regular employees and reduction of work hours or reduction or splitting of the bargaining unit. 

(2) Contracting out of work with a “Cabo”. 

(3) Taking undue advantage of the economic situation or lack of bargaining strength of the contractor’s employees, or undermining their security of tenure or basic rights, or circumventing the provisions of regular employment, in any of the following instances:

(i) Requiring them to perform functions which are currently being performed by the regular employees of the principal; and 

(ii) Requiring them to sign, as a precondition to employment or continued employment, an antedated resignation letter; a blank payroll; a waiver of labor standards including minimum wages and social or welfare benefits; or a quitclaim releasing the principal, contractor or from any liability as to payment of future claims.

(4) Contracting out of a job, work or service through an in-house agency. 

(5) Contracting out of a job, work or service that is necessary or desirable or directly related to the business or operation of the principal by reason of a strike or lockout whether actual or imminent. 

(6) Contracting out of a job, work or service being performed by union members when such will interfere with, restrain or coerce employees in the exercise of their rights to self-organization as provided in Art. 248 (c) of the Labor Code, as amended. 

(7) Repeated hiring of employees under an employment contract of short duration or under a Service Agreement of short duration with the same or different contractors, which circumvents the Labor Code provisions on Security of Tenure. 

(8) Requiring employees under a subcontracting arrangement to sign a contract fixing the period of employment to a term shorter than the term of the Service Agreement, unless the contract is divisible into phases for which

substantially different skills are required and this is made known to the employee at the time of engagement. 

(9) Refusal to provide a copy of the Service Agreement and the employment contracts between the contractor and the employees deployed to work in the bargaining unit of the principal’s certified bargaining agent to the sole and exclusive bargaining agent (SEBA). 

(10) Engaging or maintaining by the principal of subcontracted employees in excess of those provided for in the applicable Collective Bargaining Agreement (CBA) or as set by the Industry Tripartite Council (ITC).

B. Contracting out of jobs, works or services analogous to the above when not done in good faith and not justified by the exigencies of the business. 

Section 8. Rights of contractor’s employees. All contractor’s employees, whether deployed or assigned as reliever, seasonal, week-ender, temporary, or promo jobbers, shall be entitled to all the rights and privileges as provided for in the Labor Code, as amended, to include the following:

(a) Safe and healthful working conditions; 

(b) Labor standards such as but not limited to service incentive leave, rest days, overtime pay, holiday pay, 13th month pay, and separation pay as may be provided in the Service Agreement or under the Labor Code; 

(c) Retirement benefits under the SSS or retirement plans of the contractor, if there is any; 

(d) Social security and welfare benefits; 

(e) Self-organization, collective bargaining and peaceful concerted activities; and 

(f) Security of tenure.

Section 9. Required contracts under these Rules.

(a) Employment contract between the contractor and its employee. 

Notwithstanding any oral or written stipulations to the contrary, the contract between the contractor and its employee shall be governed by the provisions of Articles 279 and 280 of the Labor Code, as amended. It shall include the following terms and conditions:

i. The specific description of the job, work or service to be performed by the employee; 

ii. The place of work and terms and conditions of employment, including a statement of the wage rate applicable to the individual employee; and 

iii. The term or duration of employment that must be co-extensive with the Service Agreement or with the specific phase of work for which the employee is engaged.

The contractor shall inform the employee of the foregoing terms and conditions of employment in writing on or before the first day of his/her employment. 

(b) Service Agreement between the principal and the contractor. The Service Agreement shall include the following:

i. The specific description of the job, work or service being subcontracted. 

ii. The place of work and terms and conditions governing the contracting arrangement, to include the agreed amount of the services to be rendered, the standard administrative fee of not less than ten percent (10%) of the total contract cost. 

iii. Provisions ensuring compliance with all the rights and benefits of the employees under the Labor Code and these Rules on: provision for safe and healthful working conditions; labor standards such as, service incentive leave, rest days, overtime pay, 13th month pay and separation pay; retirement benefits; contributions and remittance of SSS, Philhealth, PagIbig Fund, and other welfare benefits; the right to self-organization, collective bargaining and peaceful concerted action; and the right to security of tenure. 

iv. A provision on the Net Financial Contracting Capacity of the contractor,

which must be equal to the total contract cost. 

v. A provision on the issuance of the bond/s as defined in Section 3(m) renewable every year. 

vi. The contractor or subcontractor shall directly remit monthly the employers’ share and employees’ contribution to the SSS, ECC, Philhealth and Pagibig. 

vii. The term or duration of engagement. The Service Agreement must conform to the DOLE Standard Computation and Standard Service Agreement, which form part of these Rules as Annexes “A” and “B”.

Section 10. Duties of the principal. Pursuant to the authority of the Secretary of Labor and Employment to restrict or prohibit the contracting of labor to protect the rights of the workers and to ensure compliance with the provisions of the Labor Code, as amended, the principal, as the indirect employer or the user of the services of the contractor, is hereby required to observe the provisions of these Rules. 

Section 11. Security of tenure of contractor’s employees. It is understood that all contractor’s employees enjoy security of tenure regardless of whether the contract of employment is co-terminus with the service agreement, or for a specific job, work or service, or phase thereof. 

Section 12. Observance of required standards of due process; requirements of notice. In all cases of termination of employment, the standards of due process laid down in Article 277(b) of the Labor Code, as amended, and settled jurisprudence on the matter2, must be observed. Thus, the following is hereby set out to clarify the standards of due process that must be observed: 

2 King of Kings Transport, Inc., Claire dela Fuente, and Melissa Lim, vs. Santiago O. Mamac, G.R. No. 166208, (29 June 2007); and Felix B. Perez and Amante G. Doria v. Philippine Telegraph and Telephone Company and Jose Luis Santiago, G.R. No. 152048, (7 April 2009), (en banc Decision). 

I. For termination of employment based on just causes as defined in Article

282 of the Code, the requirement of two written notices served on the employee shall observe the following: 

(A) The first written notice should contain:

(1) The specific causes or grounds for termination; 

(2) Detailed narration of the facts and circumstances that will serve as basis for the charge against the employee. A general description of the charge will not suffice; 

(3) The company rule, if any, that is violated and/or the ground under Art. 282 that is being charged against the employee; and

(4) A directive that the employee is given opportunity to submit a written explanation within a reasonable period. 

“Reasonable period” should be construed as a period of at least five (5) calendar days from receipt of the notice to give the employee an opportunity to study the accusation, consult a union official or lawyer, gather data and evidence, and decide on the defenses against the complaint.

(B) After serving the first notice, the employer should afford the employee ample opportunity to be heard and to defend himself/herself with the assistance of his/her representative if he/she so desires, as provided in Article 277(b) of the Labor Code, as amended. 

“Ample opportunity to be heard” means any meaningful opportunity (verbal or written) given to the employee to answer the charges against him/her and submit evidence in support of his/her defense, whether in a hearing, conference or some other fair, just and reasonable way. A formal hearing or conference becomes mandatory only when requested by the employee in writing or substantial evidentiary disputes exist or a company rule or practice requires it, or when similar circumstances justify it. 

(C) After determining that termination of employment is justified, the employer contractor shall serve the employee a written notice of termination indicating that: (1) all circumstances involving the charge against the employees have been considered; and (2) the grounds have been

established to justify the severance of their employment. The foregoing notices shall be served on the employee’s last known address.

II. For termination of employment based on authorized causes defined in Article 283 of the Labor Code, the requirement of due process shall be deemed complied with upon service of a written notice to the employee and the appropriate regional office of the Department of Labor and Employment at least thirty days before the effectivity of the termination, specifying the ground or grounds for termination. 

III. If the termination is brought about by the completion of the contract or phase thereof, no prior notice is required. If the termination is brought about by the failure of a probationary employee to meet the reasonable standards of the employer, which was made known to the employee at the time of his/her employment, it shall be sufficient that a written notice is served upon the employee within a reasonable time prior to the expiration of the probationary period. 

Section 13. Effect of termination of employment. The termination of employment of the contractor employee prior to the expiration of the Service Agreement shall be governed by Articles 282, 283 and 284 of the Labor Code. 

In case the termination of employment is caused by the pre-termination of the Service Agreement not due to authorized causes under Article 283, the right of the contractor employee to unpaid wages and other unpaid benefits including unremitted legal mandatory contributions, e.g., SSS, Philhealth, Pag-ibig, ECC, shall be borne by the party at fault, without prejudice to the solidary liability of the parties to the Service Agreement. 

Where the termination results from the expiration of the service agreement, or from the completion of the phase of the job, work or service for which the employee is engaged, the latter may opt for payment of separation benefits as may be provided by law or the Service Agreement, without prejudice to his/her entitlement to the completion bonuses or other emoluments, including retirement benefits whenever applicable. 

Section 14. Mandatory Registration and Registry of Legitimate Contractors.

Consistent with the authority of the Secretary of Labor and Employment to restrict or prohibit the contracting out of labor to protect the rights of workers, it shall be mandatory for all persons or entities, including cooperatives, acting as contractors, to register with the Regional Office of the Department of Labor and Employment (DOLE) where it principally operates. 

Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting. 

Accordingly, the registration system governing contracting arrangements and implemented by the Regional Offices of the DOLE is hereby established, with the Bureau of Working Conditions (BWC) as the central registry. 

Section 15. Requirements for registration. The application for registration as a contractor shall be filed at the DOLE Regional Office in the region where it seeks to principally operate. The applicant shall provide in the application form the following information:

(a) The name and business address of the applicant and the areas where it seeks to operate; 

(b) The names and addresses of officers, if the applicant is a corporation, partnership, cooperative or a labor organization; 

(c) The nature of the applicant’s business and the industry or industries where the applicant seeks to operate; 

(d) The number of regular workers and the total workforce; 

(e) The list of clients, if any, the number of personnel assigned to each client, if any, and the services provided to the client; 

(f) The description of the phases of the contract, including the number of employees covered in each phase, where appropriate; and 

(g) Proof of compliance with substantial capital requirement as defined in Section 3(l) of these Rules.

The application shall be supported by:

(a) A certified true copy of a certificate of registration of firm or business name from the Securities and Exchange Commission (SEC), Department of Trade and Industry (DTI), Cooperative Development Authority (CDA), or from the DOLE if the applicant is a labor organization; 

(b) A certified true copy of the license or business permit issued by the local government unit or units where the contractor operates; 

(c) A certified listing, with proof of ownership or lease contract, of facilities, tools, equipment, premises implements, machineries and work premises, that are actually and directly used by the contractor in the performance or completion of the job, work or service contracted out. In addition, the applicant shall submit a photo of the office building and premises where it holds office; 

(d) A copy of audited financial statements if the applicant is a corporation, partnership, cooperative or a labor organization, or copy of the latest ITR if the applicant is a sole proprietorship; and 

(e) A sworn disclosure that the registrant, its officers and owners or principal stockholders or any one of them, has not been operating or previously operating as a contractor under a different business name or entity or with pending cases of violations of these Rules and/or labor standards, or with a cancelled registration. In case any of the foregoing has a pending case, a copy of the complaint and the latest status of the case shall be attached. 

The application shall be verified. It shall include a DOLE certification of attendance to orientation seminar on these Rules and an undertaking that the contractor shall abide by all applicable labor laws and regulations.

Section 16. Filing and processing of application. The application with all supporting documents shall be filed in triplicate in the Regional Office where the applicant principally operates. No application for registration shall be accepted unless all the requirements in the preceding Section are complied

with. 

Section 17. Verification inspection. Within two (2) working days upon receipt of the application with complete supporting documents, the authorized representative of the Regional Director shall conduct a verification inspection of the facilities, tools, equipment, and work premises of the applicant. 

Section 18. Approval or denial of the application. The Regional Office shall deny or approve the application within one (1) working day after the verification inspection. 

Applications that fail to meet the requirements set forth in Section 15 of these Rules shall be denied. 

Section 19. Registration fee. Payment of registration fee of Twenty-Five Thousand Pesos (P25,000.00) shall be required upon approval of the application. 

Upon registration, the Regional Office shall return one set of the duly-stamped application documents to the applicant, retain one set for its file, and transmit the remaining set to the Bureau of Working Conditions (BWC) within five (5) days from registration. 

Section 20. Validity of certificate of registration of contractors. The contractor shall be deemed registered only on the date of issuance of its Certificate of Registration. 

The Certificate of Registration shall be effective for three (3) years, unless cancelled after due process. The same shall be valid in the region where it is registered. 

In case the contractor has Service Agreements or operates outside the region where it is registered, it shall request a duly authenticated copy of its Certificate of Registration from the registering Regional Office and submit the same to the DOLE Regional Office where it seeks to operate, together with a copy of its Service Agreement/s in the area, for purposes of monitoring compliance with these Rules. 

Section 21. Renewal of registration. All registered contractors shall apply for renewal of their Certificates of Registration thirty (30) days before the expiration of their registration to remain in the roster of legitimate service contractors. The applicant shall pay a registration renewal fee of Twenty-Five Thousand Pesos (P25,000.00) to the DOLE Regional Office. 

Copies of all the updated supporting documents in letters (a) to (e) of Section 15 hereof shall be attached to the duly accomplished application form, including the following: 

(a) Certificate of membership and proof of payment of SSS, Philhealth, BIR, ECC and Pag-Ibig contributions for the last three (3) years, as well as loan amortizations; and 

(b) Certificate of pending or no pending labor standards violation case/s with the National Labor Relations Commission (NLRC) and Department of Labor and Employment (DOLE). The pendency of a case will not prejudice the renewal of the registration, unless there is a finding of violation of labor standards by the DOLE Regional Director. 

Section 22. Semi-annual reporting. The contractor shall submit in triplicate its subscribed semi-annual report using a prescribed form to the appropriate Regional Office. The report shall include: 

(a) A list of contracts entered with the principal during the subject reporting period; 

(b) The number of workers covered by each contract with the principal; 

(c) Proof of payment of remittances to the Social Security System (SSS), the Pag-Ibig Fund, Philhealth, Employees Compensation Commission (ECC), and Bureau of Internal Revenue (BIR) due its employees during the subject reporting period and of amortization of declared loans due from its employees; and 

(d) A certified listing of all cases filed against the contractor before the NLRC 

The Regional Office shall return one set of the duly-stamped report to the contractor, retain one set for its file, and transmit the remaining set to the Bureau of Working Conditions (BWC) within five (5) days from receipt thereof. 

Section 23. Grounds for cancellation of registration. The Regional Director shall, upon a verified complaint, cancel or revoke the registration of a contractor after due process, based on any of the following grounds: 

(a) Misrepresentation of facts in the application; 

(b) Submission of a falsified or tampered application or supporting documents to the application for registration; 

(c) Non-submission of Service Agreement between the principal and the contractor when required to do so; 

(d) Non-submission of the required semi-annual report as provided in Section 22 (Semi-annual reporting) hereof; 

(e) Findings through arbitration that the contractor has engaged in labor-only contracting and/or the prohibited activities as provided in Section 7 (Other Prohibitions) hereof; 

(f) Non-compliance with labor standards and working conditions; 

(g) Findings of violation of Section 8 (Rights of contractor’s employees) or Section 9 (Required contracts) of these Rules; 

(h) Non-compliance with SSS, the HDMF, Pag-Ibig, Philhealth, and ECC laws; and 

(i) Collecting any fees not authorized by law and other applicable rules and regulations. 

Section 24. Due process in cancellation of registration. Complaint/s based on any of the grounds enumerated in the preceding Section against the

contractor shall be filed in writing and under oath with the Regional Office which issued the Certificate of Registration. 

The complaint/s shall state the following:

(a) The name/s and address/es of the complainant/s; 

(b) Name and address of the contractor; 

(c) The ground/s for cancellation; 

(d) When and where the action complained of happened; 

(e) The amount of money claim, if any; and 

(f) The relief/s sought.

Upon receipt of the complaint, the Regional Director shall direct the contractor, with notice to the complainant, to file a verified answer/counter affidavit within ten (10) calendar days without extension, incorporating therein all pertinent documents in support of his/her defenses, with proof of service of a copy to the complainant. Failure to file an answer/counter affidavit shall constitute a waiver on the part of the respondent. No motion to dismiss shall be entertained. 

The Regional Director or his duly authorized representative may conduct a clarificatory hearing within the prescribed ten (10) calendar days within which to file a verified answer/counter affidavit. 

Within the said ten (10) calendar days period, the contractor shall make the necessary corrections/rectifications on the violations that are immediately rectifiable upon its own initiative in order to be fully compliant. 

The Regional Director may avail himself of all reasonable means to ascertain the facts of the case, including conduct of inspection, where appropriate, and examination of informed persons. 

The proceedings before the Regional Office shall be summary in nature.

The conduct of hearings shall be terminated within fifteen (15) calendar days from the first scheduled clarificatory hearing. The Regional Director shall resolve the case within ten (10) working days from the date of the last hearing. If there is no necessity to conduct a hearing, the case shall be resolved within ten (10) working days from receipt of the verified answer/counter affidavit. 

Any motion for reconsideration from the Order of the Regional Director shall be treated as an appeal. 

Section 25. Appeal. The Order of the Regional Director is appealable to the Secretary within ten (10) working days from receipt of the copy of the Order. The appeal shall be filed with the Regional Office which issued the cancellation Order. The Office of the Secretary shall have thirty (30) working days from receipt of the records of the case to resolve the appeal. The Decision of the Secretary shall become final and executory after ten (10) days from receipt thereof by the parties. No motion for reconsideration of the Decision shall be entertained. 

Section 26. Effects of cancellation of registration. A final Order of cancellation shall divest the contractor of its legitimate status to engage in contracting/subcontracting. 

Such Order of cancellation shall be a ground to deny an application for renewal of registration to a contractor under the Rules. 

The cancellation of the registration of the contractor for engaging in labor-only contracting or for violation of any of the provisions of these Rules involving a particular Service Agreement will not, however, impair the validity of existing legitimate jobcontracting arrangements the contractor may have entered into with other principals prior to the cancellation of its registration. Any valid and subsisting Service Agreement shall be respected until its expiration; thereafter, contracting with a delisted contractor shall make the principal direct employer of all employees under the Service Agreement pursuant to Articles 106 and 109 of the Labor Code. 

Section 27. Effects of finding of labor-only contracting and/or violation of Sections 7. 8 or 9 of the Rules. A finding by competent authority of labor-

only contracting shall render the principal jointly and severally liable with the contractor to the latter's employees, in the same manner and extent that the principal is liable to employees directly hired by him/her, as provided in Article 106 of the Labor Code, as amended. 

A finding of commission of any of the prohibited activities in Section 7, or violation of either Sections 8 or 9 hereof, shall render the principal the direct employer of the employees of the contractor or subcontractor, pursuant to Article 109 of the Labor Code, as amended. 

Section 28. Retaliatory measures. Pursuant to Article 118 of the Labor Code, as amended, it shall be unlawful for the principal, contractor, or any party privy to the contract or services provided to refuse to pay or reduce the wages and benefits, and discharge or in any manner discriminate against any worker who has filed any complaint or instituted any proceeding on wages (under Title II, Book III of the Labor Code), labor standards violation, or has testified or is about to testify in such proceedings. 

Section 29. Enforcement of labor standards and working conditions. Consistent with Article 128 (Visitorial and Enforcement Power) of the Labor Code, as amended, the Regional Director through his/her duly authorized representatives, shall conduct routine inspection of establishments engaged in contracting arrangement regardless of the number of employees engaged by the principal or by the contractor. 

They shall have access to employer’s records and premises at any time of the day or night whenever work is being undertaken therein, and the right to copy therefrom, to question any employee and investigate any fact, condition or matter which may be necessary to determine violations or which may aid in the enforcement of the Labor Code and of any labor law, wage order, or rules and regulations issued pursuant thereto. 

The findings of the duly authorized representative shall be referred to the Regional Director for appropriate action as provided for in Article 128, and shall be furnished the collective bargaining agent, if any. 

Based on the visitorial and enforcement power of the Secretary of Labor and Employment in Article 128 (a), (b), (c), and (d), the Regional Director

shall issue compliance orders to give effect to the labor standards provisions of the Labor Code, other labor legislation, and these Rules. 

Section 30. Duty to produce copy of contract between the principal and the contractor. The principal or the contractor shall be under an obligation to produce a copy of the Service Agreement in the ordinary course of inspection. The contractor shall likewise be under an obligation to produce a copy of any contract of employment when directed to do so by the Regional Office Director or his/her authorized representative. 

Section 31. Tripartite implementation and monitoring of compliance; Use of registration fees. A region-based tripartite monitoring team on the observance of labor standards in contracting and subcontracting arrangements shall be constituted as a subcommittee of the Regional Tripartite Industrial Peace Council (RTIPC) within fifteen (15) days from the effectivity of these Rules. It shall submit a quarterly regional monitoring report to the DOLE Secretary and to the National Tripartite Industrial Peace Council (NTIPC). The Bureau of Working Conditions (BWC) shall ensure the implementation of this provision, and shall conduct capacity building to the members of the regional tripartite monitoring team. 

For this purpose, a portion of the collected registration fees shall be used in the operation of the region-based tripartite monitoring team, including in the development of an internet-based monitoring system and database. It shall likewise be used for transmittal of the monthly report of all registered contractors to the Bureau of Local Employment (BLE), and in generating labor market information. 

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