ALIVIADO v Procter and GamblePetitioner: JOEB M. ALIVIADO, et alRespondent: Procter and Gamble, and Promm-GemPonente: Del Castillo, J.

DOCTRINE:

Labor laws expressly prohibit labor-only contracting. To prevent its circumvention, the Labor Code establishes an employer-employee relationship between the employer and the employees of the labor-only contractor.

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.

To emphasize, there is labor-only contracting when the contractor or sub-contractor 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) The contractor does not exercise the right to control over the performance of the work of the contractual employee.

FACTS:

1. 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. 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.

2. 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.

3. They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time.

4. 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.

5. SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers.

6. In December 1991, petitioners filed a complaint against P&G for regularization, service incentive leave pay, other benefits with damages and for illegal dismissal.

7. The Labor Arbiter dismissed the complaint for lack of merit due to the absence of Employer-Employee Relationship.

8. He found that the selection and engagement of the petitioners, the payment of their wages, the power of dismissal and control with respect to the means and methods by which their work was accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that Promm-Gem and SAPS were legitimate independent job contractors.

9. NLRC affirmed the LA. It was also affirmed by the CA.10. Petitioner’s Arguments: a) they were recruited long before the

existence of Promm-Gem or SAPS, b) P&G instigated their dismissal.

11. Respondent’s Arguments: a) no EER relationship as it was Promm-Gem or Saps which falls under the four fold test, b) employer can farm out any activities to an independent contractor, regardless of whether such activity is peripheral or core in nature, and c) the determination of whether to engage the services of a job contractor is within the ambit of management prerogative.

ISSUES:

1. Pertinent issue: W/N Promm-Gem and SAPS are legitimate job contractors.

2. Main Issue: W/N the petitioners were illegally dismissed.

RULING + RATIO: 1. YES. Promm-Gem is a legitimate job contractor.

a. Promm-Gem is a legitimate job contractor, while SAPS is a labor-only contractor. Therefore, the employees of SAPS are the employees of P&G, SAPS being merely the agent of P&G.

b. Promm-Gem has shown evidence: i. that it has substantial investment which relates to

the work to be performed, such as authorized stock of P1M and a paid-in capital, or capital available for operations, of P500k; it has long-term assets worth over P400k and current assets worth over P700k;

ii. it maintained its own warehouse and office space; iii. it had under its name three registered vehicles;iv. it has clients aside from P&G. v. Promm-Gem also 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 them uniforms.

vi. Also, Promm-Gem already considered the complainants working under it as its regular, not merely contractual or project, employees. 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 also 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.

2. NO. Saps is a labor-only contractor.a. 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.

b. Furthermore, there is no showing of substantial investment in tools, equipment or other assets. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities (merchandising and promotion) which are directly related to the principal business of P&G, the court held that SAPS is engaged in "labor-only contracting". 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.

3. MAIN ISSUE, but not relevant to the topic. a. Yes, they were illegally dismissed.

i. In the instant case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so. As such, we find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm. A misconduct which is not serious or grave, as that existing in the instant case, cannot be a valid basis for dismissing an employee.

ii. Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that the employee concerned holds a position of responsibility or of trust and confidence. As such, he must be invested with confidence on delicate matters, such as custody, handling or care and protection of the property and assets of the employer. And, in order to constitute a just cause for dismissal, the act complained of must be work-related and must show that the employee is unfit to continue to work for the employer.

iii. Promm-Gem have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is there any evidence to show that they are unfit to continue to work as merchandisers for Promm-Gem.

iv. With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal. The records show that upon receipt by SAPS of P&Gs letter terminating their Merchandising Services Contact effective March 11, 1993, they in turn verbally informed the concerned petitioners not to report for work anymore.

DISPOSITIONWHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003 are REVERSED and SET ASIDE.

SO ORDERED.