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[G.R. NOS. 184903 | OCT. 10, 2012]

By virtue of a certification election, Digitel Employees Union (Union) became the exclusive
bargaining agent of all rank and file employees of Digitel in 1994. The Union and Digitel then
commenced collective bargaining negotiations which resulted in bara gaining deadlock. The
Union threatened to go on strike, but then the Labor Secretary assumed jurisdiction over the
dispute and eventually directed the parties to execute a CBA.
However, no CBA was forged between Digitel and the Union. Some Union members
abandoned their employment with Digitel. The Union later became dormant. Ten (10) years
thereafter or on 28 September 2004, Digitel received from Esplana, who was President of the
Union, a letter containing the list of officers, CBA proposals and ground rules.
Digitel was reluctant to negotiate with the Union and demanded that the latter Union show
compliance with the provisions of the Unions Constitution and By-laws on union
membership and election of officers. On 4 November 2004, Esplana and his group filed a
case for Preventive Mediation before the National Conciliation and Mediation Board based on
Digitels violation of the duty to bargain. On 25 November 2004, Esplana filed a notice of
On10 March 2005, the then Labor Secretary issued an Order assuming jurisdiction over the
labor dispute. During the pendency of the controversy, Digitel Service, Inc. (Digiserv), a nonprofit enterprise engaged in call center servicing, filed with the DOLE an Establishment
Termination Report stating that it will cease its business operation. The closure affected at
least 100 employees, 42 of whom are members of the herein respondent Union. Alleging
that the affected employees are its members and in reaction to Digiservs action, Esplana
and his group filed another Notice of Strike for union busting, illegal lock-out, and violation of
the assumption order. On 23 May 2005, the Labor Secretary ordered the second notice of
strike subsumed by the previous Assumption Order.
Meanwhile, on 14 March 2005, Digitel iled a petition with the Bureau of Labor Relations (BLR)
seeking cancellation of the Unions registration.
In a Decision dated 11 May 2005, the Regional Director of the DOLE dismissed the petition
for cancellation of union registration for lack of merit. The appeal filed by Digitel with the
BLR was eventually dismissed for lack of merit in a Resolution dated 9 March 2007.In an
Order dated 13 July 2005, the Secretary of Labor directed Digitel to commence the CBA
negotiation with the Union and certified for compulsory arbitration before the NLRC the issue
of unfair labor practice. In accordance with the 13 July 2005 Order of the Secretary of Labor,
the unfair labor practice issue was certified for compulsory arbitration before the NLRC. On
31 January 2006, NLRC rendered a Decision dismissing the unfair labor practice charge
against Digitel but declaring the dismissal of the 13 employees of Digiserv as illegal and
ordering their reinstatement.
The Union manifested that out of 42 employees, only 13 remained, as most had already
accepted separation pay. In view of this unfavorable decision, Digitel filed a petition on 9
June 2006 before the Court of Appeals, challenging the above NLRC Decision and Resolution
and arguing mainly that Digiserv employees are not employees of Digitel. On 18 June 2008,
CA partially granted the case for ULP, thus modifying the assailed NLRC dispositions. The CA
likewise sustained the finding that Digiserv is engaged in labor-only contracting and that its
employees are actually employees of Digitel. Digitel filed a motion for reconsideration but
was denied in a Resolution dated 9 October 2008. Hence, this petition for review on

1) Whether Digiserv is a legitimate contractor; and
2) Whether there was a valid dismissal.

Digiserv is a labor-only contractor.
Labor-only contracting is expressly prohibited by our labor laws. After an exhaustive review
of the records, there is no showing that first, Digiserv has substantial investment in the form
of capital, equipment or tools. The NLRC, as echoed by the CA, did not find substantial
Digiservs authorized capital stock of P 1,000,000.00. It pointed out that only P 250,000.00
of the authorized capital stock had been subscribed and only P 62,500.00 had been paid up.
There was no increase in capitalization for the last 10 years.
Moreover, in the Amended Articles of Incorporation, as well as in the General Information
Sheets for the years 1994, 2001 and 2005, the primary purpose of Digiserv is to provide
manpower services. In PCI Automation Center, Inc. v. National Labor Relations Commission,
the Court made the following distinction: "the legitimate job contractor provides services
while the labor-only contractor provides only manpower. The legitimate job contractor
undertakes to perform a specific job for the principal employer while the labor-only
contractor merely provides the personnel to work for the principal employer. The services
provided by employees of Digiserv are directly related to the business of Digitel. It is
undisputed that as early as March 1994, the affected employees, except for two, were
already performing their job as Traffic Operator which was later renamed as Customer
Service Representative (CSR). It is equally undisputed that all throughout their employment,
their function as CSR remains the same until they were terminated effective May 30, 2005.
Their long period of employment as such is an indication that their job is directly related to
the main business of DIGITEL which is telecommunications. Furthermore, Digiserv does not
exercise control over the affected employees. Digiserv shared the same Human Resources,
Accounting, Audit and Legal Departments with Digitel which manifested that it was Digitel
who exercised control over the performance of the affected employees. The NLRC also relied
on the letters of commendation, plaques of appreciation and certification issued by Digitel to
the Customer Service Representatives as evidence of control. Considering that Digiserv has
been found to be engaged in labor-only contracting, the dismissed employees are deemed
employees of Digitel. The affected employees were illegally dismissed.
In addition to finding that Digiserv is a labor-only contractor, records teem with proof that its
dismissed employees are in fact employees of Digitel. The NLRC enumerated these pieces of
evidence, thus:
The remaining affected employees, except for two (2), were already hired by
DIGITEL even before the existence of DIGISERV. Likewise, the remaining affected
employees continuously held the position of Customer Service Representative,
which was earlier known as Traffic Operator, from the time they were appointed on
March 1, 1994until they were terminated on May 30, 2005.
Further, the Certificates issued to Customer Service Representative likewise show that they
are employees of DIGITEL, Take for example the "Service Award" issued to Ma. Loretta C.
Esen, one of the remaining affected employees. The "Service Award" was signed by the
officers of DIGITELthe VP-Customer Services Division, the VP-Human Resources Division and
the Group Head-Human Resources Division. It cannot be gainsaid that it is only the employer
that issues service award to its employees.
As an alternative argument, Digitel maintains that the affected employees were validly
dismissed on the grounds of closure of Digiserv, a department within Digitel. In the recent
case of Waterfront Cebu City Hotel v. Jimenez, we referred to the closure of a department or
division of a company as retrenchment. For a valid retrenchment, the following elements
must be present:
(1) That retrenchment is reasonably necessary and likely to prevent business losses
which, if already incurred, are not merely demonisms, but substantial, serious, actual
and real, or if only expected, are reasonably imminent as perceived objectively and in
good faith by the employer;

(2) That the employer served written notice both to the employees and to the
Department of Labor and Employment at least one month prior to the intended date
of retrenchment;
(3) That the employer pays the retrenched employees separation pay equivalent to one
(1) month pay or at least month pay for every year of service, whichever is higher;
(4) That the employer exercises its prerogative to retrench employees in good faith for
the advancement of its interest and not to defeat or circumvent the employees right
to security of tenure; and
(5) That the employer used fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as status,
efficiency, seniority, physical fitness, age, and financial hardship for certain workers.
Only the first 3 elements of a valid retrenchment had been here satisfied. Indeed, it is
management prerogative to close a department of the company. Digitels decision to
outsource the call center operation of the company is a valid reason to close down the
operations of a department under which the affected employees were employed. The fifth
element regarding the criteria to be observed by Digitel clearly does not apply because all
employees under Digiserv were dismissed. The instant case is all about the fourth element,
that is, whether or not the affected employees were dismissed in good faith. We find that
there was no good faith in the retrenchment.

Prior to the cessation of Digiservs operations, the Secretary of Labor had issued the first and
second assumption order. The effects of the assumption order issued by the Secretary of
Labor are two-fold. It enjoins an impending strike on the part of the employees and orders
the employer to maintain the status quo. There is no doubt that Digitel defied the
assumption order by abruptly closing down Digiserv. The closure of a department is not
illegal per se. What makes it unlawful is when the closure is undertaken in bad faith. In St.
John Colleges, Inc. v. St. John Academy Faculty and Employees Union, bad faith was
evidenced by the timing of and reasons for the closure and the timing of and reasons for the
subsequent opening.


[G.R. NO. 182018 | OCTOBER 10, 2012]

The respondents were hired by Norkis Trading Corporation and worked for the same as
skilled workers assigned in the operation of industrial and welding machines owned and
used by Norkis Trading for its business. They were not treated as regular employees by
Norkis Trading Corp. Instead, they were regarded by Norkis Trading as members of PASAKA,
a cooperative, which was deemed an independent contractor that merely deployed the
respondents to render services for Norkis Trading.
The respondents, believing that they were regular employees of Norkis Trading, filed on June
9, 1999 with the DOLE a complaint against Norkis Trading and PASAKA for labor-only
contracting and non-payment of minimum wage and overtime pay. The filing of the
complaint for labor-only contracting allegedly led to the suspension of the respondents
membership with PASAKA.
On October 13, 1999, the respondents were to report back to work but they were informed
by PASAKA that they would be transferred to Norkis Tradings sister company, Porta Coeli
Industrial Corporation (Porta Coeli). The respondents opposed the transfer as it would
allegedly result in a change of employer, from Norkis Trading to Porta Coeli. The respondents
also believed that the transfer would result in a demotion since from being skilled workers in
Norkis Trading; they would be reduced to being utility workers. These circumstances made
the respondents amend their complaint for illegal suspension, to include the charges of
unfair labor practice, illegal dismissal, damages and attorneys fees.

Whether or not the respondents were illegally dismissed by Norkis Trading

YES. Where an entity is declared to be a labor-only contractor, the employees supplied by
said contractor to the principal employer become regular employees of the latter. Having
gained regular status, the employees are entitled to security of tenure and can only be
dismissed for just or authorized causes and after they had been afforded due process.
Termination of employment without just or authorized cause and without observing
procedural due process is illegal. Considering that Porta Coeli is an entity separate and
distinct from Norkis Trading, the respondents employment with Norkis Trading was
necessarily severed by the change in work assignment.


[G.R. NO. 170054 | JAN. 21, 2013]
Petitioner Goya, Inc. (Company), a domestic corporation engaged in the manufacture,
importation, and wholesale of top quality food products, hired contractual employees from
PESO Resources Development Corporation (PESO) to perform temporary and occasional
services in its factory. This prompted respondent Goya, Inc. Employees UnionFFW (Union) to
request for a grievance conference on the ground that the contractual workers do not belong
to the categories of employees stipulated in the existing Collective Bargaining Agreement
(CBA). Section 4, Article I of the CBA provides for three categories of employees:
Probationary Employee, Regular Employee and Casual Employee.
The Union asserted that the hiring of contractual employees from PESO is not a
management prerogative and in gross violation of the CBA tantamount to unfair labor
practice (ULP). The Company asserted that Section 4, Article I of the CBA merely provides
for the definition of the categories of employees and does not put a limitation on the
Companys right to engage the services of job contractors or its management prerogative to
address temporary/occasional needs in its operation.
The voluntary arbitrator and CA ruled that it does not constitute unfair labor practice as it
(sic) not characterized under the law as a gross violation of the CBA. Both also ruled that the
Companys engagement of PESO was indeed a management prerogative. However, the
engagement of PESO is not in keeping with the intent and spirit of the CBA provision in
question. It must, however, be stressed that the right of management to outsource parts of
its operations is not totally eliminated but is merely limited by the CBA. They directed the
Company to observe and comply with its commitment as it pertains to the hiring of casual
employees when necessitated by business circumstances. Following the said categories, the
Company should have observed and complied with the provision of their CBA. Since the
Company had admitted that it engaged the services of PESO to perform temporary or
occasional services which is akin to those performed by casual employees, the Company
should have tapped the services of casual employees instead of engaging PESO.

Whether or not the engagement of PESO is valid.

No. the Company kept on harping that both the VA and the CA conceded that its
engagement of contractual workers from PESO was a valid exercise of management
prerogative. It is confused. To emphasize, declaring that a particular act falls within the
concept of management prerogative is significantly different from acknowledging that such
act is a valid exercise thereof. What the VA and the CA correctly ruled was that the
Companys act of contracting out/outsourcing is within the purview of management
prerogative. Both did not say, however, that such act is a valid exercise thereof. Obviously,
this is due to the recognition that the CBA provisions agreed upon by the Company and the
Union delimit the free exercise of management prerogative pertaining to the hiring of
contractual employees. Indeed, the VA opined that "the right of the management to
outsource parts of its operations is not totally eliminated but is merely limited by the CBA,"
while the CA held that "this management prerogative of contracting out services, however,
is not without limitation. x x x These categories of employees particularly with respect to
casual employees serve as limitation to the Companys prerogative to outsource parts of its
operations especially when hiring contractual employees." A collective bargaining
agreement is the law between the parties.


[G.R. NO. 200094 | JUNE 10, 2013]

PCCr is a non-stock educational institution, while the petitioners were janitors,

janitresses and supervisor in the Maintenance Department of PCCr under the
supervision and control of Atty. Florante A. Seril (Atty. Seril), PCCrs Senior Vice
President for Administration. The petitioners, however, were made to understand,
upon application with respondent school, that they were under MBMSI, a corporation
engaged in providing janitorial services to clients. Atty. Seril is also the President and
General Manager of MBMSI.
Sometime in 2008, PCCr discovered that the Certificate of Incorporation of MBMSI
had been revoked as of July 2, 2003. On March 16, 2009, PCCr, through its President,
respondent Gregory Alan F. Bautista (Bautista), citing the revocation, terminated the
schools relationship with MBMSI, resulting in the dismissal of the employees or
maintenance personnel under MBMSI, except Alfonso Bongot (Bongot) who was
In September, 2009, the dismissed employees, led by their supervisor, Benigno
Vigilla (Vigilla), filed their respective complaints for illegal dismissal, reinstatement,
back wages, separation pay (for Bongot), underpayment of salaries, overtime pay,
holiday pay, service incentive leave, and 13th month pay against MBMSI, Atty. Seril,
PCCr, and Bautista.
In their complaints, they alleged that it was the school, not MBMSI, which was their
real employer because (a) MBMSIs certification had been revoked; (b) PCCr had
direct control over MBMSIs operations; (c) there was no contract between MBMSI and
PCCr; and (d) the selection and hiring of employees were undertaken by PCCr.
On the other hand, PCCr and Bautista contended that (a) PCCr could not have
illegally dismissed the complainants because it was not their direct employer; (b)
MBMSI was the one who had complete and direct control over the complainants; and
(c) PCCr had a contractual agreement with MBMSI, thus, making the latter their direct
On September 11, 2009, PCCr submitted several documents before LA Ronaldo
Hernandez, including releases, waivers and quitclaims in favor of MBMSI executed by
the complainants to prove that they were employees of MBMSI and not PCCr.


After due proceedings, the LA handed down his decision, finding that (a) PCCr was
the real principal employer of the complainants ; (b) MBMSI was a mere adjunct or
alter ego/labor-only contractor; (c) the complainants were regular employees of PCCr;
and (d) PCCr/Bautista were in bad faith in dismissing the complainants.
The LA explained that PCCr was actually the one which exercised control over the
means and methods of the work of the petitioners, thru Atty. Seril, who was acting,
throughout the time in his capacity as Senior Vice President for Administration of
PCCr, not in any way or time as the supposed employer/general manager or
president of MBMSI.


Not satisfied, the respondents filed an appeal before the NLRC. In its Resolution,
dated February 11, 2011, the NLRC affirmed the LAs findings. Nevertheless, the
respondents were excused from their liability by virtue of the releases, waivers and

quitclaims executed by the petitioners.

In their motion for reconsideration, petitioners attached as annexes their affidavits
denying that they had signed the releases, waivers, and quitclaims. They prayed for
the reinstatement in toto of the July 30, 2010 Decision of the LA. 8 MBMSI/Atty. Seril
also filed a motion for reconsideration9 questioning the declaration of the NLRC that
he was solidarily liable with PCCr.
On April 28, 2011, NLRC modified its February 11, 2011 Resolution by affirming the
July 30, 2010 Decision10 of the LA only in so far as complainants Ernesto B. Ayento
and Eduardo B. Salonga were concerned. As for the other 17 complainants, the NLRC
ruled that their awards had been superseded by their respective releases, waivers
and quitclaims.


On September 16, 2011, the CA denied the petition and affirmed the two Resolutions
of the NLRC, dated February 11, 2011 and April 28, 2011. The CA pointed out that
based on the principle of solidary liability and Article 1217 11 of the New Civil Code,
petitioners respective releases, waivers and quitclaims in favor of MBMSI and Atty.
Seril redounded to the benefit of the respondents. The CA also upheld the factual
findings of the NLRC as to the authenticity and due execution of the individual
releases, waivers and quitclaims because of the failure of petitioners to substantiate
their claim of forgery and to overcome the presumption of regularity of a notarized
document. Petitioners motion for reconsideration was likewise denied by the CA in its
January 4, 2012 Resolution.
Hence, this petition under Rule 45 challenging the CA Decision

Whether or not their claims against the respondents were amicably settled by virtue
of the releases, waivers and quitclaims which they had executed in favor of MBMSI.
- whether or not petitioners executed the said releases, waivers and quitclaims
whether or not a labor-only contractor is solidarily liable with the employer.
The petition fails.
The Releases, Waivers and Quitclaims are Valid
We noted that the individual quitclaims, waivers and releases executed by the complainants
showing that they received their separation pay from MBMSI were duly notarized by a Notary
Public. Such notarization gives prima facie evidence of their due execution. Further, said
releases, waivers, and quitclaims were not refuted nor disputed by complainants herein,
thus, we have no recourse but to uphold their due execution.
A Labor-only Contractor is Solidarily Liable with the Employer
The issue of whether there is solidary liability between the labor-only contractor and the
employer is crucial in this case. If a labor-only contractor is solidarily liable with the
employer, then the releases, waivers and quitclaims in favor of MBMSI will redound to the
benefit of PCCr. On the other hand, if a labor-only contractor is not solidarily liable with the
employer, the latter being directly liable, then the releases, waivers and quitclaims in favor
of MBMSI will not extinguish the liability of PCCr.

The NLRC and the CA correctly ruled that the releases, waivers and quitclaims
executed by petitioners in favor of MBMSI redounded to the benefit of PCCr
pursuant to Article 1217 of the New Civil Code. The reason is that MBMSI is

solidarily liable with the respondents for the valid claims of petitioners pursuant to
Article 109 of the Labor Code.
As correctly pointed out by the respondents, the basis of the solidary liability of the
principal with those engaged in labor-only contracting is the last paragraph of
Article 106 of the Labor Code, which in part provides: "In such cases labor-only
contracting, 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."

Under the general rule set out in the first and second paragraphs of Article 106, an employer
who enters into a contract with a contractor for the performance of work for the employer
does not thereby create an employer-employees relationship between himself and the
employees of the contractor. Thus, the employees of the contractor remain the contractor's
employees and his alone. Nonetheless when a contractor fails to pay the wages of his
employees in accordance with the Labor Code, the employer who contracted out the job to
the contractor becomes jointly and severally liable with his contractor to the employees of
the latter "to the extent of the work performed under the contract" as such employer were
the employer of the contractor's employees. The law itself, in other words, establishes an
employer-employee relationship between the employer and the job contractor's employees
for a limited purpose, i.e., in order to ensure that the latter get paid the wages due to them.
A similar situation obtains where there is "labor only" contracting. The "labor-only"
contractor-i.e. "the person or intermediary" - is considered "merely as an agent of the
employer." The employer is made by the statute responsible to the employees of the "labor
only" contractor as if such employees had been directly employed by the employer. Thus,
where "labor-only" contracting exists in a given case, the statute itself implies or establishes
an employer-employee relationship between the employer (the owner of the project) and the
employees of the "labor only" contractor, this time for a comprehensive purpose: "employer
for purposes of this Code, to prevent any violation or circumvention of any provision of this
Code." The law in effect holds both the employer and the "labor only" contractor responsible
to the latter's employees for the more effective safeguarding of the employees' rights under
the Labor Code.