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[85] Nestle v. Pudan o When they didn’t comply, Nestle and ODSI terminated them.

G.R. No. 220617 | January 30, 2017 | Perlas-Bernabe, J. o Thus, they were constrained to file the complaint.
 Respondents alleged that:
TOPIC: Independent Contractor and Labor-Only Contractor – Absence of control over o ODSI is a labor-only contractor, and thus, they should be deemed
means and manner by which contractor performs its business: no labor-only contracting. regular employees of Nestle; and
o There was no just or authorized cause for their dismissal.
SUMMARY: Respondents are employees hired by ODSI, which is a company that entered  ODSI answered that:
into a Distributorship Agreement with Nestle. Respondents demanded to be considered o They are a company engaged in the business of buying, selling,
regular employees of Nestle, but were merely directed to sign contracts ODSI, which distributing, and marketing of goods and commodities of every kind
respondents refused to do. They were dismissed, so they filed a complaint, arguing that and it enters into all kinds of contracts for acquisition;
ODSI is a labor-only contractor of Nestle. SC held that they are not, holding that the o They entered into a Distributorship Agreement1 with Nestle;
stipulations in the Distributorship Agreement hardly demonstrate control by Nestle over o They hired respondents as employees and assigned them to execute
the means and methods ODSI performs its business. the Distributorship Agreement;
o Their business relationship with Nestle became sour when Nestle’s
DOCTRINE: sales department badgered ODSI on their sales targets, leading
 Absent control of a company over the means and manner by which a contractor Nestle to eventually downsize their marketing and promotional
performs its business, it cannot be said that the latter is a labor-only contractor. support for ODSI;
 The imposition of minimum standards concerning sales, marketing, finance and o The actions of Nestle resulted in business reverses and the closure of its
operations are nothing more than an exercise of sound business practice to Nestle unit due to the termination of the Distributorship Agreement
increase sales and maximize profits. and the failure of rehabilitation; and
 For as long as these requirements do not impinge on a distributor's o Respondents were not dismissed, just in floating status.
independence, then there is nothing wrong with placing reasonable expectations  Nestle said: nothing. They did not file any position paper or appear in the
on them. scheduled conferences.
 December 2012: The Labor Arbiter dismissed the complaint for lack of merit,
FACTS: but still ordered ODSI and Nestle to pay respondents nominal damages in the
 On various dates, respondents (Benny A. Puedan, Jr., Jayfer D. Limbo, Brodney aggregate amount of P235,728.00 plus attorney’s fees.
N. Avila, Arthur C. Aquino, Ryan A. Miranda, Ronald R. Alave, Johnny A. Dimaya, o According to LA, respondents did not prove that they were Nestle
Marlon B. Delos Reyes, Angelito R. Cordova, Edgar S. Barruga, Camilo B. employees and since ODSI did close down due to business losses, they
Cordova, Jr., Jeffry B. Languisan, Edison U. Villapando, Jheirney S. Remolin, were not illegally dismissed.
Mary Luz A. Macatalad, Jenalyn M. Gamurot, Dennis G. Bawag, Raquel A.  May 2013: The NLRC reversed the LA ruling and ordered ODSI and Nestle to
Abellera, and Ricandro G. Guatno, Jr.) were allegedly hired by Ocho de pay each of respondents (1) separation pay amounting to ½ month pay for every
Septiembre, Inc. (ODSI) and Nestle Philippines, Inc. to sell various Nestle year of service until the finality of the Decision, (2) P30K in nominal damages,
products in the assigned area. and (3) attorney’s fees.
 After some time, respondents demanded that they be considered regular o They held that ODSI failed to prove that their closure was due to
Nestle employees, but they were directed instead to sign contracts of serious business losses as they did not present evidence.
employment with ODSI.

1 Some relevant portions of the Distributorship Agreement: outlets which DISTRIBUTOR should cover or service within a particular period. Distribution targets
refer to the number of stock keeping units and/or product lines covered by this Agreement.
3.1 DISTRIBUTOR (ODSI) shall assign a sales force in his/her regular employ, dedicated solely to the
handling of NPI Grocery Retail Products under this Agreement, and who shall exclusively cover In the event of DISTRIBUTOR's failure to meet NESTLÉ's sales targets, NESTLÉ has the sole discretion
assigned areas/channels of distribution. of assigning another distributor of the Products and/or reducing the Territory covered by
DISTRIBUTOR. xxx
3.2 DISTRIBUTOR shall service the outlets within the Territory by re-selling Products obtained
exclusively from Nestle Philippines, Inc. and not from any other source. xxx 3.9 NESTLÉ shall provide the necessary promotional and marketing support for the Products through
promotional materials, product information literature, participation in trade fairs, and other market
3.6 DISTRIBUTOR shall meet the sales, reach and distribution targets agreed upon by NESTLÉ and development activities.
DISTRIBUTOR. For purposes of this clause, reach targets refer to the number of stores, dealers and/or
o They also held that ODSI is a labor-only contractor of Nestle,
considering that: 2. NO, ODSI is not a labor-only contractor of Nestle.
 ODSI had no substantial capitalization or investment;  A closer examination of the Distributorship Agreement reveals that the
 respondents performed activities directly related to Nestle relationship of NPI and ODSI is not that of a principal and a contractor, but that
principal business; and of a seller and a buyer/re-seller.
 the fact that respondents' employment depended on the  The stipulations in the Distributorship Agreement hardly demonstrate
continuous supply of Nestle products shows that ODSI had control on the part of Nestle over the means and methods by which ODSI
not been carrying an independent business according to its performs its business, nor were they intended to dictate how ODSI shall conduct
own manner and method. its business as a distributor.
o Respondents moved for a partial reconsideration, arguing that Nestle  The imposition of minimum standards concerning sales, marketing, finance
should reinstate them as they are the true employer and only ODSI and operations are nothing more than an exercise of sound business practice
closed down. to increase sales and maximize profits.
o Nestle also moved for reconsideration, contending that it was deprived  For as long as these requirements do not impinge on a distributor's
of its right to participate in the LA & NLRC proceedings and that they independence, then there is nothing wrong with placing reasonable
had no employer-employee relationship with the respondents. expectations on them.
 August 2013: NLRC denied both motions for reconsideration.  It was only reasonable for Nestle to require its distributors to meet various
o They held that Nestle was deprived of their right to participate since conditions for the grant and continuation of a distributorship agreement for as
they were served copies of pleadings, and assuming arguendo that they long as these conditions do not control the means and methods on how ODSI
were deprived of due process, the filing of the motion for does its distributorship business.
reconsideration cured the defect.  This is to ensure the integrity and quality of the products which will ultimately fall
o They also held that the circumstances of the Distributorship into the hands of the end consumer.
Agreement showed that ODSI was a labor-only contractor.
 March 2015: The CA affirmed the NLRC ruling. 3. NO.
 The foregoing circumstances show that ODSI was not a labor-only contractor
ISSUE/S: of Nestle.
 W/N Nestle was accorded due process by the tribunals a quo. YES.  Hence, the latter cannot be deemed the true employer of respondents.
 W/N ODSI is a labor-only contractor of Nestlé. NO.  As a consequence, Nestle cannot be held jointly and severally liable to ODSI's
 W/N Nestle is respondents’ true employer that must be held jointly and severally monetary obligations towards respondents.
liable with ODSI for respondents’ money claims. NO.
RULING: Petition is granted; CA decision is set aside. The NLRC resolution is modified,
HOLDING/RATIONALE: deleting Nestle’s solidary liability with ODSI for the latter’s monetary obligations to the
1. YES, the labor tribunals gave Nestle an opportunity to be heard. respondents.
 The essence of due process is to be heard, and, as applied to administrative
proceedings, this means a fair and reasonable opportunity to explain one's side,
or an opportunity to seek a reconsideration of the action or ruling complained of.
 However, Nestle was furnished via courier a copy of the amended complaint
against it as shown by an LBC Receipt.
 They also received their Position Paper, Reply, and Rejoinder.
 LA correctly held that Nestle simply decided not to file any position paper or
appear in the scheduled conferences.
 Assuming arguendo that they were deprived of due process, the defect was cured
by:
o Nestle’s filing of its motion for reconsideration before the NLRC;
o the NLRC's subsequent issuance of its Resolution dated August 30,
2013 wherein the tribunal considered all of Nestle’s arguments as
contained in its motion; and
o Nestle’s subsequent elevation of the case to the CA.