SECOND DIVISION

[G.R. No. 160506. March 9, 2010.]

JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO,

MONCHITO AMPELOQUIO, ABRAHAM BASMAYOR,
JONATHAN MATEO, LORENZO PLATON, JOSE FERNANDO
GUTIERREZ, ESTANISLAO BUENAVENTURA, LOPE
SALONGA, FRANZ DAVID, NESTOR IGNACIO, JULIO REY,
RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO
CALANAO, ROLANDO ROMASANTA, RHUEL AGOO,
BONIFACIO ORTEGA, ARSENIO SORIANO, JR., ARNEL
ENDAYA, ROBERTO ENRIQUEZ, NESTOR BAQUILA,
EDGARDO QUIAMBAO, SANTOS BACALSO, SAMSON BASCO,
ALADINO GREGORE, JR., EDWIN GARCIA, ARMANDO
VILLAR, EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J.
GARCIA, FERNANDO MACABENTE, MELECIO CASAPAO,
REYNALDO JACABAN, FERDINAND SALVO, ALSTANDO
MONTOS, RAINER N. SALVADOR, RAMIL REYES, PEDRO G.
ROY, LEONARDO P. TALLEDO, ENRIQUE F. TALLEDO,
WILLIE ORTIZ, ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL
BILLONES, ALLAN BALTAZAR, NOLI GABUYO, EMMANUEL
E. LABAN, RAMIR E. PIAT, RAUL DULAY, TADEO DURAN,
JOSEPH BANICO, ALBERT LEYNES, ANTONIO DACUNA,
RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO,
WILFREDO TORRES, MELCHOR CARDANO, MARIANO
NARANIAN, JOHN SUMERGIDO, ROBERTO ROSALES,
GERRY C. GATPO, GERMAN N. GUEVARRA, GILBERT Y.
MIRANDA, RODOLFO C. TOLEDO, ARNOLD D. LASTONA,
PHILIP M. LOZA, MARIO N. CULDAYON, ORLANDO P.
JIMENEZ, FRED P. JIMENEZ, RESTITUTO C. PAMINTUAN,
JR., ROLANDO J. DE ANDRES, ARTUZ BUSTENERA,
ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN,
ALEJANDRINO ABATON, and ORLANDO S. BALANGUE,
petitioners, vs. PROCTER & GAMBLE PHILS., INC., and
PROMM-GEM, INC., respondents.

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 DECISION

DEL CASTILLO, J : p

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.

The instant petition for review assails the March 21, 2003 Decision 1(1) of the
Court of Appeals (CA) in CA-G.R. SP No. 52082 and its October 20, 2003
Resolution 2(2) denying the motions for reconsideration separately filed by
petitioners and respondent Procter & Gamble Phils., Inc. (P&G). The appellate court
affirmed the July 27, 1998 Decision of the National Labor Relations Commission
(NLRC), which in turn affirmed the November 29, 1996 Decision 3(3) of the Labor
Arbiter. All these decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and
Promotions Services (SAPS) to be legitimate independent contractors and the
employers of the petitioners.

Factual Antecedents

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, more specifically as follows:

Name Date Employed Date Dismissed

1. Joeb M. Aliviado November, 1985 May 5, 1992

2. Arthur Corpuz 1988 March 11, 1993

3. Eric Aliviado 1985 March 11, 1993

4. Monchito Ampeloquio September, 1988 March 11, 1993

5. Abraham Basmayor[, Jr.] 1987 March 11, 1993

6. Jonathan Mateo May, 1988 March 11, 1993

7. Lorenzo Platon 1985 March 11, 1993

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 8. Jose Fernando Gutierrez cCDAHE 1988 May 5, 1992

9. Estanislao Buenaventura June, 1988 March 11, 1993

10. Lope Salonga 1982 March 11, 1993

11. Franz David 1989 March 11, 1993

12. Nestor Ignacio 1982 March 11, 1993

13. Julio Rey 1989 May 5, 1992

14. Ruben [Vasquez], Jr. 1985 May 5, 1992

15. Maximino Pascual 1990 May 5, 1992

16. Ernesto Calanao[, Jr.] 1987 May 5, 1992

17. Rolando Romasanta 1983 March 11, 1993

18. [Roehl] Agoo 1988 March 11, 1993

19. Bonifacio Ortega 1988 March 11, 1993

20. Arsenio Soriano, Jr. 1985 March 11, 1993

21. Arnel Endaya 1983 March 11, 1993

22. Roberto Enriquez December, 1988 March 11, 1993

23. Nestor [Es]quila 1983 May 5, 1992

24. Ed[g]ardo Quiambao 1989 March 11, 1993

25. Santos Bacalso 1990 March 11, 1993

26. Samson Basco 1984 March 11, 1993

27. Aladino Gregor[e], Jr. 1980 May 5, 1992

28. Edwin Garcia 1987 May 5, 1992

29. Armando Villar 1990 May 5, 1992

30. Emil Tawat 1988 March 11, 1993

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 31. Mario P. Liongson 1991 May 5, 1992

32. Cresente J. Garcia 1984 March 11, 1993

33. Fernando Macabent[a] 1990 May 5, 1992

34. Melecio Casapao 1987 March 11, 1993

35. Reynaldo Jacaban 1990 May 5, 1992

36. Ferdinand Salvo 1985 May 5, 1992

37. Alstando Montos 1984 March 11, 1993

38. Rainer N. Salvador 1984 May 5, 1992

39. Ramil Reyes 1984 March 11, 1993

40. Pedro G. Roy 1987

41. Leonardo [F]. Talledo 1985 March 11, 1993

42. Enrique [F]. Talledo 1988 March 11, 1993

43. Willie Ortiz 1987 May 5, 1992

44. Ernesto Soyosa HTSAEa 1988 May 5, 1992

45. Romeo Vasquez 1985 March 11, 1993

46. Joel Billones 1987 March 11, 1993

47. Allan Baltazar 1989 March 11, 1993

48. Noli Gabuyo 1991 March 11, 1993

49. Emmanuel E. Laban 1987 May 5, 1992

50. Ramir[o] E. [Pita] 1990 May 5, 1992

51. Raul Dulay 1988 May 5, 1992

52. Tadeo Duran[o] 1988 May 5, 1992

53. Joseph Banico 1988 March 11, 1993

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 54. Albert Leynes 1990 May 5, 1992

55. Antonio Dacu[m]a 1990 May 5, 1992

56. Renato dela Cruz 1982

57. Romeo Viernes, Jr. 1986

58. El[ia]s Bas[c]o 1989

59. Wilfredo Torres 1986 May 5, 1992

60. Melchor Carda[ñ]o 1991 May 5, 1992

61. [Marino] [Maranion] 1989 May 5, 1992

62. John Sumergido 1987 May 5, 1992

63. Roberto Rosales May, 1987 May 5, 1992

64. Gerry [G]. Gatpo November, 1990 March 11, 1993

65. German N. Guevara May, 1990 March 11, 1993

66. Gilbert Y. Miranda June, 1991 March 11, 1993

67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993

68. Arnold D. [Laspoña] June 1991 March 11, 1993

69. Philip M. Loza March 5, 1992 March 11, 1993

70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993

71. Orlando P. Jimenez November 6, 1992 March 11, 1993

72. Fred P. Jimenez September, 1991 March 11, 1993

73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993

74. Rolando J. de Andres June, 1991 March 11, 1993

75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993

76. Roberto B. Cruz May 4, 1990 March 11, 1993

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 77. Rosedy O. Yordan June, 1991 May 5, 1992

78. Dennis Dacasin May, 1990 May 5, 1992

79. Alejandrino Abaton 1988 May 5, 1992

80. Orlando S. Balangue March, 1989March 11, 1993 4(4)

They all individually signed employment contracts with either Promm-Gem or

SAPS for periods of more or less five months at a time. 5(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(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. 7(7)

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(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(9)

In December 1991, petitioners filed a complaint 10(10) against P&G for

regularization, service incentive leave pay and other benefits with damages. The
complaint was later amended 11(11) to include the matter of their subsequent
dismissal.

Ruling of the Labor Arbiter

On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of
merit and ruled that there was no employer-employee relationship between petitioners
and P&G. 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. The dispositive portion of his Decision reads: HDCAaS

WHEREFORE, premises considered, judgment is hereby rendered

Dismissing the above-entitled cases against respondent Procter & Gamble
(Phils.), Inc. for lack of merit.

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 SO ORDERED. 12(12)

Ruling of the NLRC

Appealing to the NLRC, petitioners disputed the Labor Arbiter's findings. On

July 27, 1998, the NLRC rendered a Decision 13(13) disposing as follows:

WHEREFORE, premises considered, the appeal of complainants is

hereby DISMISSED and the decision appealed from AFFIRMED.

SO ORDERED. 14(14)

Petitioners filed a motion for reconsideration but the motion was denied in the
November 19, 1998 Resolution. 15(15)

Ruling of the Court of Appeals

Petitioners then filed a petition for certiorari with the CA, alleging grave abuse
of discretion amounting to lack or excess of jurisdiction on the part of the Labor
Arbiter and the NLRC. However, said petition was also denied by the CA which
disposed as follows:

WHEREFORE, the decision of the National Labor Relations

Commission dated July 27, 1998 is AFFIRMED with the MODIFICATION that
respondent Procter & Gamble Phils., Inc. is ordered to pay service incentive
leave pay to petitioners.

SO ORDERED. 16(16)

Petitioners filed a motion for reconsideration but the motion was also denied.
Hence, this petition.

Issues

Petitioners now come before us raising the following issues:

I.

WHETHER . . . THE HONORABLE COURT OF APPEALS HAS

COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT FIND THE
PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF
JURISDICTION IN RENDERING THE QUESTIONED JUDGMENT WHEN,
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 OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND
ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC.
IS THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY
DISMISSED BY THE FORMER.

II.

WHETHER . . . THE HONORABLE COURT OF APPEALS HAS

COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT DECLARE
THAT THE PUBLIC RESPONDENTS HAD ACTED WITH GRAVE ABUSE
OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE
RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF
ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS
LITIGATION COSTS AND ATTORNEY'S FEES. 17(17)

Simply stated, the issues are: (1) whether P&G is the employer of petitioners;
(2) whether petitioners were illegally dismissed; and (3) whether petitioners are
entitled for payment of actual, moral and exemplary damages as well as litigation
costs and attorney's fees.

Petitioners' Arguments

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. They further
claim that when the latter had its so-called re-alignment program, petitioners were
instructed to fill up application forms and report to the agencies which P&G created.
18(18)

Petitioners further claim that P&G instigated their dismissal from work as can
be gleaned from its letter 19(19) to SAPS dated February 24, 1993, informing the
latter that their Merchandising Services Contract will no longer be renewed.

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. 20(20)

Respondents' Arguments

On the other hand, P&G points out that the instant petition raises only
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 questions of fact and should thus be thrown out as the Court is not a trier of facts. It
argues that findings of facts of the NLRC, particularly where the NLRC and the
Labor Arbiter are in agreement, are deemed binding and conclusive on the Supreme
Court. aCTcDS

P&G further 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.

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as

waived the filing of the Comment of Promm-Gem on the petition. 21(21) Also,
although SAPS was impleaded as a party in the proceedings before the Labor Arbiter
and the NLRC, it was no longer impleaded as a party in the proceedings before the
CA. 22(22) Hence, our pronouncements with regard to SAPS are only for the purpose
of determining the obligations of P&G, if any.

Our Ruling

The petition has merit.

As a rule, the Court refrains from reviewing factual assessments of lower

courts and agencies exercising adjudicative functions, such as the NLRC.
Occasionally, however, the Court is constrained to wade into factual matters when
there is insufficient or insubstantial evidence on record to support those factual
findings; or when too much is concluded, inferred or deduced from the bare or
incomplete facts appearing on record. 23(23) In the present case, we find the need to
review the records to ascertain the facts.

Labor-only contracting and job contracting

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.

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 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(24) distinguishes between legitimate
and labor-only contracting:

xxx xxx xxx

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
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 service, and the contractual workers engaged by the contractor or subcontractor
to accomplish the job[,] work or service.

xxx xxx xxx

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. cCaSHA

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.

xxx xxx xxx (Underscoring supplied.)

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.

To emphasize, there is labor-only contracting when the contractor or

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 sub-contractor merely recruits, supplies or places workers to perform a job, work or
service for a principal 25(25) 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. (Underscoring supplied)

In the instant case, the financial statements 26(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(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(28) It also had under its name three registered vehicles which were used
for its promotional/merchandising business. 29(29) Promm-Gem also has other clients
30(30) aside from P&G. 31(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(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(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
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 much its working capital and assets are. Furthermore, there is no showing of
substantial investment in tools, equipment or other assets.

In Vinoya v. National Labor Relations Commission, 34(34) the Court held that
"[w]ith 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." 35(35) Applying the same
rationale to the present case, 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(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(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 of P31,250.00 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 the performance 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(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(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(40) AIaHES

Consequently, the following petitioners, having been recruited and supplied by

SAPS 41(41) — which engaged in labor-only contracting — are considered as the
employees of P&G: Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham
Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope
Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta, Roehl Agoo,
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 Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo
Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador,
Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar,
Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C.
Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P.
Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz
Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil
Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz,
Romeo Viernes, Jr., Elias Basco and Dennis Dacasin.

The following petitioners, having worked under, and been dismissed by

Promm-Gem, are considered the employees of Promm-Gem, not of P&G: Wilfredo
Torres, John Sumergido, Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo,
Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa, Aladino Gregore, Jr.,
Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie Ortiz, Armando Villar,
Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio
Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo
Durano, Raul Dulay, Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo
Jacaban, and Joeb Aliviado. 42(42)

Termination of services

We now discuss the issue of whether petitioners were illegally dismissed. In

cases of regular employment, the employer shall not terminate the services of an
employee except for a just 43(43) or authorized 44(44) cause.

In the instant case, the termination letters given by Promm-Gem to its

employees uniformly specified the cause of dismissal as grave misconduct and breach
of trust, as follows:

xxx xxx xxx

This informs you that effective May 5, 1992, your employment with our
company, Promm-Gem, Inc. has been terminated. We find your expressed
admission, that you considered yourself as an employee of Procter & Gamble
Phils., Inc. . . . and assailing the integrity of the Company as legitimate and
independent promotion firm, is deemed as an act of disloyalty prejudicial to the
interests of our Company: serious misconduct and breach of trust reposed upon
you as employee of our Company which [co]nstitute just cause for the
termination of your employment.

xxx xxx xxx 45(45)

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 Misconduct has been defined as improper or wrong conduct; the transgression
of some established and definite rule of action, a forbidden act, a dereliction of duty,
unlawful in character implying wrongful intent and not mere error of judgment. The
misconduct to be serious must be of such grave and aggravated character and not
merely trivial and unimportant. 46(46) To be a just cause for dismissal, such
misconduct (a) must be serious; (b) must relate to the performance of the employee's
duties; and (c) must show that the employee has become unfit to continue working for
the employer. 47(47)

In other words, in order to constitute serious misconduct which will warrant

the dismissal of an employee under paragraph (a) of Article 282 of the Labor Code, it
is not sufficient that the act or conduct complained of has violated some established
rules or policies. It is equally important and required that the act or conduct must have
been performed with wrongful intent. 48(48) 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.

Meanwhile, loss of trust and confidence, as a ground for dismissal, must be

based on the willful breach of the trust reposed in the employee by his employer.
Ordinary breach will not suffice. A breach of trust is willful if it is done intentionally,
knowingly and purposely, without justifiable excuse, as distinguished from an act
done carelessly, thoughtlessly, heedlessly or inadvertently. 49(49)

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. 50(50) In the instant case, the
petitioners-employees of Promm-Gem have not been shown to be occupying positions
of responsibility or of trust and confidence. Neither is there any evidence to show that
they are unfit to continue to work as merchandisers for Promm-Gem.

All told, we find no valid cause for the dismissal of petitioners-employees of

Promm-Gem.
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 While Promm-Gem had complied with the procedural aspect of due process in
terminating the employment of petitioners-employees, i.e., giving two notices and in
between such notices, an opportunity for the employees to answer and rebut the
charges against them, it failed to comply with the substantive aspect of due process as
the acts complained of neither constitute serious misconduct nor breach of trust.
Hence, the dismissal is illegal. AHSaTI

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&G's
letter terminating their "Merchandising Services Contract" effective March 11, 1993,
they in turn verbally informed the concerned petitioners not to report for work
anymore. The concerned petitioners related their dismissal as follows:

xxx xxx xxx

5. On March 11, 1993, we were called to a meeting at SAPS office.

We were told by Mr. Saturnino A. Ponce that we should already stop working
immediately because that was the order of Procter and Gamble. According to
him he could not do otherwise because Procter and Gamble was the one paying
us. To prove that Procter and Gamble was the one responsible in our dismissal,
he showed to us the letter 51(51) dated February 24, 1993, . . .

February 24, 1993

Sales and Promotions Services

Armon's Bldg., 142 Kamias Road,
Quezon City

Attention: Mr. Saturnino A. Ponce

President & General Manager

Gentlemen:

Based on our discussions last 5 and 19 February 1993, this formally

informs you that we will not be renewing our Merchandising Services
Contract with your agency.

Please immediately undertake efforts to ensure that your services to the

Company will terminate effective close of business hours of 11 March
1993.

This is without prejudice to whatever obligations you may have to the

company under the abovementioned contract.

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 Very truly yours,

(Sgd.)
EMMANUEL M. NON
Sales Merchandising III

6. On March 12, 1993, we reported to our respective outlet

assignments. But, we were no longer allowed to work and we were refused
entrance by the security guards posted. According to the security guards, all
merchandisers of Procter and Gamble under S[APS] who filed a case in the
Dept. of Labor are already dismissed as per letter of Procter and Gamble dated
February 25, 1993. . . . 52(52)

Neither SAPS nor P&G dispute the existence of these circumstances.

Parenthetically, unlike Promm-Gem which dismissed its employees for grave
misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon
the initiation of P&G. It is evident that SAPS does not carry on its own business
because the termination of its contract with P&G automatically meant for it also the
termination of its employees' services. It is obvious from its act that SAPS had no
other clients and had no intention of seeking other clients in order to further its
merchandising business. From all indications SAPS, existed to cater solely to the need
of P&G for the supply of employees in the latter's merchandising concerns only.
Under the circumstances prevailing in the instant case, we cannot consider SAPS as
an independent contractor.

Going back to the matter of dismissal, it must be emphasized that the onus
probandi to prove the lawfulness of the dismissal rests with the employer. 53(53) In
termination cases, the burden of proof rests upon the employer to show that the
dismissal is for just and valid cause. 54(54) In the instant case, P&G failed to discharge
the burden of proving the legality and validity of the dismissals of those petitioners
who are considered its employees. Hence, the dismissals necessarily were not
justified and are therefore illegal.

Damages

We now go to the issue of whether petitioners are entitled to damages. Moral

and exemplary damages are recoverable where the dismissal of an employee was
attended by bad faith or fraud or constituted an act oppressive to labor or was done in
a manner contrary to morals, good customs or public policy. 55(55)

With regard to the employees of Promm-Gem, there being no evidence of bad

faith, fraud or any oppressive act on the part of the latter, we find no support for the
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 award of damages. TcDIaA

As for P&G, the records show that it dismissed its employees through SAPS in
a manner oppressive to labor. The sudden and peremptory barring of the concerned
petitioners from work, and from admission to the work place, after just a one-day
verbal notice, and for no valid cause bellows oppression and utter disregard of the
right to due process of the concerned petitioners. Hence, an award of moral damages
is called for.

Attorney's fees may likewise be awarded to the concerned petitioners who

were illegally dismissed in bad faith and were compelled to litigate or incur expenses
to protect their rights by reason of the oppressive acts 56(56) of P&G.

Lastly, under Article 279 of the Labor Code, an employee who is unjustly
dismissed from work shall be entitled to reinstatement without loss of seniority rights
and other privileges, inclusive of allowances, and other benefits or their monetary
equivalent from the time the compensation was withheld up to the time of actual
reinstatement. 57(57) Hence, all the petitioners, having been illegally dismissed are
entitled to reinstatement without loss of seniority rights and with full back wages and
other benefits from the time of their illegal dismissal up to the time of their actual
reinstatement.

WHEREFORE, 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. Procter & Gamble Phils., Inc.
and Promm-Gem, Inc. are ORDERED to reinstate their respective employees
immediately without loss of seniority rights and with full backwages and other
benefits from the time of their illegal dismissal up to the time of their actual
reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to pay each of
those petitioners considered as its employees, namely Arthur Corpuz, Eric Aliviado,
Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon,
Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando
Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya,
Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando
Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo,
Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert
Y. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N.
Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando
J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S.
Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez,
Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, P25,000.00
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 as moral damages plus ten percent of the total sum as and for attorney's fees.

Let this case be REMANDED to the Labor Arbiter for the computation, within
30 days from receipt of this Decision, of petitioners' backwages and other benefits;
and ten percent of the total sum as and for attorney's fees as stated above; and for
immediate execution.

SO ORDERED.

Carpio, Brion, Abad and Perez, JJ., concur.

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