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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 GREGORO, 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, v. PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents.

D E C I S I O N

DEL CASTILLO, J.:

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.chanroblesvirtua|awlibary

The instant petition for review assails the March 21, 2003 Decision1cЃa of the Court of Appeals (CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution2cЃa 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 Decision3cЃa 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:

NameDate EmployedDate Dismissed
1. Joeb M. AliviadoNovember, 1985May 5, 1992
2. Arthur Corpuz1988March 11, 1993
3. Eric Aliviado1985March 11, 1993
4. Monchito Ampeloquio September,1988March 11, 1993
5. Abraham Basmayor[, Jr.]1987March 11, 1993
6. Jonathan Mateo May,1988March 11, 1993
7. Lorenzo Platon1985March 11, 1993
8. Jose Fernando Gutierrez1988May 5, 1992
9. Estanislao BuenaventuraJune, 1988March 11, 1993
10. Lope Salonga1982March 11, 1993
11. Franz David1989March 11, 1993
12. Nestor Ignacio1982March 11, 1993
13. Julio Rey1989May 5, 1992
14. Ruben [Vasquez], Jr.1985May 5, 1992
15. Maximino Pascual1990May 5, 1992
16. Ernesto Calanao[, Jr.]1987May 5, 1992
17. Rolando Romasanta1983March 11, 1993
18. [Roehl] Agoo1988March 11, 1993
19. Bonifacio Ortega1988March 11, 1993
20. Arsenio Soriano, Jr.1985March 11, 1993
21. Arnel Endaya1983March 11, 1993
22. Roberto Enriquez December,1988March 11, 1993
23. Nestor [Es]quila1983May 5, 1992
24. Ed[g]ardo Quiambao1989March 11, 1993
25. Santos Bacalso1990March 11, 1993
26. Samson Basco1984March 11, 1993
27. Aladino Gregor[e], Jr.1980May 5, 1992
28. Edwin Garcia1987May 5, 1992
29. Armando Villar1990May 5, 1992
30. Emil Tawat1988March 11, 1993
31. Mario P. Liongson1991May 5, 1992
32. Cresente J. Garcia1984March 11, 1993
33. Fernando Macabent[a]1990May 5, 1992
34. Melecio Casapao1987March 11, 1993
35. Reynaldo Jacaban1990May 5, 1992
36. Ferdinand Salvo1985May 5, 1992
37. Alstando Montos1984March 11, 1993
38. Rainer N. Salvador1984May 5, 1992
39. Ramil Reyes1984March 11, 1993
40. Pedro G. Roy1987
41. Leonardo [F]. Talledo1985March 11, 1993
42. Enrique [F]. Talledo1988March 11, 1993
43. Willie Ortiz1987May 5, 1992
44. Ernesto Soyosa1988May 5, 1992
45. Romeo Vasquez1985March 11, 1993
46. Joel Billones1987March 11, 1993
47. Allan Baltazar1989March 11, 1993
48. Noli Gabuyo1991March 11, 1993
49. Emmanuel E. Laban1987May 5, 1992
50. Ramir[o] E. [Pita]1990May 5, 1992
51. Raul Dulay1988May 5, 1992
52. Tadeo Duran[o]1988May 5, 1992
53. Joseph Banico1988March 11, 1993
54. Albert Leynes1990May 5, 1992
55. Antonio Dacu[m]a1990May 5, 1992
56. Renato dela Cruz1982
57. Romeo Viernes, Jr.1986
58. El[ia]s Bas[c]o1989
59. Wilfredo Torres1986May 5, 1992
60. Melchor Carda[ñ]o1991May 5, 1992
61. [Marino] [Maranion]1989May 5, 1992
62. John Sumergido1987May 5, 1992
63. Roberto Rosales May,1987May 5, 1992
64. Gerry [G]. GatpoNovember, 1990March 11, 1993
65. German N. GuevaraMay, 1990March 11, 1993
66. Gilbert Y. MirandaJune, 1991March 11, 1993
67. Rodolfo C. Toledo[, Jr.]May 14, 1991March 11, 1993
68. Arnold D. [Laspoña]June 1991March 11, 1993
69. Philip M. LozaMarch 5, 1992March 11, 1993
70. Mario N. C[o]ldayonMay 14, 1991March 11, 1993
71. Orlando P. JimenezNovember 6, 1992March 11, 1993
72. Fred P. JimenezSeptember, 1991March 11, 1993
73. Restituto C. Pamintuan, Jr.March 5, 1992March 11, 1993
74. Rolando J. de AndresJune, 1991March 11, 1993
75. Artuz Bustenera[, Jr.]December, 1989March 11, 1993
76. Roberto B. CruzMay 4, 1990March 11, 1993
77. Rosedy O. YordanJune, 1991May 5, 1992
78. Dennis DacasinMay. 1990May 5, 1992
79. Alejandrino Abaton1988May 5, 1992
80. Orlando S. BalangueMarch, 1989March 11, 19934cЃa

cralawThey all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time.5cЃa 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.6cЃa

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.7cЃa

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.8cЃa 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.9cЃa

In December 1991, petitioners filed a complaint10cЃa against P&G for regularization, service incentive leave pay and other benefits with damages. The complaint was later amended11cЃa 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:

WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit.

SO ORDERED.12cЃa

Ruling of the NLRC

Appealing to the NLRC, petitioners disputed the Labor Arbiters findings. On July 27, 1998, the NLRC rendered a Decision13cЃa disposing as follows:

WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the decision appealed from AFFIRMED.

SO ORDERED.14cЃa

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

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.chanroblesvirtua|awlibary

SO ORDERED.16cЃa

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.chanroblesvirtua|awlibary

WHETHER X X X 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, 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.chanroblesvirtua|awlibary

WHETHER X X X 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 ATTORNEYS FEES.17cЃa

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 attorneys 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.18cЃa

Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its letter19cЃa to SAPS dated February 24, 1993, informing the latter that their Merchandising Services Contract will no longer be renewed.chanroblesvirtua|awlibary

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.20cЃa

Respondents Arguments

On the other hand, P&G points out that the instant petition raises only 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.chanroblesvirtua|awlibary

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.chanroblesvirtua|awlibary

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.chanroblesvirtua|awlibary

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.21cЃa 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.22cЃa 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.chanroblesvirtua|awlibary

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.23cЃa 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.

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 formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid in accordance with the provisions of this Code.chanroblesvirtua|awlibary

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. 18-02,24cЃa distinguishes between legitimate and labor-only contracting:

x x x x

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.chanroblesvirtua|awlibary

x x x x

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.chanroblesvirtua|awlibary

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

"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.chanroblesvirtua|awlibary

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.

x x x x (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.chanroblesvirtua|awlibary

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 principal25cЃa 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 statements26cЃa 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 1990.27cЃa 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.28cЃa It also had under its name three registered vehicles which were used for its promotional/merchandising business.29cЃa Promm-Gem also has other clients30cЃa aside from P&G.31cЃa 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.chanroblesvirtua|awlibary

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.32cЃa 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.33cЃa

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

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.chanroblesvirtua|awlibary

In Vinoya v. National Labor Relations Commission,34cЃa 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."35cЃa 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 records36cЃa 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.37cЃa 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 months 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.chanroblesvirtua|awlibary

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,38cЃa 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".chanroblesvirtua|awlibary

"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."39cЃa 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.40cЃa

Consequently, the following petitioners, having been recruited and supplied by SAPS41cЃa -- 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, 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.chanroblesvirtua|awlibary

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.42cЃa

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 just43cЃa or authorized44cЃa cause.chanroblesvirtua|awlibary

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:

x x x x

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.chanroblesvirtua|awlibary

x x x x45cЃa

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.46cЃa To be a just cause for dismissal, such misconduct (a) must be serious; (b) must relate to the performance of the employees duties; and (c) must show that the employee has become unfit to continue working for the employer.47cЃa

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.48cЃa 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.chanroblesvirtua|awlibary

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.49cЃa

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.50cЃa 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.chanroblesvirtua|awlibary

All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem.chanroblesvirtua|awlibary

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.chanroblesvirtua|awlibary

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. The concerned petitioners related their dismissal as follows:

x x x x

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 letter51cЃa dated February 24, 1993, x x x

February 24, 1993

Sales and Promotions Services
Armons 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.chanroblesvirtua|awlibary

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.

Very truly yours,

(Sgd.)
EMMANUEL M. NON
Sales Merchandising III

cralaw6. 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. x x x52cЃa

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 latters merchandising concerns only. Under the circumstances prevailing in the instant case, we cannot consider SAPS as an independent contractor.chanroblesvirtua|awlibary

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.53cЃa In termination cases, the burden of proof rests upon the employer to show that the dismissal is for just and valid cause.54cЃa 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.55cЃa

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 award of damages.chanroblesvirtua|awlibary

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.chanroblesvirtua|awlibary

Attorneys 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 acts56cЃa of P&G.chanroblesvirtua|awlibary

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.57cЃa 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 as moral damages plus ten percent of the total sum as and for attorneys fees.chanroblesvirtua|awlibary

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 attorneys fees as stated above; and for immediate execution.

SO ORDERED.

MARIANO C. DEL CASTILLO
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION
Associate Justice
ROBERTO A. ABAD
Associate Justice

JOSE P. PEREZ
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice



cralaw Endnotes:

cralaw1cЃa Rollo, pp. 86-95; penned by Associate Justice Edgardo P. Cruz and concurred in by Associate Justices Salvador

J. Valdez, Jr. and Mario L. Guariña III.

2cЃa Id. at 97-98.

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3cЃa Id. at 298-312.

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4cЃa Id. at 30-31.

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5cЃa Id. at 434-435.

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6cЃa Id. at 438-440.

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7cЃa Id. at 441-442.

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8cЃa Id. at 105.

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9cЃa Id. at 406-414.

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10cЃa Id. at 158-164.

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11cЃa Records, Vol. I, pp. 345-346, 373-392; Records, Vol. II, pp. 396-412.

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12cЃa Rollo, pp. 112-113.

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13cЃa Id. at 115-135.

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14cЃa Id. at 135.

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15cЃa Id. at 137-157.

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16cЃa Id. at 94-95.

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17cЃa Id. at 668.

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18cЃa Id. at 679.

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19cЃa Id. at 192.

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20cЃa Id. at 693-697.

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21cЃa Id. at 652.

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22cЃa Id. at 89.chanroblesvirtua|awlibary

23cЃa Pascua v. National Labor Relations Commission (Third Division), 351 Phil 48, 61 (1998).chanroblesvirtua|awlibary

24cЃa Rules Implementing Articles 106 to 109 of the Labor Code, As Amended, approved February 21, 2002.chanroblesvirtua|awlibary

25cЃa Escario v. National Labor Relations Commission, 388 Phil. 929, 938 (2000).

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26cЃa Records, Vol. I, p. 208.

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27cЃa Id. at 211.

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28cЃa Rollo, p. 453; TSN, February 22, 1994, p. 9.

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29cЃa Rollo, pp 580-582.chanroblesvirtua|awlibary

30cЃa a. Adidas Division, Rubberworld Phil., Inc.; b. CFC Corporation; c. Focus Enterprise, Inc., d. Procter & Gamble Phil., Inc., e. Roche Phil., Inc.; f. Sterling Products Intl., Inc.; g. Southeast Asia Foods, Inc.; h. Pepsi Co., Inc.; i. Kraft General Foods Phil., Inc.; j. Universal Robina Corp.; k. Wrigley Phil., Inc.; l. Asia Brewery, Inc.; m. Ayala Land, Inc.; n. Citibank, N.A.; o. S.C. Johnson, Inc.; p. Glaxo Phil., Inc.; q. Bank of the Phil. Island-Loyola Branch; r. Republic Chemical, Inc.; s. Metrolab, Inc.; and, t. First Pacific Metro Corp. Records, Vol. I, p. 192.

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31cЃa Id.

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32cЃa Records, Vol. II, pp. 599-623.chanroblesvirtua|awlibary

33cЃa The act of hiring and re-hiring workers over a period of time without considering them as regular employees evinces bad faith on the part of the employer. San Miguel Corporation v. National Labor Relations Commission, G.R. No. 147566, December 6, 2006, 510 SCRA 181, 189; Bustamante v. National Labor Relations Commission, G. R. No. 111651, March 15, 1996, 255 SCRA 145, 150.chanroblesvirtua|awlibary

34cЃa 381 Phil. 460 (2000). This case involved an employee who was dismissed and filed a labor case in 1991, about the same time frame as that involved in this case for purposes of taking judicial notice of the economic atmosphere in the country.

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35cЃa Id. at 476.

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36cЃa Records, Vol. I, p. 556.

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37cЃa Rollo, p. 412.

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38cЃa Tabas v. California Manufacturing Co., Inc., 251 Phil. 448, 454 (1989).chanroblesvirtua|awlibary

39cЃa Neri v. National Labor Relations Commission, G.R. Nos. 97008-09, July 23, 1993, 224 SCRA 717, 720, citing Philippine Bank of Communications v. National Labor Relations Commission, 230 Phil. 430, 440 (1986).chanroblesvirtua|awlibary

40cЃa San Miguel Corporation v. Aballa, G.R. No. 149011, June 28, 2005, 461 SCRA 392, 422.chanroblesvirtua|awlibary

41cЃa Records, Vol. I, p. 340. SAPS has admitted that the complainants are its employees.

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42cЃa Records, Vol. I, p. 193; Vol. II, pp. 666-692.

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43cЃa Labor Code of the Philippines,

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

cralaw(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 representative; and

(e) Other causes analogous to the foregoing.

cralaw44cЃa ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof x x x

cralawART. 284. Disease as ground for termination. An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-employees: x x x

45cЃa Records, Vol. II, p. 447.chanroblesvirtua|awlibary

46cЃa National Labor Relations Commission v. Salgarino, G.R. No. 164376, July 31, 2006, 497 SCRA 361, 375; Molina v. Pacific Plans, Inc., G.R. No.165476, March 10, 2006, 484 SCRA 498, 518; Samson v. National Labor Relations Commission, 386 Phil. 669, 682 (2000).chanroblesvirtua|awlibary

47cЃa Bañez v. De La Salle University, G.R. No. 167177, September 27, 2006, 503 SCRA 691, 700; Phil. Aeolus Automotive United Corp. v. National Labor Relations Commission, 387 Phil. 250, 261 (2000).

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48cЃa National Labor Relations Commission v. Salgarino, supra at 376.chanroblesvirtua|awlibary

49cЃa Velez v. Shangri-Las Edsa Plaza Hotel, G.R. No. 148261, October 9, 2006, 504 SCRA 13, 25.

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50cЃa Id. at 26.

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51cЃa Rollo, p. 192.

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52cЃa Records, Vol. II, p. 413.chanroblesvirtua|awlibary

53cЃa National Labor Relations Commission v. Salgarino, supra note 46 at 383.chanroblesvirtua|awlibary

54cЃa Royal Crown Internationale v. National Labor Relations Commission, G.R. No. 78085, October 16, 1989, 178 SCRA 569, 578.

Labor Code of the Philippines,

ART. 279. Security of Tenure. − In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement.

cralaw55cЃa Pascua v. National Labor Relations Commission (Third Division), supra note 23 at 72; Acuña v. Court of Appeals, G.R. No.159832, May 5, 2006, 489 SCRA 658, 668; Quadra v. Court of Appeals, G.R. No. 147593, July 31, 2006, 497 SCRA 221, 227.chanroblesvirtua|awlibary

56cЃa See Pascua v. National Labor Relations Commission (Third Division), supra note 23 at 74. In the instant case, P&Gs act of taking an unconscionable and unscrupulous advantage of the utter powerlessness of the individual concerned petitioners to prevent the trampling of their rights to due process and security of tenure constitutes bad faith.chanroblesvirtua|awlibary

57cЃa Premier Development Bank v. Mantal, G.R. No. 167716, March 23, 2006, 485 SCRA 234, 242-243; Philippine Amusement and Gaming Corporation v. Angara, G.R. No. 142937, July 25, 2006, 496 SCRA 453, 457.





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