ALIVIADO v Procter and Gamble

Petitioner: JOEB M. ALIVIADO, et al

Respondent: Procter and Gamble, and Promm-Gem
Ponente: Del Castillo, J.
DOCTRINE:
Labor laws expressly prohibit labor-only contracting. To prevent its
circumvention, the Labor Code establishes an employer-employee
relationship between the employer and the employees of the laboronly contractor.
In legitimate contracting, there exists a trilateral relationship under which
there is a contract for a specific job, work or service between the principal
and the contractor or subcontractor, and a contract of employment between
the contractor or subcontractor and its workers. Hence, there are three
parties involved in these arrangements, the principal which decides to farm
out a job or service to a contractor or subcontractor, the contractor or
subcontractor which has the capacity to independently undertake the
performance of the job, work or service, and the contractual workers
engaged by the contractor or subcontractor to accomplish the job work or
service.
To emphasize, there is labor-only contracting when the contractor or 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) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.
FACTS:
1. P&G is principally engaged in the manufacture and production of
different consumer and health products, which it sells on a
wholesale basis to various supermarkets and distributors. To
enhance consumer awareness and acceptance of the products,
P&G entered into contracts with Promm-Gem and SAPS for the
promotion and merchandising of its products.

2. Petitioners worked as merchandisers of P&G from various dates,

allegedly starting as early as 1982 or as late as June 1991, to
either May 5, 1992 or March 11, 1993.
3. They all individually signed employment contracts with either
Promm-Gem or SAPS for periods of more or less five months at a
time.
4. They were assigned at different outlets, supermarkets and stores
where they handled all the products of P&G. They received their
wages from Promm-Gem or SAPS.
5. SAPS and Promm-Gem imposed disciplinary measures on erring
merchandisers.
6. In December 1991, petitioners filed a complaint against P&G for
regularization, service incentive leave pay, other benefits with
damages and for illegal dismissal.
7. The Labor Arbiter dismissed the complaint for lack of merit due to
the absence of Employer-Employee Relationship.
8. He found that the selection and engagement of the petitioners, the
payment of their wages, the power of dismissal and control with
respect to the means and methods by which their work was
accomplished, were all done and exercised by Promm-Gem/SAPS.
He further found that Promm-Gem and SAPS were legitimate
independent job contractors.
9. NLRC affirmed the LA. It was also affirmed by the CA.
10. Petitioners Arguments: a) they were recruited long before the
existence of Promm-Gem or SAPS, b) P&G instigated their
dismissal.
11. Respondents Arguments: a) no EER relationship as it was PrommGem or Saps which falls under the four fold test, b) employer can
farm out any activities to an independent contractor, regardless of
whether such activity is peripheral or core in nature, and c) the
determination of whether to engage the services of a job contractor
is within the ambit of management prerogative.
ISSUES:
1. Pertinent issue: W/N Promm-Gem and SAPS are legitimate job
contractors.
2. Main Issue: W/N the petitioners were illegally dismissed.
RULING + RATIO:
1. YES. Promm-Gem is a legitimate job contractor.
a. Promm-Gem is a legitimate job contractor, while SAPS is a
labor-only contractor. Therefore, the employees of SAPS are
the employees of P&G, SAPS being merely the agent of P&G.
b. Promm-Gem has shown evidence:

i. that it has substantial investment which relates to

the work to be performed, such as authorized stock
of P1M and a paid-in capital, or capital available for
operations, of P500k; it has long-term assets worth
over P400k and current assets worth over P700k;
ii. it maintained its own warehouse and office space;
iii. it had under its name three registered vehicles;
iv. it has clients aside from P&G.
v. Promm-Gem also supplied its complainant-workers
with the relevant materials, such as markers, tapes,
liners, and cutters, necessary for them to perform their
work. Promm-Gem also issued them uniforms.
vi. Also, Promm-Gem already considered the
complainants working under it as its regular, not
merely contractual or project, employees. This
circumstance negates the existence of element (ii) as
stated in Section 5 of DOLE Department Order No. 1802, which speaks of contractual employees. This also
negates, on the part of Promm-Gem, bad faith and
intent to circumvent labor laws which factors have often
been tipping points that lead the Court to strike down
the employment practice or agreement concerned as
contrary to public policy, morals, good customs, or
public order.
2. NO. Saps is a labor-only contractor.
a. On the other hand, the Articles of Incorporation of SAPS shows
that it has a paid-in capital of only P31, 250.00. There is no
other evidence presented to show how much its working capital
and assets are.
b. Furthermore, there is no showing of substantial investment
in tools, equipment or other assets. Considering that SAPS
has no substantial capital or investment and the workers it
recruited are performing activities (merchandising and
promotion) which are directly related to the principal
business of P&G, the court held that SAPS is engaged in
"labor-only contracting". The contractor is considered
merely an agent of the principal employer and the latter is
responsible to the employees of the labor-only contractor
as if such employees had been directly employed by the
principal employer.

i. In the instant case, petitioners-employees of PrommGem may have committed an error of judgment in
claiming to be employees of P&G, but it cannot be said
that they were motivated by any wrongful intent in
doing so. As such, we find them guilty of only simple
misconduct for assailing the integrity of Promm-Gem
as a legitimate and independent promotion firm. A
misconduct which is not serious or grave, as that
existing in the instant case, cannot be a valid basis
for dismissing an employee.
ii. Loss of trust and confidence, as a cause for
termination of employment, is premised on the fact that
the employee concerned holds a position of
responsibility or of trust and confidence. As such, he
must be invested with confidence on delicate matters,
such as custody, handling or care and protection of the
property and assets of the employer. And, in order to
constitute a just cause for dismissal, the act
complained of must be work-related and must show
that the employee is unfit to continue to work for the
employer.
iii. Promm-Gem have not been shown to be occupying
positions of responsibility or of trust and
confidence. Neither is there any evidence to show that
they are unfit to continue to work as merchandisers for
Promm-Gem.
iv. With regard to the petitioners placed with P&G by
SAPS, they were given no written notice of dismissal.
The records show that upon receipt by SAPS of P&Gs
letter terminating their Merchandising Services Contact
effective March 11, 1993, they in turn verbally informed
the concerned petitioners not to report for work
anymore.
DISPOSITION
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.
SO ORDERED.

3. MAIN ISSUE, but not relevant to the topic.

a. Yes, they were illegally dismissed.