RepublicofthePhilippinesSupremeCourt

Manila

SECONDDIVISION

EMMANUELBABAS,DANILOT.BANAG,ARTUROV.VILLARIN,SR.,EDWINJAVIER,SANDIBERMEO,REXALLESA,MAXIMOSORIANO,JR.,ARSENIOESTORQUE,andFELIXBERTOANAJAO,

Petitioners,

versusLORENZOSHIPPINGCORPORATION,

Respondent.

G.R.No.186091Present:CARPIO,J.Chairperson,NACHURA,PERALTA,DELCASTILLO,*andMENDOZA,JJ.Promulgated:December15,2010

xx

DECISION

NACHURA,J.:

PetitionersEmmanuelBabas,DaniloT.Banag,ArturoV.Villarin,Sr.,EdwinJavier,SandiBermeo,RexAllesa,MaximoSoriano,Jr.,ArsenioEstorque,andFelixbertoAnajaoappeal

bycertiorariunderRule45oftheRulesofCourttheOctober10,2008Decision[1]

oftheCourtofAppeals(CA)inCAG.R.SP.No.103804,andtheJanuary21,2009Resolution,[2]

denyingitsreconsideration.RespondentLorenzoShippingCorporation(LSC)isadulyorganizeddomesticcorporationengagedintheshippingindustryitownsseveralequipmentnecessaryforitsbusiness.OnSeptember 29, 1997, LSC entered into a General Equipment Maintenance Repair and

Management Services Agreement[3]

(Agreement) with Best Manpower Services, Inc.(BMSI).UndertheAgreement,BMSIundertooktoprovidemaintenanceandrepairservicestoLSCscontainervans,heavyequipment,trailerchassis,andgeneratorsets.BMSI furtherundertook to provide checkers to inspect all containers received for loading to and/orunloadingfromitsvessels.Simultaneouswith the execution of theAgreement, LSC leased its equipment, tools, and

tractorstoBMSI.[4]

TheperiodofleasewascoterminouswiththeAgreement.BMSI thenhiredpetitionersonvariousdates toworkatLSCascheckers,welders,utilitymen, clerks, forklift operators,motor pool andmachine shopworkers, technicians, trailerdrivers, and mechanics. Six years later, or on May 1, 2003, LSC entered into another

contractwithBMSI,thistime,aservicecontract.[5]

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint for

regularizationagainstLSCandBMSI.OnOctober1,2003,LSCterminatedtheAgreement,effectiveOctober31,2003.Consequently,petitionerslosttheiremployment.

BMSIasserted that it is an independent contractor. It averred that itwaswilling toregularizepetitionershowever,someofthemlackedtherequisitequalificationsforthejob.BMSIwaswilling toreassignpetitionerswhowerewilling toaccept reassignment.BMSI

denied petitioners claim for underpayment ofwages and nonpayment of 13thmonth payandotherbenefits.LSC,ontheotherhand,averredthatpetitionerswereemployeesofBMSIandwereassignedtoLSCbyvirtueoftheAgreement.BMSIisanindependentjobcontractorwithsubstantialcapital or investment in the form of tools, equipment, and machinery necessary in theconductofitsbusiness.TheAgreementbetweenLSCandBMSIconstitutedlegitimatejobcontracting.Thus,petitionerswereemployeesofBMSIandnotofLSC.

Afterdueproceedings,theLArenderedadecision[6]

dismissingpetitionerscomplaint.The

LAfoundthatpetitionerswereemployeesofBMSI.ItwasBMSIwhichhiredpetitioners,paidtheirwages,andexercisedcontroloverthem.Petitioners appealed to the National Labor Relations Commission (NLRC), arguing thatBMSIwasengagedinlaboronlycontracting.TheyinsistedthattheiremployerwasLSC.

OnJanuary16,2008,theNLRCpromulgateditsdecision.[7]

ReversingtheLA,theNLRCheld:

WefindfromtherecordsofthiscasethatrespondentBMSIisnotengagedinlegitimatejobcontracting.First,respondentBMSIhasnoequipment,noofficepremises,nocapitalandnoinvestmentsasshownintheAgreementitselfwhichstates:

xxxxVI.RENTALOFEQUIPMENT[6.01.] That the CLIENT has several forklifts and truck tractor, and has

offered to the CONTRACTOR the use of the same by way oflease, themonthly rental ofwhich shall bededucted from thetotal monthly billings of the CONTRACTOR for the servicescoveredbythisAgreement.

6.02.ThattheCONTRACTORhasagreedtorenttheCLIENTsforkliftsand

trucktractor.

6.03.ThepartieshereinhaveagreedtoexecuteaContractofLeaseforthe forklifts and truck tractor that will be rented by theCONTRACTOR.(p.389,Records)

Trueenough,partiessignedaLeaseContract(p.392,Records)whereinrespondentBMSIleasedseveralexcessequipmentofLSCtoenableittodischargeitsobligationundertheAgreement.Sowithout theequipmentwhichrespondentBMSIleasedfromrespondentLSC,theformerwouldnotbeabletoperformitscommitmentsintheAgreement.InPhil.FujiXeroxCorp.v.NLRC(254SCRA294)theSupremeCourtheld:

xxx. The phrase substantial capital and investment in the form of tools,equipment, machineries, work premises, and other materials which arenecessary in the conductofhisbusiness, in the ImplementingRules clearlycontemplatestools,equipment,etc.,whicharedirectlyrelatedtotheserviceitis being contracted to render. One who does not have an independentbusiness for undertaking the job contracted for is just an agent of theemployer.(underscoringours)

Second, respondent BMSI has no independent business or activity or job to perform inrespondentLSCfreefromthecontrolofrespondentLSCexceptastotheresultsthereof.Inview of the absence of such independent business or activity or job to be performed byrespondentBMSI in respondentLSC[petitioners]performedwork thatwasnecessaryanddesirabletothemainbusinessofrespondentLSC.Respondentswerenotabletorefutetheallegationsof [petitioners] that theyperformed the samework that the regularworkers ofLSC performed and they stood side by side with regular employees of respondent LSCperformingthesamework.Necessarily,thecontrolonthemannerandmethodofdoingtheworkwasexercisedbyrespondentLSCandnotbyrespondentBMSIsincethelatterhadnobusinessofitsowntoperforminrespondentLSC.Lastly,respondentBMSIhasnootherclientbutrespondentLSC.IfrespondentBMSIwerea going concern, it would have other clients to which to assign [petitioners] after itsAgreementwithLSCexpired.Since there isonlyoneclient, respondentLSC, it iseasy toconcludethatrespondentBMSIisameresupplieroflabor.After concluding that respondent BMSI is engaged in prohibited laboronly contracting,respondentLSCbecametheemployerof[petitioners]pursuanttoDO1802.[Petitioners]thereforeshouldbereinstatedtotheirformerpositionsorequivalentpositionsinrespondentLSCasregularemployeeswithfullbackwagesandotherbenefitswithoutlossof seniority rights from October 31, 2003, when they lost their jobs, until actualreinstatement (Vinoya v. NLRC, 324 SCRA 469). If reinstatement is not feasible,[petitioners]thenshouldbepaidseparationpayofonemonthpayforeveryyearofserviceorafractionofsixmonthstobeconsideredasoneyear,inadditiontofullbackwages.Concerning [petitioners]prayer tobepaidwagedifferentials andbenefitsunder theCBA,Wehavenodoubtthat[petitioners]wouldbeentitledtothemiftheyarecoveredbythesaidCBA.Forthispurpose,[petitioners]shouldfirstenlistthemselvesasunionmembersiftheyso desire, or pay agency fee. Furthermore, only [petitioners] who signed the appealmemorandumarecoveredbythisDecision.Asregardstheothercomplainantswhodidnotsign the appeal, theDecision of the LaborArbiter dismissing this case became final and

executory.[8]

TheNLRCdisposedthus:

WHEREFORE,theappealof[petitioners]isGRANTED.TheDecisionoftheLaborArbiteris hereby REVERSED, and a NEW ONE rendered finding respondent Best ManpowerServices, Inc. is engaged in prohibited laboronlycontracting and finding respondentLorenzoShippingCorp.astheemployerofthefollowing[petitioners]:

1.EmmanuelB.Babas2.DaniloBanag3.EdwinL.Javier4.RexAllesa5.ArturoVillarin,[Sr.]6.FelixbertoC.Anajao7.ArsenioEstorque8.MaximoN.Soriano,Jr.

9.SandiG.BermeoConsequently, respondent Lorenzo Shipping Corp. is ordered to reinstate [petitioners] totheir former positions as regular employees and pay their wage differentials and benefitsundertheCBA.If reinstatement is not feasible, both respondents Lorenzo Shipping Corp. and BestManpowerServicesareadjudgedjointlyandsolidarilytopay[petitioners]separationpayofonemonthforeveryyearofservice,afractionofsixmonthstobeconsideredasoneyear.In addition, respondent LSC and BMSI are solidarily liable to pay [petitioners] fullbackwages from October 31, 2003 until actual reinstatement or, if reinstatement is notfeasible,untilfinalityofthisDecision.Respondent LSC and respondent BMSI are likewise adjudged to be solidarily liable forattorneysfeesequivalenttoten(10%)ofthetotalmonetaryaward.

xxxx

SOORDERED.[9]

LSC went to the CA via certiorari. On October 10, 2008, the CA rendered the now

challengedDecision,[10]

reversing theNLRC. In holding that BMSIwas an independentcontractor,theCAreliedontheprovisionsoftheAgreement,whereinBMSIwarrantedthatitisanindependentcontractor,withadequatecapital,expertise,knowledge,equipment,andpersonnel necessary for the services rendered toLSC.According to theCA, the fact thatBMSIenteredintoacontractofleasewithLSCdidnotipsofactomakeBMSIalaboronlycontractoronthecontrary,itprovedthatBMSIhadsubstantialcapital.TheCAwasoftheview that the law only required substantial capital or investment. Since BMSI hadsubstantial capital, as shown by its ability to pay rents to LSC, then it qualified as anindependentcontractor. Itadded thatevenunder thecontrol test,BMSIwouldbe the realemployer of petitioners, since it had assumed the entire charge and control of petitionersservices. The CA further held that BMSIs Certificate of Registration as an independentcontractor was sufficient proof that it was an independent contractor. Hence, the CAabsolvedLSCfromliabilityandinsteadheldBMSIasemployerofpetitioners.ThefallooftheCADecisionreads:

WHEREFORE, premises considered, the instant petition isGRANTED and the assailed

decision and resolution of public respondent NLRC areREVERSED and SET ASIDE.Consequently, the decision of the Labor Arbiter dated September 29, 2004 isREINSTATED.

SOORDERED.[11]

Petitioners filed amotion for reconsideration, but theCA denied it on January 21,

2009.[12]

Hence,thisappealbypetitioners,positingthat:

THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE CLEAREVIDENCEOFRECORDTHATRESPONDENTWASENGAGED INLABORONLYCONTRACTING TO DEFEAT PETITIONERS RIGHT TO SECURITY OF TENURE.[13]

Before resolving the petition, we note that only seven (7) of the nine petitioners

signedtheVerificationandCertification.[14]

PetitionersMaximoSoriano,Jr.(Soriano)andFelixberto Anajao (Anajao) did not sign theVerification and Certification, because they

couldnolongerbelocatedbytheircopetitioners.[15]

InToyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National

LaborRelationsCommission,[16]

citingLoquiasv.OfficeoftheOmbudsman,[17]

westatedthat the petition satisfies the formal requirements only with regard to the petitioner whosigned the petition, but not his copetitioner who did not sign nor authorize the otherpetitionertosignitonhisbehalf.Thus,thepetitioncanbegivenduecourseonlyastothepartieswhosignedit.Theotherpetitionerswhodidnotsigntheverificationandcertificateagainst forum shopping cannot be recognized as petitioners and have no legal standingbefore the Court. The petition should be dismissed outright with respect to the nonconformingpetitioners.

Thus,wedismissthepetitioninsofaraspetitionersSorianoandAnajaoareconcerned.

PetitionersvigorouslyinsistthattheywereemployeesofLSCandthatBMSIisnotan independentcontractor,buta laboronlycontractor.LSC,on theotherhand,maintainsthat BMSI is an independent contractor, with adequate capital and investment. LSCcapitalizesontheratiocinationmadebytheCA.

IndeclaringBMSIasanindependentcontractor,theCA,inthechallengedDecision,

heavily reliedon theprovisionsof theAgreement,whereinBMSI declared that itwas anindependentcontractor,withsubstantialcapitalandinvestment.

De Los Santos v. NLRC[18]

instructed us that the character of the business, i.e.,whetheraslaboronlycontractororasjobcontractor,should

bemeasuredin termsof,anddeterminedby, thecriteriasetbystatute.Thepartiescannotdictatebythemereexpedienceofaunilateraldeclarationinacontractthecharacteroftheirbusiness.

In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito

Remada,AlilgilanMultiPurposeCoop(AMPCO),andMerlynN.Policarpio,[19]

thisCourtexplained:

Despitethefactthattheservicecontractscontainstipulationswhichareearmarksof

independent contractorship, theydonotmake it legally so. The languageof a contract isneitherdeterminativenorconclusiveoftherelationshipbetweentheparties.PetitionerSMCand AMPCO cannot dictate, by a declaration in a contract, the character of AMPCO'sbusiness, that is, whether as laboronly contractor, or job contractor. AMPCO's charactershouldbemeasuredintermsof,anddeterminedby,thecriteriasetbystatute.

Thus, in distinguishing between prohibited laboronly contracting and permissible jobcontracting,thetotalityofthefactsandthesurroundingcircumstancesofthecasearetobeconsidered.

Laboronlycontracting, a prohibited act, is an arrangementwhere the contractor orsubcontractormerelyrecruits,supplies,orplacesworkerstoperformajob,work,orservicefor a principal. In laboronly contracting, the following elements are present: (a) the

contractor or subcontractor does not have substantial capital or investment to actuallyperform the job, work, or service under its own account and responsibility and (b) theemployees recruited, supplied, or placed by such contractor or subcontractor perform

activitieswhicharedirectlyrelatedtothemainbusinessoftheprincipal.[20]

On the other hand, permissible job contracting or subcontracting refers to an

arrangement whereby a principal agrees to put out or farm out with the contractor orsubcontractor the performance or completion of a specific job,work, or servicewithin adefiniteorpredeterminedperiod, regardlessofwhethersuch job,work,orservice is tobe

performedorcompletedwithinoroutsidethepremisesoftheprincipal.[21]

Apersonisconsideredengagedinlegitimatejobcontractingorsubcontractingifthe

followingconditionsconcur:(a)Thecontractorcarriesonadistinctandindependentbusinessandundertakesthe

contractworkonhisaccountunderhisownresponsibilityaccordingtohisownmannerandmethod, free from the control and direction of his employer or principal in all mattersconnectedwiththeperformanceofhisworkexceptastotheresultsthereof

(b)Thecontractorhassubstantialcapitalorinvestmentand(c)Theagreementbetweentheprincipalandthecontractororsubcontractorassures

the contractual employees' entitlement to all labor and occupational safety and healthstandards, free exercise of the right to selforganization, security of tenure, and social

welfarebenefits.[22]

Given the above standards, we sustain the petitioners contention that BMSI is

engagedinlaboronlycontracting.

First, petitioners worked at LSCs premises, and nowhere else. Other than theprovisions of theAgreement, there was no showing that it was BMSI which establishedpetitionersworkingprocedureandmethods,whichsupervisedpetitioners in theirwork,or

whichevaluatedthesame.TherewasabsolutelackofevidencethatBMSIexercisedcontroloverthemortheirwork,exceptforthefactthatpetitionerswerehiredbyBMSI.

Second, LSC was unable to present proof that BMSI had substantial capital. The

recordbeforeusisbereftofanyproofpertainingtothecontractorscapitalization,nortoitsinvestment in tools, equipment, or implements actually used in the performance orcompletionofthejob,work,orservicethatitwascontractedtorender.What isclearwasthattheequipmentusedbyBMSIwereownedby,andmerelyrentedfrom,LSC.

InMandaueGalleonTrade,Inc.v.Andales,[23]

weheld:

The law casts the burden on the contractor to prove that it has substantial capital,investment,tools,etc.Employees,ontheotherhand,neednotprovethatthecontractordoesnothavesubstantialcapital,investment,andtoolstoengageinjobcontracting.

Third,petitionersperformedactivitieswhichweredirectly related to themainbusinessofLSC. The work of petitioners as checkers, welders, utility men, drivers, and mechanicscouldonlybecharacterizedaspartof,or at least clearly related to, and in thepursuitof,LSCsbusiness.Logically,whenpetitionerswere assigned byBMSI toLSC,BMSI actedmerelyasalaboronlycontractor.

Lastly,asfoundbytheNLRC,BMSIhadnootherclientexceptforLSC,andneitherBMSInorLSC refuted this finding, therebybolstering theNLRC finding thatBMSI is alaboronlycontractor.

TheCAerredinconsideringBMSIsCertificateofRegistrationassufficientproofthat

itisanindependentcontractor.InSanMiguelCorporationv.VicenteB.Semillano,NelsonMondejas, Jovito Remada, Alilgilan MultiPurpose Coop (AMPCO), and Merlyn N.

Policarpio,[24]

weheldthataCertificateofRegistrationissuedbytheDepartmentofLaborandEmploymentisnotconclusiveevidenceofsuchstatus.Thefactofregistrationsimply

preventsthelegalpresumptionofbeingamerelaboronlycontractorfromarising.[25]

Indubitably, BMSI can only be classified as a laboronly contractor. The CA,therefore,erredwhenitruledotherwise.Consequently,theworkersthatBMSIsuppliedto

LSCbecameregularemployeesof the latter.[26]

Havinggained regular status,petitionerswereentitledtosecurityoftenureandcouldonlybedismissedforjustorauthorizedcausesandaftertheyhadbeenaccordeddueprocess.

Petitioners lost their employmentwhen LSC terminated itsAgreementwithBMSI.

However,theterminationofLSCsAgreementwithBMSIcannotbeconsideredajustoranauthorized cause for petitioners dismissal. InAlmeda v. Asahi Glass Philippines. Inc. v.

AsahiGlassPhilippines,Inc.,[27]

thisCourtdeclared:

ThesolereasongivenforthedismissalofpetitionersbySSASIwastheterminationof its service contractwith respondent.But sinceSSASIwas a laboronly contractor, andpetitionersweretobedeemedtheemployeesofrespondent,thenthesaidreasonwouldnotconstitute a just or authorized cause for petitioners dismissal. It would then appear thatpetitionerswere summarily dismissed based on the aforecited reason,without compliancewiththeproceduraldueprocessfornoticeandhearing.

Herein petitioners, having been unjustly dismissed from work, are entitled toreinstatementwithout loss of seniority rights and other privileges and to full backwages,inclusiveofallowances,andtootherbenefitsortheirmonetaryequivalentscomputedfromthe timecompensationwaswithheldup to the timeofactual reinstatement.Their earningselsewhereduringtheperiodsoftheirillegaldismissalshallnotbedeductedtherefrom.

Accordingly,wehold that theNLRCcommittednograveabuseofdiscretion in itsdecision. Conversely, the CA committed a reversible error when it set aside the NLRCruling.

WHEREFORE,thepetitionisGRANTED.TheDecisionandtheResolutionoftheCourt of Appeals in CAG.R. SP. No. 103804 are REVERSED and SET ASIDE.PetitionersEmmanuelBabas,DaniloT.Banag,ArturoV.Villarin,Sr.,EdwinJavier,SandiBermeo, Rex Allesa, and Arsenio Estorque are declared regular employees of LorenzoShipping Corporation. Further, LSC is ordered to reinstate the seven petitioners to theirformer position without loss of seniority rights and other privileges, and to pay fullbackwages, inclusive of allowances, and other benefits or their monetary equivalent,

computedfromthetimecompensationwaswithhelduptothetimeofactualreinstatement.Nopronouncementastocosts.

SOORDERED.

ANTONIOEDUARDOB.NACHURAAssociateJustice

WECONCUR:ANTONIOT.CARPIO

AssociateJusticeChairperson

DIOSDADOM.PERALTAAssociateJustice

MARIANOC.DELCASTILLOAssociateJustice

JOSECATRALMENDOZAAssociateJustice

ATTESTATION

IattestthattheconclusionsintheaboveDecisionhadbeenreachedinconsultationbeforethecasewasassignedtothewriteroftheopinionoftheCourtsDivision.ANTONIOT.CARPIO

AssociateJusticeChairperson,SecondDivision

CERTIFICATIONPursuant to Section 13, Article VIII of the Constitution and the Division Chairperson'sAttestation, I certify that the conclusions in the above Decision had been reached inconsultationbeforethecasewasassignedtothewriteroftheopinionoftheCourtsDivision.

RENATOC.CORONAChiefJustice

*AdditionalmemberinlieuofAssociateJusticeRobertoA.AbadperRaffledatedDecember15,2010.[1]

PennedbyAssociateJusticeMarleneGonzalesSison,withAssociateJusticesJuanQ.Enriquez,Jr.andIsaiasP.Dicdican,concurringrollo,pp.3449.[2]

Id.at5354.[3]

Id.at124130.[4]

Id.at131134.[5]

Id.at135138.[6]

Id.at278286.[7]

Id.at8192.[8]

Id.at8688.[9]

Id.at8991.[10]

Supranote1.[11]

Id.at48.[12]

Supranote2.[13]

Rollo,p.21.[14]

Id.at3132.[15]

SeeComplianceid.at335336.[16]

G.R.Nos.158786&158789,October19,2007,537SCRA171,198199.[17]

392Phil.596,603604(2000).[18]

423Phil.1020,1032(2001).[19]

G.R.No.164257,July5,2010.[20]

Iligan Cement Corporation v. ILIASCOR Employees and Workers UnionSouthern Philippines Federation of Labor(IEWUSPFL),G.R.No.158956,April24,2009,586SCRA449,464465.

[21]PurefoodsCorporation(nowSanMiguelPurefoodsCompany,Inc.)v.NationalLaborRelationsCommission,G.R.No.

172241,November20,2008,571SCRA406,413.[22]

Vinoyav.NationalLaborRelationsCommission,381Phil.460,472473(2000).[23]

G.R.No.159668,March7,2008,548SCRA17,28.[24]

Supranote19.[25]

Id.[26]

SeePCIAutomationCenterInc.v.NLRC,322Phil.536(1996).[27]

G.R.No.177785,September3,2008,564SCRA115,132134.