Facts
Philippine Fuji Xerox Corporation (Fuji Xerox) entered into an agreement with Skillpower, Inc. to supply workers for its “Xerox Copier Project”. Private respondent Pedro Garado was assigned by Skillpower as a key operator at a Fuji Xerox branch starting in February 1980. Garado worked exclusively for Fuji Xerox until 1984. In 1983, Garado was involved in an incident where he attempted to persuade a Fuji Xerox technician to stop a machine meter due to a spoilage incident. Fuji Xerox reported the matter to Skillpower, which then suspended Garado and required him to explain. Garado filed a complaint for illegal dismissal. While Skillpower, Inc. had substantial capital assets exceeding P5 million and was registered as an independent employer, the copying machines Garado operated belonged to Fuji Xerox, and the termination process was carried out under Fuji Xerox’s internal policies and disciplinary authority.
Issues
- Whether Skillpower, Inc. was a legitimate independent contractor or a mere labor-only contractor.
- Whether private respondent Pedro Garado was an employee of Skillpower, Inc. or of petitioner Philippine Fuji Xerox Corporation.
- Whether the dismissal of Pedro Garado was illegal.
Ruling
ACCORDINGLY, the petition for certiorari is DISMISSED for lack of merit.
(Note: By dismissing the petition, the Supreme Court affirmed the NLRC decision which ordered Fuji Xerox to immediately reinstate Garado to his former position as key operator with three (3) years backwages, without qualification or reduction whatsoever.)
Essential Elements of Jurisprudence
The Supreme Court established or reiterated the following legal principles regarding job contracting and employment relationships:
- Definition of Labor-Only Contracting (Labor Code Art. 106): There is “labor-only” contracting where the person supplying workers (1) does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and (2) the workers recruited are performing activities which are directly related to the principal business of such employer.
- Requirement of Necessary Investment: The “tools, equipment, machineries, work premises, and other materials” required for a job contractor to be legitimate must be those directly related to the service it is being contracted to render. The presence of general assets (e.g., typewriters, service vehicles) that bear no direct relationship to the contracted job (e.g., operating copiers) does not satisfy the investment requirement.
- Effect of Labor-Only Status: When labor-only contracting exists, the person or intermediary (Skillpower, Inc.) is considered merely an agent of the employer (Fuji Xerox), who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
- Control Test: The power or authority to impose discipline and disciplinary measures upon employees is a basic prerogative of management. When the principal (Fuji Xerox) exercises disciplinary authority, conducts investigations based on its own policies, and the intermediary (Skillpower) acts at the principal’s behest in issuing the suspension or dismissal order, the control element of the employer-employee relationship exists between the principal and the worker.
- Relatedness of Work: Activities that promote goodwill for the company, advertise the quality of its products, and promote its reputation and public image are considered necessary to the business, even if they do not directly generate profit. Operating copier services for a company that sells and leases copier machines is deemed an integral part of that business.
- Security of Tenure (Circumvention): The practice of employing workers under short-term contracts (e.g., six months) and then indefinitely extending them through renewals is a crude attempt to circumvent the law and undermine the security of tenure of the workers, which Article 106 of the Labor Code is designed to prevent.
Sample Q&A
Question: ACME Corp., which specializes in manufacturing printers, contracts with Staffing Pro, Inc. to supply key operators for its in-house printing center. Staffing Pro provides personnel records and payment, but the printing machines belong entirely to ACME. When an operator, O, commits an infraction, ACME’s Legal Department conducts the investigation and tells Staffing Pro to terminate O under ACME’s Disciplinary Policy. Staffing Pro executes the termination. O files a complaint for illegal dismissal against ACME, which claims Staffing Pro is an independent contractor with P10 million in general assets. Assuming the printing service promotes ACME’s brand, is ACME liable for illegal dismissal?
Answer: Yes, ACME Corp. is liable for the illegal dismissal of O. Staffing Pro, Inc. is considered a labor-only contractor, making O an employee of ACME.
This is established because:
- Lack of Necessary Investment: Although Staffing Pro has substantial general assets, it lacks the tools and equipment (the printing machines) that are necessary and directly related to the contracted job (operating the printing center), which are instead owned by ACME.
- Related Activity: Operating the printing center, which promotes ACME’s products and public image, is an activity directly related to ACME’s principal business of manufacturing printers.
- Exercise of Control: ACME exerted disciplinary authority over O by conducting the investigation and instructing Staffing Pro to terminate O under ACME’s internal policies, which satisfies the control test.
Under Article 106 of the Labor Code, Staffing Pro is deemed a mere agent of ACME, making ACME the statutory employer. Consequently, O is a regular employee entitled to security of tenure (Article 294 of the Labor Code) and cannot be dismissed without due process and a just or authorized cause.
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