Week 3 - Work Relationship

Question 1

Under Art. 97 of the Labor Code, what does a person mean?

Answer 1

Art. 97 (a). “Person” means an individual, partnership, association, corporation, business trust, legal representatives, or any organized group of persons.

Question 2

LC. Art. 97 (b). “Employer” includes […] acting […] in relation to […] and shall include the government and all its branches, subdivisions and instrumentalities, all government-owned or controlled corporations and institutions, as well as non-profit private institutions, or organizations.

Answer 2

LC. Art. 97 (b). “Employer” includes any person acting directly or indirectly in the interest of an employer in relation to an employee and shall include the government and all its branches, subdivisions and instrumentalities, all government-owned or controlled corporations and institutions, as well as non-profit private institutions, or organizations.

Question 3

LC. Art. 97. (c). “Employee” includes […].

Answer 3

LC. Art. 97. (c). “Employee” includes any individual employed by an employer.

Question 4

LC. Art. 173. (f) “Employer” means any person, natural or juridical, […].

Answer 4

LC. Art. 173. (f) “Employer” means any person, natural or juridical, employing the services of the employee.

Question 5

LC. Art. 173. (g). “Employee” means […] under Commonwealth Act Numbered One hundred eighty-six, as amended, including the […], and […], or any person compulsorily […] under Republic Act Number Eleven hundred sixty-one, as amended.

Answer 5

LC. Art. 173. (g). “Employee” means any person compulsorily covered by the GSIS under Commonwealth Act Numbered One hundred eighty-six, as amended, including the members of the Armed Forces of the Philippines, and any person employed as casual, emergency, temporary, substitute or contractual, or any person compulsorily covered by the SSS under Republic Act Number Eleven hundred sixty-one, as amended.

Question 6

LC. Art. 173. (h). “Person” means any […].

Answer 6

LC. Art. 173. (h). “Person” means any individual, partnership, firm, association, trust, corporation or legal representative thereof.

Question 7

LC. Art. 219. (e). “Employer” includes […]. The term shall not include […].

Answer 7

LC. Art. 219. (e). “Employer” includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer.

Question 8

LC. Art. 219. (f). “Employee” includes […]. The term shall not be limited to the employees of a particular employer, unless the Code so explicitly states. It shall include any individual whose work has […] or because of any […] if he has not obtained any other substantially equivalent and regular employment.

Answer 8

LC. Art. 219. (f). “Employee” includes any person in the employ of an employer. The term shall not be limited to the employees of a particular employer, unless the Code so explicitly states. It shall include any individual whose work has ceased as a result of or in connection with any current labor dispute or because of any unfair labor practice if he has not obtained any other substantially equivalent and regular employment.

Question 9

What is the quantum of evidence required to prove the existence of an employer-employee relationship?

Answer 9

In Sonza v. ABS-CBN, “The existence of an employer-employee relationship is a question of fact. Appellate courts accord factual finding of the Labor Arbiter and the NLRC not only respect but also finality when supported by substantial evidence. Substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” [Sonza v. ABS-CBN GR No. 138051].

Question 10

What are the elements of an employer-employee relationship?

Answer 10

The elements of an employer-employee relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to control the employee on the means and methods which by which the work is accomplished. The last element, the so-called “control test”, is the most important element. [the Court citing petitioner’s pleadings in Sonza v. ABS-CBN GR No. 138051].

Question 11

What is the “control test”?

Answer 11

“The control test is the most important test [courts] apply in distinguishing an employee from an independent contractor. This test is based on the extent of control the hirer exercises over a worker. The greater the supervision and control the hirer exercises, the more likely the worker is deemed an employee. The converse holds true as well – the less control the hirer exercises, the more likely the worker is considered an independent contractor.” [Sonza vs. ABS-CBN GR No. 138051].

Question 12

What is the quantum of evidence in labor cases?

Answer 12

Substantial evidence. In McLeod v. NLRC, the Court said “It is a basic rule in evidence that parties must prove their affirmative allegations. While technical rules are not strictly followed in the NLRC, this does not mean that the rules on proving allegations are entirely ignored. Bare allegations are not enough. They must be supported by substantial evidence at the very least.” [McLeod v. NLRC GR No. 146667].

Question 13

Explain the doctrine of piercing the corporate veil.

Answer 13

“[The principle] that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.” [Sarona v. NLRC G.R. No. 185280].

Question 14

When may the corporate veil be pierced?

Answer 14

“[A]ny application of the doctrine of piercing the corporate veil should be done with caution. […] It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.” [Sarona v. NLRC].

Question 15

What are the three basic areas in which the doctrine of piercing the corporate veil can be applied?

Answer 15

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. [Sarona v. NLRC].

Question 16

What is the general rule and exception in holding a corporate officer solidarily liable with the corporation for separation pay in illegal dismissal cases?

Answer 16

General rule: Corporate officers are not held solidarily liable with the corporation for separation pay because the corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not itself sufficient ground for disregarding the separate corporate personality.

Exception: To hold a director or officer personally liable for corporate obligations, two requisites must concur, to wit: (1) the complaint must allege that the director or officer assented to the patently unlawful acts of the corporation; (2) there must be proof that the director or officer acted in bad faith. [Lozada vs. Mendoza GR No. 196134].

Question 17

When is there labor-only contracting?

Answer 17

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 principal. [Escario v. NLRC GR No. 124055].

Question 18

***What are the elements of labor-only contracting?

Answer 18

In labor-only contracting, the following elements are present:

(a) 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
(b) The workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. [Escario v. NLRC GR No. 124055].

Question 19

When is there premissible job cocntracting?

Answer 19

[T]here is permissible job contracting when a principal agrees to put out or farm out with a contractor or a subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job or work or service is to be performed or completed within or outside the premises of the principal. In this arrangement, the following conditions must concur:

(a) The contractor carries on a distinct and independent business and undertakes the contract work on his account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of his work except as to the results thereof; and
(b) The contractor has substantial capital or investment in the form of tools, equipment, machineries (sic), work premises, and other materials which are necessary in the conduct of his business. [Escario v. NLRC GR No. 124055].

Question 20

DO 174-17 Sec. 3. (a) “Bond” - refers to the bond under Article 108 of the LC.
What is the meaning of a “Bond” under Article 108 of the LC?

Answer 20

Art 108. Posting of a Bond – An employer or indirect employer may require the contractor or subcontractor to furnish a bond equal to the cost of labor under contract, on condition that the bond will answer for the wages due the employees should the contractor or subcontractor, as the case may be, fail to pay the same.

Question 21

[…] – refers to an arrangement whereby a principal agrees to farm out to a contractor the performance or completion of a specific job or work within a definite or predetermined period, regardless of whether such job or work is to be performed or completed within or outside the premises of the principal.

Answer 21

DO 174-17. Sec. 3. (c). “Contracting” or “Subcontracting” – refers to an arrangement whereby a principal agrees to farm out to a contractor the performance or completion of a specific job or work within a definite or predetermined period, regardless of whether such job or work is to be performed or completed within or outside the premises of the principal.

Question 22

[…] - refers to any person or entity engaged in a legitimate contracting or subcontracting arrangement providing services for a specific job or undertaking farmed out by principal under a Service Agreement.

Answer 22

DO 174-17 Sec. 3. (d). “Contractor” – refers to any person or entity engaged in a legitimate contracting or subcontracting arrangement providing services for a specific job or undertaking farmed out by principal under a Service Agreement.

Question 23

Contracting is to arrangement as contractor is to _____.

Answer 23

person or entity.

Question 24

[…] - refers to employee of the contractor hired to perform of complete a job or work farmed out by the principal pursuant to a Service Agreement with the latter.

Answer 24

DO 174-17. Sec. 3. (e). “Contractor’s employee” – refers to employee of the contractor hired to perform of complete a job or work farmed out by the principal pursuant to a Service Agreement with the latter.

Question 25

[…] - refers to arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job or work for a principal, and the elements enumerated in Section 5 hereunder are present.

Answer 25

DO 174-17. Sec. 3. (h). **“Labor-only contracting”** - refers to arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job or work for a principal, and the elements enumerated in Section 5 hereunder are present.

Question 26

[…] – refers to any natural or juridical entity, whether an employer or not, who puts out or farms out a job or work to a contractor.

Answer 26

DO 174-17. Sec. 3. (i). **“Principal”** – refers to any natural or juridical entity, whether an employer or not, who puts out or farms out a job or work to a contractor.

Question 27

[…]– refers to the contract between the principal and contractor containing the terms and conditions governing the performance or completion of a specific job or work being farmed out for a definite or predetermined period.

Answer 27

DO 174-17. Sec. 3. (j). **“Service Agreement”** – refers to the contract between the principal and contractor containing the terms and conditions governing the performance or completion of a specific job or work being farmed out for a definite or predetermined period.

Question 28

[…] – refers to the liability of the principal, pursuant to the provision of Article 109 of the Labor Code, as direct employer together with the contractor for any violation of any provision of the Labor Code. It also refers to the liability of the principal, in the same manner and extent that he/she is liable to his/her direct employees, to the extent of the work performed under the contract when the contractor fails to pay the wages of his/her employees, as provided in Article 106 of the Labor Code, as amended.

Answer 28

DO 174-17. Sec. 3. (k). **“Solidary liability”** – refers to the liability of the principal, pursuant to the provision of Article 109 of the Labor Code, as direct employer together with the contractor for any violation of any provision of the Labor Code. It also refers to the liability of the principal, in the same manner and extent that he/she is liable to his/her direct employees, to the extent of the work performed under the contract when the contractor fails to pay the wages of his/her employees, as provided in Article 106 of the Labor Code, as amended.

Question 29

**DO 174-17. Sec. 9. Solidary Liability.** In the event of violation of any provision of the Labor Code, including the failure to pay wages, there exists a solidary liability on the part of […].

Answer 29

**DO 174-17. Sec. 9. Solidary Liability.** In the event of violation of any provision of the Labor Code, including the failure to pay wages, there exists a solidary liability on the part of **the principal and the contractor for purposes of enforcing the provisions of the Labor Code and other social legislations, to the extent of the work performed under the employment contract.**

Question 30

True or false. One who claims to be an independent contractor has to prove that he contracted to do the work according to his own methods and without being subject to the employer's control except only as to the result.

Answer 30

True. *PAL v. Ligan GR No. 146408*

Question 31

Is a contractor presumed to be an independent job contractor?

Answer 31

No. A contractor is presumed to be a labor-only contractor. In *Garden of Memories v. NLRC,* the Court stated “[T]he presumption is that the contractor is a labor-only contracting (*sic*) unless such contractor overcomes the burden of proving that it has the substantial capital, investment, tools and the like.” [*Garden of Memories v. NLRC GR No. 160278*].

Question 32

What conditions must concur in order for a person to be considered engaged in permissible job contracting?

Answer 32

A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur: (a) The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work or service on its own account and under its own responsibility according to its own manner and method, free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof; (b) The contractor or subcontractor has substantial capital or investment; and (c) The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits. [*Vinoya v. NLRC GR No. 126586*].

Question 33

DO 174-17. Sec. 9. **Rights of Contractor's/Subcontractor's Employees.** All contractor's/subcontractor's employees, shall be entitled to […] and […], as amended, to include the following: (a) […] working conditions; (b) Labor standards such as but not limited to […]; (c) […] or […] of the contractor/subcontractor; (d) […] benefits; and (e) […] concerted activities including the […].

Answer 33

DO 174-17. Sec. 9. **Rights of Contractor's/Subcontractor's Employees.** All contractor's/subcontractor's employees, shall be entitled to **security of tenure** and **all the rights and privileges as provided for in the Labor Code**, as amended, to include the following: (a) **Safe and healthful** working conditions; (b) Labor standards such as but not limited to **service incentive leave, rest days, overtime pay, holiday pay, 13th month pay, and separation pay**; (c) **Retirement benefits under the SSS** or **retirement plans** of the contractor/subcontractor; (d) **Social security and welfare** benefits; and (e) **Self-organization, collective bargaining and peaceful** concerted activities including the **right to strike**.

Question 34

DO 174-17. Sec. 12. **Effect of Violation of the Provisions on the Rights of Contractor's Employees and Required Contracts.** A finding of violation of either […], shall render the principal […], pursuant to […] of the Labor Code, as amended.

Answer 34

DO 174-17. Sec. 12. **Effect of Violation of the Provisions on the Rights of Contractor's Employees and Required Contracts.** A finding of violation of either **Sections 10 or 11 hereof**, shall render the principal **the direct employer of the employees of the contractor or subcontractor**, pursuant to **Article 109** of the Labor Code, as amended.

Question 35

**DO 174-17. Sec. 27. Retaliatory Measures.** Pursuant to […] of the Labor Code, as amended, it shall be unlawful for the principal, contractor, or any party privy to the contract or services provided […], and […] any worker who […] (under Title […] of the Labor Code), […], or has […].

Answer 35

**DO 174-17. Sec. 27. Retaliatory Measures.** Pursuant to **Article 118** of the Labor Code, as amended, it shall be unlawful for the principal, contractor, or any party privy to the contract or services provided **to refuse to pay or reduce the wages and benefits**, and **discharge or in any manner discriminate against** any worker who **has filed any complaint or instituted any proceeding on wages** (under **Title II, Book III** of the Labor Code), **labor standards violation**, or has **testified or is about to testify in such proceedings**.

Question 36

When may the principal be considered an indirect employer and thus held solidarily liable to the contractual employees?

Answer 36

In the case of *Meralco v. NLRC,* the Court held that “[the principal] may be considered an indirect employer **only for purposes of unpaid wages.**” Thus, citing *PAL v NLRC,* the Court further stated "The concept of indirect employer only relates or refers to the liability for unpaid wages. Read together, Article 106 and 109 simply mean that the party with whom an independent contractor deals is solidarily liable with the latter for unpaid wages, and **only to the extent and for that purpose that the latter is considered a direct employer.** [*Meralco v. NLRC GR No. 145402].*

Question 37

**DO 174-17. Sec. 13. Effect of Termination of Employment.** (par. 3). Where the termination results from the expiration of the Service Agreement, or from the completion of the phase of the job or work for which the employee is engaged, […].

Answer 37

**DO 174-17. Sec. 13. Effect of Termination of Employment.** (par. 3). Where the termination results from the expiration of the Service Agreement, or from the completion of the phase of the job or work for which the employee is engaged, **the latter may opt to wait for re-employment within three (3) months to resign and transfer to another contractor-employer.**

Question 38

**DO 174-17. Sec. 13. Effect of Termination of Employment.** (par. 3). […] Failure of the contractor to provide new employment for the employee shall […], without prejudice to his/her entitlement to completion bonuses or other emoluments, including retirement benefits whenever applicable. The mere expiration of the Service Agreement shall […].

Answer 38

**DO 174-17. Sec. 13. Effect of Termination of Employment.** (par. 3). […] Failure of the contractor to provide new employment for the employee shall **entitle the latter to payment of separation benefits as may be provided by law or the Service Agreement, whichever is higher**, without prejudice to his/her entitlement to completion bonuses or other emoluments, including retirement benefits whenever applicable. The mere expiration of the Service Agreement shall **not be deemed as a termination of employment of the contractor's/subcontractor's employees who are regular employees of the latter.**

Question 39

What are the criteria that need to present in order to rule that “labor-only” contracting exists?

Answer 39

“[L]abor-only” contracting exists when the following criteria are present: (1) where the contractor or subcontractor supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among other things; and the workers recruited and placed by the contractor or subcontractor are performing activities which are directly related to the principal business of such employer; or (2) where the contractor does not exercise the right to control the performance of the work of the contractual employee. [*Mandaue Galleon Trade, Inc. vs. Andales GR No. 159668*].

Question 40

What is the presumption when contractual employees are tasked to undertake activities usually desirable or necessary in the usual business of the employer?

Answer 40

“Where the employees are tasked to undertake activities usually desirable or necessary in the usual business of the employer, the contractor is **considered as a ‘labor-only’ contractor** and such employees are considered as **regular emplyees** of the employer." [*Mandaue Galleon Trade, Inc. vs. Andales GR No. 159668*].

Question 41

What does “substantial capital or investment” refer to in terms of the law against labor-only contracting?

Answer 41

“Substantial capital or investment” refers to capital stocks 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. [Sec. 5. Rules Implementing Articles 106 to 109 of the Labor Code; cited in *Mandaue Galleon Trade, Inc. vs. Andales GR No. 159668*].

Question 42

What does the “right to control” refer to when talking about labor-only contracting?

Answer 42

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. [Sec. 5. Rules Implementing Articles 106 to 109 of the Labor Code; cited in *Mandaue Galleon Trade, Inc. vs. Andales GR No. 159668*].

Question 43

Can management farm out any of its activities to contractors?

Answer 43

Yes (*arguably*). In *Aliviado vs. P&G,* the Court stated (by way of *obiter dictum*) “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.” [*Aliviado vs. Procter & Gamble Phils., Inc. G.R. No. 160506*].

Question 44

To what extent will the principal be solidarily liable with the **labor-only contractor?**

Answer 44

The principal employer will be solidarily liable for all the rightful claims of the employees. In *San Miguel v. MAERC,* the Court held “In labor-only contracting, the statute creates an employer-employee 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. **The principal employer therefore becomes solidarily liable with the labor-only contractor for all the rightful claims of the employees.**” [*San Miguel v. MAERC GR No. 144672*].