“BROTHERHOOD” LABOR UNITY MOVEMENT OF THE PHILIPPINES, ANTONIO CASBADILLO, PROSPERO TABLADA, ERNESTO BENGSON, PATRICIO SERRANO, ANTONIO B. BOBIAS, VIRGILIO ECHAS, DOMINGO PARINA…

Brotherhood Labor Unity Movement of the Philippines versus San Miguel Corporation

The Case

This is a labor case about the most elemental question in labor law: whether an employer-employee relationship exists at all. The Brotherhood Labor Unity Movement of the Philippines, together with its individual worker-members, brought the action against San Miguel Corporation after the workers were dismissed from the Parola Glass Factory. The workers had loaded, unloaded, piled, and hauled bottles and wooden shells at the plant for years, yet the company insisted they were employees not of San Miguel but of an alleged independent labor contractor. The case matters because it shows how the Supreme Court pierces a labor-only contracting scheme, applies the four elements of employment with the control test at the center, and treats piece-rate payment as a method of compensation rather than as proof that no employment exists.

Procedural History

The union filed a complaint with the old Court of Industrial Relations, charging San Miguel Corporation and several of its officers with unfair labor practice under the Industrial Peace Act and with illegal dismissal. The company moved to dismiss, arguing that the complainants were employees of an independent contractor and were barred by estoppel from claiming otherwise. While the case was pending, the Court of Industrial Relations was abolished and the dispute was taken over by the National Labor Relations Commission, which began hearing the case in September 1975. The labor arbiter ruled for the complainants in February 1976, and the Commission concurred in June 1976, although it reduced the backwages to the equivalent of one year's salary. On appeal, the Secretary of Labor set aside the Commission's ruling in June 1977, stressing the absence of an employer-employee relationship. The workers then came to the Supreme Court by petition, and the Court decided the case in January 1987.

Facts

The petitioner workers had been employed at the San Miguel Parola Glass Factory since 1961, averaging about seven years of service when they were terminated. They worked as cargadores or pahinantes, loading, unloading, piling, and palleting empty bottles and wooden shells to and from company trucks and warehouses, and at times they accompanied the company trucks on delivery routes. They first reported for work to the superintendent in charge, who issued their gate passes, and the company supplied the tools, equipment, and paraphernalia they used. Job orders flowed from the superintendent to an assistant officer in charge, then to warehousemen and checkers, and finally to the capatazes or group leaders, who told the workers where, when, and what to load, unload, pile, pallet, or clean. Work depended on the volume of bottles manufactured; it was not always a full eight-hour day, but at times it exceeded eight hours and required work on Sundays and holidays, for which they received neither overtime nor holiday pay. They were paid every ten days on a piece-rate basis, according to the number of cartons and wooden shells they handled, with the group leader noting each worker's output and receiving a share of the group's total earnings.

The workers worked exclusively at the San Miguel plant and were never assigned elsewhere, even when work was at its minimum. When a glass furnace broke down and a shutdown became necessary, their work was temporarily suspended, and they returned to the plant afterward. In January 1969, about one hundred forty workers organized and affiliated with the petitioner union. Believing themselves entitled to overtime and holiday pay, they pressed management with grievances, including pay below the minimum wage, inhumane treatment, being forced to borrow at usurious rates and to buy raffle tickets, coercion through withheld salaries, and salary deductions made without their consent. Their grievances went unheeded.

In February 1969, the union filed a notice of strike after some members were allegedly castigated for union membership and warned of dismissal. Conciliation conferences were scheduled, and on February 12, 1969, union member Rogelio Dipad was dismissed. At the conference on February 19, 1969, the union presented proposals and labor demands together with a request for recognition and collective bargaining. San Miguel refused to bargain, alleging that the workers were not its employees. On February 20, 1969, all the petitioners were dismissed and thereafter denied entrance to the glass factory despite regularly reporting for work. A complaint for illegal dismissal and unfair labor practice followed.

Issues

• Whether or not an employer-employee relationship existed between the petitioner workers and San Miguel Corporation, notwithstanding the company's claim that they were employees of an alleged independent labor contractor.
• Whether or not the petitioners were regular employees entitled to the protection of the law, considering that they were paid on a piece-rate basis.
• Whether or not the petitioners were illegally dismissed.
• Whether or not San Miguel Corporation committed unfair labor practice in refusing to bargain with the petitioner union.

Applicable Provisions

Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code provides:

Job contracting. — There is job contracting permissible under the Code if the following conditions are met: (1) The contractor carries on an independent business and undertakes the contract work on his own 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 the work except as to the results thereof; and (2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business.

This provision supplies the test for permissible job contracting, which the alleged contractor in this case failed to satisfy.

Article 106 of the Labor Code provides the legal effect of a labor-only contracting scheme, to wit:

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.

This provision makes San Miguel the direct employer of the petitioners once the contracting arrangement is shown to be labor-only.

Ruling

On the first issue, the Court held that an employer-employee relationship existed between the petitioners and San Miguel Corporation. The elements generally considered are the selection and engagement of the employee, the payment of wages, the power of dismissal, and the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished, and it is the control test that is the most important element. The Court found that the facts negated the claim of an independent contractor relationship. No written contract specified the work, its nature and extent, or the term of the relationship, and not a shred of evidence proved the contractor's particulars. The petitioners had worked continuously and exclusively for the company for an average of seven years, performing activities necessary or desirable in the usual business or trade of the respondent, making them regular employees. Even assuming a contract with a labor contractor existed, the alleged contractors had neither substantial capital nor investment to qualify as independent contractors, since the premises, tools, equipment, and paraphernalia were all supplied by San Miguel, and even the contractor's office space, table, chair, typewriter, and cabinet were provided by the company. Only manpower was supplied, which is a labor-only contracting scheme prohibited by law. The Court also noted that the alleged contractors were paid a lump sum representing only the workers' salaries, with no business expenses, capital outlay, or profit over and above wages, and that the contractor's earnings came from a percentage of the workers' total earnings. Control was firmly established by the company's right to impose disciplinary measures and to recommend transfers and dismissals of the piece workers, as shown by inter-office memoranda.

On the second issue, the Court held that payment by the piece did not negate employment. Quoting its earlier ruling, the Court explained:

circumstances must be construed to determine indeed if payment by the piece is just a method of compensation and does not define the essence of the relation. Units of time ... and units of work are in establishments like respondent (sic) just yardsticks whereby to determine rate of compensation, to be applied whenever agreed upon. We cannot construe payment by the piece where work is done in such an establishment so as to put the worker completely at liberty to turn him out and take in another at pleasure.

On the third issue, the Court held that the petitioners were illegally dismissed. The shutdown of the glass plant was merely temporary, one furnace needing repair, and operations continued after the repairs, but the petitioners had already been refused entry and dismissed, with new workers manning their positions. The closure was a ploy to get rid of the petitioners, who were agitating for benefits, reforms, and collective bargaining as a union, and there was no showing that they had been remiss or inefficient.

On the fourth issue, the Court held that San Miguel did not commit unfair labor practice by refusing to bargain. The company had an existing collective bargaining agreement with the IBM union, the recognized collective bargaining representative at the glass plant. There being a recognized bargaining representative of all employees at the plant, the petitioners could not merely form a union and demand bargaining; the Labor Code provides the proper procedure for recognition of unions as sole bargaining representatives, and that procedure must be followed.

Doctrine

An employer-employee relationship is determined by four elements: the selection and engagement of the employee, the payment of wages, the power of dismissal, and the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished. The control test is the most important element. A contracting arrangement is permissible job contracting only if the contractor carries on an independent business, free from the control and direction of the principal except as to results, and has substantial capital or investment in tools, equipment, machineries, work premises, and other materials. Where the contractor supplies only manpower and the principal supplies the premises, tools, and equipment, the scheme is labor-only contracting, and under Article 106 of the Labor Code the intermediary is merely an agent of the employer, who is responsible to the workers as if they were directly employed. Payment by the piece is merely a method of compensation and does not define the essence of the employment relation. Continuous and exclusive work for years in activities necessary or desirable in the usual business or trade of the employer makes the worker a regular employee. Finally, a union cannot demand bargaining merely by forming itself where another union is the recognized collective bargaining representative; the statutory procedure for recognition must be followed.

Disposition

The petition was granted; San Miguel Corporation was ordered to reinstate the petitioners with three years of backwages, and where reinstatement is no longer possible, to pay separation pay equivalent to one month's pay for every year of service.

Remember This

Memorize the four elements of employment with the control test as the most important, and the rule that labor-only contracting makes the intermediary a mere agent of the true employer. Examiners like to use this case on the control test, on piece-rate payment as a mere method of compensation, and on the distinction between permissible job contracting and labor-only contracting.