TRUE NORTH MANUFACTURING SERVICES CORP. WORKERS ASSOCIATION (TNMSCWA) AND ITS MEMBERS ASSISTED BY LCP, PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, TRUST INTERNATIONAL …

True North Manufacturing Services Corporation Workers Association versus National Labor Relations Commission

The Case

This is a special civil action for certiorari brought by the True North Manufacturing Services Corporation Workers Association and fifty-seven of its members against the National Labor Relations Commission, Trust International Paper Corporation, True North Manufacturing Services Corporation, and their respective presidents. The petitioners ask the Supreme Court to annul the labor tribunals' rulings, which dismissed their complaints for illegal dismissal, unfair labor practice, and regularization, and which instead recognized them as project employees of True North rather than regular employees of either True North or Trust International Paper. The case matters because it is a compact teaching vehicle on the distinction between legitimate job contracting and labor-only contracting, on the four indices of an employer-employee relationship, on the requisites of project employment under Article 280 of the Labor Code, and on the rule that the dismissal of union officers and members does not by itself prove union busting.

Procedural History

Three complaints were filed before the Labor Arbiter in March and April 2003 and were consolidated because they involved the same facts, issues, and substantially the same parties. On July 8, 2004, Labor Arbiter Reynaldo V. Abdon rendered judgment approving the quitclaims of eight complainants and dismissing the consolidated complaints for lack of merit and, as against Trust International Paper, for lack of jurisdiction, while awarding financial assistance of one-half month's pay for every year of service to the remaining complainants. The petitioners appealed to the National Labor Relations Commission, which, in a resolution dated July 29, 2005, dismissed the appeal and affirmed the Labor Arbiter in toto. The petitioners' motion for reconsideration was denied in a resolution dated November 24, 2005. The petitioners then elevated the matter to the Supreme Court through this special civil action for certiorari, alleging grave abuse of discretion amounting to lack or excess of jurisdiction.

Facts

Trust International Paper Corporation is a manufacturer of paper products. Lacking technical expertise and equipment for maintaining its machines and rehabilitating its plant in Mabalacat, Pampanga, it engaged True North Manufacturing Services Corporation under an Independent Services Retainership Agreement, paying True North a lump sum fee of One Million Pesos for monthly rehabilitation works on its paper machines, its de-inking plant, and its environmental management department. True North assigned its workers to Trust International Paper, but it selected, hired, and trained them, paid their wages, and held the sole power to discipline and dismiss them, with Trust International Paper reserving only the right to assess the quality of the work.

The individual complainants had mixed origins: some were initially hired by Masipag Services Corporation, some allegedly hired directly by Trust International Paper, and others hired directly by True North. They worked as welders, millwrights, electricians, instrument technicians, and helpers. After organizing themselves into a union and registering it with the Department of Labor and Employment, they sent a letter to True North informing it of the union's organization. They then alleged that the union was busted through the dismissal of all its officers and members.

True North, for its part, claimed that it was in the business of providing technical and maintenance services and that it engaged employees on a project basis. It suffered steady losses in 1999, 2000, and 2001, and its largest client, Trust International Paper, terminated their contract effective March 5, 2003. As a result, the contracts of project employees that expired were no longer renewed, and the affected workers were given notices of the conclusion of their contracts.

Issues

• Whether or not the individual complainants were regular employees of True North and Trust International Paper, or project employees of True North alone.
• Whether or not the contracting arrangement between Trust International Paper and True North was legitimate job contracting rather than labor-only contracting.
• Whether or not the individual complainants were illegally dismissed.
• Whether or not the respondents were guilty of unfair labor practice through union busting.

Applicable Provisions

Article 280 of the Labor Code, as quoted in the decision, provides:

The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary and desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee or where the work or service to be performed is seasonal in nature and the employment is for the duration of the season.

This is the provision that fixes the status of the complainants as project employees, since their engagements were tied to specific undertakings whose completion was determined at the time of engagement.

Article 106 of the Labor Code, as discussed in the decision, provides:

There is labor-only contracting where 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 the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer.

This is the yardstick against which the Trust International Paper and True North arrangement was tested and found to be legitimate.

Section 5 of Department Order Number 18, Series of 2002, as quoted in the decision, provides:

Labor-only contracting is an arrangement where the contractor or sub-contractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present: the contractor or sub-contractor 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 sub-contractor are performing activities which are directly related to the main business of the principal; or the contractor does not exercise the right of control over the performance of the work of the contractual employee.

This is the more precise definition applied by the Labor Arbiter in rejecting the claim of labor-only contracting.

Ruling

On the first issue, the Court upheld the finding that the complainants were project employees of True North, not regular employees. The written contracts showed that the complainants were fully aware of the nature and duration of their engagement, and length of service alone does not convert a project employee into a regular one. The Court quoted with approval the ruling in Palomares versus National Labor Relations Commission:

Length of service is not the controlling determinant of the employment tenure of a project employee.

On the second issue, the Court sustained the finding that the arrangement between Trust International Paper and True North was legitimate job contracting. True North possessed substantial capital and investment, with subscribed capital of Two Million Five Hundred Thousand Pesos and tools and equipment with a net value of Twenty Seven Million Eight Hundred Fifteen Thousand One Hundred Twenty Pesos as of the end of the year 2000. The work contracted out, the maintenance of manufacturing machines and the rehabilitation of infrastructure, was not directly related to the principal business of manufacturing paper products. Applying the four indices of an employer-employee relationship, namely the selection and engagement of the workers, the power of dismissal, the payment of wages, and the power of control, the Court found that all pointed to True North as the employer, and that no employer-employee relationship existed between the complainants and Trust International Paper.

On the third issue, the Court held that there was no illegal dismissal. The expiration of the project employment contracts automatically terminated the employment, and for those whose contracts were cut short by the termination of the Trust International Paper contract, their separation was valid because their tenure was co-terminous with the project.

On the fourth issue, the Court held that there was no unfair labor practice. The fact that union officers and members were dismissed does not ipso facto mean that the employer is guilty of union busting; only evidence that the dismissal was done to interfere with or restrain the employees in the exercise of their right to self-organization would make it so. Here, the termination affected all project employees regardless of union membership, and the losses began before the union existed.

Doctrine

A Bar candidate should retain these rules. First, a project employee is one assigned to carry out a specific project or undertaking whose duration and scope were specified at the time of engagement, and length of service is not the controlling determinant of project employment. Second, labor-only contracting exists only where the contractor lacks substantial capital or investment and the workers perform activities directly related to the principal business of the employer, or where the contractor does not exercise control over the workers. Third, the employer is determined by the four indices of selection and engagement, power of dismissal, payment of wages, and power of control, with control assuming primacy. Fourth, the dismissal of union officers and members does not by itself establish union busting; the evidence must show that the dismissal was meant to interfere with the right to self-organization.

Disposition

The Supreme Court dismissed the petition and affirmed the rulings of the National Labor Relations Commission, which had affirmed in toto the decision of the Labor Arbiter dismissing the complaints while awarding financial assistance to the remaining complainants.

Remember This

The one line worth memorizing is that length of service is not the controlling determinant of the employment tenure of a project employee. Examiners like to use this case to test the distinction between legitimate job contracting and labor-only contracting, and to test whether the mere dismissal of union members amounts to union busting.