NORKIS TRADING CORPORATION, PETITIONER, VS. JOAQUIN BUENAVISTA, HENRY FABROA, RICARDO CAPE, BERTULDO TULOD, WILLY DONDOYANO AND GLEN VILLARIASA, RESPONDENTS.

Norkis Trading versus Buenavista

The Case

This is a labor case about who the real employer is. Norkis Trading Corporation, a company engaged in the manufacture and marketing of Yamaha motorcycles and multi-purpose vehicles, is pitted against six workers — Joaquin Buenavista, Henry Fabroa, Ricardo Cape, Bertuldo Tulod, Willy Dondoyano and Glen Villariasa — who were made to appear as members of a cooperative, Panaghiusa sa Kauswagan Multi-Purpose Cooperative, rather than as regular employees of the company. The workers sued for illegal suspension, illegal dismissal, unfair labor practice and monetary claims. The case matters because it is the Supreme Court's clean statement of the rule on labor-only contracting: when the contractor has no substantial capital and the workers perform activities directly related to the principal's main business, the contractor is a mere agent and the principal is the true employer, liable as if it had hired the workers itself.

Procedural History

The workers filed their amended complaint with the National Labor Relations Commission. The Labor Arbiter dismissed the complaint for lack of merit, sustained the suspension imposed by the cooperative, and rejected the claim of illegal dismissal, although he directed the workers to report back to the cooperative for work assignment. The workers appealed to the National Labor Relations Commission, which affirmed the dismissal but deleted the order to accept them back, and further declared that the Labor Arbiter had no jurisdiction because the workers were members, not employees, of the cooperative, making the matter an intra-corporate dispute. The workers then went to the Court of Appeals on a petition for certiorari. The Court of Appeals reversed and set aside the rulings of the National Labor Relations Commission, found that the workers were employees of Norkis Trading, and ordered reinstatement with full backwages, or separation pay in the alternative. Norkis Trading's motion for reconsideration was denied, so it came to the Supreme Court on a petition for review on certiorari.

Facts

The six workers were hired by Norkis Trading on separate dates beginning in January 1993, as operators and welders. They worked on industrial and welding machines owned by Norkis Trading, installed inside the company's premises. The materials they used were supplied by the company through its stockman upon the request of its leadman. Their work was supervised by the company's leadmen and production supervisor, and their salaries were paid inside the company premises by employees of its accounting office. Yet they were not treated as regular employees. Instead, they were regarded as members of the cooperative, which was presented as an independent contractor that merely deployed them to render services for the company.

In June 1999 the workers filed a complaint with the Department of Labor and Employment for labor-only contracting and non-payment of minimum wage and overtime pay. The filing allegedly led the cooperative to suspend their membership, charging them with acts injurious to the cooperative's interest. They were later charged with serious misconduct, abandonment, absences without leave, and loitering, and were suspended for fifteen working days from September 1 to 21, 1999, a suspension extended for another fifteen days to October 12, 1999. When they reported back on October 13, 1999, the cooperative told them they would be transferred to Porta Coeli Industrial Corporation, a sister company of Norkis Trading, as washers of Multicab vehicles. The workers opposed the transfer as a change of employer and a demotion, and amended their complaint to include illegal dismissal.

For its part, Norkis Trading insisted the workers were members of the cooperative, which supplied services to Norkis International Company, Incorporated under a job contract executed on January 14, 1999. The Regional Director of the Department of Labor and Employment, however, ruled that the cooperative was engaged in labor-only contracting, that it had failed to prove substantial capital, that the machinery and supplies were owned by Norkis Trading, and that the workers' membership in the cooperative was inconsequential to their employment with the company. That ruling was affirmed by the Secretary of Labor and Employment, by the Court of Appeals, and finally by the Supreme Court with finality.

Issues

• Whether or not the Court of Appeals may examine and reverse the factual findings of the Labor Arbiter and the National Labor Relations Commission.
• Whether or not the cooperative is a labor-only contractor, making Norkis Trading the principal employer of the workers.
• Whether or not the workers were constructively dismissed when they were offered transfer to a sister company as washers of vehicles.

Applicable Provisions

The decision applies the statutory definition of labor-only contracting under the Labor Code, which provides:

Article 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.

This anchors the rule that the principal is solidarily liable with the contractor, and where the contractor is a mere labor-only contractor, the principal is deemed the direct employer of the workers.

The decision also applies the definition of labor-only contracting under the implementing rules, which provides:

Section 5. Labor-only contracting. Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal.

This is the provision the Court uses to test whether the cooperative is a legitimate contractor or a mere conduit, and it bears directly on the finding that Norkis Trading is the true employer.

Ruling

On the first issue, the Court held that while factual findings of labor officials are generally accorded respect and even finality when supported by substantial evidence, they are not infallible. When there is a showing that they were arrived at arbitrarily or in disregard of the evidence on record, the courts may examine them. The Court of Appeals may grant certiorari if it finds that the National Labor Relations Commission made a factual finding not supported by substantial evidence, and to make that determination it must look into the evidence. This case fell within the exception, because the Commission had disregarded facts and evidence material to the outcome.

On the second issue, the Court held that the question of employment hinged on whether the cooperative was a labor-only contractor. Labor-only contracting is a prohibited act, an arrangement where the contractor merely recruits, supplies or places workers to perform a job for a principal. Its elements are that the contractor does not have substantial capital or investment to perform the job under its own account and responsibility, and that the workers perform activities directly related to the main business of the principal. The Court found these elements present, and stressed that the petitioner's arguments against the finding of labor-only contracting were already mooted by the finality of the Supreme Court's resolutions affirming the Regional Director's Order. The cooperative had failed to prove substantial capital, the machinery and supplies were owned by Norkis Trading, and the workers' membership in the cooperative was inconsequential to their employment with the company. Thus Norkis Trading was the principal employer.

On the third issue, the Court upheld the Court of Appeals' finding that the refusal to accept the workers back to their former positions, offering them instead a new assignment as washers of vehicles in a sister company, was a demotion amounting to constructive dismissal. The Court also noted that the payroll registers showed the workers were paid even before the supposed job contract was executed, which the Court of Appeals rightly treated as proof that the contract was a mere afterthought.

Doctrine

A Bar candidate should retain these rules. First, labor-only contracting exists when the contractor merely recruits, supplies or places workers to perform a job for a principal, and two elements concur: the contractor lacks substantial capital or investment to perform the job under its own account and responsibility, and the workers perform activities directly related to the main business of the principal. Second, in labor-only contracting the contractor is a mere agent of the principal, and the principal is deemed the direct employer of the workers, solidarily liable with the contractor. Third, the factual findings of labor officials are generally respected, but they may be examined and reversed when arrived at arbitrarily or in disregard of the evidence on record. Fourth, a transfer that amounts to a demotion, or a change of employer, may constitute constructive dismissal.

Disposition

The Supreme Court denied the petition and affirmed the Court of Appeals, holding Norkis Trading liable as the principal employer, with reinstatement and full backwages, or separation pay in the alternative.

Remember This

The one line to memorize: where the contractor has no substantial capital and the workers do work directly related to the principal's main business, the contractor is a labor-only contractor and the principal is the true employer. Examiners use this case to test the elements of labor-only contracting, the solidary liability of the principal, and the exception allowing courts to review the factual findings of labor officials.