CHEVRON (PHILS.), INC., PETITIONER, VS. VITALIANO C. GALIT, SJS AND SONS CONSTRUCTION CORPORATION AND MR. REYNALDO SALOMON, RESPONDENTS.

Chevron versus Galit

The Case

This is a labor case about who is the real employer of a janitor assigned to an oil depot. Vitaliano Galit sued Chevron Philippines, the SJS and Sons Construction Corporation, and its president Reynaldo Salomon for illegal dismissal, underpayment of the thirteenth month pay, separation pay, and emergency cost of living allowance. The case matters because it is the Supreme Court's clean application of the four-fold test and the control test to distinguish a legitimate independent contractor from a labor-only contractor, and because it shows how the Court weighs the conflicting factual findings of the Labor Arbiter, the National Labor Relations Commission, and the Court of Appeals.

Procedural History

Galit filed his complaint with the National Labor Relations Commission, National Capital Region, North Sector Branch in Quezon City. The Labor Arbiter dismissed the complaint against Chevron for lack of jurisdiction, finding no employer-employee relationship, and dismissed the complaint against SJS and Salomon for lack of merit, but ordered SJS to pay separation pay at one half month's salary for every year of service on grounds of equity and compassionate consideration. Galit appealed to the National Labor Relations Commission, which modified the decision and ordered SJS to pay severance compensation at one month's salary for every year of service, while affirming that SJS was a legitimate job contractor and Galit's employer. Galit's motion for reconsideration was denied. Galit then filed a petition for certiorari with the Court of Appeals, which granted it, reversed the Commission, declared SJS a labor-only contractor, held Chevron to be the actual employer, and found Galit illegally dismissed, ordering reinstatement, full backwages, and attorney's fees. Chevron's motion for reconsideration was denied, so Chevron came to the Supreme Court by petition for review on certiorari under Rule 45. The Court later directed that SJS and Salomon be impleaded as indispensable parties, and when summons could not be served on them, the Court dispensed with their comments and resolved the petition.

Facts

Galit claimed that he had been a regular and permanent employee of Chevron since 1982, assigned to its Pandacan depot as an all-around employee who cleaned the premises, changed malfunctioning oil gaskets, and transferred oil, all under the direct control and supervision of Chevron supervisors. He said that in January 2005 he was verbally informed that his employment was terminated, with a promise of early reinstatement that never came.

SJS, for its part, said it was established in 1993 to provide manpower to clients on a per project or per contract basis. It hired Galit in 1993 as a project employee and assigned him to Chevron as a janitor under a service contract between the two companies. That contract ended on November 30, 2004, and SJS closed its business operations in December 2004 and retired from doing business in Manila in January 2005. Galit was paid separation pay of 11,000 pesos.

Chevron said it had two contracts for janitorial services with SJS, and that under those contracts SJS selected and hired its own workers, paid their wages and benefits, supplied its own equipment, tools, and materials at its own expense, and retained the right to control the manner and means of the work, with Chevron having control only as to the results. When the extended contract expired on November 30, 2004, Chevron awarded a new janitorial contract to another independent contractor.

Issues

• Whether or not there existed an employer-employee relationship between Chevron and Galit.
• Whether or not SJS is a legitimate independent contractor rather than a labor-only contractor.
• Whether or not Chevron is liable to Galit for the termination of his employment, including reinstatement, backwages, and attorney's fees.

Applicable Provisions

The decision does not quote a statutory provision; it applies the four-fold test and the control test as settled jurisprudence. The governing contractual language it construes is the Job Contract between Chevron and SJS, which provides:

The CONTRACTOR shall retain the right to control the manner and the means of performing the work, with the COMPANY having the control or direction only as to the results to be accomplished.

This clause is decisive because it shows that the power of control over the manner and means of the work rested with SJS, not Chevron.

The same contract also provides:

In the fulfillment of its obligations to the COMPANY, the CONTRACTOR shall select and hire its workers. The CONTRACTOR alone shall be responsible for the payment of their wages and other employment benefits and likewise for the safeguarding of their health and safety in accordance with existing laws and regulations. Likewise, the CONTRACTOR shall be responsible for the discipline and or dismissal of these workers.

This clause establishes that SJS exercised the powers of selection, payment of wages, and discipline and dismissal, which are earmarks of an employer.

Ruling

On the first issue, the Court held that no employer-employee relationship existed between Chevron and Galit. It applied the four-fold test: the selection and engagement of the employee, the payment of wages, the power of dismissal, and the power to control the employee's conduct, the last being the most important. Galit himself admitted that SJS assigned him to the depot, that SJS paid his wages, and that SJS paid his Social Security System, Philhealth, and Pag-IBIG premiums. His signed Quitclaim and Release acknowledging separation pay from SJS was an admission that SJS was his employer. He was dismissed because Chevron did not renew its contract with SJS and SJS ceased to operate, not because Chevron ended his employment. On control, the Court held that the right to control suffices, not its actual exercise, and the contract reserved that right to SJS.

On the second issue, the Court held that SJS was a legitimate independent contractor. An independent 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, and free from the control and direction of his principal except as to the results. SJS paid business taxes and fees, was registered as an employer with the Social Security System, and generated an income of more than 1,500,000 pesos in 2004, which the Court treated as substantial capital. The Court also held that Galit's janitorial work was not directly related to Chevron's business of importing, refining, and manufacturing petroleum products.

On the third issue, because there was no employer-employee relationship between Chevron and Galit, the Court held that the award of reinstatement, backwages, and attorney's fees against Chevron had no legal basis. The Court also noted that it may review the factual findings of labor tribunals when those findings conflict with those of the Court of Appeals, which was the situation here.

Doctrine

To determine the existence of an employer-employee relationship, the four-fold test governs: selection and engagement, payment of wages, power of dismissal, and the power to control the employee's conduct, the control test being the most crucial and determinative indicator. The control test asks whether the person for whom the services are performed reserves the right to control not only the end achieved but also the manner and means used to reach that end. A legitimate independent contractor carries on an independent business, undertakes the work on his own account and under his own responsibility, according to his own manner and method, and free from the control of the principal except as to the results. Substantial capital and registration as an employer with the Social Security System, together with payment of business taxes, support a finding of legitimate contracting. Factual findings of labor tribunals are generally accorded respect and finality when supported by substantial evidence, but the Court may review them when they conflict with those of the Court of Appeals.

Disposition

The Supreme Court granted Chevron's petition, reversed and set aside the Court of Appeals decision and resolution, and reinstated the National Labor Relations Commission decision holding SJS liable for severance compensation and absolving Chevron.

Remember This

Memorize this line: the right to control the manner and means of the work, not its actual exercise, is the most crucial indicator of an employer-employee relationship. Examiners use this case to test the four-fold test, the distinction between legitimate independent contracting and labor-only contracting, and the substantial capital requirement.