PHILIPPINE BANK OF COMMUNICATIONS,PETITIONER, VS. THE NATIONAL LABOR RELATIONS COMMISSION, HONORABLE ARBITER TEODORICO L. DOGELIO, AND RICARDO ORPIADA, RESPONDENTS.

Philippine Bank of Communications versus National Labor Relations Commission

The Case

This is a petition for certiorari brought by the Philippine Bank of Communications against the National Labor Relations Commission, Labor Arbiter Teodorico Dogelio, and Ricardo Orpiada. The bank asks the Supreme Court to annul the Labor Arbiter's decision ordering it to reinstate Orpiada with back wages and to pay his thirteenth month pay, and the Commission's decision affirming that award with a modification. The case matters because it is the Court's classic treatment of labor-only contracting: it shows how the four elements of an employer-employee relationship are weighed in a trilateral arrangement, and why a contract that labels workers as "temporary" cannot defeat the security of tenure that the Labor Code guarantees.

Procedural History

Orpiada first filed a complaint for illegal dismissal and failure to pay thirteenth month pay with the Department of Labor. The Office of the Regional Director dismissed the complaint for failure to show an employer-employee relationship between the bank and Orpiada. Orpiada then succeeded in having his complaint certified for compulsory arbitration. During those proceedings the bank brought in Corporate Executive Search as an additional respondent, and both the bank and that agency maintained that the agency, not the bank, was the employer.

The Labor Arbiter rendered a decision ordering the bank to reinstate Orpiada to the same or equivalent position with full back wages and to pay his thirteenth month pay for 1976. The bank appealed to the National Labor Relations Commission. More than six years later, the Commission affirmed the award, modifying only the back wages by reducing them to two years without qualification. The bank then came to the Supreme Court on certiorari, and the Court issued a temporary restraining order.

Facts

In January 1976 the bank and Corporate Executive Search entered into a letter agreement under which the agency undertook to provide the temporary services of eleven messengers, at a daily service rate of eighteen pesos per person. A list of messengers assigned to the bank was attached, and item number five was Ricardo Orpiada. The agency's position paper stated that it had hired Orpiada in June 1975 as a temporary service employee and assigned him to the bank. Orpiada rendered services within the bank's premises, alongside other people rendering services to the bank, from June 1975 until about October 1976, a period of roughly sixteen months.

In October 1976 the bank asked the agency to withdraw Orpiada's assignment because his services were, in the bank's allegation, no longer needed. The agency withdrew the assignment, and Orpiada was in turn terminated by the agency, which had hired him precisely for assignment to the bank.

The bank remitted to the agency amounts corresponding to the daily service rate, and the agency paid the wages. Orpiada did not appear in the bank's payroll; he was listed in the agency's payroll, from which his Medicare and Social Security System premiums were deducted. The letter agreement itself provided that the individuals assigned would remain the agency's own employees and that the agency would retain all liabilities arising from the Labor Code and other laws.

Issues

• Whether or not an employer-employee relationship existed between the Philippine Bank of Communications and Ricardo Orpiada.
• Whether or not Corporate Executive Search was engaged in labor-only contracting, such that the bank is liable to Orpiada as if he had been directly employed by it.

Applicable Provisions

Article 106 of the Labor Code 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. In such cases, 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 is the provision that fixes the consequence of the arrangement: if the agency is a mere intermediary, the bank answers to the worker as a direct employer.

Section 9 of Rule VIII of Book III of the Omnibus Rules Implementing the Labor Code provides:

Labor-only contracting. — (a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-only contracting where such person: (1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials; and (2) The workers recruited and placed by such person are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed.

This supplies the two-part test the Court applies to characterize the agency's undertaking.

Section 8 of the same Rule 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.

The Court reads this together with Section 9, because the agency's undertaking was not the performance of a specific job but the supply of bodies.

Article 281 of the Labor Code provides:

Any employee who has rendered at least one year of service, whether such service is continuous or not, shall be considered a regular employee.

This defeats the attempt to keep Orpiada on a temporary footing after sixteen months of service.

Ruling

On the first issue, the Court applied the four factors from its earlier ruling in Viana versus Al-Lagdan and Pica: 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. The results were mixed. The payment of wages and the power of dismissal pointed to the agency as employer, since the agency paid Orpiada and his withdrawal from the bank ended his employment with the agency. But selection and engagement and control pointed to the bank: Orpiada was hired by the agency precisely to be assigned to the bank, and he worked within the bank's premises and must have been subject to at least the same control and supervision the bank exercises over anyone rendering services there.

On the second issue, the Court held that the agency was engaged in labor-only contracting. Its undertaking was not the performance of a specific job, such as the carriage and delivery of documents, but the supply of a certain number of persons able to work as messengers. Orpiada used the premises and equipment of the bank, not of the agency, and messengerial work is directly related to the day-to-day operations of a bank. The Court stressed that the second paragraph of Section 9 does not require the employer to be engaged in delivery as a distinct line of business. The agency was a recruitment and placement corporation placing bodies in client companies, not a parcel delivery company.

The Court also rejected the bank's reliance on the letter agreement. The parties' intent to avoid an employment relationship is relevant, but the extent to which they succeed depends on applicable law, not merely on the terms of their contract. The agreement furnished eleven messengers for an indefinite period, and Orpiada served about sixteen months. Even if he were regarded as a casual employee, he became a regular employee upon completing one year of service. To uphold the arrangement would let employers keep workers indefinitely on temporary status and deny them security of tenure, which is exactly what Article 106 is designed to prevent.

Doctrine

First, an employer-employee relationship is determined by the four factors of selection and engagement, payment of wages, power of dismissal, and power to control conduct, with control being the most important; no single factor is decisive, and the results may be mixed.

Second, a contract between a principal and an agency does not by its label prevent the law from fastening an employment relationship; the parties' intent governs only so far as the law allows.

Third, there is labor-only contracting where the supplier has no substantial capital or investment and the workers placed perform activities directly related to the principal business of the employer; the supplier is then a mere agent, and the principal is liable to the workers as if they were directly employed by it.

Fourth, an employee who has rendered at least one year of service, continuous or not, becomes a regular employee, and may not be terminated except for just cause or as authorized by the Labor Code.

Disposition

The petition was denied, the decision of the National Labor Relations Commission was affirmed, the temporary restraining order was lifted, and costs were assessed against the bank.

Remember This

Memorize the line that the extent to which parties succeed in avoiding an employment relationship depends on applicable law and not merely on the terms of their contract. Examiners use this case to test labor-only contracting, the four-factor control test, and the one-year regularization rule under Article 281.