The Supreme Court (SC) has ruled that a contractor’s lack of tools, equipment, or machinery does not automatically amount to prohibited labor-only contracting, holding that ancillary and manual work may still be lawfully outsourced when the job does not ordinarily require them. 

In a decision penned by Associate Justice Henry Jean Paul B. Inting, the Third Division denied the petition of two workers seeking recognition as regular employees of a flour milling company and a logistics firm, ruling that their manpower agency was a legitimate independent contractor.

“Conqueror should not be abandoned, but rather read narrowly: it carves out a practical exception for industries where the contracted work is ancillary and does not involve tools, machineries, or equipment,” the Court said.

FACTS AND ISSUE

The case stemmed from a complaint for illegal dismissal, money claims, and damages filed in 2018 by Richard Huna Delera and Dionel Bandillon Quiling against Philippine Foremost Milling Corp. (PFMC) and Amigo Logistics Corp., and MMA Competent Manpower & General Services, Inc. (MMA).

Delera had been deployed by MMA as a feed mill bagger since 2003, while Quiling worked as a pollard stacker beginning 2017 under service agreements between the manpower agency and the two companies.  

In 2017, PFMC reported separate workplace incidents involving the workers. Although MMA later cleared both for insufficient evidence, PFMC and Amigo requested their replacement under the service agreement. MMA then ended their deployment at PFMC and Amigo and temporarily placed them on floating status while offering reassignment to other worksites, which the workers did not eventually accept.    

The labor arbiter initially ruled for the workers, finding MMA engaged in labor-only contracting because their work was directly related to PFMC’s business and MMA supposedly lacked sufficient investment in equipment. It declared them regular employees of PFMC and ordered reinstatement with backwages.  

The National Labor Relations Commission (NLRC) reversed the ruling, holding that MMA was the true employer because it hired, paid, supervised, and disciplined the workers, not PFMC or Amigo. The Court of Appeals (CA) later affirmed, finding no grave abuse of discretion on the part of the labor tribunal.

Before the SC, the main issue was whether MMA engaged in labor-only contracting, whether the workers were employees of PFMC and Amigo, and whether they had been illegally dismissed.

RULING

The SC denied the petition and affirmed the CA’s ruling, with modification, holding that MMA was a legitimate job contractor and the true employer of the workers.

The Court found that all elements of the four-fold test of employment, including selection and engagement, payment of wages, power to dismiss, and power to control, were present between MMA and the workers.

Reconciling earlier rulings, the Court said contractors performing ancillary or manual work that does not ordinarily require machinery may still qualify as legitimate contractors if they have substantial capital and independently exercise employer control. It described feed mill bagging and pollard stacking as ancillary manual work that may be validly contracted out, adding that lack of equipment does not automatically amount to prohibited labor-only contracting when the nature of the work does not require it.

On illegal dismissal, the SC ruled that the workers were not terminated after PFMC and Amigo requested their replacement and MMA offered reassignment to other worksites. However, because MMA neither dismissed them nor proved abandonment, the employment relationship remained. 

The Court also ordered their reinstatement without backwages and upheld payment of wages for the extended period of preventive suspension, with six percent annual legal interest until full payment.

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