Labor Law

Recent Rulings on LABOR CODE Independent Contract Relationship, Management Prerogative, Union Security, Retirement Plan, Job Contracting, Security of Tenure

Independent contract relationship –– Jurisprudence instructs that the existence of an independent contract relationship may be indicated by several factors, viz.: such as, but not necessarily confined to, whether the contractor was carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of specified pieces of work; the control and supervision of the workers; the power of the employer with respect to the hiring, firing and payment of the workers of the contractor; the control of the premises; the duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of payment. (Consolidated Building Maintenance, Inc. vs. Asprec, Jr., G.R. No. 217301, June 06, 2018)

Job contracting –– D.O. No. 18-02 reiterates the prohibition against labor-only contracting; however, job contracting is not absolutely prohibited; an employer is allowed to farm out the performance or completion of a specific job, work or service, within a definite or specified period, and regardless of whether the said task is to be performed or completed within or outside its premises; when deemed legitimate and permissible; DO No. 18-02 requires that contractors and subcontractors be registered with the DOLE Regional Offices; purpose of the system of registration; the absence of registration merely gives rise to the presumption that the contractor is engaged in labor-only contracting. (Consolidated Building Maintenance, Inc. vs. Asprec, Jr., G.R. No. 217301, June 06, 2018)

Job contracting is permissible whether such job, work, or service is to be performed or completed within or outside the premises of the principal for as long as the elements of a labor-only contractor are not present. (Mago vs. Sunpower Mfg. Ltd., G.R. No. 210961, Jan. 24, 2018)

The contractor should undertake the performance of the sevices under its contract according to its own manner and method, free from the control and  supervision of the principal; otherwise, the contractor is deemed an illegitimate or labor-only contractor; the control over the employees’ performance of the work is usually manifested through the power to hire, fire, and pay the contractor’s employees, the power to discipline the employees and impose the corresponding penalty, and more importantly, the actual supervision of the employees’ performance. (Mago vs. Sunpower Mfg. Ltd., G.R. No. 210961, Jan. 24, 2018)

––      The law and the relevant regulatory rules  require the contractor to have substantial capital or investment, in order to  be considered a legitimate and independent contractor; DOLE DO No. 18-A, series of 2011, provides that substantial capital refers to paid-up capital stocks/shares of at least ₱3,000,000.00 in the case of corporations. (Mago vs. Sunpower Mfg. Ltd., G.R. No. 210961, Jan. 24, 2018)

Job contracting and labor-only contracting –– As a general rule, a contractor is presumed to be a labor-only contractor, unless such contractor overcomes the burden of proving that it has the substantial capital, investment, tools and the like. (Allied Banking Corp. vs. Calumpang, G.R. No. 219435, Jan. 17, 2018)

––      Permissible job contracting or subcontracting has been distinguished from labor-only contracting such that permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out to a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal, while labor-only contracting, on the other hand, pertains to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal. (Allied Banking Corp. vs. Calumpang, G.R. No. 219435, Jan. 17, 2018)

Labor only contracting –– A finding of the existence of a labor-only contracting would definitely give rise to: (1) the creation of an employer-employee relationship between the principal and the employees of the contractor or sub-contractor; and (2) the solidary liability of the principal and the contractor to the employees in the event of any violation of the Labor Code; to distinguish prohibited labor-only contracting from permissible job contracting, the totality of the facts and the surrounding circumstances of the case shall be considered; the contractor is presumed to be a labor-only contractor, unless such contractor overcomes the burden of proving that it has the substantial capital, investment, tools and the like. (San Miguel Foods, Inc. vs. Rivera, G.R. No. 220103, Jan. 31, 2018)

Defined by Art. 106 of the Labor Code of the Philippines as an arrangement where a person, who does not have substantial capital or investment, supplies workers to an employer to perform activities which are directly related to the principal business of such employer. (Consolidated Building Maintenance, Inc. vs. Asprec, Jr., G.R. No. 217301, June 06, 2018)

Legitimate job contracting –– In legitimate job contracting, the employer-employee relationship between the job contractor and his employees is maintained; while the law creates an employer-employee relationship between the employer and the contractor’s employees, the same is only for the purpose of ensuring the payment of the employees’ wages; the employer becomes jointly and severally liable with the job contractor but only for the payment of the employees’ wages whenever the contractor fails to pay the same. (San Miguel Foods, Inc. vs. Rivera, G.R. No. 220103, Jan. 31, 2018)

The permitted or permissible or legitimate job contracting or subcontracting is the one allowed and permitted by law; it is an arrangement whereby a principal agrees to put out or farm out with the contractor or subcontractor the performance or completion of a specific job, work, or service within a definite or predetermined period, regardless of whether such job, work, or service is to be performed or completed within or outside the premises of the principal. (San Miguel Foods, Inc. vs. Rivera, G.R. No. 220103, Jan. 31, 2018)

To determine its existence, these conditions must concur: (a) the contractor carries on a distinct and independent business and partakes the contract work on his 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 his work except as to the results thereof; (b) the contractor has substantial capital or investment; and (c) the agreement between the principal and the contractor or subcontractor assures the contractual employees’ entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social welfare benefits. (San Miguel Foods, Inc. vs. Rivera, G.R. No. 220103, Jan. 31, 2018)

Management prerogative –– Gives an employer freedom to regulate according to their discretion and best judgment, all aspects of employment including work assignment, working methods, the processes to be followed, working regulations, transfer of employees, work supervision, lay-off of workers and the discipline, dismissal and recall of workers. (Phil. Geothermal, Inc. Employees Union (PGIEU) vs. Chevron Geothermal Phils. Holdings, Inc., G.R. No. 207252, Jan. 24, 2018)

––      Reemployment, on the condition that the employee will be treated as a new employee, is a valid exercise of the employer’s prerogative, as long as it is not done with anti-union motivation. (Tolentino vs. Philippine Airlines, Inc., G.R. No. 218984, Jan. 24, 2018)

The discipline, dismissal, and recall of employees are management prerogatives, limited only by those imposed by labor laws and dictated by the principles of equity and social justice. (Digital Telecommunications Phils., Inc. vs. Ayapana, G.R. No. 195614, Jan. 10, 2018)

Retirement plans –– Company retirement plans must not only comply with the standards set by the prevailing labor laws but must also be accepted by the employees as commensurate to their faithful services to the employer within the requisite period; although the employer could be free to impose a retirement age lower than 65 years for as long its employees consented,  the retirement of the employee whose intent to retire was not clearly established, or whose retirement was involuntary is to be treated as a discharge. (Laya, Jr. vs. Phil. Veterans Bank, G.R. No. 205813, Jan. 10, 2018)

Implied knowledge, regardless of duration, did not equate to the voluntary acceptance required by law in granting an early retirement age option to the employee; the law demanded more than a passive acquiescence on the part of the employee, considering that his early retirement age option involved conceding the constitutional right to security of tenure; acceptance by the employees of an early retirement age option must be explicit, voluntary, free, and uncompelled; while an employer may unilaterally retire an employee earlier than the legally permissible ages under the Labor Code, this prerogative must be exercised pursuant to a mutually instituted early retirement plan. (Laya, Jr. vs. Phil. Veterans Bank, G.R. No. 205813, Jan. 10, 2018)

––      It was incumbent upon the employer to prove that the employee had been fully apprised of the terms of the retirement program at the time of his acceptance of the offer of employment. (Laya, Jr. vs. Phil. Veterans Bank, G.R. No. 205813, Jan. 10, 2018)

Retirement should be the result of the bilateral act of both the employer and the employee based on their voluntary agreement that the employee agrees to sever his employment upon reaching a certain age. (Laya, Jr. vs. Phil. Veterans Bank, G.R. No. 205813, Jan. 10, 2018)

The employers and employees may agree to fix the retirement age for the latter and to embody their agreement in either their collective bargaining agreements (CBAs) or their employment contracts; retirement plans allowing employers to retire employees who have not yet reached the compulsory retirement age of 65 years are not per se repugnant to the constitutional guaranty of security of tenure, provided that the retirement benefits are not lower than those prescribed by law. (Laya, Jr. vs. Phil. Veterans Bank, G.R. No. 205813, Jan. 10, 2018)

The pertinent rule on retirement plans does not presume consent or acquiescence from the high educational attainment or legal knowledge of the employee; the rule provides that the acquiescence by the employee cannot be lightly inferred from his acceptance of employment. (Laya, Jr. vs. Phil. Veterans Bank, G.R. No. 205813, Jan. 10, 2018)

Wage distortion –– Elements of wage distortion, to wit: (1) an existing hierarchy of positions with corresponding salary rates; (2) a significant change in the salary rate of a lower pay class without a concomitant increase in the salary rate of a higher one; (3) the elimination of the distinction between the two levels; and (4) the existence of the distortion in the same region of the country. (Phil. Geothermal, Inc. Employees Union (PGIEU) vs. Chevron Geothermal Phils. Holdings, Inc., G.R. No. 207252, Jan. 24, 2018)

––      Upon the enactment of R.A. No. 6727 (Wage Rationalization Act, amending among others, Art. 124 of the Labor Code) on June 9, 1989, the term “Wage Distortion” was explicitly defined as “a situation where an increase in prescribed wage rate results in the elimination or severe contraction of intentional quantitative differences in wage or salary rate between and among employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage structure based on skills, length of  service or other logical bases of differentiation. (Phil. Geothermal, Inc. Employees Union (PGIEU) vs. Chevron Geothermal Phils. Holdings, Inc., G.R. No. 207252, Jan. 24, 2018)

Wages –– Employee’s wage has been defined as remuneration of earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered and includes the fair and reasonable value, as determined by the Secretary of Labor and Employment, of board, lodging, or other facilities customarily furnished by the employer to the employee. (Asentista vs. Jupp & Co., Inc., G.R. No. 229404, Jan. 24, 2018)

Interpretation — All doubts in the implementation and interpretation of the provisions of this Code, including its implementing rules and regulations, shall be resolved in favor of labor. (De La Salle Araneta University vs. Bernardo, G.R. No. 190809, Feb. 13, 2017)

 —     Although the Court has, more often than not, been inclined towards the plight of the workers and has upheld their cause in their conflicts with the employers, such inclination has not blinded it to the rule that justice is in every case for the deserving, to be dispensed in the light of the established facts and applicable law and doctrine. (Catotocan vs. Lourdes School of Quezon City, Inc., G.R. No. 213486, April 26, 2017)

Labor-only contracting –– Where the agreement reveals that the relationship of the petitioner and alleged contractor is that of a seller and a buyer/re-seller and such agreement does not operate to control or fix methodology on how the latter should do its business as a distributor of petitioner’s products, labor-only contracting is negated. (Nestle Phils., Inc. vs. Puedan, Jr., G.R. No. 220617, Jan. 30, 2017)

Labor union — For fraud and misrepresentation to constitute grounds for cancellation of union registration under the Labor Code, the nature of the fraud and misrepresentation must be grave and compelling enough to vitiate the consent of a majority of union members. (De Ocampo Memorial Schools, Inc. vs. Bigkis Manggagawa sa De Ocampo Memorial School, Inc., G.R. No. 192648, Mar. 15, 2017)

—      The inclusion in a union of disqualified employees is not among the grounds for cancellation, unless such inclusion is due to misrepresentation, false statement or fraud under the circumstances enumerated in Sec. (a) and (c) of Art. 247 of the Labor Code; for purposes of de-certifying a union, it is not enough to establish that the rank-and-file union includes ineligible employees in its membership. (De Ocampo Memorial Schools, Inc. vs. Bigkis Manggagawa sa De Ocampo Memorial School, Inc., G.R. No. 192648, Mar. 15, 2017)

Project employment — Court has upheld the validity of a project-based contract of employment provided that the period was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent; or where it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former over the latter and it is apparent from the circumstances that the period was not imposed to preclude the acquisition of tenurial security by the employee. (E. Ganzon, Inc. (EGI) vs. Andon, Jr., G.R. No. 214183, Feb. 20, 2017)

—     One which 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; to be considered as project-based, the employer has the burden of proof to show that: (a) the employee was assigned to carry out a specific project or undertaking; and (b) the duration and scope of which were specified at the time the employee was engaged for such project or undertaking. (E. Ganzon, Inc. (EGI) vs. Andon, Jr., G.R. No. 214183, Feb. 20, 2017)

—     Project employment should not be confused and interchanged with fixed-term employment; the decisive determinant in project employment is the activity that the employee is called upon to perform and not the day certain agreed upon by the parties for the commencement and termination of the employment relationship; an employment contract that does not mention particular dates that establish the specific duration of the project does not preclude one’s classification as a project employee. (E. Ganzon, Inc. (EGI) vs. Andon, Jr., G.R. No. 214183, Feb. 20, 2017)

Retirement — Petitioner consented and ratified her retirement in accordance with her employer’s retirement policy. (Catotocan vs. Lourdes School of Quezon City, Inc., G.R. No. 213486, April 26, 2017)

—      Retirement plans allowing employers to retire employees who have not yet reached the compulsory retirement age of 65 years are not per se repugnant to the constitutional guaranty of security of tenure, as the employers and employees are permitted to fix the applicable retirement age at 60 years or below, provided the employees’ retirement benefits under any collective bargaining agreement and other agreements shall not be less than those provided in the Labor Code. (Catotocan vs. Lourdes School of Quezon City, Inc., G.R. No. 213486, April 26, 2017)

—      The retirement age is primarily determined by the existing agreement or employment contract, and in the absence thereof, the retirement age is fixed by law, which provides for a compulsory retirement age at 65 years, while the minimum age for optional retirement is set at 60 years. (Catotocan vs. Lourdes School of Quezon City, Inc., G.R. No. 213486, April 26, 2017)

—      While an employer may unilaterally retire an employee earlier than the legally permissible ages under the Labor Code, this prerogative must be exercised pursuant to a mutually instituted early retirement plan. (Catotocan vs. Lourdes School of Quezon City, Inc., G.R. No. 213486, April 26, 2017)

Retirement benefits — For the availment of the retirement benefits under Art. 302 [287] of the Labor Code, as amended by R.A. No. 7641, the following requisites must concur: (1) the employee has reached the age of 60 years for optional retirement or 65 years for compulsory retirement; (2) the employee has served at least five years in the establishment; and (3) there is no retirement plan or other applicable agreement providing for retirement benefits of employees in the establishment. (De La Salle Araneta University vs. Bernardo, G.R. No. 190809, Feb. 13, 2017)

Security of tenure — Employers have the prerogative to impose standards on the work quantity and quality of their employees and provide measures to ensure compliance therewith; non-compliance with work standards may thus be a valid cause for dismissing an employee. (Dagasdas vs. Grand Placement and General Services Corp., G.R. No. 205727, Jan. 18, 2017)

—      Security guards are entitled to security of tenure and only when the period of their reserved or off-detail status exceeds the reasonable period of six months without re-assignment should the affected security guards be regarded as dismissed. (Spectrum Security Services, Inc. vs. Grave, G.R. No. 196650, June 07, 2017)

In cases involving non-payment of monetary claims of employees, the employer has the burden of proving that the employees did receive their wages and benefits and that the same were paid in accordance with law. (Asentista vs. Jupp & Co., Inc., G.R. No. 229404, Jan. 24, 2018)

Labor-only contracting –– Generally, the presumption is that the contractor is a labor-only [contractor] unless such contractor overcomes the burden of proving that it has the substantial capital, investment, tools and the like; the contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer; the principal employer therefore becomes solidarily liable with the labor-only contractor for all the rightful claims of the employees. (Valencia vs. Classique Vinyl Products Corp., G.R. No. 206390, Jan. 30, 2017)

Labor union — In case of alleged inclusion of disqualified employees in a union, the proper procedure for an employer is to directly file a petition for cancellation of the union’s certificate of registration due to misrepresentation, false statement or fraud under the circumstances enumerated in Art. 239 of the Labor Code, as amended. (Asian Institute of Mgm’t. vs. Asian Institute of Mgm’t. Faculty Association, G.R. No. 207971, Jan. 23, 2017)

Management prerogative — Management had the prerogative to determine the place where the employee is best qualified to serve the interests of the business given the qualifications, training and performance of the affected employee; the right of the employee to security of tenure does not give her a vested right to her position as to deprive management of its authority to transfer or re-assign her where she will be most useful. (Chateau Royale Sports and Country Club, Inc. vs. Balba, G.R. No. 197492, Jan. 18, 2017)

Management has a wide discretion to regulate all aspects of employment, including the transfer and re-assignment of employees according to the exigencies of the business; transfer constitutes constructive dismissal when it is unreasonable, inconvenient or prejudicial to the employee, or involves a demotion in rank or diminution of salaries, benefits and other privileges, or when the acts of discrimination, insensibility or disdain on the part of the employer become unbearable for the employee, forcing him to forego her employment. (Chateau Royale Sports and Country Club, Inc. vs. Balba, G.R. No. 197492, Jan. 18, 2017)

Employer-employee relationship — Jurisprudence has adhered to the four-fold test in determining the existence of an employer-employee relationship, to wit: “(1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct, or the so-called ‘control test’”.  (Expedition Construction Corp. vs. Africa, G.R. No. 228671, Dec. 14, 2017)

Unfair labor practice — A wage increase granted by the employer to its employees to induce them to waive their collective bargaining rights, a case of. (Sonedco Workers Free Labor Union [SWOFLU] vs. Universal Robina Corp., G.R. No. 220383, July 05, 2017)

—      Under the Labor Code, a chartered local union acquires legal personality through the charter certificate issued by a duly registered federation or national union and reported to the Regional Office; a local union does not owe its existence to the federation with which it is affiliated; only the union may invoke the union security clause in case any of its members commits a violation thereof. (Ergonomic Systems Phils., Inc.vs. Enaje, G.R. No. 195163, Dec. 13, 2017)—      Union security is a generic term, which is applied to and comprehends ‘closed shop,’ ‘union shop,’ ‘maintenance of membership,’ or any other form of agreement which imposes upon employees the obligation to acquire or retain union membership as a condition affecting employment; union shop, maintenance of membership shop, and closed shop, defined. (Ergonomic Systems Phils., Inc.vs. Enaje, G.R. No. 195163, Dec. 13, 2017)

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