The Supreme Court ruled that Edward R. Añonuevo was illegally dismissed by CBK Power Company, Ltd. because he was a regular employee, not a contractual worker. This decision emphasizes that companies cannot use labor-only contracting to avoid the responsibilities of regular employment, ensuring workers’ rights to security of tenure, fair wages, and benefits.

Power Play: When a Manpower Agency Masks the Real Employer

Edward R. Añonuevo sought regularization, attorney’s fees, and damages from CBK Power Company, Ltd. (CBK), its officers, and TCS Manpower Services, Inc. (TCS), arguing that CBK illegally terminated him. Añonuevo claimed he was a regular CBK employee from the start, as Rolpson Enterprise (Rolpson), the initial manpower provider, was a labor-only contractor. CBK denied any employment relationship with Añonuevo, asserting that TCS was a legitimate contractor. The Labor Arbiter and NLRC sided with CBK, but the Court of Appeals (CA) affirmed these decisions.

The core legal question revolved around whether Añonuevo was a regular employee of CBK or a contractual employee of TCS. The Supreme Court had to determine if the lower courts erred in finding that the NLRC did not commit grave abuse of discretion. Crucially, the Court examined the nature of the contracting arrangements involving Rolpson and TCS, and whether these entities were legitimate independent contractors or merely labor-only contractors.

The Supreme Court emphasized its role in labor cases, which is generally limited to determining whether the CA correctly assessed if the NLRC committed grave abuse of discretion. Grave abuse of discretion exists when the NLRC’s findings lack substantial evidence. In this case, the Court found that the evidence did not support the conclusion that Añonuevo was an employee of TCS; instead, CBK was deemed the real employer.

Añonuevo argued that he became a regular employee of CBK from day one because Rolpson was a labor-only contractor. CBK contended that Añonuevo was Rolpson’s employee under a legitimate sub-contracting arrangement. Article 106 of the Labor Code defines the responsibilities of employers, contractors, and subcontractors, and addresses scenarios where contractors fail to pay wages. The critical point lies in the provision regarding labor-only contracting, which states:

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.

Labor-only contracting is prohibited because it circumvents labor laws, and the general presumption favors the worker. The burden rests on the respondents to prove that Rolpson and TCS were not labor-only contractors. The Court examined whether CBK presented Rolpson’s Certificate of Registration with the DOLE, as required by Department Order No. 18-02 (DO 18-02). Section 11 of DO 18-02 provides:

Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting.

CBK failed to present this certificate, leading to the presumption that Rolpson was a labor-only contractor. This presumption stands unless the contractor proves substantial capital, investment, tools, etc. CBK did not provide such proof, so the presumption held. The Court emphasized that finding a contractor as a labor-only contractor means an employer-employee relationship exists between the principal and the workers; the contractor acts merely as an agent.

Regarding TCS, CBK claimed it was a legitimate contractor, supported by a DOLE Certificate of Registration issued in 2011. However, the Court noted that Añonuevo started working at CBK in 2008, and TCS’s registration came later. This indicated that TCS supplied manpower to CBK without authorization, further suggesting labor-only contracting. The Court then examined TCS’s compliance with Department Order No. 18-A (DO 18-A), Section 6 of which defines labor-only contracting:

i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or

ii) the contractor does not exercise the right to control over the performance of the work of the contractual employee.

While TCS met the capital requirement, there was no proof this capital related to the job it undertook with CBK. The Court also considered the element of control. Did TCS control Añonuevo’s work? The Labor Arbiter, NLRC, and CA uniformly found that TCS did. However, the Supreme Court disagreed, revisiting these factual findings because the evidence was misappreciated. The Inter Office Memorandum Order and Retarino’s Affidavit were deemed insufficient to prove TCS’s actual control over Añonuevo. The Court also pointed out inconsistencies in the Daily Time Records.

Añonuevo, on the other hand, presented email correspondence and reports showing CBK officers and employees gave him orders and reviewed his work, without TCS’s interference. CBK also prepared Añonuevo’s on-call duty schedule. Given these considerations and the policy to favor labor, the Court concluded TCS was a labor-only contractor, thus deeming Añonuevo an employee of CBK. Because Añonuevo was terminated due to the expiration of CBK’s contract with TCS—an invalid reason given the labor-only contracting finding—he was illegally dismissed.

Regular employees can only be terminated for just or authorized causes. Añonuevo, as CBK’s employee, could not be validly dismissed due to the TCS contract’s expiration. Therefore, he is entitled to reinstatement without loss of seniority and backwages, and if reinstatement is impossible, separation pay. Furthermore, because CBK acted in bad faith by employing a scheme to evade its responsibilities, Añonuevo is entitled to moral and exemplary damages, as well as attorney’s fees. The monetary awards will also bear a legal interest rate.

FAQs

What was the key issue in this case?	The central issue was whether Edward Añonuevo was a regular employee of CBK Power Company or a contractual employee of TCS Manpower Services, and whether his dismissal was legal. The Court needed to determine if CBK used labor-only contracting to avoid the responsibilities of directly employing Añonuevo.
What is labor-only contracting?	Labor-only contracting occurs when a contractor lacks substantial capital or investment and the employees they supply perform activities directly related to the principal’s business. In such cases, the contractor is considered merely an agent of the employer.
What is the legal implication of being a labor-only contractor?	If a contractor is deemed a labor-only contractor, an employer-employee relationship exists between the principal (the company receiving the services) and the workers supplied by the contractor. This makes the principal responsible for the workers’ wages, benefits, and security of tenure.
What evidence did the court consider to determine if labor-only contracting existed?	The Court looked at factors such as whether the contractor had substantial capital or investment, whether the contractor exercised control over the employees’ work, and whether the employees’ activities were directly related to the principal’s business. The presence or absence of a DOLE registration for the contractor was also significant.
Why was Añonuevo considered illegally dismissed?	Añonuevo’s employment was terminated due to the expiration of CBK’s contract with TCS. However, because TCS was found to be a labor-only contractor, Añonuevo was considered an employee of CBK. As such, he could only be dismissed for just or authorized causes, which were not present in this case.
What remedies are available to an illegally dismissed employee?	An illegally dismissed employee is typically entitled to reinstatement to their former position without loss of seniority, backwages, and other privileges. If reinstatement is not feasible, they may be entitled to separation pay, as well as moral and exemplary damages if the employer acted in bad faith.
What is the significance of a DOLE Certificate of Registration for contractors?	A DOLE Certificate of Registration prevents the presumption of labor-only contracting, but it is not conclusive evidence of being a legitimate job contractor. The certificate gives rise to a disputable presumption, which can be overturned by other evidence showing labor-only contracting.
What does the “right to control” mean in determining employer-employee relationships?	The “right to control” refers to the employer’s power to determine not only the end result of the work but also the manner and means used to achieve that result. This is a crucial factor in distinguishing between an independent contractor and an employee.

This case underscores the importance of strictly adhering to labor laws and preventing the circumvention of workers’ rights through improper contracting arrangements. By recognizing the true employer and holding them accountable, the Supreme Court reinforces the protection afforded to employees under the Labor Code, ensuring fair treatment and job security.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: EDWARD R. AÑONUEVO, VS. CBK POWER COMPANY, LTD., G.R. No. 235534, January 23, 2023