FIRST DIVISION

[G.R. No. 124055. June 8, 2000]

ROLANDO E. ESCARIO, NESTOR ANDRES, CESAR AMPER, LORETO

BALDEMOR, EDUARDO BOLONIA, ROMEO E. BOLONIA, ANICETO
CADESIM, JOEL CATAPANG, NESTOR DELA CRUZ, EDUARDO DUNGO
ESCARIO REY, ELIZALDE ESTASIO, CAROLINO M. FABIAN, RENATO
JANER, EMER B. LIQUIGAN, ALEJANDRO MABAWAD, FERNANDO M.
MAGTIBAY, DOMINADOR B. MALLILLIN, NOEL B. MANILA, VIRGILIO A.
MANIO, ROMEO M. MENDOZA, TIMOTEO NOTARION, FREDERICK
RAMOS, JOSEPH REYES, JESSIE SEVILLA, NOEL STO. DOMINGO,
DODJIE TAJONERA, JOSELITO TIONLOC, ARNEL UMALI, MAURLIE C.
VIBAR, ROLANDO ZALDUA, RODOLFO TUAZON, TEODORO LUGADA,
MAURING MANUEL, MARCIANO VERGARA, JR., ARMANDO IBASCO,
CAYETANO IBASCO, LEONILO MEDINA, JOSELITO ODO, MELCHOR
BUELA, GOMER GOMEZ, HENRY PONCE, RAMON ORTIZ, JR., ANTONIO
MIJARES, JR., MARIO DIZER, REYNANTE PEJO, ARNALDO RAFAEL,
NELSON BERUELA, AUGUSTO RAMOS, RODOLFO VALENTIN,
ANTONIO CACAM, VERNON VELASQUEZ, NORMAN VALLO,
ALEJANDRO ORTIZ, ROSANO VALLO, ANDREW ESPINOSA, EDGAR
CABARDO, FIDELES REYES, EDGARDO FRANCISCO, FERNANDO
VILLARUEL, LEOPOLDO OLEGARIO, OSCAR SORIANO, GARY RELOS,
DANTE IRANZO, RONALDO BACOLOR, RONALD ESGUERA, VICTOR
ALVAREZ, JOSE MARCELO, DANTE ESTRELLADO, MELQUIADES
ANGELES, GREGORIO TALABONG, ALBERT BALAO, ALBERT CANLAS,
CAMILO VELASCO, PONTINO CHRISTOPHER, WELFREDO RAMOS,
REYNALDO RODRIGUEZ, RAZ GARIZALDE, MIGUEL TUAZON,
ROBERTO SANTOS, AND RICARDO MORTEL, petitioners,
vs. NATIONAL LABOR RELATIONS COMMISSION, CALIFORNIA
MANUFACTURING CO. INC. AND DONNA LOUISE ADVERTISING AND
MARKETING ASSOCIATES INCORPORATED, respondents.

DECISION

KAPUNAN, J.:

Before this Court is a petition for certiorari under Rule 65, which seeks to annul and set
aside the decision, promulgated on 10 May 1995, of the National Labor Relations
Commission (NLRC). The assailed decision reversed the decision of the Labor Arbiter,
and ruled that the petitioners are employees of Donna Louise Advertising and Marketing
Associates, Inc. and ordered the reinstatement of petitioners and the payment of
backwages.

Private respondent California Marketing Co. Inc. (CMC) is a domestic corporation

principally engaged in the manufacturing of food products and distribution of such
products to wholesalers and retailers. Private respondent Donna Louise Advertising and
Marketing Associates, Inc. (D.L. Admark) is a duly registered promotional firm.

Petitioners worked as merchandisers for the products of CMC. Their services were
terminated on 16 March 1992.

The parties presented conflicting versions of the facts.

Petitioners allege that they were employed by CMC as merchandisers. Among the tasks
assigned to them were the withdrawing of stocks from the warehouse, the fixing of
prices, price-tagging, displaying of merchandise, and the inventory of stocks. These
were done under the control, management and supervision of CMC. The materials and
equipment necessary in the performance of their job, such as price markers, gun
taggers, toys, pentel pen, streamers and posters were provided by CMC. Their salaries
were being paid by CMC. According to petitioners, the hiring, control and supervision of
the workers and the payment of salaries, were all coursed by CMC through its agent
D.L. Admark in order for CMC to avoid its liability under the law.

On 7 February 1992, petitioners filed a case against CMC before the Labor Arbiter for
the regularization of their employment status. During the pendency of the case before
the Labor Arbiter, D.L. Admark sent to petitioners notice of termination of their
employment effective 16 March 1992. Hence, their complaint was amended so as to
include illegal dismissal as cause of action. Thereafter, twenty-seven more persons
joined as complainants. CMC filed a motion to implead as party-defendant D. L. Admark
and at the same time the latter filed a motion to intervene. Both motions were granted.

CMC, on the other hand, denied the existence of an employer-employee relationship

between petitioner and itself. Rather, CMC contended that it is D.L. Admark who is the
employer of the petitioners. While CMC is engaged in the manufacturing of food
products and distribution of such to wholesalers and retailers, it is not allowed by law to
engage in retail or direct sales to end consumers. It, however, hired independent job
contractors such as D.L. Admark, to provide the necessary promotional activities for its
product lines.

For its part, D.L. Admark asserted that it is the employer of the petitioners. Its primary
purpose is to carry on the business of advertising, promotion and publicity, the sales
and merchandising of goods and services and conduct survey and opinion polls. As an
independent contractor it serves several clients among which include Purefoods,
Corona Supply, Firstbrand, Splash Cosmetics and herein private respondent California
Marketing.
On 29 July 1994, the Labor Arbiter rendered a decision finding that petitioners are the
employees of CMC as they were engaged in activities that are necessary and desirable
in the usual business or trade of CMC.  In justifying its ruling, the Labor Arbiter cited the
[1]

case of Tabas vs. CMC which, likewise, involved private respondent CMC. In

the Tabas case, this Court ruled that therein petitioner merchandisers were employees
of CMC, to wit:

There is no doubt that in the case at bar, Livi performs "manpower

services," meaning to say, it contracts out labor in favor of clients. We hold
that it is one not withstanding its vehement claims to the contrary and not-
withstanding its vehement claims to the contrary, and notwithstanding the
provision of the contract that it is "an independent contractor." The nature
of one’s business is not determined by self-serving appellations one
attaches thereto but by the tests provided by statute and prevailing case
law. The bare fact that Livi maintains a separate line of business does not
extinguish the equal fact that it has provided California with workers to
pursue the latter’s own business. In this connection, we do not agree that
the petitioner has been made to perform activities "which are not directly
related to the general business of manufacturing," California’s purported
"principal operation activity. The petitioners had been charged with
merchandising [sic] promotion or sale of the products of [California] in the
different sales outlets in Metro Manila including task and occational [sic]
price tagging," an activity that is doubtless, an integral part of the
manufacturing business. It is not, then, as if Livi had served as its
(California’s) promotions or sales arm or agent, or otherwise rendered a
piece of work it (California) could not itself have done; Livi as a placement
agency, had simply supplied it with manpower necessary to carry out its
(California’s) merchandising activities, using its (California’s) premises and
equipment. [2]

On appeal, the NLRC set aside the decision of the Labor Arbiter. It ruled that no
employer-employee relationship existed between the petitioners and CMC. It, likewise,
held that D.L. Admark is a legitimate independent contractor, hence, the employer of the
petitioners. Finding no valid grounds existed for the dismissal of the petitioners by D.L.
Admark, it ordered their reinstatement. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the appealed judgment is modified.

Intervenor DL ADMARK is ordered to reinstate the eighty one (81)
complainants mentioned in the appealed decision to their former positions
with backwages from March 16, 1992 until they are actually reinstated.
The award of attorney’s fees equivalent to ten (10%) of the award is
deleted for lack of basis.[3]

Petitioners filed a motion for reconsideration but the same was denied by the NLRC for
lack of merit. 
[4]
Hence, this petition.

In the main, the issue brought to fore is whether petitioners are employees of CMC or
D.L. Admark. In resolving this, it is necessary to determine whether D.L. Admark is a
labor-only contractor or an independent contractor.

Petitioners are of the position that D.L. Admark is a labor-only contractor and cites this
Court’s ruling in the case of Tabas, which they claim is applicable to the case at bar for
the following reasons:

1. The petitioners are merchandisers and the petitioners in the Tabas case
are also merchandisers who have the same nature of work.

2. The respondent in this case is California Manufacturing Co. Inc. while

respondent in the Tabas case is the same California Manufacturing Co.
Inc.

3. The agency in the Tabas case is Livi Manpower Services. In this case,
there are at least, three (3) agencies namely: the same Livi Manpower
Services; the Rank Manpower Services and D.L. Admark whose
participation is to give and pay the salaries of the petitioners and that the
money came from the respondent CMC as in the Tabas case.

4. The supervision, management and/or control rest upon respondent

California Manufacturing Co. Inc. as found by the Honorable Labor Arbiter
which is also, true in the Tabas Case. [5]

We cannot sustain the petition.

Petitioners’ reliance on the Tabas case is misplaced. In said case, we ruled that therein

contractor Livi Manpower Services was a mere placement agency and had simply
supplied herein petitioner with the manpower necessary to carry out the company’s
merchandising activity. We, however, further stated that :

It would have been different, we believe, had Livi been discretely a

promotions firm, and that California had hired it to perform the latter’s
merchandising activities. For then, Livi would have been truly the
employer of its employees and California, its client. x x x.[6]

In other words, CMC can validly farm out its merchandising activities to a legitimate
independent contractor.

There is labor-only contracting when the contractor or sub-contractor merely recruits,

supplies or places workers to perform a job, work or service for a principal. In labor-only
contracting, the following elements are present:
 (a) 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

(b) The workers recruited and placed by such person are performing
activities which are directly related to the principal business of the
employer.  [7]

In contrast, there is permissible job contracting when a principal agrees to put out or
farm out with a contractor or a subcontractor the performance or completion of a
specific job, work or service within a definite or predetermined period, regardless of
whether such job or work or service is to be performed or completed within or outside
the premises of the principal. In this arrangement, the following conditions must concur:

(a)....The contractor carries on a distinct and independent business and

undertakes 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; and

(b)....The contractor has substantial capital or investment in the form of

tools, equipment, machineries (sic), work premises, and other materials
which are necessary in the conduct of his business. [8]

In the recent case of Alexander Vinoya vs. NLRC et al.,  this Court ruled that in order to
[9]

be considered an independent contractor it is not enough to show substantial

capitalization or investment in the form of tools, equipment, machinery and work
premises. In addition, the following factors need be considered: (a) whether the
contractor is carrying on an independent business; (b) the nature and extent of the
work; (c) the skill required; (d) the term and duration of the relationship; (e) the right to
assign the performance of specified pieces of work; (f) the control and supervision of the
workers; (g) the power of the employer with respect to the hiring, firing and payment of
workers of the contractor; (h) the control of the premises; (i) the duty to supply
premises, tools, appliances, materials, and labor; and (j) the mode, manner and terms
of payment. [10]

Based on the foregoing criterion, we find that D.L. Admark is a legitimate independent
contractor.

Among the circumstances that tend to establish the status of D.L. Admark as a
legitimate job contractor are:

1) The SEC registration certificate of D.L. Admark states that it is a firm

engaged in promotional, advertising, marketing and merchandising
activities.
 2) The service contract between CMC and D.L. Admark clearly provides
that the agreement is for the supply of sales promoting merchandising
services rather than one of manpower placement. [11]

3) D.L. Admark was actually engaged in several activities, such as

advertising, publication, promotions, marketing and merchandising. It had
several merchandising contracts with companies like Purefoods, Corona
Supply, Nabisco Biscuits, and Licron. It was likewise engaged in the
publication business as evidenced by it magazine the "Phenomenon." [12]

4) It had its own capital assets to carry out its promotion business. It then
had current assets amounting to P6 million and is therefore a highly
capitalized venture.  It had an authorized capital stock of P500,000.00. It
[13]

owned several motor vehicles and other tools, materials and equipment to
service its clients. It paid rentals of P30,020 for the office space it
occupied.

Moreover, by applying the four-fold test used in determining employer-employee

relationship, the status of D.L. Admark as the true employer of petitioners is further
established. The elements of this test are (1) the selection and engagement of
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employee’s conduct. [14]

As regards the first element, petitioners themselves admitted that they were selected
and hired by D.L. Admark. [15]

As to the second element, the NLRC noted that D.L. Admark was able to present in
evidence the payroll of petitioners, sample SSS contribution forms filed and submitted
by D.L. Admark to the SSS, and the application for employment by R. de los Reyes, all
tending to show that D.L. Admark was paying for the petitioners’ salaries. In contrast,
petitioners did not submit an iota of evidence that it was CMC who paid for their
salaries. The fact that the agreement between CMC and D.L. Admark contains the
billing rate and cost breakdown of payment for core merchandisers and coordinators
does not in any way establish that it was CMC who was paying for their salaries. As
correctly pointed out by both CMC  and the Office of the Solicitor General,  such cost
[16] [17]

breakdown is a standard content of service contracts designed to insure that under the
contract, employees of the job contractor will receive benefits mandated by law.

Neither did the petitioners prove the existence of the third element. Again petitioners
admitted that it was D.L. Admark who terminated their employment. [18]

To prove the fourth and most important element of control, petitioners presented the
memoranda of CMC’s sales and promotions manager. The Labor Arbiter found that
these memos "indubitably show that the complainants were under the supervision and
control of the CMC people."  However, as correctly pointed out by the NLRC, a careful
[19]
scrutiny of the documents adverted to, will reveal that nothing therein would remotely
suggest that CMC was supervising and controlling the work of the petitioners:

x x x The memorandums (Exhibit "B") were addressed to the store or

grocery owners telling them about the forthcoming sales promotions of
CMC products. While in one of the memorandums a statement is made
that "our merchandisers and demonstrators will be assigned to pack the
premium with your stocks in the shelves x x x, yet it does not necessarily
mean to refer to the complainants, as they claim, since CMC has also
regular merchandisers and demonstrators. It would be different if in the
memorandums were sent or given to the complainants and their duties or
roles in the said sales campaign are therein defined. It is also noted that in
one of the memorandums it was addressed to: "All regular
merchandisers/demonstrators." x x x we are not convinced that the
documents sufficiently prove employer-employee relationship between
complainants and respondents CMC. [20]

The Office of the Solicitor General, likewise, notes that the documents fail to show
anything that would remotely suggest control and supervision exercised by CMC over
petitioners on the matter on how they should perform their work. The memoranda were
addressed either to the store owners or "regular" merchandisers and demonstrators of
CMC. Thus, petitioners, who filed a complaint for regularization against respondent
CMC, thereby, conceding that they are not regular employees of the latter, cannot
validly claim to be the ones referred to in said memos. [21]

Having proven the existence of an employer-employee relationship between D.L.

Admark and petitioners, it is no longer relevant to determine whether the activities
performed by the latter are necessary or desirable to the usual business or trade of
CMC.

On the issue of illegal dismissal, we agree with the findings of the NLRC that D.L.
Admark "admits having dismissed the petitioners for allegedly disowning and rejecting
them as their employer." Undoubtedly, the reason given is not just cause to terminate
petitioners.  D.L. Admark’s belated claim that the petitioners were not terminated but
[22]

simply did not report to work  is not supported by the evidence on record. Moreover,
[23]

there is no showing that due process was afforded the petitioners.

IN VIEW OF THE FOREGOING, finding no grave abuse of discretion on the part of the

National Labor Relations Commission, the assailed decision is AFFIRMED in toto.

SO ORDERED.

Puno, Pardo, and Ynares-Santiago, JJ., concur.

Davide, Jr., C.J., (Chairman), on official leave abroad.

[1]
 Rollo, p. 11.
[2]
 169 SCRA 497, 502-503 (1984).
[3]
 Rollo, p. 51.
[4]
 Id., at 53-54.
[5]
 Id., at 17.
[6]
 See note 2, at 503.
[7]
 Neri v. NLRC, 224 SCRA 717, 721 (1993)
[8]
 RULES TO IMPLEMENT THE LABOR CODE, Book III, Rule VIII, Sec. 8.
[9]
 G. R. No. 126585, February 2, 2000.
[10]
 Ibid, citing Ponce et. al. vs. NLRC, et al., 293 SCRA 366 (1998).
[11]
 Rollo, p. 215.
[12]
 Rollo, p. 49.
[13]
 Id., at 50.
[14]
 Maraguinot Jr. v. NLRC (Second Division), 284 SCRA 539, 552 (1998).
[15]
 Rollo, p. 46.
[16]
 Id., at 336.
[17]
 Id., at 252.
[18]
 Id., at 46
[19]
 Id., at 108.
[20]
 Id., at 47.
[21]
 Id., at 253.
[22]
 Id., at 57.
[23]
 Id., at 231.