Petitioner PAL, a local air carrier, entered into a Service Agreement with respondent Stellar, a domestic corporation engaged in the business of job contracting janitorial services. Pursuant to the agreement, Stellar hired workers to perform janitorial and maintenance services for PAL. Sometime later, PAL informed Stellar that the service agreement between them would no longer be renewed since the janitorial requirements were bidded to other job contractors. Herein private respondents-workers filed complaints against PAL and Stellar alleging they were illegally dismissed. The NLRC tribunal affirming the Labor Arbiter held both PAL and Stellar liable to the workers. On reconsideration, the NLRC tribunal held PAL solely liable stating it was the employer of the workers for it engaged in labor-only contracting with Stellar.
(1) Whether or not there is labor-only contracting;
(2) Whether or not there is employer-employee relationship between PAL and the respondent workers.
(1) Prohibited labor-only contracting is defined in Article 106 of the Labor Code as follows: xxx 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 persons are performing activities which are directly related to the principal business of such employer. xxx
Applying the foregoing provision to the present case, the Court finds no basis for holding that PAL engaged in labor-only contracting. In fact, STELLAR claims that it falls under the definition of an independent job contractor. Thus, it alleges that it has sufficient capital in the form of tools and equipment and substantial capitalization as proven by its financial statements. Further, STELLAR has clients other than petitioner.
STELLAR undertook said contract on its account, under its own responsibility, according to its own manner and method, and free from the control and direction of the petitioner. Where the control of the principal is limited only to the result of the work, independent job contracting exists. The janitorial service agreement between petitioner and STELLAR is definitely a case of permissible job contracting.
(2) STELLAR, not PAL, was the employer of the individual private respondents. A contract of employment existed between STELLAR and the individual private respondents, proving that it was said corporation which hired them. It was also STELLAR which dismissed them, as evidenced by termination letter, which was signed by the vice president for operations and comptroller of STELLAR. Likewise, they worked under STELLAR’s own supervisors. STELLAR even had its own collective bargaining agreement with its employees, including the individual private respondents. Moreover, PAL had no power of control and dismissal over them.
In legitimate job contracting, no employer-employee relation exists between the principal and the job contractor’s employees. The principal is responsible to the job contractor’s employees only for the proper payment of wages.