G.R. No. 114775 September 25, 1998
PHILIPPINE AIRLINES INC. (PAL), petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (NLRC), HON. LABOR ARBITER NUMERIANO VILLENA, NATIONAL ORGANIZATION OF THE WORKINGMEN (NOWM) and MEMBERS ROBERTO VILLACRUZ, ISAGANI ALDEA, JUDITH BAYETA, ET. AL., respondents.

FACTS

Petitioner Philippine Airlines Inc. (PAL) contracted the services of G. C. Services Enterprises to undertake specific projects. G. C. Services recruited and hired carpenters, painters, and electricians and assigned them to different PAL shops. In March 1990, PAL terminated its contract with G. C. Services, and consequently, the G.C. Services employees assigned to PAL were notified not to report anymore. PAL later decided to give these employees the opportunity to apply as regular employees, but not all were hired due to lack of vacant positions and alleged unsatisfactory work performance. The complainants, represented by the National Organization of Workingmen (NOWM), instituted complaints for illegal dismissal. Initially, there were 36 complainants, but after PAL agreed to employ 23, only 12 remained. The complainants alleged that G.C. Services was a labor-only contractor and a mere agent of PAL, making PAL their real employer under Article 106 of the Labor Code. They argued their work was necessary to PAL’s business and they were supervised by PAL employees. They claimed illegal dismissal without just cause and due process. PAL denied an employer-employee relationship, asserting G.C. Services was a duly licensed independent contractor with substantial capital, that it paid the workers’ wages, and that the complainants were terminated by G.C. Services. The Labor Arbiter ruled that G.C. Services was a labor-only contractor and the complainants were deemed PAL employees, declaring their termination illegal and holding PAL and G.C. Services jointly and severally liable for separation pay, backwages, and attorney’s fees. The NLRC affirmed this decision with modifications to the monetary awards.

ISSUE

Whether an employer-employee relationship existed between PAL and the complainants, making PAL liable for illegal dismissal.

RULING

Yes. The Supreme Court affirmed the NLRC decision. The existence of an employer-employee relationship is determined by the “control test.” The evidence showed that PAL exercised control over the complainants’ work: they performed activities directly related to PAL’s main business (air transportation) in PAL’s premises using PAL’s tools and equipment, and they were supervised by PAL regular employees. G.C. Services lacked substantial capital or investment in the form of tools, equipment, and work premises. It merely supplied workers to PAL, making it a labor-only contractor under Article 106 of the Labor Code. Consequently, PAL is deemed the direct employer of the complainants. Their dismissal, resulting from the termination of the service contract and not due to any authorized or just cause under the Labor Code, was illegal. PAL and G.C. Services are held jointly and severally liable for the payment of backwages and separation pay to the complainants, as computed by the NLRC.