G.R. No. 113347 June 14, 1996
FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER VOLTAIRE A. BALITAAN, FELIPE LOTERTE and DE LIMA TRADING & GENERAL SERVICES, respondents.

FACTS

Petitioner Filipinas Synthetic Fiber Corporation (FILSYN), a manufacturer of polyester fiber, contracted with respondent De Lima Trading and General Services (DE LIMA) for janitorial services at its plant. Pursuant to this contract, respondent Felipe Loterte was deployed by DE LIMA to perform janitorial work at FILSYN’s premises. Loterte filed a complaint for illegal dismissal and monetary claims against both FILSYN and DE LIMA, alleging he had been working at the plant since 1981 under different service contractors and was dismissed after being accused of instigating a wage increase movement. The Labor Arbiter ruled in favor of Loterte, declaring him a regular employee of FILSYN and DE LIMA as a mere labor-only contractor, making FILSYN solidarily liable. The NLRC affirmed this decision.

ISSUE

Whether an employer-employee relationship exists between FILSYN and Loterte, thereby making FILSYN directly and solidarily liable for his claims.

RULING

No. The Supreme Court reversed the NLRC and held that no direct employer-employee relationship existed between FILSYN and Loterte. The Court found DE LIMA to be a legitimate independent contractor, not a labor-only contractor. For labor-only contracting to exist, two elements must concur: (1) the contractor lacks substantial capital or investment, and (2) the work performed by the deployed workers is directly related to the principal business of the employer. Here, DE LIMA was a duly registered corporation with a substantial capitalization of P1.6 million, with P400,000 actually subscribed, satisfying the first element. On the second element, while janitorial services are directly related to FILSYN’s manufacturing business, they are not necessary or integral to its core operation of producing polyester fiber. The Court took judicial notice that janitorial services are commonly contracted out as they are merely incidental; their non-performance would not cause production to cease. Consequently, DE LIMA was an independent job contractor, and Loterte remained its employee. However, under Article 106 of the Labor Code, FILSYN, as the principal, is jointly and severally liable with its contractor, DE LIMA, for the rightful monetary claims of the workers to the extent of the work performed under the contract. The Court modified the decision to hold DE LIMA primarily liable for reinstatement and for the monetary awards, with FILSYN’s liability being solidary in nature.