G.R. No. 160506 March 9, 2010
JOEB M. ALIVIADO, ET AL., Petitioners, vs. PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents.

FACTS

Petitioners worked as merchandisers for Procter & Gamble Phils., Inc. (P&G) from various dates starting as early as 1982 or as late as 1991, until their dismissal on either May 5, 1992, or March 11, 1993. They individually signed employment contracts with either Promm-Gem or Sales and Promotions Services (SAPS) for periods of approximately five months at a time. They were assigned to different outlets to handle P&G products and received their wages from Promm-Gem or SAPS. These contractors imposed disciplinary measures on the merchandisers. P&G, engaged in manufacturing consumer products, entered into contracts with Promm-Gem and SAPS for product promotion and merchandising. In December 1991, petitioners filed a complaint against P&G for regularization, benefits, and later amended it to include dismissal. The Labor Arbiter dismissed the complaint, finding no employer-employee relationship between petitioners and P&G, and ruled Promm-Gem/SAPS were legitimate independent contractors. The NLRC affirmed this decision. The Court of Appeals affirmed the NLRC but ordered P&G to pay service incentive leave pay.

ISSUE

1. Whether P&G is the employer of petitioners.
2. Whether petitioners were illegally dismissed.
3. Whether petitioners are entitled to payment of actual, moral, and exemplary damages, litigation costs, and attorney’s fees.

RULING

1. On the existence of an employer-employee relationship: The Supreme Court ruled that Promm-Gem and SAPS were engaged in labor-only contracting. The Court found that the petitioners performed work that was directly related to, and necessary and desirable in, the usual business of P&G, which is the manufacture and sale of consumer products. Promm-Gem and SAPS did not have substantial capital or investment in the form of tools, equipment, machinery, work premises, and other materials. The petitioners were recruited and placed by these contractors, and they were under the control and supervision of P&G, as their work involved implementing P&G’s merchandising plans and standards. Therefore, pursuant to Article 106 of the Labor Code, P&G, as the principal, was deemed the employer of the petitioners.
2. On illegal dismissal: The Court found the petitioners were illegally dismissed. Their dismissal, effected by the non-renewal of the service contracts between P&G and the contractors, was not for any just or authorized cause under the Labor Code. P&G failed to comply with the substantive and procedural due process requirements for termination. Consequently, the petitioners, as regular employees of P&G, are entitled to reinstatement and full backwages.
3. On damages, costs, and attorney’s fees: The Court ruled that petitioners are entitled to moral and exemplary damages due to the bad faith exhibited by P&G in engaging in a labor-only contracting scheme to evade its statutory obligations, thereby violating the petitioners’ rights to security of tenure and due process. Attorney’s fees are also awarded as petitioners were compelled to litigate to protect their rights. The award of service incentive leave pay by the Court of Appeals was affirmed.