G.R. No. 211015 & 213835, June 20, 2016
CAGAYAN ELECTRIC POWER & LIGHT COMPANY, INC. (CEPALCO) AND CEPALCO ENERGY SERVICES CORPORATION (CESCO), PETITIONERS, VS. CEPALCO EMPLOYEE’S LABOR UNION-ASSOCIATED LABOR UNIONS-TRADE UNION CONGRESS OF THE PHILIPPINES (TUCP), RESPONDENT.

FACTS

Respondent CEPALCO Employee’s Labor Union filed two separate complaints for Unfair Labor Practice (ULP) against CEPALCO and its affiliate, CESCO. The first complaint arose from a February 2007 Contract for Meter Reading Work, where CESCO undertook CEPALCO’s meter-reading activities, allegedly resulting in the relief and replacement of union members. The second complaint stemmed from a January 2010 Contract of Service for warehousing works, where three union members were similarly reassigned and replaced by CESCO workers. The Union alleged these contracts constituted ULP under Article 259(c) of the Labor Code, intended to evade CBA obligations and dissipate union membership, and that CESCO was engaged in labor-only contracting.
The Labor Arbiter dismissed both complaints, finding CESCO to be a legitimate independent contractor with substantial capital. The NLRC affirmed these rulings. In the second case, the NLRC also applied the principle of res judicata. The Union elevated the cases to the Court of Appeals via certiorari.

ISSUE

Whether the Court of Appeals correctly: (1) absolved petitioners of Unfair Labor Practice; and (2) declared CESCO a labor-only contractor, making its employees regular employees of CEPALCO.

RULING

The Supreme Court affirmed the CA’s rulings. On the ULP charge, the Court held that the Union failed to present substantial evidence that the contracting-out was motivated by anti-union animus or amounted to interference with the right to self-organization. The mere act of contracting out services, even if they were previously performed by union members, is not inherently ULP. The Union did not prove that the contracts were designed to discriminate against union members or undermine the union itself. The legal logic requires a showing of specific acts of interference, coercion, or discrimination related to union activity, which was absent.
However, the Court upheld the CA’s finding that CESCO was a labor-only contractor. Under Article 106 of the Labor Code, labor-only contracting exists when: (a) the contractor has no substantial capital or investment; and (b) the workers supplied perform activities directly related to the principal business of the employer. The Court found CESCO lacked substantial capital or investment in tools, equipment, or work premises relative to the services it provided. Furthermore, meter reading and warehousing are directly related to CEPALCO’s principal business of electric power distribution. Consequently, CESCO was deemed a mere agent, and its employees performing these tasks are considered regular employees of CEPALCO, entitled to the same rights and benefits as if directly hired. The Union, as the certified bargaining agent, had the legal personality to raise this issue as it affected the bargaining unit’s composition and the workers’ employment status.