G.R. No. 80680. January 26, 1989.
DANILO B. TABAS, ET AL., petitioners, vs. CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON, NATIONAL LABOR RELATIONS COMMISSION, AND HON. EMERSON C. TUMANON, respondents.

FACTS

Petitioners, previously employed by Livi Manpower Services, Inc., were assigned as “promotional merchandisers” to respondent California Manufacturing Company (CMC) under a manpower supply agreement. This contract stipulated that Livi was an independent contractor, that CMC had no control over how Livi’s workers performed their duties, and that Livi bore sole responsibility for complying with labor laws. Petitioners signed successive six-month employment contracts with Livi and received a daily wage significantly lower than regular CMC employees, who also enjoyed substantial fringe benefits. After their contracts expired and CMC refused their re-engagement, petitioners filed complaints for regularization, payment of monetary benefits, and illegal dismissal against CMC.
The Labor Arbiter and the National Labor Relations Commission dismissed the complaints, upholding the contractual stipulation that Livi was the sole employer and absolving CMC from liability. The NLRC also accepted CMC’s defense that the non-renewal was due to business losses and contract expiration, noting that Livi had re-absorbed petitioners into a “wait-in” status.

ISSUE

The central issue is whether an employer-employee relationship existed between petitioners and California Manufacturing Company, making CMC liable for their monetary claims and illegal dismissal.

RULING

The Supreme Court reversed the NLRC, ruling that an employer-employee relationship existed between petitioners and CMC. The existence of such a relationship is a question of law and cannot be negated by a contractual stipulation between CMC and Livi, to which the workers were not parties. Applying the four-fold test, the Court found the “right-of-control” test decisive. Despite the agreement’s terms, CMC effectively controlled petitioners’ work as they performed activities necessary and desirable to CMC’s main business, under its direct supervision regarding merchandising strategies and sales targets.
Furthermore, the arrangement constituted “labor-only contracting,” where the contractor (Livi) merely supplied workers to a principal (CMC). In such a scheme, the principal is deemed the direct employer. Under Article 106 of the Labor Code, CMC is jointly and severally liable with Livi for the petitioners’ claims. The Court also rejected the defense of business losses and contract expiration as valid grounds for dismissal. Petitioners, having been repeatedly re-hired for over a year, had attained regular status with CMC. Their dismissal without just or authorized cause constituted illegal dismissal. Consequently, CMC was ordered to reinstate petitioners as regular employees and, jointly and severally with Livi, to pay backwages, differential pay, other benefits, and attorney’s fees.