Aliviado v. Procter & Gamble Phils., Inc.

Petitioners worked as merchandisers of Procter & Gamble Phils., Inc. (P&G) from dates as early as 1982. They signed employment contracts of about five months at a time with either Promm-Gem, Inc. or Sales and Promotions Services (SAPS), which P&G had engaged to promote and merchandise its products. The agencies paid their wages and imposed discipline, and the merchandisers handled P&G products in supermarkets and stores. In December 1991, petitioners sued P&G for regularization, service incentive leave pay and damages, and later amended the complaint to cover their dismissals. Promm-Gem dismissed its workers effective May 5, 1992 for "serious misconduct and breach of trust". The ground was that they had claimed to be P&G employees and questioned Promm-Gem's legitimacy. After P&G declined to renew its contract with SAPS effective March 11, 1993, SAPS verbally told its workers to stop working. The Labor Arbiter, the NLRC and the Court of Appeals all held that both agencies were legitimate contractors and the true employers. The CA added only service incentive leave pay.

1. 1Whether P&G is the employer of petitioners, that is, whether Promm-Gem and SAPS were labor-only contractors.
2. 2Whether petitioners were illegally dismissed.
3. 3Whether petitioners are entitled to damages and attorney's fees.

Petition granted. Under Art. 106 of the Labor Code and Sec. 5 of D.O. 18-02, labor-only contracting exists when a contractor merely supplies workers and either (i) it lacks substantial capital or investment and the workers perform activities directly related to the principal's main business, or (ii) it does not control the workers' performance. Farming out work, core or peripheral, is a management prerogative only if it goes to an independent contractor. Promm-Gem was legitimate: it had P500,000 paid-in capital, substantial assets, its own warehouse and vehicles, and other clients; it supplied materials and uniforms and treated the workers as regular employees. SAPS's P31,250 paid-in capital could not cover even one month's payroll; its workers did merchandising directly related to P&G's manufacturing business, and, having no other clients, it ended its workers' services as soon as P&G ended its contract. SAPS was a labor-only contractor, so its workers were P&G's employees. The Promm-Gem workers' claim that they were P&G employees was at most simple misconduct without wrongful intent, not serious misconduct under Art. 282(a) [now Art. 297(a)], and they held no position of trust. Their dismissal was illegal despite the two notices. The SAPS workers got no written notice, and P&G proved no valid cause. P&G's sudden barring of its workers after a one-day verbal notice was oppressive and warranted moral damages and attorney's fees; Promm-Gem showed no bad faith, so its workers got no damages. CA rulings reversed. Under Art. 279 [now Art. 294], P&G and Promm-Gem must reinstate their respective employees with full backwages; P&G must also pay each of its employees P25,000 moral damages and 10% attorney's fees. Remanded to the Labor Arbiter for computation.