When is there a legitimate job contracting?
The Supreme Court explained in the case of Fonterra Brands vs. Largado and Estrellado, G.R. No. 205300, March 18, 2015 as follows:
“A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:
1. The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work or service on its own account and under its own responsibility according to its own manner and method, and free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof;
2. The contractor or subcontractor has substantial capital or investment; and,
3. The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits.”
“On the other hand, contracting is prohibited when the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal and if any of the following elements are present, thus:
1. The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or 2. The contractor does not exercise the right to control over the performance of the work of the contractual employee.”
In this case, Fonterra contracted the services of Zytron for the marketing of its dairy products. Largado and Estrellado were employed by Zytron and assigned to Fonterra as merchandising representatives. Upon the termination of Fonterra’s contract with Zytron, it then entered a 5-month contract for manpower supply with AC Sicat. Since they wanted to maintain their job with Fonterra, Largado and Estrellado applied and were hired by AC Sicat for 5 months. They were maintained as merchandising representatives of Fonterra. Fonterra’s contract with AC Sicat expired and not renewed. Largado and Estrellado then filed a complaint for illegal dismissal against Fonterra, Zytron and AC Sicat. The issued resolved by the Supreme Court is whether or not AC Sicat is a legitimate job contractor. The court ruled that:
“The CA correctly found that A.C. Sicat is engaged in legitimate job contracting. It duly noted that A.C. Sicat was able to prove its status as a legitimate job contractor for having presented the following evidence, to wit:
1. Certificate of Business Registration;
2. Certificate of Registration with the Bureau of Internal Revenue;
3. Mayor’s Permit; 4. Certificate of Membership with the Social Security System;
5. Certificate of Registration with the Department of Labor and Employment;
6. Company Profile; and
7. Certifications issued by its clients. “Furthermore, A.C. Sicat has substantial capital, having assets totaling 5,926,155.76 as of December 31, 2006. Too, its Agreement with Fonterra clearly sets forth that A.C. Sicat shall be liable for the wages and salaries of its employees or workers, including benefits, premiums, and protection due them, as well as remittance to the proper government entities of all withholding taxes, Social Security Service, and Medicare premiums, in accordance with relevant laws.”
Although, in this case, Fonterra issued Merchandising Guidelines and Promo Mechanics to be followed by AC Sicat’s employees, the Supreme Court ruled that this did not establish that Fonterra exercised control over AC Sicat. The Supreme Court ruled: “We agree with the CA’s conclusion that these were imposed only to ensure the effectiveness of the promotion services to be rendered by the merchandisers as it would be risky, if not imprudent, for any company to completely entrust the performance of the operations it has contracted out.”
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