10) CLASSIFICATION OF EMPLOYMENT (REGULAR, PROBATIONARY, TERM,

PROJECT, SEASONAL, CASUAL, MANAGERIAL, SUPERVISORY, RANK-AND-

FILE)

NATIONAL SUGAR REFINERIES CORPORATION, Petitioner, -versus- NATIONAL

LABOR RELATIONS COMMISSION and NBSR SUPERVISORY UNION (PACIWU)
TUCP, Respondents. G.R. No. 101761, SECOND DIVISION, March 24, 1993,

FACTS:

Petitioner National Sugar Refineries Corporation (NASUREFCO) operates three sugar refineries
in Bukidnon, Iloilo and Batangas. Private respondent union represents the former supervisors of
the NASUREFCO Batangas Sugar Refinery.

In 1988, petitioner implemented a Job Evaluation (JE) Program affecting all employees, from
rank-- and-file to department heads. As a result, all positions were re-evaluated, and all
employees including the members of respondent union were granted salary adjustments and
increases in benefits commensurate to their actual duties and functions.

With the implementation of the JE Program, the following, the members of respondent union
were re-classified under job levels which are considered managerial staff for purposes of
compensation and benefits, there was an increase in basic pay on the average of 50% of their
basic pay prior to the JE Program, longevity pay was increased on top of alignment adjustments;
they were entitled to increased company COLA of P225 per month, and there was a grant of
P100 allowance for rest day/holiday work.

In 1990, NASUREFCO recognized herein respondent union, which was organized pursuant to
RA 6715 allowing supervisory employees to form their own unions, as the bargaining
representative of all the supervisory employees at the NASUREFCO Batangas Sugar Refinery.

Two years after the implementation of the JE Program, the members of the union filed a
complaint with the executive labor arbiter for non-payment of overtime, rest day and holiday pay
allegedly in violation of Article 100 of the Labor Code.

In finding for the members of the union, the labor arbiter ruled that the long span of time during
which the benefits were being paid to the supervisors has caused the payment thereof to ripen
into a contractual obligation.

On appeal, the NLRC affirmed the decision of the labor arbiter on the ground that the members
of union are not managerial employees, as defined under Article 212(m) of the Labor Code and,
therefore, they are entitled to overtime, rest day and holiday pay. Respondent NLRC declared
that these supervisory employees are merely exercising recommendatory powers subject to the
evaluation, review and final action by their department heads; their responsibilities do not require
the exercise of discretion and independent judgment; they do not participate in the formulation of
management policies nor in the hiring or firing of employees; and their main function is to carry
out the ready policies and plans of the corporation.
ISSUE:
Whether the union members, being supervisory employees as defined in Article 212(m), Book V
of the Labor Code, should be considered as officers or members of the managerial staff under
Article 82, Book III of the same Code, and hence are not entitled to overtime, rest day and
holiday pay. (YES)

RULING:

It is not disputed that the members of respondent union are supervisory employees, as defined
under
Article 212(m), Book V of the Labor Code on Labor Relations, which reads:

‘Managerial employee’ is one who is vested with powers or prerogatives to lay down and
execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign
or discipline employees. Supervisory employees are those who, in the interest of the employer,
effectively recommend such managerial actions if the exercise of such authority is not merely
routinary or clerical in nature but requires the use of independent judgment. All employees not
falling within any of the above definitions are considered rank-and-file employees for purposes
of this Book.

Respondent NLRC, in holding that the union members are entitled to overtime, rest day and
holiday pay, and in ruling that the latter are not managerial employees, adopted the definition
stated in the aforequoted statutory provision.

Petitioner, however, avers that for purposes of determining whether or not the members of
respondent union are entitled to overtime, rest day and holiday pay, said employees should be
considered as “officers or members of the managerial staff” as defined under Article 82, Book III
of the Labor Code on “Working Conditions and Rest Periods” and amplified in Section 2, Rule I,
Book III of the Rules to Implement the Labor Code.

It is the submission of petitioner that while the members of respondent union, as supervisors,
may not be occupying managerial positions, they are clearly officers or members of the
managerial staff because they meet all the conditions prescribed by law and, hence, they are not
entitled to overtime, rest day and holiday pay. It contends that the definition of managerial and
supervisory employees under Article 212(m) should be made to apply only to the provisions on
Labor Relations, while the right of said employees to the questioned benefits should be
considered in the light of the meaning of a managerial employee and of the officers or members
of the managerial staff, as contemplated under Article 82 of the Code and Section 2, Rule I,
Book III of the implementing rules. In other words, for purposes of forming and joining unions,
certification elections, collective bargaining, and so forth, the union members are supervisory
employees. In terms of working conditions and rest periods and entitlement to the questioned
benefits, however, they are officers or members of the managerial staff, hence they are not
entitled thereto.

A cursory perusal of the Job Value Contribution Statements of the union members will readily
show that these supervisory employees are under the direct supervision of their respective
department superintendents and that generally they assist the latter in planning, organizing,
staffing, directing, controlling, communicating and in making decisions in attaining the
company’s set goals and objectives. These supervisory employees are likewise responsible for
the effective and efficient operation of their respective departments.

The members of respondent union discharge duties and responsibilities which ineluctably qualify
them as officers or members of the managerial staff, as defined in Section 2, Rule I, Book III of
the Rules to Implement the Labor Code and are, therefore, exempt from the coverage of Article
82. Perforce, they are not entitled to overtime, rest day and holiday pay.

The distinction made by respondent NLRC on the basis of whether or not the union members are
managerial employees, to determine the latter’s entitlement to the questioned benefits, is
misplaced and inappropriate. It is admitted that these union members are supervisory employees
and this is one instance where the nomenclatures or titles of their jobs conform with the nature of
their functions. Hence, to distinguish them from a managerial employee, as defined either under
Articles 82 or 212(m) of the Labor Code, is puerile and inefficacious. The controversy actually
involved here seeks a determination of whether or not these supervisory employees ought to be
considered as officers or members of the managerial staff. The distinction, therefore, should have
been made along that line and its corresponding conceptual criteria.
JEROMIE D. ESCASINAS and EVAN RIGOR SINGCO v. SHANGRI-LA’S MACTAN
ISLAND RESORT and DR. JESSICA J.R. PEPITO
580 SCRA 604 (2009), SECOND DIVISION (Carpio Morales, J.)

FACTS:

Jeromie D. Escasinas and Evan Rigor Singco were registered nurses, engaged by respondent Dr.
Jessica Joyce R. Pepito to work in her clinic at respondent Shangri-La’s Mactan Island Resort
(Shangri-La). Escasinas and Singco filed with the National Labor Relations Commission
(NLRC) a complaint for regularization, underpayment of wages, non-payment of holiday pay,
night shift differential and 13th month pay against Shangrila et al., claiming that they are regular
employees of Shangri-La.

Shangri-la claimed that Escasinas and Singco were not its employees but of Dr. Pepito, whom it
retained via Memorandum of Agreement (MOA) pursuant to Article 157 of the Labor Code. Dr.
Pepito for her part claimed that Escasinas and Singco were already working for the previous
retained physicians of Shangri-la before she was retained. Escasinas and Singco, however, insist
that under Article 157 of the Labor Code, Shangri-la is required to hire full-time registered nurse,
hence their engagement should be deemed as regular employment. They maintain that Dr. Pepito
is a labor-only contractor for she has no license or business permit and no business name
registration as mandated by Sec. 19 and 20 of the Implementing Rules and Regulations of the
Labor Code.

The labor arbiter declared Escasinas and Singco to be regular employees of Shangri-la. The
National Labor Relations Commission, on the other hand, granted Shangri-la’s and Dr. Pepito’s
appeal and dismissed Escasinas and Singco complaint for lack of merit, finding that no
employer-employee relationship exists between Shangri-la and petitioners.

ISSUE:
Whether or not Escasinas and Singco are regular employees of Shangri-la.

HELD:
No. Escasinas and Singco are not regular employees of Shangri-la.

The existence of an independent and permissible contractor relationship is generally established

by considering the following determinants: whether the contractor is carrying on an independent
business; the nature and extent of the work; the skill required; the term and duration of the
relationship; the right to assign the performance of a specified piece of work; the control and
supervision of the work to another; the employer's power with respect to the hiring, firing and
payment of the contractor's workers; the control of the premises; the duty to supply the premises,
tools, appliances, materials and labor; and the mode, manner and terms of payment.
On the other hand, existence of an employer- employee relationship is established by the
presence of the following determinants: (1) the selection and engagement of the workers; (2)
power of dismissal; (3) the payment of wages by whatever means; and (4) the power to control
the worker's conduct, with the latter assuming primacy in the overall consideration.
Against the above-listed determinants, the Court holds that Dr. Pepito is a legitimate independent
contractor. That Shangri-la provides the clinic premises and medical supplies for use of its
employees and guests do not necessarily prove that respondent doctor lacks substantial capital
and investment. Besides, the maintenance of a clinic and provision of medical services to its
employees is required under Art. 157, which are not directly related to Shangri-la’s principal
business – operation of hotels and restaurants.

As to payment of wages, Dr. Pepito is the one who underwrites the following: salaries, SSS
contributions and other benefits of the staff; group life, group personal accident insurance and
life/death insurance for the staff with minimum benefit payable at 12 times the employee’s last
drawn salary, as well as value added taxes and withholding taxes, sourced from her P60,000.00
monthly retainer fee and 70% share of the service charges from Shangri-la’s guests who avail of
the clinic services. It is unlikely that Dr. Pepito would report Escasinas and Singco as workers,
pay their SSS premium as well as their wages if they were not indeed her employees.

With respect to the supervision and control of the nurses and clinic staff, it is not disputed that a
document, ―Clinic Policies and Employee Manual claimed to have been prepared by Dr. Pepito
exists, to which Escasinas and Singco gave their conformity and in which they acknowledged
their co-terminus employment status. It is thus presumed that said document, and not the
employee manual being followed by Shangri-la’s regular workers, governs how they perform
their respective tasks and responsibilities.

Contrary to Escasinas and Singco contention, the various office directives issued by Shangri-la’s
officers do not imply that it is Shangri-la’s management and not Dr. Pepito who exercises control
over them or that Shangri-la has control over how the doctor and the nurses perform their work.
In fine, as Shangri-la does not control how the work should be performed by Escasinas and
Singco, it is not Escasinas and Singco’s employer.
 LABOR CONGRESS OF THE PHILIPPINES, for and in behalf of its members,
Petitioner, -versus
– NATIONAL LABOR RELATIONS COMMISSION, EMPIRE FOOD
PRODUCTS, its
Proprietor/President & Manager, MR. GONZALO KEHYENG and MRS. EVELYN
KEHYENG,
Respondents.
G.R. No. 123938, FIRST DIVISION, May 21, 1998, DAVIDE, J.:

FACTS:

Petitioners were rank-and-file employees of respondent Empire Food Products, which hired them
on various dates. Petitioners filed against private respondents a complaint for payment of money
claims and for violation of labor standards laws. They also filed a petition for direct certification
of petitioner Labor Congress of the Philippines as their bargaining representative.

On October 23, 1990, petitioners represented by LCP President Benigno B. Navarro, Sr. and
private respondents Gonzalo Kehyeng and Evelyn Kehyeng in behalf of Empire Food Products,
Inc. entered into a Memorandum of Agreement. Mediator Arbiter Antonio Cortez approved the
memorandum of agreement and certified LCP "as the sole and exclusive bargaining agent among
the rank-and-file employee of Empire Food Products for purposes of collective bargaining with
respect to wages, hours of work and other terms and conditions of employment".

On January 23, 1991, petitioners filed a complaint docketed as NLRC Case No. RAB-III-01-
1964-91 against private respondents for Unfair Labor Practice, Union busting, violation of the
Memorandum of Agreement, Underpayment of Wages, and actual, moral and exemplary
damages.

Labor Arbiter absolved private respondents of the charges, but ordered the reinstatement of the
individual complainants. On appeal, the National Labor Relations Commission vacated the
Decision and remanded the case to the Labor Arbiter for further proceedings.

In a Decision dated July 27, 1994, Labor Arbiter Santos made the following determination:

“Complainants failed to present with definiteness and clarity the particular act or acts
constitutive of unfair labor practice.

As regards the issue of harassments, threats and interference with the rights of employees to self-
organization which is actually an ingredient of unfair labor practice, complainants failed to
specify what type of threats or intimidation was committed and who committed the same.

Anent the charge that there was underpayment of wages, the evidence points to the contrary.

Finally, the claim for moral and exemplary damages has no leg to stand on when no malice, bad
faith or fraud was ever proven to have been perpetuated by respondents.”

On appeal, the NLRC, in its Resolution dated 29 March 1995, affirmed in toto the decision of
Labor Arbiter Santos.
ISSUE:
Are the petitioners regular employees of private respondents?

RULING:
Yes, the petitioners are regular employees of private respondents.

Three (3) factors lead us to conclude that petitioners, although piece-rate workers, were regular
employees of private respondents. First, as to the nature of petitioners' tasks, their job of
repacking snack food was necessary or desirable in the usual business of private respondents,
who were engaged in the manufacture and selling of such food products; second, petitioners
worked for private respondents throughout the year, their employment not having been
dependent on a specific project or season; and third, the length of time that petitioners worked
for private respondents. Thus, while petitioners' mode of compensation was on a "per piece
basis," the status and nature of their employment was that of regular employees.
 AVELINO LAMBO and VICENTE BELOCURA, Petitioners, -versus –
NATIONAL LABOR RELATIONS COMMISSION and J.C. TAILOR SHOP
and/or JOHNNY CO,, Respondents.
G.R. No. 111042, SECOND DIVISION, October 26, 1999, MENDOZA, J.:

FACTS:

Petitioners Avelino Lambo and Vicente Belocura were employed as tailors by private
respondents J.C. Tailor Shop and/or Johnny Co. They worked from 8:00 a.m. to 7:00 p.m. daily,
including Sundays and holidays. As in the case of the other 100 employees of private
respondents, petitioners were paid on a piece-work basis, according to the style of suits they
made. Regardless of the number of pieces they finished in a day, they were each given a daily
pay of at least P64.00.

On January 17, 1989, petitioners filed a complaint against private respondents for illegal
dismissal and sought recovery of overtime pay, holiday pay, premium pay on holiday and rest
day, service incentive leave pay, separation pay, 13th month pay, and attorney’s fees.

Labor Arbiter Jose G. Gutierrez found private respondents guilty of illegal dismissal and
accordingly ordered them to pay petitioners’ claims. On appeal by private respondents, the
NLRC reversed the decision of the Labor Arbiter. It found that petitioners had not been
dismissed from employment but merely threatened with a closure of the business if they insisted
on their demand for a "straight payment of their minimum wage,"

ISSUE:
Are the petitioners regular employees of private respondents?

RULING:
Yes, the petitioners are regular employees of private respondents.

There is no dispute that petitioners were employees of private respondents although they were
paid not on the basis of time spent on the job but according to the quantity and the quality of
work produced by them. There are two categories of employees paid by results: (1) those whose
time and performance are supervised by the employer. (Here, there is an element of control and
supervision over the manner as to how the work is to be performed. A piece-rate worker belongs
to this category especially if he performs his work in the company premises.); and (2) those
whose time and performance are unsupervised. (Here, the employer’s control is over the result of
the work. Workers on pakyao and takay basis belong to this group.) Both classes of workers are
paid per unit accomplished. Piece-rate payment is generally practiced in garment factories where
work is done in the company premises, while payment on pakyao and takay basis is commonly
observed in the agricultural industry, such as in sugar plantations where the work is performed in
bulk or in volumes difficult to quantify. Petitioners belong to the first category, i.e., supervised
employees.

The mere fact that they were paid on a piece-rate basis does not negate their status as regular
employees of private respondents. The term "wage" is broadly defined in Art. 97 of the Labor
Code as remuneration or earnings, capable of being expressed in terms of money whether fixed
or ascertained on a time, task, piece or commission basis. Payment by the piece is just a method
of compensation and does not define the essence of the relations. Nor does the fact that
petitioners are not covered by the SSS affect the employer-employee relationship.

Indeed, the following factors show that petitioners, although piece- rate workers, were regular
employees of private respondents: (1) within the contemplation of Art. 280 of the Labor Code,
their work as tailors was necessary or desirable in the usual business of private respondents,
which is engaged in the tailoring business; (2) petitioners worked for private respondents
throughout the year, their employment not being dependent on a specific project or season; and,
(3) petitioners worked for private respondents for more than one year.
JOEB M. ALIVIADO, et. al., Petitioners, -versus- PROCTER & GAMBLE PHILS., INC.,
and PROMM-
GEM INC., Respondents.
G.R. No. 160506, SECOND DIVISION, March 9, 2010, DEL CASTILLO, J.

FACTS:

Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as
1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993.

They all individually signed employment contracts with either Promm-Gem or SAPS for periods
of more or less five months at a time. They were assigned at different outlets, supermarkets and
stores where they handled all the products of P&G. They received their wages from Promm-Gem
or SAPS.

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such
as habitual absenteeism, dishonesty or changing day-off without prior notice.

P&G is principally engaged in the manufacture and production of different consumer and health
products, which it sells on a wholesale basis to various supermarkets and distributors. To
enhance consumer awareness and acceptance of the products, P&G entered into contracts with
Promm-Gem and SAPS for the promotion and merchandising of its products.

In December 1991, petitioners filed a complaint against P&G for regularization, service
incentive leave pay and other benefits with damages. The complaint was later amended to
include the matter of their subsequent dismissal.

On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled
that there was no employer-employee relationship between petitioners and P&G. He found that
the selection and engagement of the petitioners, the payment of their wages, the power of
dismissal and control with respect to the means and methods by which their work was
accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that Promm-
Gem and SAPS were legitimate independent job contractors.

On July 27, 1998, the NLRC rendered a Decision affirming the dismissal of the complaint by the
Labor Arbiter.

Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the NLRC.
However, said petition was also denied by the CA.

ISSUE:

Whether Promm-Gem and SAPS are both employer of petitioners.

RULING:
No, Promm-Gem and SAPS are both not employer of petitioners.

It is necessary to first determine whether Promm-Gem and SAPS are labor-only contractors or
legitimate job contractors.

The pertinent Labor Code provision on the matter states:

ART. 106. Contractor or subcontractor. – Whenever an employer enters into a contract with
another person for the performance of the former’s work, the employees of the contractor and of
the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor
or subcontractor to such employees to the extent of the work performed under the contract, in the
same manner and extent that he is liable to employees directly employed by him.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out
of labor to protect the rights of workers established under this Code. In so prohibiting or
restricting, he may make appropriate distinctions between labor-only contracting and job
contracting as well as differentiations within these types of contracting and determine who
among the parties involved shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code.

There is "labor-only" contracting where the person supplying workers to an employer does not
have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him.

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18-02, distinguishes between legitimate and labor-only contracting:

xxxx

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there

exists a trilateral relationship under which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and a contract of employment between
the contractor or subcontractor and its workers. Hence, there are three parties involved in these
arrangements, the principal which decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the capacity to independently undertake
the performance of the job, work or service, and the contractual workers engaged by the
contractor or subcontractor to accomplish the job[,] work or service.

xxxx
Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared
prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or
service for a principal, and any of the following elements are present:

i) 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

ii) [T]he contractor does not exercise the right to control over the performance of the work of the
contractual employee.

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the
Labor Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the
case of corporations, tools, equipment, implements, machineries and work premises, actually and
directly used by the contractor or subcontractor in the performance or completion of the job,
work or service contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.

xxxx

Clearly, the law and its implementing rules allow contracting arrangements for the performance
of specific jobs, works or services. Indeed, it is management prerogative to farm out any of its
activities, regardless of whether such activity is peripheral or core in nature. However, in order
for such outsourcing to be valid, it must be made to an independent contractor because the
current labor rules expressly prohibit labor-only contracting.

To emphasize, there is labor-only contracting when the contractor or sub-contractor merely

recruits, supplies or places workers to perform a job, work or service for a principal and any of
the following elements are present:

i) 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

ii) The contractor does not exercise the right to control over the performance of the work of the
contractual employee.

In the instant case, the financial statements of Promm-Gem show that it has authorized capital
stock of ₱1 million and a paid-in capital, or capital available for operations, of ₱500,000.00 as of
1990. It also has long term assets worth ₱432,895.28 and current assets of ₱719,042.32. Promm-
Gem has also proven that it maintained its own warehouse and office space with a floor area of
870 square meters. It also had under its name three registered vehicles which were used for its
promotional/merchandising business. Promm-Gem also has other clients aside from P&G. Under
the circumstances, we find that Promm-Gem has substantial investment which relates to the work
to be performed. These factors negate the existence of the element specified in Section 5(i) of
DOLE Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the relevant
materials, such as markers, tapes, liners and cutters, necessary for them to perform their work.
Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem
already considered the complainants working under it as its regular, not merely contractual or
project, employees. This circumstance negates the existence of element (ii) as stated in Section 5
of DOLE Department Order No. 18-02, which speaks of contractual employees. This,
furthermore, negates – on the part of Promm-Gem – bad faith and intent to circumvent labor
laws which factors have often been tipping points that lead the Court to strike down the
employment practice or agreement concerned as contrary to public policy, morals, good customs
or public order.

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find

that it is a legitimate independent contractor.

On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of
only ₱31,250.00. There is no other evidence presented to show how much its working capital and
assets are. Furthermore, there is no showing of substantial investment in tools, equipment or
other assets.

In Vinoya v. National Labor Relations Commission, the Court held that "[w]ith the current
economic atmosphere in the country, the paid-in capitalization of PMCI amounting to
₱75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as an
independent contractor." Applying the same rationale to the present case, it is clear that SAPS –
having a paid-in capital of only ₱31,250 - has no substantial capital. SAPS’ lack of substantial
capital is underlined by the records which show that its payroll for its merchandisers alone for
one month would already total ₱44,561.00. It had 6-month contracts with P&G. Yet SAPS failed
to show that it could complete the 6-month contracts using its own capital and investment. Its
capital is not even sufficient for one month’s payroll. SAPS failed to show that its paid-in capital
of ₱31,250.00 is sufficient for the period required for it to generate its needed revenue to sustain
its operations independently. Substantial capital refers to capitalization used in the performance
or completion of the job, work or service contracted out. In the present case, SAPS has failed to
show substantial capital.

Furthermore, the petitioners have been charged with the merchandising and promotion of the
products of P&G, an activity that has already been considered by the Court as doubtlessly
directly related to the manufacturing business, which is the principal business of P&G.
Considering that SAPS has no substantial capital or investment and the workers it recruited are
performing activities which are directly related to the principal business of P&G, we find that the
former is engaged in "labor-only contracting".
"Where ‘labor-only’ contracting exists, the Labor Code itself establishes an employer-employee
relationship between the employer and the employees of the ‘labor-only’ contractor." The statute
establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor
laws. The contractor is considered merely an agent of the principal employer and the latter is
responsible to the employees of the labor-only contractor as if such employees had been directly
employed by the principal employer.

Consequently, some of the petitioners, having been recruited and supplied by SAPS -- which
engaged in labor-only contracting -- are considered as the employees of P&G.

On the other hand, some of the petitioners, having worked under, and been dismissed by Promm-
Gem, are considered the employees of Promm-Gem, not of P&G.