San Miguel Corporation vs.

Semillano
G.R. No. 164257. July 5, 2010.
Petitioner: San Miguel Corporation
Respondent: Vicente B. Semillano, Nelson Mondejar, Jovito Remada, Alangilan Multi-Purpose Coop
(AMPCO) and Merlyn V. Polidario
Ponente: J. Carpio
Brief:
Semillano et al were hired by AMPCO to work for San Miguel Corporations bottling plant. After 6 months,
they were refused entry to the plants premises, prompting him to file a case for illegal dismissal against
AMPCO and SMC. SMC raised the defense that AMPCO is their employer because AMPCO is an
independent contractor. Under their service contract, AMPCO agreed to provide the materials, tools and
equipment needed to carry out the services and exercised exclusive discretion over their personnel and
the determination of their wages. Affirming the CA decision, SC held that SMC was their actual employer
because (1) SMC wielded the power of control and power of dimissal; (2) AMPCO was a labor-only
contractor.
Doctrine:
The fact that AMPCO is registered in accordance with the Rules does not mean it cannot be a labor-only
contractor. The fact of registration merely prevents the assumption of labor-only contracting from arising.
RELEVANT FACTS:

Semillano et al were hired by AMPCO to work for San Miguel Corporations bottling plant.
After 6 months, they were refused entry to the plants premises, prompting him to file a case for
illegal dismissal against AMPCO and SMC.
o The complainants claimed that they were fillers of SMC Bottling Plant, engaged in
activities necessary and desirable in the usual business of SMC. They assert, therefore,
that they are regular employees of SMC.A lso, AMPCO and SMC failed to give them their
13th month pay, and that they were prevented from entering the premises of SMC.
SMC raised the defense that AMPCO is their employer because AMPCO is an independent
contractor because its service contract provides that AMPCO will provide the materials, tools and
equipment needed to carry out the services contracted out by SMC; and that AMPCO shall have
exclusive discretion over its personnel, and that it also determines their wages.
CA held that Semillano et al were regular employees of SMC since (1) SMC exercised power of
control and power of dismissal over Semillano et al; and (2) AMPCO was engaged in labor-only
contracting1 since its capital of nearly one million pesos was insufficient to qualify as an
independent contractor.

1Department of Labor and Employment (DOLE) Department Order No. 10, Series of 1997, defines
job contracting and laboronly contracting as follows: Sec. 8. Job contracting.There is job
contracting permissible under the Code if the following conditions are met:

ISSUE:

Whether or not AMPCO is a legitimate job contractor- NO

HELD:
AMPCO is not a legitimate job contractor, but a labor-only contractor

The test to determine the existence of independent contractorship is whether or not the one
claiming to be an independent contractor has contracted to do the work according to his own
methods and without being subject to the control of the employer, except only as to the results of
the work2.

(1) The contractor carries on an independent business and undertakes the contract work on his own
account under his own responsibility according to his own manner and method, free from the control and
direction of his employer or principal in all matters connected with the performance of the work except as
to the results thereof; and
2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business.
Sec. 9. Laboronly contracting.(a) Any person who undertakes to supply workers to an employer shall be
deemed to be engaged in labor only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work
premises and other materials; and
(2) The workers recruited and placed by such persons are performing activities which are directly related
to the principal business or operations of the employer in which workers are habitually employed.
(b) Laboronly contracting as defined herein is hereby prohibited and the person acting as contractor shall
be considered merely as an agent or intermediary 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.
(c) For cases not falling under this Article, the Secretary of Labor shall determine through appropriate
orders whether or not the contracting out of labor is permissible in the light of the circumstances of each
case and after considering the operating needs of the employer and the rights of the workers involved. In
such case, he may prescribe conditions and restrictions to insure the protection and welfare of the
workers.

2 The existence of an independent and permissible contractor relationship is generally established by the
following criteria: whether or not 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
employers power with respect to the hiring, firing and payment of the contractors 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.

Although there are many signs that AMPCO is indeed an independent contractor, other factors 3
prove otherwise. AMPCOs actual status and employement regarding respondents employment
belie their written contract. The facts show that:
o AMPCO did not have substantial capital or investment. The NLRC stated that AMPCOs
main business is trading, maintaining a store catering to members and the public thus
making its activity of job contracting with SMC only a sideline. Thus AMPCOs substantial
capital is invested and used in its trading business.
o AMPCO did not have substantial tools and equipment for use in segregation and piling
for SMC. It did not have fixed assets that it could have used in any way for the completion
of its contracted service with the petitioner. The tools and equipment used by the
respondents are owned by SMC, thus proving that AMPCO has no independent
business.
o AMPCO did not exercise exclusive direction in the discharge of respondents, based on
Merlyn Polidarios instructions to the respondents to wait for further instructions from
SMCs supervisor after being prevented from entering SMC premises. SMC therefore
wielded the power of control.
The language of a contract is neither determinative nor conclusive of the relationship between the
partiesthe principal and the contractor cannot dictate, by a declaration in a contract, the
character of the latters business, that is, whether as laboronly contractor, or job contractor.
Neither can they rely on AMPCOs Certificate of Registration as an Independent Contractor
issued by the proper Regional office of the DOLE. The certificate is not conclusive evidence. The
totality of facts and surrounding circumstances must also be considered. Therefore, SMC
(principal employer) is liable along with AMPCO (labor-only contractor) for all the respondents
rightful claims.
In laboronly contracting, the law makes the principal responsible over the employees of the
labor only contractor as if the principal itself directly hired the employees.

Dispositive: Petition Denied. CA Decision affirmed.

3 Section 5 of Department Order No. 1802 (Series of 2002) of the Rules Implementing Articles 106 to 109
of the Labor Code further provides that: 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. (emphasis supplied)
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.