ALIVIADO ET AL. v. PROCTER & GAMBLE PHILS.
(2010) Arguments of the Respondents (P&G, Promm-Gemm)
Digest by: Reginald Matt Santiago | GR 160506
Facts: Petitioners worked as merchandisers of Procter and
Gamble (P&G) from various dates some starting as early as
1982 or as late as June 1991 to either May 5, 1992 or March 11,
1993. Appended to are names of 80 different individuals.
They all individually signed employment contracts with either
Promm-Gem or SAPS 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.
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. P&G
entered into contract with Promm-Gem and SAPS for the
promotion and merchandising of its products. Promm-Gemm
or SAPS imposed disciplinary measures on erring
merchandisers like habitual absenteeism, dishonesty or
changing day-off without prior notice.
In December 1991, petitioners filed a Complaint against P&G
for regularization, service incentive leave pay and other
benefits with damages – and later amended to include the
matter of their subsequent dismissal.
LA: Dismissed the complaint for lack or merit and ruled that
there was no employer-employee relations (ER-EE) between the
petitioners and P&G. He found that the selection and
engagement of the petitioners, payment of wages, power of
dismissal and control were all done by Promm-Gem/SAPS and
that the latter were legitimate independent job contractors.
NLRC: It dismissed the appeal and affirming the findings of the
LA and denied the later motion for reconsideration.
CA: It denied the appeal affirming the findings of the NLRC and
also denied the later motion for reconsideration.
Argument of the Petitioners (Aliviado et al.)
They insist that they are the employees of P&G and that they
were recruited by its salesmen to undertake merchandising
chores for P&G long before the existence of Promm-Gem and
SAPS. And claim because of P&G’s realignment program they
were instructed to fill up forms and report to the agencies which
the P&G created. They also claim that P&G instigated dismissal
as it transmitted a letter to SAPS informing that their
Merchandising Services Contract will no longer be renewed.
They also added that Promm-Gem and SAPS are labor-only
contractors providing services of manpower to their client
and that they have neither substantial capital nor tools and
equipment to undertake independent labor contracting.
In addition they insist that they engaged in the performance of
activities which are necessary or desirable in the usual business
or trade of P&G thus they are regular employees.
P&G argues that there is no ER-EE for it was Promm-Gem or
SAPS that (1) selected petitioners and engaged their services;
(2) paid their salaries; (3) wielded the power of dismissal; and
(4) had the power of control over their conduct of work.
In addition it stated that the Labor Code neither defines nor
limits which services may be validly outsource stating than an
employer can farm out any of its activities to an independent
contractor, regardless whether peripheral or core in natures.
Issues
1. Whether P&G is the employer of the petitioners;
YES, in relation to SAPS as labor-only contracting.
2. Whether petitioners were illegally dismissed;
YES, there was no valid cause for dismissal.
3. Whether petitioners are entitled for payment of
damages and costs as well as attorney’s fees.
YES.
RULING: Petition has merit.
Labor-Only Contracting and Job Contracting
In order to resolve the issue whether P&G is the employer, it is
necessary to first determine whether Promm-Gem and SAPS are
labor-only contractors or legitimate job contractors.
Clearly, (Labor Code and Omnibus Rules of Implementing the
Labor Code) allow contracting arrangements for the
performance of specific jobs, works or services.
Indeed, it is the management prerogative to farm out any of
its activities whether such activity is peripheral or core in nature.
However, for such outsourcing to be valid, it must be made to
an independent contractor because the current labor rules
expressly prohibit labor-only contracting.
Labor-Only Contracting, Elements
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 principle and any
of the following elements are present:
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.
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AS TO PROMM-GEM
In the instant case, the financial statements of Promm-Gem
show it has authorized capital stock of P1M and a paid-in capital
or capital available for operations of P500K. It also has long
terms asserts of P432K and current assets of P719K. Promm-
Gem has also proven that it maintained its own warehouse and
office space with a floor area of 870 sq.m. It also has registered
vehicles for promo and merchandising business.
 The court finds that Promm-Gem has substantial
investments which relates to the work performed.
The records also that it supplies its complainant workers with
the relevant materials such as markers, tapes, liners and
cutters, necessary for them to perform their work – even
uniforms. Promm-Gem already considered them as regular
employees. Which also negates the second requisite.
 Promm-Gemm CANNOT be considered as a labor-
only contractor.
 It is a legitimate independent contractor.
AS TO SAPS
It shows that it has paid-in capital of only P31K and no other
evidence showing how much its working capital and assets are.
Furthermore, there is no showing of substantial investment in
tools, equipment or other assets.
 Court ruled that it has NO substantial capital.
 It has a 6-month contract with P&G
 It failed to show that it can complete the period using
its own capital and investment.
 Its capital is not even sufficient for 1-month payroll.
Substantial capital – refers to capitalization used in the
performance or completion of the job, work, or service
contracted out.
Misconduct as to warrant dismissal: It is not sufficient that
the act or conduct complained of has violated some established
rules or policies. It is equally important and required that the
act or conduct must have been performed with wrongful intent.
IN THIS CASE:Petitioners-employees of Promm-Gem may have
committed an error of judgment in claiming to be employees
of P&G, but it cannot be said that they were motivated by any
wrongful intent in doing so. As such, we find them guilty of only
simple misconduct for assailing the integrity of Promm-Gem
as a legitimate and independent promotion firm.
A misconduct which is not serious or grave, as that existing in
the instant case, cannot be a valid basis for dismissing an
employee.
 The court finds no valid cause for the dismissal of
petitioner-employees of Promm-Gem.
 THUS THE DISMISSAL WAS ILLEGAL.
Damages
As for P&G, the records show that it dismissed its employees
through SAPS in a manner oppressive to labor. The sudden and
peremptory barring of the concerned petitioners from work,
and from admission to the work place, after just a one-day
verbal notice, and for no valid cause bellows oppression and
utter disregard of the right to due process of the concerned
petitioners. Hence, an award of moral damages is called for.
Decision: The petition is granted. P&G and Promm-Gem are
ordered to reinstate their respective employees immediately
without loss of seniority rights and with full back wages and
other benefits. Remanded for computation.

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 it is then
found SAPS IS ENGAGED IN LABOR-ONLY CONTRACTING.

What happens if there is labor-only contracting?

The Labor Code itself (Article 106 and 107); establishes an ER-
EE between the employer and the employees of the labor-only
contractor. This is to prevent circumvention of labor laws. The
contractor is considered merely agent of principal employer.

The SC in this case then pointed out who out of the 80

complainant workers are:
a. Recruited and supplied by SAPS
b. Employees of Promm-Gem

Termination of Services
In cases of regular employment, employer shall not terminate
the services of employee except for just or authorized cause.
In this case, the termination letters given by Promm-Gem to its
employees uniformly specified the cause of dismissal as grave
misconduct and breach of trust.

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