In the case of Norkis Trading Corporation v. Joaquin Buenavista, et al., the Supreme Court affirmed the Court of Appeals’ decision, holding Norkis Trading as the true employer of the respondents, who were initially considered employees of Panaghiusa sa Kauswagan Multi-Purpose Cooperative (PASAKA). The Court emphasized that PASAKA was engaged in labor-only contracting, making Norkis Trading responsible for the employees’ rights and benefits. This ruling underscores the importance of determining the true employer-employee relationship to prevent circumvention of labor laws and ensure workers’ rights are protected.

Who’s the Boss? Unmasking Labor-Only Contracting in Norkis Trading Case

The controversy began with an amended complaint filed by Joaquin Buenavista, Henry Fabroa, Ricardo Cape, Bertuldo Tulod, Willy Dondoyano, and Glen Villariasa against Norkis Trading and PASAKA, alleging illegal suspension, illegal dismissal, unfair labor practice, and other monetary claims. The respondents claimed they were hired by Norkis Trading but treated as members of PASAKA, a cooperative presented as an independent contractor. However, the employees believed they were regular employees of Norkis Trading because they operated machines owned by the company, produced steel crates for Norkis Trading’s exports, and were supervised and paid by Norkis Trading’s personnel.

The filing of a complaint for labor-only contracting with the Department of Labor and Employment (DOLE) led to the suspension of the respondents’ membership with PASAKA. They were charged with violating the cooperative’s rules by filing a case against Norkis Trading, which allegedly prejudiced the cooperative’s interests. Subsequently, the respondents were suspended for fifteen days, prompting them to file a complaint for illegal suspension with the National Labor Relations Commission (NLRC). The suspension was extended, and upon their return, they were informed of a transfer to Porta Coeli Industrial Corporation (Porta Coeli), a sister company of Norkis Trading, which they viewed as a demotion and constructive dismissal, leading them to amend their complaint to include charges of unfair labor practice and illegal dismissal.

Norkis Trading and PASAKA argued that the respondents were not employees of Norkis Trading but members of PASAKA, an independent contractor supplying services to Norkis International Co., Inc. However, the Labor Arbiter dismissed the complaint, directing the respondents to report back to PASAKA for work assignment. The Labor Arbiter ruled that the respondents failed to prove they were dismissed, finding that the offer of another post was to save the contractual relations between PASAKA and Norkis Trading.

However, the DOLE Regional Director ruled that PASAKA was engaged in labor-only contracting. He found that PASAKA lacked substantial capital, the machinery and equipment used by the respondents were owned by Norkis Trading, and the respondents’ work was supervised and salaries paid by Norkis Trading employees. Norkis Trading and PASAKA were declared solidarily liable for the monetary claims of the complainants. This order was later affirmed by the DOLE Secretary and the Court of Appeals (CA), with the Supreme Court (SC) denying the petitions questioning the CA’s rulings.

On appeal, the NLRC affirmed the Labor Arbiter’s decision, but declared that the LA had no jurisdiction over the dispute because the respondents were not employees of Norkis Trading, but members of PASAKA. The NLRC characterized the suspension as an intra-corporate dispute. The Court of Appeals reversed the NLRC’s decision, ruling that the respondents were illegally dismissed. The CA found that the contract between PASAKA and Norkis International was a mere afterthought and that Norkis Trading’s refusal to accept the respondents back to their former positions constituted constructive dismissal.

The Supreme Court denied Norkis Trading’s petition, siding with the CA’s assessment. The Court emphasized that the factual findings of labor officials, while generally accorded respect, can be examined when arrived at arbitrarily or in disregard of evidence. The Court clarified that the CA can grant a petition for certiorari if the NLRC’s factual findings are not supported by substantial evidence. In this case, the CA correctly held that the NLRC disregarded facts material to the respondents’ case.

The Court delved into the determination of employer-employee relationship, considering whether PASAKA was a labor-only contractor. The Court cited that labor-only contracting, a prohibited act, occurs when the contractor merely recruits, supplies, or places workers for a principal, lacking substantial capital or investment, and the employees’ activities are directly related to the principal’s main business. Legitimate job contracting, in contrast, involves a contractor carrying on a distinct and independent business with substantial capital, free from the principal’s control, and ensuring contractual employees’ labor rights and benefits.

The Supreme Court emphasized that the petitioner’s arguments against the respondents’ claim were mooted by the finality of its resolutions in G.R. Nos. 180078-79, affirming the DOLE Regional Director’s Order that PASAKA was a mere labor-only contractor and Norkis Trading the true employer. Regional Director Balanag’s Order detailed PASAKA’s failure to prove substantial capital or investment, the respondents’ use of Norkis Trading’s machinery, and the supervision and salary payments by Norkis Trading employees. The DOLE Regional Director explained that Norkis Trading and PASAKA had failed to prove that their sub-contracting arrangements fall under any of the conditions set forth in Sec. 6 of D.O. # 10 S. 1997 to qualify as permissible contracting or subcontracting.

Sec. 6.  Permissible contracting or subcontracting.  Subject to conditions set forth in Sec. 4 (d) and (e) and Section 5 hereof, the principal may engage the services of a contractor or subcontractor for the performance of any of the following:

a.) Works or services temporarily or occasionally needed to meet abnormal increase in the demand of products or services…

d) Works or services not directly related or not integral to main business or operation of the principal including casual work, janitorial, security, landscaping and messengerial services and work not related to manufacturing processes in manufacturing establishments.

Together with the finding that PASAKA evidently lacked substantial capital or investment required from legitimate job contractors, Regional Director Balanag ruled that the cooperative failed to dispute the respondents’ allegation that officers of Norkis Trading supervised their work and paid their salaries. This finding was crucial in determining the true nature of the employment relationship.

The Court applied the doctrine of res judicata, holding that all matters fully resolved by the dismissal of the appeal from Regional Director Balanag’s Order are conclusive between the parties. Res judicata prevents the re-litigation of issues already decided in a prior case. The court cited the case of Dole Philippines, Inc. v. Esteva, holding that the finding of the DOLE Regional Director, which had been affirmed by the Undersecretary of Labor, by authority of the Secretary of Labor, in an Order that has reached finality and which provided that the cooperative Cannery Multi-Purpose Cooperative (CAMPCO) was engaged in labor-only contracting should bind the NLRC in a case for illegal dismissal.

While the causes of action in the proceedings before the DOLE and the NLRC differ, they are, in fact, very closely related. The DOLE Regional Office conducted an investigation to determine whether CAMPCO was violating labor laws, particularly, those on labor-only contracting. x x x The matter of whether CAMPCO was a labor-only contractor was already settled and determined in the DOLE proceedings, which should be conclusive and binding upon the NLRC.

This principle prevented Norkis Trading from re-opening issues already settled in G.R. Nos. 180078-79.

The Court also emphasized that the NLRC’s disregard of the DOLE Regional Director’s findings constituted grave abuse of discretion. The NLRC failed to thoroughly review the matter, reconcile differing judgments, and appreciate the evidence presented by the parties, undermining the visitorial and enforcement power of the DOLE Secretary. This failure underscored the importance of labor tribunals respecting the findings of other labor authorities when determining employment relationships.

As to the final issue of whether the respondents were illegally dismissed by Norkis Trading, the Supreme Court answered in the affirmative, but clarified it was by actual dismissal, not constructive dismissal as the CA had ruled. The Court reiterated that when an entity is declared a labor-only contractor, the employees supplied by said contractor to the principal employer become regular employees of the latter, entitled to security of tenure and can only be dismissed for just or authorized causes and after they had been afforded due process. Here, no evidence showed just or authorized cause for the dismissal. This determination led to the conclusion that the transfer to Porta Coeli, although relayed by PASAKA, was effectively an act of Norkis Trading, constituting an illegal dismissal.

FAQs

What was the central issue in this case?	The key issue was whether Norkis Trading was the true employer of the respondents or whether PASAKA was an independent contractor. This hinged on whether PASAKA was engaged in labor-only contracting.
What is labor-only contracting?	Labor-only contracting is when a contractor merely supplies workers without substantial capital, and these workers perform activities directly related to the principal’s business. It is prohibited under Philippine labor laws.
What did the DOLE Regional Director find?	The DOLE Regional Director found that PASAKA was engaged in labor-only contracting. This was based on PASAKA’s lack of substantial capital, the use of Norkis Trading’s equipment, and supervision and salary payments by Norkis Trading.
What is res judicata, and how did it apply here?	Res judicata prevents re-litigation of issues already decided in a prior case. The Supreme Court applied it because the issue of labor-only contracting had been conclusively decided in a prior case involving the same parties.
What was the effect of PASAKA being a labor-only contractor?	Because PASAKA was a labor-only contractor, the respondents were deemed regular employees of Norkis Trading. This meant they were entitled to security of tenure and could only be dismissed for just or authorized causes.
Were the respondents illegally dismissed?	Yes, the Supreme Court found that the respondents were illegally dismissed. The transfer to Porta Coeli was considered an actual dismissal without just or authorized cause.
What is the significance of this case?	This case reinforces the principle that companies cannot evade labor laws by using labor-only contractors. It highlights the importance of looking beyond formal arrangements to determine the true employer-employee relationship.
What factors determine if a contractor is engaged in labor-only contracting?	Key factors include the contractor’s lack of substantial capital, the principal’s control over the workers, and whether the workers’ activities are directly related to the principal’s core business.

This case illustrates the judiciary’s commitment to protecting workers’ rights and preventing the circumvention of labor laws through illegitimate contracting arrangements. The decision serves as a reminder to employers that the substance of the employment relationship prevails over its form. Companies must ensure they comply with labor standards and provide their employees with the rights and benefits they are entitled to under the law.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Norkis Trading Corporation v. Joaquin Buenavista, G.R. No. 182018, October 10, 2012