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FIRST DIVISION

SERVFLEX, INC., G.R. No. 246369

Petitioner,
Present:

GESMUNDO, CJ, Chairperson,

- versus - CAGUIOA,
INTING,
GAERLAN, and
DIMAAMPAO, JJ
LOVELYNN* M. URERA,
SHERRYL I. CABRERA, Promulgated:
PRECIOUS** C. PALANCA and
JOCO JIM L. SEVILLA, MAR 2 9- 211'1"•? ~-
Respondents. - Uil
x----------------------------------------------
1
\)
DECISION

INTING,J.:

Assailed in the Petition for Review 1 on Certiorari under Rule 45 of

the Rules of Court is the Decision2 dated July 5, 2018 and the
Resolution3 dated April 1, 2019 of the Court of Appeals (CA) in CA-
G.R. SP No. 148586. The CA granted the petition for certiorari before it
and denied the motions for reconsideration separately filed by the
respondents therein.

Spelled as Lovelyn in some parts of the rollo.

** Referred as Previous in some parts of the rollo.
' Rollo, pp. 21-37.
Id. at 43-54; penned by Associate Justice Rosmari D. Carandang (now a retired Member of the
Court) with Associate Justices Elihu A. Ybanez and Pedro B. Corales, concurring.
Id. at 56-58; penned by Associate Justice Elihu A. Ybanez with Associate Justices Pedro B.
Corales and Ronalda Roberto B. Martin, concurring.
Decision 2 G.R. No. 246369

The Antecedents

The case stemmed from a complaint for regularization of

employment and nonpayment of benefits with prayer for moral and
exemplary damages and attorney's fees filed by Lovelynn M. Urera,
Sherryl I. Cabrera, Precious C. Palanca, and Joco Jim L. Sevilla
(respondents) against Philippine Long Distance Telephone Company
(PLDT), Servflex, Inc. (petitioner), and their respective officers
Rosalie C. Simeon (Simeon) and Dandy D. Abundo (Abundo ). 4

PLDT is a domestic company engaged in the telecommunications

industry. It alleged that due to an increase in internet usage, its revenue
from call and text messaging services decreased. To facilitate its digital
shift, PLDT invested in new technologies and was constrained to
outsource staff from contractors. 5 In such regard, it engaged petitioner
who agreed to undertake the supply of labor, particularly Database
Engineers, to support the network facility build-up, migrations,
optimization, and testing and troubleshooting of PLDT. The contract of
service 6 between petitioner and PLDT was for three years commencing
on January 1, 2014 to December 31, 2016. 7 However, even before the
commencement of the contract of service, petitioner had already
assigned respondents at PLDT. In particular, respondents began working
for PLDT on the dates and with the monthly salaries as follows:

START OF WORK MONTHLY

NAME
WITHPLDT SALARY
1 Lovelynn M. URERA 18 March2013 1"15,860.00
2 Precious C. PALANCA 14 May 2013 1"13,110.00
3 Sherryl I. CABRERA 7 March2013 1"13,110.00
4 Joco Jim L. SEVILLA 1 Oct. 2013 1"13,110.00 8

Meanwhile, respondents alleged that they applied at PLDT, but the

latter referred them to petitioner which, after their engagement, still
deployed them at PLDT. They stated that petitioner was a mere labor-
4
Id. at 96.
5
Id. at 43-44.
' See Agreement No. PNC-C002-2014 between Philippine Long Distance Telephone Company and
Servflex, Inc. for Contracted Services, id. at 79-95.
7
ld.at8!.
' Id. at 97.
 Decision 3 G.R. No. 246369

only contractor considering that: (1) it had no independent business for

which it hired respondents; (2) respondents' work was integral to the
business of PLDT; and (3) their work performance was under the control
ofPLDT. 9

On the other hand, PLDT, petitioner, and their officers (Simeon

and Abundo) countered that petitioner deployed respondents at the
premises of PLDT pursuant to an agreement for contracted service, and
such agreement laid down petitioner's hiring, termination, control and
supervision over respondents and their work; thus, respondents were
regular employees of petitioner, not of PLDT. 10 They averred that
petitioner was a legitimate job contractor as shown by: (1) its registration
and certification issued by the Securities and Exchange Commission
(SEC) and the Department of Labor and Employment (DOLE),
respectively; (2) certifications showing that it had no pending case with
the DOLE; (3) its General Information Sheet for the year 2016; and (4)
petitioner's goodwill and established clientele. 11

The Ruling ofthe Labor Arbiter (LA)

In the Decision 12 dated June 10, 2016, the LA ruled for

respondents, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

I. DECLARING SERVFLEX, INC. (SERVFLEX) as a labor

only contractor and considered merely as an agent of
PHILIPPINE LONG DISTANCE [TELEPHONE] CO.
(PLDT);

2. DECLARING complainants LOVELYNN M. URERA,

PRECIOUS C. PALANCA, SHERRYL CABRERA, and
JOCO LIM L. SEVILLA as regular employees of PLDT, since
they started working with PLDT and are entitled to security of
tenure and all benefits and rights appurtenant thereto,
including those which should have been received by them;

3. ORDERING PLDT and SERVFLEX to pay jointly and

severally complainants, (a) previous entitlements, which
9
Id. at 97.
'° Id. at 98.
" Id. at 98-99.
12
Id. at 96-106; penned by Labor Arbiter Julio R. Gaya.man.
Decision 4 G.R. No. 246369

should have been given to them, had they been treated as

regular employees of PLDT, which are partially computed as
of 16 May 2016 in the amount of Pl, 169,463.52, for
LOVELYNN M. URERA; l"l,218,963.52, for PRECIOUS C.
PALANCA; l"l,037,885.54, for SHERRYL CABRERA; and
?785,860.24, for JOCO LIM L. SEVILLA; (b) moral and
exemplary damages of l"25,000.00 each; and ( c) attorney's
fees of ten percent of the monetary award, except damages;
and
• • 1"
4. DISMISSING all other claims, for want of substantiat10n. ·'

The LA elucidated that:

One, in the absence of proof that the assets or capital of petitioner

was used in the service it provided to PLDT, petitioner's registration with
the DOLE could not be considered as conclusive proof that it possessed
substantial capital for a job contracting services. Moreover, it was PLDT,
not petitioner, which exercised control over respondents as shown by the
following circumstances: (1) respondents were required to work at the
premises of PLDT and the latter required them to follow a work
schedule; (2) the Manager and the Section Head of PLDT supervised and
gave work instructions to respondents; and (3) PLDT gave training and
seminars intended for the work development of respondents. 14

Two, the over-reliance of petitioner and PLDT on the language of

their contract of service, where it was stipulated that petitioner had
control over the contract workers, was "more apparent than real. The
determination of whether or not one is carrying an independent business
is not by stipulations in the contract, but on the nature of the activities
performed by [the] employees." 15

Three, the award of moral and exemplary damages was warranted

as the referral of respondents to petitioner as a condition of employment
-to circumvent their security oftenure----was a reflection of bad faith on
the part of petitioner and PLDT. Attorney's fees must likewise be
awarded because respondents were forced to file the case to protect their
rights and interest. The complaint against Simeon and Abundo was,
however, dismissed for failure to prove their individual liability. 16
13
Id. at !06.
1
' Id. at IOl-103.
15
Id. at 103.
" Id. at I 05-106.
Decision 5 G.R. No. 246369

Petitioner and PLDT filed their separate appeals before the

National Labor Relations Commission (NLRC).

The Ruling ofthe NLRC

On July 29, 2016, the NLRC reversed and set aside the LA
Decision and accordingly dismissed the complaint for lack of merit. 17

The NLRC declared that petitioner was the employer of

respondents as shown by the latter's application for employment,
contract of employment, payslips, leave applications and remittances to
government institutions. 18 It ruled that petitioner was engaged in
legitimate job contracting as: (1) it was registered as such with the
DOLE; (2) it was registered with the SEC as a corporation with
"contracting" as one of its purposes; (3) it had an independent business
and had clients; and (4) respondents performed their work in their own
manner and method free from control and supervision of PLDT. 19

With the denial of their motion for reconsideration, respondents

filed a petition for certiorari with the CA.

The Ruling of the CA

On July 5, 2018, the CA granted the petition for certiorari. It

ordered PLDT and petitioner to solidarily pay respondents: (1) salary
and employee benefits reckoned from the commencement of their work
with PLDT; (2) moral and exemplary damages in the amount of
P25,000.00 each; and (3) attorney's fees at 10% of the amount of wages
recovered.

The CA ruled as follows:

" See Decision dated July 29, 2016 of the National Labor Relations Commission as penned by
Commissioner Pablo C. Espiritu, Jr. with Presiding Commissioner Alex A. Lopez and
Commissioner Cecilio Alejandro C. Villanueva, id. at I 08-125.
18
Id. at 121.
i, Id.
Decision 6 G.R. No. 246369

First, respondents were working for PLDT since 2013, or prior to

the effectivity of the service agreement between petitioner and PLDT
that only commenced on January 1, 2014. The arrangement between
petitioner and PLDT, if allowed, would permit them to avoid hiring
regular employees and enable them to deny the employees the right to
security of tenure and just keep them indefinitely on a temporary status. 20

Second, respondents were regular employees of PLDT because

petitioner deployed them to perform activities directly related to the
principal business of PLDT. More particularly, their work as Database
Engineers were necessary and indispensable to the business of PLDT. 21

Last, the award of moral and exemplary damages and attorney's

fees was in order in view of bad faith on the part of petitioner and PLDT
in entering the service agreement to purposely disregard respondents'
security of tenure and benefits, and the latter were compelled to litigate
to protect their rights and interests. 22

Petitioner and PLDT filed their separate motions for

reconsideration, which the CA denied in its Resolution23 dated April 1,
2019.

Aggrieved, pet1t10ner filed the present petition raismg the

following arguments:

CONTRARY TO THE COURT OF APPEALS' RULING,

[PETITIONER]'S CERTIFICATE OF REGISTRATION PROVES
THAT IT IS A LEGITIMATE JOB CONTRACTOR.

II

CONTRARY TO THE COURT OF APPEALS' RULING,

[PETITIONER]'S EMPLOYEES --- INCLUDING RESPONDENTS
HEREIN --- INDEPENDENTLY PERFORM THE CONTRACTED

20
Id. at 50.
21
ld.at51.
22
Id. at 53.
23
Id. at 56-58.
Decision 7 G.R. No. 246369

WORK OF PROVIDING ADDITIONAL SUPPORT ON

ADDRESSING PLDT'S NETWORK PROJECTS. 24

Petitioner's Arguments

Petitioner contends that: (1) it is validly registered and has

substantial capital and necessary tools to operate as an independent job
contractor; (2) it has been providing manpower service to several clients;
and (3) respondents are its regular employees because it exercised the
power to hire, pay, and control them. 25

Respondents' Arguments

Respondents counter that: (1) petitioner's DOLE registration as an

independent contractor is not a conclusive evidence of such status; 26 (2)
it was PLDT which exercised the power of control over the work of
respondents which they performed in the premises of PLDT; and (3)
petitioner did not at all prove how it controlled respondents' work
performance, free from the control and direction of PLDT. 27

The Issue

Whether the CA erred in finding grave abuse of discretion on the

part of the NLRC in reversing the LA Decision.

Our Ruling

The petition lacks merit.

Foremost, the Court underscores that the issues of whether

petitioner is an independent contractor or a mere labor-only contractor,
and of whether respondents are its regular employees are factual in
nature and therefore, they are not within the scope of a Rule 45 petition.
Nonetheless, there being divergent factual findings between the LA and

" Id. at 27.

25
Id. at 28, 32-36.
26
Id. at 135.
27
Id. at 137.
Decision 8 G.R. No. 246369

CA, on one hand, and the NLRC, on the other hand, the Court deems it
28
necessary to reevaluate the evidence for the just disposition of the case.

Equally important, "in a Rule 45 review in labor cases, the Court

examines the CA's Decision from the prism of whether [in a petition for
certiorari,] the latter had correctly determined the presence or absence
of grave abuse of discretion in the NLRC's Decision." 29

There is grave abuse of discretion on the part of the NLRC when

its findings and conclusions are not supported by substantial evidence,
i.e., that amount of relevant evidence which a reasonable mind might
accept as adequate to justify a conclusion. 30 Such grave abuse of
discretion on the part of the NLRC warrants the grant of the
extraordinary remedy of certiorari. 31

In the present case, the Court finds that the CA did not err in
finding that the NLRC committed grave abuse of discretion in reversing
and setting aside the LA Decision and accordingly dismissing the case.

Let it be underscored that to fully resolve the matters on hand, it is

significant for the Court to delve into the concept of labor-only
contracting as defined in law and discussed in jurisprudence.

Labor-only contracting refers to an arrangement whereby a person

who does not have substantial capital or investment deploys workers to
the employer for them to perform tasks that are directly necessary to the
employer's principal business. 32 It is present where: (1) a person who
supplies workers to an employer does not possess substantial capital or
investment in the form of tools, pieces of equipment or machinery, work
premises, among others; and (2) the workers are made to perform tasks
which are directly related to the employer's principal business. Under the
circumstances, the intermediary or the person who assigned the workers

28
See Inocentes v. R Syjuco Construction. Inc., G.R. No. 237020, July 29, 2019, citing Dacuital v.
l.M Camus Engineering Corp., 644 Phil. 158, 169 (2010).
29
Slord Development Corporation v. Noya, G.R. No. 232687, February 14, 2019.
30
Ace Navigation Company v. Garcia, 760 Phil. 924 (2015); Mercado v. AMA Computer College-
Paranaque City, Inc., 632 Phil. 228 (2010).
31
Ace Navigation Company v. Garcia, id. (2015).
32
See Consolidated Building Maintenance, Inc. v. Asprec, 832 Phil. 630,642 (2018).
 Decision 9 G.R. No. 246369

to the employer shall be deemed as the latter's agent, and the employer
shall be responsible for the workers, as if it directly hired them. 33

Overall, the presence of a labor-only contracting is evident in such

a situation where the contractor merely recruits, supplies, and assigns
workers to perform a job for a principal, as in the present case.

First, it bears stressing that in the context of labor-only

contracting, substantial capital or investment rests not only on the
capitalization indicated in the financial documents but on the pieces of
equipment and machinery, and work premises a person or entity actually
and directly used in the performance of the work or service it contracts
out. In other words, to be considered as a legitimate labor contractor, a
person or entity must possess the necessary tools and premises in
relation to the job or service it renders. 34 Definitely, job contracting per
se is not prohibited. It is permissible where the contractor establishes
that it has substantial capital or investment in relation to the service or
job that it provides and it undertakes an independent business, which is
free from the control of the principal. 35

Here, petitioner did not at all specify any tool or equipment it

owned and supplied respondents for them to perform their work for
PLDT. On the contrary, PLDT provided the relevant tools and the
premises for the performance of respondents' work. More importantly,
respondents have been performing tasks central and necessary to the
business of PLDT. Undeniably, all these matters indicate that PLDT is
the employer of respondents. This is as properly observed by the CA:

Although the functions of [respondents] were described in the service

agreement, there was no indication how these duties are different,
highly-technical or specialized from those duties performed by
PLDT's regular employees in the Technical Group. [Respondents']
duties of checking [the] availability of port and bandwidth or speed
before the issuance of the Certificate of Authorization Order (CAO),
issuance of the CAO for purposes of activation of internet connection
to the PLDT equipment installed in the client's premises, record the
connection in PLDT's database, and "after sale" tasks, such as,
checking, organizing and/or trouble-shooting of network connections,

33
WM Manufacturing, Inc. v. Dalag, 774 Phil. 353, 375-376 (2015), citing Article 106 of the Labor
Code of the Philippines.
" Id. at 379.
35
Consolidated Building Maintenance. Inc. v. Asprec, supra note 32 at 644.
Decision 10 G.R. No. 246369

among others, are functions clearly necessary and desirable to PLDT's

services. In fact, the Service Agreement states that the contract was
for purposes of providing "additional support" or to add manpower to
PLDT's Technical Group. It is even undisputed that [respondents]
perform the same work in the same premises as PLDT's regular
employees, using the same tools and implements provided for by
PLDT. 36

Second, there is no clear showing that petitioner had the power of

control over respondents.

Right of control is defined as such "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." 37 The element of control is
indicative of an employer-employee relationship. It does not only relate
to a mutually desirable end intended by the agreement but it is of such a
nature as to dictate the means and methods to be done to achieve the
work result. 38

In the case, PLDT not only possessed, but actually wielded and
exercised the power of control over the work performance of
respondents. This is made evident by the following circumstances duly
noted by the LA:

[Respondents] are required to work in the premises of PLDT Indeed,

control of the premises in which the work is performed, is also viewed
as another phase or control over the work. PLDT similarly obliged
them to follow work schedule, just like the regular employees of
PLDT The electronic mails (email) manifestly display that
[respondents] directly received orders _from PLDT Manager, Gamel
Gilberto Dangel, and Section Head, Willie Sison. These instructions,
consisting of orders to delete or add Network Orders (NOs) and
directives to expedite revision or accommodation of NOs have
something to do with how [respondents] should perform thei; work.
This is contrary to PLDT's stanch that [respondents] are not subject to
its direct supervision and that what was given to them were merely
job orders.

Furthermore, x x x PLDT's action of providing trainings and

seminars about its processes and software, are intended to improve
36
Rollo, p. 49.
'.' Daguinodv. Southgate Foods, Inc., G.R. No. 227795, February 20, 2019 .
.,s Consolidated Building Maintenance, Inc. v. Asprec, supra note 32 at 647.
Decision 11 G.R. No. 246369

and develop [respondents] so that they can better contribute to the

realization of the company's goal. Differently put, it was PLDT, which
planned and implemented [respondents1 career development in order
to improve their level of competence. On top of this, a review of the
[respondents'] job description actually pertains to the manner and
method by which their work should be done.

Verily, PLDT's control over work premises; imposition of

work activities and schedules; supervision over the work; requisite
seminars and trainings; and required process, rules and regulations;
successfully controlled how [respondents] performed their work. 39
(Italics supplied.)

At the same time, the reliance of petitioner on the stipulation

under the contract of service that it has the right of control over
respondents is untenable. This is especially true given that respondents,
as stressed by the CA, started working for PLDT since 2013 or even
prior to the execution of the contract of service between petitioner and
PLDT. Undoubtedly, respondents were already under the control and
supervision of PLDT and the latter did not transfer such function by the
mere execution of the contract of service with petitioner.

Indeed, the contract stipulation on the supposed control of

petitioner over respondents is unavailing because not only did petitioner
fail to prove that it exercised supervision over respondents' work, the
stipulation itself only stated in general terms such power of control, viz.:

9 .5 It is hereby agreed and understood that the Contractor shall

have the exclusive authority to select, engage and discharge its
employees/personnel or otherwise direct and control their
services hereunder. The determination of the wages, salaries
and compensation of the employees/personnel of the
Contractor, and the manner, frequency and place of their
payment shall be within the Contractor's full and exclusive
control. In the performance of its obligations hereunder, the
Contractor shall be free to use such means and devices not
contrary to law and existing regulations and is subject to the
control and direction of PLDT only as far as the results to be
accomplished by this Agreement are concerned. However, the
Contractor shall promptly act on PLDT's complaints regarding
the Contractor's employees/personnel assigned to perform the
Services, and at the Contractor's discretion, if it [finds
reasonable grounds therefor, assign other employee/personnel

39
Rollo, pp. 101-103.
Decision 12 G.R. No. 246369

to perform] the Services to replace the employee/personnel

subject of PLDT's complaints. 40

And last, petitioner's reliance on its certificate of registration is not

sufficient to establish that it is an independent labor contractor. Notably,
a certificate of registration with the DOLE is not a conclusive proof of
legitimacy as a manpower provider. The certificate only prevents the
presumption of labor-only contracting from arising. Petitioner's
insistence that it is registered with the DOLE as an independent
contractor cannot fully establish its status as such. To reiterate, the
registration is only for the purpose of preventing the presumption of
labor-only contracting to arise, but it is not a conclusive proof that
petitioner is indeed a legitimate labor contractor. 41 The presumption
cannot prevail in this case, there being overwhelming evidence
supporting the conclusion that petitioner is a mere labor-only contractor.

Verily, the ruling of the NLRC that petitioner is the employer of

respondents and that it is engaged in a legitimate job contracting is not
supported by substantial evidence. The Court finds that petitioner and
PLDT are engaged in labor-only contracting. Consequently, by legal
fiction, they are considered agent and principal, respectively and thus,
are jointly and severally liable to pay respondents the salaries and
benefits due them as regular employees. 42 All told, the CA did not err in
finding that the NLRC committed grave abuse of discretion when it
reversed and set aside the LA decision and concomitantly, dismissed the
case.

Finally, in conformity with prevailing jurisprudence,43 the Court

hereby imposes legal interest at the rate of 6% per annum on all the
monetary awards from the finality of this Decision until full payment.

WHEREFORE, the petition is DENIED. The Decision dated

July 5, 2018 and the Resolution dated April 1, 2019 of the Court of
Appeals in CA-G.R. SP No. 148586 are AFFIRMED with
MODIFICATION in that all the monetary awards shall earn interest at
the rate of 6% per annum from the finality of this Decision until full
payment.
40
Id. at 84.
4
' WM Manufacturing, Inc. v. Dalag, supra note 33 at 379-380.
" ld.at381
43
Nacarv. Gallery Frames, 716 Phil. 267 (2013).
,.

Decision 13 G.R. No. 246369

SO ORDERED.
,,,,,-----
HEN:l/Jlt~Afu_
Ass~:f!t!e
INTING

WE CONCUR:

G.GESMUNDO
ChiefJustice
Chairperson

Associate Justicw

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify

that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Court's Division.

.GESMUNDO
iefJustice
Chairperson