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Control in Contracting

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Summary

  • Controlling an employee is one of the rights and powers of the employer.
  • The contractor is the employer of the deployed personnel.
  • The principal cannot exercise control over the deployed personnel not being the employer.
  • Labor-only contracting results if the principal exercises control over the deployed personnel.
  • Right, and not actual, control is sufficient.

Concept

Controlling an employee is one of the rights and powers of the employer.

Hence, in a job contracting arrangement, it is the contractor as the employer who exercises the right or power of control over the deployed personnel. The deployed personnel are required to follow lawful orders of the contractor to avoid being subjected to disciplinary action.

Not being thee employer, the principal does and should not have any right or power of control over the deployed personnel. The main interest of the principal is on the accomplishment of the desired results which the contractor is contractually obligated to deliver via its deployed personnel.

Accordingly, if the principal exercises the right or power of control over the deployed personnel, then there is labor-only contracting as one of the indicators thereof is that the contractor and subcontractor does not exercise sole control of the deployed personnel.

(A) finding that a contractor is a ‘labor-only’ contractor is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor.’ In this case, the employer employee relationship between Petron and petitioners becomes all the more apparent due to the presence of the power of control on the part of the former over the latter.” (Alilin v. Petron Corporation, G.R. No. 177592, 09 June 2014)

Right, not actual, control is sufficient

It bears stressing that the power of control merely calls for the existence of the right to control and not necessarily the exercise thereof. (Petron Corporation v. Caberte, G.R. No. 182255, 15 June 2015)

That’s why control may be established simply by the contractual stipulations in the Service Agreement. If the Principal is given the right of control under a Service Agreement, then it is sufficient to establish labor-only contracting.

Cases: When Principal exercised control

Requiring compliance with Principal’s policies

The lack of control of Interserve  over the respondents can be gleaned from the Contract of Services between Interserve (as the CONTRACTOR) and petitioner (as the CLIENT), pertinent portions of which are reproduced below:

3. It is agreed and understood that the CONTRACTOR’S personnel will comply with CLIENT, CLIENT’S policies, rules and regulations and will be subjected on-the-spot search by CLIENT, CLIENT’S duly authorized guards or security men on duty every time the assigned personnel enter and leave the premises during the entire duration of this agreement.

Paragraph 3 of the Contract specified that the personnel of contractor Interserve [the Contractor], which included the respondents, would comply with “CLIENT” [Coca-Cola Bottlers Phils., Inc. as Principal/Client] as well as “CLIENT’s policies, rules and regulations.” It even required Interserve personnel to subject themselves to on-the-spot searches by petitioner or its duly authorized guards or security men on duty every time the said personnel entered and left the premises of petitioner. Said paragraph explicitly established the control of petitioner [the Principal] over the conduct of respondents. (Coca-Cola Bottlers Phils., Inc. v. Agito, G.R. No. 179546, 13 February 2009)

Monitoring attendance and observance of work schedules

“Also, (the complainants) were required to report for work every day at the bulk plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule… these imply control.” (Alilin v. Petron Corporation, supra.)

Requiring or intervening with the daily time record

PMCI [the Contractor] did not carry on an independent business nor did it undertake the performance of its contract according to its own manner and method, free from the control and supervision of its principal, RFC [the Principal]. The evidence at hand shows that the workers assigned by PMCI to RFC were under the control and supervision of the latter… RFC undertook to assist PMCI in making sure that the daily time records of its alleged employees faithfully reflect the actual working hours. With regard to petitioner, RFC admitted that it exercised control and supervision over him. These are telltale indications that PMCI was not left alone to supervise and control its alleged employees. Consequently, it can be, concluded that PMCI was not an independent contractor since it did not carry a distinct business free from the control and supervision of RFC. (Vinoya v. NLRC, Regent Food Corporation, G.R. No. 126586, 02 February 2000)

Petitioner [the Principal] exercised the power of control and supervision over the respondents. As aptly observed by the CA, “the daily time records of respondents even had to be countersigned by the officials of petitioner to check whether they had worked during the hours declared therein. Furthermore, the fact that DGMS did not assign representatives to supervise over respondents’ work in petitioner’s company tends to disprove the independence of DGMS. It is axiomatic that the test to determine the existence of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subjected to the control of the employer, except only to the results of the work. Obviously, on this score alone, petitioner cannot rightly claim that DGMS was an independent job contractor inasmuch as respondents were subjected to the control and supervision of petitioner while they were performing their jobs.” (First Philippine Industrial Corporation v. Calimbas, supra.)

Requiring the wearing of uniform and safety helmets

“(the complainants) were required to… wear proper uniform and safety helmets as prescribed by the safety and security measures being implemented within the bulk plant. All these imply control. In an industry where safety is of paramount concern, control and supervision over sensitive operations, such as those performed by (the complainants), are inevitable if not at all necessary. Indeed, Petron deals with commodities that are highly volatile and flammable which, if mishandled or not properly attended to, may cause serious injuries and damage to property and the environment. Naturally, supervision by Petron is essential in every aspect of its product handling in order not to compromise the integrity, quality and safety of the products that it distributes to the consuming public.” (Alilin v. Petron Corporation, supra.)

Transferring employees from work assignment to another

“… that (the complainants) were hired by Romeo or his father and that their salaries were paid by them do not detract from the conclusion that there exists an employer-employee relationship between the parties due to (the principal) Petron’s power of control over the petitioners. One manifestation of the power of control is the power to transfer employees from one work assignment to another. Here, Petron could order (the complainants) to do work outside of their regular ‘maintenance/utility’ job.” (Alilin v. Petron Corporation, supra.)

Supervising or intervening in the performance of work

“What further militates against (the principal) Petron’s claim that ABC, as an alleged independent contractor, is the true employer of (the complainants), is the fact that Petron has the power of control over respondents in the performance of their work. It bears stressing that the power of control merely calls for the existence of the right to control and not necessarily the exercise thereof. Here, Petron admitted in its Position Paper that the supervision of a Petron employee is required over LPG and tanker assistance jobs for inventory control and safety checking purposes. It explained that due to the hazardous nature of its products, constant checking of the procedures in their handling is essential considering the high possibility of fatal accidents. It also admitted that it was the one supplying the needed materials and equipment in discharging these functions to better insure the integrity, quality and safety of its products.” (Petron Corporation v. Caberte, supra.)

They [the contractor’s workers] were made to work inside the premises of RNB [the Principal] using its fabrics and sewing accessories, and had to accomplish their tasks within a specific period of completion, in accordance with the specifications, correct patterns, and quantity dictated by RNB. These circumstances undoubtedly show that RNB has the power of control over Desacada, et al. in the performance of their work. It bears stressing that the power of control merely calls for its existence and not necessarily the exercise thereof. As found by the CA, there is dearth of evidence showing that it was RMPC that established Desacada, et al.’s working procedure/method, supervised their work or evaluated their performance. (RNB Garments Philippines, Inc. v. RAMROL Multi-Purpose Cooperative, supra.)

Requiring overtime work

PMCI did not carry on an independent business nor did it undertake the performance of its contract according to its own manner and method, free from the control and supervision of its principal, RFC. The evidence at hand shows that the workers assigned by PMCI to RFC were under the control and supervision of the latter. The Contract of Service itself provides that RFC can require the workers assigned by PMCI to render services even beyond the regular eight hour working day when deemed necessary. (Vinoya v. NLRC, Regent Food Corporation, supra.)

Requiring continuous and uninterrupted supply of relievers and replacements

As to the power of control, We likewise agree with the CA’s observations that the petitioner [Coca-Cola Bottlers, Phils. Inc. – the Principal] exercised the power of control over the respondents. The Contract of Services entered into by the petitioner and respondents [the Contractor] pertinently read: “The CONTRACTOR further warrants to make available at all times relievers and/or replacement to ensure continuous and uninterrupted as in the case of absences of any of the above-mentioned and to exercise the necessary and due supervision over the work of its personnel. The CONTRACTOR hereby binds to replace without delay any of the personnel above assigned performance causes the service contracted for to fail.” … Thus, the Court agrees with the CA’s finding that the petitioner had the power of control over the performance of the work contracted. An independent job contractor need not guarantee to the principal the daily attendance of the workers assigned to the latter. An independent job contractor would surely have the discretion over the pace at which the work is performed, the number of employees required to complete the same, and the work schedule which its employees would need to follow.” (Coca-Cola Bottlers Phils. Inc. v. Agito, supra.)

Jointly exercising control with the Contractor

In the case at bar, we need not belabor ourselves in discussing whether the power of control exists. RFC already admitted that it exercised control and supervision over petitioner.46 RFC, however, raises the defense that the power of control was jointly exercised with PMCI. The Labor Arbiter, on the other hand, found that petitioner was under the direct control and supervision of the personnel of RFC and not PMCI. We are inclined to believe the findings of the Labor Arbiter which is supported not only by the admission of RFC but also by the evidence on record. Besides, to our mind, the admission of RFC that it exercised control and supervision over petitioner, the same being a declaration against interest, is sufficient enough to prove that the power of control truly exists… We, therefore, hold that an employer-employee relationship exists between petitioner and RFC. (Vinoya v. NLRC, Regent Food Corporation, supra.)

Lack of supervisors by the Contractor on their workers

Petitioner [the Principal] exercised the power of control and supervision over the respondents…. Furthermore, the fact that DGMS did not assign representatives to supervise over respondents’ work in petitioner’s company tends to disprove the independence of DGMS. It is axiomatic that the test to determine the existence of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subjected to the control of the employer, except only to the results of the work. Obviously, on this score alone, petitioner cannot rightly claim that DGMS was an independent job contractor inasmuch as respondents were subjected to the control and supervision of petitioner while they were performing their jobs.” (First Philippine Industrial Corporation v. Calimbas, supra.)

Being an agent/intermediary for another company

In the absence of evidence showing how or in what manner PRIME [the Contractor] carried out its promotion work under its contract with JCA [the Principal – declared to be an agent/intermediary for Adidas] and how it provided the necessary requirements for such undertaking (such as the maintenance of storage areas and engagement of sales outlets), we likewise find merit in the petitioner’s submission that it was Adidas who exercised control and supervision over the petitioner’s work performance, through its Sales Manager Sonny Niebres, its President Philip Go, and even Cornelia Indon, head of the WOSI concession. (Cusap v. Adidas Philippines, Inc., supra.)

Issuing memos or notices

Here, notwithstanding the contract stipulation leaving Golden Rock the exclusive right to conirol the working warm bodies it provides WM MFG, evidence irresistibly suggests that it was WM MFG who actually exercised supervision over Dalag’s work performance. As culled from the records, Dalag was supervised by WM MFG’s employees. Petitioner WM MFG even went as far as furnishing Dalag with not less than seven (7) memos directing him to explain within twenty-four (24) hours his alleged work infractions. 64 The company likewise took pains in issuing investigation reports detailing its findings on Dalag’s culpability. Clearly, WM MFG took it upon itself to discipline Dalag for violation of company rules, regulations, and policies, validating the presence of the second confirmatory element. (W.M. Manufacturing, Inc. v. Dalag, supra.)

Requiring employment contract stipulation that deployed worker be under strict supervision of the Principal

In the Employment Contract between Jessie Colaste and STEP from January 4, 2006 up to June 3, 2007, Colaste was assigned as kitchen helper at petitioner Lingnam Restaurant, while in the subsequent employment contracts from November 5, 2007 up to January 5, 2008; and from January 5, 2008 up to March 5, 2008, he was assigned as assistant cook at petitioner Lingnam Restaurant. The three employment contracts state that Jessie Colaste’s “work result performance shall be under the Strict Supervision, Control and make sure that the end result is in accordance with the standard specified by’ client to STEP Inc.” Hence, the Court agrees with the Court of Appeals that the work performance of Colaste is under the strict supervision and control of the client (petitioner Lingnam Restaurant) as well as the end result thereof. As assistant cook of petitioner Lingnam Restaurant, respondent Colaste’s work is directly related to the restaurant business of petitioner. He works in petitioner’s restaurant and presumably under the supervision of its Chief Cook. This falls under the definition of labor-only contracting under Section 5 of Rule VIII-A, Book III of the Amended Rules To Implement The Labor Code, since the contractor, STEP, merely supplied Jessie Colaste as assistant cook to the principal, Lingnam Restaurant; the job of Colaste as assistant cook is directly related to the main business of Lingnam Restaurant, and STEP does not exercise the right to control the performance of the work of Colaste, the contractual employee. (Lingnam Restaurant v. Skills & Talent Employment Pools, Inc., supra.)

Exercising disciplinary action, including notice to explain

The Court notes that on April 10, 2011, the administrative investigation was conducted by Jollibee Alphaland’s manager-on-duty Geling, in the presence of security guard Rivero. The handwritten NTE’, although bearing the header and name of Generation One [the Contractor] were served upon Daguinod by Southgate [the Principal] manager Geling. Thus, Southgate took it upon itself to discipline Daguinod for an alleged violation of its company rules, regulations, and policies, validating the presence of its right to control Daguinod… A perusal of Daguinod’s Service Contract shows that the specific work responsibilities were unspecified, leaving the “[o]ther requirements to perform the services [to] be part of the orientation at the designated place of assignment,” thus, suggesting that the right to determine not only the end to be achieved, but also the manner and means to achieve that end, was reposed in Southgate. Consequently, Southgate shall be deemed as the direct employer of Daguinod. (Daguinod v. Southgate Foods, Inc., supra.)

Terminating employment or advising on end of contract

The Contract of Service gave RFC the right to terminate the workers assigned to it by PMCI without the latter’s approval. Quoted hereunder is the portion of the contract stating the power of RFC to dismiss, to wit: … “7. The First party (“RFC”) reserves the right to terminate the services of any worker found to be unsatisfactory without the prior approval of the second party (‘PMCI’).” In furtherance of the above provision, RFC requested PMCI to terminate petitioner from his employment with the company. In response to the request of RFC, PMCI terminated petitioner from service. As found by the Labor Arbiter, to which we agree, the dismissal of petitioner was indeed made under the instruction of RFC to PMCI. (Vinoya v. NLRC, Regent Food Corporation, supra.)

“Aside from this, (the principal’s) claim that (the contractor) RCI exercised control and supervision over (the complainant) is belied by the fact that (the principal) admitted that its own Branch Manager had informed (the complainant) that his services would no longer be required at the Branch. This overt act shows that (the principal) had direct control over (the complainant) while he was assigned at the Branch. Moreover, the (Court of Appeals) is correct in finding that (the complainant’s) work is related to (the principal’s) business and is characterized as part of or in pursuit of its banking operations.” (Allied Banking Corporation v. Calumpag, supra.)

Also worth stressing are the points highlighted by respondents: (1) Respondents worked only at petitioner’s offices for an uninterrupted period of five years, occupying the same position at the same department under the supervision of company officials; (2) Three weeks ahead of the termination letters issued by DGMS, petitioner’s HR Manager Lorna Young notified respondents, in a closed-door meeting, that their services to the company would be terminated by July 31, 2001; (3) In the termination letters prepared by DGMS, it was even stressed that the said termination letters will formalize the verbal notice given by petitioner’s HR Administration personnel; (4) The direct superiors of respondents were managerial employees of petitioner, and had direct control over all the work-related activities of the latter. This control included the supervision of respondents’ performance of their work and their compliance with petitioner’s company policies and procedures. DGMS, on the other hand, never maintained any representative at the petitioner’s office to oversee the work of respondents. (First Philippine Industrial Corporation v. Calimbas, supra.)

References

  • Presidential Decree No. 442, a.k.a. Labor Code
  • DOLE Department Order No. 174, Series of 2017
  • Jurisprudence or Supreme Court Decisions

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