Labor-only contracting - G.R. No. 182915

G.R. No. 182915

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“There is labor-only contracting when the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal. In labor-only contracting, the following elements are present:

(a) The person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others; and

(b) The workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer.”[55]


Here, there is no question that the workers, majority of whom are sewers, were recruited by Susan/Weesan and that they performed activities which are directly related to Fairland’s principal business of garments. What must be determined is whether Susan/Weesan has substantial capital or investment in the form of tools, equipment, machineries, work premises, among others.

We have examined the records but found nothing therein to show that Weesan has investment in the form of tools, equipment or machineries. The records show that Fairland has to furnish Weesan with sewing machines for it to be able to provide the sewing needs of the former.[56] Also, save for the Balance Sheets[57] purportedly submitted by Weesan to the Bureau of Internal Revenue (BIR) indicating its fixed assets (factory equipment) in the amount of P243,000.00, Weesan was unable to show that apart from the borrowed sewing machines, it owned and possessed any other tools, equipment, and machineries necessary to its being a contractor or sub-contractor for garments. Neither was Weesan able to prove that it has substantial capital for its business.

Likewise significant is the fact that there is doubt as to who really owns the work premises occupied by Weesan. As may be recalled, the workers emphasized in their Appeal Memorandum[58] filed with the NLRC that Susan/Weesan was a labor-only contractor and that Fairland was its principal. To buttress this, they alleged that the work premises utilized by Weesan is owned by Fairland, which significantly, was not in the business of renting properties. They also advanced that there was no showing that Susan/Weesan paid any rentals for the use of the premises. They contended that all that Susan had was a Mayor’s Permit for
Weesan indicating 715 Ricafort Street, Tondo, Manila as its address.

Susan failed to refute these allegations before the NLRC and attributed such failure to her former counsel, Atty. Geronimo. But when Susan’s petition for certiorari was given due course by the CA, she finally had the chance to answer the same by denying that Fairland owned the work premises. Susan instead claimed that Weesan rented the premises from another entity, De Luxe. To support this, she attached to her petition two Contracts of Lease[59] purportedly entered into by her and De Luxe for the lease of the premises covering the periods August 1, 1997 to July 31, 2000 and January 1, 2001 to December 31, 2004.

On the other hand, the workers in their Comment[60] filed in CA-G.R. SP No. 93204 (Fairland’s petition for certiorari before the CA), pointed out that in Fairland’s Amended Articles of Incorporation,[61] five out of the seven incorporators listed therein appeared to be residents of the same 715 Ricafort St., Tondo, Manila. To the workers, this is a clear indication that Fairland indeed owned Weesan’s work premises. Fairland, for its part, tried to explain this by saying that its incorporators, just like Weesan, were also mere lessees of a portion of the multi-storey building owned by De Luxe located at 715 Ricafort St., Tondo, Manila. It also claimed that two years prior to Weesan’s occupation of said premises in 1996, the five incorporators alluded to already transferred.[62]

We cannot, however, ignore the apt observation on the matter made by the CA’s Special Former Special Eighth Division in its Decision in CA-G.R. SP No. 93860, viz:

The work premises are likewise owned by Fairland, which petitioner tried to disprove by presenting a purported Contract of Lease with another entity, De Luxe Shirt Factory Co., Inc. However, there is no competent proof it paid the supposed rentals to said ‘owner’. Curiously, under the item ‘Rent Expenses’ in its audited financial statement, only equipment rental was listed therein without any disbursement/expense for rental of factory premises, which only buttressed the claim of private respondents that the place where they reported to and performed sewing jobs for petitioner [Susan] and Fairland at No. 715 Ricafort St., Tondo, Manila, belonged to Fairland.[63] (Emphasis supplied.)


Susan contests this pronouncement by pointing out that although only sewing machines were specified under the entry “Rent Expenses” in its financial statement, the rent for the factory premises is already deemed included therein since the contracts of lease she entered into with De Luxe referred to both the factory premises and machineries.

We, however, find this contention implausible.

We went over the said contracts of lease and noted that same were principally for the lease of the premises in 715 Ricafort St., Tondo, Manila. Only incidental thereto is the inclusion therein of the equipment found in said premises. Hence, we cannot see why the rentals for the work premises, for which Susan even went to the extent of executing a contract with the purported lessor, was not included in the entry for rent expenses in Weesan’s financial statement. Even if we are to concede to Susan’s claim that the entry for rent expenses already includes the rentals for the work premises, we wonder why the rental expenses for the year 2000 which was P396,000.00 is of the same amount with the rental expenses for the year 2001. As borne out by the Contract of Lease covering the period August 1, 1997 to July 31, 2000, the monthly rent for the work premises was pegged at P25,000.00.[64] However, in January to December 2001, same was increased to P27,500.00.[65] There being an increase in the rentals for the work premises, how come that Weesan’s rental expenses for the year 2001 is still P396,000.00? This could only mean that said entry really only refers to the rentals of sewing machines and does not include the rentals for the work premises. Moreover, we note that Susan could have just simply submitted receipts for her payments of rentals to De Luxe. However, she failed to present even a single receipt evidencing such payment.

In an attempt to prove that it is De Luxe and not Fairland which owned the work premises, Susan attached to her petition the following: (1) a plain copy of Transfer Certificate of Title (TCT) No. 139790[66] and Declaration of Real Property[67] both under the name of De Luxe; and, (2) Real Property Tax receipts issued to De Luxe for the years 2000-2004.[68] However, the Court finds these documents wanting. Nowhere from the said TCT and Declaration of Real Property can it be inferred that the property they refer to is the same property as that located at 715 Ricafort St., Tondo, Manila. Although in said Declaration, 715 Ricafort St., Tondo is the indicated address of the declarant (De Luxe), the address of the property declared is merely “Ricafort, Tondo I-A”. The same thing can also be said with regard to the real property tax receipts. The entry under the box Location of Property in the receipt for 2001 is “I - 718 Ricafort” and in the receipts for 2002, 2003, and 2004, the entries are either “I – Ricafort St., Tondo” or merely “I-Ricafort St.”

In sum, the Court finds that Susan’s effort to negate Fairland’s ownership of the work premises is futile. The logical conclusion now is that Weesan does not have its own workplace and is only utilizing the workplace of Fairland to whom it supplied workers for its garment business.

Suffice it to say that “[t]he presumption is that a contractor is a labor-only contractor unless such contractor overcomes the burden of proving that it has substantial capital, investment, tools and the like.”[69] As Susan/Weesan was not able to adduce evidence that Weesan had any substantial capital, investment or assets to perform the work contracted for, the presumption that Weesan is a labor-only contractor stands.[70]
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