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[11] DE CASTRO v. NLRC

FACTS:
Sometime in 2007, Martinez recruited petitioner Edward de Castro (De Castro), a sales and
marketing professional in the field of real estate, to handle its sales and marketing operations,
including the hiring and supervision of the sales and marketing personnel. To formalize this
undertaking, De Castro was made to sign a Memorandum of Agreement (MOA), denominated as
Shareholders Agreement, wherein Martinez proposed to create a new corporation, through which
the latter's compensation, benefits and commissions, including those of other sales personnel,
would be coursed. It was stipulated in the said MOA that the new corporation would have an
authorized capital stock of P4,000,000.00, of which P1,000,000.00 was subscribed and paid
equally by the Martinez Group and the De Castro Group.
As it turned out, the supposedly new corporation contemplated was Silvericon. De Castro was
appointed the President and majority stockholder of Silvericon while Bienvenida and Martinez
were named as stockholders and incorporators thereof, each owning one (1) share of subscribed
capital stock.
In the same MOA, Martinez was designated as Chairman of the new corporation to whom De
Castro, as President and Chief Operating Officer, would directly report. De Castro was tasked to
manage the day to day operations of the new corporation based on policies, procedures and
strategies set by Martinez. For their respective roles, Martinez was to receive a monthly allowance
of P125,000.00, while De Castro's monthly salary was P400,000.00, with car plan and project
income bonus, among other perks. Both Martinez and De Castro were stipulated to receive
override commissions at 1% each, based on the net contract price of each condominium unit sold.
The Sales and Marketing Agreement (SMA) was purportedly executed by Nuvoland and
Silvericon, stipulating that all payments made for the condominium projects of Nuvoland were to
be given directly to it. Clients secured by the sales and marketing personnel would issue checks
payable to Nuvoland while the cash payments, as the case may be, were deposited to Nuvoland’s
account. Meanwhile, the corresponding sales commission of the sales personnel were issued to
them by Nuvoland, with Martinez signing on behalf of the said company.
In a Letter signed by Bienvenida, Nuvoland terminated the SMA on the ground that Silvericon
personnel committed an unauthorized walkout and abandonment of the Nuvo City Showroom for
two (2) days. In the same letter, Nuvoland demanded that Silvericon make a full accounting of all
its uses of the marketing advances from Nuvoland. It, however, assured that all sales
commissions earned by Silvericon personnel would be released as per existing policy. After the
issuance of the said termination letter, De Castro and all the sales and marketing personnel of
Silvericon were barred from entering the office premises. Nuvoland, eventually, was able to
secure the settlement of all sales and marketing personnel's commissions and wages with the
exception of those of De Castro and Platon.
De Castro and Platon led a complaint for illegal dismissal before the LA, demanding the payment
of their unpaid wages, commissions and other benefits with prayer for the payment of moral and
exemplary damages and attorney's fees against Silvericon, Nuvoland, Martinez, Bienvenida, and
the Board of Directors of Nuvoland.
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Nuvoland and its directors and officers denied a direct contractual relationship with De Castro and
Platon, and contended that if there was any dispute at all, it was merely between the complainants
and Silvericon. For its part, Silvericon admitted that it had employed De Castro as President and
COO. It, however, asserted the application of Presidential Decree No. 902-A to the case, arguing
that the claims come within the purview of corporate affairs and management, thus, falling within
the jurisdiction of the regular courts.
LA ruling: Nuvoland was adjudged as the direct employer of De Castro and Platon and, thus,
liable to pay their money claims as a consequence of their illegal dismissal. According to the LA,
the ground relied upon for the termination of the employment of De Castro and Platon —
abandonment of the Nuvo City Showroom — was not at all proven. Mere suspicion that De Castro
instigated the walkout did not discharge the burden of proof which heavily rested on the employer.
Without an unequivocal showing that an employee deliberately and unjustifiably refused his
employment s a n s any intention to return to work, abandonment as a cause for dismissal could
not stand. Worse, procedural due process could not be said to have been observed through the
expediency of a letter in contravention to Article 277, paragraph 2 of the Labor Code.
NLRC reversed the LA decision, finding that Silvericon was an independent contractor, thus, the
direct employer of De Castro and Platon. In its view, in the SMA, Silvericon had full discretion on
how to perform and conduct its marketing and sales tasks; and there was no showing that
Nuvoland had exercised control over the method of sales and marketing strategies used by
Silvericon. The NLRC further concluded that Silvericon had substantial capital. It pointed out that
in several cases decided by the Court, even an amount less than One Million Pesos was sufcient
to constitute substantial capital; and so to require Silvericon to prove that it had investments in
the form of tools, equipment, machinery, and work premises would be going beyond what the law
and jurisprudence required. Hence, it could not consider Silvericon as a dummy corporation of
Nuvoland organized to effectively evade the latter's obligation of providing employment benets to
its sales and marketing agents. This being the case, the NLRC ruled that no employer-employee
relationship existed between Nuvoland, on one hand, and De Castro and Platon, on the other.
There was no evidence showing that Nuvoland hired, paid wages, dismissed or controlled De
Castro and Platon, or anyone of Silvericon's employees. Resultantly, Martinez and Bienvenida
could not be held liable for they merely acted as officers of Nuvoland. CA affirmed the findings of
the NLRC.

ISSUE: Whether or not Nuvoland is a labor-only contractor. (YES)

RULING:
At the outset it should be noted that a real estate company like Nuvoland may opt to advertise
and sell its real estate assets on its own, or allow an independent contractor to market these
developments in a manner that does not violate aforesaid regulations. Basically, a legitimate job
contractor complies with the requirements on sufficient capitalization and equipment to undertake
the needs of its client. Although this is not the sole determining factor of legitimate contracting,
independent contractors are likewise required to register with the DOLE required to register with
the DOLE. This is required by D.O. 18-02.
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First. As earlier pointed out, D.O. 18-02 expressly provides for a registration requirement.
Remarkably, the respondents do not deny the apparent non-compliance with the rules governing
independent contractors. This failure on the part of Silvericon reinforces the Court's view that it
was engaged in labor-only contracting. Nuvoland did not even bother to make Silvericon comply
with this vital requirement had it really entered into a legitimate contracting arrangement with a
truly independent outfit. The efforts which the two corporations have put into the drafting of the
SMA belie mere inadvertence and heedlessness on this matter.
That the NLRC and the CA failed to consider this fact of non-compliance confounds the Court.
The tribunals below should have looked into the cited provision, as non-compliance thereto gives
rise to a presumption completely opposite to their claim. The presumption finds more significance
especially when the respondents have nothing but silence to rebut the same. All they could say
was that what Nuvoland terminated was the SMA, the termination of which produced no effect
whatsoever on the personnel of Silvericon. The sweeping conclusion might have been the
simplest and easiest way to dismiss the case but this certainly failed to rebut the fact that
Silvericon was a labor-only contracting entity. To the Court's mind, this is a clear attribute of grave
abuse of discretion on the part of the CA.
Second. D.O. No. 18-A, series of 2011, defines substantial capital as the paid-up capital
stocks/shares of at least P3,000,000.00 in the case of corporations, partnerships and
cooperatives. This amount was set with specificity to avoid the subterfuge resorted to by entities
with the intention to circumvent the law. As things now stand, even the subscribed capital of
Silvericon was a far cry from the amount set by the rules. It is important to note that at the time
Nuvoland engaged the services of Silvericon, the latter's authorized stock capital was
P4,000,000.00, out of which only P1,000,000.00 was subscribed.
In this case, the sufficiency of a subscribed capital of P1,000,000.00 for independent contracting
must be assessed taking into consideration the extent of the undertaking relative to the nature of
the industry in which Nuvoland was engaged. Nuvoland was one of the prominent corporations in
the real estate industry. It is safe to assume then that the marketing of its condominium projects
would entail a substantially high amount in what was typically a capital intensive industry. The
undertaking covered not just one but two considerably huge condominium projects located in
prime spots in the metropolis.
For the sale and marketing of two condominium buildings, it would require massive funds for
promotions, advertisements, shows, salaries, and operating expenses of its more or less 40
personnel. In light of this vast business undertaking, it is obvious that the P1 million subscribed
capital of Silvericon would hardly suffice to satisfy this huge engagement. Nuvoland was
apparently aware of this that it had to fund the marketing expenses of the project in an amount
not exceeding P30 million per building. This being the case, the paid-in capitalization of Silvericon
amounting to P1 million was woefully inadequate to be considered as substantial capital. Thus,
Silvericon could not qualify as an independent contractor.
Third, Silvericon had no substantial equipment in the form of tools, equipment, machinery, and
work premises. Records reveal that Nuvoland itself designed and constructed the model units
used in the sales and marketing of its condominium units. This indisputably proves that at the
time of its engagement, Silvericon had no such investment necessary for the conduct of its
business.
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Fourth. Although it is true that the respondents had explicitly assailed the authenticity of the MOA
attached with the petition, their faint denial fails to explain the exclusivity which had characterized
the relationship between Nuvoland and Silvericon. If Silvericon was an independent contractor, it
is only but logical that it should have also offered its services to the public.
Fifth. The respondents do not deny that Nuvoland and Silvericon shared the same ofcers and
employees. If Nuvoland and Silvericon were indeed separate entities, out of all other Nuvoland
officers, why did Bienvenida, as an incorporator of both corporations, choose to authorize the
purported termination of the SMA without at least calling for an investigation of the incident? As a
stockholder of Silvericon, he possessed an interest in the said corporation. Curiously though,
Nuvoland's decision to part with Silvericon as expressed in Bienvenida's letter was reached
without consultation or, at the least, a preliminary notice. Had there really been a breach of
contract, Nuvoland would have demanded an explanation from Silvericon before barring the
personnel's entry in their work premises to think that the latter was engaged in an important aspect
of its business. Further, with Nuvoland having advanced a huge amount of money for Silvericon,
it could have at least exercised caution before terminating the SMA with a meager request for an
accounting of funds. A closer scrutiny of the events that transpired would show that the termination
of the SMA was one and the same with the termination of all Silvericon personnel.
In truth, the termination of the SMA was actually a ruse to make it appear that Silvericon was an
independent entity. It was simply a way to terminate the employment of several employees
altogether and escape liability as an employer. True enough, Nuvoland insisted that the
petitioners direct their claims to Silvericon.
Sixth. As additional basis of this outcome, the Court highlights the presence of the elements of an
employer-employee relationship between the parties. In determining the presence or absence of
an employer-employee relationship, the Court has consistently looked for the following incidents,
to wit: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power
of dismissal; and (d) the employer's power to control the employee on the means and methods
by which the work is accomplished. As regards the power of control, the only argument raised by
the respondents was the inclusion of a provision in the SMA which stated that Silvericon, as its
agent, "shall be responsible for all advertisements, promotions, public relations, special events,
marketing collaterals, road shows, open houses, etc. as part of its marketing efforts." For
Nuvoland, this provision in the SMA showed that Silvericon exercised full and exclusive control
over all levels of work, especially as to the means thereof.