81 Polyfoam-RGC International Corp V Concepcion

LABOR I Case Digest Prepared by: Reynoso, Marielle
81 - Polyfoam-RGC International Corp v Concepcion

TOPIC: Labor-Only Contractors
Court SC Third Division

Citation G.R. No. 172349.
Date June 13, 2012.
Petitioners POLYFOAM-RGC INTERNATIONAL, CORPORATION and PRECILLA A.
GRAMAJE
Respondent EDGARDO CONCEPCION
Ponente J. Peralta
Relevant Codal Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with
Provision another person for the performance of the former’s work, the employees of the contractor and
of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this
Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor
or subcontractor to such employees to the extent of the work performed under the contract, in
the same manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit
the contracting-out of labor to protect the rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate distinctions between labor-only contracting
and job contracting as well as differentiations within these types of contracting and determine
who among the parties involved shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code.
There is “labor-only” contracting where 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 the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were directly
employed by him.
Case Doctrine Related to Topic

Test of independent contractorship: W/N the one claiming to be an independent contractor has contracted
to do the work according to his own methods and without being subject to the control of the employer,
except only as to the results of the work.
Case Summary
Concepcion, who worked in Polyfoam, found his time card missing one day. He was told that he was
dismissed for a violation of a company rule. When he filed a complaint, Gramaje stepped up and stated
that he was the real employer of Concepcion. Gramaje claimed to be a legitimate job contractor. LA ruled
that there was an illegal dismissal. NLRC exonerated Polyfoam. CA agreed with LA. SC ruled that Gramaje
was a labor-only contractor (there was a lack of evidence to prove Gramaje’s validity as a job contractor),
and that there was an employer-employee relationship between Polyfoam and Concepcion.
FACTS:
● Edgardo Concepcion filed for illegal dismissal, non-payment of wages, premium pay for rest day, separation pay,
service incentive leave pay, 13th month pay, damages, and attorney's fees against Polyfoam and Ms. Natividad
Cheng
○ Alleges that he was hired as an “all-around” factory worker and he served as such for almost 6 yrs.
● On Jan 14, 2000 - he discovered that his time card was not in the rack, and he was later informed by security
that he could no longer punch his time card.
○ When he protested, he was told by a supervisor that he was dismissed because he violated a
company rule. The company manager, Cheng, refused to face him.
○ His counsel wrote a letter requesting that Concepcion be readmitted, but it was unheeded. They then
filed a complaint for illegal dismissal.
● Gramaje filed a Motion for Intervention, because he claimed to be Concepcion’s real employer. PA Gramaje
Employment Services (PAGES) is a legitimate job contractor who provided some manpower needs of
Polyfoam. They hired Concepcion as a “packer” and he was assigned to Polyfoam.
○ Gramaje argued that Concepcion was not dismissed, he simply stopped reporting for work.
● Polyfoam and Cheng filed a Motion to Dismiss on the grounds that there was no employer-employee
relationship between Polyfoam and Concepcion. Also claimed that the money claims had already prescribed.
Page 1 of 3
● LA: Granted Gramaje’s motion. Denied Motion to Dismiss. It ruled that there was an illegal dismissal and Polyfoam
was asked to pay P260,093 (separation pay, backwages, etc).
● NLRC: Modified decision: Exonerated Polyfoam and deleted the awards of backwages, 13th month pay, damages
and atty’s fees. It found Gramaje to be an independent contractor, and the real employer of Concepcion.
● CA: Agreed with LA. Argued that Gramaje was not a legitimate job contractor because it failed to present its
Audited Financial Statement to show its financial standing and ownership of equipment, machineries and tools to
run her own business, and it failed to show the purported contract between Gramaje and Polyfoam. Gramaje was
also not registered with DOLE as a private recruitment agency.
ISSUE – HELD – RATIO:
ISSUE # 1 HELD
W/N Gramaje is an independent job contractor NO
RATIO
● Sasan Sr. NLRC: the Court stated the difference between permissible job contracting or subcontracting and
“labor-only” contracting
○ Permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to
put out or farm out to a contractor or subcontractor the performance or completion of a speci5c job,
work or service within a definite or predetermined period, regardless of whether such job, work or
service is to be performed or completed within or outside the premises of the principal. A person is
considered engaged in legitimate job contracting or subcontracting if the following conditions concur:
■ The contractor or subcontractor carries on a distinct and independent business and
undertakes to perform the job, work or service on its own account and under its own
responsibility according to its own manner and method, and free from the control and
direction of the principal in all matters connected with the performance of the work except as
to the results thereof;
■ The contractor or subcontractor has substantial capital or investment;
■ The agreement between the principal and contractor or subcontractor assures the contractual
employees entitlement to all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure, and social and welfare benefits.
○ In contrast, labor-only contracting, a prohibited act, is an arrangement where 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:
■ The contractor or subcontractor does not have substantial capital or investment to actually
perform the job, work or service under its own account and responsibility;
■ The employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the principal.
● Test of independent contractorship: W/N the one claiming to be an independent contractor has contracted to
do the work according to his own methods and without being subject to the control of the employer, except
only as to the results of the work. (San Mig Corp v Semillano)
● Gramaje is a labor-only contractor
○ Gramaje has no substantial capital or investment. The presumption is that a contractor is a labor-only
contractor unless he overcomes the burden of proving that it has substantial capital, investment, tools,
and the like. She did not show any evidence of capital or investment.
○ Gramaje did not carry on an independent business or undertake the performance of its service
contract according to its own manner and method, free from the control and supervision of its
principal, Polyfoam, its apparent role having been merely to recruit persons to work for Polyfoam. It
was never established that Gramaje took the entire charge, control and supervision of the work and
service agreed upon.
○
○
ISSUE – HELD – RATIO:
ISSUE #2 HELD
W/N an employer-employee relationship exists YES, a relationship exists
RATIO
● A 5nding that a contractor is a "labor-only" contractor, as opposed to permissible job contracting, is equivalent to
declaring that there is an employer-employee relationship between the principal and the employees of the
supposed contractor, and the "labor-only" contractor is considered as a mere agent of the principal, the real
employer.
● In this case, Polyfoam is the principal employer and Gramaje is the labor-only contractor. Polyfoam and Gramaje
are, therefore, solidarily liable for the rightful claims of respondent.
Page 2 of 3
● Petitioners failed to show any valid or authorized cause under the Labor Code which allowed it to terminate the
services of the respondent. There was an illegal dismissal.
RULING:
WHEREFORE, the petition is DENIED.
Page 3 of 3

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LABOR I Case Digest Prepared by: Reynoso, Marielle

81 - Polyfoam-RGC International Corp v Concepcion

Court SC Third Division

Case Doctrine Related to Topic

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