Cagayan Electric Power & Light Company, Inc. (CELPALCO), et al. Vs. CEPALCO Employee’s Labor Union-Associated Labor Unions-Trade Union Congress of the Philippines (TUCP)
G.R. No. 211015/G.R. No. 213835. June 20, 2016


Respondent is the duly certified bargaining representative of CEPALCO’s regular rank-and-file employees. On the other hand, CEPALCO is a domestic corporation engaged in electric distribution in Cagayan de Oro and other municipalities in Misamis Oriental; while CESCO is a business entity engaged in trading and services. On February 19, 2007, CEPALCO and CESCO (petitioners) entered into a Contract for Meter Reading Work where CESCO undertook to perform CEPALCO’s meter-reading activities. As a result, several employees and union members of CEPALCO were relieved, assigned in floating positions, and replaced with CESCO workers, prompting respondent to file a complaint for ULP against petitioner.

Respondent alleged that when CEPALCO engaged CESCO to perform its meter-reading activities, its intention was to evade its responsibilities under the Collective Bargaining Agreement (CBA) and labor laws, and that it would ultimately result in the dissipation of respondent’s membership in CEPALCO. Thus, respondent claimed that CEPALCO’s act of contracting out services, which used to be part of the functions of the regular union members, is violative of Article 259 (c) of the Labor Code, as amended, governing ULP of employers. It further averred that for engaging in labor-only contracting, the workers placed by CESCO must be deemed regular rank-and-file employees of CEP ALCO, and that the Contract for Meter Reading Work be declared null and void.

In its defense, petitioners averred that CESCO is an independent job contractor and that the contracting out of the meter-reading services did not interfere with CEPALCO’s regular workers’ right to self-organize, denying that none of respondent’s members was put on floating status. Moreover, they argued that the case is only a labor standards issue, and that respondent is not the proper party to raise the issue regarding the status of CESCO’s employees and, hence, cannot seek that the latter be declared as CEPALCO’s regular employees.

LA Ruling:

The Labor Arbiter (LA) dismissed the complaint for lack of merit. The LA found that petitioners have shown by substantial evidence that CESCO carries on an independent business of contracting services, in this case for CEPALCO’ s meter-reading work, and that CESCO has an authorized capital stock of P100,000,000.00, as well as equipment and materials necessary to carry out its business. As an independent contractor, CESCO is the statutory employer of the workers it supplied to CEPALCO pursuant to their contract. Thus, there is no factual basis to say that CEPALCO committed ULP as there can be no splitting or erosion of the existing rank-and-file bargaining unit that negates interference with the exercise of CEP ALCO workers’ right to self-organize.

NLRC Ruling:

The National Labor Relations Commission (NLRC) affirmed the LA’s ruling in toto, finding that the evidence proffered by respondent proved inadequate in establishing that the service contract amounted to the interference of the of the union members to self-organization and collective bargaining. Respondent’s motion for reconsideration was denied; hence, it filed a petition for certiorari.

CA Ruling:

The CA partially granted respondent’s certiorari petition and reversed and set aside the assailed NLRC issuances. Preliminarily, the CA found that CESCO was engaged in labor-only contracting in view of the following circumstances: (a) there was absolutely no evidence to show that CESCO exercised control over its workers, as it was CEPALCO that established the working procedure and methods, supervised CESCO’s workers, and evaluated them; (b) there is no substantial evidence to show that CESCO had substantial capitalization as it only had a paid-up capital of P51,000.00 as of May 30, 1984, and there was nothing on CESCO’s list of machineries and equipment that could have been used for the performance of the meter-reading activities contracted out to it; and ( c) the workers of CESCO performed activities that are directly related to CEPALCO’s main line of business.47 Moreover, while CESCO presented a Certificate of Registration with the Department of Labor and Employment, the CA held that it was not a conclusive evidence of CESCO’s status as an independent contractor. Consequently, the workers hired by CESCO pursuant to the service contract for the meter-reading activities were declared regular employees of CEPALCO. The motion for reconsideration was denied. Thus, the petition.


  1. Whether or not the union has the legal standing to demand regularization for the employees of the contractor
  1. Whether or not there is labor-only contracting

SC Ruling:

The SC found the petition partly meritorious.

Labor-only contracting is considered as a form of ULP when the same is devised by the employer to “interfere with, restrain or coerce employees in the exercise of their rights to self-organization.” Article 259 of the Labor Code, as amended, which enumerates certain prohibited activities constitutive of ULP one which refers to contracting out services or functions being performed by union members when such will interfere with, restrain or coerce employees in the exercise of their rights to self-organization.

The Court agrees with the CA that CEPALCO was engaged in labor-only contracting as the subject contracts with CESCO fit the criteria provided for in Section 5 of DO 18-02 prohibiting labor-only contracting. To be specific, petitioners failed to show that CESCO has substantial capital or investment which relates to the job, work or service to be performed.

There is no available document to show CESCO’s authorized capital stock at the time of the contracting out of CEP ALCO’s meter-reading activities to CESCO on February 19, 2007. The increases in its authorized capital stock and paid-up capital were only made after November 26, 2008, hence, are only relevant with regard to the time CEPALCO contracted out its warehousing works to CESCO on January 5, 2010. It is also evident that meter-reading is a job that is directly related to the main business of CEPALCO, considering that the latter is an electric distribution utility, which is necessarily tasked with the evaluation and appraisal of meters in order to bill its clients.

More significantly, records are devoid of evidence to prove that the work undertaken in· furtherance of the meter-reading contract was made under the sole control and supervision of CESCO. Instead, as noted81 by the CA, it was CEPALCO that established the working procedure and methods and supervised CESCO’s workers in their tasks.

The SC also observes that while respondent did ask for the nullification of the subject contracts between petitioners, and even sought that the employees provided by CESCO to CEPALCO be declared as the latter’s own employees, respondent is not a real party-in-interest and hence, had no legal standing insofar as these matters are concerned.

This is because respondent failed to demonstrate how it stands to be benefited or injured by a judgment on the same, or that any personal or direct injury would be sustained by it if these reliefs were not granted.

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