RULES OF CONDUCT OR GUIDELINES TOWARDS THE ACHIEVEMENT OF A MUTUALLY DESIRED RESULT DO NOT OPERATE TO CONTROL OR FIX THE METHODOLOGY AS WOULD RESULT IN LABOR-ONLY CONTRACTING

Nestle Philippines, Inc. vs. Benny A. Puedan, Jr., et al.
G.R. No. 220617, January 30, 2017

Facts:

Puedan, et al alleged that on various dates, ODSI and NPI hired them to sell various NPI products in the assigned covered area.

After some time, Puedan, et al demanded that they be considered regular employees of NPI, but they were directed to sign contracts of employment with ODSI instead. When Puedan, et al refused to comply with such directives, NPI and ODSI terminated them from their position. Thus, they were constrained to file the complaint, claiming that: (a) ODSI is a labor-only contractor and, thus, they should be deemed regular employees of NPI; and (b) there was no just or authorized cause for their dismissal.

For its part, ODSI averred that it is a company engaged in the business of buying, selling, distributing, and marketing of goods and commodities of every kind and it enters into all kinds of contracts for the acquisition thereof. ODSI admitted that on various dates, it hired Puedan, et al as its employees and assigned them to execute the Distributorship Agreement it entered with NPI.

However, the business relationship between NPI and ODSI turned sour when the former’s sales department badgered the latter regarding the sales targets. Eventually, NPI downsized its marketing and promotional support from ODSI which resulted to business reverses and in the latter’s filing of a petition for corporate rehabilitation and, subsequently, the closure of its Nestle unit due to the termination of the Distributorship Agreement and the failure of rehabilitation.

Under the foregoing circumstances, ODSI argued that Puedan, et al were not dismissed but merely put in floating status.

On the other hand, NPI did not file any position paper or appear in the scheduled conferences.

LA Ruling:

The Labor Arbiter (LA) dismissed the complaint for lack of merit, but nevertheless, ordered, inter alia, ODSI and NPI to pay Puedan, et al nominal damages plus attorney’s fees.

The LA found that: (a) Puedan, et al were unable to prove that they were NPI employees; and (b) Puedan, et al were not illegally dismissed as ODSI had indeed closed down its operations due to business losses. As to the issue on the failure to give Puedan, et al a thirty (30)-day notice prior to such closure, the LA concluded that all the impleaded Puedan, et al therein (i.e., including NPI) should be held liable for the payment of nominal damages plus attorney’s fees.

Aggrieved, Puedan, et al appealed to the NLRC.

NLRC Ruling:

The NLRC reversed and set aside the LA ruling and, accordingly, ordered ODSI and NPI to pay each of the Puedan, et al: (a) separation pay amounting; and (b) nominal damages. The NLRC likewise ordered NPI and ODSI to pay Puedan, et al attorney’s fees.

Contrary to the LA’s findings, the NLRC found that while ODSI indeed shut down its operations, it failed to prove that such closure was due to serious business losses as it did not present evidence, e.g., financial statements, to corroborate its claims.

As such, it ruled that Puedan, et al are entitled to separation pay. In this relation, the NLRC also found that since ODSI failed to notify Puedan, et al of such closure, the latter are likewise entitled to nominal damages.

Further, the NLRC found ODSI to be a labor-only contractor of NPI, considering that: (a) ODSI had no substantial capitalization or investment; (b) Puedan, et al performed activities directly related to NPI’ s principal business; and ( c) the fact that Puedan, et al’ employment depended on the continuous supply of NPI products shows that ODSI had not been carrying an independent business according to its own manner and method. Consequently, the NLRC deemed NPI to be Puedan, et al’ true employer, and thus, ordered it jointly and severally liable with ODSI to pay the monetary claims of Puedan, et al.

Puedan, et al moved for a partial reconsideration. NPI also moved for reconsideration. The NLRC denied both motions.

Dissatisfied, NPI filed a petition for certiorari before the CA, essentially insisting that: (a) it was deprived of due process before the tribunals a quo; and (b) there was no employer-employee relationship between NPI and Puedan, et al.

CA Ruling:

The CA affirmed the NLRC ruling. Anent the issue on due process, the CA held that NPI was not deprived of its opportunity to be heard as it was able to receive a copy of the complaint and other pleadings, albeit it failed to respond thereto.

As regards the substantive issue, the CA ruled that despite ODSI and NPI’ s contract being denominated as a “Distributorship Agreement,” it contained provisions demonstrating a labor-only contracting arrangement between them, as well as NPI’ s exercise of control over the business of ODSI.

Moreover, the CA pointed out that: (a) there was nothing in the records which showed that ODSI had substantial capital to undertake an independent business; and (b) Puedan, et al performed tasks essential to NPI’s business. Undaunted, NPI moved for reconsideration, which was, however, denied in a Resolution.

Hence, the petition.

Issue/s:

Whether or not NPI was deprived of due process

Whether or not there is employer-employee relationship between NPI and Puedan, et al

SC Ruling:

The observance of fairness in the conduct of any investigation is at the very heart of procedural due process. The essence of due process is to be heard, and, as applied to administrative proceedings, this means a fair and reasonable opportunity to explain one’s side, or an opportunity to seek a reconsideration of the action or ruling complained of. Administrative due process cannot be fully equated with due process in its strict judicial sense, for in the former a formal or trial-type hearing is not always necessary, and technical rules of procedure are not strictly applied.

In this case, NPI was furnished via courier of a copy of the amended complaint filed by the Puedan, et al against it as shown by LBC Receipt. It is also apparent that NPI was also furnished with the Puedan, et al’ Position Paper, Reply, and Rejoinder.

Verily, NPI was indeed accorded due process, but as the LA mentioned, the former chose not to file any position paper or appear in the scheduled conferences.

Assuming arguendo that NPI was somehow deprived of due process by either of the labor tribunals, such defect was cured by: (a) NPI’ s filing of its motion for reconsideration before the NLRC; (b) the NLRC’s subsequent issuance of its Resolution wherein the tribunal considered all of NPI’s arguments as contained in its motion; and (c) NPI’s subsequent elevation of the case to the CA.

Evidently, the foregoing shows that NPI was not denied due process of law as it was afforded the fair and reasonable opportunity to explain its side.

A closer examination of the Distributorship Agreement reveals that the relationship of NPI and ODSI is not that of a principal and a contractor (regardless of whether labor-only or independent), but that of a seller and a buyer/re-seller.

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As stipulated in the Distributorship Agreement, NPI agreed to sell its products to ODSI at discounted prices, which in tum will be re-sold to identified customers, ensuring in the process the integrity and quality of the said products based on the standards agreed upon by the parties. As aptly explained by NPI, the goods it manufactures are distributed to the market through various distributors, e.g., ODSI, that in tum, re-sell the same to designated outlets through its own employees such as the Puedan, et al.

Therefore, the reselling activities allegedly performed by the Puedan, et al properly pertain to ODSI, whose principal business consists of the “buying, selling, distributing, and marketing goods and commodities of every kind” and “[entering] into all kinds of contracts for the acquisition of such goods [and commodities].”

Thus, contrary to the CA’s findings, the aforementioned stipulations in the Distributorship Agreement hardly demonstrate control on the part of NPI over the means and methods by which ODSI performs its business, nor were they intended to dictate how ODSI shall conduct its business as a distributor.

Otherwise stated, the stipulations in the Distributorship Agreement do not operate to control or fix the methodology on how ODSI should do its business as a distributor of NPI products, but merely provide rules of conduct or guidelines towards the achievement of a mutually desired result -which in this case is the sale of NPI products to the end consumer.

In Steelcase, Inc. vs. Design International Selections, Inc., the Court held that the imposition of minimum standards concerning sales, marketing, finance and operations are nothing more than an exercise of sound business practice to increase sales and maximize profits.

Verily, it was only reasonable for NPI -it being a local arm of one of the largest manufacturers of foods and grocery products worldwide -to require its distributors, such as ODSI, to meet various conditions for the grant and continuation of a distributorship agreement for as long as these conditions do not control the means and methods on how ODSI does its distributorship business, as shown in this case.

This is to ensure the integrity and quality of the products which will ultimately fall into the hands of the end consumer. Thus, the foregoing circumstances show that ODSI was not a labor-only contractor of NPI; hence, the latter cannot be deemed the true employer of Puedan, et al.

As a consequence, NPI cannot be held jointly and severally liable to ODSI’ s monetary obligations towards Puedan, et al.