Labor-only contracting is prohibited. Labor-only contracting refers to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal and where any of the elements established by law is present.

Thus, the SC held as follows in the following case:

Lingnam Restaurant vs. Skills & Talent Employment Pool, Inc. and Jessie Colaste
G.R. No. 214667. December 3, 2018

Labor-only contracting (LOC); Supply of directly related job and lack of control of contractor renders the arrangement LOC; Job contracting; Legitimate job contractor provides services; Labor-only contractor provides only manpower; Expiration of contract is not a ground for dismissal of regular employee; Due process; Misapprehension of the matters in the petition does not amount to violation of due process; The NLRC decision did not become final and executor with the timely filing of the Petition for Certiorari.


Respondent Skills & Talent Employment Pool, Inc. (STEP) is engaged in manpower management and technical services, and one of its clients is petitioner Lingnam Restaurant.

In a contract of employment, respondent Jessie Colaste (Clolaste) is a project employee of respondent STEP assigned to work with petitioner Lingnam Restaurant as assistant cook. Colaste filed with the Labor Arbiter an Amended Complaint for illegal dismissal against Lingnam Restaurant and STEP.

Colaste alleged that he started working at Lingnam Restaurant as an assistant cook/general utility. He worked six days a week, eight hours a day on two shifts. On March 5, 2008, at about 10:00 a.m., Colaste reported to the main office of STEP at Ortigas Center, Pasig City. He was informed by one Katherine R. Barrun that his contract with Lingnam Restaurant had expired. He was given a clearance form to be signed by his supervisor· at Lingnam Restaurant. However, he reported for work as usual at Lingnam Restaurant from 2:00 p.m. to 10:00 p.m.

On March 6, 2008, he was on day-off. On March 7, 2008, he reported for work at Lingnam Restaurant at Greenhills, San Juan City, Metro.Manila. However, the Chief Cook told him not to punch in his time card because he was already terminated from work. After a few minutes, the Chief Cook handed him the telephone, and Supervisor Philipp Prado of the main office of Lingnam Restaurant was on the line and told him, “finish contract ka na, hindi ka na pwede pumasok sa trabaho mo, tanggal ka na.”

Hence, Colaste’s illegal dismissal complaint.

Acquire Mastery of HR/Labor Doctrines and Principles involving employee discipline, benefits, and contracts formulation. Get the discounted HR Bundle

For its part, Lingnam Restaurant denied that it is the employer of Colaste and alleged that STEP is Colaste’s real employer. Hence, it is not liable for the claims and causes of action of Colaste, and that the complaint should be dismissed insofar as it is concerned.

LA Ruling:

The LA dismissed the complaint for lack of merit. He ruled that Colaste’s real employer is STEP because it directly exercised all powers and responsibilities over Colaste. The Labor Arbiter also dismissed Colaste’s money claims for lack of merit.

Colaste appealed from the Labor Arbiter’s decision before the NLRC.

NLRC Ruling:

The NLRC remanded the case to the arbitration branch of origin for further proceedings as the Labor Arbiter failed to rule on the issue of illegal dismissal.

LA Ruling (remanded):

In a remanded case, the LA held that Lingnam Restaurant was guilty of illegal dismissal. The Labor Arbiter ruled that complainant Jessie Colaste’s job as assistant cook is necessary and desirable to the restaurant business of Lingnam Restaurant; thus, he is considered as a regular employee of Lingnam Restaurant. Moreover, the Labor Arbiter found that Colaste was not paid his salary in accordance with applicable wage orders.

Lingnam Restaurant appealed from the Decision of the Labor Arbiter before the NLRC.

NLRC Ruling (appeal on remanded case):

The NLRC reversed and set aside the Decision of the Labor Arbiter.

The NLRC held that STEP is an independent contractor providing manpower services to Lingnam Restaurant. An employer-employee relationship existed between STEP and Jessie Colaste, who was assigned to one of STEP’s clients, Lingnam Restaurant. As Colaste had been employed with STEP for more than a year and performing duties necessary and desirable to its trade and business, he is considered a regular employee. The failure of STEP to assign Colaste to its other business clients after the lapse of six months rendered him constructively dismissed.

STEP’s motion for reconsideration was denied.

STEP filed with the Court of Appeals a petition for certiorari, alleging that the NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction in (1) setting aside the Decision of Labor Arbiter Pablo Gajardo, Jr.; (2) ruling that there was constructive dismissal and in considering the said issue not raised in the appeal nor in the Complaint; (3) holding STEP liable for constructive dismissal for its alleged failure to assign complainant to other business clients after the lapse of six· months; ( 4) ordering STEP to immediately reinstate complainant Colaste and to pay him full backwages plus other monetary awards; and ( 5) giving due course to the appeal of Lingnam Restaurant and in completely absolving the latter from any liability in the subject complaint of Jessie Colaste.

CA Ruling:

The CA reversed and set aside the Decision and Resolution of the NLRC, and reinstated and affirmed the Decision of the Labor Arbiter holding that Jessie Colaste’s employer is Lingnam Restaurant, which illegally dismissed Colaste; hence, Colaste is entitled to reinstatement, payment of full backwages and other monetary benefits.

The CA found that STEP is a labor-only contractor; hence, the workers it supplied to Lingnam Restaurant, including Jessie Colaste, should be considered employees of Lingnam Restaurant.

Lingnam Restaurant’s motion for reconsideration was denied for lack of merit by the Court of Appeals.


Whether or not the contract where the deployed employee’s performance is under the strict supervision and control of the client as well as the end result constitutes labor-only contracting

Whether or not a regular employee can be dismissed for expiration of contract

SC Ruling:

The SC, citing the case of PCI Automation Center, Inc. vs. NLRC, held that the legitimate job contractor provides services, while the labor-only contractor provides only manpower. The legitimate job contractor undertakes to perform a specific job for the principal employer, while the labor-only contractor merely provides the personnel to work for the principal employer.

The SC agreed with the Court of Appeals that STEP was engaged in labor-only contracting. The SC noted that STEP, in its Cautionary Pleading filed before the Labor Arbiter, stated that it entered into an agreement with petitioner Lingnam Restaurant in 2002, wherein it agreed to provide Lingnam Restaurant with manpower to perform activities related to the operation of its restaurant business. Thus, as stated by the Court of Appeals, respondent STEP merely acted as a placement agency providing manpower to petitioner Lingnam Restaurant. The service rendered by STEP in favor of Lingnam Restaurant was not the performance of a specific job, but the supply of personnel to work at Lingnam Restaurant. In this case, STEP provided petitioner with an assistant cook in the person of Jessie Colaste.

In the Employment Contract between Jessie Colaste and STEP from January 4, 2006 up to June 3, 2007, Colaste was assigned as kitchen helper at petitioner Lingnam Restaurant, while in the subsequent employment contracts from November 5, 2007 up to January 5, 2008; and from January 5, 2008 up to March 5, 2008, he was assigned as assistant cook at Lingnam Restaurant.

The three employment contracts state that Jessie Colaste’s “work result performance shall be under the Strict Supervision, Control and make sure that the end result is in accordance with the standard specified by’ client to STEP Inc.” Hence, the work performance of Colaste is under the strict supervision and control of the client (Lingnam Restaurant) as well as the end result thereof. As assistant cook of Lingnam Restaurant, Colaste’s work is directly related to the restaurant business of Lingnam Restaurant.

Colaste worked in its restaurant and presumably under the supervision of its Chief Cook. This falls under the definition of labor-only contracting under Section 5 of Rule VIII-A, Book III of the Amended Rules To Implement The Labor Code, since the contractor, STEP, merely supplied Jessie Colaste as assistant cook to the principal, Lingnam Restaurant; the job of Colaste as assistant cook is directly related to the main business of Lingnam Restaurant, and STEP does not exercise the right to control the performance of the work of Colaste, the contractual employee.

As STEP is engaged in labor-only contracting, the principal, Lingnam Restaurant, shall be deemed the employer of Jessie Colaste, in accordance with Section 7, Rule VIII-A, Book III of the Amended Rules To Implement The Labor Code. Colaste started working with petitioner since 2006 and he should be considered a regular employee of petitioner.

The reason for the termination of Jessie Colaste was his contract with Lingnam Restaurant through STEP had expired. Lingnam Restaurant explained that Colaste’s real employer is STEP. But since respondent STEP is engaged in labor-only contracting, Lingnam Restaurant is deemed the employer of Colaste. Thus, the reason for Colaste’s termination is not a just or authorized cause for his dismissal under Articles 282 to 284 of the Labor Code.

Moreover, Colaste was not afforded procedural due process, since Lingnam Restaurant failed to comply with the written-notice requirement under Article 277(b) of the Labor Code. The lack of valid cause for dismissal and failure to comply with the twin-notice requirement rendered the dismissal of Colaste illegal.

Lingname Restaurant contends that its right to due process was violated as it could not intelligently identify and discern the matters which it ought to address or oppose in the petition for certiorari filed by STEP with the Court of Appeals, because there were no claims and reliefs against it, and the petition was insufficient in form and substance. Petitioner also contends that the NLRC’ s decision already became final and executory insofar as it is concerned because complainant Jessie Colaste did not appeal from the decision of the NLRC.

The SC found the contention unmeritorious. The essence of due process is simply an opportunity to be heard or as applied to administrative proceedings, an opportunity to explain one’s side or an opportunity to seek a reconsideration of the action or ruling complained of. What the law prohibits is absolute absence of the opportunity to be heard; hence, a party cannot feign denial of due process where he had been afforded the opportunity to present his side.

In this case, Lingnam Restaurant was not denied due process, since it filed with the Court of Appeals a Manifestation/Notice and Comment to the petition for certiorari, which contained the same arguments as to the insufficiency in form and substance of the petition, among others.

Read other digest of Supreme Court Decisions on Labor Cases for the years 2015 (part), 2016, 2017, and 2018 (part) from the book Digest of Critical Decisions of the Supreme Court on Labor Cases

As regards Lingnam Restaurant’s allegation that its right to due process was violated because it “could not intelligently identify and discern the matters which it ought to address or oppose in the Petition for Certiorari” filed by STEP with the Court of Appeals, only Lingnam Restaurant can be held responsible for its misapprehension and it could not be attributed to the Court of Appeals, which did not find the petition insufficient in form and substance.

Lastly, the Decision of the NLRC did not become final and executory because STEP timely filed a petition for certiorari, assailing the said Decision before the Court of Appeals. Hence, the assailed Decision was subject to review by the Court of Appeals, which was, thus, necessarily empowered to determine whether or not the NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction in its decision. Given this power of judicial review of labor cases under Rule 65 of the Rules of Court, the Court of Appeals has the authority to affirm, modify or reverse the assailed Decision of the NLRC.

error: Content is protected !!