TL;DR

The Supreme Court affirmed that an employer-employee relationship existed between Albert Teng and his workers, despite Teng’s claim that they were hired by independent contractors (maestros). The Court found that Teng exercised control over the workers, a key factor in determining employment status. Furthermore, the arrangement constituted illegal labor-only contracting, as the maestros lacked substantial capital, and the workers performed tasks directly related to Teng’s business. Consequently, Teng was held liable for illegally dismissing the workers and was ordered to pay separation pay, backwages, and other monetary benefits. This decision reinforces the importance of the control test in determining employment relationships and underscores the prohibition against labor-only contracting practices that deprive workers of their rights and benefits.

Fishing for Control: Who’s the Real Boss in Deep Sea Ventures?

Albert Teng Fish Trading, owned by Albert Teng and managed by Emilia Teng-Chua, found itself in legal deep waters when respondent workers Alfredo Pahagac, Eddie Nipa, Orlando Layese, Hernan Badilles, and Roger Pahagac, filed a complaint for illegal dismissal. Teng argued that the workers were not his employees but were hired by master fishermen (maestros) with whom he had joint venture agreements. The core legal question revolved around determining whether an employer-employee relationship existed between Teng and the workers, and if so, whether their dismissal was legal.

The initial Voluntary Arbitrator (VA) decision favored Teng, but the Court of Appeals (CA) reversed this, finding sufficient evidence of an employer-employee relationship. Teng then elevated the case to the Supreme Court, contesting the CA’s decision on two primary grounds. First, Teng claimed that the VA’s decision was not subject to a motion for reconsideration. Second, he insisted that no employer-employee relationship existed between him and the respondent workers. Teng maintained that his role was limited to providing capital, tools, and equipment for the fishing ventures, while the maestros managed the operations and hired the workers.

The Supreme Court rejected Teng’s arguments, holding that Article 262-A of the Labor Code does not prohibit the filing of a motion for reconsideration of the VA’s decision. The Court emphasized that the deletion of the word “unappealable” from the original Article 263 indicated a legislative intent to allow for reconsideration. The Supreme Court pointed out that Department Order No. 40, series of 2003 (DO 40-03), and the 2005 Procedural Guidelines, which disallowed motions for reconsideration, went against the legislative intent behind Article 262-A of the Labor Code. Allowing reconsideration aligns with the doctrine of exhaustion of administrative remedies, giving the VA a chance to correct errors before judicial intervention.

Building on this principle, the Court delved into the central issue of the employment relationship. The Court highlighted several factors indicating an employer-employee relationship, notwithstanding Teng’s claim that the maestros hired the respondent workers. These factors included the issuance of identification cards bearing the company’s name and Teng’s signature, regular wage payments, and the element of control. Teng owned the tools and equipment and directed how the respondent workers were to perform their jobs as checkers.

This approach contrasts with a legitimate independent contracting arrangement where the contractor exercises control over the employees. The Court emphasized that Teng’s argument attempted to mask what was, in reality, an impermissible labor-only contracting scheme. According to Article 106 of the Labor Code, labor-only contracting exists when the person supplying workers lacks substantial capital or investment and the workers perform activities directly related to the principal business. In such cases, the intermediary is considered merely an agent of the employer.

ART. 106.  Contractor or Subcontractor – x x x The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting-out of labor.

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 persons are performing activities which are directly related to the principal business of such employer.

The Court observed that the maestros lacked substantial capital, and Teng solely provided the capital and equipment. As checkers, the respondent workers’ main tasks were to count and classify the fish caught and report them to Teng, performing tasks necessary and desirable in Teng’s fishing business. This established a prohibited labor-only contracting arrangement, designed to evade the employer’s obligations to its employees. Consequently, the Court affirmed that employer-employee ties existed between Teng and the respondent workers.

Having established the employment relationship, the Court addressed the legality of the dismissal. The dismissal of an employee requires both substantive and procedural due process. The employer must prove that the dismissal was for a just or authorized cause, and the employee must be given the opportunity to be heard and defend themselves. Teng failed to meet this burden. The respondent workers alleged that Teng summarily dismissed them based on suspicion, which Teng never denied. Unsubstantiated suspicion is not a just cause for termination under Article 282 of the Labor Code.

FAQs

In conclusion, the Supreme Court’s decision in Teng v. Pahagac underscores the importance of the control test in determining the existence of an employer-employee relationship and reinforces the prohibition against labor-only contracting. Employers cannot evade their responsibilities to employees by claiming that workers are hired by independent contractors when the reality demonstrates control and lack of capital on the part of the supposed contractor.

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Albert Teng vs. Alfredo S. Pahagac, G.R. No. 169704, November 17, 2010