G.R. No.

175501               October 4, 2010 collection of payments from customers; and (3) delivery of
disconnection notice to customers. They were also allowed to effect
MANILA WATER COMPANY, INC., Petitioner, disconnection and were given tools for this purpose.11
vs.
JOSE J. DALUMPINES, EMMANUEL CAPIT, ROMEO B. CASTOLONE, MELITANTE
CASTRO, NONITO FERNANDEZ, ARNULFO JAMISON, ARTHUR LAVISTE, ESTEBAN Respondent bill collectors averred that when Manila Water issued their
LEGARTO, SUSANO MIRANDA, RAMON C. REYES, JOSE SIERRA, BENJAMIN individual contracts of service for three months in September 1997,
TALAVERA, MOISES ZAPATERO, EDGAR PAMORAGA, BERNARDO S. MEDINA,
MELENCIO M. BAONGUIS, JR., JOSE AGUILAR, ANGEL C. GARCIA, JOSE TEODY P. there was already an attempt to make it appear that respondent bill
VELASCO, AUGUSTUS J. TANDOC, ROBERTO DAGDAG, MIGUEL LOPEZ, GEORGE collectors were not its employees but independent contractors.
CABRERA, ARMAN BORROMEO, RONITO R. FRIAS, ANTONIO VERGARA, RANDY Respondent bill collectors stressed that they could not qualify as
CORTIGUERRA, and FIRST CLASSIC COURIER SERVICES, INC., Respondents.
independent contractors because they did not have an independent
business of their own, tools, equipment, and capitalization, but were
DECISION purely dependent on the wages they earned from Manila Water, which
was termed as "commission."12
NACHURA, J.:
Respondent bill collectors alleged that Manila Water had complete
supervision over their work and their collections, which they had to
Before the Court is a petition for review on certiorari under Rule 45 of
remit daily to the former. They also maintained that the incorporation
the Rules of Court, assailing the Decision1 dated September 12, 2006
of ACGI did not mean that they were not employees of Manila Water.
and the Resolution2 dated November 17, 2006 of the Court of Appeals
Furthermore, they alleged that they suffered injustice when Manila
(CA) in CA-G.R. SP No. 94909.
Water imposed upon them the work set-up that caused them to be
emotionally depressed because those who were not assigned to the
The facts of the case are as follows: Balara Branch under Manila Water’s contract with ACGI were forced to
join FCCSI to retain their employment. They argued that the entry of
By virtue of Republic Act No. 8041, otherwise known as the "National FCCSI did not change the employer-employee relationship of
Water Crisis Act of 1995," the Metropolitan Waterworks and Sewerage respondent bill collectors with Manila Water.13
System (MWSS) was given the authority to enter into concession
agreements allowing the private sector in its operations. Petitioner Respondent bill collectors insisted that they remained employees of
Manila Water Company, Inc. (Manila Water) was one of two private Manila Water even after the entry of FCCSI. The latter did not qualify
concessionaires contracted by the MWSS to manage the water as a legitimate labor contractor since it had no substantial capital.
distribution system in the east zone of Metro Manila. The east service FCCSI only had a paid-up capital of one hundred thousand pesos
area included the following towns and cities: Mandaluyong, Marikina, (₱100,000.00), out of the four hundred thousand pesos (₱400,000.00)
Pasig, Pateros, San Juan, Taguig, Makati, parts of Quezon City and authorized capital. FCCSI relied mainly on what Manila Water would
Manila, Angono, Antipolo, Baras, Binangonan, Cainta, Cardona, Jala- pay, from which it deducted an agency fee, and it had no other clients
Jala, Morong, Pililla, Rodriguez, Tanay, Taytay, Teresa, and San on collection. They were forced to transfer to FCCSI when their service
Mateo.3 contracts with Manila Water was about to expire on November 30,
1997. FCCSI was engaged in labor-only contracting which is prohibited
Under the concession agreement, Manila Water undertook to absorb by law.14
the regular employees of MWSS listed by the latter effective August 1,
1997. Individual respondents, with the exception of Moises Zapatero Respondent bill collectors averred that even under the four-fold test of
(Zapatero) and Edgar Pamoraga (Pamoraga), were among the one employer-employee relationship, it appeared that Manila Water was
hundred twenty-one (121) employees not included in the list of their true employer based on the following circumstances: (1) it was
employees to be absorbed by Manila Water. Nevertheless, Manila Manila Water who engaged their services as bill collectors when it took
Water engaged their services without written contract from August 1, over the operations of the east zone from MWSS on August 1, 1997;
1997 to August 31, 1997.4 (2) it was Manila Water which paid their wages in the form of
commissions every fifteenth (15th) and thirtieth (30th) day of each
On September 1, 1997, individual respondents signed a three (3)- month; (3) Manila Water exercised the power of dismissal over them
month contract to perform collection services on commission basis for as bill collectors as evidenced by the instances surrounding their
Manila Water’s branches in the east zone.5 termination as set forth in their respective affidavits, and by the
individual clearances issued to them not by FCCSI but by Manila Water,
stating that the same was "issued in connection with his termination of
On November 21, 1997, before the expiration of the contract of contract as Contract Collector of Manila Water Company"; and (4) their
services, the 121 bill collectors formed a corporation duly registered work as bill collectors was clearly related to the principal business of
with the Securities and Exchange Commission (SEC) as the Manila Water.15
"Association Collector’s Group, Inc." (ACGI). ACGI was one of the
entities engaged by Manila Water for its courier service. However,
Manila Water contracted ACGI for collection services only in its Balara Respondent FCCSI, on the other hand, claimed that it is an
Branch.6 independent contractor engaged in the business of providing
messengerial or courier services, and it fulfills the criteria set forth
under Department Order No. 10, Series of 1997.16 It was issued a
In December 1997, Manila Water entered into a service agreement certificate of registration by the Department of Labor and Employment
with respondent First Classic Courier Services, Inc. (FCCSI) also for its (DOLE) as an independent contractor. It was incorporated and
courier needs. The service agreements between Manila Water and registered with the SEC in November 1995. It was duly registered with
FCCSI covered the periods 1997 to 1999 and 2000 to 2002.7 Earlier, in the Department of Transportation and Communication (DOTC) and the
a memorandum dated November 28, 1997, FCCSI gave a deadline for Office of the Mayor of Makati City for authority to operate. It has
the bill collectors who were members of ACGI to submit applications sufficient capital in the form of tools, equipment, and machinery as
and letters of intent to transfer to FCCSI. The individual respondents in attested to by the Postal Regulation Committee of the DOTC after
this case were among the bill collectors who joined FCCSI and were conducting an ocular inspection. It provides similar services to
hired effective December 1, 1997.8 Philippine Long Distance Telephone Company, Smart
Telecommunications, Inc., and Home Cable, Inc. Under the terms and
On various dates between May and October 2002, individual conditions of its service agreement with Manila Water, FCCSI has the
respondents were terminated from employment. Manila Water no power to hire, assign, discipline, or dismiss its own employees, as well
longer renewed its contract with FCCSI because it decided to as control the means and methods of accomplishing the assigned
implement a "collectorless" scheme whereby Manila Water customers tasks, and it pays the wages of the employees.17
would instead remit payments through "Bayad Centers."9 The
aggrieved bill collectors individually filed complaints for illegal The termination of employment of respondent bill collectors upon the
dismissal, unfair labor practice, damages, and attorney’s fees, with expiration of FCCSI’s contract with Manila Water did not mean the
prayer for reinstatement and backwages against petitioner Manila automatic termination or suspension of the employer-employee
Water and respondent FCCSI. The complaints were consolidated and relationship between FCCSI and respondent bill collectors. Their
jointly heard.10 termination after their six (6) month floating status, which was allowed
by law, was due to the non-renewal of FCCSI’s agreement with Manila
Respondent bill collectors alleged that their employment under Manila Water and its inability to enter into a similar contract requiring the
Water had four (4) stages: (a) from August 1, 1997 to August 31, skills of respondent bill collectors.18
1997; (b) from September 1, 1997 to November 30, 1997; (c) in
November 1997 when FCCSI was incorporated; and (d) after Petitioner Manila Water, for its part, denied that there was an
November 1977 when FCCSI came in. While in MWSS, and thereafter employer-employee relationship between its company and respondent
in Manila Water and FCCSI, respondent bill collectors were made to bill collectors. Based on the agreement between FCCSI and Manila
perform the following functions: (1) delivery of bills to customers; (2) Water, respondent bill collectors are the employees of the former, as it
is the former that has the right to select/hire, discipline, supervise, and Respondent bill collectors filed a motion for reconsideration, but the
control. FCCSI has a separate and distinct legal personality from Manila same was denied in a resolution24 dated April 28, 2006.
Water, and it was duly registered as an independent contractor before
the DOLE.19
Disgruntled, respondent bill collectors filed a petition for certiorari
under Rule 65 of the Rules of Court before the CA. On September 12,
Petitioner further claimed that individual service contracts signed by 2006, the CA rendered a Decision, the dispositive portion of which
respondent bill collectors for a 3-month period with Manila Water were reads:
valid and legal. The fact that the duration of the engagement was
stated on the face of the contract dispels any bad faith on the part of
WHEREFORE, premises considered, the present petition is hereby
the company. Fixed term contracts are allowed by law. Furthermore,
GIVEN DUE COURSE and the writ prayed for accordingly GRANTED.
respondent bill collectors’ allegation that the incorporation of ACGI was
Consequently, the assailed Decision dated March 15, 2006 and
made as a condition of their continued employment was unfounded.
Resolution dated April 28, 2006 of the National Labor Relations
They transferred to FCCSI on their own volition.20
Commission are hereby ANNULED and SET ASIDE. A new judgment is
hereby entered (a) declaring the petitioners as employees of private
Petitioner Manila Water also averred that, under its organizational respondent Manila Water Company, Inc., and their termination as bill
structure, there was no regular plantilla position of bill collector, which collectors as illegal; and (b) ordering private respondent Manila Water
was the main reason why respondent bill collectors were not included Company, Inc. to pay the petitioners separation pay equivalent to one
in the list of MWSS employees absorbed by the company. The (1) month for every year of service. In addition, private respondent
company’s out-sourcing of courier needs to an independent contractor Manila Water Company, Inc. is liable to pay ten percent (10%) of the
was valid and legal. total amount awarded as attorney’s fees.

On September 27, 2004, the Labor Arbiter (LA) rendered a No pronouncement as to costs.
decision,21 the dispositive portion of which reads:
SO ORDERED.25
WHEREFORE, premises considered, the complaints against respondent
Manila Water Company, Inc. is dismissed for lack of jurisdiction due to
Petitioner Manila Water and respondent bill collectors filed a motion for
want of employer-employee relationship. Respondent First Classic
reconsideration. However, the CA denied their respective motions for
Courier Services is hereby ordered to pay complainants separation pay
reconsideration in a Resolution dated November 17, 2006.
equivalent to one (1) month pay for every year of service, to wit:

Hence, this petition.

1. JOSE P. DALUMPINES - - - - - - - - ₱36,400.00
2. SUSANO MIRANDA - - - - - - - - - ₱36,400.00 Petitioner Manila Water presented the following issues for resolution,
whether the CA erred (1) in ruling that an employment relationship
3. EDGAR PAMORAGA - - - - - - - - - ₱29,120.00 exists between respondent bill collectors and petitioner Manila Water;
4. ARTHUR G. LAVISTI - - - - - - - - - ₱36,400.00 (2) in its application of Manila Water Company, Inc. v. Peña26 to the
instant case; and (3) in ruling that respondent FCCSI is not a bona fide
5. BENJAMIN TALAVERA, JR. - - - - ₱36,400.00 independent contractor.27
6. JOSE S.A. SIERRA - - - - - - - - - - - ₱36,400.00
The petition is bereft of merit.
7. MELITANTE D. CASTRO - - - - - - ₱36,400.00
8. BERNARDO S. MEDINA - - - - - - - ₱36,400.00 In this case, the LA, the NLRC, and the CA reached different
conclusions of law albeit agreeing on the same set of facts. It was in
9. MELENCIO BAONGUIS - - - - - - - ₱36,400.00
their interpretation and appreciation of the evidence that they differed.
10. NONITO V. FERNANDEZ - - - - - - ₱36,400.00 The CA ruled that respondent FCCSI was a labor-only contractor and
that respondent bill collectors are employees of petitioner Manila
11. LEGARTO ESTEBAN - - - - - - - - - ₱36,400.00 Water, while the LA and the NLRC ruled otherwise.
12. ROMEO B. CASTALONE - - - - - - ₱36,400.00
"Contracting"  or "subcontracting"  refers to an arrangement whereby a
13. RAMON C. REYES - - - - - - - - - - - ₱36,400.00
principal agrees to put out or farm out with a contractor or
14. MOISES L. ZAPATERO - - - - - - - - ₱29,120.00 subcontractor the performance or completion of a specific job, work, or
service within a definite or predetermined period, regardless of
15. JOSE T. AGUILAR - - - - - - - - - - - ₱36,400.00 whether such job, work, or service is to be performed or completed
16. ARNULFO T. JAMISON - - - - - - - ₱36,400.00 within or outside the premises of the principal.28

17. ANGEL C. GARCIA - - - - - - - - - - - ₱36,400.00

Contracting and subcontracting arrangements are expressly allowed by
18. JOSE TEODY P. VELASCO - - - - - ₱36,400.00 law but are subject to regulation for the promotion of employment and
the observance of the rights of workers to just and humane conditions
19. AUGUSTUS J. TANDOC - - - - - - - ₱36,400.00 of work, security of tenure, self-organization, and collective
bargaining.29 In legitimate contracting, the trilateral relationship
20. EMMANUEL L. CAPIT - - - - - - - - ₱36,400.00
between the parties in these arrangements involves the principal which
21. WILLIAM AGANON - - - - - - - - - - ₱87,360.00 decides to farm out a job or service to a contractor or subcontractor,
which has the capacity to independently undertake the performance of
22. ROBERTO S. DAGDAG - - - - - - - - ₱36,400.00 the job, work, or service, and the contractual workers engaged by the
23 MIGUEL J. LOPEZ - - - - - - - - - - - - ₱36,400.00 contractor or subcontractor to accomplish the job, work, or service.30

24. GEORGE CABRERA - - - - - - - - - - ₱36,400.00

Job contracting is permissible only if the following conditions are met:
25. BORROMEO ARMAN - - - - - - - - - ₱36,400.00 1) the contractor carries on an independent business and undertakes
the contract work on his own account under his own responsibility
26. RONITO R. FRIAS - - - - - - - - - - - - ₱36,400.00 according to his own manner and method, free from the control and
27. ANTONIO A. VERGARA - - - - - - - ₱36,400.00 direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and 2) the
28. RANDY T. CORTIGUERRA - - - - - ₱36,400.00 contractor has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are
necessary in the conduct of the business.31
TOTAL - - - - - - - ₱1,055,600.00
On the other hand, the Labor Code expressly prohibits "labor-only"
SO ORDERED.22 contracting. Article 106 of the Code provides that 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,
Respondent bill collectors and FCCSI filed their separate appeals with equipment, machineries, work premises, among others, and the
the National Labor Relations Commission (NLRC). On March 15, 2006, workers recruited and placed by such person are performing activities
the NLRC rendered a decision23 affirming in toto the decision of the LA. which are directly related to the principal business of the 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 furnish at its own expense all materials, tools, and equipment needed
the same manner and to the same extent as if the latter were directly to perform the tasks of collectors.
employed by him.32
Based on the four-fold test of employer-employee relationship, Manila
Department Order No. 18-02, Series of 2002, enunciates that labor- Water emerges as the employer of respondent collectors. The
only contracting refers to an arrangement where the contractor or elements to determine the existence of an employment relationship
subcontractor merely recruits, supplies, or places workers to perform a are: (a) the selection and engagement of the employee; (b) the
job, work, or service for a principal, and any of the following elements payment of wages; (c) the power of dismissal; and (d) the employer's
are present: (i) the contractor or subcontractor does not have power to control the employee's conduct. The most important of these
substantial capital or investment which relates to the job, work, or elements is the employer's control of the employee's conduct, not only
service to be performed and the employees recruited, supplied, or as to the result of the work to be done, but also as to the means and
placed by such contractor or subcontractor are performing activities methods to accomplish it.36
which are directly related to the main business of the principal; or (ii)
the contractor does not exercise the right to control the performance
The factual circumstances in the instant case are essentially the same
of the work of the contractual employee.33
as those cited in Manila Water Company, Inc. v. Hermiño Peña.37 In
that case, 121 bill collectors, headed by Peña, filed a complaint for
"Substantial capital or investment" refers to capital stocks and illegal dismissal against Manila Water. The bill collectors formed ACGI
subscribed capitalization in the case of corporations, tools, equipment, which was registered with the SEC. Manila Water, in opposing the
implements, machineries, and work premises, actually and directly claim of the bill collectors, claimed that there was no employer-
used by the contractor or subcontractor in the performance or employee relationship with the latter. It averred that the bill collectors
completion of the job, work, or service contracted out. The "right to were employees of ACGI, a separate entity engaged in collection
control" refers to the right reserved to the person for whom the services, an independent contractor which entered into a service
services of the contractual workers are performed, to determine not contract for the collection of Manila Water’s accounts. The Court ruled
only the end to be achieved, but also the manner and means to be that ACGI was not an independent contractor but was engaged in
used in reaching that end.34 labor-only contracting, and as such, is considered merely an agent of
Manila Water.38
In the instant case, the CA found that FCCSI is a labor-only contractor.
Based on the factual findings of the CA, FCCSI does not have The Court ratiocinated that: First, ACGI does not have substantial
substantial capital or investment to qualify as an independent capitalization or investment in the form of tools, equipment,
contractor, viz.: machineries, work premises, and other materials to qualify as an
independent contractor. Second, the work of the bill collectors was
directly related to the principal business or operation of Manila Water.
FCCSI was incorporated on November 14, 1995, with an authorized
Being in the business of providing water to the consumers in the east
capital stock of ₱400,000.00, of which only ₱100,000.00 is actually
zone, the collection of the charges by the bill collectors for the
paid-in. Going by the pronouncement in Peña, such capitalization can
company can only be categorized as related to, and in the pursuit of,
hardly be considered substantial. FCCSI and Manila Water make much
the latter's business. Lastly, ACGI did not carry on an independent
of the 17 April 1997 letter of Postal Regulation Committee Chairman
business or undertake the performance of its service contract in its
Francisco V. Ontalan, Jr. to DOTC Secretary Arturo T. Enrile
own manner and using its own methods, free from the control and
recommending the renewal and/or extension of authority to FCCSI to
supervision of its principal, Manila Water. Since ACGI is obviously a
operate private messengerial delivery services, which states in part:
labor-only contractor, the workers it supplied are considered
employees of the principal. Furthermore, the activities performed by
"Ocular inspection conducted on its office premises and evaluation of the bill collectors were necessary or desirable to Manila Water's
the documents submitted, the firm during the six (6) months operation principal trade or business; thus, they are regular employees of the
has generated employment to thirty six (36) messengers, and four (4) latter. Since Manila Water failed to comply with the requirements of
office personnel. termination under the Labor Code, the dismissal of the bill collectors
was tainted with illegality.39
"The office equipt [sic] with modern facilities such as computers,
printers, electric typewriter, working table, telephone lines, The similarity between the instant case and Peña is very evident. First,
airconditioning unit, pigeon holes, working tables and delivery vehicles the work set-up between the respondent contractor FCCSI and
such as a Suzuki van and three (3) motorcycles. The firm’s audited respondent bill collectors is the same as in Peña. Respondent bill
financial statement for the period ending 31 December 1996 [shows] collectors were individually hired by the contractor, but were under the
that it earned a net income of ₱253,000.00. x x x." direct control and supervision of the concessionaire. Second, they
performed the same function of courier and bill collection services.
The above document only proves that FCCSI has no sufficient Third, the element of control exercised by Manila Water over
investment in the form of tools, equipment and machinery to respondent bill collectors is essentially the same as in Peña, manifested
undertake contract services for Manila Water involving a fleet of in the following circumstances, viz.: (a) respondent bill collectors
around 100 collectors assigned to several branches and covering the reported daily to the branch offices of Manila Water to remit their
service area of Manila Water customers spread out in several collections with the specified monthly targets and comply with the
cities/towns of the East Zone. The only rational conclusion is that it is collection reporting procedures prescribed by the latter; (b) respondent
Manila Water that provides most if not all the logistics and equipment bill collectors, except for Pamoraga and Zapatero, were among the 121
including service vehicles in the performance of the contracted service, collectors who incorporated ACGI; (c) Manila Water continued to pay
notwithstanding that the contract between FCCSI and Manila Water their wages in the form of commissions even after the employees
states that it is the Contractor which shall furnish at its own expense alleged transfer to FCCSI. Manila Water paid the respondent bill
all materials, tools and equipment needed to perform the tasks of collectors their individual commissions, and the lump sum paid by
collectors. Moreover, it must be emphasized that petitioners who are Manila Water to FCCSI merely represented the agency fee; and (d) the
"trained collectors" performed tasks that cannot be simply categorized certification or individual clearances issued by Manila Water to
as "messengerial." In fact, these are the very functions they were respondent bill collectors upon the termination of the service contract
already discharging even before they joined FCCSI which "invited" or with FCCSI. The certification stated that respondents were contract
"solicited" their placement just about the expiration of their three (3)- collectors of Manila Water and not of FCCSI. Thus, this Court agrees
month contract with Manila Water on November 28, 1997. The with the findings of the CA that if, indeed, FCCSI was the true
Agreement between FCCSI and Manila Water provides that FCCSI shall employer of the bill collectors, it should have been the one to issue the
"field the required number of trained collectors to the following certification or individual clearances.
Customer Relations Branch Office": Cubao, España, San Juan-
Mandaluyong, Marikina, Pasig, Taguig-Pateros and Makati.351avvphi1 It should be remembered that the control test merely calls for the
existence of the right to control, and not necessarily the exercise
As correctly ruled by the CA, FCCSI’s capitalization may not be thereof. It is not essential that the employer actually supervises the
considered substantial considering that it had close to a hundred performance of duties of the employee. It is enough that the former
collectors covering the east zone service area of Manila Water has a right to wield the power.40
customers. The allegation in the position paper of FCCSI that it serves
other companies’ courier needs does not "cure" the fact that it has Respondent bill collectors are, therefore, employees of petitioner
insufficient capitalization to qualify as independent contractor. Neither Manila Water. It cannot be denied that the tasks performed by
did FCCSI prove its allegation by substantial evidence other than by respondent bill collectors are directly related to the principal business
their self-serving declarations. What is evident is that it was Manila or trade of Manila Water. Payments made by the subscribers are the
Water that provided the equipment and service vehicles needed in the lifeblood of the company, and the respondent bill collectors are the
performance of the contracted service, even if the contract between ones who collect these payments.
FCCSI and Manila Water stated that it was the Contractor which shall
The primary standard of determining regular employment is the
reasonable connection between the particular activity performed by the
employee in relation to the usual business or trade of the employer. In
this case, the connection is obvious when we consider the nature of
the work performed and its relation to the scheme of the particular
business or trade in its entirety. Finally, the repeated and continuing
need for the performance of the job is sufficient evidence of the
necessity, if not indispensability of the activity to the business.41

WHEREFORE, in view of the foregoing, the Decision dated September

12, 2006 and the Resolution dated November 17, 2006 of the Court of
Appeals in CA-G.R. SP No. 94909 are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.