Faurillo, Froilan V.

Group 3 Written Report

Termination of Employment

A. Employer-employee relationship

1. Four-fold test

The four-fold test are the following:

a) Selection and engagement of the employee;
b) Payment of wages or salaries;
c) Exercise of the power of dismissal; or
d) Exercise of the power to control the
employee’s conduct.1

a) Important Test

The primary standard of determining regular employment is

the reasonable connection between the particular activity
performed by the employee in relation to the usual trade or
business of the employer. The test is whether the former is usually
necessary or desirable in the usual business or trade of the
employer. The connection can be determined by considering the
nature of work performed and its relation to the scheme of the
particular business or trade in its entirety.2

b) Controlling Test

The Control Test or the Means-and-Method Control Test is the

controlling test. It addresses the issue of whether the employer
controls or has reserved the right to control the employee not only
as to the result of the work to be done but also as to the means and
methods by which the same is to be accomplished. An employer-
employee relationship exists where the person for whom the
services are performed reserved the right to control not only the
end or result to be achieved but also the means and methods to be
use in reaching such end.3 The power of control does not have to be
actually exercised by the employer. It is sufficient that the employer
"has a right to wield the power."4

1
Coca Cola Bottlers Phils., Inc. v. National Labor Relations Commission, 366 Phil.
581 (1999).
2
G.R. No. 184262*, April 24, 2017.
3
Chan, J. G. (2019). Bar Reviewer on Labor Law (4th Revised Edition) p. 621.
4
J. Leonen, Concurring Opinion in Del Rosario v. ABS-CBN Broadcasting Corp.,
G.R. Nos. 202481, 202495, 202497, 210165, 219125, 222057, 224879, 225101 &
225874, September 8, 2020.
c) Instances Party is considered an Employer despite the
lack of the Four-Fold Test.

In the absence of the Four-fold Test, a company may still be

held liable as an employer, in the following cases:

1. If a competent authority finds that a contractor is

engaged in labor-only contracting;
2. When the contractor or subcontractor fails to pay the
employees’ wages and any violations of the labor standards
law; and
3. A finding of commission of any of the prohibited activities
in Section 7, or violation of either Sections 8 or 9 of the
Department Order No. 18-A, series of 2011.

d) Other test used to determine relationship

Recent jurisprudence adds another test, applied in

conjunction with the control test, in determining the existence of
employment relations. This is the two-tiered test enunciated in the
2006 case of Francisco v. NLRC,5 which involves an inquiry into the
following:

i. The putative employer’s power to control the

employee with respect to the means and methods by which
the work is to be accomplished [control test]; and

ii. The underlying economic realities of the activity or

relationship [economic reality test].6

2. Kinds of employment

a) Probationary

Probationary Employment is one who is on trial by an

employer during which the employer determines whether or not he
is qualified for permanent employment.7

A probationary appointment is made to afford the employer

an opportunity to observe the fitness of a probationer while at work,
and to ascertain whether he will become a proper and efficient
employee. The word probationary, as used to describe the period of
employment, implies the purpose of the term or period but not its
length.Being in the nature of a trial period the essence of a
probationary period of employment fundamentally lies in the
5
G.R. No. 170087, August 31, 2006.
6
Id.
7
Article 281 of the Labor Code of the Philippines, as amended and renumbered.
purpose or objective sought to be attained by both the employer
and the employee during said period. The length of time is
immaterial in determining the correlative rights of both in dealing
with each other during said period. While the employer, as stated
earlier, observes the fitness, propriety and efficiency of a
probationer to ascertain whether he is qualified for permanent
employment, the probationer, on the other, seeks to prove to the
employer, that he has the qualifications to meet the reasonable
standards for permanent employment.

It is well settled that the employer has the right or is at

liberty to choose who will be hired and who will be denied
employment. In that sense, it is within the exercise of the right to
select his employees that the employer may set or fix a probationary
period within which the latter may test and observe the conduct of
the former before hiring him permanently.8

b) Regular Employment

An employment shall be deemed to be regular where the

employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the
employer, except where the employment has been fixed for a
specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the
employee or where the work or service to be performed is seasonal
in nature and the employment is for the duration of the season. 9

c) Project employment

Project employment refers to those whose employment has

been fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the
engagement of the employee.

d) Seasonal

Seasonal Employment refers to those who work or perform

services which are seasonal in nature, and the employment is for
the duration of the season.

e) Casual

Casual employment refers to those who are not regular,

project, or seasonal employees. An employment shall be deemed to

8
International Catholic Migration Commission v. NLRC, G.R. No. 72222, January
30, 1989, 169 SCRA 606.
9
Article 295 of the Labor Code of the Philippines, as amended and renumbered.
be casual if it is not covered by the first paragraph of Article 295 of
the Labor Code.

f) Fixed-term

Fixed-Term employment are those whose term is freely and

voluntarily determined by the employer and the employee.

g) Apprentices and trainees.

Apprentice is a worker at least sixteen years of age who is

covered by a written apprenticeship agreement with an employers,
an association of employers, an organization of workers, or an
apprenticeship committee registered with the Office of
Apprenticeship which contract provides for not less than two
thousand hours of reasonably continuous employment for such
worker and for his participation in an approved schedule of work
experience through employment and supplemented by related
classroom instruction.10

While, trainees are hired in semi-skilled and other industrial

occupations which are non-apprenticeable and which may be
learned through practical training on the job in a relatively short
period of time which shall not exceed three (3) months.

h) Commission Based Employees

Commission-only employees are typically independent

contractors, meaning they provide work for a company as a non-
employee.

i) Piece Rate employees

Those employees who are paid a standard amount for every

piece or unit of work produced that is more or less regularly
replicated, without regard to the time spent in producing the same.

3. Levels of Employment

a) First-Level Management.

The lowest level in an organization at which individuals are

responsible for the work of others is called first-line or first-level
management. First-line managers direct operating employees only;
they do not supervise other managers. Examples of first-line
managers are the "foreman" or production supervisor in a
manufacturing plant, the technical supervisor in a research
10
Section 11, Republic Act No. 2628.
department, and the clerical supervisor in a large office. First-level
managers are often called supervisors.11

b) Middle-Level Management.

The term middle management can refer to more than one

level in an organization. Middle managers direct the activities of
other managers and sometimes also those of operating employees.
Middle managers' principal responsibilities are to direct the
activities that implement their organizations' policies and to
balance the demands of their superiors with the capacities of their
subordinates. A plant manager in an electronics firm is an example
of a middle manager.12

c) Senior, Executive or Top-Level Management and Chiefs.

Composed of a comparatively small group of executives, top

management is responsible for the overall management of the
organization. It establishes operating policies and guides the
organization's interactions with its environment. Typical titles of top
managers are "chief executive officer," "president," and "senior
vice-president." Actual titles vary from one organization to another
and are not always a reliable guide to membership in the highest
management classification.13

As can be seen from this description, a distinction exists

between those who have the authority to devise, implement and
control strategic and operational policies (top and middle
managers) and those whose task is simply to ensure that such
policies are carried out by the rank-and-file employees of an
organization (first-level managers/supervisors). What distinguishes
them from the rank-and-file employees is that they act in the
interest of the employer in supervising such rank-and-file
employees.

"Managerial employees" may therefore be said to fall into two

distinct categories: the "managers" per se, who compose the former
group described above, and the "supervisors" who form the latter
group. Whether they belong to the first or the second category,
managers, vis-a-vis employers, are, likewise, employees.14

4. Independent Contracting

a) Articles 106 to 109 of the Labor Code

11
G.R. No. 122226, March 25, 1998.
12
G.R. No. 122226, March 25, 1998.
13
Id.
14
Id.
 Contractor or Subcontractor. — Whenever an employer enters
into a contract with another person for the performance of the
former's work, the employees of the contractor and of the latter's
subcontractor, if any, shall be paid in accordance with the
provisions of this Code.

In the event that the contractor or subcontractor fails to pay

the wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent that
he is liable to employees directly employed by him.

The Secretary of Labor and Employment may, by appropriate

regulations, restrict or prohibit the contracting-out of labor to
protect the rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine
who among the parties involved shall be considered the employer
for purposes of this Code, to prevent any violation or circumvention
of any provision of this Code.

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 person are performing activities which are directly related to
the principal business of such 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 the same
manner and extent as if the latter were directly employed by
him.15 (Emphasis supplied)

Labor-only contracting is prohibited as it is seen as a

circumvention of labor laws.16 To protect labor, the general
presumption is that a contractor is engaged in labor-only
contracting.17 Thus, the burden of proving that contractors are not
labor-only contractors rests on them.

Pursuant to the Secretary of Labor and Employment's (SOLE)

delegated authority under Article 106 of the Labor Code, the SOLE
promulgated several issuances to distinguish legitimate job
contracting from labor-only contracting (i.e., Department Order No.
18-02, series of 2002 and Department Order No. 18-A, Series of
2011).

15
Article 106 of the Labor Code of the Philippines, as amended and renumbered.
16
Abuda v. L. Natividad Poultry Farms, 835 Phil. 554 (2018).
17
Mecaydor v. Saekyung Realty Corp., G.R. No. 249616, October 11, 2021.
 Section 11 of DO 18-02 states:

Section 11. Registration of Contractors or

Subcontractors. — Consistent with authority of the
Secretary of Labor and Employment to restrict or
prohibit the contracting out of labor through
appropriate regulations, a registration system to govern
contracting arrangements and to be implemented by the
Regional Office is hereby established.

The Registration of contractors and

subcontractors shall be necessary for purposes of
establishing an effective labor market information and
monitoring.

Failure to register shall give rise to the

presumption that the contractor is engaged in labor-
only contracting. (Emphasis supplied)

In the case of Añonuevo v. CBK,18

CBK failed to present Rolpson's Certificate of

Registration with the DOLE. There being no Certificate
of Registration, a presumption arises that Rolpson is
engaged in labor-only contracting.19 This presumption
will prevail unless the contractor overcomes the burden
of proving that it has substantial capital, investment,
tools and the like.20 In this case, however, CBK failed to
adduce any proof that Rolpson had any substantial
capital, investment or assets to perform the work
contractor for. Thus, the presumption that Rolpson is a
labor-only contractor stands.

A finding that a contractor is a labor-only contractor

is equivalent to a declaration that there is an employer-
employee relationship between the principal and the
workers of the labor-only contractor; the labor-only
contractor is deemed only as the agent of the
principal.21 Strictly speaking, in labor-contracting, there is
no contracting, and no contractor; there is only the
employer's representative who gathers and supplies
people for the employer.22

18
G.R. No. 235534, January 23, 2023.
19
Mecaydor v. Saekyung Realty Corp., G.R. No. 249616, October 11, 2021.
20
Abuda v. L. Natividad Poultry Farms, 835 Phil. 554 (2018).
21
Diamond Farms, Inc. v. Southern Philippines Federation of Labor (SPFL)-Workers
Solidarity of DARBMUPCO/Diamond-SPFL, 778 Phil. 72 (2016).
22
Ortiz v. Forever Richsons Trading Corp., G.R. No. 238289, January 20, 2021.
 With the finding that Rolpson is a labor-only
contractor, Añonuevo is therefore considered as a regular
employee of CBK. It is undisputed that Añonuevo worked
at CBK's Kalayaan Power Plant from 2008 until his
dismissal in 2012. Considering further that Añonuevo
performed the same tasks that he was accomplishing for
CBK after he was purportedly transferred to the employ of
TCS in 2010, the Court has reason to believe that the
engagement of Añonuevo by TCS was a mere ruse used by
CBK to avoid being identified as Añonuevo's direct
employer and bearing the consequences of Añonuevo's
regularization.23

b) Job Contracting vs. Labor Only Contracting

Job Contracting Labor-Only Contracting

Has sufficient substantial capital Has NO substantial capital OR
OR investment in machinery, investment in the form of
tools or equipment directly or machinery, tools or equipment
intended to be related to the job
contracted
Carries an independent business Has no independent business
different from the employer
Undertakes to perform the job Performs activities directly
under its own account and related to the main business of
responsibly, free from the the principal
principal’s control
NO Employer-Employee Principal treated as direct
relationship except when the employer of the person recruited
contractor or subcontractor fails in all instances (contractor is
to pay employee’s wages deemed agent of the principal)
LIMITED liability (principal Principal’s liability extends to all
solidarily liable with contractor rights, duties and liabilities
or subcontractor only when under the labor standard laws
latter fails to ) comply with including the right to self-
requirements as to unpaid wages organization
and other labor standards
violations
Permissible Prohibited

c) Department Order No. 18-A

Under Section 6 of DO 18-A, labor-only contracting exists if

any of the following elements are present:

23
G.R. No. 235534, January 23, 2023.
 i) The contractor or subcontractor does not have
substantial capital or investment which relates to the job,
work or service to be performed and the employees
recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly
related to the main business of the principal; or

ii) the contractor does not exercise the right to

control over the performance of the work of the
contractual employee.

d) Department Circular No. 01-12

Under the Department Circular No. 01-12, this is clarification

to queries on whether the firms or companies in the Business
Process Outsourcing (BPO) or Knowledge Process Outsourcing
(KPO) and in the Construction Industry are covered by Department
Order No. 18-A, s. 2011, or the Rules Implementing Articles 106 to
109 of the Labor Code of the Philippines, as amended and
renumbered.

e) Department Order No. 174, series of 2017 (DO 174)

Last 16 March 2017, the Department of Labor and

Employment (DOLE) released Department Order No. 174, Series of
2017, which provided the rules regarding the implementation of
Articles 106 to 109 of the Labor Code, as amended, or those
governing contracting and subcontracting arrangements.

Section 5 of D.O. No. 174 expressly prohibits labor-only

contracting, which is defined as an arrangement where the
contractor or subcontractor (a)(i) does not have substantial capital,
or (ii) does not have investments in the form of tools, equipment,
machineries, supervision, work premises, among others, and (b)
does not exercise the right of control over the performance of the
work of the employee.

Meanwhile, Section 6 of D.O. No. 174 prohibits other illicit

forms of employment arrangements committed by principals and/or
contractors/subcontractors, such as:

(a) where the principal farms out work to a “Cabo,” which is

defined as a person/group/labor group which, under the guise of a
labor organization/cooperative/entity, supplies workers to an
employer, with or without any monetary consideration, whether in
the capacity of an agent of
the employer or as an ostensible independent contractor;

(b) contracting out of job or work through an in-house agency

or in-house cooperative, which merely supplies workers to the
principal;

(c) contracting out of a job or work by reason of a

strike/lockout whether actual or imminent;

(d) contracting out of a job or work being performed by union

members, when such will interfere with, restrain, or coerce
employees in the exercise of their right to self-organization;

(e) requiring contractor’s/subcontractor’s employees to

perform functions which are currently being performed by the
regular employees of the principal;

(f) requiring the contractor’s/subcontractor’s employees to

sign, as a precondition to employment or continued employment, an
antedated resignation letter, a blank payroll, a waiver of labor
standards including minimum wages and social or welfare benefits,
or a quitclaim releasing the principal or contractor from liability as
to payment of future claims, or requiring the employee to become a
member of a cooperative;

(g) repeatedly hiring by the contractor/subcontractor of

employees under an employment contract of short duration;

(h) requiring employees under a contracting/subcontracting

arrangement to sign a contract fixing the period of employment to a
term shorter than the term of the Service Agreement, unless the
contract is divisible into phases for which substantially different
skills are required and this is made known to the employee at the
time of engagement; and

(i) such other practices, schemes, or employment

arrangements designed to circumvent the right of workers to
security of tenure.

In the event that there is a finding that the

contractor/subcontractor is engaged in labor-only contracting, the
principal shall be deemed the direct employer of the
contractor’s/subcontractor’s employees. Meaning, the
contractor/subcontractor will be treated only as an agent of the
principal, who will then be liable to the employees, not only with
the payment of wages, but also for all their entitlements and
benefits under the labor laws.

D.O. No. 174 also requires the execution of (1) an

Employment Contract between the contractor/subcontractor and its
employees, which the former must furnish/inform the employee in
writing on or before the first day of his/her employment, and (2) a
Service Agreement between the contractor/subcontractor and the
principal. Non-submission of the Service Agreement is a ground for
the cancellation of the contractor’s registration.

However, Section 8 of D.O. No 174 allows permissible

contracting and sub-contracting when the following circumstances
concur:

(a) the contractor/subcontractor is engaged in a distinct and

independent business and undertakes to perform the job or work on
its own responsibility, according to its own manner and method;

(b) the contractor/subcontractor has substantial capital to

carry out the job farmed out by the principal on his account,
manner, and method, investment in the form of tools, equipment,
machinery, and supervision;

(c) in performing the work farmed out, the contractor or

subcontractor is free from the control and/or direction of the
principal in all matters connected with the performance of the work
except as to the results thereof; and

(d) the Service Agreement ensures compliance with all the

rights and benefits for all the employees of the
contractor/subcontractor under the labor laws.

Under Section 10 of D.O. No. 174, the

contractor’s/subcontractor’s employees shall be entitled to security
of tenure and all the rights and privileges under the Labor Code,
which includes:

(a) safe and healthful working conditions;

(b) labor standards, such as, but not limited to service

incentive leave, rest days, overtime pay, holiday pay, 13 th month
pay, and separation pay;
(c) retirement benefits under the SSS or retirement plans of
the contractor/subcontractor;

(d) social security and welfare benefits; and

(e) self-organization, collective bargaining, and peaceful

concerted activities, including the right to strike.

D.O. No. 174 also provides that when the termination of

employment of the contractor’s/subcontractor’s employees is
caused by pre-termination of the Service Agreement, or from the
completion of the phase of the job or work for which the employee
is engaged, the latter may opt to wait for re-employment within
three (3) month to resign and transfer to another contractor-
employer.

Failure of the contractor to provide new employment shall

entitle the employee to separation benefits, as may be provided by
law or the Service Agreement, whichever is higher, without
prejudice to his/her entitlement to completion bonuses or other
emoluments. Furthermore, the mere expiration of the Service
Agreement shall not be deemed as a termination of employment of
the contractor’s/subcontractor’s employee, who are the regular
employees of the latter.

Under D.O. No. 174, it shall be mandatory for all persons or

entities acting as contractors to register with the DOLE Regional
Office where it principally operates. Failure to comply thereto
creates a presumption that the contractor is engaged in labor-only
contracting. Section 23 of D.O. No. 174 provides that the
registration of a contractor or sub-contractor may be cancelled
or revoked on any of the following grounds, viz:

(a) misrepresentation of facts in the application;

(b) submission of falsified/tampered application or supporting

documents to the application for registration;

(c) non-submission of the Service Agreement between the

principal and the contractor when required to do so;

(d) non-submission of the required semi-annual report;

(e) final findings that the contractor has engaged in labor-only

contracting and/or other illicit formed of employment
arrangements;

(f) non-compliance with labor standards and working

conditions;

(g) findings of violation of the rights of contractor’s employees

and provisions of Service Agreements and Employment Contracts;

(h) non-compliance with SSS, HDMF, Pag-IBIG, PhilHealth,

and Employee Compensation Commission (ECC) Laws;

(i) collecting any fees not authorized by law and other

applicable rules and regulations; and

(j) violations of any provisions of the Labor Code.

Complaints against the contractor or sub-contractor based on

any of the abovementioned grounds shall be filed in writing and
under oath with the DOLE Regional Office that issued the
certificate of registration.

Despite its broad and encompassing coverage, D.O. No. 174

excludes from the ambit of its provisions the
contracting/subcontracting arrangements in the Construction
Industry, which are covered by the Philippine Construction
Accreditation Board (PCAB).

f) Effects of Labor-Only Contracting

The principal shall be deemed the direct employer of the

contractor's employee in cases where there is a finding by
competent authority of labor-only contracting, or commission of
prohibited activities as provided in Section 7, or a violation of either
Sections 8 or 9 hereof.24

In addition, a finding by competent authority of labor-only

contracting shall render the principal jointly and severally liable
with the contractor to the latter's employees, in the same manner
and extent that the principal is liable to employees directly hired by
him/her, as provided in Article 106 of the Labor Code, as amended.

A finding of commission of any of the prohibited activities in

Section 7, or violation of either Sections 8 or 9 hereof, shall render
the principal the direct employer of the employees of the contractor
or subcontractor, pursuant to Article 109 of the Labor Code, as
amended.25

In Petron v. Caberte, et al.:26

A finding that a contractor is a 'labor-only'

contractor is equivalent to declaring that there is
an employer-employee relationship between the
principal and the employees of the supposed
contactor, and the 'labor-only' contractor is
considered as a mere agent of the principal, the
real employer.95

g) Trilateral relationship in job contracting

In legitimate contracting, there exists a trilateral relationship

under which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and a
contract of employment between the contractor or subcontractor
and its workers.
24
Section 5, Department Order No. 18-A, series of 2011.
25
Section 27, Department Order No. 18-A, series of 2011.
26
759 Phil. 353 (2015) [Per J. Del Castillo, Second Division].
 Hence, there are three parties involved in these
arrangements, the principal which decides to farm out a job or
service to a contractor or subcontractor, the contractor or
subcontractor which has the capacity to independently undertake
the performance of the job, work or service, and the contractual
workers engaged by the contractor or subcontractor to accomplish
the job work or service.27 To further illustrate, see the diagram
below:

27
Section 3, Department Order No. 18-02.