Case Digest: Baguio, et.al v. NLRC, G.R. Nos. 79004-08, October 4, 1991

  • Feliciano Lupo, a building contractor, entered into a contract with General Milling Corporation (GMC) for construction work of an annex building inside the latter’s plant. 
  • Lupo hired petitioners as carpenters, masons, or laborers for this project.
  • After Lupo terminated petitioners' services, they filed complaints against Lupo and GMC for unpaid wages, COLA differentials, bonus, and overtime pay.
  • LA: Found both Lupo and GMC jointly and severally liable to petitioners under Article 109 of the Labor Code.
  • NLRC First Division: Denied the appeal. 
  • NLRC Third Division: Absolved GMC from any liability.
  • Petitioners argue GMC's joint and several liability with Lupo based on Article 106 of the Labor Code, but the court rules that "labor-only" contracting doesn't apply to this situation.
WoN GMC is joint and several liability with Lupo based on Article 106 of the Labor Code. YES

There is "job contracting" where (1) the contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and 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 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 his business. 

In this case, the construction of an annex building in the plant has no relation to GMC's flour and feeds manufacturing business, so "labor-only" contracting doesn't apply, thus Article 106 is inapplicable.

Instead, "job contracting" exists. GMC, contracting Lupo for the annex building, is considered an "indirect employer" under Article 107, making GMC jointly and solidarily liable with Lupo for any Labor Code violations.

Article 108 mandates employers to require contractors to post a bond for unpaid wages. Since GMC didn't enforce this requirement with Lupo, GMC must pay Lupo's liabilities to the employees but can seek reimbursement from Lupo.

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