50. National Power Corp. v.

CA
GR No. 119121 | August 14, 1998 | Romero, J.
Ryan | Persons Liable - Employer-employee relationship must be established

Doctrine: ​In labor-only contracting, an employer-employee relationship between the principal employer and
the employees of the "labor-only" contractor is created. Accordingly, the principal employer is responsible to
the employees of the "labor only" contractor as if such employees had been directly employed by the
principal employer.

Facts:
1. A convoy of dump trucks owned by NPC/NAPOCOR left Marawi bound for Iligan. Enroute, one of the
trucks (driven by Gavino Ilumba) was involved in a ​head-on collision ​with a Toyoto Tamaraw. Three
people died and 17 were injured.
2. June 10, 1980: heirs of victims filed a complaint for damages against NPC and PHESCO Inc. before
the CFI of Lanao del Norte, Marawi City.
3. PHESCO’s answer to the complaint: ​truck is owned by NPC​, not us.
- PHESCO is a ​mere contractor ​and recruiter → supplies workers and technicians for NPC’s
projects
4. NPC: driver is an ​employee of PHESCO​.
5. RTC: absolved NPC of liability = PHESCO must pay 954k as damages + 50k attorney’s fees
6. PHESCO appealed to the CA → reversed = “labor only” contractor = ​agent ​of the employer
- A finding that a contractor is a 'labor only' contractor is ​equivalent to a finding that there is an
employer-employee relationship between the owner of the project and the employees of
the 'labor only' contractor
- Even if PHESCO hired Ilumba, the statute itself establishes an employer-employee relationship
between the employer (NAPOCOR/NPC) and the employee (driver Ilumba) of the labor only
contractor (PHESCO).
- PHESCO is not liable; no employment relationship between Ilumba and them; NPC must pay
7. NPC = MR = denied. Hence, this petition.

Issue/s: W/N the CA decision finding NPC was the employer of Gavino Ilumba and sentencing it to pay
damages sustained by complainants, is in accord with the law.

Holding:
1. The Court first decided to resolve on the status of the relationship between NPC and PHESCO. They
had to determine if the relationship was that of an ​employer and job (independent) contractor or
employer and labor only contractor​.
2. Job (independent) contracting is present if the following conditions are met (otherwise labor only):
a. 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 to the result thereof​; and
b. the contractor has ​substantial capital or investments in the form of tools, equipment,
machineries, work premises and other materials which are ​necessary in the conduct of his
business​.
3. If labor-only = the person acting as a contractor is ​merely an agent of the principal who is responsible
to the workers in the same manner and to the same extent as if they had been directly employed by
him.
4. Taking into consideration the above and the Memorandum of Understanding between NPC and
PHESCO, the SC believes that PHESCO was engaged in ​labor only contracting​.
5. NPC had mandate to approve the "critical path network and rate of expenditure to be undertaken by
PHESCO.
 - The manning schedule and pay scale of the workers hired by PHESCO were subject to
confirmation by NPC.
- If PHESCO enters into any sub- contract or lease, again NPC's concurrence is needed.
- Even in the procurement of tools and equipment that will be used by PHESCO, NPC's favorable
recommendation is still necessary before these tools and equipment can be purchased.
- It is NPC that will provide the money or funding that will be used by PHESCO to undertake the
project.
- PHESCO’s project (construction of power energy facilities) is related to NPC's principal
business of power generation.
6. In sum, NPC's control over PHESCO in matters concerning the performance of the latter's work
is evident​. It is enough that NPC has the right to wield such power to be considered as the employer.
7. PHESCO, as the labor only contractor of NPC, can only be considered as an agent.
8. In labor-only contracting, an ​employer-employee relationship between the principal employer and
the employees of the "labor-only" contractor is created​. Accordingly, the ​principal employer is
responsible to the employees of the "labor only" contractor as if such employees had been
directly employed by the principal employer​.
9. As applied: the driver ​should be considered ​as an ​employee of NPC​. Any person (the principal
employer) who enters into an agreement with a job contractor, either for the performance of a specified
work or for the supply of manpower, ​assumes responsibility over the employees​ of the latter.
10. NPC argues that even if a labor only contract exists, its liability will not extend to third persons who are
injured due to the tortious acts of the employee of PHESCO. ​Liability only extends to Labor Code
violations and not quasi-delicts​.
11. They cite Sec. 9b, Rule VII, Book III of the Omnibus Rules Implementing the Labor Code and argues
that its liability is limited only to compliance with the substantive labor provisions on working conditions,
rest periods, and wages and shall not extend to liabilities suffered by third parties.
12. SC says it is wrong. Civil Code (not LC) is the applicable law as it is for recovery of damages based on
QD.
13. Article 2180 of the Civil Code and not the Labor Code will determine the liability of NPC in a civil suit
for damages instituted by an injured person for any negligent act of the employees of the "labor only"
contractor.
14. This is consistent with the ruling that a finding that a contractor was a "labor-only" contractor is
equivalent to a finding that an employer-employee relationship existed between the owner (principal
contractor) and the "labor-only" contractor, including the latter's workers.
15. As applied: NPC's liability is direct, primary and solidary with PHESCO and the driver. Of course, NPC,
if the judgment for damages is satisfied by it, shall have recourse against PHESCO and the driver who
committed the negligence which gave rise to the action.
16. They could have also raised the defense of due diligence in selection or supervision by PHESCO even
if they didn’t believe the driver was their employee. By not using it, they lost the right to argue so on
appeal.

Ruling: AFFIRMED without prejudice to the right of NPC to demand from PHESCO and Ilumba reimbursement
of the damages it would be adjudged to pay to complainants.

Relevant Provisions:
NCC 2180 "Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any business or
industry."