The Court of Appeals has reversed the decision rendered by the Department of Labor and Employment, which found Meralco’s engineering and construction company along with Philippine Long Distance Telephone Company guilty of illegal labor-only contracting activities.
In an 18-page decision, the CA’s Seventeenth Division through Associate Justice Luisa Quijano-Padilla granted the petition filed by Meralco Industrial Engineering Services Corp., a domestic corporation engaged in the business of providing engineering and construction support and facilities management services, seeking the reversal of the Jan. 10, 2018 and April 24, 2018 resolutions of Labor Secretary Silvestre Bello III.
Bello had affirmed the findings of the regional director of DOLE that MIESCOR and PLDT were engaged in labor-only contractor activities and ordering them to pay 279 workers the total amount of P2.36 million, representing payment for service incentive leave conversion and refund deductions for tools and uniform.
The Labor chief also sustained the ruling of the regional director, which held that the workers of MIESCOR deployed in PLDT are deemed regular employees of the latter from the time of their engagement.
Consequently, the labor department held that MIESCOR’s workers should be included in PLDT’s payroll of regular employees and be paid of the benefits enjoyed by regular employees.
Prior to the controversy, PLDT entered into several agreements with MIESCOR for the installation of line works and splicing works, construction of manholes and other related engineering and civil works.
The two companies also entered into an agreement for work customer line installation, repair, rehabilitation and maintenance activities of PLDT’s cable and line networks.
In May 2016, several labor law compliance officers conducted a special assessment and visit of the establishments at various PLDT branches where several violations were noted, including the prohibition on labor-only contracting scheme.
However, the appellate court held that the DOLE erred in finding that MIESCOR and PLDT were engaged in labor-only contracting activities.
The CA noted that the prohibition of engaging in labor-only contracting is found in Section 6 of Department Order (DO) 18-A Series of 2011.
The said provision states that labor-only contracting refers to an arrangement where the contractor does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others; and the contractor does not exercise the right of control over the performance of the work of the employees.
But, in 2017, the DOLE issued DO 174 which provides for a stricter rules in the regulation of contracting and subcontracting through an in-house cooperative which merely supplies workers to the principal; requiring the contractor’s or subcontractor’s employees to perform functions which are currently being performed by the regular employees of the principal; and other schemes designed to violate the right of workers to security of tenure.
In ruling against DOLE, the CA ruled that the DOLE erred in holding that labor-only contracting scheme exists between MIESCOR and PLDT considering that the former’s employees are performing the same functions as the latter’s regular employees.
The appellate court noted that Article 106 of Labor Code allows contracting arrangements for the performance of specific jobs, works or services and did not qualify as to the kind of work that may be contracted out.
“Since DO 174 is a mere administrative issuance that implements the said provision, the same must not also create any distinction that will have the effect of broadening or amending the legislative intent,” it said.
The CA also ruled that the DOLE erred in zeroing on the alleged lack of power of control by MIESCOR over its employees despite that there are other indicators of labor-only contracting scheme under DO 18-A or DO 174.
“It is clear therefore that the power of control is only one of the two indicators that labor-only contracting exists, while the other is lack of substantial capital or investment, etc., which, unfortunately, in the case of MIESCOR was simply glossed over by the Regional Director,” the CA ruled.
The appellate court also held that since MIESCOR is an engineering and construction company duly accredited by the Philippine Contractors Accreditation Board (PCAB), any allegations of violation of labor or occupational health and safety standards against it should be coordinated with agency for action, which may include cancellation or suspension of its license.
