What is Control in Contracting and Subcontracting?

What is Control?
in Contracting and Subcontracting
April 22, 2017
JDP Consulting
Faster Legal Solutions
Atty. Jericho B. Del Puerto
SME Business and Labor Lawyer

NOTICE
The following slides are for general
information purposes only.
They are not to be taken as legal
advice or opinion.
It is recommended that a legal
professional be consulted for
specific concerns.
All opinions herein are our own.
General Information Only
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The one who controls is the employer.
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DOLE D.O. 174-17
There is labor-only contracting if the Contractor does not exercise the right to
control over the performance of the work of the employee.
Consequences are severe for the Principal in labor-only contracting:
1. Principal is deemed as the employer.
2. Principal is solidarily liable for monetary claims of contractor’s employees.
3. Principal may be held liable for illegal dismissal (full backwages,
reinstatement, etc.)
*Reason for No. 3: Principal is deeemed the employer. (See Coca-Cola case)
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When there IS control...
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Coca-Cola Bottlers Phils. Inc. v. Agito
The Service Agreement between the Principal and the Contractor reads in part:
3. It is agreed and understood that the CONTRACTOR’S personnel will comply with
CLIENT, CLIENT’S policies, rules and regulations and will be subjected on-the-spot
search by CLIENT, CLIENT’S duly authorized guards or security men on duty every
time the assigned personnel enter and leave the premises during the entire duration
of this agreement.
4. The CONTRACTOR further warrants to make available at times relievers and/or replacements to
ensure continuous and uninterrupted service as in the case of absences of any personnel above
mentioned, and to exercise the necessary and due supervision over the work of its personnel.
G.R. No. 179546, 13 February 2009
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Paragraph 3 of the Contract specified that [the Contractor’s employees] would comply with
"CLIENT" as well as "CLIENT’s policies, rules and regulations." It even required [the
Contractor’s employees] to subject themselves to on-the-spot searches by [the Principal]
or its duly authorized guards or security men on duty every time the said personnel
entered and left the premises of [the Principal]. Said paragraph explicitly established
the control of [the Principal] over the conduct of [the Contractor’s employees].
G.R. No. 179546, 13 February 2009
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Although under paragraph 4 of the same Contract, [the Contractor] warranted that it
would exercise the necessary and due supervision of the work of its personnel, there is
a dearth of evidence to demonstrate the extent or degree of supervision
exercised by [the Contractor] over [its employees] or the manner in which
it was actually exercised. There is even no showing that [the Contractor]
had representatives who supervised respondents’ work while they were in
the premises of [the Principal].
G.R. No. 179546, 13 February 2009
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Also significant was the right of [the Principal] under paragraph 2 of the Contract to
"request the replacement of the CONTRACTOR’S personnel." True, this right was
conveniently qualified by the phrase "if from its judgment, the jobs or the projects being
done could not be completed within the time specified or that the quality of the desired
result is not being achieved," but such qualification was rendered meaningless by the
fact that the Contract did not stipulate what work or job the personnel needed to
complete, the time for its completion, or the results desired. The said provision left a
gap which could enable [the Principal] to demand the removal or replacement of any
employee in the guise of his or her inability to complete a project in time or to deliver
the desired result. The power to recommend penalties or dismiss workers is
the strongest indication of a company’s right of control as direct employer.
G.R. No. 179546, 13 February 2009
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Paragraph 4 of the same Contract, in which Interserve warranted to petitioner that the
former would provide relievers and replacements in case of absences of its personnel,
raises another red flag. An independent job contractor, who is answerable to
the principal only for the results of a certain work, job, or service need not
guarantee to said principal the daily attendance of the workers assigned to
the latter. An independent job contractor would surely have the discretion over the
pace at which the work is performed, the number of employees required to complete the
same, and the work schedule which its employees need to follow.
G.R. No. 179546, 13 February 2009
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… the Contract of Services between [the Contractor] and [the Principal] did not identify the work
needed to be performed and the final result required to be accomplished. Instead, the Contract
specified the type of workers [the Contractor] must provide [the Principal] ("Route Helpers,
Salesmen, Drivers, Clericals, Encoders & PD") and their qualifications (technical/vocational course
graduates, physically fit, of good moral character, and have not been convicted of any crime). The
Contract also states that, "to carry out the undertakings specified in the immediately preceding
paragraph, the CONTRACTOR shall employ the necessary personnel," thus, acknowledging that [the
Contractor] did not yet have in its employ the personnel needed by [the Principal] and would still
pick out such personnel based on the criteria provided by [the Principal]. In other words, [the
Contractor] did not obligate itself to perform an identifiable job, work, or service for [the Prinicpal],
but merely bound itself to provide the latter with specific types of employees. These contractual
provisions strongly indicated that [the Contractor] was merely a recruiting and
manpower agency providing [the Principal] with workers performing tasks directly
related to the latter’s principal business.
G.R. No. 179546, 13 February 2009
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With the finding that [the Contractor] was engaged in prohibited labor-only
contracting, [the Principal] shall be deemed the true employer of [the
Contractor’s employees]. As regular employees of [the Principal], [the employees]
cannot be dismissed except for just or authorized causes, none of which were alleged or
proven to exist in this case, the only defense of petitioner against the charge of illegal
dismissal being that [the employees] were not its employees. Records also failed to
show that [the Principal] afforded [the employees] the twin requirements of procedural
due process, i.e., notice and hearing, prior to their dismissal. [The employees] were not
served notices informing them of the particular acts for which their dismissal was
sought. Nor were they required to give their side regarding the charges made against
them. Certainly, the [employees’] dismissal was not carried out in
accordance with law and, therefore, illegal.
G.R. No. 179546, 13 February 2009
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... [the Principal] exercised disciplinary authority over [the employee] and
that [the Contractor] issued the order of dismissal merely in obedience to
the decision of [the Principal].
x x x
[The Contractor] is, therefore, a labor-only contractor and [the employee] is not its
employee [but that of the Principal].
Philippine Fuji Xerox Corp. v. PKNP-TUCP
G.R. No. 111501, 05 March 1996
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In deciding the question of control, the language of the contract is not determinative of the parties'
relationship; rather, it is the totality of the facts and surrounding circumstances of each case.
Despite [the Principal’s] disclaimer, there are [indications] that it actively supervised
[the employees]. [The Principal] maintained a constant presence in the workplace
through its own checkers. Its asseveration that the checkers were there only to check the end
result was belied by the testimony of Carlito R. Singson, head of the Mandaue Container Service of
[the Principal], that the checkers were also tasked to report on the identity of the workers whose
performance or quality of work was not according to the rules and standards set by [the Principal].
According to Singson, "it (was) necessary to identify the names of those concerned so that the
management [referring to (the Contractor)] could call the attention to make these people improve
the quality of work."
San Miguel Corporation v. MAERC ISI
G.R. No. 144672, 10 July 2003
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… the [Contractor’s] organizational set-up in the bottle segregation project was such that the
segregators/cleaners were supervised by checkers and each checker was also under a supervisor who
was in turn under a field supervisor, the responsibility of watching over the [the Contractor’s
employees] by [ its personnel] became superfluous with the presence of additional checkers from
[the Principal].
Reinforcing the belief that [the Principal] exerted control over the work performed by the
segregators or cleaners, albeit through the instrumentality of [the Contractor], were letters by [the
Principal] to the [the Contractor’s] management… More than just a mere written report of
the number of bottles improperly cleaned and/or segregated, the letters named three
(3) workers who were responsible for the rejection of several bottles, specified the
infraction committed in the segregation and cleaning, then recommended the penalty
to be imposed. Evidently, these workers were reported by the [the Principal’s] checkers to the [the
Principal’s] inspector.
G.R. No. 144672, 10 July 2003
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… these [letters] were manifestations of the right of [the Principal] to recommend
disciplinary measures over [the Contractor's] employees. Although calling the attention of
its contractors as to the quality of their services may reasonably be done by SMC, there appears to be
no need to instruct [the Contractor] as to what disciplinary measures should be imposed on the
specific workers who were responsible for rejections of bottles. This conduct by [the Principal's]
representatives went beyond a mere reminder with respect to the improperly cleaned/segregated
bottles or a genuine concern in the outcome of the job contracted by [the Contractor].
Control of the premises in which the contractor's work was performed was also
viewed as another phase of control over the work, and this strongly tended to disprove
the independence of the contractor. In the case at bar, the bulk of the [the Contractor's]
segregation activities was accomplished at the [the Contractor]-owned PHILPHOS warehouse but
the building along with the machinery and equipment in the facility was actually being rented by
[the Principal].
G.R. No. 144672, 10 July 2003
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Other instances attesting to [the Principal's] supervision of the workers are found in the minutes of
the meeting held by the [the Principal's] officers on 5 December 1988. Among those matters
discussed were the calling of [the Principal's] contractors to have workers assigned to
segregation to undergo and pass eye examination to be done by [the Principal's] EENT
company doctor and a review of compensation/incentive system for segregators to
improve the segregation activities.
But the most telling evidence is a letter by Mr. Antonio Ouano, Vice-President of [the Contractor]
dated 27 May 1991 addressed to Francisco Eizmendi, SMC President and Chief Executive Officer,
asking the latter to reconsider the phasing out of [the Principal's] segregation
activities in Mandaue City. The letter was not denied but in fact used by [the Principal] to advance
its own arguments.
G.R. No. 144672, 10 July 2003
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Briefly, the letter exposed the actual state of affairs under which [the Contractor] was formed and
engaged to handle the segregation project of [the Principal]. It provided an account of how in
1987 Eizmendi approached the would-be incorporators of [the Contractor] and
offered them the business of servicing the [the Principal's] bottle-washing and
segregation department in order to avert an impending labor strike. After initial
reservations, [the Contractor's] incorporators accepted the offer and before long trial segregation
was conducted by [the Principal] at the PHILPHOS warehouse.
The letter also set out the circumstances under which [the Contractor] entered into the Contract of
Services in 1988 with the assurances of the [the Principal's] President and CEO that the employment
of [the Contractor's] services would be long term to enable it to recover its investments. It was with
this understanding that [the Contractor] undertook borrowings from banking
institutions and from affiliate corporations so that it could comply with the demands
of [the Principal] to invest in machinery and facilities.
G.R. No. 144672, 10 July 2003
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... [the Principal] exercised control over the [the Cooperatives] members, including [the employees].
[The Principal] attempts to refute control by alleging the presence of [a Cooperative] supervisor in
the work premises. Yet, the mere presence within the premises of a supervisor from the cooperative
did not necessarily mean that CAMPCO had control over its members.. As alleged by the
[employees], and unrebutted by [the Principal], [the Cooperative] members, before working
for [the Principal], had to undergo instructions and pass the training provided by [the
Principal's] personnel. It was [the Principal] who determined and prepared the work
assignments of [the Cooperative] members. [The Cooperative] members worked
within [the Principal's] plantation and processing plants alongside regular employees
performing identical jobs, a circumstance recognized as an indicium of a labor-only
contractorship.
DOLE Philippines, Inc. v. Esteva
G.R. No. 161115, 30 November 2006
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The fourth and most important requirement in ascertaining the presence of employer-employee
relationship is the power of control. The power of control refers to the authority of the employer to
control the employee not only with regard to the result of work to be done but also to the means and
methods by which the work is to be accomplished. It should be borne in mind, that the "control test"
calls merely for the existence of the right to control the manner of doing the work, and not
necessarily to the actual exercise of the right... [The Principal] already admitted that it
exercised control and supervision over [the employee].[ [The Principal], however, raises
the defense that the power of control was jointly exercised with [the Contractor]. The Labor Arbiter,
on the other hand, found that [the employee] was under the direct control and supervision of the
personnel of [the Principal] and not [the Contractor]. We are inclined to believe the findings of the
Labor Arbiter which is supported not only by the admission of [the Contractor] but also by the
evidence on record. Besides, to our mind, the admission of [the Principal] that it exercised control
and supervision over [the employee], the same being a declaration against interest, is sufficient
enough to prove that the power of control truly exists.
Vinoya v. Regent Food Corporation
G.R. No. 126586, 02 February 2000
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When there is NO control...

… under the "right of control" test [the employees] must still be considered employees of [the
Contractor]. In the case of petitioner Neri, it is admitted that FEBTC issued a job description which
detailed her functions as a radio/telex operator. However, a cursory reading of the job description
shows that what was sought to be controlled by FEBTC was actually the end-result of the task,
e.g., that the daily incoming and outgoing telegraphic transfer of funds received and relayed by her,
respectively, tallies with that of the register. The guidelines were laid down merely to ensure
that the desired end-result was achieved. It did not, however, tell Neri how the
radio/telex machine should be operated.
Neri v. Far East Bank & Trust Company
G.R. No. 970008-09, 23 July 1993
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We [the Supreme Court] likewise found nothing in the records which would indicate that [the
Contractor’s employees] were under the control of [the Principal] in respect of the means and
methods they employed in the performance of their work, to be considered as the employees of the
latter. On the contrary, it is sufficiently established that [the Contractor] exercised supervision and
control over its labor force. If in the course of [the Contractor’s employees’] work, [the
Principal] occasionally issued instructions to them, that alone does not in the least
detract from the fact that only [the Contractor] is the employer of [the Contractor’s
employees], for in legal contemplation, such instruction carry no more weight than
mere requests, the privity of contract being between [the Principal] and [the Contractor], not
between the [the Principal] and the [the Contractor’s employees]. Corollarily, such giving of
instruction inevitably spring from [the Principal’s] right predicated on the "Contract for Services"
entered into by it with [the Contractor].
Shipside, Incorporated v. Abejon
G.R. No. L-50358, 02 November 1982
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As to the... power to control the employee’s conduct, and the fourth requisite regarding the power of
dismissal, again [the Principal] did not have the power to control [the Contractor's employees] with
respect to the means and methods by which their work was to be accomplished. It likewise had no
power of dismissal over [them]. All that [the Principal] could do was to report to [the Contractor]
any untoward act, negligence, misconduct or malfeasance of any employee assigned to the premises.
The contract of services between [the Principal] and [the Contractor] is noteworthy. It states:
[The Contractor] shall have the entire charge, control and supervision over all its employees who may be fielded to [the Principal].
For this purpose, [the Contractor] shall assign a regular supervisor of its employees who may be fielded to the Bank and which
regular supervisor shall exclusively supervise and control the activities and functions defined in Section 1 hereof...
All these circumstances establish that [the Contractor] undertook said contract on its account,
under its own responsibility, according to its own manner and method, and free from the control
and direction of [the Principal]. Where the control of the principal is limited only to the result of the
work, independent job contracting exists...
Sasan v. Equitable PCI Bank
G.R. No. 176240, 17 October 2008
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A legally-compliant framework for legitimate contracting between the Principal
and the Contractor should take into this very important consideration:
The Contractor is a separate business whose primary commitment to the Principal
is to deliver on the desired results - not the people to be assigned.
When the Principal involves itself on the assigned personnel,
that’s when issues on control start to happen.

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A Principal should:
1. Require to the Contractor to provide for control/supervision;
2. Avoid controlling/supervising assigned personnel;
3. Specify clearly the desired results to the Contractor;
4. Allow Contractor to perform work on own manner and method;
5. Avoid time-keeping of assigned personnel;
6. Refrain from participating in the selection of assigned personnel;
7. Avoid disciplinary action over assigned personnel;
8. Avoid requiring Contractor to replace assigned personnel;
9. Avoid requiring assigned personnel to follow its company policies;
10. Terminate Service Agreement for substantial violations/breach by Contractor.

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A Contractor should:
1. Educate the Principal on the concept and consequences of control;
2. Provide for control/supervision over assigned personnel;
3. Be clear with the desired results that the Principal wants from the engagement;
4. Execute the work on its own manner and method, free from Principal’s control;
5. Select and hire exclusively the assigned personnel who will become its employees;
6. Train assigned personnel to follow its instructions only, not that of the Principal;
7. Subject assigned personnel to its own company policies;
8. Prohibit the Principal from requiring replacement;
9. Exercise disciplinary action, including termination;
10. Terminate Service Agreement for substantial violations/breach by Principal.

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These legal solutions should be reflected in the:
Service Agreement
to be legally binding contract between the Principal and the Contractor.

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Contracting can work.
It simply requires the Principal and Contractor to be in good faith.
Remember, both are engaged in legitimate business.
The Principal wants something done (desired results) and will pay for it.
The Contractor will get it done through its employees and get paid.
The Employees of the Contractor will receive what is due to them.

Thank You
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We hope this has been informative.
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www.laborlaw.ph
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