Distributor Guidelines to Increase Sales and Maximize Profits cannot be considered as Labor-Only Contracting
Nestle Philippines, Inc. (NPI) engaged Ocho De Septiembre, Inc. (ODSI) as its distributor.
Complainants alleged that on various dates, ODSI and NPI hired them to sell various NPI products in the assigned covered area. After some time, respondents demanded that they be considered regular employees of NPI, but they were directed to sign contracts of employment with ODSI instead. When complainants refused to comply with such directives, NPI and ODSI terminated them from their position.
Thus, complainants were constrained to file the complaint, claiming that: (a) ODSI is a labor-only contractor and, thus, they should be deemed regular employees of NPI; and (b) there was no just or authorized cause for their dismissal.
The Court of Appeals held that there was labor-only contracting as NPI had control over the complainants. The reasoning of the Court of Appeals states that (a) NPI shall offer to ODSI suggestions and recommendations to improve sales and to further develop the market; (b) NPI prohibits ODSI from exporting its products (the No-Export provision); (c) NPI provided standard requirements to ODSI for the warehousing and inventory management of the sold goods; and ( d) prohibition imposed on ODSI to sell any other products that directly compete with those of NPI.
The Supreme Court however, disagreed holding that the Distributorship Agreement reveals that the relationship of NPI and ODSI is not that of a principal and a contractor (regardless of whether labor-only or independent), but that of a seller and a buyer/re-seller.
Learn How To Avoid Labor-Only Contracting
As stipulated in the Distributorship Agreement, NPI agreed to sell its products to ODSI at discounted prices, which in turn will be re-sold to identified customers, ensuring in the process the integrity and quality of the said products based on the standards agreed upon by the parties.
As aptly explained by NPI, the goods it manufactures are distributed to the market through various distributors, e.g., ODSI, that in turn, re-sell the same to designated outlets through its own employees such as the respondents. Therefore, the reselling activities allegedly performed by the respondents properly pertain to ODSI, whose principal business consists of the “buying, selling, distributing, and marketing goods and commodities of every kind” and “[entering] into all kinds of contracts for the acquisition of such goods [and commodities].”
The stipulations in the Distributorship Agreement hardly demonstrate control on the part of NPI over the means and methods by which ODSI performs its business, nor were they intended to dictate how ODSI shall conduct its business as a distributor. Otherwise stated, the stipulations in the Distributorship Agreement do not operate to control or fix the methodology on how ODSI should do its business as a distributor of NPI products, but merely provide rules of conduct or guidelines towards the achievement of a mutually desired result -which in this case is the sale of NPI products to the end consumer.
Related: Labor-Only Contracting
Citing the case of Steelcase, Inc. vs. Design International Selections, Inc. [686 Phil. 59 (2012)], the Court said that the imposition of minimum standards concerning sales, marketing, finance and operations is nothing more than an exercise of sound business practice to increase sales and maximize profits for the benefit of both company and its distributors. For as long as these requirements do not impinge on a distributor’s independence, then there is nothing wrong with placing reasonable expectations on them.
(Nestle Philippines, Inc. vs. Puedan, et al., G.R. No. 220617, January 30, 2017)
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