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III.

Labor Standards (Book III) Cases


G.R. No. 173648 January 16, 20121 ABDULJUAHID R. PIGCAULAN, * Petitioner, vs. SECURITY and CREDIT NVESTIGATION, INC. and/or RENE AMBY REYES, Respondents. DECISION DEL CASTILLO, J.:

It is not for an employee to prove non-payment of benefits to which he is entitled by law. Rather, it is on the employer that the burden of proving payment of these claims rests. This Petition for Review on Certiorari1 assails the February 24, 2006 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 85515, which granted the petition for certiorari filed therewith, set aside the March 23, 2004 3 and June 14, 20044 Resolutions of the National Labor Relations Commission (NLRC), and dismissed the complaint filed by Oliver R. Canoy (Canoy) and petitioner Abduljuahid R. Pigcaulan (Pigcaulan) against respondent Security and Credit Investigation, Inc. (SCII) and its General Manager, respondent Rene Amby Reyes. Likewise assailed is the June 28, 2006 Resolution5 denying Canoys and Pigcaulans Motion for Reconsideration.6 Factual Antecedents Canoy and Pigcaulan were both employed by SCII as security guards and were assigned to SCIIs different clients. Subsequently, however, Canoy and Pigcaulan filed with the Labor Arbiter separate complaints7 for underpayment of salaries and non-payment of overtime, holiday, rest day, service incentive leave and 13th month pays. These complaints were later on consolidated as they involved the same causes of action. Canoy and Pigcaulan, in support of their claim, submitted their respective daily time records reflecting the number of hours served and their wages for the same. They likewise presented itemized lists of their claims for the corresponding periods served. Respondents, however, maintained that Canoy and Pigcaulan were paid their just salaries and other benefits under the law; that the salaries they received were above the statutory minimum wage and the rates provided by the Philippine Association of Detective and Protective Agency Operators (PADPAO) for security guards; that their holiday pay were already included in the computation of their monthly salaries; that they were paid additional premium of 30% in addition to their basic salary whenever they were required to work on Sundays and 200% of their salary for work done on holidays; and, that Canoy and Pigcaulan were paid the corresponding 13th month pay for the years 1998 and 1999. In support thereof, copies of payroll listings8 and lists of employees who received their 13th month pay for the periods December 1997 to November 1998 and December 1998 to November 19999 were presented. In addition, respondents contended that Canoys and Pigcaulans monetary claims should only be limited to the past three years of employment pursuant to the rule on prescription of claims. Ruling of the Labor Arbiter Giving credence to the itemized computations and representative daily time records submitted by Canoy and Pigcaulan, Labor Arbiter Manuel P. Asuncion awarded them their monetary claims in his Decision 10 dated June 6, 2002. The Labor Arbiter held that the payroll listings presented by the respondents did not prove that Canoy and Pigcaulan were duly paid as same were not signed by the latter or by any SCII officer. The 13th month payroll was, however, acknowledged as sufficient proof of payment, for it bears Canoys and Pigcaulans signatures. Thus, without indicating any detailed computation of the judgment award, the Labor Arbiter ordered the payment of overtime pay, holiday pay, service incentive leave pay and proportionate 13th month pay for the year 2000 in favor of Canoy and Pigcaulan, viz: WHEREFORE, the respondents are hereby ordered to pay the complainants: 1) their salary differentials in the amount of P166,849.60 for Oliver Canoy and P121,765.44 for Abduljuahid Pigcaulan; 2) the sum of P3,075.20 for Canoy and P2,449.71 for Pigcaulan for service incentive leave pay and; [3]) the sum of P1,481.85 for Canoy andP1,065.35 for Pigcaulan as proportionate 13th month pay for the year 2000. The rest of the claims are dismissed for lack of sufficient basis to make an award.
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SO ORDERED.11 Ruling of the National Labor Relations Commission Respondents appealed to the NLRC. They alleged that there was no basis for the awards made because aside from the self-serving itemized computations, no representative daily time record was presented by Canoy and Pigcaulan. On the contrary, respondents asserted that the payroll listings they submitted should have been given more probative value. To strengthen their cause, they attached to their Memorandum on Appeal payrolls12 bearing the individual signatures of Canoy and Pigcaulan to show that the latter have received their salaries, as well as copies of transmittal letters13 to the bank to show that the salaries reflected in the payrolls were directly deposited to the ATM accounts of SCIIs employees. The NLRC, however, in a Resolution14 dated March 23, 2004, dismissed the appeal and held that the evidence show underpayment of salaries as well as non-payment of service incentive leave benefit. Accordingly, the Labor Arbiters Decision was sustained. The motion for reconsideration thereto was likewise dismissed by the NLRC in a Resolution15 dated June 14, 2004. Ruling of the Court of Appeals In respondents petition for certiorari with prayer for the issuance of a temporary restraining order and preliminary injunction16 before the CA, they attributed grave abuse of discretion on the part of the NLRC in finding that Canoy and Pigcaulan are entitled to salary differentials, service incentive leave pay and proportionate 13th month pay and in arriving at amounts without providing sufficient bases therefor. The CA, in its Decision17 dated February 24, 2006, set aside the rulings of both the Labor Arbiter and the NLRC after noting that there were no factual and legal bases mentioned in the questioned rulings to support the conclusions made. Consequently, it dismissed all the monetary claims of Canoy and Pigcaulan on the following rationale: First. The Labor Arbiter disregarded the NLRC rule that, in cases involving money awards and at all events, as far as practicable, the decision shall embody the detailed and full amount awarded. Second. The Labor Arbiter found that the payrolls submitted by SCII have no probative value for being unsigned by Canoy, when, in fact, said payrolls, particularly the payrolls from 1998 to 1999 indicate the individual signatures of Canoy. Third. The Labor Arbiter did not state in his decision the substance of the evidence adduced by Pigcaulan and Canoy as well as the laws or jurisprudence that would show that the two are indeed entitled to the salary differential and incentive leave pays. Fourth. The Labor Arbiter held Reyes liable together with SCII for the payment of the claimed salaries and benefits despite the absence of proof that Reyes deliberately or maliciously designed to evade SCIIs alleged financial obligation; hence the Labor Arbiter ignored that SCII has a corporate personality separate and distinct from Reyes. To justify solidary liability, there must be an allegation and showing that the officers of the corporation deliberately or maliciously designed to evade the financial obligation of the corporation.18 Canoy and Pigcaulan filed a Motion for Reconsideration, but same was denied by the CA in a Resolution 19 dated June 28, 2006. Hence, the present Petition for Review on Certiorari. Issues The petition ascribes upon the CA the following errors:

I. The Honorable Court of Appeals erred when it dismissed the complaint on mere alleged failure of the Labor Arbiter and the NLRC to observe the prescribed form of decision, instead of remanding the case for reformation of the decision to include the desired detailed computation. II. The Honorable Court of Appeals erred when it [made] complainants suffer the consequences of the alleged non-observance by the Labor Arbiter and NLRC of the prescribed forms of decisions considering that they have complied with all needful acts required to support their claims. III. The Honorable Court of Appeals erred when it dismissed the complaint allegedly due to absence of legal and factual [bases] despite attendance of substantial evidence in the records.20 It is well to note that while the caption of the petition reflects both the names of Canoy and Pigcaulan as petitioners, it appears from its body that it is being filed solely by Pigcaulan. In fact, the Verification and Certification of Non-Forum Shopping was executed by Pigcaulan alone. In his Petition, Pigcaulan submits that the Labor Arbiter and the NLRC are not strictly bound by the rules. And even so, the rules do not mandate that a detailed computation of how the amount awarded was arrived at should be embodied in the decision. Instead, a statement of the nature or a description of the amount awarded and the specific figure of the same will suffice. Besides, his and Canoys claims were supported by substantial evidence in the form of the handwritten detailed computations which the Labor Arbiter termed as "representative daily time records," showing that they were not properly compensated for work rendered. Thus, the CA should have remanded the case instead of outrightly dismissing it. In their Comment,21 respondents point out that since it was only Pigcaulan who filed the petition, the CA Decision has already become final and binding upon Canoy. As to Pigcaulans arguments, respondents submit that they were able to present sufficient evidence to prove payment of just salaries and benefits, which bits of evidence were unfortunately ignored by the Labor Arbiter and the NLRC. Fittingly, the CA reconsidered these pieces of evidence and properly appreciated them. Hence, it was correct in dismissing the claims for failure of Canoy and Pigcaulan to discharge their burden to disprove payment. Pigcaulan, this time joined by Canoy, asserts in his Reply 22 that his filing of the present petition redounds likewise to Canoys benefit since their complaints were consolidated below. As such, they maintain that any kind of disposition made in favor or against either of them would inevitably apply to the other. Hence, the institution of the petition solely by Pigcaulan does not render the assailed Decision final as to Canoy. Nonetheless, in said reply they appended Canoys affidavit23 where he verified under oath the contents and allegations of the petition filed by Pigcaulan and also attested to the authenticity of its annexes. Canoy, however, failed to certify that he had not filed any action or claim in another court or tribunal involving the same issues. He likewise explains in said affidavit that his absence during the preparation and filing of the petition was caused by severe financial distress and his failure to inform anyone of his whereabouts. Our Ruling The assailed CA Decision is considered final as to Canoy. We have examined the petition and find that same was filed by Pigcaulan solely on his own behalf. This is very clear from the petitions prefatory which is phrased as follows: COMES NOW Petitioner Abduljuahid R. Pigcaulan, by counsel, unto this Honorable Court x x x. (Emphasis supplied.) Also, under the heading "Parties", only Pigcaulan is mentioned as petitioner and consistent with this, the body of the petition refers only to a "petitioner" and never in its plural form "petitioners". Aside from the fact that the Verification and Certification of Non-Forum Shopping attached to the petition was executed by Pigcaulan alone, it was plainly and particularly indicated under the name of the lawyer who prepared the same, Atty. Josefel P. Grageda, that he is the "Counsel for Petitioner Adbuljuahid Pigcaulan" only. In view of these, there is therefore, no doubt, that the petition was brought only on behalf of Pigcaulan. Since no appeal from the CA Decision was brought by Canoy, same has already become final and executory as to him.

Canoy cannot now simply incorporate in his affidavit a verification of the contents and allegations of the petition as he is not one of the petitioners therein. Suffice it to state that it would have been different had the said petition been filed in behalf of both Canoy and Pigcaulan. In such a case, subsequent submission of a verification may be allowed as noncompliance therewith or a defect therein does not necessarily render the pleading, or the petition as in this case, fatally defective.24 "The court may order its submission or correction, or act on the pleading if the attending circumstances are such that strict compliance with the Rule may be dispensed with in order that the ends of justice may be served thereby. Further, a verification is deemed substantially complied with when one who has ample knowledge to swear to the truth of the allegations in the complaint or petition signs the verification, and when matters alleged in the petition have been made in good faith or are true and correct." 25 However, even if it were so, we note that Canoy still failed to submit or at least incorporate in his affidavit a certificate of non-forum shopping. The filing of a certificate of non-forum shopping is mandatory so much so that non-compliance could only be tolerated by special circumstances and compelling reasons.26 This Court has held that when there are several petitioners, all of them must execute and sign the certification against forum shopping; otherwise, those who did not sign will be dropped as parties to the case.27 True, we held that in some cases, execution by only one of the petitioners on behalf of the other petitioners constitutes substantial compliance with the rule on the filing of a certificate of non-forum shopping on the ground of common interest or common cause of action or defense.28 We, however, find that common interest is not present in the instant petition. To recall, Canoys and Pigcaulans complaints were consolidated because they both sought the same reliefs against the same respondents. This does not, however, mean that they share a common interest or defense. The evidence required to substantiate their claims may not be the same. A particular evidence which could sustain Canoys action may not effectively serve as sufficient to support Pigcaulans claim. Besides, assuming that the petition is also filed on his behalf, Canoy failed to show any reasonable cause for his failure to join Pigcaulan to personally sign the Certification of Non-Forum Shopping. It is his duty, as a litigant, to be prudent in pursuing his claims against SCII, especially so, if he was indeed suffering from financial distress. However, Canoy failed to advance any justifiable reason why he did not inform anyone of his whereabouts when he knows that he has a pending case against his former employer. Sadly, his lack of prudence and diligence cannot merit the courts consideration or sympathy. It must be emphasized at this point that procedural rules should not be ignored simply because their nonobservance may result in prejudice to a partys substantial rights. The Rules of Court should be followed except only for the most persuasive of reasons.29 Having declared the present petition as solely filed by Pigcaulan, this Court shall consider the subsequent pleadings, although apparently filed under his and Canoys name, as solely filed by the former. There was no substantial evidence to support the grant of overtime pay. The Labor Arbiter ordered reimbursement of overtime pay, holiday pay, service incentive leave pay and 13th month pay for the year 2000 in favor of Canoy and Pigcaulan. The Labor Arbiter relied heavily on the itemized computations they submitted which he considered as representative daily time records to substantiate the award of salary differentials. The NLRC then sustained the award on the ground that there was substantial evidence of underpayment of salaries and benefits. We find that both the Labor Arbiter and the NLRC erred in this regard. The handwritten itemized computations are selfserving, unreliable and unsubstantial evidence to sustain the grant of salary differentials, particularly overtime pay. Unsigned and unauthenticated as they are, there is no way of verifying the truth of the handwritten entries stated therein. Written only in pieces of paper and solely prepared by Canoy and Pigcaulan, these representative daily time records, as termed by the Labor Arbiter, can hardly be considered as competent evidence to be used as basis to prove that the two were underpaid of their salaries. We find nothing in the records which could substantially support Pigcaulans contention that he had rendered service beyond eight hours to entitle him to overtime pay and during Sundays to entitle him to restday pay. Hence, in the absence of any concrete proof that additional service beyond the normal working hours and days had indeed been rendered, we cannot affirm the grant of overtime pay to Pigcaulan. Pigcaulan is entitled to holiday pay, service incentive leave pay and proportionate 13th month pay for year 2000. However, with respect to the award for holiday pay, service incentive leave pay and 13th month pay, we affirm and rule that Pigcaulan is entitled to these benefits.

Article 94 of the Labor Code provides that: ART. 94. RIGHT TO HOLIDAY PAY. (a) Every worker shall be paid his regular daily wage during regular holidays, except in retail and service establishments regularly employing less than ten (10) workers; xxxx While Article 95 of the Labor Code provides: ART. 95. RIGHT TO SERVICE INCENTIVE LEAVE. (a) Every employee who has rendered at least one year of service shall be entitled to a yearly service incentive of five days with pay. xxxx Under the Labor Code, Pigcaulan is entitled to his regular rate on holidays even if he does not work. 30 Likewise, express provision of the law entitles him to service incentive leave benefit for he rendered service for more than a year already. Furthermore, under Presidential Decree No. 851,31 he should be paid his 13th month pay. As employer, SCII has the burden of proving that it has paid these benefits to its employees.32 SCII presented payroll listings and transmittal letters to the bank to show that Canoy and Pigcaulan received their salaries as well as benefits which it claimed are already integrated in the employees monthly salaries. However, the documents presented do not prove SCIIs allegation. SCII failed to show any other concrete proof by means of records, pertinent files or similar documents reflecting that the specific claims have been paid. With respect to 13th month pay, SCII presented proof that this benefit was paid but only for the years 1998 and 1999. To repeat, the burden of proving payment of these monetary claims rests on SCII, being the employer. It is a rule that one who pleads payment has the burden of proving it. "Even when the plaintiff alleges non-payment, still the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment." 33Since SCII failed to provide convincing proof that it has already settled the claims, Pigcaulan should be paid his holiday pay, service incentive leave benefits and proportionate 13th month pay for the year 2000. The CA erred in dismissing the claims instead of remanding the case to the Labor Arbiter for a detailed computation of the judgment award. Indeed, the Labor Arbiter failed to provide sufficient basis for the monetary awards granted. Such failure, however, should not result in prejudice to the substantial rights of the party. While we disallow the grant of overtime pay and restday pay in favor of Pigcaulan, he is nevertheless entitled, as a matter of right, to his holiday pay, service incentive leave pay and 13th month pay for year 2000. Hence, the CA is not correct in dismissing Pigcaulans claims in its entirety. Consistent with the rule that all money claims arising from an employer-employee relationship shall be filed within three years from the time the cause of action accrued, 34 Pigcaulan can only demand the amounts due him for the period within three years preceding the filing of the complaint in 2000. Furthermore, since the records are insufficient to use as bases to properly compute Pigcaulans claims, the case should be remanded to the Labor Arbiter for a detailed computation of the monetary benefits due to him. WHEREFORE, the petition is GRANTED. The Decision dated February 24, 2006 and Resolution dated June 28, 2006 of the Court of Appeals in CA-G.R. SP No. 85515 are REVERSED and SET ASIDE. Petitioner Abduljuahid R. Pigcaulan is hereby declared entitled to holiday pay and service incentive leave pay for the years 1997-2000 and proportionate 13th month pay for the year 2000. The case is REMANDED to the Labor Arbiter for further proceedings to determine the exact amount and to make a detailed computation of the monetary benefits due Abduljuahid R. Pigcaulan which Security and Credit Investigation Inc. should pay without delay. SO ORDERED.
MARIANO C. DEL CASTILLO Associate Justice

G.R. No. 151309

October 15, 2008

569 SCRA 1222

BISIG MANGGAGAWA SA TRYCO and/or FRANCISCO SIQUIG, as Union President, JOSELITO LARIO, VIVENCIO B. BARTE, SATURNINO EGERA and SIMPLICIO AYA-AY, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, TRYCO PHARMA CORPORATION, and/or WILFREDO C. RIVERA, respondents. DECISION NACHURA, J.:

This petition seeks a review of the Decision1 of the Court of Appeals (CA) dated July 24, 2001 and Resolution dated December 20, 2001, which affirmed the finding of the National Labor Relations Commission (NLRC) that the petitioners' transfer to another workplace did not amount to a constructive dismissal and an unfair labor practice. The pertinent factual antecedents are as follows: Tryco Pharma Corporation (Tryco) is a manufacturer of veterinary medicines and its principal office is located in Caloocan City. Petitioners Joselito Lario, Vivencio Barte, Saturnino Egera and Simplicio Aya-ay are its regular employees, occupying the positions of helper, shipment helper and factory workers, respectively, assigned to the Production Department. They are members of Bisig Manggagawa sa Tryco (BMT), the exclusive bargaining representative of the rank-and-file employees. Tryco and the petitioners signed separate Memorand[a] of Agreement2 (MOA), providing for a compressed workweek schedule to be implemented in the company effective May 20, 1996. The MOA was entered into pursuant to Department of Labor and Employment Department Order (D.O.) No. 21, Series of 1990, Guidelines on the Implementation of Compressed Workweek. As provided in the MOA, 8:00 a.m. to 6:12 p.m., from Monday to Friday, shall be considered as the regular working hours, and no overtime pay shall be due and payable to the employee for work rendered during those hours. The MOA specifically stated that the employee waives the right to claim overtime pay for work rendered after 5:00 p.m. until 6:12 p.m. from Monday to Friday considering that the compressed workweek schedule is adopted in lieu of the regular workweek schedule which also consists of 46 hours. However, should an employee be permitted or required to work beyond 6:12 p.m., such employee shall be entitled to overtime pay. Tryco informed the Bureau of Working Conditions of the Department of Labor and Employment of the implementation of a compressed workweek in the company.3 In January 1997, BMT and Tryco negotiated for the renewal of their collective bargaining agreement (CBA) but failed to arrive at a new agreement. Meantime, Tryco received the Letter dated March 26, 1997 from the Bureau of Animal Industry of the Department of Agriculture reminding it that its production should be conducted in San Rafael, Bulacan, not in Caloocan City: MR. WILFREDO C. RIVERA President, Tryco Pharma Corporation San Rafael, Bulacan Subject: LTO as VDAP Manufacturer at San Rafael, Bulacan Dear Mr. Rivera: This is to remind you that your License to Operate as Veterinary Drug and Product Manufacturer is addressed at San Rafael, Bulacan, and so, therefore, your production should be done at the above mentioned address only. Further, production of a drug includes propagation, processing, compounding, finishing, filling, repacking, labeling, advertising, storage, distribution or sale of the veterinary drug product. In no instance, therefore, should any of the above be done at your business office at 117 M. Ponce St., EDSA, Caloocan City. Please be guided accordingly. Thank you.
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Very truly yours, (sgd.) EDNA ZENAIDA V. VILLACORTE, D.V.M. Chief, Animal Feeds Standard Division4 Accordingly, Tryco issued a Memorandum5 dated April 7, 1997 which directed petitioner Aya-ay to report to the company's plant site in Bulacan. When petitioner Aya-ay refused to obey, Tryco reiterated the order on April 18, 1997. 6 Subsequently, through a Memorandum7 dated May 9, 1997, Tryco also directed petitioners Egera, Lario and Barte to report to the company's plant site in Bulacan. BMT opposed the transfer of its members to San Rafael, Bulacan, contending that it constitutes unfair labor practice. In protest, BMT declared a strike on May 26, 1997. In August 1997, petitioners filed their separate complaints8 for illegal dismissal, underpayment of wages, nonpayment of overtime pay and service incentive leave, and refusal to bargain against Tryco and its President, Wilfredo C. Rivera. In their Position Paper,9 petitioners alleged that the company acted in bad faith during the CBA negotiations because it sent representatives without authority to bind the company, and this was the reason why the negotiations failed. They added that the management transferred petitioners Lario, Barte, Egera and Aya-ay from Caloocan to San Rafael, Bulacan to paralyze the union. They prayed for the company to pay them their salaries from May 26 to 31, 1997, service incentive leave, and overtime pay, and to implement Wage Order No. 4. In their defense, respondents averred that the petitioners were not dismissed but they refused to comply with the management's directive for them to report to the company's plant in San Rafael, Bulacan. They denied the allegation that they negotiated in bad faith, stating that, in fact, they sent the Executive Vice-President and Legal Counsel as the company's representatives to the CBA negotiations. They claim that the failure to arrive at an agreement was due to the stubbornness of the union panel. Respondents further averred that, long before the start of the negotiations, the company had already been planning to decongest the Caloocan office to comply with the government policy to shift the concentration of manufacturing activities from the metropolis to the countryside. The decision to transfer the company's production activities to San Rafael, Bulacan was precipitated by the letter-reminder of the Bureau of Animal Industry. On February 27, 1998, the Labor Arbiter dismissed the case for lack of merit. 10 The Labor Arbiter held that the transfer of the petitioners would not paralyze or render the union ineffective for the following reasons: (1) complainants are not members of the negotiating panel; and (2) the transfer was made pursuant to the directive of the Department of Agriculture. The Labor Arbiter also denied the money claims, ratiocinating that the nonpayment of wages was justified because the petitioners did not render work from May 26 to 31, 1997; overtime pay is not due because of the compressed workweek agreement between the union and management; and service incentive leave pay cannot be claimed by the complainants because they are already enjoying vacation leave with pay for at least five days. As for the claim of noncompliance with Wage Order No. 4, the Labor Arbiter held that the issue should be left to the grievance machinery or voluntary arbitrator. On October 29, 1999, the NLRC affirmed the Labor Arbiter's Decision, dismissing the case, thus: PREMISES CONSIDERED, the Decision of February 27, 1998 is hereby AFFIRMED and complainants' appeal therefrom DISMISSED for lack of merit. Complainants Joselito Lario, Vivencio Barte, Saturnino Egera and Simplicio Aya-ay are directed to report to work at respondents' San Rafael Plant, Bulacan but without backwages. Respondents are directed to accept the complainants back to work. SO ORDERED.11 On December 22, 1999, the NLRC denied the petitioners' motion for reconsideration for lack of merit.12

Left with no recourse, petitioners filed a petition for certiorari with the CA. On July 24, 2001, the CA dismissed the petition for certiorari and ruled that the transfer order was a management prerogative not amounting to a constructive dismissal or an unfair labor practice. The CA further sustained the enforceability of the MOA, particularly the waiver of overtime pay in light of this Court's rulings upholding a waiver of benefits in exchange of other valuable privileges. The dispositive portion of the said CA decision reads: WHEREFORE, the instant petition is DISMISSED. The Decision of the Labor Arbiter dated February 27, 1998 and the Decision and Resolution of the NLRC promulgated on October 29, 1999 and December 22, 1999, respectively, in NLRC-NCR Case Nos. 08-05715-97, 08-06115-97 and 08-05920-97, are AFFIRMED. SO ORDERED.13 The CA denied the petitioners' motion for reconsideration on December 20, 2001.14 Dissatisfied, petitioners filed this petition for review raising the following issues: -ATHE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE PATENTLY ERRONEOUS RULING OF THE LABOR ARBITER AND THE COMMISSION THAT THERE WAS NO DISMISSAL, MUCH LESS ILLEGAL DISMISSAL, OF THE INDIVIDUAL PETITIONERS. -BTHE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING AND CONCLUDING THAT PRIVATE RESPONDENTS COMMITTED ACTS OF UNFAIR LABOR PRACTICE. -CTHE COURT OF APPEALS ERRED IN NOT FINDING AND CONCLUDING THAT PETITIONERS ARE ENTITLED TO THEIR MONEY CLAIMS AND TO DAMAGES, AS WELL AS LITIGATION COSTS AND ATTORNEY'S FEES.15 The petition has no merit. We have no reason to deviate from the well-entrenched rule that findings of fact of labor officials, who are deemed to have acquired expertise in matters within their respective jurisdiction, are generally accorded not only respect but even finality, and bind us when supported by substantial evidence.16 This is particularly true when the findings of the Labor Arbiter, the NLRC and the CA are in absolute agreement.17 In this case, the Labor Arbiter, the NLRC, and the CA uniformly agreed that the petitioners were not constructively dismissed and that the transfer orders did not amount to an unfair labor practice. But if only to disabuse the minds of the petitioners who have persistently pursued this case on the mistaken belief that the labor tribunals and the appellate court committed grievous errors, this Court will go over the issues raised in this petition. Petitioners mainly contend that the transfer orders amount to a constructive dismissal. They maintain that the letter of the Bureau of Animal Industry is not credible because it is not authenticated; it is only a ploy, solicited by respondents to give them an excuse to effect a massive transfer of employees. They point out that the Caloocan City office is still engaged in production activities until now and respondents even hired new employees to replace them. We do not agree. We refuse to accept the petitioners' wild and reckless imputation that the Bureau of Animal Industry conspired with the respondents just to effect the transfer of the petitioners. There is not an iota of proof to support this outlandish claim. Absent any evidence, the allegation is not only highly irresponsible but is grossly unfair to the government agency concerned. Even as this Court has given litigants and counsel a relatively wide latitude to present arguments in support of

their cause, we will not tolerate outright misrepresentation or baseless accusation. Let this be fair warning to counsel for the petitioners. Furthermore, Tryco's decision to transfer its production activities to San Rafael, Bulacan, regardless of whether it was made pursuant to the letter of the Bureau of Animal Industry, was within the scope of its inherent right to control and manage its enterprise effectively. While the law is solicitous of the welfare of employees, it must also protect the right of an employer to exercise what are clearly management prerogatives. The free will of management to conduct its own business affairs to achieve its purpose cannot be denied.18 This prerogative extends to the management's right to regulate, according to its own discretion and judgment, all aspects of employment, including the freedom to transfer and reassign employees according to the requirements of its business.19 Management's prerogative of transferring and reassigning employees from one area of operation to another in order to meet the requirements of the business is, therefore, generally not constitutive of constructive dismissal.20 Thus, the consequent transfer of Tryco's personnel, assigned to the Production Department was well within the scope of its management prerogative. When the transfer is not unreasonable, or inconvenient, or prejudicial to the employee, and it does not involve a demotion in rank or diminution of salaries, benefits, and other privileges, the employee may not complain that it amounts to a constructive dismissal.21 However, the employer has the burden of proving that the transfer of an employee is for valid and legitimate grounds. The employer must show that the transfer is not unreasonable, inconvenient, or prejudicial to the employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges and other benefits.22 Indisputably, in the instant case, the transfer orders do not entail a demotion in rank or diminution of salaries, benefits and other privileges of the petitioners. Petitioners, therefore, anchor their objection solely on the ground that it would cause them great inconvenience since they are all residents of Metro Manila and they would incur additional expenses to travel daily from Manila to Bulacan. The Court has previously declared that mere incidental inconvenience is not sufficient to warrant a claim of constructive dismissal.23 Objection to a transfer that is grounded solely upon the personal inconvenience or hardship that will be caused to the employee by reason of the transfer is not a valid reason to disobey an order of transfer.24 Incidentally, petitioners cite Escobin v. NLRC25 where the Court held that the transfer of the employees therein was unreasonable. However, the distance of the workplace to which the employees were being transferred can hardly compare to that of the present case. In that case, the employees were being transferred from Basilan to Manila; hence, the Court noted that the transfer would have entailed the separation of the employees from their families who were residing in Basilan and accrual of additional expenses for living accommodations in Manila. In contrast, the distance from Caloocan to San Rafael, Bulacan is not considerably great so as to compel petitioners to seek living accommodations in the area and prevent them from commuting to Metro Manila daily to be with their families. Petitioners, however, went further and argued that the transfer orders amounted to unfair labor practice because it would paralyze and render the union ineffective. To begin with, we cannot see how the mere transfer of its members can paralyze the union. The union was not deprived of the membership of the petitioners whose work assignments were only transferred to another location. More importantly, there was no showing or any indication that the transfer orders were motivated by an intention to interfere with the petitioners' right to organize. Unfair labor practice refers to acts that violate the workers' right to organize. With the exception of Article 248(f) of the Labor Code of the Philippines, the prohibited acts are related to the workers' right to self-organization and to the observance of a CBA. Without that element, the acts, no matter how unfair, are not unfair labor practices.26 Finally, we do not agree with the petitioners' assertion that the MOA is not enforceable as it is contrary to law. The MOA is enforceable and binding against the petitioners. Where it is shown that the person making the waiver did so voluntarily, with full understanding of what he was doing, and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as a valid and binding undertaking.27

D.O. No. 21 sanctions the waiver of overtime pay in consideration of the benefits that the employees will derive from the adoption of a compressed workweek scheme, thus: The compressed workweek scheme was originally conceived for establishments wishing to save on energy costs, promote greater work efficiency and lower the rate of employee absenteeism, among others. Workers favor the scheme considering that it would mean savings on the increasing cost of transportation fares for at least one (1) day a week; savings on meal and snack expenses; longer weekends, or an additional 52 off-days a year, that can be devoted to rest, leisure, family responsibilities, studies and other personal matters, and that it will spare them for at least another day in a week from certain inconveniences that are the normal incidents of employment, such as commuting to and from the workplace, travel time spent, exposure to dust and motor vehicle fumes, dressing up for work, etc. Thus, under this scheme, the generally observed workweek of six (6) days is shortened to five (5) days but prolonging the working hours from Monday to Friday without the employer being obliged for pay overtime premium compensation for work performed in excess of eight (8) hours on weekdays, in exchange for the benefits abovecited that will accrue to the employees. Moreover, the adoption of a compressed workweek scheme in the company will help temper any inconvenience that will be caused the petitioners by their transfer to a farther workplace. Notably, the MOA complied with the following conditions set by the DOLE, under D.O. No. 21, to protect the interest of the employees in the implementation of a compressed workweek scheme: 1. The employees voluntarily agree to work more than eight (8) hours a day the total in a week of which shall not exceed their normal weekly hours of work prior to adoption of the compressed workweek arrangement; 2. There will not be any diminution whatsoever in the weekly or monthly take-home pay and fringe benefits of the employees; 3. If an employee is permitted or required to work in excess of his normal weekly hours of work prior to the adoption of the compressed workweek scheme, all such excess hours shall be considered overtime work and shall be compensated in accordance with the provisions of the Labor Code or applicable Collective Bargaining Agreement (CBA); 4. Appropriate waivers with respect to overtime premium pay for work performed in excess of eight (8) hours a day may be devised by the parties to the agreement. 5. The effectivity and implementation of the new working time arrangement shall be by agreement of the parties. PESALA v. NLRC,28 cited by the petitioners, is not applicable to the present case. In that case, an employment contract provided that the workday consists of 12 hours and the employee will be paid a fixed monthly salary rate that was above the legal minimum wage. However, unlike the present MOA which specifically states that the employee waives his right to claim overtime pay for work rendered beyond eight hours, the employment contract in that case was silent on whether overtime pay was included in the payment of the fixed monthly salary. This necessitated the interpretation by the Court as to whether the fixed monthly rate provided under the employment contract included overtime pay. The Court noted that if the employee is paid only the minimum wage but with overtime pay, the amount is still greater than the fixed monthly rate as provided in the employment contract. It, therefore, held that overtime pay was not included in the agreed fixed monthly rate. Considering that the MOA clearly states that the employee waives the payment of overtime pay in exchange of a five-day workweek, there is no room for interpretation and its terms should be implemented as they are written. WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated July 24, 2001 and Resolution dated December 20, 2001 are AFFIRMED. SO ORDERED.
ANTONIO EDUARDO B. NACHURA Associate Justice

Wages Workers preference in case of bankruptcy


G.R. No. 155034 May 22, 2008 182 SCRA 1483 VIRGILIO SAPIO, petitioner, vs. UNDALOC CONSTRUCTION and/or ENGR. CIRILO UNDALOC, respondent. DECISION TINGA, J.:

Assailed in this Petition for Review1 is the Decision2 of the Court of Appeals3 in CA-G.R. SP No. 66449 deleting the award of salary differential and attorneys fees to petitioner Virgilio Sapio, as well as the Resolution4 denying his motion for reconsideration. The controversy started with a complaint filed by petitioner against Undaloc Construction and/or Engineer Cirilo Undaloc for illegal dismissal, underpayment of wages and nonpayment of statutory benefits. Respondent Undaloc Construction, a single proprietorship owned by Cirilo Undaloc, is engaged in road construction business in Cebu City. Petitioner had been employed as watchman from 1 May 1995 to 30 May 1998 when he was terminated on the ground that the project he was assigned to was already finished, he being allegedly a project employee. Petitioner asserted he was a regular employee having been engaged to perform works which are "usually necessary or desirable" in respondents business. He claimed that from 1 May to 31 August 1995 and from 1 September to 31 December 1995, his daily wage rate was only P80.00 and P90.00, respectively, instead of P121.87 as mandated by Wage Order No. ROVII-03. From 1 March 1996 to 30 May 1998, his daily rate was P105.00. He further alleged that he was made to sign two payroll sheets, the first bearing the actual amount he received wherein his signature was affixed to the last column opposite his name, and the second containing only his name and signature. To buttress this allegation, petitioner presented the payroll sheet covering the period from 4 to 10 December 1995 in which the entries were written in pencil. He also averred that his salary from 18 to 30 May 1998 was withheld by respondents.5 For its part, respondent Cirilo Undaloc maintained that petitioner was hired as a project employee on 1 May 1995 and was assigned as watchman from one project to another until the termination of the project on 30 May 1998. 6 Refuting the claim of underpayment, respondent presented the payroll sheets from 2 September to 8 December 1996, 26 May to 15 June 1997, and 12 January to 31 May 1998.7 On 12 July 1999, the Labor Arbiter8 rendered a decision the dispositive portion of which reads: WHEREFORE, in the [sic] light of the foregoing, judgment is rendered finding complainant to be a project employee and his termination was for an authorized cause. However, respondent is found liable to pay complainants salary of P2,648.45 and 13th month pay of P2,489.00. Respondent is also found liable to pay complainants salary differential in the amount of P24,902.88. Attorneys fee of P3,000.00 is also awarded. All other claims are dismissed for lack of merit.9 Respondents appealed the award of salary differential to the National Labor Relations Commission (NLRC). In a Decision10 dated 28 August 2000, the NLRC sustained the findings of the Labor Arbiter. Respondents elevated the case to the Court of Appeals which deleted the award of salary differential and attorneys fees. Thus, this petition for review. Petitioner raises two grounds, one procedural and the other substantive. On the procedural aspect, petitioner contends that the appellate court erred in failing to dismiss respondents petition for certiorari brought before it on the ground that respondents failed to attach certified true copies of the NLRCs decision and resolution denying the motion for reconsideration.11
3

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In his Comment on the Petition for Certiorari with Prayer for Temporary Restraining and/or Preliminary Injunction 12 filed with the Court of Appeals on 22 November 2001, petitioner did not raise this procedural issue. Neither did he do so when he moved for reconsideration of the 8 May 2002 Decision of the Court of Appeals. It is only now before this Court that petitioner proffered the same. This belated submission spells doom for petitioner. More fundamentally, an examination of the Court of Appeals rollo belies petitioner as it confirms that the alleged missing documents were in fact attached to the petition. 13 That petitioner was a project employee became a non-issue beginning with the decision of the Labor Arbiter. Contested still is his entitlement to salary differential, apart from attorneys fees. Petitioner avers that he was paid a daily salary way below the minimum wage provided for by law. 14 His claim of salary differential represents the difference between the daily wage he actually received and the statutory minimum wage, which he presented as follows:
Actual Daily Wage Received (for 8 hours worked) 5-1-95 to 8-31-95 Place of Assignment: 9-1-95 to 12-31-95 Place of Assignment: 1-1-96 to 2-28-96 Place of Assignment: 3-1-96 to 6-30-96 Place of Assignment: 7-1-96 to 9-30-96 Place of Assignment: 10-1-96 to 3-14-97 Place of Assignment: 3-15-97 to 6-30-97 Place of Assignment: 7-1-97 to 9-30-97 Place of Assignment: 10-1-97 to 3-31-98 Place of Assignment: 4-1-98 to 5-17-98 Place of Assignment: 5-18-98 to 5-30-98 Place of Assignment: P80.00 plus 3 hrs. OT M.J. Cuenco-Imus Road Link P90.00 plus 3 hrs. OT P90.00 plus 3 hrs. OT P105.00 plus 3 hrs. OT P105.00 plus 3 hrs. OT P105.00 plus 3 hrs. OT P105.00 plus 3 hrs. OT P105.00 plus 3 hrs. OT P105.00 plus 3 hrs. OT P105.00 plus 3 hrs. OT P105.00 plus 3 hrs. OT Minimum Daily Wage Provided by Law (for 8 hours worked) P121.87 P121.87 P131.00 P131.00 P136.00 P141.00 P141.00 P150.00 P150.00 P155.00 P160.00

To counter petitioners assertions, respondents submitted typewritten and signed payroll sheets from 2 September to 8 December 1996, from 26 May to 15 June 1997, and from 12 January to 31 May 1998.15 These payroll sheets clearly indicate that petitioner did receive a daily salary of P141.00. In turn, petitioner presented the December 1995 payroll sheet written in pencil 16 in tandem with the assertion that he, together with his co-employees, was required to sign two sets of payroll sheets in different colors: white, which bears the actual amount he received with his signature affixed in the last column opposite his name, and yellow, where only his name appears thereon with his signature also affixed in the last column opposite his name.17 In the December 1995 payroll sheet, petitioner appears to have received P90.00 only as his daily salary but he did not sign the same. Banking on the fact that the December 1995 payroll sheet was written in pencil, the Labor Arbiter concluded that the entries were susceptible to change or erasure and that that susceptibility in turn rendered the other payroll sheets though typewritten less credible. Thus: x x x Complainants allegation that he was made to sign two (2) payrolls, the first page bears the actual amount he received when he affixed his signature in the last column and the original with entries written in pencil is admitted by the respondent that it did so. When respondent had his payrolls prepared in pencil, the tendency is that the entries therein will be erased and changed them so that it would appear that the salaries of the workers are in conformity with the law.

The explanation given by the respondent through the affidavit of Jessica Labang that the payrolls were first written in pencil because of the numerous employees to be paid each Saturday, is not acceptable. The efforts done in preparing the payroll in pencil is practically the same if it was done in ballpen or through typewriters. Obviously, the purpose is to circumvent the law. When payrolls are prepared in pencil, it is so easy for the employer to alter the amounts actually paid to the workers and make it appear that the amounts paid to the workers are in accord with law. The probative value of the payrolls submitted by the respondent becomes questionable, thus, cannot be given weight. It is most likely that the entries in the payrolls are no longer the same entries when complainant signed them. Complainant is therefore entitled to salary differential as complainants salary was only P105.00. x x x18 Thereupon, the Labor Arbiter proceeded to grant petitioners salary differential to the tune of P24,902.88. The Court of Appeals did not subscribe to the common findings of the Labor Arbiter and the NLRC. The appellate court pointed out that allegations of fraud in the preparation of payroll sheets must be substantiated by evidence and not by mere suspicions or conjectures, viz: As a general rule, factual findings and conclusions drawn by the National Labor Relations Commission are accorded great weight and respect upon appeal, even finality, as long as they are supported by substantial evidence. Substantial evidence is more than a mere scintilla. It means such relevant evidence that a reasonable mind would accept as sufficient to support a conclusion. A suspicion or belief no matter how sincerely felt cannot be a substitute for factual findings carefully established through an orderly procedure. The Labor Arbiter merely surmised and presumed that petitioners had the tendency to alter the entries in the payroll. Albeit the petitioner admitted that the payrolls were initially made in pencil, the same does not, and must not be presumed as groundwork for alteration. We find nothing in the proceedings, as well as in the pleadings submitted, to sustain the Labor Arbiters findings of the alleged "tendency" to alter the entries. It is elementary in this jurisdiction that whoever alleges fraud or mistake affecting a transaction must substantiate his allegation, since it is presumed that a person takes ordinary care of his concerns and private transactions have been fair and regular. Persons are presumed to have taken care of their business. Absent any indication sufficient enough to support a conclusion, we cannot uphold the findings of the Labor Arbiter and the NLRC.19 The conclusion of the Labor Arbiter that entries in the December 1995 payroll sheet could have been altered is utterly baseless. The claim that the December 1995 payroll sheet was written in pencil and was thus rendered it prone to alterations or erasures is clearly non sequitur. The same is true with respect to the typewritten payroll sheets. In fact, neither the Labor Arbiter nor the NLRC found any alteration or erasure or traces thereat, whether on the pencil-written or typewritten payroll sheets. Indeed, the most minute examination will not reveal any tampering. Furthermore, if there is any adverse conclusion as regards the December 1995 payroll sheet, it must be confined only to it and cannot be applied to the typewritten payroll sheets. Moreover, absent any evidence to the contrary, good faith must be presumed in this case. Entries in the payroll, being entries in the course of business, enjoy the presumption of regularity under Rule 130, Section 43 of the Rules of Court. Hence, while as a general rule, the burden of proving payment of monetary claims rests on the employer, 20 when fraud is alleged in the preparation of the payroll, the burden of evidence shifts to the employee and it is incumbent upon him to adduce clear and convincing evidence in support of his claim.21 Unfortunately, petitioners bare assertions of fraud do not suffice to overcome the disputable presumption of regularity. While we adhere to the position of the appellate court that the "tendency" to alter the entries in the payrolls was not substantiated, we cannot however subscribe to the total deletion of the award of salary differential and attorneys fees, as it so ruled. The Labor Arbiter granted a salary differential of P24,902.88.22 The Labor Arbiter erred in his computation. He fixed the daily wage rate actually received by petitioner at P105.0023 without taking into consideration the P141.00 rate indicated in the typewritten payroll sheets submitted by

respondents. Moreover, the Labor Arbiter misapplied the wage orders24 when he wrongly categorized respondent as falling within the first category. Based on the stipulated number of employees and audited financial statements,25 respondents should have been covered by the second category. To avoid further delay in the disposition of this case which is not in consonance with the objective of speedy justice, we have to adjudge the rightful computation of the salary differential based on the applicable wage orders. After all, the supporting records are complete. This Court finds that from 1 January to 30 August 1996 and 1 July 1997 to 31 May 1998, petitioner had received a wage less than the minimum mandated by law. Therefore, he is entitled to a salary differential. For the periods from 30 May to 31 December 1995 and 2 September 1996 to 30 June 1997, petitioner had received the correct wages. To illustrate:
Wage actually received P105.00 P105.00 P105.00 P141.0029 P141.00 P141.00 P141.00 P141.00 P141.00 Statutory Minimum wage P99.0026 P125.0027 P130.0028 P130.0030 P135.0031 P139.0032 P144.0033 P149.0034 P154.0035 Differential 0 P20.00/day or P3120.00 P25.00/day or P1300.00 0 0 0 P3.00/day or P234.00 P8.00/day or P1248.00 P13.00/day or P676.00

30 May 31 December. 1995 1 January 30 June 1996 (156 days) 1 July 30 August 1996 (52 days) 2 30 September 1996 1 October 1996- 15 March 1997 16 March 30 June 1997 1 July 30 September 1997 (78 days) 1 October 1997- 31 March 1998 (156 days) 1 April 31 May 1998 (52 days)

The total salary differential that petitioner is lawfully entitled to amounts to P6,578.00 However, pursuant to Section 12 of Republic Act (R.A.) No. 6727, as amended by R.A. No. 8188. Respondents are required to pay double the amount owed to petitioner, bringing their total liability to P13,156.00. Section 12. Any person, corporation, trust, firm, partnership, association or entity which refuses or fails to pay any of the prescribed increases or adjustments in the wage rates made in accordance with this Act shall be punished by a fine not less than Twenty-five thousand pesos (P25,000.00) nor more than One hundred thousand pesos (P100,000.00) or imprisonment of not less than two (2) years nor more than four (4) years, or both such fine and imprisonment at the discretion of the court: Provided, That any person convicted under this Act shall not be entitled to the benefits provided for under the Probation Law. The employer concerned shall be ordered to pay an amount equivalent to double the unpaid benefits owing to the employees: Provided, That payment of indemnity shall not absolve the employer from the criminal liability imposable under this Act. If the violation is committed by a corporation, trust or firm, partnership, association or any other entity, the penalty of imprisonment shall be imposed upon the entitys responsible officers, including, but not limited to, the president, vice president, chief executive officer, general manager, managing director or partner. (Emphasis supplied) The award of attorneys fees is warranted under the circumstances of this case. Under Article 2208 of the New Civil Code, attorney's fees can be recovered in actions for the recovery of wages of laborers and actions for indemnity under employer's liability laws 36 but shall not exceed 10% of the amount awarded.37 The fees may be deducted from the total amount due the winning party. WHEREFORE, the petition is PARTIALLY GRANTED. Petitioner is awarded the salary differential in the reduced amount of P13,156.00 and respondents are directed to pay the same, as well as ten percent (10%) of the award as attorney's fees. SO ORDERED.
Quisumbing,Chairperson Velasco, Jr., Leonardo- de Casto, Brion, JJ., concur.

G.R. No. 165476

August 15, 2011

655 SCRA 3564

AGRIPINO V. MOLINA, Petitioner, vs. PACIFIC PLANS, INC., Respondent. RESOLUTION PERALTA, J.:

For resolution is petitioner's Urgent Manifestation and Supplemental Motion to Implement the January 14, 2009 Resolution of this Court.1 On March 10, 2006, this Court promulgated its Decision2 in the instant case finding the dismissal of herein petitioner to be illegal and ordering herein respondent to immediately reinstate petitioner to his former position as Assistant VicePresident without demotion in rank and salary, and to pay him his backwages from August 1, 2001 up to his actual reinstatement, as well as other accrued monetary benefits. On March 5, 2007, the abovementioned Decision became final and executory.3 Thereafter, upon motion of petitioner, Executive Labor Arbiter Fatima Jambaro-Franco of the National Labor Relations Commission (NLRC)-National Capital Region Arbitration Branch issued an Order4 dated August 3, 2007 directing the Computation and Examination Unit (CEU) of the NLRC to compute petitioner's monetary award, inclusive of his other accrued monetary benefits. On September 3, 2007, the Executive Labor Arbiter issued a Writ of Execution commanding the sheriff of the NLRC-NCR to collect from respondent the amount of P5,494,358.75 representing petitioner's monetary award, consisting, among others, of backwages, separation pay and overriding commissions, as computed by the CEU. Meanwhile, respondent filed a Partial Appeal assailing the August 3, 2007 Order of the Executive Labor Arbiter. On February 26, 2008, the NLRC promulgated a Decision5 granting respondent's partial appeal and holding that the other monetary benefits granted to petitioner should not include salary increases based on the Collective Bargaining Agreement (CBA) because he is not covered by it, considering that he is an Assistant Vice-President. The NLRC also directed the remand of the records of the case to the Labor Arbiter of origin for the purpose of conducting a pre-execution conference and for the re-computation of the awards due to petitioner. In compliance with the Decision of the NLRC, the CEU submitted its Re-Computation indicating a total award ofP4,366,954.80 to petitioner.6 Both parties were furnished copies of the said Re-Computation. Subsequently, pre-execution conferences were held. During the proceedings, petitioner manifested that he had no objection to the monetary award as re-computed. However, he claimed that he is entitled to a legal interest of 12% on the amount due him reckoned from the finality of the March 5, 2007 Decision of this Court until full payment thereof. Respondent, on the other hand, objected to the grant of overriding commissions amounting toP2,259,410.40. On November 25, 2008, the Labor Arbiter issued an Order7 approving the re-computed sum of P4,366,954.80. On December 8, 2008, respondent filed a partial appeal reiterating its stand that petitioner is not entitled to overriding commissions as well as 12% legal interest on the amount due him. Meanwhile, on December 3, 2008, petitioner filed with this Court a Very Urgent Manifestation and Motion to Order Execution of a Final and Executory Judgment. Petitioner prayed, among others, for the issuance of a writ of execution based on the approved recomputed amount awarded to petitioner plus legal interest of twelve (12%) per annum until full satisfaction thereof. On January 14, 2009, this Court issued a Resolution8 granting petitioner's Motion.

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On the other hand, in its Decision dated August 28, 2009, the NLRC found merit in respondent's Partial Appeal dated December 8, 2008. The dispositive portion of the NLRC Decision reads, thus: WHEREFORE, premises considered, the partial appeal filed by respondents is GRANTED IN PART. The computation of [the] Computation and Examination Unit dated July 8, 2008 is MODIFIED, in that, the award of overriding commission is DELETED, and respondents are additionally ordered to pay 12% interest per annum beginning March 5, 2007 on the monetary award of P2,107,544.40 (excluding vacation and sick leaves), which as of September 5, 2009 amounts to P632,263.32 (P2,107,544.40 x 12% x 2 years and 6 months). Thus, complainant's total monetary award is provisionally computed in the amount of P2,739,807.72. Let the records of this case be remanded immediately to the Regional Arbitration Branch of origin for execution proceedings. SO ORDERED.9 Both petitioner and respondent moved for the reconsideration of the abovequoted Decision. On June 18, 2010, the NLRC promulgated a Resolution10 granting the motions for reconsideration of petitioner and respondent holding that it was an error on its part to delete the overriding commissions from petitioner's monetary award. On the other hand, the NLRC deleted the award for legal interest. The dispositive portion of the Resolution reads as follows: WHEREFORE, premises considered, the Motions for Reconsideration filed by both parties are partly GRANTED. The assailed Decision of the Commission dated August 28, 2009 is SET ASIDE. A new one is entered REINSTATING the Computation of Monetary Awards submitted by the Computation and Examination Unit on July 8, 2008, as approved by Labor Arbiter Quitevis-Alconcel in her Order dated November 25, 2008. In compliance with the resolution of the Supreme Court dated January 14, 2009, the entire records of this case is remanded to the Labor Arbiter a quo for the immediate issuance of a writ of execution of complainant's monetary award totaling P4,366,954.80 SO ORDERED.11 On October 22, 2010, the Labor Arbiter issued an Alias Writ of Execution. In the meantime, petitioner filed the present Motion praying that the June 18, 2010 Resolution of the NLRC be modified to conform to the January 14, 2009 Resolution of this Court by including in the award, aside from the principal amount of P4,366,954.80, interest at the rate of 12% per annum from March 5, 2007 until full payment of the principal amount. Petitioner further prays that, after modification, the subject NLRC Resolution be immediately executed. On February 4, 2011, the NLRC, through its Commissioners, filed its Comment to the present Motion. Respondent also filed his Comment. The issues left for resolution now are: (1) whether petitioner is entitled to a legal interest of 12% on the principal amount due him to be computed from the finality of the March 5, 2007 Decision until full payment thereof; and (2) whether the judgment in favor of petitioner may be executed in view of respondent's claim that it is still undergoing corporate rehabilitation. The Court finds the Motion partly meritorious. With respect to the matter of legal interest, it should be noted that this Court's Resolution of January 14, 2009 granted petitioner's Very Urgent Manifestation and Motion to Order Execution of a Final and Executory Judgment. Petitioner prayed in the said Manifestation and Motion that in addition to the amount of P4,366,954.80 granted to him as monetary award, he should also be awarded legal interest at the rate of 12% per annum. Hence, the matter of the award of 12% legal interest is already settled.

Nonetheless, it may not be amiss to reiterate the prevailing rule as enunciated in the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals12 thus: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Article 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2 above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.13 Hence, the payment of legal interest becomes a necessary consequence of the finality of the Court's Decision, because reckoned from that time the said Decision becomes a judgment for money which, under established jurisprudence, earns interest at the rate of 12% per annum. With respect to the issue of execution, the Court notes respondent's contention that since it is still undergoing corporate rehabilitation the execution of the judgment in the instant case should be suspended, especially in view of the fact that a Stay Order was issued by the RTC of Makati City and that the same has not yet been lifted. Petitioner does not dispute respondent's claim of its ongoing corporate rehabilitation. Neither does he question the existence and validity of the Stay Order issued by the RTC. The only point he raises, insofar as this issue is concerned, is that the Interim Rules on Corporate Rehabilitation, upon which the Stay Order was based, applies only to claims or cases which are pending before any court tribunal or board but not to cases which have already been adjudicated, much less to those where there is already an entry of judgment, as in the present case. Petitioner's argument is without merit. The Court finds that all pending actions in the instant case, including the execution of the judgment in favor of petitioner, should be suspended pending termination of the rehabilitation proceedings. The Court's ruling in the more recent case of Castillo v. Uniwide Warehouse Club, Inc.14 is instructive, thus: An essential function of corporate rehabilitation is the mechanism of suspension of all actions and claims against the distressed corporation, which operates upon the due appointment of a management committee or rehabilitation receiver. The governing law concerning rehabilitation and suspension of actions for claims against corporations is P.D. No. 902-A, as amended. Section 6(c) of the law mandates that, upon appointment of a management committee, rehabilitation

receiver, board, or body, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board, or body shall be suspended. It materially provides: Section 6 (c). x x x x x x Provided, finally, that upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body, shall be suspended accordingly. In Finasia Investments and Finance Corporation v. Court of Appeals [G.R. No. 107002, October 7, 1994, 237 SCRA 446, 450], the term "claim" has been construed to refer to debts or demands of a pecuniary nature, or the assertion to have money paid. It was referred to, in Arranza v. B.F. Homes, Inc., [389 Phil. 318], as an action involving monetary considerations and in Philippine Airlines v. Kurangking [438 Phil. 375], the term was identified as the right to payment, whether or not it is reduced to judgment, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, legal or equitable, and secured or unsecured. Furthermore, the actions that were suspended cover all claims against a distressed corporation whether for damages founded on a breach of contract of carriage, labor cases, collection suits or any other claims of a pecuniary nature. More importantly, the new rules on corporate rehabilitation, as well as the interim rules, provide an all-encompassing definition of the term and, thus, include all claims or demands of whatever nature or character against a debtor or its property, whether for money or otherwise. There is no doubt that petitioners claim in this case, arising as it does from his alleged illegal dismissal, is a claim covered by the suspension order issued by the SEC, as it is one for pecuniary consideration. Jurisprudence is settled that the suspension of proceedings referred to in the law uniformly applies to "all actions for claims" filed against a corporation, partnership or association under management or receivership, without distinction, except only those expenses incurred in the ordinary course of business. In the oft-cited case of Rubberworld (Phils.) Inc. v. NLRC [G.R. No. 126773, April 14, 1999, 305 SCRA 721], the Court noted that aside from the given exception, the law is clear and makes no distinction as to the claims that are suspended once a management committee is created or a rehabilitation receiver is appointed. Since the law makes no distinction or exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere debemos. Philippine Airlines, Inc. v. Zamora [G.R. No. 166996, February 6, 2007, 514 SCRA 584, 605] declares that the automatic suspension of an action for claims against a corporation under a rehabilitation receiver or management committee embraces all phases of the suit, that is, the entire proceedings of an action or suit and not just the payment of claims. The reason behind the imperative nature of a suspension or stay order in relation to the creditors claims cannot be downplayed, for indeed the indiscriminate suspension of actions for claims intends to expedite the rehabilitation of the distressed corporation by enabling the management committee or the rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the rescue of the debtor company. To allow such other actions to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation, instead of being directed toward its restructuring and rehabilitation.15 WHEREFORE, the instant Motion is PARTLY GRANTED. The June 18, 2010 Resolution of the National Labor Relations Commission is MODIFIED by including in the award, aside from the principal amount of P4,366,954.80, interest at the legal rate of 12% per annum from March 5, 2007, the date the Decision in the present case became final and executory, until the principal amount is fully paid. However, all proceedings in the instant case, including the execution of the June 18, 2010 Resolution of the NLRC, are SUSPENDED until further notice from this Court. Respondent Pacific Plans, Inc. is hereby DIRECTED to UPDATE the Court within five (5) days from receipt of this Resolution and, thereafter, on a quarterly basis, as to the status of its ongoing rehabilitation. SO ORDERED.
DIOSDADO M. PERALTA Associate Justice

Attorneys fees re: withholding of wages

G.R. No. 183385

February 13, 2009

579 SCRA 5095

EVANGELINA MASMUD (as substitute complainant for ALEXANDER J. MASMUD), Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (First Division) and ATTY. ROLANDO B. GO, JR.,Respondents. RESOLUTION NACHURA, J.:

Before the Court is a petition for review on certiorari 1 assailing the Decision2 dated October 31, 2007 and the Resolution dated June 6, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 96279. The facts of the case are as follows: On July 9, 2003, Evangelina Masmuds (Evangelina) husband, the late Alexander J. Masmud (Alexander), filed a complaint3 against First Victory Shipping Services and Angelakos (Hellas) S.A. for non-payment of permanent disability benefits, medical expenses, sickness allowance, moral and exemplary damages, and attorneys fees. Alexander engaged the services of Atty. Rolando B. Go, Jr. (Atty. Go) as his counsel. In consideration of Atty. Gos legal services, Alexander agreed to pay attorneys fees on a contingent basis, as follows: twenty percent (20%) of total monetary claims as settled or paid and an additional ten percent (10%) in case of appeal. It was likewise agreed that any award of attorneys fees shall pertain to respondents law firm as compensation. On November 21, 2003, the Labor Arbiter (LA) rendered a Decision granting the monetary claims of Alexander. The dispositive portion of the decision, as quoted in the CA Decision, reads: WHEREFORE, foregoing considered, judgment is rendered finding the [First Victory Shipping Services and Angelakos (Hellas) S.A.] jointly and severally liable to pay [Alexanders] total permanent disability benefits in the amount of US$60,000.00 and his sickness allowance of US$2,348.00, both in Philippine currency at the prevailing rate of exchange at the time of payment; and to pay further the amount of P200,000.00 as moral damages,P100,000.00 as exemplary damages and attorneys fees equivalent to ten percent (10%) of the total monetary award. [Alexanders] claim for payment of medical expenses is dismissed for lack of basis. SO ORDERED.4 Alexanders employer filed an appeal before the National Labor Relations Commission (NLRC). During the pendency of the proceedings before the NLRC, Alexander died. After explaining the terms of the lawyers fees to Evangelina, Atty. Go caused her substitution as complainant. On April 30, 2004, the NLRC rendered a Decision dismissing the appeal of Alexanders employer. The employer subsequently filed a motion for reconsideration. The NLRC denied the same in an Order dated October 26, 2004. On appeal before the CA, the decision of the LA was affirmed with modification. The award of moral and exemplary damages was deleted.5 Alexanders employers filed a petition for certiorari6 before this Court. On February 6, 2006, the Court issued a Resolution dismissing the case for lack of merit. Eventually, the decision of the NLRC became final and executory. Atty. Go moved for the execution of the NLRC decision, which was later granted by the LA. The surety bond of the employer was garnished. Upon motion of Atty. Go, the surety company delivered to the NLRC Cashier, through the NLRC Sheriff, the check amounting toP3,454,079.20. Thereafter, Atty. Go moved for the release of the said amount to Evangelina. On January 10, 2005, the LA directed the NLRC Cashier to release the amount of P3,454,079.20 to Evangelina. Out of the said amount, Evangelina paid Atty. Go the sum of P680,000.00. Dissatisfied, Atty. Go filed a motion to record and enforce the attorneys lien alleging that Evangelina reneged on their contingent fee agreement. Evangelina paid only the amount of P680,000.00, equivalent to 20% of the award as attorneys fees, thus, leaving a balance of 10%, plus the award pertaining to the counsel as attorneys fees.
5

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In response to the motion filed by Atty. Go, Evangelina filed a comment with motion to release the amount deposited with the NLRC Cashier. In her comment, Evangelina manifested that Atty. Gos claim for attorneys fees of 40% of the total monetary award was null and void based on Article 111 of the Labor Code. On February 14, 2005, the LA issued an Order7 granting Atty. Gos motion, the fallo of which reads: WHEREFORE, premises considered, and further considering the substitute complainants initial payment of 20% to movant-counsel of the monetary claims as paid, let the balance or unpaid twenty (20%) per cent of attorneys fees due movant-counsel (or the amount of P839,587.39) be recorded as lien upon all the monies that may still be paid to substitute complainant Evangelina Masmud. Accordingly, the NLRC Cashier is directed to pay movant-counsel the amount of P677,589.96 which is currently deposited therein to partially satisfy the lien. SO ORDERED.8 Evangelina questioned the February 14, 2005 Order of the LA before the NLRC. On January 31, 2006, the NLRC issued a Resolution9 dismissing the appeal for lack of merit. Evangelina then elevated the case to the CA via a petition for certiorari.10 On October 31, 2007, the CA rendered a Decision11 partially granting the petition. The dispositive portion of the decision reads: WHEREFORE, the petition is PARTIALLY GRANTED. The Resolutions dated January 31, 2006 and July 18, 2006 are hereby AFFIRMED with MODIFICATION in that the Attorneys fees of respondent Atty. Rolando B. Go, Jr. is declared fully compensated by the amount of P1,347,950.11 that he has already received. SO ORDERED.12 Evangelina filed a motion for reconsideration. However, on June 6, 2008, the CA issued a Resolution 13 denying the motion for reconsideration for lack of merit. Hence, the instant petition. Evangelina presented this issue, viz.: THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR OF LAW IN ITS DECISION DATED 31 OCTOBER 2007 AND RESOLUTION DATED 6 JUNE 2008 INSOFAR AS IT UPHOLDS RESPONDENT LAWYERS CLAIM OF FORTY PERCENT (40%) OF THE MONETARY AWARD IN A LABOR CASE AS ATTORNEYS FEES.14 In effect, petitioner seeks affirmance of her conviction that the legal compensation of a lawyer in a labor proceeding should be based on Article 111 of the Labor Code. There are two concepts of attorney's fees. In the ordinary sense, attorney's fees represent the reasonable compensation paid to a lawyer by his client for the legal services rendered to the latter. On the other hand, in its extraordinary concept, attorney's fees may be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party,15 such that, in any of the cases provided by law where such award can be made, e.g., those authorized in Article 2208 of the Civil Code, the amount is payable not to the lawyer but to the client, unless they have agreed that the award shall pertain to the lawyer as additional compensation or as part thereof.16 Here, we apply the ordinary concept of attorneys fees, or the compensation that Atty. Go is entitled to receive for representing Evangelina, in substitution of her husband, before the labor tribunals and before the court. Evangelina maintains that Article 111 of the Labor Code is the law that should govern Atty. Gos compensation as her counsel and assiduously opposes their agreed retainer contract.

Article 111 of the said Code provides: ART. 111. Attorney's fees. (a) In cases of unlawful withholding of wages the culpable party may be assessed attorney's fees equivalent to ten percent of the amount of the wages recovered.1avvphi1.zw+ Contrary to Evangelinas proposition, Article 111 of the Labor Code deals with the extraordinary concept of attorneys fees. It regulates the amount recoverable as attorney's fees in the nature of damages sustained by and awarded to the prevailing party. It may not be used as the standard in fixing the amount payable to the lawyer by his client for the legal services he rendered.17 In this regard, Section 24, Rule 138 of the Rules of Court should be observed in determining Atty. Gos compensation. The said Rule provides: SEC. 24. Compensation of attorney's; agreement as to fees. An attorney shall be entitled to have and recover from his client no more than a reasonable compensation for his services, with a view to the importance of the subject matter of the controversy, the extent of the services rendered, and the professional standing of the attorney. No court shall be bound by the opinion of attorneys as expert witnesses as to the proper compensation, but may disregard such testimony and base its conclusion on its own professional knowledge. A written contract for services shall control the amount to be paid therefor unless found by the court to be unconscionable or unreasonable.18 The retainer contract between Atty. Go and Evangelina provides for a contingent fee. The contract shall control in the determination of the amount to be paid, unless found by the court to be unconscionable or unreasonable.19Attorney's fees are unconscionable if they affront one's sense of justice, decency or reasonableness. 20 The decree of unconscionability or unreasonableness of a stipulated amount in a contingent fee contract will not preclude recovery. It merely justifies the fixing by the court of a reasonable compensation for the lawyer's services.21 The criteria found in the Code of Professional Responsibility are also to be considered in assessing the proper amount of compensation that a lawyer should receive. Canon 20, Rule 20.01 of the said Code provides: CANON 20 A LAWYER SHALL CHARGE ONLY FAIR AND REASONABLE FEES. Rule 20.01. A lawyer shall be guided by the following factors in determining his fees: (a) The time spent and the extent of the services rendered or required; (b) The novelty and difficulty of the question involved; (c) The importance of the subject matter; (d) The skill demanded; (e) The probability of losing other employment as a result of acceptance of the proffered case; (f) The customary charges for similar services and the schedule of fees of the IBP Chapter to which he belongs; (g) The amount involved in the controversy and the benefits resulting to the client from the service; (h) The contingency or certainty of compensation; (i) The character of the employment, whether occasional or established; and (j) The professional standing of the lawyer. Contingent fee contracts are subject to the supervision and close scrutiny of the court in order that clients may be protected from unjust charges.22 The amount of contingent fees agreed upon by the parties is subject to the stipulation

that counsel will be paid for his legal services only if the suit or litigation prospers. A much higher compensation is allowed as contingent fees because of the risk that the lawyer may get nothing if the suit fails. 23The Court finds nothing illegal in the contingent fee contract between Atty. Go and Evangelinas husband. The CA committed no error of law when it awarded the attorneys fees of Atty. Go and allowed him to receive an equivalent of 39% of the monetary award. The issue of the reasonableness of attorney's fees is a question of fact. Well-settled is the rule that conclusions and findings of fact of the CA are entitled to great weight on appeal and will not be disturbed except for strong and cogent reasons which are absent in the case at bench. The findings of the CA, which are supported by substantial evidence, are almost beyond the power of review by the Supreme Court.24 Considering that Atty. Go successfully represented his client, it is only proper that he should receive adequate compensation for his efforts. Even as we agree with the reduction of the award of attorney's fees by the CA, the fact that a lawyer plays a vital role in the administration of justice emphasizes the need to secure to him his honorarium lawfully earned as a means to preserve the decorum and respectability of the legal profession. A lawyer is as much entitled to judicial protection against injustice or imposition of fraud on the part of his client as the client is against abuse on the part of his counsel. The duty of the court is not alone to ensure that a lawyer acts in a proper and lawful manner, but also to see that a lawyer is paid his just fees. With his capital consisting of his brains and with his skill acquired at tremendous cost not only in money but in expenditure of time and energy, he is entitled to the protection of any judicial tribunal against any attempt on the part of his client to escape payment of his just compensation. It would be ironic if after putting forth the best in him to secure justice for his client, he himself would not get his due.25 WHEREFORE, in view of the foregoing, the Decision dated October 31, 2007 and the Resolution dated June 6, 2008 of the Court of Appeals in CA-G.R. SP No. 96279 are hereby AFFIRMED. SO ORDERED.
ANTONIO EDUARDO B. NACHURA Associate Justice

Job Contracting /Independent Contracting / Labor Only Contracting Cases


G.R. No. 160506 March 9, 2010 SCRA 5636 JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO PLATON, JOSE FERNANDO GUTIERREZ, ESTANISLAO BUENAVENTURA, LOPE SALONGA, FRANZ DAVID, NESTOR IGNACIO, JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO CALANAO, ROLANDO ROMASANTA, RHUEL AGOO, BONIFACIO ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA, ROBERTO ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN GARCIA, ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J. GARCIA, FERNANDO MACABENTE, MELECIO CASAPAO, REYNALDO JACABAN, FERDINAND SALVO, ALSTANDO MONTOS, RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY, LEONARDO P. TALLEDO, ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL BILLONES, ALLAN BALTAZAR, NOLI GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL DULAY, TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES, ANTONIO DACUNA, RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO, WILFREDO TORRES, MELCHOR CARDANO, MARIANO NARANIAN, JOHN SUMERGIDO, ROBERTO ROSALES, GERRY C. GATPO, GERMAN N. GUEVARRA, GILBERT Y. MIRANDA, RODOLFO C. TOLEDO, ARNOLD D. LASTONA, PHILIP M. LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ, FRED P. JIMENEZ, RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ BUSTENERA, ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, ALEJANDRINO ABATON, and ORLANDO S. BALANGUE, Petitioners, vs. PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents. DECISION DEL CASTILLO, J.:

Labor laws expressly prohibit "labor-only" contracting. To prevent its circumvention, the Labor Code establishes an employer-employee relationship between the employer and the employees of the labor-only contractor. The instant petition for review assails the March 21, 2003 Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution2 denying the motions for reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc. (P&G). The appellate court affirmed the July 27, 1998 Decision of the National Labor Relations Commission (NLRC), which in turn affirmed the November 29, 1996 Decision 3 of the Labor Arbiter. All these decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be legitimate independent contractors and the employers of the petitioners. Factual Antecedents

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Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:
Name 1. Joeb M. Aliviado 2. Arthur Corpuz 3. Eric Aliviado 4. Monchito Ampeloquio September, 5. Abraham Basmayor[, Jr.] 6. Jonathan Mateo May, 7. Lorenzo Platon 8. Jose Fernando Gutierrez 9. Estanislao Buenaventura 10. Lope Salonga 11. Franz David 12. Nestor Ignacio 13. Julio Rey 14. Ruben [Vasquez], Jr. 15. Maximino Pascual 16. Ernesto Calanao[, Jr.] 17. Rolando Romasanta 18. [Roehl] Agoo 19. Bonifacio Ortega 20. Arsenio Soriano, Jr. 21. Arnel Endaya 22. Roberto Enriquez December, 23. Nestor [Es]quila 24. Ed[g]ardo Quiambao 25. Santos Bacalso 26. Samson Basco 27. Aladino Gregor[e], Jr. 28. Edwin Garcia 29. Armando Villar 30. Emil Tawat 31. Mario P. Liongson 32. Cresente J. Garcia 33. Fernando Macabent[a] 34. Melecio Casapao 35. Reynaldo Jacaban 36. Ferdinand Salvo 37. Alstando Montos Date Employed November, 1985 1988 1985 1988 1987 1988 1985 1988 June, 1988 1982 1989 1982 1989 1985 1990 1987 1983 1988 1988 1985 1983 1988 1983 1989 1990 1984 1980 1987 1990 1988 1991 1984 1990 1987 1990 1985 1984 Date Dismissed May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 May 5, 1992 May 5, 1992 May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 May 5, 1992 May 5, 1992 March 11, 1993 May 5, 1992 March 11, 1993 May 5, 1992 March 11, 1993 May 5, 1992 May 5, 1992 March 11, 1993

38. Rainer N. Salvador 39. Ramil Reyes 40. Pedro G. Roy 41. Leonardo [F]. Talledo 42. Enrique [F]. Talledo 43. Willie Ortiz 44. Ernesto Soyosa 45. Romeo Vasquez 46. Joel Billones 47. Allan Baltazar 48. Noli Gabuyo 49. Emmanuel E. Laban 50. Ramir[o] E. [Pita] 51. Raul Dulay 52. Tadeo Duran[o] 53. Joseph Banico 54. Albert Leynes 55. Antonio Dacu[m]a 56. Renato dela Cruz 57. Romeo Viernes, Jr. 58. El[ia]s Bas[c]o 59. Wilfredo Torres 60. Melchor Carda[]o 61. [Marino] [Maranion] 62. John Sumergido 63. Roberto Rosales May, 64. Gerry [G]. Gatpo 65. German N. Guevara 66. Gilbert Y. Miranda 67. Rodolfo C. Toledo[, Jr.] 68. Arnold D. [Laspoa] 69. Philip M. Loza 70. Mario N. C[o]ldayon 71. Orlando P. Jimenez 72. Fred P. Jimenez 73. Restituto C. Pamintuan, Jr. 74. Rolando J. de Andres 75. Artuz Bustenera[, Jr.] 76. Roberto B. Cruz 77. Rosedy O. Yordan

1984 1984 1987 1985 1988 1987 1988 1985 1987 1989 1991 1987 1990 1988 1988 1988 1990 1990 1982 1986 1989 1986 1991 1989 1987 1987 November, 1990 May, 1990 June, 1991 May 14, 1991 June 1991 March 5, 1992 May 14, 1991 November 6, 1992 September, 1991 March 5, 1992 June, 1991 December, 1989 May 4, 1990 June, 1991

May 5, 1992 March 11, 1993

March 11, 1993 March 11, 1993 May 5, 1992 May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 May 5, 1992 May 5, 1992 May 5, 1992 March 11, 1993 May 5, 1992 May 5, 1992

May 5, 1992 May 5, 1992 May 5, 1992 May 5, 1992 May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992

78. Dennis Dacasin 79. Alejandrino Abaton 80. Orlando S. Balangue

May. 1990 1988 March, 1989

May 5, 1992 May 5, 1992 March 11, 19934

They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time.5 They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G. They received their wages from Promm-Gem or SAPS.6 SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.7 P&G is principally engaged in the manufacture and production of different consumer and health products, which it sells on a wholesale basis to various supermarkets and distributors.8 To enhance consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products.9 In December 1991, petitioners filed a complaint10 against P&G for regularization, service incentive leave pay and other benefits with damages. The complaint was later amended11 to include the matter of their subsequent dismissal. Ruling of the Labor Arbiter On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled that there was no employeremployee relationship between petitioners and P&G. He found that the selection and engagement of the petitioners, the payment of their wages, the power of dismissal and control with respect to the means and methods by which their work was accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that Promm-Gem and SAPS were legitimate independent job contractors. The dispositive portion of his Decision reads: WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit. SO ORDERED.12 Ruling of the NLRC Appealing to the NLRC, petitioners disputed the Labor Arbiters findings. On July 27, 1998, the NLRC rendered a Decision13 disposing as follows: WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the decision appealed from AFFIRMED. SO ORDERED.14 Petitioners filed a motion for reconsideration but the motion was denied in the November 19, 1998 Resolution.15 Ruling of the Court of Appeals Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the NLRC. However, said petition was also denied by the CA which disposed as follows: WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998 is AFFIRMED with the MODIFICATION that respondent Procter & Gamble Phils., Inc. is ordered to pay service incentive leave pay to petitioners. SO ORDERED.16

Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this petition. Issues Petitioners now come before us raising the following issues: I. WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN RENDERING THE QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY DISMISSED BY THE FORMER. II. WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT DECLARE THAT THE PUBLIC RESPONDENTS HAD ACTED WITH GRAVE ABUSE OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS LITIGATION COSTS AND ATTORNEYS FEES.17 Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether petitioners were illegally dismissed; and (3) whether petitioners are entitled for payment of actual, moral and exemplary damages as well as litigation costs and attorneys fees. Petitioners Arguments Petitioners insist that they are employees of P&G. They claim that they were recruited by the salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the existence of Promm-Gem and/or SAPS. They further claim that when the latter had its so-called re-alignment program, petitioners were instructed to fill up application forms and report to the agencies which P&G created.18 Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its letter19 to SAPS dated February 24, 1993, informing the latter that their Merchandising Services Contract will no longer be renewed. Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their client. They claim that the contractors have neither substantial capital nor tools and equipment to undertake independent labor contracting. Petitioners insist that since they had been engaged to perform activities which are necessary or desirable in the usual business or trade of P&G, then they are its regular employees.20 Respondents Arguments On the other hand, P&G points out that the instant petition raises only questions of fact and should thus be thrown out as the Court is not a trier of facts. It argues that findings of facts of the NLRC, particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding and conclusive on the Supreme Court. P&G further argues that there is no employment relationship between it and petitioners. It was Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of work. P&G also contends that the Labor Code neither defines nor limits which services or activities may be validly outsourced. Thus, an employer can farm out any of its activities to an independent contractor, regardless of whether such activity is peripheral or core in nature. It insists that the determination of whether to engage the services of a job contractor or to engage in direct hiring is within the ambit of management prerogative.

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the filing of the Comment of Promm-Gem on the petition.21 Also, although SAPS was impleaded as a party in the proceedings before the Labor Arbiter and the NLRC, it was no longer impleaded as a party in the proceedings before the CA. 22 Hence, our pronouncements with regard to SAPS are only for the purpose of determining the obligations of P&G, if any. Our Ruling The petition has merit. As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is constrained to wade into factual matters when there is insufficient or insubstantial evidence on record to support those factual findings; or when too much is concluded, inferred or deduced from the bare or incomplete facts appearing on record.23 In the present case, we find the need to review the records to ascertain the facts. Labor-only contracting and job contracting In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors. The pertinent Labor Code provision on the matter states: ART. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code. There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. (Emphasis and underscoring supplied.) Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 1802,24 distinguishes between legitimate and labor-only contracting: xxxx Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job[,] work or service.

xxxx Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present: i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or ii) [T]he contractor does not exercise the right to control over the performance of the work of the contractual employee. The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code, as amended. "Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out. The "right to control" shall refer to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. x x x x (Underscoring supplied.) Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or services. Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature. However, in order for such outsourcing to be valid, it must be made to an independent contractor because the current labor rules expressly prohibit labor-only contracting. To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places workers to perform a job, work or service for a principal25 and any of the following elements are present: i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or ii) The contractor does not exercise the right to control over the performance of the work of the contractualemployee. (Underscoring supplied) In the instant case, the financial statements26 of Promm-Gem show that it has authorized capital stock of P1 million and a paid-in capital, or capital available for operations, of P500,000.00 as of 1990.27 It also has long term assets worth P432,895.28 and current assets of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space with a floor area of 870 square meters.28 It also had under its name three registered vehicles which were used for its promotional/merchandising business.29Promm-Gem also has other clients30 aside from P&G.31 Under the circumstances, we find that Promm-Gem has substantial investment which relates to the work to be performed. These factors negate the existence of the element specified in Section 5(i) of DOLE Department Order No. 1802. The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their work. Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already considered the complainants working under it as its regular, not merely contractual or project, employees.32 This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates on the part of Promm-Gem bad faith and intent to circumvent labor laws which factors have often been tipping points that lead the Court to strike down the employment practice or agreement concerned as contrary to public policy, morals, good customs or public order.33

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find that it is a legitimate independent contractor. On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250.00. There is no other evidence presented to show how much its working capital and assets are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets. In Vinoya v. National Labor Relations Commission,34 the Court held that "[w]ith the current economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as an independent contractor."35 Applying the same rationale to the present case, it is clear that SAPS having a paid-in capital of only P31,250 - has no substantial capital. SAPS lack of substantial capital is underlined by the records36 which show that its payroll for its merchandisers alone for one month would already total P44,561.00. It had 6-month contracts with P&G.37 Yet SAPS failed to show that it could complete the 6-month contracts using its own capital and investment. Its capital is not even sufficient for one months payroll. SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for the period required for it to generate its needed revenue to sustain its operations independently. Substantial capital refers to capitalization used in the performance or completion of the job, work or service contracted out. In the present case, SAPS has failed to show substantial capital. Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity that has already been considered by the Court as doubtlessly directly related to the manufacturing business, 38 which is the principal business of P&G. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal business of P&G, we find that the former is engaged in "labor-only contracting". "Where labor-only contracting exists, the Labor Code itself establishes an employer-employee relationship between the employer and the employees of the labor-only contractor."39 The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.40 Consequently, the following petitioners, having been recruited and supplied by SAPS41 -- which engaged in labor-only contracting -- are considered as the employees of P&G: Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin. The following petitioners, having worked under, and been dismissed by Promm-Gem, are considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado.42 Termination of services We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular employment, the employer shall not terminate the services of an employee except for a just43 or authorized44 cause. In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified the cause of dismissal as grave misconduct and breach of trust, as follows: xxxx

This informs you that effective May 5, 1992, your employment with our company, Promm-Gem, Inc. has been terminated. We find your expressed admission, that you considered yourself as an employee of Procter & Gamble Phils., Inc. and assailing the integrity of the Company as legitimate and independent promotion firm, is deemed as an act of disloyalty prejudicial to the interests of our Company: serious misconduct and breach of trust reposed upon you as employee of our Company which [co]nstitute just cause for the termination of your employment. x x x x45 Misconduct has been defined as improper or wrong conduct; the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character implying wrongful intent and not mere error of judgment. The misconduct to be serious must be of such grave and aggravated character and not merely trivial and unimportant.46 To be a just cause for dismissal, such misconduct (a) must be serious; (b) must relate to the performance of the employees duties; and (c) must show that the employee has become unfit to continue working for the employer.47 In other words, in order to constitute serious misconduct which will warrant the dismissal of an employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or conduct complained of has violated some established rules or policies. It is equally important and required that the act or conduct must have been performed with wrongful intent.48 In the instant case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so. As such, we find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm. A misconduct which is not serious or grave, as that existing in the instant case, cannot be a valid basis for dismissing an employee. Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the trust reposed in the employee by his employer. Ordinary breach will not suffice. A breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.49 Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that the employee concerned holds a position of responsibility or of trust and confidence. As such, he must be invested with confidence on delicate matters, such as custody, handling or care and protection of the property and assets of the employer. And, in order to constitute a just cause for dismissal, the act complained of must be work-related and must show that the employee is unfit to continue to work for the employer. 50 In the instant case, the petitioners-employees of Promm-Gem have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is there any evidence to show that they are unfit to continue to work as merchandisers for Promm-Gem. All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem. While Promm-Gem had complied with the procedural aspect of due process in terminating the employment of petitionersemployees, i.e., giving two notices and in between such notices, an opportunity for the employees to answer and rebut the charges against them, it failed to comply with the substantive aspect of due process as the acts complained of neither constitute serious misconduct nor breach of trust. Hence, the dismissal is illegal. With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal. The records show that upon receipt by SAPS of P&Gs letter terminating their "Merchandising Services Contact" effective March 11, 1993, they in turn verbally informed the concerned petitioners not to report for work anymore. The concerned petitioners related their dismissal as follows: xxxx 5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr. Saturnino A. Ponce that we should already stop working immediately because that was the order of Procter and Gamble. According to him he could not do otherwise because Procter and Gamble was the one paying us. To prove that Procter and Gamble was the one responsible in our dismissal, he showed to us the letter51 dated February 24, 1993, x x x February 24, 1993

Sales and Promotions Services Armons Bldg., 142 Kamias Road, Quezon City Attention: Mr. Saturnino A. Ponce President & General Manager Gentlemen: Based on our discussions last 5 and 19 February 1993, this formally informs you that we will not be renewing our Merchandising Services Contract with your agency. Please immediately undertake efforts to ensure that your services to the Company will terminate effective close of business hours of 11 March 1993. This is without prejudice to whatever obligations you may have to the company under the abovementioned contract. Very truly yours, (Sgd.) EMMANUEL M. NON Sales Merchandising III 6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no longer allowed to work and we were refused entrance by the security guards posted. According to the security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case in the Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February 25, 1993. x x x521avvphi1 Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS does not carry on its own business because the termination of its contract with P&G automatically meant for it also the termination of its employees services. It is obvious from its act that SAPS had no other clients and had no intention of seeking other clients in order to further its merchandising business. From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in the latters merchandising concerns only. Under the circumstances prevailing in the instant case, we cannot consider SAPS as an independent contractor. Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the lawfulness of the dismissal rests with the employer.53 In termination cases, the burden of proof rests upon the employer to show that the dismissal is for just and valid cause. 54 In the instant case, P&G failed to discharge the burden of proving the legality and validity of the dismissals of those petitioners who are considered its employees. Hence, the dismissals necessarily were not justified and are therefore illegal. Damages We now go to the issue of whether petitioners are entitled to damages. Moral and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to morals, good customs or public policy.55 With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any oppressive act on the part of the latter, we find no support for the award of damages. As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor. The sudden and peremptory barring of the concerned petitioners from work, and from admission to the work place, after just a one-day

verbal notice, and for no valid cause bellows oppression and utter disregard of the right to due process of the concerned petitioners. Hence, an award of moral damages is called for. Attorneys fees may likewise be awarded to the concerned petitioners who were illegally dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights by reason of the oppressive acts56 of P&G. Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges, inclusive of allowances, and other benefits or their monetary equivalent from the time the compensation was withheld up to the time of actual reinstatement.57Hence, all the petitioners, having been illegally dismissed are entitled to reinstatement without loss of seniority rights and with full back wages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement. WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003 are REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc. are ORDERED to reinstate their respective employees immediately without loss of seniority rights and with full backwages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to pay each of those petitioners considered as its employees, namely Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, P25,000.00 as moral damages plus ten percent of the total sum as and for attorneys fees. Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from receipt of this Decision, of petitioners backwages and other benefits; and ten percent of the total sum as and for attorneys fees as stated above; and for immediate execution. SO ORDERED.
MARIANO C. DEL CASTILLO Associate Justice

G.R. No. 160506

June 6, 2011

JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO PLATON, JOSE FERNANDO GUTIERREZ, ESTANISLAO BUENAVENTURA, LOPE SALONGA, FRANZ DAVID, NESTOR IGNACIO, JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO CALANAO, ROLANDO ROMASANTA, RHUEL AGOO, BONIFACIO ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA, ROBERTO ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN GARCIA, ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J. GARCIA, FERNANDO MACABENTE, MELECIO CASAPAO, REYNALDO JACABAN, FERDINAND SALVO, ALSTANDO MONTOS, RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY, LEONARDO P. TALLEDO, ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL BILLONES, ALLAN BALTAZAR, NOLI GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL DULAY, TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES, ANTONIO DACUNA, RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO, WILFREDO TORRES, MELCHOR CARDANO, MARIANO NARANIAN, JOHN SUMERGIDO, ROBERTO ROSALES, GERRY C. GATPO, GERMAN N. GUEVARRA, GILBERT Y. MIRANDA, RODOLFO C. TOLEDO, ARNOLD D. LASTONA, PHILIP M. LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ, FRED P. JIMENEZ, RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ BUSTENERA, ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, ALEJANDRINO ABATON, and ORLANDO S. BALANGUE, Petitioners, vs. PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents. DECISION DEL CASTILLO, J.:

Labor laws expressly prohibit "labor-only" contracting. To prevent its circumvention, the Labor Code establishes an employer-employee relationship between the employer and the employees of the labor-only contractor. The instant petition for review assails the March 21, 2003 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution2 denying the motions for reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc. (P&G). The appellate court affirmed the July 27, 1998 Decision of the National Labor Relations Commission (NLRC), which in turn affirmed the November 29, 1996 Decision3 of the Labor Arbiter. All these decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be legitimate independent contractors and the employers of the petitioners. Factual Antecedents

Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:
Name 1. Joeb M. Aliviado 2. Arthur Corpuz 3. Eric Aliviado 4. Monchito Ampeloquio 5. Abraham Basmayor[, Jr.] 6. Jonathan Mateo May, 7. Lorenzo Platon 8. Jose Fernando Gutierrez 9. Estanislao Buenaventura 10. Lope Salonga 11. Franz David 12. Nestor Ignacio 13. Julio Rey 14. Ruben [Vasquez], Jr. 15. Maximino Pascual 16. Ernesto Calanao[, Jr.] 17. Rolando Romasanta 18. [Roehl] Agoo 19. Bonifacio Ortega 20. Arsenio Soriano, Jr. 21. Arnel Endaya 22. Roberto Enriquez December, 23. Nestor [Es]quila 24. Ed[g]ardo Quiambao 25. Santos Bacalso 26. Samson Basco 27. Aladino Gregor[e], Jr. 28. Edwin Garcia 29. Armando Villar 30. Emil Tawat 31. Mario P. Liongson 32. Cresente J. Garcia 33. Fernando Macabent[a] 34. Melecio Casapao 35. Reynaldo Jacaban 36. Ferdinand Salvo 37. Alstando Montos 38. Rainer N. Salvador 39. Ramil Reyes Date Employed November, 1985 1988 1985 September, 1988 1987 1988 1985 1988 June, 1988 1982 1989 1982 1989 1985 1990 1987 1983 1988 1988 1985 1983 1988 1983 1989 1990 1984 1980 1987 1990 1988 1991 1984 1990 1987 1990 1985 1984 1984 1984 Date Dismissed May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 May 5, 1992 May 5, 1992 May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 May 5, 1992 May 5, 1992 March 11, 1993 May 5, 1992 March 11, 1993 May 5, 1992 March 11, 1993 May 5, 1992 May 5, 1992 March 11, 1993 May 5, 1992 March 11, 1993

40. Pedro G. Roy 41. Leonardo [F]. Talledo 42. Enrique [F]. Talledo 43. Willie Ortiz 44. Ernesto Soyosa 45. Romeo Vasquez 46. Joel Billones 47. Allan Baltazar 48. Noli Gabuyo 49. Emmanuel E. Laban 50. Ramir[o] E. [Pita] 51. Raul Dulay 52. Tadeo Duran[o] 53. Joseph Banico 54. Albert Leynes 55. Antonio Dacu[m]a 56. Renato dela Cruz 57. Romeo Viernes, Jr. 58. El[ia]s Bas[c]o 59. Wilfredo Torres 60. Melchor Carda[]o 61. [Marino] [Maranion] 62. John Sumergido 63. Roberto Rosales 64. Gerry [G]. Gatpo 65. German N. Guevara 66. Gilbert Y. Miranda 67. Rodolfo C. Toledo[, Jr.] 68. Arnold D. [Laspoa] 69. Philip M. Loza 70. Mario N. C[o]ldayon 71. Orlando P. Jimenez 72. Fred P. Jimenez 73. Restituto C. Pamintuan, Jr. 74. Rolando J. de Andres 75. Artuz Bustenera[, Jr.] 76. Roberto B. Cruz 77. Rosedy O. Yordan 78. Dennis Dacasin 79. Alejandrino Abaton 80. Orlando S. Balangue

1987 1985 1988 1987 1988 1985 1987 1989 1991 1987 1990 1988 1988 1988 1990 1990 1982 1986 1989 1986 1991 1989 1987 May, 1987 November, 1990 May, 1990 June, 1991 May 14, 1991 June 1991 March 5, 1992 May 14, 1991 November 6, 1992 September, 1991 March 5, 1992 June, 1991 December, 1989 May 4, 1990 June, 1991 May. 1990 1988 March, 1989 May 5, 1992 May 5, 1992 May 5, 1992 May 5, 1992 May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 May 5, 1992 May 5, 1992 March 11, 19934 March 11, 1993 March 11, 1993 May 5, 1992 May 5, 1992 March 11, 1993 March 11, 1993 March 11, 1993 March 11, 1993 May 5, 1992 May 5, 1992 May 5, 1992 May 5, 1992 March 11, 1993 May 5, 1992 May 5, 1992

They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time.5 They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G. They received their wages from Promm-Gem or SAPS.6 SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.7 P&G is principally engaged in the manufacture and production of different consumer and health products, which it sells on a wholesale basis to various supermarkets and distributors.8 To enhance consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products.9 In December 1991, petitioners filed a complaint 10 against P&G for regularization, service incentive leave pay and other benefits with damages. The complaint was later amended11 to include the matter of their subsequent dismissal. Ruling of the Labor Arbiter On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled that there was no employer-employee relationship between petitioners and P&G. He found that the selection and engagement of the petitioners, the payment of their wages, the power of dismissal and control with respect to the means and methods by which their work was accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that Promm-Gem and SAPS were legitimate independent job contractors. The dispositive portion of his Decision reads: WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit. SO ORDERED.12 Ruling of the NLRC Appealing to the NLRC, petitioners disputed the Labor Arbiters findings. On July 27, 1998, the NLRC rendered a Decision13 disposing as follows: WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the decision appealed from AFFIRMED. SO ORDERED.14 Petitioners filed a motion for reconsideration but the motion was denied in the November 19, 1998 Resolution.15 Ruling of the Court of Appeals Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the NLRC. However, said petition was also denied by the CA which disposed as follows: WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998 is AFFIRMED with the MODIFICATION that respondent Procter & Gamble Phils., Inc. is ordered to pay service incentive leave pay to petitioners. SO ORDERED.16 Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this petition. Issues Petitioners now come before us raising the following issues: I. WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO

LACK OF OR IN EXCESS OF JURISDICTION IN RENDERING THE QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY DISMISSED BY THE FORMER. II. WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT DECLARE THAT THE PUBLIC RESPONDENTS HAD ACTED WITH GRAVE ABUSE OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS LITIGATION COSTS AND ATTORNEYS FEES.17 Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether petitioners were illegally dismissed; and (3) whether petitioners are entitled for payment of actual, moral and exemplary damages as well as litigation costs and attorneys fees. Petitioners Arguments Petitioners insist that they are employees of P&G. They claim that they were recruited by the salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the existence of Promm-Gem and/or SAPS. They further claim that when the latter had its so-called re-alignment program, petitioners were instructed to fill up application forms and report to the agencies which P&G created.18 Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its letter19 to SAPS dated February 24, 1993, informing the latter that their Merchandising Services Contract will no longer be renewed. Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their client. They claim that the contractors have neither substantial capital nor tools and equipment to undertake independent labor contracting. Petitioners insist that since they had been engaged to perform activities which are necessary or desirable in the usual business or trade of P&G, then they are its regular employees.20 Respondents Arguments On the other hand, P&G points out that the instant petition raises only questions of fact and should thus be thrown out as the Court is not a trier of facts. It argues that findings of facts of the NLRC, particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding and conclusive on the Supreme Court. P&G further argues that there is no employment relationship between it and petitioners. It was Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of work. P&G also contends that the Labor Code neither defines nor limits which services or activities may be validly outsourced. Thus, an employer can farm out any of its activities to an independent contractor, regardless of whether such activity is peripheral or core in nature. It insists that the determination of whether to engage the services of a job contractor or to engage in direct hiring is within the ambit of management prerogative. At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the filing of the Comment of Promm-Gem on the petition.21 Also, although SAPS was impleaded as a party in the proceedings before the Labor Arbiter and the NLRC, it was no longer impleaded as a party in the proceedings before the CA.22 Hence, our pronouncements with regard to SAPS are only for the purpose of determining the obligations of P&G, if any. Our Ruling The petition has merit. As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is constrained to wade into factual matters when there is insufficient or insubstantial evidence on record to support those factual findings; or when too much is concluded, inferred or deduced from the bare or incomplete facts appearing on record.23 In the present case, we find the need to review the records to ascertain the facts. Labor-only contracting and job contracting

In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors. The pertinent Labor Code provision on the matter states: ART. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code. There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. (Emphasis and underscoring supplied.) Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18-02, 24 distinguishes between legitimate and labor-only contracting: xxxx Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job[,] work or service. xxxx Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present: i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or ii) [T]he contractor does not exercise the right to control over the performance of the work of the contractual employee. The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code, as amended. "Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out. The "right to control" shall refer to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. x x x x (Underscoring supplied.)

Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or services. Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature. However, in order for such outsourcing to be valid, it must be made to an independent contractor because the current labor rules expressly prohibit labor-only contracting. To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places workers to perform a job, work or service for a principal25 and any of the following elements are present: i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or ii) The contractor does not exercise the right to control over the performance of the work of the contractualemployee. (Underscoring supplied) In the instant case, the financial statements26 of Promm-Gem show that it has authorized capital stock of P1 million and a paid-in capital, or capital available for operations, of P500,000.00 as of 1990.27 It also has long term assets worth P432,895.28 and current assets of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space with a floor area of 870 square meters.28 It also had under its name three registered vehicles which were used for its promotional/merchandising business.29Promm-Gem also has other clients30 aside from P&G.31 Under the circumstances, we find that Promm-Gem has substantial investment which relates to the work to be performed. These factors negate the existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02. The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their work. Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already considered the complainants working under it as its regular, not merely contractual or project, employees. 32 This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates on the part of Promm-Gem bad faith and intent to circumvent labor laws which factors have often been tipping points that lead the Court to strike down the employment practice or agreement concerned as contrary to public policy, morals, good customs or public order.33 Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find that it is a legitimate independent contractor. On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250.00. There is no other evidence presented to show how much its working capital and assets are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets. In Vinoya v. National Labor Relations Commission,34 the Court held that "[w]ith the current economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as an independent contractor."35 Applying the same rationale to the present case, it is clear that SAPS having a paid-in capital of only P31,250 - has no substantial capital. SAPS lack of substantial capital is underlined by the records 36 which show that its payroll for its merchandisers alone for one month would already total P44,561.00. It had 6-month contracts with P&G.37 Yet SAPS failed to show that it could complete the 6-month contracts using its own capital and investment. Its capital is not even sufficient for one months payroll. SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for the period required for it to generate its needed revenue to sustain its operations independently. Substantial capital refers to capitalization used in the performance or completion of the job, work or service contracted out. In the present case, SAPS has failed to show substantial capital. Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity that has already been considered by the Court as doubtlessly directly related to the manufacturing business,38 which is the principal business of P&G. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal business of P&G, we find that the former is engaged in "labor-only contracting". "Where labor-only contracting exists, the Labor Code itself establishes an employer-employee relationship between the employer and the employees of the labor-only contractor."39 The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.40 Consequently, the following petitioners, having been recruited and supplied

by SAPS41 -- which engaged in labor-only contracting -- are considered as the employees of P&G: Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin. The following petitioners, having worked under, and been dismissed by Promm-Gem, are considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado.42 Termination of services We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular employment, the employer shall not terminate the services of an employee except for a just43 or authorized44 cause. In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified the cause of dismissal as grave misconduct and breach of trust, as follows: xxxx This informs you that effective May 5, 1992, your employment with our company, Promm-Gem, Inc. has been terminated. We find your expressed admission, that you considered yourself as an employee of Procter & Gamble Phils., Inc. and assailing the integrity of the Company as legitimate and independent promotion firm, is deemed as an act of disloyalty prejudicial to the interests of our Company: serious misconduct and breach of trust reposed upon you as employee of our Company which [co]nstitute just cause for the termination of your employment. x x x x45 Misconduct has been defined as improper or wrong conduct; the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character implying wrongful intent and not mere error of judgment. The misconduct to be serious must be of such grave and aggravated character and not merely trivial and unimportant. 46 To be a just cause for dismissal, such misconduct (a) must be serious; (b) must relate to the performance of the employees duties; and (c) must show that the employee has become unfit to continue working for the employer.47 In other words, in order to constitute serious misconduct which will warrant the dismissal of an employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or conduct complained of has violated some established rules or policies. It is equally important and required that the act or conduct must have been performed with wrongful intent. 48 In the instant case, petitionersemployees of Promm-Gem may have committed an error of judgment in claiming to be employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so. As such, we find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm. A misconduct which is not serious or grave, as that existing in the instant case, cannot be a valid basis for dismissing an employee. Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the trust reposed in the employee by his employer. Ordinary breach will not suffice. A breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.49 Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that the employee concerned holds a position of responsibility or of trust and confidence. As such, he must be invested with confidence on delicate matters, such as custody, handling or care and protection of the property and assets of the employer. And, in order to constitute a just cause for dismissal, the act complained of must be work-related and must show that the employee is unfit to continue to work for the employer. 50 In the instant case, the petitioners-employees of Promm-Gem have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is there any evidence to show that they are unfit to continue to work as merchandisers for Promm-Gem. All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem.

While Promm-Gem had complied with the procedural aspect of due process in terminating the employment of petitionersemployees, i.e., giving two notices and in between such notices, an opportunity for the employees to answer and rebut the charges against them, it failed to comply with the substantive aspect of due process as the acts complained of neither constitute serious misconduct nor breach of trust. Hence, the dismissal is illegal. With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal. The records show that upon receipt by SAPS of P&Gs letter terminating their "Merchandising Services Contact" effective March 11, 1993, they in turn verbally informed the concerned petitioners not to report for work anymore. The concerned petitioners related their dismissal as follows: xxxx 5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr. Saturnino A. Ponce that we should already stop working immediately because that was the order of Procter and Gamble. According to him he could not do otherwise because Procter and Gamble was the one paying us. To prove that Procter and Gamble was the one responsible in our dismissal, he showed to us the letter51 dated February 24, 1993, x x x February 24, 1993 Sales and Promotions Services Armons Bldg., 142 Kamias Road, Quezon City Attention: Mr. Saturnino A. Ponce President & General Manager Gentlemen: Based on our discussions last 5 and 19 February 1993, this formally informs you that we will not be renewing our Merchandising Services Contract with your agency. Please immediately undertake efforts to ensure that your services to the Company will terminate effective close of business hours of 11 March 1993. This is without prejudice to whatever obligations you may have to the company under the abovementioned contract. Very truly yours, (Sgd.) EMMANUEL M. NON Sales Merchandising III 6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no longer allowed to work and we were refused entrance by the security guards posted. According to the security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case in the Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February 25, 1993. x x x52 Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS does not carry on its own business because the termination of its contract with P&G automatically meant for it also the termination of its employees services. It is obvious from its act that SAPS had no other clients and had no intention of seeking other clients in order to further its merchandising business. From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in the latters merchandising concerns only. Under the circumstances prevailing in the instant case, we cannot consider SAPS as an independent contractor. Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the lawfulness of the dismissal rests with the employer.53 In termination cases, the burden of proof rests upon the employer to show that the dismissal is for just and valid cause.54 In the instant case, P&G failed to discharge the burden of proving the legality and validity of the dismissals of those petitioners who are considered its employees. Hence, the dismissals necessarily were not justified and are therefore illegal. Damages

We now go to the issue of whether petitioners are entitled to damages. Moral and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to morals, good customs or public policy.55 With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any oppressive act on the part of the latter, we find no support for the award of damages. As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor. The sudden and peremptory barring of the concerned petitioners from work, and from admission to the work place, after just a one-day verbal notice, and for no valid cause bellows oppression and utter disregard of the right to due process of the concerned petitioners. Hence, an award of moral damages is called for. Attorneys fees may likewise be awarded to the concerned petitioners who were illegally dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights by reason of the oppressive acts56 of P&G. Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges, inclusive of allowances, and other benefits or their monetary equivalent from the time the compensation was withheld up to the time of actual reinstatement.57Hence, all the petitioners, having been illegally dismissed are entitled to reinstatement without loss of seniority rights and with full back wages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.1avvphi1 WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003 are REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc. are ORDERED to reinstate their respective employees immediately without loss of seniority rights and with full backwages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to pay each of those petitioners considered as its employees, namely Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, P25,000.00 as moral damages plus ten percent of the total sum as and for attorneys fees. Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from receipt of this Decision, of petitioners backwages and other benefits; and ten percent of the total sum as and for attorneys fees as stated above; and for immediate execution. SO ORDERED.
MARIANO C. DEL CASTILLO Associate Justice

PAL v. Enrique Ligan et. Al,. February 29, 2008. 547 s 181
G.R. No. 146408 April 30, 2009 PHILIPPINE AIRLINES, INC., Petitioner, vs. ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARISUSA, JEFFREY LLENES, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERIE ALEGRES, BENEDICTO AUXTERO, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL,Respondents. RESOLUTION CARPIO MORALES, J.:

Before the Court are petitioners Motion for Reconsideration and respondents Motion for Clarification and/or Reconsideration of the Courts February 29, 2008 Decision in light of incidents bearing on the present case which were not brought to light by them before the Court promulgated said Decision. The Decision of the Court affirmed with modification the appellate courts September 29, 2000 Decision and directed petitioner Philippine Airlines, Inc. to:

(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL as its regular employees in their same or substantially equivalent positions, and pay the wages and benefits due them as regular employees plus salary differential corresponding to the difference between the wages and benefits given them and those granted to petitioners other regular employees of the same rank; and (b) pay respondent BENEDICTO AUXTERO salary differential; backwages from the time of his dismissal until the finality of this decision; and separation pay, in lieu of reinstatement, equivalent to one (1) month pay for every year of service until the finality of this decision. There being no data from which this Court may determine the monetary liabilities of petitioner, the case is REMANDED to the Labor Arbiter solely for that purpose. SO ORDERED.1 Synergy Services Corporation (Synergy) having been found to be a labor-only contractor, respondents were consequently declared as petitioners regular employees who are entitled to the salaries, allowances, and other employment benefits under the pertinent Collective Bargaining Agreement. Petitioner prays for a reconsideration of the Decision, maintaining its position that respondents were employed by Synergy, and to "reinstate" respondents as regular employees is iniquitous since it would be compelled to employ personnel more than what its operations require. It adds that the Court should declare that reinstatement is no longer an appropriate relief in view of the long period of time that had elapsed. For their part, respondents, deducing from the Decision that their termination was found to be illegal, posit that the portion of the Decision ordering petitioner to "accept" them should also mean to "reinstate" them with backwages. 2Respondents additionally pray for the award to them of attorneys fees, albeit they admit that they failed to raise it as an issue. Both parties point out that the Courts Decision "presupposes" or "was based on the erroneous assumption" that respondents are still in the actual employ of petitioner. Respondents disclose that except for those who have either died, accepted settlement earlier, or declared as employee of Synergy, the remaining respondents have all been terminated in the guise of retrenchment. Joining such account, petitioner reveals that 13 out of the 25 respondents filed an illegal dismissal case, which is pending before the appellate court stationed at Cebu City as CA-G.R. SP No. 00922.3 Respondents add that the appellate court, by Resolution of April 22, 2008, held the illegal dismissal case in abeyance until after this Court rules on the present case.4 Petitioner also urges the Court to examine the cases of respondents Roque Pilapil (Pilapil) and Benedicto Auxtero (Auxtero) in light of the following information, viz: Pilapil entered petitioners pool of regular employees on September 1, 19915 but was later terminated for submitting falsified academic credentials. Pilapils complaint for illegal dismissal was dismissed by the labor arbiter, whose decision was reinstated with modification by the appellate court by Decision of March 7, 2001 in CA-G.R. SP No. 50578. On Pilapils appeal, this Court, by Resolution of September 19, 2001 in G.R. No. 147853, declared the case terminated when Pilapil failed to file his intended petition. Given its information in the immediately foregoing paragraph, petitioner claims that it already complied with the judgment awarding separation pay representing financial assistance to Pilapil on September 23, 2003, during the pendency of the present case.6 Respondents do not dispute petitioners information.7 Petitioner also informs the Court that Auxtero already secured a favorable judgment from this Court in G.R. No. 158710 which effectively affirmed the appellate courts Decision of February 26, 2003 in CA-G.R. SP No. 50480.8It appears from the "Joint Declaration of Satisfaction of Judgment"9 with "Release and Quitclaim and Waiver,"10both dated November 29, 2007, that petitioner already satisfied the judgment rendered in said G.R. No. 158710 in favor of Auxtero in the amount of P1.3 Million, and that Auxtero had waived reinstatement. Respondents essentially corroborate this information of petitioner.11 In light of these recent manifestations-informations of the parties, the Court finds that a modification of the Decision is in order, the claims with respect to Pilapil and Auxtero having been deemed extinguished even before the promulgation of the Decision. That Pilapil

was a regular employee yields to the final finding of a valid dismissal in the supervening case involving his own misconduct, while Auxteros attempt at forum-shopping should not be countenanced. IN ALL OTHER RESPECTS, the Court finds no sufficient reason to deviate from its Decision, but proceeds, nonetheless, to clarify a few points. While this Courts Decision ruled on the regular status of respondents, it must be deemed to be without prejudice to the resolution of the issue of illegal dismissal in the proper case. The Decision thus expressly stated: Finally, it must be stressed that respondents, having been declared to be regular employees of petitioner, Synergy being a mere agent of the latter, had acquired security of tenure. As such, they could only be dismissed by petitioner, the real employer, on the basis of just or authorized cause, and with observance of procedural due process.12 (Underscoring supplied) Notably, subject of the Decision was respondents complaints13 for regularization and under-/non-payment of benefits. The Court did not and could not take cognizance of the validity of the eventual dismissal of respondents because the matter of just or authorized cause is beyond the issues of the case. That is why the Court did not order reinstatement for such relief presupposes a finding of illegal dismissal14 in the proper case which, as the parties now manifest, pends before the appellate court. Respecting petitioners allegation of financial woes that led to the June 30, 1998 lay-off of respondents, as the Court held in its Decision, petitioner failed to establish such economic losses which rendered impossible the compliance with the order to accept respondent as regular employees. Thus the Decision reads: Other than its bare allegations, petitioner presented nothing to substantiate its impossibility of compliance. In fact, petitioner waived this defense by failing to raise it in its Memorandum filed on June 14, 1999 before the Court of Appeals. x x x15 (Underscoring supplied) Petitioner, for the first time, revealed the matter of termination and the allegation of financial woes in its Motion for Reconsideration of October 10, 2000 before the appellate court,16 not by way of defense to a charge of illegal dismissal but to manifest that supervening events have rendered it impossible for petitioner to comply with the order to accept respondents as regular employees.17 Moreover, the issue of economic losses as a ground for dismissing respondents is factual in nature, hence, it may be determined in the proper case. All told, the pending illegal dismissal case in CA-G.R. SP No. 00922 may now take its course. The Courts finding that respondents are regular employees of petitioner neither frustrates nor preempts the appellate courts proceedings in resolving the issue of retrenchment as an authorized cause for termination. If an authorized cause for dismissal is later found to exist, petitioner would still have to pay respondents their corresponding benefits and salary differential up to June 30, 1998. Otherwise, if there is a finding of illegal dismissal, an order for reinstatement with full backwages does not conflict with the Courts declaration of the regular employee status of respondents. As to the belated plea of respondents for attorneys fees, suffice it to state that parties who have not appealed cannot obtain from the appellate court any affirmative reliefs other than those granted, if any, in the decision of the lower tribunal. 18 Since respondents did not file a motion for reconsideration of the appellate courts decision, much less appeal therefrom, they can advance only such arguments as may be necessary to defeat petitioners claims or to uphold the appealed decision, and cannot ask for a modification of the judgment in their favor in order to obtain other positive reliefs.19 WHEREFORE, the Decision of February 29, 2008 is, in light of the foregoing discussions, MODIFIED. As MODIFIED, the dispositive portion of the Decision reads: WHEREFORE, the Court of Appeals Decision of September 29, 2000 is AFFIRMED with MODIFICATION. Petitioner PHILIPPINE AIRLINES, INC., is ordered to recognize respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARISUSA, JEFFREY LLENES, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERIE ALEGRES, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL as its regular employees in their same or substantially equivalent positions, and pay the wages and benefits due them as regular employees plus salary differential corresponding to the difference between the wages and benefits given them and those granted to petitioners other regular employees of the same or substantially equivalent rank, up to June 30, 1998, without prejudice to the resolution of the illegal dismissal case. There being no data from which this Court may determine the monetary liabilities of petitioner, the case is REMANDED to the Labor Arbiter solely for that purpose.

SO ORDERED.
CONCHITA CARPIO MORALES Associate Justice

G.R. No. 146408

February 29, 2008

PHILIPPINE AIRLINES, INC., petitioner, vs. ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, BENEDICTO AUXTERO, EDUARDO MAGDADARAUG, NELSON M. DULCE, and ALLAN BENTUZAL, respondents. DECISION CARPIO MORALES, J.:

Petitioner Philippine Airlines as Owner, and Synergy Services Corporation (Synergy) as Contractor, entered into an Agreement1 on July 15, 1991 whereby Synergy undertook to "provide loading, unloading, delivery of baggage and cargo and other related services to and from [petitioner]'s aircraft at the Mactan Station."2 The Agreement specified the following "Scope of Services" of Contractor Synergy: 1.2 CONTRACTOR shall furnish all the necessary capital, workers, loading, unloading and deliverymaterials, facilities, supplies, equipment and tools for the satisfactory performance and execution of the following services (the Work): a. Loading and unloading of baggage and cargo to and from the aircraft; b. Delivering of baggage from the ramp to the baggage claim area; c. Picking up of baggage from the baggage sorting area to the designated parked aircraft; d. Delivering of cargo unloaded from the flight to cargo terminal; e. Other related jobs (but not janitorial functions) as may be required and necessary; CONTRACTOR shall perform and execute the aforementioned Work at the following areas located at Mactan Station, to wit: a. Ramp Area b. Baggage Claim Area c. Cargo Terminal Area, and d. Baggage Sorting Area3 (Underscoring supplied) And it expressly provided that Synergy was "an independent contractor and . . . that there w[ould] be no employer-employee relationship between CONTRACTOR and/or its employees on the one hand, and OWNER, on the other."4 On the duration of the Agreement, Section 10 thereof provided: 10. 1 Should at any time OWNER find the services herein undertaken by CONTRACTOR to be unsatisfactory, it shall notify CONTRACTOR who shall have fifteen (15) days from such notice within which to improve the services. If CONTRACTOR fails to improve the services under this Agreement according to OWNER'S specifications and standards, OWNER shall have the right to terminate this Agreement immediately and without advance notice. 10.2 Should CONTRACTOR fail to improve the services within the period stated above or should CONTRACTOR breach the terms of this Agreement and fail or refuse to perform the Work in such a manner as will be consistent with the achievement of the result therein contracted for or in any other way fail to comply strictly with any terms of this Agreement, OWNER at its option, shall have the right to terminate this Agreement and to make other arrangements for having said Work performed and pursuant thereto shall retain so much of the money held on the Agreement as is necessary to cover the OWNER's costs and

damages, without prejudice to the right of OWNER to seek resort to the bond furnished by CONTRACTOR should the money in OWNER's possession be insufficient. x x x x (Underscoring supplied) Except for respondent Benedicto Auxtero (Auxtero), the rest of the respondents, who appear to have been assigned by Synergy to petitioner following the execution of the July 15, 1991 Agreement, filed on March 3, 1992 complaints before the NLRC Regional Office VII at Cebu City against petitioner, Synergy and their respective officials for underpayment, non-payment of premium pay for holidays, premium pay for rest days, service incentiveleave pay, 13th month pay and allowances, and for regularization of employment status with petitioner, they claiming to be "performing duties for the benefit of [petitioner] since their job is directly connected with [its] business x x x."5 Respondent Auxtero had initially filed a complaint against petitioner and Synergy and their respective officials for regularization of his employment status. Later alleging that he was, without valid ground, verbally dismissed, he filed a complaint against petitioner and Synergy and their respective officials for illegal dismissal and reinstatement with full backwages.6 The complaints of respondents were consolidated. By Decision7 of August 29, 1994, Labor Arbiter Dominador Almirante found Synergy an independent contractor and dismissed respondents' complaint for regularization against petitioner, but granted their money claims. The fallo of the decision reads: WHEREFORE, foregoing premises considered, judgment is hereby rendered as follows: (1) Ordering respondents PAL and Synergy jointly and severally to pay all the complainants herein their 13th month pay and service incentive leave benefits; xxxx (3) Ordering respondent Synergy to pay complainant Benedicto Auxtero a financial assistance in the amount of P5,000.00. The awards hereinabove enumerated in the aggregate total amount of THREE HUNDRED TWENTY-TWO THOUSAND THREE HUNDRED FIFTY NINE PESOS AND EIGHTY SEVEN CENTAVOS (P322,359.87) are computed in detail by our Fiscal Examiner which computation is hereto attached to form part of this decision. The rest of the claims are hereby ordered dismissed for lack of merit.8 (Underscoring supplied) On appeal by respondents, the NLRC, Fourth Division, Cebu City, vacated and set aside the decision of the Labor Arbiter by Decision9 of January 5, 1996, the fallo of which reads: WHEREFORE, the Decision of the Labor Arbiter Dominador A. Almirante, dated August 29, 1994, is hereby VACATED and SET ASIDE and judgment is hereby rendered: 1. Declaring respondent Synergy Services Corporation to be a 'labor-only' contractor; 2. Ordering respondent Philippine Airlines to accept, as its regular employees, all the complainants, . . . and to give each of them the salaries, allowances and other employment benefits and privileges of a regular employee under the Collective Bargaining Agreement subsisting during the period of their employment; xxxx 4. Declaring the dismissal of complainant Benedicto Auxtero to be illegal and ordering his reinstatementas helper or utility man with respondent Philippine Airlines, with full backwages, allowances and other benefits and privileges from the time of his dismissal up to his actual reinstatement; and 5. Dismissing the appeal of respondent Synergy Services Corporation, for lack of merit.10 (Emphasis and underscoring supplied) Only petitioner assailed the NLRC decision via petition for certiorari before this Court.

By Resolution11 of January 25, 1999, this Court referred the case to the Court of Appeals for appropriate action and disposition, conformably with St. Martin Funeral Homes v. National Labor Relations Commission which was promulgated on September 16, 1998. The appellate court, by Decision of September 29, 2000, affirmed the Decision of the NLRC.12 Petitioner's motion for reconsideration having been denied by Resolution of December 21, 2000,13 the present petition was filed, faulting the appellate court I. . . . IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION DECISION WHICH IMPOSED THE RELATIONSHIP OF EMPLOYER-EMPLOYEE BETWEEN PETITIONER AND THE RESPONDENTS HEREIN. II. . . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR RELATIONS COMMISSION ORDERING THE REINSTATEMENT OF RESPONDENT AUXTERO DESPITE THE ABSENCE [OF] ANY FACTUAL FINDING IN THE DECISION THAT PETITIONER ILLEGALLY TERMINATED HIS EMPLOYMENT. III. . . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND GRAVE ERROR IN UPHOLDING THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION WHICH COMPELLED THE PETITIONER TO EMPLOY THE RESPONDENTS AS REGULAR EMPLOYEES DESPITE THE FACT THAT THEIR SERVICES ARE IN EXCESS OF PETITIONER COMPANY'S OPERATIONAL REQUIREMENTS.14 (Underscoring supplied) Petitioner argues that the law does not prohibit an employer from engaging an independent contractor, like Synergy, which has substantial capital in carrying on an independent business of contracting, to perform specific jobs. Petitioner further argues that its contracting out to Synergy various services like janitorial, aircraft cleaning, baggage-handling, etc., which are directly related to its business, does not make respondents its employees. Petitioner furthermore argues that none of the four (4) elements of an employer-employee relationship between petitioner and respondents, viz: selection and engagement of an employee, payment of wages, power of dismissal, and the power to control employee's conduct, is present in the case.15 Finally, petitioner avers that reinstatement of respondents had been rendered impossible because it had reduced its personnel due to heavy losses as it had in fact terminated its service agreement with Synergy effective June 30, 199816 as a cost-saving measure. The decision of the case hinges on a determination of whether Synergy is a mere job-only contractor or a legitimate contractor. If Synergy is found to be a mere job-only contractor, respondents could be considered as regular employees of petitioner as Synergy would then be a mere agent of petitioner in which case respondents would be entitled to all the benefits granted to petitioner's regular employees; otherwise, if Synergy is found to be a legitimate contractor, respondents' claims against petitioner must fail as they would then be considered employees of Synergy. The statutory basis of legitimate contracting or subcontracting is provided in Article 106 of the Labor Code which reads: ART. 106. CONTRACTOR OR SUBCONTRACTOR. - Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under the Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code.

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, AND the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. (Emphasis, capitalization and underscoring supplied) Legitimate contracting and labor-only contracting are defined in Department Order (D.O.) No. 18-02, Series of 2002 (Rules Implementing Articles 106 to 109 of the Labor Code, as amended) as follows: Section 3. Trilateral relationship in contracting arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job, work or service. (Emphasis and underscoring supplied) Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal,and any of the following elements are [sic] present: (i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; OR (ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee. (Emphasis, underscoring and capitalization supplied) "Substantial capital or investment" and the "right to control" are defined in the same Section 5 of the Department Order as follows: "Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out. The "right to control" shall refer to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. (Emphasis and underscoring supplied) From the records of the case, it is gathered that the work performed by almost all of the respondents - loading and unloading of baggage and cargo of passengers - is directly related to the main business of petitioner. And the equipment used by respondents as station loaders, such as trailers and conveyors, are owned by petitioner.17 Petitioner asserts, however, that mere compliance with substantial capital requirement suffices for Synergy to be considered a legitimate contractor, citing Neri v. National Labor Relations Commission.18 Petitioner's reliance on said case is misplaced. In Neri, the Labor Arbiter and the NLRC both determined that Building Care Corporation had a capital stock of P1 million fully subscribed and paid for.19 The corporation's status as independent contractor had in fact been previously confirmed in an earlier case20 by this Court which found it to be serving, among others, a university, an international bank, a big local bank, a hospital center, government agencies, etc." In stark contrast to the case at bar, while petitioner steadfastly asserted before the Labor Arbiter and the NLRC that Synergy has a substantial capital to engage in legitimate contracting, it failed to present evidence thereon. As the NLRC held: The decision of the Labor Arbiter merely mentioned on page 5 of his decision that respondent SYNERGY has substantial capital, but there is no showing in the records as to how much is that capital. Neither had respondents shown that SYNERGY has such substantial capital. x x x21 (Underscoring supplied) It was only after the appellate court rendered its challenged Decision of September 29, 2002 when petitioner, in its Motion for Reconsideration of the decision, sought to prove, for the first time, Synergy's substantial capitalization by attaching photocopies of Synergy's financial statements, e.g., balance sheets, statements of income and retained earnings, marked as "Annexes 'A' - 'A-4.'"22

More significantly, however, is that respondents worked alongside petitioner's regular employees who were performing identical work.23 As San Miguel Corporation v. Aballa24 and Dole Philippines, Inc. v. Esteva, et al.25teach, such is an indicium of labor-only contracting. For labor-only contracting to exist, Section 5 of D.O. No. 18-02 which requires any of two elements to be present is, for convenience, re-quoted: (i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal, OR (ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee. (Emphasis and CAPITALIZATION supplied) Even if only one of the two elements is present then, there is labor-only contracting. The control test element under the immediately-quoted paragraph (ii), which was not present in the old Implementing Rules (Department Order No. 10, Series of 1997),26 echoes the prevailing jurisprudential trend27elevating such element as a primary determinant of employer-employee relationship in job contracting agreements. One who claims to be an independent contractor has to prove that he contracted to do the work according to his own methods and without being subject to the employer's control except only as to the results.28 While petitioner claimed that it was Synergy's supervisors who actually supervised respondents, it failed to present evidence thereon. It did not even identify who were the Synergy supervisors assigned at the workplace. Even the parties' Agreement does not lend support to petitioner's claim, thus: Section 6. Qualified and Experienced Worker: Owner's Right to Dismiss Workers. CONTRACTOR shall employ capable and experienced workers and foremen to carry out the loading, unloading and delivery Work as well as provide all equipment, loading, unloading and delivery equipment, materials, supplies and tools necessary for the performance of the Work. CONTRACTOR shall upon OWNER'S request furnish the latter with information regarding the qualifications of the former's workers, to prove their capability and experience. Contractor shall require all its workers, employees, suppliers and visitors to comply with OWNER'S rules, regulations, procedures and directives relative to the safety and security of OWNER'S premises, properties and operations. For this purpose, CONTRACTOR shall furnish its employees and workers identification cards to be countersigned by OWNER and uniforms to be approved by OWNER. OWNER may require CONTRACTOR to dismiss immediately and prohibit entry into OWNER'S premises of any person employed therein by CONTRACTOR who in OWNER'S opinion is incompetent or misconducts himself or does not comply with OWNER'S reasonable instructions and requests regarding security, safety and other matters and such person shall not again be employed to perform the services hereunder without OWNER'S permission.29 (Underscoring partly in the original and partly supplied; emphasis supplied) Petitioner in fact admitted that it fixes the work schedule of respondents as their work was dependent on the frequency of plane arrivals.30 And as the NLRC found, petitioner's managers and supervisors approved respondents' weekly work assignments and respondents and other regular PAL employees were all referred to as "station attendants" of the cargo operation and airfreight services of petitioner.31 Respondents having performed tasks which are usually necessary and desirable in the air transportation business of petitioner, they should be deemed its regular employees and Synergy as a labor-only contractor.32 The express provision in the Agreement that Synergy was an independent contractor and there would be "no employer-employee relationship between [Synergy] and/or its employees on one hand, and [petitioner] on the other hand" is not legally binding and conclusive as contractual provisions are not valid determinants of the existence of such relationship. For it is the totality of the facts and surrounding circumstances of the case33 which is determinative of the parties' relationship. Respecting the dismissal on November 15, 199234 of Auxtero, a regular employee of petitioner who had been working as utility man/helper since November 1988, it is not legally justified for want of just or authorized cause therefor and for non-compliance with procedural due process. Petitioner's claim that he abandoned his work does not persuade.35 The elements of abandonment being (1) the failure to report for work or absence without valid or justifiable reason, and (2) a clear intention to sever the employer-employee relationship manifested by some overt acts,36 the onus probandi lies with petitioner which, however, failed to discharge the same.

Auxtero, having been declared to be a regular employee of petitioner, and found to be illegally dismissed from employment, should be entitled to salary differential37 from the time he rendered one year of service until his dismissal, reinstatement plus backwages until the finality of this decision.38 In view, however, of the long period of time39 that had elapsed since his dismissal on November 15, 1992, it would be appropriate to award separation pay of one (1) month salary for each year of service, in lieu of reinstatement.40 As regards the remaining respondents, the Court affirms the ruling of both the NLRC and the appellate court, ordering petitioner to accept them as its regular employees and to give each of them the salaries, allowances and other employment benefits and privileges of a regular employee under the pertinent Collective Bargaining Agreement. Petitioner claims, however, that it has become impossible for it to comply with the orders of the NLRC and the Court of Appeals, for during the pendency of this case, it was forced to reduce its personnel due to heavy losses caused by economic crisis and the pilots' strike of June 5, 1998.41 Hence, there are no available positions where respondents could be placed. And petitioner informs that "the employment contracts of all if not most of the respondents . . . were terminated by Synergy effective 30 June 1998 when petitioner terminated its contract with Synergy."42 Other than its bare allegations, petitioner presented nothing to substantiate its impossibility of compliance. In fact, petitioner waived this defense by failing to raise it in its Memorandum filed on June 14, 1999 before the Court of Appeals. 43 Further, the notice of termination in 1998 was in disregard of a subsisting temporary restraining order44 to preserve the status quo, issued by this Court in 1996 before it referred the case to the Court of Appeals in January 1999. So as to thwart the attempt to subvert the implementation of the assailed decision, respondents are deemed to be continuously employed by petitioner, for purposes of computing the wages and benefits due respondents. Finally, it must be stressed that respondents, having been declared to be regular employees of petitioner, Synergy being a mere agent of the latter, had acquired security of tenure. As such, they could only be dismissed by petitioner, the real employer, on the basis of just or authorized cause, and with observance of procedural due process. WHEREFORE, the Court of Appeals Decision of September 29, 2000 is AFFIRMED with MODIFICATION. Petitioner PHILIPPINE AIRLINES, INC. is ordered to: (a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL as its regular employees in their same or substantially equivalent positions, and pay the wages and benefits due them as regular employees plus salary differential corresponding to the difference between the wages and benefits given them and those granted to petitioner's other regular employees of the same rank; and (b) pay respondent BENEDICTO AUXTERO salary differential; backwages from the time of his dismissal until the finality of this decision; and separation pay, in lieu of reinstatement, equivalent to one (1) month pay for every year of service until the finality of this decision. There being no data from which this Court may determine the monetary liabilities of petitioner, the case is REMANDED to the Labor Arbiter solely for that purpose. SO ORDERED.
CONCHITA CARPIO MORALES Associate Justice

G.R. No. 160278

February 8, 20127

GARDEN OF MEMORIES PARK and LIFE PLAN, INC. and PAULINA T. REQUIO, Petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, SECOND DIVISION, LABOR ARBITER FELIPE T. GARDUQUE II and HILARIA CRUZ, Respondents. DECISION MENDOZA, J.:

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This is a petition for review under Rule 45 of the Rules of Court seeking nullification of the June 11, 2003 Decision 1 and October 16, 2003 Resolution2 of the Court of Appeals (CA), in CA-G.R. SP No. 64569, which affirmed the December 29, 2000 Decision3 of the National Labor Relations Commission (NLRC). The NLRC agreed with the Labor Arbiter (L.A.) in finding that petitioner Garden of Memories Memorial Park and Life Plan, Inc.(Garden of Memories) was the employer of respondent Hilaria Cruz (Cruz), and that Garden of Memories and petitioner Paulina Requio (Requio), were jointly and severally liable for the money claims of Cruz. The Facts Petitioner Garden of Memories is engaged in the business of operating a memorial park situated at Calsadang Bago, Pateros, Metro-Manila and selling memorial Plan and services. Respondent Cruz, on the other hand, worked at the Garden of Memories Memorial Park as a utility worker from August 1991 until her termination in February 1998. On March 13, 1998, Cruz filed a complaint4 for illegal dismissal, underpayment of wages, non-inclusion in the Social Security Services, and non-payment of legal/special holiday, premium pay for rest day, 13th month pay and service incentive leave pay against Garden of Memories before the Department of Labor and Employment(DOLE). Upon motion of Garden of Memories, Requio was impleaded as respondent on the alleged ground that she was its service contractor and the employer of Cruz. In her position paper,5 Cruz averred that she worked as a utility worker of Garden of Memories with a salary ofP115.00 per day. As a utility worker, she was in charge, among others, of the cleaning and maintenance of the ground facilities of the memorial park. Sometime in February 1998, she had a misunderstanding with a co-worker named Adoracion Requio regarding the use of a garden water hose. When the misunderstanding came to the knowledge of Requio, the latter instructed them to go home and not to return anymore. After three (3) days, Cruz reported for work but she was told that she had been replaced by another worker. She immediately reported the matter of her replacement to the personnel manager of Garden of Memories and manifested her protest. Cruz argued that as a regular employee of the Garden of Memories, she could not be terminated without just or valid cause. Also, her dismissal was violative of due process as she was not afforded the opportunity to explain her side before her employment was terminated. Cruz further claimed that as a result of her illegal dismissal, she suffered sleepless nights, serious anxiety and mental anguish. In its Answer,6 Garden of Memories denied liability for the claims of Cruz and asserted that she was not its employee but that of Requio, its independent service contractor, who maintained the park for a contract price. It insisted that there was no employer-employee relationship between them because she was employed by its service contractor, Victoriana Requio (Victoriana), who was later succeeded by her daughter, Paulina, when she (Victoriana) got sick. Garden of Memories claimed that Requio was a service contractor who carried an independent business and undertook the contract of work on her own account, under her own responsibility and according to her own manner and method, except as to the results thereof. In her defense, Requio prayed for the dismissal of the complaint stating that it was Victoriana, her mother, who hired Cruz, and she merely took over the supervision and management of the workers of the memorial park when her mother got ill. She claimed that the ownership of the business was never transferred to her. Requio further stated that Cruz was not dismissed from her employment but that she abandoned her work.7 On October 27, 1999, the LA ruled that Requio was not an independent contractor but a labor-only contractor and that her defense that Cruz abandoned her work was negated by the filing of the present case. 8 The LA declared both Garden of Memories and Requio, jointly and severally, liable for the monetary claims of Cruz, the dispositive portion of the decision reads:

WHEREFORE, premises considered, respondents Garden of Memories Memorial [P]ark and Life Plan, Inc. and/or Paulina Requio are hereby ordered to jointly and severally pay within ten (10) days from receipt hereof, the herein complainant Hilaria Cruz, the sums of P 72,072 (P 198 x 26 days x 14 months pay), representing her eight (8) months separation pay and six (6) months backwages; P 42,138.46, as salary differential; P 2,475.00, as service incentive leave pay; and P 12,870.00 as 13th month pay, for three (3) years, or a total sum of P129,555.46, plus ten percent attorneys fee. Complainants other claims including her prayer for damages are hereby denied for lack of concrete evidence. SO ORDERED.9 Garden of Memories and Requio appealed the decision to the NLRC. In its December 29, 2000 Decision, the NLRC affirmed the ruling of the LA, stating that Requio had no substantial capital or investments in the form of tools, equipment, machineries, and work premises, among others, for her to qualify as an independent contractor. It declared the dismissal of Cruz illegal reasoning out that there could be no abandonment of work on her part since Garden of Memories and Requio failed to prove that there was a deliberate and unjustified refusal on the part of the employee to go back to work and resume her employment. Garden of Memories moved for a reconsideration of the NLRC decision but it was denied for lack of merit.10 Consequently, Garden of Memories and Requio filed before the CA a petition for certiorari under Rule 65 of the Rules of Court. In its June 11, 2003 Decision, the CA dismissed the petition and affirmed the NLRC decision. Hence, this petition, where they asserted that: The Public Respondents National Labor Relations Commission and Court of Appeals committed serious error, gravely abused their discretion and acted in excess of jurisdiction when they failed to consider the provisions of Section 6 (d) of Department Order No. 10, Series of 1997, by the Department of Labor and Employment, and then rendered their respective erroneous rulings that: I PETITIONER PAULINA REQUIO IS ENGAGED IN LABOR-ONLY CONTRACTING. II THERE EXISTS AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN RESPONDENT CRUZ AND PETITIONER GARDEN OF MEMORIES. III RESPONDENT HILARIA CRUZ DID NOT ABANDON HER WORK. IV THERE IS [NO] BASIS IN GRANTING THE MONETARY AWARDS IN FAVOR OF THE RESPONDENT CRUZ DESPITE THE ABSENCE OF A CLEAR PRONOUNCEMENT REGARDING THE LEGALITY OR ILLEGALITY OF HER DISMISSAL.11 The petitioners aver that Requio is the employer of Cruz as she (Requio) is a legitimate independent contractor providing maintenance work in the memorial park such as sweeping, weeding and watering of the lawns. They insist that there was no employer-employee relationship between Garden of Memories and Cruz. They claim that there was a service contract between Garden of Memories and Requio for the latter to provide maintenance work for the former and that the "power of control," the most important element in determining the presence of such a relationship was missing. Furthermore, Garden of Memories alleges that it did not participate in the selection or dismissal of Requios employees.

As to the issue of dismissal, the petitioners denied the same and insist that Cruz willfully and actually abandoned her work. They argue that Cruzs utterances "HINDI KO KAILANGAN ANG TRABAHO" and "HINDI KO KAILANGAN MAGTRABAHO AT HINDI KO KAILANGAN MAKI-USAP KAY PAULINA REQUIO," manifested her belligerence and disinterest in her work and that her unexplained absences later only showed that she had no intention of returning to work. The Court finds no merit in the petition. At the outset, it must be stressed that the jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Rules of Court is limited to reviewing errors of law, not of fact. This is in line with the well-entrenched doctrine that the Court is not a trier of facts, and this is strictly adhered to in labor cases. 12 Factual findings of labor officials, who are deemed to have acquired expertise in matters within their respective jurisdictions, are generally accorded not only respect but even finality, and bind the Court when supported by substantial evidence. Particularly when passed upon and upheld by the CA, they are binding and conclusive upon the Court and will not normally be disturbed. 13 This is because it is not the function of this Court to analyze or weigh all over again the evidence already considered in the proceedings below; or reevaluate the credibility of witnesses; or substitute the findings of fact of an administrative tribunal which has expertise in its special field.14 In the present case, the LA, the NLRC, and the CA are one in declaring that petitioner Requio was not a legitimate contractor. Echoing the decision of the LA and the NLRC, the CA reasoned out that Requio was not a licensed contractor and had no substantial capital or investment in the form of tool, equipment and work premises, among others. Section 106 of the Labor Code on contracting and subcontracting provides: Article 106. Contractor or subcontractor. - Whenever, an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code. There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.[Underscoring provided] In the same vein, Sections 8 and 9, DOLE Department Order No. 10, Series of 1997, state that: Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are met: (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.

Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-only contracting where such person: (1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials; and (2) The workers recruited and placed by such persons are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed. (b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. (c) For cases not falling under this Article, the Secretary of Labor shall determine through appropriate orders whether or not the contracting out of labor is permissible in the light of the circumstances of each case and after considering the operating needs of the employer and the rights of the workers involved. In such case, he may prescribe conditions and restrictions to insure the protection and welfare of the workers." On the matter of labor-only contracting, Section 5 of Rule VIII-A of the Omnibus Rules Implementing the Labor Code, provides: Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present: i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities related to the main business of the principal, or ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee. Xxxx Thus, in determining the existence of an independent contractor relationship, several factors may be considered, such as, but not necessarily confined to, whether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of specified pieces of work; the control and supervision of the work to another; the employers power with respect to the hiring, firing and payment of the contractors workers; the control of the premises; the duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of payment.15 On the other hand, there is labor-only contracting where: (a) the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others; and (b) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer.16 The Court finds no compelling reason to deviate from the findings of the tribunals below. Both the capitalization requirement and the power of control on the part of Requio are wanting. Generally, the presumption is that the contractor is a labor-only contracting unless such contractor overcomes the burden of proving that it has the substantial capital, investment, tools and the like.17 In the present case, though Garden of Memories is not the contractor, it has the burden of proving that Requio has sufficient capital or investment since it is claiming the supposed status of Requio as independent contractor. 18 Garden of Memories, however, failed to adduce evidence purporting to show that Requio had sufficient capitalization. Neither did it show that she invested in the form of

tools, equipment, machineries, work premises and other materials which are necessary in the completion of the service contract. Furthermore, Requio was not a licensed contractor. Her explanation that her business was a mere livelihood program akin to a cottage industry provided by Garden of Memories as part of its contribution to the upliftment of the underprivileged residing near the memorial park proves that her capital investment was not substantial. Substantial capital or investment refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries, and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out.19 Obviously, Requio is a labor-only contractor. Another determinant factor that classifies petitioner Requio as a labor-only contractor was her failure to exercise the right to control the performance of the work of Cruz. This can be gleaned from the Service Contract Agreement 20 between Garden of Memories and Requio, to wit: xxxx NOW THEREFORE, premises considered, the parties hereto have hereunto agreed on the following terms and conditions: 1. That the Contractor shall undertake the maintenance of the above-mentioned works in strict compliance with and subject to all the requirements and standards of GMMPLPI. 2. Likewise, the Contractor shall perform all other works that may from time to time be designated by GMMPLPI thru its authorized representatives, which work is similar in nature to the responsibilities of a regular employee with a similar function. 3. The contract price for the labor to be furnished or the service to be rendered shall be THIRTY-FIVE THOUSAND (P 35,000.00) PESOS per calendar month, payable as follows: (a) Eight Thousand Seven Hundred Fifty Thousand (P 8,750.00) Pesos payable on every 7th, 15th, 23rd and 30th of the month. 4. The period of this Contract shall be for Three (3) months from Feb 1, April 30, 1998 and renewable at the option of the Management. 5. It is expressly recognized that this contract was forged for the purpose of supplying the necessary maintenance work and in no way shall the same be interpreted to have created an employer-employee relationship. Xxxx [Underscoring supplied] The requirement of the law in determining the existence of independent contractorship is that the contractor should undertake the work on his own account, under his own responsibility, according to his own manner and method, free from the control and direction of the employer except as to the results thereof.21 In this case, however, the Service Contract Agreement clearly indicates that Requio has no discretion to determine the means and manner by which the work is performed. Rather, the work should be in strict compliance with, and subject to, all requirements and standards of Garden of Memories. Under these circumstances, there is no doubt that Requio is engaged in labor-only contracting, and is considered merely an agent of Garden of Memories. As such, the workers she supplies should be considered as employees of Garden of Memories. Consequently, the latter, as principal employer, is responsible to the employees of the labor-only contractor as if such employees have been directly employed by it.22 Notably, Cruz was hired as a utility worker tasked to clean, sweep and water the lawn of the memorial park. She performed activities which were necessary or desirable to its principal trade or business. Thus, she was a regular employee of Garden of Memories and cannot be dismissed except for just and authorized causes.23

Moreover, the Court agrees with the findings of the tribunals below that respondent Cruz did not abandon her work but was illegally dismissed. As the employer, Garden of Memories has the burden of proof to show the employee's deliberate and unjustified refusal to resume his employment without any intention of returning.24 For abandonment to exist, two factors must be present: (1) the failure to report for work or absence without valid or justifiable reason; and (2) a clear intention to sever employeremployee relationship, with the second element as the more determinative factor being manifested by some overt acts.25 It has been said that abandonment of position cannot be lightly inferred, much less legally presumed from certain equivocal acts.26 Mere absence is not sufficient.27 In this case, no such intention to abandon her work can be discerned from the actuations of Cruz. Neither were there overt acts which could be considered manifestations of her desire to truly abandon her work. On the contrary, her reporting to the personnel manager that she had been replaced and the immediate filing of the complaint before the DOLE demonstrated a desire on her part to continue her employment with Garden of Memories. As correctly pointed out by the CA, the filing of the case for illegal dismissal negated the allegation of abandonment. WHEREFORE, the petition is DENIED. The June 11, 2003 Decision of the Court of Appeals in CA-G.R. SP No. 64569 and its October 16, 2003 Resolution are hereby AFFIRMED. SO ORDERED.
JOSE CATRAL MENDOZA Associate Justice

G.R. No. 185665

Bonus v. 13th Month Pay


February 8, 20128

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., Petitioner, vs. EASTERN TELECOMS EMPLOYEES UNION, Respondent. DECISION MENDOZA, J.:

Before the Court is a petition for review on certiorari seeking modification of the June 25, 2008 Decision 1 of the Court of Appeals (CA) and its December 12, 2008 Resolution,2 in CA-G.R. SP No. 91974, annulling the April 28, 2005 Resolution3 of the National Labor Relations Commission (NLRC) in NLRC-NCR-CC-000273-04 entitled "In the Matter of the Labor Dispute in Eastern Telecommunications, Philippines, Inc." The Facts As synthesized by the NLRC, the facts of the case are as follows, viz: Eastern Telecommunications Phils., Inc. (ETPI) is a corporation engaged in the business of providing telecommunications facilities, particularly leasing international date lines or circuits, regular landlines, internet and data services, employing approximately 400 employees. Eastern Telecoms Employees Union (ETEU) is the certified exclusive bargaining agent of the companys rank and file employees with a strong following of 147 regular members. It has an existing collecti[ve] bargaining agreement with the company to expire in the year 2004 with a Side Agreement signed on September 3, 2001. In essence, the labor dispute was a spin-off of the companys plan to defer payment of the 2003 14th, 15th and 16th month bonuses sometime in April 2004. The companys main ground in postponing the payment of bonuses is due to allege continuing deterioration of companys financial position which started in the year 2000. However, ETPI while postponing payment of bonuses sometime in April 2004, such payment would also be subject to availability of funds. Invoking the Side Agreement of the existing Collective Bargaining Agreement for the period 2001-2004 between ETPI and ETEU which stated as follows:
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"4. Employment Related Bonuses. The Company confirms that the 14th, 15th and 16th month bonuses (other than 13th month pay) are granted." The union strongly opposed the deferment in payment of the bonuses by filing a preventive mediation complaint with the NCMB on July 3, 2003, the purpose of which complaint is to determine the date when the bonus should be paid. In the conference held at the NCMB, ETPI reiterated its stand that payment of the bonuses would only be made in April 2004 to which date of payment, the union agreed. Thus, considering the agreement forged between the parties, the said agreement was reduced to a Memorandum of Agreement. The union requested that the President of the company should be made a signatory to the agreement, however, the latter refused to sign. In addition to such a refusal, the company made a sudden turnaround in its position by declaring that they will no longer pay the bonuses until the issue is resolved through compulsory arbitration. The companys change in position was contained in a letter dated April 14, 2004 written to the union by Mr. Sonny Javier, Vice-President for Human Resources and Administration, stating that "the deferred release of bonuses had been superseded and voided due to the unions filing of the issue to the NCMB on July 18, 2003." He declared that "until the matter is resolved in a compulsory arbitration, the company cannot and will not pay any bonuses to any and all union members." Thus, on April 26, 2004, ETEU filed a Notice of Strike on the ground of unfair labor practice for failure of ETPI to pay the bonuses in gross violation of the economic provision of the existing CBA. On May 19, 2004, the Secretary of Labor and Employment, finding that the company is engaged in an industry considered vital to the economy and any work disruption thereat will adversely affect not only its operation but also that of the other business relying on its services, certified the labor dispute for compulsory arbitration pursuant to Article 263 (q) of the Labor Code as amended. Acting on the certified labor dispute, a hearing was called on July 16, 2004 wherein the parties have submitted that the issues for resolution are (1) unfair labor practice and (2) the grant of 14th, 15th and 16th month bonuses for 2003, and 14th month bonus for 2004. Thereafter, they were directed to submit their respective position papers and evidence in support thereof after which submission, they agreed to have the case considered submitted for decision.4 In its position paper,5 the Eastern Telecoms Employees Union (ETEU) claimed that Eastern Telecommunications Philippines, Inc. (ETPI) had consistently and voluntarily been giving out 14th month bonus during the month of April, and 15th and 16th month bonuses every December of each year (subject bonuses) to its employees from 1975 to 2002, even when it did not realize any net profits. ETEU posited that by reason of its long and regular concession, the payment of these monetary benefits had ripened into a company practice which could no longer be unilaterally withdrawn by ETPI. ETEU added that this long-standing company practice had been expressly confirmed in the Side Agreements of the 19982001 and 2001-2004 Collective Bargaining Agreements (CBA)which provided for the continuous grant of these bonuses in no uncertain terms. ETEU theorized that the grant of the subject bonuses is not only a company practice but also a contractual obligation of ETPI to the union members. ETEU contended that the unjustified and malicious refusal of the company to pay the subject bonuses was a clear violation of the economic provision of the CBA and constitutes unfair labor practice (ULP). According to ETEU, such refusal was nothing but a ploy to spite the union for bringing the matter of delay in the payment of the subject bonuses to the National Conciliation and Mediation Board (NCMB). It prayed for the award of moral and exemplary damages as well as attorneys fees for the unfair labor practice allegedly committed by the company. On the other hand, ETPI in its position paper,6 questioned the authority of the NLRC to take cognizance of the case contending that it had no jurisdiction over the issue which merely involved the interpretation of the economic provision of the 2001-2004 CBA Side Agreement. Nonetheless, it maintained that the complaint for nonpayment of 14th, 15th and 16th month bonuses for 2003 and 14th month bonus for 2004 was bereft of any legal and factual basis. It averred that the subject bonuses were not part of the legally demandable wage and the grant thereof to its employees was an act of pure gratuity and generosity on its part, involving the exercise of management prerogative and always dependent on the financial performance and realization of profits. It posited that it resorted to the discontinuance of payment of the bonuses due to the unabated huge losses that the company had continuously experienced. It claimed that it had been suffering serious business losses since 2000 and to require the company to pay the subject bonuses during its dire financial straits

would in effect penalize it for its past generosity. It alleged that the non-payment of the subject bonuses was neither flagrant nor malicious and, hence, would not amount to unfair labor practice. Further, ETPI argued that the bonus provision in the 2001-2004 CBA Side Agreement was a mere affirmation that the distribution of bonuses was discretionary to the company, premised and conditioned on the success of the business and availability of cash. It submitted that said bonus provision partook of the nature of a "one-time" grant which the employees may demand only during the year when the Side Agreement was executed and was never intended to cover the entire term of the CBA. Finally, ETPI emphasized that even if it had an unconditional obligation to grant bonuses to its employees, the drastic decline in its financial condition had already legally released it therefrom pursuant to Article 1267 of the Civil Code. On April 28, 2005, the NLRC issued its Resolution dismissing ETEUs complaint and held that ETPI could not be forced to pay the union members the 14th, 15th and 16th month bonuses for the year 2003 and the 14th month bonus for the year 2004 inasmuch as the payment of these additional benefits was basically a management prerogative, being an act of generosity and munificence on the part of the company and contingent upon the realization of profits. The NLRC pronounced that ETPI may not be obliged to pay these extra compensations in view of the substantial decline in its financial condition. Likewise, the NLRC found that ETPI was not guilty of the ULP charge elaborating that no sufficient and substantial evidence was adduced to attribute malice to the company for its refusal to pay the subject bonuses. The dispositive portion of the resolution reads: WHEREFORE, premises considered, the instant complaint is hereby DISMISSED for lack of merit. SO ORDERED.7 Respondent ETEU moved for reconsideration but the motion was denied by the NLRC in its Resolution dated August 31, 2005. Aggrieved, ETEU filed a petition for certiorari8 before the CA ascribing grave abuse of discretion on the NLRC for disregarding its evidence which allegedly would prove that the subject bonuses were part of the union members wages, salaries or compensations. In addition, ETEU asserted that the NLRC committed grave abuse of discretion when it ruled that ETPI is not contractually bound to give said bonuses to the union members. In its assailed June 25, 2008 Decision, the CA declared that the Side Agreements of the 1998 and 2001 CBA created a contractual obligation on ETPI to confer the subject bonuses to its employees without qualification or condition. It also found that the grant of said bonuses has already ripened into a company practice and their denial would amount to diminution of the employees benefits. It held that ETPI could not seek refuge under Article 1267 of the Civil Code because this provision would apply only when the difficulty in fulfilling the contractual obligation was manifestly beyond the contemplation of the parties, which was not the case therein. The CA, however, sustained the NLRC finding that the allegation of ULP was devoid of merit. The dispositive portion of the questioned decision reads: WHEREFORE, premises considered, the instant petition is GRANTED and the resolution of the National Labor Relations Commission dated April 28, 2005 is hereby ANNULLED and SET ASIDE. Respondent Eastern Telecommunications Philippines, Inc. is ordered to pay the members of petitioner their 14th, 15th and 16th month bonuses for the year 2003 and 14th month for the year 2004. The complaint for unfair labor practice against said respondent is DISMISSED. SO ORDERED.9 ISSUES
Dissatisfied, ETPI now comes to this Court via Rule 45, raising the following errors allegedly committed by the CA, to wit:

I. THE COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW WHEN IT ANNULLED AND SET ASIDE THE R E S O L U T I O NS OF THE NLRC DISREGARDING THE WELL SETTLED RULE THAT A WRIT OF

CERTIORARI (UNDER RULE 65) ISSUES ONLY FOR CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION. II. THE COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW WHEN IT DISREGARDED THE RULE THAT FINDINGS OF FACTS OF QUASI-JUDICIAL BODIES ARE ACCORDED FINALITY IF THEY ARE SUPPORTED BY SUBSTANTIAL EVIDENCE CONSIDERING THAT THE CONCLUSIONS OF THE NLRC WERE BASED ON SUBSTANTIAL AND OVERWHELMING EVIDENCE AND UNDISPUTED FACTS. III. IT WAS A GRAVE ERROR OF LAW FOR THE COURT OF APPEALS TO CONSIDER THAT THE BONUS GIVEN BY EASTERN COMMUNICATIONS TO ITS EMPLOYEES IS NOT DEPENDENT ON THE REALIZATION OF PROFITS. IV. THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW WHEN IT DISREGARDED THE UNDISPUTED FACT THAT EASTERN COMMUNICATIONS IS SUFFERING FROM TREMENDOUS FINANCIAL LOSSES, AND ORDERED EASTERN COMMUNICATIONS TO GRANT THE BONUSES REGARDLESS OF THE FINANCIAL DISTRESS OF EASTERN COMMUNICATIONS. V. THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW WHEN IT ARRIVED AT THE CONCLUSION THAT THE GRANT OF BONUS GIVEN BY EASTERN COMMUNICATIONS TO ITS EMPLOYEES HAS RIPENED INTO A COMPANY PRACTICE.10 A careful perusal of the voluminous pleadings filed by the parties leads the Court to conclude that this case revolves around the following core issues: 1. Whether or not petitioner ETPI is liable to pay 14th, 15th and 16th month bonuses for the year 2003 and 14th month bonus for the year 2004 to the members of respondent union; and 2. Whether or not the CA erred in not dismissing outright ETEUs petition for certiorari. ETPI insists that it is under no legal compulsion to pay 14th, 15th and 16th month bonuses for the year 2003 and 14th month bonus for the year 2004 contending that they are not part of the demandable wage or salary and that their grant is conditional based on successful business performance and the availability of company profits from which to source the same. To thwart ETEUs monetary claims, it insists that the distribution of the subject bonuses falls well within the companys prerogative, being an act of pure gratuity and generosity on its part. Thus, it can withhold the grant thereof especially since it is currently plagued with economic difficulties and financial losses. It alleges that the companys fiscal situation greatly declined due to tremendous and extraordinary losses it sustained beginning the year 2000. It claims that it cannot be compelled to act liberally and confer upon its employees additional benefits over and above those mandated by law when it cannot afford to do so. It posits that so long as the giving of bonuses will result in the financial ruin of an already distressed company, the employer cannot be forced to grant the same. ETPI further avers that the act of giving the subject bonuses did not ripen into a company practice arguing that it has always been a contingent one dependent on the realization of profits and, hence, the workers are not entitled to bonuses if the company does not make profits for a given year. It asseverates that the 1998 and 2001 CBA Side Agreements did not contractually afford ETEU a vested property right to a perennial payment of the bonuses. It opines that the bonus provision in the Side Agreement allows the giving of benefits only at the time of its execution. For this reason, it cannot be said that the grant has ripened into a company practice. In addition, it argues that even if such traditional company practice exists, the CA should have applied Article 1267 of the Civil Code which releases the obligor from the performance of an obligation when it has become so difficult to fulfill the same.

It is the petitioners stance that the CA should have dismissed outright the respondent unions petition for certiorari alleging that no question of jurisdiction whatsoever was raised therein but, instead, what was being sought was a judicial re-evaluation of the adequacy or inadequacy of the evidence on record. It claims that the CA erred in disregarding the findings of the NLRC which were based on substantial and overwhelming evidence as well as on undisputed facts. ETPI added that the CA court should have refrained from tackling issues of fact and, instead, limited itself on issues of jurisdiction and grave abuse of jurisdiction amounting to lack or excess of it. The Courts Ruling As a general rule, in petitions for review under Rule 45, the Court, not being a trier of facts, does not normally embark on a re-examination of the evidence presented by the contending parties during the trial of the case considering that the findings of facts of the CA are conclusive and binding on the Court. The rule, however, admits of several exceptions, one of which is when the findings of the appellate court are contrary to those of the trial court or the lower administrative body, as the case may be.11 Considering the incongruent factual conclusions of the CA and the NLRC, this Court finds Itself obliged to resolve it. The pivotal question determinative of this controversy is whether the members of ETEU are entitled to the payment of 14th, 15th and 16th month bonuses for the year 2003 and 14th month bonus for year 2004. After an assiduous assessment of the record, the Court finds no merit in the petition. From a legal point of view, a bonus is a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of right.12 The grant of a bonus is basically a management prerogative which cannot be forced upon the employer who may not be obliged to assume the onerous burden of granting bonuses or other benefits aside from the employees basic salaries or wages.13 A bonus, however, becomes a demandable or enforceable obligation when it is made part of the wage or salary or compensation of the employee.14 Particularly instructive is the ruling of the Court in Metro Transit Organization, Inc. v. National Labor Relations Commission,15 where it was written: Whether or not a bonus forms part of wages depends upon the circumstances and conditions for its payment. If it is additional compensation which the employer promised and agreed to give without any conditions imposed for its payment, such as success of business or greater production or output, then it is part of the wage. But if it is paid only if profits are realized or if a certain level of productivity is achieved, it cannot be considered part of the wage. Where it is not payable to all but only to some employees and only when their labor becomes more efficient or more productive, it is only an inducement for efficiency, a prize therefore, not a part of the wage. The consequential question that needs to be settled, therefore, is whether the subject bonuses are demandable or not. Stated differently, can these bonuses be considered part of the wage, salary or compensation making them enforceable obligations? The Court believes so. In the case at bench, it is indubitable that ETPI and ETEU agreed on the inclusion of a provision for the grant of 14th, 15th and 16th month bonuses in the 1998-2001 CBA Side Agreement,16 as well as in the 2001-2004 CBA Side Agreement,17 which was signed on September 3, 2001. The provision, which was similarly worded, states: Employment-Related Bonuses The Company confirms that the 14th, 15th and 16th month bonuses (other than the 13th month pay) are granted. A reading of the above provision reveals that the same provides for the giving of 14th, 15th and 16th month bonuses without qualification. The wording of the provision does not allow any other interpretation. There were no conditions specified in the CBA Side Agreements for the grant of the benefits contrary to the claim of ETPI that the same is justified only when there are profits earned by the company. Terse and clear, the said provision does not state that the subject bonuses shall be made to depend on the ETPIs financial standing or that their payment was contingent upon the

realization of profits. Neither does it state that if the company derives no profits, no bonuses are to be given to the employees. In fine, the payment of these bonuses was not related to the profitability of business operations. The records are also bereft of any showing that the ETPI made it clear before or during the execution of the Side Agreements that the bonuses shall be subject to any condition. Indeed, if ETPI and ETEU intended that the subject bonuses would be dependent on the company earnings, such intention should have been expressly declared in the Side Agreements or the bonus provision should have been deleted altogether. In the absence of any proof that ETPIs consent was vitiated by fraud, mistake or duress, it is presumed that it entered into the Side Agreements voluntarily, that it had full knowledge of the contents thereof and that it was aware of its commitment under the contract. Verily, by virtue of its incorporation in the CBA Side Agreements, the grant of 14th, 15th and 16th month bonuses has become more than just an act of generosity on the part of ETPI but a contractual obligation it has undertaken. Moreover, the continuous conferment of bonuses by ETPI to the union members from 1998 to 2002 by virtue of the Side Agreements evidently negates its argument that the giving of the subject bonuses is a management prerogative. From the foregoing, ETPI cannot insist on business losses as a basis for disregarding its undertaking. It is manifestly clear that although it incurred business losses of P 149,068,063.00 in the year 2000, it continued to distribute 14th, 15th and 16th month bonuses for said year. Notwithstanding such huge losses, ETPI entered into the 2001-2004 CBA Side Agreement on September 3, 2001 whereby it contracted to grant the subject bonuses to ETEU in no uncertain terms. ETPI continued to sustain losses for the succeeding years of 2001 and 2002 in the amounts of P 348,783,013.00 and P 315,474,444.00, respectively. Still and all, this did not deter it from honoring the bonus provision in the Side Agreement as it continued to give the subject bonuses to each of the union members in 2001 and 2002 despite its alleged precarious financial condition. Parenthetically, it must be emphasized that ETPI even agreed to the payment of the 14th, 15th and 16th month bonuses for 2003 although it opted to defer the actual grant in April 2004. All given, business losses could not be cited as grounds for ETPI to repudiate its obligation under the 2001-2004 CBA Side Agreement. The Court finds no merit in ETPIs contention that the bonus provision confirms the grant of the subject bonuses only on a single instance because if this is so, the parties should have included such limitation in the agreement. Nowhere in the Side Agreement does it say that the subject bonuses shall be conferred once during the year the Side Agreement was signed. The Court quotes with approval the observation of the CA in this regard: ETPI argues that assuming the bonus provision in the Side Agreement of the 2001-2004 CBA entitles the union members to the subject bonuses, it is merely in the nature of a "one-time" grant and not intended to cover the entire term of the CBA. The contention is untenable. The bonus provision in question is exactly the same as that contained in the Side Agreement of the 1998-2001 CBA and there is no denying that from 1998 to 2001, ETPI granted the subject bonuses for each of those years. Thus, ETPI may not now claim that the bonus provision in the Side Agreement of the 2001-2004 CBA is only a "one-time" grant.18 ETPI then argues that even if it is contractually bound to distribute the subject bonuses to ETEU members under the Side Agreements, its current financial difficulties should have released it from the obligatory force of said contract invoking Article 1267 of the Civil Code. Said provision declares: Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. The Court is not persuaded. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor.19 In the case at bench, the Court determines that ETPIs claimed depressed financial state will not release it from the binding effect of the 2001-2004 CBA Side Agreement. ETPI appears to be well aware of its deteriorating financial condition when it entered into the 2001-2004 CBA Side Agreement with ETEU and obliged itself to pay bonuses to the members of ETEU. Considering that ETPI had been continuously suffering huge losses from 2000 to 2002, its business losses in the year 2003 were not exactly unforeseen or unexpected. Consequently, it cannot be said that the difficulty in complying with its obligation under the Side Agreement was "manifestly beyond the contemplation of the parties." Besides, as held in Central Bank of the Philippines v. Court of Appeals,20 mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation. Contracts, once

perfected, are binding between the contracting parties. Obligations arising therefrom have the force of law and should be complied with in good faith. ETPI cannot renege from the obligation it has freely assumed when it signed the 2001-2004 CBA Side Agreement. Granting arguendo that the CBA Side Agreement does not contractually bind petitioner ETPI to give the subject bonuses, nevertheless, the Court finds that its act of granting the same has become an established company practice such that it has virtually become part of the employees salary or wage. A bonus may be granted on equitable consideration when the giving of such bonus has been the companys long and regular practice. InPhilippine Appliance Corporation v. Court of Appeals,21 it was pronounced: To be considered a "regular practice," however, the giving of the bonus should have been done over a long period of time, and must be shown to have been consistent and deliberate. The test or rationale of this rule on long practice requires an indubitable showing that the employer agreed to continue giving the benefits knowing fully well that said employees are not covered by the law requiring payment thereof. The records show that ETPI, aside from complying with the regular 13th month bonus, has been further giving its employees 14th month bonus every April as well as 15th and 16th month bonuses every December of the year, without fail, from 1975 to 2002 or for 27 years whether it earned profits or not. The considerable length of time ETPI has been giving the special grants to its employees indicates a unilateral and voluntary act on its part to continue giving said benefits knowing that such act was not required by law. Accordingly, a company practice in favor of the employees has been established and the payments made by ETPI pursuant thereto ripened into benefits enjoyed by the employees.1wphi1 The giving of the subject bonuses cannot be peremptorily withdrawn by ETPI without violating Article 100 of the Labor Code: Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code. The rule is settled that any benefit and supplement being enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated by the employer. The principle of non-diminution of benefits is founded on the constitutional mandate to protect the rights of workers and to promote their welfare and to afford labor full protection.22 Interestingly, ETPI never presented countervailing evidence to refute ETEUs claim that the company has been continuously paying bonuses since 1975 up to 2002 regardless of its financial state. Its failure to controvert the allegation, when it had the opportunity and resources to do so, works in favor of ETEU. Time and again, it has been held that should doubts exist between the evidence presented by the employer and the employee, the scales of justice must be tilted in favor of the latter.23 WHEREFORE, the petition is DENIED. The June 25, 2008 Decision of the Court of Appeals and its December 12, 2008 Resolution are AFFIRMED. SO ORDERED.
JOSE CATRAL MENDOZA Associate Justice

Non Diminution of Benefits


July 26, 20109

G.R. No. 188949

CENTRAL AZUCARERA DE TARLAC, Petitioner, vs. CENTRAL AZUCARERA DE TARLAC LABOR UNION-NLU, Respondent. DECISION NACHURA, J.:

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Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision1dated May 28, 2009, and the Resolution2 dated July 28, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 106657. The factual antecedents of the case are as follows: Petitioner is a domestic corporation engaged in the business of sugar manufacturing, while respondent is a legitimate labor organization which serves as the exclusive bargaining representative of petitioners rank-and-file employees. The controversy stems from the interpretation of the term "basic pay," essential in the computation of the 13th-month pay. The facts of this case are not in dispute. In compliance with Presidential Decree (P.D.) No. 851, petitioner granted its employees the mandatory thirteenth (13th) - month pay since 1975. The formula used by petitioner in computing the 13thmonth pay was: Total Basic Annual Salary divided by twelve (12). Included in petitioners computation of the Total Basic Annual Salary were the following: basic monthly salary; first eight (8) hours overtime pay on Sunday and legal/special holiday; night premium pay; and vacation and sick leaves for each year. Throughout the years, petitioner used this computation until 2006.3 On November 6, 2004, respondent staged a strike. During the pendency of the strike, petitioner declared a temporary cessation of operations. In December 2005, all the striking union members were allowed to return to work. Subsequently, petitioner declared another temporary cessation of operations for the months of April and May 2006. The suspension of operation was lifted on June 2006, but the rank-and-file employees were allowed to report for work on a fifteen (15) dayper-month rotation basis that lasted until September 2006. In December 2006, petitioner gave the employees their 13thmonth pay based on the employees total earnings during the year divided by 12.4 Respondent objected to this computation. It averred that petitioner did not adhere to the usual computation of the 13thmonth pay. It claimed that the divisor should have been eight (8) instead of 12, because the employees worked for only 8 months in 2006. It likewise asserted that petitioner did not observe the company practice of giving its employees the guaranteed amount equivalent to their one month pay, in instances where the computed 13th-month pay was less than their basic monthly pay.5 Petitioner and respondent tried to thresh out their differences in accordance with the grievance procedure as provided in their collective bargaining agreement. During the grievance meeting, the representative of petitioner explained that the change in the computation of the 13th-month pay was intended to rectify an error in the computation, particularly the concept of basic pay which should have included only the basic monthly pay of the employees.6 For failure of the parties to arrive at a settlement, respondent applied for preventive mediation before the National Conciliation and Mediation Board. However, despite four (4) conciliatory meetings, the parties still failed to settle the dispute. On March 29, 2007, respondent filed a complaint against petitioner for money claims based on the alleged diminution of benefits/erroneous computation of 13th-month pay before the Regional Arbitration Branch of the National Labor Relations Commission (NLRC).7 On October 31, 2007, the Labor Arbiter rendered a Decision 8 dismissing the complaint and declaring that the petitioner had the right to rectify the error in the computation of the 13th-month pay of its employees. 9 The fallo of the Decision reads: WHEREFORE, premises considered, the complaint filed by the complainants against the respondents should be DISMISSED with prejudice for utter lack of merit. SO ORDERED.10 Respondents filed an appeal. On August 14, 2008, the NLRC rendered a Decision 11 reversing the Labor Arbiter. The dispositive portion of the Decision reads: WHEREFORE, the decision appealed is reversed and set aside and respondent-appellee Central Azucarera de Tarlac is hereby ordered to adhere to its established practice of granting 13th[-] month pay on the basis of gross annual basic which includes basic pay, premium pay for work in rest days and special holidays, night shift differential and paid vacation and sick leaves for each year.

Additionally, respondent-appellee is ordered to observe the guaranteed one[-]month pay by way of 13th month pay. SO ORDERED. 12 Petitioner filed a motion for reconsideration. However, the same was denied in a Resolution dated November 27, 2008. Petitioner then filed a petition for certiorari under Rule 65 of the Rules of Court before the CA.13 On May 28, 2009, the CA rendered a Decision14 dismissing the petition, and affirming the decision and resolution of the NLRC, viz.: WHEREFORE, the foregoing considered, the petition is hereby DISMISSED and the assailed August 14, 2008 Decision and November 27, 2008 Resolution of the NLRC, are hereby AFFIRMED. No costs. SO ORDERED.15 Aggrieved, petitioner filed the instant petition, alleging that the CA committed a reversible error in affirming the Decision of the NLRC, and praying that the Decision of the Labor Arbiter be reinstated. The petition is denied for lack of merit. The 13th-month pay mandated by Presidential Decree (P.D.) No. 851 represents an additional income based on wage but not part of the wage. It is equivalent to one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year. All rank-and-file employees, regardless of their designation or employment status and irrespective of the method by which their wages are paid, are entitled to this benefit, provided that they have worked for at least one month during the calendar year. If the employee worked for only a portion of the year, the 13th-month pay is computed pro rata.16 Petitioner argues that there was an error in the computation of the 13th-month pay of its employees as a result of its mistake in implementing P.D. No. 851, an error that was discovered by the management only when respondent raised a question concerning the computation of the employees 13th-month pay for 2006. Admittedly, it was an error that was repeatedly committed for almost thirty (30) years. Petitioner insists that the length of time during which an employer has performed a certain act beneficial to the employees, does not prove that such an act was not done in error. It maintains that for the claim of mistake to be negated, there must be a clear showing that the employer had freely, voluntarily, and continuously performed the act, knowing that he is under no obligation to do so. Petitioner asserts that such voluntariness was absent in this case.17 The Rules and Regulations Implementing P.D. No. 851, promulgated on December 22, 1975, defines 13th-month pay and basic salary as follows: Sec. 2. Definition of certain terms. - As used in this issuance: (a) "Thirteenth-month pay" shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year; (b) "Basic salary" shall include all remunerations or earnings paid by an employer to an employee for services rendered but may not include cost-of-living allowances granted pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174, profit-sharing payments, and all allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary of the employee at the time of the promulgation of the Decree on December 16, 1975. On January 16, 1976, the Supplementary Rules and Regulations Implementing P.D. No. 851 was issued. The Supplementary Rules clarifies that overtime pay, earnings, and other remuneration that are not part of the basic salary shall not be included in the computation of the 13th-month pay. On November 16, 1987, the Revised Guidelines on the Implementation of the 13th-Month Pay Law was issued. Significantly, under this Revised Guidelines, it was specifically stated that the minimum 13th-month pay required by law shall not be less than one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year.

Furthermore, the term "basic salary" of an employee for the purpose of computing the 13th-month pay was interpreted to include all remuneration or earnings paid by the employer for services rendered, but does not include allowances and monetary benefits which are not integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances. However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th-month pay if, by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees. Based on the foregoing, it is clear that there could have no erroneous interpretation or application of what is included in the term "basic salary" for purposes of computing the 13th-month pay of employees. From the inception of P.D. No. 851 on December 16, 1975, clear-cut administrative guidelines have been issued to insure uniformity in the interpretation, application, and enforcement of the provisions of P.D. No. 851 and its implementing regulations. As correctly ruled by the CA, the practice of petitioner in giving 13th-month pay based on the employees gross annual earnings which included the basic monthly salary, premium pay for work on rest days and special holidays, night shift differential pay and holiday pay continued for almost thirty (30) years and has ripened into a company policy or practice which cannot be unilaterally withdrawn. Article 100 of the Labor Code, otherwise known as the Non-Diminution Rule, mandates that benefits given to employees cannot be taken back or reduced unilaterally by the employer because the benefit has become part of the employment contract, written or unwritten. 18 The rule against diminution of benefits applies if it is shown that the grant of the benefit is based on an express policy or has ripened into a practice over a long period of time and that the practice is consistent and deliberate. Nevertheless, the rule will not apply if the practice is due to error in the construction or application of a doubtful or difficult question of law. But even in cases of error, it should be shown that the correction is done soon after discovery of the error.19 The argument of petitioner that the grant of the benefit was not voluntary and was due to error in the interpretation of what is included in the basic salary deserves scant consideration. No doubtful or difficult question of law is involved in this case. The guidelines set by the law are not difficult to decipher. The voluntariness of the grant of the benefit was manifested by the number of years the employer had paid the benefit to its employees. Petitioner only changed the formula in the computation of the 13th-month pay after almost 30 years and only after the dispute between the management and employees erupted. This act of petitioner in changing the formula at this time cannot be sanctioned, as it indicates a badge of bad faith. Furthermore, petitioner cannot use the argument that it is suffering from financial losses to claim exemption from the coverage of the law on 13th-month pay, or to spare it from its erroneous unilateral computation of the 13th-month pay of its employees. Under Section 7 of the Rules and Regulations Implementing P.D. No. 851, distressed employers shall qualify for exemption from the requirement of the Decree only upon prior authorization by the Secretary of Labor. 20 In this case, no such prior authorization has been obtained by petitioner; thus, it is not entitled to claim such exemption. WHEREFORE, the Decision dated May 28, 2009 and the Resolution dated July 28, 2009 of the Court of Appeals in CAG.R. SP No. 106657 are hereby AFFIRMED. Costs against petitioner. SO ORDERED.
ANTONIO EDUARDO B. NACHURA Associate Justice