G.R. No.

192998

April 2, 2014

BERNARD A. TENAZAS, JAIME M. FRANCISCO and ISIDRO G. ENDRACA, Petitioners,

vs.
R. VILLEGAS TAXI TRANSPORT and ROMUALDO VILLEGAS, Respondents.
DECISION
REYES, J.:
This is a petition for review on certiorari filed under Rule 45 of the Rules of Court, assailing the
Decision dated March 11, 2010 and Resolution dated June 28, 2010 of the Court of Appeals (CA) in
CA-G.R. SP No. 111150, which affirmed with modification the Decision dated June 23, 2009 of the
National Labor Relations Commission (NLRC) in NLRC LAC Case No. 07-002648-08.
1

The Antecedent Facts

On July 4, 2007, Bernard A. Tenazas (Tenazas) and Jaime M. Francisco (Francisco) filed a
complaint for illegal dismissal against R. Villegas Taxi Transport and/or Romualdo Villegas
(Romualdo) and Andy Villegas (Andy) (respondents). At that time, a similar case had already been
filed by Isidro G. Endraca (Endraca) against the same respondents. The two (2) cases were
subsequently consolidated.
5

In their position paper, Tenazas, Francisco and Endraca (petitioners) alleged that they were hired
and dismissed by the respondents on the following dates:
6

Name

Date of Hiring

Date of Dismissal

Salary

Bernard A. Tenazas

10/1997

07/03/07

Boundary System

Jaime M. Francisco

04/10/04

06/04/07

Boundary System

Isidro G. Endraca

04/2000

03/06/06

Boundary System

Relaying the circumstances of his dismissal, Tenazas alleged that on July 1, 2007, the taxi unit
assigned to him was sideswiped by another vehicle, causing a dent on the left fender near the driver
seat. The cost of repair for the damage was estimated at P500.00. Upon reporting the incident to the
company, he was scolded by respondents Romualdo and Andy and was told to leave the garage for
he is already fired. He was even threatened with physical harm should he ever be seen in the
companys premises again. Despite the warning, Tenazas reported for work on the following day but
was told that he can no longer drive any of the companys units as he is already fired.
8

Francisco, on the other hand, averred that his dismissal was brought about by the companys
unfounded suspicion that he was organizing a labor union. He was instantaneously terminated,
without the benefit of procedural due process, on June 4, 2007.
9

Endraca, for his part, alleged that his dismissal was instigated by an occasion when he fell short of
the required boundary for his taxi unit. He related that before he was dismissed, he brought his taxi
unit to an auto shop for an urgent repair. He was charged the amount of P700.00 for the repair
services and the replacement parts. As a result, he was not able to meet his boundary for the day.
Upon returning to the company garage and informing the management of the incident, his drivers

license was confiscated and was told to settle the deficiency in his boundary first before his license
will be returned to him. He was no longer allowed to drive a taxi unit despite his persistent pleas.
10

For their part, the respondents admitted that Tenazas and Endraca were employees of the company,
the former being a regular driver and the latter a spare driver. The respondents, however, denied
that Francisco was an employee of the company or that he was able to drive one of the companys
units at any point in time.
11

The respondents further alleged that Tenazas was never terminated by the company. They claimed
that on July 3, 2007, Tenazas went to the company garage to get his taxi unit but was informed that
it is due for overhaul because of some mechanical defects reported by the other driver who takes
turns with him in using the same. He was thus advised to wait for further notice from the company if
his unit has already been fixed. On July 8, 2007, however, upon being informed that his unit is ready
for release, Tenazas failed to report back to work for no apparent reason.
12

As regards Endraca, the respondents alleged that they hired him as a spare driver in February 2001.
They allow him to drive a taxi unit whenever their regular driver will not be able to report for work. In
July 2003, however, Endraca stopped reporting for work without informing the company of his
reason. Subsequently, the respondents learned that a complaint for illegal dismissal was filed by
Endraca against them. They strongly maintained, however, that they could never have terminated
Endraca in March 2006 since he already stopped reporting for work as early as July 2003. Even
then, they expressed willingness to accommodate Endraca should he wish to work as a spare driver
for the company again since he was never really dismissed from employment anyway.
13

On May 29, 2008, the petitioners, by registered mail, filed a Motion to Admit Additional
Evidence. They alleged that after diligent efforts, they were able to discover new pieces of evidence
that will substantiate the allegations in their position paper. Attached with the motion are the
following: (a) Joint Affidavit of the petitioners; (2) Affidavit of Good Faith of Aloney Rivera, a codriver; (3) pictures of the petitioners wearing company shirts; and (4) Tenazas Certification/Record
of Social Security System (SSS) contributions.
14

15

16

17

18

The Ruling of the Labor Arbiter

On May 30, 2008, the Labor Arbiter (LA) rendered a Decision, which pertinently states, thus:
19

In the case of complainant Jaime Francisco, respondents categorically denied the existence of an
employer-employee relationship. In this situation, the burden of proof shifts to the complainant to
prove the existence of a regular employment. Complainant Francisco failed to present evidence of
regular employment available to all regular employees, such as an employment contract, company
ID, SSS, withholding tax certificates, SSS membership and the like.
In the case of complainant Isidro Endraca, respondents claim that he was only an extra driver who
stopped reporting to queue for available taxi units which he could drive. In fact, respondents offered
him in their Position Paper on record, immediate reinstatement as extra taxi driver which offer he
refused.
In case of Bernard Tenazas, he was told to wait while his taxi was under repair but he did not report
for work after the taxi was repaired. Respondents[,] in their Position Paper, on record likewise,
offered him immediate reinstatement, which offer he refused.

We must bear in mind that the complaint herein is one of actual dismissal. But there was no formal
investigations, no show cause memos, suspension memos or termination memos were never
issued. Otherwise stated, there is no proof of overt act of dismissal committed by herein
respondents.
We are therefore constrained to rule that there was no illegal dismissal in the case at bar.
The situations contemplated by law for entitlement to separation pay does [sic] not apply.
WHEREFORE, premises considered, instant consolidated complaints are hereby dismissed for lack
of merit.
SO ORDERED.

20

The Ruling of the NLRC

Unyielding, the petitioners appealed the decision of the LA to the NLRC. Subsequently, on June 23,
2009, the NLRC rendered a Decision, reversing the appealed decision of the LA, holding that the
additional pieces of evidence belatedly submitted by the petitioners sufficed to establish the
existence of employer-employee relationship and their illegal dismissal. It held, thus:
21

In the challenged decision, the Labor Arbiter found that it cannot be said that the complainants were
illegally dismissed, there being no showing, in the first place, that the respondent [sic] terminated
their services. A portion thereof reads:
"We must bear in mind that the complaint herein is one of actual dismissal. But there were no formal
investigations, no show cause memos, suspension memos or termination memos were never
issued. Otherwise stated, there is no proof of overt act of dismissal committed by herein
respondents.
We are therefore constrained to rule that there was no illegal dismissal in the case at bar."
Issue: [W]hether or not the complainants were illegally dismissed from employment.
It is possible that the complainants Motion to Admit Additional Evidence did not reach the Labor
Arbiters attention because he had drafted the challenged decision even before they submitted it,
and thereafter, his staff attended only to clerical matters, and failed to bring the motion in question to
his attention. It is now up to this Commission to consider the complainants additional evidence.
Anyway, if this Commission must consider evidence submitted for the first time on appeal (Andaya
vs. NLRC, G.R. No. 157371, July 15, 2005), much more so must it consider evidence that was
simply overlooked by the Labor Arbiter.
Among the additional pieces of evidence submitted by the complainants are the following: (1) joint
affidavit (records, p. 51-52) of the three (3) complainants; (2) affidavit (records, p. 53) of Aloney
Rivera y Aldo; and (3) three (3) pictures (records, p. 54) referred to by the complainant in their joint
affidavit showing them wearing t-shirts bearing the name and logo of the respondents company.
xxxx
WHEREFORE, the decision appealed from is hereby REVERSED. Respondent Rom[u]aldo Villegas
doing business under the name and style Villegas Taxi Transport is hereby ordered to pay the

complainants the following (1) full backwages from the date of their dismissal (July 3, 2007 for
Tena[z]as, June 4, 2004 for Francisco, and March 6, 2006 for Endraca[)] up to the date of the finality
of this decision[;] (2) separation pay equivalent to one month for every year of service; and (3)
attorneys fees equivalent to ten percent (10%) of the total judgment awards.
SO ORDERED.

22

On July 24, 2009, the respondents filed a motion for reconsideration but the NLRC denied the same
in its Resolution dated September 23, 2009.
23

The Ruling of the CA

Unperturbed, the respondents filed a petition for certiorari with the CA. On March 11, 2010, the CA
rendered a Decision, affirming with modification the Decision dated June 23, 2009 of the NLRC.
The CA agreed with the NLRCs finding that Tenazas and Endraca were employees of the company,
but ruled otherwise in the case of Francisco for failing to establish his relationship with the company.
It also deleted the award of separation pay and ordered for reinstatement of Tenazas and Endraca.
The pertinent portions of the decision read as follows:
24

At the outset, We declare that respondent Francisco failed to prove that an employer-employee
relationship exists between him and R. Transport. If there is no employer-employee relationship in
the first place, the duty of R. Transport to adhere to the labor standards provisions of the Labor Code
with respect to Francisco is questionable.
xxxx
Although substantial evidence is not a function of quantity but rather of quality, the peculiar
environmental circumstances of the instant case demand that something more should have been
proffered. Had there been other proofs of employment, such as Franciscos inclusion in R.R.
Transports payroll, this Court would have affirmed the finding of employer-employee
relationship. The NLRC, therefore, committed grievous error in ordering R. Transport to answer for
Franciscos claims.
1wphi1

We now tackle R. Transports petition with respect to Tenazas and Endraca, who are both admitted
to be R. Transports employees. In its petition, R. Transport puts forth the theory that it did not
terminate the services of respondents but that the latter deliberately abandoned their work. We
cannot subscribe to this theory.
xxxx
Considering that the complaints for illegal dismissal were filed soon after the alleged dates of
dismissal, it cannot be inferred that respondents Tenazas and Endraca intended to abandon their
employment. The complainants for dismissal are, in themselves, pleas for the continuance of
employment. They are incompatible with the allegation of abandonment. x x x.
For R. Transports failure to discharge the burden of proving that the dismissal of respondents
Tenazas and Endraca was for a just cause, We are constrained to uphold the NLRCs conclusion
that their dismissal was not justified and that they are entitled to back wages. Because they were
illegally dismissed, private respondents Tenazas and Endraca are entitled to reinstatement and back
wages x x x.

xxxx
However, R. Transport is correct in its contention that separation pay should not be awarded
because reinstatement is still possible and has been offered. It is well[-]settled that separation pay is
granted only in instances where reinstatement is no longer feasible or appropriate, which is not the
case here.
xxxx
WHEREFORE, the Decision of the National Labor Relations Commission dated 23 June 2009, in
NLRC LAC Case No. 07-002648-08, and its Resolution dated 23 September 2009 denying
reconsideration thereof are AFFIRMED with MODIFICATION in that the award of Jaime Franciscos
claims is DELETED. The separation pay granted in favor of Bernard Tenazas and Isidro Endraca is,
likewise, DELETED and their reinstatement is ordered instead.
SO ORDERED. (Citations omitted)
25

On March 19, 2010, the petitioners filed a motion for reconsideration but the same was denied by
the CA in its Resolution dated June 28, 2010.
26

Undeterred, the petitioners filed the instant petition for review on certiorari before this Court on July
15, 2010.
The Ruling of this Court
The petition lacks merit.
Pivotal to the resolution of the instant case is the determination of the existence of employeremployee relationship and whether there was an illegal dismissal. Remarkably, the LA, NLRC and
the CA had varying assessment on the matters at hand. The LA believed that, with the admission of
the respondents, there is no longer any question regarding the status of both Tenazas and Endraca
being employees of the company. However, he ruled that the same conclusion does not hold with
respect to Francisco whom the respondents denied to have ever employed or known. With the
respondents denial, the burden of proof shifts to Francisco to establish his regular employment.
Unfortunately, the LA found that Francisco failed to present sufficient evidence to prove regular
employment such as company ID, SSS membership, withholding tax certificates or similar articles.
Thus, he was not considered an employee of the company. Even then, the LA held that Tenazas and
Endraca could not have been illegally dismissed since there was no overt act of dismissal committed
by the respondents.
27

On appeal, the NLRC reversed the ruling of the LA and ruled that the petitioners were all employees
of the company. The NLRC premised its conclusion on the additional pieces of evidence belatedly
submitted by the petitioners, which it supposed, have been overlooked by the LA owing to the time
when it was received by the said office. It opined that the said pieces of evidence are sufficient to
establish the circumstances of their illegal termination. In particular, it noted that in the affidavit of the
petitioners, there were allegations about the companys practice of not issuing employment records
and this was not rebutted by the respondents. It underscored that in a situation where doubt exists
between evidence presented by the employer and the employee, the scales of justice must be tilted
in favor of the employee. It awarded the petitioners with: (1) full backwages from the date of their
dismissal up to the finality of the decision; (2) separation pay equivalent to one month of salary for
every year of service; and (3) attorneys fees.

On petition for certiorari, the CA affirmed with modification the decision of the NLRC, holding that
there was indeed an illegal dismissal on the part of Tenazas and Endraca but not with respect to
Francisco who failed to present substantial evidence, proving that he was an employee of the
respondents. The CA likewise dismissed the respondents claim that Tenazas and Endraca
abandoned their work, asseverating that immediate filing of a complaint for illegal dismissal and
persistent pleas for continuance of employment are incompatible with abandonment. It also deleted
the NLRCs award of separation pay and instead ordered that Tenazas and Endraca be reinstated.

28

"Well-settled is the rule that the jurisdiction of this Court in a petition for review on certiorari under
Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the
factual findings complained of are completely devoid of support from the evidence on record, or the
assailed judgment is based on a gross misapprehension of facts." The Court finds that none of the
mentioned circumstances is present in this case.
29

In reviewing the decision of the NLRC, the CA found that no substantial evidence was presented to
support the conclusion that Francisco was an employee of the respondents and accordingly modified
the NLRC decision. It stressed that with the respondents denial of employer-employee relationship,
it behooved Francisco to present substantial evidence to prove that he is an employee before any
question on the legality of his supposed dismissal becomes appropriate for discussion. Francisco,
however, did not offer evidence to substantiate his claim of employment with the respondents. Short
of the required quantum of proof, the CA correctly ruled that the NLRCs finding of illegal dismissal
and the monetary awards which necessarily follow such ruling lacked factual and legal basis and
must therefore be deleted.
The action of the CA finds support in Anonas Construction and Industrial Supply Corp., et al. v.
NLRC, et al., where the Court reiterated:
30

[J]udicial review of decisions of the NLRC via petition for certiorari under Rule 65, as a general rule,
is confined only to issues of lack or excess of jurisdiction and grave abuse of discretion on the part of
the NLRC. The CA does not assess and weigh the sufficiency of evidence upon which the LA and
the NLRC based their conclusions. The issue is limited to the determination of whether or not the
NLRC acted without or in excess of its jurisdiction, or with grave abuse of discretion in rendering the
resolution, except if the findings of the NLRC are not supported by substantial evidence. (Citation
omitted and emphasis ours)
31

It is an oft-repeated rule that in labor cases, as in other administrative and quasi-judicial

proceedings, "the quantum of proof necessary is substantial evidence, or such amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion." "[T]he burden
of proof rests upon the party who asserts the affirmative of an issue." Corollarily, as Francisco was
claiming to be an employee of the respondents, it is incumbent upon him to proffer evidence to prove
the existence of said relationship.
32

33

"[I]n determining the presence or absence of an employer-employee relationship, the Court has
consistently looked for the following incidents, to wit: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to
control the employee on the means and methods by which the work is accomplished. The last
element, the so-called control test, is the most important element."
34

There is no hard and fast rule designed to establish the aforesaid elements. Any competent and
relevant evidence to prove the relationship may be admitted. Identification cards, cash vouchers,
social security registration, appointment letters or employment contracts, payrolls, organization
charts, and personnel lists, serve as evidence of employee status.
35

In this case, however, Francisco failed to present any proof substantial enough to establish his
relationship with the respondents. He failed to present documentary evidence like attendance
logbook, payroll, SSS record or any personnel file that could somehow depict his status as an
employee. Anent his claim that he was not issued with employment records, he could have, at least,
produced his social security records which state his contributions, name and address of his
employer, as his co-petitioner Tenazas did. He could have also presented testimonial evidence
showing the respondents exercise of control over the means and methods by which he undertakes
his work. This is imperative in light of the respondents denial of his employment and the claim of
another taxi operator, Emmanuel Villegas (Emmanuel), that he was his employer. Specifically, in his
Affidavit, Emmanuel alleged that Francisco was employed as a spare driver in his taxi garage from
January 2006 to December 2006, a fact that the latter failed to deny or question in any of the
pleadings attached to the records of this case. The utter lack of evidence is fatal to Franciscos case
especially in cases like his present predicament when the law has been very lenient in not requiring
any particular form of evidence or manner of proving the presence of employer-employee
relationship.
36

In Opulencia Ice Plant and Storage v. NLRC, this Court emphasized, thus:
37

No particular form of evidence is required to prove the existence of an employer-employee

relationship. Any competent and relevant evidence to prove the relationship may be admitted. For, if
only documentary evidence would be required to show that relationship, no scheming employer
would ever be brought before the bar of justice, as no employer would wish to come out with any
trace of the illegality he has authored considering that it should take much weightier proof to
invalidate a written instrument.
38

Here, Francisco simply relied on his allegation that he was an employee of the company without any
other evidence supporting his claim. Unfortunately for him, a mere allegation in the position paper is
not tantamount to evidence. Bereft of any evidence, the CA correctly ruled that Francisco could not
be considered an employee of the respondents.
39

The CAs order of reinstatement of Tenazas and Endraca, instead of the payment of separation pay,
is also well in accordance with prevailing jurisprudence. In Macasero v. Southern Industrial Gases
Philippines, the Court reiterated, thus:
40

[A]n illegally dismissed employee is entitled to two reliefs: backwages and reinstatement. The two
reliefs provided are separate and distinct. In instances where reinstatement is no longer feasible
because of strained relations between the employee and the employer, separation pay is granted. In
effect, an illegally dismissed employee is entitled to either reinstatement, if viable, or separation pay
if reinstatement is no longer viable, and backwages.
1wphi1

The normal consequences of respondents illegal dismissal, then, are reinstatement without loss of
seniority rights, and payment of backwages computed from the time compensation was withheld up
to the date of actual reinstatement. Where reinstatement is no longer viable as an option, separation
pay equivalent to one (1) month salary for every year of service should be awarded as an
alternative. The payment of separation pay is in addition to payment of backwages. (Emphasis
supplied)
41

Clearly, it is only when reinstatement is no longer feasible that the payment of separation pay is
ordered in lieu thereof. For instance, if reinstatement would only exacerbate the tension and strained
relations between the parties, or where the relationship between the employer and the employee has
been unduly strained by reason of their irreconcilable differences, it would be more prudent to order
payment of separation pay instead of reinstatement.
42

This doctrine of strained relations, however, should not be used recklessly or applied loosely nor be
based on impression alone. "It bears to stress that reinstatement is the rule and, for the exception of
strained relations to apply, it should be proved that it is likely that if reinstated, an atmosphere of
antipathy and antagonism would be generated as to adversely affect the efficiency and productivity
of the employee concerned."
43

44

Moreover, the existence of strained relations, it must be emphasized, is a question of fact. In Golden
Ace Builders v. Talde, the Court underscored:
45

Strained relations must be demonstrated as a fact, however, to be adequately supported by

evidencesubstantial evidence to show that the relationship between the employer and the
employee is indeed strained as a necessary consequence of the judicial controversy. (Citations
omitted and emphasis ours)
46

After a perusal of the NLRC decision, this Court failed to find the factual basis of the award of
separation pay to the petitioners. The NLRC decision did not state the facts which demonstrate that
reinstatement is no longer a feasible option that could have justified the alternative relief of granting
separation pay instead.
The petitioners themselves likewise overlooked to allege circumstances which may have rendered
their reinstatement unlikely or unwise and even prayed for reinstatement alongside the payment of
separation pay in their position paper. A bare claim of strained relations by reason of termination is
insufficient to warrant the granting of separation pay. Likewise, the filing of the complaint by the
petitioners does not necessarily translate to strained relations between the parties. As a rule, no
strained relations should arise from a valid and legal act asserting ones right. Although litigation
may also engender a certain degree of hostility, the understandable strain in the parties relation
would not necessarily rule out reinstatement which would, otherwise, become the rule rather the
exception in illegal dismissal cases. Thus, it was a prudent call for the CA to delete the award of
separation pay and order for reinstatement instead, in accordance with the general rule stated in
Article 279 of the Labor Code.
47

48

49

50

Finally, the Court finds the computation of the petitioners' backwages at the rate of P800.00 daily
reasonable and just under the circumstances. The said rate is consistent with the ruling of this Court
in Hyatt Taxi Services, Inc. v. Catinoy, which dealt with the same matter.
51

WHEREFORE, in view of the foregoing disquisition, the petition for review on certiorari is DENIED.
The Decision dated March 11, 2010 and Resolution dated June 28, 2010 of the Court of Appeals in
CA-G.R. SP No. 111150 are AFFIRMED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:

COCA COLA BOTTLERS PHILS., INC., petitioner, vs. NATIONAL LABOR

RELATIONS
COMMISSION
and
RAMON
B.
CANONICATO, respondents.
DECISION
BELLOSILLO, J.:

This petition for certiorari under Rule 65 of the Revised Rules of Court assails the
3 January 1995 decision[1] of the National Labor Relations Commission (NLRC)
holding that private respondent Ramon B. Canonicato is a regular employee of
petitioner Coca Cola Bottlers Phils. Inc. (COCA COLA) entitled to reinstatement and
back wages. The NLRC reversed the decision of the Labor Arbiter of 28 April
1994[2] which declared that no employer-employee relationship existed between COCA
COLA and Canonicato thereby foreclosing entitlement to reinstatement and back
wages.
On 7 April 1986 COCA COLA entered into a contract of janitorial services with
Bacolod Janitorial Services (BJS) stipulating [3] among others That the First Party (COCA COLA) desires to engage the services of the Second Party
(BJS), as an Independent Contractor, to perform and provide for the maintenance,
sanitation and cleaning services for the areas hereinbelow mentioned, all located
within the aforesaid building of the First Party x x x x
1. The scope of work of the Second Party includes all floors, walls, doors, vertical and
horizontal areas, ceiling, all windows, glass surfaces, partitions, furniture, fixtures
and other interiors within the aforestated covered areas.
2. Except holidays which are rest days, the Second Party will undertake daily the
following: 1) Sweeping, damp-mopping, spot scrubbing and polishing of floors; 2)
Cleaning, sanitizing and disinfecting agents to be used on commodes, urinals and
washbasins, water spots on chrome and other fixtures to be checked; 3) Cleaning of
glass surfaces, windows and glass partitions that require daily attention; 4) Cleaning
and dusting of horizontal and vertical surfaces; 5) Cleaning of fixtures, counters,
panels and sills; 6) Clean, pick-up cigarette butts from sandburns and ashtrays and
trash receptacles; 7) Trash and rubbish disposal and burning.

In addition, the Second Party will also do the following once a week, to wit: 1)
Cleaning, waxing and polishing of lobbies and offices; 2) Washing of windows,
glasses that require cleaning; 3) Thorough disinfecting and cleaning of toilets and
washrooms.
3. The Second Party shall supply the necessary utensils, equipment and supervision,
and it shall only employ the services of fifteen (15) honest, reliable, carefully
screened, cooperative and trained personnel, who are in good faith, in the
performance of its herein undertaking x x x x
4. The Second Party hereby guarantees against unsatisfactory workmanship. Minor
repair of comfort rooms are free of charge provided the First Party will supply the
necessary materials for such repairs at its expense. As may be necessary, the Second
Party shall also report on such part or areas of the premises covered by this contract
which may require repairs from time to time x x x (italics supplied).
Every year thereafter a service contract was entered into between the parties under
similar terms and conditions until about May 1994. [4]
On 26 October 1989 COCA COLA hired private respondent Ramon Canonicato
as a casual employee and assigned him to the bottling crew as a substitute for absent
employees. In April 1990 COCA COLA terminated Canonicato's casual
employment. Later that year COCA COLA availed of Canonicato's services, this time
as a painter in contractual projects which lasted from fifteen (15) to thirty (30) days. [5]
On 1 April 1991 Canonicato was hired as a janitor by BJS [6] which assigned him to
COCA COLA considering his familiarity with its premises. On 5 and 7 March 1992
Canonicato started painting the facilities of COCA COLA and continued doing so
several months thereafter or so for a few days every time until 6 to 25 June 1993. [7]
Goaded by information that COCA COLA employed previous BJS employees
who filed a complaint against the company for regularization pursuant to a
compromise agreement,[8] Canonicato submitted a similar complaint against COCA
COLA to the Labor Arbiter on 8 June 1993. [9] The complaint was docketed as RAB
Case No. 06-06-10337-93.
Without notifying BJS, Canonicato no longer reported to his COCA COLA
assignment starting 29 June 1993. On 15 July 1993 he sent his sister Rowena to

collect his salary from BJS. [10] BJS released his salary but advised Rowena to tell
Canonicato to report for work. Claiming that he was barred from entering the
premises of COCA COLA on either 14 or 15 July 1993, Canonicato met with the
proprietress of BJS, Gloria Lacson, who offered him assignments in other firms which
he however refused.[11]
On 23 July 1993 Canonicato amended his complaint against COCA COLA by
citing instead as grounds therefor illegal dismissal and underpayment of wages. He
included BJS therein as a co-respondent. [12] On 28 September 1993 BJS sent him a
letter advising him to report for work within three (3) days from receipt, otherwise, he
would be considered to have abandoned his job. [13]
On 28 April 1994 the Labor Arbiter ruled that: (a) there was no employeremployee relationship between COCA COLA and Ramon Canonicato because BJS
was Canonicato's real employer; (b) BJS was a legitimate job contractor, hence, any
liability of COCA COLA as to Canonicato's salary or wage differentials was solidary
with BJS in accordance with pars. 1 and 2 of Art. 106, Labor Code; (c) COCA COLA
and BJS must jointly and severally pay Canonicato his wage differentials amounting
to P2,776.80 and his 13th month salary of P1,068.00, including ten (10%) percent
attorney's fees in the sum ofP384.48. The Labor Arbiter also ordered that all other
claims by Canonicato against COCA COLA be dismissed for lack of employeremployee relationship; that the complaint for illegal dismissal as well as all the other
claims be likewise dismissed for lack of merit; and that COCA COLA and BJS
deposit P4,429.28 with the Department of Labor Regional Arbitration Branch Office
within ten (10) days from receipt of the decision. [14]
The NLRC rejected on appeal the decision of the Labor Arbiter on the ground that
the janitorial services of Canonicato were found to be necessary or desirable in the
usual business or trade of COCA COLA. The NLRC accepted Canonicato's
proposition that his work with the BJS was the same as what he did while still a casual
employee of COCA COLA. In so holding the NLRC applied Art. 280 of the Labor
Code and declared that Canonicato was a regular employee of COCA COLA and
entitled to reinstatement and payment of P18,105.10 in back wages.[15]
On 26 May 1995 the NLRC denied COCA COLA's motion for reconsideration for
lack of merit.[16] Hence, this petition, assigning as errors: (a) NLRC's finding that
janitorial services were necessary and desirable in COCA COLA's trade and business;

(b) NLRC's application of Art. 280 of the Labor Code in resolving the issue of
whether an employment relationship existed between the parties; (c) NLRC's ruling
that there was an employer-employee relationship between petitioner and Canonicato
despite its virtual affirmance that BJS was a legitimate job contractor; (d) NLRC's
declaration that Canonicato was a regular employee of petitioner although he had
rendered the company only five (5) months of casual employment; and, (e) NLRC's
order directing the reinstatement of Canonicato and the payment to him of six (6)
months back wages.[17]
We find good cause to sustain petitioner. Findings of fact of administrative offices
are generally accorded respect by us and no longer reviewed for the reason that such
factual findings are considered to be within their field of expertise. Exception however
is made, as in this case, when the NLRC and the Labor Arbiter made contradictory
findings.
We perceive at the outset the disposition of the NLRC that janitorial services are
necessary and desirable to the trade or business of petitioner COCA COLA. But this is
inconsistent with our pronouncement in Kimberly Independent Labor Union v.
Drilon[18] where the Court took judicial notice of the practice adopted in several
government and private institutions and industries of hiring janitorial services on an
"independent contractor basis." In this respect, although janitorial services may be
considered directly related to the principal business of an employer, as with every
business, we deemed them unnecessary in the conduct of the employer's principal
business.[19]
This judicial notice, of course, rests on the assumption that the independent
contractor is a legitimate job contractor so that there can be no doubt as to the
existence of an employer-employee relationship between contractor and the worker. In
this situation, the only pertinent question that may arise will no longer deal with
whether there exists an employment bond but whether the employee may be
considered regular or casual as to deserve the application of Art. 280 of the Labor
Code.
It is an altogether different matter when the very existence of an employment
relationship is in question. This was the issue generated by Canonicato's application
for regularization of his employment with COCA COLA and the subsequent denial by
the latter of an employer-employee relationship with the applicant. It was error

therefore for the NLRC to apply Art. 280 of the Labor Code in determining the
existence of an employment relationship of the parties herein, especially in light of
our explicit holding in Singer Sewing Machine Company v. Drilon[20] that x x x x [t]he definition that regular employees are those who perform activities which
are desirable and necessary for the business of the employer is not determinative in
this case. Any agreement may provide that one party shall render services for and in
behalf of another for a consideration (no matter how necessary for the latter's
business) even without being hired as an employee. This is precisely true in the case
of an independent contractorship as well as in an agency agreement. The Court agrees
with the petitioner's argument that Article 280 is not the yardstick for determining the
existence of an employment relationship because it merely distinguishes between two
kinds of employees, i.e., regular employees and casual employees, for purposes of
determining the right of an employee to certain benefits, to join or form a union, or to
security of tenure. Article 280 does not apply where the existence of an employment
relationship is in dispute.
In determining the existence of an employer-employee relationship it is necessary
to determine whether the following factors are present: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power to dismiss; and,
(d) the power to control the employee's conduct. [21] Notably, these are all found in the
relationship between BJS and Canonicato and not between Canonicato and petitioner
COCA COLA. As the Solicitor-General manifested[22]In the instant case, the selection and engagement of the janitors for petitioner were
done by BJS. The application form and letter submitted by private respondent
(Canonicato) to BJS show that he acknowledged the fact that it was BJS who did the
hiring and not petitioner x x x x
BJS paid the wages of private respondent, as evidenced by the fact that on July 15,
1993, private respondent sent his sister to BJS with a note authorizing her to receive
his pay.
Power of dismissal is also exercised by BJS and not petitioner. BJS is the one that
assigns the janitors to its clients and transfers them when it sees fit. Since BJS is the
one who engages their services, then it only follows that it also has the power to
dismiss them when justified under the circumstances.

Lastly, BJS has the power to control the conduct of the janitors. The supervisors of
petitioner, being interested in the result of the work of the janitors, also gives
suggestions as to the performance of the janitors, but this does not mean that BJS has
no control over them. The interest of petitioner is only with respect to the result of
their work. On the other hand, BJS oversees the totality of their performance.
The power of the employer to control the work of the employee is said to be the
most the most significant determinant. Canonicato disputed this power of BJS over
him by asserting that his employment with COCA COLA was not interrupted by his
application with BJS since his duties before and after he applied for regularization
were the same, involving as they did, working in the maintenance department and
doing painting tasks within its facilities. Canonicato cited the Labor Utilization
Reports of COCA COLA showing his painting assignments. These reports, however,
are not expressive of the true nature of the relationship between Canonicato and
COCA COLA; neither do they detract from the fact that BJS exercised real authority
over Canonicato as its employee.
Moreover, a closer scrutiny of the reports reveals that the painting jobs were
performed by Canonicato sporadically, either in a few days within a month and only
for a few months in a year.[23] This infrequency or irregularity of assignments
countervails Canonicatos submission that he was assigned specifically to undertake
the task of painting the whole year round. If anything, it hews closely to the assertion
of BJS that it assigned Canonicato to these jobs to maintain and sanitize the premises
of petitioner COCA COLA pursuant to its contract of services with the company.[24]
It is clear from these established circumstances that NLRC should have
recognized BJS as the employer of Canonicato and not COCA COLA. This is
demanded by the fact that it did not disturb, and therefore it upheld, the finding of the
Labor Arbiter that BJS was truly a legitimate job-contractor and could by itself hire its
own employees. The Commission could not have reached any other legitimate
conclusion considering that BJS satisfied all the requirements of a job-contractor
under the law, namely, (a) the ability to carry on an independent business and
undertake the contract work on its own account under its own responsibility according
to its manner and method, free from the control and direction of its principal or client
in all matters connected with the performance of the work except as to the results
thereof; and, (b) the substantial capital or investment in the form of tools, equipment,

machinery, work premises, and other materials which are necessary in the conduct of
its business.[25]
It is to be noted that COCA COLA is not the only client of BJS which has its
roster of clients like San Miguel Corporation, Distileria Bago Incorporated, University
of Negros Occidental-Recolletos, University of St. La Salle, Riverside College,
College Assurance Plan Phil., Inc., and Negros Consolidated Farmers Association,
Inc.[26] This is proof enough that BJS has the capability to carry on its business of
janitorial services with big establishments aside from petitioner and has sufficient
capital or materials necessary therefor.[27] All told, there being no employer-employee
relationship between Canonicato and COCA COLA, the latter cannot be validly
ordered to reinstate the former and pay him back wages.
WHEREFORE, the petition is GRANTED. The NLRC decision of 3 January
1995 declaring Ramon B. Canonicato a regular employee of petitioner Coca Cola
Bottlers Phils., Inc., entitled to reinstatement and back wages is REVERSED and SET
ASIDE. The decision of the Labor Arbiter of 28 April 1994 finding no employeremployee relationship between petitioner and private respondent but directing
petitioner Coca Cola Bottlers Phils., Inc., instead and Bacolod Janitorial Services to
pay jointly and severally Ramon B. Canonicato P2,776.80 as wage
differentials, P1,068.00 as 13th month pay andP384.48 as attorney's fees, is
REINSTATED.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION
POLYFOAM-RGC INTERNATIONAL,
CORPORATION and PRECILLA A.
GRAMAJE,
Petitioners,

G.R. No. 172349

Present:
PERALTA, J., Acting Chairperson,*
ABAD,
VILLARAMA, JR.,**
MENDOZA, and
PERLAS-BERNABE, JJ.

- versus -

Promulgated:
EDGARDO CONCEPCION,
Respondent.
June 13, 2012
x-----------------------------------------------------------------------------------------x
DECISION
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed
by petitioners Polyfoam-RGC International Corporation (Polyfoam) and Precilla A.
Gramaje (Gramaje) against respondent Edgardo Concepcion assailing the Court of
Appeals (CA) Decision[1] dated December 19, 2005 and Resolution [2] dated April
25, 2006 in CA-G.R. SP No. 83696. The assailed decision reversed the National
Labor Relations Commissions (NLRCs) Decision[3] dated May 7, 2003 in NLRC
NCR CA No. 030622-02, while the assailed resolution denied petitioners and
respondents motions for reconsideration.
The factual and procedural antecedents follow:

On February 8, 2000, respondent filed a Complaint [4] for illegal dismissal, nonpayment of wages, premium pay for rest day, separation pay, service incentive
leave pay, 13thmonth pay, damages, and attorneys fees against Polyfoam and Ms.
Natividad Cheng (Cheng). Respondent alleged that he was hired by Polyfoam as an
all-around factory worker and served as such for almost six years. [5] On January 14,
2000, he allegedly discovered that his time card was not in the rack and was later
informed by the security guard that he could no longer punch his time card.
[6]
When he protested to his supervisor, the latter allegedly told him that the
management decided to dismiss him due to an infraction of a company
rule. Cheng, the companys manager, also refused to face him. Respondents counsel
later wrote a letter[7] to Polyfoams manager requesting that respondent be readmitted to work, but the request remained unheeded prompting the latter to file
the complaint for illegal dismissal.[8]
On April 28, 2000, Gramaje filed a Motion for Intervention [9] claiming to be the
real employer of respondent. On the other hand, Polyfoam and Cheng filed a
Motion to Dismiss[10] on the grounds that the NLRC has no jurisdiction over the
case, because of the absence of employer-employee relationship between Polyfoam
and respondent and that the money claims had already prescribed.[11]
On May 24, 2000, Labor Arbiter Adolfo Babiano issued an Order [12] granting
Gramajes motion for intervention, it appearing that she is an indispensable party
and denying Polyfoam and Chengs motion to dismiss as the lack of employeremployee relationship is only a matter of defense.
In their Position Paper,[13] Polyfoam and Cheng insisted that the NLRC has no
jurisdiction over the case, because respondent was not their employee. They
likewise contended that respondents money claims had already prescribed. Finally,
they fault respondent for including Cheng as a party-defendant, considering that
she is not even a director of the company.[14]
In her Position Paper,[15] Gramaje claimed that P.A. Gramaje Employment Services
(PAGES) is a legitimate job contractor who provided some manpower needs of
Polyfoam. It was alleged that respondent was hired as packer and assigned to
Polyfoam, charged with packing the latters finished foam products. She argued,

however, that respondent was not dismissed from employment, rather, he simply
stopped reporting for work.[16]
On December 14, 2001, Labor Arbiter (LA) Marita V. Padolina rendered a
Decision finding respondent to have been illegally dismissed from employment
and holding Polyfoam and Gramaje/PAGES solidarily liable for respondents
money claims. The dispositive portion of the Decision is quoted below for easy
reference:
WHEREFORE, premises considered, judgment is hereby rendered
finding complainant to have been illegally dismissed and respondents
Polyfoam-RGC International Corporation, P.A. Gramaje Employment
Services/Precilla A. Gramaje are ordered to pay complainant jointly and
severally the following:
1). Separation Pay - P 52,000.00
2). Backwages - 157,041.38
3). 13th Month Pay - 17,407.00
4). Moral Damages - 5,000.00
5). Exemplary Damages - 5,000.00
6). Attorneys fees - ___ 23,644.83
P 260,093.21
All other claims are denied for lack of factual basis.
SO ORDERED.[17]

The Labor Arbiter found respondent to have been illegally dismissed from
employment and thus is entitled to full backwages inclusive of allowances. In lieu
of reinstatement, the LA awarded respondent separation pay of one month salary
for every year of service from April 21, 1994 until promulgation of the decision.
[18]
The LA further held that petitioners are solidarily liable to respondent for the
latters money claims, considering that Gramaje (the contractor) was not enrolled as
private employment agency in the registry of the Regional Office of the
Department of Labor and Employment (DOLE) and considering further that
respondent performed a job directly related to the main business of Polyfoam.[19]

On appeal by petitioners, the NLRC modified the LA decision by

exonerating Polyfoam from liability for respondents claim for separation pay and
deleting the awards of backwages, 13th month pay, damages, and attorneys
fees. The dispositive portion of the decision reads:
WHEREFORE, the appealed decision is modified in that the
complaint against respondent-appellant Polyfoam-RGC International
Corp. is dismissed. However, respondent-intervenor-appellant P.A.
Gramaje Employment Services is hereby ordered to pay complainant
separation pay of one (1) month salary for every year of service
reckoned from April 21, 1996 up to the rendition of this decision, or the
sum of P58,5000 (sic).
The awards of backwages, 13th month pay, damages, and attorneys
fees are set aside.
SO ORDERED.[20]

The NLRC found Gramaje to be an independent contractor who contracted

the packaging aspect of the finished foam products of Polyfoam. Pursuant to said
contract, Gramajes employees, including respondent, were assigned to Polyfoam
but remained under the control and supervision of Gramaje. It likewise concluded
that Gramaje had its own office equipment, tools, and substantial capital and, in
fact, supplied the plastic containers and carton boxes used by her employees in
performing their duties.[21] The Commission also found sufficient evidence to prove
that Gramaje paid respondents wages and benefits and reported the latter to the
Social Security System (SSS) as a covered employee. [22] As to whether there was
illegal dismissal, the NLRC answered in the negative, since respondent was not
notified that he had been dismissed nor was he prevented from returning to his
work. The NLRC found Gramaje liable for claiming that respondent abandoned his
job. Reinstatement, however, could not be decreed because of the strained relations
between the parties; hence, the award of separation pay. But the NLRC refused to
award backwages.[23] The award of moral and exemplary damages was likewise
deleted for lack of evidence.[24]
Aggrieved, respondent elevated the case to the CA in a special civil action
for certiorari under Rule 65 of the Rules of Court. On December 19, 2005, the

appellate court rendered the assailed decision,[25] the dispositive portion of which
reads:
WHEREFORE, IN VIEW OF THE FOREGOING, the petition
is GRANTED. The assailed Decision of the National Labor Relations
Commission, First Division dated May 7, 2003 isREVERSED and the
decision of Labor Arbiter Marita Padolina, dated December 14, 2001, is
hereby REINSTATED.
SO ORDERED.[26]

The CA agreed with the LAs conclusion that Gramaje is not a legitimate job
contractor but only a labor-only contractor because of the following: (1) Gramaje
failed to present its Audited Financial Statement that would have shown its
financial standing and ownership of equipment, machineries, and tools necessary
to run her own business;[27](2) Gramaje failed to present a single copy of the
purported contract with Polyfoam as to the packaging aspect of the latters business;
[28]
(3) Gramajes licenses supposedly issued by the DOLE appeared to be spurious.
[29]
(4) Gramaje was not registered with DOLE as a private recruitment agency;
[30]
and (5) Gramaje presented only one (1) SSS Quarterly Collection List whose
authenticity is doubtful.[31] The CA noted that petitioners are represented by only
one law firm though they made it appear that they were represented by different
lawyers.[32] These circumstances, says the CA, give rise to the suspicion that the
creation or establishment of Gramaje was just a scheme designed to evade the
obligation inherent in an employer-employee relationship. [33] Thus, respondent was
indeed Polyfoams employee. This relationship was specifically shown by
Polyfoams exercise of supervision over the work of respondent; [34] the furnishing
of a copy of Polyfoams Mga Alituntunin at Karampatang Parusa to serve as
respondents guide in the performance of his duty; [35] the length of time that
respondent had performed activities necessary for Polyfoams business; [36] and
Polyfoams act of directly firing respondent.[37] Finally, the appellate court affirmed
the LAs findings of illegal dismissal as respondent was dismissed from the service
without cause and due process.[38] Consequently, separation pay in lieu of
reinstatement was awarded. The CA quoted with approval the LA conclusions on
the award of respondents other money claims.[39]

Petitioners now come before the Court in this petition for review
on certiorari based on the following assigned errors:
I.
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE
PETITION FOR CERTIORARI FILED BY HEREIN RESPONDENT
CONSIDERING THE FACT THAT IT WAS CLEARLY FILED OUT
OF TIME, HAVING BEEN FILED ON THE 77 TH DAY FROM
RECEIPT BY HEREIN RESPONDENT OF THE RESOLUTION OF
THE NLRC DENYING HIS MOTION FOR RECONSIDERATION.
II.
THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE
DECISION OF THE NLRC AND ITS FINDINGS THAT A)
RESPONDENT CONCEPCION IS AN EMPLOYEE OF P.A.
GRAMAJE EMPLOYMENT SERVICES; B) P.A. GRAMAJE IS A
LEGITIMATE
JOB
CONTRACTOR;
C)
RESPONDENT CONCEPCION WAS NOT DISMISSED FROM HIS
JOB, CONSIDERING THAT THESE FINDINGS ARE FULLY
SUPPORTED BY EVIDENCE.
III.
THE COURT OF APPEALS ERRED IN REINSTATING THE
DECISION OF THE LABOR ARBITER MARITA PADOLINA
AWARDING RESPONDENT CONCEPCION BACKWAGES, MORAL
AND EXEMPLARY DAMAGES AND ATTORNEYS FEES.[40]

There are three issues for resolution, to wit: (1) whether or not Gramaje is an
independent job contractor; (2) whether or not an employer-employee relationship
exists between Polyfoam and respondent; and (3) whether or not respondent was
illegally dismissed from employment.
Gramaje is a Labor-Only
Contractor
Article 106 of the Labor Code explains the relations which may arise
between an employer, a contractor, and the contractors employees, thus:

ART. 106. Contractor or subcontracting. 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 and Employment 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.

In Sasan, Sr. v. National Labor Relations Commission 4 th Division,[41] the

Court distinguished permissible job contracting or subcontracting from labor-only
contracting, to wit:
Permissible job contracting or subcontracting refers to an
arrangement whereby a principal agrees to put out or farm out to a
contractor or subcontractor the performance or completion of a specific
job, work or service within a definite or predetermined period, regardless

of whether such job, work or service is to be performed or completed

within or outside the premises of the principal. A person is considered
engaged in legitimate job contracting or subcontracting if the following
conditions concur:
(a) The contractor or subcontractor carries on a distinct and
independent business and undertakes to perform the job, work
or service on its own account and under its own responsibility
according to its own manner and method, and free from the
control and direction of the principal in all matters connected
with the performance of the work except as to the results
thereof;
(b) The contractor or subcontractor has substantial capital or
investment;
and
(c) The agreement between the principal and contractor or
subcontractor assures the contractual employees entitlement to
all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure,
and social and welfare benefits.
In contrast, labor-only contracting, a prohibited act, is an
arrangement where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a
principal. In labor-only contracting, the following elements are present:
(a) The contractor or subcontractor does not have substantial
capital or investment to actually perform the job, work or
service under its own account and responsibility; and
(b) 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. [42]

The test of independent contractorship is whether one claiming to be an

independent contractor has contracted to do the work according to his own
methods and without being subject to the control of the employer, except only as to
the results of the work.[43] In San Miguel Corporation v. Semillano,[44] the Court laid

down the criteria in determining the existence of an independent and permissible

contractor relationship, to wit:
x x x [W]hether 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 a
specified piece 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 the premises, tools, appliances, materials, and labor; and the
mode, manner and terms of payment.[45]

Simply put, the totality of the facts and the surrounding circumstances of the case
are to be considered. Each case must be determined by its own facts and all the
features of the relationship are to be considered.[46]
Applying the foregoing tests, we agree with the CAs conclusion that
Gramaje is not an independent job contractor, but a labor-only contractor.
First, Gramaje has no substantial capital or investment. The presumption is
that a contractor is a labor-only contractor unless he overcomes the burden of
proving that it has substantial capital, investment, tools, and the like. The employee
should not be expected to prove the negative fact that the contractor does not have
substantial capital, investment and tools to engage in job-contracting.[47]
Gramaje claimed that it has substantial capital of its own as well as
investment in its office, equipment and tools. She pointed out that she furnished the
plastic containers and carton boxes used in carrying out the function of packing the
mattresses of Polyfoam. She added that she had placed in Polyfoams workplace ten
(10) sealing machines, twenty (20) hand trucks, and two (2) forklifts to enable
respondent and the other employees of Gramaje assigned at Polyfoam to perform
their job. Finally, she explained that she had her own office with her own staff.
[48]
However, aside from her own bare statement, neither Gramaje nor Polyfoam
presented evidence showing Gramajes ownership of the equipment and
machineries used in the performance of the alleged contracted job. Considering
that these machineries are found in Polyfoams premises, there can be no other
logical conclusion but that the tools and equipment utilized by Gramaje and her

employees are owned by Polyfoam. Neither did Polyfoam nor Gramaje show that
the latter had clients other than the former. Since petitioners failed to adduce
evidence that Gramaje had any substantial capital, investment or assets to perform
the work contracted for, the presumption that Gramaje is a labor-only contractor
stands.[49]
Second, Gramaje did not carry on an independent business or undertake the
performance of its service contract according to its own manner and method, free
from the control and supervision of its principal, Polyfoam, its apparent role
having been merely to recruit persons to work for Polyfoam. [50] It is undisputed that
respondent had performed his task of packing Polyfoams foam products in
Polyfoams premises. As to the recruitment of respondent, petitioners were able to
establish only that respondents application was referred to Gramaje, but that is
all. Prior to his termination, respondent had been performing the same job in
Polyfoams business for almost six (6) years. He was even furnished a copy of
Polyfoams Mga Alituntunin at Karampatang Parusa,[51] which embodied
Polyfoams rules on attendance, the manner of performing the employees duties,
ethical standards, cleanliness, health, safety, peace and order. These rules carried
with them the corresponding penalties in case of violation.
While it is true that petitioners submitted the Affidavit of Polyfoams
supervisor Victor Abadia, claiming that the latter did not exercise supervision over
respondent because the latter was not Polyfoams but Gramajes employee, said
Affidavit is insufficient to prove such claim. Petitioners should have presented the
person who they claim to have exercised supervision over respondent and their
alleged other employees assigned to Polyfoam. It was never established that
Gramaje took entire charge, control and supervision of the work and service agreed
upon. And as aptly observed by the CA, it is likewise highly unusual and suspect
as to the absence of a written contract specifying the performance of a specified
service, the nature and extent of the service or work to be done and the term and
duration of the relationship.[52]
An Employer-Employee Relationship Exists
Between Respondent and Polyfoam

A finding that a contractor is a labor-only contractor, as opposed to permissible job

contracting, is equivalent to declaring that there is an employer-employee
relationship between the principal and the employees of the supposed contractor,
and the labor-only contractor is considered as a mere agent of the principal, the real
employer.[53] In this case, Polyfoam is the principal employer and Gramaje is the
labor-only contractor. Polyfoam and Gramaje are, therefore, solidarily liable for the
rightful claims of respondent.[54]
Respondent was Illegally Dismissed
From Employment
Respondent stated that on January 14, 2000, his time card was suddenly taken off
the rack. His supervisor later informed him that Polyfoams management decided to
dismiss him due to infraction of company rule. In short, respondent insisted that he
was dismissed from employment without just or lawful cause and without due
process. Polyfoam did not offer any explanation of such dismissal. It, instead,
explained that respondents real employer is Gramaje. Gramaje, on the other hand,
denied the claim of illegal dismissal. She shifted the blame on respondent claiming
that the latter in fact abandoned his work.
The LA gave credence to respondents narration of the circumstances of the
case. Said conclusion was affirmed by the CA. We find no reason to depart from
such findings.
Abandonment cannot be inferred from the actuations of respondent. When
he discovered that his time card was off the rack, he immediately inquired from his
supervisor.He later sought the assistance of his counsel, who wrote a letter
addressed to Polyfoam requesting that he be re-admitted to work. When said
request was not acted upon, he filed the instant illegal dismissal case. These
circumstances clearly negate the intention to abandon his work.
Petitioners failed to show any valid or authorized cause under the Labor
Code which allowed it to terminate the services of respondent. Neither was it
shown that respondent was given ample opportunity to contest the legality of his
dismissal. No notice of termination was given to him. Clearly, respondent was not

afforded due process. Having failed to establish compliance with the requirements
of termination of employment under the Labor Code, the dismissal of respondent
was tainted with illegality.[55]Consequently, respondent is entitled to reinstatement
without loss of seniority rights, and other privileges and to his full backwages
inclusive of allowances and to his other benefits or their monetary equivalent
computed from the time his compensation was withheld up to the time of his actual
reinstatement. However, if reinstatement is no longer feasible as in this case,
separation pay equivalent to one month salary for every year of service shall be
awarded as an alternative.[56] Thus, the CA is correct in affirming the LAs award of
separation pay with full backwages and other monetary benefits.
WHEREFORE, premises
considered,
the
petition
is
hereby DENIED. The Court of Appeals Decision dated December 19, 2005 and
Resolution dated April 25, 2006, in CA-G.R. SP No. 83696, are AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 182018

October 10, 2012

NORKIS TRADING CORPORATION, Petitioner,

vs.
JOAQUIN BUENA VISTA, HENRY FABROA, RICARDO CAPE, BERTULDO TULOD, WILLY
DONDOY ANO and GLEN VILLARASA, Respondents.
DECISION
REYES, J.:
Before us is a Petition for Review on Certiorari filed by petitioner Norkis Trading Corporation (Norkis
Trading) to assail the Decision1 dated May 7, 2007 and Resolution2 dated March 4, 2008 of the Court
of Appeals (CA) in CA-G.R. SP No. 84041.
The Facts
The petition stems from an amended complaint for illegal suspension, illegal dismissal, unfair labor
practice and other monetary claims filed with the National Labor Relations Commission (NLRC) by
herein respondents Joaquin Buenavista (Buenavista), Henry Fabroa (Fabroa), Ricardo Cape (Cape),
Bertuldo Tulod (Tulod), Willy Dondoyano (Dondoyano) and Glen Villariasa (Villariasa) against Norkis
Trading and Panaghiusa sa Kauswagan Multi-Purpose Cooperative (PASAKA). The complaint was
docketed as NLRC-RAB-VII Case No. 09-1402-99.
During the proceedings a quo, herein respondents submitted the following averments:
The respondents were hired by Norkis Trading, a domestic corporation engaged in the business of
manufacturing and marketing of Yamaha motorcycles and multi-purpose vehicles, on separate dates
and for various positions, particularly:
Name

Date of Hiring

Position

Joaquin Buenavista

March 14, 1994

Operator

Henry Fabroa

January 5, 1993

Welder

Ricardo Cape

January 1993

Welder/Operator

Bertuldo Tulod

November 13, 1994

Welder/Assistant Operator

Willy Dondoyano

January 1993

Welder

Glen Villariasa

February 1993

Welder3

Although they worked for Norkis Trading as skilled workers assigned in the operation of industrial
and welding machines owned and used by Norkis Trading for its business, they were not treated as
regular employees by Norkis Trading. Instead, they were regarded by Norkis Trading as members of
PASAKA, a cooperative organized under the Cooperative Code of the Philippines, and which was
deemed an independent contractor that merely deployed the respondents to render services for
Norkis Trading.4 The respondents nonetheless believed that they were regular employees of Norkis
Trading, citing in their Position Paper5 the following circumstances that allegedly characterized their
employment with the company:
The work of the operators involves operating industrial machines, such as, press machine, hydraulic
machine, and spotweld machine. On the other hand, the welders used the welding machines. The
machines used by complainants herein respondents in their work are all owned by respondent
Norkis Trading herein petitioner and these are installed and located in the working area of the
complainants inside the companys premises.
The complainants produced steel crates which are exported directly by respondent Norkis Trading to
Japan. These crates are used as containers of motorcycle machines and are shipped from Japan
back to respondent Norkis Trading.
The materials and supplies used by complainants in their work are supplied by respondent Norkis
Trading through Benjamin Gulbin, the companys Stockman, upon the request of Tirso Maslog, a
Leadman also employed by respondent Norkis Trading.
Respondent Norkis Trading gave instructions and supervised the work of complainants through
Edwin Ponce and Kiven Alilin, who are both Leadmen, and Rico Cabanas, who is the Production
Supervisor, of the former.
The salaries of complainants are paid inside the premises of respondent Norkis Trading by Dalia
Rojo and Belen Rubio, who are also employees of the said company assigned at the accounting
office.
Despite having served respondent Norkis Trading for many years and performing the same functions
as regular employees, complainants were not accorded regular status. It was made to appear that
complainants are not employees of said company but that of respondent PASAKA. 6
Against the foregoing scenario, the respondents, together with several other complainants, 7 filed on
June 9, 1999 with the Department of Labor and Employment (DOLE) a complaint against Norkis
Trading and PASAKA for labor-only contracting and non-payment of minimum wage and overtime
pay. The complaint was docketed as LSED Case No. RO700-9906-CI-CS-168.
The filing of the complaint for labor-only contracting allegedly led to the suspension of the
respondents membership with PASAKA. On July 22, 1999, they were served by PASAKA with
memoranda charging them with a violation of the rule against commission of acts injurious or
prejudicial to the interest or welfare of the cooperative. The memoranda cited that the respondents
filing of a case against Norkis Trading had greatly prejudiced the interest and welfare of the
cooperative.8 In their answer9 to the memoranda, the respondents explained that they merely wanted
to be recognized as regular employees of Norkis Trading. The case records include copies of the
memoranda sent to respondents Buenavista, Fabroa and Dondoyano. 10
On August 16, 1999, the respondents received another set of memoranda from PASAKA, now
charging them with the following violations of the cooperatives rules and regulations: (1) serious
misconduct or willful disobedience of superiors instructions or orders; (2) gross and habitual neglect

of duties by abandoning work without permission; (3) absences without filing leave of absence; and
(4) wasting time or loitering on companys time or leaving their post temporarily without permission
during office hours.11 Copies of the memoranda12 sent to Fabroa and Cape form part of the records.
On August 26, 1999, PASAKA informed the respondents of the cooperatives decision to suspend
them for fifteen (15) working days, to be effective from September 1 to 21, 1999, for violation of
PASAKA rules.
The records include copies of the memoranda13 sent to Fabroa and Cape. The suspension prompted
the respondents to file with the NLRC the complaint for illegal suspension against Norkis Trading
and PASAKA.
The 15-day suspension of the respondents was extended for another period of 15 days, from
September 22, 1999 to October 12, 1999.14 Copies of PASAKAs separate letters15 to Buenavista,
Fabroa, Cape and Dondoyano on the cooperatives decision to extend the suspension form part of
the records.
On October 13, 1999, the respondents were to report back to work but during the hearing in their
NLRC case, they were informed by PASAKA that they would be transferred to Norkis Tradings sister
company, Porta Coeli Industrial Corporation (Porta Coeli), as washers of Multicab vehicles.
The respondents opposed the transfer as it would allegedly result in a change of employers, from
Norkis Trading to Porta Coeli. The respondents also believed that the transfer would result in a
demotion since from being skilled workers in Norkis Trading, they would be reduced to being utility
workers.These circumstances made the respondents amend their complaint for illegal suspension,
to include the charges of unfair labor practice, illegal dismissal, damages and attorneys fees.
For their part, both Norkis Trading and PASAKA claimed that the respondents were not employees of
Norkis Trading. They insisted that the respondents were members of PASAKA, which served as an
independent contractor that merely supplied services to Norkis International Co., Inc. (Norkis
International) pursuant to a job contract16 which PASAKA and Norkis International executed on
January 14, 1999 for 121,500 pieces of F/GF-Series Reinforcement Production. After PASAKA
received reports from its coordinator at Norkis International of the respondents low efficiency and
violation of the cooperatives rules, and after giving said respondents the chance to present their
side, a penalty of suspension was imposed upon them by the cooperative. The illegal suspension
being complained of was then not linked to the respondents employment, but to their membership
with PASAKA.
Norkis Trading stressed that the respondents were deployed by PASAKA to Norkis International, a
company that is entirely separate and distinct from Norkis Trading.
The Ruling of the Labor Arbiter
On June 1, 2000, Labor Arbiter Jose G. Gutierrez (LA Gutierrez) dismissed the complaint via a
Decision17 with decretal portion that reads:
WHEREFORE, the foregoing premises considered, judgment is hereby rendered DISMISSING this
case for lack of merit. Complainants herein respondents are however directed to report back to
respondent PASAKA for work assignment within ten (10) days from receipt of this decision. Likewise,
respondent PASAKA is directed to accept the complainants back for work.

SO ORDERED.18
LA Gutierrez sustained the suspension imposed by PASAKA upon the respondents, taking into
account the offenses that the said respondents were found to have committed. He likewise rejected
the respondents claim of illegal dismissal. He ruled that to begin with, the respondents had failed to
prove with convincing evidence that they were dismissed from employment. The Decision reads in
part:
Before the legality or illegality of a dismissal can be put in issue, the fact of dismissal itself must, first,
be clearly established. In the instant case, We find that complainants herein respondents failed to
prove with convincing evidence the fact that they were dismissed from employment. This
observation is derived from their very own allegation in their position paper. The first paragraph of
page 5 of the complainants position paper clearly shows that they were not yet dismissed from their
employment. The said paragraph states:
"Convinced that the company is bent on terminating their services, complainants amended their
complaint to include the charges of unfair labor practice, illegal dismissal, damages and attorneys
fees."
The truth, as the record would show is that, complainants were only offered another post in order to
save the contractual relations between their cooperative and Norkis Trading as the latter finds the
complainants performance not satisfactory. The complainants took this offer as a demotion
amounting to dismissal. We do not however, agree as their transfer to another post was only the
best option available in order to save the contractual relations between their cooperative (PASAKA)
and Norkis Trading.19
The allegation of unfair labor practice and claim for monetary awards were likewise rejected by the
LA. Feeling aggrieved, the respondents appealed from the decision of the LA to the NLRC.
In the meantime, DOLE Regional Director Melencio Q. Balanag (Regional Director Balanag) issued
on August 22, 2000 his Order20 in LSED Case No. RO700-9906-CI-CS-168. Regional Director
Balanag ruled that PASAKA was engaged in labor-only contracting. 21 The other findings in his Order
that are significant to this case are as follows: (1) PASAKA had failed to prove that it had substantial
capital;22 (2) the machineries, equipment and supplies used by the respondents in the performance
of their duties were all owned by Norkis Trading and not by PASAKA;23 (3) the respondents
membership with PASAKA as a cooperative was inconsequential to their employment with Norkis
Trading;24 (4) Norkis Trading and PASAKA failed to prove that their sub-contracting arrangements
were covered by any of the conditions set forth in Section 6 of Department Order No. 10, Series of
1997;25 (5) Norkis Trading and PASAKA failed to dispute the respondents claim that their work was
supervised by leadmen and production supervisors of Norkis Trading; 26 and (6) Norkis Trading and
PASAKA failed to dispute the respondents allegation that their salaries were paid by employees of
Norkis Trading.27 Norkis Trading and PASAKA were then declared solidarily liable for the monetary
claims of therein complainants, as provided in the dispositive portion of Regional Director Balanags
Order, to wit:
WHEREFORE, respondent PANAGHIUSA SA KAUSWAGAN MULTIPURPOSE
COOPERATIVEand/or NORKIS TRADING CORPORATION are hereby ORDERED to pay solidarily
the amount ofTHREE HUNDRED THIRTEEN THOUSAND THREE HUNDRED FIFTY-FOUR AND
50/100 ([P]313,354.50) PESOS, Philippine Currency, within ten (10) calendar days from receipt
hereof to herein complainants x x x:
xxxx

SO ORDERED.28
The respondents informed the NLRC of Regional Director Balanags Order by filing a
Manifestation29 dated September 11, 2000, attaching thereto a copy of the Order dated August 22,
2000.
It bears mentioning that Regional Director Balanags Order was later affirmed by then DOLE
Secretary Patricia Sto. Tomas (Sec. Sto. Tomas) in her Orders dated February 7, 2002 and October
14, 2002.30 When the rulings of the DOLE Secretary were appealed before the CA via the petitions
for certiorari docketed as CA-G.R. SP No. 73880 and CA-G.R. SP No. 74619, the CA affirmed the
Orders of the DOLE Secretary.31 A motion for reconsideration of the CA decision was denied in a
Resolution32 dated October 9, 2007. The two petitions docketed as G.R. Nos. 180078-79, which were
brought before this Court to question the CAs rulings, were later denied with finality by this Court in
the Resolutions dated December 5, 200733 and April 14, 2008.34
The Ruling of the NLRC
On April 18, 2002, the NLRC rendered its Decision35 affirming with modification the decision of LA
Gutierrez. It held that the respondents were not illegally suspended from work, as it was their
membership in the cooperative that was suspended after they were found to have violated the
cooperatives rules and regulations. It also declared that the respondents dismissal was not
established by substantial evidence. The NLRC however declared that the LA had no jurisdiction
over the dispute because the respondents were not employees, but members of PASAKA. The
suspension of the respondents as members of PASAKA for alleged violation of the cooperatives
rules and regulations was not a labor dispute, but an intra-corporate dispute. 36 The complaint was
also declared to have been filed against the wrong party because the respondents were found by the
NLRC to have been deployed by PASAKA to Norkis International pursuant to a job contract.
The dispositive portion of the NLRCs Decision reads:
WHEREFORE, the Decision dated June 1, 2000 of the Labor Arbiter is AFFIRMED, with respect to
the DISMISSAL of the complainants herein respondents for lack of merit [sic], but deleting the
portion directing the complainants to report back to respondent PASAKA for work assignment and to
accept them back to work being an internal concern of PASAKA.
SO ORDERED.37
The respondents motion for reconsideration was denied by the NLRC in a Resolution 38 dated
December 18, 2003. Undaunted, the respondents questioned the NLRCs rulings before the CA via a
petition for certiorari.
The Ruling of the CA
Finding merit in the petition for certiorari, the CA rendered its decision reversing and setting aside
the decision and resolution of the NLRC. The dispositive portion of its Decision dated May 7, 2007
reads:
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the NLRC, are
hereby REVERSED and SET ASIDE, and a new judgment is hereby rendered ordering the private
respondents to:

(1) Reinstate petitioners to their former positions without loss of seniority rights, and to pay full
backwages inclusive of allowances and their other benefits or their monetary equivalent computed
from the time of illegal dismissal to the time of actual reinstatement; and
(2) Alternatively, if reinstatement is not possible, to pay full backwages inclusive of other benefits or
their monetary equivalent from the time of illegal dismissal until the same is paid in full, and pay
petitioners separation pay equivalent to one months salary for every year of service.
SO ORDERED.39
The CA rejected the argument of PASAKA and Norkis Trading that by virtue of a job contract
executed on January 14, 1999, the respondents were deployed to Norkis International and not to
Norkis Trading. The CA held:
We are not convinced. Private respondents among them, herein petitioner own evidence belie their
claim.
In its Comment, NORKIS TRADING attached the Payroll Registers for PANAGHIUSA SA
KAUSWAGAN (PASAKA) MULTIPURPOSE COOPERATIVE-NICI Tin Plate covering the payroll
periods "12/28/98-01/07/99" and "01/08/99-01/14/99". Included among the payees therein were the
petitioners herein respondents. x x x Why were petitioners included in said payrolls for said payroll
periods when the supposed Contract with NORKIS INTERNATIONAL was not yet executed?
Apparently, private respondents slipped. Thus, we hold that the much ballyhooed January 14, 1999
Contract between PASAKA and NORKIS INTERNATIONAL, is but a mere afterthought, a concoction
designed by private respondents to evade their obligations to petitioners. 40 (Citations omitted and
emphasis supplied)
The CA also considered Regional Director Balanags finding in LSED Case No. RO700-9906-CI-CS168 that PASAKA was engaged in labor-only contracting. In ruling that the respondents were illegally
dismissed, the CA held that Norkis Tradings refusal to accept the respondents back to their former
positions, offering them instead to accept a new assignment as washers of vehicles in its sister
company, was a demotion that amounted to a constructive dismissal.
Norkis Tradings motion for reconsideration was denied by the CA in its Resolution 41 dated March 4,
2008. Hence, this petition.
The Present Petition
The petition is founded on the following grounds:
1) THE COURT OF APPEALS HAS DEPARTED FROM THE USUAL COURSE OF JUDICIAL
PROCEEDINGS WHEN IT MADE ITS OWN FACTUAL FINDINGS AND DISREGARDED THE
UNIFORM AND CONSISTENT FACTUAL FINDINGS OF THE LABOR ARBITER AND THE NLRC,
WHICH MUST BE ACCORDED GREAT WEIGHT, RESPECT AND EVEN FINALITY. IN SO DOING,
THE COURT OF APPEALS EXCEEDED ITS AUTHORITY ON CERTIORARI UNDER RULE 65 OF
THE RULES OF COURT BECAUSE SUCH FACTUAL FINDINGS WERE BASED ON
SPECULATIONS AND NOT ON OTHER EVIDENCES [SIC] ON RECORD.
2) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT THE NLRC COMMITTED GRAVE

ABUSE OF DISCRETION IN ALLEGEDLY IGNORING THE RULING OF THE REGIONAL

DIRECTOR.
3) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT PETITIONER IS THE EMPLOYER
OF RESPONDENTS.
4) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT THE RESPONDENTS WERE
CONSTRUCTIVELY DISMISSED CONTRARY TO THE FACTUAL FINDINGS OF THE LABOR
ARBITER AND THE NLRC AND WITHOUT SHOWING ANY EVIDENCE TO OVERTURN SUCH
FINDING OF FACT.42
The respondents oppose these grounds in their Comment.43 In support of their arguments, the
respondents submit with their Comment copies of the CAs Decision 44 and Resolution45 in CA-G.R.
SP No. 73880 and CA-G.R. SP No. 74619, and this Courts Resolutions 46 in G.R. Nos. 180078-79.
This Courts Ruling
The Court resolves to deny the petition.
Factual findings of labor officials
may be examined by the courts
when there is a showing that they
were arrived at arbitrarily or in
disregard of evidence on record.
As regards the first ground, the petitioner questions the CAs reversal of LA Gutierrezs and the
NLRCs rulings, and argues that said rulings should have been accorded great weight and finality by
the appellate court as these were allegedly supported by substantial evidence.
On this matter, the settled rule is that factual findings of labor officials, who are deemed to have
acquired expertise in matters within their jurisdiction, are generally accorded not only respect but
even finality by the courts when supported by substantial evidence, i.e., the amount of relevant
evidence which a reasonable mind might accept as adequate to support a conclusion. We
emphasize, nonetheless, that these findings are not infallible. When there is a showing that they
were arrived at arbitrarily or in disregard of the evidence on record, they may be examined by the
courts. The CA can then grant a petition for certiorari if it finds that the NLRC, in its assailed decision
or resolution, has made a factual finding that is not supported by substantial evidence. It is within the
jurisdiction of the CA, whose jurisdiction over labor cases has been expanded to review the findings
of the NLRC.47
We have thus explained in Cocomangas Hotel Beach Resort v. Visca 48 that the CA can take
cognizance of a petition for certiorari if it finds that the NLRC committed grave abuse of discretion by
capriciously, whimsically, or arbitrarily disregarding evidence which are material to or decisive of the
controversy. The CA cannot make this determination without looking into the evidence presented by
the parties. The appellate court needs to evaluate the materiality or significance of the evidence,
which are alleged to have been capriciously, whimsically, or arbitrarily disregarded by the NLRC, in
relation to all other evidence on record.

This case falls within the exception to the general rule that findings of fact of labor officials are to be
accorded respect and finality on appeal. As our discussions in the other grounds that are raised in
this petition will demonstrate, the CA has correctly held that the NLRC has disregarded facts and
evidence that are material to the outcome of the respondents case. No error can be ascribed to the
appellate court for making its own assessment of the facts that are significant to the case to
determine the presence or absence of grave abuse of discretion on the part of the NLRC, even if the
CAs findings turn out to be different from the factual findings of both the LA and NLRC.
Norkis Trading is the principal
employer of the respondents,
considering that PASAKA is a mere
labor-only contractor.
The second and third grounds, being interrelated as they both pertain to the CAs finding that an
employer-employee relationship existed between the petitioner and the respondents, shall be
discussed jointly. In its decision, the CA cited the findings of the Regional Director in LSED Case No.
RO700-9906-CI-CS-168 and declared that the NLRC committed a grave abuse of discretion when it
ignored said findings.
The issue of whether or not the respondents shall be regarded as employees of the petitioner hinges
mainly on the question of whether or not PASAKA is a labor-only contractor. Labor-only contracting,
a prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies,
or places workers to perform a job, work, or service for a principal. In labor-only contracting, the
following elements are present: (a) the contractor or subcontractor does not have substantial capital
or investment to actually perform the job, work, or service under its own account and responsibility;
and (b) the employees recruited, supplied or placed by such contractor or subcontractor perform
activities which are directly related to the main business of the principal. These differentiate it from
permissible or legitimate job contracting or subcontracting, which refers to an arrangement whereby
a principal agrees to put out or farm out with the contractor or subcontractor the performance or
completion of a specific job, work, or service within a definite or predetermined period, regardless of
whether such job, work, or service is to be performed or completed within or outside the premises of
the principal. A person is considered engaged in legitimate job contracting or subcontracting if the
following conditions concur: (a) the contractor carries on a distinct and independent business and
partakes the contract work on his 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 his work except as to the results thereof; (b) the contractor has substantial
capital or investment; and (c) the agreement between the principal and the contractor or
subcontractor assures the contractual employees entitlement to all labor and occupational safety
and health standards, free exercise of the right to self-organization, security of tenure, and social
welfare benefits.49
We emphasize that the petitioners arguments against the respondents claim that PASAKA is a
labor-only contractor, which is thus to be regarded as a mere agent of Norkis Trading for which the
respondents rendered service, are already mooted by the finality of this Courts Resolutions dated
December 5, 2007 and April 14, 2008 in G.R. Nos. 180078-79, which stems from the CAs and the
DOLE Secretarys review of the DOLE Regional Directors Order dated August 22, 2000 in LSED
Case No. RO700-9906-CI-CS-168.
To recapitulate, Regional Director Balanag issued on August 22, 2000 its Order 50 in LSED Case No.
RO700-9906-CI-CS-168 and declared PASAKA as a mere labor-only contractor, and Norkis Trading
as the true employer of herein respondents. He explained that PASAKA failed to prove during the
conduct of a summary investigation that the cooperative had substantial capital or investment

sufficient to enable it to perform the functions of an independent contractor. The respondents claim
that the machinery, equipment and supplies they used to perform their duties were owned by Norkis
Trading, and not by PASAKA, was undisputed. While PASAKA reflected in its Statement of Financial
Condition for the year 1996 property and equipment net of accumulated depreciation
at P344,273.02, there was no showing that the properties covered thereby were actually and directly
used in the conduct of PASAKAs business.51 The DOLE Regional Director explained:
Herein respondents among them, herein petitioner failed to prove that their sub-contracting
arrangements fall under any of the conditions set forth in Sec. 6 of D.O. # 10 S. 1997 to qualify as
permissible contracting or subcontracting as provided for as follows:
Sec. 6. Permissible contracting or subcontracting. Subject to conditions set forth in Sec. 4 (d) and (e)
and Section 5 hereof, the principal may engage the services of a contractor or subcontractor for the
performance of any of the following:
a.) Works or services temporarily or occasionally needed to meet abnormal increase in the demand
of products or services...
b) Works or services temporarily or occasionally needed by the principal for undertakings requiring
expert or highly technical personnel to improve the management or operations of an enterprise;
c) Services temporarily needed for the introduction or promotion of new products...;
d) Works or services not directly related or not integral to main business or operation of the principal
including casual work, janitorial, security, landscaping and messengerial services and work not
related to manufacturing processes in manufacturing establishments.
e) Services involving the public display of manufacturers products...;
f) Specialized works involving the use of some particular, unusual or peculiar skills... and
g) Unless a reliever system is in place among the regular workforce, substitute services for absent
regular employees...
It is therefore evident that herein respondents are engaged in "labor-only" contracting as defined in
Art. 106 of the Labor Code. Furthermore, such contracting/sub-contracting arrangement not only
falls under labor-only contracting but also fails to qualify as legitimate subcontracting as defined
under Sec. 4 par. e of D.O. #10 S. 1997, to wit:
"Sec. 4. Definition of terms.
d)
Subject to the provisions of Sections 6, 7 and 8 of this Rule, contracting or subcontracting shall be
legitimate if the following circumstances concur:
i) The contractor or subcontractor carries on a distinct and independent business and undertakes to
perform the job, work or service on its own account and under its own responsibility, according to its
own manner and method, and free from the control and direction of the principal in all matters
connected with the performance of the work except to the results thereof;

ii) The contractor or subcontractor has substantial capital or investment; and

iii) The agreement between the principal and contractor or subcontractor assures the contractual
employees entitlement to all labor and occupational and safety and health standards, free exercise
of the right to self-organization, security of tenure and social and welfare benefits." 52 (Emphasis
supplied)
Together with his finding that PASAKA evidently lacked substantial capital or investment required
from legitimate job contractors, Regional Director Balanag ruled that the cooperative failed to dispute
the respondents allegation that officers of Norkis Trading supervised their work and paid their
salaries. In conclusion, PASAKA and Norkis Trading were declared solidarily liable for the monetary
awards made in favor of therein claimants-employees, which included herein respondents. A motion
for reconsideration of the Order was denied by the Regional Director.
Upon appeal, then DOLE Sec. Sto. Tomas affirmed the rulings of Regional Director Balanag. Both
Norkis Trading and PASAKA filed their separate appeals from the orders of the DOLE Secretary to
the CA via the petitions for certiorari docketed as CA-G.R. SP Nos. 73880 and 74619, but said
petitions were dismissed for lack of merit by the CA in its Decision dated May 7, 2007 and
Resolution dated October 9, 2007. The CA held:
This Court agrees with the finding of the DOLE Regional Director, as affirmed by the Secretary of
Labor in her assailed Order, that petitioners among them, herein petitioner were engaged in laboronly contracting.
First. PASAKA failed to prove that it has substantial capitalization or investment in the form of tools,
equipment, machineries, work premises, among others, to qualify as an independent contractor.
PASAKAs claim that it has machineries and equipment worth P 344,273.02 as reflected in its
Financial Statements and Supplementary Schedules is belied by private respondents among them,
herein respondents evidence which consisted of pictures showing machineries and equipment which
were owned by and located at the premises of petitioner NORKIS TRADING (as earlier noted, some
of the pictures showed some of the private respondents operating said machines). Indeed it makes
one wonder why, if PASAKA indeed had such machineries and equipment worth P 344,273.02,
private respondents were using machineries and equipment owned by and located at the premises
of NORKIS TRADING.
Even granting that indeed PASAKA had machineries and equipment worth P 344,273.02, it was not
shown that said machineries and equipment were actually used in the performance or completion of
the job, work, or service that it was contracted to render under its supposed job contract.
xxxx
Second. PASAKA likewise did not carry out an independent business from NORKIS TRADING.
While PASAKA was issued its Certificate of Registration on July 18, 1991, all it could show to prove
that it carried out an independent business as a job contractor were the Project Contract dated
January 2, 1998 with NORKIS TRADING, and the Project Contract dated December 18, 1998 with
NORKIS INTERNATIONAL. However, as earlier discussed, the Project Contract dated December
18, 1998 with NORKIS INTERNATIONAL is nothing more than an afterthought by the petitioners to
confuse its workers and defeat their rightful claims. The same can be said of the Project Contract
with WICKER and VINE, INC., considering that it was executed only on February 1, 2000. Verily,
said contract was submitted only to strengthen PASAKAs claim that it is a legitimate job contractor.

Third. Private respondents performed activities directly related to the principal business of NORKIS
TRADING. They worked as welders and machine operators engaged in the production of steel
crates which were sent to Japan for use as containers of motorcycles that are then sent back to
NORKIS TRADING. Private respondents functions therefore are directly related and vital to NORKIS
TRADINGs business of manufacturing of Yamaha motorcycles.
All the foregoing considerations affirm by more than substantial evidence that NORKIS TRADING
and PASAKA engaged in labor-only contracting.53 (Citations omitted and emphasis supplied)
When the case was brought before this Court via the petitions for review on certiorari docketed as
G.R. Nos. 180078-79, we resolved to issue on December 5, 2007 our Resolution dismissing the
appeal for, among other grounds, the failure of Norkis Trading to sufficiently show any reversible
error in the the CA decision. In our Resolution dated April 14, 2008, we denied with finality Norkis
Tradings motion for reconsideration on the ground that no substantial argument and compelling
reason was adduced to warrant a reconsideration of our dismissal of the petition. This Courts
resolutions, affirming the findings of the CA, had then become final and executory.
Applying the doctrine of res judicata, all matters that have been fully resolved with finality by this
Courts dismissal of the appeal that stemmed from Regional Director Balanags Order dated August
22, 2000 in LSED Case No. RO700-9906-CI-CS-168 are already conclusive between the parties.
Res judicata is defined as a matter adjudged; a thing judicially acted upon or decided; a thing or
matter settled by judgment. Under this doctrine, an existing final judgment or decree rendered on the
merits, and without fraud or collusion, by a court of competent jurisdiction, upon any matter within its
jurisdiction, is conclusive of the rights of the parties or their privies, in all other actions or suits in the
same or any other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the
first suit.
To state simply, a final judgment or decree on the merits by a court of competent jurisdiction is
conclusive of the rights of the parties or their privies in all later suits on all points and matters
determined in the former suit.54
Res judicata has two aspects: bar by prior judgment and conclusiveness of judgment as provided
under Section 47(b) and (c), Rule 39, respectively, of the Rules of Court. 55 Under the doctrine of
conclusiveness of judgment, facts and issues actually and directly resolved in a former suit cannot
be raised in any future case between the same parties, even if the latter suit may involve a different
cause of action.56
Clearly, res judicata in the concept of conclusiveness of judgment has set in. In the proceedings
before the Regional Director and the LA, there were identity of parties and identity of issues,
although the causes of action in the two actions were different. First, herein respondents on the one
hand, and Norkis Trading on the other hand, were all parties in the two cases, being therein
complainants and respondent, respectively. As to the second requisite, the issue of whether
PASAKA was a labor-only contractor which would make Norkis Trading the true employer of the
respondents was the main issue in the two cases, especially since Norkis Trading had been arguing
in both proceedings that it could not be regarded as the herein respondents employer, harping on
the defense that PASAKA was a legitimate job contractor.
Similarly, in Dole Philippines, Inc. v. Esteva,57 we held that the finding of the DOLE Regional Director,
which had been affirmed by the Undersecretary of Labor, by authority of the Secretary of Labor, in
an Order that has reached finality and which provided that the cooperative Cannery Multi-Purpose
Cooperative (CAMPCO) was engaged in labor-only contracting should bind the NLRC in a case for
illegal dismissal. We ruled:

While the causes of action in the proceedings before the DOLE and the NLRC differ, they are, in
fact, very closely related. The DOLE Regional Office conducted an investigation to determine
whether CAMPCO was violating labor laws, particularly, those on labor-only contracting.
Subsequently, it ruled that CAMPCO was indeed engaging in labor-only contracting activities, and
thereafter ordered to cease and desist from doing so. x x x The matter of whether CAMPCO was a
labor-only contractor was already settled and determined in the DOLE proceedings, which should be
conclusive and binding upon the NLRC. What were left for the determination of the NLRC were the
issues on whether there was illegal dismissal and whether respondents should be regularized.
x x x For the NLRC to ignore the findings of DOLE Regional Director Parel and DOLE
Undersecretary Trajano is an unmistakable and serious undermining of the DOLE officials
authority.58
The rule on conclusiveness of judgment then now precludes this Court from re-opening the issues
that were already settled with finality in G.R. Nos. 180078-79, which effectively affirmed the CAs
findings that PASAKA was engaged in labor-only contracting, and that Norkis Trading shall be
treated as the employer of the respondents.
In the present petition, Norkis Trading still argues that the NLRC committed no grave abuse of
discretion in ignoring the findings of Regional Director Balanag considering that his Order had not
yet reached finality at the time the NLRC resolved the appeal from the decision of the LA. This
notwithstanding, this Court holds that the CA still committed no error in finding grave abuse of
discretion on the part of the NLRC by the latters utter disregard of the findings of the Regional
Director that Norkis Trading should be considered the employer of herein respondents. As correctly
observed by the CA in the assailed Decision dated May 7, 2007:
Surprisingly, the NLRC failed to consider or even make reference to the said August 22, 2000 Order
of the DOLE Regional Director. Considering the significance of the DOLE Regional Directors
findings, the same cannot just be perfunctorily rejected. For the NLRC to ignore the findings of
DOLE Regional Director is to undermine or disregard of [sic] the visitorial and enforcement power of
the DOLE Secretary and his authorized representatives under Article 128 of the Labor Code, as
amended. It was grave abuse of discretion then on the part of the NLRC to ignore or simply sweep
under the rug the findings of the DOLE Regional Director.59 (Citation omitted and emphasis ours)
A reading of the NLRCs Resolution60 dated December 18, 2003 indicates that while it was
confronted with opposing findings of the Regional Director and the LA on the material issue of laboronly contracting, it failed to even attempt to review thoroughly the matter, look into the records,
reconcile the differing judgments and make its own appreciation of the evidence presented by the
parties. Instead, it simply brushed aside the rulings of the Regional Director, without due
consideration of the circumstance that said labor official had the jurisdiction to rule on the issue
pursuant to the visitorial and enforcement powers of the DOLE Secretary and his duly authorized
representatives under Article 12861 of the Labor Code.
The rule in appeals in labor cases provides that the CA can grant a petition for certiorari if it finds that
the NLRC, in its assailed decision or resolution, committed grave abuse of discretion by capriciously,
whimsically or arbitrarily disregarding evidence which is material or decisive of the
controversy.62 Significantly, the Secretary of Labor had already affirmed Regional Director Balanags
Order when the appeal from the LAs rulings was resolved. In the NLRC Resolution dated December
18, 2003, the Commission nonetheless merely held:
The photocopies of the Order of the Honorable Secretary of the Department of Labor and
Employment dated February 7, 2002 and the Order of the Regional Director of the Regional Office of

the Department of Labor and Employment finding the existence of labor-only contracting between
respondent NORKIS [Trading] and respondent PASAKA do not provide sufficient basis to disturb Our
Decision. We are not convinced that the facts and evidence, which are totally distinct from this case
and which were presented in a separate proceedings and before another Office, would be a
sufficient and valid basis to divest the Labor Arbiter a quo of his authority which undoubtedly the law
vests upon him as his exclusive jurisdiction. The jurisdiction conferred by Article 217 of the Labor
Code upon the Labor Arbiter is "original and exclusive", and his authority to hear and decide case[s]
vested upon him is to the exclusion of any other court or quasi-judicial body. By reason of their
training, experience, and expertise, Labor Arbiters are in a better position to resolve controversies,
for which they are conferred original and exclusive jurisdiction by law. Even Article 218 of the Labor
Code does not empower the Regional Director of the Department of Labor and Employment to share
original and exclusive jurisdiction conferred on the Labor Arbiter by Article 217 x x x. 63
Such utter disregard by the NLRC of the findings of the Regional Director and DOLE Secretary
amounts to grave abuse of discretion amounting to lack or excess of jurisdiction. As this Courts
review of the records would confirm, a judicious study of the evidence presented by the parties
would have supported the finding that Norkis Trading should be treated as the respondents true
employer, with PASAKA being merely an agent of said employer. PASAKA failed to sufficiently show
that it had substantial capital or investment in the form of tools, equipment, machineries and work
premises required from legitimate job contractors. The work required from the respondents, being
welders and/or operators of industrial machines, were also directly related to Norkis Tradings
principal business of manufacturing. The job contract supposedly executed by and between
PASAKA and Norkis International in 1999 deserved nil consideration given that the respondents had
claimed early on that they began working for Norkis Trading on various dates from 1993 to 1994.
Moreover, the records confirm that Norkis Trading was still among the clients of PASAKA as of July
1999, as clearly indicated in the memoranda it sent to respondents Buenavista, Fabroa and
Dondoyano on July 22, 1999, which provide:
Please take note that the recent action you have done in filing a case against one of our clients,
Norkis Trading Co., Inc., has greatly prejudiced the interest and welfare of the
Cooperative.64(Emphasis ours)
This categorical statement of PASAKA that Norkis Trading was among its clients at the time the
memoranda were issued only further bolsters the respondents claim, and Regional Director
Balanags finding, that said respondents were deployed by PASAKA to Norkis Trading. This also
contradicts petitioners argument that its contract with PASAKA had ended in 1998. 65
Finally, contrary to the insinuations of Norkis Trading, the fact that PASAKA was a duly-registered
cooperative did not preclude the possibility that it was engaged in labor-only contracting, as
confirmed by the findings of the Regional Director. An entity is characterized as a labor-only
contractor based on the elements and guidelines established by law and jurisprudence, judging
primarily on the relationship that the said entity has with the company to which the workers are
deployed, and not on any special arrangement that the entity has with said workers.
Termination of an employment for
no just or authorized cause
amounts to an illegal dismissal.
As to the issue of whether the respondents were illegally dismissed by Norkis Trading, we answer in
the affirmative, although not by constructive dismissal as declared by the CA, but by actual
dismissal.

Where an entity is declared to be a labor-only contractor, the employees supplied by said contractor
to the principal employer become regular employees of the latter. Having gained regular status, the
employees are entitled to security of tenure and can only be dismissed for just or authorized causes
and after they had been afforded due process.66 Termination of employment without just or
authorized cause and without observing procedural due process is illegal.
1wphi1

In claiming that they were illegally dismissed from their employment, the respondents alleged having
been informed by PASAKA that they would be transferred, upon the behest of Norkis Trading, as
Multicab washers or utility workers to Porta Coeli, a sister company of Norkis Trading. Norkis Trading
does not dispute that such job transfer was relayed by PASAKA unto the respondents, although the
company contends that the transfer was merely an "offer" that did not constitute a dismissal. It bears
mentioning, however, that the respondents were not given any other option by PASAKA and Norkis
Trading but to accede to said transfer. In fact, there is no showing that Norkis Trading would still
willingly accept the respondents to work for the company. Worse, it still vehemently denies that the
respondents had ever worked for it. Again, all defenses of Norkis Trading that anchor on the alleged
lack of employer-employee relationship between it and the respondents no longer merit any
consideration, given that this Courts findings in G.R. Nos. 180078-79 have become conclusive.
Thus, the respondents transfer to Porta Coeli, although relayed to the respondents by PASAKA was
effectively an act of Norkis Trading. 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. 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.67
No further evidence or document should then be required from the respondents to prove such fact of
dismissal, especially since Norkis Trading maintains that it has no duty to admit and treat said
respondents as its employees. Considering that Porta Coeli is an entity separate and distinct from
Norkis Trading, the respondents employment with Norkis Trading was necessarily severed by the
change in work assignment. It then did not even matter whether or not the transfer involved a
demotion in the respondents rank and work functions; the intention to dismiss, and the actual
dismissal of the respondents were sufficiently established.
In the absence of a clear showing that the respondents dismissal was for just or authorized causes,
the termination of the respondents employment was illegal. What may be reasonably deduced from
the records was that Norkis Trading decided on the transfer, after the respondents had earlier filed
their complaint for labor-only contracting against the company. Even Norkis Tradings contention that
the transfer may be deemed a valid exercise of management prerogative is misplaced. First, the
exercise of management prerogative presupposes that the transfer is only for positions within the
business establishment. Second, the exercise of management prerogative by employers is not
absolute, as it is limited by law and the general principles of fair play and justice.
WHEREFORE, premises considered, the petition is DENIED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:

THIRD DIVISION
EPARWA SECURITY AND
JANITORIAL SERVICES, INC.,
Petitioner,

G.R. No. 150402

Present:
QUISUMBING, J.,
Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

- versus -

LICEO DE CAGAYAN UNIVERSITY,

Respondent.
Promulgated:
November 28, 2006
x--------------------------------------------------x

DECISION
CARPIO, J.:
The Case
This is a petition for certiorari[1] of the Decision[2] dated 20 April 2001 and the
Resolution dated 21 September 2001 of the Court of Appeals (appellate court) in
CA-G.R. SP No. 59120, Liceo de Cagayan University v. The Hon. National Labor
Relations Commission, Fifth Division, Eparwa Security and Janitorial Services,
Inc., et al. The appellate court reinstated the 18 August 1999 decision[3] of the
Labor Arbiter and remanded the case to the Regional Arbitration Board, Branch
No.
10
of Cagayan de Oro City
to
compute
what
is
due
to Liceo de Cagayan University (LDCU) from Eparwa Security and Janitorial
Services, Inc. (Eparwa).

The Facts
On 1 December 1997, Eparwa and LDCU, through their representatives, entered
into a Contract for Security Services. The pertinent portion of the contract provides
that:
5. For and in consideration of this security, protective and safety
services, [LDCU] agrees to pay [Eparwa] FIVE THOUSAND PESOS
ONLY (P5,000.00), Philippine Currency per guard a month payable
within fifteen (15) days after [Eparwa] presents its service
invoice. [Eparwa] shall furnish [LDCU] a monthly copy of SSS
contribution of guards and monthly payroll of each guard assigned at
[LDCUs] premises on a monthly basis[.][4]

Eparwa allocated the contracted amount of P5,000 per security guard per month in
the following manner:
Basic Pay (P104.50 x 391.5/12)
Night Diff. Pay
13th mo. Pay
5 day incentive leave
Uniform allowance
Employers SSS, Medicare, ECC contribution
Agency share
VAT
CONTRACT RATE
(rounded off to P5,000.00)[5]

P3,409.31
113.64
284.10
43.54
50.00
224.80
420.53
454.59
P5,000.50

On 21
December
1998,
11
security
guards
(security
guards)
whom Eparwa assigned to LDCU from 1 December 1997 to 30 November
1998 filed a complaint before the National Labor Relations Commissions (NLRC)
Regional Arbitration Branch No. 10 in Cagayan de Oro City. Docketed as NLRCRABX Case No. 10-01-00102-99, the complaint was filed against both Eparwa and
LDCU for underpayment of salary, legal holiday pay, 13th month pay, rest day,
service incentive leave, night shift differential, overtime pay, and payment for
attorneys fees.

LDCU made a cross-claim and prayed that Eparwa should reimburse LDCU for
any payment to the security guards.

The Ruling of the Labor Arbiter

In its decision dated 18 August 1999, the Labor Arbiter found that the security
guards are entitled to wage differentials and premium for holiday and rest day
work. The Labor Arbiter held Eparwa and LDCU solidarily liable pursuant to
Article 109 of the Labor Code. The dispositive portion of the Labor Arbiters
decision reads:
WHEREFORE, judgment is rendered[:]
1.

Ordering respondents [LDCU] and [Eparwa] solidarily liable to

pay [the security guards] for underpayment, holiday and rest day,
as follows:
Name

Amount

1.

Casiero

Jovencio

P 46,819.95

2.

Villarino

Leonardo

46,819.95

3.

Lumbab

Adriano

46,819.95

4.

Caballero

Gregorio, Jr.

46,819.95

5.

Cajilla

Delfin, Jr.

37,918.95

6.

Paduanga

Arnold

20,321.10

7.

Dungog

Achimedes

46,819.95

8.

Magallanes

Eduardo

46,819.95

9.

Dungog

Luigi

46,819.95

10. Dungog

Telford

46,819.95

11. Bahian

Wilfredo

30,741.30
P 463,540.95

2.

Denying the claim of unpaid 13th month pay, service incentive

leave and night shift premium pay for lack of merit;

3.

Ordering respondent [Eparwa] to reimburse respondent [LDCU]

for whatever amount the latter may be required to pay [the
security guards];

4.

Ordering
respondent
[Eparwa]
to
pay
respondent
[LDCU] P20,000.00 and P5,000.00 each of the [security guards],
moral and exemplary damages;

5.

Ordering [Eparwa] to pay 10% of attorneys fee[s][;]

6.

The rest of the claims are denied for lack of merit.

So Ordered.[6]

LDCU filed an appeal before the NLRC. LDCU agreed with the Labor Arbiters
decision on the security guards entitlement to salary differential but challenged the
propriety of the amount of the award. LDCU alleged that security guards not
similarly situated were granted uniform monetary awards and that the decision did
not include the basis of the computation of the amount of the award.
Eparwa also filed an appeal before the NLRC. For its part, Eparwa questioned its
liability for the security guards claims and the awarded cross-claim amounts.

The Ruling of the NLRC

The Fifth Division of the NLRC resolved Eparwa and LDCUs separate appeals in
its Resolution[7] dated 19 January 2000. The NLRC found that the security guards
are entitled to wage differentials and premium for holiday and rest day
work. Although the NLRC held Eparwa and LDCU solidarily liable for the wage
differentials and premium for holiday and rest day work, the NLRC did not
require Eparwa to reimburse LDCU for its payments to the security guards. The

NLRC also ordered the recomputation of the monetary awards according to the
dates actually worked by each security guard. The dispositive portion of the NLRC
Resolution reads thus:
WHEREFORE, the appealed decision is AFFIRMED, subject to the
modification that the portions thereof directing respondent EPARWA
Security Agency and Janitorial Services, Inc. to reimburse
respondent Liceo de Cagayan University for whatever amount the latter
may
have
paid
complainants
and
to
pay
respondent Liceo de Cagayan University the sum [sic] [of]P20,000.00
and P5,000.00, representing moral and exemplary damages, respectively,
of each complainants [sic], are deleted for lack of legal basis. Further the
monetary awards for wage differential and premiums for holiday and rest
day works shall be recomputed by the Regional Arbitration Branch of
origin at the execution stage of the proceedings.
Co[n]formably, the award of Attorneys fee[s] is equivalent to ten (10%)
percent of the aggregate monetary award as finally adjusted.
SO ORDERED.[8]

Eparwa and LDCU again filed separate motions for partial reconsideration of
the 19 January 2000 NLRC Resolution. LDCU questioned the NLRCs deletion
of LDCUsentitlement to reimbursement by Eparwa. Eparwa, on the other hand,
prayed that LDCU be made to reimburse Eparwa for whatever amount it may pay
to the security guards.
In its Resolution dated 14 March 2000, the NLRC declared that
although Eparwa and LDCU are solidarily liable to the security guards for the
monetary award, LDCU alone is ultimately liable. The NLRC resolved the issue
thus:
WHEREFORE, the assailed resolution, dated 19 January 2000,
is MODIFIED in
that
respondent Liceo de Cagayan University
(LICEO) is ordered to reimburse respondent Eparwa Security and
Janitorial Services, Inc. (EPARWA) for whatever amount the latter may
have paid to complainants arising from this case.
SO ORDERED.[9]

LDCU filed a petition for certiorari [10] before the appellate court assailing
the NLRCs decision. LDCU took issue with the NLRCs order that LDCU should
reimburse Eparwa.LDCU stated that this would free Eparwa from any liability for
payment of the security guards money claims.

The Ruling of the Appellate Court

In its Decision promulgated on 20 April 2001, the appellate court
granted LDCUs petition and reinstated the Labor Arbiters decision. The appellate
court also allowed LDCU to claim reimbursement from Eparwa. The appellate
courts decision reads thus:
WHEREFORE,
foregoing
considered,
the
petition
is
hereby GRANTED. The decision dated August 18, 1999 of Labor
Arbiter Celenito N. Daing is REINSTATED. The
case
is
herebyREMANDED to the Regional Arbitration Board, Branch No. 10
of Cagayan de Oro City to compute what is due to LDCU from
EPARWA.
SO ORDERED.[11]

Eparwa filed a motion for reconsideration of the appellate courts

decision. Eparwa stressed that jurisprudence is consistent in ruling that the ultimate
liability for the payment of the monetary award rests with LDCU alone.
The appellate court denied Eparwas motion for reconsideration for lack of merit.
Hence, this petition.
The Issue

The petition raises this sole legal issue: Is LDCU alone ultimately liable to the
security guards for the wage differentials and premium for holiday and rest day
pay?

The Ruling of the Court

The petition has merit.
Eparwa and LDCUs Solidary Liability and
LDCUs Ultimate Liability

Articles 106, 107 and 109 of the Labor Code read:

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 persons are performing activities
which are directly related to the principal business of the 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.
Article 107. Indirect employer. The provisions of the immediately
preceding Article shall likewise apply to any person, partnership,
association or corporation which, not being an employer, contracts with
an independent contractor for the performance of any work, task, job or
project.
Article 109. Solidary liability. The provisions of existing laws to the
contrary notwithstanding, every employer or indirect employer shall be
held responsible with his contractor or subcontractor for any violation of
any provision of this Code. For purposes of determining the extent of
their civil liability under this Chapter, they shall be considered as direct
employers.

This Courts ruling in Eagle Security Agency, Inc. v. NLRC[12] squarely applies to the
present case. In Eagle, we ruled that:
This joint and several liability of the contractor and the principal is
mandated by the Labor Code to assure compliance of the provisions
therein including the statutory minimum wage [Article 99, Labor Code].
The contractor is made liable by virtue of his status as direct employer.
The principal, on the other hand, is made the indirect employer of the
contractors employees for purposes of paying the employees their wages
should the contractor be unable to pay them. This joint and several
liability facilitates, if not guarantees, payment of the workers
performance of any work, task, job or project, thus giving the workers
ample protection as mandated by the 1987 Constitution [See Article II
Sec. 18 and Article XIII Sec. 3].
In the case at bar, it is beyond dispute that the security guards are the
employees of EAGLE [See Article VII Sec. 2 of the Contract for
Security Services; G.R. No. 81447, Rollo, p. 34]. That they were

assigned to guard the premises of PTSI pursuant to the latters contract

with EAGLE and that neither of these two entities paid their wage and
allowance increases under the subject wage orders are also admitted [See
Labor Arbiters Decision, p. 2; G.R. No. 81447, Rollo, p. 75]. Thus, the
application of the aforecited provisions of the Labor Code on joint and
several liability of the principal and contractor is appropriate [See Del
Rosario & Sons Logging Enterprises, Inc. v. NLRC, G.R. No. 64204,
May 31, 1985, 136 SCRA 669].
The solidary liability of PTSI and EAGLE, however, does not preclude
the right of reimbursement from his co-debtor by the one who paid [See
Article 1217, Civil Code]. It is with respect to this right of
reimbursement
that
petitioners
can
find
support
in
the aforecited contractual stipulation and Wage Order provision.
The Wage Orders are explicit that payment of the increases are to be
borne by the principal or client. To be borne, however, does not mean
that the principal, PTSI in this case, would directly pay the security
guards the wage and allowance increases because there is no privity of
contract between them. The security guards contractual relationship is
with their immediate employer, EAGLE. As an employer, EAGLE is
tasked, among others, with the payment of their wages [See Article VII
Sec. 3 of the Contract for Security Services, supra and Bautista
v. Inciong, G.R. No. 52824, March 16, 1988, 158 SCRA 665].
On the other hand, there existed a contractual agreement between PTSI
and EAGLE wherein the former availed of the security services provided
by the latter. In return, the security agency collects from its client
payment for its security services. This payment covers the wages for the
security guards and also expenses for their supervision and training, the
guards bonds, firearms with ammunitions, uniforms and other
equipments, accessories, tools, materials and supplies necessary for the
maintenance of a security force.
Premises considered, the security guards immediate recourse for the
payment of the increases is with their direct employer, EAGLE.
However, in order for the security agency to comply with the new wage
and allowance rates it has to pay the security guards, the Wage Orders
made specific provision to amend existing contracts for security services
by allowing the adjustment of the consideration paid by the principal to
the security agency concerned. What the Wage Orders require, therefore,
is the amendment of the contract as to the consideration to cover the

service contractors payment of the increases mandated. In the end,

therefore, ultimate liability for the payment of the increases rests with
the principal.
In view of the foregoing, the security guards should claim the amount of
the increases from EAGLE. Under the Labor Code, in case the agency
fails to pay them the amounts claimed, PTSI should be
held solidarily liable with EAGLE [Articles 106,107 and 109]. Should
EAGLE pay, it can claim an adjustment from PTSI for an increase in
consideration to cover the increases payable to the security guards.
However, in the instant case, the contract for security services had
already expired without being amended consonant with the Wage Orders.
It is also apparent from a reading of a record that EAGLE does not now
demand from PTSI any adjustment in the contract price and its main
concern is freeing itself from liability. Given these peculiar
circumstances, if PTSI pays the security guards, it cannot claim
reimbursement from EAGLE. But in case it is EAGLE that pays
them, the latter can claim reimbursement from PTSI in lieu of an
adjustment, considering that the contract, [sic] had expired and had
not been renewed.[13] (Emphasis added)

We repeatedly upheld our ruling in Eagle regarding reimbursement in the

subsequent cases of Spartan Security & Detective Agency, Inc. v. NLRC,
[14]
Development Bank of the Philippines v. NLRC,[15] Alpha Investigation and
Security Agency, Inc. v. NLRC,[16] Helpmate, Inc. v. NLRC, et al.,
[17]
and Lapanday Agricultural Development Corporation v. Court of Appeals.[18]
For the security guards, the actual source of the payment of their wage
differentials and premium for holiday and rest day work does not matter as long as
they
are
paid. This
is
the
import
of Eparwa and LDCUs solidary liability. Creditors, such as the security guards,
may collect from anyone of the solidary debtors. Solidary liability does not mean
that, as between themselves, two solidary debtors are liable for only half of the
payment.

LDCUs ultimate liability comes into play because of the expiration of the Contract
for Security Services. There is no privity of contract between the security guards
and LDCU, but LDCUs liability to the security guards remains because of Articles
106, 107 and 109 of the Labor Code. Eparwa is already precluded from asking
LDCU for an adjustment in the contract price because of the expiration of the
contract, but Eparwas liability to the security guards remains because of their
employer-employee relationship. In lieu of an adjustment in the contract
price, Eparwa may claim reimbursement from LDCU for any payment it may make
to the security guards. However, LDCU cannot claim any reimbursement
from Eparwa for any payment it may make to the security guards.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 20
April 2001 and the Resolution dated 21 September 2001 of the Court of
Appeals. WeREINSTATE the Resolutions dated 19 January 2000 and 14 March
2000 of the National Labor Relations Commission.
SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR: