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G.R. No. 170734. May 14, 2008.

008.* three union members in amounts proportional to the service they actually rendered
in a year, which is less than a full twelve (12) months. The employees were:
ARCO METAL PRODUCTS CO., INC., and MRS. SALVADOR UY, 1. Rante Lamadrid Sickness 27 August 2003 to 27 February 2004
petitioners, vs. SAMAHAN NG MGA MANGGAGAWA SA ARCO METAL- 2. Alberto Gamban Suspension 10 June 2003 to 1 July 2003
NAFLU (SAMARM-NAFLU), respondent. 3. Rodelio Collantes Sickness August 2003 to February 2004
Respondent protested the prorated scheme, claiming that on several occasions
Labor Law; Benefits; Any benefit and supplement being enjoyed by employees petitioner did not prorate the payment of the same benefits to seven (7) employees
cannot be reduced, diminished, discontinued or eliminated by the employer; who had not served for the full 12 months. The payments were made in 1992, 1993,
Jurisprudence is replete with cases which recognize the right of employees to 1994, 1996, 1999, 2003, and 2004. According to respondent, the prorated payment
benefits which were voluntarily given by the employer and which ripened into violates the rule against diminution of benefits under Article 100 of the Labor Code.
company practice. Thus, they filed a complaint before the National Conciliation and Mediation Board
Any benefit and supplement being enjoyed by employees cannot be reduced, (NCMB). The parties submitted the case for voluntary arbitration.
diminished, discontinued or eliminated by the employer. The principle of non- The voluntary arbitrator, Apron M. Mangabat, ruled in favor of petitioner and
diminution of benefits is founded on the Constitutional mandate to protect the rights found that the giving of the contested benefits in full, irrespective of the actual
of workers and promote their welfare, and to afford labor full protection. Said service rendered within one year has not ripened into a practice. He noted the
mandate in turn is the basis of Article 4 of the Labor Code which states that all affidavit of Joselito Baingan, manufacturing group head of petitioner, which states
doubts in the implementation and interpretation of this Code, including its that the giving in full of the benefit was a mere error. He also interpreted the phrase
implementing rules and regulations shall be rendered in favor of labor. for each year of service found in the pertinent CBA provisions to mean that an
Jurisprudence is replete with cases which recognize the right of employees to employee must have rendered one year of service in order to be entitled to the full
benefits which were voluntarily given by the employer and which ripened into benefits provided in the CBA.[5]
company practice. Unsatisfied, respondent filed a Petition for Review[6] under Rule 43 before the
Same; Same; Jurisprudence has not laid down any rule specifying a minimum Court of Appeals, imputing serious error to Mangabats conclusion. The Court of
number of years within which a company practice must be exercised in order to Appeals ruled that the CBA did not intend to foreclose the application of prorated
constitute voluntary company practice.In the years 1992, 1993, 1994, 1999, 2002 payments of leave benefits to covered employees. The appellate court found that
and 2003, petitioner had adopted a policy of freely, voluntarily and consistently petitioner, however, had an existing voluntary practice of paying the aforesaid
granting full benefits to its employees regardless of the length of service rendered. benefits in full to its employees, thereby rejecting the claim that petitioner erred in
True, there were only a total of seven employees who benefited from such a practice, paying full benefits to its seven employees. The appellate court noted that aside
but it was an established practice nonetheless. Jurisprudence has not laid down any from the affidavit of petitioners officer, it has not presented any evidence in support
rule specifying a minimum number of years within which a company practice must of its position that it has no voluntary practice of granting the contested benefits in
be exercised in order to constitute voluntary company practice. Thus, it can be six (6) full and without regard to the service actually rendered within the year. It also
years, three (3) years, or even as short as two (2) years. questioned why it took petitioner eleven (11) years before it was able to discover the
alleged error. The dispositive portion of the courts decision reads:
TINGA, J.: WHEREFORE, premises considered, the instant petition is hereby
GRANTED and the Decision of Accredited Voluntary Arbiter Apron M. Mangabat
This treats of the Petition for Review[1] of the Resolution[2] and Decision[3] of the in NCMB-NCR Case No. PM-12-345-03, dated June 18, 2004 is hereby AFFIRMED
Court of Appeals dated 9 December 2005 and 29 September 2005, respectively WITH MODIFICATION in that the 13th month pay, bonus, vacation leave and sick
in CA-G.R. SP No. 85089 entitled leave conversions to cash shall be paid to the employees in full, irrespective of the
Samahan ng mga Manggagawa sa Arco Metal-NAFLU (SAMARM-NAFLU) v. actual service rendered within a year.[7]
Arco Metal Products Co., Inc. and/or Mr. Salvador Uy/Accredited Voluntary Petitioner moved for the reconsideration of the decision but its motion was
Arbitrator Apron M. Mangabat,[4] which ruled that the 13th month pay, vacation denied, hence this petition.
leave and sick leave conversion to cash shall be paid in full to the employees of Petitioner submits that the Court of Appeals erred when it ruled that the grant
petitioner regardless of the actual service they rendered within a year. of 13th month pay, bonus, and leave encashment in full regardless of actual service
Petitioner is a company engaged in the manufacture of metal products, whereas rendered constitutes voluntary employer practice and, consequently, the prorated
respondent is the labor union of petitioners rank and file employees. Sometime in payment of the said benefits does not constitute diminution of benefits under Article
December 2003, petitioner paid the 13th month pay, bonus, and leave encashment of 100 of the Labor Code.[8]
1
The petition ultimately fails. per day of the employee multiplied by 30 and shall become due and payable every
First, we determine whether the intent of the CBA provisions is to grant full 1st Saturday of December.
benefits regardless of service actually rendered by an employee to the company. Section 2. The Company shall grant a bonus to all employees as practiced
According to petitioner, there is a one-year cutoff in the entitlement to the benefits which shall be distributed on the 2nd Saturday of December.
provided in the CBA which is evident from the wording of its pertinent provisions as Section 3. That the Company further grants the amount of Two Thousand
well as of the existing law. Five Hundred Pesos (P2,500.00) as signing bonus plus a free CBA Booklet.[9]
We agree with petitioner on the first issue. The applicable CBA provisions read: (Underscoring ours)
ARTICLE XIV-VACATION LEAVE There is no doubt that in order to be entitled to the full monetization of sixteen (16)
Section 1. Employees/workers covered by this agreement who have days of vacation and sick leave, one must have rendered at least one year of service.
rendered at least one (1) year of service shall be entitled to sixteen (16) days The clear wording of the provisions does not allow any other interpretation. Anent
vacation leave with pay for each year of service. Unused leaves shall not be the 13th month pay and bonus, we agree with the findings of Mangabat that the
cumulative but shall be converted into its cash equivalent and shall become due and CBA provisions did not give any meaning different from that given by the law, thus
payable every 1st Saturday of December of each year. it should be computed at 1/12 of the total compensation which an employee receives
However, if the 1st Saturday of December falls in December 1, November for the whole calendar year. The bonus is also equivalent to the amount of the 13th
30 (Friday) being a holiday, the management will give the cash conversion of leaves month pay given, or in proportion to the actual service rendered by an employee
in November 29. within the year.
Section 2. In case of resignation or retirement of an employee, his vacation On the second issue, however, petitioner founders.
leave shall be paid proportionately to his days of service rendered during the year. As a general rule, in petitions for review under Rule 45, the Court, not being a trier
ARTICLE XV-SICK LEAVE of facts, does not normally embark on a re-examination of the evidence presented by
Section 1. Employees/workers covered by this agreement who have the contending parties during the trial of the case considering that the findings of
rendered at least one (1) year of service shall be entitled to sixteen (16) days of sick facts of the Court of Appeals are conclusive and binding on the Court.[10] The rule,
leave with pay for each year of service. Unused sick leave shall not be cumulative however, admits of several exceptions, one of which is when the findings of the
but shall be converted into its cash equivalent and shall become due and payable Court of Appeals are contrary to that of the lower tribunals. Such is the case here, as
every 1st Saturday of December of each year. the factual conclusions of the Court of Appeals differ from that of the voluntary
Section 2. Sick Leave will only be granted to actual sickness duly certified by arbitrator.
the Company physician or by a licensed physician. Petitioner granted, in several instances, full benefits to employees who have not
served a full year, thus:
Section 3. All commutable earned leaves will be paid proportionately upon
retirement or separation. Name Reason Duration
ARTICLE XVI EMERGENCY LEAVE, ETC. 1. Percival Bernas Sickness July 1992 to November 1992
Section 1. The Company shall grant six (6) days emergency leave to 2. Cezar Montero Sickness 21 Dec. 1992 to February 1993
employees covered by this agreement and if unused shall be converted into cash and 3. Wilson Sayod Sickness May 1994 to July 1994
become due and payable on the 1st Saturday of December each year. 4. Nomer Becina Suspension 1 Sept. 1996 to 5 Oct. 1996
Section 2. Employees/workers covered by this agreement who have rendered 5. Ronnie Licuan Sickness 8 Nov. 1999 to 9 Dec. 1999
at least one (1) year of service shall be entitled to seven (7) days of Paternity Leave 6. Guilbert Villaruel Sickness 23 Aug. 2002 to 4 Feb. 2003
with pay in case the married employees legitimate spouse gave birth. Said benefit 7. Melandro Moque Sickness 29 Aug. 2003 to 30 Sept. 2003[11]
shall be non-cumulative and non-commutative and shall be deemed in compliance Petitioner claims that its full payment of benefits regardless of the length of service
with the law on the same. to the company does not constitute voluntary employer practice. It points out that
Section 3. Maternity leaves for married female employees shall be in the payments had been erroneously made and they occurred in isolated cases in the
accordance with the SSS Law plus a cash grant of P1,500.00 per month. years 1992, 1993, 1994, 1999, 2002 and 2003. According to petitioner, it was only
xxx in 2003 that the accounting department discovered the error when there were
ARTICLE XVIII- 13TH MONTH PAY & BONUS already three (3) employees involved with prolonged absences and the error was
Section 1. The Company shall grant 13th Month Pay to all employees corrected by implementing the pro-rata payment of benefits pursuant to law and their
covered by this agreement. The basis of computing such pay shall be the basic salary existing CBA.[12] It adds that the seven earlier cases of full payment of benefits
went unnoticed considering the proportion of one employee concerned (per year)
2
vis vis the 170 employees of the company. Petitioner describes the situation as a 5. 13th month pay, bonus, and cash conversion of unused/earned vacation leave, sick
clear oversight which should not be taken against it.[13] To further bolster its case, leave and emergency leave are computed and paid in full to employees who
petitioner argues that for a grant of a benefit to be considered a practice, it should rendered services to the company for the entire year and proportionately to those
have been practiced over a long period of time and must be shown to be consistent, employees who rendered service to the company for a period less than one (1) year
deliberate and intentional, which is not what happened in this case. Petitioner tries to or twelve (12) months in accordance with the CBA provision relative thereto.
make a case out of the fact that the CBA has not been modified to incorporate the 6. It was never the intention much less the policy of the management to grant the
giving of full benefits regardless of the length of service, proof that the grant has not aforesaid benefits to the employees in full regardless of whether or not the employee
ripened into company practice. has rendered services to the company for the entire year, otherwise, it would be
We disagree. unjust and inequitable not only to the company but to other employees as well.[24]
Any benefit and supplement being enjoyed by employees cannot be reduced, In cases involving money claims of employees, the employer has the burden
diminished, discontinued or eliminated by the employer.[14] The principle of non- of proving that the employees did receive the wages and benefits and that
diminution of benefits is founded on the Constitutional mandate to "protect the the same were paid in accordance with law.[25]
rights of workers and promote their welfare,[15] and to afford labor full
protection.[16] Said mandate in turn is the basis of Article 4 of the Labor Code Indeed, if petitioner wants to prove that it merely erred in giving full benefits, it
which states that all doubts in the implementation and interpretation of this Code, could have easily presented other proofs, such as the names of other employees
including its implementing rules and regulations shall be rendered in favor of labor. who did not fully serve for one year and thus were given prorated benefits.
Jurisprudence is replete with cases which recognize the right of employees to Experientially, a perfect attendance in the workplace is always the goal but it is
benefits which were voluntarily given by the employer and which ripened into seldom achieved. There must have been other employees who had reported for work
company practice. Thus in Davao Fruits Corporation v. Associated Labor Unions, less than a full year and who, as a consequence received only prorated benefits.
et al.[17] where an employer had freely and continuously included in the This could have easily bolstered petitioners theory of mistake/error, but sadly, no
computation of the 13th month pay those items that were expressly excluded by the evidence to that effect was presented.
law, we held that the act which was favorable to the employees though not IN VIEW HEREOF, the petition is DENIED. The Decision of the Court of
conforming to law had thus ripened into a practice and could not be withdrawn, Appeals in CA-G.R. SP No. 85089 dated 29 September 2005 is and its Resolution
reduced, diminished, discontinued or eliminated. In Sevilla Trading Company v. dated 9 December 2005 are hereby AFFIRMED.
Semana,[18] we ruled that the employers act of including non-basic benefits in the SO ORDERED.
computation of the 13th month pay was a voluntary act and had ripened into a
company practice which cannot be peremptorily withdrawn. Meanwhile in Davao
Integrated Port Stevedoring Services v. Abarquez,[19] the Court ordered the
payment of the cash equivalent of the unenjoyed sick leave benefits to its intermittent
workers after finding that said workers had received these benefits for almost four
years until the grant was stopped due to a different interpretation of the CBA
provisions. We held that the employer cannot unilaterally withdraw the existing
privilege of commutation or conversion to cash given to said workers, and as also
noted that the employer had in fact granted and paid said cash equivalent of the
unenjoyed portion of the sick leave benefits to some intermittent workers.
In the years 1992, 1993, 1994, 1999, 2002 and 2003, petitioner had adopted a policy
of freely, voluntarily and consistently granting full benefits to its employees
regardless of the length of service rendered. True, there were only a total of seven
employees who benefited from such a practice, but it was an established practice
nonetheless. Jurisprudence has not laid down any rule specifying a minimum number
of years within which a company practice must be exercised in order to constitute
voluntary company practice.[20] Thus, it can be six (6) years,[21] three (3)
years,[22] or even as short as two (2) years.[23] Petitioner cannot shirk away from its
responsibility by merely claiming that it was a mistake or an error, supported only
by an affidavit of its manufacturing group head portions of which read:
3
G.R. No. 158255. July 8, 2004.* or (ii) The contractor does not exercise the right to control over the performance of
the work of the contractual employee.
MANILA WATER COMPANY, INC., petitioner, vs. HERMINIO D. PENA,
ESTEBAN B. BALDOZA, JORGE D. CANONIGO, JR., IKE S. DELFIN, Same; Same; Employer-Employee Relationship; Four-Fold Test; The elements to
RIZALINO M. INTAL, REY T. MANLEGRO, JOHN L. MARTEJA, determine the existence of an employment relationship are as follows.The
MARLON B. MORADA, ALLAN D. ESPINA, EDUARDO ONG, AGNESIO D. elements to determine the existence of an employment relationship are: (a) the
QUEBRAL, EDMUNDO B. VICTA, VICTOR C. ZAFARALLA, EDILBERTO selection and engagement of the employee; (b) the payment of wages; (c) the power
C. PINGUL and FEDERICO M. RIVERA, respondents. of dismissal; and (d) the employers power to control the employees conduct. The
most important element is the employers control of the employees conduct, not
Actions; Pleading and Practice; Certiorari; Factual findings of quasi-judicial bodies only as to the result of the work to be done, but also as to the means and methods to
like the NLRC, particularly when they coincide with those of the Labor Arbiter and accomplish it.
if supported by substantial evidence, are accorded respect and even finality by this
Court.The issue of whether or not an employer-employee relationship exists in a YNARES-SANTIAGO, J.:
given case is essentially a question of fact. As a rule, the Supreme Court is not a trier
of facts, and this applies with greater force in labor cases. Hence, factual findings of This petition assails the decision[1] of the Court of Appeals dated November 29,
quasi-judicial bodies like the NLRC, particularly when they coincide with those of 2002, in CA-G.R. SP No. 67134, which reversed the decision of the National Labor
the Labor Arbiter and if supported by substantial evidence, are accorded respect and Relations Commission and reinstated the decision of the Labor Arbiter with
even finality by this Court. However, a disharmony between the factual findings of modification.
the Labor Arbiter and the National Labor Relations Commission opens the door to a
review thereof by this Court. Factual findings of administrative agencies are not Petitioner Manila Water Company, Inc. is one of the two private concessionaires
infallible and will be set aside when they fail the test of arbitrariness. Moreover, contracted by the Metropolitan Waterworks and Sewerage System (MWSS) to
when the findings of the National Labor Relations Commission contradict with those manage the water distribution system in the East Zone of Metro Manila, pursuant to
of the labor arbiter, this Court, in the exercise of its equity jurisdiction, may look into Republic Act No. 8041, otherwise known as the National Water Crisis Act of 1995.
the records of the case and reexamine the questioned findings. Under the Concession Agreement, petitioner undertook to absorb former employees
of the MWSS whose names and positions were in the list furnished by the latter,
Labor Law; Employment; Job Contracting; Requisites; Job contracting is permissible while the employment of those not in the list was terminated on the day petitioner
only if the following conditions are met.Job contracting is permissible only if the took over the operation of the East Zone, which was on August 1, 1997. Private
following conditions are met: 1) the contractor carries on an independent business respondents, being contractual collectors of the MWSS, were among the 121
and undertakes the contract work on his own account under his own responsibility employees not included in the list; nevertheless, petitioner engaged their services
according to his own manner and method, free from the control and direction of his without written contract from August 1, 1997 to August 31, 1997. Thereafter, on
employer or principal in all matters connected with the performance of the work September 1, 1997, they signed a three-month contract to perform collection services
except as to the results thereof; and 2) the contractor has substantial capital or for eight branches of petitioner in the East Zone.[2]
investment in the form of tools, equipment, machineries, work premises, and other
materials which are necessary in the conduct of the business. Before the end of the three-month contract, the 121 collectors incorporated the
Association Collectors Group, Inc. (ACGI),[3] which was contracted by petitioner to
Same; Same; Labor-Only Contracting; Elements; The following elements must be collect charges for the Balara Branch. Subsequently, most of the 121 collectors were
present.Labor-only contracting as defined in Section 5, Department Order No. asked by the petitioner to transfer to the First Classic Courier Services, a newly
18-02, Rules Implementing Articles 106-109 of the Labor Code refers to an registered corporation. Only private respondents herein remained with ACGI.
arrangement where the contractor or subcontractor merely recruits, supplies or places Petitioner continued to transact with ACGI to do its collection needs until February
workers to perform job, work or service for a principal, and any of the following 8, 1999, when petitioner terminated its contract with ACGI.[4]
elements is present: (i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to be performed and Private respondents filed a complaint for illegal dismissal and money claims against
the employees recruited, supplied or placed by such contractor or subcontractor are petitioner, contending that they were petitioners employees as all the methods and
performing activities which are directly related to the main business of the principal; procedures of their collections were controlled by the latter.

4
On the other hand, petitioner asserts that private respondents were employees of impose.[6] Further, there was no evidence showing that the incorporation of ACGI
ACGI, an independent contractor. It maintained that it had no control and was irregular.
supervision over private respondents manner of performing their work except as to
the results. Thus, petitioner did not have an employer-employee relationship with the Private respondents filed a petition for certiorari with the Court of Appeals,
private respondents, but only a service contractor-client relationship with ACGI. contending that the NLRC acted with grave abuse of discretion amounting to lack or
excess of jurisdiction when it reversed the decision of the Labor Arbiter.
On May 31, 2000, Labor Arbiter Eduardo J. Carpio rendered a decision finding the
dismissal of private respondents illegal. He held that private respondents were The Court of Appeals reversed the decision of the NLRC and reinstated with
regular employees of petitioner not only because the tasks performed by them were modification the decision of the Labor Arbiter.[7] It held that petitioner deliberately
controlled by it but, also, the tasks were obviously necessary and desirable to prevented the creation of an employment relationship with the private respondents;
petitioners principal business. The dispositive portion of the decision reads: and that ACGI was not an independent contractor. It likewise denied petitioners
motion for reconsideration.[8]
WHEREFORE, premises considered, judgment is hereby rendered, finding that
complainants were employees of respondent [petitioner herein], that they were Hence, this petition for review raising the following errors:
illegally dismissed, and respondent [petitioner herein] is hereby ordered to pay their
separation pay based on the following computed amounts: THE HONORABLE COURT OF APPEALS IN RENDERING THE ASSAILED
DECISION AND RESOLUTION COMMITTED GRAVE REVERSIBLE
HERMINIO D. PENA P15,000.00 ERRORS:
ESTEBAN BALDOZA P12,000.00
JORGE D. CANONIGO, JR. P16,000.00 A. IN GOING BEYOND ITS JURISDICTION AND PROCEEDING TO GIVE
IKE S. DELFIN P12,000.00 DUE COURSE TO RESPONDENTS PETITION FOR CERTIORARI UNDER
RIZALINO M. INTAL P16,000.00 RULE 65 OF THE RULES OF COURT, NOTWITHSTANDING THE ABSENCE
REY T. MANLEGRO P16,000.00 OF ANY PROOF OF GRAVE ABUSE OF DISCRETION ON THE PART OF THE
JOHN L. MARTEJA P12,000.00 NATIONAL LABOR RELATIONS COMMISSION WHEN IT RENDERED THE
MARLON B. MORADA P16,000.00 DECISION ASSAILED BY HEREIN RESPONDENTS.
ALLAN D. ESPINA P14,000.00
EDUARDO ONG P15,000.00 B. WHEN IT MANIFESTLY OVERLOOKED THE EVIDENCE PRESENTED BY
AGNESIO D. QUEBRAL P16,000.00 THE PETITIONER COMPANY AND RULING THAT THE PETITIONERS
EDMUNDO B. VICTA P13,000.00 DEFENSE OF LACK OF EMPLOYER-EMPLOYEE RELATIONS IS WITHOUT
VICTOR P. ZAFARALLA P15,000.00 MERIT.
EDILBERTO C. PINGUL P19,500.00
FEDERICO M. RIVERA P15,000.00 C. IN CONCLUDING THAT PETITIONER COMPANY REQUIRED
------------------------------- RESPONDENTS TO INCORPORATE THE ASSOCIATED COLLECTORS
TOTAL P222,500.00 GROUP, INC. [ACGI] NOTWITHSTANDING ABSENCE OF ANY SPECIFIC
EVIDENCE IN SUPPORT OF THE SAME.
Respondent [petitioner herein] is further directed to pay ten (10%) percent of the
total award as attorneys fee or the sum of P22,250.00. D. IN FINDING PETITIONER COMPANY GUILTY OF BAD FAITH
NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN
SO ORDERED.[5] SUPPORT OF THE SAME, AND AWARDING MORAL AND EXEMPLARY
DAMAGES TO HEREIN RESPONDENTS.[9]
Both parties appealed to the NLRC, which reversed the decision of the Labor Arbiter
and ruled that the documentary evidence, e.g., letters and memoranda by the The pivotal issue to be resolved in this petition is whether or not there exists an
petitioner to ACGI regarding the poor performance of the collectors, did not employer-employee relationship between petitioner and private respondents.
constitute proof of control since these documents merely identified the erring Corollary thereto is the issue of whether or not private respondents were illegally
collectors; the appropriate disciplinary actions were left to the corporation to dismissed by petitioner.
5
perform job, work or service for a principal, and any of the following elements is
The issue of whether or not an employer-employee relationship exists in a given case present:
is essentially a question of fact.[10] As a rule, the Supreme Court is not a trier of
facts, and this applies with greater force in labor cases. Hence, factual findings of (i) The contractor or subcontractor does not have substantial capital or investment
quasi-judicial bodies like the NLRC, particularly when they coincide with those of which relates to the job, work or service to be performed and the employees
the Labor Arbiter and if supported by substantial evidence, are accorded respect and recruited, supplied or placed by such contractor or subcontractor are performing
even finality by this Court.[11] However, a disharmony between the factual findings activities which are directly related to the main business of the principal; or
of the Labor Arbiter and the National Labor Relations Commission opens the door to
a review thereof by this Court. Factual findings of administrative agencies are not (ii) The contractor does not exercise the right to control over the performance of the
infallible and will be set aside when they fail the test of arbitrariness. Moreover, work of the contractual employee.
when the findings of the National Labor Relations Commission contradict with those
of the labor arbiter, this Court, in the exercise of its equity jurisdiction, may look into Given the above criteria, we agree with the Labor Arbiter that ACGI was not an
the records of the case and reexamine the questioned findings.[12] independent contractor.

The resolution of the foregoing issues initially boils down to a determination of the First, ACGI does not have substantial capitalization or investment in the form of
true status of ACGI, i.e., whether it is an independent contractor or a labor-only tools, equipment, machineries, work premises, and other materials, to qualify as an
contractor. independent contractor. While it has an authorized capital stock of P1,000,000.00,
only P62,500.00 is actually paid-in, which cannot be considered substantial
Petitioner asserts that ACGI, a duly organized corporation primarily engaged in capitalization. The 121 collectors subscribed to four shares each and paid only the
collection services, is an independent contractor which entered into a service contract amount of P625.00 in order to comply with the incorporation requirements.[15]
for the collection of petitioners accounts starting November 30, 1997 until the early Further, private respondents reported daily to the branch office of the petitioner
part of February 1999. Thus, it has no employment relationship with private because ACGI has no office or work premises. In fact, the corporate address of
respondents, being employees of ACGI. ACGI was the residence of its president, Mr. Herminio D. Pea.[16] Moreover, in
dealing with the consumers, private respondents used the receipts and identification
The existence of an employment relationship between petitioner and private cards issued by petitioner.[17]
respondents cannot be negated by simply alleging that the latter are employees of
ACGI as an independent contractor, it being crucial that ACGIs status, whether as Second, the work of the private respondents was directly related to the principal
labor-only contractor or independent contractor, be measured in terms of and business or operation of the petitioner. Being in the business of providing water to
determined by the criteria set by statute. the consumers in the East Zone, the collection of the charges therefor by private
respondents for the petitioner can only be categorized as clearly related to, and in the
The case of De los Santos v. NLRC[13] succinctly enunciates this statutory criteria pursuit of the latters business.

Job contracting is permissible only if the following conditions are met: 1) the Lastly, ACGI did not carry on an independent business or undertake the performance
contractor carries on an independent business and undertakes the contract work on of its service contract according to its own manner and method, free from the control
his own account under his own responsibility according to his own manner and and supervision of its principal, petitioner. Prior to private respondents alleged
method, free from the control and direction of his employer or principal in all matters employment with ACGI, they were already working for petitioner, subject to its rules
connected with the performance of the work except as to the results thereof; and 2) and regulations in regard to the manner and method of performing their tasks. This
the contractor has substantial capital or investment in the form of tools, equipment, form of control and supervision never changed although they were already under the
machineries, work premises, and other materials which are necessary in the conduct seeming employ of ACGI. Petitioner issued memoranda regarding the billing
of the business. methods and distribution of books to the collectors;[18] it required private
respondents to report daily and to remit their collections on the same day to the
Labor-only contracting as defined in Section 5, Department Order No. 18-02, Rules branch office or to deposit them with Bank of the Philippine Islands; it monitored
Implementing Articles 106-109 of the Labor Code[14] refers to an arrangement strictly their attendance as when a collector cannot perform his daily collection, he
where the contractor or subcontractor merely recruits, supplies or places workers to must notify petitioner or the branch office in the morning of the day that he will be
absent; and although it was ACGI which ultimately disciplined private respondents,
6
the penalty to be imposed was dictated by petitioner as shown in the letters it sent to regardless of whether the engagement was merely an accommodation of their
ACGI specifying the penalties to be meted on the erring private respondents.[19] request, pursuant to Article 280 of the Labor Code which reads:
These are indications that ACGI was not left alone in the supervision and control of
its alleged employees. Consequently, it can be concluded that ACGI was not an The provisions of written agreement to the contrary notwithstanding and regardless
independent contractor since it did not carry a distinct business free from the control of the oral agreement of the parties, an employment shall be deemed to be regular
and supervision of petitioner. where the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer, except where
Under this factual milieu, there is no doubt that ACGI was engaged in labor-only the employment has been fixed for a specific project or undertaking the completion
contracting, and as such, is considered merely an agent of the petitioner. In labor- or termination of which has been determined at the time of the engagement of the
only contracting, the statute creates an employer-employee relationship for a employee or where the work or services to be performed is seasonal in nature and the
comprehensive purpose: to prevent a circumvention of labor laws. The contractor is employment is for the duration of the season.
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 As such regular employees, private respondents are entitled to security of tenure
employed by the principal employer.[20] Since ACGI is only a labor-only contractor, which may not be circumvented by mere stipulation in a subsequent contract that
the workers it supplied should be considered as employees of the petitioner. their employment is one with a fixed period. While this Court has upheld the legality
of fixed-term employment, where from the circumstances it is apparent that the
Even the four-fold test will show that petitioner is the employer of private periods have been imposed to preclude acquisition of tenurial security by the
respondents. The elements to determine the existence of an employment relationship employee, they should be struck down or disregarded as contrary to public policy
are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) and morals.[22]
the power of dismissal; and (d) the employers power to control the employees
conduct. The most important element is the employers control of the employees In the case at bar, we find that the term fixed in the subsequent contract was used to
conduct, not only as to the result of the work to be done, but also as to the means and defeat the tenurial security which private respondents already enjoy. Thus, we concur
methods to accomplish it.[21] with the Labor Arbiter, as affirmed by the Court of Appeals, when it held that:

We agree with the Labor Arbiter that in the three stages of private respondents The next question if whether, with respect to the period, the individual contracts are
services with the petitioner, i.e., (1) from August 1, 1997 to August 31, 1997; (2) valid. Not all contracts of employment fixing a period are invalid. Under Article 280,
from September 1, 1997 to November 30, 1997; and (3) from December 1, 1997 to the evil sought to be prevented is singled out: agreements entered into precisely to
February 8, 1999, the latter exercised control and supervision over the formers circumvent security of tenure. It has no application where a fixed period of
conduct. employment was agreed upon knowingly and voluntarily by the parties, without any
force, duress or improper pressure being brought upon the employee and absent any
Petitioner contends that the employment of private respondents from August 1, 1997 circumstances vitiating his consent, or where it satisfactorily appears that the
to August 30, 1997 was only temporary and done to accommodate their request to be employer and employee dealt with each other on more or less terms with no moral
absorbed since petitioner was still undergoing a transition period. It was only when dominance whatever being exercised by the former over the latter. That is the
its business became settled that petitioner employed private respondents for a fixed doctrine in Brent School, Inc. v. Zamora, 181 SCRA 702. The individual contracts in
term of three months. question were prepared by MWC in the form of the letter addressed to complainants.
The letter-contract is dated September 1, 1997, when complainants were already
Although petitioner was not obliged to absorb the private respondents, by engaging working for MWC as collectors. With their employment as their means of survival,
their services, paying their wages in the form of commission, subjecting them to its there was no room then for complainants to disagree with the presented letter-
rules and imposing punishment in case of breach thereof, and controlling not only contracts. Their choice then was not to negotiate for the terms of the contract but to
the end result but the manner of achieving the same as well, an employment lose or not to lose their employment employment which they already had at that
relationship existed between them. time. The choice is obvious, as what they did, to sign the ready made letter-contract
to retain their employment, and survive. It is a defiance of the teaching in Brent
Notably, private respondents performed activities which were necessary or desirable School, Inc. v. Zamora if this Office rules that the individual contracts in question
to its principal trade or business. Thus, they were regular employees of petitioner, are valid, so, in deference to Brent School ruling, this Office rules they are null and
void.[23]
7
In view of the foregoing, we hold that an employment relationship exists between G.R. No. 149011. June 28, 2005.*
petitioner and private respondents. We now proceed to ascertain whether private
respondents were dismissed in accordance with law. SAN MIGUEL CORPORATION, petitioner, vs. PROSPERO A. ABALLA, BONNY J.
ABARING, EDWIN M. ADLA-ON, ALVIN C. ALCALDE, CELANIO D. ARROLLADO,
As private respondents employer, petitioner has the burden of proving that the EDDIE A. ARROLLADO, REYNALDO T. ASONG, RENE A. ASPERA, JOEL D.
BALATERIA, JOSEPH D. BALATERIA, JOSE JOLLEN BALLADOS, WILFREDO B.
dismissal was for a cause allowed under the law and that they were afforded BASAS, EDWIN E. BEATINGO, SONNY V. BERONDO, CHRISTOPHER D. BRIONES,
procedural due process.[24] Petitioner failed to discharge this burden by substantial MARLON D. BRIONES, JOEL C. BOOC, ENRIQUE CABALIDA, DIOSCORO R.
evidence as it maintained the defense that it was not the employer of private CAHINOD, ERNESTO P. CAHINOD, RENANTE S. CAHINOD, RUDERICK R.
respondents. Having established that the schemes employed by petitioner were CALIXTON, RONILO C. CALVEZ, PANCHO CAETE, JUNNY CASTEL, JUDY S.
devious attempts to defeat the tenurial rights of private respondents and that it failed CELESTE, ROMEO CHUA, DANILO COBRA, ARMANDO C. DEDOYCO, JOEY R.
to comply with the requirements of termination under the Labor Code, the dismissal DELA CRUZ, JOHN D. DELFIN, RENELITO P. DEON, ARNEL C. DE PEDRO,
of the private respondent is tainted with illegality. ORLANDO DERDER, CLIFFORD A. DESPI, RAMIE A. DESPI, SR., VICTOR A. DESPI,
ROLANDO L. DINGLE, ANTONIO D. DOLORFINO, LARRY DUMA-OP, NOEL
Under Article 279 of the Labor Code, an employee who is unjustly dismissed from DUMOL, CHITO L. DUNGOG, RODERICK C. DUQUEZA, ROMMEL ESTREBOR, RIC
E. GALPO, MANSUETO GILLE, MAXIMO L. HILA-US, GERARDO J. JIMENEZ,
work is entitled to reinstatement without loss of seniority rights and other privileges, ROBERTLY Y. HOFILEA, ROBERTO HOFILEA, VICENTE INDENCIO, JONATHAN
and to his full backwages, inclusive of allowances, and to his other benefits or their T. INVENTOR, PETER PAUL T. INVENTOR, JOEBERT G. LAGARTO, RENATO
monetary equivalent computed from the time his compensation was withheld from LAMINA, ALVIN LAS POBRES, ALBERT LAS POBRES, LEONARD LEMONCHITO,
him up to the time of his actual reinstatement. However, if reinstatement is no longer JERRY LIM, JOSE COLLY S. LUCERO, ROBERTO E. MARTIL, HERNANDO
possible, the employer has the alternative of paying the employee his separation pay MATILLANO, VICENTE M. MATILLANO, TANNY C. MENDOZA, WILLIAM P.
in lieu of reinstatement.[25] NAVARRO, WILSON P. NAVARRO, LEO A. OLVIDO, ROBERTO G. OTERO,
BIENVENIDO C. PAROCHILIN, REYNALDO C. PAROCHILIN, RICKY PALANOG,
This Court however cannot sustain the award of moral and exemplary damages in BERNIE O. PILLO, ALBERTO O. PILLO, JOE-MARIE S. PUGNA, EDWIN G. RIBON,
favor of private respondents. Such an award cannot be justified solely upon the RAUL A. RUBIO, HENRY S. SAMILLANO, EDGAR SANTIAGO, ROLAND B.
SANTILLANA, ROLDAN V. SAYAM, JOSEPH S. SAYSON, RENE SUARNABA,
premise that the employer dismissed his employee without just cause or due process. ELMAR TABLIGAN, JERRY D. TALITE, OSCAR TALITE, WINIFREDO TALITE,
Additional facts must be pleaded and proved to warrant the grant of moral damages CAMILO N. TEMPOROSA, JOSE TEMPOROSA, RANDY TINGALA, TRISTAN A.
under the Civil Code. The act of dismissal must be attended with bad faith, or fraud, TINGSON, ROGELIO TOMESA, DIONISE A. TORMIS, ADELINO C. UNTAL, FELIX T.
or was oppressive to labor or done in a manner contrary to morals, good customs or UNTAL, RONILO E. VISTA, JOAN C. VIYO and JOSE JOFER C. VIYO and the COURT
public policy and, of course, that social humiliation, wounded feelings, or grave OF APPEALS, respondents.
anxiety resulted therefrom. Similarly, exemplary damages are recoverable only when
the dismissal was effected in a wanton, oppressive or malevolent manner.[26] Those Actions; Pleadings and Practice; Certificate of Non-Forum Shopping; Procedural
circumstances have not been adequately established. Rules and Technicalities; The general rule is that the certificate of non-forum
shopping must be signed by all the plaintiffs or petitioners in a case and the signature
However, private respondents are entitled to attorneys fees as they were compelled to of only one of them is insufficient; Strict compliance with the provisions regarding
litigate with petitioners and incur expenses to enforce and protect their interests.[27] the certificate of non-forum shopping merely underscores its mandatory nature in
The award by the Labor Arbiter of P22,250.00 as attorneys fees to private that the certification cannot be altogether dispensed with or its requirements
respondents, being reasonable, is sustained. completely disregarded but it does not thereby interdict substantial compliance with
its provisions under justifiable circumstances.While the general rule is that the
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated certificate of non-forum shopping must be signed by all the plaintiffs or petitioners in
November 29, 2002, in CA-G.R. SP No. 67134, reversing the decision of the a case and the signature of only one of them is insufficient, this Court has stressed
National Labor Relations Commission and reinstating the decision of the Labor that the rules on forum shopping, which were designed to promote and facilitate the
Arbiter is AFFIRMED with the MODIFICATION that the awards of P10,000.00 as orderly administration of justice, should not be interpreted with such absolute
moral damages and P5,000.00 as exemplary damages are DELETED for lack of literalness as to subvert its own ultimate and legitimate objective. Strict compliance
evidentiary basis. with the provisions regarding the certificate of non-forum shopping merely
underscores its mandatory nature in that the certification cannot be altogether
8
dispensed with or its requirements completely disregarded. It does not, however, technicalities that tend to frustrate rather than promote substantial justice, must
thereby interdict substantial compliance with its provisions under justifiable always be eschewed.At all events, this Court has allowed a liberal construction of
circumstances. the rule on the accomplishment of a certificate of non-forum shopping in the
following cases: (1) where a rigid application will result in manifest failure or
Same; Same; Same; Same; Given the collective nature of the petition filed before the miscarriage of justice; (2) where the interest of substantial justice will be served; (3)
appellate court by ninety-seven persons, raising one common cause of action against where the resolution of the motion is addressed solely to the sound and judicious
a corporation, the execution by only three of them in behalf of the others of the discretion of the court; and (4) where the injustice to the adverse party is not
certificate of non-forum shopping constitutes substantial compliance with the Rules; commensurate with the degree of his thoughtlessness in not complying with the
The merits of the substantive aspects of the case may also be deemed as special procedure prescribed. Rules of procedure should indeed be viewed as mere tools
circumstance or compelling reason to take cognizance of a petition although the designed to facilitate the attainment of justice. Their strict and rigid application,
certification against forum shopping was not executed and signed by all of the which would result in technicalities that tend to frustrate rather than promote
petitioners.Given the collective nature of the petition filed before the appellate substantial justice, must always be eschewed.
court by herein private respondents, raising one common cause of action against
SMC, the execution by private respondents Winifredo Talite, Renelito Deon and Jose Administrative Law; When the findings of fact of the labor arbiter and the NLRC are
Temporosa in behalf of all the other private respondents of the certificate of non- not supported by substantial evidence or their judgment was based on a
forum shopping constitutes substantial compliance with the Rules. That the three misapprehension of facts, the appellate court may make an independent evaluation of
indeed represented their co-petitioners before the appellate court is, as it correctly the facts of the case.The general rule, no doubt, is that findings of facts of an
found, subsequently proven to be true as shown by the signatures of the majority of administrative agency which has acquired expertise in the particular field of its
the petitioners appearing in their memorandum filed before Us. Additionally, the endeavor are accorded great weight on appeal. The rule is not absolute and admits of
merits of the substantive aspects of the case may also be deemed as special certain well-recognized exceptions, however. Thus, when the findings of fact of the
circumstance or compelling reason to take cognizance of a petition although the labor arbiter and the NLRC are not supported by substantial evidence or their
certification against forum shopping was not executed and signed by all of the judgment was based on a misapprehension of facts, the appellate court may make an
petitioners. independent evaluation of the facts of the case.

Same; Same; Same; Same; It is the appellate court which ultimately determines if the Labor Law; Pleadings and Practice; Verification; That the verification where it is
supporting documents are sufficient to make out a prima facie case.SMC goes on manifested that the one signing is one of the complainants and was causing the
to argue that the petition filed before the CA is fatally defective as it was not preparation of the complaint with the authority of my co-complainants indubitably
accompanied by copies of all pleadings and documents relevant and pertinent shows that he was representing the rest of his co-complainants in signing the
thereto in contravention of Section 1, Rule 65 of the Rules of Court. This Court is verification in accordance with Section 7, Rule III of the 1990 NRLC Rules, now
not persuaded. The records show that private respondents appended the following Section 8, Rule 3 of the 1997 NLRC Rules.A perusal of the complaint shows that
documents to their petition before the appellate court: the September 23, 1997 the ninety seven complainants were being represented by their counsel of choice.
Decision of the Labor Arbiter, their Notice of Appeal with Appeal Memorandum Thus the first sentence of their complaint alleges: x x x complainants, by counsel
dated October 16, 1997 filed before the NLRC, the December 29, 1998 NLRC and unto this Honorable Office respectfully state x x x. And the complaint was
Decision, their Motion for Reconsideration dated March 26, 1999 filed with the signed by Atty. Jose Max S. Ortiz as counsel for the complainants. Following
NLRC and the September 10, 1999 NLRC Resolution. It bears stressing at any rate Section 6, Rule III of the 1990 Rules of Procedure of the NLRC, now Section 7, Rule
that it is the appellate court which ultimately determines if the supporting documents III of the 1999 NLRC Rules, Atty. Ortiz is presumed to be properly authorized by
are sufficient to make out a prima facie case. It discerns whether on the basis of what private respondents in filing the complaint. That the verification wherein it is
have been submitted it could already judiciously determine the merits of the petition. manifested that private respondent Talite was one of the complainants and was
In the case at bar, the CA found that the petition was adequately supported by causing the preparation of the complaint with the authority of my co-complainants
relevant and pertinent documents. indubitably shows that Talite was representing the rest of his co-complainants in
signing the verification in accordance with Section 7, Rule III of the 1990 NLRC
Same; Same; Same; Same; Instances Where a Liberal Construction of the Rule on Rules, now Section 8, Rule 3 of the 1999 NLRC Rules, which states: Section 7.
the Accomplishment of a Certificate of Non-Forum Shopping Allowed; Rules of Authority to bind party.Attorneys and other representatives of parties shall have
procedure should indeed be viewed as mere tools designed to facilitate the authority to bind their clients in all matters of procedure; but they cannot, without a
attainment of justicetheir strict and rigid application, which would result in
9
special power of attorney or express consent, enter into a compromise agreement that SMC exercised the power of control and supervision over its employees. And
with the opposing party in full or partial discharge of a clients claim. control of the premises in which private respondents worked was by SMC. These
tend to disprove the independence of the contractor.
Same; Labor Only Contracting; Independent Contractors; The test to determine the
existence of independent contractorship is whether one claiming to be an Same; Same; Same; The circumstance that the contractors workers had been
independent contractor has contracted to do the work according to his own methods working alongside regular employees of the principal, performing identical jobs
and without being subject to the control of the employer, except only as to the results under the same supervisors, is another indicium of the existence of labor-only
of the work; In labor-only contracting, the statute creates an employer-employee contractorship.Private respondents had been working in the aqua processing plant
relationship for a comprehensive purposeto prevent a circumvention of labor inside the SMC compound alongside regular SMC shrimp processing workers
laws.The test to determine the existence of independent contractorship is whether performing identical jobs under the same SMC supervisors. This circumstance is
one claiming to be an independent contractor has contracted to do the work another indicium of the existence of a labor-only contractorship.
according to his own methods and without being subject to the control of the
employer, except only as to the results of the work. In legitimate labor contracting, Same; Two Kinds of Regular Employees; Workers who were engaged in janitorial
the law creates an employer-employee relationship for a limited purpose, i.e., to and messengerial tasks fall under the category of regular employees who have
ensure that the employees are paid their wages. The principal employer becomes rendered at least one year of service, whether continuous or broken, with respect to
jointly and severally liable with the job contractor, only for the payment of the the activity in which they are employed, and are entitled to differential pay and
employees wages whenever the contractor fails to pay the same. Other than that, the benefits extended to other regular employees from the day immediately following
principal employer is not responsible for any claim made by the employees. In labor- their first year of service.The law of course provides for two kinds of regular
only contracting, the statute creates an employer-employee relationship for a employees, namely: (1) those who are engaged to perform activities which are
comprehensive purpose: to prevent a circumvention of labor laws. The contractor is usually necessary or desirable in the usual business or trade of the employer; and (2)
considered merely an agent of the principal employer and the latter is responsible to those who have rendered at least one year of service, whether continuous or broken,
the employees of the labor-only contractor as if such employees had been directly with respect to the activity in which they are employed. As for those of private
employed by the principal employer. respondents who were engaged in janitorial and messengerial tasks, they fall under
the second category and are thus entitled to differential pay and benefits extended to
Same; Same; Same; The language of a contract is not determinative of the parties other SMC regular employees from the day immediately following their first year of
relationshipit is the totality of the facts and surrounding circumstances of the service.
case.The Contract of Services between SMC and Sunflower shows that the parties
clearly disavowed the existence of an employer-employee relationship between SMC Same; Retrenchment; Words and Phrases; Where a particular department under a
and private respondents. The language of a contract is not, however, determinative of corporate group of companies was closed allegedly due to serious business reverses,
the parties relationship; rather it is the totality of the facts and surrounding this constitutes retrenchment by, and not closure of, the enterprise or the company.
circumstances of the case. A party cannot dictate, by the mere expedient of a In the case at bar, a particular department under the SMC group of companies was
unilateral declaration in a contract, the character of its business, i.e., whether as closed allegedly due to serious business reverses. This constitutes retrenchment by,
labor-only contractor or job contractor, it being crucial that its character be measured and not closure of, the enterprise or the company itself as SMC has not totally ceased
in terms of and determined by the criteria set by statute. operations but is still very much an on-going and highly viable business concern.
Same; Same; Requisites.Retrenchment is a management prerogative consistently
Same; Same; Same; Where it is shown that the workers daily time records were recognized and affirmed by this Court. It is, however, subject to faithful compliance
signed by the principal and control of the premises in which they worked was by the with the substantive and procedural requirements laid down by law and
principal, these tend to disprove the independence of the contractor who engaged the jurisprudence. For retrenchment to be considered valid the following substantial
services of the work-ers.Sunflower did not carry on an independent business or requirements must be met: (a) the losses expected should be substantial and not
undertake the performance of its service contract according to its own manner and merely de minimis in extent; (b) the substantial losses apprehended must be
method, free from the control and supervision of its principal, SMC, its apparent role reasonably imminent such as can be perceived objectively and in good faith by the
having been merely to recruit persons to work for SMC. Thus, it is gathered from the employer; (c) the retrenchment must be reasonably necessary and likely to
evidence adduced by private respondents before the labor arbiter that their daily time effectively prevent the expected losses; and (d) the alleged losses, if already
records were signed by SMC supervisors Ike Puentebella, Joemel Haro, Joemari incurred, and the expected imminent losses sought to be forestalled, must be proved
Raca, Erwin Tumonong, Edison Arguello, and Stephen Palabrica, which fact shows by sufficient and convincing evidence.
10
Same; Same; The financial statements must be prepared and signed by independent 1. The cooperative agrees and undertakes to perform and/or provide for the
auditors failing which they can be assailed as self-serving documents.In the company, on a non-exclusive basis for a period of one year the following services for
discharge of these requirements, it is the employer who has the onus, being in the the Bacolod Shrimp Processing Plant:
nature of an affirmative defense. Normally, the condition of business losses is shown A. Messengerial/Janitorial
by audited financial documents like yearly balance sheets, profit and loss statements B. Shrimp Harvesting/Receiving
and annual income tax returns. The financial statements must be prepared and signed C. Sanitation/Washing/Cold Storage[2]
by independent auditors failing which they can be assailed as self-serving 2. To carry out the undertaking specified in the immediately preceding paragraph,
documents. the cooperative shall employ the necessary personnel and provide adequate
equipment, materials, tools and apparatus, to efficiently, fully and speedily
Same; Same; Damages; Where the dismissal is based on an authorized cause under accomplish the work and services undertaken by the cooperative. xxx
Article 283 of the Labor Code but the employer failed to comply with the notice
requirement, the sanction should be stiff as the dismissal process was initiated by the 3. In consideration of the above undertaking the company expressly agrees to pay the
employers exercise of his management prerogative, as opposed to dismissal based cooperative the following rates per activity:
on a just cause under Article 282.Where the dismissal is based on an authorized
cause under Article 283 of the Labor Code but the employer failed to comply with A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand
the notice requirement, the sanction should be stiff as the dismissal process was Five Hundred Pesos Only (P19,500.00)
initiated by the employers exercise of his management prerogative, as opposed to a B. Harvesting/Shrimp Receiving. Piece rate of P0.34/kg. Or P100.00 minimum per
dismissal based on a just cause under Article 282 with the same procedural infirmity person/activity whichever is higher, with provisions as follows:
where the sanction to be imposed upon the employer should be tempered as the P25.00 Fixed Fee per person
dismissal process was, in effect, initiated by an act imputable to the employee. In Additional meal allowance P15.00 every meal time in case harvest duration exceeds
light of the factual circumstances of the case at bar, this Court awards P50,000.00 to one meal.
each private respondent as nominal damages. This will be pre-set every harvest based on harvest plan approved by the Senior
Buyer.
Same; Attorneys Fees; Although an express finding of facts and law is still C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts.
necessary to prove the merit of the award of attorneys fees, there need not be any One-half of the payment for all services rendered shall be payable on the fifteenth
showing that the employer acted maliciously or in bad faith when it withheld the and the other half, on the end of each month. The cooperative shall pay taxes, fees,
wagesthere need only be a showing that the lawful wages were not paid dues and other impositions that shall become due as a result of this contract.
accordingly.With respect to attorneys fees, in actions for recovery of wages or The cooperative shall have the entire charge, control and supervision of the work and
where an employee was forced to litigate and thus incurred expenses to protect his services herein agreed upon. xxx
rights and interests, a maximum of ten percent (10%) of the total monetary award by
way of attorneys fees is justifiable under Article 111 of the Labor Code, Section 8, 4. There is no employer-employee relationship between the company and the
Rule VIII, Book III of its Implementing Rules, and paragraph 7, Article 2208 of the cooperative, or the cooperative and any of its members, or the company and any
Civil Code. Although an express finding of facts and law is still necessary to prove members of the cooperative. The cooperative is an association of self-employed
the merit of the award, there need not be any showing that the employer acted members, an independent contractor, and an entrepreneur. It is subject to the control
maliciously or in bad faith when it withheld the wages. There need only be a and direction of the company only as to the result to be accomplished by the work or
showing that the lawful wages were not paid accordingly, as in this case. services herein specified, and not as to the work herein contracted. The cooperative
and its members recognize that it is taking a business risk in accepting a fixed service
CARPIO-MORALES, J.: fee to provide the services contracted for and its realization of profit or loss from its
Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice undertaking, in relation to all its other undertakings, will depend on how efficiently it
President and Visayas Area Manager for Aquaculture Operations Leopoldo S. deploys and fields its members and how they perform the work and manage its
Titular, and Sunflower Multi-Purpose Cooperative (Sunflower), represented by the operations.
Chairman of its Board of Directors Roy G. Asong, entered into a one-year Contract 5. The cooperative shall, whenever possible, maintain and keep under its control the
of Services[1] commencing on January 1, 1993, to be renewed on a month to month premises where the work under this contract shall be performed.
basis until terminated by either party. The pertinent provisions of the contract read: 6. The cooperative shall have exclusive discretion in the selection, engagement and
discharge of its member-workers or otherwise in the direction and control thereof.
11
The determination of the wages, salaries and compensation of the member-workers SMCs closure of its Bacolod Shrimp Processing Plant on September 15, 1995[5]
of the cooperative shall be within its full control. It is further understood that the which resulted in the termination of their services.
cooperative is an independent contractor, and as such, the cooperative agrees to SMC filed a Motion for Leave to File Attached Third Party Complaint[6] dated
comply with all the requirements of all pertinent laws and ordinances, rules and November 27, 1995 to implead Sunflower as Third Party Defendant which was, by
regulations. Although it is understood and agreed between the parties hereto that the Order[7] of December 11, 1995, granted by Labor Arbiter Ray Alan T. Drilon.
cooperative, in the performance of its obligations, is subject to the control or In the meantime, on September 30, 1996, SMC filed before the Regional Office at
direction of the company merely as a (sic) result to be accomplished by the work or Iloilo City of the Department of Labor and Employment (DOLE) a Notice of
services herein specified, and not as to the means and methods of accomplishing Closure[8] of its aquaculture operations effective on even date, citing serious
such result, the cooperative hereby warrants that it will perform such work or business losses.
services in such manner as will be consistent with the achievement of the result By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private
herein contracted for. respondents complaint for lack of merit, ratiocinating as follows:
xxx
We sustain the stand of the respondent SMC that it could properly exercise its
8. The cooperative undertakes to pay the wages or salaries of its member-workers, as management prerogative to contract out the preparation and processing aspects of its
well as all benefits, premiums and protection in accordance with the provisions of aquaculture operations. Judicial notice has already been taken regarding the general
the labor code, cooperative code and other applicable laws and decrees and the rules practice adopted in government and private institutions and industries of hiring
and regulations promulgated by competent authorities, assuming all responsibility independent contractors to perform special services. xxx
therefor.
The cooperative further undertakes to submit to the company within the first ten (10) xxx
days of every month, a statement made, signed and sworn to by its duly authorized
representative before a notary public or other officer authorized by law to administer Indeed, the law allows job contracting. Job contracting is permissible under the
oaths, to the effect that the cooperative has paid all wages or salaries due to its Labor Code under specific conditions and we do not see how this activity could not
employees or personnel for services rendered by them during the month immediately be legally undertaken by an independent service cooperative like the third-party
preceding, including overtime, if any, and that such payments were all in accordance respondent herein.
with the requirements of law. There is no basis to the demand for regularization simply on the theory that
xxx complainants performed activities which are necessary and desirable in the business
12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall of respondent. It has been held that the definition of regular employees as those who
be for a period of one (1) year commencing on January 1, 1993. Thereafter, this perform activities which are necessary and desirable for the business of the employer
Contract will be deemed renewed on a month-to-month basis until terminated by is not always determinative because any agreement may provide for one (1) party to
either party by sending a written notice to the other at least thirty (30) days prior to render services for and in behalf of another for a consideration even without being
the intended date of termination. hired as an employee.
xxx[3] (Underscoring supplied)
Pursuant to the contract, Sunflower engaged private respondents to, as they did, The charge of the complainants that third-party respondent is a mere labor-only
render services at SMCs Bacolod Shrimp Processing Plant at Sta. Fe, Bacolod City. contractor is a sweeping generalization and completely unsubstantiated. xxx In the
The contract was deemed renewed by the parties every month after its expiration on absence of clear and convincing evidence showing that third-party respondent acted
January 1, 1994 and private respondents continued to perform their tasks until merely as a labor only contractor, we are firmly convinced of the legitimacy and the
September 11, 1995. integrity of its service contract with respondent SMC.

In July 1995, private respondents filed a complaint before the NLRC, Regional In the same vein, the closure of the Bacolod Shrimp Processing Plant was a
Arbitration Branch No. VI, Bacolod City, praying to be declared as regular management decision purely dictated by economic factors which was (sic) mainly
employees of SMC, with claims for recovery of all benefits and privileges enjoyed serious business losses. The law recognizes the right of the employer to close his
by SMC rank and file employees. business or cease his operations for bonafide reasons, as much as it recognizes the
Private respondents subsequently filed on September 25, 1995 an Amended right of the employer to terminate the employment of any employee due to closure or
Complaint[4] to include illegal dismissal as additional cause of action following cessation of business operations, unless the closing is for the purpose of
circumventing the provisions of the law on security of tenure. The decision of
12
respondent SMC to close its Bacolod Shrimp Processing Plant, due to serious
business losses which has (sic) clearly been established, is a management prerogative Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate
which could hardly be interfered with. court reasoned:
xxx The closure did affect the regular employees and workers of the Bacolod Although the terms of the non-exclusive contract of service between SMC and
Processing Plant, who were accordingly terminated following the legal requisites [Sunflower] showed a clear intent to abstain from establishing an employer-
prescribed by law. The closure, however, in so far as the complainants are employee relationship between SMC and [Sunflower] or the latters members, the
concerned, resulted in the termination of SMCs service contract with their extent to which the parties successfully realized this intent in the light of the
cooperative xxx[9] (Underscoring supplied) applicable law is the controlling factor in determining the real and actual relationship
Private respondents appealed to the NLRC. between or among the parties.
By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of xxx
merit, it finding that third party respondent Sunflower was an independent contractor With respect to the power to control petitioners conduct, it appears that petitioners
in light of its observation that [i]n all the activities of private respondents, they were were under the direct control and supervision of SMC supervisors both as to the
under the actual direction, control and supervision of third party respondent manner they performed their functions and as to the end results thereof. It was only
Sunflower, as well as the payment of wages, and power of dismissal.[10] after petitioners lodged a complaint to have their status declared as regular
Private respondents Motion for Reconsideration[11] having been denied by the employees of SMC that certain members of [Sunflower] began to countersign
NLRC for lack of merit by Resolution of September 10, 1999, they filed a petition petitioners daily time records to make it appear that they (petitioners) were under the
for certiorari[12] before the Court of Appeals (CA). control and supervision of [Sunflower] team leaders (rollo, pp. 523-527). xxx
Even without these instances indicative of control by SMC over the petitioners, it is
Before the CA, SMC filed a Motion to Dismiss[13] private respondents petition for safe to assume that SMC would never have allowed the petitioners to work within its
non-compliance with the Rules on Civil Procedure and failure to show grave abuse premises, using its own facilities, equipment and tools, alongside SMC employees
of discretion on the part of the NLRC. discharging similar or identical activities unless it exercised a substantial degree of
SMC subsequently filed its Comment[14] to the petition on March 30, 2000. control and supervision over the petitioners not only as to the manner they performed
By Decision of February 7, 2001, the appellate court reversed the NLRC decision their functions but also as to the end results of such functions.
and accordingly found for private respondents, disposing as follows:
WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby xxx
RENDERED: (1) REVERSING and SETTING ASIDE both the 29 December 1998
decision and 10 September 1999 resolution of the National Labor Relations xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as
Commission (NLRC), Fourth Division, Cebu City in NLRC Case No. V-0361-97 as independent contractors. [Sunflower] and the petitioners did not have substantial
well as the 23 September 1997 decision of the labor arbiter in RAB Case No. 06-07- capital or investment in the form of tools, equipment, implements, work premises, et
10316-95; (2) ORDERING the respondent, San Miguel Corporation, to GRANT cetera necessary to actually perform the service under their own account,
petitioners: (a) separation pay in accordance with the computation given to the responsibility, and method. The only work premises maintained by [Sunflower] was
regular SMC employees working at its Bacolod Shrimp Processing Plant with full a small office within the confines of a small carinderia or refreshment parlor owned
backwages, inclusive of allowances and other benefits or their monetary equivalent, by the mother of its chair, Roy Asong; the only equipment it owned was a typewriter
from 11 September 1995, the time their actual compensation was withheld from (rollo, pp. 525-525) and, the only assets it provided SMC were the bare bodies of its
them, up to the time of the finality of this decision; (b) differentials pays (sic) members, the petitioners herein (rollo, p. 523).
effective as of and from the time petitioners acquired regular employment status In addition, as shown earlier, petitioners, who worked inside the premises of SMC,
pursuant to the disquisition mentioned above, and all such other and further benefits were under the control and supervision of SMC both as to the manner and method in
as provided by applicable collective bargaining agreement(s) or other relations, or by discharging their functions and as to the results thereof.
law, beginning such time up to their termination from employment on 11 September Besides, it should be taken into account that the activities undertaken by the
1995; and ORDERING private respondent SMC to PAY unto the petitioners petitioners as cleaners, janitors, messengers and shrimp harvesters, packers and
attorneys fees equivalent to ten (10%) percent of the total award. handlers were directly related to the aquaculture business of SMC (See Guarin vs.
NLRC, 198 SCRA 267, 273). This is confirmed by the renewal of the service
No pronouncement as to costs. contract from January 1993 to September 1995, a period of close to three (3) years.
Moreover, the petitioners here numbering ninety seven (97), by itself, is a
SO ORDERED.[15] (Underscoring supplied) considerable workforce and raises the suspicion that the non-exclusive service
13
contract between SMC and [Sunflower] was designed to evade the obligations IN A MANNER NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE
inherent in an employer-employee relationship (See Rhone-Poulenc Agrochemicals DECISIONS OF THE SUPREME COURT.
Philippines, Inc. vs. NLRC, 217 SCRA 249, 259). III
Equally suspicious is the fact that the notary public who signed the by-laws of THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
[Sunflower] and its [Sunflower] retained counsel are both partners of the local RESPONDENTS ARE EMPLOYEES OF SMC.
counsel of SMC (rollo, p. 9). IV
xxx THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic) THAT
With these observations, no other logical conclusion can be reached except that RESPONDENTS ARE NOT ENTITLED TO ANY RELIEF. THE CLOSURE OF
[Sunflower] acted as an agent of SMC, facilitating the manpower requirements of the THE BACOLOD SHRIMP PROCESSING PLANT WAS DUE TO SERIOUS
latter, the real employer of the petitioners. We simply cannot allow these two entities BUSINESS LOSSES.[18] (Underscoring supplied)
through the convenience of a non-exclusive service contract to stipulate on the
existence of employer-employee relation. Such existence is a question of law which SMC bewails the failure of the appellate court to outrightly dismiss the petition for
cannot be made the subject of agreement to the detriment of the petitioners (Tabas certiorari as only three out of the ninety seven named petitioners signed the
vs. California Manufacturing, Inc., 169 SCRA 497, 500). verification and certification against forum-shopping.
xxx
There being a finding of labor-only contracting, liability must be shouldered either While the general rule is that the certificate of non-forum shopping must be signed
by SMC or [Sunflower] or shared by both (See Tabas vs. California Manufacturing, by all the plaintiffs or petitioners in a case and the signature of only one of them is
Inc., supra, p. 502). SMC however should be held solely liable for [Sunflower] insufficient,[19] this Court has stressed that the rules on forum shopping, which were
became non-existent with the closure of the aquaculture business of SMC. designed to promote and facilitate the orderly administration of justice, should not be
Furthermore, since the closure of the aquaculture operations of SMC appears to be interpreted with such absolute literalness as to subvert its own ultimate and
valid, reinstatement is no longer feasible. Consistent with the pronouncement in legitimate objective.[20] Strict compliance with the provisions regarding the
Bustamante, et al., vs. NLRC, G.R. No. 111651, 28 November 1996, petitioners are certificate of non-forum shopping merely underscores its mandatory nature in that
thus entitled to separation pay (in the computation similar to those given to regular the certification cannot be altogether dispensed with or its requirements completely
SMC employees at its Bacolod Shrimp Processing Plant) with full backwages, disregarded.[21] It does not, however, thereby interdict substantial compliance with
inclusive of allowances and other benefits or their monetary equivalent, from the its provisions under justifiable circumstances.[22]
time their actual compensation was withheld from them up to the time of the finality
of this decision. This is without prejudice to differentials pays (sic) effective as of Thus in the recent case of HLC Construction and Development Corporation v. Emily
and from the time petitioners acquired regular employment status pursuant to the Homes Subdivision Homeowners Association,[23] this Court held:
discussion mentioned above, and all such other and further benefits as provided by
applicable collective bargaining agreement(s) or other relations, or by law, beginning Respondents (who were plaintiffs in the trial court) filed the complaint against
such time up to their termination from employment on 11 September 1995.[16] petitioners as a group, represented by their homeowners association president who
(Emphasis and underscoring supplied) was likewise one of the plaintiffs, Mr. Samaon M. Buat. Respondents raised one
cause of action which was the breach of contractual obligations and payment of
SMCs Motion for Reconsideration[17] having been denied for lack of merit by damages. They shared a common interest in the subject matter of the case, being the
Resolution of July 11, 2001, it comes before this Court via the present petition for aggrieved residents of the poorly constructed and developed Emily Homes
review on certiorari assigning to the CA the following errors Subdivision. Due to the collective nature of the case, there was no doubt that Mr.
I Samaon M. Buat could validly sign the certificate of non-forum shopping in behalf
THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE COURSE of all his co-plaintiffs. In cases therefore where it is highly impractical to require all
AND GRANTING RESPONDENTS PATENTLY DEFECTIVE PETITION FOR the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order
CERTIORARI. IN DOING SO, THE COURT OF APPEALS DEPARTED FROM not to defeat the ends of justice, for one of the plaintiffs, acting as representative, to
THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS. sign the certificate provided that xxx the plaintiffs share a common interest in the
II subject matter of the case or filed the case as a collective, raising only one common
THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE cause of action or defense.[24] (Emphasis and underscoring supplied)
RESPONDENTS AS COMPLAINANTS IN THE CASE BEFORE THE LABOR
ARBITER. IN DOING SO, THE COURT OF APPEALS DECIDED THIS CASE
14
Given the collective nature of the petition filed before the appellate court by herein SMC further argues that the appellate court exceeded its jurisdiction in reversing the
private respondents, raising one common cause of action against SMC, the execution decisions of the labor arbiter and the NLRC as findings of facts of quasi-judicial
by private respondents Winifredo Talite, Renelito Deon and Jose Temporosa in bodies like the NLRC are accorded great respect and finality, and that this principle
behalf of all the other private respondents of the certificate of non-forum shopping acquires greater weight and application in the case at bar as the labor arbiter and the
constitutes substantial compliance with the Rules.[25] That the three indeed NLRC have the same factual findings.
represented their co-petitioners before the appellate court is, as it correctly found,
subsequently proven to be true as shown by the signatures of the majority of the The general rule, no doubt, is that findings of facts of an administrative agency
petitioners appearing in their memorandum filed before Us.[26] which has acquired expertise in the particular field of its endeavor are accorded great
weight on appeal.[38] The rule is not absolute and admits of certain well-recognized
Additionally, the merits of the substantive aspects of the case may also be deemed as exceptions, however. Thus, when the findings of fact of the labor arbiter and the
special circumstance or compelling reason to take cognizance of a petition although NLRC are not supported by substantial evidence or their judgment was based on a
the certification against forum shopping was not executed and signed by all of the misapprehension of facts, the appellate court may make an independent evaluation of
petitioners.[27] the facts of the case.[39]

SMC goes on to argue that the petition filed before the CA is fatally defective as it SMC further faults the appellate court in giving due course to private respondents
was not accompanied by copies of all pleadings and documents relevant and petition despite the fact that the complaint filed before the labor arbiter was signed
pertinent thereto in contravention of Section 1, Rule 65 of the Rules of Court.[28] and verified only by private respondent Winifredo Talite; that private respondents
position paper[40] was verified by only six[41] out of the ninety seven complainants;
This Court is not persuaded. The records show that private respondents appended the and that their Joint-Affidavit[42] was executed only by twelve[43] of the
following documents to their petition before the appellate court: the September 23, complainants.
1997 Decision of the Labor Arbiter,[29] their Notice of Appeal with Appeal
Memorandum dated October 16, 1997 filed before the NLRC,[30] the December 29, Specifically with respect to the Joint-Affidavit of private respondents, SMC asserts
1998 NLRC Decision,[31] their Motion for Reconsideration dated March 26, 1999 that it should not have been considered by the appellate court in establishing the
filed with the NLRC[32] and the September 10, 1999 NLRC Resolution.[33] claims of those who did not sign the same, citing this Courts ruling in Southern
Cotabato Development and Construction, Inc. v. NLRC.[44]
It bears stressing at any rate that it is the appellate court which ultimately determines
if the supporting documents are sufficient to make out a prima facie case.[34] It SMCs position does not lie.
discerns whether on the basis of what have been submitted it could already
judiciously determine the merits of the petition.[35] In the case at bar, the CA found A perusal of the complaint shows that the ninety seven complainants were being
that the petition was adequately supported by relevant and pertinent documents. represented by their counsel of choice. Thus the first sentence of their complaint
alleges: xxx complainants, by counsel and unto this Honorable Office respectfully
At all events, this Court has allowed a liberal construction of the rule on the state xxx. And the complaint was signed by Atty. Jose Max S. Ortiz as counsel for
accomplishment of a certificate of non-forum shopping in the following cases: (1) the complainants. Following Section 6, Rule III of the 1990 Rules of Procedure of
where a rigid application will result in manifest failure or miscarriage of justice; (2) the NLRC, now Section 7, Rule III of the 1999 NLRC Rules, Atty. Ortiz is presumed
where the interest of substantial justice will be served; (3) where the resolution of the to be properly authorized by private respondents in filing the complaint.
motion is addressed solely to the sound and judicious discretion of the court; and (4)
where the injustice to the adverse party is not commensurate with the degree of his That the verification wherein it is manifested that private respondent Talite was one
thoughtlessness in not complying with the procedure prescribed.[36] of the complainants and was causing the preparation of the complaint with the
authority of my co-complainants indubitably shows that Talite was representing the
Rules of procedure should indeed be viewed as mere tools designed to facilitate the rest of his co-complainants in signing the verification in accordance with Section 7,
attainment of justice. Their strict and rigid application, which would result in Rule III of the 1990 NLRC Rules, now Section 8, Rule 3 of the 1999 NLRC Rules,
technicalities that tend to frustrate rather than promote substantial justice, must which states:
always be eschewed.[37]
Section 7. Authority to bind party. Attorneys and other representatives of parties
shall have authority to bind their clients in all matters of procedure; but they cannot,
15
without a special power of attorney or express consent, enter into a compromise
agreement with the opposing party in full or partial discharge of a clients claim. Here, a reading of the joint affidavit signed by twelve (12) of the ninety-seven (97)
(Underscoring supplied) complainants (petitioners herein) would readily reveal that the affidavit was offered
as evidence not only for the signatories therein but for all of the complainants.
As regards private respondents position paper which bore the signatures of only six (These ninety-seven (97) individuals were previously identified during the
of them, appended to it was an Authority/Confirmation of Authority[45] signed by mandatory conference as the only complainants in the proceedings before the labor
the ninety one others conferring authority to their counsel to file RAB Case No. 06- arbiter) Moreover, the affidavit touched on the common interest of all of the
07-10316-95, entitled Winifredo Talite et al. v. San Miguel Corporation presently complainants as it supported their claim of the existence of an employer-employee
pending before the sala of Labor Arbiter Ray Alan Drilon at the NLRC Regional relationship between them and respondent SMC. Thus, the said affidavit was enough
Arbitration Branch No. VI in Bacolod City and appointing him as their retained to prove the claims of the rest of the complainants.[47] (Emphasis supplied,
counsel to represent them in the said case. underscoring in the original)

That there has been substantial compliance with the requirement on verification of In any event, SMC is reminded that the rules of evidence prevailing in courts of law
position papers under Section 3, Rule V of the 1990 NLRC Rules of Procedure[46] is or equity do not control proceedings before the Labor Arbiter. So Article 221 of the
not difficult to appreciate in light of the provision of Section 7, Rule V of the 1990 Labor Code enjoins:
NLRC Rules, now Section 9, Rule V of the 1999 NLRC Rules which reads:
ART. 221. Technical rules not binding and prior resort to amicable settlement. In any
Section 7. Nature of Proceedings. The proceedings before a Labor Arbiter shall be proceeding before the Commission or any of the Labor Arbiters, the rules of
non-litigious in nature. Subject to the requirements of due process, the technicalities evidence prevailing in courts of law or equity shall not be controlling and it is the
of law and procedure and the rules obtaining in the courts of law shall not strictly spirit and intention of this Code that the Commission and its members and the Labor
apply thereto. The Labor Arbiter may avail himself of all reasonable means to Arbiters shall use every and all reasonable means to ascertain the facts in each case
ascertain the facts of the controversy speedily, including ocular inspection and speedily and objectively and without regard to technicalities of law or procedure, all
examination of well-informed persons. (underscoring supplied) in the interest of due process. xxx

As regards private respondents Joint-Affidavit which is being assailed in view of the As such, their application may be relaxed to serve the demands of substantial
failure of some complainants to affix their signatures thereon, this Court quotes with justice.[48]
approval the appellate courts ratiocinations:
On the merits, the petition just the same fails.
A perusal of the Southern Cotabato Development Case would reveal that movant did
not quote the whole text of paragraph 5 on page 865 of 280 SCRA. The whole SMC insists that private respondents are the employees of Sunflower, an
paragraph reads: independent contractor. On the other hand, private respondents assert that Sunflower
is a labor-only contractor.
Clearly then, as to those who opted to move for the dismissal of their complaints, or
did not submit their affidavits nor appear during trial and in whose favor no other Article 106 of the Labor Code provides:
independent evidence was adduced, no award for back wages could have been
validly and properly made for want of factual basis. There is no showing at all that ART. 106. Contractor or subcontracting. Whenever an employer enters into a
any of the affidavits of the thirty-four (34) complainants were offered as evidence for contract with another person for the performance of the formers work, the employees
those who did not submit their affidavits, or that such affidavits had any bearing at of the contractor and of the latters subcontractor, if any shall be paid in accordance
all on the rights and interest of the latter. In the same vein, private respondents with the provisions of this Code.
position paper was not of any help to these delinquent complainants.
In the event that the contractor or subcontractor fails to pay the wages of his
The implication is that as long as the affidavits of the complainants were offered as employees in accordance with this Code, the employer shall be jointly and severally
evidence for those who did not submit theirs, or the affidavits were material and liable with his contractor or subcontractor to such employees to the extent of the
relevant to the rights and interest of the latter, such affidavits may be sufficient to work performed under the contract, in the same manner and extent that he is liable to
establish the claims of those who did not give their affidavits. employees directly employed by him.
16
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the The foregoing provisions shall be without prejudice to the application of Article 248
contracting out of labor to protect the rights of workers established under the Code. (c) of the Labor Code, as amended.
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 Substantial capital or investment refers to capital stocks and subscribed capitalization
contracting and determine who among the parties involved shall be considered the in the case of corporations, tools, equipment, implements, machineries and work
employer for purposes of this Code, to prevent any violation or circumvention of any premises, actually and directly used by the contractor or subcontractor in the
provision of this Code. performance or completion of the job, work or service contracted out.

There is labor-only contracting where the person supplying workers to an employer The right to control shall refer to the right reserved to the person for whom the
does not have substantial capital or investment in the form of tools, equipment, services of the contractual workers are performed, to determine not only the end to
machineries, work premises, among others, and the workers recruited and placed by be achieved, but also the manner and means to be used in reaching that end.
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 The test to determine the existence of independent contractorship is whether one
considered merely as an agent of the employer who shall be responsible to the claiming to be an independent contractor has contracted to do the work according to
workers in the same manner and extent as if the latter were directly employed by his own methods and without being subject to the control of the employer, except
him. only as to the results of the work.[49]

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as In legitimate labor contracting, the law creates an employer-employee relationship
amended by Department Order No. 18, distinguishes between legitimate and labor- for a limited purpose, i.e., to ensure that the employees are paid their wages. The
only contracting: principal employer becomes jointly and severally liable with the job contractor, only
for the payment of the employees wages whenever the contractor fails to pay the
Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate same. Other than that, the principal employer is not responsible for any claim made
contracting, there exists a trilateral relationship under which there is a contract for a by the employees.[50]
specific job, work or service between the principal and the contractor or
subcontractor, and a contract of employment between the contractor or subcontractor In labor-only contracting, the statute creates an employer-employee relationship for a
and its workers. Hence, there are three parties involved in these arrangements, the comprehensive purpose: to prevent a circumvention of labor laws. The contractor is
principal which decides to farm out a job or service to a contractor or subcontractor, considered merely an agent of the principal employer and the latter is responsible to
the contractor or subcontractor which has the capacity to independently undertake the employees of the labor-only contractor as if such employees had been directly
the performance of the job, work or service, and the contractual workers engaged by employed by the principal employer.[51]
the contractor or subcontractor to accomplish the job, work or service.
The Contract of Services between SMC and Sunflower shows that the parties clearly
Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis disavowed the existence of an employer-employee relationship between SMC and
hereby declared prohibited. For this purpose, labor-only contracting shall refer to an private respondents. The language of a contract is not, however, determinative of the
arrangement where the contractor or subcontractor merely recruits, supplies or places parties relationship; rather it is the totality of the facts and surrounding circumstances
workers to perform a job, work or service for a principal, and any of the following of the case.[52] A party cannot dictate, by the mere expedient of a unilateral
elements are present: declaration in a contract, the character of its business, i.e., whether as labor-only
contractor or job contractor, it being crucial that its character be measured in terms of
i) The contractor or subcontractor does not have substantial capital or investment and determined by the criteria set by statute.[53]
which relates to the job, work or service to be performed and the employees
recruited, supplied or placed by such contractor or subcontractor are performing SMC argues that Sunflower could not have been issued a certificate of registration as
activities which are directly related to the main business of the principal, or a cooperative if it had no substantial capital.[54]

ii) The contractor does not exercise the right to control over the performance of the While indeed Sunflower was issued Certificate of Registration No. IL0-875[55] on
work of the contractual employee. February 10, 1992 by the Cooperative Development Authority, this merely shows
17
that it had at least P2,000.00 in paid-up share capital as mandated by Section 5 of Furthermore, Sunflower did not carry on an independent business or undertake the
Article 14[56] of Republic Act No. 6938, otherwise known as the Cooperative Code, performance of its service contract according to its own manner and method, free
which amount cannot be considered substantial capitalization. from the control and supervision of its principal, SMC, its apparent role having been
merely to recruit persons to work for SMC.
What appears is that Sunflower does not have substantial capitalization or investment
in the form of tools, equipment, machineries, work premises and other materials to Thus, it is gathered from the evidence adduced by private respondents before the
qualify it as an independent contractor. labor arbiter that their daily time records were signed by SMC supervisors Ike
Puentebella, Joemel Haro, Joemari Raca, Erwin Tumonong, Edison Arguello, and
On the other hand, it is gathered that the lot, building, machineries and all other Stephen Palabrica, which fact shows that SMC exercised the power of control and
working tools utilized by private respondents in carrying out their tasks were owned supervision over its employees.[59] And control of the premises in which private
and provided by SMC. Consider the following uncontroverted allegations of private respondents worked was by SMC. These tend to disprove the independence of the
respondents in the Joint Affidavit: contractor.[60]

[Sunflower], during the existence of its service contract with respondent SMC, did More. Private respondents had been working in the aqua processing plant inside the
not own a single machinery, equipment, or working tool used in the processing plant. SMC compound alongside regular SMC shrimp processing workers performing
Everything was owned and provided by respondent SMC. The lot, the building, and identical jobs under the same SMC supervisors.[61] This circumstance is another
working facilities are owned by respondent SMC. The machineries and equipments indicium of the existence of a labor-only contractorship.[62]
(sic) like washer machine, oven or cooking machine, sizer machine, freezer, storage,
and chilling tanks, push carts, hydrolic (sic) jack, tables, and chairs were all owned And as private respondents alleged in their Joint Affidavit which did not escape the
by respondent SMC. All the boxes, trays, molding pan used in the processing are observation of the CA, no showing to the contrary having been proffered by SMC,
also owned by respondent SMC. The gloves and boots used by the complainants Sunflower did not cater to clients other than SMC,[63] and with the closure of SMCs
were also owned by respondent SMC. Even the mops, electric floor cleaners, brush, Bacolod Shrimp Processing Plant, Sunflower likewise ceased to exist. This Courts
hoose (sic), soaps, floor waxes, chlorine, liquid stain removers, lysol and the like ruling in San Miguel Corporation v. MAERC Integrated Services, Inc.[64] is thus
used by the complainants assigned as cleaners were all owned and provided by instructive.
respondent SMC.
xxx Nor do we believe MAERC to have an independent business. Not only was it set
Simply stated, third-party respondent did not own even a small capital in the form of up to specifically meet the pressing needs of SMC which was then having labor
tools, machineries, or facilities used in said prawn processing problems in its segregation division, none of its workers was also ever assigned to
any other establishment, thus convincing us that it was created solely to service the
xxx needs of SMC. Naturally, with the severance of relationship between MAERC and
SMC followed MAERCs cessation of operations, the loss of jobs for the whole
The alleged office of [Sunflower] is found within the confines of a small carinderia MAERC workforce and the resulting actions instituted by the workers.[65]
or refreshment (sic) owned by the mother of the Cooperative Chairman Roy Asong. (Underscoring supplied)

xxx In said . . . office, the only equipment used and owned by [Sunflower] was a All the foregoing considerations affirm by more than substantial evidence the
typewriter. [57] existence of an employer-employee relationship between SMC and private
respondents.
And from the job description provided by SMC itself, the work assigned to private
respondents was directly related to the aquaculture operations of SMC. Undoubtedly, Since private respondents who were engaged in shrimp processing performed tasks
the nature of the work performed by private respondents in shrimp harvesting, usually necessary or desirable in the aquaculture business of SMC, they should be
receiving and packing formed an integral part of the shrimp processing operations of deemed regular employees of the latter[66] and as such are entitled to all the benefits
SMC. As for janitorial and messengerial services, that they are considered directly and rights appurtenant to regular employment.[67] They should thus be awarded
related to the principal business of the employer[58] has been jurisprudentially differential pay corresponding to the difference between the wages and benefits
recognized. given them and those accorded SMCs other regular employees.

18
Respecting the private respondents who were tasked with janitorial and messengerial
duties, this Court quotes with approval the appellate courts ruling thereon: Retrenchment is a management prerogative consistently recognized and affirmed by
this Court. It is, however, subject to faithful compliance with the substantive and
Those performing janitorial and messengerial services however acquired regular procedural requirements laid down by law and jurisprudence.[72]
status only after rendering one-year service pursuant to Article 280 of the Labor
Code. Although janitorial and messengerial services are considered directly related For retrenchment to be considered valid the following substantial requirements must
to the aquaculture business of SMC, they are deemed unnecessary in the conduct of be met: (a) the losses expected should be substantial and not merely de minimis in
its principal business; hence, the distinction (See Coca Cola Bottlers Phils., Inc. v. extent; (b) the substantial losses apprehended must be reasonably imminent such as
NLRC, 307 SCRA 131, 136-137 and Philippine Bank of Communications v. NLRC, can be perceived objectively and in good faith by the employer; (c) the retrenchment
supra, p. 359).[68] must be reasonably necessary and likely to effectively prevent the expected losses;
and (d) the alleged losses, if already incurred, and the expected imminent losses
The law of course provides for two kinds of regular employees, namely: (1) those sought to be forestalled, must be proved by sufficient and convincing evidence.[73]
who are engaged to perform activities which are usually necessary or desirable in the
usual business or trade of the employer; and (2) those who have rendered at least one In the discharge of these requirements, it is the employer who has the onus, being in
year of service, whether continuous or broken, with respect to the activity in which the nature of an affirmative defense.[74]
they are employed.[69]
Normally, the condition of business losses is shown by audited financial documents
As for those of private respondents who were engaged in janitorial and messengerial like yearly balance sheets, profit and loss statements and annual income tax returns.
tasks, they fall under the second category and are thus entitled to differential pay and The financial statements must be prepared and signed by independent auditors failing
benefits extended to other SMC regular employees from the day immediately which they can be assailed as self-serving documents.[75]
following their first year of service.[70]
In the case at bar, company losses were duly established by financial documents
Regarding the closure of SMCs aquaculture operations and the consequent audited by Joaquin Cunanan & Co. showing that the aquaculture operations of SMCs
termination of private respondents, Article 283 of the Labor Code provides: Agribusiness Division accumulated losses amounting to P145,848,172.00 in 1992
resulting in the closure of its Calatrava Aquaculture Center in Negros Occidental,
ART. 283. Closure of establishment and reduction of personnel. The employer may P11,393,071.00 in 1993 and P80,325,608.00 in 1994 which led to the closure of its
also terminate the employment of any employee due to the installation of labor San Fernando Shrimp Processing Plant in Pampanga and the Bacolod Shrimp
saving devices, redundancy, retrenchment to prevent losses or the closing or Processing Plant in 1995.
cessation of operation of the establishment or undertaking unless the closing is for
the purpose of circumventing the provisions of this Title, by serving a written notice SMC has thus proven substantial business reverses justifying retrenchment of its
on the workers and the Department of Labor and Employment at least one (1) month employees.
before the intended date thereof. In case of termination due to the installation of
labor saving devices or redundancy, the worker affected thereby shall be entitled to a For termination due to retrenchment to be valid, however, the law requires that
separation pay equivalent to at least his one (1) month pay or to at least one (1) written notices of the intended retrenchment be served by the employer on the
month pay for every year of service, whichever is higher. In case of retrenchment to worker and on the DOLE at least one (1) month before the actual date of the
prevent losses and in cases of closures or cessation of operations of establishment or retrenchment,[76] in order to give employees some time to prepare for the eventual
undertaking not due to serious business losses or financial reverses, the separation loss of their jobs, as well as to give DOLE the opportunity to ascertain the verity of
pay shall be equivalent to one (1) month pay or to at least one-half (1/2) month pay the alleged cause of termination.[77]
for every year of service, whichever is higher. A fraction of at least six (6) months
shall be considered one (1) whole year. (Underscoring supplied) Private respondents, however, were merely verbally informed on September 10,
1995 by SMC Prawn Manager Ponciano Capay that effective the following day or on
In the case at bar, a particular department under the SMC group of companies was September 11, 1995, they were no longer to report for work as SMC would be
closed allegedly due to serious business reverses. This constitutes retrenchment by, closing its operations.[78]
and not closure of, the enterprise or the company itself as SMC has not totally ceased
operations but is still very much an on-going and highly viable business concern.[71]
19
Where the dismissal is based on an authorized cause under Article 283 of the Labor Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are
Code but the employer failed to comply with the notice requirement, the sanction hereby ORDERED to jointly and severally pay each private respondent differential
should be stiff as the dismissal process was initiated by the employers exercise of his pay from the time they became regular employees up to the date of their termination;
management prerogative, as opposed to a dismissal based on a just cause under separation pay equivalent to at least one (1) month pay or to at least one-half month
Article 282 with the same procedural infirmity where the sanction to be imposed pay for every year of service, whichever is higher, as mandated by Article 283 of the
upon the employer should be tempered as the dismissal process was, in effect, Labor Code or the separation pay awarded by SMC to other regular SMC employees
initiated by an act imputable to the employee.[79] that were terminated as a result of the retrenchment, depending on which is most
beneficial to private respondents; and ten percent (10%) attorneys fees based on the
In light of the factual circumstances of the case at bar, this Court awards P50,000.00 herein modified award.
to each private respondent as nominal damages.
Petitioner San Miguel Corporation is further ORDERED to pay each private
The grant of separation pay as an incidence of termination of employment due to respondent the amount of P50,000.00, representing nominal damages for non-
retrenchment to prevent losses is a statutory obligation on the part of the employer compliance with statutory due process.
and a demandable right on the part of the employee. Private respondents should thus
be awarded separation pay equivalent to at least one (1) month pay or to at least one- The award of backwages is DELETED.
half month pay for every year of service, whichever is higher, as mandated by
Article 283 of the Labor Code or the separation pay awarded by SMC to other SO ORDERED.
regular SMC employees that were terminated as a result of the retrenchment,
depending on which is most beneficial to private respondents.

Considering that private respondents were not illegally dismissed, however, no


backwages need be awarded. It is well settled that backwages may be granted only
when there is a finding of illegal dismissal.[80] The appellate court thus erred in
awarding backwages to private respondents upon the authority of Bustamante v.
NLRC,[81] what was involved in that case being one of illegal dismissal.

With respect to attorneys fees, in actions for recovery of wages or where an


employee was forced to litigate and thus incurred expenses to protect his rights and
interests,[82] a maximum of ten percent (10%) of the total monetary award[83] by
way of attorneys fees is justifiable under Article 111 of the Labor Code,[84] Section
8, Rule VIII, Book III of its Implementing Rules,[85] and paragraph 7, Article 2208
of the Civil Code.[86] Although an express finding of facts and law is still necessary
to prove the merit of the award, there need not be any showing that the employer
acted maliciously or in bad faith when it withheld the wages. There need only be a
showing that the lawful wages were not paid accordingly, as in this case.[87]

Absent any evidence showing that Sunflower has been dissolved in accordance with
law, pursuant to Rule VIII-A, Section 19[88] of the Omnibus Rules Implementing
the Labor Code, Sunflower is held solidarily liable with SMC for all the rightful
claims of private respondents.

WHEREFORE, the petition is DENIED. The assailed Decision dated February 7,


2001 and Resolution dated July 11, 2001 of the Court of Appeals are AFFIRMED
with MODIFICATION.

20
G.R. No. 161115. November 30, 2006.* and binding effect of a final judgment within the purview of the doctrine of res
judicata.The Orders of DOLE Regional Director Parel, dated 19 September 1993,
DOLE PHILIPPINES, INC., petitioner, vs. MEDEL ESTEVA, HENRY SILVA, and of DOLE Undersecretary Trajano, dated 15 September 1994, consistently found
GILBERT CABILAO, LORENZO GAQUIT, DANIEL PABLO, EDWIN CAMILO, that CAMPCO was engaging in labor-only contracting. Such finding constitutes res
BENJAMIN SAKILAN, RICHARD PENUELA, ARMANDO PORRAS, EDUARDO judicata in the case filed by the respondents with the NLRC. It is well-established in
FALDAS, NILO DONDOYANO, MIGUEL DIAZ, ROMEL BAJO, ARTEMIO this jurisdiction that the decisions and orders of administrative agencies, rendered
TENERIFE, EDDIE LINAO, JERRY LIGTAS, SAMUEL RAVAL, WILFREDO
pursuant to their quasi-judicial authority, have upon their finality, the force and
BLANDO, LORENZO MONTERO, JR., JAIME TESIPAO, GEORGE DERAL,
ERNESTO ISRAEL, JR., AGAPITO ESTOLOGA, JOVITO DAGUIO, ARSENIO binding effect of a final judgment within the purview of the doctrine of res judicata.
LEONCIO, MARLON BLANDO, JOSE OTELO CASPILLO, ARNOLD LIZADA, The rule of res judicata, which forbids the reopening of a matter once judicially
JERRY DEYPALUBOS, STEVEN MADULA, ROGELIO CABULAO, JR., ALVIN determined by competent authority, applies as well to the judicial and quasi-judicial
COMPOC, EUGENIO BRITANA, RONNIE GUELOS, EMMANUEL JIMENA, acts of public, executive or administrative officers and boards acting within their
GERMAN JAVA, JESUS MEJICA, JOEL INVENTADO, DOMINGO JABULGO, jurisdiction as to the judgments of courts having general judicial powers. The orderly
RAMIL ENAD, RAYMUNDO YAMON, RITCHIE MELENDRES, JACQUEL ORGE, administration of justice requires that the judgments or resolutions of a court or
RAMON BARCELONA, ERWIN ESPIA, NESTOR DELIDELI, JR., ALLAN GANE, quasi-judicial body must reach a point of finality set by the law, rules and
ROMEO PORRAS, RITCHIE BOCOG, JOSELITO ACEBES, DANNY TORRES, regulations, so as to write finis to disputes once and for all. This is a fundamental
JIMMY NAVARRO, RALPH PEREZ, SONNY SESE, RONALD RODRIQUES,
principle in the Philippine justice system, without which there would be no end to
ROBERTO ALLANEC, ERNIE GIGANTANA, NELSON SAMSON, REDANTE
DAVILA, EDDIE BUSLIG, ALLAN PINEDA, JESUS BELGERA, VICENTE litigations.
LABISTE, CARMENCITA FELISILDA, GEORGE DERLA, RUBEN TORMON, NEIL
TAJALE, ORLANDO ESPENILLA, RITCHEL MANEJAR, JOEL QUINTANA, Labor Law; Labor-only Contracting; Criteria to determine the existence of an
ERWIN ALDE, JOEL CATALAN, ELMER TIZON, ALLAN ESPADA, EUGENE independent and permissible contractor relationship.The existence of an
BRETANA, RAMIL ENAD, RENE INGALLA, STEVEN MADULLA, RANDY independent and permissible contractor relationship is generally established by the
REBUTAZO, NEIL BAGATILLA, ARSENIO LEONCIO, ROLANDO VILLEGAS and following criteria: whether or not the contractor is carrying on an independent
JUSLIUS TESIPAO, herein represented by MEDEL ESTEVA, Authorized business; the nature and extent of the work; the skill required; the term and duration
Representative, respondents. 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
Remedial Law; Appeals; The mode for judicial review over decisions of the NLRC respect to the hiring, firing and payment of the contractors workers; the control of
is by a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure; the premises; the duty to supply the premises tools, appliances, materials and labor;
A petition for certiorari of a decision or resolution of the NLRC should first be filed and the mode, manner and terms of payment.
with the Court of Appeals.It has long been settled in the landmark case of St. Same; Same; Court concludes that respondents are regular employees of
Martin Funeral Home v. NLRC, that the mode for judicial review over decisions of petitioner.The declaration that CAMPCO is indeed engaged in the prohibited
the NLRC is by a petition for certiorari under Rule 65 of the revised Rules of Civil activities of labor-only contracting, then consequently, an employer-employee
Procedure. The different modes of appeal, namely, writ of error (Rule 41), petition relationship is deemed to exist between petitioner and respondents, since CAMPCO
for review (Rules 42 and 43), and petition for review on certiorari (Rule 45), cannot shall be considered as a mere agent or intermediary of petitioner. Since respondents
be availed of because there is no provision on appellate review of NLRC decisions in are now recognized as employees of petitioner, this Court is tasked to determine the
the Labor Code, as amended. Although the same case recognizes that both the Court nature of their employment. In consideration of all the attendant circumstances in
of Appeals and the Supreme Court have original jurisdiction over such petitions, it this case, this Court concludes that respondents are regular employees of petitioner.
has chosen to impose the strict observance of the hierarchy of courts. Hence, a
petition for certiorari of a decision or resolution of the NLRC should first be filed Same; Same; The activities performed by respondents are necessary or desirable to
with the Court of Appeals; direct resort to the Supreme Court shall not be allowed the usual business of petitioner.In the instant Petition, petitioner is engaged in the
unless the redress desired cannot be obtained in the appropriate courts or where manufacture and production of pineapple products for export. Respondents rendered
exceptional and compelling circumstances justify an availment of a remedy within services as processing attendant, feeder of canned pineapple and pineapple
and calling for the exercise by the Supreme Court of its primary jurisdiction. processing, nata de coco processing attendant, fruit cocktail processing attendant,
and etc., functions they performed alongside regular employees of the petitioner.
Same; Same; Res Judicata; The decisions and orders of administrative agencies, There is no doubt that the activities performed by respondents are necessary or
rendered pursuant to their quasi-judicial authority, have upon their finality, the force desirable to the usual business of petitioner.
21
Same; Same; Security of Tenure; Respondents, as regular employees of petitioner, 1.2 Perform odd jobs as may be assigned.
are entitled to security of tenure; Petitioners acts of placing some of the respondents
on stay home status and not giving them work assignments for more than six 2. That both parties shall observe the following terms and conditions as stipulated, to
months were already tantamount to constructive and illegal dismissal. wit:
Respondents, as regular employees of petitioner, are entitled to security of tenure.
They could only be removed based on just and authorized causes as provided for in 2.1 CONTRACTOR must carry on an independent legitimate business, and must
the Labor Code, as amended, and after they are accorded procedural due process. comply with all the pertinent laws of the government both local and national;
Therefore, petitioners acts of placing some of the respondents on stay home status
and not giving them work assignments for more than six months were already 2.2 CONTRACTOR must provide all hand tools and equipment necessary in the
tantamount to constructive and illegal dismissal. performance of their work.

CHICO-NAZARIO, J.: However, the COMPANY may allow the use of its fixed equipment as a casual
facility in the performance of the contract;
Before this Court is a Petition for Review on Certiorari under Rule 45 of the revised
Rules of Civil Procedure seeking the reversal of the Decision,[1] dated 20 May 2002, 2.3 CONTRACTOR must comply with the attached scope of work,
and the Amended Decision,[2] dated 27 November 2003, both rendered by the Court specifications, and GMP and safety practices of the company;
of Appeals in CA-G.R. SP No. 63405, which declared herein petitioner Dole
Philippines, Inc. as the employer of herein respondents, Medel Esteva and 86 others; 2.4 CONTRACTOR must undertake the contract work under the following
found petitioner guilty of illegal dismissal; and ordered petitioner to reinstate manner:
respondents to their former positions and to pay the latter backwages.
a. on his own account;
The antecedent facts of the case are recounted as follows:
b. under his own responsibility;
Petitioner is a corporation duly organized and existing in accordance with Philippine
laws, engaged principally in the production and processing of pineapple for the c. according to his manner and method, free from the control and direction of the
export market.[3] Its plantation is located in Polomolok, South Cotabato.[4] company in all matters connected with the performance of the work except as to the
result thereof;
Respondents are members of the Cannery Multi-Purpose Cooperative (CAMPCO).
CAMPCO was organized in accordance with Republic Act No. 6938, otherwise 3. CONTRACTOR must pay the prescribed minimum wage, remit SSS/MEDICARE
known as the Cooperative Code of the Philippines, and duly-registered with the premiums to proper government agencies, and submit copies of payroll and proof of
Cooperative Development Authority (CDA) on 6 January 1993.[5] Members of SSS/MEDICARE remittances to the COMPANY;
CAMPCO live in communities surrounding petitioners plantation and are relatives of
petitioners employees. 4. This contract shall be for a specific period of Six (6) months from July 1 to
December 31, 1993; x x x.
On 17 August 1993, petitioner and CAMPCO entered into a Service Contract.[6]
The Service Contract referred to petitioner as the Company, while CAMPCO was the
Contractor. Relevant portions thereof read as follows Pursuant to the foregoing Service Contract, CAMPCO members rendered services to
petitioner. The number of CAMPCO members that report for work and the type of
1. That the amount of this contract shall be or shall not exceed TWO HUNDRED service they performed depended on the needs of petitioner at any given time.
TWENTY THOUSAND ONLY (P220,000.00) PESOS, terms and conditions of Although the Service Contract specifically stated that it shall only be for a period of
payment shall be on a per job basis as specified in the attached schedule of rates; the six months, i.e., from 1 July to 31 December 1993, the parties had apparently
CONTRACTOR shall perform the following services for the COMPANY; extended or renewed the same for the succeeding years without executing another
written contract. It was under these circumstances that respondents came to work for
1.1 Assist the COMPANY in its daily operations; petitioner.

22
Investigation by DOLE From the foregoing findings and evaluation of the activities of Adventurers Multi
Purpose Cooperative, Human Resource Multi Purpose Cooperative and Cannery
Concomitantly, the Sangguniang Bayan of Polomolok, South Cotabato, passed Multi Purpose Cooperative, this Office finds and so holds that they are engaging in
Resolution No. 64, on 5 May 1993, addressed to then Secretary Ma. Nieves R. Labor Only Contracting Activities as defined under Section 9, Rule VIII, Book III of
Confessor of the Department of Labor and Employment (DOLE), calling her the rules implementing the Labor Code of the Philippines, as amended which we
attention to the worsening working conditions of the petitioners workers and the quote:
organization of contractual workers into several cooperatives to replace the
individual labor-only contractors that used to supply workers to the petitioner. Section 9 Labor Only Contracting a) Any person who undertakes to supply workers
Acting on the said Resolution, the DOLE Regional Office No. XI in Davao City to an employer shall be deemed to be engaged in labor-only contracting where such
organized a Task Force that conducted an investigation into the alleged labor-only person:
contracting activities of the cooperatives in Polomolok.[7]
1) Does not have substantial capital or investment in the form of tools, equipment,
On 24 May 1993, the Senior Legal Officer of petitioner wrote a letter addressed to machineries, work premises and other materials; and
Director Henry M. Parel of DOLE Regional Office No. XI, supposedly to correct the
misinformation that petitioner was involved in labor-only contracting, whether with a 2) The workers recruited and placed by such person are performing activities which
cooperative or any private contractor. He further stated in the letter that petitioner are directly related to the principal business or operation of the employer to which
was not hiring cooperative members to replace the regular workers who were workers are habitually employed.
separated from service due to redundancy; that the cooperatives were formed by the
immediate dependents and relatives of the permanent workers of petitioner; that b) Labor-only contracting as defined herein is hereby prohibited and the person
these cooperatives were registered with the CDA; and that these cooperatives were acting as contractor shall be considered merely as an agent or intermediary of the
authorized by their respective constitutions and by-laws to engage in the job employer who shall be responsible to the workers in the same manner and extent as
contracting business.[8] if the latter were directly employed by him.

The Task Force submitted a report on 3 June 1993 identifying six cooperatives that WHEREFORE, premises considered, ADVENTURERS MULTI PURPOSE
were engaged in labor-only contracting, one of which was CAMPCO. The DOLE COOPERATIVE, HUMAN RESOURCE MULTI PURPOSE COOPERATIVE and
Regional Office No. XI held a conference on 18 August 1993 wherein the CANNERY MULTI PURPOSE COOPERATIVE are hereby declared to be engaged
representatives of the cooperatives named by the Task Force were given the in labor only contracting which is a prohibited activity. The same cooperatives are
opportunity to explain the nature of their activities in relation to petitioner. therefore ordered to cease and desist from further engaging in such activities.
Subsequently, the cooperatives were required to submit their position papers and
other supporting documents, which they did on 30 August 1993. Petitioner likewise The three (3) other cooperatives, namely Polomolok Skilled Workers Multi Purpose
submitted its position paper on 15 September 1993.[9] Cooperative, Unified Engineering and Manpower Service Multi Purpose Cooperative
and Tibud sa Katibawasan Multi Purpose Cooperative whose activities may not be
On 19 October 1993, Director Parel of DOLE Regional Office No. XI issued an directly related to the principal business of DOLE Philippines, Inc. are also advised
Order[10] in which he made the following findings not to engage in labor only contracting with the company.

Records submitted to this Office show that the six (6) aforementioned cooperatives
are all duly registered with the Cooperative Development Authority (CDA). These All the six cooperatives involved appealed the afore-quoted Order to the Office of
cooperatives were also found engaging in different activities with DOLE the DOLE Secretary, raising the sole issue that DOLE Regional Director Director
PHILIPPINES, INC. a company engaged in the production of pineapple and export Parel committed serious error of law in directing the cooperatives to cease and desist
of pineapple products. Incidentally, some of these cooperatives were also found from engaging in labor-only contracting. On 15 September 1994, DOLE
engaging in activities which are directly related to the principal business or Undersecretary Cresencio B. Trajano, by the authority of the DOLE Secretary,
operations of the company. This is true in the case of the THREE (3) Cooperatives, issued an Order[11] dismissing the appeal on the basis of the following ratiocination
namely; Adventurers Multi Purpose Cooperative, Human Resource Multi Purpose
Cooperative and Cannery Multi Purpose Cooperative. The appeal is devoid of merit.

23
The Regional Director has jurisdiction to issue a cease and desist order as provided by the Secretary of Labor and Employment in the amount equivalent to the monetary
by Art. 106 of the Labor Code, as amended, to wit: award in the order appealed from.

Art. 106. Contractor or subcontractor. x x x The records reveal that in the course of the inspection of the premises of Dolefil, it
was found out that the activities of the members of the [cooperatives] are necessary
xxxx and desirable in the principal business of the former; and that they do not have the
necessary investment in the form of tools and equipments. It is worthy to note that
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the the cooperatives did not deny that they do not have enough capital in the form of
contracting out of labor to protect the rights of workers established under this Code. tools and equipment. Under the circumstances, it could not be denied that the
In so prohibiting or restricting, he may make appropriate distinctions between labor [cooperatives] are considered as labor-only contractors in relation to the business
only contracting and job contracting as well as differentiations within these types of operation of DOLEFIL, INC.
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 Thus, Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the Labor
provision of this Code (Emphasis supplied) Code, provides that:

There is labor-only contracting where the person supplying workers to an employer Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to
does not have substantial capital or investment in the forms of tools, equipment, an employer shall be deemed to be engaged in labor-only contracting where such
machineries, work premises, among others, and the workers recruited and placed by person:
such person are performing activities which are directly related to the principal
business of the employer. In such cases, the person or the intermediary shall be (1) Does not have substantial capital or investment in the form of tools, equipment,
considered merely as an agent of the employer who shall be responsible to the machineries, work premises and other materials; and
workers in the same manner and extent as if the latter were directly employed by
him. (2) The workers recruited and placed by such person are performing activities which
are directly related to the principal business or operations of the employer in which
in relation to Article 128(b) of the Labor Code, as amended by Republic Act No. workers are habitually employed.
7730, which reads:
(b) Labor-only contracting as defined herein is hereby prohibited and the person
Art. 128. Visitorial and Enforcement Power. acting as a contractor shall be considered merely as an agent or intermediary of the
employer who shall be responsible to the workers in the same manner and extent as
b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the if the latter were directly employed by him.
contrary, and in cases where the relationship of employer-employee still exists, the
Secretary of Labor and Employment or his duly authorized representatives shall have xxxx
the power to issue compliance orders to give effect to the labor standards provisions
of this Code and other labor legislation based on the findings of labor employment Violation of the afore-quoted provision is considered a labor standards violation and
and enforcement officers or industrial safety engineers made in the course of thus, within the visitorial and enforcement powers of the Secretary of Labor and
inspection. The Secretary or his duly authorized representatives shall issue writs of Employment (Art. 128).
execution to the appropriate authority for the enforcement of their orders, except in
cases where the employer contests the findings of the labor employment and The Regional Directors authority to issue a cease and desist order emanates from
enforcement officer and raises issues supported by documentary proof which were Rule I, Section 3 of the Rules on Disposition of Labor Standard Cases in the
not considered in the course of inspection. Regional Offices, to wit:

An order issued by the duly authorized representative of the Secretary of Labor and Section 3. Authorized representative of the Secretary of Labor and Employment. The
Employment under this article may be appealed to the latter. In case said order Regional Directors shall be the duly authorized representatives of the Secretary of
involves a monetary award, an appeal by the employer may be perfected only upon Labor and Employment in the administration and enforcement of the labor standards
the posting of a cash bond issued by a reputable bonding company duly accredited within their respective territorial jurisdiction.
24
The power granted under Article 106 of the Labor Code to the Secretary of Labor The [respondents] were assigned at the Industrial Department of respondent Dolefil.
and Employment to restrict or prohibit the contracting out of labor to protect the All tools, implements and machineries used in performing their task such as: can
rights of workers established under the Code is delegated to the Regional Directors processing attendant, feeder of canned pineapple at pineapple processing, nata de
by virtue of the above-quoted provision. coco processing attendant, fruit cocktail processing attendant, and etc. were provided
by Dolefil. The cooperative does not have substantial capital and does not provide
The reason why labor-only contracting is prohibited under the Labor Code is that it the [respondents] with the necessary tools to effectively perform their assigned task
encourages circumvention of the provisions of the Labor Code on the workers right as the same are being provided by Dolefil.
to security of tenure and to self-organization.
The training and instructions received by the [respondents] were provided by Dolefil.
WHEREFORE, the respondents Appeal is hereby DISMISSED for lack of merit. Before any of the [respondents] will be allowed to work, he has to undergo and pass
The Order of the Regional Director, Regional Office No. XI, Davao City, is the training prescribed by Dolefil. As a matter of fact, the trainers are employees of
AFFIRMED. Dolefil.

The [respondents] perform their assigned task inside the premises of Dolefil. At the
After the motion for reconsideration of the foregoing Order was denied, no further job site, they were given specific task and assignment by Dolefils supervisors
motion was filed by the parties, and the Order, dated 15 September 1994, of DOLE assigned to supervise the works and efficiency of the complainants. Just like the
Undersecretary Trajano became final and executory. A Writ of Execution[12] was regular employees of Dolefil, [respondents] were subjected to the same rules and
issued by DOLE Regional Office No. XI only on 27 July 1999, years after the regulations observe [sic] inside company premises and to some extent the rules
issuance of the order subject of the writ. The DOLE Regional Office No. XI was applied to the [respondents] by the company through its officers are even stricter.
informed that CAMPCO and two other cooperatives continued to operate at DOLE
Philippines, Inc. despite the cease and desist Order it had issued. It therefore The functions performed by the [respondents] are the same functions discharged by
commanded the Sheriff to proceed to the premises of CAMPCO and the two other the regular employees of Dolefil. In fact, at the job site, the [respondents] were
cooperatives and implement its Order dated 19 October 1993. mixed with the regular workers of Dolefil. There is no difference in so far as the job
performed by the regular workers of Dolefil and that of the [respondents].
Respondents Complaint before the NLRC
Some of the [respondents] were deprived of their employment under the scheme of
Respondents started working for petitioner at various times in the years 1993 and stay home status where they were advised to literally stay home and wait for further
1994, by virtue of the Service Contract executed between CAMPCO and petitioner. instruction to report anew for work. However, they remained in this condition for
All of the respondents had already rendered more than one year of service to more than six months. Hence, they were constructively or illegally dismissed.
petitioner. While some of the respondents were still working for petitioner, others
were put on stay home status on varying dates in the years 1994, 1995, and 1996 and
were no longer furnished with work thereafter. Together, respondents filed a Respondents thus argued that they should be considered regular employees of
Complaint,[13] on 19 December 1996, with the National Labor Relations petitioner given that: (1) they were performing jobs that were usually necessary and
Commission (NLRC), for illegal dismissal, regularization, wage differentials, desirable in the usual business of petitioner; (2) petitioner exercised control over
damages and attorneys fees. respondents, not only as to the results, but also as to the manner by which they
performed their assigned tasks; and (3) CAMPCO, a labor-only contractor, was
In their Position Paper,[14] respondents reiterated and expounded on the allegations merely a conduit of petitioner. As regular employees of petitioner, respondents
they previously made in their Complaint asserted that they were entitled to security of tenure and those placed on stay home
status for more than six months had been constructively and illegally dismissed.
Sometime in 1993 and 1994, [herein petitioner] Dolefil engaged the services of the Respondents further claimed entitlement to wage differential, moral damages, and
[herein respondents] through Cannery Multi-purpose Cooperative. A cooperative attorneys fees.
which was organized through the initiative of Dolefil in order to fill in the vacuum
created as a result of the dismissal of the regular employees of Dolefil sometime in In their Supplemental Position Paper,[15] respondents presented, in support of their
1990 to 1993. Complaint, the Orders of DOLE Regional Director Parel, dated 19 October 1993,
25
and DOLE Undersecretary Trajano, dated 15 September 1994, finding that Petitioner further averred that Department Order No. 10, amending the rules
CAMPCO was a labor-only contractor and directing CAMPCO to cease and desist implementing Books III and VI of the Labor Code, as amended, promulgated by the
from any further labor-only contracting activities. DOLE on 30 May 1997, explicitly recognized the arrangement between petitioner
and CAMPCO as permissible contracting and subcontracting, to wit
Petitioner, in its Position Paper[16] filed before the NLRC, denied that respondents
were its employees. Section 6. Permissible contracting and subcontracting. Subject to the conditions set
forth in Section 3(d) and (e) and Section 5 hereof, the principal may engage the
Petitioner explained that it found the need to engage external services to augment its services of a contractor or subcontractor for the performance of any of the following;
regular workforce, which was affected by peaks in operation, work backlogs,
absenteeism, and excessive leaves. It used to engage the services of individual (a) Works or services temporarily or occasionally needed to meet abnormal increase
workers for definite periods specified in their employment contracts and never in the demand of products or services, provided that the normal production capacity
exceeding one year. However, such an arrangement became the subject of a labor or regular workforce of the principal cannot reasonably cope with such demands;
case,[17] in which petitioner was accused of preventing the regularization of such
workers. The Labor Arbiter who heard the case, rendered his Decision[18] on 24 (b) Works or services temporarily or occasionally needed by the principal for
June 1994 declaring that these workers fell squarely within the concept of seasonal undertakings requiring expert or highly technical personnel to improve the
workers as envisaged by Article 280 of the Labor Code, as amended, who were hired management or operations of an enterprise;
by petitioner in good faith and in consonance with sound business practice; and
consequently, dismissing the complaint against petitioner. The NLRC, in its (c) Services temporarily needed for the introduction or promotion of new products,
Resolution,[19] dated 14 March 1995, affirmed in toto the Labor Arbiters Decision only for the duration of the introductory or promotional period;
and further found that the workers were validly and legally engaged by petitioner for
term employment, wherein the parties agreed to a fixed period of employment, (d) Works or services not directly related or not integral to the main business or
knowingly and voluntarily, without any force, duress or improper pressure being operation of the principal, including casual work, janitorial, security, landscaping,
brought to bear upon the employees and absent any other circumstance vitiating their and messengerial services, and work not related to manufacturing processes in
consent. The said NLRC Resolution became final and executory on 18 June 1996. manufacturing establishments;
Despite the favorable ruling of both the Labor Arbiter and the NLRC, petitioner
decided to discontinue such employment arrangement. Yet, the problem of petitioner (e) Services involving the public display of manufacturers products which does not
as to shortage of workforce due to the peaks in operation, work backlogs, involve the act of selling or issuance of receipts or invoices;
absenteeism, and excessive leaves, persisted. Petitioner then found a solution in the (f) Specialized works involving the use of some particular, unusual, or peculiar
engagement of cooperatives such as CAMPCO to provide the necessary additional skills, expertise, tools or equipment the performance of which is beyond the
services. competence of the regular workforce or production capacity of the principal; and

Petitioner contended that respondents were owners-members of CAMPCO; that (g) Unless a reliever system is in place among the regular workforce, substitute
CAMPCO was a duly-organized and registered cooperative which had already services for absent regular employees, provided that the period of service shall be
grown into a multi-million enterprise; that CAMPCO was engaged in legitimate job- coextensive with the period of absence and the same is made clear to the substitute
contracting with its own owners-members rendering the contract work; that under the employee at the time of engagement. The phrase absent regular employees includes
express terms and conditions of the Service Contract executed between petitioner those who are serving suspensions or other disciplinary measures not amounting to
(the principal) and CAMPCO (the contractor), the latter shall undertake the contract termination of employment meted out by the principal, but excludes those on strike
work on its own account, under its own responsibility, and according to its own where all the formal requisites for the legality of the strike have been prima facie
manner and method free from the control and direction of the petitioner in all matters complied with based on the records filed with the National Conciliation and
connected with the performance of the work, except as to the result thereof; and Mediation Board.
since CAMPCO held itself out to petitioner as a legitimate job contractor,
respondents, as owners-members of CAMPCO, were estopped from denying or
refuting the same. According to petitioner, the services rendered by CAMPCO constituted permissible
job contracting under the afore-quoted paragraphs (a), (c), and (g), Section 6 of
DOLE Department Order No. 10, series of 1997.
26
prerogatives. The free will of management to conduct its own business affairs to
After the parties had submitted their respective Position Papers, the Labor Arbiter achieve its purpose cannot be denied (Yuco Chemical Industries vs. Ministry of
promulgated its Decision[20] on 11 June 1999, ruling entirely in favor of petitioner, [L]abor, GR No. 75656, May 28, 1990).
ratiocinating thus
CAMPCO being engaged in legitimate contracting, cannot therefore declared [sic] as
After judicious review of the facts, narrated and supporting documents adduced by guilty of labor-only contracting which [herein respondents] want us to believe.
both parties, the undersigned finds [and] holds that CAMPCO is not engaged in
labor-only contracting. The second issue is likewise answered in the negative. The reason is plain and
simple[,] section 12 of Department [O]rder No. 10 states:
Had it not been for the issuance of Department Order No. 10 that took effect on June
22, 1997 which in the contemplation of Law is much later compared to the Order Section 12. Employee-employer relationship. Except in cases provided for in Section
promulgated by the Undersecretary Cresencio Trajano of Department of [L]abor and 13, 14, 15 & 17, the contractor or subcontractor shall be considered the employer of
Employment, the undersigned could safely declared [sic] otherwise. However, owing the contractual employee for purposes of enforcing the provisions of the Code.
to the principle observed and followed in legal practice that the later law or
jurisprudence controls, the reliance to Secretary Trajanos order is overturned. The Resolution of NLRC 5th division, promulgated on March 14, 1 1995 [sic]
categorically declares:
Labor-only contracting as amended by Department [O]rder No. 10 is defined in this
wise: Judging from the very nature of the terms and conditions of their hiring, the
Commission finds the complainants to have been engaged to perform work, although
Labor-only contracting is prohibited under this Rule is an arrangement where the necessary or desirable to the business of respondent company, for a definite period or
contractor or subcontractor merely recruits, supplied [sic] or places workers to what is community called TERM EMPLOYMENT. It is clear from the evidence and
perform a job, work or service for a principal, and the following elements are record that the nature of the business and operation of respondent company has its
present: peaks and valleys and therefore, it is not difficult to discern, inclement weather, or
high availment by regular workers of earned leave credits, additional workers
i) The contractor or sub-contractor does not have substantial capital or investment to categorized as casuals, or temporary, are needed to meet the exigencies. (Underlining
actually perform the job, work, or service under its own account & responsibility, in the original)
and
The validity of fixed-period employment has been consistently upheld by the
ii) The employees recruited, supplied or placed by such contractor or subcontractor Supreme [C]ourt in a long line of cases, the leading case of which is Brent School,
are performing activities which are directly related to the main business of the Inc. vs. Zamora & Alegre, GR No. 48494, February 5, 1990. Thus at the end of the
principal. contract the employer-employee relationship is terminated. It behooves upon us to
rule that herein complainants cannot be declared regular rank and file employees of
Verification of the records reveals that per Annexes J and K of [herein petitioner the [petitioner] company.
DolePhils] position paper, which are the yearly audited Financial Statement and
Balance Sheet of CAMPCO shows [sic] that it has more than substantial capital or Anent the third issue, [respondents] dismally failed to provide us the exact figures
investment in order to qualify as a legitimate job contractor. needed for the computation of their wage differentials. To simply alleged [sic] that
one is underpaid of his wages is not enough. No bill of particulars was submitted.
We likewise recognize the validity of the contract entered into and between Moreover, the Order of RTWPB Region XI, Davao City dated February 21, 1996
CAMPCO and [petitioner] for the former to assists [sic] the latter in its operations exempts [petitioner] company from complying Wage Order No. 04 [sic] in so far as
and in the performance of odd jobs such as the augmentation of regular manning such exemption applies only to workers who are not covered by the Collective
particularly during peaks in operation, work back logs, absenteeism and excessive Bargaining Agreement, for the period January 1 to December 31, 1995,. [sic] In so
leave availment of respondents regular employees. The rule is well-settled that labor far as [respondents] were not privies to the CBA, they were the workers referred to
laws discourage interference with an employers judgment in the conduct of his by RTWPBs Order. [H]ence, [respondents] claims for wage differentials are hereby
business. Even as the law is solicitors [sic] of the welfare of the employees, it must dismissed for lack of factual basis.
also protect the right of an employer to exercise what are clearly management
27
We find no further necessity in delving into the issues raised by [respondents] impossible or unjust. Department Order No. 10 refers to the ramification of some
regarding moral damages and attorneys fees for being moot and academic because of provisions of the Rules Implementing Articles 106 and 109 of the Labor Code,
the findings that CAMPCO does not engaged [sic] in labor-only contracting and that without substantially changing the definition of labor-only or job contracting.
[respondents] cannot be declared as regular employees of [petitioner].
Well-settled is the rule that to qualify as an independent job contractor, one has
WHEREFORE, premises considered, judgment is hereby rendered in the above- either substantial capital or investment in the form of tools, equipment and
entitled case, dismissing the complaint for lack of merit. machineries necessary to carry out his business (see Virginia Neri, et al. vs. NLRC,
et al., G.R. Nos. 97008-89, July 23, 1993). CAMPCO has admittedly a paid-up
capital of P4,562,470.25 and this is more than enough to qualify it as an independent
Respondents appealed the Labor Arbiters Decision to the NLRC, reiterating their job contractor, as aptly held by the Labor Arbiter.
position that they should be recognized as regular employees of the petitioner since
CAMPCO was a mere labor-only contractor, as already declared in the previous WHEREFORE, the appeal is DISMISSED for lack of merit and the appealed
Orders of DOLE Regional Director Parel, dated 19 October 1993, and DOLE decision is AFFIRMED.
Undersecretary Trajano, dated 15 September 1994, which already became final and
executory. The NLRC, in its Resolution,[21] dated 29 February 2000, dismissed the
appeal and affirmed the Labor Arbiters Decision, reasoning as follows Petition for Certiorari with the Court of Appeals

We find no merit in the appeal. Refusing to concede defeat, respondents filed with the Court of Appeals a Petition
for Certiorari under Rule 65 of the revised Rules of Civil Procedure, asserting that
The concept of conclusiveness of judgment under the principle of res judicata means the NLRC acted without or in excess of its jurisdiction and with grave abuse of
that where between the first case wherein judgment is rendered and the second case discretion amounting to lack of jurisdiction when, in its Resolution, dated 29
wherein such judgment is invoked, there is identity of parties, but there is no identity February 2000, it (1) ruled that CAMPCO was a bona fide independent job
of cause of action, the judgment is conclusive in the second case, only as to those contractor with substantial capital, notwithstanding the fact that at the time of its
matters actually and directly controverted and determined and not as to matters organization and registration with CDA, it only had a paid-up capital of P6,600.00;
merely involved therein (Viray, etc. vs. Marinas, et al., 49 SCRA 44). There is no and (2) refused to apply the doctrine of res judicata against petitioner. The Court of
denying that the order of the Department of Labor and Employment, Regional Office Appeals, in its Decision,[22] dated 20 May 2002, granted due course to respondents
No. XI in case No. RI100-9310-RI-355, which the complainants perceive to have Petition, and set aside the assailed NLRC Decision. Pertinent portions of the Court of
sealed the status of CAMPCO as labor-only contractor, proceeded from the visitorial Appeals Decision are reproduced below
and enforcement power of the Department Secretary under Article 128 of the Labor
Code. Acting on reports that the cooperatives, including CAMPCO, that operated In the case at bench, it was established during the proceedings before the [NLRC]
and offered services at [herein petitioner] company were engaging in labor-only that CAMPCO has a substantial capital. However, having a substantial capital does
contracting activities, that Office conducted a routinary inspection over the records not per se qualify CAMPCO as a job contractor. In order to be considered an
of said cooperatives and consequently, found the latter to be engaging in labor-only independent contractor it is not enough to show substantial capitalization or
contracting activities. This being so, [petitioner] company was not a real party-in- investment in the form of tools, equipment, machinery and work premises. The
interest in said case, but the cooperatives concerned. Therefore, there is no identity conjunction and, in defining what a job contractor is, means that aside from having a
of parties between said case and the present case which means that the afore-said substantial capital or investment in the form of tools, equipment, machineries, work
ruling of the DOLE is not binding and conclusive upon [petitioner] company. premise, and other materials which are necessary in the conduct of his business, the
contractor must be able to prove that it also carries on an independent business and
It is not correct, however, to say, as the Labor Arbiter did, that the afore-said ruling undertakes the contract work on his own account under his own responsibility
of the Department of Labor and Employment has been overturned by Department according to his own manner and method, free from the control and direction of his
Order No. 10. It is a basic principle that once a judgment becomes final it cannot be employer or principal in all matters connected with the performance of the work
disturbed, except for clerical errors or when supervening events render its execution except as to the results thereof. [Herein petitioner DolePhil] has failed to prove,
impossible or unjust (Sampaguita Garmens [sic] Corp. vs. NLRC, G. R. No. 102406, except for the substantial capital requirement, that CAMPCO has met the other
June 7, 1994). Verily, the subsequent issuance of Department Order No. 10 cannot requirements. It was not established that CAMPCO is engaged or carries on an
be construed as supervening event that would render the execution of said judgment independent business. In the performance of the respective tasks of workers
28
deployed by CAMPCO with [petitioner], it was not established that CAMPCO
undertook the contract of work it entered with [petitioner] under its own account and CAMPCO was one of the cooperatives investigated by the Department of Labor and
its own responsibility. It is [petitioner] who provides the procedures to be followed Employment, Regional Office No. XI, Davao City, pursuant to Article 128 of the
by the workers in the performance of their assigned work. The workers deployed by Labor Code. It was one of the appellants before the Secretary of the Department of
CAMPCO to [petitioner] performed activities which are directly related to the Labor questioning the decision of the Regional Director of DOLE, Regional Office
principal business or operations of the employer in which workers are habitually No. XI, Davao City. This Court noted that in the proceedings therein, and as
employed since [petitioner] admitted that these workers were engaged to perform the mentioned in the decision rendered by Undersecretary Cresencio B. Trajano of the
job of other regular employees who cannot report for work. Department of Labor and Employment, Manila, regarding the cooperatives appeal
thereto, the parties therein, including Cannery Multi-Purpose Cooperative, submitted
Moreover, [NLRC] likewise gravely erred in not giving weight to the Order dated 19 to the said office their position papers and Articles of Cooperatives and Certification
October 1993 issued by the Office of the Secretary of the Department of Labor and of Registrations [sic] on 30 August 1993. This is a clear indicia that CAMPCO
Employment, through Undersecretary Cresencio Trajano, which affirmed the participated in the proceedings therein. [NLRC], therefore, committed grave abuse of
findings of the Department of Labor and Employment Regional Office, Region XI, discretion amounting to lack or excess of jurisdiction when it held that CAMPCO
Davao City that Cannery Multi-Purpose Cooperative is one of the cooperatives was never a party to the said case.
engaged in labor-only contracting activities.
[Petitioner] invokes Section 6 of Department Order No. 10, series of 1997, issued by
In the exercise of the visitorial and enforcement power of the Department of Labor the Department of Labor and Employment which took effect on 22 June 1997. The
and Employment, an investigation was conducted among the cooperatives organized said section identified the circumstances which are permissible job contracting, to
and existing in Polomolok, South Cotabato, relative to labor-only contracting wit:
activities. One of the cooperatives investigated was Cannery Multi-Purpose
Cooperative. After the investigation, the Department of Labor and Employment, xxxx
Regional Office No. XI, Davao City, through its Regional Director, issued the Order
dated 19 October 1993, stating: [Petitioners] main contention is based on the decisions rendered by the labor arbiter
and [NLRC] which are both anchored on Department Order No. 10 issued by the
WHEREFORE, premises considered, ADVENTURERS MULTI PURPOSE Department of Labor and Employment. The said department order provided for
COOPERATIVE, HUMAN RESOURCE MULTI PURPOSE SKILLED several flexible working relations between a principal, a contractor or subcontractor
COOPERATIVE and CANNERY MULTI PURPOSE COOPERATIVE are hereby and the workers recruited by the latter and deployed to the former. In the case at
declared to be engaged in labor only contracting which is a prohibited activity. The bench, [petitioner] posits that the engagement of [petitioner] of the workers deployed
same cooperatives are therefore ordered to cease and desist from further engaging in by CAMPCO was pursuant to D.O. No. 10, Series of 1997.
such activities.
However, on 8 May 2001, the Department of Labor and Employment issued
xxxx Department Order No. 3, series of 2001, revoking Department Order No. 10, series
of 1997. The said department order took effect on 29 May 2001.
SO ORDERED.
xxxx
Cannery Multi Purpose Cooperative, together with the other cooperatives declared as
engaged in labor-only contracting activity, appeal the above-findings to the Secretary Under Department Order No. 3, series of 2001, some contracting and outsourcing
of the Department of Labor and Employment. Their appeal was dismissed for lack of arrangements are no longer legitimate modes of employment relation. Having
merit as follows:: [sic] revoked Department Order No. 10, series of 1997, [petitioner] can no longer support
its argument by relying on the revoked department order.
xxxx
Considering that [CAMPCO] is not a job contractor, but one engaged in labor-only
[NLRC] held that CAMPCO, being not a real party-in interest in the above-case, the contracting, CAMPCO serves only as an agent of [petitioner] pursuant to par. (b) of
said ruling is not binding and conclusive upon [petitioner]. This Court, however, Sec. 9, Rule VIII, Book III of the Implementing Rules and Regulations of the Labor
finds the contrary. Code, stating,
29
Both petitioner and respondents filed their respective Motions for Reconsideration of
xxxx the foregoing Decision, dated 20 May 2002, prompting the Court of Appeals to
promulgate an Amended Decision on 27 November 2003, in which it ruled in this
However, the Court cannot declare that [herein respondents] are regular employees wise:
of [petitioner]. x x x
This court examined again the documentary evidence submitted by the [herein
xxxx petitioner] and we rule not to disturb our findings in our Decision dated May 20,
2002. It is our opinion that there was no competent evidence submitted that would
In the case at bench, although [respondents] were engaged to perform activities show that CAMPCO is engaged to perform a specific and special job or service
which are usually necessary or desirable in the usual business or trade of private which is one of the strong indicators that an entity is an independent contractor. The
respondent, it is apparent, however, that their services were engaged by [petitioner] articles of cooperation and by-laws of CAMPCO do not show that it is engaged in
only for a definite period. [Petitioners] nature of business and operation has its peaks. performing a specific and special job or service. What is clear is that it is a multi-
In order to meet the demands during peak seasons they necessarily have to engage purpose cooperative organized under RA No. 6938, nothing more, nothing less.
the services of workers to work only for a particular season. In the case of
[respondents], when they were deployed by CAMPCO with [petitioner] and were As can be gleaned from the contract that CAMPCO entered into with the [petitioner],
assigned by the latter at its cannery department, they were aware that they will be the undertaking of CAMPCO is to provide [petitioner] with workforce by assisting
working only for a certain duration, and this was made known to them at the time the company in its daily operations and perform odd jobs as may be assigned. It is
they were employed, and they agreed to the same. our opinion that CAMPCO merely acted as recruitment agency for [petitioner].
CAMPCO by supplying manpower only, clearly conducted itself as labor-only
xxxx contractor. As can be gleaned from the service contract, the work performed by the
[herein respondents] are directly related to the main business of the [petitioner].
The non-rehiring of some of the petitioners who were allegedly put on a floating Clearly, the requisites of labor-only contracting are present in the case at bench.
status is an indication that their services were no longer needed. They attained their
floating status only after they have finished their contract of employment, or after the In view of the above ruling, we find it unnecessary to discuss whether the Order of
duration of the season that they were employed. The decision of [petitioner] in not Undersecretary Trajano finding that CAMPCO is a labor-only contractor is a
rehiring them means that their services were no longer needed due to the end of the determining factor or constitutes res judicata in the case at bench. Our findings that
season for which they were hired. And this Court reiterates that at the time they were CAMPCO is a labor-only contractor is based on the evidence presented vis--vis the
deployed to [petitioners] cannery division, they knew that the services they have to rulings of the Supreme Court on the matter.
render or the work they will perform are seasonal in nature and consequently their
employment is only for the duration of the season. Since, the argument that the [petitioner] is the real employer of the [respondents], the
next question that must be answered is what is the nature of the employment of the
ACCORDINGLY, in view of the foregoing, the instant petition for certiorari is petitioners?
hereby GRANTED DUE COURSE. The decision dated 29 February 2000 and
Resolution dated 19 December 2000 rendered by [NLRC] are hereby SET ASIDE. In xxxx
place thereof, it is hereby rendered that:
The afore-quoted [Article 280 of the Labor Code, as amended] provides for two
1. Cannery Multi-Purpose Cooperative is a labor-only contractor as defined under kinds of employment, namely: (1) regular (2) casual. In our Decision, we ruled that
the Labor Code of the Philippines and its implementing rules and regulations; and the [respondents] while performing work necessary and desirable to the business of
that the [petitioner] are seasonal employees as their services were engaged by the
[petitioner] for a definite period or only during peak season.
2. DOLE Philippines Incorporated is merely an agent or intermediary of Cannery
Multi-Purpose Cooperative. In the most recent case of Hacienda Fatima v. National Federation of Sugarcane
Workers Food and General Trade, the Supreme Court ruled that for employees to be
All other claims of [respondents] are hereby DENIED for lack of basis. excluded from those classified as regular employees, it is not enough that they
perform work or services that are seasonal in nature. They must have also been
30
employed only for the duration of one season. It is undisputed that the [respondents] Review on Certiorari under Rule 45 of the revised Rules of Civil Procedure, in which
services were engaged by the [petitioner] since 1993 and 1994. The instant complaint it made the following assignment of errors
was filed in 1996 when the [respondents] were placed on floating status. Evidently,
[petitioner] employed the [respondents] for more than one season. Therefore, the I.
general rule on regular employment is applicable. The herein petitioners who
performed their jobs in the workplace of the [petitioner] every season for several THE COURT OF APPEALS HAS DEPARTED FROM THE USUAL COURSE OF
JUDCIAL PROCEEDINGS WHEN IT MADE ITS OWN FACTUAL FINDINGS AND
years, are considered the latters regular employees for having performed works DISREGARDED THE UNIFORM AND CONSISTENT FACTUAL FINDINGS OF THE
necessary and desirable to the business of the [petitioner]. The [petitioners] eventual LABOR ARBITER AND THE NLRC, WHICH MUST BE ACCORDED GREAT WEIGHT,
refusal to use their serviceseven if they were ready, able and willing to perform their RESPECT AND EVEN FINALITY. IN SO DOING, THE COURT OF APPEALS
usual duties whenever these were availableand hiring other workers to perform the EXCEEDED ITS AUTHORITY ON CERTIORARI UNDER RULE 65 OF THE RULES OF
tasks originally assigned to [respondents] amounted to illegal dismissal of the latter. COURT.
We thus, correct our earlier ruling that the herein petitioners are seasonal workers.
They are regular employees within the contemplation of Article 280 of the Labor II.
Code and thus cannot be dismissed except for just or authorized cause. The Labor
Code provides that when there is a finding of illegal dismissal, the effect is that the THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY
NOT IN ACCORD WITH THE CONSTITUTION, LAW, APPLICABLE RULES AND
employee dismissed shall be reinstated to his former position without loss of REGULATIONS AND DECISIONS OF THE SUPREME COURT IN NOT HOLDING
seniority rights with backwages from the date of his dismissal up to his actual THAT DEPARTMENT ORDER NO. 10, SERIES OF 1997 IS THE APPLICABLE
reinstatement. REGULATION IN THIS CASE. IN GIVING RETROACTIVE APPLICATION TO
DEPARTMENT ORDER NO. 3, SERIES OF 2001, THE COURT OF APPEALS
This court however, finds no basis for the award of damages and attorneys fees in VIOLATED THE CONSTITUTIONAL PROVISION AGAINST IMPAIRMENT OF
favor of the petitioners. CONTRACTS AND DEPRIVED PETITIONER OF THE DUE PROCESS OF THE LAW.

WHEREFORE, the Decision dated May 20, 2002 rendered by this Court is hereby III.
AMENDED as follows:
THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT
IN ACCORD WITH LAW AND JURISPRUDENCE IN GIVING WEIGHT TO THE
1) [Petitioner] DOLE PHILIPPINES is hereby declared the employer of the ORDER DATED 19 OCTOBER 1993 ISSUED BY THE OFFICE OF SECRETARY OF
[respondents]. LABOR, WHICH AFFIRMED THE FINDINGS OF THE DOLE REGIONAL OFFICE
(REGION XI, DAVAO CITY) THAT CAMPCO IS ONE OF THE COOPERATIVES
2) [Petitioner] DOLE PHILIPPINES is hereby declared guilty of illegal dismissal ENGAGED IN LABOR-ONLY CONTRACTING ACTIVITIES.
and ordered to immediately reinstate the [respondents] to their former position
without loss of seniority rights and other benefits, and to pay each of the IV.
[respondents] backwages from the date of the filing of illegal dismissal on December
19, 1996 up to actual reinstatement, the same to be computed by the labor arbiter. THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT
IN ACCORD WITH LAW AND JURISPRUDENCE IN NOT RULING THAT
RESPONDENTS, BY ACTIVELY REPRESENTING THEMSELVES AND
3) The claims for damages and attorneys fees are hereby denied for lack of merit. WARRANTING THAT THEY ARE ENGAGED IN LEGITIMATE JOB CONTRACTING,
ARE BARRED BY THE EQUITABLE PRINCIPLE OF ESTOPPEL FROM ASSERTING
No costs.[23] THAT THEY ARE REGULAR EMPLOYEES OF PETITIONER.

V.

The Petition at Bar THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT
IN ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT CAMPCO IS
ENGAGED IN THE PROHIBITED ACT OF LABOR-ONLY CONTRACTING DESPITE
Aggrieved by the Decision, dated 20 May 2002, and the Amended Decision, dated THERE BEING SUBSTANTIAL EVIDENCE TO THE CONTRARY.
27 November 2003, of the Court of Appeals, petitioner filed the instant Petition for

31
VI. The extent of judicial review by certiorari of decisions or resolutions of the NLRC,
as exercised previously by the Supreme Court and, now, by the Court of Appeals, is
THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT described in Zarate v. Olegario,[27] thus
IN ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT PETITIONER IS
THE EMPLOYER OF RESPONDENTS AND THAT PETITIONER IS GUILTY OF
ILLEGAL DISMISSAL.[24]
The rule is settled that the original and exclusive jurisdiction of this Court to review
a decision of respondent NLRC (or Executive Labor Arbiter as in this case) in a
petition for certiorari under Rule 65 does not normally include an inquiry into the
This Courts Ruling correctness of its evaluation of the evidence. Errors of judgment, as distinguished
from errors of jurisdiction, are not within the province of a special civil action for
I certiorari, which is merely confined to issues of jurisdiction or grave abuse of
discretion. It is thus incumbent upon petitioner to satisfactorily establish that
Anent the first assignment of error, petitioner argues that judicial review under Rule respondent Commission or executive labor arbiter acted capriciously and
65 of the revised Rules of Civil Procedure is limited only to issues concerning want whimsically in total disregard of evidence material to or even decisive of the
or excess or jurisdiction or grave abuse of discretion. The special civil action for controversy, in order that the extraordinary writ of certiorari will lie. By grave abuse
certiorari is a remedy designed to correct errors of jurisdiction and not mere errors of of discretion is meant such capricious and whimsical exercise of judgment as is
judgment. It is the contention of petitioner that the NLRC properly assumed equivalent to lack of jurisdiction, and it must be shown that the discretion was
jurisdiction over the parties and subject matter of the instant case. The errors exercised arbitrarily or despotically. For certiorari to lie, there must be capricious,
assigned by the respondents in their Petition for Certiorari before the Court of arbitrary and whimsical exercise of power, the very antithesis of the judicial
Appeals do not pertain to the jurisdiction of the NLRC; they are rather errors of prerogative in accordance with centuries of both civil law and common law
judgment supposedly committed by the the NLRC, in its Resolution, dated 29 traditions.
February 2000, and are thus not the proper subject of a petition for certiorari.
Petitioner also posits that the Petition for Certiorari filed by respondents with the
Court of Appeals raised questions of fact that would necessitate a review by the The Court of Appeals, therefore, can grant the Petition for Certiorari if it finds that
appellate court of the evidence presented by the parties before the Labor Arbiter and the NLRC, in its assailed decision or resolution, committed grave abuse of discretion
the NLRC, and that questions of fact are not a fit subject for a special civil action for by capriciously, whimsically, or arbitrarily disregarding evidence which is material
certiorari. or decisive of the controversy; and the Court of Appeals can not make this
determination without looking into the evidence presented by the parties.
It has long been settled in the landmark case of St. Martin Funeral Home v. Necessarily, the appellate court can only evaluate the materiality or significance of
NLRC,[25] that the mode for judicial review over decisions of the NLRC is by a the evidence, which is alleged to have been capriciously, whimsically, or arbitrarily
petition for certiorari under Rule 65 of the revised Rules of Civil Procedure. The disregarded by the NLRC, in relation to all other evidence on record.
different modes of appeal, namely, writ of error (Rule 41), petition for review (Rules
42 and 43), and petition for review on certiorari (Rule 45), cannot be availed of As this Court elucidated in Garcia v. National Labor Relations Commission[28]--
because there is no provision on appellate review of NLRC decisions in the Labor
Code, as amended.[26] Although the same case recognizes that both the Court of [I]n Ong v. People, we ruled that certiorari can be properly resorted to where the
Appeals and the Supreme Court have original jurisdiction over such petitions, it has factual findings complained of are not supported by the evidence on record. Earlier,
chosen to impose the strict observance of the hierarchy of courts. Hence, a petition in Gutib v. Court of Appeals, we emphasized thus:
for certiorari of a decision or resolution of the NLRC should first be filed with the
Court of Appeals; direct resort to the Supreme Court shall not be allowed unless the [I]t has been said that a wide breadth of discretion is granted a court of justice in
redress desired cannot be obtained in the appropriate courts or where exceptional and certiorari proceedings. The cases in which certiorari will issue cannot be defined,
compelling circumstances justify an availment of a remedy within and calling for the because to do so would be to destroy its comprehensiveness and usefulness. So wide
exercise by the Supreme Court of its primary jurisdiction. is the discretion of the court that authority is not wanting to show that certiorari is
more discretionary than either prohibition or mandamus. In the exercise of our
superintending control over inferior courts, we are to be guided by all the
circumstances of each particular case as the ends of justice may require. So it is that

32
the writ will be granted where necessary to prevent a substantial wrong or to do retroactive application, then the general rule should be followed, and the said orders
substantial justice. should be applied only prospectively.

And in another case of recent vintage, we further held: Which now brings this Court to the question as to what was the prevailing rule on
labor-only contracting from 1993 to 1996, the period when the occurrences subject
In the review of an NLRC decision through a special civil action for certiorari, of the Complaint before the NLRC took place.
resolution is confined only to issues of jurisdiction and grave abuse of discretion on
the part of the labor tribunal. Hence, the Court refrains from reviewing factual Article 106 of the Labor Code, as amended, permits legitimate job contracting, but
assessments of lower courts and agencies exercising adjudicative functions, such as prohibits labor-only contracting. The said provision reads
the NLRC. Occasionally, however, the Court is constrained to delve into factual
matters where, as in the instant case, the findings of the NLRC contradict those of ART. 106. Contractor or subcontractor. Whenever an employer enters into a contract
the Labor Arbiter. 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
In this instance, the Court in the exercise of its equity jurisdiction may look the provisions of this Code.
into the records of the case and re-examine the questioned findings. As a corollary,
this Court is clothed with ample authority to review matters, even if they are not In the event that the contractor or subcontractor fails to pay the wages of his
assigned as errors in their appeal, if it finds that their consideration is necessary to employees in accordance with this Code, the employer shall be jointly and severally
arrive at a just decision of the case. The same principles are now necessarily adhered liable with his contractor or subcontractor to such employees to the extent of the
to and are applied by the Court of Appeals in its expanded jurisdiction over labor work performed under the contract, in the same manner and extent that he is liable to
cases elevated through a petition for certiorari; thus, we see no error on its part when employees directly employed by him.
it made anew a factual determination of the matters and on that basis reversed the
ruling of the NLRC. 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-
II 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
The second assignment of error delves into the significance and application to the employer for purposes of this Code, to prevent any violation or circumvention of any
case at bar of the two department orders issued by DOLE. Department Order No. 10, provision of this Code.
series of 1997, amended the implementing rules of Books III and VI of the Labor
Code, as amended. Under this particular DOLE department order, the arrangement There is labor-only contracting where the person supplying workers to an employer
between petitioner and CAMPCO would qualify as permissible contracting. does not have substantial capital or investment in the form of tools, equipment,
Department Order No. 3, series of 2001, revoked Department Order No. 10, series of machineries, work premises, among others, and the workers recruited and placed by
1997, and reiterated the prohibition on labor-only contracting. such persons are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be
Attention is called to the fact that the acts complained of by the respondents occurred considered merely as an agent of the employer who shall be responsible to the
well before the issuance of the two DOLE department orders in 1997 and 2001. The workers in the same manner and extent as if the latter were directly employed by
Service Contract between DOLE and CAMPCO was executed on 17 August 1993. him.
Respondents started working for petitioner sometime in 1993 and 1994. While some
of them continued to work for petitioner, at least until the filing of the Complaint,
others were put on stay home status at various times in 1994, 1995, and 1996. To implement the foregoing provision of the Labor Code, as amended, Sections 8
Respondents filed their Complaint with the NLRC on 19 December 1996. and 9, Rule VIII, Book III of the implementing rules, in force since 1976 and prior to
their amendment by DOLE Department Order No. 10, series of 1997, provided as
A basic rule observed in this jurisdiction is that no statute, decree, ordinance, rule or follows
regulation shall be given retrospective effect unless explicitly stated.[29] Since there
is no provision at all in the DOLE department orders that expressly allowed their
33
Sec. 8. Job contracting. There is job contracting permissible under the Code if the The Orders of DOLE Regional Director Parel, dated 19 September 1993, and of
following conditions are met; DOLE Undersecretary Trajano, dated 15 September 1994, were issued pursuant to
(1) The contractor carries on an independent business and undertakes the contract the visitorial and enforcement power conferred by the Labor Code, as amended, on
work on his own account under his own responsibility according to his own manner the DOLE Secretary and his duly authorized representatives, to wit
and method, free from the control and direction of his employer or principal in all
matters connected with the performance of the work except as to the results thereof; ART. 128. Visitorial and enforcement power. (a) The Secretary of Labor or his duly
and authorized representatives, including labor regulation officers, shall have access to
(2) The contractor has substantial capital or investment in the form of tools, employers records and premises at any time of the day or night whenever work is
equipment, machineries, work premises, and other materials which are necessary in being undertaken therein, and the right to copy therefrom, to question any employee
the conduct of his business. and investigate any fact, condition or matter which may be necessary to determine
violations or which may aid in the enforcement of this Code and of any labor law,
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to wage order or rules and regulations pursuant thereto.
an employer shall be deemed to be engaged in labor-only contracting where such
person: (b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the
contrary, and in cases where the relationship of employer-employee still exists, the
(1) Does not have substantial capital or investment in the form of tools, equipment, Secretary of Labor and Employment or his duly authorized representatives shall have
machineries, work premises and other materials; and the power to issue compliance orders to give effect to the labor standards provisions
of this Code and other labor legislation based on the findings of labor employment
(2) The workers recruited and placed by such persons are performing activities and enforcement officers or industrial safety engineers made in the course of
which are directly related to the principal business or operations of the employer in inspection. The Secretary or his duly authorized representatives shall issue writs of
which workers are habitually employed. execution to the appropriate authority for the enforcement of their orders, except in
cases where the employer contests the findings of the labor employment and
(b) Labor-only contracting as defined herein is hereby prohibited and the person enforcement officer and raises issues supported by documentary proofs which were
acting as contractor shall be considered merely as an agent or intermediary of the not considered in the course of inspection.
employer who shall be responsible to the workers in the same manner and extent as
if the latter were directly employed by him. An order issued by the duly authorized representative of the Secretary of Labor and
Employment under this article may be appealed to the latter. In case said order
(c) For cases not falling under this Article, the Secretary of Labor shall determine involves a monetary award, an appeal by the employer may be perfected only upon
through appropriate orders whether or not the contracting out of labor is permissible the posting of a cash or surety bond issued by a reputable bonding company duly
in the light of the circumstances of each case and after considering the operating accredited by the Secretary of Labor and Employment in the amount equivalent to
needs of the employer and the rights of the workers involved. In such case, he may the monetary award in the order appealed from. (Emphasis supplied.)
prescribe conditions and restrictions to insure the protection and welfare of the
workers.
Before Regional Director Parel issued his Order, dated 19 September 1993, a Task
Force investigated the operations of cooperatives in Polomolok, South Cotabato, and
Since these statutory and regulatory provisions were the ones in force during the submitted a report identifying six cooperatives that were engaged in labor-only
years in question, then it was in consideration of the same that DOLE Regional contracting, one of which was CAMPCO. In a conference before the DOLE
Director Parel and DOLE Undesrsecretary Trajano issued their Orders on 19 Regional Office, the cooperatives named by the Task Force were given the
September 1993 and 15 September 1994, respectively, both finding that CAMPCO opportunity to explain the nature of their activities in relation to petitioner; and, the
was engaged in labor-only contracting. Petitioner, in its third assignment of error, cooperatives, as well as petitioner, submitted to the DOLE Regional Office their
questions the weight that the Court of Appeals gave these orders in its Decision, position papers and other supporting documents to refute the findings of the Task
dated 20 May 2002, and Amended Decision, dated 27 November 2003. Force. It was only after these procedural steps did Regional Director Parel issued his
Order finding that three cooperatives, including CAMPCO, were indeed engaged in
III labor-only contracting and were directed to cease and desist from further engaging in
such activities. On appeal, DOLE Undersecretary Trajano, by authority of the DOLE
34
Secretary, affirmed Regional Director Parels Order. Upon denial of the Motion for authorized representatives issued pursuant to the authority granted under this article,
Reconsideration filed by the cooperatives, and no further appeal taken therefrom, the and no inferior court or entity shall issue temporary or permanent injunction or
Order of DOLE Undersecretary Trajano, dated 15 September 1994, became final and restraining order or otherwise assume jurisdiction over any case involving the
executory. enforcement orders issued in accordance with this article.

Petitioner avers that the foregoing Orders of the authorized representatives of the
DOLE Secretary do not constitute res judicata in the case filed before the NLRC. The Orders of DOLE Regional Director Parel, dated 19 September 1993, and of
This Court, however, believes otherwise and finds that the final and executory DOLE Undersecretary Trajano, dated 15 September 1994, consistently found that
Orders of the DOLE Secretary or his authorized representatives should bind the CAMPCO was engaging in labor-only contracting. Such finding constitutes res
NLRC. judicata in the case filed by the respondents with the NLRC.

It is obvious that the visitorial and enforcement power granted to the DOLE It is well-established in this jurisdiction that the decisions and orders of
Secretary is in the nature of a quasi-judicial power. Quasi-judicial power has been administrative agencies, rendered pursuant to their quasi-judicial authority, have
described by this Court in the following manner upon their finality, the force and binding effect of a final judgment within the
purview of the doctrine of res judicata. The rule of res judicata, which forbids the
Quasi-judicial or administrative adjudicatory power on the other hand is the power of reopening of a matter once judicially determined by competent authority, applies as
the administrative agency to adjudicate the rights of persons before it. It is the power well to the judicial and quasi-judicial acts of public, executive or administrative
to hear and determine questions of fact to which the legislative policy is to apply and officers and boards acting within their jurisdiction as to the judgments of courts
to decide in accordance with the standards laid down by the law itself in enforcing having general judicial powers. The orderly administration of justice requires that the
and administering the same law. The administrative body exercises its quasi-judicial judgments or resolutions of a court or quasi-judicial body must reach a point of
power when it performs in a judicial manner an act which is essentially of an finality set by the law, rules and regulations, so as to write finis to disputes once and
executive or administrative nature, where the power to act in such manner is for all. This is a fundamental principle in the Philippine justice system, without
incidental to or reasonably necessary for the performance of the executive or which there would be no end to litigations.[31]
administrative duty entrusted to it. In carrying out their quasi-judicial functions the
administrative officers or bodies are required to investigate facts or ascertain the Res judicata has dual aspects, bar by prior judgment and conclusiveness of judgment.
existence of facts, hold hearings, weigh evidence, and draw conclusions from them This Court has previously clarified the difference between the two
as basis for their official action and exercise of discretion in a judicial nature. Since
rights of specific persons are affected it is elementary that in the proper exercise of Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of res
quasi-judicial power due process must be observed in the conduct of the judicata in actions in personam. to wit:
proceedings.[30] (Emphasis supplied.)
"Effect of judgment. - The effect of a judgment or final order rendered by a court or
judge of the Philippines, having jurisdiction to pronounce the judgment or order,
The DOLE Secretary, under Article 106 of the Labor Code, as amended, exercise may be as follows:
quasi-judicial power, at least, to the extent necessary to determine violations of labor
standards provisions of the Code and other labor legislation. He can issue xxxx
compliance orders and writs of execution for the enforcement of his orders. As
evidence of the importance and binding effect of the compliance orders of the DOLE (b) In other cases the judgment or order is, with respect to the matter directly
Secretary, Article 128 of the Labor Code, as amended, further provides adjudged or as to any other matter that could have been raised in relation thereto,
conclusive between the parties and their successors in interest by title subsequent to
ART. 128. Visitorial and enforcement power. the commencement of the action or special proceeding, litigating for the same thing
and under the same title and in the same capacity;
xxxx
(c) In any other litigation between the same parties or their successors in interest, that
(d) It shall be unlawful for any person or entity to obstruct, impede, delay or only is deemed to have been adjudged in a former judgment which appears upon its
otherwise render ineffective the orders of the Secretary of Labor or his duly
35
face to have been so adjudged, or which was actually and necessarily included determination of the NLRC were the issues on whether there was illegal dismissal
therein or necessary thereto." and whether respondents should be regularized.
This Court also notes that CAMPCO and DOLE still continued with their Service
Section 49(b) enunciates the first concept of res judicata known as "bar by prior Contract despite the explicit cease and desist orders rendered by authorized DOLE
judgment," whereas, Section 49(c) is referred to as "conclusiveness of judgment." officials. There is no other way to look at it except that CAMPCO and DOLE acted
in complete defiance and disregard of the visitorial and enforcement power of the
There is "bar by former judgment" when, between the first case where the judgment DOLE Secretary and his authorized representatives under Article 128 of the Labor
was rendered, and the second case where such judgment is invoked, there is identity Code, as amended. For the NLRC to ignore the findings of DOLE Regional Director
of parties, subject matter and cause of action. When the three identities are present, Parel and DOLE Undersecretary Trajano is an unmistakable and serious
the judgment on the merits rendered in the first constitutes an absolute bar to the undermining of the DOLE officials authority.
subsequent action. But where between the first case wherein Judgment is rendered
and the second case wherein such judgment is invoked, there is only identity of IV
parties but there is no identity of cause of action, the judgment is conclusive in the
second case, only as to those matters actually and directly controverted and In petitioners fourth assignment of error, it points out that the Court of Appeals erred
determined, and not as to matters merely involved therein. This is what is termed in not holding respondents estopped from asserting that they were regular employees
"conclusiveness of judgment." of petitioner since respondents, as owners-members of CAMPCO, actively
represented themselves and warranted that they were engaged in legitimate job
contracting.
The second concept of res judicata, conclusiveness of judgment, is the one applicable
to the case at bar. This Court cannot sustain petitioners argument.

The same parties who participated in the proceedings before the DOLE Regional It is true that CAMPCO is a cooperative composed of its members, including
Office are the same parties involved in the case filed before the NLRC. CAMPCO, respondents. Nonetheless, it cannot be denied that a cooperative, as soon as it is
on behalf of its members, attended the conference before the DOLE Regional Office; registered with the CDA, attains a juridical personality of its own,[32] separate and
submitted its position paper; filed an appeal with the DOLE Secretary of the Order of distinct from its members; much in the same way that a corporation has a juridical
DOLE Regional Director Parel; and moved for reconsideration of the subsequent personality separate and distinct from its stockholders, known as the doctrine of
Order of DOLE Undersecretary Trajano. Petitioner, although not expressly named as corporate fiction. The protection afforded by this doctrine is not absolute, but the
a respondent in the DOLE investigation, was a necessary party thereto, considering exception thereto which necessitates the piercing of the corporate veil can only be
that CAMPCO was rendering services to petitioner solely. Moreover, petitioner made under specified circumstances. In Traders Royal Bank v. Court of Appeals,[33]
participated in the proceedings before the DOLE Regional Office, intervening in the this Court ruled that
matter through a letter sent by its Senior Legal Officer, dated 24 May 1993, and
submitting its own position paper. Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is
While the causes of action in the proceedings before the DOLE and the NLRC differ, merely an equitable remedy, and maybe awarded only in cases when the corporate
they are, in fact, very closely related. The DOLE Regional Office conducted an fiction is used to defeat public convenience, justify wrong, protect fraud or defend
investigation to determine whether CAMPCO was violating labor laws, particularly, crime or where a corporation is a mere alter ego or business conduit of a person.
those on labor-only contracting. Subsequently, it ruled that CAMPCO was indeed
engaging in labor-only contracting activities, and thereafter ordered to cease and Piercing the veil of corporate entity requires the court to see through the protective
desist from doing so. Respondents came before the NLRC alleging illegal dismissal shroud which exempts its stockholders from liabilities that ordinarily, they could be
by the petitioner of those respondents who were put on stay home status, and seeking subject to, or distinguishes one corporation from a seemingly separate one, were it
regularization of respondents who were still working for petitioner. The basis of their not for the existing corporate fiction. But to do this, the court must be sure that the
claims against petitioner rests on the argument that CAMPCO was a labor-only corporate fiction was misused, to such an extent that injustice, fraud, or crime was
contractor and, thus, merely an agent or intermediary of petitioner, who should be committed upon another, disregarding, thus, his, her, or its rights. It is the corporate
considered as respondents real employer. The matter of whether CAMPCO was a entity which the law aims to protect by this doctrine.
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
36
Using the above-mentioned guidelines, is petitioner entitled to a piercing of the piece of work; the control and supervision of the work to another; the employer's
cooperative identity of CAMPCO? This Court thinks not. power with respect to the hiring, firing and payment of the contractor's workers; the
control of the premises; the duty to supply the premises tools, appliances, materials
It bears to emphasize that the piercing of the corporate veil is an equitable remedy, and labor; and the mode, manner and terms of payment.[35]
and among the maxims of equity are: (1) he who seeks equity must do equity, and (2)
he who comes into equity must come with clean hands. Hence, a litigant may be While there is present in the relationship of petitioner and CAMPCO some factors
denied relief by a court of equity on the ground that his conduct has been inequitable, suggestive of an independent contractor relationship (i.e., CAMPCO chose who
unfair, dishonest, fraudulent, or deceitful as to the controversy in issue.[34] among its members should be sent to work for petitioner; petitioner paid CAMPCO
the wages of the members, plus a percentage thereof as administrative charge;
Petitioner does not come before this Court with clean hands. It is not an innocent CAMPCO paid the wages of the members who rendered service to petitioner), many
party in this controversy. other factors are present which would indicate a labor-only contracting arrangement
between petitioner and CAMPCO.[36]
Petitioner itself admitted that it encouraged and even helped the establishment of
CAMPCO and the other cooperatives in Polomolok, South Cotabato. These First, although petitioner touts the multi-million pesos assets of CAMPCO, it does
cooperatives were established precisely to render services to petitioner. It is highly well to remember that such were amassed in the years following its establishment. In
implausible that the petitioner was lured into entering into the Service Contract with 1993, when CAMPCO was established and the Service Contract between petitioner
CAMPCO in 1993 on the latters misrepresentation and false warranty that it was an and CAMPCO was entered into, CAMPCO only had P6,600.00 paid-up capital,
independent job contractor. Even if it is conceded that petitioner was indeed which could hardly be considered substantial.[37] It only managed to increase its
defrauded into believing that CAMPCO was an independent contractor, then the capitalization and assets in the succeeding years by continually and defiantly
DOLE proceedings should have placed it on guard. Remember that petitioner engaging in what had been declared by authorized DOLE officials as labor-only
participated in the proceedings before the DOLE Regional Office, it cannot now contracting.
claim ignorance thereof. Furthermore, even after the issuance of the cease and desist
order on CAMPCO, petitioner still continued with its prohibited service arrangement Second, CAMPCO did not carry out an independent business from petitioner. It was
with the said cooperative. If petitioner was truly defrauded by CAMPCO and its precisely established to render services to petitioner to augment its workforce during
members into believing that the cooperative was an independent job contractor, the peak seasons. Petitioner was its only client. Even as CAMPCO had its own office
more logical recourse of petitioner was to have the Service Contract voided in the and office equipment, these were mainly used for administrative purposes; the tools,
light of the explicit findings of the DOLE officials that CAMPCO was engaging in machineries, and equipment actually used by CAMPCO members when rendering
labor-only contracting. Instead, petitioner still carried on its Service Contract with services to the petitioner belonged to the latter.
CAMPCO for several more years thereafter.
Third, petitioner exercised control over the CAMPCO members, including
V respondents. Petitioner attempts to refute control by alleging the presence of a
CAMPCO supervisor in the work premises. Yet, the mere presence within the
As previously discussed, the finding of the duly authorized representatives of the premises of a supervisor from the cooperative did not necessarily mean that
DOLE Secretary that CAMPCO was a labor-only contractor is already conclusive. CAMPCO had control over its members. Section 8(1), Rule VIII, Book III of the
This Court cannot deviate from said finding. implementing rules of the Labor Code, as amended, required for permissible job
contracting that the contractor undertakes the contract work on his account, under his
This Court, though, still notes that even an independent review of the evidence on own responsibility, according to his own manner and method, free from the control
record, in consideration of the proper labor statutes and regulations, would result in and direction of his employer or principal in all matters connected with the
the same conclusion: that CAMPCO was engaged in prohibited activities of labor- performance of the work except as to the results thereof. As alleged by the
only contracting. respondents, and unrebutted by petitioner, CAMPCO members, before working for
the petitioner, had to undergo instructions and pass the training provided by
The existence of an independent and permissible contractor relationship is generally petitioners personnel. It was petitioner who determined and prepared the work
established by the following criteria: whether or not the contractor is carrying on an assignments of the CAMPCO members. CAMPCO members worked within
independent business; the nature and extent of the work; the skill required; the term petitioners plantation and processing plants alongside regular employees performing
and duration of the relationship; the right to assign the performance of a specified
37
identical jobs, a circumstance recognized as an indicium of a labor-only at the time of engagement of the employee or where the work or services to be
contractorship.[38] performed is seasonal in nature and the employment is for the duration of the season.
An employment shall be deemed to be casual if its is not covered by the preceding
Fourth, CAMPCO was not engaged to perform a specific and special job or service. paragraph: Provided, That, any employee who has rendered at least one year of
In the Service Contract of 1993, CAMPCO agreed to assist petitioner in its daily service, whether such service is continuous or broken, shall be considered a regular
operations, and perform odd jobs as may be assigned. CAMPCO complied with this employee with respect to the activity in which he is employed and his employment
venture by assigning members to petitioner. Apart from that, no other particular job, shall continue while such activity exists.
work or service was required from CAMPCO, and it is apparent, with such an
arrangement, that CAMPCO merely acted as a recruitment agency for petitioner.
Since the undertaking of CAMPCO did not involve the performance of a specific This Court expounded on the afore-quoted provision, thus
job, but rather the supply of manpower only, CAMPCO clearly conducted itself as a
labor-only contractor.[39] The primary standard, therefore, of determining a regular employment is the
reasonable connection between the particular activity performed by the employee in
Lastly, CAMPCO members, including respondents, performed activities directly relation to the usual business or trade of the employer. The test is whether the former
related to the principal business of petitioner. They worked as can processing is usually necessary or desirable in the usual business or trade of the employer. The
attendant, feeder of canned pineapple and pineapple processing, nata de coco connection can be determined by considering the nature of the work performed and
processing attendant, fruit cocktail processing attendant, and etc., functions which its relation to the scheme of the particular business or trade in its entirety. Also, if the
were, not only directly related, but were very vital to petitioners business of employee has been performing the job for at least one year, even if her performance
production and processing of pineapple products for export. is not continuous or merely intermittent, the law deems the repeated and continuing
need for its performance as sufficient evidence of the necessity if not indispensability
The findings enumerated in the preceding paragraphs only support what DOLE of the activity to the business. Hence, the employment is also considered regular, but
Regional Director Parel and DOLE Undersecretary Trajano had long before only with respect to such activity and while such activity exists.[40]
conclusively established, that CAMPCO was a mere labor-only contractor.

VI In the instant Petition, petitioner is engaged in the manufacture and production of


pineapple products for export. Respondents rendered services as processing
The declaration that CAMPCO is indeed engaged in the prohibited activities of attendant, feeder of canned pineapple and pineapple processing, nata de coco
labor-only contracting, then consequently, an employer-employee relationship is processing attendant, fruit cocktail processing attendant, and etc., functions they
deemed to exist between petitioner and respondents, since CAMPCO shall be performed alongside regular employees of the petitioner. There is no doubt that the
considered as a mere agent or intermediary of petitioner. activities performed by respondents are necessary or desirable to the usual business
of petitioner.
Since respondents are now recognized as employees of petitioner, this Court is
tasked to determine the nature of their employment. In consideration of all the Petitioner likewise want this Court to believe that respondents employment was
attendant circumstances in this case, this Court concludes that respondents are dependent on the peaks in operation, work backlogs, absenteeism, and excessive
regular employees of petitioner. leaves. However, bearing in mind that respondents all claimed to have worked for
petitioner for over a year, a claim which petitioner failed to rebut, then respondents
Article 280 of the Labor Code, as amended, reads continued employment clearly demonstrates the continuing necessity and
indispensability of respondents employment to the business of petitioner.
ART. 280. Regular and Casual Employment. The provisions of written agreement to
the contrary notwithstanding and regardless of the oral agreement of the parties, an Neither can this Court apply herein the ruling of the NLRC in the previous case
employment shall be deemed to be regular where the employee has been engaged to involving petitioner and the individual workers they used to hire before the advent of
perform activities which are usually necessary and desirable in the usual business or the cooperatives, to the effect that the employment of these individual workers were
trade of the employer, except where the employment has been fixed for a specific not regular, but rather, were valid term employments, wherein the employer and
project or undertaking the completion or termination of which has been determined employee knowingly and voluntarily agreed to employment for only a limited or
specified period of time. The difference between that case and the one presently
38
before this Court is that the members of CAMPCO, including respondents, were not G.R. No. 172101. November 23, 2007.*
informed, at the time of their engagement, that their employment shall only be for a
limited or specified period of time. There is absence of proof that the respondents REPUBLIC OF THE PHILIPPINES, represented by the SOCIAL SECURITY
were aware and had knowingly and voluntarily agreed to such term employment. COMMISSION and SOCIAL SECURITY SYSTEM, petitioners, vs. ASIAPRO
Petitioner did not enter into individual contracts with the CAMPCO members, but COOPERATIVE, respondent.
executed a Service Contract with CAMPCO alone. Although the Service Contract of
1993 stated that it shall be for a specific period, from 1 July to 31 December 1993, Jurisdictions; Appeals; Power of Review of the Supreme Court; Although as a rule,
petitioner and CAMPCO continued the service arrangement beyond 1993. Since in the exercise of the Supreme Courts power of review, the Court is not a trier of
there was no written renewal of the Service Contract,[41] there was no further facts and the findings of fact of the Court of Appeals are conclusive and binding on
indication that the engagement by petitioner of the services of CAMPCO members the Court, said rule is not without exceptions.Although as a rule, in the exercise of
was for another definite or specified period only. the Supreme Courts power of review, the Court is not a trier of facts and the
findings of fact of the Court of Appeals are conclusive and binding on the Court, said
Respondents, as regular employees of petitioner, are entitled to security of tenure. rule is not without exceptions. There are several recognized exceptions in which
They could only be removed based on just and authorized causes as provided for in factual issues may be resolved by this Court. One of these exceptions finds
the Labor Code, as amended, and after they are accorded procedural due process. application in this present case which is, when the findings of fact are conflicting.
Therefore, petitioners acts of placing some of the respondents on stay home status There are, indeed, conflicting findings espoused by the petitioner SSC and the
and not giving them work assignments for more than six months were already appellate court relative to the existence of employer-employee relationship between
tantamount to constructive and illegal dismissal.[42] the respondent cooperative and its ownersmembers, which necessitates a departure
from the oft-repeated rule that factual issues may not be the subject of appeals to this
In summary, this Court finds that CAMPCO was a labor-only contractor and, thus, Court.
petitioner is the real employer of the respondents, with CAMPCO acting only as the
agent or intermediary of petitioner. Due to the nature of their work and length of Labor Law; Labor Relations; Employer-Employee Relationship; Elements; In
their service, respondents should be considered as regular employees of petitioner. determining the existence of an employer-employee relationship, the following
Petitioner constructively dismissed a number of the respondents by placing them on elements are considered: (1) the selection and engagement of the workers; (2) the
stay home status for over six months, and was therefore guilty of illegal dismissal. payment of wages by whatever means; (3) the power of dismissal; and (4) the power
Petitioner must accord respondents the status of regular employees, and reinstate the to control the workers conduct, with the latter assuming primacy in the overall
respondents who it constructively and illegally dismissed, to their previous positions, consideration. The most important element is the employers control of the
without loss of seniority rights and other benefits, and pay these respondents employees conduct, not only as to the result of the work to be done, but also as to
backwages from the date of filing of the Complaint with the NLRC on 19 December the means and methods to accomplish.In determining the existence of an
1996 up to actual reinstatement. employer-employee relationship, the following elements are considered: (1) the
selection and engagement of the workers; (2) the payment of wages by whatever
WHEREFORE, in view of the foregoing, the instant Petition is DENIED and the means; (3) the power of dismissal; and (4) the power to control the workers conduct,
Amended Decision, dated 27 November 2003, rendered by the Court of Appeals in with the latter assuming primacy in the overall consideration. The most important
CA-G.R. SP No. 63405 is AFFIRMED. element is the employers control of the employees conduct, not only as to the result
of the work to be done, but also as to the means and methods to accomplish. The
Costs against the petitioner. power of control refers to the existence of the power and not necessarily to the actual
exercise thereof. It is not essential for the employer to actually supervise the
SO ORDERED. performance of duties of the employee; it is enough that the employer has the right to
wield that power. All the aforesaid elements are present in this case.
Same; Same; Same; The existence of an employer-employee relationship cannot be
negated by expressly repudiating it in a contract, when the terms and surrounding
circumstances show otherwise. The employment status of a person is defined and
prescribed by law and not by what the parties say it should be.As previously
pointed out by this Court, an employee-employer relationship actually exists between
the respondent cooperative and its owners-members. The four elements in the four-
39
fold test for the existence of an employment relationship have been complied with. petition-complaint dated 12 June 2003 filed by herein petitioner Social Security
The respondent cooperative must not be allowed to deny its employment relationship System (SSS) against herein respondent.
with its owners-members by invoking the questionable Service Contracts provision, Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-
when in actuality, it does exist. The existence of an employer-employee relationship judicial body authorized by law to resolve disputes arising under Republic Act No.
cannot be negated by expressly repudiating it in a contract, when the terms and 1161, as amended by Republic Act No. 8282.[5] Petitioner SSS is a government
surrounding circumstances show otherwise. The employment status of a person is corporation created by virtue of Republic Act No. 1161, as amended. On the other
defined and prescribed by law and not by what the parties say it should be. hand, herein respondent Asiapro Cooperative (Asiapro) is a multi-purpose
cooperative created pursuant to Republic Act No. 6938[6] and duly registered with
Cooperatives; A cooperative acquires juridical personality upon its registration with the Cooperative Development Authority (CDA) on 23 November 1999 with
the Cooperative Development Authority. It has its Board of Directors, which directs Registration Certificate No. 0-623-2460.[7]
and supervises its business; meaning, its Board of Directors is the one in charge in
the conduct and management of its affairs. With that, a cooperative can be likened to The antecedents of this case are as follows:
a corporation with a personality separate and distinct from its owners-members.It
bears stressing, too, that a cooperative acquires juridical personality upon its Respondent Asiapro, as a cooperative, is composed of owners-members. Under its
registration with the Cooperative Development Authority. It has its Board of by-laws, owners-members are of two categories, to wit: (1) regular member, who is
Directors, which directs and supervises its business; meaning, its Board of Directors entitled to all the rights and privileges of membership; and (2) associate member,
is the one in charge in the conduct and management of its affairs. With that, a who has no right to vote and be voted upon and shall be entitled only to such rights
cooperative can be likened to a corporation with a personality separate and distinct and privileges provided in its by-laws.[8] Its primary objectives are to provide
from its owners-members. Consequently, an owner-member of a cooperative can be savings and credit facilities and to develop other livelihood services for its owners-
an employee of the latter and an employer-employee relationship can exist between members. In the discharge of the aforesaid primary objectives, respondent
them. cooperative entered into several Service Contracts[9] with Stanfilco - a division of
DOLE Philippines, Inc. and a company based in Bukidnon. The owners-members do
Same; The management of the affairs of the respondent cooperative is vested in its not receive compensation or wages from the respondent cooperative. Instead, they
Board of Directors and not in its ownersmembers as a whole. Therefore, it is receive a share in the service surplus[10] which the respondent cooperative earns
completely logical that the respondent cooperative, as a juridical person represented from different areas of trade it engages in, such as the income derived from the said
by its Board of Directors, can enter into an employment with its ownersmembers. Service Contracts with Stanfilco. The owners-members get their income from the
In the present case, it is not disputed that the respondent cooperative had registered service surplus generated by the quality and amount of services they rendered, which
itself with the Cooperative Development Authority, as evidenced by its Certificate of is determined by the Board of Directors of the respondent cooperative.
Registration No. 0-623-2460. In its by-laws, its Board of Directors directs, controls,
and supervises the business and manages the property of the respondent cooperative. In order to enjoy the benefits under the Social Security Law of 1997, the owners-
Clearly then, the management of the affairs of the respondent cooperative is vested members of the respondent cooperative, who were assigned to Stanfilco requested
in its Board of Directors and not in its owners-members as a whole. Therefore, it is the services of the latter to register them with petitioner SSS as self-employed and to
completely logical that the respondent cooperative, as a juridical person represented remit their contributions as such. Also, to comply with Section 19-A of Republic Act
by its Board of Directors, can enter into an employment with its owners-members. No. 1161, as amended by Republic Act No. 8282, the SSS contributions of the said
owners-members were equal to the share of both the employer and the employee.
CHICO-NAZARIO, J.:
On 26 September 2002, however, petitioner SSS through its Vice-President for
Mindanao Division, Atty. Eddie A. Jara, sent a letter[11] to the respondent
Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 cooperative, addressed to its Chief Executive Officer (CEO) and General Manager
Revised Rules of Civil Procedure seeking to annul and set aside the Decision[1] and Leo G. Parma, informing the latter that based on the Service Contracts it executed
Resolution[2] of the Court of Appeals in CA-G.R. SP No. 87236, dated 5 January with Stanfilco, respondent cooperative is actually a manpower contractor supplying
2006 and 20 March 2006, respectively, which annulled and set aside the Orders of employees to Stanfilco and for that reason, it is an employer of its owners-members
the Social Security Commission (SSC) in SSC Case No. 6-15507-03, dated 17 working with Stanfilco. Thus, respondent cooperative should register itself with
February 2004[3] and 16 September 2004,[4] respectively, thereby dismissing the petitioner SSS as an employer and make the corresponding report and remittance of
premium contributions in accordance with the Social Security Law of 1997. On 9
40
October 2002,[12] respondent cooperative, through its counsel, sent a reply to C. Contrary to the holding of the [petitioner] SSC, the legal issue of
petitioner SSSs letter asserting that it is not an employer because its owners- employer-employee relationship raised in [respondents] Motion to Dismiss can be
members are the cooperative itself; hence, it cannot be its own employer. Again, on preliminarily resolved through summary hearings prior to the hearing on the merits.
21 October 2002,[13] petitioner SSS sent a letter to respondent cooperative ordering However, any inquiry beyond a preliminary determination, as what [petitioner SSC]
the latter to register as an employer and report its owners-members as employees for wants to accomplish, would be to encroach on the jurisdiction of the National Labor
compulsory coverage with the petitioner SSS. Respondent cooperative continuously Relations Commission [NLRC], which is the more competent body clothed with
ignored the demand of petitioner SSS. power to resolve issues relating to the existence of an employment relationship.

Accordingly, petitioner SSS, on 12 June 2003, filed a Petition[14] before petitioner II. At any rate, the [petitioner] SSC has no jurisdiction to
SSC against the respondent cooperative and Stanfilco praying that the respondent take cognizance of the petition a quo.
cooperative or, in the alternative, Stanfilco be directed to register as an employer and
to report respondent cooperatives owners-members as covered employees under the A. [Respondent] is not an employer within the contemplation of the Labor
compulsory coverage of SSS and to remit the necessary contributions in accordance Law but is a multi-purpose cooperative created pursuant to Republic Act No. 6938
with the Social Security Law of 1997. The same was docketed as SSC Case No. 6- and composed of owners-members, not employees.
15507-03. Respondent cooperative filed its Answer with Motion to Dismiss alleging B. The rights and obligations of the owners-members of [respondent]
that no employer-employee relationship exists between it and its owners-members, cooperative are derived from their Membership Agreements, the Cooperatives By-
thus, petitioner SSC has no jurisdiction over the respondent cooperative. Stanfilco, Laws, and Republic Act No. 6938, and not from any contract of employment or from
on the other hand, filed an Answer with Cross-claim against the respondent the Labor Laws. Moreover, said owners-members enjoy rights that are not consistent
cooperative. with being mere employees of a company, such as the right to participate and vote in
decision-making for the cooperative.
On 17 February 2004, petitioner SSC issued an Order denying the Motion to Dismiss C. As found by the Bureau of Internal Revenue [BIR], the owners-
filed by the respondent cooperative. The respondent cooperative moved for the members of [respondent] cooperative are not paid any compensation income.[15]
reconsideration of the said Order, but it was likewise denied in another Order issued (Emphasis supplied.)
by the SSC dated 16 September 2004.

Intending to appeal the above Orders, respondent cooperative filed a Motion for On 5 January 2006, the Court of Appeals rendered a Decision granting the petition
Extension of Time to File a Petition for Review before the Court of Appeals. filed by the respondent cooperative. The decretal portion of the Decision reads:
Subsequently, respondent cooperative filed a Manifestation stating that it was no
longer filing a Petition for Review. In its place, respondent cooperative filed a WHEREFORE, the petition is GRANTED. The assailed Orders dated [17 February
Petition for Certiorari before the Court of Appeals, docketed as CA-G.R. SP No. 2004] and [16 September 2004], are ANNULLED and SET ASIDE and a new one is
87236, with the following assignment of errors: entered DISMISSING the petition-complaint dated [12 June 2003] of [herein
petitioner] Social Security System.[16]
I. The Orders dated 17 February 2004 and 16 September Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but
2004 of [herein petitioner] SSC were issued with grave abuse of discretion it was denied by the appellate court in its Resolution dated 20 March 2006.
amounting to a (sic) lack or excess of jurisdiction in that:
Hence, this Petition.
A. [Petitioner] SSC arbitrarily proceeded with the case as if it has
jurisdiction over the petition a quo, considering that it failed to first resolve the issue In its Memorandum, petitioners raise the issue of whether or not the Court of
of the existence of an employer-employee relationship between [respondent] Appeals erred in not finding that the SSC has jurisdiction over the subject matter and
cooperative and its owners-members. it has a valid basis in denying respondents Motion to Dismiss. The said issue is
B. While indeed, the [petitioner] SSC has jurisdiction over all disputes supported by the following arguments:
arising under the SSS Law with respect to coverage, benefits, contributions, and
related matters, it is respectfully submitted that [petitioner] SSC may only assume I. The [petitioner SSC] has jurisdiction over the petition-
jurisdiction in cases where there is no dispute as to the existence of an employer- complaint filed before it by the [petitioner SSS] under R.A. No. 8282.
employee relationship.
41
II. Respondent [cooperative] is estopped from questioning
the jurisdiction of petitioner SSC after invoking its jurisdiction by filing an [A]nswer Finally, petitioners contend that there is an employer-employee relationship between
with [M]otion to [D]ismiss before it. the respondent cooperative and its owners-members. The respondent cooperative is
the employer of its owners-members considering that it undertook to provide
III. The [petitioner SSC] did not act with grave abuse of services to Stanfilco, the performance of which is under the full and sole control of
discretion in denying respondent [cooperatives] [M]otion to [D]ismiss. the respondent cooperative.

IV. The existence of an employer-employee relationship is a On the other hand, respondent cooperative alleges that its owners-members own the
question of fact where presentation of evidence is necessary. cooperative, thus, no employer-employee relationship can arise between them. The
persons of the employer and the employee are merged in the owners-members
V. There is an employer-employee relationship between themselves. Likewise, respondent cooperatives owners-members even requested the
[respondent cooperative] and its [owners-members]. respondent cooperative to register them with the petitioner SSS as self-employed
individuals. Hence, petitioner SSC has no jurisdiction over the petition-complaint
filed before it by petitioner SSS.
Petitioners claim that SSC has jurisdiction over the petition-complaint filed before it
by petitioner SSS as it involved an issue of whether or not a worker is entitled to Respondent cooperative further avers that the Court of Appeals correctly ruled that
compulsory coverage under the SSS Law. Petitioners avow that Section 5 of petitioner SSC acted with grave abuse of discretion when it assumed jurisdiction
Republic Act No. 1161, as amended by Republic Act No. 8282, expressly confers over the petition-complaint without determining first if there was an employer-
upon petitioner SSC the power to settle disputes on compulsory coverage, benefits, employee relationship between the respondent cooperative and its owners-members.
contributions and penalties thereon or any other matter related thereto. Likewise, Respondent cooperative claims that the question of whether an employer-employee
Section 9 of the same law clearly provides that SSS coverage is compulsory upon all relationship exists between it and its owners-members is a legal and not a factual
employees. Thus, when petitioner SSS filed a petition-complaint against the issue as the facts are undisputed and need only to be interpreted by the applicable
respondent cooperative and Stanfilco before the petitioner SSC for the compulsory law and jurisprudence.
coverage of respondent cooperatives owners-members as well as for collection of
unpaid SSS contributions, it was very obvious that the subject matter of the aforesaid Lastly, respondent cooperative asserts that it cannot be considered estopped from
petition-complaint was within the expertise and jurisdiction of the SSC. assailing the jurisdiction of petitioner SSC simply because it filed an Answer with
Motion to Dismiss, especially where the issue of jurisdiction is raised at the very first
Petitioners similarly assert that granting arguendo that there is a prior need to instance and where the only relief being sought is the dismissal of the petition-
determine the existence of an employer-employee relationship between the complaint for lack of jurisdiction.
respondent cooperative and its owners-members, said issue does not preclude
petitioner SSC from taking cognizance of the aforesaid petition-complaint. From the foregoing arguments of the parties, the issues may be summarized into:
Considering that the principal relief sought in the said petition-complaint has to be
resolved by reference to the Social Security Law and not to the Labor Code or other I. Whether the petitioner SSC has jurisdiction over the
labor relations statutes, therefore, jurisdiction over the same solely belongs to petition-complaint filed before it by petitioner SSS against the respondent
petitioner SSC. cooperative.

Petitioners further claim that the denial of the respondent cooperatives Motion to II. Whether the respondent cooperative is estopped from
Dismiss grounded on the alleged lack of employer-employee relationship does not assailing the jurisdiction of petitioner SSC since it had already filed an Answer with
constitute grave abuse of discretion on the part of petitioner SSC because the latter Motion to Dismiss before the said body.
has the authority and power to deny the same. Moreover, the existence of an
employer-employee relationship is a question of fact where presentation of evidence
is necessary. Petitioners also maintain that the respondent cooperative is already Petitioner SSCs jurisdiction is clearly stated in Section 5 of Republic Act No. 8282
estopped from assailing the jurisdiction of the petitioner SSC because it has already as well as in Section 1, Rule III of the 1997 SSS Revised Rules of Procedure.
filed its Answer before it, thus, respondent cooperative has already submitted itself
to the jurisdiction of the petitioner SSC. Section 5 of Republic Act No. 8282 provides:
42
Nonetheless, since the existence of an employer-employee relationship between the
SEC. 5. Settlement of Disputes. (a) Any dispute arising under this Act with respect to respondent cooperative and its owners-members was put in issue and considering
coverage, benefits, contributions and penalties thereon or any other matter related that the compulsory coverage of the SSS Law is predicated on the existence of such
thereto, shall be cognizable by the Commission, x x x. (Emphasis supplied.) relationship, it behooves the petitioner SSC to determine if there is really an
employer-employee relationship that exists between the respondent cooperative and
its owners-members.
Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states: The question on the existence of an employer-employee relationship is not within the
exclusive jurisdiction of the National Labor Relations Commission (NLRC). Article
Section 1. Jurisdiction. Any dispute arising under the Social Security Act with 217 of the Labor Code enumerating the jurisdiction of the Labor Arbiters and the
respect to coverage, entitlement of benefits, collection and settlement of NLRC provides that:
contributions and penalties thereon, or any other matter related thereto, shall be ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. -
cognizable by the Commission after the SSS through its President, Manager or (a) x x x.
Officer-in-charge of the Department/Branch/Representative Office concerned had xxxx
first taken action thereon in writing. (Emphasis supplied.) 6. Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims, arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
It is clear then from the aforesaid provisions that any issue regarding the compulsory exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with
coverage of the SSS is well within the exclusive domain of the petitioner SSC. It is a claim for reinstatement.[20]
important to note, though, that the mandatory coverage under the SSS Law is
premised on the existence of an employer-employee relationship[17] except in cases
of compulsory coverage of the self-employed. Although the aforesaid provision speaks merely of claims for Social Security, it
It is axiomatic that the allegations in the complaint, not the defenses set up in the would necessarily include issues on the coverage thereof, because claims are
Answer or in the Motion to Dismiss, determine which court has jurisdiction over an undeniably rooted in the coverage by the system. Hence, the question on the
action; otherwise, the question of jurisdiction would depend almost entirely upon the existence of an employer-employee relationship for the purpose of determining the
defendant.[18] Moreover, it is well-settled that once jurisdiction is acquired by the coverage of the Social Security System is explicitly excluded from the jurisdiction of
court, it remains with it until the full termination of the case.[19] The said principle the NLRC and falls within the jurisdiction of the SSC which is primarily charged
may be applied even to quasi-judicial bodies. with the duty of settling disputes arising under the Social Security Law of 1997.

In this case, the petition-complaint filed by the petitioner SSS before the petitioner On the basis thereof, considering that the petition-complaint of the petitioner SSS
SSC against the respondent cooperative and Stanfilco alleges that the owners- involved the issue of compulsory coverage of the owners-members of the respondent
members of the respondent cooperative are subject to the compulsory coverage of cooperative, this Court agrees with the petitioner SSC when it declared in its Order
the SSS because they are employees of the respondent cooperative. Consequently, dated 17 February 2004 that as an incident to the issue of compulsory coverage, it
the respondent cooperative being the employer of its owners-members must register may inquire into the presence or absence of an employer-employee relationship
as employer and report its owners-members as covered members of the SSS and without need of waiting for a prior pronouncement or submitting the issue to the
remit the necessary premium contributions in accordance with the Social Security NLRC for prior determination. Since both the petitioner SSC and the NLRC are
Law of 1997. Accordingly, based on the aforesaid allegations in the petition- independent bodies and their jurisdiction are well-defined by the separate statutes
complaint filed before the petitioner SSC, the case clearly falls within its jurisdiction. creating them, petitioner SSC has the authority to inquire into the relationship
Although the Answer with Motion to Dismiss filed by the respondent cooperative existing between the worker and the person or entity to whom he renders service to
challenged the jurisdiction of the petitioner SSC on the alleged lack of employer- determine if the employment, indeed, is one that is excepted by the Social Security
employee relationship between itself and its owners-members, the same is not Law of 1997 from compulsory coverage.[21]
enough to deprive the petitioner SSC of its jurisdiction over the petition-complaint
filed before it. Thus, the petitioner SSC cannot be faulted for initially assuming Even before the petitioner SSC could make a determination of the existence of an
jurisdiction over the petition-complaint of the petitioner SSS. employer-employee relationship, however, the respondent cooperative already
elevated the Order of the petitioner SSC, denying its Motion to Dismiss, to the Court
of Appeals by filing a Petition for Certiorari. As a consequence thereof, the petitioner
43
SSC became a party to the said Petition for Certiorari pursuant to Section 5(b)[22] of or shares in the service surplus are indeed wages, because these are given to the
Republic Act No. 8282. The appellate court ruled in favor of the respondent owners-members as compensation in rendering services to respondent cooperatives
cooperative by declaring that the petitioner SSC has no jurisdiction over the petition- client, Stanfilco. Third. It is also stated in the above-mentioned Service Contracts
complaint filed before it because there was no employer-employee relationship that it is the respondent cooperative which has the power to investigate, discipline
between the respondent cooperative and its owners-members. Resultantly, the and remove the owners-members and its team leaders who were rendering services at
petitioners SSS and SSC, representing the Republic of the Philippines, filed a Stanfilco.[31] Fourth. As earlier opined, of the four elements of the employer-
Petition for Review before this Court. employee relationship, the control test is the most important. In the case at bar, it is
the respondent cooperative which has the sole control over the manner and means of
Although as a rule, in the exercise of the Supreme Courts power of review, the Court performing the services under the Service Contracts with Stanfilco as well as the
is not a trier of facts and the findings of fact of the Court of Appeals are conclusive means and methods of work.[32] Also, the respondent cooperative is solely and
and binding on the Court,[23] said rule is not without exceptions. There are several entirely responsible for its owners-members, team leaders and other representatives
recognized exceptions[24] in which factual issues may be resolved by this Court. at Stanfilco.[33] All these clearly prove that, indeed, there is an employer-employee
One of these exceptions finds application in this present case which is, when the relationship between the respondent cooperative and its owners-members.
findings of fact are conflicting. There are, indeed, conflicting findings espoused by
the petitioner SSC and the appellate court relative to the existence of employer- It is true that the Service Contracts executed between the respondent cooperative and
employee relationship between the respondent cooperative and its owners-members, Stanfilco expressly provide that there shall be no employer-employee relationship
which necessitates a departure from the oft-repeated rule that factual issues may not between the respondent cooperative and its owners-members.[34] This Court,
be the subject of appeals to this Court. however, cannot give the said provision force and effect.

In determining the existence of an employer-employee relationship, the following As previously pointed out by this Court, an employee-employer relationship actually
elements are considered: (1) the selection and engagement of the workers; (2) the exists between the respondent cooperative and its owners-members. The four
payment of wages by whatever means; (3) the power of dismissal; and (4) the power elements in the four-fold test for the existence of an employment relationship have
to control the workers conduct, with the latter assuming primacy in the overall been complied with. The respondent cooperative must not be allowed to deny its
consideration.[25] The most important element is the employers control of the employment relationship with its owners-members by invoking the questionable
employees conduct, not only as to the result of the work to be done, but also as to the Service Contracts provision, when in actuality, it does exist. The existence of an
means and methods to accomplish.[26] The power of control refers to the existence employer-employee relationship cannot be negated by expressly repudiating it in a
of the power and not necessarily to the actual exercise thereof. It is not essential for contract, when the terms and surrounding circumstances show otherwise. The
the employer to actually supervise the performance of duties of the employee; it is employment status of a person is defined and prescribed by law and not by what the
enough that the employer has the right to wield that power.[27] All the aforesaid parties say it should be.[35]
elements are present in this case.
It is settled that the contracting parties may establish such stipulations, clauses, terms
First. It is expressly provided in the Service Contracts that it is the respondent and conditions as they want, and their agreement would have the force of law
cooperative which has the exclusive discretion in the selection and engagement of between them. However, the agreed terms and conditions must not be contrary to
the owners-members as well as its team leaders who will be assigned at law, morals, customs, public policy or public order.[36] The Service Contract
Stanfilco.[28] Second. Wages are defined as remuneration or earnings, however provision in question must be struck down for being contrary to law and public
designated, capable of being expressed in terms of money, whether fixed or policy since it is apparently being used by the respondent cooperative merely to
ascertained, on a time, task, piece or commission basis, or other method of circumvent the compulsory coverage of its employees, who are also its owners-
calculating the same, which is payable by an employer to an employee under a members, by the Social Security Law.
written or unwritten contract of employment for work done or to be done, or for
service rendered or to be rendered.[29] In this case, the weekly stipends or the so- This Court is not unmindful of the pronouncement it made in Cooperative Rural
called shares in the service surplus given by the respondent cooperative to its Bank of Davao City, Inc. v. Ferrer-Calleja[37] wherein it held that:
owners-members were in reality wages, as the same were equivalent to an amount
not lower than that prescribed by existing labor laws, rules and regulations, including A cooperative, therefore, is by its nature different from an ordinary business concern,
the wage order applicable to the area and industry; or the same shall not be lower being run either by persons, partnerships, or corporations. Its owners and/or
than the prevailing rates of wages.[30] It cannot be doubted then that those stipends
44
members are the ones who run and operate the business while the others are its whole. Therefore, it is completely logical that the respondent cooperative, as a
employees x x x. juridical person represented by its Board of Directors, can enter into an employment
with its owners-members.
An employee therefore of such a cooperative who is a member and co-owner thereof
cannot invoke the right to collective bargaining for certainly an owner cannot In sum, having declared that there is an employer-employee relationship between the
bargain with himself or his co-owners. In the opinion of August 14, 1981 of the respondent cooperative and its owners-member, we conclude that the petitioner SSC
Solicitor General he correctly opined that employees of cooperatives who are has jurisdiction over the petition-complaint filed before it by the petitioner SSS. This
themselves members of the cooperative have no right to form or join labor being our conclusion, it is no longer necessary to discuss the issue of whether the
organizations for purposes of collective bargaining for being themselves co-owners respondent cooperative was estopped from assailing the jurisdiction of the petitioner
of the cooperative. SSC when it filed its Answer with Motion to Dismiss.

However, in so far as it involves cooperatives with employees who are not members WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The
or co-owners thereof, certainly such employees are entitled to exercise the rights of Decision and the Resolution of the Court of Appeals in CA-G.R. SP No. 87236,
all workers to organization, collective bargaining, negotiations and others as are dated 5 January 2006 and 20 March 2006, respectively, are hereby REVERSED and
enshrined in the Constitution and existing laws of the country. SET ASIDE. The Orders of the petitioner SSC dated 17 February 2004 and 16
September 2004 are hereby REINSTATED. The petitioner SSC is hereby
DIRECTED to continue hearing the petition-complaint filed before it by the
The situation in the aforesaid case is very much different from the present case. The petitioner SSS as regards the compulsory coverage of the respondent cooperative and
declaration made by the Court in the aforesaid case was made in the context of its owners-members. No costs.
whether an employee who is also an owner-member of a cooperative can exercise the
right to bargain collectively with the employer who is the cooperative wherein he is
an owner-member. Obviously, an owner-member cannot bargain collectively with SO ORDERED.
the cooperative of which he is also the owner because an owner cannot bargain with
himself. In the instant case, there is no issue regarding an owner-members right to
bargain collectively with the cooperative. The question involved here is whether an
employer-employee relationship can exist between the cooperative and an owner-
member. In fact, a closer look at Cooperative Rural Bank of Davao City, Inc. will
show that it actually recognized that an owner-member of a cooperative can be its
own employee.

It bears stressing, too, that a cooperative acquires juridical personality upon its
registration with the Cooperative Development Authority.[38] It has its Board of
Directors, which directs and supervises its business; meaning, its Board of Directors
is the one in charge in the conduct and management of its affairs.[39] With that, a
cooperative can be likened to a corporation with a personality separate and distinct
from its owners-members. Consequently, an owner-member of a cooperative can be
an employee of the latter and an employer-employee relationship can exist between
them.

In the present case, it is not disputed that the respondent cooperative had registered
itself with the Cooperative Development Authority, as evidenced by its Certificate of
Registration No. 0-623-2460.[40] In its by-laws,[41] its Board of Directors directs,
controls, and supervises the business and manages the property of the respondent
cooperative. Clearly then, the management of the affairs of the respondent
cooperative is vested in its Board of Directors and not in its owners-members as a
45
G.R. No. 80680. January 26, 1989.* On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the
National Labor Relations Commission for reinstatement and payment of various
DANILO B. TABAS, EDUARDO A. BONDOC, RAMON M. BRIONES, benefits, including minimum wage, overtime pay, holiday pay, thirteen-month pay,
EDUARDO R. ERISPE, JOEL MADRIAGA, ARTHUR M. ESPINO, AMARO and emergency cost of living allowance pay, against the respondent, the California
BONA, FERDINAND CRUZ, FEDERICO A BELITA, ROBERTO P. ISLES, Manufacturing Company. 1
ELMER ARMADA, EDUARDO UDOG, PETER TIANSING, MIGUELITA
QUIAMBOA, NOMER MATAGA, VIOLY ESTEBAN and LYDIA ORTEGA, On October 7, 1986, after the cases had been consolidated, the California
petitioners, vs. CALIFORNIA MANUFACTURING COMPANY, INC., LILY- Manufacturing Company (California) filed a motion to dismiss as well as a position
VICTORIA A. AZARCON, NATIONAL LABOR RELATIONS paper denying the existence of an employer-employee relation between the
COMMISSION, and HON. EMERSON C. TUMANON, respondents. petitioners and the company and, consequently, any liability for payment of money
claims. 2 On motion of the petitioners, Livi Manpower Services, Inc. was impleaded
Labor Law; Labor Relations; Employer-Employee Relationship; The existence of an as a party-respondent.
employer-employee relation cannot be made the subject of an agreement.The
existence of an employer-employee relation is a question of law and being such, it It appears that the petitioners were, prior to their stint with California, employees of
cannot be made the subject of agreement. Hence, the fact that the manpower supply Livi Manpower Services, Inc. (Livi), which subsequently assigned them to work as
agreement between Livi and California had specifically designated the former as the "promotional merchandisers" 3 for the former firm pursuant to a manpower supply
petitioners employer and had absolved the latter from any liability as an employer, agreement. Among other things, the agreement provided that California "has no
will not erase either partys obligations as an employer, if an employer-employee control or supervisions whatsoever over [Livi's] workers with respect to how they
relation otherwise exists between the workers and either firm. At any rate, since the accomplish their work or perform [Californias] obligation"; 4 the Livi "is an
agreement was between Livi and California, they alone are bound by it, and the independent contractor and nothing herein contained shall be construed as creating
petitioners cannot be made to suffer from its adverse consequences. between [California] and [Livi] . . . the relationship of principal[-]agent or
employer[-]employee'; 5 that "it is hereby agreed that it is the sole responsibility of
Same; Same; Same; Labor Only Contracting; The labor only contractor is [Livi] to comply with all existing as well as future laws, rules and regulations
considered merely an agent of the employer, liability therefore must be shouldered pertinent to employment of labor" 6 and that "[California] is free and harmless from
by either one or shared by both.On the other hand, we have likewise held, based any liability arising from such laws or from any accident that may befall workers and
on Article 106 of the Labor Code. xxx that notwithstanding the absence of a direct employees of [Livi] while in the performance of their duties for [California]. 7
employeremployee relationship between the employer in whose favor work had been
contracted out by a labor-only contractor, and the employees, the former has the It was further expressly stipulated that the assignment of workers to California shall
responsibility, together with the labor-only contractor for any valid labor claims, be on a "seasonal and contractual basis"; that "[c]ost of living allowance and the 10
by operation of law. The reason, so we held, is that the labor-only contractor is legal holidays will be charged directly to [California] at cost "; and that "[p]ayroll for
considered merely an agent of the employer, and liability must be shouldered by the preceeding [sic] week [shall] be delivered by [Livi] at [California's] premises." 8
either one or shared by both.
The petitioners were then made to sign employment contracts with durations of six
Same; Same; Same; Casual Employees; A temporary or casual employee becomes months, upon the expiration of which they signed new agreements with the same
regular after service of one year, unless he has been contracted for a specific period, and so on. Unlike regular California employees, who received not less than
project.The fact that the petitioners have been hired on a temporary or seasonal P2,823.00 a month in addition to a host of fringe benefits and bonuses, they received
basis merely is no argument either. As we held in Philippine Bank of P38.56 plus P15.00 in allowance daily.
Communications v. NLRC, a temporary or casual employee, under Article 281 of the
Labor Code, becomes regular after service of one year, unless he has been contracted The petitioners now allege that they had become regular California employees and
for a specific project. And we cannot say that merchandising is a specific project for demand, as a consequence whereof, similar benefits. They likewise claim that
the obvious reason that it is an activity related to the day-to-day operations of pending further proceedings below, they were notified by California that they would
California. not be rehired. As a result, they filed an amended complaint charging California with
illegal dismissal.
SARMIENTO, J.:

46
California admits having refused to accept the petitioners back to work but deny his contractor or sub-contractor to such employees to the extent of the work
liability therefor for the reason that it is not, to begin with, the petitioners' employer performed under the contract, in the same manner and extent that he is liable to
and that the "retrenchment" had been forced by business losses as well as expiration employees directly employed by him.
of contracts. 9 It appears that thereafter, Livi re-absorbed them into its labor pool on
a "wait-in or standby" status. 10 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.
Amid these factual antecedents, the Court finds the single most important issue to be: In so prohibiting or restricting, he may make appropriate distinctions between labor-
Whether the petitioners are California's or Livi's employees. 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
The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the employer for purposes of this Code, to prevent any violation or circumvention of any
existence of any employer-employee relation between the petitioners and California provisions of this Code.
ostensibly in the light of the manpower supply contract, supra, and consequently,
against the latter's liability as and for the money claims demanded. In the same There is 'labor-only' contracting where the person supplying workers to an employer
breath, however, the labor arbiter absolved Livi from any obligation because the does not have substantial capital or investment in the form of tools, equipment,
"retrenchment" in question was allegedly "beyond its control ." 13 He assessed machineries, work premises, among others, and the workers recruited and placed by
against the firm, nevertheless, separation pay and attorney's fees. 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
We reverse. 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
The existence of an employer-employees relation is a question of law and being him.
such, it cannot be made the subject of agreement. Hence, the fact that the manpower
supply agreement between Livi and California had specifically designated the former that notwithstanding the absence of a direct employer-employee relationship between
as the petitioners' employer and had absolved the latter from any liability as an the employer in whose favor work had been contracted out by a "labor-only"
employer, will not erase either party's obligations as an employer, if an employer- contractor, and the employees, the former has the responsibility, together with the
employee relation otherwise exists between the workers and either firm. At any rate, "labor-only" contractor, for any valid labor claims, 16 by operation of law. The
since the agreement was between Livi and California, they alone are bound by it, and reason, so we held, is that the "labor-only" contractor is considered "merely an agent
the petitioners cannot be made to suffer from its adverse consequences. of the employer," 17 and liability must be shouldered by either one or shared by
both. 18
This Court has consistently ruled that the determination of whether or not there is an
employer-employee relation depends upon four standards: (1) the manner of There is no doubt that in the case at bar, Livi performs "manpower services", 19
selection and engagement of the putative employee; (2) the mode of payment of meaning to say, it contracts out labor in favor of clients. We hold that it is one
wages; (3) the presence or absence of a power of dismissal; and (4) the presence or notwithstanding its vehement claims to the contrary, and notwithstanding the
absence of a power to control the putative employee's conduct. 14 Of the four, the provision of the contract that it is "an independent contractor." 20 The nature of one's
right-of-control test has been held to be the decisive factor. 15 business is not determined by self-serving appellations one attaches thereto but by
the tests provided by statute and prevailing case law. 21 The bare fact that Livi
On the other hand, we have likewise held, based on Article 106 of the Labor Code, maintains a separate line of business does not extinguish the equal fact that it has
hereinbelow reproduced: provided California with workers to pursue the latter's own business. In this
connection, we do not agree that the petitioners had been made to perform activities
ART. 106. Contractor or sub-contractor. Whenever an employee enters into a 'which are not directly related to the general business of manufacturing," 22
contract with another person for the performance of the former's work, the California's purported "principal operation activity. " 23 The petitioner's had been
employees of the contractor and of the latter's sub-contractor, if any, shall be paid in charged with "merchandizing [sic] promotion or sale of the products of [California]
accordance with the provisions of this Code. in the different sales outlets in Metro Manila including task and occational [sic] price
tagging," 24 an activity that is doubtless, an integral part of the manufacturing
In the event that the contractor or sub-contractor fails to pay wages of his employees business. It is not, then, as if Livi had served as its (California's) promotions or sales
in accordance with this Code, the employer shall be jointly and severally liable with arm or agent, or otherwise, rendered a piece of work it (California) could not have
47
itself done; Livi, as a placement agency, had simply supplied it with the manpower
necessary to carry out its (California's) merchandising activities, using its Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a
(California's) premises and equipment. 25 recruitment and placement corporation placing bodies, as it were, in different client
companies for longer or shorter periods of time, ... 28
Neither Livi nor California can therefore escape liability, that is, assuming one
exists. In the case at bar, Livi is admittedly an "independent contractor providing temporary
services of manpower to its client. " 29 When it thus provided California with
The fact that the petitioners have allegedly admitted being Livi's "direct employees" manpower, it supplied California with personnel, as if such personnel had been
26 in their complaints is nothing conclusive. For one thing, the fact that the directly hired by California. Hence, Article 106 of the Code applies.
petitioners were (are), will not absolve California since liability has been imposed by
legal operation. For another, and as we indicated, the relations of parties must be The Court need not therefore consider whether it is Livi or California which
judged from case to case and the decree of law, and not by declarations of parties. exercises control over the petitioner vis-a-vis the four barometers referred to earlier,
since by fiction of law, either or both shoulder responsibility.
The fact that the petitioners have been hired on a "temporary or seasonal" basis
merely is no argument either. As we held in Philippine Bank of Communications v. It is not that by dismissing the terms and conditions of the manpower supply
NLRC, 27 a temporary or casual employee, under Article 218 of the Labor Code, agreement, we have, hence, considered it illegal. Under the Labor Code, genuine job
becomes regular after service of one year, unless he has been contracted for a contracts are permissible, provided they are genuine job contracts. But, as we held in
specific project. And we cannot say that merchandising is a specific project for the Philippine Bank of Communications, supra, when such arrangements are resorted to
obvious reason that it is an activity related to the day-to-day operations of California. "in anticipation of, and for the very purpose of making possible, the secondment" 30
of the employees from the true employer, the Court will be justified in expressing its
It would have been different, we believe, had Livi been discretely a promotions firm, concern. For then that would compromise the rights of the workers, especially their
and that California had hired it to perform the latter's merchandising activities. For right to security of tenure.
then, Livi would have been truly the employer of its employees, and California, its
client. The client, in that case, would have been a mere patron, and not an employer. This brings us to the question: What is the liability of either Livi or California?
The employees would not in that event be unlike waiters, who, although at the
service of customers, are not the latter's employees, but of the restaurant. As we The records show that the petitioners bad been given an initial six-month contract,
pointed out in the Philippine Bank of Communications case: renewed for another six months. Accordingly, under Article 281 of the Code, they
had become regular employees-of-California-and had acquired a secure tenure.
xxx xxx xxx Hence, they cannot be separated without due process of law.

... The undertaking given by CESI in favor of the bank was not the performance of a California resists reinstatement on the ground, first, and as we Id, that the petitioners
specific job for instance, the carriage and delivery of documents and parcels to the are not its employees, and second, by reason of financial distress brought about by
addresses thereof. There appear to be many companies today which perform this "unfavorable political and economic atmosphere" 31 "coupled by the February
discrete service, companies with their own personnel who pick up documents and Revolution." 32 As to the first objection, we reiterate that the petitioners are its
packages from the offices of a client or customer, and who deliver such materials employees and who, by virtue of the required one-year length-of-service, have
utilizing their own delivery vans or motorcycles to the addressees. In the present acquired a regular status. As to the second, we are not convinced that California has
case, the undertaking of CESI was to provide its client the bank with a certain shown enough evidence, other than its bare say so, that it had in fact suffered serious
number of persons able to carry out the work of messengers. Such undertaking of business reverses as a result alone of the prevailing political and economic climate.
CESI was complied with when the requisite number of persons were assigned or We further find the attribution to the February Revolution as a cause for its alleged
seconded to the petitioner bank. Orpiada utilized the premises and office equipment losses to be gratuitous and without basis in fact.
of the bank and not those of CESI. Messengerial work the delivery of documents to
designated persons whether within or without the bank premises-is of course directly California should be warned that retrenchment of workers, unless clearly warranted,
related to the day-to-day operations of the bank. Section 9(2) quoted above does not has serious consequences not only on the State's initiatives to maintain a stable
require for its applicability that the petitioner must be engaged in the delivery of employment record for the country, but more so, on the workingman himself, amid
items as a distinct and separate line of business. an environment that is desperately scarce in jobs. And, the National Labor Relations
48
Commission should have known better than to fall for such unwarranted excuses and No. L-78382. December 14, 1987.*
nebulous claims.
BROADWAY MOTORS, INC., petitioner, vs. NATIONAL LABOR
WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): RELATIONS COMMISSION and VICENTE APOLINARIO, respondents.
SETTING ASIDE the decision, dated March 20, 1987, and the resolution, dated
August 19, 1987; (2) ORDERING the respondent, the California Manufacturing Labor Relations; Factors considered in determining the existence of employer-
Company, to REINSTATE the petitioners with full status and rights of regular employee relationship.Four factors are generally considered in determining the
employees; and (3) ORDERING the respondent, the California Manufacturing existence of an employer-employee relationship, namely: (a) the manner of selection
Company, and the respondents, Livi Manpower Service, Inc. and/or Lily-Victoria and engagement of the putative employee; (b) the mode of payment of wages; (c) the
Azarcon, to PAY, jointly and severally, unto the petitioners: (a) backwages and presence or absence of a power of dismissal; and (d) the presence or absence of a
differential pays effective as and from the time they had acquired a regular status power to control the putative employee's conduct. It is this latter factor, the so-called
under the second paragraph, of Section 281, of the Labor Code, but not to exceed "control test," which is the most important criterion in such determination. The
three (3) years, and (b) all such other and further benefits as may be provided by record shows that Apolinario was hired directly by petitioner Corporation to work in
existing collective bargaining agreement(s) or other relations, or by law, beginning the latter's auto repair shop as an auto painter, which fact is evidenced by the undated
such time; and (4) ORDERING the private respondents to PAY unto the petitioners Work Contract executed between Apolinario and petitioner Corporation through its
attorney's fees equivalent to ten (10%) percent of all money claims hereby awarded, authorized representative. That petitioner corporation reserved unto itself the power
in addition to those money claims. The private respondents are likewise ORDERED of dismissal is evident from the fact that petitioner Corporation unilaterally
to PAY the costs of this suit. undertook to terminate Apolinario's relationships with itself.
Same; Indices of an owner-independent contractor relationship.The indices of an
IT IS SO ORDERED. owner-independent contractor relationship are set out in Section 8 of Rule VIII,
Book III of the Omnibus Rules Implementing the Labor Code. Section 8 provides:
"Job contracting.There is job contracting permissible under the Code if the
following conditions are met: (1) The contractor carries on an independent business
and undertakes the contract work on his own account under his own responsibility
according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work
except as to the results thereof; and (2) The contractor has substantial capital or
investment in the form of tools, equipment, machineries, work premises, and other
materials which are necessary in the conduct of his business."

Same; Same; "Job contracting" distinguished from "labor-only contracting.""Job


contracting" must be distinguished from "labor-only" contracting. "Labor-only"
contracting is defined in Section 9 of Rule VIII, Book III of the Omnibus Rules
Implementing the Labor Code, in the following terms: "Sec. 9. Labor-only
contracting.(a) Any person who undertakes to supply workers to an employer shall
be deemed to be engaged in labor-only contracting where such person: (1) Does not
have substantial capital or investment in the form of tools, equipment, machineries,
work premises and other materials; and (2) The workers recruited and placed by such
person are performing activities which are directly related to the principal business
or operations of the employer in which workers are habitually employed. (b) Labor-
only contracting as defined herein is hereby prohibited and the person acting as
contractor shall be considered merely as an agent or intermediary of the employer
who shall be responsible to the workers in the same manner and extent as if the latter
were directly employed by him. x x x x x x x x x."

49
Same; Same; Finding that a contractor was a "labor-only" contractor is equivalent to
a finding that an employer-employee relationship existed between the owner and the In reversing the decision of the Labor Arbiter, public respondent NLRC found that a
"labor-only" contractor including the latter's "contract workers."Thus, a finding valid and binding employer-employee relationship had existed between petitioner
that a contractor was a "labor-only" contractor is equivalent to a finding that an Corporation and Apolinario. Since Apolinario was dismissed without any
employer-employee relationship existed between the owner and the "labor-only" investigation having been previously conducted by petitioner Corporation to
contractor including the latter's "Contract Workers," that relationship being attributed ascertain his participation in the fistfight within company premises, his dismissal
by the law itself. Petitioner Corporation's defense thus compels us to examine still was, accordingly, declared illegal by public respondent NLRC for non-compliance
further the relationship between itself and private respondent Apolinario in terms of with the requirements of procedural due process.
the above indices of contracting"job" or "labor-only."
After a careful scrutiny of the records of this case, the Court considers that petitioner
FELICIANO, J.: Corporation has not sufficiently shown that respondent NLRC had acted with grave
abuse of discretion, or without or in excess of jurisdiction in rendering its decision
By virtue of a written undated "Work Contract," 1 private respondent Vicente dated 4 February 1987.
Apolinario, sometime in March 1967, began work as an auto painter in the premises
of petitioner Broadway Motors, Inc. located at 1232 United Nations Avenue, Metro Four factors are generally considered in determining the existence of an employer-
Manila. The contract was signed by Vicente Apolinario as "Contractor"and Mr. employee relationship, namely: (a) the manner of selection and engagement of the
Johnny L. Chieng, Parts and Service Operations Manager of petitioner Corporation. putative employee; (b) the mode of payment of wages; (c) the presence or absence of
Apolinario worked as an auto painter for a period of eighteen (18) years, until 23 a power of dismissal; and (d) the presence or absence of a power to control the
January 1985 when he was barred from entering the premises of the petitioner putative employee's conduct. It is this latter factor, the so-called "control test," which
Corporation, and his alleged involvement in a fist-fight with the shop superintendent is the most important criterion in such determination. 5 The record shows that
of Broadway Motors the day before. Apolinario was hired directly by petitioner Corporation to work in the latter's auto
repair shop as an auto painter, which fact is evidenced by the undated Work Contract
On 21 February 1985, Apolinario commenced an action for illegal dismissal with the executed between Apolinario and petitioner Corporation through its authorized
National Capital Region Arbitration Branch of the National Labor Relations representative. That petitioner corporation reserved unto itself the power of dismissal
Commission (NLRC). In his Complaint, which was docketed as NLRC Case No. is evident from the fact that petitioner Corporation unilaterally undertook to
2587-85, Apolinario sought recovery from petitioner Corporation of (1) separation terminate Apolinario's relationships with itself.
pay in the amount of P66,676.95, on the basis of an alleged monthly income of
P7,408.55, (2) moral damages of P50,000.00, and (3) attorney's fees of P10,000.00. Upon the other hand, it appears that Apolinario and his men (designated in the Work
Contract as "Contract Workers") were compensated for the jobs they performed in
In a Decision dated 2 January 1986, the Labor Arbiter dismissed the complaint upon lump sum payments described as "payment for sub-contract painting" or other repair
the ground that under the Work Contract and an "Addendum to Work Contract" job, from which amounts an unexplained "three percent (3 %) of fifteen percent (I 5
dated 28 April 1984, 3 Apolinario, having supplied the workers himself included %) withholding tax " was deducted. It further appears that Apolinario invoiced,
who performed the auto painting jobs for petitioner Corporation, was a mere under the designation of "VM Automotive Repair Service, " to petitioner
contractor and could not, therefore, be considered as the latter's employee. From this Corporation the salaries of his "Contract Workers" on which amounts, a three
decision, Apolinario interposed an appeal to the NLRC. percent (3%) "sales tax" was added. The "Work Contract" also provided that
Broadway Motors would negotiate only with Apolinario on any work order, and
On 4 February 1987, public respondent NLRC rendered a Decision, 4 the dispositive would refrain from dealing with any member of Apolinario's group of "Contract
portion of which reads: Workers. 6

WHEREFORE, the Decision appealed from is reversed and a new judgment entered Turning to the power to control Apolinario's conduct appears from the stipulations of
ordering the respondent to pay complainant separation pay in the sum of FORTY the Work Contract that Apolinario and his "Contract Workers" were required not
FIVE THOUSAND (P45,000-00) PESOS plus 10% thereof as and for attorney's only to keep regular working hours, but to render overtime service as well, when
fees. such as necessitated either by the volume or immediacy of the work. 7 They were not
allowed to negotiate with customers regarding the performance of any additional
SO ORDERED. work beyond that which had been authorized by petitioner Corporation. 8 Any defect
50
in the workmanship of their jobs was subject to correction by petitioner (2) The workers recruited and Placed by such person are performing activities
Corporation's designated supervisors and inspectors even as the work was still in which are directly related to the principal business or operations of the employer in
progress, and not just after the same had already been completed. 9 Furthermore, which workers are habitually employed.
Apolinario and his men were expressly required to abide by petitioner Corporation's
regulations and policies, "particularly on the wearing of uniforms and Identification (b) Labor-only contracting as defined herein is hereby prohibited and the person
cards, " which Id cards had to be worn at all times while within the work premises. acting as contractor shall be considered merely as an agent or intermediary of the
Apolinario's "casual workers" were additionally required to deposit their Id cards employer who shall be responsible to the workers in the same manner and extent as
with petitioner Corporation's security guard at the end of the working day. 10 In if the latter were
other words, Apolinario and his "Contract Workers" were under the direct control
and supervision of the supervisors and managers of petitioner Corporation from the xxx xxx xxx (Emphasis supplied.)
very moment they entered the work premises at the beginning of the working day, all
throughout the performance of their duties for the day, until shop closing time. The legal effect of a finding that a contractor was not a true independent contractor
or "job contractor" but, rather, merely a "labor-only" contractor was explained in
Petitioner Corporation urges that Apolinario was not its own employee but, rather, an Philippine Bank of Communications v. National Labor Relations Commission et al.
independent contractor who conducted his own separate business under the trade 11
name of "VM Automotive Repair Service" and had his own "Contract Workers."
... The "labor-only" contractor i.e., "the person or intermediary is considered "merely
The indices of an owner-independent contractor relationship are set out in Section 8 as an agent of the employer." The employer is made by the statute responsible to the
of Rule VIII, Book Ill of the Omnibus Rules Implementing the Labor Code. Section employees of the "labor only" contractor as if such employee had been directly
8 provides: employed by the employer. Thus, where "labor only contracting exists in a given
case, the statute itself implies or establishes an employer-employee relationship
Job contracting. There is job contracting permissible under the Code if the between the employer (the owner of the project) and the employees of the "labor
following conditions are met: only contractor, this time for a comprehensive purpose: "employer for purposes of
this Code, to prevent any violation or circumvention of any provision of this Code.
(1) The contractor carries on an independent business and undertakes the The law in effect holds both the employer and the "labor-only" contractor
contract work on his own account under his own responsibility according to his own responsible to the latter's employees for the more effective safeguarding of the
manner and method, free from the control and direction of his employer or principal employees' rights under the labor Code. (Emphasis supplied.)
in all matters connected with the performance of the work except as to the results
thereof; and Thus, a finding that a contractor was a "labor-only" contractor is equivalent to a
finding that an employer-employee relationship existed between the owner and the
(2) The contractor has substantial capital or investment in the form of tools, "labor-only" contractor including the latter"s "Contract Workers," that relationship
equipment, machineries, work premises, and other materials which are necessary in being attributed by the law itself. Petitioner Corporation"s defense thus compels us
the conduct of his business. (Emphasis supplied.) to examine still further the relationship between itself and private respondent
Apolinario in terms of the above indices of contracting "job" or "labor-only. "
"Job contracting" must be distinguished from "labor-only" contracting. "Labor-only"
contracting is defined in Section 9 of Rule VIII, Book Ill of the Omnibus Rules We note firstly that, under the Work Contract, Apolinario supplied only "labor and
Implementing the Labor Code, in the following terms: supervision (over his "Contract Workers") in the performance of automotive body
painting work which the company (i.e., Broadway Motors) may from time to time,
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply award to him under (the) contract." 12 Apolinario also undertook to "hire and bring
workers to an employer shall be deemed to be engaged in labor-only contracting in additional workers as may be required by the company, to handle additional work
where such person: load or to accelerate or facilitate completion of work in process. 13 Petitioner
Corporation supplied all the tools, equipment, machinery and materials necessary for
(1) Does not have substantial capital or investment in the form of tools, Apolinario to carry out his assigned painting jobs, which painting jobs were executed
equipment, machineries, work premises and other materials; and by Apolinario and his men within the premises owned and maintained by petitioner
Corporation. The control and direction exercised by petitioner Corporation over the
51
work done by Apolinario and his "Contract Workers" was well- nigh complete, as G.R. Nos. 97008-09. July 23, 1993.*
indicated earlier. There was, furthermore, no evidence adduced by petitioner
Corporation to show that Apolinario had substantial capital investment in "VM VIRGINIA G. NERI and JOSE CABELIN, petitioners, vs. NATIONAL
Automotive Repair Service" or that "VM Automotive Repair Service" carried on, in LABOR RELATIONS COMMISSION FAR EAST BANK & TRUST
its own premises, a car repair business operation separate and distinct from that COMPANY (FEBTC) and BUILDING CARE CORPORATION, respondents.
engaged in by petitioner Corporation, an operation the tools or equipment of which
were owned by Apolinario and the customers of which were not customers of Labor Law; Building Care Corporation is a highly capitalized venture and cannot be
Broadway Motors. What the evidence of record reveals is that the alleged "Contract deemed engaged in labor-only contracting.Respondent BCC need not prove that
Work" carried out by Apolinario and his "Contract Workers," excepting overtime it made investments in the form of tools, equipment, machineries, work premises,
work, was performed during regular working hours six (6) days in a week, which among others, because it has established that it has sufficient capitalization. The
circumstance must have made it virtually impossible for them to carry on any Labor Arbiter and the NLRC both determined that BCC had a capital stock of P1
additional and independent auto painting business outside the premises of Broadway million fully subscribed and paid for. BCC is therefore a highly capitalized venture
Motors. Finally, Apolinario and his men were engaged in the performance of a line and cannot be deemed engaged in labor-only contracting.
of work automobile painting which was directly related to, if not an integral
part altogether of the regular business operations of petitioner Corporation i.e., that Same; Same; Factors to be considered in labor-only contracting.It is well-settled
of an automotive repair shop. that there is labor-only contracting where: (a) the person supplying workers to an
employer does not have substantial capital or investment in the form of tools,
We conclude that while there is present in the relationship between petitioner equipment, machineries, work premises, among others; and, (b) the workers
Corporation and private respondent some factors suggestive of an owner- recruited and placed by such person are performing activities which are directly
independent contractor relationship (e.g., the manner of payment of compensation to related to the principal business of the employer.
Apolinario and his "Contract Workers"), many other factors are present which
demonstrate that that relationship is properly characterized as one of employer- Same; Same; Same; BCC cannot be considered a labor-only contractor because it
employee. We conclude, further, that the same factors indicate the existence of a has substantial capital.Based on the foregoing, BCC cannot be considered a
"labor-only" contracting arrangement between petitioner Corporation on the one labor-only contractor because it has substantial capital. While there may be no
hand as owner, and upon the other hand, Apolinario as "labor-only" contractor and evidence that it has investment in the form of tools, equipment, machineries, work
his "Contract Workers." Thus, an employer-employee relationship must be held to premises, among others, it is enough that it has substantial capital, as was established
have existed between petitioner Corporation and private respondent, whether before the Labor Arbiter as well as the NLRC. In other words, the law does not
considered as a result of the contractual arrangements between them or as a result of require both substantial capital and investment in the form of tools, equipment,
the operation of the Labor Code (at least from 1974 onwards) and its Implementing machineries, etc. This is clear from the use of the conjunction or.
Rules. It follows, finally, that the ruling of public respondent NLRC that petitioner
Corporation and private respondent were employer and employee, respectively, Same; Same; Same; While the services may be considered directly related to the principal
cannot be regarded as constituting a grave abuse of discretion or as rendered without business of the employer, nevertheless, they are not necessary in the conduct of the
or in excess of jurisdiction. principal business of the employer.Be that as it may, the Court has already taken
judicial notice of the general practice adopted in several government and private
In respect of public respondent NLRC"s finding that Apolinario was dismissed institutions and industries of hiring independent contractors to perform special services.
without any opportunity to present his side on the charge against him of participating These services range from janitorial, security and even technical or other specific services
in the fistfight with petitioner Corporation"s shop superintendent, no compelling such as those performed by petitioners Neri and Cabelin. While these services may be
reason has been shown by the petitioner Corporation why we should overturn such considered directly related to the principal business of the employer, nevertheless, they
are not necessary in the conduct of the principal business of the employer.
finding of fact.
Same; Same; Same; The status of BCC as an independent contractor previously
WHEREFORE, the Petition for certiorari is DISMISSED. The decision of the public confirmed by the Court in Associated Labor Unions-TUCP v. National Labor Relations
respondent National Labor Relations Commission dated 4 February 1987 is hereby Commission.In fact, the status of BCC as an independent contractor was previously
AFFIRMED. Costs against the petitioner. confirmed by this Court in Associated Labor Unions-TUCP v. National Labor Relations
Commission.
SO ORDERED.
52
Same; Same; Same; Same; Under the right of control test, petitioners must still be tools, equipment, machineries, work premises and other materials which are
considered employees of BCC.Even assuming ex argumenti that petitioners were necessary in the conduct of its business. Moreover, petitioners argue that they
performing activities directly related to the principal business of the bank, under the perform duties which are directly related to the principal business or operation of
right of control test they must still be considered employees of BCC. FEBTC. If the definition of "labor-only" contracting 4 is to be read in conjunction
with job contracting, 5 then the only logical conclusion is that BCC is a "labor only"
BELLOSILLO, J.: contractor. Consequently, they must be deemed employees of respondent bank by
operation of law since BCC is merely an agent of FEBTC following the doctrine laid
Respondents are sued by two employees of Building Care Corporation, which down in Philippine Bank of Communications v. National Labor Relations
provides janitorial and other specific services to various firms, to compel Far Bast Commission 6 where we ruled that where "labor-only" contracting exists, the Labor
Bank and Trust Company to recognize them as its regular employees and be paid the Code itself establishes an employer-employee relationship between the employer and
same wages which its employees receive. the employees of the "labor-only" contractor; hence, FEBTC should be considered
the employer of petitioners who are deemed its employees through its agent, "labor-
Building Care Corporation (BCC, for brevity), in the proceedings below, established only" contractor BCC.
that it had substantial capitalization of P1 Million or a stockholders equity of P1.5
Million. Thus the Labor Arbiter ruled that BCC was only job contracting and that We cannot sustain the petition.
consequently its employees were not employees of Far East Bank and Trust Respondent BCC need not prove that it made investments in the form of tools,
Company (FEBTC, for brevity). on appeal, this factual finding was affirmed by equipment, machineries, work premises, among others, because it has established
respondent National Labor Relations Commission (NLRC, for brevity). that it has sufficient capitalization. The Labor Arbiter and the NLRC both
Nevertheless, petitioners insist before us that BCC is engaged in "labor-only" determined that BCC had a capital stock of P1 million fully subscribed and paid for.
contracting hence, they conclude, they are employees of respondent FEBTC. 7 BCC is therefore a highly capitalized venture and cannot be deemed engaged in
"labor-only" contracting.
Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, and were
hired by, respondent BCC, a corporation engaged in providing technical, It is well-settled that there is "labor-only" contracting where: (a) the person
maintenance, engineering, housekeeping, security and other specific services to its supplying workers to an employer does not have substantial capital or investment in
clientele. They were assigned to work in the Cagayan de Oro City Branch of the form of tools, equipment, machineries, work premises, among others; and, (b) the
respondent FEBTC on 1 May 1979 and 1 August 1980, respectively, Neri an workers recruited and placed by such person are performing activities which are
radio/telex operator and Cabelin as janitor, before being promoted to messenger on 1 directly related to the principal business of the employer. 8
April 1989.
Article 106 of the Labor Code defines "labor-only" contracting thus
On 28 June 1989, petitioners instituted complaints against FEBTC and BCC before Art. 106. Contractor or subcontractor. . . . . There is "labor-only" contracting where the
Regional Arbitration Branch No. 10 of the Department of Labor and Employment to person supplying workers to an employer does not have substantial capital or investment
compel the bank to accept them as regular employees and for it to pay the differential in the form of tools, equipment, machineries, work premises, among others, and the
between the wages being paid them by BCC and those received by FEBTC workers recruited by such persons are performing activities which are directly related to
employees with similar length of service. the principal business of such employer . . . . (emphasis supplied).

On 16 November 1989, the Labor Arbiter dismissed the complaint for lack of merit. Based on the foregoing, BCC cannot be considered a "labor-only" contractor because
1 Respondent BCC was considered an independent contractor because it proved it it has substantial capital. While there may be no evidence that it has investment in
had substantial capital. Thus, petitioners were held to be regular employees of BCC, the form of tools, equipment, machineries, work premises, among others, it is enough
not FEBTC. The dismissal was appealed to NLRC which on 28 September 1990 that it has substantial capital, as was established before the Labor Arbiter as well as
affirmed the decision on appeal. 2 On 22 October 1990, NLRC denied the NLRC. In other words, the law does not require both substantial capital and
reconsideration of its affirmance, 3 prompting petitioners to seek redress from this investment in the form of tools, equipment, machineries, etc. This is clear from the
Court. use of the conjunction "or". If the intention was to require the contractor to prove that
he has both capital and the requisite investment, then the conjunction "and" should
Petitioners vehemently contend that BCC in engaged in "labor-only" contracting have been used. But, having established that it has substantial capital, it was no
because it failed to adduce evidence purporting to show that it invested in the form of longer necessary for BCC to further adduce evidence to prove that it does not fall
53
within the purview of "labor-only" contracting. There is even no need for it to refute the prescribed uniform of BCC; leaves of absence were filed directly with BCC;
petitioners' contention that the activities they perform are directly related to the and, salaries were drawn only from BCC.
principal business of respondent bank.
As a matter of fact, Neri even secured a certification from BCC on 16 May 1986 that
Be that as it may, the Court has already taken judicial notice of the general practice she was employed by the latter. On the other hand, on 24 May 1988, Cabelin filed a
adopted in several government and private institutions and industries of hiring complaint for underpayment of wages, non-integration of salary adjustments
independent contractors to perform special services. 9 These services range from mandated by Wage Orders Nos. 5 & 6 and R.A. 6640 as well as for illegal deduction
janitorial, 10 security 11 and even technical or other specific services such as those 16 against BCC alone which was provisionally dismissed on 19 August 1988 upon
performed by petitioners Neri and Cabelin. While these services may be considered Cabelin's manifestation that his money claim was negligible. 17
directly related to the principal business of the employer, 12 nevertheless, they are
not necessary in the conduct of the principal business of the employer. More importantly, under the terms and conditions of the contract, it was BCC alone
which had the power to reassign petitioners. Their deployment to FEBTC was not
In fact, the status of BCC as an independent contractor was previously confirmed by subject to the bank's acceptance. Cabelin was promoted to messenger because the
this Court in Associated Labor Unions-TUCP v. National Labor Relations FEBTC branch manager promised BCC that two (2) additional janitors would be
Commission, 13 where we held thus hired from the company if the promotion was to be effected. 18 Furthermore, BCC
The public respondent ruled that the complainants are not employees of the bank but was to be paid in lump sum unlike in the situation in Philippine Bank of
of the company contracted to serve the bank. Building Care Corporation is a big firm Communications 19 where the contractor, CESI, was to be paid at a daily rate on a
which services, among others, a university, an international bank, a big local bank, a per person basis. And, the contract therein stipulated that the CESI was merely to
hospital center, government agencies, etc. It is a qualified independent contractor. provide manpower that would render temporary services. In the case at bar, Neri and
The public respondent correctly ruled against petitioner's contentions . . . . (Emphasis Cabelin were to perform specific special services. Consequently, petitioners cannot
supplied). be held to be employees of FEBTC as BCC "carries an independent business" and
undertaken the performance of its contract with various clients according to its "own
Even assuming ex argumenti that petitioners were performing activities directly manner and method, free from the control and supervision" of its principals in all
related to the principal business of the bank, under the "right of control" test they matters "except as to the results thereof."
must still be considered employees of BCC. In the case of petitioner Neri, it is
admitted that FEBTC issued a job description which detailed her functions as a Indeed, the facts in Philippine Bank of Communications do not square with those of
radio/telex operator. However, a cursory reading of the job description shows that the instant case. Therein, the Court ruled that CESI was a "labor-only" contractor
what was sought to be controlled by FEBTC was actually the end-result of the task, because upholding the contract between the contractor and the bank would in effect
e.g., that the daily incoming and outgoing telegraphic transfer of funds received and permit employers to avoid the necessity of hiring regular or permanent employees
relayed by her, respectively, tallies with that of the register. The guidelines were laid and would enable them to keep their employees indefinitely on a temporary or casual
down merely to ensure that the desired end-result was achieved. It did not, however, basis, thus denying them security of tenure in their jobs. This of course violates the
tell Neri how the radio/telex machine should be operated. In the Shipside case, 14 we Labor Code. BCC has not committed any violation. Also, the former case was for
ruled illegal dismissal; this case, on the other hand, is for conversion of employment status
so that petitioners can receive the same salary being given to regular employees of
. . . . If in the course of private respondents' work (referring to the workers), FEBTC. But, as herein determined, petitioners are not regular employees of FEBTC
SHIPSIDE occasionally issued instructions to them, that alone does not in the least but of BCC. At any rate, the finding that BCC in a qualified independent contractor
detract from the fact that only STEVEDORES is the employer of the private precludes us from applying the Philippine Bank of Communications doctrine to the
respondents, for in legal contemplation, such instructions carry no more weight than instant petition.
mere requests, the privity of contract being between SHIPSIDE and STEVEDORES.
The determination of employer-employee relationship involves factual findings. 21
Besides, petitioners do not deny that they were selected and hired by BCC before Absent any grave abuse of discretion, and we find none in the case before us, we are
being assigned to work in the Cagayan de Oro Branch of FFBTC. BCC likewise bound by the findings of the Labor Arbiter as affirmed by respondent NLRC.
acknowledges that petitioners are its employees. The record is replete with evidence
disclosing that BCC maintained supervision and control over petitioners through its IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED.
Housekeeping and Special Services Division: petitioners reported for work wearing SO ORDERED.
54
No. L-37790. March 25, 1976.* independent businessmen. They were free to sign or not to sign that contract. If they
did not want to sell Cosmos products under the conditions defined in that contract,
MAFINCO TRADING CORPORATION, petitioner, vs. THE HON. BLAS F. they were free to reject it. But having signed it, they were bound by its stipulations
OPLE, in his capacity as Secretary of Labor, The NATIONAL LABOR and the consequences thereof under existing labor laws. One such stipulation is the
RELATIONS COMMISSION, RODRIGO REPOMANTA and REY right of the parties to terminate the contract upon 5 days prior notice. Whether the
MORALDE, respondents. termination in this case was an unwarranted dismissal of an employee, as contended
Repomanta and Moralde, is a point that cannot be resolved without submission of
Labor law; Cases pending before the old National Labor Relations Commission evidence. Using the contract itself as the sole criterion, the termination should
should be transferred to, and processed by, the new NLRC; such cases were not perforce be characterized as simply the exercise of a right freely stipulated upon by
rendered moot by the Labor Code, P.D. No. 626.This case was not rendered moot the parties.
by the Labor Code. Although the Code abolished the old NLRC (Art. 289), it created
a new NLRC (Art. 213) and provided that cases pending before the old NLRC Labor law; Tests for determining the existence of employer-employee
should be transferred to, and processed by, the corresponding labor relations division relationship.In determining the existence of employer-employee relationship, the
or the new NLRC and should be decided in accordance with Presidential Decree No. following elements are generally considered, namely: (1) the selection and
21 and the rules and regulations adopted thereunder (Art. 290. See Sec. 5, P.D. No. engagement of the employee; (2) the payment of wages; (3) the power of dismissal;
626). and (4) the power to control the employees conductalthough the latter is the most
important element.
Jurisdiction; Certiorari; Prohibition; In a certiorari and prohibition case, only legal
issues affecting jurisdiction based on undisputed facts may be resolved.In a Same; Factors to determine existence of independent contract relationship.An
certiorari and prohibition case, like the instant case, only legal issues affecting the independent contractor is one who exercises independent employment and contracts
jurisdiction of the tribunal, board or officer involved may be resolved on the basis of to do a piece of work according to his own methods and without being subject to
undisputed facts. control of his employer except as to the result of the work. Among the factors to be
Same; Same; Same; In a petition for certiorari, the issue of whether respondents are considered are whether the contractor is carrying on an independent business;
employees or independent contractors should be resolved mainly in the light of their whether the work is part of the employers general business; the nature and extent of
peddling contracts.Pro hoc vice the issue of whether Repomanta and Moralde the work; the skill required; the term and duration of the relationship; the right to
were employees of Mafinco or were independent contractors should be resolved assign the performance of the work to another; tne power to terminate the
mainly in the light of their peddling contracts. A different approach would lead this relationship; the existence of a contract for the performance of a specified piece of
Court astray into the field of factual controversy where its legal pronouncements work; the control and supervision of the work; the employers powers and duties
would not rest on solid grounds. with respect to the hiring, firing, and payment of the contractors servants; the
control of the premises; the duty to supply the premises, tools appliances, material
Labor law; Contracts; A contract whereby one engages to purchase and sell soft and labor; and the mode, manner, and terms of payment.
drinks on trucks supplied by the manufacturer but providing that other party
(peddler) shall have the right to employ his own workers, shall post a bond to protect Same; Although peddling contract between contending parties was resolved as one
the manufacturer against losses, shall be responsible for damages caused to third establishing independent contractor relationship, one of the parties therein may still
persons, shall obtain the necessary licenses and permits and bear the expenses petition the proper court to reform the instrument, annul the same or secure a
incurred in the sale of the soft drinks is not a contract of employment.We hold that declaration of the actual relationship between the parties, sans the peddling
under their peddling contracts Repomanta and Moralde were not employees of contract.We are convinced that on the basis of the peddling contract, no employer-
Mafinco but were independent contractors as found by the NLRC and its factfinder employee relationship was created. x x x However, this ruling is without prejudice to
and by the committee appointed by the Secretary of Labor to look into the status of the right of Repomanta and Moralde and the other peddlers to sue in the proper Court
Cosmos and Mafinco peddlers. They were distributors of Cosmos soft drinks with of First Instance and to ask for a reformation of the instrument evidencing the
their own capital and employees. Ordinarily, an employee or a mere peddler does not contract or for its annulment or to secure a declaration that, disregarding the peddling
execute a formal contract of employment. He is simply hired and he works under the contract, the actual juridical relationship between them and Mafinco or Cosmos is
direction and control of the employer. Repomanta and Moralde voluntarily executed that of employer and employee.
with Mafinco formal peddling contracts which indicate the manner in which they
would sell Cosmos soft drinks. That circumstance signifies that they were acting as
55
AQUINO, J.: 1. That in consideration of the competence of the PEDDLER and his ability to
promote mutual benefits for the parties hereto, MAFINCO shall provide the
Mafinco Trading Corporation (Mafinco for short) filed these special civil actions of PEDDLER with a delivery truck with which the latter shall exclusively peddle the
certiorari and prohibition in order to annul the decision of the Secretary of Labor soft drinks of the former, under the terms set forth herein;
dated April 16, 1973. In that decision the Secretary reversed an order of the old
National Labor Relations Commission (NLRC) and held that the NLRC had 2. The PEDDLER himself shall, carefully and in strict observance to traffic
jurisdiction over the complaint lodged by the Federacion Obrera de la Industria regulations, drive the truck furnished him by MAFINCO or should he employ a
Tabaquera y Otros Trabajadores de Filipinas (FOITAF) against Mafinco for having driver or helpers such driver or helpers shall be his employees under his direction
dismissed Rodrigo Repomanta and Rey Moralde (NLRC Case No. LR-086). The and responsibility and not that of MAFINCO, and their compensation including
voluminous record reveals the following facts: salaries, wages, overtime pay, separation pay, bonus or other remuneration and
privileges shall be for the PEDDLER'S own account; The PEDDLER shall likewise
Peddling contracts and their termination. On April 30, 1968 Cosmos Aerated bind himself to comply with the provisions of the Social Security Act and all the
Water Factory, Inc., hereinafter called Cosmos, a firm based at Malabon, Rizal, applicable labor laws in relation to his employees;
appointed Mafinco as its sole distributor of Cosmos soft drinks in Manila. On May
31, 1972 Rodrigo Repomanta and Mafinco executed a peddling contract whereby 3. The PEDDLER shall be responsible for any damage to property, death or
Repomanta agreed to "buy and sell" Cosmos soft drinks. Rey Moralde entered into a injuries to persons or damage to the truck used by him caused by his own acts or
similar contract. The contracts were to remain in force for one year unless sooner omission or that of his driver and helpers;
terminated by either party upon five days notice to the other. 1 The contract with
Repomanta reads as follows: 4. MAFINCO shall furnish the gasoline and oil to run the said truck in
business trips, bear the cost of maintenance and repairs of the said truck arising from
PEDDLING CONTRACT ordinary wear and tear;

KNOW ALL MEN BY THESE PRESENTS: 5. The PEDDLER shall secure at his own expense all necessary licenses and
permits required by law or ordinance and shall bear any and all expenses which may
This CONTRACT, entered into by and between: be incurred by him in the sales of the soft drink products covered by the contract;

The MAFINCO TRADING CORPORATION, a domestic corporation duly 6. All purchases by the PEDDLER shall be charged to him at a price of P2.52
organized and existing under the laws of the Philippines, doing business at Rm. 715 per case of 24 bottles, ex-warehouse; PROVIDED, However, that if the PEDDLER
Equitable Bank Bldg., Juan Luna St., Manila, under the style MAFINCO represented purchases a total of not less than 250 cases a day, he shall be entitled further to a
in this act by its General Manager, SALVADOR C. PICA, duly authorized for the Peddler's Discount of P11.00;
purpose and hereinafter referred to as MAFINCO, and RODRIGO REPOMANTA,
married/single, of legal age, and a resident of 70-D Bo. Potrero, MacArthur 7. Upon the execution of this contract, the PEDDLER shall give a cash bond
Highway, Malabon, Rizal hereinafter referred to as PEDDLER, WITNESSETH: in the amount of P1,500.00 against which MAFINCO shall charge the PEDDLER
with any unpaid account at the end of each day or with any damage to the truck of
WHEREAS, MAFINCO has been appointed as the exclusive distributor of other account which is properly chargeable to the PEDDLER; within 30 days after
'COSMOS' Soft Drink Products for and within the City of Manila; the termination of this contract, the cash bond, after deducting proper charges, shall
be returned to the PEDDLER;
WHEREAS, the PEDDLER is desirous of buying and selling in Manila the
'COSMOS' Soft Drink Products handled by MAFINCO; 8. The PEDDLER shall liquidate and pay all his accounts to MAFINCO'S
authorized representative at the end of each day, and his failure to do so shall subject
NOW THEREFORE, for and in consideration of the foregoing premises and the his cash bond at once to answer for any unliquidated accounts;
covenants and conditions hereinafter set forth, the parties hereto has agreed as
follows: 9. This contract shall be effective up to May 31, 1973 and supersedes any or
all other previous contracts, if any, that may have been entered into between the

56
parties; However, either of the parties may terminate the same upon five (5) days FOITAF, filed a complaint with the NLRC, charging the general manager of
prior notice to the other; Mafinco with having violated Presidential Decree No. 21, issued on October 14,
1972, which created the NLRC and which was intended "to promote industrial peace,
10. Upon the. termination of this contract, unless the same is renewed, the maximize productivity and secure social justice for all". The brief complaint reads as
delivery truck and such other equipment furnished by MAFINCO to the PEDDLER follows:
shall be returned by the latter in good order and workable condition, ordinary wear
and tear excepted, und shall promptly settle his outstanding account if any, with Hon. Amado Gat Inciong, Chairman
MAFINCO;
National Labor Relations Commission
11. To assure performance by the PEDDLER of his obligation to his employees
under the Social Security Act, the applicable labor laws and for damages suffered by Phoenix Bldg., Intramuros,
third persons, PEDDLER shall furnish a performance bond of P1,000.00 in favor of
MAFINCO from a SURETY COMPANY acceptable to MAFINCO. Manila

IN WITNESS WHEREOF, the parties hereto have signed this instrument at the City Sir:
of Manila, Philippines, this May 31, 1972.
Pursuant to the Presidential Decree No. 21, Sections 2 and 11, the FOITAF files a
MAFINCO TRADING CORPORATION complaint against SALVADOR C. PICA, General Manager of MAFINCO
TRADING CORP. located at Room 715, Equitable Bank Bldg., Juan Luna, Manila,
By: for terminating union officials (sic), Mr. Rodrigo Refumanta and Mr. Rey Moralde,
which is a violation of the above mentioned decree.
(Sgd.) RODRIGO REPOMANTA (Sgd.) SALVADOR C. PICA
Notice of termination is herewith attach (sic).
Peddler General Manager
We anticipate your due attention and assistance.
(Witnesses and notarial acknowledgment are omitted)
Respectfully yours,
On December 7, 1972 Mafinco, pursuant to section 9 of the contract, terminated the
same. The notice to Repomanta reads as follows: (Signed by National Secretary of FOITAF)

Dear Mr. Repomanta: Mafinco filed a motion to dismiss the complaint on the ground that the NLRC had no
jurisdiction because Repomanta and Moralde were not its employees but were
This has reference to the Peddling Contract you executed with the Mafinco Trading independent contractors. It stressed that there was termination of the contract, not a
Corporation on May 31, 1972. Please be informed that in accordance with the dismissal of an employee. In Repomanta's case, it pointed out that he was registered
provisions of paragraph 9 of the said peddling contract, we are hereby serving notice with the Social Security System as an employer who, as a peddler, paid premiums
of termination thereof effective on December 12, 1972. for his employees; that he secured the mayor's permit to do business and the
corresponding peddler's license and paid the privilege tax and that he obtained
Yours truly, workmen's compensation insurance for his own employees or helpers. It alleged that
Moralde was in the same situation as Repomanta.
(Sgd.) SALVADOR C. PICA
Mafinco further alleged that the Bureau of Labor Relations denied the application of
General Manager peedlers for registration as a labor union because they were not employees but
employers in their own right of delivery helpers (Decision dated January 4, 1966 by
Complaints of Repomanta and Moralde and NLRCs dismissal thereof. Four days the Registrar of Labor Organizations in Registration Proceeding No. 4, In the Matter
later or on December 11, 1972 Repomanta and Moralde, through their union, the of Cosmos Supervisors Association-PTGWO); that the Court of Industrial Relations
57
in Case No. 4399-ULP, Cosmos Supervisors' Association PTGWO vs. Manila dismissed the complaints in the said case. (The peddler-complainants in that case
Cosmos Aerated Water Factory, Inc., held in its decision dated July 17, 1967 that the were claiming overtime pay and damages, among others.) Elevated to the Supreme
peddlers were not employees of Cosmos, and that the Court of Appeals held in Court on review (G.R. Nos.
Rapajon vs. Fong Kui and Figueras vs. Asierto, CA-G.R. No. 19477-R and 21397-R, L-14072 to L-14074, 2 August 1958), the decision of the Court of Appeals was in
March 18, 1958 that the delivery helpers of the peddlers were not employees of effect affirmed, for the petition for review was dismissed by the Supreme Court 'for
Cosmos, a ruling which this Court refused to review (L-14072-74, Rapajon vs. Fung being factual and for lack of merit!
Kui, Resolution dated July 16, 1958).
The Court of Industrial Relations is of the same persuasion. After inquiring
The complaint was referred to a factfinder who in a lengthy report dated January 22, extensively into substantially the same terms and conditions of peddling contracts
1973 found, after "exhaustively and impartially" considering the contentions of the and the practices and relationships that went into their implementation, the Court
parties, that the peddlers were employers or "independent businessmen', as held by said in Case No. 4399ULP that the peddlers of the Manila-Cosmos Aerated Water
the Court of Industrial Relations and the Court of Appeals, and that that holding has Factory were not employees of the latter.
the force of res judicata. The factfinder recommended the dismissal of the complaint.
These precedents apply squarely to the case at hand. The complainants here have not
The old NLRC, composed of Amado G. Inciong, Diego P. Atienza and Ricardo O. shown that their peddling contracts with the respondent differ in any substantial
Castro, adopted that recommendation in its order dated February 2, 1973. That order, degree from those that were at issue in the Court of Industrial Relations, the Court of
which analyzes the peddling contract and reviews the court rulings on the matter, is Appeals and the Supreme Court in the cases cited above. Indeed, a comparison
quoted below: between the contracts involved in those cases and those in the instant litigation do
not show any difference that would warrant a different conclusion than that reached
The question of whether peddling contracts of the kind entered into between the by those courts. If at all, the additional stipulations in the present contracts strengthen
parties give rise to an employer-employee relationship is not new. Nor are the the position that the complainant peddlers are independent contractors or
contracts themselves of recent vintage. businessman, not employees of the respondent.

For at least twenty years respondent MAFINCO and its predecessor and/or principal, Nor has there been shown any substantial change in the old practices of peddlers vis-
the Manila-Cosmos Aerated Water Factory, have entered into contracts with a-vis the distributor or manufacturer. The points raised by the complainants in their
peddlers, under the terms of which the latter buy from the former at a special price, pleadings regarding these practices were extensively discussed by the CIR in the
and sell in Manila, the former's soft drink products. The distributor provides the ULP case above referred to.
peddler with a delivery truck with the distributor answering for the cost of fuel and
maintenance. If a peddler buys a certain number of cases or more a day, he is entitled We are not prepared to depart from this rule of long standing. It is the law of the
to a fixed amount of peddler's discount. case.

The peddler himself drives the truck but if he engages a driver or helpers, the latter We therefore hold that the complainants in this case were not employees of
are his employees and he assumes all the responsibilities of an employer in relation MAFINCO and Presidential Decree No. 21 does not I apply to them.
to them. He also obtains at his own expense all licenses and permits required by law
of salesmen. Complainants' appeal and the Labor Secretary's decision that they were employees of
Mafinco. Complainants Repomanta and Moralde appealed to the Secretary of
The peddler clears his accounts with the distributor at the end of each day, and Labor. They argued that the NLRC erred (1) in holding that they were independent
unpaid accounts are charged against the cash deposit or bond which he gives the contractors and not employees; (2) in relying on the peddler's contract to determine
distributor upon the execution of the peddling contract. He answers for damages the existence of employer-employee relationship; (3) in anchoring its decisions on
caused by him or his employees to third persons. precedents which have only persuasive force and which did not rule squarely on the
issue of employer-employee relationship, and (4) in dismissing their complaint.
Ruling upon this type of contracts, and the practices and relationships that attended
its implementation, the Court of Appeals, in CA-G.R. No. 19477-R, said that it did As stated at the outset, the Secretary in his decision reversed al the NLRC order. He
not create a relationship of employer and employee; that the peddlers under such ruled that Repomanta and Moralde were employees of Mafinco and that,
contract were not employees of the manufacturer or distributor, and accordingly
58
consequently, the NLRC had jurisdiction over their complaint. The Secretary In fact, such contracts, as the one in question, exempting or tending to exempt the
directed the NLRC to hear the case on the merits. employers from their legal obligations to their workers are null and void under Sec. 7
of the Workmen's Compensation Act, as amended, which states:
The Secretary found that the complainants "were driver-salesmen of the company,
driving the trucks and distributing the products of the company" and that they were Any contract, regulation or device of any sort intended to exempt the employer from
not independent contractors because they had no capital of their own. That finding all or part of the liability created by this Act shall be null and void.
was based on the following considerations:
To rule otherwise would be to open the floodgate to employers in this territory to
(1) That the contracts are Identical; (2) that the complainants were originally plant evade liabilities to their workers by simply letting contracts for the doing of their
drivers' of the company; (3) that the complainants had no capital of their own; (4) business. 'Such construction could not only narrow the provisions of the Act, but
that their delivery trucks were provided by the company; (5) that the use of the trucks would defeat its intent and purposes in their entirety. (Andoyo vs. Manila Railroad
were 'exclusively' for peddling the products of the company; (6) that they were Co., supra).
required to observe regulations; (7) that they were required to drive the trucks; (8)
that the company furnished the gasoline and oil to run the said trucks in business The motion for the reconsideration of the decision was denied by the Secretary in his
trips; (9) that the company shouldered the cost of maintenance and repair of the said order of July 16,1973.
trucks arising from an ordinary wear and tear; (10) that the company required them
to secure the necessary licenses and permits; (11) that the company prohibited them The Committee's report that the peddlers are independent contractors. On July 25,
from selling the company's products higher than the fixed price of the company; and 1973 Mafinco moved for the clarification of the decision by inquiring whether the
(12) that they and their helpers were paid on commission basis. question of employee-employer relationship would be included in the hearing on the
merits.
The Secretary relied on this Court's ruling that a person who possesses no capital or
money of his own to pay his obligations to his workers but relies-entirely upon the Action on the said motion was deferred until the receipt of the report of the
contract price to be paid by the company, falls short of the requisites or conditions committee created to study the status of peddlers of Cosmos products. On September
necessary for an independent contractor (Mansal vs. Gocheco Lumber Co., 96 Phil. 3, 1973- the Secretary directed the committee composed of Ernesto Valencia,
941). Vicente R. Guzman and Eleo Cayapas to conduct an in-depth study of the actual
relationship existing between the Cosmos Bottling Co. and its peddlers.
He observed that "behind the peddling cloak there was in fact employee-employer
relationship". He said: The committee in its report dated September 17, 1973 arrived at the conclusion that
the relationship actually existing between Cosmos and Mafinco, on one hand, and
While, generally, written employment contracts are held sufficient in determining the the peddlers of Cosmos products, on the other, is not one of employer and employee
nature of employment, such contracts, however, cannot be always held conclusive and "that the peddlers are independent contractors".
where the actual circumstances of employment indicate otherwise. For example,
some employers, in order to avoid or evade coverage of the Workmen's The committee after a perusal of the record of NLRC Case No. LR-086 interviewed
Compensation Act, enter into pseudo contracts with their employees who are named twenty peddlers, an officer of Cosmos and an officer of Mafinco. In the conduct of
as 'employers' or 'independent contractors'. Such 'written contracts as distinguished the interviews it 44 observed judicious adherence to impartiality and
from oral Agreements, purporting to make persons independent contractors, no openmindedness but with a modicum of friendliness and much of informality". The
matter how 'adroitly framed', can be carefully scanned and the real relationship report reads in part as follows:
ascertained' (Glielmi vs. Netherlands Dairy Co., 254 N.Y. 60 (1930), Morabe &
Inton, Workmen's Compensation Act. p. 69). (1) Implications of the 'Agreement To Peddler Soft Drinks'. Of vital
importance to the mind of your committee is the fact that this Agreement entered
If the Peddling Contract were carefully scanned, the conclusion may be drawn that into between Cosmos and the Peddlers has, as its prefatory statement but before the
the contract is but a device and subterfuge to evade coverage under the labor laws. enumeration of its terms and conditions, the following:
There is more than meets the eye in item 2 of the Peddling Contract which required
the peddlers to do that which the law intends the employer to have done. That the Peddler has agreed to buy and sell the products of the MANUFACTURER
under the following conditions:
59
contract was made must govern its interpretation and application; that the terms of
Similarly, the 'Peddling Contract' entered into between Mafinco and the Peddlers. the contract, where unambiguous, are conclusive, in the absence of averment and
contains peculiarly Identical wordings. viz: proof of mistake, the question being, not what intention existed in the minds of the
parties, but what intention is expressed by the language used; that interpretation of an
WHEREAS, the PEDDLER is desirious of buying and selling in Manila the agreement does not include its modifications or the creation of a new or different
'COSMOS' Soft Drink Products handled by one; that Courts cannot make for the parties better agreements than they themselves
have been satisfied to make, or rewrite contracts because they operate harshly or
MAFINCO: inequitably as to one of the parties; and that there is no right to interpret an
agreement as meaning something different from what the parties intended as
It is immediately clear from the beginning that the relationship that the parties would expressed by the language they saw fit to employ.
want to establish between them is one of buyer and seller of the Cosmos Products.
Moreover, this type of Agreement or Contract has its roots since some twenty (20) xxx xxx xxx
years earlier, with modifications only with respect to the factory price, the amount of
over prices or what the peddlers refer to as commission, and the amount pertaining to (1) The selection and engagement of the employees.-Nothing in the Agreement
the dealer's discount. which appear to vary depending upon the market demands. to Peddler Soft Drinks in the case of Cosmos and in the Peddling Contract in the case
of Mafinco, will reveal and we cannot logically infer therefrom, that the Peddlers
We are, however, tempted to argue, as did the Peddlers, that this Agreement or were engaged as employees of Cosmos or Mafinco. The selection of the Peddlers
Contract might have been contrived as a device to evade responsibilities imposed who will buy and sell Cosmos products is left entirely between the parties; it is not
upon Cosmos or Mafinco under our labor laws as well as under other national or the sole prerogative of either one of the parties. There must be meeting of the minds
municipal laws. Nevertheless, a close reading thereof will show a flaw in this line of in order to consummate the Agreement or Contract and no evidence of coercion or
insistence, when we consider that this type of Agreement or Contract has been imposition of the will of one over the other is evident or apparent from the Peddlers'
substantially the same since the beginning of this relationship. More than this, it has or Managements' interviews had by the members of your Committee. This test,
withstood the test of time by pronouncements of the CIR in ULP Case No. 4399, therefore, cannot be invoked by the Peddlers in their attempt at presenting arguments
Cosmos Supervisors Association vs. Manila Cosmos Aerated Water Factory, Inc.' to the effect that they are employees of Cosmos or Mafinco. Upon the other hand, the
July 17, 1967; by judicial review of the Court of Appeals in CA-G.R. Nos. 19477-R, Agreement or Contract itself provides that the Peddlers can hire helpers and drivers
19478-R and 21397-R, 'Eustaquio Repajon, et al. vs. Manila Cosmos Aerated Water under their direction and responsibility, and to whom they shall be liable for payment
Factory, Inc.', promulgated on March 18, 1958; and impliedly by resolution of the of 'salaries, wages, overtime pay, separation pay, bonus and other remuneration and
Supreme Court in G.R. Nos. L-14072 to L-14074 when the Court of Appeals cases privileges.' As a matter of fact, drivers were employed by Mrs. Victoria Ariz and M.
were appealed to that Tribunal. Fong Kui, who are peddlers in their own right. This evidently shows the discretion
granted the peddlers to hire employees of their own.
But the more basic and indeed forceful ratiocination in favor of the validity of the
Agreement or Contract which covenants that the relationship between the Peddlers (2) The payment of wages. On the basis of the clear terms of the Agreement
and Cosmos or Mafinco is one of buyer and seller of the Cosmos Products on the or Contract, no mention is made of the wages of the Peddlers; neither can an
part of the Peddlers, and, therefore, one of an independent contractorship, finds inference be made that any salary or wage is given to Peddlers. In the interviews,
substantive support in our Civil Code which provides: (here arts. 1370 and 1374 of however, with the Peddlers, they vehemently take the position that the 'dealer's
the Civil Code regarding interpretation of contracts are quoted). discount' which was given to them at the rate of Pll.50 in excess of 200 cases of
Cosmos products they sell a day, constitutes their 'wages'. The term 'wages' as
For its adjective interpretation, our Rules of Court specifically provides: (Here parol defined in Section 2 of the Minimum Wage Law (Rep. Act No. 602, as amended) is
evidence rule in see. 7, Rule 130, Rules of Court is quoted) as follows:

It must b restated at this point for purposes of emphasis that the validity of the (g) 'Wage' paid to any employee shall mean the remuneration or earnings,
aforesaid Agreement or Contract has not been seriously assailed by the parties. In however designated, capable of being expressed in terms of money whether fixed or
fact, their rallying cause was the Agreement or Contract itself. To strengthen these ascertained on a time, task, piece, commission basis, or other method of calculating
provisions of the Civil Code and the Rules of Court, stabilized jurisprudence have the same, which is payable by an employer to an under a written or unwritten
held that it is elementary rule of contract that the laws in force at the time the contract of employement for work done or to be done or for services rendered or to
60
be rendered, and includes the fair and reasonable value, as determined by the
Secretary of Labor, of board, lodging, or other facilities customarily furnished by the (3) The power of dismissal. In the case of 'Rodrigo Repomanta and Rey
employer to the employee. ... Moralde vs. Mafinco Trading Corp.,' NLRC Case No. LR-086, which served as one
of our bases for this study, the complainants therein appear to have complained
Section 10 (k) of the same law provides as follows: before the National Labor Relations Commission for being allegedly illegally
dismissed or that their services were terminated without cause. A search of the
(k) Notification of wage conditions. It shall be the duty of every employer to alleged dismissal however shows that the Identical letters both dated December 7,
notify his employees at the time of hiring of the wage conditions under which they 1972 addressed to the said complainants were not actually what complainants
are employed, which shall include the following particulars: pictured them to be, but the termination of the peddling in accordance with
paragraph 9 of said Contract.
(1) The rate of wages payable;
xxx xxx xxx
(2) The method of calculation of wages;
Thus, complainants' services were not terminated, only their Peddling Contracts with
(3) The periodicity of wage payment; the day, the hour and pIace of payment; Mafinco were. The power of dismissal is not lodged with either Mafinco or Cosmos,
and for based on the Agreement or Contract none whatsoever exists. Certainly, to
attribute a power of dismissal to Cosmos or Mafinco where none exists is careless
(4) Any change with respect to any of the foregoing items. imprudence and a height of inaccuracy. This power of dismissal by Cosmos or
Mafinco is not countenanced in the Agreement or Contract.
To the Committee's mind, all these requirements have not been shown to exist in the
relationship between the Peddlers and the Cosmos or Mafinco. If it were true that the There is, however, an allegation by the Peddlers that the hiring and firing of the
Pedders' 'dealer's discount' is in the nature of wages, then they must be notifed fully helpers ultimately rest on Cosmos or Mafinco. This allegation nevertheless, is
of the wage conditions. Moreover, such 'wages' must be paid to them periodically at controverted by Cosmos and Mafinco. Nonetheless, we checked the basic document
least once every two weeks or twice a month. (See Par. (h) of See. 10 of Act No. the Agreement or Contract and we find that the hiring and, impliedly firing, we
602, as amended). The absence of such notification to the Peddlers and the lack of is a prerogative of the Peddlers and not of Cosmos or Mafinco.
periodicity of such payment in the manner and procedure contemplated in the
Minimum Wage Law destroy, quiet evidently, their allegation that the 'dealer's (4) The power to control the employee's conduct. From the interviews had
discount' was their 'wage'. Take note that the 'dealer's discount' was given only about by your Committee with both the Peddlers and the representatives of Cosmos and
a week after the end of the month, and from the evidence submitted by Cosmos, it Mafinco, we gather that the following findings on the power of control are
appears clearly that the 'dealer's discount' varies from month to month. Thus, the substantially correct:
earnings of Mr. Salvador Abonales, who is a Peddler, from January to August, 1973,
amounted to P12,520.70, while that of Mr. Alberto S. Garcia, for the same period, (a) That the delivery trucks assigned to the Peddlers are available to them early
amounted to P13,633.42, and 4 their earnings every month vary decisively. This in the morning and are free to get them, which they usually do between 5:30 A.M. to
factor defeats factually the insistence of the Peddlers that they are employees of 6:30 A.M. There was no compulsion on the part of the Peddlers to report for work at
Cosmos or Mafinco. that time, as in fact, they did not sign any time record. The practice of getting the
delivery trucks early in the morning is more beneficial to the Peddlers than to
Upon the other hand, the Peddlers' declarations reveal that the wages of their helpers Cosmos or Mafinco since they can finish the peddling of Cosmos products much
are taken from the overprice or what is ordinarily termed as 'commission' of ten earlier and spend the rest of the day at their own pleasure. The signing of the
centavos (P0.10) per case that they get-a factor which indicates that they are 'logbooks' is both pertinent and necessary since the trucks used in the delivery of
themselves employers of their helpers. In addition, the Peddlers are reported as Cosmos products are owned by Cosmos or Mafinco and are simply utilized by
Employers of these helpers with the Social Security System, and that they also Peddlers as a measure of convenience and for advertising purposes. But peddlers are
purchase workmen's compensation policies in their names as Employers of their own not precluded from getting trucks of their own should they so desire.
helpers for purposes of workmen's compensation insurance of their liabilities, which
are all in accordance with the terms and conditions of the Agreement or Contract and (b) That liaison officers (supervisors) are assigned by Cosmos or Mafinco in
indicative of an attribute of one who is an independent merchant. definite areas routes or zones, not so much of supervision over Peddlers, since their
61
areas, routes or zones were already agreed upon or pre-arranged among them through
the Cosmos Peddlers Association, Inc. of which all Peddlers are members, as An independent contractor is one who exercises independent employment and
principally for market analysis since soft drinks selling is a highly competitive contracts to do a piece of work according to his own methods and without being
business, and also to inquire or check on sales, and the result of which, report is subject to control of his employer except as to the resuIt of thework. A person who
made direct to the Office of Cosmos or Mafinco. has no capital or money of his own to pay his laborers or to comply with his
obligations to them, who files no bond to answer for the fulfillment of his contract
(c) That the use of the uniform does not seem to be an imposition by with his employer, falls short of the requisites or conditions necessary to classify him
management of Cosmos or Mafinco upon the Peddlers, but a voluntary arrangement as independent contractor.
among the Peddlers themselves. For, from the documents submitted to this
Committee, it appears that the Cosmos Peddlers Association, in a meeting held on These requisites and conditions were reiterated in the postwar cases of Philippine
August 5, 1967, adopted a resolution to 'always wear their uniform while in the Manufacturing Co., Inc. vs. Geronimo, G. R. No. L-6968, promulgated on November
performance of their sales work,' and in their meeting on January 25, 1969, it 29, 1954, and Koppel (Phil.), Inc. vs. Darlucio et, al., G.R. No. L-14903,
adopted another resolution penalizing Peddlers who failed to wear their uniform in promulgated on August. 29, 1960. Analyzing the definition of 'independent
the amount of P2.00 per violation. Certainly, the resolutions of the Cosmos Peddlers contractor', the following may be gathered from the relationship between the
Association, an independent association of Peddlers and duly registered with the Peddlers, on the one hand, and Cosmos or Mafinco, on the other:
Securities and Exchange Commission, and possessing an entirely distinct existence,
cannot be taken as impositions from Cosmos or Mafinco. (1) Peddlers contract to sell and buy Cosmos products from Cosmos or
Mafinco, the latter furnishing the delivery truck, but the former sell Cosmos products
(d) That the matter of turning in of sales of collection which, if found short, is according to their own methods, subject to the pre-arranged routes, areas and zones,
charged against the Peddler's cash bond, is to the mind of the Committee, giving and go back to the Company compound to return the delivery truck and to make
effect to the valid terms and conditions of the Agreement or Contract, and also an accounting of the day's sales collection at any time in the morning or in the
ordinary business practice which necessarily requires liquidation of the day's afternoon. Essentially, control, if at all, extends only as to observance of traffic
accounts. We do not see any evidence of control on the part of Cosmos or Mafinco regulations which is inherent in ownership of the delivery truck by Cosmos or
over the activities, including the sales, of the Cosmos products by the Peddlers Mafinco and the end result which is the liquidation of the sales collection. Control
themselves who are, apparently, left to their own choices of routes, areas or zones as over the details of the Peddlers' sales activities seems to be farfetched in this case.
pre-arranged, with no definite, much less supervised, time schedule.
(2) Capital or money of the Peddlers to pay their own helpers is evidently
(e) That in the matter of reprimand or discipline which the peddlers attempt to within their prerogative, although it appears that the wages of helpers are uniform at
project when they failed to report for work, your Committee found no substantial P6.00 per trip. But can we safely say that the cash bond of Pl,500.00 by the Peddlers
evidence on this point. The evidence shows that the peddlers are free to choose their constitute their capital? For big-time businessmen, this small amount may not be
time. Obviously, any absence that they may incur means so much reduction from considered capital, but when it is taken as a 'deposit on consignment' since the same
their earnings. Thus, if their attention is incidentally called on this matter it is for the answers for any deficiencies that the Peddlers may incur during the day's sales
observance of their agreements which is present in any contractual relations. collection, then it can be taken to mean 'capital' within its signification that it
allocates to every day business dealing. The amount of capital, to us, is immaterial; it
As to the aspect of employer-employee relation, therefore, between Cosmos or is the purpose for which the same is deposited that is most significant.
Mafinco and the Peddlers, your Committee does not have sufficient basis to
reasonably sustain the stand of the Peddlers that there is such relationship. (3) The Peddlers are required under the Agreement to Peddler Soft Drinks and
Peddling Contract to put up not only the cash bond of P1,500.00, but also a
(c) Attributes of an independent contractor. As a countercheck, as it were, to performance bond of P1,000.00 as embodied in said Agreement to Peddler Soft
the issue of employer-employee relationship your committee has taken the task of Drinks as follows:
testing such relationship against the attributes of an independent contractor which,
from the interviews and documents submitted by the parties, appear to exists on the (4) To assure performance by the PEDDLER of his obligation to his employees
part of the Peddlers. The earlier case of Andoyo vs. Manila Railroad Co., G.R. No. under the Social Security Act, the applicable labor laws, and for damages suffered by
34722, promulgated on March 28, 1932, furnishes us the definition of an third persons PEDDLER shall furnish a performance bond of P1,000.00 in favor of
'independent contractor.' Our Supreme Court of pre-war composition, ruled: the MANUFACTURER from a surety Company acceptable to the
62
MANUFACTURER. And, in case Performance Bond within 30 days from the date employer's failure to secure written clearance from the Secretary of Labor before
of signing of this Contract, such failure shall be sufficient ground for the dismissing an employee might constitute a crime punishable under article 327 of the
MANUFACTURER to suspend the business relationship with the Peddler until the Labor Code and not mere contempt, as contemplated in section 10 of Presidential
Peddler complies with this provision. Decree No. 21, and (3) that the contempt provisions of that decree were abrogated by
the Labor Code.
Again, to the mind of your Committee, the amount of the Performance Bond is not
so relevant and material as to the purpose for which the same is executed- which is to Mafinco in support of its motion for dismissal cited Quisaba vs. Sta. Ines-Melale
assure performance of the Peddlers' obligations as employer of his helpers. This is an Veneer & Plywood, Inc., L-38088, August 30, 1974, 58 SCRA 771, where it was
attribute of an independent contractor to which the Peddlers are bound under the held that the regular court, not the NLRC, has jurisdiction over an employee's action
Agreement or Contract. for damages against his employer's act of demoting him.

(4) Peddlers are doing business for themselves since they took out licenses in Respondent Repomanta and Moralde opposed that motion to dismiss. They Pointed
the City of Manila, and have paid their corresponding professional or occupation tax out that, inasmuch as their complaint is pending in the new NLRC, this Court cannot
to the Bureau of Internal Avenue. This fact strengthens the Committee findings that dismiss it. They also observed that article 327 was eliminated from the Labor Code
the peddlers are carrying on a business as independent merchants. which, as amended by Presidential Decrees Nos. 570-A, 626 and 643, contains only
292 articles. Article 327 was superseded by article 278 of the amended Code.
The Secretary in his resolution of October 18, 1973 ignored the committee's
conclusion. He clarified that the NLRC should determine whether the two The truth is that Mafinco's motion merely adduced additional grounds to support its
complainants were illegally dismissed and that the jurisdictional issue should not be stand that the Secretary of Labor had no jurisdiction over the complaint of
taken up anymore. Repomanta and Moralde.

The instant petition; the issue and the ruling thereon. Mafinco filed the instant This case was not rendered moot by the Labor Code. Although the Code abolished
actions on November 14, 1973. It prayed for a declaration that the Secretary of Labor the old NLRC (Art. 289), it created a new NLRC (Art. 213) and provided that cases
and the NLRC had no jurisdiction to entertain the complaints of Repomanta and pending before the old NLRC should be transferred to, and processed by, the
Moralde; that the Secretary's decision should be set aside, and that the NLRC and the corresponding labor relations division or the new NLRC and should be decided in
Secretary be enjoined from further proceeding in NLRC Case No. LR-086. accordance with Presidential Decree No. 21 and the rules and regulations adopted
thereunder (Art. 290. See Sec. 5, P.D. No. 626).
Parenthetically, it should be noted that under section 5 of Presidential Decree No. 21
the Secretary's decision "is appealable" to the President of the Philippines (Nation The issue is whether the dismissal of Repomanta and Moralde was within the
Multi Service Labor Union vs. Agcaoili, L-39741, May 30, 1975, 64 SCRA 274). jurisdiction of the old NLRC. If, as held by the old NLRC, it had no jurisdiction over
However, under section 22 of the old NLRC regulations, an appeal to the President their complaint because they were not employees of Mafinco but independent
should be made only "in national interest cases". contractors, then the Secretary of Labor had no jurisdiction to remand the case to the
NLRC for a hearing on the merits of the complaint.
On the other hand, judicial review of the decision of an administrative agency or
official exercising quasi-judicial functions is proper in cases of lack of jurisdiction, Hence, the crucial issue is whether Repomanta and Moralde were employees of
error of law, grave abuse of discretion, fraud or collusion or in case the Mafinco under the peddling contract already quoted. Is the contract an employment
administrative action or resolution is "corrupt, arbitrary or capricious (San Miguel contract or a contract to sell or distribute Cosmos products?
Corporation vs. Secretary of Labor, L-39195, May 16, 1975, 64 SCRA 56;
Commissioner of Customs vs. Valencia, 100 Phil. 165; Villegas vs. Auditor General, The question of whether an employer-employee relationship exists in a certain
L-21352, November 29, 1966, 18 SCRA 877, 891). situation has bedevilled the courts. Businessmen, with the aid of lawyers, have tried
to avoid the bringing about of an employer-employee relationship in some of their
After the parties had submitted their illuminating memoranda, Mafinco filed a enterprises because that juridical relation spawns obligations connected with
motion in this Court for the dismissal of the complaint in the defunct NLRC on three workmen's compensation, social security, medicare, minimum wage, termination pay
grounds, to wit: (1) that the NLRC had no jurisdiction over the case because and unionism.
Repomanta and Moralde had not sought reinstatement or backwages; (2) that the
63
Presidential Decree No. 21 provides: The parties in their pleadings and memoranda injected conflicting factual allegations
to support their diametrically opposite contentions. From the factual angle, the case
SEC. 2. The Commission shall have original and exclusive jurisdiction over the has become highly controversial.
following:
In a certiorari and prohibition case, like the instant case, only legal issues affecting
1) All matters involving employee-employer relations including all disputes the jurisdiction of the tribunal, board or officer involved may be resolved on the
and grievances which may otherwise lead to strikes and lockouts under Republic Act basis of undisputed facts. Sections 1, 2 and 3, Rule 65 of the Rules of Court require
No. 875; that in the verified petition for certiorari, mandamus and prohibition the petitioner
should allege "facts with certainty".
xxx xxx xxx
In this case the facts have become uncertain. Controversial evidentiary facts have
SEC. 10.The President of the Philippines, on recommendation of the Commission been alleged. What is certain and indubitable is that a notarized peddling contract
and the Secretary of Labor, may order the arrest and detention of any person held in was executed.
contempt by the Commission for non-compliance and defiance of any subpoena,
order or decision duly issued by the Commission in accordance with this Decree and This Court is not a trier of facts. It would be difficult, if not anomalous, to decide the
its implementing rules and regulations and for any violation of the provisions of this jurisdictional issue on the basis of the parties' contradictory factual submissions. The
Decree. record has become voluminous because of their efforts to persuade this Court to
accept their discordant factual statements.
SEC. 11.No employer may shut down his establishment or dismiss or terminate the
services of regular employees with at least one year of service without the written Pro hac vice the issue of whether Repomanta and Moralde were employees of
clearance of the Secretary of , Labor. Mafinco or were independent contractors should be resolved mainly in the light of
their peddling contracts. A different approach would lead this Court astray into the
The Solicitor General, as counsel for the old NLRC and the Secretary of Labor, field of factual controversy where its legal pronouncements would not rest on solid
argues that the question of whether Repomanta and Morale are independent grounds.
contractors or employees is factual in character and cannot be resolved by merely
construing the peddling contracts; that other relevant facts aliunde or dehors the said A restatement of the provisions of the peddling contract is necessary in order to find
contracts should be taken into account, and that the contracts were a part of an out whether under that instrument Repomanta and Moralde were independent
"intricate network of devices (of Mafinco and Cosmos) developed. and perfected contractors or mere employees of Mafinco.
through the years to conceal the true nature of their relationship to their sales
agents". Under the peddling contract, Mafinco would provide the peddler with a delivery
truck to be used in the distribution of Cosmos soft drinks (Par. 1). Should the peddler
Repomanta and Moralde contend that their peddling contracts were terminated employ a driver and helpers, he would be responsible for their compensation and
because of their activities in organizing a union among the peddlers. Annexed to social security contributions and he should comply with applicable labor laws "in
their memorandum is a joint affidavit of sixty-three sales agents of Cosmos products relation to his employees" (Par. 2).
who described therein the nature of their work, the organization of their union and
the dismissal of Repomanta and Moralde. Annexed to their answer is Resolution No. The peddler would be responsible for any damage to persons or property or to the
921 of the Social Security Commission dated November 16, 1972 in SSS Case No. truck caused by his own acts or omissions or those of his driver and helpers (Par. 3).
602 wherein it was held that peddlers and their helpers were employees of Cosmos. Mafinco would bear the cost of gasoline and maintenance of the truck (Par. 4). The
peddler would secure at his own expense the necessary licenses and permits and bear
Like the Solicitor General, Repomanta and Moralde harp on the argument that the the expenses to be incurred in the sale of Cosmos products (Par. 5).
peddling contracts were a scheme to camouflage an employer-employee relationship
and thus evade the coverage of labor laws. The soft drinks would be charged to the peddler at P2.52 per case of 24 bottles, ex-
warehouse. Should he purchase at least 250 cases a day, he would be entitled to a
peddler's discount of eleven pesos (Par. 6). The peddler would post a cash bond in
the sum of P1,500 to answer for his obligations to Mafinco (Par. 7) and another cash
64
bond of P1,000 to answer for his obligations to his employees (Par. 11). He should powers and duties with respect to the hiring, firing, and payment of the contractor's
liquidate his accounts at the end of each day (Par. 8). The contract would be effective servants; the control of the premises; the duty to supply the premises, tools,
up to May 31, 1973. Either party might terminate it upon five days' prior notice to appliances, material and labor; and the mode, manner, and terms of payment. (56
the other (Par. 9). C.J.S. 46).

We hold that under their peddling contracts Repomanta and Moralde were not Those tests to determine the existence of an employer-employee relationship or
employees of Mafinco but were independent contractors as found by the NLRC and whether the person doing a particular work for another is an independent contractor
its fact-finder and by the committee appointed by the Secretary of Labor to look into cannot be satisfactorily applied in the instant case. It should be obvious by now that
the status of Cosmos and Mafinco peddlers. They were distributors of Cosmos soft the instant case is a penumbral, sui generis case lying on the shadowy borderline that
drinks with their own capital and employees. Ordinarily, an employee or a mere separates an employee from an independent contractor.
peddler does not execute a formal contract of employment. He is simply hired and he
works under the direction and control of the employer. In determining whether the relationship is that of employer and employee or whether
one is an independent contractor, "each case must be determined on its own facts and
Repomanta and Moralde voluntarily executed with Mafinco formal peddling all the features of the relationship are to be considered" (56 C.J.S. 45). We are
contracts which indicate the manner in which they would sell Cosmos soft drinks. convinced that on the basis of the peddling contract, no employer-employee
That Circumstance signifies that they were acting as independent businessmen. They relationship was created. Hence, the old NLRC had no jurisdiction over the
were to sign or not to sign that contract. If they did not want to sell Cosmos products termination of the peddling contract.
under the conditions defined in that contract; they were free to reject it.
However, this ruling is without prejudice to the right of Repomanta and Moralde and
But having signed it, they were bound by its stipulations and the consequences the other peddlers to sue in the proper Court of First Instance and to ask for a
thereof under existing labor laws. One such stipulation is the right of the parties to reformation of the instrument evidencing the contract or for its annulment or to
terminate the contract upon five days' prior notice (Par. 9). Whether the termination secure a declaration that, disregarding the peddling contract, the actual juridical
in this case was an unwarranted dismissal of an employee, as contended by relationship between them and Mafinco or Cosmos is that of employer and
Repomanta and Moralde, is a point that cannot be resolved without submission of employee. In that action a fulldress trial may be held and the parties may introduce
evidence. Using the contract itself as the sole criterion, the termination should the evidence necessary to sustain their respective contentions.
perforce be characterized as simply the exercise of a right freely stipulated upon by
the parties. Paragphrasing the dictum in the Quisaba case, supra, if Mafinco and Cosmos had
acted oppressively towards their peddlers, as contemplated in article 1701 of the
"In determining the existence of employer-employee relationship, the following Civil Code, then they should file the proper action for damages in the regular courts.
elements are generally considered, namely: (1) the selection and engagement of the Where there is a right, there is a remedy (Ubi jus, ubi remedium).
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employees' conduct-although the latter is the most important element" WHEREFORE, the decision, order and resolution of the Secretary of Labor in
(Viana vs. Al-Lagadan and Piga, 99 Phil. 408, 411, citing 35 Am. Jur. 445). NLRC Case No. LR-086 dated April 16, July 16 and October 18, 1973, respectively,
are set aside and the order of the NLRC dated February 2, 1973, dismissing the case
On the other hand, an independent contractor is "one who exercises independent for lack of jurisdiction, is affirmed. No costs.
employment and contracts to do a piece of work according to his own methods and
without being subject to control of his employer except as to the result of the work" SO ORDERED.
(Mansal vs. P.P. Gocheco Lumber Co., supra).

Among the factors to be considered are whether the contractor is carrying on an


independent business; whether the work is part of the employer's general 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 the work to another; the power to
terminate the relationship; the existence of a contract for the performance of a
specified piece of work; the control and supervision of the work; the employer's
65
G.R. No. 127238. August 25, 1998.* present proof of just cause for the termination of the services of complainants, the
latter not being its employees, but LIPERCONs. For the same reason, it was
COCA-COLA BOTTLERS, PHILS., INC., petitioner, vs. DELFIN HINGPIT, erroneous for the NLRC to expect COCA COLA to present its payrolls to show the
GABRIEL FRANCISCO, JR., CECILIO PINAR, JR., ABUNDIO salaries and wages of the complainants although, it must be mentioned, COCA
BALATERO, NARITO MANLULUYO, SECERO ZAMORA, MEDARDO COLA did cause presentation of LIPERCONs payrolls relative to its employees,
GABINES, ENRIQUE BANGALAO, JULITO APAT, SOTERO PANDAN, including complainants. And it was grave error for respondent Commission to
NELSON UMALI, and the NATIONAL LABOR RELATIONS conclude that because proof of just cause for complainants removal from their
COMMISSION, respondents. employment in LIPERCON was not presented by COCA COLA, said complainants
had been dismissed without just cause and due process.
Labor Law; Dismissals; The services of Delfin Hingpit were properly terminated on
July 22, 1988, for (1) failing to qualify for the job and (2) for dishonesty.However, NARVASA, CJ.:
Hingpit subsequently flunked the qualifying examinations for regular employment,
and was later discovered to have misled COCA COLA by submitting a police The special civil action of certiorari at bar concerns seven (7) cases against petitioner
clearance contradicted by the records of the Fiscals Office of Tagbilaran City Coca-Cola Bottling, Phils., Inc. instituted in the Regional Arbitration Branch of the
showing that he was then facing three (3) charges of physical injuries. Upon the National Labor Relations Commission in Cebu City over a period of four years or so,
facts, therefore, there can be no question: first, of the propriety of his contract of by eleven (11) persons claiming to be employees of the companys Tagbilaran City
probationary employmentnot only executed before Labor officials, but also plant. These were:
admitted by him as freely and voluntarily entered intoand second, of the fact that
he had not only failed the qualifying examinations, but had also presented a false (1) RAB Case No. VII-07-12-0657-88 initiated on August 9, 1988 by Delfin Hingpit
clearance. Hence, his services were properly terminated on July 22, 1988, for (1) for illegal dismissal, back wages and damages;
failing to qualify for the job, and (2) for dishonesty.
(2) RAB Case No. VII-05-0398-89 filed on February 13, 1989 by Gabriel Francisco
Same; National Labor Relations Commission; Labor Arbiters; To disagree and set for unjust dismissal, non-payment of overtime pay and service incentive;
aside the findings of the Labor Arbiters, the National Labor Relations Commission
should state an acceptable cause therefor.While it is within respondent (3) RAB Case No. VII-02-0189-90 jointly filed on February 7, 1990 by Nelson
Commissions competence, as an appellate agency reviewing decisions of Labor Umali, Medardo Gabines, Enrique Bangalao, Julito Apat and Sotero Pandan for
Arbiters, to disagree with and set aside the latters findings, it stands to reason that it illegal dismissal, separation pay, service incentive leave, and Cost of Living
should state an acceptable cause therefor. It would otherwise be a whimsical, Allowance mandated by law;
capricious, oppressive, illogical, unreasonable exercise of quasi-judicial prerogative,
subject to invalidation by the extraordinary writ of certiorari. (4) RAB Case No. VII-02-0169-90 initiated by Severo Zamora on February 12, 1990
Same; Employer-employee Relationship; The evidence satisfactorily establishes that for illegal dismissal, service incentive leave, retirement pay, and separation pay;
complainants were employees of LIPERCON.
(5) RAB Case No. VII-10-0896-89 filed by Cecilio Pinar on March 9, 1992 for
The evidence therefore satisfactorily establishes that complainants were employees unjust dismissal and separation pay;
of LIPERCON. It was LIPERCON that terminated their services at which time, as
found by the Labor Arbiter, the complainants signed quitclaim and release (6) RAB Case No. VII-11-1026-89 initiated by Abundio Balatero also on March 9,
documents in favor of LIPERCON. COCA COLA was not privy either to that act of 1992 for unjust dismissal, non-payment of overtime pay and separation pay; and
employment-termination or execution of quitclaim and release documents, or to
the earlier act of creation of the employment relationship between the complainants (7) RAB Case No. VII-10-0897-89 commenced by Narito Manluluyo.
and LIPERCON. COCA COLA was in no position to intervene in any manner in the
creation or termination of the relationship between complainants and LIPERCON. In the first two (2) cases RAB Case No. VII-07-12-0657-88 and RAB Case No. VII-
Same; Same; It was erroneous for respondent Commission to demand that COCA 05-0398-89 the respondents impleaded impleaded were Coca-Cola Bottling, Phils.,
COLA present proof of just cause for the termination of the services of Inc. (COCA-COLA) and its Tagbilaran Branch Manager, Godofredo Bagares. In the
complainants, the latter not being its employees, but LIPERCONs.It was other (5), the respondents named, aside from COCA-COLA, were Pioneer Multi
therefore erroneous for respondent Commission to demand that COCA COLA Services, Inc. and Lipercon Services Inc.
66
COCA COLA thereupon commenced the present certiorari action on December 11,
COCA-COLA is a corporation duly organized under Philippine laws with principal 1996 through which it seeks the setting aside of the Commissions Decision on
offices at Ace Building, Legaspi Village, Makati, Metro Manila, engaged in the February 28,1996 and its Resolution of October 3, 1996. The Court required the
bottling, distribution and sale of soft drink products.[1] It maintains, among others, a respondents to comment on the petition and, upon a bond of P2,022,076.94, issued a
bottling plant in Tagbilaran City, with sales offices and bodegas in strategic places to temporary restraining order stopping execution of the Commissions challenged
serve the surrounding areas in Bohol Province. dispositions.[5]

Pioneer Multi-Services Co. (PIONEER) and Lipercon Services, Inc. (LIPERCON), On February 4, 1997, a pleading traversing the petition, entitled
are manning companies with which COCA COLA successively entered into Comments/Objection to Temporary Restraining Order, was filed by ten (10) of the
contracts for the supply of the manpower needs of its plant in Tagbilaran. COCA- complainants themselves: Hingpit, Francisco, Pinar, Manluluyo, Zamora, Gabines,
COLAs contract with PIONEER was executed on May 28, 1983, and that with Bangalao, Apat, Pandan, Umali;[6] and on February 12, 1997, another pleading,
LIPERCON, five (5) years later, on December 17, 1988. Private Respondents Supplemental Comment, was submitted by the same ten (10)
parties.[7] On March 26, 1997, a COMMENT on behalf of the National Labor
The seven (7) cases against COCA-COLA were heard together after issues had been Relations Commission was filed by the Solicitor Generals Office.[8] On June 13,
joined; and judgment thereon was handed down by the Executive Labor Arbiter on 1997, COCA-COLA filed its REPLY To Private Respondents Supplemental
February 7, 1995.[2] The judgment found that complaints were supplied as workers Comment), and on August 27, 1997 its REPLY To Public Respondents Comment).
to COCA-COLA first by PIONEER and later, by LIPERCON; that whereas
LIPERCON was an independent contractor, PIONEER was not; that in any case, It appears that all the complainants except Delfin Hingpit and Gabriel Francisco,
(w)hen Lipercon entered into the picture,** complainant were already regular were originally recruited by PIONEER which detailed them, under its contract with
employees of the respondent firm, and hence the subsequent coming in Lipercon did COCA COLA, in the latters Tagbilaran Plant, some being assigned as utility
nt deprive ** (them of) the right to claim separation pay ** as reinstatement is no workers, and other, as bottling crew members.[9] Three years afterwards, they were
longer feasible. COCA-COLA was therefore sentenced to pay the complainants the absorbed by LIPERCON when it replaced PIONEER as COCA-COLAs labor
sum of Seventy One Thousand Six Hundred Fifty Six (P71,656.00) Pesos in concept supplier.
of separation pay in deferring amounts. The complaint was dismissed as regards
Godofredo Bagares (COCA COLAs Branch Manager at Tagbilaran), his liability not It appears that Hingpit was recruited by LIPERCON for the Tagbilaran COCA
having been established. COLA plant, and first assigned as bottling crew member on November 24, 1984.
Sometime in 1988, Hingpit, being then involved in a labor case against his employer,
The eleven complainants appealed from the Decision of the Arbiter imputing sent a letter to then President Corazon C. Aquino asking that she help him obtain
reversible error to the latter when he merely awarded separation pay instead of permanent employment in COCA COLA. This brought about a conciliation
reinstatement with backwages, despite his finding of illegal dismissal, without even conference in the Bohol Labor Extension Office in Tagbilaran city; and there, an
explaining in his decision why complainants could not be reinstated. The appeal was agreement was reached between Hingpit and COCA COLA, represented by its
filed only by Hingpit who represented that he was taking the appeal also in behalf of Tagbilaran Personnel Officer, Ms. Suzette Gotera. According to Hingpit,[10] Ms.
the other complainants. Gotera had offered him the position of driver-helper or security guard if I possess the
necessary qualification for the aforesaid position, and he had accepted her offer as a
In its Decision of February 28, 1996, the Fourth Division of the National Labor basis of this amicable agreement, and after obtaining a clearance from Lipercon
Relations Commission (Cebu City) AFFIRMED with MODIFICATION the Services, Inc., Hingpit was hired by COCA COLA on a probationary basis for a
appealed judgment, commanding COCA-COLA to pay complainants an increased period of six (6) months effective May 16, 1988.
amount of P2,022,076.94 representing full back wages and 13th month pay, holiday
pay, service incentive leave pay, cost of living allowance and rest day pay.[3] Both Hingpit was them required, among other things, to take examinations to qualify for
COCA-COLA and the complainants moved for reconsideration of the Decision. By permanent placement and to submit a police clearance. He submitted a police
Resolution of October 3, 1996,[4] COCA COLAs motion for reconsideration was clearance issued by the Integrated National Police Command in Bohol which stated
denied, while that of the complainants was granted in the sense that COCA-COLA that he was a resident of Batuan, Bohol, and that he had no criminal record thereat.
was additionally ordered to reinstate ** (them) to their former position without loss Unfortunately for him, not only did he obtain failing markes in the qualifying
of seniority rights and other privileges. examinations, but the police clearance submitted by him was shortly afterwards
revealed to be false, belied by a certification of the Office of the Fiscal of Tagbilaran
67
City to the effect that he was then facing charges of physical injuries in no less than ** were already regular employees of of the respondent firm (COCA COLA). Its
three (3) cases. As a result, his services considered temporary or probationary were entry, even if viewed as a consequence of a legitimate business of a manpower
terminated on July 22, 1988, on the ground that he had (1) failed to measure up to the servicing firm, resulted to (sic) the illegal termination of the complainants who at
standards of the firm, having flunked the required qualifying tests, and (2) been that point in time had already acquired regular status. The coming in of Lipercon did
shown to be dishonest, for not disclosing that he had been charged with 3 counts of not deprive the complainants of the right to claim separation pay. Their severance
physical injuries.[11] from respondent firm, it appears, was forced upon them. It is only fair, thus, that they
be given the benefits that they deserve while placed under Pioneer Multi-Services,
Gabriel Francisco originally worked as bottling crew member of San Miguel Inc. Considering that their termination was not legal and valid, they should be paid
Corporation at its Tagbilaran Plant from 1971 until 1976. He was reemployed in one pay for every year of service as reinstatement is no longer feasible.[18]
1979, and assigned to the beer department of COCA COLA. In 1980, he was hired
by PIONEER, which was aforestated had concluded a contract to supply COCA For this reason, COCA COLA was sentenced to pay the complainants the sum of
COLAs manpower needs. He worked under this arrangement unitl PIONEER was Seventy One Thousand Six Hundred Fifty Six (P71,656.00) Pesos in concept of
replaced by LIPERCON, in December 1986. He continued working as bottling crew separation pay in differing amounts.
member until he was separated from employment on December 15, 1988.[12]
Respondent Commission saw the case differently. It opined that (1) LIPERCON was
The other complainant-employees Cecilio Pinar, Jr., Abundio Balatero, Narito a labor-only, not an independent labor contractor; and (2) COCA COLA not having
Manluluyo, Secero Zamora, Medardo Gabines, Enrique Bangalao, Julito Apat, presented evidence to establish any just cause for the termination of complainants
Sotero Pandan, Nelson Umali were, as already stated, found by the Labor Arbiter to employment, such termination must be held illegal; and having, as well, failed to
have been first placed in the COCA COLA Tagbilaran plant by their recruiter, submit the payrolls corresponding to the complainants, its monetary liability to them
PIONEER, and after the latters contract expired, were recruited by LIPERCON and should be increased.
again assigned at the same Tagbilaran plant.
In the special civil action of certiorari, COCA COLA submits that respondent
The Executive Labor Arbiters decision of February 7, 1995[13] found that while Commission acted with grave abuse of discretion
PIONEER was a labor only contractor,[14] LIPERCON which had also undertaken
to provide COCA COLA with manpower for such services as the repair and 1) in completely ignoring the fact that Hingpit had no capacity to take an appeal in
maintenance of machines, activities related to projects, yard cleaning, utility jobs; behalf of the other complainants;
loading and unloading of full and empty bottles[15]-- was a legitimate labor
contractor. It had substantial capital of its own; paid its recruited employees regularly 2) in not ruling that the Labor Arbiters decision had long become final and executory
even before receiving its stipulated fees from COCA-COLA; had control over because the complaints, except Hingpit, had already lost their right of appeal;
complainants-workers who could not get inside the premises of COCA COLA
without its written authority; attended to providing route helpers with requisition 3) in disregarding the Labor Arbiters findings that the complainants were not regular
slips; kept the signed daily time records of its recruited employees; monitored their employees of COCA COLA;
hours of work, and saw to it that they were at their places of work at the appointed
hours of work, and saw to it that they were at their places of work at the appointed 4) even granting arguendo that complainants were employees of COCA COLA, in
hours; and could receive, and act with finality on, complaints concerning its recruited requiring the latter to pay the former even when they did nothing;
workers presented by COCA COLAs regular employees or supervisors.[16]
5) in awarding complainants rest day pay despite their admission that they did not
The Executive Labor Arbiters decision declared that when the complainants were work seven days a week;
discharged from LIPERCON, they signed documents of quitclaim and release, a fact
not refuted by them.[17] Consequently, LIPERCON was absolved from liability. The 6) in holding complainants to be entitled to holiday pay, service incentive leave pay,
judgment was quick to point out, however, that when LIPERCON entered into the cost of living allowance, 13th month pay, without any factual basis and contrary to
picture after the lapse of COCA COLAs earlier contract with PIONEER said the evidence on record;
complainants
7) in not allowing Hingpit to raise the issue of his alleged employment with COCA
COLA although the same was already subject of a compromise agreement; and
68
letter addressed to Ms. Perla Caete (Exh. 4) by Gabriel Francisco, Jr. points out that
8) in not ruling that Hingpit had been validly dismissed, having failed to meet the complainants were indeed employees of Lipercon. The aforecited facts were not
company standards for a probationary employee. refuted by the complainant

The Court will deal with Delfin Hingpit first. It seems fairly evident from the record *** *** ***
that his services were validly terminated. As already narrated, on the basis of his
compromise agreement with the Tagbilaran Personnel Officer of COCA COLA ** Lipercon proved to be an independent contractor. Aside from hiring its own
(entered into under the auspices of the Bohol Labor Extension Office), and after employees and paying the workers their salaries, it also exercised supervision and
obtaining a clearance from LIPERCON, Hingpit was employed by COCA COLA on control over them which is the most important aspect in determining employer-
a probationary basis for a period of six (6) months effective May 16, 1988. However, employee relations (Mafinco Trading Corp. v. Ople, 70 SCRA 139; Rosario Brothers
Hingpit subsequently flunked the qualifying examinations for regular employment, Inc. vs. Ople, 131 SCRA 72). That it indeed has substantial capital is proven by the
and was later discovered to have misled COCA COLA by submitting a police fact that it did not depend upon its billing on respondent regarding payment of
clearance contradicted by the records of the Fiscals Office of Tagbilaran City workers salaries. And when complainants were separated from Lipercon, they signed
showing that he was then facing three (3) charges of physical injuries. Upon the quitclaim and release documents. **.
facts, therefore, there can be be no question: first, of the propriety of his contract of
probationary employment not only executed before Labor officials, but also admitted While it is within respondent Commissions competence, as an appellate agency
by him as freely and voluntarily entered into and second, of th fact that he had not reviewing decisions of Labor Arbiters, to disagree with and set aside the latters
only failed the qualifying examinations, but had also presented a false clearance. findings, it stands to reason that it should state an acceptable cause therefor. It would
Hence, his services were properly terminated on July 22, 1988, for (1) failing to otherwise be a whimsical, capricious, oppressive, illogical, unreasonable exercise of
qualify for the job, and (2) for dishonesty.[19] quasi-judicial prerogative, subject of invalidation by the extraordinary writ of
certiorari.
Turning to another point, respondent Commission reversed the Labor Arbiters
conclusion that LIPERCON was an independent labor contractor. It declared it But that, regrettably, is precisely what respondent Commission appears to have done.
instead to be a mere labor-only contractor, as the term is defined and described in the It overturned the Labor Arbiters factual determination regarding LIPERCONs being
Labor Code[20] and the Omnibus Rules Implementing said Code.[21] On the basis it a legitimate independent contractor without stating the reason therefor, without any
held that complainants were not employees of LIPERCON, but of COCA COLA. explanation whatever as to why the Arbiters evidentiary premises were not worthy of
credit, or why the inferences drawn therefrom were unacceptable, as a matter of law
In so ruling respondent Commission unaccountably ignored the evidence on which or logic.
the Labor Arbiter had based his contrary conclusion. That evidence, consisting
chiefly of the testimony of Filomena Legaspi, Head of LIPERCONs Accounting Respondent Commission grounded its reversal of the Arbiters adjudgment solely on
Division, is summarized by the Arbiter as follows:[22] a 1989 judgment of this Court, Guarin et al. v. Lipercon[23]- in which LIPERCON
had also been involved as a labor contractor of another company.[24] There, the
The Lipercon has indeed substantial capital of its own is proven by the testimony of Court held LIPERCON to be a labor only contractor; and declared that the NLRCs
its personnel in charge in Tagbilaran City, Filomena Legaspi. Legaspi affirmed the finding that it was not a mere labor-only contractor because it has substantial capital
fact that Lipercon paid its employees (the complainants herein) regularly even before or investment in the form of tools, equipment, machineries, work premises, ** - was
it is paid of its billing (TSN p. 49, September 2, 1992). She also testified that she had based on insubstantial evidence, as the NLRC (had merely) pointed out that it
control over the complainants. Without her signature, they cannot get inside the (LIPERCON) claims to be possessed among others, of substantial capital and
premises of respondent firm. She signed her daily time records and monitored their equipment essential to carry out its business as general independent contractor**. In
hours of work. She saw to it that they were in their positions and places of work. And other words, in Guarin, LIPERCON was held to have failed to discharge its burden
if the regular employees of CCBPI or their supervisors complain, they notify and of proof that it has substantial capital, investment, tools, etc.
inform her of these complaints. With regard to the route helpers, these were covered
by requisition slips (TSN, p. 47, Sept. 2, 1992). In fact, after Lipercons contract with Not so in the case at bar. Here, there is substantial evidence, detailed by the Labor
repondent expired in December 1988, it was she who assigned some workers like Arbiter, to establish LIPERCONs character as an independent contractor in the real
Cecilio Pinar, Jr. and Abundio Balatero to SMC (TSN, pp. 34, 35, 42-49, September sense of the word,[25] which makes the Labor Arbiters ruling more acceptable than
2, 1992). The payrolls of Lipercon (Exhs. 1 and 2 for CCBPI) and the resignation respondent Commissions on the same matter, being founded solely on an
69
inapplicable precedent. Also more deserving of assent is said Labor Arbiters G.R. No. 124055. June 8, 2000.*
conclusion that the complainants acceptance of employment in LEPERCON in
December, 1986 lasting for a period of some two years effectively operated as a ROLANDO E. ESCARIO, NESTOR ANDRES, CESAR AMPER, LORETO
cessation of the prior relationship they had with PIONEER and COCA COLA in BALDEMOR, EDUARDO BOLONIA, ROMEO E. BOLONIA, ANICETO
consequence of which they became entitled to separation pay from COCA COLA, CADESIM, JOEL CATAPANG, NESTOR DELA CRUZ, EDUARDO
PIONEER being merely its hiring agent. DUNGO, ESCARIO REY, ELIZALDE ESTASIO, CAROLINO M. FABIAN,
RENATO JANER, EMER B. LIQUIGAN, ALEJANDRO MABAWAD,
The evidence therefore satisfactorily establishes that complainants were employees FERNANDO M. MAGTIBAY, DOMINADOR B. MALLILLIN, NOEL B.
of LIPERCON. It was LIPERCON that terminated their services at which time, as MANILA, VIRGILIO A. MANIO, ROMEO M. MENDOZA, TIMOTEO
found by the Labor Arbiter, the complainants signed quitclaim and release NOTARION, FREDERICK RAMOS, JOSEPH REYES, JESSIE SEVILLA,
documents in favor of LIPERCON. COCA COLA was not privy either to that act of NOEL STO. DOMINGO, DODJIE TAJONERA, JOSELITO TIONLOC,
employment-termination or execution of quitclaim and release documents, or to the ARNEL UMALI, MAURLIE C. VIBAR, ROLANDO ZALDUA, RODOLFO
earlier act of creation of the employment relationship between the complainants and TUAZON, TEODORO LUGADA, MAURING MANUEL, MARCIANO
LIPERCON. COCA COLA was in no position to intervene in any manner in the VERGARA, JR., ARMANDO IBASCO, CAYETANO IBASCO, LEONILO
creation or termination of the relationship between complainants and LIPERCON. MEDINA, JOSELITO ODO, MELCHOR BUELA, GOMER GOMEZ,
HENRY PONCE, RAMON ORTIZ, JR., ANTONIO MIJARES, JR., MARIO
It was therefore erroneous for respondent Commission to demand that COCA COLA DIZER, REYNANTE PEJO, ARNALDO RAFAEL, NELSON BERUELA,
present proof of just cause for the termination of the services of complainants, the AUGUSTO RAMOS, RODOLFO VALENTIN, ANTONIO CACAM, VERNON
latter not being its employees, but LIPERCONs. For the same reason, it was VELASQUEZ, NORMAN VALLO, ALEJANDRO ORTIZ, ROSANO VALLO,
erroneous for the NLRC to expect COCA COLA to present its payrolls to show the ANDREW ESPINOSA, EDGAR CABARDO, FIDELES REYES, EDGARDO
salaries and wages of the complainants although, it must be mentioned, COCA FRANCISCO, FERNANDO VILLARUEL, LEOPOLDO OLEGARIO,
COLA did cause presentation of LIPERCONs payrolls relative to its employees, OSCAR SORIANO, GARY RELOS, DANTE IRANZO, RONALDO
including complainants. And it was grave error for respondent Commission to BACOLOR, RONALD ESGUERA, VICTOR ALVAREZ, JOSE MARCELO,
conclude that because proof of just cause for complainants removal from their DANTE ESTRELLADO, MELQUIADES ANGELES, GREGORIO
employment in LIPERCON was not presented by COCA COLA, said complainants TALABONG, ALBERT BALAO, ALBERT CANLAS, CAMILO VELASCO,
had been dismissed without just cause and due process. PONTINO CHRISTOPHER, WELFREDO RAMOS, REYNALDO
RODRIGUEZ, RAZ GARIZALDE, MIGUEL TUAZON, ROBERTO
What has been said make it unecessary to address the other substantive issues raised SANTOS, AND RICARDO MORTEL, petitioners, vs. NATIONAL LABOR
by COCA COLA.[26] And the adjective issue that it sets up respecting the validity RELATIONS COMMISSION, CALIFORNIA MANUFACTURING CO., INC.
of Hingpits having attempted to appeal from the Labor Arbiters decision in behalf of AND DONNA LOUISE ADVERTISING AND MARKET ING ASSOCIATES
the other complainants appears to be too unsubstantial to merit consideration. All INCORPORATED, respondents.
things considered, and except as regards Delfin Hingpit, the Court is satisfied that the
Decision of the Executive Labor Arbiter fairly and reasonably disposed of the Labor Law; Contracts of Employment; There is labor-only contracting when the
controversy, and is worthy of adoption as the ultimate adjudgment of this case. contractor or sub-contractor merely recruits, supplies or places workers to perform a
job, work or service for a principal; Elements of labor-only contract.There is
WHEREFORE, the petition for certiorari is GRANTED, and the challenged labor-only contracting when the contractor or subcontractor merely recruits, supplies
Decision of the Fifth Division of the National Labor Relations Commission or places workers to perform a job, work or service for a principal. In labor-only
promulgated on February 28, 1996 is NULLIFIED AND SET ASIDE. The Decision contracting, the following elements are present: (a) The person supplying workers to
of the Executive Labor Arbiter, Cebu City, dated February 7, 1995 is REINSTATED an employer does not have substantial capital or investment in the form of tools,
and hereby AFFIRMED, with the sole modification that the complaint of DELFIN equipment, machineries, work premises, among others; and (b) The workers
HINGPIT is dismissed, for lack of merit. No pronouncement as to costs. recruited and placed by such person are performing activities which are directly
related to the principal business of the employer.
SO ORDERED.
Same; Same; Where there is a Permissible Job Contracting; Conditions of
Permissible Job Contracting.There is permissible job contracting when a principal
70
agrees to put out or farm out with a contractor or a subcontractor the performance or
completion of a specific job, work or service within a definite or predetermined Petitioners allege that they were employed by CMC as merchandisers. Among the
period, regardless of whether such job or work or service is to be performed or tasks assigned to them were the withdrawing of stocks from the warehouse, the
completed within or outside the premises of the principal. In this arrangement, the fixing of prices, price-tagging, displaying of merchandise, and the inventory of
following conditions must concur: (a) The contractor carries on a distinct and stocks. These were done under the control, management and supervision of CMC.
independent business and undertakes the contract work on his account under his own The materials and equipment necessary in the performance of their job, such as price
responsibility according to his own manner and method, free from the control and markers, gun taggers, toys, pentel pen, streamers and posters were provided by
direction of his employer or principal in all matters connected with the performance CMC. Their salaries were being paid by CMC. According to petitioners, the hiring,
of his work except as to the results thereof; and (b) The contractor has substantial control and supervision of the workers and the payment of salaries, were all coursed
capital or investment in the form of tools, equipment, machineries (sic), work by CMC through its agent D.L. Admark in order for CMC to avoid its liability under
premises, and other materials which are necessary in the conduct of his business. the law.

Same; Same; In order to be considered an independent contractor it is not enough to On 7 February 1992, petitioners filed a case against CMC before the Labor Arbiter
show substantial capitalization or investment in the form of tools, equipment, for the regularization of their employment status. During the pendency of the case
machinery and work premises; Factors to be considered in determining an before the Labor Arbiter, D.L. Admark sent to petitioners notice of termination of
independent contractor.In the recent case of Alexander Vinoya vs. NLRC, et al., their employment effective 16 March 1992. Hence, their complaint was amended so
this Court ruled that in order to be considered an independent contractor it is not as to include illegal dismissal as cause of action. Thereafter, twenty-seven more
enough to show substantial capitalization or investment in the form of tools, persons joined as complainants. CMC filed a motion to implead as party-defendant
equipment, machinery and work premises. In addition, the following factors need be D. L. Admark and at the same time the latter filed a motion to intervene. Both
considered: (a) whether the contractor is carrying on an independent business; (b) the motions were granted.
nature and extent of the work; (c) the skill required; (d) the term and duration of the
relationship; (e) the right to assign the performance of specified pieces of work; (f) CMC, on the other hand, denied the existence of an employer-employee relationship
the control and supervision of the workers; (g) the power of the employer with between petitioner and itself. Rather, CMC contended that it is D.L. Admark who is
respect to the hiring, firing and payment of workers of the contractor; (h) the control the employer of the petitioners. While CMC is engaged in the manufacturing of food
of the premises; (i) the duty to supply premises, tools, appliances, materials, and products and distribution of such to wholesalers and retailers, it is not allowed by law
labor; and (j) the mode, manner and terms of payment.. to engage in retail or direct sales to end consumers. It, however, hired independent
job contractors such as D.L. Admark, to provide the necessary promotional activities
KAPUNAN, J.: for its product lines.

Before this Court is a petition for certiorari under Rule 65, which seeks to annul and For its part, D.L. Admark asserted that it is the employer of the petitioners. Its
set aside the decision, promulgated on 10 May 1995, of the National Labor Relations primary purpose is to carry on the business of advertising, promotion and publicity,
Commission (NLRC). The assailed decision reversed the decision of the Labor the sales and merchandising of goods and services and conduct survey and opinion
Arbiter, and ruled that the petitioners are employees of Donna Louise Advertising polls. As an independent contractor it serves several clients among which include
and Marketing Associates, Inc. and ordered the reinstatement of petitioners and the Purefoods, Corona Supply, Firstbrand, Splash Cosmetics and herein private
payment of backwages. respondent California Marketing.

Private respondent California Marketing Co. Inc. (CMC) is a domestic corporation On 29 July 1994, the Labor Arbiter rendered a decision finding that petitioners are
principally engaged in the manufacturing of food products and distribution of such the employees of CMC as they were engaged in activities that are necessary and
products to wholesalers and retailers. Private respondent Donna Louise Advertising desirable in the usual business or trade of CMC.[1] In justifying its ruling, the Labor
and Marketing Associates, Inc. (D.L. Admark) is a duly registered promotional firm. Arbiter cited the case of Tabas vs. CMC which, likewise, involved private
respondent CMC. In the Tabas case, this Court ruled that therein petitioner
Petitioners worked as merchandisers for the products of CMC. Their services were merchandisers were employees of CMC, to wit:
terminated on 16 March 1992.
There is no doubt that in the case at bar, Livi performs "manpower services,"
The parties presented conflicting versions of the facts. meaning to say, it contracts out labor in favor of clients. We hold that it is one not
71
withstanding its vehement claims to the contrary and not- withstanding its vehement 1. The petitioners are merchandisers and the petitioners in the Tabas case are also
claims to the contrary, and notwithstanding the provision of the contract that it is "an merchandisers who have the same nature of work.
independent contractor." The nature of ones business is not determined by self-
serving appellations one attaches thereto but by the tests provided by statute and 2. The respondent in this case is California Manufacturing Co. Inc. while respondent
prevailing case law. The bare fact that Livi maintains a separate line of business does in the Tabas case is the same California Manufacturing Co. Inc.
not extinguish the equal fact that it has provided California with workers to pursue
the latters own business. In this connection, we do not agree that the petitioner has 3. The agency in the Tabas case is Livi Manpower Services. In this case, there are at
been made to perform activities "which are not directly related to the general least, three (3) agencies namely: the same Livi Manpower Services; the Rank
business of manufacturing," Californias purported "principal operation activity. The Manpower Services and D.L. Admark whose participation is to give and pay the
petitioners had been charged with merchandising [sic] promotion or sale of the salaries of the petitioners and that the money came from the respondent CMC as in
products of [California] in the different sales outlets in Metro Manila including task the Tabas case.
and occational [sic] price tagging," an activity that is doubtless, an integral part of
the manufacturing business. It is not, then, as if Livi had served as its (Californias) 4. The supervision, management and/or control rest upon respondent California
promotions or sales arm or agent, or otherwise rendered a piece of work it Manufacturing Co. Inc. as found by the Honorable Labor Arbiter which is also, true
(California) could not itself have done; Livi as a placement agency, had simply in the Tabas Case.[5]
supplied it with manpower necessary to carry out its (Californias) merchandising
activities, using its (Californias) premises and equipment.[2] We cannot sustain the petition.

On appeal, the NLRC set aside the decision of the Labor Arbiter. It ruled that no Petitioners reliance on the Tabas case is misplaced. In said case, we ruled that therein
employer-employee relationship existed between the petitioners and CMC. It, contractor Livi Manpower Services was a mere placement agency and had simply
likewise, held that D.L. Admark is a legitimate independent contractor, hence, the supplied herein petitioner with the manpower necessary to carry out the companys
employer of the petitioners. Finding no valid grounds existed for the dismissal of the merchandising activity. We, however, further stated that :
petitioners by D.L. Admark, it ordered their reinstatement. The dispositive portion of
the decision reads: It would have been different, we believe, had Livi been discretely a promotions firm,
and that California had hired it to perform the latters merchandising activities. For
WHEREFORE, premises considered, the appealed judgment is modified. Intervenor then, Livi would have been truly the employer of its employees and California, its
DL ADMARK is ordered to reinstate the eighty one (81) complainants mentioned in client. x x x.[6]
the appealed decision to their former positions with backwages from March 16, 1992
until they are actually reinstated. The award of attorneys fees equivalent to ten (10%) In other words, CMC can validly farm out its merchandising activities to a legitimate
of the award is deleted for lack of basis.[3] independent contractor.

Petitioners filed a motion for reconsideration but the same was denied by the NLRC There is labor-only contracting when the contractor or sub-contractor merely
for lack of merit. [4] recruits, supplies or places workers to perform a job, work or service for a principal.
In labor-only contracting, the following elements are present:
Hence, this petition.
(a) The person supplying workers to an employer does not have substantial capital or
In the main, the issue brought to fore is whether petitioners are employees of CMC investment in the form of tools, equipment, machineries, work premises, among
or D.L. Admark. In resolving this, it is necessary to determine whether D.L. Admark others; and
is a labor-only contractor or an independent contractor.
(b) The workers recruited and placed by such person are performing activities which
Petitioners are of the position that D.L. Admark is a labor-only contractor and cites are directly related to the principal business of the employer. [7]
this Courts ruling in the case of Tabas, which they claim is applicable to the case at
bar for the following reasons: In contrast, there is permissible job contracting when a principal agrees to put out or
farm out with a contractor or a subcontractor the performance or completion of a
specific job, work or service within a definite or predetermined period, regardless of
72
whether such job or work or service is to be performed or completed within or 4) It had its own capital assets to carry out its promotion business. It then had current
outside the premises of the principal. In this arrangement, the following conditions assets amounting to P6 million and is therefore a highly capitalized venture.[13] It
must concur: had an authorized capital stock of P500,000.00. It owned several motor vehicles and
other tools, materials and equipment to service its clients. It paid rentals of P30,020
(a)....The contractor carries on a distinct and independent business and undertakes for the office space it occupied.
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 Moreover, by applying the four-fold test used in determining employer-employee
in all matters connected with the performance of his work except as to the results relationship, the status of D.L. Admark as the true employer of petitioners is further
thereof; and established. The elements of this test are (1) the selection and engagement of
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
(b)....The contractor has substantial capital or investment in the form of tools, control the employees conduct.[14]
equipment, machineries (sic), work premises, and other materials which are
necessary in the conduct of his business.[8] As regards the first element, petitioners themselves admitted that they were selected
and hired by D.L. Admark.[15]
In the recent case of Alexander Vinoya vs. NLRC et al.,[9] this Court ruled that in
order to be considered an independent contractor it is not enough to show substantial As to the second element, the NLRC noted that D.L. Admark was able to present in
capitalization or investment in the form of tools, equipment, machinery and work evidence the payroll of petitioners, sample SSS contribution forms filed and
premises. In addition, the following factors need be considered: (a) whether the submitted by D.L. Admark to the SSS, and the application for employment by R. de
contractor is carrying on an independent business; (b) the nature and extent of the los Reyes, all tending to show that D.L. Admark was paying for the petitioners
work; (c) the skill required; (d) the term and duration of the relationship; (e) the right salaries. In contrast, petitioners did not submit an iota of evidence that it was CMC
to assign the performance of specified pieces of work; (f) the control and supervision who paid for their salaries. The fact that the agreement between CMC and D.L.
of the workers; (g) the power of the employer with respect to the hiring, firing and Admark contains the billing rate and cost breakdown of payment for core
payment of workers of the contractor; (h) the control of the premises; (i) the duty to merchandisers and coordinators does not in any way establish that it was CMC who
supply premises, tools, appliances, materials, and labor; and (j) the mode, manner was paying for their salaries. As correctly pointed out by both CMC[16] and the
and terms of payment.[10] Office of the Solicitor General,[17] such cost breakdown is a standard content of
service contracts designed to insure that under the contract, employees of the job
Based on the foregoing criterion, we find that D.L. Admark is a legitimate contractor will receive benefits mandated by law.
independent contractor.
Neither did the petitioners prove the existence of the third element. Again petitioners
Among the circumstances that tend to establish the status of D.L. Admark as a admitted that it was D.L. Admark who terminated their employment.[18]
legitimate job contractor are:
To prove the fourth and most important element of control, petitioners presented the
1) The SEC registration certificate of D.L. Admark states that it is a firm engaged in memoranda of CMCs sales and promotions manager. The Labor Arbiter found that
promotional, advertising, marketing and merchandising activities. these memos "indubitably show that the complainants were under the supervision
and control of the CMC people."[19] However, as correctly pointed out by the
2) The service contract between CMC and D.L. Admark clearly provides that the NLRC, a careful scrutiny of the documents adverted to, will reveal that nothing
agreement is for the supply of sales promoting merchandising services rather than therein would remotely suggest that CMC was supervising and controlling the work
one of manpower placement.[11] of the petitioners:

3) D.L. Admark was actually engaged in several activities, such as advertising, x x x The memorandums (Exhibit "B") were addressed to the store or grocery owners
publication, promotions, marketing and merchandising. It had several merchandising telling them about the forthcoming sales promotions of CMC products. While in one
contracts with companies like Purefoods, Corona Supply, Nabisco Biscuits, and of the memorandums a statement is made that "our merchandisers and demonstrators
Licron. It was likewise engaged in the publication business as evidenced by it will be assigned to pack the premium with your stocks in the shelves x x x, yet it
magazine the "Phenomenon."[12] does not necessarily mean to refer to the complainants, as they claim, since CMC has
also regular merchandisers and demonstrators. It would be different if in the
73
memorandums were sent or given to the complainants and their duties or roles in the G.R. Nos. 116476-84. May 21, 1998.*
said sales campaign are therein defined. It is also noted that in one of the
memorandums it was addressed to: "All regular merchandisers/demonstrators." x x x ROSEWOOD PROCESSING, INC., petitioner, vs. NATIONAL LABOR
we are not convinced that the documents sufficiently prove employer-employee RELATIONS COMMISSION, NAPOLEON C. MAMON, ARSENIO
relationship between complainants and respondents CMC.[20] GAZZINGAN, ROMEO C. VELASCO, ARMANDO L. BALLON, VICTOR E.
ALDEZA, JOSE L. CABRERA, VETERANS PHILIPPINE SCOUT
The Office of the Solicitor General, likewise, notes that the documents fail to show SECURITY AGENCY, and/or ENGR. SERGIO JAMILA IV, respondents
anything that would remotely suggest control and supervision exercised by CMC .
over petitioners on the matter on how they should perform their work. The Labor Law; Labor Code; Appeals; Perfection of an appeal within the reglementary
memoranda were addressed either to the store owners or "regular" merchandisers and period and in the manner prescribed by law is jurisdictional, and noncompliance with
demonstrators of CMC. Thus, petitioners, who filed a complaint for regularization such legal requirement is fatal and effectively renders the judgment final and
against respondent CMC, thereby, conceding that they are not regular employees of executory.The perfection of an appeal within the reglementary period and in the
the latter, cannot validly claim to be the ones referred to in said memos.[21] manner prescribed by law is jurisdictional, and noncompliance with such legal
requirement is fatal and effectively renders the judgment final and executory.
Having proven the existence of an employer-employee relationship between D.L. Same; Same; Same; The appeal of a decision involving a monetary award in labor
Admark and petitioners, it is no longer relevant to determine whether the activities cases may be perfected only upon the posting of a cash or surety bond.
performed by the latter are necessary or desirable to the usual business or trade of Indisputable is the legal doctrine that the appeal of a decision involving a monetary
CMC. award in labor cases may be perfected only upon the posting of a cash or surety
bond. The lawmakers intended the posting of the bond to be an indispensable
On the issue of illegal dismissal, we agree with the findings of the NLRC that D.L. requirement to perfect an employers appeal.
Admark "admits having dismissed the petitioners for allegedly disowning and
rejecting them as their employer." Undoubtedly, the reason given is not just cause to Same; Same; Same; In a number of cases, the Court has relaxed the requirement in
terminate petitioners.[22] D.L. Admarks belated claim that the petitioners were not order to bring about the immediate and appropriate resolution of controversies on the
terminated but simply did not report to work[23] is not supported by the evidence on merits.However, in a number of cases, this Court has relaxed this requirement in
record. Moreover, there is no showing that due process was afforded the petitioners. order to bring about the immediate and appropriate resolution of controversies on the
merits. Some of these cases include: (a) counsels reliance on the footnote of the
IN VIEW OF THE FOREGOING, finding no grave abuse of discretion on the part of notice of the decision of the labor arbiter that the aggrieved party may appeal x x x
the National Labor Relations Commission, the assailed decision is AFFIRMED in within ten (10) working days; (b) fundamental consideration of substantial justice;
toto. (c) prevention of miscarriage of justice or of unjust enrichment, as where the tardy
appeal is from a decision granting separation pay which was already granted in an
SO ORDERED. earlier final decision; and (d) special circumstances of the case combined with its
legal merits or the amount and the issue involved.

Same; Same; Same; Court ruled that a relaxation of the appeal bond requirement
could be justified by substantial compliance with the rule.In Quiambao vs.
National Labor Relations Commission, this Court ruled that a relaxation of the
appeal bond requirement could be justified by substantial compliance with the rule.
Same; Same; Same; In actual practice, the NLRC allows the reduction of the appeal
bond upon motion of the appellant and on meritorious grounds.In Globe General
Services and Security Agency vs. National Labor Relations Commission, the Court
observed that the NLRC, in actual practice, allows the reduction of the appeal bond
upon motion of the appellant and on meritorious grounds; hence, petitioners in that
case should have filed a motion to reduce the bond within the reglementary period
for appeal.

74
Same; Same; Same; Petitioners motion to reduce the bond is a substantial (collectively referred to as the security agency, for brevity). Thereafter, petitioner
compliance with the Labor Code.We hold that petitioners motion to reduce the was impleaded as a third-party respondent by the security agency. In due course,
bond is a substantial compliance with the Labor Code. This holding is consistent Labor Arbiter Ricardo C. Nora rendered a consolidated Decision dated March 26,
with the norm that letter-perfect rules must yield to the broader interest of substantial 1993, which disposed as follows:[1]
justice.
IN VIEW OF ALL THE FOREGOING, respondents Veterans Philippine Scout
Same; Same; Same; Employers cannot hide behind their contracts in order to evade Security Agency, Sergio Jamila IV, and third-party respondent Rosewood
their or their contractors or subcontractors liability for noncompliance with the Processing, Inc. are hereby ordered to pay jointly and severally complainants the
statutory minimum wage.Legally untenable, however, is the contention that following amounts, to wit:
petitioner is not liable for any wage differential for the reason that it paid the
employees in accordance with the contract for security services which it had entered 1. Napoleon Mamon P126,411.10
into with the security agency. Notwithstanding the service contract between the
petitioner and the security agency, the former is still solidarily liable to the 2. Arsenio Gazzingan 128,639.71
employees, who were not privy to said contract, pursuant to the aforecited provisions
of the Code. Labor standard legislations are enacted to alleviate the plight of workers 3. Rodolfo Velasco 147,114.43
whose wages barely meet the spiraling costs of their basic needs. They are
considered written in every contract, and stipulations in violation thereof are 4. Armando Ballon 116,894.70
considered not written. Similarly, legislated wage increases are deemed amendments
to the contract. Thus, employers cannot hide behind their contracts in order to evade 5. Jose L. Cabrera 133,047.81
their or their contractors or subcontractors liability for noncompliance with the
statutory minimum wage. 6. Victor Aldeza 137,046.64

PANGANIBAN, J.: TOTAL P789,154.39

Under the Labor Code, an employer is solidarily liable for legal wages due security ===========
guards for the period of time they were assigned to it by its contracted security
agency. However, in the absence of proof that the employer itself committed the acts representing their monetary benefits in the amount of SEVEN HUNDRED EIGHTY
constitutive of illegal dismissal or conspired with the security agency in the NINE THOUSAND ONE HUNDRED FIFTY FOUR PESOS AND 39/100
performance of such acts, the employer shall not be liable for back wages and/or CENTAVOS (P789,154.39).
separation pay arising as a consequence of such unlawful termination.
Respondents are likewise ordered to pay attorneys fees in the amount of P78,915.43
The Case within ten (10) days from receipt of this Decision.

These are the legal principles on which this Court bases its resolution of this special All other issues are hereby [d]ismissed for failure of the complainants to fully
civil action for certiorari, seeking the nullification of the April 28, 1994 Resolution substantiate their claims.
and the July 12, 1994 Order of the National Labor Relations Commission, which
dismissed petitioners appeal from the labor arbiters Decision and denied its Motion The appeal filed by petitioner was dismissed by the National Labor Relations
for Reconsideration, respectively, in NLRC NCR Case Nos. 00-05-02834-91, 00-08- Commission[2] in its Resolution promulgated April 28, 1994, for failure of the
04630-91, 00-07-03966-91, 00-09-05617-91, 00-07-03967-91, 00-07-04455-91, 00- petitioner to file the required appeal bond within the reglementary period.[3]
08-05030-91, 00-11-06389-91, and 00-03-01642-92. Pertinent portions of the challenged Resolution are herewith quoted:

On May 13, 1991, a complaint for illegal dismissal; underpayment of wages; and for It appears on record that [petitioner] received their copy of the [labor arbiters]
nonpayment of overtime pay, legal holiday pay, premium pay for holiday and rest decision on April 2, 1993 and subsequently filed a Notice of Appeal with
day, thirteenth month pay, cash bond deposit, unpaid wages and damages was filed Memorandum of Appeal on April 26, 1993, in violation of Rule VI, Section 1, 3, and
against Veterans Philippine Scout Security Agency and/or Sergio Jamila IV 6 of the 1990 New Rules of Procedure of the NLRC xxx.
75
until February 3, 1990 when he received an order transferring him to Rosewood
xxxxxxxxx Processing, Inc. effective that date xxx; [a]t Rosewood Processing, Inc., he was
required to render also 12 hours duty every day with a salary of P2,600.00/month. He
Clearly, the appeal filed by the [petitioners] on April 12, 1993 was not perfected was not given his pay for February 1 and 2 by the paymaster of [the security agency]
within the reglementary period, and the decision dated March 26, 1993 became final allegedly because the payroll could not be located so after 3 to 4 times of going back
and executory as of April 23, 1993. and forth to [the security agencys] office to get his salary[;] [after] xxx two (2) days
he gave up because he was already spending more than what he could get thru
WHEREFORE, the appeal is hereby DISMISSED. transportation alone. On May 16, 1991, Rosewood Processing, Inc. asked for the
relief of Mamon and other guards at Rosewood because they came to know that
In its motion for reconsideration, petitioner contended that it received a copy of the complainants filed a complaint for underpayment on May 13, 1991 with the National
labor arbiters Decision only on April 6, 1993, and that it filed on April 16, 1993 Labor Relations Commission[.] On May 18 to 19, 1991, [the security agency]
within the prescribed time, a Notice of Appeal with a Memorandum on Appeal, a assigned him to their [m]ain [o]ffice. After that, complainant was floated until May
Motion to Reduce Appeal Bond and a surety bond issued by Prudential Guarantee 29, 1991 when he was assigned to Mead Johnson Philippines Corporation. [A]t about
and Assurance, Inc. in the amount of P50,000.[4] Though not opposed by the a week later, [the security agency] received summons on complainants complaint for
complainants and the security agency, the arguments stated in the motion were not underpayment and he was called to [the security agencys] office. When he reported,
taken up by Respondent Commission. Reconsideration was nonetheless denied by he was told to sign a Quitclaim and Waiver[] by Lt. R. Rodriguez because according
Respondent Commission in its Order of July 12, 1994, quoted below:[5] to the latter, he [could] only get a measly sum from his complaint with the NLRC
and if he (complainant) [signed] the quitclaim and waiver he [would] be retained at
Section 14, Rule VII of the NLRC New Rules of Procedure allows [u]s to entertain a his present assignment which [was] giving quite a good salary and other benefits but
motion for reconsideration only on palpable or patent errors [w]e may have if he [did] not sign the quitclaim and waiver, he [would] be relieved from his post
committed in [o]ur disputed April 28, 1994 resolution. and [would] no longer be given any assignment. xxx He was given up to the end of
July 1991 to think it over. At the end of July 1991, h[e] was approached by the
There being no such assignment here, [petitioners] motion for reconsideration dated Security in Charge A. Azuela and asked him to sign the quitclaim and waiver and
May 19, 1994 is hereby DENIED for lack of merit. when he refused to sign, he was told that the following day August 1, 1991, he
[would have] no more assignment and should report to their office. Thinking that it
Hence, this recourse.[6] was only a joke, he reported the following day to the detachment commander Mr. A.
Yadao and he was told that the main office xxx relieved him because he did not sign
In a Resolution dated March 20, 1995, this Court issued a temporary restraining the quitclaim and waiver. He reported to their office asking for an assignment but he
order enjoining the respondents and their agents from implementing and enforcing was told by R. Rodriguez that I no longer can be given an assignment so I had better
the assailed Resolution and Order until further notice.[7] resign. He went back several times to the office of the [security agency] but every
time the answer was the same[:] that he better tender his resignation because he
The Facts cannot be given any assignment although respondent was recruiting new guards and
posting them.
Undisputed are the facts of this case, narrated by the labor arbiter as follows:
Arsenio Gazzingan started to work for the [security agency] on September 29, 1988.
All the complainants were employed by the [security agency] as security guards: [Note: the introductory paragraph stated September 25, 1988.] He was assigned to
Napoleon Mamon on October 7, 1989; Arsenio Gazzingan on September 25, 1988; Purefoods Breeding Farm at Calauan, Laguna and given a salary of P54.00 a day
Rodolfo C. Velasco on January 5, 1987; Armando Ballon on June 28, 1990; Victor working eight (8) hours. After three (3) months, he was given an examination and
Aldeza on March 21, 1990; and Jose L. Cabrera [in] January 1988. passed the same. On December 26, 1988, he was given an increase and was paid
P64.00/day working eight (8) hours; [h]e remained at the same post for 8 months and
Napoleon Mamon started working for the [security agency] on October 7, 1989 and transferred to Purefoods Feed Mill at Sta. Rosa, Laguna, with the same salary and the
was assigned as office guard for three (3) days without any pay nor allowance as it same tour of duty, 8 hours[.] After four (4) months, he was transferred to Purefoods
was allegedly an on[-the-]job training so there [was] no pay[.] On October 10, 1989, Grand Perry at Sta. Rosa, Laguna, and after eleven (11) days on June 1989, he was
he was transferred to the residence of Mr. Benito Ong with 12 hours duty a day transferred to Rosewood Processing, Inc. at Meycauayan, Bulacan and required to
receiving a salary very much less than the minimum wage for eight (8) hours work work for 12 hours at a salary of P94.00/day for one year. [In] June 1990, he was
76
assigned at Purefoods DELPAN [to] guard x x x a barge loaded with corn and Jose L. Cabrera started working for the [security agency] as security guard January,
rendered 12 hours work/day with a salary of only P148.00/day and after 24 days, he 1988 and was assigned to Alencor Residence rendering 12 hours duty per day and
was floated for one month. He reported to [the security agencys] office and was received a salary of P2,400.00 a month for 3 months[.] [I]n May, 1988, he was
assigned to Purefoods Breeder Farm in Canlubang rendering 8 hours work per day transferred to E & L Restaurant rendering 12 hours duty per day and receiv[ing] a
receiving only P78.00/day. After 11 days, he asked to be transferred to Manila[.] salary of P1,500.00 per month for 6 months[.] [I]n January, 1989, he was transferred
[B]ecause of the distance from his home xxx the transfer was approved but instead of to Paramount rendering 12 hours duty per day receiving only P1,800.00 per month
being transferred to Manila, he was assigned to Purefoods B-F-4 in Batangas for 6 months[.] [I]n July 1989, he was transferred to Benito Ong[s] residence
rendering 12 hours duty/day and receiving only P148.00 per day until January 28, rendering 12 hours duty per day and receiving a salary of P1,400.00 per month for 4
1991[;] and again he requested for transfer which was also approved by the [security months[.] [I]n December, 1989, he was transferred to Sea Trade International
agencys] office[,] but since then he was told to come back again and again. [U]p to rendering xxx 12 hours duty per day and receiving a salary of P1,900 per month for 6
the present he has not been given any assignment. Because of the fact that his family months[.] [I]n July, 1990, he was transferred to Holland Pacific & Paper Mills
[was] in danger of going hungry, he sought relief from the NLRC-NCR-Arbitration rendering 8 hours duty per day and receiving a salary of P2,400.00 per month until
Branch. September 1990[.] [In] October 1990, he was transferred to RMG residence
rendering 12 hours duty per day receiving a salary of P2,200.00 per month for 3
Rodolfo Velasco started working for the [security agency] on January 5, 1987. He months[.] [In] February 1991, he was transferred to Purefoods Corporation at
was assigned to PCI Bank Elcano, Tondo Branch, as probationary, and [for] working Mabini, Batangas rendering 12 hours duty per day with a salary of P3,600.00 per
8 hours a day for 9 days he received only P400.00. On January 16, 1987, he was month for only one month because he was hospitalized due to a stab wound inflicted
assigned to [the security agencys] headquarters up to January 31, 1987, working 12 by his [d]etachment [c]ommander. When he was discharged from the hospital and
hours a day[; he] received only P650.00 for the 16 days. On September 1, 1988, he after he was examined and declared fit to work by the doctor, he reported back to
was assigned to Imperial Synthetic Rubber Products rendering 12 hours duty per day [the security agencys] office but was given the run-around [and was told to] come
until December 31, 1988 and was given a salary of P1,600.00/month. He was later back tomorrow[.] [H]e [could] see that [the agency was] posting new recruits. He
transferred to various posts like Polypaper Products working 12 hours a day given a then complained to this Honorable Office to seek redress, hiring the services of a
salary of P1,800.00 a month; Paramount Electrical, Inc. working 12 hours a day counsel.
given P1,100.00 for 15 days; Rosewood Processing, Inc., rendering 12 hours duty
per day receiving P2,200.00/month until May 16, 1991[;] Alen Engineering Victor Aldeza started working for the [security agency] on March 21, 1990 and was
rendering 12 hours duty/day receiving P1,100/month; Purefoods Corporation on assigned to Meridian Condominium, rendering 12 hours work per day and receiving
Delta II rendering 12 hours duty per day received P4,200.00 a month. He was a salary of P1,500.00 per month. Although he knew that the salary was below
relieved on August 24 and his salary for the period August 20 to 23 has not been paid minimum yet he persevered because he had spent much to get this job and stayed on
by [the security agency.] He was suspended for no cause at all. until October 15, 1990[.] On October 16, 1990, he was transferred to Rosewood
Processing, Inc., rendering 12 hours duty per day and receiving a salary of P2,600.00
Armando Ballon started as security guard with [the security agency] July 1990 per month up to May 15, 1991[.] On the later part of May 1991, he was assigned to
[Note: the introductory paragraph stated June 28, 1990] and was assigned to UPSSA (Sandoval Shipyard) rendering 12 hours duty per day receiving a salary of
Purefoods Corporation in Marikina for five (5) months and received a salary of P3,200.00 per month. [Aldeza] complained to [the security agency] about the salary
P50.00 per day for 8 hours. He was transferred to Rosewood Processing, Inc. on but [the agency] did not heed him; thus, he filed his complaint for underpayment[.]
November 6, 1990 rendering 12 hours duty as [d]etachment [c]ommander and a [The agency] upon complainants complaint for underpayment xxx, instead of
salary of P2,700.00/month including P200.00 officers allowance until May 15, 1991. adjusting his salary to meet the minimum prescribed by law[,] relieved him and left
On May 16, 1991, he applied for sick leave on orders of his doctor for 15 days but him floating[.] xxx When he complained of the treatment, he was told to resign
the HRM, Miss M. Andres[,] got angry and crumpled his application for sick leave, because he could no longer be given any assignment. Because of this, complainant
that [was] why he was not able to forward it to the SSS. After 15 days, he came back was forced to file another complaint for illegal dismissal.
to the office of [the security agency] asking for an assignment and he was told that
he [was] already terminated. Complainant found out that the reason why Miss Labor Arbiters Ruling
Andres crumpled his application for sick leave was because of the complaint he
previously filed and was dismissed for failure to appear. He then refiled this case to The labor arbiter noted the failure of the security agency to present evidence to refute
seek redress from this Office. the complainants allegation. Instead, it impleaded the petitioner as third-party
respondent, contending that its actions were primarily caused by petitioners
77
noncompliance with its obligations under the contract for security services, and the Backwages 81,874.00
subsequent cancellation of the said contract.
Separation Pay __3,843.85 P116,894.70
The labor arbiter held petitioner jointly and severally liable with the security agency
as the complainants indirect employer under Articles 106, 107 and 109 of the Labor 5. Jose Cabrera
Code, citing the case of Spartan Security & Detective Agency, Inc. vs. National
Labor Relations Commission.[8] Wage Differentials P30,032.63

Although the security agency could lawfully place the complainants on floating Backwages 91,483.63
status for a period not exceeding six months, the act was illegal because the former
had issued a newspaper advertisement for new security guards. Since the relation Separation Pay _11,531.55 P133,047.81
between the complainants and the agency was already strained, the labor arbiter
ordered the payment of separation pay in lieu of reinstatement. 6. Victor Aldeza

The award for wage differential, limited back wages and separation pay contained Wage Differentials P49,406.86
the following details:
Backwages 83,795.93
1. Napoleon Mamon
Separation Pay __3,843.85 P137,046.64
Wage Differentials P45,959.02
P789,154.39
Backwages 72,764.38
=========
Separation Pay __7,687.70 P126,411.10
Ruling of Respondent Commission
2. Arsenio Gazzingan
As earlier stated, Respondent Commission dismissed petitioners appeal, because it
Wage Differentials P24,855.76 was allegedly not perfected within the reglementary ten-day period. Petitioner
received a copy of the labor arbiters Decision on April 2, 1993, and it filed its
Backwages 96,096.25 Memorandum of Appeal on April 12, 1993. However, it submitted the appeal bond
on April 26, 1993, or twelve days after the expiration of the period for appeal per
Separation Pay __7,687.70 P128,639.71 Rule VI, Sections 1, 3 and 6 of the 1990 Rules of Procedure of the National Labor
Relations Commission. Thus, it ruled that the labor arbiters Decision became final
3. Rodolfo Velasco and executory on April 13, 1993.

Wage Differentials P66,393.58 In the assailed Order, Respondent Commission denied reconsideration, because
petitioner allegedly failed to raise any palpable or patent error committed by said
Backwages 69,189.30 commission.

Separation Pay _11,531.55 P147,114.43 Assignment of Errors

4. Armando Ballon Petitioner imputes the following errors to Respondent Commission:

Wage Differentials P31,176.85

78
Respondent NLRC committed grave abuse of discretion amounting to lack of notice of the decision of the labor arbiter that the aggrieved party may appeal xxx
jurisdiction when it dismissed petitioners appeal despite the fact that the same was within ten (10) working days; (b) fundamental consideration of substantial justice;
perfected within the reglementary period provided by law. (c) prevention of miscarriage of justice or of unjust enrichment, as where the tardy
appeal is from a decision granting separation pay which was already granted in an
Respondent NLRC committed grave abuse of discretion amounting to lack of earlier final decision; and (d) special circumstances of the case combined with its
jurisdiction when it dismissed petitioners appeal despite the clearly meritorious legal merits or the amount and the issue involved.[13]
grounds relied upon therein.
In Quiambao vs. National Labor Relations Commission,[14] this Court ruled that a
Otherwise stated, the petition raises these two issues: first, whether the appeal from relaxation of the appeal bond requirement could be justified by substantial
the labor arbiter to the NLRC was perfected on time; and second, whether petitioner compliance with the rule.
is solidarily liable with the security agency for the payment of back wages, wage
differential and separation pay. In Globe General Services and Security Agency vs. National Labor Relations
Commission,[15] the Court observed that the NLRC, in actual practice, allows the
The Courts Ruling reduction of the appeal bond upon motion of the appellant and on meritorious
grounds; hence, petitioners in that case should have filed a motion to reduce the bond
The petition is impressed with some merit and deserves partial grant. within the reglementary period for appeal.

First Issue: Substantial Compliance with the Appeal Bond Requirement That is the exact situation in the case at bar. Here, petitioner claims to have received
the labor arbiters Decision on April 6, 1993.[16] On April 16, 1993, it filed, together
The perfection of an appeal within the reglementary period and in the manner with its memorandum on appeal[17] and notice of appeal, a motion to reduce the
prescribed by law is jurisdictional, and noncompliance with such legal requirement is appeal bond[18] accompanied by a surety bond for fifty thousand pesos issued by
fatal and effectively renders the judgment final and executory.[9] The Labor Code Prudential Guarantee and Assurance, Inc.[19] Ignoring petitioners motion (to reduce
provides: bond), Respondent Commission rendered its assailed Resolution dismissing the
appeal due to the late filing of the appeal bond.
ART. 223. Appeal.Decisions, awards or orders of the Labor Arbiter are final and
executory unless appealed to the Commission by any or both parties within ten (10) The solicitor general argues for the affirmation of the assailed Resolution for the sole
calendar days from receipt of such decisions, awards, or orders. xxx reason that the appeal bond, even if it was filed on time, was defective, as it was not
in an amount equivalent to the monetary award in the judgment appealed from. The
xxxxxxxxx Court disagrees.

In case of a judgment involving a monetary award, an appeal by the employer may We hold that petitioners motion to reduce the bond is a substantial compliance with
be perfected only upon the posting of a cash or surety bond issued by a reputable the Labor Code. This holding is consistent with the norm that letter-perfect rules
bonding company duly accredited by the Commission in the amount equivalent to must yield to the broader interest of substantial justice.[20]
the monetary award in the judgment appealed from.
Where a decision may be made to rest on informed judgment rather than rigid rules,
x x x x x x x x x. the equities of the case must be accorded their due weight because labor
determinations should not only be secundum rationem but also secundum
Indisputable is the legal doctrine that the appeal of a decision involving a monetary caritatem.[21] A judicious reading of the memorandum of appeal would have made it
award in labor cases may be perfected only upon the posting of a cash or surety evident to Respondent Commission that the recourse was meritorious. Respondent
bond.[10] The lawmakers intended the posting of the bond to be an indispensable Commission acted with grave abuse of discretion in peremptorily dismissing the
requirement to perfect an employers appeal.[11] appeal without passing upon -- in fact, ignoring -- the motion to reduce the appeal
bond.
However, in a number of cases, this Court has relaxed this requirement in order to
bring about the immediate and appropriate resolution of controversies on the We repeat: Considering the clear merits which appear, res ipsa loquitur, in the appeal
merits.[12] Some of these cases include: (a) counsels reliance on the footnote of the from the labor arbiters Decision, and the petitioners substantial compliance with
79
rules governing appeals, we hold that the NLRC gravely abused its discretion in In its memorandum of appeal, petitioner controverts its liability for the mentioned
dismissing said appeal and in failing to pass upon the grounds alleged in the Motion monetary awards on the following grounds:[22]
for Reconsideration.
A. Complainant Jose Cabrera never rendered security services to [petitioner] or was
Second Issue: Liability of an Indirect Employer [n]ever assigned as security guard [for] the latters business establishment;

The overriding premise in the labor arbiters Decision holding the security agency B. Complainants Napoleon Mamon, Arsenio Gazzingan, Rodolfo Velasco, Armando
and the petitioner liable was that said parties offered no evidence refuting or Ballon and Victor Aldeza rendered security services to [petitioner] for a fixed period
rebutting the complainants computation of their monetary claims. The arbiter ruled and were thereafter assigned to other entities or establishments or were floated or
that petitioner was liable in solidum with the agency for salary differentials based on recalled to the headquarters of Veterans; and,
Articles 106, 107 and 109 of the Labor Code which hold an employer jointly and
severally liable with its contractor or subcontractor, as if it is the direct employer. C. The relationship between [petitioner] and Veterans was governed by a Contract
We quote said provisions below: for Guard Services under which [petitioner] dutifully paid a contract price of
P3,500.00 a month for 12 hour duty per guard and later increased to P4,250.00 a
ART. 106. Contractor or subcontractor. -- Whenever an employer enters into a month for 12 hour duty per guard which are within the prevailing rates in the
contract with another person for the performance of the formers work, the employees industry and in accordance with labor standard laws.
of the contractor and of the latters subcontractor, if any, shall be paid in accordance
with the provisions of this Code. The first two grounds are meritorious. Legally untenable, however, is the contention
that petitioner is not liable for any wage differential for the reason that it paid the
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with the contract for security services which it had entered
employees in accordance with this Code, the employer shall be jointly and severally into with the security agency. Notwithstanding the service contract between the
liable with his contractor or subcontractor to such employees to the extent of the petitioner and the security agency, the former is still solidarily liable to the
work performed under the contract, in the same manner and extent that he is liable to employees, who were not privy to said contract, pursuant to the aforecited provisions
employees directly employed by him. of the Code. Labor standard legislations are enacted to alleviate the plight of workers
whose wages barely meet the spiraling costs of their basic needs.
x x x x x x x x x.
They are considered written in every contract, and stipulations in violation thereof
ART. 107. Indirect employer. -- The provisions of the immediately preceding Article are considered not written. Similarly, legislated wage increases are deemed
shall likewise apply to any person, partnership, association or corporation which, not amendments to the contract. Thus, employers cannot hide behind their contracts in
being an employer, contracts with an independent contractor for the performance of order to evade their or their contractors or subcontractors liability for noncompliance
any work, task, job or project. with the statutory minimum wage.

ART. 109. Solidary liability. -- The provisions of existing laws to the contrary The joint and several liability of the employer or principal was enacted to ensure
notwithstanding, every employer or indirect employer shall be held responsible with compliance with the provisions of the Code, principally those on statutory minimum
his contractor or subcontractor for any violation of any provision of this Code. For wage. The contractor or subcontractor is made liable by virtue of his or her status as
purposes of determining the extent of their civil liability under this Chapter, they a direct employer, and the principal as the indirect employer of the contractors
shall be considered as direct employers. employees. This liability facilitates, if not guarantees, payment of the workers
compensation, thus, giving the workers ample protection as mandated by the 1987
Upon the other hand, back wages and separation pay were awarded because the Constitution.[23] This is not unduly burdensome to the employer. Should the indirect
complainants were constructively and illegally dismissed by the security agency employer be constrained to pay the workers, it can recover whatever amount it had
which placed them on floating status and at the same time gave assignments to newly paid in accordance with the terms of the service contract between itself and the
hired security guards. Noting that the relationship between the security agency and contractor.[24]
the complainants was already strained, the labor arbiter granted separation pay in lieu
of reinstatement. Withal, fairness likewise dictates that the petitioner should not, however, be held
liable for wage differentials incurred while the complainants were assigned to other
80
companies. Under these cited provisions of the Labor Code, should the contractor Mamon worked for petitioner for a period of a little more than one year beginning
fail to pay the wages of its employees in accordance with law, the indirect employer February 3, 1990 until May 16, 1991. Inasmuch as petitioner was his indirect
(the petitioner in this case), is jointly and severally liable with the contractor, but employer during such time, it should thus be severally liable for wage differential
such responsibility should be understood to be limited to the extent of the work from the time of his employment until his relief from duty. He was relieved upon the
performed under the contract, in the same manner and extent that he is liable to the request of petitioner, after it had learned of the complaint for underpayment of wages
employees directly employed by him. This liability of petitioner covers the payment filed by Mamon and several other security guards.
of the workers performance of any work, task, job or project. So long as the work,
task, job or project has been performed for petitioners benefit or on its behalf, the However, this was not a dismissal from work because Mamon was still working for
liability accrues for such period even if, later on, the employees are eventually the security agency and was immediately assigned, on May 29, 1991, to its other
transferred or reassigned elsewhere. client, Mead Johnson Philippines. His dismissal came about later, when he refused to
sign a quitclaim and waiver in favor of the security agency. Thus, he was illegally
We repeat: The indirect employers liability to the contractors employees extends dismissed by the agency when he was no longer employed by petitioner, which
only to the period during which they were working for the petitioner, and the fact cannot thus be held liable for back wages and separation pay in his case.
that they were reassigned to another principal necessarily ends such responsibility.
The principal is made liable to his indirect employees, because it can protect itself Napoleon Mamon x x x received an order transferring him to Rosewood Processing,
from irresponsible contractors by withholding such sums and paying them directly to Inc. effective x x x February 3, 1990; x x x. On May 16, 1991, Rosewood
the employees or by requiring a bond from the contractor or subcontractor for this Processing, Inc. asked for the relief of Mamon and other guards at Rosewood
purpose. because they came to know that complainants filed a complaint for underpayment on
May 13, 1991 with the National Labor Relations Commission[.] x x x After that,
Similarly, the solidary liability for payment of back wages and separation pay is complainant was floated until May 29, 1991 when he was assigned to Mead Johnson
limited, under Article 106, to the extent of the work performed under the contract; Philippines Corporation. x x x [A] week later, [the security agency] received
under Article 107, to the performance of any work, task, job or project; and under summons on complainants complaint for underpayment and he was called to [the
Article 109, to the extent of their civil liability under this Chapter [on payment of security agency] office. When he reported, he was told to sign a Quitclaim and
wages]. Waiver[] by Lt. R. Rodriguez x x x and x x x if he [did] not sign the quitclaim and
waiver, he [would] be relieved from his post and [would] no longer be given any
These provisions cannot apply to petitioner, considering that the complainants were assignment. xxxx At the end of July 1991, he was approached by the Security in
no longer working for or assigned to it when they were illegally dismissed. Charge, A. Azuela, x x x [for him] to sign the quitclaim and waiver[,] and when he
Furthermore, an order to pay back wages and separation pay is invested with a refused to sign, he was told that x x x he ha[d] no more assignment and should report
punitive character, such that an indirect employer should not be made liable without to their office. x x x [H]e reported the following day to the detachment commander,
a finding that it had committed or conspired in the illegal dismissal. Mr. A. Yadao and he was told that the main office ha[d] relieved him x x x. He
reported to their office asking for an assignment but he was told by R. Rodriguez that
The liability arising from an illegal dismissal is unlike an order to pay the statutory I no longer can be given an assignment so I had better resign. He went back several
minimum wage, because the workers right to such wage is derived from law. The times to the office of the [security agency] but every time the answer was the same x
proposition that payment of back wages and separation pay should be covered by x x although respondent was recruiting new guards and posting them.[25]
Article 109, which holds an indirect employer solidarily responsible with his
contractor or subcontractor for any violation of any provision of this Code, would Case No. NCR-00-07-03966-91
have been tenable if there were proof -- there was none in this case -- that the
principal/employer had conspired with the contractor in the acts giving rise to the Gazzingan was assigned to petitioner as a security guard for a period of one year. For
illegal dismissal. said period, petitioner is solidarily liable with the agency for underpayment of wages
based on Articles 106, 107 and 109 of the Code.
With the foregoing discussion in mind, we now take up in detail the petitioners
liability to each of the complainants. Arsenio Gazzingan x x x after eleven (11) days on June 1989, xxx was transferred to
Case No. NCR-00-08-04630-91 Rosewood Processing, Inc. x x x. [I]n June 1990, he was assigned at Purefoods
DELPAN x x x. After 11 days, he asked to be transferred to Manila because of the
distance from his home and the transfer was approved but instead of being
81
transferred to Manila, he was assigned to Purefoods B-F-4 in Batangas x x x again he Petitioner is liable for wage differentials in favor of Aldeza during the period he
requested for transfer which was also approved by the [security agency] office but worked with petitioner, that is, October 16, 1990 until May 15, 1991.
since then he was told to come back again and again and up to the present he has not
been given any assignment. x x x x.[26] x x x On October 16, 1990, he [Aldeza] was transferred to Rosewood Processing,
Inc., x x x up to May 15, 1991[.] On the later part of May 1991, he was assigned to
His dismissal cannot be blamed on the petitioner. Like Mamon, Gazzingan had UPSSA (Sandoval Shipyard) x x x. Complainant [sic] complained to [the security
already been assigned to another client of the agency when he was illegally agency] about the salary but [the security agency] did not heed him; thus, he filed his
dismissed. Thus, Rosewood cannot be held liable, jointly and severally with the complaint for underpayment[.] [The security agency] upon complainants complaint
agency, for back wages and separation pay. for underpayment reacted xxx, instead of adjusting his salary to meet the minimum
prescribed by law[,] relieved him and left him floating[;] and when he complained of
Case No. NCR-00-07-03967-91 the treatment, he was told to resign because he could no longer be given any
assignment. Because of this, complainant was forced to file another complaint for
Rodolfo Velasco was assigned to petitioner from December 31, 1988 until May 16, illegal dismissal.[29]
1991. Thus, petitioner is solidarily liable for wage differentials during such period.
Petitioner is not, however, liable for back wages and separation pay, because Velasco The cause of Aldezas illegal dismissal is imputable, not to petitioner, but solely to
was no longer working for petitioner at the time of his illegal dismissal. the security agency. In Aldezas case, the solidary liability for back wages and
separation pay arising from Articles 106, 107 and 109 of the Code has no
Rodolfo Velasco started working for the [security agency] on January 5, 1987. x x x application.
[On] December 31, 1988 xxx he was x x x transferred to various posts like x x x
Rosewood Processing, Inc., x x x until May 16, 1991 x x x. He was relieved on Case No. NCR-00-09-05617-91
August 24 and his salary for the period August 20 to 23 has not been paid by [the
security agency]; [h]e was suspended for no cause at all.[27] Cabrera was an employee of the security agency, but he never rendered security
services to petitioner. This fact is evident in the labor arbiters findings:
Case No. NCR-00-07-0445-91
Jose L. Cabrera started working for the [security agency] as [a] security guard on
Petitioner was the indirect employer of Ballon during the period beginning January, 1988 and was assigned to Alencor Residence x x x. [I]n May, 1988, he was
November 6, 1990 until May 15, 1991; thus, it is liable for wage differentials for said transferred to E & L Restaurant x x x[.] [I]n January, 1989, he was transferred to
period. However, it is not liable for back wages and separation pay, as there was no Paramount x x x[.] [I]n July 1989, he was transferred to Benito Ong[s] residence x x
evidence presented to show that it participated in Ballons illegal dismissal. x[.] [I]n December, 1989, he was transferred to Sea Trade International xxx[.] [I]n
July, 1990, he was transferred to Holland Pacific & Paper Mills x x x[.] [I]n October
x x x [H]e [Armando Ballon] was transferred to Rosewood Processing, Inc. on 1990, he was transferred to RMG [R]esidence x x x[.] [I]n February 1991, he was
November 6, 1990 rendering 12 hours duty as [d]etachment [c]ommander and transferred to Purefoods Corporation at Mabini, Batangas x x x. When he was
received a salary of P2,700.00/month including P200.00 officers allowance until discharged from the hospital and after he was examined and declared fit to work by
May 15, 1991. On May 16, 1991, he applied for sick leave on orders of his doctor for the doctor, he reported back to [the security agency] office but was given the run-
15 days but the HRM, Miss M. Andres[,] got angry and crumpled his application for around [and was told to] come back tomorrow[,] although he [could] see that [it was]
sick leave that is why he was not able to forward it to the SSS. After 15 days, he posting new recruits. He then complained to this Honorable Office to seek redress,
came back to the office of [the security agency] asking for an assignment and he was hiring the services of a counsel.[30]
told that he [was] already terminated. Complainant found out that the reason why
Miss Andres crumpled his application for sick leave was because of the complaint he Hence, petitioner is not liable to Cabrera for anything.
previously filed and was dismissed for failure to appear. He then refiled this case to
seek redress from this Office.[28] In all these cases, however, the liability of the security agency is without question, as
it did not appeal from the Decisions of the labor arbiter and Respondent
Case No. NCR-00-08-05030-91 Commission.

82
WHEREFORE, the petition is partially GRANTED. The assailed Decision is hereby
MODIFIED, such that petitioner, with the security agency, is solidarily liable to
PAY the complainants only wage differentials during the period that the
complainants were actually under its employ, as above detailed. Petitioner is
EXONERATED from the payment of back wages and separation pay.

The temporary restraining order issued earlier is LIFTED, but the petitioner is
deemed liable only for the aforementioned wage differentials which Respondent
Commission is required to RECOMPUTE within fifteen days from the finality of
this Decision. No costs.

SO ORDERED.

83