EMPLOYER-EMPLOYEE RELATIONSHIP

GREAT PACIFIC LIFE ASSURANCE CORPORATION, petitioner,

vs.
HONORATO JUDICO and NATIONAL LABOR RELATIONS COMMISSION, respondents.

PARAS J.:

Before us is a Petition for certiorari to review the decision of the National Labor Relations Commission (NLRC, for brevity) dated
September 9, 1985 reversing the decision of Labor Arbiter Vito J. Minoria, dated June 9, 1983, by 1) ordering petitioner insurance
company, Great Pacific Life Assurance Corporation (Grepalife, for brevity) to recognize private respondent Honorato Judico, as its
regular employee as defined under Art. 281 of the Labor Code and 2) remanding the case to its origin for the determination of private
respondent Judico's money claims.

The records of the case show that Honorato Judico filed a complaint for illegal dismissal against Grepalife, a duly organized insurance
firm, before the NLRC Regional Arbitration Branch No. VII, Cebu City on August 27, 1982. Said complaint prayed for award of
money claims consisting of separation pay, unpaid salary and 13th month pay, refund of cash bond, moral and exemplary damages
and attorney's fees.

Both parties appealed to the NLRC when a decision was rendered by the Labor Arbiter dismissing the complaint on the ground that
the employer-employee relations did not exist between the parties but ordered Grepalife to pay complainant the sum of Pl,000.00 by
reason of Christian Charity.

On appeal, said decision was reversed by the NLRC ruling that complainant is a regular employee as defined under Art. 281 of the
Labor Code and declaring the appeal of Grepalife questioning the legality of the payment of Pl,000.00 to complainant moot and
academic. Nevertheless, for the purpose of revoking the supersedeas bond of said company it ruled that the Labor Arbiter erred in
awarding Pl,000.00 to complainant in the absence of any legal or factual basis to support its payment.

Petitioner company moved to reconsider, which was denied, hence this petition for review raising four legal issues to wit:

I. Whether the relationship between insurance agents and their principal, the insurance company, is that of agent and principal to be
governed by the Insurance Code and the Civil Code provisions on agency, or one of employer-employee, to be governed by the Labor
Code.

II. Whether insurance agents are entitled to the employee benefits prescribed by the Labor Code.

III. Whether the public respondent NLRC has jurisdiction to take cognizance of a controversy between insurance agent and the
insurance company, arising from their agency relations.

IV. Whether the public respondent acted correctly in setting aside the decision of Labor Arbiter Vito J. Minoria and in ordering the
case remanded to said Labor Arbiter for further proceedings.(p. 159, Rollo)

The crux of these issues boil down to the question of whether or not employer-employee relationship existed between petitioner and
private respondent.

Petitioner admits that on June 9, 1976, private respondent Judico entered into an agreement of agency with petitioner Grepalife to
become a debit agent attached to the industrial life agency in Cebu City. Petitioner defines a debit agent as "an insurance agent
selling/servicing industrial life plans and policy holders. Industrial life plans are those whose premiums are payable either daily,
weekly or monthly and which are collectible by the debit agents at the home or any place designated by the policy holder" (p. 156,
Rollo). Such admission is in line with the findings of public respondent that as such debit agent, private respondent Judico had definite
work assignments including but not limited to collection of premiums from policy holders and selling insurance to prospective clients.
Public respondent NLRC also found out that complainant was initially paid P 200. 00 as allowance for thirteen (13) weeks regardless
of production and later a certain percentage denominated as sales reserve of his total collections but not lesser than P 200.00.
Sometime in September 1981, complainant was promoted to the position of Zone Supervisor and was given additional (supervisor's)
allowance fixed at P110.00 per week. During the third week of November 1981, he was reverted to his former position as debit agent
but, for unknown reasons, not paid so-called weekly sales reserve of at least P 200.00. Finally on June 28, 1982, complainant was
dismissed by way of termination of his agency contract.
Petitioner assails the findings of the NLRC that private respondent is an employee of the former. Petitioner argues that Judico's
compensation was not based on any fixed number of hours he was required to devote to the service of petitioner company but rather it
was the production or result of his efforts or his work that was being compensated and that the so-called allowance for the first thirteen
weeks that Judico worked as debit agent, cannot be construed as salary but as a subsidy or a way of assistance for transportation and
meal expenses of a new debit agent during the initial period of his training which was fixed for thirteen (13) weeks. Stated otherwise,
petitioner contends that Judico's compensation, in the form of commissions and bonuses, was based on actual production, (insurance
plans sold and premium collections).

Said contentions of petitioner are strongly rejected by private respondent. He maintains that he received a definite amount as his Wage
known as "sales reserve" the failure to maintain the same would bring him back to a beginner's employment with a fixed weekly wage
of P 200.00 regardless of production. He was assigned a definite place in the office to work on when he is not in the field; and in
addition to canvassing and making regular reports, he was burdened with the job of collection and to make regular weekly report
thereto for which an anemic performance would mean dismissal. He earned out of his faithful and productive service, a promotion to
Zone Supervisor with additional supervisor's allowance, (a definite or fixed amount of P110.00) that he was dismissed primarily
because of anemic performance and not because of the termination of the contract of agency substantiate the fact that he was indeed an
employee of the petitioner and not an insurance agent in the ordinary meaning of the term.

That private respondent Judico was an agent of the petitioner is unquestionable. But, as We have held in Investment Planning Corp.
vs. SSS, 21 SCRA 294, an insurance company may have two classes of agents who sell its insurance policies: (1) salaried employees
who keep definite hours and work under the control and supervision of the company; and (2) registered representatives who work on
commission basis. The agents who belong to the second category are not required to report for work at anytime, they do not have to
devote their time exclusively to or work solely for the company since the time and the effort they spend in their work depend entirely
upon their own will and initiative; they are not required to account for their time nor submit a report of their activities; they shoulder
their own selling expenses as well as transportation; and they are paid their commission based on a certain percentage of their sales.
One salient point in the determination of employer-employee relationship which cannot be easily ignored is the fact that the
compensation that these agents on commission received is not paid by the insurance company but by the investor (or the person
insured). After determining the commission earned by an agent on his sales the agent directly deducts it from the amount he received
from the investor or the person insured and turns over to the insurance company the amount invested after such deduction is made.
The test therefore is whether the "employer" controls or has reserved the right to control the "employee" not only as to the result of the
work to be done but also as to the means and methods by which the same is to be accomplished.

Applying the aforementioned test to the case at bar, We can readily see that the element of control by the petitioner on Judico was
very much present. The record shows that petitioner Judico received a definite minimum amount per week as his wage known as
"sales reserve" wherein the failure to maintain the same would bring him back to a beginner's employment with a fixed weekly wage
of P 200.00 for thirteen weeks regardless of production. He was assigned a definite place in the office to work on when he is not in the
field; and in addition to his canvassing work he was burdened with the job of collection. In both cases he was required to make regular
report to the company regarding these duties, and for which an anemic performance would mean a dismissal. Conversely faithful and
productive service earned him a promotion to Zone Supervisor with additional supervisor's allowance, a definite amount of P110.00
aside from the regular P 200.00 weekly "allowance". Furthermore, his contract of services with petitioner is not for a piece of work
nor for a definite period.

On the other hand, an ordinary commission insurance agent works at his own volition or at his own leisure without fear of dismissal
from the company and short of committing acts detrimental to the business interest of the company or against the latter, whether he
produces or not is of no moment as his salary is based on his production, his anemic performance or even dead result does not become
a ground for dismissal. Whereas, in private respondent's case, the undisputed facts show that he was controlled by petitioner insurance
company not only as to the kind of work; the amount of results, the kind of performance but also the power of dismissal. Undoubtedly,
private respondent, by nature of his position and work, had been a regular employee of petitioner and is therefore entitled to the
protection of the law and could not just be terminated without valid and justifiable cause.

Premises considered, the appealed decision is hereby AFFIRMED in toto.

SO ORDERED.
INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.

NARVASA, J.:

On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and Melecio T. Basiao entered into a
contract 1 by which:

1. Basiao was "authorized to solicit within the Philippines applications for insurance policies and annuities in accordance with the
existing rules and regulations" of the Company;

2. he would receive "compensation, in the form of commissions ... as provided in the Schedule of Commissions" of the contract to
"constitute a part of the consideration of ... (said) agreement;" and

3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well as all its circulars ... and those which may from time to
time be promulgated by it, ..." were made part of said contract.

The contract also contained, among others, provisions governing the relations of the parties, the duties of the Agent, the acts
prohibited to him, and the modes of termination of the agreement, viz.:

RELATION WITH THE COMPANY. The Agent shall be free to exercise his own judgment as to time, place and means of soliciting
insurance. Nothing herein contained shall therefore be construed to create the relationship of employee and employer between the
Agent and the Company. However, the Agent shall observe and conform to all rules and regulations which the Company may from
time to time prescribe.

ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving, directly or indirectly, rebates in any form, or from
making any misrepresentation or over-selling, and, in general, from doing or committing acts prohibited in the Agent's Manual and in
circulars of the Office of the Insurance Commissioner.

TERMINATION. The Company may terminate the contract at will, without any previous notice to the Agent, for or on account of ...
(explicitly specified causes). ...

Either party may terminate this contract by giving to the other notice in writing to that effect. It shall become ipso facto cancelled if
the Insurance Commissioner should revoke a Certificate of Authority previously issued or should the Agent fail to renew his existing
Certificate of Authority upon its expiration. The Agent shall not have any right to any commission on renewal of premiums that may
be paid after the termination of this agreement for any cause whatsoever, except when the termination is due to disability or death in
line of service. As to commission corresponding to any balance of the first year's premiums remaining unpaid at the termination of this
agreement, the Agent shall be entitled to it if the balance of the first year premium is paid, less actual cost of collection, unless the
termination is due to a violation of this contract, involving criminal liability or breach of trust.

ASSIGNMENT. No Assignment of the Agency herein created or of commissions or other compensations shall be valid without the
prior consent in writing of the Company. ...

Some four years later, in April 1972, the parties entered into another contract — an Agency Manager's Contract — and to implement
his end of it Basiao organized an agency or office to which he gave the name M. Basiao and Associates, while concurrently fulfilling
his commitments under the first contract with the Company. 2

In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking a reconsideration, Basiao sued the
Company in a civil action and this, he was later to claim, prompted the latter to terminate also his engagement under the first contract
and to stop payment of his commissions starting April 1, 1980. 3

Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and its president. Without contesting the
termination of the first contract, the complaint sought to recover commissions allegedly unpaid thereunder, plus attorney's fees. The
respondents disputed the Ministry's jurisdiction over Basiao's claim, asserting that he was not the Company's employee, but an
independent contractor and that the Company had no obligation to him for unpaid commissions under the terms and conditions of his
contract. 5
The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting agreement had established an
employer-employee relationship between him and the Company, and this conferred jurisdiction on the Ministry of Labor to adjudicate
his claim. Said official's decision directed payment of his unpaid commissions "... equivalent to the balance of the first year's premium
remaining unpaid, at the time of his termination, of all the insurance policies solicited by ... (him) in favor of the respondent company
..." plus 10% attorney's fees. 6

This decision was, on appeal by the Company, affirmed by the National Labor Relations Commission. 7 Hence, the present petition
for certiorari and prohibition.

The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the Company's employee by virtue of the
contract invoked by him, thereby placing his claim for unpaid commissions within the original and exclusive jurisdiction of the Labor
Arbiter under the provisions of Section 217 of the Labor Code, 8 or, contrarily, as the Company would have it, that under said contract
Basiao's status was that of an independent contractor whose claim was thus cognizable, not by the Labor Arbiter in a labor case, but by
the regular courts in an ordinary civil action.

The Company's thesis, that no employer-employee relation in the legal and generally accepted sense existed between it and Basiao, is
drawn from the terms of the contract they had entered into, which, either expressly or by necessary implication, made Basiao the
master of his own time and selling methods, left to his judgment the time, place and means of soliciting insurance, set no
accomplishment quotas and compensated him on the basis of results obtained. He was not bound to observe any schedule of working
hours or report to any regular station; he could seek and work on his prospects anywhere and at anytime he chose to, and was free to
adopt the selling methods he deemed most effective.

Without denying that the above were indeed the expressed implicit conditions of Basiao's contract with the Company, the respondents
contend that they do not constitute the decisive determinant of the nature of his engagement, invoking precedents to the effect that the
critical feature distinguishing the status of an employee from that of an independent contractor is control, that is, whether or not the
party who engages the services of another has the power to control the latter's conduct in rendering such services. Pursuing the
argument, the respondents draw attention to the provisions of Basiao's contract obliging him to "... observe and conform to all rules
and regulations which the Company may from time to time prescribe ...," as well as to the fact that the Company prescribed the
qualifications of applicants for insurance, processed their applications and determined the amounts of insurance cover to be issued as
indicative of the control, which made Basiao, in legal contemplation, an employee of the Company. 9

It is true that the "control test" expressed in the following pronouncement of the Court in the 1956 case of Viana vs. Alejo Al-
Lagadan10

... In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the
selection and engagement of the 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 (35 Am. Jur. 445). ...

has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a valid test of the character of a
contract or agreement to render service. It should, however, be obvious that not every form of control that the hiring party reserves to
himself over the conduct of the party hired in relation to the services rendered may be accorded the effect of establishing an employer-
employee relationship between them in the legal or technical sense of the term. A line must be drawn somewhere, if the recognized
distinction between an employee and an individual contractor is not to vanish altogether. Realistically, it would be a rare contract of
service that gives untrammelled freedom to the party hired and eschews any intervention whatsoever in his performance of the
engagement.

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired
result without dictating the means or methods to be employed in attaining it, and those that control or fix the methodology and bind or
restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it. The distinction acquires particular
relevance in the case of an enterprise affected with public interest, as is the business of insurance, and is on that account subject to
regulation by the State with respect, not only to the relations between insurer and insured but also to the internal affairs of the
insurance company. 12 Rules and regulations governing the conduct of the business are provided for in the Insurance Code and
enforced by the Insurance Commissioner. It is, therefore, usual and expected for an insurance company to promulgate a set of rules to
guide its commission agents in selling its policies that they may not run afoul of the law and what it requires or prohibits. Of such a
character are the rules which prescribe the qualifications of persons who may be insured, subject insurance applications to processing
and approval by the Company, and also reserve to the Company the determination of the premiums to be paid and the schedules of
payment. None of these really invades the agent's contractual prerogative to adopt his own selling methods or to sell insurance at his
own time and convenience, hence cannot justifiably be said to establish an employer-employee relationship between him and the
company.
There is no dearth of authority holding persons similarly placed as respondent Basiao to be independent contractors, instead of
employees of the parties for whom they worked. In Mafinco Trading Corporation vs. Ople, 13the Court ruled that a person engaged to
sell soft drinks for another, using a truck supplied by the latter, but with the right to employ his own workers, sell according to his own
methods subject only to prearranged routes, observing no working hours fixed by the other party and obliged to secure his own
licenses and defray his own selling expenses, all in consideration of a peddler's discount given by the other party for at least 250 cases
of soft drinks sold daily, was not an employee but an independent contractor.

In Investment Planning Corporation of the Philippines us. Social Security System 14 a case almost on all fours with the present one,
this Court held that there was no employer-employee relationship between a commission agent and an investment company, but that
the former was an independent contractor where said agent and others similarly placed were: (a) paid compensation in the form of
commissions based on percentages of their sales, any balance of commissions earned being payable to their legal representatives in the
event of death or registration; (b) required to put up performance bonds; (c) subject to a set of rules and regulations governing the
performance of their duties under the agreement with the company and termination of their services for certain causes; (d) not required
to report for work at any time, nor to devote their time exclusively to working for the company nor to submit a record of their
activities, and who, finally, shouldered their own selling and transportation expenses.

More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller to buy and sell rice and palay without
compensation except a certain percentage of what he was able to buy or sell, did work at his own pleasure without any supervision or
control on the part of his principal and relied on his own resources in the performance of his work, was a plain commission agent, an
independent contractor and not an employee.

The respondents limit themselves to pointing out that Basiao's contract with the Company bound him to observe and conform to such
rules and regulations as the latter might from time to time prescribe. No showing has been made that any such rules or regulations
were in fact promulgated, much less that any rules existed or were issued which effectively controlled or restricted his choice of
methods — or the methods themselves — of selling insurance. Absent such showing, the Court will not speculate that any exceptions
or qualifications were imposed on the express provision of the contract leaving Basiao "... free to exercise his own judgment as to the
time, place and means of soliciting insurance."

The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with the Company for twenty-five years.
Whatever this is meant to imply, the obvious reply would be that what is germane here is Basiao's status under the contract of July 2,
1968, not the length of his relationship with the Company.

The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of the petitioner, but a commission
agent, an independent contractor whose claim for unpaid commissions should have been litigated in an ordinary civil action. The
Labor Arbiter erred in taking cognizance of, and adjudicating, said claim, being without jurisdiction to do so, as did the respondent
NLRC in affirming the Arbiter's decision. This conclusion renders it unnecessary and premature to consider Basiao's claim for
commissions on its merits.

WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside, and that complaint of private
respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is dismissed. No pronouncement as to costs.

SO ORDERED.

GREGORIO V. TONGKO, Petitioner,

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS,Respondents.

BRION, J.:

This resolves the Motion for Reconsideration1 dated December 3, 2008 filed by respondent The Manufacturers Life Insurance Co.
(Phils.), Inc. (Manulife) to set aside our Decision of November 7, 2008. In the assailed decision, we found that an employer-employee
relationship existed between Manulife and petitioner Gregorio Tongko and ordered Manulife to pay Tongko backwages and separation
pay for illegal dismissal.

The following facts have been stated in our Decision of November 7, 2008, now under reconsideration, but are repeated, simply for
purposes of clarity.
The contractual relationship between Tongko and Manulife had two basic phases. The first or initial phase began on July 1, 1977,
under a Career Agent’s Agreement (Agreement) that provided:

It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be construed or interpreted
as creating an employer-employee relationship between the Company and the Agent.

xxxx

a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products offered by the Company,
and collect, in exchange for provisional receipts issued by the Agent, money due to or become due to the Company in respect of
applications or policies obtained by or through the Agent or from policyholders allotted by the Company to the Agent for servicing,
subject to subsequent confirmation of receipt of payment by the Company as evidenced by an Official Receipt issued by the Company
directly to the policyholder.

xxxx

The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the Agent by giving
written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No waiver, extinguishment,
abandonment, withdrawal or cancellation of the right to terminate this Agreement by the Company shall be construed for any previous
failure to exercise its right under any provision of this Agreement.

Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other party fifteen (15)
days notice in writing.2

Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and (2) to maintain a standard of
knowledge and competency in the sale of Manulife’s products, satisfactory to Manulife and sufficient to meet the volume of the new
business, required by his Production Club membership. 3

The second phase started in 1983 when Tongko was named Unit Manager in Manulife’s Sales Agency Organization. In 1990, he
became a Branch Manager. Six years later (or in 1996), Tongko became a Regional Sales Manager. 4

Tongko’s gross earnings consisted of commissions, persistency income, and management overrides. Since the beginning, Tongko
consistently declared himself self-employed in his income tax returns. Thus, under oath, he declared his gross business income and
deducted his business expenses to arrive at his taxable business income. Manulife withheld the corresponding 10% tax on Tongko’s
earnings.5

In 2001, Manulife instituted manpower development programs at the regional sales management level. Respondent Renato Vergel de
Dios wrote Tongko a letter dated November 6, 2001 on concerns that were brought up during the October 18, 2001 Metro North Sales
Managers Meeting. De Dios wrote:

The first step to transforming Manulife into a big league player has been very clear – to increase the number of agents to at least 1,000
strong for a start. This may seem diametrically opposed to the way Manulife was run when you first joined the organization. Since
then, however, substantial changes have taken place in the organization, as these have been influenced by developments both from
within and without the company.

xxxx

The issues around agent recruiting are central to the intended objectives hence the need for a Senior Managers’ meeting earlier last
month when Kevin O’Connor, SVP-Agency, took to the floor to determine from our senior agency leaders what more could be done
to bolster manpower development. At earlier meetings, Kevin had presented information where evidently, your Region was the lowest
performer (on a per Manager basis) in terms of recruiting in 2000 and, as of today, continues to remain one of the laggards in this area.

While discussions, in general, were positive other than for certain comments from your end which were perceived to be uncalled for, it
became clear that a one-on-one meeting with you was necessary to ensure that you and management, were on the same plane. As
gleaned from some of your previous comments in prior meetings (both in group and one-on-one), it was not clear that we were
proceeding in the same direction.

Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those subsequent meetings you
reiterated certain views, the validity of which we challenged and subsequently found as having no basis.
With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a bit confused as to the
directions the company was taking. For this reason, I sought a meeting with everyone in your management team, including you, to
clear the air, so to speak.

This note is intended to confirm the items that were discussed at the said Metro North Region’s Sales Managers meeting held at the
7/F Conference room last 18 October.

xxxx

Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the position of agents."

This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the issue on the table before the rest
of your Region’s Sales Managers to verify its validity. As you must have noted, no Sales Manager came forward on their own to
confirm your statement and it took you to name Malou Samson as a source of the same, an allegation that Malou herself denied at our
meeting and in your very presence.

This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had thought all along, that these
allegations were simply meant to muddle the issues surrounding the inability of your Region to meet its agency development
objectives!

Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process, they earn less."

xxxx

All the above notwithstanding, we had your own records checked and we found that you made a lot more money in the Year 2000
versus 1999. In addition, you also volunteered the information to Kevin when you said that you probably will make more money in the
Year 2001 compared to Year 2000. Obviously, your above statement about making "less money" did not refer to you but the way you
argued this point had us almost believing that you were spouting the gospel of truth when you were not. x x x

xxxx

All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the new direction that we have
been discussing these past few weeks, i.e., Manulife’s goal to become a major agency-led distribution company in the Philippines.
While as you claim, you have not stopped anyone from recruiting, I have never heard you proactively push for greater agency
recruiting. You have not been proactive all these years when it comes to agency growth.

xxxx

I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are making the following changes
in the interim:

1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks which can be easily delegated.
This assistant should be so chosen as to complement your skills and help you in the areas where you feel "may not be your cup of tea."

You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for your health. The above could
solve this problem.

xxxx

2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch (NSB) in autonomous
fashion. x x x

I have decided to make this change so as to reduce your span of control and allow you to concentrate more fully on overseeing the
remaining groups under Metro North, your Central Unit and the rest of the Sales Managers in Metro North. I will hold you solely
responsible for meeting the objectives of these remaining groups.

xxxx
The above changes can end at this point and they need not go any further. This, however, is entirely dependent upon you. But you
have to understand that meeting corporate objectives by everyone is primary and will not be compromised. We are meeting tough
challenges next year, and I would want everybody on board. Any resistance or holding back by anyone will be dealt with accordingly. 6

Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating Tongko’s services:

It would appear, however, that despite the series of meetings and communications, both one-on-one meetings between yourself and
SVP Kevin O’Connor, some of them with me, as well as group meetings with your Sales Managers, all these efforts have failed in
helping you align your directions with Management’s avowed agency growth policy.

xxxx

On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as we are now issuing this
notice of termination of your Agency Agreement with us effective fifteen days from the date of this letter. 7

Tongko responded by filing an illegal dismissal complaint with the National Labor Relations Commission (NLRC) Arbitration
Branch. He essentially alleged – despite the clear terms of the letter terminating his Agency Agreement – that he was Manulife’s
employee before he was illegally dismissed.8

Thus, the threshold issue is the existence of an employment relationship. A finding that none exists renders the question of illegal
dismissal moot; a finding that an employment relationship exists, on the other hand, necessarily leads to the need to determine the
validity of the termination of the relationship.

A. Tongko’s Case for Employment Relationship

Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding ₱50,000.00, regardless of production levels
attained and exclusive of commissions and bonuses. He also claimed that as Regional Sales Manager, he was given a travel and
entertainment allowance of ₱36,000.00 per year in addition to his overriding commissions; he was tasked with numerous
administrative functions and supervisory authority over Manulife’s employees, aside from merely selling policies and recruiting
agents for Manulife; and he recommended and recruited insurance agents subject to vetting and approval by Manulife. He further
alleges that he was assigned a definite place in the Manulife offices when he was not in the field – at the 3rd Floor, Manulife Center,
108 Tordesillas corner Gallardo Sts., Salcedo Village, Makati City – for which he never paid any rental. Manulife provided the office
equipment he used, including tables, chairs, computers and printers (and even office stationery), and paid for the electricity, water and
telephone bills. As Regional Sales Manager, Tongko additionally asserts that he was required to follow at least three codes of
conduct.9

B. Manulife’s Case – Agency Relationship with Tongko

Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was paid commissions of varying amounts,
computed based on the premium paid in full and actually received by Manulife on policies obtained through an agent. As sales
manager, Tongko was paid overriding sales commission derived from sales made by agents under his unit/structure/branch/region.
Manulife also points out that it deducted and withheld a 10% tax from all commissions Tongko received; Tongko even declared
himself to be self-employed and consistently paid taxes as such—i.e., he availed of tax deductions such as ordinary and necessary
trade, business and professional expenses to which a business is entitled.

Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he was not its employee as characterized in the
four-fold test and our ruling in Carungcong v. National Labor Relations Commission.10

The Conflicting Rulings of the Lower Tribunals

The labor arbiter decreed that no employer-employee relationship existed between the parties. However, the NLRC reversed the labor
arbiter’s decision on appeal; it found the existence of an employer-employee relationship and concluded that Tongko had been
illegally dismissed. In the petition for certiorari with the Court of Appeals (CA), the appellate court found that the NLRC gravely
abused its discretion in its ruling and reverted to the labor arbiter’s decision that no employer-employee relationship existed between
Tongko and Manulife.

Our Decision of November 7, 2008

In our Decision of November 7, 2008, we reversed the CA ruling and found that an employment relationship existed between Tongko
and Manulife. We concluded that Tongko is Manulife’s employee for the following reasons:

1. Our ruling in the first Insular11 case did not foreclose the possibility of an insurance agent becoming an employee of an
insurance company; if evidence exists showing that the company promulgated rules or regulations that effectively controlled
or restricted an insurance agent’s choice of methods or the methods themselves in selling insurance, an employer-employee
relationship would be present. The determination of the existence of an employer-employee relationship is thus on a case-to-
case basis depending on the evidence on record.

2. Manulife had the power of control over Tongko, sufficient to characterize him as an employee, as shown by the following
indicators:

2.1 Tongko undertook to comply with Manulife’s rules, regulations and other requirements, i.e., the different codes
of conduct such as the Agent Code of Conduct, the Manulife Financial Code of Conduct, and the Financial Code of
Conduct Agreement;

2.2 The various affidavits of Manulife’s insurance agents and managers, who occupied similar positions as Tongko,
showed that they performed administrative duties that established employment with Manulife; 12 and

2.3 Tongko was tasked to recruit some agents in addition to his other administrative functions. De Dios’ letter
harped on the direction Manulife intended to take, viz., greater agency recruitment as the primary means to sell more
policies; Tongko’s alleged failure to follow this directive led to the termination of his employment with Manulife.

The Motion for Reconsideration

Manulife disagreed with our Decision and filed the present motion for reconsideration on the following GROUNDS:

1. The November 7[, 2008] Decision violates Manulife’s right to due process by: (a) confining the review only to the issue of
"control" and utterly disregarding all the other issues that had been joined in this case; (b) mischaracterizing the divergence of
conclusions between the CA and the NLRC decisions as confined only to that on "control"; (c) grossly failing to consider the
findings and conclusions of the CA on the majority of the material evidence, especially [Tongko’s] declaration in his income
tax returns that he was a "business person" or "self-employed"; and (d) allowing [Tongko] to repudiate his sworn statement in
a public document.

2. The November 7[, 2008] Decision contravenes settled rules in contract law and agency, distorts not only the legal
relationships of agencies to sell but also distributorship and franchising, and ignores the constitutional and policy context of
contract law vis-à-vis labor law.

3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements of the four-fold test other than the
"control" test, reverses well-settled doctrines of law on employer-employee relationships, and grossly misapplies the "control
test," by selecting, without basis, a few items of evidence to the exclusion of more material evidence to support its conclusion
that there is "control."

4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by Articles 8 and 9 of the Civil
Code, beyond the powers granted to this Court under Article VIII, Section 1 of the Constitution and contravenes through
judicial legislation, the constitutional prohibition against impairment of contracts under Article III, Section 10 of the
Constitution.

5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and reversible errors, which should be
corrected, in concluding that Respondent Manulife and Petitioner had an employer-employee relationship, that Respondent
Manulife illegally dismissed Petitioner, and for consequently ordering Respondent Manulife to pay Petitioner backwages,
separation pay, nominal damages and attorney’s fees.13

THE COURT’S RULING

A. The Insurance and the Civil Codes;

the Parties’ Intent and Established
Industry Practices
We cannot consider the present case purely from a labor law perspective, oblivious that the factual antecedents were set in the
insurance industry so that the Insurance Code primarily governs. Chapter IV, Title 1 of this Code is wholly devoted to "Insurance
Agents and Brokers" and specifically defines the agents and brokers relationship with the insurance company and how they are
governed by the Code and regulated by the Insurance Commission.

The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as agency is a civil law matter governed by the
Civil Code. Thus, at the very least, three sets of laws – namely, the Insurance Code, the Labor Code and the Civil Code – have to be
considered in looking at the present case. Not to be forgotten, too, is the Agreement (partly reproduced on page 2 of this Dissent and
which no one disputes) that the parties adopted to govern their relationship for purposes of selling the insurance the company offers.
To forget these other laws is to take a myopic view of the present case and to add to the uncertainties that now exist in considering the
legal relationship between the insurance company and its "agents."

The main issue of whether an agency or an employment relationship exists depends on the incidents of the relationship. The Labor
Code concept of "control" has to be compared and distinguished with the "control" that must necessarily exist in a principal-agent
relationship. The principal cannot but also have his or her say in directing the course of the principal-agent relationship, especially in
cases where the company-representative relationship in the insurance industry is an agency.

a. The laws on insurance and agency

The business of insurance is a highly regulated commercial activity in the country, in terms particularly of who can be in the insurance
business, who can act for and in behalf of an insurer, and how these parties shall conduct themselves in the insurance business. Section
186 of the Insurance Code provides that "No person, partnership, or association of persons shall transact any insurance business in the
Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines." Sections 299 and
300 of the Insurance Code on Insurance Agents and Brokers, among other provisions, provide:

Section 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission or other
compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a
license to act as an insurance agent of such company or as an insurance broker as hereinafter provided.

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or
receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the Commissioner x x x The Commissioner shall
satisfy himself as to the competence and trustworthiness of the applicant and shall have the right to refuse to issue or renew and to
suspend or revoke any such license in his discretion.1avvphi1.net

Section 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a
person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in
the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the
duties, requirements, liabilities and penalties to which an insurance agent is subject.

The application for an insurance agent’s license requires a written examination, and the applicant must be of good moral character and
must not have been convicted of a crime involving moral turpitude.14 The insurance agent who collects premiums from an insured
person for remittance to the insurance company does so in a fiduciary capacity, and an insurance company which delivers an insurance
policy or contract to an authorized agent is deemed to have authorized the agent to receive payment on the company’s
behalf.15 Section 361 further prohibits the offer, negotiation, or collection of any amount other than that specified in the policy and this
covers any rebate from the premium or any special favor or advantage in the dividends or benefit accruing from the policy.

Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and must also act within the parameters of the
authority granted under the license and under the contract with the principal. Other than the need for a license, the agent is limited in
the way he offers and negotiates for the sale of the company’s insurance products, in his collection activities, and in the delivery of the
insurance contract or policy. Rules regarding the desired results (e.g., the required volume to continue to qualify as a company agent,
rules to check on the parameters on the authority given to the agent, and rules to ensure that industry, legal and ethical rules are
followed) are built-in elements of control specific to an insurance agency and should not and cannot be read as elements of control that
attend an employment relationship governed by the Labor Code.

On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter." 16 While this is a very broad definition that on its
face may even encompass an employment relationship, the distinctions between agency and employment are sufficiently established
by law and jurisprudence.
Generally, the determinative element is the control exercised over the one rendering service. The employer controls the employee both
in the results and in the means and manner of achieving this result. The principal in an agency relationship, on the other hand, also has
the prerogative to exercise control over the agent in undertaking the assigned task based on the parameters outlined in the pertinent
laws.

Under the general law on agency as applied to insurance, an agency must be express in light of the need for a license and for the
designation by the insurance company. In the present case, the Agreement fully serves as grant of authority to Tongko as Manulife’s
insurance agent.17 This agreement is supplemented by the company’s agency practices and usages, duly accepted by the agent in
carrying out the agency.18 By authority of the Insurance Code, an insurance agency is for compensation, 19 a matter the Civil Code
Rules on Agency presumes in the absence of proof to the contrary. 20 Other than the compensation, the principal is bound to advance
to, or to reimburse, the agent the agreed sums necessary for the execution of the agency. 21 By implication at least under Article 1994
of the Civil Code, the principal can appoint two or more agents to carry out the same assigned tasks, 22 based necessarily on the
specific instructions and directives given to them.

With particular relevance to the present case is the provision that "In the execution of the agency, the agent shall act in accordance
with the instructions of the principal." 23 This provision is pertinent for purposes of the necessary control that the principal exercises
over the agent in undertaking the assigned task, and is an area where the instructions can intrude into the labor law concept of control
so that minute consideration of the facts is necessary. A related article is Article 1891 of the Civil Code which binds the agent to
render an account of his transactions to the principal.

B. The Cited Case

The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish that the company rules and regulations
that an agent has to comply with are indicative of an employer-employee relationship.24 The Dissenting Opinions of Justice Presbitero
Velasco, Jr. and Justice Conchita Carpio Morales also cite Insular Life Assurance Co. v. National Labor Relations Commission
(second Insular case)25 to support the view that Tongko is Manulife’s employee. On the other hand, Manulife cites the Carungcong
case and AFP Mutual Benefit Association, Inc. v. National Labor Relations Commission (AFPMBAI case)26 to support its allegation
that Tongko was not its employee.

A caveat has been given above with respect to the use of the rulings in the cited cases because none of them is on all fours with the
present case; the uniqueness of the factual situation of the present case prevents it from being directly and readily cast in the mold of
the cited cases. These cited cases are themselves different from one another; this difference underscores the need to read and quote
them in the context of their own factual situations.

The present case at first glance appears aligned with the facts in the Carungcong, the Grepalife, and the second Insular Life cases. A
critical difference, however, exists as these cited cases dealt with the proper legal characterization of a subsequent management
contract that superseded the original agency contract between the insurance company and its agent. Carungcong dealt with a
subsequent Agreement making Carungcong a New Business Manager that clearly superseded the Agreement designating Carungcong
as an agent empowered to solicit applications for insurance. The Grepalife case, on the other hand, dealt with the proper legal
characterization of the appointment of the Ruiz brothers to positions higher than their original position as insurance agents. Thus, after
analyzing the duties and functions of the Ruiz brothers, as these were enumerated in their contracts, we concluded that the company
practically dictated the manner by which the Ruiz brothers were to carry out their jobs. Finally, the second Insular Life case dealt with
the implications of de los Reyes’ appointment as acting unit manager which, like the subsequent contracts in the Carungcong and the
Grepalife cases, was clearly defined under a subsequent contract. In all these cited cases, a determination of the presence of the Labor
Code element of control was made on the basis of the stipulations of the subsequent contracts.

In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the only contract or document extant and
submitted as evidence in the present case is the Agreement – a pure agency agreement in the Civil Code context similar to the original
contract in the first Insular Life case and the contract in the AFPMBAI case. And while Tongko was later on designated unit manager
in 1983, Branch Manager in 1990, and Regional Sales Manager in 1996, no formal contract regarding these undertakings appears in
the records of the case. Any such contract or agreement, had there been any, could have at the very least provided the bases for
properly ascertaining the juridical relationship established between the parties.

These critical differences, particularly between the present case and the Grepalife and the second Insular Life cases, should therefore
immediately drive us to be more prudent and cautious in applying the rulings in these cases.

C. Analysis of the Evidence

c.1. The Agreement

The primary evidence in the present case is the July 1, 1977 Agreement that governed and defined the parties’ relations until the
Agreement’s termination in 2001. This Agreement stood for more than two decades and, based on the records of the case, was never
modified or novated. It assumes primacy because it directly dealt with the nature of the parties’ relationship up to the very end;
moreover, both parties never disputed its authenticity or the accuracy of its terms.

By the Agreement’s express terms, Tongko served as an "insurance agent" for Manulife, not as an employee. To be sure, the
Agreement’s legal characterization of the nature of the relationship cannot be conclusive and binding on the courts; as the dissent
clearly stated, the characterization of the juridical relationship the Agreement embodied is a matter of law that is for the courts to
determine. At the same time, though, the characterization the parties gave to their relationship in the Agreement cannot simply be
brushed aside because it embodies their intent at the time they entered the Agreement, and they were governed by this understanding
throughout their relationship. At the very least, the provision on the absence of employer-employee relationship between the parties
can be an aid in considering the Agreement and its implementation, and in appreciating the other evidence on record.

The parties’ legal characterization of their intent, although not conclusive, is critical in this case because this intent is not illegal or
outside the contemplation of law, particularly of the Insurance and the Civil Codes. From this perspective, the provisions of the
Insurance Code cannot be disregarded as this Code (as heretofore already noted) expressly envisions a principal-agent relationship
between the insurance company and the insurance agent in the sale of insurance to the public.1awph!1 For this reason, we can take
judicial notice that as a matter of Insurance Code-based business practice, an agency relationship prevails in the insurance industry for
the purpose of selling insurance. The Agreement, by its express terms, is in accordance with the Insurance Code model when it
provided for a principal-agent relationship, and thus cannot lightly be set aside nor simply be considered as an agreement that does not
reflect the parties’ true intent. This intent, incidentally, is reinforced by the system of compensation the Agreement provides, which
likewise is in accordance with the production-based sales commissions the Insurance Code provides.

Significantly, evidence shows that Tongko’s role as an insurance agent never changed during his relationship with Manulife. If
changes occurred at all, the changes did not appear to be in the nature of their core relationship. Tongko essentially remained an agent,
but moved up in this role through Manulife’s recognition that he could use other agents approved by Manulife, but operating under his
guidance and in whose commissions he had a share. For want of a better term, Tongko perhaps could be labeled as a "lead agent" who
guided under his wing other Manulife agents similarly tasked with the selling of Manulife insurance.

Like Tongko, the evidence suggests that these other agents operated under their own agency agreements. Thus, if Tongko’s
compensation scheme changed at all during his relationship with Manulife, the change was solely for purposes of crediting him with
his share in the commissions the agents under his wing generated. As an agent who was recruiting and guiding other insurance agents,
Tongko likewise moved up in terms of the reimbursement of expenses he incurred in the course of his lead agency, a prerogative he
enjoyed pursuant to Article 1912 of the Civil Code. Thus, Tongko received greater reimbursements for his expenses and was even
allowed to use Manulife facilities in his interactions with the agents, all of whom were, in the strict sense, Manulife agents approved
and certified as such by Manulife with the Insurance Commission.

That Tongko assumed a leadership role but nevertheless wholly remained an agent is the inevitable conclusion that results from the
reading of the Agreement (the only agreement on record in this case) and his continuing role thereunder as sales agent, from the
perspective of the Insurance and the Civil Codes and in light of what Tongko himself attested to as his role as Regional Sales
Manager. To be sure, this interpretation could have been contradicted if other agreements had been submitted as evidence of the
relationship between Manulife and Tongko on the latter’s expanded undertakings. In the absence of any such evidence, however, this
reading – based on the available evidence and the applicable insurance and civil law provisions – must stand, subject only to objective
and evidentiary Labor Code tests on the existence of an employer-employee relationship.

In applying such Labor Code tests, however, the enforcement of the Agreement during the course of the parties’ relationship should be
noted. From 1977 until the termination of the Agreement, Tongko’s occupation was to sell Manulife’s insurance policies and products.
Both parties acquiesced with the terms and conditions of the Agreement. Tongko, for his part, accepted all the benefits flowing from
the Agreement, particularly the generous commissions.

Evidence indicates that Tongko consistently clung to the view that he was an independent agent selling Manulife insurance products
since he invariably declared himself a business or self-employed person in his income tax returns. This consistency with, and action
made pursuant to the Agreement were pieces of evidence that were never mentioned nor considered in our Decision of
November 7, 2008. Had they been considered, they could, at the very least, serve as Tongko’s admissions against his interest. Strictly
speaking, Tongko’s tax returns cannot but be legally significant because he certified under oath the amount he earned as gross
business income, claimed business deductions, leading to his net taxable income. This should be evidence of the first order that cannot
be brushed aside by a mere denial. Even on a layman’s view that is devoid of legal considerations, the extent of his annual income
alone renders his claimed employment status doubtful.27
Hand in hand with the concept of admission against interest in considering the tax returns, the concept of estoppel – a legal and
equitable concept28 – necessarily must come into play. Tongko’s previous admissions in several years of tax returns as an independent
agent, as against his belated claim that he was all along an employee, are too diametrically opposed to be simply dismissed or ignored.
Interestingly, Justice Velasco’s dissenting opinion states that Tongko was forced to declare himself a business or self-employed person
by Manulife’s persistent refusal to recognize him as its employee. 29 Regrettably, the dissent has shown no basis for this conclusion,
an understandable omission since no evidence in fact exists on this point in the records of the case. In fact, what the evidence
shows is Tongko’s full conformity with, and action as, an independent agent until his relationship with Manulife took a bad turn.

Another interesting point the dissent raised with respect to the Agreement is its conclusion that the Agreement negated any
employment relationship between Tongko and Manulife so that the commissions he earned as a sales agent should not be considered
in the determination of the backwages and separation pay that should be given to him. This part of the dissent is correct although it
went on to twist this conclusion by asserting that Tongko had dual roles in his relationship with Manulife; he was an agent, not an
employee, in so far as he sold insurance for Manulife, but was an employee in his capacity as a manager. Thus, the dissent concluded
that Tongko’s backwages should only be with respect to his role as Manulife’s manager.

The conclusion with respect to Tongko’s employment as a manager is, of course, unacceptable for the legal, factual and practical
reasons discussed in this Resolution. In brief, the factual reason is grounded on the lack of evidentiary support of the conclusion that
Manulife exercised control over Tongko in the sense understood in the Labor Code. The legal reason, partly based on the lack of
factual basis, is the erroneous legal conclusion that Manulife controlled Tongko and was thus its employee. The practical reason, on
the other hand, is the havoc that the dissent’s unwarranted conclusion would cause the insurance industry that, by the law’s own
design, operated along the lines of principal-agent relationship in the sale of insurance.

c.2. Other Evidence of Alleged Control

A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing that Manulife ever exercised means-and-
manner control, even to a limited extent, over Tongko during his ascent in Manulife’s sales ladder. In 1983, Tongko was appointed
unit manager. Inexplicably, Tongko never bothered to present any evidence at all on what this designation meant. This also holds true
for Tongko’s appointment as branch manager in 1990, and as Regional Sales Manager in 1996. The best evidence of control – the
agreement or directive relating to Tongko’s duties and responsibilities – was never introduced as part of the records of the case. The
reality is, prior to de Dios’ letter, Manulife had practically left Tongko alone not only in doing the business of selling insurance, but
also in guiding the agents under his wing. As discussed below, the alleged directives covered by de Dios’ letter, heretofore quoted in
full, were policy directions and targeted results that the company wanted Tongko and the other sales groups to realign with in their
own selling activities. This is the reality that the parties’ presented evidence consistently tells us.

What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife imposes on its agents in the sale of
insurance. The mere presentation of codes or of rules and regulations, however, is not per se indicative of labor law control as the law
and jurisprudence teach us.

As already recited above, the Insurance Code imposes obligations on both the insurance company and its agents in the performance of
their respective obligations under the Code, particularly on licenses and their renewals, on the representations to be made to potential
customers, the collection of premiums, on the delivery of insurance policies, on the matter of compensation, and on measures to
ensure ethical business practice in the industry.

The general law on agency, on the other hand, expressly allows the principal an element of control over the agent in a manner
consistent with an agency relationship. In this sense, these control measures cannot be read as indicative of labor law control.
Foremost among these are the directives that the principal may impose on the agent to achieve the assigned tasks, to the extent that
they do not involve the means and manner of undertaking these tasks. The law likewise obligates the agent to render an account; in
this sense, the principal may impose on the agent specific instructions on how an account shall be made, particularly on the matter of
expenses and reimbursements. To these extents, control can be imposed through rules and regulations without intruding into the labor
law concept of control for purposes of employment.

From jurisprudence, an important lesson that the first Insular Life case teaches us is that a commitment to abide by the rules and
regulations of an insurance company does not ipso facto make the insurance agent an employee. Neither do guidelines somehow
restrictive of the insurance agent’s conduct necessarily indicate "control" as this term is defined in jurisprudence. Guidelines
indicative of labor law "control," as the first Insular Life case tells us, should not merely relate to the mutually desirable result
intended by the contractual relationship; they must have the nature of dictating the means or methods to be employed in
attaining the result, or of fixing the methodology and of binding or restricting the party hired to the use of these means. In fact, results-
wise, the principal can impose production quotas and can determine how many agents, with specific territories, ought to be employed
to achieve the company’s objectives. These are management policy decisions that the labor law element of control cannot reach. Our
ruling in these respects in the first Insular Life case was practically reiterated in Carungcong. Thus, as will be shown more fully
below, Manulife’s codes of conduct,30 all of which do not intrude into the insurance agents’ means and manner of conducting their
sales and only control them as to the desired results and Insurance Code norms, cannot be used as basis for a finding that the labor law
concept of control existed between Manulife and Tongko.

The dissent considers the imposition of administrative and managerial functions on Tongko as indicative of labor law control; thus,
Tongko as manager, but not as insurance agent, became Manulife’s employee. It drew this conclusion from what the other Manulife
managers disclosed in their affidavits (i.e., their enumerated administrative and managerial functions) and after comparing these
statements with the managers in Grepalife. The dissent compared the control exercised by Manulife over its managers in the present
case with the control the managers in the Grepalife case exercised over their employees by presenting the following matrix: 31

Duties of Manulife’s Manager Duties of Grepalife’s Managers/Supervisors

- to render or recommend prospective agents to be
licensed, trained and contracted to sell Manulife
products and who will be part of my Unit
- to coordinate activities of the agents under [the
managers’] Unit in [the agents’] daily, weekly and
monthly selling activities, making sure that their
respective sales targets are met;
- to conduct periodic training sessions for [the]
agents to further enhance their sales skill; and
- to assist [the] agents with their sales activities by
way of joint fieldwork, consultations and one-on-
one evaluation and analysis of particular accounts
- train understudies for the position of district manager
- properly account, record and document the company’s
funds, spot-check and audit the work of the zone
supervisors, x x x follow up the submission of weekly
remittance reports of the debit agents and zone
supervisors
- direct and supervise the sales activities of the debit
agents under him, x x x undertake and discharge the
functions of absentee debit agents, spot-check the
record of debit agents, and insure proper documentation
of sales and collections of debit agents.

Aside from these affidavits however, no other evidence exists regarding the effects of Tongko’s additional roles in Manulife’s sales
operations on the contractual relationship between them.

To the dissent, Tongko’s administrative functions as recruiter, trainer, or supervisor of other sales agents constituted a substantive
alteration of Manulife’s authority over Tongko and the performance of his end of the relationship with Manulife. We could not deny
though that Tongko remained, first and foremost, an insurance agent, and that his additional role as Branch Manager did not lessen his
main and dominant role as insurance agent; this role continued to dominate the relations between Tongko and Manulife even after
Tongko assumed his leadership role among agents. This conclusion cannot be denied because it proceeds from the undisputed fact that
Tongko and Manulife never altered their July 1, 1977 Agreement, a distinction the present case has with the contractual changes made
in the second Insular Life case. Tongko’s results-based commissions, too, attest to the primacy he gave to his role as insurance sales
agent.

The dissent apparently did not also properly analyze and appreciate the great qualitative difference that exists between:

 the Manulife managers’ role is to coordinate activities of the agents under the managers’ Unit in the agents’ daily, weekly,
and monthly selling activities, making sure that their respective sales targets are met.
 the District Manager’s duty in Grepalife is to properly account, record, and document the company's funds, spot-check and
audit the work of the zone supervisors, conserve the company's business in the district through "reinstatements," follow up
the submission of weekly remittance reports of the debit agents and zone supervisors, preserve company property in good
condition, train understudies for the position of district managers, and maintain his quota of sales (the failure of which is a
ground for termination).
 the Zone Supervisor’s (also in Grepalife) has the duty to direct and supervise the sales activities of the debit agents under
him, conserve company property through "reinstatements," undertake and discharge the functions of absentee debit agents,
spot-check the records of debit agents, and insure proper documentation of sales and collections by the debit agents.

These job contents are worlds apart in terms of "control." In Grepalife, the details of how to do the job are specified and pre-
determined; in the present case, the operative words are the "sales target," the methodology being left undefined except to the extent of
being "coordinative." To be sure, a "coordinative" standard for a manager cannot be indicative of control; the standard only essentially
describes what a Branch Manager is – the person in the lead who orchestrates activities within the group. To "coordinate," and thereby
to lead and to orchestrate, is not so much a matter of control by Manulife; it is simply a statement of a branch manager’s role in
relation with his agents from the point of view of Manulife whose business Tongko’s sales group carries.
A disturbing note, with respect to the presented affidavits and Tongko’s alleged administrative functions, is the selective citation of
the portions supportive of an employment relationship and the consequent omission of portions leading to the contrary conclusion. For
example, the following portions of the affidavit of Regional Sales Manager John Chua, with counterparts in the other affidavits, were
not brought out in the Decision of November 7, 2008, while the other portions suggesting labor law control were highlighted.
Specifically, the following portions of the affidavits were not brought out: 32

1.a. I have no fixed wages or salary since my services are compensated by way of commissions based on the computed
premiums paid in full on the policies obtained thereat;

1.b. I have no fixed working hours and employ my own method in soliticing insurance at a time and place I see fit;

1.c. I have my own assistant and messenger who handle my daily work load;

1.d. I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance;

xxxx

6. I have my own staff that handles the day to day operations of my office;

7. My staff are my own employees and received salaries from me;

xxxx

9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as income by a self-employed
individual or professional with a ten (10) percent creditable withholding tax. I also remit monthly for professionals.

These statements, read with the above comparative analysis of the Manulife and the Grepalife cases, would have readily yielded the
conclusion that no employer-employee relationship existed between Manulife and Tongko.

Even de Dios’ letter is not determinative of control as it indicates the least amount of intrusion into Tongko’s exercise of his role as
manager in guiding the sales agents. Strictly viewed, de Dios’ directives are merely operational guidelines on how Tongko could align
his operations with Manulife’s re-directed goal of being a "big league player." The method is to expand coverage through the use of
more agents. This requirement for the recruitment of more agents is not a means-and-method control as it relates, more than anything
else, and is directly relevant, to Manulife’s objective of expanded business operations through the use of a bigger sales force whose
members are all on a principal-agent relationship. An important point to note here is that Tongko was not supervising regular full-time
employees of Manulife engaged in the running of the insurance business; Tongko was effectively guiding his corps of sales agents,
who are bound to Manulife through the same Agreement that he had with Manulife, all the while sharing in these agents’ commissions
through his overrides. This is the lead agent concept mentioned above for want of a more appropriate term, since the title of Branch
Manager used by the parties is really a misnomer given that what is involved is not a specific regular branch of the company but a
corps of non-employed agents, defined in terms of covered territory, through which the company sells insurance. Still another point to
consider is that Tongko was not even setting policies in the way a regular company manager does; company aims and objectives were
simply relayed to him with suggestions on how these objectives can be reached through the expansion of a non-employee sales force.

Interestingly, a large part of de Dios’ letter focused on income, which Manulife demonstrated, in Tongko’s case, to be unaffected by
the new goal and direction the company had set. Income in insurance agency, of course, is dependent on results, not on the means and
manner of selling – a matter for Tongko and his agents to determine and an area into which Manulife had not waded. Undeniably, de
Dios’ letter contained a directive to secure a competent assistant at Tongko’s own expense. While couched in terms of a directive, it
cannot strictly be understood as an intrusion into Tongko’s method of operating and supervising the group of agents within his
delineated territory. More than anything else, the "directive" was a signal to Tongko that his results were unsatisfactory, and was a
suggestion on how Tongko’s perceived weakness in delivering results could be remedied. It was a solution, with an eye on results, for
a consistently underperforming group; its obvious intent was to save Tongko from the result that he then failed to grasp – that he could
lose even his own status as an agent, as he in fact eventually did.

The present case must be distinguished from the second Insular Life case that showed the hallmarks of an employer-employee
relationship in the management system established. These were: exclusivity of service, control of assignments and removal of agents
under the private respondent’s unit, and furnishing of company facilities and materials as well as capital described as Unit
Development Fund. All these are obviously absent in the present case. If there is a commonality in these cases, it is in the collection of
premiums which is a basic authority that can be delegated to agents under the Insurance Code.
As previously discussed, what simply happened in Tongko’s case was the grant of an expanded sales agency role that recognized him
as leader amongst agents in an area that Manulife defined. Whether this consequently resulted in the establishment of an
employment relationship can be answered by concrete evidence that corresponds to the following questions:

 as lead agent, what were Tongko’s specific functions and the terms of his additional engagement;
 was he paid additional compensation as a so-called Area Sales Manager, apart from the commissions he received from the
insurance sales he generated;
 what can be Manulife’s basis to terminate his status as lead agent;
 can Manulife terminate his role as lead agent separately from his agency contract; and
 to what extent does Manulife control the means and methods of Tongko’s role as lead agent?

The answers to these questions may, to some extent, be deduced from the evidence at hand, as partly discussed above. But strictly
speaking, the questions cannot definitively and concretely be answered through the evidence on record. The concrete evidence
required to settle these questions is simply not there, since only the Agreement and the anecdotal affidavits have been marked and
submitted as evidence.

Given this anemic state of the evidence, particularly on the requisite confluence of the factors determinative of the existence of
employer-employee relationship, the Court cannot conclusively find that the relationship exists in the present case, even if such
relationship only refers to Tongko’s additional functions. While a rough deduction can be made, the answer will not be fully supported
by the substantial evidence needed.

Under this legal situation, the only conclusion that can be made is that the absence of evidence showing Manulife’s control over
Tongko’s contractual duties points to the absence of any employer-employee relationship between Tongko and Manulife. In the
context of the established evidence, Tongko remained an agent all along; although his subsequent duties made him a lead agent with
leadership role, he was nevertheless only an agent whose basic contract yields no evidence of means-and-manner control.

This conclusion renders unnecessary any further discussion of the question of whether an agent may simultaneously assume
conflicting dual personalities. But to set the record straight, the concept of a single person having the dual role of agent and employee
while doing the same task is a novel one in our jurisprudence, which must be viewed with caution especially when it is devoid of any
jurisprudential support or precedent. The quoted portions in Justice Carpio-Morales’ dissent,33 borrowed from both the Grepalife and
the second Insular Life cases, to support the duality approach of the Decision of November 7, 2008, are regrettably far removed from
their context – i.e., the cases’ factual situations, the issues they decided and the totality of the rulings in these cases – and cannot yield
the conclusions that the dissenting opinions drew.

The Grepalife case dealt with the sole issue of whether the Ruiz brothers’ appointment as zone supervisor and district manager made
them employees of Grepalife. Indeed, because of the presence of the element of control in their contract of engagements, they were
considered Grepalife’s employees. This did not mean, however, that they were simultaneously considered agents as well as employees
of Grepalife; the Court’s ruling never implied that this situation existed insofar as the Ruiz brothers were concerned. The Court’s
statement – the Insurance Code may govern the licensing requirements and other particular duties of insurance agents, but it does not
bar the application of the Labor Code with regard to labor standards and labor relations – simply means that when an insurance
company has exercised control over its agents so as to make them their employees, the relationship between the parties, which was
otherwise one for agency governed by the Civil Code and the Insurance Code, will now be governed by the Labor Code. The reason
for this is simple – the contract of agency has been transformed into an employer-employee relationship.

The second Insular Life case, on the other hand, involved the issue of whether the labor bodies have jurisdiction over an illegal
termination dispute involving parties who had two contracts – first, an original contract (agency contract), which was undoubtedly one
for agency, and another subsequent contract that in turn designated the agent acting unit manager (a management contract). Both the
Insular Life and the labor arbiter were one in the position that both were agency contracts. The Court disagreed with this conclusion
and held that insofar as the management contract is concerned, the labor arbiter has jurisdiction. It is in this light that we remanded the
case to the labor arbiter for further proceedings. We never said in this case though that the insurance agent had effectively assumed
dual personalities for the simple reason that the agency contract has been effectively superseded by the management contract. The
management contract provided that if the appointment was terminated for any reason other than for cause, the acting unit manager
would be reverted to agent status and assigned to any unit.

The dissent pointed out, as an argument to support its employment relationship conclusion, that any doubt in the existence of an
employer-employee relationship should be resolved in favor of the existence of the relationship. 34This observation, apparently drawn
from Article 4 of the Labor Code, is misplaced, as Article 4 applies only when a doubt exists in the "implementation and application"
of the Labor Code and its implementing rules; it does not apply where no doubt exists as in a situation where the claimant clearly
failed to substantiate his claim of employment relationship by the quantum of evidence the Labor Code requires.
On the dissent’s last point regarding the lack of jurisprudential value of our November 7, 2008 Decision, suffice it to state that, as
discussed above, the Decision was not supported by the evidence adduced and was not in accordance with controlling jurisprudence. It
should, therefore, be reconsidered and abandoned, but not in the manner the dissent suggests as the dissenting opinions are as factually
and as legally erroneous as the Decision under reconsideration.

In light of these conclusions, the sufficiency of Tongko’s failure to comply with the guidelines of de Dios’ letter, as a ground for
termination of Tongko’s agency, is a matter that the labor tribunals cannot rule upon in the absence of an employer-employee
relationship. Jurisdiction over the matter belongs to the courts applying the laws of insurance, agency and contracts.

WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November 7, 2008, GRANTManulife’s motion
for reconsideration and, accordingly, DISMISS Tongko’s petition. No costs.

SO ORDERED

ZANOTTE SHOES/LEONARDO LORENZO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, HON. BENIGNO C. VILLARENTE, JR., JOSEPH LLUZ, LOLITO
LLUZ, NOEL ADARAYAN, ROGELIO SIRA, VIRGINIA HERESANO, GENELITO HERESANO and CARMELITA DE
DIOS, respondents.

VITUG, J.:

This petition for certiorari assails the 24th April 1991 resolution of respondent National Labor Relations Commission ("NLRC"), as
well as its resolution of 30 May 1991 denying a motion for reconsideration, which has dismissed herein petitioners' appeal of the 16th
October 1989 decision of Labor Arbiter Benigno C. Villarente, Jr.

Private respondents filed a complaint for illegal dismissal and for various monetary claims, including the recovery of damages and
attorney's fees, against petitioners. In their supplemental position paper, the complainants subsequently confined themselves to the
illegal dismissal charge and abandoned the monetary claims. One of the original eight complainants, Virgilio Alcunaba, decided to
resume his work with petitioners, thus leaving the rest to pursue the case. Private respondents averred that they started to work for
petitioners on, respectively, the following dates:

NAME DATE
1 Joseph Lluz March, 1985
2 Noel Adarayan Feb. 17, 1980
3 Rogelio Sira January, 1982
4 Lolito Lluz March, 1982
5 Virginia Heresano May, 1987
6 Genelito Heresano 20-Oct-87
7 Carmelita de Dios January, 1975 1

that they worked for a minimum of twelve hours daily, including Sundays and holidays when needed; that they were paid on piece-
work basis; that it "angered" petitioner Lorenzo when they requested to be made members of the Social Security System ("SSS"); and
that, when they demanded an increase in their pay rates, they were prevented (starting 24 October 1988) from entering the work
premises.

Petitioners, in turn, claimed that their business operations were only seasonal, normally twice a year, one in June (coinciding with the
opening of school classes) and another in December (during the Christmas holidays), when heavy job orders would come in. Private
respondents, according to petitioners, were engaged on purely contractual basis and paid the rates conformably with their respective
agreements.

On 16 October 1989, Labor Arbiter Benigno C. Villarente, Jr., rendered judgment in favor of the complainants, thus:

WHEREFORE, judgment is hereby rendered declaring that there was an employer-employee relationship between
complainants and respondents and that the former were regular employees of the latter. Accordingly, respondents
 are hereby directed to pay all complainants their respective separation pay based on their one-half month's earnings
per year of service, a fraction of at least six months to be considered one whole year, or the following amounts:

1 Joseph Lluz P 7,488.00 (3 yrs. & 7 mos.)

2 Noel Adarayan 12,636.00 (8 yrs. & 8 mos.)
3 Rogelio Sira 8,828.00 (6 yrs. & 9 mos.)
4 Lolito Lluz 8,828.00 (6 yrs. & 7 mos.)
5 Genelito Heresano 1,404.00 (1 year)
6 Virginia Heresano 665.00 (1 yr. & 5 mos.)
7 Carmelita de Dios 19,656.00 (13 yrs. & 9 mos.)
Total P 59,515.002

Respondents are also hereby directed to pay complainants' counsel the amount of P5,950.00 which is equivalent to
10% of the above total awards as attorney's fees.

SO ORDERED. 3

An appeal was interposed by petitioners. The NLRC, on 24 April 1991, sustained the findings of the Labor Arbiter and dismissed the
appeal. On 30 May 1991, the NLRC denied petitioners' motion for reconsideration.

Hence, the instant petition.

In his comment, dated 14 October 1991, the Solicitor General moved for the modification of NLRC's resolution of 24 April 1991.
While conceding that an employer-employee relationship existed between petitioners and private respondents, the Solicitor General,
nevertheless, expressed strong reservations on the award of separation pay in view of the findings by both the Labor Arbiter and the
NLRC that there was neither dismissal nor abandonment in the case at bench. The NLRC submitted its own comment on 11 February
1992.

Well-settled is the rule that factual findings of the NLRC, particularly when they coincide with that of the Labor Arbiter, are accorded
respect, if not finality, and will not be disturbed absent any showing that substantial evidence which might otherwise affect the result
of the case has been discarded. We see no reason, in this case at bench, for disturbing the findings of the Labor Arbiter and the NLRC
on the existence of an employer-employee relationship between herein private parties. The work of private respondents is clearly
related to, and in the pursuit of, the principal business activity of petitioners. The indicia used for determining the existence of an
employer-employee relationship, all extant in the case at bench, include (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the employer's power to control the employee with respect to the result of the
work to be done and to the means and methods by which the work to be done and to the means and methods by which the work is to
be accomplished. The requirement, so herein posed as an issue, refers to the existence of the right to control and not necessarily to the
actual exercise of the right. In Dy Keh Beng v.International Labor and Marine Union of the Philippines, et al.,4 the Court has held:

While this Court up holds the control test under which an employer-employee relationship exists "where the person
for whom the services are performed reserves a right to control not only the end to be achieved but also the means to
be used in reaching such end," it finds no merit with petitioner's arguments as stated above. It should be borne in
mind that the control test calls merely for the existence of the right to control the manner of doing the work, not the
actual exercise of the right. Considering the finding by the Hearing Examiner that the establishment of Dy Keh Beng
is "engaged in the manufacture of basket known as kaing," it is natural to expect that those working under Dy would
have to observe, among others, Dy's requirements of size and quality of the kaing. Some control would necessarily
be exercised by Dy's specifications. Parenthetically, since the work on the baskets is done at Dy's establishments, it
can be inferred that the proprietor Dy could easily exercise control on the men he employed.

We share the opinion of the Solicitor General that the award of separation pay to private respondents appears, nonetheless, to be
unwarranted.

The Labor Arbiter, sustained by the NLRC, concluded that there was neither dismissal nor abandonment. The Labor Arbiter said —
 . . . At any rate, records show that even during the conciliation stage, respondents had repeatedly indicated that they
were willing to accept back all complainants aside from denying complainants allegation. Hence, it is clear that there
was no dismissal to talk about in the first place which would have to be determined whether legal or not. We also
take particular note of complainants' desire to be given separation pay instead of being ordered back to work.
Considering all these factors we hereby rule that there was neither dismissal nor abandonment but complainants are
simply out of job for reasons not attributable to either party. (Rollo, pp. 30-31.)

The NLRC, in nonetheless agreeing with the Labor Arbiter on the latter's award of separation pay, ventured to say:

. . . It is not difficult to see the rationale behind the Labor Arbiter's disposition — he saw in respondents' offer of
reinstatement the commanding advantage it had to later force (by whatever unlawful means they may resort to) the
complainants out of job, just as the Labor Arbiter saw that fear on the part of complainants to enter into a trap being
laid before them for indeed, it is peculiar for an employer who wants to get rid of its employees, to insist on
reinstatement rather than a separation pay scheme which the law allows them so they may be able to better manage
their business. (Rollo, p. 39.)

We find the above disquisition of the NLRC too peculative and conjectural to be sustained. The fact of the matter is that petitioners
have repeatedly indicated their willingness to accept private respondents but the latter have steadfastly refused the offer. For being
without any clear legal basis, the award of separation pay must thus be set aside. 5 There is nothing, however, that prevents petitioners
from voluntarily giving private respondents some amounts on ex gratia basis.

WHEREFORE, the questioned findings and resolutions of respondents Labor Arbiter and NLRC are MODIFIED by deleting the
award of separation pay and the corresponding attorney's fees. No costs.

SO ORDERED.

EATI UNIVERSITY, petitioner,

vs.
HON. JOSE S. BAUTISTA, Presiding Judge of the Court of Industrial Relations and FEATI UNIVERSITY FACULTY
CLUB-PAFLU, respondents.

ZALDIVAR, J.:

This Court, by resolution, ordered that these three cases be considered together, and the parties were allowed to file only one brief for
the three cases.

On January 14, 1963, the President of the respondent Feati University Faculty Club-PAFLU — hereinafter referred to as Faculty Club
— wrote a letter to Mrs. Victoria L. Araneta, President of petitioner Feati University — hereinafter referred to as University —
informing her of the organization of the Faculty Club into a registered labor union. The Faculty Club is composed of members who
are professors and/or instructors of the University. On January 22, 1963, the President of the Faculty Club sent another letter
containing twenty-six demands that have connection with the employment of the members of the Faculty Club by the University, and
requesting an answer within ten days from receipt thereof. The President of the University answered the two letters, requesting that
she be given at least thirty days to study thoroughly the different phases of the demands. Meanwhile counsel for the University, to
whom the demands were referred, wrote a letter to the President of the Faculty Club demanding proof of its majority status and
designation as a bargaining representative. On February 1, 1963, the President of the Faculty Club again wrote the President of the
University rejecting the latter's request for extension of time, and on the same day he filed a notice of strike with the Bureau of Labor
alleging as reason therefor the refusal of the University to bargain collectively. The parties were called to conferences at the
Conciliation Division of the Bureau of Labor but efforts to conciliate them failed. On February 18, 1963, the members of the Faculty
Club declared a strike and established picket lines in the premises of the University, resulting in the disruption of classes in the
University. Despite further efforts of the officials from the Department of Labor to effect a settlement of the differences between the
management of the University and the striking faculty members no satisfactory agreement was arrived at. On March 21, 1963, the
President of the Philippines certified to the Court of Industrial Relations the dispute between the management of the University and
the Faculty Club pursuant to the provisions of Section 10 of Republic Act No. 875.

In connection with the dispute between the University and the Faculty Club and certain incidents related to said dispute, various cases
were filed with the Court of Industrial Relations — hereinafter referred to as CIR. The three cases now before this Court stemmed
from those cases that were filed with the CIR.
CASE NO. G.R. NO. L-21278

On May 10, 1963, the University filed before this Court a "petition for certiorari and prohibition with writ of preliminary injunction",
docketed as G.R. No. L-21278, praying: (1) for the issuance of the writ of preliminary injunction enjoining respondent Judge Jose S.
Bautista of the CIR to desist from proceeding in CIR Cases Nos. 41-IPA, 1183-MC, and V-30; (2) that the proceedings in Cases Nos.
41-IPA and 1183-MC be annulled; (3) that the orders dated March 30, 1963 and April 6, 1963 in Case No. 41-IPA, the order dated
April 6, 1963 in Case No. 1183-MC, and the order dated April 29, 1963 in Case No. V-30, all be annulled; and (4) that the respondent
Judge be ordered to dismiss said cases Nos. 41-IPA, 1183-MC and V-30 of the CIR.

On May 10, 1963, this Court issued a writ of preliminary injunction, upon the University's filing a bond of P1,000.00, ordering
respondent Judge Jose S. Bautista as Presiding Judge of the CIR, until further order from this Court, "to desist and refrain from further
proceeding in the premises (Cases Nos. 41-IPA, 1183-MC and V-30 of the Court of Industrial Relations)."1 On December 4, 1963, this
Court ordered the injunction bond increased to P100,000.00; but on January 23, 1964, upon a motion for reconsideration by the
University, this Court reduced the bond to P50,000.00.

A brief statement of the three cases — CIR Cases 41-IPA, 1183-MC and V-30 — involved in the Case G.R. No. L-21278, is here
necessary.

CIR Case No. 41-IPA, relates to the case in connection with the strike staged by the members of the Faculty Club. As we have stated,
the dispute between the University and the Faculty Club was certified on March 21, 1963 by the President of the Philippines to the
CIR. On the strength of the presidential certification, respondent Judge Bautista set the case for hearing on March 23, 1963. During
the hearing, the Judge endeavored to reconcile the part and it was agreed upon that the striking faculty members would return to work
and the University would readmit them under a status quo arrangement. On that very same day, however, the University, thru counsel
filed a motion to dismiss the case upon the ground that the CIR has no jurisdiction over the case, because (1) the Industrial Peace Act
is not applicable to the University, it being an educational institution, nor to the members of the Faculty Club, they being independent
contractors; and (2) the presidential certification is violative of Section 10 of the Industrial Peace Act, as the University is not an
industrial establishment and there was no industrial dispute which could be certified to the CIR. On March 30, 1963 the respondent
Judge issued an order denying the motion to dismiss and declaring that the Industrial Peace Act is applicable to both parties in the case
and that the CIR had acquired jurisdiction over the case by virtue of the presidential certification. In the same order, the respondent
Judge, believing that the dispute could not be decided promptly, ordered the strikers to return immediately to work and the University
to take them back under the last terms and conditions existing before the dispute arose, as per agreement had during the hearing on
March 23, 1963; and likewise enjoined the University, pending adjudication of the case, from dismissing any employee or laborer
without previous authorization from the CIR. The University filed on April 1, 1963 a motion for reconsideration of the order of March
30, 1963 by the CIR en banc, and at the same time asking that the motion for reconsideration be first heard by the CIR en banc.
Without the motion for reconsideration having been acted upon by the CIR en banc, respondent Judge set the case for hearing on the
merits for May 8, 1963. The University moved for the cancellation of said hearing upon the ground that the court en banc should first
hear the motion for reconsideration and resolve the issues raised therein before the case is heard on the merits. This motion for
cancellation of the hearing was denied. The respondent Judge, however, cancelled the scheduled hearing when counsel for the
University manifested that he would take up before the Supreme Court, by a petition for certiorari, the matter regarding the actuations
of the respondent Judge and the issues raised in the motion for reconsideration, specially the issue relating to the jurisdiction of the
CIR. The order of March 30, 1963 in Case 41-IPA is one of the orders sought to be annulled in the case, G.R. No. L-21278.

Before the above-mentioned order of March 30, 1963 was issued by respondent Judge, the University had employed professors and/or
instructors to take the places of those professors and/or instructors who had struck. On April 1, 1963, the Faculty Club filed with the
CIR in Case 41-IPA a petition to declare in contempt of court certain parties, alleging that the University refused to accept back to
work the returning strikers, in violation of the return-to-work order of March 30, 1963. The University filed, on April 5,1963, its
opposition to the petition for contempt, denying the allegations of the Faculty Club and alleging by way of special defense that there
was still the motion for reconsideration of the order of March 30, 1963 which had not yet been acted upon by the CIR en banc. On
April 6, 1963, the respondent Judge issued an order stating that "said replacements are hereby warned and cautioned, for the time
being, not to disturb nor in any manner commit any act tending to disrupt the effectivity of the order of March 30,1963, pending the
final resolution of the same."2 On April 8, 1963, there placing professors and/or instructors concerned filed, thru counsel, a motion for
reconsideration by the CIR en banc of the order of respondent Judge of April 6, 1963. This order of April 6, 1963 is one of the orders
that are sought to be annulled in case G.R. No. L-21278.

CIR Case No. 1183-MC relates to a petition for certification election filed by the Faculty Club on March 8, 1963 before the CIR,
praying that it be certified as the sole and exclusive bargaining representative of all the employees of the University. The University
filed an opposition to the petition for certification election and at the same time a motion to dismiss said petition, raising the very same
issues raised in Case No. 41-IPA, claiming that the petition did not comply with the rules promulgated by the CIR; that the Faculty
Club is not a legitimate labor union; that the members of the Faculty Club cannot unionize for collective bargaining purposes; that the
terms of the individual contracts of the professors, instructors, and teachers, who are members of the Faculty Club, would expire on
March 25 or 31, 1963; and that the CIR has no jurisdiction to take cognizance of the petition because the Industrial Peace Act is not
applicable to the members of the Faculty Club nor to the University. This case was assigned to Judge Baltazar Villanueva of the CIR.
Before Judge Villanueva could act on the motion to dismiss, however, the Faculty Club filed on April 3, 1963 a motion to withdraw
the petition on the ground that the labor dispute (Case No. 41-IPA) had already been certified by the President to the CIR and the
issues raised in Case No. 1183-MC were absorbed by Case No. 41-IPA. The University opposed the withdrawal, alleging that the
issues raised in Case No. 1183-MC were separate and distinct from the issues raised in Case No. 41-IPA; that the questions of
recognition and majority status in Case No. 1183-MC were not absorbed by Case No. 41-IPA; and that the CIR could not exercise its
power of compulsory arbitration unless the legal issue regarding the existence of employer-employee relationship was first resolved.
The University prayed that the motion of the Faculty Club to withdraw the petition for certification election be denied, and that its
motion to dismiss the petition be heard. Judge Baltazar Villanueva, finding that the reasons stated by the Faculty Club in the motion to
withdraw were well taken, on April 6, 1963, issued an order granting the withdrawal. The University filed, on April 24, 1963, a
motion for reconsideration of that order of April 6, 1963 by the CIR en banc. This order of April 6, 1963 in Case No. 1183-MC is one
of the orders sought to be annulled in the case, G.R. No. L-21278, now before Us.

CIR Case No. V-30 relates to a complaint for indirect contempt of court filed against the administrative officials of the University. The
Faculty Club, through the Acting Chief Prosecutor of the CIR, filed with the CIR a complaint docketed as Case No. V-30, charging
President Victoria L. Araneta, Dean Daniel Salcedo, Executive Vice-President Rodolfo Maslog, and Assistant to the President Jose
Segovia, as officials of the University, with indirect contempt of court, reiterating the same charges filed in Case No. 41-IPA for
alleged violation of the order dated March 30, 1963. Based on the complaint thus filed by the Acting Chief Prosecutor of the CIR,
respondent Judge Bautista issued on April 29, 1963 an order commanding any officer of the law to arrest the above named officials of
the University so that they may be dealt with in accordance with law, and the same time fixed the bond for their release at P500.00
each. This order of April 29, 1963 is also one of the orders sought to be annulled in the case, G.R. No. L-2l278.

The principal allegation of the University in its petition for certiorari and prohibition with preliminary injunction in Case G.R. No. L-
21278, now before Us, is that respondent Judge Jose S. Bautista acted without, or in excess of, jurisdiction, or with grave abuse of
discretion, in taking cognizance of, and in issuing the questioned orders in, CIR Cases Nos. 41-IPA 1183-MC and V-30. Let it be
noted that when the petition for certiorari and prohibition with preliminary injunction was filed on May 10, 1963 in this case, the
questioned order in CIR Cases Nos. 41-IPA, 1183-MC and V-30 were still pending action by the CIR en banc upon motions for
reconsideration filed by the University.

On June 10, 1963, the Faculty Club filed its answer to the petition for certiorari and prohibition with preliminary injunction, admitting
some allegations contained in the petition and denying others, and alleging special defenses which boil down to the contentions that
(1) the CIR had acquired jurisdiction to take cognizance of Case No. 41-IPA by virtue of the presidential certification, so that it had
jurisdiction to issue the questioned orders in said Case No. 41-IPA; (2) that the Industrial Peace Act (Republic Act 875) is applicable
to the University as an employer and to the members of the Faculty Club as employees who are affiliated with a duly registered labor
union, so that the Court of Industrial Relations had jurisdiction to take cognizance of Cases Nos. 1183-MC and V-30 and to issue the
questioned orders in those two cases; and (3) that the petition for certiorari and prohibition with preliminary injunction was
prematurely filed because the orders of the CIR sought to be annulled were still the subjects of pending motions for reconsideration
before the CIR en banc when said petition for certiorari and prohibition with preliminary injunction was filed before this Court.

CASE G.R. NO. L-21462

This case, G.R. No. L-21462, involves also CIR Case No. 1183-MC. As already stated Case No. 1183-MC relates to a petition for
certification election filed by the Faculty Club as a labor union, praying that it be certified as the sole and exclusive bargaining
representative of all employees of the University. This petition was opposed by the University, and at the same time it filed a motion
to dismiss said petition. But before Judge Baltazar Villanueva could act on the petition for certification election and the motion to
dismiss the same, Faculty Club filed a motion to withdraw said petition upon the ground that the issue raised in Case No. 1183-MC
were absorbed by Case No. 41-IPA which was certified by the President of the Philippines. Judge Baltazar Villanueva, by order April
6, 1963, granted the motion to withdraw. The University filed a motion for reconsideration of that order of April 6, 1963 by the
CIR en banc. That motion for reconsideration was pending action by the CIR en banc when the petition for certiorariand prohibition
with preliminary injunction in Case G.R. no. L-21278 was filed on May 10, 1963. As earlier stated this Court, in Case G.R. No. L-
21278, issued a writ of preliminary injunction on May 10, 1963, ordering respondent Judge Bautista, until further order from this
Court, to desist and refrain from further proceeding in the premises (Cases Nos. 41-IPA, 1183-MC and V-30 of the Court of Industrial
Relations).

On June 5, 1963, that is, after this Court has issued the writ of preliminary injunction in Case G.R. No. L-21278, the CIR en
banc issued a resolution denying the motion for reconsideration of the order of April 6, 1963 in Case No. 1183-MC.

On July 8, 1963, the University filed before this Court a petition for certiorari, by way of an appeal from the resolution of the CIR en
banc, dated June 5, 1963, denying the motion for reconsideration of the order of April 6, 1963 in Case No. 1183-MC. This petition
was docketed as G.R. No. L-21462. In its petition for certiorari, the University alleges (1) that the resolution of the Court of Industrial
Relations of June 5, 1963 was null and void because it was issued in violation of the writ of preliminary injunction issued in Case G.R.
No. L-21278; (2) that the issues of employer-employee relationship, the alleged status as a labor union, majority representation and
designation as bargaining representative in an appropriate unit of the Faculty Club should have been resolved first in Case No. 1183-
MC prior to the determination of the issues in Case No. 41-IPA and therefore the motion to withdraw the petition for certification
election should not have been granted upon the ground that the issues in the first case have been absorbed in the second case; and (3)
the lower court acted without or in excess of jurisdiction in taking cognizance of the petition for certification election and that the
same should have been dismissed instead of having been ordered withdrawn. The University prayed that the proceedings in Case No.
1183-MC and the order of April 6, 1963 and the resolution of June 5, 1963 issued therein be annulled, and that the CIR be ordered to
dismiss Case No. 1183-MC on the ground of lack of jurisdiction.

The Faculty Club filed its answer, admitting some, and denying other, allegations in the petition for certiorari; and specially alleging
that the lower court's order granting the withdrawal of the petition for certification election was in accordance with law, and that the
resolution of the court en banc on June 5, 1963 was not a violation of the writ of preliminary injunction issued in Case G.R. No. L-
21278 because said writ of injunction was issued against Judge Jose S. Bautista and not against the Court of Industrial Relations,
much less against Judge Baltazar Villanueva who was the trial judge of Case No. 1183-MC.

CASE G.R. NO. L-21500

This case, G.R. No. L-21500, involves also CIR Case No. 41-IPA. As earlier stated, Case No. 41-IPA relates to the strike staged by
the members of the Faculty Club and the dispute was certified by the President of the Philippines to the CIR. The University filed a
motion to dismiss that case upon the ground that the CIR has no jurisdiction over the case, and on March 30, 1963 Judge Jose S.
Bautista issued an order denying the motion to dismiss and declaring that the Industrial Peace Act is applicable to both parties in the
case and that the CIR had acquired jurisdiction over the case by virtue of the presidential certification; and in that same order Judge
Bautista ordered the strikers to return to work and the University to take them back under the last terms and conditions existing before
the dispute arose; and enjoined the University from dismissing any employee or laborer without previous authority from the court. On
April 1, 1963, the University filed a motion for reconsideration of the order of March 30, 1963 by the CIR en banc. That motion for
reconsideration was pending action by the CIR en banc when the petition for certiorari and prohibition with preliminary injunction in
Case G.R. No. L-21278 was filed on May 10, 1963. As we have already stated, this Court in said case G.R. No. L-21278, issued a writ
of preliminary injunction on May 10, 1963 ordering respondent Judge Jose S. Bautista, until further order from this Court, to desist
and refrain from further proceeding in the premises (Cases Nos. 41-IPA, 1183-MC and V-30 of the Court of Industrial Relations).

On July 2, 1963, the University received a copy of the resolution of the CIR en banc, dated May 7, 1963 but actually received and
stamped at the Office of the Clerk of the CIR on June 28, 1963, denying the motion for reconsideration of the order dated March 30,
1963 in Case No. 41-IPA.

On July 23, 1963, the University filed before this Court a petition for certiorari, by way of an appeal from the resolution of the Court
of Industrial Relations en banc dated May 7, 1963 (but actually received by said petitioner on July 2, 1963) denying the motion for
reconsideration of the order of March 30, 1963 in Case No. 41-IPA. This petition was docketed as G.R. No. L-21500. In its petition
for certiorari the University alleges (1) that the resolution of the CIR en banc, dated May 7, 1963 but filed with the Clerk of the CIR
on June 28, 1963, in Case No. 41-IPA, is null and void because it was issued in violation of the writ of preliminary injunction issued
by this Court in G.R. No. L-21278; (2) that the CIR, through its Presiding Judge, had no jurisdiction to take cognizance of Case No.
41-IPA and the order of March 30, 1963 and the resolution dated May 7, 1963 issued therein are null and void; (3) that the
certification made by the President of the Philippines is not authorized by Section 10 of Republic Act 875, but is violative thereof; (4)
that the Faculty Club has no right to unionize or organize as a labor union for collective bargaining purposes and to be certified as a
collective bargaining agent within the purview of the Industrial Peace Act, and consequently it has no right to strike and picket on the
ground of petitioner's alleged refusal to bargain collectively where such duty does not exist in law and is not enforceable against an
educational institution; and (5) that the return-to-work order of March 30, 1963 is improper and illegal. The petition prayed that the
proceedings in Case No. 41-IPA be annulled, that the order dated March 30, 1963 and the resolution dated May 7, 1963 be revoked,
and that the lower court be ordered to dismiss Case 41-IPA on the ground of lack of jurisdiction.

On September 10, 1963, the Faculty Club, through counsel, filed a motion to dismiss the petition for certiorari on the ground that the
petition being filed by way of an appeal from the orders of the Court of Industrial Relations denying the motion to dismiss in Case No.
41-IPA, the petition for certiorari is not proper because the orders appealed from are interlocutory in nature.

This Court, by resolution of September 26, 1963, ordered that these three cases (G.R. Nos. L-21278, L-21462 and L-21500) be
considered together and the motion to dismiss in Case G.R. No. L-21500 be taken up when the cases are decided on the merits after
the hearing.

Brushing aside certain technical questions raised by the parties in their pleadings, We proceed to decide these three cases on the merits
of the issues raised.
The University has raised several issues in the present cases, the pivotal one being its claim that the Court of Industrial Relations has
no jurisdiction over the parties and the subject matter in CIR Cases 41-IPA, 1183-MC and V-30, brought before it, upon the ground
that Republic Act No. 875 is not applicable to the University because it is an educational institution and not an industrial establishment
and hence not an "employer" in contemplation of said Act; and neither is Republic Act No. 875 applicable to the members of the
Faculty Club because the latter are independent contractors and, therefore, not employees within the purview of the said Act.

In support of the contention that being an educational institution it is beyond the scope of Republic Act No. 875, the University cites
cases decided by this Court: Boy Scouts of the Philippines vs. Juliana Araos, L-10091, Jan. 29, 1958; University of San Agustin vs.
CIR, et al., L-12222, May 28, 1958; Cebu Chinese High School vs. Philippine Land-Air-Sea Labor Union, PLASLU, L-12015, April
22, 1959; La Consolacion College, et al. vs. CIR, et al., L-13282, April 22, 1960; University of the Philippines, et al. vs. CIR, et al., L-
15416, April 8, 1960; Far Eastern University vs. CIR, L-17620, August 31, 1962. We have reviewed these cases, and also related
cases subsequent thereto, and We find that they do not sustain the contention of the University. It is true that this Court has ruled that
certain educational institutions, like the University of Santo Tomas, University of San Agustin, La Consolacion College, and other
juridical entities, like the Boy Scouts of the Philippines and Manila Sanitarium, are beyond the purview of Republic Act No. 875 in
the sense that the Court of Industrial Relations has no jurisdiction to take cognizance of charges of unfair labor practice filed against
them, but it is nonetheless true that the principal reason of this Court in ruling in those cases that those institutions are excluded from
the operation of Republic Act 875 is that those entities are not organized, maintained and operated for profit and do not declare
dividends to stockholders. The decision in the case of University of San Agustin vs. Court of Industrial Relations, G.R. No. L-12222,
May 28, 1958, is very pertinent. We quote a portion of the decision:

It appears that the University of San Agustin, petitioner herein, is an educational institution conducted and managed by a
"religious non-stock corporation duly organized and existing under the laws of the Philippines." It was organized not for
profit or gain or division of the dividends among its stockholders, but solely for religious and educational purposes. It
likewise appears that the Philippine Association of College and University Professors, respondent herein, is a non-stock
association composed of professors and teachers in different colleges and universities and that since its organization two
years ago, the university has adopted a hostile attitude to its formation and has tried to discriminate, harass and intimidate its
members for which reason the association and the members affected filed the unfair labor practice complaint which initiated
this proceeding. To the complaint of unfair labor practice, petitioner filed an answer wherein it disputed the jurisdiction of the
Court of Industrial Relations over the controversy on the following grounds:

"(a) That complainants therein being college and/or university professors were not "industrial" laborers or
employees, and the Philippine Association of College and University Professors being composed of persons engaged
in the teaching profession, is not and cannot be a legitimate labor organization within the meaning of the laws
creating the Court of Industrial Relations and defining its powers and functions;

"(b) That the University of San Agustin, respondent therein, is not an institution established for the purpose of gain
or division of profits, and consequently, it is not an "industrial" enterprise and the members of its teaching staff are
not engaged in "industrial" employment (U.S.T. Hospital Employees Association vs. Sto. Tomas University
Hospital, G.R. No. L-6988, 24 May 1954; and San Beda College vs. Court of Industrial Relations and National
Labor Union, G.R. No. L-7649, 29 October 1955; 51 O.G. (Nov. 1955) 5636-5640);

"(c) That, as a necessary consequence, alleged controversy between therein complainants and respondent is not an
"industrial" dispute, and the Court of Industrial Relations has no jurisdiction, not only on the parties but also over
the subject matter of the complaint."

The issue now before us is: Since the University of San Agustin is not an institution established for profit or gain, nor an
industrial enterprise, but one established exclusively for educational purposes, can it be said that its relation with its
professors is one of employer and employee that comes under the jurisdiction of the Court of Industrial Relations? In other
words, do the provisions of the Magna Carta on unfair labor practice apply to the relation between petitioner and members of
respondent association?

The issue is not new. Thus, in the case of Boy Scouts of the Philippines v. Juliana V. Araos, G.R. No. L-10091, promulgated
on January 29, 1958, this Court, speaking thru Mr. Justice Montemayor, answered the query in the negative in the following
wise:

"The main issue involved in the present case is whether or not a charitable institution or one organized not for profit
but for more elevated purposes, charitable, humanitarian, etc., like the Boy Scouts of the Philippines, is included in
the definition of "employer" contained in Republic Act 875, and whether the employees of said institution fall under
the definition of "employee" also contained in the same Republic Act. If they are included, then any act which may
be considered unfair labor practice, within the meaning of said Republic Act, would come under the jurisdiction of
 the Court of Industrial Relations; but if they do not fall within the scope of said Republic Act, particularly, its
definitions of employer and employee, then the Industrial Court would have no jurisdiction at all.

xxx xxx xxx

"On the basis of the foregoing considerations, there is every reason to believe that our labor legislation from
Commonwealth Act No. 103, creating the Court of Industrial Relations, down through the Eight-Hour Labor Law, to
the Industrial Peace Act, was intended by the Legislature to apply only to industrial employment and to govern the
relations between employers engaged in industry and occupations for purposes of profit and gain, and their industrial
employees, but not to organizations and entities which are organized, operated and maintained not for profit or gain,
but for elevated and lofty purposes, such as, charity, social service, education and instruction, hospital and medical
service, the encouragement and promotion of character, patriotism and kindred virtues in youth of the nation, etc.

"In conclusion, we find and hold that Republic Act No. 875, particularly, that portion thereof regarding labor
disputes and unfair labor practice, does not apply to the Boy Scouts of the Philippines, and consequently, the Court
of Industrial Relations had no jurisdiction to entertain and decide the action or petition filed by respondent Araos.
Wherefore, the appealed decision and resolution of the CIR are hereby set aside, with costs against respondent."

There being a close analogy between the relation and facts involved in the two cases, we cannot but conclude that the Court
of Industrial Relations has no jurisdiction to entertain the complaint for unfair labor practice lodged by respondent
association against petitioner and, therefore, we hereby set aside the order and resolution subject to the present petition, with
costs against respondent association.

The same doctrine was confirmed in the case of University of Santo Tomas v. Hon. Baltazar Villanueva, et al., G.R. No. L-13748,
October 30, 1959, where this Court ruled that:

In the present case, the record reveals that the petitioner University of Santo Tomas is not an industry organized for profit but
an institution of learning devoted exclusively to the education of the youth. The Court of First Instance of Manila in its
decision in Civil Case No. 28870, which has long become final and consequently the settled law in the case, found as
established by the evidence adduced by the parties therein (herein petitioner and respondent labor union) that while the
University collects fees from its students, all its income is used for the improvement and enlargement of the institution. The
University declares no dividend, and the members of the corporation who founded it, as ordained in its articles of
incorporation, receive no material compensation for the time and sacrifice they render to the University and its students. The
respondent union itself in a case before the Industrial Court (Case No. 314-MC) has averred that "the University of Santo
Tomas, like the San Beda College, is an educational institution operated not for profit but for the sole purpose of educating
young men." (See Annex "B" to petitioner's motion to dismiss.). It is apparent, therefore, that on the face of the record the
University of Santo Tomas is not a corporation created for profit but an educational institution and therefore not an industrial
or business organization.

In the case of La Consolacion College, et al. vs. CIR, et al., G.R. No. L-13282, April 22, 1960, this Court repeated the same ruling
when it said:

The main issue in this appeal by petitioner is that the industry trial court committed an error in holding that it has jurisdiction
to act in this case even if it involves unfair labor practice considering that the La Consolacion College is not a business
enterprise but an educational institution not organized for profit.

If the claim that petitioner is an educational institution not operated for profit is true, which apparently is the case, because
the very court a quo found that it has no stockholder, nor capital . . . then we are of the opinion that the same does not come
under the jurisdiction of the Court of Industrial Relations in view of the ruling in the case of Boy Scouts of the Philippines v.
Juliana V. Araos, G.R. No. L-10091, decided on January 29, 1958.

It is noteworthy that the cases of the University of San Agustin, the University of Santo Tomas, and La Consolacion College, cited
above, all involve charges of unfair labor practice under Republic Act No. 875, and the uniform rulings of this Court are that the Court
of Industrial Relations has no jurisdiction over the charges because said Act does not apply to educational institutions that are not
operated or maintained for profit and do not declare dividends. On the other hand, in the cases of Far Eastern University v. CIR, et
al., G.R. No. L-17620, August 31, 1962, this Court upheld the decision of the Court of Industrial Relations finding the Far Eastern
University, also an educational institution, guilty of unfair labor practice. Among the findings of fact in said case was that the Far
Eastern University made profits from the school year 1952-1953 to 1958-1959. In affirming the decision of the lower court, this Court
had thereby ratified the ruling of the Court of Industrial Relations which applied the Industrial Peace Act to educational institutions
that are organized, operated and maintained for profit.
It is also noteworthy that in the decisions in the cases of the Boy Scouts of the Philippines, the University of San Agustin, the
University of Sto. Tomas, and La Consolacion College, this Court was not unanimous in the view that the Industrial Peace Act
(Republic Act No. 875) is not applicable to charitable, eleemosynary or non-profit organizations — which include educational
institutions not operated for profit. There are members of this Court who hold the view that the Industrial Peace Act would apply also
to non-profit organizations or entities — the only exception being the Government, including any political subdivision or
instrumentality thereof, in so far as governmental functions are concerned. However, in the Far Eastern University case this Court is
unanimous in supporting the view that an educational institution that is operated for profit comes within the scope of the Industrial
Peace Act. We consider it a settled doctrine of this Court, therefore, that the Industrial Peace Act is applicable to any organization or
entity — whatever may be its purpose when it was created — that is operated for profit or gain.

Does the University operate as an educational institution for profit? Does it declare dividends for its stockholders? If it does not, it
must be declared beyond the purview of Republic Act No. 875; but if it does, Republic Act No. 875 must apply to it. The University
itself admits that it has declared dividends.3 The CIR in its order dated March 30, 1963 in CIR Case No. 41-IPA — which order was
issued after evidence was heard — also found that the University is not for strictly educational purposes and that "It realizes profits
and parts of such earning is distributed as dividends to private stockholders or individuals (Exh. A and also 1 to 1-F, 2-x 3-x and 4-
x)"4 Under this circumstance, and in consonance with the rulings in the decisions of this Court, above cited, it is obvious that Republic
Act No. 875 is applicable to herein petitioner Feati University.

But the University claims that it is not an employer within the contemplation of Republic Act No. 875, because it is not an industrial
establishment. At most, it says, it is only a lessee of the services of its professors and/or instructors pursuant to a contract of services
entered into between them. We find no merit in this claim. Let us clarify who is an "employer" under the Act. Section 2(c) of said Act
provides:

Sec. 2. Definitions.—As used in this Act —

(c) The term employer include any person acting in the interest of an employer, directly or indirectly, but shall not include
any labor organization (otherwise than when acting as an employer) or any one acting in the capacity or agent of such labor
organization.

It will be noted that in defining the term "employer" the Act uses the word "includes", which it also used in defining "employee". [Sec.
2 (d)], and "representative" [Sec. 2(h)]; and not the word "means" which the Act uses in defining the terms "court" [Sec. 2(a)], "labor
organization" [Sec. 2(e)], "legitimate labor organization [Sec. 2(f)], "company union" [Sec. 2(g)], "unfair labor practice" [Sec. 2(i)],
"supervisor" [Sec. 2(k)], "strike" [Sec. 2(l)] and "lock-out" [Sec. 2(m)]. A methodical variation in terminology is manifest. This
variation and distinction in terminology and phraseology cannot be presumed to have been the inconsequential product of an
oversight; rather, it must have been the result of a deliberate and purposeful act, more so when we consider that as legislative records
show, Republic Act No. 875 had been meticulously and painstakingly drafted and deliberated upon. In using the word "includes" and
not "means", Congress did not intend to give a complete definition of "employer", but rather that such definition should be
complementary to what is commonly understood as employer. Congress intended the term to be understood in a broad meaning
because, firstly, the statutory definition includes not only "a principal employer but also a person acting in the interest of the
employer"; and, secondly, the Act itself specifically enumerated those who are not included in the term "employer", namely: (1) a
labor organization (otherwise than when acting as an employer), (2) anyone acting in the capacity of officer or agent of such labor
organization [Sec. 2(c)], and (3) the Government and any political subdivision or instrumentality thereof insofar as the right to strike
for the purpose of securing changes or modifications in the terms and conditions of employment is concerned (Section 11). Among
these statutory exemptions, educational institutions are not included; hence, they can be included in the term "employer". This Court,
however, has ruled that those educational institutions that are not operated for profit are not within the purview of Republic Act No.
875.5

As stated above, Republic Act No. 875 does not give a comprehensive but only a complementary definition of the term "employer".
The term encompasses those that are in ordinary parlance "employers." What is commonly meant by "employer"? The term
"employer" has been given several acceptations. The lexical definition is "one who employs; one who uses; one who engages or keeps
in service;" and "to employ" is "to provide work and pay for; to engage one's service; to hire." (Webster's New Twentieth Century
Dictionary, 2nd ed., 1960, p. 595). The Workmen's Compensation Act defines employer as including "every person or association of
persons, incorporated or not, public or private, and the legal representative of the deceased employer" and "includes the owner or
lessee of a factory or establishment or place of work or any other person who is virtually the owner or manager of the business carried
on in the establishment or place of work but who, for reason that there is an independent contractor in the same, or for any other
reason, is not the direct employer of laborers employed there." [Sec. 39(a) of Act No. 3428.] The Minimum Wage Law states that
"employer includes any person acting directly or indirectly in the interest of the employer in relation to an employee and shall include
the Government and the government corporations". [Rep. Act No. 602, Sec. 2(b)]. The Social Security Act defines employer as "any
person, natural or juridical, domestic or foreign, who carries in the Philippines any trade, business, industry, undertaking, or activity of
any kind and uses the services of another person who is under his orders as regards the employment, except the Government and any
of its political subdivisions, branches or instrumentalities, including corporations owned or controlled by the Government." (Rep. Act
No. 1161, Sec. 8[c]).

This Court, in the cases of the The Angat River Irrigation System, et al. vs. Angat River Workers' Union (PLUM), et al., G.R. Nos. L-
10934 and L-10944, December 28, 1957, which cases involve unfair labor practices and hence within the purview of Republic Act No.
875, defined the term employer as follows:

An employer is one who employs the services of others; one for whom employees work and who pays their wages or salaries
(Black Law Dictionary, 4th ed., p. 618).

An employer includes any person acting in the interest of an employer, directly or indirectly (Sec. 2-c, Rep. Act 875).

Under none of the above definitions may the University be excluded, especially so if it is considered that every professor, instructor or
teacher in the teaching staff of the University, as per allegation of the University itself, has a contract with the latter for teaching
services, albeit for one semester only. The University engaged the services of the professors, provided them work, and paid them
compensation or salary for their services. Even if the University may be considered as a lessee of services under a contract between it
and the members of its Faculty, still it is included in the term "employer". "Running through the word `employ' is the thought that
there has been an agreement on the part of one person to perform a certain service in return for compensation to be paid by an
employer. When you ask how a man is employed, or what is his employment, the thought that he is under agreement to perform some
service or services for another is predominant and paramount." (Ballentine Law Dictionary, Philippine ed., p. 430, citing Pinkerton
National Detective Agency v. Walker, 157 Ga. 548, 35 A. L. R. 557, 560, 122 S.E. Rep. 202).

To bolster its claim of exception from the application of Republic Act No. 875, the University contends that it is not state that the
employers included in the definition of 2 (c) of the Act. This contention can not be sustained. In the first place, Sec. 2 (c) of Republic
Act No. 875 does not state that the employers included in the definition of the term "employer" are only and exclusively "industrial
establishments"; on the contrary, as stated above, the term "employer" encompasses all employers except those specifically excluded
by the Act. In the second place, even the Act itself does not refer exclusively to industrial establishments and does not confine its
application thereto. This is patent inasmuch as several provisions of the Act are applicable to non-industrial workers, such as Sec. 3,
which deals with "employees' right to self-organization"; Sections 4 and 5 which enumerate unfair labor practices; Section 8 which
nullifies private contracts contravening employee's rights; Section 9 which relates to injunctions in any case involving a labor dispute;
Section 11 which prohibits strikes in the government; Section 12 which provides for the exclusive collective bargaining representation
for labor organizations; Section 14 which deals with the procedure for collective bargaining; Section 17 which treats of the rights and
conditions of membership in labor organizations; Sections 18, 19, 20 and 21 which provide respectively for the establishment of
conciliation service, compilation of collective bargaining contracts, advisory labor-management relations; Section 22 which empowers
the Secretary of Labor to make a study of labor relations; and Section 24 which enumerates the rights of labor organizations. (See
Dissenting Opinion of Justice Concepcion in Boy Scouts of the Philippines v. Juliana Araos, G.R. No. L-10091, January 29, 1958.)

This Court, in the case of Boy Scouts of the Philippines v. Araos, supra, had occasion to state that the Industrial Peace Act "refers
only to organizations and entities created and operated for profits, engaged in a profitable trade, occupation or industry". It cannot be
denied that running a university engages time and attention; that it is an occupation or a business from which the one engaged in it
may derive profit or gain. The University is not an industrial establishment in the sense that an industrial establishment is one that is
engaged in manufacture or trade where raw materials are changed or fashioned into finished products for use. But for the purposes of
the Industrial Peace Act the University is an industrial establishment because it is operated for profit and it employs persons who work
to earn a living. The term "industry", for the purposes of the application of our labor laws should be given a broad meaning so as to
cover all enterprises which are operated for profit and which engage the services of persons who work to earn a living.

The word "industry" within State Labor Relations Act controlling labor relations in industry, cover labor conditions in any
field of employment where the objective is earning a livelihood on the one side and gaining of a profit on the other. Labor
Law Sec. 700 et seq. State Labor Relations Board vs. McChesney, 27 N.Y.S. 2d 866, 868." (Words and Phrases, Permanent
Edition, Vol. 21, 1960 edition p. 510).

The University urges that even if it were an employer, still there would be no employer-employee relationship between it and the
striking members of the Faculty Club because the latter are not employees within the purview of Sec. 2(d) of Republic Act No. 875
but are independent contractors. This claim is untenable.

Section 2 (d) of Republic Act No. 875 provides:

(d) The term "employee" shall include any employee and shall not be limited to the employee of a particular employer unless
the act explicitly states otherwise and shall include any individual whose work has ceased as a consequence of, or in
 connection with, any current labor dispute or because of any unfair labor practice and who has not obtained any other
substantially equivalent and regular employment.

This definition is again, like the definition of the term "employer" [Sec. 2(c)], by the use of the term "include", complementary. It
embraces not only those who are usually and ordinarily considered employees, but also those who have ceased as employees as a
consequence of a labor dispute. The term "employee", furthermore, is not limited to those of a particular employer. As already stated,
this Court in the cases of The Angat River Irrigation System, et al. v. Angat River Workers' Union (PLUM), et al., supra, has defined
the term "employer" as "one who employs the services of others; one for whom employees work and who pays their wages or salaries.
"Correlatively, an employee must be one who is engaged in the service of another; who performs services for another; who works for
salary or wages. It is admitted by the University that the striking professors and/or instructors are under contract to teach particular
courses and that they are paid for their services. They are, therefore, employees of the University.

In support of its claim that the members of the Faculty Club are not employees of the University, the latter cites as authority
Francisco's Labor Laws, 2nd ed., p. 3, which states:

While the term "workers" as used in a particular statute, has been regarded as limited to those performing physical labor, it
has been held to embrace stenographers and bookkeepers. Teachers are not included, however.

It is evident from the above-quoted authority that "teachers" are not to be included among those who perform "physical labor", but it
does not mean that they are not employees. We have checked the source of the authority, which is 31 Am. Jur., Sec. 3, p. 835, and the
latter cites Huntworth v. Tanner, 87 Wash 670, 152 P. 523, Ann Cas 1917 D 676. A reading of the last case confirms Our view.

That teachers are "employees' has been held in a number of cases (Aebli v. Board of Education of City and County of San Francisco,
145 P. 2d 601, 62 Col. App 2.d 706; Lowe & Campbell Sporting Goods Co. v. Tangipahoa Parish School Board, La. App., 15 So. 2d
98, 100; Sister Odelia v. Church of St. Andrew, 263 N. W. 111, 112, 195 Minn. 357, cited in Words and Phrases, Permanent ed., Vol.
14, pp. 806-807). This Court in the Far Eastern University case, supra, considered university instructors as employees and declared
Republic Act No. 875 applicable to them in their employment relations with their school. The professors and/or instructors of the
University neither ceased to be employees when they struck, for Section 2 of Rep. Act 875 includes among employees any individual
whose work has ceased as consequence of, or in connection with a current labor dispute. Striking employees maintain their status as
employees of the employer. (Western Cartridge Co. v. NLRB, C.C.A. 7, 139 F2d 855, 858).

The contention of the University that the professors and/or instructors are independent contractors, because the University does not
exercise control over their work, is likewise untenable. This Court takes judicial notice that a university controls the work of the
members of its faculty; that a university prescribes the courses or subjects that professors teach, and when and where to teach; that the
professors' work is characterized by regularity and continuity for a fixed duration; that professors are compensated for their services
by wages and salaries, rather than by profits; that the professors and/or instructors cannot substitute others to do their work without the
consent of the university; and that the professors can be laid off if their work is found not satisfactory. All these indicate that the
university has control over their work; and professors are, therefore, employees and not independent contractors. There are authorities
in support of this view.

The principal consideration in determining whether a workman is an employee or an independent contractor is the right to
control the manner of doing the work, and it is not the actual exercise of the right by interfering with the work, but the right
to control, which constitutes the test. (Amalgamated Roofing Co. v. Travelers' Ins. Co., 133 N.E. 259, 261, 300 Ill. 487,
quoted in Words and Phrases, Permanent ed., Vol. 14, p. 576).

Where, under Employers' Liability Act, A was instructed when and where to work . . . he is an employee, and not a
contractor, though paid specified sum per square. (Heine v. Hill, Harris & Co., 2 La. App. 384, 390, in Words and Phrases,
loc, cit.) .

Employees are those who are compensated for their labor or services by wages rather than by profits. (People vs. Distributors
Division, Smoked Fish Workers Union Local No. 20377, Sup. 7 N. Y. S. 2d 185, 187 in Words and Phrases, loc, cit.)

Services of employee or servant, as distinguished from those of a contractor, are usually characterized by regularity and
continuity of work for a fixed period or one of indefinite duration, as contrasted with employment to do a single act or a
series of isolated acts; by compensation on a fixed salary rather than one regulated by value or amount of work; . . .
(Underwood v. Commissioner of Internal Revenue, C.C.A., 56 F. 2d 67, 71 in Words and Phrases, op. cit., p. 579.)

Independent contractors can employ others to work and accomplish contemplated result without consent of contractee, while
"employee" cannot substitute another in his place without consent of his employer. (Luker Sand & Gravel Co. v. Industrial
Commission, 23 P. 2d 225, 82 Utah, 188, in Words and Phrases, Vol. 14, p. 576).
Moreover, even if university professors are considered independent contractors, still they would be covered by Rep. Act No. 875. In
the case of the Boy Scouts of the Philippines v. Juliana Araos, supra, this Court observed that Republic Act No. 875 was modelled
after the Wagner Act, or the National Labor Relations Act, of the United States, and this Act did not exclude "independent
contractors" from the orbit of "employees". It was in the subsequent legislation — the Labor Management Relation Act (Taft-Harley
Act) — that "independent contractors" together with agricultural laborers, individuals in domestic service of the home, supervisors,
and others were excluded. (See Rothenberg on Labor Relations, 1949, pp. 330-331).

It having been shown that the members of the Faculty Club are employees, it follows that they have a right to unionize in accordance
with the provisions of Section 3 of the Magna Carta of Labor (Republic Act No. 875) which provides as follows:

Sec. 3. Employees' right to self-organization.—Employees shall have the right to self-organization and to form, join or assist
labor organizations of their own choosing for the purpose of collective bargaining through representatives of their own
choosing and to engage in concerted activities for the purpose of collective bargaining and other mutual aid or protection. . . .

We agree with the statement of the lower court, in its order of March 30, 1963 which is sought to be set aside in the instant case, that
the right of employees to self-organization is guaranteed by the Constitution, that said right would exist even if Republic Act No. 875
is repealed, and that regardless of whether their employers are engaged in commerce or not. Indeed, it is Our considered view that the
members of the faculty or teaching staff of private universities, colleges, and schools in the Philippines, regardless of whether the
university, college or school is run for profit or not, are included in the term "employees" as contemplated in Republic Act No. 875
and as such they may organize themselves pursuant to the above-quoted provision of Section 3 of said Act. Certainly, professors,
instructors or teachers of private educational institutions who teach to earn a living are entitled to the protection of our labor laws —
and one such law is Republic Act No. 875.

The contention of the University in the instant case that the members of the Faculty Club can not unionize and the Faculty Club can
not exist as a valid labor organization is, therefore, without merit. The record shows that the Faculty Club is a duly registered labor
organization and this fact is admitted by counsel for the University. 5a

The other issue raised by the University is the validity of the Presidential certification. The University contends that under Section 10
of Republic Act No. 875 the power of the President of the Philippines to certify is subject to the following conditions, namely: (1) that
here is a labor dispute, and (2) that said labor dispute exists in an industry that is vital to the national interest. The University maintains
that those conditions do not obtain in the instant case. This contention has also no merit.

We have previously stated that the University is an establishment or enterprise that is included in the term "industry" and is covered by
the provisions of Republic Act No. 875. Now, was there a labor dispute between the University and the Faculty Club?

Republic Act No. 875 defines a labor dispute as follows:

The term "labor dispute" includes any controversy concerning terms, tenure or conditions of employment, or concerning the
association or representation of persons in negotiating, fixing, maintaining, changing, or seeking to arrange terms or
conditions of employment regardless of whether the disputants stand in proximate relation of employer and employees.

The test of whether a controversy comes within the definition of "labor dispute" depends on whether the controversy involves or
concerns "terms, tenure or condition of employment" or "representation." It is admitted by the University, in the instant case, that on
January 14, 1963 the President of the Faculty Club wrote to the President of the University a letter informing the latter of the
organization of the Faculty Club as a labor union, duly registered with the Bureau of Labor Relations; that again on January 22, 1963
another letter was sent, to which was attached a list of demands consisting of 26 items, and asking the President of the University to
answer within ten days from date of receipt thereof; that the University questioned the right of the Faculty Club to be the exclusive
representative of the majority of the employees and asked proof that the Faculty Club had been designated or selected as exclusive
representative by the vote of the majority of said employees; that on February 1, 1963 the Faculty Club filed with the Bureau of Labor
Relations a notice of strike alleging as reason therefor the refusal of the University to bargain collectively with the representative of
the faculty members; that on February 18, 1963 the members of the Faculty Club went on strike and established picket lines in the
premises of the University, thereby disrupting the schedule of classes; that on March 1, 1963 the Faculty Club filed Case No. 3666-
ULP for unfair labor practice against the University, but which was later dismissed (on April 2, 1963 after Case 41-IPA was certified
to the CIR); and that on March 7, 1963 a petition for certification election, Case No. 1183-MC, was filed by the Faculty Club in the
CIR.6 All these admitted facts show that the controversy between the University and the Faculty Club involved terms and conditions
of employment, and the question of representation. Hence, there was a labor dispute between the University and the Faculty Club, as
contemplated by Republic Act No. 875. It having been shown that the University is an institution operated for profit, that is an
employer, and that there is an employer-employee relationship, between the University and the members of the Faculty Club, and it
having been shown that a labor dispute existed between the University and the Faculty Club, the contention of the University, that the
certification made by the President is not only not authorized by Section 10 of Republic Act 875 but is violative thereof, is groundless.
Section 10 of Republic Act No. 875 provides:

When in the opinion of the President of the Philippines there exists a labor dispute in an industry indispensable to the national
interest and when such labor dispute is certified by the President to the Court of Industrial Relations, said Court may cause to
be issued a restraining order forbidding the employees to strike or the employer to lockout the employees, and if no other
solution to the dispute is found, the Court may issue an order fixing the terms and conditions of employment.

This Court had occasion to rule on the application of the above-quoted provision of Section 10 of Republic Act No. 875. In the case
of Pampanga Sugar Development Co. v. CIR, et al., G.R. No. L-13178, March 24, 1961, it was held:

It thus appears that when in the opinion of the President a labor dispute exists in an industry indispensable to national interest
and he certifies it to the Court of Industrial Relations the latter acquires jurisdiction to act thereon in the manner provided by
law. Thus the court may take either of the following courses: it may issue an order forbidding the employees to strike or the
employer to lockout its employees, or, failing in this, it may issue an order fixing the terms and conditions of employment. It
has no other alternative. It can not throw the case out in the assumption that the certification was erroneous.

xxx xxx xxx

. . . The fact, however, is that because of the strike declared by the members of the minority union which threatens a major
industry the President deemed it wise to certify the controversy to the Court of Industrial Relations for adjudication. This is
the power that the law gives to the President the propriety of its exercise being a matter that only devolves upon him. The
same is not the concern of the industrial court. What matters is that by virtue of the certification made by the President the
case was placed under the jurisdiction of said court. (Emphasis supplied)

To certify a labor dispute to the CIR is the prerogative of the President under the law, and this Court will not interfere in, much less
curtail, the exercise of that prerogative. The jurisdiction of the CIR in a certified case is exclusive (Rizal Cement Co., Inc. v. Rizal
Cement Workers Union (FFW), et al., G.R. No. L-12747, July 30, 1960). Once the jurisdiction is acquired pursuant to the presidential
certification, the CIR may exercise its broad powers as provided in Commonwealth Act 103. All phases of the labor dispute and the
employer-employee relationship may be threshed out before the CIR, and the CIR may issue such order or orders as may be necessary
to make effective the exercise of its jurisdiction. The parties involved in the case may appeal to the Supreme Court from the order or
orders thus issued by the CIR.

And so, in the instant case, when the President took into consideration that the University "has some 18,000 students and employed
approximately 500 faculty members", that `the continued disruption in the operation of the University will necessarily prejudice the
thousand of students", and that "the dispute affects the national interest", 7and certified the dispute to the CIR, it is not for the CIR nor
this Court to pass upon the correctness of the reasons of the President in certifying the labor dispute to the CIR.

The third issue raised by the University refers to the question of the legality of the return-to-work order (of March 30, 1963 in Case
41-IPA) and the order implementing the same (of April 6, 1963). It alleges that the orders are illegal upon the grounds: (1) that
Republic Act No. 875, supplementing Commonwealth Act No. 103, has withdrawn from the CIR the power to issue a return-to-work
order; (2) that the only power granted by Section 10 of Republic Act No. 875 to the CIR is to issue an order forbidding the employees
to strike or forbidding the employer to lockout the employees, as the case may be, before either contingency had become a fait
accompli; (3) that the taking in by the University of replacement professors was valid, and the return-to-work order of March 30, 1963
constituted impairment of the obligation of contracts; and (4) the CIR could not issue said order without having previously determined
the legality or illegality of the strike.

The contention of the University that Republic Act No. 875 has withdrawn the power of the Court of Industrial Relations to issue a
return-to-work order exercised by it under Commonwealth Act No. 103 can not be sustained. When a case is certified by the President
to the Court of Industrial Relations, the case thereby comes under the operation of Commonwealth Act No. 103, and the Court may
exercise the broad powers and jurisdiction granted to it by said Act. Section 10 of Republic Act No. 875 empowers the Court of
Industrial Relations to issue an order "fixing the terms of employment." This clause is broad enough to authorize the Court to order the
strikers to return to work and the employer to readmit them. This Court, in the cases of the Philippine Marine Officers Association vs.
The Court of Industrial Relations, Compania Maritima, et al.; and Compañia Martima, et al. vs. Philippine Marine Radio Officers
Association and CIR, et al., G.R. Nos. L-10095 and L-10115, October 31, 1957, declared:

We cannot subscribe to the above contention. We agree with counsel for the Philippine Radio Officers' Association that upon
certification by the President under Section 10 of Republic Act 875, the case comes under the operation of Commonwealth
Act 103, which enforces compulsory arbitration in cases of labor disputes in industries indispensable to the national interest
when the President certifies the case to the Court of Industrial Relations. The evident intention of the law is to empower the
Court of Industrial Relations to act in such cases, not only in the manner prescribed under Commonwealth Act 103, but with
 the same broad powers and jurisdiction granted by that act. If the Court of Industrial Relations is granted authority to find a
solution to an industrial dispute and such solution consists in the ordering of employees to return back to work, it cannot be
contended that the Court of Industrial Relations does not have the power or jurisdiction to carry that solution into effect. And
of what use is its power of conciliation and arbitration if it does not have the power and jurisdiction to carry into effect the
solution it has adopted? Lastly, if the said court has the power to fix the terms and conditions of employment, it certainly can
order the return of the workers with or without backpay as a term or condition of employment.

The foregoing ruling was reiterated by this Court in the case of Hind Sugar Co. v. CIR, et al., G.R. No. L-13364, July 26, 1960.

When a case is certified to the CIR by the President of the Philippines pursuant to Section 10 of Republic Act No. 875, the CIR is
granted authority to find a solution to the industrial dispute; and the solution which the CIR has found under the authority of the
presidential certification and conformable thereto cannot be questioned (Radio Operators Association of the Philippines vs. Philippine
Marine Radio Officers Association, et al., L-10112, Nov. 29, 1957, 54 O.G. 3218).

Untenable also is the claim of the University that the CIR cannot issue a return-to-work order after strike has been declared, it being
contended that under Section 10 of Republic Act No. 875 the CIR can only prevent a strike or a lockout — when either of this
situation had not yet occurred. But in the case of Bisaya Land Transportation Co., Inc. vs. Court of Industrial Relations, et al., No. L-
10114, Nov. 26, 1957, 50 O.G. 2518, this Court declared:

There is no reason or ground for the contention that Presidential certification of labor dispute to the CIR is limited to the
prevention of strikes and lockouts. Even after a strike has been declared where the President believes that public interest
demands arbitration and conciliation, the President may certify the ease for that purpose. The practice has been for the Court
of Industrial Relations to order the strikers to work, pending the determination of the union demands that impelled the strike.
There is nothing in the law to indicate that this practice is abolished." (Emphasis supplied)

Likewise untenable is the contention of the University that the taking in by it of replacements was valid and the return-to-work order
would be an impairment of its contract with the replacements. As stated by the CIR in its order of March 30, 1963, it was agreed
before the hearing of Case 41-IPA on March 23, 1963 that the strikers would return to work under the status quo arrangement and the
University would readmit them, and the return-to-work order was a confirmation of that agreement. This is a declaration of fact by the
CIR which we cannot disregard. The faculty members, by striking, have not abandoned their employment but, rather, they have only
ceased from their labor (Keith Theatre v. Vachon et al., 187 A. 692). The striking faculty members have not lost their right to go back
to their positions, because the declaration of a strike is not a renunciation of their employment and their employee relationship with the
University (Rex Taxicab Co. vs. CIR, et al., 40 O.G., No. 13, 138). The employment of replacements was not authorized by the CIR.
At most, that was a temporary expedient resorted to by the University, which was subject to the power of the CIR to allow to continue
or not. The employment of replacements by the University prior to the issuance of the order of March 30, 1963 did not vest in the
replacements a permanent right to the positions they held. Neither could such temporary employment bind the University to retain
permanently the replacements.

Striking employees maintained their status as employees of the employer (Western Castridge Co. v. National Labor Relations
Board, C.C.A. 139 F. 2d 855, 858) ; that employees who took the place of strikers do not displace them as `employees." '
(National Labor Relations Board v. A. Sartorius & Co., C.C.A. 2, 140 F. 2d 203, 206, 207.)

It is clear from what has been said that the return-to-work order cannot be considered as an impairment of the contract entered into by
petitioner with the replacements. Besides, labor contracts must yield to the common good and such contracts are subject to the special
laws on labor unions, collective bargaining, strikes and similar subjects (Article 1700, Civil Code).

Likewise unsustainable is the contention of the University that the Court of Industrial Relations could not issue the return-to-work
order without having resolved previously the issue of the legality or illegality of the strike, citing as authority therefor the case
of Philippine Can Company v. Court of Industrial Relations, G.R. No. L-3021, July 13, 1950. The ruling in said case is not applicable
to the case at bar, the facts and circumstances being very different. The Philippine Can Company case, unlike the instant case, did not
involve the national interest and it was not certified by the President. In that case the company no longer needed the services of the
strikers, nor did it need substitutes for the strikers, because the company was losing, and it was imperative that it lay off such laborers
as were not necessary for its operation in order to save the company from bankruptcy. This was the reason of this Court in ruling, in
that case, that the legality or illegality of the strike should have been decided first before the issuance of the return-to-work order. The
University, in the case before Us, does not claim that it no longer needs the services of professors and/or instructors; neither does it
claim that it was imperative for it to lay off the striking professors and instructors because of impending bankruptcy. On the contrary,
it was imperative for the University to hire replacements for the strikers. Therefore, the ruling in the Philippine Can case that the
legality of the strike should be decided first before the issuance of the return-to-work order does not apply to the case at bar. Besides,
as We have adverted to, the return-to-work order of March 30, 1963, now in question, was a confirmation of an agreement between
the University and the Faculty Club during a prehearing conference on March 23, 1963.
The University also maintains that there was no more basis for the claim of the members of the Faculty Club to return to their work, as
their individual contracts for teaching had expired on March 25 or 31, 1963, as the case may be, and consequently, there was also no
basis for the return-to-work order of the CIR because the contractual relationships having ceased there were no positions to which the
members of the Faculty Club could return to. This contention is not well taken. This argument loses sight of the fact that when the
professors and instructors struck on February 18, 1963, they continued to be employees of the University for the purposes of the labor
controversy notwithstanding the subsequent termination of their teaching contracts, for Section 2(d) of the Industrial Peace Act
includes among employees "any individual whose work has ceased a consequence of, or in connection with, any current labor dispute
or of any unfair labor practice and who has not obtained any other substantially equivalent and regular employment."

The question raised by the University was resolved in a similar case in the United States. In the case of Rapid Roller Co. v. NLRB 126
F. 2d 452, we read:

On May 9, 1939 the striking employees, eighty-four in number, offered to the company to return to their employment. The
company believing it had not committed any unfair labor practice, refused the employees' offer and claimed the right to
employ others to take the place of the strikers, as it might see fit. This constituted discrimination in the hiring and tenure of
the striking employees. When the employees went out on a strike because of the unfair labor practice of the company, their
status as employees for the purpose of any controversy growing out of that unfair labor practice was fixed. Sec. 2 (3) of the
Act. Phelps Dodge Corp. v. National Labor Relations Board, 313 U.S. 177, 61 S. Ct. 845, 85. L. ed. 1271, 133 A.L.R. 1217.

For the purpose of such controversy they remained employees of the company. The company contended that they could not
be their employees in any event since the "contract of their employment expired by its own terms on April 23, 1939."

In this we think the company is mistaken for the reason we have just pointed out, that the status of the employees on strike
became fixed under Sec. 2 (3) of the Act because of the unfair labor practice of the company which caused the strike.

The University, furthermore, claims that the information for indirect contempt filed against the officers of the University (Case No. V-
30) as well as the order of April 29, 1963 for their arrest were improper, irregular and illegal because (1) the officers of the University
had complied in good faith with the return-to-work order and in those cases that they did not, it was due to circumstance beyond their
control; (2) the return-to-work order and the order implementing the same were illegal; and (3) even assuming that the order was legal,
the same was not Yet final because there was a motion to reconsider it.

Again We find no merit in this claim of Petitioner. We have already ruled that the CIR had jurisdiction to issue the order of March 30,
1963 in CIR Case 41-IPA, and the return-to-work provision of that order is valid and legal. Necessarily the order of April 6, 1963
implementing that order of March 30, 1963 was also valid and legal.

Section 6 of Commonwealth Act No. 103 empowers the Court of Industrial Relations of any Judge thereof to punish direct and
indirect contempts as provided in Rule 64 (now Rule 71) of the Rules of Court, under the same procedure and penalties provided
therein. Section 3 of Rule 71 enumerates the acts which would constitute indirect contempt, among which is "disobedience or
resistance to lawful writ, process, order, judgment, or command of a court," and the person guilty thereof can be punished after a
written charge has been filed and the accused has been given an opportunity to be heard. The last paragraph of said section provides:

But nothing in this section shall be so construed as to prevent the court from issuing process to bring the accused party into
court, or from holding him in custody pending such proceedings.

The provision authorizes the judge to order the arrest of an alleged contemner (Francisco, et al. v. Enriquez, L-7058, March 20, 1954,
94 Phil., 603) and this, apparently, is the provision upon which respondent Judge Bautista relied when he issued the questioned order
of arrest.

The contention of petitioner that the order of arrest is illegal is unwarranted. The return-to-work order allegedly violated was within
the court's jurisdiction to issue.

Section 14 of Commonwealth Act No. 103 provides that in cases brought before the Court of Industrial Relations under Section 4 of
the Act (referring to strikes and lockouts) the appeal to the Supreme Court from any award, order or decision shall not stay the
execution of said award, order or decision sought to be reviewed unless for special reason the court shall order that execution be
stayed. Any award, order or decision that is appealed is necessarily not final. Yet under Section 14 of Commonwealth Act No. 103
that award, order or decision, even if not yet final, is executory, and the stay of execution is discretionary with the Court of Industrial
Relations. In other words, the Court of Industrial Relations, in cases involving strikes and lockouts, may compel compliance or
obedience of its award, order or decision even if the award, order or decision is not yet final because it is appealed, and it follows that
any disobedience or non-compliance of the award, order or decision would constitute contempt against the Court of Industrial
Relations which the court may punish as provided in the Rules of Court. This power of the Court of Industrial Relations to punish for
contempt an act of non-compliance or disobedience of an award, order or decision, even if not yet final, is a special one and is
exercised only in cases involving strikes and lockouts. And there is reason for this special power of the industrial court because in the
exercise of its jurisdiction over cases involving strikes and lockouts the court has to issue orders or make decisions that are necessary
to effect a prompt solution of the labor dispute that caused the strike or the lockout, or to effect the prompt creation of a situation that
would be most beneficial to the management and the employees, and also to the public — even if the solution may be temporary,
pending the final determination of the case. Otherwise, if the effectiveness of any order, award, or decision of the industrial court in
cases involving strikes and lockouts would be suspended pending appeal then it can happen that the coercive powers of the industrial
court in the settlement of the labor disputes in those cases would be rendered useless and nugatory.

The University points to Section 6 of Commonwealth Act No. 103 which provides that "Any violation of any order, award, or decision
of the Court of Industrial Relations shall after such order, award or decision has become final, conclusive and executory constitute
contempt of court," and contends that only the disobedience of orders that are final (meaning one that is not appealed) may be the
subject of contempt proceedings. We believe that there is no inconsistency between the above-quoted provision of Section 6 and the
provision of Section 14 of Commonwealth Act No. 103. It will be noted that Section 6 speaks of order, award or decision that
is executory. By the provision of Section 14 an order, award or decision of the Court of Industrial Relations in cases involving strikes
and lockouts are immediately executory, so that a violation of that order would constitute an indirect contempt of court.

We believe that the action of the CIR in issuing the order of arrest of April 29, 1963 is also authorized under Section 19 of
Commonwealth Act No. 103 which provides as follows:

SEC. 19. Implied condition in every contract of employment.—In every contract of employment whether verbal or written, it
is an implied condition that when any dispute between the employer and the employee or laborer has been submitted to the
Court of Industrial Relations for settlement or arbitration pursuant to the provisions of this Act . . . and pending award, or
decision by the Court of such dispute . . . the employee or laborer shall not strike or walk out of his employment when so
enjoined by the Court after hearing and when public interest so requires, and if he has already done so, that he shall forthwith
return to it, upon order of the Court, which shall be issued only after hearing when public interest so requires or when the
dispute cannot, in its opinion, be promptly decided or settled; and if the employees or laborers fail to return to work, the
Court may authorize the employer to accept other employees or laborers. A condition shall further be implied that while such
dispute . . . is pending, the employer shall refrain from accepting other employees or laborers, unless with the express
authority of the Court, and shall permit the continuation in the service of his employees or laborers under the last terms and
conditions existing before the dispute arose. . . . A violation by the employer or by the employee or laborer of such an order
or the implied contractual condition set forth in this section shall constitute contempt of the Court of Industrial Relations and
shall be punished by the Court itself in the same manner with the same penalties as in the case of contempt of a Court of First
Instance. . . .

We hold that the CIR acted within its jurisdiction when it ordered the arrest of the officers of the University upon a complaint for
indirect contempt filed by the Acting Special Prosecutor of the CIR in CIR Case V-30, and that order was valid. Besides those ordered
arrested were not yet being punished for contempt; but, having been charged, they were simply ordered arrested to be brought before
the Judge to be dealt with according to law. Whether they are guilty of the charge or not is yet to be determined in a proper hearing.

Let it be noted that the order of arrest dated April 29, 1963 in CIR Case V-30 is being questioned in Case G.R. No. L-21278 before
this Court in a special civil action for certiorari. The University did not appeal from that order. In other words, the only question to be
resolved in connection with that order in CIR Case V-30 is whether the CIR had jurisdiction, or had abused its discretion, in issuing
that order. We hold that the CIR had jurisdiction to issue that order, and neither did it abuse its discretion when it issued that order.

In Case G.R. No. L-21462 the University appealed from the order of Judge Villanueva of the CIR in Case No. 1183-MC, dated April
6, 1963, granting the motion of the Faculty Club to withdraw its petition for certification election, and from the resolution of the
CIR en banc, dated June 5, 1963, denying the motion to reconsider said order of April 6, 1963. The ground of the Faculty Club in
asking for the withdrawal of that petition for certification election was because the issues involved in that petition were absorbed by
the issues in Case 41-IPA. The University opposed the petition for withdrawal, but at the same time it moved for the dismissal of the
petition for certification election.

It is contended by the University before this Court, in G.R. L-21462, that the issues of employer-employee relationship between the
University and the Faculty Club, the alleged status of the Faculty Club as a labor union, its majority representation and designation as
bargaining representative in an appropriate unit of the Faculty Club should have been resolved first in Case No. 1183-MC prior to the
determination of the issues in Case No. 41-IPA, and, therefore, the motion to withdraw the petition for certification election should not
have been granted upon the ground that the issues in the first case were absorbed in the second case.

We believe that these contentions of the University in Case G.R. No. L-21462 have been sufficiently covered by the discussion in this
decision of the main issues raised in the principal case, which is Case G.R. No. L-21278. After all, the University wanted CIR Case
1183-MC dismissed, and the withdrawal of the petition for certification election had in a way produced the situation desired by the
University. After considering the arguments adduced by the University in support of its petition for certiorari by way of appeal in
Case G.R. No. L-21278, We hold that the CIR did not commit any error when it granted the withdrawal of the petition for certification
election in Case No. 1183-MC. The principal case before the CIR is Case No. 41-IPA and all the questions relating to the labor
disputes between the University and the Faculty Club may be threshed out, and decided, in that case.

In Case G.R. No. L-21500 the University appealed from the order of the CIR of March 30, 1963, issued by Judge Bautista, and from
the resolution of the CIR en banc promulgated on June 28, 1963, denying the motion for the reconsideration of that order of March 30,
1963, in CIR Case No. 41-IPA. We have already ruled that the CIR has jurisdiction to issue that order of March 30, 1963, and that
order is valid, and We, therefore, hold that the CIR did not err in issuing that order of March 30, 1963 and in issuing the resolution
promulgated on June 28, 1963 (although dated May 7, 1963) denying the motion to reconsider that order of March 30, 1963.

IN VIEW OF THE FOREGOING, the petition for certiorari and prohibition with preliminary injunction in Case G.R. No. L-21278 is
dismissed and the writs prayed for therein are denied. The writ of preliminary injunction issued in Case G.R. No. L-21278 is
dissolved. The orders and resolutions appealed from, in Cases Nos. L-21462 and L-21500, are affirmed, with costs in these three cases
against the petitioner-appellant Feati University. It is so ordered.

BENEDICTO DINGLASAN, petitioner,

vs.
NATIONAL LABOR UNION, respondent.

BARRERA, J.:

This is a petition to review the decision of the Court of Industrial Relations of February 27, 1958 (in Case No. 3—ULP), finding the
petitioner guilty of unfair labor practice under the Industrial Peace Act. 1

On June 30, 1953, the respondent union filed with the above-mentioned court a complaint for alleged unfair labor practice committed
by the petitioner, in that he locked out from employment 46 drivers, members of the respondent union, on June 27, 1953.

Before filing his answer, the petitioner asked for the dismissal of the complaint on the grounds that the court had no jurisdiction over
the person of the petitioner and the subject matter of the action, and the respondent union was not the real party in interest. The
petitioner claimed that there existed no employer-employee relationship between the petitioner and the drivers, members of the
respondent union, the relationship being one of lessor and lessee only, as the jeeps being used by the said drivers were rented out by
the petitioner under the so-called "boundary system". The motion was denied by the court in its order of February 16, 1954, but on
petitioner's motion for reconsideration, the court, en banc, in its resolution of June 23, 1954, unanimously reconsidered its first order
and finally declared that there was no employer-employee relationship between the parties.

The respondent union appealed to this Court, and on March 23, 1956, we rendered a decision (in G. R. No. L-7945) * reversing the
said resolution and holding that an employer-employee relationship existed between the parties. The said decision became final on
May 29, 1956.

In view of the decision of this Court, the petitioner, on June 4, 1957, filed in the court a quo his answer to the complaint of June 30,
1953, denying (1) the legitimacy of the respondent union, and (2) the charge unfair labor practice, claiming that he acted in good faith
based on his honest belief that he was not an employer of the drivers, members of the respondent union, but only a lessor of his
jeepneys.

Thereafter, the case was heard, and on February 27, 1958, the court rendered a decision, as follows:

It would appear that the main question at issue is whether the respondent has committed the charges alleged in the complaint.

According to the complaint, the respondent had knowledge of the formation of a union on June 26, 1953 and respondent upon
learning the same decided on dismissing all the driver members because he did not want to have a union within his company.
This Particular union, it turned out, was a chapter or affiliate of the complainant union which was organized sometime on
June 24, 1953. On June 27, 1953, the respondent dismissed the drivers appearing in the complaint by refusing them the use of
the jeepneys regularly assigned to them.
 On the other hand, respondent claims otherwise. The respondent, it is alleged fearing that a strike might be called by the
drivers decided on not renting out the jeepneys on said date, June 27, 1953.

Based on the versions submitted in evidence by the parties, it is clear that the respondent engaged in the unfair labor practice
charged in the complaint, amounting to a virtual lockout of his employee drivers, hence constituting discrimination under
Republic Act No. 875. As the records of this case disclose, the act of locking out committed by respondent was made without
the required notice and no collective bargaining negotiation were ever made. The mere suspicion by respondent, that a strike
might be called by the union, is no justification for such an act.

We hold therefore, the respondent guilty of the unfair labor practices in the complaint.

However, there are certain aspects of this case which merit consideration. It has been contended by respondent, since the
beginning of this case, that he is not the employer of the drivers listed in the complaint and had honestly acted under the such
belief. This very Court itself, unanimously were of the same opinion that there was no employer-employee relationship. In
the application of the affirmative reliefs granted by the law, this good faith the respondent must be taken into consideration in
those portions where the law allows this Court to use it sound discretion and judgment. And the particular portion we have in
mind in Section 5 of Republic Act No. 875.

Furthermore, it appears that some of the drivers listed in the complaint have neither to returned to work or are already
working elsewhere and there is a need for further proceedings in this respect.

IN VIEW OF THE FOREGOING, this Court hereby orders the respondent:

(1) To cease and desist from further committing the unfair labor practices complained of;

(2) To reinstate the drivers listed in the complaint, except those who have been already reinstated;

(3) To pay back wages to all drivers listed in the complaint, but in the exercise of the Court's discretion said back wages shall
commence only from May 29. 1956, based on the minimum daily wage of P4.00, deducting therefrom and from said date the
period when said drivers have found substantially equivalent and regular employment for themselves, for which reason
further hearings shall be had for the sole purpose of determining the respective amount of back wages due each driver up to
the time they are actually re-employed by respondent.

SO ORDERED.

On March 8, 1958, petitioner filed a motion for reconsidering which was denied by the court in its resolution en banc, of July 30,
1958. hence, this petition for review.

It is the contention of responding union that petitioner, upon learning that his drivers had formed a labor union among themselves,
refused on June 27, 1953, to let the muse and operate the jeepneys regularly assigned to them, which act, it is alleged, constitutes an
unlawful lockout and an unfair labor practice. The petitioner, on the other hand, claims that he did not lock out his drivers, members of
the respondent union, on June 27, 1953, as contended by them. Believing honestly that no employer-employee relationship existed
between him and them, and fearing that the drivers were intending to declare a strike and might abandon his jeepneys in the streets of
the city, he decided, as a precautionary measure to protect his interest, to suspend their operation temporarily and consult his attorney.
Upon obtaining his counsel's advice, he immediately announced to the drivers the following morning, June 28, that they could then
take out his jeepneys. While some four or five of them needed petitioner's request, the others refused to return to operate. Those who
took advantage of petitioner's offer had, however, to come back after a few hours because some of the drivers on strike had
admonished them to return the jeepneys and join the strike. For some days this situation continued until on October 8, 1953, when the
case was first submitted for decision, thirty-four (34) of the forty six (46) drivers had already returned to work under the same
conditions as before June 27, 1953.

We have examined the record and we are satisfied that what occurred on June 26, 1953, and the days following was substantially as
testified to by petitioner Benedicto Dinglasan and his witnesses, three of whom are among the drivers of his Jeepneys, two (Julio
Ongpin and Francisco Leaño) are completely disinterested persons, two are patrolmen, and the remaining two are his employees, as
against the sole testimony of Juanito Cruz, President of the local group of the respondent labor union, and the essentially hear say
declaration of Zosimo Yjares who claims to be the secretary of the drivers' association.
While we agree with the lower court that the act of the petitioner in suspending the operation of his jeepneys on June 27, is legally and
technically not in consonance with the industrial Peace Act (the court a quo termed it "a virtual lockout") so as to entitle the drivers to
be reinstated nevertheless, as the trial court correctly stated in its decision,.

there are certain aspects of this case which merit consideration. It has been contended by respondent, since the beginning of
his case, that he is not the employer of the drivers listed in the complaint and has honestly noted under such belief. This very
Court itself, unanimously were of the same opinion that there was no employer-employee relationship. In the application of
the affirmative reliefs granted by law, this good faith of the respondent must be taken into consideration in those portions
where the law allows this court or use its sound discretion and judgment. The particular portion we have in mind is Section 5
of Republic Act No. 875.

In the exercise of this discretion, that is, whether the reinstatement will be with or without back pay, aside from the fact that there was
no willful violation of the Industrial Peace Act, there is an additional circumstance that may be considered in favor of herein
petitioner. As already mentioned above, petitioner, the day following his suspension of the operation of the jeepneys, urged the drivers
to return and resume the work, notwithstanding which, the latter not only refused, but even compelled those who did, to joint the
strike. It is clear therefrom that the cassation or stoppage of the operation after June 27, was not the direct consequence of petitioner's
locking them up or of any willful unfair or discriminatory act of the former, but the result of their (the drivers) voluntary and
deliberate refusal to return to work. Taking into account the foregoing circumstances and considering their similarity to those in the
case of Philippines marine Radio Officers' Association vs. Court of Industrial Relation et al., 102 Phil., 373, wherein it was held that
there is no reason for granting backpay if there is not been any willful unfair labor practice or refusal of the respondent companies to
admit their laborers back to work, while the drivers members of respondent union may, in this case, be entitled to reinstatement, we
find no justification for their receiving back wage for the period that they themselves refused to return to work.

Wherefore, the decision appealed from is accordingly modified in the sense that the reinstatement will be without back pay. In all
other respects, the same is affirmed, without costs. So ordered.

NELLY ACTA MARTINEZ, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, DOMINADOR CORRO,
PASTOR CORRO, CELESTINO CORRO, LUIS CORRO, EREBERTO CORRO, JAIME CRUZ, WENCESLAO
DELVO, GREGORIO DELVO, HERMEJIAS COLIBAO, JOSE OGANA and ALONSO ALBAO, respondents.
BELLOSILLO, J.:

RAUL MARTINEZ was operator of two (2) taxicab units under the business name PAMA TX and two (2) additional units under
the name P. J. TIGER TX. Private respondents Dominador Corro, Pastor Corro, Celestino Corro, Luis Corro, Ereberto Corro, Jaime
Cruz, Wenceslao Delvo, Gregorio Delvo, Hermejias Colibao, Jose Ogana and Alonso Albao worked for him as drivers. On 18 March
1992 Raul Martinez died leaving behind his mother, petitioner Nelly Acta Martinez, as his sole heir.
On 14 July 1992 private respondents lodged a complaint against Raul Martinez and petitioner Nelly Acta Martinez before the
Labor Arbiter for violation of P. D. 851 [1] and illegal dismissal. They alleged that they have been regular drivers of Raul Martinez
since 20 October 1989 earning no less than P400.00 per day driving twenty-four (24) hours every other day.For the duration of
employment, not once did they receive a 13th month pay. After the death of Raul Martinez, petitioner took over the management and
operation of the business. On or about 22 June 1992 she informed them that because of difficulty in maintaining the business, she was
selling the units together with the corresponding franchises. However, petitioner did not proceed with her plan; instead, she assigned
the units to other drivers.
Petitioner traversed the claim for 13th month pay by contending that it was personal and therefore did not survive the death of
her son. Besides, private respondents were not entitled thereto as Sec. 3, par. (e), of the Rules and Regulations Implementing P. D. 851
is explicit that employers of those who are paid on purely boundary basis are not covered therein. The relationship between her son
and private respondents was not that of employer-employee but of lessor-lessee. The operation of the business ceased upon the death
of her son and that she did not continue the business because she did not know how to run it.
On 30 August 1993 the Labor Arbiter dismissed the complaint on the following grounds: (a) private respondents' claims being
personal were extinguished upon the death of Raul Martinez; (b) petitioner was a mere housewife who did not possess the required
competence to manage the business; and, (c) private respondents were not entitled to 13th month paybecause the existence of
employer-employee relationship was doubtful on account of the boundary system adopted by the parties. [2]
However, respondent National Labor Relations Commission viewed the case differently. According to NLRC, (a) private
respondents were regular drivers because payment of wages, which is one of the essential requisites for the existence of employment
relation, may either be fixed, on commission, boundary, piece-rate or task basis; (b) the management of the business passed on to
petitioner who even replaced private respondents with a new set of drivers; and, (c) the claims of private respondents survived the
death of Raul Martinez considering that the business did not cease operation outright but continued presumably, in the absence of
proof of sale, up to the moment. As regards the claim for 13th month pay, NLRC upheld the stand of petitioner based on the express
provision of P. D. 851 as reiterated in the revised guidelines on the implementation thereof. On 28 January 1994 respondent NLRC
thus set aside the appealed decision, and as alternative to reinstatement, ordered petitioner to grant respondents separation pay
equivalent to one (1) month salary for every year of service a fraction of six (6) months being considered as one (1) whole year.[3] On
30 September 1994 the motion for reconsideration was denied. [4] Hence, this recourse of petitioner.
On 11 October 1995 the Court issued a temporary restraining order enjoining the execution of the assailed decision of respondent
NLRC. Petitioner imputes grave abuse of discretion on respondent NLRC in reversing the decision of the Labor Arbiter.
Petitioner argues that respondent NLRC acted as a probate court when it assumed jurisdiction over the estate of a deceased
person, pronounced her legally entitled to succeed the deceased and ordered her to pay the money claim of private
respondents. Moreover, petitioner argues that the claims of private respondents were personal to her son and thus were abated by his
death.
Petitioner's arguments are well-taken. The claim for 13th month pay pertains to the personal obligation of Raul Martinez which
did not survive his death. The rule is settled that unless expressly assumed, labor contracts are not enforceable against the transferee of
an enterprise. In the present case, petitioner does not only disavow that she continued the operation of the business of her son but also
disputes the existence of labor contracts between her son and private respondents. The reason for the rule is that labor contracts are in
personam,[5] and that claims for backwages earned from the former employer cannot be filed against the new owners of an
enterprise.[6] Nor is the new operator of a business liable for claims for retirement pay of employees.[7] Thus the claim of private
respondents should have been filed instead in the intestate proceedings involving the estate of Raul Martinez in accordance with Sec.
5, Rule 86, of the Rules of Court which provides in part -

Sec. 5. Claims which must be filed under the notice. If not filed, barred; exceptions. - All claims for money against the decedent,
arising from contract, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in
the notice; otherwise they are barred forever, except that they may be set forth as counterclaims in any action that the executor or
administrator may bring against the claimants x x x x

Under this rule, upon the death of the defendant, a testate or intestate proceeding shall be instituted in the proper court wherein
all his creditors must appear and file their claims which shall be paid proportionately out of the property left by the deceased. The
objective is to avoid duplicity of procedures. Hence, the ordinary actions must be taken out from the ordinary courts. Conformably
with Art. 110 of the Labor Code, money claims of laborers enjoy preference over claims of other creditors in case of bankruptcy or
liquidation of the employer's business.[8]
Petitioner also insists on the absence of employer-employee relationship between her son and private respondents because there
is no evidence that her son paid a single centavo by way of wages to private respondents; rather, they were governed by the boundary
system. Neither is there such relationship between her and private respondents because she did not continue the operation of the
business which ceased upon the death of her son.
As early as 3 March 1956, in National Labor Union v. Dinglasan,[9] this Court ruled that the relationship between jeepney
owners/operators on one hand and jeepney drivers on the other under the boundary system is that of employer-employee and not of
lessor-lessee. Therein we explained that in the lease of chattels the lessor loses complete control over the chattel leased although the
lessee cannot be reckless in the use thereof, otherwise he would be responsible for the damages to the lessor. In the case of jeepney
owners/operators and jeepney drivers, the former exercise supervision and control over the latter. The fact that the drivers do not
receive fixed wages but get only that in excess of the so-called "boundary" they pay to the owner/operator is not sufficient to withdraw
the relationship between them from that of employer and employee. The doctrine is applicable by analogy to the present case. Thus,
private respondents were employees of Raul Martinez because they had been engaged to perform activities which were usually
necessary or desirable in the usual business or trade of the employer. [10] The records show that private respondents had been employed
since 20 October 1989 except for Ogana, the Delvos, Albao and Colibao who were employed on later dates. [11]
Hence, these questions arise: Do private respondents, being then employees of Raul Martinez, necessarily continue to be
employees of the petitioner as the new operator of the business? In the affirmative, were they illegally dismissed?
The factual findings of quasi-judicial agencies such as respondent NLRC, which have acquired expertise in the matters entrusted
to their jurisdiction, are accorded by this Court not only respect but also finality if they are supported by substantial evidence, or that
amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. [12] As respondent NLRC found
-

The facts of the case will readily show that before respondent taxi owner Raul Martinez died, he became bedridden and the
management of his taxi business passed on to his mother who was his only surviving heir. It will also be noted that despite the
information given by the mother that she will sell the business and extend separation benefits to complainants, no such thing
occurred. Instead, she replaced complainants with a new set of drivers (See Complainants' Position paper, p. 25, Record). [13]
 The above findings, however, were culled from mere allegations in private respondents' position paper. But mere allegation is
not evidence.[14] It is a basic rule in evidence that each party must prove his affirmative allegation. [15] In Opulencia Ice Plant and
Storage v. NLRC[16] we ruled that no particular form of evidence is required to prove the existence of an employer-employee
relationship. Any competent and relevant evidence to prove the relationship may be admitted. In that case, the relationship was
sufficiently proved by testimonial evidence. In the present case, however, private respondents simply assumed the continuance of an
employer-employee relationship between them and petitioner, when she took over the operation of thebusiness after the death of her
son Raul Martinez, without any supporting evidence. Consequently, we cannot sustain for lack of basis the factual finding of
respondent NLRC on the existence of employer-employee relationship between petitioner and private respondents. Clearly, such
finding emanates from grave abuse of discretion. With this conclusion, consideration of the issue on illegal dismissal becomes futile
and irrelevant.
WHEREFORE, the petition is GRANTED. The Decision of respondent National Labor Relations Commission dated 28
January 1994 ordering petitioner Nelly Acta Martinez to grant respondents separation pay as well as its Order of 30 September 1994
denying reconsideration is SET ASIDE. The Decision of the Labor Arbiter dated 30 August 1993 dismissing the complaint
is REINSTATED.
The temporary restraining order issued on 11 October 1995 is made PERMANENT.
SO ORDERED.

OSCAR VILLAMARIA, JR. G.R. No. 165881

Petitioner,
Present:

PANGANIBAN, C.J.,
Chairperson,
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ.
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of Court assailing the Decision[1] and
Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 78720 which set aside the Resolution[3] of the National Labor Relations
Commission (NLRC) in NCR-30-08-03247-00, which in turn affirmed the Decision[4] of the Labor Arbiter dismissing the complaint
filed by respondent Jerry V. Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship engaged in assembling passenger
jeepneys with a public utility franchise to operate along the Baclaran-Sucat route. By 1995, Villamaria stopped assembling jeepneys
and retained only nine, four of which he operated by employing drivers on a boundary basis. One of those drivers was respondent
Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante remitted P450.00 a day to Villamaria as boundary and kept
the residue of his daily earnings as compensation for driving the vehicle. In August 1997, Villamaria verbally agreed to sell the
jeepney to Bustamante under the boundary-hulog scheme, where Bustamante would remit to Villarama P550.00 a day for a period of
four years; Bustamante would then become the owner of the vehicle and continue to drive the same under Villamarias franchise. It
was also agreed that Bustamante would make a downpayment of P10,000.00.

On August 7, 1997, Villamaria executed a contract entitled Kasunduan ng Bilihan ng Sasakyan sa Pamamagitan ng
Boundary-Hulog[5] over the passenger jeepney with Plate No. PVU-660, Chassis No. EVER95-38168-C and Motor No. SL-
26647. The parties agreed that if Bustamante failed to pay the boundary-hulog for three days, Villamaria Motors would hold on to the
vehicle until Bustamante paid his arrears, including a penalty of P50.00 a day; in case Bustamante failed to remit the daily boundary-
hulog for a period of one week, the Kasunduan would cease to have legal effect and Bustamante would have to return the vehicle to
Villamaria Motors.
 Under the Kasunduan, Bustamante was prohibited from driving the vehicle without prior authority from Villamaria
Motors. Thus, Bustamante was authorized to operate the vehicle to transport passengers only and not for other purposes. He was also
required to display an identification card in front of the windshield of the vehicle; in case of failure to do so, any fine that may be
imposed by government authorities would be charged against his account. Bustamante further obliged himself to pay for the cost of
replacing any parts of the vehicle that would be lost or damaged due to his negligence. In case the vehicle sustained serious damage,
Bustamante was obliged to notify Villamaria Motors before commencing repairs. Bustamante was not allowed to wear slippers, short
pants or undershirts while driving. He was required to be polite and respectful towards the passengers. He was also obliged to notify
Villamaria Motors in case the vehicle was leased for two or more days and was required to attend any meetings which may be called
from time to time. Aside from the boundary-hulog, Bustamante was also obliged to pay for the annual registration fees of the vehicle
and the premium for the vehicles comprehensive insurance. Bustamante promised to strictly comply with the rules and regulations
imposed by Villamaria for the upkeep and maintenance of the jeepney.

Bustamante continued driving the jeepney under the supervision and control of Villamaria. As agreed upon, he made daily remittances
of P550.00 in payment of the purchase price of the vehicle. Bustamante failed to pay for the annual registration fees of the vehicle, but
Villamaria allowed him to continue driving the jeepney.

In 1999, Bustamante and other drivers who also had the same arrangement with Villamaria Motors failed to pay their
respective boundary-hulog. This prompted Villamaria to serve a Paalala,[6] reminding them that under the Kasunduan, failure to pay
the daily boundary-hulog for one week, would mean their respective jeepneys would be returned to him without any complaints. He
warned the drivers that the Kasunduan would henceforth be strictly enforced and urged them to comply with their obligation to avoid
litigation.

On July 24, 2000, Villamaria took back the jeepney driven by Bustamante and barred the latter from driving the vehicle.

On August 15, 2000, Bustamante filed a Complaint[7] for Illegal Dismissal against Villamaria and his wife Teresita. In his
Position Paper,[8] Bustamante alleged that he was employed by Villamaria in July 1996 under the boundary system, where he was
required to remit P450.00 a day. After one year of continuously working for them, the spouses Villamaria presented
the Kasunduan for his signature, with the assurance that he (Bustamante) would own the jeepney by March 2001 after paying P550.00
in daily installments and that he would thereafter continue driving the vehicle along the same route under the same franchise. He
further narrated that in July 2000, he informed the Villamaria spouses that the surplus engine of the jeepney needed to be replaced, and
was assured that it would be done. However, he was later arrested and his drivers license was confiscated because apparently, the
replacement engine that was installed was taken from a stolen vehicle. Due to negotiations with the apprehending authorities, the
jeepney was not impounded. The Villamaria spouses took the jeepney from him on July 24, 2000, and he was no longer allowed to
drive the vehicle since then unless he paid them P70,000.00.

Bustamante prayed that judgment be rendered in his favor, thus:

WHEREFORE, in the light of the foregoing, it is most respectfully prayed that judgment be rendered
ordering the respondents, jointly and severally, the following:

1. Reinstate complainant to his former position without loss of seniority rights and execute a Deed of Sale
in favor of the complainant relative to the PUJ with Plate No. PVU-660;

2. Ordering the respondents to pay backwages in the amount of P400.00 a day and other benefits computed
from July 24, 2000 up to the time of his actual reinstatement;

3. Ordering respondents to return the amount of P10,000.00 and P180,000.00 for the expenses incurred by
the complainant in the repair and maintenance of the subject jeep;
 4. Ordering the respondents to refund the amount of One Hundred (P100.00) Pesos per day counted
from August 7, 1997 up to June 2000 or a total of P91,200.00;

5. To pay moral and exemplary damages of not less than P200,000.00;

6. Attorneys fee[s] of not less than 10% of the monetary award.

Other just and equitable reliefs under the premises are also being prayed for.[9]

In their Position Paper,[10] the spouses Villamaria admitted the existence of the Kasunduan, but alleged that Bustamante failed to pay
the P10,000.00 downpayment and the vehicles annual registration fees. They further alleged that Bustamante eventually failed to
remit the requisite boundary-hulog of P550.00 a day, which prompted them to issue the Paalaala. Instead of complying with his
obligations, Bustamante stopped making his remittances despite his daily trips and even brought the jeepney to the province without
permission. Worse, the jeepney figured in an accident and its license plate was confiscated; Bustamante even abandoned the vehicle
in a gasoline station in Sucat, Paraaque Cityfor two weeks. When the security guard at the gasoline station requested that the vehicle
be retrieved and Teresita Villamaria asked Bustamante for the keys, Bustamante told her: Di kunin ninyo. When the vehicle was
finally retrieved, the tires were worn, the alternator was gone, and the battery was no longer working.

Citing the cases of Cathedral School of Technology v. NLRC[11] and Canlubang Security Agency Corporation v. NLRC,[12] the
spouses Villamaria argued that Bustamante was not illegally dismissed since the Kasunduan executed on August 7, 1997 transformed
the employer-employee relationship into that of vendor-vendee. Hence, the spouses concluded, there was no legal basis to hold them
liable for illegal dismissal. They prayed that the case be dismissed for lack of jurisdiction and patent lack of merit.

In his Reply,[13] Bustamante claimed that Villamaria exercised control and supervision over the conduct of his
employment. He maintained that the rulings of the Court in National Labor Union v. Dinglasan,[14] Magboo v.
Bernardo,[15] and Citizen's League of Free Workers v. Abbas[16] are germane to the issue as they define the nature of the
owner/operator-driver relationship under the boundary system. He further reiterated that it was the Villamaria spouses who presented
the Kasunduan to him and that he conformed thereto only upon their representation that he would own the vehicle after four
years. Moreover, it appeared that the Paalala was duly received by him, as he, together with other drivers, was made to affix his
signature on a blank piece of paper purporting to be an attendance sheet.

On March 15, 2002, the Labor Arbiter rendered judgment[17] in favor of the spouses Villamaria and ordered the complaint dismissed
on the following ratiocination:

Respondents presented the contract of Boundary-Hulog, as well as the PAALALA, to prove their claim that
complainant violated the terms of their contract and afterwards abandoned the vehicle assigned to him. As against
the foregoing, [the] complaints (sic) mere allegations to the contrary cannot prevail.

Not having been illegally dismissed, complainant is not entitled to damages and attorney's fees. [18]

Bustamante appealed the decision to the NLRC,[19] insisting that the Kasunduan did not extinguish the employer-employee
relationship between him and Villamaria.While he did not receive fixed wages, he kept only the excess of the boundary-hulog which
he was required to remit daily to Villamaria under the agreement. Bustamante maintained that he remained an employee because he
was engaged to perform activities which were necessary or desirable to Villamarias trade or business.
The NLRC rendered judgment[20] dismissing the appeal for lack of merit, thus:

WHEREFORE, premises considered, complainant's appeal is hereby DISMISSED for reasons not stated in
the Labor Arbiter's decision but mainly on a jurisdictional issue, there being none over the subject matter of the
controversy.[21]
 The NLRC ruled that under the Kasunduan, the juridical relationship between Bustamante and Villamaria was that of vendor
and vendee, hence, the Labor Arbiter had no jurisdiction over the complaint. Bustamante filed a Motion for Reconsideration, which
the NLRC resolved to deny on May 30, 2003.[22]

Bustamante elevated the matter to the CA via Petition for Certiorari, alleging that the NLRC erred

I
IN DISMISSING PETITIONERS APPEAL FOR REASON NOT STATED IN THE LABOR ARBITERS
DECISION, BUT MAINLY ON JURISDICTIONAL ISSUE;

II
IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE WHEN IT DECLARED THAT THE
RELATIONSHIP WHICH WAS ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE
RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE PROTECTIVE MANTLE OF OUR
LABOR LAWS.[23]

Bustamante insisted that despite the Kasunduan, the relationship between him and Villamaria continued to be that of employer-
employee and as such, the Labor Arbiter had jurisdiction over his complaint. He further alleged that it is common knowledge that
operators of passenger jeepneys (including taxis) pay their drivers not on a regular monthly basis but on commission or boundary
basis, or even the boundary-hulog system. Bustamante asserted that he was dismissed from employment without any lawful or just
cause and without due notice.
For his part, Villamaria averred that Bustamante failed to adduce proof of their employer-employee relationship. He further
pointed out that the Dinglasan case pertains to the boundary system and not the boundary-hulog system, hence inapplicable in the
instant case. He argued that upon the execution of the Kasunduan, the juridical tie between him and Bustamante was transformed into
a vendor-vendee relationship. Noting that he was engaged in the manufacture and sale of jeepneys and not in the business of
transporting passengers for consideration, Villamaria contended that the daily fees which Bustmante paid were actually periodic
installments for the the vehicle and were not the same fees as understood in the boundary system. He added that the boundary-
hulog plan was basically a scheme to help the driver-buyer earn money and eventually pay for the unit in full, and for the owner to
profit not from the daily earnings of the driver-buyer but from the purchase price of the unit sold. Villamaria further asserted that the
apparently restrictive conditions in the Kasunduan did not mean that the means and method of driver-buyers conduct was controlled,
but were mere ways to preserve the vehicle for the benefit of both parties: Villamaria would be able to collect the agreed purchase
price, while Bustamante would be assured that the vehicle would still be in good running condition even after four years. Moreover,
the right of vendor to impose certain conditions on the buyer should be respected until full ownership of the property is vested on the
latter.Villamaria insisted that the parallel circumstances obtaining in Singer Sewing Machine Company v. Drilon[24] has analogous
application to the instant issue.

In its Decision[25] dated August 30, 2004, the CA reversed and set aside the NLRC decision. The fallo of the decision reads:

UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned resolutions of the NLRC must
be, as they are hereby are, REVERSED AND SET ASIDE, and judgment entered in favor of petitioner:

1. Sentencing private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante
separation pay computed from the time of his employment up to the time of termination based on
the prevailing minimum wage at the time of termination; and,

2. Condemning private respondent Oscar Villamaria, Jr. to pay petitioner Jerry

Bustamante back wages computed from the time of his dismissal up to March 2001 based on the
prevailing minimum wage at the time of his dismissal.

Without Costs.

SO ORDERED.[26]
 The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamantes complaint. Under the Kasunduan, the
relationship between him and Villamaria was dual: that of vendor-vendee and employer-employee. The CA ratiocinated that
Villamarias exercise of control over Bustamantes conduct in operating the jeepney is inconsistent with the formers claim that he was
not engaged in the transportation business. There was no evidence that petitioner was allowed to let some other person drive the
jeepney.

The CA further held that, while the power to dismiss was not mentioned in the Kasunduan, it did not mean that Villamaria
could not exercise it. It explained that the existence of an employment relationship did not depend on how the worker was paid but on
the presence or absence of control over the means and method of the employees work. In this case, Villamarias directives (to drive
carefully, wear an identification card, don decent attire, park the vehicle in his garage, and to inform him about provincial trips, etc.)
was a means to control the way in which Bustamante was to go about his work. In view of Villamarias supervision and control as
employer, the fact that the boundary represented installment payments of the purchase price on the jeepney did not remove the parties
employer-employee relationship.

While the appellate court recognized that a weeks default in paying the boundary-hulog constituted an additional cause for
terminating Bustamantes employment, it held that the latter was illegally dismissed. According to the CA, assuming that Bustamante
failed to make the required payments as claimed by Villamaria, the latter nevertheless failed to take steps to recover the unit and
waited for Bustamante to abandon it. It also pointed out that Villamaria neither submitted any police report to support his claim that
the vehicle figured in a mishap nor presented the affidavit of the gas station guard to substantiate the claim that Bustamante abandoned
the unit.

Villamaria received a copy of the decision on September 8, 2004, and filed, on September 17, 2004, a motion for
reconsideration thereof. The CA denied the motion in a Resolution[27] dated November 2, 2004, and Villamaria received a copy
thereof on November 8, 2004.

Villamaria, now petitioner, seeks relief from this Court via petition for review on certiorari under Rule 65 of the Rules of Court,
alleging that the CA committed grave abuse of its discretion amounting to excess or lack of jurisdiction in reversing the decision of the
Labor Arbiter and the NLRC. He claims that the CA erred in ruling that the juridical relationship between him and respondent under
the Kasunduan was a combination of employer-employee and vendor-vendee relationships. The terms and conditions of
the Kasunduan clearly state that he and respondent Bustamante had entered into a conditional deed of sale over the jeepney; as such,
their employer-employee relationship had been transformed into that of vendor-vendee. Petitioner insists that he had the right to
reserve his title on the jeepney until after the purchase price thereof had been paid in full.

In his Comment on the petition, respondent avers that the appropriate remedy of petitioner was an appeal via a petition for review
on certiorari under Rule 45 of the Rules of Court and not a special civil action of certiorari under Rule 65. He argues that petitioner
failed to establish that the CA committed grave abuse of its discretion amounting to excess or lack of jurisdiction in its decision, as the
said ruling is in accord with law and the evidence on record.

Respondent further asserts that the Kasunduan presented to him by petitioner which provides for a boundary-hulog scheme
was a devious circumvention of the Labor Code of the Philippines. Respondent insists that his juridical relationship with petitioner is
that of employer-employee because he was engaged to perform activities which were necessary or desirable in the usual business of
petitioner, his employer.

In his Reply, petitioner avers that the Rules of Procedure should be liberally construed in his favor; hence, it behooves the Court to
resolve the merits of his petition.
We agree with respondents contention that the remedy of petitioner from the CA decision was to file a petition for review
on certiorari under Rule 45 of the Rules of Court and not the independent action of certiorari under Rule 65. Petitioner had 15 days
from receipt of the CA resolution denying his motion for the reconsideration within which to file the petition under Rule 45.[28] But
instead of doing so, he filed a petition for certiorari under Rule 65 on November 22, 2004, which did not, however, suspend the
running of the 15-day reglementary period; consequently, the CA decision became final and executory upon the lapse of the
reglementary period for appeal. Thus, on this procedural lapse, the instant petition stands to be dismissed. [29]

It must be stressed that the recourse to a special civil action under Rule 65 of the Rules of Court is proscribed by the remedy of appeal
under Rule 45. As the Court elaborated in Tomas Claudio Memorial College, Inc. v. Court of Appeals:[30]

We agree that the remedy of the aggrieved party from a decision or final resolution of the CA is to file a petition for
review on certiorari under Rule 45 of the Rules of Court, as amended, on questions of facts or issues of law within
fifteen days from notice of the said resolution. Otherwise, the decision of the CA shall become final and executory.
The remedy under Rule 45 of the Rules of Court is a mode of appeal to this Court from the decision of the CA. It is
a continuation of the appellate process over the original case. A review is not a matter of right but is a matter of
judicial discretion. The aggrieved party may, however, assail the decision of the CA via a petition
for certiorari under Rule 65 of the Rules of Court within sixty days from notice of the decision of the CA or its
resolution denying the motion for reconsideration of the same. This is based on the premise that in issuing the
assailed decision and resolution, the CA acted with grave abuse of discretion, amounting to excess or lack of
jurisdiction and there is no plain, speedy and adequate remedy in the ordinary course of law. A remedy is considered
plain, speedy and adequate if it will promptly relieve the petitioner from the injurious effect of the judgment and the
acts of the lower court.

The aggrieved party is proscribed from filing a petition for certiorari if appeal is available, for the remedies of
appeal and certiorari are mutually exclusive and not alternative or successive.The aggrieved party is, likewise,
barred from filing a petition for certiorari if the remedy of appeal is lost through his negligence. A petition
for certiorari is an original action and does not interrupt the course of the principal case unless a temporary
restraining order or a writ of preliminary injunction has been issued against the public respondent from further
proceeding. A petition for certiorari must be based on jurisdictional grounds because, as long as the respondent
court acted within its jurisdiction, any error committed by it will amount to nothing more than an error of judgment
which may be corrected or reviewed only by appeal.[31]

However, we have also ruled that a petition for certiorari under Rule 65 may be considered as filed under Rule 45,
conformably with the principle that rules of procedure are to be construed liberally, provided that the petition is filed within the
reglementary period under Section 2, Rule 45 of the Rules of Court, and where valid and compelling circumstances warrant that the
petition be resolved on its merits.[32] In this case, the petition was filed within the reglementary period and petitioner has raised an
issue of substance: whether the existence of a boundary-hulog agreement negates the employer-employee relationship between the
vendor and vendee, and, as a corollary, whether the Labor Arbiter has jurisdiction over a complaint for illegal dismissal in such case.
We resolve these issues in the affirmative.

The rule is that, the nature of an action and the subject matter thereof, as well as, which court or agency of the government
has jurisdiction over the same, are determined by the material allegations of the complaint in relation to the law involved and the
character of the reliefs prayed for, whether or not the complainant/plaintiff is entitled to any or all of such reliefs. [33] A prayer or
demand for relief is not part of the petition of the cause of action; nor does it enlarge the cause of action stated or change the legal
effect of what is alleged.[34] In determining which body has jurisdiction over a case, the better policy is to consider not only the status
or relationship of the parties but also the nature of the action that is the subject of their controversy. [35]

Article 217 of the Labor Code, as amended, vests on the Labor Arbiter exclusive original jurisdiction only over the
following:

x x x (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the
parties for decision without extension, even in the absence of stenographic notes, the following cases involving all
workers, whether agricultural or non-agricultural:
 1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wage, rates of pay, hours of work, and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;
5. Cases arising from violation of Article 264 of this Code, including questions
involving the legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and

maternity benefits, all other claims, arising from employer-employee relationship, including
those of persons in domestic or household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining agreements, and those
arising from the interpretation or enforcement of company personnel policies shall be disposed of by the Labor
Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be provided in said
agreements.

In the foregoing cases, an employer-employee relationship is an indispensable jurisdictional requisite.[36] The jurisdiction of
Labor Arbiters and the NLRC under Article 217 of the Labor Code is limited to disputes arising from an employer-employee
relationship which can only be resolved by reference to the Labor Code, other labor statutes or their collective bargaining
agreement.[37] Not every dispute between an employer and employee involves matters that only the Labor Arbiter and the NLRC can
resolve in the exercise of their adjudicatory or quasi-judicial powers. Actions between employers and employees where the employer-
employee relationship is merely incidental is within the exclusive original jurisdiction of the regular courts. [38] When the principal
relief is to be granted under labor legislation or a collective bargaining agreement, the case falls within the exclusive jurisdiction of the
Labor Arbiter and the NLRC even though a claim for damages might be asserted as an incident to such claim.[39]

We agree with the ruling of the CA that, under the boundary-hulog scheme incorporated in the Kasunduan, a dual juridical
relationship was created between petitioner and respondent: that of employer-employee and vendor-vendee. The Kasunduan did not
extinguish the employer-employee relationship of the parties extant before the execution of said deed.
As early as 1956, the Court ruled in National Labor Union v. Dinglasan[40] that the jeepney owner/operator-driver
relationship under the boundary system is that of employer-employee and not lessor-lessee. This doctrine was affirmed, under similar
factual settings, in Magboo v. Bernardo[41] and Lantaco, Sr. v. Llamas,[42] and was analogously applied to govern the relationships
between auto-calesa owner/operator and driver,[43] bus owner/operator and conductor,[44] and taxi owner/operator and driver.[45]

The boundary system is a scheme by an owner/operator engaged in transporting passengers as a common carrier to primarily
govern the compensation of the driver, that is, the latters daily earnings are remitted to the owner/operator less the excess of the
boundary which represents the drivers compensation. Under this system, the owner/operator exercises control and supervision over the
driver. It is unlike in lease of chattels where the lessor loses complete control over the chattel leased but the lessee is still ultimately
responsible for the consequences of its use. The management of the business is still in the hands of the owner/operator, who, being the
holder of the certificate of public convenience, must see to it that the driver follows the route prescribed by the franchising and
regulatory authority, and the rules promulgated with regard to the business operations. The fact that the driver does not receive fixed
wages but only the excess of the boundary given to the owner/operator is not sufficient to change the relationship between
them. Indubitably, the driver performs activities which are usually necessary or desirable in the usual business or trade of the
owner/operator.[46]
 Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount which represented the
boundary of petitioner as well as respondents partial payment (hulog) of the purchase price of the jeepney.
Respondent was entitled to keep the excess of his daily earnings as his daily wage. Thus, the daily remittances also had a dual
purpose: that of petitioners boundary and respondents partial payment (hulog) for the vehicle. This dual purpose was expressly stated
in the Kasunduan. The well-settled rule is that an obligation is not novated by an instrument that expressly recognizes the old one,
changes only the terms of payment, and adds other obligations not incompatible with the old provisions or where the new contract
merely supplements the previous one. [47] The two obligations of the respondent to remit to petitioner the boundary-hulog can stand
together.

In resolving an issue based on contract, this Court must first examine the contract itself, keeping in mind that when the terms
of the agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall
prevail.[48] The intention of the contracting parties should be ascertained by looking at the words used to project their intention, that
is, all the words, not just a particular word or two or more words standing alone. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. [49] The parts and
clauses must be interpreted in relation to one another to give effect to the whole. The legal effect of a contract is to be determined from
the whole read together.[50]

Under the Kasunduan, petitioner retained supervision and control over the conduct of the respondent as driver of the jeepney,
thus:

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng boundary hulog ay ang mga
sumusunod:

1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG PANIG ang sasakyan ipinagkatiwala

sa kanya ng TAUHAN NG UNANG PANIG.

2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG IKALAWANG PANIG sa

paghahanapbuhay bilang pampasada o pangangalakal sa malinis at maayos na pamamaraan.

3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG IKALAWANG PANIG sa mga bagay
na makapagdudulot ng kahihiyan, kasiraan o pananagutan sa TAUHAN NG UNANG PANIG.

4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng UNANG PANIG.

5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang maglagay ng ID Card sa harap ng

windshield upang sa pamamagitan nito ay madaliang malaman kung ang nagmamaneho ay awtorisado ng
VILLAMARIA MOTORS o hindi.

6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng] multa kung sakaling mahuli ang
sasakyang ito na hindi nakakabit ang ID card sa wastong lugar o anuman kasalanan o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang materyales o piyesa na papalitan ng

nasira o nawala ito dahil sa kanyang kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang hinuhulugan pa rin ng TAUHAN NG
IKALAWANG PANIG ang nasabing sasakyan.

9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang ipinagkaloob ng TAUHAN NG UNANG

PANIG, ang TAUHAN NG IKALAWANG PANIG ay obligadong itawag ito muna sa VILLAMARIA MOTORS bago
ipagawa sa alin mang Motor Shop na awtorisado ng VILLAMARIA MOTORS.
 10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa panahon ng pamamasada na ang
nagmamaneho ay naka-tsinelas, naka short pants at nakasando lamang. Dapat ang nagmamaneho ay laging nasa
maayos ang kasuotan upang igalang ng mga pasahero.

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang driver ay magpapakita ng
magandang asal sa mga pasaheros at hindi dapat magsasalita ng masama kung sakali man may pasaherong
pilosopo upang maiwasan ang anumang kaguluhan na maaaring kasangkutan.

12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang TAUHAN NG IKALAWANG
PANIG sa loob ng tatlong (3) araw ay ang opisina ng VILLAMARIA MOTORS ang may karapatang mangasiwa ng
nasabing sasakyan hanggang matugunan ang lahat ng
responsibilidad. Ang halagang dapat bayaran sa opisina ay may karagdagang multa ng P50.00 sa araw-araw na
ito ay nasa pangangasiwa ng VILLAMARIA MOTORS.

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG
sa loob ng isang linggo ay nangangahulugan na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng
TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG.

14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa rehistro, comprehensive insurance
taon-taon at kahit anong uri ng aksidente habang ito ay hinuhulugan pa sa TAUHAN NG UNANG PANIG.

15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo sa pangkalahatang pagpupulong

ng VILLAMARIA MOTORS sa tuwing tatawag ang mga tagapangasiwa nito upang maipaabot ang anumang
mungkahi sa ikasusulong ng samahan.

16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng mga patakaran na magkakaroon
ng pagbabago o karagdagan sa mga darating na panahon at hindi magiging hadlang sa lahat ng mga balakin ng
VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at ikakatibay ng Samahan.

17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging buwaya sa pasahero upang hindi
kainisan ng kapwa driver at maiwasan ang pagkakasangkot sa anumang gulo.

18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang kalagayan lalo na sa umaga bago
pumasada, at sa hapon o gabi naman ay sisikapin mapanatili ang kalinisan nito.

19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng dalawa o higit pang araw sa
lalawigan ay dapat lamang na ipagbigay alam muna ito sa VILLAMARIA MOTORS upang maiwasan ang mga
anumang suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang pakikipag-unahan sa kaninumang

sasakyan upang maiwasan ang aksidente.

21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon sasabihin sa VILLAMARIA MOTORS
mabuti man or masama ay iparating agad ito sa kinauukulan at iwasan na iparating ito kung [kani-kanino]
lamang upang maiwasan ang anumang usapin. Magsadya agad sa opisina ng VILLAMARIA MOTORS.

22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso kong sinasang-ayunan at buong
sikap na pangangalagaan ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan at gagamitin lamang ito
sa paghahanapbuhay at wala nang iba pa. [51]

The parties expressly agreed that petitioner, as vendor, and respondent, as vendee, entered into a contract to sell the jeepney
on a daily installment basis of P550.00 payable in four years and that petitioner would thereafter become its owner. A contract is one
of conditional sale, oftentimes referred to as contract to sell, if the ownership or title over the
property sold is retained by the vendor, and is not passed to the vendee unless and until there is full payment of the purchase price
and/or upon faithful compliance with the other terms and conditions that may lawfully be stipulated. [52] Such payment or satisfaction
of other preconditions, as the case may be, is a positive suspensive condition, the failure of which is not a breach of contract, casual or
serious, but simply an event that would prevent the obligation of the vendor to convey title from acquiring binding force. [53] Stated
differently, the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and
uncertain event so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had
never existed.[54] The vendor may extrajudicially terminate the operation of the contract, refuse conveyance, and retain the sums or
installments already received, where such rights are expressly provided for.[55]

Under the boundary-hulog scheme, petitioner retained ownership of the jeepney although its material possession was vested
in respondent as its driver. In case respondent failed to make his P550.00 daily installment payment for a week, the agreement would
be of no force and effect and respondent would have to return the jeepney to petitioner; the employer-employee relationship would
likewise be terminated unless petitioner would allow respondent to continue driving the jeepney on a boundary basis of P550.00 daily
despite the termination of their vendor-vendee relationship.

The juridical relationship of employer-employee between petitioner and respondent was not negated by the foregoing
stipulation in the Kasunduan, considering that petitioner retained control of respondents conduct as driver of the vehicle. As correctly
ruled by the CA:

The exercise of control by private respondent over petitioners conduct in operating the jeepney he was
driving is inconsistent with private respondents claim that he is, or was, not engaged in the transportation business;
that, even if petitioner was allowed to let some other person drive the unit, it was not shown that he did so; that the
existence of an employment relation is not dependent on how the worker is paid but on the presence or absence of
control over the means and method of the work; that the amount earned in excess of the boundary hulog is
equivalent to wages; and that the fact that the power of dismissal was not mentioned in the Kasunduan did not mean
that private respondent never exercised such power, or could not exercise such power.

Moreover, requiring petitioner to drive the unit for commercial use, or to wear an identification card, or to
don a decent attire, or to park the vehicle in Villamaria Motors garage, or to inform Villamaria Motors about the fact
that the unit would be going out to the province for two days of more, or to drive the unit carefully, etc. necessarily
related to control over the means by which the petitioner was to go about his work; that the ruling applicable here is
not Singer Sewing Machine but National Labor Union since the latter case involved jeepney owners/operators and
jeepney drivers, and that the fact that the boundary here represented installment payment of the purchase price on
the jeepney did not withdraw the relationship from that of employer-employee, in view of the overt presence of
supervision and control by the employer.[56]

Neither is such juridical relationship negated by petitioners claim that the terms and conditions in the Kasunduan relative to
respondents behavior and deportment as driver was for his and respondents benefit: to insure that respondent would be able to pay the
requisite daily installment of P550.00, and that the vehicle would still be in good condition despite the lapse of four years. What is
primordial is that petitioner retained control over the conduct of the respondent as driver of the jeepney.

Indeed, petitioner, as the owner of the vehicle and the holder of the franchise, is entitled to exercise supervision and control
over the respondent, by seeing to it that the route provided in his franchise, and the rules and regulations of the Land Transportation
Regulatory Board are duly complied with. Moreover, in a business establishment, an identification card is usually provided not just as
a security measure but to mainly identify the holder thereof as a bona fide employee of the firm who issues it.[57]

As respondents employer, it was the burden of petitioner to prove that respondents termination from employment was for a
lawful or just cause, or, at the very least, that respondent failed to make his daily remittances of P550.00 as boundary. However,
petitioner failed to do so. As correctly ruled by the appellate court:

It is basic of course that termination of employment must be effected in accordance with law. The just and
authorized causes for termination of employment are enumerated under Articles 282, 283 and 284 of the Labor
Code.

Parenthetically, given the peculiarity of the situation of the parties here, the default in the remittance of the
boundary hulog for one week or longer may be considered an additional cause for termination of employment. The
reason is because the Kasunduan would be of no force and effect in the event that the purchaser failed to remit the
boundary hulog for one week. The Kasunduan in this case pertinently stipulates:
 13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY
HULOG sa loob ng isang linggo ay NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at
kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG
UNANG PANIG na wala ng paghahabol pa.

Moreover, well-settled is the rule that, the employer has the burden of proving that the dismissal of an employee is
for a just cause. The failure of the employer to discharge this burden means that the dismissal is not justified and that
the employee is entitled to reinstatement and back wages.

In the case at bench, private respondent in his position paper before the Labor Arbiter, alleged that
petitioner failed to pay the miscellaneous fee of P10,000.00 and the yearly registration of the unit; that petitioner
also stopped remitting the boundary hulog, prompting him (private respondent) to issue a Paalala, which petitioner
however ignored; that petitioner even brought the unit to his (petitioners) province without informing him (private
respondent) about it; and that petitioner eventually abandoned the vehicle at a gasoline station after figuring in an
accident. But private respondent failed to substantiate these allegations with solid, sufficient proof. Notably, private
respondents allegation viz, that he retrieved the vehicle from the gas station, where petitioner abandoned it,
contradicted his statement in the Paalala that he would enforce the provision (in the Kasunduan) to the effect that
default in the remittance of the boundary hulog for one week would result in the forfeiture of the
unit. The Paalala reads as follows:

Sa lahat ng mga kumukuha ng sasakyan

Sa pamamagitan ng BOUNDARY HULOG

Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular na ang paragrapo 13 na nagsasaad
na kung hindi kayo makapagbigay ng Boundary Hulog sa loob ng isang linggo ay kusa ninyong ibabalik and
nasabing sasakyan na inyong hinuhulugan ng wala ng paghahabol pa.

Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong ipatutupad ang nasabing Kasunduan
kayat aking pinaaalala sa inyong lahat na tuparin natin ang nakalagay sa kasunduan upang maiwasan natin ito.

Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo makaabot pa sa korte kung
sakaling hindi ninyo isasauli ang inyong sasakyan na hinuhulugan na ang mga magagastos ay kayo pa ang
magbabayad sapagkat ang hindi ninyo pagtupad sa kasunduan ang naging dahilan ng pagsampa ng kaso.

Sumasainyo

Attendance: 8/27/99
(The Signatures appearing herein
include (sic) that of petitioners) (Sgd.)
OSCAR VILLAMARIA, JR.

If it were true that petitioner did not remit the boundary hulog for one week or more, why did private respondent not
forthwith take steps to recover the unit, and why did he have to wait for petitioner to abandon it?

On another point, private respondent did not submit any police report to support his claim that petitioner really
figured in a vehicular mishap. Neither did he present the affidavit of the guard from the gas station to substantiate
his claim that petitioner abandoned the unit there.[58]

Petitioners claim that he opted not to terminate the employment of respondent because of magnanimity is negated by his
(petitioners) own evidence that he took the jeepney from the respondent only on July 24, 2000.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP
No. 78720 is AFFIRMED. Costs against petitioner.

SO ORDERED.
EQUITABLE BANKING CORPORATION, Chairman MANUEL L. MORALES, President & Director GEORGE L. GO,
Vice-Chairman & Director RICARDO J. ROMULO, Vice-Chairman & Director JOHN C.B. GO, Director
HERMINIO B. BANICO, Director FRANCISCO C. CHUA, Director PETER GO PAILIAN, Director RICARDO C.
LEONG, Director JULIUS T. LIMPE and Director PEDRO A. ORTIZ, petitioners, vs. HON. NATIONAL LABOR
RELATIONS COMMISSION, First Division, and RICARDO L. SADAC, respondents.

DECISION
VITUG, J.:

In the special civil action of certiorari, the petitioners, in order to have a reasonable chance of success, must be able to come up
with proof that the tribunal, board or officer against whom the petition is brought has, in the exercise of judicial or quasi-
judicial function, acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of
jurisdiction. In the instant petition, the Court is asked to rule against the National Labor Relations Commission (NLRC) in holding
private respondent Ricardo L. Sadac, Vice-President for the Legal Department and General Counsel of petitioner Equitable Banking
Corporation, to have been a regular employee of the bank whose services could only be terminated in accordance with the Labor
Code. Petitioner bank submits that the services of private respondent, its legal counsel, could be dispensed with at anytime pursuant to
the provision on the cessation of lawyer-client relationship under Rule 138 of the Rules of Court.
The facts, essentially, do not appear to be in dispute.
Private respondent Sadac was appointed, effective 01 August 1981, Vice-President for the Legal Department of petitioner bank
by its then President, Manuel L. Morales, with a monthly salary of P8,000.00, plus an allowance of P4,500.00 and a Christmas bonus
equivalent to a two-month salary.[1] On 08 December 1981, private respondent was also designated as the banks General
Counsel. Private respondent had these functions:

"Duties & Responsibilities

- Provides legal advice to the Board of Directors and Management of the Bank.

- Takes charge of all Bank cases arising from bank transactions and rendering opinions on legal questions in connection
therewith.

- Insures effective conduct of litigation, collection of past due accounts, and investigation of irregularities and other legal
matters affecting the interest of the Bank.

- Participates in action of major character, financing, amendments to the Articles of Incorporation and By-laws of the Bank,
changes in corporate structures acquisition and disposal of important segments of enterprises or real estate,
determination of action to comply with statutory and other government requirements.

- Directs, plans, coordinates and maintains supervision and control over the staff of the Legal Department.

- Provides for and insures proper documentation and notarization of all Bank transactions.

- Assumes primary responsibility in the account of continuing research and studies on questions of law affecting the Bank
and its subsidiary corporations and the formulation and development of legal opinions.

- Recommends appointments, promotions, transfers and disciplinary actions involving Legal Department personnel.

- Establishes and maintains effective discipline, work performances, high level of morale and cooperation among the staff.

- Performs such other duties as may be assigned from time to time by the President and the Board of Directors."[2]

The turning point in the relationship among the parties surfaced, when, on 26 June 1989, nine lawyers [3] of the banks Legal
Department, who were all under private respondent, addressed a letter-petition to the Chairman of the Board of Directors, accusing
private respondent of abusive conduct, inefficiency, mismanagement, ineffectiveness and indecisiveness.[4]The individual written
complaints of each of the nine lawyers were attached to the letter-petition. Private respondent was furnished with a copy of the letter.
Private respondent promptly responded and manifested an intention to file criminal, civil and administrative charges against the
nine lawyers. Petitioner Morales, by now Chairman of the Board of Directors, called the contending lawyers to a conference in his
office in an attempt to resolve their differences. The meeting held on 29 June 1989, in the presence of Vice-President for Personnel
and Human Relations Dean Alejandro C. Reyes, apparently did not amount to much and only resulted, it would seem, in a broad
commitment of the parties to implement the existing procedures and practices in the Legal Department. [5] The dialogue was marked, in
fact, by rancorous and very heated altercation between private respondent and his subordinates. Mr. Morales considered the problem
serious enough to merit the Boards attention. In its meeting on 11 July 1989, the Board of Directors, apprised of the situation, adopted
a resolution directing one of its directors, petitioner Herminio B. Banico, to look further into the matter and to determine a course of
action for the best interest of the bank.
Petitioner Banico met with the complaining nine lawyers on 17 July 1989. He was warned that if private respondent were to be
retained in his position, the lawyers would resign en masse. The following day, Mr. Banico saw private respondent. The latter denied
the charges leveled against him. Although the two would appear to have explored various alternatives and avenues to solve the crisis,
nothing positive, however, came out of their meeting. Convinced that reconciliation was out of the question, Mr. Banico, on 08 August
1989, submitted a report to the Board of Directors with these findings:

a. ABUSIVE CONDUCT

There is no doubt at all, in my mind that the charge of `abusive conduct against Atty. Sadac, in his treatment in varying degrees, of the
complaining lawyers, is true, as this is supported by overwhelming evidence. Atty. Sadac himself, in effect, admitted this when he
proferred his apologies in the presence of the Chairman in the `confrontation held in the latters office.

b. MISMANAGEMENT

In my study and investigation, I found abundant evidence to support a finding of mismanagement of the Legal Department by Atty.
Sadac.

c. INEFFICIENCY, INEFFECTIVENESS, AND INDECISIVENESS

The above specific charges are each proven and/or established by the same nature of evidence. [6]

Two days later, or on 10 August 1989, Mr. Morales issued a memorandum to private respondent which, among other things,
pertinently stated:

"x x x. The Board, however, feels that because during all its existence of almost forty (40) years, the Bank never had in its employ any
senior officer who had compelled it to resort to the unfortunate, sorry and nasty spectacle of conducting a formal hearing (which of
course is distasteful to all parties concerned) of whatever charge such as the one lodged against you just to terminate your services,
consonant with the due process requirements of the Constitution, the Labor Code, the Implementing Regulations thereof and other
pertinent laws, it has chosen the more compassionate option of waiting for your voluntary resignation from your employ with the
Bank.

In the meantime, since all the lawyers under you, by petitioning for a change in leadership of the department despite the fact that all
these lawyers have all been hired and promoted to their positions upon your recommendation, have thus shown lack of confidence in
you, the Board feels it has no reason to continue reposing confidence in you and therefore elected to exercise its prerogative as your
client, under the rules of client and lawyer relationship to direct Atty. William R. Veto, Legal Counsel of the Bank these many years to
appear in substitution of you in all the cases in which you are presently appearing as counsel of record for the Bank. For this purpose,
the Bank as your client, therefore, instructs you to deliver the folders of pleadings and documents of all cases you are now personally
handling and submit a list of all the cases where you appear as the counsel of record for the bank and the corresponding titles thereof
not later than the close of office hours on Tuesday, August 15, 1989 so that the Legal Counsel of the Bank, Atty. William R. Veto,
could file his substitution of appearance in all said cases where you are counsel of record. Atty. Veto has already been instructed and
authorized by the Board to take over from you the functions that you are now performing in the Legal Department." [7]

Reacting to the above memorandum, private respondent, on 14 August 1989 addressed a letter to Board Chairman Morales,
furnishing the other members of the Board, to the effect that the report of Mr. Banico contained libelous statements and that the
implementation of the chairmans memorandum would lead to an illegal dismissal. Pointing out that he could not now in conscience
resign in the face of Mr. Banicos baseless and libelous findings, private respondent requested for a full hearing by the Board of
Directors so that he could clear his name.[8]
On 17 August 1989, petitioner Ricardo J. Romulo, Board Vice-Chairman, answered private respondent. Mr. Romulo stressed
that private respondents services were not terminated by the Board which, instead, was merely exercising its managerial prerogative to
control, conduct (its) business in the manner (it) deems fit and to regulate the same. In reply to private respondents request for a
formal hearing, Mr. Romulo reiterated the Boards decision that it would be to the best interest of all concerned if the distasteful
spectacle" of a hearing would not be resorted to "in order to adhere to (the bank's) long standing compassionate policy." [9] Mr. Romulo
also said:

"We would like to emphasize that our decision as a Board did not dismiss you from the service of the Bank. All that the Board is
saying to you is that it has lost its confidence in you and therefore it is patiently awaiting your resignation of course with your right of
retirement pay in accordance with the policy adopted by the Bank under these situations. Trust or confidence like love are feelings
which emanate from the heart and, as the song goes, `once a heart is torn apart it is never the same again.' So also, confidence like a
tooth once pulled can never be restored." [10]

In his memorandum of 28 August 1989 to the members of the Board, private respondent again made a request for a full hearing
and cautioned that, under Section 31 of the Corporation Code, individual members of the Board could be held accountable for voting
or assenting to patently unlawful acts of the corporation.
On 31 August 1989, Mr. Romulo wrote back expressing, in part, as follows:

"7. The charge that you have been constructively dismissed is likewise without basis because as we said before, you are free to remain
in the employ of the bank if you so wish, even if the bank were to incur the tremendous expense of continuing to pay your high salary
just so it can continue to adhere to its compassionate policy of avoiding ruining the future of any of its officers by a possible dismissal
for cause which is certainly bound to leak to the public. It is believed, however, that there is no law which can compel an employer to
give any of his employees any particular work at all." [11]

Mr. Romulo stated that the banks confidence on private respondent had been lost most especially in the light of (his) threats and that
the latter could bring the matter up in the appropriate forum. [12]
Undaunted, private respondent, in his memorandum of 07 September 1989 to the individual members of the Board of Directors,
persisted in his request for a formal investigation.[13]Having been unheeded, private respondent, on 09 November 1989, filed with the
Manila arbitration branch of the NLRC, a complaint, docketed NLRC Case No. 00-11-05252-89, against herein petitioners for illegal
dismissal and damages.[14]
After learning of the filing of the complaint, the Board of Directors, on 21 November 1989, adopted Resolution No. 5803
terminating the services of private respondent in view of his belligerence" and the Board's "honest belief that the relationship" between
private respondent and petitioner bank was one of "client and lawyer." Private respondent was removed from his office occupancy in
the bank and ordered disentitled, starting 10 August 1989, to any compensation and other benefits. The Board instructed management
to take the necessary steps to "defend itself and all the members of the Board of Directors" from private respondent's complaint. [15]
Pursuing their stand that the association between the bank and private respondent was one of a client-lawyer relationship, herein
petitioners filed a motion to dismiss the complaint with the NLRC on the ground of lack of jurisdiction. [16] Private respondent,
opposing the motion, insisted on the existence of an employer-employee relationship between them.[17] In their reply, petitioners added
another ground for seeking a dismissal of the complaint, i.e., that under the ruling in Besa vs. PNB,[18] the rule governing the duration
of private respondents term was provided for by the Rules of Court and not by the Labor Code.[19]
Following an exchange of position papers and other pleadings, Labor Arbiter Jovencio Ll. Mayor, Jr., on 02 October 1990,
rendered a decision dismissing the complaint for lack of merit.[20] The Labor Arbiter was convinced that the relationship between
petitioner bank and private respondent was one of lawyer-client based on the functions of the latter which only a lawyer with highly
trained legal mind, can effectively discharge.[21] He distinguished the instant controversy from the situation in Hydro Resources
Contractors Corporation vs. Pagalilauan[22] in that herein private respondent, he said, only performed functions encompassed by the
practice of law while in Hydro Resources, the involved lawyer was a mere legal assistant tasked with certain duties not all that
related to the practice of law. The Labor Arbiter concluded that the complaint stated no cause of action because a lawyer-client
relationship should instead be governed by Section 26, Rule 138, of the Rules of Court. On whether or not there were valid grounds to
terminate the services of private respondent, the Labor Arbiter, noting the letter-petition of the nine subordinate lawyers of private
respondent, said:

"x x x. The truth and veracity of these complaints were respectively affirmed under oath by each and every one of these nine
subordinate lawyers in their individual affidavits (Annexes `1-J' to `1-R', inclusive), (Ibid). From these individual statements, it can be
culled that complainant has been charged, among others, with committing such acts as shouting and insulting lawyers even in the
presence of clients, having frequent outbursts of temper, being indecisive even on simple and fundamental questions, of devoting time
to private and personal matters such that he is always out of the office, of being closed and narrow minded to the ideas of
subordinates, and other similar acts. These charges were never refuted by herein complainant and instead narrated a general refutation
x x x."[23]

The Labor Arbiter brushed aside private respondents claim that he was denied due process, holding that private respondent was heard
exhaustively on the matter of the charge lodged against him and that, for valid practical reasons, petitioners were not in a position to
accede to the demand for a formal hearing.[24]
 On appeal, the NLRC concluded differently. On 24 September 1991, the First Division of the NLRC rendered a
resolution[25] reversing the decision of the Labor Arbiter. It held that private respondent was an employee of petitioner bank which
never stated that complainant was an outside counsel for he was never so [26] as against the pronouncement of the Court in Hydro
Resources that distinguished between an in-house counsel and an outside counsel hired on a retainer basis. Certain other
circumstances that likewise did not escape NLRCs attention were that petitioner George L. Go, the banks president,
had enjoined private respondent to attend a bank-sponsored symposium on Japanese investment on 08 September 1989 at the Hotel
Intercontinental; that in petitioners letter of 31 August 1989, private respondent was referred to as an employee; that in another letter,
dated 24 November 1989, petitioner admitted having terminated private respondents employment and requested the return of the 1988
Mitsubishi Galant 1800 which he had acquired through the banks car plan; and that, through a communication of 02 January 1990 of
the Personnel and HRD Department, the bank announced that private respondents employment had been terminated effective 21
November 1989.
Turning to the issue of whether or not the employment of private respondent was terminated for cause, the NLRC held that
because he had not been afforded a hearing in accordance with law, there was no factual basis to support the allegation of loss of
confidence made by petitioners who, instead, had relied on the doctrine of res ipsa loquitor.
The NLRC ruled that private respondent was denied the right to due process with the banks failure to observe the twin
requirements of notice and hearing. The 10th August 1989 memorandum could not have been a substitute for notice because it did not
manifest petitioners intention to dismiss him from employment, and neither the meeting between private respondent and the
complaining lawyers nor those held between private respondent and petitioner Banico could be considered the investigations which
private respondent had consistently sought.
For having been made to undergo unnecessary embarrassment by being stripped of his functions and made to undergo the sad
and painful experience of reporting to office every day doing nothing, the NLRC, citing Sibal vs. Notre Dame of Greater
Manila,[27] awarded damages.
The NLRC, thereby concluded:

"WHEREFORE, in view of all the foregoing considerations, let the Decision of October 2, 1990 be, as it is hereby, SET ASIDE and a
new one ENTERED declaring the dismissal of the complainant as illegal, and consequently ordering the respondents jointly and
severally to reinstate him to his former position as bank Vice-President and General Counsel without loss of seniority rights and other
privileges, and to pay him full backwages and other benefits from the time his compensation was withheld to his actual reinstatement,
as well as moral damages of P100,000.00, exemplary damages of P50,000.00, and attorney's fees equivalent to Ten Percent (10%) of
the monetary award. Should reinstatement be no longer possible due to strained relations, the respondents are ordered likewise jointly
and severally to grant separation pay at one (1) month per year of service in the total sum of P293,650.00 with backwages and other
benefits from November 16, 1989 to September 15, 1991 (cut-off date subject to adjustment) computed at P1,055,740.48, plus
damages of P100,000.00 (moral damages), P50,000.00 (exemplary damages) and attorney's fees equal to Ten Percent (10%) of all the
monetary award, or a grand total of P1,649,329.53.

SO ORDERED."[28]

Petitioners filed a motion,[29] opposed by private respondent,[30] for a reconsideration of the resolution.
The motion for reconsideration was still pending when private respondent, following an exchange of yet additional pleadings,
filed an urgent ex-parte motion for immediate reinstatement grounded on Article 223 of the Labor Code. [31] On 07 November 1991,
NLRC Executive Clerk Pascual Y. Reyes addressed a communication, with the letterhead of the First Division of the NLRC, to Attys.
Vicente Abad Santos and William R. Veto, counsel for petitioners, which read:

"G R E E T I N G S :

Consistent with the NLRC New Rules and Procedure on Appeal under Republic Act 6715, amending Article 223 of the Labor Code,
RESPONDENT(s) is/are hereby directed within ten (10) calendar days from receipt of this Order:

To immediately reinstate complainant under the same terms and conditions prevailing prior to his dismissal or separation or, at
RESPONDENT(s) option to reinstate him in the payroll, and to submit proof of compliance thereof, otherwise, a Writ of Execution
shall issue."[32]

Petitioners filed a motion to quash the "untitled document" which was claimed to be "highly irregular." Private respondent countered,
on the strength of the ruling in Aris (Phil.) Inc. vs. NLRC,[33] that even before its amendment by Section 12 of R.A. 6715, Article 223
of the Labor Code already allowed execution of decisions of the NLRC pending their appeal to the Secretary of Labor and
Employment, and that, under Section 2, Rule XII, of the New Rules of Procedure of the NLRC, Executive Clerk Reyes could be said
to be performing a function similar or equivalent to that discharged by the Clerk of Court of the Court of Appeals.
 Petitioners, on their part filed an urgent motion for immediate resolution of their motion for reconsideration, [34] on account of
what was felt to be the "dubious legality" of the directive for reinstatement.
Pending the above incidents, particularly the motion for reconsideration of NLRCs resolution that has reversed the Labor
Arbiters decision, petitioners have filed the instant petition for certiorari, with prayer for the issuance of a writ of preliminary
injunction, before this Court. The petition questions the resolution of the NLRC finding that an employer-employee relationship
existed between petitioner bank and private respondent invoking the rulings in Besa vs. PNB[35] and Asis vs. Minister of Labor and
Employment,[36] against that of Hydro Resources Contractors vs. Pagalilauan;[37] that the facts on record do support valid grounds
for terminating the employment of private respondent; and that due process has been duly observed. The petition likewise assails the
NLRC for its monetary awards and in omitting to resolve the allegation of forum-shopping committed by private respondent.
This Court required petitioners to post a cash bond in the amount of P500,000.00 for the issuance of a temporary restraining
order.[38]
Prefatorily, the Court must state that the filing of a motion for reconsideration of a decision of the NLRC is prerequisite to the
elevation of the case to this Court on a petition for certiorari.The rule is aimed at enabling the commission to look into and correct its
error or mistake, if any has been committed, without the precipitate intervention of this Court. [39] The failure to allow that opportunity
for whatever reason is ordinarily a fatal procedural defect that could warrant the dismissal of the petition.[40]
In this case, petitioners, instead of waiting for the resolution by the NLRC of their motion for reconsideration, posthaste filed the
instant petition. Its prematurity notwithstanding, the instant petition for certiorari was given due course in order not to unduly delay
the final disposition of the case considering that the issues involved [41] have heretofore been ventilated practically to the limit by the
parties.
While the Court agrees with private respondent that execution pending appeal may be ordered by the NLRC, [42] it is equally true,
however, that where the dismissed employee's reinstatement would lead to a strained relation between the employer and the employee
or to an atmosphere of antipathy and antagonism, the exception to the twin remedies of reinstatement and payment of backwages can
be invoked and reinstatement, which might become anathema to industrial peace, could be held back pending appeal. [43] Nevertheless,
the Court is not prepared to preempt the NLRC and conclude that the directive for reinstatement is of dubious character. [44] It can be
assumed that had petitioners waited for NLRCs resolution on the motion for reconsideration, the question on the regularity in the
issuance of the directive for reinstatement could have perhaps properly been delved into.
The existence of an employer-employee relationship is, itself, a factual question[45] well within the province of the
NLRC. Considering, nevertheless, that its findings are at odds with the Labor Arbiter, the Court sees it fit to dwell a bit into the
issue.[46]
In determining the existence of an employer-employee relationship, the following elements are considered: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal, and (4) the power to control the employee's
conduct, with the control test generally assuming primacy in the overall consideration. The power of control refers to the existence of
the power and not necessarily to the actual exercise thereof. It is not essential, in other words, for the employer to actually supervise
the performance of duties of the employee; it is enough that the former has the right to wield the power.[47]
The NLRC, in the instant case, based its finding that there existed an employer-employee relationship between petitioner bank
and private respondent on these factual settings:

"It was complainant's understanding with respondent Morales that he would be appointed and assigned to the Legal Department as
vice President with the same salary, privileges and benefits granted by the respondent bank to its ranking senior officers. He was not
hired as lawyer on a retainership basis but as an officer of the bank.

Thus, the complainant was given an appointment as Vice President, Legal Department, effective August 1, 1981, with a monthly
salary of P8,000.00, monthly allowance of P4,500.00, and the usual two months Christmas bonus based on basic salary likewise
enjoyed by the other officers of the bank.

Then, as part of the ongoing organization of the Legal Department, the position of General Counsel of the bank was created and
extended to the complainant. In addition to his duties as Vice President of the bank, the complainant's duties and responsibilities were
so defined as to prove that he was a bank officer working under the supervision of the President and the Board of Directors of the
respondent bank.

In his more than eight years employment with the respondent bank, the complainant was given the usual payslips to evidence his
monthly gross compensation. The respondent bank, as employer, withheld taxes due to the Bureau of Internal Revenue from the
complainant's salary as employee. Moreover, the bank enrolled the complainant as its employee under the Social Security System and
Medicare programs. The complainant contributed to the bank Employees' Provident Fund.
When the respondent bank changed its payroll accounting system in September 1988 by appointing SGV & Co. to handle it and Far
East Bank & Trust Company to pay the salaries and other benefits of Equitable Banking Corporation officers, the complainant was
included as one of corporate officers. Specifically, that there were eleven Far East Bank and Trust Company credit memos starting
October 13, 1988 up to September 13, 1989 received by the complainant from FBTC crediting his salary and Christmas bonus to his
account with FBTC per instruction of the respondent bank.

In as much as the complainant and the lawyers in the Legal Department were receiving salaries and other benefits as other bank
officers and employees, the attorney's fees, documentary and notarial fees earned in the exercise of their profession as in-house
lawyers were not given to or even shared with them, instead all were credited to the income of the bank. In 1987 and 1988, the
complainant and his subordinate lawyers were able to generate by way of attorney's fees, documentary and notarial fees a total income
of P973,028.00 for the bank('s) benefit. In turn, the respondent bank shouldered the professional tax and Integrated Bar of the
Philippines dues of the complainant and his subordinate lawyers. Further proofs that there existed employer-employee relationship
between the respondent bank and the complainant are the following, to wit:

(1) Complainant's monthly attendance, like those of other bank officers, was recorded by the Chief Security Officer and reported to the
Office of the President with copy of the report furnished to the bank Personnel and HRD Department.

(2) Complainant was authorized by the President to sign for and in behalf of the bank contracts covering legal services of lawyers to
be retained by the respondent bank for its branches on periodical retainership basis.

(3) Complainant participated as part of management in annual Management Planning Conferences which started in 1986 on objective-
setting and long-range planning in response to the requirement of the rapidly changing environment.

(4) Respondent bank extended to complainant the benefit (of) a car plan like any other qualified senior officer of the bank.

(5) Respondent bank since 1982 continuously reported and included the complainant as one of its senior officers in its statements of
financial condition holding the position of Vice President. These bank statements have been distributed and circularized to the public,
including bank clients and government entities.

(6) Complainant, like other bank officers, prepared his biographical data for submission to the Central Bank after his assumption of
duties in 1981. Thereafter, and pursuant to the regulations of the Central Bank, he has been required to update annually his
biographical data."[48]

It would virtually be foolhardy to so challenge the NLRC as having committed grave abuse of discretion in coming up with its
above findings. Just to the contrary, NLRC appears to have been rather exhaustive in its examination of this particular question
(existence or absence of an employer-employee relationship between the parties). Substantial evidence, which is the quantum of
evidence required to establish a fact in cases before administrative and quasi-judicial bodies, connotes merely that amount of relevant
evidence which a reasonable mind might accept to be adequate in justifying a conclusion. [49]
The rulings in Besa and Asis, cited by petitioners, could not be all that controlling in this instance. In both cases, the question of
whether or not the parties had an employer-employee relationship was not the focal point of controversy. In Besa, the Court said:

Petitioners reliance on the constitutional provision against removal without cause is misplaced. It is appropriate to invoke it when an
officer or employee in the civil service enjoying a fixed term is made to lose his position without warrant or justification. It certainly
finds no application when the duration of ones term depends on the will of the appointing power. That is so where the position held is
highly confidential in character. Such is the case of the Chief Legal Counsel of respondent Philippine National Bank. That is our
answer to the specific question before us. Our decision is limited to the validity of the action taken by respondent Bank. We do not by
any means intimate an opinion as to the legal consequences attaching to an action similar in character taken by any other office or
agency of the government concerning a lawyer in its staff, especially one who was not employed precisely because of the marked
degree of confidence reposed in him, but rather because of his technical competence.

As far as the petitioner is concerned, however, it is our conclusion that he could not plausibly contend that there was a removal in the
constitutional sense as what did take place was a termination of official relation. Accepting as he did the position of chief legal
adviser, the essence of which is the utmost degree of confidence involving such `close intimacy which insures freedom of intercourse
without embarrassment or freedom from misgivings of betrayals whether of personal trust or official matters, he could not have been
unaware that his term could be cut short any time without giving rise to any alleged infringement of the above constitutional
safeguard. There was no removal which according to such a mandate is only allowable for cause. Hence the lack of persuasive
character of petitioners plea.[50]

And in Asis, the Court held:

The Deputy Minister found that the evidence satisfactorily established that the Centrals suspension of the petitioners and others
monthly ration of gasoline and LPG, had been caused by unavoidable financial constraints; that such a suspension, in line with its
conservation and cost-saving policy, did not in truth effect any significant diminution of said benefits, since the petitioner was
nevertheless entitled to reimbursement of the actual amount of gas consumed; that petitioner had encouraged his co-employees to file
complaints against the Central over the rations issue, and this, as well as his institution of his own actions, had created an atmosphere
of enmity in the Central, and caused the loss by the Central of that trust and confidence in him so essential in a lawyer-client
relationship as that theretofore existing between them; and that under the circumstances, petitioners discharge as the Centrals Legal
Counsel and Head of the Manpower & Services Department was justified. The Deputy Ministers order of dismissal was however
subsequently modified, at the petitioners instance, by decreeing the payment to the latter of separation pay equivalent to one months
salary for every year of service rendered.[51]

It was, in fact, Hydro Resources which directly confronted the issue; there, the Court ruled:

"A lawyer, like any other professional, may very well be an employee of a private corporation or even of the government. It is not
unusual for a big corporation to hire a staff of lawyers as its in-house counsel, pay them regular salaries, rank them in its table of
organization, and otherwise treat them like its other officers and employees. At the same time, it may also contract with a law firm to
act as outside counsel on a retainer basis. The two classes of lawyers often work closely together but one group is made up of
employees while the other is not. A similar arrangement may exist as to doctors, nurses, dentists, public relations practitioners, and
other professionals."[52]

The existence of an employer-employee relationship, between the bank and private respondent brings the case within the
coverage of the Labor Code. Under the Code, an employee may be validly dismissed if these requisites are attendant: (1) the dismissal
is grounded on any of the causes stated in Article 282 of the Labor Code, and (2) the employee has been notified in writing and given
the opportunity to be heard and to defend himself as so required by Section 2 and Section 5, Rule XIV, Book V, of the Implementing
Rules of the Labor Code.[53]
Article 282(c) of the Labor Code provides that "willful breach by the employee of the trust reposed in him by his employer" is a
cause for the termination of employment by an employer. Ordinary breach of trust will not suffice, it must be willful and without
justifiable excuse.[54] This ground must be founded on facts established by the employer who must clearly and convincingly prove by
substantial evidence[55] the facts and incidents upon which loss of confidence in the employee may fairly be made to rest; otherwise,
the dismissal will be rendered illegal.[56]
Petitioners' stated loss of trust and confidence on private respondent was spawned by the complaints leveled against him by the
lawyers in his department. The letter-complaint signed by the nine lawyers read:

June 26, 1989

Mr. Manuel L. Morales

Chairman, Board of Directors
Equitable Banking Corporation

Sir:

With utmost respect, we have taken the liberty of seeking your intercession on the problems besetting the Legal Department.

For a long time, we have kept silent, containing within us the abusive conduct and inefficiency of our department head, Atty. Ricardo
L. Sadac, if only to preserve cohesion among us. But we have reached the breaking point where we could endure no more except to
speak out. We realize the gravity of our action and its possible repercussions but we only have ourselves to blame if we remained
silent.

Atty. Sadac's insults to the lawyers which are totally uncalled for and made even in the presence of clients are simply too much for a
fellow lawyer. His outburst of temper on inconsequential matters have now become commonplace in the department. His
mismanagement, ineffectiveness as a head and indecisiveness on basic legal questions have adversely affected the smooth operation of
the department and the output of the lawyers. He berates rather than inspires, delays rather than facilitates. Each lawyer's complaint
are (sic) attached hereto attached (sic) as Annexes `A', `A-1' to `A-8'.

At present, we are disgruntled on how he runs the department and our morale is at its ebb. While our only desire is to work under an
auspicious environment and under an effective head, we could not do so because of the General Counsel.
We, therefore, respectfully pray for an immediate change in the department leadership in order to pave the way for a more effective
system, a new image for the department, and restore professionalism and the dignity of the lawyers.

Please accept our assurances that the interest of the bank is primordial to us as we pledge our total commitment and unflinching
loyalty to this institution.

Thank you."[57]

Concededly, a wide latitude of discretion is given an employer in terminating the employment of managerial employees on the
ground of breach of trust and confidence. [58] In order to constitute a just cause for dismissal, however, the act complained of must be
related to the performance of the duties of the employee such as would show him to be thereby unfit to continue working for the
employer.[59] Here, the grievances of the lawyers, in main, refer to what are perceived to be certain objectionable character traits of
private respondent. Although petitioners have charged private respondent with allegedly mishandling two cases in his long service
with the bank, it is quite apparent that private respondent would not have been asked to resign had it not been for the letter-complaint
of his associates in the Legal Department.
Confident that no employer-employee existed between the bank and private respondent, petitioners have put aside the procedural
requirements for terminating ones employment, i.e., (a) a notice apprising the employee of the particular acts or omissions for which
his dismissal is sought, and (b) another notice informing the employee of the employer's decision to dismiss him. [60] Failure to comply
with these requirements taints the dismissal with illegality. This procedure is mandatory, any judgment reached by management
without that compliance can be considered void and inexistent. [61] While it is true that the essence of due process is simply an
opportunity to be heard or, as applied in administrative proceedings, an opportunity to explain one's side, [62] meetings in the nature of
consultation and conferences such as the case here, however, may not be valid substitutes for the proper observance of notice and
hearing.[63]
Moral damages are recoverable when the dismissal of an employee is attended by bad faith or fraud or constitutes an act
oppressive to labor, or is done in a manner contrary to good morals, good customs or public policy. Exemplary damages may be
awarded if the dismissal is effected in a wanton, oppressive or malevolent manner. [64]
The Court has deliberated closely on this case and, after reviewing all the facts and circumstances heretofore described, it is its
considered view that petitioners have not been motivated by malice or bad faith nor have they acted in wanton, oppressive or
malevolent manner such as to warrant a judgment against them for moral and exemplary damages. Malice or bad faith, the lesser evil
of the two, the Court has once said, implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively
operating with furtive design or ill will.[65]
It, too, then follows that the individual petitioners may not be held solidarily liable with the bank. In Santos vs. NLRC,[66] the
Court has explained the rule quite elaborately; thus:

"A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general,
from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to
warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate veil. As a rule, this situation might
arise when a corporation is used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out
similar other unjustifiable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law. In Tramat Mercantile,
Inc., vs. Court of Appeals [238 SCRA 14, 19], the Court has collated the settled instances when, without necessarily piercing the veil
of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to wit: When -

"`(1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c)
for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;

"`(2) He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;

"`(3) He agrees to hold himself personally and solidarily liable with the corporation; or

"`(4) He is made, by a specific provision of law, to personally answer for his corporate action.

The case of petitioner is way off these exceptional instances. It is not even shown that petitioner has had a direct hand in the dismissal
of private respondent enough to attribute to him (petitioner) a patently unlawful act while acting for the corporation. Neither can
Article 289 of the Labor Code be applied since this law specifically refers only to the imposition of penalties under the Code. x x x.
It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the
payment of wages and money claims to its employees. In A.C. RansomLabor Union-CCLU vs. NLRC [142 SCRA 269], for instance,
the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation could be held personally liable
for nonpayment of backwages for (i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for
evading payment of back wages." In the absence of a clear identification of the officer directly responsible for failure to pay the
backwages, the Court considered the President of the corporation as such officer. The case was cited in Chua vs. NLRC [182 SCRA
353] in holding personally liable the vice-president of the company, being the highest and most ranking official of the corporation next
to the President who was dismissed, for the latter's claim for unpaid wages.

A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction
personal liability on the part of the company officer. In A.C. Ransom, the corporate entity was a family corporation and execution
against it could not be implemented because of the disposition posthaste of its leviable assets evidently in order to evade its just and
due obligations.The doctrine of piercing the veil of corporate fiction was thus clearly appropriate. Chua likewise involved another
family corporation, and this time the conflict was between two brothers occupying the highest ranking positions in the company.
There were incontrovertible facts which pointed to extreme personal animosity that resulted, evidently in bad faith, in the easing out
from the company of one of the brothers by the other.

The basic rule is still that which can be deduced from the Courts pronouncement in Sunio vs. National Labor Relations
Commission [127 SCRA 390]; thus:

`We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company
and CIPI for the payment of the backwages of private respondents. This is reversible error. The Assistant Regional Directors Decision
failed to disclose the reason why he was made personally liable. Respondents, however, alleged as grounds thereof, his the being
owner of one-half (1/2) interest of said corporation, and his alleged arbitrary dismissal of private respondents.

`Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no
evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was
within the scope of his authority and was a corporate act.

`It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well
as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of
all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality.Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private respondents back
salaries.

The Court, to be sure, did appear to have deviated somewhat in Gudez vs. NLRC [183 SCRA 644]; however, it should be clear from
our recent pronouncement in Mam Realty Development Corporation and Manuel Centeno vs. NLRC [244 SCRA 797] that
the Sunio doctrine still prevails.[67]

For having violated private respondents right to due process private respondent shall, considering the attendant circumstances
particularly his repeated, but unheeded, request for a hearing, be entitled to an amount of P5,000.00.
The allegation that private respondent was guilty of forum-shopping deserves scant consideration. Suffice it said that, for forum-
shopping to exist, both actions should involve a common transaction with essentially the same facts and circumstances and raise
identical causes of action, subject matter and issues.[68] Certainly, the filing by private respondent of a criminal action for libel during
the pendency of this illegal dismissal case could not constitute forum-shopping.
The controversy spawning this case has generated not too little personal animosities. [69] Reinstatement, which is the consequence
of illegal dismissal, has markedly been rendered undesirable. Private respondent shall, instead, be entitled to backwages from the time
of his dismissal until reaching sixty (60) years of age (1995) [70] and, thereupon, to retirement benefits in accordance with Article 287
of the Labor Code and Section 14,[71] Rule 1, Book VI, of the Implementing Rules of the Labor Code. [72]
WHEREFORE, the herein questioned Resolution of the NLRC is AFFIRMED with the following MODIFICATIONS: That
private respondent shall be entitled to backwages from termination of employment until turning sixty (60) years of age (in 1995) and,
thereupon, to retirement benefits in accordance with law; that private respondent shall be paid an additional amount of P5,000.00; that
the award of moral and exemplary damages are deleted; and that the liability herein pronounced shall be due from petitioner bank
alone, the other petitioners being absolved from solidary liability. No costs.
SO ORDERED.
G.R. No. 102467 Case Digest
G.R. No. 102467 June 13, 1997
Equitable Banking COrporation, etc., petitioners,
vs Hon. NLRC and Ricardo Sadac, respondents.
Ponente: Vitug

Facts:
Petition to go against the decision of NLRC in holding that Sadac as the VP for the legal department of bank a regular employee of the
bank.

Sadac was appointed VP for the legal department of bank with monthly salary, allowance and Christmas bonus, with specific legal
tasks to perform for the bank.

Later, nine lawyers of the bank's legal department addressed a petition-letter to the chairman of the board of directors accusing Sadac
of abusive conduct, inefficiency, mismanagement, ineffectiveness and indecisiveness.

Sadac promptly minifested to file criminal, civil and administrative chrges against the nine lawyers. Then Chairman Morales called
the lawyers in attempt to resolve the differences, but didn't result positively. Morales in the board meeting then apprised the situation,
directors adopted a resolution directing one of the directors (Banico) to look further into the matter and determine the best course of
action for the bank.

Banico after his meetings with the lawyers and exploring various alternatives to solve the crisis, but failed wrote to the board of
directors his findings affirming the charges against Sadac. Morales then sent Sadac a memorandum informing him of the charge, the
findings of Banico and the expression of the boards' loss of confidence upon him and that they advise and awaits for Sadac's
resignation.

In reaction to the memorandum, Sadac addressed a letter to Morales with copies furnish to the directors, stating that the findings of
Banico contained libelous statements and the decision of the board will amount to illegal dismissal; with request for a full hearing by
the directors so he could clear his name.

Vice-chairman Romulo answered Sadac that they are exercising its managerial prerogative to control, conduct business in the manner
deems fit and to regulate the same.

In reaction thereto, Sadac requested for a full hearing and formal investigation but the same remained unheeded. On 9 November
1989, respondent Sadac filed a complaint for illegal dismissal with damages against petitioner Bank and individual members of the
Board of Directors thereof. After learning of the filing of the complaint, petitioner Bank terminated the services of respondent Sadac.
Finally, on 10 August 1989, Sadac was removed from his office.

Labor Arbiter rendered decision that Sadac’s termination was illegal and entitled to reinstatement and payment of full back wages.
NLRC affirmed the decision upon appeal by the Bank. Sadac filed for execution of judgment where it gave its computation which
amounted to P 6.03 M representing his back wages and the increases he should have received during the time he was illegally
dismissed. The Bank opposed to Sadac’s computation. The Labor Arbiter favor Sadac’s computation. NLRC, upon appeal by the
bank, reversed the decision. CA reversed the decision of NLRC. Hence, this petition.

Issue: Whether or not the computation of back wages shall include the general increases.

Ruling:
To resolve the issue, the court revisits its pronouncements on the interpretation of the term backwages. Backwages in general are
granted on grounds of equity for earnings which a worker or employee has lost due to his illegal dismissal. It is not private
compensation or damages but is awarded in furtherance and effectuation of the public objective of the Labor Code. Nor is it a redress
of a private right but rather in the nature of a command to the employer to make public reparation for dismissing an employee either
due to the former’s unlawful act or bad faith.

In the case of Bustamante v. National Labor Relations Commission, It said that the Court deems it appropriate to reconsider such
earlier ruling on the computation of back wages by now holding that conformably with the evident legislative intent as expressed in
Rep. Act No. 6715, back wages to be awarded to an illegally dismissed employee, should not, as a general rule, be diminished or
reduced by the earnings derived by him elsewhere during the period of his illegal dismissal. The underlying reason for this ruling is
that the employee, while litigating the legality (illegality) of his dismissal, must still earn a living to support himself and family, while
full backwages have to be paid by the employer as part of the price or penalty he has to pay for illegally dismissing his employee. The
clear legislative intent of the amendment in Rep. Act No. 6715 is to give more benefits to workers than was previously given them.
Thus, a closer adherence to the legislative policy behind Rep. Act No. 6715 points to "full backwages" as meaning exactly that, i.e.,
without deducting from backwages the earnings derived elsewhere by the concerned employee during the period of his illegal
dismissal.

There is no vested right to salary increases. Sadac may have received salary increases in the past only proves fact of receipt but does
not establish a degree of assuredness that is inherent in backwages. The conclusion is that Sadac’s computation of his full backwages
which includes his prospective salary increases cannot be permitted.

MAKATI HABERDASHERY, INC., JORGE LEDESMA and CECILIO G. INOCENCIO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, CEFERINA J. DIOSANA (Labor Arbiter, Department of Labor and
Employment, National Capital Region), SANDIGAN NG MANGGAGAWANG PILIPINO (SANDIGAN)-TUCP and its
members, JACINTO GARCIANO, ALFREDO C. BASCO, VICTORIO Y. LAURETO, ESTER NARVAEZ, EUGENIO L.
ROBLES, BELEN N. VISTA, ALEJANDRO A. ESTRABO, VEVENCIO TIRO, CASIMIRO ZAPATA, GLORIA
ESTRABO, LEONORA MENDOZA, MACARIA G. DIMPAS, MERILYN A. VIRAY, LILY OPINA, JANET SANGDANG,
JOSEFINA ALCOCEBA and MARIA ANGELES, respondents.

FERNAN, C.J.:

This petition for certiorari involving two separate cases filed by private respondents against herein petitioners assails the decision of
respondent National Labor Relations Commission in NLRC CASE No. 7-2603-84 entitled "Sandigan Ng Manggagawang Pilipino
(SANDIGAN)-TUCP etc., et al. v. Makati Haberdashery and/or Toppers Makati, et al." and NLRC CASE No. 2-428-85 entitled
"Sandigan Ng Manggagawang Pilipino (SANDIGAN)-TUCP etc., et al. v. Toppers Makati, et al.", affirming the decision of the Labor
Arbiter who jointly heard and decided aforesaid cases, finding: (a) petitioners guilty of illegal dismissal and ordering them to reinstate
the dismissed workers and (b) the existence of employer-employee relationship and granting respondent workers by reason thereof
their various monetary claims.

The undisputed facts are as follows:

Individual complainants, private respondents herein, have been working for petitioner Makati Haberdashery, Inc. as tailors,
seamstress, sewers, basters (manlililip) and "plantsadoras". They are paid on a piece-rate basis except Maria Angeles and Leonila
Serafina who are paid on a monthly basis. In addition to their piece-rate, they are given a daily allowance of three (P 3.00) pesos
provided they report for work before 9:30 a.m. everyday.

Private respondents are required to work from or before 9:30 a.m. up to 6:00 or 7:00 p.m. from Monday to Saturday and during peak
periods even on Sundays and holidays.

On July 20, 1984, the Sandigan ng Manggagawang Pilipino, a labor organization of the respondent workers, filed a complaint
docketed as NLRC NCR Case No. 7-2603-84 for (a) underpayment of the basic wage; (b) underpayment of living allowance; (c) non-
payment of overtime work; (d) non-payment of holiday pay; (e) non-payment of service incentive pay; (f) 13th month pay; and (g)
benefits provided for under Wage Orders Nos. 1, 2, 3, 4 and 5. 1

During the pendency of NLRC NCR Case No. 7-2603-84, private respondent Dioscoro Pelobello left with Salvador Rivera, a
salesman of petitioner Haberdashery, an open package which was discovered to contain a "jusi" barong tagalog. When confronted,
Pelobello replied that the same was ordered by respondent Casimiro Zapata for his customer. Zapata allegedly admitted that he copied
the design of petitioner Haberdashery. But in the afternoon, when again questioned about said barong, Pelobello and Zapata denied
ownership of the same. Consequently a memorandum was issued to each of them to explain on or before February 4, 1985 why no
action should be taken against them for accepting a job order which is prejudicial and in direct competition with the business of the
company. 2 Both respondents allegedly did not submit their explanation and did not report for work. 3 Hence, they were dismissed by
petitioners on February 4, 1985. They countered by filing a complaint for illegal dismissal docketed as NLRC NCR Case No. 2-428-
85 on February 5, 1985. 4

On June 10, 1986, Labor Arbiter Ceferina J. Diosana rendered judgment, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in NLRC NCR Case No. 2-428-85 finding respondents guilty of illegal
dismissal and ordering them to reinstate Dioscoro Pelobello and Casimiro Zapata to their respective or similar
positions without loss of seniority rights, with full backwages from July 4, 1985 up to actual reinstatement. The
charge of unfair labor practice is dismissed for lack of merit.
 In NLRC NCR Case No. 7-26030-84, the complainants' claims for underpayment re violation of the minimum wage
law is hereby ordered dismissed for lack of merit.

Respondents are hereby found to have violated the decrees on the cost of living allowance, service incentive leave
pay and the 13th Month Pay. In view thereof, the economic analyst of the Commission is directed to compute the
monetary awards due each complainant based on the available records of the respondents retroactive as of three
years prior to the filing of the instant case.

SO ORDERED. 5

From the foregoing decision, petitioners appealed to the NLRC. The latter on March 30, 1988 affirmed said decision but limited the
backwages awarded the Dioscoro Pelobello and Casimiro Zapata to only one (1) year. 6

After their motion for reconsideration was denied, petitioners filed the instant petition raising the following issues:

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTS

BETWEEN PETITIONER HABERDASHERY AND RESPONDENTS WORKERS.

II

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS WORKERS ARE ENTITLED TO
MONETARY CLAIMS DESPITE THE FINDING THAT THEY ARE NOT ENTITLED TO MINIMUM WAGE.

III

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS PELOBELLO AND ZAPATA WERE
ILLEGALLY DISMISSED. 7

The first issue which is the pivotal issue in this case is resolved in favor of private respondents. We have repeatedly held in countless
decisions that the test of employer-employee relationship is four-fold: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct. It is the so called "control test"
that is the most important element. 8 This simply means the determination of whether the employer controls or has reserved the right
to control the employee not only as to the result of the work but also as to the means and method by which the same is to be
accomplished. 9

The facts at bar indubitably reveal that the most important requisite of control is present. As gleaned from the operations of petitioner,
when a customer enters into a contract with the haberdashery or its proprietor, the latter directs an employee who may be a tailor,
pattern maker, sewer or "plantsadora" to take the customer's measurements, and to sew the pants, coat or shirt as specified by the
customer. Supervision is actively manifested in all these aspects — the manner and quality of cutting, sewing and ironing.

Furthermore, the presence of control is immediately evident in this memorandum issued by Assistant Manager Cecilio B. Inocencio,
Jr. dated May 30, 1981 addressed to Topper's Makati Tailors which reads in part:

4. Effective immediately, new procedures shall be followed:

A. To follow instruction and orders from the undersigned Roger Valderama, Ruben Delos Reyes and Ofel Bautista.
Other than this person (sic) must ask permission to the above mentioned before giving orders or instructions to the
tailors.

B. Before accepting the job orders tailors must check the materials, job orders, due dates and other things to
maximize the efficiency of our production. The materials should be checked (sic) if it is matched (sic) with the
sample, together with the number of the job order.

C. Effective immediately all job orders must be finished one day before the due date. This can be done by proper
scheduling of job order and if you will cooperate with your supervisors. If you have many due dates for certain day,
advise Ruben or Ofel at once so that they can make necessary adjustment on due dates.
 D. Alteration-Before accepting alteration person attending on customs (sic) must ask first or must advise the tailors
regarding the due dates so that we can eliminate what we call 'Bitin'.

E. If there is any problem regarding supervisors or co-tailor inside our shop, consult with me at once settle the
problem. Fighting inside the shop is strictly prohibited. Any tailor violating this memorandum will be subject to
disciplinary action.

For strict compliance. 10

From this memorandum alone, it is evident that petitioner has reserved the right to control its employees not only as to the result but
also the means and methods by which the same are to be accomplished. That private respondents are regular employees is further
proven by the fact that they have to report for work regularly from 9:30 a.m. to 6:00 or 7:00 p.m. and are paid an additional allowance
of P 3.00 daily if they report for work before 9:30 a.m. and which is forfeited when they arrive at or after 9:30 a.m. 11

Since private respondents are regular employees, necessarily the argument that they are independent contractors must fail. As
established in the preceding paragraphs, private respondents did not exercise independence in their own methods, but on the contrary
were subject to the control of petitioners from the beginning of their tasks to their completion. Unlike independent contractors who
generally rely on their own resources, the equipment, tools, accessories, and paraphernalia used by private respondents are supplied
and owned by petitioners. Private respondents are totally dependent on petitioners in all these aspects.

Coming now to the second issue, there is no dispute that private respondents are entitled to the Minimum Wage as mandated by
Section 2(g) of Letter of Instruction No. 829, Rules Implementing Presidential Decree No. 1614 and reiterated in Section 3(f), Rules
Implementing Presidential Decree 1713 which explicitly states that, "All employees paid by the result shall receive not less than the
applicable new minimum wage rates for eight (8) hours work a day, except where a payment by result rate has been established by the
Secretary of Labor. ..." 12 No such rate has been established in this case.

But all these notwithstanding, the question as to whether or not there is in fact an underpayment of minimum wages to private
respondents has already been resolved in the decision of the Labor Arbiter where he stated: "Hence, for lack of sufficient evidence to
support the claims of the complainants for alleged violation of the minimum wage, their claims for underpayment re violation of the
Minimum Wage Law under Wage Orders Nos. 1, 2, 3, 4, and 5 must perforce fall." 13

The records show that private respondents did not appeal the above ruling of the Labor Arbiter to the NLRC; neither did they file any
petition raising that issue in the Supreme Court. Accordingly, insofar as this case is concerned, that issue has been laid to rest. As to
private respondents, the judgment may be said to have attained finality. For it is a well-settled rule in this jurisdiction that "an appellee
who has not himself appealed cannot obtain from the appellate court-, any affirmative relief other than the ones granted in the decision
of the court below. " 14

As a consequence of their status as regular employees of the petitioners, they can claim cost of living allowance. This is apparent from
the provision defining the employees entitled to said allowance, thus: "... All workers in the private sector, regardless of their position,
designation or status, and irrespective of the method by which their wages are paid. " 15

Private respondents are also entitled to claim their 13th Month Pay under Section 3(e) of the Rules and Regulations Implementing
P.D. No. 851 which provides:

Section 3. Employers covered. — The Decree shall apply to all employers except to:

xxx xxx xxx

(e) Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed
amount for performing a specific work, irrespective of the time consumed in the performance thereof, except where
the workers are paid on piece-rate basis in which case the employer shall be covered by this issuance insofar as
such workers are concerned. (Emphasis supplied.)

On the other hand, while private respondents are entitled to Minimum Wage, COLA and 13th Month Pay, they are not entitled to
service incentive leave pay because as piece-rate workers being paid at a fixed amount for performing work irrespective of time
consumed in the performance thereof, they fall under one of the exceptions stated in Section 1(d), Rule V, Implementing Regulations,
Book III, Labor Code. For the same reason private respondents cannot also claim holiday pay (Section 1(e), Rule IV, Implementing
Regulations, Book III, Labor Code).
With respect to the last issue, it is apparent that public respondents have misread the evidence, for it does show that a violation of the
employer's rules has been committed and the evidence of such transgression, the copied barong tagalog, was in the possession of
Pelobello who pointed to Zapata as the owner. When required by their employer to explain in a memorandum issued to each of them,
they not only failed to do so but instead went on AWOL (absence without official leave), waited for the period to explain to expire and
for petitioner to dismiss them. They thereafter filed an action for illegal dismissal on the far-fetched ground that they were dismissed
because of union activities. Assuming that such acts do not constitute abandonment of their jobs as insisted by private respondents,
their blatant disregard of their employer's memorandum is undoubtedly an open defiance to the lawful orders of the latter, a justifiable
ground for termination of employment by the employer expressly provided for in Article 283(a) of the Labor Code as well as a clear
indication of guilt for the commission of acts inimical to the interests of the employer, another justifiable ground for dismissal under
the same Article of the Labor Code, paragraph (c). Well established in our jurisprudence is the right of an employer to dismiss an
employee whose continuance in the service is inimical to the employer's interest. 16

In fact the Labor Arbiter himself to whom the explanation of private respondents was submitted gave no credence to their version and
found their excuses that said barong tagalog was the one they got from the embroiderer for the Assistant Manager who was
investigating them, unbelievable.

Under the circumstances, it is evident that there is no illegal dismissal of said employees. Thus, We have ruled that:

No employer may rationally be expected to continue in employment a person whose lack of morals, respect and
loyalty to his employer, regard for his employer's rules, and appreciation of the dignity and responsibility of his
office, has so plainly and completely been bared.

That there should be concern, sympathy, and solicitude for the rights and welfare of the working class, is meet and
proper. That in controversies between a laborer and his master, doubts reasonably arising from the evidence, or in
the interpretation of agreements and writings should be resolved in the former's favor, is not an unreasonable or
unfair rule. But that disregard of the employer's own rights and interests can be justified by that concern and
solicitude is unjust and unacceptable. (Stanford Microsystems, Inc. v. NLRC, 157 SCRA 414-415 [1988] ).

The law is protecting the rights of the laborer authorizes neither oppression nor self-destruction of the employer. 17More importantly,
while the Constitution is committed to the policy of social justice and the protection of the working class, it should not be supposed
that every labor dispute will automatically be decided in favor of labor. 18

Finally, it has been established that the right to dismiss or otherwise impose discriplinary sanctions upon an employee for just and
valid cause, pertains in the first place to the employer, as well as the authority to determine the existence of said cause in accordance
with the norms of due process. 19

There is no evidence that the employer violated said norms. On the contrary, private respondents who vigorously insist on the
existence of employer-employee relationship, because of the supervision and control of their employer over them, were the very ones
who exhibited their lack of respect and regard for their employer's rules.

Under the foregoing facts, it is evident that petitioner Haberdashery had valid grounds to terminate the services of private respondents.

WHEREFORE, the decision of the National Labor Relations Commission dated March 30, 1988 and that of the Labor Arbiter dated
June 10, 1986 are hereby modified. The complaint filed by Pelobello and Zapata for illegal dismissal docketed as NLRC NCR Case
No. 2-428-85 is dismissed for lack of factual and legal bases. Award of service incentive leave pay to private respondents is deleted.

SO ORDERED.

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,

vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA
NOGUERA, respondents-appellees.

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute:

xxx xxx xxx

 On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct. 19, 1960
by and between Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc., represented by Mr.
Eliseo Canilao as party of the second part, and hereinafter referred to as appellants, the Tourist World Service, Inc.
leased the premises belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch
office. In the said contract the party of the third part held herself solidarily liable with the party of the part for the
prompt payment of the monthly rental agreed on. When the branch office was opened, the same was run by the
herein appellant Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in on the
efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World Service,
Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been informed that
Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow
losing, the Tourist World Service considered closing down its office. This was firmed up by two resolutions of the
board of directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the
office of the manager and vice-president of the Tourist World Service, Inc., Ermita Branch, and the
second,authorizing the corporate secretary to receive the properties of the Tourist World Service then located at the
said branch office. It further appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch
Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it.
As a matter of fact appellants used it since Nov. 1961. Because of this, and to comply with the mandate of the
Tourist World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the
premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the
interests of the Tourist World Service. When neither the appellant Lina Sevilla nor any of her employees could enter
the locked premises, a complaint wall filed by the herein appellants against the appellees with a prayer for the
issuance of mandatory preliminary injunction. Both appellees answered with counterclaims. For apparent lack of
interest of the parties therein, the trial court ordered the dismissal of the case without prejudice.

The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a
quo, in an order dated June 8, 1963, granted permitting her to present evidence in support of her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined,
the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly
heard following which the court a quo ordered both cases dismiss for lack of merit, on the basis of which was
elevated the instant appeal on the following assignment of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT

MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S
ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF
EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT
WAS ONE OF JOINT BUSINESS VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS
ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE
TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT
APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO
THEIR OWN HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S

RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A.
MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA
SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on Ermita;
 2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees TWS or TWS
and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her and
appellee TWS with offices at the Ermita branch office and that she was not an employee of the TWS to the end that
her relationship with TWS was one of a joint business venture appellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and nose
specialist as well as a imediately columnist had been in the travel business prior to the
establishment of the joint business venture with appellee Tourist World Service, Inc. and appellee
Eliseo Canilao, her compadre, she being the godmother of one of his children, with her own
clientele, coming mostly from her own social circle (pp. 3-6 tsn. February 16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. 'A')
covering the premises at A. Mabini St., she expressly warranting and holding [sic] herself
'solidarily' liable with appellee Tourist World Service, Inc. for the prompt payment of the monthly
rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc.,
which had its own, separate office located at the Trade & Commerce Building; nor was she an
employee thereof, having no participation in nor connection with said business at the Trade &
Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own
business (and not for any of the business of appellee Tourist World Service, Inc.) obtained from
the airline companies. She shared the 7% commissions given by the airline companies giving
appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office,
paying for the salary of an office secretary, Miss Obieta, and other sundry expenses, aside from
desicion the office furniture and supplying some of fice furnishings (pp. 15,18 tsn. April 6,1965),
appellee Tourist World Service, Inc. shouldering the rental and other expenses in consideration for
the 3% split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).

6. It was the understanding between them that appellant Mrs. Sevilla would be given the title of
branch manager for appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it
was just a title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao pp. 38-
39 tsn April 61965-testimony of corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply
Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World
Service, Inc. and as such was designated manager.1

xxx xxx xxx

The trial court2 held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being the true
lessee, it was within its prerogative to terminate the lease and padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to
be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent
Court of Appeal 5 rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state:

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN HOLDING
THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND
CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER
EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE
THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD
SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE
THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT)
ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST
DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING
APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL
CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING-
IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20
AND 21 OF THE CIVIL CODE ON RELATIONS.

IV

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING
APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH
TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE
TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC.6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service,
Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether or not the padlocking of the
premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the
relief of damages prayed for and whether or not the evidence for the said appellant supports the contention that the appellee Tourist
World Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the Ermita branch office
of the appellee Tourist World Service, Inc.7 Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere
employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed with the
private respondent, Segundina Noguera. The petitioners contend, however, that relation between the between parties was one of joint
venture, but concede that "whatever might have been the true relationship between Sevilla and Tourist World Service," the Rule of
Law enjoined Tourist World Service and Canilao from taking the law into their own hands, 8 in reference to the padlocking now
questioned.

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that the
relation between the parties was in the character of employer and employee, the courts would have been without jurisdiction to try the
case, labor disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to
statutes then in force. 9

In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general, we have
relied on the so-called right of control test, "where the person for whom the services are performed reserves a right to control not only
the end to be achieved but also the means to be used in reaching such end." 10Subsequently, however, we have considered, in addition
to the standard of right-of control, the existing economic conditions prevailing between the parties, like the inclusion of the employee
in the payrolls, in determining the existence of an employer-employee relationship.11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World Service,
Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the first place, under the contract of
lease covering the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments, an arrangement that
would be like claims of a master-servant relationship. True the respondent Court would later minimize her participation in the lease as
one of mere guaranty, 12 that does not make her an employee of Tourist World, since in any case, a true employee cannot be made to
part with his own money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event, the parties
must be bound by some other relation, but certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein
appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina
Sevilla. 13 Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the
means used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline
bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned
compensation in fluctuating amounts depending on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we said,
employment is determined by the right-of-control test and certain economic parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that is, that
the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence
of such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the
operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the manner in which the business was
run. A joint venture, including a partnership, presupposes generally a of standing between the joint co-venturers or partners, in which
each party has an equal proprietary interest in the capital or property contributed 15 and where each party exercises equal rights in the
conduct of the business.16 furthermore, the parties did not hold themselves out as partners, and the building itself was embellished with
the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World
Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract that the agent
renders services "in representation or on behalf of another.18 In the case at bar, Sevilla solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions.
And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's authority as owner of the
business undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that the ties
had contemplated a principal agent relationship, rather than a joint managament or a partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties,
cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for mutual interest, of
the agent and the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest
in the business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily
liable for the payment of rentals. She continued the business, using her own name, after Tourist World had stopped further operations.
Her interest, obviously, is not to the commissions she earned as a result of her business transactions, but one that extends to the very
subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the
principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to damages.

As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and padlocking incidents.
Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no evidence showing that the Tourist World
Service, Inc. disconnected the telephone lines at the branch office. 20 Yet, what cannot be denied is the fact that Tourist World Service,
Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the disconnection now complained of, it
had clearly condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist World
Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate that contract without notice to its
actual occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a
personal stake in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to
that contract having been explicitly named therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.).
She could not be ousted from possession as summarily as one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner, Lina Sevilla, in
a bad light following disclosures that she had worked for a rival firm. To be sure, the respondent court speaks of alleged business
losses to justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let
alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that following such an
information (that Sevilla was working for another company), Tourist World's board of directors adopted two resolutions abolishing the
office of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office
properties. On January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without notice to
her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked, personally by the respondent
Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service. " 22It is strange indeed that Tourist
World Service, Inc. did not find such a need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would
not pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not
have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely
its business operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be disloyalty on
her part. It is offensive, in any event, to elementary norms of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc.,
should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for "breaches of contract where the
defendant acted ... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its brazen
conduct subsequent to the cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil Code, in
relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage. 24

ART. 2219. Moral damages25 may be recovered in the following and analogous cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had connived with
Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages, 25and P5,000.00 as
nominal 26 and/or temperate27 damages, to be just, fair, and reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent
Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao,
are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum
of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages.

Costs against said private respondents.

SO ORDERED.

ANGELINA FRANCISCO, G.R. No. 170087

Petitioner,
Present:
Panganiban, C.J. (Chairperson),
- versus - Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ.
NATIONAL LABOR RELATIONS
COMMISSION, KASEI CORPORATION,
SEIICHIRO TAKAHASHI, TIMOTEO
ACEDO, DELFIN LIZA, IRENE
BALLESTEROS, TRINIDAD LIZA Promulgated:
and RAMON ESCUETA,
Respondents.
YNARES-SANTIAGO, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Decision and Resolution of
the Court of Appeals dated October 29, 2004 [1] and October 7, 2005,[2] respectively, in CA-G.R. SP No. 78515 dismissing the
complaint for constructive dismissal filed by herein petitioner Angelina Francisco. The appellate court reversed and set aside the
Decision of the National Labor Relations Commission (NLRC) dated April 15, 2003, [3] in NLRC NCR CA No. 032766-02 which
affirmed with modification the decision of the Labor Arbiter dated July 31, 2002, [4] in NLRC-NCR Case No. 30-10-0-489-01, finding
that private respondents were liable for constructive dismissal.

In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was designated as Accountant and Corporate
Secretary and was assigned to handle all the accounting needs of the company. She was also designated as Liaison Officer to the City
of Makati to secure business permits, construction permits and other licenses for the initial operation of the company. [5]

Although she was designated as Corporate Secretary, she was not entrusted with the corporate documents; neither did she
attend any board meeting nor required to do so. She never prepared any legal document and never represented the company as its
Corporate Secretary. However, on some occasions, she was prevailed upon to sign documentation for the company.[6]

In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as accountant in lieu of
petitioner. As Acting Manager, petitioner was assigned to handle recruitment of all employees and perform management
administration functions; represent the company in all dealings with government agencies, especially with the Bureau of Internal
Revenue (BIR), Social Security System (SSS) and in the city government of Makati; and to administer all other matters pertaining to
the operation of Kasei Restaurant which is owned and operated by Kasei Corporation. [7]

For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her salary was P27,500.00 plus
P3,000.00 housing allowance and a 10% share in the profit of Kasei Corporation. [8]

In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged that she was required to sign a
prepared resolution for her replacement but she was assured that she would still be connected with Kasei Corporation. Timoteo Acedo,
the designated Treasurer, convened a meeting of all employees of Kasei Corporation and announced that nothing had changed and that
petitioner was still connected with Kasei Corporation as Technical Assistant to Seiji Kamura and in charge of all BIR matters. [9]

Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up to September 2001 for a total
reduction of P22,500.00 as of September 2001. Petitioner was not paid her mid-year bonus allegedly because the company was not
earning well. On October 2001, petitioner did not receive her salary from the company. She made repeated follow-ups with the
company cashier but she was advised that the company was not earning well. [10]

On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but she was informed that she is
no longer connected with the company.[11]
 Since she was no longer paid her salary, petitioner did not report for work and filed an action for constructive dismissal
before the labor arbiter.

Private respondents averred that petitioner is not an employee of Kasei Corporation. They alleged that petitioner was hired in
1995 as one of its technical consultants on accounting matters and act concurrently as Corporate Secretary. As technical consultant,
petitioner performed her work at her own discretion without control and supervision of Kasei Corporation. Petitioner had no daily time
record and she came to the office any time she wanted. The company never interfered with her work except that from time to time, the
management would ask her opinion on matters relating to her profession. Petitioner did not go through the usual procedure of
selection of employees, but her services were engaged through a Board Resolution designating her as technical consultant. The money
received by petitioner from the corporation was her professional fee subject to the 10% expanded withholding tax on professionals,
and that she was not one of those reported to the BIR or SSS as one of the companys employees. [12]

Petitioners designation as technical consultant depended solely upon the will of management. As such, her consultancy may
be terminated any time considering that her services were only temporary in nature and dependent on the needs of the corporation.

To prove that petitioner was not an employee of the corporation, private respondents submitted a list of employees for the
years 1999 and 2000 duly received by the BIR showing that petitioner was not among the employees reported to the BIR, as well as a
list of payees subject to expanded withholding tax which included petitioner. SSS records were also submitted showing that petitioners
latest employer was Seiji Corporation.[13]

The Labor Arbiter found that petitioner was illegally dismissed, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. finding complainant an employee of respondent corporation;

2. declaring complainants dismissal as illegal;
3. ordering respondents to reinstate complainant to her former position without loss of seniority rights and
jointly and severally pay complainant her money claims in accordance with the following computation:

a. Backwages 10/2001 07/2002 275,000.00

(27,500 x 10 mos.)
b. Salary Differentials (01/2001 09/2001) 22,500.00
c. Housing Allowance (01/2001 07/2002) 57,000.00
d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei
Corp. from 1996-2001 361,175.00
g. Moral and exemplary damages 100,000.00
h. 10% Attorneys fees 87,076.50
P957,742.50

If reinstatement is no longer feasible, respondents are ordered to pay complainant separation pay with additional
backwages that would accrue up to actual payment of separation pay.

SO ORDERED.[14]
 On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the dispositive portion of which
reads:

PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:

1) Respondents are directed to pay complainant separation pay computed at one month per year of service
in addition to full backwages from October 2001 to July 31, 2002;

2) The awards representing moral and exemplary damages and 10% share in profit in the respective
accounts of P100,000.00 and P361,175.00 are deleted;

3) The award of 10% attorneys fees shall be based on salary differential award only;

4) The awards representing salary differentials, housing allowance, mid year bonus and 13 th month pay are
AFFIRMED.

SO ORDERED.[15]

On appeal, the Court of Appeals reversed the NLRC decision, thus:

WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor Relations
Commissions dated April 15, 2003 is hereby REVERSED and SET ASIDE and a new one is hereby rendered
dismissing the complaint filed by private respondent against Kasei Corporation, et al. for constructive dismissal.

SO ORDERED.[16]

The appellate court denied petitioners motion for reconsideration, hence, the present recourse.

The core issues to be resolved in this case are (1) whether there was an employer-employee relationship between petitioner
and private respondent Kasei Corporation; and if in the affirmative, (2) whether petitioner was illegally dismissed.

Considering the conflicting findings by the Labor Arbiter and the National Labor Relations Commission on one hand, and the
Court of Appeals on the other, there is a need to reexamine the records to determine which of the propositions espoused by the
contending parties is supported by substantial evidence.[17]

We held in Sevilla v. Court of Appeals[18] that in this jurisdiction, there has been no uniform test to determine the existence of
an employer-employee relation. Generally, courts have relied on the so-called right of control test where the person for whom the
services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such
end. In addition to the standard of right-of-control, the existing economic conditions prevailing between the parties, like the inclusion
of the employee in the payrolls, can help in determining the existence of an employer-employee relationship.

However, in certain cases the control test is not sufficient to give a complete picture of the relationship between the parties,
owing to the complexity of such a relationship where several positions have been held by the worker. There are instances when, aside
from the employers power to control the employee with respect to the means and methods by which the work is to be accomplished,
economic realities of the employment relations help provide a comprehensive analysis of the true classification of the individual,
whether as employee, independent contractor, corporate officer or some other capacity.
 The better approach would therefore be to adopt a two-tiered test involving: (1) the putative employers power to control the
employee with respect to the means and methods by which the work is to be accomplished; and (2) the underlying economic realities
of the activity or relationship.

This two-tiered test would provide us with a framework of analysis, which would take into consideration the totality of
circumstances surrounding the true nature of the relationship between the parties. This is especially appropriate in this case where
there is no written agreement or terms of reference to base the relationship on; and due to the complexity of the relationship based on
the various positions and responsibilities given to the worker over the period of the latters employment.

The control test initially found application in the case of Viaa v. Al-Lagadan and Piga,[19] and lately in Leonardo v. Court of
Appeals,[20] where we held that there is an employer-employee relationship when the person for whom the services are performed
reserves the right to control not only the end achieved but also the manner and means used to achieve that end.

In Sevilla v. Court of Appeals,[21] we observed the need to consider the existing economic conditions prevailing between the
parties, in addition to the standard of right-of-control like the inclusion of the employee in the payrolls, to give a clearer picture in
determining the existence of an employer-employee relationship based on an analysis of the totality of economic circumstances of the
worker.

Thus, the determination of the relationship between employer and employee depends upon the circumstances of the whole
economic activity,[22] such as: (1) the extent to which the services performed are an integral part of the employers business; (2) the
extent of the workers investment in equipment and facilities; (3) the nature and degree of control exercised by the employer; (4) the
workers opportunity for profit and loss; (5) the amount of initiative, skill, judgment or foresight required for the success of the claimed
independent enterprise; (6) the permanency and duration of the relationship between the worker and the employer; and (7) the degree
of dependency of the worker upon the employer for his continued employment in that line of business. [23]

The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his continued
employment in that line of business.[24] In the United States, the touchstone of economic reality in analyzing possible employment
relationships for purposes of the Federal Labor Standards Act is dependency. [25] By analogy, the benchmark of economic reality in
analyzing possible employment relationships for purposes of the Labor Code ought to be the economic dependence of the worker on
his employer.

By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation because she was under the
direct control and supervision of Seiji Kamura, the corporations Technical Consultant. She reported for work regularly and served in
various capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate Secretary, with substantially
the same job functions, that is, rendering accounting and tax services to the company and performing functions necessary and
desirable for the proper operation of the corporation such as securing business permits and other licenses over an indefinite period of
engagement.
Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation
because she had served the company for six years before her dismissal, receiving check vouchers indicating her salaries/wages,
benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security contributions from August 1, 1999 to
December 18, 2000.[26] When petitioner was designated General Manager, respondent corporation made a report to the SSS signed by
Irene Ballesteros. Petitioners membership in the SSS as manifested by a copy of the SSS specimen signature card which was signed by
the President of Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces the existence of an
employer-employee relationship between petitioner and respondent corporation. [27]

It is therefore apparent that petitioner is economically dependent on respondent corporation for her continued employment in
the latters line of business.

In Domasig v. National Labor Relations Commission,[28] we held that in a business establishment, an identification card is
provided not only as a security measure but mainly to identify the holder thereof as a bona fide employee of the firm that issues
it. Together with the cash vouchers covering petitioners salaries for the months stated therein, these matters constitute substantial
evidence adequate to support a conclusion that petitioner was an employee of private respondent.

We likewise ruled in Flores v. Nuestro[29] that a corporation who registers its workers with the SSS is proof that the latter
were the formers employees. The coverage of Social Security Law is predicated on the existence of an employer-employee
relationship.

Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that petitioner never acted as
Corporate Secretary and that her designation as such was only for convenience. The actual nature of petitioners job was as Kamuras
direct assistant with the duty of acting as Liaison Officer in representing the company to secure construction permits, license to
operate and other requirements imposed by government agencies. Petitioner was never entrusted with corporate documents of the
company, nor required to attend the meeting of the corporation. She was never privy to the preparation of any document for the
corporation, although once in a while she was required to sign prepared documentation for the company. [30]

The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001 affidavit has been allegedly
withdrawn by Kamura himself from the records of the case. [31] Regardless of this fact, we are convinced that the allegations in the first
affidavit are sufficient to establish that petitioner is an employee of Kasei Corporation.

Granting arguendo, that the second affidavit validly repudiated the first one, courts do not generally look with favor on any
retraction or recanted testimony, for it could have been secured by considerations other than to tell the truth and would make solemn
trials a mockery and place the investigation of the truth at the mercy of unscrupulous witnesses. [32] A recantation does not necessarily
cancel an earlier declaration, but like any other testimony the same is subject to the test of credibility and should be received with
caution.[33]

Based on the foregoing, there can be no other conclusion that petitioner is an employee of respondent Kasei Corporation. She
was selected and engaged by the company for compensation, and is economically dependent upon respondent for her continued
employment in that line of business. Her main job function involved accounting and tax services rendered to respondent corporation
on a regular basis over an indefinite period of engagement. Respondent corporation hired and engaged petitioner for compensation,
with the power to dismiss her for cause. More importantly, respondent corporation had the power to control petitioner with the means
and methods by which the work is to be accomplished.

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month from January to September
2001. This amounts to an illegal termination of employment, where the petitioner is entitled to full backwages. Since the position of
petitioner as accountant is one of trust and confidence, and under the principle of strained relations, petitioner is further entitled to
separation pay, in lieu of reinstatement.[34]
A diminution of pay is prejudicial to the employee and amounts to constructive dismissal. Constructive dismissal is an
involuntary resignation resulting in cessation of work resorted to when continued employment becomes impossible, unreasonable or
unlikely; when there is a demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or disdain by an
employer becomes unbearable to an employee.[35] In Globe Telecom, Inc. v. Florendo-Flores,[36] we ruled that where an employee
ceases to work due to a demotion of rank or a diminution of pay, an unreasonable situation arises which creates an adverse working
environment rendering it impossible for such employee to continue working for her employer. Hence, her severance from the
company was not of her own making and therefore amounted to an illegal termination of employment.

In affording full protection to labor, this Court must ensure equal work opportunities regardless of sex, race or creed. Even as
we, in every case, attempt to carefully balance the fragile relationship between employees and employers, we are mindful of the fact
that the policy of the law is to apply the Labor Code to a greater number of employees. This would enable employees to avail of the
benefits accorded to them by law, in line with the constitutional mandate giving maximum aid and protection to labor, promoting their
welfare and reaffirming it as a primary social economic force in furtherance of social justice and national development.

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals dated October 29, 2004
and October 7, 2005, respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET ASIDE. The Decision of the National Labor
Relations Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The case is REMANDED to the
Labor Arbiter for the recomputation of petitioner Angelina Franciscos full backwages from the time she was illegally terminated until
the date of finality of this decision, and separation pay representing one-half month pay for every year of service, where a fraction of
at least six months shall be considered as one whole year.

SO ORDERED.

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION, HONORABLE ARBITER TEODORICO L. DOGELIO and
RICARDO ORPIADA respondents.

Marcelino Lontok, Jr. for respondents.

FELICIANO, J.:
Petitioner Philippine Bank of Communications and the Corporate Executive Search Inc. (CESI) entered into a letter agreement dated
January 1976 under which (CESI) undertook to provide "Tempo[rary] Services" to petitioner Consisting of the "temporary services"
of eleven (11) messengers. The contract period is described as being "from January 1976—." The petitioner in truth undertook to pay a
"daily service rate of P18, " on a per person basis.

Attached to the letter agreement was a "List of Messengers assigned at Philippine Bank of Communications" which list included, as
item No. 5 thereof, the name of private respondent Ricardo Orpiada.

Ricardo Orpiada was thus assigned to work with the petitioner bank. As such, he rendered services to the bank, within the premises of
the bank and alongside other people also rendering services to the bank. There was some question as to when Ricardo Orpiada
commenced rendering services to the bank. As noted above, the letter agreement was dated January 1976. However, the position paper
submitted by (CESI) to the National Labor Relations Commission stated that (CESI) hired Ricardo Orpiada on 25 June 1975 as a
Tempo Service employee, and assigned him to work with the petitioner bank "as evidenced by the appointment memo issued to him
on 25 June 1975. " Be that as it may, on or about October 1976, the petitioner requested (CESI) to withdraw Orpiada's assignment
because, in the allegation of the bank, Orpiada's services "were no longer needed."

On 29 October 1976, Orpiada instituted a complaint in the Department of Labor (now Ministry of Labor and Employment) against the
petitioner for illegal dismissal and failure to pay the 13th month pay provided for in Presidential Decree No. 851. This complaint was
docketed as Case No. R04-1010184-76-E. After investigation, the Office of the Regional Director, Regional Office No. IV of the
Department of Labor, issued an order dismissing Orpiada's complaint for failure of Mr. Orpiada to show the existence of an employer-
employee relationship between the bank and himself.

Despite the foregoing order, Orpiada succeeded in having his complaint certified for compulsory arbitration in Case No. RB-IV-
11187-77 entitled "Ricardo Orpiada, complaint vs. Philippine Bank of Communications, respondent."During the compulsory
arbitration proceedings, CE SI was brought into the picture as an additional respondent by the bank. Both the bank and (CESI) stoutly
maintained that (CESI) (and not the bank) was the employer of Orpiada.

On 12 September 1977, respondent Labor Arbiter Dogelio rendered a decision in Case No. RB-IV-11187-77, the dispositive portion
of which read as follows:

WHEREFORE, premises considered, respondent bank is hereby ordered to reinstate complainant to the same or equivalent
position with full back wages and to pay the latter's 13th month pay for the year 1976.

On 26 October 1977, the bank appealed the decision of the Labor Arbiter to the respondent NLRC. More than six years later—and the
record is silent on why the proceeding in the NLRC should have taken more than six years to resolve the NLRC promulgated its
decision affirming the award of the Labor Arbiter and stating as follows:

WHEREFORE, except for the modification reducing the complainant's back wages to two (2) years without qualification, the
Decision appealed from is hereby AFFIRMED in an other respects.

Accordingly, on 2 April 1984, the bank filed the present petition for certiorari with this Court seeking to annul and set aside (a) the
decision of respondent Labor Arbiter Dogelio dated 12 September 1977 in Labor Case No. RB-IV-1118-77 and (b) the decision of the
NLRC promulgated on 29 December 1983 affirming with some modifications the decision of the Labor Arbiter. This Court granted a
temporary restraining order on 11 April 1984. The main issue as litigated by the parties in this case relates to whether or not an
employer-employee relationship existed between the petitioner bank and private respondent Ricardo Orpiada. The petitioner bank
maintains that no employer-employee relationship was established between itself and Ricardo Orpiada and that Ricardo Orpiada was
an employee of (CESI) and not of the bank. The bank documents its position by pointing to the following provisions of its letter
agreement with CE SI

1. The individual/s you i.e. (CESI) will assign to us i.e. petitioner) will be subject to our acceptance and will observe work-
days, hours, and methods of work (sic); on the other hand, they will not be asked to perform job (sic) not normally related to
the position/s for which Tempo Services were contracted.

2. Such individuals will nevertheless remain your own employees and you will therefore, retain all liabilities arising from the
new Labor Code as amended Social Security Act and other applicable Governmental decrees, rules and regulations,
provided that, on our part, we shaIl

a. Require your employers assigned to us to properly accomplish your daily time record, to faithfully reflect all
hours worked in our behalf whether such work be within or beyond eight hours of any day.
 b. Notify you of any change in the work assignment or contract period affecting any of your employers assigned to
us within 24 hours, after such change is made.

— (Emphasis supplied)

The above language of the agreement between the bank and CE SI is of course relevant and important as manifesting an intent to
refrain from constituting an employer-employee relationship between the bank and the persons assigned or seconded to the bank by
(CESI) That extent to which the parties were successful in realizing their intent is another matter, one that is dependent upon
applicable law and not merely upon the terms of their contract.

In the case of Viana vs. AI-Lagdan and Pica, 99 Phil. 408 (1956), this Court listed certain factors to be taken into account in
determining the existence of an employer-employee relationship. These factors are:

1) The selection and engagement of the putative employee;

2) The payment of wages;

3) The power of dismissal- and

4) The power to control the putative employees' conduct, although the latter is the most important element. ... (99 Phil. at
411- 412; Emphasis supplied)

In the present case, Orpiada was not previously selected by the bank. Rather, Orpiada was assigned to work in the bank by (CESI)
Orpiada could not have found his way to the bank's offices had he not been first hired by (CESI) and later assigned to work in the
bank's offices. The selection of Orpiada by (CESI) was, however, subject to the acceptance of the bank and the bank did accept him
As will be seen shortly, (CESI) had hired Orpiada from the outside world precisely for the purpose of assigning or seconding him to
the bank.

With respect to the payment of Orpiada's wages, the bank remitted to CE SI amounts corresponding to the "daily service rate" of
Orpiada and the others similarly assigned by (CESI) to the bank, and (CESI) paid to Orpiada and the others the wages pertaining to to
them. It is not clear from the record whether the amounts remitted to (CESI) included some factor for CESIs fees; it seems safe to
assume that (CESI) had required some amount in excess of the wages paid by (CESI) to Orpiada and the others to cover its own
overhead expenses and provide some contribution to profit. The bank alleged that Orpiada did not appear in its payroll and this
allegation was not denied by Orpiada. Indeed, the Labor Arbiter in Case No. R04-184-76-B found that Orpiada was listed in the
payroll of (CESI) with (CESI) deducting amounts representing his Medicare and Social Security System premiums. A copy of the
(CESI) payroll was presented, strangely enough, by Orpiada himself to Regional Office No. IV.

In respect of the power of dismissal we note that the bank requested (CESI) to withdraw Orpiada's assignment and that (CESI) did, in
fact, withdraw such assignment. Upon such withdrawal from his assignment with the bank, Orpiada was also terminated by (CESI)
Indeed, it appears clear that Orpiada was hired by (CESI) specifically for assignment with the bank and that upon his withdrawal from
such assignment upon request of the bank, Orpiada's employment with (CESI) was also severed, until some other client of (CESI)
showed up in the horizon to which Orpiada could once more be assigned. In the position paper dated August 5, 1977 submitted by
(CESI) before the NLRC, (CESI) explained the relationship between itself and Orpiada in lucid terms:

5. That as Petitioner herein was very well aware of from the very beginning, he was hired by Corporate Executive Search,
Inc. as a temporary employee and as such, was being assigned to work with the latter's client Respondent herein that the
rationale behind his hiring was the existence of a service contract between Corporate Executive Search Inc. and its client-
company, the Philippine Bank of Communications, the herein Respondent, and that when this service contract was
0terminated, then the reason for his employment with Corporate Executive Search, Inc., ceased to exist and that therefore
Corporate Executive Search Inc. had no alternative but to discontinue his employment until another opportune time for his
hiring would present itself;

6. That Petitioner was not given his 13th-month pay under P.D. 851, because Corporate Executive Search Inc. gave the 13th
month pay for 1976 to its employees in December 1976, and since the company had lost contact with the Petitioner by reason
of his having ceased to be connected with it as of 22 October 1976, he was not among those given the 13th-month pay.
(Emphasis supplied)

Turning to the power to control Orpiada's conduct, it should be noted immediately that Orpiada performed his sections within the
bank's premises, and not within the office premises of (CESI) As such, Orpiada must have been subject to at least the same control and
supervision that the bank exercises over any other person physically within its premises and rendering services to or for the bank, in
other words, any employee or staff member of the bank. It seems unreasonable to suppose that the bank would have allowed Orpiada
and the other persons assigned to the bank by CE SI to remain within the bank's premises and there render services to the bank,
without subjecting them to a substantial measure of control and supervision, whether in respect of the manner in which they
discharged their functions, or in respect of the end results of their functions or activities, or both.

Application of the above factors in the specific context of this case appears to yield mixed results so far as concerns the existence of an
employer- employer relationship between the bank and Orpiada. The second ("payment of wages") and third ("power of dismissal")
factors suggest that the relevant relationship was that subsisting between (CESI) and Orpiada, a relationship conceded by (CESI) to be
one between employer and employee. Upon the other hand, the first ("selection and engagement") and fourth ("control of employee's
conduct") factors indicate that some direct relationship did exist between Orpiada and the bank and that such relationship may be
assimilated to employment. Perhaps the most important circumstance which emerges from an examination of the facts of the tri-lateral
relationship between the bank, (CESI) and Orpiada is that the employer-employee relationship between (CESI) and Orpiada was
established precisely in anticipation of, and for the very purpose of making possible, the secondment of Orpiada to the bank. It is
therefore necessary to confront the task of determining the appropriate characterization of the relationship between the bank and
(CESI) was that relationship one of employer and job (independent) contractor or one of employer and "labor-only" contractor?

Articles 106 and 107 of the Labor Code of the Philippines (Presidential Decree No. 442, as amended) provides as follows:

ART. 106. Contractor or sub-contractor.—Whenever an employer enters into a contract with another person for the
performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in
accordance with the provisions in this Code.

In the event that the contractor or sub-contractor fails to pay the wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or sub-contructor to such employees to the extent of the
work performed under the contract in the same manner and extent that he is liable to employees directly employed by him

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of
workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-
only contracting and job contracting as well as differentiations within these types of contracting and determine who among
the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of
any provisions of this Code.

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed
by such person are performing activities which are directly related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in
the same manner and extent as if the latter were directly employed by him.

ART. 107. Indirect employer. — The provisions of the immediately preceding Article shall likewise apply to any person,
part, nership association or corporation which, not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project. (Emphasis supplied)

Under the general rule set out in the first and second paragraphs of Article 106, an employer who enters into a contract with a
contractor for the performance of work for the employer, does not thereby create an employer-employes relationship between himself
and the employees of the contractor. Thus, the employees of the contractor remain the contractor's employees and his alone.
Nonetheless when a contractor fails to pay the wages of his employees in accordance with the Labor Code, the employer who
contracted out the job to the contractor becomes jointly and severally liable with his contractor to the employees of the latter "to the
extent of the work performed under the contract" as such employer were the employer of the contractor's employees. The law itself, in
other words, establishes an employer-employee relationship between the employer and the job contractor's employees for a limited
purpose, i.e., in order to ensure that the latter get paid the wages due to them.

A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor-i.e "the person or intermediary" is
considered "merely as an agent of the employer. " The employer is made by the statute responsible to the employees of the "labor
only" contractor as if such employees had been directly employed by the employer. Thus, where "labor only" contracting exists in a
given case, the statute itself implies or establishes an employer-employee relationship between the employer (the owner of the project)
and the employees of the "labor 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. " The law in effect holds both the employer and the "labor-only"
contractor responsible to the latter's employees for the more effective safeguarding of the employees' rights under the Labor Code.
Both the petitioner bank and (CESI) have insisted that (CESI) was not a "labor only" contractor. Section 9 of Rule VIII of Book III
entitled "Conditions of Employment," of the Omnibus Rules Implementing the Labor Code provides as follows:

Sec. 9. Labor-only contracting. — (a) Any person who undertakes to supply workers to an employer shag 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 to the principal business or
operations of the c workers are habitually employed,

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered
merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as
if the latter were directly employed by him

(c) For cases not file under this Article, the Secretary of Labor shall determine through appropriate orders whether or not the
contracting out of labor is permissible in the light of the circumstances of each case and after considering the operating needs
of the employer and the rights of the workers involved. In such case, he may prescribe conditions and restrictions to insure
the protection and welfare of the workers. (Emphasis supplied)

In contrast, job contracting-contracting out a particular job to an independent contractor is defined by the Implementing Rules as
follows:

Sec. 8. Job contracting. — There is job contracting permissible under the Code if the following conditions are met:

(1) The contractor carries on an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method free from the control and direction of his employer or principal in all
matters connected with the performance of the work except as to the results thereof; and

(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his business. (Emphasis supplied)

The bank and (CESI) urge that (CESI) is not properly regarded as a "labor-only" contractor upon n the ground that (CESI) is
possessed of substantial capital or investment in the form of office equipment, tools and trained service personnel.

We are unable to agree with the bank and (CESI) on this score. The definition of "labor-only" contracting in Rule VIII, Book III of the
Implementing Rules must be read in conjunction with the definition of job contracting given in Section 8 of the same Rules. The
undertaking given by CESI in favor of the bank was not the performance of a specific — job for instance, the carriage and delivery of
documents and parcels to the addresses thereof. There appear to be many companies today which perform this discrete service,
companies with their own personnel who pick up documents and packages from the offices of a client or customer, and who deliver
such materials utilizing their own delivery vans or motorcycles to the addresses. In the present case, the undertaking of (CESI) was
to provide its client-thebank-with a certain number of persons able to carry out the work of messengers. Such undertaking of CESI
was complied with when the requisite number of persons were assigned or seconded to the petitioner bank. Orpiada utilized the
premises and office equipment 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 related to the day-to-day operations of the bank. Section
9(2) quoted above does not require for its applicability that the petitioner must be engaged in the delivery of items as a distinct and
separate line of business.

Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and placement corporation placing
bodies, as it were, in d ifferent client companies for longer or shorter periods of time. It is this factor that, to our mind, distinguishes
this case from American President v. Clave et al, 114 SCRA 826 (1982) if indeed distinguishing way is needed.

The bank urged that the letter agreement entered into with CESI was designed to enable the bank to obtain the temporary services of
people necessary to enable the bank to cope with peak loads, to replace temporary workers who were out on vacation or sick leave,
and to handle specialized work. There is, of course, nothing illegal about hiring persons to carry out "a specific project or undertaking
the completion or termination of which [was] determined at the time of the engagement of [the] employee, or where the work or
service to be performed is seasonal in nature and the employment is for the duration of the season" (Article 281, Labor
Code).<äre||anº•1àw> The letter agreement itself, however, merely required (CESI) to furnish the bank with eleven 11) messengers
for " a contract period from January 19, 1976 —." The eleven (11) messengers were thus supposed to render "temporary" services for
an indefinite or unstated period of time. Ricardo Orpiada himself was assigned to the bank's offices from 25 June 1975 and rendered
services to the bank until sometime in October 1976, or a period of about sixteen months. Under the Labor Code, however, any
employee who has rendered at least one year of service, whether such service is continuous or not, shall be considered a regular
employee (Article 281, Second paragraph). Assuming, therefore, that Orpiada could properly be regarded as a casual (as distinguished
from a regular) employee of the bank, he became entitled to be regarded as a regular employee of the bank as soon as he had
completed one year of service to the bank. Employers may not terminate the service of a regular employee except for a just cause or
when authorized under the Labor Code (Article 280, Labor Code). It is not difficult to see that to uphold the contractual arrangement
between the bank and (CESI) would in effect be to permit employers to avoid the necessity of hiring regular or permanent employees
and to enable them to keep their employees indefinitely on a temporary or casual status, thus to deny them security of tenure in their
jobs. Article 106 of the Labor Code is precisely designed to prevent such a result.

We hold that, in the circumstances 'instances of this case, (CESI) was engaged in "labor-only" or attracting vis-a-vis the petitioner and
in respect c Ricardo Orpiada, and that consequently, the petitioner bank is liable to Orpiada as if Orpiada had been directly, employed
not only by (CESI) but also by the bank. It may well be that the bank may in turn proceed against (CESI) to obtain reimbursement of,
or some contribution to, the amounts which the bank will have to pay to Orpiada; but this it is not necessary to determine here.

WHEREFORE, the petition for certiorari is DENIED and the decision promulgated on 29 December 1983 of the National Labor
Relations Commission is AFFIRMED. The Temporary Restraining Order issued by this Court on 11 April 1984 is hereby lifted. Costs
against petitioner.

SO ORDERED.

PCI AUTOMATION CENTER, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and HECTOR
SANTELICES, respondents.

DECISION
PUNO, J.:

This is a special civil action for certiorari under Rule 65 of the Revised Rules of Court for the annulment of the Decision of the
National Labor Relations Commission (NLRC) dated December 29, 1993 [1] and its Resolution dated April 15, 1994.[2]
In 1985, Philippine Commercial International Bank (PCIB) commenced its 4th GL Environment Conversion Project intended to
link all existing computer systems within PCIB and its various branches around the country. It entered into a Computer Services
Agreement with petitioner PCI Automation Center, Inc. (PCI-AC), under which petitioner obligated itself to direct, supervise and run
the development of the software, computer software applications and computer system of PCIB. On the other hand, PCIB agreed to
provide the petitioner with encoders and computer attendants, among others. [3]
To comply with its obligation to procure manpower for the petitioner, PCIB engaged the services of Prime Manpower Resources
Development, Inc. (Prime). PCIB and Prime entered into an External Job Contract [4] which provides:

1. Services - PRIME shall provide qualified and adequate personnel services required by the CLIENT within two (2) working days
from time of receipt of the notice of the CLIENTs requisition.

2. Selection - The CLIENT shall have the right to select, refuse, or change any or all of the personnel assigned to deliver these services
to the CLIENT upon two (2) working days notice to PRIME.

3. Supervision - The CLIENT shall be responsible in supervising all PRIME personnel contracted and assigned to deliver such
services to the CLIENT. However, PRIME shall check the time cards of the assigned personnel for payroll and other related
purposes. Any change or discontinuance in the work assignment of the assigned personnel shall be conveyed in writing to PRIME by
CLIENT within two (2) days from such change or termination.

4. Liability/Responsibility - It is expressly agreed that the personnel assigned to the client are not employees of the CLIENT, and as
such PRIME shall at all times stand solely liable and/or responsible for the enforcement of and compliance with all existing laws, rules
and regulations, such as, but not limited to the Labor Code, Social Security Act, Employers (sic) Compensation Commission Act as
amended, Medical Care; provided finally, that PRIME hereby agrees and binds itself to save and hold CLIENT free and harmless from
any civil and criminal liability with respect thereof and/or which may arise therefrom.
5. Direct Hiring/Absorption - Since the personnel assigned to the CLIENT are PRIME employees, said employees cannot be absorbed
or hired directly by the CLIENT without PRIMEs prior written consent. In which case, CLIENT shall be charged by PRIME a
placement fee equivalent to ten percent (10%) of the commencing annual gross compensation of the employee concerned if said
employees have worked with CLIENT for less than five (5) months. If said employees have worked with CLIENT as temporary
employee for more than five (5) months, CLIENT shall not be charged any fee.

6. Injury/Damage - PRIME shall not be responsible for any loss or damage caused by the assigned personnel to the CLIENTs
properties as well as properties of the customers of the CLIENT unless the loss or damage is caused by the fact that the assigned
personnel lacks the capacity to work by reason of any mental or physical defect or he was manifestly unfit or unqualified to perform
the tasks for which he has been assigned by PRIME to the client.

In the event of injury to assigned PRIME personnel under this contract, due to accidents which are work-related, the CLIENT shall
reimburse PRIME for medical expenses incurred which under existing laws are required to be defrayed by the employers. In the case
of assigned PRIME personnel under regular status, medical expenses due to accidents or illnesses, whether or not work related, shall
be defrayed by PRIME under its Hospitalization Insurance Scheme.

7. Confidentiality - PRIME shall guarantee the confidentiality of CLIENTs nature of job where PRIME personnel are involved.

8. Mode/Term of Payment - For and in consideration of the abovementioned services, the CLIENT shall pay PRIME the
corresponding hourly billing rate listed in Annex A which is an integral part of this contract. Annex A consists of letter agreement
dated May 20, 1986 duly conformed by PRIME and CLIENT as to the specific hourly rates per job category and status, as well as the
composition of the billing rates, basis for computation and the provision of reserves for additional benefits granted to assigned regular
PRIME employees whenever those are applicable and/or payable. Such rates apply only to work done by our employees during the
first eight (8) hours on any work day.

For work rendered by the assigned personnel in excess of the regular work period agreed upon, the CLIENT shall be billed by PRIME
the rates on overtime pay set by the New Labor Code. The schedule of hourly billing rates per job category for work rendered on
overtime, whether done on a regular work day; legal holiday, special holiday or rest day is herein attached as Annex B and shall
become an integral part of this contract.

PRIME shall bill the CLIENT for actual services rendered by sending CLIENT its statement of account on the 16th and on the last day
of each month. CLIENT shall make payment within seven (7) working days from receipt of said statement of account, unless the
CLIENT, within the same period, communicates to PRIME its refusal to pay on some valid grounds, e.g. errors in computation, etc. In
the latter case, CLIENT shall make payment within seven (7) working days after the cause for non-payment is settled.

9. Provision for Rate Adjustment - In the event that wages are increased and increased (sic) and additional fringe benefits in favor of
the employees are promulgated by law, decrees or regulation, or granted by mutual agreements between PRIME and CLIENT, the
above mentioned billing rates shall be automatically adjusted to conform with the new levels set by law or by both parties.

On September 20, 1985, private respondent Hector Santelices was hired by Prime and assigned to petitioner as a data encoder to
work on the 4th GL Environment Conversion Project of PCIB. [5] However, on March 18, 1991, Prime decided to terminate private
respondents services after it was informed by the petitioner that his services were no longer needed in the project. [6]
Private respondent filed before the NLRC a complaint for illegal dismissal against Prime and PCI-AC.[7] In his position paper,
private respondent prayed for the payment of his 14th month pay, 13th month pay, separation pay, unpaid service incentive leave,
unpaid vacation leave, termination pay, as well as moral and exemplary damages and attorneys fees. [8]
On April 30, 1993, Labor Arbiter Melquiades Sol Del Rosario rendered a Decision [9] finding that private respondents dismissal
was illegal. The dispositive portion of the Decision states:

CONFORMABLY with the foregoing, judgment is hereby rendered finding complainants dismissal to be illegal and without legal
basis. Consequently, complainant should be immediately reinstated to his former or equivalent position as data encoder at PCI-
AC. Should reinstatement be impossible or impractical due to a strained relation, then in lieu thereof, payment of separation pay by
Prime at one months pay (P3,060.00) per year of service reckoned from September 20, 1985, a fraction of six (6) months service being
considered as one (1) whole year.

Respondents (sic) companies are further ordered to pay in solidum the complainant the following amounts:

1. P78,030.00 as backwages (March 16, 1991 to April 30, 1993) not exceeding 3 years without qualification or deduction at P3,060.00
a month;
2. P30,000.00 as moral damages;

3. P10,000.00 as exemplary damages; and

4. P5,000.00 as attorneys fees.

All other claims are hereby denied for lack of merit.[10]

Prime and PCI-AC appealed to the NLRC.

On June 18, 1993, during the pendency of the appeal, Prime paid private respondent the amount of P24,480.00 as separation pay
in lieu of reinstatement. This was in partial satisfaction of the judgment rendered by the Labor Arbiter. Private respondent, for his part,
waived his right to be reinstated to his former position in Prime and/or PCI-AC. Accordingly, Prime and private respondent executed
and filed before the office of the Labor Arbiter a document entitled Partial Satisfaction of Judgment and Waiver of Right. [11]
On December 29, 1993, public respondent NLRC affirmed the Decision of the Labor Arbiter, but deleted the award of moral and
exemplary damages and attorneys fees.[12]
PCI-AC filed the present petition on the following ground:

. . . the public respondent acted with grave abuse of discretion amounting to lack of jurisdiction when it disregarded the substantial
evidence in this case clearly showing that private respondent was not illegally dismissed by petitioner. [13]

The petition must fail.

Petitioner contends that private respondent, being a project employee, was validly dismissed when the project for which he was
hired was completed on March 15, 1991. Petitioner avers that the 4th GL Environment Conversion Project involved a phase-by-phase
conversion of PCIBs computer system. Private respondent was assigned to work as data encoder in the Consolidated Financing
System/Budget Monitoring phase of the said computer conversion project. Allegedly, this phase was completed on March 15,
1991. Petitioner makes the submission that the completion of the work therein terminated further need for private respondents
services.[14]
The public respondent, however, held otherwise after assessing the evidence on record. It affirmed the findings of the Labor
Arbiter, thus:

Going now to the second point of inquiry, which is the completion or non-completion of the 4GL conversion system project, the
testimony of Danilo Calauag, the assistant vice-president and manager of International Operations of Prime Manpower is most
explicit. He testified on July 22, 1992 as follows:

Mr. Santelices was assigned initially to Tower 2; (p. 33 TSN.) then he was assigned to Tower I (Ibid) because there was work to be
done in Tower I that necessitated his (complainants) transfer there (p. 35 Ibid) although the work he (complainant) was performing in
Tower II was still existing (supra) and Tower II is still in progress (supra) meaning his original assignment is still on-going up to the
present (p. 36 Ibid).

The foregoing testimony expressly and clearly admitted that 4th conversion project, more particularly Tower II to which
complainant was originally assigned is still an on-going project, and not yet completed as posited by respondents. There was therefore
no reason for complainants dismissal on March 15, 1991 on the pretended ground which is completion of the project. xxx[15]
We find no valid reason to disturb public respondents findings. No less than the assistant vice-president and manager for
International Operations of Prime testified that the project for which private respondent was hired was still existing at the time of his
dismissal. It is settled that factual findings of quasi-judicial agencies like the Labor Arbiter and the NLRC are generally accorded not
only respect but even finality if such findings are supported by substantial evidence. [16]
The petitioner also faults the public respondent in affirming the disposition of the Labor Arbiter holding it solidarily liable with
Prime for all the monetary claims of private respondent. It insists that it is not an employer of private respondent. It contends that
private respondent is an employee of Prime and he was merely assigned by Prime to the petitioner to work on the 4th GL Environment
Conversion Project of PCIB.
We are not persuaded.
The petitioner, through PCIB, contracted Prime to provide it with qualified personnel to work on the computer conversion
project of PCIB.[17] The External Job Contract between Prime and PCIB must be read in conjunction with the Computer Services
Agreement between PCIB and the petitioner. Under the Computer Services Agreement, the petitioner shall direct and supervise the
computer conversion project of PCIB while PCIB shall provide the petitioner with data encoders and computer attendants to work on
the project. Pursuant to said Agreement, PCIB called on Prime to furnish the petitioner with the needed personnel, one of whom was
private respondent. Hence, although the parties in the External Job Contract are only Prime and PCIB, the legal consequences of such
contract must also be made to apply to the petitioner. Under the circumstances, PCIB merely acted as a conduit between the petitioner
and Prime.The project was under the management and supervision of the petitioner and it was the petitioner which exercised control
over the persons working on the project.
Under the law, any person (hereinafter referred to as the principal employer) who enters into an agreement with a job contractor,
either for the performance of a specified work or for the supply of manpower, assumes responsibility over the employees of the
latter.[18] However, for the purpose of determining the extent of the principal employers liability, the law makes a distinction between
legitimate job contracting and labor-only contracting. Article 106 of the Labor Code states:

Article 106. Contractor or subcontractor. -Whenever an employer enters into a contract with another person for the performance of the
formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid in accordance with the provisions
of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of
workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only
contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties
involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this
Code.
There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such
persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
In legitimate job contracting, no employer-employee relationship exists between the employees of the job contractor and the
principal employer. Even then, the principal employer becomes jointly and severally liable with the job contractor for the payment of
the employees wages whenever the contractor fails to pay the same. In such case, the law creates an employer-employee relationship
between the principal employer and the job contractors employees for a limited purpose, that is, to ensure that the employees are paid
their wages. Other than the payment of wages, the principal employer is not responsible for any claim made by the employees. [19]
On the other hand, in labor-only contracting, an employer-employee relationship is created by law between the principal
employer and the employees of the labor-only contractor. In this case, the labor-only contractor is considered merely an agent of the
principal employer. The principal employer is responsible to the employees of the labor-only contractor as if such employees had been
directly employed by the principal employer. The principal employer therefore becomes solidarily liable with the labor-only
contractor for all the rightful claims of the employees.[20]
Thus, in legitimate job contracting, the principal employer is considered only an indirect employer,[21] while in labor-only
contracting, the principal employer is considered the direct employer of the employees. [22]
Considering the terms of the External Job Contract executed by Prime and PCIB, it cannot be doubted that Prime is a labor-only
contractor. Under the contract, Prime merely acted as a placement agency providing manpower to the petitioner through PCIB. The
service rendered by Prime in favor of the petitioner was not the performance of a specific job, but the supply of qualified personnel to
work as data encoders and computer attendants in connection with the petitioners project.
Rule VIII Book III of the Omnibus Implementing Rules and Regulations of the Labor Code defines job contracting and labor-
only contracting:

Sec. 8. Job contracting. - There is job contracting permissible under the Code if the following conditions are met:

(1) The contractor carries on an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters
connected with the performance of the work except as to the results thereof; and

(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other
materials which are necessary in the conduct of his business.
Sec. 9. Labor-only contracting. - (a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in
labor-only contracting when 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.

xxx xxx xxx

In short, the legitimate job contractor provides services while the labor-only contractor provides only manpower. The legitimate
job contractor undertakes to perform a specific job for the principal employer while the labor-only contractor merely provides the
personnel to work for the principal employer.
As Prime is a labor-only contractor, the workers it supplied to the petitioner, including private respondent, should be considered
employees of the petitioner.[23] The admissions made by private respondent in his affidavits and position paper that he is a regular
employee of Prime are not conclusive on this Court as the existence of an employer-employee relationship is a question of law which
may not be made the subject of stipulation.[24]
We hold that public respondent did not commit grave abuse of discretion in affirming the ruling of the Labor Arbiter adjudging
the petitioner solidarily liable with Prime for the payment of all the monetary claims of private respondent. This is in accord with
Article 106 of the Labor Code, as amended.
IN VIEW WHEREOF, the petition is DISMISSED. The assailed Decision and Resolution are hereby AFFIRMED. No costs.
SO ORDERED.

BROADWAY MOTORS, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and VICENTE APOLINARIO, respondents.

FELICIANO, J.:

By virtue of a written undated "Work Contract," 1 private respondent Vicente 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 Manila. The contract
was signed by Vicente Apolinario as "Contractor"and Mr. Johnny L. Chieng, Parts and Service Operations Manager of petitioner
Corporation. Apolinario worked as an auto painter for a period of eighteen (18) years, until 23 January 1985 when he was barred from
entering the premises of the petitioner Corporation, and his alleged involvement in a fist-fight with the shop superintendent of
Broadway Motors the day before.

On 21 February 1985, Apolinario commenced an action for illegal dismissal with the National Capital Region Arbitration Branch of
the National Labor Relations Commission (NLRC). In his Complaint, which was docketed as NLRC Case No. 2587-85, Apolinario
sought recovery from petitioner Corporation of (1) separation 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.

In a Decision dated 2 January 1986, the Labor Arbiter dismissed the complaint upon the ground that under the Work Contract and an
"Addendum to Work Contract" dated 28 April 1984, 3 Apolinario, having supplied the workers himself included who performed the
auto painting jobs for petitioner Corporation, was a mere contractor and could not, therefore, be considered as the latter's employee.
From this decision, Apolinario interposed an appeal to the NLRC.

On 4 February 1987, public respondent NLRC rendered a Decision, 4 the dispositive portion of which reads:
 WHEREFORE, the Decision appealed from is reversed and a new judgment entered ordering the respondent to pay
complainant separation pay in the sum of FORTY FIVE THOUSAND (P45,000-00) PESOS plus 10% thereof as
and for attorney's fees.

SO ORDERED.

In reversing the decision of the Labor Arbiter, public respondent NLRC found that a valid and binding employer-employee
relationship had existed between petitioner Corporation and Apolinario. Since Apolinario was dismissed without any investigation
having been previously conducted by petitioner Corporation to ascertain his participation in the fistfight within company premises, his
dismissal was, accordingly, declared illegal by public respondent NLRC for non-compliance with the requirements of procedural due
process.

After a careful scrutiny of the records of this case, the Court considers that petitioner 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 dated 4
February 1987.

Four factors are generally considered in determining the existence of an employer-employee relationship, namely: (a) the manner of
selection and engagement of the putative employee; (b) the mode of payment of wages; (c) the presence or absence of a power of
dismissal; and (d) the presence or absence of a power to control the putative employee's conduct. It is this latter factor, the so-called
"control test," which is the most important criterion in such determination. 5 The record shows that 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
executed between Apolinario and petitioner Corporation through its authorized representative. That petitioner corporation reserved
unto itself the power of dismissal is evident from the fact that petitioner Corporation unilaterally undertook to terminate Apolinario's
relationships with itself.

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 lump sum payments described as "payment for sub-contract painting" or other repair job,
from which amounts an unexplained "three percent (3 %) of fifteen percent (I 5 %) withholding tax " was deducted. It further appears
that Apolinario invoiced, under the designation of "VM Automotive Repair Service, " to petitioner Corporation the salaries of his
"Contract Workers" on which amounts, a three percent (3%) "sales tax" was added. The "Work Contract" also provided that Broadway
Motors would negotiate only with Apolinario on any work order, and would refrain from dealing with any member of Apolinario's
group of "Contract Workers. 6

Turning to the power to control Apolinario's conduct appears from the stipulations of the Work Contract that Apolinario and his
"Contract Workers" were required not only to keep regular working hours, but to render overtime service as well, when 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 work beyond that which had been authorized by petitioner Corporation. 8 Any defect in the
workmanship of their jobs was subject to correction by petitioner Corporation's designated supervisors and inspectors even as the
work was still in progress, and not just after the same had already been completed. 9 Furthermore, Apolinario and his men were
expressly required to abide by petitioner Corporation's regulations and policies, "particularly on the wearing of uniforms and
Identification cards, " which Id cards had to be worn at all times while within the work premises. Apolinario's "casual workers" were
additionally required to deposit their Id cards with petitioner Corporation's security guard at the end of the working day. 10 In other
words, Apolinario and his "Contract Workers" were under the direct control and supervision of the supervisors and managers of
petitioner Corporation from the 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.

Petitioner Corporation urges that Apolinario was not its own employee but, rather, an independent contractor who conducted his own
separate business under the trade name of "VM Automotive Repair Service" and had his own "Contract Workers."

The indices of an owner-independent contractor relationship are set out in Section 8 of Rule VIII, Book Ill 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. (Emphasis supplied.)
"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 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

xxx xxx xxx (Emphasis supplied.)

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 Philippine Bank of Communications v. National Labor Relations Commission et al. 11

... The "labor-only" contractor i.e., "the person or intermediary is considered "merely as an agent of the employer."
The employer is made by the statute responsible to the employees of the "labor only" contractor as if such employee
had been directly employed by the employer. Thus, where "labor only contracting exists in a given case, the statute
itself implies or establishes an employer-employee relationship between the employer (the owner of the project) and
the employees of the "labor 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. The law in effect holds both the
employer and the "labor-only" contractor responsible to the latter's employees for the more effective safeguarding of
the employees' rights under the labor Code. (Emphasis supplied.)

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 "labor-only" contractor including the latter"s "Contract Workers," that relationship being attributed
by the law itself. Petitioner Corporation"s defense thus compels us to examine still further the relationship between itself and private
respondent Apolinario in terms of the above indices of contracting — "job" or "labor-only. "

We note firstly that, under the Work Contract, Apolinario supplied only "labor and 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, award to him
under (the) contract." 12 Apolinario also undertook to "hire and bring in additional workers as may be required by the company, to
handle additional work load or to accelerate or facilitate completion of work in process. 13 Petitioner Corporation supplied all the
tools, equipment, machinery and materials necessary for Apolinario to carry out his assigned painting jobs, which painting jobs were
executed by Apolinario and his men within the premises owned and maintained by petitioner Corporation. The control and direction
exercised by petitioner Corporation over the work done by Apolinario and his "Contract Workers" was well- nigh complete, as
indicated earlier. There was, furthermore, no evidence adduced by petitioner Corporation to show that Apolinario had substantial
capital investment in "VM Automotive Repair Service" or that "VM Automotive Repair Service" carried on, in its own premises, a car
repair business operation separate and distinct from that 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 Broadway Motors. What the evidence of record
reveals is that the alleged "Contract Work" carried out by Apolinario and his "Contract Workers," excepting overtime work, was
performed during regular working hours six (6) days in a week, which circumstance must have made it virtually impossible for them
to carry on any additional and independent auto painting business outside the premises of Broadway Motors. Finally, Apolinario and
his men were engaged in the performance of a line 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 of an automotive repair shop.

We conclude that while there is present in the relationship between petitioner Corporation and private respondent some factors
suggestive of an owner- independent contractor relationship (e.g., the manner of payment of compensation to Apolinario and his
"Contract Workers"), many other factors are present which demonstrate that that relationship is properly characterized as one of
employer-employee. We conclude, further, that the same factors indicate the existence of a "labor-only" contracting arrangement
between petitioner Corporation on the one hand as owner, and upon the other hand, Apolinario as "labor-only" contractor and his
"Contract Workers." Thus, an employer-employee relationship must be held to have existed between petitioner Corporation and
private respondent, whether considered as a result of the contractual arrangements between them or as a result of the operation of the
Labor Code (at least from 1974 onwards) and its Implementing Rules. It follows, finally, that the ruling of public respondent NLRC
that petitioner Corporation and private respondent were employer and employee, respectively, cannot be regarded as constituting a
grave abuse of discretion or as rendered without or in excess of jurisdiction.

In respect of public respondent NLRC"s finding that Apolinario was dismissed without any opportunity to present his side on the
charge against him of participating in the fistfight with petitioner Corporation"s shop superintendent, no compelling reason has been
shown by the petitioner Corporation why we should overturn such finding of fact.

WHEREFORE, the Petition for certiorari is DISMISSED. The decision of the public respondent National Labor Relations
Commission dated 4 February 1987 is hereby AFFIRMED. Costs against the petitioner.

SO ORDERED.

PHILIPPINE FUJI XEROX CORPORATION, JENNIFER A. BERNARDO, and ATTY. VICTORINO LUIS, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (First Division), PAMBANSANG KILUSAN NG PAG-GAWA,
(KILUSAN)-TUCP, PHILIPPINE XEROX EMPLOYEES UNION-KILUSAN and PEDRO GARADO, respondents.

MENDOZA, J.:p

This is a petition for certiorari to set aside the decision of the NLRC, finding petitioner Philippine Fuji Xerox Corporation (Fuji
Xerox) guilty of illegally dismissing private respondent Pedro Garado and ordering him reinstated. The NLRC decision reverses on
appeal a decision of the Labor Arbiter finding private respondent to be an employee of another firm, the Skillpower, Inc., and not of
petitioner Fuji Xerox.

The question raised in this case is whether private respondent is an employee of Fuji Xerox (as the NLRC found) or of Skillpower,
Inc. (as the Labor Arbiter found). For reasons to be hereafter explained, we hold that private respondent is an employee of Fuji Xerox
and accordingly dismiss the petition for review of Fuji Xerox.

The following are the facts.

On May 6, 1977, petitioner Fuji Xerox entered into an agreement under which Skillpower, Inc. supplied workers to operate copier
machines of Fuji Xerox as part of the latter's "Xerox Copier Project" in its sales offices. Private respondent Pedro Garado was
assigned as key operator at Fuji Xerox's branch. at Buendia, Makati, Metro Manila, in February of 1980.

In February of 1983, Garado went on leave and his place was taken over by a substitute. Upon his return in March, he discovered that
there was a spoilage of over 600 copies. Afraid that he might be blamed for the spoilage, he tried to talk a service technician of Fuji
Xerox into stopping the meter of the machine.

The technician refused Garado's request, but this incident came to the knowledge of Fuji Xerox which, on May 31, 1983, reported the
matter to Skillpower, Inc. The next day, Skillpower, Inc. wrote Garado, ordering him to explain. In the meantime, it suspended him
from work. Garado filed a complaint for illegal dismissal.

The Labor Arbiter found that Garado applied for work to Skillpower, Inc.; that in 1980 he was employed and made to sign a contract;
that although he received his salaries regularly from Fuji Xerox, it was Skillpower, Inc. which exercised control and supervision over
his work; that Skillpower, Inc. had substantial capital and investments in machinery, equipment, and service vehicles, and assets
totalling P5,008,812.43. On the basis of these findings the Labor Arbiter held in a decision rendered on October 30, 1986 that Garado
was an employee of Skillpower, Inc., and that he had merely been assigned by Skillpower, Inc. to Fuji Xerox. Hence, the Labor
Arbiter dismissed Garado's complaint.

On the other hand, the NLRC found Garado to be infact an employee of petitioner Fuji Xerox and by it to have been illegally
dismissed. The NLRC found that although Garado's request was wrongful, dismissal would be a disproportionate penalty. The NLRC
held that although Skillpower, Inc. had substantial capital assets, the fact was that the copier machines, which Garado operated,
belonged to petitioner Fuji Xerox, and that although it was Skillpower, Inc. which had suspended Garado, the latter merely acted at the
behest of Fuji Xerox. The NLRC found that Garado worked under the control and supervision of Fuji Xerox, which paid his salaries,
and that Skillpower, Inc. merely acted as paymaster-agent of Fuji Xerox. The NLRC held that Skillpower, Inc. was a labor-only
contractor and Garado should be deemed to have been directly employed by Fuji Xerox, regardless of the agreement between it and
Skillpower, Inc. Accordingly, the NLRC ordered:

WHEREFORE, premises considered, the respondents are hereby ordered to immediately reinstate complainant
Pedro Garado to his former position as key operator with three (3) years backwages, without qualification or
reduction whatsoever . . . . Except as herein above MODIFIED, the appealed decision is hereby Affirmed.

Hence the present petition. Fuji Xerox argues that Skillpower, Inc. is an independent contractor and that Garado is its employee for the
following reasons:

(1) Garado was recruited by Skillpower, Inc.;

(2) The work done by Garado was not necessary to the conduct of the business of Fuji Xerox;

(3) Garado's salaries and benefits were paid directly by Skillpower, Inc.;

(4) Garado worked under the control of Skillpower, Inc.; and

(5) Skillpower, Inc. is a highly-capitalized business venture.

The contentions are without merit.

Fuji Xerox contends that Garado was actually recruited by Skillpower, Inc. as part of its personnel pool and later merely assigned to it
(petitioner) . It is undisputed, however, that since 1980, 1 when Garado was first assigned to work at Fuji Xerox, he had never been
assigned to any other company so much so that by 1984, he was already a member of the union which petitioned the company for his
regularization. 2 From 1980 to 1984 he worked exclusively for petitioner. Indeed, he was recruited by Skillpower, Inc. solely for
assignment to Fuji Xerox to work in the latter's Xerox Copier Project. 3

Petitioners claim that Skillpower, Inc. has other clients to whom it provided "temporary" services. That, however, is irrelevant. What
is important is that once employed, Garado was never assigned to any other client of Skillpower, Inc. In fact, although under the
agreement Skillpower, Inc. was supposed to provide only "temporary" services, Skillpower, Inc. actually supplied Fuji Xerox the labor
which the latter needed for its Xerox Copier Project for seven (7) years, from 1977 to 1984.

On January 1, 1983, private respondent signed a contract entitled "Appointment as Contract Worker," in which it was stated that
private respondent's status was that of a contract worker for a definite period from January 1, 1983 to June 30, 1983. As such, private
respondent's employment was considered temporary, to terminate automatically six (6) months afterwards, without necessity of any
notice and without entitling private respondent to separation or termination pay. Private respondent was made to understand that he
was an employee of Skillpower, Inc., and not of the client to which he was assigned. Therefore, the termination of the contract or any
renewal or extension thereof did not entitle him to become an employee of the client and the latter was not under any obligation to
appoint him as such, "notwithstanding the total duration of the contract or any extension or renewal thereof."

This is nothing but a crude attempt to circumvent the law and undermine the security of tenure of private respondent by employing
workers under six-month contracts which are later extended indefinitely through renewals. As this Court held in the Philippine Bank
of Communications v. NLRC: 4

It is not difficult to see that to uphold the contractual arrangement between the bank and CESI would in effect be to
permit employers to avoid the necessity of hiring regular or permanent employees and to enable them to keep their
employees indefinitely on a temporary or casual status, thus to deny them security of tenure in their jobs. Article 106
of the Labor Code is precisely designed to prevent such a result.

Second. Petitioner contends that the service provided by Skillpower, Inc., namely, operating petitioners' xerox machine, is not directly
related nor necessary to the business of selling and leasing copier machines of petitioner. Petitioners claim that their Xerox Copier
Project is just for public service and is purely incidental to its business. What petitioners earn from the project is not even sufficient to
defray their expenses, let alone bring profits to them. As such, the project is no different from other services which can legally be
contracted out, such as security and janitorial services. Petitioners contend that the copier service can be considered as part of their
"housekeeping" tasks which can be let to independent contractors. 5

We disagree. As correctly held by the NLRC, at the very least, the Xerox Copier Project of petitioners promotes goodwill for the
company . It may not generate income for the company but there are activities which a company may find necessary to engage in
because they ultimately redound to its benefit. Operating the company's copiers at its branches advertises the quality of their products
and promotes the company's reputation and public image. It also advertises the utility and convenience of having a copier machine. It
is noteworthy that while not operated for profit the copying service is not intended either to be "promotional," as, indeed, petitioner
charged a fee for the copies made.

It is wrong to say that if a task is not directly related to the employer's business, or it falls under what may be considered
"housekeeping activities," the one performing the task is a job contractor. The determination of the existence of an employer-
employee relationship is defined by law according to the facts of each case, regardless of the nature of the activities involved.

Third. Petitioners contend that it never exercised control over the conduct of private respondent. Petitioners allege that the salaries
paid to Garado, as well as his employment records, vouchers and loanchecks from the SSS were coursed through Skillpower, Inc. In
addition private respondent applied for vacation leaves to Skillpower, Inc.

It is also contended that it was Skillpower, Inc. which twice required private respondent to explain why he should not be dismissed for
the spoilage in Fuji Xerox's Buendia branch and suspended him pending the result of the investigation. According to petitioners,
although they conducted an administrative investigation, the purpose was only to determine the complicity of their own employees in
the incident, if any, and any criminal liability of private respondent.

This claim is belied by two letters written by Atty. Victorino H. Luis, Legal and Industrial Relations Officer of the company, to the
union president, Nick Macaraig. The first letter, dated July 6, 1983, stated:

This has reference to your various letters dated today on administrative case concerning Messrs. Crisostomo Cruz,
Pedro Garado and Ms. Evelyn Abenes.

In connection with the above and in the case likewise of Mr. Dionisio Guyala, please be advised that the
proceedings against them are being carried out under the terms, and in accordance with the provisions of our
Policy and Procedure on Employment Termination as well as Policy on Disciplinary Actions dated October 1, 1982,
and not under the Grievance Machinery under our CBA.

Your action apparently is premised on the assumption that we are now in the Grievance Stage, which is premature.
If we have allowed the Union to participate in our Investigation and Administrative panels, it is only a concession on
management's part in accordance with No. IV, Section B, Paragraph 3 of the abovecited policy on the investigation,
the Personnel/Administrative Department may consult the Union whenever necessary.

We shall entertain grievances under our CBA Machinery only after decisions have been made on the foregoing cases
and should you find the penalties imposed, if any, as unjust, unduly harsh, discriminating otherwise fit subject for
grievance by the Union itself under the terms of our CBA.

Accordingly, we are proceeding with our investigations on the administrative charges with or without your presence
or that of the respondents if it is the latter's preference, as in the case of Crisostomo Cruz, to ignore the same.
(Emphasis ours)

The second letter, dated July 13, 1983, 6 read:

You obviously persist in pursuing the misconception that our allowing your presence in the administrative
proceedings against Messrs. Guyala, Cruz, et al. has set the Grievance Machinery under our CBA into play. We can
only reiterate our statement in our letter of July 6 that we were implementing Policy and Procedures on Termination
dated October 1, 1982 and that your presence in helping bolster the defense for the respondents was only with our
forbearance in the spirit of cooperation in order to better ferret out the truth.

The power or authority to impose discipline and disciplinary measures upon employees is a basic prerogative of
Management, something that cannot be abdicated, much less ceded to a CBA Grievance Committee which is limited
to settling disputes and misunderstanding as to interpretation, application, or violation of any provisions of the CBA
agreement . . . As likewise pointed out in our letter of July 6 recourse to Grievance may possibly be resorted to if in
the Union's opinion a penalty imposed upon a respondent Union member is discriminating to the member or
otherwise illegal, unduly harsh, and the like. Ultimately, the remedy lies in appeal to the NLRC, as in similar cases
in the past. (Emphasis ours)
These letters reveal the role which Fuji Xerox played in the dismissal of the private respondent. They dispel any doubt that Fuji Xerox
exercised disciplinary authority over Garado and that Skillpower, Inc. issued the order of dismissal merely in obedience to the
decision of petitioner.

Fourth. Petitioner avers that Skillpower, Inc. is a highly-capitalized business venture, registered as an "independent employer" with the
Securities and Exchange Commission as well as the Department of Labor and Employment. Skillpower, Inc. is a member of the Social
Security System. In 1984 it had assets exceeding P5 million pesos and at least 20 typewriters, office equipment and service vehicles. It
had employees of its own and a pool of 25 clerks assigned to clients on a temporary basis.

Petitioners cite the case of Neri v. NLRC, 7 in which it was held that the Building Care Corporation (BCC) was an independent
contractor on the basis of finding that it had substantial capital, although there was no evidence that it had investments in the form of
tools, equipment, machineries and work premises. But the Court in that case considered not only the capitalization of the BCC but also
the fact that BCC was providing specific special services (radio/telex operator and janitor) to the employer; that in another case 8 the
Court had already found that the BCC was an independent contractor; that BCC retained control over the employees and the employer
was actually just concerned with the end-result; that BCC had the power to reassign the employees and their deployment was not
subject to the approval of the employer; and that BCC was paid in lump sum for the services it rendered. These features of that case
make it distinguishable from the present one.

Here, the service being rendered by private respondent was not a specific or special skill that Skillpower, Inc. was in the business of
providing. Although in the Neri case the telex machine operated by the employee belonged to the employer, the service was deemed
permissible because it was specific and technical. This cannot be said of the service rendered by private respondent Garado.

The Rules to Implement of the Labor Code, Book III, Rule VIII, §8, provide that there is job contracting when the following
conditions are fulfilled:

(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.

Otherwise, according to Art. 106 of the Labor code,

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers
recruited and placed by such persons are performing activities which are directly related to the principal business of
such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer
who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by
him.

Petitioner Fuji Xerox argues that Skillpower, Inc. had typewriters and service vehicles for the conduct of its business independently of
the petitioner. But typewriters and vehicles bear no direct relationship to the job for which Skillpower, Inc. contracted its service of
operating copier machines and offering copying services to the public. The fact is that Skillpower, Inc. did not have copying machines
of its own. What it did was simply to supply manpower to Fuji Xerox. The phrase "substantial capital and investment in the form of
tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business," in the
Implementing Rules clearly contemplates tools, equipment, etc., which are directly related to the service it is being contracted to
render. One who does not have an independent business for undertaking the job contracted for is just an agent of the employer.

Fifth. The Agreement between petitioner Fuji Xerox and Skillpower, Inc. provides that Skillpower, Inc. is an independent contractor
and that the workers hired by it "shall not, in any manner and under any circumstances, be considered employees of [the] Company,
and that the Company has no control or supervision whatsoever over the conduct of the Contractor or any of its workers in respect to
how they accomplish their work or perform the Contractor's obligations under this AGREEMENT."

In Tabas v. California Manufacturing Company, Inc., 9 this Court held on facts similar to those in case at bar:

There is no doubt that in the case at bar, Livi performs "manpower services," meaning to say, it contracts out labor
in favor of clients. We hold that it is one notwithstanding its vehement claims to the contrary, and notwithstanding
the provision of the contract that it is "an independent contractor." The nature of one's business is not determined by
self-serving appellations one attaches thereto but by the tests provided by statute and prevailing case law. The bare
 fact that Livi maintains a separate line of business does not extinguish the equal fact that it has 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 "which are not directly related to the general business of manufacturing," California's
purported "principal operation activity." The petitioners had been charged with "merchandising [sic] promotion or
sale of the products of [California] in the different sales outlets in Metro Manila including task and occasional [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 (California's promotions or sales arm or agents, or otherwise, rendered a piece of work it
(California) could not have 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 (California's) premises and equipment.

xxx xxx xxx

The fact that the petitioners have allegedly admitted being Livi's "direct employees" in their complaints is nothing
conclusive. For one thing, the fact that the 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 judged from case to
case and the decree of law, and not by declaration of parties.

Skillpower, Inc. is, therefore, a "labor-only" contractor and Garado is not its employee. No grave abuse of discretion can thus be
imputed to the NLRC for declaring petitioner Fuji Xerox guilty of illegal dismissal of private respondent.

ACCORDINGLY, the petition for certiorari is DISMISSED for lack of merit.

SO ORDERED.

DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R. ERISPE, JOEL MADRIAGA,
ARTHUR M. ESPINO, AMARO BONA, FERDINAND CRUZ, FEDERICO A. BELITA, ROBERTO P. ISLES, ELMER
ARMADA, EDUARDO UDOG, PETER TIANSING, MIGUELITA QUIAMBOA, NOMER MATAGA, VIOLY ESTEBAN
and LYDIA ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON, NATIONAL LABOR
RELATIONS COMMISSION, and HON. EMERSON C. TUMANON, respondents.

SARMIENTO, J.:

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 benefits, including minimum wage, overtime pay, holiday pay, thirteen-month pay, and
emergency cost of living allowance pay, against the respondent, the California Manufacturing Company. 1

On October 7, 1986, after the cases had been consolidated, the California Manufacturing Company (California) filed a motion to
dismiss as well as a position paper denying the existence of an employer-employee relation between the 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 as a party-respondent.

It appears that the petitioners were, prior to their stint with California, employees of Livi Manpower Services, Inc. (Livi), which
subsequently assigned them to work as "promotional merchandisers" 3 for the former firm pursuant to a manpower supply agreement.
Among other things, the agreement provided that California "has no control or supervisions whatsoever over [Livi's] workers with
respect to how they accomplish their work or perform [Californias] obligation"; 4 the Livi "is an independent contractor and nothing
herein contained shall be construed as creating 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 [Livi] to comply with all existing as well as future laws, rules
and regulations pertinent to employment of labor" 6 and that "[California] is free and harmless from any liability arising from such
laws or from any accident that may befall workers and employees of [Livi] while in the performance of their duties for [California].7

It was further expressly stipulated that the assignment of workers to California shall be on a "seasonal and contractual basis"; that
"[c]ost of living allowance and the 10 legal holidays will be charged directly to [California] at cost "; and that "[p]ayroll for the
preceeding [sic] week [shall] be delivered by [Livi] at [California's] premises." 8
The petitioners were then made to sign employment contracts with durations of six months, upon the expiration of which they signed
new agreements with the same period, and so on. Unlike regular California employees, who received not less than P2,823.00 a month
in addition to a host of fringe benefits and bonuses, they received P38.56 plus P15.00 in allowance daily.

The petitioners now allege that they had become regular California employees and demand, as a consequence whereof, similar
benefits. They likewise claim that pending further proceedings below, they were notified by California that they would not be rehired.
As a result, they filed an amended complaint charging California with illegal dismissal.

California admits having refused to accept the petitioners back to work but deny liability therefor for the reason that it is not, to begin
with, the petitioners' employer and that the "retrenchment" had been forced by business losses as well as expiration of contracts.9 It
appears that thereafter, Livi re-absorbed them into its labor pool on a "wait-in or standby" status. 10

Amid these factual antecedents, the Court finds the single most important issue to be: Whether the petitioners are California's or Livi's
employees.

The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the existence of any employer-employee relation between
the petitioners and California 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 breath, however, the labor arbiter absolved Livi from any obligation
because the "retrenchment" in question was allegedly "beyond its control ." 13 He assessed against the firm, nevertheless, separation
pay and attorney's fees.

We reverse.

The existence of an employer-employees relation is a question of law and being 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 as the
petitioners' employer and had absolved the latter from any liability as an employer, will not erase either party's obligations as an
employer, if an employer-employee relation otherwise exists between the workers and either firm. At any rate, since the agreement
was between Livi and California, they alone are bound by it, and the petitioners cannot be made to suffer from its adverse
consequences.

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 selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence
or absence of a power of dismissal; and (4) the presence or absence of a power to control the putative employee's conduct. 14 Of the
four, the right-of-control test has been held to be the decisive factor. 15

On the other hand, we have likewise held, based on Article 106 of the Labor Code, hereinbelow reproduced:

ART. 106. Contractor or sub-contractor. — Whenever an employee enters into a contract with another person for
the performance of the former's work, the employees of the contractor and of the latter's sub-contractor, if any, shall
be paid in accordance with the provisions of this Code.

In the event that the contractor or sub-contractor fails to pay wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his contractor or sub-contractor to such employees to the
extent of the work performed under the contract, in the same manner and extent that he is liable to employees
directly employed by him.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the
rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as differentiations within these types of contracting and
determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent
any violation or circumvention of any provisions of this Code.

There is 'labor-only' contracting where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers
recruited and placed by such person are performing activities which are directly related to the principal business of
such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer
who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by
him.
that notwithstanding the absence of a direct employer-employee relationship between the employer in whose favor work had been
contracted out by a "labor-only" contractor, and the employees, the former has the responsibility, together with the "labor-only"
contractor, for any valid labor claims, 16 by operation of law. The reason, so we held, is that the "labor-only" contractor is considered
"merely an agent of the employer," 17 and liability must be shouldered by either one or shared by both. 18

There is no doubt that in the case at bar, Livi performs "manpower services", 19 meaning to say, it contracts out labor in favor of
clients. We hold that it is one notwithstanding its vehement claims to the contrary, and notwithstanding the provision of the contract
that it is "an independent contractor." 20 The nature of one's 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 maintains a separate line of business does
not extinguish the equal fact that it has 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 'which are not directly related to the general business of
manufacturing," 22California's purported "principal operation activity. " 23 The petitioner's had been charged with "merchandizing [sic]
promotion or sale of the products of [California] 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 business. It is not, then, as if Livi had served as its
(California's) promotions or sales arm or agent, or otherwise, rendered a piece of work it (California) could not have 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 (California's) premises and equipment. 25

Neither Livi nor California can therefore escape liability, that is, assuming one exists.

The fact that the petitioners have allegedly admitted being Livi's "direct employees" 26 in their complaints is nothing conclusive. For
one thing, the fact that the 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 judged from case to case and the decree of law, and not by declarations of
parties.

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. NLRC, 27 a temporary or casual employee, under Article 218 of the Labor Code, becomes regular after
service of one year, unless he has been contracted for a specific project. And we cannot say that merchandising is a specific project for
the obvious reason that it is an activity related to the day-to-day operations of California.

It would have been different, we believe, had Livi been discretely a promotions firm, and that California had hired it to perform the
latter's merchandising activities. For 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. 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 pointed out in the Philippine
Bank of Communications case:

xxx xxx xxx

... The undertaking given by CESI in favor of the bank was not the performance of a specific job for instance, the
carriage and delivery of documents and parcels to the addresses thereof. There appear to be many companies today
which perform this discrete service, companies with their own personnel who pick up documents and packages from
the offices of a client or customer, and who deliver such materials utilizing their own delivery vans or motorcycles
to the addressees. In the present case, the undertaking of CESI was to provide its client the bank with a certain
number of persons able to carry out the work of messengers. Such undertaking of CESI was complied with when the
requisite number of persons were assigned or seconded to the petitioner bank. Orpiada utilized the premises and
office equipment 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 related to the day-to-day operations of the
bank. Section 9(2) quoted above does not require for its applicability that the petitioner must be engaged in the
delivery of items as a distinct and separate line of business.

Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and placement
corporation placing bodies, as it were, in different client companies for longer or shorter periods of time, ... 28

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 manpower, it supplied California with personnel, as if such personnel had been directly hired by
California. Hence, Article 106 of the Code applies.

The Court need not therefore consider whether it is Livi or California which exercises control over the petitioner vis-a-vis the four
barometers referred to earlier, since by fiction of law, either or both shoulder responsibility.
It is not that by dismissing the terms and conditions of the manpower supply agreement, we have, hence, considered it illegal. Under
the Labor Code, genuine job contracts are permissible, provided they are genuine job contracts. But, as we held in Philippine Bank of
Communications, supra, when such arrangements are resorted to "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 concern. For then that would
compromise the rights of the workers, especially their right to security of tenure.

This brings us to the question: What is the liability of either Livi or California?

The records show that the petitioners bad been given an initial six-month contract, 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. Hence, they
cannot be separated without due process of law.

California resists reinstatement on the ground, first, and as we Id, that the petitioners are not its employees, and second, by reason of
financial distress brought about by "unfavorable political and economic atmosphere" 31"coupled by the February Revolution." 32 As to
the first objection, we reiterate that the petitioners are its employees and who, by virtue of the required one-year length-of-service,
have acquired a regular status. As to the second, we are not convinced that California has shown enough evidence, other than its bare
say so, that it had in fact suffered serious business reverses as a result alone of the prevailing political and economic climate. We
further find the attribution to the February Revolution as a cause for its alleged losses to be gratuitous and without basis in fact.

California should be warned that retrenchment of workers, unless clearly warranted, has serious consequences not only on the State's
initiatives to maintain a stable employment record for the country, but more so, on the workingman himself, amid an environment that
is desperately scarce in jobs. And, the National Labor Relations Commission should have known better than to fall for such
unwarranted excuses and nebulous claims.

WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): SETTING ASIDE the decision, dated March 20,
1987, and the resolution, dated August 19, 1987; (2) ORDERING the respondent, the California Manufacturing Company, to
REINSTATE the petitioners with full status and rights of regular employees; and (3) ORDERING the respondent, the California
Manufacturing Company, and the respondents, Livi Manpower Service, Inc. and/or Lily-Victoria Azarcon, to PAY, jointly and
severally, unto the petitioners: (a) backwages and differential pays effective as and from the time they had acquired a regular status
under the second paragraph, of Section 281, of the Labor Code, but not to exceed three (3) years, and (b) all such other and further
benefits as may be provided by existing collective bargaining agreement(s) or other relations, or by law, beginning such time; and (4)
ORDERING the private respondents to PAY unto the petitioners attorney's fees equivalent to ten (10%) percent of all money claims
hereby awarded, in addition to those money claims. The private respondents are likewise ORDERED to PAY the costs of this suit.

IT IS SO ORDERED.

SOCIAL SECURITY SYSTEM, petitioner,

vs.
THE COURT OF APPEALS and THE PHILIPPINE GUARDS PROTECTION UNIT, respondents.

VILLAMOR, J.:

This is an appeal by the Social Security System from the judgment of the Court of Appeals declaring null and void the membership of
private cases Philippine Guards Protection Unit in the Social Security System from August 1, 1958 to June 17, 1960, pursuant to
Republic Act No. 1161 (The Social security Act of 1954), as amended by Republic Act No. 1792 and accordingly excluding it from
compulsory coverage during that period; declaring the said private cases a member of the Social Security System only as of June 18,
1960, pursuant Republic Act No. 2658, which farther amended the said Section 9; and ordering the Social Security System to refund
to the said cases the contributions remitted by the latter to the System corresponding to the first period mentioned.

The following proceedings gave rise to the present appeal:

On February 18, 1960, as a result of a letter sent by the Social Security System to the Philippine Guards Protection Unit threatening it
with court action if it did not continue to remit its contributions to the System, the said protection unit, owned and operated by
Clemente V. Eslao filed with the Social Security Commission a petition for exclusion from coverage under the System and for a
refund its remittances for September and October 1958. The reason given by the unit is that it is not subject to compulsory coverage
under the Social Security Act of 1954, as amended by Republic Act No. 1792, because it is not the employer, but merely the agent of
the thirty-nine security guards or watchmen whose names appear in its membership list, for, actually, it has only one employee,
namely, the clerk-secretary of the office. Under Section 9 of the Social Security Act of 1954, as amended by Republic Act No. 1792,
which work effect on June 21, 1957, "the Commission may not compel any employer to become a member of the System unless he
shall have been in operation for at least two years and has, at the time of admission, if admitted for membership during the first year of
the System's operation, at least fifty employees and if admitted for membership in the following year of operation and thereafter, at
least six employees ...." After the issues had been joined and the case heard, the Social Security Commission, on April 12, 1961,
handed down a resolution finding the Philippine Guards Protection Unit the employer of the security guards or watchmen, and
accordingly declaring the latter subject to compulsory coverage. A motion to reconsider was filed, but the same was denied in an order
of May 8, 1961. Hence, an appeal was interposed by the Philippine Guards Portion Unit with the Court of Appeals, which reversed the
resolution and order of the Commission in a decision promulgated on July 24, 1967, the dispositive portion whereof is summarized in
the opening sentence of this Opinion.

We have noticed that although under the judgment of the Court of Appeals private respondent's membership in the System as of June
18, 1960, has been expressly declared and recognized pursuant to Section 9 of the Social Security Act of 1954, as amended by
Republic Act No. 2658, which eliminated among others, the requirement under Republic Act. No. 1792 that the employer should have
at least six employees for purposes of compulsory coverage, it is not clear from the appealed decision if it is also the sense and intent
of that court that the security guards or watchmen in the roster of private respondent should, under Republic Act No. 2658, likewise
not be considered employees of the said respondent. As it now stands, the decision under review can be interpretend to mean that
private cases became a member of the system as of June 18, 1960, when Republic Act No. 2658 took effect, because it had at least one
employee, but that the security guards or watchmen in its roster should not — as under Republic Act No. 1792 — be considered
private respondent's employees. To dispel any doubt and obviate further suits on the matter, we hereby make it clear that the issue for
resolution is whether or not for purposes of social security coverage, the security guards or watchmen in question should be
considered private respondent's employee's not only under Republic Act No. 1792, but also under Republic Act No. 2658.

The pertinent facts concerning the mechanics of the tripartite relationship among the Philippine Guards Protection Unit, its clients and
the security guards or watchmen, which were substantially adopted by the Court of Appeals, are succinctly stated in the basic
resolution of the Social Security Commission, to wit:

... [W]henever a person approaches the owner of the agencies for employment, the owner tells him to secure a
license as a special watchman and in the meantime, the owner would look for persons or establishments that need
the service of a guard or guards. If no such persons or establishments are found after the applicant has secured a
license, he remains with the agency as an "extra guard" and he is utilized by the agency as a substitute for those
guards going on vacation or for those who are sick or otherwise absent (t.s.n., April 4, 1960, pp. 11-12). The owner
may refuse to accommodate an applicant if he so desires (t.s.n., April 28, 1960, pp. 6-7). When a person or
establishment requiring the service of a guard is found by the owner, a contract is entered into between the owner of
the agency and the client, either orally or in writing (t.s.n., April 4, 1960, p. 17) The owner collects from the client
the fee for the service and from the amount received, the owner pays the salary of the guard, retaining a part thereof
for himself as his "commission" as long as the watchman is assigned to guard the premises of a client (t.s.n., April 4,
1960, p. 18).

The owner of the agency furnishes the firearms and ammunitions, but the watchmen buy their own uniforms (t.s.n.,
April 4, 1960, pp. 20, 21).

If a client is dissatisfied with the service of a guard, as when a guard is always late, the agency may change the
guard if the client so requests, or it may impose a fine on the guard as a disciplinary measure (t.s.n., April 4, 1960,
pp. 17-18).

The reasons of the Court of Appeals for concluding that there is no employer-employee relationship between private cases and the
security guards and watchmen may be summarized as follows: (a) it is to the employing units or companies that the watchmen render
their services, hence, it is the former that are the employers of the watchmen, pursuant to Section 8 (c) of the Act, which defines an
employer as one who "uses the services of another person who is under his orders as regards the employment," and to Section 8(d),
which defines an employee as one "whoperforms services for an employer in which either or both mental and physical efforts are used
and who receives compensation for such services where there is an employer-employee relation." While the companies or units hand
over the watchmen's compensation to private respondent, which in turn pays the salaries of the watchmen after deducting a
commission, whatever right or interest private cases has in the said salaries is limited to receiving the same for, in behalf of and in
trust for the watchmen, subject to its right to deduct its commission for securing work for them. (b) Since no service is rendered by the
watchmen to private respondent, it follows that in relation to their duties of guarding, watching and protecting the interests of the
companies or units, the watchmen receive no orders from private cases but from the said companies or units. (c) It is the companies or
units that hire or engage the watchmen, because without their asking for the latter's services, the watchmen concerned cannot be
employed in the said companies or units. (d) The employing company or unit has the right to ask for a change or replacement or even
to terminate its agreement with private respondent. (e) The Supreme Court has in a number of cases, recognized special watchmen as
employees of the companies to which they are assigned; and while those cases involve the interpretation of the Workers
Compensation Act and not the Social Security Act, the two laws being kindred legislations aimed at providing protection to the
employees against the hazards of disability, sickness and death it would not be improper to adopt a uniform interpretation.

Several considerations constrain us to differ with the views expressed above, and the conclusion arrived at, by cases Court of Appeals.

The Social Security Act of 1954, in its Section 8, contains, for purposes of social security coverage, definitions of terms, among which
are the following:

(c) Employer. — Any person, natural or juridical, domestic or foreign, who carries on in the Philippines any trade,
business, industry, undertaking, or activity of any kind and uses the services of another person who is under his
orders as regards the employment, except the Government and any of its political subdivisions, branches or
instrumentalities, including corporations owned or controlled by the Government.

(d) Employee. — Any person who performs services for an "employer" in which either or both mental and physical
efforts are used and who receives compensation for such services, where there is an employer-employee
relationship.

Tested against the criteria in Section 8 (c) and (d) of the Act, Cases Philippine Guards Protection unit must be considered an employer
of the thirty-nine security guards or watchmen, and the latter employees of said respondent. Private respondent carries on a business
— watchmen's service — from which it derives its income in the form of what it terms "commission". It uses the services of other
persons — the guards or watchmen — to carry on its business. Without them, cases would not be in business, which consists solely in
the letting out of watchmen's services for a fee. The guards or watchmen render their services to private respondent by allowing
themselves to be assigned by said respondent, which, furnishes them arms and ammunition, guard and protect, the properties and
interests of private respondents clients, thus enabling that respondents to fulfill its contractual obligation. Who the clients will be
under what terms and conditions the services will be rendered, are matters determined not by the guards or the watchmen, but not by
private respondents. On the other hand the client companies have no hand in selecting who among the guards or watchmen shall be
assigned to them. It is private respondents that issues assignment orders and instruction and exercise control and supervision over the
guard or watchmen, so much so that if for one reason or another, the client is dissatisfied with a services of a particular guard the
client cannot himself terminate the services of a particular guard, but has to notify private respondents, which either substitutes with
another or metes out to him disciplinary measures. That in the course of a watchman's assignment the client conceivably issues
instruction to him, does not in the least detract from the fact that private respondents is the said employer of the said watchman, for in
contemplation such instruction carry no more weight than mere request, the privity of contract between the client and private
respondents, not between the client, the guardsman or watchman. Collolarily, such giving out of instructions inevitably spring from
the clients right predicated on the contract for services entered into by it with private respondents.

In the matter of compensation, there can be question to all the guards or watchmen receive compensation from private respondents and
not from private companies or establishments whose premises they are guarding. The fee contracted to be paid by the client is
admittedly not equal to the salary of a guard or a watchman; such fee is arrived at independently of the salary to which the guard or
watchman is entitled under his arrangements with private respondent. All the fees received by private respondent from its clients
constitute, its gross income; and the salaries it pays to the guards or watchmen and to its clerk-secretary, its ex for, say, office rent,
light, water and telephone services, licenses, firearms and ammunition, are expenses incurred in the operation of the business. The net
income or profit arrived at after deducting these expenses from the gross income. Consequently, the term "commission" as applied to
the difference between the fee received from a client and the salary paid to a guard or watchman is a misnomer and its use by private
cases can alter the relationship of employer and employee between it and the guards or watchmen.

In defining an employee, sanction 8(d) employs the phrase "who receives compensation for such services, where is an employer-
employee relationship." Considering our view that the guards or watchmen included in its roster are private respondent's employees,
and considering, further, that private respondent is bona fide independent contractor, the client companies may not be deemed
employers of said guards or watchmen, pursuant to Section 8(j) (10), which reads:

Employees of bona fide independent contractors shall not be deemed employees of the employer engaging the
service of said contractors.

In Viana v. Al-Lagadan and Pica, 99 Phil., 408, 411-412, we said:

In determining the existence of employer-employee relationship, the following elements are generally considered,
namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal and
(4) the power to control the employee's conduct — although the latter is the most important element (35 AM. Jur.
445). ....
 From our earlier discussion it can be seen that all the four elements enumerated above are present to make out a
relationship of employer and employee between private cases and its thirty-nine security guards or watchmen.

The cases cited by respondent Court of Appeals, none of which, by the way, involves an interpretation of the Social Security Act of
1954, are not applicable. Associated Watchmen and Social Security Union (PTWO), et al. v. United States Lines, et al., 101 Phil., 896,
involved a determination of whether a labor dispute existed between the watchmen and the companies to which they were assigned by
the watchmen's agencies, and applied Section 2 of Republic Act No. 875 (The Industrial Peace Act), which defined a labor dispute as
"any controversy concerning terms, tenure ... regardless of whether the disputants stand in the proximate relation of employer and
employee." Maligaya Ship Watchmen Agency, et al. v. Associated Watchmen And Security Union (PTWO), 103 Phil., 920, involved
the determination of who among the members of watchmen's agencies should be allowed to take part in certification elections; and we
there held that the watchmen who were actually guarding the ships and their cargo should be considered laborers or employees of the
shipping lines for purposes of the elections, in view, among others, of the following considerations:

... [T]here never were contracts between the shipping lines and their agencies, on the one hand, and the watchmen
agencies-petitioners, on the other. The guarding of each ship and its cargo was never the subject of a contract
between one and the other. The watchmen agencies never undertook for a specified sum the guarding of the vessels
and their cargo, were never paid therefor a lump sum without reference to the number of watchmen performing the
duties of guarding and the wages that each should receive for his work. ....

The fact situation in the case is quite different from that in the present, for here there is admittedly a contract entered
into, other orally or in writing, between private respondent and its client companies, and, precisely, the guarding of
the companies' premises and properties is the subject of the contracts. In the payment by the client to private
respondents of compensation, there is reference to the number of watchmen but none to the wages each shall receive
for his work.

In Nicolas, et al. v. Dacara, et al., 106 Phil., 934, the issue was whether a sum of money in the hands of protective agency
representing "salaries of guards employed by the different companies affiliated with the detective and protective agency" could be
garnished for the payment of back wages judicially adjudicated in favor of other guards affiliated with the same protective agency. We
there held, citing Maligaya Ship Watchmen Agency, that since the money in question secured by the sheriff represented wages due the
guards "from companies that have employed their services, that the said amount really and actually represents such wages," the same
could not be attached or garnished for the debts of the protective agency to the other guards. Again, there is no similarity between that
case and the present, for here the security guards or watchmen receive their salaries not from the companies whose premises and
properties they guard, but from private respondent itself. In Compañia Maritima v. Cabagnot Vda. de Hio, et al. 107 Phil., 873, we
held that for purposes of workmen's compensation benefits, a watchman recruited by a protective agency to guard the premises of a
company should be considered an employee of said company should be considered an employee of said company; but there "it was
found by the (Workmen's Compensation) Commission that the salary of the deceased was paid directly from the funds of petitioner,"
the Compañia Maritima. It will be borne in mind, moreover, that in contradistinction with Section 8(j) (10) of the Social Security Act
of 1954 (quoted above), under Section 39 of the Workmen's Compensation Act the term "employer" includes "the owner or lessee of a
factory or establishment or place of work or any other person who is virtually the owner or manager of the business carried on in the
establishment or place of work but who, for the reason that there is an independent contractor in the same, or for any other reason, is
not the direct employer of laborers employed there."

There are practical considerations why private respondents Philippine Guards Protection Unit, and not its clients, would be considered,
for purposes of social security coverage, the employer of the 39 guards or watchmen listed in its roster (a) A watchman is not
permanently assigned to a client; for one reason or another he may be pulled out of a particular assignment and detailed to another
client. Consequently, different clients have to deduct premiums from different watchmen at different times and remit them to the
System together with the clients' own share of the premiums. (b) Under the arrangements between private respondents and its the
clients, the latter do not determine how much salary is to be plaid to the watchmen. The clients merely pay to private respondent the
fee stipulated in their contracts. How, then, can a client deduct the premiums due from a watchman? And how can it determine the
amount of the watchman's premium as well as its own? (c) Service performed by one person for another is not considered an
employment if the same is "purely casual and not for the purpose of occupation or business of the employer" (Section 8[j][3], Social
Security Act of 1954). Under private respondent's hypothesis, a watchman may at times be considered an employee and at other times
not, depending on whether or not he happens to be assigned to a client which carries on a trade business, industry, undertaking or
activity of any kind (Section 8[c], supra). A fortiori, of private respondent's 39 watchmen, some may be covered by the System's plan,
while others not. To pursue the matter further, all the 39 watchmen may be covered sometimes, and not at other times. (d) If private
respondent's clients are considered the watchmen's employees, it may happen that the 39 different watchmen, have 39 different
employers, which absurd, considering that all the watchmen are on the payroll and under the supervision of only one entity.

PREMISES CONSIDERED, the judgment appealed from is reversed and set aside. Private respondents membership in the Social
Security System from August 1, 1958 up to the present is declared valid and effective. Coverage in the System upon all its employees
falling within the required age level, including its security guards or watchmen, is hereby declared compulsory; and private respondent
is directed to pay or remit to petitioner all back premiums due. Costs against private respondent.

MAFINCO TRADING CORPORATION, petitioner,

vs.
THE HON. BLAS F. OPLE, in his capacity as Secretary of Labor, The NATIONAL LABOR RELATIONS COMMISSION
RODRIGO REPOMANTA and REY MORALDE, respondents.

AQUINO, J.:

Mafinco Trading Corporation (Mafinco for short) filed these special civil actions of certiorari and prohibition in order to annul the
decision of the Secretary of Labor 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 jurisdiction over the complaint lodged by the Federacion Obrera de la
Industria Tabaquera y Otros Trabajadores de Filipinas (FOITAF) against Mafinco for having dismissed Rodrigo Repomanta and Rey
Moralde (NLRC Case No. LR-086). The voluminous record reveals the following facts:

Peddling contracts and their termination. — On April 30, 1968 Cosmos Aerated Water Factory, Inc., hereinafter called Cosmos, a
firm based at Malabon, Rizal, 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 Repomanta agreed to "buy and sell" Cosmos soft drinks. Rey Moralde
entered into a similar contract. The contracts were to remain in force for one year unless sooner terminated by either party upon five
days notice to the other.1 The contract with Repomanta reads as follows:

PEDDLING CONTRACT

KNOW ALL MEN BY THESE PRESENTS:

This CONTRACT, entered into by and between:

The MAFINCO TRADING CORPORATION, a domestic corporation duly organized and existing under the laws of
the Philippines, doing business at Rm. 715 Equitable Bank Bldg., Juan Luna St., Manila, under the style MAFINCO
represented in this act by its General Manager, SALVADOR C. PICA, duly authorized for the purpose and
hereinafter referred to as MAFINCO, and RODRIGO REPOMANTA, married/single, of legal age, and a resident of
70-D Bo. Potrero, MacArthur Highway, Malabon, Rizal hereinafter referred to as PEDDLER, WITNESSETH:

WHEREAS, MAFINCO has been appointed as the exclusive distributor of 'COSMOS' Soft Drink Products for and
within the City of Manila;

WHEREAS, the PEDDLER is desirous of buying and selling in Manila the 'COSMOS' Soft Drink Products handled
by MAFINCO;

NOW THEREFORE, for and in consideration of the foregoing premises and the covenants and conditions
hereinafter set forth, the parties hereto has agreed as follows:

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 PEDDLER with a delivery truck with which the latter shall exclusively peddle the soft drinks of the
former, under the terms set forth herein;

2. The PEDDLER himself shall, carefully and in strict observance to traffic regulations, drive the truck furnished him by MAFINCO
or should he employ a driver or helpers such driver or helpers shall be his employees under his direction and responsibility and not
that of MAFINCO, and their compensation including salaries, wages, overtime pay, separation pay, bonus or other remuneration and
privileges shall be for the PEDDLER'S own account; The PEDDLER shall likewise bind himself to comply with the provisions of the
Social Security Act and all the applicable labor laws in relation to his employees;

3. The PEDDLER shall be responsible for any damage to property, death or injuries to persons or damage to the truck used by him
caused by his own acts or omission or that of his driver and helpers;
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 ordinary wear and tear;

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 be incurred by him in the sales of the soft drink products covered by the contract;

6. All purchases by the PEDDLER shall be charged to him at a price of P2.52 per case of 24 bottles, ex-warehouse; PROVIDED,
However, that if the PEDDLER purchases a total of not less than 250 cases a day, he shall be entitled further to a Peddler's Discount
of P11.00;

7. Upon the execution of this contract, the PEDDLER shall give a cash bond 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 other account which is
properly chargeable to the PEDDLER; within 30 days after the termination of this contract, the cash bond, after deducting proper
charges, shall be returned to the PEDDLER;

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 his cash bond at once to answer for any unliquidated accounts;

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 parties; However, either of the parties may terminate the same upon five (5) days prior notice to the other;

10. Upon the. termination of this contract, unless the same is renewed, the delivery truck and such other equipment furnished by
MAFINCO to the PEDDLER 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 MAFINCO;

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 third persons, PEDDLER shall furnish a performance bond of P1,000.00 in favor of MAFINCO
from a SURETY COMPANY acceptable to MAFINCO.

IN WITNESS WHEREOF, the parties hereto have signed this instrument at the City of Manila, Philippines, this
May 31, 1972.

MAFINCO TRADING CORPORATION

By:

(Sgd.) RODRIGO REPOMANTA (Sgd.) SALVADOR C. PICA

Peddler General Manager

(Witnesses and notarial acknowledgment are omitted)

On December 7, 1972 Mafinco, pursuant to section 9 of the contract, terminated the same. The notice to Repomanta reads as follows:

Dear Mr. Repomanta:

This has reference to the Peddling Contract you executed with the Mafinco Trading Corporation on May 31, 1972.
Please be informed that in accordance with the provisions of paragraph 9 of the said peddling contract, we are
hereby serving notice of termination thereof effective on December 12, 1972.

Yours truly,

(Sgd.) SALVADOR C. PICA

General Manager

Complaints of Repomanta and Moralde and NLRCs dismissal thereof. — Four days later or on December 11, 1972 Repomanta and
Moralde, through their union, the FOITAF, filed a complaint with the NLRC, charging the general manager of 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, maximize productivity and secure social justice for all". The brief complaint reads as follows:

Hon. Amado Gat Inciong, Chairman

National Labor Relations Commission

Phoenix Bldg., Intramuros,

Manila

Sir:

Pursuant to the Presidential Decree No. 21, Sections 2 and 11, the FOITAF files a complaint against SALVADOR
C. PICA, General Manager of MAFINCO TRADING CORP. located at Room 715, Equitable Bank Bldg., Juan
Luna, Manila, for terminating union officials (sic), Mr. Rodrigo Refumanta and Mr. Rey Moralde, which is a
violation of the above mentioned decree.

Notice of termination is herewith attach (sic).

We anticipate your due attention and assistance.

Respectfully yours,

(Signed by National Secretary of FOITAF)

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 independent contractors. It stressed that there was termination of the contract, not a dismissal of an
employee. In Repomanta's case, it pointed out that he was registered with the Social Security System as an employer who, as a
peddler, paid premiums 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 workmen's compensation insurance for his own employees or helpers. It alleged that
Moralde was in the same situation as Repomanta.

Mafinco further alleged that the Bureau of Labor Relations denied the application of 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 the Registrar of
Labor Organizations in Registration Proceeding No. 4, In the Matter of Cosmos Supervisors Association-PTGWO); that the Court of
Industrial Relations in Case No. 4399-ULP, Cosmos Supervisors' Association — PTGWO vs. Manila Cosmos Aerated Water Factory,
Inc., held in its decision dated July 17, 1967 that the peddlers were not employees of Cosmos, and that the Court of Appeals held in
Rapajon vs. Fong Kui and Figueras vs. Asierto, CA-G.R. No. 19477-R and 21397-R, March 18, 1958 that the delivery helpers of the
peddlers were not employees of Cosmos, a ruling which this Court refused to review (L-14072-74, Rapajon vs. Fung Kui, Resolution
dated July 16, 1958).

The complaint was referred to a factfinder who in a lengthy report dated January 22, 1973 found, after "exhaustively and impartially"
considering the contentions of the parties, that the peddlers were employers or "independent businessmen', as held by the Court of
Industrial Relations and the Court of Appeals, and that that holding has the force of res judicata. The factfinder recommended the
dismissal of the complaint.

The old NLRC, composed of Amado G. Inciong, Diego P. Atienza and Ricardo O. Castro, adopted that recommendation in its order
dated February 2, 1973. That order, which analyzes the peddling contract and reviews the court rulings on the matter, is quoted below:

The question of whether peddling contracts of the kind entered into between the parties give rise to an employer-
employee relationship is not new. Nor are the contracts themselves of recent vintage.

For at least twenty years respondent MAFINCO and its predecessor and/or principal, the Manila-Cosmos Aerated
Water Factory, have entered into contracts with peddlers, under the terms of which the latter buy from the former at
a special price, and sell in Manila, the former's soft drink products. The distributor provides the 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 to a fixed amount of peddler's discount.
 The peddler himself drives the truck but if he engages a driver or helpers, the latter are his employees and he
assumes all the responsibilities of an employer in relation to them. He also obtains at his own expense all licenses
and permits required by law of salesmen.

The peddler clears his accounts with the distributor at the end of each day, and unpaid accounts are charged against
the cash deposit or bond which he gives the distributor upon the execution of the peddling contract. He answers for
damages caused by him or his employees to third persons.

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 not create a relationship of employer and employee; that the
peddlers under such contract were not employees of the manufacturer or distributor, and accordingly dismissed the
complaints in the said case. (The peddler-complainants in that case were claiming overtime pay and damages,
among others.) Elevated to the Supreme Court on review (G.R. Nos.
L-14072 to L-14074, 2 August 1958), the decision of the Court of Appeals was in effect affirmed, for the petition for
review was dismissed by the Supreme Court 'for being factual and for lack of merit!

The Court of Industrial Relations is of the same persuasion. After inquiring extensively into substantially the same
terms and conditions of peddling contracts and the practices and relationships that went into their implementation,
the Court said in Case No. 4399ULP that the peddlers of the Manila-Cosmos Aerated Water Factory were not
employees of the latter.

These precedents apply squarely to the case at hand. The complainants here have not shown that their peddling
contracts with the respondent differ in any substantial degree from those that were at issue in the Court of Industrial
Relations, the Court of Appeals and the Supreme Court in the cases cited above. Indeed, a comparison 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 by those courts. If at all, the additional stipulations in the present contracts
strengthen the position that the complainant peddlers are independent contractors or businessman, not employees of
the respondent.

Nor has there been shown any substantial change in the old practices of peddlers vis-a-vis the distributor or
manufacturer. The points raised by the complainants in their pleadings regarding these practices were extensively
discussed by the CIR in the ULP case above referred to.

We are not prepared to depart from this rule of long standing. It is the law of the case.

We therefore hold that the complainants in this case were not employees of MAFINCO and Presidential Decree No.
21 does not I apply to them.

Complainants' appeal and the Labor Secretary's decision that they were employees of Mafinco. — Complainants Repomanta and
Moralde appealed to the Secretary of Labor. They argued that the NLRC erred (1) in holding that they were independent contractors
and not employees; (2) in relying on the peddler's contract to determine the existence of employer-employee relationship; (3) in
anchoring its decisions on 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.

As stated at the outset, the Secretary in his decision reversed al the NLRC order. He ruled that Repomanta and Moralde were
employees of Mafinco and that, consequently, the NLRC had jurisdiction over their complaint. The Secretary directed the NLRC to
hear the case on the merits.

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 not independent contractors because they had no capital of their own. That finding was based on the
following considerations:

(1) That the contracts are Identical; (2) that the complainants were originally plant drivers' of the company; (3) that
the complainants had no capital of their own; (4) that their delivery trucks were provided by the company; (5) that
the use of the trucks were 'exclusively' for peddling the products of the company; (6) that they were 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 trips; (9) that the company shouldered the cost of maintenance and repair of the
said 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 from selling the company's products higher than the
fixed price of the company; and (12) that they and their helpers were paid on commission basis.
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 contract price to be paid by the company, falls short of the requisites or conditions necessary for
an independent contractor (Mansal vs. Gocheco Lumber Co., 96 Phil. 941).

He observed that "behind the peddling cloak there was in fact employee-employer relationship". He said:

While, generally, written employment contracts are held sufficient in determining the nature of employment, such
contracts, however, cannot be always held conclusive where the actual circumstances of employment indicate
otherwise. For example, some employers, in order to avoid or evade coverage of the Workmen's Compensation Act,
enter into pseudo contracts with their employees who are named as 'employers' or 'independent contractors'. Such
'written contracts as distinguished from oral Agreements, purporting to make persons independent contractors, no
matter how 'adroitly framed', can be carefully scanned and the real relationship ascertained' (Glielmi vs. Netherlands
Dairy Co., 254 N.Y. 60 (1930), Morabe & Inton, Workmen's Compensation Act. p. 69).

If the Peddling Contract were carefully scanned, the conclusion may be drawn that the contract is but a device and
subterfuge to evade coverage under the labor laws. 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.

In fact, such contracts, as the one in question, exempting or tending to exempt the 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:

Any contract, regulation or device of any sort intended to exempt the employer from all or part of the liability
created by this Act shall be null and void.

To rule otherwise would be to open the floodgate to employers in this territory to evade liabilities to their workers
by simply letting contracts for the doing of their business. 'Such construction could not only narrow the provisions
of the Act, but would defeat its intent and purposes in their entirety. (Andoyo vs. Manila Railroad Co., supra).

The motion for the reconsideration of the decision was denied by the Secretary in his order of July 16,1973.

The Committee's report that the peddlers are independent contractors. — On July 25, 1973 Mafinco moved for the clarification of the
decision by inquiring whether the question of employee-employer relationship would be included in the hearing on the merits.

Action on the said motion was deferred until the receipt of the report of the committee created to study the status of peddlers of
Cosmos products. On September 3, 1973- the Secretary directed the committee composed of Ernesto Valencia, 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.

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 the peddlers of Cosmos products, on the other, is not one of employer and employee and "that the
peddlers are independent contractors".

The committee after a perusal of the record of NLRC Case No. LR-086 interviewed twenty peddlers, an officer of Cosmos and an
officer of Mafinco. In the conduct of the interviews it 44 observed judicious adherence to impartiality and openmindedness but with a
modicum of friendliness and much of informality". The report reads in part as follows:

(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 into between Cosmos and the Peddlers has, as its prefatory statement but before the enumeration of its terms and
conditions, the following:

That the Peddler has agreed to buy and sell the products of the MANUFACTURER under the following conditions:

Similarly, the 'Peddling Contract' entered into between Mafinco and the Peddlers. contains peculiarly Identical
wordings. viz:

WHEREAS, the PEDDLER is desirious of buying and selling in Manila the 'COSMOS' Soft Drink Products handled
by

MAFINCO:
 It is immediately clear from the beginning that the relationship that the parties would 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) 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 the dealer's discount. which appear to vary
depending upon the market demands.

We are, however, tempted to argue, as did the Peddlers, that this Agreement or Contract might have been contrived
as a device to evade responsibilities imposed upon Cosmos or Mafinco under our labor laws as well as under other
national or municipal laws. Nevertheless, a close reading thereof will show a flaw in this line of insistence, when we
consider that this type of Agreement or Contract has been substantially the same since the beginning of this
relationship. More than this, it has withstood the test of time by pronouncements of the CIR in ULP Case No.
4399, Cosmos Supervisors Association vs. Manila Cosmos Aerated Water Factory, Inc.' July 17, 1967; by judicial
review of the Court of Appeals in CA-G.R. Nos. 19477-R, 19478-R and 21397-R, 'Eustaquio Repajon, et al. vs.
Manila Cosmos Aerated Water Factory, Inc.', promulgated on March 18, 1958; and impliedly by resolution of the
Supreme Court in G.R. Nos. L-14072 to L-14074 when the Court of Appeals cases were appealed to that Tribunal.

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 and Cosmos or Mafinco is one of buyer and seller of the
Cosmos Products on the part of the Peddlers, and, therefore, one of an independent contractorship, finds substantive
support in our Civil Code which provides: (here arts. 1370 and 1374 of the Civil Code regarding interpretation of
contracts are quoted).

For its adjective interpretation, our Rules of Court specifically provides: (Here parol evidence rule in see. 7, Rule
130, Rules of Court is quoted)

It must b restated at this point for purposes of emphasis that the validity of the aforesaid Agreement or Contract has
not been seriously assailed by the parties. In fact, their rallying cause was the Agreement or Contract itself. To
strengthen these provisions of the Civil Code and the Rules of Court, stabilized jurisprudence have held that it is
elementary rule of contract that the laws in force at the time the contract was made must govern its interpretation
and application; that the terms of the contract, where unambiguous, are conclusive, in the absence of averment and
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 agreement does not include its modifications or the creation
of a new or different 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 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
expressed by the language they saw fit to employ.

xxx xxx xxx

(1) The selection and engagement of the employees.-Nothing in the Agreement 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 were engaged as
employees of Cosmos or Mafinco. The selection of the Peddlers who will buy and sell Cosmos products is left entirely between the
parties; it is not the sole prerogative of either one of the parties. There must be meeting of the minds in order to consummate the
Agreement or Contract and no evidence of coercion or imposition of the will of one over the other is evident or apparent from the
Peddlers' or Managements' interviews had by the members of your Committee. This test, therefore, cannot be invoked by the Peddlers
in their attempt at presenting arguments to the effect that they are employees of Cosmos or Mafinco. Upon the other hand, the
Agreement or Contract itself provides that the Peddlers can hire helpers and drivers under their direction and responsibility, and to
whom they shall be liable for payment of 'salaries, wages, overtime pay, separation pay, bonus and other remuneration and privileges.'
As a matter of fact, drivers were employed by Mrs. Victoria Ariz and M. Fong Kui, who are peddlers in their own right. This evidently
shows the discretion granted the peddlers to hire employees of their own.

(2) The payment of wages. — On the basis of the clear terms of the Agreement or Contract, no mention is made of the wages of the
Peddlers; neither can an inference be made that any salary or wage is given to Peddlers. In the interviews, however, with the Peddlers,
they vehemently take the position that the 'dealer's 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 defined in Section 2 of the Minimum Wage Law (Rep.
Act No. 602, as amended) is as follows:

(g) 'Wage' paid to any employee shall mean the remuneration or earnings, however designated, capable of being expressed in terms of
money whether fixed or ascertained on a time, task, piece, commission basis, or other method of calculating the same, which is
payable by an employer to an under a written or unwritten contract of employement for work done or to be done or for services
rendered or to 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 employer to the employee. ...

Section 10 (k) of the same law provides as follows:

(k) Notification of wage conditions. — It shall be the duty of every employer to notify his employees at the time of hiring of the wage
conditions under which they are employed, which shall include the following particulars:

(1) The rate of wages payable;

(2) The method of calculation of wages;

(3) The periodicity of wage payment; the day, the hour and pIace of payment; and

(4) Any change with respect to any of the foregoing items.

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 Pedders' 'dealer's discount' is in the nature of wages,
then they must be notifed fully of the wage conditions. Moreover, such 'wages' must be paid to them periodically at
least once every two weeks or twice a month. (See Par. (h) of See. 10 of Act No. 602, as amended). The absence of
such notification to the Peddlers and the lack of periodicity of such payment in the manner and procedure
contemplated in the Minimum Wage Law destroy, quiet evidently, their allegation that the 'dealer's discount' was
their 'wage'. Take note that the 'dealer's discount' was given only about a week after the end of the month, and from
the evidence submitted by Cosmos, it appears clearly that the 'dealer's discount' varies from month to month. Thus,
the 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, amounted to P13,633.42, and 4 their earnings every month
vary decisively. This factor defeats factually the insistence of the Peddlers that they are employees of Cosmos or
Mafinco.

Upon the other hand, the Peddlers' declarations reveal that the wages of their helpers are taken from the overprice or
what is ordinarily termed as 'commission' of ten centavos (P0.10) per case that they get-a factor which indicates that
they are themselves employers of their helpers. In addition, the Peddlers are reported as Employers of these helpers
with the Social Security System, and that they also purchase workmen's compensation policies in their names as
Employers of their own 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 indicative of an attribute of one who
is an independent merchant.

(3) The power of dismissal. — In the case of 'Rodrigo Repomanta and Rey 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 before the National Labor
Relations Commission for being allegedly illegally dismissed or that their services were terminated without cause. A search of the
alleged dismissal however shows that the Identical letters both dated December 7, 1972 addressed to the said complainants were not
actually what complainants pictured them to be, but the termination of the peddling in accordance with paragraph 9 of said Contract.

xxx xxx xxx

Thus, complainants' services were not terminated, only their Peddling Contracts with Mafinco were. The power of
dismissal is not lodged with either Mafinco or Cosmos, 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 imprudence
and a height of inaccuracy. This power of dismissal by Cosmos or Mafinco is not countenanced in the Agreement or
Contract.

There is, however, an allegation by the Peddlers that the hiring and firing of the helpers ultimately rest on Cosmos or
Mafinco. This allegation nevertheless, is controverted by Cosmos and Mafinco. Nonetheless, we checked the basic
document — the Agreement or Contract — and we find that the hiring and, impliedly firing, we is a prerogative of
the Peddlers and not of Cosmos or Mafinco.

(4) The power to control the employee's conduct. — From the interviews had by your Committee with both the Peddlers and the
representatives of Cosmos and Mafinco, we gather that the following findings on the power of control are substantially correct:
 (a) That the delivery trucks assigned to the Peddlers are available to them early in the morning and are free to get
them, which they usually do between 5:30 A.M. to 6:30 A.M. There was no compulsion on the part of the Peddlers
to report for work at 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 Cosmos or Mafinco since they can finish the
peddling of Cosmos products much earlier and spend the rest of the day at their own pleasure. The signing of the
'logbooks' is both pertinent and necessary since the trucks used in the delivery of Cosmos products are owned by
Cosmos or Mafinco and are simply utilized by Peddlers as a measure of convenience and for advertising purposes.
But peddlers are not precluded from getting trucks of their own should they so desire.

(b) That liaison officers (supervisors) are assigned by Cosmos or Mafinco in definite areas routes or zones, not so
much of supervision over Peddlers, since their 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 principally for
market analysis since soft drinks selling is a highly competitive business, and also to inquire or check on sales, and
the result of which, report is made direct to the Office of Cosmos or Mafinco.

(c) That the use of the uniform does not seem to be an imposition by management of Cosmos or Mafinco upon the
Peddlers, but a voluntary arrangement among the Peddlers themselves. For, from the documents submitted to this
Committee, it appears that the Cosmos Peddlers Association, in a meeting held on August 5, 1967, adopted a
resolution to 'always wear their uniform while in the performance of their sales work,' and in their meeting on
January 25, 1969, it adopted another resolution penalizing Peddlers who failed to wear their uniform in the amount
of P2.00 per violation. Certainly, the resolutions of the Cosmos Peddlers Association, an independent association of
Peddlers and duly registered with the Securities and Exchange Commission, and possessing an entirely distinct
existence, cannot be taken as impositions from Cosmos or Mafinco.

(d) That the matter of turning in of sales of collection which, if found short, is charged against the Peddler's cash
bond, is to the mind of the Committee, giving effect to the valid terms and conditions of the Agreement or Contract,
and also an ordinary business practice which necessarily requires liquidation of the day's accounts. We do not see
any evidence of control on the part of Cosmos or Mafinco over the activities, including the sales, of the Cosmos
products by the Peddlers themselves who are, apparently, left to their own choices of routes, areas or zones as pre-
arranged, with no definite, much less supervised, time schedule.

(e) That in the matter of reprimand or discipline which the peddlers attempt to project when they failed to report for
work, your Committee found no substantial evidence on this point. The evidence shows that the peddlers are free to
choose their time. Obviously, any absence that they may incur means so much reduction from their earnings. Thus,
if their attention is incidentally called on this matter it is for the observance of their agreements which is present in
any contractual relations.

As to the aspect of employer-employee relation, therefore, between Cosmos or Mafinco and the Peddlers, your
Committee does not have sufficient basis to reasonably sustain the stand of the Peddlers that there is such
relationship.

(c) Attributes of an independent contractor. — As a countercheck, as it were, to the issue of employer-employee

relationship your committee has taken the task of 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 part of the
Peddlers. The earlier case of Andoyo vs. Manila Railroad Co., G.R. No. 34722, promulgated on March 28, 1932,
furnishes us the definition of an 'independent contractor.' Our Supreme Court of pre-war composition, ruled:

An independent contractor is one who exercises independent 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 resuIt of
thework. A person who 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 with his employer, falls short of the requisites
or conditions necessary to classify him as independent contractor.

These requisites and conditions were reiterated in the postwar cases of Philippine Manufacturing Co., Inc. vs.
Geronimo, G. R. No. L-6968, promulgated on November 29, 1954, and Koppel (Phil.), Inc. vs. Darlucio et, al., G.R.
No. L-14903, promulgated on August. 29, 1960. Analyzing the definition of 'independent contractor', the following
may be gathered from the relationship between the Peddlers, on the one hand, and Cosmos or Mafinco, on the other:

(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 according to their own methods, subject to the pre-arranged routes, areas and zones, and go back to the
Company compound to return the delivery truck and to make accounting of the day's sales collection at any time in the morning or in
the afternoon. Essentially, control, if at all, extends only as to observance of traffic regulations which is inherent in ownership of the
delivery truck by Cosmos or Mafinco and the end result which is the liquidation of the sales collection. Control over the details of the
Peddlers' sales activities seems to be farfetched in this case.

(2) Capital or money of the Peddlers to pay their own helpers is evidently within their prerogative, although it appears that the wages
of helpers are uniform at P6.00 per trip. But can we safely say that the cash bond of Pl,500.00 by the Peddlers constitute their capital?
For big-time businessmen, this small amount may not be considered capital, but when it is taken as a 'deposit on consignment' since
the same answers for any deficiencies that the Peddlers may incur during the day's sales 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 is the
purpose for which the same is deposited that is most significant.

(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 performance bond of P1,000.00 as embodied in said Agreement to Peddler Soft Drinks as follows:

(4) 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 third persons PEDDLER shall furnish a performance bond of P1,000.00 in favor of the
MANUFACTURER from a surety Company acceptable to the MANUFACTURER. And, in case Performance Bond within 30 days
from the date of signing of this Contract, such failure shall be sufficient ground for the MANUFACTURER to suspend the business
relationship with the Peddler until the Peddler complies with this provision.

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 assure performance of the Peddlers' obligations as employer of
his helpers. This is an attribute of an independent contractor to which the Peddlers are bound under the Agreement
or Contract.

(4) Peddlers are doing business for themselves since they took out licenses in the City of Manila, and have paid their
corresponding professional or occupation tax to the Bureau of Internal Avenue. This fact strengthens the Committee
findings that the peddlers are carrying on a business as independent merchants.

The Secretary in his resolution of October 18, 1973 ignored the committee's conclusion. He clarified that the NLRC should determine
whether the two complainants were illegally dismissed and that the jurisdictional issue should not be taken up anymore.

The instant petition; the issue and the ruling thereon. — Mafinco filed the instant actions on November 14, 1973. It prayed for a
declaration that the Secretary of Labor and the NLRC had no jurisdiction to entertain the complaints of Repomanta and Moralde; that
the Secretary's decision should be set aside, and that the NLRC and the Secretary be enjoined from further proceeding in NLRC Case
No. LR-086.

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 Multi Service Labor Union vs. Agcaoili, L-39741, May 30, 1975, 64 SCRA 274). However, under
section 22 of the old NLRC regulations, an appeal to the President should be made only "in national interest cases".

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, error of law, grave abuse of discretion, fraud or collusion or in case the administrative action or
resolution is "corrupt, arbitrary or capricious (San Miguel 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, L-21352, November 29, 1966, 18 SCRA 877,
891).

After the parties had submitted their illuminating memoranda, Mafinco filed a motion in this Court for the dismissal of the complaint
in the defunct NLRC on three grounds, to wit: (1) that the NLRC had no jurisdiction over the case because Repomanta and Moralde
had not sought reinstatement or backwages; (2) that the employer's failure to secure written clearance from the Secretary of Labor
before dismissing an employee might constitute a crime punishable under article 327 of the Labor Code and not mere contempt, as
contemplated in section 10 of Presidential Decree No. 21, and (3) that the contempt provisions of that decree were abrogated by the
Labor Code.

Mafinco in support of its motion for dismissal cited Quisaba vs. Sta. Ines-Melale Veneer & Plywood, Inc., L-38088, August 30, 1974,
58 SCRA 771, where it was held that the regular court, not the NLRC, has jurisdiction over an employee's action for damages against
his employer's act of demoting him.
Respondent Repomanta and Moralde opposed that motion to dismiss. They Pointed out that, inasmuch as their complaint is pending in
the new NLRC, this Court cannot dismiss it. They also observed that article 327 was eliminated from the Labor Code 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 truth is that Mafinco's motion merely adduced additional grounds to support its stand that the Secretary of Labor had no
jurisdiction over the complaint of Repomanta and Moralde.

This case was not rendered moot 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 should be transferred to, and processed by, the corresponding labor
relations division or the new NLRC and should be decided in accordance with Presidential Decree No. 21 and the rules and
regulations adopted thereunder (Art. 290. See Sec. 5, P.D. No. 626).

The issue is whether the dismissal of Repomanta and Moralde was within the jurisdiction of the old NLRC. If, as held by the old
NLRC, it had no jurisdiction over their complaint because they were not employees of Mafinco but independent 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.

Hence, the crucial issue is whether Repomanta and Moralde were employees of Mafinco under the peddling contract already quoted.
Is the contract an employment contract or a contract to sell or distribute Cosmos products?

The question of whether an employer-employee relationship exists in a certain 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 enterprises because
that juridical relation spawns obligations connected with workmen's compensation, social security, medicare, minimum wage,
termination pay and unionism.

Presidential Decree No. 21 provides:

SEC. 2. The Commission shall have original and exclusive jurisdiction over the following:

1) All matters involving employee-employer relations including all disputes and grievances which may otherwise lead to strikes and
lockouts under Republic Act No. 875;

xxx xxx xxx

SEC. 10. The President of the Philippines, on recommendation of the Commission and the Secretary of Labor, may
order the arrest and detention of any person held in 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 its
implementing rules and regulations and for any violation of the provisions of this Decree.

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 clearance of the Secretary of , Labor.

The Solicitor General, as counsel for the old NLRC and the Secretary of Labor, argues that the question of whether Repomanta and
Morale are independent 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 contracts should be taken into account, and that the contracts were a part
of an "intricate network of devices (of Mafinco and Cosmos) developed. and perfected through the years to conceal the true nature of
their relationship to their sales agents".

Repomanta and Moralde contend that their peddling contracts were terminated because of their activities in organizing a union among
the peddlers. Annexed to their memorandum is a joint affidavit of sixty-three sales agents of Cosmos products 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. 921 of the Social Security Commission dated November 16, 1972 in SSS Case No. 602 wherein it was held that
peddlers and their helpers were employees of Cosmos.

Like the Solicitor General, Repomanta and Moralde harp on the argument that the peddling contracts were a scheme to camouflage an
employer-employee relationship and thus evade the coverage of labor laws.

The parties in their pleadings and memoranda injected conflicting factual allegations to support their diametrically opposite
contentions. From the factual angle, the case has become highly controversial.
In a certiorari and prohibition case, like the instant case, only legal issues affecting the jurisdiction of the tribunal, board or officer
involved may be resolved on the basis of undisputed facts. Sections 1, 2 and 3, Rule 65 of the Rules of Court require that in the
verified petition for certiorari, mandamus and prohibition the petitioner should allege "facts with certainty".

In this case the facts have become uncertain. Controversial evidentiary facts have been alleged. What is certain and indubitable is that
a notarized peddling contract was executed.

This Court is not a trier of facts. It would be difficult, if not anomalous, to decide the jurisdictional issue on the basis of the parties'
contradictory factual submissions. The record has become voluminous because of their efforts to persuade this Court to accept their
discordant factual statements.

Pro hac vice the issue of whether Repomanta and Moralde were employees of 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 field of factual
controversy where its legal pronouncements would not rest on solid grounds.

A restatement of the provisions of the peddling contract is necessary in order to find out whether under that instrument Repomanta and
Moralde were independent contractors or mere employees of Mafinco.

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 employ a driver and helpers, he would be responsible for their compensation and social security
contributions and he should comply with applicable labor laws "in relation to his employees" (Par. 2).

The peddler would be responsible for any damage to persons or property or to the truck caused by his own acts or omissions or those
of his driver and helpers (Par. 3). 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 the expenses to be incurred in the sale of Cosmos products (Par.
5).

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 bond of P1,000 to answer for his obligations to his employees (Par.
11). He should liquidate his accounts at the end of each day (Par. 8). The contract would be effective up to May 31, 1973. Either party
might terminate it upon five days' prior notice to the other (Par. 9).

We hold that under their peddling contracts Repomanta and Moralde were not employees of Mafinco but were independent
contractors as found by the NLRC and its fact-finder and by the committee appointed by the Secretary of Labor to look into the status
of Cosmos and Mafinco peddlers. They were distributors of Cosmos soft drinks with their own capital and employees. Ordinarily, an
employee or a mere peddler does not execute a formal contract of employment. He is simply hired and he works under the direction
and control of the employer.

Repomanta and Moralde voluntarily executed 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 independent businessmen. They were to sign or not to
sign that contract. If they did not want to sell Cosmos products under the conditions defined in that contract; they were free to reject it.

But having signed it, they were bound by its stipulations and the consequences thereof under existing labor laws. One such stipulation
is the right of the parties to terminate the contract upon five days' prior notice (Par. 9). Whether the termination in this case was an
unwarranted dismissal of an employee, as contended by Repomanta and Moralde, is a point that cannot be resolved without
submission of evidence. Using the contract itself as the sole criterion, the termination should perforce be characterized as simply the
exercise of a right freely stipulated upon by the parties.

"In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the
selection and engagement of the 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" (Viana vs. Al-Lagadan and Piga, 99 Phil. 408, 411, citing 35
Am. Jur. 445).

On the other hand, an independent contractor is "one who exercises independent 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" (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 powers and duties with respect to the hiring, firing, and payment of the contractor's
servants; the control of the premises; the duty to supply the premises, tools, appliances, material and labor; and the
mode, manner, and terms of payment. (56 C.J.S. 46).

Those tests to determine the existence of an employer-employee relationship or whether the person doing a particular work for another
is an independent contractor cannot be satisfactorily applied in the instant case. It should be obvious by now that the instant case is a
penumbral, sui generis case lying on the shadowy borderline that separates an employee from an independent contractor.

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 all the features of the relationship are to be considered" (56 C.J.S. 45). We are convinced that
on the basis of the peddling contract, no employer-employee relationship was created. Hence, the old NLRC had no jurisdiction over
the termination of the peddling contract.

However, this ruling is without prejudice to the right of Repomanta and Moralde and the other peddlers to sue in the proper Court of
First Instance and to ask for a reformation of the instrument evidencing the contract or for its annulment or to secure a declaration that,
disregarding the peddling contract, the actual juridical relationship between them and Mafinco or Cosmos is that of employer and
employee. In that action a fulldress trial may be held and the parties may introduce the evidence necessary to sustain their respective
contentions.

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 Civil Code, then they should file the proper action for damages in the regular courts. Where there
is a right, there is a remedy (Ubi jus, ubi remedium).

WHEREFORE, the decision, order and resolution of the Secretary of Labor in 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 for lack of
jurisdiction, is affirmed. No costs.

SO ORDERED.

Barredo, Antonio, Concepcion, Jr. and Martin, JJ., concur.

Mr. Justice Fernando is on leave.

Mr. Justice Martin was designated to sit in the Second Division.

Footnotes

1 For comparison, the provisions of the peddling contract involved in Rapajon vs. Fong Kui and Figueras vs.
Asierto, CA-G.R. No. 19477-8, March 18, 1958 are quoted below:

1. That in consideration of the competence of the PEDDLER and his ability to promote mutual benefits for parties
hereto, the MANUFACTURER shall provide the PEDDLER with a delivery truck with which the latter shall peddle
the soft drinks of the former, under the terms and conditions of this agreement;

2. That the MANUFACTURER shall furnish the gasoline and oil to run the said truck in business trips, bear the cost
of maintenance and repairs of said truck arising from ordinary wear and tear, but damages to said vehicle caused by
the negligence and carelessness of the PEDDLER or his driver shall be for the latter's own responsibility and
account;

3. That the PEDDLER shall provide himself with, and pay on his own account, all the necessary licenses and
permits required by law and ordinances, as well as bear any and all such expenses as may be incurred by him in
connection with the business of selling, such contributions tips, etc.
 4. That the PEDDLER shall assume the responsibility of driving the truck, or should he employ a driver and helpers,
their compensation (salaries, wages, bonus or others) shall be paid by him at his own expense and not chargeable to
the MANUFACTURER, and the former shall be liable to the latter for any injury or damage to the
MANUFACTURER, caused by any act or acts of the driver or helpers so employed;

5. That any agreement or contract of employment entered into by the PEDDLER with others shall not bind in any
manner the MANUFACTURER unless confirmed in writing by the latter;

6. That the PEDDLER shall maintain a cash deposit with the MANUFACTURER in the sum of not less than Two
HUNDRED PESOS (P200.00) against which the MANUFACTURER may issue soft drinks to the PEDDLER at the
price of P1.55 ex-warehouse less four per cent (4%) discount per case of 24 bottles, for resale by the PEDDLER;

7 That the PEDDLER shall clear every day his account with the MANUFACTURER, and failure to do so shall
subject the cash deposit, or so much thereof as may be necessary, to such set offs and payments as shall he proper
against the account in question;

8 That this agreement shall remain in force for a period of ONE (1) year from the date hereof.

The Court of Appeals, through Justice Makalintal and with the concurrence of Justices Fred Ruiz Castro and
Dionisio de Leon, held that the truck or delivery helpers of peddlers, who acted as sales agents of Manila Cosmos
Aerated Water Factory, were not employees of Cosmos and could not claim wage differentials from it. The helpers
were employees of the peddlers.

This Court in its resolution of July 14, 1958 in L-14072, Rapajon vs. Fong Kui, denied the petition for the review of
the said ruling.

ALEJANDRO MARAGUINOT, JR. and PAULINO ENERO, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION (SECOND DIVISION) composed of Presiding Commissioner RAUL T. AQUINO, Commissioner
ROGELIO I. RAYALA and Commissioner VICTORIANO R. CALAYCAY (Ponente), VIC DEL ROSARIO and
VIVA FILMS, respondents.

DECISION
DAVIDE, JR., J.:

By way of this special civil action for certiorari under Rule 65 of the Rules of Court, petitioners seek to annul the 10 February
1995 Decision[1] of the National Labor Relations Commission (hereafter NLRC), and its 6 April 1995 Resolution [2] denying the
motion to reconsider the former in NLRC-NCR-CA No. 006195-94. The decision reversed that of the Labor Arbiter in NLRC-NCR-
Case No. 00-07-03994-92.
The parties present conflicting sets of facts.
Petitioner Alejandro Maraguinot, Jr. maintains that he was employed by private respondents on 18 July 1989 as part of the
filming crew with a salary of P375.00 per week. About four months later, he was designated Assistant Electrician with a weekly salary
of P400.00, which was increased to P450.00 in May 1990. In June 1991, he was promoted to the rank of Electrician with a weekly
salary of P475.00, which was increased to P593.00 in September 1991.
Petitioner Paulino Enero, on his part, claims that private respondents employed him in June 1990 as a member of the shooting
crew with a weekly salary of P375.00, which was increased to P425.00 in May 1991, then to P475.00 on 21 December 1991.[3]
Petitioners tasks consisted of loading, unloading and arranging movie equipment in the shooting area as instructed by the
cameraman, returning the equipment to Viva Films warehouse, assisting in the fixing of the lighting system, and performing other
tasks that the cameraman and/or director may assign. [4]
Sometime in May 1992, petitioners sought the assistance of their supervisor, Mrs. Alejandria Cesario, to facilitate their request
that private respondents adjust their salary in accordance with the minimum wage law. In June 1992, Mrs. Cesario informed
petitioners that Mr. Vic del Rosario would agree to increase their salary only if they signed a blank employment contract.As
petitioners refused to sign, private respondents forced Enero to go on leave in June 1992, then refused to take him back when he
reported for work on 20 July 1992. Meanwhile, Maraguinot was dropped from the company payroll from 8 to 21 June 1992, but was
returned on 22 June 1992. He was again asked to sign a blank employment contract, and when he still refused, private respondents
terminated his services on 20 July 1992.[5] Petitioners thus sued for illegal dismissal[6] before the Labor Arbiter.
On the other hand, private respondents claim that Viva Films (hereafter VIVA) is the trade name of Viva Productions, Inc., and
that it is primarily engaged in the distribution and exhibition of movies -- but not in the business of making movies; in the same vein,
private respondent Vic del Rosario is merely an executive producer, i.e., the financier who invests a certain sum of money for the
production of movies distributed and exhibited by VIVA. [7]
Private respondents assert that they contract persons called producers -- also referred to as associate producers[8] -- to produce or
make movies for private respondents; and contend that petitioners are project employees of the associate producers who, in turn, act as
independent contractors. As such, there is no employer-employee relationship between petitioners and private respondents.
Private respondents further contend that it was the associate producer of the film Mahirap Maging Pogi, who hired petitioner
Maraguinot. The movie shot from 2 July up to 22 July 1992, and it was only then that Maraguinot was released upon payment of his
last salary, as his services were no longer needed. Anent petitioner Enero, he was hired for the movie entitled Sigaw ng Puso, later re-
titled Narito ang Puso. He went on vacation on 8 June 1992, and by the time he reported for work on 20 July 1992, shooting for the
movie had already been completed.[9]
After considering both versions of the facts, the Labor Arbiter found as follows:

On the first issue, this Office rules that complainants are the employees of the respondents. The producer cannot be considered as an
independent contractor but should be considered only as a labor-only contractor and as such, acts as a mere agent of the real employer,
the herein respondents. Respondents even failed to name and specify who are the producers. Also, it is an admitted fact that the
complainants received their salaries from the respondents. The case cited by the respondents, Rosario Brothers, Inc. vs. Ople, 131
SCRA 72 does not apply in this case.

It is very clear also that complainants are doing activities which are necessary and essential to the business of the respondents, that of
movie-making. Complainant Maraguinot worked as an electrician while complainant Enero worked as a crew [member]. [10]

Hence, the Labor Arbiter, in his decision of 20 December 1993, decreed as follows:

WHEREFORE, judgment is hereby rendered declaring that complainants were illegally dismissed.

Respondents are hereby ordered to reinstate complainants to their former positions without loss [of] seniority rights and pay their
backwages starting July 21, 1992 to December 31, 1993 temporarily computed in the amount of P38,000.00 for complainant Paulino
Enero and P46,000.00 for complainant Alejandro Maraguinot, Jr. and thereafter until actually reinstated.

Respondents are ordered to pay also attorneys fees equivalent to ten (10%) and/or P8,400.00 on top of the award.[11]

Private respondents appealed to the NLRC (docketed as NLRC NCR-CA No. 006195-94). In its decision[12] of 10 February 1995,
the NLRC found the following circumstances of petitioners work clearly established:

1. Complainants [petitioners herein] were hired for specific movie projects and their employment was co-terminus with each movie
project the completion/termination of which are pre-determined, such fact being made known to complainants at the time of their
engagement.

xxx

2. Each shooting unit works on one movie project at a time. And the work of the shooting units, which work independently from each
other, are not continuous in nature but depends on the availability of movie projects.

3. As a consequence of the non-continuous work of the shooting units, the total working hours logged by complainants in a month
show extreme variations... For instance, complainant Maraguinot worked for only 1.45 hours in June 1991 but logged a total
of 183.25 hours in January 1992. Complainant Enero logged a total of only 31.57 hours in September 1991 but worked
for 183.35 hours the next month, October 1991.

4. Further shown by respondents is the irregular work schedule of complainants on a daily basis. Complainant Maraguinot was
supposed to report on 05 August 1991 but reported only on 30 August 1991, or a gap of 25 days. Complainant Enero worked on 10
September 1991 and his next scheduled working day was 28 September 1991, a gap of 18 days.
5. The extremely irregular working days and hours of complainants work explain the lump sum payment for complainants services for
each movie project. Hence, complainants were paid a standard weekly salary regardless of the number of working days and hours they
logged in. Otherwise, if the principle of no work no pay was strictly applied, complainants earnings for certain weeks would be very
negligible.

6. Respondents also alleged that complainants were not prohibited from working with such movie companies like Regal, Seiko and
FPJ Productions whenever they are not working for the independent movie producers engaged by respondents... This allegation was
never rebutted by complainants and should be deemed admitted.

The NLRC, in reversing the Labor Arbiter, then concluded that these circumstances, taken together, indicated that complainants
(herein petitioners) were project employees.
After their motion for reconsideration was denied by the NLRC in its Resolution [13] of 6 April 1995, petitioners filed the instant
petition, claiming that the NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction in: (1) finding that
petitioners were project employees; (2) ruling that petitioners were not illegally dismissed; and (3) reversing the decision of the Labor
Arbiter.
To support their claim that they were regular (and not project) employees of private respondents, petitioners cited their
performance of activities that were necessary or desirable in the usual trade or business of private respondents and added that their
work was continuous, i.e., after one project was completed they were assigned to another project. Petitioners thus considered
themselves part of a work pool from which private respondents drew workers for assignment to different projects. Petitioners
lamented that there was no basis for the NLRCs conclusion that they were project employees, while the associate producers were
independent contractors; and thus reasoned that as regular employees, their dismissal was illegal since the same was premised on a
false cause, namely, the completion of a project, which was not among the causes for dismissal allowed by the Labor Code.
Private respondents reiterate their version of the facts and stress that their evidence supports the view that petitioners are project
employees; point to petitioners irregular work load and work schedule; emphasize the NLRCs finding that petitioners never
controverted the allegation that they were not prohibited from working with other movie companies; and ask that the facts be viewed
in the context of the peculiar characteristics of the movie industry.
The Office of the Solicitor General (OSG) is convinced that this petition is improper since petitioners raise questions of fact,
particularly, the NLRCs finding that petitioners were project employees, a finding supported by substantial evidence; and submits that
petitioners reliance on Article 280 of the Labor Code to support their contention that they should be deemed regular employees is
misplaced, as said section merely distinguishes between two types of employees, i.e., regular employees and casual employees, for
purposes of determining the right of an employee to certain benefits.
The OSG likewise rejects petitioners contention that since they were hired not for one project, but for a series of projects, they
should be deemed regular employees. Citing Mamansag v. NLRC,[14] the OSG asserts that what matters is that there was a time-frame
for each movie project made known to petitioners at the time of their hiring. In closing, the OSG disagrees with petitioners claim that
the NLRCs classification of the movie producers as independent contractors had no basis in fact and in law, since, on the contrary, the
NLRC took pains in explaining its basis for its decision.
As regards the propriety of this action, which the Office of the Solicitor General takes issue with, we rule that a special civil
action for certiorari under Rule 65 of the Rules of Court is the proper remedy for one who complains that the NLRC acted in total
disregard of evidence material to or decisive of the controversy.[15] In the instant case, petitioners allege that the NLRCs conclusions
have no basis in fact and in law, hence the petition may not be dismissed on procedural or jurisdictional grounds.
The judicious resolution of this case hinges upon, first, the determination of whether an employer-employee relationship existed
between petitioners and private respondents or any one of private respondents. If there was none, then this petition has no merit;
conversely, if the relationship existed, then petitioners could have been unjustly dismissed.
A related question is whether private respondents are engaged in the business of making motion pictures. Del Rosario is
necessarily engaged in such business as he finances the production of movies. VIVA, on the other hand, alleges that it does not make
movies, but merely distributes and exhibits motion pictures. There being no further proof to this effect, we cannot rely on this self-
serving denial. At any rate, and as will be discussed below, private respondents evidence even supports the view that VIVA is engaged
in the business of making movies.
We now turn to the critical issues. Private respondents insist that petitioners are project employees of associate producers who, in
turn, act as independent contractors. It is settled that the contracting out of labor is allowed only in case of job contracting. Section 8,
Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code describes permissible job contracting in this wise:

Sec. 8. Job contracting. -- There is job contracting permissible under the Code if the following conditions are met:
 (1) The contractor carries on an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of the work except as to the results thereof; and

(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his business.

Assuming that the associate producers are job contractors, they must then be engaged in the business of making motion
pictures. As such, and to be a job contractor under the preceding description, associate producers must have tools, equipment,
machinery, work premises, and other materials necessary to make motion pictures. However, the associate producers here have none
of these. Private respondents evidence reveals that the movie-making equipment are supplied to the producers and owned by
VIVA. These include generators,[16]cables and wooden platforms,[17] cameras and shooting equipment;[18] in fact, VIVA likewise owns
the trucks used to transport the equipment.[19] It is thus clear that the associate producer merely leases the equipment from
VIVA.[20] Indeed, private respondents Formal Offer of Documentary Evidence stated one of the purposes of Exhibit 148 as:

To prove further that the independent Producers rented Shooting Unit No. 2 from Viva to finish their films. [21]

While the purpose of Exhibits 149, 149-A and 149-B was:

[T]o prove that the movies of Viva Films were contracted out to the different independent Producers who rented Shooting Unit No. 3
with a fixed budget and time-frame of at least 30 shooting days or 45 days whichever comes first.[22]

Private respondents further narrated that VIVAs generators broke down during petitioners last movie project, which forced the
associate producer concerned to rent generators, equipment and crew from another company. [23] This only shows that the associate
producer did not have substantial capital nor investment in the form of tools, equipment and other materials necessary for making a
movie. Private respondents in effect admit that their producers, especially petitioners last producer, are not engaged in permissible job
contracting.
If private respondents insist that their associate producers are labor contractors, then these producers can only be labor-only
contractors, defined by the Labor Code as follows:

Art. 106. Contractor or subcontractor.-- x x x

There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment in
the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are
performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him.

A more detailed description is provided by Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code:

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.

(c) For cases not falling under this Article, the Secretary of Labor shall determine through appropriate orders whether or not
the contracting out of labor is permissible in the light of the circumstances of each case and after considering the
operating needs of the employer and the rights of the workers involved. In such case, he may prescribe conditions
and restrictions to insure the protection and welfare of the workers.
 As labor-only contracting is prohibited, the law considers the person or entity engaged in the same a mere agent or intermediary
of the direct employer. But even by the preceding standards, the associate producers of VIVA cannot be considered labor-only
contractors as they did not supply, recruit nor hire the workers. In the instant case, it was Juanita Cesario, Shooting Unit Supervisor
and an employee of VIVA, who recruited crew members from an available group of free-lance workers which includes the
complainants Maraguinot and Enero.[24]And in their Memorandum, private respondents declared that the associate producer hires the
services of... 6) camera crew which includes (a) cameraman; (b) the utility crew; (c) the technical staff; (d) generator man and
electrician; (e) clapper; etc....[25] This clearly showed that the associate producers did not supply the workers required by the movie
project.
The relationship between VIVA and its producers or associate producers seems to be that of agency, [26] as the latter make movies
on behalf of VIVA, whose business is to make movies.As such, the employment relationship between petitioners and producers is
actually one between petitioners and VIVA, with the latter being the direct employer.
The employer-employee relationship between petitioners and VIVA can further be established by the control test. While four
elements are usually considered in determining the existence of an employment relationship, namely: (a) the selection and engagement
of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the employees conduct,
the most important 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 same. [27] These four elements are present here. In their position paper submitted to the
Labor Arbiter, private respondents narrated the following circumstances:

[T]he PRODUCER has to work within the limits of the budget he is given by the company, for as long as the ultimate finish[ed]
product is acceptable to the company...

To ensure that quality films are produced by the PRODUCER who is an independent contractor, the company likewise employs a
Supervising PRODUCER, a Project accountant and a Shooting unit supervisor. The Companys Supervising PRODUCER is Mr. Eric
Cuatico, the Project accountant varies from time to time, and the Shooting Unit Supervisor is Ms. Alejandria Cesario.

The Supervising PRODUCER acts as the eyes and ears of the company and of the Executive Producer to monitor the progress of the
PRODUCERs work accomplishment. He is there usually in the field doing the rounds of inspection to see if there is any problem that
the PRODUCER is encountering and to assist in threshing out the same so that the film project will be finished on schedule. He
supervises about 3 to 7 movie projects simultaneously [at] any given time by coordinating with each film PRODUCER. The Project
Accountant on the other hand assists the PRODUCER in monitoring the actual expenses incurred because the company wants to
insure that any additional budget requested by the PRODUCER is really justified and warranted especially when there is a change of
original plans to suit the tast[e] of the company on how a certain scene must be presented to make the film more interesting and more
commercially viable. (emphasis ours)

VIVAs control is evident in its mandate that the end result must be a quality film acceptable to the company. The means and
methods to accomplish the result are likewise controlled by VIVA, viz., the movie project must be finished within schedule without
exceeding the budget, and additional expenses must be justified; certain scenes are subject to change to suit the taste of the company;
and the Supervising Producer, the eyes and ears of VIVA and del Rosario, intervenes in the movie-making process by assisting the
associate producer in solving problems encountered in making the film.
It may not be validly argued then that petitioners are actually subject to the movie directors control, and not VIVAs
direction. The director merely instructs petitioners on how to better comply with VIVAs requirements to ensure that a quality film is
completed within schedule and without exceeding the budget. At bottom, the director is akin to a supervisor who merely oversees the
activities of rank-and-file employees with control ultimately resting on the employer.
Moreover, appointment slips [28] issued to all crew members state:

During the term of this appointment you shall comply with the duties and responsibilities of your position as well as observe the rules
and regulations promulgated by your superiors and by Top Management.

The words superiors and Top Management can only refer to the superiors and Top Management of VIVA. By commanding crew
members to observe the rules and regulations promulgated by VIVA, the appointment slips only emphasize VIVAs control over
petitioners.
Aside from control, the element of selection and engagement is likewise present in the instant case and exercised by VIVA. A
sample appointment slip offered by private respondents to prove that members of the shooting crew except the driver are project
employees of the Independent Producers[29] reads as follows:

VIVA PRODUCTIONS, INC.

16 Sct. Albano St.

Diliman, Quezon City

PEDRO NICOLAS Date: June 15, 1992

__________________

APPOINTMENT SLIP

You are hereby appointed as SOUNDMAN for the film project entitled MANAMBIT. This appointment shall be effective upon the
commencement of the said project and shall continue to be effective until the completion of the same.

For your services you shall receive the daily/weekly/monthly compensation of P812.50.

During the term of this appointment you shall comply with the duties and responsibilities of your position as well as observe the rules
and regulations promulgated by your superiors and by Top Management.

Very truly yours,

(an illegible signature)

CONFORME:

___________________

Name of appointee

Signed in the presence of:

_____________________

Notably, nowhere in the appointment slip does it appear that it was the producer or associate producer who hired the crew
members; moreover, it is VIVAs corporate name which appears on the heading of the appointment slip. What likewise tells against
VIVA is that it paid petitioners salaries as evidenced by vouchers, containing VIVAs letterhead, for that purpose. [30]
All the circumstances indicate an employment relationship between petitioners and VIVA alone, thus the inevitable conclusion is
that petitioners are employees only of VIVA.
The next issue is whether petitioners were illegally dismissed. Private respondents contend that petitioners were project
employees whose employment was automatically terminated with the completion of their respective projects. Petitioners assert that
they were regular employees who were illegally dismissed.
It may not be ignored, however, that private respondents expressly admitted that petitioners were part of a work pool; [31] and,
while petitioners were initially hired possibly as project employees, they had attained the status of regular employees in view of
VIVAs conduct.
A project employee or a member of a work pool may acquire the status of a regular employee when the following concur:

1) There is a continuous rehiring of project employees even after cessation of a project; [32] and

2) The tasks performed by the alleged project employee are vital, necessary and indispensable to the usual business or trade of the
employer.[33]

However, the length of time during which the employee was continuously re-hired is not controlling, but merely serves as a
badge of regular employment.[34]
In the instant case, the evidence on record shows that petitioner Enero was employed for a total of two (2) years and engaged in
at least eighteen (18) projects, while petitioner Maraguinot was employed for some three (3) years and worked on at least twenty-three
(23) projects.[35] Moreover, as petitioners tasks involved, among other chores, the loading, unloading and arranging of movie
equipment in the shooting area as instructed by the cameramen, returning the equipment to the Viva Films warehouse, and assisting in
the fixing of the lighting system, it may not be gainsaid that these tasks were vital, necessary and indispensable to the usual business
or trade of the employer. As regards the underscored phrase, it has been held that this is ascertained by considering the nature of the
work performed and its relation to the scheme of the particular business or trade in its entirety. [36]
A recent pronouncement of this Court anent project or work pool employees who had attained the status of regular employees
proves most instructive:

The denial by petitioners of the existence of a work pool in the company because their projects were not continuous is amply belied by
petitioners themselves who admit that: xxx

A work pool may exist although the workers in the pool do not receive salaries and are free to seek other employment during
temporary breaks in the business, provided that the worker shall be available when called to report for a project. Although primarily
applicable to regular seasonal workers, this set-up can likewise be applied to project workers insofar as the effect of temporary
cessation of work is concerned. This is beneficial to both the employer and employee for it prevents the unjust situation of coddling
labor at the expense of capital and at the same time enables the workers to attain the status of regular employees. Clearly, the
continuous rehiring of the same set of employees within the framework of the Lao Group of Companies is strongly indicative that
private respondents were an integral part of a work pool from which petitioners drew its workers for its various projects.

In a final attempt to convince the Court that private respondents were indeed project employees, petitioners point out that the workers
were not regularly maintained in the payroll and were free to offer their services to other companies when there were no on-going
projects. This argument however cannot defeat the workers status of regularity. We apply by analogy the case of Industrial-
Commercial-Agricultural Workers Organization v. CIR [16 SCRA 562, 567-68 (1966)] which deals with regular seasonal
employees. There we held: xxx

Truly, the cessation of construction activities at the end of every project is a foreseeable suspension of work. Of course, no
compensation can be demanded from the employer because the stoppage of operations at the end of a project and before the start of a
new one is regular and expected by both parties to the labor relations. Similar to the case of regular seasonal employees, the
employment relation is not severed by merely being suspended. [citing Manila Hotel Co. v. CIR, 9 SCRA 186 (1963)] The employees
are, strictly speaking, not separated from services but merely on leave of absence without pay until they are reemployed. Thus we
cannot affirm the argument that non-payment of salary or non-inclusion in the payroll and the opportunity to seek other employment
denote project employment.[37] (underscoring supplied)

While Lao admittedly involved the construction industry, to which Policy Instruction No. 20/Department Order No.
19[38] regarding work pools specifically applies, there seems to be no impediment to applying the underlying principles to industries
other than the construction industry.[39] Neither may it be argued that a substantial distinction exists between the projects undertaken in
the construction industry and the motion picture industry. On the contrary, the raison d' etre of both industries concern projects with a
foreseeable suspension of work.
At this time, we wish to allay any fears that this decision unduly burdens an employer by imposing a duty to re-hire a project
employee even after completion of the project for which he was hired. The import of this decision is not to impose a positive and
sweeping obligation upon the employer to re-hire project employees. What this decision merely accomplishes is a judicial recognition
of the employment status of a project or work pool employee in accordance with what is fait accompli, i.e., the continuous re-hiring by
the employer of project or work pool employees who perform tasks necessary or desirable to the employers usual business or
trade. Let it not be said that this decision coddles labor, for as Lao has ruled, project or work pool employees who have gained the
status of regular employees are subject to the no work-no pay principle, to repeat:

A work pool may exist although the workers in the pool do not receive salaries and are free to seek other employment during
temporary breaks in the business, provided that the worker shall be available when called to report for a project. Although primarily
applicable to regular seasonal workers, this set-up can likewise be applied to project workers insofar as the effect of temporary
cessation of work is concerned. This is beneficial to both the employer and employee for it prevents the unjust situation of coddling
labor at the expense of capital and at the same time enables the workers to attain the status of regular employees.

The Courts ruling here is meant precisely to give life to the constitutional policy of strengthening the labor sector, [40] but, we
stress, not at the expense of management. Lest it be misunderstood, this ruling does not mean that simply because an employee is a
project or work pool employee even outside the construction industry, he is deemed, ipso jure, a regular employee. All that we hold
today is that once a project or work pool employee has been: (1) continuously, as opposed to intermittently, re-hired by the same
employer for the same tasks or nature of tasks; and (2) these tasks are vital, necessary and indispensable to the usual business or trade
of the employer, then the employee must be deemed a regular employee, pursuant to Article 280 of the Labor Code and
jurisprudence. To rule otherwise would allow circumvention of labor laws in industries not falling within the ambit of Policy
Instruction No. 20/Department Order No. 19, hence allowing the prevention of acquisition of tenurial security by project or work pool
employees who have already gained the status of regular employees by the employers conduct.
In closing then, as petitioners had already gained the status of regular employees, their dismissal was unwarranted, for the cause
invoked by private respondents for petitioners dismissal, viz., completion of project, was not, as to them, a valid cause for dismissal
under Article 282 of the Labor Code. As such, petitioners are now entitled to back wages and reinstatement, without loss of seniority
rights and other benefits that may have accrued. [41] Nevertheless, following the principles of suspension of work and no pay between
the end of one project and the start of a new one, in computing petitioners back wages, the amounts corresponding to what could have
been earned during the periods from the date petitioners were dismissed until their reinstatement when petitioners respective Shooting
Units were not undertaking any movie projects, should be deducted.
Petitioners were dismissed on 20 July 1992, at a time when Republic Act No. 6715 was already in effect. Pursuant to Section 34
thereof which amended Section 279 of the Labor Code of the Philippines and Bustamante v. NLRC,[42] petitioners are entitled to
receive full back wages from the date of their dismissal up to the time of their reinstatement, without deducting whatever earnings
derived elsewhere during the period of illegal dismissal, subject, however, to the above observations.
WHEREFORE, the instant petition is GRANTED. The assailed decision of the National Labor Relations Commission in NLRC
NCR CA No. 006195-94 dated 10 February 1995, as well as its Resolution dated 6 April 1995, are hereby ANNULLED and SET
ASIDE for having been rendered with grave abuse of discretion, and the decision of the Labor Arbiter in NLRC NCR Case No. 00-07-
03994-92 is REINSTATED, subject, however, to the modification above mentioned in the computation of back wages.
No pronouncement as to costs.
SO ORDERED.

ALEJANDRO MARAGUINOT, JR. AND PAUILINO ENERO v. NLRC, VIC DEL ROSARIO, VIVA FILMS
GR No. 120969

Facts:

Maraguinot and Enero were separately hired by Vic Del Rosario under Viva Films as part of the filming crew. Sometime in May
1992, sought the assistance of their supervisor to facilitate their request that their salary be adjusted in accordance with the minimum
wage law.

On June 1992, Mrs. Cesario, their supervisor, told them that Mr. Vic Del Rosario would agree to their request only if they sign a blank
employment contract. Petitioners refused to sign such document. After which, the Mr. Enero was forced to go on leave on the same
month and refused to take him back when he reported for work. Mr. Maraguinot on the other hand was dropped from the payroll but
was returned days after. He was again asked to sign a blank employment contract but when he refused, he was terminated.

Consequently, the petitioners sued for illegal dismissal before the Labor Arbiter. The private respondents claim the following: (a) that
VIVA FILMS is the trade name of VIVA PRODUCTIONS, INC. and that it was primarily engaged in the distribution & exhibition of
movies- but not then making of movies; (b) That they hire contractors called “producers” who act as independent contractors as that of
Vic Del Rosario; and (c) As such, there is no employee-employer relation between petitioners and private respondents.

The Labor Arbiter held that the complainants are employees of the private respondents. That the producers are not independent
contractor but should be considered as labor-only contractors and as such act as mere agent of the real employer. Thus, the said
employees are illegally dismissed.

The private respondents appealed to the NLRC which reversed the decision of the Labor Arbiter declaring that the complainants were
project employees due to the ff. reasons: (a) Complainants were hired for specific movie projects and their employment was co-
terminus with each movie project; (b)The work is dependent on the availability of projects. As a result, the total working hours logged
extremely varied; (c) The extremely irregular working days and hours of complainants work explains the lump sum payment for their
service; and (d) The respondents alleged that the complainants are not prohibited from working with other movie companies whenever
they are not working for the independent movie producers engaged by the respondents.

A motion for reconsideration was filed by the complainants but was denied by NLRC. In effect, they filed an instant petition claiming
that NLRC committed a grave abuse of discretion in: (a) Finding that petitioners were project employees; (b) Ruling that petitioners
were not illegally dismissed; and (c) Reversing the decision of the Labor Arbiter.

In the instant case, the petitioners allege that the NLRC acted in total disregard of evidence material or decisive of the controversy.

Issues:
(a) W/N there exist an employee- employer relationship between the petitioners and the private respondents.

(b) W/N the private respondents are engaged in the business of making movies.

(c) W/N the producer is a job contractor.

Held:

There exist an employee- employer relationship between the petitioners and the private respondents because of the ff. reasons that
nowhere in the appointment slip does it appear that it was the producer who hired the crew members. Moreover, it was VIVA’s
corporate name appearing on heading of the slip. It can likewise be said that it was VIVA who paid for the petitioners’ salaries.

Respondents also admit that the petitioners were part of a work pool wherein they attained the status of regular employees because of
the ff. requisites: (a) There is a continuous rehiring of project employees even after cessation of a project; (b) The tasks performed by
the alleged “project employees” are vital, necessary and indispensable to the usual business or trade of the employer; and (c) However,
the length of time which the employees are continually re-hired is not controlling but merely serves as a badge of regular
employment.

Since the producer and the crew members are employees of VIVA and that these employees’ works deal with the making of movies. It
can be said that VIVA is engaged of making movies and not on the mere distribution of such.

The producer is not a job contractor because of the ff. reasons: (Sec. Rule VII, Book III of the Omnibus Rules Implementing the Labor
Code.)

a. A 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. The said producer has a fix time frame and budget to make the
movies.

b. The contractor should have substantial capital and materials necessary to conduct his business. The said producer, Del Rosario, does
not have his own tools, equipment, machinery, work premises and other materials to make motion pictures. Such materials were
provided by VIVA.

It can be said that the producers are labor-only contractors. Under Article 106 of the Labor Code (reworded) where the contractor does
not have the requisites as that of the job contractors.

ALIPIO R. RUGA, JOSE PARMA, ELADIO CALDERON, LAURENTE BAUTU, JAIME BARBIN, NICANOR
FRANCISCO, PHILIP CERVANTES and ELEUTERIO BARBIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DE GUZMAN FISHING ENTERPRISES and/or ARSENIO DE
GUZMAN, respondents.

FERNAN, C.J.:

The issue to be resolved in the instant case is whether or not the fishermen-crew members of the trawl fishing vessel 7/B Sandyman II
are employees of its owner-operator, De Guzman Fishing Enterprises, and if so, whether or not they were illegally dismissed from
their employment.

Records show that the petitioners were the fishermen-crew members of 7/B Sandyman II, one of several fishing vessels owned and
operated by private respondent De Guzman Fishing Enterprises which is primarily engaged in the fishing business with port and office
at Camaligan, Camarines Sur. Petitioners rendered service aboard said fishing vessel in various capacities, as follows: Alipio Ruga
and Jose Parma patron/pilot; Eladio Calderon, chief engineer; Laurente Bautu, second engineer; Jaime Barbin, master fisherman;
Nicanor Francisco, second fisherman; Philip Cervantes and Eleuterio Barbin, fishermen.

For services rendered in the conduct of private respondent's regular business of "trawl" fishing, petitioners were paid on percentage
commission basis in cash by one Mrs. Pilar de Guzman, cashier of private respondent. As agreed upon, they received thirteen percent
(13%) of the proceeds of the sale of the fish-catch if the total proceeds exceeded the cost of crude oil consumed during the fishing trip,
otherwise, they received ten percent (10%) of the total proceeds of the sale. The patron/pilot, chief engineer and master fisherman
received a minimum income of P350.00 per week while the assistant engineer, second fisherman, and fisherman-winchman received a
minimum income of P260.00 per week. 1

On September 11, 1983 upon arrival at the fishing port, petitioners were told by Jorge de Guzman, president of private respondent, to
proceed to the police station at Camaligan, Camarines Sur, for investigation on the report that they sold some of their fish-catch at
midsea to the prejudice of private respondent. Petitioners denied the charge claiming that the same was a countermove to their having
formed a labor union and becoming members of Defender of Industrial Agricultural Labor Organizations and General Workers Union
(DIALOGWU) on September 3, 1983.

During the investigation, no witnesses were presented to prove the charge against petitioners, and no criminal charges were formally
filed against them. Notwithstanding, private respondent refused to allow petitioners to return to the fishing vessel to resume their work
on the same day, September 11, 1983.

On September 22, 1983, petitioners individually filed their complaints for illegal dismissal and non-payment of 13th month pay,
emergency cost of living allowance and service incentive pay, with the then Ministry (now Department) of Labor and Employment,
Regional Arbitration Branch No. V, Legaspi City, Albay, docketed as Cases Nos. 1449-83 to 1456-83. 2 They uniformly contended
that they were arbitrarily dismissed without being given ample time to look for a new job.

On October 24, 1983, private respondent, thru its operations manager, Conrado S. de Guzman, submitted its position paper denying
the employer-employee relationship between private respondent and petitioners on the theory that private respondent and petitioners
were engaged in a joint venture. 3

After the parties failed to reach an amicable settlement, the Labor Arbiter scheduled the case for joint hearing furnishing the parties
with notice and summons. On December 27, 1983, after two (2) previously scheduled joint hearings were postponed due to the
absence of private respondent, one of the petitioners herein, Alipio Ruga, the pilot/captain of the 7/B Sandyman II, testified, among
others, on the manner the fishing operations were conducted, mode of payment of compensation for services rendered by the
fishermen-crew members, and the circumstances leading to their dismissal. 4

On March 31, 1984, after the case was submitted for resolution, Labor Arbiter Asisclo S. Coralde rendered a joint
decision 5 dismissing all the complaints of petitioners on a finding that a "joint fishing venture" and not one of employer-employee
relationship existed between private respondent and petitioners.

From the adverse decision against them, petitioners appealed to the National Labor Relations Commission.

On May 30, 1985, the National Labor Relations Commission promulgated its resolution 6 affirming the decision of the labor arbiter
that a "joint fishing venture" relationship existed between private respondent and petitioners.

Hence, the instant petition.

Petitioners assail the ruling of the public respondent NLRC that what exists between private respondent and petitioners is a joint
venture arrangement and not an employer-employee relationship. To stress that there is an employer-employee relationship between
them and private respondent, petitioners invite attention to the following: that they were directly hired by private respondent through
its general manager, Arsenio de Guzman, and its operations manager, Conrado de Guzman; that, except for Laurente Bautu, they had
been employed by private respondent from 8 to 15 years in various capacities; that private respondent, through its operations manager,
supervised and controlled the conduct of their fishing operations as to the fixing of the schedule of the fishing trips, the direction of the
fishing vessel, the volume or number of tubes of the fish-catch the time to return to the fishing port, which were communicated to the
patron/pilot by radio (single side band); that they were not allowed to join other outfits even the other vessels owned by private
respondent without the permission of the operations manager; that they were compensated on percentage commission basis of the
gross sales of the fish-catch which were delivered to them in cash by private respondent's cashier, Mrs. Pilar de Guzman; and that they
have to follow company policies, rules and regulations imposed on them by private respondent.

Disputing the finding of public respondent that a "joint fishing venture" exists between private respondent and petitioners, petitioners
claim that public respondent exceeded its jurisdiction and/or abused its discretion when it added facts not contained in the records
when it stated that the pilot-crew members do not receive compensation from the boat-owners except their share in the catch produced
by their own efforts; that public respondent ignored the evidence of petitioners that private respondent controlled the fishing
operations; that public respondent did not take into account established jurisprudence that the relationship between the fishing boat
operators and their crew is one of direct employer and employee.
Aside from seeking the dismissal of the petition on the ground that the decision of the labor arbiter is now final and executory for
failure of petitioners to file their appeal with the NLRC within 10 calendar days from receipt of said decision pursuant to the doctrine
laid down in Vir-Jen Shipping and Marine Services, Inc. vs. NLRC, 115 SCRA 347 (1982), the Solicitor General claims that the ruling
of public respondent that a "joint fishing venture" exists between private respondent and petitioners rests on the resolution of the
Social Security System (SSS) in a 1968 case, Case No. 708 (De Guzman Fishing Enterprises vs. SSS), exempting De Guzman Fishing
Enterprises, private respondent herein, from compulsory coverage of the SSS on the ground that there is no employer-employee
relations between the boat-owner and the fishermen-crew members following the doctrine laid down in Pajarillo vs. SSS, 17 SCRA
1014 (1966). In applying to the case at bar the doctrine in Pajarillo vs. SSS, supra, that there is no employer-employee relationship
between the boat-owner and the pilot and crew members when the boat-owner supplies the boat and equipment while the pilot and
crew members contribute the corresponding labor and the parties get specific shares in the catch for their respective contribution to the
venture, the Solicitor General pointed out that the boat-owners in the Pajarillo case, as in the case at bar, did not control the conduct
of the fishing operations and the pilot and crew members shared in the catch.

We rule in favor of petitioners.

Fundamental considerations of substantial justice persuade Us to decide the instant case on the merits rather than to dismiss it on a
mere technicality. In so doing, we exercise the prerogative accorded to this Court enunciated in Firestone Filipinas Employees
Association, et al. vs. Firestone Tire and Rubber Co. of the Philippines, Inc., 61 SCRA 340 (1974), thus "the well-settled doctrine is
that in labor cases before this Tribunal, no undue sympathy is to be accorded to any claim of a procedural misstep, the idea being that
its power be exercised according to justice and equity and substantial merits of the controversy."

Circumstances peculiar to some extent to fishermen-crew members of a fishing vessel regularly engaged in trawl fishing, as in the
case of petitioners herein, who spend one (1) whole week or more 7 in the open sea performing their job to earn a living to support
their families, convince Us to adopt a more liberal attitude in applying to petitioners the 10-calendar day rule in the filing of appeals
with the NLRC from the decision of the labor arbiter.

Records reveal that petitioners were informed of the labor arbiter's decision of March 31, 1984 only on July 3,1984 by their non-
lawyer representative during the arbitration proceedings, Jose Dialogo who received the decision eight (8) days earlier, or on June 25,
1984. As adverted to earlier, the circumstances peculiar to petitioners' occupation as fishermen-crew members, who during the
pendency of the case understandably have to earn a living by seeking employment elsewhere, impress upon Us that in the ordinary
course of events, the information as to the adverse decision against them would not reach them within such time frame as would allow
them to faithfully abide by the 10-calendar day appeal period. This peculiar circumstance and the fact that their representative is a
non-lawyer provide equitable justification to conclude that there is substantial compliance with the ten-calendar day rule of filing of
appeals with the NLRC when petitioners filed on July 10, 1984, or seven (7) days after receipt of the decision, their appeal with the
NLRC through registered mail.

We have consistently ruled that in determining the existence of an employer-employee relationship, the elements that are generally
considered are the following (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal;
and (d) the employer's power to control the employee with respect to the means and methods by which the work is to be
accomplished. 8 The employment relation arises from contract of hire, express or implied. 9 In the absence of hiring, no actual
employer-employee relation could exist.

From the four (4) elements mentioned, We have generally relied on the so-called right-of-control test 10 where the person for whom
the services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such
end. The test calls merely for the existence of the right to control the manner of doing the work, not the actual exercise of the right. 11

The case of Pajarillo vs. SSS, supra, invoked by the public respondent as authority for the ruling that a "joint fishing venture" existed
between private respondent and petitioners is not applicable in the instant case. There is neither light of control nor actual exercise of
such right on the part of the boat-owners in the Pajarillo case, where the Court found that the pilots therein are not under the order of
the boat-owners as regards their employment; that they go out to sea not upon directions of the boat-owners, but upon their own
volition as to when, how long and where to go fishing; that the boat-owners do not in any way control the crew-members with whom
the former have no relationship whatsoever; that they simply join every trip for which the pilots allow them, without any reference to
the owners of the vessel; and that they only share in their own catch produced by their own efforts.

The aforementioned circumstances obtaining in Pajarillo case do not exist in the instant case. The conduct of the fishing operations
was undisputably shown by the testimony of Alipio Ruga, the patron/pilot of 7/B Sandyman II, to be under the control and supervision
of private respondent's operations manager. Matters dealing on the fixing of the schedule of the fishing trip and the time to return to
the fishing port were shown to be the prerogative of private respondent. 12 While performing the fishing operations, petitioners
received instructions via a single-side band radio from private respondent's operations manager who called the patron/pilot in the
morning. They are told to report their activities, their position, and the number of tubes of fish-catch in one day. 13 Clearly thus, the
conduct of the fishing operations was monitored by private respondent thru the patron/pilot of 7/B Sandyman II who is responsible for
disseminating the instructions to the crew members.

The conclusion of public respondent that there had been no change in the situation of the parties since 1968 when De Guzman Fishing
Enterprises, private respondent herein, obtained a favorable judgment in Case No. 708 exempting it from compulsory coverage of the
SSS law is not supported by evidence on record. It was erroneous for public respondent to apply the factual situation of the parties in
the 1968 case to the instant case in the light of the changes in the conditions of employment agreed upon by the private respondent and
petitioners as discussed earlier.

Records show that in the instant case, as distinguished from the Pajarillo case where the crew members are under no obligation to
remain in the outfit for any definite period as one can be the crew member of an outfit for one day and be the member of the crew of
another vessel the next day, the herein petitioners, on the other hand, were directly hired by private respondent, through its general
manager, Arsenio de Guzman, and its operations manager, Conrado de Guzman and have been under the employ of private respondent
for a period of 8-15 years in various capacities, except for Laurente Bautu who was hired on August 3, 1983 as assistant engineer.
Petitioner Alipio Ruga was hired on September 29, 1974 as patron/captain of the fishing vessel; Eladio Calderon started as a mechanic
on April 16, 1968 until he was promoted as chief engineer of the fishing vessel; Jose Parma was employed on September 29, 1974 as
assistant engineer; Jaime Barbin started as a pilot of the motor boat until he was transferred as a master fisherman to the fishing vessel
7/B Sandyman II; Philip Cervantes was hired as winchman on August 1, 1972 while Eleuterio Barbin was hired as winchman on April
15, 1976.

While tenure or length of employment is not considered as the test of employment, nevertheless the hiring of petitioners to perform
work which is necessary or desirable in the usual business or trade of private respondent for a period of 8-15 years since 1968 qualify
them as regular employees within the meaning of Article 281 of the Labor Code as they were indeed engaged to perform activities
usually necessary or desirable in the usual fishing business or occupation of private respondent. 14

Aside from performing activities usually necessary and desirable in the business of private respondent, it must be noted that petitioners
received compensation on a percentage commission based on the gross sale of the fish-catch i.e. 13% of the proceeds of the sale if the
total proceeds exceeded the cost of the crude oil consumed during the fishing trip, otherwise only 10% of the proceeds of the sale.
Such compensation falls within the scope and meaning of the term "wage" as defined under Article 97(f) of the Labor Code, thus:

(f) "Wage" paid to any employee shall mean the remuneration or earnings, however designated, capable of being expressed in
terms of money, whether fixed or ascertained on a time, task, piece or commission basis, or other method of calculating the
same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or
to be done, or for services rendered or to be rendered, and included the fair and reasonable value, as determined by the
Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee. . . .

The claim of private respondent, which was given credence by public respondent, that petitioners get paid in the form of share in the
fish-catch which the patron/pilot as head of the team distributes to his crew members in accordance with their own understanding 15 is
not supported by recorded evidence. Except that such claim appears as an allegation in private respondent's position paper, there is
nothing in the records showing such a sharing scheme as preferred by private respondent.

Furthermore, the fact that on mere suspicion based on the reports that petitioners allegedly sold their fish-catch at midsea without the
knowledge and consent of private respondent, petitioners were unjustifiably not allowed to board the fishing vessel on September 11,
1983 to resume their activities without giving them the opportunity to air their side on the accusation against them unmistakably
reveals the disciplinary power exercised by private respondent over them and the corresponding sanction imposed in case of violation
of any of its rules and regulations. The virtual dismissal of petitioners from their employment was characterized by undue haste when
less extreme measures consistent with the requirements of due process should have been first exhausted. In that sense, the dismissal of
petitioners was tainted with illegality.

Even on the assumption that petitioners indeed sold the fish-catch at midsea the act of private respondent virtually resulting in their
dismissal evidently contradicts private respondent's theory of "joint fishing venture" between the parties herein. A joint venture,
including partnership, presupposes generally a parity of standing between the joint co-venturers or partners, in which each party has
an equal proprietary interest in the capital or property contributed 16 and where each party exercises equal lights in the conduct of the
business. 17 It would be inconsistent with the principle of parity of standing between the joint co-venturers as regards the conduct of
business, if private respondent would outrightly exclude petitioners from the conduct of the business without first resorting to other
measures consistent with the nature of a joint venture undertaking, Instead of arbitrary unilateral action, private respondent should
have discussed with an open mind the advantages and disadvantages of petitioners' action with its joint co-venturers if indeed there is
a "joint fishing venture" between the parties. But this was not done in the instant case. Petitioners were arbitrarily dismissed
notwithstanding that no criminal complaints were filed against them. The lame excuse of private respondent that the non-filing of the
criminal complaints against petitioners was for humanitarian reasons will not help its cause either.
We have examined the jurisprudence on the matter and find the same to be supportive of petitioners' stand. In Negre vs. WCC 135
SCRA 653 (1985), we held that fishermen crew members who were recruited by one master fisherman locally known as "maestro" in
charge of recruiting others to complete the crew members are considered employees, not industrial partners, of the boat-owners. In an
earlier case of Abong vs. WCC, 54 SCRA 379 (1973) where petitioner therein, Dr. Agustin Abong, owner of the fishing boat, claimed
that he was not the employer of the fishermen crew members because of an alleged partnership agreement between him, as financier,
and Simplicio Panganiban, as his team leader in charge of recruiting said fishermen to work for him, we affirmed the finding of the
WCC that there existed an employer-employee relationship between the boat-owner and the fishermen crew members not only
because they worked for and in the interest of the business of the boat-owner but also because they were subject to the control,
supervision and dismissal of the boat-owner, thru its agent, Simplicio Panganiban, the alleged "partner" of Dr. Abong; that while these
fishermen crew members were paid in kind, or by "pakiao basis" still that fact did not alter the character of their relationship with Dr.
Abong as employees of the latter.

In Philippine Fishing Boat Officers and Engineers Union vs. Court of Industrial Relations, 112 SCRA 159 (1982), we held that the
employer-employee relationship between the crew members and the owners of the fishing vessels engaged in deep sea fishing is
merely suspended during the time the vessels are drydocked or undergoing repairs or being loaded with the necessary provisions for
the next fishing trip. The said ruling is premised on the principle that all these activities i.e., drydock, repairs, loading of necessary
provisions, form part of the regular operation of the company fishing business.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The questioned resolution of the National Labor Relations
Commission dated May 30,1985 is hereby REVERSED and SET ASIDE. Private respondent is ordered to reinstate petitioners to their
former positions or any equivalent positions with 3-year backwages and other monetary benefits under the law. No pronouncement as
to costs.

SO ORDERED.
WAGES, BONUS, 13TH MONTH PAY AND OTHER BENEFITS OF EMPLOYEES

WELLINGTON INVESTMENT AND MANUFACTURING CORPORATION, petitioner,

vs.
CRESENCIANO B. TRAJANO, Under-Secretary of Labor and Employment, ELMER ABADILLA, and 34
others, respondents.

NARVASA, C.J.:

The basic issue raised by petitioner in this case is, as its counsel puts it, "whether or not a monthly-paid employee, receiving a fixed
monthly compensation, is entitled to an additional pay aside from his usual holiday pay, whenever a regular holiday falls on a
Sunday."

The case arose from a routine inspection conducted by a Labor Enforcement Officer on August 6, 1991 of the Wellington Flour Mills,
an establishment owned and operated by petitioner Wellington Investment and Manufacturing Corporation (hereafter, simply
Wellington). The officer thereafter drew up a report, a copy of which was "explained to and received by" Wellington's personnel
manager, in which he set forth his finding of "(n)on-payment of regular holidays falling on a Sunday for monthly-paid employees."1

Wellington sought reconsideration of the Labor Inspector's report, by letter dated August 10, 1991. It argued that "the monthly salary
of the company's monthly-salaried employees already includes holiday pay for all regular holidays . . . (and hence) there is no legal
basis for the finding of alleged non-payment of regular holidays falling on a Sunday." 2 It expounded on this thesis in a position paper
subsequently submitted to the Regional Director, asserting that it pays its monthly-paid employees a fixed monthly compensation
"using the 314 factor which undeniably covers and already includes payment for all the working days in a month as well as all the 10
unworked regular holidays within a year."3

Wellington's arguments failed to persuade the Regional Director who, in an Order issued on July 28, 1992, ruled that "when a regular
holiday falls on a Sunday, an extra or additional working day is created and the employer has the obligation to pay the employees for
the extra day except the last Sunday of August since the payment for the said holiday is already included in the 314 factor," and
accordingly directed Wellington to pay its employees compensation corresponding to four (4) extra working days.4

Wellington timely filed a motion for reconsideration of this Order of August 10, 1992, pointing out that it was in effect being
compelled to "shell out an additional pay for an alleged extra working day" despite its complete payment of all compensation lawfully
due its workers, using the 314 factor.5 Its motion was treated as an appeal and was acted on by respondent Undersecretary. By Order
dated September 22, the latter affirmed the challenged order of the Regional Director, holding that "the divisor being used by the
respondent (Wellington) does not reliably reflect the actual working days in a year, " and consequently commanded Wellington to pay
its employees the "six additional working days resulting from regular holidays falling on Sundays in 1988, 1989 and 1990." 6 Again,
Wellington moved for reconsideration,7 and again was rebuffed.8

Wellington then instituted the special civil action of certiorari at bar in an attempt to nullify the orders above mentioned. By
Resolution dated July 4, 1994, this Court authorized the issuance of a temporary restraining order enjoining the respondents from
enforcing the questioned orders.9

Every worker should, according to the Labor Code, 10 "be paid his regular daily wage during regular holidays, except in retail and
service establishments regularly employing less than ten (10) workers;" this, of course, even if the worker does no work on these
holidays. The regular holidays include: "New Year's Day, Maundy Thursday, Good Friday, the ninth of April, the first of May, the
twelfth of June, the fourth of July, the thirtieth of November, the twenty-fifth of December, and the day designated by law for holding
a general election (or national referendum or plebiscite). 11

Particularly as regards employees "who are uniformly paid by the month, "the monthly minimum wage shall not be less than the
statutory minimum wage multiplied by 365 days divided by twelve." 12 This monthly salary shall serve as compensation "for all days in
the month whether worked or not," and "irrespective of the number of working days therein." 13 In other words, whether the month is
of thirty (30) or thirty-one (31) days' duration, or twenty-eight (28) or twenty-nine (29) (as in February), the employee is entitled to
receive the entire monthly salary. So, too, in the event of the declaration of any special holiday, or any fortuitous cause precluding
work on any particular day or days (such as transportation strikes, riots, or typhoons or other natural calamities), the employee is
entitled to the salary for the entire month and the employer has no right to deduct the proportionate amount corresponding to the days
when no work was done. The monthly compensation is evidently intended precisely to avoid computations and adjustments resulting
from the contingencies just mentioned which are routinely made in the case of workers paid on daily basis.
In Wellington's case, there seems to be no question that at the time of the inspection conducted by the Labor Enforcement Officer on
August 6, 1991, it was and had been paying its employees "a salary of not less than the statutory or established minimum wage," and
that the monthly salary thus paid was "not . . . less than the statutory minimum wage multiplied by 365 days divided by
twelve," supra. There is, in other words, no issue that to this extent, Wellington complied with the minimum norm laid down by law.

Apparently the monthly salary was fixed by Wellington to provide for compensation for every working day of the year including the
holidays specified by law — and excluding only Sundays. In fixing the salary, Wellington used what it calls the "314 factor;" that is to
say, it simply deducted 51 Sundays from the 365 days normally comprising a year and used the difference, 314, as basis for
determining the monthly salary. The monthly salary thus fixed actually covers payment for 314 days of the year, including regular
and special holidays, as well as days when no work is done by reason of fortuitous cause, as above specified, or causes not
attributable to the employees.

The Labor Officer who conducted the routine inspection of Wellington discovered that in certain years, two or three regular holidays
had fallen on Sundays. He reasoned that this had precluded the enjoyment by the employees of a non-working day, and the employees
had consequently had to work an additional day for that month. This ratiocination received the approval of his Regional Director who
opined 14 that "when a regular holiday falls on a Sunday, an extra or additional working day is created and the employer has the
obligation to pay its employees for the extra day except the last Sunday of August since the payment for the said holiday is already
included in the 314 factor." 15

This ingenuous theory was adopted and further explained by respondent Labor Undersecretary, to whom the matter was appealed, as
follows: 16

. . . By using said (314) factor, the respondent (Wellington) assumes that all the regular holidays fell on ordinary
days and never on a Sunday. Thus, the respondent failed to consider the circumstance that whenever a regular
holiday coincides with a Sunday, an additional working day is created and left unpaid. In other words, while the said
divisor may be utilized as proof evidencing payment of 302 working days, 2 special days and the ten regular
holidays in a calendar year, the same does not cover or include payment of additional working days created as a
result of some regular holidays falling on Sundays.

He pointed out that in 1988 there was "an increase of three (3) working days resulting from regular holidays falling on Sundays;"
hence Wellington "should pay for 317 days, instead of 314 days." By the same process of ratiocination, respondent Undersecretary
theorized that there should be additional payment by Wellington to its monthly-paid employees for "an increment of three (3) working
days" for 1989 and again, for 1990. What he is saying is that in those years, Wellington should have used the "317 factor," not the
"314 factor."

The theory loses sight of the fact that the monthly salary in Wellington — which is based on the so-called "314 factor" — accounts
for all 365 days of a year; i.e., Wellington's "314 factor" leaves no day unaccounted for; it is paying for all the days of a year with the
exception only of 51 Sundays.

The respondents' theory would make each of the years in question (1988, 1989, 1990), a year of 368 days. Pursuant to this theory, no
employer opting to pay his employees by the month would have any definite basis to determine the number of days in a year for which
compensation should be given to his work force. He would have to ascertain the number of times legal holidays would fall on Sundays
in all the years of the expected or extrapolated lifetime of his business. Alternatively, he would be compelled to make adjustments in
his employees' monthly salaries every year, depending on the number of times that a legal holiday fell on a Sunday.

There is no provision of law requiring any employer to make such adjustments in the monthly salary rate set by him to take account of
legal holidays falling on Sundays in a given year, or, contrary to the legal provisions bearing on the point, otherwise to reckon a year
at more than 365 days. As earlier mentioned, what the law requires of employers opting to pay by the month is to assure that "the
monthly minimum wage shall not be less than the statutory minimum wage multiplied by 365 days divided by twelve," 17 and to pay
that salary "for all days in the month whether worked or not," and "irrespective of the number of working days therein." 18 That salary
is due and payable regardless of the declaration of any special holiday in the entire country or a particular place therein, or any
fortuitous cause precluding work on any particular day or days (such as transportation strikes, riots, or typhoons or other natural
calamities), or cause not imputable to the worker. And as also earlier pointed out, the legal provisions governing monthly
compensation are evidently intended precisely to avoid re-computations and alterations in salary on account of the contingencies just
mentioned, which, by the way, are routinely made between employer and employees when the wages are paid on daily basis.

The public respondents argue that their challenged conclusions and dispositions may be justified by Section 2, Rule X, Book III of the
Implementing Rules, giving the Regional Director power — 19
 . . . to order and administer (in cases where employer-employee relations still exist), after due notice and hearing,
compliance with the labor standards provisions of the Code and the other labor legislations based on the findings of
their Regulations Officers or Industrial Safety Engineers (Labor Standard and Welfare Officers) and made in the
course of inspection, and to issue writs of execution to the appropriate authority for the enforcement of his order, in
line with the provisions of Article 128 in relation to Articles 289 and 290 of the Labor Code, as amended. . . .

The respondents beg the question. Their argument assumes that there are some "labor standards provisions of the Code and the other
labor legislations" imposing on employers the obligation to give additional compensation to their monthly-paid employees in the event
that a legal holiday should fall on a Sunday in a particular month — with which compliance may be commanded by the Regional
Director — when the existence of said provisions is precisely the matter to be established.

In promulgating the orders complained of the public respondents have attempted to legislate, or interpret legal provisions in such a
manner as to create obligations where none are intended. They have acted without authority, or at the very least, with grave abuse of
their discretion. Their acts must be nullified and set aside.

WHEREFORE, the orders complained of, namely: that of the respondent Undersecretary dated September 22, 1993, and that of the
Regional Director dated July 30, 1992, are NULLIFIED AND SET ASIDE, and the proceeding against petitioner DISMISSED.

SO ORDERED.

ASIAN TRANSMISSION CORPORATION, petitioner,

vs.
The Hon. COURT OF APPEALS, Thirteenth Division, HON. FROILAN M. BACUNGAN as Voluntary Arbitrator, KISHIN
A. LALWANI, Union, Union representative to the Panel Arbitrators; BISIG NG ASIAN TRANSMISSION LABOR UNION
(BATLU); HON. BIENVENIDO T. LAGUESMA in his capacity as Secretary of Labor and Employment; and DIRECTOR
CHITA G. CILINDRO in her capacity as Director of Bureau of Working Conditions, respondents.

DECISION

CARPIO-MORALES, J.:

Petitioner, Asian Transmission Corporation, seeks via petition for certiorari under Rule 65 of the 1995 Rules of Civil Procedure the
nullification of the March 28, 2000 Decision1 of the Court of Appeals denying its petition to annul 1) the March 11, 1993
"Explanatory Bulletin"2 of the Department of Labor and Employment (DOLE) entitled "Workers’ Entitlement to Holiday Pay on April
9, 1993, Araw ng Kagitingan and Good Friday", which bulletin the DOLE reproduced on January 23, 1998, 2) the July 31, 1998
Decision3 of the Panel of Voluntary Arbitrators ruling that the said explanatory bulletin applied as well to April 9, 1998, and 3) the
September 18, 19984 Resolution of the Panel of Voluntary Arbitration denying its Motion for Reconsideration.

The following facts, as found by the Court of Appeals, are undisputed:

The Department of Labor and Employment (DOLE), through Undersecretary Cresenciano B. Trajano, issued an Explanatory Bulletin
dated March 11, 1993 wherein it clarified, inter alia, that employees are entitled to 200% of their basic wage on April 9, 1993,
whether unworked, which[,] apart from being Good Friday [and, therefore, a legal holiday], is also Araw ng Kagitingan [which is
also a legal holiday]. The bulletin reads:

"On the correct payment of holiday compensation on April 9, 1993 which apart from being Good Friday is also Araw ng Kagitingan,
i.e., two regular holidays falling on the same day, this Department is of the view that the covered employees are entitled to at least
two hundred percent (200%) of their basic wage even if said holiday is unworked. The first 100% represents the payment of holiday
pay on April 9, 1993 as Good Friday and the second 100% is the payment of holiday pay for the same date as Araw ng Kagitingan.

Said bulletin was reproduced on January 23, 1998, when April 9, 1998 was both Maundy Thursday and Araw ng Kagitingan x x x x

Despite the explanatory bulletin, petitioner [Asian Transmission Corporation] opted to pay its daily paid employees only 100% of
their basic pay on April 9, 1998. Respondent Bisig ng Asian Transmission Labor Union (BATLU) protested.

In accordance with Step 6 of the grievance procedure of the Collective Bargaining Agreement (CBA) existing between petitioner and
BATLU, the controversy was submitted for voluntary arbitration. x x x x On July 31, 1998, the Office of the Voluntary Arbitrator
rendered a decision directing petitioner to pay its covered employees "200% and not just 100% of their regular daily wages for the
unworked April 9, 1998 which covers two regular holidays, namely, Araw ng Kagitignan and Maundy Thursday." (Emphasis and
underscoring supplied)

Subject of interpretation in the case at bar is Article 94 of the Labor Code which reads:

ART. 94. Right to holiday pay. - (a) Every worker shall be paid his regular daily wage during regular holidays, except in retail and
service establishments regularly employing less than ten (10) workers;

(b) The employer may require an employee to work on any holiday but such employee shall be paid a compensation
equivalent to twice his regular rate; and

(c) As used in this Article, "holiday" includes: New Year’s Day, Maundy Thursday, Good Friday, the ninth of April, the first
of May, the twelfth of June, the fourth of July, the thirtieth of November, the twenty-fifth and thirtieth of December and the
day designated by law for holding a general election,

which was amended by Executive Order No. 203 issued on June 30, 1987, such that the regular holidays are now:

1. New Year’s Day January 1

2. Maundy Thursday Movable Date

3. Good Friday Movable Date

4. Araw ng Kagitingan April 9 (Bataan and Corregidor Day)

5. Labor Day May 1

6. Independence Day June 12

7. National Heroes Day Last Sunday of August

8. Bonifacio Day November 30

9. Christmas Day December 25

10. Rizal Day December 30

In deciding in favor of the Bisig ng Asian Transmission Labor Union (BATLU), the Voluntary Arbitrator held that Article 94 of the
Labor Code provides for holiday pay for every regular holiday, the computation of which is determined by a legal formula which is
not changed by the fact that there are two holidays falling on one day, like on April 9, 1998 when it was Araw ng Kagitingan and at
the same time was Maundy Thursday; and that that the law, as amended, enumerates ten regular holidays for every year should not be
interpreted as authorizing a reduction to nine the number of paid regular holidays "just because April 9 (Araw ng Kagitingan) in
certain years, like 1993 and 1998, is also Holy Friday or Maundy Thursday."

In the assailed decision, the Court of Appeals upheld the findings of the Voluntary Arbitrator, holding that the Collective Bargaining
Agreement (CBA) between petitioner and BATLU, the law governing the relations between them, clearly recognizes their intent to
consider Araw ng Kagitingan and Maundy Thursday, on whatever date they may fall in any calendar year, as paid legal holidays
during the effectivity of the CBA and that "[t]here is no condition, qualification or exception for any variance from the clear intent that
all holidays shall be compensated."5

The Court of Appeals further held that "in the absence of an explicit provision in law which provides for [a] reduction of holiday pay
if two holidays happen to fall on the same day, any doubt in the interpretation and implementation of the Labor Code provisions on
holiday pay must be resolved in favor of labor."

By the present petition, petitioners raise the following issues:

I
WHETHER OR NOT THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
ERRONEOUSLY INTERPRETING THE TERMS OF THE COLLECTIVE BARGAINING AGREEMENT BETWEEN THE
PARTIES AND SUBSTITUTING ITS OWN JUDGMENT IN PLACE OF THE AGREEMENTS MADE BY THE PARTIES
THEMSELVES

II

WHETHER OR NOT THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
HOLDING THAT ANY DOUBTS ABOUT THE VALIDITY OF THE POLICIES ENUNCIATED IN THE EXPLANATORY
BULLETIN WAS LAID TO REST BY THE REISSUANCE OF THE SAID EXPLANATORY BULLETIN

III

WHETHER OR NOT THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
UPHOLDING THE VALIDITY OF THE EXPLANATORY BULLETIN EVEN WHILE ADMITTING THAT THE SAID
BULLEITN WAS NOT AN EXAMPLE OF A JUDICIAL, QUASI-JUDICIAL, OR ONE OF THE RULES AND REGULATIONS
THAT [Department of Labor and Employment] DOLE MAY PROMULGATE

IV

WHETHER OR NOT THE SECRETARY OF THE DEPARTMENT OF LABOR AND EMPLOYMENT (DOLE) BY ISSUING
EXPLANATORY BULLETIN DATED MARCH 11, 1993, IN THE GUISE OF PROVIDING GUIDELINES ON ART. 94 OF THE
LABOR CODE, COMMITTED GRAVE ABUSE OF DISCRETION, AS IT LEGISLATED AND INTERPRETED LEGAL
PROVISIONS IN SUCH A MANNER AS TO CREATE OBLIGATIONS WHERE NONE ARE INTENDED BY THE LAW

WHETHER OR NOT THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
SUSTAINING THE SECRETARY OF THE DEPARTMENT OF LABOR IN REITERATING ITS EXPLANATORY BULLETIN
DATED MARCH 11, 1993 AND IN ORDERING THAT THE SAME POLICY OBTAINED FOR APRIL 9, 1998 DESPITE THE
RULINGS OF THE SUPREME COURT TO THE CONTRARY

VI

WHETHER OR NOT RESPONDENTS’ ACTS WILL DEPRIVE PETITIONER OF PROPERTY WITHOUT DUE PROCESS BY
THE "EXPLANATORY BULLETIN" AS WELL AS EQUAL PROTECTION OF LAWS

The petition is devoid of merit.

At the outset, it bears noting that instead of assailing the Court of Appeals Decision by petition for review on certiorari under Rule 45
of the 1997 Rules of Civil Procedure, petitioner lodged the present petition for certiorari under Rule 65.

[S]ince the Court of Appeals had jurisdiction over the petition under Rule 65, any alleged errors committed by it in the exercise of its
jurisdiction would be errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari. If the
aggrieved party fails to do so within the reglementary period, and the decision accordingly becomes final and executory, he cannot
avail himself of the writ of certiorari, his predicament being the effect of his deliberate inaction.

The appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and not a special civil action under
Rule 65 of the Rules of Court, now Rule 45 and Rule 65, respectively, of the 1997 Rules of Civil Procedure. Rule 45 is clear that the
decisions, final orders or resolutions of the Court of Appeals in any case, i.e., regardless of the nature of the action or proceeding
involved, may be appealed to this Court by filing a petition for review, which would be but a continuation of the appellate process
over the original case. Under Rule 45 the reglementary period to appeal is fifteen (15) days from notice of judgment or denial of
motion for reconsideration.

xxx

For the writ of certiorari under Rule 65 of the Rules of Court to issue, a petitioner must show that he has no plain, speedy and
adequate remedy in the ordinary course of law against its perceived grievance. A remedy is considered "plain, speedy and adequate" if
it will promptly relieve the petitioner from the injurious effects of the judgment and the acts of the lower court or agency. In this case,
appeal was not only available but also a speedy and adequate remedy. 6

The records of the case show that following petitioner’s receipt on August 18, 2000 of a copy of the August 10, 2000 Resolution of the
Court of Appeals denying its Motion for Reconsideration, it filed the present petition for certiorari on September 15, 2000, at which
time the Court of Appeals decision had become final and executory, the 15-day period to appeal it under Rule 45 having expired.

Technicality aside, this Court finds no ground to disturb the assailed decision.

Holiday pay is a legislated benefit enacted as part of the Constitutional imperative that the State shall afford protection to labor.7 Its
purpose is not merely "to prevent diminution of the monthly income of the workers on account of work interruptions. In other words,
although the worker is forced to take a rest, he earns what he should earn, that is, his holiday pay." 8 It is also intended to enable the
worker to participate in the national celebrations held during the days identified as with great historical and cultural significance.

Independence Day (June 12), Araw ng Kagitingan (April 9), National Heroes Day (last Sunday of August), Bonifacio Day (November
30) and Rizal Day (December 30) were declared national holidays to afford Filipinos with a recurring opportunity to commemorate
the heroism of the Filipino people, promote national identity, and deepen the spirit of patriotism. Labor Day (May 1) is a day
traditionally reserved to celebrate the contributions of the working class to the development of the nation, while the religious holidays
designated in Executive Order No. 203 allow the worker to celebrate his faith with his family.

As reflected above, Art. 94 of the Labor Code, as amended, affords a worker the enjoyment of ten paid regular holidays. 9 The
provision is mandatory,10 regardless of whether an employee is paid on a monthly or daily basis. 11Unlike a bonus, which is a
management prerogative,12 holiday pay is a statutory benefit demandable under the law. Since a worker is entitled to the enjoyment of
ten paid regular holidays, the fact that two holidays fall on the same date should not operate to reduce to nine the ten holiday pay
benefits a worker is entitled to receive.

It is elementary, under the rules of statutory construction, that when the language of the law is clear and unequivocal, the law must be
taken to mean exactly what it says.13 In the case at bar, there is nothing in the law which provides or indicates that the entitlement to
ten days of holiday pay shall be reduced to nine when two holidays fall on the same day.

Petitioner’s assertion that Wellington v. Trajano14 has "overruled" the DOLE March 11, 1993 Explanatory Bulletin does not lie.
In Wellington, the issue was whether monthly-paid employees are entitled to an additional day’s pay if a holiday falls on a Sunday.
This Court, in answering the issue in the negative, observed that in fixing the monthly salary of its employees, Wellington took into
account "every working day of the year including the holidays specified by law and excluding only Sunday." In the instant case, the
issue is whether daily-paid employees are entitled to be paid for two regular holidays which fall on the same day. 15

In any event, Art. 4 of the Labor Code provides that all doubts in the implementation and interpretation of its provisions, including its
implementing rules and regulations, shall be resolved in favor of labor. For the working man’s welfare should be the primordial and
paramount consideration.16

Moreover, Sec. 11, Rule IV, Book III of the Omnibus Rules to Implement the Labor Code provides that "Nothing in the law or the
rules shall justify an employer in withdrawing or reducing any benefits, supplements or payments for unworked regular holidays as
provided in existing individual or collective agreement or employer practice or policy." 17

From the pertinent provisions of the CBA entered into by the parties, petitioner had obligated itself to pay for the legal holidays as
required by law. Thus, the 1997-1998 CBA incorporates the following provision:

ARTICLE XIV
PAID LEGAL HOLIDAYS

The following legal holidays shall be paid by the COMPANY as required by law:

1. New Year’s Day (January 1st)

2. Holy Thursday (moveable)

3. Good Friday (moveable)

4. Araw ng Kagitingan (April 9th)

 5. Labor Day (May 1st)

6. Independence Day (June 12th)

7. Bonifacio Day [November 30]

8. Christmas Day (December 25th)

9. Rizal Day (December 30th)

10. General Election designated by law, if declared public non-working holiday

11. National Heroes Day (Last Sunday of August)

Only an employee who works on the day immediately preceding or after a regular holiday shall be entitled to the holiday pay.

A paid legal holiday occurring during the scheduled vacation leave will result in holiday payment in addition to normal vacation pay
but will not entitle the employee to another vacation leave.

Under similar circumstances, the COMPANY will give a day’s wage for November 1st and December 31st whenever declared a
holiday. When required to work on said days, the employee will be paid according to Art. VI, Sec. 3B hereof. 18

WHEREFORE, the petition is hereby DISMISSED.

SO ORDERED.

ARCHILLES MANUFACTURING CORPORATION, ALBERTO YU and ADRIAN YU, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, GERONIMO MANUEL, ARNULFO DIAZ, JAIME CARUNUNGAN
and BENJAMIN RINDON, respondents.

BELLOSILLO, J.:

There are three issues to be resolved in this special civil action for certiorari under Rule 65 of the Revised Rules of Court, namely: (a)
whether a writ of execution is still necessary to enforce the Labor Arbiter's order of immediate reinstatement pending appeal; (b)
whether dismissal for cause results in the forfeiture of the employee's right to a 13th month pay; and, (c) whether the award of
attorney's fees is proper in the instant case.

Archilles Manufacturing Corporation (ARCHILLES for brevity), Alberto Yu and Adrian Yu are the petitioners, the latter two (2)
being the Chairman and the Vice-President of ARCHILLES, respectively. Private respondents Geronimo Manuel, Arnulfo Diaz,
Jaime Carunungan and Benjamin Rindon were employed by ARCHILLES as laborers in its steel factory located in Barangay
Pandayan, Meycauayan, Bulacan, each receiving a daily wage of P96.00.1

ARCHILLES was maintaining a bunkhouse in the work area which served as resting place for its workers including private
respondents. In 1988 a mauling incident nearly took place involving a relative of an employee. As a result ARCHILLES prohibited its
workers from bringing any member of their family to the bunkhouse. But despite this prohibition, private respondents continued to
bring their respective families to the bunkhouse, causing annoyance and discomfort to the other workers. 2 This was brought to the
attention of ARCHILLES.

On 11 May 1990 the management ordered private respondent to remove their families from the bunkhouse and to explain their
violation of the company rule. Private respondents remove their families from the premises but failed to report to the management as
required; instead, they absented themselves from 14 to 18 May 1990. Consequently, on 18 May 1990, ARCHILLES terminated their
employment for abandonment and for violation of the company rule regarding the use of the bunkhouse. 3
Private respondents filed a complaint for illegal dismissal. On 10 July 1991 the Labor Arbiter found the dismissal of private
respondents illegal and ordered their reinstatement as well as the payment to them the backwages, proportionate 13th month pay for
the year 1990 and attorney's
fees. 4 ARCHILLES appealed.

On 10 September 1991 private respondent filed with public respondent National Labor Relations Commission a motion for the
issuance of a writ of execution for their immediate reinstatement, pending appeal, either physically or in the company payroll. On 19
September 1991 ARCHILLES opposed the motion.

Since no action was taken by NLRC on the motion of 10 September 1991, private respondents filed a similar motion on 15 July 1992.
Both motions however have remained unresolved.

On 11 August 1992 NLRC vacated and set aside the decision of the Labor Arbiter and ruled that the dismissal of private respondents
was valid since they wilfully disobeyed a lawful order of their employer requiring them to explain their infraction of a company rule.
In the dispute part of its decision, however, NLRC ordered ARCHILLES to pay private respondents their "withheld" salaries from 19
September 1991 when it filed its opposition to the motion for issuance of a writ of execution until the promulgation of the NLRC
Decision (11 August 1992) on the ground that the order of reinstatement of the Labor Arbiter was immediately executory, even
pending appeal. And since ARCHILLES in its opposition alleged that actual reinstatement was no longer possible as it would affect
the peace and order situation in the steel factory, clearly, ARCHILLES had opted for payroll reinstatement of private respondents.
NLRC also ordered ARCHILLES to pay their proportionate 13th month pay for 1990 and P12,351.30 representing 10% of the total
judgment award of P123,513.00 as attorney's fees. 5

Their motion for partial reconsideration having been denied by public respondent in its resolution of 8 September 1992, petitioners
filed the instant petition praying that the questioned NLRC decision of 11 August 1992 as well as its resolution of 8 September 1992
be partially annulled in connection with the award of "withheld" salaries, proportionate 13th month pay and attorney's fees.

As regards the first issue, i.e., whether a writ of execution is still necessary to enforce the Labor Arbiter's order of immediate
reinstatement even when pending appeal, we agree with petitioners that it is necessary. The third paragraph of Art. 223 of the Labor
Code provides —

In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee, insofar as the
reinstatement aspect is concerned, shall be immediately executory, even pending appeal. The employee shall either
be admitted back to work under the same terms and conditions prevailing prior to his dismissal or separation or, at
the option of the employer, merely reinstated in the payroll. The posting of the bond by the employer shall not stay
the execution for reinstatement provided herein.

We have fully explained the legal basis for this conclusion in Maranaw Hotel Resort Corporation (Century Park Sheraton Manila) v.
NLRC and Gina G. Castro 6 thus —

It must be stressed, however, that although the reinstatement aspect of the decision is immediately executory, it does
not follow that it is self-executory. There must be a writ of execution which may be issued motu proprio or on
motion of an interested party. Article 224 of the Labor Code provides:

Art. 224. Execution of decisions, orders or awards. — (a) The Secretary of Labor and
Employment or any Regional Director, the Commission or any Labor Arbiter, or med-Arbiter or
voluntary arbitrator may, motu proprio or on motion of any interested party, issue a writ of
execution on a judgment within five (5) years from the date it becomes final and executory . . . .

The second paragraph of Section 1, Rule XVIII of the New Rules of Procedure of the NLRC also provides:

The Labor Arbiter, POEA Administrator, or the Regional Director, or his duly authorized hearing officer of origin
shall, motu proprio or upon motion of any interested party, issue a writ of execution on a judgment only within five
(5) years from the date it becomes final and executory . . . . No motion for execution shall be entertained nor a writ
be issued unless the Labor Arbiter is in possession of the records of the case which shall include an entry of
judgment.

In the absence . . . of an order for the issuance of a writ of execution on the reinstatement aspect of the decision of
the Labor Arbiter, the petitioner was under no legal obligation to admit back to work the private respondent under
the terms and conditions prevailing prior to her dismissal or, at the petitioner's option, to merely reinstate her in the
payroll. An option is a right of election to exercise a privilege, and the option in Article 223 of the Labor code is
 exclusively granted to the employer. The event that gives rise for its exercise is not the reinstatement decree of the
Labor Arbiter, but the writ for its execution commanding the employer to reinstate the employee, while the final act
which compels the employer to exercise the option is the service upon it of the writ of execution when, instead of
admitting the employee back to his work, the employee chooses to reinstate the employee in the payroll only. If the
employer does not exercise this option, it must forthwith admit the employee back to work, otherwise it may be
punished for contempt.

In the case at bench, there was no occasion for petitioners to exercise their option under Art. 223 of the Labor Code in connection with
the reinstatement aspect of the decision of the Labor Arbiter. The motions of private respondents for the issuance of a writ of
execution were not acted upon by NLRC. It was not shown that respondent exerted efforts to have their motions resolved. They are
deemed to have abandoned their motions for execution pending appeal. They cannot now ask that the writ of execution be issued since
their dismissal was found to be for cause.

On the second issue, which refers to the propriety of the award of a 13th month pay, paragraph 6 of the Revised Guidelines on the
Implementation of the 13th Month Pay Law (P. D. 851) provides that "(a)n employee who has resigned or whose services were
terminated at any time before the payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time
he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or
termination from the
service . . . The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-employee
relationship. This is consistent with the principle of equity that as the employer can require the employee to clear himself of all
liabilities and property accountability, so can the employee demand the payment of all benefits due him upon the termination of the
relationship."

Furthermore, Sec. 4 of the original Implementing Rules of P.D. 851 mandates employers to pay their employees a 13th month pay not
later than the 24th of December every year provided that they have worked for at least one (1) month during a calendar year. In effect,
this statutory benefit is automatically vested in the employee who has at least worked for one month during the calendar year. As
correctly stated by the Solicitor General, such benefit may not be lost or forfeited even in the event of the employee's subsequent
dismissal for cause without violating his property rights.

With respect to the third issue, the disputed attorney's fees can only be assessed in cases of unlawful withholding of wages. 7 It cannot
be said that petitioners were guilty of unlawfully withholding private respondents' salaries since, as earlier discussed, the occasion
never arose for them to exercise that option under Art. 223 of the Labor Code. Clearly, the award of attorney's fees is baseless.

WHEREFORE, the instant petition is partly granted. The challenged Decision of the National Labor Relations Commission dated 11
August 1992 is MODIFIED by deleting that portion ordering petitioners to pay private respondents their salaries from 19 September
1991 to 20 September 1992 as well as that portion awarding 10% of the total judgment award as attorney's fees for lack of legal and
factual basis. In other respects, the Decision is AFFIRMED.

SO ORDERED.

INSULAR BANK OF ASIA AND AMERICA EMPLOYEES' UNION (IBAAEU), petitioner,

vs.
HON. AMADO G. INCIONG, Deputy Minister, Ministry of Labor and INSULAR BANK OF ASIA AND
AMERICA, respondents.

MAKASIAR, J.:ñé+.£ªwph!1

This is a petition for certiorari to set aside the order dated November 10, 1979, of respondent Deputy Minister of Labor, Amado G.
Inciong, in NLRC case No. RB-IV-1561-76 entitled "Insular Bank of Asia and America Employees' Union (complainant-appellee), vs.
Insular Bank of Asia and America" (respondent-appellant), the dispositive portion of which reads as follows: têñ.£îhqwâ£

xxx xxx xxx

ALL THE FOREGOING CONSIDERED, let the appealed Resolution en banc of the National Labor Relations
Commission dated 20 June 1978 be, as it is hereby, set aside and a new judgment. promulgated dismissing the
instant case for lack of merit (p. 109 rec.).
The antecedent facts culled from the records are as follows:

On June 20, 1975, petitioner filed a complaint against the respondent bank for the payment of holiday pay before the then Department
of Labor, National Labor Relations Commission, Regional Office No. IV in Manila. Conciliation having failed, and upon the request
of both parties, the case was certified for arbitration on July 7, 1975 (p. 18, NLRC rec.

On August 25, 1975, Labor Arbiter Ricarte T. Soriano rendered a decision in the above-entitled case, granting petitioner's complaint
for payment of holiday pay. Pertinent portions of the decision read: têñ.£îhqwâ£

xxx xxx xxx

The records disclosed that employees of respondent bank were not paid their wages on unworked regular holidays as
mandated by the Code, particularly Article 208, to wit: têñ.£îhqwâ£

Art. 208. Right to holiday pay.

(a) Every worker shall be paid his regular daily wage during regular holidays, except in retail and
service establishments regularly employing less than 10 workers.

(b) The term "holiday" as used in this chapter, shall include: New Year's Day, Maundy Thursday,
Good Friday, the ninth of April the first of May, the twelfth of June, the fourth of July, the thirtieth
of November, the twenty-fifth and the thirtieth of December and the day designated by law for
holding a general election.

xxx xxx xxx

This conclusion is deduced from the fact that the daily rate of pay of the bank employees was computed in the past
with the unworked regular holidays as excluded for purposes of determining the deductible amount for absences
incurred Thus, if the employer uses the factor 303 days as a divisor in determining the daily rate of monthly paid
employee, this gives rise to a presumption that the monthly rate does not include payments for unworked regular
holidays. The use of the factor 303 indicates the number of ordinary working days in a year (which normally has 365
calendar days), excluding the 52 Sundays and the 10 regular holidays. The use of 251 as a factor (365 calendar days
less 52 Saturdays, 52 Sundays, and 10 regular holidays) gives rise likewise to the same presumption that the
unworked Saturdays, Sundays and regular holidays are unpaid. This being the case, it is not amiss to state with
certainty that the instant claim for wages on regular unworked holidays is found to be tenable and meritorious.

WHEREFORE, judgment is hereby rendered:

(a) xxx xxxx xxx

(b) Ordering respondent to pay wages to all its employees for all regular h(olidays since November 1, 1974 (pp. 97-
99, rec., underscoring supplied).

Respondent bank did not appeal from the said decision. Instead, it complied with the order of Arbiter Ricarte T. Soriano by paying
their holiday pay up to and including January, 1976.

On December 16, 1975, Presidential Decree No. 850 was promulgated amending, among others, the provisions of the Labor Code on
the right to holiday pay to read as follows: têñ.£îhqwâ£

Art. 94. Right to holiday pay. — (a) Every worker shall be paid his regular daily wages during regular holidays,
except in retail and service establishments regularly employing less than ten (10) workers;

(b) The employer may require an employee to work on any holiday but such employee shall be paid a compensation
equivalent to twice his regular rate and

(c) As used in this Article, "holiday" includes New Year's Day, Maundy Thursday, Good Friday, the ninth of April,
the first of May, the twelfth of June, the fourth of July, the thirtieth of November, the twenty-fifth and the thirtieth of
December, and the day designated by law for holding a general election.
Accordingly, on February 16, 1976, by authority of Article 5 of the same Code, the Department of Labor (now Ministry of Labor)
promulgated the rules and regulations for the implementation of holidays with pay. The controversial section thereof
reads: têñ.£îhqwâ£

Sec. 2. Status of employees paid by the month. — Employees who are uniformly paid by the month, irrespective of
the number of working days therein, with a salary of not less than the statutory or established minimum wage shall
be presumed to be paid for all days in the month whether worked or not.

For this purpose, the monthly minimum wage shall not be less than the statutory minimum wage multiplied by 365
days divided by twelve" (italics supplied).

On April 23, 1976, Policy Instruction No. 9 was issued by the then Secretary of Labor (now Minister) interpreting the above-quoted
rule, pertinent portions of which read: têñ.£îhqwâ£

xxx xxx xxx

The ten (10) paid legal holidays law, to start with, is intended to benefit principally daily employees. In the case of
monthly, only those whose monthly salary did not yet include payment for the ten (10) paid legal holidays are
entitled to the benefit.

Under the rules implementing P.D. 850, this policy has been fully clarified to eliminate controversies on the
entitlement of monthly paid employees, The new determining rule is this: If the monthly paid employee is receiving
not less than P240, the maximum monthly minimum wage, and his monthly pay is uniform from January to
December, he is presumed to be already paid the ten (10) paid legal holidays. However, if deductions are made from
his monthly salary on account of holidays in months where they occur, then he is still entitled to the ten (10) paid
legal holidays. ..." (emphasis supplied).

Respondent bank, by reason of the ruling laid down by the aforecited rule implementing Article 94 of the Labor Code and by Policy
Instruction No. 9, stopped the payment of holiday pay to an its employees.

On August 30, 1976, petitioner filed a motion for a writ of execution to enforce the arbiter's decision of August 25, 1975, whereby the
respondent bank was ordered to pay its employees their daily wage for the unworked regular holidays.

On September 10, 1975, respondent bank filed an opposition to the motion for a writ of execution alleging, among others, that: (a) its
refusal to pay the corresponding unworked holiday pay in accordance with the award of Labor Arbiter Ricarte T. Soriano dated
August 25, 1975, is based on and justified by Policy Instruction No. 9 which interpreted the rules implementing P. D. 850; and (b) that
the said award is already repealed by P.D. 850 which took effect on December 16, 1975, and by said Policy Instruction No. 9 of the
Department of Labor, considering that its monthly paid employees are not receiving less than P240.00 and their monthly pay is
uniform from January to December, and that no deductions are made from the monthly salaries of its employees on account of
holidays in months where they occur (pp. 64-65, NLRC rec.).

On October 18, 1976, Labor Arbiter Ricarte T. Soriano, instead of issuing a writ of execution, issued an order enjoining the
respondent bank to continue paying its employees their regular holiday pay on the following grounds: (a) that the judgment is already
final and the findings which is found in the body of the decision as well as the dispositive portion thereof is res judicata or is the law
of the case between the parties; and (b) that since the decision had been partially implemented by the respondent bank, appeal from the
said decision is no longer available (pp. 100-103, rec.).

On November 17, 1976, respondent bank appealed from the above-cited order of Labor Arbiter Soriano to the National Labor
Relations Commission, reiterating therein its contentions averred in its opposition to the motion for writ of execution. Respondent
bank further alleged for the first time that the questioned order is not supported by evidence insofar as it finds that respondent bank
discontinued payment of holiday pay beginning January, 1976 (p. 84, NLRC rec.).

On June 20, 1978, the National Labor Relations Commission promulgated its resolution en banc dismissing respondent bank's appeal,
the dispositive portion of which reads as follows: têñ.£îhqwâ£

In view of the foregoing, we hereby resolve to dismiss, as we hereby dismiss, respondent's appeal; to set aside Labor
Arbiter Ricarte T. Soriano's order of 18 October 1976 and, as prayed for by complainant, to order the issuance of the
proper writ of execution (p. 244, NLRC rec.).
Copies of the above resolution were served on the petitioner only on February 9, 1979 or almost eight. (8) months after it was
promulgated, while copies were served on the respondent bank on February 13, 1979.

On February 21, 1979, respondent bank filed with the Office of the Minister of Labor a motion for reconsideration/appeal with urgent
prayer to stay execution, alleging therein the following: (a) that there is prima facie evidence of grave abuse of discretion, amounting
to lack of jurisdiction on the part of the National Labor Relations Commission, in dismissing the respondent's appeal on pure
technicalities without passing upon the merits of the appeal and (b) that the resolution appealed from is contrary to the law and
jurisprudence (pp. 260-274, NLRC rec.).

On March 19, 1979, petitioner filed its opposition to the respondent bank's appeal and alleged the following grounds: (a) that the
office of the Minister of Labor has no jurisdiction to entertain the instant appeal pursuant to the provisions of P. D. 1391; (b) that the
labor arbiter's decision being final, executory and unappealable, execution is a matter of right for the petitioner; and (c) that the
decision of the labor arbiter dated August 25, 1975 is supported by the law and the evidence in the case (p. 364, NLRC rec.).

On July 30, 1979, petitioner filed a second motion for execution pending appeal, praying that a writ of execution be issued by the
National Labor Relations Commission pending appeal of the case with the Office of the Minister of Labor. Respondent bank filed its
opposition thereto on August 8, 1979.

On August 13, 1979, the National Labor Relations Commission issued an order which states: têñ.£îhqwâ£

The Chief, Research and Information Division of this Commission is hereby directed to designate a Socio-Economic
Analyst to compute the holiday pay of the employees of the Insular Bank of Asia and America from April 1976 to
the present, in accordance with the Decision of the Labor Arbiter dated August 25, 1975" (p. 80, rec.).

On November 10, 1979, the Office of the Minister of Labor, through Deputy Minister Amado G. Inciong, issued an order, the
dispositive portion of which states: têñ.£îhqwâ£

ALL THE FOREGOING CONSIDERED, let the appealed Resolution en banc of the National Labor Relations
Commission dated 20 June 1978 be, as it is hereby, set aside and a new judgment promulgated dismissing the instant
case for lack of merit (p. 436, NLRC rec.).

Hence, this petition for certiorari charging public respondent Amado G. Inciong with abuse of discretion amounting to lack or excess
of jurisdiction.

The issue in this case is: whether or not the decision of a Labor Arbiter awarding payment of regular holiday pay can still be set aside
on appeal by the Deputy Minister of Labor even though it has already become final and had been partially executed, the finality of
which was affirmed by the National Labor Relations Commission sitting en banc, on the basis of an Implementing Rule and Policy
Instruction promulgated by the Ministry of Labor long after the said decision had become final and executory.

WE find for the petitioner.

WE agree with the petitioner's contention that Section 2, Rule IV, Book III of the implementing rules and Policy Instruction No. 9
issued by the then Secretary of Labor are null and void since in the guise of clarifying the Labor Code's provisions on holiday pay,
they in effect amended them by enlarging the scope of their exclusion (p. 1 1, rec.).

Article 94 of the Labor Code, as amended by P.D. 850, provides: têñ.£îhqwâ£

Art. 94. Right to holiday pay. — (a) Every worker shall be paid his regular daily wage during regular holidays,
except in retail and service establishments regularly employing less than ten (10) workers. ...

The coverage and scope of exclusion of the Labor Code's holiday pay provisions is spelled out under Article 82 thereof which
reads: têñ.£îhqwâ£

Art. 82. Coverage. — The provision of this Title shall apply to employees in all establishments and undertakings,
whether for profit or not, but not to government employees, managerial employees, field personnel members of the
family of the employer who are dependent on him for support domestic helpers, persons in the personal service of
another, and workers who are paid by results as determined by the Secretary of Labor in appropriate regulations.
 ... (emphasis supplied).

From the above-cited provisions, it is clear that monthly paid employees are not excluded from the benefits of holiday pay. However,
the implementing rules on holiday pay promulgated by the then Secretary of Labor excludes monthly paid employees from the said
benefits by inserting, under Rule IV, Book Ill of the implementing rules, Section 2, which provides that: "employees who are
uniformly paid by the month, irrespective of the number of working days therein, with a salary of not less than the statutory or
established minimum wage shall be presumed to be paid for all days in the month whether worked or not. "

Public respondent maintains that "(T)he rules implementing P. D. 850 and Policy Instruction No. 9 were issued to clarify the policy in
the implementation of the ten (10) paid legal holidays. As interpreted, 'unworked' legal holidays are deemed paid insofar as monthly
paid employees are concerned if (a) they are receiving not less than the statutory minimum wage, (b) their monthly pay is uniform
from January to December, and (c) no deduction is made from their monthly salary on account of holidays in months where they
occur. As explained in Policy Instruction No, 9, 'The ten (10) paid legal holidays law, to start with, is intended to benefit principally
daily paid employees. In case of monthly, only those whose monthly salary did not yet include payment for the ten (10) paid legal
holidays are entitled to the benefit' " (pp. 340-341, rec.). This contention is untenable.

It is elementary in the rules of statutory construction that when the language of the law is clear and unequivocal the law must be taken
to mean exactly what it says. In the case at bar, the provisions of the Labor Code on the entitlement to the benefits of holiday pay are
clear and explicit - it provides for both the coverage of and exclusion from the benefits. In Policy Instruction No. 9, the then Secretary
of Labor went as far as to categorically state that the benefit is principally intended for daily paid employees, when the law clearly
states that every worker shall be paid their regular holiday pay. This is a flagrant violation of the mandatory directive of Article 4 of
the Labor Code, which states that "All doubts in the implementation and interpretation of the provisions of this Code, including its
implementing rules and regulations, shall be resolved in favor of labor." Moreover, it shall always be presumed that the legislature
intended to enact a valid and permanent statute which would have the most beneficial effect that its language permits (Orlosky vs.
Haskell, 155 A. 112.)

Obviously, the Secretary (Minister) of Labor had exceeded his statutory authority granted by Article 5 of the Labor Code authorizing
him to promulgate the necessary implementing rules and regulations.

Public respondent vehemently argues that the intent and spirit of the holiday pay law, as expressed by the Secretary of Labor in the
case of Chartered Bank Employees Association v. The Chartered Bank (NLRC Case No. RB-1789-75, March 24, 1976), is to correct
the disadvantages inherent in the daily compensation system of employment — holiday pay is primarily intended to benefit the daily
paid workers whose employment and income are circumscribed by the principle of "no work, no pay." This argument may sound
meritorious; but, until the provisions of the Labor Code on holiday pay is amended by another law, monthly paid employees are
definitely included in the benefits of regular holiday pay. As earlier stated, the presumption is always in favor of law, negatively put,
the Labor Code is always strictly construed against management.

While it is true that the contemporaneous construction placed upon a statute by executive officers whose duty is to enforce it should be
given great weight by the courts, still if such construction is so erroneous, as in the instant case, the same must be declared as null and
void. It is the role of the Judiciary to refine and, when necessary, correct constitutional (and/or statutory) interpretation, in the context
of the interactions of the three branches of the government, almost always in situations where some agency of the State has engaged in
action that stems ultimately from some legitimate area of governmental power (The Supreme Court in Modern Role, C. B. Swisher
1958, p. 36).

Thus. in the case of Philippine Apparel Workers Union vs. National Labor Relations Commission (106 SCRA 444, July 31, 1981)
where the Secretary of Labor enlarged the scope of exemption from the coverage of a Presidential Decree granting increase in
emergency allowance, this Court ruled that: têñ.£îhqwâ£

... the Secretary of Labor has exceeded his authority when he included paragraph (k) in Section 1 of the Rules
implementing P. D. 1 1 23.

xxx xxx xxx

Clearly, the inclusion of paragraph k contravenes the statutory authority granted to the Secretary of Labor, and the
same is therefore void, as ruled by this Court in a long line of cases . . . .. têñ.£îhqwâ£

The recognition of the power of administrative officials to promulgate rules in the administration
of the statute, necessarily limited to what is provided for in the legislative enactment, may be
found in the early case of United States vs. Barrios decided in 1908. Then came in a 1914
decision, United States vs. Tupasi Molina (29 Phil. 119) delineation of the scope of such
 competence. Thus: "Of course the regulations adopted under legislative authority by a particular
department must be in harmony with the provisions of the law, and for the sole purpose of
carrying into effect its general provisions. By such regulations, of course, the law itself cannot be
extended. So long, however, as the regulations relate solely to carrying into effect the provisions
of the law, they are valid." In 1936, in People vs. Santos, this Court expressed its disapproval of an
administrative order that would amount to an excess of the regulatory power vested in an
administrative official We reaffirmed such a doctrine in a 1951 decision, where we again made
clear that where an administrative order betrays inconsistency or repugnancy to the provisions of
the Act, 'the mandate of the Act must prevail and must be followed. Justice Barrera, speaking for
the Court in Victorias Milling inc. vs. Social Security Commission, citing Parker as well as Davis
did tersely sum up the matter thus: "A rule is binding on the Courts so long as the procedure fixed
for its promulgation is followed and its scope is within the statutory authority granted by the
legislature, even if the courts are not in agreement with the policy stated therein or its innate
wisdom. ... On the other hand, administrative interpretation of the law is at best merely advisory,
for it is the courts that finally determine chat the law means."

"It cannot be otherwise as the Constitution limits the authority of the President, in whom all
executive power resides, to take care that the laws be faithfully executed. No lesser administrative
executive office or agency then can, contrary to the express language of the Constitution assert for
itself a more extensive prerogative. Necessarily, it is bound to observe the constitutional mandate.
There must be strict compliance with the legislative enactment. Its terms must be followed the
statute requires adherence to, not departure from its provisions. No deviation is allowable. In the
terse language of the present Chief Justice, an administrative agency "cannot amend an act of
Congress." Respondents can be sustained, therefore, only if it could be shown that the rules and
regulations promulgated by them were in accordance with what the Veterans Bill of Rights
provides" (Phil. Apparel Workers Union vs. National Labor Relations Commission, supra, 463,
464, citing Teozon vs. Members of the Board of Administrators, PVA 33 SCRA 585; see also
Santos vs. Hon. Estenzo, et al, 109 Phil. 419; Hilado vs. Collector of Internal Revenue, 100 Phil.
295; Sy Man vs. Jacinto & Fabros, 93 Phil. 1093; Olsen & Co., Inc. vs. Aldanese and Trinidad, 43
Phil. 259).

This ruling of the Court was recently reiterated in the case of American Wire & Cable Workers Union (TUPAS) vs. The National
Labor Relations Commission and American Wire & Cable Co., Inc., G.R. No. 53337, promulgated on June 29, 1984.

In view of the foregoing, Section 2, Rule IV, Book III of the Rules to implement the Labor Code and Policy instruction No. 9 issued
by the then Secretary of Labor must be declared null and void. Accordingly, public respondent Deputy Minister of Labor Amado G.
Inciong had no basis at all to deny the members of petitioner union their regular holiday pay as directed by the Labor Code.

II

It is not disputed that the decision of Labor Arbiter Ricarte T. Soriano dated August 25, 1975, had already become final, and was, in
fact, partially executed by the respondent bank.

However, public respondent maintains that on the authority of De Luna vs. Kayanan, 61 SCRA 49, November 13, 1974, he can annul
the final decision of Labor Arbiter Soriano since the ensuing promulgation of the integrated implementing rules of the Labor Code
pursuant to P.D. 850 on February 16, 1976, and the issuance of Policy Instruction No. 9 on April 23, 1976 by the then Secretary of
Labor are facts and circumstances that transpired subsequent to the promulgation of the decision of the labor arbiter, which renders the
execution of the said decision impossible and unjust on the part of herein respondent bank (pp. 342-343, rec.).

This contention is untenable.

To start with, unlike the instant case, the case of De Luna relied upon by the public respondent is not a labor case wherein the express
mandate of the Constitution on the protection to labor is applied. Thus Article 4 of the Labor Code provides that, "All doubts in the
implementation and interpretation of the provisions of this Code, including its implementing rules and regulations, shall be resolved in
favor of labor and Article 1702 of the Civil Code provides that, " In case of doubt, all labor legislation and all labor contracts shall be
construed in favor of the safety and decent living for the laborer.

Consequently, contrary to public respondent's allegations, it is patently unjust to deprive the members of petitioner union of their
vested right acquired by virtue of a final judgment on the basis of a labor statute promulgated following the acquisition of the "right".
On the question of whether or not a law or statute can annul or modify a judicial order issued prior to its promulgation, this Court,
through Associate Justice Claro M. Recto, said: têñ.£îhqwâ£

xxx xxx xxx

We are decidedly of the opinion that they did not. Said order, being unappealable, became final on the date of its
issuance and the parties who acquired rights thereunder cannot be deprived thereof by a constitutional provision
enacted or promulgated subsequent thereto. Neither the Constitution nor the statutes, except penal laws favorable to
the accused, have retroactive effect in the sense of annulling or modifying vested rights, or altering contractual
obligations" (China Ins. & Surety Co. vs. Judge of First Instance of Manila, 63 Phil. 324, emphasis supplied).

In the case of In re: Cunanan, et al., 19 Phil. 585, March 18, 1954, this Court said: "... when a court renders a decision or promulgates
a resolution or order on the basis of and in accordance with a certain law or rule then in force, the subsequent amendment or even
repeal of said law or rule may not affect the final decision, order, or resolution already promulgated, in the sense of revoking or
rendering it void and of no effect." Thus, the amendatory rule (Rule IV, Book III of the Rules to Implement the Labor Code) cannot be
given retroactive effect as to modify final judgments. Not even a law can validly annul final decisions (In re: Cunanan, et al., Ibid).

Furthermore, the facts of the case relied upon by the public respondent are not analogous to that of the case at bar. The case of De
Luna speaks of final and executory judgment, while iii the instant case, the final judgment is partially executed. just as the court is
ousted of its jurisdiction to annul or modify a judgment the moment it becomes final, the court also loses its jurisdiction to annul or
modify a writ of execution upon its service or execution; for, otherwise, we will have a situation wherein a final and executed
judgment can still be annulled or modified by the court upon mere motion of a panty This would certainly result in endless litigations
thereby rendering inutile the rule of law.

Respondent bank counters with the argument that its partial compliance was involuntary because it did so under pain of levy and
execution of its assets (p. 138, rec.). WE find no merit in this argument. Respondent bank clearly manifested its voluntariness in
complying with the decision of the labor arbiter by not appealing to the National Labor Relations Commission as provided for under
the Labor Code under Article 223. A party who waives his right to appeal is deemed to have accepted the judgment, adverse or not, as
correct, especially if such party readily acquiesced in the judgment by starting to execute said judgment even before a writ of
execution was issued, as in this case. Under these circumstances, to permit a party to appeal from the said partially executed final
judgment would make a mockery of the doctrine of finality of judgments long enshrined in this jurisdiction.

Section I of Rule 39 of the Revised Rules of Court provides that "... execution shall issue as a matter of right upon the expiration of the
period to appeal ... or if no appeal has been duly perfected." This rule applies to decisions or orders of labor arbiters who are
exercising quasi-judicial functions since "... the rule of execution of judgments under the rules should govern all kinds of execution of
judgment, unless it is otherwise provided in other laws" Sagucio vs. Bulos 5 SCRA 803) and Article 223 of the Labor Code provides
that "... decisions, awards, or orders of the Labor Arbiter or compulsory arbitrators are final and executory unless appealed to the
Commission by any or both of the parties within ten (10) days from receipt of such awards, orders, or decisions. ..."

Thus, under the aforecited rule, the lapse of the appeal period deprives the courts of jurisdiction to alter the final judgment and the
judgment becomes final ipso jure (Vega vs. WCC, 89 SCRA 143, citing Cruz vs. WCC, 2 PHILAJUR 436, 440, January 31, 1978; see
also Soliven vs. WCC, 77 SCRA 621; Carrero vs. WCC and Regala vs. WCC, decided jointly, 77 SCRA 297; Vitug vs. Republic, 75
SCRA 436; Ramos vs. Republic, 69 SCRA 576).

In Galvez vs. Philippine Long Distance Telephone Co., 3 SCRA 422, 423, October 31, 1961, where the lower court modified a final
order, this Court ruled thus: têñ.£îhqwâ£

xxx xxx xxx

The lower court was thus aware of the fact that it was thereby altering or modifying its order of January 8, 1959.
Regardless of the excellence of the motive for acting as it did, we are constrained to hold however, that the lower
court had no authorities to make said alteration or modification. ...

xxx xxx xxx

The equitable considerations that led the lower court to take the action complained of cannot offset the dem ands of
public policy and public interest — which are also responsive to the tenets of equity — requiring that an issues
passed upon in decisions or final orders that have become executory, be deemed conclusively disposed of and
definitely closed for, otherwise, there would be no end to litigations, thus setting at naught the main role of courts of
 justice, which is to assist in the enforcement of the rule of law and the maintenance of peace and order, by settling
justiciable controversies with finality.

xxx xxx xxx

In the recent case of Gabaya vs. Mendoza, 113 SCRA 405, 406, March 30, 1982, this Court said: têñ.£îhqwâ£

xxx xxx xxx

In Marasigan vs. Ronquillo (94 Phil. 237), it was categorically stated that the rule is absolute that after a judgment
becomes final by the expiration of the period provided by the rules within which it so becomes, no further
amendment or correction can be made by the court except for clerical errors or mistakes. And such final judgment is
conclusive not only as to every matter which was offered and received to sustain or defeat the claim or demand but
as to any other admissible matter which must have been offered for that purpose (L-7044, 96 Phil. 526). In the
earlier case of Contreras and Ginco vs. Felix and China Banking Corp., Inc. (44 O.G. 4306), it was stated that the
rule must be adhered to regardless of any possible injustice in a particular case for (W)e have to subordinate the
equity of a particular situation to the over-mastering need of certainty and immutability of judicial pronouncements

xxx xxx xxx

III

The despotic manner by which public respondent Amado G. Inciong divested the members of the petitioner union of their rights
acquired by virtue of a final judgment is tantamount to a deprivation of property without due process of law Public respondent
completely ignored the rights of the petitioner union's members in dismissing their complaint since he knew for a fact that the
judgment of the labor arbiter had long become final and was even partially executed by the respondent bank.

A final judgment vests in the prevailing party a right recognized and protected by law under the due process clause of the Constitution
(China Ins. & Surety Co. vs. Judge of First Instance of Manila, 63 Phil. 324). A final judgment is "a vested interest which it is right
and equitable that the government should recognize and protect, and of which the individual could no. be deprived arbitrarily without
injustice" (Rookledge v. Garwood, 65 N.W. 2d 785, 791).

lt is by this guiding principle that the due process clause is interpreted. Thus, in the pithy language of then Justice, later Chief Justice,
Concepcion "... acts of Congress, as well as those of the Executive, can deny due process only under pain of nullity, and judicial
proceedings suffering from the same flaw are subject to the same sanction, any statutory provision to the contrary
notwithstanding (Vda. de Cuaycong vs. Vda. de Sengbengco 110 Phil. 118, emphasis supplied), And "(I)t has been likewise
established that a violation of a constitutional right divested the court of jurisdiction; and as a consequence its judgment is null and
void and confers no rights" (Phil. Blooming Mills Employees Organization vs. Phil. Blooming Mills Co., Inc., 51 SCRA 211, June 5,
1973).

Tested by and pitted against this broad concept of the constitutional guarantee of due process, the action of public respondent Amado
G. Inciong is a clear example of deprivation of property without due process of law and constituted grave abuse of discretion,
amounting to lack or excess of jurisdiction in issuing the order dated November 10, 1979.

WHEREFORE, THE PETITION IS HEREBY GRANTED, THE ORDER OF PUBLIC RESPONDENT IS SET ASIDE, AND THE
DECISION OF LABOR ARBITER RICARTE T. SORIANO DATED AUGUST 25, 1975, IS HEREBY REINSTATED.

COSTS AGAINST PRIVATE RESPONDENT INSULAR BANK OF ASIA AND AMERICA

SO ORDERED.1äwphï1.ñët

JACKSON BUILDING CONDOMINIUM CORPORATION and/or RAZUL REQUESTO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION and FERDINAND GUMOGDA, respondents.

RESOLUTION
QUIASON, J.:

This is a petition for certiorari under Rule 65 of the Revised Rules of Court to set aside the Decision of National Labor Relations
Commission (NLRC), which affirmed the Decision of the Labor Arbiter dated October 30, 1992. The latter decision ordered
petitioners to reinstate private respondent and to pay him back wages, differential pay, thirteenth-month pay and service-incentive
leave pay for 1991.

On November 22, 1989, private respondent was employed as a janitor by petitioner with a monthly salary of P2,340.00 or a daily
wage of P90.00.

On November 15, 1992, private respondent filed a 45-day leave of absence from November 15, 1991 to December 29, 1991 to
undergo an appendectomy, which would necessitate complete bed rest for about thirty days from the date of operation as shown by his
medical certificate (Annex "C-l", Rollo, p. 28). This was granted by petitioner.

On January 3, 1992, private respondent informed petitioner Razul Requesto, president of petitioner corporation, that he was physically
fit to assume his work. However, petitioners refused to accept him back contending that he had abandoned his work.

On March 24, 1992, private respondent filed with the Labor Arbiter a complaint against petitioners for illegal dismissal, underpayment
of wages and non-payment of thirteenth-month pay and service-incentive leave pay (Annex "C", Rollo, pp. 20-26).

On July 12, 1992, petitioners submitted their position paper wherein they alleged that private respondent was not dismissed but was
merely advised to rest for health reasons until he could procure a medical certificate attesting that he was fit to work. They further
alleged that private respondent failed to return to his workplace or to submit the required medical certificate.

On October 30, 1992, the Labor Arbiter rendered a decision in favor of private respondent.

Petitioners then appealed to NLRC, alleging that the Labor Arbiter committed grave abuse of discretion. .However, NLRC affirmed in
toto the decision of the Labor Arbiter. A subsequent motion for reconsideration was denied.

II

The issues for consideration of this Court are whether private respondent abandoned his work and whether petitioners are liable for the
payment of private respondent's back wages, differential pay, thirteenth-month pay and service-incentive leave pay for 1991.

III

Petitioners contend that private respondent was still weak when he reported back for work and they had to ask him to secure a medical
clearance. They claim that he failed to submit one or to report for work; hence they considered him as having abandoned his work.

Petitioners raise questions of fact which have already been passed upon by the Labor Arbiter and NLRC. This Court does not disturb
the findings of fact of administrative agencies when supported by substantial evidence (Wyeth-Suaco Laboratories, Inc. v. National
Labor Relations Commission, 219 SCRA 356 [1993]).

For abandonment to be a valid ground for dismissal, two requisites must be compresent: the intention by an employee to abandon
coupled with an overt act from which it may be inferred that the employee had no more intention to resume his work (People's
Security, Inc. v. National Labor Relations Commission, 226 SCRA 146 [1993]).

In the instant case, the said requisites are not present.

As found by the Labor Arbiter, private respondent's physician advised him to rest for 30 days before reporting back for work in order
to recuperate. Private respondent heeded this advise and even exceeded the number of days recommended by his doctor for his
recuperation. In fact, he reported back for work 50 days after his operation. This would clearly show that private respondent was ready
to assume his responsibilities considering that he had fully recovered from the operation. Furthermore, the filing of a complaint for
illegal dismissal by private respondent is inconsistent with the allegation of petitioners that he had abandoned his job. Surely, an
employee's posture will be illogical if he abandons his work and then immediately files an action for his reinstatement (Remerco
Garments Manufacturing v. Minister of Labor and Employment, 135 SCRA 167 [1985]).
Petitioners also urged that private respondent is not entitled to any remuneration during the period that he did not report for work
under the principle of "a fair day's work for a fair day's pay."

The law on the matter refutes this legal challenge of petitioners.

Section 31 of R.A. No. 6715 which amended Article 279 of the Labor Code of the Philippines provides that "an employee who is
unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges without loss of
seniority rights and other privileges and to his full back wages, inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement."

The award of back wages by NLRC to private respondent was predicated on the ground that he was illegally dismissed and not on his
failure to report for work (Llosa-Tan v. Silahis International Hotel, 181 SCRA 738 [1990]).

Private respondent is likewise entitled to the thirteenth-month pay. Presidential Decree No. 851, as amended by Memorandum Order
No. 28, provides that employees are entitled to the thirteenth-month pay benefit regardless of their designation and irrespective of the
method by which their wages are paid.

WHEREFORE, the Court Resolved to DISMISS the petition.

SO ORDERED.

INTERNATIONAL SCHOOL ALLIANCE OF EDUCATORS (ISAE), petitioner, vs. HON. LEONARDO A. QUISUMBING
in his capacity as the Secretary of Labor and Employment; HON. CRESENCIANO B. TRAJANO in his capacity as the Acting
Secretary of Labor and Employment; DR. BRIAN MACCAULEY in his capacity as the Superintendent of International
School-Manila; and INTERNATIONAL SCHOOL, INC., respondents.

DECISION

KAPUNAN, J.:

Receiving salaries less than their counterparts hired abroad, the local-hires of private respondent School, mostly Filipinos, cry
discrimination. We agree. That the local-hires are paid more than their colleagues in other schools is, of course, beside the point. The
point is that employees should be given equal pay for work of equal value. That is a principle long honored in this jurisdiction. That is
a principle that rests on fundamental notions of justice. That is the principle we uphold today.

Private respondent International School, Inc. (the School, for short), pursuant to Presidential Decree 732, is a domestic educational
institution established primarily for dependents of foreign diplomatic personnel and other temporary residents. [1] To enable the School
to continue carrying out its educational program and improve its standard of instruction, Section 2(c) of the same decree authorizes the
School to

employ its own teaching and management personnel selected by it either locally or abroad, from Philippine or other
nationalities, such personnel being exempt from otherwise applicable laws and regulations attending their
employment, except laws that have been or will be enacted for the protection of employees.

Accordingly, the School hires both foreign and local teachers as members of its faculty, classifying the same into two: (1) foreign-
hires and (2) local-hires. The School employs four tests to determine whether a faculty member should be classified as a foreign-hire
or a local hire:

a.....What is one's domicile?

b.....Where is one's home economy?

c.....To which country does one owe economic allegiance?

d.....Was the individual hired abroad specifically to work in the School and was the School responsible for bringing
that individual to the Philippines?[2]
Should the answer to any of these queries point to the Philippines, the faculty member is classified as a local hire; otherwise, he or she
is deemed a foreign-hire.

The School grants foreign-hires certain benefits not accorded local-hires. These include housing, transportation, shipping costs, taxes,
and home leave travel allowance. Foreign-hires are also paid a salary rate twenty-five percent (25%) more than local-hires. The
School justifies the difference on two "significant economic disadvantages" foreign-hires have to endure, namely: (a) the "dislocation
factor" and (b) limited tenure. The School explains:

A foreign-hire would necessarily have to uproot himself from his home country, leave his family and friends, and
take the risk of deviating from a promising career path-all for the purpose of pursuing his profession as an educator,
but this time in a foreign land. The new foreign hire is faced with economic realities: decent abode for oneself and/or
for one's family, effective means of transportation, allowance for the education of one's children, adequate insurance
against illness and death, and of course the primary benefit of a basic salary/retirement compensation.

Because of a limited tenure, the foreign hire is confronted again with the same economic reality after his term: that
he will eventually and inevitably return to his home country where he will have to confront the uncertainty of
obtaining suitable employment after a long period in a foreign land.

The compensation scheme is simply the School's adaptive measure to remain competitive on an international level in
terms of attracting competent professionals in the field of international education. [3]

When negotiations for a new collective bargaining agreement were held on June 1995, petitioner International School Alliance of
Educators, "a legitimate labor union and the collective bargaining representative of all faculty members" [4] of the School, contested the
difference in salary rates between foreign and local-hires. This issue, as well as the question of whether foreign-hires should be
included in the appropriate bargaining unit, eventually caused a deadlock between the parties.

On September 7, 1995, petitioner filed a notice of strike. The failure of the National Conciliation and Mediation Board to bring the
parties to a compromise prompted the Department of Labor and Employment (DOLE) to assume jurisdiction over the dispute. On June
10, 1996, the DOLE Acting Secretary, Crescenciano B. Trajano, issued an Order resolving the parity and representation issues in favor
of the School. Then DOLE Secretary Leonardo A. Quisumbing subsequently denied petitioner's motion for reconsideration in an
Order dated March 19, 1997. Petitioner now seeks relief in this Court.

Petitioner claims that the point-of-hire classification employed by the School is discriminatory to Filipinos and that the grant of higher
salaries to foreign-hires constitutes racial discrimination.

The School disputes these claims and gives a breakdown of its faculty members, numbering 38 in all, with nationalities other than
Filipino, who have been hired locally and classified as local hires. [5]The Acting Secretary of Labor found that these non-Filipino local-
hires received the same benefits as the Filipino local-hires:

The compensation package given to local-hires has been shown to apply to all, regardless of race. Truth to tell, there are foreigners
who have been hired locally and who are paid equally as Filipino local hires. [6]

The Acting Secretary upheld the point-of-hire classification for the distinction in salary rates:

The principle "equal pay for equal work" does not find application in the present case. The international character of
the School requires the hiring of foreign personnel to deal with different nationalities and different cultures, among
the student population.

We also take cognizance of the existence of a system of salaries and benefits accorded to foreign hired personnel
which system is universally recognized. We agree that certain amenities have to be provided to these people in order
to entice them to render their services in the Philippines and in the process remain competitive in the international
market.

Furthermore, we took note of the fact that foreign hires have limited contract of employment unlike the local hires
who enjoy security of tenure. To apply parity therefore, in wages and other benefits would also require parity in
other terms and conditions of employment which include the employment contract.

A perusal of the parties' 1992-1995 CBA points us to the conditions and provisions for salary and professional
compensation wherein the parties agree as follows:
 All members of the bargaining unit shall be compensated only in accordance with Appendix C
hereof provided that the Superintendent of the School has the discretion to recruit and hire
expatriate teachers from abroad, under terms and conditions that are consistent with accepted
international practice.

Appendix C of said CBA further provides:

The new salary schedule is deemed at equity with the Overseas Recruited Staff (OSRS) salary
schedule. The 25% differential is reflective of the agreed value of system displacement and
contracted status of the OSRS as differentiated from the tenured status of Locally Recruited Staff
(LRS).

To our mind, these provisions demonstrate the parties' recognition of the difference in the status of two types of
employees, hence, the difference in their salaries.

The Union cannot also invoke the equal protection clause to justify its claim of parity. It is an established principle
of constitutional law that the guarantee of equal protection of the laws is not violated by legislation or private
covenants based on reasonable classification. A classification is reasonable if it is based on substantial distinctions
and apply to all members of the same class. Verily, there is a substantial distinction between foreign hires and local
hires, the former enjoying only a limited tenure, having no amenities of their own in the Philippines and have to be
given a good compensation package in order to attract them to join the teaching faculty of the School. [7]

We cannot agree.

That public policy abhors inequality and discrimination is beyond contention. Our Constitution and laws reflect the policy against
these evils. The Constitution[8] in the Article on Social Justice and Human Rights exhorts Congress to "give highest priority to the
enactment of measures that protect and enhance the right of all people to human dignity, reduce social, economic, and political
inequalities." The very broad Article 19 of the Civil Code requires every person, "in the exercise of his rights and in the performance
of his duties, [to] act with justice, give everyone his due, and observe honesty and good faith."

International law, which springs from general principles of law, [9] likewise proscribes discrimination. General principles of law
include principles of equity,[10] i.e., the general principles of fairness and justice, based on the test of what is reasonable. [11] The
Universal Declaration of Human Rights,[12] the International Covenant on Economic, Social, and Cultural Rights, [13] the International
Convention on the Elimination of All Forms of Racial Discrimination, [14] the Convention against Discrimination in Education,[15] the
Convention (No. 111) Concerning Discrimination in Respect of Employment and Occupation [16] - all embody the general principle
against discrimination, the very antithesis of fairness and justice. The Philippines, through its Constitution, has incorporated this
principle as part of its national laws.

In the workplace, where the relations between capital and labor are often skewed in favor of capital, inequality and discrimination by
the employer are all the more reprehensible.

The Constitution[17] specifically provides that labor is entitled to "humane conditions of work." These conditions are not restricted to
the physical workplace - the factory, the office or the field - but include as well the manner by which employers treat their employees.

The Constitution[18] also directs the State to promote "equality of employment opportunities for all." Similarly, the Labor
Code[19] provides that the State shall "ensure equal work opportunities regardless of sex, race or creed." It would be an affront to both
the spirit and letter of these provisions if the State, in spite of its primordial obligation to promote and ensure equal employment
opportunities, closes its eyes to unequal and discriminatory terms and conditions of employment. [20]

Discrimination, particularly in terms of wages, is frowned upon by the Labor Code. Article 135, for example, prohibits and
penalizes[21] the payment of lesser compensation to a female employee as against a male employee for work of equal value. Article
248 declares it an unfair labor practice for an employer to discriminate in regard to wages in order to encourage or discourage
membership in any labor organization.

Notably, the International Covenant on Economic, Social, and Cultural Rights, supra, in Article 7 thereof, provides:

The States Parties to the present Covenant recognize the right of everyone to the enjoyment of just and favourable
conditions of work, which ensure, in particular:
 a.....Remuneration which provides all workers, as a minimum, with:

i.....Fair wages and equal remuneration for work of equal value without distinction of any kind, in
particular women being guaranteed conditions of work not inferior to those enjoyed by men, with
equal pay for equal work;

x x x.

The foregoing provisions impregnably institutionalize in this jurisdiction the long honored legal truism of "equal pay for equal work."
Persons who work with substantially equal qualifications, skill, effort and responsibility, under similar conditions, should be paid
similar salaries.[22] This rule applies to the School, its "international character" notwithstanding.

The School contends that petitioner has not adduced evidence that local-hires perform work equal to that of foreign-hires.[23] The
Court finds this argument a little cavalier. If an employer accords employees the same position and rank, the presumption is that these
employees perform equal work. This presumption is borne by logic and human experience. If the employer pays one employee less
than the rest, it is not for that employee to explain why he receives less or why the others receive more. That would be adding insult to
injury. The employer has discriminated against that employee; it is for the employer to explain why the employee is treated unfairly.

The employer in this case has failed to discharge this burden. There is no evidence here that foreign-hires perform 25% more
efficiently or effectively than the local-hires. Both groups have similar functions and responsibilities, which they perform under
similar working conditions.

The School cannot invoke the need to entice foreign-hires to leave their domicile to rationalize the distinction in salary rates without
violating the principle of equal work for equal pay.

"Salary" is defined in Black's Law Dictionary (5th ed.) as "a reward or recompense for services performed." Similarly, the Philippine
Legal Encyclopedia states that "salary" is the "[c]onsideration paid at regular intervals for the rendering of services." In Songco v.
National Labor Relations Commission,[24] we said that:

"salary" means a recompense or consideration made to a person for his pains or industry in another man's business.
Whether it be derived from "salarium," or more fancifully from "sal," the pay of the Roman soldier, it carries with it
the fundamental idea of compensation for services rendered. (Emphasis supplied.)

While we recognize the need of the School to attract foreign-hires, salaries should not be used as an enticement to the prejudice of
local-hires. The local-hires perform the same services as foreign-hires and they ought to be paid the same salaries as the latter. For the
same reason, the "dislocation factor" and the foreign-hires' limited tenure also cannot serve as valid bases for the distinction in salary
rates. The dislocation factor and limited tenure affecting foreign-hires are adequately compensated by certain benefits accorded them
which are not enjoyed by local-hires, such as housing, transportation, shipping costs, taxes and home leave travel allowances.

The Constitution enjoins the State to "protect the rights of workers and promote their welfare," [25] "to afford labor full
protection."[26] The State, therefore, has the right and duty to regulate the relations between labor and capital.[27] These relations are not
merely contractual but are so impressed with public interest that labor contracts, collective bargaining agreements included, must yield
to the common good.[28] Should such contracts contain stipulations that are contrary to public policy, courts will not hesitate to strike
down these stipulations.

In this case, we find the point-of-hire classification employed by respondent School to justify the distinction in the salary rates of
foreign-hires and local hires to be an invalid classification. There is no reasonable distinction between the services rendered by
foreign-hires and local-hires. The practice of the School of according higher salaries to foreign-hires contravenes public policy and,
certainly, does not deserve the sympathy of this Court.

We agree, however, that foreign-hires do not belong to the same bargaining unit as the local-hires.

A bargaining unit is "a group of employees of a given employer, comprised of all or less than all of the entire body of employees,
consistent with equity to the employer indicate to be the best suited to serve the reciprocal rights and duties of the parties under the
collective bargaining provisions of the law." [29] The factors in determining the appropriate collective bargaining unit are (1) the will of
the employees (Globe Doctrine); (2) affinity and unity of the employees' interest, such as substantial similarity of work and duties, or
similarity of compensation and working conditions (Substantial Mutual Interests Rule); (3) prior collective bargaining history; and (4)
similarity of employment status.[30] The basic test of an asserted bargaining unit's acceptability is whether or not it is fundamentally the
combination which will best assure to all employees the exercise of their collective bargaining rights. [31]
It does not appear that foreign-hires have indicated their intention to be grouped together with local-hires for purposes of collective
bargaining. The collective bargaining history in the School also shows that these groups were always treated separately. Foreign-hires
have limited tenure; local-hires enjoy security of tenure. Although foreign-hires perform similar functions under the same working
conditions as the local-hires, foreign-hires are accorded certain benefits not granted to local-hires. These benefits, such as housing,
transportation, shipping costs, taxes, and home leave travel allowance, are reasonably related to their status as foreign-hires, and
justify the exclusion of the former from the latter. To include foreign-hires in a bargaining unit with local-hires would not assure either
group the exercise of their respective collective bargaining rights.

WHEREFORE, the petition is GIVEN DUE COURSE. The petition is hereby GRANTED IN PART. The Orders of the Secretary of
Labor and Employment dated June 10, 1996 and March 19, 1997, are hereby REVERSED and SET ASIDE insofar as they uphold the
practice of respondent School of according foreign-hires higher salaries than local-hires.

SO ORDERED.

PHILIPPINE DUPLICATORS, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and PHILIPPINE DUPLICATORS EMPLOYEES UNION-
TUPAS, respondents.

RESOLUTION

FELICIANO, J.:

On 11 November 1993, this Court, through its Third Division, rendered a decision dismissing the Petition for Certiorari filed by
petitioner Philippine Duplicators, Inc. (Duplicators) in G.R. No. 110068. The Court upheld the decision of public respondent National
Labor Relations Commission (NLRC), which affirmed the order of Labor Arbiter Felipe T. Garduque II directing petitioner to pay
13th month pay to private respondent employees computed on the basis of their fixed wages plus sales commissions. The Third
Division also denied with finality on 15 December 1993 the Motion for Reconsideration filed (on 12 December 1993) by petitioner.

On 17 January 1994, petitioner Duplicators filed (a) a Motion for Leave to Admit Second Motion for Reconsideration and (b) a
Second Motion for Reconsideration. This time, petitioner invoked the decision handed down by this Court, through its Second
Division, on 10 December 1993 in the two (2) consolidated cases of Boie-Takeda Chemicals, Inc. vs. Hon. Dionisio de la
Serna and Philippine Fuji Xerox Corp. vs. Hon. Cresenciano B. Trajano, in G.R. Nos. 92174 and 102552, respectively. In its decision,
the Second Division inter alia declared null and void the second paragraph of Section 5 (a) 1 of the Revised Guidelines issued by then
Secretary of Labor Drilon. Petitioner submits that the decision in the Duplicators case should now be considered as having been
abandoned or reversed by the Boie-Takeda decision, considering that the latter went "directly opposite and contrary to" the conclusion
reached in the former. Petitioner prays that the decision rendered in Duplicators be set aside and another be entered directing the
dismissal of the money claims of private respondent Philippine Duplicators' Employees' Union.

In view of the nature of the issues raised, the Third Division of this Court referred the petitioner's Second Motion for Reconsideration,
and its Motion for Leave to Admit the Second Motion for Reconsideration, to the Court en banc en consulta. The Court en banc, after
preliminary deliberation, and inorder to settle the condition of the relevant case law, accepted G.R. No. 110068 as a banc case.

Deliberating upon the arguments contained in petitioner's Second Motion for Reconsideration, as well as its Motion for Leave to
Admit the Second Motion for Reconsideration, and after review of the doctrines embodied, respectively, in Duplicators and Boie-
Takeda, we consider that these Motions must fail.

The decision rendered in Boie-Takeda cannot serve as a precedent under the doctrine of stare decisis. The Boie-Takeda decision was
promulgated a month after this Court, (through its Third Division), had rendered the decision in the instant case. Also, the petitioner's
(first) Motion for Reconsideration of the decision dated 10 November 1993 had already been denied, with finality, on 15 December
1993, i.e.; before the Boie-Takeda decision became final on 5 January 1994.

Preliminarily, we note that petitioner Duplicators did not put in issue the validity of the Revised Guidelines on the Implementary on of
the 13th Month Pay Law, issued on November 16, 1987, by then Labor Secretary Franklin M. Drilon, either in its Petition
for Certiorari or in its (First) Motion for Reconsideration. In fact, petitioner's counsel relied upon these Guidelines and asserted their
validity in opposing the decision rendered by public respondent NLRC. Any attempted change in petitioner's theory, at this late stage
of the proceedings, cannot be allowed.
More importantly, we do not agree with petitioner that the decision in Boie-Takeda is "directly opposite or contrary to" the decision in
the present (Philippine Duplicators). To the contrary, the doctrines enunciated in these two (2) cases in fact co-exist one with the other.
The two (2) cases present quite different factual situations (although the same word "commissions" was used or invoked) the legal
characterizations of which must accordingly differ.

The Third Division in Durplicators found that:

In the instant case, there is no question that the sales commission earned by the salesmen who make or close a sale
of duplicating machines distributed by petitioner corporation, constitute part of the compensation or remuneration
paid to salesmen for serving as salesmen, and hence as part of the "wage" or salary of petitioner's salesmen. Indeed,
it appears that petitioner pays its salesmen a small fixed or guaranteed wage; the greater part of the salesmen's wages
or salaries being composed of the sales or incentive commissions earned on actual sales closed by them. No doubt
this particular galary structure was intended for the benefit of the petitioner corporation, on the apparent assumption
that thereby its salesmen would be moved to greater enterprise and diligence and close more sales in the expectation
of increasing their sales commissions. This, however, does not detract from the character of such commissions as
part of the salary or wage paid to each of its salesmen for rendering services to petitioner corporation.

In other words, the sales commissions received for every duplicating machine sold constituted part of the basic compensation or
remuneration of the salesmen of Philippine Duplicators for doing their job. The portion of the salary structure representing
commissions simply comprised an automatic increment to the monetary value initially assigned to each unit of work rendered by a
salesman. Especially significant here also is the fact that the fixed or guaranteed portion of the wages paid to the Philippine
Duplicators' salesmen represented only 15%-30% of an employee's total earnings in a year. We note the following facts on record:

Salesmen's Total Earnings and 13th Month Pay

For the Year 19862

Name of Total Amount Paid Montly Fixed

Salesman Earnings as 13th Month Pay Wages x 12 3

Baylon, P76,610.30 P1,350.00 P16,200.00

Benedicto

Bautista 90,780.85 1,182.00 14,184.00

Salvador

Brito, 64,382.75 1,238.00 14,856.00

Tomas

Bunagan, 89,287.75 1,266.00 15,192.00

Jorge

Canilan, 74,678.17 1,350.00 16,200.00

Rogelio

Dasig, 54,625.16 1,378,00 16,536.00

Jeordan

Centeno, 51,854.15 1,266.04 15,192.00

Melecio, Jr.

De los Santos 73,551.39 1,322.00 15,864.00

Ricardo

del Mundo, 108,230.35 1,406.00 16,872.00

Wilfredo

Garcia, 93,753.75 1,294.00 15,528.00

Delfin
 Navarro, 98,618.71 1,266.00 15,192.00
Ma. Teresa

Ochosa, 66,275.65 1,406.00 16,872.00

Rolano

Quisumbing, 101,065.75 1,406.00 16,872.00

Teofilo

Rubina, 42,209.73 1,266.00 15,192.00

Emma

Salazar, 64,643.65 1,238.00 14,856.00

Celso

Sopelario, 52,622.27 1,350.00 16,200.00

Ludivico

Tan, 30,127.50 1,238.00 14,856.00

Leynard

Talampas, 146,510.25 1,434.00 17,208.00

Pedro

Villarin, 41,888.10 1,434.00 17,208.00

Constancio

Carrasco, 50,201.20 403.75*

Cicero

Punzalan, 24,351.89 1,266.00 15,192.00

Reynaldo

Poblador, 25,516.75 323.00*

Alberto

Cruz, 32,950.45 323.00*

Danilo

Baltazar, 15,681.35 323.00*

Carlito

Considering the above circumstances, the Third Division held, correctly, that the sales commissions were an integral part of the basic
salary structure of Philippine Duplicators' employees salesmen. These commissions are not overtime payments, nor profit-sharing
payments nor any other fringe benefit. Thus, the salesmen's commissions, comprising a pre-determined percent of the selling price of
the goods sold by each salesman, were properly included in the term "basic salary" for purposes of computing their 13th month pay.

In Boie-Takeda the so-called commissions "paid to or received by medical representatives of Boie-Takeda Chemicals or by the rank
and file employees of Philippine Fuji Xerox Co.," were excluded from the term "basic salary" because these were paid to the medical
representatives and rank-and-file employees as "productivity bonuses."4 The Second Division characterized these payments as
additional monetary benefits not properly included in the term "basic salary" in computing their 13th month pay. We note that
productivity bonuses are generally tied to the productivity, or capacity for revenue production, of a corporation; such bonuses closely
resemble profit-sharing payments and have no clear director necessary relation to the amount of work actually done by each individual
employee. More generally, a bonus is an amount granted and paid ex gratia to the employee; its payment constitutes an act of
enlightened generosity and self-interest on the part of the employer, rather than as a demandable or enforceable obligation.
In Philippine Education Co. Inc. (PECO) v. Court of Industrial Relations,5 the Court explained the nature of a bonus in the following
general terms:
 As a rule a bonus is an amount granted and paid to an employee for his industry loyalty which contributed to the
success of the employer's business and made possible the realization of profits. It is an act of generosity of the
employer for which the employee ought to be thankful and grateful. It is also granted by an enlightened employer to
spur the employee to greater efforts for the success of the business and realization of bigger profits. . . . . From the
legal point of view a bonus is not and mandable and enforceable obligation. It is so when It is made part of the
wage or salary or compensation. In such a case the latter would be a fixed amount and the former would be a
contingent one dependent upon the realization of profits. . . .6 (Emphasis supplied)

In Atok-Big Wedge Mining Co., Inc. v. Atok-Big Wedge Mutual Benefit Association,7 the Court amplified:

. . . . Whether or not [a] bonus forms part of waqes depends upon the circumstances or conditions for its payment. If
it is an additional compensation which the employer promised and agreed to give without any conditions imposed
for its payment, such as success of business or greater production or output, then it is part of the wage. But if it is
paid only if profits are realized or a certain amount of productivity achieved, it cannot be considered part of wages.
. . . It is also paid on the basis of actual or actual work accomplished. If the desired goal of production is not
obtained, or the amount of actual work accomplished, the bonus does not accrue. . . . 8 (Emphasis supplied)

More recently, the non-demandable character of a bonus was stressed by the Court in Traders Royal Bank v.National Labor Relations
Commission:9

A bonus is a "gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of
right." (Aragon v. Cebu Portland Cement Co., 61 O.G. 4567). "It is something given in addition to what is ordinarily
received by or strictly due the recipient." The granting of a bonus is basically a management prerogative which
cannot be forced upon the employer "who may not be obliged to assume the onerous burden of granting bonuses or
other benefits aside from the employee's basic salaries or wages . . ." (Kamaya Point Hotel v. NLRC, 177 SCRA 160
[1989]). 10 (Emphasis supplied)

If an employer cannot be compelled to pay a productivity bonus to his employees, it should follow that such productivity bonus, when
given, should not be deemed to fall within the "basic salary" of employees when the time comes to compute their 13th month pay.

It is also important to note that the purported "commissions" paid by the Boie-Takeda Company to its medical representatives
could not have been "sales commissions" in the same sense that Philippine Duplicators paid its salesmen Sales commissions. Medical
representatives are not salesmen; they do not effect any sale of any article at all. In common commercial practice, in the Philippines
and elsewhere, of which we take judicial notice, medical representatives are employees engaged in the promotion of pharmaceutical
products or medical devices manufactured by their employer. They promote such products by visiting identified physicians and inform
much physicians, orally and with the aid of printed brochures, of the existence and chemical composition and virtues of particular
products of their company. They commonly leave medical samples with each physician visited; but those samples are not "sold" to the
physician and the physician is, as a matter of professional ethics, prohibited from selling such samples to their patients. Thus, the
additional payments made to Boie-Takeda's medical representatives were not in fact sales commissions but rather partook of the
nature of profit-sharing bonuses.

The doctrine set out in the decision of the Second Division is, accordingly, that additional payments made to employees, to the extent
they partake of the nature of profit-sharing payments, are properly excluded from the ambit of the term "basic salary" for purposes of
computing the 13th month pay due to employees. Such additional payments are not "commissions" within the meaning of the second
paragraph of Section 5 (a) of the Revised Guidelines Implementing 13th Month Pay.

The Supplementary Rules and Regulations Implementing P.D. No. 851 subsequently issued by former Labor Minister Ople sought to
clarify the scope of items excluded in the computation of the 13th month pay; viz.:

Sec. 4. Overtime pay, earnings and other remunerations which are not part of the basic salary shall not be included
in the computation of the 13th month pay.

We observe that the third item excluded from the term "basic salary" is cast in open ended and apparently circular terms: "other
remunerations which are not part of the basic salary." However, what particular types of earnings and remuneration are or are not
properly included or integrated in the basic salary are questions to be resolved on a case to case basis, in the light of the specific and
detailed facts of each case. In principle, where these earnings and remuneration are closely akin to fringe benefits, overtime pay or
profit-sharing payments, they are properly excludedin computing the 13th month pay. However, sales commissions which are
effectively an integral portion of the basic salary structure of an employee, shall be included in determining his 13th month pay.
We recognize that both productivity bonuses and sales commissions may have an incentive effect. But there is reason to distinguish
one from the other here. Productivity bonuses are generally tied to the productivity or profit generation of the employer corporation.
Productivity bonuses are not directly dependent on the extent an individual employee exerts himself. A productivity bonus is
something extra for which no specific additional services are rendered by any particular employee and hence not legally demandable,
absent a contractual undertaking to pay it. Sales commissions, on the other hand, such as those paid in Duplicators, are intimately
related to or directly proportional to the extent or energy of an employee's endeavors. Commissions are paid upon the specific results
achieved by a salesman-employee. It is a percentage of the sales closed by a salesman and operates as an integral part of such
salesman's basic pay.

Finally, the statement of the Second Division in Boie-Takeda declaring null and void the second paragraph of Section 5(a) of the
Revised Guidelines Implementing the 13th Month Pay issued by former Labor Secretary Drilon, is properly understood as holding that
that second paragraph provides no legal basis for including within the term "commission" there used additional payments to
employees which are, as a matter of fact, in the nature of profit-sharing payments or bonuses. If and to the extent that such second
paragraph is so interpreted and applied, it must be regarded as invalid as having been issued in excess of the statutory authority of the
Secretary of Labor. That same second paragraph however, correctly recognizes that commissions, like those paid in Duplicators, may
constitute part of the basic salary structure of salesmen and hence should be included in determining the 13th month pay; to this
extent, the second paragraph is and remains valid.

ACCORDINGLY, the Motions for (a) Leave to File a Second Motion for Reconsideration and the (b) aforesaid Second
Reconsideration are DENIED for lack of merit. No further pleadings will be entertained.

ANTONIO W. IRAN (doing business under the name and style of Tones Iran Enterprises), petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (Fourth Division), GODOFREDO O. PETRALBA, MORENO
CADALSO, PEPITO TECSON, APOLINARIO GOTHONG GEMINA, JESUS BANDILAO, EDWIN MARTIN, CELSO
LABIAGA, DIOSDADO GONZALGO, FERNANDO M. COLINA, respondents.

ROMERO, J.:

Whether or not commissions are included in determining compliance with the minimum wage requirement is the principal issue
presented in this petition.

Petitioner Antonio Iran is engaged in softdrinks merchandising and distribution in Mandaue City, Cebu, employing truck drivers who
double as salesmen, truck helpers, and non-field personnel in pursuit thereof. Petitioner hired private respondents Godofredo Petralba,
Moreno Cadalso, Celso Labiaga and Fernando Colina as drivers/salesmen while private respondents Pepito Tecson, Apolinario
Gimena, Jesus Bandilao, Edwin Martin and Diosdado Gonzalgo were hired as truck helpers. Drivers/salesmen drove petitioner's
delivery trucks and promoted, sold and delivered softdrinks to various outlets in Mandaue City. The truck helpers assisted in the
delivery of softdrinks to the different outlets covered by the driver/salesmen.

As part of their compensation, the driver/salesmen and truck helpers of petitioner received commissions per case of softdrinks sold at
the following rates:

SALESMEN:

Ten Centavos (P0.10) per case of Regular softdrinks.

Twelve Centavos (P0.12) per case of Family Size softdrinks.

TRUCK HELPERS:

Eight Centavos (P0.08) per case of Regular softdrinks.

Ten Centavos (P0.10) per case of Family Size softdrinks.

Sometime in June 1991, petitioner, while conducting an audit of his operations, discovered cash shortages and irregularities allegedly
committed by private respondents. Pending the investigation of irregularities and settlement of the cash shortages, petitioner required
private respondents to report for work everyday. They were not allowed, however, to go on their respective routes. A few days
thereafter, despite aforesaid order, private respondents stopped reporting for work, prompting petitioner to conclude that the former
had abandoned their employment. Consequently, petitioner terminated their services. He also filed on November 7, 1991, a complaint
for estafa against private respondents.

On the other hand, private respondents, on December 5, 1991, filed complaints against petitioner for illegal dismissal, illegal
deduction, underpayment of wages, premium pay for holiday and rest day, holiday pay, service incentive leave pay, 13th month pay,
allowances, separation pay, recovery of cash bond, damages and attorney's fees. Said complaints were consolidated and docketed as
Rab VII-12-1791-91, RAB VII-12-1825-91 and RAB VII-12-1826-91, and assigned to Labor Arbiter Ernesto F. Carreon.

The labor arbiter found that petitioner had validly terminated private respondents, there being just cause for the latter's dismissal.
Nevertheless, he also ruled that petitioner had not complied with minimum wage requirements in compensating private respondents,
and had failed to pay private respondents their 13th month pay. The labor arbiter, thus, rendered a decision on February 18, 1993, the
dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering the respondent Antonio W. Iran to pay
the complainants the following:

1. Celso Labiaga P10,033.10

2. Godofredo Petralba 1,250.00
3. Fernando Colina 11,753.10
4. Moreno Cadalso 11,753.10
5. Diosdado Gonzalgo 7,159.04
6. Apolinario Gimena 8,312.24
7. Jesus Bandilao 14,729.50
8. Pepito Tecson. 9,126.55
————
Attorney's Fees (10%) 74,116.63
of the gross award 7,411.66
————
GRAND TOTAL AWARD P81,528.29
========

The other claims are dismissed for lack of merit.

SO ORDERED. 1

Both parties seasonably appealed to the NLRC, with petitioner contesting the labor arbiter's refusal to include the commissions he paid
to private respondents in determining compliance with the minimum wage requirement. He also presented, for the first time on appeal,
vouchers denominated as 13th month pay signed by private respondents, as proof that petitioner had already paid the latter their 13th
month pay. Private respondents, on the other hand, contested the findings of the labor arbiter holding that they had not been illegally
dismissed, as well as mathematical errors in computing Jesus Bandilao's wage differentials. The NLRC, in its decision of December
21, 1994, affirmed the validity of private respondent's dismissal, but found that said dismissal did not comply with the procedural
requirements for dismissing employees. Furthermore, it corrected the labor arbiter's award of wage differentials to Jesus Bandilao. The
dispositive portion of said decision reads:

WHEREFORE, premises considered, the decision is hereby MODIFIED in that complainant Jesus Bandilao's
computation for wage differential is corrected from P154.00 to P4,550.00. In addition to all the monetary claim (sic)
originally awarded by the Labor Arbiter a quo, P1,000.00 is hereby granted to each complainants (sic) as indemnity
fee for failure of respondents to observe procedural due process.

SO ORDERED.2

Petitioner's motion for reconsideration of said decision was denied on July 31, 1995, prompting him to elevate this case to this Court,
raising the following issues:

1. THE HONORABLE COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION AND CONTRARY
TO LAW AND JURISPRUDENCE IN AFFIRMING THE DECISION OF THE LABOR ARBITER A
QUO EXCLUDING THE COMMISSIONS RECEIVED BY THE PRIVATE RESPONDENTS IN COMPUTING
THEIR WAGES;
 2. THE HONORABLE COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION IN FINDING
PETITIONER GUILTY OF PROCEDURAL LAPSES IN TERMINATING PRIVATE RESPONDENTS AND IN
AWARDING EACH OF THE LATTER P1,000.00 AS INDEMNITY FEE;

3. THE HONORABLE COMMISSION GRAVELY ERRED IN NOT CREDITING THE ADVANCE AMOUNT
RECEIVED BY THE PRIVATE RESPONDENTS AS PART OF THEIR 13TH MONTH PAY.

The petition is impressed with merit.

The NLRC, in denying petitioner's claim that commissions be included in determining compliance with the minimum wage
ratiocinated thus:

Respondent (petitioner herein) insist assiduously that the commission should be included in the computation of
actual wages per agreement. We will not fall prey to this fallacious argument. An employee should receive the
minimum wage as mandated by law and that the attainment of the minimum wage should not be dependent on the
commission earned by an employee. A commission is an incentive for an employee to work harder for a better
production that will benefit both the employer and the employee. To include the commission in the computation of
wage in order to comply with labor standard laws is to negate the practice that a commission is granted after an
employee has already earned the minimum wage or even beyond it.3

This holding is unsupported by law and jurisprudence. Article 97(f) of the Labor Code defines wage as follows:

Art. 97(f) — "Wage" paid to any employee shall mean the remuneration or earnings, however designated, capable of
being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other
method of calculating the same, which is payable by an employer to an employee under a written or unwritten
contract of employment for work done or to be done, or for services rendered or to 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 employer to the employee.

xxx xxx xxx (Emphasis supplied)

This definition explicitly includes commissions as part of wages. While commissions are, indeed, incentives or forms of
encouragement to inspire employees to put a little more industry on the jobs particularly assigned to them, still these commissions are
direct remunerations for services rendered. In fact, commissions have been defined as the recompense, compensation or reward of an
agent, salesman, executor, trustee, receiver, factor, broker or bailee, when the same is calculated as a percentage on the amount of his
transactions or on the profit to the principal. The nature of the work of a salesman and the reason for such type of remuneration for
services rendered demonstrate clearly that commissions are part of a salesman's wage or salary. 4

Thus, the commissions earned by private respondents in selling softdrinks constitute part of the compensation or remuneration paid to
drivers/salesmen and truck helpers for serving as such, and hence, must be considered part of the wages paid them.

The NLRC asserts that the inclusion of commissions in the computation of wages would negate the practice of granting commissions
only after an employee has earned the minimum wage or over. While such a practice does exist, the universality and prevalence of
such a practice is questionable at best. In truth, this Court has taken judicial notice of the fact that some salesmen do not receive any
basic salary but depend entirely on commissions and allowances or commissions alone, although an employer-employee relationship
exists. 5 Undoubtedly, this salary structure is intended for the benefit of the corporation establishing such, on the apparent assumption
that thereby its salesmen would be moved to greater enterprise and diligence and close more sales in the expectation of increasing
their sales commissions. This, however, does not detract from the character of such commissions as part of the salary or wage paid to
each of its salesmen for rendering services to the corporation.6

Likewise, there is no law mandating that commissions be paid only after the minimum wage has been paid to the employee. Verily,
the establishment of a minimum wage only sets a floor below which an employee's remuneration cannot fall, not that commissions are
excluded from wages in determining compliance with the minimum wage law. This conclusion is bolstered by Philippine Agricultural
Commercial and Industrial Workers Union vs. NLRC, 7 where this Court acknowledged that drivers and conductors who are
compensated purely on a commission basis are automatically entitled to the basic minimum pay mandated by law should said
commissions be less than their basic minimum for eight hours work. It can, thus, be inferred that were said commissions equal to or
even exceed the minimum wage, the employer need not pay, in addition, the basic minimum pay prescribed by law. It follows then
that commissions are included in determining compliance with minimum wage requirements.
With regard to the second issue, it is settled that in terminating employees, the employer must furnish the worker with two written
notices before the latter can be legally terminated: (a) a notice which apprises the employee of the particular acts or omissions for
which his dismissal is sought, and (b) the subsequent notice which informs the employee of the employer's decision to dismiss
him. 8 (Emphasis ours) Petitioner asseverates that no procedural lapses were committed by him in terminating private respondents. In
his own words:

. . . when irregularities were discovered, that is, when the misappropriation of several thousands of pesos was found
out, the petitioner instructed private respondents to report back for work and settle their accountabilities but the
latter never reported for work. This instruction by the petitioner to report back for work and settle their
accountabilities served as notices to private respondents for the latter to explain or account for the missing funds
held in trust by them before they disappeared. 9

Petitioner considers this return-to-work order as equivalent to the first notice apprising the employee of the particular acts or
omissions for which his dismissal is sought. But by petitioner's own admission, private respondents were never told in said notice that
their dismissal was being sought, only that they should settle their accountabilities. In petitioner's incriminating words:

It should be emphasized here that at the time the misappropriation was discovered and subsequently thereafter, the
petitioner's first concern was not effecting the dismissal of private respondents but the recovery of the
misappropriated funds thus the latter were advised to report back to work. 10

As above-stated, the first notice should inform the employee that his dismissal is being sought. Its absence in the present case makes
the termination of private respondents defective, for which petitioner must be sanctioned for his non-compliance with the requirements
of or for failure to observe due process. 11 The twin requirements of notice and hearing constitute the essential elements of due
process, and neither of these elements can be disregarded without running afoul of the constitutional guarantee. Not being mere
technicalities but the very essence of due process, to which every employee is entitled so as to ensure that the employer's prerogative
to dismiss is not exercised arbitrarily, 12 these requisites must be complied with strictly.

Petitioner makes much capital of private respondents' failure to report to work, construing the same as abandonment which thus
authorized the latter's dismissal. As correctly pointed out by the NLRC, to which the Solicitor General agreed, Section 2 of Book V,
Rule XIV of the Omnibus Rules Implementing the Labor Code requires that in cases of abandonment of work, notice should be sent to
the worker's last known address. If indeed private respondents had abandoned their jobs, it was incumbent upon petitioner to comply
with this requirement. This, petitioner failed to do, entitling respondents to nominal damages in the amount of P5,000.00 each, in
accordance with recent jurisprudence, 13 to vindicate or recognize their right to procedural due process which was violated by
petitioner.

Lastly, petitioner argues that the NLRC gravely erred when it disregarded the vouchers presented by the former as proof of his
payment of 13th month pay to private respondents. While admitting that said vouchers covered only a ten-day period, petitioner
argues that the same should be credited as amounts received by private respondents as part of their 13th month pay, Section 3(e) of the
Rules and Regulations Implementing P.D. No. 851 providing that the employer shall pay the difference when he pays less than 1/12th
of the employee's basic salary. 14

While it is true that the vouchers evidencing payments of 13th month pay were submitted only on appeal, it would have been more in
keeping with the directive of Article 221 15 of the Labor Code for the NLRC to have taken the same into account. 16 Time and again,
we have allowed evidence to be submitted on appeal, emphasizing that, in labor cases, technical rules of evidence are not
binding. 17 Labor officials should use every and all reasonable means to ascertain the facts in each case speedily and objectively,
without regard to technicalities of law or procedure. 18

It must also be borne in mind that the intent of P.D. No. 851 is the granting of additional income in the form of 13th month pay to
employees not as yet receiving the same and not that a double burden should be imposed on the employer who is already paying his
employees a 13th month pay or its equivalent. 19 An employer who pays less than 1/12th of the employees basic salary as their 13th
month pay is only required to pay the difference. 20

The foregoing notwithstanding, the vouchers presented by petitioner covers only a particular year. It does not cover amounts for other
years claimed by private respondents. It cannot be presumed that the same amounts were given on said years. Hence, petitioner is
entitled to credit only the amounts paid for the particular year covered by said vouchers.

WHEREFORE, in view of the foregoing, the decision of the NLRC dated July 31, 1995, insofar as it excludes the commissions
received by private respondents in the determination of petitioner's compliance with the minimum wage law, as well as its exclusion
of the particular amounts received by private respondents as part of their 13th month pay is REVERSED and SET ASIDE. This case is
REMANDED to the Labor Arbiter for a recomputation of the alleged deficiencies. For non-observance of procedural due process in
effecting the dismissal of private respondents, said decision is MODIFIED by increasing the award of nominal damages to private
respondents from P1,000.00 to P5,000.00 each. No costs.

SO ORDERED.

METRO TRANSIT ORGANIZATION, INC., petitioner,

vs.
THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION, Second Division; EDNA BONTO-PEREZ,
Presiding Commissioner; DOMINGO H. ZAPANTA, Commissioner; ROGELIO I. RAYAZA, Commissioner; and THE
SUPERVISORY EMPLOYEES ASSOCIATION OF METRO (SEAM), respondents.

FELICIANO, J.:

In this Petition for Certiorari, petitioner Metro Transit Organization, Inc. ("Metro") asks us to set aside the Decision and Resolution of
the National Labor Relations Commission ("NLRC") dated 30 March and 22 June 1994 respectively in NLRC-NCR-CA No. 000042-
92 ordering it to pay its supervisory employees amounts representing (i) a demanded wage increase based on company practice and
(ii) a correction or adjustment of an underpayment of an annual wage increase granted in the collective bargaining agreement (CBA)
between Metro and herein private respondent Supervisory Employees Association Metro ("SEAM").

Petitioner Metro is the operator and manager of the Light Railway Transit System in Metro Manila. It employs close to 1,000 rank-
and-file and over 200 supervisory employees. Private respondent SEAM is a union composed of supervisory employees of petitioner
Metro. In May 1989, SEAM was certified as the sole bargaining unit for the supervisory employees of Metro.

On 1 December 1989, the first collective bargaining agreement between petitioner Metro and private respondent SEAM took
effect.1 Prior to December 1989, Metro had a CBA only with its rank-and-file employees. During the period when no CBA governed
the terms and conditions of employment between Metro and its supervisory employees, whenever rank-and-file employees were paid a
statutorily mandated salary increase, supervisory employees were, as a matter of practice, also paid the same amount plus P50.00.

On 17 April 1989, Metro paid its rank-and-file employees a salary increase of P500.00 per month in accordance with the terms of their
CBA.2 Metro, however, did not extend a corresponding salary increase to its supervisory employees.

On 1 December 1989, Metro, in compliance with its CBA with SEAM, paid its supervisory employees a salary increase of P800.00
per month.

On 17 April 1990, Metro paid its rank-and-file and supervisory employees a P600.00 monthly increase. The payment thus made to
rank-and-file employees was in compliance with the second year salary increase provided in their CBA. On the other hand, the
P600.00 per month paid to supervisory employees was advanced from their second year salary increase, provided in their CBA, of
P1,000.00 per month effective 1 December 1990. On 1 December 1990, Metro paid its supervisory employees the remaining balance
of P400.00 per month in addition to the P600.00 a month it had earlier started to pay.

The third year salary increases due rank-and-file and supervisory employees were paid on 17 April and 1 December 1991,
respectively, as scheduled in their corresponding CBAs.

On 24 March 1992, private respondent SEAM filed a Notice of Strike before the National Conciliation and Mediation Board
("NCMB") charging petitioner Metro with (a) discrimination in terms of wages; (b) underpayment of salary increase per CBA for
1990 and/or adjustment of salaries for correction of disparity/inequity in pay with rank-and-file employees and (c) harassment and
demotion of union officers. Conciliation and mediation efforts before the NCMB failed.

On 23 June 1992, acting on a petition filed by Metro, the Secretary of Labor assumed jurisdiction over the labor dispute and certified
the same to public respondent NLRC for same compulsory arbitration.

On 30 March 1994, the NLRC rendered its decision the dispositive portion of which reads:
 WHEREFORE, the Company is hereby ordered to pay the amount of P550.00 per month wage increase effective
April 17, 1989 and onwards to each supervisory employee and likewise pay the sum of P600.00 per month
representing underpayment in the correction of inequities in pay or underpayment of CBA wage increase effective
December 1, 1990 and onwards.

The charge of harassment and demotion was dismissed for "lack of basis."

On 22 June 1994, NLRC denied the motion for reconsideration filed by Metro.

The instant Petition for Certiorari was filed on 14 July 1994 accompanied by a prayer for issuance of a temporary restraining order to
enjoin public respondents from enforcing their award.

On 31 August 1994, the Court, after an oral hearing, issued a Resolution encouraging petitioner Metro and private respondent SEAM
to vigorously and earnestly exercise their best efforts to reach an amicable and mutually acceptable settlement of their claims and
counterclaims. In the meantime, the disputants were to maintain the status quo, in particular, private respondent SEAM and public
respondent NLRC were to refrain from seeking and granting, respectively, the issuance of a writ of execution in respect of the
decision of the NLRC.

On 29 and 30 September 1994, petitioner Metro and private respondent SEAM respectively informed the Court that their efforts
amicably to settle their dispute had failed. Cognizant of (a) the huge disparity between the financial capability of Metro and the
amount awarded to SEAM,3 (b) the essential public services being rendered by the parties and (c) in the interest of avoiding any
disruption of these basic services, the Court reiterated its Order of 31 August 1994 enjoining respondents SEAM and the NLRC from
seeking and granting a writ of execution until further orders from this Court.

The principal issues, to the mind of the Court, are: (a) whether or not a wage distortion existed in respect of the salaries of the rank-
and-file and supervisory employees of petitioner Metro; and (b) assuming a wage distortion existed, whether or not it has been
corrected by petitioner Metro in accordance with law. 4

Private respondent SEAM vigorously asserts that an already existing wage distortion in respect of the salaries of rank-and-file and
supervisory employees was aggravated when Metro, on 17 April 1989, paid its rank-and-file employees their CBA-stipulated P500.00
increase but did not grant a corresponding increase (and a premium) to its supervisory employees. Furthermore, the advance by Metro
of the P600.00 on 17 April 1990 only "artificially" reduced the existing distortion. The advance was, according to SEAM, extended
merely to give the appearance of a reduction of the existing distortion in pay between the rank-and-file and supervisory employees. On
1 December 1990, when supervisory employees were paid the balance of P400.00 the distortion existing prior to 17 April 1990 was
reinstated. Finally, SEAM claims, on top of the salary increases granted to supervisory employees by their CBA, they should be paid
the increase corresponding to the P500.00 increase given rank-and-file employees not only for 1989 but also onwards.

Upon the other hand, petitioner Metro firmly maintains that its practice of giving higher increases to supervisory employees whenever
rank-and-file employees were given increases, should not be regarded as compulsory. The grant of a corresponding increase to
supervisory employees is a prerogative or discretionary act of generosity by management considering there is no law or company
policy mandating it. Moreover, SEAM is estopped, Metro asserts, from claiming such an increase. Despite its awareness of the
P500.00 increase paid to rank-and-file employees (pursuant to their CBA) on 17 April 1989, SEAM did not negotiate in SEAM's own
CBA for the retroactive payment or pushing forward the effectivity date of its first increase of P800.00 to 17 April 1989. Finally, the
demanded P550.00 wage increase should be deemed, according to Metro, included in the P800.00 salary increase paid supervisory
employees on 1 December 1989.

In respect of the issue of underpayment, petitioner Metro denies that it underpaid its supervisory employees. Metro maintains (a) that
the first increase of P800.00 effective 1 December 1989 as provided in its CBA with SEAM is higher than the P500.00 increase paid
its rank-and-file employees; (b) that assuming arguendo a distortion in pay still existed, the same was corrected when the majority of
the supervisory employees, in a referendum, voted to accept the advance payment of P600.00 out of the scheduled CBA increase of
P1,000.00 effective 1 December 1990; (c) it was actually SEAM who had proposed the advance payment of P600.00 from their
scheduled second year increase of P1,000.00; (d) SEAM had further agreed that, come 1 December 1990, only the balance of P400.00
would have to be paid to supervisory employees; and (e) payment by Metro of the balance of P400.00 on 1 December 1990 was
merely its compliance with the scheduled second year increase aligned with Metro's subsequent agreement with SEAM to advance the
effectivity date of the first P600.00.

In its Comment, the Office of the Solicitor General argues, rather cursorily, that public respondent NLRC did not commit any grave
abuse of discretion and that its findings of fact must be accorded respect and finality.

I
In respect of the issue of existence of a wage distortion, the Court finds and so holds that a wage distortion did occur when the salaries
of rank-and-file employees were increased by P500.00 per month on 17 April 1989 as stipulated in their CBA and no corresponding
increase was paid to the supervisory employees. This fact was admitted by Atty. Virgilio C. Abejo, counsel for petitioner Metro,
during the oral hearing and Metro is bound by that admission. 5

In addition, Atty. Abejo explained that his client, as a matter of practice, granted its supervisory employees a salary increase (and a
premium) whenever it paid its rank-and-file employees a salary increase.6

The defense of management prerogative or discretion invoked by petitioner Metro in asserting that it is not obligated to grant
supervisory employees a salary increase whenever rank-and-file employee are granted an increase is, in this case, unavailing.

Basically, Metro's argument is that such increase was merely a bonus given to supervisory employees. A "bonus" is an amount granted
and paid to an employee for his industry and loyalty which contributed to the success of the employer's business and made possible
the realization of profits. It is something given in addition to what is ordinarily received by or strictly due to the
recipient. 7

The general rule is that a bonus is a gratuity or an act of liberality which the recipient has no right to demand as a matter of right. 8 A
bonus, however, is a demandable or enforceable obligation when it is made part of the wage or salary or compensation of the
employee.9 Whether or not a bonus forms part of wages depends upon the circumstances and conditions for its payment. If it is
additional compensation which the employer promised andagreed to give without any conditions imposed for its payment, such as
success of business or greater production or output, then it is part of the wage. But if it is paid only if profits are realized or if a
certain level of productivity is achieved, it can not be considered part of the wage. Where it is not payable to all but only to some
employees and only when their labor becomes more efficient or more productive, it is only an inducement for efficiency, a prize
therefor, not a part of the wage. 10

In the case at bar, the increase of P550.00 sought by private respondent SEAM was neither an inducement nor was it contingent on (a)
the success of the business of petitioner Metro; or (b) the increased production or work output of the company or (c) the realization of
profits. The demand for this increase was based on a company practice, admitted by Metro, of granting a salary increase (and a
premium) to supervisory employees whenever rank-and-file employees were granted a salary increase. That those increases were
precisely designed to correct or minimize the wage distortion effects of increases given to rank-and-file employees (under their CBA
or under Wage Orders), highlights the fact that those increases were part of the wage structure of supervisory employees. The
demanded increase therefore is not a bonus that is generally not demandable as a matter of right. The demanded increase, in this
instance, is an enforceable obligation so far as the supervisory employees of Metro are concerned.

We conclude that the supervisory employees, who then (i.e., on 17 April 1989) had, unlike the rank-and-file employees, no CBA
governing the terms and conditions of their employment, had the right to rely on the company practice of unilaterally correcting the
wage distortion effects of a salary increase given to the rank-and-file employees, by giving the supervisory employees a corresponding
salary increase plus a premium. For reasons, however, shortly to be stated in the disposition of the second issue, we hold that
the P550.00 increase is demandable by SEAM only in respect of the period beginning 17 April 1989 and ending on 30 November
1989.

It is true enough that, in the present case, the wage distortion to be corrected by the award of P550.00 increase for supervisory
employees beginning 17 April 1989, was due to the time gap between the effectivity date (17 April 1989) of the increase of P500.00
per month given to rank-and-file employees under their CBA and the effectivity date (1 December 1989) of the P800.00 increase
given to supervisory employees under their own CBA. It is also true that had the P800.00 increase to supervisory employees been
made retroactive to 17 April 1989 by an appropriate synchronizing provision in the Metro-SEAM CBA, no wage distortion would
have arisen. The fact, however, remains that Metro and SEAM did not agree upon such remedy in their CBA and that the CBA
increase given to rank-and-file employees did produce a distortion effect by obliterating or drastically reducing the previous gap
between the salary rates of rank-and-file and supervisory employees. The point to be stressed is that considering the prior practice of
petitioner Metro, its supervisory employees had the right to expect rectification of that distortion.

II

We turn to the issue of whether the wage distortion referred to above was effectively rectified by petitioner Metro in accordance with
law.

This issue arises because, as already noted, the NLRC in its 30 March 1994 Decision decreed that Metro shall pay the "P550.00 per
month wage increase effective April 17, 1989 and onwards" and similarly ordered the payment of P600.00 per month which it found
to have been underpaid "effective December 1, 1990 and onwards."
It is helpful to recall the general principles laid down in National Federation of Labor v. National Labor Relations
Commission, 11 where the Court discussed at some length the relatively obscure concept of wage distortion. Those principles may be
summarily stated in the following manner:

(a) The concept of wage distortion assumes an existing grouping or

classification of employees which establishes distinctions among such
employees on some relevant or legitimate basis. This classification is reflected
in a deferring wage rate for each of the existing classes of employees.

(b) Wage distortions have often been the result of government-decreed increases
in minimum wages. There are, however, other causes of wage distortions, like
the merger of two (2) companies (with differing classifications of employees
and different wage rates) where the surviving company absorbs all the
employees of the dissolved corporation. (In the present Metro case, as already
noted, the wage distortion arose because the effectivity dates of wage increases
given to each of the two (2) classes of employees (rank-and-file and
supervisory) had not been synchronized in their respective CBAs.)

(c) Should a wage distortion exist, there is no legal requirement that, in the
rectification of that distortion by re-adjustment of the wage rates of the differing
classes of employees, the gap which had previously or historically existed be
restored in precisely the same amount. In other words, correction of a wage
distortion may be done by re-establishing a substantial or significant gap (as
distinguished from the historical gap) between the wage rates of the differing
classes of employees.

(d) The re-establishment of a significant difference in wage rates may be the

result of resort to grievance procedures or collective bargaining negotiations.

In the present case, the Court must confront the task of determining whether the CBA forged by Metro and SEAM had, along with the
award of P550.00 per month from 17 April 1989 to 1 December 1989, referred to in Part I above, adequately corrected the wage
distortion.

After careful examination of the provisions of the CBA between Metro and SEAM, in particular the provisions relating to anniversary
salary increases every 1 December beginning 1989 to 1991, we believe and so hold that together with the increase of P550.00 referred
to in Part I above, those provisions will have adequately rectified the wage distortion which arose in respect of rank-and-file and
supervisory employees.

The CBA of supervisory employees granted them an aggregate monthly increase of P2,800.00 over three (3) years:

Table I

CBA Effectivity
Increase Date Amount
Year I 1-Dec-89 P800.00
Year II 1-Dec-90 P1,000.00
Year III 1-Dec-91 P1,000.00

Upon the other hand, the CBA of the rank-and-file employees granted them monthly increases totalling P1,850.00 also over three (3)
years:

Table II

CBA Effectivity Amount

Increase Date
Year I 17-Apr-89 P500.00
Year II 17-Apr-90 P600.00
Year III 17-Apr-91 P750.00

After all the above listed salary increases had become effective, the last being on 1 December 1991, supervisory employees as a group
were receiving P950.00 more per month than rank-and-file employees as a group. Adding to this figure the amount of P550.00 per
month which we in Part I (supra) have held petitioner Metro must pay, the increase in pay of supervisory employees would be
P1,500.00 more per month than the increases in pay of rank-and-file employees:

Table III

CBA Effectivity Wage Increase Wage Increase Gap

Increase Date Rank and File Supervisory (PHP)
Employees Employees
(PHP) (PHP)
Year I 4/17/89 550.00 12 550.00 50
12/1/89 - 0.00 800.00 850
Year II 4/17/90 600.00 13 600.00 850
12/1/90 - 0.00 400.00 1250
Year III 4/17/91 750.00 550.00 500
12/1/91 - 0.00 1,000.00 1500

We consider the difference of P1,500.00 per month a significant differential that clearly distinguishes, on the basis of pay scales, a
rank-and-file employee from a supervisory employee.

Applying the above increases to the actual salaries being received by rank-and-file and supervisory employees of Metro, we find that
indeed the distortion caused by the CBA-stipulated wage increase granted rank-and-file employees on 17 April 1989 was rectified by
1 December 1991.

The record before us does not include the actual amounts of the rank-and-file and supervisory employees' salaries. In its position paper
before the NCMB, however, private respondent SEAM stated:

The highest salary of some rank-and-file employees at present (before adding the CBA increase) is P4,790.00 which
is higher that some supervisors with [a] salary of P3,980.00. 14

Taking the above SEAM figures and adding to them the respective CBA-stipulated increases to the salary of the highest paid rank-
and-file employee and to the lowest paid supervisory employee, plus the P550.00 in wage already held due to all supervisory
employees as of 17 April 1989, we find that the salary of the lowest paid supervisory employee was, by 1 December 1991, P690.00
more than the salary of the highest paid rank-and-file employee:

Table IV

CBA Effectivity Wage of Wage of Gap

Increase Date Rank and Supervisory (PHP)
File Employees Employees
(PHP) (PHP)
4,790.00 3980.00 (810.00) 15
Year I 4/17/89 5,290.00 4,530.00 16 (760.00) 17
12/1/89 5,290.00 5330.00 40.00
Year II 4/17/90 5,890.00 5,930.00 18 40.00
12/1/90 5,890.00 6330.00 440.00
Year III 4/17/91 6,640.00 6330.00 (310.00) 19
12/1/91 6640.00 7,330.00 690.00
 The difference in monthly wage scales of P690.00 clearly and substantially distinguishes, on the basis of pay, a rank-and-file
employee from a supervisory employee. 20 Since the above computation utilizes the salaries of highest paid rank-and-file
employee and the lowest paid supervisory employee, figures supplied by SEAM, the differential of P690.00 represents
merely the minimum difference or gap that was restored or established once implementation of the salary increases due to
supervisory employees was completed on 1 December 1991. That differential would, of course, be significantly greater
for average rank-and-file employees receiving a salary less than P4,790.00 and for average supervisory employees receiving
a salary greater than P3,980.00.

We turn to the related issue of whether the first year salary increase of P800.00 per month given to supervisory employees under their
CBA covered or took the place of the P550.00 increase we ruled is due them in Part I (supra) by virtue of the previous unilateral
practice of Metro.

Metro maintains that the P800.00 monthly salary increase paid to supervisory employees starting on 1 December 1989, should be
deemed to cover or include the P550.00 in wage increase demanded by SEAM and held by us to be due to SEAM from 17 April 1989
to 1 December 1989. In other words, Metro argues that the wage distortion should be regarded as cured by the CBA-mandated
increase of P800.00 starting 1 December 1989.

We note that the CBA of Metro and SEAM did not contain any provision stipulating that the P550.00 monthly increase would be
credited against the P800.00 increase. There was no crediting provision apparently because the P550.00 monthly increase had not been
provided for in the CBA with SEAM. Even so, we agree with petitioner Metro's position. The issue of whether increases in wages
essential for correcting wage distortions may be credited against CBA-mandated increases, is not an issue of first impression.
In National Federation of Labor v. National Labor Relations Commission, 21 the Court rejected the argument of the NLRC that wage
increases resulting from collective bargaining negotiations should not be regarded as constituting compliance with the direction to
correct wage distortions arising from the effectivity of Wage Orders. In National Federation of Labor, the Court, after quoting the
following excerpt from Apex Mining Company, Inc. v. National Labor Relations Commission 22

It is important to note that the creditability provisions of Wage Orders Nos. 5 and 6 (as well as the parallel
provisions in Wage Orders Nos. 2, 3 and 4) are grounded in an important public policy. The public policy may be
seen to be the encouragement of employers to grant wage and allowance increases to their employees higher
than the minimum rates of increases prescribed by statute or administrative regulation. To obliterate the
creditability provisions in Wage Orders through interpretation or otherwise, and to compel employers simply to
add legislated increases in salaries or allowances without regard to what is already being paid, would be to
penalize employers who grant their workers more than the statutorily prescribed minimum rates of increases.
Clearly, this would be counter-productive so far as securing the interests of labor is concerned. The creditability
provisions in the Wage Orders prevent the penalizing of employers who are industry leaders and who do not wait for
statutorily prescribed increases in salary or allowances and pay their workers more than what the law or regulations
require. 23 (Emphasis partly in the original and partly supplied)

said:

We believe that the same public policy requires recognition and validation, as it were, of wage increases given by
employers either unilaterally or as a result of collective bargaining negotiations, in the effort to correct wage
distortions. 24 (Emphasis supplied)

In the instant case, the CBA-stipulated increase of P800.00 a month was intended as the countervailing increase for supervisory
employees, the rank-and-file employees having already received their own increase approximately eight (8) months earlier. In other
words, the wage distortion in the present case arose not because of a government-decreed increase in minimum wages or because
Metro simply refused to treat its supervisory employees, differently from its rank-and-file workers, but rather because of a failure to
synchronize the CBA-stipulated increases for rank-and-file and for supervisory employees. Moreover, as more than once pointed out
above, the P800.00 monthly increase given to supervisory employees should be taken in conjunction with the P550.00 month increase
already awarded to supervisory employees under Part I above. When these are taken together, the wage distortion which occurred on
17 April 1989 was completely and permanently corrected. There is no legal basis for requiring Metro to pay not only the P800.00
month increase, but also, on top thereof, the P550.00 monthly increase to supervisory employees, after 1 December 1989 and forever
after.

From the foregoing, we conclude that beginning 1 December 1989, by the grant of the award of P550.00 to supervisory employees in
Part I (supra) and by the operation of the Metro-SEAM CBA, the wage distortion which occurred on 17 April 1989 had been
corrected. By 1 December 1991, a substantial gap or differential had been re-established between the salaries of the rank-and-file and
supervisory employees of petitioner Metro. It was, therefore, grievous abuse of discretion for the NLRC to disregard such rectification
and to rule that petitioner Metro was liable to its supervisory employees for P550.00 monthly increase beyond 1 December 1989 and
"onwards." That distortion, as already pointed out, lasted only from 17 April 1989 up to 30 November 1989, since the following day, 1
December 1989, the CBA of Metro and SEAM went into effect.

Similarly, we believe that the NLRC committed a grave abuse of discretion in requiring Metro to pay the sum of P600.00 per month
from 1 December 1990 and onwards, i.e., forever after. It will be recalled that Metro, upon request of SEAM, had agreed that of the
P1,000.00 monthly increase originally scheduled to be effective under the CBA on 1 December 1990, P600.00 would take effect
instead on 17 April 1990. Metro agreed to do so precisely to remedy the distortion that would otherwise have resulted (see Tables III
and IV, supra) and so, starting 17 April 1990, supervisory employees received a monthly increase of P600.00; and starting 1
December 1990, they started receiving an additional P400.00 or the total stipulated CBA increase of P1,000.00 per month.

Again, for the same reasons set out earlier, we consider that these additional payments of P600.00 per month to supervisory employees
from 17 April 1990 up to 1 December 1990 should be deemed included in the P1,000.00 monthly increase effective from 1 December
1990 and onwards. Compelling Metro to pay, starting 1 December 1990, not only the P1,000.00 per month increase stipulated in the
CBA but also an additional P600.00 per month, amounts to allowing unjust enrichment of supervisory employees at the expense of
their employer Metro.

Finally, the Court is aware of the existence of a job evaluation study prepared by Resources Consultants International, aimed at re-
examining the wage structure of rank-and-file and supervisory employees of Metro. 25 The decision we promulgate today is without
prejudice to higher wages which rank-and-file and supervisory employees may be receiving by virtue of implementation of such
report.

ACCORDINGLY, for all the foregoing, the Petition for Certiorari is hereby GRANTED DUE COURSE, and the Decision and
Resolution of the NLRC dated 30 March and 22 June 1994, respectively, in NLRC-NCR-CA No. 000042-92 are hereby SET ASIDE.
In place thereof, another Decision is hereby RENDERED requiring petitioner Metro Transit Organization, Inc. to pay to each of its
supervisory employees the amount of Five Hundred Fifty Pesos (P550.00) for each month or fraction of a month, embraced within
the period from 17 April 1989 to 1 December 1989, plus legal interest (six percent [6%] per annum) thereon computed from the
various dates in 1989 when such amount should have been paid during the aforementioned period. This Decision shall be without
prejudice to any increase of wages already being enjoyed by supervisory employees at the time of promulgation hereof.

No pronouncement as to costs.

SO ORDERED.

LOURDES G. MARCOS, ALEJANDRO T. ANDRADA, BALTAZARA J. LOPEZ AND VILMA L. CRUZ, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and INSULAR LIFE ASSURANCE CO., LTD., respondents.

REGALADO, J.:

This petition for certiorari seeks the nullification of the decision1 of the National Labor Relations Commission (NLRC) promulgated
on May 31, 1992 in NLRC NCR CA No. 004120-92, and its resolution dated August 27, 1993 denying petitioner's motion for
reconsideration thereof. The said decision set aside on appeal, the decision of Labor Arbiter Alex Arcadio Lopez ordering private
respondent to pay petitioners their service awards, anniversary bonus and prorated performance bonus in the amount of P144,579.00
and 10% attorney's fees in the amount of P14,457.90. 2

First, the undisputed facts.

Petitioners were regular employees of private respondent Insular Life Assurance Co:, Ltd., but they were dismissed on November 1,
1990 when their positions were declared redundant. A special redundancy benefit was paid to them, which included payment of
accrued vacation leave and fifty percent (50%) of unused current sick leave, special redundancy benefit, equivalent to three (3) months
salary for every year of service; and additional cash benefits, in lieu of other benefits provided by the company or required by law. 3
Before the termination of their services, petitioner Marcos had been in the employ of private respondent for more than twenty (20)
years, from August 26, ]970; petitioner Andrada, more than twenty-five (25) years, from July 26, 1965; petitioner Lopez, exactly
thirty (30) years, from October 31, 1960; and petitioner Cruz, more than twenty (20) years, from March 1, 1970. 4

Petitioners, particularly Baltazara J. Lopez, sent a letter dated October 23, 1990 to respondent company questioning the redundancy
package, She claimed that they should receive their respective service awards and other prorated bonuses which they had earned at the
time they were dismissed. In addition, Lopez argued that "the cash service awards have already been budgeted in a fund distinct and
apart from redundancy fund.5

Thereafter, private respondent required petitioners to execute a "Release and Quitclaim," 6 and petitioners complied but with a written
protest reiterating their previous demand that they were nonetheless entitled to receive their service awards.

On March 21, 1991, petitioners inquired from the Legal Service of the Department of Labor and Employment 7whether respondent
corporation could legally refuse the payment of their service awards as mandated in their Employee's Manual.

About three months later the labor department issued its opinion, with pertinent authorities, responding to petitioners' query as
follows:

xxx xxx xxx

This Department believes that your query presents several issues. These shall be addressed point by point, thus:

First, the Department deems the service award to be part of the benefits of the employees of
Insular Life. Company policies and practices are fertile sources of employee's rights. These must
be applied uniformly as interpretation cannot vary from one employee to another. . . .

xxx xxx xxx

While it may be argued that the above-cited case applies only to retirement benefits, we find solace in the cases of
Liberation Steamship Co., Inc. vs. CIR and National Development Company vs. Unlicensed Crew members of
Three Dons vessels (23 SCRA 1105) where the Supreme Court held that a gratuity or bonus, by reason of its long
and regular concession indicating company practice, may become regarded as part of regular compensation and thus
demandable.

xxx xxx xxx

Second, the award is earned at the pertinent anniversary date. At this time, entitlement to the award becomes vested.
The anniversary date is the only crucial determining factor. Since the award accrues on that date, it is of no moment
that the entitled employee is separated from service (for whatever cause) before the awards are physically handed
out.

xxx xxx xxx

Third, even if the award has not accrued — as when an employee is separated from service because of redundancy
before the applicable 5th year anniversary, the material benefits of the award must be given, prorated, by Insular
Life. This is especially true (in) redundancy, wherein he/she had no control.

xxx xxx xxx

Fourth, the fact that you were required to sign "Release and Quitclaim" does not affect your right to the material
benefits of the service award. . . .8

Meanwhile, in the same year, private respondent celebrated its 80th anniversary wherein the management approved the grant of an
anniversary bonus equivalent to one (1) month salary only to permanent and probationary employees as of November 15, 1990. 9

On March 26, 1991, respondent company announced the grant of performance bonus to both rank and file employees and supervisory
specialist grade and managerial staff equivalent to two (2) months salary and 2.75 basic salary, respectively, as of December 30, 1990.
The performance bonus, however, would be given only to permanent employees as of March 30, 1991. 10
Despite the aforequoted opinion of the Department of Labor and Employment, private respondent refused to pay petitioners service
awards. This prompted the latter to file a consolidated complaint, which was assigned to NLRC Labor Arbiter Lopez, for payment of
their service awards, including performance and anniversary bonuses.

In their complaint, petitioners contended that they are likewise entitled to the performance and anniversary bonuses because, at the
time the performance bonus was announced to be given, they were only short of two (2) months service to be entitled to the full
amount thereof as they had already served the company for ten (10) months prior to the declaration of the grant of said benefit. Also,
they lacked only fifteen (15) days to be entitled to the full amount of the anniversary bonus when it was announced to be given to
employees as of November 15, 1990.

In a decision dated October 8, 1992, the labor arbiter ordered respondent company to pay petitioners their service awards, anniversary
bonuses and prorated performance bonuses, including ten percent (10%) thereof as attorney's fees.

Respondent company appealed to public respondent NLRC claiming grave abuse of discretion committed by the labor arbiter in
holding it liable to pay said service award, performance and anniversary bonuses, and in not finding that petitioners were estopped
from claiming the same as said benefits had already been given to them.

In setting aside the decision of the labor arbiter, respondent NLRC upheld the validity of the quitclaim document executed by
petitioners. For this conclusion, it rationalized that "(c)ertainly, before complainants signed the quitclaim and release, they are aware
of the nature of such document. In fact, they never assailed the genuineness and due execution of the same. Hence, we can safely say
that they were not placed under duress or were compelled by means of force to sign the document." 11

Furthermore, the NLRC held that "(n)either was there any unwritten agreement between complainants and respondent upon
separation, which entitled the former to other renumerations or benefits. On the contrary, they voluntarily accepted the redundancy
benefit package, otherwise, they would not have been separated from employment." 12

Hence, this petition wherein it is postulated that the basic issue is whether or not respondent NLRC committed reversible error or
grave abuse of discretion in affirming the validity of the "Release and Quitclaim" and, consequently, that petitioners are not entitled to
payment of service awards and other bonuses. 13 The Solicitor General public respondent NLRC and private respondent company duly
filed their respective comments. 14

In their petition, petitioners stress that they have actually devoted much, if not all, of their employable life with private respondent;
that given their length of service, their loyalty to the latter is easily demonstrable; and that the same length of service had rendered
slim, if not eliminated, their chances of getting employed somewhere else." 15

On the other hand, respondent company reiterates its basic contention that the consideration for the settlement of petitioners' claim is
credible and reasonable, more than satisfies the legal requirement therefor, and that petitioners, in executing the release and quitclaim,
did so voluntarily and with full knowledge of the consequences thereof. 16

The petition being meritorious, we find for petitioners.

Under prevailing jurisprudence, the fact that an employee has signed a satisfaction receipt for his claims does not necessarily result in
the waiver thereof. The law does not consider as valid any agreement whereby a worker agrees to receive less compensation than what
he is entitled to recover. A deed of release or quitclaim cannot bar an employee from demanding benefits to which he is legally
entitled. 17

We have heretofore explained that the reason why quitclaims commonly frowned upon as contrary to public policy, and why they are
held to be ineffective to bar claims for the full measure of the workers' legal rights, is the fact that the employer and the employee
obviously do not stand on the same footing. The employer drove the employee to the wall. The latter must have harsh necessities of
life. He thus found himself in no position to resist money proffered. His, then, is a case of adherence, not of choice. One thing sure,
however, is that petitioners did not relent on their claim. They pressed it. They are deemed not have waived any of their
rights. Renuntiatio non praesumitur. 18

Along this line, we have more trenchantly declared that quitclaims and/or complete releases executed by the employees do not estop
them from pursuing their claims arising from unfair labor practices of the employer. The basic reason for this is that such quitclaims
and/or complete releases are against public policy and, therefore, null and void. The acceptance of termination does not divest a
laborer of the right to prosecute his employer for unfair labor practice acts. 19 While there maybe possible exceptions to this holding,
we do not perceive any in the case at bar.
Furthermore, in the instant case, it is an undisputed fact that when petitioners signed the instrument of release and quitclaim, they
made a written manifestation reserving their right to demand the payment of their service awards. 20The element of total voluntariness
in executing that instrument is negated by the fact that they expressly stated therein their claim for the service awards, a manifestation
equivalent to a protest and a disavowal of any waiver thereof.

As earlier stated, petitioners even sought the opinion of the Department of Labor and Employment to determine where and how they
stood in the controversy. This act only shows their adamant desire to obtain their service awards and to underscore their disagreement
with the "Release and Quitclaim" they were virtually forced to sign in order to receive their separation pay.

We have pointed out in Veloso, et al., vs. Department of Labor and Employment, et al.,21 that:

While rights may be waived, the same must not be contrary to law, public order, public policy, morals or good
customs or prejudicial to a third person with a right recognized by law.

Article 6 of the Civil Code renders a quitclaim agreement void ab initio where the quitclaim obligates the workers
concerned to forego their benefits while at the same time exempting the employer from any liability that it may
choose to reject. This runs counter to Art. 22 of the Civil Code which provides that no one shall be unjustly enriched
at the expense of another.

We agree with the further observations of the Solicitor General who, in recommending the setting aside of the
decision of respondent NLRC, called attention to the fact that "contrary to private respondent's contention, the
"additional" redundancy package does not and could not have covered the payment of the service awards,
performance and anniversary bonuses since the private respondent company has initially maintained the position
that petitioners are not legally entitled to the same. . . . Surprisingly, in a sudden turnabout, private respondent now
claims . . . that the subject awards and bonuses are integrated in the redundancy package. It is evident, therefore, that
private respondent has not truly consolidated the payment of the subject awards and bonuses in the redundancy
package paid to the petitioners. 22

We are likewise in accord with the findings of the labor arbiter that petitioners are indeed entitled to receive service
awards and other benefits, thus:

Since each of the complainants have rendered services to respondent in multiple(s) of five years prior to their
separation from employment, respondent should be paid their service awards for 1990.

We are not impressed with the contention of the respondent that service award is a bonus and therefore is an act of
gratuity which the complainants have no right to demand. Service awards are governed by respondent's employee's
manual and (are) therefore contractual in nature.

On the matter of anniversary and performance bonuses, it is not disputed that it is respondent's practice to give an
anniversary bonus every five years from its incorporation; that pursuant to this practice, respondent declared an
anniversary bonus for its 80th Anniversary in 1990; that per terms of this declaration, only the employees of
respondent as of 15 November 1990 will be given the bonus; and that complainants were separated from respondent
only 25 days before :the respondent's anniversary. On the other hand, it is also (not) disputed that respondent
regularly gives performance bonuses; that for its commendable performance in 1990, respondent declared a
performance bonus; that per terms of this declaration, only permanent employees of respondent as of March 30,
1991 will be given this bonus; and that complainants were employees of respondents for the first 10 months of 1990.

We cannot see any cogent reason why an anniversary bonus which respondent gives only once in every five years
were given to all employees of respondent as of 15 November 1990 (pro rata even to probationary employees;
Annex 9) and not to complainants who have rendered service to respondent for most of the five year cycle. This is
also true in the case of performance bonus which were given to permanent employees of respondent as of 30 March
1991 and not to employees who have been connected with respondent for most of 1990 but were separated prior to
30 March 1991.

We believe that the prerogative of the employer to determine who among its employee shall be entitled to receive
bonuses which are, as a matter of practice, given periodically cannot be exercised arbitrarily. 23 (Emphasis and
corrections in parentheses supplied.)

The grant of service awards in favor of petitioners is more importantly underscored in the precedent case of Insular Life Assurance
Co., Ltd., et al. vs. NLRC, et al., 24 where this Court ruled that "as to the service award differentials claimed by some respondent union
members, the company policy shall likewise prevail, the same being based on the employment contracts or collective bargaining
agreements between the parties. As the petitioners had explained, pursuant to their policies on the matter, the service award
differential is given at the end of the year to an employee who has completed years of service divisible by 5.

A bonus is not a gift or gratuity, but is paid for some services or consideration and is in addition to what would ordinarily be
given. 25 The term "bonus" as used in employment contracts, also conveys an idea of something which is gratuitous, or which may be
claimed to be gratuitous, over and above the prescribed wage which the employer agrees to pay.

While there is a conflict of opinion as to the validity of an agreement to pay additional sums for the performance of that which the
promisee is already under obligation to perform, so as to give the latter the right to enforce such promise after performance, the
authorities hold that if one enters into a contract of employment under an agreement that he shall be paid a certain salary by the week
or some other stated period and, in addition, a bonus, in case he serves for a specified length of time, there is no reason for refusing to
enforce the promise to pay the bonus, if the employee has served during the stipulated time, on the ground that it was a promise of a
mere gratuity.

This is true if the contract contemplates a continuance of the employment for a definite term, and the promise of the bonus is made at
the time the contract is entered into. If no time is fixed for the duration of the contract of employment, but the employee enters upon or
continues in service under an offer of a bonus if he remains therein for a certain time, his service, in case he remains for the required
time, constitutes an acceptance of the offer of the employer to pay the bonus and, after that acceptance, the offer cannot be withdrawn,
but can be enforced by the employee. 26

The weight of authority in American jurisprudence, with which we are persuaded to agree, is that after the acceptance of a promise by
an employer to pay the bonus, the same cannot be withdrawn, but may be enforced by the employee. 27 However, in the case at bar,
equity demands that the performance and anniversary bonuses should be prorated to the number of months that petitioners actually
served respondent company in the year 1990. This observation should be taken into account in the computation of the amounts to be
awarded to petitioners.

WHEREFORE, the assailed decision and resolution of respondent National Labor Relations Commission are hereby SET ASIDE and
the decision of Labor Arbiter Alex Arcadio Lopez is REINSTATED.

SO ORDERED.

DOMINICO C. CONGSON, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, NOE BARGO, ROGER HIMENO, RAYMUNDO BADAGOS,
PATRICIO SALVADOR, SR., NEHIL BARGO, JOEL MENDOZA, and EMMANUEL CALIXIHAN, respondents.

PADILLA, J.:

Petitioner Dominico C. Congson seeks the nullification of the decision rendered by the National Labor Relations Commission in Case
No. NLRC CA M-000681-921 dated 28 May 1993 and its resolution dated 28 January 1994, denying petitioner's motion for
reconsideration..

In the challenged decision*, the NLRC affirmed in toto Labor Arbiter Arturo Aponesto's decision dated 27 September 1991, holding
thus:

WHEREFORE, the appealed decision is hereby AFFIRMED IN TOTO and the instant appeal is DISMISSED for
lack of merit.

SO ORDERED.2

Petitioner is the registered owner of Southern Fishing Industry. Private respondents were hired on various dates 3 by petition'er as
regular piece-rate workers. They were uniformly paid at a rate of P1.00 per tuna weighing thirty (30) to eighty (80) kilos per
movement, that is — from the fishing boats down to petitioner's storage plant at a load/unload cycle of work until the tuna catch
reached its final shipment/destination. They did the work of unloading tuna from fishing boats to truck haulers; unloading them again
at petitioner's cold storage plant for filing, storing, cleaning, and maintenance; and finally loading the processed tuna for shipment.
They worked seven (7) days a week.

During the first week of June 1990, petitioner notified his workers of his proposal to reduce the rate-per-tuna movement due to the
scarcity of tuna. Private respondents resisted petitioner's proposed rate reduction. When they reported for work the next day, they were
informed that they had been replaced by a new set of workers, When they requested for a dialogue with the management, they were
instructed to wait for further notice. They waited for the notice of dialogue for a full week but in vain.

On 15 June 1990, private respondents filed a case against petitioner before the NLRC Sub-Regional Arbitration Branch No. XI in
General Santos City, docketed as Case No. RAB-11-06-50165-90 for underpayment of wages (non-compliance with Rep. Act Nos.
6640 and 6727) and non-payment of overtime pay, 13th month pay, holiday pay, rest day pay, and five (5)-day service incentive leave
pay; and for constructive dismissal. With respect to their monetary claims, private respondents charged petitioner with violation of the
minimum wage law, alleging that with petitioner's rates and the scarcity of tuna catches, private respondents' average monthly
earnings each did not exceed ONE THOUSAND PESOS (P1,000.00).

Accusing petitioner of constructive dismissal, private respondents claimed that petitioner refused to give them work assignments and
replaced them with new workers when they showed resistance to the petitioner's proposed reduction of the rate-per-tuna movement.

On 2 July 1990, private respondents filed another case against petitioner, docketed as Case No. RAB; 11-07-50179-90 containing an
additional claim for separation pay should their complaint for constructive dismissal be upheld.

The two (2) cases were consolidated. Conciliation conferences were scheduled. On 24 July 1990, however, Labor Arbiter Aponesto
directed the parties to submit their respective position papers within twenty (20) days from receipt of the directive, since no amicable
settlement was reached in conciliation between the parties.

On 22 August 1990, private respondents filed their position paper reiterating the charges in their complaint for constructive dismissal,
attaching thereto a Bill of Particulars containing the computations of their monetary claims. Petitioner, instead of filing his position
paper, sought, through counsel, an extension of time within which to file his position paper.

On 20 September 1991, petitioner filed his position paper wherein he claimed that the only issue for resolution was private
respondents' monetary claims, and that there was no constructive dismissal. Petitioner further argued that private respondents were not
dismissed but rather, they abandoned their work after learning of petitioner's proposal to reduce tuna movement rates because of the
scarcity of tuna, and that, it took private respondents one (1) month to return to work, but they could no longer be accommodated as
petitioner had already hired their replacements after private respondents failed to heed petitioner's repeated demands for them to return
to work. Upon said premises, petitioner contended that private respondents were not entitled to separation pay.

On 27 September. 1991, Labor Arbiter Aponesto rendered a decision, with the following disposition:

WHEREFORE, finding that complainants Noe Bargo, Roger Himeno, Raymundo Badagos, Patricio Salvador; Sr.,
Negil Barge, Joel Mendoza and Emmanuel Calixihan were (constructively) dismissed from employment without just
or unauthorized cause hence illegal, respondents Southern Fishing Industry and Mr. Dominico Congson are hereby
directed to pay, jointly and severally, their respective separation pay and monetary claims for salary differentials,
13th month pay and service incentive leave pay, as computed above, in the total sum of FIVE HUNDRED TWO
THOUSAND EIGHT HUNDRED SIXTY FIVE (P502,865.00) PESOS.

The claims for overtime pay, holiday pay and rest day pay are, however, dismissed for lack of factual basis and for
reasons aforecited.

SO ORDERED. 4

In holding petitioner guilty of constructive dismissal, Labor Arbiter Aponesto made the following findings:

After a careful evaluation of the foregoing facts, proofs, evidence, arguments and counter-arguments adduced by the
parties we find that complainants were summarily dismissed from employment t on the first week of June, 1990,
when respondent Dominico Congson arbitrarily replaced them with another group of laborers to do the work of
complainants. This was brought about by their reluctance or resistance to accept a new lower rate proposed by
respondent the day before. The advise to wait for further notice' was indeed a confirmation that complainants were
dismissed as underscored by the fact that such notice never came even until this date. Having been constructively
 and illegally dismissed complainants are therefore entitled to their prayer for separation pay. Their length of service
10 years and 6 years, respectively(supra), which respondent dismally failed to controvert or refute, shall be the basis
of our computation, thus:

1 N. Bargo (P2,670 x 10) P26,700

2 R. Himeno (P2,670 x 10) 26,700
3 R. Badayos (P2,670 x 10) 26,700
4 P. Salvador, Jr. (P2,670 x 6) 16,020
5 Negil Bargo (P2,670 x 10) 26,700
6 J. Mendoza (P2,670 x 6) 16,020
7 E. Calixihan (P2,670 x 6) 16,020
————
Total P154,860 5

Except for private respondents' claim for overtime pay, holiday pay, and rest day pay which were dismissed, Labor Arbiter Aponesto
granted the monetary claims of private respondents, in this wise:

We likewise grant the monetary claims of complainants for wage differentials, 13th month pay and service incentive
leave pay payment of or exemption from which respondents failed to show. Hence, given the 3-year period covered
by their monetary claims, i.e. from June, 1987 to June, 1990 the monetary awards due complainants are as follows:

Name Wage 13th SIL Total

Diff'l. Mon. Pay
Noe Bargo 42,120 6,510.00 1,085 P49,715.00
R. Himeno 42,120 6,510.00 1,085 49,715.00
R. Badagos 42,120 6,510.00 1,085 49,715.00
P. Salvador 42,120 6,510.00 1,085 49,715.00
N. Bargo 42,120 6,510.00 1,085 49,715.00
J. Mendoza 42,120 6,510.00 1,085 49,715.00
Calixihan. 42,120 6,510.00 1,085 49,715.00
—————
Total P348,005.00

xxx xxx xxx

Pertaining to salary differentials respondent failed to adduce any evidence or document at all to show that under
their peculiar arrangements complainants were receiving compensation at par or above the then existing minimum
wage; this, despite more than sufficient time afforded. Consequently, we have no other alternative but to give
credence to complainants' assertion that their average income (each) did not exceed P1,000.00 a month (Annex "B")
complainants' position paper), thus the differentials.6

On the other hand, Labor Arbiter Aponesto made short shrift of petitioner's defense by ruling that:

We cannot give credence to the allegations or defenses put up by respondents: As stated, one of the principal claims
of complainants is the payment of their separation pay which was specifically prayed by complainants when they
filed the second case on July 2, 1990; this claim is likewise included in their Bill of particulars (Annex "C"
complainants' position paper). We cannot sustain respondents' theory of abandonment. Record shows that shortly
after complainants were constructively dismissed on the first week of June, 1990 they immediately filed the instant
case for constructive dismissal on June 15,1990. There is also no showing of a deliberate refusal on their part to
resume work. Moreover, respondents dismally failed to substantiate their general allegation that "repeated demands"
were made upon complainants to return to work.7

On appeal by petitioner, respondent NLRC found petitioner guilty of illegal dismissal. Holding that petitioner failed to substantiate his
contention that private respondents abandoned their work, respondent NLRC ruled that petitioner replaced private respondents with a
new set of workers without just cause and the required notice and hearing. Respondent NLRC therefore affirmed Labor Arbiter
Aponesto's findings and monetary awards. Petitioner's motion for reconsideration and supplemental motion for reconsideration were
denied for lack of merit in the challenged resolution dated 28 January 1994.

Hence, the present recourse by petitioner.

Petitioner imputes grave abuse of discretion to respondent NLRC in completely disregarding his motion for reconsideration and
supplemental motion for reconsideration. He contends that said motions for reconsideration raised substantial issues which respondent
NLRC failed to consider and resolve.

Petitioner's motion for reconsideration and supplemental motion for reconsideration raised only two (2) issues: a) the accuracy of
Labor Arbiter Aponesto's computations in arriving at the monetary awards representing salary differentials; and b) the propriety or
correctness of Labor Arbiter Aponesto's grant of separation pay to private respondents.

Petitioner takes issue with the manner Labor Arbiter Aponesto computed private respondents wage differentials. In his supplemental
motion for reconsideration, petitioner argued, thus:

In the Decision rendered, the Arbiter awarded wage differential on the premise that complainants monthly average
income is only P1, 000.00 as alleged in their position paper. This is erroneous. Here is why:

Herein complainants were employed by respondents on a load-unload cycle of hauling "bariles" from the fishing
boats to the truck hauler of the respondents; then from the truck hauler down to the cold storage; the herein
complainants were paid P 1.00 per movement t; that is, from the fishing boat to the cold storage, the herein
complainants actually received the amount of P2.00, one (1) peso per movement; that there are two (2) movements
from the fishing boat to the cold storage, hence complainants are actually receiving P2.00 per piece of tuna. The
Arbiter must have been on the impression that there is only one (1) movement from the fishing boat to the cold
storage. This is erroneous.

That finally, when the tuna is ready for export, the same is to be transferred from the cold storage to the ocean going
vessel berthed at respondents wharf at Talisay, General Santos City, this time herein complainants are paid P3.00
per piece of tuna from the cold storage to the ocean going vessel as shown in the herewith attached Annexes.

In fine, all in all, there are three (3)movements from the time the tuna is unloaded from the fishing boat to the fish
car then to the cold storage; and, finally from the cold storage to the vessel.

In addition to the amount of P1.00 per 'bariles' per movement herein complainants get the intestines and liver of the
tuna as part of their salary. That for every tuna delivered, herein complainants extract at least three (3) kilos of
intestines and liver. That the minimum prevailing price of tuna intestine and liver in 1986 to 1990 range from P15.00
to P20.00/kilo. The value of the tuna intestine and liver should be computed in arriving at the daily wage of herein
complainants because the very essence of the agreement between complainants and respondent is: complainants
shall be paid only P1.00 per tuna per movement BUT the intestines and liver of the tuna delivered shall go to the
herein complainants. It should be noted that tuna intestines and liver are easily disposed of in any public market.
Complainants themselves would not have agreed and would not have served respondent that long period of time if
they are only paid P1.00 per tuna movement. What they are after, in truth and in fact is the tuna intestines and liver
which they can easily convert into cash.8

Quite clearly, petitioner admits that the P1.00-per-tuna movement is the actual wage rate applied to private respondents as expressly
agreed upon by both parties. Petitioner further admits that private respondents, per their request, were entitled to retrieve the tuna
intestines and liver as part of their compensation. Finally, petitioner does not refute Labor Arbiter Aponesto when the latter fixed
private respondents' individual monthly wage at P2,670 computed at the mandatory daily wage of P89.00.

However, it is the contention of petitioner that notwithstanding the fact that private respondents' actual cash wage fell below the
minimum wage fixed by law, respondent NLRC should have considered as forming a substantial part of private respondents' total
wages the cash value of the tuna liver and intestines private respondents were entitled to retrieve. Petitioner therefore argues that the
combined value of private respondents' cash wage and the monetary value of the tuna liver and intestines clearly exceeded the
minimum wage fixed by law.

Petitioner's foregoing arguments do not impress us.

The Labor Code expressly provides:

Article 102. Forms of Payment. —No. employer shall pay the wages of an employee by means of, promissory notes,
vouchers, coupons, tokens tickets, chits, or any object other than legal tender, even when expressly requested by the
employee.

Payment of wages by check or money order shall be allowed when such manner of payment is customary on the
date of effectivity of this Code, or is necessary as specified in appropriate regulations to be issued by the Secretary
of Labor or as stipulated in a collective bargaining agreement. (Emphasis supplied)

Undoubtedly, petitioner's practice of paying the private respondents the minimum wage by means of legal tender combined with tuna
liver and intestines runs counter to the above cited provision of the Labor Code. The fact that said method of paying the minimum
wage was not only agreed upon by both parties in the employment agreement but even expressly requested by private respondents,
does not shield petitioner. Article 102 of the Labor Code is clear. Wages shall be paid only by means of legal tender. The only
instance when an employer is permitted to pay wages informs other than legal tender, that is, by checks or money order, is when the
circumstances prescribed in the second paragraph of Article 102 are present.

We therefore find no grave abuse of discretion on the part of respondent NLRC in upholding Labor Arbiter Aponesto's award of salary
differentials.

With respect to the issue concerning the propriety or correctness of the grant of separation pay to private respondents, petitioner
contends that; assuming arguendo that Labor Arbiter Aponesto's findings were proper as to private respondents' illegal dismissal, his
decision did not state the reason why instead of reinstatement, separation pay has to be awarded to private respondents. Petitioner
submits that under existing laws and jurisprudence, whenever there is a finding of illegal dismissal, the available and logical remedy is
reinstatement. As a permissible exception to the general rule, separation pay may be awarded to the employee in lieu of reinstatement,
by reason of strained relationship between the employer and employee. Since there was no finding or even allegation of strained
relationship between .petitioner and private respondents, respondent NLRC should have deleted, according to petitioner, the award of
separation pay in Labor Arbiter Aponesto's decision.

We find petitioner's ratiocination on the impropriety of the award of separation pay to private respondents to be specious. Petitioner
seeks to defeat the award of separation pay, in lieu of reinstatement, on the pretext that inasmuch as the existence of strained
relationship — as a permissible exception to an axiomatic order of reinstatement in cases of illegal dismissal — was not adequately
established, Labor Arbiter Aponesto should not have entertained at all private respondents' claim for separation pay.

A careful scrutiny of the records of the case at bench, however, readily discloses the existence of strained relationship between the
petitioner and private respondents.

Firstly, petitioner consistently refused to re-admit private respondents in his establishment. Petitioner even replaced private
respondents with a new set of workers to perform the tasks of private respondents; Moreover, although petitioner ostensibly argued in
his supplemental motion for reconsideration that reinstatement should have been the proper remedy in the case at bench on his premise
that the existence of strained relationship was not adequately established, yet petitioner never sincerely intended to effect the actual
reinstatement of private respondents. For if petitioner were to pursue further the entire logic of his argument, the prayer in his
supplemental motion for reconsideration should have contained not just the mere deletion of the award of separation pay, but
precisely, the reinstatement of private respondents. Quite obviously then, notwithstanding petitioner's argument for reinstatement he
was only interested in the deletion of the award of separation pay to private respondents.

In the case of Felix Esmalin vs. National Labor Relations Commission (3rd Division) and CARE Philippines,9 we held that strained
relationship is fairly established if the records of the case showed consistent refusal of the employer to accept the dismissed employee,
to wit:

From the records of the case it can be discerned that reinstatement is no longer viable in view of the strained
relations between petitioner-employee (Felix Esmalin) and private respondent employer (CARE Philippines). This is
very evident from the vehement and consistent stand of CARE Philippines in refusing to accept back petitioner
Esmalin. Instead, petitioner should be awarded separation pay as an alternative for reinstatement.

And secondly, private respondents themselves, from the very start, had already indicated their aversion to their continued employment
in petitioner's establishment. The very filing of their second case before Labor.

Arbiter Aponesto (RAB-1 1-07-90179-90) specifically for separation pay is conclusive of private respondents' intention to sever their
working ties with petitioner.
In the case of Arturo Lagniton, Sr. vs. National Labor Relations Commission, et a1., 10 we ruled that the refusal of the dismissed
employee to be re-admitted is constitutive of strained relations, thus:

It appears that relations between the petitioner and the complainants have been so strained that the complainants are
no longer willing to be reinstated. As such reinstatement would only exacerbate the animosities that have developed
between the parties, the public respondents were correct in ordering instead the grant of separation pay to the
dismissed employees in the interest of industrial peace.

We therefore find no grave abuse of discretion on the part of respondent NLRC in upholding Labor Arbiter Aponesto,'s grant of
private respondents' prayer for separation pay in lieu of reinstatement.

WHEREFORE, premises considered, the petition is hereby DISMISSED. The challenged decision of respondent NLRC dated 28 May
1993 is hereby AFFIRMED.

NORMA MABEZA, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, PETER NG/HOTEL SUPREME, respondents.

KAPUNAN, J.:

This petition seeking the nullification of a resolution of public respondent National Labor Relations Commission dated April 28, 1994
vividly illustrates why courts should be ever vigilant in the preservation of the constitutionally enshrined rights of the working class.
Without the protection accorded by our laws and the tempering of courts, the natural and historical inclination of capital to ride
roughshod over the rights of labor would run unabated.

The facts of the case at bar, culled from the conflicting versions of petitioner and private respondent, are illustrative.

Petitioner Norma Mabeza contends that around the first week of May, 1991, she and her co-employees at the Hotel Supreme in
Baguio City were asked by the hotel's management to sign an instrument attesting to the latter's compliance with minimum wage and
other labor standard provisions of law. 1 The instrument provides: 2

JOINT AFFIDAVIT

We, SYLVIA IGANA, HERMINIGILDO AQUINO, EVELYN OGOY, MACARIA JUGUETA, ADELAIDA
NONOG, NORMA MABEZA, JONATHAN PICART and JOSE DIZON, all of legal ages (sic), Filipinos and
residents of Baguio City, under oath, depose and say:

1. That we are employees of Mr. Peter L. Ng of his Hotel Supreme situated at No. 416 Magsaysay Ave., Baguio
City.

2. That the said Hotel is separately operated from the Ivy's Grill and Restaurant;

3. That we are all (8) employees in the hotel and assigned in each respective shifts;

4. That we have no complaints against the management of the Hotel Supreme as we are paid accordingly and that
we are treated well.

5. That we are executing this affidavit voluntarily without any force or intimidation and for the purpose of informing
the authorities concerned and to dispute the alleged report of the Labor Inspector of the Department of Labor and
Employment conducted on the said establishment on February 2, 1991.

IN WITNESS WHEREOF, we have hereunto set our hands this 7th day of May, 1991 at Baguio City, Philippines.
 (Sgd.) (Sgd.) (Sgd.)
SYLVIA IGAMA HERMINIGILDO AQUINO EVELYN OGOY

(Sgd.) (Sgd.) (Sgd.)

MACARIA JUGUETA ADELAIDA NONOG NORMA MABEZA.

(Sgd.) (Sgd.)
JONATHAN PICART JOSE DIZON

SUBSCRIBED AND SWORN to before me this 7th day of May, 1991, at Baguio City, Philippines.

Asst. City Prosecutor

Petitioner signed the affidavit but refused to go to the City Prosecutor's Office to swear to the veracity and contents of the affidavit as
instructed by management. The affidavit was nevertheless submitted on the same day to the Regional Office of the Department of
Labor and Employment in Baguio City.

As gleaned from the affidavit, the same was drawn by management for the sole purpose of refuting findings of the Labor Inspector of
DOLE (in an inspection of respondent's establishment on February 2, 1991) apparently adverse to the private respondent. 3

After she refused to proceed to the City Prosecutor's Office — on the same day the affidavit was submitted to the Cordillera Regional
Office of DOLE — petitioner avers that she was ordered by the hotel management to turn over the keys to her living quarters and to
remove her belongings from the hotel
premises. 4 According to her, respondent strongly chided her for refusing to proceed to the City Prosecutor's Office to attest to the
affidavit. 5 She thereafter reluctantly filed a leave of absence from her job which was denied by management. When she attempted to
return to work on May 10, 1991, the hotel's cashier, Margarita Choy, informed her that she should not report to work and, instead,
continue with her unofficial leave of absence. Consequently, on May 13, 1991, three days after her attempt to return to work,
petitioner filed a complaint for illegal dismissal before the Arbitration Branch of the National Labor Relations Commission — CAR
Baguio City. In addition to her complaint for illegal dismissal, she alleged underpayment of wages, non-payment of holiday pay,
service incentive leave pay, 13th month pay, night differential and other benefits. The complaint was docketed as NLRC Case No.
RAB-CAR-05-0198-91 and assigned to Labor Arbiter Felipe P. Pati.

Responding to the allegations made in support of petitioner's complaint for illegal dismissal, private respondent Peter Ng alleged
before Labor Arbiter Pati that petitioner "surreptitiously left (her job) without notice to the management" 6 and that she actually
abandoned her work. He maintained that there was no basis for the money claims for underpayment and other benefits as these were
paid in the form of facilities to petitioner and the hotel's other employee. 7 Pointing to the Affidavit of May 7, 1991, the private
respondent asserted that his employees actually have no problems with management. In a supplemental answer submitted eleven (11)
months after the original complaint for illegal dismissal was filed, private respondent raised a new ground, loss of confidence, which
was supported by a criminal complaint for Qualified Theft he filed before the prosecutor's office of the City of Baguio against
petitioner on July 4, 1991. 8

On May 14, 1993, Labor Arbiter Pati rendered a decision dismissing petitioner's complaint on the ground of loss of confidence. His
disquisitions in support of his conclusion read as follows:

It appears from the evidence of respondent that complainant carted away or stole one (1) blanket, 1 piece bedsheet, 1
piece thermos, 2 pieces towel (Exhibits "9", "9-A," "9-B," "9-C" and "10" pages 12-14 TSN, December 1, 1992).

In fact, this was the reason why respondent Peter Ng lodged a criminal complaint against complainant for qualified
theft and perjury. The fiscal's office finding a prima facie evidence that complainant committed the crime of
qualified theft issued a resolution for its filing in court but dismissing the charge of perjury (Exhibit "4" for
respondent and Exhibit "B-7" for complainant). As a consequence, complainant was charged in court for the said
crime (Exhibit "5" for respondent and Exhibit "B-6" for the complainant).

With these pieces of evidence, complainant committed serious misconduct against her employer which is one of the
just and valid grounds for an employer to terminate an employee (Article 282 of the Labor Code as amended). 9

On April 28, 1994, respondent NLRC promulgated its assailed

Resolution 10 — affirming the Labor Arbiter's decision. The resolution substantially incorporated the findings of the Labor
Arbiter. 11 Unsatisfied, petitioner instituted the instant special civil action for certiorari under Rule 65 of the Rules of Court on the
following grounds: 12

1. WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION
COMMITTED A PATENT AND PALPABLE ERROR AMOUNTING TO GRAVE ABUSE OF DISCRETION IN
ITS FAILURE TO CONSIDER THAT THE ALLEGED LOSS OF CONFIDENCE IS A FALSE CAUSE AND AN
AFTERTHOUGHT ON THE PART OF THE RESPONDENT-EMPLOYER TO JUSTIFY, ALBEIT ILLEGALLY,
THE DISMISSAL OF THE COMPLAINANT FROM HER EMPLOYMENT;

2. WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION
COMMITTED A PATENT AND PALPABLE ERROR AMOUNTING TO GRAVE ABUSE OF DISCRETION IN
ADOPTING THE RULING OF THE LABOR ARBITER THAT THERE WAS NO UNDERPAYMENT OF
WAGES AND BENEFITS ON THE BASIS OF EXHIBIT "8" (AN UNDATED SUMMARY OF COMPUTATION
PREPARED BY ALLEGEDLY BY RESPONDENT'S EXTERNAL ACCOUNTANT) WHICH IS TOTALLY
INADMISSIBLE AS AN EVIDENCE TO PROVE PAYMENT OF WAGES AND BENEFITS;

3. WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION
COMMITTED A PATENT AND PALPABLE ERROR AMOUNTING TO GRAVE ABUSE OF DISCRETION IN
FAILING TO CONSIDER THE EVIDENCE ADDUCED BEFORE THE LABOR ARBITER AS
CONSTITUTING UNFAIR LABOR PRACTICE COMMITTED BY THE RESPONDENT.

The Solicitor General, in a Manifestation in lieu of Comment dated August 8, 1995 rejects private respondent's principal claims and
defenses and urges this Court to set aside the public respondent's assailed resolution. 13

We agree.

It is settled that in termination cases the employer bears the burden of proof to show that the dismissal is for just cause, the failure of
which would mean that the dismissal is not justified and the employee is entitled to reinstatement. 14

In the case at bar, the private respondent initially claimed that petitioner abandoned her job when she failed to return to work on May
8, 1991. Additionally, in order to strengthen his contention that there existed sufficient cause for the termination of petitioner, he
belatedly included a complaint for loss of confidence, supporting this with charges that petitioner had stolen a blanket, a bedsheet and
two towels from the hotel. 15 Appended to his last complaint was a suit for qualified theft filed with the Baguio City prosecutor's
office.

From the evidence on record, it is crystal clear that the circumstances upon which private respondent anchored his claim that petitioner
"abandoned" her job were not enough to constitute just cause to sanction the termination of her services under Article 283 of the Labor
Code. For abandonment to arise, there must be concurrence of two things: 1) lack of intention to work; 16 and 2) the presence of overt
acts signifying the employee's intention not to work. 17

In the instant case, respondent does not dispute the fact that petitioner tried to file a leave of absence when she learned that the hotel
management was displeased with her refusal to attest to the affidavit. The fact that she made this attempt clearly indicates not an
intention to abandon but an intention to return to work after the period of her leave of absence, had it been granted, shall have expired.

Furthermore, while absence from work for a prolonged period may suggest abandonment in certain instances, mere absence of one or
two days would not be enough to sustain such a claim. The overt act (absence) ought
to unerringly point to the fact that the employee has no intention to return to work, 18 which is patently not the case here. In fact,
several days after she had been advised to take an informal leave, petitioner tried to resume working with the hotel, to no avail. It was
only after she had been repeatedly rebuffed that she filed a case for illegal dismissal. These acts militate against the private
respondent's claim that petitioner abandoned her job. As the Solicitor General in his manifestation observed:

Petitioner's absence on that day should not be construed as abandonment of her job. She did not report because the
cashier told her not to report anymore, and that private respondent Ng did not want to see her in the hotel premises.
But two days later or on the 10th of May, after realizing that she had to clarify her employment status, she again
reported for work. However, she was prevented from working by private respondents. 19

We now come to the second cause raised by private respondent to support his contention that petitioner was validly dismissed from
her job.
Loss of confidence as a just cause for dismissal was never intended to provide employers with a blank check for terminating their
employees. Such a vague, all-encompassing pretext as loss of confidence, if unqualifiedly given the seal of approval by this Court,
could readily reduce to barren form the words of the constitutional guarantee of security of tenure. Having this in mind, loss of
confidence should ideally apply only to cases involving employees occupying positions of trust and confidence or to those situations
where the employee is routinely charged with the care and custody of the employer's money or property. To the first class belong
managerial employees, i.e., those vested with the powers or prerogatives to lay down management policies and/or to hire, transfer,
suspend, lay-off, recall, discharge, assign or discipline employees or effectively recommend such managerial actions; and to the
second class belong cashiers, auditors, property custodians, etc., or those who, in the normal and routine exercise of their functions,
regularly handle significant amounts of money or property. Evidently, an ordinary chambermaid who has to sign out for linen and
other hotel property from the property custodian each day and who has to account for each and every towel or bedsheet utilized by the
hotel's guests at the end of her shift would not fall under any of these two classes of employees for which loss of confidence, if ably
supported by evidence, would normally apply. Illustrating this distinction, this Court in Marina Port Services, Inc. vs. NLRC, 20 has
stated that:

To be sure, every employee must enjoy some degree of trust and confidence from the employer as that is one reason
why he was employed in the first place. One certainly does not employ a person he distrusts. Indeed, even the lowly
janitor must enjoy that trust and confidence in some measure if only because he is the one who opens the office in
the morning and closes it at night and in this sense is entrusted with the care or protection of the employer's
property. The keys he holds are the symbol of that trust and confidence.

By the same token, the security guard must also be considered as enjoying the trust and confidence of his employer,
whose property he is safeguarding. Like the janitor, he has access to this property. He too, is charged with its care
and protection.

Notably, however, and like the janitor again, he is entrusted only with the physical task of protecting that property.
The employer's trust and confidence in him is limited to that ministerial function. He is not entrusted, in the Labor
Arbiter's words, with the duties of safekeeping and safeguarding company policies, management instructions, and
company secrets such as operation devices. He is not privy to these confidential matters, which are shared only in
the higher echelons of management. It is the persons on such levels who, because they discharge these sensitive
duties, may be considered holding positions of trust and confidence. The security guard does not belong in such
category. 21

More importantly, we have repeatedly held that loss of confidence should not be simulated in order to justify what would otherwise
be, under the provisions of law, an illegal dismissal. "It should not be used as a subterfuge for causes which are illegal, improper and
unjustified. It must be genuine, not a mere afterthought to justify an earlier action taken in bad faith." 22

In the case at bar, the suspicious delay in private respondent's filing of qualified theft charges against petitioner long after the latter
exposed the hotel's scheme (to avoid its obligations as employer under the Labor Code) by her act of filing illegal dismissal charges
against the private respondent would hardly warrant serious consideration of loss of confidence as a valid ground for dismissal.
Notably, the Solicitor General has himself taken a position opposite the public respondent and has observed that:

If petitioner had really committed the acts charged against her by private respondents (stealing supplies of
respondent hotel), private respondents should have confronted her before dismissing her on that ground. Private
respondents did not do so. In fact, private respondent Ng did not raise the matter when petitioner went to see him on
May 9, 1991, and handed him her application for leave. It took private respondents 52 days or up to July 4, 1991
before finally deciding to file a criminal complaint against petitioner, in an obvious attempt to build a case against
her.

The manipulations of private respondents should not be countenanced. 23

Clearly, the efforts to justify petitioner's dismissal — on top of the private respondent's scheme of inducing his employees to sign an
affidavit absolving him from possible violations of the Labor Code — taints with evident bad faith and deliberate malice petitioner's
summary termination from employment.

Having said this, we turn to the important question of whether or not the dismissal by the private respondent of petitioner constitutes
an unfair labor practice.

The answer in this case must inevitably be in the affirmative.

The pivotal question in any case where unfair labor practice on the part of the employer is alleged is whether or not the employer has
exerted pressure, in the form of restraint, interference or coercion, against his employee's right to institute concerted action for better
terms and conditions of employment. Without doubt, the act of compelling employees to sign an instrument indicating that the
employer observed labor standards provisions of law when he might have not, together with the act of terminating or coercing those
who refuse to cooperate with the employer's scheme constitutes unfair labor practice. The first act clearly preempts the right of the
hotel's workers to seek better terms and conditions of employment through concerted action.

We agree with the Solicitor General's observation in his manifestation that "[t]his actuation . . . is analogous to the situation envisaged
in paragraph (f) of Article 248 of the Labor Code" 24 which distinctly makes it an unfair labor practice "to dismiss, discharge or
otherwise prejudice or discriminate against an employee for having given or being about to give testimony" 25 under the Labor Code.
For in not giving positive testimony in favor of her employer, petitioner had reserved not only her right to dispute the claim and
proffer evidence in support thereof but also to work for better terms and conditions of employment.

For refusing to cooperate with the private respondent's scheme, petitioner was obviously held up as an example to all of the hotel's
employees, that they could only cause trouble to management at great personal inconvenience. Implicit in the act of petitioner's
termination and the subsequent filing of charges against her was the warning that they would not only be deprived of their means of
livelihood, but also possibly, their personal liberty.

This Court does not normally overturn findings and conclusions of quasi-judicial agencies when the same are ably supported by the
evidence on record. However, where such conclusions are based on a misperception of facts or where they patently fly in the face of
reason and logic, we will not hesitate to set aside those conclusions. Going into the issue of petitioner's money claims, we find one
more salient reason in this case to set things right: the labor arbiter's evaluation of the money claims in this case incredibly ignores
existing law and jurisprudence on the matter. Its blatant one-sidedness simply raises the suspicion that something more than the facts,
the law and jurisprudence may have influenced the decision at the level of the Arbiter.

Labor Arbiter Pati accepted hook, line and sinker the private respondent's bare claim that the reason the monetary benefits received by
petitioner between 1981 to 1987 were less than minimum wage was because petitioner did not factor in the meals, lodging, electric
consumption and water she received during the period in her computations. 26Granting that meals and lodging were provided and
indeed constituted facilities, such facilities could not be deducted without the employer complying first with certain legal
requirements. Without satisfying these requirements, the employer simply cannot deduct the value from the employee's ages. First,
proof must be shown that such facilities are customarily furnished by the trade. Second, the provision of deductible facilities must be
voluntarily accepted in writing by the employee. Finally, facilities must be charged at fair and reasonable value. 27

These requirements were not met in the instant case. Private respondent "failed to present any company policy or guideline to show
that the meal and lodging . . . (are) part of the salary;" 28 he failed to provide proof of the employee's written authorization; and, he
failed to show how he arrived at the valuations. 29

Curiously, in the case at bench, the only valuations relied upon by the labor arbiter in his decision were figures furnished by the
private respondent's own accountant, without corroborative evidence. On the pretext that records prior to the July 16, 1990 earthquake
were lost or destroyed, respondent failed to produce payroll records, receipts and other relevant documents, where he could have, as
has been pointed out in the Solicitor General's manifestation, "secured certified copies thereof from the nearest regional office of the
Department of Labor, the SSS or the BIR." 30

More significantly, the food and lodging, or the electricity and water consumed by the petitioner were not facilities but supplements. A
benefit or privilege granted to an employee for the convenience of the employer is not a facility. The criterion in making a distinction
between the two not so much lies in the kind (food, lodging) but the purpose. 31Considering, therefore, that hotel workers are required
to work different shifts and are expected to be available at various odd hours, their ready availability is a necessary matter in the
operations of a small hotel, such as the private respondent's hotel.

It is therefore evident that petitioner is entitled to the payment of the deficiency in her wages equivalent to the fullwage applicable
from May 13, 1988 up to the date of her illegal dismissal.

Additionally, petitioner is entitled to payment of service incentive leave pay, emergency cost of living allowance, night differential
pay, and 13th month pay for the periods alleged by the petitioner as the private respondent has never been able to adduce proof that
petitioner was paid the aforestated benefits.

However, the claims covering the period of October 1987 up to the time of filing the case on May 13, 1988 are barred by prescription
as P.D. 442 (as amended) and its implementing rules limit all money claims arising out of employer-employee relationship to three (3)
years from the time the cause of action accrues. 32
We depart from the settled rule that an employee who is unjustly dismissed from work normally should be reinstated without loss of
seniority rights and other privileges. Owing to the strained relations between petitioner and private respondent, allowing the former to
return to her job would only subject her to possible harassment and future embarrassment. In the instant case, separation pay
equivalent to one month's salary for every year of continuous service with the private respondent would be proper, starting with her
job at the Belfront Hotel.

In addition to separation pay, backwages are in order. Pursuant to R.A. 6715 and our decision in Osmalik Bustamante, et
al. vs. National Labor Relations Commission, 33 petitioner is entitled to full backwages from the time of her illegal dismissal up to the
date of promulgation of this decision without qualification or deduction.

Finally, in dismissal cases, the law requires that the employer must furnish the employee sought to be terminated from employment
with two written notices before the same may be legally effected. The first is a written notice containing a statement of the cause(s) for
dismissal; the second is a notice informing the employee of the employer's decision to terminate him stating the basis of the dismissal.
During the process leading to the second notice, the employer must give the employee ample opportunity to be heard and defend
himself, with the assistance of counsel if he so desires.

Given the seriousness of the second cause (qualified theft) of the petitioner's dismissal, it is noteworthy that the private respondent
never even bothered to inform petitioner of the charges against her. Neither was petitioner given the opportunity to explain the loss of
the articles. It was only almost two months after petitioner had filed a complaint for illegal dismissal, as an afterthought, that the loss
was reported to the police and added as a supplemental answer to petitioner's complaint. Clearly, the dismissal of petitioner without
the benefit of notice and hearing prior to her termination violated her constitutional right to due process. Under the circumstance an
award of One Thousand Pesos (P1,000.00) on top of payment of the deficiency in wages and benefits for the period aforestated would
be proper.

WHEREFORE, premises considered, the RESOLUTION of the National Labor Relations Commission dated April 24, 1994 is
REVERSED and SET ASIDE, with costs. For clarity, the economic benefits due the petitioner are hereby summarized as follows:

1) Deficiency wages and the applicable ECOLA from May 13, 1988 up to the date of petitioner's illegal dismissal;

2) Service incentive leave pay; night differential pay and 13th month pay for the same period;

3) Separation pay equal to one month's salary for every year of petitioner's continuous service with the private respondent starting with
her job at the Belfront Hotel;

4) Full backwages, without qualification or deduction, from the date of petitioner's illegal dismissal up to the date of promulgation of
this decision pursuant to our ruling in Bustamante vs. NLRC. 34

5) P1,000.00.

ORDERED.

ALPHA INVESTIGATION AND SECURITY AGENCY, INC. (AISA), petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, THIRD DIVISION, and WILLIAM GALIMBA, NESTOR
LOLOQUISEN, NESTOR IBUYAT, CARLITO CASTRO, JOSE PERDIDO, FELIPE TOLENTINO, LEONARDO
IBUYAT, FELINO CULANNAY RONIE NINO, ROMAN NALUNDASAN, JAIME FONTANILLA, WILFRED BUTAY,
JOSE ACIO, EDISON VALDEZ, CRESENCIO AGRES, RODRIGO LUIS, MARIO SUGUI, BENEDICTO SUGUI, ROGER
RAMBAUD, respondents.

ROMERO, J.:

May the principal of a security service agreement be held jointly and severally liable with the contractor for non-payment of the
minimum wage?
The facts are undisputed.

Petitioner Alpha Investigation and Agency, Inc. (AISA) is a private corporation engaged in the business of providing security services
to its clients, one of whom is the Don Mariano Marcos State University (DMMSU).

Private respondents were hired as security guards by AISA. on February 16, 1990. Five months later, 43 security guards filed before
the Regional Office of the Department of Labor and Employment (DOLE) a complaint against AISA for non-compliance with the
current minimum wage order. After 24 of the original complainants filed a motion for the exclusion from the case, the remaining 19
security guards filed their individual amended complaints impleading DMMSU as party-respondent.

Private respondents have been receiving a monthly salary of P900.00 although the security service agreement between AISA and
DMMSU 1 provided a monthly pay of P1,200.00 for each security guard. AISA made representations with DMMSU for an increase in
the contract rates of the security guards to enable them to pay the mandated minimum wage rates without compromising its
administrative and operational expenses. DMMSU, however, replied that, being a government corporation, it cannot grant said request
due to budgetary constraints.

On August 17, 1992, Labor Arbiter Emiliano T. de Asis rendered a decision, the dispositive portion of which reads as follows:

RESPONSIVE TO THE FOREGOING, judgment is hereby rendered:

a) Ordering the respondent Alpha Investigation and Security Agency and Mariano Marcos State University to pay
each complainant the amount of FORTY ONE THOUSAND FOUR HUNDRED FIFTY NINE PESOS AND
FIFTY ONE CENTAVOS (P41,459.51) representing salary differential for the period from February 16 September
30, 1991, or the total amount of P787,730.69 as follows:

1. Nestor Loloquisen P41,459.51

2. Nestor Ibuyat 41,459.51

3. Jose Acio 41,459.51

4. Cresencio Agres 41,459.51

5. Wilfred Butay 41,459.51

6. Carlito Castro 41,459.51

7. Federico Calunnay 41,459.51

8. Jaime Fontanilla 41,459.51

9. William Galimba 41,459.51

10. Leonardo Ibuyat 41,459.51

11. Rodrigo Luis 41,459.51

12. Roman Nalundasan 41,459.51

13. Ronnie Nino 41,459.51

14. Jose Perdido 41,459.51

15. Roger Rambaud 41,459.51

16. Benedicto Sugui 41,459.51

 17. Mario Sugui 41,459.51

18. Felipe Tolentino 41,459.51

19. Edison Valdez 41,459.51

—————
P787,730.69

b) Dismissing the claims for 13th month pay for failure to substantiate the same.

c) Claims of complainants who filed their motion for reconsideration are hereby dismissed.

SO ORDERED. 2

AISA and DMMSU interposed separate appeals. The NLRC, on May 7, 1993, rendered a decision affirming the solidary liability of
AISA and DMMSU and remanding the records of the case to the arbitration branch of origin for computation of the salary
differentials awarded by the Labor Arbiter.

Only AISA filed a motion for reconsideration, which was denied by the NLRC on July 1, 1993, for lack of merit.

The judgment against DMMSU, finding it jointly and severally liable with AISA for the payment of increase in wages, became final
and executory after it failed to file a petition for certiorari with this Court within a reasonable time. "Although Rule 65 does not
specify any period for the filing of a petition for certiorari and mandamus, it must, nevertheless, be filed within a reasonable time.
In certiorari cases, the definitive rule now is that such reasonable time is within three months from the commission of the complained
act." 3

In this petition, AISA alleges that payment of the wage increases under the current minimum wage order should be borne exclusively
by DMMSU, pursuant to Section 6 of Republic Act 6727 (RA 6727) 4 which reads as follows:

Sec. 6. — In the case of contracts for construction projects and for security, janitorial and similar services, the
prescribed increases in the wage rates of the workers shall be borne by the principals or clients of the
construction/service contractors and the contract shall be deemed amended accordingly. In the event, however, that
the principal or client fails to pay the prescribed wage rates, the construction/service contractor shall
be jointly and severally liable with his principal or client.

It further contends that Articles 106, 107 and 109 of the Labor Code generally refer to the failure of the contractor or sub-contractor to
pay wages in accordance with the Labor Code with a mandate that failure to pay such wages would make the employer and contractor
jointly and severally liable for such payment. AISA insists that the matter involved in the case at bar hinges on wage
differentials or wage increases, as prescribed in the aforequoted Section 6 of RA 6727, and not wages in general, as provided by the
Labor Code.

This interpretation is not acceptable. It is a cardinal rule in statutory construction that in interpreting the meaning and scope of a term
used in the law, a careful review of the whole law involved, as well as the intendment of the law, must be made. 5 In fact, legislative
intent must be ascertained from a consideration of the statute as a whole, and not of an isolated part or a particular provision alone. 6

AISA's solidary liability for the amounts due the security guards finds support in Articles 106, 107 and 109 of the Labor Code, to wit:

Art. 106. Contractor or Sub-Contractor. Whenever an employer enters into a contract with another person for the
performance of the former's work, the employees of the contractor and of the latter's sub-contractor, if any, shall be
paid in accordance with the provisions of this code.

In the event that the contractor or sub-contractor fails to pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or sub-contractor to such employees to
the extent of the work performed under the contract, in the same manner and extent that he is liable to employees
directly employed by him. . . .

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

The joint and several liability of the contractor and the principal is mandated by the Labor Code to ensure compliance with its
provisions, including the statutory minimum wage. 7 The contractor is made liable by virtue of his status as direct employer, while the
principal becomes the indirect employer of the former's employees for the purpose of paying their wages in the event of failure of the
contractor to pay them. This gives the workers ample protection consonant with the labor and social justice provisions of the 1987
Constitution. 8

In the case at bar, it is not disputed that private respondents are the employees of AISA. Neither is there any question that they were
assigned to guard the premises of DMMSU pursuant to the latter's security service agreement with AISA and that these two entities
paid their wage increases.

It is to be borne in mind that wage orders, being statutory and mandatory, cannot be waived. AISA cannot escape liability since the
law provides for the joint and solidary liability of the principal and the contractor to protect the laborers. 9 Thus, the Court held in the
case of Eagle Security v. NLRC: 10

The solidary liability of PTSI and EAGLE, however, does not preclude the right of reimbursement from his co-
debtor by the one who paid (See Article 1217, Civil Code). It is with respect to this right of reimbursement that
petitioners can find support in the aforecited contractual stipulation and Wage Order provision.

The Wage Orders are explicit that payment of the increases are "to be borne" by the principal or client. "To be
borne", however, does not mean that the principal, PTSI in this case, would directly pay the security guards the
wage and allowance increases because there is no privity of contract between them. The security guards' contractual
relationship is with their immediate employer, EAGLE. As an employer, EAGLE is tasked, among others, with the
payment of their wages. (See Article VII Sec. 3 of the Contract for Security Services, supra and Bautista v. Inciong,
G.R. No. 52824, March 16, 1988, 158 SCRA 556).

Premises considered, the security guards' immediate recourse for the payment of the increases is with their direct
employer, EAGLE. However, in order for the security agency to comply with the new wage and allowance rates it
has to pay the security guards, the Wage Order made specific provision to amend existing contracts for security
services by allowing the adjustments of the consideration paid by the principal to the security agency
concerned. What the Wage Orders require, therefore, is the amendment of the contract as to the consideration to
cover the service contractor's payment of the increases mandated. In the end, therefore, ultimate liability for the
payment of the increases rests with the principal. (Emphasis supplied).

Section 6 of RA 6727 merely provides that in case of wage increases resulting in a salary differential, the liability of the principal and
contractor shall be joint and several. The same liability attaches under Articles 106, 107 and 109 of the Labor Code, which refer to the
prevailing standard minimum wage.

The Court finds that the NLRC acted correctly in holding petitioner jointly and severally liable with DMMSU for the payment of the
wage increases to private respondents. Accordingly, no grave abuse of discretion may be attributed to the NLRC in arriving at the
impugned decision.

WHEREFORE, premises considered, the petition is DISMISSED for lack of merit and the assailed resolution is AFFIRMED. Costs
against petitioner.

SO ORDERED.

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. petitioner,

vs.
HON. MA. NIEVES ROLDAN-CONFESSOR, in her capacity as Secretary of Labor and Employment, and ASSOCIATED
LABOR UNIONS (ALU-TUCP), respondents.
MENDOZA, J.:

This is a petition for certiorari to set aside the order of respondent Honorable Secretary of Labor and Employment, declaring (1) wage
increases granted by petitioner to its employees not creditable as compliance by the company with future mandated wage increases;
and (2) the increases to be retroactive, in the case of the fourth year wage increase, to August 1, 1992 to be implemented until July 31,
1993 and, in the case of the fifth year wage increase, to August 1, 1993 to be implemented until the expiration of the CBA on July 31,
1994.

Petitioner Mindanao Terminal and Brokerage Service, Inc., (hereafter referred to as the Company) and respondent Associated Labor
Unions, (hereafter referred to as the Union) entered into a collective bargaining agreement for a period of five (5) years, starting on
August 1, 1989, and ending July 31, 1994.

On the third year of the CBA on August 1, 1992, the Company and the Union met to renegotiate the provisions of the CBA for the
fourth and fifth years. The parties, however, failed to resolve some of their differences, as a result of which a deadlock developed.

On November 12, 1992, a formal notice of deadlock was sent to the Company on the following issues: wages, vacation leave, sick
leave, hospitalization, optional retirement, 13th month pay and signing bonus.

On November 18, 1992, the Company announced a cost-cutting or retrenchment program.

Charging unfair labor practice and citing the deadlock in the negotiations, the Union filed, on December 3, 1992, a notice of strike
with the National Conciliation and Mediation Board (NCMB).

On December 18, 1992, as a result of a conference called by the NCMB, the Union and the Company went back to the bargaining
table and agreed on the following provisions:

a. Wage Increase (Article V, Section 2, CBA) — P3.00/day for the fourth year of the CBA and P3.00/day for the
fifth year of the CBA;

b. Vacation and Sick Leaves (Article VII, Section 1(c), CBA) — 1,100 hours of aggregate service instead of the
existing 1,500 hours within a year to be entitled to leave benefits but subject to reversion to the previous CBA if
majority of the gangs average eight (8) vessels a month;

c. Hospitalization (Article VIII, Section I, CBA) — Maximum aggregate of 1,100 hours instead of the 1,500 hours
and up to be entitled to the benefit of P2,500.00 with the lower brackets adjusted accordingly but subject to
reversion to the previous CBA if majority of the gangs average eight (8) vessels a month;

d. 13th Month Pay (Article XIII, Section 1, CBA) — Average of six (6) vessels instead of the existing eight (8)
vessels to be entitled to eleven (11) days basic pay but subject to reversion to the previous CBA if majority of the
gangs average eight (8) vessels a month;

e. Signing bonus; and

f. Seniority.

The agreement left only one issue for resolution of the parties, namely, retirement. Even this issue was soon settled as the parties met
before the NCMB on January 14, 1993 and then agreed on an improved Optional Retirement Clause by giving the employees the
option to retire after rendering eighteen (18) years of service instead of the previous twenty (20) years, and granting the employees
retirement benefits equivalent to sixteen (16) days for every year of service. Thus, as the Med-Arbiter noted in the record of the
January 14, 1993 conference, "the issues raised by the notice of strike had been settled and said notice is thus terminated."

But no sooner had he stated this than the Company claimed that the wage increases which it had agreed to give to the employees
should be creditable as compliance with future mandated wage increases. In addition, it maintained that such increases should not be
retroactive.
Reacting to this development, the Union again filed a Notice of Strike on January 28, 1993, with the NCMB. On March 7, 1993, the
Union staged a strike.

The NCMB tried to settle the issues of creditability and retroactivity, calling for this purpose a conciliation conference on March 9,
1993. As conciliation proved futile, the Company petitioned respondent Secretary of Labor and Employment (hereafter Secretary of
Labor) to assume jurisdiction over the dispute. On March 10, 1993, respondent assumed jurisdiction jurisdiction over the dispute and
ordered the parties to submit their respective position papers on the two unresolved issues.

After submission by the parties of their position papers, the Secretary of Labor issued an Order dated May 14, 1993, ordering the
Company and the Union to incorporate into their existing collective bargaining agreement all improvements reached by them in the
course of renegotiations. The Secretary of Labor held that the wage increases for the fourth and fifth years of the CBA were not to be
credited as compliance with future mandated increases. In addition, the fourth year wage increase was to be retroactive to August 1992
and was to be implemented until July 31, 1993, while the fifth year wage increase was to take effect on August 1, 1993 until the
expiration of the CBA. 1

On May 31, 1993, the Company sought reconsideration of the May 14, 1993 order. The motion was denied for lack of merit by the
Secretary of Labor in a resolution dated July 7, 1993. Hence, this petition for certiorari, alleging grave abuse of discretion on the part
of respondent Secretary of Labor.

The petitioner contends that respondent erred in making the fourth year wage increase retroactive to August 1, 1992. It denies the
power of the Secretary of Labor to decree retroaction of the wage increases, as the respondent herself had stated in her order subject of
this petition, that it had been more than six (6) months since the expiration of the third anniversary of the CBA and, therefore, the
automatic renewal clause of Art. 253-A of the Labor Code had no application. Although petitioner originally opposed giving
retroactive effect to their agreement, it subsequently modified its stand and agreed that the fourth year wage increase and the other
provisions of the CBA be made retroactive to the date the Secretary of Labor assumed jurisdiction of the dispute on March 10, 1993.

The petition is without merit. Art. 253-A of the Labor Code reads:

Terms of a collective bargaining agreement. — Any Collective Bargaining Agreement that the parties may enter
into shall, insofar as the representation aspect is concerned, be for a term of five (5) years. No petition questioning
the majority status of the incumbent bargaining agent shall be entertained and no certification election shall be
conducted by the Department of Labor and Employment outside of the sixty-day period immediately before the date
of expiry of such five year term of the Collective Bargaining Agreement. All other provisions of the Collective
Bargaining Agreement shall be renegotiated not later than three (3) years after its execution. Any agreement on such
other provisions of the Collective Bargaining Agreement entered into within six (6) months from the date of expiry
of the term of such other provisions as fixed in such Collective Bargaining Agreement, shall retroact to the day
immediately following such date. If any such agreement is entered into beyond six months, the parties shall agree on
the duration of retroactivity thereof. In case of a deadlock in the renegotiation of the collective bargaining
agreement, the parties may exercise their rights under this Code.

The respondent indeed stated in her order of May 14, 1993 that "this case is clearly beyond the scope of the automatic renewal
clause," 2 but she also stated in the same order that "the parties have reached an agreement on all the renegotiated provisions of the
CBA" on January 14, 1993, i.e., within six (6) months of the expiration of the third year of the CBA.

The signing of the CBA is not determinative of the question whether "the agreement was entered into within six months from the date
of expiry of the term of such other provisions as fixed in such collective bargaining agreement" within the contemplation of Art. 253-
A..

As already stated, on November 12, 1992, the Union sent the Company a notice of deadlock in view of their inability to reconcile their
positions on the main issues, 3 particularly on wages. The Union filed a notice of strike. However, on December 18, 1992, in a
conference called by the NCMB, the Union and the Company agreed on a number of provisions of the CBA, including the provision
on wage increase, 4 leaving only the issue of retirement to be threshed out. In time, this, too, was settled, so that in his record of the
January 14, 1993 conference, the Med-Arbiter noted that "the issues raised by the notice of strike had been settled and said notice is
thus terminated." It would therefore seem that at that point, there was already a meeting of the minds of the parties, which was before
the February 1993 end of the six-month period provided in Art. 253-A.

The fact that no agreement was then signed is of no moment. Art. 253-A refers merely to an "agreement" which, according to Black's
Law Dictionary is "a coming together of minds; the coming together in accord of two minds on a given proposition." 5 This is similar
to Art. 1305 of the Civil Code's definition of "contract" as "a meeting of minds between two persons."
The two terms, "agreement" and "contract," are indeed similar, although the former is broader than the latter because an agreement
may not have all the elements of a contract. As in the case of contracts, however, agreements may be oral or written. 6 Hence, even
without any written evidence of the Collective Bargaining Agreement made by the parties, a valid agreement existed in this case from
the moment the minds of the parties met on all matters they set out to discuss. As Art. 1315 of the Civil Code states:

Contracts are perfected by mere consent, and from that moment, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.

The Secretary of Labor found that "as early as January 14, 1993, well within the six (6) month period provided by law, the Company
and the Union have perfected their agreement." 7 The claim of petitioner to the contrary notwithstanding, this is a finding of an
administrative agency which, in the absence of evidence to the contrary, must be affirmed.

Moreover, the order of the Secretary of Labor may be considered in the nature of an arbitral award, pursuant to Art. 263(g) of the
Labor Code, and, therefore, binding on the parties. After all, the Secretary of Labor assumed jurisdiction over the dispute because
petitioner asked the Secretary of Labor to do so after the NCMB failed to make the parties come to an agreement. It is also conceded
that the industry in which the petitioner is engaged is vital to the national interest. As stated in the Order issued by the Secretary of
Labor on March 10, 1993: 8

The services being provided by the Company evidently reflect their indispensability to the normal operations of the
Davao City Pier where millions of crates and boxes of goods are loaded and unloaded monthly. The current
disruption, therefore, of the Company's services, if allowed to continue, will cause serious prejudice and damages to
the agricultural exporters, the cargo handlers, the vessel owners, the foreign buyers of agricultural products and the
entire business sector in the area. These considerations and the dispute's implications on the national economy
warrant the intervention by this Office to exercise its power under Article 263(g) of the Labor Code, as amended.

In St. Luke's Medical Center, Inc. v. Torres, 9 a deadlock also developed during the CBA negotiations between management
and the union. The Secretary of Labor assumed jurisdiction and ordered the retroaction of their CBA to the date of expiration
of the previous CBA. As in this case, it was alleged that the Secretary of Labor gravely abused his discretion in making his
award retroactive. In dismissing this contention this Court held:

Therefore, in the absence of a specific provision of law prohibiting retroactivity of the effectivity of arbitral awards
issued by the Secretary of Labor pursuant to Article 263(g) of the Labor Code, such as herein involved, public
respondent is deemed vested with plenary and discretionary powers to determine the effectivity thereof.

This case is controlled by the ruling in that case.

With respect to the issue of the creditability of the fourth and fifth year wage increases, the Court takes cognizance of the fact that the
question was raised by the Company only when the six-month period was almost over and all that was left to be done by the parties
was to sign their agreement. Before that, the Company did not qualify its position. It should have known that crediting of wage
increases in the CBA as compliance with future mandated increases is the exception rather than the rule. For the general rule is that
such increases are over and above any increase that may be granted by law or wage order. As held in Meycauayan College
v. Drilon: 10

Increments to the laborers' financial gratification, be they in the form of salary increases or changes in the salary
scale are aimed at one thing — improvement of the economic predicament of the laborers. As such they should be
viewed in the light of the States avowed policy to protect labor. Thus, having entered into an agreement with its
employees, an employer may not be allowed to renege on its obligation under a collective bargaining agreement
should, at the same time, the law grant the employees the same or better terms and conditions of employment.
Employee benefits derived from law are exclusive of benefits arrived at through negotiation and agreement unless
otherwise provided by the agreement itself or by law.

For making a belated issue of "creditability," petitioner is correctly said to have "delay[ed] the agreement beyond the six (6) month
period so as to minimize its expenses to the detriment of its workers" and its conduct to smack of "bad faith and [to run counter] to the
good faith required in Collective Bargaining." 11 If petitioner wanted to be given credit for the wage increases in the event of future
mandated wage increases, it should have expressly stated its reservation during the early part of the CBA negotiations.

WHEREFORE, the instant petition is hereby DISMISSED for lack of merit.

SO ORDERED.
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
NLRC and NATIONAL MINES AND ALLIED WORKERS UNION, respondents.

MELO, J.:

Before us is a petition to set aside the NLRC Decision dated November 28, 1990 (Annex "C", p. 41, Rollo), disposing as follows:

WHEREFORE, PREMISES CONSIDERED, the appealed decision is hereby set aside and a new judgment is
entered, holding the Development Bank of the Philippines liable to the complainants for their separation pay to the
extent of the proceed of the foreclosure sale, subject to the liquidation or bankruptcy proceeding that may be
instituted against Midland Cement Corporation. (pp. 47-48, Rollo).

Herein private respondent labor union filed on January 10, 1986, a complaint, the allegations of which were paraphrased by the NLRC
in this wise:

. . . that the individual complainants were all employees of respondent Midland Cement Corporation who were
terminated from employment on or about July 30, 1981 by reason of the termination of the business operations of
the Construction and Development Corporation of the Philippines (CDCP) now PNCC, which was brought about by
the expiration of the lease contract between Midland Cement Corporation and CDCP; that at the time of the
separation from the service [of] the individual complainants, the complainant union was the certified sole and
exclusive bargaining agent; that as a consequence of said termination, the complainant union filed with the then
Ministry of Labor and Employment an opposition to the application for clearance to terminate their services filed by
CDCP, the lessee of the cement plant owned by Midland Cement Corporation; that on April 27, 1983, the Ministry
of Labor and Employment thru then Deputy Minister Vicente Leogardo, Jr., ordered applicant CDCP to pay the 175
affected employees separation pay equivalent to one-half (1/2) month salary for every year of service; that the
employees were paid only based on their length of service with CDCP from August 1, 1975 up to July 30, 1981; the
said employees were not paid (with) their separation pay when they were employees of respondent Midland Cement
Corporation; that later, respondent DBP foreclosed and assumed ownership over the cement plant, including land,
buildings, machinery, etc., of Midland Cement Corporation; that the individual complainants are claiming separation
benefits covering the period from date of hiring up to July 31, 1975 when CDCP took over the operations of
Midland Cement Corporation by virtue of lease contract. (pp. 43-44, Rollo).

After hearing, the Labor Arbiter rendered a decision on January 5, 1990 (Annex "A", p. 26, Rollo), finding DBP jointly and severally
liable with Midland Cement for the payment of the separation pay, as follows:

WHEREFORE, judgment is hereby rendered giving due course to the complaint thereby ordering the respondents
DBP and Midland Cement Corporation jointly and severally liable for the separation pay of the affected members of
the complainant union.

It appearing that as published in the morning dailies lately that the assets of Midland Cement Corporation are now
being offered for sale through public bidding by the Asset Privatization Trust, (APT) let copies of this decision be
served upon said APT to protect the interest of the herein complainants. (pp. 30-31, Rollo)

DBP appealed, contending that its acquisition of the mortgaged assets of Midland through foreclosure sale did not make it the owner
of the defunct Midland Cement, and that the doctrine of successor-employee is not applicable in this case, since DBP did not continue
the business operations of Midland. The NLRC, while finding merit in DBP's contention, nonetheless held DBP liable since
respondent's claim "constitutes a first preference with respect to the proceeds of the foreclosure sale" as provided in Article 110 of the
Labor Code:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as regards their wages and other monetary claims, any provisions
of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims
of the government and other creditors may be paid. (p. 46, Rollo)

Following the denial of its motion for reconsideration, DBP filed the instant petition.
DBP correctly points out that its mortgage lien should not be classified as a preferred credit. The issue raised was settled in Republic v.
Peralta (150 SCRA 37 [1987]) and reinforced in DBP v. NLRC (183 SCRA 328 [1990]) wherein we held because of its impact on the
entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code
scheme on classification and preference of credits. Thus,

4. A distinction should be made between a preference of credit or a lien. A preference applies only to claims which
do not attach to specific properties, A lien creates a charge on a particular property. The right of first preference as
regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in
favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to
determine and specify the order in which credits should be paid in the final distribution of the proceeds of the
insolvent's assets. It is a right to a first preference in the discharge of the funds of the judgment debtor.

In the words of Republic vs. Peralta, supra:

Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees
for unpaid wages either upon all of the properties or upon any particular property owned by their
employer. Claims for unpaid wages do not therefore fall at all within the category of specially
preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent
that such claims for unpaid wages are already covered by Article 2241, number 6: claims for
laborer wages, on the goods manufactured or the work done, or by Article 2242, number
3: "claims of laborers and other workers engaged in construction, reconstruction or repair of
buildings, canals and other works, upon said buildings, canals and other works." To the extent that
claims for unpaid wages fall outside the scope of Article 2241, number 6 and Article 2242,
number 3, they would come within the ambit of the category of ordinary preferred credits under
Article 2244.

6. The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property upon
which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was
constituted (Article 2176, Civil Code). It creates a real right which is enforceable against the whole world. It is a lien
on an identified immovable property, which a preference is not. A recorded mortgage credit is a special preferred
credit under Article 2242 (5) of the Civil Code on classification of credits. The preference given by Article 110,
when not falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific
property, is an ordinary preferred credit although its impact is to move it from second priority to first priority in the
order of preference established by Article 2244 of the Civil Code. (Republic vs. Peralta, supra.)

xxx xxx xxx

In fine, the right to preference given to workers under Article 110 of the Labor Code cannot exist in any effective
way prior to the time of its presentation in distribution proceedings. It will find application when, in proceedings
such as insolvency, such unpaid wages shall be paid in full before the "claims of the Government and other
creditors" may be paid. . . . (DBP vs, NLRC, supra; pp. 337-339.)

The NLRC, therefore, erred in holding DBP liable "to the extent of the proceeds of the foreclosure sale." And making such liability
dependent on a bankruptcy or liquidation proceedings is really beside the point, for these proceedings are relevant only to preferred
credits, which is not the situation in the case at bar. To equate DBP's mortgage lien with a preferred credit would be to render inutile
the protective mantle of the mortgage in DBP's favor and thus in the process wreak havoc to commercial transactions.

WHEREFORE, the petition is GRANTED. The decision of the NLRC dated November 28, 1990 and the Resolution of February 1,
1991 are hereby SET ASIDE, and a new judgment is entered absolving Development Bank of the Philippines of any and all liabilities
to private respondent and its members.

No special pronouncement is made as to costs.

SO ORDERED.

A.N. BOLINAO, JR., JUAN A. AGSALON, JR., ZOSIMO L. CARREON AND REYNOLD P. DANNUG, petitioners,
vs.
HON. MANUEL S. PADOLINA, PHELPS DODGE (PHILS.) INC., BANK OF AMERICA, AND DEPUTY SHERIFF
CARLOS G. MAOG, respondents.

PARAS, J.:

This is a petition for certiorari with preliminary injunction which seeks to reverse and to set aside the order of the Regional Trial
Court of Pasig, Metro Manila, dated January 5, 1988 in Civil Case No. 50936 entitled "Phelps Dodge (Phils.) Inc. v. Sabena Mining
Corporation" denying the motion to intervene and dismissing the third party claim filed by herein petitioners.

As gathered from the records, the facts of the case are as follows:

Petitioners A.N. Bolinao, Jr., Reynold P. Dannug, Juan A. Agsalon, Jr. and Zosimo L. Carreon were all former employees of Sabena
Mining Corporation, which had a copper and gold project in operation, located in New Bataan, Davao del Norte. In 1982 and 1983
they were laid off without being recalled (Rollo, Petition, pp. 3-4).

In September, 1983, petitioners filed a formal complaint for collection of unpaid salaries, unused accrued vacation and sick leave
benefits, 13th month pay and separation pay before the National Labor Relations Commission (NLRC) against Sabena Mining
Corporation and Development Bank of the Philippines docketed as NCR Case No. 9-4178-83 (Rollo, Petition, p. 5).

On May 29,1984, a compromise agreement was entered into by the parties, wherein petitioners were to be paid on a staggered basis
the collective amount of P385,583.95 (Rollo, Petition, Annex "A, pp. 22-24). The company faithfully complied with the scheduled
payments only up to March, 1985 because it ceased operations effective April 1, 1985. With this development, petitioners moved for
the issuance of a writ of execution in June, 1985 (Rollo, Petition, p. 6).

In an order dated June 21, 1985, the Labor Arbiter issued a writ of execution against the company to collect the balance of
P311,580.14 (Rollo, Annex "B", pp. 25-26). On June 27, 1985 Deputy Sheriff Antonio P. Soriano garnished the remaining amount of
P150,279.64 in the savings account of the company at the Development Bank of the Philippines (DBP) (Rollo, Annex "B-1 ", p. 27).
However, the same amount was previously garnished by two creditors of the company; namely, Bank of America and Phelps Dodge
(Phils.), Inc. Bank of America garnished the amount in April, 1982 in Civil Case No. 45452 (Rollo, Petition , pp. 4-5 while Phelps
Dodge garnished the amount in June, 1984 in Civil Case No. 50936 (Rollo, Petition, p. 5). Both cases were filed in different branches
of the Regional Trial Court in Pasig (Ibid.)

In an order dated September 30, 1987, the respondent court directed the DBP to release to its Deputy Sheriff, herein respondent Carlos
G. Maog, the amount of P150,279.64 declaring that the writ of preliminary attachment made by Bank of America thru Deputy Sheriff
Norberto Doblado in Civil Case No. 45452 by the Pasig Regional Trial Court cannot prevail over the garnishment pursuant to a writ of
execution issued in Civil Case No. 50936 in favor of respondent Phelps Dodge (Phils.) Inc., for failure of Bank of America to
prosecute its hen (Rollo, Petition, Annex "C", pp. 29-31).

The order came to the attention of the petitioners who then filed a "Motion to Intervene and to Lift Order of September 30, 1987" on
October 13, 1987 and a third party claim with the deputy sheriff on October 19, 1987 (Rollo, Annex "D', p. 32-36; Annex "D-1 ", pp.
38-42).

DBP did not interpose any objection to the motion to intervene and the third party claim (Reno, Annex "E', pp. 44-45). But respondent
Phelps Dodge, Phils., Inc. opposed said Motion to Intervene/Third Party Claim, on the ground among others:

xxx xxx xxx

b) That the rights of preference and first lien of petitioners, as former employees of Sabena Mining Corporation, as
provided for in Art. 110 of the Labor Code and Art. 2244 of the Civil Code, are operative only in insolvency court
and in a bankruptcy case; (Rollo, Annex "F", pp. 47-53; Annex "F-1", pp. 54-57).

Petitioners filed their reply to the opposition and at the same time filed a motion to resolve the third party claim (Rollo, Annex "G, pp.
58-62; Annex "G-1", pp. 63- 67).

On January 5, 1988 the respondent court issued an order denying the motion to intervene and dismissing the third party claim,
declaring that the garnishment made by its Deputy Sheriff in favor of respondent Phelps Dodge, Phils., Inc. superior to the rights of
petitioners (Rollo. Annex "I", pp. 70-77).

Hence, the petition.

The Second Division of this Court in its resolution dated August 10, 1989, gave due course to the petition (Rollo, Petition, pp. 2-19;
Resolution, p. 309)

The main thrust in this petition is whether or not petitioners enjoy preferential right or claim over the funds of Sabena Mining
Corporation as provided for under the provisions of Article 110 of the New Labor Code, as amended, and Section 10, Rule VIII, Book
III of the Implementing Rules and Regulations of the Labor Code.

The petitioners contend that under Article 110 and its implementing rules; and regulations of the Labor Code, the claims of the
laborers for unpaid wages and other monetary benefits due them for services rendered prior to bankruptcy enjoy first preference in the
satisfaction of credits against a bankrupt company.

On the other hand, the respondent maintains that the rights of preference and first lien of petitioners, as former employees of Sabena
Mining Corporation, under aforesaid law and rules, are operative only in an insolvency court and in a bankrupt case.

The petition is without merit.

It is quite clear from the provisions of Article 110 of the Labor Code and Section 10, Rule VIII, Book H of the Revised Rules and
Regulations Implementing the Labor Code, that a declaration of bankruptcy or a judicial liquidation must be present before the
worker's preference may be enforced. Thus, it was held that Article 110 of the Labor Code and its implementing rule cannot be
invoked absent a formal declaration of bankruptcy or a liquidation order (Development Bank of the Philippines v. Labor Arbiter, G.R.
Nos. 78261-62, March 8, 1989). (Emphasis supplied)

In the case at bar, there was no showing of any insolvency proceeding or declaration of bankruptcy or judicial liquidation that was
being filed by Sabena Mining Corporation. It is only an extra-judicial foreclosure that was being enunciated as when DBP extra-
judicially foreclosed the assets of Sabena Mining Corporation. Conversely, to hold that Article 110 is also applicable in extra-judicial
proceedings would be putting the worker in a better position than the State which could only assert its own prior preference in case of
ajudicial proceeding. Article 110 must not be viewed in isolation and must always be reckoned with the provisions of the Civil Code
(DBP v. Labor Arbiter, supra).

Quite recently, the rule enunciated in Republic v. Peralta (150 SCRA 37 [1987]) reads:

Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather, Article
110 must be read in relation to the provisions of the Civil Code concerning the classification, concurrence and
preference of credits, which provisions find particular application in insolvency proceedings where the claims of all
creditors, preferred or non-preferred, may be adjudicated in a binding manner. ...

The reason behind the necessity for a judicial proceeding or a proceeding in rem before the concurrence and preference of credits may
be appealed is to bind all interested persons whether known to the parties or not. The claims of all credits whether preferred or non
preferred, the Identification of the preferred ones and the totality of the employer's assets should be brought into the picture. There can
then be an authoritative, fair and binding adjudication instead of the piece meal settlement which would result from the questioned
decision in this case 1(DBP v. Labor Arbiter, supra).

PREMISES CONSIDERED, the petition is hereby DISMISSED for lack of merit and the questioned Order dated January 5, 1988
issued by the respondent court is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera (Chairperson) and Regalado, JJ., concur.

Separate Opinions
SARMIENTO, J., dissenting:

I reiterate my dissent in Development Bank of the Philippines vs. National Labor Relations Commission. 1 I also adopt Mr. Justice
Teodoro Padilla's dissent therein, insofar as he holds that under Article 110 of the Labor Code, as amended, by Republic Act No. 671
5, workers enjoy "absolute preference" 2 as and for unpaid wages and other monetary claims, over and above taxes due to the
government and claims of creditors, and subject to no prior declaration of bankruptcy or judicial order of liquidation. I find his opinion
to be not only accord with the explicit language of Republic Act No. 6715, but, as I held in my own dissent, consistent with the
express decree of the Constitution affording full protection to labor. 3

While I agree that prior to its amendment, Article 110 was couched in arguable terms, 4 that is, a declaration of insolvency was
necessary before labor may claim preference. Republic Act No. 6715 has laid the debate to rest. The very language of the Act:

SECTION 1. Article 110 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the
Philippines, is hereby further amended to read as follows:

ART. 110. Worker Preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's
business, bis workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any
provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full
before the claims of the Government and other creditors may be paid.5

convinces this writer that the Congressional intent was precisely to settle the argument-in favor of absolute worker preference.

Indeed, to say that the amendment of Article 110 by Republic Act No. 6715 wrought no change, and the Article should be read as it
was read prior to amendment:

Article 110. Workers preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as regards wages due them for services rendered during the period
prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be
paid in full before other creditors may establish any claim to a share in the assets of the employer. 6

is to say that the legislature engaged in an exercise in futility, a proposition I am not prepared to accept. Clearly, the legislative will, in
working the amendment, was to change the law-it could not have been for any other purpose-and I do not believe that the Supreme
Court is empowered to override the intent of the lawmakers.

Once more, constitutional policy is to give full protection to labor. It also means exactly what it says-labor above capital. The Charter
is evidently not neutral, it is partial to the workingman. I am afraid that with the holding my brethren will leave in this case, the
working class would find itself at the receiving end.

Padilla, J.

CAGAYAN SUGAR MILLING COMPANY, petitioner, vs. SECRETARY OF LABOR AND EMPLOYMENT, DIRECTOR
RICARDO S. MARTINEZ, SR., andCARSUMCO EMPLOYEES UNION, respondents.

DECISION
PUNO, J.:

In this petition for certiorari, petitioner CAGAYAN SUGAR MILLING COMPANY (CARSUMCO) impugns the October 8,
1996 Decision of the Secretary of Labor, dismissing its appeal and upholding the Order of Regional Director Ricardo S. Martinez, Sr.
finding petitioner guilty of violating Regional Wage Order No. RO2-02.
The facts: On November 16, 1993, Regional Wage Order No. RO2-02[1] was issued by the Regional Tripartite Wage and
Productivity Board, Regional Office No. II of the Department of Labor and Employment (DOLE). It provided, inter alia, that:
"Section 1. Upon effectivity of this Wage Order, the statutory minimum wage rates applicable to workers and employees in the private
sector in Region II shall be increased as follows:

xxx

1.2 P14.00 per day .... Cagayan

x x x"

On September 12 and 13, 1994, labor inspectors from the DOLE Regional Office examined the books of petitioner to determine
its compliance with the wage order. They found that petitioner violated the wage order as it did not implement an across the board
increase in the salary of its employees.
At the hearing at the DOLE Regional Office for the alleged violation, petitioner maintained that it complied with Wage Order
No. RO2-02 as it paid the mandated increase in the minimum wage.
In an Order dated December 16, 1994, public respondent Regional Director Ricardo S. Martinez, Sr. ruled that petitioner violated
Wage Order RO2-02 by failing to implement an across the board increase in the salary of its employees. He ordered petitioner to pay
the deficiency in the salary of its employees in the total amount of P555,133.41.
On January 6, 1995, petitioner appealed to public respondent Labor Secretary Leonardo A. Quisumbing. On the same date, the
Regional Wage Board issued Wage Order No. RO2-02-A,[2] amending the earlier wage order, thus:

"Section 1. Section 1 of Wage Order No. RO2-02 shall now read as, "Upon effectivity of this Wage Order, the workers and employees
in the private sector in Region 2 shall receive an across the board wage increase as follows:

xxx

1.2 P14.00 per day .... Cagayan

xxx

"Section 2. This amendment is curative in nature and shall retroact to the date of the effectivity of Wage Order No. RO2-02."

On October 8, 1996, the Secretary of Labor dismissed petitioner's appeal and affirmed the Order of Regional Director Martinez,
Sr. Petitioner's motion for reconsideration was likewise denied. [3]
On February 12, 1997, private respondent CARSUMCO EMPLOYEES UNION moved for execution of the December 16, 1994
Order. Regional Director Martinez, Sr. granted the motion and issued the writ of execution. On March 4, 1997, petitioner moved for
reconsideration to set aside the writ of execution. On March 5, the DOLE regional sheriff served on petitioner a notice of garnishment
of its account with the Far East Bank and Trust Company. On March 10, the sheriff seized petitioner's dump truck and scheduled its
public sale on March 20, 1997.
Hence, this petition, with a prayer for the issuance of a temporary restraining order (TRO).
On April 3, 1997, this Court issued a TRO enjoining respondents from enforcing the writ of execution. [4] On July 16, upon
petitioner's motion, we amended the TRO by also enjoining respondents from enforcing the Decision of the Secretary of Labor and
conducting further proceedings until further orders from this Court. [5]
In the case at bar, petitioner contends that:
I
WAGE ORDER RO2-02 IS NULL AND VOID FOR HAVING BEEN ISSUED IN VIOLATION OF THE
PROCEDURE PROVIDED BY LAW AND IN VIOLATION OF PETITIONER'S RIGHT TO DUE PROCESS OF
LAW.
II
WAGE ORDER NO. RO2-02 CLEARLY PROVIDED FOR THE FIXING OF A STATUTORY MINIMUM WAGE
RATE AND NOT AN ACROSS THE BOARD INCREASE IN WAGES.
III
 THE DECISION OF THE SECRETARY OF LABOR AND EMPLOYMENT IS NULL AND VOID FOR LACK OF
ANY LEGAL BASIS.
The petition has merit.
Wage Order No. RO2-02, passed on November 16, 1993, provided for an increase in the statutory minimum wage rates for
Region II. More than a year later, or on January 6, 1995, the Regional Board passed Wage Order RO2-02-A amending the earlier
wage order and providing instead for an across the board increase in wages of employees in Region II, retroactive to the date of
effectivity of Wage Order RO2-02.
Petitioner assails the validity of Wage Order RO2-02-A on the ground that it was passed without the required public consultation
and newspaper publication. Thus, petitioner claims that public respondent Labor Secretary Quisumbing abused his discretion in
upholding the validity of said wage order.
We agree.
Article 123 of the Labor Code provides:

"ART. 123. Wage Order. -- Whenever conditions in the region so warrant, the Regional Board shall investigate and study all pertinent
facts, and, based on the standards and criteria herein prescribed, shall proceed to determine whether a Wage Order should be
issued. Any such Wage Order shall take effect after fifteen (15) days from its complete publication in at least one (1) newspaper of
general circulation in the region.

"In the performance of its wage-determining functions, the Regional Board shall conduct public hearings/consultations, giving notices
to employees' and employers' groups and other interested parties.

x x x"

The record shows that there was no prior public consultation or hearings and newspaper publication insofar as Wage Order No.
RO2-02-A is concerned. In fact, these allegations were not denied by public respondents in their Comment. Public respondents'
position is that there was no need to comply with the legal requirements of consultation and newspaper publication as Wage Order No.
RO2-02-A merely clarified the ambiguous provision of the original wage order.
We are not persuaded.
To begin with, there was no ambiguity in the provision of Wage Order RO2-02 as it provided in clear and categorical terms for
an increase in statutory minimum wage of workers in the region. Hence, the subsequent passage of RO2-02-A providing instead for an
across the board increase in wages did not clarify the earlier Order but amended the same. In truth, it changed the essence of the
original Order. In passing RO2-02-A without going through the process of public consultation and hearings, the Regional Board
deprived petitioner and other employers of due process as they were not given the opportunity to ventilate their positions regarding the
proposed wage increase. In wage-fixing, factors such as fair return of capital invested, the need to induce industries to invest in the
countryside and the capacity of employers to pay are, among others, taken into consideration. [6] Hence, our legislators provide for the
creation of Regional Tripartite Boards composed of representatives from the government, the workers and the employers to determine
the appropriate wage rates per region to ensure that all sides are heard. For the same reason, Article 123 of the Labor Code also
provides that in the performance of their wage-determining functions, the Regional Board shall conduct public hearings and
consultations, giving notices to interested parties. Moreover, it mandates that the Wage Order shall take effect only after publication in
a newspaper of general circulation in the region. It is a fundamental rule, borne out of a sense of fairness, that the public is first
notified of a law or wage order before it can be held liable for violation thereof. In the case at bar, it is indisputable that there was no
public consultation or hearing conducted prior to the passage of RO2-02-A. Neither was it published in a newspaper of general
circulation as attested in the February 3, 1995 minutes of the meeting of the Regional Wage Board that the non-publication was by
consensus of all the board members.[7] Hence, RO2-02-A must be struck down for violation of Article 123 of the Labor Code.
Considering that RO2-02-A is invalid, the next issue to settle is whether petitioner could be held liable under the original wage
order, RO2-02.
Public respondents insist that despite the wording of Wage Order RO2-02 providing for a statutory increase in minimum wage,
the real intention of the Regional Board was to provide for an across the board increase. Hence, they urge that petitioner is liable for
merely providing an increase in the statutory minimum wage rates of its employees.
The contention is absurd. Petitioner clearly complied with Wage Order RO2-02 which provided for an increase in statutory
minimum wage rates for employees in Region II. It is not just to expect petitioner to interpret Wage RO2-02 to mean that it granted an
across the board increase as such interpretation is not sustained by its text. Indeed, the Regional Wage Board had to amend Wage
Order RO2-02 to clarify this alleged intent.
 In sum, we hold that RO2-02-A is invalid for lack of public consultations and hearings and non-publication in a newspaper of
general circulation, in violation of Article 123 of the Labor Code. We likewise find that public respondent Secretary of Labor
committed grave abuse of discretion in upholding the findings of Regional Director Ricardo S. Martinez, Sr. that petitioner violated
Wage Order RO2-02.
IN VIEW WHEREOF, the petition is GRANTED. The Decision of the Secretary of Labor, dated October 8, 1996, is set aside
for lack of merit.
SO ORDERED.

METROPOLITAN BANK & TRUST COMPANY EMPLOYEES UNION-ALU-TUCP and ANTONIO V.

BALINANG, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (2nd Division) and METROPOLITAN BANK and TRUST
COMPANY, respondents.

VITUG, J.:

In this petition for certiorari, the Metropolitan Bank & Trust Company Employees Union-ALU-TUCP (MBTCEU) and its president,
Antonio V. Balinang, raise the issue of whether or not the implementation by the Metropolitan Bank and Trust Company of Republic
Act No. 6727, mandating an increase in pay of P25 per day for certain employees in the private sector, created a distortion that would
require an adjustment under said law in the wages of the latter's other various groups of employees.

On 25 May 1989, the bank entered into a collective bargaining agreement with the MBTCEU, granting a monthly P900 wage increase
effective 01 January 1989, P600 wage increase 01 January 1990, and P200 wage increase effective 01 January 1991. The MBTCEU
had also bargained for the inclusion of probationary employees in the list of employees who would benefit from the first P900 increase
but the bank had adamantly refused to accede thereto. Consequently, only regular employees as of 01 January 1989 were given the
increase to the exclusion of probationary employees.

Barely a month later, or on 01 January 1989, Republic Act 6727, "an act to rationalize wage policy determination be establishing the
mechanism and proper standards thereof, . . . fixing new wage rates, providing wage incentives for industrial dispersal to the
countryside, and for other purposes," took effect. Its provisions, pertinent to this case, state:

Sec. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates of all workers and employees in the
private sector, whether agricultural or non-agricultural, shall be increased by twenty-five pesos (P25) per day, . .
.: Provided, That those already receiving above the minimum wage rates up to one hundred pesos(P100.00) shall
also receive an increase of twenty-five pesos (P25.00) per day, . . .

xxx xxx xxx

(d) If expressly provided for and agreed upon in the collective bargaining agreements, all increase in the daily basic
wage rates granted by the employers three (3) months before the effectivity of this Act shall be credited as
compliance with the increases in the wage rates prescribed herein, provided that, where such increases are less than
the prescribed increases in the wage rates under this Act, the employer shall pay the difference. Such increase shall
not include anniversary wage increases, merit wage increase and those resulting from the regularization or
promotion of employees.

Where the application of the increases in the wage rates under this Section results in distortions as defined under
existing laws in the wage structure within an establishment and gives rise to a dispute therein, such dispute shall first
be settled voluntarily between the parties and in the event of a deadlock, the same shall be finally resolved through
compulsory arbitration by the regional branches of the National Labor Relations Commission (NLRC) having
jurisdiction over the workplace.

It shall be mandatory for the NLRC to conduct continous hearings and decide any dispute arising under this Section
within twenty (20) calendar days from the time said dispute is formally submitted to it for arbitration. The pendency
of a dispute arising from a wage distortion shall not in any way delay the applicability of the increase in the wage
rates prescribed under this Section.
Pursuant to the above provisions, the bank gave the P25 increase per day, or P750 a month, to its probationary employees and to those
who had been promoted to regular or permanent status before 01 July 1989 but whose daily rate was P100 and below. The bank
refused to give the same increase to its regular employees who were receiving more than P100 per day and recipients of the P900
CBA increase.

Contending that the bank's implementation of Republic Act 6727 resulted in the categorization of the employees into (a) the
probationary employees as of 30 June 1989 and regular employees receiving P100 or less a day who had been promoted to permanent
or regular status before 01 July 1989, and (b) the regular employees as of 01 July 1989, whose pay was over P100 a day, and that,
between the two groups, there emerged a substantially reduced salary gap, the MBTCEU sought from the bank the correction of the
alleged distortion in pay. In order to avert an impeding strike, the bank petitioned the Secretary of Labor to assume jurisdiction over
the case or to certify the same to the National Labor Relations Commission (NLRC) under Article 263 (g) of the Labor Code. 1 The
parties ultimately agreed to refer the issue for compulsory arbitration to the NLRC.

The case was assigned to Labor Arbiter Eduardo J. Carpio. In his decision of 05 February 1991, the labor arbiter disregard with the
bank's contention that the increase in its implementation of Republic Act 6727 did not constitute a distortion because "only 143
employees or 6.8% of the bank's population of a total of 2,108 regular employees" benefited. He stressed that "it is not necessary that a
big number of wage earners within a company be benefited by the mandatory increase before a wage distortion may be considered to
have taken place," it being enough, he said, that such increase "result(s) in the severe contraction of an intentional quantitative
difference in wage between employee groups."

The labor arbiter concluded that since the "intentional quantitative difference" in wage or salary rates between and among groups of
employees is not based purely on skills or length of service but also on "other logical bases of differentiation, a P900.00 wage gap
intentionally provided in a collective bargaining agreement as a quantitative difference in wage between those who WERE regular
employees as of January 1, 1989 and those who WERE NOT as of that date, is definitely a logical basis of differentiation (that)
deserves protection from any distorting statutory wage increase." Otherwise, he added, "a minimum wage statute that seek to uplift the
economic condition of labor would itself destroy the mechanism of collective bargaining which, with perceived stability, has been
labor's constitutional and regular source of wage increase for so long a time now." Thus, since the "subjective quantitative difference"
between wage rates had been reduced from P900.00 to barely P150.00, correction of the wage distortion pursuant to Section 4(c) of
the Rules Implementing Republic Act 6727 should be made.

The labor arbiter disposed of the case, thus:

WHEREFORE, premises considered, the respondent is hereby directed to restore to complainants and their members
the Nine Hundred (P900.00) Pesos CBA wage gap they used to enjoy over non-regular employees as of January 1,
1989 by granting them a Seven Hundred Fifty (P750.00) Pesos monthly increase effective July 1, 1989.

SO ORDERED.2

The bank appealed to the NLRC. On 31 May 1991, the NLRC Second Division, by a vote of 2 to 1, reversed the decision of the Labor
Arbiter. Speaking, through Commissioners Rustico L. Diokno and Domingo H. Zapanta, the NLRC said:

. . . a wage distortion can arise only in a situation where the salary structure is characterized by intentional
quantitative differences among employee groups determined or fixed on the basis of skills, length of service, or
other logical basis of differentiation and such differences or distinction are obliterated (In Re: Labor Dispute at the
Bank of the Philippine Islands, NCMB-RB-7-11-096-89, Secretary of Labor and Employment, February 18, 1991).

As applied in this case, We noted that in the new wage salary structure, the wage gaps between Level 6 and 7 levels
5 and 6, and levels 6 and 7 (sic) were maintained. While there is a noticeable decrease in the wage gap between
levels 2 and 3, Levels 3 and 4, and Levels 4 and 5, the reduction in the wage gaps between said levels is not
significant as to obliterate or result in severe contraction of the intentional quantitative differences in salary rates
between the employees groups. For this reason, the basis requirement for a wage in this case. Moreover, there is
nothing in the law which would justify an across-the-board adjustment of P750.00 as ordered by the labor Arbiter.

WHEREFORE, premises considered, the appealed decision is hereby set aside and a new judgment is hereby
entered, dismissing the complaint for lack of merit.

SO ORDERED.3

In her dissent, Presiding Commissioner Edna Bonto-Perez opined:

 There may not be an obliteration nor elimination of said quantitative distinction/difference aforecited but clearly
there is a contraction. Would such contraction be severe as to warrant the necessary correction sanctioned by the law
in point, RA 6727? It is may considered view that the quantitative intended distinction in pay between the two
groups of workers in respondent company was contracted by more than fifty (50%) per cent or in particular by more
or less eighty-three (83%) per cent hence, there is no doubt that there is an evident severe contraction resulting in the
complained of wage distortion.

Nonetheless, the award of P750.00 per month to all of herein individual complainants as ordered by the Labor
Arbiter below, to my mind is not the most equitable remedy at bar, for the same would be an across the board
increase which is not the intention of RA 6727. For that matter, herein complainants cannot by right claim for the
whole amount of P750.00 a month or P25.00 per day granted to the workers covered by the said law in the sense that
they are not covered by the said increase mandated by RA 6727. They are only entitled to the relief granted by said
law by way of correction of the pay scale in case of distortion in wages by reason thereof.

Hence, the formula offered and incorporated in Wage Order No. IV-02 issued on 21 May 1991 by the Regional
Tripartite Wages and Productivity Commission for correction of pay scale structures in case of wage distortion as in
the case at bar which is:

Minimum Wage = % x Prescribed = Distortion

—————— Increased Adjustment

Actual Salary

would be the most equitable and fair under the circumstances obtaining in this case.

For this very reason, I register my dissent from the majority opinion and opt for the modification of the Labor
Arbiter's decision as afore-discussed.4

The MBTCEU filed a motion for reconsideration of the decision of the NLRC; having been denied, the MBTCEU and its president
filed the instant petition for certiorari, charging the NLRC with gave abuse of discretion by its refusal (a) "to acknowledge the
existence of a wage distortion in the wage or salary rates between and among the employee groups of the respondent bank as a result
of the bank's partial implementation" of Republic Act 6727 and (b) to give due course to its claim for an across-the-board P25 increase
under Republic Act No. 6727.5

We agree with the Solicitor General that the petition is impressed with merit. 6

The term "wage distortion", under the Rules Implementing Republic Act 6727, is defined, thus:

(p) Wage Distortion means a situation where an increase in prescribed wage rates results in the elimination or severe
contradiction of intentional quantitative differences in wage or salary rates between and among employee groups in
an establishment as to effectively obliterate the distinctions embodied in such wage structure based on skills, length
of service, or other logical bases of differentiation.

The issue of whether or not a wage distortion exists as a consequence of the grant of a wage increase to certain employees, we agree,
is, by and large, a question of fact the determination of which is the statutory function of the NLRC. 7 Judicial review of labor cases,
we may add, does not go beyond the evaluation of the sufficiency of the evidence upon which the labor official's findings rest. 8 As
such, factual findings of the NLRC are generally accorded not only respect but also finality provided that its decision are supported by
substantial evidence and devoid of any taint of unfairness of arbitrariness. 9 When, however, the members of the same labor tribunal
are not in accord on those aspects of a case, as in this case, this Court is well cautioned not to be as so conscious in passing upon the
sufficiency of the evidence, let alone the conclusions derived therefrom.

In this case, the majority of the members of the NLRC, as well as its dissenting member, agree that there is a wage distortion arising
from the bank's implementation of the P25 wage increase; they do differ, however, on the extent of the distortion that can warrant the
adoption of corrective measures required by law.

The definition of "wage distortion," 10 aforequoted, shows that such distortion can so exist when, as a result of an increase in the
prescribed wage rate, an "elimination or severe contraction of intentional quantitative differences in wage or salary rates" would occur
"between and among employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage structure
based on skills, length of service, or other logical bases of differentiation." In mandating an adjustment, the law did not require that
there be an elimination or total abrogation of quantitative wage or salary differences; a severe contraction thereof is enough. As has
been aptly observed by Presiding Commissioner Edna Bonto-Perez in her dissenting opinion, the contraction between personnel
groupings comes close to eighty-three (83%), which cannot, by any stretch of imagination, be considered less than severe.

The "intentional quantitative differences" in wage among employees of the bank has been set by the CBA to about P900 per month as
of 01 January 1989. It is intentional as it has been arrived at through the collective bargaining process to which the parties are thereby
concluded. 11 The Solicitor General, in recommending the grant of due course to the petition, has correctly emphasized that the
intention of the parties, whether the benefits under a collective bargaining agreement should be equated with those granted by law or
not, unless there are compelling reasons otherwise, must prevail and be given effect. 12

In keeping then with the intendment of the law and the agreement of the parties themselves, along with the often repeated rule that all
doubts in the interpretation and implementation of labor laws should be resolved in favor of labor, 13 we must approximate an
acceptable quantitative difference between and among the CBA agreed work levels. We, however, do not subscribe to the labor
arbiter's exacting prescription in correcting the wage distortion. Like the majority of the members of the NLRC, we are also of the
view that giving the employees an across-the-board increase of P750 may not be conducive to the policy of encouraging "employers to
grant wage and allowance increases to their employees higher than the minimum rates of increases prescribed by statute or
administrative regulation," particularly in this case where both Republic Act 6727 and the CBA allow a credit for voluntary
compliance. As the Court, through Associate Justice Florentino Feliciano, also pointed out in Apex Mining Company, Inc. v. NLRC: 14

. . . . (T)o compel employers simply to add on legislated increases in salaries or allowances without regard to what is
already being paid, would be to penalize employers who grant their workers more than the statutorily prescribed
minimum rates of increases. Clearly, this would be counter-productive so far as securing the interests of labor is
concerned. . . .

We find the formula suggested then by Commissioner Bonto-Perez, which has also been the standard considered by the regional
Tripartite Wages and Productivity Commission for the correction of pay scale structures in cases of wage distortion, 15 to well be the
appropriate measure to balance the respective contentions of the parties in this instance. We also view it as being just and equitable.

WHEREFORE, finding merit in the instant petition for certiorari, the same is GRANTED DUE PROCESS, the questioned NLRC
decision is hereby SET ASIDE and the decision of the labor arbiter is REINSTATED subject to the MODIFICATION that the wage
distortion in question be corrected in accordance with the formula expressed in the dissenting opinion of Presiding Commissioner
Edna Bonto-Perez. This decision is immediately executory.

SO ORDERED.

BANKARD EMPLOYEES UNION-WORKERS ALLIANCE TRADE UNIONS, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and BANKARD, INC., respondents.

DECISION

CARPIO MORALES, J.:

The present Petition for Review on Certiorari under Rule 45 of the Rules of Court raises the issue of whether the unilateral adoption
by an employer of an upgraded salary scale that increased the hiring rates of new employees without increasing the salary rates of old
employees resulted in wage distortion within the contemplation of Article 124 of the Labor Code.

Bankard, Inc. (Bankard) classifies its employees by levels, to wit: Level I, Level II, Level III, Level IV, and Level V. On May 28,
1993, its Board of Directors approved a "New Salary Scale", made retroactive to April 1, 1993, for the purpose of making its hiring
rate competitive in the industry’s labor market. The "New Salary Scale" increased the hiring rates of new employees, to wit: Levels I
and V by one thousand pesos (P1,000.00), and Levels II, III and IV by nine hundred pesos (P900.00). Accordingly, the salaries of
employees who fell below the new minimum rates were also adjusted to reach such rates under their levels.

Bankard’s move drew the Bankard Employees Union-WATU (petitioner), the duly certified exclusive bargaining agent of the regular
rank and file employees of Bankard, to press for the increase in the salary of its old, regular employees.
Bankard took the position, however, that there was no obligation on the part of the management to grant to all its employees the same
increase in an across-the-board manner.

As the continued request of petitioner for increase in the wages and salaries of Bankard’s regular employees remained unheeded, it
filed a Notice of Strike on August 26, 1993 on the ground of discrimination and other acts of Unfair Labor Practice (ULP).

A director of the National Conciliation and Mediation Board treated the Notice of Strike as a "Preventive Mediation Case" based on a
finding that the issues therein were "not strikeable".

Petitioner filed another Notice of Strike on October 8, 1993 on the grounds of refusal to bargain, discrimination, and other acts of ULP
- union busting. The strike was averted, however, when the dispute was certified by the Secretary of Labor and Employment for
compulsory arbitration.

The Second Division of the NLRC, by Order of May 31, 1995, finding no wage distortion, dismissed the case for lack of merit.

Petitioner’s motion for reconsideration of the dismissal of the case was, by Resolution of July 28, 1995, denied.

Petitioner thereupon filed a petition for certiorari before this Court, docketed as G.R. 121970. In accordance with its ruling in St.
Martin Funeral Homes v. NLRC,1 the petition was referred to the Court of Appeals which, by October 28, 1999, denied the same for
lack of merit.

Hence, the present petition which faults the appellate court as follows:

(1) It misapprehended the basic issues when it concluded that under Bankard’s new wage structure, the old salary gaps
between the different classification or level of employees were "still reflected" by the adjusted salary rates 2; and

(2) It erred in concluding that "wage distortion does not appear to exist", which conclusion is manifestly contrary to law and
jurisprudence.3

Upon the enactment of R.A. No. 6727 (WAGE RATIONALIZATION ACT, amending, among others, Article 124 of the Labor Code)
on June 9, 1989, the term "wage distortion" was explicitly defined as:

... a situation where an increase in prescribed wage rates results in the elimination or severe contraction of intentional quantitative
differences in wage or salary rates between and among employee groups in an establishment as to effectively obliterate the
distinctions embodied in such wage structure based on skills, length of service, or other logical bases of differentiation.4

Prubankers Association v. Prudential Bank and Trust Company 5 laid down the four elements of wage distortion, to wit: (1.) An
existing hierarchy of positions with corresponding salary rates; (2) A significant change in the salary rate of a lower pay class without
a concomitant increase in the salary rate of a higher one; (3) The elimination of the distinction between the two levels; and (4) The
existence of the distortion in the same region of the country.

Normally, a company has a wage structure or method of determining the wages of its employees. In a problem dealing with "wage
distortion," the basic assumption is that there exists a grouping or classification of employees that establishes distinctions among them
on some relevant or legitimate bases.6

Involved in the classification of employees are various factors such as the degrees of responsibility, the skills and knowledge required,
the complexity of the job, or other logical basis of differentiation. The differing wage rate for each of the existing classes of employees
reflects this classification.

Petitioner maintains that for purposes of wage distortion, the classification is not one based on "levels" or "ranks" but on two groups of
employees, the newly hired and the old, in each and every level, and not between and among the different levels or ranks in the salary
structure.

Public respondent National Labor Relations Commission (NLRC) refutes petitioner’s position, however. It, through the Office of the
Solicitor General, essays in its Comment of April 12, 2000 as follows:
To determine the existence of wage distortion, the "historical" classification of the employees prior to the wage increase must be
established. Likewise, it must be shown that as between the different classification of employees, there exists a "historical" gap or
difference.

xxx

The classification preferred by petitioner is belied by the wage structure of private respondent as shown in the new salary scale it
adopted on May 28, 1993, retroactive to April 1, 1993, which provides, thus:

Hiring Minimum Maximum

Level From To From To From To

I 3,100 4,100 3,200 4,200 7,200 9,250

II 3,200 4,100 3,300 4,200 7,500 9,500

III 3,300 4,200 3,400 4,300 8,000 10,000

IV 3,500 4,400 3,600 4,500 8,500 10,500

V 3,700 4,700 3,800 4,800 9,000 11,000

Thus the employees of private respondent have been "historically" classified into levels, i.e. I to V, and not on the basis of their
length of service. Put differently, the entry of new employees to the company ipso facto place[s] them under any of the
levels mentioned in the new salary scale which private respondent adopted retroactive [to] April 1, 1993. Petitioner cannot make a
contrary classification of private respondent’s employees without encroaching upon recognized management prerogative of
formulating a wage structure, in this case, one based on level.7 (Emphasis and underscoring supplied)

The issue of whether wage distortion exists being a question of fact that is within the jurisdiction of quasi-judicial tribunals,8 and it
being a basic rule that findings of facts of quasi-judicial agencies, like the NLRC, are generally accorded not only respect but at times
even finality if they are supported by substantial evidence, as are the findingsin the case at bar, they must be respected. For these
agencies have acquired expertise, their jurisdiction being confined to specific matters. 9

It is thus clear that there is no hierarchy of positions between the newly hired and regular employees of Bankard, hence, the first
element of wage distortion provided in Prubankers is wanting.lawphi1.nêt

While seniority may be a factor in determining the wages of employees, it cannot be made the sole basis in cases where the nature of
their work differs.

Moreover, for purposes of determining the existence of wage distortion, employees cannot create their own independent classification
and use it as a basis to demand an across-the-board increase in salary.

As National Federation of Labor v. NLRC, et al.10 teaches, the formulation of a wage structure through the classification of employees
is a matter of management judgment and discretion.

[W]hether or not a new additional scheme of classification of employees for compensation purposes should be established by the
Company (and the legitimacy or viability of the bases of distinction there embodied) is properly a matter of management judgment
and discretion, and ultimately, perhaps, a subject matter for bargaining negotiations between employer and employees. It is
assuredly something that falls outside the concept of "wage distortion." 11 (Emphasis and underscoring supplied)

As did the Court of Appeals, this Court finds that the third element provided in Prubankers is also wanting. For, as the appellate court
explained:

In trying to prove wage distortion, petitioner union presented a list of five (5) employees allegedly affected by the said increase:

Pay of Old/ Pay of Newly Difference

 Regular Employees Hired Employees

A. Prior to April 1, 1993

Level I P4,518.75 P3,100 P1,418.75

(Sammy Guce)

Level II P6,242.00 P3,200 P3,042.00

(Nazario Abello)

Level III P4,850.00 P3,300 P1,550.00

(Arthur Chavez)

Level IV P5,339.00 P3,500 P1,839.00

Melissa Cordero)

Level V P7,090.69 P3,700 P3,390.69

(Ma. Lourdes Dee)

B. Effective April 1, 1993

Level I P4,518.75 P4,100 P418.75

Sammy Guce)

Level II P6,242.00 P4,100 P2,142.00

(Nazario Abello)

Level III P4,850.00 P4,200 P650.00

(Arthur Chavez)

Level IV P5,330.00 P4,400 P939.00

(Melissa Cordero)

Level V P7,090.69 P4,700 P2,390.69

(Ma. Lourdes Dee)

Even assuming that there is a decrease in the wage gap between the pay of the old employees and the newly hired employees, to Our
mind said gap is not significant as to obliterate or result in severe contraction of the intentional quantitative differences in the salary
rates between the employee group. As already stated, the classification under the wage structure is based on the rank of an employee,
not on seniority. For this reason, ,wage distortion does not appear to exist. 12 (Emphasis and underscoring supplied)

Apart from the findings of fact of the NLRC and the Court of Appeals that some of the elements of wage distortion are absent,
petitioner cannot legally obligate Bankard to correct the alleged "wage distortion" as the increase in the wages and salaries of the
newly-hired was not due to a prescribed law or wage order.

The wordings of Article 124 are clear. If it was the intention of the legislators to cover all kinds of wage adjustments, then the
language of the law should have been broad, not restrictive as it is currently phrased:

Article 124. Standards/Criteria for Minimum Wage Fixing.

xxx

Where the application of any prescribed wage increase by virtue of a law or Wage Order issued by any Regional Board results in
distortions of the wage structure within an establishment, the employer and the union shall negotiate to correct the distortions. Any
dispute arising from the wage distortions shall be resolved through the grievance procedure under their collective bargaining
agreement and, if it remains unresolved, through voluntary arbitration.

x x x (Italics and emphasis supplied)

Article 124 is entitled "Standards/Criteria for Minimum Wage Fixing." It is found in CHAPTER V on "WAGE STUDIES,
WAGE AGREEMENTS AND WAGE DETERMINATION" which principally deals with the fixing of minimum wage. Article
124 should thus be construed and correlated in relation to minimum wage fixing, the intention of the law being that in the event of an
increase in minimum wage, the distinctions embodied in the wage structure based on skills, length of service, or other logical bases of
differentiation will be preserved.

If the compulsory mandate under Article 124 to correct "wage distortion" is applied to voluntary and unilateralincreases by the
employer in fixing hiring rates which is inherently a business judgment prerogative, then the hands of the employer would be
completely tied even in cases where an increase in wages of a particular group is justified due to a re-evaluation of the high
productivity of a particular group, or as in the present case, the need to increase the competitiveness of Bankard’s hiring rate. An
employer would be discouraged from adjusting the salary rates of a particular group of employees for fear that it would result to a
demand by all employees for a similar increase, especially if the financial conditions of the business cannot address an across-the-
board increase.

Petitioner cites Metro Transit Organization, Inc. v. NLRC13 to support its claim that the obligation to rectify wage distortion is not
confined to wage distortion resulting from government decreed law or wage order.

Reliance on Metro Transit is however misplaced, as the obligation therein to rectify the wage distortion was not by virtue of Article
124 of the Labor Code, but on account of a then existing "company practice" that whenever rank-and-file employees were paid a
statutorily mandated salary increase, supervisory employees were, as a matter of practice, also paid the same amount plus an added
premium. Thus this Court held in said case:

We conclude that the supervisory employees, who then (i.e., on April 17, 1989) had, unlike the rank-and-file employees, no CBA
governing the terms and conditions of their employment, had the right to rely on the company practice of unilaterally correcting the
wage distortion effects of a salary increase given to the rank-and-file employees, by giving the supervisory employees a corresponding
salary increase plus a premium. . . .14 (Emphasis supplied)

Wage distortion is a factual and economic condition that may be brought about by different causes. In Metro Transit, the reduction or
elimination of the normal differential between the wage rates of rank-and-file and those of supervisory employees was due to the
granting to the former of wage increase which was, however, denied to the latter group of employees.

The mere factual existence of wage distortion does not, however, ipso facto result to an obligation to rectify it, absent a law or other
source of obligation which requires its rectification.

Unlike in Metro Transit then where there existed a "company practice," no such management practice is herein alleged to obligate
Bankard to provide an across-the-board increase to all its regular employees.

Bankard’s right to increase its hiring rate, to establish minimum salaries for specific jobs, and to adjust the rates of employees affected
thereby is embodied under Section 2, Article V (Salary and Cost of Living Allowance) of the parties’ Collective Bargaining
Agreement (CBA), to wit:

Section 2. Any salary increase granted under this Article shall be without prejudice to the right of the Company to establish such
minimum salaries as it may hereafter find appropriate for specific jobs, and to adjust the rates of the employees thereby affected to
such minimum salaries thus established.15 (Italics and underscoring supplied)

This CBA provision, which is based on legitimate business-judgment prerogatives of the employer, is a valid and legally enforceable
source of rights between the parties.

In fine, absent any indication that the voluntary increase of salary rates by an employer was done arbitrarily and illegally for the
purpose of circumventing the laws or was devoid of any legitimate purpose other than to discriminate against the regular employees,
this Court will not step in to interfere with this management prerogative. Employees are of course not precluded from negotiating with
its employer and lobby for wage increases through appropriate channels, such as through a CBA.

This Court, time and again, has shown concern and compassion to the plight of workers in adherence to the Constitutional provisions
on social justice and has always upheld the right of workers to press for better terms and conditions of employment. It does not mean,
however, that every dispute should be decided in favor of labor, for employers correspondingly have rights under the law which need
to be respected.

WHEREFORE, the present petition is hereby DENIED.

SO ORDERED.
ST. JOSEPH’S COLLEGE, Petitioner,
vs.
ST. JOSEPH’S COLLEGE WORKERS’ ASSOCIATION (SAMAHAN), Respondent.

DECISION

PANGANIBAN, J.:

The law allows an increase in school tuition fees on the condition that 70 percent of the increase shall go to the payment of personnel
benefits. Plainly unsupported by the law or jurisprudence is petitioner’s contention that the payment of such benefits should be based
not only on the rate of tuition fee increases, but also on other factors like the decrease in the number of enrollees; the number of those
exempt from paying the fees, like scholars; the number of dropouts who, as such, do not pay the whole fees; and the bad debts
incurred by the school. The financial dilemma of petitioner may deserve sympathy and support, but its remedy lies not in the judiciary
but in the lawmaking body.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the June 14, 2002 Decision 2and the October 9,
2002 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 69268. The assailed Decision disposed as follows:

"WHEREFORE, premises considered, the present petition is hereby GIVEN DUE COURSE, and the writ prayed for, accordingly
GRANTED. The DECISION dated December 27, 2001 and Resolution dated January 31, 2002 issued by the Panel of Voluntary
Arbitrators composed of Aniano G. Bagabaldo, Angel A. Ancheta and Norberto M. Alensuela in Case No. AGB-AVA-2001-01 are
hereby ANNULLED and SET ASIDE. Consequently, this case is hereby remanded to it (Panel of Voluntary Arbitrators) for re-
computation of the disputed incremental proceeds for School Year 2000-2001 in accordance with the foregoing discussion with
utmost deliberate dispatch.

"No pronouncement as to costs."4

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The Facts

The appellate court summarized the facts5 as follows:

"Petitioner is a non-stock, non-profit Catholic educational institution while respondent is a legitimate labor organization which is
currently the official bargaining representative of all employees of petitioner except the faculty and consultants of the Graduate
School, managerial employees and those who occupy confidential positions. Respondent has an existing Collective Bargaining
Agreement (CBA) with petitioner for the period from June 1, 1999 to May 31, 2004.

"For the school year 2000-2001, petitioner increased its tuition fees for all its departments. Thus, in accordance with Article VII,
Section 1 of its CBA with respondent, which reads:

"‘Sec. 1. Tuition Fee Increases. – The SCHOOL shall allocate eighty-five percent (85%) of incremental proceeds from every tuition
fee increase solely and expressly for adjustments in employee salaries and benefits, including those that will be legally mandated
during the lifetime of this CBA.’

"[P]etitioner computed the incremental proceeds from the said tuition fees increase using the following formula:

"Y2 - Y1 = Incremental Proceeds

"Y2 = year 2 tuition fee income

= (Y2 increased tuition fee) x (Y2 number of enrollees)

= total tuition fee collection for SY 2000-2001

 "Y1 = year 1 tuition fee income

= (Y1 tuition fee) x (Y1 number of enrollees)

= total tuition fee collection for SY 1999-2000

"Based on petitioner’s computation, the incremental proceeds from the tuition fees increase for school year 2000-2001 is
₱1,560,942.74, eighty-five percent (85%) of which is equivalent to ₱1,326,801.33. On January 31, 2001, petitioner provided
respondent with the results of its computation with the request that it be advised on how its members would like the school to
implement the aforesaid increase, whether as part of their basic salary or as allowances.l^vvphi1.net

"On February 1, 2001, respondent presented to petitioner its computations of the incremental proceeds which greatly differed from the
amount stated by the latter. The incremental proceeds, as computed by respondent amounted to ₱4,906,307.58 having been arrived at
using the following formula:

"IP = N (TF2-TF1)

"where:

IP = Incremental Proceeds Per Level

N = Net Number of Students of Present School Year

TF2 = Tuition Fee (Present School Year)

TF1 = Tuition Fee (Previous School Year)

"The Total Incremental Proceeds (TIP) is then computed by adding the incremental proceeds of all levels in all departments.

"TIP = TIP

"where:

"IP = Incremental Proceeds Per Level

"Consequently, respondent averred that eighty-five percent (85%) of ₱4,906,307.58, which is ₱4,170,360.59 should have been
released to its members as provided for in their CBA effective June 1, 2000.

"Thereafter, petitioner informed respondent that the computation it (respondent) submitted was erroneous as the tuition fee income for
School Year 1999-2000 was understated when it used as base figure the expected number of enrollees instead of the actual number of
enrollees for said School Year.

"Respondent refused to accept the results of petitioner’s computation. Petitioner, on the other hand, likewise rejected respondent’s
computation of the incremental proceeds from the tuition fees increases. Hence, the parties resorted to voluntary arbitration.

"Petitioner asseverated that in computing the incremental proceeds from the tuition fees increase, whereby eighty-five percent (85%)
of which is to be given to the members of respondent, the base figure for computing the previous school year’s income should be the
previous school year’s number of enrollees and not that of the current year. In other words, the income for the School Year 1999-2000
should be computed based on the figures for that year. Thus, if the tuition fee income for the previous year be smaller than the current
year, then there would be incremental proceeds that will be released to the employees. However, if the tuition fee income for the
previous year is higher than the current year, then despite the tuition fee increase, no incremental proceeds will be distributed or at
least only a minimal amount would only be subject for distribution.

"In refutation, respondent claimed that for the past several school years (1996-1997; 1997-1998; 1998-1999; 1999-2000), petitioner
has been using the formula it used in computing the incremental proceeds for the year 2000-2001. To use a revised formula, as
petitioner did, a sharp reduction of the incremental proceeds would result. Moreover, respondent emphasized that if the formula
adopted by petitioner is used to compute the incremental proceeds whereby the decrease in number of students enrolling in the current
year is taken into consideration, the same would run counter to the ruling of the Supreme Court in the case of Cebu Institute of
Technology v. Ople (156 SCRA 633) as it would[,] in effect[,] charge from the reserved incremental proceeds for the wages and
benefits of the employees the losses sustained by the school in the current year.

"After the parties hereto were heard and their supporting documentary evidence presented, the Panel of Voluntary Arbitrators,
composed of Aniano G. Bagabaldo, Angel A. Ancheta and Norberto M. Alensuela rendered a Decision dated December 27, 2001, the
dispositive portion of which reads:

‘WHEREFORE, all foregoing premises considered, this Panel of Voluntary Arbitrators Rules and Orders:

‘1. That the formula of computation used in the case of tuition fee increases for the School Years 1997-1998; 1998-1999;
1999-2000 to be more correct and realistic formula and the same should be used and applied in computing the 85% portion of
the incremental proceeds of the tuition fee increase collected by the school for the School Year 2000-2001 which should be
allocated for the employees salaries and benefits under Section 1, Article VIII of the existing CBA;

‘2. The respondent school to pay the teachers and other school employees concerned of their backwages, allowances and
other benefits out of the tuition fee increase for the School Year 2000-2001 retroactively effective on June 1, 2000 based on
the above-said formula of computation;

‘3. The parties to use and apply the same scheme of allocation and distribution they used before in determining the amount of
backwages and allowances, other benefits that teachers and other qualified employees should receive out of the incremental
proceeds of tuition increase for the School Year 2000-2001;

‘4. The respondent school to pay the additional amount equivalent to ten percent (10%) of the employees backwages,
allowances, and other benefits for the service of fees of the Labor Relations Adviser of the Union inclusive for expenses
incurred by the Union in this litigation.

‘5. The respondent school to strictly effect compliance with the Monetary Awards within ten (10) days from receipt of this
Decision.

‘SO ORDERED.’

"Displeased by the above ruling, petitioner moved for reconsideration thereof which was denied by AVA Ancheta and AVA
Alensuela in a Resolution dated January 31, 2002." 6

Consequently, respondent appealed to the CA the Decision and the Resolution of the Panel of Arbitrators. 7

Ruling of the Court of Appeals

The Court of Appeals ruled that the proper computation for the incremental proceeds should be as follows:

"Increased Tuition Fee (rate) - Previous Tuition Fee (rate) =

Tuition Fee Increase for Current Year

[Number] of Actual Enrollees for Current Year = Incremental Proceeds for Current Year

"NOTE: The computation of the incremental proceeds for the tertiary level will be on a per unit basis as the number of units taken by
an enrollee may differ from another enrollee notwithstanding the fact that they are on the same level/year." 8

The CA, in effect, agreed with the computation presented by respondent. 9 To determine the meaning of incremental proceeds, the
appellate court cited Section 5 of Republic Act 6728 (the "Government Assistance to Students and Teachers in Private Education
Act"), which states that seventy percent (70%) of the proceeds from the tuition fee increase must be given to the teaching and the
nonteaching personnel of the school in the form of increases in salaries and benefits. 10

The CA reasoned that the above computation attains the objective of the law.11 Thus, it remanded the case to the panel for re-
computation of the incremental proceeds.12
Hence, this Petition.13

The Issue

In its Memorandum,14 petitioner states the issue in the following manner:

"This petition respectfully asks this Honorable Court to settle once and for all the meaning of ‘incremental proceeds’ from tuition fee
increases x x x.

"Specifically, petitioner submits the question of whether or not there are ‘incremental proceeds from a tuition fee increase’ to be
distributed as mandated by Republic Act No. 6728 when a school increases tuition fees for a succeeding school year but actually ends
up with a lower income than the previous school year because some of its students can no longer afford the higher tuition and are
forced to drop out or transfer to another school, public or private, which charges a lower tuition fee they can afford.

"Petitioner x x x submit[s] that in this situation, though there is a ‘tuition fee increase’, there is no ‘incremental proceeds’ that is
derived from the tuition fee increase, and therefore there is nothing to distribute to the employees. Put in another way, it submits that
because there is no ‘increment’ income, there are no ‘incremental proceeds’ to distribute to the employees." 15

Simply put, the issue before us is the proper computation of the "incremental proceeds" from a tuition fee increase.

The Court’s Ruling

The Petition has no legal merit.

Sole Issue:

Incremental Proceeds from Tuition Fee Increase

Petitioner argues that "incremental proceeds" should be determined on the basis of the school’s income, not merely on the categorical
increase in tuition fee as determined by the CA.16 Petitioner explains that if the present year’s income is less than that of the previous
year due to a lesser number of current enrollees, then there may be no gain or "incremental proceeds," but a loss or "decreased
proceeds."17 To capture its position more accurately, we quote from its Memorandum: 18

"When a school applies for a tuition fee increase, it is not for the sake of raising tuition fee rates; it is for the specific purpose of
increasing tuition fee income so that the school would have the means to increase the salaries and benefits of its employees (up to at
least 70% thereof; in this case, up to 85% thereof), to improve physical plant and facilities (up to 20% thereof) and to give a return on
the capital or equity of the school (up to 10% thereof).

"For lack of a better guide, the school when applying for a tuition fee increase ASSUMES that the enrollment of the coming year will
be the same as that of the previous year. On this basis (estimate or guess), the school informs the Department of Education or the
Commission on Higher Education that it expects to have so much of income to pay increased salaries and benefits, improve facilities
and if there is still something left over, to apply it as return on investment or equity.

"Unfortunately, what the school expects to receive as increased tuition fee income from the tuition fee increase (rate per student) is not
always realized. If the parents of the students cannot afford the increased tuition fee for the following year, they simply transfer their
children to a school charging a tuition fee they can afford, or better still, to a public high school or public elementary school which
does not charge any tuition or other fees.

"Hence, if a school that has ten (10) students paying ₱10,000.00 a year in tuition fee in Year 1 (and therefore a tuition fee income of
₱100,000.00) should increase tuition fees in Year 2 to ₱12,000.00 a year, it is with the intention or purpose of raising tuition fee
income to ₱120,000.00, which in turn will enable them to pay its employees at 70% of the ‘incremental proceeds.’

"But if four (4) students cannot afford the increased tuition fee of ₱12,000.00 and transfer to another school, the school will have only
six (6) students paying ₱12,000 in Year 2 which means a tuition fee income of ₱72,000 instead of the expected or projected income of
₱120,000.00. Based on this example, the tuition fee increase clearly did not result in any ‘gain’ or ‘addition’ or ‘incremental proceeds’
but in a ‘loss’ or ‘decreased proceeds’. In this example, undoubtedly, there was a ‘tuition fee increase’ BUT this ‘tuition fee increase’
DID NOT RESULT in any ‘incremental proceeds’ which can be distributed to the employees mandated by the law.1awphi1.nét
"The bottom line in determining ‘incremental proceeds’ is tuition fee income that takes into account all relevant factors, such the rate
of increase of tuition fees, the number of students, the number of scholars (those who are exempted from paying the whole or part of
the tuition fee), the number of students who drop out during the year (and therefore do not pay the whole tuition fee for the year, and
the actual bad debts (the amount of tuition fee that some students do not pay because of financial inability).

"And it is this net increase in tuition fee INCOME (not the rate or amount of increase in tuition fees charged) that enables the school
to ‘DISTRIBUTE’ increase in salaries and benefits of the employees. The law says the school must ‘DISTRIBUTE.’ This means cash,
not estimates, hopes and dreams that have not been realized." (Emphasis in original)

In the above simplified example, petitioner maintains that the school’s gross income from tuition fees in Year 2 is only ₱72,000,
which is less than the gross income of ₱100,000 in Year 1. Hence, despite the tuition fee increase for each student from ₱10,000 to
₱12,000, there are no "incremental proceeds" that can be distributed to the teachers and the employees.

Under the CA Decision, the "incremental proceeds" should be determined simply from the additional fees charged per student times
the number of students, regardless of the gross income and of the number of enrollees for the period in question. Hence, in the
simplified example given, there would still be "incremental proceeds" of ₱12,000, computed at ₱2,000 (the amount of increase in
tuition fee per student) times 6 (the number of enrollees). The foregoing CA position is mathematically restated thus:

IP = N2 x (TF2-TF1)

= 6 x (12,000 less 10,000)

= 6 x 2,000

= 12,000

Petitioner insists that the CA’s formula actually oppresses the schools, because it would require them to pay increases in employee
compensation despite a loss in tuition income. Such situation may eventually lead to their closure, it concludes.

Respondent, on the other hand, contends that petitioner has not cited any law or jurisprudence to support its claim. It submits that the
CA’s formula is the result of a plain reading of the law.

At the outset, let it be clear that this Court understands the plight of private schools and their need to support their operation from
tuition income. We realize their role in educating the youth and in molding them as responsible citizens. In this sense, private schools
perform an indispensable task in nation-building. Hence, they deserve the support of the State to help them carry out their sacred
mission.

Indeed, this Court sympathizes with the dilemma of petitioner and other educational institutions similarly situated. In their desire to
raise teacher compensation and to expand school facilities, they resort to sometimes painful increases in tuition fees, only to find out
later that -- despite their good intentions -- their gross revenues actually decrease because of the lesser number of enrollees who can
afford the increases. However, the Court cannot agree with their position on the present legal issue because of the following reasons.

First, the judiciary merely applies what the law is, not what it should be. 19 Section 5(2) of Republic Act (RA) 6728 allows a
tuition fee increase only under the condition that at least 70 percent of the increase shall be disbursed as salaries, wages,
allowances and other benefits for teaching and nonteaching personnel. The law imposes this requirement without exceptions
or qualifications:

"2) x x x tuition fees under subparagraph (c) may be increased, on the condition that seventy percent (70%) x x x of the
tuition fee increases shall go to the payment of salaries, wages, allowances and other benefits of teaching and non-teaching
personnel x x x. At least 20% shall go to the improvement or modernization of buildings, equipment, libraries, laboratories,
gymnasia and similar facilities and to the payment of other costs of operation. For this purpose, schools shall maintain a
separate record of accounts for all assistance received from the government, any tuition fee increase, and the detailed
disposition and use thereof, which record shall be made available for periodic inspection x x x." (Underscoring supplied)

To repeat, the law plainly states that 70 percent of the tuition fee increase shall be allotted for the teaching and the
nonteaching personnel; and that the payment of other costs of operation, together with the improvement of the school’s
infrastructure, shall be taken only from the remaining 30 percent. The law does not speak, directly or indirectly, of the
contention of petitioner that in the event that its total tuition income is lesser than that in the previous year, then the whole
 amount of the increase in tuition fee, and not merely up to 30 percent as provided by law, may be used for the improvement
and modernization of infrastructure and for the payment of other costs of operation.1a\^/phi1.net

Indeed, in an analogous case promulgated in 1987, this Court has already enunciated its policy of non-interference in
deciding on the wisdom of a law (or the lack of it). Such policy is clear in CIT v. Ople,20 in which we said:

"Amidst these opposing forces the task at hand becomes saddled with the resultant implications that the interpretation of the
law would bear upon such varied interests. But this Court cannot go beyond what the legislature has laid down. Its duty is to
say what the law is as enacted by the lawmaking body. That is not the same as saying what the law should be or what is the
correct rule in a given set of circumstances. It is not the province of the judiciary to look into the wisdom of the law nor to
question the policies adopted by the legislative branch. Nor is it the business of this Tribunal to remedy every unjust situation
that may arise from the application of a particular law. It is for the legislature to enact remedial legislation if that would be
necessary in the premises. But as always, with apt judicial caution and cold neutrality, the Court must carry out the delicate
function of interpreting the law, guided by the Constitution and existing legislation and mindful of settled jurisprudence. The
Court's function is therefore limited, and accordingly, must confine itself to the judicial task of saying what the law is, as
enacted by the lawmaking body."

Second, the question of whether to increase tuition fees within the parameters of the law lies within the discretion and power
of the school, not the personnel thereof. When such a decision is made, it is assumed that the school has undertaken a serious
and thorough study of the probable consequences. In this sense, the action on whether to raise these fees becomes an
entrepreneurial risk that the owner assumes.21 In case such action turns out to be unwise or inconvenient, its result should be
the primary responsibility of the risk taker. The personnel -- while presumed to be equally interested in the continued
financial viability of the school -- had little or no say in that action. Hence, they should not be held responsible for its
consequent ill effects. The moral lesson is simply that the school must take all relevant circumstances and precautions in
making its decisions, realizing that any misstep or miscalculation or ill effect would be borne by it.

Third, apart from making theoretical calculations, petitioner has not provided the Court with hard evidence on the actual loss
it has incurred as a result of the tuition fee increase. Note that a mere decrease in the gross income of a corporation does not
necessarily and automatically translate into a negative bottom line. 22Decreased income may also mean decreased expenses.
Petitioner has failed to present evidence showing it actually suffered bottom line losses as a direct and necessary consequence
of the tuition fee increase. As it is then, its averments are mere conjectures, sorely insufficient to overturn the CA’s judgment.

Fourth, if the law is indeed disadvantageous to the educational system and grossly harmful to private schools, the remedy lies
not in this Court but in Congress which controls not only issues of policy, but also the purse strings of government. We are
confident that, given the opportunity to weigh the contentious sides of this question, Congress will find a wise answer.

Damages

In its Memorandum, respondent prays for relief in the form of legal interest from June 1, 2000, the alleged date when the personnel
benefits accrued, until the actual payment thereof. However, this Court cannot pass upon this matter, as respondent did not appeal
from the Decision of the appellate court.23

WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against petitioner.

SO ORDERED.
SPECIAL GROUPS OF EMPLOYEES

PHILIPPINE TELEGRAPH AND TELEPHONE COMPANY, * petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and GRACE DE GUZMAN, respondents.

REGALADO, J.:

Seeking relief through the extraordinary writ of certiorari, petitioner Philippine Telegraph and Telephone Company (hereafter, PT &
T) invokes the alleged concealment of civil status and defalcation of company funds as grounds to terminate the services of an
employee. That employee, herein private respondent Grace de Guzman, contrarily argues that what really motivated PT & T to
terminate her services was her having contracted marriage during her employment, which is prohibited by petitioner in its company
policies. She thus claims that she was discriminated against in gross violation of law, such a proscription by an employer being
outlawed by Article 136 of the Labor Code.

Grace de Guzman was initially hired by petitioner as a reliever, specifically as a "Supernumerary Project Worker," for a fixed period
from November 21, 1990 until April 20, 1991 vice one C.F. Tenorio who went on maternity leave. 1Under the Reliever Agreement
which she signed with petitioner company, her employment was to be immediately terminated upon expiration of the agreed period.
Thereafter, from June 10, 1991 to July 1, 1991, and from July 19, 1991 to August 8, 1991, private respondent's services as reliever
were again engaged by petitioner, this time in replacement of one Erlinda F. Dizon who went on leave during both periods. 2 After
August 8, 1991, and pursuant to their Reliever Agreement, her services were terminated.

On September 2, 1991, private respondent was once more asked to join petitioner company as a probationary employee, the
probationary period to cover 150 days. In the job application form that was furnished her to be filled up for the purpose, she indicated
in the portion for civil status therein that she was single although she had contracted marriage a few months earlier, that is, on May 26,
1991.3

It now appears that private respondent had made the same representation in the two successive reliever agreements which she signed
on June 10, 1991 and July 8, 1991. When petitioner supposedly learned about the same later, its branch supervisor in Baguio City,
Delia M. Oficial, sent to private respondent a memorandum dated January 15, 1992 requiring her to explain the discrepancy. In that
memorandum, she was reminded about the company's policy of not accepting married women for employment.4

In her reply letter dated January 17, 1992, private respondent stated that she was not aware of PT&T's policy regarding married
women at the time, and that all along she had not deliberately hidden her true civil status. 5Petitioner nonetheless remained
unconvinced by her explanations. Private respondent was dismissed from the company effective January 29, 1992, 6 which she readily
contested by initiating a complaint for illegal dismissal, coupled with a claim for non-payment of cost of living allowances (COLA),
before the Regional Arbitration Branch of the National Labor Relations Commission in Baguio City.

At the preliminary conference conducted in connection therewith, private respondent volunteered the information, and this was
incorporated in the stipulation of facts between the parties, that she had failed to remit the amount of P2,380.75 of her collections. She
then executed a promissory note for that amount in favor of petitioner 7. All of these took place in a formal proceeding and with the
agreement of the parties and/or their counsel.

On November 23, 1993, Labor Arbiter Irenarco R. Rimando handed down a decision declaring that private respondent, who had
already gained the status of a regular employee, was illegally dismissed by petitioner. Her reinstatement, plus payment of the
corresponding back wages and COLA, was correspondingly ordered, the labor arbiter being of the firmly expressed view that the
ground relied upon by petitioner in dismissing private respondent was clearly insufficient, and that it was apparent that she had been
discriminated against on account of her having contracted marriage in violation of company rules.

On appeal to the National Labor Relations Commission (NLRC), said public respondent upheld the labor arbiter and, in its decision
dated April 29, 1994, it ruled that private respondent had indeed been the subject of an unjust and unlawful discrimination by her
employer, PT & T. However, the decision of the labor arbiter was modified with the qualification that Grace de Guzman deserved to
be suspended for three months in view of the dishonest nature of her acts which should not be condoned. In all other respects, the
NLRC affirmed the decision of the labor arbiter, including the order for the reinstatement of private respondent in her employment
with PT & T.
The subsequent motion for reconsideration filed by petitioner was rebuffed by respondent NLRC in its resolution of November 9,
1994, hence this special civil action assailing the aforestated decisions of the labor arbiter and respondent NLRC, as well as the denial
resolution of the latter.

1. Decreed in the Bible itself is the universal norm that women should be regarded with love and respect but, through the ages, men
have responded to that injunction with indifference, on the hubristic conceit that women constitute the inferior sex. Nowhere has that
prejudice against womankind been so pervasive as in the field of labor, especially on the matter of equal employment opportunities
and standards. In the Philippine setting, women have traditionally been considered as falling within the vulnerable groups or types of
workers who must be safeguarded with preventive and remedial social legislation against discriminatory and exploitative practices in
hiring, training, benefits, promotion and retention.

The Constitution, cognizant of the disparity in rights between men and women in almost all phases of social and political life, provides
a gamut of protective provisions. To cite a few of the primordial ones, Section 14, Article II 8 on the Declaration of Principles and State
Policies, expressly recognizes the role of women in nation-building and commands the State to ensure, at all times, the fundamental
equality before the law of women and men. Corollary thereto, Section 3 of Article XIII 9 (the progenitor whereof dates back to both the
1935 and 1973 Constitution) pointedly requires the State to afford full protection to labor and to promote full employment and
equality of employment opportunities for all, including an assurance of entitlement to tenurial security of all workers. Similarly,
Section 14 of Article XIII 10 mandates that the State shall protect working women through provisions for opportunities that would
enable them to reach their full potential.

2. Corrective labor and social laws on gender inequality have emerged with more frequency in the years since the Labor Code was
enacted on May 1, 1974 as Presidential Decree No. 442, largely due to our country's commitment as a signatory to the United Nations
Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW). 11

Principal among these laws are Republic Act No. 6727 12 which explicitly prohibits discrimination against women with respect to
terms and conditions of employment, promotion, and training opportunities; Republic Act No. 6955 13which bans the "mail-order-
bride" practice for a fee and the export of female labor to countries that cannot guarantee protection to the rights of women workers;
Republic Act No. 7192 14 also known as the "Women in Development and Nation Building Act," which affords women equal
opportunities with men to act and to enter into contracts, and for appointment, admission, training, graduation, and commissioning in
all military or similar schools of the Armed Forces of the Philippines and the Philippine National Police; Republic Act No.
7322 15 increasing the maternity benefits granted to women in the private sector; Republic Act No. 7877 16 which outlaws and
punishes sexual harassment in the workplace and in the education and training environment; and Republic Act No. 8042, 17 or the
"Migrant Workers and Overseas Filipinos Act of 1995," which prescribes as a matter of policy, inter alia, the deployment of migrant
workers, with emphasis on women, only in countries where their rights are secure. Likewise, it would not be amiss to point out that in
the Family Code, 18 women's rights in the field of civil law have been greatly enhanced and expanded.

In the Labor Code, provisions governing the rights of women workers are found in Articles 130 to 138 thereof. Article 130 involves
the right against particular kinds of night work while Article 132 ensures the right of women to be provided with facilities and
standards which the Secretary of Labor may establish to ensure their health and safety. For purposes of labor and social legislation, a
woman working in a nightclub, cocktail lounge, massage clinic, bar or other similar establishments shall be considered as an employee
under Article 138. Article 135, on the other hand, recognizes a woman's right against discrimination with respect to terms and
conditions of employment on account simply of sex. Finally, and this brings us to the issue at hand, Article 136 explicitly prohibits
discrimination merely by reason of the marriage of a female employee.

3. Acknowledged as paramount in the due process scheme is the constitutional guarantee of protection to labor and security of tenure.
Thus, an employer is required, as a condition sine qua non prior to severance of the employment ties of an individual under his
employ, to convincingly establish, through substantial evidence, the existence of a valid and just cause in dispensing with the services
of such employee, one's labor being regarded as constitutionally protected property.

On the other hand, it is recognized that regulation of manpower by the company falls within the so-called management prerogatives,
which prescriptions encompass the matter of hiring, supervision of workers, work assignments, working methods and assignments, as
well as regulations on the transfer of employees, lay-off of workers, and the discipline, dismissal, and recall of employees. 19 As put in
a case, an employer is free to regulate, according to his discretion and best business judgment, all aspects of employment, "from hiring
to firing," except in cases of unlawful discrimination or those which may be provided by law. 20

In the case at bar, petitioner's policy of not accepting or considering as disqualified from work any woman worker who contracts
marriage runs afoul of the test of, and the right against, discrimination, afforded all women workers by our labor laws and by no less
than the Constitution. Contrary to petitioner's assertion that it dismissed private respondent from employment on account of her
dishonesty, the record discloses clearly that her ties with the company were dissolved principally because of the company's policy that
married women are not qualified for employment in PT & T, and not merely because of her supposed acts of dishonesty.
That it was so can easily be seen from the memorandum sent to private respondent by Delia M. Oficial, the branch supervisor of the
company, with the reminder, in the words of the latter, that "you're fully aware that the company is not accepting married women
employee (sic), as it was verbally instructed to you." 21 Again, in the termination notice sent to her by the same branch supervisor,
private respondent was made to understand that her severance from the service was not only by reason of her concealment of her
married status but, over and on top of that, was her violation of the company's policy against marriage ("and even told you that
married women employees are not applicable [sic] or accepted in our company.") 22 Parenthetically, this seems to be the curious
reason why it was made to appear in the initiatory pleadings that petitioner was represented in this case only by its said supervisor and
not by its highest ranking officers who would otherwise be solidarily liable with the corporation. 23

Verily, private respondent's act of concealing the true nature of her status from PT & T could not be properly characterized as willful
or in bad faith as she was moved to act the way she did mainly because she wanted to retain a permanent job in a stable company. In
other words, she was practically forced by that very same illegal company policy into misrepresenting her civil status for fear of being
disqualified from work. While loss of confidence is a just cause for termination of employment, it should not be simulated. 24 It must
rest on an actual breach of duty committed by the employee and not on the employer's caprices. 25 Furthermore, it should never be
used as a subterfuge for causes which are improper, illegal, or unjustified. 26

In the present controversy, petitioner's expostulations that it dismissed private respondent, not because the latter got married but
because she concealed that fact, does have a hollow ring. Her concealment, so it is claimed, bespeaks dishonesty hence the consequent
loss of confidence in her which justified her dismissal.

Petitioner would asseverate, therefore, that while it has nothing against marriage, it nonetheless takes umbrage over the concealment
of that fact. This improbable reasoning, with interstitial distinctions, perturbs the Court since private respondent may well be minded
to claim that the imputation of dishonesty should be the other way around.

Petitioner would have the Court believe that although private respondent defied its policy against its female employees contracting
marriage, what could be an act of insubordination was inconsequential. What it submits as unforgivable is her concealment of that
marriage yet, at the same time, declaring that marriage as a trivial matter to which it supposedly has no objection. In other words, PT
& T says it gives its blessings to its female employees contracting marriage, despite the maternity leaves and other benefits it would
consequently respond for and which obviously it would have wanted to avoid. If that employee confesses such fact of marriage, there
will be no sanction; but if such employee conceals the same instead of proceeding to the confessional, she will be dismissed. This line
of reasoning does not impress us as reflecting its true management policy or that we are being regaled with responsible advocacy.

This Court should be spared the ennui of strained reasoning and the tedium of propositions which confuse through less than candid
arguments. Indeed, petitioner glosses over the fact that it was its unlawful policy against married women, both on the aspects of
qualification and retention, which compelled private respondent to conceal her supervenient marriage. It was, however, that very
policy alone which was the cause of private respondent's secretive conduct now complained of. It is then apropos to recall the familiar
saying that he who is the cause of the cause is the cause of the evil caused.

Finally, petitioner's collateral insistence on the admission of private respondent that she supposedly misappropriated company funds,
as an additional ground to dismiss her from employment, is somewhat insincere and self-serving. Concededly, private respondent
admitted in the course of the proceedings that she failed to remit some of her collections, but that is an altogether different story. The
fact is that she was dismissed solely because of her concealment of her marital status, and not on the basis of that supposed defalcation
of company funds. That the labor arbiter would thus consider petitioner's submissions on this supposed dishonesty as a mere
afterthought, just to bolster its case for dismissal, is a perceptive conclusion born of experience in labor cases. For, there was no
showing that private respondent deliberately misappropriated the amount or whether her failure to remit the same was through
negligence and, if so, whether the negligence was in nature simple or grave. In fact, it was merely agreed that private respondent
execute a promissory note to refund the same, which she did, and the matter was deemed settled as a peripheral issue in the labor case.

Private respondent, it must be observed, had gained regular status at the time of her dismissal. When she was served her walking
papers on January 29, 1992, she was about to complete the probationary period of 150 days as she was contracted as a probationary
employee on September 2, 1991. That her dismissal would be effected just when her probationary period was winding down clearly
raises the plausible conclusion that it was done in order to prevent her from earning security of tenure. 27 On the other hand, her earlier
stints with the company as reliever were undoubtedly those of a regular employee, even if the same were for fixed periods, as she
performed activities which were essential or necessary in the usual trade and business of PT & T. 28 The primary standard of
determining regular employment is the reasonable connection between the activity performed by the employee in relation to the
business or trade of the employer. 29

As an employee who had therefore gained regular status, and as she had been dismissed without just cause, she is entitled to
reinstatement without loss of seniority rights and other privileges and to full back wages, inclusive of allowances and other benefits or
their monetary equivalent. 30 However, as she had undeniably committed an act of dishonesty in concealing her status, albeit under the
compulsion of an unlawful imposition of petitioner, the three-month suspension imposed by respondent NLRC must be upheld to
obviate the impression or inference that such act should be condoned. It would be unfair to the employer if she were to return to its
fold without any sanction whatsoever for her act which was not totally justified. Thus, her entitlement to back wages, which shall be
computed from the time her compensation was withheld up to the time of her actual reinstatement, shall be reduced by deducting
therefrom the amount corresponding to her three months suspension.

4. The government, to repeat, abhors any stipulation or policy in the nature of that adopted by petitioner PT & T. The Labor Code
state, in no uncertain terms, as follows:

Art. 136. Stipulation against marriage. — It shall be unlawful for an employer to require as a condition of
employment or continuation of employment that a woman shall not get married, or to stipulate expressly or tacitly
that upon getting married, a woman employee shall be deemed resigned or separated, or to actually dismiss,
discharge, discriminate or otherwise prejudice a woman employee merely by reason of marriage.

This provision had a studied history for its origin can be traced to Section 8 of Presidential Decree No. 148, 31 better known as the
"Women and
Child Labor Law," which amended paragraph (c), Section 12 of Republic Act No. 679, 32 entitled "An Act to Regulate the
Employment of Women and Children, to Provide Penalties for Violations Thereof, and for Other Purposes." The forerunner to
Republic Act No. 679, on the other hand, was Act No. 3071 which became law on March 16, 1923 and which regulated the
employment of women and children in shops, factories, industrial, agricultural, and mercantile establishments and other places of
labor in the then Philippine Islands.

It would be worthwhile to reflect upon and adopt here the rationalization in Zialcita, et al. vs. Philippine Air Lines, 33 a decision that
emanated from the Office of the President. There, a policy of Philippine Air Lines requiring that prospective flight attendants must be
single and that they will be automatically separated from the service once they marry was declared void, it being violative of the clear
mandate in Article 136 of the Labor Code with regard to discrimination against married women. Thus:

Of first impression is the incompatibility of the respondent's policy or regulation with the codal provision of law.
Respondent is resolute in its contention that Article 136 of the Labor Code applies only to women employed in
ordinary occupations and that the prohibition against marriage of women engaged in extraordinary occupations, like
flight attendants, is fair and reasonable, considering the pecularities of their chosen profession.

We cannot subscribe to the line of reasoning pursued by respondent. All along, it knew that the controverted policy
has already met its doom as early as March 13, 1973 when Presidential Decree No. 148, otherwise known as the
Women and Child Labor Law, was promulgated. But for the timidity of those affected or their labor unions in
challenging the validity of the policy, the same was able to obtain a momentary reprieve. A close look at Section 8
of said decree, which amended paragraph (c) of Section 12 of Republic Act No. 679, reveals that it is exactly the
same provision reproduced verbatim in Article 136 of the Labor Code, which was promulgated on May 1, 1974 to
take effect six (6) months later, or on November 1, 1974.

It cannot be gainsaid that, with the reiteration of the same provision in the new Labor Code, all policies and acts
against it are deemed illegal and therefore abrogated. True, Article 132 enjoins the Secretary of Labor to establish
standards that will ensure the safety and health of women employees and in appropriate cases shall by regulation
require employers to determine appropriate minimum standards for termination in special occupations, such as those
of flight attendants, but that is precisely the factor that militates against the policy of respondent. The standards have
not yet been established as set forth in the first paragraph, nor has the Secretary of Labor issued any regulation
affecting flight attendants.

It is logical to presume that, in the absence of said standards or regulations which are as yet to be established, the
policy of respondent against marriage is patently illegal. This finds support in Section 9 of the New Constitution,
which provides:

Sec. 9. The State shall afford protection to labor, promote full employment and equality in employment, ensure
equal work opportunities regardless of sex, race, or creed, and regulate the relations between workers and
employees. The State shall assure the rights of workers to self-organization, collective bargaining, security of tenure,
and just and humane conditions of work . . . .

Moreover, we cannot agree to the respondent's proposition that termination from employment of flight attendants on
account of marriage is a fair and reasonable standard designed for their own health, safety, protection and welfare, as
no basis has been laid therefor. Actually, respondent claims that its concern is not so much against the continued
 employment of the flight attendant merely by reason of marriage as observed by the Secretary of Labor, but rather
on the consequence of marriage-pregnancy. Respondent discussed at length in the instant appeal the supposed ill
effects of pregnancy on flight attendants in the course of their employment. We feel that this needs no further
discussion as it had been adequately explained by the Secretary of Labor in his decision of May 2, 1976.

In a vain attempt to give meaning to its position, respondent went as far as invoking the provisions of Articles 52
and 216 of the New Civil Code on the preservation of marriage as an inviolable social institution and the family as a
basic social institution, respectively, as bases for its policy of non-marriage. In both instances, respondent predicates
absence of a flight attendant from her home for long periods of time as contributory to an unhappy married life. This
is pure conjecture not based on actual conditions, considering that, in this modern world, sophisticated technology
has narrowed the distance from one place to another. Moreover, respondent overlooked the fact that married flight
attendants can program their lives to adapt to prevailing circumstances and events.

Article 136 is not intended to apply only to women employed in ordinary occupations, or it should have
categorically expressed so. The sweeping intendment of the law, be it on special or ordinary occupations, is reflected
in the whole text and supported by Article 135 that speaks of non-discrimination on the employment of women.

The judgment of the Court of Appeals in Gualberto, et al. vs. Marinduque Mining & Industrial Corporation 34considered as void a
policy of the same nature. In said case, respondent, in dismissing from the service the complainant, invoked a policy of the firm to
consider female employees in the project it was undertaking as separated the moment they get married due to lack of facilities for
married women. Respondent further claimed that complainant was employed in the project with an oral understanding that her
services would be terminated when she gets married. Branding the policy of the employer as an example of "discriminatory
chauvinism" tantamount to denying equal employment opportunities to women simply on account of their sex, the appellate court
struck down said employer policy as unlawful in view of its repugnance to the Civil Code, Presidential Decree No. 148 and the
Constitution.

Under American jurisprudence, job requirements which establish employer preference or conditions relating to the marital status of an
employee are categorized as a "sex-plus" discrimination where it is imposed on one sex and not on the other. Further, the same should
be evenly applied and must not inflict adverse effects on a racial or sexual group which is protected by federal job discrimination laws.
Employment rules that forbid or restrict the employment of married women, but do not apply to married men, have been held to
violate Title VII of the United States Civil Rights Act of 1964, the main federal statute prohibiting job discrimination against
employees and applicants on the basis of, among other things, sex. 35

Further, it is not relevant that the rule is not directed against all women but just against married women. And, where the employer
discriminates against married women, but not against married men, the variable is sex and the discrimination is unlawful. 36 Upon the
other hand, a requirement that a woman employee must remain unmarried could be justified as a "bona fide occupational
qualification," or BFOQ, where the particular requirements of the job would justify the same, but not on the ground of a general
principle, such as the desirability of spreading work in the workplace. A requirement of that nature would be valid provided it reflects
an inherent quality reasonably necessary for satisfactory job performance. Thus, in one case, a no-marriage rule applicable to both
male and female flight attendants, was regarded as unlawful since the restriction was not related to the job performance of the flight
attendants. 37

5. Petitioner's policy is not only in derogation of the provisions of Article 136 of the Labor Code on the right of a woman to be free
from any kind of stipulation against marriage in connection with her employment, but it likewise assaults good morals and public
policy, tending as it does to deprive a woman of the freedom to choose her status, a privilege that by all accounts inheres in the
individual as an intangible and inalienable right. 38 Hence, while it is true that the parties to a contract may establish any agreements,
terms, and conditions that they may deem convenient, the same should not be contrary to law, morals, good customs, public order, or
public policy. 39 Carried to its logical consequences, it may even be said that petitioner's policy against legitimate marital bonds would
encourage illicit or common-law relations and subvert the sacrament of marriage.

Parenthetically, the Civil Code provisions on the contract of labor state that the relations between the parties, that is, of capital and
labor, are not merely contractual, impressed as they are with so much public interest that the same should yield to the common
good. 40 It goes on to intone that neither capital nor labor should visit acts of oppression against the other, nor impair the interest or
convenience of the public. 41 In the final reckoning, the danger of just such a policy against marriage followed by petitioner PT & T is
that it strikes at the very essence, ideals and purpose of marriage as an inviolable social institution and, ultimately, of the family as the
foundation of the nation. 42 That it must be effectively interdicted here in all its indirect, disguised or dissembled forms as
discriminatory conduct derogatory of the laws of the land is not only in order but imperatively required.

ON THE FOREGOING PREMISES, the petition of Philippine Telegraph and Telephone Company is hereby DISMISSED for lack of
merit, with double costs against petitioner.
SO ORDERED.

DUNCAN ASSOCIATION OF DETAILMAN-PTGWO and PEDRO A. TECSON, petitioners,

vs.
GLAXO WELLCOME PHILIPPINES, INC., Respondent.

TINGA, J.:

Confronting the Court in this petition is a novel question, with constitutional overtones, involving the validity of the policy of a
pharmaceutical company prohibiting its employees from marrying employees of any competitor company.

This is a Petition for Review on Certiorari assailing the Decision1 dated May 19, 2003 and the Resolution dated March 26, 2004 of the
Court of Appeals in CA-G.R. SP No. 62434.2

Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome Philippines, Inc. (Glaxo) as medical representative on
October 24, 1995, after Tecson had undergone training and orientation.

Thereafter, Tecson signed a contract of employment which stipulates, among others, that he agrees to study and abide by existing
company rules; to disclose to management any existing or future relationship by consanguinity or affinity with co-employees or
employees of competing drug companies and should management find that such relationship poses a possible conflict of interest, to
resign from the company.

The Employee Code of Conduct of Glaxo similarly provides that an employee is expected to inform management of any existing or
future relationship by consanguinity or affinity with co-employees or employees of competing drug companies. If management
perceives a conflict of interest or a potential conflict between such relationship and the employee’s employment with the company, the
management and the employee will explore the possibility of a "transfer to another department in a non-counterchecking position" or
preparation for employment outside the company after six months.

Tecson was initially assigned to market Glaxo’s products in the Camarines Sur-Camarines Norte sales area.

Subsequently, Tecson entered into a romantic relationship with Bettsy, an employee of Astra Pharmaceuticals 3(Astra), a competitor of
Glaxo. Bettsy was Astra’s Branch Coordinator in Albay. She supervised the district managers and medical representatives of her
company and prepared marketing strategies for Astra in that area.

Even before they got married, Tecson received several reminders from his District Manager regarding the conflict of interest which his
relationship with Bettsy might engender. Still, love prevailed, and Tecson married Bettsy in September 1998.

In January 1999, Tecson’s superiors informed him that his marriage to Bettsy gave rise to a conflict of interest. Tecson’s superiors
reminded him that he and Bettsy should decide which one of them would resign from their jobs, although they told him that they
wanted to retain him as much as possible because he was performing his job well.

Tecson requested for time to comply with the company policy against entering into a relationship with an employee of a competitor
company. He explained that Astra, Bettsy’s employer, was planning to merge with Zeneca, another drug company; and Bettsy was
planning to avail of the redundancy package to be offered by Astra. With Bettsy’s separation from her company, the potential conflict
of interest would be eliminated. At the same time, they would be able to avail of the attractive redundancy package from Astra.

In August 1999, Tecson again requested for more time resolve the problem. In September 1999, Tecson applied for a transfer in
Glaxo’s milk division, thinking that since Astra did not have a milk division, the potential conflict of interest would be eliminated. His
application was denied in view of Glaxo’s "least-movement-possible" policy.

In November 1999, Glaxo transferred Tecson to the Butuan City-Surigao City-Agusan del Sur sales area. Tecson asked Glaxo to
reconsider its decision, but his request was denied.

Tecson sought Glaxo’s reconsideration regarding his transfer and brought the matter to Glaxo’s Grievance Committee. Glaxo,
however, remained firm in its decision and gave Tescon until February 7, 2000 to comply with the transfer order. Tecson defied the
transfer order and continued acting as medical representative in the Camarines Sur-Camarines Norte sales area.
During the pendency of the grievance proceedings, Tecson was paid his salary, but was not issued samples of products which were
competing with similar products manufactured by Astra. He was also not included in product conferences regarding such products.

Because the parties failed to resolve the issue at the grievance machinery level, they submitted the matter for voluntary arbitration.
Glaxo offered Tecson a separation pay of one-half (½) month pay for every year of service, or a total of ₱50,000.00 but he declined
the offer. On November 15, 2000, the National Conciliation and Mediation Board (NCMB) rendered its Decision declaring as valid
Glaxo’s policy on relationships between its employees and persons employed with competitor companies, and affirming Glaxo’s right
to transfer Tecson to another sales territory.

Aggrieved, Tecson filed a Petition for Review with the Court of Appeals assailing the NCMB Decision.

On May 19, 2003, the Court of Appeals promulgated its Decision denying the Petition for Review on the ground that the NCMB did
not err in rendering its Decision. The appellate court held that Glaxo’s policy prohibiting its employees from having personal
relationships with employees of competitor companies is a valid exercise of its management prerogatives. 4

Tecson filed a Motion for Reconsideration of the appellate court’s Decision, but the motion was denied by the appellate court in
its Resolution dated March 26, 2004.5

Petitioners filed the instant petition, arguing therein that (i) the Court of Appeals erred in affirming the NCMB’s finding that the
Glaxo’s policy prohibiting its employees from marrying an employee of a competitor company is valid; and (ii) the Court of Appeals
also erred in not finding that Tecson was constructively dismissed when he was transferred to a new sales territory, and deprived of
the opportunity to attend products seminars and training sessions. 6

Petitioners contend that Glaxo’s policy against employees marrying employees of competitor companies violates the equal protection
clause of the Constitution because it creates invalid distinctions among employees on account only of marriage. They claim that the
policy restricts the employees’ right to marry.7

They also argue that Tecson was constructively dismissed as shown by the following circumstances: (1) he was transferred from the
Camarines Sur-Camarines Norte sales area to the Butuan-Surigao-Agusan sales area, (2) he suffered a diminution in pay, (3) he was
excluded from attending seminars and training sessions for medical representatives, and (4) he was prohibited from promoting
respondent’s products which were competing with Astra’s products. 8

In its Comment on the petition, Glaxo argues that the company policy prohibiting its employees from having a relationship with and/or
marrying an employee of a competitor company is a valid exercise of its management prerogatives and does not violate the equal
protection clause; and that Tecson’s reassignment from the Camarines Norte-Camarines Sur sales area to the Butuan City-Surigao
City and Agusan del Sur sales area does not amount to constructive dismissal. 9

Glaxo insists that as a company engaged in the promotion and sale of pharmaceutical products, it has a genuine interest in ensuring
that its employees avoid any activity, relationship or interest that may conflict with their responsibilities to the company. Thus, it
expects its employees to avoid having personal or family interests in any competitor company which may influence their actions and
decisions and consequently deprive Glaxo of legitimate profits. The policy is also aimed at preventing a competitor company from
gaining access to its secrets, procedures and policies.10

It likewise asserts that the policy does not prohibit marriage per se but only proscribes existing or future relationships with employees
of competitor companies, and is therefore not violative of the equal protection clause. It maintains that considering the nature of its
business, the prohibition is based on valid grounds. 11

According to Glaxo, Tecson’s marriage to Bettsy, an employee of Astra, posed a real and potential conflict of interest. Astra’s
products were in direct competition with 67% of the products sold by Glaxo. Hence, Glaxo’s enforcement of the foregoing policy in
Tecson’s case was a valid exercise of its management prerogatives.12 In any case, Tecson was given several months to remedy the
situation, and was even encouraged not to resign but to ask his wife to resign form Astra instead. 13

Glaxo also points out that Tecson can no longer question the assailed company policy because when he signed his contract of
employment, he was aware that such policy was stipulated therein. In said contract, he also agreed to resign from respondent if the
management finds that his relationship with an employee of a competitor company would be detrimental to the interests of Glaxo. 14

Glaxo likewise insists that Tecson’s reassignment to another sales area and his exclusion from seminars regarding respondent’s new
products did not amount to constructive dismissal.
It claims that in view of Tecson’s refusal to resign, he was relocated from the Camarines Sur-Camarines Norte sales area to the Butuan
City-Surigao City and Agusan del Sur sales area. Glaxo asserts that in effecting the reassignment, it also considered the welfare of
Tecson’s family. Since Tecson’s hometown was in Agusan del Sur and his wife traces her roots to Butuan City, Glaxo assumed that
his transfer from the Bicol region to the Butuan City sales area would be favorable to him and his family as he would be relocating to
a familiar territory and minimizing his travel expenses. 15

In addition, Glaxo avers that Tecson’s exclusion from the seminar concerning the new anti-asthma drug was due to the fact that said
product was in direct competition with a drug which was soon to be sold by Astra, and hence, would pose a potential conflict of
interest for him. Lastly, the delay in Tecson’s receipt of his sales paraphernalia was due to the mix-up created by his refusal to transfer
to the Butuan City sales area (his paraphernalia was delivered to his new sales area instead of Naga City because the supplier thought
he already transferred to Butuan).16

The Court is tasked to resolve the following issues: (1) Whether the Court of Appeals erred in ruling that Glaxo’s policy against its
employees marrying employees from competitor companies is valid, and in not holding that said policy violates the equal protection
clause of the Constitution; (2) Whether Tecson was constructively dismissed.

The Court finds no merit in the petition.

The stipulation in Tecson’s contract of employment with Glaxo being questioned by petitioners provides:

10. You agree to disclose to management any existing or future relationship you may have, either by consanguinity or affinity
with co-employees or employees of competing drug companies. Should it pose a possible conflict of interest in management
discretion, you agree to resign voluntarily from the Company as a matter of Company policy.

…17

The same contract also stipulates that Tescon agrees to abide by the existing company rules of Glaxo, and to study and become
acquainted with such policies.18 In this regard, the Employee Handbook of Glaxo expressly informs its employees of its rules
regarding conflict of interest:

1. Conflict of Interest

Employees should avoid any activity, investment relationship, or interest that may run counter to the responsibilities which
they owe Glaxo Wellcome.

Specifically, this means that employees are expected:

a. To avoid having personal or family interest, financial or otherwise, in any competitor supplier or other businesses
which may consciously or unconsciously influence their actions or decisions and thus deprive Glaxo Wellcome of
legitimate profit.

b. To refrain from using their position in Glaxo Wellcome or knowledge of Company plans to advance their outside
personal interests, that of their relatives, friends and other businesses.

c. To avoid outside employment or other interests for income which would impair their effective job performance.

d. To consult with Management on such activities or relationships that may lead to conflict of interest.

1.1. Employee Relationships

Employees with existing or future relationships either by consanguinity or affinity with co-employees of competing drug
companies are expected to disclose such relationship to the Management. If management perceives a conflict or potential
conflict of interest, every effort shall be made, together by management and the employee, to arrive at a solution within six
(6) months, either by transfer to another department in a non-counter checking position, or by career preparation toward
outside employment after Glaxo Wellcome. Employees must be prepared for possible resignation within six (6) months, if no
other solution is feasible.19
No reversible error can be ascribed to the Court of Appeals when it ruled that Glaxo’s policy prohibiting an employee from having a
relationship with an employee of a competitor company is a valid exercise of management prerogative.

Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing strategies and other confidential programs and
information from competitors, especially so that it and Astra are rival companies in the highly competitive pharmaceutical industry.

The prohibition against personal or marital relationships with employees of competitor companies upon Glaxo’s employees is
reasonable under the circumstances because relationships of that nature might compromise the interests of the company. In laying
down the assailed company policy, Glaxo only aims to protect its interests against the possibility that a competitor company will gain
access to its secrets and procedures.

That Glaxo possesses the right to protect its economic interests cannot be denied. No less than the Constitution recognizes the right of
enterprises to adopt and enforce such a policy to protect its right to reasonable returns on investments and to expansion and
growth.20 Indeed, while our laws endeavor to give life to the constitutional policy on social justice and the protection of labor, it does
not mean that every labor dispute will be decided in favor of the workers. The law also recognizes that management has rights which
are also entitled to respect and enforcement in the interest of fair play. 21

As held in a Georgia, U.S.A case,22 it is a legitimate business practice to guard business confidentiality and protect a competitive
position by even-handedly disqualifying from jobs male and female applicants or employees who are married to a competitor.
Consequently, the court ruled than an employer that discharged an employee who was married to an employee of an active competitor
did not violate Title VII of the Civil Rights Act of 1964. 23 The Court pointed out that the policy was applied to men and women
equally, and noted that the employer’s business was highly competitive and that gaining inside information would constitute a
competitive advantage.

The challenged company policy does not violate the equal protection clause of the Constitution as petitioners erroneously suggest. It is
a settled principle that the commands of the equal protection clause are addressed only to the state or those acting under color of its
authority.24 Corollarily, it has been held in a long array of U.S. Supreme Court decisions that the equal protection clause erects no
shield against merely private conduct, however, discriminatory or wrongful. 25 The only exception occurs when the state29 in any of its
manifestations or actions has been found to have become entwined or involved in the wrongful private conduct.27 Obviously, however,
the exception is not present in this case. Significantly, the company actually enforced the policy after repeated requests to the
employee to comply with the policy. Indeed, the application of the policy was made in an impartial and even-handed manner, with due
regard for the lot of the employee.

In any event, from the wordings of the contractual provision and the policy in its employee handbook, it is clear that Glaxo does not
impose an absolute prohibition against relationships between its employees and those of competitor companies. Its employees are free
to cultivate relationships with and marry persons of their own choosing. What the company merely seeks to avoid is a conflict of
interest between the employee and the company that may arise out of such relationships. As succinctly explained by the appellate
court, thus:

The policy being questioned is not a policy against marriage. An employee of the company remains free to marry anyone of
his or her choosing. The policy is not aimed at restricting a personal prerogative that belongs only to the individual. However,
an employee’s personal decision does not detract the employer from exercising management prerogatives to ensure maximum
profit and business success. . . 28

The Court of Appeals also correctly noted that the assailed company policy which forms part of respondent’s Employee Code of
Conduct and of its contracts with its employees, such as that signed by Tescon, was made known to him prior to his employment.
Tecson, therefore, was aware of that restriction when he signed his employment contract and when he entered into a relationship with
Bettsy. Since Tecson knowingly and voluntarily entered into a contract of employment with Glaxo, the stipulations therein have the
force of law between them and, thus, should be complied with in good faith." 29 He is therefore estopped from questioning said policy.

The Court finds no merit in petitioners’ contention that Tescon was constructively dismissed when he was transferred from the
Camarines Norte-Camarines Sur sales area to the Butuan City-Surigao City-Agusan del Sur sales area, and when he was excluded
from attending the company’s seminar on new products which were directly competing with similar products manufactured by Astra.
Constructive dismissal is defined as a quitting, an involuntary resignation resorted to when continued employment becomes
impossible, unreasonable, or unlikely; when there is a demotion in rank or diminution in pay; or when a clear discrimination,
insensibility or disdain by an employer becomes unbearable to the employee. 30 None of these conditions are present in the instant case.
The record does not show that Tescon was demoted or unduly discriminated upon by reason of such transfer. As found by the
appellate court, Glaxo properly exercised its management prerogative in reassigning Tecson to the Butuan City sales area:
 . . . In this case, petitioner’s transfer to another place of assignment was merely in keeping with the policy of the company in
avoidance of conflict of interest, and thus valid…Note that [Tecson’s] wife holds a sensitive supervisory position as Branch
Coordinator in her employer-company which requires her to work in close coordination with District Managers and Medical
Representatives. Her duties include monitoring sales of Astra products, conducting sales drives, establishing and furthering
relationship with customers, collection, monitoring and managing Astra’s inventory…she therefore takes an active
participation in the market war characterized as it is by stiff competition among pharmaceutical companies. Moreover, and
this is significant, petitioner’s sales territory covers Camarines Sur and Camarines Norte while his wife is supervising a
branch of her employer in Albay. The proximity of their areas of responsibility, all in the same Bicol Region, renders the
conflict of interest not only possible, but actual, as learning by one spouse of the other’s market strategies in the region would
be inevitable. [Management’s] appreciation of a conflict of interest is therefore not merely illusory and wanting in factual
basis…31

In Abbott Laboratories (Phils.), Inc. v. National Labor Relations Commission,32 which involved a complaint filed by a medical
representative against his employer drug company for illegal dismissal for allegedly terminating his employment when he refused to
accept his reassignment to a new area, the Court upheld the right of the drug company to transfer or reassign its employee in
accordance with its operational demands and requirements. The ruling of the Court therein, quoted hereunder, also finds application in
the instant case:

By the very nature of his employment, a drug salesman or medical representative is expected to travel. He should anticipate
reassignment according to the demands of their business. It would be a poor drug corporation which cannot even assign its
representatives or detail men to new markets calling for opening or expansion or to areas where the need for pushing its
products is great. More so if such reassignments are part of the employment contract.33

As noted earlier, the challenged policy has been implemented by Glaxo impartially and disinterestedly for a long period of time. In the
case at bar, the record shows that Glaxo gave Tecson several chances to eliminate the conflict of interest brought about by his
relationship with Bettsy. When their relationship was still in its initial stage, Tecson’s supervisors at Glaxo constantly reminded him
about its effects on his employment with the company and on the company’s interests. After Tecson married Bettsy, Glaxo gave him
time to resolve the conflict by either resigning from the company or asking his wife to resign from Astra. Glaxo even expressed its
desire to retain Tecson in its employ because of his satisfactory performance and suggested that he ask Bettsy to resign from her
company instead. Glaxo likewise acceded to his repeated requests for more time to resolve the conflict of interest. When the problem
could not be resolved after several years of waiting, Glaxo was constrained to reassign Tecson to a sales area different from that
handled by his wife for Astra. Notably, the Court did not terminate Tecson from employment but only reassigned him to another area
where his home province, Agusan del Sur, was included. In effecting Tecson’s transfer, Glaxo even considered the welfare of
Tecson’s family. Clearly, the foregoing dispels any suspicion of unfairness and bad faith on the part of Glaxo. 34

WHEREFORE, the Petition is DENIED for lack of merit. Costs against petitioners.

SO ORDERED.

STAR PAPER CORPORATION, G.R. No. 164774

JOSEPHINE ONGSITCO &
SEBASTIAN CHUA,
Petitioners, Present:

PUNO, J., Chairman,

SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
-versus- GARCIA, JJ.

Promulgated:
RONALDO D. SIMBOL, April 12, 2006
WILFREDA N. COMIA &
LORNA E. ESTRELLA,

PUNO, J.:
We are called to decide an issue of first impression: whether the policy of the employer banning spouses from working in the same
company violates the rights of the employee under the Constitution and the Labor Code or is a valid exercise of management
prerogative.
At bar is a Petition for Review on Certiorari of the Decision of the Court of Appeals dated August 3, 2004 in CA-G.R. SP
No. 73477 reversing the decision of the National Labor Relations Commission (NLRC) which affirmed the ruling of the Labor
Arbiter.
Petitioner Star Paper Corporation (the company) is a corporation engaged in trading principally of paper products. Josephine Ongsitco
is its Manager of the Personnel and Administration Department while Sebastian Chua is its Managing Director.
The evidence for the petitioners show that respondents Ronaldo D. Simbol (Simbol), Wilfreda N. Comia (Comia) and Lorna E.
Estrella (Estrella) were all regular employees of the company. [1]
Simbol was employed by the company on October 27, 1993. He met Alma Dayrit, also an employee of the company, whom he
married on June 27, 1998. Prior to the marriage, Ongsitco advised the couple that should they decide to get married, one of them
should resign pursuant to a company policy promulgated in 1995, [2] viz.:

1. New applicants will not be allowed to be hired if in case he/she has [a] relative, up to [the] 3 rd degree of
relationship, already employed by the company.

2. In case of two of our employees (both singles [sic], one male and another female) developed a
friendly relationship during the course of their employment and then decided to get married, one of them should
resign to preserve the policy stated above.[3]

Simbol resigned on June 20, 1998 pursuant to the company policy.[4]

Comia was hired by the company on February 5, 1997. She met Howard Comia, a co-employee, whom she married on June 1, 2000.
Ongsitco likewise reminded them that pursuant to company policy, one must resign should they decide to get married. Comia resigned
on June 30, 2000.[5]
Estrella was hired on July 29, 1994. She met Luisito Zuiga (Zuiga), also a co-worker. Petitioners stated that Zuiga, a married man, got
Estrella pregnant. The company allegedly could have terminated her services due to immorality but she opted to resign on December
21, 1999.[6]
The respondents each signed a Release and Confirmation Agreement. They stated therein that they have no money and property
accountabilities in the company and that they release the latter of any claim or demand of whatever nature. [7]

Respondents offer a different version of their dismissal. Simbol and Comia allege that they did not resign voluntarily; they were
compelled to resign in view of an illegal company policy. As to respondent Estrella, she alleges that she had a relationship with co-
worker Zuiga who misrepresented himself as a married but separated man. After he got her pregnant, she discovered that he was not
separated. Thus, she severed her relationship with him to avoid dismissal due to the company policy. On November 30, 1999, she met
an accident and was advised by the doctor at the Orthopedic Hospital to recuperate for twenty-one (21) days. She returned to work
on December 21, 1999 but she found out that her name was on-hold at the gate. She was denied entry. She was directed to proceed to
the personnel office where one of the staff handed her a memorandum. The memorandum stated that she was being dismissed for
immoral conduct. She refused to sign the memorandum because she was on leave for twenty-one (21) days and has not been given a
chance to explain. The management asked her to write an explanation. However, after submission of the explanation, she was
nonetheless dismissed by the company. Due to her urgent need for money, she later submitted a letter of resignation in exchange for
her thirteenth month pay.[8]
Respondents later filed a complaint for unfair labor practice, constructive dismissal, separation pay and attorneys fees. They averred
that the aforementioned company policy is illegal and contravenes Article 136 of the Labor Code. They also contended that they were
dismissed due to their union membership.
On May 31, 2001, Labor Arbiter Melquiades Sol del Rosario dismissed the complaint for lack of merit, viz.:
 [T]his company policy was decreed pursuant to what the respondent corporation perceived as management
prerogative. This management prerogative is quite broad and encompassing for it covers hiring, work assignment,
working method, time, place and manner of work, tools to be used, processes to be followed, supervision of
workers, working regulations, transfer of employees, work supervision, lay-off of workers and the discipline,
dismissal and recall of workers. Except as provided for or limited by special law, an employer is free to regulate,
according to his own discretion and judgment all the aspects of employment. [9] (Citations omitted.)

On appeal to the NLRC, the Commission affirmed the decision of the Labor Arbiter on January 11, 2002. [10]

Respondents filed a Motion for Reconsideration but was denied by the NLRC in a Resolution [11] dated August 8, 2002. They appealed
to respondent court via Petition for Certiorari.
In its assailed Decision dated August 3, 2004, the Court of Appeals reversed the NLRC decision, viz.:

WHEREFORE, premises considered, the May 31, 2002 (sic)[12] Decision of the National Labor Relations
Commission is hereby REVERSED and SET ASIDE and a new one is entered as follows:

(1) Declaring illegal, the petitioners dismissal from employment and ordering private respondents
to reinstate petitioners to their former positions without loss of seniority rights with full
backwages from the time of their dismissal until actual reinstatement; and

(2) Ordering private respondents to pay petitioners attorneys fees amounting to 10% of the award
and the cost of this suit.[13]

On appeal to this Court, petitioners contend that the Court of Appeals erred in holding that:

1. X X X THE SUBJECT 1995 POLICY/REGULATION IS VIOLATIVE OF THE CONSTITUTIONAL RIGHTS

TOWARDS MARRIAGE AND THE FAMILY OF EMPLOYEES AND OF ARTICLE 136 OF THE LABOR
CODE; AND
2. X X X RESPONDENTS RESIGNATIONS WERE FAR FROM VOLUNTARY.[14]

We affirm.

The 1987 Constitution[15] states our policy towards the protection of labor under the following provisions, viz.:

Article II, Section 18. The State affirms labor as a primary social economic force. It shall protect the rights of
workers and promote their welfare.

xxx

Article XIII, Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized,
and promote full employment and equality of employment opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful
concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure,
humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes
affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and employers, recognizing the right
of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments,
and to expansion and growth.

The Civil Code likewise protects labor with the following provisions:

Art. 1700. The relation between capital and labor are not merely contractual. They are so impressed with public
interest that labor contracts must yield to the common good. Therefore, such contracts are subject to the special laws
 on labor unions, collective bargaining, strikes and lockouts, closed shop, wages, working conditions, hours of labor
and similar subjects.

Art. 1702. In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and
decent living for the laborer.

The Labor Code is the most comprehensive piece of legislation protecting labor. The case at bar involves Article 136 of the Labor
Code which provides:

Art. 136. It shall be unlawful for an employer to require as a condition of employment or continuation of
employment that a woman employee shall not get married, or to stipulate expressly or tacitly that upon getting
married a woman employee shall be deemed resigned or separated, or to actually dismiss, discharge, discriminate or
otherwise prejudice a woman employee merely by reason of her marriage.

Respondents submit that their dismissal violates the above provision. Petitioners allege that its policy may appear to be contrary to
Article 136 of the Labor Code but it assumes a new meaning if read together with the first paragraph of the rule. The rule does not
require the woman employee to resign. The employee spouses have the right to choose who between them should resign. Further, they
are free to marry persons other than co-employees. Hence, it is not the marital status of the employee, per se, that is being
discriminated. It is only intended to carry out its no-employment-for-relatives-within-the-third-degree-policy which is within the ambit
of the prerogatives of management.[16]
It is true that the policy of petitioners prohibiting close relatives from working in the same company takes the nature of an anti-
nepotism employment policy. Companies adopt these policies to prevent the hiring of unqualified persons based on their status as a
relative, rather than upon their ability.[17] These policies focus upon the potential employment problems arising from the perception of
favoritism exhibited towards relatives.
With more women entering the workforce, employers are also enacting employment policies specifically prohibiting spouses from
working for the same company. We note that two types of employment policies involve spouses: policies banning only spouses from
working in the same company (no-spouse employment policies), and those banning all immediate family members, including
spouses, from working in the same company (anti-nepotism employment policies).[18]

Unlike in our jurisdiction where there is no express prohibition on marital discrimination, [19] there are twenty state statutes[20] in
the United States prohibiting marital discrimination. Some state courts[21] have been confronted with the issue of whether no-spouse
policies violate their laws prohibiting both marital status and sex discrimination.
In challenging the anti-nepotism employment policies in the United States, complainants utilize two theories of employment
discrimination: the disparate treatment and the disparate impact. Under the disparate treatment analysis, the plaintiff must prove
that an employment policy is discriminatory on its face. No-spouse employment policies requiring an employee of a particular sex to
either quit, transfer, or be fired are facially discriminatory. For example, an employment policy prohibiting the employer from hiring
wives of male employees, but not husbands of female employees, is discriminatory on its face. [22]
On the other hand, to establish disparate impact, the complainants must prove that a facially neutral policy has a disproportionate
effect on a particular class. For example, although most employment policies do not expressly indicate which spouse will be required
to transfer or leave the company, the policy often disproportionately affects one sex. [23]
The state courts rulings on the issue depend on their interpretation of the scope of marital status discrimination within the meaning of
their respective civil rights acts. Though they agree that the term marital status encompasses discrimination based on a person's status
as either married, single, divorced, or widowed, they are divided on whether the term has a broader meaning. Thus, their decisions
vary.[24]
The courts narrowly[25] interpreting marital status to refer only to a person's status as married, single, divorced, or widowed reason
that if the legislature intended a broader definition it would have either chosen different language or specified its intent. They hold that
the relevant inquiry is if one is married rather than to whom one is married. They construe marital status discrimination to include only
whether a person is single, married, divorced, or widowed and not the identity, occupation, and place of employment of one's spouse.
These courts have upheld the questioned policies and ruled that they did not violate the marital status discrimination provision of their
respective state statutes.
The courts that have broadly[26] construed the term marital status rule that it encompassed the identity, occupation and employment of
one's spouse. They strike down the no-spouse employment policies based on the broad legislative intent of the state statute. They
reason that the no-spouse employment policy violate the marital status provision because it arbitrarily discriminates against all spouses
of present employees without regard to the actual effect on the individual's qualifications or work performance. [27] These courts also
find the no-spouse employment policy invalid for failure of the employer to present any evidence of business necessity other than the
general perception that spouses in the same workplace might adversely affect the business. [28] They hold that the absence of such
a bona fide occupational qualification[29] invalidates a rule denying employment to one spouse due to the current employment of the
other spouse in the same office.[30] Thus, they rule that unless the employer can prove that the reasonable demands of the business
require a distinction based on marital status and there is no better available or acceptable policy which would better accomplish the
business purpose, an employer may not discriminate against an employee based on the identity of the employees spouse. [31] This is
known as the bona fide occupational qualification exception.
We note that since the finding of a bona fide occupational qualification justifies an employers no-spouse rule, the exception is
interpreted strictly and narrowly by these state courts. There must be a compelling business necessity for which no alternative exists
other than the discriminatory practice.[32] To justify a bona fide occupational qualification, the employer must prove two factors: (1)
that the employment qualification is reasonably related to the essential operation of the job involved; and, (2) that there is a factual
basis for believing that all or substantially all persons meeting the qualification would be unable to properly perform the duties of the
job.[33]
The concept of a bona fide occupational qualification is not foreign in our jurisdiction. We employ the standard of reasonableness of
the company policy which is parallel to the bona fide occupational qualification requirement. In the recent case of Duncan
Association of Detailman-PTGWO and Pedro Tecson v. Glaxo Wellcome Philippines, Inc.,[34] we passed on the validity of the
policy of a pharmaceutical company prohibiting its employees from marrying employees of any competitor company. We held
that Glaxohas a right to guard its trade secrets, manufacturing formulas, marketing strategies and other confidential programs and
information from competitors. We considered the prohibition against personal or marital relationships with employees of competitor
companies upon Glaxos employees reasonable under the circumstances because relationships of that nature might compromise the
interests of Glaxo. In laying down the assailed company policy, we recognized that Glaxo only aims to protect its interests against the
possibility that a competitor company will gain access to its secrets and procedures. [35]

The requirement that a company policy must be reasonable under the circumstances to qualify as a valid exercise of
management prerogative was also at issue in the 1997 case of Philippine Telegraph and Telephone Company v. NLRC.[36] In said
case, the employee was dismissed in violation of petitioners policy of disqualifying from work any woman worker who contracts
marriage. We held that the company policy violates the right against discrimination afforded all women workers under Article 136 of
the Labor Code, but established a permissible exception, viz.:

[A] requirement that a woman employee must remain unmarried could be justified as a bona fide occupational
qualification, or BFOQ, where the particular requirements of the job would justify the same, but not on the ground
of a general principle, such as the desirability of spreading work in the workplace. A requirement of that nature
would be valid provided it reflects an inherent quality reasonably necessary for satisfactory job
performance.[37] (Emphases supplied.)

The cases of Duncan and PT&T instruct us that the requirement of reasonableness must be clearly established to uphold the
questioned employment policy. The employer has the burden to prove the existence of a reasonable business necessity. The burden
was successfully discharged in Duncan but not in PT&T.

We do not find a reasonable business necessity in the case at bar.

 Petitioners sole contention that the company did not just want to have two (2) or more of its employees related between the
third degree by affinity and/or consanguinity[38] is lame. That the second paragraph was meant to give teeth to the first paragraph of
the questioned rule[39] is evidently not the valid reasonable business necessity required by the law.

It is significant to note that in the case at bar, respondents were hired after they were found fit for the job, but were asked to
resign when they married a co-employee. Petitioners failed to show how the marriage of Simbol, then a Sheeting Machine Operator, to
Alma Dayrit, then an employee of the Repacking Section, could be detrimental to its business operations. Neither did petitioners
explain how this detriment will happen in the case of Wilfreda Comia, then a Production Helper in the Selecting Department, who
married Howard Comia, then a helper in the cutter-machine. The policy is premised on the mere fear that employees married to each
other will be less efficient. If we uphold the questioned rule without valid justification, the employer can create policies based on an
unproven presumption of a perceived danger at the expense of an employees right to security of tenure.

Petitioners contend that their policy will apply only when one employee marries a co-employee, but they are free to marry
persons other than co-employees. The questioned policy may not facially violate Article 136 of the Labor Code but it creates a
disproportionate effect and under the disparate impact theory, the only way it could pass judicial scrutiny is a showing that it
is reasonable despite the discriminatory, albeit disproportionate, effect. The failure of petitioners to prove a legitimate business
concern in imposing the questioned policy cannot prejudice the employees right to be free from arbitrary discrimination based upon
stereotypes of married persons working together in one company. [40]

Lastly, the absence of a statute expressly prohibiting marital discrimination in our jurisdiction cannot benefit the petitioners.
The protection given to labor in our jurisdiction is vast and extensive that we cannot prudently draw inferences from the legislatures
silence[41] that married persons are not protected under our Constitution and declare valid a policy based on a prejudice or stereotype.
Thus, for failure of petitioners to present undisputed proof of a reasonable business necessity, we rule that the questioned policy is an
invalid exercise of management prerogative. Corollarily, the issue as to whether respondents Simbol and Comia resigned voluntarily
has become moot and academic.
As to respondent Estrella, the Labor Arbiter and the NLRC based their ruling on the singular fact that her resignation letter
was written in her own handwriting. Both ruled that her resignation was voluntary and thus valid. The respondent court failed to
categorically rule whether Estrella voluntarily resigned but ordered that she be reinstated along with Simbol and Comia.

Estrella claims that she was pressured to submit a resignation letter because she was in dire need of money. We examined the
records of the case and find Estrellascontention to be more in accord with the evidence. While findings of fact by administrative
tribunals like the NLRC are generally given not only respect but, at times, finality, this rule admits of exceptions, [42] as in the case at
bar.

Estrella avers that she went back to work on December 21, 1999 but was dismissed due to her alleged immoral conduct. At
first, she did not want to sign the termination papers but she was forced to tender her resignation letter in exchange for her thirteenth
month pay.

The contention of petitioners that Estrella was pressured to resign because she got impregnated by a married man and she
could not stand being looked upon or talked about as immoral[43] is incredulous. If she really wanted to avoid embarrassment and
humiliation, she would not have gone back to work at all. Nor would she have filed a suit for illegal dismissal and pleaded for
reinstatement. We have held that in voluntary resignation, the employee is compelled by personal reason(s) to dissociate himself from
employment. It is done with the intention of relinquishing an office, accompanied by the act of abandonment. [44] Thus, it is illogical
for Estrella to resign and then file a complaint for illegal dismissal. Given the lack of sufficient evidence on the part of petitioners that
the resignation was voluntary, Estrellas dismissal is declared illegal.

IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. SP No. 73477 dated August 3,
2004 is AFFIRMED.

SO ORDERED.