G.R. No.

81510 March 14, 1990

HORTENCIA SALAZAR, petitioner,

vs.
HON. TOMAS D. ACHACOSO, in his capacity as Administrator of the Philippine Overseas
Employment Administration, and FERDIE MARQUEZ, respondents.

Gutierrez & Alo Law Offices for petitioner.

SARMIENTO, J.:

This concerns the validity of the power of the Secretary of Labor to issue warrants of arrest and
seizure under Article 38 of the Labor Code, prohibiting illegal recruitment.

The facts are as follows:

xxx xxx xxx

1. On October 21, 1987, Rosalie Tesoro of 177 Tupaz Street, Leveriza, Pasay City,
in a sworn statement filed with the Philippine Overseas Employment Administration
(POEA for brevity) charged petitioner Hortencia Salazar, viz:

04. T: Ano ba ang dahilan at ikaw ngayon ay narito at

nagbibigay ng salaysay.

S: Upang ireklamo sa dahilan ang aking PECC Card ay

ayaw ibigay sa akin ng dati kong manager. — Horty
Salazar — 615 R.O. Santos, Mandaluyong, Mla.

05. T: Kailan at saan naganap and ginawang

panloloko sa
iyo ng tao/mga taong inireklamo mo?

S. Sa bahay ni Horty Salazar.

06. T: Paano naman naganap ang pangyayari?

S. Pagkagaling ko sa Japan ipinatawag niya ako.

Kinuha
ang PECC Card ko at sinabing hahanapan ako ng
booking sa Japan. Mag 9 month's na ako sa Phils. ay
hindi pa niya ako napa-alis. So lumipat ako ng ibang
company pero ayaw niyang ibigay and PECC Card
ko.

2. On November 3, 1987, public respondent Atty. Ferdinand Marquez to whom said

complaint was assigned, sent to the petitioner the following telegram:
 YOU ARE HEREBY DIRECTED TO APPEAR BEFORE FERDIE
MARQUEZ POEA ANTI ILLEGAL RECRUITMENT UNIT 6TH FLR.
POEA BLDG. EDSA COR. ORTIGAS AVE. MANDALUYONG MM
ON NOVEMBER 6, 1987 AT 10 AM RE CASE FILED AGAINST
YOU. FAIL NOT UNDER PENALTY OF LAW.

4. On the same day, having ascertained that the petitioner had no license to operate
a recruitment agency, public respondent Administrator Tomas D. Achacoso issued
his challenged CLOSURE AND SEIZURE ORDER NO. 1205 which reads:

HORTY SALAZAR
No. 615 R.O. Santos St.
Mandaluyong, Metro Manila

Pursuant to the powers vested in me under Presidential Decree No. 1920 and
Executive Order No. 1022, I hereby order the CLOSURE of your recruitment agency
being operated at No. 615 R.O. Santos St., Mandaluyong, Metro Manila and the
seizure of the documents and paraphernalia being used or intended to be used as
the means of committing illegal recruitment, it having verified that you have —

(1) No valid license or authority from the Department of Labor and

Employment to recruit and deploy workers for overseas employment;

(2) Committed/are committing acts prohibited under Article 34 of the

New Labor Code in relation to Article 38 of the same code.

This ORDER is without prejudice to your criminal prosecution under

existing laws.

Done in the City of Manila, this 3th day of November, 1987.

5. On January 26, 1988 POEA Director on Licensing and Regulation Atty. Estelita B.
Espiritu issued an office order designating respondents Atty. Marquez, Atty. Jovencio
Abara and Atty. Ernesto Vistro as members of a team tasked to implement Closure
and Seizure Order No. 1205. Doing so, the group assisted by Mandaluyong
policemen and mediamen Lito Castillo of the People's Journal and Ernie Baluyot of
News Today proceeded to the residence of the petitioner at 615 R.O. Santos St.,
Mandaluyong, Metro Manila. There it was found that petitioner was operating
Hannalie Dance Studio. Before entering the place, the team served said Closure and
Seizure order on a certain Mrs. Flora Salazar who voluntarily allowed them entry into
the premises. Mrs. Flora Salazar informed the team that Hannalie Dance Studio was
accredited with Moreman Development (Phil.). However, when required to show
credentials, she was unable to produce any. Inside the studio, the team chanced
upon twelve talent performers — practicing a dance number and saw about twenty
more waiting outside, The team confiscated assorted costumes which were duly
receipted for by Mrs. Asuncion Maguelan and witnessed by Mrs. Flora Salazar.

6. On January 28, 1988, petitioner filed with POEA the following letter:

Gentlemen:
 On behalf of Ms. Horty Salazar of 615 R.O. Santos, Mandaluyong, Metro Manila, we
respectfully request that the personal properties seized at her residence last January
26, 1988 be immediately returned on the ground that said seizure was contrary to
law and against the will of the owner thereof. Among our reasons are the following:

1. Our client has not been given any prior notice or hearing, hence
the Closure and Seizure Order No. 1205 dated November 3, 1987
violates "due process of law" guaranteed under Sec. 1, Art. III, of the
Philippine Constitution.

2. Your acts also violate Sec. 2, Art. III of the Philippine Constitution
which guarantees right of the people "to be secure in their persons,
houses, papers, and effects against unreasonable searches and
seizures of whatever nature and for any purpose."

3. The premises invaded by your Mr. Ferdi Marquez and five (5)
others (including 2 policemen) are the private residence of the
Salazar family, and the entry, search as well as the seizure of the
personal properties belonging to our client were without her consent
and were done with unreasonable force and intimidation, together
with grave abuse of the color of authority, and constitute robbery and
violation of domicile under Arts. 293 and 128 of the Revised Penal
Code.

Unless said personal properties worth around TEN THOUSAND

PESOS (P10,000.00) in all (and which were already due for shipment
to Japan) are returned within twenty-four (24) hours from your receipt
hereof, we shall feel free to take all legal action, civil and criminal, to
protect our client's interests.

We trust that you will give due attention to these important matters.

7. On February 2, 1988, before POEA could answer the letter, petitioner filed the
instant petition; on even date, POEA filed a criminal complaint against her with the
Pasig Provincial Fiscal, docketed as IS-88-836.1

On February 2, 1988, the petitioner filed this suit for prohibition. Although the acts sought to be
barred are alreadyfait accompli, thereby making prohibition too late, we consider the petition as one
for certiorari in view of the grave public interest involved.

The Court finds that a lone issue confronts it: May the Philippine Overseas Employment
Administration (or the Secretary of Labor) validly issue warrants of search and seizure (or arrest)
under Article 38 of the Labor Code? It is also an issue squarely raised by the petitioner for the
Court's resolution.

Under the new Constitution, which states:

. . . no search warrant or warrant of arrest shall issue except upon probable cause to
be determined personally by the judge after examination under oath or affirmation of
the complainant and the witnesses he may produce, and particularly describing the
place to be searched and the persons or things to be seized. 2
it is only a judge who may issue warrants of search and arrest. 3 In one case, it was declared that
mayors may not exercise this power:

xxx xxx xxx

But it must be emphasized here and now that what has just been described is the
state of the law as it was in September, 1985. The law has since been altered. No
longer does the mayor have at this time the power to conduct preliminary
investigations, much less issue orders of arrest. Section 143 of the Local
Government Code, conferring this power on the mayor has been abrogated,
rendered functus officio by the 1987 Constitution which took effect on February 2,
1987, the date of its ratification by the Filipino people. Section 2, Article III of the
1987 Constitution pertinently provides that "no search warrant or warrant of arrest
shall issue except upon probable cause to be determined personally by the judge
after examination under oath or affirmation of the complainant and the witnesses he
may produce, and particularly describing the place to be searched and the person or
things to be seized." The constitutional proscription has thereby been manifested that
thenceforth, the function of determining probable cause and issuing, on the basis
thereof, warrants of arrest or search warrants, may be validly exercised only by
judges, this being evidenced by the elimination in the present Constitution of the
phrase, "such other responsible officer as may be authorized by law" found in the
counterpart provision of said 1973 Constitution, who, aside from judges, might
conduct preliminary investigations and issue warrants of arrest or search warrants. 4

Neither may it be done by a mere prosecuting body:

We agree that the Presidential Anti-Dollar Salting Task Force exercises, or was
meant to exercise, prosecutorial powers, and on that ground, it cannot be said to be
a neutral and detached "judge" to determine the existence of probable cause for
purposes of arrest or search. Unlike a magistrate, a prosecutor is naturally interested
in the success of his case. Although his office "is to see that justice is done and not
necessarily to secure the conviction of the person accused," he stands, invariably, as
the accused's adversary and his accuser. To permit him to issue search warrants
and indeed, warrants of arrest, is to make him both judge and jury in his own right,
when he is neither. That makes, to our mind and to that extent, Presidential Decree
No. 1936 as amended by Presidential Decree No. 2002, unconstitutional. 5

Section 38, paragraph (c), of the Labor Code, as now written, was entered as an amendment by
Presidential Decrees Nos. 1920 and 2018 of the late President Ferdinand Marcos, to Presidential
Decree No. 1693, in the exercise of his legislative powers under Amendment No. 6 of the 1973
Constitution. Under the latter, the then Minister of Labor merely exercised recommendatory powers:

(c) The Minister of Labor or his duly authorized representative shall have the power
to recommend the arrest and detention of any person engaged in illegal recruitment. 6

On May 1, 1984, Mr. Marcos promulgated Presidential Decree No. 1920, with the avowed purpose
of giving more teeth to the campaign against illegal recruitment. The Decree gave the Minister of
Labor arrest and closure powers:

(b) The Minister of Labor and Employment shall have the power to cause the arrest
and detention of such non-licensee or non-holder of authority if after proper
investigation it is determined that his activities constitute a danger to national security
 and public order or will lead to further exploitation of job-seekers. The Minister shall
order the closure of companies, establishment and entities found to be engaged in
the recruitment of workers for overseas employment, without having been licensed or
authorized to do so. 7

On January 26, 1986, he, Mr. Marcos, promulgated Presidential Decree No. 2018, giving the Labor
Minister search and seizure powers as well:

(c) The Minister of Labor and Employment or his duly authorized representatives
shall have the power to cause the arrest and detention of such non-licensee or non-
holder of authority if after investigation it is determined that his activities constitute a
danger to national security and public order or will lead to further exploitation of job-
seekers. The Minister shall order the search of the office or premises and seizure of
documents, paraphernalia, properties and other implements used in illegal
recruitment activities and the closure of companies, establishment and entities found
to be engaged in the recruitment of workers for overseas employment, without
having been licensed or authorized to do so. 8

The above has now been etched as Article 38, paragraph (c) of the Labor Code.

The decrees in question, it is well to note, stand as the dying vestiges of authoritarian rule in its
twilight moments.

We reiterate that the Secretary of Labor, not being a judge, may no longer issue search or arrest
warrants. Hence, the authorities must go through the judicial process. To that extent, we declare
Article 38, paragraph (c), of the Labor Code, unconstitutional and of no force and effect.

The Solicitor General's reliance on the case of Morano v. Vivo 9 is not well-taken. Vivo involved a
deportation case, governed by Section 69 of the defunct Revised Administrative Code and by
Section 37 of the Immigration Law. We have ruled that in deportation cases, an arrest (of an
undesirable alien) ordered by the President or his duly authorized representatives, in order to carry
out a final decision of deportation is valid. 10 It is valid, however, because of the recognized
supremacy of the Executive in matters involving foreign affairs. We have held: 11

xxx xxx xxx

The State has the inherent power to deport undesirable aliens (Chuoco Tiaco vs.
Forbes, 228 U.S. 549, 57 L. Ed. 960, 40 Phil. 1122, 1125). That power may be
exercised by the Chief Executive "when he deems such action necessary for the
peace and domestic tranquility of the nation." Justice Johnson's opinion is that when
the Chief Executive finds that there are aliens whose continued presence in the
country is injurious to the public interest, "he may, even in the absence of express
law, deport them". (Forbes vs. Chuoco Tiaco and Crossfield, 16 Phil. 534, 568, 569;
In re McCulloch Dick, 38 Phil. 41).

The right of a country to expel or deport aliens because their continued presence is
detrimental to public welfare is absolute and unqualified (Tiu Chun Hai and Go Tam
vs. Commissioner of Immigration and the Director of NBI, 104 Phil. 949, 956). 12

The power of the President to order the arrest of aliens for deportation is, obviously, exceptional. It
(the power to order arrests) can not be made to extend to other cases, like the one at bar. Under the
Constitution, it is the sole domain of the courts.
Moreover, the search and seizure order in question, assuming, ex gratia argumenti, that it was
validly issued, is clearly in the nature of a general warrant:

Pursuant to the powers vested in me under Presidential Decree No. 1920 and
Executive Order No. 1022, I hereby order the CLOSURE of your recruitment agency
being operated at No. 615 R.O. Santos St., Mandaluyong, Metro Manila and the
seizure of the documents and paraphernalia being used or intended to be used as
the means of committing illegal recruitment, it having verified that you have —

(1) No valid license or authority from the Department of Labor and

Employment to recruit and deploy workers for overseas employment;

(2) Committed/are committing acts prohibited under Article 34 of the

New Labor Code in relation to Article 38 of the same code.

This ORDER is without prejudice to your criminal prosecution under existing laws. 13

We have held that a warrant must identify clearly the things to be seized, otherwise, it is null and
void, thus:

xxx xxx xxx

Another factor which makes the search warrants under consideration constitutionally
objectionable is that they are in the nature of general warrants. The search warrants
describe the articles sought to be seized in this wise:

1) All printing equipment, paraphernalia, paper, ink, photo equipment,

typewriters, cabinets, tables, communications/ recording equipment,
tape recorders, dictaphone and the like used and/or connected in the
printing of the "WE FORUM" newspaper and any and all
documents/communications, letters and facsimile of prints related to
the "WE FORUM" newspaper.

2) Subversive documents, pamphlets, leaflets, books, and other

publications to promote the objectives and purposes of the
subversive organizations known as Movement for Free Philippines,
Light-a-Fire Movement and April 6 Movement; and

3) Motor vehicles used in the distribution/circulation of the "WE

FORUM" and other subversive materials and propaganda, more
particularly,

1) Toyota-Corolla, colored yellow with Plate No. NKA 892;

2) DATSUN, pick-up colored white with Plate No. NKV 969;

3) A delivery truck with Plate No. NBS 542;

4) TOYOTA-TAMARAW, colored white with Plate No. PBP 665; and

 5) TOYOTA Hi-Lux, pick-up truck with Plate No. NGV 472 with
marking "Bagong Silang."

In Stanford v. State of Texas, the search warrant which authorized the search for
"books, records, pamphlets, cards, receipts, lists, memoranda, pictures, recordings
and other written instruments concerning the Communist Parties of Texas, and the
operations of the Community Party in Texas," was declared void by the U.S.
Supreme Court for being too general. In like manner, directions to "seize any
evidence in connection with the violation of SDC 13-3703 or otherwise" have been
held too general, and that portion of a search warrant which authorized the seizure of
any "paraphernalia which could be used to violate Sec. 54-197 of the Connecticut
General Statutes (the statute dealing with the crime of conspiracy)" was held to be a
general warrant, and therefore invalid. The description of the articles sought to be
seized under the search warrants in question cannot be characterized differently.

In the Stanford case, the U.S. Supreme court calls to mind a notable chapter in
English history; the era of disaccord between the Tudor Government and the English
Press, when "Officers of the Crown were given roving commissions to search where
they pleased in order to suppress and destroy the literature of dissent both Catholic
and Puritan." Reference herein to such historical episode would not be relevant for it
is not the policy of our government to suppress any newspaper or publication that
speaks with "the voice of non-conformity" but poses no clear and imminent danger to
state security. 14

For the guidance of the bench and the bar, we reaffirm the following principles:

1. Under Article III, Section 2, of the l987 Constitution, it is only judges, and no other,
who may issue warrants of arrest and search:

2. The exception is in cases of deportation of illegal and undesirable aliens, whom

the President or the Commissioner of Immigration may order arrested, following a
final order of deportation, for the purpose of deportation.

WHEREFORE, the petition is GRANTED. Article 38, paragraph (c) of the Labor Code is declared
UNCONSTITUTIONAL and null and void. The respondents are ORDERED to return all materials
seized as a result of the implementation of Search and Seizure Order No. 1205.

No costs.

SO ORDERED.

G.R. No. 75112 August 17, 1992

FILAMER CHRISTIAN INSTITUTE, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT, HON. ENRIQUE P. SUPLICO, in his capacity as
Judge of the Regional Trial Court, Branch XIV, Roxas City and POTENCIANO KAPUNAN,
SR., respondents.
Bedona & Bedona Law Office for petitioner.

Rhodora G. Kapunan for private respondents.

GUTIERREZ, JR., J.:

The private respondents, heirs of the late Potenciano Kapunan, seek reconsideration of the decision
rendered by this Court on October 16, 1990 (Filamer Christian Institute v. Court of Appeals, 190
SCRA 477) reviewing the appellate court's conclusion that there exists an employer-employee
relationship between the petitioner and its co-defendant Funtecha. The Court ruled that the petitioner
is not liable for the injuries caused by Funtecha on the grounds that the latter was not an authorized
driver for whose acts the petitioner shall be directly and primarily answerable, and that Funtecha was
merely a working scholar who, under Section 14, Rule X, Book III of the Rules and Regulations
Implementing the Labor Code is not considered an employee of the petitioner.

The private respondents assert that the circumstances obtaining in the present case call for the
application of Article 2180 of the Civil Code since Funtecha is no doubt an employee of the
petitioner. The private respondents maintain that under Article 2180 an injured party shall have
recourse against the servant as well as the petitioner for whom, at the time of the incident, the
servant was performing an act in furtherance of the interest and for the benefit of the petitioner.
Funtecha allegedly did not steal the school jeep nor use it for a joy ride without the knowledge of the
school authorities.

After a re-examination of the laws relevant to the facts found by the trial court and the appellate
court, the Court reconsiders its decision. We reinstate the Court of Appeals' decision penned by the
late Justice Desiderio Jurado and concurred in by Justices Jose C. Campos, Jr. and Serafin E.
Camilon. Applying Civil Code provisions, the appellate court affirmed the trial court decision which
ordered the payment of the P20,000.00 liability in the Zenith Insurance Corporation policy,
P10,000.00 moral damages, P4,000.00 litigation and actual expenses, and P3,000.00 attorney's
fees.

It is undisputed that Funtecha was a working student, being a part-time janitor and a scholar of
petitioner Filamer. He was, in relation to the school, an employee even if he was assigned to clean
the school premises for only two (2) hours in the morning of each school day.

Having a student driver's license, Funtecha requested the driver, Allan Masa, and was allowed, to
take over the vehicle while the latter was on his way home one late afternoon. It is significant to note
that the place where Allan lives is also the house of his father, the school president, Agustin Masa.
Moreover, it is also the house where Funtecha was allowed free board while he was a student of
Filamer Christian Institute.

Allan Masa turned over the vehicle to Funtecha only after driving down a road, negotiating a sharp
dangerous curb, and viewing that the road was clear. (TSN, April 4, 1983, pp. 78-79) According to
Allan's testimony, a fast moving truck with glaring lights nearly hit them so that they had to swerve to
the right to avoid a collision. Upon swerving, they heard a sound as if something had bumped
against the vehicle, but they did not stop to check. Actually, the Pinoy jeep swerved towards the
pedestrian, Potenciano Kapunan who was walking in his lane in the direction against vehicular
traffic, and hit him. Allan affirmed that Funtecha followed his advise to swerve to the right. (Ibid., p.
79) At the time of the incident (6:30 P.M.) in Roxas City, the jeep had only one functioning headlight.
Allan testified that he was the driver and at the same time a security guard of the petitioner-school.
He further said that there was no specific time for him to be off-duty and that after driving the
students home at 5:00 in the afternoon, he still had to go back to school and then drive home using
the same vehicle.

Driving the vehicle to and from the house of the school president where both Allan and Funtecha
reside is an act in furtherance of the interest of the petitioner-school. Allan's job demands that he
drive home the school jeep so he can use it to fetch students in the morning of the next school day.

It is indubitable under the circumstances that the school president had knowledge that the jeep was
routinely driven home for the said purpose. Moreover, it is not improbable that the school president
also had knowledge of Funtecha's possession of a student driver's license and his desire to undergo
driving lessons during the time that he was not in his classrooms.

In learning how to drive while taking the vehicle home in the direction of Allan's house, Funtecha
definitely was not having a joy ride. Funtecha was not driving for the purpose of his enjoyment or for
a "frolic of his own" but ultimately, for the service for which the jeep was intended by the petitioner
school. (See L. Battistoni v. Thomas, Can SC 144, 1 D.L.R. 577, 80 ALR 722 [1932]; See also
Association of Baptists for World Evangelism, Inc. v. Fieldmen's Insurance Co., Inc. 124 SCRA 618
[1983]). Therefore, the Court is constrained to conclude that the act of Funtecha in taking over the
steering wheel was one done for and in behalf of his employer for which act the petitioner-school
cannot deny any responsibility by arguing that it was done beyond the scope of his janitorial duties.
The clause "within the scope of their assigned tasks" for purposes of raising the presumption of
liability of an employer, includes any act done by an employee, in furtherance of the interests of the
employer or for the account of the employer at the time of the infliction of the injury or damage.
(Manuel Casada, 190 Va 906, 59 SE 2d 47 [1950]) Even if somehow, the employee driving the
vehicle derived some benefit from the act, the existence of a presumptive liability of the employer is
determined by answering the question of whether or not the servant was at the time of the accident
performing any act in furtherance of his master's business. (Kohlman v. Hyland, 210 NW 643, 50
ALR 1437 [1926]; Jameson v. Gavett, 71 P 2d 937 [1937])

Section 14, Rule X, Book III of the Rules implementing the Labor Code, on which the petitioner
anchors its defense, was promulgated by the Secretary of Labor and Employment only for the
purpose of administering and enforcing the provisions of the Labor Code on conditions of
employment. Particularly, Rule X of Book III provides guidelines on the manner by which the powers
of the Labor Secretary shall be exercised; on what records should be kept; maintained and
preserved; on payroll; and on the exclusion of working scholars from, and inclusion of resident
physicians in the employment coverage as far as compliance with the substantive labor provisions
on working conditions, rest periods, and wages, is concerned.

In other words, Rule X is merely a guide to the enforcement of the substantive law on labor. The
Court, thus, makes the distinction and so holds that Section 14, Rule X, Book III of the Rules is not
the decisive law in a civil suit for damages instituted by an injured person during a vehicular accident
against a working student of a school and against the school itself.

The present case does not deal with a labor dispute on conditions of employment between an
alleged employee and an alleged employer. It invokes a claim brought by one for damages for injury
caused by the patently negligent acts of a person, against both doer-employee and his employer.
Hence, the reliance on the implementing rule on labor to disregard the primary liability of an
employer under Article 2180 of the Civil Code is misplaced. An implementing rule on labor cannot be
used by an employer as a shield to avoid liability under the substantive provisions of the Civil Code.
There is evidence to show that there exists in the present case an extra-contractual obligation
arising from the negligence or reckless imprudence of a person "whose acts or omissions are
imputable, by a legal fiction, to other(s) who are in a position to exercise an absolute or limited
control over (him)." (Bahia v. Litonjua and Leynes, 30 Phil. 624 [1915])

Funtecha is an employee of petitioner Filamer. He need not have an official appointment for a
driver's position in order that the petitioner may be held responsible for his grossly negligent act, it
being sufficient that the act of driving at the time of the incident was for the benefit of the petitioner.
Hence, the fact that Funtecha was not the school driver or was not acting within the scope of his
janitorial duties does not relieve the petitioner of the burden of rebutting the presumption juris
tantum that there was negligence on its part either in the selection of a servant or employee, or in
the supervision over him. The petitioner has failed to show proof of its having exercised the required
diligence of a good father of a family over its employees Funtecha and Allan.

The Court reiterates that supervision includes the formulation of suitable rules and regulations for the
guidance of its employees and the issuance of proper instructions intended for the protection of the
public and persons with whom the employer has relations through his employees. (Bahia v. Litonjua
and Leynes, supra, at p. 628; Phoenix Construction, v. Intermediate Appellate Court, 148 SCRA 353
[1987])

An employer is expected to impose upon its employees the necessary discipline called for in the
performance of any act indispensable to the business and beneficial to their employer.

In the present case, the petitioner has not shown that it has set forth such rules and guidelines as
would prohibit any one of its employees from taking control over its vehicles if one is not the official
driver or prohibiting the driver and son of the Filamer president from authorizing another employee to
drive the school vehicle. Furthermore, the petitioner has failed to prove that it had imposed sanctions
or warned its employees against the use of its vehicles by persons other than the driver.

The petitioner, thus, has an obligation to pay damages for injury arising from the unskilled manner by
which Funtecha drove the vehicle. (Cangco v. Manila Railroad Co., 38 Phil. 768, 772 [1918]). In the
absence of evidence that the petitioner had exercised the diligence of a good father of a family in the
supervision of its employees, the law imposes upon it the vicarious liability for acts or omissions of
its employees. (Umali v. Bacani, 69 SCRA 263 [1976]; Poblete v. Fabros, 93 SCRA 200 [1979];
Kapalaran Bus Liner v. Coronado, 176 SCRA 792 [1989]; Franco v. Intermediate Appellate Court,
178 SCRA 331 [1989]; Pantranco North Express, Inc. v. Baesa, 179 SCRA 384 [1989]) The liability
of the employer is, under Article 2180, primary and solidary. However, the employer shall have
recourse against the negligent employee for whatever damages are paid to the heirs of the plaintiff.

It is an admitted fact that the actual driver of the school jeep, Allan Masa, was not made a party
defendant in the civil case for damages. This is quite understandable considering that as far as the
injured pedestrian, plaintiff Potenciano Kapunan, was concerned, it was Funtecha who was the one
driving the vehicle and presumably was one authorized by the school to drive. The plaintiff and his
heirs should not now be left to suffer without simultaneous recourse against the petitioner for the
consequent injury caused by a janitor doing a driving chore for the petitioner even for a short while.
For the purpose of recovering damages under the prevailing circumstances, it is enough that the
plaintiff and the private respondent heirs were able to establish the existence of employer-employee
relationship between Funtecha and petitioner Filamer and the fact that Funtecha was engaged in an
act not for an independent purpose of his own but in furtherance of the business of his employer. A
position of responsibility on the part of the petitioner has thus been satisfactorily demonstrated.
WHEREFORE, the motion for reconsideration of the decision dated October 16, 1990 is hereby
GRANTED. The decision of the respondent appellate court affirming the trial court decision is
REINSTATED.

SO ORDERED.

G.R. No. L-80680 January 26, 1989

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.

V.E. Del Rosario & Associates for respondent CMC.

The Solicitor General for public respondent.

Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.

Mildred A. Ramos for respondent Lily Victoria A. Azarcon.

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.

G.R. No. 185094 November 25, 2009

MASONIC CONTRACTOR, INC. and MELVIN BALAIS/AVELINO REYES, Petitioners,

vs.
MAGDALENA MADJOS, ZENAIDA TIAMZON, and CARMELITA RAPADAS, Respondents.

DECISION
NACHURA, J.:

This is a petition for review on certiorari assailing the July 18, 2008 Decision1 of the Court of Appeals
(CA), as well as its October 23, 2008 Resolution,2 in CA-G.R. SP No. 101023. The CA, in its assailed
decision and resolution, reversed and set aside the Decision3 promulgated by the National Labor
Relations Commission (NLRC) on February 6, 2007, as well as the December 16, 2004 Decision4 of
the Labor Arbiter (LA), rendered in favor of herein petitioners.

First, the facts:

Respondents Magdalena Madjos, Zenaida Tiamzon and Carmelita Rapadas were employed
sometime in 1991 as all-around laborers (driver/sweeper/ "taga-libing"/grass-cutter) by Masonic
Contractor, Inc. (MCI). Each of them received an initial daily wage of ₱165.00 and were required to
report for work from 7:00 a.m. to 4:00 p.m. Three years thereafter, MCI increased their wages by
₱15.00 per day5 but not without earning the ire of Melvin Balais, president of MCI.6

Sometime in 2004, Balais told Madjos, Tiamzon and Rapadas, along with nine (9) other employees,
to take a two-day leave. When they reported for work two days thereafter, they were barred from
entering the work premises and were informed that they had already been replaced by other
workers.7 This prompted Madjos and her co-workers to file a complaint against herein petitioners for
illegal dismissal and for non-payment of overtime pay, holiday pay, 13th month pay, and damages.

In their Position Paper dated April 12, 2004,8 respondents averred that they were regular employees
of MCI who were summarily dismissed from their jobs contrary to the substantive and procedural
requirements of law.

Petitioners, for their part, denied being the direct employer of respondents.9 Essentially, they argued
that MCI had maintenance contracts with different memorial park companies and that, over the
years, they had engaged the services of a certain Luz Malibiran to provide them with the necessary
manpower depending on MCI’s volume of work.10

On December 16, 2004, LA Aliman Mangandog rendered a Decision,11 dismissing the complaint for
lack of merit. The LA ratiocinated that Madjos, Tiamzon and Rapadas failed to present any evidence
to prove that MCI had control over the means and methods in the performance of their work. The LA
gave more credence to Malibiran’s affidavit,12 pertinent portions of which read:

1. Ako at ang mga nagsumbong sa SSS laban sa Masonic Contractor’s, Inc., komokontrata
lamang ng mga gawaing (sic) ng nasabing kompanya sa loob ng Loyola Memorial Park at
ang aming mga ginawa ay binabayaran ng buo na siya naman naming pinagpaparti-
partihan.

2. Ako at ang mga nagsumbong sa SSS, sa kadahilanang alam naming na (sic) hindi kami
empleyado ng kahit sinumang kompanya o pagawaan ay nag-usap-usap at nagkasundo na
kami na mismo sa aming sarili ang magpalista sa SSS at magbayad ng kontribusyon kung
gusto naming na (sic) magkaroon ng benepisyo pagdating ng panahon.

3. Alam naming lahat na kami ay hindi empleyado ng Masonic Contractor’s[,] Inc., kung kaya
alam naming (sic) na ang nasabing kompanya ay walang pananagutan na kami ay ipalista
sa SSS bilang empleyado.
 4. Ang mga nagsumbong sa SSS ay umalis at umayaw na lang ng walang paalam kung
kaya kaming mga natira ay napilitang maghanap ng ibang makakasama sa pangongontrata.
Ang aming pangongontrata sa Masonic Contractor’s[,] Inc. ay isang pakiusap lamang sa
nasabing kompanya upang kami ay magkaroon ng sariling pinagkakakitaan upang
matugunan ang aming pang-araw-araw na pangangailangan.

5. Ang salaysay na ito ay aking ginawa para patunayan ang mga nakasaaad dito ay pawang
totoo at upang malaman ng tang[g]apan ng SSS na walang pagkukulang ang Masonic
Contractor’s[,] Inc.13

On appeal, the NLRC affirmed the LA’s ruling. Respondents’ motion for reconsideration was,
likewise, denied.

On review, the CA reversed the findings of the NLRC and the LA. The CA reasoned that the NLRC
erroneously imposed upon the three complainants the burden of proving that they were employees,
when it was the employer and/or the contractor which should have been tasked with the onus to
prove that it had substantial capital, investment, tools, etc. to disprove the allegation that it was
engaged in labor-only contracting.14 In contrast to the NLRC’s ruling, the CA found that an employer-
employee relationship existed between herein petitioners and respondents, and that the latter were
illegally terminated from their work.

The dispositive portion of the July 18, 2008 Decision of the CA states:

WHEREFORE, the petition is GRANTED. The assailed dispositions are ANNULLED and SET
ASIDE. Masonic Contractor, Inc. is ORDERED to reinstate Petitioners Magdalena Madjos, Carmelita
Rapadas, and Zenaida Tiamzon or, in the event that reinstatement is no longer feasible, to pay each
of them separation pay. Masonic Contractor, Inc. is also DIRECTED to pay the Petitioners full
backwages and other monetary benefits computed from the time of their dismissal up to the time of
actual reinstatement or up to the finality of this decision, if reinstatement is not possible. No costs.

SO ORDERED.15

Petitioners now come to this Court via a Rule 45 petition, contending that the CA committed a
reversible error in finding that they were engaged in labor-only contracting and for holding them
liable for respondents’ dismissal.

Central to the disposition of the case is a determination of whether respondents are employees of
MCI.

We answer in the affirmative.

In "Brotherhood" Labor Unity Movement of the Philippines v. Hon. Zamora, the Court explained:

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. It is the so-called
"control test" that is the most important element.16

The existence of an employer-employee relationship is a question of fact which should be supported

by substantial evidence.17
Petitioners’ defense that they merely contracted the services of respondents through Malibiran fails
to persuade us. The facts of this case show that respondents have been under the employ of MCI as
early as 1991. They were hired not to perform a specific job or undertaking. Instead, they were
employed as all-around laborers doing varied and intermittent jobs, such as those of drivers,
sweepers, gardeners, and even undertakers or tagalibing, until they were arbitrarily terminated by
MCI in 2004. Their wages were paid directly by MCI, as evidenced by the latter’s payroll
summary,18 belying its self-serving and unsupported contention that it paid directly to Malibiran for
respondents’ services. Respondents had identification cards or gate passes issued not by Malibiran,
but by MCI,19 and were required to wear uniforms bearing MCI’s emblem or logo when they reported
for work.20

It is common practice for companies to provide identification cards to individuals not only as a
security measure, but more importantly to identify the bearers thereof as bona fide employees of the
firm or institution that issued them.21The provision of company-issued identification cards and
uniforms to respondents, aside from their inclusion in MCI’s summary payroll, indubitably constitutes
substantial evidence sufficient to support only one conclusion: that respondents were indeed
employees of MCI.

Moreover, as correctly observed by the CA, petitioners failed to show that it was Malibiran who
exercised control over the means and methods of the work assigned to respondents. Interestingly,
Malibiran’s affidavit is silent on the aspect of control over respondents’ means and methods of work.
Rather than categorically stating that she was the one who directly employed respondents to render
work for MCI, Malibiran merely implies that, like respondents, she was just a co-worker. Malibiran’s
statement that the work for MCI was merely in the nature of accommodation to help respondents
earn a living, in effect, impliedly admits the fact that she did not have the capacity to engage in the
independent job-contracting business, and that, therefore, she was not respondents’ employer. 1avv phi1

With the issue of respondents’ employment resolved, we then declare that respondents were illegally
terminated when petitioners summarily dismissed them from work without any valid reason for doing
so and without observing procedural due process. We thus affirm the CA’s finding that petitioners
are liable for their unwarranted action against respondents.

Lastly, petitioners did not even make an effort to deny or refute respondents’ claim that they were
not paid their overtime pay, holiday pay and 13th month pay. By their silence, petitioners are
deemed to have admitted the same.22 Section 11 of Rule 8 of the Rules of Court, which supplements
the NLRC Rules, provides that an allegation not specifically denied is deemed
admitted.23 Accordingly, petitioners should comply with their statutory obligations to respondents.

WHEREFORE, premises considered, the instant petition is DENIED for lack of merit. The assailed
July 18, 2008 Decision of the Court of Appeals in CA-G.R. SP No. 101023 and its October 23, 2008
Resolution are hereby AFFIRMED. Petitioners are further ordered to pay respondents their unpaid
overtime pay, holiday pay and 13th month pay to be computed by the Labor Arbiter, and to bear the
costs of this suit.

SO ORDERED.

G.R. No. 127238 August 25, 1998

COCA-COLA Bottlers, Phils., Inc., petitioner,

vs.
DELFIN HINGPIT, GABRIEL FRANCISCO, JR., CECILIO PINAR, JR., ABUNDIO BALATERO,
NARITO MANLULUYO, SECERO ZAMORA, MEDARDO GABINES, ENRIQUE BANGALAO,
JULITO APAT, SOTERO PANDAN, NELSON UMALI, and the NATIONAL LABOR RELATIONS
COMMISSION, respondents.

NARVASA, C.J.:

The special civil action of certiorari at bar concerns seven (7) cases against petitioner Coca-Cola
Bottling, Phils., Inc. instituted in the Regional Arbitration Branch of the National Labor Relations
Commission in Cebu City over a period of four years or so, by eleven (11) persons claiming to be
employees of the company's Tagbilaran City plant. These were:

(1) RAB Case No. VII-07-12-0657-88 initiated on August 9, 1988 by Delfin Hingpit for
"illegal dismissal, back wages and damages;"

(2) RAB Case No. VII-05-0398-89 filed on February 13, 1989 by Gabriel Francisco
for "unjust dismissal, non-payment of overtime pay and service incentive;"

(3) RAB Case No. VII-02-0189-90 jointly filed on February 7, 1990 by Nelson Umali,
Medardo Gabines, Enrique Bangalao, Julito Apat and Sotero Pandan for "illegal
dismissal," "separation pay," service incentive leave," and "Cost of Living Allowance
mandated by law;"

(4) RAB Case No. VII-02-0169-90 initiated by Severo Zamora on February 12, 1990
for "illegal dismissal," "service incentive leave," "retirement pay," and "separation
pay;"

(5) RAB Case No. VII-10-0896-89 filed by Cecilio Pinar on March 9, 1992 for "unjust
dismissal" and "separation pay;"

(6) RAB Case No. VII-11-1026-89 initiated by Abundio Balatero also on March 9,
1992 for "unjust dismissal," "non-payment of overtime pay" and "separation pay;" and

(7) RAB Case No. VII-10-0897-89 commenced by Narito Manluluyo.

In the first two (2) cases — RAB Case No. VII-07-12-0657-88 and RAB Case No. VII-05-0398-89 —
the respondents impleaded were Coca-Cola Bottling, Phils., Inc. (COCA-COLA) and its Tagbilaran
Branch Manager, Godofredo Bagares. In the other five (5), the respondents named, aside from
COCA-COLA, were Pioneer Multi Services, Inc. and Lipercon Services, Inc.

COCA-COLA is a corporation duly organized under Philippine laws with principal offices at Ace
Building, Legaspi Village, Makati, Metro Manila, engaged in the bottling, distribution and sale of soft
drink products. 1 It maintains, among others, a bottling plant in Tagbilaran City, with sales offices and
bodegas in strategic places to serve the surrounding areas in Bohol Province.

Pioneer Multi-Services Co. (PIONEER) and Lipercon Services, Inc. (LIPERCON), are manning
companies with which COCA COLA successively entered into contracts for the supply of the
manpower needs of its plant in Tagbilaran. COCA-COLA's contract with PIONEER was executed on
May 28, 1983, and that with LIPERCON, five (5) years later, on December 17, 1988.
The seven (7) cases against COCA COLA were heard together after issues had been joined; and
judgment thereon was handed down by the Executive Labor Arbiter on February 7, 1995. 2 The
judgment found that complainants were supplied as workers to COCA-COLA first by PIONEER, and
later, by LIPERCON; that whereas LIPERCON was an independent contractor, PIONEER was not;
that in any case, "(w)hen Lipercon entered into the picture, **complainants were already regular
employees of the respondent firm," and hence the subsequent "coming in of Lipercon did not
deprive ** (them of) the right to claim separation pay ** as reinstatement is no longer feasible."
COCA-COLA was therefore sentenced "to pay the complainants the sum of Seventy One Thousand
Six Hundred Fifty Six (P71,656.00) Pesos in concept of separation pay" in differing amounts. The
complaint was dismissed as regards Godofredo Bagares (COCA COLA's Branch Manager at
Tagbilaran), his liability not having been established.

The eleven complainants appealed from the Decision of the Arbiter imputing reversible error to the
latter "when he merely awarded separation pay instead of reinstatement with backwages, despite his
finding of illegal dismissal, without even explaining in his decision why complainants could not be
reinstated." The appeal was filed only by Hingpit who represented that he was taking the appeal also
in behalf of the other complainants.

In its Decision of February 28, 1996, the Fourth Division of the National Labor Relations Commission
(Cebu City) "AFFIRMED with MODIFICATION" the appealed judgment, commanding COCA-COLA
to pay to complainants an increased amount of P2,022,076.94 representing full back wages and
"13th month pay, holiday pay, service incentive leave pay, cost of living allowance and rest day
pay." 3 Both COCA-COLA and the complainants moved for reconsideration of the Decision. By
Resolution of October 3, 1996, 4 COCA-COLA's motion for reconsideration was denied, while that of
the complainants was granted in the sense that COCA-COLA was additionally "ordered to
reinstate ** (them) to their former position without loss of seniority rights and other privileges."

COCA COLA thereupon commenced the present certiorari action on December 11, 1996 through
which it seeks the setting aside of the Commission's Decision of February 28, 1996 and its
Resolution of October 3, 1996. The Court required the respondents to comment on the petition and,
upon a bond of P2,022,076.94, issued a temporary restraining order stopping execution of the
Commission's challenged dispositions. 5

On February 4, 1997, a pleading traversing the petition, entitled "Comments/Objection to Temporary

Restraining Order, " was filed by ten (10) of the complainants themselves: Hingpit, Francisco, Pinar,
Manluluyo, Zamora, Gabines, Bangalao, Apat, Pandan, Umali; 6 and on February 12, 1997, another
pleading, "Private Respondents' Supplemental Comment," was submitted by the same ten (10)
parties. 7 On March 26, 1997, a COMMENT on behalf of the National Labor Relations Commission
was filed by the Solicitor General's
Office. 8 On June 13, 1997, COCA COLA filed its "REPLY (to Private Respondents' Supplemental
Comment)," and on August 27, 1997, its "REPLY (To Public Respondent's Comment)."

It appears that all the complainants, except Delfin Hingpit and Gabriel Francisco, were originally
recruited by PIONEER which detailed them, under its contract with COCA COLA, in the latter's
Tagbilaran Plant, some being assigned as utility workers, and others, as bottling crew
members. 9 Three years afterwards, they were absorbed by LIPERCON when it replaced PIONEER
as COCA-COLA's labor supplier.

It appears that Hingpit was recruited by LIPERCON for the Tagbilaran COCA-COLA plant, and first
assigned as bottling crew member on November 24, 1984. Sometime in 1988, Hingpit, being then
involved in a labor case against his employer, sent a letter to then President Corazon C. Aquino
asking that she help him obtain permanent employment in COCA COLA. This brought about a
conciliation conference in the Bohol Labor Extension Office in Tagbilaran City; and there, an
agreement was reached between Hingpit and COCA COLA, represented by its Tagbilaran
Personnel Officer, Ms. Suzette Gotera. According to Hingpit, 10 Ms. Gotera had offered him "the
position of driver-helper or security guard if I possess the necessary qualifications for the aforesaid
position," and he had "accepted her offer as a truck-helper in the meantime that I have not secured a
driver's license." On the basis of this amicable agreement, and after obtaining a clearance from
Lipercon Services, Inc., Hingpit was hired by COCA COLA on a probationary basis for a period of six
(6) months effective May 16, 1988.

Hingpit was then required, among other things, to take examinations to qualify for permanent
placement and to submit a police clearance. He submitted a police clearance issued by the
Integrated National Police Command of Bohol which stated that he was a resident of Batuan, Bohol,
and that he had no criminal record thereat. Unfortunately for him, not only did he obtain failing marks
in the qualifying examinations, but the police clearance submitted by him was shortly afterwards
revealed to be false, belied by a certification of the Office of the City Fiscal of Tagbilaran City to the
effect that he was then facing charges of physical injuries in no less than three (3) cases. As a result,
his services — considered temporary or probationary — were terminated on July 22, 1988, on the
ground that he had (1) failed to measure up to the standards of the firm, having flunked the required
qualifying tests, and (2) been shown to be dishonest, for not disclosing that he had been charged
with 3 counts of physical injuries. 11

Gabriel Francisco originally worked as bottling crew member of San Miguel Corporation at its
Tagbilaran Plant from 1971 until 1976. He was re-employed in 1979, and assigned to the beer
department of COCA-COLA. In 1980, he was hired by PIONEER, which as aforestated had
concluded a contract to supply COCA-COLA's manpower needs. He worked under this arrangement
until PIONEER was replaced by LIPERCON, in December 1986. He continued working as bottling
crew member until he was separated from employment on December 15, 1988. 12

The other complainant-employees — Cecilio Pinar, Jr., Abundio Balatero, Narito Manluluyo, Secero
Zamora, Medardo Gabines, Enrique Bangalao, Julito Apat, Sotero Pandan, Nelson Umali — were,
as already stated, found by the Labor Arbiter to have been first placed in the COCA COLA
Tagbilaran plant by their recruiter, PIONEER, and after the latter's contract expired, were recruited
by LIPERCON and again assigned at the same Tagbilaran plant.

The Executive Labor Arbiter's decision of February 7, 1995 13 found that while PIONEER was a
"labor only contractor," 14 LIPERCON — which had also undertaken to provide COCA COLA with
manpower for such services as the repair and maintenance of machines, activities related to
projects, yard cleaning, utility jobs; loading and unloading of full and empty bottles 15 — was a
legitimate labor contractor. It had substantial capital of its own; paid its recruited employees regularly
even before receiving its stipulated fees from COCA COLA; had control over complainants-workers
who could not get inside the premises of COCA COLA without its written authority; attended to
providing route helpers with requisition slips; kept the signed daily time records of its recruited
employees; monitored their hours of work, and saw to it that they were at their places of work at the
appointed hours; and could receive, and act with finality on, complaints concerning its recruited
workers presented by COCA COLA's regular employees or supervisors. 16

The Executive Labor Arbiter's decision declared that when the complainants were discharged from
LIPERCON, they signed documents of quitclaim and release, a fact "not refuted" by
them. 17 Consequently, LIPERCON was absolved from liability. The judgment was quick to point out,
however, that "when LIPERCON entered into the picture" — after the lapse of COCA COLA's earlier
contract with PIONEER — said complainants —
 ** were already regular employees of the respondent firm (COCA COLA). Its entry,
even if viewed as a consequence of a legitimate business of a manpower servicing
firm, resulted to (sic) the illegal termination of the complainants who at that point in
time had already acquired regular status. The coming in of Lipercon did not deprive
the complainants of the right to claim separation pay. Their severance from
respondent firm, it appears, was forced upon them. It is only fair, thus, that they be
given the benefits that they deserve while placed under Pioneer Multi-Services, Inc.
Considering that their termination was not legal and valid, they should be paid one
month pay for every year of service as reinstatement is no longer feasible. 18

For this reason, COCA-COLA was sentenced "to pay the complainants the sum of Seventy One
Thousand Six Hundred Fifty Six (P71,656.00) Pesos in concept of separation pay" in differing
amounts.

Respondent Commission saw the case differently. It opined that (1) LIPERCON was a labor-only,
not an independent labor contractor; and (2) COCA COLA not having presented evidence to
establish any just cause for the termination of complainants' employment, such termination must be
held illegal; and having, as well, failed to submit the payrolls corresponding to the complainants, its
monetary liability to them should be increased.

In this special civil action of certiorari, COCA COLA submits that respondent Commission acted with
grave abuse of discretion —

1) in completely ignoring the fact that Hingpit had no capacity to take an appeal in
behalf of the other complainants;

2) in not ruling that the Labor Arbiter's decision had long become final and executory
because the complainants, except Hingpit, had already lost their right of appeal;

3) in disregarding the Labor Arbiter's findings that complainants were not regular
employees of COCA COLA;

4) even granting arguendo that complainants were employees of COCA COLA, in

requiring the latter to pay the former even when they did nothing;

5) in awarding complainants "rest day pay" despite their admission that they did not
work seven days a week;

6) in holding complainants to be entitled to holiday pay, service incentive leave pay,

cost of living allowance, 13th month pay, without any factual basis and contrary to
the evidence on record;

7) in not allowing Hingpit to raise the issue of his alleged employment with COCA
COLA although the same was already subject of a compromise agreement; and

8) in not ruling that Hingpit had been validly dismissed, having failed to meet the
company standards for a probationary employee.

The Court will deal with Delfin Hingpit first. It seems fairly evident from the record that his services
were validly terminated. As already narrated, on the basis of his compromise agreement with the
Tagbilaran Personnel Officer of COCA COLA (entered into under the auspices of the Bohol Labor
Extension Office), and after obtaining a clearance from LIPERCON, Hingpit was employed by COCA
COLA on a probationary basis for a period of six (6) months effective May 16, 1988. However,
Hingpit subsequently flunked the qualifying examinations for regular employment, and was later
discovered to have misled COCA COLA by submitting a police clearance contradicted by the
records of the Fiscal's Office of Tagbilaran City showing that he was then facing three (3) charges of
physical injuries. Upon the facts, therefore, there can be no question: first, of the propriety of his
contract or probationary employment — not only executed before Labor officials, but also admitted
by him as freely and voluntarily entered into — and second, of the fact that he had not only failed the
qualifying examinations, but had also presented a false clearance. Hence, his services were properly
terminated on July 22, 1988, for (1) failing to qualify for the job, and (2) for dishonesty. 19

Turning to another point, respondent Commission reversed the Labor Arbiter's conclusion that
LIPERCON was an independent labor contractor. It declared it instead to be a mere "labor-only"
contractor, as the term is defined and described in the Labor Code 20 and the Omnibus Rules
Implementing said
Code. 21 On this basis, it held that complainants were not employees of LIPERCON, but of COCA
COLA.

In so ruling respondent Commission unaccountably ignored the evidence on which the Labor Arbiter
had based his contrary conclusion. That evidence, consisting chiefly of the testimony of Filomena
Legaspi, Head of LIPERCON's Accounting Division, is summarized by the Arbiter as follows: 22

The Lipercon has indeed substantial capital of its own is proven by the testimony of
its personnel-in-charge in Tagbilaran City, Filomena Legaspi. Legaspi affirmed the
fact that Lipercon paid its employees (the complainants herein) regularly even before
it is paid of its billing (TSN. p. 49, September 2, 1992). She also testified that she had
control over the complainants. Without her signature, they cannot get inside the
premises of respondent firm. She signed their daily time records and monitored their
hours of work. She saw to it that they were in their positions and places of work. And
if the regular employees of CCBPI or their supervisors complain, they notify and
inform her of these complaints. With regard to the route helpers, these were covered
by requisition slips (TSN, p. 47, Sept. 2, 1992). In fact, after Lipercon's contract with
respondent expired in December 1988, it was she who assigned some workers like
Cecilio Pinar, Jr. and Abundio Balatero to SMC (TSN, pp. 34, 35, 42-49, September
2, 1992). The payrolls of Lipercon (Exhs. "1" and "2" for CCBPI) and the resignation
letter addressed to Ms. Perla Cañete (Exh. "4") by Gabriel Francisco, Jr. points out
that complainants were indeed employees of Lipercon. The aforecited facts were not
refuted by the complainants.

xxx xxx xxx

** Lipercon proved to be an independent contractor. Aside from hiring its own

employees and paying the workers their salaries, it also exercised supervision and
control over them which is the most important aspect in determining employer-
employee relations (Mafinco Trading Corp. v. Ople, 70 SCRA 139; Rosario Brothers
Inc. vs. Ople, 131 SCRA 72). That it indeed has substantial capital is proven by the
fact that it did not depend upon its billing on respondent regarding payment of
workers' salaries. And when complainants were separated from Lipercon, they
signed quitclaim and release documents. **.

While it is within respondent Commission's competence, as an appellate agency reviewing decisions

of Labor Arbiters, to disagree with and set aside the latter's findings, it stands to reason that it should
state an acceptable cause therefor. It would otherwise be a whimsical, capricious, oppressive,
illogical, unreasonable exercise of quasi-judicial prerogative, subject to invalidation by the
extraordinary writ of certiorari.

But that, regrettably, is precisely what respondent Commission appears to have done. It overturned
the Labor Arbiter's factual determination regarding LIPERCON's being a legitimate independent
contractor without stating the reason therefor, without any explanation whatever as to why the
Arbiter's evidentiary premises were not worthy of credit, or why the inferences drawn therefrom were
unacceptable, as a matter of law or logic.

Respondent Commission grounded its reversal of the Arbiter's adjudgment solely on a 1989
judgment of this Court, Guarin et al. v. Lipercon 23 — in which LIPERCON had also been involved as
a labor contractor of another company. 24 There, the Court held LIPERCON to be a "labor-only"
contractor; and declared that the NLRC's finding — that it "was not a mere labor-only contractor
because it has substantial capital or investment in the form of tools, equipment, machineries, work
premises, ** " — was "based on insubstantial evidence, as the NLRC (had merely) pointed out that 'it
(LIPERCON) claims to be possessed among others, of substantial capital and equipment essential
to carry out its business as a general independent contractor' **." In other words, in Guarin,
LIPERCON was held to have failed to discharge its burden of proof that "it has substantial capital,
investment, tools, etc."

Not so in the case at bar. Here, there is substantial evidence, detailed by the Labor Arbiter, to
establish LIPERCON's character as an independent contractor in the real sense of the word, 25 which
makes the Labor Arbiter's ruling more acceptable than respondent Commission's on the same
matter, being founded solely on an inapplicable precedent. Also more deserving of assent is said
Labor Arbiter's conclusion that the complainants' acceptance of employment in LIPERCON in
December, 1986 — lasting for a period of some two years — effectively operated as a cessation of
the prior relationship they had with PIONEER and COCA COLA in consequence of which they
became entitled to separation pay from COCA COLA, PIONEER being merely its hiring agent.

The evidence therefore satisfactorily establishes that complainants were employees of LIPERCON.
It was LIPERCON that terminated their services at which time, as found by the Labor Arbiter, the
complainants "signed quitclaim and release documents" in favor of LIPERCON. COCA COLA was
not privy either to that act of employment-termination or execution of "quitclaim and release
documents," or to the earlier act of creation of the employment relationship between the
complainants and LIPERCON. COCA COLA was in no position to intervene in any manner in the
creation or termination of the relationship between complainants and LIPERCON.

It was therefore erroneous for respondent Commission to demand that COCA COLA present proof
of just cause for the termination of the services of complainants, the latter not being its employees,
but LIPERCON's. For the same reason, it was erroneous for the NLRC to expect COCA COLA to
present its payrolls to show the salaries and wages of the complainants although, it must be
mentioned, COCA COLA did cause presentation of LIPERCON's payrolls relative to its employees,
including complainants. And it was grave error for respondent Commission to conclude that because
proof of just cause for complainants' removal from their employment in LIPERCON was not
presented by COCA COLA, said complainants had been dismissed without just cause and due
process.

What has been said makes it unnecessary to address the other substantive issues raised by COCA
COLA. 26 And the adjective issue that it sets up — respecting the validity of Hingpit's having
attempted to appeal from the Labor Arbiter's decision in behalf of the other complainants — appears
to be too unsubstantial to merit consideration. All things considered, and except as regards Delfin
Hingpit, the Court is satisfied that the Decision of the Executive Labor Arbiter fairly and reasonably
disposed of the controversy, and is worthy of adoption as the ultimate adjudgment of this case.

WHEREFORE, the petition for certiorari is GRANTED, and the challenged Decision of the Fifth
Division of the National Labor Relations Commission promulgated on February 28, 1996 is
NULLIFIED AND SET ASIDE. The Decision of the Executive Labor Arbiter, Cebu City, dated
February 7, 1995 is REINSTATED and hereby AFFIRMED, with the sole modification that the
complaint of DELFIN HINGPIT is dismissed, for lack of merit. No pronouncement as to costs.

SO ORDERED.

G.R. No. 179652 May 8, 2009

PEOPLE'S BROADCASTING (BOMBO RADYO PHILS., INC.), Petitioner,

vs.
THE SECRETARY OF THE DEPARTMENT OF LABOR AND EMPLOYMENT, THE REGIONAL
DIRECTOR, DOLE REGION VII, and JANDELEON JUEZAN, Respondents.

DECISION

TINGA, J.:

The present controversy concerns a matter of first impression, requiring as it does the determination
of the demarcation line between the prerogative of the Department of Labor and Employment
(DOLE) Secretary and his duly authorized representatives, on the one hand, and the jurisdiction of
the National Labor Relations Commission, on the other, under Article 128 (b) of the Labor Code in
an instance where the employer has challenged the jurisdiction of the DOLE at the very first level on
the ground that no employer-employee relationship ever existed between the parties.

I.

The instant petition for certiorari under Rule 65 assails the decision and the resolution of the Court of
Appeals dated 26 October 2006 and 26 June 2007, respectively, in C.A. G.R. CEB-SP No. 00855.1

The petition traces its origins to a complaint filed by Jandeleon Juezan (respondent) against
People’s Broadcasting Service, Inc. (Bombo Radyo Phils., Inc) (petitioner) for illegal deduction, non-
payment of service incentive leave, 13th month pay, premium pay for holiday and rest day and illegal
diminution of benefits, delayed payment of wages and non-coverage of SSS, PAG-IBIG and
Philhealth before the Department of Labor and Employment (DOLE) Regional Office No. VII, Cebu
City.2 On the basis of the complaint, the DOLE conducted a plant level inspection on 23 September
2003. In the Inspection Report Form,3 the Labor Inspector wrote under the heading
"Findings/Recommendations" "non-diminution of benefits" and "Note: Respondent deny employer-
employee relationship with the complainant- see Notice of Inspection results." In the Notice of
Inspection Results4 also bearing the date 23 September 2003, the Labor Inspector made the
following notations:

Management representative informed that complainant is a drama talent hired on a per drama "
participation basis" hence no employer-employeeship [sic] existed between them. As proof of this,
management presented photocopies of cash vouchers, billing statement, employments of specific
undertaking (a contract between the talent director & the complainant), summary of billing of drama
production etc. They (mgt.) has [sic] not control of the talent if he ventures into another contract w/
other broadcasting industries.

On the other hand, complainant Juezan’s alleged violation of non-diminution of benefits is computed
as follows:

@ P 2,000/15 days + 1.5 mos = ₱ 6,000

(August 1/03 to Sept 15/03)

Note: Recommend for summary investigation or whatever action deem proper.5

Petitioner was required to rectify/restitute the violations within five (5) days from receipt. No
rectification was effected by petitioner; thus, summary investigations were conducted, with the
parties eventually ordered to submit their respective position papers.6

In his Order dated 27 February 2004,7 DOLE Regional Director Atty. Rodolfo M. Sabulao (Regional
Director) ruled that respondent is an employee of petitioner, and that the former is entitled to his
money claims amounting to ₱203,726.30. Petitioner sought reconsideration of the Order, claiming
that the Regional Director gave credence to the documents offered by respondent without examining
the originals, but at the same time he missed or failed to consider petitioner’s evidence. Petitioner’s
motion for reconsideration was denied.8 On appeal to the DOLE Secretary, petitioner denied once
more the existence of employer-employee relationship. In its Order dated 27 January 2005, the
Acting DOLE Secretary dismissed the appeal on the ground that petitioner did not post a cash or
surety bond and instead submitted a Deed of Assignment of Bank Deposit.9

Petitioner elevated the case to the Court of Appeals, claiming that it was denied due process when
the DOLE Secretary disregarded the evidence it presented and failed to give it the opportunity to
refute the claims of respondent. Petitioner maintained that there is no employer-employee
relationship had ever existed between it and respondent because it was the drama directors and
producers who paid, supervised and disciplined respondent. It also added that the case was beyond
the jurisdiction of the DOLE and should have been considered by the labor arbiter because
respondent’s claim exceeded ₱5,000.00.

The Court of Appeals held that petitioner was not deprived of due process as the essence thereof is
only an opportunity to be heard, which petitioner had when it filed a motion for reconsideration with
the DOLE Secretary. It further ruled that the latter had the power to order and enforce compliance
with labor standard laws irrespective of the amount of individual claims because the limitation
imposed by Article 29 of the Labor Code had been repealed by Republic Act No. 7730.10 Petitioner
sought reconsideration of the decision but its motion was denied.11

Before this Court, petitioner argues that the National Labor Relations Commission (NLRC), and not
the DOLE Secretary, has jurisdiction over respondent’s claim, in view of Articles 217 and 128 of the
Labor Code.12 It adds that the Court of Appeals committed grave abuse of discretion when it
dismissed petitioner’s appeal without delving on the issues raised therein, particularly the claim that
no employer-employee relationship had ever existed between petitioner and respondent. Finally,
petitioner avers that there is no appeal, or any plain, speedy and adequate remedy in the ordinary
course of law available to it.

On the other hand, respondent posits that the Court of Appeals did not abuse its discretion. He
invokes Republic Act No. 7730, which "removes the jurisdiction of the Secretary of Labor and
Employment or his duly authorized representatives, from the effects of the restrictive provisions of
Article 129 and 217 of the Labor Code, regarding the confinement of jurisdiction based on the
amount of claims."13 Respondent also claims that petitioner was not denied due process since even
when the case was with the Regional Director, a hearing was conducted and pieces of evidence
were presented. Respondent stands by the propriety of the Court of Appeals’ ruling that there exists
an employer-employee relationship between him and petitioner. Finally, respondent argues that the
instant petition for certiorari is a wrong mode of appeal considering that petitioner had earlier filed a
Petition for Certiorari, Mandamus and Prohibition with the Court of Appeals; petitioner, instead,
should have filed a Petition for Review.14

II.

The significance of this case may be reduced to one simple question—does the Secretary of Labor
have the power to determine the existence of an employer-employee relationship?

To resolve this pivotal issue, one must look into the extent of the visitorial and enforcement power of
the DOLE found in Article 128 (b) of the Labor Code, as amended by Republic Act 7730. It reads:

Article 128 (b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary,
and in cases where the relationship of employer-employee still exists, the Secretary of Labor and
Employment or his duly authorized representatives shall have the power to issue compliance orders
to give effect to the labor standards provisions of this Code and other labor legislation based on the
findings of labor employment and enforcement officers or industrial safety engineers made in the
course of inspection. The Secretary or his duly authorized representative shall issue writs of
execution to the appropriate authority for the enforcement of their orders, except in cases where the
employer contests the findings of the labor employment and enforcement officer and raises issues
supported by documentary proofs which were not considered in the course of inspection. (emphasis
supplied)

xxx

The provision is quite explicit that the visitorial and enforcement power of the DOLE comes into play
only "in cases when the relationship of employer-employee still exists." It also underscores the
avowed objective underlying the grant of power to the DOLE which is "to give effect to the labor
standard provision of this Code and other labor legislation." Of course, a person’s entitlement to
labor standard benefits under the labor laws presupposes the existence of employer-employee
relationship in the first place.

The clause "in cases where the relationship of employer-employee still exists" signifies that the
employer-employee relationship must have existed even before the emergence of the controversy.
Necessarily, the DOLE’s power does not apply in two instances, namely: (a) where the employer-
employee relationship has ceased; and (b) where no such relationship has ever existed.

The first situation is categorically covered by Sec. 3, Rule 11 of the Rules on the Disposition of Labor
Standards Cases15 issued by the DOLE Secretary. It reads:

Rule II MONEY CLAIMS ARISING FROM COMPLAINT/ROUTINE INSPECTION

Sec. 3. Complaints where no employer-employee relationship actually exists. Where employer-

employee relationship no longer exists by reason of the fact that it has already been severed, claims
for payment of monetary benefits fall within the exclusive and original jurisdiction of the labor
arbiters. Accordingly, if on the face of the complaint, it can be ascertained that employer-employee
relationship no longer exists, the case, whether accompanied by an allegation of illegal dismissal,
shall immediately be endorsed by the Regional Director to the appropriate branch of the National
Labor Relations Commission (NLRC).

In the recent case of Bay Haven, Inc. v. Abuan,16 this Court recognized the first situation and
accordingly ruled that a complainant’s allegation of his illegal dismissal had deprived the DOLE of
jurisdiction as per Article 217 of the Labor Code.17

In the first situation, the claim has to be referred to the NLRC because it is the NLRC which has
jurisdiction in view of the termination of the employer-employee relationship. The same procedure
has to be followed in the second situation since it is the NLRC that has jurisdiction in view of the
absence of employer-employee relationship between the evidentiary parties from the start.

Clearly the law accords a prerogative to the NLRC over the claim when the employer-employee
relationship has terminated or such relationship has not arisen at all. The reason is obvious. In the
second situation especially, the existence of an employer-employee relationship is a matter which is
not easily determinable from an ordinary inspection, necessarily so, because the elements of such a
relationship are not verifiable from a mere ocular examination. The intricacies and implications of an
employer-employee relationship demand that the level of scrutiny should be far above the cursory
and the mechanical. While documents, particularly documents found in the employer’s

office are the primary source materials, what may prove decisive are factors related to the history of
the employer’s business operations, its current state as well as accepted contemporary practices in
the industry. More often than not, the question of employer-employee relationship becomes a battle
of evidence, the determination of which should be comprehensive and intensive and therefore best
left to the specialized quasi-judicial body that is the NLRC.

It can be assumed that the DOLE in the exercise of its visitorial and enforcement power somehow
has to make a determination of the existence of an employer-employee relationship. Such
prerogatival determination, however, cannot be coextensive with the visitorial and enforcement
power itself. Indeed, such determination is merely preliminary, incidental and collateral to the
DOLE’s primary function of enforcing labor standards provisions. The determination of the existence
of employer-employee relationship is still primarily lodged with the NLRC. This is the meaning of the
clause "in cases where the relationship of employer-employee still exists" in Art. 128 (b).

Thus, before the DOLE may exercise its powers under Article 128, two important questions must be
resolved: (1) Does the employer-employee relationship still exist, or alternatively, was there ever an
employer-employee relationship to speak of; and (2) Are there violations of the Labor Code or of any
labor law?

The existence of an employer-employee relationship is a statutory prerequisite to and a limitation on

the power of the Secretary of Labor, one which the legislative branch is entitled to impose. The
rationale underlying this limitation is to eliminate the prospect of competing conclusions of the
Secretary of Labor and the NLRC, on a matter fraught with questions of fact and law, which is best
resolved by the quasi-judicial body, which is the NRLC, rather than an administrative official of the
executive branch of the government. If the Secretary of Labor proceeds to exercise his visitorial and
enforcement powers absent the first requisite, as the dissent proposes, his office confers jurisdiction
on itself which it cannot otherwise acquire.

The approach suggested by the dissent is frowned upon by common law. To wit:

[I]t is a general rule, that no court of limited jurisdiction can give itself jurisdiction by a wrong decision
on a point collateral to the merits of the case upon which the limit to its jurisdiction depends; and
however its decision may be final on all particulars, making up together that subject matter which, if
true, is within its jurisdiction, and however necessary in many cases it may be for it to make a
preliminary inquiry, whether some collateral matter be or be not within the limits, yet, upon this
preliminary question, its decision must always be open to inquiry in the superior court.18

A more liberal interpretative mode, "pragmatic or functional analysis," has also emerged in
ascertaining the jurisdictional boundaries of administrative agencies whose jurisdiction is established
by statute. Under this approach, the Court examines the intended function of the tribunal and
decides whether a particular provision falls within or outside that function, rather than making the
provision itself the determining centerpiece of the analysis.19Yet even under this more expansive
approach, the dissent fails.

A reading of Art. 128 of the Labor Code reveals that the Secretary of Labor or his authorized
representatives was granted visitorial and enforcement powers for the purpose of determining
violations of, and enforcing, the Labor Code and any labor law, wage order, or rules and regulations
issued pursuant thereto. Necessarily, the actual existence of an employer-employee relationship
affects the complexion of the putative findings that the Secretary of Labor may determine, since
employees are entitled to a different set of rights under the Labor Code from the employer as
opposed to non-employees. Among these differentiated rights are those accorded by the "labor
standards" provisions of the Labor Code, which the Secretary of Labor is mandated to enforce. If
there is no employer-employee relationship in the first place, the duty of the employer to adhere to
those labor standards with respect to the non-employees is questionable.

This decision should not be considered as placing an undue burden on the Secretary of Labor in the
exercise of visitorial and enforcement powers, nor seen as an unprecedented diminution of the
same, but rather a recognition of the statutory limitations thereon. A mere assertion of absence of
employer-employee relationship does not deprive the DOLE of jurisdiction over the claim under
Article 128 of the Labor Code. At least a prima facie showing of such absence of relationship, as in
this case, is needed to preclude the DOLE from the exercise of its power. The Secretary of Labor
would not have been precluded from exercising the powers under Article 128 (b) over petitioner if
another person with better-grounded claim of employment than that which respondent had.
Respondent, especially if he were an employee, could have very well enjoined other employees to
complain with the DOLE, and, at the same time, petitioner could ill-afford to disclaim an employment
relationship with all of the people under its aegis.

Without a doubt, petitioner, since the inception of this case had been consistent in maintaining that
respondent is not its employee. Certainly, a preliminary determination, based on the evidence
offered, and noted by the Labor Inspector during the inspection as well as submitted during the
proceedings before the Regional Director puts in genuine doubt the existence of employer-employee
relationship. From that point on, the prudent recourse on the part of the DOLE should have been to
refer respondent to the NLRC for the proper dispensation of his claims. Furthermore, as discussed
earlier, even the evidence relied on by the Regional Director in his order are mere self-serving
declarations of respondent, and hence cannot be relied upon as proof of employer-employee
relationship.

III.

Aside from lack of jurisdiction, there is another cogent reason to to set aside the Regional Director’s
27 February 2004 Order. A careful study of the case reveals that the said Order, which found
respondent as an employee of petitioner and directed the payment of respondent’s money claims, is
not supported by substantial evidence, and was even made in disregard of the evidence on record.
It is not enough that the evidence be simply considered. The standard is substantial evidence as in
all other quasi-judicial agencies. The standard employed in the last sentence of Article 128(b) of the
Labor Code that the documentary proofs be "considered in the course of inspection" does not apply.
It applies only to issues other than the fundamental issue of existence of employer-employee
relationship. A contrary rule would lead to controversies on the part of labor officials in resolving the
issue of employer-employee relationship. The onset of arbitrariness is the advent of denial of
substantive due process.

As a general rule, the Supreme Court is not a trier of facts. This applies with greater force in cases
before quasi-judicial agencies whose findings of fact are accorded great respect and even finality. To
be sure, the same findings should be supported by substantial evidence from which the said
tribunals can make its own independent evaluation of the facts. Likewise, it must not be rendered
with grave abuse of discretion; otherwise, this Court will not uphold the tribunals’ conclusion.20 In the
same manner, this Court will not hesitate to set aside the labor tribunal’s findings of fact when it is
clearly shown that they were arrived at arbitrarily or in disregard of the evidence on record or when
there is showing of fraud or error of law.21

At the onset, it is the Court’s considered view that the existence of employer- employee relationship
could have been easily resolved, or at least prima facie determined by the labor inspector, during the
inspection by looking at the records of petitioner which can be found in the work premises.
Nevertheless, even if the labor inspector had noted petitioner’s manifestation and documents in the
Notice of Inspection Results, it is clear that he did not give much credence to said evidence, as he
did not find the need to investigate the matter further. Considering that the documents shown by
petitioner, namely: cash vouchers, checks and statements of account, summary billings evidencing
payment to the alleged real employer of respondent, letter-contracts denominated as "Employment
for a Specific Undertaking," prima facie negate the existence of employer-employee relationship, the
labor inspector could have exerted a bit more effort and looked into petitioner’s payroll, for example,
or its roll of employees, or interviewed other employees in the premises. After all, the labor inspector,
as a labor regulation officer is given "access to employer’s records and premises at any time of day
or night whenever work is being undertaken therein, and the right to copy therefrom, to question any
employee and investigate any fact, condition or matter which may be necessary to determine
violations or which may aid in the enforcement of this Code and of any labor law, wage order or rules
and regulations pursuant thereto."22 Despite these far-reaching powers of labor regulation officers,
records reveal that no additional efforts were exerted in the course of the inspection.

The Court further examined the records and discovered to its dismay that even the Regional Director
turned a blind eye to the evidence presented by petitioner and relied instead on the self-serving
claims of respondent.

In his position paper, respondent claimed that he was hired by petitioner in September 1996 as a
radio talent/spinner, working from 8:00 am until 5 p.m., six days a week, on a gross rate of ₱60.00
per script, earning an average of ₱15,0000.00 per month, payable on a semi-monthly basis. He
added that the payment of wages was delayed; that he was not given any service incentive leave or
its monetary commutation, or his 13th month pay; and that he was not made a member of the Social
Security System (SSS), Pag-Ibig and PhilHealth. By January 2001, the number of radio programs of
which respondent was a talent/spinner was reduced, resulting in the reduction of his monthly income
from ₱15,000.00 to only ₱4,000.00, an amount he could barely live on. Anent the claim of petitioner
that no employer-employee relationship ever existed, respondent argued that that he was hired by
petitioner, his wages were paid under the payroll of the latter, he was under the control of petitioner
and its agents, and it was petitioner who had the power to dismiss him from his employment.23 In
support of his position paper, respondent attached a photocopy of an identification card purportedly
issued by petitioner, bearing respondent’s picture and name with the designation "Spinner"; at the
back of the I.D., the following is written: " This certifies that the card holder is a duly Authorized
MEDIA Representative of BOMBO RADYO PHILIPPINES … THE NO.1 Radio Network in the
Country ***BASTA RADYO BOMBO***"24 Respondent likewise included a Certification which reads:

This is to certify that MR. JANDELEON JUEZAN is a program employee of PEOPLE’S

BROADCASTING SERVICES, INC. (DYMF- Bombo Radyo Cebu) since 1990 up to the present.

Furtherly certifies that Mr. Juezan is receiving a monthly salary of FIFTEEN THOUSAND
(₱15,000.00) PESOS.

This certification is issued upon the request of the above stated name to substantiate loan
requirement.

Given this 18th day of April 2000, Cebu City , Philippines.

(signed)
GREMAN B. SOLANTE
Station Manager

On the other hand, petitioner maintained in its position paper that respondent had never been its
employee. Attached as annexes to its position paper are photocopies of cash vouchers it issued to
drama producers, as well as letters of employment captioned "Employment for a Specific
Undertaking", wherein respondent was appointed by different drama directors as spinner/narrator for
specific radio programs.25

In his Order, the Regional Director merely made a passing remark on petitioner’s claim of lack of
employer-employee relationship—a token paragraph—and proceeded to a detailed recitation of
respondent’s allegations. The documents introduced by petitioner in its position paper and even
those presented during the inspection were not given an iota of credibility. Instead, full recognition
and acceptance was accorded to the claims of respondent—from the hours of work to his monthly
salary, to his alleged actual duties, as well as to his alleged "evidence." In fact, the findings are
anchored almost verbatim on the self-serving allegations of respondent.

Furthermore, respondent’s pieces of evidence—the identification card and the certification issued by
petitioner’s Greman Solante— are not even determinative of an employer-employee relationship.
The certification, issued upon the request of respondent, specifically stated that "MR. JANDELEON
JUEZAN is a program employee of PEOPLE’S BROADCASTING SERVICES, INC. (DYMF- Bombo
Radyo Cebu)," it is not therefore "crystal clear that complainant is a station employee rather than a
program employee hence entitled to all the benefits appurtenant thereto,"26 as found by the DOLE
Regional Director. Respondent should be bound by his own evidence. Moreover, the classification
as to whether one is a "station employee" and "program employee," as lifted from Policy Instruction
No. 40,27 dividing the workers in the broadcast industry into only two groups is not binding on this
Court, especially when the classification has no basis either in law or in fact.28

Even the identification card purportedly issued by petitioner is not proof of employer-employee
relationship since it only identified respondent as an "Authorized Representative of Bombo
Radyo…," and not as an employee. The phrase gains significance when compared vis a vis the
following notation in the sample identification cards presented by petitioner in its motion for
reconsideration:

1. This is to certify that the person whose picture and signature appear hereon is an
employee of Bombo Radio Philippines.
 2. This ID must be worn at all times within Bombo Radyo Philippines premises for proper
identification and security. Furthermore, this is the property of Bombo Radyo Philippines and
must be surrendered upon separation from the company.

HUMAN RESOURCE DEPARMENT

(Signed)
JENALIN D. PALER
HRD HEAD

Respondent tried to address the discrepancy between his identification card and the standard
identification cards issued by petitioner to its employees by arguing that what he annexed to his
position paper was the old identification card issued to him by petitioner. He then presented a
photocopy of another "old" identification card, this time purportedly issued to one of the employees
who was issued the new identification card presented by petitioner.29Respondent’s argument does
not convince. If it were true that he is an employee of petitioner, he would have been issued a new
identification card similar to the ones presented by petitioner, and he should have presented a copy
of such new identification card. His failure to show a new identification card merely demonstrates
that what he has is only his "Media" ID, which does not constitute proof of his employment with
petitioner.

It has long been established that in administrative and quasi-judicial proceedings, substantial
evidence is sufficient as a basis for judgment on the existence of employer-employee relationship.
Substantial evidence, which is the quantum of proof required in labor cases, is "that amount of
relevant evidence which a reasonable mind might accept as adequate to justify a conclusion."30 No
particular form of evidence is required to prove the existence of such employer-employee
relationship. Any competent and relevant evidence to prove the relationship may be
admitted.31 Hence, while no particular form of evidence is required, a finding that such relationship
exists must still rest on some substantial evidence. Moreover, the substantiality of the evidence
depends on its quantitative as well as its qualitative aspects.32

In the instant case, save for respondent’s self-serving allegations and self-defeating evidence, there
is no substantial basis to warrant the Regional Director’s finding that respondent is an employee of
petitioner. Interestingly, the Order of the Secretary of Labor denying petitioner’s appeal dated 27
January 2005, as well as the decision of the Court of Appeals dismissing the petition for certiorari,
are silent on the issue of the existence of an employer-employee relationship, which further suggests
that no real and proper determination the existence of such relationship was ever made by these
tribunals. Even the dissent skirted away from the issue of the existence of employer-employee
relationship and conveniently ignored the dearth of evidence presented by respondent.

Although substantial evidence is not a function of quantity but rather of quality, the peculiar
environmental circumstances of the instant case demand that something more should have been
proffered.33 Had there been other proofs of employment, such as respondent’s inclusion in
petitioner’s payroll, or a clear exercise of control, the Court would have affirmed the finding of
employer-employee relationship. The Regional Director, therefore, committed grievous error in
ordering petitioner to answer for respondent’s claims. Moreover, with the conclusion that no
employer-employee relationship has ever existed between petitioner and respondent, it is crystal-
clear that the DOLE Regional Director had no jurisdiction over respondent’s complaint. Thus, the
improvident exercise of power by the Secretary of Labor and the Regional Director behooves the
court to subject their actions for review and to invalidate all the subsequent orders they issued.

IV.
The records show that petitioner’s appeal was denied because it had allegedly failed to post a cash
or surety bond. What it attached instead to its appeal was the Letter Agreement34 executed by
petitioner and its bank, the cash voucher,35 and the Deed of Assignment of Bank
Deposits.36 According to the DOLE, these documents do not constitute the cash or surety bond
contemplated by law; thus, it is as if no cash or surety bond was posted when it filed its appeal.

The Court does not agree.

The provision on appeals from the DOLE Regional Offices to the DOLE Secretary is in the last
paragraph of Art. 128 (b) of the Labor Code, which reads:

An order issued by the duly authorized representative of the Secretary of Labor and Employment
under this article may be appealed to the latter. In case said order involves a monetary award, an
appeal by the employer may be perfected only upon the posting of a cash or surety bond issued by a
reputable bonding company duly accredited by the Secretary of Labor and Employment in the
amount equivalent to the monetary award in the order appealed from. (emphasis supplied)

While the requirements for perfecting an appeal must be strictly followed as they are considered
indispensable interdictions against needless delays and for orderly discharge of judicial business,
the law does admit exceptions when warranted by the circumstances. Technicality should not be
allowed to stand in the way of equitably and completely resolving the rights and obligations of the
parties.37 Thus, in some cases, the bond requirement on appeals involving monetary awards had
been relaxed, such as when (i) there was substantial compliance with the Rules; (ii) the surrounding
facts and circumstances constitute meritorious ground to reduce the bond; (iii) a liberal interpretation
of the requirement of an appeal bond would serve the desired objective of resolving controversies on
the merits; or (iv) the appellants, at the very least exhibited their willingness and/or good faith by
posting a partial bond during the reglementary period.38

A review of the documents submitted by petitioner is called for to determine whether they should
have been admitted as or in lieu of the surety or cash bond to sustain the appeal and serve the ends
of substantial justice.

The Deed of Assignment reads:

DEED OF ASSIGNMENT OF BANK DEPOSIT

WITH SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That I, GREMAN B. SOLANTE in my capacity as Station Manager of DYMF Cebu City, PEOPLE’S
BROADCASTING SERVICES, INC., a corporation duly authorized and existing under and by virtue
of the laws of the Philippines, for and in consideration of the sum of PESOS: TWO HUNDRED
THREE THOUSAND SEVEN HUNDRED TWENTY SIX PESOS & 30/100 ONLY (₱203,726.30) Phil.
Currency, as CASH BOND GUARANTEE for the monetary award in favor to the Plaintiff in the Labor
Case docketed as LSED Case No. R0700-2003-09-CI-09, now pending appeal.

That Respondent-Appellant do hereby undertake to guarantee available and sufficient funds covered
by Platinum Savings Deposit (PSD) No. 010-8-00038-4 of PEOPLE’S BROADCASTING
SERVICES, INC. in the amount of PESOS: TWO HUNDRED THREE THOUSAND SEVEN
HUNDRED TWENTY SIX PESOS & 30/100 ONLY (₱203,726.30) payable to Plaintiff-
Appellee/Department of Labor and Employment Regional Office VII at Queen City Development
Bank, Cebu Branch, Sanciangko St. Cebu City.
It is understood that the said bank has the full control of Platinum Savings Deposit (PSD) No. 010-8-
00038-4 from and after this date and that said sum cannot be withdrawn by the Plaintiff-Appellee/
Department of Labor and Employment Regional Office VII until such time that a Writ of Execution
shall be ordered by the Appellate Office.

FURTHER, this Deed of Assignment is limited to the principal amount of PESOS: TWO HUNDRED
THREE THOUSAND SEVEN HUNDRED TWENTY SIX PESOS & 30/100 ONLY (₱203,726.30) Phil.
Currency, therefore, any interest to be earned from the said Deposit will be for the account holder.

IN WITNESS WHEREOF, I have hereunto affixed my signature this 18th day if June, 2004, in the
City of Cebu, Philippines.

PEOPLE’S BROADCASTING SERVICES, INC.

By:

(Signed)
GREMAN B. SOLANTE
Station Manager

As priorly mentioned, the Deed of Assignment was accompanied by a Letter Agreement between
Queen City Development Bank and petitioner concerning Platinum Savings Deposit (PSD) No. 010-
8-00038-4,39 and a Cash Voucher issued by petitioner showing the amount of ₱203,726.30
deposited at the said bank.

Casting aside the technical imprecision and inaptness of words that mark the three documents, a
liberal reading reveals the documents petitioner did assign, as cash bond for the monetary award in
favor of respondent in LSED Case NO. RO700-2003-CI-09, the amount of ₱203,726.30 covered by
petitioner’s PSD Account No. 010-8-00038-4 with the Queen City Development Bank at Sanciangko
St. Cebu City, with the depositary bank authorized to remit the amount to, and upon withdrawal by
respondent and or the Department of Labor and Employment Regional Office VII, on the basis of the
proper writ of execution. The Court finds that the Deed of Assignment constitutes substantial
compliance with the bond requirement.

The purpose of an appeal bond is to ensure, during the period of appeal, against any occurrence
that would defeat or diminish recovery by the aggrieved employees under the judgment if
subsequently affirmed.40 The Deed of Assignment in the instant case, like a cash or surety bond,
serves the same purpose. First, the Deed of Assignment constitutes not just a partial amount, but
rather the entire award in the appealed Order. Second, it is clear from the Deed of Assignment that
the entire amount is under the full control of the bank, and not of petitioner, and is in fact payable to
the DOLE Regional Office, to be withdrawn by the same office after it had issued a writ of execution.
For all intents and purposes, the Deed of Assignment in tandem with the Letter Agreement and Cash
Voucher is as good as cash. Third, the Court finds that the execution of the Deed of Assignment, the
Letter Agreement and the Cash Voucher were made in good faith, and constituted clear
manifestation of petitioner’s willingness to pay the judgment amount.

The Deed of Assignment must be distinguished from the type of bank certification submitted by
appellants in Cordova v. Keysa’s Boutique,41 wherein this Court found that such bank certification did
not come close to the cash or surety bond required by law. The bank certification in Cordova merely
stated that the employer maintains a depository account with a balance of ₱23,008.19, and that the
certification was issued upon the depositor’s request for whatever legal purposes it may serve.
There was no indication that the said deposit was made specifically for the pending appeal, as in the
instant case. Thus, the Court ruled that the bank certification had not in any way ensured that the
award would be paid should the appeal fail. Neither was the appellee in the case prevented from
making withdrawals from the savings account. Finally, the amount deposited was measly compared
to the total monetary award in the judgment.42

V.

Another question of technicality was posed against the instant petition in the hope that it would not
be given due course. Respondent asserts that petitioner pursued the wrong mode of appeal and
thus the instant petition must be dismissed. Once more, the Court is not convinced.
1avvphi1.zw+

A petition for certiorari is the proper remedy when any tribunal, board or officer exercising judicial or
quasi-judicial functions has acted without or in excess of its jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction and there is no appeal, nor any plain speedy,
and adequate remedy at law. There is "grave abuse of discretion" when respondent acts in a
capricious or whimsical manner in the exercise of its judgment as to be equivalent to lack of
jurisdiction.43

Respondent may have a point in asserting that in this case a Rule 65 petition is a wrong mode of
appeal, as indeed the writ of certiorari is an extraordinary remedy, and certiorari jurisdiction is not to
be equated with appellate jurisdiction. Nevertheless, it is settled, as a general proposition, that the
availability of an appeal does not foreclose recourse to the extraordinary remedies, such
as certiorari and prohibition, where appeal is not adequate or equally beneficial, speedy and
sufficient, as where the orders of the trial court were issued in excess of or without jurisdiction, or
there is need to promptly relieve the aggrieved party from the injurious effects of the acts of an
inferior court or tribunal, e.g., the court has authorized execution of the judgment.44 This Court has
even recognized that a recourse to certiorari is proper not only where there is a clear deprivation of
petitioner’s fundamental right to due process, but so also where other special circumstances warrant
immediate and more direct action.45

In one case, it was held that the extraordinary writ of certiorari will lie if it is satisfactorily established
that the tribunal acted capriciously and whimsically in total disregard of evidence material to or even
decisive of the controversy,46and if it is shown that the refusal to allow a Rule 65 petition would result
in the infliction of an injustice on a party by a judgment that evidently was rendered whimsically and
capriciously, ignoring and disregarding uncontroverted facts and familiar legal principles without any
valid cause whatsoever.47

It must be remembered that a wide breadth of discretion is granted a court of justice in certiorari
proceedings.48 The Court has not too infrequently given due course to a petition for certiorari, even
when the proper remedy would have been an appeal, where valid and compelling considerations
would warrant such a recourse.49 Moreover, the Court allowed a Rule 65 petition, despite the
availability of plain, speedy or adequate remedy, in view of the importance of the issues raised

therein.50 The rules were also relaxed by the Court after considering the public interest involved in
the case;51 when public welfare and the advancement of public policy dictates; when the broader
interest of justice so requires; when the writs issued are null and void; or when the questioned order
amounts to an oppressive exercise of judicial authority.52

"The peculiar circumstances of this case warrant, as we held in Republic v. Court of Appeals, 107
SCRA 504, 524, the ‘exercise once more of our exclusive prerogative to suspend our own rules or to
exempt a particular case from its operation as in x x Republic of the Philippines v. Court of Appeals,
et al., (83 SCRA 453, 478-480 [1978]), thus: ‘ x x The Rules have been drafted with the primary
objective of enhancing fair trials and expediting justice. As a corollary, if their applications and
operation tend to subvert and defeat instead of promote and enhance it, their suspension is
justified."53

The Regional Director fully relied on the self-serving allegations of respondent and misinterpreted
the documents presented as evidence by respondent. To make matters worse, DOLE denied
petitioner’s appeal based solely on petitioner’s alleged failure to file a cash or surety bond, without
any discussion on the merits of the case. Since the petition for certiorari before the Court of Appeals
sought the reversal of the two aforesaid orders, the appellate court necessarily had to examine the
evidence anew to determine whether the conclusions of the DOLE were supported by the evidence
presented. It appears, however, that the Court of Appeals did not even review the assailed orders
and focused instead on a general discussion of due process and the jurisdiction of the Regional
Director. Had the appellate court truly reviewed the records of the case, it would have seen that
there existed valid and sufficient grounds for finding grave abuse of discretion on the part of the
DOLE Secretary as well the Regional Director. In ruling and acting as it did, the Court finds that the
Court of Appeals may be properly subjected to its certiorari jurisdiction. After all, this Court has
previously ruled that the extraordinary writ of certiorari will lie if it is satisfactorily
1avvphi 1

established that the tribunal had acted capriciously and whimsically in total disregard of evidence
material to or even decisive of the controversy.54

The most important consideration for the allowance of the instant petition is the opportunity for the
Court not only to set the demarcation between the NLRC’s jurisdiction and the DOLE’s prerogative
but also the procedure when the case involves the fundamental challenge on the DOLE’s
prerogative based on lack of employer-employee relationship. As exhaustively discussed here, the
DOLE’s prerogative hinges on the existence of employer-employee relationship, the issue is which is
at the very heart of this case. And the evidence clearly indicates private respondent has never been
petitioner’s employee. But the DOLE did not address, while the Court of Appeals glossed over, the
issue. The peremptory dismissal of the instant petition on a technicality would deprive the Court of
the opportunity to resolve the novel controversy. 1av vphi1

WHEREFORE, the petition is GRANTED. The Decision dated 26 October 2006 and the Resolution
dated 26 June 2007 of the Court of Appeals in C.A. G.R. CEB-SP No. 00855 are REVERSED and
SET ASIDE. The Order of the then Acting Secretary of the Department of Labor and Employment
dated 27 January 2005 denying petitioner’s appeal, and the Orders of the Director, DOLE Regional
Office No. VII, dated 24 May 2004 and 27 February 2004, respectively, are ANNULLED. The
complaint against petitioner is DISMISSED.

SO ORDERED.

G.R. No. 157214 June 7, 2005

PHILIPPINE GLOBAL COMMUNICATIONS, INC., petitioner,

vs.
RICARDO DE VERA, respondent.

DECISION

GARCIA, J.:

Before us is this appeal by way of a petition for review on certiorari from the 12 September 2002
Decision1 and the 13 February 2003 Resolution2 of the Court of Appeals in CA-G.R. SP No. 65178,
upholding the finding of illegal dismissal by the National Labor Relations Commission against
petitioner.

As culled from the records, the pertinent facts are:

Petitioner Philippine Global Communications, Inc. (PhilCom), is a corporation engaged in the

business of communication services and allied activities, while respondent Ricardo De Vera is a
physician by profession whom petitioner enlisted to attend to the medical needs of its employees. At
the crux of the controversy is Dr. De Vera’s status vis a vis petitioner when the latter terminated his
engagement.

It appears that on 15 May 1981, De Vera, via a letter dated 15 May 1981,3 offered his services to the
petitioner, therein proposing his plan of works required of a practitioner in industrial medicine, to
include the following:

1. Application of preventive medicine including periodic check-up of employees;

2. Holding of clinic hours in the morning and afternoon for a total of five (5) hours daily for
consultation services to employees;

3. Management and treatment of employees that may necessitate hospitalization including

emergency cases and accidents;

4. Conduct pre-employment physical check-up of prospective employees with no additional

medical fee;

5. Conduct home visits whenever necessary;

6. Attend to certain medical administrative function such as accomplishing medical forms,

evaluating conditions of employees applying for sick leave of absence and subsequently
issuing proper certification, and all matters referred which are medical in nature.

The parties agreed and formalized respondent’s proposal in a document denominated

as RETAINERSHIP CONTRACT4 which will be for a period of one year subject to renewal, it being
made clear therein that respondent will cover "the retainership the Company previously had with Dr.
K. Eulau" and that respondent’s "retainer fee" will be at P4,000.00 a month. Said contract was
renewed yearly.5 The retainership arrangement went on from 1981 to 1994 with changes in the
retainer’s fee. However, for the years 1995 and 1996, renewal of the contract was only made
verbally.

The turning point in the parties’ relationship surfaced in December 1996 when Philcom, thru a
letter6 bearing on the subject boldly written as "TERMINATION – RETAINERSHIP CONTRACT",
informed De Vera of its decision to discontinue the latter’s "retainer’s contract with the Company
effective at the close of business hours of December 31, 1996" because management has decided
that it would be more practical to provide medical services to its employees through accredited
hospitals near the company premises.

On 22 January 1997, De Vera filed a complaint for illegal dismissal before the National Labor
Relations Commission (NLRC), alleging that that he had been actually employed by Philcom as its
company physician since 1981 and was dismissed without due process. He averred that he was
designated as a "company physician on retainer basis" for reasons allegedly known only to Philcom.
He likewise professed that since he was not conversant with labor laws, he did not give much
attention to the designation as anyway he worked on a full-time basis and was paid a basic monthly
salary plus fringe benefits, like any other regular employees of Philcom.

On 21 December 1998, Labor Arbiter Ramon Valentin C. Reyes came out with a
decision7 dismissing De Vera’s complaint for lack of merit, on the rationale that as a "retained
physician" under a valid contract mutually agreed upon by the parties, De Vera was an "independent
contractor" and that he "was not dismissed but rather his contract with [PHILCOM] ended when said
contract was not renewed after December 31, 1996".

On De Vera’s appeal to the NLRC, the latter, in a decision8 dated 23 October 2000, reversed (the
word used is "modified") that of the Labor Arbiter, on a finding that De Vera is Philcom’s "regular
employee" and accordingly directed the company to reinstate him to his former position without loss
of seniority rights and privileges and with full backwages from the date of his dismissal until actual
reinstatement. We quote the dispositive portion of the decision:

WHEREFORE, the assailed decision is modified in that respondent is ordered to reinstate

complainant to his former position without loss of seniority rights and privileges with full backwages
from the date of his dismissal until his actual reinstatement computed as follows:

Backwages:

a) Basic Salary
From Dec. 31, 1996 to Apr. 10, 2000 = 39.33 mos.
P44,400.00 x 39.33 mos. P1,750,185.00

13th Month Pay:

b) 145,848.75
1/12 of P1,750,185.00

Travelling allowance:
c) 39,330.00
P1,000.00 x 39.33 mos.

GRAND TOTAL P1,935,363.75

The decision stands in other aspects.

SO ORDERED.

With its motion for reconsideration having been denied by the NLRC in its order of 27 February
2001,9 Philcom then went to the Court of Appeals on a petition for certiorari, thereat docketed as CA-
G.R. SP No. 65178, imputing grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of the NLRC when it reversed the findings of the labor arbiter and awarded thirteenth
month pay and traveling allowance to De Vera even as such award had no basis in fact and in law.

On 12 September 2002, the Court of Appeals rendered a decision,10 modifying that of the NLRC by
deleting the award of traveling allowance, and ordering payment of separation pay to De Vera in lieu
of reinstatement, thus:

WHEREFORE, premises considered, the assailed judgment of public respondent, dated 23 October
2000, is MODIFIED. The award of traveling allowance is deleted as the same is hereby DELETED.
Instead of reinstatement, private respondent shall be paid separation pay computed at one (1)
month salary for every year of service computed from the time private respondent commenced his
employment in 1981 up to the actual payment of the backwages and separation pay. The awards of
backwages and 13th month pay STAND.

SO ORDERED.

In time, Philcom filed a motion for reconsideration but was denied by the appellate court in its
resolution of 13 February 2003.11

Hence, Philcom’s present recourse on its main submission that -

THE COURT OF APPEALS ERRED IN SUSTAINING THE DECISION OF THE NATIONAL LABOR
RELATIONS COMMISSION AND RENDERING THE QUESTIONED DECISION AND
RESOLUTION IN A WAY THAT IS NOT IN ACCORD WITH THE FACTS AND APPLICABLE LAWS
AND JURISPRUDENCE WHICH DISTINGUISH LEGITIMATE JOB CONTRACTING
AGREEMENTS FROM THE EMPLOYER-EMPLOYEE RELATIONSHIP.

We GRANT.

Under Rule 45 of the Rules of Court, only questions of law may be reviewed by this Court in
decisions rendered by the Court of Appeals. There are instances, however, where the Court departs
from this rule and reviews findings of fact so that substantial justice may be served. The exceptional
instances are where:

"xxx xxx xxx (1) the conclusion is a finding grounded entirely on speculation, surmise and conjecture;
(2) the inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) the Court
of Appeals went beyond the issues of the case and its findings are contrary to the admissions of
both appellant and appellees; (7) the findings of fact of the Court of Appeals are contrary to those of
the trial court; (8) said findings of facts are conclusions without citation of specific evidence on which
they are based; (9) the facts set forth in the petition as well as in the petitioner’s main and reply
briefs are not disputed by the respondents; and (10) the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and contradicted by the evidence on record."12

As we see it, the parties’ respective submissions revolve on the primordial issue of whether an
employer-employee relationship exists between petitioner and respondent, the existence of which is,
in itself, a question of fact13 well within the province of the NLRC. Nonetheless, given the reality that
the NLRC’s findings are at odds with those of the labor arbiter, the Court, consistent with its ruling
in Jimenez vs. National Labor Relations Commission,14 is constrained to look deeper into the
attendant circumstances obtaining in this case, as appearing on record.

In a long line of decisions,15 the Court, in determining the existence of an employer-employee

relationship, has invariably adhered to the four-fold test, to wit: [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, or the so-called "control test", considered to be the most important element.

Applying the four-fold test to this case, we initially find that it was respondent himself who sets the
parameters of what his duties would be in offering his services to petitioner. This is borne by no less
than his 15 May 1981 letter16which, in full, reads:

"May 15, 1981

Mrs. Adela L. Vicente
Vice President, Industrial Relations
PhilCom, Paseo de Roxas
Makati, Metro Manila

Madam:

I shall have the time and effort for the position of Company physician with your corporation if you
deemed it necessary. I have the necessary qualifications, training and experience required by such
position and I am confident that I can serve the best interests of your employees, medically.

My plan of works and targets shall cover the duties and responsibilities required of a practitioner in
industrial medicine which includes the following:

1. Application of preventive medicine including periodic check-up of employees;

2. Holding of clinic hours in the morning and afternoon for a total of five (5) hours
daily for consultation services to employees;

3. Management and treatment of employees that may necessitate hospitalization

including emergency cases and accidents;

4. Conduct pre-employment physical check-up of prospective employees with no

additional medical fee;

5. Conduct home visits whenever necessary;

6. Attend to certain medical administrative functions such as accomplishing medical

forms, evaluating conditions of employees applying for sick leave of absence and
subsequently issuing proper certification, and all matters referred which are medical
in nature.

On the subject of compensation for the services that I propose to render to the corporation, you may
state an offer based on your belief that I can very well qualify for the job having worked with your
organization for sometime now.

I shall be very grateful for whatever kind attention you may extend on this matter and hoping that it
will merit acceptance, I remain

Very truly yours,

(signed)
RICARDO V. DE VERA, M.D."

Significantly, the foregoing letter was substantially the basis of the labor arbiter’s finding that there
existed no employer-employee relationship between petitioner and respondent, in addition to the
following factual settings:

The fact that the complainant was not considered an employee was recognized by the complainant
himself in a signed letter to the respondent dated April 21, 1982 attached as Annex G to the
respondent’s Reply and Rejoinder. Quoting the pertinent portion of said letter:
‘To carry out your memo effectively and to provide a systematic and workable time schedule which
will serve the best interests of both the present and absent employee, may I propose an extended
two-hour service (1:00-3:00 P.M.) during which period I can devote ample time to both groups
depending upon the urgency of the situation. I shall readjust my private schedule to be available for
the herein proposed extended hours, should you consider this proposal.

As regards compensation for the additional time and services that I shall render to the employees, it
is dependent on your evaluation of the merit of my proposal and your confidence on my ability to
carry out efficiently said proposal.’

The tenor of this letter indicates that the complainant was proposing to extend his time with the
respondent and seeking additional compensation for said extension. This shows that the respondent
PHILCOM did not have control over the schedule of the complainant as it [is] the complainant who is
proposing his own schedule and asking to be paid for the same. This is proof that the complainant
understood that his relationship with the respondent PHILCOM was a retained physician and not as
an employee. If he were an employee he could not negotiate as to his hours of work.

The complainant is a Doctor of Medicine, and presumably, a well-educated person. Yet, the
complainant, in his position paper, is claiming that he is not conversant with the law and did not give
much attention to his job title- on a ‘retainer basis’. But the same complainant admits in his affidavit
that his service for the respondent was covered by a retainership contract [which] was renewed
every year from 1982 to 1994. Upon reading the contract dated September 6, 1982, signed by the
complainant himself (Annex ‘C’ of Respondent’s Position Paper), it clearly states that is a
retainership contract. The retainer fee is indicated thereon and the duration of the contract for one
year is also clearly indicated in paragraph 5 of the Retainership Contract. The complainant cannot
claim that he was unaware that the ‘contract’ was good only for one year, as he signed the same
without any objections. The complainant also accepted its renewal every year thereafter until 1994.
As a literate person and educated person, the complainant cannot claim that he does not know what
contract he signed and that it was renewed on a year to year basis.17

The labor arbiter added the indicia, not disputed by respondent, that from the time he started to work
with petitioner, he never was included in its payroll; was never deducted any contribution for
remittance to the Social Security System (SSS); and was in fact subjected by petitioner to the ten
(10%) percent withholding tax for his professional fee, in accordance with the National Internal
Revenue Code, matters which are simply inconsistent with an employer-employee relationship. In
the precise words of the labor arbiter:

"xxx xxx xxx After more than ten years of services to PHILCOM, the complainant would have noticed
that no SSS deductions were made on his remuneration or that the respondent was deducting the
10% tax for his fees and he surely would have complained about them if he had considered himself
an employee of PHILCOM. But he never raised those issues. An ordinary employee would consider
the SSS payments important and thus make sure they would be paid. The complainant never
bothered to ask the respondent to remit his SSS contributions. This clearly shows that the
complainant never considered himself an employee of PHILCOM and thus, respondent need not
remit anything to the SSS in favor of the complainant."18

Clearly, the elements of an employer-employee relationship are wanting in this case. We may add
that the records are replete with evidence showing that respondent had to bill petitioner for his
monthly professional fees.19 It simply runs against the grain of common experience to imagine that
an ordinary employee has yet to bill his employer to receive his salary.
We note, too, that the power to terminate the parties’ relationship was mutually vested on both.
Either may terminate the arrangement at will, with or without cause.20

Finally, remarkably absent from the parties’ arrangement is the element of control, whereby the
employer has reserved the right to control the employee not only as to the result of the work done
but also as to the means and methods by which the same is to be accomplished.21

Here, petitioner had no control over the means and methods by which respondent went about
performing his work at the company premises. He could even embark in the private practice of his
profession, not to mention the fact that respondent’s work hours and the additional compensation
therefor were negotiated upon by the parties.22 In fine, the parties themselves practically agreed on
every terms and conditions of respondent’s engagement, which thereby negates the element of
control in their relationship. For sure, respondent has never cited even a single instance when
petitioner interfered with his work.

Yet, despite the foregoing, all of which are extant on record, both the NLRC and the Court of
Appeals ruled that respondent is petitioner’s regular employee at the time of his separation.

Partly says the appellate court in its assailed decision:

Be that as it may, it is admitted that private respondent’s written ‘retainer contract’ was renewed
annually from 1981 to 1994 and the alleged ‘renewal’ for 1995 and 1996, when it was allegedly
terminated, was verbal.

Article 280 of the Labor code (sic) provides:

‘The provisions of written agreement to the contrary notwithstanding and regardless of the oral
agreements of the parties, an employment shall be deemed to be regular where the employee has
been engaged to perform in the usual business or trade of the employer, except where the
employment has been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the employee or where the work or
services to be performed is seasonal in nature and the employment is for the duration of the
season.’

‘An employment shall be deemed to be casual if it is not covered by the preceding paragraph:
Provided, That, any employee who has rendered at least one (1) year of service, whether such
is continuous or broken, shall be considered a regular with respect to the activity in which he is
employed and his employment shall continue while such activity exists.’

Parenthetically, the position of company physician, in the case of petitioner, is usually necessary and
desirable because the need for medical attention of employees cannot be foreseen, hence, it is
necessary to have a physician at hand. In fact, the importance and desirability of a physician in a
company premises is recognized by Art. 157 of the Labor Code, which requires the presence of a
physician depending on the number of employees and in the case at bench, in petitioner’s case, as
found by public respondent, petitioner employs more than 500 employees.

Going back to Art. 280 of the Labor Code, it was made therein clear that the provisions of a written
agreement to the contrary notwithstanding or the existence of a mere oral agreement, if the
employee is engaged in the usual business or trade of the employer, more so, that he rendered
service for at least one year, such employee shall be considered as a regular employee. Private
respondent herein has been with petitioner since 1981 and his employment was not for a specific
project or undertaking, the period of which was pre-determined and neither the work or service of
private respondent seasonal. (Emphasis by the CA itself).

We disagree to the foregoing ratiocination.

The appellate court’s premise that regular employees are those who perform activities which are
desirable and necessary for the business of the employer is not determinative in this case. For, we
take it that any agreement may provide that one party shall render services for and in behalf of
another, no matter how necessary for the latter’s business, even without being hired as an
employee. This set-up is precisely true in the case of an independent contractorship as well as in an
agency agreement. Indeed, Article 280 of the Labor Code, quoted by the appellate court, is not the
yardstick for determining the existence of an employment relationship. As it is, the provision merely
distinguishes between two (2) kinds of employees, i.e., regular and casual. It does not apply where,
as here, the very existence of an employment relationship is in dispute.23

Buttressing his contention that he is a regular employee of petitioner, respondent invokes Article 157
of the Labor Code, and argues that he satisfies all the requirements thereunder. The provision relied
upon reads:

ART. 157. Emergency medical and dental services. – It shall be the duty of every employer to
furnish his employees in any locality with free medical and dental attendance and facilities consisting
of:

(a) The services of a full-time registered nurse when the number of employees exceeds fifty
(50) but not more than two hundred (200) except when the employer does not maintain
hazardous workplaces, in which case the services of a graduate first-aider shall be provided
for the protection of the workers, where no registered nurse is available. The Secretary of
Labor shall provide by appropriate regulations the services that shall be required where the
number of employees does not exceed fifty (50) and shall determine by appropriate order
hazardous workplaces for purposes of this Article;

(b) The services of a full-time registered nurse, a part-time physician and dentist, and an
emergency clinic, when the number of employees exceeds two hundred (200) but not more
than three hundred (300); and

(c) The services of a full-time physician, dentist and full-time registered nurse as well as a
dental clinic, and an infirmary or emergency hospital with one bed capacity for every one
hundred (100) employees when the number of employees exceeds three hundred (300).

In cases of hazardous workplaces, no employer shall engage the services of a physician or dentist
who cannot stay in the premises of the establishment for at least two (2) hours, in the case of those
engaged on part-time basis, and not less than eight (8) hours in the case of those employed on full-
time basis. Where the undertaking is nonhazardous in nature, the physician and dentist may be
engaged on retained basis, subject to such regulations as the Secretary of Labor may prescribe to
insure immediate availability of medical and dental treatment and attendance in case of emergency.

Had only respondent read carefully the very statutory provision invoked by him, he would have
noticed that in non-hazardous workplaces, the employer may engage the services of a physician "on
retained basis." As correctly observed by the petitioner, while it is true that the provision requires
employers to engage the services of medical practitioners in certain establishments depending on
the number of their employees, nothing is there in the law which says that medical practitioners so
engaged be actually hired as employees,24 adding that the law, as written, only requires the
employer "to retain", not employ, a part-time physician who needed to stay in the premises of the
non-hazardous workplace for two (2) hours.25

Respondent takes no issue on the fact that petitioner’s business of telecommunications is not
hazardous in nature. As such, what applies here is the last paragraph of Article 157 which, to stress,
provides that the employer may engage the services of a physician and dentist "on retained basis",
subject to such regulations as the Secretary of Labor may prescribe. The successive "retainership"
agreements of the parties definitely hue to the very statutory provision relied upon by respondent.

Deeply embedded in our jurisprudence is the rule that courts may not construe a statute that is free
from doubt. Where the law is clear and unambiguous, it must be taken to mean exactly what it says,
and courts have no choice but to see to it that the mandate is obeyed.26 As it is, Article 157 of the
Labor Code clearly and unequivocally allows employers in non-hazardous establishments to engage
"on retained basis" the service of a dentist or physician. Nowhere does the law provide that the
physician or dentist so engaged thereby becomes a regular employee. The very phrase that they
may be engaged "on retained basis", revolts against the idea that this engagement gives rise to an
employer-employee relationship.

With the recognition of the fact that petitioner consistently engaged the services of respondent on a
retainer basis, as shown by their various "retainership contracts", so can petitioner put an end, with
or without cause, to their retainership agreement as therein provided.27

We note, however, that even as the contracts entered into by the parties invariably provide for a 60-
day notice requirement prior to termination, the same was not complied with by petitioner when it
terminated on 17 December 1996 the verbally-renewed retainership agreement, effective at the
close of business hours of 31 December 1996.

Be that as it may, the record shows, and this is admitted by both parties,28 that execution of the
NLRC decision had already been made at the NLRC despite the pendency of the present recourse.
For sure, accounts of petitioner had already been garnished and released to respondent despite the
previous Status Quo Order29 issued by this Court. To all intents and purposes, therefore, the 60-day
notice requirement has become moot and academic if not waived by the respondent himself.

WHEREFORE, the petition is GRANTED and the challenged decision of the Court of Appeals
REVERSED and SET ASIDE. The 21 December 1998 decision of the labor arbiter is REINSTATED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 160265 July 13, 2009

NELY T. CO, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES, SOCIAL SECURITY SYSTEM, OFFICE OF THE SOLICITOR
GENERAL and SPOUSES JOSE and MERCEDES LIM.* Respondents.

DECISION

CORONA, J.:
This is a petition for review on certiorari1 of the May 15, 2003 and October 6, 2003 resolutions2 of the
Court of Appeals (CA) in CA-G.R. SP No. 69510.

On January 12, 2001, an Information charging petitioner Nely T. Co with violation of Section 22(d) in
relation to Section 28(e) of RA3 1161, as amended by RA 8282 (the Social Security Law of
1997)4 was filed in the Regional Trial Court (RTC), Quezon City, Branch 78, on the basis of the
complaint of respondent spouses Jose and Mercedes Lim, who claimed to be petitioner’s
employees.5 Petitioner was accused of failing to remit the compulsory contributions of respondent
spouses to respondent Social Security System (SSS).6

On July 3, 2001, petitioner filed a motion to quash the Information, arguing that the facts alleged in
the Information did not constitute an offense because respondent spouses were not her employees.
In support of her motion, petitioner cited the ruling of the National Labor Relations Commission
(NLRC) on the issue of whether petitioner and respondent spouses had an employer-employee
relationship with her or her company.

Prior to this, on March 27, 2000 (before the filing of the Information), respondent spouses had filed a
labor case for illegal dismissal and nonpayment of overtime pay, holiday pay, holiday premium pay,
service incentive leave and 13th month pay against Ever-Ready Phils., Inc.7 and its officers Joseph
Thomas Co, William Co, Wilson Co and petitioner.8

On September 29, 2000, labor arbiter (LA) Ernesto S. Dinopol rendered a decision dismissing the
complaint for lack of merit. He held that respondent spouses had voluntarily left the company as
shown by the deeds of release and quitclaim they executed. They were also not entitled to their
monetary claims under Article 82 of the Labor Code because they were field personnel of the
company.9

Aggrieved, both parties appealed to the NLRC. In a resolution dated May 31, 2001, it affirmed the
decision of the LA and ruled that the respondent spouses, as sales representatives, were
independent contractors.10 Therefore, there was no employer-employee relationship between the
parties. This NLRC resolution attained finality on December 20, 2001.11

Notwithstanding the NLRC ruling on the lack of employer-employee relationship between petitioner
and respondent spouses, Judge Percival Mandap Lopez of the RTC denied petitioner’s motion to
quash (the Information charging violation of the SSS law) in a resolution dated November 12,
2001.12 On March 8, 2002, petitioner filed a petition for certiorari and prohibition against Judge Lopez
in the CA seeking to set aside the November 12, 2001 RTC resolution denying her motion to quash.

In a resolution dated January 13, 2003, the CA required petitioner to implead the People of the
Philippines, SSS, Office of the Solicitor General and respondent spouses.13 For petitioner’s failure to
comply with this order, the CA dismissed the petition on May 15, 2003 and denied reconsideration
on October 6, 2003. According to the CA, petitioner was bound by the negligence of her former
counsel.

Hence, this petition.

For our resolution are the following issues: (1) whether petitioner’s motion for reconsideration of the
CA’s dismissal of the petition was correctly denied and (2) whether petitioner’s motion to quash
should have been granted by the RTC.

On the first issue, petitioner argues that the CA should have granted her motion for reconsideration
of the May 15, 2003 resolution. She asserts that under Rule 37, Section 1 (a) of the Rules of Court,
the abandonment of her case by her former counsel14 amounted to extrinsic fraud which was a
meritorious ground.

Petitioner is incorrect. Extrinsic fraud is a valid ground in a motion for new trial, not a motion for
reconsideration:

SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. ― Within the
period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or
final order and grant a new trial for one or more of the following causes materially affecting the
substantial rights of said party:

(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not
have guarded against and by reason of which such aggrieved party has probably been
impaired in his rights; or

(b) Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial, and which if presented would probably alter the result.

Within the same period, the aggrieved party may also move for reconsideration upon the
grounds that the damages awarded are excessive, that the evidence is insufficient to justify
the decision or final order, or that the decision or final order is contrary to law. (Emphasis
supplied)

Petitioner asserted no other ground aside from extrinsic fraud. Therefore, her motion was properly
denied and we do not see the need to discuss the merits of such ground.

Nevertheless, in the interest of justice and to prevent undue delay in the disposition of this case, we
tackle the next issue raised by petitioner despite the CA’s proper dismissal of her petition.15 This was
a criminal case and the possibility of a person being deprived unjustly of her liberty due to the
procedural lapse of counsel was a strong and compelling reason to warrant suspension of the Rules
of Court.16 For the rule-making power of this Court is coupled with the duty to protect and promote
constitutional and substantive rights,17 not to defeat them. Thus, the rules of procedure should be
viewed as mere tools designed to facilitate the attainment of justice. Their strict and rigid application,
resulting in technicalities that tend to frustrate rather than promote substantial justice, must always
be avoided.18

Petitioner maintains that the factual finding in the illegal dismissal case that respondent spouses
were not her employees is binding in this case. There being no employer-employee relationship,
respondent spouses were not entitled to coverage under RA 1161, as amended, and petitioner
should not be penalized under said law. We agree.

Well-settled is the rule that the mandatory coverage of RA 1161, as amended, is premised on the
existence of an employer-employee relationship.19 Applicable here is Smith Bell & Co., Inc. v. Court
of Appeals:20

Based on the records of the case at bar and those of G.R. No. L-44620, it is clear that the resolution
of this Court dated 26 January 1977, rendered in G.R. No. L-44620 [illegal dismissal case],
constitutes a bar to SSC Case No. 2453. We, therefore, find merit in the petition at bar.

xxx xxx xxx

It is true that in SSC Case No. 2453, private respondents sought to enforce their alleged right to
compulsory coverage by the SSS on the main allegation that they are employees of petitioner
company. On the other hand, in NLRC Case No. ROVII-153, private respondents, in order to support
their position that they were illegally dismissed by petitioner company from their work, maintained
that there was an employee-employer relationship existing between petitioner and private
respondents at the time of such dismissal. In other words, the issue common to both cases is
whether there existed an employee-employer relationship at the time of the occurrence of the
acts complained of both in SSC Case No. 2453 and NLRC Case No. RO-VII-153.

It is well to note that the said issue was adjudged with finality in G.R. No. L-44620, through this
Court's resolutions dated 26 January 1977 and 14 March 1977. The dismissal of the petition of the
herein private respondents in G.R. No. L-44620, though contained in a minute resolution, was an
adjudication on the merits of the case.

The present controversy, therefore, squarely falls under the umbrage of res judicata,
particularly, under the rule on "conclusiveness of judgment." Following this rule, as stated
in Bienvenida Machoca Arcadio vs. Carriaga, Jr., we hold that the judgment in G.R. No. L-44620
bars SSC Case No. 2453, as the relief sought in the latter case is inextricably related to the ruling in
G.R. No. L-44620 to the effect that private respondents, are not employees of petitioner.21 (Emphasis
supplied)1avvphi1

The only difference is that the instant case is a criminal case whereas the case in Smith Bell was a
civil case. However, the doctrine of conclusiveness of judgment also applies in criminal cases. As we
declared in Constantino v. Sandiganbayan (First Division):22

Although the instant case involves a criminal charge whereas Constantino involved an administrative
charge, still the findings in the latter case are binding herein because the same set of facts are the
subject of both cases. What is decisive is that the issues already litigated in a final and executory
judgment preclude — by the principle of bar by prior judgment, an aspect of the doctrine of res
judicata, and even under the doctrine of "law of the case," — the re-litigation of the same issue in
another action. It is well established that when a right or fact has been judicially tried and determined
by a court of competent jurisdiction, so long as it remains unreversed, it should be conclusive upon
the parties and those in privity with them. The dictum therein laid down became the law of the case
and what was once irrevocably established as the controlling legal rule or decision continues to be
binding between the same parties as long as the facts on which the decision was predicated
continue to be the facts of the case before the court. Hence, the binding effect and enforceability of
that dictum can no longer be resurrected anew since such issue had already been resolved and
finally laid to rest, if not by the principle of res judicata, at least by conclusiveness of judgment.

It may be true that the basis of administrative liability differs from criminal liability as the purpose of
administrative proceedings on the one hand is mainly to protect the public service, based on the
time-honored principle that a public office is a public trust. On the other hand, the purpose of the
criminal prosecution is the punishment of crime. However, the dismissal by the Court of the
administrative case against Constantino based on the same subject matter and after examining the
same crucial evidence operates to dismiss the criminal case because of the precise finding that the
act from which liability is anchored does not exist.

It is likewise clear from the decision of the Court in Constantino that the level of proof required in
administrative cases which is substantial evidence was not mustered therein. The same evidence is
again before the Court in connection with the appeal in the criminal case. Ineluctably, the same
evidence cannot with greater reason satisfy the higher standard in criminal cases such as the
present case which is evidence beyond reasonable doubt.23
We are mindful that in Republic v. Asiapro Cooperative,24 we ruled that the question on the existence
of an employer-employee relationship for the purpose of determining the coverage of the SSS law
falls within the jurisdiction of the Social Security Commission (SSC) which is primarily charged with
the duty of settling disputes under RA 1161, as amended.25 In that case, the SSS filed a petition in
the SSC praying that Asiapro Cooperative (Asiapro) be directed to register as an employer, to report
its owners-members as covered employees under the compulsory coverage of SSS and to remit the
necessary contributions in accordance with the law.26 Asiapro sought the dismissal of the petition
alleging that no employer-employee relationship existed between it and its owners-members, thus
SSC had no jurisdiction over it. We held that, based on Section 5 of RA 8282,27 SSC had jurisdiction
over the petition.

Republic v. Asiapro Cooperative, however, is inapplicable here as this case does not concern the
issue of jurisdiction of the SSC. Furthermore, the question of the existence of an employer-employee
relationship was already disposed of with finality, albeit in the context of an illegal dismissal case in
the NLRC. There was no need for the RTC to make an independent finding because the doctrine of
conclusiveness of judgment had already set in.

The reasons for establishing the principle of "conclusiveness of judgment" are founded on sound
public policy, and to grant this petition would have the effect of unsettling this well-settled doctrine. It
is allowable to reason back from a judgment to the basis on which it stands, upon the obvious
principle that where a conclusion is indisputable, and could have been drawn only from certain
premises, the premises are equally indisputable with the conclusion. When a fact has been once
determined in the course of a judicial proceeding, and a final judgment has been rendered in
accordance therewith, it cannot be again litigated between the same parties without virtually
impeaching the correctness of the former decision, which, from motives of public policy, the
law does not permit to be done.28

Res judicata has two concepts. The first is bar by prior judgment under Rule 39, Section 47 (b), and
the second is conclusiveness of judgment under Rule 39, Section 47 (c). Both concepts are founded
on the principle of estoppel, and are based on the salutary public policy against unnecessary
multiplicity of suits. Like the splitting of causes of action, res judicata is in pursuance of such
policy. Matters settled by a Court's final judgment should not be litigated upon or invoked
again. Relitigation of issues already settled merely burdens the Courts and the taxpayers,
creates uneasiness and confusion, and wastes valuable time and energy that could be
devoted to worthier cases.29 (Emphasis supplied)

To sum up, the final and executory NLRC decision (to the effect that respondent spouses were not
the employees of petitioner) was binding on this criminal case for violation of RA 1161, as amended.
Accordingly, the RTC committed grave abuse of discretion when it refused to grant petitioner’s
motion to quash the Information. Simply said, any conviction for violation of the SSS law based on
the erroneous premise of the existence of an employer-employee relationship would be a
transgression of petitioner’s constitutional rights.

WHEREFORE, the petition is hereby GRANTED. Criminal Case No. Q-01-97619

is ORDERED dismissed.

No costs.

SO ORDERED.

G.R. No. L-48645 January 7, 1987

"BROTHERHOOD" LABOR UNITY MOVEMENT OF THE PHILIPPINES, ANTONIO
CASBADILLO, PROSPERO TABLADA, ERNESTO BENGSON, PATRICIO SERRANO, ANTONIO
B. BOBIAS, VIRGILIO ECHAS, DOMINGO PARINAS, NORBERTO GALANG, JUANITO
NAVARRO, NESTORIO MARCELLANA, TEOFILO B. CACATIAN, RUFO L. EGUIA, CARLOS
SUMOYAN, LAMBERTO RONQUILLO, ANGELITO AMANCIO, DANILO B. MATIAR, ET
AL., petitioners,
vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, OFFICE OF
THE PRESIDENT, HON. AMADO G. INCIONG, UNDERSECRETARY OF LABOR, SAN MIGUEL
CORPORATION, GENARO OLIVES, ENRIQUE CAMAHORT, FEDERICO OÑATE, ERNESTO
VILLANUEVA, ANTONIO BOCALING and GODOFREDO CUETO, respondents.

Armando V. Ampil for petitioners.

Siguion Reyna, Montecillo and Ongsiako Law Office for private respondents.

GUTIERREZ, JR., J.:

The elemental question in labor law of whether or not an employer-employee relationship exists
between petitioners-members of the "Brotherhood Labor Unit Movement of the Philippines" (BLUM)
and respondent San Miguel Corporation, is the main issue in this petition. The disputed decision of
public respondent Ronaldo Zamora, Presidential Assistant for legal Affairs, contains a brief summary
of the facts involved:

1. The records disclose that on July 11, 1969, BLUM filed a complaint with the now
defunct Court of Industrial Relations, charging San Miguel Corporation, and the
following officers: Enrique Camahort, Federico Ofiate Feliciano Arceo, Melencio
Eugenia Jr., Ernesto Villanueva, Antonio Bocaling and Godofredo Cueto of unfair
labor practice as set forth in Section 4 (a), sub-sections (1) and (4) of Republic Act
No. 875 and of Legal dismissal. It was alleged that respondents ordered the
individual complainants to disaffiliate from the complainant union; and that
management dismissed the individual complainants when they insisted on their union
membership.

On their part, respondents moved for the dismissal of the complaint on the grounds
that the complainants are not and have never been employees of respondent
company but employees of the independent contractor; that respondent company
has never had control over the means and methods followed by the independent
contractor who enjoyed full authority to hire and control said employees; and that the
individual complainants are barred by estoppel from asserting that they are
employees of respondent company.

While pending with the Court of Industrial Relations CIR pleadings and testimonial
and documentary evidences were duly presented, although the actual hearing was
delayed by several postponements. The dispute was taken over by the National
Labor Relations Commission (NLRC) with the decreed abolition of the CIR and the
hearing of the case intransferably commenced on September 8, 1975.

On February 9, 1976, Labor Arbiter Nestor C. Lim found for complainants which was
concurred in by the NLRC in a decision dated June 28, 1976. The amount of
 backwages awarded, however, was reduced by NLRC to the equivalent of one (1)
year salary.

On appeal, the Secretary in a decision dated June 1, 1977, set aside the NLRC
ruling, stressing the absence of an employer-mployee relationship as borne out by
the records of the case. ...

The petitioners strongly argue that there exists an employer-employee relationship between them
and the respondent company and that they were dismissed for unionism, an act constituting unfair
labor practice "for which respondents must be made to answer."

Unrebutted evidence and testimony on record establish that the petitioners are workers who have
been employed at the San Miguel Parola Glass Factory since 1961, averaging about seven (7) years
of service at the time of their termination. They worked as "cargadores" or "pahinante" at the SMC
Plant loading, unloading, piling or palleting empty bottles and woosen shells to and from company
trucks and warehouses. At times, they accompanied the company trucks on their delivery routes.

The petitioners first reported for work to Superintendent-in-Charge Camahort. They were issued gate
passes signed by Camahort and were provided by the respondent company with the tools,
equipment and paraphernalia used in the loading, unloading, piling and hauling operation.

Job orders emanated from Camahort. The orders are then transmitted to an assistant-officer-in-
charge. In turn, the assistant informs the warehousemen and checkers regarding the same. The
latter, thereafter, relays said orders to the capatazes or group leaders who then give orders to the
workers as to where, when and what to load, unload, pile, pallet or clean.

Work in the glass factory was neither regular nor continuous, depending wholly on the volume of
bottles manufactured to be loaded and unloaded, as well as the business activity of the company.
Work did not necessarily mean a full eight (8) hour day for the petitioners. However, work,at times,
exceeded the eight (8) hour day and necessitated work on Sundays and holidays. For this, they
were neither paid overtime nor compensation for work on Sundays and holidays.

Petitioners were paid every ten (10) days on a piece rate basis, that is, according to the number of
cartons and wooden shells they were able to load, unload, or pile. The group leader notes down the
number or volume of work that each individual worker has accomplished. This is then made the
basis of a report or statement which is compared with the notes of the checker and warehousemen
as to whether or not they tally. Final approval of report is by officer-in-charge Camahort. The pay
check is given to the group leaders for encashment, distribution, and payment to the petitioners in
accordance with payrolls prepared by said leaders. From the total earnings of the group, the group
leader gets a participation or share of ten (10%) percent plus an additional amount from the earnings
of each individual.

The petitioners worked exclusive at the SMC plant, never having been assigned to other companies
or departments of SMC plant, even when the volume of work was at its minimum. When any of the
glass furnaces suffered a breakdown, making a shutdown necessary, the petitioners work was
temporarily suspended. Thereafter, the petitioners would return to work at the glass plant.

Sometime in January, 1969, the petitioner workers — numbering one hundred and forty (140)
organized and affiliated themselves with the petitioner union and engaged in union activities.
Believing themselves entitled to overtime and holiday pay, the petitioners pressed management,
airing other grievances such as being paid below the minimum wage law, inhuman treatment, being
forced to borrow at usurious rates of interest and to buy raffle tickets, coerced by withholding their
salaries, and salary deductions made without their consent. However, their gripes and grievances
were not heeded by the respondents.

On February 6, 1969, the petitioner union filed a notice of strike with the Bureau of Labor Relations
in connection with the dismissal of some of its members who were allegedly castigated for their
union membership and warned that should they persist in continuing with their union activities they
would be dismissed from their jobs. Several conciliation conferences were scheduled in order to
thresh out their differences, On February 12, 1969, union member Rogelio Dipad was dismissed
from work. At the scheduled conference on February 19, 1969, the complainant union through its
officers headed by National President Artemio Portugal Sr., presented a letter to the respondent
company containing proposals and/or labor demands together with a request for recognition and
collective bargaining.

San Miguel refused to bargain with the petitioner union alleging that the workers are not their
employees.

On February 20, 1969, all the petitioners were dismissed from their jobs and, thereafter, denied
entrance to respondent company's glass factory despite their regularly reporting for work. A
complaint for illegal dismissal and unfair labor practice was filed by the petitioners.

The case reaches us now with the same issues to be resolved as when it had begun.

The question of whether an employer-employee relationship exists in a certain situation continues to

bedevil the courts. Some businessmen try to avoid the bringing about of an employer-employee
relationship in their enterprises because that judicial relation spawns obligations connected with
workmen's compensation, social security, medicare, minimum wage, termination pay, and unionism.
(Mafinco Trading Corporation v. Ople, 70 SCRA 139).

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. It. is the called "control test"
that is the most important element (Investment Planning Corp. of the Phils. v. The Social Security
System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra, and Rosario Brothers, Inc. v. Ople,
131 SCRA 72).

Applying the above criteria, the evidence strongly indicates the existence of an employer-employee
relationship between petitioner workers and respondent San Miguel Corporation. The respondent
asserts that the petitioners are employees of the Guaranteed Labor Contractor, an independent
labor contracting firm.

The facts and evidence on record negate respondent SMC's claim.

The existence of an independent contractor relationship is generally established by the following

criteria: "whether or not the contractor is carrying on an independent business; the nature and extent
of the work; the skill required; the term and duration of the relationship; the right to assign the
performance of a specified piece of work; the control and supervision of the work to another; the
employer's power with respect to the hiring, firing and payment of the contractor's workers; the
control of the premises; the duty to supply the premises tools, appliances, materials and labor; and
the mode, manner and terms of payment" (56 CJS Master and Servant, Sec. 3(2), 46; See also 27
AM. Jur. Independent Contractor, Sec. 5, 485 and Annex 75 ALR 7260727)
None of the above criteria exists in the case at bar.

Highly unusual and suspect is the absence of a written contract to specify the performance of a
specified piece of work, the nature and extent of the work and the term and duration of the
relationship. The records fail to show that a large commercial outfit, such as the San Miguel
Corporation, entered into mere oral agreements of employment or labor contracting where the same
would involve considerable expenses and dealings with a large number of workers over a long
period of time. Despite respondent company's allegations not an iota of evidence was offered to
prove the same or its particulars. Such failure makes respondent SMC's stand subject to serious
doubts.

Uncontroverted is the fact that for an average of seven (7) years, each of the petitioners had worked
continuously and exclusively for the respondent company's shipping and warehousing department.
Considering the length of time that the petitioners have worked with the respondent company, there
is justification to conclude that they were engaged to perform activities necessary or desirable in the
usual business or trade of the respondent, and the petitioners are, therefore regular employees (Phil.
Fishing Boat Officers and Engineers Union v. Court of Industrial Relations, 112 SCRA 159 and RJL
Martinez Fishing Corporation v. National Labor Relations Commission, 127 SCRA 454).

As we have found in RJL Martinez Fishing Corporation v. National Labor Relations Commission
(supra):

... [T]he employer-employee relationship between the parties herein is not

coterminous with each loading and unloading job. As earlier shown, respondents are
engaged in the business of fishing. For this purpose, they have a fleet of fishing
vessels. Under this situation, respondents' activity of catching fish is a continuous
process and could hardly be considered as seasonal in nature. So that the activities
performed by herein complainants, i.e. unloading the catch of tuna fish from
respondents' vessels and then loading the same to refrigerated vans, are necessary
or desirable in the business of respondents. This circumstance makes the
employment of complainants a regular one, in the sense that it does not depend on
any specific project or seasonable activity. (NLRC Decision, p. 94, Rollo). lwphl@itç

so as it with petitioners in the case at bar. In fact, despite past shutdowns of the glass plant for
repairs, the petitioners, thereafter, promptly returned to their jobs, never having been replaced, or
assigned elsewhere until the present controversy arose. The term of the petitioners' employment
appears indefinite. The continuity and habituality of petitioners' work bolsters their claim of employee
status vis-a-vis respondent company,

Even under the assumption that a contract of employment had indeed been executed between
respondent SMC and the alleged labor contractor, respondent's case will, nevertheless, fail.

Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code 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.

We find that Guaranteed and Reliable Labor contractors have neither substantial capital nor
investment to qualify as an independent contractor under the law. The premises, tools, equipment
and paraphernalia used by the petitioners in their jobs are admittedly all supplied by respondent
company. It is only the manpower or labor force which the alleged contractors supply, suggesting the
existence of a "labor only" contracting scheme prohibited by law (Article 106, 109 of the Labor Code;
Section 9(b), Rule VIII, Book III, Implementing Rules and Regulations of the Labor Code). In fact,
even the alleged contractor's office, which consists of a space at respondent company's warehouse,
table, chair, typewriter and cabinet, are provided for by respondent SMC. It is therefore clear that the
alleged contractors have no capital outlay involved in the conduct of its business, in the maintenance
thereof or in the payment of its workers' salaries.

The payment of the workers' wages is a critical factor in determining the actuality of an employer-
employee relationship whether between respondent company and petitioners or between the alleged
independent contractor and petitioners. It is important to emphasize that in a truly independent
contractor-contractee relationship, the fees are paid directly to the manpower agency in lump sum
without indicating or implying that the basis of such lump sum is the salary per worker multiplied by
the number of workers assigned to the company. This is the rule in Social Security System v. Court
of Appeals (39 SCRA 629, 635).

The alleged independent contractors in the case at bar were paid a lump sum representing only the
salaries the workers were entitled to, arrived at by adding the salaries of each worker which depend
on the volume of work they. had accomplished individually. These are based on payrolls, reports or
statements prepared by the workers' group leader, warehousemen and checkers, where they note
down the number of cartons, wooden shells and bottles each worker was able to load, unload, pile or
pallet and see whether they tally. The amount paid by respondent company to the alleged
independent contractor considers no business expenses or capital outlay of the latter. Nor is the
profit or gain of the alleged contractor in the conduct of its business provided for as an amount over
and above the workers' wages. Instead, the alleged contractor receives a percentage from the total
earnings of all the workers plus an additional amount corresponding to a percentage of the earnings
of each individual worker, which, perhaps, accounts for the petitioners' charge of unauthorized
deductions from their salaries by the respondents.

Anent the argument that the petitioners are not employees as they worked on piece basis, we
merely have to cite our rulings in Dy Keh Beng v. International Labor and Marine Union of the
Philippines (90 SCRA 161), as follows:

"[C]ircumstances must be construed to determine indeed if payment by the piece is

just a method of compensation and does not define the essence of the relation. Units
of time . . . and units of work are in establishments like respondent (sic) just
yardsticks whereby to determine rate of compensation, to be applied whenever
agreed upon. We cannot construe payment by the piece where work is done in such
an establishment so as to put the worker completely at liberty to turn him out and
take in another at pleasure."

Article 106 of the Labor Code provides the legal effect of a labor only contracting scheme, to wit:
 ... 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.

Firmly establishing respondent SMC's role as employer is the control exercised by it over the
petitioners that is, control in the means and methods/manner by which petitioners are to go about
their work, as well as in disciplinary measures imposed by it.

Because of the nature of the petitioners' work as cargadores or pahinantes, supervision as to the
means and manner of performing the same is practically nil. For, how many ways are there to load
and unload bottles and wooden shells? The mere concern of both respondent SMC and the alleged
contractor is that the job of having the bottles and wooden shells brought to and from the warehouse
be done. More evident and pronounced is respondent company's right to control in the discipline of
petitioners. Documentary evidence presented by the petitioners establish respondent SMC's right to
impose disciplinary measures for violations or infractions of its rules and regulations as well as its
right to recommend transfers and dismissals of the piece workers. The inter-office memoranda
submitted in evidence prove the company's control over the petitioners. That respondent SMC has
the power to recommend penalties or dismissal of the piece workers, even as to Abner Bungay who
is alleged by SMC to be a representative of the alleged labor contractor, is the strongest indication of
respondent company's right of control over the petitioners as direct employer. There is no evidence
to show that the alleged labor contractor had such right of control or much less had been there to
supervise or deal with the petitioners.

The petitioners were dismissed allegedly because of the shutdown of the glass manufacturing plant.
Respondent company would have us believe that this was a case of retrenchment due to the closure
or cessation of operations of the establishment or undertaking. But such is not the case here. The
respondent's shutdown was merely temporary, one of its furnaces needing repair. Operations
continued after such repairs, but the petitioners had already been refused entry to the premises and
dismissed from respondent's service. New workers manned their positions. It is apparent that the
closure of respondent's warehouse was merely a ploy to get rid of the petitioners, who were then
agitating the respondent company for benefits, reforms and collective bargaining as a union. There
is no showing that petitioners had been remiss in their obligations and inefficient in their jobs to
warrant their separation.

As to the charge of unfair labor practice because of SMC's refusal to bargain with the petitioners, it is
clear that the respondent company had an existing collective bargaining agreement with the IBM
union which is the recognized collective bargaining representative at the respondent's glass plant.

There being a recognized bargaining representative of all employees at the company's glass plant,
the petitioners cannot merely form a union and demand bargaining. The Labor Code provides the
proper procedure for the recognition of unions as sole bargaining representatives. This must be
followed.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The San Miguel
Corporation is hereby ordered to REINSTATE petitioners, with three (3) years backwages. However,
where reinstatement is no longer possible, the respondent SMC is ordered to pay the petitioners
separation pay equivalent to one (1) month pay for every year of service.

SO ORDERED.

G.R. No. 185251 October 2, 2009

RAUL G. LOCSIN and EDDIE B. TOMAQUIN, Petitioners,
vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Respondent.

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks the reversal of the May 6, 2008
Decision1 and November 4, 2008 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No.
97398, entitled Philippine Long Distance Telephone Company v. National Labor Relations
Commission, Raul G. Locsin and Eddie B. Tomaquin. The assailed decision set aside the
Resolutions of the National Labor Relations Commission (NLRC) dated October 28, 2005 and
August 28, 2006 which in turn affirmed the Decision dated February 13, 2004 of the Labor Arbiter.
The assailed resolution, on the other hand, denied petitioners’ motion for reconsideration of the
assailed decision.

The Facts

On November 1, 1990, respondent Philippine Long Distance Telephone Company (PLDT) and the
Security and Safety Corporation of the Philippines (SSCP) entered into a Security Services
Agreement3 (Agreement) whereby SSCP would provide armed security guards to PLDT to be
assigned to its various offices.

Pursuant to such agreement, petitioners Raul Locsin and Eddie Tomaquin, among other security
guards, were posted at a PLDT office.

On August 30, 2001, respondent issued a Letter dated August 30, 2001 terminating the Agreement
effective October 1, 2001.4

Despite the termination of the Agreement, however, petitioners continued to secure the premises of
their assigned office. They were allegedly directed to remain at their post by representatives of
respondent. In support of their contention, petitioners provided the Labor Arbiter with copies of
petitioner Locsin’s pay slips for the period of January to September 2002.5

Then, on September 30, 2002, petitioners’ services were terminated.

Thus, petitioners filed a complaint before the Labor Arbiter for illegal dismissal and recovery of
money claims such as overtime pay, holiday pay, premium pay for holiday and rest day, service
incentive leave pay, Emergency Cost of Living Allowance, and moral and exemplary damages
against PLDT.

The Labor Arbiter rendered a Decision finding PLDT liable for illegal dismissal. It was explained in
the Decision that petitioners were found to be employees of PLDT and not of SSCP. Such
conclusion was arrived at with the factual finding that petitioners continued to serve as guards of
PLDT’s offices. As such employees, petitioners were entitled to substantive and procedural due
process before termination of employment. The Labor Arbiter held that respondent failed to observe
such due process requirements. The dispositive portion of the Labor Arbiter’s Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering respondent Philippine
Long Distance and Telephone Company (PLDT) to pay complainants Raul E. Locsin and Eddie
Tomaquin their separation pay and back wages computed as follows:

NAME SEPARATION PAY BACKWAGES

1. Raul E. Locsin P127,500.00 P240,954.67

2. Eddie B. Tomaquin P127,500.00 P240,954.67

P736,909.34

All other claims are DISMISSED for want of factual basis.

Let the computation made by the Computation and Examination Unit form part of this decision.

SO ORDERED.

PLDT appealed the above Decision to the NLRC which rendered a Resolution affirming in toto the
Arbiter’s Decision.

Thus, PDLT filed a Motion for Reconsideration of the NLRC’s Resolution which was also denied.

Consequently, PLDT filed a Petition for Certiorari with the CA asking for the nullification of the
Resolution issued by the NLRC as well as the Labor Arbiter’s Decision. The CA rendered the
assailed decision granting PLDT’s petition and dismissing petitioners’ complaint. The dispositive
portion of the CA Decision provides:

WHEREFORE, the instant Petition for Certiorari is GRANTED. The Resolutions dated October 28,
2005 and August 28, 2006 of the National Labor Relations Commission are ANNULLED and SET
ASIDE. Private respondents’ complaint against Philippine Long Distance Telephone Company is
DISMISSED.

SO ORDERED.

The CA applied the four-fold test in order to determine the existence of an employer-employee
relationship between the parties but did not find such relationship. It determined that SSCP was not
a labor-only contractor and was an independent contractor having substantial capital to operate and
conduct its own business. The CA further bolstered its decision by citing the Agreement whereby it
was stipulated that there shall be no employer-employee relationship between the security guards
and PLDT.

Anent the pay slips that were presented by petitioners, the CA noted that those were issued by
SSCP and not PLDT; hence, SSCP continued to pay the salaries of petitioners after the Agreement.
This fact allegedly proved that petitioners continued to be employees of SSCP albeit performing their
work at PLDT’s premises.

From such assailed decision, petitioners filed a motion for reconsideration which was denied in the
assailed resolution.
Hence, we have this petition.

The Issues

1. Whether or not; complainants extended services to the respondent for one (1) year from
October 1, 2001, the effectivity of the termination of the contract of complainants agency
SSCP, up to September 30, 2002, without a renewed contract, constitutes an employer-
employee relationship between respondent and the complainants.

2. Whether or not; in accordance to the provision of the Article 280 of the Labor Code,
complainants extended services to the respondent for another one (1) year without a
contract be considered as contractual employment.

3. Whether or not; in accordance to the provision of the Article 280 of the Labor Code, does
complainants thirteen (13) years of service to the respondent with manifestation to the
respondent thirteen (13) years renewal of its security contract with the complainant agency
SSCP, can be considered only as "seasonal in nature" or fixed as [specific projects] or
undertakings and its completion or termination can be dictated as [controlled] by the
respondent anytime they wanted to.

4. Whether or not; complainants from being an alleged contractual employees of the

respondent for thirteen (13) years as they were then covered by a contract, becomes regular
employees of the respondent as the one (1) year extended services of the complainants
were not covered by a contract, and can be considered as direct employment pursuant to the
provision of the Article 280 of the Labor Code.

5. Whether or not; the Court of Appeals committed grave abuse of discretion when it set
aside and [annulled] the labor [arbiter’s] decision and of the NLRC’s resolution declaring the
dismissal of the complainant as illegal.6

The Court’s Ruling

This petition is hereby granted.

An Employer-Employee
Relationship Existed Between the Parties

It is beyond cavil that there was no employer-employee relationship between the parties from the
time of petitioners’ first assignment to respondent by SSCP in 1988 until the alleged termination of
the Agreement between respondent and SSCP. In fact, this was the conclusion that was reached by
this Court in Abella v. Philippine Long Distance Telephone Company,7 where we ruled that
petitioners therein, including herein petitioners, cannot be considered as employees of PLDT. It
bears pointing out that petitioners were among those declared to be employees of their respective
security agencies and not of PLDT.

The only issue in this case is whether petitioners became employees of respondent after the
Agreement between SSCP and respondent was terminated.

This must be answered in the affirmative.

Notably, respondent does not deny the fact that petitioners remained in the premises of their offices
even after the Agreement was terminated. And it is this fact that must be explained.

To recapitulate, the CA, in rendering a decision in favor of respondent, found that: (1) petitioners
failed to prove that SSCP was a labor-only contractor; and (2) petitioners are employees of SSCP
and not of PLDT.

In arriving at such conclusions, the CA relied on the provisions of the Agreement, wherein SSCP
undertook to supply PLDT with the required security guards, while furnishing PLDT with a
performance bond in the amount of PhP 707,000. Moreover, the CA gave weight to the provision in
the Agreement that SSCP warranted that it "carry on an independent business and has substantial
capital or investment in the form of equipment, work premises, and other materials which are
necessary in the conduct of its business."

Further, in determining that no employer-employee relationship existed between the parties, the CA
quoted the express provision of the Agreement, stating that no employer-employee relationship
existed between the parties herein. The CA disregarded the pay slips of Locsin considering that they
were in fact issued by SSCP and not by PLDT.

From the foregoing explanation of the CA, the fact remains that petitioners remained at their post
after the termination of the Agreement. Notably, in its Comment dated March 10, 2009,8 respondent
never denied that petitioners remained at their post until September 30, 2002. While respondent
denies the alleged circumstances stated by petitioners, that they were told to remain at their post by
respondent’s Security Department and that they were informed by SSCP Operations Officer
Eduardo Juliano that their salaries would be coursed through SSCP as per arrangement with PLDT,
it does not state why they were not made to vacate their posts. Respondent said that it did not know
why petitioners remained at their posts.

Rule 131, Section 3(y) of the Rules of Court provides:

SEC. 3. Disputable presumptions.—The following presumptions are satisfactory if uncontradicted,

but may be contradicted and overcome by other evidence:

xxxx

(y) That things have happened according to the ordinary course of nature and the ordinary habits of
life.

In the ordinary course of things, responsible business owners or managers would not allow security
guards of an agency with whom the owners or managers have severed ties with to continue to stay
within the business’ premises. This is because upon the termination of the owners’ or managers’
agreement with the security agency, the agency’s undertaking of liability for any damage that the
security guard would cause has already been terminated. Thus, in the event of an accident or
otherwise damage caused by such security guards, it would be the business owners and/or
managers who would be liable and not the agency. The business owners or managers would,
therefore, be opening themselves up to liability for acts of security guards over whom the owners or
managers allegedly have no control.

At the very least, responsible business owners or managers would inquire or learn why such security
guards were remaining at their posts, and would have a clear understanding of the circumstances of
the guards’ stay. It is but logical that responsible business owners or managers would be aware of
the situation in their premises.
We point out that with respondent’s hypothesis, it would seem that SSCP was paying petitioners’
salaries while securing respondent’s premises despite the termination of their Agreement. Obviously,
it would only be respondent that would benefit from such a situation. And it is seriously doubtful that
a security agency that was established for profit would allow its security guards to secure
respondent’s premises when the Agreement was already terminated.

From the foregoing circumstances, reason dictates that we conclude that petitioners remained at
their post under the instructions of respondent. We can further conclude that respondent dictated
upon petitioners that the latter perform their regular duties to secure the premises during operating
hours. This, to our mind and under the circumstances, is sufficient to establish the existence of an
employer-employee relationship. Certainly, the facts as narrated by petitioners are more believable
than the irrational denials made by respondent. Thus, we ruled in Lee Eng Hong v. Court of
Appeals:9

Evidence, to be believed, must not only proceed from the mouth of a credible witness, but it must be
credible in itself — such as the common experience and observation of mankind can approve as
probable under the circumstances. We have no test of the truth of human testimony, except its
conformity to our knowledge, observation and experience. Whatever is repugnant to these belongs
to the miraculous and is outside judicial cognizance (Castañares v. Court of Appeals, 92 SCRA 568
[1979]).

To reiterate, while respondent and SSCP no longer had any legal relationship with the termination of
the Agreement, petitioners remained at their post securing the premises of respondent while
receiving their salaries, allegedly from SSCP. Clearly, such a situation makes no sense, and the
denials proffered by respondent do not shed any light to the situation. It is but reasonable to
conclude that, with the behest and, presumably, directive of respondent, petitioners continued with
their services. Evidently, such are indicia of control that respondent exercised over petitioners.

Such power of control has been explained as the "right to control not only the end to be achieved but
also the means to be used in reaching such end."10 With the conclusion that respondent directed
petitioners to remain at their posts and continue with their duties, it is clear that respondent
exercised the power of control over them; thus, the existence of an employer-employee relationship.

In Tongko v. The Manufacturers Life Insurance Co. (Phils.) Inc.,11 we reiterated the oft repeated rule
that control is the most important element in the determination of the existence of an employer-
employee relationship:

In the determination of whether an employer-employee relationship exists between two parties, this
Court applies the four-fold test to determine the existence of the elements of such relationship.
In Pacific Consultants International Asia, Inc. v. Schonfeld, the Court set out the elements of an
employer-employee relationship, thus:

Jurisprudence is firmly settled that whenever the existence of an employment relationship is in

dispute, four elements constitute the reliable yardstick: (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’s conduct. It is the so-called "control test" which constitutes the most important
index of the existence of the employer-employee relationship that 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. Stated otherwise, an
employer-employee relationship exists where the person for whom the services are performed
reserves the right to control not only the end to be achieved but also the means to be used in
reaching such end.
Furthermore, Article 106 of the Labor Code contains a provision on contractors, to wit:

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

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

The Secretary of Labor and Employment 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.1avv phi1

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

Thus, the Secretary of Labor issued Department Order No. 18-2002, Series of 2002, implementing
Art. 106 as follows:

Section 5. Prohibition against labor-only contracting.––Labor-only contracting is hereby declared

prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or
service for a principal, and any of the following elements are present:

(i) The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing activities which are directly related
to the main business of the principal; or

(ii) the contractor does not exercise the right to control over the performance of the work of
the contractual employee.

The foregoing provisions shall be without prejudice to the application of Article 248 (C) of the Labor
Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case
of corporations, tools, equipment, implements, machineries and work premises, actually and directly
used by the contractor or subcontractor in the performance or completion of the job, work or service
contracted out.
The "right to control" shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.

On the other hand, Sec. 7 of the department order contains the consequence of such labor-only
contracting:

Section 7. Existence of an employer-employee relationship.––The contractor or subcontractor shall

be considered the employer of the contractual employee for purposes of enforcing the provisions of
the Labor Code and other social legislation. The principal, however, shall be solidarily liable with the
contractor in the event of any violation of any provision of the Labor Code, including the failure to
pay wages.

The principal shall be deemed the employer of the contractual employee in any of the following
cases as declared by a competent authority:

(a) where there is labor-only contracting; or

(b) where the contracting arrangement falls within the prohibitions provided in Section 6
(Prohibitions) hereof. (Emphasis supplied.)

Evidently, respondent having the power of control over petitioners must be considered as petitioners’
employer––from the termination of the Agreement onwards––as this was the only time that any
evidence of control was exhibited by respondent over petitioners and in light of our ruling in
Abella.12 Thus, as aptly declared by the NLRC, petitioners were entitled to the rights and benefits of
employees of respondent, including due process requirements in the termination of their services.

Both the Labor Arbiter and NLRC found that respondent did not observe such due process
requirements. Having failed to do so, respondent is guilty of illegal dismissal.

WHEREFORE, we SET ASIDE the CA’s May 6, 2008 Decision and November 4, 2008 Resolution in
CA-G.R. SP No. 97398. We hereby REINSTATE the Labor Arbiter’s Decision dated February 13,
2004 and the NLRC’s Resolutions dated October 28, 2005 and August 28, 2006.

No costs.

SO ORDERED.

G.R. No. L-41182-3 April 16, 1988

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.

G.R. No. 87098 November 4, 1996

ENCYCLOPAEDIA BRITANNICA (PHILIPPINES), INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER TEODORICO L.
ROGELIO and BENJAMIN LIMJOCO, respondents.

TORRES, JR., J.:

Encyclopaedia Britannica (Philippines), Inc. filed this petition for certiorari to annul and set aside the
resolution of the National Labor Relations Commission, Third Division, in NLRC Case No. RB IV-
5158-76, dated December 28, 1988, the dispositive portion of which reads:
 WHEREFORE, in view of all the foregoing, the decision dated December 7, 1982 of
then Labor Arbiter Teodorico L. Dogelio is hereby AFFIRMED, and the instant appeal
is hereby DISMISSED for lack of merit.

SO ORDERED.1

Private respondent Benjamin Limjoco was a Sales Division Manager of petitioner Encyclopaedia
Britannica and was in charge of selling petitioner's products through some sales representatives. As
compensation, private respondent received commissions from the products sold by his agents. He
was also allowed to use petitioner's name, goodwill and logo. It was, however, agreed upon that
office expenses would be deducted from private respondent's commissions. Petitioner would also be
informed about appointments, promotions, and transfers of employees in private respondent's
district.

On June 14, 1974, private respondent Limjoco resigned from office to pursue his private business.
Then on October 30, 1975, he filed a complaint against petitioner Encyclopaedia Britannica with the
Department of Labor and Employment, claiming for non-payment of separation pay and other
benefits, and also illegal deduction from his sales commissions.

Petitioner Encyclopaedia Britannica alleged that complainant Benjamin Limjoco (Limjoco, for brevity)
was not its employee but an independent dealer authorized to promote and sell its products and in
return, received commissions therefrom. Limjoco did not have any salary and his income from the
petitioner company was dependent on the volume of sales accomplished. He also had his own
separate office, financed the business expenses, and maintained his own workforce. The salaries of
his secretary, utility man, and sales representatives were chargeable to his commissions. Thus,
petitioner argued that it had no control and supervision over the complainant as to the manner and
means he conducted his business operations. The latter did not even report to the office of the
petitioner and did not observe fixed office hours. Consequently, there was no employer-employee
relationship.

Limjoco maintained otherwise. He alleged that he was hired by the petitioner in July 1970, was
assigned in the sales department, and was earning an average of P4,000.00 monthly as his sales
commission. He was under the supervision of the petitioner's officials who issued to him and his
other personnel, memoranda, guidelines on company policies, instructions and other orders. He
was, however, dismissed by the petitioner when the Laurel-Langley Agreement expired. As a result
thereof, Limjoco asserts that in accordance with the established company practice and the
provisions of the collective bargaining agreement, he was entitled to termination pay equivalent to
one month salary, the unpaid benefits (Christmas bonus, midyear bonus, clothing allowance,
vacation leave, and sick leave), and the amounts illegally deducted from his commissions which
were then used for the payments of office supplies, office space, and overhead expenses.

On December 7, 1982, Labor Arbiter Teodorico Dogelio, in a decision ruled that Limjoco was an
employee of the petitioner company. Petitioner had control over Limjoco since the latter was
required to make periodic reports of his sales activities to the company. All transactions were subject
to the final approval of the petitioner, an evidence that petitioner company had active control on the
sales activities. There was therefore, an employer-employee relationship and necessarily, Limjoco
was entitled to his claims. The decision also ordered petitioner company to pay the following:

1. To pay complainant his separation pay in the total amount of P16,000.00;

2. To pay complainant his unpaid Christmas bonus for three years or the amount of
12,000.00;
 3. To pay complainant his unpaid mid-year bonus equivalent to one-half month pay
or the total amount of P6,000.00;

4. To pay complainant his accrued vacation leave equivalent to 15 days per year of
service, or the total amount of P6,000.00;

5. To pay complainant his unpaid clothing allowance in the total amount of P600.00;
and

6. To pay complainant his accrued sick leave equivalent to 15 days per year of
service or the total amount of P6,000.00.2

On appeal, the Third Division of the National Labor Relations Commission affirmed the assailed
decision. The Commission opined that there was no evidence supporting the allegation that Limjoco
was an independent contractor or dealer. The petitioner still exercised control over Limjoco through
its memoranda and guidelines and even prohibitions on the sale of products other than those
authorized by it. In short, the petitioner company dictated how and where to sell its products. Aside
from that fact, Limjoco passed the costs to the petitioner chargeable against his future commissions.
Such practice proved that he was not an independent dealer or contractor for it is required by law
that an independent contractor should have substantial capital or investment.

Dissatisfied with the outcome of the case, petitioner Encyclopaedia Britannica now comes to us in
this petition for certiorari and injunction with prayer for preliminary injunction. On April 3, 1989, this
Court issued a temporary restraining order enjoining the enforcement of the decision dated
December 7, 1982.

The following are the arguments raised by the petitioner:

The respondent NLRC gravely abused its discretion in holding that "appellant's
contention that appellee was an independent contractor is not supported by evidence
on record".

II

Respondent NLRC committed grave abuse of discretion in not passing upon the
validity of the pronouncement of the respondent Labor Arbiter granting private
respondent's claim for payment of Christmas bonus, Mid-year bonus, clothing
allowance and the money equivalent of accrued and unused vacation and sick leave.

The NLRC ruled that there existed an employer-employee relationship and petitioner failed to
disprove this finding. We do not agree.

In determining the existence of an employer-employee relationship the following elements must be

present: 1) selection and engagement of the employee; 2) payment of wages; 3) power of dismissal;
and 4) the power to control the employee's conduct. Of the above, control of employee's conduct is
commonly regarded as the most crucial and determinative indicator of the presence or absence of
an employer-employee relationship.3 Under the control test, an employer-employee relationship
exists where the person for whom the services are performed reserves the right to control not only
the end to be achieved, but also the manner and means to used in reaching that end.4
The fact that petitioner issued memoranda to private respondents and to other division sales
managers did not prove that petitioner had actual control over them. The different memoranda were
merely guidelines on company policies which the sales managers follow and impose on their
respective agents. It should be noted that in petitioner's business of selling encyclopedias and
books, the marketing of these products was done through dealership agreements. The sales
operations were primarily conducted by independent authorized agents who did not receive regular
compensations but only commissions based on the sales of the products. These independent agents
hired their own sales representatives, financed their own office expenses, and maintained their own
staff. Thus, there was a need for the petitioner to issue memoranda to private respondent so that the
latter would be apprised of the company policies and procedures. Nevertheless, private respondent
Limjoco and the other agents were free to conduct and promote their sales operations. The periodic
reports to the petitioner by the agents were but necessary to update the company of the latter's
performance and business income.

Private respondent was not an employee of the petitioner company. While it was true that the
petitioner had fixed the prices of the products for reason of uniformity and private respondent could
not alter them, the latter, nevertheless, had free rein in the means and methods for conducting the
marketing operations. He selected his own personnel and the only reason why he had to notify the
petitioner about such appointments was for purpose of deducting the employees' salaries from his
commissions. This he admitted in his testimonies, thus:

Q. Yes, in other words you were on what is known as P&L basis or

profit and loss basis?

A. That is right.

Q. If for an instance, just example your sales representative in any

period did not produce any sales, you would not get any money from
Britannica, would you?

A. No, sir.

Q. In fact, Britannica by doing the accounting for you as division

manager was merely making it easy for you to concentrate all your
effort in selling and you don't worry about accounting, isn't that so?

A. Yes, sir.

Q. In fact whenever you hire a secretary or trainer you merely hire

that person and notify Britannica so that Encyclopaedia Britannica will
give the salaries and deduct it from your earnings, isn't that so?

A. In certain cases I just hired people previously employed by

Encyclopaedia Britannica.

xxx xxx xxx

Q. In this Exhibit "2" you were informing Encyclopaedia Britannica

that you have hired a certain person and you were telling Britannica
how her salary was going to be taken cared of, is it not?
 A. Yes, sir.

Q. You said here, "please be informed that we have appointed Miss

Luz Villan as division trainer effective May 1, 1971 at P550.00 per
month her salary will be chargeable to the Katipunan and Bayanihan
Districts", signed by yourself. What is the Katipunan and Bayanihan
District?

A. Those were districts under my division.

Q. In effect you were telling Britannica that you have hired this person
and "you should charge her salary to me," is that right?

A. Yes, sir.5

Private respondent was merely an agent or an independent dealer of the petitioner. He was free to
conduct his work and he was free to engage in other means of livelihood. At the time he was
connected with the petitioner company, private respondent was also a director and later the
president of the Farmers' Rural Bank. Had he been an employee of the company, he could not be
employed elsewhere and he would be required to devote full time for petitioner. If private respondent
was indeed an employee, it was rather unusual for him to wait for more than a year from his
separation from work before he decided to file his claims. Significantly, when Limjoco tendered his
resignation to petitioner on June 14, 1974, he stated, thus:

Re: Resignation

I am resigning as manager of the EB Capitol Division effective 16 June 1974.

This decision was brought about by conflict with other interests which lately have
increasingly required my personal attention. I feel that in fairness to the company and
to the people under my supervision I should relinquish the position to someone who
can devote full-time to the Division.

I wish to thank you for all the encouragement and assistance you have extended to
me and to my group during my long association with Britannica.

Evidently, Limjoco was aware of "conflict with other interests which . . . have increasingly required
my personal attention" (p. 118, Records). At the very least, it would indicate that petitioner has no
effective control over the personal activities of Limjoco, who as admitted by the latter had other
"conflict of interest" requiring his personal attention.

In ascertaining whether the relationship is that of employer-employee or one of independent

contractor, each case must be determined by its own facts and all features of the relationship are to
be considered.6 The records of the case at bar showed that there was no such employer-employee
relationship.

As stated earlier, "the element of control is absent; where a person who works for another does so
more or less at his own pleasure and is not subject to definite hours or conditions of work, and in
turn is compensated according to the result of his efforts and not the amount thereof, we should not
find that the relationship of employer and employee exists.7 In fine, there is nothing in the records to
show or would "indicate that complainant was under the control of the petitioner" in respect of the
means and methods 8 in the performance of complainant's work.

Consequently, private respondent is not entitled to the benefits prayed for.

In view of the foregoing premises, the petition is hereby GRANTED, and the decision of the NLRC is
hereby REVERSED AND SET ASIDE.

SO ORDERED.

G.R. No. 64948 September 27, 1994

MANILA GOLF & COUNTRY CLUB, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT and FERMIN LLAMAR, respondents.

Bito, Misa & Lozada for petitioner.

Remberto Z. Evio for private respondent.

NARVASA, C.J.:

The question before the Court here is whether or not persons rendering caddying services for
members of golf clubs and their guests in said clubs' courses or premises are the employees of such
clubs and therefore within the compulsory coverage of the Social Security System (SSS).

That question appears to have been involved, either directly or peripherally, in three separate
proceedings, all initiated by or on behalf of herein private respondent and his fellow caddies. That
which gave rise to the present petition for review was originally filed with the Social Security
Commission (SSC) via petition of seventeen (17) persons who styled themselves "Caddies of Manila
Golf and Country Club-PTCCEA" for coverage and availment of benefits under the Social Security
Act as amended, "PTCCEA" being
the acronym of a labor organization, the "Philippine Technical, Clerical, Commercial Employees
Association," with which the petitioners claimed to be affiliated. The petition, docketed as SSC Case
No. 5443, alleged in essence that although the petitioners were employees of the Manila Golf and
Country Club, a domestic corporation, the latter had not registered them as such with the SSS.

At about the same time, two other proceedings bearing on the same question were filed or were
pending; these were:

(1) a certification election case filed with the Labor Relations Division of the Ministry
of Labor by the PTCCEA on behalf of the same caddies of the Manila Golf and
Country Club, the case being titled "Philippine Technical, Clerical, Commercial
Association vs. Manila Golf and Country Club" and docketed as Case No. R4-LRDX-
M-10-504-78; it appears to have been resolved in favor of the petitioners therein by
Med-Arbiter Orlando S. Rojo who was thereafter upheld by Director Carmelo S.
Noriel, denying the Club's motion for reconsideration; 1
 (2) a compulsory arbitration case initiated before the Arbitration Branch of the
Ministry of Labor by the same labor organization, titled "Philippine Technical, Clerical,
Commercial Employees Association (PTCCEA), Fermin Lamar and Raymundo
Jomok vs. Manila Golf and Country Club, Inc., Miguel Celdran, Henry Lim and
Geronimo Alejo;" it was dismissed for lack of merit by Labor Arbiter Cornelio T.
Linsangan, a decision later affirmed on appeal by the National Labor Relations
Commission on the ground that there was no employer-employee relationship
between the petitioning caddies and the respondent Club. 2

In the case before the SSC, the respondent Club filed answer praying for the dismissal of the
petition, alleging in substance that the petitioners, caddies by occupation, were allowed into the Club
premises to render services as such to the individual members and guests playing the Club's golf
course and who themselves paid for such services; that as such caddies, the petitioners were not
subject to the direction and control of the Club as regards the manner in which they performed their
work; and hence, they were not the Club's employees.

Subsequently, all but two of the seventeen petitioners of their own accord withdrew their claim for
social security coverage, avowedly coming to realize that indeed there was no employment
relationship between them and the Club. The case continued, and was eventually adjudicated by the
SSC after protracted proceedings only as regards the two holdouts, Fermin Llamar and Raymundo
Jomok. The Commission dismissed the petition for lack of merit, 3ruling:

. . . that the caddy's fees were paid by the golf players themselves and not by
respondent club. For instance, petitioner Raymundo Jomok averred that for their
services as caddies a caddy's Claim Stub (Exh. "1-A") is issued by a player who will
in turn hand over to management the other portion of the stub known as Caddy
Ticket (Exh. "1") so that by this arrangement management will know how much a
caddy will be paid (TSN, p. 80, July 23, 1980). Likewise, petitioner Fermin Llamar
admitted that caddy works on his own in accordance with the rules and regulations
(TSN, p. 24, February 26, 1980) but petitioner Jomok could not state any policy of
respondent that directs the manner of caddying (TSN, pp. 76-77, July 23, 1980).
While respondent club promulgates rules and regulations on the assignment,
deportment and conduct of caddies (Exh. "C") the same are designed to impose
personal discipline among the caddies but not to direct or conduct their actual work.
In fact, a golf player is at liberty to choose a caddy of his preference regardless of the
respondent club's group rotation system and has the discretion on whether or not to
pay a caddy. As testified to by petitioner Llamar that their income depends on the
number of players engaging their services and liberality of the latter (TSN, pp. 10-11,
Feb. 26, 1980). This lends credence to respondent's assertion that the caddies are
never their employees in the absence of two elements, namely, (1) payment of
wages and (2) control or supervision over them. In this connection, our Supreme
Court ruled that in the determination of the existence of an employer-employee
relationship, the "control test" shall be considered decisive (Philippine Manufacturing
Co. vs. Geronimo and Garcia, 96 Phil. 276; Mansal vs. P.P. Coheco Lumber Co., 96
Phil. 941; Viana vs.
Al-lagadan, et al., 99 Phil. 408; Vda, de Ang, et al. vs. The Manila Hotel Co., 101
Phil. 358, LVN Pictures Inc. vs. Phil. Musicians Guild, et al.,
L-12582, January 28, 1961, 1 SCRA 132. . . . (reference being made also to
Investment Planning Corporation Phil. vs. SSS 21 SCRA 925).

Records show the respondent club had reported for SS coverage Graciano Awit and
Daniel Quijano, as bat unloader and helper, respectively, including their ground men,
house and administrative personnel, a situation indicative of the latter's concern with
 the rights and welfare of its employees under the SS law, as amended. The
unrebutted testimony of Col. Generoso A. Alejo (Ret.) that the ID cards issued to the
caddies merely intended to identify the holders as accredited caddies of the club and
privilege(d) to ply their trade or occupation within its premises which could be
withdrawn anytime for loss of confidence. This gives us a reasonable ground to state
that the defense posture of respondent that petitioners were never its employees is
well taken.4

From this Resolution appeal was taken to the Intermediate appellate Court by the union representing
Llamar and Jomok. After the appeal was docketed 5 and some months before decision thereon was
reached and promulgated, Raymundo Jomok's appeal was dismissed at his instance, leaving Fermin
Llamar the lone appellant. 6

The appeal ascribed two errors to the SSC:

(1) refusing to suspend the proceedings to await judgment by the Labor Relations
Division of National Capital Regional Office in the certification election case (R-4-
LRD-M-10-504-78) supra, on the precise issue of the existence of employer-
employee relationship between the respondent club and the appellants, it being
contended that said issue was "a function of the proper labor office"; and

(2) adjudicating that self same issue a manner contrary to the ruling of the Director of
the Bureau of Labor Relations, which "has not only become final but (has been)
executed or (become) res adjudicata." 7

The Intermediate Appellate Court gave short shirt to the first assigned error, dismissing it as of the
least importance. Nor, it would appear, did it find any greater merit in the second alleged error.
Although said Court reserved the appealed SSC decision and declared Fermin Llamar an employee
of the Manila Gold and Country Club, ordering that he be reported as such for social security
coverage and paid any corresponding benefits, 8 it conspicuously ignored the issue of res
adjudicata raised in said second assignment. Instead, it drew basis for the reversal from this Court's
ruling in Investment Planning Corporation of the Philippines vs. Social Security System, supra 9 and
declared that upon the evidence, the questioned employer-employee relationship between the Club
and Fermin Llamar passed the so-called "control test," establishment in the case — i.e., "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," — the Club's control over the caddies encompassing:

(a) the promulgation of no less than twenty-four (24) rules and regulations just about
every aspect of the conduct that the caddy must observe, or avoid, when serving as
such, any violation of any which could subject him to disciplinary action, which may
include suspending or cutting off his access to the club premises;

(b) the devising and enforcement of a group rotation system whereby a caddy is
assigned a number which designates his turn to serve a player;

(c) the club's "suggesting" the rate of fees payable to the caddies.

Deemed of title or no moment by the Appellate Court was the fact that the caddies were paid by the
players, not by the Club, that they observed no definite working hours and earned no fixed income. It
quoted with approval from an American decision 10 to the effect that: "whether the club paid the
caddies and afterward collected in the first instance, the caddies were still employees of the club."
This, no matter that the case which produced this ruling had a slightly different factual cast,
apparently having involved a claim for workmen's compensation made by a caddy who, about to
leave the premises of the club where he worked, was hit and injured by an automobile then
negotiating the club's private driveway.

That same issue of res adjudicata, ignored by the IAC beyond bare mention thereof, as already
pointed out, is now among the mainways of the private respondent's defenses to the petition for
review. Considered in the perspective of the incidents just recounted, it illustrates as well as anything
can, why the practice of forum-shopping justly merits censure and punitive sanction. Because the
same question of employer-employee relationship has been dragged into three different fora, willy-
nilly and in quick succession, it has birthed controversy as to which of the resulting adjudications
must now be recognized as decisive. On the one hand, there is the certification case [R4-LRDX-M-
10-504-78), where the decision of the Med-Arbiter found for the existence of employer-employee
relationship between the parties, was affirmed by Director Carmelo S. Noriel, who ordered a
certification election held, a disposition never thereafter appealed according to the private
respondent; on the other, the compulsory arbitration case (NCR Case No. AB-4-1771-79), instituted
by or for the same respondent at about the same time, which was dismissed for lack of merit by the
Labor Arbiter, which was afterwards affirmed by the NLRC itself on the ground that there existed no
such relationship between the Club and the private respondent. And, as if matters were not already
complicated enough, the same respondent, with the support and assistance of the PTCCEA, saw fit,
also contemporaneously, to initiate still a third proceeding for compulsory social security coverage
with the Social Security Commission (SSC Case No. 5443), with the result already mentioned.

Before this Court, the petitioner Club now contends that the decision of the Med-Arbiter in the
certification case had never become final, being in fact the subject of three pending and unresolved
motions for reconsideration, as well as of a later motion for early resolution. 11 Unfortunately, none of
these motions is incorporated or reproduced in the record before the Court. And, for his part, the
private respondent contends, not only that said decision had been appealed to and been affirmed by
the Director of the BLR, but that a certification election had in fact been held, which resulted in the
PTCCEA being recognized as the sole bargaining agent of the caddies of the Manila Golf and
Country Club with respect to wages, hours of work, terms of employment, etc. 12 Whatever the truth
about these opposing contentions, which the record before the Court does not adequately disclose,
the more controlling consideration would seem to be that, however, final it may become, the decision
in a certification case, by the
very nature of that proceedings, is not such as to foreclose all further dispute between the parties as
to the existence, or non-existence, of employer-employee relationship between them.

It is well settled that for res adjudicata, or the principle of bar by prior judgment, to apply, the
following essential requisites must concur: (1) there must be a final judgment or order; (2) said
judgment or order must be on the merits; (3) the court rendering the same must have jurisdiction
over the subject matter and the parties; and (4) there must be between the two cases identity of
parties, identity of subject matter and identity of cause of action. 13

Clearly implicit in these requisites is that the action or proceedings in which is issued the "prior
Judgment" that would operate in bar of a subsequent action between the same parties for the same
cause, be adversarial, or contentious, "one having opposing parties; (is) contested, as distinguished
from an ex parte hearing or proceeding. . . . of which the party seeking relief has given legal notice to
the other party and afforded the latter an opportunity to contest it" 14 and a certification case is not
such a proceeding, as this Court already ruled:

A certification proceedings is not a "litigation" in the sense in which the term is

commonly understood, but mere investigation of a non-adversary, fact-finding
 character, in which the investigating agency plays the part of a disinterested
investigator seeking merely to ascertain the desires of the employees as to the
matter of their representation. The court enjoys a wide discretion in determining the
procedure necessary to insure the fair and free choice of bargaining representatives
by the employees.15

Indeed, if any ruling or judgment can be said to operate as res adjudicata on the contested issue of
employer-employee relationship between present petitioner and the private respondent, it would
logically be that rendered in the compulsory arbitration case (NCR Case No. AB-4-771-79, supra),
petitioner having asserted, without dispute from the private respondent, that said issue was there
squarely raised and litigated, resulting in a ruling of the Arbitration Branch (of the same Ministry of
Labor) that such relationship did not exist, and which ruling was thereafter affirmed by the National
Labor Relations Commission in an appeal taken by said respondent. 16

In any case, this Court is not inclined to allow private respondent the benefit of any doubt as to which
of the conflicting ruling just adverted to should be accorded primacy, given the fact that it was he
who actively sought them simultaneously, as it were, from separate fora, and even if the graver
sanctions more lately imposed by the Court for forum-shopping may not be applied to him
retroactively.

Accordingly, the IAC is not to be faulted for ignoring private respondent's invocation of res
adjudicata; on contrary, it acted correctly in doing so.

Said Court’s holding that upon the facts, there exists (or existed) a relationship of employer and
employee between petitioner and private respondent is, however, another matter. The Court does
not agree that said facts necessarily or logically point to such a relationship, and to the exclusion of
any form of arrangements, other than of employment, that would make the respondent's services
available to the members and guest of the petitioner.

As long as it is, the list made in the appealed decision detailing the various matters of conduct,
dress, language, etc. covered by the petitioner's regulations, does not, in the mind of the Court, so
circumscribe the actions or judgment of the caddies concerned as to leave them little or no freedom
of choice whatsoever in the manner of carrying out their services. In the very nature of things,
caddies must submit to some supervision of their conduct while enjoying the privilege of pursuing
their occupation within the premises and grounds of whatever club they do their work in. For all that
is made to appear, they work for the club to which they attach themselves on sufference but, on the
other hand, also without having to observe any working hours, free to leave anytime they please, to
stay away for as long they like. It is not pretended that if found remiss in the observance of said
rules, any discipline may be meted them beyond barring them from the premises which, it may be
supposed, the Club may do in any case even absent any breach of the rules, and without violating
any right to work on their part. All these considerations clash frontally with the concept of
employment.

The IAC would point to the fact that the Club suggests the rate of fees payable by the players to the
caddies as still another indication of the latter's status as employees. It seems to the Court, however,
that the intendment of such fact is to the contrary, showing that the Club has not the measure of
control over the incidents of the caddies' work and compensation that an employer would possess.

The Court agrees with petitioner that the group rotation system so-called, is less a measure of
employer control than an assurance that the work is fairly distributed, a caddy who is absent when
his turn number is called simply losing his turn to serve and being assigned instead the last number
for the day. 17
By and large, there appears nothing in the record to refute the petitioner's claim that:

(Petitioner) has no means of compelling the presence of a caddy. A caddy is not

required to exercise his occupation in the premises of petitioner. He may work with
any other golf club or he may seek employment a caddy or otherwise with any entity
or individual without restriction by petitioner. . . .

. . . In the final analysis, petitioner has no was of compelling the presence of the
caddies as they are not required to render a definite number of hours of work on a
single day. Even the group rotation of caddies is not absolute because a player is at
liberty to choose a caddy of his preference regardless of the caddy's order in the
rotation.

It can happen that a caddy who has rendered services to a player on one day may
still find sufficient time to work elsewhere. Under such circumstances, he may then
leave the premises of petitioner and go to such other place of work that he wishes
(sic). Or a caddy who is on call for a particular day may deliberately absent himself if
he has more profitable caddying, or another, engagement in some other place.
These are things beyond petitioner's control and for which it imposes no direct
sanctions on the caddies. . . . 18

WHEREFORE, the Decision of the Intermediate Appellant Court, review of which is sought, is
reversed and set aside, it being hereby declared that the private respondent, Fermin Llamar, is not
an employee of petitioner Manila Golf and Country Club and that petitioner is under no obligation to
report him for compulsory coverage to the Social Security System. No pronouncement as to costs.

SO ORDERED.

G.R. No. L-12582 January 28, 1961

LVN PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-
appellees.

x---------------------------------------------------------x

G.R. No. L-12598 January 28, 1961

SAMPAGUITA PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-
appellees.

Nicanor S. Sison for petitioner-appellant.

Jaime E. Ilagan for respondent-appellee Court of Agrarian Relations.
Gerardo P. Cabo Chan for respondent-appellee Philippine Musicians Guild.

CONCEPCION, J.:
Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review by certiorari of an
order of the Court of Industrial Relations in Case No. 306-MC thereof, certifying the Philippine
Musicians Guild (FFW), petitioner therein and respondent herein, as the sole and exclusive
bargaining agency of all musicians working with said companies, as well as with the Premiere
Productions, Inc., which has not appealed. The appeal of LVN Pictures, Inc., has been docketed as
G.R. No. L-12582, whereas G.R. No. L-12598 is the appeal of Sampaguita Pictures, Inc. Involving
as they do the same order, the two cases have been jointly heard in this Court, and will similarly be
disposed of.

In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter referred to as the
Guild, averred that it is a duly registered legitimate labor organization; that LVN Pictures, Inc.,
Sampaguita Pictures, Inc., and Premiere Productions, Inc. are corporations, duly organized under
the Philippine laws, engaged in the making of motion pictures and in the processing and distribution
thereof; that said companies employ musicians for the purpose of making music recordings for title
music, background music, musical numbers, finale music and other incidental music, without which a
motion picture is incomplete; that ninety-five (95%) percent of all the musicians playing for the
musical recordings of said companies are members of the Guild; and that the same has no
knowledge of the existence of any other legitimate labor organization representing musicians in said
companies. Premised upon these allegations, the Guild prayed that it be certified as the sole and
exclusive bargaining agency for all musicians working in the aforementioned companies. In their
respective answers, the latter denied that they have any musicians as employees, and alleged that
the musical numbers in the filing of the companies are furnished by independent contractors. The
lower court, however, rejected this pretense and sustained the theory of the Guild, with the result
already adverted to. A reconsideration of the order complained of having been denied by the
Court en banc, LVN Pictures, inc., and Sampaguita Pictures, Inc., filed these petitions for review
for certiorari.

Apart from impugning the conclusion of the lower court on the status of the Guild members as
alleged employees of the film companies, the LVN Pictures, Inc., maintains that a petition for
certification cannot be entertained when the existence of employer-employee relationship between
the parties is contested. However, this claim is neither borne out by any legal provision nor
supported by any authority. So long as, after due hearing, the parties are found to bear said
relationship, as in the case at bar, it is proper to pass upon the merits of the petition for certification.

It is next urged that a certification is improper in the present case, because, "(a) the petition does not
allege and no evidence was presented that the alleged musicians-employees of the respondents
constitute a proper bargaining unit, and (b) said alleged musicians-employees represent a majority
of the other numerous employees of the film companies constituting a proper bargaining unit under
section 12 (a) of Republic Act No. 875."

The absence of an express allegation that the members of the Guild constitute a proper bargaining
unit is fatal proceeding, for the same is not a "litigation" in the sense in which this term is commonly
understood, but a mere investigation of a non-adversary, fact finding character, in which the
investigating agency plays the part of a disinterested investigator seeking merely to ascertain the
desires of employees as to the matter of their representation. In connection therewith, the court
enjoys a wide discretion in determining the procedure necessary to insure the fair and free choice of
bargaining representatives by employees.1 Moreover, it is alleged in the petition that the Guild it a
duly registered legitimate labor organization and that ninety-five (95%) percent of the musicians
playing for all the musical recordings of the film companies involved in these cases are members of
the Guild. Although, in its answer, the LVN Pictures, Inc. denied both allegations, it appears that, at
the hearing in the lower court it was merely the status of the musicians as its employees that the film
companies really contested. Besides, the substantial difference between the work performed by said
musicians and that of other persons who participate in the production of a film, and the peculiar
circumstances under which the services of that former are engaged and rendered, suffice to show
that they constitute a proper bargaining unit. At this juncture, it should be noted that the action of the
lower court in deciding upon an appropriate unit for collective bargaining purposes is discretionary
(N.L.R.B. v. May Dept. Store Co., 66 Sup. Ct. 468. 90 L. ed. 145) and that its judgment in this
respect is entitled to almost complete finality, unless its action is arbitrary or capricious (Marshall
Field & Co. v. N.L.R.B. [C.C.A. 19431, 135 F. 2d. 891), which is far from being so in the cases at
bar.

Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining agency for the
musicians working in the aforesaid film companies. It does not intend to represent the other
employees therein. Hence, it was not necessary for the Guild to allege that its members constitute a
majority of all the employees of said film companies, including those who are not musicians. The real
issue in these cases, is whether or not the musicians in question are employees of the film
companies. In this connection the lower court had the following to say:

As a normal and usual course of procedure employed by the companies when a picture is to
be made, the producer invariably chooses, from the musical directors, one who will furnish
the musical background for a film. A price is agreed upon verbally between the producer and
musical director for the cost of furnishing such musical background. Thus, the musical
director may compose his own music specially written for or adapted to the picture. He
engages his own men and pays the corresponding compensation of the musicians under
him.

When the music is ready for recording, the musicians are summoned through 'call slips' in
the name of the film company (Exh 'D'), which show the name of the musician, his musical
instrument, and the date, time and place where he will be picked up by the truck of the film
company. The film company provides the studio for the use of the musicians for that
particular recording. The musicians are also provided transportation to and from the studio
by the company. Similarly, the company furnishes them meals at dinner time.

During the recording sessions, the motion picture director, who is an employee of the
company, supervises the recording of the musicians and tells what to do in every detail. He
solely directs the performance of the musicians before the camera as director, he supervises
the performance of all the action, including the musicians who appear in the scenes so that
in the actual performance to be shown on the screen, the musical director's intervention has
stopped.

And even in the recording sessions and during the actual shooting of a scene, the
technicians, soundmen and other employees of the company assist in the operation. Hence,
the work of the musicians is an integral part of the entire motion picture since they not only
furnish the music but are also called upon to appear in the finished picture.

The question to be determined next is what legal relationship exits between the musicians
and the company in the light of the foregoing facts.

We are thus called upon to apply R.A. Act 875. which is substantially the same as and
patterned after the Wagner Act substantially the same as a Act and the Taft-Hartley Law of
the United States. Hence, reference to decisions of American Courts on these laws on the
point-at-issue is called for.

Statutes are to be construed in the light of purposes achieved and the evils sought to be
remedied. (U.S. vs. American Tracking Association, 310 U.S. 534, 84 L. ed. 1345.) .
In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S. 111, the
United States Supreme Court said the Wagner Act was designed to avert the 'substantial
obstruction to the free flow of commerce which results from strikes and other forms of
industrial unrest by eliminating the causes of the unrest. Strikes and industrial unrest result
from the refusal of employers' to bargain collectively and the inability of workers to bargain
successfully for improvement in their working conditions. Hence, the purposes of the Act are
to encourage collective bargaining and to remedy the workers' inability to bargaining power,
by protecting the exercise of full freedom of association and designation of representatives of
their own choosing, for the purpose of negotiating the terms and conditions of their
employment.'

The mischief at which the Act is aimed and the remedies it offers are not confined exclusively
to 'employees' within the traditional legal distinctions, separating them from 'independent
contractor'. Myriad forms of service relationship, with infinite and subtle variations in the term
of employment, blanket the nation's economy. Some are within this Act, others beyond its
coverage. Large numbers will fall clearly on one side or on the other, by whatever test may
be applied. Inequality of bargaining power in controversies of their wages, hours and working
conditions may characterize the status of one group as of the other. The former, when acting
alone may be as helpless in dealing with the employer as dependent on his daily wage and
as unable to resist arbitrary and unfair treatment as the latter.'

To eliminate the causes of labor dispute and industrial strike, Congress thought it necessary
to create a balance of forces in certain types of economic relationship. Congress recognized
those economic relationships cannot be fitted neatly into the containers designated as
'employee' and 'employer'. Employers and employees not in proximate relationship may be
drawn into common controversies by economic forces and that the very dispute sought to be
avoided might involve 'employees' who are at times brought into an economic relationship
with 'employers', who are not their 'employers'. In this light, the language of the Act's
definition of 'employee' or 'employer' should be determined broadly in doubtful situations, by
underlying economic facts rather than technically and exclusively established legal
classifications. (NLRB vs. Blount, 131 F [2d] 585.)

In other words, the scope of the term 'employee' must be understood with reference to the
purposes of the Act and the facts involved in the economic relationship. Where all the
conditions of relation require protection, protection ought to be given .

By declaring a worker an employee of the person for whom he works and by recognizing and
protecting his rights as such, we eliminate the cause of industrial unrest and consequently
we promote industrial peace, because we enable him to negotiate an agreement which will
settle disputes regarding conditions of employment, through the process of collective
bargaining.

The statutory definition of the word 'employee' is of wide scope. As used in the Act, the term
embraces 'any employee' that is all employees in the conventional as well in the legal sense
expect those excluded by express provision. (Connor Lumber Co., 11 NLRB 776.).

It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes of industrial
unrest by protecting the exercise of their right to self-organization for the purpose of
collective bargaining. (b) To promote sound stable industrial peace and the advancement of
the general welfare, and the best interests of employers and employees by the settlement of
issues respecting terms and conditions of employment through the process of collective
bargaining between employers and representatives of their employees.
 The primary consideration is whether the declared policy and purpose of the Act can be
effectuated by securing for the individual worker the rights and protection guaranteed by the
Act. The matter is not conclusively determined by a contract which purports to establish the
status of the worker, not as an employee.

The work of the musical director and musicians is a functional and integral part of the
enterprise performed at the same studio substantially under the direction and control of the
company.

In other words, to determine whether a person who performs work for another is the latter's
employee or an independent contractor, the National Labor Relations relies on 'the right to
control' test. Under this test an employer-employee relationship exist where the person for
whom the services are performed reserves the right to control not only the end to be
achieved, but also the manner and means to be used in reaching the end. (United Insurance
Company, 108, NLRB No. 115.).

Thus, in said similar case of Connor Lumber Company, the Supreme Court said:.

'We find that the independent contractors and persons working under them are
employees' within the meaning of Section 2 (3) of its Act. However, we are of the
opinion that the independent contractors have sufficient authority over the persons
working under their immediate supervision to warrant their exclusion from the
unit. We shall include in the unit the employees working under the supervision of the
independent contractors, but exclude the contractors.'

'Notwithstanding that the employees are called independent contractors', the Board will hold
them to be employees under the Act where the extent of the employer's control over them
indicates that the relationship is in reality one of employment. (John Hancock Insurance Co.,
2375-D, 1940, Teller, Labor Dispute Collective Bargaining, Vol.).

The right of control of the film company over the musicians is shown (1) by calling the
musicians through 'call slips' in 'the name of the company; (2) by arranging schedules in its
studio for recording sessions; (3) by furnishing transportation and meals to musicians; and
(4) by supervising and directing in detail, through the motion picture director, the
performance of the musicians before the camera, in order to suit the music they are playing
to the picture which is being flashed on the screen.

Thus, in the application of Philippine statutes and pertinent decisions of the United States
Courts on the matter to the facts established in this case, we cannot but conclude that to
effectuate the policies of the Act and by virtue of the 'right of control' test, the members of the
Philippine Musicians Guild are employees of the three film companies and, therefore, entitled
to right of collective bargaining under Republic Act No. 875.

In view of the fact that the three (3) film companies did not question the union's majority, the
Philippine Musicians Guild is hereby declared as the sole collective bargaining
representative for all the musicians employed by the film companies."

We are fully in agreement with the foregoing conclusion and the reasons given in support thereof.
Both are substantially in line with the spirit of our decision in Maligaya Ship Watchmen Agency vs.
Associated Watchmen and Security Union, L-12214-17 (May 28, 1958). In fact, the contention of the
employers in the Maligaya cases, to the effect that they had dealt with independent contractors, was
stronger than that of the film companies in these cases. The third parties with whom the
management and the workers contracted in the Maligaya cases were agencies registered with the
Bureau of Commerce and duly licensed by the City of Manila to engage in the business of supplying
watchmen to steamship companies, with permits to engage in said business issued by the City
Mayor and the Collector of Customs. In the cases at bar, the musical directors with whom the film
companies claim to have dealt with had nothing comparable to the business standing of said
watchmen agencies. In this respect, the status of said musical directors is analogous to that of the
alleged independent contractor in Caro vs. Rilloraza, L-9569 (September 30, 1957), with the
particularity that the Caro case involved the enforcement of the liability of an employer under the
Workmen's Compensation Act, whereas the cases before us are merely concerned with the right of
the Guild to represent the musicians as a collective bargaining unit. Hence, there is less reason to
be legalistic and technical in these cases, than in the Caro case.

Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe Coconut Product
Co., Inc vs. CIR(46 Off. Gaz., 5506, 5509), Philippine Manufacturing Co. vs. Santos Vda. de
Geronimo, L-6968 (November 29, 1954), Viana vs. Al-Lagadan, L-8967 (May 31, 1956), and Josefa
Vda. de Cruz vs. The Manila Hotel Co. (53 Off. Gaz., 8540). Instead of favoring the theory of said
petitioners-appellants, the case of the Sunripe Coconut Product Co., Inc. is authority for herein
respondents-appellees. It was held that, although engaged as piece-workers, under the "pakiao"
system, the "parers" and "shellers" in the case were, not independent contractor, but employees of
said company, because "the requirement imposed on the 'parers' to the effect that 'the nuts are
pared whole or that there is not much meat wasted,' in effect limits or controls the means or details
by which said workers are to accomplish their services" — as in the cases before us.

The nature of the relation between the parties was not settled in the Viana case, the same having
been remanded to the Workmen's Compensation Commission for further evidence.

The case of the Philippine Manufacturing Co. involved a contract between said company and Eliano
Garcia, who undertook to paint a tank of the former. Garcia, in turn engaged the services of Arcadio
Geronimo, a laborer, who fell while painting the tank and died in consequence of the injuries thus
sustained by him. Inasmuch as the company was engaged in the manufacture of soap, vegetable
lard, cooking oil and margarine, it was held that the connection between its business and the
painting aforementioned was purely casual; that Eliano Garcia was an independent contractor; that
Geronimo was not an employee of the company; and that the latter was not bound, therefore, to pay
the compensation provided in the Workmen's Compensation Act. Unlike the Philippine
Manufacturing case, the relation between the business of herein petitioners-appellants and the work
of the musicians is not casual. As held in the order appealed from which, in this respect, is not
contested by herein petitioners-appellants — "the work of the musicians is an integral part of the
entire motion picture." Indeed, one can hardly find modern films without music therein. Hence, in
the Caro case (supra), the owner and operator of buildings for rent was held bound to pay the
indemnity prescribed in the Workmen's Compensation Act for the injury suffered by a carpenter while
working as such in one of said buildings even though his services had been allegedly engaged by a
third party who had directly contracted with said owner. In other words, the repair work had not
merely a casual connection with the business of said owner. It was a necessary incident thereof, just
as music is in the production of motion pictures.

The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957) differs materially
from the present cases. It involved the interpretation of Republic Act No. 660, which amends the law
creating and establishing the Government Service Insurance System. No labor law was sought to be
construed in that case. In act, the same was originally heard in the Court of First Instance of Manila,
the decision of which was, on appeal, affirmed by the Supreme Court. The meaning or scope if the
term "employee," as used in the Industrial Peace Act (Republic Act No. 875), was not touched
therein. Moreover, the subject matter of said case was a contract between the management of the
Manila Hotel, on the one hand, and Tirso Cruz, on the other, whereby the latter greed to furnish the
former the services of his orchestra, consisting of 15 musicians, including Tirso Cruz, "from 7:30
p.m. to closing time daily." In the language of this court in that case, "what pieces the orchestra shall
play, and how the music shall be arranged or directed, the intervals and other details — such are left
to the leader's discretion."

This is not situation obtaining in the case at bar. The musical directors above referred to
have no such control over the musicians involved in the present case. Said musical directors control
neither the music to be played, nor the musicians playing it. The film companies summon the
musicians to work, through the musical directors. The film companies, through the musical directors,
fix the date, the time and the place of work. The film companies, not the musical directors, provide
the transportation to and from the studio. The film companies furnish meal at dinner time.

What is more — in the language of the order appealed from — "during the recording sessions, the
motion picture director who is an employee of the company" — not the musical director —
"supervises the recording of the musicians and tells them what to do in every detail". The motion
picture director — not the musical director — "solely directs and performance of the musicians
before the camera". The motion picture director "supervises the performance of all the
actors, including the musicians who appear in the scenes, so that in the actual performance to be
shown in the screen, the musical director's intervention has stopped." Or, as testified to in the lower
court, "the movie director tells the musical director what to do; tells the music to be cut or tells
additional music in this part or he eliminates the entire music he does not (want) or he may want
more drums or move violin or piano, as the case may be". The movie director "directly controls the
activities of the musicians." He "says he wants more drums and the drummer plays more" or "if he
wants more violin or he does not like that.".

It is well settled that "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 . . . ." (Alabama Highway Express Co., Express Co., v. Local
612, 108S. 2d. 350.) The decisive nature of said control over the "means to be used", is illustrated in
the case of Gilchrist Timber Co., et al., Local No. 2530 (73 NLRB No. 210, pp. 1197, 1199-1201), in
which, by reason of said control, the employer-employee relationship was held to exist between the
management and the workers, notwithstanding the intervention of an alleged independent
contractor, who had, and exercise, the power to hire and fire said workers. The aforementioned
control over the means to be used" in reading the desired end is possessed and exercised by the
film companies over the musicians in the cases before us.

WHEREFORE, the order appealed from is hereby affirmed, with costs against petitioners herein. It is
so ordered

G.R. No. L-32245 May 25, 1979

DY KEH BENG, petitioner,

vs.
INTERNATIONAL LABOR and MARINE UNION OF THE PHILIPPINES, ET AL., respondents.

A. M Sikat for petitioner.

D. A. Hernandez for respondents.

DE CASTRO, J.:
Petitioner Dy Keh Beng seeks a review by certiorari of the decision of the Court of Industrial
Relations dated March 23, 1970 in Case No. 3019-ULP and the Court's Resolution en banc of June
10, 1970 affirming said decision. The Court of Industrial Relations in that case found Dy Keh Beng
guilty of the unfair labor practice acts alleged and order him to

reinstate Carlos Solano and Ricardo Tudla to their former jobs with backwages from
their respective dates of dismissal until fully reinstated without loss to their right of
seniority and of such other rights already acquired by them and/or allowed by law. 1

Now, Dy Keh Beng assigns the following errors 2 as having been committed by the Court of Industrial
Relations:

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO

AND TUDLA WERE EMPLOYEES OF PETITIONERS.

II

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO

AND TUDLA WERE DISMISSED FROM THEIR EMPLOYMENT BY PETITIONER.

III

RESPONDENT COURT ERRED IN FINDING THAT THE TESTIMONIES ADDUCED

BY COMPLAINANT ARE CONVINCING AND DISCLOSES (SIC) A PATTERN OF
DISCRIMINATION BY THE PETITIONER HEREIN.

IV

RESPONDENT COURT ERRED IN DECLARING PETITIONER GUILTY OF

UNFAIR LABOR PRACTICE ACTS AS ALLEGED AND DESCRIBED IN THE
COMPLAINT.

RESPONDENT COURT ERRED IN PETITIONER TO REINSTATE RESPONDENTS

TO THEIR FORMER JOBS WITH BACKWAGES FROM THEIR RESPECTIVE
DATES OF DISMISSALS UNTIL FINALLY REINSTATED WITHOUT LOSS TO
THEIR RIGHT OF SENIORITY AND OF SUCH OTHER RIGHTS ALREADY
ACQUIRED BY THEM AND/OR ALLOWED BY LAW.

The facts as found by the Hearing Examiner are as follows:

A charge of unfair labor practice was filed against Dy Keh Beng, proprietor of a basket factory, for
discriminatory acts within the meaning of Section 4(a), sub-paragraph (1) and (4). Republic Act No.
875, 3 by dismissing on September 28 and 29, 1960, respectively, Carlos N. Solano and Ricardo
Tudla for their union activities. After preliminary investigation was conducted, a case was filed in the
Court of Industrial Relations for in behalf of the International Labor and Marine Union of the
Philippines and two of its members, Solano and Tudla In his answer, Dy Keh Beng contended that
he did not know Tudla and that Solano was not his employee because the latter came to the
establishment only when there was work which he did on pakiaw basis, each piece of work being
done under a separate contract. Moreover, Dy Keh Beng countered with a special defense of simple
extortion committed by the head of the labor union, Bienvenido Onayan.

After trial, the Hearing Examiner prepared a report which was subsequently adopted in toto by the
Court of Industrial Relations. An employee-employer relationship was found to have existed between
Dy Keh Beng and complainants Tudla and Solano, although Solano was admitted to have worked on
piece basis.4 The issue therefore centered on whether there existed an employee employer relation
between petitioner Dy Keh Beng and the respondents Solano and Tudla .

According to the Hearing Examiner, the evidence for the complainant Union tended to show that
Solano and Tudla became employees of Dy Keh Beng from May 2, 1953 and July 15,
1955, 5 respectively, and that except in the event of illness, their work with the establishment was
continuous although their services were compensated on piece basis. Evidence likewise showed
that at times the establishment had eight (8) workers and never less than five (5); including the
complainants, and that complainants used to receive ?5.00 a day. sometimes less. 6

According to Dy Keh Beng, however, Solano was not his employee for the following reasons:

(1) Solano never stayed long enought at Dy's establishment;

(2) Solano had to leave as soon as he was through with the

(3) order given him by Dy;

(4) When there were no orders needing his services there was nothing for him to do;

(5) When orders came to the shop that his regular workers could not fill it was then
that Dy went to his address in Caloocan and fetched him for these orders; and

(6) Solano's work with Dy's establishment was not continuous. , 7

According to petitioner, these facts show that respondents Solano and Tudla are only piece workers,
not employees under Republic Act 875, where an employee 8 is referred to as

shall include any employee and shag 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.

while an employer 9

includes 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 anyone acting in the capacity of officer or agent of such labor organization.

Petitioner really anchors his contention of the non-existence of employee-employer relationship on

the control test. He points to the case of Madrigal Shipping Co., Inc. v. Nieves Baens del Rosario, et
al., L-13130, October 31, 1959, where the Court ruled that:
 The test ... of the existence of employee and employer relationship is whether there
is an understanding between the parties that one is to render personal services to or
for the benefit of the other and recognition by them of the right of one to order and
control the other in the performance of the work and to direct the manner and method
of its performance.

Petitioner contends that the private respondents "did not meet the control test in the fight of the ...
definition of the terms employer and employee, because there was no evidence to show that
petitioner had the right to direct the manner and method of respondent's work. 10 Moreover, it is
argued that petitioner's evidence showed that "Solano worked on a pakiaw basis" and that he stayed
in the establishment only when there was work.

While this Court upholds the control test 11 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. 12 Considering the finding by the Hearing Examiner that the establishment of Dy Keh Beng is
"engaged in the manufacture of baskets known as kaing, 13 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 as the making of the kaing would be subject to
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.

As to the contention that Solano was not an employee because he worked on piece basis, this Court
agrees with the Hearing Examiner that

circumstances must be construed to determine indeed if payment by the piece is just

a method of compensation and does not define the essence of the relation. Units of
time ... and units of work are in establishments like respondent (sic) just yardsticks
whereby to determine rate of compensation, to be applied whenever agreed upon.
We cannot construe payment by the piece where work is done in such an
establishment so as to put the worker completely at liberty to turn him out and take in
another at pleasure.

At this juncture, it is worthy to note that Justice Perfecto, concurring with Chief Justice Ricardo Paras
who penned the decision in "Sunrise Coconut Products Co. v. Court of Industrial Relations" (83
Phil..518, 523), opined that

judicial notice of the fact that the so-called "pakyaw" system mentioned in this case
as generally practiced in our country, is, in fact, a labor contract -between employers
and employees, between capitalists and laborers.

Insofar as the other assignments of errors are concerned, there is no showing that the Court of
Industrial Relations abused its discretion when it concluded that the findings of fact made by the
Hearing Examiner were supported by evidence on the record. Section 6, Republic Act 875 provides
that in unfair labor practice cases, the factual findings of the Court of Industrial Relations are
conclusive on the Supreme Court, if supported by substantial evidence. This provision has been put
into effect in a long line of decisions where the Supreme Court did not reverse the findings of fact of
the Court of Industrial Relations when they were supported by substantial evidence. 14
Nevertheless, considering that about eighteen (18) years have already elapsed from the time the
complainants were dismissed, 15 and that the decision being appealed ordered the payment of
backwages to the employees from their respective dates of dismissal until finally reinstated, it is
fitting to apply in this connection the formula for backwages worked out by Justice Claudio
Teehankee in "cases not terminated sooner." 16 The formula cans for fixing the award of backwages
without qualification and deduction to three years, "subject to deduction where there are mitigating
circumstances in favor of the employer but subject to increase by way of exemplary damages where
there are aggravating circumstances. 17 Considering there are no such circumstances in this case,
there is no reason why the Court should not apply the abovementioned formula in this instance.

WHEREFORE; the award of backwages granted by the Court of Industrial Relations is herein
modified to an award of backwages for three years without qualification and deduction at the
respective rates of compensation the employees concerned were receiving at the time of dismissal.
The execution of this award is entrusted to the National Labor Relations Commission. Costs against
petitioner.

SO ORDERED.

G.R. No. 129315 October 2, 2000

OSIAS I. CORPORAL, SR., PEDRO TOLENTINO, MANUEL CAPARAS, ELPIDIO LACAP,

SIMPLICIO PEDELOS, PATRICIA NAS, and TERESITA FLORES, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LAO ENTENG COMPANY, INC. and/or
TRINIDAD LAO ONG, respondents.

DECISION

QUISUMBING, J.:

This special civil action for certiorari seeks the review of the Resolution dated October 17, 1996 of
public respondent National Labor Relations Commission (First Division),1 in NLRC NCR Case No.
00-04-03163-95, and the Resolution dated March 5, 1997 denying the motion for reconsideration.
The aforecited October 17th Resolution affirmed the Decision dated September 28, 1996 of Labor
Arbiter Potenciano S. Cañizares dismissing the petitioners' complaint for illegal dismissal and
declaring that petitioners are not regular employees of private respondent Lao Enteng Company,
Inc..

The records of the case show that the five male petitioners, namely, Osias I. Corporal, Sr., Pedro
Tolentino, Manuel Caparas, Elpidio Lacap, and Simplicio Pedelos worked as barbers, while the two
female petitioners, Teresita Flores and Patricia Nas worked as manicurists in New Look Barber
Shop located at 651 P. Paterno Street, Quiapo, Manila owned by private respondent Lao Enteng Co.
Inc.. Petitioner Nas alleged that she also worked as watcher and marketer of private respondent.

Petitioners claim that at the start of their employment with the New Look Barber Shop, it was a single
proprietorship owned and managed by Mr. Vicente Lao. In or about January 1982, the children of
Vicente Lao organized a corporation which was registered with the Securities and Exchange
Commission as Lao Enteng Co. Inc. with Trinidad Ong as President of the said corporation. Upon its
incorporation, the respondent company took over the assets, equipment, and properties of the New
Look Barber Shop and continued the business. All the petitioners were allowed to continue working
with the new company until April 15, 1995 when respondent Trinidad Ong informed them that the
building wherein the New Look Barber Shop was located had been sold and that their services were
no longer needed.2

On April 28, 1995, petitioners filed with the Arbitration Branch of the NLRC, a complaint for illegal
dismissal, illegal deduction, separation pay, non-payment of 13th month pay, and salary differentials.
Only petitioner Nas asked for payment of salary differentials as she alleged that she was paid a daily
wage of P25.00 throughout her period of employment. The petitioners also sought the refund of the
P1.00 that the respondent company collected from each of them daily as salary of the sweeper of
the barber shop.

Private respondent in its position paper averred that the petitioners were joint venture partners and
were receiving fifty percent commission of the amount charged to customers. Thus, there was no
employer-employee relationship between them and petitioners. And assuming arguendo, that there
was an employer-employee relationship, still petitioners are not entitled to separation pay because
the cessation of operations of the barber shop was due to serious business losses.

Respondent Trinidad Lao Ong, President of respondent Lao Enteng Co. Inc., specifically stated in
her affidavit dated September 06, 1995 that Lao Enteng Company, Inc. did not take over the
management of the New Look Barber Shop, that after the death Lao Enteng petitioner were verbally
informed time and again that the partnership may fold up anytime because nobody in the family had
the time to be at the barber shop to look after their interest; that New Look Barber Shop had always
been a joint venture partnership and the operation and management of the barber shop was left
entirely to petitioners; that her father's contribution to the joint venture included the place of
business, payment for utilities including electricity, water, etc. while petitioners as industrial partners,
supplied the labor; and that the barber shop was allowed to remain open up to April 1995 by the
children because they wanted to give the partners a chance at making it work. Eventually, they were
forced to close the barber shop because they continued to lose money while petitioners earned from
it. Trinidad also added that private respondents had no control over petitioners who were free to
come and go as they wished. Admittedly too by petitioners they received fifty percent to sixty percent
of the gross paid by customers. Trinidad explained that some of the petitioners were allowed to
register with the Social Security System as employees of Lao Enteng Company, Inc. only as an act
of accommodation. All the SSS contributions were made by petitioners. Moreover, Osias Corporal,
Elpidio Lacap and Teresita Flores were not among those registered with the Social Security System.
Lastly, Trinidad avers that without any employee-employer relationship petitioners claim for 13th
month pay and separation pay have no basis in fact and in law.3

In a Decision dated September 28, 1995, Labor Arbiter Potenciano S. Cañizares, Jr. ordered the
dismissal of the complaint on the basis of his findings that the complainants and the respondents
were engaged in a joint venture and that there existed no employer-employee relation between
them. The Labor Arbiter also found that the barber shop was closed due to serious business losses
or financial reverses and consequently declared that the law does not compel the establishment to
pay separation pay to whoever were its employees.4

On appeal, NLRC affirmed the said findings of the Labor Arbiter and dismissed the complaint for
want of merit, ratiocinating thus:

Indeed, complainants failed to show the existence of employer-employee relationship under the
fourway test established by the Supreme Court. It is a common practice in the Barber Shop industry
that barbers supply their own scissors and razors and they split their earnings with the owner of the
barber shop. The only capital of the owner is the place of work whereas the barbers provide the skill
and expertise in servicing customers. The only control exercised by the owner of the barber shop is
to ascertain the number of customers serviced by the barber in order to determine the sharing of
profits. The barbers maybe characterized as independent contractors because they are under the
control of the barber shop owner only with respect to the result of the work, but not with respect to
the details or manner of performance. The barbers are engaged in an independent calling requiring
special skills available to the public at large.5

Its motion for reconsideration denied in the Resolution6 dated March 5, 1997, petitioners filed the
instant petition assigning that the NLRC committed grave abuse of discretion in:

I. ARBITRARILY DISREGARDING SUBSTANTIAL EVIDENCE PROVING THAT

PETITIONERS WERE EMPLOYEES OF RESPONDENT COMPANY IN RULING THAT
PETITIONERS WERE INDEPENDENT CONTRACTORS.

II. NOT HOLDING THAT PETITIONERS WERE ILLEGALLY DISMISSED AND IN NOT
AWARDING THEIR MONEY CLAIMS.7

Petitioners principally argue that public respondent NLRC gravely erred in declaring that the
petitioners were independent contractors. They contend that they were employees of the respondent
company and cannot be considered as independent contractors because they did not carry on an
independent business. They did not cut hair, manicure, and do their work in their own manner and
method. They insist they were not free from the control and direction of private respondents in all
matters, and their services were engaged by the respondent company to attend to its customers in
its barber shop. Petitioners also stated that, individually or collectively, they do not have substantial
capital nor investments in tools, equipments, work premises and other materials necessary in the
conduct of the barber shop. What the barbers owned were merely combs, scissors, and razors,
while the manicurists owned only nail cutters, nail polishes, nippers and cuticle removers. By no
standard can these be considered "substantial capital" necessary to operate a barbers shop.

Finally, petitioners fault the NLRC for arbitrarily disregarding substantial evidence on record showing
that petitioners Pedro Tolentino, Manuel Caparas, Simplicio Pedelos, and Patricia Nas were
registered with the Social Security System as regular employees of the respondent company. The
SSS employment records in common show that the employer's ID No. of Vicente Lao/Barber and
Pawn Shop was 03-0606200-1 and that of the respondent company was 03-8740074-7. All the
foregoing entries in the SSS employment records were painstakingly detailed by the petitioners in
their position paper and in their memorandum appeal but were arbitrarily ignored first by the Labor
Arbiter and then by the respondent NLRC which did not even mention said employment records in
its questioned decision.

We found petition is impressed with merit.

In our view, this case is an exception to the general rule that findings of facts of the NLRC are to be
accorded respect and finality on appeal. We have long settled that this Court will not uphold
erroneous conclusions unsupported by substantial evidence.8 We must also stress that where the
findings of the NLRC contradict those of the labor arbiter, the Court, in the exercise of its equity
jurisdiction, may look into the records of the case and reexamine the questioned findings.9

The issues raised by petitioners boil down to whether or not an employer-employee relationship
existed between petitioners and private respondent Lao Enteng Company, Inc. The Labor Arbiter
has concluded that the petitioners and respondent company were engaged in a joint venture. The
NLRC concluded that the petitioners were independent contractors.

The Labor Arbiter's findings that the parties were engaged in a joint venture is unsupported by any
documentary evidence. It should be noted that aside from the self-serving affidavit of Trinidad Lao
Ong, there were no other evidentiary documents, nor written partnership agreements presented. We
have ruled that even the sharing of proceeds for every job of petitioners in the barber shop does not
mean they were not employees of the respondent company.10

Petitioner aver that NLRC was wrong when it concluded that petitioners were independent
contractors simply because they supplied their own working implements, shared in the earnings of
the barber shop with the owner and chose the manner of performing their work. They stressed that
as far as the result of their work was concerned the barber shop owner controlled them.

An independent contractor is one who undertakes "job contracting", i.e., a person who (a) 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 (b) has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of the
business.11

Juxtaposing this provision vis-à-vis the facts of this case, we are convinced that petitioners are not
"independent contractors". They did not carry on an independent business. Neither did they
undertake cutting hair and manicuring nails, on their own as their responsibility, and in their own
manner and method. The services of the petitioners were engaged by the respondent company to
attend to the needs of its customers in its barber shop. More importantly, the petitioners, individually
or collectively, did not have a substantial capital or investment in the form of tools, equipment, work
premises and other materials which are necessary in the conduct of the business of the respondent
company. What the petitioners owned were only combs, scissors, razors, nail cutters, nail polishes,
the nippers - nothing else. By no standard can these be considered substantial capital necessary to
operate a barber shop. From the records, it can be gleaned that petitioners were not given work
assignments in any place other than at the work premises of the New Look Barber Shop owned by
the respondent company. Also, petitioners were required to observe rules and regulations of the
respondent company pertaining, among other things, observance of daily attendance, job
performance, and regularity of job output. The nature of work performed by were clearly directly
related to private respondent's business of operating barber shops. Respondent company did not
dispute that it owned and operated three (3) barber shops. Hence, petitioners were not independent
contractors.

Did an employee-employer relationship exist between petitioners and private respondent? The
following elements must be present for an employer-employee relationship to exist: (1) the selection
and engagement of the workers; (2) power of dismissal; (3) the payment of wages by whatever
means; and (4) the power to control the worker's conduct, with the latter assuming primacy in the
overall consideration. Records of the case show that the late Vicente Lao engaged the services of
the petitioners to work as barbers and manicurists in the New Look Barber Shop, then a single
proprietorship owned by him; that in January 1982, his children organized a corporation which they
registered with the Securities and Exchange Commission as Lao Enteng Company, Inc.; that upon
its incorporation, it took over the assets, equipment, and properties of the New Look Barber Shop
and continued the business; that the respondent company retained the services of all the petitioners
and continuously paid their wages. Clearly, all three elements exist in petitioners' and private
respondent's working arrangements.

Private respondent claims it had no control over petitioners. The power to control refers to the
1âwphi1

existence of the power and not necessarily to the actual exercise thereof, nor is it essential for the
employer to actually supervise the performance of duties of the employee. It is enough that the
employer has the right to wield that power.12 As to the "control test", the following facts indubitably
reveal that respondent company wielded control over the work performance of petitioners, in that: (1)
they worked in the barber shop owned and operated by the respondents; (2) they were required to
report daily and observe definite hours of work; (3) they were not free to accept other employment
elsewhere but devoted their full time working in the New Look Barber Shop for all the fifteen (15)
years they have worked until April 15, 1995; (4) that some have worked with respondents as early as
in the 1960's; (5) that petitioner Patricia Nas was instructed by the respondents to watch the other
six (6) petitioners in their daily task. Certainly, respondent company was clothed with the power to
dismiss any or all of them for just and valid cause. Petitioners were unarguably performing work
necessary and desirable in the business of the respondent company.

While it is no longer true that membership to SSS is predicated on the existence of an employee-
employer relationship since the policy is now to encourage even the self-employed dressmakers,
manicurists and jeepney drivers to become SSS members, we could not agree with private
respondents that petitioners were registered with the Social Security System as their employees only
as an accommodation. As we have earlier mentioned private respondent showed no proof to their
claim that petitioners were the ones who solely paid all SSS contributions. It is unlikely that
respondents would report certain persons as their workers, pay their SSS premium as well as their
wages if it were not true that they were indeed their employees.13

Finally, we agree with the labor arbiter that there was sufficient evidence that the barber shop was
closed due to serious business losses and respondent company closed its barber shop because the
building where the barber shop was located was sold. An employer may adopt policies or changes
or adjustments in its operations to insure profit to itself or protect investment of its stockholders. In
the exercise of such management prerogative, the employer may merge or consolidate its business
with another, or sell or dispose all or substantially all of its assets and properties which may bring
about the dismissal or termination of its employees in the process.14

Prescinding from the above, we hold that the seven petitioners are employees of the private
respondent company; as such, they are to be accorded the benefits provided under the Labor Code,
specifically Article 283 which mandates the grant of separation pay in case of closure or cessation of
employer's business which is equivalent to one (1) month pay for every year of service.15 Likewise,
they are entitled to the protection of minimum wage statutes. Hence, the separation pay due them
may be computed on the basis of the minimum wage prevailing at the time their services were
terminated by the respondent company. The same is true with respect to the 13th month pay. The
Revised Guidelines on the Implementation of the 13th Month Pay Law states that "all rank and file
employees are now entitled to a 13th month pay regardless of the amount of basic salary that they
receive in a month. Such employees are entitled to the benefit regardless of their designation or
employment status, and irrespective of the method by which their wages are paid, provided that they
have worked for at least one (1) month during a calendar year" and so all the seven (7) petitioners
who were not paid their 13th month pay must be paid accordingly.16

Anent the other claims of the petitioners, such as the P10,000.00 as penalty for non-compliance with
procedural process; P10,000.00 as moral damages; refund of P1.00 per day paid to the sweeper;
salary differentials for petitioner Nas; attorney's fees), we find them without basis.

IN VIEW WHEREOF, the petition is GRANTED. The public respondent's Decision dated October 17,
1996 and Resolution dated March 05, 1997 are SET ASIDE. Private respondents are hereby
ordered to pay, severally and jointly, the seven (7) petitioners their (1) 13th month pay and (2)
separation pay equivalent to one month pay for every year of service, to be computed at the then
prevailing minimum wage at the time of their actual termination which was April 15, 1995.

Costs against private respondents.

SO ORDERED.

G.R. No. 120969 January 22, 1998

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 FIMS, respondents.

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 P539.00 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 supervisors, 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 dismissal6 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 association 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-tired "Narito and 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 respondent.
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 complainant 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 attorney's 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 xxx 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 NLRC's 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 NLRC's 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 NLRC's 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 NLRC's 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
NLRC's 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 respondent further narrated that VIVA's 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 the 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. — . . .

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 "hiresthe 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 employer's power to control
of the employee's conduct, the most important element is the employer's control of the
employee's 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 . . .

The ensure that qualify 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
Company's 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 PRODUCER's 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 supplied).

VIVA's 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 director's
control, and not VIVA's direction. The director merely instructs petitioners on how to better
comply with VIVA's 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 "supervisors" and "Top Management" can only refer to the "supervisors" and
"Top Management" of VIVA. By commanding crew members to observe the rules and
regulations promulgated by VIVA, the appointment slips only emphasize VIVA's 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.

V
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,

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)

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 VIVA's 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 VIVA's 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 if VIVA's 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

FILM DATE DATE ASSOCIATE

STARTED COMPLETED PRODUCER

LOVE AT FIRST SIGHT 1/3/90 2/16/90 MARIVIC ONG

PAIKOT-IKOT 1/26/90 3/11/90 EDITH MANUEL

ROCKY & ROLLY 2/13/90 3/29/90 M. ONG

PAIKOT-IKOT (addl. 1/2) 3/12/90 4/3/90 E. MANUEL

ROCKY & ROLLY (2nd contract) 4/6/90 5/20/90 M. ONG

NARDONG TOOTHPICK 4/4/90 5/18/90 JUN CHING

BAKIT KAY TAGAL NG SANDALI 6/26/90 10/20/90 E. MANUEL

BAKIT KAY TAGAL (2nd contract) 8/10/90 9/23/90 E. MANUEL

HINUKAY KO NA ANG LIBINGAN 9/6/90 10/20/90 JUN CHING

MO
 MAGING SINO KA MAN 10/25/90 12/8/90 SANDY STA. MARIA

M. SINO KA MAN (2nd contract) 12/9/90 1/22/91 SANDY S

NOEL JUICO 1/29/91 3/14/90 JUN CHING

NOEL JUICO (2nd contract) 3/15/91 4/6/91 JUN CHING

ROBIN GOOD 5/7/91 6/20/91 M. ONG

UTOL KONG HOODLUM # 1 6/23/91 8/6/91 JUN CHING

KAPUTOL NG ISANG AWIT 8/18/91 10/2/91 SANDY S.

DARNA 10/4/91 11/18/91 E. MANUEL

DARNA (addl. 1/2) 11/20/91 12/12/91 E. MANUEL

MAGNONG REHAS 12/13/91 1/27/92 BOBBY GRIMALT

M. REHAS (2nd contract) 1/28/92 3/12/92 B. GRIMALT

HIRAM NA MUKHA 3/15/92 4/29/92 M. ONG

HIRAM (2nd contract) 5/1/92 6/14/92 M. ONG

KAHIT AKO'Y BUSABOS 5/28/92 7/7/92 JERRY OHARA

SIGAW NG PUSO 7/1/92 8/4/92 M. ONG

SIGAW (addl. 1/2) 8/15/92 9/5/92 M. ONG

NGAYON AT KAILANMAN 9/6/92 10/20/92 SANDY STA. MARIA

While Maraguinot was a member of Shooting Unit III, which made the following movies
(Annex "4-A" of Respondents' Position Paper; OR, 29):

FILM DATE DATE ASSOCIATE

STARTED COMPLETED PRODUCER
GUMAPANG KA SA LUSAK 1/27/90 3/12/90 JUN CHING
PETRANG KABAYO 2/19/90 4/4/90 RUTH GRUTA
LUSAK (2nd contract) 3/14/90 4/27/90 JUN CHING
P. KABAYO (Addl 1/2 contract) 4/21/90 5/13/90 RUTH GRUTA
BADBOY 6/15/90 7/29/90 EDITH MANUEL
BADBOY (2nd contract) 7/30/90 8/21/90 E. MANUEL
ANAK NI BABY AMA 9/2/90 10/16/90 RUTH GRUTA
A.B. AMA (addl 1/2) 10/17/90 11/8/90 RUTH GRUTA
A.B. AMA (addl 2nd 1/2) 11/9/90 12/1/90 R. GRUTA
BOYONG MANALAC 11/30/90 1/14/91 MARIVIC ONG
HUMANAP KA NG PANGET 1/20/91 3/5/91 EDITH MANUEL
H. PANGET(2nd contract) 3/10/91 4/23/91 E. MANUEL
 B. MANALAC (2nd contract) 5/22/91 7/5/91 M. ONG
ROBIN GOOD (2nd contract) 7/7/91 8/20/91 M. ONG
PITONG GAMOL 8/30/91 10/13/91 M. ONG
P. GAMOL (2nd contract) 10/14/91 11/27/91 M. ONG
GREASE GUN GANG 12/28/91 2/10/92 E. MANUEL
ALABANG GIRLS (1/2 contract) 3/4/92 3/26/92 M. ONG
BATANG RILES 3/9/92 3/30/92 BOBBY GRIMALT
UTOL KONG HOODLUM (part 2) 3/22/92 5/6/92 B. GRIMALT
UTOL (addl. 1/2 contract) 5/7/92 5/29/92 B. GRIMALT
MANDURUGAS (2nd contract) 5/25/92 7/8/92 JERRY OHARA
MAHIRAP MAGING POGI 7/2/92 8/15/92 M. ONG

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: . . .

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 of 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 vase
of Industrial-Commercial-Agricultural Workers Organization v. CIR [16 SCRA
526, 567-568 (1966)] which deals with regular seasonal employees. There we
held: . . .
 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 (emphasis 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 employer's
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 Court's 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 employer's 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 01 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.

G.R. No. 138051 June 10, 2004

JOSE Y. SONZA, petitioner,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari1 assailing the 26 March 1999 Decision2 of the
Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza
("SONZA"). The Court of Appeals affirmed the findings of the National Labor Relations Commission
("NLRC"), which affirmed the Labor Arbiter’s dismissal of the case for lack of jurisdiction.

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement

("Agreement") with the Mel and Jay Management and Development Corporation ("MJMDC"). ABS-
CBN was represented by its corporate officers while MJMDC was represented by SONZA, as
President and General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and Treasurer.
Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZA’s services exclusively
to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would
render to ABS-CBN, as follows:

a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.3

ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of ₱310,000 for the first year and
₱317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on
the 10th and 25th days of the month.

On 1 April 1996, SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered into by your
goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA.

As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning
his programs and career. We consider these acts of the station violative of the Agreement
and the station as in breach thereof. In this connection, we hereby serve notice of rescission
of said Agreement at our instance effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount
stipulated in paragraph 7 of the Agreement but reserves the right to seek recovery of the
other benefits under said Agreement.

Thank you for your attention.

Very truly yours,

(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and
Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN did not
pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel
allowance and amounts due under the Employees Stock Option Plan ("ESOP").

On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZA’s monthly talent fees through his account at
PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account with
the same bank where ABS-CBN deposited SONZA’s talent fees and other payments due him under
the Agreement.
In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to dismiss and directed
the parties to file their respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of
respondent company until April 15, 1996 and that he was not paid certain claims, it is
sufficient enough as to confer jurisdiction over the instant case in this Office. And as to
whether or not such claim would entitle complainant to recover upon the causes of action
asserted is a matter to be resolved only after and as a result of a hearing. Thus, the
respondent’s plea of lack of employer-employee relationship may be pleaded only as a
matter of defense. It behooves upon it the duty to prove that there really is no employer-
employee relationship between it and the complainant.

The Labor Arbiter then considered the case submitted for resolution. The parties submitted their
position papers on 24 February 1997.

On 11 March 1997, SONZA filed a Reply to Respondent’s Position Paper with Motion to Expunge
Respondent’s Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBN’s
witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the
prevailing practice in the television and broadcast industry is to treat talents like SONZA as
independent contractors.

The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of
jurisdiction.6 The pertinent parts of the decision read as follows:

xxx

While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of the
contract of a talent," it stands to reason that a "talent" as above-described cannot be
considered as an employee by reason of the peculiar circumstances surrounding the
engagement of his services.

It must be noted that complainant was engaged by respondent by reason of his peculiar
skills and talent as a TV host and a radio broadcaster. Unlike an ordinary employee,
he was free to perform the services he undertook to render in accordance with his
own style. The benefits conferred to complainant under the May 1994 Agreement are
certainly very much higher than those generally given to employees. For one, complainant
Sonza’s monthly talent fees amount to a staggering ₱317,000. Moreover, his engagement as
a talent was covered by a specific contract. Likewise, he was not bound to render eight (8)
hours of work per day as he worked only for such number of hours as may be necessary.

The fact that per the May 1994 Agreement complainant was accorded some benefits
normally given to an employee is inconsequential. Whatever benefits complainant
enjoyed arose from specific agreement by the parties and not by reason of employer-
employee relationship. As correctly put by the respondent, "All these benefits are merely
talent fees and other contractual benefits and should not be deemed as ‘salaries, wages
and/or other remuneration’ accorded to an employee, notwithstanding the nomenclature
appended to these benefits. Apropos to this is the rule that the term or nomenclature given to
a stipulated benefit is not controlling, but the intent of the parties to the Agreement conferring
such benefit."

The fact that complainant was made subject to respondent’s Rules and Regulations,
likewise, does not detract from the absence of employer-employee relationship. As
 held by the Supreme Court, "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 to achieve it." (Insular Life Assurance Co., Ltd.
vs. NLRC, et al., G.R. No. 84484, November 15, 1989).

x x x (Emphasis supplied)7

SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming the
Labor Arbiter’s decision. SONZA filed a motion for reconsideration, which the NLRC denied in its
Resolution dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals
assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals
rendered a Decision dismissing the case.8

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRC’s finding that no employer-employee relationship existed
between SONZA and ABS-CBN. Adopting the NLRC’s decision, the appellate court quoted the
following findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract
merely as an agent of complainant Sonza, the principal. By all indication and as the law puts
it, the act of the agent is the act of the principal itself. This fact is made particularly true in this
case, as admittedly MJMDC ‘is a management company devoted exclusively to managing
the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco.’ (Opposition
to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza and
MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of the
May 1994 Agreement which specifically referred to MJMDC as the ‘AGENT’. As a matter of
fact, when complainant herein unilaterally rescinded said May 1994 Agreement, it was
MJMDC which issued the notice of rescission in behalf of Mr. Sonza, who himself signed the
same in his capacity as President.

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that
historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is only in
the May 1994 Agreement, which is the latest Agreement executed between ABS-CBN and
Mr. Sonza, that MJMDC figured in the said Agreement as the agent of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere ‘labor-only’ contractor of ABS-CBN

such that there exist[s] employer-employee relationship between the latter and Mr. Sonza.
On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS-CBN, but of the
talent/contractor Mr. Sonza, as expressly admitted by the latter and MJMDC in the May 1994
Agreement.
 It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to
the regular courts, the same being in the nature of an action for alleged breach of contractual
obligation on the part of respondent-appellee. As squarely apparent from complainant-
appellant’s Position Paper, his claims for compensation for services, ‘13th month pay’,
signing bonus and travel allowance against respondent-appellee are not based on the Labor
Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds
under Stock Purchase Agreement are based on the latter. A portion of the Position Paper of
complainant-appellant bears perusal:

‘Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually
bound itself to pay complainant a signing bonus consisting of shares of stocks…with
FIVE HUNDRED THOUSAND PESOS (₱500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an amount
not lower than the amount he was receiving prior to effectivity of (the) Agreement’.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a

commutable travel benefit amounting to at least One Hundred Fifty Thousand Pesos
(₱150,000.00) per year.’

Thus, it is precisely because of complainant-appellant’s own recognition of the fact that his
contractual relations with ABS-CBN are founded on the New Civil Code, rather than the
Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant served
upon the latter a ‘notice of rescission’ of Agreement with the station, per his letter dated April
1, 1996, which asserted that instead of referring to unpaid employee benefits, ‘he is waiving
and renouncing recovery of the remaining amount stipulated in paragraph 7 of the
Agreement but reserves the right to such recovery of the other benefits under said
Agreement.’ (Annex 3 of the respondent ABS-CBN’s Motion to Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or
the Stock Purchase Agreement by respondent-appellee that complainant-appellant filed his
complaint. Complainant-appellant’s claims being anchored on the alleged breach of contract
on the part of respondent-appellee, the same can be resolved by reference to civil law and
not to labor law. Consequently, they are within the realm of civil law and, thus, lie with the
regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs. Villarama, 238
SCRA 267, 21 November 1994, an action for breach of contractual obligation is
intrinsically a civil dispute.9 (Emphasis supplied)

The Court of Appeals ruled that the existence of an employer-employee relationship between
SONZA and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve.10 A
special civil action for certiorari extends only to issues of want or excess of jurisdiction of the
NLRC.11 Such action cannot cover an inquiry into the correctness of the evaluation of the evidence
which served as basis of the NLRC’s conclusion.12 The Court of Appeals added that it could not re-
examine the parties’ evidence and substitute the factual findings of the NLRC with its own.13

The Issue

In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRC’S DECISION

AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED
 BETWEEN SONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW,
JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING.14

The Court’s Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming
the NLRC ruling which upheld the Labor Arbiter’s dismissal of the case for lack of jurisdiction.

The present controversy is one of first impression. Although Philippine labor laws and jurisprudence
define clearly the elements of an employer-employee relationship, this is the first time that the Court
will resolve the nature of the relationship between a television and radio station and one of its
"talents." There is no case law stating that a radio and television program host is an employee of the
broadcast station.

The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a known
television and radio personality, and ABS-CBN, one of the biggest television and radio networks in
the country.

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee
of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because
SONZA was an independent contractor.

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courts accord

the factual findings of the Labor Arbiter and the NLRC not only respect but also finality when
supported by substantial evidence.15 Substantial evidence means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion.16 A party cannot prove the
absence of substantial evidence by simply pointing out that there is contrary evidence on record,
direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in
determining where the weight of evidence lies or what evidence is credible.17

SONZA maintains that all essential elements of an employer-employee relationship are present in
this case. Case law has consistently held that the elements of an employer-employee relationship
are: (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 on the means and methods by
which the work is accomplished.18 The last element, the so-called "control test", is the most
important element.19

A. Selection and Engagement of Employee

ABS-CBN engaged SONZA’s services to co-host its television and radio programs because of
SONZA’s peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by
respondent in specifically selecting and hiring complainant over other broadcasters of possibly
similar experience and qualification as complainant belies respondent’s claim of independent
contractorship."

Independent contractors often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of
his unique skills, talent and celebrity status not possessed by ordinary employees, is a
circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did
not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into
the Agreement with SONZA but would have hired him through its personnel department just like any
other employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his
status. We must consider all the circumstances of the relationship, with the control test being the
most important element.

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC.
SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN.
SONZA also points out that ABS-CBN granted him benefits and privileges "which he would not have
enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the
Agreement. If SONZA were ABS-CBN’s employee, there would be no need for the parties to
stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay"20 which the law
automatically incorporates into every employer-employee contract.21Whatever benefits SONZA
enjoyed arose from contract and not because of an employer-employee relationship.22

SONZA’s talent fees, amounting to ₱317,000 monthly in the second and third year, are so huge and
out of the ordinary that they indicate more an independent contractual relationship rather than an
employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely
because of SONZA’s unique skills, talent and celebrity status not possessed by ordinary employees.
Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such
huge talent fees for his services. The power to bargain talent fees way above the salary scales of
ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual
relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of
SONZA as an independent contractor. The parties expressly agreed on such mode of payment.
Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over
any talent fee accruing under the Agreement.

C. Power of Dismissal

For violation of any provision of the Agreement, either party may terminate their relationship. SONZA
failed to show that ABS-CBN could terminate his services on grounds other than breach of contract,
such as retrenchment to prevent losses as provided under labor laws.23

During the life of the Agreement, ABS-CBN agreed to pay SONZA’s talent fees as long as "AGENT
and Jay Sonza shall faithfully and completely perform each condition of this Agreement."24 Even if it
suffered severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained
obligated to pay SONZA’s talent fees during the life of the Agreement. This circumstance indicates
an independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him
his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying
SONZA’s talent fees during the remaining life of the Agreement even if ABS-CBN cancelled
SONZA’s programs through no fault of SONZA.25

SONZA assails the Labor Arbiter’s interpretation of his rescission of the Agreement as an admission
that he is not an employee of ABS-CBN. The Labor Arbiter stated that "if it were true that
complainant was really an employee, he would merely resign, instead." SONZA did actually resign
from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZA’s letter
clearly bears this out.26 However, the manner by which SONZA terminated his relationship with ABS-
CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does not
determine his status as employee or independent contractor.

D. Power of Control

Since there is no local precedent on whether a radio and television program host is an employee or
an independent contractor, we refer to foreign case law in analyzing the present case. The United
States Court of Appeals, First Circuit, recently held in Alberty-Vélez v. Corporación De Puerto
Rico Para La Difusión Pública ("WIPR")27 that a television program host is an independent
contractor. We quote the following findings of the U.S. court:

Several factors favor classifying Alberty as an independent contractor. First, a television

actress is a skilled position requiring talent and training not available on-the-job. x x x
In this regard, Alberty possesses a master’s degree in public communications and
journalism; is trained in dance, singing, and modeling; taught with the drama department at
the University of Puerto Rico; and acted in several theater and television productions prior to
her affiliation with "Desde Mi Pueblo." Second, Alberty provided the "tools and
instrumentalities" necessary for her to perform. Specifically, she provided, or obtained
sponsors to provide, the costumes, jewelry, and other image-related supplies and services
necessary for her appearance. Alberty disputes that this factor favors independent contractor
status because WIPR provided the "equipment necessary to tape the show." Alberty’s
argument is misplaced. The equipment necessary for Alberty to conduct her job as host of
"Desde Mi Pueblo" related to her appearance on the show. Others provided equipment for
filming and producing the show, but these were not the primary tools that Alberty used to
perform her particular function. If we accepted this argument, independent contractors could
never work on collaborative projects because other individuals often provide the equipment
required for different aspects of the collaboration. x x x

Third, WIPR could not assign Alberty work in addition to filming "Desde Mi
Pueblo." Alberty’s contracts with WIPR specifically provided that WIPR hired her
"professional services as Hostess for the Program Desde Mi Pueblo." There is no evidence
that WIPR assigned Alberty tasks in addition to work related to these tapings. x x
x28 (Emphasis supplied)

Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor. The control test is the most important test our courts apply in
distinguishing an employee from an independent contractor.29 This test is based on the extent of
control the hirer exercises over a worker. The greater the supervision and control the hirer exercises,
the more likely the worker is deemed an employee. The converse holds true as well – the less
control the hirer exercises, the more likely the worker is considered an independent contractor.30

First, SONZA contends that ABS-CBN exercised control over the means and methods of his work.
SONZA’s argument is misplaced. ABS-CBN engaged SONZA’s services specifically to co-host the
"Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his work,
SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television,
and sounded on radio were outside ABS-CBN’s control. SONZA did not have to render eight hours
of work per day. The Agreement required SONZA to attend only rehearsals and tapings of the
shows, as well as pre- and post-production staff meetings.31 ABS-CBN could not dictate the contents
of SONZA’s script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-
CBN or its interests.32 The clear implication is that SONZA had a free hand on what to say or discuss
in his shows provided he did not attack ABS-CBN or its interests.

We find that ABS-CBN was not involved in the actual performance that produced the finished
product of SONZA’s work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN
merely reserved the right to modify the program format and airtime schedule "for more effective
programming."34 ABS-CBN’s sole concern was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of
SONZA’s work.

SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-CBN’s power over
the means and methods of the performance of his work. Although ABS-CBN did have the option not
to broadcast SONZA’s show, ABS-CBN was still obligated to pay SONZA’s talent fees... Thus, even
if ABS-CBN was completely dissatisfied with the means and methods of SONZA’s performance of
his work, or even with the quality or product of his work, ABS-CBN could not dismiss or even
discipline SONZA. All that ABS-CBN could do is not to broadcast SONZA’s show but ABS-CBN
must still pay his talent fees in full.35

Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the obligation to
continue paying in full SONZA’s talent fees, did not amount to control over the means and methods
of the performance of SONZA’s work. ABS-CBN could not terminate or discipline SONZA even if the
means and methods of performance of his work - how he delivered his lines and appeared on
television - did not meet ABS-CBN’s approval. This proves that ABS-CBN’s control was limited only
to the result of SONZA’s work, whether to broadcast the final product or not. In either case, ABS-
CBN must still pay SONZA’s talent fees in full until the expiry of the Agreement.

In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that
vaudeville performers were independent contractors although the management reserved the right to
delete objectionable features in their shows. Since the management did not have control over the
manner of performance of the skills of the artists, it could only control the result of the work by
deleting objectionable features.37

SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment
and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broadcast the
"Mel & Jay" programs. However, the equipment, crew and airtime are not the "tools and
instrumentalities" SONZA needed to perform his job. What SONZA principally needed were his
talent or skills and the costumes necessary for his appearance.38Even though ABS-CBN provided
SONZA with the place of work and the necessary equipment, SONZA was still an independent
contractor since ABS-CBN did not supervise and control his work. ABS-CBN’s sole concern was for
SONZA to display his talent during the airing of the programs.39

A radio broadcast specialist who works under minimal supervision is an independent

contractor.40 SONZA’s work as television and radio program host required special skills and talent,
which SONZA admittedly possesses. The records do not show that ABS-CBN exercised any
supervision and control over how SONZA utilized his skills and talent in his shows.
Second, SONZA urges us to rule that he was ABS-CBN’s employee because ABS-CBN subjected
him to its rules and standards of performance. SONZA claims that this indicates ABS-CBN’s control
"not only [over] his manner of work but also the quality of his work."

The Agreement stipulates that SONZA shall abide with the rules and standards of performance
"covering talents"41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules
and standards of performance prescribed for employees of ABS-CBN. The code of conduct imposed
on SONZA under the Agreement refers to the "Television and Radio Code of the Kapisanan ng mga
Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code
of Ethics."42 The KBP code applies to broadcasters, not to employees of radio and television
stations. Broadcasters are not necessarily employees of radio and television stations. Clearly, the
rules and standards of performance referred to in the Agreement are those applicable to talents and
not to employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an
employee of the former.43 In this case, SONZA failed to show that these rules controlled his
performance. We find that these general rules are merely guidelines towards the achievement of
the mutually desired result, which are top-rating television and radio programs that comply with
standards of the industry. We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party
in relation to the services being rendered may be accorded the effect of establishing an employer-
employee relationship. The facts of this case fall squarely with the case of Insular Life Assurance
Co., Ltd. vs. NLRC. In said case, we held that:

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.44

The Vaughan case also held that one could still be an independent contractor although the hirer
reserved certain supervision to insure the attainment of the desired result. The hirer, however, must
not deprive the one hired from performing his services according to his own initiative.45

Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form of
control which ABS-CBN exercised over him.

This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an
employee of ABS-CBN. Even an independent contractor can validly provide his services exclusively
to the hiring party. In the broadcast industry, exclusivity is not necessarily the same as control.

The hiring of exclusive talents is a widespread and accepted practice in the entertainment
industry.46 This practice is not designed to control the means and methods of work of the talent, but
simply to protect the investment of the broadcast station. The broadcast station normally spends
substantial amounts of money, time and effort "in building up its talents as well as the programs they
appear in and thus expects that said talents remain exclusive with the station for a commensurate
period of time."47 Normally, a much higher fee is paid to talents who agree to work exclusively for a
particular radio or television station. In short, the huge talent fees partially compensates for
exclusivity, as in the present case.
MJMDC as Agent of SONZA

SONZA protests the Labor Arbiter’s finding that he is a talent of MJMDC, which contracted out his
services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an
employee of ABS-CBN. SONZA insists that MJMDC is a "labor-only" contractor and ABS-CBN is his
employer.

In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the
employee who is ostensibly under the employ of the "labor-only" contractor; and (3) the principal who
is deemed the real employer. Under this scheme, the "labor-only" contractor is the agent of the
principal. The law makes the principal responsible to the employees of the "labor-only contractor"
as if the principal itself directly hired or employed the employees.48 These circumstances are not
present in this case.

There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-
CBN. MJMDC merely acted as SONZA’s agent. The Agreement expressly states that MJMDC acted
as the "AGENT" of SONZA. The records do not show that MJMDC acted as ABS-CBN’s agent.
MJMDC, which stands for Mel and Jay Management and Development Corporation, is a corporation
organized and owned by SONZA and TIANGCO. The President and General Manager of MJMDC is
SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and managed
by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, who himself is
represented by MJMDC. That would make MJMDC the agent of both ABS-CBN and SONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to managing the

careers of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other
business, not even job contracting. MJMDC does not have any other function apart from acting as
agent of SONZA or TIANGCO to promote their careers in the broadcast and television industry.49

Policy Instruction No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8
January 1979 finally settled the status of workers in the broadcast industry. Under this policy, the
types of employees in the broadcast industry are the station and program employees.

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of
law. There is no legal presumption that Policy Instruction No. 40 determines SONZA’s status. A
mere executive issuance cannot exclude independent contractors from the class of service providers
to the broadcast industry. The classification of workers in the broadcast industry into only two groups
under Policy Instruction No. 40 is not binding on this Court, especially when the classification has no
basis either in law or in fact.

Affidavits of ABS-CBN’s Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando
Cruz without giving his counsel the

opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to

attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of
these witnesses as misleading and irrelevant.
While SONZA failed to cross-examine ABS-CBN’s witnesses, he was never prevented from denying
or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether to conduct a
formal (trial-type) hearing after the submission of the position papers of the parties, thus:

Section 3. Submission of Position Papers/Memorandum

xxx

These verified position papers shall cover only those claims and causes of action raised in
the complaint excluding those that may have been amicably settled, and shall be
accompanied by all supporting documents including the affidavits of their respective
witnesses which shall take the place of the latter’s direct testimony. x x x

Section 4. Determination of Necessity of Hearing. – Immediately after the submission of the

parties of their position papers/memorandum, the Labor Arbiter shall motu propio determine
whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and
for the purpose of making such determination, ask clarificatory questions to further elicit facts
or information, including but not limited to the subpoena of relevant documentary evidence, if
any from any party or witness.50

The Labor Arbiter can decide a case based solely on the position papers and the supporting
documents without a formal trial.51 The holding of a formal hearing or trial is something that the
parties cannot demand as a matter of right.52 If the Labor Arbiter is confident that he can rely on the
documents before him, he cannot be faulted for not conducting a formal trial, unless under the
particular circumstances of the case, the documents alone are insufficient. The proceedings before a
Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the
technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings
before a Labor Arbiter.

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries
to treat talents like SONZA as independent contractors. SONZA argues that if such practice exists, it
is void for violating the right of labor to security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution53 arises only if there is an
employer-employee relationship under labor laws. Not every performance of services for a fee
creates an employer-employee relationship. To hold that every person who renders services to
another for a fee is an employee - to give meaning to the security of tenure clause - will lead to
absurd results.

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as
independent contractors. The right to life and livelihood guarantees this freedom to contract as
independent contractors. The right of labor to security of tenure cannot operate to deprive an
individual, possessed with special skills, expertise and talent, of his right to contract as an
independent contractor. An individual like an artist or talent has a right to render his services without
any one controlling the means and methods by which he performs his art or craft. This Court will not
interpret the right of labor to security of tenure to compel artists and talents to render their services
only as employees. If radio and television program hosts can render their services only as
employees, the station owners and managers can dictate to the radio and television hosts what they
say in their shows. This is not conducive to freedom of the press.
Different Tax Treatment of Talents and Broadcasters

The National Internal Revenue Code ("NIRC")54 in relation to Republic Act No. 7716,55 as amended
by Republic Act No. 8241,56 treats talents, television and radio broadcasters differently. Under the
NIRC, these professionals are subject to the 10% value-added tax ("VAT") on services they render.
Exempted from the VAT are those under an employer-employee relationship.57 This different tax
treatment accorded to talents and broadcasters bolters our conclusion that they are independent
contractors, provided all the basic elements of a contractual relationship are present as in this case.

Nature of SONZA’s Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service
incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock
Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZA’s
claims are all based on the May 1994 Agreement and stock option plan, and not on the Labor
Code. Clearly, the present case does not call for an application of the Labor Code provisions but an
interpretation and implementation of the May 1994 Agreement. In effect, SONZA’s cause of action is
for breach of contract which is intrinsically a civil dispute cognizable by the regular courts.58

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26
March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 164156 September 26, 2006

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
MARLYN NAZARENO, MERLOU GERZON, JENNIFER DEIPARINE, and JOSEPHINE
LERASAN, respondents.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-
G.R. SP No. 76582 and the Resolution denying the motion for reconsideration thereof. The CA
affirmed the Decision2 and Resolution3 of the National Labor Relations Commission (NLRC) in NLRC
Case No. V-000762-2001 (RAB Case No. VII-10-1661-2001) which likewise affirmed, with
modification, the decision of the Labor Arbiter declaring the respondents Marlyn Nazareno, Merlou
Gerzon, Jennifer Deiparine and Josephine Lerasan as regular employees.

The Antecedents

Petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) is engaged in the broadcasting business

and owns a network of television and radio stations, whose operations revolve around the broadcast,
transmission, and relay of telecommunication signals. It sells and deals in or otherwise utilizes the
airtime it generates from its radio and television operations. It has a franchise as a broadcasting
company, and was likewise issued a license and authority to operate by the National
Telecommunications Commission.
Petitioner employed respondents Nazareno, Gerzon, Deiparine, and Lerasan as production
assistants (PAs) on different dates. They were assigned at the news and public affairs, for various
radio programs in the Cebu Broadcasting Station, with a monthly compensation of P4,000. They
were issued ABS-CBN employees’ identification cards and were required to work for a minimum of
eight hours a day, including Sundays and holidays. They were made to perform the following tasks
and duties:

a) Prepare, arrange airing of commercial broadcasting based on the daily operations log and digicart
of respondent ABS-CBN;

b) Coordinate, arrange personalities for air interviews;

c) Coordinate, prepare schedule of reporters for scheduled news reporting and lead-in or incoming
reports;

d) Facilitate, prepare and arrange airtime schedule for public service announcement and complaints;

e) Assist, anchor program interview, etc; and

f) Record, log clerical reports, man based control radio.4

Their respective working hours were as follows:

Name Time No. of Hours

1. Marlene Nazareno 4:30 A.M.-8:00 A.M. 7 ½

8:00 A.M.-12:00 noon

2. Jennifer Deiparine 4:30 A.M.-12:00M.N. (sic) 7 ½

3. Joy Sanchez 1:00 P.M.-10:00 P.M.(Sunday) 9 hrs.

9:00 A.M.-6:00 P.M. (WF) 9 hrs.

4. Merlou Gerzon 9:00 A.M.-6:00 P.M. 9 hrs.5

The PAs were under the control and supervision of Assistant Station Manager Dante J. Luzon, and
News Manager Leo Lastimosa.

On December 19, 1996, petitioner and the ABS-CBN Rank-and-File Employees executed a
Collective Bargaining Agreement (CBA) to be effective during the period from December 11, 1996 to
December 11, 1999. However, since petitioner refused to recognize PAs as part of the bargaining
unit, respondents were not included to the CBA.6

On July 20, 2000, petitioner, through Dante Luzon, issued a Memorandum informing the PAs that
effective August 1, 2000, they would be assigned to non-drama programs, and that the DYAB studio
operations would be handled by the studio technician. Thus, their revised schedule and other
assignments would be as follows:
Monday – Saturday

4:30 A.M. – 8:00 A.M. – Marlene Nazareno.

Miss Nazareno will then be assigned at the Research Dept.

From 8:00 A.M. to 12:00

4:30 P.M. – 12:00 MN – Jennifer Deiparine

Sunday

5:00 A.M. – 1:00 P.M. – Jennifer Deiparine

1:00 P.M. – 10:00 P.M. – Joy Sanchez

Respondent Gerzon was assigned as the full-time PA of the TV News Department reporting directly
to Leo Lastimosa.

On October 12, 2000, respondents filed a Complaint for Recognition of Regular Employment Status,
Underpayment of Overtime Pay, Holiday Pay, Premium Pay, Service Incentive Pay, Sick Leave Pay,
and 13th Month Pay with Damages against the petitioner before the NLRC. The Labor Arbiter
directed the parties to submit their respective position papers. Upon respondents’ failure to file their
position papers within the reglementary period, Labor Arbiter Jose G. Gutierrez issued an Order
dated April 30, 2001, dismissing the complaint without prejudice for lack of interest to pursue the
case. Respondents received a copy of the Order on May 16, 2001.7 Instead of re-filing their
complaint with the NLRC within 10 days from May 16, 2001, they filed, on June 11, 2001, an Earnest
Motion to Refile Complaint with Motion to Admit Position Paper and Motion to Submit Case For
Resolution.8 The Labor Arbiter granted this motion in an Order dated June 18, 2001, and forthwith
admitted the position paper of the complainants. Respondents made the following allegations:

1. Complainants were engaged by respondent ABS-CBN as regular and full-time employees for a
continuous period of more than five (5) years with a monthly salary rate of Four Thousand
(P4,000.00) pesos beginning 1995 up until the filing of this complaint on November 20, 2000.

Machine copies of complainants’ ABS-CBN Employee’s Identification Card and salary vouchers are
hereto attached as follows, thus:

I. Jennifer Deiparine:

Exhibit "A" - ABS-CBN Employee’s Identification Card

Exhibit "B", - ABS-CBN Salary Voucher from Nov.

Exhibit "B-1" & 1999 to July 2000 at P4,000.00

Exhibit "B-2"

Date employed: September 15, 1995

Length of service: 5 years & nine (9) months

II. Merlou Gerzon - ABS-CBN Employee’s Identification Card

Exhibit "C"

Exhibit "D"

Exhibit "D-1" &

Exhibit "D-2" - ABS-CBN Salary Voucher from March

1999 to January 2001 at P4,000.00

Date employed: September 1, 1995

Length of service: 5 years & 10 months

III. Marlene Nazareno

Exhibit "E" - ABS-CBN Employee’s Identification Card

Exhibit "E" - ABS-CBN Salary Voucher from Nov.

Exhibit "E-1" & 1999 to December 2000

Exhibit :E-2"

Date employed: April 17, 1996

Length of service: 5 years and one (1) month

IV. Joy Sanchez Lerasan

Exhibit "F" - ABS-CBN Employee’s Identification Card

Exhibit "F-1" - ABS-CBN Salary Voucher from Aug.

Exhibit "F-2" & 2000 to Jan. 2001

Exhibit "F-3"

Exhibit "F-4" - Certification dated July 6, 2000

Acknowledging regular status of

Complainant Joy Sanchez Lerasan

Signed by ABS-CBN Administrative

Officer May Kima Hife

Date employed: April 15, 1998

Length of service: 3 yrs. and one (1) month9

Respondents insisted that they belonged to a "work pool" from which petitioner chose persons to be
given specific assignments at its discretion, and were thus under its direct supervision and control
regardless of nomenclature. They prayed that judgment be rendered in their favor, thus:

WHEREFORE, premises considered, this Honorable Arbiter is most respectfully prayed, to issue an
order compelling defendants to pay complainants the following:

1. One Hundred Thousand Pesos (P100,000.00) each

and by way of moral damages;

2. Minimum wage differential;

3. Thirteenth month pay differential;

4. Unpaid service incentive leave benefits;

5. Sick leave;

6. Holiday pay;

7. Premium pay;

8. Overtime pay;

9. Night shift differential.

Complainants further pray of this Arbiter to declare them regular and permanent employees of
respondent ABS-CBN as a condition precedent for their admission into the existing union and
collective bargaining unit of respondent company where they may as such acquire or otherwise
perform their obligations thereto or enjoy the benefits due therefrom.

Complainants pray for such other reliefs as are just and equitable under the premises.10

For its part, petitioner alleged in its position paper that the respondents were PAs who basically
assist in the conduct of a particular program ran by an anchor or talent. Among their duties include
monitoring and receiving incoming calls from listeners and field reporters and calls of news sources;
generally, they perform leg work for the anchors during a program or a particular production. They
are considered in the industry as "program employees" in that, as distinguished from regular or
station employees, they are basically engaged by the station for a particular or specific program
broadcasted by the radio station. Petitioner asserted that as PAs, the complainants were issued
talent information sheets which are updated from time to time, and are thus made the basis to
determine the programs to which they shall later be called on to assist. The program assignments of
complainants were as follows:
a. Complainant Nazareno assists in the programs:

1) Nagbagang Balita (early morning edition)

2) Infor Hayupan

3) Arangkada (morning edition)

4) Nagbagang Balita (mid-day edition)

b. Complainant Deiparine assists in the programs:

1) Unzanith

2) Serbisyo de Arevalo

3) Arangkada (evening edition)

4) Balitang K (local version)

5) Abante Subu

6) Pangutana Lang

c. Complainant Gerzon assists in the program:

1) On Mondays and Tuesdays:

(a) Unzanith

(b) Serbisyo de Arevalo

(c) Arangkada (evening edition)

(d) Balitang K (local version)

(e) Abante Sugbu

(f) Pangutana Lang

2) On Thursdays

Nagbagang Balita

3) On Saturdays

(a) Nagbagang Balita

(b) Info Hayupan

(c) Arangkada (morning edition)

(d) Nagbagang Balita (mid-day edition)

4) On Sundays:

(a) Siesta Serenata

(b) Sunday Chismisan

(c) Timbangan sa Hustisya

(d) Sayri ang Lungsod

(e) Haranahan11

Petitioner maintained that PAs, reporters, anchors and talents occasionally "sideline" for other
programs they produce, such as drama talents in other productions. As program employees, a PA’s
engagement is coterminous with the completion of the program, and may be extended/renewed
provided that the program is on-going; a PA may also be assigned to new programs upon the
cancellation of one program and the commencement of another. As such program employees, their
compensation is computed on a program basis, a fixed amount for performance services irrespective
of the time consumed. At any rate, petitioner claimed, as the payroll will show, respondents were
paid all salaries and benefits due them under the law.12

Petitioner also alleged that the Labor Arbiter had no jurisdiction to involve the CBA and interpret the
same, especially since respondents were not covered by the bargaining unit.

On July 30, 2001, the Labor Arbiter rendered judgment in favor of the respondents, and declared
that they were regular employees of petitioner; as such, they were awarded monetary benefits. The
fallo of the decision reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered declaring the
complainants regular employees of the respondent ABS-CBN Broadcasting Corporation and
directing the same respondent to pay complainants as follows:

I - Merlou A. Gerzon P12,025.00

II - Marlyn Nazareno 12,025.00

III - Jennifer Deiparine 12,025.00

IV - Josephine Sanchez Lerazan 12,025.00

_________

P48,100.00

plus ten (10%) percent Attorney’s Fees or a TOTAL aggregate amount of PESOS: FIFTY TWO
THOUSAND NINE HUNDRED TEN (P52,910.00).
Respondent Veneranda C. Sy is absolved from any liability.

SO ORDERED.13

However, the Labor Arbiter did not award money benefits as provided in the CBA on his belief that
he had no jurisdiction to interpret and apply the agreement, as the same was within the jurisdiction of
the Voluntary Arbitrator as provided in Article 261 of the Labor Code.

Respondents’ counsel received a copy of the decision on August 29, 2001. Respondent Nazareno
received her copy on August 27, 2001, while the other respondents received theirs on September 8,
2001. Respondents signed and filed their Appeal Memorandum on September 18, 2001.

For its part, petitioner filed a motion for reconsideration, which the Labor Arbiter denied and
considered as an appeal, conformably with Section 5, Rule V, of the NLRC Rules of Procedure.
Petitioner forthwith appealed the decision to the NLRC, while respondents filed a partial appeal.

In its appeal, petitioner alleged the following:

1. That the Labor Arbiter erred in reviving or re-opening this case which had long been dismissed
without prejudice for more than thirty (30) calendar days;

2. That the Labor Arbiter erred in depriving the respondent of its Constitutional right to due process
of law;

3. That the Labor Arbiter erred in denying respondent’s Motion for Reconsideration on an
interlocutory order on the ground that the same is a prohibited pleading;

4. That the Labor Arbiter erred when he ruled that the complainants are regular employees of the
respondent;

5. That the Labor Arbiter erred when he ruled that the complainants are entitled to 13th month pay,
service incentive leave pay and salary differential; and

6. That the Labor Arbiter erred when he ruled that complainants are entitled to attorney’s fees.14

On November 14, 2002, the NLRC rendered judgment modifying the decision of the Labor Arbiter.
The fallo of the decision reads:

WHEREFORE, premises considered, the decision of Labor Arbiter Jose G. Gutierrez dated 30 July
2001 is SET ASIDE and VACATED and a new one is entered ORDERING respondent ABS-CBN
Broadcasting Corporation, as follows:

1. To pay complainants of their wage differentials and other benefits arising from the CBA as of 30
September 2002 in the aggregate amount of Two Million Five Hundred, Sixty-One Thousand Nine
Hundred Forty-Eight Pesos and 22/100 (P2,561,948.22), broken down as follows:

a. Deiparine, Jennifer - P 716,113.49

b. Gerzon, Merlou - 716,113.49

c. Nazareno, Marlyn - 716,113.49

d. Lerazan, Josephine Sanchez - 413,607.75

Total - P 2,561,948.22

2. To deliver to the complainants Two Hundred Thirty-Three (233) sacks of rice as of 30 September
2002 representing their rice subsidy in the CBA, broken down as follows:

a. Deiparine, Jennifer - 60 Sacks

b. Gerzon, Merlou - 60 Sacks

c. Nazareno, Marlyn - 60 Sacks

d. Lerazan, Josephine Sanchez - 53 Sacks

Total 233 Sacks; and

3. To grant to the complainants all the benefits of the CBA after 30 September 2002.

SO ORDERED.15

The NLRC declared that the Labor Arbiter acted conformably with the Labor Code when it granted
respondents’ motion to refile the complaint and admit their position paper. Although respondents
were not parties to the CBA between petitioner and the ABS-CBN Rank-and-File Employees Union,
the NLRC nevertheless granted and computed respondents’ monetary benefits based on the 1999
CBA, which was effective until September 2002. The NLRC also ruled that the Labor Arbiter had
jurisdiction over the complaint of respondents because they acted in their individual capacities and
not as members of the union. Their claim for monetary benefits was within the context of Article
217(6) of the Labor Code. The validity of respondents’ claim does not depend upon the interpretation
of the CBA.

The NLRC ruled that respondents were entitled to the benefits under the CBA because they were
regular employees who contributed to the profits of petitioner through their labor. The NLRC cited
the ruling of this Court in New Pacific Timber & Supply Company v. National Labor Relations
Commission.16

Petitioner filed a motion for reconsideration, which the NLRC denied.

Petitioner thus filed a petition for certiorari under Rule 65 of the Rules of Court before the CA, raising
both procedural and substantive issues, as follows: (a) whether the NLRC acted without jurisdiction
in admitting the appeal of respondents; (b) whether the NLRC committed palpable error in
scrutinizing the reopening and revival of the complaint of respondents with the Labor Arbiter upon
due notice despite the lapse of 10 days from their receipt of the July 30, 2001 Order of the Labor
Arbiter; (c) whether respondents were regular employees; (d) whether the NLRC acted without
jurisdiction in entertaining and resolving the claim of the respondents under the CBA instead of
referring the same to the Voluntary Arbitrators as provided in the CBA; and (e) whether the NLRC
acted with grave abuse of discretion when it awarded monetary benefits to respondents under the
CBA although they are not members of the appropriate bargaining unit.
On February 10, 2004, the CA rendered judgment dismissing the petition. It held that the perfection
of an appeal shall be upon the expiration of the last day to appeal by all parties, should there be
several parties to a case. Since respondents received their copies of the decision on September 8,
2001 (except respondent Nazareno who received her copy of the decision on August 27, 2001), they
had until September 18, 2001 within which to file their Appeal Memorandum. Moreover, the CA
declared that respondents’ failure to submit their position paper on time is not a ground to strike out
the paper from the records, much less dismiss a complaint.

Anent the substantive issues, the appellate court stated that respondents are not mere project
employees, but regular employees who perform tasks necessary and desirable in the usual trade
and business of petitioner and not just its project employees. Moreover, the CA added, the award of
benefits accorded to rank-and-file employees under the 1996-1999 CBA is a necessary
consequence of the NLRC ruling that respondents, as PAs, are regular employees.

Finding no merit in petitioner’s motion for reconsideration, the CA denied the same in a
Resolution17 dated June 16, 2004.

Petitioner thus filed the instant petition for review on certiorari and raises the following assignments
of error:

1. THE HONORABLE COURT OF APPEALS ACTED WITHOUT JURISDICTION AND GRAVELY

ERRED IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION
NOTWITHSTANDING THE PATENT NULLITY OF THE LATTER’S DECISION AND RESOLUTION.

2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF

THE NLRC FINDING RESPONDENTS REGULAR EMPLOYEES.

3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF

THE NLRC AWARDING CBA BENEFITS TO RESPONDENTS.18

Considering that the assignments of error are interrelated, the Court shall resolve them
simultaneously.

Petitioner asserts that the appellate court committed palpable and serious error of law when it
affirmed the rulings of the NLRC, and entertained respondents’ appeal from the decision of the
Labor Arbiter despite the admitted lapse of the reglementary period within which to perfect the same.
Petitioner likewise maintains that the 10-day period to appeal must be reckoned from receipt of a
party’s counsel, not from the time the party learns of the decision, that is, notice to counsel is notice
to party and not the other way around. Finally, petitioner argues that the reopening of a complaint
which the Labor Arbiter has dismissed without prejudice is a clear violation of Section 1, Rule V of
the NLRC Rules; such order of dismissal had already attained finality and can no longer be set
aside.

Respondents, on the other hand, allege that their late appeal is a non-issue because it was
petitioner’s own timely appeal that empowered the NLRC to reopen the case. They assert that
although the appeal was filed 10 days late, it may still be given due course in the interest of
substantial justice as an exception to the general rule that the negligence of a counsel binds the
client. On the issue of the late filing of their position paper, they maintain that this is not a ground to
strike it out from the records or dismiss the complaint.

We find no merit in the petition.

We agree with petitioner’s contention that the perfection of an appeal within the statutory or
reglementary period is not only mandatory, but also jurisdictional; failure to do so renders the
assailed decision final and executory and deprives the appellate court or body of the legal authority
to alter the final judgment, much less entertain the appeal. However, this Court has time and again
ruled that in exceptional cases, a belated appeal may be given due course if greater injustice may
occur if an appeal is not given due course than if the reglementary period to appeal were strictly
followed.19 The Court resorted to this extraordinary measure even at the expense of sacrificing order
and efficiency if only to serve the greater principles of substantial justice and equity.20

In the case at bar, the NLRC did not commit a grave abuse of its discretion in giving Article 22321 of
the Labor Code a liberal application to prevent the miscarriage of justice. Technicality should not be
allowed to stand in the way of equitably and completely resolving the rights and obligations of the
parties.22 We have held in a catena of cases that technical rules are not binding in labor cases and
are not to be applied strictly if the result would be detrimental to the workingman.23

Admittedly, respondents failed to perfect their appeal from the decision of the Labor Arbiter within
the reglementary period therefor. However, petitioner perfected its appeal within the period, and
since petitioner had filed a timely appeal, the NLRC acquired jurisdiction over the case to give due
course to its appeal and render the decision of November 14, 2002. Case law is that the party who
failed to appeal from the decision of the Labor Arbiter to the NLRC can still participate in a separate
appeal timely filed by the adverse party as the situation is considered to be of greater benefit to both
parties.24

We find no merit in petitioner’s contention that the Labor Arbiter abused his discretion when he
admitted respondents’ position paper which had been belatedly filed. It bears stressing that the
Labor Arbiter is mandated by law to use every reasonable means to ascertain the facts in each case
speedily and objectively, without technicalities of law or procedure, all in the interest of due
process.25 Indeed, as stressed by the appellate court, respondents’ failure to submit a position paper
on time is not a ground for striking out the paper from the records, much less for dismissing a
complaint.26 Likewise, there is simply no truth to petitioner’s assertion that it was denied due process
when the Labor Arbiter admitted respondents’ position paper without requiring it to file a comment
before admitting said position paper. The essence of due process in administrative proceedings is
simply an opportunity to explain one’s side or an opportunity to seek reconsideration of the action or
ruling complained of. Obviously, there is nothing in the records that would suggest that petitioner had
absolute lack of opportunity to be heard.27 Petitioner had the right to file a motion for reconsideration
of the Labor Arbiter’s admission of respondents’ position paper, and even file a Reply thereto. In
fact, petitioner filed its position paper on April 2, 2001. It must be stressed that Article 280 of the
Labor Code was encoded in our statute books to hinder the circumvention by unscrupulous
employers of the employees’ right to security of tenure by indiscriminately and absolutely ruling out
all written and oral agreements inharmonious with the concept of regular employment defined
therein.28

We quote with approval the following pronouncement of the NLRC:

The complainants, on the other hand, contend that respondents assailed the Labor Arbiter’s order
dated 18 June 2001 as violative of the NLRC Rules of Procedure and as such is violative of their
right to procedural due process. That while suggesting that an Order be instead issued by the Labor
Arbiter for complainants to refile this case, respondents impliedly submit that there is not any
substantial damage or prejudice upon the refiling, even so, respondents’ suggestion acknowledges
complainants right to prosecute this case, albeit with the burden of repeating the same procedure,
thus, entailing additional time, efforts, litigation cost and precious time for the Arbiter to repeat the
same process twice. Respondent’s suggestion, betrays its notion of prolonging, rather than
promoting the early resolution of the case.

Although the Labor Arbiter in his Order dated 18 June 2001 which revived and re-opened the
dismissed case without prejudice beyond the ten (10) day reglementary period had inadvertently
failed to follow Section 16, Rule V, Rules Procedure of the NLRC which states:

"A party may file a motion to revive or re-open a case dismissed without prejudice within ten (10)
calendar days from receipt of notice of the order dismissing the same; otherwise, his only remedy
shall be to re-file the case in the arbitration branch of origin."

the same is not a serious flaw that had prejudiced the respondents’ right to due process. The case
can still be refiled because it has not yet prescribed. Anyway, Article 221 of the Labor Code
provides:

"In any proceedings before the Commission or any of the Labor Arbiters, the rules of evidence
prevailing in courts of law or equity shall not be controlling and it is the spirit and intention of this
Code that the Commission and its members and the Labor Arbiters shall use every and all
reasonable means to ascertain the facts in each case speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of due process."

The admission by the Labor Arbiter of the complainants’ Position Paper and Supplemental
Manifestation which were belatedly filed just only shows that he acted within his discretion as he is
enjoined by law to use every reasonable means to ascertain the facts in each case speedily and
objectively, without regard to technicalities of law or procedure, all in the interest of due process.
Indeed, the failure to submit a position paper on time is not a ground for striking out the paper from
the records, much less for dismissing a complaint in the case of the complainant. (University of
Immaculate Conception vs. UIC Teaching and Non-Teaching Personnel Employees, G.R. No.
144702, July 31, 2001).

"In admitting the respondents’ position paper albeit late, the Labor Arbiter acted within her discretion.
In fact, she is enjoined by law to use every reasonable means to ascertain the facts in each case
speedily and objectively, without technicalities of law or procedure, all in the interest of due process".
(Panlilio vs. NLRC, 281 SCRA 53).

The respondents were given by the Labor Arbiter the opportunity to submit position paper. In fact,
the respondents had filed their position paper on 2 April 2001. What is material in the compliance of
due process is the fact that the parties are given the opportunities to submit position papers.

"Due process requirements are satisfied where the parties are given the opportunities to submit
position papers". (Laurence vs. NLRC, 205 SCRA 737).

Thus, the respondent was not deprived of its Constitutional right to due process of law.29

We reject, as barren of factual basis, petitioner’s contention that respondents are considered as its
talents, hence, not regular employees of the broadcasting company. Petitioner’s claim that the
functions performed by the respondents are not at all necessary, desirable, or even vital to its trade
or business is belied by the evidence on record.

Case law is that this Court has always accorded respect and finality to the findings of fact of the CA,
particularly if they coincide with those of the Labor Arbiter and the National Labor Relations
Commission, when supported by substantial evidence.30 The question of whether respondents are
regular or project employees or independent contractors is essentially factual in nature; nonetheless,
the Court is constrained to resolve it due to its tremendous effects to the legions of production
assistants working in the Philippine broadcasting industry.

We agree with respondents’ contention that where a person has rendered at least one year of
service, regardless of the nature of the activity performed, or where the work is continuous or
intermittent, the employment is considered regular as long as the activity exists, the reason being
that a customary appointment is not indispensable before one may be formally declared as having
attained regular status. Article 280 of the Labor Code provides:

ART. 280. REGULAR AND CASUAL EMPLOYMENT.—The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall
be deemed to be regular where the employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the employer except where the
employment has been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the employee or where the work or
services to be performed is seasonal in nature and the employment is for the duration of the season.

In Universal Robina Corporation v. Catapang,31 the Court reiterated the test in determining whether
one is a regular employee:

The primary standard, therefore, of determining regular employment is the reasonable connection
between the particular activity performed by the employee in relation to the usual trade or business
of the employer. The test is whether the former is usually necessary or desirable in the usual
business or trade of the employer. The connection can be determined by considering the nature of
work performed and its relation to the scheme of the particular business or trade in its entirety. Also,
if the employee has been performing the job for at least a year, even if the performance is not
continuous and merely intermittent, the law deems repeated and continuing need for its performance
as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence,
the employment is considered regular, but only with respect to such activity and while such activity
exists.32

As elaborated by this Court in Magsalin v. National Organization of Working Men:33

Even while the language of law might have been more definitive, the clarity of its spirit and intent,
i.e., to ensure a "regular" worker’s security of tenure, however, can hardly be doubted. In
determining whether an employment should be considered regular or non-regular, the applicable test
is the reasonable connection between the particular activity performed by the employee in relation to
the usual business or trade of the employer. The standard, supplied by the law itself, is whether the
work undertaken is necessary or desirable in the usual business or trade of the employer, a fact that
can be assessed by looking into the nature of the services rendered and its relation to the general
scheme under which the business or trade is pursued in the usual course. It is distinguished from a
specific undertaking that is divorced from the normal activities required in carrying on the particular
business or trade. But, although the work to be performed is only for a specific project or seasonal,
where a person thus engaged has been performing the job for at least one year, even if the
performance is not continuous or is merely intermittent, the law deems the repeated and continuing
need for its performance as being sufficient to indicate the necessity or desirability of that activity to
the business or trade of the employer. The employment of such person is also then deemed to be
regular with respect to such activity and while such activity exists.34
Not considered regular employees are "project employees," the completion or termination of which is
more or less determinable at the time of employment, such as those employed in connection with a
particular construction project, and "seasonal employees" whose employment by its nature is only
desirable for a limited period of time. Even then, any employee who has rendered at least one year
of service, whether continuous or intermittent, is deemed regular with respect to the activity
performed and while such activity actually exists.

It is of no moment that petitioner hired respondents as "talents." The fact that respondents received
pre-agreed "talent fees" instead of salaries, that they did not observe the required office hours, and
that they were permitted to join other productions during their free time are not conclusive of the
nature of their employment. Respondents cannot be considered "talents" because they are not
actors or actresses or radio specialists or mere clerks or utility employees. They are regular
employees who perform several different duties under the control and direction of ABS-CBN
executives and supervisors.

Thus, there are two kinds of regular employees under the law: (1) those engaged to perform
activities which are necessary or desirable in the usual business or trade of the employer; and (2)
those casual employees who have rendered at least one year of service, whether continuous or
broken, with respect to the activities in which they are employed.35

The law overrides such conditions which are prejudicial to the interest of the worker whose weak
bargaining situation necessitates the succor of the State. What determines whether a certain
employment is regular or otherwise is not the will or word of the employer, to which the worker
oftentimes acquiesces, much less the procedure of hiring the employee or the manner of paying the
salary or the actual time spent at work. It is the character of the activities performed in relation to the
particular trade or business taking into account all the circumstances, and in some cases the length
of time of its performance and its continued existence.36 It is obvious that one year after they were
employed by petitioner, respondents became regular employees by operation of law.37

Additionally, respondents cannot be considered as project or program employees because no

evidence was presented to show that the duration and scope of the project were determined or
specified at the time of their engagement. Under existing jurisprudence, project could refer to two
distinguishable types of activities. First, a project may refer to a particular job or undertaking that is
within the regular or usual business of the employer, but which is distinct and separate, and
identifiable as such, from the other undertakings of the company. Such job or undertaking begins
and ends at determined or determinable times. Second, the term project may also refer to a
particular job or undertaking that is not within the regular business of the employer. Such a job or
undertaking must also be identifiably separate and distinct from the ordinary or regular business
operations of the employer. The job or undertaking also begins and ends at determined or
determinable times.38

The principal test is whether or not the project employees were assigned to carry out a specific
project or undertaking, the duration and scope of which were specified at the time the employees
were engaged for that project.39

In this case, it is undisputed that respondents had continuously performed the same activities for an
average of five years. Their assigned tasks are necessary or desirable in the usual business or trade
of the petitioner. The persisting need for their services is sufficient evidence of the necessity and
indispensability of such services to petitioner’s business or trade.40 While length of time may not be a
sole controlling test for project employment, it can be a strong factor to determine whether the
employee was hired for a specific undertaking or in fact tasked to perform functions which are vital,
necessary and indispensable to the usual trade or business of the employer.41 We note further that
petitioner did not report the termination of respondents’ employment in the particular "project" to the
Department of Labor and Employment Regional Office having jurisdiction over the workplace within
30 days following the date of their separation from work, using the prescribed form on employees’
termination/ dismissals/suspensions.42

As gleaned from the records of this case, petitioner itself is not certain how to categorize
respondents. In its earlier pleadings, petitioner classified respondents as program employees, and in
later pleadings, independent contractors. Program employees, or project employees, are different
from independent contractors because in the case of the latter, no employer-employee relationship
exists.

Petitioner’s reliance on the ruling of this Court in Sonza v. ABS-CBN Broadcasting Corporation43 is
misplaced. In that case, the Court explained why Jose Sonza, a well-known television and radio
personality, was an independent contractor and not a regular employee:

A. Selection and Engagement of Employee

ABS-CBN engaged SONZA’S services to co-host its television and radio programs because of
SONZA’S peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by
respondent in specifically selecting and hiring complainant over other broadcasters of possibly
similar experience and qualification as complainant belies respondent’s claim of independent
contractorship."

Independent contractors often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of
his unique skills, talent and celebrity status not possessed by ordinary employees, is a circumstance
indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess
such unique skills, talent and celebrity status, ABS-CBN would not have entered into the Agreement
with SONZA but would have hired him through its personnel department just like any other
employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his
status. We must consider all the circumstances of the relationship, with the control test being the
most important element.

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC.
SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN.
SONZA also points out that ABS-CBN granted him benefits and privileges "which he would not have
enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the
Agreement. If SONZA were ABS-CBN’s employee, there would be no need for the parties to
stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay which the law automatically
incorporates into every employer-employee contract. Whatever benefits SONZA enjoyed arose from
contract and not because of an employer-employee relationship.

SONZA’s talent fees, amounting to P317,000 monthly in the second and third year, are so huge and
out of the ordinary that they indicate more an independent contractual relationship rather than an
employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely
because of SONZA’S unique skills, talent and celebrity status not possessed by ordinary employees.
Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such
huge talent fees for his services. The power to bargain talent fees way above the salary scales of
ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual
relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of
SONZA as an independent contractor. The parties expressly agreed on such mode of payment.
Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over
any talent fee accruing under the Agreement.44

In the case at bar, however, the employer-employee relationship between petitioner and
respondents has been proven.

First. In the selection and engagement of respondents, no peculiar or unique skill, talent or celebrity
status was required from them because they were merely hired through petitioner’s personnel
department just like any ordinary employee.

Second. The so-called "talent fees" of respondents correspond to wages given as a result of an
employer-employee relationship. Respondents did not have the power to bargain for huge talent
fees, a circumstance negating independent contractual relationship.

Third. Petitioner could always discharge respondents should it find their work unsatisfactory, and
respondents are highly dependent on the petitioner for continued work.

Fourth. The degree of control and supervision exercised by petitioner over respondents through its
supervisors negates the allegation that respondents are independent contractors.

The presumption is that when the work done is an integral part of the regular business of the
employer and when the worker, relative to the employer, does not furnish an independent business
or professional service, such work is a regular employment of such employee and not an
independent contractor.45 The Court will peruse beyond any such agreement to examine the facts
that typify the parties’ actual relationship.46

It follows then that respondents are entitled to the benefits provided for in the existing CBA between
petitioner and its rank-and-file employees. As regular employees, respondents are entitled to the
benefits granted to all other regular employees of petitioner under the CBA.47 We quote with
approval the ruling of the appellate court, that the reason why production assistants were excluded
from the CBA is precisely because they were erroneously classified and treated as project
employees by petitioner:

x x x The award in favor of private respondents of the benefits accorded to rank-and-file employees
of ABS-CBN under the 1996-1999 CBA is a necessary consequence of public respondent’s ruling
that private respondents as production assistants of petitioner are regular employees. The monetary
award is not considered as claims involving the interpretation or implementation of the collective
bargaining agreement. The reason why production assistants were excluded from the said
agreement is precisely because they were classified and treated as project employees by petitioner.

As earlier stated, it is not the will or word of the employer which determines the nature of
employment of an employee but the nature of the activities performed by such employee in relation
to the particular business or trade of the employer. Considering that We have clearly found that
private respondents are regular employees of petitioner, their exclusion from the said CBA on the
misplaced belief of the parties to the said agreement that they are project employees, is therefore
not proper. Finding said private respondents as regular employees and not as mere project
employees, they must be accorded the benefits due under the said Collective Bargaining
Agreement.

A collective bargaining agreement is a contract entered into by the union representing the
employees and the employer. However, even the non-member employees are entitled to the
benefits of the contract. To accord its benefits only to members of the union without any valid reason
would constitute undue discrimination against non-members. A collective bargaining agreement is
binding on all employees of the company. Therefore, whatever benefits are given to the other
employees of ABS-CBN must likewise be accorded to private respondents who were regular
employees of petitioner.48

Besides, only talent-artists were excluded from the CBA and not production assistants who are
regular employees of the respondents. Moreover, under Article 1702 of the New Civil Code: "In case
of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and
decent living of the laborer."

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. SP No. 76582 are AFFIRMED. Costs against
petitioner.

SO ORDERED.

G.R. No. 119930 March 12, 1998

INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (Fourth Division, Cebu City), LABOR ARBITER
NICASIO P. ANINON and PANTALEON DE LOS REYES, respondents.

BELLOSILLO, J.:

On 17 June 1994 respondent Labor Arbiter dismissed for lack of jurisdiction NLRC RAB-VII Case
No. 03-0309-94 filed by private respondent Pantaleon de los Reyes against petitioner Insular Life
Assurance Co., Ltd. (INSULAR LIFE), for illegal dismissal and nonpayment of salaries and back
wages after finding no employer-employee relationship between De los Reyes and petitioner
INSULAR LIFE. 1 On appeal by private respondent, the order of dismissal was reversed by the
National Labor Relations Commission (NLRC) which ruled that respondent De los Reyes was
an employee of petitioner.2 Petitioner's motion for reconsideration having been denied, the
NLRC remanded the case to the Labor Arbiter for hearing on the merits.

Seeking relief through this special civil action for certiorari with prayer for a restraining order
and/or preliminary injunction, petitioner now comes to us praying for annulment of the
decision of respondent NLRC dated 3 March 1995 and its Order dated 6 April 1995 denying
the motion for reconsideration of the decision. It faults NLRC for acting without jurisdiction
and/or with grave abuse of discretion when, contrary to established facts and pertinent law
and jurisprudence, it reversed the decision of the Labor Arbiter and held instead that the
complaint was properly filed as an employer-employee relationship existed between
petitioner and private respondent.
Petitioner reprises the stand it assumed below that it never had any employer-employee
relationship with private respondent, this being an express agreement between them in the
agency contracts, particularly reinforced by the stipulation therein that De los Reyes was
allowed discretion to devise ways and means to fulfill his obligations as agent and would be
paid commission fees based on his actual output. It further insists that the nature of this
work status as described in the contracts had already been squarely resolved by the Court in
the earlier case of Insular Life Assurance Co., Ltd. v. NLRC and Basiao 3 where the
complainant therein, Melecio Basiao, was similarly situated as respondent De los Reyes in
that he was appointed first as an agent and then promoted as agency manager, and the
contracts under which he was appointed contained terms and conditions identical to those of
Delos Reyes. Petitioner concludes that since Basiao was declared by the Court to be an
independent contractor and not an employee of petitioner, there should be no reason why the
status of De los Reyes herein vis-a-vis petitioner should not be similarly determined.

We reject the submissions of petitioner and hold that respondent NLRC acted appropriately
within the bounds of the law. The records of the case are replete with telltale indicators of an
existing employer-employee relationship between the two parties despite written contractual
disavowals.

These facts are undisputed: on 21 August 1992 petitioner entered into an agency contract
with respondent Pantaleon de los Reyes4 authorizing the latter to solicit within the Philippines
applications for life insurance and annuities for which he would be paid compensation in the
form of commissions. The contract was prepared by petitioner in its entirety and De los
Reyes merely signed his conformity thereto. It contained the stipulation that no employer-
employee relationship shall be created between the parties and that the agent shall be free to
exercise his own judgment as to time, place and means of soliciting insurance. De los Reyes
however was prohibited by petitioner from working for any other life insurance company, and
violation of this stipulation was sufficient ground for termination of the contract. Aside from
soliciting insurance for the petitioner, private respondent was required to submit to the
former all completed applications for insurance within ninety (90) consecutive days, deliver
policies, receive and collect initial premiums and balances of first year premiums, renewal
premiums, deposits on applications and payments on policy loans. Private respondent was
also bound to turn over to the company immediately any and all sums of money collected by
him. In a written communication by petitioner to respondent De los Reyes, the latter was
urged to register with the Social Security System as a self-employed individual as provided
under PD No. 1636. 5

On 1 March 1993 petitioner and private respondent entered into another contract 6 where the
latter was appointed as Acting Unit Manager under its office — the Cebu DSO V (157). As
such, the duties and responsibilities of De los Reyes included the recruitment, training,
organization and development within his designated territory of a sufficient number of
qualified, competent and trustworthy underwriters, and to supervise and coordinate the sales
efforts of the underwriters in the active solicitation of new business and in the furtherance of
the agency's assigned goals. It was similarly provided in the management contract that the
relation of the acting unit manager and/or the agents of his unit to the company shall be that
of independent contractor. 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.
As in the previous agency contract, De los Reyes together with his unit force was granted
freedom to exercise judgment as to time, place and means of soliciting insurance. Aside from
being granted override commissions, the acting unit manager was given production bonus,
development allowance and a unit development financing scheme euphemistically termed
"financial assistance" consisting of payment to him of a free portion of P300.00 per month
and a validate portion of P1,200.00. While the latter amount was deemed as an advance
against expected commissions, the former was not and would be freely given to the unit
manager by the company only upon fulfillment by him of certain manpower and premium
quota requirements. The agents and underwriters recruited and trained by the acting unit
manager would be attached to the unit but petitioner reserved the right to determine if such
assignment would be made or, for any reason, to reassign them elsewhere.

Aside from soliciting insurance, De los Reyes was also expressly obliged to participate in the
company's conservation program, i.e., preservation and maintenance of existing insurance
policies, and to accept moneys duly receipted on agent's receipts provided the same were
turned over to the company. As long as he was unit manager in an acting capacity, De los
Reyes was prohibited from working for other life insurance companies or with the
government. He could not also accept a managerial or supervisory position in any firm doing
business in the Philippines without the written consent of petitioner.

Private respondent worked concurrently as agent and Acting Unit Manager until he was
notified by petitioner on 18 November 1993 that his services were terminated effective 18
December 1993. On 7 March 1994 he filed a complaint before the Labor Arbiter on the ground
that he was illegally dismissed and that he was not paid his salaries and separation pay.

Petitioner filed a motion to dismiss the complaint of De los Reyes for lack of jurisdiction,
citing the absence of employer-employee relationship. It reasoned out that based on the
criteria for determining the existence of such relationship or the so-called "four-fold
test," i.e., (a) selection and engagement of employee, (b) payment of wages, (c) power of
dismissal, and, (d) power of control, De los Reyes was not an employee but an independent
contractor.

On 17 June 1994 the motion of petitioner was granted by the Labor Arbiter and the case was
dismissed on the ground that the element of control was not sufficiently established since
the rules and guidelines set by petitioner in its agency agreement with respondent Delos
Reyes were formulated only to achieve the desired result without dictating the means or
methods of attaining it.

Respondent NLRC however appreciated the evidence from a different perspective. It

determined that respondent De los Reyes was under the effective control of petitioner in the
critical and most important aspects of his work as Unit Manager. This conclusion was derived
from the provisions in the contract which appointed private respondent as Acting Unit
Manager, to wit: (a) De los Reyes was to serve exclusively the company, therefore, he was not
an independent contractor; (b) he was required to meet certain manpower and production
quota; and, (c) petitioner controlled the assignment to and removal of soliciting agents from
his unit.

The NLRC also took into account other circumstances showing that petitioner exercised
employer's prerogatives over De los Reyes, e.g., (a) limiting the work of respondent De los
Reyes to selling a life insurance policy known as "Salary Deduction Insurance" only to
members of the Philippine National Police, public and private school teachers and other
employees of private companies; (b) assigning private respondent to a particular place and
table where he worked whenever he was not in the field; (c) paying private respondent during
the period of twelve (12) months of his appointment as Acting Unit Manager the amount of
P1,500.00 as Unit Development Financing of which 20% formed his salary and the rest, i.e.,
80%, as advance of his expected commissions; and, (d) promising that upon completion of
certain requirements, he would be promoted to Unit Manager with the right of petitioner to
revert him to agent status when warranted.
Parenthetically, both petitioner and respondent NLRC treated the agency contract and the
management contract entered into between petitioner and De los Reyes as contracts of
agency. We however hold otherwise. Unquestionably there exist major distinctions between
the two agreements. While the first has the earmarks of an agency contract, the second is far
removed from the concept of agency in that provided therein are conditionalities that indicate
an employer-employee relationship. The NLRC therefore was correct in finding that private
respondent was an employee of petitioner, but this holds true only insofar as the
management contract is concerned. In view thereof, the Labor Arbiter has jurisdiction over
the case..

It is axiomatic that the existence of an employer-employee relationship cannot be negated by

expressly repudiating it in the management contract and providing therein that the
"employee" is an independent contractor when the terms of the agreement clearly show
otherwise. For, the employment status of a person is defined and prescribed by law and not
by what the parties say it should be. 7 In determining the status of the management contract,
the "four-fold test" on employment earlier mentioned has to be applied.

Petitioner contends that De los Reyes was never required to go through the pre-employment
procedures and that the probationary employment status was reserved only to employees of
petitioner. On this score, it insists that the first requirement of selection and engagement of
the employee was not met.

A look at the provisions of the contract shows that private respondent was appointed as
Acting Unit Manager only upon recommendation of the District Manager. 8 This indicates that
private respondent was hired by petitioner because of the favorable endorsement of its duly
authorized officer. But, this approbation could only have been based on the performance of
De los Reyes as agent under the agency contract so that there can be no other conclusion
arrived under this premise than the fact that the agency or underwriter phase of the
relationship of De los Reyes with petitioner was nothing more than a trial or probationary
period for his eventual appointment as Acting Unit Manager of petitioner. Then, again, the
very designation of the appointment of private respondent as "acting" unit manager
obviously implies a temporary employment status which may be made permanent only upon
compliance with company standards such as those enumerated under Sec. 6 of the
management contract. 9

On the matter of payment of wages, petitioner points out that respondent was compensated
strictly on commission basis, the amount of which was totally dependent on his total output.
But, the manager's contract, speaks differently. Thus—

4. Performance Requirements. — To maintain your appointment as Acting Unit

Manager you must meet the following manpower and production requirements:

Quarter Active Calendar Year

Production Agents Cumulative FYP
Production

1st 2 P 125,000
2nd 3 250,000
3rd 4 375,000
4th 5 500,000
 5.4. Unit Development Financing (UDF). — As an Acting Unit Manager you shall
be given during the first 12 months of your appointment a financial assistance
which is composed of two parts:

5.4.1. Free Portion amounting to P300 per month, subject to your

meeting prescribed minimum performance requirement on
manpower and premium production. The free portion is not
payable by you.

5.4.2. Validate Portion amounting to P1,200 per month, also

subject to meeting the same prescribed minimum performance
requirements on manpower and premium production. The
validated portion is an advance against expected compensation
during the UDF period and thereafter as may be necessary.

The above provisions unquestionably demonstrate that the performance requirement

imposed on De los Reyes was applicable quarterly while his entitlement to the free portion
(P300) and the validated portion (P1,200) was monthly starting on the first month of the
twelve (12) months of the appointment. Thus, it has to be admitted that even before the end of
the first quarter and prior to the so-called quarterly performance evaluation, private
respondent was already entitled to be paid both the free and validated portions of the UDF
every month because his production performance could not be determined until after the
lapse of the quarter involved. This indicates quite clearly that the unit manager's quarterly
performance had no bearing at all on his entitlement at least to the free portion of the UDF
which for all intents and purposes comprised the salary regularly paid to him by petitioner.
Thus it cannot be validly claimed that the financial assistance consisting of the free portion
of the UDF was purely dependent on the premium production of the agent. Be that as it may,
it is worth considering that the payment of compensation by way of commission does not
militate against the conclusion that private respondent was an employee of petitioner. Under
Art. 97 of the Labor Code, "wage" shall mean "however designated, capable of being
expressed in terms of money, whether fixed or ascertained on a time, task, price or
commission basis . . . ." 10

As to the matter involving the power of dismissal and control by the employer, the latter of
which is the most important of the test, petitioner asserts that its termination of De los Reyes
was but an exercise of its inherent right as principal under the contracts and that the rules
and guidelines it set forth in the contract cannot, by any stretch of the imagination, be
deemed as an exercise of control over the private respondent as these were merely directives
that fixed the desired result without dictating the means or method to be employed in
attaining it. The following factual findings of the NLRC 11 however contradict such claims:

A perusal of the appointment of complainant as Acting Unit Manager reveals

that:

1. Complainant was to "exclusively" serve respondent company. Thus it is

provided: . . . 7..7 Other causes of Termination:
This appointment may likewise be terminated for any of the following causes: .
. . 7..7..2. Your entering the service of the government or another life insurance
company; 7..7..3. Your accepting a managerial or supervisory position in any
firm doing business in the Philippines without the written consent of the
Company; . . .
 2. Complainant was required to meet certain manpower and production quotas.

3. Respondent (herein petitioner) controlled the assignment and removal of

soliciting agents to and from complainant's unit, thus: . . . 7..2. Assignment of
Agents: Agents recruited and trained by you shall be attached to your unit
unless for reasons of Company policy, no such assignment should be made.
The Company retains the exclusive right to assign new soliciting agents to the
unit. It is agreed that the Company may remove or transfer any soliciting
agents appointed and assigned to the said unit. . . .

It would not be amiss to state that respondent's duty to collect the company's premiums
using company receipts under Sec. 7.4 of the management contract is further evidence of
petitioner's control over respondent, thus:

xxx xxx xxx

7.4. Acceptance and Remittance of Premiums. — . . . . the Company hereby

authorizes you to accept and to receive sums of money in payment of
premiums, loans, deposits on applications, with or without interest, due from
policyholders and applicants for insurance, and the like, specially from
policyholders of business solicited and sold by the agents attached to your
unit provided however, that all such payments shall be duly receipted by you
on the corresponding Company's "Agents' Receipt" to be provided you for this
purpose and to be covered by such rules and accounting regulations the
Company may issue from time to time on the matter. Payments received by
you shall be turned over to the Company's designated District or Service Office
clerk or directly to the Home Office not later than the next working day from
receipt thereof . . . .

Petitioner would have us apply our ruling in Insular Life Assurance Co., Ltd. v. NLRC and
Basiao12 to the instant case under the doctrine of stare decisis, postulating that both cases
involve parties similarly situated and facts which are almost identical.

But we are not convinced that the cited case is on all fours with the case at bar. In Basiao, the
agent was appointed Agency Manager under an Agency Manager Contract. To implement his
end of the agreement, Melecio Basiao organized an agency office to which he gave the name
M. Basiao and Associates. The Agency Manager Contract practically contained the same
terms and conditions as the Agency Contract earlier entered into, and the Court observed
that, "drawn from the terms of the contract they had entered into, (which) either expressly or
by necessary implication, Basiao (was) made the master of his own time and selling methods,
left to his own judgment the time, place and means of soliciting insurance, set no
accomplishment quotas and compensated him on the bases 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." Upon these premises, Basiao was
considered as agent — an independent contractor — of petitioner INSULAR LIFE.

Unlike Basiao, herein respondent De los Reyes was appointed Acting Unit Manager, not
agency manager. There is no evidence that to implement his obligations under the
management contract, De los Reyes had organized an office. Petitioner in fact has admitted
that it provided De los Reyes a place and a table at its office where he reported for and
worked whenever he was not out in the field. Placed under petitioner's Cebu District Service
Office, the unit was given a name by petitioner — De los Reyes and Associates — and
assigned Code No. 11753 and Recruitment No. 109398. Under the managership contract, De
los Reyes was obliged to work exclusively for petitioner in life insurance solicitation and was
imposed premium production quotas. Of course, the acting unit manager could not
underwrite other lines of insurance because his Permanent Certificate of Authority was for
life insurance only and for no other. He was proscribed from accepting a managerial or
supervisory position in any other office including the government without the written consent
of petitioner. De los Reyes could only be promoted to permanent unit manager if he met
certain requirements and his promotion was recommended by the petitioner's District
Manager and Regional Manager and approved by its Division Manager. As Acting Unit
Manager, De los Reyes performed functions beyond mere solicitation of insurance business
for petitioner. As found by the NLRC, he exercised administrative functions which were
necessary and beneficial to the business of INSULAR LIFE.

In Great Pacific Life Insurance Company v. NLRC 13 which is closer in application

than Basiao to this present controversy, we found that "the relationships of the Ruiz brothers
and Grepalife were those of employer-employee. First, their work at the time of their
dismissal as zone supervisor and district manager was necessary and desirable to the usual
business of the insurance company. They were entrusted with supervisory, sales and other
functions to guard Grepalife's business interests and to bring in more clients to the
company, and even with administrative functions to ensure that all collections, reports and
data are faithfully brought to the company . . . . A cursory reading of their respective
functions as enumerated in their contracts reveals that the company practically dictates the
manner by which their jobs are to be carried out . . . ." We need elaborate no further.

Exclusivity of service, control of assignments and removal of agents under private

respondent's unit, collection of premiums, furnishing of company facilities and materials as
well as capital described as Unit Development Fund are but hallmarks of the management
system in which herein private respondent worked. This obtaining, there is no escaping the
conclusion that private respondent Pantaleon de los Reyes was an employee of herein
petitioner.

WHEREFORE, the petition of Insular Life Assurance Company, Ltd., is DENIED and the
Decision of the National Labor Relations Commission dated 3 March 1995 and its Order of 6
April 1996 sustaining it are AFFIRMED. Let this case be REMANDED to the Labor Arbiter a
quo who is directed to hear and dispose of this case with deliberate dispatch in light of the
views expressed herein.

SO ORDERED.