CHAPTER III

[G.R. No. 158255. July 8, 2004]

MANILA WATER COMPANY, INC., petitioner, vs. HERMINIO D. PENA, ESTEBAN B. BALDOZA, JORGE D. CANONIGO, JR., IKE S. DELFIN, RIZALINO M. INTAL, REY
T. MANLEGRO, JOHN L. MARTEJA, MARLON B. MORADA, ALLAN D. ESPINA, EDUARDO ONG, AGNESIO D. QUEBRAL, EDMUNDO B. VICTA, VICTOR
C. ZAFARALLA, EDILBERTO C. PINGUL and FEDERICO M. RIVERA, respondents.

DECISION
YNARES-SANTIAGO, J.:

This petition assails the decision[1] of the Court of Appeals dated November 29, 2002, in CA-G.R. SP No. 67134, which reversed the decision of the National Labor Relations
Commission and reinstated the decision of the Labor Arbiter with modification.
Petitioner Manila Water Company, Inc. is one of the two private concessionaires contracted by the Metropolitan Waterworks and Sewerage System (MWSS) to manage the water
distribution system in the East Zone of Metro Manila, pursuant to Republic Act No. 8041, otherwise known as the National Water Crisis Act of 1995. Under the Concession Agreement,
petitioner undertook to absorb former employees of the MWSS whose names and positions were in the list furnished by the latter, while the employment of those not in the list was
terminated on the day petitioner took over the operation of the East Zone, which was on August 1, 1997. Private respondents, being contractual collectors of the MWSS, were among
the 121 employees not included in the list; nevertheless, petitioner engaged their services without written contract from August 1, 1997 to August 31, 1997. Thereafter, on September
1, 1997, they signed a three-month contract to perform collection services for eight branches of petitioner in the East Zone.[2]
Before the end of the three-month contract, the 121 collectors incorporated the Association Collectors Group, Inc. (ACGI),[3] which was contracted by petitioner to collect charges
for the Balara Branch. Subsequently, most of the 121 collectors were asked by the petitioner to transfer to the First Classic Courier Services, a newly registered corporation. Only
private respondents herein remained with ACGI. Petitioner continued to transact with ACGI to do its collection needs until February 8, 1999, when petitioner terminated its contract
with ACGI.[4]
Private respondents filed a complaint for illegal dismissal and money claims against petitioner, contending that they were petitioners employees as all the methods and procedures
of their collections were controlled by the latter.
On the other hand, petitioner asserts that private respondents were employees of ACGI, an independent contractor. It maintained that it had no control and supervision over
private respondents manner of performing their work except as to the results. Thus, petitioner did not have an employer-employee relationship with the private respondents, but only
a service contractor-client relationship with ACGI.
On May 31, 2000, Labor Arbiter Eduardo J. Carpio rendered a decision finding the dismissal of private respondents illegal. He held that private respondents were regular
employees of petitioner not only because the tasks performed by them were controlled by it but, also, the tasks were obviously necessary and desirable to petitioners principal
business. The dispositive portion of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered, finding that complainants were employees of respondent [petitioner herein], that they were illegally dismissed,
and respondent [petitioner herein] is hereby ordered to pay their separation pay based on the following computed amounts:

HERMINIO D. PENA P15,000.00

ESTEBAN BALDOZA P12,000.00
JORGE D. CANONIGO, JR. P16,000.00
IKE S. DELFIN P12,000.00
RIZALINO M. INTAL P16,000.00
REY T. MANLEGRO P16,000.00
 JOHN L. MARTEJA P12,000.00
MARLON B. MORADA P16,000.00
ALLAN D. ESPINA P14,000.00
EDUARDO ONG P15,000.00
AGNESIO D. QUEBRAL P16,000.00
EDMUNDO B. VICTA P13,000.00
VICTOR P. ZAFARALLA P15,000.00
EDILBERTO C. PINGUL P19,500.00
FEDERICO M. RIVERA P15,000.00
-------------------------------
TOTAL P222,500.00

Respondent [petitioner herein] is further directed to pay ten (10%) percent of the total award as attorneys fee or the sum of P22,250.00.

SO ORDERED.[5]

Both parties appealed to the NLRC, which reversed the decision of the Labor Arbiter and ruled that the documentary evidence, e.g., letters and memoranda by the petitioner
to ACGIregarding the poor performance of the collectors, did not constitute proof of control since these documents merely identified the erring collectors; the appropriate disciplinary
actions were left to the corporation to impose.[6] Further, there was no evidence showing that the incorporation of ACGI was irregular.
Private respondents filed a petition for certiorari with the Court of Appeals, contending that the NLRC acted with grave abuse of discretion amounting to lack or excess of
jurisdiction when it reversed the decision of the Labor Arbiter.
The Court of Appeals reversed the decision of the NLRC and reinstated with modification the decision of the Labor Arbiter. [7] It held that petitioner deliberately prevented the
creation of an employment relationship with the private respondents; and that ACGI was not an independent contractor. It likewise denied petitioners motion for reconsideration.[8]
Hence, this petition for review raising the following errors:

THE HONORABLE COURT OF APPEALS IN RENDERING THE ASSAILED DECISION AND RESOLUTION COMMITTED GRAVE REVERSIBLE ERRORS:

A. IN GOING BEYOND ITS JURISDICTION AND PROCEEDING TO GIVE DUE COURSE TO RESPONDENTS PETITION FOR CERTIORARI UNDER RULE 65 OF THE
RULES OF COURT, NOTWITHSTANDING THE ABSENCE OF ANY PROOF OF GRAVE ABUSE OF DISCRETION ON THE PART OF THE NATIONAL LABOR
RELATIONS COMMISSION WHEN IT RENDERED THE DECISION ASSAILED BY HEREIN RESPONDENTS.
B. WHEN IT MANIFESTLY OVERLOOKED THE EVIDENCE PRESENTED BY THE PETITIONER COMPANY AND RULING THAT THE PETITIONERS DEFENSE OF
LACK OF EMPLOYER-EMPLOYEE RELATIONS IS WITHOUT MERIT.
C. IN CONCLUDING THAT PETITIONER COMPANY REQUIRED RESPONDENTS TO INCORPORATE THE ASSOCIATED COLLECTORS GROUP, INC. [ACGI]
NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN SUPPORT OF THE SAME.
D. IN FINDING PETITIONER COMPANY GUILTY OF BAD FAITH NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN SUPPORT OF THE SAME, AND
AWARDING MORAL AND EXEMPLARY DAMAGES TO HEREIN RESPONDENTS.[9]
The pivotal issue to be resolved in this petition is whether or not there exists an employer-employee relationship between petitioner and private respondents. Corollary thereto is
the issue of whether or not private respondents were illegally dismissed by petitioner.
The issue of whether or not an employer-employee relationship exists in a given case is essentially a question of fact.[10] As a rule, the Supreme Court is not a trier of facts, and
this applies with greater force in labor cases. Hence, factual findings of quasi-judicial bodies like the NLRC, particularly when they coincide with those of the Labor Arbiter and if
supported by substantial evidence, are accorded respect and even finality by this Court. [11] However, a disharmony between the factual findings of the Labor Arbiter and the National
Labor Relations Commission opens the door to a review thereof by this Court. Factual findings of administrative agencies are not infallible and will be set aside when they fail the test
of arbitrariness.Moreover, when the findings of the National Labor Relations Commission contradict with those of the labor arbiter, this Court, in the exercise of its equity jurisdiction,
may look into the records of the case and reexamine the questioned findings. [12]
 The resolution of the foregoing issues initially boils down to a determination of the true status of ACGI, i.e., whether it is an independent contractor or a labor-only contractor.
Petitioner asserts that ACGI, a duly organized corporation primarily engaged in collection services, is an independent contractor which entered into a service contract for the
collection of petitioners accounts starting November 30, 1997 until the early part of February 1999. Thus, it has no employment relationship with private respondents, being employees
of ACGI.
The existence of an employment relationship between petitioner and private respondents cannot be negated by simply alleging that the latter are employees of ACGI as an
independent contractor, it being crucial that ACGIs status, whether as labor-only contractor or independent contractor, be measured in terms of and determined by the criteria set by
statute.
The case of De los Santos v. NLRC[13] succinctly enunciates this statutory criteria

Job contracting is permissible only 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 the business.

Labor-only contracting as defined in Section 5, Department Order No. 18-02, Rules Implementing Articles 106-109 of the Labor Code[14] refers to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform job, work or service for a principal, and any of the following elements is present:
(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and 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.
Given the above criteria, we agree with the Labor Arbiter that ACGI was not an independent contractor.
First, ACGI does not have substantial capitalization or investment in the form of tools, equipment, machineries, work premises, and other materials, to qualify as an independent
contractor. While it has an authorized capital stock of P1,000,000.00, only P62,500.00 is actually paid-in, which cannot be considered substantial capitalization. The 121 collectors
subscribed to four shares each and paid only the amount of P625.00 in order to comply with the incorporation requirements. [15] Further, private respondents reported daily to the branch
office of the petitioner because ACGI has no office or work premises. In fact, the corporate address of ACGI was the residence of its president, Mr. Herminio D. Pea. [16] Moreover, in
dealing with the consumers, private respondents used the receipts and identification cards issued by petitioner.[17]
Second, the work of the private respondents was directly related to the principal business or operation of the petitioner. Being in the business of providing water to the consumers
in the East Zone, the collection of the charges therefor by private respondents for the petitioner can only be categorized as clearly related to, and in the pursuit of the latters business.
Lastly, ACGI did not carry on an independent business or undertake the performance of its service contract according to its own manner and method, free from the control and
supervision of its principal, petitioner. Prior to private respondents alleged employment with ACGI, they were already working for petitioner, subject to its rules and regulations in regard
to the manner and method of performing their tasks. This form of control and supervision never changed although they were already under the seeming employ of ACGI. Petitioner
issued memoranda regarding the billing methods and distribution of books to the collectors; [18] it required private respondents to report daily and to remit their collections on the same
day to the branch office or to deposit them with Bank of the Philippine Islands; it monitored strictly their attendance as when a collector cannot perform his daily collection, he must
notify petitioner or the branch office in the morning of the day that he will be absent; and although it was ACGI which ultimately disciplined private respondents, the penalty to be
imposed was dictated by petitioner as shown in the letters it sent to ACGI specifying the penalties to be meted on the erring private respondents. [19] These are indications that ACGI was
not left alone in the supervision and control of its alleged employees. Consequently, it can be concluded that ACGI was not an independent contractor since it did not carry a distinct
business free from the control and supervision of petitioner.
Under this factual milieu, there is no doubt that ACGI was engaged in labor-only contracting, and as such, is considered merely an agent of the petitioner. In labor-only contracting,
the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the
principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal
employer.[20] Since ACGI is only a labor-only contractor, the workers it supplied should be considered as employees of the petitioner.
Even the four-fold test will show that petitioner is the employer of private respondents. The elements to determine the existence of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the employees conduct. The most important
element is the employers control of the employees conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.[21]
 We agree with the Labor Arbiter that in the three stages of private respondents services with the petitioner, i.e., (1) from August 1, 1997 to August 31, 1997; (2) from September
1, 1997to November 30, 1997; and (3) from December 1, 1997 to February 8, 1999, the latter exercised control and supervision over the formers conduct.
Petitioner contends that the employment of private respondents from August 1, 1997 to August 30, 1997 was only temporary and done to accommodate their request to be
absorbed since petitioner was still undergoing a transition period. It was only when its business became settled that petitioner employed private respondents for a fixed term of three
months.
Although petitioner was not obliged to absorb the private respondents, by engaging their services, paying their wages in the form of commission, subjecting them to its rules and
imposing punishment in case of breach thereof, and controlling not only the end result but the manner of achieving the same as well, an employment relationship existed between
them.
Notably, private respondents performed activities which were necessary or desirable to its principal trade or business. Thus, they were regular employees of petitioner, regardless
of whether the engagement was merely an accommodation of their request, pursuant to Article 280 of the Labor Code which reads:

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.

As such regular employees, private respondents are entitled to security of tenure which may not be circumvented by mere stipulation in a subsequent contract that their
employment is one with a fixed period. While this Court has upheld the legality of fixed-term employment, where from the circumstances it is apparent that the periods have been
imposed to preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to public policy and morals. [22]
In the case at bar, we find that the term fixed in the subsequent contract was used to defeat the tenurial security which private respondents already enjoy. Thus, we concur with
the Labor Arbiter, as affirmed by the Court of Appeals, when it held that:

The next question if whether, with respect to the period, the individual contracts are valid. Not all contracts of employment fixing a period are invalid. Under Article 280, the evil
sought to be prevented is singled out: agreements entered into precisely to circumvent security of tenure. It has no application where a fixed period of employment was agreed upon
knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought upon the employee and absent any circumstances vitiating his consent, or
where it satisfactorily appears that the employer and employee dealt with each other on more or less terms with no moral dominance whatever being exercised by the former over
the latter. That is the doctrine in Brent School, Inc. v. Zamora, 181 SCRA 702. The individual contracts in question were prepared by MWC in the form of the letter addressed to
complainants. The letter-contract is dated September 1, 1997, when complainants were already working for MWC as collectors. With their employment as their means of survival,
there was no room then for complainants to disagree with the presented letter-contracts. Their choice then was not to negotiate for the terms of the contract but to lose or not to lose
their employment employment which they already had at that time. The choice is obvious, as what they did, to sign the ready made letter-contract to retain their employment, and
survive. It is a defiance of the teaching in Brent School, Inc. v. Zamora if this Office rules that the individual contracts in question are valid, so, in deference to Brent School ruling,
this Office rules they are null and void.[23]

In view of the foregoing, we hold that an employment relationship exists between petitioner and private respondents. We now proceed to ascertain whether private respondents
were dismissed in accordance with law.
As private respondents employer, petitioner has the burden of proving that the dismissal was for a cause allowed under the law and that they were afforded procedural due
process.[24]Petitioner failed to discharge this burden by substantial evidence as it maintained the defense that it was not the employer of private respondents. Having established that
the schemes employed by petitioner were devious attempts to defeat the tenurial rights of private respondents and that it failed to comply with the requirements of termination under
the Labor Code, the dismissal of the private respondent is tainted with illegality.
Under Article 279 of the Labor Code, an employee who is unjustly dismissed from work is entitled to reinstatement without loss of seniority rights and other privileges, and to his
full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his
actual reinstatement. However, if reinstatement is no longer possible, the employer has the alternative of paying the employee his separation pay in lieu of reinstatement.[25]
This Court however cannot sustain the award of moral and exemplary damages in favor of private respondents. Such an award cannot be justified solely upon the premise that
the employer dismissed his employee without just cause or due process. Additional facts must be pleaded and proved to warrant the grant of moral damages under the Civil Code. The
act of dismissal must be attended with bad faith, or fraud, or was oppressive to labor or done in a manner contrary to morals, good customs or public policy and, of course, that social
humiliation, wounded feelings, or grave anxiety resulted therefrom. Similarly, exemplary damages are recoverable only when the dismissal was effected in a wanton, oppressive or
malevolent manner.[26] Those circumstances have not been adequately established.
However, private respondents are entitled to attorneys fees as they were compelled to litigate with petitioners and incur expenses to enforce and protect their interests.[27] The
award by the Labor Arbiter of P22,250.00 as attorneys fees to private respondents, being reasonable, is sustained.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated November 29, 2002, in CA-G.R. SP No. 67134, reversing the decision of the National Labor
Relations Commission and reinstating the decision of the Labor Arbiter is AFFIRMED with the MODIFICATION that the awards of P10,000.00 as moral damages and P5,000.00 as
exemplary damages are DELETED for lack of evidentiary basis.
SO ORDERED.

[G.R. No. 149011. June 28, 2005]

SAN MIGUEL CORPORATION, petitioner, vs. PROSPERO A. ABALLA, BONNY J. ABARING, EDWIN M. ADLA-ON, ALVIN C. ALCALDE, CELANIO D. ARROLLADO, EDDIE
A. ARROLLADO, REYNALDO T. ASONG, RENE A. ASPERA, JOEL D. BALATERIA, JOSEPH D. BALATERIA, JOSE JOLLEN BALLADOS, WILFREDO B. BASAS, EDWIN E.
BEATINGO, SONNY V. BERONDO, CHRISTOPHER D. BRIONES, MARLON D. BRIONES, JOEL C. BOOC, ENRIQUE CABALIDA, DIOSCORO R. CAHINOD, ERNESTO P.
CAHINOD, RENANTE S. CAHINOD, RUDERICK R. CALIXTON, RONILO C. CALVEZ, PANCHO CAETE, JUNNY CASTEL, JUDY S. CELESTE, ROMEO CHUA, DANILO COBRA,
ARMANDO C. DEDOYCO, JOEY R. DELA CRUZ, JOHN D. DELFIN, RENELITO P. DEON, ARNEL C. DE PEDRO, ORLANDO DERDER, CLIFFORD A. DESPI, RAMIE A. DESPI,
SR., VICTOR A. DESPI, ROLANDO L. DINGLE, ANTONIO D. DOLORFINO, LARRY DUMA-OP, NOEL DUMOL, CHITO L. DUNGOG, RODERICK C. DUQUEZA, ROMMEL
ESTREBOR, RIC E. GALPO, MANSUETO GILLE, MAXIMO L. HILA-US, GERARDO J. JIMENEZ, ROBERTLY Y. HOFILEA, ROBERTO HOFILEA, VICENTE INDENCIO,
JONATHAN T. INVENTOR, PETER PAUL T. INVENTOR, JOEBERT G. LAGARTO, RENATO LAMINA, ALVIN LAS POBRES, ALBERT LAS POBRES, LEONARD LEMONCHITO,
JERRY LIM, JOSE COLLY S. LUCERO, ROBERTO E. MARTIL, HERNANDO MATILLANO, VICENTE M. MATILLANO, TANNY C. MENDOZA, WILLIAM P. NAVARRO, WILSON
P. NAVARRO, LEO A. OLVIDO, ROBERTO G. OTERO, BIENVENIDO C. PAROCHILIN, REYNALDO C. PAROCHILIN, RICKY PALANOG, BERNIE O. PILLO, ALBERTO O.
PILLO, JOE-MARIE S. PUGNA, EDWIN G. RIBON, RAUL A. RUBIO, HENRY S. SAMILLANO, EDGAR SANTIAGO, ROLAND B. SANTILLANA, ROLDAN V. SAYAM, JOSEPH
S. SAYSON, RENE SUARNABA, ELMAR TABLIGAN, JERRY D. TALITE, OSCAR TALITE, WINIFREDO TALITE, CAMILO N. TEMPOROSA, JOSE TEMPOROSA, RANDY
TINGALA, TRISTAN A. TINGSON, ROGELIO TOMESA, DIONISE A. TORMIS, ADELINO C. UNTAL, FELIX T. UNTAL, RONILO E. VISTA, JOAN C. VIYO and JOSE JOFER C.
VIYO and the COURT OF APPEALS, respondents.

DECISION

CARPIO-MORALES, J.:

Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and Visayas Area Manager for Aquaculture Operations Leopoldo S. Titular, and
Sunflower Multi-Purpose Cooperative (Sunflower), represented by the Chairman of its Board of Directors Roy G. Asong, entered into a one-year Contract of Services[1]
commencing on January 1, 1993, to be renewed on a month to month basis until terminated by either party. The pertinent provisions of the contract read:

1. The cooperative agrees and undertakes to perform and/or provide for the company, on a non-exclusive basis for a period of one year the following services for the
Bacolod Shrimp Processing Plant:

A. Messengerial/Janitorial

B. Shrimp Harvesting/Receiving

C. Sanitation/Washing/Cold Storage[2]

2. To carry out the undertaking specified in the immediately preceding paragraph, the cooperative shall employ the necessary personnel and provide adequate equipment,
materials, tools and apparatus, to efficiently, fully and speedily accomplish the work and services undertaken by the cooperative. xxx
3. In consideration of the above undertaking the company expressly agrees to pay the cooperative the following rates per activity:

A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand Five Hundred Pesos Only (P19,500.00)

B. Harvesting/Shrimp Receiving. Piece rate of P0.34/kg. Or P100.00 minimum per person/activity whichever is higher, with provisions as follows:

P25.00 Fixed Fee per person

Additional meal allowance P15.00 every meal time in case harvest duration exceeds one meal.

This will be pre-set every harvest based on harvest plan approved by the Senior Buyer.

C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts.

One-half of the payment for all services rendered shall be payable on the fifteenth and the other half, on the end of each month. The cooperative shall pay taxes, fees,
dues and other impositions that shall become due as a result of this contract.

The cooperative shall have the entire charge, control and supervision of the work and services herein agreed upon. xxx

4. There is no employer-employee relationship between the company and the cooperative, or the cooperative and any of its members, or the company and any members
of the cooperative. The cooperative is an association of self-employed members, an independent contractor, and an entrepreneur. It is subject to the control and direction
of the company only as to the result to be accomplished by the work or services herein specified, and not as to the work herein contracted. The cooperative and its
members recognize that it is taking a business risk in accepting a fixed service fee to provide the services contracted for and its realization of profit or loss from its
undertaking, in relation to all its other undertakings, will depend on how efficiently it deploys and fields its members and how they perform the work and manage its
operations.

5. The cooperative shall, whenever possible, maintain and keep under its control the premises where the work under this contract shall be performed.

6. The cooperative shall have exclusive discretion in the selection, engagement and discharge of its member-workers or otherwise in the direction and control thereof.
The determination of the wages, salaries and compensation of the member-workers of the cooperative shall be within its full control. It is further understood that the
cooperative is an independent contractor, and as such, the cooperative agrees to comply with all the requirements of all pertinent laws and ordinances, rules and
regulations. Although it is understood and agreed between the parties hereto that the cooperative, in the performance of its obligations, is subject to the control or
direction of the company merely as a (sic) result to be accomplished by the work or services herein specified, and not as to the means and methods of accomplishing
such result, the cooperative hereby warrants that it will perform such work or services in such manner as will be consistent with the achievement of the result herein
contracted for.xxx

8. The cooperative undertakes to pay the wages or salaries of its member-workers, as well as all benefits, premiums and protection in accordance with the provisions of
the labor code, cooperative code and other applicable laws and decrees and the rules and regulations promulgated by competent authorities, assuming all responsibility
therefor.

The cooperative further undertakes to submit to the company within the first ten (10) days of every month, a statement made, signed and sworn to by its duly authorized
representative before a notary public or other officer authorized by law to administer oaths, to the effect that the cooperative has paid all wages or salaries due to its
employees or personnel for services rendered by them during the month immediately preceding, including overtime, if any, and that such payments were all in accordance
with the requirements of law.xxx
12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall be for a period of one (1) year commencing on January 1, 1993. Thereafter, this
Contract will be deemed renewed on a month-to-month basis until terminated by either party by sending a written notice to the other at least thirty (30) days prior to the
intended date of termination.xxx[3] (Underscoring supplied)

Pursuant to the contract, Sunflower engaged private respondents to, as they did, render services at SMCs Bacolod Shrimp Processing Plant at Sta. Fe, Bacolod City. The
contract was deemed renewed by the parties every month after its expiration on January 1, 1994 and private respondents continued to perform their tasks until September
11, 1995.

In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration Branch No. VI, Bacolod City, praying to be declared as regular employees of
SMC, with claims for recovery of all benefits and privileges enjoyed by SMC rank and file employees.

Private respondents subsequently filed on September 25, 1995 an Amended Complaint[4] to include illegal dismissal as additional cause of action following SMCs closure
of its Bacolod Shrimp Processing Plant on September 15, 1995[5] which resulted in the termination of their services.

SMC filed a Motion for Leave to File Attached Third Party Complaint[6] dated November 27, 1995 to implead Sunflower as Third Party Defendant which was, by Order[7]
of December 11, 1995, granted by Labor Arbiter Ray Alan T. Drilon.

In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo City of the Department of Labor and Employment (DOLE) a Notice of Closure[8] of
its aquaculture operations effective on even date, citing serious business losses.

By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents complaint for lack of merit, ratiocinating as follows:

We sustain the stand of the respondent SMC that it could properly exercise its management prerogative to contract out the preparation and processing aspects of its
aquaculture operations. Judicial notice has already been taken regarding the general practice adopted in government and private institutions and industries of hiring
independent contractors to perform special services. xxxxxx

Indeed, the law allows job contracting. Job contracting is permissible under the Labor Code under specific conditions and we do not see how this activity could not be
legally undertaken by an independent service cooperative like the third-party respondent herein.

There is no basis to the demand for regularization simply on the theory that complainants performed activities which are necessary and desirable in the business of
respondent. It has been held that the definition of regular employees as those who perform activities which are necessary and desirable for the business of the employer
is not always determinative because any agreement may provide for one (1) party to render services for and in behalf of another for a consideration even without being
hired as an employee.

The charge of the complainants that third-party respondent is a mere labor-only contractor is a sweeping generalization and completely unsubstantiated. xxx In the
absence of clear and convincing evidence showing that third-party respondent acted merely as a labor only contractor, we are firmly convinced of the legitimacy and the
integrity of its service contract with respondent SMC.

In the same vein, the closure of the Bacolod Shrimp Processing Plant was a management decision purely dictated by economic factors which was (sic) mainly serious
business losses. The law recognizes the right of the employer to close his business or cease his operations for bonafide reasons, as much as it recognizes the right of
the employer to terminate the employment of any employee due to closure or cessation of business operations, unless the closing is for the purpose of circumventing
the provisions of the law on security of tenure. The decision of respondent SMC to close its Bacolod Shrimp Processing Plant, due to serious business losses which has
(sic) clearly been established, is a management prerogative which could hardly be interfered with.

xxx The closure did affect the regular employees and workers of the Bacolod Processing Plant, who were accordingly terminated following the legal requisites prescribed
by law. The closure, however, in so far as the complainants are concerned, resulted in the termination of SMCs service contract with their cooperative xxx[9] (Underscoring
supplied)
Private respondents appealed to the NLRC.

By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of merit, it finding that third party respondent Sunflower was an independent contractor in
light of its observation that [i]n all the activities of private respondents, they were under the actual direction, control and supervision of third party respondent Sunflower,
as well as the payment of wages, and power of dismissal.[10]

Private respondents Motion for Reconsideration[11] having been denied by the NLRC for lack of merit by Resolution of September 10, 1999, they filed a petition for
certiorari[12] before the Court of Appeals (CA).

Before the CA, SMC filed a Motion to Dismiss[13] private respondents petition for non-compliance with the Rules on Civil Procedure and failure to show grave abuse of
discretion on the part of the NLRC.

SMC subsequently filed its Comment[14] to the petition on March 30, 2000.

By Decision of February 7, 2001, the appellate court reversed the NLRC decision and accordingly found for private respondents, disposing as follows:

WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby RENDERED: (1) REVERSING and SETTING ASIDE both the 29 December 1998 decision and 10
September 1999 resolution of the National Labor Relations Commission (NLRC), Fourth Division, Cebu City in NLRC Case No. V-0361-97 as well as the 23 September 1997
decision of the labor arbiter in RAB Case No. 06-07-10316-95; (2) ORDERING the respondent, San Miguel Corporation, to GRANT petitioners: (a) separation pay in
accordance with the computation given to the regular SMC employees working at its Bacolod Shrimp Processing Plant with full backwages, inclusive of allowances and
other benefits or their monetary equivalent, from 11 September 1995, the time their actual compensation was withheld from them, up to the time of the finality of this
decision; (b) differentials pays (sic) effective as of and from the time petitioners acquired regular employment status pursuant to the disquisition mentioned above, and
all such other and further benefits as provided by applicable collective bargaining agreement(s) or other relations, or by law, beginning such time up to their termination
from employment on 11 September 1995; and ORDERING private respondent SMC to PAY unto the petitioners attorneys fees equivalent to ten (10%) percent of the total
award.

No pronouncement as to costs.

SO ORDERED.[15] (Underscoring supplied)

Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate court reasoned:

Although the terms of the non-exclusive contract of service between SMC and [Sunflower] showed a clear intent to abstain from establishing an employer-employee
relationship between SMC and [Sunflower] or the latters members, the extent to which the parties successfully realized this intent in the light of the applicable law is the
controlling factor in determining the real and actual relationship between or among the parties.xxx

With respect to the power to control petitioners conduct, it appears that petitioners were under the direct control and supervision of SMC supervisors both as to the
manner they performed their functions and as to the end results thereof. It was only after petitioners lodged a complaint to have their status declared as regular employees
of SMC that certain members of [Sunflower] began to countersign petitioners daily time records to make it appear that they (petitioners) were under the control and
supervision of [Sunflower] team leaders (rollo, pp. 523-527). xxx

Even without these instances indicative of control by SMC over the petitioners, it is safe to assume that SMC would never have allowed the petitioners to work within its
premises, using its own facilities, equipment and tools, alongside SMC employees discharging similar or identical activities unless it exercised a substantial degree of
control and supervision over the petitioners not only as to the manner they performed their functions but also as to the end results of such functions.xxx
xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent contractors. [Sunflower] and the petitioners did not have substantial capital
or investment in the form of tools, equipment, implements, work premises, et cetera necessary to actually perform the service under their own account, responsibility,
and method. The only work premises maintained by [Sunflower] was a small office within the confines of a small carinderia or refreshment parlor owned by the mother
of its chair, Roy Asong; the only equipment it owned was a typewriter (rollo, pp. 525-525) and, the only assets it provided SMC were the bare bodies of its members, the
petitioners herein (rollo, p. 523).

In addition, as shown earlier, petitioners, who worked inside the premises of SMC, were under the control and supervision of SMC both as to the manner and method in
discharging their functions and as to the results thereof.

Besides, it should be taken into account that the activities undertaken by the petitioners as cleaners, janitors, messengers and shrimp harvesters, packers and handlers
were directly related to the aquaculture business of SMC (See Guarin vs. NLRC, 198 SCRA 267, 273). This is confirmed by the renewal of the service contract from January
1993 to September 1995, a period of close to three (3) years.

Moreover, the petitioners here numbering ninety seven (97), by itself, is a considerable workforce and raises the suspicion that the non-exclusive service contract between
SMC and [Sunflower] was designed to evade the obligations inherent in an employer-employee relationship (See Rhone-Poulenc Agrochemicals Philippines, Inc. vs.
NLRC, 217 SCRA 249, 259).

Equally suspicious is the fact that the notary public who signed the by-laws of [Sunflower] and its [Sunflower] retained counsel are both partners of the local counsel of
SMC (rollo, p. 9).xxx

With these observations, no other logical conclusion can be reached except that [Sunflower] acted as an agent of SMC, facilitating the manpower requirements of the
latter, the real employer of the petitioners. We simply cannot allow these two entities through the convenience of a non-exclusive service contract to stipulate on the
existence of employer-employee relation. Such existence is a question of law which cannot be made the subject of agreement to the detriment of the petitioners (Tabas
vs. California Manufacturing, Inc., 169 SCRA 497, 500)xxx

There being a finding of labor-only contracting, liability must be shouldered either by SMC or [Sunflower] or shared by both (See Tabas vs. California Manufacturing, Inc.,
supra, p. 502). SMC however should be held solely liable for [Sunflower] became non-existent with the closure of the aquaculture business of SMC.

Furthermore, since the closure of the aquaculture operations of SMC appears to be valid, reinstatement is no longer feasible. Consistent with the pronouncement in
Bustamante, et al., vs. NLRC, G.R. No. 111651, 28 November 1996, petitioners are thus entitled to separation pay (in the computation similar to those given to regular SMC
employees at its Bacolod Shrimp Processing Plant) with full backwages, inclusive of allowances and other benefits or their monetary equivalent, from the time their actual
compensation was withheld from them up to the time of the finality of this decision. This is without prejudice to differentials pays (sic) effective as of and from the time
petitioners acquired regular employment status pursuant to the discussion mentioned above, and all such other and further benefits as provided by applicable collective
bargaining agreement(s) or other relations, or by law, beginning such time up to their termination from employment on 11 September 1995.[16] (Emphasis and
underscoring supplied)

SMCs Motion for Reconsideration[17] having been denied for lack of merit by Resolution of July 11, 2001, it comes before this Court via the present petition for review on
certiorari assigning to the CA the following errors:

I.THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE COURSE AND GRANTING RESPONDENTS PATENTLY DEFECTIVE PETITION FOR CERTIORARI. IN DOING
SO, THE COURT OF APPEALS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.

II.THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE RESPONDENTS AS COMPLAINANTS IN THE CASE BEFORE THE LABOR ARBITER. IN DOING
SO, THE COURT OF APPEALS DECIDED THIS CASE IN A MANNER NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT.
III.THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE EMPLOYEES OF SMC.

IV.THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic) THAT RESPONDENTS ARE NOT ENTITLED TO ANY RELIEF. THE CLOSURE OF THE BACOLOD
SHRIMP PROCESSING PLANT WAS DUE TO SERIOUS BUSINESS LOSSES.[18] (Underscoring supplied)

SMC bewails the failure of the appellate court to outrightly dismiss the petition for certiorari as only three out of the ninety seven named petitioners signed the verification
and certification against forum-shopping.

While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs or petitioners in a case and the signature of only one of them is
insufficient,[19] this Court has stressed that the rules on forum shopping, which were designed to promote and facilitate the orderly administration of justice, should not
be interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective.[20] Strict compliance with the provisions regarding the certificate of
non-forum shopping merely underscores its mandatory nature in that the certification cannot be altogether dispensed with or its requirements completely disregarded.[21]
It does not, however, thereby interdict substantial compliance with its provisions under justifiable circumstances.[22]

Thus in the recent case of HLC Construction and Development Corporation v. Emily Homes Subdivision Homeowners Association,[23] this Court held:

Respondents (who were plaintiffs in the trial court) filed the complaint against petitioners as a group, represented by their homeowners association president who was
likewise one of the plaintiffs, Mr. Samaon M. Buat. Respondents raised one cause of action which was the breach of contractual obligations and payment of damages.
They shared a common interest in the subject matter of the case, being the aggrieved residents of the poorly constructed and developed Emily Homes Subdivision. Due
to the collective nature of the case, there was no doubt that Mr. Samaon M. Buat could validly sign the certificate of non-forum shopping in behalf of all his co-plaintiffs.
In cases therefore where it is highly impractical to require all the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order not to defeat the ends of
justice, for one of the plaintiffs, acting as representative, to sign the certificate provided that xxx the plaintiffs share a common interest in the subject matter of the case
or filed the case as a collective, raising only one common cause of action or defense.[24] (Emphasis and underscoring supplied)

Given the collective nature of the petition filed before the appellate court by herein private respondents, raising one common cause of action against SMC, the execution
by private respondents Winifredo Talite, Renelito Deon and Jose Temporosa in behalf of all the other private respondents of the certificate of non-forum shopping
constitutes substantial compliance with the Rules.[25] That the three indeed represented their co-petitioners before the appellate court is, as it correctly found,
subsequently proven to be true as shown by the signatures of the majority of the petitioners appearing in their memorandum filed before Us.[26]

Additionally, the merits of the substantive aspects of the case may also be deemed as special circumstance or compelling reason to take cognizance of a petition although
the certification against forum shopping was not executed and signed by all of the petitioners.[27]

SMC goes on to argue that the petition filed before the CA is fatally defective as it was not accompanied by copies of all pleadings and documents relevant and pertinent
thereto in contravention of Section 1, Rule 65 of the Rules of Court.[28

This Court is not persuaded. The records show that private respondents appended the following documents to their petition before the appellate court: the September
23, 1997 Decision of the Labor Arbiter,[29] their Notice of Appeal with Appeal Memorandum dated October 16, 1997 filed before the NLRC,[30] the December 29, 1998
NLRC Decision,[31] their Motion for Reconsideration dated March 26, 1999 filed with the NLRC[32] and the September 10, 1999 NLRC Resolution.[33]

It bears stressing at any rate that it is the appellate court which ultimately determines if the supporting documents are sufficient to make out a prima facie case.[34] It
discerns whether on the basis of what have been submitted it could already judiciously determine the merits of the petition.[35] In the case at bar, the CA found that the
petition was adequately supported by relevant and pertinent documents.

At all events, this Court has allowed a liberal construction of the rule on the accomplishment of a certificate of non-forum shopping in the following cases: (1) where a
rigid application will result in manifest failure or miscarriage of justice; (2) where the interest of substantial justice will be served; (3) where the resolution of the motion
is addressed solely to the sound and judicious discretion of the court; and (4) where the injustice to the adverse party is not commensurate with the degree of his
thoughtlessness in not complying with the procedure prescribed.[36
Rules of procedure should indeed be viewed as mere tools designed to facilitate the attainment of justice. Their strict and rigid application, which would result in
technicalities that tend to frustrate rather than promote substantial justice, must always be eschewed.[37]

SMC further argues that the appellate court exceeded its jurisdiction in reversing the decisions of the labor arbiter and the NLRC as findings of facts of quasi-judicial
bodies like the NLRC are accorded great respect and finality, and that this principle acquires greater weight and application in the case at bar as the labor arbiter and the
NLRC have the same factual findings.

The general rule, no doubt, is that findings of facts of an administrative agency which has acquired expertise in the particular field of its endeavor are accorded great
weight on appeal.[38] The rule is not absolute and admits of certain well-recognized exceptions, however. Thus, when the findings of fact of the labor arbiter and the
NLRC are not supported by substantial evidence or their judgment was based on a misapprehension of facts, the appellate court may make an independent evaluation of
the facts of the case.[39]

SMC further faults the appellate court in giving due course to private respondents petition despite the fact that the complaint filed before the labor arbiter was signed and
verified only by private respondent Winifredo Talite; that private respondents position paper[40] was verified by only six[41] out of the ninety seven complainants; and
that their Joint-Affidavit[42] was executed only by twelve[43] of the complainants.

Specifically with respect to the Joint-Affidavit of private respondents, SMC asserts that it should not have been considered by the appellate court in establishing the
claims of those who did not sign the same, citing this Courts ruling in Southern Cotabato Development and Construction, Inc. v. NLRC.[44]

SMCs position does not lie.

A perusal of the complaint shows that the ninety seven complainants were being represented by their counsel of choice. Thus the first sentence of their complaint alleges:
xxx complainants, by counsel and unto this Honorable Office respectfully state xxx. And the complaint was signed by Atty. Jose Max S. Ortiz as counsel for the
complainants. Following Section 6, Rule III of the 1990 Rules of Procedure of the NLRC, now Section 7, Rule III of the 1999 NLRC Rules, Atty. Ortiz is presumed to be
properly authorized by private respondents in filing the complaint.

That the verification wherein it is manifested that private respondent Talite was one of the complainants and was causing the preparation of the complaint with the
authority of my co-complainants indubitably shows that Talite was representing the rest of his co-complainants in signing the verification in accordance with Section 7,
Rule III of the 1990 NLRC Rules, now Section 8, Rule 3 of the 1999 NLRC Rules, which states:

Section 7. Authority to bind party. Attorneys and other representatives of parties shall have authority to bind their clients in all matters of procedure; but they cannot,
without a special power of attorney or express consent, enter into a compromise agreement with the opposing party in full or partial discharge of a clients claim.
(Underscoring supplied)

As regards private respondents position paper which bore the signatures of only six of them, appended to it was an Authority/Confirmation of Authority[45] signed by
the ninety one others conferring authority to their counsel to file RAB Case No. 06-07-10316-95, entitled Winifredo Talite et al. v. San Miguel Corporation presently pending
before the sala of Labor Arbiter Ray Alan Drilon at the NLRC Regional Arbitration Branch No. VI in Bacolod City and appointing him as their retained counsel to represent
them in the said case.

That there has been substantial compliance with the requirement on verification of position papers under Section 3, Rule V of the 1990 NLRC Rules of Procedure[46] is
not difficult to appreciate in light of the provision of Section 7, Rule V of the 1990 NLRC Rules, now Section 9, Rule V of the 1999 NLRC Rules which reads:

Section 7. Nature of Proceedings. The proceedings before a Labor Arbiter shall be non-litigious in nature. Subject to the requirements of due process, the technicalities
of law and procedure and the rules obtaining in the courts of law shall not strictly apply thereto. The Labor Arbiter may avail himself of all reasonable means to ascertain
the facts of the controversy speedily, including ocular inspection and examination of well-informed persons. (underscoring supplied)
As regards private respondents Joint-Affidavit which is being assailed in view of the failure of some complainants to affix their signatures thereon, this Court quotes with
approval the appellate courts ratiocinations:

A perusal of the Southern Cotabato Development Case would reveal that movant did not quote the whole text of paragraph 5 on page 865 of 280 SCRA. The whole
paragraph reads:

Clearly then, as to those who opted to move for the dismissal of their complaints, or did not submit their affidavits nor appear during trial and in whose favor no other
independent evidence was adduced, no award for back wages could have been validly and properly made for want of factual basis. There is no showing at all that any of
the affidavits of the thirty-four (34) complainants were offered as evidence for those who did not submit their affidavits, or that such affidavits had any bearing at all on
the rights and interest of the latter. In the same vein, private respondents position paper was not of any help to these delinquent complainants.

The implication is that as long as the affidavits of the complainants were offered as evidence for those who did not submit theirs, or the affidavits were material and
relevant to the rights and interest of the latter, such affidavits may be sufficient to establish the claims of those who did not give their affidavits.

Here, a reading of the joint affidavit signed by twelve (12) of the ninety-seven (97) complainants (petitioners herein) would readily reveal that the affidavit was offered as
evidence not only for the signatories therein but for all of the complainants. (These ninety-seven (97) individuals were previously identified during the mandatory
conference as the only complainants in the proceedings before the labor arbiter) Moreover, the affidavit touched on the common interest of all of the complainants as it
supported their claim of the existence of an employer-employee relationship between them and respondent SMC. Thus, the said affidavit was enough to prove the claims
of the rest of the complainants.[47] (Emphasis supplied, underscoring in the original)

In any event, SMC is reminded that the rules of evidence prevailing in courts of law or equity do not control proceedings before the Labor Arbiter. So Article 221 of the
Labor Code enjoins:

ART. 221. Technical rules not binding and prior resort to amicable settlement. In any proceeding 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. xxx

As such, their application may be relaxed to serve the demands of substantial justice.[48]

On the merits, the petition just the same fails.

SMC insists that private respondents are the employees of Sunflower, an independent contractor. On the other hand, private respondents assert that Sunflower is a labor-
only contractor.

Article 106 of the Labor Code provides:

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

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

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

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

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18, distinguishes between legitimate and labor-only
contracting:

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific
job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers.
Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or
subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or
subcontractor to accomplish the job, work or service.

Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis 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.

The test to determine the existence of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to
his own methods and without being subject to the control of the employer, except only as to the results of the work.[49]

In legitimate labor contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to ensure that the employees are paid their wages. The
principal employer becomes jointly and severally liable with the job contractor, only for the payment of the employees wages whenever the contractor fails to pay the
same. Other than that, the principal employer is not responsible for any claim made by the employees.[50]

In labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor
is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly
employed by the principal employer.[51]

The Contract of Services between SMC and Sunflower shows that the parties clearly disavowed the existence of an employer-employee relationship between SMC and
private respondents. The language of a contract is not, however, determinative of the parties relationship; rather it is the totality of the facts and surrounding
circumstances of the case.[52] A party cannot dictate, by the mere expedient of a unilateral declaration in a contract, the character of its business, i.e., whether as labor-
only contractor or job contractor, it being crucial that its character be measured in terms of and determined by the criteria set by statute.[53]

SMC argues that Sunflower could not have been issued a certificate of registration as a cooperative if it had no substantial capital.[54]

While indeed Sunflower was issued Certificate of Registration No. IL0-875[55] on February 10, 1992 by the Cooperative Development Authority, this merely shows that it
had at least P2,000.00 in paid-up share capital as mandated by Section 5 of Article 14[56] of Republic Act No. 6938, otherwise known as the Cooperative Code, which
amount cannot be considered substantial capitalization.

What appears is that Sunflower does not have substantial capitalization or investment in the form of tools, equipment, machineries, work premises and other materials
to qualify it as an independent contractor.

On the other hand, it is gathered that the lot, building, machineries and all other working tools utilized by private respondents in carrying out their tasks were owned and
provided by SMC. Consider the following uncontroverted allegations of private respondents in the Joint Affidavit:

[Sunflower], during the existence of its service contract with respondent SMC, did not own a single machinery, equipment, or working tool used in the processing plant.
Everything was owned and provided by respondent SMC. The lot, the building, and working facilities are owned by respondent SMC. The machineries and equipments
(sic) like washer machine, oven or cooking machine, sizer machine, freezer, storage, and chilling tanks, push carts, hydrolic (sic) jack, tables, and chairs were all owned
by respondent SMC. All the boxes, trays, molding pan used in the processing are also owned by respondent SMC. The gloves and boots used by the complainants were
also owned by respondent SMC. Even the mops, electric floor cleaners, brush, hoose (sic), soaps, floor waxes, chlorine, liquid stain removers, lysol and the like used by
the complainants assigned as cleaners were all owned and provided by respondent SMC.

Simply stated, third-party respondent did not own even a small capital in the form of tools, machineries, or facilities used in said prawn processingxxx

The alleged office of [Sunflower] is found within the confines of a small carinderia or refreshment (sic) owned by the mother of the Cooperative Chairman Roy Asong.

xxx In said . . . office, the only equipment used and owned by [Sunflower] was a typewriter. [57]

And from the job description provided by SMC itself, the work assigned to private respondents was directly related to the aquaculture operations of SMC. Undoubtedly,
the nature of the work performed by private respondents in shrimp harvesting, receiving and packing formed an integral part of the shrimp processing operations of SMC.
As for janitorial and messengerial services, that they are considered directly related to the principal business of the employer[58] has been jurisprudentially recognized.

Furthermore, Sunflower did not carry on an independent business or undertake the performance of its service contract according to its own manner and method, free
from the control and supervision of its principal, SMC, its apparent role having been merely to recruit persons to work for SMC.

Thus, it is gathered from the evidence adduced by private respondents before the labor arbiter that their daily time records were signed by SMC supervisors Ike
Puentebella, Joemel Haro, Joemari Raca, Erwin Tumonong, Edison Arguello, and Stephen Palabrica, which fact shows that SMC exercised the power of control and
supervision over its employees.[59] And control of the premises in which private respondents worked was by SMC. These tend to disprove the independence of the
contractor.[60]

More. Private respondents had been working in the aqua processing plant inside the SMC compound alongside regular SMC shrimp processing workers performing
identical jobs under the same SMC supervisors.[61] This circumstance is another indicium of the existence of a labor-only contractorship.[62]

And as private respondents alleged in their Joint Affidavit which did not escape the observation of the CA, no showing to the contrary having been proffered by SMC,
Sunflower did not cater to clients other than SMC,[63] and with the closure of SMCs Bacolod Shrimp Processing Plant, Sunflower likewise ceased to exist. This Courts
ruling in San Miguel Corporation v. MAERC Integrated Services, Inc.[64] is thus instructive.
xxx Nor do we believe MAERC to have an independent business. Not only was it set up to specifically meet the pressing needs of SMC which was then having labor
problems in its segregation division, none of its workers was also ever assigned to any other establishment, thus convincing us that it was created solely to service the
needs of SMC. Naturally, with the severance of relationship between MAERC and SMC followed MAERCs cessation of operations, the loss of jobs for the whole MAERC
workforce and the resulting actions instituted by the workers.[65] (Underscoring supplied)

All the foregoing considerations affirm by more than substantial evidence the existence of an employer-employee relationship between SMC and private respondents.

Since private respondents who were engaged in shrimp processing performed tasks usually necessary or desirable in the aquaculture business of SMC, they should be
deemed regular employees of the latter[66] and as such are entitled to all the benefits and rights appurtenant to regular employment.[67] They should thus be awarded
differential pay corresponding to the difference between the wages and benefits given them and those accorded SMCs other regular employees.

Respecting the private respondents who were tasked with janitorial and messengerial duties, this Court quotes with approval the appellate courts ruling thereon:

Those performing janitorial and messengerial services however acquired regular status only after rendering one-year service pursuant to Article 280 of the Labor Code.
Although janitorial and messengerial services are considered directly related to the aquaculture business of SMC, they are deemed unnecessary in the conduct of its
principal business; hence, the distinction (See Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-137 and Philippine Bank of Communications v. NLRC, supra,
p. 359).[68]

The law of course provides for two kinds of regular employees, namely: (1) those who are engaged to perform activities which are usually necessary or desirable in the
usual business or trade of the employer; and (2) those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which
they are employed.[69]

As for those of private respondents who were engaged in janitorial and messengerial tasks, they fall under the second category and are thus entitled to differential pay
and benefits extended to other SMC regular employees from the day immediately following their first year of service.[70

Regarding the closure of SMCs aquaculture operations and the consequent termination of private respondents, Article 283 of the Labor Code provides:

ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor saving
devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose
of circumventing the provisions of this Title, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the
intended date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation
pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses
and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be
equivalent to one (1) month pay or to at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered
one (1) whole year. (Underscoring supplied)

In the case at bar, a particular department under the SMC group of companies was closed allegedly due to serious business reverses. This constitutes retrenchment by,
and not closure of, the enterprise or the company itself as SMC has not totally ceased operations but is still very much an on-going and highly viable business concern.[71]

Retrenchment is a management prerogative consistently recognized and affirmed by this Court. It is, however, subject to faithful compliance with the substantive and
procedural requirements laid down by law and jurisprudence.[72]

For retrenchment to be considered valid the following substantial requirements must be met: (a) the losses expected should be substantial and not merely de minimis in
extent; (b) the substantial losses apprehended must be reasonably imminent such as can be perceived objectively and in good faith by the employer; (c) the retrenchment
must be reasonably necessary and likely to effectively prevent the expected losses; and (d) the alleged losses, if already incurred, and the expected imminent losses
sought to be forestalled, must be proved by sufficient and convincing evidence.[73]

In the discharge of these requirements, it is the employer who has the onus, being in the nature of an affirmative defense.[74]

Normally, the condition of business losses is shown by audited financial documents like yearly balance sheets, profit and loss statements and annual income tax returns.
The financial statements must be prepared and signed by independent auditors failing which they can be assailed as self-serving documents.[75]

In the case at bar, company losses were duly established by financial documents audited by Joaquin Cunanan & Co. showing that the aquaculture operations of SMCs
Agribusiness Division accumulated losses amounting to P145,848,172.00 in 1992 resulting in the closure of its Calatrava Aquaculture Center in Negros Occidental,
P11,393,071.00 in 1993 and P80,325,608.00 in 1994 which led to the closure of its San Fernando Shrimp Processing Plant in Pampanga and the Bacolod Shrimp Processing
Plant in 1995.

SMC has thus proven substantial business reverses justifying retrenchment of its employees.

For termination due to retrenchment to be valid, however, the law requires that written notices of the intended retrenchment be served by the employer on the worker and
on the DOLE at least one (1) month before the actual date of the retrenchment,[76] in order to give employees some time to prepare for the eventual loss of their jobs, as
well as to give DOLE the opportunity to ascertain the verity of the alleged cause of termination.[77]

Private respondents, however, were merely verbally informed on September 10, 1995 by SMC Prawn Manager Ponciano Capay that effective the following day or on
September 11, 1995, they were no longer to report for work as SMC would be closing its operations.[78]

Where the dismissal is based on an authorized cause under Article 283 of the Labor Code but the employer failed to comply with the notice requirement, the sanction
should be stiff as the dismissal process was initiated by the employers exercise of his management prerogative, as opposed to a dismissal based on a just cause under
Article 282 with the same procedural infirmity where the sanction to be imposed upon the employer should be tempered as the dismissal process was, in effect, initiated
by an act imputable to the employee.[79]

In light of the factual circumstances of the case at bar, this Court awards P50,000.00 to each private respondent as nominal damages.

The grant of separation pay as an incidence of termination of employment due to retrenchment to prevent losses is a statutory obligation on the part of the employer and
a demandable right on the part of the employee. Private respondents should thus be awarded separation pay equivalent to at least one (1) month pay or to at least one-
half month pay for every year of service, whichever is higher, as mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to other regular SMC
employees that were terminated as a result of the retrenchment, depending on which is most beneficial to private respondents.

Considering that private respondents were not illegally dismissed, however, no backwages need be awarded. It is well settled that backwages may be granted only when
there is a finding of illegal dismissal.[80] The appellate court thus erred in awarding backwages to private respondents upon the authority of Bustamante v. NLRC,[81]
what was involved in that case being one of illegal dismissal.

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

Absent any evidence showing that Sunflower has been dissolved in accordance with law, pursuant to Rule VIII-A, Section 19[88] of the Omnibus Rules Implementing the
Labor Code, Sunflower is held solidarily liable with SMC for all the rightful claims of private respondents.
WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001 and Resolution dated July 11, 2001 of the Court of Appeals are AFFIRMED with
MODIFICATION.

Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby ORDERED to jointly and severally pay each private respondent differential pay
from the time they became regular employees up to the date of their termination; separation pay equivalent to at least one (1) month pay or to at least one-half month pay
for every year of service, whichever is higher, as mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to other regular SMC employees that
were terminated as a result of the retrenchment, depending on which is most beneficial to private respondents; and ten percent (10%) attorneys fees based on the herein
modified award.

Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount of P50,000.00, representing nominal damages for non-compliance with
statutory due process.

The award of backwages is DELETED. SO ORDERED.

January 13, 2016

G.R. Nos. 173254-55 & 173263

DIAMOND FARMS, INC., Petitioner,

vs.
SOUTHERN PHILIPPINES FEDERATION OF LABOR (SPFL)-WORKERS SOLIDARITY OF DARBMUPCO/DIAMOND-SPFL, DIAMOND FARMS AGRARIAN REFORM
BENEFICIARIES MULTI-PURPOSE COOPERATIVE (DARBMUPCO), VOLTER LOPEZ, RUEL ROMERO, PATRICIO CAPRECHO, REY DIMACALI, ELESIO EMANEL, VICTOR
SINGSON, NILDA DIMACALI, PREMITIVO* DIAZ, RUDY VISTAL, ROGER MONTERO, JOSISIMO GOMEZ and MANUEL MOSQUERA, Respondents.

DECISION

JARDELEZA, J.:

We resolve in this Petition for Review1 under Rule 45 of the Rules of Court, the issue of who among Diamond Farms, Inc. ("DFI"), Diamond Farms Agrarian Reform Beneficiaries Multi-
Purpose Cooperative ("DARBMUPCO") and the individual contractors 2 ("respondent-contractors") is the employer of the 400 employees ("respondent-workers").

DFI challenges the March 31, 2006 Decision3 and May 30, 2006 Resolution4 of the Court Appeals, Special Twenty-Second Division, Cagayan De Oro City for being contrary to law
and jurisprudence. The Decision dismissed DFI’s Petition for Certiorari in C.A.-G.R. SP Nos. 53806 and 61607 and granted DARBMUPCO’s Petition for Certiorari in C.A.-G.R. SP No.
59958. It declared DFI as the statutory employer of the respondent-workers.

The Facts

DFI owns an 800-hectare banana plantation ("original plantation") in Alejal, Carmen, Davao. 5 Pursuant to Republic Act No. 6657 or the Comprehensive Agrarian Reform Law of 1988
("CARL"), commercial farms shall be subject to compulsory acquisition and distribution, 6 thus the original plantation was covered by the law. However, the Department of Agrarian
Reform ("DAR") granted DFI a deferment privilege to continue agricultural operations until 1998.7 Due to adverse marketing problems and observance of the so-called "lay-follow" or
the resting of a parcel of land for a certain period of time after exhaustive utilization, DFI closed some areas of operation in the original plantation and laid off its employees.8 These
employees petitioned the DAR for the cancellation of DFI’s deferment privilege alleging that DFI already abandoned its area of operations. 9 The DAR Regional Director recalled DFI’s
deferment privilege resulting in the original plantation’s automatic compulsory acquisition and distribution under the CARL. 10 DFI filed a motion for reconsideration which was denied.
It then appealed to the DAR Secretary.11

In the meantime, to minimize losses, DFI offered to give up its rights and interest over the original plantation in favor of the government by way of a Voluntary Offer to Sell.12 The DAR
accepted DFI’s offer to sell the original plantation. However, out of the total 800 hectares, the DAR only approved the disposition of 689.88 hectares. Hence, the original plantation
was split into two: 689.88 hectares were sold to the government ("awarded plantation") and the remaining 200 hectares, more or less, were retained by DFI ("managed area").13 The
managed area is subject to the outcome of the appeal on the cancellation of the deferment privilege before the DAR Secretary.

On January 1, 1996, the awarded plantation was turned over to qualified agrarian reform beneficiaries ("ARBs") under the CARL. These ARBs are the same farmers who were working
in the original plantation. They subsequently organized themselves into a multi-purpose cooperative named "DARBMUPCO," which is one of the respondents in this case. 14

On March 27, 1996, DARBMUPCO entered into a Banana Production and Purchase Agreement ("BPPA")15 with DFI.16 Under the BPPA, DARBMUPCO and its members as owners
of the awarded plantation, agreed to grow and cultivate only high grade quality exportable bananas to be sold exclusively to DFI.17 The BPPA is effective for 10 years.18

On April 20, 1996, DARBMUPCO and DFI executed a "Supplemental to Memorandum Agreement" ("SMA"). 19 The SMA stated that DFI shall take care of the labor cost arising from
the packaging operation, cable maintenance, irrigation pump and irrigation maintenance that the workers of DARBMUPCO shall conduct for DFI’s account under the BPPA. 20

From the start, DARBMUPCO was hampered by lack of manpower to undertake the agricultural operation under the BPPA because some of its members were not willing to
work.21 Hence, to assist DARBMUPCO in meeting its production obligations under the BPPA, DFI engaged the services of the respondent-contractors, who in turn recruited the
respondent-workers.22

The engagement of the respondent-workers, as will be seen below, started a series of labor disputes among DARBMUPCO, DFI and the respondent-contractors.

C.A. G.R. SP No. 53806

On February 10, 1997, respondent Southern Philippines Federation of Labor ("SPFL")—a legitimate labor organization with a local chapter in the awarded plantation—filed a petition
for certification election in the Office of the Med-Arbiter in Davao City.23 SPFL filed the petition on behalf of some 400 workers (the respondent-workers in this petition) "jointly employed
by DFI and DARBMUPCO" working in the awarded plantation.

DARBMUPCO and DFI denied that they are the employers of the respondent-workers. They claimed, instead, that the respondent-workers are the employees of the respondent-
contractors.24

In an Order dated May 14, 1997,25 the Med-Arbiter granted the petition for certification election. It directed the conduct of certification election and declared that DARBMUPCO was
the employer of the respondent-workers. The Order stated that "whether the said workers/employees were hired by independent contractors is of no moment. What is material is that
they were hired purposely to work on the 689.88 hectares banana plantation [the awarded plantation] now owned and operated by DARBMUPCO." 26

DARBMUPCO appealed to the Secretary of Labor and Employment ("SOLE"). In a Resolution dated February 18, 1999,27 the SOLE modified the decision of the Med-Arbiter. The
SOLE held that DFI, through its manager and personnel, supervised and directed the performance of the work of the respondentcontractors. The SOLE thus declared DFI as the
employer of the respondent-workers.28

DFI filed a motion for reconsideration which the SOLE denied in a Resolution dated May 4, 1999.29

On June 11, 1999, DFI elevated the case to the Court of Appeals ("CA") via a Petition for Certiorari30 under Rule 65 of the Rules of Court. The case was raffled to the CA’s former
Twelfth Division and was docketed as C.A.-G.R. SP No. 53806.

C.A.-G.R. SP. No. 59958

Meanwhile, on June 20, 199731 and September 15, 1997,32 SPFL, together with more than 300 workers, filed a case for underpayment of wages, non-payment of 13th month pay and
service incentive leave pay and attorney’s fees against DFI, DARBMUPCO and the respondent-contractors before the National Labor Relations Commission ("NLRC") in Davao City.
DARBMUPCO averred that it is not the employer of respondent-workers; neither is DFI. It asserted that the money claims should be directed against the true employer—the respondent-
contractors.33
In a Decision dated January 22, 1999,34 the Labor Arbiter ("LA") held that the respondent-contractors are "labor-only contractors." The LA gave credence to the affidavits of the other
contractors35 of DFI (who are not party-respondents in this petition) asserting that DFI engaged their services, and supervised and paid their laborers. The affidavits also stated that
the contractors had no dealings with DARBMUPCO, except that their work is done in the awarded plantation. 36

The LA held that, under the law, DFI is deemed as the statutory employer of all the respondent-workers.37 The LA dismissed the case against DARBMUPCO and the respondent-
contractors.38

DFI appealed to the NLRC. In a Resolution dated May 24, 1999,39 the NLRC Fifth Division modified the Decision of the LA and declared that DARBMUPCO and DFI are the statutory
employers of the workers rendering services in the awarded plantation and the managed area, respectively. 40 It adjudged DFI and DARBMUPCO as solidarily liable with the respondent-
contractors for the monetary claims of the workers, in proportion to their net planted area. 41

DARBMUPCO filed a motion for reconsideration which was denied. 42 It filed a second motion for reconsideration in the NLRC, which was also denied for lack of merit and for being
barred under the NLRC Rules of Procedure.43Hence, DARBMUPCO elevated the case to the CA by way of a Petition for Certiorari.44 The case was docketed as C.A.-G.R. SP. No.
59958.

The former Eleventh Division of the CA consolidated C.A. G.R. SP. No. 59958 and C.A.-G.R. SP No. 53806 in a Resolution dated January 27, 2001. 45

C.A.-G.R. SP No. 61607

Pursuant to the May 4, 1999 Resolution of the SOLE approving the conduct of certification election, the Department of Labor and Employment ("DOLE") conducted a certification
election on October 1, 1999.46 On even date, DFI filed an election protest47 before the Med-Arbiter arguing that the certification election was premature due to the pendency of a
petition for certiorari before the CA assailing the February 18, 1999 and May 4, 1999 Resolutions of the SOLE (previously discussed in C.A.-G.R. SP No. 53806).

In an Order dated December 15, 1999,48 the Med-Arbiter denied DFI’s election protest, and certified SPFL-Workers Solidarity of DARBMUPCO/DIAMOND-SPFL ("WSD-SPFL") as
the exclusive bargaining representative of the respondent-workers. DFI filed a Motion for Reconsideration49 which the Med-Arbiter treated as an appeal, and which the latter elevated
to the SOLE.

In a Resolution dated July 18, 2000,50 the SOLE dismissed the appeal. The Resolution stated that the May 4, 1999 Resolution directing the conduct of certification election is already
final and executory on June 4, 1999. It pointed out that the filing of the petition for certiorari before the CA assailing the February 18, 1999 and May 4, 1999 Resolutions does not stay
the conduct of the certification election because the CA did not issue a restraining order. 51DFI filed a Motion for Reconsideration but the motion was denied. 52

On October 27, 2000, DFI filed a Petition for Certiorari53 before the CA, docketed as C.A.-G.R. SP No. 61607.

In a Resolution dated August 2, 2005,54 the CA Twenty-Third Division consolidated C.A.-G.R. SP No. 61607 with C.A.-G.R. SP. No. 59958 and C.A. G.R. SP No. 53806.

The Assailed CA Decision and Resolution

The CA was confronted with two issues:55

(1) "Whether DFI or DARBMUPCO is the statutory employer of the [respondent-workers] in these petitions; and

(2) Whether or not a certification election may be conducted pending the resolution of the petition for certiorari filed before this Court, the main issue of which is the identity of the
employer of the [respondent-workers] in these petitions."

On the first issue, the CA agreed with the ruling of the SOLE 56 that DFI is the statutory employer of the respondent-workers. It noted that the DFI hired the respondent-contractors,
who in turn procured their own men to work in the land owned by DARBMUPCO. Further, DFI admitted that the respondent-contractors worked under the direction and supervision of
DFI’s managers and personnel. DFI also paid for the respondent-contractors’ services.57 The CA said that the fact that the respondent-workers worked in the land owned by
DARBMUPCO is immaterial. "Ownership of the land is not one of the four (4) elements generally considered to establish employer-employee relationship."58

The CA also ruled that DFI is the true employer of the respondent-workers because the respondent-contractors are not independent contractors.59 The CA stressed that in its pleadings
before the Med-Arbiter, the SOLE, and the CA, DFI revealed that DARBMUPCO lacks manpower to fulfill the production requirements under the BPPA. This impelled DFI to hire
contractors to supply labor enabling DARBMUPCO to meet its quota. The CA observed that while the various agencies involved in the consolidated petitions sometimes differ as to
who the statutory employer of the respondent-workers is, they are uniform in finding that the respondent-contractors are labor-only contractors.60

On the second issue, the CA reiterated the ruling of the SOLE 61 that absent an injunction from the CA, the pendency of a petition for certiorari does not stay the holding of the
certification election.62 The challenged Resolution of the SOLE is already final and executory as evidenced by an Entry of Judgment dated July 14, 1999; hence, the merits of the case
can no longer be reviewed.63

The CA thus held in its Decision dated March 31, 2006:

WHEREFORE, premises considered, this Court hereby ORDERS:

(1) the DISMISSAL of the petitions in C.A.-G.R. SP No. 53806 and C.A.-G.R. SP No. 61607; and

(2) the GRANTING of the petition in C.A.-G.R. SP No. 59958 and the SETTING ASIDE of the assailed resolutions of the NLRC dated 24 May 1999, 30 July 1999 and 26 June 2000,
respectively.

SO ORDERED.64

DFI filed a Motion for Reconsideration of the CA Decision which was denied in a Resolution dated May 30, 2006. 65

DFI is now before us by way of Petition for Review on Certiorari praying that DARBMUPCO be declared the true employer of the respondent-workers.

DARBMUPCO filed a Comment66 maintaining that under the control test, DFI is the true employer of the respondent-workers.

Respondent-contractors filed a Verified Explanation and Memorandum67 asserting that they were labor-only contractors; hence, they are merely agents of the true employer of the
respondent-workers.

SPFL did not file any comment or memorandum on behalf of the respondent-workers.68

The Issue

The issue before this Court is who among DFI, DARBMUPCO and the respondent-contractors is the employer of the respondent-workers.

Our Ruling

We deny the petition.

This case involves job contracting, a labor arrangement expressly allowed by law. Contracting or subcontracting is an arrangement whereby a principal (or employer) agrees to put
out or farm out with a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such
job, work or service is to be performed or completed within or outside the premises of the principal.69 It involves a trilateral relationship among the principal or employer, the contractor
or subcontractor, and the workers engaged by the contractor or subcontractor.70
Article 106 of the Labor Code of the Philippines 71 (Labor Code) explains the relations which may arise between an employer, a contractor, and the contractor’s employees, 72 thus:

ART. 106. Contractor or subcontracting. − Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor
and of the 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.

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.

The Omnibus Rules Implementing the Labor Code73 distinguishes between permissible job contracting (or independent contractorship) and labor-only contracting. Job contracting is
permissible under the Code if the following conditions are met:

(a) 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

(b) 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.74

In contrast, job contracting shall be deemed as labor-only contracting, an arrangement prohibited by law, if a person who undertakes to supply workers to an employer:

(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.75

As a general rule, a contractor is presumed to be a labor-only contractor, unless such contractor overcomes the burden of proving that it has the substantial capital, investment, tools
and the like.76

Based on the conditions for permissible job contracting, we rule that respondent-contractors are labor-only contractors.

There is no evidence showing that respondent-contractors are independent contractors. The respondent-contractors, DFI, and DARBMUPCO did not offer any proof that respondent-
contractors were not engaged in labor-only contracting. In this regard, we cite our ruling in Caro v. Rilloraza,77 thus:

"In regard to the first assignment of error, the defendant company pretends to show through Venancio Nasol's own testimony that he was an independent contractor who undertook to
construct a railway line between Maropadlusan and Mantalisay, but as far as the record shows, Nasol did not testify that the defendant company had no control over him as to the
manner or methods he employed in pursuing his work. On the contrary, he stated that he was not bonded, and that he only depended upon the Manila Railroad for money to be paid
to his laborers. As stated by counsel for the plaintiffs, the word ‘independent contractor’ means 'one who exercises independent employment and contracts to do a piece of work
according to his own methods and without being subject to control of his employer except as to result of the work.' Furthermore, if the employer claims that the workmen is an
independent contractor, for whose acts he is not responsible, the burden is on him to show his independence.

Tested by these definitions and by the fact that the defendant has presented practically no evidence to determine whether Venancio Nasol was in reality an independent
contractor or not, we are inclined to think that he is nothing but an intermediary between the defendant and certain laborers. It is indeed difficult to find that Nasol is an
independent contractor; a person who possesses no capital or money of his own to pay his obligations to them, who files no bond to answer for any fulfillment of his contract with
his employer and specially subject to the control and supervision of his employer, falls short of the requisites or conditions necessary for the common and independent
contractor."78 (Citations omitted; emphasis supplied.)

To support its argument that respondent-contractors are the employers of respondent-workers, and not merely labor-only contractors, DFI should have presented proof showing that
respondent-contractors carry on an independent business and have sufficient capitalization. The record, however, is bereft of showing of even an attempt on the part of DFI to
substantiate its argument.

DFI cannot cite the May 24, 1999 Resolution of the NLRC as basis that respondent-contractors are independent contractors. Nowhere in the NLRC Resolution does it say that the
respondent-contractors are independent contractors. On the contrary, the NLRC declared that "it was not clearly established on record that said [respondent-]contractors are
independent, xxx."79

Further, respondent-contractors admit, and even insist that they are engaged in labor-only contracting. As will be seen below, respondent-contractors made the admissions and
declarations on two occasions: first was in their Formal Appearance of Counsel and Motion for Exclusion of Individual Party-Respondents filed before the LA; and second was in their
Verified Explanation and Memorandum filed before this Court.

Before the LA, respondent-contractors categorically stated that they are "labor-only" contractors who have been engaged by DFI and DARBMUPCO.80 They admitted that they do not
have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials, and they recruited workers to perform activities directly related
to the principal operations of their employer.81

Before this Court, respondents-contractors again admitted that they are labor-only contractors. They narrated that:

1. Herein respondents, Voltaire Lopez, Jr., et al., were commissioned and contracted by petitioner, Diamond Farms, Inc. (DFI) to recruit farm workers, who are the
complaining [respondent-workers] (as represented by Southern Philippines Federation of Labor (SPFL) in this appeal by certiorari), in order to perform specific farm activities,
such as pruning, deleafing, fertilizer application, bud inject, stem spray, drainage, bagging, etc., on banana plantation lands awarded to private respondent, Diamond Farms Agrarian
Reform Beneficiaries Multi-Purpose Cooperative (DARBMUPCO) and on banana planted lands owned and managed by petitioner, DFI.

2. All farm tools, implements and equipment necessary to performance of such farm activities were supplied by petitioner DFI to respondents Voltaire Lopez, Jr., et. al. as well as to
respondents-SPFL, et. al. Herein respondents Voltaire Lopez, Jr. et. al. had no adequate capital to acquire or purchase such tools, implements, equipment, etc.

3. Herein respondents Voltaire Lopez, Jr., et. al. As well as respondents-SPFL, et. al. were being directly supervised, controlled and managed by petitioner DFI farm
managers and supervisors, specifically on work assignments and performance targets. DFI managers and supervisors, at their sole discretion and prerogative, could directly
hire and terminate any or all of the respondents-SPFL, et. al., including any or all of the herein respondents Voltaire Lopez, Jr., et. al.

4. Attendance/Time sheets of respondents-SPFL, et. al. were being prepared by herein respondents Voltaire Lopez, Jr., et. al., and correspondingly submitted to petitioner DFI.
Payment of wages to respondents-SPFL, et. al. were being paid for by petitioner DFI thru herein respondents Voltaire Lopez, [Jr.], et. al. The latter were also receiving their
wages/salaries from petitioner DFI for monitoring/leading/recruiting the respondents-SPFL, et. al.

5. No monies were being paid directly by private respondent DARBMUPCO to respondents-SPFL, et al., nor to herein respondents Voltaire Lopez, [Jr.], et. al. Nor did respondent
DARBMUPCO directly intervene much less supervise any or all of [the] respondents-SPFL, et. al. including herein respondents Voltaire Lopez, Jr., et. al.82 (Emphasis supplied.)
The foregoing admissions are legally binding on respondent-contractors.83 Judicial admissions made by parties in the pleadings, or in the course of the trial or other proceedings in
the same case are conclusive and so does not require further evidence to prove them.84 Here, the respondent-contractors voluntarily pleaded that they are labor-only contractors;
hence, these admissions bind them.

A finding that a contractor is a labor-only contractor is equivalent to a declaration that there is an employer-employee relationship between the principal, and the workers of the labor-
only contractor; the labor-only contractor is deemed only as the agent of the principal.85 Thus, in this case, respondent-contractors are the labor-only contractors and either DFI or
DARBMUPCO is their principal.

We hold that DFI is the principal.

Under Article 106 of the Labor Code, a principal or employer refers to the person who enters into an agreement with a job contractor, either for the performance of a specified work or
for the supply of manpower.86 In this regard, we quote with approval the findings of the CA, to wit:

The records show that it is DFI which hired the individual [respondent-contractors] who in turn hired their own men to work in the 689.88 hectares land of DARBMUPCO
as well as in the managed area of the plantation. DFI admits [that] these [respondent-contractors] worked under the direction and supervision of the DFI managers and personnel.
DFI paid the [respondent-contractors] for the services rendered in the plantation and the [respondent-contractors] in turn pay their workers after they [respondent-contractors] received
payment from DFI. xxx DARBMUPCO did not have anything to do with the hiring, supervision and payment of the wages of the workers-respondents thru the contractors-respondents.
xxx87 (Emphasis supplied.)

DFI does not deny that it engaged the services of the respondent-contractors. It does not dispute the claims of respondent-contractors that they sent their billing to DFI for payment;
and that DFI’s managers and personnel are in close consultation with the respondent-contractors.88

DFI cannot argue that DARBMUPCO is the principal of the respondent-contractors because it (DARBMUPCO) owns the awarded plantation where respondent-contractors and
respondent-workers were working;89 and therefore DARBMUPCO is the ultimate beneficiary of the employment of the respondent-workers.90

That DARBMUPCO owns the awarded plantation where the respondent-contractors and respondent-workers were working is immaterial. This does not change the situation of the
parties. As correctly found by the CA, DFI, as the principal, hired the respondent-contractors and the latter, in turn, engaged the services of the respondent-workers.91This was also
the unanimous finding of the SOLE,92 the LA,93 and the NLRC.94 Factual findings of the NLRC, when they coincide with the LA and affirmed by the CA are accorded with great weight
and respect and even finality by this Court.95

Alilin v. Petron Corporation96 is applicable. In that case, this Court ruled that the presence of the power of control on the part of the principal over the workers of the contractor, under
the facts, prove the employer-employee relationship between the former and the latter, thus:

[A] finding that a contractor is a ‘labor-only’ contractor is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the
supposed contractor." In this case, the employer-employee relationship between Petron and petitioners becomes all the more apparent due to the presence of the power
of control on the part of the former over the latter.

It was held in Orozco v. The Fifth Division of the Hon. Court of Appeals that:

This Court has constantly adhered to the "four-fold test" to determine whether there exists an employer-employee relationship between the parties.1âwphi1 The four elements of an
employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the power to control the employee’s
conduct.

Of these four elements, it is the power to control which is the most crucial and most determinative factor, so important, in fact, that, the other elements may even be
disregarded.
Hence, the facts that petitioners were hired by Romeo or his father and that their salaries were paid by them do not detract from the conclusion that there exists an employer-employee
relationship between the parties due to Petron’s power of control over the petitioners. One manifestation of the power of control is the power to transfer employees from one work
assignment to another. Here, Petron could order petitioners to do work outside of their regular "maintenance/utility" job. Also, petitioners were required to report for work everyday at
the bulk plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule, and wear proper uniform and safety helmets as prescribed by the safety and security measures being implemented
within the bulk plant. All these imply control. In an industry where safety is of paramount concern, control and supervision over sensitive operations, such as those performed by the
petitioners, are inevitable if not at all necessary. Indeed, Petron deals with commodities that are highly volatile and flammable which, if mishandled or not properly attended to, may
cause serious injuries and damage to property and the environment. Naturally, supervision by Petron is essential in every aspect of its product handling in order not to compromise
the integrity, quality and safety of the products that it distributes to the consuming public.97 (Citations omitted; emphasis supplied)

That DFI is the employer of the respondent-workers is bolstered by the CA’s finding that DFI exercises control over the respondent-workers.98 DFI, through its manager and supervisors
provides for the work assignments and performance targets of the respondent-workers. The managers and supervisors also have the power to directly hire and terminate the
respondent-workers.99 Evidently, DFI wields control over the respondent-workers.

Neither can DFI argue that it is only the purchaser of the bananas produced in the awarded plantation under the BPPA, 100 and that under the terms of the BPPA, no employer-employee
relationship exists between DFI and the respondent-workers,101 to wit:

UNDERTAKING OF THE FIRST PARTY

xxx

3. THE FIRST PARTY [DARBMUPCO] shall be responsible for the proper conduct, safety, benefits and general welfare of its members working in the plantation and specifically render
free and harmless the SECOND PARTY [DFI] of any expense, liability or claims arising therefrom. It is clearly recognized by the FIRST PARTY that its members and other
personnel utilized in the performance of its function under this agreement are not employees of the SECOND PARTY.102 (Emphasis supplied)

In labor-only contracting, it is the law which creates an employer-employee relationship between the principal and the workers of the labor-only contractor.103

Inasmuch as it is the law that forms the employment ties, the stipulation in the BPPA that respondent-workers are not employees of DFI is not controlling, as the proven facts show
otherwise. The law prevails over the stipulations of the parties. Thus, in Tabas v. California Manufacturing Co., Inc.,104 we held that:

The existence of an employer-employees relation is a question of law and being such, it cannot be made the subject of agreement.1âwphi1 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. xxx105 (Emphasis supplied.)

Clearly, DFI is the true employer of the respondent-workers; respondent-contractors are only agents of DFI. Under Article 106 of the Labor Code, DFI shall be solidarily liable with the
respondent-contractors for the rightful claims of the respondent-workers, to the same manner and extent as if the latter are directly employed by DFI. 106

WHEREFORE, the petition is DENIED for lack of merit. The March 31, 2006 Decision and the May 30, 2006 Resolution of the Court of Appeals in C.A.-G.R. SP Nos. 53806, 61607
and 59958 are hereby AFFIRMED.

SO ORDERED.

G.R. No. 179546 July 23, 2009

COCA-COLA BOTTLERS PHILS., INC., Petitioner,

vs.
ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR., ALFONSO PAA, JR., DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO and EDWIN M.
GOLEZ, Respondents.
RESOLUTION

CHICO-NAZARIO, J.:

In a Decision dated 13 February 2009, the Court denied the petition filed in this case and partially affirmed the Decision dated 19 February 2007 and the Resolution dated 31 August
2007 of the Court of Appeals in CA-G.R. SP No. 85320, insofar as it found that an employer-employee relationship existed between petitioner Coca-cola Bottlers Philippines, Inc. and
herein respondents. However, instead of remanding the case to the National Labor Relations Commission (NLRC) for further proceedings as the appellate court had ordered, this
Court ordered the petitioner to reinstate respondents without loss of seniority rights and to pay them full back wages from the time their compensation was withheld up to their actual
reinstatement.

On 13 April 2009, respondents filed a Motion for Clarification and/or Partial Motion for Reconsideration wherein it quoted the decretal part of the Decision dated 13 February 2009 and
the decisive paragraph that precedes it:

Given that respondents were illegally dismissed by petitioner, they are entitled to reinstatement, full backwages, inclusive of allowance, and to their other benefits or the monetary
equivalent thereof computed from the time their compensations were withheld from them up to the time of their actual reinstatement, as mandated under Article 279 of the Labor
Code.1awphi1

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Court AFFIRMS WITH MODIFICATION the Decision dated 19 February 2007 of the Court of Appeals in CA-GR
SP NO. 85320. The Court DECLARES that respondents were illegally dismissed and, accordingly, ORDERS petitioner to reinstate them without loss of seniority rights, and to pay
them full backwages computed from the time their compensation was withheld up to the time of their actual reinstatement. (Underscored by respondents.)

Respondents seek to include in the fallo of the afore-quoted Decision the words "inclusive of allowance and x x x other benefits or the monetary equivalent thereof," found in the
discussion.lavvphi1

This Court finds merit in the respondents’ motion for partial reconsideration, since the words "inclusive of allowance and x x x other benefits or the monetary equivalent thereof" are
merely descriptive of "full backwages," which this Court had already categorically awarded to respondents after a thorough discussion of the merits of the case. They do not constitute
a new or additional award to respondents. The inclusion of these words in the dispositive part of the Decision serves only to clarify the same so that in the implementation thereof,
none of the rights legally due to the respondents shall be overlooked.

WHEREFORE, the respondents’ Motion for Clarification and/or Partial Motion for Reconsideration is GRANTED. The dispositive part of the Decision dated 13 February 2009 is
MODIFIED to read as follows:

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Court AFFIRMS WITH MODIFICATION the Decision dated 19 February 2007 of the Court of Appeals in CA-G.R.
SP No. 85320. The Court DECLARES that respondents were illegally dismissed and, accordingly, ORDERS petitioner to reinstate them without loss of seniority rights, and to pay
them full backwages, inclusive of allowances, and their other benefits or the monetary equivalent thereof computed from the time their compensation was withheld up to the time of
their actual reinstatement. Costs against the petitioner.

SO ORDERED.

EDDIE PACQUING, G.R. No. 157966

RODERICK CENTENO,
JUANITO M. GUERRA, Present:
CLARO DUPILAD, JR.,
LOUIE CENTENO, YNARES-SANTIAGO, J.,
DAVID REBLORA** and Chairperson,
RAYMUNDO*** ANDRADE, AUSTRIA-MARTINEZ,
Petitioners, CORONA,*
NACHURA, and
 - versus - REYES, JJ.

COCA-COLA PHILIPPINES, Promulgated:

INC.,**** January 31, 2008
Respondent.

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

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision [1] dated November 25, 2002 of the Court of Appeals (CA) in CA-
G.R. SP No. 68756 which dismissed petitioners' Petition for Certiorari and the CA Resolution[2] dated April 15, 2003 which denied petitioners' Motion for Reconsideration.

The factual background of the case is as follows:

Eddie Pacquing, Roderick Centeno, Juanito M. Guerra, Claro Dupilad, Jr., Louie Centeno, David Reblora, Raymundo Andrade (petitioners) were sales route helpers or cargadores-
pahinantes of Coca-Cola Bottlers Philippines, Inc., (respondent), with the length of employment as follows:

Name Date Hired Date Dismissed

Eddie P. Pacquing June 14, 1987 January 30, 1988

Roderick Centeno November 15, 1985 January 15, 1995

Juanito M. Guerra June 16, 1980 February 20, 1995

Claro Dupilad, Jr. March 1, 1992 June 30, 1995

David R. Reblora September 15, 1988 December 15, 1995

Louie Centeno September 15, 1988 March 15, 1996

Raymundo Andrade January 15, 1988 October 15, 1995

Petitioners were part of a complement of three personnel comprised of a driver, a salesman and a regular route helper, for every delivery truck. They worked exclusively at
respondent's plants, sales offices, and company premises.

On October 22, 1996, petitioners[3] filed a Complaint[4] against respondent for unfair labor practice and illegal dismissal with claims for regularization, recovery of benefits under the
Collective Bargaining Agreement (CBA), moral and exemplary damages, and attorney's fees.

In their Position Paper,[5] petitioners alleged that they should be declared regular employees of respondent since the nature of their work as cargadores-pahinantes was necessary
or desirable to respondent's usual business and was directly related to respondent's business and trade.

In its Position Paper,[6] respondent denied liability to petitioners and countered

that petitioners were temporary workers who were engaged for a five-month period to act as substitutes for an absent regular employee.

On July 5, 2000, Labor Arbiter Adolfo C. Babiano rendered a Decision[7] dismissing the complaint. He declared that petitioners were temporary workers hired through an independent
contractor and acted as substitutes for the company's regular work force; that petitioner cannot be considered regular employees because, as cargadores-pahinantes, their work
was not necessary or desirable in respondent's business - the manufacture of softdrinks.

On August 22, 2000, petitioners filed a Memorandum of Appeal[8] with the National Labor Relations Commission (NLRC). The appeal memorandum was verified by Roderick and
Louie Centeno only.[9]

On October 17, 2000, respondent filed an Opposition to Appeal [10] alleging that with the exception of Roderick and Louie Centeno, the Decision of the Labor Arbiter has become final
and executory as regards the other complainants who did not indicate their consent to the filing of the appeal by proper verification or grant of authority; that even if the appeal is
effective with respect to all complainants, the Labor Arbiter was correct in finding that complainants are not regular employees of the respondent.
On June 8, 2001, the NLRC issued a Resolution[11] dismissing the appeal and affirming the Decision of the Labor Arbiter. The NLRC held that in the absence of showing that the
other complainants have authorized Roderick and Louie Centeno to act for and in their behalf for the purpose of pursuing their appeal, the non-verification by the other complainants
rendered the decision final as against them; that complainants cannot be considered regular employees since the nature of their duties are not directly related to respondent's
primary or main business but pertained to post production or delivery operations.

On July 7, 2001, petitioners filed a Motion for Reconsideration [12] but it was denied by the NLRC in a Resolution[13] dated October 31, 2001.

On January 25, 2002, petitioners filed a Petition for Certiorari[14] with the CA. This time, the Verification and Certification[15] was signed by five[16] of the eight petitioners.

On November 25, 2002, the CA rendered a Decision[17] dismissing the petition for petitioner's failure to comply with the verification requirement in the petition and the appeal
memorandum. It held that the failure of all the petitioners to affix their signatures in the verification and certification against non-forum shopping rendered the petition dismissable,
citing Loquiasv. Office of the Ombudsman;[18] that with respect to the appeal memorandum in the NLRC, petitioners failed to comply with the New Rules of Procedure of the NLRC,
specifically Section 3, Rule VI thereof, which requires that the appeal memorandum be under oath. The CA affirmed the NLRC's finding that petitioners' functions were not related to
respondent's main business.

Petitioners filed a Motion for Reconsideration[19] but it was denied by the CA in a Resolution[20] dated April 15, 2003.

Petitioners then filed the present petition raising the following issues for resolution:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING THE PETITION FOR CERTIORARI FILED BY THE PETITIONER (sic) DUE TO THE
FAILURE OF THREE OUT OF THE EIGHT PETITIONERS TO AFFIX THEIR SIGNATURES (sic) THE VERIFICATION AND CERTIFICATION AGAINST FORUM SHOPPING.

II
WHETHER OR NOT THE RESOLUTIONS OF HONORABLE COURT OF APPEALS DEPARTED OR DEVIATED FROM THE PREVAILING DOCTRINE OR LAW AND
APPLICABLE DECISIONS OF THIS HIGH TRIBUNAL THAT VERIFICATION IS MERELY A MATTER OF FORM AND NON-COMPLIANCE THEREWITH DOES NOT RENDER
THE PLEADING FATALLY DEFECTIVE.

III

WHETHER OR NOT THE CONCLUSIONS AND DECISIONS OF THE LABOR ARBITER [sic] NATIONAL LABOR RELATIONS COMMISSION [sic] IN ACCORDANCE WITH
EVIDENCE, JURISPRUDENCE, LABOR LAWS, STATUTES AND CONSTITUTIONAL MANDATES PROPITIOUS TO THE PETITIONERS.

IV

WHETHER OR NOT PETITIONERS SHOULD BE DECLARED REGULAR EMPLOYEES OF COCA-COLA AND THUS ENTITLED TO BE REINSTATED WITH BACKWAGES
FROM THE DATE OF THEIR DISMISSAL UP TO THE DATE OF THEIR ACTUAL REINSTATEMENT, DAMAGES AND ATTORNEY'S FEES.[21]

Petitioners contend that the absence of the signatures of the three other petitioners in the verification and certification against forum-shopping in the Petition for Certiorari before the
CA was not fatal since verification is merely a matter of form of pleading and non-compliance does not render the pleading fatally defective; that the absence of the signature of the
six other complainants in the verification in the appeal memorandum was not fatal since technicalities have no room in labor cases; that petitioners are regular employees of
respondent since they have been employed for more than one year and perform functions necessary to respondent's business.

Respondent, on the other hand, argues that petitioners' blatant violation of and non-compliance with procedural rules should not be countenanced; that the petition seeks an
evaluation of evidence and factual findings of the CA and the NLRC which is beyond the scope of a petition for review on certiorari under Rule 45 of the Rules of Court where only
questions of law are entertained.

The petition is impressed with merit.

While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs in a case and the signature of only one of them is insufficient, the Court has
stressed that the rules on forum shopping, which were designed to promote and facilitate the orderly administration of justice, should not be interpreted with such absolute literalness
as to subvert its own ultimate and legitimate objective. Strict compliance with the provision regarding the certificate of non-forum shopping underscores its mandatory nature in that
the certification cannot be altogether dispensed with or its requirements completely disregarded. [22] It does not, however, prohibit substantial compliance therewith under justifiable
circumstances,[23] considering especially that although it is obligatory, it is not jurisdictional. [24]
In recent decisions, the Court has consistently held that when all the petitioners share a common interest and invoke a common cause of action or defense, the signature of only one
of them in the certification against forum shopping substantially complies with the rules.[25]

In HLC Construction and Development Corporation v. Emily Homes Subdivision Homeowners Association,[26] it was held that the signature of only one of the petitioners substantially
complied with the Rules because all the petitioners share a common interest and invoke a common cause of action or defense. The Court said:

Respondents (who were plaintiffs in the trial court) filed the complaint against petitioners as a group, represented by their homeowners association president who was likewise one
of the plaintiffs, Mr. Samaon M. Buat. Respondents raised one cause of action which was the breach of contractual obligations and payment of damages. They shared a
common interest in the subject matter of the case, being the aggrieved residents of the poorly constructed and developed Emily Homes Subdivision. Due to the collective nature
of the case, there was no doubt that Mr. Samaon M. Buat could validly sign the certificate of non-forum shopping in behalf of all his co-plaintiffs. In cases therefore where
it is highly impractical to require all the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order not to defeat the ends of justice, for one of the plaintiffs,
acting as representative, to sign the certificate provided that xxx the plaintiffs share a common interest in the subject matter of the case or filed the case as a collective,
raising only one common cause of action or defense. (Emphasis and underscoring supplied)[27]

In San Miguel Corporation v. Aballa,[28] the dismissed employees filed with the NLRC a complaint for declaration as regular employees of San Miguel Corporation (SMC) and for an
illegal dismissal case, following SMCs closure of its Bacolod Shrimp Processing Plant. After an unfavorable ruling from the NLRC, the dismissed employees filed a petition
for certiorari with the CA. Only three out of the 97 named petitioners signed the verification and certification of non-forum shopping. This Court ruled that given the collective nature
of the petition filed before the CA, which raised only one common cause of action against SMC, the execution by the three petitioners of the certificate of non-forum shopping
constitutes substantial compliance with the Rules.

More recently, in Espina v. Court of Appeals,[29] the Court held that the signatures of 25 out of the 28 employees who filed the Petition for Certiorari in the CA, likewise, constitute
substantial compliance with the Rules. Petitioners therein raised one common cause of action against M.Y. San and Monde, i.e., the illegal closure of M.Y. San and its subsequent
sale to Monde, which resulted in the termination of their services. They shared a common interest and common defense in the complaint for illegal dismissal which they filed with the
NLRC. Thus, when they appealed their case to the CA, they pursued the same as a collective body, raising only one argument in support of their rights against the illegal dismissal
allegedly committed by M.Y. San and Monde. There was sufficient basis, therefore, for the 25 petitioners, to speak for and in behalf of their co-petitioners, to file the petition in the
CA.

In the same vein, this is also true in the instant case where petitioners have filed their case as a collective group, sharing a common interest and having a common single cause of
action against respondent. Accordingly, the signatures of five of the eight petitioners in the Petition for Certiorari before the CA constitute substantial compliance with the rules.

Contrary to the CA's pronouncement, Loquias finds no application here. In said case, the co-parties were being sued in their individual capacities as mayor, vice mayor and
members of the municipal board of San Miguel, Zamboanga del Sur, who were criminally charged for allegedly withholding the salary increases and benefits of the municipalitys
health personnel. They were tried for alleged violation of Republic Act No. 3019 [30] in their various respective personal capacities. Clearly, the conviction or acquittal of one accused
would not necessarily apply to all the accused in a graft charge.
As to the defective verification in the appeal memorandum before the NLRC, the same liberality applies. After all, the requirement regarding verification of a pleading is formal, not
jurisdictional.[31] Such requirement is simply a condition affecting the form of pleading, the non-compliance of which does not necessarily render the pleading fatally
defective.[32] Verification is simply intended to secure an assurance that the allegations in the pleading are true and correct and not the product of the imagination or a matter of
speculation, and that the pleading is filed in good faith. [33] The court or tribunal may order the correction of the pleading if verification is lacking or act on the pleading although it is
not verified, if the attending circumstances are such that strict compliance with the rules may be dispensed with in order that the ends of justice may thereby be served. [34]

Moreover, no less than the Labor Code directs labor officials to use all reasonable means to ascertain the facts speedily and objectively, with little regard to technicalities or
formalities;[35]while Section 10, Rule VII of the New Rules of Procedure of the NLRC provides that technical rules are not binding.[36] Indeed, the application of technical rules of
procedure may be relaxed in labor cases to serve the demand of substantial justice.[37] Thus, the execution of the verification in the appeal memorandum by only two complainants in
behalf of the other complainants also constitute substantial compliance.

Indeed, it is more in accord with substantial justice and equity to overlook petitioners' procedural lapses. Labor cases must be decided according to justice and equity and the
substantial merits of the controversy.[38] After all, the policy of our judicial system is to encourage full adjudication of the merits of an appeal. Procedural niceties should be avoided in
labor cases in which the provisions of the Rules of Court are applied only in suppletory manner. Indeed, rules of procedure may be relaxed to relieve a part of an injustice not
commensurate with the degree of noncompliance with the process required. [39] For this reason, the Court cannot indulge respondent in its tendency to nitpick on trivial technicalities
to boost its arguments. The strength of one's position cannot be hinged on mere procedural niceties but on solid bases in law and jurisprudence. [40]

The primordial issue in the present petition is whether petitioners are regular employees of the respondent.

Generally, the existence of an employer-employee relationship is a factual matter that will not be delved into by this Court, since only questions of law may be raised in petitions for
review.[41] Needless to stress, the established rule is that in the exercise of the Supreme Courts power of review, the Court not being a trier of facts, does not normally embark on a
re-examination of the evidence presented by the contending parties during the trial of the case considering that the findings of facts of the CA are conclusive and binding on the
Court.[42] This rule, however, has several well-recognized exceptions, to wit: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact
are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different conclusion. [43] Exceptions (2) and (4) are present in the instant case.

The pivotal question of whether respondent's sales route helpers or cargadores or pahinantes are regular workers of respondent has already been resolved in Magsalin v. National
Organization of Working Men,[44] thus:

The basic law on the case is Article 280 of the Labor Code. Its pertinent provisions read:
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.

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 year of service, whether
such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such
activity exists.

Coca-Cola Bottlers Phils., Inc., is one of the leading and largest manufacturers of softdrinks in the country. Respondent workers have long been in the service of petitioner company.
Respondent workers, when hired, would go with route salesmen on board delivery trucks and undertake the laborious task of loading and unloading softdrink products of petitioner
company to its various delivery points.

Even while the language of law might have been more definitive, the clarity of its spirit and intent, i.e., to ensure a regular workers 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.

The argument of petitioner that its usual business or trade is softdrink manufacturing and that the work assigned to respondent workers as sales route helpers so
involves merely post production activities, one which is not indispensable in the manufacture of its products, scarcely can be persuasive. If, as so argued by petitioner
company, only those whose work are directly involved in the production of softdrinks may be held performing functions necessary and desirable in its usual business
or trade, there would have then been no need for it to even maintain regular truck sales route helpers. The nature of the work performed must be viewed from a
perspective of the business or trade in its entirety and not on a confined scope.

The repeated rehiring of respondent workers and the continuing need for their services clearly attest to the necessity or desirability of their services in the regular
conduct of the business or trade of petitioner company. The Court of Appeals has found each of respondents to have worked for at least one year with petitioner
company. While this Court, in Brent School, Inc. vs. Zamora,hasupheld the legality of a fixed-term employment, it has done so, however, with a stern admonition that where from the
circumstances it is apparent that the period has been imposed to preclude the acquisition of tenurial security by the employee, then it should be struck down as being contrary to
law, morals, good customs, public order and public policy. The pernicious practice of having employees, workers and laborers, engaged for a fixed period of few months, short of the
normal six-month probationary period of employment, and, thereafter, to be hired on a day-to-day basis, mocks the law. Any obvious circumvention of the law cannot be
countenanced. The fact that respondent workers have agreed to be employed on such basis and to forego the protection given to them on their security of tenure, demonstrate
nothing more than the serious problem of impoverishment of so many of our people and the resulting unevenness between labor and capital. A contract of employment is impressed
with public interest. The provisions of applicable statutes are deemed written into the contract, and the parties are not at liberty to insulate themselves and their relationships from the
impact of labor laws and regulations by simply contracting with each other. [45]

Under the principle of stare decisis et non quieta movere (follow past precedents and do not disturb what has been settled), [46] it is the Court's duty to apply the previous ruling
in Magsalinto the instant case. Once a case has been decided one way, any other case involving exactly the same point at issue, as in the case at bar, should be decided in the
same manner.[47] Else, the ideal of a stable jurisprudential system can never be achieved.

Being regular employees of respondent, petitioners are entitled to security of tenure, as provided in Article 279[48] of the Labor Code, and may only be terminated from employment
due to just or authorized causes. Because respondent failed to show such cause,[49] the petitioners are deemed illegally dismissed and therefore entitled to back wages and
reinstatement without loss of seniority rights and other privileges. [50]

On the claim for moral and exemplary damages, there is no basis to award the same. Moral and exemplary damages are recoverable only where the dismissal of an employee was
attended by bad faith or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public policy. [51] The person
claiming moral damages must prove the existence of bad faith by clear and convincing evidence, for the law always presumes good faith. [52] Petitioners failed to prove bad faith,
fraud or ill motive on the part of respondent.[53] Moral damages cannot be awarded. Without the award of moral damages, there can be no award of exemplary damages, nor
attorneys fees.[54]

WHEREFORE, the present petition is GRANTED. The assailed Decision dated November 25, 2002 and Resolution dated April 15, 2003 of the Court of Appeals in CA-G.R. SP No.
68756 are REVERSED and SET ASIDE. Petitioners are declared regular employees of the respondent. Respondent is ordered to reinstate petitioners to their former positions with
full backwages, inclusive of allowances, and to other benefits or their monetary equivalent, computed from the date of their termination up to the time of their actual reinstatement.

SO ORDERED.

[G.R. No. 163448. March 08, 2005]

NATIONAL FOOD AUTHORITY (NFA), and JUANITO M. DAVID, in his capacity as Regional Director, NFA Regional Office No. 1, San Juan, La Union, petitioners,
vs. MASADA SECURITY AGENCY, INC., represented by its Acting President & General Manager, COL. EDWIN S. ESPEJO (RET.), respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this petition for review under Rule 45 of the Rules of Court is the February 12, 2004 decision [1] of the Court of Appeals in CA-G.R. CV No. 76677, which dismissed the
appeal filed by petitioner National Food Authority (NFA) and its April 30, 2004 resolution denying petitioners motion for reconsideration.
The antecedent facts show that on September 17, 1996, respondent MASADA Security Agency, Inc., entered into a one year [2] contract[3] to provide security services to the various
offices, warehouses and installations of NFA within the scope of the NFA Region I, comprised of the provinces of Pangasinan, La Union, Abra, Ilocos Sur and Ilocos Norte. Upon the
expiration of said contract, the parties extended the effectivity thereof on a monthly basis under same terms and condition. [4]

Meanwhile, the Regional Tripartite Wages and Productivity Board issued several wage orders mandating increases in the daily wage rate. Accordingly, respondent requested NFA
for a corresponding upward adjustment in the monthly contract rate consisting of the increases in the daily minimum wage of the security guards as well as the corresponding raise
in their overtime pay, holiday pay, 13th month pay, holiday and rest day pay. It also claimed increases in Social Security System (SSS) and Pag-ibig premiums as well as in the
administrative costs and margin. NFA, however, granted the request only with respect to the increase in the daily wage by multiplying the amount of the mandated increase by 30
days and denied the same with respect to the adjustments in the other benefits and remunerations computed on the basis of the daily wage.

Respondent sought the intervention of the Office of the Regional Director, Regional Office No. I, La Union, as Chairman of the Regional Tripartite Wages and Productivity Board and
the DOLE Secretary through the Executive Director of the National Wages and Productivity Commission. Despite the advisory [5] of said offices sustaining the claim of respondent
that the increase mandated by Republic Act No. 6727 (RA 6727) and the wage orders issued by the RTWPB is not limited to the daily pay, NFA maintained its stance that it is not
liable to pay the corresponding adjustments in the wage related benefits of respondents security guards.

On May 4, 2001, respondent filed with the Regional Trial Court of Quezon, City, Branch 83, a case for recovery of sum of money against NFA. Docketed as Civil Case No. Q-01-
43988, the complaint[6] sought reimbursement of the following amounts allegedly paid by respondent to the security guards, to wit: P2,949,302.84, for unpaid wage related benefits
brought about by the effectivity of Wage Order Nos. RB 1-05 and RB CAR-04;[7] RB 1-06 and RB CAR-05;[8] RB 1-07 and RB CAR-06;[9] and P975,493.04 for additional cost and
margin, plus interest. It also prayed for damages and litigation expenses.[10]

In its answer with counterclaim,[11] NFA denied that respondent paid the security guards their wage related benefits and that it shouldered the additional costs and margin arising
from the implementation of the wage orders. It admitted, however, that it heeded respondents request for adjustment only with respect to increase in the minimum wage and not with
respect to the other wage related benefits. NFA argued that respondent cannot demand an adjustment on said salary related benefits because it is bound by their contract expressly
limiting NFAs obligation to pay only the increment in the daily wage.

At the pre-trial, the only issue raised was whether or not respondent is entitled to recover from NFA the wage related benefits of the security guards.[12]

On September 19, 2002, the trial court rendered a decision [13] in favor of respondent holding that NFA is liable to pay the security guards wage related benefits pursuant to RA 6727,
because the basis of the computation of said benefits, like overtime pay, holiday pay, SSS and Pag-ibig premium, is the increased minimum wage. It also found NFA liable for the
consequential adjustments in administrative costs and margin. The trial court absolved defendant Juanito M. David having been impleaded in his official capacity as Regional
Director of NFA Regional Office No. 1, San Juan, La Union. The dispositive portion thereof, reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff MASADA Security Agency, Inc., and against defendant National Food Authority ordering said defendant to make the
corresponding adjustment in the contract price in accordance with the increment mandated under the various wage orders, particularly Wage Order Nos. RBI-05, RBCAR-04, RBI-06,
RBCAR-05, RBI-07 and RBCAR-06 and to pay plaintiff the amounts representing the adjustments in the wage-related benefits of the security guards and consequential increase in its
administrative cost and margin upon presentment by plaintiff of the corresponding voucher claims.

Plaintiffs claims for damages and attorneys fees and defendants counterclaim for damages are hereby DENIED.

Defendant Juanito M. David is hereby absolved from any liability.

SO ORDERED.[14]

NFA appealed to the Court of Appeals but the same was dismissed on February 12, 2004. The appellate court held that the proper recourse of NFA is to file a petition for review
under Rule 45 with this Court, considering that the appeal raised a pure question of law. Nevertheless, it proceeded to discuss the merits of the case for purposes of academic
discussion and eventually sustained the ruling of the trial court that NFA is under obligation to pay the administrative costs and margin and the wage related benefits of the
respondents security guards.[15]
On April 30, 2004, the Court of Appeals denied NFAs motion for reconsideration. [16] Hence, the instant petition.

The issue for resolution is whether or not the liability of principals in service contracts under Section 6 of RA 6727 and the wage orders issued by the Regional Tripartite Wages and
Productivity Board is limited only to the increment in the minimum wage.

At the outset, it should be noted that the proper remedy of NFA from the adverse decision of the trial court is a petition for review under Rule 45 directly with this Court because the
issue involved a question of law. However, in the interest of justice we deem it wise to overlook the procedural technicalities if only to demonstrate that despite the procedural
infirmity, the instant petition is impressed with merit.[17]

RA 6727[18] (Wage Rationalization Act), which took effect on July 1, 1989,[19] declared it a policy of the State to rationalize the fixing of minimum wages and to promote productivity-
improvement and gain-sharing measures to ensure a decent standard of living for the workers and their families; to guarantee the rights of labor to its just share in the fruits of
production; to enhance employment generation in the countryside through industrial dispersal; and to allow business and industry reasonable returns on investment, expansion and
growth.[20]

In line with its declared policy, RA 6727, created the National Wages and Productivity Commission (NWPC), [21] vested, inter alia, with the power to prescribe rules and guidelines for
the determination of appropriate minimum wage and productivity measures at the regional, provincial or industry levels; [22] and the Regional Tripartite Wages and Productivity Boards
(RTWPB) which, among others, determine and fix the minimum wage rates applicable in their respective region, provinces, or industries therein and issue the corresponding wage
orders, subject to the guidelines issued by the NWPC.[23] Pursuant to its wage fixing authority, the RTWPB issue wage orders which set the daily minimum wage rates.[24]

Payment of the increases in the wage rate of workers is ordinarily shouldered by the employer. Section 6 of RA 6727, however, expressly lodged said obligation to the principals or
indirect employers in construction projects and establishments providing security, janitorial and similar services. Substantially the same provision is incorporated in the wage orders
issued by the RTWPB.[25] Section 6 of RA 6727, provides:

SEC. 6. In the case of contracts for construction projects and for security, janitorial and similar services, the prescribed increases in the wage rates of the workers shall be borne by
the principals or clients of the construction/service contractors and the contract shall be deemed amended accordingly. In the event, however, that the principal or client fails to pay
the prescribed wage rates, the construction/service contractor shall be jointly and severally liable with his principal or client. (Emphasis supplied)

NFA claims that its additional liability under the aforecited provision is limited only to the payment of the increment in the statutory minimum wage rate, i.e., the rate for a regular
eight (8) hour work day.

The contention is meritorious.

In construing the word wage in Section 6 of RA 6727, reference must be had to Section 4 (a) of the same Act. It states:

SEC. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates for all workers and employees in the private sector, whether agricultural or non-agricultural, shall be
increased by twenty-five pesos (P25) per day (Emphasis supplied)

The term wage as used in Section 6 of RA 6727 pertains to no other than the statutory minimum wage which is defined under the Rules Implementing RA 6727 as the lowest wage
rate fixed by law that an employer can pay his worker.[26] The basis thereof under Section 7 of the same Rules is the normal working hours, which shall not exceed eight hours a day.
Hence, the prescribed increases or the additional liability to be borne by the principal under Section 6 of RA 6727 is the increment or amount added to the remuneration of an
employee for an 8-hour work.

Expresio unius est exclusio alterius. Where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to others.[27] Since
the increase in wage referred to in Section 6 pertains to the statutory minimum wage as defined herein, principals in service contracts cannot be made to pay the corresponding
wage increase in the overtime pay, night shift differential, holiday and rest day pay, premium pay and other benefits granted to workers. While basis of said remuneration and
benefits is the statutory minimum wage, the law cannot be unduly expanded as to include those not stated in the subject provision.
The settled rule in statutory construction is that if the statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without interpretation. This plain
meaning rule or verba legis derived from the maxim index animi sermo est (speech is the index of intention) rests on the valid presumption that the words employed by the
legislature in a statute correctly express its intention or will and preclude the court from construing it differently. The legislature is presumed to know the meaning of the words, to
have used words advisedly, and to have expressed its intent by use of such words as are found in the statute. Verba legis non est recedendum, or from the words of a statute there
should be no departure.[28]

The presumption therefore is that lawmakers are well aware that the word wage as used in Section 6 means the statutory minimum wage. If their intention was to extend the
obligation of principals in service contracts to the payment of the increment in the other benefits and remuneration of workers, it would have so expressly specified. In not so doing,
the only logical conclusion is that the legislature intended to limit the additional obligation imposed on principals in service contracts to the payment of the increment in the statutory
minimum wage.

The general rule is that construction of a statute by an administrative agency charged with the task of interpreting or applying the same is entitled to great weight and respect. The
Court, however, is not bound to apply said rule where such executive interpretation, is clearly erroneous, or when there is no ambiguity in the law interpreted, or when the language
of the words used is clear and plain, as in the case at bar. Besides, administrative interpretations are at best advisory for it is the Court that finally determines what the law
means.[29] Hence, the interpretation given by the labor agencies in the instant case which went as far as supplementing what is otherwise not stated in the law cannot bind this Court.

It is not within the province of this Court to inquire into the wisdom of the law for indeed, we are bound by the words of the statute.[30] The law is applied as it is. At any rate, the
interest of the employees will not be adversely affected if the obligation of principals under the subject provision will be limited to the increase in the statutory minimum wage. This is
so because all remuneration and benefits other than the increased statutory minimum wage would be shouldered and paid by the employer or service contractor to the workers
concerned. Thus, in the end, all allowances and benefits as computed under the increased rate mandated by RA 6727 and the wage orders will be received by the workers.

Moreover, the law secures the welfare of the workers by imposing a solidary liability on principals and the service contractors. Under the second sentence of Section 6 of RA 6727,
in the event that the principal or client fails to pay the prescribed wage rates, the service contractor shall be held solidarily liable with the former. Likewise, Articles 106, 107 and 109
of the Labor Code provides:

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

In the event that the contractor or subcontractor fails to pay the wage 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.

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

ART. 109. Solidary Liability. The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or
subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.

Based on the foregoing interpretation of Section 6 of RA 6727, the parties may enter into stipulations increasing the liability of the principal. So long as the minimum obligation of the
principal, i.e., payment of the increased statutory minimum wage is complied with, the Wage Rationalization Act is not violated.

In the instant case, Article IV.4 of the service contract provides:

IV.4. In the event of a legislated increase in the minimum wage of security guards and/or in the PADPAO rate, the AGENCY may negotiate for an adjustment in the contract price. Any
adjustment shall be applicable only to the increment, based on published and circulated rates and not on mere certification. [31]

In the same vein, paragraph 3 of NFA Memorandum AO-98-03- states:

3. For purposes of wage adjustments, consider only the rate based on the wage Order issued by the Regional Tripartite Wage Productivity Board (RTWPB). Unless otherwise
provided in the Wage Order issued by the RTWPB, the wage adjustment shall be limited to the increment in the legislated minimum wage; [32]

The parties therefore acknowledged the application to their contract of the wage orders issued by the RTWPB pursuant to RA 6727. There being no assumption by NFA of a greater
liability than that mandated by Section 6 of the Act, its obligation is limited to the payment of the increased statutory minimum wage rates which, as admitted by respondent, had
already been satisfied by NFA.[33] Under Article 1231 of the Civil Code, one of the modes of extinguishing an obligation is by payment. Having discharged its obligation to
respondent, NFA no longer have a duty that will give rise to a correlative legal right of respondent. The latters complaint for collection of remuneration and benefits other than the
increased minimum wage rate, should therefore be dismissed for lack of cause of action.

The same goes for respondents claim for administrative cost and margin. Considering that respondent failed to establish a clear obligation on the part of NFA to pay the same as
well as to substantiate the amount thereof with documentary evidence, the claim should be denied.

WHEREFORE, the petition is GRANTED. The February 12, 2004 decision and the April 30, 2004 resolution of the Court of Appeals which dismissed petitioner National Food
Authoritys appeal and motion for reconsideration, respectively, in CA-G.R. CV No. 76677, are REVERSED and SET ASIDE. The complaint filed by respondent MASADA Security
Agency, Inc., docketed as Civil Case No. Q-01-43988, before the Regional Trial Court of Quezon, City, Branch 83, is ordered DISMISSED.

SO ORDERED.