OTHER IMPORTANT LABOR PROVISIONS

A. Contracting Arrangements

[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 BalaraBranch. 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 ACGI regarding 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 ACGIwas 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,
1997 to 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 tenurialsecurity 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.
xxx

xxx

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 resultsthereof.

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,
[31]
1998 NLRC Decision, 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 processing

xxx

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.

DOLE PHILIPPINES, INC., G.R. No. 161115

Petitioner,

- versus -

MEDEL ESTEVA, HENRY SILVA, Present:

GILBERT CABILAO, LORENZO
GAQUIT, DANIEL PABLO, EDWIN PANGANIBAN, C.J.
CAMILO, BENJAMIN SAKILAN, Chairperson,
RICHARD PENUELA, ARMANDO YNARES-SANTIAGO,
PORRAS, EDUARDO FALDAS, NILO AUSTRIA-MARTINEZ,
DONDOYANO, MIGUEL DIAZ, ROMEL CALLEJO, SR., and
BAJO, ARTEMIO TENERIFE, EDDIE CHICO-NAZARIO, JJ.
LINAO, JERRY LIGTAS, SAMUEL
RAVAL, WILFREDO BLANDO,
LORENZO MONTERO, JR., JAIME
TESIPAO, GEORGE DERAL, ERNESTO
ISRAEL, JR., AGAPITO ESTOLOGA,
JOVITO DAGUIO, ARSENIO LEONCIO,
MARLON BLANDO, JOSE OTELO
CASPILLO, ARNOLD LIZADA, JERRY
DEYPALUBOS, STEVEN MADULA,
ROGELIO CABULAO, JR., ALVIN
COMPOC, EUGENIO BRITANA, RONNIE
GUELOS, EMMANUEL JIMENA,
GERMAN JAVA, JESUS MEJICA, JOEL
INVENTADO, DOMINGO JABULGO,
RAMIL ENAD, RAYMUNDO YAMON,
RITCHIE MELENDRES, JACQUEL
ORGE, RAMON BARCELONA, ERWIN
ESPIA, NESTOR DELIDELI, JR., ALLAN
GANE, ROMEO PORRAS, RITCHIE
BOCOG, JOSELITO ACEBES, DANNY
TORRES, JIMMY NAVARRO, RALPH
PEREZ, SONNY SESE, RONALD
RODRIQUES, ROBERTO ALLANEC,
ERNIE GIGANTANA, NELSON SAMSON,
REDANTE DAVILA, EDDIE BUSLIG,
ALLAN PINEDA, JESUS BELGERA,
VICENTE LABISTE, CARMENCITA
FELISILDA, GEORGE DERLA, RUBEN
TORMON, NEIL TAJALE, ORLANDO
ESPENILLA, RITCHEL MANEJAR, JOEL
QUINTANA, ERWIN ALDE, JOEL
CATALAN, ELMER TIZON, ALLAN
ESPADA, EUGENE BRETANA, RAMIL
ENAD, RENE INGALLA, STEVEN
MADULLA, RANDY REBUTAZO, NEIL
BAGATILLA, ARSENIO LEONCIO,
ROLANDO VILLEGAS and JUSLIUS
TESIPAO, herein represented by MEDEL
ESTEVA, Authorized Representative,
Respondents.

Promulgated:

November 30, 2006

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

DECISION
CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the revised Rules of Civil
Procedure seeking the reversal of the Decision,[1] dated 20 May 2002, and the Amended
Decision,[2] dated 27 November 2003, both rendered by the Court of Appeals in CA-G.R. SP No.
63405, which declared herein petitioner Dole Philippines, Inc. as the employer of herein
respondents, Medel Esteva and 86 others; found petitioner guilty of illegal dismissal; and ordered
petitioner to reinstate respondents to their former positions and to pay the latter backwages.

The antecedent facts of the case are recounted as follows:

Petitioner is a corporation duly organized and existing in accordance with Philippine laws, engaged
principally in the production and processing of pineapple for the export market.[3] Its plantation is
located in Polomolok, South Cotabato.[4]

Respondents are members of the Cannery Multi-Purpose Cooperative

(CAMPCO). CAMPCO was organized in accordance with Republic Act No. 6938, otherwise
known as the Cooperative Code of the Philippines, and duly-registered with the Cooperative
Development Authority (CDA) on 6 January 1993.[5] Members of CAMPCO live in communities
surrounding petitioners plantation and are relatives of petitioners employees.

On 17 August 1993, petitioner and CAMPCO entered into a Service Contract.[6] The
Service Contract referred to petitioner as the Company, while CAMPCO was the
Contractor.Relevant portions thereof read as follows

1. That the amount of this contract shall be or shall not exceed TWO
HUNDRED TWENTY THOUSAND ONLY (P220,000.00) PESOS, terms and
conditions of payment shall be on a per job basis as specified in the attached
schedule of rates; the CONTRACTOR shall perform the following services for the
COMPANY;

1.1 Assist the COMPANY in its daily operations;

1.2 Perform odd jobs as may be assigned.

2. That both parties shall observe the following terms and conditions as
stipulated, to wit:

2.1 CONTRACTOR must carry on an independent legitimate business,

and must comply with all the pertinent laws of the government both
local and national;

2.2 CONTRACTOR must provide all hand tools and equipment

necessary in the performance of their work.
 However, the COMPANY may allow the use of its fixed equipment as a
casual facility in the performance of the contract;

2.3 CONTRACTOR must comply with the attached scope of work,

specifications, and GMP and safety practices of the company;

2.4 CONTRACTOR must undertake the contract work under the

following manner:

a. on his own account;

b. under his own responsibility;

c. according to his manner and method, free from the

control and direction of the company in all matters
connected with the performance of the work except as to
the result thereof;

3. CONTRACTOR must pay the prescribed minimum wage, remit

SSS/MEDICARE premiums to proper government agencies, and submit copies of
payroll and proof of SSS/MEDICARE remittances to the COMPANY;

4. This contract shall be for a specific period of Six (6) months from July 1
to December 31, 1993; x x x.

Pursuant to the foregoing Service Contract, CAMPCO members rendered services to

petitioner. The number of CAMPCO members that report for work and the type of service they
performed depended on the needs of petitioner at any given time. Although the Service Contract
specifically stated that it shall only be for a period of six months, i.e., from 1 July to 31 December
1993, the parties had apparently extended or renewed the same for the succeeding years without
executing another written contract. It was under these circumstances that respondents came to
work for petitioner.

Investigation by DOLE

Concomitantly, the Sangguniang Bayan of Polomolok, South Cotabato, passed Resolution

No. 64, on 5 May 1993, addressed to then Secretary Ma. Nieves R. Confessor of the Department
of Labor and Employment (DOLE), calling her attention to the worsening working conditions of
the petitioners workers and the organization of contractual workers into several cooperatives to
replace the individual labor-only contractors that used to supply workers to the petitioner. Acting
on the said Resolution, the DOLE Regional Office No. XI in Davao Cityorganized a Task Force
that conducted an investigation into the alleged labor-only contracting activities of the
cooperatives in Polomolok.[7]
 On 24 May 1993, the Senior Legal Officer of petitioner wrote a letter addressed to Director
Henry M. Parel of DOLE Regional Office No. XI, supposedly to correct the misinformation that
petitioner was involved in labor-only contracting, whether with a cooperative or any private
contractor. He further stated in the letter that petitioner was not hiring cooperative members to
replace the regular workers who were separated from service due to redundancy; that the
cooperatives were formed by the immediate dependents and relatives of the permanent workers of
petitioner; that these cooperatives were registered with the CDA; and that these cooperatives were
authorized by their respective constitutions and by-laws to engage in the job contracting
business.[8]

The Task Force submitted a report on 3 June 1993 identifying six cooperatives that were
engaged in labor-only contracting, one of which was CAMPCO. The DOLE Regional Office No.
XI held a conference on 18 August 1993 wherein the representatives of the cooperatives named
by the Task Force were given the opportunity to explain the nature of their activities in relation to
petitioner. Subsequently, the cooperatives were required to submit their position papers and other
supporting documents, which they did on 30 August 1993. Petitioner likewise submitted its
position paper on 15 September 1993.[9]

On 19 October 1993, Director Parel of DOLE Regional Office No. XI issued an Order[10] in
which he made the following findings

Records submitted to this Office show that the six (6) aforementioned
cooperatives are all duly registered with the Cooperative Development Authority
(CDA). These cooperatives were also found engaging in different activities with
DOLE PHILIPPINES, INC. a company engaged in the production of pineapple and
export of pineapple products. Incidentally, some of these cooperatives were also
found engaging in activities which are directly related to the principal business or
operations of the company. This is true in the case of the THREE (3) Cooperatives,
namely; Adventurers Multi Purpose Cooperative, Human Resource Multi Purpose
Cooperative and Cannery Multi Purpose Cooperative.

From the foregoing findings and evaluation of the activities of Adventurers

Multi Purpose Cooperative, Human Resource Multi Purpose Cooperative and
Cannery Multi Purpose Cooperative, this Office finds and so holds that they are
engaging in Labor Only Contracting Activities as defined under Section 9, Rule
VIII, Book III of the rules implementing the Labor Code of the Philippines, as
amended which we quote:

Section 9 Labor Only Contracting a) Any person who undertakes to

supply workers to an employer shall be deemed to be engaged in labor-only
contracting where such person:
 1) Does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises and other
materials; and

2) The workers recruited and placed by such person are

performing activities which are directly related to the principal
business or operation of the employer to which workers are
habitually employed.

b) Labor-only contracting as defined herein is hereby prohibited and the

person acting as contractor shall be considered merely as an agent or
intermediary of the employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly employed by him.

WHEREFORE, premises considered, ADVENTURERS MULTI

PURPOSE COOPERATIVE, HUMAN RESOURCE MULTI PURPOSE
COOPERATIVE and CANNERY MULTI PURPOSE COOPERATIVE are hereby
declared to be engaged in labor only contracting which is a prohibited activity. The
same cooperatives are therefore ordered to cease and desist from further engaging
in such activities.

The three (3) other cooperatives, namely Polomolok Skilled Workers Multi
Purpose Cooperative, Unified Engineering and Manpower Service Multi Purpose
Cooperative and Tibud sa Katibawasan Multi Purpose Cooperative whose activities
may not be directly related to the principal business of DOLE Philippines, Inc. are
also advised not to engage in labor only contracting with the company.

All the six cooperatives involved appealed the afore-quoted Order to the Office of the
DOLE Secretary, raising the sole issue that DOLE Regional Director Director Parel committed
serious error of law in directing the cooperatives to cease and desist from engaging in labor-only
contracting. On 15 September 1994, DOLE Undersecretary Cresencio B. Trajano, by the authority
of the DOLE Secretary, issued an Order[11] dismissing the appeal on the basis of the following
ratiocination

The appeal is devoid of merit.

The Regional Director has jurisdiction to issue a cease and desist order as
provided by Art. 106 of the Labor Code, as amended, to wit:

Art. 106. Contractor or subcontractor. x x x

xxxx

The Secretary of Labor may, by appropriate

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

There is labor-only contracting where the person supplying

workers to an employer does not have substantial capital or
investment in the forms 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 the employer. In such cases, the person or
the intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him.

in relation to Article 128(b) of the Labor Code, as amended by Republic Act No.
7730, which reads:

Art. 128. Visitorial and Enforcement Power.

b) Notwithstanding the provisions of Articles 129 and 217

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

An order issued by the duly authorized representative of the

Secretary of Labor and Employment under this article may be
appealed to the latter. In case said order involves a monetary award,
an appeal by the employer may be perfected only upon the posting
of a cash bond issued by a reputable bonding company duly
accredited by the Secretary of Labor and Employment in the amount
equivalent to the monetary award in the order appealed from.
 The records reveal that in the course of the inspection of the premises of
Dolefil, it was found out that the activities of the members of the [cooperatives] are
necessary and desirable in the principal business of the former; and that they do not
have the necessary investment in the form of tools and equipments. It is worthy to
note that the cooperatives did not deny that they do not have enough capital in the
form of tools and equipment. Under the circumstances, it could not be denied that
the [cooperatives] are considered as labor-only contractors in relation to the
business operation of DOLEFIL, INC.

Thus, Section 9, Rule VIII, Book III of the Omnibus Rules Implementing
the Labor Code, provides that:

Sec. 9. Labor-only contracting. (a) Any person who

undertakes to supply workers to an employer shall be deemed to be
engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in

the form of tools, equipment, machineries, work premises
and other materials; and

(2) The workers recruited and placed by such person

are performing activities which are directly related to the
principal business or operations of the employer in which
workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby

prohibited and the person acting as a contractor shall be considered
merely as an agent or intermediary of the employer who shall be
responsible to the workers in the same manner and extent as if the
latter were directly employed by him.

xxxx

Violation of the afore-quoted provision is considered a labor standards

violation and thus, within the visitorial and enforcement powers of the Secretary of
Labor and Employment (Art. 128).

The Regional Directors authority to issue a cease and desist order emanates
from Rule I, Section 3 of the Rules on Disposition of Labor Standard Cases in the
Regional Offices, to wit:

Section 3. Authorized representative of the Secretary of

Labor and Employment. The Regional Directors shall be the duly
authorized representatives of the Secretary of Labor and
Employment in the administration and enforcement of the labor
standards within their respective territorial jurisdiction.
 The power granted under Article 106 of the Labor Code to the Secretary of
Labor and Employment to restrict or prohibit the contracting out of labor to protect
the rights of workers established under the Code is delegated to the Regional
Directors by virtue of the above-quoted provision.

The reason why labor-only contracting is prohibited under the Labor Code
is that it encourages circumvention of the provisions of the Labor Code on the
workers right to security of tenure and to self-organization.

WHEREFORE, the respondents Appeal is hereby DISMISSED for lack of

merit. The Order of the Regional Director, Regional Office No. XI, Davao City, is
AFFIRMED.

After the motion for reconsideration of the foregoing Order was denied, no further motion
was filed by the parties, and the Order, dated 15 September 1994, of DOLE Undersecretary
Trajano became final and executory. A Writ of Execution[12] was issued by DOLE Regional Office
No. XI only on 27 July 1999, years after the issuance of the order subject of the writ. The DOLE
Regional Office No. XI was informed that CAMPCO and two other cooperatives continued to
operate at DOLE Philippines, Inc. despite the cease and desist Order it had issued. It therefore
commanded the Sheriff to proceed to the premises of CAMPCO and the two other cooperatives
and implement its Order dated 19 October 1993.

Respondents Complaint before the NLRC

Respondents started working for petitioner at various times in the years 1993 and 1994, by
virtue of the Service Contract executed between CAMPCO and petitioner. All of the respondents
had already rendered more than one year of service to petitioner. While some of the respondents
were still working for petitioner, others were put on stay home status on varying dates in the years
1994, 1995, and 1996 and were no longer furnished with work thereafter. Together, respondents
filed a Complaint,[13] on 19 December 1996, with the National Labor Relations Commission
(NLRC), for illegal dismissal, regularization, wage differentials, damages and attorneys fees.

In their Position Paper,[14] respondents reiterated and expounded on the allegations they
previously made in their Complaint

Sometime in 1993 and 1994, [herein petitioner] Dolefil engaged the

services of the [herein respondents] through Cannery Multi-purpose
Cooperative. A cooperative which was organized through the initiative of Dolefil
in order to fill in the vacuum created as a result of the dismissal of the regular
employees of Dolefil sometime in 1990 to 1993.

The [respondents] were assigned at the Industrial Department of respondent

Dolefil. All tools, implements and machineries used in performing their task such
 as: can processing attendant, feeder of canned pineapple at pineapple processing,
nata de coco processing attendant, fruit cocktail processing attendant, and
etc. were provided by Dolefil. The cooperative does not have substantial capital and
does not provide the [respondents] with the necessary tools to effectively perform
their assigned task as the same are being provided by Dolefil.

The training and instructions received by the [respondents] were provided

by Dolefil. Before any of the [respondents] will be allowed to work, he has to
undergo and pass the training prescribed by Dolefil. As a matter of fact, the trainers
are employees of Dolefil.

The [respondents] perform their assigned task inside the premises of

Dolefil. At the job site, they were given specific task and assignment by Dolefils
supervisors assigned to supervise the works and efficiency of the complainants. Just
like the regular employees of Dolefil, [respondents] were subjected to the same
rules and regulations observe [sic] inside company premises and to some extent the
rules applied to the [respondents] by the company through its officers are even
stricter.

The functions performed by the [respondents] are the same functions

discharged by the regular employees of Dolefil. In fact, at the job site, the
[respondents] were mixed with the regular workers of Dolefil. There is no
difference in so far as the job performed by the regular workers of Dolefil and that
of the [respondents].

Some of the [respondents] were deprived of their employment under the

scheme of stay home status where they were advised to literally stay home and wait
for further instruction to report anew for work. However, they remained in this
condition for more than six months. Hence, they were constructively or illegally
dismissed.

Respondents thus argued that they should be considered regular employees of petitioner
given that: (1) they were performing jobs that were usually necessary and desirable in the usual
business of petitioner; (2) petitioner exercised control over respondents, not only as to the results,
but also as to the manner by which they performed their assigned tasks; and (3) CAMPCO, a labor-
only contractor, was merely a conduit of petitioner. As regular employees of petitioner,
respondents asserted that they were entitled to security of tenure and those placed on stay home
status for more than six months had been constructively and illegally dismissed. Respondents
further claimed entitlement to wage differential, moral damages, and attorneys fees.

In their Supplemental Position Paper,[15] respondents presented, in support of their

Complaint, the Orders of DOLE Regional Director Parel, dated 19 October 1993, and DOLE
Undersecretary Trajano, dated 15 September 1994, finding that CAMPCO was a labor-only
contractor and directing CAMPCO to cease and desist from any further labor-only contracting
activities.

Petitioner, in its Position Paper[16] filed before the NLRC, denied that respondents were its
employees.

Petitioner explained that it found the need to engage external services to augment its regular
workforce, which was affected by peaks in operation, work backlogs, absenteeism, and excessive
leaves. It used to engage the services of individual workers for definite periods specified in their
employment contracts and never exceeding one year. However, such an arrangement became the
subject of a labor case,[17] in which petitioner was accused of preventing the regularization of such
workers. The Labor Arbiter who heard the case, rendered his Decision[18] on 24 June 1994
declaring that these workers fell squarely within the concept of seasonal workers as envisaged by
Article 280 of the Labor Code, as amended, who were hired by petitioner in good faith and in
consonance with sound business practice; and consequently, dismissing the complaint against
petitioner. The NLRC, in its Resolution,[19] dated 14 March 1995, affirmed in toto the Labor
Arbiters Decision and further found that the workers were validly and legally engaged by petitioner
for term employment, wherein the parties agreed to a fixed period of employment, knowingly and
voluntarily, without any force, duress or improper pressure being brought to bear upon the
employees and absent any other circumstance vitiating their consent. The said NLRC Resolution
became final and executory on 18 June 1996. Despite the favorable ruling of both the Labor
Arbiter and the NLRC, petitioner decided to discontinue such employment arrangement. Yet, the
problem of petitioner as to shortage of workforce due to the peaks in operation, work backlogs,
absenteeism, and excessive leaves, persisted. Petitioner then found a solution in the engagement
of cooperatives such as CAMPCO to provide the necessary additional services.

Petitioner contended that respondents were owners-members of CAMPCO; that CAMPCO

was a duly-organized and registered cooperative which had already grown into a multi-million
enterprise; that CAMPCO was engaged in legitimate job-contracting with its own owners-
members rendering the contract work; that under the express terms and conditions of the Service
Contract executed between petitioner (the principal) and CAMPCO (the contractor), the latter shall
undertake the contract work on its own account, under its own responsibility, and according to its
own manner and method free from the control and direction of the petitioner in all matters
connected with the performance of the work, except as to the result thereof; and since CAMPCO
held itself out to petitioner as a legitimate job contractor, respondents, as owners-members of
CAMPCO, were estopped from denying or refuting the same.

Petitioner further averred that Department Order No. 10, amending the rules implementing
Books III and VI of the Labor Code, as amended, promulgated by the DOLE on 30 May 1997,
explicitly recognized the arrangement between petitioner and CAMPCO as permissible
contracting and subcontracting, to wit
 Section 6. Permissible contracting and subcontracting. Subject to the
conditions set forth in Section 3(d) and (e) and Section 5 hereof, the principal may
engage the services of a contractor or subcontractor for the performance of any of
the following;

(a) Works or services temporarily or occasionally needed to meet abnormal

increase in the demand of products or services, provided that the normal production
capacity or regular workforce of the principal cannot reasonably cope with such
demands;

(b) Works or services temporarily or occasionally needed by the principal

for undertakings requiring expert or highly technical personnel to improve the
management or operations of an enterprise;

(c) Services temporarily needed for the introduction or promotion of new

products, only for the duration of the introductory or promotional period;

(d) Works or services not directly related or not integral to the main business
or operation of the principal, including casual work, janitorial, security,
landscaping, and messengerial services, and work not related to manufacturing
processes in manufacturing establishments;

(e) Services involving the public display of manufacturers products which

does not involve the act of selling or issuance of receipts or invoices;
(f) Specialized works involving the use of some particular, unusual, or
peculiar skills, expertise, tools or equipment the performance of which is beyond
the competence of the regular workforce or production capacity of the principal;
and

(g) Unless a reliever system is in place among the regular workforce,

substitute services for absent regular employees, provided that the period of service
shall be coextensive with the period of absence and the same is made clear to the
substitute employee at the time of engagement. The phrase absent regular
employees includes those who are serving suspensions or other disciplinary
measures not amounting to termination of employment meted out by the principal,
but excludes those on strike where all the formal requisites for the legality of the
strike have been prima facie complied with based on the records filed with the
National Conciliation and Mediation Board.

According to petitioner, the services rendered by CAMPCO constituted permissible job

contracting under the afore-quoted paragraphs (a), (c), and (g), Section 6 of DOLE Department
Order No. 10, series of 1997.

After the parties had submitted their respective Position Papers, the Labor Arbiter promulgated its
Decision[20] on 11 June 1999, ruling entirely in favor of petitioner, ratiocinating thus
 After judicious review of the facts, narrated and supporting documents
adduced by both parties, the undersigned finds [and] holds that CAMPCO is not
engaged in labor-only contracting.

Had it not been for the issuance of Department Order No. 10 that took effect
on June 22, 1997 which in the contemplation of Law is much later compared to the
Order promulgated by the Undersecretary Cresencio Trajano of Department of
[L]abor and Employment, the undersigned could safely declared [sic]
otherwise. However, owing to the principle observed and followed in legal practice
that the later law or jurisprudence controls, the reliance to Secretary Trajanos order
is overturned.

Labor-only contracting as amended by Department [O]rder No. 10 is

defined in this wise:

Labor-only contracting is prohibited under this Rule is an

arrangement where the contractor or subcontractor merely recruits,
supplied [sic] or places workers to perform a job, work or service
for a principal, and the following elements are present:

i) The contractor or sub-contractor does not have substantial

capital or investment to actually perform the job, work, or service
under its own account & responsibility, and

ii) 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.

Verification of the records reveals that per Annexes J and K of [herein

petitioner DolePhils] position paper, which are the yearly audited Financial
Statement and Balance Sheet of CAMPCO shows [sic] that it has more than
substantial capital or investment in order to qualify as a legitimate job contractor.

We likewise recognize the validity of the contract entered into and between
CAMPCO and [petitioner] for the former to assists [sic] the latter in its operations
and in the performance of odd jobs such as the augmentation of regular manning
particularly during peaks in operation, work back logs, absenteeism and excessive
leave availment of respondents regular employees. The rule is well-settled that
labor laws discourage interference with an employers judgment in the conduct of
his business. Even as the law is solicitors [sic] of the welfare of the employees, it
must also protect the right of an employer to exercise what are clearly management
prerogatives. The free will of management to conduct its own business affairs to
achieve its purpose cannot be denied (Yuco Chemical Industries vs. Ministry of
[L]abor, GR No. 75656, May 28, 1990).
 CAMPCO being engaged in legitimate contracting, cannot therefore
declared [sic] as guilty of labor-only contracting which [herein respondents] want
us to believe.

The second issue is likewise answered in the negative. The reason is plain
and simple[,] section 12 of Department [O]rder No. 10 states:

Section 12. Employee-employer relationship. Except in cases

provided for in Section 13, 14, 15 & 17, the contractor or
subcontractor shall be considered the employer of the contractual
employee for purposes of enforcing the provisions of the Code.

The Resolution of NLRC 5th division, promulgated on March 14, 1 1995

[sic] categorically declares:

Judging from the very nature of the terms and conditions of their
hiring, the Commission finds the complainants to have
been engaged to perform work, although necessary or desirable to
the business of respondent company, for a definite period or what is
community called TERM EMPLOYMENT. It is clear from the
evidence and record that the nature of the business and operation of
respondent company has its peaks and valleys and therefore, it is not
difficult to discern, inclement weather, or high availment by regular
workers of earned leave credits, additional workers categorized as
casuals, or temporary, are needed to meet the exigencies.
(Underlining in the original)

The validity of fixed-period employment has been consistently upheld by

the Supreme [C]ourt in a long line of cases, the leading case of which is Brent
School, Inc. vs. Zamora & Alegre, GR No. 48494, February 5, 1990. Thus at the
end of the contract the employer-employee relationship is terminated. It behooves
upon us to rule that herein complainants cannot be declared regular rank and file
employees of the [petitioner] company.

Anent the third issue, [respondents] dismally failed to provide us the exact
figures needed for the computation of their wage differentials. To simply alleged
[sic] that one is underpaid of his wages is not enough. No bill of particulars was
submitted. Moreover, the Order of RTWPB Region XI, Davao City dated February
21, 1996 exempts [petitioner] company from complying Wage Order No. 04 [sic]
in so far as such exemption applies only to workers who are not covered by the
Collective Bargaining Agreement, for the period January 1 to December 31, 1995,.
[sic] In so far as [respondents] were not privies to the CBA, they were the workers
referred to by RTWPBs Order. [H]ence, [respondents] claims for wage differentials
are hereby dismissed for lack of factual basis.
 We find no further necessity in delving into the issues raised by
[respondents] regarding moral damages and attorneys fees for being moot and
academic because of the findings that CAMPCO does not engaged [sic] in labor-
only contracting and that [respondents] cannot be declared as regular employees of
[petitioner].

WHEREFORE, premises considered, judgment is hereby rendered in the

above-entitled case, dismissing the complaint for lack of merit.

Respondents appealed the Labor Arbiters Decision to the NLRC, reiterating their position that they
should be recognized as regular employees of the petitioner since CAMPCO was a mere labor-
only contractor, as already declared in the previous Orders of DOLE Regional Director Parel,
dated 19 October 1993, and DOLE Undersecretary Trajano, dated 15 September 1994, which
already became final and executory. The NLRC, in its Resolution,[21] dated 29 February 2000,
dismissed the appeal and affirmed the Labor Arbiters Decision, reasoning as follows

We find no merit in the appeal.

The concept of conclusiveness of judgment under the principle of res

judicata means that where between the first case wherein judgment is rendered and
the second case wherein such judgment is invoked, there is identity of parties, but
there is no identity of cause of action, the judgment is conclusive in the second case,
only as to those matters actually and directly controverted and determined and not
as to matters merely involved therein (Viray, etc. vs. Marinas, et al., 49 SCRA
44). There is no denying that the order of the Department of Labor and
Employment, Regional Office No. XI in case No. RI100-9310-RI-355, which the
complainants perceive to have sealed the status of CAMPCO as labor-only
contractor, proceeded from the visitorial and enforcement power of the Department
Secretary under Article 128 of the Labor Code. Acting on reports that the
cooperatives, including CAMPCO, that operated and offered services at [herein
petitioner] company were engaging in labor-only contracting activities, that Office
conducted a routinary inspection over the records of said cooperatives and
consequently, found the latter to be engaging in labor-only contracting
activities. This being so, [petitioner] company was not a real party-in-interest in
said case, but the cooperatives concerned. Therefore, there is no identity of parties
between said case and the present case which means that the afore-said ruling of
the DOLE is not binding and conclusive upon [petitioner] company.

It is not correct, however, to say, as the Labor Arbiter did, that the afore-
said ruling of the Department of Labor and Employment has been overturned by
Department Order No. 10. It is a basic principle that once a judgment becomes final
it cannot be disturbed, except for clerical errors or when supervening events render
its execution impossible or unjust (Sampaguita Garmens [sic] Corp. vs. NLRC, G.
R. No. 102406, June 7, 1994). Verily, the subsequent issuance of Department Order
No. 10 cannot be construed as supervening event that would render the execution
 of said judgment impossible or unjust. Department Order No. 10 refers to the
ramification of some provisions of the Rules Implementing Articles 106 and 109 of
the Labor Code, without substantially changing the definition of labor-only or job
contracting.

Well-settled is the rule that to qualify as an independent job contractor, one

has either substantial capital or investment in the form of tools, equipment and
machineries necessary to carry out his business (see Virginia Neri, et al. vs. NLRC,
et al., G.R. Nos. 97008-89, July 23, 1993). CAMPCO has admittedly a paid-up
capital of P4,562,470.25 and this is more than enough to qualify it as an
independent job contractor, as aptly held by the Labor Arbiter.

WHEREFORE, the appeal is DISMISSED for lack of merit and the

appealed decision is AFFIRMED.

Petition for Certiorari with the Court of Appeals

Refusing to concede defeat, respondents filed with the Court of Appeals a Petition
for Certiorari under Rule 65 of the revised Rules of Civil Procedure, asserting that the NLRC
acted without or in excess of its jurisdiction and with grave abuse of discretion amounting to lack
of jurisdiction when, in its Resolution, dated 29 February 2000, it (1) ruled that CAMPCO was a
bona fide independent job contractor with substantial capital, notwithstanding the fact that at the
time of its organization and registration with CDA, it only had a paid-up capital of P6,600.00; and
(2) refused to apply the doctrine of res judicata against petitioner. The Court of Appeals, in its
Decision,[22] dated 20 May 2002, granted due course to respondents Petition, and set aside the
assailed NLRC Decision. Pertinent portions of the Court of Appeals Decision are reproduced
below

In the case at bench, it was established during the proceedings before the
[NLRC] that CAMPCO has a substantial capital. However, having a substantial
capital does not per se qualify CAMPCO as a job contractor. In order to be
considered an independent contractor it is not enough to show substantial
capitalization or investment in the form of tools, equipment, machinery and work
premises. The conjunction and, in defining what a job contractor is, means that
aside from having a substantial capital or investment in the form of tools,
equipment, machineries, work premise, and other materials which are necessary in
the conduct of his business, the contractor must be able to prove that it also carries
on an independent business and 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. [Herein petitioner
DolePhil] has failed to prove, except for the substantial capital requirement, that
CAMPCO has met the other requirements. It was not established that CAMPCO is
engaged or carries on an independent business. In the performance of the respective
tasks of workers deployed by CAMPCO with [petitioner], it was not established
that CAMPCO undertook the contract of work it entered with [petitioner] under its
own account and its own responsibility. It is [petitioner] who provides the
procedures to be followed by the workers in the performance of their assigned
work. The workers deployed by CAMPCO to [petitioner] performed activities
which are directly related to the principal business or operations of the employer in
which workers are habitually employed since [petitioner] admitted that these
workers were engaged to perform the job of other regular employees who cannot
report for work.

Moreover, [NLRC] likewise gravely erred in not giving weight to the Order
dated 19 October 1993 issued by the Office of the Secretary of the Department of
Labor and Employment, through Undersecretary Cresencio Trajano, which
affirmed the findings of the Department of Labor and Employment Regional
Office, Region XI, Davao City that Cannery Multi-Purpose Cooperative is one of
the cooperatives engaged in labor-only contracting activities.

In the exercise of the visitorial and enforcement power of the Department

of Labor and Employment, an investigation was conducted among the cooperatives
organized and existing in Polomolok, South Cotabato, relative to labor-only
contracting activities. One of the cooperatives investigated was Cannery Multi-
Purpose Cooperative. After the investigation, the Department of Labor and
Employment, Regional Office No. XI, Davao City, through its Regional Director,
issued the Order dated 19 October 1993, stating:

WHEREFORE, premises considered, ADVENTURERS

MULTI PURPOSE COOPERATIVE, HUMAN RESOURCE
MULTI PURPOSE SKILLED COOPERATIVE and CANNERY
MULTI PURPOSE COOPERATIVE are hereby declared to be
engaged in labor only contracting which is a prohibited activity. The
same cooperatives are therefore ordered to cease and desist from
further engaging in such activities.

xxxx

SO ORDERED.

Cannery Multi Purpose Cooperative, together with the other cooperatives

declared as engaged in labor-only contracting activity, appeal the above-findings to
the Secretary of the Department of Labor and Employment. Their appeal was
dismissed for lack of merit as follows:: [sic]

xxxx
 [NLRC] held that CAMPCO, being not a real party-in interest in the above-
case, the said ruling is not binding and conclusive upon [petitioner]. This Court,
however, finds the contrary.

CAMPCO was one of the cooperatives investigated by the Department of

Labor and Employment, Regional Office No. XI, Davao City, pursuant to Article
128 of the Labor Code. It was one of the appellants before the Secretary of the
Department of Labor questioning the decision of the Regional Director of DOLE,
Regional Office No. XI, Davao City. This Court noted that in the proceedings
therein, and as mentioned in the decision rendered by Undersecretary Cresencio B.
Trajano of the Department of Labor and Employment, Manila, regarding the
cooperatives appeal thereto, the parties therein, including Cannery Multi-Purpose
Cooperative, submitted to the said office their position papers and Articles of
Cooperatives and Certification of Registrations [sic] on 30 August 1993. This is a
clear indicia that CAMPCO participated in the proceedings therein. [NLRC],
therefore, committed grave abuse of discretion amounting to lack or excess of
jurisdiction when it held that CAMPCO was never a party to the said case.

[Petitioner] invokes Section 6 of Department Order No. 10, series of 1997,

issued by the Department of Labor and Employment which took effect on 22 June
1997. The said section identified the circumstances which are permissible job
contracting, to wit:

xxxx

[Petitioners] main contention is based on the decisions rendered by the labor

arbiter and [NLRC] which are both anchored on Department Order No. 10 issued
by the Department of Labor and Employment. The said department order provided
for several flexible working relations between a principal, a contractor or
subcontractor and the workers recruited by the latter and deployed to the former. In
the case at bench, [petitioner] posits that the engagement of [petitioner] of the
workers deployed by CAMPCO was pursuant to D.O. No. 10, Series of 1997.

However, on 8 May 2001, the Department of Labor and Employment issued

Department Order No. 3, series of 2001, revoking Department Order No. 10, series
of 1997. The said department order took effect on 29 May 2001.

xxxx

Under Department Order No. 3, series of 2001, some contracting and

outsourcing arrangements are no longer legitimate modes of employment
relation. Having revoked Department Order No. 10, series of 1997, [petitioner] can
no longer support its argument by relying on the revoked department order.

Considering that [CAMPCO] is not a job contractor, but one engaged in

labor-only contracting, CAMPCO serves only as an agent of [petitioner] pursuant
to par. (b) of Sec. 9, Rule VIII, Book III of the Implementing Rules and Regulations
of the Labor Code, stating,

xxxx

However, the Court cannot declare that [herein respondents] are regular
employees of [petitioner]. x x x

xxxx

In the case at bench, although [respondents] were engaged to perform

activities which are usually necessary or desirable in the usual business or trade of
private respondent, it is apparent, however, that their services were engaged by
[petitioner] only for a definite period. [Petitioners] nature of business and operation
has its peaks. In order to meet the demands during peak seasons they necessarily
have to engage the services of workers to work only for a particular season. In the
case of [respondents], when they were deployed by CAMPCO with [petitioner] and
were assigned by the latter at its cannery department, they were aware that they will
be working only for a certain duration, and this was made known to them at the
time they were employed, and they agreed to the same.

xxxx

The non-rehiring of some of the petitioners who were allegedly put on a

floating status is an indication that their services were no longer needed. They
attained their floating status only after they have finished their contract of
employment, or after the duration of the season that they were employed. The
decision of [petitioner] in not rehiring them means that their services were no longer
needed due to the end of the season for which they were hired. And this Court
reiterates that at the time they were deployed to [petitioners] cannery division, they
knew that the services they have to render or the work they will perform are
seasonal in nature and consequently their employment is only for the duration of
the season.

ACCORDINGLY, in view of the foregoing, the instant petition for

certiorari is hereby GRANTED DUE COURSE. The decision dated 29 February
2000 and Resolution dated 19 December 2000rendered by [NLRC] are hereby SET
ASIDE. In place thereof, it is hereby rendered that:

1. Cannery Multi-Purpose Cooperative is a labor-only contractor

as defined under the Labor Code of the Philippines and its
implementing rules and regulations; and that

2. DOLE Philippines Incorporated is merely an agent or

intermediary of Cannery Multi-Purpose Cooperative.
 All other claims of [respondents] are hereby DENIED for lack of basis.

Both petitioner and respondents filed their respective Motions for Reconsideration of the foregoing
Decision, dated 20 May 2002, prompting the Court of Appeals to promulgate an Amended
Decision on 27 November 2003, in which it ruled in this wise:

This court examined again the documentary evidence submitted by the

[herein petitioner] and we rule not to disturb our findings in our Decision dated May
20, 2002. It is our opinion that there was no competent evidence submitted that
would show that CAMPCO is engaged to perform a specific and special job or
service which is one of the strong indicators that an entity is an independent
contractor.The articles of cooperation and by-laws of CAMPCO do not show that
it is engaged in performing a specific and special job or service. What is clear is
that it is a multi-purpose cooperative organized under RA No. 6938, nothing more,
nothing less.

As can be gleaned from the contract that CAMPCO entered into with the
[petitioner], the undertaking of CAMPCO is to provide [petitioner] with workforce
by assisting the company in its daily operations and perform odd jobs as may be
assigned. It is our opinion that CAMPCO merely acted as recruitment agency for
[petitioner]. CAMPCO by supplying manpower only, clearly conducted itself as
labor-only contractor. As can be gleaned from the service contract, the work
performed by the [herein respondents] are directly related to the main business of
the [petitioner]. Clearly, the requisites of labor-only contracting are present in the
case at bench.

In view of the above ruling, we find it unnecessary to discuss whether the

Order of Undersecretary Trajano finding that CAMPCO is a labor-only contractor
is a determining factor or constitutes res judicata in the case at bench. Our findings
that CAMPCO is a labor-only contractor is based on the evidence presented vis--
vis the rulings of the Supreme Court on the matter.

Since, the argument that the [petitioner] is the real employer of the
[respondents], the next question that must be answered is what is the nature of the
employment of the petitioners?

xxxx

The afore-quoted [Article 280 of the Labor Code, as amended] provides for
two kinds of employment, namely: (1) regular (2) casual. In our Decision, we ruled
that the [respondents] while performing work necessary and desirable to the
business of the [petitioner] are seasonal employees as their services were engaged
by the [petitioner] for a definite period or only during peak season.

In the most recent case of Hacienda Fatima v. National Federation of

Sugarcane Workers Food and General Trade, the Supreme Court ruled that for
 employees to be excluded from those classified as regular employees, it is not
enough that they perform work or services that are seasonal in nature. They must
have also been employed only for the duration of one season. It is undisputed that
the [respondents] services were engaged by the [petitioner] since 1993 and
1994. The instant complaint was filed in 1996 when the [respondents] were placed
on floating status. Evidently, [petitioner] employed the [respondents] for more than
one season. Therefore, the general rule on regular employment is applicable. The
herein petitioners who performed their jobs in the workplace of the [petitioner]
every season for several years, are considered the latters regular employees for
having performed works necessary and desirable to the business of the
[petitioner]. The [petitioners] eventual refusal to use their serviceseven if they were
ready, able and willing to perform their usual duties whenever these were
availableand hiring other workers to perform the tasks originally assigned to
[respondents] amounted to illegal dismissal of the latter. We thus, correct our
earlier ruling that the herein petitioners are seasonal workers. They are regular
employees within the contemplation of Article 280 of the Labor Code and thus
cannot be dismissed except for just or authorized cause. The Labor Code provides
that when there is a finding of illegal dismissal, the effect is that the employee
dismissed shall be reinstated to his former position without loss of seniority rights
with backwages from the date of his dismissal up to his actual reinstatement.

This court however, finds no basis for the award of damages and attorneys
fees in favor of the petitioners.

WHEREFORE, the Decision dated May 20, 2002 rendered by this Court
is hereby AMENDED as follows:

1) [Petitioner] DOLE PHILIPPINES is hereby declared the employer of the

[respondents].

2) [Petitioner] DOLE PHILIPPINES is hereby declared guilty of illegal

dismissal and ordered to immediately reinstate the [respondents] to their former
position without loss of seniority rights and other benefits, and to pay each of the
[respondents] backwages from the date of the filing of illegal dismissal on
December 19, 1996 up to actual reinstatement, the same to be computed by the
labor arbiter.

3) The claims for damages and attorneys fees are hereby denied for lack of
merit.

No costs.[23]

The Petition at Bar

Aggrieved by the Decision, dated 20 May 2002, and the Amended Decision, dated 27 November
2003, of the Court of Appeals, petitioner filed the instant Petition for Review on Certiorariunder
Rule 45 of the revised Rules of Civil Procedure, in which it made the following assignment of
errors

I.

THE COURT OF APPEALS HAS DEPARTED FROM THE USUAL COURSE

OF JUDCIAL PROCEEDINGS WHEN IT MADE ITS OWN FACTUAL
FINDINGS AND DISREGARDED THE UNIFORM AND CONSISTENT
FACTUAL FINDINGS OF THE LABOR ARBITER AND THE NLRC, WHICH
MUST BE ACCORDED GREAT WEIGHT, RESPECT AND EVEN
FINALITY. IN SO DOING, THE COURT OF APPEALS EXCEEDED ITS
AUTHORITY ON CERTIORARI UNDER RULE 65 OF THE RULES OF
COURT.

II.

THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE

IN A WAY NOT IN ACCORD WITH THE CONSTITUTION, LAW,
APPLICABLE RULES AND REGULATIONS AND DECISIONS OF THE
SUPREME COURT IN NOT HOLDING THAT DEPARTMENT ORDER NO. 10,
SERIES OF 1997 IS THE APPLICABLE REGULATION IN THIS CASE. IN
GIVING RETROACTIVE APPLICATION TO DEPARTMENT ORDER NO. 3,
SERIES OF 2001, THE COURT OF APPEALS VIOLATED THE
CONSTITUTIONAL PROVISION AGAINST IMPAIRMENT OF CONTRACTS
AND DEPRIVED PETITIONER OF THE DUE PROCESS OF THE LAW.

III.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF

SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN
GIVING WEIGHT TO THE ORDER DATED 19 OCTOBER 1993 ISSUED BY
THE OFFICE OF SECRETARY OF LABOR, WHICH AFFIRMED THE
FINDINGS OF THE DOLE REGIONAL OFFICE (REGION XI, DAVAO CITY)
THAT CAMPCO IS ONE OF THE COOPERATIVES ENGAGED IN LABOR-
ONLY CONTRACTING ACTIVITIES.

IV.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF

SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE
IN NOT RULING THAT RESPONDENTS, BY ACTIVELY REPRESENTING
THEMSELVES AND WARRANTING THAT THEY ARE ENGAGED IN
LEGITIMATE JOB CONTRACTING, ARE BARRED BY THE EQUITABLE
 PRINCIPLE OF ESTOPPEL FROM ASSERTING THAT THEY ARE
REGULAR EMPLOYEES OF PETITIONER.

V.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF

SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN
RULING THAT CAMPCO IS ENGAGED IN THE PROHIBITED ACT
OF LABOR-ONLY CONTRACTING DESPITE THERE BEING SUBSTANTIAL
EVIDENCE TO THE CONTRARY.

VI.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF

SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN
RULING THAT PETITIONER IS THE EMPLOYER OF RESPONDENTS AND
THAT PETITIONER IS GUILTY OF ILLEGAL DISMISSAL.[24]

This Courts Ruling

Anent the first assignment of error, petitioner argues that judicial review under Rule 65 of
the revised Rules of Civil Procedure is limited only to issues concerning want or excess or
jurisdiction or grave abuse of discretion. The special civil action for certiorari is a remedy
designed to correct errors of jurisdiction and not mere errors of judgment. It is the contention of
petitioner that the NLRC properly assumed jurisdiction over the parties and subject matter of the
instant case. The errors assigned by the respondents in their Petition for Certiorari before the
Court of Appeals do not pertain to the jurisdiction of the NLRC; they are rather errors of judgment
supposedly committed by the the NLRC, in its Resolution, dated 29 February 2000, and are thus
not the proper subject of a petition for certiorari. Petitioner also posits that the Petition
for Certiorari filed by respondents with the Court of Appeals raised questions of fact that would
necessitate a review by the appellate court of the evidence presented by the parties before the Labor
Arbiter and the NLRC, and that questions of fact are not a fit subject for a special civil action
for certiorari.
 It has long been settled in the landmark case of St. Martin Funeral Home v. NLRC,[25] that
the mode for judicial review over decisions of the NLRC is by a petition for certiorariunder Rule
65 of the revised Rules of Civil Procedure. The different modes of appeal, namely, writ of error
(Rule 41), petition for review (Rules 42 and 43), and petition for review on certiorari (Rule 45),
cannot be availed of because there is no provision on appellate review of NLRC decisions in the
Labor Code, as amended.[26] Although the same case recognizes that both the Court of Appeals
and the Supreme Court have original jurisdiction over such petitions, it has chosen to impose the
strict observance of the hierarchy of courts. Hence, a petition for certiorari of a decision or
resolution of the NLRC should first be filed with the Court of Appeals; direct resort to the Supreme
Court shall not be allowed unless the redress desired cannot be obtained in the appropriate courts
or where exceptional and compelling circumstances justify an availment of a remedy within and
calling for the exercise by the Supreme Court of its primary jurisdiction.

The extent of judicial review by certiorari of decisions or resolutions of the NLRC, as

exercised previously by the Supreme Court and, now, by the Court of Appeals, is described
in Zarate v. Olegario,[27] thus

The rule is settled that the original and exclusive jurisdiction of this Court
to review a decision of respondent NLRC (or Executive Labor Arbiter as in this
case) in a petition for certiorari under Rule 65 does not normally include an inquiry
into the correctness of its evaluation of the evidence. Errors of judgment, as
distinguished from errors of jurisdiction, are not within the province of a special
civil action for certiorari, which is merely confined to issues of jurisdiction or
grave abuse of discretion. It is thus incumbent upon petitioner to satisfactorily
establish that respondent Commission or executive labor arbiter acted capriciously
and whimsically in total disregard of evidence material to or even decisive of the
controversy, in order that the extraordinary writ of certiorari will lie. By grave
abuse of discretion is meant such capricious and whimsical exercise of judgment as
is equivalent to lack of jurisdiction, and it must be shown that the discretion was
exercised arbitrarily or despotically. For certiorarito lie, there must be capricious,
arbitrary and whimsical exercise of power, the very antithesis of the judicial
prerogative in accordance with centuries of both civil law and common law
traditions.

The Court of Appeals, therefore, can grant the Petition for Certiorari if it finds that the NLRC, in
its assailed decision or resolution, committed grave abuse of discretion by capriciously,
whimsically, or arbitrarily disregarding evidence which is material or decisive of the controversy;
and the Court of Appeals can not make this determination without looking into the evidence
presented by the parties. Necessarily, the appellate court can only evaluate the materiality or
significance of the evidence, which is alleged to have been capriciously, whimsically, or arbitrarily
disregarded by the NLRC, in relation to all other evidence on record.

As this Court elucidated in Garcia v. National Labor Relations Commission[28]--

[I]n Ong v. People, we ruled that certiorari can be properly resorted to where
the factual findings complained of are not supported by the evidence on
record. Earlier, in Gutib v. Court of Appeals, we emphasized thus:

[I]t has been said that a wide breadth of discretion is granted

a court of justice in certiorari proceedings. The cases in which
certiorari will issue cannot be defined, because to do so would be to
destroy its comprehensiveness and usefulness. So wide is the
discretion of the court that authority is not wanting to show that
certiorari is more discretionary than either prohibition or
mandamus. In the exercise of our superintending control over
inferior courts, we are to be guided by all the circumstances of each
particular case as the ends of justice may require. So it is that the
writ will be granted where necessary to prevent a substantial wrong
or to do substantial justice.

And in another case of recent vintage, we further held:

In the review of an NLRC decision through a special civil

action for certiorari, resolution is confined only to issues of
jurisdiction and grave abuse of discretion on the part of the labor
tribunal. Hence, the Court refrains from reviewing factual
assessments of lower courts and agencies exercising adjudicative
functions, such as the NLRC. Occasionally, however, the Court is
constrained to delve into factual matters where, as in the instant case,
the findings of the NLRC contradict those of the Labor Arbiter.

In this instance, the Court in the exercise of its equity

jurisdiction may look into the records of the case and re-examine the
questioned findings. As a corollary, this Court is clothed with ample
authority to review matters, even if they are not assigned as errors
in their appeal, if it finds that their consideration is necessary to
arrive at a just decision of the case. The same principles are now
necessarily adhered to and are applied by the Court of Appeals in its
expanded jurisdiction over labor cases elevated through a petition
for certiorari; thus, we see no error on its part when it made anew a
factual determination of the matters and on that basis reversed the
ruling of the NLRC.
 II

The second assignment of error delves into the significance and application to the case at
bar of the two department orders issued by DOLE. Department Order No. 10, series of 1997,
amended the implementing rules of Books III and VI of the Labor Code, as amended. Under this
particular DOLE department order, the arrangement between petitioner and CAMPCO would
qualify as permissible contracting. Department Order No. 3, series of 2001, revoked Department
Order No. 10, series of 1997, and reiterated the prohibition on labor-only contracting.

Attention is called to the fact that the acts complained of by the respondents occurred well
before the issuance of the two DOLE department orders in 1997 and 2001. The Service Contract
between DOLE and CAMPCO was executed on 17 August 1993. Respondents started working for
petitioner sometime in 1993 and 1994. While some of them continued to work for petitioner, at
least until the filing of the Complaint, others were put on stay home status at various times in 1994,
1995, and 1996. Respondents filed their Complaint with the NLRC on 19 December 1996.

A basic rule observed in this jurisdiction is that no statute, decree, ordinance, rule or
regulation shall be given retrospective effect unless explicitly stated.[29] Since there is no provision
at all in the DOLE department orders that expressly allowed their retroactive application, then the
general rule should be followed, and the said orders should be applied only prospectively.

Which now brings this Court to the question as to what was the prevailing rule on labor-
only contracting from 1993 to 1996, the period when the occurrences subject of the Complaint
before the NLRC took place.

Article 106 of the Labor Code, as amended, permits legitimate job contracting, but
prohibits labor-only contracting. The said provision reads

ART. 106. Contractor or subcontractor. Whenever an employer enters into

a contract with another person for the performance of the formers work, the
employees of the contractor and of the latters subcontractor, if any, shall be paid in
accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and severally
liable with his contractor or subcontractor to such employees to the extent of the
work performed under the contract, in the same manner and extent that he is liable
to employees directly employed by him.
 The Secretary of Labor may, by appropriate regulations, restrict or prohibit
the contracting out of labor to protect the rights of workers established under this
Code. In so prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as differentiations
within these types of contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to prevent any violation
or circumvention of any provision of this Code.

There is labor-only contracting where the person supplying workers to an

employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers recruited
and placed by such persons are performing activities which are directly related to
the principal business of 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.

To implement the foregoing provision of the Labor Code, as amended, Sections 8 and 9, Rule VIII,
Book III of the implementing rules, in force since 1976 and prior to their amendment by DOLE
Department Order No. 10, series of 1997, provided as follows

Sec. 8. Job contracting. There is job contracting permissible under the Code
if the following conditions are met;
(1) The contractor carries on an independent business and undertakes the
contract work on his own account under his own responsibility according to his
own manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of the work except as to the
results thereof; and
(2) The contractor has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are necessary
in the conduct of his business.

Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply

workers to an employer shall be deemed to be engaged in labor-only contracting
where such person:

(1) Does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises and other materials; and

(2) The workers recruited and placed by such persons are performing
activities which are directly related to the principal business or operations of the
employer in which workers are habitually employed.
 (b) Labor-only contracting as defined herein is hereby prohibited and the
person acting as contractor shall be considered merely as an agent or intermediary
of the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.

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

Since these statutory and regulatory provisions were the ones in force during the years in
question, then it was in consideration of the same that DOLE Regional Director Parel and DOLE
Undesrsecretary Trajano issued their Orders on 19 September 1993 and 15 September 1994,
respectively, both finding that CAMPCO was engaged in labor-only contracting.Petitioner, in its
third assignment of error, questions the weight that the Court of Appeals gave these orders in
its Decision, dated 20 May 2002, and Amended Decision, dated 27 November 2003.

III

The Orders of DOLE Regional Director Parel, dated 19 September 1993, and of DOLE
Undersecretary Trajano, dated 15 September 1994, were issued pursuant to the visitorial and
enforcement power conferred by the Labor Code, as amended, on the DOLE Secretary and his
duly authorized representatives, to wit

ART. 128. Visitorial and enforcement power. (a) The Secretary of Labor or
his duly authorized representatives, including labor regulation officers, shall have
access to employers records and premises at any time of the day or night whenever
work is being undertaken therein, and the right to copy therefrom, to question any
employee and investigate any fact, condition or matter which may be necessary to
determine violations or which may aid in the enforcement of this Code and of any
labor law, wage order or rules and regulations pursuant thereto.

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

An order issued by the duly authorized representative of the Secretary of

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

Before Regional Director Parel issued his Order, dated 19 September 1993, a Task Force
investigated the operations of cooperatives in Polomolok, South Cotabato, and submitted a report
identifying six cooperatives that were engaged in labor-only contracting, one of which was
CAMPCO. In a conference before the DOLE Regional Office, the cooperatives named by the Task
Force were given the opportunity to explain the nature of their activities in relation to petitioner;
and, the cooperatives, as well as petitioner, submitted to the DOLE Regional Office their position
papers and other supporting documents to refute the findings of the Task Force. It was only after
these procedural steps did Regional Director Parel issued his Order finding that three cooperatives,
including CAMPCO, were indeed engaged in labor-only contracting and were directed to cease
and desist from further engaging in such activities. On appeal, DOLE Undersecretary Trajano, by
authority of the DOLE Secretary, affirmed Regional Director Parels Order. Upon denial of the
Motion for Reconsideration filed by the cooperatives, and no further appeal taken therefrom, the
Order of DOLE Undersecretary Trajano, dated 15 September 1994, became final and executory.

Petitioner avers that the foregoing Orders of the authorized representatives of the DOLE
Secretary do not constitute res judicata in the case filed before the NLRC. This Court, however,
believes otherwise and finds that the final and executory Orders of the DOLE Secretary or his
authorized representatives should bind the NLRC.

It is obvious that the visitorial and enforcement power granted to the DOLE Secretary is in
the nature of a quasi-judicial power. Quasi-judicial power has been described by this Court in the
following manner

Quasi-judicial or administrative adjudicatory power on the other hand is the

power of the administrative agency to adjudicate the rights of persons before it. It
is the power to hear and determine questions of fact to which the legislative policy
 is to apply and to decide in accordance with the standards laid down by the law
itself in enforcing and administering the same law. The administrative body
exercises its quasi-judicial power when it performs in a judicial manner an act
which is essentially of an executive or administrative nature, where the power to
act in such manner is incidental to or reasonably necessary for the performance
of the executive or administrative duty entrusted to it. In carrying out their quasi-
judicial functions the administrative officers or bodies are required to investigate
facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw
conclusions from them as basis for their official action and exercise of discretion
in a judicial nature. Since rights of specific persons are affected it is elementary
that in the proper exercise of quasi-judicial power due process must be observed in
the conduct of the proceedings.[30] (Emphasis supplied.)

The DOLE Secretary, under Article 106 of the Labor Code, as amended, exercise quasi-judicial
power, at least, to the extent necessary to determine violations of labor standards provisions of the
Code and other labor legislation. He can issue compliance orders and writs of execution for the
enforcement of his orders. As evidence of the importance and binding effect of the compliance
orders of the DOLE Secretary, Article 128 of the Labor Code, as amended, further provides

ART. 128. Visitorial and enforcement power.

xxxx

(d) It shall be unlawful for any person or entity to obstruct, impede, delay
or otherwise render ineffective the orders of the Secretary of Labor or his duly
authorized representatives issued pursuant to the authority granted under this
article, and no inferior court or entity shall issue temporary or permanent injunction
or restraining order or otherwise assume jurisdiction over any case involving the
enforcement orders issued in accordance with this article.

The Orders of DOLE Regional Director Parel, dated 19 September 1993, and of DOLE
Undersecretary Trajano, dated 15 September 1994, consistently found that CAMPCO was
engaging in labor-only contracting. Such finding constitutes res judicata in the case filed by the
respondents with the NLRC.

It is well-established in this jurisdiction that the decisions and orders of administrative

agencies, rendered pursuant to their quasi-judicial authority, have upon their finality, the force and
binding effect of a final judgment within the purview of the doctrine of res judicata. The rule of res
judicata, which forbids the reopening of a matter once judicially determined by competent
authority, applies as well to the judicial and quasi-judicial acts of public, executive or
administrative officers and boards acting within their jurisdiction as to the judgments of courts
having general judicial powers. The orderly administration of justice requires that the judgments
or resolutions of a court or quasi-judicial body must reach a point of finality set by the law, rules
and regulations, so as to write finis to disputes once and for all. This is a fundamental principle in
the Philippine justice system, without which there would be no end to litigations.[31]

Res judicata has dual aspects, bar by prior judgment and conclusiveness of judgment. This
Court has previously clarified the difference between the two

Section 49, Rule 39 of the Revised Rules of Court lays down the dual
aspects of res judicata in actions in personam. to wit:
"Effect of judgment. - The effect of a judgment or final order rendered by a
court or judge of the Philippines, having jurisdiction to pronounce the judgment or
order, may be as follows:
xxxx
(b) In other cases the judgment or order is, with respect to the matter directly
adjudged or as to any other matter that could have been raised in relation thereto,
conclusive between the parties and their successors in interest by title subsequent
to the commencement of the action or special proceeding, litigating for the same
thing and under the same title and in the same capacity;
(c) In any other litigation between the same parties or their successors in
interest, that only is deemed to have been adjudged in a former judgment which
appears upon its face to have been so adjudged, or which was actually and
necessarily included therein or necessary thereto."
Section 49(b) enunciates the first concept of res judicata known as "bar by
prior judgment," whereas, Section 49(c) is referred to as "conclusiveness of
judgment."
There is "bar by former judgment" when, between the first case where the
judgment was rendered, and the second case where such judgment is invoked, there
is identity of parties, subject matter and cause of action. When the three identities
are present, the judgment on the merits rendered in the first constitutes an absolute
bar to the subsequent action. But where between the first case wherein Judgment is
rendered and the second case wherein such judgment is invoked, there is only
identity of parties but there is no identity of cause of action, the judgment is
conclusive in the second case, only as to those matters actually and directly
controverted and determined, and not as to matters merely involved therein. This is
what is termed "conclusiveness of judgment."
 The second concept of res judicata, conclusiveness of judgment, is the one applicable to
the case at bar.

The same parties who participated in the proceedings before the DOLE Regional Office
are the same parties involved in the case filed before the NLRC. CAMPCO, on behalf of its
members, attended the conference before the DOLE Regional Office; submitted its position paper;
filed an appeal with the DOLE Secretary of the Order of DOLE Regional Director Parel; and
moved for reconsideration of the subsequent Order of DOLE Undersecretary Trajano. Petitioner,
although not expressly named as a respondent in the DOLE investigation, was a necessary party
thereto, considering that CAMPCO was rendering services to petitioner solely. Moreover,
petitioner participated in the proceedings before the DOLE Regional Office, intervening in the
matter through a letter sent by its Senior Legal Officer, dated 24 May 1993, and submitting its own
position paper.
While the causes of action in the proceedings before the DOLE and the NLRC differ, they are, in
fact, very closely related. The DOLE Regional Office conducted an investigation to determine
whether CAMPCO was violating labor laws, particularly, those on labor-only
contracting. Subsequently, it ruled that CAMPCO was indeed engaging in labor-only contracting
activities, and thereafter ordered to cease and desist from doing so. Respondents came before the
NLRC alleging illegal dismissal by the petitioner of those respondents who were put on stay home
status, and seeking regularization of respondents who were still working for petitioner. The basis
of their claims against petitioner rests on the argument that CAMPCO was a labor-only contractor
and, thus, merely an agent or intermediary of petitioner, who should be considered as respondents
real employer. The matter of whether CAMPCO was a labor-only contractor was already settled
and determined in the DOLE proceedings, which should be conclusive and binding upon the
NLRC. What were left for the determination of the NLRC were the issues on whether there was
illegal dismissal and whether respondents should be regularized.
This Court also notes that CAMPCO and DOLE still continued with their Service Contract
despite the explicit cease and desist orders rendered by authorized DOLE officials. There is no
other way to look at it except that CAMPCO and DOLE acted in complete defiance and disregard
of the visitorial and enforcement power of the DOLE Secretary and his authorized representatives
under Article 128 of the Labor Code, as amended. For the NLRC to ignore the findings of DOLE
Regional Director Parel and DOLE Undersecretary Trajano is an unmistakable and serious
undermining of the DOLE officials authority.

IV
In petitioners fourth assignment of error, it points out that the Court of Appeals erred in not holding
respondents estopped from asserting that they were regular employees of petitioner since
respondents, as owners-members of CAMPCO, actively represented themselves and warranted
that they were engaged in legitimate job contracting.

This Court cannot sustain petitioners argument.

It is true that CAMPCO is a cooperative composed of its members, including

respondents. Nonetheless, it cannot be denied that a cooperative, as soon as it is registered with
the CDA, attains a juridical personality of its own,[32] separate and distinct from its members; much
in the same way that a corporation has a juridical personality separate and distinct from its
stockholders, known as the doctrine of corporate fiction. The protection afforded by this doctrine
is not absolute, but the exception thereto which necessitates the piercing of the corporate veil can
only be made under specified circumstances. In Traders Royal Bank v. Court of Appeals,[33] this
Court ruled that

Petitioner cannot put up the excuse of piercing the veil of corporate entity,
as this is merely an equitable remedy, and maybe awarded only in cases when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud
or defend crime or where a corporation is a mere alter ego or business conduit of a
person.
Piercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that ordinarily,
they could be subject to, or distinguishes one corporation from a seemingly separate
one, were it not for the existing corporate fiction. But to do this, the court must be
sure that the corporate fiction was misused, to such an extent that injustice, fraud,
or crime was committed upon another, disregarding, thus, his, her, or its rights. It
is the corporate entity which the law aims to protect by this doctrine.

Using the above-mentioned guidelines, is petitioner entitled to a piercing of the cooperative

identity of CAMPCO? This Court thinks not.

It bears to emphasize that the piercing of the corporate veil is an equitable remedy, and
among the maxims of equity are: (1) he who seeks equity must do equity, and (2) he who comes
into equity must come with clean hands. Hence, a litigant may be denied relief by a court of equity
on the ground that his conduct has been inequitable, unfair, dishonest, fraudulent, or deceitful as
to the controversy in issue.[34]
 Petitioner does not come before this Court with clean hands. It is not an innocent party in
this controversy.

Petitioner itself admitted that it encouraged and even helped the establishment of
CAMPCO and the other cooperatives in Polomolok, South Cotabato. These cooperatives were
established precisely to render services to petitioner. It is highly implausible that the petitioner was
lured into entering into the Service Contract with CAMPCO in 1993 on the latters
misrepresentation and false warranty that it was an independent job contractor. Even if it is
conceded that petitioner was indeed defrauded into believing that CAMPCO was an independent
contractor, then the DOLE proceedings should have placed it on guard. Remember that petitioner
participated in the proceedings before the DOLE Regional Office, it cannot now claim ignorance
thereof. Furthermore, even after the issuance of the cease and desist order on CAMPCO, petitioner
still continued with its prohibited service arrangement with the said cooperative.If petitioner was
truly defrauded by CAMPCO and its members into believing that the cooperative was an
independent job contractor, the more logical recourse of petitioner was to have the Service
Contract voided in the light of the explicit findings of the DOLE officials that CAMPCO was
engaging in labor-only contracting. Instead, petitioner still carried on its Service Contract with
CAMPCO for several more years thereafter.

As previously discussed, the finding of the duly authorized representatives of the DOLE
Secretary that CAMPCO was a labor-only contractor is already conclusive. This Court cannot
deviate from said finding.

This Court, though, still notes that even an independent review of the evidence on record, in
consideration of the proper labor statutes and regulations, would result in the same conclusion:
that CAMPCO was engaged in prohibited activities of labor-only contracting.

The existence of an independent and permissible contractor relationship is generally established

by the following criteria: whether or not the contractor is carrying on an independent business; the
nature and extent of the work; the skill required; the term and duration of the relationship; the right
to assign the performance of a specified piece of work; the control and supervision of the work to
another; the employer's power with respect to the hiring, firing and payment of the contractor's
workers; the control of the premises; the duty to supply the premises tools, appliances, materials
and labor; and the mode, manner and terms of payment.[35]

While there is present in the relationship of petitioner and CAMPCO some factors suggestive of
an independent contractor relationship (i.e., CAMPCO chose who among its members should be
sent to work for petitioner; petitioner paid CAMPCO the wages of the members, plus a percentage
thereof as administrative charge; CAMPCO paid the wages of the members who rendered service
to petitioner), many other factors are present which would indicate a labor-only contracting
arrangement between petitioner and CAMPCO.[36]

First, although petitioner touts the multi-million pesos assets of CAMPCO, it does well to
remember that such were amassed in the years following its establishment. In 1993, when
CAMPCO was established and the Service Contract between petitioner and CAMPCO was entered
into, CAMPCO only had P6,600.00 paid-up capital, which could hardly be considered
substantial.[37] It only managed to increase its capitalization and assets in the succeeding years by
continually and defiantly engaging in what had been declared by authorized DOLE officials as
labor-only contracting.

Second, CAMPCO did not carry out an independent business from petitioner. It was precisely
established to render services to petitioner to augment its workforce during peak seasons.
Petitioner was its only client. Even as CAMPCO had its own office and office equipment, these
were mainly used for administrative purposes; the tools, machineries, and equipment actually used
by CAMPCO members when rendering services to the petitioner belonged to the latter.

Third, petitioner exercised control over the CAMPCO members, including respondents. Petitioner
attempts to refute control by alleging the presence of a CAMPCO supervisor in the work
premises. Yet, the mere presence within the premises of a supervisor from the cooperative did not
necessarily mean that CAMPCO had control over its members. Section 8(1), Rule VIII, Book III
of the implementing rules of the Labor Code, as amended, required for permissible job contracting
that the contractor undertakes the contract work on his account, under his 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. As alleged by the respondents, and unrebutted by petitioner, CAMPCO members, before
working for the petitioner, had to undergo instructions and pass the training provided by petitioners
personnel. It was petitioner who determined and prepared the work assignments of the CAMPCO
members. CAMPCO members worked within petitioners plantation and processing plants
alongside regular employees performing identical jobs, a circumstance recognized as
an indicium of a labor-only contractorship.[38]

Fourth, CAMPCO was not engaged to perform a specific and special job or service. In the Service
Contract of 1993, CAMPCO agreed to assist petitioner in its daily operations, and perform odd
jobs as may be assigned. CAMPCO complied with this venture by assigning members to
petitioner. Apart from that, no other particular job, work or service was required from CAMPCO,
and it is apparent, with such an arrangement, that CAMPCO merely acted as a recruitment agency
for petitioner. Since the undertaking of CAMPCO did not involve the performance of a specific
job, but rather the supply of manpower only, CAMPCO clearly conducted itself as a labor-only
contractor.[39]

Lastly, CAMPCO members, including respondents, performed activities directly related to the
principal business of petitioner. They worked as can processing attendant, feeder of canned
pineapple and pineapple processing, nata de coco processing attendant, fruit cocktail processing
attendant, and etc., functions which were, not only directly related, but were very vital to
petitioners business of production and processing of pineapple products for export.

The findings enumerated in the preceding paragraphs only support what DOLE Regional Director
Parel and DOLE Undersecretary Trajano had long before conclusively established, that CAMPCO
was a mere labor-only contractor.

VI

The declaration that CAMPCO is indeed engaged in the prohibited activities of labor-only
contracting, then consequently, an employer-employee relationship is deemed to exist between
petitioner and respondents, since CAMPCO shall be considered as a mere agent or intermediary
of petitioner.

Since respondents are now recognized as employees of petitioner, this Court is tasked to
determine the nature of their employment. In consideration of all the attendant circumstances in
this case, this Court concludes that respondents are regular employees of petitioner.

Article 280 of the Labor Code, as amended, reads

 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 and 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 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 its 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.

This Court expounded on the afore-quoted provision, thus

The primary standard, therefore, of determining a regular employment is

the reasonable connection between the particular activity performed by the
employee in relation to the usual business or trade of the employer. The test is
whether the former is usually necessary or desirable in the usual business or trade
of the employer. The connection can be determined by considering the nature of
the work performed and its relation to the scheme of the particular business or trade
in its entirety. Also, if the employee has been performing the job for at least one
year, even if her performance is not continuous or merely intermittent, the law
deems the repeated and continuing need for its performance as sufficient evidence
of the necessity if not indispensability of the activity to the business. Hence, the
employment is also considered regular, but only with respect to such activity and
while such activity exists.[40]

In the instant Petition, petitioner is engaged in the manufacture and production of pineapple
products for export. Respondents rendered services as processing attendant, feeder of canned
pineapple and pineapple processing, nata de coco processing attendant, fruit cocktail processing
attendant, and etc., functions they performed alongside regular employees of the petitioner. There
is no doubt that the activities performed by respondents are necessary or desirable to the usual
business of petitioner.

Petitioner likewise want this Court to believe that respondents employment was dependent
on the peaks in operation, work backlogs, absenteeism, and excessive leaves. However, bearing in
mind that respondents all claimed to have worked for petitioner for over a year, a claim which
petitioner failed to rebut, then respondents continued employment clearly demonstrates the
continuing necessity and indispensability of respondents employment to the business of petitioner.

Neither can this Court apply herein the ruling of the NLRC in the previous case involving
petitioner and the individual workers they used to hire before the advent of the cooperatives, to the
effect that the employment of these individual workers were not regular, but rather, were valid
term employments, wherein the employer and employee knowingly and voluntarily agreed to
employment for only a limited or specified period of time. The difference between that case and
the one presently before this Court is that the members of CAMPCO, including respondents, were
not informed, at the time of their engagement, that their employment shall only be for a limited or
specified period of time. There is absence of proof that the respondents were aware and had
knowingly and voluntarily agreed to such term employment. Petitioner did not enter into
individual contracts with the CAMPCO members, but executed a Service Contract with CAMPCO
alone. Although the Service Contract of 1993 stated that it shall be for a specific period, from 1
July to 31 December 1993, petitioner and CAMPCO continued the service arrangement beyond
1993. Since there was no written renewal of the Service Contract,[41] there was no further
indication that the engagement by petitioner of the services of CAMPCO members was for another
definite or specified period only.

Respondents, as regular employees of petitioner, are entitled to security of tenure. They

could only be removed based on just and authorized causes as provided for in the Labor Code, as
amended, and after they are accorded procedural due process. Therefore, petitioners acts of placing
some of the respondents on stay home status and not giving them work assignments for more than
six months were already tantamount to constructive and illegal dismissal.[42]

In summary, this Court finds that CAMPCO was a labor-only contractor and, thus,
petitioner is the real employer of the respondents, with CAMPCO acting only as the agent or
intermediary of petitioner. Due to the nature of their work and length of their service, respondents
should be considered as regular employees of petitioner. Petitioner constructively dismissed a
number of the respondents by placing them on stay home status for over six months, and was
therefore guilty of illegal dismissal. Petitioner must accord respondents the status of regular
employees, and reinstate the respondents who it constructively and illegally dismissed, to their
previous positions, without loss of seniority rights and other benefits, and pay these respondents
backwages from the date of filing of the Complaint with the NLRC on 19 December 1996 up to
actual reinstatement.
 WHEREFORE, in view of the foregoing, the instant Petition is DENIED and the
Amended Decision, dated 27 November 2003, rendered by the Court of Appeals in CA-G.R. SP
No. 63405 is AFFIRMED.

THIRD DIVISION

REPUBLIC OF THE PHILIPPINES, G.R. No. 172101

represented by the SOCIAL SECURITY Present:
COMMISSION and SOCIAL SECURITY
SYSTEM, YNARES-
Petitioners, SANTIAGO, J.,Chairperson,
AUSTRIA-MARTINEZ,
AZCUNA,
CHICO-NAZARIO, and
- versus - REYES, JJ.

Promulgated:
ASIAPRO COOPERATIVE,
Respondent. November 23, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised
Rules of Civil Procedure seeking to annul and set aside the Decision[1] and Resolution[2] of the
Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006,
respectively, which annulled and set aside the Orders of the Social Security Commission (SSC) in
SSC Case No. 6-15507-03, dated 17 February 2004[3] and 16 September 2004,[4] respectively,
thereby dismissing the petition-complaint dated 12 June 2003 filed by herein petitioner Social
Security System (SSS) against herein respondent.
Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial body
authorized by law to resolve disputes arising under Republic Act No. 1161, as amended by
Republic Act No. 8282.[5] Petitioner SSS is a government corporation created by virtue of Republic
Act No. 1161, as amended. On the other hand, herein respondent Asiapro Cooperative (Asiapro)
is a multi-purpose cooperative created pursuant to Republic Act No. 6938[6] and duly registered
with the Cooperative Development Authority (CDA) on 23 November 1999 with Registration
Certificate No. 0-623-2460.[7]

The antecedents of this case are as follows:

Respondent Asiapro, as a cooperative, is composed of owners-members. Under its by-

laws, owners-members are of two categories, to wit: (1) regular member, who is entitled to all the
rights and privileges of membership; and (2) associate member, who has no right to vote and be
voted upon and shall be entitled only to such rights and privileges provided in its by-laws.[8]Its
primary objectives are to provide savings and credit facilities and to develop other livelihood
services for its owners-members. In the discharge of the aforesaid primary objectives, respondent
cooperative entered into several Service Contracts[9] with Stanfilco - a division of DOLE
Philippines, Inc. and a company based in Bukidnon. The owners-members do not receive
compensation or wages from the respondent cooperative. Instead, they receive a share in the
service surplus[10] which the respondent cooperative earns from different areas of trade it engages
in, such as the income derived from the said Service Contracts with Stanfilco. The owners-
members get their income from the service surplus generated by the quality and amount of services
they rendered, which is determined by the Board of Directors of the respondent cooperative.

In order to enjoy the benefits under the Social Security Law of 1997, the owners-members
of the respondent cooperative, who were assigned to Stanfilco requested the services of the latter
to register them with petitioner SSS as self-employed and to remit their contributions as such. Also,
to comply with Section 19-A of Republic Act No. 1161, as amended by Republic Act No. 8282,
the SSS contributions of the said owners-members were equal to the share of both the employer
and the employee.

On 26 September 2002, however, petitioner SSS through its Vice-President for Mindanao
Division, Atty. Eddie A. Jara, sent a letter[11] to the respondent cooperative, addressed to its Chief
Executive Officer (CEO) and General Manager Leo G. Parma, informing the latter that based on
the Service Contracts it executed with Stanfilco, respondent cooperative is actually a manpower
contractor supplying employees to Stanfilco and for that reason, it is an employer of its owners-
members working with Stanfilco. Thus, respondent cooperative should register itself with
petitioner SSS as an employer and make the corresponding report and remittance of premium
contributions in accordance with the Social Security Law of 1997. On 9 October
2002,[12] respondent cooperative, through its counsel, sent a reply to petitioner SSSs letter asserting
that it is not an employer because its owners-members are the cooperative itself; hence, it cannot
be its own employer. Again, on 21 October 2002,[13] petitioner SSS sent a letter to respondent
cooperative ordering the latter to register as an employer and report its owners-members as
employees for compulsory coverage with the petitioner SSS. Respondent cooperative
continuously ignored the demand of petitioner SSS.

Accordingly, petitioner SSS, on 12 June 2003, filed a Petition[14] before petitioner SSC
against the respondent cooperative and Stanfilco praying that the respondent cooperative or, in the
alternative, Stanfilco be directed to register as an employer and to report respondent cooperatives
owners-members as covered employees under the compulsory coverage of SSS and to remit the
necessary contributions in accordance with the Social Security Law of 1997. The same was
docketed as SSC Case No. 6-15507-03. Respondent cooperative filed its Answer with Motion to
Dismiss alleging that no employer-employee relationship exists between it and its owners-
members, thus, petitioner SSC has no jurisdiction over the respondent cooperative.Stanfilco, on
the other hand, filed an Answer with Cross-claim against the respondent cooperative.

On 17 February 2004, petitioner SSC issued an Order denying the Motion to Dismiss filed
by the respondent cooperative. The respondent cooperative moved for the reconsideration of the
said Order, but it was likewise denied in another Order issued by the SSC dated 16 September
2004.

Intending to appeal the above Orders, respondent cooperative filed a Motion for Extension
of Time to File a Petition for Review before the Court of Appeals. Subsequently, respondent
cooperative filed a Manifestation stating that it was no longer filing a Petition for Review. In its
place, respondent cooperative filed a Petition for Certiorari before the Court of Appeals, docketed
as CA-G.R. SP No. 87236, with the following assignment of errors:

I. The Orders dated 17 February 2004 and 16 September

2004 of [herein petitioner] SSC were issued with grave abuse of discretion
amounting to a (sic) lack or excess of jurisdiction in that:

A. [Petitioner] SSC arbitrarily proceeded with the case as

if it has jurisdiction over the petition a quo, considering that
it failed to first resolve the issue of the existence of an
employer-employee relationship between [respondent]
cooperative and its owners-members.
B. While indeed, the [petitioner] SSC has jurisdiction
over all disputes arising under the SSS Law with respect to
 coverage, benefits, contributions, and related matters, it is
respectfully submitted that [petitioner] SSC may only
assume jurisdiction in cases where there is no dispute as to
the existence of an employer-employee relationship.
C. Contrary to the holding of the [petitioner] SSC, the
legal issue of employer-employee relationship raised in
[respondents] Motion to Dismiss can be preliminarily
resolved through summary hearings prior to the hearing on
the merits. However, any inquiry beyond a preliminary
determination, as what [petitioner SSC] wants to
accomplish, would be to encroach on the jurisdiction of the
National Labor Relations Commission [NLRC], which is the
more competent body clothed with power to resolve issues
relating to the existence of an employment relationship.

II. At any rate, the [petitioner] SSC has no jurisdiction to

take cognizance of the petition a quo.

A. [Respondent] is not an employer within the

contemplation of the Labor Law but is a multi-purpose
cooperative created pursuant to Republic Act No. 6938 and
composed of owners-members, not employees.
B. The rights and obligations of the owners-members of
[respondent] cooperative are derived from their Membership
Agreements, the Cooperatives By-Laws, and Republic Act
No. 6938, and not from any contract of employment or from
the Labor Laws. Moreover, said owners-members enjoy
rights that are not consistent with being mere employees of
a company, such as the right to participate and vote in
decision-making for the cooperative.
C. As found by the Bureau of Internal Revenue [BIR], the
owners-members of [respondent] cooperative are not paid
any compensation income.[15] (Emphasis supplied.)

On 5 January 2006, the Court of Appeals rendered a Decision granting the petition filed by
the respondent cooperative. The decretal portion of the Decision reads:

WHEREFORE, the petition is GRANTED. The assailed Orders dated [17

February 2004] and [16 September 2004], are ANNULLED and SET ASIDE and
a new one is entered DISMISSING the petition-complaint dated [12 June 2003] of
[herein petitioner] Social Security System.[16]
Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it
was denied by the appellate court in its Resolution dated 20 March 2006.
 Hence, this Petition.

In its Memorandum, petitioners raise the issue of whether or not the Court of Appeals
erred in not finding that the SSC has jurisdiction over the subject matter and it has a valid
basis in denying respondents Motion to Dismiss. The said issue is supported by the following
arguments:

I. The [petitioner SSC] has jurisdiction over the petition-

complaint filed before it by the [petitioner SSS] under R.A. No. 8282.

II. Respondent [cooperative] is estopped from questioning the

jurisdiction of petitioner SSC after invoking its jurisdiction by filing an
[A]nswer with [M]otion to [D]ismiss before it.

III. The [petitioner SSC] did not act with grave abuse of
discretion in denying respondent [cooperatives] [M]otion to [D]ismiss.

IV. The existence of an employer-employee relationship is a

question of fact where presentation of evidence is necessary.

V. There is an employer-employee relationship between

[respondent cooperative] and its [owners-members].

Petitioners claim that SSC has jurisdiction over the petition-complaint filed before it by
petitioner SSS as it involved an issue of whether or not a worker is entitled to compulsory coverage
under the SSS Law. Petitioners avow that Section 5 of Republic Act No. 1161, as amended by
Republic Act No. 8282, expressly confers upon petitioner SSC the power to settle disputes on
compulsory coverage, benefits, contributions and penalties thereon or any other matter related
thereto. Likewise, Section 9 of the same law clearly provides that SSS coverage is compulsory
upon all employees. Thus, when petitioner SSS filed a petition-complaint against the respondent
cooperative and Stanfilco before the petitioner SSC for the compulsory coverage of respondent
cooperatives owners-members as well as for collection of unpaid SSS contributions, it was very
obvious that the subject matter of the aforesaid petition-complaint was within the expertise and
jurisdiction of the SSC.

Petitioners similarly assert that granting arguendo that there is a prior need to determine
the existence of an employer-employee relationship between the respondent cooperative and its
owners-members, said issue does not preclude petitioner SSC from taking cognizance of the
aforesaid petition-complaint. Considering that the principal relief sought in the said petition-
complaint has to be resolved by reference to the Social Security Law and not to the Labor Code or
other labor relations statutes, therefore, jurisdiction over the same solely belongs to petitioner SSC.

Petitioners further claim that the denial of the respondent cooperatives Motion to Dismiss
grounded on the alleged lack of employer-employee relationship does not constitute grave abuse
of discretion on the part of petitioner SSC because the latter has the authority and power to deny
the same. Moreover, the existence of an employer-employee relationship is a question of fact
where presentation of evidence is necessary. Petitioners also maintain that the respondent
cooperative is already estopped from assailing the jurisdiction of the petitioner SSC because it has
already filed its Answer before it, thus, respondent cooperative has already submitted itself to the
jurisdiction of the petitioner SSC.

Finally, petitioners contend that there is an employer-employee relationship between the

respondent cooperative and its owners-members. The respondent cooperative is the employer of
its owners-members considering that it undertook to provide services to Stanfilco, the performance
of which is under the full and sole control of the respondent cooperative.

On the other hand, respondent cooperative alleges that its owners-members own the
cooperative, thus, no employer-employee relationship can arise between them. The persons of the
employer and the employee are merged in the owners-members themselves. Likewise, respondent
cooperatives owners-members even requested the respondent cooperative to register them with the
petitioner SSS as self-employed individuals. Hence, petitioner SSC has no jurisdiction over the
petition-complaint filed before it by petitioner SSS.

Respondent cooperative further avers that the Court of Appeals correctly ruled that
petitioner SSC acted with grave abuse of discretion when it assumed jurisdiction over the petition-
complaint without determining first if there was an employer-employee relationship between the
respondent cooperative and its owners-members. Respondent cooperative claims that the question
of whether an employer-employee relationship exists between it and its owners-members is a legal
and not a factual issue as the facts are undisputed and need only to be interpreted by the applicable
law and jurisprudence.

Lastly, respondent cooperative asserts that it cannot be considered estopped from assailing
the jurisdiction of petitioner SSC simply because it filed an Answer with Motion to Dismiss,
especially where the issue of jurisdiction is raised at the very first instance and where the only
relief being sought is the dismissal of the petition-complaint for lack of jurisdiction.

From the foregoing arguments of the parties, the issues may be summarized into:

I. Whether the petitioner SSC has jurisdiction over the

petition-complaint filed before it by petitioner SSS against the
respondent cooperative.

II. Whether the respondent cooperative is estopped from

assailing the jurisdiction of petitioner SSC since it had already filed an
Answer with Motion to Dismiss before the said body.

Petitioner SSCs jurisdiction is clearly stated in Section 5 of Republic Act No. 8282 as well
as in Section 1, Rule III of the 1997 SSS Revised Rules of Procedure.

Section 5 of Republic Act No. 8282 provides:

SEC. 5. Settlement of Disputes. (a) Any dispute arising under this Act with
respect to coverage, benefits, contributions and penalties thereon or any other
matter related thereto, shall be cognizable by the Commission, x x x. (Emphasis
supplied.)

Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states:

Section 1. Jurisdiction. Any dispute arising under the Social Security Act with
respect to coverage, entitlement of benefits, collection and settlement of
contributions and penalties thereon, or any other matter related thereto, shall be
cognizable by the Commission after the SSS through its President, Manager or
Officer-in-charge of the Department/Branch/Representative Office concerned had
first taken action thereon in writing. (Emphasis supplied.)

It is clear then from the aforesaid provisions that any issue regarding the compulsory
coverage of the SSS is well within the exclusive domain of the petitioner SSC. It is important to
note, though, that the mandatory coverage under the SSS Law is premised on the existence of an
employer-employee relationship[17] except in cases of compulsory coverage of the self-employed.
It is axiomatic that the allegations in the complaint, not the defenses set up in the
Answer or in the Motion to Dismiss, determine which court has jurisdiction over an action;
otherwise, the question of jurisdiction would depend almost entirely upon the
defendant.[18] Moreover, it is well-settled that once jurisdiction is acquired by the court, it remains
with it until the full termination of the case.[19] The said principle may be applied even to quasi-
judicial bodies.

In this case, the petition-complaint filed by the petitioner SSS before the petitioner SSC
against the respondent cooperative and Stanfilco alleges that the owners-members of the
respondent cooperative are subject to the compulsory coverage of the SSS because they are
employees of the respondent cooperative. Consequently, the respondent cooperative being the
employer of its owners-members must register as employer and report its owners-members as
covered members of the SSS and remit the necessary premium contributions in accordance with
the Social Security Law of 1997. Accordingly, based on the aforesaid allegations in the petition-
complaint filed before the petitioner SSC, the case clearly falls within its jurisdiction.Although the
Answer with Motion to Dismiss filed by the respondent cooperative challenged the jurisdiction of
the petitioner SSC on the alleged lack of employer-employee relationship between itself and its
owners-members, the same is not enough to deprive the petitioner SSC of its jurisdiction over the
petition-complaint filed before it. Thus, the petitioner SSC cannot be faulted for initially assuming
jurisdiction over the petition-complaint of the petitioner SSS.

Nonetheless, since the existence of an employer-employee relationship between the

respondent cooperative and its owners-members was put in issue and considering that the
compulsory coverage of the SSS Law is predicated on the existence of such relationship, it
behooves the petitioner SSC to determine if there is really an employer-employee relationship that
exists between the respondent cooperative and its owners-members.
The question on the existence of an employer-employee relationship is not within the
exclusive jurisdiction of the National Labor Relations Commission (NLRC). Article 217 of the
Labor Code enumerating the jurisdiction of the Labor Arbiters and the NLRC provides that:
ART. 217. JURISDICTION OF LABOR ARBITERS AND THE
COMMISSION. - (a) x x x.
xxxx
6. Except claims for Employees Compensation, Social Security, Medicare
and maternity benefits, all other claims, arising from employer-employee
relations, including those of persons in domestic or household service,
involving an amount exceeding five thousand pesos (P5,000.00) regardless
of whether accompanied with a claim for reinstatement.[20]
Although the aforesaid provision speaks merely of claims for Social Security, it would necessarily
include issues on the coverage thereof, because claims are undeniably rooted in the coverage by
the system. Hence, the question on the existence of an employer-employee relationship for the
purpose of determining the coverage of the Social Security System is explicitly excluded from
the jurisdiction of the NLRC and falls within the jurisdiction of the SSC which is primarily charged
with the duty of settling disputes arising under the Social Security Law of 1997.

On the basis thereof, considering that the petition-complaint of the petitioner SSS involved
the issue of compulsory coverage of the owners-members of the respondent cooperative, this Court
agrees with the petitioner SSC when it declared in its Order dated 17 February 2004 that as an
incident to the issue of compulsory coverage, it may inquire into the presence or absence of an
employer-employee relationship without need of waiting for a prior pronouncement or submitting
the issue to the NLRC for prior determination. Since both the petitioner SSC and the NLRC are
independent bodies and their jurisdiction are well-defined by the separate statutes creating them,
petitioner SSC has the authority to inquire into the relationship existing between the worker and
the person or entity to whom he renders service to determine if the employment, indeed, is one
that is excepted by the Social Security Law of 1997 from compulsory coverage.[21]

Even before the petitioner SSC could make a determination of the existence of an
employer-employee relationship, however, the respondent cooperative already elevated the Order
of the petitioner SSC, denying its Motion to Dismiss, to the Court of Appeals by filing a Petition
for Certiorari. As a consequence thereof, the petitioner SSC became a party to the said Petition
for Certiorari pursuant to Section 5(b)[22] of Republic Act No. 8282. The appellate court ruled in
favor of the respondent cooperative by declaring that the petitioner SSC has no jurisdiction over
the petition-complaint filed before it because there was no employer-employee relationship
between the respondent cooperative and its owners-members. Resultantly, the petitioners SSS and
SSC, representing the Republic of the Philippines, filed a Petition for Review before this Court.

Although as a rule, in the exercise of the Supreme Courts power of review, the Court is not
a trier of facts and the findings of fact of the Court of Appeals are conclusive and binding on the
Court,[23] said rule is not without exceptions. There are several recognized exceptions[24] in which
factual issues may be resolved by this Court. One of these exceptions finds application in this
present case which is, when the findings of fact are conflicting. There are, indeed, conflicting
findings espoused by the petitioner SSC and the appellate court relative to the existence of
employer-employee relationship between the respondent cooperative and its owners-members,
which necessitates a departure from the oft-repeated rule that factual issues may not be the subject
of appeals to this Court.

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

are considered: (1) the selection and engagement of the workers; (2) the payment of wages by
whatever means; (3) the power of dismissal; and (4) the power to control the workers conduct,
with the latter assuming primacy in the overall consideration.[25] 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.[26] The power of control refers to
the existence of the power and not necessarily to the actual exercise thereof. It is not essential for
the employer to actually supervise the performance of duties of the employee; it is enough that the
employer has the right to wield that power.[27] All the aforesaid elements are present in this case.

First. It is expressly provided in the Service Contracts that it is the respondent cooperative
which has the exclusive discretion in the selection and engagement of the owners-members as
well as its team leaders who will be assigned at Stanfilco.[28] Second. Wages are defined as
remuneration or earnings, however designated, capable of being expressed in terms of money,
whether fixed or ascertained, on a time, task, piece or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a written or
unwritten contract of employment for work done or to be done, or for service rendered or to
be rendered.[29] In this case, the weekly stipends or the so-called shares in the service surplus
given by the respondent cooperative to its owners-members were in reality wages, as the same
were equivalent to an amount not lower than that prescribed by existing labor laws, rules and
regulations, including the wage order applicable to the area and industry; or the same shall not be
lower than the prevailing rates of wages.[30] It cannot be doubted then that those stipends or shares
in the service surplus are indeed wages, because these are given to the owners-members as
compensation in rendering services to respondent cooperatives client, Stanfilco. Third. It is also
stated in the above-mentioned Service Contracts that it is the respondent cooperative which has
the power to investigate, discipline and remove the owners-members and its team
leaders who were rendering services at Stanfilco.[31] Fourth. As earlier opined, of the four
elements of the employer-employee relationship, the control test is the most important. In the case
at bar, it is the respondent cooperative which has the sole control over the manner and means
of performing the services under the Service Contracts with Stanfilco as well as the means
and methods of work.[32] Also, the respondent cooperative is solely and entirely responsible for
its owners-members, team leaders and other representatives at Stanfilco.[33] All these clearly prove
that, indeed, there is an employer-employee relationship between the respondent cooperative and
its owners-members.

It is true that the Service Contracts executed between the respondent cooperative and
Stanfilco expressly provide that there shall be no employer-employee relationship between the
respondent cooperative and its owners-members.[34] This Court, however, cannot give the said
provision force and effect.

As previously pointed out by this Court, an employee-employer relationship actually exists

between the respondent cooperative and its owners-members. The four elements in the four-fold
test for the existence of an employment relationship have been complied with. The respondent
cooperative must not be allowed to deny its employment relationship with its owners-members by
invoking the questionable Service Contracts provision, when in actuality, it does exist. The
existence of an employer-employee relationship cannot be negated by expressly repudiating
it in a contract, when the terms and surrounding circumstances show otherwise. The
employment status of a person is defined and prescribed by law and not by what the parties
say it should be.[35]

It is settled that the contracting parties may establish such stipulations, clauses, terms and
conditions as they want, and their agreement would have the force of law between
them.However, the agreed terms and conditions must not be contrary to law, morals,
customs, public policy or public order.[36] The Service Contract provision in question must be
struck down for being contrary to law and public policy since it is apparently being used by the
respondent cooperative merely to circumvent the compulsory coverage of its employees, who are
also its owners-members, by the Social Security Law.

This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of
Davao City, Inc. v. Ferrer-Calleja[37] wherein it held that:

A cooperative, therefore, is by its nature different from an ordinary business

concern, being run either by persons, partnerships, or corporations. Its owners
and/or members are the ones who run and operate the business while the others are
its employees x x x.

An employee therefore of such a cooperative who is a member and co-

owner thereof cannot invoke the right to collective bargaining for certainly an
owner cannot bargain with himself or his co-owners. In the opinion of August
14, 1981 of the Solicitor General he correctly opined that employees of
 cooperatives who are themselves members of the cooperative have no right to form
or join labor organizations for purposes of collective bargaining for being
themselves co-owners of the cooperative.

However, in so far as it involves cooperatives with employees who are not

members or co-owners thereof, certainly such employees are entitled to exercise
the rights of all workers to organization, collective bargaining, negotiations and
others as are enshrined in the Constitution and existing laws of the country.

The situation in the aforesaid case is very much different from the present case. The
declaration made by the Court in the aforesaid case was made in the context of whether an
employee who is also an owner-member of a cooperative can exercise the right to bargain
collectively with the employer who is the cooperative wherein he is an owner-member. Obviously,
an owner-member cannot bargain collectively with the cooperative of which he is also the owner
because an owner cannot bargain with himself. In the instant case, there is no issue regarding an
owner-members right to bargain collectively with the cooperative. The question involved here is
whether an employer-employee relationship can exist between the cooperative and an owner-
member. In fact, a closer look at Cooperative Rural Bank of Davao City, Inc. will show that it
actually recognized that an owner-member of a cooperative can be its own employee.

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

In the present case, it is not disputed that the respondent cooperative had registered itself
with the Cooperative Development Authority, as evidenced by its Certificate of Registration No.
0-623-2460.[40] In its by-laws,[41] its Board of Directors directs, controls, and supervises the
business and manages the property of the respondent cooperative. Clearly then, the management
of the affairs of the respondent cooperative is vested in its Board of Directors and not in its owners-
members as a whole. Therefore, it is completely logical that the respondent cooperative, as a
juridical person represented by its Board of Directors, can enter into an employment with its
owners-members.
 In sum, having declared that there is an employer-employee relationship between the
respondent cooperative and its owners-member, we conclude that the petitioner SSC has
jurisdiction over the petition-complaint filed before it by the petitioner SSS. This being our
conclusion, it is no longer necessary to discuss the issue of whether the respondent cooperative
was estopped from assailing the jurisdiction of the petitioner SSC when it filed its Answer with
Motion to Dismiss.

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The

Decision and the Resolution of the Court of Appeals in CA-G.R. SP No. 87236, dated 5 January
2006 and 20 March 2006, respectively, are hereby REVERSED and SET ASIDE. The Orders of
the petitioner SSC dated 17 February 2004 and 16 September 2004 are
herebyREINSTATED. The petitioner SSC is hereby DIRECTED to continue hearing the
petition-complaint filed before it by the petitioner SSS as regards the compulsory coverage of the
respondent cooperative and its owners-members. No costs.

SO ORDERED.

G.R. No. L-66598 December 19, 1986

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

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

Marcelino Lontok, Jr. for respondents.

FELICIANO, J.:

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

Attached to the letter agreement was a "List of Messengers assigned at Philippine Bank of
Communications" which list included, as item No. 5 thereof, the name of private respondent
Ricardo Orpiada.
Ricardo Orpiada was thus assigned to work with the petitioner bank. As such, he rendered
services to the bank, within the premises of the bank and alongside other people also rendering
services to the bank. There was some question as to when Ricardo Orpiada commenced
rendering services to the bank. As noted above, the letter agreement was dated January 1976.
However, the position paper submitted by (CESI) to the National Labor Relations Commission
stated that (CESI) hired Ricardo Orpiada on 25 June 1975 as a Tempo Service employee, and
assigned him to work with the petitioner bank "as evidenced by the appointment memo issued to
him on 25 June 1975. " Be that as it may, on or about October 1976, the petitioner requested
(CESI) to withdraw Orpiada's assignment because, in the allegation of the bank, Orpiada's
services "were no longer needed."

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

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

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

WHEREFORE, premises considered, respondent bank is hereby ordered to reinstate

complainant to the same or equivalent position with full back wages and to pay the
latter's 13th month pay for the year 1976.

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

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

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

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

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

a. Require your employers assigned to us to properly accomplish your daily time

record, to faithfully reflect all hours worked in our behalf whether such work be
within or beyond eight hours of any day.

b. Notify you of any change in the work assignment or contract period affecting
any of your employers assigned to us within 24 hours, after such change is made.

— (Emphasis supplied)

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

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

1) The selection and engagement of the putative employee;

2) The payment of wages;

3) The power of dismissal- and

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

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

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

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

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

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

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

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

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

ART. 106. Contractor or sub-contractor.—Whenever an employer enters into a contract

with another person for the performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be paid in accordance with the
provisions in this Code.

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

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the

contracting out of labor to protect the rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate distinctions between labor-only
contracting and job contracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or circumvention of any
provisions of this Code.
 There is "labor-only" contracting where the person supplying workers to an employer
does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by such
person are performing activities which are directly related to the principal business of
such employer. In such cases, the person or intermediary shall be considered merely as
an agent of the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.

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

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

A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor-
i.e "the person or intermediary" is considered "merely as an agent of the employer. " The
employer is made by the statute responsible to the employees of the "labor only" contractor as if
such employees had been directly employed by the employer. Thus, where "labor only"
contracting exists in a given case, the statute itself implies or establishes an employer-employee
relationship between the employer (the owner of the project) and the employees of the "labor
only" contractor, this time for a comprehensive purpose: "employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code. " The law in effect holds
both the employer and the "labor-only" contractor responsible to the latter's employees for the
more effective safeguarding of the employees' rights under the Labor Code.

Both the petitioner bank and (CESI) have insisted that (CESI) was not a "labor only" contractor.
Section 9 of Rule VIII of Book III entitled "Conditions of Employment," of the Omnibus Rules
Implementing the Labor Code provides as follows:

Sec. 9. Labor-only contracting. — (a) Any person who undertakes to supply workers to
an employer shag be deemed to be engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises and other materials; and
 (2) The workers recruited and placed by such person are performing activities
which are to the principal business or operations of the c workers are habitually
employed,

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

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

In contrast, job contracting-contracting out a particular job to an independent contractor is

defined by the Implementing Rules as follows:

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

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

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

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

We are unable to agree with the bank and (CESI) on this score. The definition of "labor-only"
contracting in Rule VIII, Book III of the Implementing Rules must be read in conjunction with
the definition of job contracting given in Section 8 of the same Rules. The undertaking given by
CESI in favor of the bank was not the performance of a specific — job for instance, the carriage
and delivery of documents and parcels to the addresses thereof. There appear to be many
companies today which perform this discrete service, companies with their own personnel who
pick up documents and packages from the offices of a client or customer, and who deliver such
materials utilizing their own delivery vans or motorcycles to the addresses. In the present case,
the undertaking of (CESI) was to provide its client-thebank-with a certain number of persons
able to carry out the work of messengers. Such undertaking of CESI was complied with when
the requisite number of persons were assigned or seconded to the petitioner bank. Orpiada
utilized the premises and office equipment of the bank and not those of (CESI) Messengerial
work-the delivery of documents to designated persons whether within or without the bank
premises — is of course directly related to the day-to-day operations of the bank. Section 9(2)
quoted above does not require for its applicability that the petitioner must be engaged in the
delivery of items as a distinct and separate line of business.

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

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

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

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

FIRST DIVISION

[G.R. No. 124055. June 8, 2000]

ROLANDO E. ESCARIO, NESTOR ANDRES, CESAR AMPER, LORETO

BALDEMOR, EDUARDO BOLONIA, ROMEO E. BOLONIA, ANICETO CADESIM,
JOEL CATAPANG, NESTOR DELA CRUZ, EDUARDO DUNGO ESCARIO REY,
ELIZALDE ESTASIO, CAROLINO M. FABIAN, RENATO JANER, EMER B.
LIQUIGAN, ALEJANDRO MABAWAD, FERNANDO M. MAGTIBAY, DOMINADOR
B. MALLILLIN, NOEL B. MANILA, VIRGILIO A. MANIO, ROMEO M. MENDOZA,
TIMOTEO NOTARION, FREDERICK RAMOS, JOSEPH REYES, JESSIE SEVILLA,
NOEL STO. DOMINGO, DODJIE TAJONERA, JOSELITO TIONLOC, ARNEL
UMALI, MAURLIE C. VIBAR, ROLANDO ZALDUA, RODOLFO TUAZON,
TEODORO LUGADA, MAURING MANUEL, MARCIANO VERGARA, JR.,
ARMANDO IBASCO, CAYETANO IBASCO, LEONILO MEDINA, JOSELITO ODO,
MELCHOR BUELA, GOMER GOMEZ, HENRY PONCE, RAMON ORTIZ, JR.,
ANTONIO MIJARES, JR., MARIO DIZER, REYNANTE PEJO, ARNALDO RAFAEL,
NELSON BERUELA, AUGUSTO RAMOS, RODOLFO VALENTIN, ANTONIO
CACAM, VERNON VELASQUEZ, NORMAN VALLO, ALEJANDRO ORTIZ, ROSANO
VALLO, ANDREW ESPINOSA, EDGAR CABARDO, FIDELES REYES, EDGARDO
FRANCISCO, FERNANDO VILLARUEL, LEOPOLDO OLEGARIO, OSCAR
SORIANO, GARY RELOS, DANTE IRANZO, RONALDO BACOLOR, RONALD
ESGUERA, VICTOR ALVAREZ, JOSE MARCELO, DANTE ESTRELLADO,
MELQUIADES ANGELES, GREGORIO TALABONG, ALBERT BALAO, ALBERT
CANLAS, CAMILO VELASCO, PONTINO CHRISTOPHER, WELFREDO RAMOS,
REYNALDO RODRIGUEZ, RAZ GARIZALDE, MIGUEL TUAZON, ROBERTO
SANTOS, AND RICARDO MORTEL, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION, CALIFORNIA MANUFACTURING CO. INC. AND DONNA LOUISE
ADVERTISING AND MARKETING ASSOCIATES INCORPORATED, respondents.

DECISION

KAPUNAN, J.:

Before this Court is a petition for certiorari under Rule 65, which seeks to annul and set aside
the decision, promulgated on 10 May 1995, of the National Labor Relations Commission
(NLRC). The assailed decision reversed the decision of the Labor Arbiter, and ruled that the
petitioners are employees of Donna Louise Advertising and Marketing Associates, Inc. and
ordered the reinstatement of petitioners and the payment of backwages.

Private respondent California Marketing Co. Inc. (CMC) is a domestic corporation principally
engaged in the manufacturing of food products and distribution of such products to wholesalers
and retailers. Private respondent Donna Louise Advertising and Marketing Associates, Inc. (D.L.
Admark) is a duly registered promotional firm.
Petitioners worked as merchandisers for the products of CMC. Their services were terminated on
16 March 1992.

The parties presented conflicting versions of the facts.

Petitioners allege that they were employed by CMC as merchandisers. Among the tasks assigned
to them were the withdrawing of stocks from the warehouse, the fixing of prices, price-tagging,
displaying of merchandise, and the inventory of stocks. These were done under the control,
management and supervision of CMC. The materials and equipment necessary in the
performance of their job, such as price markers, gun taggers, toys, pentel pen, streamers and
posters were provided by CMC. Their salaries were being paid by CMC. According to
petitioners, the hiring, control and supervision of the workers and the payment of salaries, were
all coursed by CMC through its agent D.L. Admark in order for CMC to avoid its liability under
the law.

On 7 February 1992, petitioners filed a case against CMC before the Labor Arbiter for the
regularization of their employment status. During the pendency of the case before the Labor
Arbiter, D.L. Admark sent to petitioners notice of termination of their employment effective 16
March 1992. Hence, their complaint was amended so as to include illegal dismissal as cause of
action. Thereafter, twenty-seven more persons joined as complainants. CMC filed a motion to
implead as party-defendant D. L. Admark and at the same time the latter filed a motion to
intervene. Both motions were granted.

CMC, on the other hand, denied the existence of an employer-employee relationship between
petitioner and itself. Rather, CMC contended that it is D.L. Admark who is the employer of the
petitioners. While CMC is engaged in the manufacturing of food products and distribution of
such to wholesalers and retailers, it is not allowed by law to engage in retail or direct sales to end
consumers. It, however, hired independent job contractors such as D.L. Admark, to provide the
necessary promotional activities for its product lines.

For its part, D.L. Admark asserted that it is the employer of the petitioners. Its primary purpose is
to carry on the business of advertising, promotion and publicity, the sales and merchandising of
goods and services and conduct survey and opinion polls. As an independent contractor it serves
several clients among which include Purefoods, Corona Supply, Firstbrand, Splash Cosmetics
and herein private respondent California Marketing.

On 29 July 1994, the Labor Arbiter rendered a decision finding that petitioners are the employees
of CMC as they were engaged in activities that are necessary and desirable in the usual business
or trade of CMC.[1] In justifying its ruling, the Labor Arbiter cited the case of Tabas vs.
CMC which, likewise, involved private respondent CMC. In the Tabas case, this Court ruled that
therein petitioner merchandisers were employees of CMC, to wit:

There is no doubt that in the case at bar, Livi performs "manpower services,"
meaning to say, it contracts out labor in favor of clients. We hold that it is one not
withstanding its vehement claims to the contrary and not- withstanding its
vehement claims to the contrary, and notwithstanding the provision of the contract
 that it is "an independent contractor." The nature of ones business is not
determined by self-serving appellations one attaches thereto but by the tests
provided by statute and prevailing case law. The bare fact that Livi maintains a
separate line of business does not extinguish the equal fact that it has provided
California with workers to pursue the latters own business. In this connection, we
do not agree that the petitioner has been made to perform activities "which are not
directly related to the general business of manufacturing," Californias purported
"principal operation activity. The petitioners had been charged with
merchandising [sic] promotion or sale of the products of [California] in the
different sales outlets in Metro Manila including task and occational [sic] price
tagging," an activity that is doubtless, an integral part of the manufacturing
business. It is not, then, as if Livi had served as its (Californias) promotions or
sales arm or agent, or otherwise rendered a piece of work it (California) could not
itself have done; Livi as a placement agency, had simply supplied it with
manpower necessary to carry out its (Californias) merchandising activities, using
its (Californias) premises and equipment.[2]

On appeal, the NLRC set aside the decision of the Labor Arbiter. It ruled that no employer-
employee relationship existed between the petitioners and CMC. It, likewise, held that D.L.
Admark is a legitimate independent contractor, hence, the employer of the petitioners. Finding
no valid grounds existed for the dismissal of the petitioners by D.L. Admark, it ordered their
reinstatement. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the appealed judgment is modified.

Intervenor DL ADMARK is ordered to reinstate the eighty one (81) complainants
mentioned in the appealed decision to their former positions with backwages from
March 16, 1992 until they are actually reinstated. The award of attorneys fees
equivalent to ten (10%) of the award is deleted for lack of basis.[3]

Petitioners filed a motion for reconsideration but the same was denied by the NLRC for lack of
merit. [4]

Hence, this petition.

In the main, the issue brought to fore is whether petitioners are employees of CMC or D.L.
Admark. In resolving this, it is necessary to determine whether D.L. Admark is a labor-only
contractor or an independent contractor.

Petitioners are of the position that D.L. Admark is a labor-only contractor and cites this Courts
ruling in the case of Tabas, which they claim is applicable to the case at bar for the following
reasons:

1. The petitioners are merchandisers and the petitioners in the Tabas case are also
merchandisers who have the same nature of work.
 2. The respondent in this case is California Manufacturing Co. Inc. while
respondent in the Tabas case is the same California Manufacturing Co. Inc.

3. The agency in the Tabas case is Livi Manpower Services. In this case, there are
at least, three (3) agencies namely: the same Livi Manpower Services; the Rank
Manpower Services and D.L. Admark whose participation is to give and pay the
salaries of the petitioners and that the money came from the respondent CMC as
in the Tabas case.

4. The supervision, management and/or control rest upon respondent California

Manufacturing Co. Inc. as found by the Honorable Labor Arbiter which is also,
true in the Tabas Case.[5]

We cannot sustain the petition.

Petitioners reliance on the Tabas case is misplaced. In said case, we ruled that therein contractor
Livi Manpower Services was a mere placement agency and had simply supplied herein petitioner
with the manpower necessary to carry out the companys merchandising activity. We, however,
further stated that :

It would have been different, we believe, had Livi been discretely a promotions
firm, and that California had hired it to perform the latters merchandising
activities. For then, Livi would have been truly the employer of its employees and
California, its client. x x x.[6]

In other words, CMC can validly farm out its merchandising activities to a legitimate
independent contractor.

There is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or
places workers to perform a job, work or service for a principal. In labor-only contracting, the
following elements are present:

(a) The 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

(b) The workers recruited and placed by such person are performing activities
which are directly related to the principal business of the employer. [7]

In contrast, there is permissible job contracting when a principal agrees to put out or farm out
with a contractor or a subcontractor the performance or completion of a specific job, work or
service within a definite or predetermined period, regardless of whether such job or work or
service is to be performed or completed within or outside the premises of the principal. In this
arrangement, the following conditions must concur:
 (a)....The contractor carries on a distinct and independent business and undertakes
the contract work on his account under his own responsibility according to his
own manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of his work except as to
the results thereof; and

(b)....The contractor has substantial capital or investment in the form of tools,

equipment, machineries (sic), work premises, and other materials which are
necessary in the conduct of his business.[8]

In the recent case of Alexander Vinoya vs. NLRC et al.,[9] this Court ruled that in order to be
considered an independent contractor it is not enough to show substantial capitalization or
investment in the form of tools, equipment, machinery and work premises. In addition, the
following factors need be considered: (a) whether the contractor is carrying on an independent
business; (b) the nature and extent of the work; (c) the skill required; (d) the term and duration of
the relationship; (e) the right to assign the performance of specified pieces of work; (f) the
control and supervision of the workers; (g) the power of the employer with respect to the hiring,
firing and payment of workers of the contractor; (h) the control of the premises; (i) the duty to
supply premises, tools, appliances, materials, and labor; and (j) the mode, manner and terms of
payment.[10]

Based on the foregoing criterion, we find that D.L. Admark is a legitimate independent
contractor.

Among the circumstances that tend to establish the status of D.L. Admark as a legitimate job
contractor are:

1) The SEC registration certificate of D.L. Admark states that it is a firm engaged
in promotional, advertising, marketing and merchandising activities.

2) The service contract between CMC and D.L. Admark clearly provides that the
agreement is for the supply of sales promoting merchandising services rather than
one of manpower placement.[11]

3) D.L. Admark was actually engaged in several activities, such as advertising,

publication, promotions, marketing and merchandising. It had several
merchandising contracts with companies like Purefoods, Corona Supply, Nabisco
Biscuits, and Licron. It was likewise engaged in the publication business as
evidenced by it magazine the "Phenomenon."[12]

4) It had its own capital assets to carry out its promotion business. It then had
current assets amounting to P6 million and is therefore a highly capitalized
venture.[13] It had an authorized capital stock of P500,000.00. It owned several
motor vehicles and other tools, materials and equipment to service its clients. It
paid rentals of P30,020 for the office space it occupied.
Moreover, by applying the four-fold test used in determining employer-employee relationship,
the status of D.L. Admark as the true employer of petitioners is further established. The elements
of this test are (1) the selection and engagement of employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employees conduct.[14]

As regards the first element, petitioners themselves admitted that they were selected and hired by
D.L. Admark.[15]

As to the second element, the NLRC noted that D.L. Admark was able to present in evidence the
payroll of petitioners, sample SSS contribution forms filed and submitted by D.L. Admark to the
SSS, and the application for employment by R. de los Reyes, all tending to show that D.L.
Admark was paying for the petitioners salaries. In contrast, petitioners did not submit an iota of
evidence that it was CMC who paid for their salaries. The fact that the agreement between CMC
and D.L. Admark contains the billing rate and cost breakdown of payment for core
merchandisers and coordinators does not in any way establish that it was CMC who was paying
for their salaries. As correctly pointed out by both CMC[16] and the Office of the Solicitor
General,[17] such cost breakdown is a standard content of service contracts designed to insure that
under the contract, employees of the job contractor will receive benefits mandated by law.

Neither did the petitioners prove the existence of the third element. Again petitioners admitted
that it was D.L. Admark who terminated their employment.[18]

To prove the fourth and most important element of control, petitioners presented the memoranda
of CMCs sales and promotions manager. The Labor Arbiter found that these memos "indubitably
show that the complainants were under the supervision and control of the CMC
people."[19] However, as correctly pointed out by the NLRC, a careful scrutiny of the documents
adverted to, will reveal that nothing therein would remotely suggest that CMC was supervising
and controlling the work of the petitioners:

x x x The memorandums (Exhibit "B") were addressed to the store or grocery

owners telling them about the forthcoming sales promotions of CMC products.
While in one of the memorandums a statement is made that "our merchandisers
and demonstrators will be assigned to pack the premium with your stocks in the
shelves x x x, yet it does not necessarily mean to refer to the complainants, as they
claim, since CMC has also regular merchandisers and demonstrators. It would be
different if in the memorandums were sent or given to the complainants and their
duties or roles in the said sales campaign are therein defined. It is also noted that
in one of the memorandums it was addressed to: "All regular
merchandisers/demonstrators." x x x we are not convinced that the documents
sufficiently prove employer-employee relationship between complainants and
respondents CMC.[20]

The Office of the Solicitor General, likewise, notes that the documents fail to show anything that
would remotely suggest control and supervision exercised by CMC over petitioners on the matter
on how they should perform their work. The memoranda were addressed either to the store
owners or "regular" merchandisers and demonstrators of CMC. Thus, petitioners, who filed a
complaint for regularization against respondent CMC, thereby, conceding that they are not
regular employees of the latter, cannot validly claim to be the ones referred to in said memos.[21]

Having proven the existence of an employer-employee relationship between D.L. Admark and
petitioners, it is no longer relevant to determine whether the activities performed by the latter are
necessary or desirable to the usual business or trade of CMC.

On the issue of illegal dismissal, we agree with the findings of the NLRC that D.L. Admark
"admits having dismissed the petitioners for allegedly disowning and rejecting them as their
employer." Undoubtedly, the reason given is not just cause to terminate petitioners.[22] D.L.
Admarks belated claim that the petitioners were not terminated but simply did not report to
work[23] is not supported by the evidence on record. Moreover, there is no showing that due
process was afforded the petitioners.

IN VIEW OF THE FOREGOING, finding no grave abuse of discretion on the part of the
National Labor Relations Commission, the assailed decision is AFFIRMED in toto.

SO ORDERED.

FIRST DIVISION

[G.R. Nos. 116476-84. May 21, 1998]

ROSEWOOD PROCESSING, INC., petitioner, vs. NATIONAL LABOR

RELATIONSCOMMISSION, NAPOLEON C. MAMON, ARSENIO GAZZINGAN,
ROMEO C. VELASCO, ARMANDO L. BALLON, VICTOR E. ALDEZA, JOSE L.
CABRERA, VETERANS PHILIPPINE SCOUT SECURITY AGENCY, and/or
ENGR. SERGIO JAMILA IV, respondents.

DECISION
PANGANIBAN, J.:

Under the Labor Code, an employer is solidarily liable for legal wages due security guards for
the period of time they were assigned to it by its contracted security agency. However, in the
absence of proof that the employer itself committed the acts constitutive of illegal dismissal or
conspired with the security agency in the performance of such acts, the employer shall not be liable
for back wages and/or separation pay arising as a consequence of such unlawful termination.

The Case
 These are the legal principles on which this Court bases its resolution of this special civil
action for certiorari, seeking the nullification of the April 28, 1994 Resolution and the July 12,
1994 Order of the National Labor Relations Commission, which dismissed petitioners appeal from
the labor arbiters Decision and denied its Motion for Reconsideration, respectively, in NLRC NCR
Case Nos. 00-05-02834-91, 00-08-04630-91, 00-07-03966-91, 00-09-05617-91, 00-07-03967-91,
00-07-04455-91, 00-08-05030-91, 00-11-06389-91, and 00-03-01642-92.
On May 13, 1991, a complaint for illegal dismissal; underpayment of wages; and for
nonpayment of overtime pay, legal holiday pay, premium pay for holiday and rest day, thirteenth
month pay, cash bond deposit, unpaid wages and damages was filed against Veterans Philippine
Scout Security Agency and/or Sergio Jamila IV (collectively referred to as the security agency, for
brevity). Thereafter, petitioner was impleaded as a third-party respondent by the security
agency. In due course, Labor Arbiter Ricardo C. Nora rendered a consolidated Decision dated
March 26, 1993, which disposed as follows:[1]

IN VIEW OF ALL THE FOREGOING, respondents Veterans Philippine Scout Security

Agency, Sergio Jamila IV, and third-party respondent Rosewood Processing, Inc. are hereby
ordered to pay jointly and severally complainants the following amounts, to wit:

1. Napoleon Mamon P126,411.10

2. Arsenio Gazzingan 128,639.71

3. Rodolfo Velasco 147,114.43

4. Armando Ballon 116,894.70

5. Jose L. Cabrera 133,047.81

6. Victor Aldeza 137,046.64

TOTAL P789,154.39

===========

representing their monetary benefits in the amount of SEVEN HUNDRED EIGHTY NINE
THOUSAND ONE HUNDRED FIFTY FOUR PESOS AND 39/100 CENTAVOS
(P789,154.39).

Respondents are likewise ordered to pay attorneys fees in the amount of P78,915.43 within ten
(10) days from receipt of this Decision.

All other issues are hereby [d]ismissed for failure of the complainants to fully substantiate their
claims.

The appeal filed by petitioner was dismissed by the National Labor Relations
Commission[2] in its Resolution promulgated April 28, 1994, for failure of the petitioner to file the
required appeal bond within the reglementary period.[3] Pertinent portions of the challenged
Resolution are herewith quoted:

It appears on record that [petitioner] received their copy of the [labor arbiters] decision on April
2, 1993 and subsequently filed a Notice of Appeal with Memorandum of Appeal on April 26,
1993, in violation of Rule VI, Section 1, 3, and 6 of the 1990 New Rules of Procedure of the
NLRC xxx.

xxxxxxxxx

Clearly, the appeal filed by the [petitioners] on April 12, 1993 was not perfected within the
reglementary period, and the decision dated March 26, 1993 became final and executory as of
April 23, 1993.

WHEREFORE, the appeal is hereby DISMISSED.

In its motion for reconsideration, petitioner contended that it received a copy of the labor
arbiters Decision only on April 6, 1993, and that it filed on April 16, 1993 within the prescribed
time, a Notice of Appeal with a Memorandum on Appeal, a Motion to Reduce Appeal Bond and a
surety bond issued by Prudential Guarantee and Assurance, Inc. in the amount of
P50,000.[4] Though not opposed by the complainants and the security agency, the arguments stated
in the motion were not taken up by Respondent Commission. Reconsideration was nonetheless
denied by Respondent Commission in its Order of July 12, 1994, quoted below:[5]

Section 14, Rule VII of the NLRC New Rules of Procedure allows [u]s to entertain a motion for
reconsideration only on palpable or patent errors [w]e may have committed in [o]ur disputed
April 28, 1994 resolution.

There being no such assignment here, [petitioners] motion for reconsideration dated May 19,
1994 is hereby DENIED for lack of merit.

Hence, this recourse.[6]

In a Resolution dated March 20, 1995, this Court issued a temporary restraining order
enjoining the respondents and their agents from implementing and enforcing the assailed
Resolution and Order until further notice.[7]

The Facts

Undisputed are the facts of this case, narrated by the labor arbiter as follows:

All the complainants were employed by the [security agency] as security guards: Napoleon
Mamon on October 7, 1989; Arsenio Gazzingan on September 25, 1988; Rodolfo C. Velasco on
January 5, 1987; Armando Ballon on June 28, 1990; Victor Aldeza on March 21, 1990; and Jose
L. Cabrera [in] January 1988.
Napoleon Mamon started working for the [security agency] on October 7, 1989 and was assigned
as office guard for three (3) days without any pay nor allowance as it was allegedly an on[-the-
]job training so there [was] no pay[.] On October 10, 1989, he was transferred to the residence of
Mr. Benito Ong with 12 hours duty a day receiving a salary very much less than the minimum
wage for eight (8) hours work until February 3, 1990 when he received an order transferring him
to Rosewood Processing, Inc. effective that date xxx; [a]t Rosewood Processing, Inc., he was
required to render also 12 hours duty every day with a salary of P2,600.00/month. He was not
given his pay for February 1 and 2 by the paymaster of [the security agency] allegedly because
the payroll could not be located so after 3 to 4 times of going back and forth to [the security
agencys] office to get his salary[;] [after] xxx two (2) days he gave up because he was already
spending more than what he could get thru transportation alone. On May 16, 1991, Rosewood
Processing, Inc. asked for the relief of Mamon and other guards at Rosewood because they came
to know that complainants filed a complaint for underpayment on May 13, 1991 with the
National Labor Relations Commission[.] On May 18 to 19, 1991, [the security agency] assigned
him to their [m]ain [o]ffice. After that, complainant was floated until May 29, 1991 when he was
assigned to Mead Johnson Philippines Corporation. [A]t about a week later, [the security agency]
received summons on complainants complaint for underpayment and he was called to [the
security agencys] office. When he reported, he was told to sign a Quitclaim and Waiver[] by Lt.
R. Rodriguez because according to the latter, he [could] only get a measly sum from his
complaint with the NLRC and if he (complainant) [signed] the quitclaim and waiver he [would]
be retained at his present assignment which [was] giving quite a good salary and other benefits
but if he [did] not sign the quitclaim and waiver, he [would] be relieved from his post and
[would] no longer be given any assignment. xxx He was given up to the end of July 1991 to
think it over. At the end of July 1991, h[e] was approached by the Security in Charge A. Azuela
and asked him to sign the quitclaim and waiver and when he refused to sign, he was told that the
following day August 1, 1991, he [would have] no more assignment and should report to their
office. Thinking that it was only a joke, he reported the following day to the detachment
commander Mr. A. Yadao and he was told that the main office xxx relieved him because he did
not sign the quitclaim and waiver. He reported to their office asking for an assignment but he
was told by R. Rodriguez that I no longer can be given an assignment so I had better resign. He
went back several times to the office of the [security agency] but every time the answer was the
same[:] that he better tender his resignation because he cannot be given any assignment although
respondent was recruiting new guards and posting them.

Arsenio Gazzingan started to work for the [security agency] on September 29, 1988. [Note: the
introductory paragraph stated September 25, 1988.] He was assigned to Purefoods Breeding
Farm at Calauan, Laguna and given a salary of P54.00 a day working eight (8) hours. After three
(3) months, he was given an examination and passed the same. On December 26, 1988, he was
given an increase and was paid P64.00/day working eight (8) hours; [h]e remained at the same
post for 8 months and transferred to Purefoods Feed Mill at Sta. Rosa, Laguna, with the same
salary and the same tour of duty, 8 hours[.] After four (4) months, he was transferred to
Purefoods Grand Perry at Sta. Rosa, Laguna, and after eleven (11) days on June 1989, he was
transferred to Rosewood Processing, Inc. at Meycauayan, Bulacan and required to work for 12
hours at a salary of P94.00/day for one year. [In] June 1990, he was assigned at Purefoods
DELPAN [to] guard x x x a barge loaded with corn and rendered 12 hours work/day with a
salary of only P148.00/day and after 24 days, he was floated for one month. He reported to [the
security agencys] office and was assigned to Purefoods Breeder Farm in Canlubang rendering 8
hours work per day receiving only P78.00/day. After 11 days, he asked to be transferred to
Manila[.] [B]ecause of the distance from his home xxx the transfer was approved but instead of
being transferred to Manila, he was assigned to Purefoods B-F-4 in Batangas rendering 12 hours
duty/day and receiving only P148.00 per day until January 28, 1991[;] and again he requested for
transfer which was also approved by the [security agencys] office[,] but since then he was told to
come back again and again. [U]p to the present he has not been given any assignment. Because
of the fact that his family [was] in danger of going hungry, he sought relief from the NLRC-
NCR-Arbitration Branch.

Rodolfo Velasco started working for the [security agency] on January 5, 1987. He was assigned
to PCI Bank Elcano, Tondo Branch, as probationary, and [for] working 8 hours a day for 9 days
he received only P400.00. On January 16, 1987, he was assigned to [the security agencys]
headquarters up to January 31, 1987, working 12 hours a day[; he] received only P650.00 for the
16 days. On September 1, 1988, he was assigned to Imperial Synthetic Rubber Products
rendering 12 hours duty per day until December 31, 1988 and was given a salary
of P1,600.00/month. He was later transferred to various posts like Polypaper Products working
12 hours a day given a salary of P1,800.00 a month; Paramount Electrical, Inc. working 12 hours
a day given P1,100.00 for 15 days; Rosewood Processing, Inc., rendering 12 hours duty per day
receiving P2,200.00/month until May 16, 1991[;] Alen Engineering rendering 12 hours duty/day
receiving P1,100/month; Purefoods Corporation on Delta II rendering 12 hours duty per day
received P4,200.00 a month. He was relieved on August 24 and his salary for the period August
20 to 23 has not been paid by [the security agency.] He was suspended for no cause at all.

Armando Ballon started as security guard with [the security agency] July 1990 [Note: the
introductory paragraph stated June 28, 1990] and was assigned to Purefoods Corporation in
Marikina for five (5) months and received a salary of P50.00 per day for 8 hours. He was
transferred to Rosewood Processing, Inc. on November 6, 1990 rendering 12 hours duty as
[d]etachment [c]ommander and a salary of P2,700.00/month including P200.00 officers
allowance until May 15, 1991. On May 16, 1991, he applied for sick leave on orders of his
doctor for 15 days but the HRM, Miss M. Andres[,] got angry and crumpled his application for
sick leave, that [was] why he was not able to forward it to the SSS. After 15 days, he came back
to the office of [the security agency] asking for an assignment and he was told that he [was]
already terminated. Complainant found out that the reason why Miss Andres crumpled his
application for sick leave was because of the complaint he previously filed and was dismissed for
failure to appear. He then refiled this case to seek redress from this Office.

Jose L. Cabrera started working for the [security agency] as security guard January, 1988 and
was assigned to Alencor Residence rendering 12 hours duty per day and received a salary
of P2,400.00 a month for 3 months[.] [I]n May, 1988, he was transferred to E & L Restaurant
rendering 12 hours duty per day and receiv[ing] a salary of P1,500.00 per month for 6
months[.] [I]n January, 1989, he was transferred to Paramount rendering 12 hours duty per day
receiving only P1,800.00 per month for 6 months[.] [I]n July 1989, he was transferred to Benito
Ong[s] residence rendering 12 hours duty per day and receiving a salary of P1,400.00 per month
for 4 months[.] [I]n December, 1989, he was transferred to Sea Trade International rendering xxx
12 hours duty per day and receiving a salary of P1,900 per month for 6 months[.] [I]n July, 1990,
he was transferred to Holland Pacific & Paper Mills rendering 8 hours duty per day and receiving
a salary of P2,400.00 per month until September 1990[.] [In] October 1990, he was transferred to
RMG residence rendering 12 hours duty per day receiving a salary of P2,200.00 per month for 3
months[.] [In] February 1991, he was transferred to Purefoods Corporation at Mabini, Batangas
rendering 12 hours duty per day with a salary of P3,600.00 per month for only one month
because he was hospitalized due to a stab wound inflicted by his [d]etachment [c]ommander.
When he was discharged from the hospital and after he was examined and declared fit to work
by the doctor, he reported back to [the security agencys] office but was given the run-around
[and was told to] come back tomorrow[.] [H]e [could] see that [the agency was] posting new
recruits. He then complained to this Honorable Office to seek redress, hiring the services of a
counsel.

Victor Aldeza started working for the [security agency] on March 21, 1990 and was assigned to
Meridian Condominium, rendering 12 hours work per day and receiving a salary of P1,500.00
per month.Although he knew that the salary was below minimum yet he persevered because he
had spent much to get this job and stayed on until October 15, 1990[.] On October 16, 1990, he
was transferred to Rosewood Processing, Inc., rendering 12 hours duty per day and receiving a
salary of P2,600.00 per month up to May 15, 1991[.] On the later part of May 1991, he was
assigned to UPSSA (Sandoval Shipyard) rendering 12 hours duty per day receiving a salary
of P3,200.00 per month. [Aldeza] complained to [the security agency] about the salary but [the
agency] did not heed him; thus, he filed his complaint for underpayment[.] [The agency] upon
complainants complaint for underpayment xxx, instead of adjusting his salary to meet the
minimum prescribed by law[,] relieved him and left him floating[.] xxx When he complained of
the treatment, he was told to resign because he could no longer be given any
assignment. Because of this, complainant was forced to file another complaint for illegal
dismissal.

Labor Arbiters Ruling

The labor arbiter noted the failure of the security agency to present evidence to refute the
complainants allegation. Instead, it impleaded the petitioner as third-party respondent, contending
that its actions were primarily caused by petitioners noncompliance with its obligations under the
contract for security services, and the subsequent cancellation of the said contract.
The labor arbiter held petitioner jointly and severally liable with the security agency as the
complainants indirect employer under Articles 106, 107 and 109 of the Labor Code, citing the case
of Spartan Security & Detective Agency, Inc. vs. National Labor Relations Commission.[8]
Although the security agency could lawfully place the complainants on floating status for a
period not exceeding six months, the act was illegal because the former had issued a newspaper
advertisement for new security guards. Since the relation between the complainants and the agency
was already strained, the labor arbiter ordered the payment of separation pay in lieu of
reinstatement.
The award for wage differential, limited back wages and separation pay contained the
following details:
1. Napoleon Mamon

Wage Differentials P45,959.02

Backwages 72,764.38

Separation Pay __7,687.70 P126,411.10

2. Arsenio Gazzingan

Wage Differentials P24,855.76

Backwages 96,096.25

Separation Pay __7,687.70 P128,639.71

3. Rodolfo Velasco

Wage Differentials P66,393.58

Backwages 69,189.30

Separation Pay _11,531.55 P147,114.43

4. Armando Ballon

Wage Differentials P31,176.85

Backwages 81,874.00

Separation Pay __3,843.85 P116,894.70

5. Jose Cabrera

Wage Differentials P30,032.63

Backwages 91,483.63

Separation Pay _11,531.55 P133,047.81

6. Victor Aldeza

Wage Differentials P49,406.86

Backwages 83,795.93
Separation Pay __3,843.85 P137,046.64

P789,154.39

=========

Ruling of Respondent Commission

As earlier stated, Respondent Commission dismissed petitioners appeal, because it was

allegedly not perfected within the reglementary ten-day period. Petitioner received a copy of the
labor arbiters Decision on April 2, 1993, and it filed its Memorandum of Appeal on April 12,
1993. However, it submitted the appeal bond on April 26, 1993, or twelve days after the expiration
of the period for appeal per Rule VI, Sections 1, 3 and 6 of the 1990 Rules of Procedure of the
National Labor Relations Commission. Thus, it ruled that the labor arbiters Decision became final
and executory on April 13, 1993.
In the assailed Order, Respondent Commission denied reconsideration, because petitioner
allegedly failed to raise any palpable or patent error committed by said commission.

Assignment of Errors

Petitioner imputes the following errors to Respondent Commission:

Respondent NLRC committed grave abuse of discretion amounting to lack of jurisdiction when
it dismissed petitioners appeal despite the fact that the same was perfected within the
reglementary period provided by law.

Respondent NLRC committed grave abuse of discretion amounting to lack of jurisdiction when
it dismissed petitioners appeal despite the clearly meritorious grounds relied upon therein.

Otherwise stated, the petition raises these two issues: first, whether the appeal from the labor
arbiter to the NLRC was perfected on time; and second, whether petitioner is solidarily liable with
the security agency for the payment of back wages, wage differential and separation pay.

The Courts Ruling

The petition is impressed with some merit and deserves partial grant.

First Issue: Substantial Compliance with the Appeal Bond Requirement

 The perfection of an appeal within the reglementary period and in the manner prescribed by
law is jurisdictional, and noncompliance with such legal requirement is fatal and effectively
renders the judgment final and executory.[9] The Labor Code provides:

ART. 223. Appeal.Decisions, awards or orders of the Labor Arbiter are final and executory
unless appealed to the Commission by any or both parties within ten (10) calendar days from
receipt of such decisions, awards, or orders. xxx

xxxxxxxxx

In case of a judgment involving a monetary award, an appeal by the employer may be perfected
only upon the posting of a cash or surety bond issued by a reputable bonding company duly
accredited by the Commission in the amount equivalent to the monetary award in the judgment
appealed from.

x x x x x x x x x.

Indisputable is the legal doctrine that the appeal of a decision involving a monetary award in
labor cases may be perfected only upon the posting of a cash or surety bond.[10] The lawmakers
intended the posting of the bond to be an indispensable requirement to perfect an employers
appeal.[11]
However, in a number of cases, this Court has relaxed this requirement in order to bring about
the immediate and appropriate resolution of controversies on the merits.[12] Some of these cases
include: (a) counsels reliance on the footnote of the notice of the decision of the labor arbiter that
the aggrieved party may appeal xxx within ten (10) working days; (b) fundamental consideration
of substantial justice; (c) prevention of miscarriage of justice or of unjust enrichment, as where the
tardy appeal is from a decision granting separation pay which was already granted in an earlier
final decision; and (d) special circumstances of the case combined with its legal merits or the
amount and the issue involved.[13]
In Quiambao vs. National Labor Relations Commission,[14] this Court ruled that a relaxation
of the appeal bond requirement could be justified by substantial compliance with the rule.
In Globe General Services and Security Agency vs. National Labor Relations
Commission,[15] the Court observed that the NLRC, in actual practice, allows the reduction of the
appeal bond upon motion of the appellant and on meritorious grounds; hence, petitioners in that
case should have filed a motion to reduce the bond within the reglementary period for appeal.
That is the exact situation in the case at bar. Here, petitioner claims to have received the labor
arbiters Decision on April 6, 1993.[16] On April 16, 1993, it filed, together with its memorandum
on appeal[17] and notice of appeal, a motion to reduce the appeal bond[18] accompanied by a surety
bond for fifty thousand pesos issued by Prudential Guarantee and Assurance, Inc.[19] Ignoring
petitioners motion (to reduce bond), Respondent Commission rendered its assailed Resolution
dismissing the appeal due to the late filing of the appeal bond.
The solicitor general argues for the affirmation of the assailed Resolution for the sole reason
that the appeal bond, even if it was filed on time, was defective, as it was not in an amount
equivalent to the monetary award in the judgment appealed from. The Court disagrees.
 We hold that petitioners motion to reduce the bond is a substantial compliance with the Labor
Code. This holding is consistent with the norm that letter-perfect rules must yield to the broader
interest of substantial justice.[20]
Where a decision may be made to rest on informed judgment rather than rigid rules, the
equities of the case must be accorded their due weight because labor determinations should not
only be secundum rationem but also secundum caritatem.[21] A judicious reading of the
memorandum of appeal would have made it evident to Respondent Commission that the recourse
was meritorious.Respondent Commission acted with grave abuse of discretion in peremptorily
dismissing the appeal without passing upon -- in fact, ignoring -- the motion to reduce the appeal
bond.
We repeat: Considering the clear merits which appear, res ipsa loquitur, in the appeal from
the labor arbiters Decision, and the petitioners substantial compliance with rules governing
appeals, we hold that the NLRC gravely abused its discretion in dismissing said appeal and in
failing to pass upon the grounds alleged in the Motion for Reconsideration.

Second Issue: Liability of an Indirect Employer

The overriding premise in the labor arbiters Decision holding the security agency and the
petitioner liable was that said parties offered no evidence refuting or rebutting the complainants
computation of their monetary claims. The arbiter ruled that petitioner was liable in solidum with
the agency for salary differentials based on Articles 106, 107 and 109 of the Labor Code which
hold an employer jointly and severally liable with its contractor or subcontractor, as if it is the
direct employer. We quote said provisions below:

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

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

x x x x x x x x x.

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.
 Upon the other hand, back wages and separation pay were awarded because the complainants
were constructively and illegally dismissed by the security agency which placed them on floating
status and at the same time gave assignments to newly hired security guards. Noting that the
relationship between the security agency and the complainants was already strained, the labor
arbiter granted separation pay in lieu of reinstatement.
In its memorandum of appeal, petitioner controverts its liability for the mentioned monetary
awards on the following grounds:[22]

A. Complainant Jose Cabrera never rendered security services to [petitioner] or was [n]ever
assigned as security guard [for] the latters business establishment;

B. Complainants Napoleon Mamon, Arsenio Gazzingan, Rodolfo Velasco, Armando Ballon and
Victor Aldeza rendered security services to [petitioner] for a fixed period and were thereafter
assigned to other entities or establishments or were floated or recalled to the headquarters of
Veterans; and,

C. The relationship between [petitioner] and Veterans was governed by a Contract for Guard
Services under which [petitioner] dutifully paid a contract price of P3,500.00 a month for 12
hour duty per guard and later increased to P4,250.00 a month for 12 hour duty per guard which
are within the prevailing rates in the industry and in accordance with labor standard laws.

The first two grounds are meritorious. Legally untenable, however, is the contention that
petitioner is not liable for any wage differential for the reason that it paid the employees in
accordance with the contract for security services which it had entered into with the security
agency. Notwithstanding the service contract between the petitioner and the security agency, the
former is still solidarily liable to the employees, who were not privy to said contract, pursuant to
the aforecited provisions of the Code. Labor standard legislations are enacted to alleviate the plight
of workers whose wages barely meet the spiraling costs of their basic needs.
They are considered written in every contract, and stipulations in violation thereof are
considered not written. Similarly, legislated wage increases are deemed amendments to the
contract. Thus, employers cannot hide behind their contracts in order to evade their or their
contractors or subcontractors liability for noncompliance with the statutory minimum wage.
The joint and several liability of the employer or principal was enacted to ensure compliance
with the provisions of the Code, principally those on statutory minimum wage. The contractor or
subcontractor is made liable by virtue of his or her status as a direct employer, and the principal as
the indirect employer of the contractors employees. This liability facilitates, if not guarantees,
payment of the workers compensation, thus, giving the workers ample protection as mandated by
the 1987 Constitution.[23] This is not unduly burdensome to the employer. Should the indirect
employer be constrained to pay the workers, it can recover whatever amount it had paid in
accordance with the terms of the service contract between itself and the contractor.[24]
Withal, fairness likewise dictates that the petitioner should not, however, be held liable for
wage differentials incurred while the complainants were assigned to other companies. Under these
cited provisions of the Labor Code, should the contractor fail to pay the wages of its employees in
accordance with law, the indirect employer (the petitioner in this case), is jointly and severally
liable with the contractor, but such responsibility should be understood to be limited to the extent
of the work performed under the contract, in the same manner and extent that he is liable to the
employees directly employed by him. This liability of petitioner covers the payment of the workers
performance of any work, task, job or project. So long as the work, task, job or project has been
performed for petitioners benefit or on its behalf, the liability accrues for such period even if, later
on, the employees are eventually transferred or reassigned elsewhere.
We repeat: The indirect employers liability to the contractors employees extends only to the
period during which they were working for the petitioner, and the fact that they were reassigned
to another principal necessarily ends such responsibility. The principal is made liable to his indirect
employees, because it can protect itself from irresponsible contractors by withholding such sums
and paying them directly to the employees or by requiring a bond from the contractor or
subcontractor for this purpose.
Similarly, the solidary liability for payment of back wages and separation pay is limited, under
Article 106, to the extent of the work performed under the contract; under Article 107, to the
performance of any work, task, job or project; and under Article 109, to the extent of their civil
liability under this Chapter [on payment of wages].
These provisions cannot apply to petitioner, considering that the complainants were no longer
working for or assigned to it when they were illegally dismissed. Furthermore, an order to pay
back wages and separation pay is invested with a punitive character, such that an indirect employer
should not be made liable without a finding that it had committed or conspired in the illegal
dismissal.
The liability arising from an illegal dismissal is unlike an order to pay the statutory minimum
wage, because the workers right to such wage is derived from law. The proposition that payment
of back wages and separation pay should be covered by Article 109, which holds an indirect
employer solidarily responsible with his contractor or subcontractor for any violation of any
provision of this Code, would have been tenable if there were proof -- there was none in this case
-- that the principal/employer had conspired with the contractor in the acts giving rise to the illegal
dismissal.
With the foregoing discussion in mind, we now take up in detail the petitioners liability to each
of the complainants.

Case No. NCR-00-08-04630-91

Mamon worked for petitioner for a period of a little more than one year beginning February
3, 1990 until May 16, 1991. Inasmuch as petitioner was his indirect employer during such time, it
should thus be severally liable for wage differential from the time of his employment until his
relief from duty. He was relieved upon the request of petitioner, after it had learned of the
complaint for underpayment of wages filed by Mamon and several other security guards.
However, this was not a dismissal from work because Mamon was still working for the
security agency and was immediately assigned, on May 29, 1991, to its other client, Mead Johnson
Philippines. His dismissal came about later, when he refused to sign a quitclaim and waiver in
favor of the security agency. Thus, he was illegally dismissed by the agency when he was no longer
employed by petitioner, which cannot thus be held liable for back wages and separation pay in his
case.

Napoleon Mamon x x x received an order transferring him to Rosewood Processing, Inc.

effective x x x February 3, 1990; x x x. On May 16, 1991, Rosewood Processing, Inc. asked for
the relief of Mamon and other guards at Rosewood because they came to know that complainants
filed a complaint for underpayment on May 13, 1991 with the National Labor Relations
Commission[.] x x x After that, complainant was floated until May 29, 1991 when he was
assigned to Mead Johnson Philippines Corporation. x x x [A] week later, [the security agency]
received summons on complainants complaint for underpayment and he was called to [the
security agency] office. When he reported, he was told to sign a Quitclaim and Waiver[] by Lt.
R. Rodriguez x x x and x x x if he [did] not sign the quitclaim and waiver, he [would] be relieved
from his post and [would] no longer be given any assignment. xxxx At the end of July 1991, he
was approached by the Security in Charge, A. Azuela, x x x [for him] to sign the quitclaim and
waiver[,] and when he refused to sign, he was told that x x x he ha[d] no more assignment and
should report to their office. x x x [H]e reported the following day to the detachment
commander, Mr. A. Yadao and he was told that the main office ha[d] relieved him x x x. He
reported to their office asking for an assignment but he was told by R. Rodriguez that I no longer
can be given an assignment so I had better resign. He went back several times to the office of the
[security agency] but every time the answer was the same x x x although respondent was
recruiting new guards and posting them.[25]

Case No. NCR-00-07-03966-91

Gazzingan was assigned to petitioner as a security guard for a period of one year. For said
period, petitioner is solidarily liable with the agency for underpayment of wages based on Articles
106, 107 and 109 of the Code.

Arsenio Gazzingan x x x after eleven (11) days on June 1989, xxx was transferred to Rosewood
Processing, Inc. x x x. [I]n June 1990, he was assigned at Purefoods DELPAN x x x. After 11
days, he asked to be transferred to Manila because of the distance from his home and the transfer
was approved but instead of being transferred to Manila, he was assigned to Purefoods B-F-4 in
Batangas x x x again he requested for transfer which was also approved by the [security agency]
office but since then he was told to come back again and again and up to the present he has not
been given any assignment. x x x x.[26]

His dismissal cannot be blamed on the petitioner. Like Mamon, Gazzingan had already been
assigned to another client of the agency when he was illegally dismissed. Thus, Rosewood cannot
be held liable, jointly and severally with the agency, for back wages and separation pay.

Case No. NCR-00-07-03967-91

 Rodolfo Velasco was assigned to petitioner from December 31, 1988 until May 16,
1991. Thus, petitioner is solidarily liable for wage differentials during such period. Petitioner is
not, however, liable for back wages and separation pay, because Velasco was no longer working
for petitioner at the time of his illegal dismissal.

Rodolfo Velasco started working for the [security agency] on January 5, 1987. x x x [On]
December 31, 1988 xxx he was x x x transferred to various posts like x x x Rosewood
Processing, Inc., x x x until May 16, 1991 x x x. He was relieved on August 24 and his salary for
the period August 20 to 23 has not been paid by [the security agency]; [h]e was suspended for no
cause at all.[27]

Case No. NCR-00-07-0445-91

Petitioner was the indirect employer of Ballon during the period beginning November 6, 1990
until May 15, 1991; thus, it is liable for wage differentials for said period. However, it is not liable
for back wages and separation pay, as there was no evidence presented to show that it participated
in Ballons illegal dismissal.

x x x [H]e [Armando Ballon] was transferred to Rosewood Processing, Inc. on November 6,

1990 rendering 12 hours duty as [d]etachment [c]ommander and received a salary
of P2,700.00/month including P200.00 officers allowance until May 15, 1991. On May 16, 1991,
he applied for sick leave on orders of his doctor for 15 days but the HRM, Miss M. Andres[,] got
angry and crumpled his application for sick leave that is why he was not able to forward it to the
SSS. After 15 days, he came back to the office of [the security agency] asking for an assignment
and he was told that he [was] already terminated. Complainant found out that the reason why
Miss Andres crumpled his application for sick leave was because of the complaint he previously
filed and was dismissed for failure to appear. He then refiled this case to seek redress from this
Office.[28]

Case No. NCR-00-08-05030-91

Petitioner is liable for wage differentials in favor of Aldeza during the period he worked with
petitioner, that is, October 16, 1990 until May 15, 1991.

x x x On October 16, 1990, he [Aldeza] was transferred to Rosewood Processing, Inc., x x x up

to May 15, 1991[.] On the later part of May 1991, he was assigned to UPSSA (Sandoval
Shipyard) x x x.Complainant [sic] complained to [the security agency] about the salary but [the
security agency] did not heed him; thus, he filed his complaint for underpayment[.] [The security
agency] upon complainants complaint for underpayment reacted xxx, instead of adjusting his
salary to meet the minimum prescribed by law[,] relieved him and left him floating[;] and when
he complained of the treatment, he was told to resign because he could no longer be given any
assignment. Because of this, complainant was forced to file another complaint for illegal
dismissal.[29]
 The cause of Aldezas illegal dismissal is imputable, not to petitioner, but solely to the security
agency. In Aldezas case, the solidary liability for back wages and separation pay arising from
Articles 106, 107 and 109 of the Code has no application.

Case No. NCR-00-09-05617-91

Cabrera was an employee of the security agency, but he never rendered security services to
petitioner. This fact is evident in the labor arbiters findings:

Jose L. Cabrera started working for the [security agency] as [a] security guard on January, 1988
and was assigned to Alencor Residence x x x. [I]n May, 1988, he was transferred to E & L
Restaurant x x x[.] [I]n January, 1989, he was transferred to Paramount x x x[.] [I]n July 1989,
he was transferred to Benito Ong[s] residence x x x[.] [I]n December, 1989, he was transferred to
Sea Trade International xxx[.] [I]n July, 1990, he was transferred to Holland Pacific & Paper
Mills x x x[.] [I]n October 1990, he was transferred to RMG [R]esidence x x x[.] [I]n February
1991, he was transferred to Purefoods Corporation at Mabini, Batangas x x x. When he was
discharged from the hospital and after he was examined and declared fit to work by the doctor,
he reported back to [the security agency] office but was given the run-around [and was told to]
come back tomorrow[,] although he [could] see that [it was] posting new recruits. He then
complained to this Honorable Office to seek redress, hiring the services of a counsel.[30]

Hence, petitioner is not liable to Cabrera for anything.

In all these cases, however, the liability of the security agency is without question, as it did
not appeal from the Decisions of the labor arbiter and Respondent Commission.
WHEREFORE, the petition is partially GRANTED. The assailed Decision is
hereby MODIFIED, such that petitioner, with the security agency, is solidarily liable to PAY the
complainants only wage differentials during the period that the complainants were actually under
its employ, as above detailed. Petitioner is EXONERATED from the payment of back wages and
separation pay.
The temporary restraining order issued earlier is LIFTED, but the petitioner is deemed liable
only for the aforementioned wage differentials which Respondent Commission is required
to RECOMPUTE within fifteen days from the finality of this Decision. No costs.
SO ORDERED.

[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.
MERALCO INDUSTRIAL G.R. No. 145402
ENGINEERING SERVICES Present:
CORPORATION,
Petitioner, YNARES-
SANTIAGO, J.,Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
NATIONAL LABOR RELATIONS
COMMISSION, OFELIA P. Promulgated:
LANDRITO GENERAL SERVICES
and/or OFELIA P. LANDRITO, March 14, 2008
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules
of Civil Procedure seeking to reverse and set aside (1) the Decision[1] of the Court of Appeals in
CA-G.R. SP No. 50806, dated 24 April 2000, which modified the Decision[2] of the National Labor
Relations Commission (NLRC), dated 30 January 1996 in NLRC NCR CA No. 001737-91 (NLRC
NCR Case No. 00-09-04432-89), and thereby held the petitioner solidarily liable with the private
respondents for the satisfaction of the separation pay of the latters employees; and (2) the
Resolution[3] of the appellate court, dated 27 September 2000, in the same case which denied the
petitioners Motion for Reconsideration.
Petitioner Meralco Industrial Engineering Services Corporation (MIESCOR) is a corporation duly
organized and existing under the laws of the Republic of the Philippines and a client of private
respondents. Private respondent Ofelia P. Landrito General Services (OPLGS) is a business firm
engaged in providing and rendering general services, such as janitorial and maintenance work to
its clients, while private respondent Ofelia P. Landrito is the Proprietor and General Manager of
OPLGS.

The factual milieu of the present case is as follows:

On 7 November 1984, petitioner and private respondents executed Contract Order No. 166-
84,[4] whereby the latter would supply the petitioner janitorial services, which include labor,
materials, tools and equipment, as well as supervision of its assigned employees, at petitioners
Rockwell Thermal Plant in Makati City. Pursuant thereto, private respondents assigned their 49
employees as janitors to petitioners Rockwell Thermal Plant with a daily wage of P51.50 per
employee.

On 20 September 1989, however, the aforesaid 49 employees (complainants) lodged a

Complaint for illegal deduction, underpayment, non-payment of overtime pay, legal holiday pay,
premium pay for holiday and rest day and night differentials[5] against the private respondents
before the Labor Arbiter. The case was docketed as NLRC NCR Case No. 00-09-04432-89.

In view of the enactment of Republic Act No. 6727,[6] the contract between the petitioner and the
private respondents was amended[7] for the 10th time on 3 November 1989 to increase the
minimum daily wage per employee from P63.55 to P89.00 or P2,670.00 per month. Two months
thereafter, or on 2 January 1990,[8] petitioner sent a letter to private respondents informing them
that effective at the close of business hours on 31 January 1990, petitioner was terminating
Contract Order No. 166-84. Accordingly, at the end of the business hours on 31 January 1990, the
complainants were pulled out from their work at the petitioners Rockwell Thermal Plant. Thus,
on 27 February 1990, complainants amended their Complaint to include the charge of illegal
dismissal and to implead the petitioner as a party respondent therein.

Since the parties failed to settle amicably before the Labor Arbiter, they submitted their respective
position papers and other pleadings together with their documentary evidence. Thereafter, a
Decision was rendered by the Labor Arbiter on 26 March 1991, dismissing the Complaint against
the petitioner for lack of merit, but ordering the private respondents to pay the complainants the
total amount of P487,287.07 representing unpaid wages, separation pay and overtime pay; as well
as attorneys fees in an amount equivalent to 10% of the award or P48,728.70. All other claims of
the complainants against the private respondents were dismissed. [9]

Feeling aggrieved, private respondents appealed the aforesaid Decision to the NLRC. Private
respondents alleged, among other things, that: (1) 48 of the 49 complainants had executed
affidavits of desistance and they had never attended any hearing nor given any authority to anyone
to file a case on their behalf; (2) the Labor Arbiter erred in not conducting a full-blown hearing on
the case; (3) there is only one complainant in that case who submitted a position paper on his own;
(4) the complainants were not constructively dismissed when they were not given assignments
within a period of six months, but had abandoned their jobs when they failed to report to another
place of assignment; and (5) the petitioner, being the principal, was solidarily liable with the
private respondents for failure to make an adjustment on the wages of the
complainants.[10] On 28 May 1993, the NLRC issued a Resolution[11] affirming the Decision of
the Labor Arbiter dated 26 March 1991 with the modification that the petitioner was solidarily
liable with the private respondents, ratiocinating thus:

We, however, disagree with the dismissal of the case against [herein
petitioner]. Under Art. 107[12] of the Labor Code of the Philippines, [herein
petitioner] is considered an indirect employer and can be held solidarily liable
with [private respondents] as an independent contractor. Under Art.
109,[13] for purposes of determining the extent of its liability, [herein
petitioner] is considered a direct employer, hence, it is solidarily liable for
complainants (sic) wage differentials and unpaid overtime. We find this
situation obtaining in this case in view of the failure of [private respondents] to pay
in full the labor standard benefits of complainants, in which case liability is limited
thereto and does not extend to the establishment of employer-employee
relations.[14] [Emphasis supplied].

Both private respondents and petitioner separately moved for reconsideration of the aforesaid
Resolution of the NLRC. In their Motion for Reconsideration, private respondents reiterated that
the complainants abandoned their work, so that private respondents should not be liable for
separation pay; and that petitioner, not private respondents, should be liable for complainants other
monetary claims, i.e., for wage differentials and unpaid overtime. The petitioner, in its own Motion
for Reconsideration, asked that it be excluded from liability. It averred that private respondents
should be solely responsible for their acts as it sufficiently paid private respondents all the benefits
due the complainants.
On 30 July 1993, the NLRC issued an Order[15] noting that based on the records of the case, the
judgment award in the amount of P487,287.07 was secured by a surety bond posted by the
private respondents;[16] hence, there was no longer any impediment to the satisfaction of the
complainants claims. Resultantly, the NLRC denied the private respondents Motion for
Reconsideration. The NLRC likewise directed the Labor Arbiter to enforce the monetary award
against the private respondents surety bond and to determine who should finally shoulder the
liability therefor.[17]

Alleging grave abuse of discretion of the NLRC in its issuance of the Resolution and Order
dated 28 May 1993 and 30 July 1993, respectively, private respondents filed before this Court a
Petition for Certiorari with prayer for the issuance of a writ of preliminary injunction. The same
was docketed as G.R. No. 111506 entitled Ofelia Landrito General Services v. National Labor
Relations Commission. The said Petition suspended the proceedings before the Labor Arbiter.

On 23 May 1994, however, this Court issued a Resolution[18] dismissing G.R. No. 111506 for
failure of private respondents to sufficiently show that the NLRC had committed grave abuse of
discretion in rendering its questioned judgment. This Courts Resolution in G.R. No. 111506
became final and executory on 25 July 1994.[19]

As a consequence thereof, the proceedings before the Labor Arbiter resumed with respect to the
determination of who should finally shoulder the liability for the monetary awards granted to the
complainants, in accordance with the NLRC Order dated 30 July 1993.

On 5 October 1994, the Labor Arbiter issued an Order,[20] which reads:

As can be gleaned from the Resolution dated [28 May 1993], there is that necessity of
clarifying the respective liabilities of [herein petitioner] and [herein private
respondents] insofar as the judgment award in the total sum of P487,287.07 is
concerned.

The judgment award in the total sum of P487,287.07 as contained in the Decision dated
[26 March 1991] consists of three (3) parts, as follows: First, the judgment award
on the underpayment; Second, the judgment award on separation pay; and Third,
the judgment award on the overtime pay.

The question now is: Which of these awards is [petitioner] solidarily liable with
[private respondents]?
An examination of the record elicits the finding that [petitioner] is solidarily liable
with [private respondents] on the judgment awards on the underpayment and
on the non-payment of the overtime pay.xxx. This joint and several liability of
the contractor [private respondents] and the principal [petitioner] is
mandated by the Labor Code to assure compliance of the provisions therein,
including the statutory minimum wage (Art. 99,[21] Labor Code). The contractor-
agency is made liable by virtue of his status as direct employer. The principal, on
the other hand, is made the indirect employer of the contractor-agencys
employees for purposes of paying the employees their wages should the
contractor-agency be unable to pay them. This joint and several liability
facilitates, if not guarantees, payment of the workers performance of any
work, task, job or project, thus giving the workers ample protection as
mandated by the 1987 Constitution.

In sum, the complainants may enforce the judgment award on underpayment and the non-
payment of overtime pay against either [private respondents] and/or [petitioner].

However, in view of the finding in the Decision that [petitioner] had adjusted its contract
price for the janitorial services it contracted with [private respondents] conforming
to the provisions of Republic Act No. 6727, should the complainants enforce the
judgment on the underpayment and on the non-payment of the overtime pay aginst
(sic) [petitioner], the latter can seek reimbursement from the former [meaning
(private respondents)], but should the judgment award on the underpayment and on
the non-payment of the overtime pay be enforced against [private respondents], the
latter cannot seek reimbursement against [petitioner].

The judgment award on separation pay is the sole liability of [private respondents].

WHEREFORE, [petitioner] is jointly and severally liable with [private respondents]

in the judgment award on underpayment and on the non-payment of overtime
pay. Should the complainants enforce the above judgment award against
[petitioner], the latter can seek reimbursement against [private respondents],
but should the aforementioned judgment award be enforced against [private
respondents], the latter cannot seek reimbursement from the [petitioner].

The judgment award on the payment of separation pay is the sole liability of [private
respondents].

Let an alias writ of execution be issued. [Emphasis supplied].

Again, both the private respondents and the petitioner appealed the afore-quoted Order of the
Labor Arbiter to the NLRC. On 25 April 1995, the NLRC issued a Resolution[22] affirming the
Order dated 5 October 1994 of the Labor Arbiter and dismissing both appeals for non-posting of
the appeal or surety bond and/or for utter lack of merit.[23] When the private respondents and the
petitioner moved for reconsideration, however, it was granted by the NLRC in its
Order[24] dated 27 July 1995. The NLRC thus set aside its Resolution dated 25 April 1995, and
directed the private respondents and the petitioner to each post an appeal bond in the amount
of P487,287.62 to perfect their respective appeals.[25] Both parties complied.[26]

On 30 January 1996, the NLRC rendered a Decision modifying the Order of the Labor Arbiter
dated 5 October 1994, the dispositive portion of which reads:

WHEREFORE, the [21 November 1994] appeal of [herein petitioner] is hereby

granted. The [5 October 1994] Order of Labor Arbiter Donato G. Quinto, Jr., is
modified to the extent that it still held [petitioner] as jointly and severally
liable with [herein private respondents] in the judgment award on
underpayment and on the non-payment of overtime pay, our directive being
that the Arbiter should now satisfy said labor-standards award, as well as that
of the separation pay, exclusively through the surety bond posted by [private
respondents].[27] [Emphasis supplied].
Dissatisfied, private respondents moved for the reconsideration of the foregoing Decision, but it
was denied by the NLRC in an Order[28] dated 30 October 1996. This NLRC Order dated 30
October 1996 became final and executory on 29 November 1996.

On 4 December 1996, private respondents filed a Petition for Certiorari[29] before this Court
assailing the Decision and the Order of the NLRC dated 30 January 1996 and 30 October 1996,
respectively. On 9 December 1998, this Court issued a Resolution[30] referring the case to the Court
of Appeals conformably with its ruling in St. Martin Funeral Home v. National Labor Relations
Commission.[31] The case was docketed before the appellate court as CA-G.R. SP No. 50806.

The Petition made a sole assignment of error, to wit:

THE HONORABLE COMMISSION GRAVELY ERRED AND GRAVELY ABUSED

ITS DISCRETION IN FINDING THAT THE ULTIMATE LIABILITY SHOULD
FALL ON THE [HEREIN PRIVATE RESPONDENTS] ALONE, WITHOUT
REIMBURSEMENT FROM THE [HEREIN PETITIONER], IN ORDER TO
SATISFY THE MONETARY AWARDS OF THE [THEREIN
[32]
COMPLAINANTS].

After due proceedings, the Court of Appeals rendered the assailed Decision on 24 April
2000, modifying the Decision of the NLRC dated 30 January 1996 and holding the petitioner
solidarily liable with the private respondents for the satisfaction of the laborers separation
pay. According to the Court of Appeals:
The [NLRC] adjudged the payment of separation pay to be the sole responsibility of [herein
private respondents] because (1) there is no employer-employee relationship
between [herein petitioner] and the forty-nine (49) [therein complainants]; (2) the
payment of separation pay is not a labor standard benefit. We disagree.

Again, We quote Article 109 of the Labor Code, as amended, viz:

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

The abovementioned statute speaks of any violation of any provision of this

Code. Thus, the existence or non-existence of employer-employee relationship
and whether or not the violation is one of labor standards is immaterial
because said provision of law does not make any distinction at all and,
therefore, this Court should also refrain from making any
distinction. Concomitantly, [herein petitioner] should be jointly and severally
liable with [private respondents] for the payment of wage differentials,
overtime pay and separation pay of the [therein complainants]. The joint and
several liability imposed to [petitioner] is, again, without prejudice to a claim
for reimbursement by [petitioner] against [private respondents] for reasons
already discusses (sic).

WHEREFORE, premises studiedly considered, the assailed 30 January 1996 decision of

[the NLRC] is hereby modified insofar as [petitioner] should be held solidarily
liable with [the private respondents] for the satisfaction of the laborers
separation pay. No pronouncement as to costs.[33] [Emphasis supplied].

The petitioner filed a Motion for Reconsideration of the aforesaid Decision but it was denied by
the Court of Appeals in a Resolution dated 27 September 2000.

Petitioner now comes before this Court via a Petition for Review on Certiorari, docketed as G.R.
No. 145402, raising the sole issue of whether or not the Honorable Court of Appealspalpably erred
when it went beyond the issues of the case as it modified the factual findings of the Labor Arbiter
which attained finality after it was affirmed by Public Respondent NLRC and by the Supreme Court
which can no longer be disturbed as it became the law of the case.[34]

Petitioner argues that in the assailed Decision dated 24 April 2000, the Court of Appeals found
that the sole issue for its resolution was whether the ultimate liability to pay the monetary
awards in favor of the 49 employees falls on the private respondents without reimbursement from
the petitioner. Hence, the appellate court should have limited itself to determining the right of
private respondents to still seek reimbursement from petitioner for the monetary awards on
the unpaid wages and overtime pay of the complainants.

According to petitioner, the NLRC, in its Resolution dated 28 May 1993, already found that
petitioner had fully complied with its salary obligations to the complainants. Petitioner invokes the
same NLRC Resolution to support its claim that it was not liable to share with the private
respondents in the payment of separation pay to complainants. When private respondents
questioned the said NLRC Resolution in a Petition for Certiorari with this Court, docketed as G.R.
No. 111506, this Court found that the NLRC did not commit grave abuse of discretion in the
issuance thereof and accordingly dismissed private respondents Petition. Said NLRC Resolution,
therefore, has since become final and executory and can no longer be disturbed for it now
constitutes the law of the case.

Assuming for the sake of argument that the Court of Appeals can still take cognizance of
the issue of petitioners liability for complainants separation pay, petitioner asserts that the appellate
court seriously erred in concluding that it is jointly and solidarily liable with private respondents
for the payment thereof. The payment of separation pay should be the sole responsibility of the
private respondents because there was no employer-employee relationship between the petitioner
and the complainants, and the payment of separation pay is not a labor standards benefit.

Law of the case has been defined as the opinion delivered on a former appeal. It is a term applied
to an established rule that when an appellate court passes on a question and remands the case to
the lower court for further proceedings, the question there settled becomes the law of the case
upon subsequent appeal. It means that whatever is once irrevocably established as the controlling
legal rule or decision between the same parties in the same case continues to be the law of the
case, whether correct on general principles or not, so long as the facts on which such decision was
predicated continue to be the facts of the case before the court.[35] Indeed, courts must adhere
thereto, whether the legal principles laid down were correct on general principles or not or whether
the question is right or wrong because public policy, judicial orderliness and economy require such
stability in the final judgments of courts or tribunals of competent jurisdiction.[36]

Petitioners application of the law of the case principle to the case at bar as regards its liability for
payment of separation pay is misplaced.
The only matters settled in the 23 May 1994 Resolution of this Court in G.R. No. 111506,
which can be regarded as the law of the case, were (1) both the petitioner and the private
respondents were jointly and solidarily liable for the judgment awards due the complainants; and
(2) the said judgment awards shall be enforced against the surety bond posted by the private
respondents. However, the issue as regards the liability of the petitioner for payment of separation
pay was yet to be resolved because precisely, the NLRC, in its Order dated 30 July 1993, still
directed the Labor Arbiter to make a determination on who should finally shoulder the monetary
awards granted to the complainants. And it was only after G.R. No. 111506 was dismissed by this
Court that the Labor Arbiter promulgated his Decision dated 5 October 1994, wherein he clarified
the respective liabilities of the petitioner and the private respondents for the judgment awards. In
his 5 October 1994 Decision, the Labor Arbiter explained that the solidary liability of the petitioner
was limited to the monetary awards for wage underpayment and non-payment of overtime pay due
the complainants, and it did not, in any way, extend to the payment of separation pay as the same
was the sole liability of the private respondents.

Nonetheless, this Court finds the present Petition meritorious.

The Court of Appeals indeed erred when it ruled that the petitioner was jointly and solidarily liable
with the private respondents as regards the payment of separation pay.

The appellate court used as basis Article 109 of the Labor Code, as amended, in holding the
petitioner solidarily liable with the private respondents for the payment of separation pay:

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. [Emphasis supplied].

However, the afore-quoted provision must be read in conjunction with Articles 106 and 107 of the
Labor Code, as amended.
Article 107 of the Labor Code, as amended, defines an indirect employer as 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. To ensure that the
contractors employees are paid their appropriate wages, Article 106 of the Labor Code, as
amended, provides:

ART. 106. CONTRACTOR OR SUBCONTRACTOR. x x x.

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. [Emphasis supplied].

Taken together, an indirect employer (as defined by Article 107) can only be held solidarily
liable with the independent contractor or subcontractor (as provided under Article 109) in the event
that the latter fails to pay the wages of its employees (as described in Article 106).

Hence, while it is true that the petitioner was the indirect employer of the complainants, it
cannot be held liable in the same way as the employer in every respect. The petitioner may be
considered an indirect employer only for purposes of unpaid wages. As this Court succinctly
explained in Philippine Airlines, Inc. v. National Labor Relations Commission[37]:
While USSI is an independent contractor under the security service agreement and
PAL may be considered an indirect employer, that status did not make PAL the
employer of the security guards in every respect. As correctly posited by the Office
of the Solicitor General, PAL may be considered an indirect employer only for
purposes of unpaid wages since Article 106, which is applicable to the situation
contemplated in Section 107, speaks of wages. The concept of indirect employer
only relates or refers to the liability for unpaid wages. Read together, Articles 106
and 109 simply mean that the party with whom an independent contractor deals is
solidarily liable with the latter for unpaid wages, and only to that extent and for that
purpose that the latter is considered a direct employer. The term wage is defined in
Article 97(f) of the Labor Code as the remuneration of earnings, however
designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other method of
calculating the unwritten contract of employment for work done or to be done, or
for services rendered or to be rendered and includes the fair and reasonable value,
as determined by the Secretary of Labor, of board, lodging, or other facilities
customarily furnished by the employer to the employee.

Further, there is no question that private respondents are operating as an independent

contractor and that the complainants were their employees. There was no employer-employee
relationship that existed between the petitioner and the complainants and, thus, the former could
not have dismissed the latter from employment. Only private respondents, as the complainants
employer, can terminate their services, and should it be done illegally, be held liable therefor. The
only instance when the principal can also be held liable with the independent contractor or
subcontractor for the backwages and separation pay of the latters employees is when there is proof
that the principal conspired with the independent contractor or subcontractor in the illegal
dismissal of the employees, thus:
 The liability arising from an illegal dismissal is unlike an order to pay the
statutory minimum wage, because the workers right to such wage is derived from
law. The proposition that payment of back wages and separation pay should be
covered by Article 109, which holds an indirect employer solidarily responsible
with his contractor or subcontractor for any violation of any provision of this Code,
would have been tenable if there were proof - there was none in this case - that the
principal/employer had conspired with the contractor in the acts giving rise to the
illegal dismissal. [38]

It is the established fact of conspiracy that will tie the principal or indirect employer to the illegal
dismissal of the contractor or subcontractors employees. In the present case, there is no allegation,
much less proof presented, that the petitioner conspired with private respondents in the illegal
dismissal of the latters employees; hence, it cannot be held liable for the same.

Neither can the liability for the separation pay of the complainants be extended to the
petitioner based on contract. Contract Order No. 166-84 executed between the petitioner and the
private respondents contains no provision for separation pay in the event that the petitioner
terminates the same. It is basic that a contract is the law between the parties and the stipulations
therein, provided that they are not contrary to law, morals, good customs, public order or public
policy, shall be binding as between the parties.[39] Hence, if the contract does not provide for such
a liability, this Court cannot just read the same into the contract without possibly violating the
intention of the parties.

It is also worth noting that although the issue in CA-G.R. SP No. 50806 pertains to private
respondents right to reimbursement from petitioner for the monetary awards in favor of the
complainants, they limited their arguments to the monetary awards for underpayment of wages
and non-payment of overtime pay, and were conspicuously silent on the monetary award for
separation pay. Thus, private respondents sole liability for the separation pay of their employees
should have been deemed settled and already beyond the power of the Court of Appeals to resolve,
since it was an issue never raised before it.[40]

Although petitioner is not liable for complainants separation pay, the Court conforms to
the consistent findings in the proceedings below that the petitioner is solidarily liable with the
private respondents for the judgment awards for underpayment of wages and non-payment of
overtime pay.
 In this case, however, private respondents had already posted a surety bond in an amount
sufficient to cover all the judgment awards due the complainants, including those for
underpayment of wages and non-payment of overtime pay. The joint and several liability of the
principal with the contractor and subcontractor were enacted to ensure compliance with the
provisions of the Labor Code, principally those on statutory minimum wage. This liability
facilitates, if not guarantees, payment of the workers compensation, thus, giving the workers ample
protection as mandated by the 1987 Constitution.[41] With private respondents surety bond, it can
therefore be said that the purpose of the Labor Code provision on the solidary liability of the
indirect employer is already accomplished since the interest of the complainants are already
adequately protected. Consequently, it will be futile to continuously hold the petitioner jointly and
solidarily liable with the private respondents for the judgment awards for underpayment of wages
and non-payment of overtime pay.

But while this Court had previously ruled that the indirect employer can recover whatever
amount it had paid to the employees in accordance with the terms of the service contract between
itself and the contractor,[42] the said ruling cannot be applied in reverse to this case as to allow the
private respondents (the independent contractor), who paid for the judgment awards in full, to
recover from the petitioner (the indirect employer).

Private respondents have nothing more to recover from petitioner.

Petitioner had already handed over to private respondent the wages and other benefits of
the complainants. Records reveal that it had complied with complainants salary increases in
accordance with the minimum wage set by Republic Act No. 6727 by faithfully adjusting the
contract price for the janitorial services it contracted with private respondents. [43] This is a finding
of fact made by the Labor Arbiter,[44] untouched by the NLRC[45] and explicitly affirmed by the
Court of Appeals,[46] and which should already bind this Court.

This Court is not a trier of facts. Well-settled is the rule that the jurisdiction of this Court
in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to
reviewing only errors of law, not of fact, unless the factual findings complained of are completely
devoid of support from the evidence on record, or the assailed judgment is based on a gross
misapprehension of facts. Besides, factual findings of quasi-judicial agencies like the NLRC, when
affirmed by the Court of Appeals, are conclusive upon the parties and binding on this Court.[47]
 Having already received from petitioner the correct amount of wages and benefits, but
having failed to turn them over to the complainants, private respondents should now solely bear
the liability for the underpayment of wages and non-payment of the overtime pay.

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The

Decision and Resolution of the Court of Appeals dated 24 April 2000 and 27 September 2000,
respectively, in CA-G.R. SP No. 50806, are hereby REVERSED AND SET ASIDE. The
Decision dated 30 January 1996 of the National Labor Relations Commission in NLRC NCR CA
No. 001737-91 (NLRC NCR Case No. 00-09-04432-89) is hereby REINSTATED. No costs.

SO ORDERED.

B. Worker’s Preference

G.R. No. 86932 June 27, 1990

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and DOROTHY S. ANCHETA, MA.
MAGDALENA Y. ARMARILLE, CONSTANTE A. ANCHETA, CONSTANTE B.
BANAYOS, EVELYN BARRIENTOS, JOSE BENAVIDEZ, LEONARDO BUENAAGUA,
BENJAMIN BAROT, ERNESTO S. CANTILLER, EDUARDO CANDA, ARMANDO
CANDA, AIDA DE LUNA, PACIFICO M. DE JESUS, ALFREDO ESTRERA, AURELIO
A. FARINAS, FRANCISCO GREGORIO, DOMELINA GONZALES, JUANA
JALANDONI, MANUEL MALUBAY, FELICIANO OCAMPO, MABEL PADO,
GEMINIANO PLETA, ERNESTO S. SALAMAT, JULIAN TRAQUENA, JUSFIEL
SILVERIO, JAMES CRISTALES, FRANCISCO BAMBIO, JOSE T. MARCELO, JR.,
SUSAN M. OLIVAR, ERNESTO JULIO, CONSTANTE ANCHETA, JR., ENRIQUE
NABUA and JAVIER P. MATARO, respondents.

The Legal Counsel for petitioner.

CA. Ancheta & C.B. Banayos for private respondents.

REGALADO, J.:

The present petition for certiorari seeks the reversal of the decision of the National Labor
Relations Commission (NLRC) in, NLRC-NCR Case No. 00-07-02500-87, dated January
16, 1986, 1 which dismissed the appeal of the Development Bank of the Philippines (DBP)
from the decision of the labor arbiter ordering it to pay the unpaid wages, 13th month pay,
incentive pay and separation pay of herein private respondents.

Philippine Smelters Corporation (PSC), a corporation registered under Philippine law,

obtained a loan in 1983 from the Development Bank of the Philippines, a government-
owned financial institution created and operated in accordance with Executive Order No.
81, to finance its iron smelting and steel manufacturing business. To secure said loan, PSC
mortgaged to DBP real properties with all the buildings and improvements thereon and
chattels, with its President, Jose T. Marcelo, Jr., as co-obligor.

By virtue of the said loan agreement, DBP became the majority stockholder of PSC, with
stockholdings in the amount of P31,000,000.00 of the total P60,226,000.00 subscribed and
paid up capital stock. Subsequently, it took over the management of PSC.

When PSC failed to pay its obligation with DBP, which amounted to P75,752,445.83 as of
March 31, 1986, DBP foreclosed and acquired the mortgaged real estate and chattels of
PSC in the auction sales held on February 25, 1987 and March 4, 1987.

On February 10, 1987, forty (40) petitioners filed a Petition for Involuntary Insolvency in
the Regional Trial Court, Branch 61 at Makati, Metropolitan Manila, docketed therein as
Special Proceeding No. M-1359, 2against PSC and DBP, impleading as co-respondents therein
Olecram Mining Corporation, Jose Panganiban Ice Plant and Cold Storage, Inc. and PISO Bank,
with said petitioners representing themselves as unpaid employees of said private respondents,
except PISO Bank.

On February 13, 1987, herein private respondents filed a complaint with the Department of
Labor against PSC for nonpayment of salaries, 13th month pay, incentive leave pay and
separation pay. On February 20, 1987, the complaint was amended to include DBP as party
respondent. The case was thereafter indorsed to the Arbitration Branch of the National Labor
Relations Commission (NLRC). DBP filed its position paper on September 7, 1987, invoking the
absence of employer-employee relationship between private respondents and DBP and
submitting that when DBP foreclosed the assets of PSC, it did so as a foreclosing creditor.

On January 30, 1988, the labor arbiter rendered a decision, the dispositive portion of which
directed that "DBP as foreclosing creditor is hereby ordered to pay all the unpaid wages and
benefits of the workers which remain unpaid due to PSC's foreclosure." 3

On appeal by DBP, the NLRC sustained the ruling of the labor arbiter, holding DBP liable for
unpaid wages of private respondents "not as a majority stockholder of respondent PSC, but as the
foreclosing creditor who possesses the assets of said PSC by virtue of the auction sale it held in
1987." In addition, the NLRC held that the labor arbiter is correct in assuming jurisdiction
because "the worker's preference to the amount secured by DBP by virtue of said foreclosure
sales of PSC properties arose out of or are connected or interwoven with the labor dispute
brought forth by appellees against PSC and DBP. 4 Hence, the present petition by DBP.
DBP contends that the labor arbiter and the NLRC committed a grave abuse of discretion (1) in
assuming jurisdiction over DBP; (2) in applying the provisions of Article 110 of the Labor Code,
as amended; and (3) in not enforcing and applying Section 14 of Executive Order No. 81.

We find merit in the petition.

It is to be noted that in their comment, private respondents tried to prove the existence of
employer-employee relationship based on the fact that DBP is the majority stockholder of PSC
and that the majority of the members of the board of directors of PSC are from DBP. 5 We do not
believe that these circumstances are sufficient indicia of the existence of an employer-employee
relationship as would confer jurisdiction over the case on the labor arbiter, especially in the light
of the express declaration of said labor arbiter and the NLRC that DBP is being held liable as a
foreclosing creditor. At any rate, this jurisdictional defect was cured when DBP appealed the
labor arbiter's decision to the NLRC and thereby submitted to its jurisdiction.

The pivotal issue for resolution is whether DBP, as foreclosing creditor, could be held liable for
the unpaid wages, 13th month pay, incentive leave pay and separation pay of the employees of
PSC.

We rule in the negative.

During the dates material to the foregoing proceedings, Article 110 of the Labor Code read:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy

or liquidation of an employer's business, his workers shall enjoy first preference
as regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the contrary notwithstanding.
Unpaid wages shall be paid in full before other creditors may establish any claim
to a share in the assets of the employer.

In conjunction therewith, Section 10, Rule VIII, Book III of the Implementing Rules and
Regulations of the Labor Code provided:

Sec. 10. Payment of wages in mm of bankruptcy.-Unpaid wages earned by the

employees before the declaration of bankruptcy or judicial liquidation of the
employer's business shall be given first preference and shall be paid in full before
other creditors may establish any claim to a share in the assets of the employer.

Interpreting the above provisions, this Court, in Development Bank of the Philippines vs. Hon.
Labor Arbiter Ariel C. Santos, et al., 6 explicated as follows:

It is quite clear from the provisions that a declaration of bankruptcy or a judicial

liquidation must be present before the worker's preference may be enforced. ... .

xxx xxx xxx

 Moreover, the reason behind the necessity for a judicial proceeding or a
proceeding in rem before the concurrence and preference of credits may be
applied was explained by this Court in the case of Philippine Savings Bank v.
Lantin (124 SCRA 476 [1983]). We said:

The proceedings in the court below do not partake of the nature of

the insolvency proceedings or settlement of a decedent's estate.
The action filed by Ramos was only to collect the unpaid cost of
the construction of the duplex apartment. It is far from being a
general liquidation of the estate of the Tabligan spouses.

Insolvency proceedings and settlement of a decedent's estate are

both proceedings in rem which are binding against the whole
world. All persons having interest in the subject matter involved,
whether they were notified or not, are equally bound.
Consequently, a liquidation of similar import or 'other equivalent
general liquidation must also necessarily be a proceeding in rem so
that all interested persons whether known to the parties or not may
be bound by such proceeding.

In the case at bar, although the lower court found that 'there were
no known creditors other than the plaintiff and the defendant
herein,' this can not be conclusive. It will not bar other creditors in
the event they show up and present their claim against the
petitioner bank, claiming that they also have preferred liens against
the property involved. Consequently, Transfer Certificate of Title
No. 101864 issued in favor of the bank which is supposed to be
indefeasible would remain constantly unstable and questionable.
Such could not have been the intention of Article 2243 of the Civil
Code although it considers claims and credits under Article 2242
as statutory fines. Neither does the De Barreto case ...

The claims of all creditors whether preferred or non- preferred, the Identification
of the preferred ones and the totality of the employer's asset should be brought
into the picture. There can then be an authoritative, fair, and binding adjudication
instead of the piece meal settlement which would result from the questioned
decision in this case.

Republic Act No. 6715, which took effect on March 21, 1989, amended Article 110 of the Labor
Code to read as follows:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy

or liquidation of an employer's business, his workers shall enjoy first preference
as regards their unpaid wages and other monetary claims, any provision of law to
the contrary notwithstanding. Such unpaid wages and monetary claims shall be
paid in full before the claims of the Government and other creditors may be paid.
As a consequence, Section 1 0, Rule VIII, Book III of the Implementing Rules and Regulations
of the Labor Code was likewise amended, to wit:

Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. —
In case of bankruptcy or liquidation of the employer's business, the unpaid wages
and other monetary claims of the employees shall be given first preference and
shall be paid in full before the claims of government and other creditors may be
paid.

Despite said amendments, however, the same interpretation of Article 110 as applied in the
aforesaid case of Development Bank of the Philippines vs. Hon. Labor Arbiter Ariel C. Santos, et
al., supra, was adopted by this Court in the recent case of Development Bank of the Philippines
vs. National Labor Relations Commission, et. al., 7 For facility of reference, especially the
rationalization for the conclusions reached therein, we reproduce the salient portions of the
decision in this later case.

Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have been

eliminated. Does this means then that liquidation proceedings have been done
away with?

We opine m the negative, upon the following considerations:

1. Because of its impact on the entire system of credit, Article 110 of the Labor
Code cannot be viewed in isolation but must be read in relation to the Civil Code
scheme on classification and preference of credits.

Article 110 of the Labor Code, in determining the reach of its

terms, cannot be viewed in isolation. Rather, Article 110 must be
read in relation to the provisions of the Civil Code concerning the
classification, concurrence and preference of credits which
provisions find particular application in insolvency proceedings
where the claims of all creditors, preferred or non-preferred, may
be adjudicated in a binding manner ... (Republic vs. Peralta (G.R.
No. L-56568, May 20, 1987, 150 SCRA 37).

2. In the same way that the Civil Code provisions on classification of credits and
the Insolvency Law have been brought into harmony, so also must the kindred
provisions of the Labor Law be made to harmonize with those laws.

3. In the event of insolvency, a principal objective should be to effect an equitable

distribution of the insolvent's property among his creditors. To accomplish this
there must first be some proceeding where notice to all of the insolvent's creditors
may be given and where the claims of preferred creditors may be bindingly
adjudicated (De Barretto vs. Villanueva, No. L-14938, December 29, 1962, 6
SCRA 928). The rationale therefor has been expressed in the recent case of DBP
vs. Secretary of Labor (G.R. No. 79351, 28 November 1989), which we quote:
 A preference of credit bestows upon the preferred creditor an
advantage of having his credit satisfied first ahead of other claims
which may be established against the debtor. Logically, it becomes
material only when the properties and assets of the debtors are
insufficient to pay his debts in full; for if the debtor is amply able
to pay his various creditors, in full, how can the necessity exist to
determine which of his creditors shall be paid first or whether they
shall be paid out of the proceeds of the sale of the debtor's specific
property? Indubitably, the preferential right of credit attains
significance only after the properties of the debtor have been
inventoried and liquidated, and the claims held by his various
creditors have been established (Kuenzle & Streiff [Ltd.] vs.
Villanueva, 41 Phil. 611 [1916]; Barretto vs. Villanueva, G.R. No.
14038, 29 December 1962, 6 SCRA 928; Philippine Savings Bank
vs. Lantin, G.R. 33929, 2 September 1983,124 SCRA 476).

4. A distinction should be made between a preference of credit and a lien. A

preference applies only to claims which do not attach to specific properties. A hen
creates a charge on a particular property. The right of first preference as regards
unpaid wages recognize by Article 110 does not constitute a hen on the property
of the insolvent debtor in favor of workers. It is but a preference of credit in their
favor, a preference in application. It is a met-hod adopted to determine and
specify the order in which credits should be paid in the final distribution of the
proceeds of the insolvent's assets- It is a right to a first preference in the discharge
of the funds of the judgment debtor. in the words of Republic vs. Peralta, supra:

Article 110 of the Labor Code does not purport to create a lien in
favor of workers or employees for unpaid wages either upon all of
the properties or upon any particular property owned by their
employer. Claims for unpaid wages do not therefore fall at all
within the category of specially preferred claims established under
Articles 2241 and 2242 of the Civil Code, except to the extent that
such claims for unpaid wages are already covered by Article 2241,
number 6: 'claims for laborers' wages, on the goods manufactured
or the work done; or by Article 2242, number 3: 'claims of laborers
and other workers engaged in the construction, reconstruction or
repair of buildings, canals and other works, upon said buildings,
canals or other works.' To the extent that claims for unpaid wages
fall outside the scope of Article 2241, number 6 and Article 2242,
number 3, they would come within the ambit of the category of
ordinary preferred credits under Article 2244.'

5. The DBP anchors its claim on a mortgage credit. A mortgage directly and
immediately subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation for whose security it was
constituted (Article 2176, Civil Code). It creates a real right which is enforceable
 against the whole world. It is a lien on an Identified immovable property, which a
preference is not. A recorded mortgage credit is a special preferred credit under
Article 2242 (5) of the Civil Code on classification of credits. The preference
given by Article 110, when not falling within Article 2241 (6) and Article 2242
(3) of the Civil Code and not attached to any specific property, is an ordinary
preferred credit although its impact is to move it from second priority to first
priority in the order of preference established by Article 2244 of the Civil Code
(Republic vs. Peralta, supra).

In fact, under the Insolvency Law (Section 29) a creditor holding a mortgage or
hen of any kind as security is not permitted to vote in the election of the assignee
in insolvency proceedings unless the value of his security is first fixed or he
surrenders all such property to the receiver of the insolvent's estate.

6. Even if Article 110 and its Implementing Rule, as amended, should be

interpreted to mean 'absolute preference,' the same should be given only
prospective effect in line with the cardinal rule that laws shall have no retroactive
effect, unless the contrary is provided (Article 4, Civil Code). Thereby, any
infringement on the constitutional guarantee on non-impairment of obligation of
contracts (Section 10, Article III, 1987 Constitution) is also avoided. In point of
fact, DBP's mortgage credit antedated by several years the amendatory law, RA
No. 6715. To give Article 110 retroactive effect would be to wipe out the
mortgage in DBPs favor and expose it to a risk which it sought to protect itself
against by requiring a collateral in the form of real property.

In fine, the right to preference given to workers under Article 110 of the Labor
Code cannot exist in any effective way prior to the time of its presentation in
distribution proceedings. It will find application when, in proceedings such as
insolvency, such unpaid wages shall be paid in full before the 'claims of the
Government and other creditors' may be paid. But, for an orderly settlement of a
debtor's assets, all creditors must be convened, their claims ascertained and
inventoried, and thereafter the preference determined in the course of judicial
proceedings which have for their object the subjection of the property of the
debtor to the payment of his debts or other lawful obligations. Thereby, an orderly
determination of preference of creditors' claims is assured (Philippine Savings
Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the
adjudication made will be binding on all parties-in-interest, since those
proceedings are proceedings in rem; and the legal scheme of classification,
concurrence and preference of credits in the Civil Code, the Insolvency Law, and
the Labor Code is preserved in harmony.

On the foregoing considerations and it appearing that an involuntary insolvency proceeding has
been instituted against PSC, private respondents should properly assert their respective claims in
said proceeding. .
WHEREFORE, the petition is GRANTED. The decision of public respondent is hereby
ANNULLED and SET ASIDE.

SO ORDERED.

C. Attorney’s Fees and Appearance of Lawyers

JOSE MAX S. ORTIZ, G.R. No. 151983-84

Petitioner, Present:

YNARES-
SANTIAGO, J.,Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
- versus - REYES, and
DE CASTRO,* JJ.

Promulgated:

SAN MIGUEL CORPORATION, July 31, 2008

Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This case is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules
of Civil Procedure seeking to modify or partially reconsider the Decision[1] dated 22 August
2001 and Resolution[2] dated 9 January 2002 of the Court of Appeals in CA-G.R. SP No. 54576-
77, insofar as the award of attorneys fees is concerned. Herein petitioner Jose Max S. Ortiz
prays that this Court affirm the award of attorneys fees equivalent to 10% of the monetary award
adjudged by the National Labor Relations Commission (NLRC) in its Decisions dated 21 July
1995 and 25 July 1995 in NLRC Cases No. V-0255-94[3] and No. V-0068-
95,[4] respectively. Petitioner asserts that he is entitled to the said attorneys fees.
 Petitioner is a member of the Philippine Bar who represented the complainants in NLRC
Cases No. V-0255-94 and No. V-0068-95 instituted against herein private respondent San Miguel
Corporation sometime in 1992 and 1993.

Private respondent, on the other hand, is a corporation duly organized and existing under
and by virtue of the laws of the Republic of the Philippines. It is primarily engaged in the
manufacture and sale of food and beverage particularly beer products. In line with its business, it
operates breweries and sales offices throughout the Philippines.[5] The complainants in NLRC
Cases No. V-0255-94 and No. V-0068-95 were employees at private respondents Sales Offices in
the provinces.

NLRC Case No. V-0255-94 (Aguirre Cases)

In 1992, several employees from the Bacolod, Cadiz, and Himamaylan Beer Sales Offices filed
with the Labor Arbiter separate complaints against private respondent for illegal dismissal with
prayer for reinstatement with backwages; elevation of employment status from casual-temporary
to regular-permanent reckoned after six months from the start of complainants employment;
underpayment of salaries; non-payment of holiday pay, service incentive leave pay, allowances
and sick leaves; non-payment of benefits under the existing Collective Bargaining Agreements
(CBA); attorneys fees; moral, exemplary and other damages; and interest. The foregoing
complaints were consolidated and initially docketed as RAB Cases No. 06-01-10031-92; 06-01-
10048-92; 06-01-10049-92; 06-02-10210-92; 06-02-10211-92; and 06-03-10255-92 (hereinafter
collectively referred to as the Aguirre Cases). After conducting a full-blown trial, the parties were
given the opportunity to submit their respective memoranda. Subsequently, the cases were
submitted for resolution.

On 30 June 1994, Labor Arbiter Reynaldo J. Gulmatico (Labor Arbiter Gulmatico)

rendered a Decision[6] in the Aguirre Cases finding all the complainants to have been illegally
dismissed. He ordered complainants reinstatement to their previous or equivalent positions without
loss of seniority rights. He also ordered private respondent to pay the complainants (1) full
backwages and other CBA benefits in the total amount of P6,197,952.88; (2) rice subsidy or its
monetary equivalent; and (3) attorneys fees equivalent to 10% of the monetary award or in
the amount of P619,795.28. Labor Arbiter Gulmatico, however, dismissed complainants claim
for overtime pay, holiday pay, 13th month pay differential, service incentive leave pay, moral
damages and all other claims for lack of merit.[7]
 Unsatisfied with Labor Arbiter Gulmaticos monetary and economic awards, complainants
appealed to the NLRC, where the Aguirre Cases were collectively docketed as NLRC Case No.
V-0255-94. The NLRC would later render a Decision dated 21 July 1995 in the Aguirre
Cases affirming the Decision of Labor Arbiter Gulmatico, with the following modifications: (1)
granting sales commission to the complainants and adopting their computation thereof in their
Appeal Memorandum[8] filed before the NLRC; (2) adjusting and/or reducing the amounts
awarded to complainants Alfredo Gadian, Jr., Renato Junsay, Agustines Llacuna, and Florencio
de la Piedra depending on the dates they were employed; (3) determining that Modesto Jabaybay,
who died on 28 December 1993, was to receive only the amount of P356,128.02; (4) declaring that
all the complainants except Romeo Magbanua, who withdrew his complaint,were entitled to
whatever benefits were given under the CBA; and (5) that complainants Romeo Magbanua and
Modesto Jabaybay shall no longer be reinstated.[9]

Private respondent moved for the reconsideration of the aforesaid 21 July 1995 NLRC Decision,
but its motion was denied by the NLRC in its Resolution[10] dated 27 February 1996.

NLRC Case No. V-0068-95 (Toquero Case)

While the Aguirre Cases were still pending resolution by Labor Arbiter Gulmatico, three
other employees at the San Carlos Sales Office filed with the Labor Arbiter a similar complaint
for illegal dismissal against private respondent in 1993. Their complaint was docketed as RAB
Case No. 06-07-10404-93 (hereinafter referred to as the Toquero Case).

On 26 December 1994, Labor Arbiter Ray Allan T. Drilon (Labor Arbiter Drilon) rendered his
Decision[11] in the Toquero Case also ruling that the three complainants were illegally
dismissed. Thus, he ordered the complainants immediate reinstatement to their former positions
without loss of seniority rights. He ordered private respondent to pay complainants (1) backwages
and other benefits in the amount of P572,542.50; (2) all benefits, privileges and rights enjoyed by
the private respondents regular employees in the total amount of P339,055.00; (3) a total of 159
sacks of rice ration; (4) sales commissions based on the monthly sales of beer sold by their
office for the last three years; and (5) attorneys fees in the amount of P91,159.75.[12]

Again, the complainants were not contented with Labor Arbiter Drilons Decision, and they
appealed their case to the NLRC which was then docketed as NLRC Case No. V-0068-95. On 25
July 1995, the NLRC rendered a Decision modifying the 26 December 1994 Decision of Labor
Arbiter Drilon by ordering the private respondent to pay the complainants the following: (1)
additional awards of sales commission; (2) tailoring allowance; (3) monetary equivalent of their
uniform for two years consisting of 24 sets of t-shirts and 6 pairs of pants; and (4) attorneys fees
of 10% of the total monetary award or P198,296.95.[13]

In its Resolution[14] dated 9 October 1995, the NLRC partially granted private respondents motion
for reconsideration by allowing the deduction from the award of backwages any earnings of
complainants elsewhere during the pendency of their case.[15]

CA-G.R. SP No. 54576-77

Failing to get a favorable ruling from the NLRC in both the Aguirre and Toquero Cases, private
respondent elevated the NLRC Decisions to this Court via a Petition for Certiorari, where they
were docketed as G.R. No. 124426[16] and G.R. No. 122975, respectively.[17] On 15 July 1996, this
Court issued a Resolution[18] consolidating the two cases. In another Resolution[19] dated 30 June
1999, this Court referred the said cases to the Court of Appeals conforming to its ruling in St.
Martin Funeral Home v. NLRC and Bienvenido Aricayos.[20] The Court of Appeals accepted the
consolidated cases in its Resolution[21] dated 7 September 1999, and docketed the same as CA-
G.R. SP No. 54576-77.

While the private respondents Petitions for Certiorari were pending before the Court of Appeals,
all but one of the remaining complainants in the Aguirre and Toquero Cases appeared on various
dates before Labor Arbiters Gulmatico and Drilon, and in the presence of two witnesses, signed
separate Deeds of Release, Waiver and Quitclaim[22] in favor of private respondent.Based on the
Deeds they executed, the complainants agreed to settle their claims against private respondent for
amounts less than what the NLRC actually awarded. Private respondent withheld 10% of the total
amount agreed upon by the parties in the said Deeds as attorneys fees and handed it over to
petitioner.

Private respondent then attached the Deeds of Release, Waiver and Quitclaim to its Manifestation
and Motion[23] filed before the appellate court. On 22 August 2001, the Court of Appeals rendered
a Decision[24] in CA-G.R. SP No. 54576-77 affirming the NLRC Decision dated 21 July 1995 and
Resolution dated 27 February 1996 in the Aguirre Cases, only insofar as it concerned complainant
Alfredo Gadian, Jr. (complainant Gadian), the only complainant who did not execute a Deed of
Release, Waiver and Quitclaim. With respect to the other complainants in
the Aguirre and Toquero Cases, their complaints were dismissed on account of their duly executed
Deeds of Release, Waiver and Quitclaim.[25]

Private respondent moved for the partial reconsideration of the 22 August 2001 Decision of the
Court of Appeals, seeking the reversal and setting aside of the 22 August 2001 Decision of the
Court of Appeals in CA-G.R. SP. No. 54576-77, which affirmed the 21 July 1995 Decision and
27 February 1996 Resolution of the NLRC in the Aguirre Cases, insofar as complainant Gadian
was concerned; and the dismissal of complainant Gadians complaint against private respondent
for lack of merit.[26] Complainant Gadian and his counsel, herein petitioner, for their part, likewise
moved for the partial reconsideration of the same Decision of the appellate court praying that the
award of attorneys fees of 10% should be based on the monetary awards adjudged by the
NLRC.[27] In a Resolution[28] dated 9 January 2002, the appellate court denied both motions.

G.R. No. 151421 and No. 151427

Private respondent appealed before this Court by filing a Petition for Review, docketed as
G.R. No. 151421 and No. 151427. However, private respondents Petition was denied due course
by this Court in a Resolution[29] dated 18 March 2002 for failure of the private respondent to show
that a reversible error had been committed by the appellate court. The Court also denied private
respondents motion for reconsideration.[30] The denial of the private respondents Petition in G.R.
No. 151421 and No. 151427 became final and executory on 24 July 2002.[31]

G.R. No. 151983-84

Petitioner filed this present Petition for Review on his own behalf, docketed as G.R. No. 151983-
84, praying that this Court grant him attorneys fees equivalent to those awarded by the NLRC in
the Aguirre and Toquero Cases. He makes the following lone assignment of error in his Petition:

THE HONORABLE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED

GRAVE ABUSE OF DISCRETION IN NOT AWARDING ATTORNEYS FEES
BASED ON THE ORIGINAL AWARD MADE BY THE NLRC-FOURTH
DIVISON.[32]

In his Memorandum,[33] petitioner posits the following issues:

I. WHETHER THE PRESENT PETITION RAISES A QUESTION

OF LAW.
 II. WHETHER PETITIONER IS A REAL PARTY IN INTEREST TO
FILE THE PRESENT PETITION.

III. WHETHER PETITIONER IS ENTITLED TO ADDITIONAL

ATTORNEYS FEES ON TOP OF WHAT WAS ALREADY RECEIVED.[34]

Petitioner alleges that the Decision of the appellate court was prejudicial only insofar as it
failed to grant 10% attorneys fees based on the monetary and economic awards adjudged by the
NLRC in its Decisions in the Aguirre and Toquero Cases. Considering that the only complainant
who did not execute a Deed of Release, Waiver and Quitclaim, namely, complainant Gadian,
obtained a favorable judgment from the Court of Appeals, he was no longer interested in pursuing
an appeal; and petitioner is, thus, constrained to bring the present Petition, with himself as
the forced petitioner, for the purpose of recovering the aforesaid attorneys fees.

In the instant Petition, petitioner is claiming additional attorneys fees, representing the difference
between the amount as decreed in the NLRC Decisions in the Aguirre and Toquero Casesand the
amount he already received from private respondent, equivalent to the 10% attorneys fees the latter
withheld from the amounts it actually paid to the complainants who signed the Deeds of Release,
Waiver and Quitclaim.

Petitioner avows that he is entitled to attorneys fees based on the monetary awards as stated in the
Decisions of the NLRC in the Aguirre and Toquero Cases because (1) the Deeds of Release,
Waiver and Quitclaim executed by all but one of the complainants during the pendency of CA-
G.R. SP. No. 54576-77 before the Court of Appeals were done without his conformity; (2) he,
together with his assistant lawyers, had invested substantial time and effort for more than seven or
eight years and even spent considerable amounts of personal money for the prosecution of these
consolidated cases from the Labor Arbiter up to this Court; hence, it would be grossly unfair for
the petitioner to receive only 10% of the financial assistance given to the complainants by virtue
of the Deeds of Release, Waiver and Quitclaim they signed; and (3) petitioners right to attorneys
fees has become vested after rendering painstaking legal services to the complainants, making him
and his collaborating counsels entitled to the full amount of attorneys fees as awarded by the
NLRC.

While this Court concedes that the instant Petition for Review raises a question of law, it denies
the Petition for lack of merit and lack of petitioners standing to file the same.
This Court has consistently ruled that a question of law exists when there is a doubt or controversy
as to what the law is on a certain state of facts. On the other hand, there is a question of fact when
the doubt or difference arises as to the alleged truth or falsehood of the alleged facts. For a question
to be one of law, it must involve no examination of the probative value of the evidence presented
by the litigants or any of them.[35] The test of whether a question is one of law or of fact is not the
appellation given to such question by the party raising the same; rather, it is whether the appellate
court can determine the issue raised without reviewing or evaluating the evidence, in which case,
it is a question of law; otherwise, it is a question of fact.[36]

In the case at bar, the core issue presented by the petitioner is with respect to the amount of
attorneys fees to which he should be entitled: whether he is entitled to the amount of attorneys fees
as adjudged by the NLRC in its Decisions in the Aguirre and Toquero Cases or only to the 10%
of the amounts actually paid to his clients, the complainants who signed the Deeds of Release,
Waiver and Quitclaim.

The aforesaid issue evidently involves a question of law. In determining whether the petitioner
should be entitled to the attorneys fees stated in the NLRC Decisions, this Court does not need to
go over the pieces of evidence submitted by the parties in the proceedings below to determine their
probative value. What it needs to do is ascertain and apply the relevant law and jurisprudence on
the award of attorneys fees to the prevailing parties in labor cases.

Article 111 of the Labor Code, as amended, specifically provides:

ART. 111. ATTORNEYS FEES. - (a) In cases of unlawful withholding of wages the
culpable party may be assessed attorneys fees equivalent to ten percent of the
amount of wages recovered.
(b) It shall be unlawful for any person to demand or accept, in any judicial or administrative
proceedings for the recovery of the wages, attorneys fees which exceed ten percent
of the amount of wages recovered.(Emphasis supplied.)

In PCL Shipping Philippines, Inc. v. National Labor Relations Commission[37] citing Dr. Reyes v.
Court of Appeals,[38] this Court enunciated that there are two commonly accepted concepts of
attorneys fees, the so-called ordinary and extraordinary. In its ordinary concept, an attorneys fee
is the reasonable compensation paid to a lawyer by his client for the legal services the former has
rendered to the latter. The basis of this compensation is the fact of the attorneys employment by
and his agreement with the client. In its extraordinary concept, attorneys fees are deemed
indemnity for damages ordered by the court to be paid by the losing party in a litigation. The
instances in which these may be awarded are those enumerated in Article 2208 of the Civil Code,
specifically paragraph 7[39] thereof, which pertains to actions for recovery of wages, and is payable
not to the lawyer but to the client, unless they have agreed that the award shall pertain to the
lawyer as additional compensation or as part thereof.[40] Article 111 of the Labor Code, as
amended, contemplates the extraordinary concept of attorneys fees.

Still according to PCL Shipping, Article 111 is an exception to the declared policy of strict
construction in the awarding of attorneys fees. Although express findings of fact and law are 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. In carrying out and interpreting the Labor
Codes provisions and implementing regulations, the employees welfare should be the primordial
and paramount consideration. This kind of interpretation gives meaning and substance to the
liberal and compassionate spirit of the law as provided in Article 4 of the Labor Code, which states
that all doubts in the implementation and interpretation of the provisions of the Labor Code
including its implementing rules and regulations, shall be resolved in favor of labor; and Article
1702 of the Civil Code, which provides that in case of doubt, all labor legislation and all labor
contracts shall be construed in favor of the safety and decent living for the laborer.[41]

Based on the foregoing, the attorneys fees awarded by the NLRC in its Decisions in
the Aguirre and Toquero Cases pertain to the complainants, petitioners clients, as indemnity for
damages; and not to petitioner as compensation for his legal services. Records show that
the petitioner neither alleged nor proved that his clients, the complainants, willingly agreed that
the award of attorneys fees would accrue to him as an additional compensation or part thereof.

What the complainants explicitly agreed to in their individual Deeds of Release, Waiver,
and Quitclaim was that the 10% attorneys fees of the petitioner shall be deducted from the amount
of the gross settlement. Provision 8 of the Deeds of Release, Waiver and Quitclaim reads:

8. x x x. As a client, I have the right to decide on the matter of whether to settle my

case and the amount of the settlement, which right I am now exercising without
prejudice to my counsels claim to the legally mandated 10% attorneys fees. As a
matter of fact, I had requested and [herein private respondent] has complied
with it, that [private respondent] deduct from the gross settlement 10%
representing attorneys fees of [herein petitioner] and make a check payable to
the latter in such amount.[42] (Emphasis supplied.)
The foregoing provision cannot be taken to mean that the complainants concerned agreed that the
attorneys fees awarded by the NLRC pertained to petitioner as additional compensation or part
thereof since (1) the Deeds were executed between complainants and private respondent, the
petitioner was not even a party to the said documents; and (2) private complainants request that
private respondent withhold 10% attorneys fees to be payable to petitioner was in relation to the
amount of gross settlement under the Deeds and not to the amounts awarded by the NLRC. In fact,
petitioner challenges the due execution of the Deeds, and may not now take an inconsistent position
by using the provisions of the very same Deeds as proof that complainants impliedly or expressly
agreed that the attorneys fees awarded by the NLRC pertained to him under the ordinary concept
of attorneys fees.

Thus, this Court has no recourse but to interpret the award of attorneys fees by the NLRC
in its extraordinary concept. And since the attorneys fees pertained to the complainants as
indemnity for damages, it was totally within the complainants right to waive the amount of said
attorneys fees and settle for a lesser amount thereof in exchange for the immediate end to
litigation. Petitioner cannot prevent complainants from compromising and/or withdrawing their
complaints at any stage of the proceedings just to protect his anticipated attorneys fees.

Even assuming arguendo that the complainants in the Aguirre and Toquero Cases did
indeed agree that the attorneys fees awarded by the NLRC should be considered in their ordinary
concept, i.e., as compensation for petitioners services, we refer back to Article 111 of the Labor
Code, as amended, which provides that the attorneys fees should be equivalent to 10% of the
amount of wages recovered. Since the complainants decided to settle their complaints against the
private respondent, the amounts actually received by them pursuant to the Deeds of Release,
Waiver and Quitclaim are the amounts recovered and the proper basis for determining the 10%
attorneys fees.

Petitioner cannot claim further to be a real party in interest herein for the very same reasons
already discussed above.

It is elementary that it is only in the name of a real party in interest that a civil suit may be
prosecuted.[43] Section 2, Rule 3 of the 1997 Revised Rules of Civil Procedure, as amended,
provides:
 SEC. 2. Parties in interest. A real party in interest is the party who stands
to be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit. Unless otherwise authorized by law or these Rules, every action
must be prosecuted or defended in the name of the real party in interest.

The established rule is that a real party in interest is one who would be benefited or injured by the
judgment, or one entitled to the avails of the suit. The word interest, as contemplated by the Rules,
means material interest or an interest in issue and to be affected by the judgment, as distinguished
from mere interest in the question involved or a mere incidental interest. Stated differently, the
rule refers to a real or present substantial interest as distinguished from a mere expectancy or a
future, contingent, subordinate, or consequential interest. As a general rule, one who has no right
or interest to protect cannot invoke the jurisdiction of the court as party-plaintiff in an action.[44]

The afore-quoted rule has two requirements: 1) to institute an action, the plaintiff must be
the real party in interest; and 2) the action must be prosecuted in the name of the real party in
interest. Necessarily, the purposes of this provision are 1) to prevent the prosecution of actions by
persons without any right or title to or interest in the case; 2) to require that the actual party entitled
to legal relief be the one to prosecute the action; 3) to avoid a multiplicity of suits; and 4) to
discourage litigation and keep it within certain bounds, pursuant to sound public policy.[45]

In the case at bar, it is beyond cavil that the petitioner is not the real party in interest; hence,
he cannot file this Petition to recover the attorneys fees as adjudged by the NLRC in its Decisions
dated 21 July 1995 and 25 July 1995 in the Aguirre and Toquero Cases, respectively. To reiterate,
the award of attorneys fees pertain to the prevailing parties in the NLRC cases, namely, the
complainants, all but one of whom no longer pursued their complaints against private respondent
after executing Deeds of Release, Waiver and Quitclaim. Not being the party to whom the NLRC
awarded the attorneys fees, neither is the petitioner the proper party to question the non-awarding
of the same by the appellate court.

In addition, as found by the Court of Appeals, when the complainants executed their
respective Deeds of Release, Waiver and Quitclaim, petitioner already received attorneys fees
equivalent to 10% of the amounts paid to the complainants in accordance with the Deeds, as
evidenced by several cash vouchers and checks payable to petitioner[46] and signed by his
representative.[47] Even petitioner himself admitted this fact.
 This would show that petitioner has been compensated for the services he rendered the
complainants. It may do well for petitioner to remember that as a lawyer, he is a member of an
honorable profession, the primary vision of which is justice. The practice of law is a decent
profession and not a money-making trade. Compensation should be but a mere incident.[48]
If petitioner earnestly believes that the amounts he already received are grossly deficient,
considering the substantial time and efforts he and his assistant lawyers invested, as well as the
personal money he expended for the prosecution of complainants cases for more than seven or
eight years, then petitioners remedy is not against the private respondent, but against his own
clients, the complainants. He should file a separate action for collection of sum of money against
complainants to recover just compensation for his legal services, and not the present Petition for
Review to claim from private respondent the attorneys fees which were adjudged by the NLRC in
favor of complainants as the prevailing parties in the Aguirre and Toquero Cases.

Finally, as stated earlier, petitioner assails the Deeds of Release, Waiver and Quitclaim
executed by the complainants for being executed without his conformity and, thus, in violation of
the requirements of the Labor Code. Such argument is specious.

There is no specific provision in the Labor Code, as amended, which requires the
conformity of petitioner, as the complainants counsel, to make their Deeds of Release, Waiver and
Quitclaim valid. The only requisites for the validity of any Deed of Release, Waiver and Quitclaim
are the following: (1) that there was no fraud or deceit on the part of any of the parties; (2) that the
consideration for the quitclaim is credible and reasonable; and (3) that the contract is not contrary
to law, public order, public policy, morals or good customs or prejudicial to a third person with a
right recognized by law.[49] In this case, it cannot be questioned that those requisites were
completely satisfied, making the Deeds of Release, Waiver and Quitclaim individually executed
by the complainants valid.

Moreover, both the NLRC and the Court of Appeals found the Deeds of Release, Waiver
and Quitclaim to be validly and willfully executed by the complainants. The Court of Appeals
ruled:

Further, as correctly stated by the [herein private respondent], to wit:

The separate Deeds of Release, Waiver and Quitclaim were

all executed and signed by the private respondents concerned before
the Labor Arbiter, Hon. Reynaldo Gulmatico, who handled the
case a quo and rendered the decision in favor of [complainants
 therein]. As a matter of course, a Labor Arbiter asks, and even
explains, to the person executing a quitclaim before him about the
contents and the implications thereof. It is only after the Labor
Arbiter has satisfied himself that the quitclaim involved was
voluntarily executed by the person concerned and that there is a
substantial consideration involved would he sign it.

While quitclaims executed by employees are commonly frowned upon as

contrary to public policy and are ineffective to bar claims for the full measure of
the employees legal rights, there are legitimate waivers that represent a voluntary
and reasonable settlement of laborers claims which should be respected by the
courts as the law between the parties.[50]

WHEREFORE, premises considered, the instant Petition is hereby DENIED. Costs

against petitioner.

SO ORDERED.

G.R. No. 153031 December 14, 2006

PCL SHIPPING PHILIPPINES, INC. and U-MING MARINE TRANSPORT

CORPORATION, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and STEVE RUSEL, respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the Decision1 of the Court of Appeals (CA) dated December 18, 2001 in CA-G.R. SP
No. 59976, which affirmed the Decision of the National Labor Relations Commission (NLRC)
dated March 22, 2000 in NLRC NCR CA No. 018120-99; and the Resolution of the CA dated
April 10, 2002, denying petitioners' motion for reconsideration.2

The facts of the case, as found by the CA, are as follows:

In April 1996, Rusel was employed as GP/AB seaman by manning agency, PCL
Shipping Philippines, Inc. (PCL Shipping) for and in behalf of its foreign principal, U-
Ming Marine Transport Corporation (U-Ming Marine). Rusel thereby joined the vessel
MV Cemtex General (MV Cemtex) for the contract period of twelve (12) months with a
basic monthly salary of US$400.00, living allowance of US$140.00, fixed overtime rate
of US$120.00 per month, vacation leave with pay of US$40.00 per month and special
allowance of US$175.00.

On July 16, 1996, while Rusel was cleaning the vessel's kitchen, he slipped, and as a
consequence thereof, he suffered a broken and/or sprained ankle on his left foot. A
request for medical examination was flatly denied by the captain of the vessel. On August
13, 1996, feeling an unbearable pain in his ankle, Rusel jumped off the vessel using a life
jacket and swam to shore. He was brought to a hospital where he was confined for eight
(8) days.

On August 22, 1996, a vessel's agent fetched Rusel from the hospital and was required to
board a plane bound for the Philippines.

On September 26, 1996, Rusel filed a complaint for illegal dismissal, non-payment of
wages, overtime pay, claim for medical benefits, sick leave pay and damages against PCL
Shipping and U-Ming Marine before the arbitration branch of the NLRC. In their answer,
the latter alleged that Rusel deserted his employment by jumping off the vessel.

On July 21, 1998, the labor arbiter rendered his decision, the dispositive portion of which
reads as follows:

Wherefore, above premises duly considered we find the respondent liable for
unjust repatriation of the complainant.

Accordingly, the following award is hereby adjudged against the respondent:

1. The amount of $2,625.00 or its peso equivalent at the time of payment

representing three (3) months salary of the complainant due to his illegal
dismissal.

2. The amount of $1,600.00 or its peso equivalent, representing sick wage

benefits.

3. The amount of $550.00 or its peso equivalent, representing living allowance,

overtime pay and special allowance for two (2) months.

4. The amount of $641.66 or its peso equivalent, representing unpaid wages from
August 11 to 22, 1996.

5. Attorney's fees equivalent to 10% of the total monetary award.

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

SO ORDERED.3

Aggrieved by the Decision of the Labor Arbiter, herein petitioners appealed to the NLRC. In its
Decision dated March 22, 2000, the NLRC affirmed the findings of the Labor Arbiter but
modified the appealed Decision, disposing as follows:

WHEREFORE, premises considered, the assailed decision is as it is hereby ordered

MODIFIED in that the amount representing three months salary of the complainant due
to his illegal dismissal is reduced to US$1,620.00. Further the award of sick wage benefit
is deleted.

All other dispositions are AFFIRMED.

SO ORDERED.4

Petitioners filed a Motion for Reconsideration but the NLRC denied the same in its Decision of
May 3, 2000.5

Petitioners filed a petition for certiorari with the CA.6 In its Decision dated December 18, 2001,
the CA dismissed the petition and affirmed the NLRC Decision.7

Petitioners filed a Motion for Reconsideration but it was denied by the CA in its Resolution
dated April 10, 2002.8

Hence, the instant petition with the following assignment of errors:

I. The Court of Appeals erred in ruling that private respondent was illegally dismissed
from employment.

xxxx

II. Likewise, the Court of Appeals erred in not upholding petitioners' right to pre-
terminate private respondent's employment.

xxxx

III. The private respondent is not entitled to other money claims, particularly as to the
award of attorney's fees.9

As to their first assigned error, petitioners contend that the CA erred in affirming the findings of
the NLRC that Rusel's act of jumping ship does not establish any intent on his part to abandon
his job and never return. Petitioners argue that Rusel's very act of jumping from the vessel and
swimming to shore is evidence of highest degree that he has no intention of returning to his job.
Petitioners further contend that if Rusel was indeed suffering from unbearable and unmitigated
pain, it is unlikely that he is able to swim two (2) nautical miles, which is the distance between
their ship and the shore, considering that he needed to use his limbs in swimming. Petitioners
further assert that it is error on the part of the CA to disregard the entries contained in the
logbook and in the Marine Note Protest evidencing Rusels' offense of desertion because while
these pieces of evidence were belatedly presented, the settled rule is that additional evidence may
be admitted on appeal in labor cases. Petitioners also contend that Rusel's act of desertion is a
grave and serious offense and considering the nature and situs of employment as well as the
nationality of the employer, the twin requirements of notice and hearing before an employee can
be validly terminated may be dispensed with.

As to their second assigned error, petitioners contend that assuming, for the sake of argument,
that Rusel is not guilty of desertion, they invoked the alternative defense that the termination of
his employment was validly made pursuant to petitioners' right to exercise their prerogative to
pre-terminate such employment in accordance with Section 19(C) of the Standard Terms and
Conditions Governing the Employment of Filipino Seafarers On-Board Ocean-Going Vessels,
which provision was incorporated in Rusel's Contract of Employment with petitioners.
Petitioners assert that despite the fact that this issue was raised before the CA, the appellate court
failed to resolve the same.

Anent the last assigned error, petitioners argue that it is error on the part of the CA to affirm the
award of living allowance, overtime pay, vacation pay and special allowance for two months
because Rusel failed to submit substantial evidence to prove that he is entitled to these awards.
Petitioners further argue that these money claims, particularly the claim for living allowance,
should not be granted because they partake of the nature of earned benefits for services rendered
by a seafarer. Petitioners also contend that the balance of Rusel's wages from August 11-22,
1996 should be applied for the payment of the costs of his repatriation, considering that under
Section 19(E) of the Standard Terms and Conditions Governing the Employment of Filipino
Seafarers On-Board Ocean-Going Vessels, when a seafarer is discharged for any just cause, the
employer shall have the right to recover the costs of his replacement and repatriation from the
seafarer's wages and other earnings. Lastly, petitioners argue that the award of attorney's fees
should be deleted because there is nothing in the decision of the Labor Arbiter or the NLRC
which states the reason why attorney's fees are being awarded.

In his Comment, private respondent contends that petitioners are raising issues of fact which
have already been resolved by the Labor Arbiter, NLRC and the CA. Private respondent argues
that, aside from the fact that the issues raised were already decided by three tribunals against
petitioners' favor, it is a settled rule that only questions of law may be raised in a petition for
review on certiorari under Rule 45 of the Rules of Court. While there are exceptions to this rule,
private respondent contends that the instant case does not fall under any of these exceptions.
Private respondent asserts that petitioners failed to substantiate their claim that the former is
guilty of desertion. Private respondent further contends that the right to due process is available
to local and overseas workers alike, pursuant to the provisions of the Constitution on labor and
equal protection as well as the declared policy contained in the Labor Code. Private respondent
argues that petitioners' act of invoking the provisions of Section 19(C) of the POEA Contract as
an alternative defense is misplaced and is inconsistent with their primary defense that private
respondent was dismissed on the ground of desertion. As to the award of attorney's fees, private
respondent contends that since petitioners' act compelled the former to incur expenses to protect
his interest and enforce his lawful claims, and because petitioners acted in gross and evident bad
faith in refusing to satisfy private respondent's lawful claims, it is only proper that attorney's fees
be awarded in favor of the latter. Anent the other monetary awards, private respondent argues
that these awards are all premised on the findings of the Labor Arbiter, NLRC and the CA that
private respondent's dismissal was improper and illegal.

The Court finds the petition without merit.

Anent the first assigned error, it is a settled rule that under Rule 45 of the Rules of Court, only
questions of law may be raised in this Court.10 Judicial review by this Court does not extend to a
re-evaluation of the sufficiency of the evidence upon which the proper labor tribunal has based
its determination.11 Firm is the doctrine that this Court is not a trier of facts, and this applies with
greater force in labor cases.12 Factual issues may be considered and resolved only when the
findings of facts and conclusions of law of the Labor Arbiter are inconsistent with those of the
NLRC and the CA.13 The reason for this is that the quasi-judicial agencies, like the Arbitration
Board and the NLRC, have acquired a unique expertise because their jurisdiction are confined to
specific matters.14 In the present case, the question of whether private respondent is guilty of
desertion is factual. The Labor Arbiter, NLRC and the CA are unanimous in their findings that
private respondent is not guilty of desertion and that he has been illegally terminated from his
employment. After a review of the records of the instant case, this Court finds no cogent reason
to depart from the findings of these tribunals.

Petitioners assert that the entries in the logbook of MV Cemtex General15 and in the Marine Note
Protest16 which they submitted to the NLRC confirm the fact that private respondent abandoned
the vessel in which he was assigned. However, the genuineness of the Marine Note Protest as
well as the entries in the logbook are put in doubt because aside from the fact that they were
presented only during petitioners' Motion for Reconsideration filed with the NLRC, both the
Marine Note Protest and the entry in the logbook which were prepared by the officers of the
vessel were neither notarized nor authenticated by the proper authorities. Moreover, a reading of
these entries simply shows that private respondent was presumed to have deserted his post on the
sole basis that he was found missing while the MV Cemtex General was anchored at the port of
Takehara, Japan. Hence, without any corroborative evidence, these documents cannot be used as
bases for concluding that private respondent was guilty of desertion.

Petitioners also question the findings and conclusion of the Labor Arbiter and the NLRC that
what caused private respondent in jumping overboard was the unmitigated pain he was suffering
which was compounded by the inattention of the vessel's captain to provide him with the
necessary treatment inspite of the fact that the ship was moored for about two weeks at the
anchorage of Takehara, Japan; and, that private respondent's act was a desperate move to protect
himself and to seek relief for his physical suffering. Petitioners contend that the findings and
conclusions of the Labor Arbiter and the NLRC which were affirmed by the CA are based on
conjecture because there is no evidence to prove that, at the time he jumped ship, private
respondent was really suffering from an ankle injury.
It is true that no substantial evidence was presented to prove that the cause of private
respondent's confinement in a hospital in Takehara, Japan was his ankle injury. The Court may
not rely on the letter marked as Annex "B" and attached to private respondent's Position Paper
because it was unsigned and it was not established who executed the same.17 However, the result
of the x-ray examination conducted by the LLN Medical Services, Inc. on August 26, 1996, right
after private respondent was repatriated to the Philippines, clearly showed that there is a soft-
tissue swelling around his ankle joint.18 This evidence is consistent with private respondent's
claim that he was then suffering from an ankle injury which caused him to jump off the ship.

As to petitioners' contention that private respondent could not have traversed the distance
between the ship and the shore if he was indeed suffering from unbearable pain by reason of his
ankle injury, suffice it to say that private respondent is an able-bodied seaman and that with the
full use of both his arms and the help of a life jacket, was able to reach the shore.

As correctly defined by petitioners, desertion, in maritime law is:

The act by which a seaman deserts and abandons a ship or vessel, in which he had
engaged to perform a voyage, before the expiration of his time, and without leave. By
desertion, in maritime law, is meant, not a mere unauthorized absence from the ship,
without leave, but an unauthorized absence from the ship with an intention not to
return to her service; or as it is often expressed, animo non revertendi, that is, with an
intention to desert.19 (emphasis supplied)

Hence, for a seaman to be considered as guilty of desertion, it is essential that there be evidence
to prove that if he leaves the ship or vessel in which he had engaged to perform a voyage, he has
the clear intention of abandoning his duty and of not returning to the ship or vessel. In the
present case, however, petitioners failed to present clear and convincing proof to show that when
private respondent jumped ship, he no longer had the intention of returning. The fact alone that
he jumped off the ship where he was stationed, swam to shore and sought medical assistance for
the injury he sustained is not a sufficient basis for petitioners to conclude that he had the
intention of deserting his post. Settled is the rule that in termination cases, the burden of proof
rests upon the employer to show that the dismissal is for a just and valid cause.20 The case of the
employer must stand or fall on its own merits and not on the weakness of the employee's
defense.21 In the present case, since petitioners failed to discharge their burden of proving that
private respondent is guilty of desertion, the Court finds no reason to depart from the conclusion
of the Labor Arbiter, NLRC and the CA that private respondent's dismissal is illegal.

In their second assigned error, petitioners cite Section 19(C) of POEA Memorandum Circular
No. 055-9622 known as the Revised Standard Employment Terms and Conditions Governing the
Employment of Filipino Seafarers On Board Ocean-Going Vessels as their alternative basis in
terminating the employment of private respondent. Said Section provides as follows:

Section 19. REPATRIATION

xxxx
 C. If the vessel arrives at a convenient port within a period of three months before the
expiration of his contract, the master/ employer may repatriate the seafarer from such port
provided that the seafarer shall be paid all his earned wages. In addition, the seafarer shall
also be paid his leave pay for the entire contract period plus a termination pay equivalent
to one (1) month of his basic pay, provided, however, that this mode of termination may
only be exercised by the master/employer if the original contract period of the seafarer is
at least ten (10) months; provided, further, that the conditions for this mode of
termination shall not apply to dismissal for cause.

The Court is not persuaded. POEA Memorandum Circular No. 055-96 took effect on January 1,
1997 while the contract of employment entered into by and between private respondent and
petitioners was executed on April 10, 1996. Hence, it is wrong for petitioners to cite this
particular Memorandum because at the time of petitioners' and private respondent's execution of
their contract of employment Memorandum Circular No. 055-96 was not yet effective.

What was in effect at the time private respondent's Contract of Employment was executed was
POEA Memorandum Circular No. 41, Series of 1989. It is clearly provided under the second
paragraph of private respondent's Contract of Employment that the terms and conditions
provided under Memorandum Circular No. 41, Series of 1989 shall be strictly and faithfully
observed. Hence, it is Memorandum Circular No. 41, Series of 1989 which governs private
respondent's contract of employment.

Section H (6), Part I of Memorandum Circular No. 41, which has almost identical provisions
with Section 19 (C) of Memorandum Circular No. 055-96, provides as follows:

SECTION H. TERMINATION OF EMPLOYMENT

xxxx

6. If the vessel arrives at a convenient port within a period of three (3) months before the
expiration of the Contract, the master/employer may repatriate the seaman from such port
provided that the seaman shall be paid all his earned wages. In addition, the seaman shall
also be paid his leave pay for the entire contract period plus a termination pay equivalent
to one (1) month of his basic pay, provided, however, that this mode of termination may
only be exercised by the master/employer if the original contact period of the seaman is
at least ten (10) months; provided, further, that the conditions for this mode of
termination shall not apply to dismissal for cause.

The Court agrees with private respondent's contention that petitioners' arguments are misplaced.
Petitioners may not use the above-quoted provision as basis for terminating private respondent's
employment because it is incongruent with their primary defense that the latter's dismissal from
employment was for cause. Petitioners may not claim that they ended private respondent's
services because he is guilty of desertion and at the same time argue that they exercised their
option to prematurely terminate his employment, even without cause, simply because they have
the right to do so under their contract. These grounds for termination are inconsistent with each
other such that the use of one necessarily negates resort to the other. Besides, it appears from the
records that petitioners' alternative defense was pleaded merely as an afterthought because it was
only in their appeal with the NLRC that they raised this defense. The only defense raised by
petitioners in their Answer with Counterclaim filed with the office of the Labor Arbiter is that
private respondent was dismissed from employment by reason of desertion.23Under the Rules of
Court,24 which is applicable in a suppletory character in labor cases before the Labor Arbiter or
the NLRC pursuant to Section 3, Rule I of the New Rules of Procedure of the NLRC25, defenses
which are not raised either in a motion to dismiss or in the answer are deemed waived.26

Granting, for the sake of argument, that petitioners may use Section H (6), Part I of
Memorandum Circular No. 41 or Section 19(C) of Memorandum Circular No. 055-96 as basis
for terminating private respondent's employment, it is clear that one of the conditions before any
of these provisions becomes applicable is when the vessel arrives at a convenient port within a
period of three (3) months before the expiration of the contract of employment. In the present
case, private respondent's contract was executed on April 10, 1996 for a duration of twelve
months. He was deployed aboard MV Cemtex General on June 25, 1996 and repatriated to the
Philippines on August 22, 1996. Hence, it is clear that petitioners did not meet this condition
because private respondent's termination was not within a period of three months before the
expiration of his contract of employment.

Moreover, the Court finds nothing in the records to show that petitioners complied with the other
conditions enumerated therein, such as the payment of all of private respondent's earned wages
together with his leave pay for the entire contract period as well as termination pay equivalent to
his one month salary.

Petitioners admit that they did not inform private respondent in writing of the charges against
him and that they failed to conduct a formal investigation to give him opportunity to air his side.
However, petitioners contend that the twin requirements of notice and hearing applies strictly
only when the employment is within the Philippines and that these need not be strictly observed
in cases of international maritime or overseas employment.

The Court does not agree. The provisions of the Constitution as well as the Labor Code which
afford protection to labor apply to Filipino employees whether working within the Philippines or
abroad. Moreover, the principle of lex loci contractus (the law of the place where the contract is
made) governs in this jurisdiction.27 In the present case, it is not disputed that the Contract of
Employment entered into by and between petitioners and private respondent was executed here
in the Philippines with the approval of the Philippine Overseas Employment Administration
(POEA). Hence, the Labor Code together with its implementing rules and regulations and other
laws affecting labor apply in this case.28 Accordingly, as to the requirement of notice and hearing
in the case of a seafarer, the Court has already ruled in a number of cases that before a seaman
can be dismissed and discharged from the vessel, it is required that he be given a written notice
regarding the charges against him and that he be afforded a formal investigation where he could
defend himself personally or through a representative.29 Hence, the employer should strictly
comply with the twin requirements of notice and hearing without regard to the nature and situs of
employment or the nationality of the employer. Petitioners failed to comply with these twin
requirements.
Petitioners also contend that the wages of private respondent from August 11-22, 1996 were
applied to the costs of his repatriation. Petitioners argue that the off-setting of the costs of his
repatriation against his wages for the aforementioned period is allowed under the provisions of
Section 19(E) of Memorandum Circular No. 055-96 which provides that when the seafarer is
discharged for any just cause, the employer shall have the right to recover the costs of his
replacement and repatriation from the seafarer's wages and other earnings.

The Court does not agree. Section 19(E) of Memorandum Circular No. 055-96 has its
counterpart provision under Section H (2), Part II of Memorandum Circular No. 41, to wit:

SECTION H. REPATRIATION

xxxx

2. When the seaman is discharged for disciplinary reasons, the employer shall have the
right to recover the costs of maintenance and repatriation from the seaman's balance of
wages and other earnings.

xxxx

It is clear under the above-quoted provision that the employer shall have the right to recover the
cost of repatriation from the seaman's wages and other earnings only if the concerned seaman is
validly discharged for disciplinary measures. In the present case, since petitioners failed to prove
that private respondent was validly terminated from employment on the ground of desertion, it
only follows that they do not have the right to deduct the costs of private respondent's
repatriation from his wages and other earnings.

Lastly, the Court is not persuaded by petitioners' contention that the private respondent is not
entitled to his money claims representing his living allowance, overtime pay, vacation pay and
special allowance as well as attorney's fees because he failed to present any proof to show that he
is entitled to these awards.

However, the Court finds that the monetary award representing private respondent's three months
salary as well as the award representing his living allowance, overtime pay, vacation pay and
special allowance should be modified.

The Court finds no basis in the NLRC's act of including private respondent's living allowance as
part of the three months salary to which he is entitled under Section 10 of Republic Act (RA) No.
8042, otherwise known as the "Migrant Workers and Overseas Filipinos Act of 1995." The
pertinent provisions of the said Act provides:

Sec. 10. Money Claims –

xxxx
 In case of termination of overseas employment without just, valid or authorized cause as
defined by law or contract, the worker shall be entitled to the full reimbursement of his
placement fee with interest at twelve percent (12%) per annum, plus his salaries for the
unexpired portion of his employment contract or for three (3) months for every year of
the unexpired term, whichever is less.

xxxx

It is clear from the above-quoted provision that what is included in the computation of the
amount due to the overseas worker are only his salaries. Allowances are excluded. In the present
case, since private respondent received a basic monthly salary of US$400.00, he is, therefore,
entitled to receive a sum of US$1200.00, representing three months of said salary.

As to the awards of living allowance, overtime pay, vacation pay and special allowance, it is
clearly provided under private respondent's Contract of Employment that he is entitled to these
benefits as follows: living allowance of US$140.00/month; vacation leave with pay equivalent to
US$40.00/month; overtime rate of US$120.00/month; and, special allowance of
US$175.00/month.30

With respect, however, to the award of overtime pay, the correct criterion in determining
whether or not sailors are entitled to overtime pay is not whether they were on board and can not
leave ship beyond the regular eight working hours a day, but whether they actually rendered
service in excess of said number of hours.31 In the present case, the Court finds that private
respondent is not entitled to overtime pay because he failed to present any evidence to prove that
he rendered service in excess of the regular eight working hours a day.

On the basis of the foregoing, the remaining benefits to which the private respondent is entitled
is the living allowance of US$140.00/month, which was removed in the computation of private
respondent's salary, special allowance of US$175.00/month and vacation leave with pay
amounting to US$40.00/month. Since private respondent rendered service for two months these
benefits should be doubled, giving a total of US$710.00.

As to the award of attorney's fees, this Court ruled in Reyes v. Court of Appeals,32 as follows:

x x x [T]here are two commonly accepted concepts of attorney's fees, the so-called
ordinary and extraordinary. In its ordinary concept, an attorney's fee is the reasonable
compensation paid to a lawyer by his client for the legal services he has rendered to the
latter. The basis of this compensation is the fact of his employment by and his agreement
with the client. In its extraordinary concept, attorney's fees are deemed indemnity for
damages ordered by the court to be paid by the losing party in a litigation. The instances
where these may be awarded are those enumerated in Article 2208 of the Civil Code,
specifically par. 7 thereof which pertains to actions for recovery of wages, and is payable
not to the lawyer but to the client, unless they have agreed that the award shall pertain to
the lawyer as additional compensation or as part thereof. The extraordinary concept of
attorney's fees is the one contemplated in Article 111 of the Labor Code, which provides:
 Art. 111. Attorney's fees. – (a) In cases of unlawful withholding of wages, the
culpable party may be assessed attorney's fees equivalent to ten percent of the
amount of wages recovered x x x

The afore-quoted Article 111 is an exception to the declared policy of strict

construction in the awarding of attorney's fees. 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.

In carrying out and interpreting the Labor Code's provisions and its implementing
regulations, the employee's welfare should be the primordial and paramount
consideration. This kind of interpretation gives meaning and substance to the liberal and
compassionate spirit of the law as provided in Article 4 of the Labor Code which states
that "[a]ll doubts in the implementation and interpretation of the provisions of [the Labor]
Code including its implementing rules and regulations, shall be resolved in favor of
labor", and Article 1702 of the Civil Code which provides that "[i]n case of doubt, all
labor legislation and all labor contracts shall be construed in favor of the safety and
decent living for the laborer."33 (Emphasis supplied)

In the present case, it is true that the Labor Arbiter and the NLRC failed to state the reasons why
attorney's fees are being awarded. However, it is clear that private respondent was illegally
terminated from his employment and that his wages and other benefits were withheld from him
without any valid and legal basis. As a consequence, he is compelled to file an action for the
recovery of his lawful wages and other benefits and, in the process, incurred expenses. On these
bases, the Court finds that he is entitled to attorney's fees.

WHEREFORE, the petition is PARTLY GRANTED. The Court of Appeals' Decision dated
December 18, 2001 and Resolution dated April 10, 2002
are AFFIRMED with MODIFICATION to the effect that the award of US$1620.00
representing private respondent's three months salary is reduced to US$1200.00. The award of
US$550.00 representing private respondent's living allowance, overtime pay, vacation pay and
special allowance for two months is deleted and in lieu thereof, an award of US$710.00 is
granted representing private respondent's living allowance, special allowance and vacation leave
with pay for the same period.

No costs.

SO ORDERED.