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1. MANILA DIAMOND VS CA (2004) ISSUE/S: WON the CA in ruling that the Secretary of
DOCTRINE: Under Article 263(g), all workers must
immediately return to work and all employers must
readmit all of them under the same terms and
conditions prevailing before the strike or lockout.
This Court must point out that the law uses the
precise phrase of "under the same terms and
conditions," revealing that it contemplates only
actual reinstatement.
FACTS: Union filed a petition for a certification
election that it be declared exclusive bargaining
representative of Hotel’s employees. The petition
was dismissed by DOLE. When a letter was sent to
the Hotel for the same matter, it(Hotel) said that it
cannot recognize it as bargaining agent since its
petition before the DOLE was dismissed. A strike
was held and Hotel Claimed that the strike was
illegal and dismissed some of employees for their
participation in the allegedly illegal concerted
activity.
Pertinent to this case is the issue ordered by Sec. of
labor Trajano. He issued a return to work order for
the employees. The Hotel, however, refused to
accept the returning workers and instead filed a
Motion for Reconsideration of the Secretary’s
Order. Instead of an actual return to work, Acting
Secretary Español directed that the strikers be
reinstated only in the payroll. The labor union
moved for reconsideration, however, was denied.
Hence, it filed a petition for certiorari under Rule
65 alleging that there was a grave abuse abused of
discretion on the part of the Secretary of Labor for
modifying its earlier order and requiring instead the
reinstatement of the employees in the payroll.
CA anchored its decision in the case UST vs NLRC
where NLRC only provided payroll reinstatement as
remedy to actual reinstatement
Contributors
Labor’s unauthorized order of mere “Payroll
reinstatement” is not a grave abuse of discretion.
RULING: The act of the secretary of labor
constitutes a grave abuse of discretion.
Court notes that the UST ruling was made in the
light of one very important fact: the teachers could
not be given back their academic assignments since
the order of the Secretary for them to return to
work was given in the middle of the first semester
of the academic year.
In the present case, there is no showing that the
facts called for payroll reinstatement as an
alternative remedy. A strained
relationship between the striking employees and
management is no reason for payroll reinstatement
in lieu of actual reinstatement. Petitioner.
As a general rule, the State encourages an
environment wherein employers and employees
themselves must deal with their problems in a
manner that mutually suits them best. This is the
basic policy embodied in Article XIII, Section 3 of
the Constitution, which was further echoed in
Article 211 of the Labor Code. Hence, a voluntary,
instead of compulsory, mode of dispute settlement
is the general rule.
However, Article 263, paragraph (g) of the Labor
Code, which allows the Secretary of Labor to
assume jurisdiction over a labor dispute involving
an industry indispensable to the national interest,
provides an exception:
(g) When, in his opinion, there exists a labor
dispute causing or likely to cause a strike or lockout
in an industry indispensable to the national
interest, the Secretary of Labor and Employment
may assume jurisdiction over the dispute and
decide it or certify the same to the Commission for
compulsory arbitration. Such assumption or
certification shall have the effect of automatically
enjoining the
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intended or impending strike or lockout as specified

in the assumption or certification order. If one has
already taken place at the time of assumption or
certification, all striking or locked out employees
shall immediately return to work and the employer
shall immediately resume operations and readmit
all workers under the same terms and conditions
prevailing before the strike or lockout. x x x

This Court must point out that the law uses the
precise phrase of "under the same terms and
conditions," revealing that it contemplates only
actual reinstatement. This is in keeping with the
rationale that any work stoppage or slowdown in
that particular industry can be inimical to the
national economy. It is clear that Article 263(g) was
not written to protect labor from the excesses of
management, nor was it written to ease
management from expenses, which it normally
incurs during a work stoppage or slowdown. It was
an error on the part of the Court of Appeals to view
the assumption order of the Secretary as a measure
to protect the striking workers from any retaliatory
action from the Hotel.

Contributors

ARCO METAL VS SAMAHAN
DOCTRINE: The principle of non-diminution of
benefits is founded on the Constitutional mandate
to "protect the rights of workers and promote their
welfare and to afford labor full protection. Said
mandate in turn is the basis of Article 4 of the
Labor Code which states that all doubts in the
implementation and interpretation of this Code,
including its implementing rules and regulations
shall be rendered in favor of labor
FACTS: ARCO METAL(petitioner) is a company
engaged in the manufacture of metal products,
whereas (sais the labor union of petitioner’s rank
and file employees. Sometime in December 2003,
petitioner paid the 13th month pay, bonus, and
leave encashment of three union members in
amounts proportional to the service they actually
rendered in a year, which is less than a full 12
months. Respondent protested the prorated
scheme, claiming that on several occasions
petitioner did not prorate the payment of the same
benefits to 7 employees who had not served for
the full 12 months. The payments were made in
1992, 1993, 1994, 1996, 1999, 2003, and 2004.
According to respondent, the prorated payment
violates the rule against diminution of benefits
under Article 100 of the Labor Code. Thus, they
filed a complaint before the NCMB. The parties
submitted the case for voluntary arbitration.
The voluntary arbitrator, Mangabat, ruled in favor
of petitioner and found that the giving of the
contested benefits in full, irrespective of the actual
service rendered within one year has not ripened
into a practice. He noted the affidavit of Baingan,
manufacturing group head of petitioner, which
states that the giving in full of the benefit was a
mere error. He also interpreted the phrase “for
each year of service” found in the pertinent CBA
provisions to mean that an employee must have
rendered one year of service in order to be entitled
to the full benefits provided in the CBA.
Contributors
3
The CA ruled that the CBA did not intend to
foreclose the application of prorated payments of
leave benefits to covered employees. The appellate
court found that petitioner, however, had an
existing voluntary practice of paying the aforesaid
benefits in full to its employees, thereby rejecting
the claim that petitioner erred in paying full
benefits to its seven employees. The appellate
court noted that aside from the affidavit of
petitioner’s officer, it has not presented any
evidence in support of its position that it has no
voluntary practice of granting the contested
benefits in full and without regard to the service
actually rendered within the year. It also
questioned why it took petitioner 11 years before it
was able to discover the alleged error.
Petitioner claims that its full payment of benefits
regardless of the length of service to the company
does not constitute voluntary employer practice. It
points out that the payments had been erroneously
made and they occurred in isolated cases in the
years 1992, 1993, 1994, 1999, 2002 and 2003.
According to petitioner, it was only in 2003 that the
accounting department discovered the error "when
there were already three (3) employees involved
with prolonged absences and the error was
corrected by implementing the pro-rata payment of
benefits pursuant to law and their existing CBA.
ISSUE/S: WON the grant of 13th month pay, bonus,
and leave encashment in full regardless of actual
service rendered constitutes voluntary employer
practice and, consequently, the prorated payment
of the said benefits does not constitute diminution
of benefits under Article 100 of the Labor Code
RULING: YES.
The SC said that any benefit and supplement being
enjoyed by employees cannot be reduced,
diminished, discontinued or eliminated by the
employer. The principle of non-diminution of
benefits is founded on the Constitutional mandate
to "protect the rights of workers and promote their
welfare and to afford labor full protection. Said
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mandate in turn is the basis of Article 4 of the Indeed, if petitioner wants to prove that it merely
Labor Code which states that all doubts in the erred in giving full benefits, it could have easily
implementation and interpretation of this Code, presented other proofs, such as the names of other
including its implementing rules and regulations employees who did not fully serve for one year and
shall be rendered in favor of labor. thus were given prorated benefits. Experientially, a
perfect attendance in the workplace is always the
Jurisprudence is replete with cases which recognize goal but it is seldom achieved. There must have
the right of employees to benefits which were been other employees who had reported for work
voluntarily given by the employer and which less than a full year and who, as a consequence
ripened into company practice. received only prorated benefits. This could have
easily bolstered petitioner’s theory of
Thus in mistake/error, but sadly, no evidence to that effect
 DavaoFruits Corporation v. Associated was presented.
Labor Unions, et al. where an employer had
freely and continuously included in the
computation of the 13th month pay those Hence, petition was denied.
items that were expressly excluded by the
law, we held that the act which was
favorable to the employees though not
conforming to law had thus ripened into a
practice and could not be withdrawn,
reduced, diminished, discontinued or
eliminated.
 In Sevilla Trading Company v. Semana, we
ruled that the employer’s act of including
non-basic benefits in the computation of
the 13th month pay was a voluntary act and
had ripened into a company practice which
cannot be peremptorily withdrawn.

In the years 1992, 1993, 1994, 1999, 2002 and

2003, petitioner had adopted a policy of freely,
voluntarily and consistently granting full benefits to
its employees regardless of the length of service
rendered. True, there were only a total of seven
employees who benefited from such a practice, but
it was an established practice nonetheless.
Jurisprudence has not laid down any rule specifying
a minimum number of years within which a
company practice must be exercised in order to
constitute voluntary company practice. Thus, it can
be six (6) years, three (3) years, or even as short as
two (2) years. Petitioner cannot shirk away from its
responsibility by merely claiming that it was a
mistake or an error, supported only by an affidavit
of its manufacturing group head.
Contributors

LEPANTO VS DUMAPIS
Doctrine:
If doubts exist between the evidence presented by
the employer and the employee, the scales of
justice must be tilted in favor of the latter. It is a
time-honored rule that in controversies between a
laborer and his master, doubts reasonably arising
from the evidence, or in the interpretation of
agreements and writing, should be resolved in the
former’s favor. The policy is to extend the doctrine
to a greater number of employees who can avail
themselves of the benefits under the law, which is
in consonance with the avowed policy of the State
to give maximum aid and protection to labor.
Facts:
Lepanto Consolidated Mining Corporation
employed Moreno Dumapis and Elmo Tundagui as
lead miners; and Francis Liagao, as machine
operator. They were assigned at a known
"highgrade" area in Benguet. Dwayne Chambers,
foreign consultant of the mining company,
conducted a routinary inspection and discovered
that a group of workers were sitting, sorting, and
washing ores believed to be "highgrade." After
investigating, Security Investigators Paul Pespes, Jr.
and Felimon Ringor (Security Investigators)
executed a Joint Affidavit whereby they declared
that the said employees committed “highgrading”.
Lepanto issued a resolution finding them guilty of
the offense of highgrading and dismissing them
from their employment. The
miners filed a Complaint for illegal dismissal before
the Labor Arbiter but was dismissed. The NLRC
declared that the miners were illegally dismissed,
but ruled that the Joint Affidavit is inadmissible for
being hearsay.
Issue: WON NLRC is bound by the technicalities of
law
Ruling:No.
Contributors
5
Administrative bodies like the NLRC are not bound
by the technical niceties of law and procedure and
the rules obtaining in courts of law. Indeed, the
Revised Rules of Court and prevailing jurisprudence
may be given only stringent application, i.e., by
analogy or in a suppletory character and effect.
While it is true that administrative or quasi-judicial
bodies like the NLRC are not bound by the technical
rules of procedure in the adjudication of cases, this
procedural rule should not be construed as a
license to disregard certain fundamental
evidentiary rules. The evidence presented must at
least have a modicum of admissibility for it to have
probative value. Not only must there be some
evidence to support a finding or conclusion, but the
evidence must be substantial. Substantial evidence
is more than a mere scintilla. It means such
relevant evidence as a reasonable mind might
accept as adequate to support a conclusion. Thus,
even though technical rules of evidence are not
strictly complied with before the LA and the NLRC,
their decision must be based on evidence that
must, at the very least, be substantial.
An examination of the Joint Affidavit reveals that
the facts alleged therein by the Security
Investigators are not of their own personal
knowledge. They simply referred to the facts
allegedly relayed to them by Chambers, Damoslog,
Daguio, and Madao. Thus, there is a need to
individually scrutinize the statements and
testimonies of the four sources of the Joint Affidavit
in order to determine the latter’s probative weight.
In labor cases, in which technical rules of procedure
are not to be strictly applied if the result would be
detrimental to the workingman, an affidavit of
desistance gains added importance in the absence
of any evidence on record explicitly showing that
the dismissed employee committed the act which
caused the dismissal.42 Accordingly, the Court
cannot turn a blind eye and disregard Madao’s
recantation, as it serves to cast doubt as to the guilt
of respondent Liagao.
Based on the foregoing, the Court is convinced that
the Joint Affidavit, being sourced from Chambers,
Damoslog, Daguio and Madao, has no probative
value to support evidence to warrant the dismissal
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of the respondents. Chambers and Daguio did not

identify the miners involved in the act of
highgrading. In addition, Damoslog’s first and
second sworn statements did not implicate
respondents, and Madao recanted his statement
implicating respondent Liagao. As earlier discussed,
the sworn statements and joint affidavits of the
sources do not corroborate but actually cast doubt
as to the veracity of the statements in the Joint
Affidavit.
In the present case, the Court reiterates that the
evidence is not substantial to hold respondents
guilty of highgrading so as to warrant the dismissal
of respondents.
Moreover, it is a well-settled doctrine that if doubts
exist between the evidence presented by the
employer and the employee, the scales of justice
must be tilted in favor of the latter. It is a time-
honored rule that in controversies between a
laborer and his master, doubts reasonably arising
from the evidence, or in the interpretation of
agreements and writing, should be resolved in the
former’s favor. The policy is to extend the doctrine
to a greater number of employees who can avail
themselves of the benefits under the law, which is
in consonance with the avowed policy of the State
to give maximum aid and protection to labor.

Contributors

LVN PICTURES, INC., VS. PHILIPPINE
MUSICIANS GUILD
Petitioners- LVN Pictures, Inc. and Sampaguita
Pictures, Inc. seek a review by certiorari of an order
of the Court of Industrial Relations(CIR) thereof,
certifying the Philippine Musicians Guild (FFW).
Respondent- Philippine Musicians Guild(FFW)/
“The Guild”, CIR decided that FFW as the sole and
exclusive bargaining agency of all musicians
working with said companies.
FFW, averred (1) that it is a duly registered
legitimate labor organization;(2) that LVN Pictures,
Inc., Sampaguita Pictures, Inc., and Premiere
Productions, Inc. are corporations, duly organized
under the Philippine laws, engaged in the making of
motion pictures and in the processing and
distribution thereof; that said companies employ
musicians for the purpose of making music
recordings for title music, background music,
musical numbers, finale music and other incidental
music, without which a motion picture is
incomplete; (3) that ninety-five (95%) percent of all
the musicians playing for the musical recordings of
said companies are members of the Guild; and (4)
that the same has no knowledge of the existence of
any other legitimate labor organization
representing musicians in said companies.
FFW prayed that it be certified as the sole and
exclusive bargaining agency for all musicians
working in the aforementioned companies.
LVN, denied that they have any musicians as
employees, and alleged that the musical numbers
in the filing of the companies are furnished by
independent contractors.
FFW filed a petition for certification.
Contributors
7
LVN, maintains that a petition for certification
cannot be entertained when the existence of
employer-employee relationship between the
parties is contested. It is next urged that a
certification is improper in the present case,
because, "(a) the petition does not allege and no
evidence was presented that the alleged musicians-
employees of the respondents constitute a proper
bargaining unit, and (b) said alleged musicians-
employees represent a majority of the other
numerous employees of the film companies
constituting a proper bargaining unit under section
12 (a) of Republic Act No. 875."
FFW, seeks to be, and was, certified as the sole and
exclusive bargaining agency for the musicians
working in the aforesaid film companies. It does
not intend to represent the other employees
therein.
The question to be determined next is what legal
relationship exits between the musicians and the
company?
SIDE-ISSUE: INTERPRETATON OF RA 875.
In the case of National Labor Relations
Board vs. Hearts Publication, 322 U.S. 111,
the United States Supreme Court said the
Wagner Act was designed to avert the
'substantial obstruction to the free flow of
commerce which results from strikes and
other forms of industrial unrest by
eliminating the causes of the unrest. Strikes
and industrial unrest result from the refusal
of employers' to bargain collectively and the
inability of workers to bargain successfully
for improvement in their working
conditions. Hence, the purposes of the Act
875 are to encourage collective bargaining
and to remedy the workers' inability to
bargaining power, by protecting the exercise
of full freedom of association and
designation of representatives of their own
choosing, for the purpose of negotiating the
terms and conditions of their employment.'

In this light, the language of the Act's
definition of 'employee' or 'employer'
should be determined broadly in doubtful
situations, by underlying economic facts
rather than technically and exclusively
established legal classifications. (NLRB vs.
Blount, 131 F [2d] 585.) In other words, the
scope of the term 'employee' must be
understood with reference to the purposes
of the Act and the facts involved in the
economic relationship.
As used in the Act, the term embraces 'any
employee' that is all employees in the
conventional as well in the legal sense
expect those excluded by express provision.
(Connor Lumber Co., 11 NLRB 776.).
It is the purpose of the policy of Republic
Act 875; (a) To eliminate the causes of
industrial unrest by protecting the exercise
of their right to self-organization for the
purpose of collective bargaining. (b) To
promote sound stable industrial peace and
the advancement of the general welfare,
and the best interests of employers and
employees by the settlement of issues
respecting terms and conditions of
employment through the process of
collective bargaining between employers
and representatives of their employees
MAIN ISSUE: WON the musicians in question are
employees of the film companies.
The work of the musical director and
musicians is a functional and integral part of
the enterprise performed at the same
studio substantially under the direction and
control of the company.
In other words, to determine whether a
person who performs work for another is
the latter's employee or an independent
contractor, the National Labor Relations
relies on 'the right to control' test. Under
Contributors
8
this test an employer-employee relationship
exist where the person for whom the
services are performed reserves the right to
control not only the end to be achieved, but
also the manner and means to be used in
reaching the end.
The right of control of the film company
over the musicians is shown (1) by calling
the musicians through 'call slips' in 'the
name of the company; (2) by arranging
schedules in its studio for recording
sessions; (3) by furnishing transportation
and meals to musicians; and (4) by
supervising and directing in detail, through
the motion picture director, the
performance of the musicians before the
camera, in order to suit the music they are
playing to the picture which is being flashed
on the screen.
Thus, in the application of Philippine
statutes and pertinent decisions of the
United States Courts on the matter to the
facts established in this case, we cannot but
conclude that to effectuate the policies of
the Act and by virtue of the 'right of control'
test, the members of the Philippine
Musicians Guild are employees of the three
film companies and, therefore, entitled to
right of collective bargaining under
Republic Act No. 875.
In view of the fact that the three (3) film
companies did not question the union's
majority, the Philippine Musicians Guild is
hereby declared as the sole collective
bargaining representative for all the
musicians employed by the film
companies."
In the case at bar. The musical directors above
referred to have no such control over the musicians
involved in the present case. Said musical directors
control neither the music to be played, nor the
musicians playing it. The film companies summon
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the musicians to work, through the musical

directors. The film companies, through the musical
directors, fix the date, the time and the place of
work. The film companies, not the musical
directors, provide the transportation to and from
the studio. The film companies furnish meal at
dinner time. The movie director "directly
controls the activities of the musicians." He "says
he wants more drums and the drummer plays
more" or "if he wants more violin or he does not
like that.".

It is well settled that "an employer-employee

relationship exists . . .where the person for whom
the services are performed reserves a right to
control not only the end to be achieved but also the
means to be used in reaching such end . .The
decisive nature of said control over the "means to
be used", in which, by reason of said control, the
employer-employee relationship was held to exist
between the management and the workers,
notwithstanding the intervention of an alleged
independent contractor, who had, and exercise, the
power to hire and fire said workers. The
aforementioned control over the means to be
used" in reading the desired end is possessed and
exercised by the film companies over the musicians
in the cases before us.

DECISION: THERE EXIST AN EMPLOYER-EMPLOYEE

RELATIONSHIP USING THE TEST OF CONTROL,
THEREFORE THE MUSICIANS HAVE THE RIGHT TO
COLLECTIVE BARGAINING.

Contributors

VDA. DE CRUZ V. MANILA HOTEL (1957)
DOCTRINE: An independent contractor is one who
in rendering services, exercises an independent
employment or occupation and represents the will
of his employer only as to the results of his work
and not as to the means whereby it is
accomplished.
FACTS:
On May 22, 1954 and for several years before, Tirso
Cruz with his orchestra furnished music to the
Manila Hotel. On that date the corporation owning
the Hotel gave written notice to its employees that
beginning July 1, 1954 the Hotel would be leased to
the Bay View Hotel, and that those employees to
be laid off would be granted a separation gratuity
computed according to specified terms and
conditions.
Cruz and his musicians claimed the gratuity; but the
Manila Hotel management denied their claim
saying they were not its employees. So, an action
was instituted.
The complaint alleged that plaintiffs "were
members of the orchestra which had been
employed by the defendant to furnish music in the
Manila Hotel"; that they were employees of the
Hotel and are entitled to the gratuity pursuant to
the announcement (Annex A):
“. . . . It is for this reason that the necessary
authority has already been secured for the
payment of separation gratuity to the
employees to be laid off as a result of the
lease and who are not yet entitled to either
the optional or compulsory retirement
insurance provided under Republic Act No.
660, as amended, . . . .”
The defendant filed a motion to dismiss alleging
that plaintiffs were not its employees and that they
did not fall within the terms of Annex A because
Contributors
10
they were not, and never had been members of the
Government Service Insurance System.
At the outset the following consideration presents
itself: plaintiffs' right is not predicated on some
statutory provision, but upon the offer or promise
contained in Annex A. The Hotel is in the best
position to state who were the
employees contemplated in the aforesaid Annex A.
Let it be emphasized that Annex A is not a contract,
but a mere offer of gratuity, the beneficiaries of
which normally depended upon the free selection
of the offeror.
They cannot likewise qualify under those who were
"not yet entitled to either the optional or
compulsory retirement insurance provided under
Republic Act No. 660" because they were never
members of such insurance system.
ISSUE: WON they are employees of the hotel?
-NO.
RULING:
Their connection with the Hotel was only thru
Tirso Cruz who was the leader of the orchestra; and
they couldn't be in a better class than Tirso Cruz
who dealt with the Hotel.
It will be observed that the Manila Hotel contracted
or engaged the "services of your orchestra" (of
Tirso Cruz) at P250 per day to "play from 7:30 p.m.
to closing time daily".
What pieces the orchestra shall play, and how the
music shall be arranged or directed, the intervals
and other details — such are left to the leader's
discretion. The music instruments, the music
papers and other paraphernalia are not furnished
by the Hotel, they belong to the orchestra, which
in turn belongs to Tirso Cruz — not to the Hotel.
The individual musicians, and the instruments
they have not been selected by the Hotel. It
reserved no power to discharge any musician.
How much salary is given to the individual
 11

members is left entirely to "the orchestra" or the

leader. Payment of such salary is not made by the
Hotel to the individual musicians, but only a lump-
sum compensation is given weekly to Tirso Cruz.

Considering the above features of the relationship,

it is our opinion that Tirso Cruz was not an
employee of the Manila Hotel, but one engaged to
furnish music to said hotel- in other words, an
independent contractor within the meaning of the
law of master and servant.

Among the factors to be considered are whether

the contractor is carrying on an independent
business; whether the work is part of the
employer's general business; the nature and extent
of the work; the skill required; the term and
duration of the relationship; the right to assign the
performance of the work to another; the power to
terminate the relationship; the existence of a
contract for the performance of a specified piece of
work; the control and supervision of the work; the
employer's powers and duties with respect to the
hiring, firing, and payment of the contractor's
servants; the control of the premises; the duty to
supply the premises, tools, appliances, material and
labor; and the mode, manner, and terms of
payment.

Contributors

STERLING VS SOL
DOCTRINE: The mere fact that while performing
the duties assigned to her she was not under the
supervision of the petitioners does not render her a
contractor, because what she has to do, the hours
that she has to work and the report that she has to
submit all — these are according to instructions
given by the employer. It is not correct to say,
therefore, that she was an independent contractor,
for an independent contractor is one who does not
receive instructions as to what to do, how to do,
without specific instructions.
FACTS: Loreta C. Sol charged the herein petitioners
Sterling Products International and its Radio
Director V. San Pedro with having committed an
unfair labor practice act. She alleged in her
complaint that she has been a regular Radio
Monitor of respondents-petitioners; that in 1960
filed a complaint against the said firm for
underpayment, money equivalent of her vacation
leave from 1952 to 1959, and Christmas bonus for
1959 = this previous complaint resulted in her
dismissal without just cause
Petitioners’ answer: alleged that complainant is an
independent contractor whose services were
retained by petitioners to submit reports of radio
monitoring work performed outside of
their(petitioners') office and that she was dismissed
because her services were no longer required.
Complainant filed a motion to reconsider the
decision, raising the question as to whether she is
an employee or an independent contractor. The
lower court reversed the decision of Judge Tabigne,
ruling that complainant was an employee and not
an independent contractor, and ordered her
reinstatement with back wages. The lower court
further ruled that respondent firm was guilty of
unfair labor practice.
In arriving at this ruling it considered the following
circumstances:
(1) Complainant was given an identification
card stating that "Bearer Loreta C. Sol is a
bona fide employee of this Company;"
Contributors
12
(2) when she applied for purchase of a lot
from the PHHC, she was given a certificate
to show that she was indeed an employee
of the respondent company for the last five
years or six years; and
(3) as such employee, she enjoyed the
privilege of borrowing money from the
Employees Loan Association of the firm.
The court further found that the company's control
over respondent's work is shown by the fact that
she cannot listen to broadcasts other than those
that were contained in the schedule given to her by
the company. Supervision and control of her work
could be done by checking or verifying the contents
of her reports on said broadcasts, said the court.
ISSUE/S: Whether Sol is an independent contractor
–NO!
WON Sterling is guilty of Unfair Labor Practices-
NO!
RULING 1:
Respondent Sol was directed to listen to certain
broadcasts, directing her, in the instructions given
her, when to listen and what to listen, petitioners
herein naming the stations to be listened to, the
hours of broadcasts, and the days when listening
was to be done. Respondent Sol had to follow
these directions. The mere fact that while
performing the duties assigned to her she was not
under the supervision of the petitioners does not
render her a contractor, because what she has to
do, the hours that she has to work and the report
that she has to submit all — these are according to
instructions given by the employer. It is not correct
to say, therefore, that she was an independent
contractor, for an independent contractor is one
who does not receive instructions as to what to do,
how to do, without specific instructions.
Finally, the very act of respondent Sol in demanding
vacation leave, Christmas bonus and additional
wages shows that she considered herself an
employee. A contractor is not entitled to a vacation
leave or to a bonus nor to a minimum wage. This
 13

act of hers in demanding these privileges are
inconsistent with the claim that she was an
independent contractor.
SUB ISSUE / RULING 2
The next point at issue is whether or not the
petitioners herein are guilty of unfair labor
practice. Petitioners claim that under the
decision rendered by Us in the case of Royal
Interocean Lines, et al. vs. Court of Industrial
Relations, et al., G.R. No. L-11745, Oct. 31, 1960,
as respondent Sol was merely an employee and
was not connected with any labor union, the
company cannot be considered as having
committed acts constituting unfair labor practice
as defined in the Industrial Peace Act, Rep. Act
875
We find this contention to be well-founded. The
term unfair labor practice has been defined as any
of those acts listed in See. 4 of the Act. The
respondent Sol has never been found to commit
any of the acts mentioned in paragraph (a) of Sec.
4. Respondent Sol was not connected with any
labor organization, nor has she ever attempted to
join a labor organization, or to assist, or contribute
to a labor organization. The company cannot,
therefore, be considered as having committed an
unfair labor practice.
may terminate at any time the employment
with just cause; or without just cause in the
case of an employee by serving written
notice on the employer at least one month
in advance, or in the case of an employer, by
serving such notice to the employee at least
one month in advance or one-half month
for every year of service of the employee,
whichever is longer, a fraction of at least six
months being considered as one whole year.
The employer upon whom no such notice
was served in case of termination of
employment without just cause may hold
the employee liable for damages.
The contract between the petitioners and the
respondent Sol providing that the respondent Sol
can be dismissed upon fifteen days' notice is
therefore null and void. Inasmuch as respondent
Sol was employed since the year 1952 and was in
the employment of the petitioners from that time
up to 1959, or a period of seven years, she is
entitled to three and one-half months pay in
accordance with the above quoted section 1 of the
Act.

The court below found that there is an employment

contract (Exhibit "3") between petitioners and
respondent Sol in which it was expressly agreed
that Sol could be dismissed upon fifteen days'
advance notice, if petitioners herein desire.
Respondent Sol was dismissed on January 13, 1959
and therefore the dismissal should be governed by
the provisions of Republic Act 1787, which took
effect on June 21, 1957. Section 1 of the Act
provides:

SECTION 1. In cases of employment,

without a definite period, in a commercial,
industrial, or agricultural establishment or
enterprise, the employer or the employee
Contributors

.DY KEH BENG VS INTERNATIONAL LABOR
DOCTRINE:
FACTS:
Antecedents
A charge of unfair labor practice was filed against
Dy Keh Beng, proprietor of a basket factory, for
discriminatory acts within the meaning of Section
4(a), sub-paragraph (1) and (4), Republic Act No.
875, by dismissing on September 28 and 29, 1960,
respectively, Carlos N. Solano and Ricardo Tudla for
their union activities.
After preliminary investigation was conducted, a
case was filed in the Court of Industrial Relations
for in behalf of the International Labor and Marine
Union of the Philippines and two of its members,
Solano and Tudla
In his answer, Dy Keh Beng contended that he did
not know Tudla and that Solano was not his
employee because the latter came to the
establishment only when there was work which he
did on pakiaw basis, each piece of work being done
under a separate contract.
Ruling of the Hearing Examiner/Court of Industrial
Relations
After trial, the Hearing Examiner prepared a report
which was subsequently adopted in toto by the
Court of Industrial Relations. An employee-
employer relationship was found to have existed
between Dy Keh Beng and complainants Tudla and
Solano, although Solano was admitted to have
worked on piece basis.
According to the Hearing Examiner, the evidence
for the complainant Union tended to show that
Solano and Tudla became employees of Dy Keh
Beng from May 2, 1953 and July 15,
1955, respectively, and that except in the event of
illness, their work with the establishment was
continuous although their services were
compensated on piece basis. Evidence likewise
showed that at times the establishment had eight
Contributors
14
(8) workers and never less than five (5) including
the complainants, and that complainants used to
receive P5.00 a day. sometimes less.
Arguments of Dy Keh Beng before the Supreme
Court
According to Dy Keh Beng, however, Solano was not
his employee for the following reasons:
(1) Solano never stayed long enought at Dy's
establishment;
(2) Solano had to leave as soon as he was through
with the order given him by Dy;
(4) When there were no orders needing his
services there was nothing for him to do;
(5) When orders came to the shop that his regular
workers could not fill it was then that Dy went to
his address in Caloocan and fetched him for these
orders; and
(6) Solano's work with Dy's establishment was not
continuous.
According to petitioner, these facts show that
respondents Solano and Tudla are only piece
workers, not employees under Republic Act 875,
where an employee is referred to as
shall include any employee and shag not be
limited to the employee of a particular employer
unless the Act explicitly states otherwise and shall
include any individual whose work has ceased as
a consequence of, or in connection with any
current labor dispute or because of any unfair
labor practice and who has not obtained any
other substantially equivalent and regular
employment.
while an employer
includes any person acting in the interest of an
employer, directly or indirectly but shall not
include any labor organization (otherwise than
when acting as an employer) or anyone acting in
the capacity of officer or agent of such labor
organization.

Petitioner really anchors his contention of the non-
existence of employee-employer relationship on
the control test. He points to the case of Madrigal
Shipping Co., Inc. v. Nieves Baens del Rosario, et al.,
L-13130, October 31, 1959, where the Court ruled
that:
The test ... of the existence of employee and
employer relationship is whether there is an
understanding between the parties that one is to
render personal services to or for the benefit of
the other and recognition by them of the right of
one to order and control the other in the
performance of the work and to direct the
manner and method of its performance.
Petitioner contends that the private respondents
"did not meet the control test in the fight of the ...
definition of the terms employer and employee,
because there was no evidence to show that
petitioner had the right to direct the manner and
method of respondent's work. Moreover, it is
argued that petitioner's evidence showed that
"Solano worked on a pakiaw basis" and that he
stayed in the establishment only when there was
work.
ISSUE:
Whether there existed an employee employer
relation between petitioner Dy Keh Beng and the
respondents Solano and Tudla. YES.
RULING:
While this Court upholds the control test under
which an employer-employee relationship exists
"where the person for whom the services are
performed reserves a right to control not only the
end to be achieved but also the means to be used
in reaching such end, " it finds no merit with
petitioner's arguments as stated above.
What is Control Test?
It should be borne in mind that the control test
calls merely for the existence of the right to control
the manner of doing the work, not the actual
exercise of the right.
Contributors
15
Considering the finding by the Hearing Examiner
that the establishment of Dy Keh Beng is "engaged
in the manufacture of baskets known as kaing, it is
natural to expect that those working under Dy
would have to observe, among others, Dy's
requirements of size and quality of the kaing. Some
control would necessarily be exercised by Dy as the
making of the kaing would be subject to Dy's
specifications. Parenthetically, since the work on
the baskets is done at Dy's establishments, it can be
inferred that the proprietor Dy could easily exercise
control on the men he employed.
What is Payment by the Piece?
As to the contention that Solano was not an
employee because he worked on piece basis, this
Court agrees with the Hearing Examiner that
circumstances must be construed to determine
indeed if payment by the piece is just a method
of compensation and does not define the
essence of the relation. Units of time ... and
units of work are in establishments like
respondent (sic) just yardsticks whereby to
determine rate of compensation, to be applied
whenever agreed upon. We cannot construe
payment by the piece where work is done in
such an establishment so as to put the worker
completely at liberty to turn him out and take in
another at pleasure.
At this juncture, it is worthy to note that Justice
Perfecto, concurring with Chief Justice Ricardo
Paras who penned the decision in "Sunrise Coconut
Products Co. v. Court of Industrial Relations" (83
Phil..518, 523), opined that
judicial notice of the fact that the so-called
"pakyaw" system mentioned in this case as
generally practiced in our country, is, in fact, a
labor contract -between employers and
employees, between capitalists and laborers.

RJL Martinez vs. NLRC
FACTS:
RJL Martinez Fishing Corp. are principally engaged
in the deep-sea fishing business.
Respondents were employed by RJL since 1978 as
stevedores at Navotas Fish Port for unloading of
tuna fish catch by said corporation’s vessels and
then loading them on refrigerated vans for
shipment abroad.
On March 27, 1981, private respondents Antonio
Boticario, and thirty (30) others, upon the premise
that they are petitioners' regular employees, filed a
complaint against petitioners for non-payment of
overtime pay, premium pay, legal holiday pay,
emergency allowance under P.D. Nos. 525, 1123,
1614, 1634, 1678, 1713, 1751, 13th month pay (P.D.
851), service incentive leave pay and night shift
differential.
On April 21, 1981 another complaint was filed
against RJL for Illegal Dismissal and for Violation of
Article 118 of the Labor Code, as amended. Upon
RJL’s motion, these two cases were consolidated
and tried jointly.
RJL contended that private respondents are
contract laborers whose work terminated upon
completion of each unloading, and that in the
absence of any boat arrivals, private respondents
did not work for petitioners but were free to work
or seek employment with other fishing boat
operators.
ISSUES:
1. Whether or not there is an employer-
employee relationship between the parties.
YES.
2. Whether or not private respondents are
entitled to legal holiday pay, emergency
living allowance, thirteenth month pay and
incentive leave pay. YES
Contributors
16
RULING:
The SC ruled that there is an existence of employer-
employee relationship between the parties.
Furthermore, that the continuity of employment is
not the determining factor, but rather whether the
work of the laborer is part of the regular business
or occupation of the employer.
The SC discussed that, although it may be that
private respondents alternated their employment
on different vessels when they were not assigned
to petitioners' boats, that did not affect their
employee status. The evidence establishes that
petitioners had a fleet of fishing vessels with
about 65 ship captains, and as private respondents
contended, when they finished with one vessel,
they were instructed to wait for the next.
NLRC also found that the employer-employee
relationship between the parties herein is not co-
terminous with each loading and unloading job. As
earlier shown, respondents are engaged in the
business of fishing. For this purpose, they have a
fleet of fishing vessels. Under this situation,
respondents' activity of catching fish is a
continuous process and could hardly be
considered as seasonal in nature. The activities
performed by herein complainants, i.e. unloading
the catch of tuna fish from respondents' vessel and
then loading the same to refrigerated vans, are
necessary or desirable in the business of
respondents. These circumstances make the
employment of complainants a regular one, in the
sense that it does not depend on any specific
project or seasonal activity.
Furthermore, the employment contract signed by
Antonio Boticario, which described him as "labor
contractor", is not really so inasmuch as wages
continued to be paid by petitioners and he and the
other workers were uniformly paid. He was merely
asked by the petitioners to recruit other workers.
Besides, labor-contracting is prohibited under Sec.
9(b), Rule VIII, Book III — Rules and Regulations
Implementing the Labor Code as amended.
The SC court herein cited the case of Philippine
Fishing Boat Officers and Engineers Union vs. CIR,
where it ruled that
 17

Xxx "that during the temporary layoff, the

laborers are considered free to seek other
employment is natural, since the laborers
are not being paid, yet must find means of
support" and such temporary cessation of
operations "should not mean starvation for
employees and their families."

2. Whether or not private respondents are

entitled to legal holiday pay, emergency living
allowance, thirteenth month pay and incentive
leave pay. YES
Considering the length of time that private
respondents have worked for petitioner —
since 1978 — there is justification to
conclude that they were engaged to
perform activities usually necessary or
desirable in the usual business or trade of
petitioners and are, therefore, regular
employees. As such, they are entitled to the
benefits awarded them by respondent
NLRC.

Contributors

KIMBERLY CLARK V DRILON
185 SCRA 190
REGALADO; May 9, 1990
FACTS: Kimberly-Clark Philippines, Inc. (KIMBERLY)
executed a three-year collective bargaining
agreement (CBA) with United Kimberly-Clark
Employees Union-Philippine Transport and General
Workers' Organization (UKCEUPTGWO) which
expired on June 30, 1986.
Within the 60-day freedom period prior to the
expiration of and during the negotiations for the
renewal of the aforementioned CBA, some
members of the bargaining unit formed another
union called "Kimberly Independent Labor Union
for Solidarity, Activism and Nationalism-Organized
Labor Association in Line Industries and Agriculture
(KILUSAN-OLALIA)
April 21, 1986, KILUSAN-OLALIA filed a petition for
certification election. KIMBERLY and UKCEU-
PTGWO did not object to the holding of a
certification election but objected to the inclusion
of the so-called contractual workers whose
employment with KIMBERLY was coursed through
an independent contractor, Rank Manpower
Company (RANK, for short), as among the qualified
voters.
On June 2, 1986, Med-Arbiter Bonifacio I.
Marasigan, who was handling the certification
election case issued an order declaring the
following as eligible to vote in the certification
election, thus:
1) regular rank-and-file laborers/employees of the
respondent company; 2) casuals who have worked
at least six (6) months; 3) Contractual employees
who are allegedly in the employ of an independent
contractor and who have also worked for at least
six (6) months
During the pre-election conference, 64 casual
workers were challenged by KIMBERLY and UKCEU-
Contributors
18
PTGWO on the ground that they are not employees
of KIMBERLY but of RANK. It was agreed by all the
parties that the 64 voters shall be allowed to cast
their votes but that their ballots shall be segregated
and subject to challenge proceedings.
After the elections, UKCEU-PTGWO won over
KILUSAN-OLALIA by 20 votes. This count considered
the votes of the 64 employees as separate.
In a case regarding the status of the 64 employees
in relation to the certification election, it was held
by med-arbiter Sanchez that:
“…2)The other casual employees not performing
janitorial and yard maintenance services were
deemed labor-only contractuals and since labor-
only contracting is prohibited, such employees
were held to have attained the status of regular
employees, the regularization being effective as of
the date of the decision;
3. UKCEU-PTGWO, having garnered more votes
than KILUSAN-OLALIA, was certified as the exclusive
bargaining representative of KlMBERLY's
employees;…”
Since the members were only considered regular at
the time of the decision, their votes were not re-
considered as regards the election. Winning union
and company executed a CBA.
KIMBERLY-OLALIA filed for a TRO on the CBA and
included the question of the status of the 64
members in question.
ISSUE WON the 64 employees were regular
employees at the time of the certification election
HELD: YES
A280LC provides for two kinds of regular
employees: (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
 19

service, whether continuous or broken, with
respect to the activity in which they are employed
The individual petitioners herein who have been
adjudged to be regular employees (by law) fall
under the second category. These are the
mechanics, electricians, machinists, machine shop
helpers, warehouse helpers, painters, carpenters,
pipefitters and masons. It is not disputed that these
workers have been in the employ of KIMBERLY for
more than one year at the time of the filing of the
petition for certification election by KILUSAN-
OLALIA.
While the actual regularization of these employees
entails the mechanical act of issuing regular
appointment papers and compliance with such
other operating procedures as may be adopted by
the employer, it is more in keeping with the intent
and spirit of the law to rule that the status of
regular employment attaches to the casual worker
on the day immediately after the end of his first
year of service
1986. Consequently, the votes cast by those
employees not performing janitorial and yard
maintenance service, which forms part of the 64
challenged votes, should be opened, counted and
considered for the purpose of determining the
certified bargaining representative.
One Year Service: Kimberly v Drilon [1990]
Those who have rendered at least one year of
service, whether continuous or broken are deemed
regular with respect to the activity in which they
are employed. While the actual regularization of
these employees entails the mechanical act of
issuing regular appointment paper and compliance
with such other operating procedures as may be
adopted by the employer, it is more in keeping
with the intent and spirit of the law to rule that the
status of regular employment attaches to the
casual worker on the day immediately after the end
of his first yr of service.

The law is explicit. As long as the employee has

rendered at least one year of service, he becomes a
regular employee with respect to the activity in
which he is employed. The law does not provide
the qualification that the employee must first be
issued a regular appointment or must first be
formally declared as such before he can acquire a
regular status. Obviously, where the law does not
distinguish, no distinction should be drawn.

On the basis of the foregoing circumstances, and as

a consequence of their status as regular employees,
those workers not perforce janitorial and yard
maintenance service were performance entitled to
the payment of salary differential, cost of living
allowance, 13th month pay, and such ther benefits
extended to regular employees under the CBA,
from the day immediately following their first year
of service in the company.

These regular employees are likewise entitled to

vote in the certification election held in July 1,
Contributors

TABAS vs CALIFORNIA
Doctrine:
The existence of an employer-employee
relationship is a question of law and cannot be
made subject to agreement.
Facts:
Danilo Tabas et al. were employees of Livi
Manpower Services. They were assigned to
California Manufacturing Company pursuant to a
manpower supply agreement as “promotional
merchandisers”. It was provided in the agreement
that:
1) California would have no control or
supervision over the workers as to how they
perform or accomplish their work
2) Livi is an independent contractor and that it
has the sole responsibility of complying with
all the existing as well as future laws, rules
and regulations pertinent to employment of
labor
3) the assignment to California was “seasonal
and contractual
4) payroll, including COLA and holiday pay shall
be delivered Livi at California’s premises.
Tabas et al were made to sign 6-month
employment contracts which were renewed for the
same period. Unlike regular employees of
California, they did not receive fringe benefits and
bonuses and were paid only a daily allowance.
They contend that they have become regular
employees of California. Subsequent to their claim
for regularization, California no longer re-hired
them. Livi, on the other hand, claims the workers as
its employees and that it is an independent
contractor.
Labor Arbiter found that no employer-employee
relationship existed. The NLRC affirmed the ruling.
Contributors
20
Issue:
Is there an employer-employee relationship
between Danilo Tabas et al and California
Manufacturing Company
Ruling:
Yes.
The existence of an employer-employee
relationship is a question of law and cannot
be made subject to agreement. The
stipulations in the manpower supply
agreement will not erase either party’s
obligations as an employer. Livi is a labor-
only contractor, notwithstanding the
provisions in the agreement. The nature of
one’s business is not determined by self-
serving appellations but by test provided by
statute and the prevailing case law.
California’s contention that the workers are
not performing activities which are directly
related to its general business of
manufacturing is untenable. The promotion
or sale of products, including the task of
occasional price tagging, is an integral part
of the manufacturing business. Livi as a
placement agency had simply supplied the
manpower necessary for California to carry
out its merchandising activities, using the
latter’s premises and equipment.
Merchandising is likewise not a specific
project because it is an activity related to
the day-to-day operations of California.
Based on Article 106 of the Labor Code, the
labor-only contractor is considered merely
an agent of the employer and liability must
be shouldered by either one or by both.
Petitioners are ordered reinstated as regular
employees.

FONTERA VS LARGADO
FONTERRA BRANDS PHILS., INC., Petitioner, vs.
LEONARDO LARGADO and TEOTIMO ESTRELLADO,
Respondents.
G.R. No. 205300
DOCTRINE:
In labor-only contracting, the law creates an
employer-employee relationship between the
principal and the labor-only contractor’s employees
as if such employees are directly employed by the
principal employer, and considers the contractor as
merely the agent of he principal.
FACTS:
Fonterra Brands Phils., Inc. (Fonterra) contracted
the services of Zytron Marketing and Promotions
Corp. (Zytron) for the marketing and promotion of
its milk and dairy products.
Pursuant to the contract, Zytron provided Fonterra
with trade merchandising representatives (TMRs),
including respondents Leonardo Largado (Largado)
and Teotimo Estrellado (Estrellado).
The engagement of their services began on
September 15, 2003 and May 27, 2002,
respectively, and ended on June 6, 2006.
On May 3, 2006, Fonterra sent Zytron a letter
terminating its promotions contract, effective June
5, 2006.
Fonterra then entered into an agreement for
manpower supply with A.C. Sicat Marketing and
Promotional Services (A.C. Sicat).
Contributors
21
Desirous of continuing their work as TMRs,
respondents submitted their job applications with
A.C. Sicat, which hired them for a term of five (5)
months, beginning June 7, 2006 up to November 6,
2006.
When respondents’ 5-month contracts with A.C.
Sicat were about to expire, they allegedly sought
renewal thereof, but were allegedly refused.
Respondents then filed complaints for illegal
dismissal, regularization, nonpayment of service
incentive leave and 13th month pay, and actual and
moral damages, against petitioner, Zytron, and A.C.
Sicat.
Labor Arbiter Decision
(1) respondents were not illegally dismissed. As a
matter of fact, they were the ones who refused
to renew their contract and that they
voluntarily complied with the requirements for
them to claim their corresponding monetary
benefits in relation thereto;
(2) they were consecutively employed by Zytron
and A.C. Sicat, not by Fonterra.
NLRC
NLRC affirmed the Labor Arbiter, finding that
respondents’ separation from Zytron was brought
about by the execution of the contract between
Fonterra and A.C. Sicat where the parties agreed to
absorb Zytron’s personnel, including respondents.
Court of Appeals
A.C. Sicat satisfies the requirements of legitimate
job contracting, but Zytron does not.
(1)Zytron’s paid-in capital of P250,000
cannot be considered as substantial
capital;
(2)its Certificate of Registration was
issued by the DOLE months after
respondents’ supposed employment
ended; and

(3)its claim that it has the necessary
tools and equipment for its business is
unsubstantiated.
Therefore, respondents were Fonterra’s employees.
Respondents were illegally dismissed since Fonterra
itself failed to prove that their dismissal is lawful.
However, the illegal dismissal should be reckoned
from the termination of their supposed
employment with Zytron on June 6, 2006.
Furthermore, respondents’ transfer to A.C. Sicat is
tantamount to a completely new engagement by
another employer.
Lastly, the termination of their contract with A.C.
Sicat arose from the expiration of their respective
contracts with the latter.
The CA, thus, ruled that Fonterra is liable to
respondents and ordered the reinstatement of
respondents without loss of seniority rights, with
full backwages, and other benefits from the time of
their illegal dismissal up to the time of their actual
reinstatement.
ISSUE/S:
a. Whether or not Zytron and A.C. Sicat are
labor-only contractors.
b. Whether or not respondents were illegally
dismissed.
RULING:
a. Whether or not Zytron and A.C. Sicat are
labor-only contractors.
Zyrton
Determination is immaterial as respondents
voluntarily terminated their employment with
Zytron.
Contributors
22
As correctly held by the Labor Arbiter and the
NLRC, the termination of respondents’ employment
with Zytron was brought about by the cessation of
their contracts with the latter.
The respondents were the ones who refused to
renew their contracts with Zytron, and they
themselves acquiesced to their transfer to A.C.
Sicat.
By refusing to renew their contracts with Zytron,
respondents effectively resigned from the latter.
Resignation is the voluntary act of
employees who are compelled by personal
reasons to dissociate themselves from their
employment, done with the intention of
relinquishing an office, accompanied by the
act of abandonment.
Respondents voluntarily terminated their
employment with Zytron by refusing to renew their
employment contracts with the latter, applying with
A.C. Sicat, and working as the latter’s employees,
thereby abandoning their previous employment
with Zytron.
A.C. Sicat
A.C. Sicat is engaged in legitimate job contracting
and was able to prove its status as a legitimate job
contractor.
In labor-only contracting, the law creates an
employer-employee relationship between the
principal and the labor-only contractor’s employee
as if such employees are directly employed by the
principal employer, and considers the contractor
as merely the agent of the principal.
A.C. Sicat’s status as a legitimate job contractor is
consistent with the rules on job contracting and is
sufficiently supported by the evidence.
JOB-CONTRACTING

A person is considered engaged in legitimate job
contracting or subcontracting if the following
conditions concur:
1. The contractor or subcontractor carries
on a distinct and independent business
and undertakes to perform the job, work
or service on its own account and under
its own responsibility according to its
own manner and method, and free from
the control and direction of the principal
in all matters connected with the
performance of the work except as to
the results thereof;
2. The contractor or subcontractor has
substantial capital or investment; and
3. The agreement between the principal
and contractor or subcontractor assures
the contractual employees entitlement
to all labor and occupational safety and
health standards, free exercise of the
right to self-organization, security of
tenure, and social and welfare benefits.
Contracting is prohibited when the contractor or
subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a
principal and if any of the following elements are
present, thus:
1. 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
4. The contractor does not exercise the
right to control over the performance of
the work of the contractual employee.
Furthermore, A.C. Sicat has substantial capital,
having assets totaling P5,926,155.76 as of
December 31, 2006.
Contributors
23
Too, its Agreement with Fonterra clearly sets forth
that A.C. Sicat shall be liable for the wages and
salaries of its employees or workers, including
benefits, premiums, and protection due them, as
well as remittance to the proper government
entities of all withholding taxes, Social Security
Service, and Medicare premiums, in accordance
with relevant laws.
These sufficiently show that A.C. Sicat carries out its
merchandising and promotions business,
independent of Fonterra’s business.
Thus, having settled that A.C. Sicat is a legitimate
job contractor.
c. Whether or not respondents were illegally
dismissed. NO
Respondents were fixed-term employees.
As previously held by this Court, fixed-term
employment contracts are not limited, as they are
under the present Labor Code, to those by nature
seasonal or for specific projects with
predetermined dates of completion; they also
include those to which the parties by free choice
have assigned a specific date of termination.
The determining factor of such contracts is not the
duty of the employee but the day certain agreed
upon by the parties for the commencement and
termination of the employment relationship.
In the case at bar, it is clear that
respondents were employed by A.C.
Sicat as project employees. In their
employment contract with the latter, it is
clearly stated that “[A.C. Sicat is]
temporarily employing [respondents] as
TMR[s] effective June 6[, 2006] under
the following terms and conditions: The
need for your service being only for a
specific project, your temporary
employment will be for the duration

only of said project of our client, namely
to promote FONTERRA BRANDS products
x x x which is expected to be finished on
or before Nov. 06, 2006.
Respondents, by accepting the conditions of the
contract with A.C. Sicat, were well aware of and
even acceded to the condition that their
employment thereat will end on said pre-
determined date of termination. They cannot now
argue that they were illegally dismissed by the
latter when it refused to renew their contracts after
its expiration.
This is so since the non-renewal of their contracts
by A.C. Sicat is a management prerogative, and
failure of respondents to prove that such was done
in bad faith militates against their contention that
they were illegally dismissed.
The expiration of their contract with A.C. Sicat
simply caused the natural cessation of their fixed-
term employment there at. We, thus, see no reason
to disturb the ruling of the CA in this respect.
TONGKO V MANUFACTURER’S LIFE INSURANCE
(2010)
DOCTRINE: Absence of evidence showing control
over contractual duties points to the absence of
any employer-employee relationship.
FACTS: The contractual relationship between
Tongko and Manulife had two basic phases. The
first or initial phase began on July 1, 1977, under a
Career Agent’s Agreement (Agreement) that
provided:
It is understood and agreed that the Agent is an
independent contractor and nothing contained
herein shall be construed or interpreted as creating
an employer-employee relationship between the
Company and the Agent.
Contributors
24
The second phase started in 1983 when Tongko was
named Unit Manager in Manulife’s Sales Agency
Organization. In 1990, he became a Branch
Manager. Six years later (or in 1996), Tongko
became a Regional Sales Manager.4
Tongko’s gross earnings consisted of commissions,
persistency income, and management overrides.
Since the beginning, Tongko consistently declared
himself self-employed in his income tax returns.
Thus, under oath, he declared his gross business
income and deducted his business expenses to
arrive at his taxable business income.
In 2001, Manulife instituted manpower
development programs at the regional sales
management level. Respondent Renato Vergel de
Dios wrote Tongko letters to remind the latter to
align to the direction that the company was taking.
Among which is to recruit agents- this is the first
step into transforming Manulife into a big league
player.
Failing to do so, de Dios wrote Tongko another
letter, dated December 18, 2001, terminating
Tongko’s services:
“It would appear, however, that despite the series
of meetings and communications, both one-on-one
meetings between yourself and SVP Kevin
O’Connor, some of them with me, as well as group
meetings with your Sales Managers, all these
efforts have failed in helping you align your
directions with Management’s avowed agency
growth policy.”
Tongko on the other hand responded by filing an
illegal dismissal complaint with the National Labor
Relations Commission (NLRC) Arbitration Branch.
He essentially alleged – despite the clear terms of
the letter terminating his Agency Agreement – that
he was Manulife’s employee before he was illegally
dismissed.
ISSUE: WON there exists an employment
relationship. -NO.

RULING:
A. Tongko’s Case for Employment Relationship
Tongko asserted that as Unit Manager, he was paid
an annual over-rider regardless of production levels
attained and exclusive of commissions and
bonuses. He also claimed that as Regional Sales
Manager, he was given a travel and entertainment
allowance; he was tasked with numerous
administrative functions and supervisory authority
over Manulife’s employees, aside from merely
selling policies and recruiting agents for Manulife;
and he recommended and recruited insurance
agents subject to vetting and approval by Manulife.
B. Manulife’s Case – Agency Relationship with
Tongko
Manulife argues that Tongko had no fixed wage or
salary. Tongko even declared himself to be self-
employed and consistently paid taxes as such.
Manulife asserts that the labor tribunals have no
jurisdiction over Tongko’s claim as he was not its
employee as characterized in the four-fold test
Conflicting Rulings of the Lower Tribunals
The labor arbiter decreed that no employer-
employee relationship existed between the parties.
However, the NLRC reversed the labor arbiter’s
decision on appeal; it found the existence of an
employer-employee relationship and concluded
that Tongko had been illegally dismissed. CA
however reverted to the labor arbiter’s decision.
SC: In our Decision of November 7, 2008, we
reversed the CA ruling and found that an
employment relationship existed between Tongko
and Manulife.
Manulife disagreed with our Decision and filed the
present motion for reconsideration.
C. Analysis of the Evidence
Contributors
25
c.1. The Agreement
The primary evidence in the present case is the July
1, 1977 Agreement that governed and defined the
parties’ relations until the Agreement’s termination
in 2001. This Agreement stood for more than two
decades and, based on the records of the case, was
never modified or novated. It assumes primacy
because it directly dealt with the nature of the
parties’ relationship up to the very end; moreover,
both parties never disputed its authenticity or the
accuracy of its terms.
By the Agreement’s express terms, Tongko served
as an "insurance agent" for Manulife, not as an
employee. To be sure, the Agreement’s legal
characterization of the nature of the relationship
cannot be conclusive and binding on the courts; as
the dissent clearly stated, the characterization of
the juridical relationship the Agreement embodied
is a matter of law that is for the courts to
determine.
At the same time, though, the characterization the
parties gave to their relationship in the Agreement
cannot simply be brushed aside because it
embodies their intent at the time they entered the
Agreement, and they were governed by this
understanding throughout their relationship.
Significantly, evidence shows that Tongko’s role as
an insurance agent never changed during his
relationship with Manulife. If changes occurred at
all, the changes did not appear to be in the nature
of their core relationship. Tongko essentially
remained an agent, but moved up in this role
through Manulife’s recognition that he could use
other agents approved by Manulife, but operating
under his guidance and in whose commissions he
had a share. For want of a better term, Tongko
perhaps could be labeled as a "lead agent" who
guided under his wing other Manulife agents
similarly tasked with the selling of Manulife
insurance.

That Tongko assumed a leadership role but
nevertheless wholly remained an agent is the
inevitable conclusion that results from the reading
of the Agreement (the only agreement on record in
this case) and his continuing role thereunder as
sales agent.
Evidence indicates that Tongko consistently clung to
the view that he was an independent agent selling
Manulife insurance products since he invariably
declared himself a business or self-employed
person in his income tax returns.
This consistency with, and action made pursuant
to the Agreement were pieces of evidence that
were never mentioned nor considered in our
Decision of November 7, 2008.
Had they been considered, they could, at the very
least, serve as Tongko’s admissions against his
interest. Strictly speaking, Tongko’s tax returns
cannot but be legally significant because he
certified under oath the amount he earned as
gross business income, claimed business
deductions, leading to his net taxable income. This
should be evidence of the first order that cannot be
brushed aside by a mere denial. Even on a layman’s
view that is devoid of legal considerations, the
extent of his annual income alone renders his
claimed employment status doubtful.
The conclusion with respect to Tongko’s
employment as a manager is, of course,
unacceptable for the legal, factual and practical
reasons discussed in this Resolution. In brief,
the factual reason is grounded on the lack of
evidentiary support of the conclusion that Manulife
exercised control over Tongko in the sense
understood in the Labor Code. The legal reason,
partly based on the lack of factual basis, is the
erroneous legal conclusion that Manulife controlled
Tongko and was thus its employee. The practical
reason, on the other hand, is the havoc that the
dissent’s unwarranted conclusion would cause the
insurance industry that, by the law’s own design,
Contributors
26
operated along the lines of principal-agent
relationship in the sale of insurance.
c.2. Other Evidence of Alleged Control
A glaring evidentiary gap for Tongko in this case is
the lack of evidence on record showing that
Manulife ever exercised means-and-manner
control, even to a limited extent, over Tongko
during his ascent in Manulife’s sales ladder.
The best evidence of control – the agreement or
directive relating to Tongko’s duties and
responsibilities – was never introduced as part of
the records of the case. The reality is, prior to de
Dios’ letter, Manulife had practically left Tongko
alone not only in doing the business of selling
insurance, but also in guiding the agents under his
wing.
What, to Tongko, serve as evidence of labor law
control are the codes of conduct that Manulife
imposes on its agents in the sale of insurance. The
mere presentation of codes or of rules and
regulations, however, is not per se indicative of
labor law control as the law and jurisprudence
teach us.
Manulife’s codes of conduct, all of which do not
intrude into the insurance agents’ means and
manner of conducting their sales and only control
them as to the desired results and Insurance Code
norms, cannot be used as basis for a finding that
the labor law concept of control existed between
Manulife and Tongko.
Even de Dios’ letter is not determinative of control
as it indicates the least amount of intrusion into
Tongko’s exercise of his role as manager in guiding
the sales agents.
Strictly viewed, de Dios’ directives are merely
operational guidelines on how Tongko could align
his operations with Manulife’s re-directed goal of
being a "big league player."

The method is to expand coverage through the use
of more agents. This requirement for the
recruitment of more agents is not a means-and-
method control as it relates, more than anything
else, and is directly relevant, to Manulife’s objective
of expanded business operations through the use
of a bigger sales force whose members are all on a
principal-agent relationship.
An important point to note here is that Tongko was
not supervising regular full-time employees of
Manulife engaged in the running of the insurance
business; Tongko was effectively guiding his corps
of sales agents, who are bound to Manulife through
the same Agreement that he had with Manulife, all
the while sharing in these agents’ commissions
through his overrides.
Undeniably, de Dios’ letter contained a directive to
secure a competent assistant at Tongko’s own
expense. While couched in terms of a directive, it
cannot strictly be understood as an intrusion into
Tongko’s method. It was a solution, with an eye on
results; its obvious intent was to save Tongko from
the result that he then failed to grasp.
As previously discussed, what simply happened in
Tongko’s case was the grant of an expanded sales
agency role that recognized him as leader amongst
agents in an area that Manulife defined. Whether
this consequently resulted in the establishment of
an employment relationship can be answered by
concrete evidence that corresponds to the
following questions:
 as lead agent, what were Tongko’s specific
functions and the terms of his additional
engagement;
 was he paid additional compensation as a
so-called Area Sales Manager, apart from
the commissions he received from the
insurance sales he generated;
 what can be Manulife’s basis to terminate
his status as lead agent;
Contributors
27
 can Manulife terminate his role as lead
agent separately from his agency contract;
and
 to what extent does Manulife control the
means and methods of Tongko’s role as lead
agent?
The answers to these questions may, to some
extent, be deduced from the evidence at hand, as
partly discussed above. But strictly speaking, the
questions cannot definitively and concretely be
answered through the evidence on record. The
concrete evidence required to settle these
questions is simply not there, since only the
Agreement and the anecdotal affidavits have been
marked and submitted as evidence.
Given this anemic state of the evidence, particularly
on the requisite confluence of the factors
determinative of the existence of employer-
employee relationship, the Court cannot
conclusively find that the relationship exists in the
present case, even if such relationship only refers to
Tongko’s additional functions.
Under this legal situation, the only conclusion that
can be made is that the absence of evidence
showing Manulife’s control over Tongko’s
contractual duties points to the absence of any
employer-employee relationship between Tongko
and Manulife.
He was nevertheless only an agent whose basic
contract yields no evidence of means-and-manner
control.
On the issue of whether the labor bodies have
jurisdiction over an illegal termination dispute
involving parties who had two contracts – first, an
original contract (agency contract), which was
undoubtedly one for agency, and another
subsequent contract that in turn designated the
agent acting unit manager (a management
contract). Both the Insular Life and the labor arbiter
were one in the position that both were agency
 28

contracts. The Court disagreed with this conclusion

and held that insofar as the management contract
is concerned, the labor arbiter has jurisdiction.

As to Article 4, it applies only when a doubt exists in

the "implementation and application" of the Labor
Code and its implementing rules; it does not apply
where no doubt exists as in a situation where the
claimant clearly failed to substantiate his claim of
employment relationship by the quantum of
evidence the Labor Code requires.

Contributors

ROYALE HOMES VS ALCANTARA (2014)
DOCTRINE: Not every form of control that a hiring
party imposes on the hired party is indicative of
employee-employer relationship. Rules and
regulations that merely serve as guidelines towards
the achievement of a mutually desired result
without dictating the means and methods of
accomplishing it do not establish employer-
employee relationship.
FACTS: Royale Homes, a corporation engaged in
marketing real estates, appointed Alcantara as its
Marketing Director for a fixed period of one year.
His work consisted mainly of marketing Royale
Homes’ real estate inventories on an exclusive
basis. Royale Homes reappointed him for several
consecutive years, the last of which covered the
period January 1 to December 31, 2003.
Alcantara filed a Complaint for Illegal Dismissal
against Royale. Alcantara alleged that he is a
regular employee of Royale Homes since he is
performing tasks that are necessary and desirable
to its business and that the acts of the executive
officers of Royale Homes amounted to his dismissal
from work without any valid or just cause and in
gross disregard of the proper procedure for
dismissing employees.
Royale Homes denied that Alcantara is its
employee. It argued that the appointment paper of
Alcantara is clear that it engaged his services as an
independent sales contractor for a fixed term of
one year only. He never received any salary, 13th
month pay, overtime pay or holiday pay from
Royale Homes as he was paid purely on commission
basis. In addition, Royale Homes had no control on
how Alcantara would accomplish his tasks and
Contributors
29
responsibilities as he was free to solicit sales at any
time and by any manner which he may deem
appropriate and necessary. According to Royale
Homes, Alcantara decided to leave the company
after his wife, who was once connected with it as a
sales agent, had formed a brokerage company that
directly competed with its business, and even
recruited some of its sales agents. Two months
after he relinquished his post, however, Alcantara
appeared in Royale Homes and submitted a letter
claiming that he was illegally dismissed.
The Labor Arbiter rendered a Decision holding that
Alcantara is an employee of Royale Homes and that
the pre-termination of his contract was against the
law. The NLRC rendered its Decision, ruling that
Alcantara is not an employee but a mere
independent contractor of Royale Homes. It based
its ruling mainly on his employment contract. The
CA promulgated its Decision granting Alcantara’s
Petition and reversing the NLRC’s Decision.
Applying the four-fold and economic reality tests, it
held that Alcantara is an employee of Royale
Homes.
ISSUE/S:
Whether or not Alcantara was an independent
contractor or an employee of Royale Homes.
RULING:
Alcantara is an independent contractor. The
primary evidence of the nature of the parties’
relationship in this case is the written contract that
they signed and executed in pursuance of their
mutual agreement. While the existence of
employer-employee relationship is a matter of law,
the characterization made by the parties in their
contract as to the nature of their juridical
relationship cannot be simply ignored, particularly
in this case where the parties’ written contract
unequivocally states their intention at the time they
entered into it. In this case, the contract, duly
signed and not disputed by the parties,
conspicuously provides that "no employer-
employee relationship exists between" Royale
Homes and Alcantara, as well as his sales agents. It
 30

is clear that they did not want to be bound by

employer-employee relationship at the time of the
signing of the contract.

In determining the existence of an employer-

employee relationship, this Court has generally
relied on the four-fold test, to wit: (1) the selection
and engagement of the employee; (2) the payment
of wages; (3) the power of dismissal; and (4) the
employer’s power to control the employee with
respect to the means and methods by which the
work is to be accomplished.
However, not every form of control is indicative of
employer-employee relationship. A person who
performs work for another and is subjected to its
rules, regulations, and code of ethics does not
necessarily become an employee. As long as the
level of control does not interfere with the means
and methods of accomplishing the assigned tasks,
the rules imposed by the hiring party on the hired
party do not amount to the labor law concept of
control that is indicative of employer-employee
relationship.

Notably, Alcantara was not required to observe

definite working hours. Except for soliciting sales,
Royale Homes did not assign other tasks to him. He
had full control over the means and methods of
accomplishing his tasks as he can "solicit sales at
any time and by any manner which [he may] deem
appropriate and necessary." He performed his tasks
on his own account free from the control and
direction of Royale Homes in all matters connected
therewith, except as to the results thereof. This
Court is, therefore, convinced that Alcantara is not
an employee of Royale Homes, but a mere
independent contractor.

Contributors

MANILA GOLD CLUB VS IAC
FACTS:
17 persons (including private respondent Fermin
Llamar) who styled themselves "Caddies of Manila
Golf and Country Club-PTCCEA" filed a case before
the Social Security Commission, "PTCCEA"
being the acronym of a labor organization, the
"Philippine Technical, Clerical, Commercial
Employees Association," with which the petitioners
claimed to be affiliated.
They prayed for coverage and availment of benefits
under the Social Security Act as amended. In
essence, although the petitioners were employees
of the Manila Golf and Country Club, a domestic
corporation, the latter had not registered them as
such with the SSS.
In the case before the SSC, the respondent Club
filed answer praying for the dismissal of the
petition, alleging that the petitioners, caddies by
occupation, were allowed into the Club premises to
render services as such to the individual members
and guests playing the Club's golf course and who
themselves paid for such services; that as such
caddies, the petitioners were not subject to the
direction and control of the Club as regards the
manner in which they performed their work; and
hence, they were not the Club's employees.
The SSC dismissed the petition for lack of merit,
ruling:
. . . that the caddy's fees were paid by the golf
players themselves and not by respondent club.
For instance, petitioner Raymundo Jomok
averred that for their services as caddies a
caddy's Claim Stub is issued by a player who
will in turn hand over to management the other
portion of the stub known as Caddy Ticket so
that by this arrangement management will
know how much a caddy will be paid. Likewise,
petitioner Fermin Llamar admitted that caddy
works on his own in accordance with the rules
and regulations but petitioner Jomok could not
Contributors
31
state any policy of respondent that directs the
manner of caddying.
While respondent club promulgates rules and
regulations on the assignment, deportment and
conduct of caddies the same are designed to
impose personal discipline among the caddies
but not to direct or conduct their actual work.
In fact, a golf player is at liberty to choose a
caddy of his preference regardless of the
respondent club's group rotation system and
has the discretion on whether or not to pay a
caddy. As testified to by petitioner Llamar that
their income depends on the number of players
engaging their services and liberality of the
latter. This lends credence to respondent's
assertion that the caddies are never their
employees in the absence of two elements,
namely, (1) payment of wages and (2) control or
supervision over them. In this connection, our
Supreme Court ruled that in the determination
of the existence of an employer-employee
relationship, the "control test" shall be
considered decisive.
The Intermediate Appellate Court reversed the
decision and declared Fermin Llamar an employee
of the Manila Gold and Country Club, ordering that
he be reported as such for social security coverage
and paid any corresponding benefits.
Upon the evidence, the questioned employer-
employee relationship between the Club and
Fermin Llamar passed the so-called "control test,"
establishment in the case — i.e., "whether the
employer controls or has reserved the right to
control the employee not only as to the result of
the work to be done but also as to the means and
methods by which the same is to be
accomplished," — the Club's control over the
caddies encompassing:
(a) the promulgation of no less than twenty-
four (24) rules and regulations just about every
aspect of the conduct that the caddy must
observe, or avoid, when serving as such, any

violation of any which could subject him to
disciplinary action, which may include
suspending or cutting off his access to the club
premises;
(b) the devising and enforcement of a group
rotation system whereby a caddy is assigned a
number which designates his turn to serve a
player;
(c) the club's "suggesting" the rate of fees
payable to the caddies.
Deemed of title or no moment by the Appellate
Court was the fact that the caddies were paid by
the players, not by the Club, that they observed no
definite working hours and earned no fixed income.
It quoted with approval from an American
decision to the effect that: "whether the club paid
the caddies and afterward collected in the first
instance, the caddies were still employees of the
club." This, no matter that the case which produced
this ruling had a slightly different factual cast,
apparently having involved a claim for workmen's
compensation made by a caddy who, about to
leave the premises of the club where he worked,
was hit and injured by an automobile then
negotiating the club's private driveway.
ISSUE: Whether or not persons rendering caddying
services for members of golf clubs and their guests
in said clubs' courses or premises are the
employees of such clubs and therefore within the
compulsory coverage of the Social Security System
(SSS). NO.
RULING:
The IAC’s holding that upon the facts, there exists
(or existed) a relationship of employer and
employee between petitioner and private
respondent.
The Court does not agree that said facts necessarily
or logically point to such a relationship, and to the
exclusion of any form of arrangements, other than
of employment, that would make the respondent's
services available to the members and guest of the
petitioner.
Contributors
32
As long as it is, the list made in the appealed
decision detailing the various matters of conduct,
dress, language, etc. covered by the petitioner's
regulations, does not, in the mind of the Court, so
circumscribe the actions or judgment of the
caddies concerned as to leave them little or no
freedom of choice whatsoever in the manner of
carrying out their services. In the very nature of
things, caddies must submit to some supervision of
their conduct while enjoying the privilege of
pursuing their occupation within the premises and
grounds of whatever club they do their work in. For
all that is made to appear, they work for the club to
which they attach themselves on sufference but, on
the other hand, also without having to observe any
working hours, free to leave anytime they please,
to stay away for as long they like.
It is not pretended that if found remiss in the
observance of said rules, any discipline may be
meted them beyond barring them from the
premises which, it may be supposed, the Club may
do in any case even absent any breach of the rules,
and without violating any right to work on their
part. All these considerations clash frontally with
the concept of employment.
The IAC would point to the fact that the Club
suggests the rate of fees payable by the players to
the caddies as still another indication of the latter's
status as employees. It seems to the Court,
however, that the intendment of such fact is to the
contrary, showing that the Club has not the
measure of control over the incidents of the
caddies' work and compensation that an employer
would possess.
The Court agrees with petitioner that the group
rotation system so-called, is less a measure of
employer control than an assurance that the work
is fairly distributed, a caddy who is absent when his
turn number is called simply losing his turn to serve
and being assigned instead the last number for the
day.
 33

By and large, there appears nothing in the record to

refute the petitioner's claim that:

(Petitioner) has no means of compelling the

presence of a caddy. A caddy is not required to
exercise his occupation in the premises of
petitioner. He may work with any other golf
club or he may seek employment a caddy or
otherwise with any entity or individual without
restriction by petitioner. . . .

. . . In the final analysis, petitioner has no was of

compelling the presence of the caddies as they
are not required to render a definite number of
hours of work on a single day. Even the group
rotation of caddies is not absolute because a
player is at liberty to choose a caddy of his
preference regardless of the caddy's order in
the rotation.

It can happen that a caddy who has rendered

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

Contributors

VILLAMARIA JR. vs. CA
FACTS:
Petitioner Oscar Villamaria, Jr. was the owner of
Villamaria Motors, engaged in assembling
passenger jeepneys with a public utility franchise to
operate along the Baclaran-Sucat route.
By 1995, Villamaria stopped assembling jeepneys
and retained only nine, four of which he operated
by employing drivers on a "boundary basis." One of
those drivers was respondent Bustamante.
Bustamante remitted P450.00 a day to Villamaria as
boundary and kept the residue of his daily earnings
as compensation for driving the vehicle. In August
1997, Villamaria verbally agreed to sell the jeepney
to Bustamante under the "boundary-hulog
scheme," where Bustamante would remit to
Villarama P550.00 a day for a period of four years;
Bustamante would then become the owner of the
vehicle and continue to drive the same under
Villamaria’s franchise. It was also agreed that
Bustamante would make a downpayment of
P10,000.00.
On August 7, 1997, Villamaria executed a contract
entitled "Kasunduan ng Bilihan ng Sasakyan sa
Pamamagitan ng Boundary-Hulog" over the
passenger jeepney. The parties agreed that if
Bustamante failed to pay the boundary-hulog for
three days, Villamaria Motors would hold on to the
vehicle until Bustamante paid his arrears, including
a penalty of P50.00 a day; in case Bustamante failed
to remit the daily boundary-hulog for a period of
one week, the Kasunduan would cease to have
legal effect and Bustamante would have to return
the vehicle to Villamaria Motors.
Under the Kasunduan, Bustamante promised to
strictly comply with the rules and regulations
imposed by Villamaria for the upkeep and
maintenance of the jeepney; in case of failure to do
so, any fine that may be imposed by government
authorities would be charged against his account.
Contributors
34
In 1999, Bustamante and other drivers who also
had the same arrangement with Villamaria Motors
failed to pay their respective boundary-hulog. This
prompted Villamaria to serve a "Paalala,"
reminding them that under the Kasunduan, failure
to pay the daily boundary-hulog for one week,
would mean their respective jeepneys would be
returned to him without any complaints.
On July 24, 2000, Villamaria took back the jeepney
driven by Bustamante and barred the latter from
driving the vehicle.
On August 15, 2000, Bustamante filed a Complaint
for Illegal Dismissal against Villamaria and his wife
Teresita.
The Sps. Villamaria argued that Bustamante was
not illegally dismissed since the Kasunduan
executed on August 7, 1997 transformed the
employer-employee relationship into that of
vendor-vendee. Hence, the spouses concluded,
there was no legal basis to hold them liable for
illegal dismissal.
Bustamante insists that the Kasunduan did not
extinguish the employer-employee relationship
between him and Villamaria. While he did not
receive fixed wages, he kept only the excess of the
boundary-hulog which he was required to remit
daily to Villamaria under the agreement. Also, he
maintained that he remained an employee because
he was engaged to perform activities which were
necessary or desirable to Villamaria’s trade or
business.
ISSUE:
1. whether the existence of a boundary-hulog
agreement negates the employer-employee
relationship between the vendor and
vendee. NO
2. whether the Labor Arbiter has jurisdiction
over a complaint for illegal dismissal in such
case. YES
RULING:
1. The SC ruled that under the boundary-hulog
scheme incorporated in the Kasunduan, a dual
juridical relationship was created between

petitioner and respondent: that of employer-
employee and vendor-vendee. The Kasunduan
did not extinguish the employer-employee
relationship of the parties existing before the
execution of said deed.
The boundary system is a scheme by an
owner/operator engaged in transporting
passengers as a common carrier to primarily govern
the compensation of the driver, that is, the latter’s
daily earnings are remitted to the owner/operator
less the excess of the boundary which represents
the driver’s compensation.
Under this system, the owner/operator exercises
control and supervision over the driver. It is unlike
in lease of chattels where the lessor loses complete
control over the chattel leased but the lessee is still
ultimately responsible for the consequences of its
use. The management of the business is still in the
hands of the owner/operator, who, being the
holder of the certificate of public convenience,
must see to it that the driver follows the route
prescribed by the franchising and regulatory
authority, and the rules promulgated with regard to
the business operations. The fact that the driver
does not receive fixed wages but only the excess
of the "boundary" given to the owner/operator is
not sufficient to change the relationship between
them. Indubitably, the driver performs activities
which are usually necessary or desirable in the
usual business or trade of the owner/operator.
Under the Kasunduan, respondent was required to
remit P550.00 daily to petitioner, an amount which
represented the boundary of petitioner as well as
respondent’s partial payment (hulog) of the
purchase price of the jeepney. Thus, the daily
remittances also had dual purpose; that if
petitioner’s boundary and respondent’s partial
payment (hulog) for the vehicle.
The well-settled rule is that an obligation is not
novated by an instrument that expressly
recognizes the old one, changes only the terms of
payment, and adds other obligations not
incompatible with the old provisions or where the
new contract merely supplements the previous
Contributors
35
one. The two obligations of the respondent to
remit to petitioner the boundary-hulog can stand
together.
The juridical relationship of employer-employee
between petitioner and respondent was not
negated by the foregoing stipulation in the
Kasunduan, considering that petitioner retained
control of respondent’s conduct as driver of the
vehicle. As correctly ruled by the CA:
xxx that the existence of an employment
relation is not dependent on how the
worker is paid but on the presence or
absence of control over the means and
method of the work; that the amount
earned in excess of the "boundary hulog" is
equivalent to wages; and that the fact that
the power of dismissal was not mentioned
in the Kasunduan did not mean that private
respondent never exercised such power, or
could not exercise such power.
Moreover, requiring petitioner to drive the unit for
commercial use, or to wear an identification card,
or to don a decent attire, or to park the vehicle in
Villamaria Motors garage, or to inform Villamaria
Motors about the fact that the unit would be going
out to the province for two days of more, or to
drive the unit carefully, etc. necessarily related to
control over the means by which the petitioner was
to go about his work; and the fact that the
"boundary" here represented installment payment
of the purchase price on the jeepney did not
withdraw the relationship from that of employer-
employee, in view of the overt presence of
supervision and control by the employer.
As respondent’s employer, it was the burden of
petitioner to prove that respondent’s termination
from employment was for a lawful or just cause,
or, at the very least, that respondent failed to make
his daily remittances of P550.00 as boundary.
However, petitioner failed to do so. As correctly
ruled by the appellate court:
It is basic of course that termination of
employment must be effected in
accordance with law. The just and

authorized causes for termination of
employment are enumerated under Articles
282, 283 and 284 of the Labor Code.
Parenthetically, given the peculiarity of the
situation of the parties here, the default in the
remittance of the boundary hulog for one week or
longer may be considered an additional cause for
termination of employment. The reason is because
the Kasunduan would be of no force and effect in
the event that the purchaser failed to remit the
boundary hulog for one week. The Kasunduan in
this case pertinently stipulates:
13. Na kung ang TAUHAN NG IKALAWANG
PANIG ay hindi makapagbigay ng
BOUNDARY HULOG sa loob ng isang linggo
ay NANGANGAHULUGAN na ang
kasunduang ito ay wala ng bisa at kusang
ibabalik ng TAUHAN NG IKALAWANG PANIG
ang nasabing sasakyan sa TAUHAN NG
UNANG PANIG na wala ng paghahabol pa.
Moreover, well-settled is the rule that, the
employer has the burden of proving that the
dismissal of an employee is for a just cause. The
failure of the employer to discharge this burden
means that the dismissal is not justified and that
the employee is entitled to reinstatement and back
wages.
In the case at bench, private respondent in his
position paper before the Labor Arbiter, alleged
that petitioner failed to pay the miscellaneous fee
of P10,000.00 and the yearly registration of the
unit; that petitioner also stopped remitting the
"boundary hulog," prompting him (private
respondent) to issue a "Paalala," which petitioner
however ignored; that petitioner even brought the
unit to his (petitioner’s) province without informing
him (private respondent) about it; and that
petitioner eventually abandoned the vehicle at a
gasoline station after figuring in an accident. But
private respondent failed to substantiate these
allegations with solid, sufficient proof. Notably,
private respondent’s allegation viz, that he
retrieved the vehicle from the gas station, where
petitioner abandoned it, contradicted his statement
Contributors
36
in the Paalala that he would enforce the provision
(in the Kasunduan) to the effect that default in the
remittance of the boundary hulog for one week
would result in the forfeiture of the unit.
The Paalala reads as follows:
"Sa lahat ng mga kumukuha ng sasakyan
"Sa pamamagitan ng ‘BOUNDARY HULOG’
"Nais ko pong ipaalala sa inyo ang
Kasunduan na inyong pinirmahan particular
na ang paragrapo 13 na nagsasaad na kung
hindi kayo makapagbigay ng Boundary
Hulog sa loob ng isang linggo ay kusa
ninyong ibabalik and nasabing sasakyan na
inyong hinuhulugan ng wala ng paghahabol
pa.
"Mula po sa araw ng inyong pagkatanggap
ng Paalala na ito ay akin na pong ipatutupad
ang nasabing Kasunduan kaya’t aking
pinaaalala sa inyong lahat na tuparin natin
ang nakalagay sa kasunduan upang
maiwasan natin ito.
"Hinihiling ko na sumunod kayo sa hinihingi
ng paalalang ito upang hindi na tayo
makaabot pa sa korte kung sakaling hindi
ninyo isasauli ang inyong sasakyan na
hinuhulugan na ang mga magagastos ay
kayo pa ang magbabayad sapagkat ang hindi
ninyo pagtupad sa kasunduan ang naging
dahilan ng pagsampa ng kaso.
"Sumasainyo
"Attendance: 8/27/99
"(The Signatures appearing herein
include (sic) that of petitioner’s) (Sgd.)
OSCAR VILLAMARIA, JR."
On another point, private respondent did not
submit any police report to support his claim that
petitioner really figured in a vehicular mishap.
Neither did he present the affidavit of the guard
from the gas station to substantiate his claim that
petitioner abandoned the unit there.
Petitioner’s claim that he opted not to terminate
the employment of respondent because of
magnanimity is negated by his (petitioner’s) own
 37

evidence that he took the jeepney from the

respondent only on July 24, 2000.
2. The Labor Arbiter and the NLRC has jurisdiction
under Article 217 of the Labor Code is limited to
disputes arising from an employer-employee
relationship which can only be resolved by
reference to the Labor Code, other labor
statues of their collective bargaining
agreement.
In the foregoing cases, an employer-employee
relationship is an indispensable jurisdictional
requisite. The jurisdiction of Labor Arbiters and
the NLRC under Article 217 of the Labor Code is
limited to disputes arising from an employer-
employee relationship which can only be resolved
by reference to the Labor Code, other labor
statutes or their collective bargaining agreement.
Not every dispute between an employer and
employee involves matters that only the Labor
Arbiter and the NLRC can resolve in the exercise of
their adjudicatory or quasi-judicial powers. Actions
between employers and employees where the
employer-employee relationship is merely
incidental is within the exclusive original
jurisdiction of the regular courts.

Contributors